Chun Lee Engineering Co Ltd v. Aoki Corporation
Read the full judgment text of HCCT000019A/1989 on BabelCite. This HIGH COURT judgment was delivered on 3 May 1991 before Kaplan, J. in Chambers.
Building contract dispute — summary judgment sought for retention sum withheld by defendant subcontractor. Defendant sought to imply a customary retention clause but court held no such term could be implied without detailed operative provisions, refusing to rewrite contract. Summary judgment granted for retention sum held by defendant. Defendant counterclaimed for failure of plaintiff to complete contract works causing loss and additional expense; counterclaim was vague and lacked particulars but disclosed cause of action, so court refused to strike out but ordered amendment and further particulars. Applications by plaintiff for further particulars of defence were refused as unnecessary. Court granted stay of execution of summary judgment pending appeal. Costs awarded to plaintiff on summary judgment but plaintiff ordered to pay defendant costs on particulars application, with no order on strike out summons. Relevant case law from House of Lords, Privy Council, and English Court of Appeal considered regarding implied terms, summary judgment principles, and pleading requirements. Court emphasised established tests for implying terms, pleading sufficient particulars, and balancing procedural fairness. Plaintiff awarded interest on judgment sum from specified date. Full timetable for discovery, inspection and expert reports arranged by consent.
Legal issues: Implied retention clause in building contract · Counterclaim striking out under O.18 r.19 · Whether further and better particulars of defence should be ordered
Outcome: Summary judgment granted to plaintiff for HK$620,000; counterclaim not struck out but ordered to be amended with further particulars; request for further particulars of defence refused; stay of execution granted pending appeal
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HCCT000019A/1989 Headnote Building contract - whether test for O.14 same as test for interim payment under O.29 - whether term can be implied that contract subject to a retention clause - whether counterclaim should be struck out under O.18 r.19. Construction List No.19 of 1989 IN THE SUPREME COURT OF HONG KONG HIGH COURT __________ BETWEEN
__________ Coram: Kaplan, J. in Chambers Date of Hearing: 11 April 1991 Date of Delivery of Judgment: 3 May 1991 ----------------- JUDGMENT ----------------- 1. I have before me a summons for directions dated 24th January 1991 which raises the following points for decision in this building contract case in which the plaintiffs claim approximately 13 million dollars, and the defendants deny liability and have an unquantified counterclaim.
Basic Facts 2. The defendant is the main contractor for the construction of the Tuen Mun Hospital on behalf of the Hong Kong Government. 3. In 1984, the plaintiffs were invited to tender for the execution of the plumbing and drainage works comprised in the main contract ("the works"). 4. By letter dated 14th December, 1984, the defendant advised the plaintiff that it was its intention to place a sub-contract for the works for the sum of HK$14,300,000. 5. It appears that the plaintiff commenced works in or about December 1984. Subsequently, certain works were omitted from the contract. There is a dispute about variations and extension. 6. The defendants agree that a contract was concluded for the works in the sum of HK$14,300,000. 7. Paragraph 17 of the amended Statement of Claim reads as follows:
It is common ground between the parties that there is no written retention clause and Mr. Barlow rests his submission solely on paragraph 17(b) of the defence. Can such a term be implied? 8. It is important to note that the term is said to be implied in accordance with custom and usage. It is not said that it springs from the mutual understanding of the parties. It is not said that it is implied in order to give business efficacy to the contract which operates perfectly well without it, although, of course, I accept that the defendants would prefer to have the protection of a retention fund. I also accept that such a clause is usually included in the written conditions of contracts of this nature. 9. Mr. Barlow relied heavily on a letter dated 13th December, 1986, from the plaintiffs to the defendant which the plaintiff exhibited. This is a letter coming from the plaintiff which, some 2 years after the contract was concluded, indicates clearly. that the plaintiff was under the impression that there was to be a retention fund. How can the plaintiff now deny the existence of such a clause, says Mr. Barlow. Surely, he says, the letter is cogent evidence of this custom and that it was adopted in this case. 10. Mr. Lewis counters by saying that this term was either implied by custom or usage, or it was not, and the plaintiff's understanding, which may have been an error of law, 2 years later is of no relevance at all. He further relies upon the House of Lords decision in James Miller & Partners Ltd. v. Whitworth Street Estates (Manchester) Ltd. (1970) A.C. 583, in support of the well-known principle that a contract cannot be construed by reference to the subsequent conduct of the parties. 11. I have the greatest difficulty in seeing how the pleaded clause can be implied. Mr. Lewis rightly points out that a clause of this nature will need a machinery or mechanism in order to make it operate. The pleading does not even say what the percentage retention is to be. Further Mr. Lewis listed the following matters about which there is total silence in the pleading.
12. I agree with Mr. Lewis that all these matters need to be covered and if such a term as pleaded is to be implied, the court would, in effect, be drafting this part of the contract for the parties, and thus, redrafting their contract for them. 13. At paragraph 909 in Chitty On Contracts 26th edition volume 1, one finds that:
14. At p.53 of Hudson's Building & Engineering Contracts (10th edition) one finds this very point being dealt with in the following terms:
15. I agree with Mr. Lewis's attack on this implied term, and I further agree with the way in which Hudson puts it. The plaintiff is entitled to be paid for work carried out pursuant to its contract with the defendant. If the defendant wishes to protect itself by a retention fund, then it must insist on an express term to that effect, which should contain all the necessary machinery to give effect to such a clause. The defendants are very experienced and substantial contractors, with long experience in Hong Kong. They have only themselves to blame for not getting their contractual tackle in order. I do not see why in this case and on the facts disclosed in the evidence and pleadings, the court should be astute to make good the defendants' contractual omissions. 16. Having heard all Mr. Barlow has said on this issue, I have, nevertheless, come to the very firm conclusion that the defendants have no defence to this part of the claim, and that there is thus no triable issue applying the O.14 test. True it is a point of law but it is one which, in my judgement, is bound to be decided in favour of the plaintiffs and in those circumstances, I propose to grant summary judgment in the sum of HK$620,000 in favour of the plaintiffs. 17. Mr. Barlow submits that I should not award the plaintiff summary judgment, because there is a counterclaim which the defendants seek to set off against the plaintiffs' claim. I will have to consider the counterclaim in due course, but on the assumption that it is not struck out it is still a completely unquantified counterclaim. I am not prepared to permit a completely unquantified counterclaim prevent the plaintiffs from recovering the HK$620,000, which is admittedly held by the defendants pursuant to a retention clause which I have found does not exist as a matter of law. I intend to incorporate here what I say in due course about the counterclaim and its most unfortunate lack of particularisation and detail. 18. In the circumstances, therefore, I propose to grant the plaintiffs summary judgment in the sum of HK$620,000. 19. As I have come to the conclusion that the plaintiffs are entitled to summary judgment. I do not have to consider the alternative claim for an interim payment. Had I concluded that the defendants had an arguable defence. I would not have felt able to award the plaintiffs an interim payment under O.29 r.12, which is predicated on the basis that at trial the plaintiff would obtain judgment against defendant. 20. In Ricci v. Burns (1989) 1 W.L.R. 993, a division of the Court of Appeal in England held that there were in fact conceptual differences between O.14 and interim payments under O.29. They held that a reasonable doubt about the possibility of the plaintiff's success sufficient to preclude an O.14 judgment did not prevent the court concluding on the same evidence that the plaintiffs would succeed at trial and thus should have an interim payment. 21. However, in British and Commonwealth Holdings v. Quadrex Holdings (1989) 3 A.E.R. 492, a different division of the Court of Appeal took a different view. This division held that it was "an impossible concept that the same court could be satisfied that the plaintiff would succeed at trial, and at the same time consider that the defendant had an arguable defence sufficient to warrant unconditional leave to defend; it was impossible to make an order for interim payment where unconditional leave to defend had been given. In the cases, however, where, on the then evidence before it, the court entertained sufficient doubt as to the genuineness of the defence to give only conditional leave to defend, it was possible for a court to be satisfied that the plaintiff would succeed at trial. If in all the circumstances in such a case, an interim payment seems sensible and desirable it could be ordered" (taken from P.527 Annual Practice notes to O.29 r.11). 22. Speaking for myself. I prefer the reasoning in the British and Commonwealth case. I would prefer to hear full argument on the point whether if the. court grants conditional leave it can, nevertheless, go on to consider and award an interim payment. I should have added that I was also referred to Crown House Engineering Ltd. v. Amec Projects Ltd. 48 B.L.R 37, which also considered the appropriateness of O.14 and O.29 applications. In that case the court considered and relied upon the British and Commonwealth case, but was not referred to the Ricci Burns case although judgment was delivered in that case on the 30th September, 1988, which was over a year before the decision in the Crown case. The Counterclaim 23. The counterclaim is contained between paragraphs 28 and 33, and I set them out in full:
24. It can be seen that there are certain very important averments missing in this pleading. Firstly, the pleader does not condescend to give the date when the plaintiffs were required to commence the work, nor the date when it said they were required to complete the work. It is not stated when the defendants supplied the plaintiffs with copies of instructions drawings and details. In so far as the allegation is that the plaintiffs failed to complete the contract works, it is not stated when that breach occurred or for how long it occurred. No detail has been given as to the failure to complete the variations to the contract. Paragraph 31 says that particulars will be supplied following discovery and inspection. In so far as this is a suggestion that the defendants can only provide these details after they have seen the plaintiffs' documentation, Mr. Lewis categorizes such a stance as "speculative litigation". 25. Mr. Lewis then makes the point that although it is alleged in paragraph 32 that because of the plaintiff's breach, the defendants had to arrange for the completion of the works by others, yet they still cannot give the necessary or any particulars. They must know says Mr. Lewis, what they asked these other contractors to do and now much these other contractors were charging. In paragraph 33 it is alleged that the progress of other trades and sub-contractors was delayed and disrupted and yet the defendants say quite frankly that they have suffered loss and damage in amounts that are not presently capable of exact quantification. 26. Mr. Lewis puts his case, firstly on the basis that there is no cause of action shown in the counterclaim. I reject that submission. The counterclaim clearly contains a claim known to the law. That claim is that the plaintiffs agreed to carry out the work within a certain time frame and that they failed to do so, thus causing loss and damage to the defendants. I cannot say that discloses no cause of action, and I can only dismiss a claim or a counterclaim as disclosing no reasonable cause of action if the matter is "Plain and obvious". 27. Reference has been made to the recent Privy Council decision in Wharf Properties v. Eric Cumine Associates. It Is interesting to note that the Privy Council, at P.13 did not agree with the Hong Kong Court of Appeal that the cause of action should be struck out as disclosing no claim, merely because there had been a failure to particularise the claim following an order to that effect from the judge. In the Court of Appeal Power, J.A. had said that:
In relation to this part of the claim, Lord Oliver delivering the advice of their Lordships said this:
28. Having said that they disagreed with the decision of the Court of Appeal the Privy Council went on to consider the other aspects of O.18 r.19 namely the questions of prejudice embarrassment or delay and abuse of process. Penlington J.A. had referred to an answer given by Wharf to one of the requests and a very frank assertion that in essence, it was being left to the Court of Trial to find out what variations were excessive and what effect that had. Penlington said this:
The Court of Appeal went on to intervene to prevent an abuse of process. As to this aspect of the case, the Privy Council agreed with the Court of Appeal, and thus did not interfere with the final result. 29. Mr. Lewis has attempted to draw a very close analogy between the situation in Wharf and the situation in this case. However, as Mr. Barlow has pointed out there is one crucial difference between the two factual situations. In the Wharf case, further and better particulars had been requested, and it was as a result of the failure to provide these particulars that the court was asked to strike out the pleading on one or other of the grounds alleged. In the present case, there has been no request for further and better particulars of the counterclaim. I would be loath to strike out a claim, which can be further particularised if necessary. I certainly see Mr. Lewis's approach, because he makes the point that the defendants have said in terms that they cannot give particulars prior to discovery but in my judgment it is not enough for the plaintiffs to refuse to ask for particulars, refuse to try and pin the defendants down, and then come along and say that this ought to be struck out as being embarrassing or an abuse of process due to its lack of particularity. As the counterclaims stands at the moment, it is embarrassing and is an abuse of process. It seems to me somewhat strange that the defendants are not able to plead;
30. If the defendants had failed or refused to supply these particulars. I would have been inclined to strike out the counterclaim. I do not propose to strike out the counterclaim without first giving the defendants an opportunity to amend by dealing with the matters to which I have adverted. I wish to make it plain that the matters I have just set out are not intended to se a request for further and better particulars, but are intended to be an indication of some of the matters which I would expect to be covered by a re-amended pleading. I will hear counsel for the defendants on this subject after I have finished delivering this judgment and dealt with the other matters which call for my decision. Was leave required for the counterclaim? 31. I should have added that Mr. Lewis complained about the vary existence of the counterclaim contending that by order of Mayo. J. the defendants only had leave to amend their defence. Little argument was addressed to me on this point because I made it clear that either the counterclaim would be struck out or it would not and in the latter case if leave was required I would be prepared to give it. However, in my judgment the counterclaim is an independent action (see notes at paragraph 15/2/4 of the Annual Practice) and it is initiated simply by service. No leave was required. If it were required I would have granted it under the provisions of O.20 r.5. It is relevant in this regard to note the way in which the plaintiffs' case has altered from initially relying upon a quantum meruit (i.e. no contract) to a claim based upon a contract with a quantum meruit as an alternative. Request for further and better particular of amended defence 32. 6 individual requests are sought and they are attached to the summons for directions. Under Paragraph 9 33. This is a request for a statement that there were "no other terms of the oral agreement alleged to have been reached on or about 7th December, 1984", save those pleaded and particularised. This is not a proper request. The plaintiffs are entitled to rely upon what is pleaded as being the defendant's case, and they can complain if in due course the defendants seek to go outside their pleading. An express confirmation that there are no other terms save those pleaded adds nothing to the pleadings as they stand. 34. This request is refused. Under paragraph 9 (ii) 35. This request is similar to the one under paragraph 9 and is refused by parity of reasoning. Under Paragraph 14 (1) 36. This request is refused as being unnecessary. Further and better particulars supplied give this information and this was confirmed by Mr. Barlow. The plaintiffs can rely on the pleadings and Mr. Barlow's confirmation which I duly noted. Under Paragraph 15
Under Paragraph 8 37. This paragraph admits that the plaintiffs are entitled to payment for variations to the contract work including additional and extra works actually completed. I do not read this paragraph as saying that the plaintiffs are in fact entitled to a sum of money in respect of variations or extras. It is simply saying that if such work was ordered and carried out then the defendants recognise that they have to pay for it. This paragraph has to be read in the light of the defendants primary assertion that they have paid the plaintiffs whatever is due. Paragraph 23 of the defence pleads specifically that the defendant has paid the plaintiffs just over HK$14.5 million "which includes a reasonable amount for work done and material supplied as variations to the contract works". In paragraph 24 the defendants deny that the plaintiff is entitled to the sum claimed. 38. This request is also refused. Under Paragraph 21 39. This request is refused by parity of reasoning with the request under paragraph 18. Discovery Inspection and Experts Reports 40. I propose to make the following orders having considered the suggested timings put forward by both parties.
Costs 41. As to the costs relating to orders for discovery inspection and experts these will be in cause. 42. I will hear counsel on the question of the other costs including the hearing before me bearing in mind that the plaintiff has succeeded on summary judgment, had cause to complain about the counterclaim and lost on particulars. 3rd May 1991 43. Because the above written judgment provided an opportunity to Mr. Barlow to seek leave to amend the counterclaim I caused a copy of my judgment to be sent to counsel in order to save time when I handed it down. My clerk's letter to counsel dated 30th April 1991 made it clear that the only matter upon which I wished to hear counsel was the one raised at the bottom of page 16. namely whether leave to amend the counterclaim was being sought. 44. As soon as I sat down this morning. Mr. Barlow rose to his feet and made an application to re-amend paragraphs 17 and 25 of the defence. He did this because he wished the pleading (which I considered did not give rise to a triable issue) to contain reference to conduct and acquiescence. In paragraph 17, he wished to insert the words "alternatively an express term agreed by conduct"; and in paragraph 25, he wished to insert "all with acquiescence of the plaintiff who has waived any contractual rights to immediate payment". 45. He accepted that this was a very late application indeed, and it was made, so he submitted, in order for the defence to be aligned with the evidence and to show an arguable case. 46. I refused this application. The argument before me originally proceeded solely on the basis of paragraph 17 of the defence. Mr. Barlow's reliance on the letter dated 13th December 1986 exhibited to Mr. Wynn Hughes' affidavit was solely in the context of the letter being consistent with the existence of the pleaded custom and its adoption by the plaintiff in this case. Mr. Barlow submitted that Order 14 applications are dealt with on evidence and not on pleading. Of course in many cases, there is just evidence and no pleading. It is often easier to express a triable issue in an affidavit rather than in a formal pleading. But in this case, the defendant pleaded the term in a particular manner, and what is more the case was argued by counsel on that very basis. Mr. Lewis submission was based on that pleading and the way in the case was argued. 47. Mr. Barlow was under some misapprehension as to why my judgment was delivered to the parties prior to handing down. It was not done to invite any comments on its conclusions, but only to give Mr. Barlow the opportunity to consider whether he wished to seek leave to re amend the defence and counterclaim in the light of my critical comments of it. I was anxious to save the parties the further costs of an adjourned hearing if that was necessary. 48. At the end of the original oral argument I said that my judgment would be reduced into writing and would be handed down on a date in the future. This is a procedure set out in Order 42 rule 5B(4). Under. sub-rule 5 where the reasons have been recorded in writing and are not read in full. the court is obliged to hand a copy to each of the parties. The written judgment was sent to the parties on that basis but with the additional factor that I wanted to give Mr. Barlow an opportunity to consider whether he wished to seek leave to amend his counterclaim. As the matter turned out a request for further and better particulars was put in this morning and it was agreed that it would be complied with insofar as the requests were proper. I indicated that I expected this to be done quickly and if not, the matter will have to come back before me to consider making an order. 49. Mr. Barlow submitted that his application for leave to amend was made before I had added any words, and in this respect he submits that his application was made . before judgment and not after. I do not think that this is correct. Had he not spoken first, the only words that I would have added were to the effect that I was now handing down my judgment which the parties had peen given prior notice of and I would have asked whether Mr. Barlow had any and if so what application. I therefore consider that his application for leave to amend was made after judgment. However, whether his application was made just before or just after judgment had been delivered it still fails on the grounds of lateness and a complete change of case. The proposed amendment which he was good enough to articulate did not deal with any of the points I mentioned in my judgment about the mechanism of such a clause. So in the exercise of my discretion bearing in mind that applications can be made to amend pleadings almost at any time I do not think that this is an appropriate case to give leave to amend and I refuse the application. Interest 50. Mr. Lewis asked for judgment for $620 000.00 together with interest at the judgment debt rate as from 26th September 1990. Mr. Barlow objected on the grounds that the summons for directions which included the application for summary judgment did not mention a claim for interest. The statement of claim did claim interest under section 48 of the Supreme Court Ordinance. Once interest has been pleaded, as now it must I do not consider that the court is precluded from ordering it merely because the Order 14 summons is silent as to interest. This is borne out by the notes to the White Book at page 157 14/3 4/23;
51. Order 18 rule 8(4) provides that a party must plead specifically any claim for interest under the Ordinance or otherwise. The statement of claim does in this case plead a claim for interest. The defendant knew that a claim for interest was being made in the statement of claim and I do not think that the plaintiff is precluded from claiming interest merely because the summons is silent to interest. I therefore order interest on $620,000.00 from 26th September 1990 until payment at the judgment debt rate. Stay 52. Mr. Barlow sought a stay of execution in respect of the summary judgment. I granted this application. On the defendant's undertaking to prosecute any appeal with due diligence I ordered a stay of execution for 7 days to be continued thereafter until determination of the appeal if within 7 days, the defendant files and serves a notice of appeal. Costs 53. On the Order 14, it is agreed that the plaintiff shall have their costs. 54. On that part of the summons for directions relating to the further and better particulars of the defence, the plaintiff has failed and will pay the defendant's costs. For the assistance of the Taxing Master, I propose to indicate that approximately one-third of the time taken before me related to these particulars. 55. As to that part of the summons for directions relating to the strike out of the counterclaim, both sides sought the costs thereof. I did not strike out the counterclaim. However, I stated that I was seriously dissatisfied with the counterclaim due to its lack of particularity and its self contradiction in relation to particularization. Mr. Lewis showed me a request for further and better particulars of the counterclaim which Mr. Barlow had been shown this morning. Mr. Barlow indicated that the defendant would respond to this request as they thought proper in the very near future. I indicated that, if there was any dispute about these particulars I would hear argument on it as soon as it could be arranged. Mr. Barlow submitted that the request for further and better particulars is what ought to have happened before the strike out summons was taken out. The fact remains that the counterclaim was an abuse of the process being totally unparticularized when such information must have been at hand and was being used to attempt to defeat the claim for summary judgment. The parties have now decided to deal with the matter by way of further and wetter particulars. Taking all these matters into account, and in the exercise of my discretion it seems to me, that the justice of the situation requires for there to be no order as to costs as to this part of the summons.
Representation: Mr. Kevin Lewis instructed by Baker & Mckenzie for the Plaintiff Mr. Barrie Barlow instructed by Denton Hall Burgin & Warrens for the Defendants. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||