SNE ENGINEERING CO LTD v. CHIM KEE MACHINERY CO LTD

CACV 101/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 101 OF 2016

(ON APPEAL FROM HCA NO 2025 OF 2012)

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_________________

D E C I S I O N

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Hon G Lam J (giving the decision of the Court):

1.  In paragraph 119 of our judgment handed down on 11 July 2017, we made a costs order nisi that SNE do pay Chim Kee 80% of the costs of the appeal and a costs order that SNE do pay Chim Kee the costs of the cross‑appeal, with a certificate for two counsel. By a summons dated 24 July 2017, Chim Kee seeks to vary the costs order nisi. By a further summons dated 26 July 2017, Chim Kee applies to amend the proposed costs order it seeks. There being no opposition to the amendment, we give leave to amend and deal with the application as amended on paper.

2.  Chim Kee essentially seeks a variation in two respects:

(1) that the costs of the appeal and of the cross‑appeal awarded to Chim Kee should include costs previously reserved, in particular the costs referred to in paragraph 5 of this court’s decision dated 15 May 2017;

(2) that the costs of the appeal and of the cross‑appeal, including any costs reserved, should from 9 June 2016 onwards be paid on an indemnity basis.

3.  Chim Kee’s application is supported by an affidavit of its solicitor.  We have also received written submissions of counsel on behalf of Chim Kee.  SNE has not taken any step in opposition to the application. 

4.  On the first point, the decision dated 15 May 2017 dealt with 5 summonses on paper, including an application for security for costs of the appeal, an application to strike out part of an affirmation, an application for leave to file an affirmation and applications to amend the security for costs summons and the strike out summons. 

5.  This court in its decision has actually dealt with the costs of and relating to the interlocutory applications in question: see paragraphs 2.22, 3, 4.1 and 4.3.  What was left over in paragraph 5 of that decision was the summary assessment of the costs ordered.  In these circumstances, it is in our view not open to Chim Kee to seek any variation now for an assessment of those costs on a higher scale. 

6.  As to the second point, we note that in our judgment dated 11 July 2017, the costs order in respect of the cross‑appeal was an order made on the basis of counsel’s agreement at the end of the hearing that costs should follow the event.  It was not made as an order nisi. There is no basis for us to reopen that costs order. 

7.  This leaves the question of the costs of the appeal.  Chim Kee accepts that the order nisi,ie SNE should pay 80% of the costs of the appeal on the party and party basis, should apply to the period of time up to 8 June 2016.  However, relying on two letters sent to SNE on 13 May 2016, Chim Kee contends that from 9 June 2016 onwards, it should have 100% of its costs and on the indemnity basis.  The first letter was expressed as a “sanctioned offer” whereas the second letter was sent as a Calderbank offer “without prejudice save as to costs”.  The offer in the letters was essentially the same, namely, that if SNE withdrew the appeal within the next 28 days, Chim Kee would withdraw its Respondent’s Notice (and thus its cross-appeal) with no order as to costs. 

8.  In the result, Chim Kee has clearly done better than its offer because while SNE succeeded on its appeal to set aside an award of $250,000 in favour of Chim Kee, Chim Kee succeeded in its cross‑appeal leading to an increase in the award in its favour for outstanding hire charges in the amount of $768,817.  Chim Kee has therefore improved upon the judgment sum below by a net sum of $518,817 as a result of the appeal and cross‑appeal.

9.  While it has been held that the regime of sanctioned offers in RHC O 22 does not extend to appeal proceedings (CEP Limited v Wuxi JiachengSolar Energy Technology Company Limited [2016] 1 HKLRD 960 at paras 51 to 64), there is nothing to prevent this court from taking account of Calderbank offers in the exercise of its discretion on costs: CEP Limited at paragraphs 65 to 67.  Indeed, in both CEP Limited (supra) and the subsequent case of Tin LikvDeutche Bank AG (unrep, CACV 145/2016, 23 August 2017), this court took Calderbank offers into account and awarded costs on a common fund basis. 

10.  The following circumstances are also relevant.  In the present case, SNE was asked by this court at the hearing of its application for stay of execution to bring greater focus to its appeal, which at that time was based on 35 grounds for “an all‑encompassing appeal against almost every aspect of the Judge’s decision” (see para 36 of this court’s decision on the stay application dated 15 July 2016).  The supplementary notice of appeal that substantially trimmed down the grounds of appeal was only filed on 15 November 2016. 

11.  As can be seen from our judgment in the appeal, of the 13 grounds of appeal in the supplementary notice, only one succeeded and then only in relation to a relatively minor part of the case, resulting in the setting aside of an award of $250,000 to Chim Kee, which was in the event exceeded in amount by the result of Chim Kee’s successful cross‑appeal.

12.  There were, moreover, certain grounds which seemed to us to be plainly unarguable, such as the grounds relating to the conspiracy plea and to the judges’ rejection of the basis put forward by SNE for its claim for damages.  It cannot be said, however, that the main subject matter of the appeal concerning the lawfulness of the termination of the machinery hire agreement in the light of the provisions of the tripartite rental agreement was patently unarguable (as acknowledged by this court in granting a stay of execution on terms in its decision dated 15 July 2016). 

13.  Taking all the relevant circumstances into account, we would exercise our discretion to order that SNE do pay Chim Kee 100% of the costs of the appeal from 9 June 2016 onwards on the common fund basis, to be taxed if not agreed.  There will accordingly be an order to vary the costs order nisi to that extent.  The costs of the variation application will also be to Chim Kee on the common fund basis, to be taxed if not agreed.

The Plaintiff/Appellant (SNE Engineering Co Ltd) did not lodge any written submissions

Written submissions by Mr Joseph Wong, instructed by Tsui & Co., for the Defendant/Respondent (Chim Kee Machinery Co Ltd)

CACV 101/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 101 OF 2016

(ON APPEAL FROM HCA NO 2025 OF 2012)

____________

____________

_________________

J U D G M E N T

_________________

Hon G Lam J (giving the judgment of the Court):

I. Introduction

1.  The action below, featuring both claims and counterclaims, arose out of the arrangements between the plaintiff (“SNE”) and the defendant (“Chim Kee”) for the hire of machinery (sometimes inclusive of operators) for pile removal works at a construction site for the Express Rail Link.  The trial judge, Deputy High Court Judge Burrell, dismissed all of SNE’s claims and gave judgment for Chim Kee on two of its counterclaims.  SNE now appeals to this court and Chim Kee cross‑appeals.

II.  Background

The project

2.  The construction of the Express Rail Link by MTR Corporation Ltd (“MTRC”) involved various sections of tunnel and underground works.  As the path of the rail line went through areas with pre‑existing foundation piles in the ground, it was necessary to remove certain H‑piles and bored piles at various sites to allow the tunnel boring machine to operate. One such site was situated near the Nam Cheong MTR Station, called Site 802.

3.  The main contract (no 802) for the removal of underground piles at Site 802 was awarded to Hsin Chong Construction Co Ltd (“Hsin Chong”) in January 2010.  Hsin Chong entered into two sub‑contracts with SNE both dated 11 March 2011 (nos. 8664/10 and 8800/11), for the removal of bored piles and H‑piles respectively, although works had begun as early as September 2010.  SNE in turn contracted with Chim Kee (among others) to hire the necessary machinery (sometimes inclusive of operators) to carry out the works under the sub‑contracts.  The equipment supplied was heavy machinery such as rotators, crawler cranes, truck cranes, casings and tools, sometimes with operators.

4.  There was another site, known as Site 820, where the main contractor was Dragages‑Bouygues JV, for which SNE was also the sub‑contractor. Likewise, SNE hired machinery (sometimes inclusive of operators) from Chim Kee to carry out the necessary works.

The machinery hire arrangement

5.  Although described in the judgment below as the Machinery Hire Agreement (“MHA”), it was common ground that the hire arrangement took the form of many separate agreements for the hire of individual machines.  In a few cases there was a document called rental agreement for a particular machine, but in most cases there was simply a rental quotation.  There was no one overall written supply contract between the parties.  The dealings were relatively informal, with oral discussions followed by written quotations from Chim Kee to SNE.  Some of the quotations were signed by SNE but some were not or were only signed after the machinery had been delivered. 

6.  The quotations recorded the equipment rented, the project in question (eg 802 or 820 as the case may be), and the rates for each item including overtime rates for workers where relevant.  Some quotations also stated a minimum hire period such as one month or two months.  The quotations (mostly) specified the payment term as “Within 30 days against invoice date” or (in some cases) “payment against invoice” depending on the type of machines.  Each of the quotations contained a statement:

“All transactions are subject to our General Conditions of Rental Agreement. Copy is available upon request.”

The General Conditions of Rental Agreement of Chim Kee were identical to another set of terms called “General Conditions of Hire”.  The judge found that they were incorporated as part of the machinery hire agreements.  There is no appeal against this finding.  These conditions included the following:

“1. COMMENCEMENT

The hiring shall commence on the date of this agreement and shall continue until determined as hereinafter provided.

......

4. PAYMENT

Invoices will be presented to the Hirer monthly in advance. All payment in settlement of invoices must be made within 10 days of the receipt of invoices without deduction, counterclaim or set‑off to the owner. In default of such payment, the Owner shall have the right of withdrawing the equipment from the service of the hirer without prejudice to any remedy, the Owner may have against the Hirer under this agreement and without prejudice to the Hirer’s claim for any balance repossessing the machine.

5. TERMINATION

(a) This agreement shall be terminated by either party to the other by giving SEVEN clear days’ written notice after the said minimum period.

(b) If the Hirer shall make default in payment of any of the sums payable hereunder or shall fail to observe or perform any of the other terms and conditions of this agreement whether expressed or implied, the Owner reserves the right to terminate the hire forthwith, and to take any steps necessary to recover possession of the equipment, without prejudice to their right to recover all amounts due for the hire, reconditioning to the equipment, if any, and the cost for transport to their stores.

6. RE‑POSSESSION

Upon the termination of this agreement pursuant to clause 5(b) hereof, the Owner may without notice retake possession of the equipment and all accessories, and may for that purpose by himself, his servants or agents without previous notice enter upon any land or premises on or in which the equipment or any of them are or are believed by the Owner to be situated.”

7.  Chim Kee began issuing invoices to SNE in November 2010.  From the start many invoices were paid more than 2 months and sometimes 3 months later.  SNE argued at trial that this gave rise to a waiver by Chim Kee of the payment terms in the quotations but this was rejected by the judge.[1] There is no appeal against this finding.

8.  It appears that from fairly early on in the course of the sub‑contracts with Hsin Chong, SNE had encountered cash flow problems.  SNE said this was caused by more adverse ground and pile conditions than originally contemplated and put the blame on Hsin Chong for not passing on to SNE any of the additional payment Hsin Chong obtained from MTRC.  The responsibility for the difficulties is not relevant for the purposes of this appeal.  What the problems led to was the involvement of Hsin Chong in making direct payment to Chim Kee of some of its invoices issued between March and December 2011 (as well as to a supplier of labour to SNE called Triangular Force).  Despite this, SNE continued to have cash flow problems and amounts owed to Chim Kee were accumulating.  By the end of the first quarter of 2012, Chim Kee had become quite concerned about the outstanding invoice sums.

Events leading to the TRA

9.  On 30 March 2012, following a meeting with SNE, Chim Kee wrote to request SNE to certify the payment amount up to date and confirm the payment schedule, saying “we need your payment to run our service, if you cannot settle the payment, we have no alternative but to stop our service”.  Within days, Chim Kee served a statutory demand on SNE for $10,399,066 being outstanding rentals calculated apparently up to February 2012. 

10.  On 11 April, SNE responded and proposed a timetable for paying the December 2011 outstanding amount of $929,055 by end of April 2012, the January 2012 invoices in the amount of $4,457,756.50 by end of May, and the February 2012 invoices in the amount of $4,568,097 by end of June, “subject to further on‑going checking and verification” for the January and February invoices.  It was stated that all amounts not verified would be disputed.

11.  On 19 April, SNE gave a cheque to Chim Kee for the December 2011 amount of $929,055.  Later, on the same day, Chim Kee replied to SNE that the proposed payment schedule was not acceptable and asked SNE to certify the payment amount up to date and settle all outstanding payments immediately.

12.  On 23 April, SNE wrote to Chim Kee urging it to be “more sensible and accommodating in the circumstances, especially when [Chim Kee’s] ultimate payment within a reasonable time is not in doubt”.  Chim Kee swiftly replied on 24 April, stating:

“... we do not agree your payment schedule because it is not reasonable. We ask you for payment immediately unless you can provide full guarantee from other parties. We will continue our action in order to protect our interest.”

13.  On 27 April, following a meeting with Hsin Chong, SNE wrote to request Hsin Chong:

“to pay the following outstanding payment to Chim Kee through SNE account as soon as possible, and we will provide the evidence of payment immediately after payment to Chim Kee. …

1. Invoice for January, 2012 in the amount of HK$4,389,296.50

2. Invoice for February in the amount of HK$3,697,249

3. Invoice for March 2012 is on‑going checking and verification. We will inform you immediately after completion of our checking and verification.

4. Invoice for April 2012 was not issued to SNE yet.

All necessary invoices issued by Chim Kee will be passed to your QS accordingly.”

14.  On 2 May, Chim Kee wrote to SNE stating:

“After several discussions, SNE still cannot settle the outstanding amount on time.

In order to protect our interest, effective from 02 May 2012, all our equipment and operator service that now are using at 802 Project would be stop at anytime unless we get guarantee payment for all outstanding amount and further rental from the Main Contractor “Hsin Chong Construction Co. Ltd.” and/or MTRC.”

15.  On 17 May, with funds advanced from Hsin Chong, SNE paid $8,086,545.50 to Chim Kee, comprising the two sums of $4,389,296.50 and $3,697,249 for January and February respectively.  Chim Kee’s receipts for these amounts stated, however, that the first sum was for payment of “11–12/2011, 1/2012 — partial” and the second sum “2/2012 — partial”.

16.  On 23 May, Hsin Chong, SNE and Chim Kee entered into what has been called the Tri‑partite Rental Arrangement (“TRA”). The TRA was typewritten on Chim Kee’s letterhead and signed by Chim Kee and countersigned by SNE and Hsin Chong in acceptance and acknowledgment.  It was headed “Rental Arrangement” and provided:

“Regarding to our rental service of equipment and operator to the above project, there is mutually agreed between the above three parties that the Main Contractor, Hsin Chong Construction Co., Ltd. would pay on behalf of SNE Engineering Co., Ltd. to Chim Kee Machinery Co., Ltd. for the service of equipment and operator to XRL802 job site for the amount to be certified by SNE; OR the reasonable amount to be assessed by Hsin Chong based on available information if SNE fails to duly certify within 21 days upon receipt of the payment application submitted by Chim Kee Machinery Co., Ltd. to SNE Engineering Co., Ltd. and copied to Hsin Chong Construction Co., Ltd., where adjustments (if necessary) shall be made in due course to the amounts that shall be agreed between SNE Engineering Co., Ltd. and Chim Kee Machinery Co., Ltd.”

Events after TRA

17.  Subsequently, SNE obtained funds from Hsin Chong and, on 13 June, SNE paid Chim Kee $3,841,751 by cheque for the March invoices and remitted $3,758,249 to Chim Kee by bank transfer for the April invoices (totalling $7.6 million).  Chim Kee’s stance was that these were only partial payments of the invoices.

18.  On 26 June, Chim Kee issued an ultimatum to SNE (copied to Hsin Chong) referring to three “outstanding issues”, saying SNE still owed Chim Kee:

“(1) certified invoices and payments of March & April 2012;

(2) signed quotation as listed on Section A;

(3) signed agreement on rental period starting from 01 June 2012”

Item (3) seems to be a reference to an agreement drafted by Chim Kee on about 23 May for the hire period of all the equipment being used at Site 802 to be extended for at least 6 months from 1 June 2012.  It had not been signed by SNE.

Chim Kee’s letter continued to state:

“Due to the past experience for pending issues, calling for payment and your misleading actions in the crane rental market. We have no choice but only to stop our service at MTRC 802 job site after 03 July 2012 if you do not settle all outstanding issues on or before this Friday (29 June 12).”

19.  On the same day, Hsin Chong served on SNE a notice of breach of sub‑contract 8800/11 on the basis that SNE had failed to use the interim payments from Hsin Chong to pay SNE’s sub-contractors.  Hsin Chong threatened to withhold further interim payments and use such money to settle directly the payment or wages of the workers for and on behalf of SNE pursuant to the sub‑contract.  Hsin Chong also expressed concern that some equipment such as rotators might be withdrawn by SNE’s sub-contractors, which was, it would seem, a reference to Chim Kee.

20.  On 26 June, SNE wrote to Hsin Chong asking for special payment “through SNE account” to settle Chim Kee’s May invoices. 

21.  On 28 June, SNE replied to Chim Kee.  SNE stated that the March and April amounts were certified at $3,841,751 and $3,355,495 respectively.  It signed some of the quotations as requested by Chim Kee.  It asked Chim Kee to issue a new rental agreement and SNE would propose their estimated hire period.

22.  On 29 June, Chim Kee replied that the amounts certified by SNE for March and April 2012 were partial payments only and asked SNE to certify all outstanding invoices of March and April and arrange for payment immediately.

Chim Kee’s termination

23.  Finally, on 3 July, following a meeting between their representatives, Chim Kee gave notice to SNE that it was terminating the hire arrangements, stating:

“As SNE fails to provide any commitment on repayment, compensation of damaged equipment and rental period of equipment, we have no choice but to terminate our service at MTRC 802 job site immediately.”

SNE took the position that Chim Kee was not entitled to terminate the MHA and that this purported termination was a wrongful repudiation. 

24.  On the same date, Hsin Chong issued a letter to SNE and took over SNE’s sub‑contracts works, saying:

“As such, we have no choice but to take control of your Sub‑Contracts Works immediately on your behalf.”

25.  There followed what the judge described as a “period of uncertainty” and “period of chaos” until 26 July.[2] On the next two days Hsin Chong took over the site.  SNE’s workers were apparently stopped from entering it.  They staged a protest and it appears that the steps for Hsin Chong formally to take over were halted after 5 July.

26.  SNE claimed that when their workers went back to the site on 6 July, they found that Chim Kee’s workers were deliberately operating slowly or simply refused to work.  This went on for several days.

27.  Meanwhile, at noon on 6 July, Mr Stephen Wai of SNE together with SNE’s solicitor had a meeting with Mr James Tang of Chim Kee and Mr Frankie Lam of Hsin Chong.  There was a dispute about what was agreed at the meeting, and the judge found that Chim Kee only agreed to “stand by” and that there was no agreement to resume work for SNE. 

28.  On 10 July, Chim Kee’s solicitors sent SNE’s solicitors a statement of account showing an outstanding amount of $9,192,474.50 up to end of June. 

29.  On 11 July, SNE wrote to Hsin Chong (copied to Chim Kee) stating that it accepted Chim Kee’s termination and would mobilize new resources immediately to carry on the sub‑contract works.  Thereafter it was SNE’s case that it asked Chim Kee to demobilize its machinery and vacate the site but Chim Kee did not do so and obstructed SNE’s workers in performing their work.  Chim Kee’s position was that it needed a demobilisation plan and the consent of Hsin Chong and/or MTRC in order to remove the machinery.  On 24 July, SNE obtained an ex parte injunction from the High Court to require Chim Kee to remove its machinery out of the site.  The order as amended was served on 25 July (though it was later discharged on 10 August on the grounds of non‑disclosure and lack of justification for an ex parte application).

30.  On 26 July, Hsin Chong issued a notice under sub‑contract 8800/11 to take over part of the sub‑contract works, and divided the site into two areas: a smaller working area for SNE and the larger remaining area for Hsin Chong.  It appears that pursuant to the injunction, Chim Kee soon removed its machinery from SNE’s part of the site. 

31.  On 1 August, Chim Kee presented a petition to wind up SNE on the basis of an outstanding balance of $9,192,474.50.  This was subsequently struck out by the court in May 2013 on the ground of potential cross‑claims and substantial disputes over the debt, with SNE having indeed issued the writ of summons in these proceedings in October 2012.

32.  On 11 and 20 September 2012, Hsin Chong served on SNE notices of termination of sub‑contracts 8664/10 and 8800/11 respectively with immediate effect.  There are still ongoing disputes between SNE and Hsin Chong arising from the sub‑contracts which are apparently the subject matter of arbitration proceedings.

Storage of SNE’s equipment in Chim Kee’s workshop

33.  Separately, since September 2010, SNE had had a separate, discrete agreement with Chim Kee for the storage of SNE’s equipment in Chim Kee’s workshop in Fanling.  SNE terminated this agreement on 1 March 2012 and asked for the return of the plant and machinery stored.  SNE claimed that Chim Kee had wrongfully detained them while Chim Kee said SNE had refused to pay a lifting fee for the removal of the machines.

III.  The parties’ claims

34.  At trial, SNE claimed the following:

(1) A declaration that Chim Kee was not entitled to terminate the MHA in July 2012.  Damages for loss occasioned by Hsin Chong’s termination of SNE’s two sub‑contracts, being loss of profit in the sum of $34,061,327.45; and/or an indemnity for such damages that SNE may be liable to pay Hsin Chong.  Damages reflecting SNE’s liability to pay Hsin Chong for amounts incurred by Hsin Chong in completing the sub‑contracts in the sum of $84,237,390.61 under sub‑contract 8800/11 and $3,923,131.52 under sub‑contract 8664/10.

(2) Return by Chim Kee of a total sum of $3,815,330.58 being monies allegedly overpaid by SNE under the MHA before termination.

(3) Damages for breach of an implied term of the MHA as a result of Chim Kee’s deliberate slow operation of the machinery from 3 July to 11 July 2012 and its failure to remove its machinery from the site thereafter in the sums of $1,575,934.08 and $1,330,691.74.

(4) Damages for the tort of conspiracy between Hsin Chong and Chim Kee to injure SNE for the amounts referred to in (1) above.

(5) Damages for loss suffered by SNE caused by Chim Kee’s wrongful detention of SNE’s property at the workshop in Fanling, being the cost of renting alternative equipment and certain administration fees, for $666,280 up to 30 November 2012 and for $116,236 per month thereafter.

35.  Chim Kee’s counterclaims were as follows:

(1) Outstanding rental charges under the MHA for pre‑May 2012 in the total sum of $897,747.

(2) Outstanding rental charges under the MHA for May and June 2012 in the total sum of $7,986,827.

(3) Rental charges for use by SNE of Chim Kee’s machinery for July 2012 (up to 27 July 2012) in the sum of $3,309,306.

(4) Storage charges at the Fanling workshop from 1 March 2012 onwards in the sum of $387,900.

(5) Rental charges or damages for two sets of casings, two guard houses and one soil tank which were hired by SNE but allegedly either not returned or returned badly damaged.

IV.  The judgment below

36.  The judge, having rejected the argument of waiver[3] (see §7 above), held that the payment terms in Chim Kee’s quotations had not been varied by the TRA.  He did this on two grounds.  First, the TRA provided only an alternative payment method — a “second string to the bow” or “safety net”, but not a substitution of the existing payment terms.  As a result, “the primary obligation to pay Chim Kee remained on SNE”.[4]  Secondly, the judge held that no consideration flowed from SNE for any variation of its payment obligation.[5]

37.  The judge found that as at 3 July 2012, $4,993,916 was outstanding for pre‑June invoices and this sum together with the June invoices remained unpaid.  He found that SNE had not proved that Chim Kee’s termination was anything other than a valid exercise of its right to terminate the MHA pursuant to clause 5(b) of the General Conditions of Hire.[6]

38.  On SNE’s claim for breach of implied term based on the events between 3 and 26 July 2012, the judge was prepared to find that the implied term contended for by SNE existed but held it did not survive termination of the MHA on 3 July 2012.[7] He found that, in any event, it was reasonable for Chim Kee to require a demobilization plan and the consent of Hsin Chong and MTRC’s Engineer for removal of the machinery.[8]  He concluded that SNE failed to prove that any loss it suffered from the events of 4 — 26 July was Chim Kee’s liability.  Finally, the judge also held there was insufficient evidential basis for the amounts claimed by SNE in this regard ($1,575,934 and $1,330,691).[9]

39.  The judge rejected SNE’s claim for overpayment, dismissing it as a “post‑termination afterthought”.  He gave various reasons for concluding that the palm prints method relied on by SNE was flawed and not a reliable method.[10]

40.  As to SNE’s claim for damages for wrongful detention of its equipment in the Fanling workshop, the judge found that Chim Kee’s insistence on the provision of an indemnity against injury or loss before SNE could arrange its own collection was “unduly obstructive”.[11] He dismissed SNE’s claim, however, because SNE had admittedly not paid any of the invoices for renting alternative equipment which made up the substantial part of the $666,280 claim and there was no other evidence as to quantum.[12]

41.  The judge also dismissed SNE’s conspiracy claim both on the ground that the pleading was deficient and that the facts did not support the alleged conspiracy.[13]

42.  As for Chim Kee’s counterclaims, the judge upheld its claim for outstanding hire charges for May and June 2012 and an unpaid pre‑May balance.  He adopted Chim Kee’s calculation of the pre‑May balance at $897,747, but adopted the figure of $7,218,010, which was the median between the amount invoiced by Chim Kee ($7,986,827) and the amount certified by SNE ($6,449,193), for the May and June charges.[14]  He declined to award any July 2012 hire charges to Chim Kee.[15]

43.  For the storage of equipment in Fanling, the judge allowed Chim Kee a sum of $250,000 as storage charges from March to October 2012 (reduced from $387,900 claimed by Chim Kee) and disallowed any charges after October 2012.[16]

44.  The judge rejected Chim Kee’s counterclaim for the loss of or damage to the casings, guard houses and soil tank.[17]

V.  The scope of the appeal and cross‑appeal

45.  The grounds for SNE’s appeal are set out in its Supplementary Notice of Appeal.  Broadly speaking, SNE contends:

(1) The judge was wrong to hold that Chim Kee was entitled to terminate the MHA.  The termination was unlawful because of the existence of the TRA: Grounds 1 and 7.  The judge should have awarded damages and ordered an indemnity: Ground 10.

(2) The judge was wrong in holding that the implied term SNE contended for did not survive termination, in making no findings whether Chim Kee obstructed SNE’s work, in failing to hold that Chim Kee breached the implied term, and in rejecting the evidence of SNE’s loss as a result of the breach of implied term: Grounds 2, 3, 4, 5, 8, 10.

(3) The judge should have rejected Chim Kee’s claim for storage fees from March to October 2012 and should have awarded damages to SNE for wrongful detention of goods: Grounds 10 and 11.

(4) The judge should have upheld SNE’s conspiracy claim on the pleading and on the facts: Grounds 12 and 13.

46.  Ground 6 is not pursued.  Ground 9 raises a complaint that the judge made certain findings that concern the dispute between SNE and Hsin Chong.  However, as Mr C Y Li SC, who appeared for SNE on this appeal (but not below), admitted, this ground is not being relied upon to impugn any of the orders made by the judge or in support of any relief sought from this court.  It follows that, on settled practice, there is no basis for us to entertain this ground: Lake v Lake [1955] P 336.  We may add that it seems to us that the judge carefully took it upon himself to refrain from making any findings in relation to the dispute between SNE and Hsin Chong as far as possible.

47.  Chim Kee’s cross‑appeal is limited to the quantum of the May and June hire charges.  It contends that the judge was wrong to take the median between the invoiced amount and the amount certified by SNE, and should have simply adopted the former (see §42 above).  This, if successful, would increase the judgment on the counterclaim by a principal amount of $768,817.

48.  We discuss these issues in turn below.

VI.  Termination of MHA by Chim Kee

49.  While Chim Kee’s letter of termination referred to SNE’s failure to provide any commitment on repayment, compensation for damaged equipment and rental period of equipment, the only pleaded basis for Chim Kee to terminate the MHA on 3 July 2012 was SNE’s failure to pay outstanding hire charges.  Both parties proceeded in the court below and in this appeal on the basis that the termination was pursuant to clause 5(b) of the General Conditions of Hire, not for any repudiatory breach by SNE whether by default in payment or otherwise, and that the relevant question is whether Chim Kee was entitled to invoke clause 5(b).

Whether invoices were due

50.  Mr Li submitted that Chim Kee was not entitled to ask for $9,192,474.50 as it did as at 3 July 2012 because this amount covered invoices issued in June 2012 which had not become payable as they were less than 30 days old.  The point is not in the notice of appeal but, in any event, as Mr Ian Pennicott SC, who appeared for Chim Kee, pointed out, the judge found there was a pre‑May balance of $897,747 outstanding and there were also the May invoices which were issued on 31 May 2012 and hence more than 30 days before 3 July.

Termination of MHA and TRA — Ground 1

51.  Mr Li’s main submission on termination centres around the TRA.  There are two points raised: what the TRA meant and whether it was supported by consideration.

52.  The meaning of the TRA, being a written agreement, is to be ascertained as a matter of construction of its written terms.  We accept that in this exercise the subsequent conduct of the parties is generally not admissible: James Miller & Partners Ltd v Whitworth Street Estate Ltd [1970] AC 583 at 603; Marble Holding Ltd v Yatin Development Ltd (2008) 11 HKCFAR 222, §22; The New China Hong Kong Group Ltd (in liquidation) v AIG Asian Infrastructure Fund LP (unrep, CACV 24/2008, 12 February 2009), §78.  Insofar as the judge derived support for his construction of the TRA from SNE’s request made in June 2012 to Hsin Chong for funds to enable SNE itself to pay Chim Kee, this was impermissible.[18]

53.  There was some uncertainty as to what, on SNE’s case, the precise legal effect of the TRA was.  SNE’s Reply pleaded that under the TRA, payment to Chim Kee was “guaranteed” by Hsin Chong.  Mr Li submitted, however, that the TRA provided for “vicarious performance” of SNE’s payment obligation by Hsin Chong, in the sense in which that phrase is used in Chitty on Contracts (32^nd ed), Vol 1, §19–082:

“Vicarious performance. A contracting party can in the case of many contracts enter into an arrangement by which some other person may perform for him, as far as he is concerned, the obligations of the contract, and the other contracting party will be obliged to accept that performance if it is performance in accordance with the terms of the contract. The contracting party will, however, be liable for any breach that may happen, and the other contracting party is not bound or, indeed, entitled to sue the substituted person for breach of contract …”

54.  As Lewison LJ stated in the English Court of Appeal’s decision in North v Brown [2012] EWCA Civ 223 (para 8), vicarious performance is “a means by which one party to a contract performs his own obligations under that contract.  It is not a means by which anyone else has rights under the contract, let alone becomes party to it.”  An arrangement purely for vicarious performance does not in any way alter the rights and obligations between the original contracting parties.  It seems to us that SNE’s case, as advanced in this appeal, is not limited to vicarious performance as such because it contends that Hsin Chong was a party to the TRA and undertook certain obligations pursuant to it and the contractual position between SNE and Chim Kee was varied by the TRA.  Precisely what obligation Hsin Chong undertook (on SNE’s case) is unclear: counsel’s skeleton stated that Hsin Chong “assumed the responsibility” to pay rental fees to Chim Kee on behalf of SNE, but at the hearing Mr Li, after some vacillation, submitted that while Chim Kee had a right to ask Hsin Chong for payment, it could not sue Hsin Chong if it failed to pay.  The final position of Mr Li’s submission, as we understand it, is that the TRA varied the MHA so that, for relevant invoices:

(1) Chim Kee had to look to Hsin Chong for payment of the invoice amounts first;

(2) Chim Kee could not seek to recover them from SNE unless Hsin Chong failed to pay;

(3) if Hsin Chong failed to pay, Chim Kee could not sue Hsin Chong but would have to pursue SNE who would be liable to pay;

(4) Chim Kee could not terminate the MHA for non‑payment by SNE in reliance on clause 5(b) of the General Conditions of Hire without first seeking payment from Hsin Chong.

55.  In contrast, Mr Pennicott submitted on behalf of Chim Kee that the TRA merely provided another source of payment to Chim Kee and did not absolve SNE’s liability to settle Chim Kee’s invoices.  It was for Chim Kee to submit payment application to SNE and this Chim Kee had done.

56.  We are prepared to accept that the TRA was prompted by the demands made by Chim Kee since April 2012 and in particular the threat in the letter of 2 May that all services would be stopped at any time unless payment of all outstanding amounts and future rentals was guaranteed.  Mr Li submitted that the intention must have been that the TRA was to provide such assurance to Chim Kee so that it could carry on supplying its equipment and operators effectively without any risk of not getting paid.  The intention of the parties to the TRA (including Hsin Chong who was not party to the preceding correspondence) must, however, be found in the terms of the contract properly construed in its context and having regard to its commercial purpose.  In our view, properly construed, the TRA did not prevent Chim Kee from terminating the MHA pursuant to clause 5(b).

57.  First, on its proper construction, it seems to us the arrangement envisaged in the TRA operated prospectively, and did not extend to past invoices.  This is in our view evident from the wording of the TRA.  It referred to payment for service “for the amount to be certified by SNE”, and amount “to be assessed” by Hsin Chong if SNE “fails to certify within 21 days upon receipt of the payment application”.  The language of the TRA is inapt to cover invoices already submitted by Chim Kee, especially those already certified by SNE.

58.  As mentioned in §13 above, on 27 April, SNE had already written to ask Hsin Chong to help with payment of Chim Kee’s invoices from January to April “through SNE account” (which seems to mean the provision of funds to SNE to be paid on to Chim Kee), and indicated that the March invoices were being checked by SNE and would be passed to Hsin Chong’s quantity surveyor.  The January and February invoices were indeed paid by SNE itself with funds from Hsin Chong on 17 May.  As at 23 May, the date of the TRA, the March and April invoices had been issued for over 21 days.  There is nothing to suggest that the TRA was intended to replace this arrangement between SNE and Hsin Chong for the March and April invoices.  There is no provision in the TRA for the March and April invoices to be “re‑issued” so as to be certified by SNE within the next 21 days or for them to be assessed by Hsin Chong forthwith on the basis that SNE had already failed to certify.

59.  On this basis, since the judge found that there was an outstanding balance of $897,747 on the pre‑May invoices (as mentioned in §42 above), as to which there is no appeal, there was plainly “default in payment” of that sum within the meaning of clause 5(b).  Indeed, the ultimatum issued by Chim Kee (quoted in §18 above) specifically stated that SNE still owed it “certified invoices and payment of March & April 2012”.  On this basis alone, Chim Kee was entitled to exercise the right to terminate the MHA under that clause notwithstanding the TRA. 

60.  Further, in our view, there is force in Mr Pennicott’s argument that the payment mechanism under the TRA was not inconsistent with the 30‑day payment period prescribed in the quotations or with clause 5(b). Under the TRA, it was for SNE to certify the amount for payment and, if certification was done by SNE in good time, there should be no reason why Hsin Chong could not pay Chim Kee shortly thereafter.  It is only where SNE “fails to duly certify within 21 days” that Hsin Chong would have to step in to assess the amount due.  Mr Li said Hsin Chong would need a reasonable period of time, say 14 days, to carry out the assessment.  This assertion lacks evidential basis since what a reasonable time might be was not investigated at trial.  On the terms of the TRA the assessment was to be “based on available information” which tends to militate against any lengthy investigation.  We are unable to discern an objective intention of the parties that SNE could, by failing to certify, obtain a longer credit period for payment for Chim Kee’s services.  We reject counsel’s contention that the payment period was altered to an “unspecified period following certification by P (within 21 days) or assessment by HC”.  In our opinion, there is no foundation to suppose that the 30‑day payment term or clause 5(b) was abrogated or varied by the TRA by necessary implication.

61.  As a matter of commercial reality, it can be seen from Chim Kee’s letter of 2 May (§14 above) that it was seriously dissatisfied that SNE could not settle outstanding amounts on time, and was proposing to withdraw its services at any time unless there was some guarantee of payment.  The January, February and March invoices were by then overdue in full. While Chim Kee wished to have the benefit of some kind of guarantee in order for it to continue the relationship, we do not think it demonstrated an intention that if future payment was guaranteed it need not be made on time. The TRA gave Chim Kee the requisite assurance so that it would be willing to continue with the existing arrangement with a 30‑day credit period for SNE (equivalent to a longer credit period for services rendered at the beginning of the month since they were only invoiced at month‑end).

62.  Thirdly, as explained above, SNE’s submission that the TRA essentially provided for vicarious performance of SNE’s obligations to Chim Kee would suggest that the right of Chim Kee to terminate the MHA under the General Conditions of Hire continued unaltered.  Vicarious performance arises from the procurement by one person of another to perform the former’s contractual obligations to a third party.  Such an arrangement affects neither the content of the contractual obligations nor the consequences of a breach thereof.

63.  Mr Li submitted that Chim Kee should have asked Hsin Chong for payment first before terminating the MHA for default in payment.  But, in general, it is for the party who has to perform a contractual obligation to procure vicarious performance of it if he wishes.  Insofar as Hsin Chong had by the TRA undertaken an obligation to render vicarious performance, it was for Hsin Chong to pay the amount certified by SNE or assessed by itself if SNE failed to certify.  The fact is that for the invoice amounts overdue as at 3 July (ie the balance of the March and April invoices, and the May invoices), SNE had neither itself paid nor procured Hsin Chong to pay Chim Kee direct.  There is nothing in the TRA to suggest that Chim Kee must first pursue Hsin Chong for payment before exercising any right to terminate.

64.  For these reasons also, we agree with the judge’s conclusion that the TRA did not replace clause 5(b) or the 30‑day payment term.  It follows that by 3 July, Chim Kee was also entitled to invoke its right to terminate for default in payment of the May invoices which were issued on 31 May.

65.  As to the consideration for the TRA, the issue that has arisen is whether any consideration moved from SNE as the promisee. This question can in our view be answered shortly.  Mr Pennicott, rightly in our view, did not press his argument that no consideration moved from SNE.  There clearly was consideration because ordinarily it would be for Hsin Chong to make interim payment to SNE under the sub‑contracts and for SNE to pay its own suppliers (unless a relevant clause of the sub‑contracts was invoked by Hsin Chong).  If, in accordance with the TRA, Hsin Chong was to pay an invoice of Chim Kee directly, Hsin Chong would deduct that amount from the interim payments to which SNE would otherwise be entitled under the sub‑contracts to receive from Hsin Chong and SNE would lose the benefit of having that amount of cash flow via itself.  We would therefore respectfully disagree with the judge on his conclusion that there was no consideration from SNE.  In light of the above, however, this is not material to the outcome.

Termination of Triangular Force — Ground 7

66.  By this Ground SNE complains that the judge was wrong to take into account SNE’s termination of Triangular Force on 27 June 2012 and to hold that, with diminished labour, work on site further deteriorated with more risk of non‑payment to Chim Kee.[19]

67.  This was not a pleaded basis for termination of the MHA.  Chim Kee’s case at trial was not that SNE had repudiated the MHA or committed an anticipatory breach.  Accordingly, we agree that this incident was irrelevant to whether or not the termination was lawful.  However, although the judge did mention the incident, he did so as part of the narrative without, in our view, relying on it as a ground for termination of the MHA by Chim Kee. This Ground therefore falls away.  Mr Li submitted that in fact the evidence showed that this termination had very limited effect on the site works but it is unnecessary for us to deal with this.

Evidence of loss from termination — Ground 10

68.  In light of the conclusion above, it is unnecessary to deal with the alleged consequences of unlawful termination.  We would nevertheless add that, in our view, SNE’s alleged loss of profit in the sum of $34,061,327.45 said to be caused in part by Chim Kee’s wrongful termination was not properly substantiated at trial.  All that was produced was a schedule (Table C annexed to the statement of claim) which simply listed the total amounts of Hsin Chong’s interim payments up to 30 September 2013 and rental fees charged by two Japanese suppliers for equipment detained in the site, with a profit margin figure of 15% applied to the sum of those amounts.  Neither the quantity surveyor nor the claims consultant who were said to have prepared the schedule gave any evidence or written explanation of it.

VII.  SNE’s claim for breach of contract based on events between 3 and 26 July 2012

69.  On SNE’s appeal in relation to its claim for breach of an implied term, issues in the following areas arise: (i) whether the implied term survived termination of the MHA; (ii) what was agreed on 6 July 2012; (iii) whether 3 to 26 July 2012 was a period of chaos; (iv) the requirement of demobilisation plan and consent of Hsin Chong and MTRC; and (v) evidence of the loss suffered by SNE.  We shall discuss them in turn below.

Existence of implied term — Ground 2

70.  SNE contended for this implied term in the MHA:

“[Chim Kee] shall not obstruct or cause delay to [SNE’s] works unreasonably by committing any wilful acts or omissions during or after the expiration or earlier termination of the [MHA].”

71.  The judge was persuaded that such a term may be incorporated as contended for during the term of the MHA but held that there was no such implied term after termination.  Although the language of the alleged implied term as pleaded included the period after termination, obviously what the judge meant was that the obligation contended for (ie not to obstruct or cause delay to SNE’s works unreasonably by committing any wilful acts or omissions) existed during the term of the MHA but not afterwards.  If there was deliberate obstruction by Chim Kee after termination, the judge said that SNE would have a cause of action, possibly trespass, but not for breach of an implied term.

72.  It is important to note that we are not concerned with a narrowly formulated implied term that, for example, required an orderly removal of the machinery as soon as practicable after termination.  Instead, SNE contends for a very wide term (i) unlimited in time save perhaps with reference to the duration of the sub‑contracts, (ii) unlimited in the kind of acts or omissions prohibited, (iii) applicable in a situation where the parties are no longer in an owner and hirer relationship, and (iv) which seeks to impose restrictions on Chim Kee’s freedom, after the contract has ended, by reference not to lawfulness but to the elusive test of reasonableness.  Such a term is, in our view, neither equitable nor necessary; nor is it obviously what the parties must have intended when Chim Kee started renting machines to SNE in 2010.  The term was not necessary to give effect to the reasonable expectations of the parties: Tadjudin Sunny v Bank of America, National Association (unrep, CACV 12/2015, 20 May 2016), §41. Whether assessed on the basis of the five conditions set out by Lord Simon in B P Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1978) 52 ALJR 20 at 26[20] or the single question posed by Lord Hoffmann in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 at §21,[21] we agree with the judge that no such term was to be implied into the MHA post‑termination.

Agreement on 6 July 2012 — Ground 3

73.  This Ground concerns what was agreed at a meeting at noon on 6 July 2012.  The meeting was attended by Mr Stephen Wai of SNE, SNE’s lawyer Mr Robert Lee, and Mr James Tang of Chim Kee.  Mr Frankie Lam of Hsin Chong attended apparently as an observer.

74.  SNE wrote after the meeting to record that it had confirmed it would hire Chim Kee’s machinery for another 3 months and Chim Kee had confirmed that it would immediately resume the works and provide continuing service.  This was followed by SNE’s solicitors’ letter on the same day saying it was their understanding that Mr Wai and Mr Tang had reached an agreement at the meeting that Chim Kee would cooperate with SNE and resume the works with immediate effect subject to certain confirmation that had since been given.  The solicitors requested Chim Kee to resume the works immediately and stated that unless that was done by the following morning, SNE would have no alternative but to terminate Chim Kee’s services.  There was also a telephone call between Mr Wai and Mr Tang in the evening after the letters.  SNE’s account of the meeting was denied by Mr Tang in an email at 10 am the next day which stated:

“As your telephone call at 19:00 yesterday, you and your company had served my company a lawyer letter. I believe that you have misinterpreted the meeting at 12:00 pm yesterday. We had not reach any agreement. The meeting was only a chance for expressing your point of view.

I would ask for formal meeting in the coming Monday to discuss our misunderstandings.  Pls arrange place of meeting at 16:30 9TH JULY 2012.  Meantime, my staffs will stand‑by on site mtrc 802 to assist you so nothing get disturbance.”

75.  While Mr Tang appeared to have said in cross‑examination that during the meeting, Chim Kee had agreed to continue to provide services to SNE for a further 3 months[22], in re‑examination he confirmed the account given in his email.[23] The judge accepted Mr Tang’s version of the events.

76.  Mr Wai was not called as a witness at trial.  Mr Matsumoto, who gave evidence for SNE, claimed that he attended the meeting but that was not what his witness statement or SNE’s solicitors’ contemporaneous letter suggested.  In his statement, he only said “an accommodation was apparently reached”.

77.  On this evidence and on established principles (see Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336), there is in our view simply no basis to impugn the finding of fact by the judge as to what was agreed or not agreed at the meeting.  In any event, nothing really turns on this for there is no separate cause of action pleaded for breach of the agreement on 6 July, and it is common ground that by 11 July any hire arrangement had come to an end.

Whether Chim Kee had stood by under SNE’s instructions — Ground 4

78.  At §56 of his judgment, referring to the agreement on 6 July, the judge said this:

“Chim Kee’s agreement was to ‘stand by’. This they did under SNE’s instructions until 11 July, the day on which SNE ‘accepted’ that the MHA had been terminated.”

79.  SNE takes issue with the suggestion that it instructed Chim Kee to “stand by”.  Instead, it is said, it had repeatedly complained to Chim Kee that its workers were idling or working in deliberately slow motion.  The slow operation between 6 and 11 July was relied upon by SNE as a breach of the implied term.  We do not think the judge meant that SNE instructed Chim Kee’s workers to stand idly by or to work in deliberate slow motion, which would be contrary to common sense. He was simply referring to his conclusion that he preferred the evidence of Mr Tang on what was agreed at the 6 July meeting.

80.  SNE produced photographs and video recordings at trial with a view to showing that Chim Kee’s workers were idle or working in deliberate slow motion between 6 and 11 July.  The judge did not make any finding on this allegation.  Given our conclusions on the other aspects of the claim for breach of implied term, we decline to make such finding for the first time.

“Period of chaos” — Ground 5

81.  By this Ground, SNE contends that the judge’s characterisation of the period of 3 to 26 July 2012 as a period of chaos was inconsistent with the evidence.  SNE submitted there was no “chaos”: the operation at the site had almost come to a complete halt due to Chim Kee’s refusal to operate the machines up to 11 July and to remove them between 11 and 26 July.  It seems to us that this is an argument on semantics.  By that expression, the judge probably meant no more than that it was a period during which the people involved did not know with any certainty what their position was.

82.  Plainly a lot of disputes arose during this period.

(1) On 3 July, Chim Kee gave notice of termination of the MHA, the validity of which SNE disputed.

(2) Hsin Chong also gave notice and took control of the sub‑contract works on 4 July.  Chim Kee’s workers seem to have worked under the direction of Hsin Chong’s foreman during 4–5 July.  There was a short labour strike on 5 July and SNE workers appeared to have regained access to the site.  A meeting was held at noon 6 July, but SNE and Chim Kee were in dispute even as to what in fact transpired at the meeting.

(3) On 11 July, SNE gave notice that it “accepted” Chim Kee’s wrongful termination, whereas Chim Kee of course took the view that the MHA had already been lawfully terminated on 3 July.

(4) From 11 to 24 July, SNE issued a series of letters demanding that Chim Kee leave the site, while Hsin Chong sent numerous letters to SNE complaining about poor performance which SNE denied.  At the same time, both Hsin Chong and Chim Kee asked SNE to provide a demobilisation plan and obtain consent of MTRC and Hsin Chong for the exit of the machinery.

(5) On 24 July, SNE obtained an ex parte injunction from the High Court (amended and served on 25 July) requiring Chim Kee to remove 3 rotators and 8 crawler cranes from Site 802.

(6) On 26 July, Hsin Chong invoked a clause in sub‑contract 8800/11 to take over part of the sub‑contract works.

83.  SNE complained that the judge failed to make findings as to what the disorder was and whose responsibility it was.  With respect, this is not a fair criticism.  The judge did find that it was not proved to be Chim Kee’s responsibility, and that Chim Kee did not breach any duty in asking for demobilisation plan and consent for the exit of its machinery,[24] which we discuss under the next heading.  This was all that was required of him.  The judge was careful not to intrude unnecessarily into the dispute between SNE and Hsin Chong.

Demobilisation plan and consent — Ground 8

84.  This Ground concerns the responsibility for the impasse during the period from 11 to 26 July.  On either party’s case the MHA had come to an end by this time.  The question was how Chim Kee’s machinery was to be removed out of Site 802.  Chim Kee did not remove it immediately after 11 July.  It is not in dispute that the continued presence of its large and heavy machines occupied space at the site and thereby obstructed SNE’s work.  Chim Kee said it was unable to remove them because SNE had failed to provide a demobilisation plan and obtain consent from MTRC or Hsin Chong, whereas SNE claimed that Chim Kee was in breach of the implied term by failing to remove its machinery thereby causing obstruction to SNE’s work on the site. The issue is academic given our conclusion that the implied term contended for did not exist.

85.  Even assuming the implied term continued to apply during this period, because of the way in which it is framed, the issue is whether Chim Kee acted unreasonably in requiring from SNE a demobilisation plan and consent before removing its machines from the site.  On this question, the judge concluded:[25]

“whilst it is difficult to be certain about issues in this period when uncertainty prevailed, I have come to the conclusion that, on the balance of probabilities, it was reasonable of Chim Kee to require a demobilization plan and it was reasonable to require the consent of HC and the MTRC engineer.”

86.  Mr Li argued SNE had no contractual duty to provide a demobilisation plan, and that Chim Kee had the duty to arrange for dismantling.  In our view, Mr Pennicott is right in submitting that whether Chim Kee acted unreasonably or otherwise is a finding of fact.  The judge did not determine as a matter of law whether, as between Chim Kee and SNE, there was any contractual requirement of a demobilisation plan or third party’s consent. 

87.  The provisions of the main contract and the sub‑contracts nevertheless have a bearing on the question of reasonableness.  Clause 91.6 of MTRC’s main contract with Hsin Chong stipulated:

“Subject to Clause 105.2 no Contractor’s Equipment or Plant and Materials or any part thereof shall be removed from the Site without the written consent of the Engineer which consent shall not be unreasonably withheld where the same are no longer immediately required for the purposes of the completion of the Works.”

88.  Mr Li argued that “Contractor’s Equipment” did not include Chim Kee’s machines.  However, “Contractor’s Equipment” was defined in the main contract as:

“ ‘Contractor’s Equipment’ means all apparatus, machinery, vehicles and other things required for the Execution of the Works and the remedying of any defect. Contractor’s Equipment excludes Temporary Works, Employer’s equipment (if any), Plant and Material and all things intended to form or forming part of the Permanent Work.”

“Execution of the Works” was in turn defined to mean:

“the carrying out and completing of: the … completion, operating and maintenance of the Works in accordance with the Contract …”

89.  Clause 24.7 of SNE’s two sub‑contracts in turn required SNE to comply with the requirements of the main contract as to the bringing on to and removal from the site of Contractor’s Equipment.

90.  Without deciding the precise legal rights and obligations under these provisions (as not all relevant parties to them are before us), it seems to us that Chim Kee’s removal of its machines without the Engineer’s consent would at least risk placing Hsin Chong in breach of the main contract and SNE in breach of the sub‑contracts.  As Mr Pennicott pointed out, Hsin Chong wrote to SNE on 17 July stating that a demobilisation schedule was required from SNE and on 20 July stating that consent from MTRC’s Engineer was required.  MTRC’s position during that time was also that the Engineer’s consent was necessary.  If consent under these contracts was necessary, it was in our view at least not unreasonable to think that the person to obtain consent would be the respective contracting parties under these contracts.  In these circumstances, there is, in our view, no basis to disturb the judge’s finding of fact that it was reasonable for Chim Kee to require a demobilisation plan as well as MTRC’s and Hsin Chong’s consent.  In the language of the alleged implied term, Chim Kee did not, by requiring them, “obstruct or cause delay to SNE’s works unreasonably”.

Evidence of loss from breach of implied term — Ground 10

91.  SNE complains that the judge failed to deal at all with the quantum of its claim for damages for breach of the implied term. What the judge actually said was this:[26]

“... it is difficult to understand the evidential basis of the quantum of SNE’s two claims in this regard ($1,575,934 and $1,330,691). No evidence has been advanced, written or, for example, from an in‑house quantity surveyor explaining them. The figures appear on a piece of paper annexed to Mr Matsumoto’s witness statement but it is doubtful that he is truly able to ‘prove’ them.”

92.  These are the 2 amounts pleaded as losses suffered by SNE as a result of the breach of implied term during the period up to 26 July.  The first figure is described in the statement of claim to be for additional hiring and depreciation of cranes and rotators provided by other suppliers.  The second figure is said to be further loss in relation to hiring and depreciation on other equipment and labour and maintenance costs.  Two tables of calculation (A and B) were attached to the statement of claim.

93.  The only “evidence” in support of these two tables is Mr Matsumoto’s statement[27] which simply said that the slow operation and idling of Chim Kee’s machinery on the site

“also caused loss and damage to the Plaintiff including additional hiring and depreciation of other plants and equipment (ie the ones provided by other suppliers) and labour and maintenance costs in the sums of around HK$1,575,934.80 and HK$1,330,691.74. I also crave leave to refer to tables A and B attached to the Amended Statement of Claim.”

94.  No evidence has been called to explain the tables which are far from self‑explanatory.  Mr Li said that in fact Table A listed only hire charges, not depreciation.  Further, as Mr Li accepted, quite inexplicably none of the supporting documents had been produced in discovery or put in evidence.  In these circumstances, we entirely agree with the judge that these tables could not be treated as proper evidence of loss.

VIII.  SNE’s claim for wrongful detention of equipment — Ground 11

95.  As to SNE’s separate agreement for the storage of its own equipment at Chim Kee’s workshop (see §33 above), there is no dispute that SNE terminated the agreement in March 2012, that SNE managed to retrieve part of its equipment from Chim Kee’s workshop only in June 2012 and that the remainder has still not been removed. 

96.  SNE submitted that the judge was wrong to find its first request for collecting its equipment was made on 9 July 2012.  In fact, SNE had written to Chim Kee on 1 March 2012 stating:

“... we need to shift all materials out of your Fanling workshop yard within this week. Therefore please inform to your person in charge of your Fanling workshop yard. Please contact our Mr S L Lee regarding to the material shift arrangement.”

97.  On 12 March, SNE sent over a checklist of its equipment.  On 21 March, SNE wrote to Chim Kee stating:

“As our Mr S L Lee was informed from your Mr Lam Chi Wah on 3 March, 2012, you have refused to return our materials (properties) out of your Fanling Workshop. We already demanded the immediate return of all our materials (properties) which is currently in your possession in your yard. We are still waiting for your confirmation … Therefore we will request you again that we need to move our stored material (properties) out of your workshop yard as quickly as possible.”

98.  On 23 March, SNE sent an email to Chim Kee saying it would like to pick up the tools and machinery as soon as possible and asked Chim Kee to confirm the date.  On 24 March, SNE said it would start moving out the materials the following week and asked for Chim Kee’s assistance.  Chim Kee did not oblige, possibly because of some payment issues relating to Site 820. 

99.  On 4 May, SNE wrote again, “strongly” requesting Chim Kee to release its equipment from the storage yard immediately. On 19 May, SNE wrote to say it would start moving out its properties on 22 May.  When Chim Kee replied it was busy on 22 May, SNE proposed 24 May.  To accommodate Chim Kee, this was further deferred to 29 May.  Eventually, although SNE sent 4 trucks and 5 workers to the workshop on that day, Chim Kee said the removal work could not be done. After some further complaint and correspondence, SNE finally managed to retrieve part of its equipment in storage there on several days in June. 

100.  Unfortunately, as Mr Pennicott informed this court, none of the above material was drawn to the judge’s attention at trial because the focus was on SNE’s claim for damages for wrongful detention the bulk of which was said to accrue from July 2012 onwards.  As a result, the judge stated, erroneously in fact, that the first request to recover the equipment was made by SNE on 9 July. 

101.  SNE did make a request on 9 July to collect the equipment on 10 July.  By then, of course, the parties’ relationship had almost completely broken down.  Chim Kee replied that the yard was very busy and asked SNE to arrange another day.  SNE proposed 11 July but, as far as we can see, there was no reply from Chim Kee.

102.  On 24 September, SNE wrote again and proposed a time in early October.  Finally, a joint inspection took place on 19 October 2012, but Chim Kee asked for a lifting fee of $50,000, which SNE refused to pay (though Chim Kee said a representative of SNE had agreed to pay it).  The judge was inclined to think that the fee of $50,000 was not unreasonable, but this was based on an erroneous assumption that a previous fee of $35,700 had been paid for a similar exercise.[28]  In further correspondence, SNE refused to pay the lifting fee and demanded compensation for wrongful detention of its plant and machinery, while Chim Kee asked SNE to pay for storage fees since March 2012.

103.  On 8 December, Chim Kee wrote that SNE could arrange for its own workers to retrieve the equipment stored on condition that, if SNE was unwilling to pay the lifting fee, it provided an indemnity from a “financially solid company” for any loss or injury caused.  At trial, the judge found Chim Kee’s demand for an indemnity to be “unduly obstructive” and an “unnecessary restriction” because the risk of loss and damage to Chim Kee from SNE’s removal of its own equipment was negligible.[29]  His disapproval of Chim Kee’s conduct was reflected in his rejection of Chim Kee’s claim for storage charges after October 2012.

104.  On 10 December, SNE offered to pay a lifting fee of $4,800 per day based on past rates charged by Chim Kee.  At trial, Mr Tang of Chim Kee admitted that it was a reasonable daily fee for the hire of a crane.  Nevertheless, by letter of 21 December, Chim Kee insisted on $50,000 or an indemnity.  The matter remained unresolved.  In 2013, Mr Tang raised the lifting fee demanded to $100,000, which was admittedly unreasonable, because he felt “fed up and angry”.

105.  On the evidence, there is in our view justification for SNE’s complaint that it had been wrongfully denied access to its equipment.  There was, however, no claim for specific delivery of the equipment.  SNE’s sole claim was for damages.

106.  SNE claimed that, as a result of Chim Kee’s wrongful detention of its property, it had to rent alternative equipment, and incurred $666,280 up to 30 November 2012, and $116,236 per month thereafter.  Mr Matsumoto’s statement[30] did not elaborate on how the loss was incurred.  There was a letter from SNE dated 3 December 2012 attaching a schedule of the expenses said to have been incurred by SNE together with some invoices in Japanese.  However, Mr Matsumoto admitted in his oral evidence that the hire charges of alternative equipment had not been paid.  As for the administration fee of $20,000 per month, there was simply no explanation or other evidence to substantiate it.  In the absence of proper evidence of loss and damage, the judge’s decision to dismiss SNE’s claim cannot, in our view, be faulted.

107.  On the other hand, we think that SNE is right in submitting that the judge should not have awarded $250,000 to Chim Kee as storage charges from March to October 2012.  It was common ground that the storage contract was terminated on 1 March 2012 so that, as accepted by Mr Pennicott, the award could only be a quantum meruit based on restitution.  But quite apart from the point that no such claim was pleaded in the counterclaim, in the circumstances there was in our view hardly any benefit conferred on SNE in having its goods kept (against its will) by Chim Kee for the period up to October 2012.  The judge made the order without taking account of SNE’s repeated unsuccessful attempts to retrieve its equipment since March 2012.  We would therefore allow this part of the appeal and set aside the award of $250,000.

IX.  Conspiracy claim — Grounds 12 and 13

108.  SNE’s conspiracy claim was pleaded as follows:

“Further or alternatively, the Plaintiff avers that, on or before 3 July 2012, the Defendant together with Hsin Chong had wrongfully conspired or combined to injure the Plaintiff by lawful means with the sole or predominant intention of injuring the Plaintiff and/or causing loss to the Plaintiff (or alternatively, by unlawful means with the intention to injure the Plaintiff). Pursuant to and in furtherance of the said conspiracy, the Defendant and/or Hsin Chong committed the acts and/or omissions pleaded in paragraphs 12 to 15 and 24 to 37 hereinabove, and thereby causing loss and damage to the Plaintiff.”

109.  Paragraphs 12 to 15 of the statement of claim pleaded Chim Kee’s termination of the MHA while paragraphs 24 to 37 pleaded the various matters during the period from 3 to 26 July 2012 that SNE complained of, such as the idling and slow operation of the machines and the failure to remove them.  Only one act of Hsin Chong was pleaded, which was a letter of 18 July 2012 threatening to terminate the two sub‑contracts within 7 days on the ground that SNE had failed to proceed with the works with due diligence.

110.  As Ma CHJC (as he then was) stated in Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537, a plea of conspiracy must set out the agreement, the means (whether lawful or unlawful), the intention (predominant or otherwise), the pursuant acts and the damage caused.  We agree with the judge that SNE’s pleading failed to meet the requirements.  Nor can we see any overt act pleaded sufficient to support the allegation of conspiracy: Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co Ltd [1994] 2 HKC 264.

111.  Furthermore, whether or not there was a conspiracy is a matter of fact.  The judge, who had had the opportunity of seeing Mr Tang of Chim Kee and Mr Lam of Hsin Chong as witnesses, found against it.  In our judgment, SNE has not come near to showing any ground on which such a finding can be disturbed by this court.

112.  In their skeleton argument, counsel for SNE set out the following matters which, they submitted, gave rise to an “irresistible” inference of a conspiracy between Chim Kee and Hsin Chong:

“(a) On 3 July 2012, while D unlawfully terminated the MHA against P, HC served notice on P to take over its Site works.

(b) On 4 July 2012, P’s workers were denied access to the Site by HC. D continued to work in the Site directly under HC, in place of P. The same state of affairs continued on 5 July 2012.

(c) After P’s return to the Site on 6 July 2012, D ceased to work directly under HC. D then started to operate slowly or idle at the Site and caused obstructions to P’s works.

(d) After P accepted D’s repudiation of the MHA on 11 July 2012, D refused to remove its machines from the Site. As the Site manager, HC did not evict D or intervene but start issuing warning/complaint letters to P.

(e) As a result, P was compelled to obtain an injunction against D mandating it to remove its machines on 24 July 2012. D started to remove the machines thereafter but such removal was stopped by HC.

(f) Then, HC issued a letter dated 26 July 2012 to P by which HC came to take over ¾ of the Site.  D came to supply services directly to HC since 26 July 2012.”

113.  In our view these matters, whether taken singly or in combination, do not support the inference sought.  No one could deny that Hsin Chong had an interest in the progress of the pile removal works and its own ability to honour its obligations with MTRC under the main contract.  The listed events are at least equally consistent with an alternative, innocent explanation, namely, that Chim Kee and Hsin Chong were doing what each of them independently considered to be in its own best interests in a situation where, as the judge said, “a serious problem requiring urgent resolution was developing”.[31]

X.  Chim Kee’s cross‑appeal

114.  As stated in §42 above, for outstanding hire charges for May and June 2012 the judge adopted the median between the amount invoiced by Chim Kee and that certified by SNE, though he did not give any reason for this approach.  Mr Pennicott submitted that since the judge had rejected SNE’s overpayments claim on the ground that the palm prints method was unreliable, he should have held that SNE was bound to pay the May and June hire charges in the amounts stated in Chim Kee’s invoices, without taking account of SNE’s figures at all.

115.  Relying on Mr Matsumoto’s evidence, Mr Li submitted that the May and June invoices were not certified by SNE using the palm prints method and that the basis for SNE’s certification of the May and June invoices was not investigated at trial.

116.  In our view, not much weight can be placed on Mr Matsumoto’s evidence on that point since the checking was done by SNE’s quantity surveyor rather than him.  Further, as Mr Pennicott pointed out, SNE’s Reply referred to the alleged overpayment of invoices for many months from January 2011 to April 2012 calculated by reference to the amounts assessed and certified by SNE in accordance with the palm prints method and went on to plead that Chim Kee also overstated the amount of hire and time claimed in the invoices for May and June 2012.  Moreover, SNE’s letter dated 17 September 2012 alleged that Chim Kee had overstated the quantity of overtime works by reference to the difference between the records submitted and the site entrance records generated by the palm prints machines.  The letter stated that the deduction on this head from April to June alone was some $1.7 million.

117.  In these circumstances, it seems to us a compelling inference arose that the May and June figures certified by SNE were based on the palm prints method.  The judge did not explain why he took into account SNE’s certified figures for May and June.  We are driven to the conclusion that the judge’s use of a median figure between the invoice amounts and the figures certified by SNE was inconsistent and incompatible with his rejection of the palm prints method as fundamentally flawed.  We would therefore allow the cross‑appeal.

XI.  Disposition

118.  For the foregoing reasons:

(1) SNE’s appeal against the award of $250,000 to Chim Kee for storage fees is allowed.  That award is set aside.  Subject to this, SNE’s appeal is dismissed.

(2) Chim Kee’s cross‑appeal is allowed.  The outstanding hire charges under the MHA awarded to Chim Kee will be increased by $768,817 to a total of $8,884,574.

119.  While SNE has succeeded in setting aside the storage fees award, it is a discrete and relatively minor part of the appeal. It has lost on the major parts of its appeal.  We would make a costs order nisi that SNE do pay Chim Kee 80% of the costs of the appeal.  As for the cross‑appeal, since counsel agreed that costs should follow the event, there will be an order that SNE do pay Chim Kee the costs of its cross‑appeal.  There will be a certificate for two counsel.

CACV 101/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 101 OF 2016

(ON APPEAL FROM HCA NO. 2025 OF 2012)

________________________

________________________

________________________

D E C I S I O N

________________________

Hon Cheung JA (giving the Decision of the Court) :

I. The summonses

1.1.   There are five summonses before us :

1)   Summons dated 23 February 2017 by the defendant for security for costs of the appeal.

2)  Summons dated 27 April 2017 by the plaintiff to strike out part of the 3^rd affirmation of Tang Yiu Chi James (‘Tang’).

3)  Summons dated 27 April 2017 by the plaintiff for leave to file    the 6^th affirmation of Takuya Matsumoto (‘Matsumoto’).

4)  Summons dated 2 May 2017 by the defendant to amend its summons of 23 February 2017.

5)  Summons dated 9 May 2017 by the plaintiff to amend its summons of 27 April 2017.

1.2.   The parties had filed submissions on these first four summonses.  The fifth summons was filed without any supporting document by the plaintiff.  The defendant objects to this summons.  We will deal with these summonses on paper.

II. Security for costs and amendment

1) The judgment below

2.1.   The summonses for security for costs and amendment can be dealt with together.

2.2.   Deputy High Court Judge Burrell found for the defendant in the Court below.  The plaintiff was ordered to pay the defendant over $8.3 million together with interest and costs.  The plaintiff appeals against the judgment and the hearing is scheduled to be heard on 14 June 2017.

2.3.   Another division of this Court had on 15 July 2016, upon the plaintiff’s application, ordered a stay of execution of the judgment below conditional upon the plaintiff paying $4.3 million into Court.  This order had since been complied with by the plaintiff.

2)Impecuniosity of the defendant and difficulty to

enforce costs orders 

2.4.   The defendant relies on the impecuniosity of the plaintiff and difficulty in enforcing costs orders as special circumstances in support of its application for security.

2.5.   Another division of this Court had on 8 May 2015 in CACV 88/2014 ordered the plaintiff to pay security for costs of that appeal in the sum of $1.5 million on the basis of its impecuniosity.  The plaintiff complied with the order.  It proceeded with the appeal but was unsuccessful and was ordered to pay the costs of the appeal.

2.6.   The evidence does not reveal that the plaintiff’s financial position has improved since May 2015.  In its application for stay, the plaintiff admitted that it was impecunious.  It has assets of $1.2 million in cash.  This Court observed that its depletion of funds from $4.3 million to $1.2 million in a period of two months had not been satisfactorily explained.

2.7.   The only audited account produced by the plaintiff was in respect of June 2011 in which it incurred a net loss of HK$96 million.  Although it had at the stay application produced a draft management account ended 30 June 2016 which purported to show that it has ‘net assets’ of $195 million, this was due to a large sum of ‘receivables’ which are disputed and in any event it was the plaintiff’s stated position in the stay application that it was impecunious.

2.8.   There is evidence which shows that the plaintiff’s current registered address is in a secretarial business centre.  There is no evidence that it is engaged in any business.  In the affirmation filed in opposition to the application for security, the plaintiff merely produced a tender document (which is heavily redacted) submitted by the plaintiff dated 21 September 2016.  There is no indication that this tender which is dated more than seven months ago has been accepted.

2.9.   The defendant had difficulties in enforcing the judgment below by way of garnishee order.  The plaintiff at the last moment produced evidence for the first time which purported to show that its bank accounts had been charged to Sugisaki Kiso Co. Ltd which is a majority shareholder of the plaintiff.

2.10.   The plaintiff submitted that it managed to comply with previous court orders on payment into Court (including payment in as security for the costs below).  The fact that such conditions had been met does not mean that the plaintiff by itself is not impecunious.  Such funds obviously came from third parties.

2.11.   The plaintiff complained that its impecuniosity was caused by Hsin Chong and the defendant. First of all, Hsin Chong is not a party to this action.  In relation to the allegation that there was a conspiracy between Hsin Chong and the defendant against the plaintiff, the Judge below had found against the plaintiff on this point (paragraphs 92 to 106 of the judgment below).

2.12.   The plaintiff also complained that the defendant had improperly issued two winding up petitions against it.  One was issued in 2012 and the other in 2016.  The 2012 petition was dismissed because the judge held the dispute between the parties should be tried by way of civil proceedings.  This was done and the dispute was eventually resolved in the defendant’s favour in respect of this action and CACV 88/2014 (on appeal from HCA No. 1466 of 2012).

2.13.   In respect of the 2016 petition, it was for non payment of the judgment sum below and taxed costs of the appeal in CACV 88/2014.  The defendant was entitled to pursue the enforcement of these sums.  In any event, the 2016 petition has been stayed pending the outcome of this appeal.

2.14.   In our view the plaintiff has not made out a case that its impecuniosity was caused by the defendant. 

2.15.   In the stay application, this Court stated that the plaintiff’s appeal on the ‘implied term’ is arguable.  This remains to be an arguable point only and the plaintiff has not showed that it has such a high chance of success in this appeal, that the Court should not impose security so as not to stifle a genuine appeal.  In any event, despite the previous position, the plaintiff’s shareholders indicated in the stay proceedings that they would support the plaintiff financially.  It is likely that any order for security imposed by this Court will be funded by them as well.

2.16.   The defendant seeks to amend the summons for security.

2.17.   The amendment asks 1) the Court to impose security within 14 days of the order and 2) to order the plaintiff to procure Mr Yoshihito Sugisaki and/or Sugisaki Kiso Co Ltd and/or some other fit and proper person to provide the security.

2.18.   Regarding (1) the plaintiff had asked for security by letter in January 2017 and followed up by issuing the summons in March 2017.  The plaintiff had ample time to respond to the application.  In view of the imminent appeal, 14 days is appropriate.  Regarding (2), since it is the plaintiff’s own case that it is supported by its shareholders, we see no objection to the order sought either.

2.19.   There is an application by the plaintiff to exclude the defendant’s submission dated 2 May 2017 on the ground that the defendant’s submission is too long and does not comply with the Practice Direction.  This is an application without substance as the defendant has indicated it has put both the submission on security and amendment in one document.  The two matters can be dealt with together.  The application is refused.

2.20.   The defendant asks for security of $1,499,600 of which $640,000 represents fees for two counsel. Of this sum, $150,000 is for counsel’s brief for the stay application.  We are of the view that $1 million is the appropriate sum for security.

3) Disposition

2.21.   Accordingly, we order

1)   $1 million to be paid into Court within 14 days.

2)   Until payment in, the plaintiff’s appeal is stayed.

3)   In default of payment in, the appeal is dismissed with costs to the defendant (with certificate for two counsel).

2.22.   Costs of this application be to the defendant.

III. Application to adduce the 6^th affirmation of Matsumoto

3.   The plaintiff applies to adduce the 6^th affirmation of Matsumoto purportedly to respond to the 3^rd affirmation of Tang.  We are not prepared to admit this evidence.  The plaintiff already had the chance to put forward its case fully on security in the 4^th and 5^th affirmations of Matsumoto.  All the evidence in support of its financial viability should be produced at one time instead of in a piecemeal manner.  Arguments against the defendant’s submissions should be raised in counsel’s submission and not in the affirmation.  As the defendant is the applicant for the security for costs, it is entitled to have the last word in the 3^rd affirmation of Tang.  To allow the 6^th affirmation of Matsumoto to be adduced will involve another response from the defendant. This is not conducive to case management of an appeal which will be heard soon.  The application is refused with costs to the defendant.

IV. Striking out

4.1.   The applicant applies to strike out part of the 3^rd affirmation of Tang.  Tang’s 3^rd affirmation was filed in response to the 4^th and 5^th affirmations of Matsumoto filed in opposition to the defendant’s application for security. Apart from being a late application, which was taken out almost a month after the filing of Tang’s affirmation, we do not see this is a plain and obvious case for striking out.  The Court is not prepared to deal with satellite litigation like this at such a late stage of the proceedings.  Accordingly, the application is refused with costs to the defendant.

4.2.   After the plaintiff had filed its submissions on 9 May 2017 it filed another summons dated 9 May 2017 in which it seeks amendment of its summons dated 27 April 2017 to include a further order to expunge certain documents from the bundles of documents.

4.3.   The Court is not prepared to allow such last minute application to be made, particularly, in the light of our refusal to accede to the summons dated 27 April 2017.  The summons is refused with costs to the defendant.

V. Summary assessment of costs

5.   The Court will deal with summary assessments of costs later.

CACV 101/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 101 OF 2016

(ON APPEAL FROM HCA NO. 2025 OF 2012)

________________________

________________________

________________________

J U D G M E N T

________________________

Hon Macrae JA (giving the Judgment of the Court):

Introduction

1.  This case concerns a subcontract which formed part of MTRC’s construction of the Express Rail Link, for the removal of H-piles and bored piles at a site near the Nam Cheong MTR Station, called Site 802, being preparatory work prior to the construction of an underground tunnel to the border with the Mainland.  The main contract had been awarded to Hsin Chong Construction Company (“HC”), who subcontracted the pile removal works to the plaintiff (“SNE”) under two subcontracts both dated 11 March 2011, although works had started prior to that date.  SNE in turn engaged the defendant (“Chim Kee”) for the purpose of hiring the necessary machinery and labour to carry out the works under the subcontracts, which had begun as early as September 2010.

2.  Following disputes between SNE and Chim Kee over the carrying out of those works, SNE commenced this action against Chim Kee, featuring several claims for damages against Chim Kee, and counterclaims by Chim Kee against SNE.  The matter came on for trial earlier this year in the High Court before Deputy Judge Burrell (“the Judge”), who handed down a Judgment dated 24 March 2016 (“the Judgment”).

3.  The relationship between SNE and Chim Kee was governed by a series of dealings evidenced by ongoing rental quotations, invoices and oral agreements, which were collectively referred to in the Judgment as the Machinery Hire Agreement (“MHA”).  On or about 3 July 2012, Chim Kee gave notice to SNE that it was terminating the MHA.

4.  At trial, SNE sought or made the following claims:

(1) A declaration that Chim Kee was not entitled to terminate the MHA in July 2012.

(2) Return by Chim Kee of a total sum of $3,815,330.58 being monies overpaid by SNE under the MHA before termination.

(3) Damages for breach of the MHA as a result of Chim Kee’s deliberate slow operation of the machinery from 3 July to 11 July 2012 (the date when SNE accepted Chim Kee’s termination) in the sum of $1,575,934.08.

(4) Damages for breach of the MHA as a result of Chim Kee’s failure to remove its machinery from the site after 11 July 2012 in the sum of $1,330,691.74.

(5) Damages for loss occasioned by HC’s termination of SNE’s two subcontracts which was caused by Chim Kee’s wrongful termination, being loss of profit in the sum of $34,061,327.45; and/or an indemnity for such damages that SNE may be liable to pay HC.

(6) Damages for the tort of conspiracy between HC and Chim Kee to injure SNE for the amounts referred to in (3) to (5) above.

(7) Damages for loss suffered by SNE caused by Chim Kee’s wrongful detention of SNE’s property at a workshop in Fanling, being the cost of renting alternative equipment, for $666,280 up to 30 November 2012 and for $116,236 per month thereafter.

5.  Chim Kee’s counterclaims were as follows:

(1) Outstanding rental charges under the MHA for pre-May 2012 in the total sum of $897,747.

(2) Outstanding rental charges under the MHA for May and June 2012 in the total sum of $7,986,827.

(3) Rental charges for use by SNE of Chim Kee’s machinery for July 2012 (up to 27 July 2012) in the sum of $3,309,306.

(4) Storage charges at the Fanling workshop from 1 March 2012 onwards in the sum of $387,900.

Judgment below

6.  The Judge dismissed all of SNE’s claims, allowed Chim Kee’s counterclaim for the pre-May 2012 rental charges of $897,747, allowed the counterclaim in respect of the May and June 2012 rental charges in the sum of $7,218,010, disallowed the counterclaim for the July 2012 charges, and allowed a sum of $250,000 as storage charges.  The total judgment sum came to more than $8.36 million.

7.  By a Notice of Appeal dated 20 April 2016, SNE appeals against the Judgment in respect of all of its Claims (1) to (7) above.  By a Respondent’s Notice, Chim Kee seeks to cross-appeal in respect of the quantum for the May and June 2012 rental charges, and contends that the Judge should have allowed the full amount.

Application for stay of execution before the Court of Appeal

8.  On 5 May 2016, a statutory demand for the judgment sum was served on behalf of Chim Kee on SNE, as a precursor to winding up proceedings.  Garnishee orders nisi dated 10 May 2016 were obtained by Chim Kee in respect of monies owed or due to SNE by some of SNE’s debtors or banks, which orders were served on SNE on 13 June 2016.  Also on 10 May 2016, SNE filed a summons before the Court of Appeal, with which we are now concerned, applying for a stay of execution of the Judgment pending the hearing or disposal or determination of the appeal.

9.  The basis of SNE’s application is that it has arguable grounds of appeal and that the appeal would be rendered nugatory if a stay of execution were not granted; in other words, SNE would suffer (and has already suffered) deleterious consequences in that it will be brought to financial ruin if execution were to proceed.

10.  Chim Kee resists the present application, arguing that there are no merits at all to the appeal, that the evidence filed by SNE in this application failed to show deleterious consequences, and that if a stay were granted, Chim Kee would suffer great prejudice and the appeal would be rendered nugatory to Chim Kee in the event of a dismissal of the appeal.

Preliminary objection: no special circumstances

11.  Mr Pennicott SC, with him Mr Joseph Wong, appearing for Chim Kee, has raised a preliminary objection to the present summons.  Under O59 r13(1)(a) of the Rules of the High Court, both “the court below” and “the Court of Appeal” may exercise their discretion to order a stay of execution of a decision of the court below.  O59 r14(4) further provides:

“Wherever under these rules an application may be made either to the court below or to the Court of Appeal, it shall not be made in the first instance to the Court of Appeal, except where there are special circumstances which make it impossible or impracticable to apply to the court below.” (Emphasis supplied)

12.  No evidence has been submitted by SNE of any “special circumstances” making it impossible or impracticable to make the application before the Judge, although Mr Houghton SC, with him Mr Billy Kwan, for SNE, in his skeleton argument has referred to the fact that the Judge’s appointment as deputy judge expired soon after the trial and he had ceased to sit in the High Court by the time of this application.  Enquiries made by Chim Kee’s solicitors from the Registrar of the High Court revealed that the Judge’s appointment lasted until 24 March 2016 (the date of the Judgment); that on 30 May 2016, the Judge also handed down a “Decision on Costs and Interest” (a disposal on paper, we have been informed, following written submissions by the parties which were filed on 13 May 2016); and that the Judge is not due to sit again this year.

13.  This information should have been provided by SNE by way of supporting affidavit evidence along with the application.  SNE should also have enquired, prior to issuing the present summons before the Court of Appeal, whether despite the expiry of his appointment as deputy judge, the Judge would be available to hear the application for stay of execution.

14.  We would take this opportunity to reiterate to practitioners that an application for a stay of execution of a decision by the court below should in the first instance be made to that court.  Failure to do so before making an application to the Court of Appeal will result in the application being refused by the Court of Appeal, unless special circumstances exist (and have been shown to exist by proper affidavit evidence), demonstrating that it is impossible or impracticable to make the application for a stay of execution to the court below: see Hee Lee Investment Company Limited v Joy Express Limited unrep., CACV 222/2004 & CACV 164/2004, 14 January 2005 and 30 March 2005 respectively; Rhonda Jeanine Pohn v Mac Richard Pohn & Ors unrep., HCMP 3439/2015, 1 February 2016.

15.  The expiry of a deputy judge’s appointment, by itself, does not make it impossible or impracticable to make the application before him or her.  Often deputy judges are judicial officers from a lower court or legal practitioners in Hong Kong.  Section 11 of the High Court Ordinance (Cap 4) enables a deputy judge to deal with adjourned or reserved matters notwithstanding the expiry of his or her term of appointment.  In other cases, where necessary or desirable, a new appointment can be made so as to enable the deputy judge to hear outstanding matters in cases heard by him or her.  Practitioners acting for applicants in respect of stays of execution should not assume that deputy judges will not be able to hear such applications merely because their appointments have expired.  In other cases, the deputy judge may in fact be unavailable to hear such an application by the time it can be made ready for hearing.

16.  It is therefore incumbent upon practitioners to make proper and timely enquiries as to the availability of the deputy judge concerned, as soon as they realise that there may be a need for a matter or application to be dealt with by the deputy judge after his or her appointment has expired.  This does not seem to have been done in this case.

“The court below”

17.  Mr Pennicott goes on to argue that the reference to “the court below” in O59 r14(4) does not mean the particular trial judge in the court below, but simply means a judge of the level of the court below.

18.  He relies on Singh Arjun v Secretary for Justice [2014] 2 HKLRD 678, in which Lam VP explained the importance, in the context of an application for leave to appeal against an interlocutory decision (under O58 r2(6) of the Rules of the District Court, the equivalent of O59 r2B(4) of the Rules of the High Court), of making a first-tier application in the court below.  It gives the judge below, who is seized of the proceedings before him, has heard and is familiar with the relevant arguments, and who appreciates how an interlocutory decision may affect the conduct and progress of those proceedings, the opportunity to filter out unarguable grounds, thereby focussing the parties’ attention on the relevant issues and merits of their claims, and assisting them in formulating more concise and focussed submissions for any second-tier application for leave to the Court of Appeal.  The other important consideration is that in these circumstances, the first-tier decision can be dealt with swiftly, in most cases within 30 minutes.

19.  Mr Pennicott argues that the considerations set out by Lam VP above would apply equally to an application for a stay of execution under O59 r13, certainly where the first-tier application is heard by the trial judge himself.  Where the application is heard by another judge of the same jurisdiction, that other judge would not be familiar with the proceedings and the arguments relevant to the case, but nevertheless a first-tier application would still serve the same important functions of a “filtering” exercise and of focussing the parties’ minds on the essential issues and the merits of their arguments.

20.  We have no doubt that the Court of Appeal will always be assisted by a reasoned decision of a judge below, particularly where the first-tier decision on an application to stay is made by the judge who made the order which is sought to be stayed.  He will have heard all the relevant arguments in favour of and against the making of the said order and hence the merits of any grounds of appeal.  He may also, in some though not necessarily in all cases, have knowledge of circumstances which may throw light on how a stay of execution might affect either party.

21.  Where, however, the first-tier decision on an application for stay of execution is made to a different judge, he would have to make a decision as someone who is completely new to the case, just as the Court of Appeal will have to make a decision when that Court is new to the case.  The benefits of such a first-tier decision may well be attenuated, and the time estimate for the first-tier application which Lam VP had in mind may or may not apply, depending on the complexity of the case.  In terms of achieving the objectives of O1A of the Rules of the High Court, in particular the need to have a sense of reasonable proportion and procedural economy in the conduct of proceedings, to which Lam VP alluded in Singh Arjun v Secretary for Justice at para 8, a rigid insistence on having a first-tier application made, even where it is impossible or impracticable for the application to be heard by the original maker of the decision in respect of which a stay is being requested, may not necessarily serve the said objective.

22.  Mr Pennicott has also contrasted the reference in O59 r13(1) to “the court below” with the reference in O59 r2B(2) to “the judge or master against whose judgment or order leave to appeal is sought.”  Since O59 r13(1) refers only to “the court below” and not to the trial judge or master in the court below, it must be referring, so Mr Pennicott contends, to the Court of First Instance generally.

23.  In this regard, Mr Pennicott has very properly drawn to our attention a decision by Chung J in HY & HT Lee Brothers & Company Limited, unrep., HCCW 275/1998 and HCCW 467/1998, 23 November 2000.  That case concerned an application by the petitioner of two winding-up petitions to stay the execution of the order for taxation of costs after the trial judge had dismissed the two petitions with costs.  By the time of the application for stay, the trial judge had been promoted to the Court of Appeal, and the application was consequently heard by Chung J, who decided that the application was made pursuant to O59 r13.  An objection was taken that Chung J had no jurisdiction to determine the application for stay under O59 r13, on the ground that “the court below” meant the trial judge who made the decision in respect of which a stay of execution was being sought.

24.  Chung J referred to O59 r14(4), which provision applied to an application under O59 r13, and held that as a matter of construction, the reference in r14(4) to “special circumstances which make it impossible or impracticable to apply to the court below” indicated that “the court below” meant the particular judge who made the decision rather than the level of the court in the court hierarchy.  If “the court below” were to mean the Court of First Instance generally, Chung J could not see how it would ever become impossible to make an application to that level of court.  The qualifying words “it shall not be made in the first instance to the Court of Appeal, except where there are special circumstances which make it impossible or impracticable to apply to the court below” would be redundant.  Accordingly, he held that the application to stay should have been brought either before the trial judge or, since it was considered impossible or impracticable to do so in that case, before the Court of Appeal.

25.  We would agree with the reasoning of Chung J in HY & HT Lee Brothers & Company Limited and are persuaded that upon a true construction of O59 r14(4), the words “the court below” therein refer to the judge who made the decision or order in respect of which a stay of execution is being sought.  Therefore, where it is impossible or impracticable for that particular judge to hear the application for stay, the applicant may apply directly to the Court of Appeal.

26.  If, on the other hand, O59 r14(4) envisages any judge of concomitant jurisdiction in the court below, then like Chung J, we wonder what circumstances would make it impossible or impracticable to make the application before any judge of that jurisdiction?

27.  We should make clear that in our view the position regarding applications for leave to appeal against interlocutory judgments or orders under O59 r2B is quite different.  O59 r2B(2) specifies that

“So far as is practicable, the application must be made to the judge or master against whose judgment or order leave to appeal is sought.”

Where that is not practicable, the application may be made to another judge or master of concurrent jurisdiction. O59 r2B(3) then goes on to provide that

“Where the Court” – that is the Court of First Instance – “refuses the application, a further application for leave to appeal may be made to the Court of Appeal within 14 days from the date of the refusal.”

It can be seen that O59 r2B provides a clear sequential structure for applications for leave to appeal against interlocutory judgments or orders of the Court.

Should this application be entertained?

28.  Whether or not the Judge would have been available to hear the application for stay, had SNE made proper enquiries when it filed its application, we are now faced with a situation in which the Judge is no longer available to hear the application (which matter is not now in issue between the parties), in circumstances where further delay may cause injustice to SNE if it has arguable grounds of appeal.  Furthermore, even if we were to dismiss the application now on the ground that SNE has failed to properly prove the “special circumstances” referred to in O59 r14(4), this matter would simply come back to the Court of Appeal if the Judge is not available until next year.  We have therefore reluctantly decided to entertain the present application, particularly as we are seized of the matter and are familiar with the papers and the issues in the proposed appeal.

29.  We would, however, like to make it clear that any future applications under O59 r13 to the Court of Appeal, made in the absence of properly attested and sufficient proof of the special circumstances referred to in O59 r14(4), will almost certainly be dismissed.

Principles on the granting of a stay of execution pending appeal

30.  The legal principles governing the grant of a stay of execution of a judgment or order pending appeal are not in dispute between the parties.  They have been conveniently summarised by Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84.

31.  An appeal does not operate as a stay of execution of the decision below.  Unless an appellant can justify a stay, by demonstrating that good reasons exist, one will not be ordered.  Good reasons for a stay can exist in a variety of forms and it would be wrong to attempt to set out an exhaustive definition of what would constitute good reasons.

32.  The existence of a strong appeal will usually by itself constitute a good reason for granting a stay.  The existence of an arguable appeal (ie one with reasonable prospects of success) cannot by itself amount to sufficient reason for a stay.  It is a minimum requirement.

33.  Where there exists an arguable appeal, the appellant must provide additional good reasons to justify a stay.

34.  An example of a good reason is that the appeal would be rendered nugatory if a stay were not granted.  This does not mean that the appellant must in all cases show that he would face financial ruin if a stay were not granted. Demonstrating that the failure to grant a stay would have a serious deleterious effect is enough.

35.  At the same time, the court must never forget the position of the successful party and must consider the prejudice that would be caused to the successful party if a stay were granted.  If necessary, the court may impose conditions so as to minimise the prejudice caused to him.  A fortiori, the court must consider any contention that the appeal would be rendered nugatory (in the event that the appeal is dismissed), should a stay be imposed.

Grounds of Appeal

36.  The grounds of appeal consist of 35 grounds, an all-encompassing appeal against almost every aspect of the Judge’s decision.  Most of them are appeals against his findings of fact.  This appears to be no more than a reprise of all the arguments made at trial.  With the greatest of respect, we would hope that in due course, and sooner rather than later, greater focus will be brought to the appeal before it comes on for hearing.

37.  Mr Houghton submits on behalf of SNE that there are arguable grounds of appeal and has wisely concentrated on three particular matters.

(i)  Variation of the MHA by the Tripartite Rental Agreement (“TRA”) (Claim 5)

38.  The primary basis on which Chim Kee terminated the MHA on 3 July 2012 was that SNE had failed to pay Chim Kee in accordance with the MHA.  SNE’s case at trial was that the terms of payment under the MHA had been varied by the TRA entered into by SNE, Chim Kee and HC, whereby HC assumed the responsibility of paying rental fees on behalf of SNE in certain circumstances, with SNE assuming responsibility to certify payments within 21 days.  Mr Houghton argues that Chim Kee had accepted a change of the paying party, or at least accepted a change of the mechanism by which payments were to be processed.

39.  The Judge held that the TRA did not have the effect of varying the terms of the MHA, since there was no consideration moving from SNE to Chim Kee.  Any consideration that there might have been, came from HC.  More importantly, he went on to say, the primary obligation to pay Chim Kee remained on SNE.

40.  Mr Pennicott submits that the Judge was correct.  Consideration must move from the promisee.  In order for SNE to be able to enforce the TRA against Chim Kee, SNE must show that it has provided consideration.  He also submits that the Judge was right in holding that SNE remained primarily liable for payment.

41.  Mr Houghton relies on Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, for the proposition that consideration exists if one party obtains in practice a benefit or obviates a disbenefit from another party.  Mr Pennicott argues that the issue is not whether consideration was provided, but whether SNE provided the consideration.

42.  While there is some force in Mr Pennicott’s argument, we are not prepared at this stage to conclude that the TRA was not enforceable by SNE against Chim Kee because no apparent consideration moved from SNE.  We think that it is arguable, in a situation where three parties engaged in business activities, each having a real interest in resolving the apparent deadlock over the payment to one of the parties, have come to an agreement concerning an alternative mode of payment, so that there is no question of lack of privity, that SNE has provided some form of consideration, for example, by promising to certify payments within 21 days; particularly when consideration need only be sufficient but need not be adequate.

43.  We are also of the view that while SNE may well have remained the party ultimately obliged to pay, it is arguable that SNE was entitled to rely on the mode of payment under the TRA and that, therefore, Chim Kee’s purported termination of the MHA based on the terms of payment thereunder may arguably have been wrongful.

44.  The next question is whether SNE has suffered loss as a result, and if so, what is the quantum of damages.  Unfortunately, the Judge does not appear to have dealt with the issue of quantum at all or the evidence relating thereto, which SNE claims amounts to over $34 million, in addition to being exposed to liability towards HC.  For present purposes, since the Judge does not appear to have rejected SNE’s evidence on quantum, the issue is still at large and SNE has an arguable claim for damages under this head.

(ii) Appeals in respect of Claims (3) and (4)

(a) Implied term of non-obstruction

45.  SNE claimed that from 3 July 2012 when Chim Kee gave notice of termination of the MHA, until 11 July 2012 when SNE accepted the termination, and onwards until 26 July 2012 when HC took over the majority of the site, Chim Kee had been deliberately slow in operating the machinery while it was still carrying out works at the site, and obstructive in refusing to remove its machinery from the site after SNE accepted the termination.  This forms the basis for SNE’s respective Claims (3) and (4) above.

46.  The Judge accepted that there was an implied term in the MHA that Chim Kee shall not obstruct or cause delay to SNE’s works unreasonably during the MHA and after its termination: see the Judgment at para’s 45 and 47.  Yet, he went on to hold that after Chim Kee’s lawful termination of the MHA on 3 July 2012, all mutual rights and obligations ceased, including the implied term: see the Judgment at para 48.

47.  Mr Houghton submits that where the implied term was obviously intended to apply to a post-contract situation, it must be able to survive a termination of the contract.  Indeed, other contract terms commonly survive the termination of a contract, including, for example, exclusion clauses.  This is in our view an arguable point.

(b) Breach of implied term of MHA and consequential loss

48.  On the other hand, in order for SNE to succeed in Claims (3) and (4) above, SNE must go on to prove in respect of each claim that Chim Kee was in breach of the implied term, and that SNE suffered loss as a result.  On these two issues, the Judge found against SNE.  In respect of Claim (3), he found that Chim Kee had agreed to “stand by”, which it did under SNE’s instructions until 11 July 2012 when SNE accepted Chim Kee’s termination of the MHA: see the Judgment at para 56.  In respect of Claim (4), he concluded that it was reasonable for Chim Kee to require SNE to provide a demobilisation plan before Chim Kee could remove the machinery from the site: see the Judgment at para 66.  On the question of loss, in a brief paragraph, the Judge said he was “doubtful” about SNE’s evidence of loss in respect of both Claims (3) and (4): see the Judgment at para 68.

49.  In the light of our conclusion on the Variation ground, we find it unnecessary to express any views on the arguability of these two claims on the appeal.

Appeal rendered nugatory

50.  SNE has filed evidence for the purpose of showing that it is impecunious and that it is not capable for the time being of satisfying the judgment.  Its main asset is the cash balance in certain bank accounts, which has been dwindling ever since the making of this application.  Its shareholders have apparently declined to provide further financial support.  However, SNE has outstanding claims to be settled by other parties, including a very substantial claim against HC, which is in dispute and has to be resolved by arbitration.  It also avers that it has every intention of carrying on with its business and has bid for other projects.  On 26 June 2016, Chim Kee commenced winding up proceedings against SNE.  The mere commencement of proceedings has already presented serious difficulties for SNE in its attempt to carry on with its business.

51.  Mr Houghton submits that if execution of the judgment is not stayed, SNE will suffer serious deleterious damage, and the appeal will be rendered nugatory, even if SNE succeeds on the appeal.

52.  Mr Pennicott argues that the evidence filed by SNE is not of sufficient quality to prove the deleterious effect it will suffer if a stay of execution is not granted.  No audited accounts have been provided, only management accounts.  Further, even in the event of liquidation, the liquidators can still pursue the appeal if they consider the appeal meritorious and pursue the claim against HC in the arbitration.  He also makes the point that the longer Chim Kee has to wait, the less assets there will be available for enforcement.  There will be a real risk that if the appeal fails, Chim Kee will not be able to recover anything.  Relying on the decision of Chow J in Astro Nusantara International BV v PT Ayunda Prima Mitra, unrep., HCCT 45/2010, 8 December 2015, he urges this Court, in the event that we are minded to grant a stay of execution, to impose a condition of payment into court of the judgment sum including interest.

53.  After reviewing the evidence of the potential effects of the granting or refusal of a stay on both parties, and the considerations arising therefrom, we accept that SNE will suffer a degree of deleterious effect if execution is to proceed at this stage before the hearing of the appeal.  At the same time, we are not satisfied with the evidence that SNE’s shareholders will not continue their financial support of SNE, particularly when SNE has, as it claims, a genuine substantial claim against HC, which will require further financial support if SNE is to continue to pursue it.  Furthermore, we are concerned that between March and May 2016 SNE’s available cash, according to its bank statements, has reduced from roughly $4.3 million to $1.2 million for reasons which have not been satisfactorily explained.

54.  In those circumstances, we consider it appropriate, in the exercise of our discretion, to order a stay of execution of the judgment, on condition of payment into court of $4.3 million, representing roughly half of the judgment sum plus interest.  Such payment into court shall be made within 21 days hereof.

Costs

55.  Having heard the parties, we order that the costs of this application, with a certificate for two counsel, be in the cause of the appeal provided that the above condition is met, failing which the plaintiff shall pay the costs of the application to the defendant, to be taxed if not agreed.