A

HCMP 143/2020 A
[2020] HKCFI 2669
B B

C C

D D

E E

F F

G G

H H

I I

J J

K K

L L

M M

N N

O O

P P

Q Q

R R

S S

T T

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A A

IN THE HIGH COURT OF THE

B B
HONG KONG SPECIAL ADMINISTRATIVE REGION
C COURT OF FIRST INSTANCE C

MISCELLANEOUS PROCEEDINGS NO 143 OF 2020

D D
____________
E E
IN THE MATTER of Milestone
F Builder Engineering Limited, a F
company incorporated in Hong Kong
with limited liability (company
G G
no 775134)
H H
and

I IN THE MATTER of Section 21L of I

the High Court Ordinance, Cap 4 and
J Inherent Jurisdiction of High Court J
____________
K K

L
BETWEEN L

MILESTONE BUILDER ENGINEERING LIMITED Plaintiff

M M

and
N N

YAU KWONG CONTRACTING LIMITED Defendant

O O

P ________________ P

Q Before: Mr Recorder Pow, SC in Chambers Q

Date of Hearing: 8 October 2020

R R
Date of Judgement: 23 October 2020
S S

_______________________
T T

J U D G M E N T
U _______________________ U

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A A

B B
1. This is the substantive hearing of the Originating Summons
C C
("OS") dated 24 January 2020 concerning the application by the plaintiff
D (“Milestone”) for an injunction order restraining the defendant (“YK”), D

whether by itself, or its servants or agents or otherwise howsoever, from

E E
presenting any petition to this Honourable Court for the winding up of
F Milestone based on a statutory demand served upon Milestone on F

14 January 2020 (the "SD") claiming the sum of HK$4,987,048.68 plus

G G
further interest.
H H

2. By a contract entered into between Spring Moon

I I
Investments Ltd (the “Employer”) and Milestone dated 4 August 2017
J (the “Main Contract”), Milestone undertook to be the main contractor J

for alteration and addition works at 22 Wang Yip Street, Yuen Long,
K K
Y.L.T.L. No 374 (the “Site”).
L L

3. Pursuant to the “MVAC and Electrical Installation

M M
Nominated Sub-Contract” entered into between Milestone and YK on
N 23 June 2017 (the “NSC”), YK became a nominated sub-contractor in N

respect of MVAC (mechanical ventilation & air conditioning) and

O O
electrical installation works at the Site (the “Project”). There were
P 3 other nominated sub-contractors in the Project responsible for different P

types of construction works.

Q Q

R 4. The relevant debts stated in the SD (“Alleged Debts”) R

concern four interim payments (“NSC IP-18, IP-19, IP-20 and IP-21”)
S S
plus interests owed by Milestone to YK pursuant to the NSC. There is no
T dispute that Milestone has not made all or any part of these payments. T

Particulars of NSC IP-18 to 21 are as follows:-

U U

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A A

Description Date of Invoice Invoice amount

B B
(HK$)
NSC IP-18 18 December 2018 643,000
C NSC IP-19 4 January 2019 992,000 C
NSC IP-20 23 January 2019 1,201,000
D NSC IP-21 25 February 2019 1,853,000 D
Total: 4,689,000
E E

F 5. Under the NSC Clause 33.11, payment for work done by YK F

is to be made in accordance with the following mechanism:-

G G

(1) The Quantity Surveyor under the Main Contract ("QS") is to

H H
calculate the amount owing to each of the nominated sub-
I
contractors in each Interim Certificate, which is to be issued I
to Milestone by the Architect under the Main Contract
J (“Architect”) [sub-clause (6)]. J

K (2) Milestone is then required to pay to each of the nominated K

sub-contractors, including YK, the amount included in such
L Interim Certificates, less any amount properly deductible L

[sub-clause (7)].
M M
(3) The payment is required to be made to each of the
N N
nominated sub-contractors within 14 days of Milestone
receiving payment from the Employer [sub-clause (7)].
O O
(4) If Milestone withholds an amount due to YK and fails to
P P
satisfy the Architect that he has good cause for so doing, the
Architect is required under clause 29.8 of the Main Contract
Q Q
to issue a certificate to that effect and the Employer will be
R entitled, but not obliged, to pay that amount to YK direct R

[sub-clause (8)].
S S

T T

U 1
B2/219-220 U

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A A

6. On 5 March 2019, the Architect issued a notice of default to

B B
2
Milestone pursuant to the Main Contract (the “Notice of Default”) ,
C stating that it had committed the following defaults (collectively, C

“Milestone’s Defaults”):
D D

(1) Not proceeding regularly and diligently with works under

E E
the Main Contract despite the Architect’s warning letters;
F (2) Persistent failure to complete the external façade lighting F

control and programming to specification requirements,

G G
causing material detriment to the Employer; and
H (3) Refusal or persistent failure to comply with the Architect’s H

written notices requiring procurement of specified materials

I I
and proprietary products for timely completion of the Main
J Contract works. J

K 7. Upon certification from the Architect, on 23 March 2019, the K

Employer served on Milestone a written notice to determine its

L L
3
employment under the Main Contract (the “Notice of Determination”) .
M By the operation of NSC Clause 38.1, upon the determination of the Main M

Contract, the NSC was also terminated at the same time.

N N

O 8. YK has repeatedly demanded Milestone to make payments4. O

However, almost 5 months after the Notice of Determination was served,

P P
Milestone alleged that no outstanding payment was due to YK. Instead, it
Q Q
alleged that because YK had caused delay and was in default, a balance

R
of HK$11,121,000 was owed from YK. In particular, it was alleged that R
YK was “provisional liable” for 224 days of delay (between
S S
11 August 2018 – 23 March 2019) and hence liquidated damages in the

T T
2
B2/381
3
B2/383
U 4
See YK’s letter 18/3/2019 at B2/385-387 U

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A A

sum of HK$15,680,000 (the “Alleged YK LD”)5. This was the first time
B B
since the Notice of Determination some 5 months earlier, that Milestone
C claimed that YK had caused delay and was in default. It is relevant to C

note Clauses 24.3 and 28.5(1) of the NSC:-

D D
“24.3 The Contractor shall at the earliest opportunity give
E reasonable notice to the Sub-Contractor that loss and/or expense E
and/or liquidated damages are being or will be incurred clue to
failure of the Sub-Contractor to complete on time.
F F
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
G progress of the Works has been delayed or disrupted by a breach G
of contract or other default by the Sub-Contractor or any person
for whom the Sub-Contractor is responsible the Contractor shall
H H
give notice of this to the Sub-Contractor within a reasonable time
after the delay or disruption becomes apparent.”
I I

9. Between 10 September 2019 and 9 October 2019, YK

J J
repeatedly denied that it had caused or contributed to Milestone’s
K Defaults, and stressed that Milestone had not given any notice of default K

to YK pursuant to NSC Clause 366.

L L

M 10. Milestone’s next responses on 30 September 20197 M

were that:
N N

(1) the Employer had set-off HK$12,110,000 as liquidated

O O
damages, so it did not receive full payment for
P
NSC IP 18 – 21; and P

(2) Milestone had submitted a claim for extension of time

Q Q
(“EOT”) and requested the Architect to identify the cause of
R delay. It would thus pay YK only if: R

(a) Milestone had received payment from the Employer,

S S
or
T T
5
B2/317 at 319
6
See B1/227
U 7
B2/450 U

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A A

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

B B

C 11. On the issue of whether the Employer had paid Milestone for C

NSC IP 18-21, YK relies on an email from the Employer dated

D D
9 October 2019 to YK (“Employer’s Email”)8 stating they had paid the
E following amounts to Milestone under the Main Contract:- E

F F
Main Amount paid NSC IP nos. Remarks
Contract by Employer to included
G G
IP nos. Milestone thereunder

H MC IP-20 HK$2,302,000 NSC IP-18 of H

HK$643,000
I I
MC IP-21 HK$1,083,000 NSC IP-19 of Deduct LD
J HK$992,000 HK$9,730,000 J

K
MC IP-22 Nil NSC IP-20 of Milestone had not yet K
HK$1,201,000 submitted invoice.
HK$11,200,000 had been
L L
cumulatively deducted as
LD
M M

MC IP-23 HK$5,304,000 NSC IP-21 of HK$12,110,000 had been

N HK$1,853,000 cumulatively deducted as N
LD. Further,
O HK$1,665,000 had been O
made as advance
P
payment P

12. Upon YK’s inquiry and YK’s request for direct payment by
Q Q
9
the Employer, the Architect wrote to Milestone stating that:-
R R
(1) YK’s request for payment was under NSC IP 18-21 which
S were under MC IP 20-23. The Architect had issued S

T T

8
B2/452
U 9
B2/493-504 U

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A A

certificates of payment for MC IP 20 – 23, which had been

B B
paid by the Employer to Milestone;
C C
(2) the Main Contract was determined due to Milestone’s

D
Defaults; and D

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

E E
13. In a letter dated 9 October 2019 from YK to Milestone, YK
F F
stated that they were not responsible for the LD deducted by the
G Employer against Milestones and that the Employer had already paid for G

MC IP-20 to MC IP-23. YK also pointed out that Milestone’s application

H H
for EOT was irrelevant to Milestone’s payment obligation under the NSC.
I I

Plaintiff’s case
J J
14. Milestone argues that there are bona fide disputes between
K K
them and YK for the following reasons:-

L L
(1) Firstly, the LD deducted by the Employer under MC IP-21 in

M
the sum of HK$9,730,000 far exceeded the total amount of M
“work done by all nominated sub-contractors” which was
N assessed by the QS as HK$1,410,00010. Therefore, N

Milestone did not in fact receive any payment from the

O O
Employer in relation to YK’s work. The Employer
P progressively increased the LD up to HK$12,110,000 in MC P
IP-23 which covered all works done by YK under NSC IP-
Q Q
18 to 21. As such, pursuant to Clause 33.1(7) of the NSC,
starting from payment certificate no. MC IP-21, Milestone
R R
was not obliged to make any payment to YK because no
S corresponding payments were received from the Employer. S

T T

U 10
See B2/297 U

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A A

(2) Secondly, Milestone made application for EOT11 and there

B B
were disputes with the Employer on the culpability of the
C alleged delays in the works which, if ultimately found to be C

valid by the Architect and Employer or by an arbitrator

D D
appointed to deal with the disputes, entitled Milestone to
E extension of time beyond the date of termination of E
23 March 2019, and hence no liquidated damages should be
F deductible against it. F

G (3) Thirdly, the events leading to the delays involved works of G

YK as well. There were in fact delays in YK’s works as
H H
much as Milestone’s works or those of other sub-contractors.
In the event that YK is found culpable for delays,
I I
corresponding LD imposed by the Employer would then be
J deductible against YK pursuant to NSC Clause 33.1(7). J

Milestone argues that YK could be liable for LD up to

K K
HK$15,680,00012.
L L
Defendant’s responses
M M
15. YK argues that there was no bona fide dispute on substantial
N N
grounds for the following reasons:-

O O
(1) Milestone had in fact received payment from the Employer.

P (a) The Employer’s Email categorically stated that they P

had already paid Milestone for MC IP-20 to IP-23. It
Q Q
was merely the case that the Employer exercised a set-
off using the LD.
R R
13
(b) This was independently confirmed by the Architect .
S S
In performing his role of supervision and certification, an architect or

T
engineer is required to act independently, honestly, impartially and fairly T
11
B2/302-376
12
B2/317-320
U 13
B2/493 U

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A A

as between the employer and the contractor, forming and acting on his
B B
own opinion, and applying his professional skill: Keating on
C Construction Contracts (10th ed, 2016), §§5-062 – 5-063. C

D
(c) Based on Milestone’s own evidence, it had received D
payments for MC IP-21 to IP-23. The Employer released payment of
E HK$1,083,000 under MC IP-2114. This was a net payment after deducting E

an LD sum of HK$9,730,000 evidenced by a cheque from the Employer

F F
and cashed by Milestone15.
G (d) According to Milestone’s own “Statement of Final Account”16 as of G

28 October 2019, the amount previously received from the Employer is

H H
HK$162,024,200.23. This should be compared with the Architect’s
I certificate dated 7 January 2019 stating that after payment of I

HK$1,083,000, the total amount paid by the Employer would have been
J J
HK$156,446,20017. By simple arithmetic, Milestone must have received
a further net payment of HK$5,578,000 from the Employer sometime
K K
between January and October 2019. In fact, if one adds up Milestone’s
L entitlements under MC IP-22 (HK$274,000)18 and MC IP-23 L

(HK$5,304,000)19, one arrives precisely at the figure of HK$5,578,000.

M M
This could not have been a sheer coincidence. They are the clearest proof
N that Milestone also received payments from the Employer under MC IP- N
22 and IP-23.
O O
(5) Milestone is not entitled to any deduction under the NSC.
P (a) Milestone’s stance has been constantly shifting in its P

correspondence and affirmation evidence. To date,

Q Q
Milestone has failed to make up its mind as to how
R many days of delay it accuses YK as being responsible R

S S
14
Tang 1st, §10-12 at A/12; see also
15
B2/298
T 16
B2/299 T
17
B2/295
18
B2/324
U 19
B2/327 U

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A A

for, or how much liquidated damages it is entitled to

B B
set off against YK.
C C
(e) On 12 July 201820, Milestone’s letter alleged that YK was liable for

D
18 days’ delay. The relevant items included “hoisting proposal for D
radiator” and “installation of gondola system”. However, the Architect
E has never certified this delay to be YK’s fault. These items were also not E

mentioned in Milestone’s consolidated EOT claim.

F F
(f) On 13 September 2018, Milestone’s letter alleged further delay by
G YK for “MVAC & Electric Installation Works on 3, 6-8 Floors”. This G

time, there were not even particulars of the number of days delayed or
H H
expenses allegedly incurred by Milestone as a result.
I (g) Milestone’s letters dated 15 March 201921 and 25 March 201922 are I

even more baffling. They simply redirected respectively the Architect’s

J J
Notice of Default and the Employer’s Notice of Determination to YK.
K These letters simply assumed that YK was somehow responsible for K

Milestone’s Defaults, without advancing any basis or explanation. As

L L
subsequently confirmed by the Architect23, the Main Contract was

M
determined by the Employer upon Milestone’s Defaults. This M
24
automatically led to the NSC being determined under NSC Clause 38.1 .
N The NSC was not determined by Milestone because of YK’s default. N

There is no evidential basis to suggest any connection between YK’s

O O
Project works and Milestone’s Defaults.
P (h) In Milestone’s consolidated EOT claim dated 31 May 201925, none of P

the items therein26 had anything to do with YK or indeed had any

Q Q
20
B2/333-350
21
B2/353
R 22 R
B2/355
23
B2/493
24
B1/234
S 25
B2/302-316 S
26
They concern a total of 299 days’ delay due to (a) revision of interior design, (b) hoisting of
Tropical Cyclone Warning Signal No. 8 or above, (c) additional phasing of the works, (d) revised
T design of LED light fittings and external wall tiles, (e) final drainage amendment works, (f) T
additional wall partitioning and finishing, (g) provision of sales office and show flat, (h) additional
steel posts at 1/F carpark, and (i) approval of General Building Plans and Drainage Amendment.
U See also Tang 1st, §13 [A/4/13-14]; Tang 2nd, §20 [A/6/43-44]; Milestone’s Skeleton §14. U

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A A

connection with the Project works. There is no basis for Milestone to

B B
deduct any liquidated damages from YK.
C C
(i) Next came Milestone’s letter dated 22 August 201927 which was

D
wholly unparticularized. There is no evidential basis to arrive at the D
alleged 224 days’ delay which was in any event alleged as “YK is
E provisionally liable to…”. Ridiculously, this calculation was apparently E

arrived at simply by counting the number of days between the extended

F F
completion date (11 August 2018) and the date of determination
G (23 March 2019) of the Main Contract. This means that Milestone was G
“provisionally assuming” that YK was responsible for all delays. This is
H H
plainly groundless. No reason was put forward by Milestone even on a
provisional basis.
I I

(j) Then in Milestone’s affirmation evidence, it was stated that pending

J J
the determination of its consolidated EOT claim, it has chosen not to
carry out a detailed programme analysis to examine how the net delay
K K
may be attributed and apportioned between Milestone and its nominated
L sub-contractors (including YK)28. If that is the case, then Milestone L

clearly does not know how much delay YK may be liable for (if at all).
M M
None of the previous bare allegations against YK can thus be taken as
N being prima facie accurate. N

O
Applicable legal principles O

16. The principles which govern an application for an injunction

P P
to restrain the presentation of a winding-up petition were recently restated
Q Q
by DHCJ Maurellet SC in Quest Investments Ltd v Lee Wai Tung [2020]

R
HKCFI 1516, §14: R

S “The applicable principles in this area of the law were recently S

and succinctly summarised by Deputy High Court Judge Keith
T T

27
B2/317 especially at 319
U 28
Tang 2nd, §§24-25, 36 [A/6/44, 46] ; Milestone’s Skeleton §§2(2), 13-16, 23. U

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A A

Yeung, SC (as he then was) in Addchance Limited v Herojoy

B Trading Limited (unreported judgment dated 30 April 2019). B

42. The law as regards an application for an injunction

C to restrain the presentation of a winding up petition was C
summarized by Chow J in Re Grande Holdings Ltd
HCMP 2369/2017 (unreported, 22 December 2017) at
D paragraph 14, that: D

‘(1) The court will grant an injunction to restrain

E the presentation of a winding-up petition which E
it considers would be an abuse of the court’s
F
process. F
(2) It is an abuse of process to present a
winding-up petition based on a claim of which
G G
there is a bona fide dispute on substantial
grounds.
H (3) The threshold for resisting a petition H
(requiring proof of a bona fide defence) is higher
I than that for resisting an application for I
summary judgment (requiring proof of a fair
probability of establishing a bona fide defence),
J but the difference between the two tests is, in J
most cases, likely to be more a matter of
K
semantics than substance. K
(4) Petitions are not meant for the purpose of
debt collection and the winding-up jurisdiction
L L
of the court would be exercised only in clear
cases. Where oral evidence is required to decide
M areal and substantial dispute of fact, the court M
will generally dismiss the petition.
N (5) The onus is on the Company to put forward N
credible evidence that demonstrates sound
reasons to think that the asserted facts may be
O proved at the trial.’ O

43. On the court’s approach where a debt is said to be

P bone fide disputed on substantial grounds, Peter Ng J P
explained in Re Hong Kong Investments Group Ltd
[2018] HKCFI 984 (at paragraph 13) as follows:
Q Q
‘In the context of a winding-up petition, the
court’s approach where a debt is said to be bona
R fide disputed on substantial grounds can be R
summarized as follows:
S (1) The burden is on the Company to S
establish that there is a genuine dispute
of the debt on substantial grounds. In this
T T
context, ‘substantial’ means having
substance and not frivolous.
U U

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A A

(2) The court should look at the

B Company’s evidence against so much of B
the background and evidence that is not
disputed or not capable of being disputed
C C
in good faith; in other words, the
evidence is not to be approached with a
D wholly uncritical eye. D
(3) The court would caution itself against
E unsubstantiated and unparticularized E
assertions. It is incumbent on the
Company to put forward “sufficiently
F precise factual evidence” to substantiate F
its allegations.
G (4) The court does not try the dispute on G
affidavit but is to determine whether a
substantial dispute exists. In so doing,
H H
the court necessarily has to take a view
on the evidence, to see if the Company is
I merely “raising a cloud of objections on I
affidavits” or whether there really is
substance in the dispute raised by the
J Company.’”” J

K K
Discussion
L L
17. Applying the above principles which are not in dispute
M between the parties, it is my judgment that Milestone has failed to M

N
discharge its burden of demonstrating a bona fide dispute on the Alleged N
Debts for reasons set out hereunder.
O O

18. On Milestone’s first argument that it had not received

P P
payment from the Employer and hence is not liable to pay NSC IP-18 to
Q Q
IP-21, the Court is referred to NSC Clause 33.1(7) which reads:-

R R
“The Contractor [Milestone] is required to pay the Sub-
S
Contractor [YK] the amount included for him in each interim S
Certificate, less any amount properly deductible within 14 days,
or such other time as may be stated in the Sub-Contract, of the
T Contractor receiving payment from the Employer.” [emphasis T
added]
U U

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A A

19. Mr. Li, counsel for Milestone referred me to Hong Kong

B B
Teakwood Works Ltd. v. Shui On Construction Co. Ltd. [1984] HKLR
C 235. He argued that in that case, the phrase “receipt of payment” in a C

clause similar to NSC Clause 33.1(7) was interpreted to mean receipt of

D D
money and thus the exercise of a set off by the building employer did not
E amount to receipt of payment by the main contractor under that clause. In E

that case, the relevant clause was clause 11(b) of that subcontract which
F F
read:-
G G

“within 14 days of the receipt by the main contractor of payment

H from the employer against any certificate from the architect, the H
main contractor shall notify and pay to the sub-contractor the
I
total value certified therein.” [emphasis added] I

J The matter before Hunter J was an Order 14 application taken out by the J

sub-contractor against the main contractor. It was common ground that

K K
the main contractor received 2 certificates from the architect certifying
L the value of works completed by the sub-contractor. The main contractor L

argued that it was not obliged to pay the sub-contractor because the
M M
building owner set up against those two certificates an alleged set off
N arising from a claim for liquidated damages clause under the main N

contract. The main contractor argued that “receipt of payment” means

O O
cash or cheque, money and nothing else. The sub-contractor argued that
P “receipt of payment” means cash or a mutual discharge of the obligation P

arising under the certificate, and that discharge can arise from the
Q Q
exercise of a set off. In reply, the main contractor further argued that
R there could only be a discharge or payment if that set off is valid which R

they challenged. Thus in order to show that payment is due to the sub-
S S
contractor under this clause, the sub-contractor has to satisfy the court
T that the set off is not only claimed, but validly claimed. Hunter J held T

that the words “receipt of payment” should be given their normal

U U

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A A

meaning, which means receipt of actual payment, ie receipt of money.

B B
Hunter J held that whilst the word “payment” can be given an extended
C meaning, he could not give an extended meaning to the phrase “receipt of C

payment” to cover set off. However, Hunter J expressly stated that he

D D
was not willing to make a final construction of clause 11(b) in that Order
E 14 proceedings. It was unnecessary for his Lordship to do so. Hunter J E

said:-
F F

G “For the plaintiffs to succeed here, they have to satisfy me that G

the construction for which they contend is really the only
H
construction, the right construction of this contract. For the H
reasons I have already given I cannot accept that. I think the
more probable construction is the natural meaning of the words
I that I have indicated, and I think that is the more probable I
construction in this particular clause which deals with interim
provision. Now whether in fact on mature relection that is proved
J J
to be right, or whether that construction also governs 11(c) and
(g) is not a matter with which I am concerned at this juncture. I
K think therefore for this purpose it is sufficient for me to say; my K
prima facie construction of this clause is adverse to the plaintiffs’
interest and that is sufficient to dispose of this appeal.”
L L

M
20. In my judgment, although the Teakwood case is relevant and M
helpful, it is not determinative nor can it be of direct application. First of
N N
all, Hunter J did not make a final construction of clause 11(b) in that case

O at all. His Lordship was aware that for a final construction, more in- O

depth consideration of other interconnected clauses in the contract would

P P
have to be undertaken. His Lordship had not done so as it would not be
Q necessary at an Order 14 stage. His dictum was thus mere statements of Q

his prima facie assessment. Secondly, each contract has to be interpreted

R R
in its own terms and context. The wordings of clause 11(b) in Teakwood
S case are different from that of NSC Clause 33.1(7). Clause 11(b) in S

Teakwood case referred to “receipt by the main contractor of payment

T T
from the employer against any certificate from the architect”. Whereas in
U NSC Clause 33.1(7), the operative words are: “[Milestone] is required to U

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 - 17 -
A A

pay [YK] the amount included for him in each interim certificate…within
B B
14 days…of [Milestone] receiving payment from the Employer”. In my
C judgment, words “receiving payment from the Employer” must refer back C

to the particular interim certificate issued by Milestone to the Employer

D D
which included an amount for the sub-contractor’s work done. This is
E distinctly different from clause 11(b) in Teakwood case in which the E

receipt of payment clearly referred to “payment against the architect

F F
certificate” which in Teakwood case was a reference to the architect
G certificate certifying the value of the works undertaken by the sub- G

contractor. Thus, in Teakwood case, the fact that the employer imposed
H H
liquidated damages on the main contractor under terms of the main
I I
contract could not be taken to mean that the employer had made payment

J
to the main contract against the architect certificate certifying the work J
done by the sub-contractor. In the present case, in relation to NSC Clause
K K
33.1(7), I am of the view that the words “receiving payment” refer to

L payment of the relevant MC IPs in which amounts under the respective L

NSC IPs had been included. The crucial question is thus whether
M M
Milestone had received payment for the MC IP-20 to MC IP-23 which
N had included the sums claimed by YK under NSC IP-18 to NSC IP-21. N

In my view, on the evidence presented, MC IP-20 to MC IP-23 had

O O
indeed been paid by the Employer albeit after exercising its right of using
P the LD. As further explained below, it is clearly anticipated by NSC P

Clause 33.1(10) that the Employer can exercise a right of deduction

Q Q
“from monies due to [Milestone]”. In other words, whilst an amount is
R due to Milestone under a certain MC IP, the Employer can make R

deduction either in partial or in total extinction of such amount due under

S S
the MC IP. In that case, it cannot be said that the said MC IP had not
T been paid by the Employer, albeit through the exercise of a set off. T

U U

V V
 - 18 -
A A

21. Be that as it may, Mr Lui, counsel for YK submitted that I

B B
need not base my decision on the above construction. He submitted that
C on the evidence presented, Milestone had in fact received payment for C

MC IP-20 to MC IP-23. Firstly, as pointed out in paragraph 15 above,

D D
both the Employer and the Architect considered that MC IP-20 to MC IP-
E 23 had been paid. Mr Lui further referred me to Milestone’s own E

documentary evidence showing that it had actually received payment for

F F
MC IP-20 to MC IP-23 as follows:-
G G

H
(1) In relation to MC IP-20, payment had been made by the H
Employer as per Employer’s Email at B2/452.
I HK$2,303,000 was paid and received by Milestone at least I

by the date of this email, i.e. 9 October 2019. The

J J
Employer’s Email made no reference of any deduction of
K LD. The effect is, at least it covered NSC IP-18. This was K

later confirmed by the Architect at B2/493. Milestone has

L L
adduced no evidence to contradict this payment for MC IP-

M
20 having been received. At least, there could be no bona M
fide dispute in respect of the debt due under NSC IP-18. The
N amount is already more than $10,000 which is sufficient to N

ground a winding-up petition.

O O
29
(2) In an Invoice dated 3 January 2019 issued by Milestone to
P the Employer, Milestone attached a “record of payment” P

showing that Milestone received payment of HK$1,083,000

Q Q
on 23 January 2019. The imposition of LD only partially
R reduced the amount payable under MC IP-21. Milestone R
still received a net payment of $1.083m. The making of
S S
“Net payment” is actual payment even under the Teakwood
interpretation. The words “receiving payment from the
T T
Employer” in NSC Clause 33.1(7) cannot be interpreted as
U 29
B2/332 U

V V
 - 19 -
A A

meaning "receiving full payment from the Employer". This

B B
would be re-writing NSC Clause 33.1(7) which is wrong and
C impermissible. Therefore, Milestone’s payment obligation C

kicked in 14 days after 23 January 2019 since Milestone did

D D
not purport to exercise any deduction within that 14 days
E period. The sum due under NSC IP-19 is again an E
indisputable debt.
F F
(3) As for MC IP-22, Milestone’s said Invoice indicates it had
G not been paid as at the date of the Invoice, apparently due to G
the fact that no invoice had been submitted as one can see
H H
from the Employer's Email. YK can however demonstrate
that MC IP-22 must have been paid. According to
I I
Milestone’s own “Statement of Final Account”30, as of
J 28 October 2019, the amount previously received from the J

Employer was stated to be HK$162,024,200. Comparing

K K
this with the Architect’s certificate for MC IP-2131, after the
L payment of HK$1,083,000, the total amount paid by the L
Employer was stated to be HK$156,446,200. By simple
M arithmetic, Milestone must have received a further net M

payment of HK$5,578,000 from the Employer sometime

N N
between January and October 2019. In fact, if one adds up
O Milestone’s entitlements under MC IP-22 (HK$274,000) and O

MC IP-23 (HK$5,304,000), one arrives precisely at the

P P
figure of HK$5,578,000. This could not have been a sheer

Q
coincidence but must be the clearest proof (based on Q
Milestone’s own documents) of Milestone having received
R actual payment from the Employer for MC IP-22 and R

MC IP-23.
S S
(4) In respect of MC IP-23, apart from the above deduction, one
T can again refer to Milestone’s Invoice dated T

30
B2/299
U 31
B2/295 U

V V
 - 20 -
A A

31 January 2019. The attached “record of payment” again

B B
referred to Milestone having received payment by a cheque
C in the sum of HK$5,302,000 on 4 February 2019. Milestone C

has adduced no evidence to the contrary. Accordingly, both

D D
NSC IP-20 and NSC IP-21 (which were included under MC
E IP-22 and MC IP-23) had been actually paid by the E
Employer to Milestone.
F F
22. I accept the submissions of Mr Lui and conclude that
G G
Milestone has raised no bona fide dispute on the basis of its first

H
argument. Pursuant to NSC Clause 33.1(7), the amounts due under NSC H
IP-18 to NSC IP-21 had become due and payable by Milestone to YK
I I
unless Milestone rightfully exercised any right of deduction within

J
14 days of payment of each of MC IP-20 to MC IP-23. Milestone clearly J
had not exercised that right of deduction within each respective 14 days
K K
period. The first time Milestone purportedly justified its non-payment as
L “rightful deduction” was on 22 August 201932. L

M M
23. In respect of Milestone’s second argument that it was

N entitled to make deductions, I again reject Milestone’s submissions and N

accept those of YK. In my view, as seen from paragraph 15(5) above,
O O
Milestone has failed to put forward “credible evidence” or “sufficiently
P precise factual evidence” to substantiate its alleged entitlement to make P

deductions. As mentioned above, Milestone did not attempt to make

Q Q
deduction within each respective 14 days period when MC IP-20 to MC
R IP-23 became paid. Milestone’s attempt to shift full responsibility of the R

delay onto YK by making a “provisional deduction of 224 days of LD”

S S
was baseless. It also reflects that Milestone did not even have a clear
T case as to whether YK would eventually be held responsible for delay, T

U 32
B2/317 U

V V
 - 21 -
A A

and if so for how many days. The same is reflected in the stance shown
B B
in Milestone’s affidavit evidence. It has consciously chosen not to carry
C out a detailed programme analysis to examine how the net delay may be C

attributed and apportioned between Milestone and its nominated sub-

D D
contractors (including YK). Milestone’s alleged entitlement to make
E deduction is no more than a bare allegation. E

F F
24. Furthermore, it is also relevant to look at NSC Clause
G 31.1(10) which reads:- G

H H
“If the Employer has exercised a right under the Main Contract
to deduct from monies due to the Contractor, to the extent that
I the deduction is due to a breach of contract or other default of the I
Sub-Contractor or any person for whom the Sub- Contractor is
J responsible the monies deducted may be recovered by the J
Contractor from any monies due or to become due to the Sub-
Contractor or as a debt.” [emphasis added]
K K

L
In my view, the interplay of NSC Clauses 33.1(7) and (10) is as follows:- L

(1) Milestone submits one MC IP to the Employer. This MC IP

M M
includes an amount in relation to work done by YK under a
N NSC IP. N

(2) When the Employer exercises its right to charge LD and

O O
deduct such amount from that payable under the MC IP, the
P Employer is in law paying for the MC IP, albeit using the LD P
to set off the otherwise payable amount. Clause 33.1(7)
Q therefore kicks in. Q

R (3) If Milestone is able to determine, within 14 days, that a R

certain extent of the deduction made by the Employer was
S S
due to a breach of contract or other default by YK, Milestone
can make such extent of deduction. This may extinguish
T T
wholly or in part the sum claimed by YK under the NSC IP.
U U

V V
 - 22 -
A A

This results from the combined effect of Clauses 33.1(7) and

B B
(10).
C C
(4) If Milestone does not exercise such right within 14 days,

D
Milestone has to pay YK under the NSC IP. Subsequently D
however, if Milestone is able to identify that a certain extent
E of the deduction made by the Employer was due to a breach E

of contract or other default by YK, Milestone can seek to

F F
recover that extent of deduction from YK. This is the effect
G of Clause 33.1(10). G

H 25. In the present case, Milestone had not exercised any right to H

make deduction within 14 days from the respective payments made by

I I
the Employer for the MC IPs (albeit by way of set off using the LD). The
J full amounts claimed under NSC IP-18 to NSC IP-21 became due and J

payable. Furthermore, up to now, Milestone has produced no credible or

K K
sufficiently precise factual evidence to identify and establish the extent of
L the Employer’s LD deduction which were due to YK’s breach of contract L

or default.
M M

N Milestone’s Reliance on the Lasmos Case N

O 26. In Re Southwest Pacific Bauxite (HK) Ltd, O

[2018] 2 HKLRD 449 ("the Lasmos case"), Harris J dismissed a petition

P P
to wind up a company on the grounds of insolvency by relying on a
Q statutory demand for payment of a debt said to arise under a management Q

service agreement which contained an arbitration clause. He held that (in

R R
paragraph 31 on p 468 of the judgement) a petition for winding up should
S generally be dismissed: S

T (1) if a company disputes the debt relied on by the petitioner; T

U U

V V
 - 23 -
A A

(2) the contract under which the debt is alleged to arise contains
B B
an arbitration clause that covers any dispute relating to the
C debt; and C

D
(3) the company takes the steps required under the arbitration D
clause to commence the contractually mandated dispute
E resolution process (which might include preliminary stages E

such as mediation) and files an affirmation in accordance

F F
with r 32 of the Companies (Winding-Up) Rules (Cap 32H,
G Sub Leg) demonstrating this. G

H 27. Milestone submits that applying the above principles, the H

intended petition by YK based on the SD is bound to fail and an

I I
injunction should be granted because:-
J J
(1) Milestone clearly disputes the Alleged Debts.
K K
(2) The Alleged Debts arise out of the NSC which contains
Clause 42 specifying that any dispute arising under or in
L L
connection with the NSC shall be referred to arbitration if
M the Designated Representatives Procedures and Mediation M

Process stipulated therein fail to resolve the dispute.

N N
(3) The arbitration clause is in broad terms and the disputes
O relating to the alleged debts are covered by the scope of the O

arbitration clause.
P P

28. The Lasmos case had subsequently been explained by the

Q Q
Court of Appeal in But Ka Chon v Interactive Brokers LLC [2019]
R 4 HKLRD 85 and Sit Kwong Lam v Petrolimex Singapore Pte Ltd [2019] R

5 HKLRD 646 [DA#6]. It should now be clear that the Court retains a
S S
discretion under the insolvency legislation which should not be exercised
T T
only in one way by reason of the factor of arbitration although

U
considerable weight should be given to this factor in the exercise of the U

V V
 - 24 -
A A

Court’s discretion. In But Ka Chon at §53, Kwan VP stated that an

B B
insolvency petition would not be dismissed or stayed on the mere
C existence of an arbitration agreement, when the debtor has no genuine C

intention to arbitrate. In Sit Kwong Lam, at §37, Kwan VP said that to

D D
show a genuine intention to arbitrate, the debtor must have taken the steps
E required under the arbitration clause to commence the process of E

arbitration, and file an affirmation demonstrating this. In But Ka Chon, a

F F
letter stating that the debtor’s solicitors were instructed to initiate
G arbitration between the parties, without indication of when any “Notice of G

Arbitration” is to be sent, was not regarded as proper notice of an

H H
intention to arbitrate (see §52 per Kwan VP). A formal notice of
I I
arbitration must leave the recipient in no doubt of the applicant’s

J
intention to resort to arbitration, and that some action is required of the J
recipient: Re Asia Master Logistics Ltd [2020] 2 HKLRD 423, §45 (per
K K
DHCJ W Wong SC). In Re Asia Master Logistics, the debtor company’s

L inaction for 6 months, after its solicitors sent a letter proposing L

arbitration, negated any real intention to resolve the dispute by arbitration
M M
(see §§41-43, 50).
N N
29. Mr Lui submitted that on the evidence, Milestone had
O O
evinced no genuine intention to arbitrate. Milestone places reliance on its

P current arbitration with the Employer over Milestone’s consolidated EOT P

claims. However, this dispute simply has no connection with YK’s
Q Q
entitlement to NSC IP 18 – 21 owed by Milestone. Further, if Milestone
R really thought that YK’s debts are “hotly disputed”, it could have applied R

to join YK to the arbitration with the Employer (which is permissible

S S
under NSC Clause 49.9(1)), seeking a declaration of non-liability in
T respect of YK’s debts, and then applied for a stay pending that arbitration: T

see Sit Kwong Lam, §39 (per Kwan VP). The excuse proffered by
U U

V V
 - 25 -
A A

Milestone that it was awaiting the results of its dispute resolution with the
B B
Employer, is plainly unacceptable. Although the SD was served almost 9
C months ago (on 14 January 2020), Milestone has not taken any steps to C

initiate any of the dispute settlement procedures under NSC GC Clause

D D
42 (whether to appoint “Designated Representatives”, or to refer the
E dispute to mediation or arbitration). Clearly, Milestone has failed to E

demonstrate any genuine intention to arbitrate vis-à-vis YK. In the

F F
premises, the mere existence of an arbitration clause in the NSC cannot
G prevent YK from exercising its statutory right to petition for winding up G

Milestone on the ground of insolvency (following But Ka Chon).

H H

I I

J J
rd
30. Mr Li effectively accepted that the 3 requirement set out by
K Harris J in Lasmos case has not been satisfied. He submitted that the K

3rd requirement is not a necessary requirement. He submitted that

L L
Milestone wants to first proceed with EOT claim and that is why no step
M has been taken towards arbitration between Milestone and YK. Mr Li M

submitted that it does not mean Milestone has no genuine intention to

N N
arbitrate.
O O

31. I do not agree with Mr Li. The evidence adduced by

P P
Milestone indicates that it has no present intention of instituting
Q arbitration with YK. At most, Milestone’s conduct amounts to reserving Q

its position pending the resolution of its EOT claim under the arbitration
R R
between itself and the Employer. I accept the submission of Mr Lui that
S S
Milestone’s attitude is not materially different from the mere existence of

T
an arbitration agreement between Milestone and YK and I would exercise T
my discretion accordingly.
U U

V V
 - 26 -
A A

32. Ultimately, the most potent factor affecting my exercise of

B B
discretion is the fact that I have earlier concluded Milestone has failed to
C discharge its burden of establishing bona fide dispute on the Alleged C

Debts for reasons set out in paragraphs 17 to 25 above. Coupled with

D D
what I have stated in paragraph 31 above, I have concluded that I shall
E exercise my discretion to refuse the grant of injunction sought by E

Milestone.
F F

G G

H H

I I

33. Accordingly, the OS is dismissed with costs against

J J
Milestone, to be taxed (if not agreed) on party-and-party basis with
K certificate for counsel. K

L L

M (Jason Pow SC) M

Recorder of the Court of First
N Instance of High Court N

O O

Mr Vincent M K Li instructed by Lui & Law for the Plaintiff

P P
Mr Victor Lui instructed by William W L Fan & Co. for the Defendant
Q Q

R R

S S

T T

U U

V V