On 17 December 2018, the architect on the Hong Kong Airlines aviation training centre at Chek Lap Kok issued Interim Certificate No 19. It put the retention the airline was holding at HK$56,321,000. Hip Hing Construction's own books carried the same figure. The contract, on the 2005 private edition of the standard form, said the retention "shall be held upon trust by the Employer for the Contractor". As the court later recorded there was no dispute that the airline had never set any of it aside.

Just over five years later, after an interim order and a full hearing, Hip Hing lost its trust claim. The clause was clear and its own records were in order. The problem was that the books that decide whether a retention trust can be proved belong to the employer.

What happened to the money

The Occupation Permit came through in February 2019. Between 25 November 2019 and 30 June 2021 the airline paid Hip Hing HK$160 million in instalments, by transfer and by cheque, without saying which part of the account any payment was for. Picture the finance team receiving those. HK$160 million of receipts with no label on them, and a decision to make each time about which account to credit. Then the airline stopped paying. On 10 March 2022 Hip Hing took summary judgment for HK$192 million, with leave for the airline to defend a further HK$21 million, and six days earlier a winding up petition had been presented against the airline. In a reply dated 12 August 2022 the airline put its position in writing. It had not set aside any money on account of the retention, it was not holding anything on trust, and the HK$160 million already paid had, it said, been partly the retention. That last argument was available because under the 2018 supplemental agreement the retention fell due within 90 days of the occupation permit, so by the time the payments started it was already payable.

That reply is why Hip Hing went to court on the trust. On 29 May 2023 Madam Justice Mimmie Chan granted an interim injunction ordering the airline to pay HK$56,321,000 into a separate account, as "the course which involves the least injustice" while the question was decided. The money went into an existing airline bank account, under an undertaking not to touch it. A holding order pending the substantive hearing, and nothing more.

The substantive judgment came on 1 February 2024 and went the other way. The judge accepted that money can be held on trust without sitting in a separate bank account; segregation is "one but not the only relevant factor". A trust still needs certainty of subject matter, meaning a fund or bulk that can be identified, and at the hearing all Hip Hing could point to was "all the money in any and all bank accounts" of the airline. Nobody had evidence of which accounts the interim payments had come from, so there was no identified bulk the retention could be part of. The question was whether a trust already existed when the restructuring scheme took effect in April 2023, before any money had been set aside, and on that date the trust failed. The judge called the result "unfortunate", since the clause exists to protect contractors against an employer's insolvency, and added a practical remark that contractors should be vigilant and apply to court early rather than wait at their own risk.

The window Hip Hing had. 1,026 days.

Retention of HK$56.3m fell due in May 2019. The winding-up petition landed in March 2022. Nothing was filed in between.

Every step Hip Hing took to protect the HK$56.3m came after the petition. By then the airline was in a scheme, no fund had been set aside, and the trust clause had nothing to attach to.

Source

Dates as recorded in the 2023 Court of First Instance decision. Retention due date approximate: 90 days from the occupation permit under the supplemental agreement.

The subcontractors who kept theirs

Hsin Chong went the other way, on facts that were unusually clean. There the insolvent party was the main contractor, Hsin Chong Construction, in liquidation since 27 August 2018, and the employer, the Chinese University of Hong Kong, was solvent. The university had already paid over the final sums, retention included, and the provisional liquidators asked whether the retention attributable to the nominated subcontracts formed part of Hsin Chong's estate. On 25 October 2021 the Court of Appeal held that it did not. The retention was trust money, to be released to the subcontractors, while the non-retention balances stayed in the estate.

What made the difference was the university's books. It told the court the project was funded by the University Grants Committee, that it had opened a project account with the approved budget and, when the main contract was awarded, booked a capital commitment equal to the contract sum, retention included. Each net payment came off the commitment and the retention stayed in the balance. Its quantity surveyor valued work done and retention for the main contract and for each nominated subcontract separately on the payment certificates.

That is the university's evidence, and the Court of Appeal adopted it. The arrangement was modest. The retention was only reclassified into a retention money payable account at each financial year end, for the annual report, and day to day it sat inside the capital commitment. There was no bank account dedicated to the retention itself. What the court found was that the retention could be identified from the university's records at any time and had never been mixed with the university's own money or with money Hsin Chong was entitled to, in the sense of becoming unidentifiable. "Context is everything," the Court of Appeal said, and in 2024 the Hip Hing judge called that accounting "the important feature leading to the decision".

Hip Hing's own books did their job

The airline's HK$160 million of payments were never labelled. Hip Hing's books credited them to its total receivables and total job income accounts rather than to its retention receivables account, and because the airline had never said what the payments were for at the time it made them, the judge accepted in 2023 that they went against the general sums due on the project. Hip Hing's records were evidence of the amount and of what had been paid, and the court relied on them for exactly that.

They could not do the other job. Whether a trust fund existed was a question about the airline's books, and those showed nothing. Hip Hing's ledger fixed what it was owed. The employer's ledger was the only place the court could look for whether that money was still identifiable as Hip Hing's. That is our summary rather than the court's words, but it is the shape of both judgments.

What a finance team can do with that

Keep a retention receivable ledger that a court could read. Per contract and per certificate: the amount certified as retention, the release conditions, the expected dates, and what has been received against which certificate. Under clause 32 of the 2005 form the architect certifies half the retention 14 days after substantial completion and the rest within 14 days of the defects rectification certificate, unless the parties have amended it (Hip Hing's contract had been, by a supplemental agreement), so the mechanism is knowable from the start and the dates become knowable as each certificate issues. One pattern that comes up with almost every contractor finance team we talk to is retention sitting on the trial balance as a single ageing line, behind work that isn't theirs and a timeline nobody controls. Hip Hing's ledger was better than that, and it was still only the minimum.

Ask where retention sits, early, in writing, with a date on it. Pinsent Masons' reading of the case is that contractors should request evidence at the outset that retention has gone into a segregated account or is identifiable in the employer's accounts and not mixed with other funds. DLA Piper's note on the judgment suggests negotiating a contractual right to request proof that the trust has been created. Neither step creates a trust by itself, and the request has a cost. The university was close to a best-case employer, publicly funded with a capital commitment booked on day one. A private developer may refuse at tender, when the contractor has the least leverage it will ever have. Ask anyway, tie the request to a certificate, and file a refusal alongside the counterparty's credit check, because that is what it is.

Don't expect the payment law to do this for you. The Construction Industry Security of Payment Ordinance (Cap. 652) has been in force since 28 August 2025 for contracts entered into on or after that date, of at least HK$5 million for construction work or HK$500,000 for related goods and services. It changes payment claims, timing and adjudication. It does not require project bank accounts and, as DLA Piper's security of payment note puts it, there is no statutory provision to quarantine retention; whether retention is held on trust "is a matter of contract and conduct of the parties". Hip Hing's 2017 contract predates the ordinance, and a 2026 contract would be in the same position on retention.

What a project accounting system can do is narrower than any of that, and worth stating plainly. In the NetSuite configurations we build for contractors, retention receivable is a subledger per contract, each certificate is matched to the payments received against it, release dates are tracked and flagged as they approach, and the dated request to the employer sits on the project record with whatever reply came back. That is data discipline. It demands the team posts every certificate and labels every receipt, and it identifies nothing in the employer's accounts. Our construction page and implementation page cover how that is set up on a contractor's chart of accounts.