Onway Engineering Ltd v. Shun Wing Construction & Engineering Co Ltd

HCA 88/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 88 OF 2008

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BETWEEN

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Before: Deputy High Court Judge Carlson in Chambers

Date of Hearing: 30 October 2008

Date of Judgment (Handed Down): 18 November 2008

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J U D G M E N T

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Introduction

1.This is an application by the Defendant to strike out the action on the ground that the claim upon which it is based is irredeemably out of time and in these circumstances not amenable to an extension under section 23(3) of the Limitation Ordinance (“the Ordinance”).  In order to qualify for such an extension the claim needs to be one for a debt or other liquidated pecuniary claim and the debtor needs to have acknowledged the claim, in which circumstances the right to recover the debt will be deemed to have accrued on and not before the date of the acknowledgment.  Section 23 is concerned with fresh accruals of actions based on acknowledgments or part payments.  Although I have already stated the effect of sub-section, it will be helpful to set it out here.  In its material terms it is as follows:

“(3)     Where any right of action has accrued to recover any debt or other liquidated pecuniary claim, or any claim to the personal estate of a deceased person or to any share or interest therein, and the person liable or accountable therefor acknowledges the claim or makes any payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgement …”

2.The Defendant’s case is that the Plaintiff is unable to bring itself within either of these two requirements, let alone both of them, which it must do in order to have the benefit of the sub-section.  The corollary of this is that the Defendant need only show that the Plaintiff is bound to fail on just one or the other.  The case for the Defendant is put in three ways.  Firstly, under O.18 r.19 and/or under the court’s inherent jurisdiction to strike out the amended writ and the Statement of Claim on all of the grounds available under the rule and also to have the action dismissed on the basis that the cause of action is time-barred by section 4 of the Ordinance at the time that the writ was issued.  Alternatively, it is sought to have the time-bar issue determined as a preliminary issue under O.33 rs. 3 and 4, RHC or, that this issue be determined as a question of law pursuant to Order 14A, RHC.

3.It seems to me that the reality is, as I think Mr Coleman SC for the Defendant accepts, that the Defendant must stand or fall on its O.18 r.19 application.  If it succeeds then that is the end of the matter, if it fails the matter must proceed to trial, perhaps leaving over as a matter of case-management whether the time-bar can usefully be tried as a preliminary issue following the completion of discovery and with live evidence, which is a matter that I can come to if the Defendant fails to strike out the Plaintiff on its main ground.

4.Lastly, the Plaintiff has also taken out a summons to amend its Statement of Claim.  I have read it and it adds nothing to nor alters the argument on the Defendant’s summons.  I will therefore come to it, if I need to, after I rule on the application to strike out the action.

Background and Chronology

5.The Plaintiff entered into a sub-contract to perform works under a Government Maintenance Contract No. TC K001.  The main contractor was a company called Chinney Construction Co. Ltd (“Chinney”) and the Defendant was Chinney’s sub-contractor, with the Plaintiff in turn being the Defendant’s sub-sub-contractor.  The Plaintiff ceased the works in December 2001, the Defendant having terminated its employment under the sub-sub-contract in circumstances where the Plaintiff alleges that this was a wrongful repudiation which repudiation the Plaintiff, on its pleaded case, says it accepted on 4 January 2002, this therefore being a crucial date in respect of the limitation argument that it now faces.

6.The difficulty that arises is that the Plaintiff brought an action against Chinney and not against this Defendant in 2002 [HCCT 10/2002], in which it alleged that its contract was with Chinney.  The action, like the present one, was for breach and wrongful repudiation of the sub-sub-contract.  The judge who heard that action, Deputy High Court Judge Muttrie, dismissed it having held that the Plaintiff had no contract with Chinney and that its contract was with the Defendant.  That judgment was unsuccessfully appealed from to the Court of Appeal and followed up by an unsuccessful application for leave to appeal to the Final Court of Appeal from which there was a further unsuccessful application for leave to appeal to the Final Court itself which delivered its ruling refusing leave on 6 December 2007.  That process, which took just under six years, started on 28 January 2002 with the issue of the writ against Chinney and ended on 6 December 2007 with the Final Court’s refusal of leave to appeal.

7.The present writ against this, admittedly correct, Defendant was issued on 15 January 2008, that is to say 11 days after the expiry of the six years limitation period for claims based on contract.  This being the chronology the Plaintiff is now obliged, if it can bring itself within the section, to rely on section 23(3) supra.

The Issues

8.It is submitted on the Plaintiff’s behalf by Mr Alan Ng that it has a “liquidated pecuniary claim” against the Defendant and that its claim has been “acknowledged” thereby giving rise to a fresh accrual of the cause of action for which the limitation period had not expired by the time that it issued its writ.  The Defendant contests both of these assertions which are said to be unarguable with the consequence that the primary limitation period continues to take effect and the action should therefore be struck out.

The Approach to Section 23(3)

9.The first matter to determine therefore is whether, on its proper construction, the Plaintiff has a claim for “any debt or other liquidated pecuniary sum”.  What the court looks for therefore is a certain sum owing under the terms of a contract.  Where the court is required to assess the amount owing then the claim cannot be for a liquidated sum.  A helpful definition of what is a “debt or liquidated claim” is provided in the Note to O.6 r.2 at 6/2/4, HK Civil Procedure 2009 which says that:

“‘Debt or liquidated demand’ — A liquidated demand is in the nature of a debt, i.e. a specific sum of money due and payable under or by virtue of a contract.  Its amount must either be already ascertained or capable of being ascertained as a mere matter of arithmetic.  If the ascertainment of a sum of money, even though it be specified or named as a definite figure, requires investigation beyond mere calculation, then the sum is not a ‘debt or liquidated demand’, but constitutes ‘damages’.

The words ‘debt or liquidated demand’ do not extend to unliquidated damages, whether in tort or in contract, even though the amount of such damages be named at a definite figure (Knight v Abbott (1883) 10 Q.B.D.11; affirmed in Winston Camera & Radio Co. Ltd v. Veart Design Ltd  (HC No.11595 of 1995) [1996] H.K.E.C.5, applied in Byatt (t/a MBP Byatt & Co.) v. Nash [2002] E.W.C.A. Civ.1321).”

What I will need to do therefore is to analyse the terms of the Plaintiff’s claim to see whether it comes within that definition.

10.The next matter concerns the issue of whether the Defendant has “acknowledged” the Plaintiff’s claim so as to start the limitation clock again.  For this, the Plaintiff relies on two documents.  These are Confirmation 05 and Confirmation 06.  05 is dated 3 June 2005 and appears at Bundle 2/120 and 06 which is dated 19^th June, 2006 is at Bundle 2/121.  Both are in identical form prepared by the Defendant’s auditor, Ernst & Young but are clearly the Defendant’s documents.  The documents are there to be read and so I do not propose to set them out here.  Their apparent purpose is to tell the recipient, in this case the Plaintiff, that Ernst & Young is preparing an audit of the Defendant’s financial statements and that Ernst & Young wishes to confirm the balance of the account for the end of the relevant financial year.  Bundle 2/120 for the year ended 31 March 2005 says that $10,981,699 is owing to the Plaintiff by the Defendant.  For the year ended 31 March 2006 [2/121] the amount owing is $11,880,735.94.  The form then contains a request for the recipient to either agree with the amount by signing at the foot of the letter or, in the event of disagreement, to say so and to say why on the back of the letter.  Neither of these two letters was returned by the Plaintiff.

11.Mr Ng, on the Plaintiff’s behalf, submits that here are in the plainest terms acknowledgements in writing by the Defendant of the debt to the extent indicated in the two letters.  Mr Coleman, as I will relate shortly, says that quite apart from the fact that the letters were radically incorrect because these were amounts owed by the Plaintiff to the Defendant and not vice versa, they cannot be considered as an acknowledgment because they are in fact only requests for confirmation of the amounts appearing in the two documents.

12.What constitutes an acknowledgment, for the purposes of sections 23(3) and 24 of the Ordinance has been considered by the Final Court of Appeal in New World Development Co. Ltd v Sun Hung Kai Securities Ltd & Anrs [2006] 3 HKLRD 345, where Ribeiro PJ discussed the requirements for a valid acknowledgment at pages 370-372, paras.87-93.  This is what he said:

“87.  Section 23(3) supra. relevantly provides:

  …

  …

88.  Section 24 imposes formal requirements for such an acknowledgment: It must be in writing and signed by the person making the acknowledgment (or his agent) and made to the person whose claim is being acknowledged (or that person’s agent).  These formal requirements are met in the present case, the Dew letter having been signed by SHKS’s executive chairman and addressed to NWD.

89.  The question which therefore calls for determination is whether the Dew letter is a sufficient acknowledgment for the purposes of s 23(3), a question on which there is guidance in the case-law. 

90.  First, it is clear that the question is one of construction.  As Lord Goddard CJ put it in Jones v Bellgrove Properties Ltd [1949] 2 KB 700 at 704: 

‘Whether a document is or is not an acknowledgment must depend on what the document states......’

It follows that arguments based on the words used in particular reported cases are of little relevance.  In Spencer v Hemmerde [1922] 2 AC 507 at 517, Viscount Cave (while dealing with the pre-1939 position in England, which does not differ for present purposes) suggested that the proper approach was:

‘...... to deal with the letters relied upon according to their terms, and without reference to the countless decisions upon the meaning of other documents couched in different terms.’

91.  Secondly, it is clear that in construing the document relied on, the court will look at connected documents (not necessarily expressly referred to in the document relied on) to ascertain its proper meaning, as where, for instance, an acknowledgment emerges from reading together two or more letters written by the debtor in response to letters from the creditor: McGuffie v Burleigh (1898) 78 LT 264; and see Spencer v Hemmerde (above, at 516 and 518).

92.  Thirdly, the object of the construction exercise is to decide whether, fairly read, the document relied on constitutes an acknowledgment by the debtor of a liability to pay outstanding amounts to the creditor.  There is no need for the document to specify the amount of the debt so long as it can be ascertained by other means, including resort to extrinsic evidence, without requiring the parties’ further agreement.

(a)  Thus, in Good v Parry [1963] 2 QB 418 at 423 – 424, Lord Denning MR articulated the principle as follows:

‘...... there must be an admission that there is a debt or other liquidated amount outstanding and unpaid. ...... In order to be an acknowledgment, however, the debt must be quantified in figures or, at all events, it must be liquidated in this sense that it is capable of ascertainment by calculation, or by extrinsic evidence, without further agreement of the parties. ...... But if the debt is not quantified and is not ascertainable without further agreement, then there is no acknowledgment sufficient to satisfy the statute. 

No doubt a promise in writing by a debtor to pay whatever sum is found due on taking an account is a good acknowledgment today just as it was before the Act, provided always that the amount is a mere matter of calculation from vouchers, or can be ascertained by extrinsic evidence, and is not dependent on the further agreement of the debtor.’

(b)  In Dungate v Dungate [1965] 1 WLR 1477 at 1487, Diplock LJ stated the principle thus:

‘There is clear authority that an acknowledgment under this Act need not identify the amount of the debt and may acknowledge a general indebtedness, provided that the amount of the debt can be ascertained by extraneous evidence.’

(c)  Jones v Bellgrove Properties Ltd [1949] 2 KB 700, provides a good illustration.  In that case, the document held to constitute an acknowledgment was a company’s balance sheet signed by the company’s accountants and by two directors and communicated at a meeting attended by the plaintiff.  The balance sheet acknowledged debts to “sundry creditors” amounting to £7,638 6s 10d without either identifying the plaintiff as one of the creditors or stating the amount of his debt.  However, he was able to call the accountants to testify that a debt of £1,807 0s 0d was owed to him and was included in the sum stated in the balance sheet.

93.  Finally, even if the document relied on acknowledges a debt, it is not a sufficient acknowledgment for the purposes of the section if it is accompanied by words which nullify or materially qualify that acknowledgment, for instance by confessing and avoiding the debt or asserting a set-off or cross-claim which renders the document in effect a denial of liability: see, eg, Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 565 at 575.”

I will need to return to some aspects of the requirements for a valid acknowledgment after I have discussed the relevant evidence.

The Principles on Striking Out

13.There is no disagreement between counsel as to what the law is on when an action can be struck out.  Unsurprisingly, they have each emphasised certain aspects of these principles which they perceive as being to their advantage.

14.I propose to recite the principles briefly.  Striking out is only for plain and obvious cases.  It follows that it is a very strong thing indeed to drive a Plaintiff from the judgment seat unless it can be shown that the Plaintiff has no prospect of success.  Put into the language of the Note to O.18 r.19/4, Hong Kong Civil Procedure 2009, the claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out.  See Francesca Ha v Tsai Kut Kan (No. 1) [1982] 1 HKC 382 CA.  It follows from this therefore that Mr Coleman bears a very considerable burden.  This having been said the question of whether the Plaintiff is able to claim the benefit of an extension of the limitation period under section 23(3) is one that readily lends itself to an examination under this jurisdiction.  I need to decide whether the claim here is one that qualifies for extension as being for “a debt or other liquidated pecuniary claim” which should admit of a single answer one way or the other and secondly, answer the question of whether the two Confirmations are an acknowledgment of the debt which, for these purposes, is also readily discernible although, in this regard, it seems to me that all that Mr Ng needs to do under this limb is to show that there is a reasonably arguable basis for saying that these Confirmations are acknowledgments, in which circumstances he would pass muster and Mr Coleman will have failed.

Analysis

15.I take the question of the nature of the claim first in order to decide whether it constitutes a liquidated pecuniary claim.

16.In its original form, the writ claimed the sum of $38,542,492 but has since been amended and reduced to $11,880,735.94 in order to avoid the effect of the expiry of the limitation period in respect of this larger amount and to take advantage of the acknowledgment which is in this lesser amount which the Plaintiff relies on as appears in Confirmation 06 [2/121].

17.Mr Ng submits that this sub-contract between the parties was a unit price contract referable to the rates schedule and its revised version for calculating the amount of payment for the works done by the Plaintiff.  The rates schedule and its revised version allocates a specific price for each element of the work to be done and the materials used in that work.  In such circumstances, the total amount payable by the Defendant to the Plaintiff is ascertainable by reference to the quantity of the work done at the unit price plus 3.6% and then discounting 29% from the total amount (later agreed to be reduced to 25%) for the Defendant’s management fee and expenses.

18.This being the exercise that is required, Mr Ng submits that the final amount is, at worst, to borrow from the Note to O.6 r.2 supra, “…… capable of being ascertained as a matter of mere arithmetic”.  In fact, he is submitting that the amount has already been ascertained.  It was calculated in its original form as $54,434,951.69 being the Plaintiff’s contractual entitlement for unpaid work done already accrued prior to the Plaintiff’s acceptance of the Defendant’s repudiation of the sub-contract on 4 January 2002.  This was then reduced to $38,542,492 which originally appeared in the writ before it was further reduced to the $11,880,735.94 appearing in Confirmation 06.  It should be noted that in the first writ against Chinney, based on the identical works done, the amount claimed was over $62,000,000.

19.Be that as it may, what Mr Ng is submitting is that when the contract work had already been partly carried out and the employer repudiated the contract before it had been completed, the contractor was entitled to be paid the value of the work done at the contract price and in addition, to claim damages being the loss of profit on the unfinished balance [Keating on Construction Contracts, 8E edition page 291, para. 8-046].  If the repudiation is accepted by the contractor (the Plaintiff) and instalments are due under the contract they remain payable and in addition the contractor is entitled to be paid at contractual rates for all works done.

20.In respect of what has happened in this case, Mr Ng submits that the Plaintiff has chosen to waive its claim for loss of profit on the work that it would have earned had the contract been allowed to continue and not been wrongfully repudiated by the Defendant, and it has gone further by restricting itself to claiming the value of all works done at the contract rate that had accrued prior to the Plaintiff accepting the Defendant’s repudiation.  This has all been calculated at the unit price referable to the rates schedule (as revised) for calculating the amounts due to the Plaintiff.  In such circumstances, says that Mr Ng, this must be a liquidated pecuniary amount which must therefore qualify for extension under section 23(3).

21.Mr Coleman submits that in reality this is a claim for damages.  It is in the nature of a claim for an account of what is due.  The claim is unliquidated albeit dressed-up to give the appearance of a liquidated sum. 

22.As I follow Mr Coleman’s submission, he says that one needs to see how the action was contested before Deputy High Court Judge Muttrie to see that this was not a claim for a liquidated amount.  Both party’s called experts to give their view as to how much was outstanding.  There were fundamental disputes as to what works were done and what value should be attributed to the work that was done.  This is not a clean issue concerning a sum certain or one capable of certain ascertainment by an arithmetical exercise. 

23.In my judgment, one needs to be careful not to confuse the nature of a claim, liquidated or unliquidated, with the means by which the claim will need to be proved at the trial.  Even with a liquidated claim the Plaintiff may, depending on the type of case that it is, have to call evidence in support of how the claim is computed.  Unquestionably, this will be the case if this action is permitted to proceed to trial.  As at the trial before Deputy Judge Muttrie, when the parties called expert evidence on the quantum of the claim, the same course will need to be taken in this case.  In order to determine whether a claim is liquidated or not one needs to look at the basis of the claim.  In many cases, where for instance, the amount sued for is based on a clearly quantified debt there will be no difficulty.  Where the matter is not so clear cut, in the sense that the arithmetic needs to be done, the nature or character of the claim will still remain that of a liquidated claim.

24.The basis of this claim is readily calculable by doing the necessary sums.  The Plaintiff says, “I did so much work chargeable at this unit price.  To arrive at the amount owing you will need to add up the total of the work done and multiply that by the unit price”.  The fact that a Defendant may defend on the basis that less work was done than has been claimed for or that the work was done defectively as a whole or in part will not convert a liquidated claim into an unliquidated one.  It seems to me that this claim is liquidated and that Mr Ng’s analysis is the correct one.  This being so the Plaintiff has survived the first examination.

25.It must now show that the claim has been acknowledged.  In this regard, the analysis of Ribeiro PJ supra provides the approach which needs to be taken in deciding whether these two documents are valid acknowledgments.

26.Mr Ng puts the matter very simply.  Here are two documents of the Defendant prepared by its auditor in two successive years which suggest that this is the amount found to be owing to the Plaintiff by the Defendant.  The matter could not be clearer and at worst, it cannot be said on a strike out application that the matter is unarguable or bound to fail.

27.Mr Coleman makes a number of submissions in reply.  Firstly, he says that in terms of chronology, these two documents were sent out to the Plaintiff at a time when it was busily asserting from the Court of First Instance through to the Final Court of Appeal that Chinney and not the Defendant was the party with whom it had contracted and who therefore owed it money.  This, notwithstanding that as long ago as 2002 the Defendant had written to the Plaintiff telling it that it was the party with whom it had contracted.  Related to this point is that at no time had the Plaintiff acknowledged the correctness or otherwise of the amounts referred to as owing to it.  Had it done so, I have no doubt that it would have disagreed with the amounts at a time when it was suing for a far larger sum.

28.The next submission and, in my judgment, more fundamental one is that the acknowledgments are quite wrong.  Whoever filled the form out has placed the amounts in the wrong box — these amounts were amounts which were owed to the Plaintiff by the Defendant and not the other way round.  They are not acknowledgments, they are forms which sought to establish whether the Plaintiff agreed that it owed the defendant these sums.

29.That this is an error which the Plaintiff should not, by a piece of opportunism, be allowed to take advantage of can be demonstrated from the accounting documents that are exhibited to Mr Au’s affirmation.  Whilst the amounts are not quite identical, they are very close indeed.  But, more fundamentally, they undoubtedly establish that it is the Plaintiff who owes the Defendant money.  As Ribeiro PJ has said at paragraph 92, the court is entitled to “resort to extrinsic evidence, to decide whether the document relied on is an acknowledgment of a debt”.

30.In my judgment when looked at fairly, it would not be right to hold the Defendant to an incorrectly prepared document — in this case unfortunately prepared incorrectly on two consecutive years.

31.Mr Ng says that this must all go to trial.  At best the evidence is in the air and without seeing and hearing the relevant witnesses, it is not possible to conclude to the required degree of conviction that these two documents are not acknowledgments for the purposes of the sub-section and certainly not on a strike out application which, if successful, would deprive the Plaintiff of a trial.

32.I entirely agree with those sentiments and therefore I must now proceed to examine the matter in that way.

33.In addressing the quality of the evidence, Mr Ng says that it is surprising that the primary witnesses who prepared the confirmation documents have not provided affirmations to explain how it is that they have made these mistakes.  Whilst that is a fair point, I also need to look at the raw material, as it were, that is to say the original accounting documents which unquestionably on their face show that it is the Plaintiff which was indebted to the Defendant.  I do no consider that Mr Ng is able to avoid such a conclusion.  I simply cannot look at the confirmation documents by themselves when Mr Coleman also invites my attention to the underlying documents which undoubtedly demonstrate that the confirmations have been erroneously prepared.  When one considers all of the documentation, as I have, it cannot fairly be said that these two documents, 05 and 06 can properly be described as acknowledgments in the sense understood and required by the sub-section and by section 24.

34.And so one is left with two forms that have been prepared incorrectly, and plainly so on the basis of the underlying accounting documents, sent at a time when the Plaintiff was having no truck with the suggestion that it was the Defendant that owed it anything (its contract was with Chinney so far as it was concerned) and it did not even bother to reply by filling in the form and returning it to the Defendant when, if it had done so, it would have denied the factual basis of the purported debt as appearing on the form both as to whether it was a contracting party and on the quantum of the debt.  It should not now by a fortuitous side-wind be seen to rely on these forms for these purposes.

35.In such circumstances, where I have concluded that the Defendant is not to be taken as having acknowledged the debt which the Plaintiff is suing for, the primary limitation under section 4 of the Ordinance remains in place.  The Plaintiff is not entitled to an extension under section 23(3) for this reason notwithstanding, that on my finding it is claiming for a liquidated amount.  It needs to have succeeded on both issues which it has not.  Having failed to do so, I am satisfied that the action remains unarguably statue-barred and that it must therefore be struck out under O.18 r.19 and insofar as this may be necessary under the court’s inherent jurisdiction.  In the circumstances, the Defendant must therefore also have its costs of the summons and of the action to be taxed if not agreed.  This order for costs will, in the usual way, be an order nisi.

Alan Ng and Yvonne Fong, instructed by Messrs Rowdget W Yong & Co., for the Plaintiff

Russell Coleman SC and Liza Jane Cruden, instructed by Messrs Wong & Fok, for the Defendant