KENNETH KO DESIGNS LIMITED v. FULLRATE ENTERPRISES LIMITED

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JUDGMENT

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1. The defendant operates a boutique called "Joseph Ho Boutique" which deals in high-class ladies fashions. In early 1985 it negotiated with Hong Kong Land ("HKL") for the tenancy of a shop in the Landmark and entered into a tenancy agreement for Shop 101 to commence on 1st May 1985 for a period of 3 years at a rent of $95,535.00 per month, exclusive of rates.

2. For the design and decoration of the shop, the defendant engaged the plaintiff by a contract which was concluded on or about 30th April 1985. It was intended that work should be finished on 31st May so that the defendant could commence business on 1st June. In the event the plaintiff completed work a day late, but because the defendant was dissatisfied with the standard of finish the defendant did not take delivery of the shop until 3rd June when, in accordance with the terms of the contract the defendant gave the plaintiff a cheque post-dated by 30 days to 3rd July for the final payment of $156,800.00.

3. In the meantime, the defendant commenced business on 6th June and continued negotiation with the plaintiff for the rectification of certain defects. Negotiations, unfortunately, finally foundered. The defendant stopped its cheque. As a result, the plaintiff commenced this action on the cheque; the defendant counterclaimed for damages for breach of contract; alternatively for the cost of remedial work and loss of profit; and for a declaration that the cost of work under the contract should be reduced by reason of breach of contract.

4. The plaintiff obtained judgment under 0.14 on 9th September 1985. The action therefore continued on the defendant's counterclaim.

5. It is the defendant's case that inspection of the shop on 1st June revealed these defects:

6. The plaintiff's representatives at the shop, including Kenneth Ko himself, promised to put things right in a day.

7. On 2nd June, HO Chun-sing the general manager of the defendant inspected the shop. He found painting work going on, and work on the edge between the 2 kinds of flooring material. He also found the floor unsatisfactory, cracks on the walls while the ceiling appeared to have "waves", that is, was uneven. The plaintiff Is representative, Elvis Chan, agreed remedial work would be completed that day and the shop delivered to the defendant on 3rd June.

8. On 3rd June, Ho learned there were still problems at the shop. However, Ko phoned and promised to carry out remedial work. On the same day, Ho drew the cheque for the final payment. Although there is no direct evidence, the defendant clearly occupied the shop on 4th June and commenced business on 5th or 6th June. However, on 5th June Miss Kwong, the defendant's manageress, upon receiving information from her supervisor in the shop, phoned Elvis Chan and asked him to replace the hot beam lamps, which would damage the garments, with cold beams.

9. On 6th June Miss Kwong went to the shop and found the lamps had been changed. She also saw that the ceiling was uneven and appeared to have "check" marks which she thought were made by the spotlights.

10. On 9th June Ho again visited the shop. Notwithstanding the plaintiffs efforts, he found the situation even worse. The wall looked as though it had a "drawing" on it. Ho returned again on 30th June and now found the floor to be a bit uneven and buckled. As a result, he instructed Miss Kwong to contact the plaintiff which she did by writing on 3rd July (p.38). In this letter, Miss Kwong asked for "minor problems" to be rectified within a week and, in the meantime, said the cheque for the last payment would be stopped and a replacement would be issued upon receipt of a letter from the plaintiff guaranteeing to carry out the work satisfactorily. By letters of 3rd and 5th July (pp.37 and 41) the plaintiff gave such guarantee.

11. In the meantime Miss Kwong contacted the plaintiff and arranged for it to carry out work after business hours on 3rd July. Next day, she found the walls which had been repainted to be even worse, with uneven shading. Another appointment was made for the evening of 5th July but the defendant's staff, having stayed late on 3rd July would not stay. Miss Kwong advised the plaintiff and sought to make the appointment for 7th July. As a result, a Kenny Cheung came to her office and insisted on the 5th July. He swore at Miss Kwong. Ho was called and he insisted that the appointment should be on 7th July.

12. At this stage, relations broke down and the dispute was put in the hands of solicitors. But it was not the end of the story. Cracks continued to appear in the walls. More importantly, after consulting a surveyor, the defendant discovered in mid-July that the false ceiling of the shop was not constructed with a gypsum-board backing as specified in the plaintiff's quotation.

13. A formal survey was carried out on 9th August. This revealed:

14. Apart from the cracks in the paintwork, these complaints were made to the plaintiff for the first time in the counterclaim.

The plaintiff's case

15. Through Ko, the plaintiff said it was worried about 2 things in connection with the contract. First, shop 101 and the adjoining shops and corridor had been an integral part of a bank. Considerable reconstruction, electrical and mechanical work would have to be carried out by HKL contractors, over whom the plaintiff would have no control. Delay on the part of these contractors would cause difficulties in completing the contract on time.

16. Secondly, the plaintiff was warned by other persons not to take the contract because of Ho's character. The delay in payment of the deposit put the plaintiff on its guard.

17. Throughout the working period in May, therefore, the plaintiff took the precaution of warning the defendant by letter of various problems which might delay completion; in particular, the removal of a hose-reel from the shop to the corridor by HKL at the defendant's request and expense; the installation of electric wiring, again by HKL contractors, which would have to be above the false ceiling; and the building work in the corridor, again by HKL.

18. The electric wiring proved particularly troublesome. In the event the plaintiff had to ask HKL to put in a temporary electricity supply but even this could not wholly be done in time. In order to complete the shop by 1st June, the plaintiff had to put up the false ceiling grid and some of the plywood panels leaving access panels for workmen to deal with electrical and air-conditioning ducting. These workmen had to stand or crawl on the grid.

19. The hose-reel cabinet was not removed until 28th May. The plaintiff then had to brick-up, plaster and paint this area, leaving an attractive recess. In order to ensure an even colour throughout the shop the final coat of paint for all walls could be carried out only after the brick and plaster work had been completed

20. Although at 2200 s.f. the shop was relatively large, HKL only installed one return-air vent. This had 2 consequences. As the vent was below the level of the false ceiling, HKL waived its requirement for a gypsum backing and the plaintiff omitted this from the ceiling.

21. Secondly, considerable extractor force was required through the vent in order to ensure sufficient circulation of air in the shop. HK L did not provide air-conditioning until a day or two before completion. When it was switched on, it had a drying effect, particularly in the area near the vent. This contributed to cracks in the paint, particularly when the new brickwork was still damp; and to contraction of the wood floor.

22. Once the shop had been completed, the plaintiff did its best to deal with complaints from the defendant. Its contractors were sent as soon as possible to do touching up because the plaintiff was jealous of its reputation. Its attitude to the matters now complained of is that they are of no great consequence and that the finished work is the best that could be done in all the circumstances.

23. At the request of the defendant, at least 30 cold beam lamps were installed in place of hot beam lamps, and 4 tungsten light tubes were installed in the fitting rooms.

24. It was the responsibility of HKL to screed the floor of the shop. In order to speed up this work, the plaintiff agreed with HKL to supply contractors for this work for which HKL would pay, and asked HKL to indicate the final corridor level so that the contractor could screed to the appropriate level. HKL provided a mark but, as it turned out, the mark was wrong so that as late as 27th May further screeding had to be carried out. The plaintiff arranged for this to be done but considered it the responsibility of the defendant.

25. Accordingly, the plaintiff sought to set off the cost of light fittings and screeding, totalling some $15,220 against savings on the false ceiling, occasioned by the omission of gypsum, of $15,160.

Remedial work

26. For the defendant, Mr. Mullick confined the defendant's claim to the cost of remedial work and loss of profit. Two matters can quickly be disposed of.

27. First, it is conceded that the defendant had no particular desire for a gypsum-backed ceiling other than to comply with HKL requirements. The claim for the cost of a new ceiling has been abandoned.

28. Second, although it was pleaded that the ceiling was "wavy and uneven", there was no specific claim in respect of this alleged defect. Mr. Mullick, for the defendant, did not address me on it in closing, and indicated the specific sums he was seeking under the various particulars given in para.7 of the re-reamended counterclaim. Further, the evidence adduced was vague and inconclusive. I am satisfied that, when I come to deal with the ceiling, no account should be taken of this complaint.

The floor

29. I shall deal first with the gaps between the teak boards because my finding will be crucial to the claim for loss of profit.

30. Julian Poon, a loss adjuster, gave evidence on behalf of the plaintiff. He inspected the shop on 12th December and produced a report which appears at p.112 of the bundle of documents. He said he found gaps of 2-3mm between the boards throughout the shop, and that this "cannot be acceptable". He attributed this defect to contraction of the wood as moisture dried out, and not to poor workmanship. In cross-examination, he conceded the whole floor would have to be stripped, the gaps filled and the boards sanded and varnished. This would take about 3 days during which the shop could not open for business unless the work is done at night, section by section.

31. For the defendant, Alan Chan, a designer in Atta Interior Designs, carried out the independent survey on 9th August 1985. He found gaps of 3-4mm between the boards but said it would be difficult or impossible to remedy the defect. He explained in cross-examination that if wood is used to fill the gaps it might be of a different colour from the rest of the wood, while plaster filling would come off as people walked on it. The result would not be good looking. He made no provision for this item in his quotation for remedial work. He agreed that the gaps are not dangerous.

32. Ho, who should be most immediately concerned about the condition of the shop, said that on 2nd June he saw a "big crack between boards", that "later there were cracks in the flooring" and that on 30th June he found the "floor was uneven and buckled, not severe, just a little bit buckled". In cross-examination he was asked why he made no mention of the gaps in the letter dated 3rd July to the plaintiff.

He said,

"As I'm in fashion business, time essential. If I want them to touch up floor it would take them a few days. That's why I not mention it thinking at most I would not employ them for any other work. Although there are defects in floor, can still be used. "

33. It is clear that the defendant, through its most important witness, was not too concerned about the gaps. The gaps are not dangerous. The gaps as shown in the photographs taken by Alan Chan and Poon do not appear too unsightly. The floor, as it appeared in Ko’s photographs, has a pleasing appearance overall. It does not appear to have affected business because, according to Ho, the shop is making a profit of up to $100,000 per month.

34. Notwithstanding Alan Chan's evidence, I am satisfied that, as far as gaps are concerned, the floor was finished to an acceptable standard.

35. It was next complained that nail heads were visible in the floor. This is certainly so. In places the nail heads themselves are visible - Alan Chan's photograph 1; in others, the nail heads had been covered with a putty different in colour from the wood - Poon's photograph 2. Asked about this in cross-examination, Alan Chan said "If client accepts, its O.K. "

36. Neither Ho nor Miss Kwong mentioned nail heads in their evidence. There was no mention of nail-heads in correspondence. I find that, in this respect, the floor was finished by the plaintiff to a satisfactory and reasonable standard.

37. Finally, in one corner, one of the teak boards has warped or lifted so that it stands about an inch above the level of the adjoining carpet. It is agreed that this defect must be put right. Alan Chan's photograph 3 and Poon's photograph 5, even allowing for camera angle, demonstrate clearly that the raised board is both unsightly and dangerous.

38. The difficulty lies in ascertaining the extent of the work involved. Alan Chan indicated that, after the offending board has been removed and replaced, the whole floor will have to be sanded and polished to ensure a good colour match. He put the total cost at $9,000.

39. Peon said the detached board can simply be nailed back into position, sanded and revarnished at a cost of $800-$1,000. He did not think it necessary to revarnish the whole floor.

40. Alan Chan explained that there is a plywood base to which the teak boards are secured by nails. In his view, the plywood base has come loose in this corner. 3 boards above it need to be removed, the plywood resecured to the cement floor and the boards replaced and touched up.

41. I accept Alan Chan's evidence which was for more clear and convincing than Poon's hopeful nailing. I do not accept, however, the need to revarnish the whole floor. The photographs show that the teak boards already vary in shade and colour. The remedial work will be confined to a corner largely concealed by the fitting rooms. A significant or obvious difference in colour is unlikely.

42. Alan Chan's estimate for the necessary remedial work, item 1 of his quotation, is $5,500. In the absence of evidence from the plaintiff of the cost of the only remedial work necessary, I award the defendant $5,500.

2 days' loss of profit

43. Mr. Mullick did not pursue his complaint of late completion but said rather that, as the finished work was unsatisfactory, the shop could not be handed over for 2 days while remedial work was being carried. That is a very fine distinction which I have some difficulty in grasping.

44. It is clear from the evidence that the plaintiff did carry out work to the walls and floor on the 1st and 2nd June. I find that the defendant could not have moved garments into the shop and started displaying them during those 2 days.

45. Mr. Mullick accepts that, as the shop was new, profit would be nominal. I go further. The shop was in a remote corner of the Landmark, the corridor outside was still under construction and adjoining shops were unoccupied. There was nothing to attract customers to that area. I find the defendant suffered no loss.

Paintwork

46. Hairline cracks in the paintwork, the only source of consistent complaint, are not in dispute. The evidence is that these are largely confined to an area from where the hose reel was removed on 28th May. The late removal was because HKL would only carry out the necessary work upon confirmation from the defendant.

47. Alan Chan agreed that, even with good workmanship, cracks appear in paintwork. He and Poon agreed that air-conditioning can be a cause of contraction and cracking. The solution is to repaint, or to strip the area, replaster and paint.

48. Miss Yuen, for the plaintiff, asked me to consider the background against which the painting was done. The plaintiff was under pressure to finish work by the end of May. It faced formidable difficulties, not of its own making, because HKL was out electrical and mechanical work and because the hose-reel was not removed until late in the month. The air-conditioning was not turned on until the end of the month and its drying effect was exacerbated by the provision of only one return-air vent which created a greater movement of air, particularly in the hose-reel wall area.

49. In my view, these factors do not avail the plaintiff. First, the plaintiff was aware of the considerable conversion work to be carried out by HKL in this area of the Landmark. It could have insisted on a more generous period for the work. The evidence showed that adjoining shops were not even under decoration at the end of May. Secondly, although it went to some lengths to warn the defendant about the problems, it did not ask for an extension of the contract period. As the witnesses put it, they "had faith" in completion on time. In my view, the plaintiff simply made a bad bargain and must be liable for the substantial remedial work to the hose-reel wall.

50. There was some complaint about poor paintwork on the fitting-room partitions. The evidence was far from clear while the photographs suggest nothing untoward. I find that no remedial work is required here.

51. Alan Chanr quoted remedial paintwork, including the partitions, at $8,000. Poon's contractor estimated remedial work to the walls only at $6,500. I accept the latter figure and award this to the defendant.

Mirror Panel

52. Alan Chan gave evidence of a gap between the side of a mirror panel in a fitting room and an adjoining pillar. This can be clearly seen in his photograph 8. He said that because the mirror is so strongly fixed to the wall it will have to be broken up and one with a better fit put in its place. But later, he said that the gap indicates poor workmanship and that there is a possibility that the mirror might fall off if a customer bumps against it.

53. I find Alan Chan's evidence confusing and contradictory on this point. I accept the evidence of Poon, who could find no defect, and Ko who said a touch of black paint will solve the problem. I award nothing to the defendant.

Loss of profit during remedial work

54. Mr. Mullick sought loss of profit for 4 days for the period during which remedial work will have to be carried out. This claim was based largely on the need for repairs to the floor.

55. I have found that only a small area of floor requires attention. I am satisfied, on the evidence, that remedial work to the floors and walls can conveniently and reasonably be carried out at night. It will not be necessary for the defendant to close the shop.

56. I find that work can be completed in the course of 2 nights although not necessarily consecutive ones. New plaster will have to be allowed time to dry thoroughly before it is painted. The defendant will have to provide staff to supervise the shop. 2 salesgirls would not be unreasonable. They will have to be paid and, to this extent, the defendant's overheads will be increased and his profit reduced. There is no evidence of the rates of pay of salesgirls. Doing the best I can, I award the defendant $1,000.

False ceiling and set-off

57. It is accepted that some deduction should be made in favour of the defendant for the plaintiff's omission of gypsum-board backing. Ricky Lam for the plaintiff put the cost at $6 per sq.ft. for material and $2 per sq.ft. for labour. Mr. Mullick did not seem disposed to argue with that although Alan Chan put the cost at about half the quoted cost of the ceiling. However, the prices Alan Chan gave seemed more a product of guesswork than knowledge. I accept Ricky Lam's evidence and I award the defendant $15,160 for 1895 sq.ft.

58. Miss Yuen contends, however, that the additional work carried out by the plaintiff must be set off against this sum. First, there is the cost of 30 replacement cold beam bulbs installed at the request of Miss Kwong who was concerned about the damage that can be caused to garments by hot beam bulbs. Lam acknowledged the possibility of damage but was unwilling to concede it was due to heat. He said it is brightness which matters.

59. I accept Miss Kwong's evidence. She has experience in this trade. She gave her evidence clearly and spontaneously. Lam fairly agreed he quoted on the basis of hot beam bulbs because they are cheaper.

60. In my view, the plaintiff, who is not without experience in designing and decorating boutiques, should have been aware of the need for cold beam lamps. Proper provision should have been made. It is not entitled to any set-off for this item.

61. Next, the plaintiff installed tungsten light tubes in each of the 4 fitting rooms for greater brightness. Miss Kwong denied that she asked for these to be fitted. Elvis Chan said he received such a request and Lam pointed out that he had made no provision for them in his quotation. Having made several concessions on price and being concerned about payment as Ko clearly was, I think it unlikely that the plaintiff installed these lights voluntarily. I accept Elvis Chan's evidence. I am satisfied that the installation of these lights was additional work for which the plaintiff should be paid. Lam put the cost of the lights and labour at $344. I allow this sum.

62. Finally, the plaintiff seeks a set-off for the additional screeding work. Screeding was the responsibility of HKL. If the screeding was unsatisfactory because of HKL negligence in marking the level, responsibility for remedial work should lie with HKL.

63. In answer to questions from me, Elvis Chan indicated that the screeding might, in any event, have needed finishing off by the defendant. This evidence was not, however, developed. As it stands, it is in my view insufficient to throw responsibility on to the defendant.

64. Elvis Chan also gave evidence that he informed Miss Kwong about the mistake and the need for further screeding. He indicated, although it is clear from cross-examination that he did not know, that HKL would not pay. He did not say the defendant would be charged. According to him, Miss Kwong told him to go ahead.

65. Again, in my view, the evidence is insufficient to throw liability on to the defendant. I am unable to draw from the evidence an agreement on the part of the defendant, express or implied, to pay for the second screeding. Accordingly, I make no allowance.

66. The only sum to be set off, therefore is $344. The defendant's award is reduced to $14,816.

67. I give judgment for the defendant on its counterclaim in the total sum of $27,816.