Massford (HK) Ltd v. Wah Seng General Contractors Ltd

cacv 78/2005

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 78 of 2005

(on appeal from DCCJ NO. 1239 of 2004)

BETWEEN

Before: Hon Rogers VP, Cheung JA and Burrell J in Court

Date of Hearing: 1 November 2005

Date of Judgment: 1 November 2005

Date of Handing Down Reasons for Judgment: 8 November 2005

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.This was an appeal from a judgment of HH Judge Chow given on 30 December 2004.  The matter before the judge was an application under Order 14 and 14A of the Rules of the District Court.  The judge dismissed the applications.  On this appeal the plaintiff only sought to challenge the ruling under Order 14A.  At the conclusion of the hearing of this appeal the appeal was dismissed with costs.

Background

2.The defendant was the main contractor of a construction site at Nos. 60-66 Baker Street and Nos. 2-6 Baker Court, Hunghom.  The plaintiff was the nominated supplier under 2 contracts with the defendant.  The plaintiff’s claim was for the sum of $374,853.73, being the amount outstanding in respect of supply of ironmongery and sanitary fittings.  It was said that the Architect of the Project had issued various relevant Architect’s Payment Certificates and that the plaintiff was thereby entitled to payment.  At the time of the commencement of the action and the hearing of the applications before the judge the Employer had not paid the full amounts under the Architect’s Payment Certificate No. 16, which was alleged to be the relevant certificate, and the defendant relied upon that as the major plank of its defence.

3.The application under Order 14A was that the following question of law should be determined in favour of the plaintiff namely:

“Whether it was the proper construction of the written contracts both dated 3rd September 2001 entered into between the Plaintiff and the Defendant (‘the Contracts’) that the Plaintiff would only be paid in full for the goods it delivered to the Defendant until and unless the Defendant received full payment from the Employer under the Architect’s Payment Certificates (i.e. Charter National International Ltd)”

4.The plaintiff contended that it would be entitled to be paid in full even if the Employer did not make full payment of the sums due to the defendant under the relevant Architect’s Payment Certificate.

5.Clause 8 of what has been termed the Letter of Acceptance sent by the defendant to the plaintiff provided for the terms of payment.  It read:

“Terms of Payment

20% deposit upon signing this Letter of Acceptance and to be paid within 14 days after honouring of Architect’s Payment Certificate by the Employer.

80% Balance upon delivery of goods, submission of invoice, and to be paid within 14 days after honouring of Architect’s Payment Certificate by the Employer.

Terms of Payment are on a back to back basis.  i.e. your invoice/payment application should be submitted to us on time which will be included in our (Main Contractor) payment application and your payment is subject to Architect’s Payment Certificate and the honouring of Payment Certificate by the Employer.”

6.The judge dismissed the plaintiff’s application under Order 14 on the basis that the Architect’s Payment Certificate had not been honoured because, although there had been a partial payment under it there had not been full payment and, partial payment did not constitute honouring the certificate.  The decision under Order 14A followed on that finding.

This appeal

7.As already stated the plaintiff did not seek to challenge the decision under Order 14 on this appeal.  One reason may be that, since the hearing below full payment has been made of the amount claimed.  Nevertheless, the plaintiff seeks to challenge the decision under Order 14A.  In doing so it avers that if it were successful on this appeal it would be entitled to its costs below.

8.At the commencement of the hearing of this appeal this court raised with Mr Westbrook SC, who appeared on behalf of the plaintiff in this court but not below, the question as to whether this appeal was academic and whether the court should proceed to hear the appeal.  The difficulty was that in the absence of any challenge to the decision under Order 14 the plaintiff could not, in any event, hope to recover all its costs in respect of the hearing in the court below, even were it successful on this appeal.  Furthermore, depending upon the decision which the this court came to, in the absence of any challenge to the decision under Order 14 the plaintiff might not be wholly successful.  In view of the fact that payment had been made the plaintiff stood to gain little apart from costs.  Counsel did not suggest that the wording of clause 8 of the Letter of Acceptance was a standard form contract in Hong Kong.  In those circumstances the court had to consider whether it was appropriate to hear the case: see the approach of this court as explained in Chit Fai Motors Co Ltd v. Commissioner for Transport CACV142/2003(09/01/2004) [para. 20].

9.Despite the misgivings in this regard, this court proceeded to hear this appeal partly because the point raised appeared to be in a narrow compass and the skeleton arguments had been well prepared and as a result this court was in a position to consider the matter.  The fact that this court did hear the appeal should not be taken as an indication that the court should necessarily have done so.

10.Relying on a number of cases Mr Westbrook argued that clause 8, which he accepted as being part of the terms of the contract, did not make it a condition precedent to the payment to the subcontractor that payment had been received by the defendant from the Employer.  It was said that the plaintiff, as the nominated supplier was entitled to be paid within a reasonable time even if the defendant had not received payment from the Employer.  It was said that clause 8 constituted a clause limiting the time for payment rather than a condition which had to be fulfilled before payment became due. 

11.In so arguing counsel relied upon a number of cases including the decision of Suffiad J in Wo Hing Engineering Limited v. Pekko Engineers Ltd HCA 5561 of 1996 (7 September 1998).  That was a case which involved subcontract works.  The terms of payment there had included the express condition “This contract is based on back to back basis including payment terms.”  Suffiad J considered a number of cases including the New Zealand case of Smith & Smith Glass v. Winstone Architectural Cladding Systems Ltd. [1992] 2 NZLR 473 as well as what were referred to as other authorities from Australia and the United States of America.  Those cases apparently included the following which were also cited in argument on this appeal namely: Sabemo (W.A.) Pty. Ltd v. O’Donnell Griffin Pty Ltd Commissioner Heenan 15 June 1984, The Thos. J. Dyer Company v. Bishop International Engineering Company 303 F.2d 655 (1962), Peacock Construction Company Inc. v. Modern Air Conditioning Inc. 353 So. 2d 840 and Southern States Masonry, Inc. v. J.A. Jones Construction Company, Inc. 507 So.2d 198.  None of the cases involved contracts with the same wording as in the present case.  It is trite law that each contract has to be separately construed. 

12.It is clear that in many cases the courts, particularly in other jurisdictions, have sought to construe terms of contract between a main contractor and a subcontractor on the basis that there was liability on the main contractor to pay the subcontractor even if the main contractor did not itself receive payment.  But as was pointed out in Hudson’s Building and Engineering Contracts, 11^th edition, paragraphs 13-108 the matter turns upon the wording of the contract.  The supplement to the 11^th edition shows there has been some element of statutory intervention in the United Kingdom to try to protect subcontractors from manifest unfairness, but nothing of that sort is relied on here. 

13.In my view the provisions of the third paragraph of clause 8 which have been referred to make the matter abundantly clear.  Not only are the Terms of Payment made on a back to back basis but the payment to the plaintiff is expressly made “subject” both to the Architect Payment Certificate and the honouring of the Payment Certificate by the Employer.  Whilst, as Mr Westbrook pointed out, this may in some circumstances cause hardship to the subcontractor the terms of the contract appear to me to be so clear that in this case they are beyond the argument.  It must be pointed out in conclusion, however, that each contract has to be individually construed and it is unlikely that the construction of this contract would be of assistance in construing any other.

Hon Cheung JA:

14.I agree.

Hon Burrell J:

15.I agree.

Mr Simon Westbrook SC, instructed by Messrs Pang, Wan & Choi, for the Plaintiff/Appellant

Mr Anthony Chan SC and Mr Anthony Chow, instructed by Messrs So, Lung & Associates, for the Defendant/Respondent