In Hip Hing Construction Company Ltd v Hong Kong Airlines Ltd [2024] HKCFI 370, the Court made a significant ruling regarding the standard retention money clause in Hong Kong construction contracts, specifically clause 32.5 of the General Conditions of the Standard Form of Building Contract (GCC 32.5). The Court determined that this clause demonstrates an intention to establish a trust. However, it also clarified that a trust cannot exist without the certainty of identification of the trust property.
Beyond construction contracts, the decision holds broad significance for trust and commercial lawyers due to its in-depth analysis of the certainty of subject-matter principle in trust law, drawing on recent authorities.
The facts and decision in brief
The dispute centred on whether Hong Kong Airlines (HKA), the employer, held $56,321,000 in retention money in trust for Hip Hing, the contractor, as stipulated by GCC 32.5. This clause dictates that the retention money is held in trust by the employer for the contractor and any nominated sub-contractors or suppliers, subject to certain conditions.
HKA contended that without identifiable, segregated retention monies, a trust as per GCC 32.5 could not exist. This lack of segregation led to the failure of the purported trust due to uncertainty in subject-matter.
Despite this, the Court initially granted an interlocutory proprietary injunction to support Hip Hing’s claim (Hip Hing Construction Company Ltd v Hong Kong Airlines Ltd [2023] HKCFI 1430), indicating a serious issue to be addressed.
Ultimately, however, the Court concluded that Hip Hing’s claim was untenable. Hip Hing’s broad assertion that trust property encompassed all money in HKA’s bank accounts “renders the subject matter of the purported trust too vague and uncertain, and it will be difficult if not impossible for the Court, at the beneficiary’s request, to enforce or regulate the trust, by tracing or otherwise”.
Therefore, Hip Hing’s claim was merely an unsecured debt claim which had been discharged by HKA’s scheme of arrangement, as sanctioned in Re Hong Kong Airlines Ltd [2022] HKCFI 3792; [2022] HKCLC 1343.
Commentary
This decision provides the latest guidance on interpreting standard retention money clauses in Hong Kong construction contracts.
It rectifies a potential confusion arising from the Court of Appeal decision in Re Hsin Chong Construction Co Ltd [2021] HKCA 1581; [2021] HKCLC 1561, which had referenced the Malaysian Court of Appeal decision in Qimonda Malaysia Sdn Bhd v Sediabena Sdn Bhd [2012] 3 MLJ 422. Notably, the latter decision was subsequently overruled by the Malaysian Federal Court in SK M&E Bersekutu Sdn Bhd v Pembinaan Legenda Unggul Sdn Bhd [2019] 3 MLJ 281, a fact not drawn to the Court of Appeal’s attention, rendering its discussion on Qimonda unproductive.
In the course of the Court’s reasoning, the Court delved into a comprehensive review of the principle of certainty of subject-matter in trust law, considering a range of recent authorities. This analysis of subject-matter certainty holds broader significance for trust and commercial lawyers.
Look Chan Ho (led by Laurence Li SC) acted for Hong Kong Airlines in Hip Hing Construction Company Ltd v Hong Kong Airlines Ltd [2024] HKCFI 370
Patrick Fung SC and Look Chan Ho acted for Hong Kong Airlines in Hip Hing Construction Company Ltd v Hong Kong Airlines Ltd [2023] HKCFI 1430
Look Chan Ho acted for Hong Kong Airlines in Re Hong Kong Airlines Ltd [2022] HKCFI 3792; [2022] HKCLC 1343
