必瘦站企業管理咨詢(深圳)有限公司 v. JINGO INTERIORS DESIGN LTD AND ANOTHER

DCCJ 5343/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5343 OF 2009

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BETWEEN

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JUDGMENT

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Background

1.  The Plaintiff (“P”) here claims against 1^st Defendant (“D1”) the sum of RMB510,000 being the liquidated damages for late completion payable under a Guarantee. 

2.  The P, formerly known as “必瘦站美容(深圳)有限公司” (“P”) is and was a company carrying on the business of, inter alia,  chain of beauty salons.

3.  The D1 on the other hand, is and was at all material times, engaged in construction and design works. 

4.  The 2^nd defendant (“D2”) here is and was the shareholder and director of D1.  P had previously discontinued the action against D2.

5.  深圳市中航裝飾設計工程有限公司 (“the Shenzhen Company”) not being a party to this action, is and was at all material times  a company incorporated in PRC carrying on decoration and renovation business.

6.  On 10 July 2009, P and the Shenzhen Company entered into both a Chinese written contract and a Chinese Implementation Contract (“Implementation Contract”) whereby P engaged the Shenzhen Company  to carry out renovation work at 廣州市越秀區中山五路68號五月花商業廣場7樓711號 (“the Premises”) at an agreed contract sum of RMB1,038,000.

7.  D1was responsible for the design of the renovation work and the Shenzhen Company was responsible for the implementation of the renovation work.

8.  D1 says that the renovation work shall follow and are subject to the design drawings and the material description table agreed between the parties.

9.  By a chinese guarantee dated also 10 July 2009 (“the Guarantee”) entered between P, D1 and the Shenzhen Company, D1 agreed to act as a guarantor of the Shenzhen Company in their due performance and observance of Implementation Contract and D1 agree that they would, pursuant to clause 3 of the Guarantee, pay the P immediately damages for late completion due to the Shenzhen Company at an agreed rate of RMB 10,000 per day.

10.  It is not in dispute that by mutual agreement, the original completion date was extended to 18 September 2009.

11.  Clause 2 of the Guarantee provides that:-

“丙方（D1）保証乙方（the Shenzhen Company）履行主合同項下應由乙方履行的所有義務，如乙方未能全面履行主合同的義務約定，丙方保証按主合同中約定承擔乙方的違約責任。”

12.  Clause 3 of the Guarantee provides that:-

“丙方承諾全力為督促乙方嚴格履行主合同的義務，按照合同規定，如因乙方引致逾時完成工程，須即時賠償違約金為每日壹萬圓人民幣計算，同時甲方（P）不得再追討其它損失賠償。”

13.  It is also not in dispute that under the Implementation Contract, P and the Shenzhen Company had agreed that if there is any dispute between them, the same shall be referred to Shenzhen Arbitration Commission for arbitration and that in this case, up till the time of trial,  P had not referred the dispute between the P and the Shenzhen Company to arbitration.

14.  The Guarantee provides that for any dispute arising out of the Guarantee, the P, the Shenzhen Company and the defendants shall all submit to the exclusive jurisdiction of the Hong Kong Courts.

15.  P now complains that the Shenzhen Company had failed to complete the renovation work on the agreed completion date on 18 September 2009.  P says further the Shenzhen Company had despite requests of the P, refused to rectify and/or complete the substandard/uncompleted work, as a result of which, P had to engage another contractor 深圳澤美裝飾設計工程有限公司 (“澤美”) to complete and rectify the renovation work.

16.  P said the renovation work was finally completed 51 days later on 8 November 2009.

17.  P therefore now claims from D1 the sum of RMB 510,000.00, being the amount for late completion calculated at RMB10,000.00 per day as stipulated in clause 3 of the Guarantee.

18.  Before trial starts, parties agree that they will not seek to argue that:-

(a)  the sum claimed by P was by nature a penalty;

(b)  there was any failure to mitigate by the P;

(c)  default/non-completion was contributed to or caused by P, or;

(d)  the quantum of the liquidated sum should not be RMB510,000.00.

The Issue

19.  Parties agreed that the only issue in dispute in this case is:-

“Whether the renovation work carried out by the Shenzhen Company at the Premises pursuant to the implementation contract between the P and the Shenzhen Company were completed on the agreed completion date (i.e. 18 September 2009).”

The Law

Completion

20.  Mr. Alex Ho (“Mr. Ho”), solicitor for D1 submitted that the term “completion” in the Implementation Contract actually referred to practical completion.

21.  He referred to the case of Hectic Interior Design Ltd t/a JP Interior Design & Contracting v Wong Ching Kai, Angus t/a Essence Industrial Co DCCJ 5689/2004 where Deputy Judge Anthony Chow (as he then was) at para 22 of his judgment said:-

“…completion has many meanings. Here we are dealing with fitting out and decoration works, which by its nature involves numerous material suppliers and trades. Defects in either material or workmanship are bound to happen, and therefore the construction trade evolved a concept called practical completion.”

22.  Mr. Ho also referred to this court Halsbury’s Laws of Hong Kong Volume 3 (2010 Reissue) Building and Construction Section where para 65.041 states:-

“ ‘completion’ means ‘practical completion’ ”; and

“ ‘practical completion’ as used in building contracts in Hong Kong means a state of affairs in which the works has been completed free from patent defects other than ones to be ignored as trifling and is distinct from substantial performance.” [emphasis added]

23.  In Mariner International Hotels Ltd and Another v Atlas Ltd and Another FACV 3/2006 at para 27, it was held that “practical completion” means a state of affairs in which the [works] has been completed free from any patent defects other than ones to be ignored as trifling.

24.  P agrees that it is difficult for decoration works to be perfect and that frequently there are defects on delivery of works and therefore parties usually provide for warranty period.

25.  Mr. Victor Lee (“Mr. Lee”), counsel for the P agrees that if the contract item was competed but the work is substandard, the concept of practical completion may apply and the court may decide whether the item has been completed free from patent defects other than ones to be ignored as trifling. He submitted that if there is any patent defect on the item, Clause 3 of the Guarantee is triggered.

26.  Mr. Lee submitted further that reference to “全面履行主合同的義務” in clause 2 of the Guarantee means performance of all terms of the Implementation Contract in accordance with the description and requirement and therefore it required completion of every item of the Implementation Contract on date of completion, i.e. 18 September 2009.

27.  He invited this court to interprete the Guarantee so that failure to instal items stated in the Implementation Contract should trigger clause 3 of the Guarantee.

28.  He said similarly if items were installed but not functioning properly or did not conform to the agreed specifications, the item should be considered incomplete and clause 3 of the Guarantee should be triggered.

29.  Mr. Lee submitted that the scope of works in the Implementation Contract covered nearly everything that the P needed to commence its business in the Premises.

30.  It was said by Mr. Lee that the Premises was intended to be used as a beauty salon branch of a famous beauty salon chain in Hong Kong. 

31.  He argued that in the Guarantee, the parties used terms like “所有義務，全面履行and嚴格履行，the meaning of “completion” should be given their “natural and ordinary meaning” in order to reflect the common sense proposition..

32.  He quoted Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd & Ors, at p726:-

“The parties contract as covenantor and covenantee and do not reserve anything. But whether or not the principle applies, it is only a last resort to resolve an ambiguity. In the present case, I do not think that there can be any doubt about what the parties intended. In my respectful opinion, the judge’s approach was far too narrow and literal. The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve.”

33.  Mr. Lee submitted that by the clear terms in the Guarantee, there is no doubt as to what parties had intended.

34.  Time was of the essence in the Implementation Contract and thus there was the liquidated sum clause upon delay on completion.

P’s Case

35.  Tse Lau Ying (“Tse”), business development director of the P said on 14 September 2009 the P had delivered equipments for their beauty salon business to the Premises and for security reasons, they had asked the Shenzhen Company to return the keys of the Premises to them whilst allowing the workers to proceed with their renovation work at the site thereafter.  Tse took photos of the state of the Premises on the day.

36.  Later, on 16 September 2009, Tse and Bowie Cheung of the P did inspect the Premises together with Tony Yu of the Shenzhen Company and 2^nd Defendant (“Lau”) of D1. 

37.  At the time, Tse showed the others the outstanding items, uncompleted work and substandard work.  There were also work done which did not conform to the approved design drawing.

38.  Tse said after the inspection, the Shenzhen Company and D1 argued who should be responsible for the problem.  Later the Shenzhen Company had requested for additional charges for rectifying/completing the substandard/defective/uncompleted works which the P refused and the Shenzhen Company failed to rectify and to complete the renovation work.

39.  Tse said P refused to pay these additional charges because the mistake was not due to that of the P and these were not additional work.

40.  Tse said the Shenzhen Company and D1 had later sent her a draft inspection report “室內裝飾工程完工後檢驗報告” allegedly based on an agreement between all parties on how to follow up on the renovation work in order to complete the Implementation Contract.

41.  Tse said P never agreed to the contents of this report and refused to sign on it.  She said there were missing outstanding items which required attention.

42.  By an email dated 18 September 2009, the Shenzhen Company informed the P that the works were completed and requested for further payment under the Implementation Contract.  In the same email, the Shenzhen Company alleged that P had agreed to the said inspection report. 

43.  P therefore by letter dated 22 September 2009 replied that the renovation work was not completed and that their receipt of keys to the Premises did not mean renovation work was completed.  It was further stated that P and the Shenzhen Company had never reached agreement on inspection report.  P said they wished to discuss with the Shenzhen Company as to how to complete the works and in default of such agreement, the contents of the matter would be referred to Shenzhen Arbitration Commission. 

44.  Again on 8 October 2009, P’s PRC lawyers wrote to the Shenzhen Company and listed out all outstanding/unsatisfactory items of work required to be completed by the Shenzhen Company.

45.  Later, on 10 October 2009, P engaged service of the Guangzhou Notary Public Office to inspect the Premises and took photos and videos of the renovation work. After that, they compiled a report dated 19 October 2009 (“Report”).

46.  Tse said as the Shenzhen Company failed to rectify and/or to complete the renovation work, they had to engage 澤美, another contractor to complete the outstanding work and the works was finally completed on 8 November 2009.

47.  Tse said therefore pursuant to clause 3 of the Guarantee, D1 was liable to them for 51 days delay on completion at the agreed liquidated damages of RMB510,000.

D1’s case

48.  Lau said at time of visit to the Premises on 16 September 2009, he opined that the Shenzhen Company had completed the renovation work.  He said also that parties had then agreed on the 26 items that required follow up.

49.  Lau said later he understood from the Shenzhen Company that the P refused to discuss with the Shenzhen Company the way to follow up on these items and had also refused to make the further payment payable on completion under the Implementation Contract or for additional works.  He said that P had also failed to refer the dispute between the P and the Shenzhen Company to Shenzhen Arbitration Commission as stipulated in the Implementation Contract.

50.  He said the Shenzhen Company had on 29 September 2009 replied P’s letter dated 22 September 2009 and reiterated that they had completed the works and therefore the P should make the 3^rd payment of RMB207,600 payable on completion of the Implementation Contract plus fee for additional renovation work of RMB46,778.80, totalling RMB254,378.80.  Lau said the Shenzhen Company denied that they were liable to the P for liquidated damages at the daily rate of RMB10,000 due to their failure to complete the work by 18 September 2009. 

51.  In this letter, the Shenzhen Company also alleged that as the equipment of the P as well as their staff had entered the Premises, they could not accept P’s saying that the renovation work was not completed.

52.  On 7 October 2009, solicitors for the P wrote to D1 and stated that as the Shenzhen Company had failed to respond constructively to complete the renovation work despite many requests up to the time of the letter, P gave final notice to D1 that unless the renovation work was completed within the next 24 hours, the P would seek to recover the liquidated damages from D1 pursuant to the Guarantee.

53.  On 8 October 2009, PRC lawyers for the P wrote to the Shenzhen Company and reiterated that the Shenzhen company had failed to complete the renovation work by 18 September 2009 constituting serious breach of contract and that they would be liable to the P for damages for the delay at rate of RMB10,000 per day and other economic loss.

54.  P also gave the Shenzhen Company further 3 working days within which to rectify/complete the renovation work and that should they fail to do so, P would engage other contractor to perform the works and all expenses would be borne by the Shenzhen Company and P would deduct the expenses from the outstanding payments payable to the Shenzhen Company under the Implementation Contract.  The PRC lawyers had also annexed to this letter the complaints of the P under the Implementation Contract.

55.  On 9 October 2009, Tony Yu of the Shenzhen Company wrote to the P and said that referring to the inspection report, he said that they had already completed the renovation work and had also finished the follow up actions on certain items and were waiting for appointed time from the P for installing some other items.

56.  They also urged the P that as they had completed the works, the P should pay them RMB254,378, whilst retaining 5% of the contract price RMB51,900 for another six months during the renovation work warranty period.  The Shenzhen Company said the P should not retain the money payable on completion of on the excuse of undecided additional works.

57.  On 16 October 2009, P entered into a Renovation Contract with a contractor 澤美RMB480,000 for renovation at the Premises, completion fixed on 8 November 2009.

Analysis

58.  In order for the court to decide whether the renovation work were completed on 18 September 2009, it is necessary to consider the evidence of the parties in respect of the complaints of the renovation work.

A. The L-shape 12 mm thick reinforced glass desk in the consultant room （顧問房L型12 mm厚強化玻璃檯） (Implementation Contract clause 6.2)

59.  Tse referred this court to photos 46-49 in the Report which showed the glass damaged on the desktop near the location of the screw.

60.  She said further that wrong materials i.e. grain plastic plates were used for the drawers of the deak instead of white paint no. 933 as in  chart “PLO3”. The same was not approved by the P.

61.  Lau said on the other hand that the glass was not damaged when he did the inspection on 16 September 2009.  He also said the glass could be changed without the need to dispose of the whole desk.  In re-examination he said the damage might be due to excessive force in screwing the screw on to the glass top.

62.  There is no evidence that anyone had further tampered with the desk after the inspection on 16 September 2009.  In view of the possible cause for the damage as said by Lau, the same should have been caused by the Shenzhen Company and not the P here.

63.  According to the 澤美 contract, rectification works were done to these 3 desks. 

64.  I find the complaints of the P proved.

B. 奇勝牌或同級調光或照明開關55套 (clause 9.1 of the Implementation Contract)

65.  P complained the switches installed were not variable switches.  This is agreed by D1 but they said the variable switches could be changed easily.

66.  Up till date of Report, the same was not done despite that the said rectification works was included in the inspection report prepared by the Shenzhen Company and the defendants subsequent to the site visit on 16 September 2009.

67.  In cross-examination, Lau said the Shenzhen Company was still waiting for a date and time reasonable for the work to be done and that they had yet to finalize the appointment time with the P to do the job.

68.  This explanation is inconsistent with the record which showed the Shenzhen Company did go to the Premises subsequent to 16 September 2006 to do renovation work.  In any event, before trial starts, D1 had agreed not to argue that P failed to mitigate the loss.

69.  I find again this complaint proved and the fault was solely because of the Shenzhen Company.

C. Failing to install the dressing table in the VIP room. Wooden frames were used to support the dressing mirrors

70.  Tse said the mirrors were loosely fixed and that there should not be any wooden plates supporting the mirrors.  She said she did already so complain at time of inspection on 16 September 2009. 

71.  She admitted she did not touch the mirrors to check.

72.  Lau denied this complaint being raised at time of inspection.  He said mirrors were fixed by glue and not loosely fixed.  He said the use of wooden plates were necessary to support the adhering of mirrors to the base plates.

73.  Tse admitted she did not actually touch the mirrors and she just visually examined the mirrors and formed her view.

74.  Reviewing photos 170 and 171 taken in the Report and photo 396a, 446b by taken by Tse as well as evidence from the parties, I do not find proved that the mirrors of the dressing table were loosely installed.

D. Failed to finish the installation of skirting and wrong material used in the skirting

75.  P complained of the poor quality of the workmanship of the skirting in the Premises.  It was said also that the installed skirting were of grain plastic plates and not the wooden skin veneer as per the Implementation Contract.  The dimensions of the skirting were also incorrect.

76.  Tse said over 70% of the skirting in the Premises needed rectification. The unfinished skirting could be seen in the photos 27-28, 31-32, 60, 142, 146-148, 151-153, 184-187 in the Report.  The photos 80-85, 95 also showed wrong materials used for the skirting in the Report, i.e. white colour and photos 154-159 showed the wrong dimensions (100 mm x 7 mm was provided instead of the agreed 70 mm x 12mm). 

77.  Lau said on the other hand that only 30% of the skirting need be changed.  He agreed that at time of inspection, both parties agreed to change white skirting to wooden skin veneer skirting.  In cross-examination, Lau said the follow up action could only be commenced after P had decided on colour of the skirting.  He said new skirting was delivered to the Premises and put in the corridor already.

78.  Even on admission by D1, 30% of the skirting in the Premises needed be improved either because they were not finished or not properly done.

79.  From the photos as said by Tse and also photos nos. 92, 115, 154-159 and 164 in the Report, it is apparent that the floor skirting covered substantial areas in the Premises and they were in a horrific state.  There were numerous examples of extremely poor workmanship.  Bearing in mind that the P operates a well known chain of beauty salons, it would definitely seriously affect the reputation of the P should any customers visit the Premises with such skirting. The Premises clearly could not be used by the P in such a state.

80.  The skirting work was later rectified under the replacement contract with 澤美under工程項目全場item 2：供應及安裝木地腳線（房間保留）1單and工程項目豪華貴賓區1號及2號房item 11：供應勞方整改地腳線2單。工程項目豪華貴賓區3號房item 9：供應勞方更換地腳線1單。工程項目全場item 21：（補修）供應勞方修補房間地腳線（不用更換）1單.

81.  I again find this complaint proved.

E.  The no cover plastic tub used in the water pump (clause 7.1.5 of the Implementation Contract)

82.  Tse said as the plastic tub of the water pump was not covered, water may splash out and the system was not workable.  

83.  D1 said that the existence of the cover was not mentioned in the Implementation Contract and that even without cover, the whole system could function properly.  He said there was a sensor in the water tank which would prevent water overflow from the water tank.  Further, he said there was waterproofing works done to cater from waterflow up to level of 2 feet in the water pump room.

84.  This court takes the view that although the cover/lid was not explicitly mentioned in the Implementation Contract, it must be implied.  Any reasonable man would expect the tub being fitted with a cover.

85.  On the other hand, I agree that with the existence of the sensor, the missing lid should not affect the operation of the pump system although it might be noisier and less hygienic.  In any event, the same could easily be remedied.

86.  As the water pump was placed in any area not accessible by patrons of the P, this court does not consider this ‘defect’ a major one. 

87.  This court will take this into consideration when considering “practical completion”.

F.  Plastic floorings were loosely installed and some exhibited water markings       

88.  Tse said some floorings were loosely fitted, some with water markings. She said not all of these flooring were shown in the photos in the Report and that about 28% of the floorings needed rectifications, mainly in VIP rooms and changing room.

89.  Lau said only few of the plastic floorings showed water markings and that the rectification works were completed by the Shenzhen Company already.

90.  Lau disagreed to the size of affected area as depicted in exhibit P3 marked by Tse.  He said only about 10% of the area needed rectification at time of inspection and that they were rectified already.

91.  From photos in the Report, it appeared that as at 10 October 2009, rectification works for floorings was still outstanding, at least for the floorings shown in the photos 119-121, 129, 130 and 154 in the Report.  Nevertheless from the photos of the report, the area affected appeared to be much less than about 30% floor area of the Premises as said by Tse.  There clearly was poor workmanship but I do not find the extent of the defective floorings as extensive as alleged by Tse.

92.  Again court will take this into consideration when considering if the renovation work were completed on time in this case.

G. 供應及安裝接待處特式造型招牌牆身，包括：12mm頭板底貼防火膠板，面貼特式海報及（6mm）厚強化清玻璃連“必瘦站”招牌(Implementation Contract clause 5.8)

93.  Tse said the tampered glass over the “必瘦站”logo at the reception was not installed.

94.  Lau said this contract work was not agreed but he said at time of inspection on 16 September 2009, the same was installed already and the logo was stuck on it by adhesive tape.  In cross-examination Lau said the glass needed be installed first before the logo was installed.

95.  Tse said the glass was not provided and the whole item was redone later.  The contract price for the item in the 澤美 Replacement Contract was RMB16,632.

96.  From photos 7-13 in the Report, clearly no glass was provided, contrary to evidence of Lau.  The logo was affixed directly to the wall.  Further, I fail to understand why Lau said the same was not agreed work when the same was described in the Implementation Contract clearly and that further, according to his evidence, the same was done.

97.  In my view, the lack of the glass for the logo alone, though missing work, does not by itself render the Implementation Contract uncompleted.  The Premises could, in the absence of other problems, be used in the meantime.

H. 供應及安裝連暗藏櫃底燈槽，櫃內貼白色防火膠板前台接待櫃，寫字檯面造白色無逢石凹凸波浪櫃前圖面造光手掃漆12mm厚強化清玻璃外罩（Implementation Contract item 6.3）

98.  Tse said that it was agreed in the Implementation Contract that 白色無逢石be used.  She also complained that the reception table was cracked. 

99.  In cross-examination, Tse was referred to design drawing no 09147-S01-02 and the material list which showed that 白色無逢石（S010）was not required at the reception counter.  Tse later agreed but insisted that although design drawing did not show 白色無逢石but Implementation Contract had such item and the crack was observed during Inspection and on completion date.

100.  Lau admitted seeing the crack at time of inspection but he said the same was not as serious as what was shown in photos 17 to 20 of the Report.  He said only minor touching up work needed could be done to the crack and they were completed. 

101.  I must say the crack, as shown in the photos, was readily apparent to anyone close to the reception desk.  It was still there when photos were taken at time of report.  It is therefore incorrect that the rectification work was completed at time of completion, as said by Lau. 

102.  I do not need to consider if the reception counter was made of 白色無縫石.  The existence of the crack on the reception counter by itself is incompatible with and is injurious to the reputation of the P, if used.

103.  I consider this a serious breach as customers/potential customers are likely to notice the same if they visit the Premises.

I. 壁燈（Implementation Contract clause no 9.1i）

104.  It is not in dispute that they were not installed.  Lau said they were not included in the final design and he referred to design drawing 09147-P-04-04.  He said in cross-examination that the item was cancelled orally by the P. 

105.  Tse said the same was included in the Implementation Contract as they were essential for performing the treatment and they had never cancelled this item.

106.  Lau was later asked in cross-examination why in the inspection report he prepared, it was stated “沒有壁燈，報價再做”when clearly this was charged already in the Implementation Contract and therefore there should be no need for a fresh quotation.

107.  He replied because this item was not in the design drawing, they needed to prepare a fresh quotation before doing the job. 

108.  Mr. Lee submitted further that it was not believable that P orally cancelled the item of 壁燈but agreed to re-install them after completion with additional charges.

109.  On perusing the Implementation Contract, the same was included and the contract sum was calculated having regard also to the contract price for this item.  The Shenzhen Company did request for the 3^rd payment under the Implementation Contract based on the original contract sum, which included the charge for this wall lights (壁燈) item as the same had not been removed.  It can therefore reasonably be inferred that the parties had intended this item to be included even though the design drawing did not show the wall lights. 

110.  Considering all the evidence, I find this complaint proved.  I fail to see why the P could have cancelled such an item which according to her, the evidence of whom I accept, was necessary in the treatment rooms in beauty salon. I find as a fact that the P did not cancel.

111.  In fact, the same was included subsequently in the 澤美 replacement contract.

J.  供應及放置圓型仿皮座椅於更衣室（Implementation Contract clause no 10.1）

K.  供應及放置美容房小桶椅（Implementation Contract clause no 10.3）

L. 供應及放置接待處辦公室座椅（Implementation Contract clause no 10.4）

M. 供應及放置接待處辦公室座椅於顧問房及經理室（Implementation Contract clause no 10.5）

112.  Lau said the Shenzhen Company had already provided furniture under these items and that at time of inspection, there was no complaint by the P. 

113.  Lau when asked why he said these furniture were provided said he saw cartons in rooms at the Premises.  When asked how he knew the contents of the cartons were these furniture, he said he saw the wordings“座椅”and“桶椅” as well as the figure (公仔) on the packings which indicated furniture under complaint items J & K.  He said he also saw a chair unpacked and covered with a plastic bag. 

114.  When asked why photos of the rooms for the beauty consultants in the Report did not show the presence of the furniture, Lau said the photos did not show areas of all rooms for consultants.

115.  In cross-examination, Lau agreed that if the Shenzhen Company had completed the renovation work and delivered possession of the Premises to the P, then the furniture supplied by them needed be unpacked and placed in the Premises so that the P could perform checks on it.  Lau agreed that this had not been done and further that P never signed acknowledgment of renovation work completed.

116.  Tse on the other hand said these furniture were never provided.

117.  Tse agreed that the furniture were movable and that furniture under complaint K could be purchased from outside while the other missing furniture needed be custom made to conform to the style of the Mongkok branch of the P.

118.  This court noticed also that the Shenzhen Company had previously prepared a document namely 五月花商業廣場7樓711號(裝修工程)-以下於現場工程項目內完全沒有安排設備 where they said the subject furniture were never part of the renovation work.  This would contradict what Lau said, that they had been supplied by the Shenzhen Company.

119.  Lau said that he did not receive the “五月花商業廣場7樓711號 (裝修工程)-以下於現場工程項目內完全沒有安排設備” document prepared by the Shenzhen Company (p262 of the hearing bundle).  One was not sure whether the Shenzhen Company did furnish this document to D1. This allegation was not put to Tse by D1.

120.  The photos of the Premises produced to court clearly did not show the existence of these furniture.  Had they been supplied, unless P had removed them from the Premises, they should be there.  In the absence of evidence of foul play, I prefer evidence of Tse and find that these furnitures were not supplied to the P.  Though Lau said he saw boxes of furniture inside the rooms of the Premises, one queried how he knew the contents or quantity of these boxes despite his saying that the packings showed the wordings or markings.  I had reservation to accept his evidence. 

121.  I find the furniture under these items not supplied to the P.  This is a serious breach.

N. 供應及安裝喇叭獨立開關掣（Implementation Contract clause 8.18）

122.  Tse said it was not provided nor was it replaced later because the replacement would involve dismantling the ceiling in order for wires to be installed.  She said at time of inspection on the 16 September 2009, complaint was already raised.

123.  Lau said the item had been installed and completed.  He said the P had agreed to use master control instead of individual on/off switch as originally agreed.  He said the master control equipment was installed at the reception counter.  He said in photos 24 and 25 in the Report, one could see the wires of the speakers and signal wires.

124.  Tse disagreed that P had agreed to such variation.

125.  There was nothing in writing evidencing the alleged variation.  No reasons were given by Lau as to why the P would have ever chosen to abandon having individual on/off switch for the rooms. 

126.  I prefer evidence of Tse and find there had not been any variation as alleged by Lau and that the Shenzhen Company had failed to perform the item in the Implementation Contract.

127.  I again find this complaint proved.

O. Other complaints

128.  In fact, apart from the above complaints, P had raised numerous other complaints regarding substandard works or uncompleted works which Lau disputed.  They had both prepared a Scott schedule stating their respective stance.

129.  Some of these other complaints related to P’s allegation that the materials used by the Shenzhen Company did not conform to the style/design of the Mongkok branch of the P.

130.  Tse of the P said prior to the Implementation Contract, Lau was brought to the Mongkok branch for visit and he was also told that the style or materials used in decoration of the Premises should make reference to that of the Mongkok branch.  Lau’s comments to these complaints were either that material provided conform to the agreed design drawing (item 7.1.6) or they were approved by the designer (item 7.1.10).

131.  I do not find these complaints proved.  If the renovation work conformed to the design drawings and the Implementation Contract, that would be sufficient.  Assuming someone to use something as a reference was too vague a specification.

132.  Nevertheless, I find the complaint “In the toilets/changing rooms of the common area, the edges of doors swelled and the wallpapers became moldy and skirting was not completed.  Marble edges were poorly polished” proved.  They were shown in photos 142, 143, 146, 145, 147, 148 of the Report. 

133.  Although Lau did not admit the same, the photos told us clearly that the complaints were substantiated.

134.  Again, for the complaint regarding the logo “必瘦站”at the front door being “rusted”, I find the same proved.  Reference could be made to photos 9, 10, 11, 12, 13 in the Report. The rust on the logo was easily noticeable and the logo appeared old and rusty.

135.  The same was replaced later by the 澤美 replacement contract.

Conclusion

136.  Mr. Ho for D1 stated that Tse of the P did agree that if the Shenzhen Company was not liable for breach of the Implementation Contract, then D1 shall not be liable under the Guarantee.  He argued therefore that as the matter had not yet been referred to the Shenzhen Company as stipulated in the Implementation Contract, D1 was not liable.

137.  I do not accept that before the Guarantee could be enforced, the matter must first be referred to the Shenzhen Arbitration Commission or there must be an award from the Shenzhen Arbitration Commission.  This alleged condition precedent was not present in the Guarantee.  I do not accept this submission.

138.  It is submitted by Mr. Lee that the Implementation Contract detailed the scope of works and itemized individual charges and that the scope of works covered nearly everything P physically needed to start its business in the Premises.  On the completion date, Mr. Lee said the P expected to move in with only personnel and accessories and would be able to operate.

139.  He alleged that the subsequent design drawings and plans to the Implementation Contract were merely prepared to implement the Implementation Contract and it should not contradict the express terms in the Implementation Contract.

140.  It was also his submission that the Premises was intended to be used as a beauty centre of a famous beauty salon chain in Hong Kong.  The meaning of completion should be given their ‘natural and ordinary meaning’ in order to reflect this background.

141.  He says completion should mean full completion of all items on the list in accordance with the descriptions/requirements stated in the Implementation Contact.

142.  He reminded this court that the Shenzhen Company was the sole contractor in the Premises from the date of the Implementation Contract up to 10.10.2009 and that therewas no evidence that the P or any person had maliciously damaged the decoration of the Premises or removed furniture from the Premises during this period.

143.  Mr. Ho for D1 submitted that Tse had agreed in cross examination that the design drawings were the finalized design agreed by the parties on 13 August 2009 as shown in confirmation signed by P’s representatives and the materials used shall conform to the Material Description Table (“物料詳述說明書”) approved by P on 5 August 2009.

144.  In order to substantiate their allegation on the substandard works and uncompleted works, P had also produced to court the Report prepared by the Guangzhou Notary Public Office dated 19 October 2009. 

145.  The court is therefore assisted by photos in the Report taken on 10 October 2009 which the court finds helpful.  The same shows the state of the Premises on the day.  It throws doubt on evidence that does not accord with the photos.

146.  As for evidence from the witnesses, this court was impressed by Tse, the only witness for the P.  Her evidence was consistent and was not shaken during cross examination at all.  Her response to questions is spontaneous.  Her evidence was also corroborated by photo evidence.

147.  On the other hand, Lau appeared to be evasive in answering questions in cross examination.  According to him, although he was the guarantor of performance of the Implementation Contract by the Shenzhen Company, he did not bother the return to the Premises after the 16 September 2009 to ensure compliance of the Implementation Contract by the Shenzhen Company when he knew, even on his own evidence, there were 26 items which needed follow up.

148.  Further, the total cost for the items in the replacement contract was substantial compared to the total contract sum of RMB1,038,000 the sum involved.

149.  The replacement contract, even in absence of receipts for payment to 澤美, was evidence supportive of replacement/remedial work done by the P.

150.  It was said that the quantity for missing items furniture in the Implementation Contract and the replacement contract differed, e.g. 10 became 6, 36 became 34, 4 became 0 and 8 became 10 and that no receipts or photos were produced to show these items were in fact produced by 澤美.  I do not find this argument persuasive.

151.  In the light of fact findings above by the court concerning the complaints regarding the renovation work and applying the test of “practical completion” earlier discussed, I conclude that D1 had failed to complete the renovation work as at 18 September 2009.  It would not be reasonable to conclude the renovation work was completed on 18 September 2009.

152.  The extent of the problem skirting and the floor tiles, the absence of the furniture, the state of the logo and the reception counter in the reception area were in such state that the P could not be expected to commence business at the Premises as a famous beauty salon branch.

153.  I find the claim of the P proved and I order therefore that D1 shall pay the P:-

(a)  RMB510,000;

(b)  interests thereon from 9 November 2009 at 4% per annum till date of the judgment;

(c)  interests from date of judgment till date of payment at judgment rate.

Costs

154.  I also make an order nisi that D1 shall pay P costs of these proceedings, with certificate for counsel, the same to be taxed if not agreed.