XCHRX CHEONG CHI KIN AND ANOTHER v. HON SENG ENGINEERING LTD.

HCCT100/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO.100 OF 1998

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REASONS FOR DECISION

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1. This is an application by the defendant, Hon Seng Engineering Limited, for a stay of execution under Order 45, rule 11 of the Rules of the High Court in relation to an order for interim payment made by Findlay J on 12 February 1999. After hearing the parties, I dismissed the defendant's application with costs and said that I would give my reasons in writing later. These are my reasons.

2. The plaintiffs are sub-sub-contractors in respect of certain construction works. The defendant is the sub-contractor to the main contractor. The employer is the Government through the Architectural Services Department ("ASD").

3. The hearing before Findlay J on 12 February 1999 arose from an application by the plaintiffs for interim payment on the basis that the contract between the parties provided for payment of works to be on a back-to-back basis after 21 days upon advice from ASD through a computer printout and within seven days upon money received by the defendant. It also provided for any overpayments to be recovered by the defendant from monies payable to the plaintiffs, together with interest at prime rate plus 5.5% during the period of overpayment. Before Findlay J, the defendant did not dispute that it has received $1,606,189.80 from the ASD through the contractor for works done by the plaintiffs, other than in respect of work valued by the defendant at $132,020. Moreover, there was no dispute that ASD had estimated the work done by the plaintiffs and then paid the sum it estimated to be due, less 15% retention, to the contractor. The contractor then passed payment onto the defendant, but there it stopped. The defendant has decided to hold on to this amount of $1.6 million odd in the belief that the plaintiff has already been overpaid from earlier interim payments.

4. In resisting the plaintiffs' application for interim payment, the defendant relied on its defence in the case in which it sought to set off, or by way of counterclaim against the plaintiffs, so much of the overpayments yet to be verified by ASD arising from payments which had been overclaimed by the plaintiffs. However, it was conceded by the defendant before Findlay J that ASD has neither made any claim as yet or even intimated that they intended to claim for any such overpayments. Findlay J rejected that submission of the defendant holding that there can be 'overpayment' only when ASD says there was one. On that basis, Findlay J ordered the defendant to make an interim payment of the sum of $1,474,169.80 within seven days with interest and costs.

5. Despite that order of Findlay J, not one cent of the amount of the interim payment ordered by Findlay J had been paid by the defendant to the plaintiffs. The plaintiffs had attempted to enforce the order for interim payment against the defendant by various methods, including the issuing of a petition for winding-up. The present summons by the defendant for a stay of execution of the interim payment order was issued on 18 April 2000, after the winding-up petition had been issued. I am told that the winding-up proceedings had been stayed pending the outcome of this present application for stay of execution.

The application for stay of execution

6. This application is brought under Order 45, rule 11 which provides as follows :

"Without prejudice to Order 47 rule 1, a party against whom a judgment has been given or an order made may apply to the court for a stay of execution of the judgment or order other relief on the ground of matters which have occurred since the date of the judgment or order, and the court may by order grant such relief, and on such terms, as it thinks just."

7. The matters which have occurred since the interim payment order of Findlay J on 12 February 1999 which the defendant now seeks to rely upon as its basis for the present application for stay of execution is that some time in October or November 1999, the ASD has, in their assessment for the payment of works done by the plaintiffs, made downward adjustments to the plaintiffs' claim. As a result of this downward adjustment, the value of the plaintiffs' work has been assessed at just over $9.3 million. The defendant has already paid $14 million to the plaintiffs by way of interim payments for the works, therefore, the defendant says that this assessment shows that the plaintiffs had been overpaid by approximately $4.7 million. However, the defendant, at the same time, concedes that this assessment by the ASD is not a final assessment. That final assessment would only come about after ASD has received and considered the objections or representation by all the contractors or sub-contractors down the line, including the plaintiffs. The time for these objections has been extended by ASD to 5 October 2000 and the defendant expects that there will be a final assessment by ASD in a short time although it is unable to give any specific date.

8. The defendant further accepts that the plaintiffs strongly dispute the rate of payment used by ASD in the present assessment of the value of the works and which is the reason for the downward adjustment.

9. On the basis of this assessment, though not final, the defendant submits that it is likely that the final assessment by ASD would more likely show an overpayment to the plaintiffs and, therefore, there should be a stay of execution in relation to the interim payment order of Findlay J.

Decision

10. I cannot accept this submission of the defendant. Whilst it may be true that what has occurred since the interim payment ordered by Findlay J indicates a higher possibility that the final assessment by ASD would show an overpayment, the fact remains that there has not as yet been a final assessment by ASD and therefore, there has, at this point in time, been no overpayment claimed by ASD. In this context, I agree with the submission of Mr Chan for the plaintiffs that even as matters stand today, the threshold of showing that there was an overpayment has not been crossed by the defendant.

11. The words "matters which have occurred since the date of the judgment or order" as contained in Order 45, rule 11 have been held by Plowman J in London Permanent Benefit Building Society v. de Baer [1969] 1 Ch 321 at 334 to be matters which would or might have prevented the order being made, or would or might have led to a stay of execution if they had already occurred at the date of the order.

12. Hunter J (as he then was), in Tam Ho Man v. Wong Kwok Tai, HCA No.A4736 of 1985 [unreported], held that these same words mean matters which go to question the validity of a judgment as opposed to matters which go to the enforcement of that judgment. Hunter J may well be right when his decision is read in the light of the facts of the case that he was deciding, but as a general proposition, I prefer the interpretation put on these words by Plowman J.

13. Applying the interpretation given to these words by Plowman J, I am of the view that had this assessment, not being a final assessment, by ASD been put before Findlay J when he heard and decided the application for interim payment, it would not have made the least difference to the order given by Findlay J. In his written judgment, Findlay J stated :

"... Miss Cheng accepts that, in the context of this contract, there can be an 'overpayment', at the earliest, only when the employer says there was one. This must be right ...."

Even as matters stand today, the employer, i.e. ASD, has not said that there was an overpayment. All it has said is that there may be one.

14. I have also been told by counsel for the defendant that the reason why the defendant did not comply with the order of Findlay J for interim payment for the eight month or so following that order and before the downward adjustment by ASD made in October or November 1999 was because the defendant was not financially able to do so. It was for this same reason that the defendant refused to accede to the suggestion by the plaintiffs that the amount of interim payment ordered by Findlay J be paid into court pending the outcome of the litigation itself. This suggestion was made by the plaintiffs at the start of the hearing before me on the basis that the moneys now held by the defendant were moneys to which either the plaintiffs were entitled to if the plaintiffs were successful in their claim, or such moneys should be returned to ASD if at the end of the day "overpayment" was proved. In any event, the moneys now held by the defendant cannot belong to the defendant no matter how one looks at the case.

15. From what I have been told by counsel for the defendant, it seems clear that the real reason behind this application for stay is the defendant's financial difficulty in coughing up the amount ordered by Findlay J as interim payment.

16. I have also taken into account the fact that there has not been the slightest suggestion that once the amount of the interim payment is made over to the plaintiffs, there would be little or no chance of recovering it from the plaintiffs at the end of the day should it transpire that there was in fact an overpayment to the plaintiffs.

17. For the above reasons, therefore, I have dismissed the defendant's application with costs.