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Joint And Several Provisional Liquidators Of Hsin Chong Construction Co Ltd (Provisional Liquidators Appointed) v The Chinese University Of Hong Kong And Others

Judgment Cited authorities 10 Cited in Precedent Map Related
Vincent
Judgment Date25 October 2021
Neutral Citation[2021] HKCA 1581
Citation[2021] 5 HKLRD 212
Judgement NumberCACV474/2021
Subject MatterCivil Appeal
CourtCourt of Appeal (Hong Kong)
CAMP206/2020 JOINT AND SEVERAL PROVISIONAL LIQUIDATORS OF HSIN CHONG CONSTRUCTION CO LTD (PROVISIONAL LIQUIDATORS APPOINTED) v. THE CHINESE UNIVERSITY OF HONG KONG AND OTHERS

CAMP 206/2020

[2021] HKCA 1581

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 206 OF 2020

(ON AN INTENDED APPEAL FROM HCCW NO. 239 OF 2018)

________________________

IN THE MATTER of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Chapter 32 of the Laws of Hong Kong
AND
IN THE MATTER of HSIN CHONG CONSTRUCTION COMPANY LIMITED

________________________

BETWEEN
JOINT AND SEVERAL PROVISIONAL LIQUIDATORS
OF HSIN CHONG CONSTRUCTION COMPANY LIMITED
(PROVISIONAL LIQUIDATORS APPOINTED)		 Applicants
and
THE CHINESE UNIVERSITY OF HONG KONG 1st Respondent
WESTWOOD LIMITED 2nd Respondent
RAFT (E&M) ENGINEERING LIMITED 3rd Respondent
HUNS ENGINEERING COMPANY LIMITED 4th Respondent
PYROFOE ENGINEERS LIMITED 5th Respondent
SKYFORCE ENGINEERING LIMITED 6th Respondent
KONE ELEVATOR (HK) LIMITED 7th Respondent

________________________

CACV 474/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 474 OF 2021

(ON APPEAL FROM HCCW NO. 239 OF 2018)

________________________

IN THE MATTER of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Chapter 32 of the Laws of Hong Kong
AND
IN THE MATTER of HSIN CHONG CONSTRUCTION COMPANY LIMITED

________________________

BETWEEN
JOINT AND SEVERAL PROVISIONAL LIQUIDATORS
OF HSIN CHONG CONSTRUCTION COMPANY LIMITED
(PROVISIONAL LIQUIDATORS APPOINTED)		 Applicants
and
THE CHINESE UNIVERSITY OF HONG KONG 1st Respondent
WESTWOOD LIMITED 2nd Respondent
RAFT (E&M) ENGINEERING LIMITED 3rd Respondent
HUNS ENGINEERING COMPANY LIMITED 4th Respondent
PYROFOE ENGINEERS LIMITED 5th Respondent
SKYFORCE ENGINEERING LIMITED 6th Respondent
KONE ELEVATOR (HK) LIMITED 7th Respondent

________________________

Before : Hon Cheung and Chu JJA in Court

Date of Hearing : 12 October 2021

Date of Judgment : 25 October 2021

________________________

J U D G M E N T

________________________

Hon Cheung JA (giving the Judgment of the Court) :

I. Background

1. The applicant in this proceedings is the Provisional Liquidators of Hsin Chong Construction Company Limited (‘the Company’). The Company has been in liquidation since 27 August 2018.

2. Before the Company went into liquidation, the Chinese University of Hong Kong (‘CUHK’) appointed the Company as the main contractor to undertake construction of student hostels at two sites for CUHK. CUHK as the employer and the Company as the main contractor entered into the Main Contract. In turn, the Company entered into various Sub‑Contracts with the Nominated Sub‑Contractors (‘NSCs’) who are the 2nd to 7th respondents in this proceedings.

3. As found by the Judge, the works under the Main Contract were substantially completed by December 2012, and all defects rectifications were completed by September 2018 in that :

1) For Site A, on 21 October 2011, the Architect (appointed by CUHK) certified that the works were ‘practically completed’ on 17 October 2011 and the defects liability would expire on 17 October 2012. Further, on 27 November 2018, the Architect certified that the Company had completed all items of works and satisfactorily rectified all defects on 21 September 2018.

2) For Site B, on 16 January 2013, the Architect certified that the works were ‘substantially completed’ on 19 December 2012 and the defects liability period would expire on 19 December 2013. Further, on 27 November 2018, the Architect certified that the Company had completed all items of works and satisfactorily rectified all defects on 21 August 2018.

4. Thereafter, the Architect issued two final certificates to the Company dated 20 January 2020 (in respect of Site B) and 20 February 2020 (in respect of Site A) (together ‘Final Certificates’), stating that HK$5,025,227.26 and HK$3,073,210.06 were due from CUHK (‘Final Sum’). Attached to the Final Certificates were breakdown on how the Final Sum was arrived at, including the amounts attributable to the NSCs, which were HK$72,214,301.42 (in respect of Site A) and HK$49,054,625.13 (in respect of Site B). The Final Certificates are, by virtue of clause 33.9 of the Sub‑Contract, ‘conclusive evidence’ as between the Company and the sub‑contractor in any proceedings arising out of the Sub‑Contract in the absence of fraud, dishonesty or fraudulent concealment.

5. It was stated in the Final Certificates that the Final Sum consisted of four parts :

1) Retention monies payable to the Company: HK$1,245,000 for Site A and HK$3,639,102.13 for Site B;

2) Non-Retention monies payable to the Company: HK$1,248,900.53 for Site A;

3) Retention monies payable to NSCs: HK$261.26 for Site A and HK$1,121,000 for Site B (together ‘Retention monies’); and

4) Non-Retention monies payable to NSCs: HK$579,048.27 for Site A and HK$265,125.13 for Site B (together ‘Non-Retention monies’).

6. After the building works had been completed, in March 2019, CUHK proposed to the Provisional Liquidators that it intended to enter into supplementary agreements with the Company so that CUHK could make direct payments to the NSCs of the sums payable to the NSCs. The Provisional Liquidators rejected this proposal on 11 November 2019. Solicitors for the Provisional Liquidators, Messrs. Wilkinson & Grist (‘W&G’) issued a letter to CUHK demanded CUHK to settle all the payments due to the Company under the Main Contract (including all those sums payable by the Company to the NSCs). W&G, however, stated that the Provisional Liquidators were prepared to set aside and earmark the funds and make an application to the Court for directions as to whether any part of the same should be paid to the NSCs, or should form part of the Company’s estates.

7. CUHK then issued a cheque in the sum of HK$8,098,437.32 to the Provisional Liquidators which covered, inter alia, CUHK’s payments of the money payable to the NSCs in the amount of $1,965,434.66 (the ‘Fund’, see [10] below).

8. The Provisional Liquidators then issued a Directions Summons pursuant to section 200(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (‘C(WUMP)O’), Cap. 32 and inherent jurisdiction to seek the Court’s directions on how to distribute the funds. Linda Chan J dismissed the Directions Summons and ordered the Provisional Liquidators to personally bear the costs of the application. Leave to appeal was refused by the Judge. The Provisional Liquidators now renews the application before this Court. This Court directed a rolled up hearing to be held so that if the application for leave to appeal is granted, the Court will proceed to deal with the substantive appeal. At the hearing, we granted leave to appeal. The Provisional Liquidators have since filed and served the amended notice of appeal on the parties in compliance with the condition imposed by us for hearing the appeal.

9. The directions that the Provisional Liquidators sought in the Direction Summons are :

‘ Directions as to whether the Provisional Liquidators should make any distributions to the 2nd to 7th Respondents (being the Nominated Sub‑Contractors (the “NSCs”)) (if so, to whom and the amount of each payment) out of the funds received from the 1st Respondent, The Chinese University of Hong Kong, on 24 February 2020 in the total sum of HK$1,965,434.66 (the particulars of which have been stated in the Schedule hereto).’

10. The Schedule annexed to the Direction Summons is as follows :

11. The reason why the Provisional Liquidators said the directions are needed is because of the existence of three legal questions in respect of The Fund :

1) Whether a set‑off mechanism negates a trust in respect of the Retention monies (the ‘Set‑Off Question’);

2) Whether the Retention monies have been sufficiently segregated such that a trust has been created (the ‘Segregation Question’); and

3) Whether the Non‑Retention monies form part of the estate of the Company or can be distributed to the NSCs pursuant to the provisions on direct payment (the ‘Direct Payment Question’).

II. The Judge’s decision

12. The Judge rejected the application on the following grounds :

1) The Provisional Liquidators cannot ask the Court to make a commercial decision for them or to seek directions on matters which fall within their discretion where the intention is to enable the liquidators to be absolved of responsibility for making a difficult commercial decision. W&G’s letter did not indicate any difficulty faced by the Provisional Liquidators. On the contrary, they already had a firm view (subject to [12.4)] below) that the Fund should be paid to the Company.

2) Application under section 200(3) should not be lightly made.

3) The application should not be made without prior sanction of the Court. The Court had not given any prior sanction in this case.

4) An application under section 200(3) is reserved to cases where a genuinedifficulty arises in the course of the liquidation. The Judge held :

‘ 22. As is clear from the materials before the Court, prior to issuing the Summons, no one has criticised the PLs’ decision nor intimated that it will take step to challenge their decision over the payment of the Total Sum. This is particularly so after the PLs have changed their stance and no longer maintain that the Retention Monies are or should be regarded as the Company’s assets. As for the Non-Retention Monies, the PLs put forward...

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