Yau Fook Hong Co Ltd and Another v. Man Cheong Construction Co
Read the full judgment text of HCA 7194/1980 on BabelCite. This High Court CFI judgment.
1. This application for an interlocutory injunction is made by the plaintiff companies, and stems from a dispute which has arisen out of a building contract entered into on the 1st March 1979 with the defendant firm. For convenience, I shall call the plaintiffs "the employers" and the defendant firm" the contractor". The agreement was that the contractor would construct a block of flats, with shops underneath, for the employers at Tuen Mun Town, Lot 125.
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HCA007194/1980
IN THE SUPREME COURT OF HONG KONG HIGH COURT -----------------
----------------- Coram: Hon. Fuad, J. in Chambers Date of Judgment: 24th December 1980. ----------------- ORDER ----------------- 1. This application for an interlocutory injunction is made by the plaintiff companies, and stems from a dispute which has arisen out of a building contract entered into on the 1st March 1979 with the defendant firm. For convenience, I shall call the plaintiffs "the employers" and the defendant firm" the contractor". The agreement was that the contractor would construct a block of flats, with shops underneath, for the employers at Tuen Mun Town, Lot 125. 2. Calculated in the manner for which provision is made in the contract, the completion date was the 22nd May 1980. Although the contract itself is not before me, one of the supporting affidavits explains that clause 25(1) provided that "if the defendants shall fail to proceed regularly and diligently with the works they have agreed to do ......, then the architect may give them a notice ...... specifying the default and if the defendants shall either continue such default for 14 days after receipt of such notice or at any time thereafter repeat such default (whether previously repeated or not), then the plaintiffs may without prejudice to any other rights or remedies, within 10 days after such continuance or repetition, by registered post or recorded delivery forthwith determine the employment of the defendants under the said contract, provided such notice shall not be given unreasonably or vexatiously." 3. Mr. Wong Kwok Kuen, a civil engineer is the "authorized person" within the meaning defined in the Buildings Ordinance, and I shall refer to him as "the architect". He wrote a series of five letters to the contractor complaining about slow progress. These letters, all written this year, are dated 5th June, 22nd July, 5th August, 16th August and 25th September. Each letter begins and ends the same, but there is a variation in the words used in the only other (the middle) paragraph. The first paragraphs refer to the contractor's progress in relation to the building works in question, and the final paragraphs are as follows -
The middle paragraphs are in these terms -
4. It seems that the contractor did not reply to any of these letters, and on the 22nd November the architect wrote again in these words -
5. The letter was, of course, intended to be the "architect's notice" provided for in clause 25(1) of the building contract, and it prompted the following reply, dated 28th November, from the contractor -
6. The employers' solicitors wrote back on the 3rd December in these terms -
7. The contractor's response to this letter was as follows, and is dated the 8th December -
8. Meanwhile came what was clearly designed to be the "employers' notice" under clause 25(1) of the contract. It is dated the 8th December, and is thus worded -
9. To this letter, on the 9th December, the contractor replied -
10. On the 10th December the employers' solicitors dispatched the following letter -
11. The final letter to which reference must be made was from the contractor and is dated 15th December 1980. In it a complaint is made that on the 11th December "there were ten odd strangers or intruders rushed into the above construction site with a view to disperse or prevent all the workers thereat from working." The letter goes on to explain how the "intruders" were eventually persuaded to leave. "As a result of unlawful act of the above people", the letter continues, "all the workers at the site felt depressed and left the site and some of them even resigned lest that their life would be in danger". The letter concludes by reserving the contractor's rights to claim damages and by insisting that the "same illegal act" should not be repeated. This incident is referred to in two of the affidavits supporting the application. 12. However, in the meantime, on the 13th December, the employers issued a writ which was endorsed with a claim for damages for breach of the building contract, for damages for trespass and for an injunction in similar terms to that prayed for by the present application. The orders now sought are in the following terms -
13. I have been told that an earlier, ex parte, application for the same orders failed before Zimmern J. 14. Mr. Wong Kwok Kuen, the architect, affirmed an affidavit in which he sets out the background against which he wrote the five letters, and issued the notice, to which I have already made reference. His affidavit, which is dated the 12th December 1980, concludes -
15. An affidavit sworn by Mr. Peter Siu on the same day avers, inter alia, that he had caused records to be kept since the 22nd November, of the number of workers attending the site each day. Instead of the 30 or 40 workers he would have expected, the contractors only engaged about 5 or 6 workers. He also makes the point that, as at the date of swearing his affidavit, the contractor had exceeded the contract period by 204 days and that such a delay constituted an increase of about 50 per cent of the time allowed for completion under the agreement. 16. The factual basis upon which this application is resisted is set out in the affidavit of Mr. Tam Wah Kuen, the sole proprietor of the defendant firm. He states that he has employed a quantity surveyor to survey the work done at the site and its value. This would take some 15 days to complete. With reference to the 204 days delay alleged, he points out that the employers have not taken into consideration certain "additional work or extra work" undertaken at their request which took approximately 40 days, as well as some "variations of work" which accounted for 60 days. These are particularized. He states that the work was also delayed because the employers failed to complete "(inter alia) the installation of aluminium and glazing work. Certain work "which concerns the pavement etc." could not be undertaken while the scaffolding needed for the windows remained in place The delay had also been contributed to by the fact that "persistent late payments by the plaintiffs have caused unnecessary hardships to the defendant firm." Exclusive of the maintenance fee of $240,000 to which he was entitled under the contract, the employers had defaulted in the payment of a total of $377,181, due in respect of the additional work done on their behalf, and three specified interim payments. 17. Mr. Tam avers that in fact he had employed at least 15 workers on the site at the material times and this number would have been increased when the work demanded it. He adds that his firm is of good repute and sound financial standing, and maintains that only about 4 per cent of the contracted work remained to be done, which he had always been willing to complete. Indeed he had been and was continuing the work without interruption. His affidavit exhibits a letter from the quantity surveyor he engaged to conduct the survey that has been mentioned above, which explains how the delay in supplying and installing the aluminium windows might have affected general progress in the construction. 18. This application raises a number of interesting and to some extent difficult questions of law. In argument I have been referred to the decision of Megarry J. (as he then was) in Hounslow London Borough Council v. Twickenham Garden Developments Ltd. [1971] 1 Ch 233 and to the New Zealand case, Mayfield Holdings Ltd v. Moana Reef Ltd [1973] 1 N.Z.L.R. 309 where Mohan J. declined to follow the English decision Counsel also cited Blair-Kerr J.'s decision in this jurisdiction, N.C. Chan v. Chung Lee Construction Co. (Cheong Kee) [1964] H.K.L.R. 254. My attention was also drawn to an illuminating article which discusses these three cases, by Henry Litton and Denis Chang in H.K.L.J. (1975) 192 under the title "No Man's Land: Disputed Possession of Building Sites." 19. Mr. Liao, for the contractor, resisted the application on a number of grounds. He sought first to show that it was based on mere unsupported allegations, and drew attention to the facts in dispute. I will postpone a consideration of the issue of the disputed questions of facts until I have dealt with the other submissions made by Mr. Liao. 20. He contended that the "employers' notice" was unreasonable and vexations on two grounds. The notice was based solely on the "architect's notice" and contained no allegations that the contractor had continued or repeated the alleged defaults for 14 days, and the notice was, therefore, not issued in accordance with the terms of the contract. I do not read clause 25(1) as requiring the "employers' notice" to be in any particular form. Unlike the "architect's notice" it does not have to specify the default. If the notice is justified on the facts, all it needs to do is to make it clear that the employment of the contractor is being determined under the contract. While the notice issued in this case was not very happily worded, I do not think it is defective on this ground. 21. Although Mr. Liao described the next ground as "a minor point" it is an interesting one; and it was this - that the second notice was premature by one day. It seems to me quite plain that none of the five letters written by the architect between the 5th June and 25th September, although each mentioned clause 25 of the contract, was the "architect's notice" within the contemplation of that clause. The effective notice was that which is dated 22nd November. Clause 25 allows the second notice to be given by the employers if the contractor continues the specified default for 14 days after receipt of the first notice, or at any time thereafter repeats such default (whether previously repeated or not). The "architect's notice", though dated the 22nd November, was not posted by registered letter until the 24th November. As I understand the relevant clause, the "employers' notice" could not validly be given unless 14 days had elapsed after the receipt of the earlier notice. In my view, this was a condition precedent to the right to issue the later notice. Applying the ordinary canons of construction, even if the date upon which the first notice was received is not to be excluded from the computation of the 14 days, the employers had no contractual right to issue their notice before 9th December It is to be noted that the employers were not purporting to make what I might call a common law determination under the general law I will, for the monent, leave aside a consideration of what the consequences of issuing a premature notice are as it affects this application. But I hold that the "employers' notice" was not issued in accordance with the terms of the contract. I would mention that there are two Australian cases, not cited to me, which are relevant to the question of prematurity, and which are referred to in Brookings Building Contracts, 1974 Ed. pp. 116-118. These cases are Eriksson v. Whalley (1971) 1 NSWLR 397 and Re Arbitration between Stewardson Stubbs and Collett Pty. Ltd. and Bankstown Municipal Council (1965) NSWR 1671. 22. Mr. Liao relied to some extent upon the decision of Megarry J in Hounslow London Borough Council v. Twickenham Garden Developments Ltd [1971] 1 Ch. 233 but acknowledged that it would have to be read is the light of the later decision of the House of Lords in American Cyanamid Co v. Ethicon Ltd. [1975] 2 W.L.R. 316. In Hounslow, where there was a purported determination under a clause very similar, if not identical, to the clause in the instant contract, and where the circumstances were not dissimilar to those that obtain here, Megarry J. inclined to grant the employer an interim injunction, holding, inter alia, that although the contractor might not be said to have any licence coupled with an interest, nor a right to insist on carrying on the work under the contract, notwithstanding the employers' repudiation, since the contract was one for the execution of specified works on the site for a specified period there was, therefore, at least an implied negative obligation on the employer not to revoke any licence (except in accordance with the contract) while that period was still running. Thus, unless the contract had been validly determined by notice, the court, in its equitable jurisdiction would not grant an injunction which would have the effect of helping the employer to break the contract. It was also held that although there were no real grounds for the contractor's attack on the employers' notice, the case for having validly determined the contract (being based on disputed questions of fact) and inferences of facts, fell short of the standard upon which it would be safe to grant an interim injunction. 23. Mr. Ribeiro, for the employers, referred me to the New Zealand decision in the Mayfield Holdings case I have previously mentioned, where Mohan J. declined to follow the Hounslow case. The report of the case is not before me, but there is a full account of it in the article in the H.K.L.J. by Henry Litton at Denis Chang also previously mentioned. The authors of that article give the following account of the New Zealand case - "In the New Zealand case of Mayfield Holdings Ltd v Moana Reef Ltd [1973] 1 N.Z.L.R. 309 Mohan J criticised the decision of the Hounslow case and refused to follow it In the Mayfield case, the contractor was the plaintiff and was claiming, inter alia, an injunction to restrain the defendant from entering upon the site to remove the plaintiff or its sub-contractors. The owner counterclaimed for, inter alia, an injunction restraining the plaintiff from hindering him from completing the building. Part of the headnote reads:
24. In the forefront of Mr. Ribeiro's argument was the submission that the contractor was on the site by virtue of a mere licence, and once that licence was withdrawn the contractor had no right to remain thereon, his remedy being only in damages. He contended that none of the matters averred in the contractor's affidavit took the matter any further in his favour. The principles in building contract cases were clear as to the extent of contractor's rights. Since the Hounslow case had been overtaken by the decision of the H use of Lords in American Cyanamid it was no longer necessary for the court to approach the matter as Megarry J. had done. The balance of convenience strongly favoured the employers and he was content to rest his case on a proper application of the principles enunciated by the House of Lords. 25. The decision of Megarry J. in the Hounslow case has been criticised in a number of leading textbooks: Emden's Building Contracts and Practice, (8th Ed.) pp. 198-205; Hudson's Building and Engineering Contracts (10th Ed.) preface p. (ix) and Brookings Building Contracts (1974) p.122. That decision is also criticised in the H.K.L.J. (1975) article by Henry Litton and Denis Chang. 26. Applying the tests laid down in the American Cyanamid case as I must, in so far as the disputed questions of fact are concerned, I am quite satisfied that there is a serious question to be tried. On the facts it cannot be said that the material before me fails to disclose that the plaintiff has any real prospect of success in his action, claiming, inter alia, a permanent injunction. Nor can I be satisfied that that the claim is frivolous or vexatious (in the sense explained in Mothercare Ltd. v. Robson Books Ltd. [1979] F.S.R. 466). I now go on to consider the balance of convenience. It seems clear to me that damages would not be an adequate remedy for the employers. They want to get on with the building, and the dispute might take a long time to resolve; moreover there might be a real impasse in the meantime. On the other hand, the contractor can clearly be compensated in damages, and will be protected by the undertaking in damages, there being no suggestion that the employers would be unable to honour the undertaking they will have to give. Indeed, in my view it will be rare that in a building dispute of the kind before me, that a court would be justified in taking a decision to preserve the status quo. However it is not merely the dispute on the facts that has to be considered. During the course of his speech in the American Cyanamid case, Lord Diplock, at p. 323 [letter B] had this to say -
27. As regards the law, I apprehend that at the trial the court will indeed have difficult points of law to resolve. It will have to consider the competing merits of Megarry J. 's decision in the Hounslow case, and Mahon J.'s decision in the Mayfield Holdings case. In considering the Hounslow case, the court will have to decide how it was affected by the American Cyanamid case. There is also the decision of Blair-Kerr J. in N.C. Chan which will have to be weighed in the scales. If Mahon J.'s view of the law prevails, then the revocation of the licence to remain on the site does not depend upon whether or not there was a lawful determination of the contract. With the utmost respect to Megarry J., quite apart from the necessity to consider and apply his decision in the Hounslow case in the light of the principles set out in the American Cyanamid case, in my judgment a Hong Kong court might well decide not to follow that part of his judgment which held that the licence to remain on the site given to the contractor was subject to an implied condition that the employer would not revoke it during the course of the work. In addition to the New Zealand case of Mayfield Holdings, no doubt a court here would wish to consider the Australian cases of Cowell v. Rosehill Racecourse Co. Ltd. [1937] 56 C.L.R. 605 and Porter v. Hannah Builders Pty. Ltd. [1969] V.R. 673. 28. If the trial court takes a view which is consistent with what Messrs. Litton and Chang describe as "the traditional approach" in their article, then, it seems to me, that if I was right in concluding that the purported determination of the contract under clause 25(1) was not in accordance with its terms, this would not necessarily mean that the licence was not effectively revoked. In my judgment, there is a strong possibility that the trial court would hold that the notice dated 22nd November, from all the circumstances of the case, was a plain repudiation of the contract, which terminated it and put an end to the licence, despite its purported issue under clause 25(1) of the contract. The contractor could not have been left in any doubt about its meaning and effect; and there is, too, the solicitors' letter of the 10th December. 29. For the reasons I have attempted to give, I consider the application for an interlocutory injunction should be granted in the terms sought. Though I think it to be unnecessary, I allow the words "Save for the purposes of complying with the order in para. 2" to be inserted at the start of para. 1. Out of an abundance of caution, Mr. Ribeiro asked for this amendment and Mr. Liao did not address me on the point. Unless counsel wish to address me on costs, I propose to order that the costs of this application shall be costs in the cause.
Representation: Mr. R. Ribeiro instructed by F. Zimmern & Co. for Plaintiff. Mr. A. Liao instructed by W.S. Lo & Co. for Defendant. |