TAK CHANCE FOOD PRODUCTS INDUSTRIAL CO LTD v. WIDA DYEING FACTORY LTD AND ANOTHER

HCA 10723/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10723 OF 1999

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J U D G M E N T

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1.  In November 2001 this action came before me as a claim in contract and tort for damages.  During the trial the defendants in concert admitted liability as to 20%; the dispute centred on the remaining 80%.  In a judgment handed down on 28 November I found in favour of the plaintiff.  This is the restored hearing to establish the quantum.

2.  The claim concerns two floors in an industrial building in Tsuen Wan separated by a concrete slab which was the floor of one and the ceiling of the other.  The plaintiff purchased the lower floor, the 5^th, in 1982, and from then began operating a mushroom canning factory.  In those days about half the area was used in the canning process and the balance for storage.  Then in 1991 it transferred the canning operation to a factory on the Mainland and thereafter the entire 5^th floor, of about 26,000 square feet, was used for storage.  It was so utilized when this cause of action arose.

3.  At the material time the 2^nd defendant owned the 6^th floor, which was occupied by a related company, the 1^st defendant.  The 1^st defendant carried on business as a dyeing factory.

4.  In the course of the 1990’s the concrete slab between the 5^th and 6^th floors showed signs of deterioration.  At first this was manifested in the appearance of damp spots, some coloured, on the ceiling of the 5^th floor.  The concrete in certain areas started chipping and cracking.  Then pieces of concrete broke away, exposing rusted reinforcing.

5.  In 1999 the plaintiff alerted the Buildings Department (BD), and following an inspection a Building Order (BO) issued, dated March 1999, compelling restoration work to render the floor/ceiling safe.  Then in June 2000 there was a major incident when large chunks of concrete broke away and fell into the 5^th floor, damaging some of the plaintiff’s stored stock.

6.  Meanwhile, the plaintiff engaged senior academics of the Department of Civil and Structural Engineering of Hong Kong Polytechnic University to inspect the premises and report.  Their findings were that the cause of deterioration was seepage through the floor of liquid from above which caused corrosion of the reinforcing and expansion and spalling of the concrete.

7.  Based on those findings, the plaintiff looked to the defendants to make good the damage.  When that did not happen the plaintiff issued its writ, which was in July 1999.

8.  The pleaded defence was that it was the plaintiff’s canning operation in the 1980’s which caused the damage or at least contributed to it.

9.  As at the date of trial the dyeing factory was in full production and the warehouse was still being utilized as such, albeit only as to about half of its floor area.  In terms of the BO it was necessary for the damage to be repaired whatever the outcome on fault and who should bear the costs. 

10.  With this in mind, at the outset of the trial, by consensus, it was agreed that I should rule on liability and then adjourn to give the parties the opportunity to agree the costs and repair programme under supervision of the BD and to minimize disruption of both operations, with liberty to restore if that proved not to be possible.

11.  The work has been carried out; there is no dispute as to workmanship.  The plaintiff has sold the 5^th floor.  What is challenged are some of the items the plaintiff is looking to be compensated for.  So it is, more than four years on, that the matter is back before me for rulings on quantum.

12.  It is apparent from the outset that the defendants were looking to have the damage repaired without delay and in a spirit of co-operation.  Even before judgment had been handed down, by letter dated 26 November 2001, their solicitors wrote to the plaintiff’s inviting agreement on the appointment of one Lee Chun Fat to be the designated Authorized Person (AP) at his quoted fee of $100,000.  The plaintiff’s response was that it was attempting to contact the responsible officer of the BD and would revert.

13.  But it did not.  The plaintiff engaged one Ng Chi Chai to be the AP without further discussion, notwithstanding that his charge of $123,000 was significantly more than that quoted by the defendants’ choice of AP.  Then there was a site inspection in January 2002 attended by Mr Ng and a BD inspector.  The inspector required temporary shoring works to be undertaken; Mr Ng got up a proposal and that was approved by late January.  Mr Ng asked for and was quoted the cost of the shoring work from a contractor called Bright Construction Co. Limited (Bright Construction), and approved the quote of $230,000.  It was not until a letter of late February that the defendants were notified of these developments.

14.  Thereafter the plaintiff continued to operate unilaterally, asking for and receiving a quote from Bright Construction to complete the remedial work proper.  This was for $1,643,850.  The defendants’ grievance was not just that their proposal for AP had been ignored, not just that there was no consultation as had been agreed was the way forward in the trial, but that there was no indication that Mr Ng had sought tenders from any other contractor.

15.  This of course smacked of the plaintiff ignoring its legal obligation to mitigate.  But it was also contrary to Mr Ng’s contract of employment as AP.

16.  Albert Wong, a director of the defendants having conduct of the matter, immediately got quotes from two other contractors, called Program Contractors Limited (Program Contractors) and Leader Engineering and Construction Limited (Leader Engineering) for undertaking both the temporary shoring work and the remedial work.  These were significantly cheaper than those of Bright Construction.

17.  Meanwhile, Bright Construction was given the job of completing the temporary shoring work and it did so, in or about May and June 2002.  The plaintiff paid the quoted price of $230,000 plus $2,500 for an insurance premium.

18.  With the defendants through Mr Wong by now fully involved, it came to be agreed with approval of the BD that the defendants could appoint their own AP and contractor to undertake the remedial work proper.  But the plaintiff first required to be indemnified for the amount it had paid Bright Construction for the temporary shoring work it had completed, and such further charges that there might be for the dismantling of it.  These indemnities were prepared and duly signed. 

19.  The plaintiff meanwhile had paid Mr Ng on account for his services to date $78,800 and he was then discharged.  His approved proposals for the remedial work were asked for by the defendants.  Having been paid for they were handed over.

20.  Thereafter the defendants appointed Mr Lee, their original choice, to be the AP, and Leader Engineering, whose quote for the remedial work was the cheapest of the three, was engaged to carry out the remedial work.

21.  The work was finally undertaken in the first half of 2003, and completed in July 2003.

22.  The defendants paid Leader Engineering the quoted price plus an extra to meet the cost of waterproofing the floor.  It also paid Mr Lee his full quoted price of $100,000.

23.  By an arrangement between the parties the defendants, with spare warehousing space in the building, provided temporary accommodation to the plaintiff for its stock on the 13^th floor whilst the work was being carried out.

24.  In February 2004 the plaintiff’s solicitors sent a schedule of outstanding damages and sought reimbursement.  The defendants declined to pay and challenge the various items in whole or part.  These are the matters I am now required to resolve.  There are eight in all.

25.  The first is the cost of an updated report asked for by the plaintiff from Hong Kong Polytechnic University amounting to $78,650.  This was dated May 2001.  For some reason that is not clear to me this was called for and was available well before the liability trial in November 2001 but was not produced, nor was its existence disclosed to the defendants or to me.  It is stated that the update was “necessary for submitting to the BD at the material times in order to provide an updated status of the dilapidated conditions of the 5^th floor premises at the time to the BD and in order to postpone the execution of the BO”.

26.  It is pertinent to note that in the exercise of taxation of the plaintiff’s costs following the success of their claim on liability this item was submitted but, hardly surprisingly, was taxed off.

27.  The second is the amount paid Mr Ng, on account of the work he undertook, of $78,800.

28.  The third is the cost of the temporary shoring work undertaken by Bright Construction of $232,500.

29.  The fourth is the cost of transporting the plaintiff’s stored goods to and from the 13^th floor during the period the repairs were carried out.  This came to $7,000. 

30.  The fifth is the cost of electricity used on the 5^th floor by Leader Engineering in carrying out the repairs.  This came to $10,474.

31.  The sixth is a more complicated calculation arising from a decision made by the plaintiff in 1999.  It was, at the material time, the owner of two sub-units on the 17^th floor, of about 6,000 square feet.  With the ceiling on the 5^th floor in a serious state of disrepair it decided in October 1999 to shift half of its stock to the 17^th floor premises.  It did not disclose this to the defendants.  It did not undertake an inventory. 

32.  The 17^th floor had been let, as a factory, up to the middle of 1999 at $17,369.60 per month, following which the tenant moved out.

33.  The plaintiff now claims that because it was forced to use the space to store its own goods for the period from October 1999 to July 2003, a period of some 46 months, it was denied the opportunity to earn rent comparable to the rent it had been enjoying up to that time.  It claims that rent at $17,369.60 multiplied by 46 months, discounted as to 50%.  That comes to $399,500.80.

34.  The seventh and eighth are a refund of the management fees and rates paid “for those parts of the 5^th floor rendered non-usable due to the damaged ceiling” for the period April 1999 to July 2003.

35.  Prior to the trial I was informed that the defendants agreed to meet the fourth and fifth items but challenged the rest, in whole or in part.

36.  I come now to deal with these in turn.

37.  I begin with the general comment that it is quite apparent that the plaintiff behaved in a highhanded and arrogant manner once liability had been found in its favour.  Quite absent was the spirit of co-operation and decision sharing that I had been assured would follow the trial on liability, whatever the outcome.  This as I find materially added to the time it all took and the costs legal and otherwise that were incurred.  The flavour of this is reflected in my findings on quantum I now come to.

38.  The first item is denied in toto.  It was sought in the taxation process and rejected; presumably because it was not used at trial.  It was not called for by the BD and has no place as an item the charge for which should be reimbursed. 

39.  I have sympathy for the defendants in their challenge of the second item, Mr Ng’s charge.  His appointment reflects the attitude of the plaintiff I have already alluded adversely to.  But the defendants must accept some liability.  It goes without saying that two APs are going to cost more than one.  I was told Mr Lee started from scratch; that was why he charged for and was paid his original quote of $100,000.  That being so, why was Mr Ng’s remedial proposal asked for, if not to be made use of?  It seems to me that Mr Lee’s charge should have been reduced, and some of that paid to the plaintiff in settlement of a reasonable part of Mr Ng’s bill.  I fix that at $45,000.

40.  The defendants’ major challenge to the Bright Construction charge for the shoring works has already been reproduced (see paragraph 14).  Again I am sympathetic.  The total cost of $232,500 plus $50,000 more for dismantling was way above the quote of Program Contractors and Leader Engineering. 

41.  There is no indication that Mr Ng called for further quotes.  If he did not, as seems likely, he should have.  He was contractually bound, and his principal the plaintiff had a duty to mitigate.  The defendants should have been justified in resisting at least a part of this item.  It was thoroughly highhanded and irresponsible of Mr Ng to accept the quote without tendering for others. 

42.  But the difficulty the defendants have is that the immunity that they signed, presumably on legal advice, is quite unequivocal.  It amounts to a settlement of this part of the claim to which they are bound.  This figure stands at $232,500.

43.  The fourth and fifth items having been conceded I come now to the sixth; that is, the charge the plaintiff has made for the use of the 17^th floor.

44.  There is a legal challenge to this item and a factual one.

45.  The legal challenge goes to the pleadings.  In its statement of claim, dated July 1999, the plaintiff claimed, as an item of special damages, “loss in respect of and/or relating to vacation of the 5^th floor premises to be assessed”.  Of course at that time there had been no charge incurred, which began in October 1999.  But thereafter and to date there has been no amended statement of claim detailing this item.  And it is an important rule of procedure that a plaintiff will not at trial be allowed to give evidence for any special damage which is not claimed specifically either in his pleading or particulars; see the WB at 18/12/41.  The plaintiff made reference to this item at the outset.  But as details became known it was incumbent on it to particularize those details or abandon the claim.

46.  The factual challenge goes to the removal itself.  The defendants were not advised of this, as being a necessary consequence of the deteriorating ceiling to keep safe the plaintiff’s stock.  They had no opportunity to monitor the extent to which the 5^th floor was rendered hazardous or call for an inventory of stock to be moved.  They were not told of the basis upon which the plaintiff would be seeking to recover the notional costs of storage of that stock.  They were not invited to provide their own space.

47.  The significance of this last concern is apposite, because Mr Wong, the director of both defendants, said that throughout they have been the owners and occupiers for their own use of at least 100,000 square feet of warehouse space in the building, and could have accommodated such percentage of the plaintiff’s stock without disruption of their own operations.

48.  These challenges in my view both have much weight.

49.  Certainly, the pleading is sparse.  It is not particularized when it should have been.  But it is not entirely devoid of detail.  It relates to the need for alternative premises pending making the 5^th floor safe.  The need for special damages to be claimed explicitly is to give a defendant the opportunity to know what he is up for.  The defendants as owners and occupiers of the 6^th floor would have been well aware of the substandard condition of the concrete slab and that it was getting worse.  They knew of the BO.  And the collapse of whole chunks of the ceiling in the incident of 2000 would have been a dramatic indication apparent to all that the situation had become critical.  They could have sought further particulars of this item but presumably chose not to.  In the circumstances, I decline to refuse the plaintiff’s right to claim damages under this head on the pleadings point.

50.  But on the factual point the plaintiff has a much harder row to hoe.  It owed it to the defendants to give notice of what it was planning to do and what it regarded as a reasonable charge for that.  And there was no evidence about that before me.  There was nothing to suggest that all the available 17^th floor space was needed; nothing to suggest that the rent the previous tenant had paid for the space as a factory in 1997 could have been matched by a tenant looking for a warehouse two years later.  With knowledge of a pending claim — after all the proceedings had been issued — all this could and should have been established, and disclosed. 

51.  It is apparent, as I find, that the defendants must be responsible for a reasonable charge.  The plaintiff has discounted by 50%.  In my view, doing the best I can with the limited information I have, a further discount is warranted.  For this item I allow $200,000.

52.  The seventh and eighth items can be shortly dealt with.  They amount to a claim for double enrichment.  They are refused.

53.  There is judgment for the plaintiff in the sum of $494,974.

54.  The costs order is nisi.  The plaintiff has judgment but for well below its claim.  By its conduct post trial on liability it materially and unnecessarily added to the costs of sorting out the damages.  There is no order as to costs.