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West Kowloon Cultural District Authority v Aig Insurance Hong Kong Ltd

Judgment Cited authorities 15 Cited in Precedent Map Related
Vincent
Judgment Date02 April 2020
Neutral Citation[2020] HKCFI 569
Judgement NumberHCA2039/2018
Subject MatterCivil Action
CourtCourt of First Instance (Hong Kong)
HCA2039/2018 WEST KOWLOON CULTURAL DISTRICT AUTHORITY v. AIG INSURANCE HONG KONG LTD

HCA 2039/2018

[2020] HKCFI 569

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2039 OF 2018

_________________

BETWEEN
WEST KOWLOON CULTURAL DISTRICT AUTHORITY Plaintiff

and
AIG INSURANCE HONG KONG LIMITED Defendant

_________________

Before: Hon Ng J in Chambers

Date of Hearing: 10 April 2019

Date of Judgment: 2 April 2020

________________

J U D G M E N T

________________

Introduction

1. There are 2 summonses before this court.

2. First, the Defendant’s application by summons dated 11 September 2018 for the Writ and Statement of Claim herein to be struck out and the Action to be dismissed on the grounds that none of the 3 demand letters relied upon by the Plaintiff constitute valid demands upon the Bond No H.7478 (“Bond”) issued by the Defendant since

(1) none of the said demands identify the amount of damages, losses, charges, costs or expenses sustained by the Plaintiff by reason of the Contractor’s alleged default; and

(2) the said demands purport to demand payment of the full Bond sum in respect of an unidentified amount of future or prospective damages etc, which are not within the terms of the Bond.

3. At paragraph 2 of the Defendant’s summons, it seeks in the alternative that this Court determines as a preliminary matter the following questions of law and/or construction of the following documents –

(1) Whether the aforesaid demands constitute a valid demand on the Bond when:

(a) the demands do not identify any amount of damages etc sustained by the Plaintiff by reason of the Contractor’s default;

(b) the demands claim for future or prospective losses which are not covered by the terms of the Bond.

(2) The said demands were made fraudulently, in that the Plaintiff could have formed no bona fide opinion that the Contractor was in default of its obligations under the Contract between the two, nor that by reason of such alleged default the Plaintiff had sustained damages etc of or exceeding the Bond sum of $297,198,000.

4. Second, the Plaintiff’s application by summons dated 14 September 2018 for summary judgment against the Defendant on the basis that it had made a valid demand on the Bond. In the prayer of the Statement of Claim, the Plaintiff’s claim is for the sum of HK$297,198,000 together with interest.

5. By a consent order of Master Ho dated 14 September 2018, and for reasons unknown to this court, the Plaintiff’s application for summary judgment and the Defendant’s application to strike out the Writ and Statement of Claim only were ordered to be heard together. This is meant to be the hearing of the said 2 applications. However, since the issues raised by the Defendant in resisting summary judgment are the same as the basis for the striking out application as well as the preliminary issues raised in the Defendant’s summons, it is inevitable that this court’s decision on the said 2 applications will also effectively determine the preliminary issues one way or another.

Material Facts

6. The basic material facts are uncontroversial and can be briefly summarized as follows.

7. The Plaintiff is the body corporate established under the West Kowloon Cultural District Authority Ordinance, Cap 601, engaging in the development of the West Kowloon Cultural District.

8. By General Conditions of Contract for Building and Civil Engineering Works dated 26 September 2015 (“Contract”), the Plaintiff engaged Hsin Chong Construction Company Limited (“Hsin Chong” or “Contractor”) as contractor for the construction of a project known as “M+” project.

9. By Clause 14(1) of the Contract, Hsin Chong was obliged to obtain and provide to the Plaintiff a bond in its favour from a bank or other financial institution, valid until completion of the works. Pursuant to the clause, Hsin Chong procured the Defendant to issue to the Plaintiff a Form of Contractor’s Bond No H.7478 and dated 8 October 2015 ie the Bond in the sum of HK$297,198,000 (“Bonded Sum”).

10. The Bond expressly provided that the Defendant is irrevocably and unconditionally bound to the Plaintiff in the sum of HK$297,198,000 for payment of which sum the Defendant binds itself in accordance with the provisions of the Bond.

11. The clause of the Bond which is of special relevance to the present case is Clause 2:

“If, in the [Plaintiff’s] opinion, the Contractor is or has been in default in respect of any if its obligations under the Contact, the [Defendant] shall upon demand made by the [Plaintiff] in writing and without conditions or proof of the said default or amount demanded, pay the amount identified in the demand in respect of the damages, losses, charges, costs or expenses sustained by the [Plaintiff] by reason of the default, up to the amount of the Bonded Sum.” (emphasis added)

12. Further, Clause 3(b) of the Bond expressly provides that the liability of the Defendant under the Bond shall remain in full force and effect and shall not be affected or discharged in any way by, and the Defendant hereby waives notice of inter alia the termination of the Contract or the employment of the Contractor under the Contract.

13. On 17 August 2018, the Plaintiff issued a formal notice to Hsin Chong under Clause 74.1 of the Contract advising that the Plaintiff was terminating Hsin Chong’s employment under the Contract on the basis that a default had occurred under Clause 73.1(a) viz “You have become insolvent.” (“Termination Letter”). The Plaintiff also required Hsin Chong to leave “the Site and the Project Site forthwith”. In the same notice, the Plaintiff announced its intention to employ others to execute the remaining works.

14. The relevant parts of Clauses 73.1(a) and 74.1 of the Contract provided:

“73.1 If the Contractor (which, without prejudice to Clause 1.2.3, means for the purposes of this Clause 73.1, any of the entities comprising the Contractor) shall be in default in that the Contractor:

(a) becomes insolvent …

then the Authority may give notice to the Contractor pursuant to Clause 74.1.

74.1 If the circumstances of default referred to in Clause 73 occur …

then the Authority may:

(g) in the circumstance of default referred to in Clause 73, forthwith by the service of a notice to the Contractor; or

…

terminate the Contractor’s employment under the Contract and, if the Contractor is on the Site, enter upon the Site and expel the Contractor from the Project Site and the Site …”

15. Also on 17 August 2018, the Plaintiff delivered to the Defendant a letter demanding payment of the Bonded Sum (“1st Demand”).

16. The relevant parts of the 1st Demand stated that:

“ Form of Contractor’s Bond, Bond No. H.7478

We refer to the above bond issued by you in our favour, under which you are the Bondsman.

We hereby demand that you pay to us the full bonded sum of HK$297,198,000.

We are of the opinion that the Contractor is and has been in default in respect of various of its obligations under the Contract between the Contractor and us, and by reason of such defaults we have suffered and sustained and will continue to suffer and sustain damages, losses, charges, costs and expenses.” (emphasis added)

17. On 21 and 24 August 2018, the Plaintiff delivered to the Defendant 2 letters again demanding payment of the Bonded Sum (“2nd Demand” and “Final Demand” respectively). These 2 demands are effectively chasers and add little, if at all, to the 1st Demand.

18. The Defendant failed to comply with the Demands and on 29 August 2018, the Plaintiff commenced the present Action.

Deliberation

19. The legal principles in relation to applications for summary judgment and striking out are trite and no doubt familiar to experienced senior counsel on both sides. They will not be rehearsed here.

20. In Kono Insurance Ltd v Tins’ Industrial Co Ltd [1987] 3 HKC 71, Hunter JA stated that the first issue in a case of this kind is the true construction of the bond in question and his Lordship identified 2 different types of bonds ie a single or on demand bond and a double conditional bond. At 74E and 75B of the report, the learned Judge observed:

“The first issue here is the nature of this bond, and it is common ground between counsel that the outcome turns upon the true construction of the bond. Bonds are conveniently categorised in 12 Halsbury’s Laws of England (4th Ed) paras 1386 and 1387 into two different species. The first is what the editors call a single bond, and they go on to say that those ‘had become rare’. A single bond is a simple demand bond, which is payable on demand, or on production of whatever additional evidence the bond itself may specify…

…

The second type of bond is dealt with in para 1387 of Halsbury’s and is called a ‘double or conditional bond’:

‘This form of bond is called a double or conditional bond and consists of two parts: first, the obligation, and secondly, the condition. The condition ... specifies the real agreement between the parties.’” (emphasis added)

21. In Trafalgar House Construction (Regions) Ltd v General Surety & Guarantee Co Ltd [1995] 3 All ER 737 at 742j–743a, Lord Jauncey observed:

“In recent years there has come into existence a creature described as an ‘on demand bond’ in terms of which the creditor is entitled to be paid merely on making a demand for the amount of the bond. … All that was required to activate it was a demand by the creditor stated to be on the basis of the event specified in the bond.” (emphasis added)

22. In his skeleton submissions, Mr Westbrook SC correctly and very properly accepted that the wording of the Bond points to it being an on demand bond.

23. In relation to the nature of on demand bond, Deputy Judge Lok (as he then was) set out...

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