HING WAI MACHINERY ENGINEER CO v. 中國冶金科工集團公司

HCA 2784/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2784 OF 2006

______________________

BETWEEN

	HING WAI MACHINERY ENGINEERING COMPANY	Plaintiff
	and
	中國冶金科工集團公司 also known as CHINA METALLURGICAL GROUP CORPORATION	Defendant

______________________

Before : Deputy High Court Judge L. Chan in Chambers

Dates of Hearing : 21 September 2007 and 16 November 2007

Date of Decision : 16 November 2007

______________________

D E C I S I O N

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1.  This is an appeal from a decision of Master Yu.  The defendant had failed to file a Notice of Intention to Defend.  A regular default judgment was thus entered against it on 6 January 2007 for a sum of $4,629,558.47.  It then applied to set aside the default judgment.  On 26 June 2007 Master Yu amended the judgment to $3,787,839.89.  He further ordered that on condition of the defendant paying this sum into court within 28 days, the amended judgment be set aside.

2.  The defendant launched an appeal against this order.  It also applied to the Registrar for a stay of the order.  The Registrar granted the application on 24 July 2007.  I set aside the Registrar’s order on 9 August 2007.  However, the time for payment under Master Yu’s order had already expired and the judgment could not be set aside by payment in.  I also regarded the amount required by Master Yu to be paid into court as too high.  I therefore made a further order that if the defendant should pay into court $2.1 million within 21 days from 9 August, the execution of the amended judgment be stayed.  That sum was duly paid in and the execution of the amended judgment stayed. 

3.  I now deal with the defendant’s appeal against Master Yu’s order by way of rehearing.  The defendant seeks to set aside the default judgment unconditionally. 

4.  The plaintiff’s claim is for balance of payment for work done under a subcontract with the defendant.  The subcontract was an actual measurement contract.  The amount to be paid to the plaintiff depended on the quantity of work done.  The works were executed for the government as represented by the Architectural Services Department. 

5.  The appeal was first heard on 21 September 2007.  The defendant produced an expert report shortly before that hearing.  The report confirmed the defendant’s case in toto.  The plaintiff was not informed about this report until it was produced.  The hearing was then adjourned for the plaintiff to procure its own expert report.  In due course the plaintiff produced its expert report and the defendant’s expert also made a supplemental report making some brief replies to the plaintiff’s report.

6.  The original contract price was $5,334,324.67.  The parties agree that the defendant had already paid the plaintiff $4,779,266.11.  The plaintiff claims that it is entitled to a further sum of $3,787,839.89 as per the judgment as amended by Master Yu.  If the plaintiff is right, the original contract sum would have been increased by about 60 per cent to $8,567,106.

7.  The defendant’s expert, in compiling his report, had selected some major items of work and measured them on the latest combined services drawing for external works and the latest construction drawings.  These drawings were issued by the Architectural Services Department to the defendant.  The defendant’s expert also referred to the defendant’s final account summary.  He valued the variation orders, contra charges and daily labour wages as charged by the plaintiff.  He valued the variation works on the basis of the summary of variation orders prepared by the defendant together with some supporting documents, drawings and sketches.  He found that the plaintiff had over-claimed on the measurements of work done, the amount for the variation orders and the daily labour charges.  He also found that the defendant’s claim of contra charges, at $988,013.05, reasonable.  In fact, out of this sum, $941,800 was for reimbursement of materials purchased by the defendant for the plaintiff’s use in the project.  He, on the whole, agreed with the defendant’s assessment of the plaintiff’s entitlement.  The defendant assessed that the plaintiff was only entitled to a further payment of $162,334.13, but there was a counterclaim of over $200,000 for defective works.

8.  The plaintiff’s expert, however, relied on other plans and drawings which appeared to be more up to date.  He said the up to date plans contained changes to the works which were not present in the plans used by the defendant’s expert.  His measurements on these plans showed more work done by the defendant.  He also referred to abortive work which would not appear in the plans. 

9.  There may indeed be some changes and hence additional work that can be shown in the plaintiff’s plans.  However, they cannot explain the substantial increase in the plaintiff’s contractual entitlement.  The changes might have increased or decreased the plaintiff’s entitlement depending on their nature.  There is also very sparse evidence on whether there was indeed abortive work.  The method of valuation of the plaintiff’s expert for the variation orders was different from that of the defendant’s expert and he relied on different documents.  He also adopted a different scale of rates for paying the daily labour.  There is no evidence of whether his scale had been agreed to by the defendant.  He, however, did not comment on the plaintiff’s liability to the contra charges.  He accepted the plaintiff’s instructions on a number of items of claim.  He also applied his expertise to revise his estimates upwards to make them in line with those claimed by the plaintiff.  He concluded that the plaintiff was entitled to its claim as contained in the amended judgment.

10.  The defendant’s expert replied by disputing the claim of the plaintiff’s expert on what are the more accurate or reliable plans to use.  He maintained that he had used the most reliable documents for his assessment as they were issued by the Architectural Services Department.  He therefore did not accept that there were additional works in the later plans produced by the plaintiff.  He also stated the defendant’s case that there was no abortive work. 

11.  Having reviewed the expert reports from both sides, it is difficult to say which expert would have his opinion accepted by the trial judge.  It may well be that each expert is correct on some of the points but not on some other points.  My provisional view is that the defendant can well establish its case at the trial.  I refer to paragraphs 13/9/13 to 13/9/15 of the Hong Kong Civil Procedure 2008.  In the premises I would allow the appeal, set aside the order of Master Yu as well as the default judgment.  I also order payment out of the sum of $2.1 million with interest accrued to the defendant’s solicitors.  I will now hear parties on costs.

(Discussion on costs)

12.  The defendant will have 14 days to file and serve its defence and counterclaim and the plaintiff will have 14 days to file and serve its reply and defence to counterclaim.  The action is transferred to the Construction and Arbitration list. 

13.  On the question of costs, Master Yu’s order of costs will remain.  The defendant also has to pay the plaintiff the costs for the application for stay before the Registrar and the appeal against the Registrar’s order.  The defendant also has to pay the plaintiff the costs of the appeal up to 10 September 2007.  The plaintiff has to pay the defendant the costs of the appeal from 11 September 2007 onwards and also the costs for engaging the defendant’s expert, which were incurred before 11 September 2007. 

14.  In coming to this decision on costs I have taken into account of the fact that the judgment is a regular one.  There was little evidence before Master Yu that could advance the defendant’s case and there were two offers from the plaintiff for setting aside the judgment prior to the hearing before Master Yu.

15.  I also certificate it fit for counsel to attend the hearings before Master Yu and the Registrar.

 

 

(L. Chan) Deputy High Court Judge

 

Mr Jason Wong, instructed by Messrs Chan, Wong & Lam, for the Plaintiff

Mr Victor Dawes, instructed by Messrs Arculli Fong & Ng, for the Defendant

HCA 2784/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2784 OF 2006

______________________

BETWEEN

	HING WAI MACHINERY ENGINEER COMPANY	Plaintiff
	and
	中國冶金科工集團公司	Defendant
	(also known as China MetallurgicalGroup Corporation)

______________________

 

Before : Deputy High Court Judge L. Chan in Chambers

Date of Hearing : 9 August 2007

Date of Decision : 9 August 2007

 

______________________

D E C I S I O N

______________________

 

1.  This is an appeal against an order of Registrar C Chan made on 24 July 2007 which in effect stayed the execution of an order of Master Roy Yu made on 22 June 2007. 

2.  The plaintiff obtained a regular default judgment on 6 January 2007 for $4,629,558.47 which was later amended to $3,787,839.89.  Master Yu on 26 June 2007 ordered that on condition that the defendant paying into court the said sum of $3,787,839.89 within 28 days (which expired on 24 July 2007), the amended judgment be set aside.  The defendant has filed a notice of appeal against Master Yu’s decision and the appeal will be heard on 21 September 2007. 

3.  The defendant has also obtained an order from Registrar Chan on 24 July staying the execution of the order of Master Yu as well as the amended judgment.  Hence, the plaintiff cannot enjoy the fruit of the regular default judgment as amended and the defendant does not have to make any payment into court pending the appeal to be heard on 21 September 2007.  The plaintiff now appeals against the Registrar’s order and seeks to remove the stay on the execution of both Master Yu’s order and the amended judgment. 

4.  The plaintiff was the defendant’s subcontractor in some construction works which were governed by a contract dated 25 May 2004.  It was a pay-as-built or an actual measurement contract.  Payment should be made on the basis of actual work done (see para. 37-010, Chitty on Contracts, Vol. II, 29th edn. andpara. 4-017, Keating on Construction Contracts, 8th edn.).  The plaintiff started working in the second half of 2004.  It submitted interim payment applications to the defendant from time to time.  The defendant paid the plaintiff certain sums in response to these applications but never paid the applications in full.  There were always deductions in addition to the 5 per cent contractual retention money.  The plaintiff would, however, include the unpaid sums in the next interim payment application.

5.  On 1 July 2006, the plaintiff submitted the 23rd and final payment application.  It was for a total sum of $4,829,558.47.  That included all sums not paid in the previous 22 payment applications.  There is no evidence that the defendant has responded to this application except by a payment of $200,000 on 5 October 2006, leaving a balance of $4,629,558.47. 

6.  The plaintiff’s solicitors served a demand letter dated 22 November 2006 on the defendant, referring to the 23rd application but demanded payment of $5,202,617.74 instead of $4,629,558.47 and without explaining the discrepancy.  The defendant’s then solicitors only replied on 15 December 2006 seeking an indulgence of 10 days to take instructions on the matter as the responsible officer was said to be on holiday. 

7.  The solicitors for the plaintiff did not wait.  They issued the writ on the next day and served it on the defendant direct.  The writ claimed $4,629,558.47 and not $5,202,617.74 as in the demand letter.  The defendant took no action and a regular default judgment was entered on 6 January 2007 for $4,629,558.47. 

8.  The defendant applied to set aside the judgment on 26 January 2007.  The application was supported by an affirmation of one Han Xudong, the defendant’s assistant general manager.  Mr Han said that the payment to the plaintiff depended on actual work done.  The defendant disputed the sum stated in the 23rd application and said that the plaintiff had overclaimed $3.9 million.  In addition, there were counterclaims of $209,000 for rectification of defective works as identified by the Architectural Services Department, which represented the government, the employer of the project, and contra charges of $922,000.

9.  Mr Han also produced a summary prepared by the defendant’s quality surveyor showing the work done by the defendant less the contra charges and contractual retention money.  The balance payable to the defendant as shown in the summary is $164,382.10.  Mr Han also produced a schedule of the alleged contra charges.  There is, however, nothing to show any contemporaneous complaint by the defendant to the plaintiff for any overclaim, defective works or contra charges.

10.  The plaintiff filed an affirmation by its proprietor, Mr Yung Wai Ching, to oppose the application to set aside.  He said all measurements of work done were accurate as they were made in the presence of the defendant’s foreman who witnessed the measurements.  Mr Yung also denied knowledge of the alleged basis for deducting payments for the previous 22 applications.

11.  Mr Han made a reply affirmation and alleged that the foreman had neither the knowledge nor the authority to commit the defendant to the plaintiff’s measurements.  He also argued that Yung was aware of the basis of the deductions for the previous 22 applications.  On last Monday, the defendant also produced a very detailed schedule said to have been prepared by its quality surveyor in support of its case that the plaintiff had overclaimed for work done.

12.  At the hearing for setting aside the default judgment, the plaintiff also applied to amend the judgment sum by reducing it to $3,787,839.89.  The reason given for the amendment was quite brief and with very few particulars.  In any case, the judgment was duly amended.

13.  Master Yu was obviously not impressed by the defendant’s arguments as he ordered a condition of payment into court of the whole sum in the amended judgment for setting it aside. 

14.  As I have mentioned above, Registrar Chan made an order on 24 July which had the effect of staying the execution of both Master Yu’s order and the amended judgment.

15.  Both parties have invited me to follow Star Play Development Limited v Bess Fashion Management Company Limited HCA4726/2001 dated 7 July 2002. 

16.  Mr Wong for the plaintiff submitted that the defendant’s schedule of work done is of no use as it was not prepared on the same basis of measurement as adopted in the plaintiff’s payment applications.  Hence, this schedule cannot be used to compare with the plaintiff’s applications for identifying the discrepancies.  Mr Dawes for the defendant, however, submitted that the schedule of work done was prepared by the defendant’s quality surveyor by measuring the work done as shown in the as-built drawings produced by the Architectural Services Department.  This is a matter that I cannot and should not resolve now.

17.  I am not supposed to go into the details of the merits of the appeal.  Just by way of a general observation, the lack of any contemporaneous document and the delay in responding to the plaintiff’s claim would make the defendant’s case look not too convincing.  However, I do not think I can brush aside the schedules of measurements done by the defendant’s quality surveyor.  It is also rare for construction works to be completed in a perfect manner.  Furthermore, the plaintiff has also not adequately explained the changes in the amount of its claim. 

18.  I think it looks unlikely that the defendant will be able to succeed entirely on the appeal against Master Yu’s order.  On the other hand, it would also be unlikely for the plaintiff to be able to maintain the condition of payment in for the whole sum in the amended judgment.

19.  I would therefore apply a broad-brush approach.  I would set aside the Registrar’s order.  Since, Master Yu’s order for payment in has expired and the amended judgment can be executed, I would stay the execution of the amended judgment pending the hearing of the appeal against Master Yu’s order on condition of the payment of a substantial portion of the amended judgment into court by the defendant. 

20.  In the course of the hearing, I proposed to take off $209,000 for the alleged defective work as identified by the Architectural Services Department and then take off 25 per cent of the balance for the purpose of payment-in by the defendant.  That would be around $2.68 million.  I must say that the 25% is just an arbitrary figure and not quoted on any basis.  Mr Dawes, however, suggested deductions of the $209,000 and $1 million for alleged contra charges and a further 15% of the balance for potential overclaim by the plaintiff.  That would produce a figure of about $2.1 million.  Mr Dawes proposed to pay this sum into court within 21 days from today as the defendant has cash flow inconvenience.  Mr Wong was unhappy about this approach and seemed to favour my 25% approach.  He also thought that 21 days was too long a period. 

21.  Since this exercise is to be done on a rough-and-ready basis, I think Mr Dawes’ approach is more preferable and $2.1 million is a substantial sum.  In the light of the defendant’s financial inconvenience, I also do not think a period of 21 days is too long.  I therefore set aside the Registrar’s order.  I further order that the execution of the amended judgment be stayed on condition that the defendant do pay into court $2.1 million within 21 days from today, failing which the plaintiff be at liberty to execute the amended judgment without further order. 

22.  Since this appeal is a prelude to the defendant’s appeal against Master Yu’s order, I reserve the question of costs of this appeal for the disposal by the judge hearing that appeal.

 

 

(L. Chan) Deputy High Court Judge

 

Mr Jason Wong, instructed by Messrs Chan, Wong & Lam, for the Plaintiff

Mr Victor Dawes, instructed by Messrs Arculli Fong & Ng, for the Defendant