American International Assurance Co Ltd v. Chow Chee Yum and Others

HCA005301/1983

BETWEEN:-

_________________

Coram: The Honourable Mr. Justice Jones in Chambers.

Date of Hearing: 23rd November 1983

Date of delivery of judgment: 6th December 1983

Miss A. Mok (Philip K.H. Wong & Co.) for Plaintiff.

Mr. M.J. Merry (Edmund W.H. Chow & Co.) for Defendants.

__________

JUDGMENT

__________

1. This is an appeal from a decision of Master Betts on the 31st October 1983 when he ordered that judgment be entered for the plaintiff against the defendants for the sum of $824,495.00 and costs.

2. On the 24th July 1981 the plaintiff executed a performance bond in the sum of $734,495.00 for the performance by the 1st defendant of a contract made on about the 20th July 1981 between the 1st defendant and Lung Fund Investment Co. Ltd. (the obligee) for the performance of foundation work in respect of a proposed office building at 68-82 Jaffe Road, Hong Kong. completion of the work was to be on or before the 20th April 1982. The bond was due to expire on the 20th October 1982, but the plaintiff claims that by an endorsement the bond was extended to expire on the 15th March 1983. On the 22nd February 1983 the obligee gave notice to the plaintiff that they intended to enforce the bond for loss suffered as a result of breaches of contract alleged against the 1st defendant. By their letter of the 5th March 1983 the obligee's solicitor demanded immediate payment of $734,495,00 from the plaintiff as surety for the bond.

3. The plaintiff in support of the claim relies on Condition 6 of the application and agreement which provides:-

"If for any reason the surety shall be required or shall deem it necessary to set up a reserve in any amount to cover any contingent claim or claims, loss, costs, attorney's fees and disbursements and/or expenses in connection with said bond by reason of default of the undersigned, abandonment of contract, liens filed, unpaid and past due bills, dispute with the owner or obligee or for any reason whatsoever, and regardless of any proceedings contemplated or taken by the principal or the pendency of any appeal, the undersigned jointly and severally hereby covenant and agree immediately upon demand to deposit with the Surety, in current funds, an amount sufficient to cover such reserve and any increase thereof, such funds to be held by the Surety as collateral, in addition to the indemnity afforded by this instrument, with the right to use such funds or any part thereof, at any time, in payment or compromise of any judgment, claims, liability, loss, damage, attorney's fees and disbursements and/or other expenses; and if the surety is required to enforce performance of this covenant by action at law or in equity, the costs, charges, and expenses, including counsel or attorney's fees, which it may thereby incur, shall be included in such action and paid by the undersigned.

Condition 4 of an indemnity agreement made between the 2nd and 3rd defendants and the plaintiff on the 24th July 1981 is in similar terms to Condition 6 of the application and agreement. On the 21st March 1983 the plaintiff informed the defendants of the obligee's claim and demanded payment of the sum of $734,495.00, and a further sum of $90,000.00 in respect of their estimated expenses.

4. By their defence which was filed on the 24th June 1983 the defendants dispute the validity of the endorsement, and aver that the bond lapsed on the date of its expiry on the 20th October 1981

5. It is also contended that default by the 1st defendant under the contract has not been established whilst the words 'to deposit an amount sufficient to cover such reserve' are void for uncertainty.

6. Various submissions were raised by Mr. Merry who appeared for the defendants. However, upon consideration of the pleadings and the documentary evidence it is clear that there are disputes of law on the interpretation of the agreement. There is also a substantial dispute of fact as to whether the expiry date of the bond was extended and the facts leading up to the demand. In any event the sum of $90,000.00 claimed as estimated expenses cannot be substantiated in the absence of strict proof.

7. Accordingly the appeal is allowed and the order of the Master will be set aside. There will be unconditional leave to defend. Costs before the Master to be in the cause. Costs of the appeal to the defendants.

Representation:

Miss A. Mok (Philip K.H. Wong & Co.) for Plaintiff.

Mr. M.J. Merry (Edmund W.H. Chow & Co.) for Defendants.