China Overseas Building Construction Ltd v. True Gold Investments Ltd and Others

HCA002011/2003

HCA2011/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2011 OF 2003

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Coram: Hon Tang J in Chambers

Date of Hearing: 19 May 2004

Date of Judgment: 9 June 2004

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J U D G M E N T

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1.The plaintiff as main contractor and the 1st defendant, True Gold Investments Limited, as employer entered into a standard form building contract, private edition with quantities, in June 2001 for the construction of a low density residential development at TMTL451, Chung Shan, Tuen Mun, New Territories ("the Main Contract"). This is the Pinada Project.

2.The Main Contract was varied by a deed of supplemental agreement dated 7 November 2002 ("the 1st Supplemental Agreement"). The parties to the 1st Supplemental Agreement were the plaintiff, the 1st defendant, the 2nd defendant, Gold-Face Holdings Limited and the 3rd defendant, Gold-Face Finance Limited.

3.The same parties entered into a second deed of supplemental agreement dated 24 March 2003 ("the 2nd Supplemental Agreement"). Under the 2nd Supplemental Agreement the 1st, 2nd and 3rd defendants agreed, jointly and severally, to pay by instalments the total sum of $33,226,800. Each of the three instalments was represented by a cheque which had been provided by the 1st defendant to the plaintiff on the signing of the 2nd Supplemental Agreement. In consideration of such payments the plaintiff agreed : "to re-commence and continue to carry out and complete" the Main Contract. The first two cheques had been honoured on presentation. The third and last cheque in the sum of $20,226,800 is the subject of the plaintiff's claim against the 1st defendant. In addition to the sum of $33,226,800, the 1st, 2nd and 3rd defendants agreed to pay :

(a) a sum equivalent to payments under the Main Contract for works done or to be done by China Overseas from 8 March 2003 until 30 April 2003; and

(b) $3,300,000 (being payments for site overheads additional to the Main Contract to be assessed by China Overseas).

4.A deed of guarantee and indemnity dated 24 March 2003 was made by the 2nd and 3rd defendants, the 4th defendant, Mr Tai Chi Wah and the 5th defendant, Mr Tai Chin Wah ("the Guarantee"). By the Guarantee the 2nd, 3rd, 4th and 5th defendants, jointly and severally, guaranteed the due and punctual payments of all money and liability due and owed by the 1st defendant.

5.On 7 April 2003 a settlement agreement was entered into between the plaintiff and the 1st defendant. By the settlement agreement it was agreed that the outstanding payment due from the 1st defendant to the plaintiff was $55,644,791.

6.By summons dated 20 November 2003, the plaintiff seeks summary judgment :

(i) against the 1st defendant in the sum of $50,644,791 or in the sum of $20,226,800 on the dishonoured cheque;

(ii) against the 1st, 2nd and 3rd defendants on the 2nd Supplemental Agreement in the sum of $50,644,791; and

(iii) against the 2nd, 3rd, 4th and 5th defendants on the Guarantee in the sum of $50,644,791.

7.By summons dated 29 July 2003 the defendants applied for a stay of this action for arbitration.

8.These applications were heard together with the applications in HCA2008/2003 and HCA3521/2003.

9.The background to this action can be taken from the correspondence. It appears from the correspondence leading up to the 1st Supplemental Agreement that the 1st defendant was represented by Messrs Tong Chan & Co., solicitors ("Tong Chan"), and that the draft deed of supplemental agreement had been amended by Tong Chan on the 1st defendant's behalf, see for example, letter dated 2 October 2002 from Tong Chan to Messrs Lovells, solicitors for the plaintiff.

10.But the parties ran into difficulties almost immediately after the 1st Supplemental Agreement. Thus one sees from the letter dated 12 November 2002 from Lovells to the 1st defendant that because of the failure on the part of the 1st defendant to honour the terms of the 1st Supplemental Agreement :

"Pursuant to Clause 4 of the Supplemental Agreement, China State is entitled to suspend work, and hereby notifies you that with immediate effect China State has suspended work, as a result of non-payment under the Supplemental Agreement."

11.By letter dated 20 November 2002, the 1st defendant wrote to the plaintiff :

"With reference to the captioned development project, we understand that we are behind payment on the payment certificate nos. 15th and 16th and hereby propose the following repayment schedule for the outstanding sum of HK$22,247,691.11 :-

1. 1st payment HK$3 million as on 3rd December 2002.

2. 2nd payment for a sum of HK$4,290,491.00 on 10th December 2002.

3. 3rd payment for a sum of HK$6,000,001.00 on 31st December 2002.

4. 4th payment for a sum of HK$8,957,200.00 on 15th January 2002.

As for your information, we are actively under negotiation with Finance Company to refinance our profile of second mortgage and would therefore be grateful if you can grant us a little bit time to honour the above payments."

12.By letter dated 24 December 2002 from Lovells claimed that the 1st defendant was indebted to the plaintiff in the sum of $61,633,911 and demanded payment within three weeks failing which petition to wind-up the company would be made without further notice.

13.Similar letters were written to the 2nd and 3rd defendants.

14.The parties then proceeded to enter into negotiation which led to the 2nd Supplemental Agreement. Again, drafts prepared and Lovells were amended, indeed, substantially amended, on behalf of the 1st defendant.

15.For example, on 26 February 2003, the 1st defendant suggested amendments to the payment terms. The 1st defendant suggested payment by seven instalments of the sum of $43,227,491 and that :

"We reassure you that if our funding can be returned earlier, we will issue payment early than the date as stated."

16.Again, on 7 March 2003, further amendments in the payment schedule was made by the defendant to the plaintiff's draft which reduced the amount payable from $61,527,491 to $43,226,800 by four instalments ending on 30 April 2003.

17.Following further amendments, the 2nd Supplementary Agreement was signed on 24 March 2003. On the same date, the 2nd, 3rd, 4th and 5th defendants executed the Guarantee.

18.On 7 April 2003, the settlement agreement was entered into between the plaintiff and the 1st defendant. By the settlement agreement the outstanding payment due to the plaintiff was agreed to be $55,644,791. This has been reduced to $50,644,791 on 11 April 2003 when a cheque dated 11 April 2003 was honoured.

19.In this action the defendants relied on the same defences as were raised in HCA2008/2003.

20.So far as the application for a stay for arbitration in relation to the cheque for $20,226,800 is concerned, the arbitration clause, clause 35, is identical to the arbitration clause in HCA2008/2003. Clause 2 of the 2nd Supplemental Agreement also provided that "same as expressly amended by this 2nd Supplemental Agreement, all terms and conditions of the Main Contract of the supplemental agreement shall remain in full force and effect, and the Main Contract, the supplemental agreement and this 2nd Supplemental Agreement shall be read and construed as a single document".

21.For the reasons stated in paragraphs 24, 25 and 26 of my judgment in HCA2008/2003 ("the Judgment"), I conclude that the claim on the cheque is also not covered by clause 35.

22.However, I am of the view that the claim against the 1st defendant under the 2nd Supplemental Agreement is covered by clause 35. I adopt paragraphs 23 and 28 of the Judgment. Here, so far as the 1st defendant is concerned, this is not academic.

23.The claims against the 2nd and 3rd defendants under the 2nd Supplemental Agreement is not covered by clause 35 and I relied on paragraphs 29 to 32 of the Judgment.

24.The claim under the Guarantee is also not covered by clause 35.

25.So far as quantum is concerned, the Guarantee provided that any written admission by the 1st defendant "shall be binding and conclusive on the guarantors", clause 6.1.

26.So, the figure agreed to in the settlement agreement is binding on the guarantors. There is no suggestion otherwise.

27.I turn to deal with the defences.

28.The first and most important is duress. It is a defence to the cheque as well.

29.The same submissions which were dealt with in the Judgment were advanced here. Of course, the facts are different here and I have set them out in paragraphs 9 to 18 above. Here, as in HCA2008/2003, there has been no attempt to explain away the events narrated in paragraphs 9 to 18 above. Here again, there is only the filmiest evidence on delay or defective work. I am of the view that no triable set-off has been shown. Here, also, the 2nd Supplemental Agreement contained a waiver by the 1st, 2nd and 3rd defendants, clause 11. For the reasons stated in paragraphs 35 to 42 of the Judgment, I have also come to the conclusion that there is no credible or sufficient defence of duress made out.

30.Mr Clifford Smith has submitted the additional argument that summary judgment should not be given against the 2nd to 5th defendants because the claim against the 1st defendant under the 2nd Supplemental Agreement would have to be stayed for arbitration. He relies on this as "some other reason for trial" Order 14, rule 3(1).

31.Insofar as this is discretionary, I would not exercise my discretion to withhold summary judgment against the 2nd to 5th defendants. I would give judgment against these defendants because although where the parties have agreed to submit their dispute to arbitration the court should grant a stay without enquiry into the merits of the dispute, I see no reason why in a claim against defendants who were not party to any arbitration agreement, the court should decline to deal with the claim on the merits. Why should the court give leave to defend if it is of the view that there is no triable issue?

32.Mr Clifford Smith suggested a stay as an alternative. This is not satisfactory. The arbitration may not proceed or proceed slowly. More importantly, the plaintiff cannot be compelled to proceed with the arbitration. Nor can the 2nd to 5th defendants insist that the plaintiff claims against the 1st defendant first. China and South Sea Bank v. Tan Soon Gin [1990] 1 A.C. 536. Lastly, as Mr Clifford Smith accepts the outcome of the arbitration would not bind these defendants. So even if the plaintiff succeeds on the arbitration, the plaintiff would have to proceed against the 2nd to 5th defendants.

33.For the above reasons I order :

(1) judgment against the 1st defendant in the sum of $20,226,800 with interest at 1.75% per annum above the prime rate adopted by HSBC from time to time, from 30 April 2003 until judgment, thereafter at the judgment rate until payment;

(2) judgment against 2nd, 3rd, 4th and 5th defendants in the sum of $50,644,791 with interest at 1.75% per annum above the prime lending rate adopted by HSBC from time to time, from 1 May 2003 to judgment, thereafter at the judgment rate until payment;

(3) stay of the plaintiff's claim against the 1st defendant in the sum of $30,417,991 under the 2nd Supplemental Agreement for arbitration under clause 35 of the Main Contract; and

(4) save as aforesaid, the defendants' summons dated 29 July 2003 be dismissed.

34.I direct that, failing agreement, the parties do submit written submission on costs, the plaintiff within seven days of this judgment, the defendants seven days thereafter, and the plaintiff's reply, if any, within three days thereafter.

Representation:

Mr Warren Chan, SC and Mr Law Man Chung, instructed by Messrs Lily Fenn & Partners, for the Plaintiff

Mr Clifford Smith, instructed by Messrs Gallant Y.T. Ho & Co., for the Defendants