Cheong Shing Water Supplies Engineering Ltd v. Full Win Building Services Ltd

DCCJ 985/2018

[2019] HKDC 559

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 985 OF 2018

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REASONS FOR DECISION

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1.On 19 January 2019, the plaintiff applied for summary judgment under Order 14 of the Rules of District Court before Master. The Master dismissed the plaintiff’s summons and granted the defendant unconditional leave to defend. The plaintiff appeals against the Master’s decision (“the O 14 Appeal”).

2.Shortly before the hearing of the O 14 Appeal, the defendant issued a summons dated 19 February 2019 applying for leave to file and serve the 2^nd Affirmation of Lam Tuen Yee (“2^nd Affirmation of Lam”) pursuant to O 58, r 4(1) of the Rules of the District Court (“the Defendant’s Summons”).

3.The O14 Appeal and the Defendant’s Summons were heard together on 26 February 2019.

4.Having heard submissions from Counsel for the plaintiff and Counsel for the defendant, I have dismissed the Defendant’s Summons and allowed the O 14 Appeal.

5.Here are my reasons for decision.

Background

6.It is helpful to list out the chronology of court documents and proceedings:-

-- Writ & Statement of Claim	14 Mar 2018
-- Defence & Counterclaim	22 Jun 2018
-- Reply & Defence to Counterclaim	18 Oct 2018
-- P’s Summons for O 14 with affirmation in support (Affirmation of Fok Chi Ping)	18 Oct 2018
-- Unless Order by Master for filing & service of D’s affirmation in opposition	3 Dec 2018
-- Deadline for filing & service of D’s affirmation in opposition	7 Dec 2018
-- D’s affirmation in opposition (1st Affirmation of Lam Tuen Yee) filed	7 Dec 2018
-- 1st Affirmation of Lam Tuen Yee served on P	4 Jan 2019
-- Leave to D to amend Defence & Counterclaim	7 Jan 2019
-- Amended Defence & Counterclaim	8 Jan 2019
-- O.14 hearing before Master	10 Jan 2019
-- Notice of appeal against Master’s decision	16 Jan 2019
-- D’s Summons under O 58, r 1(4)	19 Feb 2019
-- Appeal Hearing	26 Feb 2019
-- Deadline for P to file & serve Amended Reply & Defence to Counterclaim	4 Mar 2019

7.In a nutshell, the case as pleaded in the Statement of Claim is as follows:-

(a)   The plaintiff was the sub-contractor of the defendant to perform work at a construction site for a total sum of HK$12,500,000.00.

(b)   The plaintiff was paid for the work done between 3 May 2016 to 21 August 2017.

(c)   By latter part of August 2017, the plaintiff had duly completed the work done and the defendant should but failed to pay the plaintiff HK$ 3,604,450.00 for the work done.

(d)   On 30 October 2017, the parties entered into a mutual agreement (“the MA”), that the defendant would instead pay the plaintiff HK$ 1,000,000.00 by 3 instalments in full and final settlement in lieu of HK$ 3,604,450.00.

(e)   The defendant only paid HK$298,900.00 out of the sum of HK$1,000,000.00 and the plaintiff now sues for the remaining balance of HK$ 701,100.00.

8.The defendant pleaded, under the Defence and Counterclaim dated 22 June 2018, inter alia, that:-

(a)   The defendant engaged the plaintiff as its sub-sub-sub-contractor to carry out and complete installation of piping work (“the Sub-Sub-Sub-Contract work”).

(b)   The plaintiff did not complete the work done according to their sub-contractual agreement.

(c)   The amount of total work done was in dispute prior to the execution of the MA.

(d)   The defendant agreed to pay the plaintiff HK$1,000,000.00 by 3 instalments for the agreed amount due for works done up to the date of the MA.

(e)   The defendant had made a payment of HK$298,900.00 to the plaintiff on 16 November 2017.

(f)   Subsequent to the payment of HK$298,900.00, direct payments were made by Wong Po Kee Limited (“WPKL”), the defendant’s upper tier contractor, to the plaintiff, which were deemed to be paid on behalf of the defendant.

(g)   The total direct payment from WPKL exceeded the total amount of HK$1,000,000.00 under the MA.

(h)   The defendant counterclaimed HK$1,000,000,00 from the plaintiff.

9.The Amended Defence and Counterclaim dated 8 January 2019 added, the following:-

(a)   Part of the work performed by the plaintiff was defective and the defendant and WPKL had to engaged own contractors or workers to rectify the defective work.

(b)   At the time of signing of the MA, it was the mutual understanding between the parties that adjustment would be made and the instalment payments were subject to final accounts between the parties.

(c)   The defendant had no idea of the final accounts of the contra charges to rectify those work to be incurred by the defendant and WPKL (“the Contra Charges”).

(d)   It was not intended that the MA is a full and final settlement of the work done by the plaintiff and is subject to the Contra Charges.

(e)   Of the amount of HK$3,604,450.00, the plaintiff has received 4 direct payments from WPKL (a total sum of HK$1,474,850.00). WPKL continued to make direct payments to the plaintiff when the plaintiff is not entitled to and such direct payments were wrongful (“the Direct Payments”).

(f)   The defendant was and still is waiting for WPKL to prepare the final accounts.

(g)   The defendant and WPKL had paid employees’ compensation in the total sum of HK$ 176,460.00 on the plaintiff’s behalf and should be reimbursed by the plaintiff (“the Employees Compensation”).

(h)   The sum counterclaimed was amended to HK$529,003.83.

10.In essence, the defendant is alleging that the Contra Charges, the Direct Payments and the Employees Compensation are to be set-off against the amount under the MA.

11.As can be discerned from the history of Court documents and proceedings:-

(a)   The defendant filed its affirmation in opposition (1^st Affirmation of Lam Tuen Yee) on 7 December 2018, which was the deadline for filing and serving the same pursuant to the “Unless Order” of 3 December 2018;

(b)   The 1^st Affirmation of Lam was not served on the plaintiff until 4 January 2019, and thus in breach of the “Unless Order”;

(c)   As a result, no affirmation in opposition was put forward by the defendant in the original O 14 hearing before Master.

12.Despite the lack of affirmation in opposition from the defendant, the Master gave unconditional leave to defend and dismissed the plaintiff’s application for summary judgment, to which the plaintiff now appeals.

13.The defendant seeks to adduce 2^nd Affirmation of Lam dated 20 February 2019 in the O 14 Appeal.

The Defendant’s Summons

The Principles

14.O 58 r 1 (5) of the RDC provides:-

“No further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal under this rule except on special grounds.”

15.Hong Kong Civil Procedure 2019 Vol.1 at 58/1/3 states that:-

“The phrase “special grounds” is the same expression as in RHC O 59, r 10(2) and requires the conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 to be satisfied.”

16.The conditions in Ladd v Marshall are:-

“first, it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; secondly, the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; thirdly, the evidence must be such as is presumably to be believed, or, in other words, it must be apparently credible though it need not be incontrovertible.”

(Emphasis added)

17.In relation to O 14 Appeals, Hong Kong Civil Procedure 2019 Vol.1states:-

“14/4/46

Evidence on appeals-

Since the introduction of the Civil Justice Reform, no further evidence, other than evidence as to matters which occurred after the date on which the judgment, order or decision was given or made, may be received on the hearing of an appeal from a master to a judge in chambers, except on special grounds…

However, Lord Bridge in Langdale v Danby nevertheless suggested that the application of the Ladd v Marshall conditions would require some modification in the context of an appeal against the grant of summary judgment.

In Bank of China (Hong Kong) Ltd v Certain Aim Ltd [2011] 1 H.K.C. 135 at paras 11–17, Dep J Au-Yeung rejected the argument that such a “relaxed” approach to the introduction of fresh evidence should be taken where an appeal was brought against the grant of summary judgment by a Master. She observed that O 58, r 1(5) was introduced to curb the undesirable pre-CJR practice when parties sought to adduce further evidence on appeal after an unfavourable decision from a Master. Parties should prepare their application properly at the earliest possible opportunity and lay all cards on the table prior to the hearing before a Master. On the other hand, shortly afterwards in Fortis Insurance Co. (Asia) v Lam Hau Wah Inneo(unrep., CACV 86/10, October 28, 2010), Kwan JA had regard to the approach to Langdale v Danby in allowing the introduction of fresh evidence in an appeal to the Court of Appeal against the grant of summary judgment, see also: Johnson Electric International Ltd v Bel Global Resources Holdings Ltd [2014] 5 H.K.C. 504, [13]–[14].”

The defendant’s argument

18.Mr Lee for the defendant invited the court to apply the “modified test” as adopted in Langdale v Danby.

19.Mr Lee relied on Johnson Electric International Ltd v Bel Global Resources Holdings Ltd [2014] HKCA 208 and submitted that the standard of diligence required of a defendant preparing his case against summary judgment under pressure of time would not be as high as that required in the preparation of trial.

20.It is said that the conditions in Ladd v Marshall are satisfied, in that:-

(a)   The 2^nd Affirmation of Lam contains “new evidence” as it arises from the summary account received from WPKL dated 14 February 2019 (which is after the original O 14 hearing on 10 January 2019). Mr Lee referred to paragraphs 2 and 5 of the 2^nd Affirmation.

(b)   Such evidence has an important influence on the result of the case as it is evidence of the defendant’s counterclaim for the Contra Charges and the Direct Payments.

(c)   Lastly, the evidence is credible as the plaintiff has acknowledged that it had received payments directly from WKPL on behalf of the defendant, and such payments were regularly recorded in the letters of accounts from WPKL to the defendant.

21.Mr Lee, however, acknowledged that the 2^nd Affirmation of Lam contains more or less the same information as the 1^st Affirmation (which the defendant was not able to adduce at the original O 14 hearing).  However, it is unfair to disregard any new evidence purely because it was mixed with older information.

The plaintiff’s argument

22.Mr Li for the plaintiff drew my attention to, inter alia, the following:-

(a)   The content of the 2^nd Affirmation of Lam is 99% identical to his 1^st Affirmation, only that the defendant includes one more letter (dated 14 February 2019) and reduces the figure claimed under the Counterclaim.

(b)   The content of the alleged new evidence, ie the letter dated 14 February 2019 (“LTY2-1”), is 100% identical to the letter exhibited to the 1^st Affirmation (“LTY1”).

(c)   There is no change of circumstances after the hearing below.

(d)   The defendant is just trying to squeeze all the old evidence into the newly produced letter dated 14 February 2019, so that its old evidence can be admitted through the backdoor.

23.Mr Li  referred to Jindal Exports Limited v Waco Trading Co Ltd [2000] 2 HKC 46, which held that:-

“5. The case of Way Cheong Co. Ltd v Kiu May Construction Co Ltd [1983] 2HKC 403 and the passage in The Supreme Court Practice 1997 vol 1 para 58/1/3 on the Court's power to admit new evidence on an appeal from master are not relevant for our present purpose. The circumstances of the present case is different from those in the Way Cheong case. In this case, the so-called "new" or "fresh" materials were available to and were before the Master at the hearing below, but they were not allowed to be admitted and used as a result of a conscious decision made by the Master after hearing arguments. While there is no doubt that the Court has power to admit new or fresh evidence under O 58 r 1 RHC, the Court cannot invoke the power when the Master had already exercised his discretion on the same matter, short of an appeal.”

“7. Alternatively, even if I were to err on the procedural point, I am of the view that the discretion ought not to be exercised to allow this 2nd affirmation of Wong Chun Yee to be admitted. There is no explanation in the supporting affirmation of the defendant's solicitor as to why the materials in this affirmation were and could not have been included in the 1st affirmation of Wong Chun Yee. The filing of repeated rounds of affidavits is to be discouraged in interlocutory proceedings, especially in summary judgment applications, for there should not be a mini-trial on affidavits. It is therefore for the party seeking to have a fresh round of evidence to justify it. The Court is not in a position to properly exercise its discretion where no explanation has been advanced for the introduction of a new round of evidence.”

(Emphasis added)

24.Mr Li argued that no factual basis was contained in the 2^nd Affirmation of Lam to show:-

(a)   Whether there is change of circumstances of the case; if so, what is the change.

(b)   What happened after the hearing below.

(c)   How the new evidence is obtained.

(d)   Why it is obtained late.

(e)   Whether there is any reasonable explanation, and whether the defendant has performed due diligence.

(f)   Why the materials contained in the 2^nd Affirmation cannot be included in the 1^st Affirmation.

(g)   How the new evidence is relevant to the case, and to what extent it is both new and relevant, and which issue it is relevant to.

(h)   On what facts the new evidence satisfies the Ladd v. Marshall test.

(i)   What is the justification for not adducing the 1^st Affirmation at the hearing below but now applying for adducing the 2^nd Affirmation which contains basically identical materials.

25.Mr Li lent his support fromFalcon Insurance Co (Hong Kong) Ltd v Flagship Underwriting Management Ltd[2011] 1 HKLRD 489, and submitted that the evidence was available at the hearing before Master and the defendant and its legal advisers deliberately chose not to adduce the same at the hearing below.  It would be greatly unjust to the plaintiff to allow the defendant to introduce for the first time, on appeal, evidence which was readily available.

Discussion

26.The question for this court is whether the evidence contained in the 2^nd Affirmation of Lam could not have been obtained with reasonable diligence for use at the hearing below so as to satisfy the first condition of the Ladd v Marshall test.

27.If the defendant failed to satisfy the first condition, it is not necessary for the court to go into the second and third conditions of the test.

28.It is common ground that there is room for flexibilityfor the application of the rule in Ladd v Marshall.

29.In Johnson Electric International Ltd v Bel Global Resources Holdings Ltd [2014] 5 HKC 504 (which was relied heavily on by Mr Lee) the “new evidence” was not obtained and produced by the defendant at the O 14 hearing despite reasonable diligence within the time available.

30.In Johnson Electric International Ltd, the claim arose from a bond issued by the defendant initially in favour of a company (“EDL”) as part of the consideration for the acquisition of the shares of another company (“HMT”).  The acquisition was made for the purpose of acquiring the exclusive right to nickel resources in a mine in Indonesia. An individual, SS, controlled both the defendant and EDL.  The bond was transferrable and EDL subsequently assigned to the plaintiff to discharge a debt owned by SS.  The was allegation of fraud against SS.

31.After the O 14 hearing, some documents were found at the work station of the personal assistant to the family member of SS, leading to a train of inquiry which unearthed records in the possession of the defendant to enable it to put forward a case of knowledge against the plaintiff.  The court agreed that the defendant did not have enough basis to raise a case of knowledge on the part of the plaintiff at the O 14 hearing.  The court is satisfied that on the special circumstances in the case, the “new evidence” should be admitted evidence for the purpose of the appeal in accordance with the modified Ladd v. Marshall test of Lord Bridge.

32.I agree with Counsel for the plaintiff that the 2^nd Affirmation is almost identical to the 1^st Affirmation, save and except the date of the letter from WPKL and the total amount under the summary of payment attached to the letter (ie the figure now counterclaimed by the defendant).

33.Mr Lee for the defendant agreed that the “new evidence” is the letter from WPKL dated 14 February 2019 (and not the whole of the 2^nd Affirmation of Lam).

34.The letter of 14 February 2019 is said to contain “updated summary” of “Notice of Reimbursement as of January 2019”.

35.The second paragraph of that said letter states:-

“Attached is the summary of payment by [WPKL] on your behalf as of January 2019 for your kind perusal. This summary is not conclusive as some invoices from respective material suppliers are not yet received.”

(Emphasis added)

36.Mr Lee said that it represents the accounts between the parties as at the date of the letter, ie 14 February 2019.

37.The accounts, according to Mr Lee, are “running accounts” and that the plaintiff’s action is premature as the accounts were by no means final when the MA is executed.

38.However, it is clear from the letter itself that it reflects the position as at January 2019 and the summary is “not conclusive” according to WPKL.  The accounts were therefore not final as at January 2019 and 14 February 2019.

39.Following Mr Lee’s logic, not only is the plaintiff’s claim, but also the defendant’s counterclaim, are premature since the accounts as at the date of the letter were not final.

40.The gist of the defendant’s case (as pleaded under the Amended Defence and Counterclaim) is that the payment due to the plaintiff was subject to the Contra Charges, the Direct Payments and the Employees Compensation.

41.Such information was available at the time of the original O 14 hearing.

42.The evidence that is “new” is the calculation by WPKL as at January 2019 on the “running accounts”.

43.The “running accounts” were not finalized as at the date of the letter.  The specific date was chosen by the defendant/WPKL to “crystallize” the accounts after the original O 14 hearing day on 10 January 2019.

44.In theory, the defendant could choose any date after 10 January 2019 to crystallize the accounts and rely on those data as “new evidence”.  There could be numerous pieces of “new evidence” until the running accounts were finalized.

45.In the present case, information regarding the Contra Charges, the Direct Payments and the Employee’s Compensation were all available to the defendant at the time of the original O 14 hearing.

46.The Defendant had not been handicapped by the difficulties in obtaining the evidence as in Johnson Electric International Ltd.

47.The only thing unknown was the final figure of the running accounts.  But this figure was still unknown at the time of the issuance of the 14 February 2019 letter from WPKL.

48.More importantly, evidence could be obtained, and was in fact obtained, with reasonable diligence for use at the hearing below.  The defendant did prepare and file the 1^st Affirmation of Lam containing such evidence.

49.The letter of 14 February 2019 does not change or add anything to the then existing evidence.  As said, the defendant could choose any date after the 10 January 2019 to crystallize the accounts and say that they are “new evidence”.  The final figure does not change the basis of the Defence and Counterclaim and the Amended Defence and Counterclaim.

50.To satisfy the first condition of the Ladd v Marshall test, the evidence must be evidence which could not have been obtained with reasonable diligence.  The 2^nd Affirmation of Lam (and the 14 February 2019 letter) simply does not qualify as such.

51.As pointed out by Mr Li, the defendant has not provided any explanation as to why the information was and could not have been included in the 1^st Affirmation.

52.The court is not in a position to properly exercise its discretion where no explanation has been advanced for the introduction of a new round of evidence: Jindal Exports Limited, para.7.

53.I should add that there is also no explanation as to why the defendant failed to serve the 1^st Affirmation on the plaintiff within the prescribed time.

54.The only reason for the defendant to adduce the 2^nd Affirmation of Lam is that they have failed to put in the 1^st Affirmation at the original O 14 hearing.

55.What the defendant is doing is to have a second bite of the cherry, or as Mr Li puts it, trying to admit the old evidence through the backdoor.

56.It would be greatly unjust to the plaintiff to allow the defendant to introduce for the first time on appeal evidence which was readily available at the original O 14 hearing:Falcon Insurance Co (Hong Kong) Ltd.

57.After careful consideration, I declined to allow the defendant to file and serve the 2^nd Affirmation of Lam.

58.The Defendant’s Summons was dismissed.

O 14 Appeal

The principles

59.The principles as contained in the following paragraphs of the Hong Kong Civil Procedure 2019 Vol 1 are well established:-

“14/1/7:

An application under O.14 must be supported by an affidavit which complies with the requirements of r.2, i.e. (1) it must verify the facts, and (2) it must contain a statement of the deponent’s belief that there is no defence to the claim or part thereof in respect of which the application is made, except as to the amount of damages claimed.

This rule does not confer a right upon a plaintiff to proceed under O 14 in every case in which this procedure may be appropriate, but only “on the ground that the defendant has no defence” to a particular claim or part of a claim. ……

The mere fact that the defendant has served a defence will not, in a proper case, necessarily prevent the plaintiff from making the requisite affidavit swearing to the belief that there is no defence and proceeding under O 14.

If any defence, however demonstrably false it may be, has been served, it is submitted that it is good practice that the affidavit in support adverts to this and then goes on to depose that notwithstanding such defence the deponent believes that there is no defence and explains why this is so.”

“14/4/1:

The machinery of O 14 works on the basis that if the plaintiff’s application is properly constituted, he is prima facie entitled to judgment unless the defendant shows cause to the contrary or the application is dismissed…”

“14/4/2:

The defendant may show cause against the plaintiff’s application:

1. by a preliminary or technical objection: the case is not within this Order or that the statement of claim or affidavit in support is defective, such as no due verification of the claim. No affidavit is required in support of such objection: Chinakong Manufactory Ltd v Uniden Hong Kong[1993] 1 H.K.L.R. 28 at 32.

2.   on the merits: he has a good defence to the claim on the merits, or that a difficult point of law is involved, or a dispute as to the facts which ought to be tried, or a real dispute as to the amount due which requires the taking of an account to determine, or any other circumstances showing reasonable grounds of a bona fide defence.”

“14/4/3:

The defendant may show cause by “affidavit or otherwise”. In practice, the masters will generally require an affidavit from the defendant before they will feel “satisfied” that the defendant is entitled to leave to defend save in exceptional or obvious cases. The use of the term “or otherwise” is not intended to open wide the door for giving leave to a defendant who has no real defence; the primary obligation remains on the defendant to “satisfy” the court that there is a triable issue or question or that there ought to be a trial for some other reason.

Thus, the fact that he has served a defence may be sufficient to enable a defendant to get leave to defend, but not if it is a sham defence served at or soon after acknowledgment of service.”

(Emphasis added)

60.The defendant is relying on both “preliminary / technical objection” and “triable defence and counterclaim” in resisting the plaintiff’s application for summary judgment.

Preliminary/Technical Objection

The defendant’s argument

61.Mr Lee argued, by failing to file its Amended Reply and Defence to Counterclaim on time, and in choosing not to file any further affirmation evidence, the plaintiff:-

(a)   until it traverses the counterclaim pleaded, is deemed to admit the newly pleaded counterclaims in the Amended Defence and Counterclaim as there is no implied joinder of issue on a counterclaim (O 18, r 13(1) and O 18, r 14(3)); and

(b)   failed to discharge the mandatory requirement under O 14, r 2(1) to state the deponent’s belief that there is no defence disclosed in the Amended Defence and Counterclaim.

62.It is said that the plaintiff therefore cannot have complied with the preliminary requirement under O 14, r 2(1) as its only affirmation pre-dates the Amended Defence and Counterclaim filed on 18 January 2019 and is silent on the new defences and counterclaims pleaded in the Amended Defence and Counterclaim.

The plaintiff’s argument

63.Mr Li reminded me the deadline for filing Amended Reply and Defence to Counterclaim is extended to 4 March 2019 by consent.  It is therefore not open for the defendant to now say that the plaintiff has failed to traverse the defence allegation.

64.Mr Li referred to Chinakong Manufactory Ltd . Uniden Hong Kong Ltd [1993] 1 HKLR 28 and submitted that the Amended Defence and Counterclaim alone may suffice for leave to defend, but on unusual circumstance only and there is no unusual circumstances in the present case.

65.The plaintiff’s case is supported by contemporaneous documents as contained in Fok’s Affirmation, which has verified the plaintiff’s claim.

66.In relation to the Direct Payments, Fok has deposed to his belief that there is no defence to the plaintiff’s claim.

67.Mr Li stressed that the Counterclaim on the Contra Charges and the Employees Compensation are not supported by evidence.

Discussion

68.Mr Lee for the defendant attempts to argue that the plaintiff did not deal with Amended Defence and Counterclaim by not filing its Amended Reply and Defence to Counterclaim, and that the Affirmation of Fok does not state his belief that there is no defence disclosed in the Amended Defence and Counterclaim.

69.Before I go into the merits of Mr Lee’s argument, it is clear that  the defendant had consented to extend time for the plaintiff to file the Amended Reply and Defence to Counterclaim to 4 March 2019.

70.The Amended Defence and Counterclaim was filed just 2 days before the original O 14 hearing when the defendant failed to serve Lam’s 1^st Affirmation within the prescribed time.

71.Considering the history of Court proceedings, it does seem disingenuous of the defendant to rely on the “failure” on the part of the plaintiff to amend the Reply and Defence to Counterclaim as a ground for preliminary / technical objection.

72.Leaving that aside, the defendant is not saying that the Statement of Claim shows no cause of action or fails to set out the necessary ingredients of the cause of action.

73.The plaintiff’s pleaded case is a simple one, that the plaintiff is suing under the MA (for a reduced sum for the work done).

74.Mr Li referred me to Chinakong Manufactory Ltd v Uniden Hong Kong Ltd [1993] 1 HKLR 28.

75.The defendant in that case filed a defence and counterclaim but no affidavit.  Kaplan J held that:-

“In my experience both at the bar and on the bench, I have come across 3 methods by which defendants seek to show cause against an application under 0.14, r.1.

The most common method is for the defendant to file an affidavit(s) deposing to the fact that there is a defence on the merits and setting out the matters which give rise to the defence.

A variation of the first method is, in addition to this narrative, to exhibit to the affidavit a draft defence which it is proposed to file.

The third method is simply to exhibit a defence and verify its truth and content by affidavit.

I cannot recollect an O.14 application where there has been no evidence whatsoever from the defendant. However, I can conceive of circumstances where it would not be necessary to file an affidavit but still be able to satisfy the court that leave to defend should be granted. There must be cases where the defendant can show on the face of the Statement of Claim itself that there is no cause of action against him. This could arise in a number of ways. The pleading may fail to set out the necessary ingredients of the cause of action. The plaintiff may plead an agreement terminable by notice but not plead that notice has been given. The plaintiff's cause of action may be unknown to law. The defendant may enjoy immunity from suit such as if a judge or arbitrator were sued for negligent decision making. In these examples, the defendant would not require an affidavit or for that matter a defence as the defect in the plaintiff's case would be apparent from the face of the pleading. In cases where it is plain from the Statement of Claim that the cause of action is outside the limitation period all the defendant needs to do is to put in a defence taking the point. An affidavit would serve little purpose in the circumstances but from an abundance of caution may be put in. A further example is where the cause of action is not within the scope of O.14 such as an action for libel. One could, of course, think of many other examples, such as O.14 applications against the Crown.

However the present case falls into none of the above examples. I have no evidence before me verifying any of the allegations made in the amended defence and counterclaim and yet I have strong denials on affidavit from the plaintiff that the allegations in the defence and counterclaim are completely untrue.” (at 31, line 42) “There are no unusual features in the present case. It is, as Mr. Whitehead submitted, simple case. If a defendant could decline to file evidence in such a case and merely put in defence, the same would apply to countless other cases. O.14, r.4 refers to an affidavit and although for reasons which I have given this is not the only way a court can be satisfied, nevertheless, the practice of the court, save in these unusual cases, is to require an affidavit before it can be satisfied. If I were to sanction what has been done in this case I would be permitting, in effect, the defendant to circumvent the rule and the clear practice of the court. There may be many reasons why a defendant wishes not to go on affidavit, the most obvious being that he is fearful of being caught out in a lie with all the consequences that may entail.”

(Emphasis added)

76.There is no defect in the plaintiff’s case as apparent from the Statement of Claim.  The cause of action is clearly stated and Fok’s Affirmation in support has verified the plaintiff’s claim.

77.In the Amended Defence and Counterclaim, the defendant has not disputed their liability to pay the plaintiff HK$1,000,000.00 under the MA.

78.I do not see any of those scenarios where no evidence from a defendant is necessary as mentioned by Kaplan J present in our case.

79.Evidence is needed to substantiate the defendant’s allegation, which is lacking.

80.In any event, the defendant is not saying that the case is not within O 14 or that the Statement of Claim or Fok’s Affirmation is defective for no due verification of the claim: 14/4/2, Hong Kong Civil Procedure 2019 Vol 1.

81.The defendant’s argument on preliminary / technical Objection is rejected.

Triable defence and counterclaim

The defendant’s argument

82.Despite the lack of affirmation, Mr Lee for the defendant submitted that the Amended Defence and Counterclaim alone is sufficient to show that the defendant has triable Defence and Counterclaim.

83.In a nutshell, the defendant’s case is that it was not intended by the parties that the MA would constitute a settlement agreement.

84.Mr Lee argued that:-

(a)   The instalment payments under the MA was subject to the final accounts for the Sub-Sub-Sub-Contract work, which could not have been and had not been prepared or agreed at the time of the MA.  The plaintiff’s claim is premature.

(b)   The plaintiff is liable to reimburse or set-off for the Contra Charges, the Direct Payments and the Employees Compensation.

(c)   The Counterclaim clearly arises of out the same subject matter of the Claim and is connected to the grounds of Defence.

(d)   In the alternative, the plaintiff has been unjustly enriched by the Direct Payments received from WPKL, and for which WPKL has subsequently back-charged the defendant.

(e)   If the plaintiff attempts to construe the MA as a settlement agreement, it would be invalid for vagueness and uncertainty. 

The plaintiff’s argument

85.Mr Li for the defendant emphasized that mere allegation does not suffice an arguable case.  The defendant has not provided any evidence to support its pleaded case.

86.Mr Li relied on廈門南中投資有限公司 v Chong Ming Yiu, unreported, HCA 1381/2008, 19 November 2009, where the court held “it is well established that the defendant cannot base upon a cross claim (even assuming that liability could be established) to set off or counterclaim against the defendant when the defendant in effect cannot provide the necessary evidence to substantiate his loss.”

87.Mr Li specifically referred to paragraph 18 of the Amended Defence and Counterclaim which states “Agreed Payment under the Mutual Agreement: HK$1,000,000.00”.  The defendant has fully admitted the indebtedness under the MA in their pleadings.

88.The Counterclaim on the Direct Payments (which fell within the scope of the unpaid sum of HK$ 3,604,450.00) did not discharge the separate liability of the defendant to pay under the MA (which fell within the scope of the sum of HK$1,000,000.00).

89.There was also no mention of the Direct Payments by WPKL being payments under the MA in both the Defence and Counterclaim and Amended Defence and Counterclaim.

90.In any event, two of the Direct Payments which the defendant alleged to be wrongfully received by the plaintiff were dated 11 September 2017 and 16 October 2017, ie before the date of the MA.

91.The Counterclaim on the Contra Charges (based on defective work) is not supported by any contemporaneous record.  The Counterclaim on the Employee’s Compensation arises out of a separate and distinct transaction or has no connection with the plaintiff’s claim.

92.More importantly, the defendant did not plead any repudiation of the MA.

Discussion

93.I shall quickly deal with Mr Lee’s argument that the MA would be invalid as a settlement agreement.

94.It is clear that it is not pleaded by the defendant (and not supported by any evidence).  It has no effect on the court’s decision as to whether the defendant can have a triable defence on the merits in this regard.

95.In any event, the wordings of the MA are clear. The MA is not stated to be subject to the Contra Charges, the Direct Payments and the Employee’s Compensation.

96.The MA in effect provided that the plaintiff and the defendant resolved, in relation to the HK$3,604,450.00 owed by the defendant to the plaintiff, the defendant would pay the plaintiff HK$1,000,000.00 by way of 3 instalments.

97.The payment terms and schedule were apparently suggested by Lam for and on behalf of the defendant.

98.The plaintiff’s case, as clearly pleaded in the Statement of Claim and verified by Fok’s Affirmation, is that  they are suing under the MA, not the original Sub-Sub-Sub-Contract with the defendant.

99.The defendant did acknowledge the liability under the MA in their pleadings, and did pay HK$298,900.00 on 16 November 2017.

100.The defendant did not dispute the validity of the MA in the pleadings.

101.It is true that the defendant may show cause “by affidavit or otherwise”, but it is well established that “or otherwise” is not intended to open wide the door for giving leave to defend when no evidence is adduced by the defendant: 14/4/3, Hong Kong Civil Procedure 2019 Vol 1.

102.In Cheung Tai Hong Holdings (Technology) Limited v Cheung Yuk Kuen HCA 3166/2001, a case relied on by the plaintiff, it was held by Kwan J (as she then was) that:-

“13. I am satisfied on the plaintiff's case as pleaded and verified by affidavit that the plaintiff has established its claim. I also accept the submission of Mr. Samuel Chan, who appeared on behalf of the plaintiff, that although a defendant may show cause against an application for summary judgment "by affidavit or otherwise" under Order 14 rule 4(1), it is established practice that the defendant is required to file an affidavit before the court can be satisfied he has raised a triable issue, unless it is an unusual situation that he is able to raise a triable issue with reference to the plaintiff's pleading and affirmation alone, without any need to put in evidence to substantiate any of his allegations (see Chinakong Manufactory Ltd v Uniden Hong Kong Ltd[1993] 1 HKLR 28; Hong Kong Civil Procedure 2002, Vol. 1, para. 14/4/3).

14. It is on the above basis that I turn to consider the defence and counterclaim filed by the defendant to see whether by this pleading any triable issue is raised. Two grounds of defence are pleaded. Evidence is required from the defendant to substantiate and verify those grounds of defence, which is lacking at the moment. In summary, it is contended that the plaintiff was under an obligation to provide further funding to Value-Net by virtue of clause 4.01 of the Shareholders' Agreement and that the plaintiff was in breach of this obligation. The defendant counterclaims for damages for breach of the Shareholders' Agreement and seeks to set off his counterclaim against the plaintiff's claim. No evidence is filed by the defendant in support of this allegation. In any event, I am satisfied this defence is a sham and is wholly devoid of merits. For one thing, the plaintiff is not a party to the Shareholders' Agreement. Moreover, the allegation that the plaintiff was under an absolute contractual obligation to provide funding as required by Value-Net is contrary to the express contractual provisions being the proviso to clause 4.01, clause 4.04, clause 10 and paragraph 28 of Schedule 2 in the Shareholders' Agreement and clause 3.2.2 of the Deed. The other defence raised is that the plaintiff was in breach of the Sale and Purchase Agreements in that the plaintiff could and should have accepted delivery of the accounts of Value-Net by the defendant's staff in November 2000 and resolved to appoint Deloittes as the auditors by the two directors nominated to the board of Value-Net by the plaintiff. Again, no evidence is filed in support of this allegation. In any event, it is clear from the letter of Deloittes that on the available management accounts which were prepared up to October 2000, they were unable to carry out an audit for the year ending March 2001. There is no substance in this point either.”

(Emphasis added)

103.The court found no triable issues shown by the defendant.

104.Here, the plaintiff’s claim is clearly pleaded and verified by supporting affirmation.  The defendant has no evidence in support of their allegations.

105.As said, the defendant has not disputed the validity of the MA and did pay HK$298,900.00 pursuant to the MA.

106.I do not see that the defendant has any bona fide defence to the plaintiff’s claim, which is based on the MA.

107.Mr Lee further argued that Counterclaim arises out of the same subject matter as the plaintiff’s Claim and is connected to the grounds of Defence.

108.I have referred both Counsel to Shenzhen Baoming Ceramics Co Ltd v Companion-China Ltd [2000] 2 HKLRD 288 and Princeton Technology Corporation v Vector Electronic Co Ltd CACV 288 of 1999 where the court considered what order should be made when the defendants relied on set-off and counterclaim in resisting O 14.

109.There are 4 different categories of orders:-

(a)   where the defendant can show an arguable set-off, whether equitable or otherwise, he is entitled to leave to defend to the extent of the set-off and the court has no discretion;

(b)   where the defendant sets up a bona fide counterclaim arising out of the same subject-matter as the action and connected with the grounds of defence, the order should not be for judgment on the claim, subject to a stay pending trial of the counterclaim, but should be for unconditional leave to defend, even if the defendant admits the whole or part of the claim;

(c)   where there is no defence to the claim but a plausible counterclaim of not less than the claim is set up, judgment should be for the plaintiff on the claim with costs, stayed until trial of the counterclaim;

(d)   where the counterclaim arises out of a separate and distinct transaction or is wholly foreign to the claim, judgment should be for the plaintiff with costs without a stay; the lack of clarity between classes (b), (c) and (d) gives the court freedom to respond to the perceived justice of the individual case

[see: 14/4/14, Hong Kong Civil Procedure 2019 Vol 1, c f United Overseas Ltd v Peter Robinson Ltd, unrep, March 26, 1991, CA Transcript 91/0297, per Bingham L J]

110.In Shenzhen Baoming Ceramics Co Ltd v Companion-China Ltd [2000] 2 HKLRD 288, the plaintiff agreed with the defendant to sell ceramic tiles to the defendant.  Subsequently, they concluded a settlement agreement to the effect that they should be discharged from their obligations under the first agreement.  The settlement agreement provided for the defendant to make periodic payments to the plaintiff.  The plaintiff later commenced action, and applied for and got summary judgment, due to the defendant's failure to make the payments required by the settlement agreement.  The judge in Chambers allowed the defendant's appeal and gave unconditional leave to defend, on the basis that the defendant had at all times, to the knowledge of the plaintiff, been acting as an agent of its principal, SGT.  The defence of agency depended on the acceptance of extrinsic evidence, although the contract documents appeared to indicate unambiguously that the defendant was contracting personally.  The defendant also raised a set-off defence on the basis of a contract between the plaintiff and SGT, made approximately one year after the first contract, for the sale of ceramic tiles.  The defendant alleged that those tiles were defective, as a result of which SGT suffered losses of HK$5.2 million.  The Court of Appeal said the question of law (privity of contract: whether SGT could claim for losses it suffered as a result of a contract made for its benefit by the defendant with the plaintiff) was a triable issue that could not be resolved on an O 14 application.

111.The Court of Appeal decided, at 10D – I, that the facts fitted within the category (b):-

“Both the settlement agreement and the third agreement arose out of orders given to the Plaintiff for ceramic tiles pursuant to an ongoing trading relationship. In our judgment, it would be unjust to require the Defendant in such a relationship to pay a sum which represents a compromise as to the balance of the purchase price of goods to which the original agreement related before the determination of the seller's [plaintiff's] liability to compensate the buyer [defendant] for losses alleged to have been incurred as a result of substandard goods being delivered under the third agreement.”

112.In Princeton Technology Corporation v Vector Electronic Company Limited, CACV-288/1999, the plaintiff is a company incorporated in Taiwan.  It manufactures integrated circuits for use in computers and electronic appliances.  It appointed the defendant as the distributor of its products in Hong Kong and China for the year 1997.  The agreement under which that appointment was made was described as an “agency agreement”, which was effectively a distributorship agreement, in which the defendant agreed to order a minimum number of circuits from the plaintiff during the period of the agreement.  A number of the circuits which the defendant purchased from the plaintiff were not paid for in full.  The plaintiff’s claim, for which it obtained summary judgment, was a claim for the balance of the price of the circuits which had been sold and delivered to the defendant.  The defendant sought a stay of execution of this judgment pending the trial of a counterclaim which it had against the plaintiff. 

113.The Master refused to stay the execution of the judgment.  The defendant appealed before the Court of First Instance.  The Judge allowed the appeal and stayed the execution of the judgment pending the trial of the counterclaim.  The plaintiff appealed to the Court of Appeal contending that execution of the judgment should not be stayed.

114.The Court of Appeal noted that Counterclaim reveals three elements to it:-

“(i) The defendant contends that the plaintiff failed to deliver other circuits which the defendant had ordered. The defendant counterclaims the loss of the profits.

(ii) The defendant contends that a large number of the circuits delivered by the plaintiff were defective and of an inferior quality. The defendant was only able to sell them by reducing their price, and the defendant therefore counterclaims the difference.

(iii)   The defendant contends that the plaintiff was obliged to renew the distributorship agreement and it was agreed that the plaintiff would pay commission to the defendant and the plaintiff did not pay the commission.”

115.The Court of Appeal held that the circuits to which the plaintiff’s claim relates were not the circuits to which any of the three elements of the counterclaim relates.  However, the fact that both the plaintiff’s claim and all three elements of the counterclaim arose out of purchase orders given to the plaintiff pursuant to a trading relationship governed by, and under the umbrella of, a formal distributorship agreement which required the defendant to order a minimum number of circuits from the plaintiff constitutes a sufficient connection between the plaintiff’s claim and the three elements of the counterclaim so as to bring the counterclaim within category (c).

116.The Court of Appeal noted that in exercising his discretion, the judge should consider whether the closeness is such as to make it “fair and sensible” or “just and equitable” that execution should be stayed, c f A B Contractors Ltd v Flaherty Brothers Ltd(1978) 16 BLR 8.

117.Mr Li submitted that the Counterclaim for the Employee’s Compensation is distinct and separate and should not be a bar to summary judgment.  I agree that it should fall under category (d).

118.However, the same cannot be said for the Contra Charges and the Direct Payments.  I find that there is sufficient connection between the Counterclaim for the Contra Charges and the Direct Payments on the one hand and the plaintiff’s Claim on the other.

119.Mr Lee submitted that the present case falls under category (b), that the defendant has a bona fide counterclaim and the correct order should be for unconditional leave to defend.  The basis of the counterclaim all arise out of the same contract.

120.Mr Li for the plaintiff argued that the appropriate order should be judgment for the plaintiff without stay of execution pending outcome of the counterclaim. Mr Li pointed out that in both Princeton Technologyand Shezhen Baoming, evidence was filed by the defendants to substantiate their counterclaims.

121.As said, the defendant does not dispute the validity of the MA in their pleadings.  They have admitted the indebtedness in their pleadings.

122.I have found that no bona fide defence has been shown.

123.Having said that, it does not necessarily follow that the plaintiff must be granted summary judgment.  It could be either a category (b) or category (c) situation.

124.The lack of clarity between categories (b), (c) and (d) gives the court freedom to respond to the perceived justice of the individual case: 14/4/14, Hong Kong Civil Procedure 2019 Vol 1, c f United Overseas Ltd.

125.The Defendant’s Counterclaim (for the Contra Charges and the Direct Payments) and the plaintiff’ Claim both arise from the Sub-Sub-Sub-Contract.

126.Since no evidence was adduced by the defendant to substantiate their Counterclaim, there is no way to show whether the assertions in pleadings are believable or credible.

127.Had there been evidence filed by the defendant, I might have exercised my discretion to stay execution of judgment pending the outcome of the Counterclaim or even uphold the Master’s decision in granting unconditional leave to defend.

128.As the plaintiff’s claim is clearly pleaded and verified by supporting affirmation, and that the defendant has not disputed the validity of the MA, I see no reason why the plaintiff should be denied of summary judgment.

129.There is no reason why judgment should be stayed pending outcome of the Counterclaim, which is unsubstantiated by evidence.

130.I therefore allowed the O 14 Appeal and set aside the Master’s Order of 10 January 2019.

Orders

131.The Defendant’s Summons is dismissed.  I award costs of the Summons to the plaintiff with Certificate for Counsel, to be taxed if not agreed.

132.I allowed the O 14 Appeal and set aside the Master’s Order of 10 Jan 2019.

133.I grant judgment to the plaintiff against the defendant for the sum of HK$701,100.00 with interest at 1% above prime rate from date of writ to date of judgment and thereafter at judgment rate until payment.

134.I also award costs of this action and the O 14 Appeal to the plaintiff, with Certificate for Counsel, to be taxed if not agreed.

135.I thank you Counsel for their assistance.

Mr Ricky Li, instructed by Bennett Chan & Co, for the plaintiff

Mr Lee Yuk Pui, Paul, instructed by Wong & Lawyers, for the defendant