The Court of First Instance gave judgment after trial, in Sze Fung Engineering Ltd v Trevi Construction Company Ltd [2023] HKCFI 419.

The dispute arose out of construction works associated with a new combined cycle gas turbine unit at the Black Point Power Station in the New Territories, one of the world’s largest gas-fired combined-cycle power stations. Leighton Contractors (Asia) were appointed as the main contractor and Trevi a sub-contractor in respect of pipe and sheet pile walls and grouting work. Sze Fung was appointed as sub-sub-contractor to undertake the piling works.

The dispute related to the interpretation of a ‘back-to-back’ provision in the sub-sub-contract and how that applied to Sze Fung’s claims for payment for remeasured works, variations, acceleration, aborted works and idling claims. The relevant provision stated, “payment is based on back-to-back principle and to be released
to the [sub-sub-contractor] within 3 days upon receipt of the same from the client [main contractor]”.

In construing the provision, the Judge held that the terms of the provision were not specific enough to incorporate by reference the payment terms of the sub-contract between Trevi and Leighton. However, the contractual provision, considering the factual matrix, wording, and subsequent acts of the parties, properly construed, was a ‘pay-when-paid’ provision. Hence, Sze Fung was only entitled to be paid when Trevi received payment from Leighton. The Court held, unequivocally at [45]:

“What is back-to-back? Payment. What is made back-to-back? SF’s payment and Trevi’s payment. How is payment made? Back-to-back. When is payment made? Upon receipt from the client. That is clear on a plain reading of the ordinary meaning of the words used.”

The Judge noted that pay-when-paid provisions are not uncommon in Hong Kong, and it is a matter of the parties’ bargain and agreement on the allocation of risk. As a result, the Judge ruled in favour of Trevi and virtually the entirety of Sze Fung’s claims were rejected.

This judgment emphasises the importance of proper pleadings, the risks when evidence is raised in cross- examination for the first time, and the importance of the conduct of the parties after the date of the relevant agreement. Not surprisingly, the Judge highlighted that back-to-back provisions turn on their individual wording.

Phillip Rompotis and Lavesh Kirpalani, instructed by Georgiou Payne Stewien LLP, appeared for the successful defendant.