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C HCCT 8/2016 C

[2020] HKCFI 2561

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IN THE HIGH COURT OF THE

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HONG KONG SPECIAL ADMINISTRATIVE REGION
F COURT OF FIRST INSTANCE F

CONSTRUCTION AND ARBITRATION PROCEEDINGS

G G
NO 8 OF 2016
H _______________ H

I IN THE MATTER of Section 45 (2) of I

the Arbitration Ordinance (Cap 609)
J J
and

K IN THE MATTER of Order 29 and K

Order 73 Rule 4 of the Rules of the
L High Court (Cap 4A) and the inherent L
jurisdiction of the Court
M _______________ M

BETWEEN
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CHEUNG KEE FUNG CHEUNG CONSTRUCTION Plaintiff

O O
CO LTD

P P
and

Q PERMANENT INVESTMENT CO LIMITED Defendant Q

R _______________ R

S S
Before: Hon Mimmie Chan J in Chambers
T Dates of Written Submissions: 14 August, 4 and 25 September 2020 T

Date of Ruling: 30 September 2020

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B ____________ B

C RULING C
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E 1. On 1 February 2016, the Plaintiff obtained an ex parte order E

granted by Chow J (“Order”), compelling the Defendant to withdraw its

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demand made to the Shanghai Commercial Bank (“Bank”) under a
G Surety Bond dated the 11 December 2012 (“Bond”) for payment of G

HK$13.2 million, and prohibiting the Defendant from receiving payment

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under the Bond. On 2 February 2016, the Plaintiff issued the Originating
I Summons under section 45 (2) of the Arbitration Ordinance I

(“Ordinance”) and Order 29 of the RHC, for the injunctive relief.

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K 2. By consent, the Order was on 4 February 2016 discharged in K

exchange for undertakings given by the Defendant, (inter alia) to inform

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the Bank that despite the Defendant’s demand for payment under the
M Bond, the Bank should withhold considering whether or not to make any M

payment to the Defendant pursuant to the demand “until after the final
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determination of the issue as between the Plaintiff and the Defendant in
O arbitration and/or as between the Plaintiff, the Defendant and/or the Bank O

P
in court (as may be applicable) of whether the Defendant was entitled to
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and did make a valid Demand under and in accordance with the terms of
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the Bond and the Contract between the parties therein referred to”. Q

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Further proceedings in the action were stayed, upon terms which included
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the order that the costs of the ex parte application and of the inter partes
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summons issued on 2 February 2016 (“Summons”) for continuation of

T the Order be reserved.

T

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B 3. The initial Order was made under section 45 of the B

Ordinance, as an interim measure in aid of the arbitration of disputes

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between the parties (“Arbitration”), which arose under a contract for the
D Defendant’s engagement of the Plaintiff as a contractor to carry out D

renovation and alteration works (“Contract”). The Arbitration had been

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commenced by the Plaintiff in December 2015, prior to the making of the
F Order, and an award was ultimately made in April 2019 for sums due and F

to be paid by the Defendant to the Plaintiff under the Contract (“Award”).

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The Plaintiff emphasized that it was less than 2 months after
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commencement of the Arbitration that the Defendant issued the demand H

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to the Bank for payment under the Bond, necessitating the Plaintiff’s
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urgent application for the injunctive relief in February 2016.
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4. The Award on merits having been published on 10 April
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2019, the parties sought (by their consent summons of 15 July 2020) the
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Court’s determination by paper disposal of the question of the costs of the

M ex parte application for the Order, the costs of the inter partes Summons, M
the costs of the consent summons to discharge the Order upon the
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Defendant’s undertaking, and the costs of and incidental to the entire
O action. The Plaintiff argued that these costs should be paid by the O
Defendant on indemnity basis, and the Defendant argued that each party
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should bear its own costs.
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5. The basis of the Plaintiff’s claim for costs on indemnity basis
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is the Defendant’s allegedly underhanded and oppressive conduct of its
S defence to the Arbitration and to these proceedings. The Plaintiff claims S

that the Defendant had no basis under the underlying Contract for the
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project to withhold the issue of the Certificate of Substantial Completion
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B of the works, that it took advantage of its own wrong and breach of B

contract in refusing return of the Bond upon completion of the works, to

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make demand on the Bank for payment under the Bond, all with the
D ulterior motive of putting financial pressure on the Plaintiff to deter the D

Arbitration and obstruct the Plaintiff’s claims. On the Plaintiff’s case, the
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circumstances of the Defendant’s making demand for payment under the
F Bond, when it was not entitled to do so, demonstrated the Defendant’s F

unconscionable conduct as part of “an oppressive game plan”, so as to

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entitle the Plaintiff to an order for the Defendant’s payment of costs on
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indemnity basis. H

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6. It has to be borne in mind that the Order was sought and
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granted as an interim measure in aid of the Arbitration, and that the Order J

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was discharged, and the action stayed, on the Defendant’s undertaking
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and the parties’ agreement that the undertaking was to be accepted in
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place of the Order, until the final determination of the issue between the

M Plaintiff and the Defendant in the Arbitration, as to the Defendant’s M

entitlement to make a valid demand under the Bond and the underlying
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Contract. By the Award, the tribunal determined that dispute on the Bond,
O by holding that whilst there was no express requirement under Clause O
33.2A of the General Contract Conditions for the Defendant to physically
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return the Bond, it was clear that the Bank was released from its
Q obligation to provide surety upon issue of the Substantial Completion Q
Certificate, and that the said Certificate should have been issued on 31
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March 2015. If the Certificate had been issued in accordance with the
S Contract, the Plaintiff would have been in a position to advise the Bank S

that it was released from the Board. A declaration was made by the
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B tribunal that the Plaintiff was entitled to a release from the Bond as of 31 B

March 2015.
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D 7. The tribunal found that the project manager and the D

Defendant had been wrong to consider the date of completion of the

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project to be other than 31 March 2015. In the Award, the tribunal
F pointed out the Defendant’s erroneous belief that substantial completion F

could not be achieved until such time as certain events, such as the
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submission of certain documents, had been achieved. The Defendant had
H also considered that it was entitled to call on the Bond as the Plaintiff was H

I
in culpable delay, and was liable for $44 million in liquidated damages.
I

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8. Although the Plaintiff sought a declaration in the Arbitration J

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that it was entitled to the return of the Bond by virtue of the Defendant’s
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fraudulent demand on the Bond which was a breach of the Contract, the
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tribunal pointed out that no evidence had been adduced in the Arbitration

M that the Defendant’s withholding of the Bond was fraudulent. The M

Plaintiff argued that no finding of fraud was necessary from the tribunal
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simply because it was not a relevant issue for determination in the
O Arbitration. Even if that was true, there is the tribunal’s express finding O
in the Award, that the reason for the Defendant’s withholding the Bond
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was its genuine but mistaken belief as to (inter alia) the definition of
Q “Substantial Completion” under the Contract. Q

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9. In view of the findings made by the tribunal, on the merits of
S the claims and the defence and the evidence adduced in the Arbitration, S

I fail to see how I can make a finding on costs on the basis of what the
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Plaintiff alleges to be either fraudulent conduct, or conduct with an
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B ulterior motive. The tribunal has found to the contrary, ie that the B

withholding of the Bond and the demand made thereunder was under a
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genuine albeit mistaken belief on the Defendant’s part as to its
D entitlement under the Contract. D

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10. If the Plaintiff considered that the Defendant’s conduct was
F fraudulent, oppressive or in any other way justifying a particular order for F

costs to be made relating to the entire conduct of the Arbitration, then

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irrespective of the relevance of the issue of fraud to the merits of the
H questions in dispute in the Arbitration, it should have made submissions H

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to the tribunal that the order for costs should reflect such conduct, and all
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other relevant circumstances, so that the costs order in the Court
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proceedings in aid of the Arbitration may correspond thereto. I have not J

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been referred to any evidence that the costs ordered by the tribunal were
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other than the usual order.
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M 11. In all the circumstances, and by virtue of the tribunal’s M

determination of the claims made in the Arbitration in favour of the
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Plaintiff, the appropriate order on costs in this action, which is ancillary
O to the Arbitration, would be that the costs of the action, including the O
costs of the ex parte application for the Order, the costs of the Summons,
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and the costs of the consent summons of 4 February 2016, should be paid
Q by the Defendant to the Plaintiff, on the usual party and party basis, with Q
certificate for Counsel.
R R

S S
(Mimmie Chan)
T Judge of the Court of First Instance T
High Court
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The plaintiff was represented by Norton Rose Fulbright Hong Kong
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The defendant was represented by Deacons
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