REMEDY ASIA LTD v. YICK SHING CONTRACTORS LTD

HCCT 4/2012

[2019] HKCFI 2673

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 4 OF 2012

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REASONS FOR JUDGMENT

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1.  The Plaintiffs claim against the Defendant in these proceedings for sums which are due under 2 contracts for landslip preventive measure works for slopes (“Works”), referred to hereinafter as Contract A and Contract B, in the respective amounts of HK $7,939,915.72 and HK $14,894,254.82, and damages of HK $1,268,049.28 in respect of the alleged wrongful termination of Contract B by the Defendant.

2.  The proceedings were commenced in February 2012 in the name of the 1^st Plaintiff.

3.  On 18 October 2006, the 2^nd Plaintiff had been wound up by order of the Court. Liquidators were appointed for the 2^nd Plaintiff on 20 August 2007. By a Deed of Assignment executed on 9 November 2011 (“Assignment”), the 2^nd Plaintiff assigned to the 1^st Plaintiff all its rights in, title to and interest in all debts due to it under Contract A and Contract B, which Contracts were made between the Plaintiff and the Defendant in respect of the Works. The rights assigned include the right of the 2^nd Plaintiff to take all necessary steps to enforce its rights and interests in respect of the indebtedness under the Contracts, to initiate and conduct proceedings against the Defendant and to defend any counterclaim. Leave of the Court had been granted on 11 October 2011 for the liquidators of the 2^nd Plaintiff to enter into the Assignment.  The 2^nd Plaintiff was joined as plaintiff by order of the Court made on 16 October 2014.

4.  The Defendant had all along been legally represented, until August 2019, when its solicitors ceased to act on the Defendant’s behalf. Original trial dates had been set for 31 October 2018 to 8 November 2018, but these dates were vacated in August 2018, and new dates were fixed shortly thereafter, with directions for trial. After the Defendant’s solicitors ceased to act in August 2019, this Court directed on 19 August 2019 that the Defendant cannot take further steps in the proceedings except where leave is given under Order 12 rule 1 (2A) RHC. No such leave was ever applied for.

5.  At the pre-trial review which took place on 20 August 2019, the Defendant failed to appear and this Court made an order, pursuant to Order 25 rule 1C RHC, that the Defendant’s Counterclaim filed in these proceedings be provisionally struck out.

6.  On 20 September 2019, this Court further ordered, on the Plaintiffs’ application, that unless the Defendant should produce to the Plaintiffs the original settlement agreement referred to in paragraphs 19 to 24 of the Re-Re-Re-Amended Defence and Counterclaim (“D&C”), the said paragraphs in the D&C be struck out (“Striking Out Order”). The original settlement agreement was not produced to the Plaintiffs as ordered, and the relevant paragraphs of the D&C were duly struck out.

7.  On the first day of trial on 28 October 2019, the Defendant failed to appear. Having been satisfied that the Defendant had been properly given notice of the trial dates which had been fixed with its solicitors, and that the Defendant had been served with the trial bundles, I proceeded with the trial pursuant to Order 35 rule 1 RHC.

8.  The evidence of the Plaintiffs was adduced in evidence, by Mr Leung Kwok Ping and Mr Bruno Arboit who were called. The evidence of Mr Karlson was also admitted. In default of evidence being called by the Defendant, the witness statements hitherto filed and served by the Defendant were all struck out.

9.  In the absence of any evidence in support of the D&C, this Court ordered that the Counterclaim be struck out, notwithstanding that the period of 3 months specified in Order 25 rule 1C had not yet expired from the provisional striking out.

10.  Having heard the submissions made on behalf of the Plaintiffs, and having considered the Plaintiffs’ evidence, as well as the report and written answers given by the single joint expert (“SJE”) appointed by the parties for the purpose of these proceedings, I was satisfied that the Plaintiffs had established their claims for the sums due under the Contracts.

11.  The time-bar defence was finally and distinctly determined by Au J in his judgment of 26 June 2014 (“2014 Judgment”), when the Defendant applied to strike out the 1^st Plaintiff’s claim. The defence of the alleged invalidity of the Assignment for champerty and/or maintenance was also considered, and rejected, by the Court in the 2014 Judgment, which was affirmed by the Court of Appeal in the judgment of 12 December 2014.

12.  The alleged defence on the basis of a settlement agreement having been made in respect of Contract A was struck out under the Striking Out Order.

13.  The Plaintiffs have accepted the quantification made by the SJE of the valuation of the 2^nd Plaintiff’s earnings under the Contracts, the deductions made by the Defendant, and the total amount paid by the Defendant and received by the 2^nd Plaintiff, save for 2 sums. The first relates to the purported administrative costs deducted by the Defendant under Contract A, and the second relates to the Defendant’s deductions for materials and services under Contract B.

14.  In relation to the administration costs, I accept the submissions made on behalf of the Plaintiffs, that under the Contracts, the Defendant is only entitled to make deductions in respect of the costs of engagement of a third-party consultant, but is not entitled to any deduction for the additional costs of its own employees. In any event, as the SJE accepted, there was no evidence available from the Defendant, to establish the costs allegedly incurred.

15.  This is also the case in respect of the deductions made by the Defendant, in respect of the costs of materials and services sought to be deducted from the 2^nd Plaintiff’s earnings under Contract B. The SJE acknowledges in his report that he had not seen any document or records from the Defendant to show that the costs of the materials and services had in fact been incurred.

16.  As the Plaintiffs submit, and I accept, it is incumbent on a claimant to produce sufficient evidence to the court to establish its entitlement to damages, or to prove an entitlement to offset a proven debt (World Realty Ltd v Kwan Ngar Yin [1987] 3 HKC 148, citing Bonham-Carter v Hyde Park Hotel Ltd (1948) 64 TLR 177, and Tate & Lyle Food and Distribution Ltd v Greater London Council [1982] 1 WLR 149). In the absence of any supporting evidence to justify the deductions claimed by the Defendant, these costs and expenses should be rejected.

17.  In respect of the administration costs under Contract A, and in respect of the costs of materials and services under Contract B, I find that no deductions are allowed.

18.  The value of the 2^nd Plaintiff’s earnings under Contract A is, on the evidence of the SJE, HK $32,347,698.41. After the allowed deductions and payments already made by the Defendant, the sum payable by the Defendant under Contract A is HK $5,675,964.51.

19.  On the question of the 2^nd Plaintiff’s earnings under Contract B, in the absence of evidence from the Defendant as to the alleged incomplete or defective work carried out under the work orders P1 to P4, I am satisfied on the Plaintiffs’ evidence and submissions that the relevant work was substantially completed before the purported termination of the Contract. As highlighted by the Plaintiffs, the Engineer had issued certificates that the relevant work orders had been substantially completed, and these constitute conclusive evidence under clause 13 (1) of the conditions of Contract B. There is in any event no evidence at trial to dispute the certificates.

20.  The value of the 2^nd Plaintiff’s earnings under Contract B is, on the evidence of the SJE (under Scenario 2), HK$27,447,792.65. After the allowed deductions and payments already made by the Defendant, the sum payable by the Defendant under Contract B is HK $9,486,475.70.

21.  The Defendants purported to terminate Contract B on the ground that the 2^nd Plaintiff had failed to perform the works required, that its performance had deteriorated towards the end of 2005 and that due to its serious liquidity problems, it had become clear to the Defendant that the 2^nd Plaintiff would not be able to perform its obligations under Contract B.

22.  The Defendant pleaded the issue of 8 warning letters between 10 December 2005 and 23 February 2006, in respect of its substandard performance. The Plaintiffs claim and their evidence shows that notwithstanding the warning letters, the work complained of had been successfully completed, and the Engineer under the main contract had continued to approve substantial payments to the Defendant in respect of the subject work of the 2^nd Plaintiff, and according to a document entitled “Summary of Performance” issued by the Engineer for the period 1 December 2005 to 28 February 2006, the work performed by the 2^nd Plaintiff had been considered to be satisfactory and acceptable.

23.  On the available evidence, the claim of substandard performance and the 2^nd Plaintiff’s alleged breach has not been established, and I find that the purported termination on 18 April 2006 was unlawful. The 2^nd Plaintiff’s loss of profit sustained as a result of such termination has been assessed by the SJE at HK $1,658,600.94, which I allow as the 2^nd Plaintiff’s damages.

24.  The Plaintiffs are allowed interest on their claims at the rate of 6% per annum from 29 January 2007 in respect of HK$5,675,964.51, from 18 March 2009 in respect of HK$9,486,475.70 and from 18 March 2009 in respect of HK$1,658,600.94 until the date of the judgment, and thereafter at judgment rate in respect of HK$16,821,041.15 until payment.

25.  The costs of the action and the Counterclaim are to be paid by the Defendant to the Plaintiffs, to be taxed on a party and party basis.

HCCT 4/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 4 OF 2012

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D E C I S I O N

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1. I thank counsel for their submissions, but having heard counsel I am not satisfied that there are reasonable prospects of success in the intended appeal against my decision of 16 October which adequately sets out my reasons. The arguments raised by the defendant were rejected and there is no need to repeat them. I consider that there is identity of parties and identifiable issues for issue estoppel to apply.

2. The application for leave to appeal is therefore dismissed with costs.  The assessment will be dealt with on paper and the plaintiff is to file its statement of costs within 14 days in accordance with the Practice Direction.

HCCT 4/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 4 OF 2012

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D E C I S I O N

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A. INTRODUCTION

1.  On 26 June 2014, I handed down judgment (“the Judgment”) dismissing effectively the defendant’s summons to strike out the plaintiff’s claim.

2.  This is the defendant’s application[1] for leave to appeal against the Judgment.

3.  This decision should be read together with the Judgment. I would also adopt herein the abbreviations used in the Judgment.

B. THIS LEAVE APPLICATION

4.  In its Notice of Appeal, the defendant raises four principal grounds of appeal.

5.  For leave to be granted, the defendant has to show that it has a reasonable prospect of success on any of those proposed grounds of appeal.  I would look at each of them now.

Ground 1: The court erred in finding that the arrangement under the Assignment falls under the “access of justice” exception and thus not prohibited under the law of champerty and maintenance (para 1 of the Notice of Appeal and paras 8-12 of the defendant’s skeleton)

6.  I do not find this ground having a reasonable prospect of success:

(1) The defendant is not challenging the legal principles set out at para 26 of the Judgment as derived from Unruh v Seeberger (2007) 10 HKCFAR at paras 75-104.

(2) The court applied the uncontroversial evidence set out at para 28 of the Judgment to these principles and came to the conclusion that the subject funding arrangement under the Assignment fell within the “access to justice” exception.

(3) The defendant now says the liquidators in their evidence was not saying that, other than obtaining funding from the plaintiff, they could not have obtained litigating funds elsewhere. It is thus wrong for the court to say that the exception was established since the finding (at para 28(1) of the Judgment) that “the liquidators could not pursue this action with the plaintiff’s involvement and financial support” is simply not supported by the evidence

(4) In my view, there is no reasonable prospect of success that the appellate court will interfere the conclusion that the arrangement fell within the access to justice exception on this basis. This is particularly so when Mr Parker for the defendant accepts at this hearing that he is not submitting that the “access to justice” exception could only be established by showing that the liquidators could only obtain funding from the plaintiff but not elsewhere[2].

(5) In any event, the court further went on at para 30 of the Judgment to hold that, alternatively, the arrangement did not amount to “officious intermeddling” in the litigation which was caught by the principles against champerty and maintenance.  This conclusion is not dependent on the challenge on the “access to justice” exception conclusion.

(6) In this respect, Mr Parkers submits that this alternative conclusion is erroneous too as the court had not dealt with his submissions on “reverse intermeddling” by the liquidators, relying on the In re Oasis Merchandising Ltd [1998] Ch 170, 177.

(7) I find these arguments also not having a reasonable prospect of success on appeal:

(a) First, my reasoning at para 30 of the Judgment applies in my view with equal force to reject any arguments of “reverse intermeddling”.  Whether you look at it at the position of the plaintiff or the liquidators in having certain control in the litigation under the Assignment arrangements as contended by the defendant, there is still nothing to show that the integrity of the judicial process is endangered, in particular in the context that any recovery of the Indebtedness through the action would benefit the general creditors of True Light.

(b) Second, and in any event, given my conclusion in the Judgment that True Light has to be joined in this action as a plaintiff to complete the title to sue, no question of “reverse intermeddling” arises (subject to the defendant’s 2^nd ground of appeal as discussed below).

7.  I would not grant leave to appeal on this ground.

Ground 2: The plaintiff lacks locus to bring the present action, without joining True Light as a party to the proceedings, but it cannot do so under the terms of the Assignment (Para 2 of Notice of Appeal and paras 13-16 of the defendant’s skeleton)

8.  Under this ground, Mr Parker says the plaintiff is not even an equitable assignee under the terms of the Assignment, and thus it cannot seek to have True Light joined to complete the title to sue.  This is so (as I understand the arguments) since:

(1) As it is simply unknown under the Assignment when the plaintiff could recover the Indebtedness or its share of it, no equitable interest in the Indebtedness has even arisen under its terms to be vested in the plaintiff;

(2) The defendant simply does not know who it could pay or negotiate with for the purpose of settling the Indebtedness if it wishes to do so.

9.  I do not think these arguments bear any reasonable prospect of success:

(1) In the present case, the liability to pay the Indebtedness was already incurred at the time when the defendant was in breach of the relevant contracts (if established). It is valid and permissible to assign a chose in action.  The lack of the necessary legal elements in the assignment as found by the court only renders the interest so vested an equitable one instead of a legal one.  It does not mean that the plaintiff has no equitable interest in the Indebtedness. 

(2) I also have difficulty to understand why it is suggested that, if the plaintiff and True Light are both joined as plaintiffs in this claim, the defendant would still have difficulty in ascertaining to whom to pay the indebtedness, and thus the plaintiff is not an equitable assignee.  The reason to require True Light to be joined as a co-plaintiff is to avoid any question that the defendant would be required to pay twice (see paras 23, 33-38 of the Judgment).

10.  I therefore would also refuse to grant leave to appeal on this ground.

Ground 3 – Subcontract A was time-barred to the extent as pleaded in the Re-Amended Defence and Counterclaim (para 3 of the Notice of appeal and para 17 of the defendant’s skeleton)

11.  Mr Parker’s contentions under this ground as set out at para 3 of the Notice of Appeal are effectively a re-run of the contentions on the construction of the various relevant clauses in Subcontract A.  Suffice for me to say that I am not convinced that they have a reasonable prospect of success for the same reasons I have set out in the Judgment at paras 45-50 and 52.

12.  I would refuse to grant leave on this ground.

Ground 4 – Time bar under Subcontract B (para 4 of the Notice of Appeal and paras18-26 of the defendant’s skeleton)

13.  The first contentions raised under this ground of appeal are principally premised on Mr Parker’s arguments that the court erred in relying (at para 53(1) of the Judgment) on the Court of Appeal’s decisions in Sun Focus v Tang Shing Bor [2012] 1 HKLRD 738 at paras 10-15 and Global Bridge Assets Ltd v Sun Hung Kai Financial Ltd [2012] 4 HKLRD 474 at paras 19-22, to say that, because of the relation back doctrine under s 35(1) of the Limitation Ordinance (Cap 347) (“LO”), it is no longer open to the defendant to seek to strike out the claim under Subcontract B for time-bar after it has consented to the amendments to include those claims.   

14.  This part of the Judgment is wrong, counsel submits, as the court has failed to deal with the authorities of Liff v Peasley [1980] 1 WLR 781 at 803C and Moulin Global Eyecare Holdings Ltd v Olivia Lee Sin Mei [2012] 4 HKLRD 263 at paras 66-69 per Barma J. Mr Parker says these authorities support the propositions that it is still open to the defendant to challenge a time-bar claim even after the amendments had been consented to and made notwithstanding the relation-back doctrine.

15.  With respect, I am not convinced:

(1) Moulin Global dealt with a situation where there was an amendment without leave made to include the time-barred claim under O 20 r 3 of the RHC.  Under O 20 r 4, it is specifically provided that a party could apply within 14 days to disallow amendments made without leave.  Further, it is open to the court to extend time for the party to apply to disallow those amendments under O 20 r 4 (see Moulin Global, supra, at para 67).  The relation-back at least can be seen as subject to or being qualified by the statutory right to apply to disallow it.   

(2) This is very different in principle from a situation where, (as in the present case) leave is required to amend to include the time-barred claim and that leave has then been allowed by the court after a contested hearing or expressly consented to by the very party now seeking to strike it out.  In such situations, the relation-back automatically kicks in as a matter of lawonce the amendments have already been made (as held under Sun Focus and Global Bridge). 

(3) Insofar as Brandon LJ’s reservations and observations made in 1980 in Liff at 803C-804B on the “artificiality and unreality” of the relation-back doctrine are concerned, suffice for me to say that (purely for the sake of arguments) even if they had the effect of putting a doubt (as contended by the defendant) on what I understood to be the effect of Sun Focus and Global Bridge, this court is bound by and should follow the recent decisions of our Court of Appeal as to the understanding of the “automatic” and “mandatory” nature of the relation-back doctrine provided in the LO.

(4) These authorities relied on by the defendant are therefore distinguishable and not applicable in the present case.

16.  I similarly would not grant leave on this ground.

17.  Lastly, the defendant submits that the court’s alternative observation at para 53(2) of the Judgment is also in error.  In that paragraph the court says this:

“Secondly and in any event, even if the plaintiff’s claims in respect of Subcontract B are somehow time-barred, since Yick Shing itself relies upon Subcontract B to found its Counterclaim, the plaintiff is entitled to make (and does make) a Defence and Counterclaim to Counterclaim based on Sub‑Contract B. The limitation point is, therefore, as submitted by Mr Pennicott, somewhat sterile.”

18.  Mr Parker’s submissions in support of this ground are set out at para 26 of his skeleton as follows:

“Finally, the Judge found that a party could introduce a new cause of action by way of a ‘Counterclaim to Counterclaim’, as a way for introducing an otherwise time barred cause of action. Respectfully, it is submitted that it must be arguable that under section 35(3) of the LO, no new claims may be allowed after the expiration of the limitation period other than ‘an original set-off or counterclaim’, which is defined under section 35(4) as ‘a claim made by way of a set-off or … by way of a counterclaim by a party who has not previously made any claim in the action’. Clearly, this exception does not apply to the plaintiff. The fact that the defendant first raised the matter concerning Subcontract B in its Counterclaim does not entitle the plaintiff to raise any alleged cause of action under Subcontract B after the expiration of the limitation period.”

19.  In substance, Mr Parker says s 35(4) of the LO has the effect of disbarring the plaintiff from making a counterclaim (or set-off) under Subcontract B (which is time-barred) against the defendant’s own counterclaim brought under Subcontract B because the plaintiff had already made a claim in this action.  As a result, the requirement that the plaintiff “has not previously made any claim in an action” is thus not satisfied.

20.  I would not grant leave on this ground too as, given my above view that the defendant does not fair a reasonable prospect of success in challenging on appeal the court’s primary conclusion not to strike out the plaintiff’s claims under Subcontract B on the basis of time-bar as the amendments have been consented to, this ground is academic in the proposed appeal.

C. CONCLUSION

21.  For all the above reasons, I would refuse to grant leave to appeal.

22.  I further order that costs of this application be to the plaintiff to be taxed if not agreed.

Mr Ian Pennicott SC, instructed by Messrs Cheung & Lee, for the plaintiff

Mr Timothy Parker, instructed by Messrs Massie & Clement, for the defendant

HCCT 4/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 4 OF 2012

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J U D G M E N T

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A. INTRODUCTION

1. This is the defendant’s application to effectively strike out the plaintiff’s claims or part of the plaintiff’s claims.

2. The principal bases of the application are that the plaintiff’s claims are tainted with champerty and maintenance, the plaintiff lacks the proper locus to sue, the plaintiff’s claims are time-barred, and/or that some of the claims are vexatious and an abuse of process.

B.   THE CLAIMS AND THE PLAINTIFF

3. Yick Hing Construction Co Ltd (“Yick Hing”) was the main contractor of two Government contracts (respectively “Contract A” and “Contract B”) for landslip prevention works for slopes.

4. Yick Hing subcontracted both contracts to its sister company Yick Shing Contractors Ltd (“Yick Shing”).

5. Yick Shing then further subcontracted Contract A and Contract B to True Light Civil Contractors Ltd (“True Light”) under two respective subcontracts (respectively “Subcontract A” and “Subcontract B”).

6. It is True Light’s case that its works under Subcontract A commenced on 1 September 2003 and were completed on 15 March 2007.

7. It is also True Light’s case that its works under Subcontract B commenced on 3 September 2004 but the contract was terminated wrongfully by Yick Shing on 18 April 2006.  True Light says if Subcontract B had not been so wrongfully terminated, it would have been completed by 15 March 2007.

8. On 18 October 2006, True Light was wound up by a winding up order made by the court.  On 20 August 2007, liquidators (“Liquidators”) were appointed for True Light.

9. By a deed of assignment (“the Assignment Deed”) executed on 9 November 2011, True Light through the Liquidators assigned to the plaintiff (Remedy Asia Ltd) all the rights in, title to, and interest in all debts (“the Indebtedness”) due to it from Subcontracts A and B.  The plaintiff is in the business of litigation funding and recovery.

10. It is also provided under the deed that True Light shall permit the plaintiff to, among others, initiate and conduct any proceedings regarding such right and interest in the Indebtedness against Yick Shing or Yick Hing.

11. On 11 October 2011, Harris J granted leave for the Liquidators to enter into the Assignment Deed.

12. In February 2012, the plaintiff commenced the present action against Yick Shing as the defendant claiming for the Indebtedness. Parties have since filed their respective pleadings (which have been amended more than once).

13. As the pleadings now stand, the plaintiff claims for:

(1)  HK$32m odd and HK$7.9m odd as outstanding payments respectively under Subcontract A and Subcontract B, or alternatively damages; and

(2)  Damages to be assessed for the wrongful termination of Subcontract B.

14. By its summons dated 6 November 2012, the defendant seeks to strike out the plaintiff’s claims, saying that they disclose no reasonable cause of action, are frivolous or vexatious, or are otherwise an abuse of process.

15. As I mentioned, the bases of the applications are in gist that:

(1)  The Assignment Deed is void or unenforceable because it constitutes champerty and/or maintenance;

(2)  The legal owner of the debt is not a party to the action;

(3)  The claims brought in respect of Subcontracts A and B are time-barred; and

(4)  The plaintiff’s claims are vexatious and oppressive and an abuse of process in light of some irrefutable evidence.

16. I now turn to look at each of these grounds in support of the summons.

C.   THE STRIKING OUT APPLICATIONS

C1.   Champerty and maintenance

17. It is not disputed that if the Assignment Deed amounts to champerty or maintenance, it is void and unenforceable.  If so, the plaintiff could not have validly obtained the right to bring the present claims.

18. Mr Parker for the defendant submits that the Assignment Deed does amount to champerty or maintenance.  As I understand it, counsel’s arguments can be summarised as follows.

19. First, he says the various clauses in the Assignment Deed show that it is not an outright or absolute assignment of the Indebtedness by True Light (acting through the Liquidators) to the plaintiff.  This is so as (counsel submits) True Light through the Liquidators retains substantial control over the recovery of the Indebtedness under various clauses of the Assignment Deed.  For example:

(1)  The plaintiff (as assignee) may only settle the legal proceedings upon terms acceptable to True Light (the assignor) (clause 3.1B(iii));

(2)  The plaintiff has to pay True Light 55% of the net recovery[1] from the proceedings and that the balance of the recovered sum shall vest in the plaintiff only after it has paid that 55% to True Light (clause3.2 (vi) and (vii));

(3)  The plaintiff may terminate the Assignment Deed by notice if it finds that it is no longer economically justifiable to secure a recovery, and True Light may terminate it on the happening of certain specified events.  In particular, True Light could terminate it when, in its reasonable opinion, there has been no meaningful progress made in the proceedings or if the assignee fails to “meet any order for costs or security for costs” made against it.  Upon any such termination, the plaintiff shall reassign any outstanding part of the Indebtedness to True Light (clauses 6.1 to 6.3).

(4)  The plaintiff as assignee cannot “assign or transfer the Indebtedness or any of it without obtaining prior written consent of the Assignor [True Light]” (clause 7).

20. If it is not an outright assignment, Mr Parker says the plaintiff could not rely on one of the exceptions to champerty and maintenance where in insolvency cases, it is permissible for liquidators (or trustee in bankruptcy) to sell proceeds of a claim or a chose in action.  In Hong Kong, this power has also been enshrined in 199(2)(a) of the Companies Ordinance (Cap 32), whereby liquidators have the right to sell, among others, a chose in action or assign proceeds of the successful prosecution of a cause of action and that would not be caught by the principles against champerty and maintenance (see Re Cyberworks Audio Video Technology Ltd [2010] HKLRD 1137, paragraphs 4-11 per Harris J).  As the assignment is not an absolute one in the present case, the fact, says Mr Parker, that the companies court has approved the entering into the Assignment Deed is neither here nor there for the present purposes.  In support of the proposition that it has to be an outright or absolute assignment of a chose in action or its proceeds under s 199(2)(a) in order to avoid being tainted with champerty and maintenance, counsel relies on the Technical Manual for Official Receivers and Liquidators (“the Technical Manual”) issued by the UK Insolvency Service, particularly at paragraphs 31.9.97, 31.9.106[2].

21. Second, if the plaintiff cannot rely on the exception to champerty and maintenance under a purported s 199(2)(a) sale or assignment, the Assignment Deed is clearly, Mr Parker further submits, a champerty and maintenance, as it is an arrangement amounting to the “trafficking of litigation” and an “officious intermeddling” of the litigation by the plaintiff. 

22. In determining whether an assignment is an absolute one or not, the question that the court has to ask is, has the assignor unconditionally transferred to the assignee for the time being the sole right to the debt in question as against the debtor.  If so, the assignment will be absolute, but if the debtor cannot tell whether to pay the assignor or the assignee without examining the state of accounts between them, it will not be[3].

23. Applying the above test, I accept Mr Parker’s submissions that, given the terms of the Assignment Deed, the assignment is not an absolute assignment, since it is provided therein that the interest in the Indebtedness (which is the subject matter of the assignment) does not vest in the plaintiff at the time of the Assignment Deed.  Under clause 3.2(vii)[4], the interest would only so vest in the plaintiff after the plaintiff has paidTrue Light 55% of the recovered Indebtedness.  In the premises, looking at the terms of the Assignment Deed, the debtor (Yick Shing) cannot be sure whether making a payment to the plaintiff in a purported discharge of the Indebtedness would in fact legally discharge its liability under the Subcontracts.  For example, if Yick Shing pays the Indebtedness to the plaintiff, and the plaintiff fails to pay True Light the said 55%, it appears that True Light might still be able to bring a claim against Yick Shing for the Indebtedness, since under the terms of the Assignment Deed, the interest in the Indebtedness has not yet passed to the plaintiff and should still remain with True Light.

24. In the premises, the next question that I need to consider is whether the arrangement embodied in the Assignment Deed amounts to champerty and maintenance as understood by the law.

25. The law of champerty and maintenance has been recently revisited by the Court of Final Appeal in Unruh v Seeberger (2007) 10 HKCFAR 31.  After looking at the historical development of the law and the relevant authorities, Ribeiro PJ has laid down what the principles and scope of the law are as understood in modern times.

26. In this respect, the effect of Ribeiro PJ’s observations[5] can be summarised as follows[6]:

(1)  Despite their abolition in other jurisdictions, the torts of maintenance and champerty still form part of Hong Kong law.

(2)  Maintenance and champerty have their roots in public policy considerations.  Over the centuries such considerations have changed.  The scope of maintenance and champerty has shrunk.

(3)  There are certain categories of case which are excluded from maintenance and champerty.  They include (a) common interest, (b) access to justice and (c) miscellaneous practices accepted as lawful (such as the sale and assignment by a trustee in bankruptcy of an action commenced in the bankruptcy to a purchaser for value).  The types of cases that may fall under these categories are neither closed nor static.

(4)  In the context of modern day public policy considerations the relevant questions are:

(a)  Is there “officious intermeddling” in the litigation leading to the oppression of the person against whom the action is brought?

(b)  Does the arrangement entered into encourage the perversion of justice and endanger the integrity of judicial processes?

(c)  In addressing (b) above, the question is whether on an examination of the totality of the facts the arrangement poses a genuine risk to the integrity of the Court’s process?  It is not enough simply to say that it is the type of agreement which “savours of” champerty.

(d)  What countervailing public policies should be taken into account, especially policies in favour of ensuring access to justice?

(e)  Would reliance upon the blunt instrument of maintenance and champerty result in the inability to pursue a good claim?

27. Applying these principles, in my view, the fundamental questions that I need to consider are firstly whether the arrangement under the Assignment Deed falls into one of the established exceptions, and if not, then secondly whether it results in such officious intermeddling of litigation or trafficking of litigation that oppresses Yick Shing or endangers the integrity of the judicial process.

28. The following are relevant to the above consideration:

(1)  From the evidence, it shows that the Liquidators could not pursue this action without the plaintiff’s involvement and financial support.  See: 2^nd Affirmation of Arboit (one of the Liquidators) at paragraphs 13-19[7].

(2)  Yick Shing has said that the claims brought are clearly without merits (see generally the 2^nd and 3^rd Affidavits of Edward Yuen filed on behalf of Yick Shing).  However, I have looked at the pleadings filed and the evidence concerning the claims that has been put before me for the present purposes.  I cannot say at this stage that the claims are so clearly without merits as said by Yick Shing that they amount to oppression or an abuse of process if allowed to proceed[8].

(3)  There is no evidence to suggest that the action has been brought for purposes other than to pursue a genuine claim to recover losses said to have been suffered by True Light.

29. In light of the above evidence and context, I accept that the arrangement falls within the “access to justice” exception as summarised by Ribeiro PJ in Unruh[9]. As a result, the arrangement is not prohibited by the law of champerty and maintenance.

30. Moreover and alternatively, given the matters summarised in paragraph 28 above, I agree with Mr Pennicott that the arrangement under the Assignment does not amount to such “officious intermeddling” in the litigation in the sense that it results in oppression of Yick Shing so as to be caught by the principles against champerty and maintenance[10].  There is also nothing to show that the integrity of the judicial process is therefore endangered by reason of the arrangement.  Further, it is important to note that any recovery of the Indebtedness by way of the present action (which is only made possible through the involvement of the plaintiff) would also benefit the general creditors of True Light.  When all these are looked at as a whole, I do not regard the arrangement is so against any public policy that they should be prohibited.

31. The position that the arrangement should not be prohibited by the law of champerty and maintenance is further underlined by my conclusion below that True Light should be joined as a party in the action.

32. Yick Shing thus fails under this ground to seek to strike out the claims[11].

C2.   The assignment is an equitable assignment and the Liquidators need to be joined to bring the claims

33. S 9 of the Law Amendment and Reform (Consolidation) Ordinance (Cap 23) (“LARCO”) provides as follows:

“Any absolute assignment, by writing under the hand of the assignor (not purporting to be by way of charge only), of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this section, section 11 of this Ordinance and sections 25 and 49 of the Conveyancing and Property Ordinance (Cap 219) had not been enacted) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor….” (emphasis added)

34. Mr Parker says, given that the Assignment Deed is not an absolute assignment, it does not satisfy s 9 of LARCO.  As such, as a matter of law, the assignment is only an equitable assignment, and the title to sue is not complete unless and until True Light acting through the Liquidators are also joined as a party[12].

35. As True Light has not been joined as a party, the present action stands (Mr Parker further submits) to be stayed unless and until True Light acting through the Liquidators is so joined.

36. Mr Pennicott does not dispute the above legal propositions.  Counsel only contends that the Assignment Deed is an absolute assignment.  I have already concluded above that the assignment is not an absolute assignment.  I therefore reject Mr Pennicott’s arguments.

37. Further, Mr Pennicott says the Liquidators have by now waived clauses 31(B)(iii) and 6.3 of the Assignment Deed.  If the complaint of the non-absolute nature of the assignment is related to these clauses, the waiver has remedied the problem.  However, the reason I have concluded that the assignment is not an absolute one is principally because of the effect of clause 3.2(vii).  The waiver therefore would not assist Mr Pennicott’s arguments.

38. In the premises, True Light acting through the Liquidators should be joined as a party to complete the title to sue.

39. I understand that the Liquidators have indicated that they are prepared to be so joined[13], I therefore would stay this action until and unless True Light acting through the Liquidators is formally joined as a party.

C3.   The claims are time-barred

40. Mr Parker contends that the claims made under Subcontracts A and B are time-barred.  The arguments run as follows:

(1)  For Subcontract A:

(a)  Liability to pay under Subcontract A arose whenever (i) True Light had applied to Yick Shing for payment (interim or final), and (ii) Yick Hing (the head contractor) received payment from the Employer, in which case it was required to pay True Light within 5 days thereafter (see for example clause 8 of Subcontract A).

(b)  Except two sums (which amount to about $5.2m), all the payments received by Yick Hing in relation to works done under Subcontract A were received by Yick Hing well before 7 February 2006[14]. They are therefore all payments (except the two) made more than 6 years before the date of the writ, which is 7 February 2012.

(c)  The claims under Subcontract A (except the ones relating to the $5.2m payments) are thus time‑barred.

(2)  For Subcontract B:

(a)  Yick Shing terminated Subcontract B on 18 April 2006.  Any claims for breach of this contract thus expired on 18 April 2012.  The plaintiff however only raised the claims based on the alleged wrongful termination of Subcontract B (and thus breach of contract) by its amended claim on 5 November 2012, which is clearly after the limitation period.

(b)  Although Yick Shing consented to the plaintiff’s amendments, it then took out the present summons on the following day after the consent seeking to strike out the claims on, among others, the basis that the claims are time-barred.  The court should therefore strike out these new claims under Subcontract B.

(c)  Further, the submissions made for Subcontract A at (1) above applies with equal force to the plaintiff’s claims for outstanding payments under Subcontract B.

41. With respect to Mr Parker, I am unable to agree with his submissions.  My reasons are as follows.

42. Mr Parker’s arguments that the claims for outstanding payments under both Subcontracts have expired are premised on his submissions that (a) the relevant obligations under the Subcontracts arose each time when True Light applied for such payments, and (b) thus, in light of the evidence (the invoices) showing these interim payment applications, the cause of action for any alleged breach of payment obligations (save for the $5.2m) have long expired before the date of the writ.

43. On the other hand, Mr Pennicott submits that, on a proper construction of the relevant clauses, the payment obligation of the entire contract sums under the Subcontracts arose at the time when the final certificates for the Subcontracts were issued.  The final certificates were issued on 29 January 2007 (for Subcontract A) and 18 March 2009 (for Subcontract B)[15]. The limitation period for the respective cause of action would only start to run at the earliest from these dates.  The claims are therefore not time-barred at the time of the writ.

44. These rivalry contentions turn on the construction of relevant clauses of the Subcontracts.  In this respect, I agree with Mr Pennicott’s interpretation.

45. Clause (8) of the Subcontracts[16] relates to payment terms and provides relevantly as follow:

“(8) Payment Terms

1. Party B [True Light] shall, in the form of invoice, apply to Party A [Yick Shing] for wages, including interim wages, completion wages, settlement wages, etc.

2. After [Yick Shing] receives the Project Sum from the Geotechnical Engineering Office, by deducting its 18% administration fee and profit, [Yick Shing] will pay the whole balance to [True Light] within five working days.

[Yick Shing] will not be responsible for the financial support of [True Light] before that. [True Light] shall make its own financial arrangements for smooth and on time execution of the works.

3. In all payments to [True Light], [Yick Shing] will deduct the Project’s management fee payable by [True Light] pursuant to Section Three of Clause Six of the aforementioned contract.

4. Unless otherwise stated, for all the interim salary statement, calculation of total Project Sum and payment method, the contract with contract No GE/2002/04 shall prevail.

   …”

46. At the same time, clause (9) provides as follow:

“(9) Measurement Procedure

1. Party B [True Light] shall keep good records of all projects of this contract in accordance with the requirements of the Original Contract, and shall submit copy (copies) to Party A [Yick Shing].

2. [True Light] shall engage sufficient and experienced staff to deal with all the figures of work orders and projects in this contract. The calculation and document produced shall be submitted as schedule to the Engineer (The Engineer or the Engineer’s Representative) of the Original Contract. [True Light] shall provide a copy (copies) to [Yick Shing].

   3.  After all the projects of this contract have been completed, inspected and declared to be completed, [True Light] shall take notice of and abide by this recognized date of completion by doing on-site measurement and proper calculation concerning all figures/quantities of this project.  Invoicing shall be done promptly within the designated time specified in the project so as to avoid any delay to [Yick Shing] for any receivable project sum from Geotechnical Engineering Office.”

47. On the express wording of clause 8(2), I agree that it imposes a payment obligation on Yick Shing to pay True Light the total project sum (after deducting Yick Shing’s administrative charge of 18%) 5 days after it has received the same from Geotechnical Engineering Office (practically the Employer).  This amounts to the payment obligation of the entire contract sum under the respective Subcontract.

48. Of course, this payment obligation of the contract sum is subject to any deductions Yick Shing has made under clause (8)1 if True Light has applied for interim payments.  That however does not affect or alter the nature of clause (8)2 where the contractual payment obligation of the contract sum is imposed on Yick Shing.

49. This construction of the meaning of clause 8(2) is in my view reinforced by the following:

(1)  Under clause (9)3, True light shall take notice of and abide by the recognized date of completion by doing on-site measurement and proper calculation concerning all figures and quantities of the project to enable payment by the Geotechnical Engineering Office.  In other words, there would be final measurements to be confirmed by True Light when all the works under the Subcontract are completed so as to enable the finalization and confirmation of the total final project sum.  It is thus only by then that the full and accurate contract sum could be confirmed.  This final exercise would therefore also rectify or adjust any underpayments or overpayments made in the previous interim payments.

(2)  Under GCC Clauses 79(2)(a) and (c) of the Main Contracts, and the Appendix to the Form of Tender[17], the Employer made deductions (“the Retained Sums”) from each interim payment made to Yick Shing (or Yick Hing), and Yick Shing then made payments to True Light under the Subcontracts based on the reduced amounts.  The Retained Sums are not released until the final certificate is issued under the Main Contracts.  Therefore, the entire sum due in respect of an interim or on account payment is not in fact payable until the final certificate has been issued and therefore it is the date of the final certificate that is relevant for limitation purposes.

50. In the premises, I agree with Mr Pennicott that both Subcontracts provided for (a) True Light to apply for and receive interim or on-account payments, and (b) a final accounting process to take place after completion of the work (ie, at the time of the issue of the final certificate)[18].  These payments arrangements mirror GCC clauses 78 and 79[19] of the Main Contracts.

51. I therefore accept that the claims are not time-barred as the relevant dates of the cause of action under the Subcontracts are the dates of the respective final certificate issued under them.

52. Given my above conclusion, it is not necessary for me to decide on Mr Pennicott’s alternative contention that, even if each payment on account gave rise to a different cause of action for limitation purposes, there is persuasive authority to suggest that a further and separate cause of action will arise when there is final certificate, account or reconciliation process provide for the contract concerned[20].  Suffice to say that I think there are good merits in Mr Pennicott’s contention, and in that premises, it is clearly arguable that the plaintiff’s claims are not time-barred and, given the facts pleaded at paragraph 82 of the Re-Amended Reply and Defence to Counterclaim and Counterclaim to Counterclaim (“RARDC”) in relation to the final accounts, the question can only be fully resolved at trial.  The claims should therefore also not be struck out now on this basis.

53. In relation to Yick Shing’s further arguments that any claims brought under Subcontract B are time-barred at the time of the amendments, I would reject them for the following reasons:

(1)  Firstly, the original Statement of Claim did not include a claim in respect of Subcontract B.  Yick Shing introduced Subcontract B into the proceedings in its Defence and Counterclaim. Consequently, the plaintiff amended its Statement of Claim to pursue a claim in respect of Subcontract B.  Yick Shing consented to the amendments (without reservation) and the same were made the subject matter of an order of the Court dated 5 November 2012[21]. It is now firmly established by the Court of Appeal in Hong Kong that under the “relation back” principle, an amendment once allowed and made automatically relates back to the date of the writ in the action[22]. It is therefore no longer open to Yick Shing now to challenge that the relation back does not operate in the present circumstances as contended by Mr Parker.  Yick Shing terminated Subcontract B on 18 April 2006, the claims regarding Subcontract B are therefore made within 6 years of the date of the writ (7 February 2012) and are not time-barred.

(2)  Secondly and in any event, even if the plaintiff’s claims in respect of Subcontract B are somehow time-barred, since Yick Shing itself relies upon Subcontract B to found its Counterclaim, the plaintiff is entitled to make (and does make) a Defence and Counterclaim to Counterclaim based on Sub‑Contract B.  The limitation point is, therefore, as submitted by Mr Pennicott, somewhat sterile.

54. For all the above reasons, I am not satisfied that the plaintiff’s claims are time-barred.  This ground for striking out must also fail.

C4. Clear evidence of payments not admitted by plaintiff

55. It is part of Yick Shing’s defence that it has paid True Light $25,535,000.  See paragraphs 12 and 13 of the Amended Defence and Counterclaim.

56. Under this ground of striking out, Yick Shing says there is irrefutable evidence (in the form of copies of invoices from True Light and copies of the cheques meeting those invoices from Yick Shing)[23] to show that it has paid the said $25,535,000 to True Light under Subcontract A.

57. However, the plaintiff only admitted at paragraphs 33-34 of the RARDC that $8 million-odd has been paid, but not admitting the rest of those sums.

58. Mr Parker therefore submits that it is vexatious and frivolous and an abuse of process for the plaintiff to maintain a claim for payment of a balance of only $8 million as opposed to $25,535,000.

59. There is nothing in this point.

60. The allegation of the non-admission of the payment of $25,535,000 arises in the pleadings in the following manner.

61. Paragraphs 12 and 13 of the Amended Defence and Counterclaim plead as follows:

“12. As to the payments made by Yick Shing to True Light in relation to Subcontract A:

12.1 Appendix-5 to True Light’s Amended Statement of Claim contains a table setting out all of the payments made by Yick Shing to True Light under Subcontract A. The said table lists the date and amount of each payment made by Yick Shing to True Light as well as the cheque number in respect of each payment;

12.2 the said table is accurate in all material particulars, save that there is a typographical error as to the date for the third last item, ie the payment of HK$250,000.00 by cheque number 643077, which should read ‘08-Oct-05’ instead of ’08-Oct-06’; and

12.3 all of the cheques listed in the said table were in fact paid by Yick Shing, and True Light duly deposited the same.

13. For the avoidance of doubt, the total sum paid by Yick Shing to True Light under Subcontract A was HK$25,535,000.00.”

62. In reply to these two paragraphs, the plaintiff pleads at paragraphs 33 and 34 of the RARDC as follows:

“33. Paragraph 12.1 refers to Appendix 5 of Annex 10 to the Amended Statement of Claim. Annex 10 is a letter from Massie & Clement (solicitors for Yick Shing) and Appendix 5 is a table produced by Massie & Clement. As such, the table of payments regarding Subcontract A at Appendix 5 are alleged payments. Except for the payments to True Light (under Subcontract A) specifically pleaded below, the Plaintiff does not admit any other payments were made:

Date	Payment (HK$)
6th January 2005	850,000.00
1st February 2005	580,000.00
22nd February 2005	400,000.00
1st March 2005	520,000.00
4th April 2005	470,000.00
26th April 2005	1,000,000.00
29th April 2005	580,000.00
1st June 2005	820,000.00
30th June 2005	460,000.00
16th July 2005	200,000.00
19th July 2005	400,000.00
2nd August 2005	160,000.00
18th August 2005	750,000.00
5th September 2005	360,000.00
21st September 2005	300,000.00
8th October 2005	250,000.00
5th November 2005	1,500.00
5th November 2005	2,000.00
TOTAL:	8,103,500.00

34.  Except as specifically admitted in paragraph 33 above, paragraphs 12.2 and 12.3 are not admitted and Yick Shing is put to strict proof.

35.  Paragraph 13 is denied.  Paragraph 33 herein is referred to.” (emphasis added)

63. Thus, what the plaintiff has been saying in its Amended Statement of Claim and the RARDC is that Yick Shing has provided through its solicitors (Massie & Clement) to True Light a table setting out what Yick Shing says were the payments (thus “alleged payments” as pleaded at paragraph 33 of RARDC).  The plaintiff however only admits that only $8,103,500 out the alleged payments had in fact been paid by Yick Shing.

64. On the other hand, as pointed out by Mr Pennicott, the plaintiff has further in paragraph 56 of the RARDC pleaded as follows:

“As of February 2006, large amounts of monies were due and owing from Yick Shing to True Light under Subcontract B. Annex 34B is referred to. Yick Shing’s default for Subcontract A and Subcontract B combined, is illustrated on Annex 38AA. Even if the payments that Yick Shing alleges were paid to True Light under Subcontracts A and B are admitted (which they are not) Yick Shing are still in default and owed money to True Light.”

65. Thus, it is the plaintiff’s further pleaded case that, even if the alleged payments of $25,535,000 had been made, Yick Shing still owed True Light some $15 million odd under Subcontract A[24].  There is thus still at least a triable issue on the claim for these $15 million odd outstanding payments.

66. In the premises, I do not accept that the claims in relation to Subcontract A are vexatious and frivolous and an abuse of process as contended by Mr Parker even if Yick Shing’s payments of $25,535,000 are indisputable.

67. I would therefore also refuse this ground for striking out.

D. CONCLUSION

68. For the above reasons, Yick Shing has failed in its striking out summons save its application to stay the action pending the joining of True Light as a party.

69. I will therefore dismiss the striking out applications but order that, subject to further orders, the action be stayed unless and until True Light acting through the Liquidators is formally joined as a party.  To avoid any doubts, the stay shall be automatically lifted when True Light is so joined.

70. Yick Shing is only successful in one of its applications.  Having taken into account all the circumstances of the applications, in particular that some significant court time was spent on the arguments on the nature of the assignment, I think it is just to order (on a nisi basis) that the plaintiff shall have two‑thirds of the costs of the summons, to be taxed if not agreed, and to be paid forthwith.  The cost order shall become absolute 28 days from today unless any of the parties applies to vary it by summons.

71. I further direct that (a) any applications to vary the costs order nisi or for leave to appeal (if necessary) shall be made before me, and (b) save as to the applications in (a), all future applications in relation to these proceedings, including the application for joinder (if any), shall be made to the Judge in charge of the Construction and Arbitration List.