CHAN YEE TAK RACHEL AND ANOTHER v. DSM INTERIOR DESIGN LTD

HCA 1641/2020

[2023] HKCFI 311

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1641 OF 2020

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JUDGMENT

1.  This is the assessment of damages due from the Defendant to the Plaintiffs following from an interlocutory judgment entered herein with damages to be assessed.

2.  The 1^st Plaintiff and the 2^nd Plaintiff are and were at all material times the respective owners of two properties in Palm Springs Phrase 1D, Yuen Long, New Territories, Hong Kong which have been merged into one single house (“Premises”).

3.  The Plaintiffs engaged the Defendant to carry out various construction and renovation works at the Premises pursuant to 6 contracts (collectively the “Contracts”) but the latter failed to complete the works as agreed, hence the present action.

4.  Upon the Defendant’s failure to file and serve a defence pursuant to the unless order of Master S. H. Lee dated 13 April 2021, interlocutory judgment was entered on 13 August 2021 whereby it was adjudged that the Defendant do pay the Plaintiffs damages to be assessed with costs.

5.  The Defendant was absent today. Being satisfied that notice of today’s hearing had been duly served on the Defendant, I proceeded with the hearing in its absence. The 2^nd Plaintiff gave testimony on behalf of the Plaintiffs.

Background

6.  Between July 2018 and September 2019, the Plaintiffs entered into the Contracts with the Defendant to carry out over 300 items of renovation and construction works at the Premises (“Works”) at the total cost of HK$9,115,480 with each of the Contracts providing for a payment schedule.

7.  Between 20 August 2018 and 20 May 2020, the Plaintiffs paid to the Defendant in 9 instalments a total of HK$7,050,916, representing approximately 77% of the total fees payable under the Contracts.

8.  As it turned out, the Defendant failed to complete or substantially complete the Works on or before 7 June 2020, a date by which Mr. Cheung, the sole director and shareholder of the Defendant orally undertook to complete the Works (“Promised Completion Date”). The Defendant refused to continue with the Works and instead threatened to stop the Works unless and until the Plaintiffs made further advance instalment payment.

9.  The Plaintiffs therefore terminated the Contracts and engaged another contractor to complete the unfinished items of the Works and to rectify or remedy the defective parts of the Works.

10.  In light of the scale of the Works, the Plaintiffs engaged Ms. Lau Shan La ("Ms. Lau”) of Hong Kong Survey Limited (“HKSL”) to conduct an inspection of the Premises whereupon Ms Lau gave her expert opinions in her report dated 7 November 2020 ( “Report”) on (a) the level of completion, in terms of percentage, in relation to each item of works under the Contracts; and (b) with reference to the level of completion and contract price, the value of the works completed by the Defendant. With leave of this Court, the Report has been adduced as the Plaintiff’s expert evidence in support of their damages claim herein.

11.  As revealed by the Report together with the videos and photographs of the Premises taken upon termination of the Contracts, the works done by the Defendant were far from completion and the Premises were obviously uninhabitable. Moreover, considerable items of works performed by the Defendant were defective and/or did not accord with the description and/or specifications in the Contracts.

12.  Despite the Plaintiff’s termination of the Contracts, the Defendant left behind a considerable amount of construction materials and tools at or nearby the Premises and the Plaintiffs had to incur expenses for removal of the same.

13.  Shortly after termination of the Contracts, the Plaintiffs discovered pest infestation problem at the ground floor of the Premises, which the Plaintiffs have reasons to attribute to the Defendant, and had to engage a pest control service provider to deal with the problem, thereby incurring further expenses.

Legal Principles

14.  As submitted by the Plaintiffs, this is a case of the Defendant breaching the Contracts and the Plaintiffs are entitled to be placed, so far as money can do, in the same position as if the Contracts had been performed, provided that all reasonable steps have been taken to mitigate their loss: British Westinghouse Electric and Manufacturing Co. Ltd v. Underground Electric Railways Co. of London Ltd [1912] AC 673 at 689.

15.  Where a contract has been terminated as the result of an accepted repudiatory breach by the contractor, then subject to any express limitation, the employer would be able to recover consequential loss in the shape of liabilities incurred to third parties, or loss of business or rentals, on the same principles as those in relation to defective work and delay in completion. In addition, the employer would on normal principles be entitled to other damages that result directly from the failure to complete, including most obviously the additional costs of completing by another contractor: Hudson’s Building and Engineering Contracts (14^th Ed), §7-040.

16.  Relying on Pang Yau Shing Glendy v Sano Engineering Ltd (DCCJ 61/2013, unreported, 29 January 2016), the Plaintiffs claim: (i) the diminished value of the Works, (ii) the costs of rectification by another contractor, and (iii) damages for inconvenience and discomfort. They further claim their loss of rental income, the cost of pest removal, the cost of removing the Defendant’s leftover items as well as the cost of engaging Ms Lau for inspection of the Premises and evaluation of the Defendant’s works.

17.  At the hearing today, the Plaintiffs accepted that the cost of engaging Ms Lau as aforesaid should form part of her costs of assessment of damages and I need not deal with the same in the present context. I now deal with the remaining items of the Plaintiffs’ claim.

Diminished Value of the Works

18.  The Plaintiffs submit that the quantum of damages under this head is the difference between the total amount of payment made and the actual value of the works done by the contractor: Pang Yau Shing, supra, at §§101-104. Given that the Contracts are divisible into separate items of works as set out in Schedules A to F to the Statement of Claim filed herein, it is permissible for the Plaintiffs to claim for the refund of overpayment made to the Defendant: Prime View Inc Limited v Asian Richly Limited (HCA 1672/2015, unreported, 28 September 2017) at §§25-30.

19.  In assessing the value of the works completed by the Defendant, the Plaintiffs rely on the Report whereby the total estimated value of the works carried out by the Defendant is assessed at HK$2,635,550.

20.  In the Report, Ms Lau set out in table form the detailed description of every item of works under each of the Contracts against which she reported her observations after her site inspection (which took 2 days to complete) and commented on the degree of completion thereof before assessing the value of the Defendant’s works. Naturally, a zero percent would be given to those items which were never done or where there is no evidence of the same having been done by the Defendant. Colour photographs taken in respect of each item of works (totalling 550 photographs) are appended to the Report which bear testimony to the poor state of completion of such works.

21.  I have no reason to question the veracity of the Report or Ms Lau’s assessment save in respect of Section U at page 39 of the Report, namely, the charge for preparing design plans and construction plans at HK$150,000 which would be doubled should the Plaintiffs commission the Defendant only to provide such plans without engaging them to carry out the decoration works. As the Defendant was actually commissioned with the decoration works and the 2^nd Plaintiff admitted in her oral testimony that the Defendant did prepare certain design plans (and presumably also construction plans without which decoration works could not have been carried out to the extent of what the Defendant had managed to complete), the basic charge at HK$150,000 would be payable.

22.  Ms Lau, however, treated this item of works as not having been completed and gave a zero percent thereto. Given the state of evidence, this cannot stand. Absent any alternative assessment, I have no choice but to top up the total value of the Defendant’s works as assessed by Ms Lau by HK$150,000 to HK$2,785,550.

23.  Given that the works completed by the Defendant were only worth HK$2,785,550, the Plaintiffs have overpaid HK$4,265,366 (namely, HK$7,050,916 minus HK$2,785,550) to the Defendant. Therefore, the Plaintiffs are entitled to HK$4,265,366 under this head.

Costs of Rectification and Other Expenses

Rectification by a Replacement Contractor

24.  The Plaintiffs submit, and I accept, that the Defendant has breached the Contracts first by failing to complete the Works by the Promised Completion Date, and further, by breaching an implied term to carry out the Works and/or provide services with reasonable care and skill. As seen from the photographs and videos taken by the Plaintiffs, the Premises were simply uninhabitable at the time of termination of contract.

25.  At this juncture, according to the 2^nd Plaintiff, she had attempted to discuss with the Defendant on how to resolve the situation on or around 17 June 2020. However, the Defendant refused to continue with the Works unless and until the Plaintiffs made further advance instalment payment (to which it was not yet entitled under the Payment Schedule). Consequently, the Plaintiffs had to terminate the Contracts and engaged another contractor to complete the unfinished items of works under the Contracts and/or remedy the defective works, initially at the total cost of HK$4,800,000.

26.  As it transpired, however, a number of serious defects were subsequently discovered in the Defendant’s works which obliged the replacement contractor to demolish and re-do the same resulting in additional costs. Eventually, the Plaintiffs paid a total sum of HK$5,218,565 for the rectification works. The 2^nd Plaintiff confirmed in her oral testimony that all rectification works done by the replacement contractor were caused and occasioned by the Defendant’s breach and no extra works not originally covered by the Contracts had been commissioned to the replacement contractor.

27.  Such expenses were undoubtedly caused by the Defendant’s breach of the Contracts and the Plaintiffs are entitled to recover from the Defendant the costs of rectification in the sum of HK$5,218,565.

Pest Removal

28.  In or around August 2020, the Plaintiffs found the ground floor of the Premises to have pest infestation problem and therefore engaged a pest control specialist to inspect the infected areas. The specialist opined that pest infestation was caused by the wooden splints at the floor having been stained by water with molds having developed. The Plaintiffs engaged the specialist to remove the infestation at the cost of HK$5,400.

29.  In the circumstances, the Plaintiff submit that the pest infestation was caused by the Defendant’s failure to act with reasonable skill and care, either by failing to replace wooden splints which were already infested with molds or pest when delivered to the work site, or by allowing molds and pest infestation to develop while in control of the Premises and carrying out the Works. Either way, the Defendant should be held responsible for the pest infestation problem at the Premises.

30.  Given the pest control specialist’s finding and the close proximity of time of the Plaintiffs’ discovery of the problem after termination of contract, I agree with the Plaintiffs who are therefore entitled to damages under this head in the sum of HK$5,400.

Clearance of Leftover Items

31.  Subsequent to the Plaintiffs’ termination of the Contracts, the Defendant and/or its workers left behind a considerable amount of building materials and tools at or near the Premises which the Defendant failed to remove despite the Plaintiffs’ written requests for removal thereof. As the photographs taken by the Plaintiffs show, such building materials and tools occupied a large area and could not be easily removed by the Plaintiffs themselves. As a result, the Plaintiffs had to pay HK$2,000 for the same to be removed by workers engaged by the management company of Palm Springs.

32.  I see no reason why such expenses should not be attributed to the Defendant’s default. Accordingly, the Plaintiffs are entitled to be awarded HK$2,000 by way of clearance cost.

Loss of Rental Income

33.  By the Promised Completion Date, the Defendant failed to complete the Works pursuant to the Contracts. As a result, the Plaintiffs had been deprived of the use of the Premises since 7 June 2020 and had to remain living in their old home also in Palm Springs (“Old House”), which could have been rented out had the Defendant duly and timely performed the Contracts.

34.  At the hearing today, the 2^nd Plaintiff confirmed that it had always been the Plaintiffs’ intention to either rent out or sell the Old House after moving to the Premises and they eventually sold the Old House in August 2022.

35.  The Plaintiffs claim their loss of market rental income in respect of the Old House from 7 June 2020 (the Promised Completion Date) to 15 March 2021 (the estimated completion date of the rectification works by the replacement contractor, notwithstanding the fact that the Plaintiffs managed to move into the Premises only in August 2021).

36.  I find the Plaintiffs’ loss to be foreseeable and flowing from the Defendant’s breach of the Contracts.

37.  As to the market rental value of the Old House, the Plaintiffs testified that she checked with the estate agent serving Palm Springs for records of tenancy transactions of properties in Palm Springs similar to the Old House and found the market rental of the Old House to be around HK$35,000 per month at the material time. Through inadvertence, however, the Plaintiffs have produced in evidence records pertaining to sale transactions rather than tenancy transactions obtained from the estate agent.

38.  As to the duration of such loss, Counsel for the Plaintiffs agreed that the Plaintiffs would have to take time to refurbish the Old House to render the same tenantable, and by reference to the actual time taken by the Plaintiffs to refurbish the Old House after moving out therefrom in August 2021, one month should be allowed for such refurbishment so that rental loss should start to accrue only one month after the Promised Completion Date.

39.  The 2^nd Plaintiff said in testimony that the Old House was eventually sold at a price over HK$17 million in August 2022. Counsel for the Plaintiffs submits that a rental of HK$35,000 represents a yield of only 0.2% of the value of the property and invites me to accept the 2^nd Plaintiff’s evidence as to the market rental of the Old House at the material time. While rental value is not necessarily a function of property value, I can at least accept that the information the 2^nd Plaintiff reportedly gathered from the estate agent should not be far off the mark.

40.  I find the 2^nd Plaintiff to be honest and accept her evidence that she gathered from the estate agent that the market rental of the Old House was around HK$35,000 at the material time. I am prepared to allow a total of 8 months from mid-July 2020 to mid-March 2021 so that the Plaintiffs are entitled to an award of HK$280,000 in total (HK$35,000 x 8 = HK$280,000).

Damages for Inconvenience and Discomfort

41.  It is well established that general damages can be awarded for inconvenience and discomfort suffered by a claimant as a result of a breach of contract. There is no scientific way of translating inconvenience and discomfort into a sum of money, and the damages awarded has to be a conventional sum: see So John & Anor v Lau Hon Man & Ors [1993] 2 HKC 356 at 359F and Pang Yau Shing, supra, at §§117-122. See also AxA Insurance v Cunningham Lindsey [2007] EWHC 3023 (TCC) and West v Ian Finlay and Associates [2014] EWCA Civ 316.

42.  It is the Plaintiffs’ case that given the uninhabitable condition of the Premises prior to completion of the rectification work, they had no alternative but to continue to live in the Old House. The 2^nd Plaintiff testified that as a result of the Defendant’s breach of contract which had obliged her to spend time and effort in engaging an alternative contractor and a pest control service provider and arranging for clearance services, she felt great stress so much so that she had to take sleeping pills to get to sleep at night.

43.  Her stress was aggravated by the fact that her daughters’ bedroom in the Old House was having water seepage problem and her daughter had to endure the same before they could move to the Premises. Her aged father also had to continue to take a staircase to reach his bedroom in the upper floor of the Old House when he could have been accommodated in a bedroom on the ground floor of the Premises at an earlier time.

44.  In light of the evidence, I readily accept that the Plaintiffs are entitled to claim damages for inconvenience and discomfort as a result of the Defendant’s breaches of the Contracts.

45.  The Plaintiffs submit, and I agree, that general damages in the sum of HK$50,000 would be appropriate and I award the same to the Plaintiffs accordingly.

Conclusion

46.  In summary, the amount of damages payable by the Defendant to the Plaintiffs is as follows:-

	Heads of losses	Amount   (HK$)
	Diminished value of the Works	4,265,366
	Costs of rectification	5,218,565
	Pest Removal Cost	5,400
	Clearance Cost	2,000
	Loss of rental income	280,000
	Damages for inconvenience and discomfort	50,000
	Total:	9,821,331 =======

47.  The awarded sum shall carry interest at 1% above the best lending rate of the HSBC from the date of writ until judgment and thereafter at judgment rate until payment. The Plaintiffs shall also have costs of the assessment of damages, to be taxed if not agreed.