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Milestone Builder Engineering Ltd v Yau Kwong Contracting Ltd

Judgment Cited authorities 5 Cited in Precedent Map Related
Vincent
Judgment Date23 October 2020
Neutral Citation[2020] HKCFI 2669
Year2020
Judgement NumberHCMP143/2020
Subject MatterMiscellaneous Proceedings
CourtCourt of First Instance (Hong Kong)
HCMP143/2020 MILESTONE BUILDER ENGINEERING LTD v. YAU KWONG CONTRACTING LTD

HCMP 143/2020

[2020] HKCFI 2669

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 143 OF 2020

____________

IN THE MATTER of Milestone Builder Engineering Limited, a company incorporated in Hong Kong with limited liability (company no 775134)

and

IN THE MATTER of Section 21L of the High Court Ordinance, Cap 4 and Inherent Jurisdiction of High Court

____________

BETWEEN
MILESTONE BUILDER ENGINEERING LIMITED Plaintiff

and
YAU KWONG CONTRACTING LIMITED Defendant

____________

Before: Mr Recorder Pow, SC in Chambers

Date of Hearing: 8 October 2020

Date of Judgement: 23 October 2020

_______________________

J U D G M E N T

_______________________

1. This is the substantive hearing of the Originating Summons ("OS") dated 24 January 2020 concerning the application by the plaintiff (“Milestone”) for an injunction order restraining the defendant (“YK”), whether by itself, or its servants or agents or otherwise howsoever, from presenting any petition to this Honourable Court for the winding up of Milestone based on a statutory demand served upon Milestone on 14 January 2020 (the "SD") claiming the sum of HK$4,987,048.68 plus further interest.

2. By a contract entered into between Spring Moon Investments Ltd (the “Employer”) and Milestone dated 4 August 2017 (the “Main Contract”), Milestone undertook to be the main contractor for alteration and addition works at 22 Wang Yip Street, Yuen Long, Y.L.T.L. No 374 (the “Site”).

3. Pursuant to the “MVAC and Electrical Installation Nominated Sub-Contract” entered into between Milestone and YK on 23 June 2017 (the “NSC”), YK became a nominated sub-contractor in respect of MVAC (mechanical ventilation & air conditioning) and electrical installation works at the Site (the “Project”). There were 3 other nominated sub-contractors in the Project responsible for different types of construction works.

4. The relevant debts stated in the SD (“Alleged Debts”) concern four interim payments (“NSC IP-18, IP-19, IP-20 and IP-21”) plus interests owed by Milestone to YK pursuant to the NSC. There is no dispute that Milestone has not made all or any part of these payments. Particulars of NSC IP-18 to 21 are as follows:-

Description
 Date of Invoice Invoice amount
(HK$)
NSC IP-18 18 December 2018 643,000
NSC IP-19 4 January 2019 992,000
NSC IP-20 23 January 2019 1,201,000
NSC IP-21 25 February 2019 1,853,000
Total: 4,689,000

5. Under the NSC Clause 33.1[1], payment for work done by YK is to be made in accordance with the following mechanism:-

(1) The Quantity Surveyor under the Main Contract ("QS") is to calculate the amount owing to each of the nominated sub-contractors in each Interim Certificate, which is to be issued to Milestone by the Architect under the Main Contract (“Architect”) [sub-clause (6)].

(2) Milestone is then required to pay to each of the nominated sub-contractors, including YK, the amount included in such Interim Certificates, less any amount properly deductible [sub-clause (7)].

(3) The payment is required to be made to each of the nominated sub-contractors within 14 days of Milestone receiving payment from the Employer [sub-clause (7)].

(4) If Milestone withholds an amount due to YK and fails to satisfy the Architect that he has good cause for so doing, the Architect is required under clause 29.8 of the Main Contract to issue a certificate to that effect and the Employer will be entitled, but not obliged, to pay that amount to YK direct [sub-clause (8)].

6. On 5 March 2019, the Architect issued a notice of default to Milestone pursuant to the Main Contract (the “Notice of Default”)[2], stating that it had committed the following defaults (collectively, “Milestone’s Defaults”):

(1) Not proceeding regularly and diligently with works under the Main Contract despite the Architect’s warning letters;

(2) Persistent failure to complete the external façade lighting control and programming to specification requirements, causing material detriment to the Employer; and

(3) Refusal or persistent failure to comply with the Architect’s written notices requiring procurement of specified materials and proprietary products for timely completion of the Main Contract works.

7. Upon certification from the Architect, on 23 March 2019, the Employer served on Milestone a written notice to determine its employment under the Main Contract (the “Notice of Determination”)[3]. By the operation of NSC Clause 38.1, upon the determination of the Main Contract, the NSC was also terminated at the same time.

8. YK has repeatedly demanded Milestone to make payments[4]. However, almost 5 months after the Notice of Determination was served, Milestone alleged that no outstanding payment was due to YK. Instead, it alleged that because YK had caused delay and was in default, a balance of HK$11,121,000 was owed from YK. In particular, it was alleged that YK was “provisional liable” for 224 days of delay (between 11 August 2018 – 23 March 2019) and hence liquidated damages in the sum of HK$15,680,000 (the “Alleged YK LD”)[5]. This was the first time since the Notice of Determination some 5 months earlier, that Milestone claimed that YK had caused delay and was in default. It is relevant to note Clauses 24.3 and 28.5(1) of the NSC:-

“24.3 The Contractor shall at the earliest opportunity give reasonable notice to the Sub-Contractor that loss and/or expense and/or liquidated damages are being or will be incurred clue to failure of the Sub-Contractor to complete on time.

28.5 If in the Contractor's opinion he has incurred or is likely to incur direct loss and/or expense and/or damages because the progress of the Works has been delayed or disrupted by a breach of contract or other default by the Sub-Contractor or any person for whom the Sub-Contractor is responsible the Contractor shall give notice of this to the Sub-Contractor within a reasonable time after the delay or disruption becomes apparent.”

9. Between 10 September 2019 and 9 October 2019, YK repeatedly denied that it had caused or contributed to Milestone’s Defaults, and stressed that Milestone had not given any notice of default to YK pursuant to NSC Clause 36[6].

10. Milestone’s next responses on 30 September 2019[7] were that:

(1) the Employer had set-off HK$12,110,000 as liquidated damages, so it did not receive full payment for NSC IP 18 – 21; and

(2) Milestone had submitted a claim for extension of time (“EOT”) and requested the Architect to identify the cause of delay. It would thus pay YK only if:

(a) Milestone had received payment from the Employer, or

(b) delay is proven not to be the responsibility of YK.

11. On the issue of whether the Employer had paid Milestone for NSC IP 18-21, YK relies on an email from the Employer dated 9 October 2019 to YK (“Employer’s Email”)[8] stating they had paid the following amounts to Milestone under the Main Contract:-

Main Contract IP nos. Amount paid by Employer to Milestone
 NSC IP nos. included thereunder Remarks
MC IP-20
 HK$2,302,000 NSC IP-18 of HK$643,000
MC IP-21 HK$1,083,000 NSC IP-19 of HK$992,000 Deduct LD HK$9,730,000
MC IP-22 Nil NSC IP-20 of HK$1,201,000 Milestone had not yet submitted invoice. HK$11,200,000 had been cumulatively deducted as LD
MC IP-23 HK$5,304,000 NSC IP-21 of HK$1,853,000 HK$12,110,000 had been cumulatively deducted as LD. Further, HK$1,665,000 had been made as advance payment

12. Upon YK’s inquiry and YK’s request for direct payment by the Employer, the Architect wrote to Milestone[9] stating that:-

(1) YK’s request for payment was under NSC IP 18-21 which were under MC IP 20-23. The Architect had issued certificates of payment for MC IP 20 – 23, which had been paid by the Employer to Milestone;

(2) the Main Contract was determined due to Milestone’s Defaults; and

(3) Milestone was obliged to pay YK under the NSC.

13. In a letter dated 9 October 2019 from YK to Milestone, YK stated that they were not responsible for the LD deducted by the Employer against Milestones and that the Employer had already paid for MC IP-20 to MC IP-23. YK also pointed out that Milestone’s application for EOT was irrelevant to Milestone’s payment obligation under the NSC.

Plaintiff’s case

14. Milestone argues that there are bona fide disputes between them and YK for the following reasons:-

(1) Firstly, the LD deducted by the Employer under MC IP-21 in the sum of HK$9,730,000 far exceeded the total amount of “work done by all nominated sub-contractors” which was assessed by the QS as HK$1,410,000[10]. Therefore, Milestone did not in fact receive any payment from the Employer in relation to YK’s work. The Employer progressively increased the LD up to HK$12,110,000 in MC IP-23 which covered all works done by YK under NSC IP-18 to 21. As such, pursuant to Clause 33.1(7) of the NSC, starting from payment certificate no. MC IP-21, Milestone was not obliged to make any payment to YK because no corresponding payments were received from the Employer.

(2) Secondly, Milestone made application for EOT[11] and there were disputes with the Employer on the culpability of the alleged delays in the works which, if ultimately found to be valid by the Architect and Employer or by an arbitrator appointed to deal with the disputes, entitled Milestone to extension of time beyond the date of termination of 23 March 2019, and hence no liquidated damages should be deductible against it.

(3) Thirdly, the events leading to the delays involved works of YK as well. There...

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