INTERFORM (INTERIOR & MARBLE) CO., LTD. v. FAR EAST WAGNER CONSTRUCTION LTD.

CACV 59/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 59 OF 1999

(ON APPEAL FROM HCA 6365 OF 1998)

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D E C I S I O N

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Mayo J.A.:

1. This is an application for leave to appeal to the Court of Final Appeal pursuant to s.24 of Hong Kong Court of Final Appeal Ordinance, Cap. 484.

2. The appeal which was before us related to an Order 14 application. We dismissed the appeal. I am satisfied that the application cannot be made as of right as it has to be treated as an interlocutory application. The authority for this is Wai Hung Stationery Co. v. HKSAR [1998] 2 HKC 229. Even if there was any doubt in the matter the existence of the outstanding counterclaim would definitely support the contention that the application was an interlocutory application.

3. The matter accordingly has to proceed under s.22(1)(b). That is the Applicant has to demonstrate that a question of great general or public importance arises.

4. The question which has been formulated by Mr. Nasir is:

"Whether a defendant in an Order 14 application is fatally bound to an imperfect affidavit or whether that affidavit should be viewed together with other documents i.e. pleadings and exhibits thereto."

5. In my view this is not a question of great general or public importance. In my view this application for leave to appeal to CFA should be refused.

Leong, J.A.:

6. I agree. I have nothing to add.

Keith, J.A.:

7. I agree. Whatever the rights or wrongs of the "applications" test may be, the plain fact is that that is the test which the Court of Final Appeal in the Wai Hung Stationery Co. case has said should be applied. As for whether the appeal raises a question of great general or public importance, the question formulated by Mr. Nasir does not arise for consideration. It assumes that there was an imperfect affidavit, when the reason for the absence of an assertion that the loss was attributable to the Plaintiff's delay may well have been because there was no causal connection between the two. Moreover, the answer to the question posed in my view is obvious. On an Ord. 14 summons it is necessary for a defendant to verify the facts on which it relies. In the absence of an adjournment for the purpose of filing further evidence to plug the gap in its evidence, therefore, a defendant is fatally bound by any omissions in its evidence.

Mayo, J.A.:

8. The application is accordingly dismissed. Costs to the Plaintiff to be paid forthwith.

Representation:

Mr. Walter Lau instructed by M/S Chan & Cheng for Plaintiff

Mr. Firoz Nasir instructed by M/S Fung Wong Ng & Lam for Defendant

CACV No. 59 of 1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

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J U D G M E N T

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Keith J.A. (giving the first judgment at the invitation of Chan C.J.H.C.):

1. On 27th May, the Court of Appeal upheld the decision of Yuen J. to grant the Plaintiff summary judgment under Ord. 14 against the Defendant in the sum of $2,634,246.85 plus interest. The Defendant now seeks a stay of execution on that judgment pending its application to the Court of Appeal for leave to appeal to the Court of Final Appeal. That application is due to be heard on 5th October.

2. For my part, I am uncertain as to the route by which the Court of Appeal has jurisdiction at present to determine the application for a stay. Reliance is placed by the Defendant in its Notice of Motion on Ord. 45 r. 11 and Ord. 59 r. 13 of the Rules of the High Court, and on section 26 of the Court of Final Appeal Ordinance (Cap. 484):

(i) Ord. 45 r. 11 does not help. That rule allows a party to apply for a stay of execution on the ground of matters which have arisen since the date of the judgment. It is, I think, likely that Ord. 45 r. 11 applies only to applications for a stay of execution made to the Court of First Instance and not to the Court of Appeal. Moreover, it has consistently been held that the phrase "matters which have occurred since the date of the judgment" refers to matters which relate to the validity of the judgment and which, if established, might justify the court concluding that this was not a judgment which, on the material placed before it, the court would allow to be executed. The ground on which the Defendant in this case asks for a stay of execution, namely its inability to pay the judgment debt, does not relate to the validity of the judgment at all.

(ii) Ord. 59 r. 13 does not help either. That relates to applications for a stay of execution pending an appeal to the Court of Appeal rather than to applications for a stay of execution pending an appeal to the Court of Final Appeal from the Court of Appeal.

(iii) Section 26(1) of the Court of Final Appeal Ordinance expressly provides for a stay of execution pending an appeal from the Court of Appeal to the Court of Final Appeal, but the power of the Court of Appeal or the Court of Final Appeal to grant such a stay can only be exercised "when granting leave to appeal or subsequently." As I have said, the application for leave to appeal is not due to be heard until 5th October.

However, for present purposes, for my part, I am prepared to assume, but without deciding, that by some route, perhaps the inherent jurisdiction of the Court, the Court of Appeal has the jurisdiction to determine this application for a stay, even though leave to appeal to the Court of Final Appeal has not yet been considered, let alone granted, and that the Court should apply to the application the principles which govern applications for a stay of execution under Ord. 59 r. 13. In World Trade Centre Group Ltd. v Resourceful River Ltd. (CA 70/93), Litton J.A. (as he then was) described the jurisdiction to grant a stay of execution under Ord. 59 r. 13 as "flexible". In that case, a stay of execution was sought on the ground that if a stay was not granted, the company would face financial ruin. Litton J.A. said:

"Plainly the intention is that a party should not be deprived of the fruits of a judgment in his favour except on good grounds being shown. Obviously if an applicant were able to demonstrate that he has very strong grounds of appeal, that something has grievously gone wrong with the process of law in the court below, then this court would be inclined to make such order as to ensure that the appeal would not be rendered nugatory in the meanwhile. In those circumstances perhaps the court may not examine very closely the financial situation of the appellant. On the other hand if the grounds of appeal appear weak then the court would look more closely into the alleged impecuniosity and prospective financial ruin."

3. In these circumstances, I turn to whether the Defendant has any real prospect of obtaining leave to appeal to the Court of Final Appeal. The generally accepted view is that an order will be regarded as final if it would have determined finally the proceedings whichever way the application which resulted in the order would have been decided. So an order for summary judgment under Ord. 14 is not a final order because, had the Defendant been granted leave to defend the action, the action would have continued. On that approach, the Defendant's appeal does not lie to the Court of Final Appeal as of right under section 22(1) of the Court of Final Appeal Ordinance: leave to appeal can only be granted to the Defendant if the circumstances set out in section 22(1)(b) are satisfied. That was accepted by the Defendant's solicitors because in the Notice of Motion for leave to appeal to the Court of Final Appeal it is stated that the Court of Appeal will be invited to give leave on the ground that the question involved in the appeal is one of great general or public importance, though Mr. Firoz Nasir for the Defendant today told us that that concession was to be withdrawn.

4. For my part, I do not believe that the issues which the appeal raises have any real prospect of being categorised as issues raising points of great general or public importance. On the Defendant's contention relating to the Plaintiff's delay in completing the work, the only issue on the application for summary judgment was whether the expenditure allegedly incurred by the Defendant was, as a matter of fact, attributable to the Plaintiff's delay. On the Defendant's contention relating to the colour of the tiles, the only issue on the application for summary judgment was whether the Defendant had, as a matter of evidence, showed a sufficient intention to have the remedial work done if it was paid the $925,300.00 counterclaimed. Neither of those issues have, in my opinion, any real prospect of being categorised as questions of great general or public importance.

5. In any event, there is virtually no evidence explaining why the Defendant is unable to pay the judgment debt. No audited accounts have been produced, not even a draft balance sheet giving a snapshot of the Defendant's current assets and liabilities. All that the Defendant has done has been to state that it is owed about $9m. which it expects to receive within a year or so, but that it has at present only about $20,000.00 cash in hand. If it has receivables of $9m. or thereabouts, why is it not able to borrow the amount of the judgment debt on the strength of those receivables? Even if, therefore, a point of great general or public importance was involved in this appeal, so that leave to appeal was likely to be granted, the evidence, in my opinion, falls far short of sustaining an argument for depriving the Plaintiff of the fruits of its judgment.

6. For these reasons, I for my part would dismiss this application.

Chan C.J.H.C.:

7. I agree, for the reasons given by Keith J.A., that this application must be refused. I would only add that I too entertain some doubts as to whether this court has the jurisdiction to grant a stay of execution prior to the granting of leave to appeal to the Court of Final Appeal. It may be that this question has to be addressed and considered in an appropriate case in future.

Wong J.A.:

8. I agree and would also dismiss the application. In my view, there is no real prospect of success in the Defendant's pending application for leave to appeal to the Court of Final Appeal.

Chan C.J.H.C.:

9. The application is refused with costs.

Representation:

Mr. Josiah H.K. Lee, instructed by Messrs. Chan & Cheng, for the Plaintiff.

Mr. Firoz Nasir, instructed by Messrs. Fung Wong Ng & Lam, for the Defendant.

CACV 59/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 59 OF 1999

(ON APPEAL FROM HCA 6365 OF 1998)

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J U D G M E N T

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Mayo J.A.:

1. This is an appeal from a judgment of Madam Justice Yuen who in turn allowed an appeal from a decision of Master Kwan who had dismissed the plaintiff's Order 14 application for summary judgment in respect of part of its claim against the defendant.

2. The defendant was the main contractor for the construction of a building known as University Heights in Pokfulam. The plaintiff was a sub-contractor. It contracted to supply and install granite and marble cladding for part of the building. The claim it is making is for the supply and installation of some of the cladding.

3. The total amount claimed by the plaintiff in the statement of claim is $4,415,040.63. The defendant asserted a right to set off this amount against its counterclaim for loss and damages for defective granite cladding as a result of colour variations and delay.

4. It is however of significance that the defendant has in its own final payment recommendation acknowledged that but for the alleged breaches of contract on the part of the plaintiff it would owe it $3,335,352.81. The plaintiff has however of its volition deducted a further $10,533.70 from the amount so as to leave a balance of $3,324,819.11.

5. In the defence and counterclaim five heads of damage are particularized.

Item	Description	Amount (HK$)
1.	Defective granite cladding	925,300.00
2.	Claim for sealant application	185,000.00
3.	Damaged to red oak flooring	11,979.86
4.	Damaged to red oak flooring	824.40
5.	Claim for loss and expense due to delay	2,323,875.00
		3,446,979.26 ==========

6. For the purposes of the Order 14 application the plaintiff accepted that three of the items referred to were arguable and could not therefore properly be included in the application. The total of these items was $197,804.26 and this amount was also deducted from the application. In addition to this a further deduction was made to take into account the defendant's claim that there had been delay. It was the plaintiff's contention that only part of the loss claimed by the defendant was arguable. A deduction of $492,750 was made to reflect this.

7. After taking all of the deductions into account the amount claimed in the application was $2,634,264.85.

8. Mr. Nasir for the defendant submitted that the threshold which had to be surmounted by a defendant for leave to be given to defend proceedings was low. It was even lower in Hong Kong than it is in England. He placed particular reliance upon the judgment of Godfrey, J.A. in Man Earn Ltd. v. Wing Ting Fong [1996] 1 HKC 225. Godfrey, J.A. had this to say at 228D:

"Unless it is obvious that the defence put forward by the defendant is 'frivolous and practically moonshine, O 14 ought not to be applied': see Codd v. Delap (1905) 92 LT 510, per Lord Lindley at 511.

For those who may believe that these sentiments are outdated, a salutary reminder is provided in Crown House Engineering v. Amec Projects Ltd (1990) 6 Const LJ 141, where at 154, Bingham LJ says this:

'... Order 14 is for clear cases; that is, cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise. ... The procedure is entirely inappropriate where the plaintiff's entitlement to recover any sum is the subject of any serious dispute, whether of law or fact. This is not to say ... that a defendant with no or no more than a partial defence can cheat a plaintiff of his just deserts by producing hefty affidavits and voluminous exhibits to create an illusion of complexity where none exists. Where the point at issue is at heart a short one the court will recognize the fact and act accordingly no matter how bulky its outer garments. But it does mean that where there are substantial issues of genuine complexity the parties should prepare for trial ... rather than dissipate their energy and resources on deceptively attractive short-cuts.'

I would express the hope that those practitioners, of whom there are too many, who appear to be prepared to advise every client with what seems to be a good case to invoke this extraordinary procedure, without reflecting on the fact that, if the attempt fails, the result will be to keep the plaintiff out of the judgment to which he may well be entitled for far longer than would have been the case if they had concentrated, instead, on bringing the matter to trial, will in future think twice before giving such advice."

9. Mr. Nasir argued that it was not incumbent upon his client to particularize his claim at this stage in the litigation. All that was necessary was to establish that the defence and counterclaim was credible or not a sham.

10. So far as the issue of delay was concerned Mr. Nasir referred us to paragraph 13 of Mr. Wong Kwok-fung's affirmation dated 25th September 1998 as evidence in support of the claim being made for delay.

11. Para. 13 reads:

"13. In respect of the pro-rate loss and extra expense of preliminaries claimed in paragraph 6 of the Plaintiff's Affirmation, I wish to point out that it is not right to say 'levelling and setting out of works' had completed and 'scaffolding, plants etc.' were ceased since about December 1995. First, it is the common practice that the main contractor prices levellers in the item of 'levelling and setting out works' and generators and labour in 'scaffolding, plants etc.'. Secondly, the Defendant still kept levellers, generators and labour during the period delayed by the Plaintiff. Further, there are a number of ways in calculating the loss and expense, and the calculation method in the exhibit marked 'NMH-5' of the Plaintiff's Affirmation is the simple way in calculating the Defendant's loss and expense which is commonly used and accepted in quantity surveying practice."

12. What is clear from this paragraph is that while reference is being made in general terms to the subject of delay and damages arising out of the delay there is nothing in the paragraph to suggest that the damages which have arisen are attributable to the default of the plaintiff. In other words the defendant has not even asserted that the losses are attributable to the delay occasioned by the plaintiff.

13. When Mr. Nasir was pressed by us to formulate the heads of the claim which were being made by the defendant he was only able to refer to the costs of levelling and of maintaining generators on the site.

14. I accept that the test laid down by Lord Blackburn at p.704 of John Wallingford v. Mutual Society [1880] AC 685 is useful in a situation such as presently arises:

"Now I think what we have to see here is, what is it that the Judge is to be satisfied of, in order to induce him to refuse to make the order for the Plaintiff to sign judgment. If he is satisfied upon the affidavits before him that there really is a defence upon the merits, it is a matter of right, unless there be something very extraordinary (which I can hardly conceive), that the Defendant should be able to raise that defence upon the merits, either to the whole or to a part. He may fall far short of satisfying a Judge that there is a defence upon the merits; still he may do so if he discloses such facts as may be deemed sufficient to entitle him to defend.

And that, my Lords, raises another question altogether. There may very well be facts brought before the Judge which satisfy him that it is reasonable, sometimes without any terms and some-times with terms, that the Defendant should be able to raise this question, and fight it if he pleases, although the Judge is by no means satisfied that it does amount to a defence upon the merits. I think that when the affidavits are brought forward to raise that defence they must, if I may use the expression, condescend upon particulars. It is not enough to swear, 'I say I owe the man nothing.' Doubtless, if it was true, that you owed the man nothing, as you swear, that would be a good defence. But that is not enough. You must satisfy the Judge that there is reasonable ground for saying so. So again, if you swear that there was fraud, that will not do. It is difficult to define it, but you must give such an extent of definite facts pointing to the fraud as to satisfy the Judge that those are facts which make it reasonable that you should be allowed to raise that defence. And in like manner as to illegality, and every other defence that might be mentioned."

15. It is clearly necessary for a defendant to state how the claim it is making is formulated. Adapting this to the present facts it was necessary for Mr. Wong to assert that the damages he was referring to were attributable to the plaintiff's acts and that there was causation for the claim.

16. Man Earn does not avail the defendant. In that case the issue was the credibility of the contentions which were being advanced. Here on the face of the papers before us there is no problem concerning the bona fides of the defendant. It is simply a case that it has not made out its counterclaim to the plaintiff's claim for delay and in these circumstances the Judge was fully entitled to accept the basis for the deductions proposed by the plaintiff.

17. Likewise the defendant's claim in respect of the deficient quality of colouring of the marble cannot be sustained on the basis of the evidence which was before the Judge. There was no evidence whatever before the Judge that the defendant had suffered any loss or damage as a consequence of the discolouration of the marble. It is exceedingly improbable in the circumstances that any claim will be made against the defendant by anyone in respect of this and in the event that it is it would always be open to the defendant to join the plaintiff as third parties to the litigation.

18. For these reasons I am satisfied that the Judge was right to allow this appeal. In my view this appeal must be dismissed. We will hear the parties on costs.

Leong, J.A.:

19. I agree that the appeal should be dismissed. I have nothing to add.

Keith, J.:

20. I also agree that this appeal should be dismissed, and I only add a few words of my own out of deference to the valiant attempts of Mr. Nasir for the main contractor to have the decision of the master restored.

21. The only defect complained of relating to the tiles which were laid on the walls of the carpark is that some of them were a slightly different colour from the rest. I am very far from saying that that amounted to a breach of contract on the part of the sub-contractors, but on the assumption that there is a triable issue that it amounted to a breach of contract, the judge's conclusion that there is not a triable issue as to whether the main contractor has suffered any loss cannot in my opinion be faulted.

22. The law on the topic is succinctly stated in Chitty on Contracts, 27th. ed., vol. 1, para. 26-010:

"The plaintiff is entitled to the reasonable cost of having the remedial work done if, in all the circumstances, it is (or was) reasonable for him to insist on having the work done and

(i) he has actually had the work done; or

(ii) he undertakes to have it done; or

(iii) he shows a 'sufficient intention' to have the work done if he receives damages on this basis."

23. The remedial work has not been done, and it has not been suggested that the main contractor has undertaken to have the work done. In my opinion, the judge was right to conclude on the evidence that there was not a triable issue as to whether the main contractor had shown a sufficient intention to have the work done if he was paid the $925,300.00 counterclaimed. In those circumstances, the measure of the main contractor's loss is the diminution in value of the carpark, even if that measure leads only to nominal damages because there is no diminution in value: see Ruxley Electronics and Construction Ltd. v. Forsyth [1995] 3 WLR 118. Again, the judge's conclusion that there was not a triable issue as to whether there had been a diminution in value of the carpark cannot in my opinion be faulted.

24. On the main contractor's other contention relating to the sub-contractor's delay in completing the work, I agree entirely with the judgment of Mayo J.A., and there is nothing that I can usefully add.

Mayo, J.A.:

25. We therefore order that the appeal is dismissed, we also order that the plaintiff will have the costs of the appeal.

Representation:

Mr. Walter Lau instructed by M/S Chan & Cheng for Plaintiff (Respondent)

Mr. Firoz Nasir instructed by M/S Fung Wong Ng & Lam for Defendant (Appellant)