The row surrounding the planned centrepiece of Hong Kong’s multibillion-dollar arts hub intensified after the parent company of the sacked contractor filed a notice of dispute with the authority overseeing the museum project.
Locally listed Hsin Chong Group, parent of Hsin Chong Construction (HCC), said on Tuesday evening it was assessing the possible impact on the group caused by what it described as the “wrongful termination” of the HK$5.9 billion contract (US$751.6 million) with the West Kowloon Cultural District Authority for the M+ museum project.
“The company has served a notice of dispute to WKCDA to protect the interest of the company,” it said in a statement.
On Friday, the authority said insolvency had been caused by Hsin Chong Group’s “severe financial troubles”, revealing it had helped the subsidiary pay about HK$1.5 billion to at least 17 subcontractors from February 2017 to June this year. It added that HCC’s poor management had led to a “significant delay” on site.
Founded in 1939, Hsin Chong Group has struggled financially the past two years. According to its annual report last year, it amassed HK$13.9 billion in debt with cash resources totalling only HK$784 million. Posting a loss of HK$774 million last year, the company failed to repay HK$3 billion in overdue debts.
But the firm reiterated on Tuesday it did not agree with WKCDA’s rationale, echoing its other statement released on Saturday. It said there was no evidence that HCC was insolvent and that the financial condition of the parent firm was irrelevant as far as the main contract was concerned.
“There is no valid termination to date and the purported termination was incorrect,” the group said on Tuesday.
Meanwhile, it clarified the authority sent a notice last Friday to HCC but only officially learned about it on Monday due to the delivery time.
In its previous statement, the firm said it had not received any formal notification of the termination.
Executive Council member Ronny Tong Ka-wah, a barrister, said the dispute would very likely proceed to arbitration if the contract contained a clause for such a scenario.
The former Bar Association chairman said there should be a clause called “event of default” meaning that if any contracted entity was undergoing a situation such as bankruptcy, being wound up, or being pursued by banks for indebtedness, then either side could serve a notice of termination to end the deal.
If Hsin Chong insisted it did not trigger the “event of default” and WKCDA terminated the deal for no reason, Tong said, then the company could claim the authority violated the contract. If WKCDA was found to have violated the contract, it would need to pay back the profits the company could have initially earned in the deal, he added.
But the arbitration process would be confidential.
Authority board member Lo Wai-kwok, a lawmaker for the engineering sector, said he was not surprised to see Hsin Chong Group follow up the matter. Lo claimed the board had unanimously agreed to end the contract after careful consideration and that everyone understood what had happened.
“The objective circumstances are very clear,” he added.
The WKCDA said it had received a number of letters issued by the contractor and these had been referred to its legal advisers.