Aggressive Construction Company Ltd v. Wing Yip Building Materials & Engineering Co., Ltd

HCMP 446/2025

[2025] HKCFI 5586

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 446 OF 2025

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J U D G M E N T

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A.  Introduction

1.By originating summons dated 24 March 2025, the Plaintiff seeks to restrain the Defendant from presenting, taking out, and/or advertising any winding-up petition based on (i) the alleged indebtedness of HK$3,884,236.78 as stated in the statutory demand dated 13 March 2025 (the “1^st SD”); and (ii) the alleged indebtedness of HK$358,824.89 as stated in the statutory demand dated 13 March 2025 (the “2^nd SD”) (collectively the “SDs”).

B.  Material Background

2.The following matters are not in dispute.

3.The Plaintiff was engaged by the Hong Kong Housing Authority (“HKHA”) as the main contractor for a construction project in Tai Po (the “Tai Po Project”).

4.By a sub-contract dated 27 May 2021 (the “1^st Sub‑Contract”), the Plaintiff engaged the Defendant as its sub‑contractor with regard to the design, supply, and installation of the suspended ceilings in the Tai Po Project.

5.By a further sub-contract that was also dated 27 May 2021 (the “2^nd Sub-Contract”), the Plaintiff engaged the Defendant as its sub‑contractor with regard to the design, supply, and installation of the fireproof boards in the Tai Po Project.

6.By a third sub-contract dated 5 August 2017 (the “3^rd Sub‑Contract”), the Plaintiff also engaged the Defendant as its sub-contractor with regard to the design, supply, and installation of the suspending ceiling in another construction project in North Point.

7.It is not in dispute that the Defendant had served SD1 and SD2 on the Plaintiff.

8.The 1^st SD concerns the alleged indebtedness under various payment applications[1] in relation to the 1^st and 2^nd Sub-Contracts. The total amount claimed is HK$3,884,236.78.

9.The 2^nd SD concerns the outstanding balance in respect of the revised contract sum as stated in the final account statement relating to the 3^rd Sub-Contract. The amount claimed is HK$358,824.89[2].

C.  The Plaintiff’s Contentions

10.Mr Victor Dawes SC, leading Mr Alvin Cheung, (for the Plaintiff) contended that there are bona fide disputes on substantial grounds in relation to the Defendant’s claims under the SDs.

C1.  The 1^st SD

11.Insofar as the 1^st SD is concerned, Mr Dawes raised two contentions.

12.First:-

(1)  The 1^st and 2^nd Sub-Contracts provide that the “liquidated damages for delayed performance” are respectively HK$3,000 per day and HK$10,000 per day[3].

(2)  Whilst clause 6.2 of the 1^st and 2^nd Sub-Contracts provides that the Defendant must complete its subcontract works within the construction period[4], clause 6.6 provides that if the Defendant cannot comply with the completion deadlines as provided in the construction schedule, then, without prejudice to its other rights, the Plaintiff can claim liquidated damages and deduct the same from Plaintiff’s progress payments.

(3)  Relying on a list of outstanding works dated 21 March 2025 compiled by HKHA (the “List of Outstanding Works”), the Plaintiff suggested that the Defendant failed to complete 9 pieces of work for the Tai Po Project. According to the List of Outstanding Works:-

(a)  6 items of work had been overdue for 249 days;

(b)  1 item of work had been overdue for 218 days; and

(c)  2 items of work had been overdue for 111 days.

(4)  In the premises, based on the figures set out in the List of Outstanding Works, Mr Dawes submitted that as of 21 May 2025, the Plaintiff had a valid cross-claim in liquidated damages in the amount of HK$4,030,000[5] based on the Defendant’s delay in performing the works under the 1^st and 2^nd Sub-Contracts.

13.Second:-

(1)  Clause 4.1 of the 1^st and 2^nd Sub-Contracts provided that:-

“除特別聲明外，糧期為每月一次，原則上糧款於分判商按承建商指定時間呈交糧款申請書予商務部收到後起計30個工作天內支付。”

(2)  Relying on the phrase “除特別聲明外”, Mr Dawes contended that the Plaintiff has a contractual discretion to make payments outside of the period of 30 work days, and the question of whether the Plaintiff exercised its contractual discretion rationally and in good faith is a matter that cannot be summarily determined on affidavits.

(3)  Mr Dawes emphasized that as certificate for practical completion had been issued, the Tai Po Project was winding down. As such, the Plaintiff was entitled to examine the quality and quantity of the Defendant’s works with the “utmost certainty”, such that the risk of overpayment could be avoided.

C1.  The 2^nd SD

14.As regards the 2^nd SD, Mr Dawes submitted that under clauses 4.1 and 4.2 of the Sub-Contracts, any application for payment (ie “糧款申請書”) should be submitted to the Plaintiff’s commercial department, which is tasked with processing, verifying, and certifying the amount payable to the Defendant. However, the payment application that gave rise to the claim under the 2^nd SD was simply emailed to “[email protected]”[6], which belongs to an executive assistant (namely Mr KK Tam). As such, no proper payment application was made.

D.  Legal Principles

15.It is not in dispute that the court may grant a quia timet injunction to prevent the presentation of a winding-up petition if the company can show that the intended petition would be an abuse of the court’s process.

16.The legal principles are summarized by Kwan J (as Kwan VP then was) in Re Sinom (Hong Kong) Ltd [2009] 5 HKLRD 487 at para 11:-

“As with a petition where there is a bona fide dispute of the debt on substantial grounds (a disputed debt petition), where the company has a genuine and serious cross-claim against the petitioner greater than or equal to the petitioner’s debt (a cross‑claim petition), such a petition may be restrained from proceedings (Re Pan Interirors Ltd [2005] EWHC 3241, paras. 34-39). It is an abuse of the process of the court to make a statutory demand or present a winding-up petition based on a claim to which there is a triable defence (Re Company [1992] 1 WLR 351). A cross-claim petition is regarded in the same way (Southern Cross Group Plc v Deka Immobilien Investment GmbH [2005] BPIR 1010, paras. 29-30; Re Pan Interiors Ltd, para. 35).”

17.Petitions are not meant for debt collection purposes, and the court’s winding-up jurisdiction will only be exercised in clear cases. Where there is a real and substantial dispute of fact, the court will generally dismiss the petition. While the onus is on the company to adduce credible evidence, the court is not required to make findings at this stage. Rather, it has to be satisfied that the company has a credible case that should go to trial: see Madison Lab Ltd v Pu Yan [2020] HKCFI 382 at para 18 (per DHCJ Abraham Chan SC); Re Leung Cherng Jiunn [2016] 1 HKLRD 850 at para 27(5) (per Kwan JA, as Kwan VP then was); and Re China Shanshui Investment Co Ltd (HCCW 398/2015, 28 September 2016) at para 7 (per Harris J).

E.  Deliberation: the 1^st SD

18.Whilst Mr Dawes heftily relied on the List of Outstanding Works, it appears that this document (which was dated 21 March 2025) only came into existence after the 1^st SD (which was dated 13 March 2025) was issued.

19.In their submissions, Mr Richard Leung, together with Mr Tommy Cheung, (for the Defendant) emphasized that:-

(1)  There were no contemporaneous documents that set out the Plaintiff’s complaints based on delay and the extent of the delay.

(2)  There was no evidence showing that the latest timetable was contemporaneously provided or communicated to the Defendant. As such, there is no basis for establishing the exact period of the delay, and it is unknown as to whether the Plaintiff’s cross claim would exceed the Defendant’s claim under the 1^st SD.

20.There is substance in Mr Leung’s submissions.

21.However, the List of Outstanding Works is a piece of compelling evidence that amply supports the Plaintiff’s case. This is not a self-serving document manufactured by the Plaintiff for the purpose of this litigation. Instead, the List of Outstanding Works was compiled by HKHA, which was not directly involved in the dispute between the Plaintiff and the Defendant.

22.The List of Outstanding Works contained (i) photographs showing the status of the works; (ii) descriptions of the works; and (iii) descriptions of the omissions. More importantly, the List of Outstanding Works also set out (iv) the “committed” target completion dates with regard to the specific work items; as well as (v) the overdue days with regard to each of the specific work items.

23.It appears to me that HKHA genuinely took the view that certain aspects of the works under the 1^st and 2^nd Sub-Contracts (ie the works relating to the suspended ceilings and fireproof boards) had remained outstanding and not been completed according to agreed schedules. Otherwise, HKHA would not have compiled and issued the List of Outstanding Works at all. In this connection, the List of Outstanding Works does expressly set out the “committed” target completion dates with regard to the specific work items. On the available evidence, I have no reason to suppose that HKHA conjured up these “committed” target completion dates out of the blue.

24.I accept that the Plaintiff has not adduced contemporaneous records showing that it complained to the Defendant about the delay and/or non-completion. However, this could be ascribed to the fact that the Plaintiff did not vigilantly supervise the Defendant. In my view, depending on the circumstances (which can only be ascertained at trial), the lack of complaint on the part of the Plaintiff could be equivocal. It does not ipso facto show that the Plaintiff accepted that the Defendant’s works had been completed already.

25.On the available evidence, there are, in my view, issues to be tried and resolved at trial. I cannot summarily conclude that the Plaintiff’s cross-claim based on delay and incomplete works is a malicious afterthought, and that the Plaintiff is not in a position to pursue a cross‑claim for HK$4,030,000 based on the computation set out in the table produced at page 743 of Bundle C3[7]. I accept Mr Dawes’s submissions that it is, to say the least, arguable that the Plaintiff is entitled to seek liquidated damages against the Defendant pursuant to 6.2 and 6.6 of the 1^st and 2^nd Sub-Contracts [8] as well as the key terms under the signing sheet[9]: see Wilmot-Smith on Construction Contracts (4^th Ed) at para 11.12‑23.

26.As pointed out, the List of Outstanding Works was only available after the 1^st SD was issued. As such, it cannot be said that the Defendant was abusive in issuing the 1^st SD.

27.Nevertheless, on the strength of the List of Outstanding Works, it is, by now, clear that the Plaintiff has a bona fide and arguable cross‑claim based on delay and incomplete works, and that the quantum thereof may exceed the Defendant’s claim under the 1^st SD. As such, it would be abusive if the Defendant continues to seek relying on the 1^st SD for the purpose of pursuing and prosecuting a winding-up petition against the Plaintiff.

28.In the premises, the appropriate course to take is to grant an injunction restraining the Defendant from presenting, taking out, and/or advertising any winding-up petition against the Plaintiff based on the 1^st SD.

29.In light of the aforesaid conclusion and analysis, it is unnecessary to deal with the Plaintiff’s contention regarding contractual discretion. However, for completeness, I will briefly set out my views as follows.

30.As pointed out by Mr Leung, the 1^st and 2^nd Sub-Contracts contain an agreed contractual mechanism under clauses 14 and 23 enabling the Plaintiff to claw back any overpayment that it made to the Defendant. It appears the parties contractually agreed that any overpayment would be dealt with at a later stage, and the Defendant’s application for payment should not be impeded or delayed.

31.In the premises, I am not of the view that the phrase “除特別聲明外” in clause 4.1 contains the effect asserted by the Plaintiff. In this connection, I agree with Mr Leung that whilst the term “特別聲明” is not defined at all, there is nothing “exceptional (特別)” about the fact that contractors and sub-contractors may have arguments with each other regarding the quality of the works being performed.

32.In any event, it does not appear that the Plaintiff had made a contemporaneous declaration (聲明) that in light of the concern of overpayment and the fact that the Tai Po Project was winding down, the Defendant’s payment applications should be deferred or withheld. Without making a contemporaneous declaration, I am not of the view that the Plaintiff had invoked its alleged contractual discretion at all, and it appears that the contention advanced by the Plaintiff is merely an afterthought.

33.For the above reasons, I do not accept the Plaintiff’s contention based on alleged contractual discretion.

F.  Deliberation: the 2^nd SD

34.As mentioned, the Plaintiff disputes the 2^nd SD on the ground that the 2^nd Defendant’s payment application that gave rise to the claim thereunder was not issued or provided to Plaintiff’s commercial department.

35.Although the payment application was emailed to “[email protected]” (which belongs to Mr KK Tam, an executive assistant), the document was addressed to “Mr Jacob/Raymond/Jan Poon”[10].

36.It is not in dispute that Mr Jan Poon is the Plaintiff’s commercial manager[11].

37.Mr Leung submitted that approaching the matter practically and commercially, one can reasonably expect that the payment application would be passed on to the Plaintiff’s commercial department for handling.

38.I see the force of Mr Leung’s submissions.

39.Had the Plaintiff adopted the stance that its general staff would not forward the Defendant’s payment application to its commercial department, there would have been evidence showing that this was the case.

40.There is no evidence showing Mr KK Tam indicated that (i) the Defendant’s payment application would not be forwarded to the Plaintiff’s commercial department; or (ii) the Defendant might only directly send the payment application to Mr Jan Poon or some other member(s) of the Plaintiff’s commercial department.

41.More importantly, there is no evidence showing that the Defendant’s payment application was never provided to and received by the Plaintiff’s commercial department.

42.In this connection, it is telling that:-

(1)  Mr Lee Sun Wing, who filed 2 affirmations on the Plaintiff’s behalf, did not suggest that the Defendant’s payment application had never been provided to and/or received by the Plaintiff’s Mr Jan Poon or other members of its commercial department[12].

(2)  There is no evidence showing that Mr KK Tam had left the Plaintiff’s employment. However, the Plaintiff, for no explicable reason, chose not to adduce any evidence from Mr KK Tam to confirm that he did not forward or provide the Defendant’s payment application to the Plaintiff’s commercial department or Mr Jan Poon.

(3)  There is no evidence showing that Mr Jan Poon had left the Plaintiff’s employment. However, the Plaintiff, for no explicable reason, chose not to adduce any evidence from Mr Jan Poon to confirm that he and/or the Plaintiff’s commercial department had never received the Defendant’s payment application.

43.In my view, had Plaintiff’s commercial department and/or Mr Jan Poon never received the Defendant’s payment application via Mr KK Tam, Mr Lee Sun Wing would have stated so in his affirmations filed in these proceedings, and the Plaintiff would have adduced evidence from Mr Jan Poon and Mr KK Tam to confirm that this was the case.

44.The Plaintiff’s complete silence is wholly inexplicable, and I am prepared to draw an adverse inference against the Plaintiff: see South China Securities Ltd v Lam Kwen Yuen [2012] 5 HKLRD 524 at para 7 (per DHCJ Lisa Wong SC, as Lisa Wong J then was); and Tullet & Tokyo International Securities Ltd. v. APC Securities Co. Ltd [2001] 2 HKLRD 356, at 365B-J (per Le Pichon JA).

45.I am of the view that the truth is that the Defendant’s payment application must have been provided to and received by Plaintiff’s Mr Jan Poon (who was expressly named in the payment application) and/or Plaintiff’s commercial department via the Plaintiff’s Mr KK Tam. At the risk of repetition, I reiterate that had this not been the case, the Plaintiff could have informed the Court. The complete silence on the part of the Plaintiff speaks volumes and is indicative of what had happened.

46.I am unable to accept the suggestion that the Defendant is not entitled to payment simply because instead of sending the payment application to Mr Jan Poon or the Plaintiff’s commercial department directly, the Defendant provided the payment application to Mr Jan Poon or the Plaintiff’s commercial department via Mr KK Tam. This suggestion is contrived.

47.In this connection:-

(1)  The signing sheet in respect of the 3^rd Sub-Contract[13] provides that:-

“糧期為每月一次，原則上糧款於乙方[14]按甲方[15]指定時間呈交糧款申請書予地盤商務部收到起計30個工作天內支付。” (emphasized added)

(2)  Clause 4.1 of the 3^rd Sub-Contract[16] provides that:-

“除特別聲明外，糧期為每月一次，原則上糧款於分判商按承建商指定時間呈交糧款申請書予商務部收到後起計30個工作天內支付。” (emphasized added)

48.The underlying objective of the parties’ contractual arrangement is to ensure that the Plaintiff’s commercial department would “receive” the payment application, such that it could process the same within 30 days. Thus, it suffices so long as the payment application reaches and is received by the Plaintiff’s commercial department. I do not see any sound commercial reason why the Defendant could not provide the payment application via a staff of the Plaintiff (such as Mr KK Tam). The suggestion that the Defendant might only directly provide a payment application to the Plaintiff’s commercial department via its own efforts elevates form over substance, and completely disregards the underlying objective of the parties’ contractual arrangement.

49.For the above reasons, I am of the view that the Plaintiff has failed to raise any bona fide dispute on substantial grounds insofar as the 2^nd SD is concerned. As such, I will not grant an injunction to restrain the Defendant from presenting, taking out, and/or advertising a winding-up petition against the Plaintiff based on the 2^nd SD.

G.  Conclusion

50.I grant an injunction restraining the Defendant from presenting, taking out, and/or advertising any winding-up petition against the Plaintiff based on the 1^st SD.

51.I dismiss the Plaintiff’s application for an injunction seeking to restrain the Defendant from presenting, taking out, and/or advertising any winding-up petition against the Plaintiff based on the 2^nd SD.

52.Having heard counsel’s submissions and considered the circumstances relating to these proceedings in the round, I am of the view that it would be appropriate to make no order as to costs. The key matters that I take into account are as follows:-

(1)  The Plaintiff is the successful party insofar as the 1^st SD is concerned.

(2)  The Defendant is the successful party insofar as the 2^nd SD is concerned.

(3)  The amount of the claim under the 1^st SD is considerably larger than the amount of the claim under the 2^nd SD. However, it remains the case that the dispute relating to the 2^nd SD took up considerable time and resources of the parties.

(4)  The List of Outstanding Documents (which is a piece of compelling evidence that supports the Plaintiff’s case regarding the 1^st SD) was only available after the 1^st SD was issued, and it cannot be said that the Defendant was abusive in issuing the 1^st SD. However, the Defendant continuously sought to rely on the 1^st SD after having an opportunity to review the List of Outstanding Documents.

(5)  Insofar as the 1^st SD is concerned, I do not accept the Plaintiff’s contention on contractual discretion, which was considerably elaborated in the parties’ submissions and evidence.

53.Mr Victor Dawes SC, Mr Alvin Cheung, Mr Richard Leung, and Mr Tommy Cheung have provided helpful assistance to me by making submissions that were precise and focused. I express my gratitude to each of them.

Mr Victor Dawes, SC and Mr Alvin Cheung, instructed by M/s LCP, for the Plaintiff

Mr Richard Leung and Mr Tommy Cheung, instructed by M/s CFN Lawyers, for the Defendant