BUILD KING CONSTRUCTION LTD formerly known as KADEN CONSTRUCTION LTD v. SAM WOO BORE PILE FOUNDATION LTD AND ANOTHER

HCCT 4/2023

[2026] HKCFI 2270

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 4 OF 2023

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J U D G M E N T

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INTRODUCTION

1.  By summons dated 22 May 2025 (“the Application”), the 1^st and 2^nd Defendants (jointly referred to herein as “Sam Woo”)  apply to re-amend their Amended Defence and Counterclaim. 

2.  At the hearing, Sam Woo was represented by Counsel Ms Queenie W. S. Ng and Mr Matthew Cheung.  The Plaintiff was represented by Counsel Mr Ian Pennicott SC. 

BACKGROUND

3.  The present Application is a follow on application from a prior attempt to re-amend the pleadings by Sam Woo, which had been heard and dismissed by Anthony Chan J (as he then was)  (“A Chan J”). 

4.  I gratefully adopt the background to the matter and the nomenclature as set out in A Chan J’s decision dated 27 February 2025 (“the Decision”):

“3.  In brief, the 1^st Defendant was the Main Contractor in respect of the foundation and associated works (“Works”)  for the Hospital Authority (“HA”)  as the Employer for the expansion of United Christian Hospital (“Project”).  The Plaintiff was the Sub-Contractor of the 1^st Defendant for the majority of the Works.  A smaller part of the Works was carried out by the 1^st Defendant. 

4.  There is a Sub-Contract executed by the Plaintiff and the 1^st Defendant on around 4 January 2017 but dated 22 August 2015.  There is a dispute whether the contract between the Plaintiff and the 1^st Defendant was solely embodied in that written document.  The 1^st Defendant says that the contract was partly oral.  For convenience, the contract between the parties is referred to as “the Sub-Contract”. 

5.  The Works were split into Section 1 Works and Section 2 Works.  The Works of both Sections were commenced on 22 August 2015 and substantial completion occurred for Section 1 Works and Section 2 Works on 17 March 2020 and 2 June 2020 respectively. 

6.  In addition to the Sub-Contract, about 17 months after the commencement of work, on 4 January 2017 the Plaintiff signed a Project Management Services Agreement (“PMSA”)  with the 2^nd Defendant (a sister company of the 1^st Defendant)  who, according to the PMSA, had been awarded the sub-contract for the provision of project management services by the 1^st Defendant for the Project.  Under the PMSA, the Plaintiff was to provide project management services on behalf of the 2^nd Defendant on a back-to-back basis with the 2^nd Defendant’s sub-contract from 15 July 2016 until the issuance of maintenance certificate.  The PMSA was backdated to 1 June 2016. 

7.  These proceedings were issued on 18 January 2023 and in which the Plaintiff made 3 claims: (a)  despite the certification of the total value of works executed by the Plaintiff, there is outstanding payment under the Sub-Contract of about HK$53 million; (b)  outstanding refund of deposits paid by the Plaintiff (and certified by the 1^st Defendant)  in the sums of HK$405,000 (paid to Environmental Protection Department)  and about HK$47,000 (paid to Water Supplies Department); and (c)  outstanding payment for project management services under the PMSA due to the extension of completion dates for Section 1 Works and Section 2 Works in the sum of about HK$1.74  million.  Claim (c)  is made against the 2^nd Defendant. 

8.  According to the Amended Defence and Counterclaim re-filed on 22 September 2023, the issues raised in defence were (a)  for the amount due under the Sub-Contract, there was an over-certification which arose from contract price fluctuations of about HK$13.49 million; (b)  breach of fiduciary duty by the Plaintiff in carrying out Maintenance Service Work under the Main Contract without the 1^st Defendant’s consent; (c)  the PMSA was a lump sum contract and the Plaintiff was in fact overpaid by about HK$5.8 million; and (d)  the outstanding deposits were included in the Account. 

9.  For (a), the 1^st Defendant claims to be entitled to deduct and/or set off against the Plaintiff’s claim.  For (b), the 1^st Defendant claims an account of profits or equitable compensation in the alternative.  For (c), the Plaintiff is liable to return the overpayment to 2^nd Defendant.”

5.  During the prior hearing, A Chan J had considered and rejected an attempt to re-amend the Amended Defence and Counterclaim seeking to introduce a new claim of breach of contract on the part of the Plaintiff in failing to manage the Project.  This previous attempt was described by Sam Woo as being found on the “Main Contractor’s Management Obligation” which the Plaintiff had allegedly undertaken under the Sub-Contract.  This claim was valued at about HK$163.5 million, being 10% of the total value of the work done for the entire Project on the basis of total failure of consideration by reason of the Plaintiff’s complete failure to manage the Project.  In the Decision, A Chan J dismissed the application primarily on the basis of limitation:

“28. … the amendments … are arguably outside the limitation period. The relevant amendments should be disallowed so that the Plaintiff will not be prejudiced by the ‘relation back’ principle.”

6.  During that hearing, in addition to the new claim described above, Sam Woo had also proposed to introduce a defence of abatement of price.  However, the objection was taken by the Plaintiff that Sam Woo had not properly particularized the defence.  Hence, A Chan J had observed in the Decision as follows:

“36. Returning to the new plea of abatement of price. The principles can be found in Hsu Ming Chi v Lam Shu Chit, unrep, HCCL 8/2013, 22 October 2014, [13]-[18], where Ng J summarized them as follows:

“13. It is a guiding principle of cardinal importance on the question of amendment that generally speaking, all such amendments ought to be made ‘for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings’: Re Playmates Investments Ltd [1996] 4 HKC 577 at 582E–H (per Le Pichon J as she then was); Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455 at para 25 (per Cheung JA); Hong Kong Civil Procedure 2014 Vol 1 para 20/8/6.

14. Leave is readily granted to amend before trial unless it can be shown that the new claim based on the proposed amendment is bound to fail. While the court is entitled to have regard to the merits of the case, it should only do so when the merits are readily apparent, and are so apparent as not to require prolonged investigation: Natamon Protpakorn v Citibank NA supra at para 25 (per Cheung JA).

15. If the proposed amendments are bound to fail, no leave to amend should be granted. In this regard, the court will take the applicant’s proposed pleaded case to the highest: Bank of China v Leigh Hardwick unrep., HCA 1110 of 2006, 28 August 2013, per Anthony Chan J at para 2.

16. Absent any real prejudice, an application for amendment, albeit late, must be decided upon the general principle that a court of law seeks to adjudicate on the real issues and disputes between the parties and, if possible, technical and procedural rules should not stand in the way of allowing the parties to raise their real claims or defences before the court for adjudication: VSC Building Products Co Ltd v Kono Insurance Ltd, unrep. HCA 947/2005, 9 September 2009, per A Cheung J (as he then was)  at [22].

17. Where prejudice is claimed, the burden is on the party opposing the amendment to show prejudice. There is no injustice to the opposing party if he can be compensated by appropriate orders as to costs: Re Playmates Investments Ltd supra at 582H, 584C (Le Pichon J as she then was).

18.  Lastly, in giving effect to the underlying objectives of the Rules of the High Court, the court shall always recognize that the primary aim in exercising the powers of the court is to ‘secure the just resolution of disputes in accordance with the substantive rights of the parties’: RHC O 1A r 2(2).”

37.  … Apart from Mr Pennicott’s misgivings about the state of the plea over the cause of action, I see no good reason to refuse the amendment to plead the abatement of price defence. 

38.  In respect of the lack of a properly particularised plea.  There are merits in Mr Pennicott’s submission that the Sub-Contract and the PMSA did provide for certain management obligations on the Plaintiff, and it is incumbent on the Defendants to plead what it was that the Plaintiff was required to do over and above those existing duties and how it had failed to do so. 

39.  Mr Chan did not offer to provide particulars of the abatement plea.  He relies on the Defendants’ allegation that the Plaintiff had obtained payment of the management duties which it did not carry out.  I regret to say that this is both an unsatisfactory and unfair approach. 

40  As for the claim of HK$163.5 million without any foundation on loss, I am inclined to the view that it is a matter for the trial judge whether the restitution claim can be accepted.  In any case, as a claim of abatement it cannot exceed the size of the Plaintiff’s claim. 

41.  The lack of a properly formulated claim is a concern with merits.  In my view, it is inappropriate to grant an amendment application which is keenly contested with the hope that proper particulars will be provided after amendment (none has in fact been offered).  That is wrong in principle.  Amendment application should be supported by a properly formulated set of amendments. 

42  In the premises, I am driven to dismissing this application.  The dismissal should not be taken as a bar to the Defendants to bring another amendment application with a properly formulated abatement plea. …”

7.  Sam Woo has thus endeavoured to formulate the abatement plea with particulars in the present Application. 

ANALYSIS

8.  There is no quarrel between the parties as to the general principles regarding amendment of pleadings, which have been canvassed in the Decision (paragraph 6 above)  and repeated again in the submissions before me.  Where the parties differ is on a number of key objections raised by the Plaintiff. 

9.  The draft pleading tendered to the Court on this occasion is prolix and somewhat meandering. To summarise, Sam Woo’s abatement plea as it is currently framed appears to be formulated in the following broad terms:

(1)  The Plaintiff was obliged to manage the entire project (including Sam Woo’s works)  as if it were the Main Contractor (“Main Contractor’s Management Obligation”)  (§10A);

(2)  The duty was a continuing duty extending throughout the entire duration of the Project (§§10C, 13AD-13AG);

(3)  The Plaintiff had breached the Main Contractor’s Management Obligation because of: (a)  failure to prepare programme; (b)  failure to employ safety officers; (c)  failure to prepare final payment certificate; (d)  failure to address complaints from the Architect/ Employer; (e)  failure to address water leakage issue; (f)  failure to manage sub-contractors; (g)  failure to manage different sections of the Project: (§§10B, 13AA(a)-(n), 13AC).  These failures were defined by reference to the Main Contractor’s Obligations set out in the Preliminaries of Bills of Quantities of the Main Contract (“BQ’s Preliminaries”);

(4)  The Plaintiff had admitted that it had failed to perform the Main Contractor’s Management Obligations in its witness statements (§13AB);

(5)  Despite the Plaintiff’s failures to perform the Main Contractor’s Management Obligation, it nevertheless received full benefit of the “Preliminaries” under Appendix 001B of the Written Terms of the Subcontract Agreement (§§13AH);

(6)  As a result, there was a total failure of consideration such that the Plaintiff was liable for repayment of the overpaid sums (§13AI);

(7)  There is also a plea of unjust enrichment (§13AK);

(8)  There is then a plea identifying the basis upon which Sam Woo is entitled to set-off the overpayments made to the Plaintiff and/or relying on the defence of abatement (§§13AM). 

10.  In answer, the Plaintiff first makes the following general observations:

(1)  As had already been observed by A Chan J in the Decision, given the Sub-Contract and the PMSA did provide for certain management obligations on the Plaintiff, it was incumbent on Sam Woo to plead what was required of the Plaintiff over and above those duties and how it had failed to do so; in other words, what was it that constituted the Main Contractor’s Management Obligation. 

(2)  It is also incumbent upon Sam Woo to plead (a)  how or on what basis it is alleged that Build King has been remunerated for the Main Contractor’s Management Obligation over and above what it has been paid under the Sub-Contract and the PMSA for management duties and (b)  how or on what basis such payment represents the proper amount of the abatement. 

11.  The Plaintiff objects to the proposed amendments on two key bases:

(1)  The plea as formulated in the present Application is flawed as a matter of law; and

(2)  The proposed amendments are in any event inconsistent, incoherent and lacking in proper particulars. 

12.  These objections are considered below. 

Is the plea flawed as a matter of law?

13.  The Plaintiff’s principle objection here is that Sam Woo has not pleaded a true abatement defence.  Their argument runs as follows:

(1)  Reference is made to Chitty on Contracts, 35^th ed, §30-008 which states inter alia:

“The victim of a breach of contract who has not yet paid the other party may be entitled to rely on the fact that what he has received is worth less than it would have been, had the contract been performed, as a ground for abatement of the price.”

(2)  The passage then refers to the leading case of Multiplex Constructions (UK)  Ltd v Cleveland Bridge UK Ltd. (2006)  107 Con LR 1, wherein Jackson J (as he then was)  had reviewed the authorities and said at [652] that:

“Although there is not a complete harmony of approach to be discerned from this line of cases, I derive seven legal principles from the authorities cited:

(i)  In a contract for the provision of labour and materials, where performance has been defective, the employer is entitled at common law to maintain a defence of abatement.

(ii)  The measure of ab atement is the amount by which the product of the contractor’s endeavours has been diminished in value as a result of that defective performance.

(iii)  The method of assessing diminution in value will depend upon the facts and circumstances of each case.

(iv)  In some cases, diminution in value may be determined by comparing the current market value of that which has been constructed with the market value which it ought to have had. In other cases, diminution in value may be determined by reference to the cost of remedial works. In the latter situation, however, the cost of remedial works does not become the measure of abatement. It is merely a factor which may be used either in isolation or in conjunction with other factors for determining diminution in value.

(v)  The measure of abatement can never exceed the sum which would otherwise be due to the contractor as payment.

(vi)  Abatement is not available as a defence to a claim for payment in respect of professional services.

(vii)  Claims for delay, disruption or damage caused to anything other than that which the contractor has constructed cannot feature in a defence of abatement.”

(3)  Mr Pennicott SC’s point for the Plaintiff is that there is a distinction to be drawn between (a)  failures to perform a contract which directly reduce the value of the work product itself and (b)  breaches of contract which have caused loss, and which give rise to cross-claims which are allowed to be set off. 

(4)  The Plaintiff says that a true abatement plea only exists in the situation in (a)  above, and not in (b), and that the proper measure of abatement is the amount by which the product of Build King’s endeavours (that is, in this case, the completed Project)  has been diminished in value because of that (assumed)  defective performance (citing Hobhouse LJ in Mellowes Archital Ltd v Bell Product s Ltd (1997)  58 Con LR 22 at 32:

“It is therefore clear that, for a party to be able to rely upon the common law right to abate the price which he pays for goods supplied or work done, he must be able to assert that the breach of contract has directly affected and reduced the actual value of the goods or work – ‘the thing itself’.”

(5)  The Plaintiff then says that what Sam Woo has pleaded is in the vein of (b)  rather than a diminution in value of the product itself, and that therefore the plea is defective and bound to fail. 

14.  In reply to the above:

(1)  Sam Woo agrees with the general legal principles in relation to abatement, but disputes the distinction sought to be drawn between failures to perform which directly reduce the value of “the thing itself” and breaches which cause loss and give rise to cross-claims. 

(2)  Sam Woo further cites two passages from the Multiplex case to support its position:

(a)  It reiterates the passage from page [652] cited above, placing emphasis on the phrase “In other cases, diminution in value may be determined by reference to the cost of remedial works.”  However, this emphasis fails to take into account the subsequent sentences, which make clear that “…, the cost of remedial works does not become the measure of abatement.  It is merely a factor which may be used either in isolation or in conjunction with other factors for determining diminution in value.”

(b)  It further refers to the analysis specific to the circumstances of the Multiplex case by Jackson J on page [654] where he said that:

“l must now apply these principles to Schs JA-JE and Sch 3.  Schedule IA comprises 90 claims in respect of defective steelwork.  As formulated, Sch JA does not set out a defenceof abatement or a claim to recover moneys overpaid in consequence of abatement.  Schedule JA sets out a conventional claim for damages for breach of contract. Accordingly, Sch JA as presently formulated is not a claim for abatement.  Nevertheless, Sch JA could readily beamended in order to set out a claim for abatement.  “What Multiplex needs to do is expressly to set out in Sch JA the diminution in value of the steelwork caused by the various alleged breaches of contract.””

(3)  It further asserts that “the thing itself” is not the Project, but rather the Plaintiff’s performance of the Main Contractor’s Management Obligation. 

15.  Two questions arise from the above. 

16.  First, is the Plaintiff’s proposition regarding the law of abatement correct? 

17.  Second, if it is, then is the plea defective? 

18.  Insofar as the first question is concerned, I consider the dicta in the Multiplex case and the passage in Chitty to be clear. The distinction drawn by Mr Pennicott SC is a sound one, and supported by Jackson J’s seven point summary. Sam Woo’s reply does not alter my conclusion on this. 

(1)  The citation suggesting that diminution in value may be assessed by reference to the cost of remedial works fails to take the full paragraph into account, which makes clear that the cost is merely a factor for determining the actual diminution – the upshot being that there still needs to be actual diminution pleaded in the first place. 

(2)  The citation of the subsequent passage also does not assist Sam Woo.  What the passage says is that a conventional plea for breach of contract squarely does not constitute an abatement plea.  It in fact supports the Plaintiff’s contention that in order to amount to an abatement plea, the pleading must “expressly set out … the diminution in value … caused by the various alleged breaches of contract.”

19.  Turning then to the second question – and the content of Sam Woo’s plea:

(1)  Whilst the plea is unnecessarily prolix, the overall framework of what appears to be alleged is relatively simple.  Sam Woo says that the Plaintiff failed to perform the Main Contractor’s Management Obligation (i.e. various breaches), but that it received the full remuneration for such task (i.e. the Preliminaries under Appendix 001B of the Written Terms), and that as a result thereof “there has been a total failure of consideration… [and] in this regard, there had been overpayment by Sam Woo to the Plaintiff and [Sam Woo] are entitled to recover such sum so paid.” (paragraph 13AI of the proposed amendment). 

(2)  The particulars under paragraph 13AI then specify which sums it is said Sam Woo wishes to recoup – either 10% of the work done on the entire Project, or alternatively the sum of HK$50.7 million being “the agreed lump sum fee as reflected in the PSMA for such project management services” or alternatively the sum of HK$32 million odd being “the tendered sum for ‘Contractor’s Management Team’”. 

(3)  There is in the further alternative in paragraph 13AJ  a proviso for Sam Woo to rely on expert evidence on quantum “in relation to the quantum of overpayment as regards the Plaintiff’s failure to manage the entire Project and/or failure to manage the Bored Piling Work.”

(4)  In paragraph 13AK, Sam Woo complains that the Plaintiff was in breach, that Sam Woo had to deploy further resources and manpower to carry out the Main Contractor’s Management Obligation, and that the Plaintiff had therefore been unjustly enriched.  This is another route by which Sam Woo seeks to claim the return of the “overpayment”. 

(5)  In paragraph 13AM, Sam Woo then pleads in yet further alternative that “the 1^st and/or 2^nd Defendants are entitled to deducted the sum as pleaded in paragraph 13AI hereinabove and/or alternative the sum to be assessed as per paragraph 13AJ hereinabove on the ground of abatement; alternatively, the 1^st and 2^nd Defendants are entitled to deduct and/or set-off such sum against the Plaintiff’s claim in the present action.”

20.  One needs only consider the structure and content of the plea to see that:

(1)  The abatement plea is tacked on to a series of pleas which all are framed in terms of “overpayment” and claims for recovery of the same. 

(2)  There is no mention of the Project and the diminution in value thereof.  Rather, the plea is framed by reference to the prior pleas of overpayment, and the claims for total failure of consideration, recoupment, and unjust enrichment. 

(3)  It would appear that the framing of the plea as a breach / breaches of contract faces the same issues that had plagued Sam Woo’s original attempt at amendment, which had already been rejected by A Chan J. 

21.  The proposed plea for abatement fails in limine.  Despite being given ample opportunity by A Chan J to make good its case, Sam Woo has not framed the plea correctly per the legal principles explored above. 

Are the pleas inconsistent, incoherent and lacking particulars?

22.  The above would essentially suffice in and of itself to dispose of the application.  However, for completeness’ sake, I turn to consider the other grounds of objection by the Plaintiff and Sam Woo’s answers thereto.

23.  As stated above, the parties are agreed on the general principles surrounding pleadings.  The question is whether the current proposed plea meets the relevant criteria. 

24.  I consider below the Plaintiff’s objections to the respective proposed amendments and Sam Woo’s answers thereto.

25.  Paragraph 10A sets out the provisions of the contract which Sam Woo says constitute the “Main Contractor’s Management Obligation”.  The Plaintiff takes issue with the lack of clarity because at parts the plea refers to provisions “including but not limited to” certain parts of the contractual documents, leaving open the possibility that it may be surprised at a later stage if and when Sam Woo seeks to widen the scope. 

26.  Paragraph 10B pleas that the Plaintiff had certain duties and responsibilities which again “included but were not limited to” a list of 10 duties as set out.  What is objected to by the Plaintiff is Sam Woo’s assertion that these “are cited by way of example only. They do not constitute an exhaustive enumeration of the Plaintiff’s duties”. 

27.  Sam Woo does not appear to have a specific answer to either of these, save they say in their submissions that “the Main Contractor's Management Obligation subsists in Written Terms of the Subcontract Agreement” and that foundational to the amendment is the “admissions by the Plaintiff’s witnesses that the Plaintiff did not carry out the Main Contractor’s Management Obligation.”

28.  Whilst the phrasing is really not ideal for these two paragraphs, I do not consider that this in and of itself is a dispositive objection.  The simple point is that if Sam Woo were to attempt to rely on other unpleaded provisions, the Plaintiff could still object at trial on the basis that those provisions then relied on for the first time were not pleaded and hence ought not constitute part of the case. 

29.  Paragraph 10C then refers to an alleged ongoing and continuing obligation to perform the Main Contractor’s Management Obligation.  The Plaintiff objects to the length of the plea but does not raise any other specific objection thereto.  Again, whilst the plea is probably unnecessarily prolix, this does not of itself mean that it is bad. 

30.  Paragraph 13AA then proceeds to plead that the Plaintiff was in breach of the Sub-Contract and/or the PMSA in failing to manage the entire project.  Heavy reliance is placed on alleged “admissions” in two witness statements filed by the Plaintiff.  It is then said that Sam Woo “were not aware, and could not reasonably have been aware, of the Plaintiff’s total failure to perform its management obligations and duties until the said admissions were made clear in those witness statements”.  It then says that “Prior to such admissions, [Sam Woo] had assumed that the Plaintiff was discharging its Main Contractor’s Management Obligation in accordance with its contractual obligations albeit not in a satisfactory manner as particularized below… ” (there are then various extensive ‘unsatisfactory’ breaches set out)

31.  The Plaintiff says that this is an attempt to rerun an argument already considered and rejected in A Chan J’s original decision, and that this should not be allowed.  It further says that it is unclear how Sam Woo’s knowledge or lack of knowledge is relevant at all to a plea of abatement.  It further says that there is lack of clarity as to the breach asserted – was it a question of total failure or was it a question of some performance albeit unsatisfactory?

32.  I agree with the Plaintiff.  The crux of the plea lies in paragraph 13AA and the position set out therein is unclear and inconsistent. 

33.  As the Plaintiff points out, Paragraphs 13AB to 13AH repeat various allegations already pleaded in other parts of the Re-Amended Defence and Counterclaim.  Sam Woo does not appear to have an express answer to this.  I agree it is unnecessary to do so and adds to the length of the plea. 

34.  The balance of the pleas (Paragraphs 13AI to 13AM)  have been considered in the section above.  Whilst various other points regarding the lack of particulars are made, the main point is that the plea as set out does not make good an abatement plea.  The other aspects have already been considered and were rejected in the earlier decision and Sam Woo ought not be allowed to rerun the same points again. 

35.  In the circumstances, the application is dismissed, with costs to the Plaintiff, to be taxed if not agreed. 

36.  I thank counsel for their assistance. 

Mr. Ian Pennicott SC instructed by Messrs. Hogan Lovells for the Plaintiff

Ms. Queenie W.S.NG and Mr. Matthew CHEUNG instructed by Messrs. CLY LAWYERS for the 1^st and 2^nd Defendants

HCCT 4/2023

[2025] HKCFI 894

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 4 OF 2023

______________________

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DECISION

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1.  This is the Defendants’ application to re-amend their Amended Defence and Counterclaim with the addition of a new cause of action.

Issues

2.  The application is resisted by the Plaintiff on 3 grounds, namely, (a) limitation period; (b) no sustainable cause of action; and (c) fictional quantum.

Background

3.  In brief, the 1^st Defendant was the Main Contractor in respect of the foundation and associated works (“Works”) for the Hospital Authority (“HA”) as the Employer for the expansion of United Christian Hospital (“Project”). The Plaintiff was the Sub-Contractor of the 1^st Defendant for the majority of the Works. A smaller part of the Works was carried out by the 1^st Defendant.

4.  There is a Sub-Contract executed by the Plaintiff and the 1^st Defendant on around 4 January 2017 but dated 22 August 2015. There is a dispute whether the contract between the Plaintiff and the 1^st Defendant was solely embodied in that written document. The 1^st Defendant says that the contract was partly oral. For convenience, the contract between the parties is referred to as “the Sub-Contract”.

5.  The Works were split into Section 1 Works and Section 2 Works. The Works of both Sections were commenced on 22 August 2015 and substantial completion occurred for Section 1 Works and Section 2 Works on 17 March 2020 and 2 June 2020 respectively.

6.  In addition to the Sub-Contract, about 17 months after the commencement of work, on 4 January 2017 the Plaintiff signed a Project Management Services Agreement (“PMSA”) with the 2^nd Defendant (a sister company of the 1^st Defendant) who, according to the PMSA, had been awarded the sub-contract for the provision of project management services by the 1^st Defendant for the Project. Under the PMSA, the Plaintiff was to provide project management services on behalf of the 2^nd Defendant on a back-to-back basis with the 2^nd Defendant’s sub-contract from 15 July 2016 until the issuance of maintenance certificate. The PMSA was backdated to 1 June 2016.

7.  These proceedings were issued on 18 January 2023 and in which the Plaintiff made 3 claims: (a) despite the certification of the total value of works executed by the Plaintiff, there is outstanding payment under the Sub-Contract of about HK$53 million; (b) outstanding refund of deposits paid by the Plaintiff (and certified by the 1^st Defendant) in the sums of HK$405,000 (paid to Environmental Protection Department) and about HK$47,000 (paid to Water Supplies Department); and (c) outstanding payment for project management services under the PMSA due to the extension of completion dates for Section 1 Works and Section 2 Works in the sum of about HK$1.74 million. Claim (c) is made against the 2^nd Defendant.

8.  According to the Amended Defence and Counterclaim re-filed on 22 September 2023, the issues raised in defence were (a) for the amount due under the Sub-Contract, there was an over-certification which arose from contract price fluctuations of about HK$13.49 million; (b) breach of fiduciary duty by the Plaintiff in carrying out Maintenance Service Work under the Main Contract without the 1^st Defendant’s consent; (c) the PMSA was a lump sum contract and the Plaintiff was in fact overpaid by about HK$5.8 million; and (d) the outstanding deposits were included in the Account.

9.  For (a), the 1^st Defendant claims to be entitled to deduct and/or set off against the Plaintiff’s claim. For (b), the 1^st Defendant claims an account of profits or equitable compensation in the alternative. For (c), the Plaintiff is liable to return the overpayment to 2^nd Defendant.

10.  The proposed re-amendment seeks to introduce a new claim of breach of contract on the part of the Plaintiff in failing to manage the Project, described as “Main Contractor’s Management Obligation” which the Plaintiff had allegedly undertaken under the Sub-Contract.

11.  The pleaded value of the new claim is about HK$163.5 million, being 10% of the total value of the work done for the entire Project on the basis of total failure of consideration by reason of the Plaintiff’s complete failure to manage the Project.

12.  There are two points made by Mr Pennicott SC, who appeared for the Plaintiff, which are worthy of note. First, there appears to be no complaint by the Defendant about the lack of management for the Project until the re-amendment surfaced 4 years after completion of the Works. Second, it appears that the 1^st Defendant was adequately paid by the Employer. This is consistent with the fact that there was no complaint, and hence there is no damages claim but an alleged restitution claim based on total failure of consideration.

13.  The only reply made by Mr Chan SC, who appeared with Ms Ng and Mr Cheung for the Defendants, is that the Final Account between the 1^st Defendant and the HA has not been signed off, although he was unable to assure the court that his instruction was based on adequate support.

Limitation

14.  Prima facie, if the new claim (being one in contract) is accrued more than 6 years prior to the date of Writ, ie, before 8 January 2017, it is time-barred under the Limitation Ordinance, Cap 347 (“Ordinance”).

15.  Paragraph 13AA of the draft Re-Amended Defence and Counterclaim pleads that: “Since or around the commencement of the Project in August 2015, the 1^st Defendant and 2^nd Defendant aver that wrongfully and in breach of the Subcontract Agreement and/or the PMSA, the Plaintiff had failed to manage the entire Project as if it was the Main Contractor.”

16.  This averment is unequivocal in that the Plaintiff’s alleged breach occurred in August 2015, well before 6 years prior to the date of the Writ. It follows that, prima facie, the claim is made outside the limitation period.

Applicable principles

17.  A 3-stage test is to be applied when approaching an application for amendment which raises a limitation issue, as explained by Ng J in Shenzhen Futaihong Precision Industry Co Ltd v BYD Co Ltd, unrep, HCA 2114/2007, 18 July 2016, [16] :

“ Where a party raises a limitation objection to proposed amendments to pleadings, it is useful to adopt the ‘three-stage test’ set out in Ballinger v Mercer Ltd [2014] 1 WLR 3597 at [15], as further explained in Michael Agapios Diamandis v Sir David Seton Wills [2015] EWHC 312 (Ch) at [46]:

(1) Stage 1: Is it reasonably arguable that the opposed amendments are outside the applicable limitation period? If not, then the amendments fall to be considered in accordance with the general principles governing amendment applications.

(2) Stage 2: If the answer to (1) is yes, do the proposed amendments seek to add or substitute a ‘new cause of action’? If not, then again the amendments fall to be considered in accordance with general principles.

(3) Stage 3: If the answer to (2) is yes, does the new cause of action arise out of the same or substantially the same facts as are already in issue in the existing claim? If not, the amendments cannot be allowed. If yes, then the court retains a discretion to allow or refuse the amendments in accordance with general principles.”

18.  With respect, I venture to suggest that for (2) it may be desirable to adhere to the terminology of s.35 of the Ordinance, ie, “new claim”, which was defined under s.35(2) to mean “any claim by way of set-off or counterclaim, and any claim involving [for the present purpose] the addition or substitution of a new cause of action”. In respect of (3), again it may be desirable to following the formulation used in s.35(6)(a) (and O. 2, r. 5(5) of the RHC), ie, “arise out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claim in the action by the party applying for leave to make the amendment”.

19.  The arguments advanced by Mr Chan are: (a) the new claim is used as a defence which is permissible even if the claim is statute-barred; (b) continuing breaches of contract; (c) the new cause of action arises out of the same or substantially the same facts; and (d) deliberate concealment of relevant facts by the Plaintiff.

Defence

20.  There is no dispute that the Ordinance does not apply to a new defence. It was pointed out by Mr Chan that in para 13AL of the proposed re-amendment the new claim was pleaded as a defence of abatement of price. It is reasonably clear that abatement of price is a defence: Chitty on Contracts, 35^th edn, [30-008]. Therefore, I agree with Mr Chan that this plea is not affect by limitation period. I shall deal with below whether the amendment in question should be allowed under general principles on amendment of pleadings.

21.  Mr Chan conceded that if this application only succeeds on the ground of defence, then the counterclaim made in the amendment based on the new claim should be deleted in conjunction with prayers (1B) of the 1^st. Defendant and (1A) of the 2^nd Defendant.

Continuing breaches

22.  The Defendants say that the new cause of action against the Plaintiff for breach of Main Contractor’s Management Obligation is not time-barred. They rely on Chitty on Contract, 35^th edn, vol 1, [32-035], where the concept of continuing breaches was elaborated as follows :

“Successive and continuing breaches Where the innocent party elects to treat himself as discharged from further performance consequent upon a breach of the contract, time begins to run immediately … But if there are one or more breaches which do not give rise to a discharge either because they are not sufficiently fundamental or because the innocent party declines to accept them as having that effect, each will give rise to a separate cause of action. There may also be a series of breaches of a single covenant. Examples are failure to pay instalments of interest or rent. Or the breach may be a continuing one, e.g. of a covenant to keep in repair. In such a case the claimant will succeed in respect of so much of the series of breaches or the continuing breach as occurred within the six (or 12) years before action brought. In Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp the failure of a solicitor to register an interest in land was held to constitute a continuing breach of his retainer, so the client’s cause of action did not become barred until six years after registration ceased to be possible. But in subsequent cases involving similar facts this decision has either been distinguished or doubted; and the Court of Appeal has held (albeit it in a case not involving any question of limitation) that it is now to be regarded as wrongly decided. Time will therefore start to run when the act should have been carried out.”

23.  Mr Chan submitted that there are subsequent authorities consistent with Midland Bank Trust Co Ltd, namely, 2 Entertain Video Limited v Sony DADC Europe Ltd [2020] EWHC 972(TCC), [251]-[252] and Equitas Ltd v Walsh Bros & Co Ltd [2013] EWHC 3264 (Comm), [59]-[71]. In [64] of Equitas, Males J identified the key elements of continuing duties, namely, the relationship of the parties and whether the particular obligation in question is such as to give rise to a continuing obligation. In [69], the learned Judge applied the principles to the case before him :

“ The question, therefore is whether on the facts of the present case there are features of the parties’ relationship and of a Lloyd’s broker’s obligation to collect and remit funds which point to a conclusion that the obligation is after all a continuing obligation. I accept that this case has the features identified by Equitas to which I have referred. The parties’ relationship was a long-term continuing relationship in which the broker’s role in collecting and remitting funds was central, in which reinsurance claims would be expected to come in and need to be dealt with over a period of years, with the broker under a continuing obligation to maintain accounts and administer the syndicates’ reinsurance policies generally, and with heavy reliance known to be placed on the broker by the syndicates. The broker’s obligation in essence was to administer the syndicates’ accounts in a manner which ensured that the syndicates would not be kept out of funds to which they were entitled. In some respects this relationship was more akin to the example given by Mustill L.J. in Bell v Peter Browne & Co of a solicitor with a continuing retainer to protect the interests of his client generally, which was contrasted with the facts of Bell v Peter Browne & Co itself, where the solicitor was retained for a one off transaction. I consider that the combination of features in the present case does suggest not only a continuing relationship, but also a continuing obligation.”

[emphasis added]

24.  I can see that on the basis of the above principles, it is arguable that the Plaintiff’s alleged duty to manage the Project was a continuing obligation such that every day of failure to fulfil the obligation gave rise to a fresh cause of action.

25.  I have been referred by Mr Pennicott to the recent judgment of In Media Trust SPA v BGB Weston Ltd [2024] EWHC 3277 (KB), [13(iii) and (iv)], where Spencer J identified a number of applicable principles on limitation. Amongst which was that the court should not determine seriously disputed questions of facts on an interlocutory application, and this extends to issues of law which are not straightforward, clear or obvious; or issues of law or facts (or both) which required detailed argument and mature consideration.

26.  In my view, these principles are applicable here on the issue of continuing obligation. Apart from the fact that the new cause of action is hotly contested by the Plaintiff, it is facts-sensitive to the case, eg, the Defendants’ allegation that they placed reliance on the Plaintiff for the due performance of the Main Contractor’s Management Obligation and in the administration of the entire Project, including the 1^st Defendant’s part of the Works. It is not appropriate for the court to determine such issue on an interlocutory application.

27.  Moreover, Mr Pennicott submitted that the new cause of action (or at least part of it) must be statute-barred even on the Defendants’ case because some of the breaches must have been committed prior to 18 January 2017 given the commencement of work in August 2015. It should be noted that there is no attempt by the Defendants’ to make any distinction to the alleged breaches which took placed before and after that date. Further, Mr Pennicott made the point that one indivisible amount is being claimed under the new cause of action.

28.  I agree with Mr Pennicott that the Plaintiff is only required to show that it has a reasonably arguable case on limitation, and it has done so in answer to the continuing obligation point. Thus, the amendments (with the exception of abatement of price) are arguably outside the limitation period. The relevant amendments should be disallowed so that the Plaintiff will not be prejudiced by the “relation back” principle. The Defendants, however, will suffer no prejudice (and they do not suggest the contrary) since they can issue a new Writ in respect of its new claim.

Arising from the same facts

29.  The remaining two arguments of the Defendants are of little merits and can be disposed of quickly.

30.  With respect, it is self-evident that the existing causes of action relied upon by the Defendants (see para 8 above) do not involve facts from which the new cause of action may arise. In his submission, Mr Chan pointed to the 2^nd Defendant’s claim of overpayment under the PMSA. With respect, that is an extremely tenuous connection. The PMSA claim is in fact a claw-back of payments made to the Plaintiff, which were applied for, assessed and paid by the 2^nd Defendant, based on the allegation that the PMSA was actually a lump sum contract. I agree with Mr Pennicott that this application is refused, the Plaintiff’s carrying out and fulfilment of its management obligations will not be an issue at the trial.

Deliberate concealment

31.  To his credit, Mr Chan did not press this point in his viva voce submissions but merely relied on what had been stated in the Defendants’ skeleton submissions.

32.  Section 26 of the Ordinance provides :

(1)  Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either—

…

(b)  any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

…

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

…

(3)  For the purposes of subsection (1), deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.”

33.  For the purpose of s.26(1)(b) of the Ordinance, as summarized in Lee Tsan Sum v Wong Pui Hon David [2010] 4 HKLRD 219, per Fok J (as he then was), [39]:

(1)  Concealment within the subsection means a deliberate concealment of relevant facts and the six-year period provided in the section starts to run from the date on which the concealment is discovered;

(2)  The burden rests on a plaintiff to establish that there has been a relevant concealment. Similarly, the burden is on a plaintiff to show that he could not have discovered the concealed facts without exceptional measures which he could not reasonably have been expected to take;

(3)  A fact relevant to a plaintiff’s cause of action is an act without which the cause of action would be incomplete. It is not relevant that a defendant may have concealed a fact which, if known, would merely go to strengthen an existing case;

(4)  The words “any fact relevant to a plaintiff’s cause of action” are to be given a narrower rather than wider interpretation: what must be concealed is something essential to complete the cause of action and it is not enough that evidence that might improve the claim is concealed, provided that the claim can be properly pleaded without it;

(5)  The section does not provide that the right of action must have been concealed from a plaintiff: it provides only that a relevant fact should have been concealed;

(6)  Although in most cases where the section applies, a defendant will have known the fact that he concealed was relevant, it is not essential to show the defendant must have known the fact was relevant to the right of action;

(7)  The section requires only that any fact relevant to the right of action is concealed and does not require that all facts relevant to the right of action are concealed.

34.  I do not see how these stringent requirements had been satisfied by the Defendants. Their case is simply that there was, in breach of management obligation on the part of the Plaintiff, no management service provide from day one. Given the fact that the 1^st Defendant was on site carrying out its part of the Works over a long period of time, periodic interim payment applications were made by it to the HA, and in turn it had certified and made payments to the Plaintiff as its Sub-Contractor, it is inconceivable that the 1^st Defendant could not have found out the relevant facts until, allegedly, the recent filing of the Plaintiff’s witness statements.

35.  With respect, the point has no merits and should not have been advanced to burden the court and increase the costs.

Amendment of pleadings principles

36.  Returning to the new plea of abatement of price. The principles can be found in Hsu Ming Chi v Lam Shu Chit, unrep, HCCL 8/2013, 22 October 2014, [13]-[18], where Ng J summarized them as follows :

“13. It is a guiding principle of cardinal importance on the question of amendment that generally speaking, all such amendments ought to be made ‘for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings’: Re Playmates Investments Ltd [1996] 4 HKC 577 at 582E–H (per Le Pichon J as she then was); Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455 at para 25 (per Cheung JA); Hong Kong Civil Procedure 2014 Vol 1 para 20/8/6.

14. Leave is readily granted to amend before trial unless it can be shown that the new claim based on the proposed amendment is bound to fail. While the court is entitled to have regard to the merits of the case, it should only do so when the merits are readily apparent, and are so apparent as not to require prolonged investigation: Natamon Protpakorn v Citibank NA supra at para 25 (per Cheung JA).

15. If the proposed amendments are bound to fail, no leave to amend should be granted. In this regard, the court will take the applicant’s proposed pleaded case to the highest: Bank of China v Leigh Hardwick unrep., HCA 1110 of 2006, 28 August 2013, per Anthony Chan J at para 2.

16. Absent any real prejudice, an application for amendment, albeit late, must be decided upon the general principle that a court of law seeks to adjudicate on the real issues and disputes between the parties and, if possible, technical and procedural rules should not stand in the way of allowing the parties to raise their real claims or defences before the court for adjudication: VSC Building Products Co Ltd v Kono Insurance Ltd, unrep. HCA 947/2005, 9 September 2009, per A Cheung J (as he then was) at [22].

17. Where prejudice is claimed, the burden is on the party opposing the amendment to show prejudice. There is no injustice to the opposing party if he can be compensated by appropriate orders as to costs: Re Playmates Investments Ltd supra at 582H, 584C (Le Pichon J as she then was).

18. Lastly, in giving effect to the underlying objectives of the Rules of the High Court, the court shall always recognize that the primary aim in exercising the powers of the court is to ‘secure the just resolution of disputes in accordance with the substantive rights of the parties’: RHC O 1A r 2(2).”

37.  The trial of this action has not been set down. Apart from Mr Pennicott’s misgivings about the state of the plea over the cause of action, I see no good reason to refuse the amendment to plead the abatement of price defence.

38.  In respect of the lack of a properly particularised plea. There are merits in Mr Pennicott’s submission that the Sub-Contract and the PMSA did provide for certain management obligations on the Plaintiff, and it is incumbent on the Defendants to plead what it was that the Plaintiff was required to do over and above those existing duties and how it had failed to do so.

39.  Mr Chan did not offer to provide particulars of the abatement plea. He relies on the Defendants’ allegation that the Plaintiff had obtained payment of the management duties which it did not carry out. I regret to say that this is both an unsatisfactory and unfair approach.

40.  As for the claim of HK$163.5 million without any foundation on loss, I am inclined to the view that it is a matter for the trial judge whether the restitution claim can be accepted. In any case, as a claim of abatement it cannot exceed the size of the Plaintiff’s claim.

41.  The lack of a properly formulated claim is a concern with merits. In my view, it is inappropriate to grant an amendment application which is keenly contested with the hope that proper particulars will be provided after amendment (none has in fact been offered). That is wrong in principle. Amendment application should be supported by a properly formulated set of amendments.

42.  In the premises, I am driven to dismissing this application. The dismissal should not be taken as a bar to the Defendants to bring another amendment application with a properly formulated abatement plea. They are of course free to bring new action to advance the new cause of action.

Disposition

43.  The application is dismissed with costs to the Plaintiff, to be taxed if not agreed.

Mr Ian Pennicott SC, instructed by Hogan Lovells, for the Plaintiff

Mr Edward Chan SC, Ms Queenie WS Ng and Mr Matthew Cheung, instructed by CLY Lawyers, for the 1^st to 2^nd Defendant