British Orient Ltd v. Kason Engineering and Construction Co Ltd

CACV000012/1968

IN THE SUPREME COURT OF HONG KONG

APPELLATE JURISDICTION

CIVIL APPEAL NO. 12 OF 1968

(On Appeal from O.J. Action No.1606 of 1967)

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Coram: Hogan, C.J., Scholes, J.

Date of Judgment: 24 May 1968

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JUDGMENT

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1. This is an appeal against the decision of a judge in chambers whereby he allowed the plaintiff's application for summary judgment and entered judgment accordingly. The Statement of Claim sought the recovery of $61,985.63 as "being the balance found to be due from the defendant to the plaintiff on accounts stated between them in a document signed by the defendant and dated the 19th September 1967"; alternatively, the plaintiff claimed against the defendant for "monies due and owing by the defendant to the plaintiff for goods sold and delivered by the plaintiff to the defendant, particulars whereof have been rendered to the defendant by the plaintiff.". In so framing the claim plaintiff's counsel followed the precedents recommended in Bullen & Leake's Precedents of Pleadings (11th Ed. pages 73 et seq.).

2. The judge in the court below having heard the parties, dealt with the matter very briefly. His decision reads:

The defendant when before the judge had sought to dispute the claim on the grounds that although the defendant admitted that, under two contracts made between it and the plaintiff, which had contracted under its earlier name of Sino-British Company Limited, the plaintiff had, as sub-contractor, done work for the defendant in respect of asphalting and tiling at the Kwun Tong Police Station and there was money due from the defendant to the plaintiff under that contract, the plaintiff had not fully carried out the contracts in accordance with their terms and the defendant was entitled, as a result, to set off certain sums because of defective work and delay in completion of the work. In an affirmation by Mr. Yeh Tso Lin on behalf of the defendant, he said:

3. The affidavit in support of the plaintiff's application for summary judgment contested the validity of these contentions mainly on the ground that the defendant had agreed the accounts proffered by the plaintiff, which showed a balance in favour of the plaintiff. Particular reliance was placed on a document showing a figure of $141,994.00 as being due to the plaintiff on the final invoice and a series of payments made by the defendant for the reduction of that amount, and ending with an item of $61,985.63, being the balance due to the plaintiff, which appears at the foot of the account together with a confirmation signed for the defendant and by the said Mr. Yeh Tso Lin. Furthermore the affidavit indicated that, for a considerable period prior to the filing of the claim, no mention whatever had been made by the defendant of anything in the nature of a set-off or counterclaim against this amount although, from certain letters put before the court below, it appeared that, as long ago as 1965, the defendant had raised queries as to delay by the sub-contractors in commencing work and as to the quality of the work done and had indicated that the defendant would hold the plaintiff responsible for any consequential damages which might accrue to the defendant in respect of these matters: a claim which had, at the time, been repudiated by the plaintiff.

4. From the documents before the court below it appeared that there was delay in the completion of the main contract between the defendant and the Government, which resulted in the defendant's having to pay to the Government a sum of approximately $14,000. It also appeared that the defendant paid approximately $5,600 to repair or do again certain work which had been done defectively.

5. When the judge said that the defendant only raised the matters mentioned by it solely for the purpose of delay, he presumably took the view that the defendant was not acting bona fide in raising these matters. It is not entirely clear from his judgment whether he intended to give judgment for the plaintiff on its primary claim based on an account stated or on the alternative basis of a claim for goods sold and delivered but presumably it was for the primary claim and we need not concern ourselves with the point that the plaintiff, in suing for goods sold and delivered, was apparently departing from the true basis of its contract which was primarily for work to be done.

6. In support of an argument that the plaintiff was entitled to judgment on the account stated, counsel for the plaintiff directed our attention to the case of Siqueira v. Noronha⁽¹⁾ which refers to the distinction between two kinds of account stated, one of which may be regarded as a mere acknowledgement of a debt not amounting to a promise - an acknowledgement from which the existence of a debt may be inferred although its existence may be rebutted by showing that no real debt exists, and another form of account stated where there is a binding promise which precludes any re-opening of the transactions in question. Some point might possibly have arisen as to whether the account stated, relied on in the present case, comes into the first or second category, but for the purposes of this decision it is not, I think, necessary to reach any concluded view on that point. Counsel for the plaintiff has indicated that in his view of the case, whilst judgment was properly entered for the plaintiff in the court below, this would not preclude the defendant from pursuing by way of counterclaim or in a separate action the matters which it sought to put before the judge in the court below, although he did contend and contended very vigorously, in a closely reasoned argument, that these claims could not be made the subject of a set-off in the present action.

7. The argument rested on a distinction between a set-off and a counterclaim which, although it may have less far reaching consequences nowadays, can still affect matters such as costs and might, in the present case, determine whether the defendant should be allowed to come in and defend the claim or judgment should be entered for the plaintiff with a stay of execution, as suggested in the Annual Practice (1967 edition, page 123), with liberty to the defendant to pursue its counterclaim or file a separate action. The relevant passages read as follows:

But over the page at page 124 the authors say, after mentioning a number of cases, that:

This statement should, moreover, be read in the light of the notes which appear earlier at the foot of page 123 where the Annual Practice says:

8. The cases brought to our attention by counsel indicate how, during the course of the years, the distinction between set-off and counterclaim has lost much of its importance. The Common Law attitude which, at an earlier period, did not allow a set-off, came gradually to be ameliorated, partly as a result of the enactment of the Statutes of Set-off beginning in the reign of George II which permitted set-off to be raised for liquidated amounts and partly by the development, traced by Parke B. in Mondel v. Steel⁽²⁾, of a doctrine of "reduced value" for goods sold or work done. But the opportunities for set-off were substantially expanded by the intervention of Courts of equity and the application of equitable principles, which, of course, became general throughout the courts as a result of the Judicature Acts, with the result that the position could be summed up as it was by Morris, L. J. in the case of Hanak v. Green⁽³⁾, where he said:

9. Counsel for the plaintiff in the present case says that, whatever may be the position in regard to the sum of money paid by the defendant to the Government and the $5,600.00 paid for reparation of work defectively done, there can be no question of setting off as against the plaintiff's claim the balance of the amount ascribed to delay in completion of the contract. He bases this contention primarily on two grounds. First, he said, there were two contracts, one for asphalting and the other for tiling, and the defendant having fully discharged its liabilities to the plaintiff under the asphalting contract, the suit now put before the court is in respect of the outstanding balance for the tiling contract. In such circumstances, counsel argued, the delay alleged in respect of the asphalt contract can have no bearing on the plaintiff's right to recover in respect of the tiling contract; the asphalt contract, he said, is finished and done with and there can be no question of setting off any counterclaim or claim of any kind made, in respect of that contract, by the defendant against the plaintiff.

10. The second ground is that this claim for unliquidated damages in respect of delay could only have been introduced as a set-off through the application of equitable principles and anybody seeking to rely on equitable principles must show that he fulfils the requirements normally imposed by equity. One of these, counsel said, is the absence of undue delay. In the present case, he said, whilst the defendant did, at one stage during the course of the contract, raise queries about delay and defective workmanship - queries which are common to performance of virtually any contract where contractors and sub-contractors are working together - then, apparently, abandoned and made no mention of these claims for a matter of 2?years and raised no query when agreeing with the plaintiff and with the plaintiff's solicitors that a balance was due to the plaintiff in respect of work completed under the contract. In such circumstances, counsel said, the defendant would not now be allowed by a Court of equity to introduce or to rely on these matters as affording a defence to the plaintiff's claim.

11. Whilst there might appear to be a measure of support for this approach in the pure logic of the maxim "delay defeats equities", if the other requirements for its application were present, counsel has not been able to refer to any case in which this principle has been applied so as to preclude a defendant from relying by way of set-off on a claim such as that advanced by the defendant in the present case. On the other hand the wide terms in which the right to set-off is stated both in the notes to the Annual Practice and in the cases which have been brought to our attention, such as Hale v. Victoria Plumbing Co. Ltd.⁽⁴⁾ may leave little room for applying this maxim unless waiver or some real disability arising from the delay can be established. Counsel has, however, directed our attention to the case of Chell Engineering Ltd. v. Unit Tool and Engineering Co., Ltd.⁽⁵⁾, where the court seems to have indicated that a claim of this kind should perhaps be kept within the limits of a counterclaim and not allowed to move over into the category of a set-off, although this particular point seems to have been dealt with rather cursorily and not to have attracted anything like the same detailed argument that came to be applied to it in the case of Hanak v. Green⁽³⁾, where the earlier case of Chell⁽⁵⁾ was mentioned in the argument and was referred to briefly, in the judgments, in a manner which seems to indicate that the Court of Appeal in the later case was inclined to regard it with some reservation primarily because cases which they thought bore closely on this particular issue had not been cited to the court in the earlier proceedings.

12. In this later case of Hanak v. Green⁽³⁾, where the history of set-off is traced in some particularity through quotations from earlier judgments, mention is made of two cases, Bankes v. Jarvis⁽⁶⁾ and Newfoundland Government v. Newfoundland Railway Co.⁽⁷⁾, where it appears that claims arising out of more than one transaction were allowed to be introduced by way of set-off. I do not think that it is necessary in this case to come to any final conclusion on this point. I would merely say that, in so far as counsel argues that the present claim set up by the defendant could not be set up by way of set-off and must be confined to a counterclaim because two separate transactions are involved, the argument does not appear to me to be made out with that clarity and finality which would put it into the category of non-arguable propositions of law that justifies a court entering judgment on an application for summary judgment. In the same way I do not think that counsel for the plaintiff has been successful in showing with adequate certainty that the delay in the present case must preclude the defendant from successfully pleading a set-off. These are matters which should be left to be determined at a hearing and not dealt with in their present state on a chamber application: they require a full hearing and are not suitable for disposal by summary proceedings.

13. As I understand it, the judge in the court below allowed the plaintiff's application because he viewed the defence which the defendant was seeking to put forward with grave suspicion. If I interpret his language correctly, he thought that, because the defence was put forward at such a late stage, it was not a bona fide defence and it may be that the plaintiff in this case which, apparently, had for some considerable time been pressing the defendant to pay money alleged to be due under the contract and had met with no dispute but only delay may be able to establish at the hearing an equity which would now preclude the defendant from establishing a set-off in respect of unliquidated damages. Nevertheless, on the averments as they now stand, I don't think the judge was justified in saying that the matter was raised at the last moment and only for the purpose of delay. Clearly the matter had been raised some 2?years before and although it had not been actively pursued in the interim that, it seems to me, would not, for the purpose of these summary proceedings, clearly preclude the defendant from pursuing this particular claim to the point of a hearing before the courts. There is no suggestion that there had been something in the nature of a compromise between the plaintiff and the defendant e.g. that in consideration of the plaintiff not suing the defendant for this money for a considerable period of time, the latter would abandon its claim to damages in respect of delay or defective workmanship. As matters now stand the defendant should not be precluded from putting its case before a court of trial. Whether it will succeed in establishing its case at the hearing is a different matter. I think leave to defend should have been given and I am not satisfied that that leave should be made conditional. Consequently, I would allow the appeal and grant unconditional leave.

SCHOLES, J.: I agree.

PRESIDENT : We will then allow this appeal and the decision of the court below is set aside.

Representation:

R. Wei (Wong and Co.) for Defendant.

(1) 1934 A.C. 337

(2) 8 M. & W. 858

(3) 1958 (2) Q.B. 9 at 23

(3) 1958 (2) Q.B. 9

(4) 1966 (2) A.E.R. 672

(5) 1950 (1) A.E.R. 378

(6) 1903 (1) K.B. 549

(7) 1888 (13) A.C. 199