Kirin Civil Engineering Contractors Ltd v. Hong Kong Construction (Holdings) Ltd

HCA 54/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 54 OF 2004

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BETWEEN

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Before : Hon Reyes J in Chambers

Date of Hearing : 1 February 2006

Date of Judgment : 1 February 2006

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J U D G M E N T

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1.Hong Kong Construction (HKC) was the main contractor of a development at Tai Po Kau.  Kirin was HKC's sub-contractor.  By this action Kirin claims the sum of $8,164,925.10 which Kirin says remain unpaid on its sub-contract.  HKC denies that any money is due and contends instead that it has overpaid Kirin.

2.Kirin obtained summary judgment from Master Hui on its claim.  This is HKC's appeal against that judgment.

3.In my view, Kirin's claim is not an appropriate one for summary judgment.  Because I believe that this matter must go to trial, I should refrain from addressing its merits in this decision.  Nonetheless, I shall highlight 3 key issues between the parties which I do not can be resolved summarily.

4.First, the parties differ in their assessment of the Final Sub-Contract Sum.  On that sum, there is now a difference between the parties of some $8 million. 

5.The parties query each others methodologies.  Each says that the other's calculation makes no sense.  The parties have both instructed experts to comment on their respective assessments for the purposes of this appeal.  I do not see how this dispute can be resolved without recourse to cross-examination and careful consideration of the factual and expert evidence.

6.In granting summary judgment Master Hui said:-

"	Adopting [HKC's] methodology [for calculating the Final Sub-Contract Sum], we will come to a very odd situation where there is no addition by [Kirin] while it is [HKC's] case that there were substantive additions.
	This only means that [HKC's] method must be wrong.  Apart from methodology, we can see nothing from [HKC] to show that [Kirin's] calculation is wrong.  So I accept that [Kirin] is entitled to the sum of $158,474,824.81 under the sub-contract."

7.On the evidence now available (including the expert evidence only adduced since Master Hui's decision), I am unable to say that HKC's methodology is plainly wrong and Kirin's calculation plainly right.  Indeed, the thrust of HKC's expert evidence is that neither methodology is wholly satisfactory, although HKC's calculation (HKC’s expert contends) at least starts from a correct basis.  In fact it is now suggested, through a revised calculation advanced by Mr. Scott SC (appearing for HKC), that HKC's original proposed Final Sub-Contract Sum was overly generous to Kirin by about $8 million.

8.Second, HKC wishes to deduct administration fees of $2,632,831.42 (in effect a 5% charge) for procuring materials for Kirin’s use on the sub-contract.  HKC says that it is entitled to make such deduction by (among others) express agreement and trade practice.

9.Kirin denies the existence of the trade practice.  Kirin further notes that HKC has never deducted administration fees in over 28 years of construction work by Kirin for HKC.

10.HKC replies that, while it may never have deducted administration fees before, that was because Kirin's role in past projects was different.  In any event, post-contract, in 2004, Kirin (HKC alleges) acknowledged that HKC could charge administration fees.

11.I do not think that it is possible to resolve this dispute without (at least) a closer examination of the previous dealings between the parties and the nature of any trade practice relied upon.

12.In granting summary judgment, Master Hui said:-

"

Now, in my judgment, for an order 14 application, {HKC] has to demonstrate a credible defence and condescend upon particulars.  Now, {HKC] relies on deductions of certain sums from the amount payable under the sub-contract.  They have the burden to make out their case and have to demonstrate the basis upon which the case is built up and the basis why they are entitled to the deduction. In the absence of an express agreement, the bases set out are probably the only grounds that [HKC] can rely on.

But then, there is apparently no evidence of trade practice.  There was also nothing to say that the terms must be implied for whatever reasons.  Mr. Chong [appearing for HKC] said that [HKC] had joined issue with [Kirin] and [Kirin] failed to provide evidence to substantiate their case.  But similarly there was no evidence from [HKC].  It is for [HKC] to establish their case.  Mere denials are not sufficient.  It is easier for [HKC] to throw in a document to show the occurrence of some events between the parties rather than shifting the 'burden' to [Kirin] to establish that something has not happened.  It is always easier to establish something positive than to prove something negative.  [Kirin] may have to dig up all the documents for the past 28 years to show their case, but it is easier for [HKC] to dig up one or two documents."

13.Master Hui concluded on the evidence before him that HKC's claim was "not credible at all".

14.Since then, HKC has presented expert evidence that "a main contractor does not normally provide services to a Sub-Contractor free of charge".   The expert also suggests that commission of 5% on material costs was "in line with industry norm".

15.In my view, there is sufficient evidence on this issue to make it unsuitable for summary judgment.

16.Third, HKC contends that it is entitled to deduct staff costs of $2,372,740 and management fees of $1,933,808.90 for engineers and managers seconded to the Tai Po Kau project.  HKC says that it is entitled to such deductions in any Final Account with Kirin by reason of (among others) express agreement and trade practice.

17.Kirin challenges HKC's alleged entitlement.  Kirin points out that HKC did not assert a right to make such deductions until late in the day.  Kirin says that, even after HKC purported to make certain deductions, HKC stopped doing so upon Kirin’s objection and in fact gave Kirin a credit back "on-account for preliminaries".  Kirin also denies that there is a trade practice as alleged.

18.Master Hui disallowed HKC's claim based on reasoning similar to that which led him to reject HKC's claim for deductions in connection with the procurement of materials.

19.But, again, I do not see how this dispute can be resolved without recourse to cross-examination of factual and expert witnesses.  I note that, since Master Hui's decision, HKC has adduced expert evidence to the effect that "it is most unusual for the main contractor to provide project staff free of charge to the sub-contractor if the sub-contractor is responsible for the 'preliminaries'".

20.There are other issues between the parties (for example, HKC’s alleged right to charge administrative fees for processing claims on Kirin’s behalf).  But (it seems to me) that, until the 3 areas of dispute mentioned above are resolved at least, it cannot be clear what (if any) amount is due to Kirin from HKC. 

21.It may be that Kirin has a strong case.  It may (for example) be that HKC's lateness in raising some points indicates that the Court should be sceptical of HKC's case.  But these are matters which cannot be properly assessed by a Court otherwise than at a trial after hearing live evidence.

22.Accordingly, HKC's appeal is allowed.  HKC is to have unconditional leave to defend.  I will now hear the parties on costs and consequential orders.

Mr Kenneth C.L. Chan and Mr Raymond W.N. Tsui, instructed by Messrs Wong & Yip, for the Plaintiff

Mr John Scott, SC leading Mr David Tsang, instructed by Messrs Woo, Kwan, Lee & Lo, for the Defendant