ALFRED TANG INTERATIONAL (HK) LTD. v. KINGSGRAND DEVELOPMENTS LTD.

1986 No.A5085

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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1. By an agreement in writing dated, 28th June 1985 (HKIA contract), one Alfred Tang Yiu Kwan practising under the name of the Plaintiff company was employed by. The. Defendant company as the architect in charge of the project to construct the Guilin Sight-seeing Hotel the Peoples Republic of China. Services of the Plaintiff were subsequently terminated, and the present proceedings were brought for professional fees and disbursements incurred prior to the said termination in sum of $1,149,357.15. Summary judgment for the said amount with interest as claimed obtained by the Plaintiff on 16th September 1987 was set aside on appeal on 30th October 1987. Instead, interlocutory judgment was entered against the Defendant for professional fees and/or damages to be assessed with interest thereon as claimed. Directions were given by consent on 24th November 1987 for expert evidence to be given at the assessment.

2. The Plaintiff called 2 witnesses, Mr. Alfred Tang (P.W.1), and its expert Mr. Christopher Haffner (P.W.2) whose report dated 13th April 1988 was filed on 23rd April 1988 pursuant to the said directions. The only witness for the Defendant was its expert Mr. Jon A. Prescott whose report was filed on 11th May 1988.

3. It has been conceded that the Plaintiff is entitled to the disbursements in the sum of $2,757.15 as pleaded. It is also not disputed that the Plaintiff had completed stages A to C of the work as defined in clauses 2.1.1, 2.1.2 and 2.2.1 in Part 2 of the HKIA contract (pages 319-320 of the Plaintiff's Bundle) entitling it to a total of 15% (pursuant to Table 11 of Part 3 of the said contract on page 324 of the Plaintiff's Bundle) on the "total construction cost" as defined in clauses 3.1.1 to 3.1.9 of Part 3 of the said contract (pages 321-322 of the Plaintiff's Bundle). The only issues in dispute between the parties, after the exchange of the expert reports, are:-

(i) the amount of the "total construction cost"; and

(ii) whether any services had been rendered in stage D as defined in clause 2.2.2 in respect of "Project Design" (page 320 of the Plaintiff's bundle); and if so, how such services are to be quantified in monetary terms?

Total Construction Cost

4. Pursuant to the request of the Plaintiff, a "Preliminary Estimate No. 2 was prepared by Messrs. Langdon, Every and Seah, quantity surveyors and construction cost consultants, in respect of the construction cost of the project in question(page 153 of the Plaintiff's Bundle). The estimates of the quantum of the items of cost are not in dispute and are set out as follows:-

5. In his report Mr. Haffner added 2 further items to the said sum of US$11,990,000 to take into account the costs for utilities connections (US$400,000) and site formation (US$310,000). However, the evidence of P.W.1 confirmed that the site was level and had been excavated already rendering site formation unnecessary when it was handed over; and that the E & M (electrical and mechanical) consultant had already included the cost of utilities connections in his estimate. In view of such evidence, Miss Yuen conceded that the 2 additional items could not be supported. The total construction cost on which the fees are to be calculated, according to the plaintiff should be the sum of US$11,990,000; or the Hong Kong dollar equivalent of $93,522,000 (at the exchange rate of US$1.00 to HK$7.80).

6. The Defendant's expert, Mr. Prescott, disputed the inclusion of the full cost for items (3) and (4) in the estimate. It is case that usually in the construction of a hotel, an "Interior Architect'' or "Interior Designer" would be engaged as the consultant on item (3) i.e. finishings, furniture and equipment. In support of his opinion that the parties in the present dispute were aware of such usual arrangements he referred in his report (para. 4.2.4) to the undated ''Cost Datas for Guilin Hotel'' prepared by the Plaintiff (page 89-93 of the Plaintiff's Bundle) which expressly provided a separate distinct item of ''Interior Designer'' fee of 10% of ''Interior Contract sum" i.e. US$160,000 in addition to the "architectual'' fee of 4% of "total contract sum''. i.e. US$560,000 (at page 89 of the Plaintiff's Bundle). He said under the HKIA contract a rate of 9-10% would be charged for interior work of the order in question (7% for repetituous work e.g. bedroom). He further said that there was no evidence that the Plaintiff was appointed by the Defendant to provide professional services as interior designer/architect at the preliminary stage under consideration. He reduced, item (3) by two thirds on the ground that "these works will be divided roughly in the proportion indicated and that the two thirds would be chargeable at a fee related to Interior Design rather than Architecture.'' (Para. 5.2.2). he further said anyone who accepts the project, inclduing interior design work, for only 3% would not be reasonable. he will be charging the Defendant too little!

7. Mr. Prescott, in para. 5.2.5 of his report, said that item (4) said that item (4) included the capital costs for kitchen equipment which was subject to the design and layout of a specialist dub-consultant. It also included the capital costs of lifts and escalators which would quite commonly be excluded by agreement due to the high cost involved. He made a reduction of US$590,000 from item (4) as a result thereof. In his examination-in-chief, he however conceded that his said opinion was based on a common practice and that apart from what he was told by his client he cannot find any evidence that there was any discussion between the parties in respect of the said matters he raised regarding item (4). P.W.1 said in evidence that such items were included in the scope of work of the E & M consultant, Messrs G.C.P. S Partners. Mr. Prescott's case on items (3) and (4) is that if any work was done by the Plaintiff in respect of these items it can only be charged on a time basis under clause 3.1.5 in part 3 of the HKIA contract.

    "Total Construction Cost'' is defined in clause 3.1.1 of the HKIA contract (page 321 of the Plaintiff's Bundle) as "the cost, as certified by the architect, of all works (including site works) executed under his direction, subject to the following conditions. The conditions referred to in clause 3.1.1 that are relevant to these proceedings are:-

3 1.2. the total construction cost shall include the cost of all work designed or supervised by consultants which the architect is responsible for directing and co-ordinating in accordance with Clause 1.2, irrespective of whether such work is carried out under separate building contracts for which the architect may not be responsible. The architect shall be informed of the costs of any such separate contracts.

3.1.3 The total construction cost shall not include nominated sub-contractors' design fees for work on which consultant would otherwise have been employed. Where such fees are not known, the architect shall estimate a reduction from the total construction cost.

3.1.4 For the purpose of calculating the appropriate fees, the total construction cost shall include the actual or estimated costs of any work executed which is excluded, from the contract but otherwise designed by the architect.

3.1.5 The total construction costs shall include the cost of built-in furniture and equipment. Where the cost of any special equipment is excluded from the total construction construction cost, the architect shall charge for work work in connection with such items on a time basis.''

8. The evidence of P.W.1 that there was no separate contract with contract with a consultant for the interior design of the hotel was; not challenged by any evidence from the Defendant. Indeed the members of the "Design Team''  particularised in Chapter 7 on page 21 of the undated report the undated report prepared by the Plaintiff (page 279 of the; Plaintiff's Bundle) did not include any interior designer, despite the presence of ''Perspectives'' relating to the cocktail lounge, restaurant and typical guest rooms in the said report (pages 287-290 of the Plaintiff's Bundle). There is also the unchallenged evidence of P.W.1 that the Plaintiff had delivered samples of the materials to be used for tablecloths bedspreads and lamp shades to the Defendant for approval. I am satisfied and find as a fact that the agreement of the parties was not to appoint a separate interior design consultant, but to include such work in the Plaintiff's scope of responsibilities. Clause 3.1.2, included the cost of all works for which the Plaintiff is responsible for directing and co-ordinating irrespective of whether a separate consultant is engaged or whether that work was the subject matter of a separate building contract. However, the "nominated sub-contractors' design fees for work on which consultants would otherwise have been employee'' is excluded by clause 3.1.3 The cost of US$4,100,000 in item (3) does not include any such design fee as is evident history of the revision of estimate (especially page 139 of the Plaintiff's Bundle) and the fact that a separate item of U$540,000 was estimated for professional fees (i.e. about 4.5% of US$11,990,000) in the final estimate. Furthermore, there is no evidence of any agreement excluding built-in furniture/equipment cost incorporated clause 3.1.5. Clause 3.1.4 referred to work "executed but excluded and is not relevant to these proceedings. Upon a proper construction of the said relevant contractual provisions, and the evidence find no merits in Mr Prescott's reduction of item (3) by two-thirds. I accept the Plaintiff's contention that the estimate of US$4,100,000 for item (3) form part of the total construction cost as defined in the HKIA contract.

9. In view of the contractual provisions set out above, in particular clause 3.1.5, the said -concession of Mr. Prescott as per page 5 supra and P.W.1's evidence, I. also find Mr., Prescott's deduction of US$590,000 from item cannot be supported. In the premises, I find the total construction cost of the project to be as per the estimate of Messrs. Langdon, Every and Seah in the sum of US$11,990,000.

Stage D

10. Despite its original claim int eh Statement of claim for the full fees for Stage D, the Plaintiff conceded at the assessment that it is only entitled to 40% of the fees chargeable for Stage D. The Defendant contends that the Plaintiff had completed Stage C only and had not started Stage D at all. In his report at para. 8.1 (ii). Mr. Prescott was however prepared to concede that some work done in respect for interior design could nevertheless have been chargeable on time basis under clause 3.1.5, and he assessed such to be in the total sum of HK$13,200 (for preparing the 3 perspectives in the undated report of the Plaintiff).

11. Stage D is defined in clause 2.2.2 of the HKIA contract (page 320 of the Plaintiff's Bundle) as:-

"D Project Design

Preparing in collaboration with the quantity surveyor, and consultants if appropriate, a scheme design consist of drawings, and outline specification sufficient to indicate spatial arrangements, materials and appearance. Presenting a report on the project, the estimate cost and preliminary timetable for the project, for the client's approval. Making submissions of these plans to any relevant statutory bodies. Preparing all the necessary plans, calculations etc. ready for submission to the Building Ordinance Office in respect of general drawings, site formation, demolition and hoarding etc.''

12. P.W.1 refereed to an undated Feasibility report (page 299-308 of the Plaintiff's Bundle) and undated Scheme 3 report by the Plaintiff (pages 249-298 of the Plaintiff's Bundle) and said those reports were submitted to the Defendant for approval and submission to the local authority in Guilin. He said agreement was reached, after various meetings, on a final scheme i.e. Scheme 3. Pursuant to such agreement, the reports were prepared. He was instructed by the Defendant that the Defendant would directly submit the reports to the local authority. The reports contained description of the scheme as well as drawings and plans (originals of which are in A-1 size). I was referred to the material specifications, time-tables and estimated costs contained in the reports. P.W.1 said the drawing and plans are sufficient to indicate spatial specifications though he conceded further details (e.g. regarding fire escape, heights of ceiling etc.) would need to be submitted later on. He said as this is not the tendering stage, such information as contained in the said reports as sufficient for the purposes of Stage D. My attention was drawn to the fact that a design team had by then come into existence with various consultants named. My attention was also drawn to 2 minutes of meetings between the Defendant, P.W. 1 and the various local autborities concerning amendments required by the said local authoriities to be made ot the proposed design. P.W. 1 was criticised by the Defendant and its expert in that the said work done by the Plaintiff as evident in the said reports were too preliminary to he considered as part of Stage D. It was suggested by the Defendant and its expert that the estimates, drawings, plans and time-chart contained in the reports are too lacking in detail to be Stage D work and are no more than a final clean version of the materials used in the discussion under Stage C. Mr. Prescott said the drawings/plans are too crude for submission to the Buildings Ordinance Office in Hong Kong. He said they merely form the basis from which detail drawings/plans could be developed. He said only if those drawings/plans were developed to technically more detail ones would it amount to a completion of stage D.

13. The HKIA contract is a standard form contract intended for use in Hong Kong as is evident by various references to statutory bodies exclusive to Hong Kong. To give the standard form provision any sensible meaning at all, the references to such statutory bodies must necessarily be adapted and deemed to be references to similar, or equivalent if any, bodies in Guilin or China. The Defendan's counsel invited me not to do so, and suggested that it should be construed literally to mean that the architect should perform his duties and prepared the plans etc. In accordance with the Hong Kong requirements and standard as if they were to be submitted to the Hong Kong authority. I am unable to accept such contention either on legal principles or in logic. There is scanty evidence adduced as to the requirements or practice of the local authorities in Guilin regarding the submission of the materials the preparation of which forms part of the Stage D work. It has been suggested by P.W. 2 that building codes in China are pretty piecemeal and sometimes adoption of overseas codes was practised. He agreed what might he acceptable to the Hong Kong authorities might be acceptable to the Guilin authorities though he observed that the requirements in the project in question were very specific and local to Guilin.P.W.1 said there is no hard and fast rule in China in respect of plot ratio, town planning etc.

14. Despite accepting that the HKIA contract was based on the Hong Kong practice and would not it the Chinese system, Mr. Prescott based his opinion on treating the work performed as if it wre a project in Hong Kong. The said approach was similarly adopted by Mr. Haffner in his report and evidence. It is unfortunate that both experts sought to base their opinions on treating the said project as a project in Hong Kong, and work to be performed under Stage D thereunder to be performed in Hong Kong. Such approach cannot be supported upon a proper interpretation of the contract in the light of its application to a project in China.

15. After considering all the documents found in the Plaintiff's Bundle and the Defendant's Bundle and the oral testamony of the witnesses, I am satisfied and find the Plaintiff to have:-

(a) prepared in collaboration with the quantity surveyor and all relevant consultants o f the project a scheme design consisting of drawings, and outline specification sufficient to indicate the spatial arrangements, materials and appearance;

(b) met with Guilin authorities discussing the local practice and requirements in respect of the proposed design, in December 1985 and January 1986;

(c)   presented for the Defendant's approval the Scheme 3 report (page 249-298 of the Plaintiff's Bundle) and the Feasibility report (pages 299-308 of the Plaintiff's Bundle) on the project containing particulars under (a) supra as well as providing estimated costs and a preliminary progress chart;

(d) submitted to the Defendant (at the instruction of the Defendant for its onward submission to the Guilin authorities) drawings and plans referred to in (a) supra and contained in the 2 said reports;

(e) prepared some plans and calculations of areas for the purpose of submission to the Guilin authorities.

16. In the Premises, I am satisfied and find that the Plaintiff has completed the work in respect of the preparation of a scheme design and presentation of a report as required by and in conformity with Stage D as defined in clause 2.2.2 of the HKIA contract.

17. I now turn to the last part of Stage D. The revised estimate of the construction cost by Messrs. Langdon, Every and Seach on 25th November 1985 was US$14,985,000. It was further revised to US$11,990,000 on 19th December 1985. Comparing these 2 figures with the estimate quoted in para. 41 of the Feasibility report (page 303 of the Plaintiff's Bundle) in the sum of US$13.50 million, the inference to be drawn is that the said 2 reports of the Plaintiff were prepared after 19th December 1985. The minutes of the 2 meetings in December 1985 and January 1986 referred to the "preliminary design proposal" of P.W.1 being presented to and discussed upon with the Guilin City Engineer, the Head of Guilin City Building Development Bureau, the Director of Guilin Planning Bureau, Director and Deputy Director of Guilin City Design Bureau and members of Guilin City Building Committee. The proper inference to be drawn when one considers the matters recorded in the said minutes as against the Scheme 3 design as per the said 2 reports is that the 2 said reports were the subject matter of the said meetings (e.g. references to flat front appearance of the building and guest rooms not commencing from the 4th floor etc.). Various amendments were recommended by the said local authorities on the proposed design. There is an absence of any record of a discussion on the technical aspect of the building taking place during those meetings. No recommendation for amendment in the mintues deals with the technical side. The reports were termed "preliminary design proposal". In the premises, the only inference to draw in that if there were in Guilin the equivalent of similar requirements as regard submission of plans as in Hong Kong, the drawings/plans in the said Scheme 3 report were not regarded by the said authorities as the proper plans to be submitted. They were regarded as preliminary designs only. However, I am unable to make any specific findings as to whether there is any requirement in Guilin to submit any plans in more detail or different form than those contained in the said Scheme 3 report, there being a lacuna in evidence in that respect. The only evidence in this respect are Mr. Haffner's suggestions that (i) what is good for the authorities in Hong Kong might be good enough for the Guilin people. And the fact that sometimes Chinese authorities do adopt overseas practice; and (ii) that requirements of the Chinese authorities in Stage D are less than that of the Building Office in Hong Kong regarding submission of plans. However, the difficulty created by such absence of evidence is resolved by the consensus approach by both parties to apply the Hong Kong standards and requirements to the project for the prupose of the present assessment notwithstanding that the building was to be constructed in Guilin. In the premises, despite my conclusion on the proper interpretation of clause 2.2.2, I shall accept and proceed with the assessment on the said basis as accepted by both parties. In any event, in view of Mr. Haffner's said suggestions regarding the Chinese requirements, application of the Hong Kong standards could only be to the benefit of the Defendant.

18. In applying the Hong Kong requirements and standards to the said drawings/plans/calculations prepared by the Plaintiff, I am not satisfied that they represent "all necessary plans, calculations etc. Ready for submission to the Buildings Ordinance Office's as required by clause 2.2.2. In the premises, the last part of Stage D has not been completed.

19. Mr. Haffner said what the Plaintiff and completed amounted to 40% of the work under Stage D. He said the purposes of the work is an important consideration. He said the purpose of the said reports and their contents were for the purpose of obtaining approval from local authorities (i.e. Stage D) and not for approval by client (i.e. Stage C). There is no evidence the Plaintiff kept time charts for its work. Mr. Haffner said he did not calculate the actual numbers of hours spent by the Plaintiff in respect of the services performed. He explained that he nevertheless made the assessment on time basis. He said he had looked at the documentation and assessed the time it would take to complete such works. He then came to the conclusion, on a comparison on time/cost input basis, that the proper fees should be 40% of the total fees chargeable under Stage D. He agreed his estimate was a rough one.

20. The Defendant submitted that if Stage D has not been completed then clause 3.3.5 provided fees to be charged on time basis at a fixed hourly rate set out in Part 5 of the HKIA contract. Clause 3.3.5 provides:-

"3.3.5 -Where an architect provides part only of the services described in Stage C to E fees for service in any stage which is incomplete shall be on a time basis, except by prior written agreement in accordance with clause 3.5.3"

21. The Defendant contended that as there is no evidence of the number of hours the Plaintiff had spent in Stage D, only nominal damages should be awarded. It is incorrect for the Defendant to contend that it is the actual number of hours spent that should form the basis of an assessment on time basis. For if that is the case, a slow-working and less brilliant architect would be unjustly enriched by his inadequacy. The proper basis for such assessment must be subject to the reasonable time that a reasonable architect would require in producing such work. The absence of evidence of the actual number of hours spent by the Plaintiff is not necessarily fatal to its claim. Mr. Haffner had made an assessment of the number of hours the Plaintiff would have spent after he had examined the documentation produced by the Plaintiff. Paragraph 6.7 of his report concluded that -

"Although the proportion of drawings done in Stage D is small, and the proportion of other matters seems large, the value in terms of probable time spent and hourly rates of pay of relevant principals and staff is such that I would estimate that 40% of the fee for Stage D is due.''

22. In the premises, Mr. Haffner was making his said assessment on the basis of probable time spent and had in mind the hourly rate formula. It has not been suggested to him that his said assessment on the probable time spent, or the estimate of the value being equivalent to 40% of the total fee chargeable under Stage D were unreasonable in quantum. I accept Mr. Haffner's assessment and find that the fee chargeable for the services performed by the Plaintiff in Stage D on time basis as per clause 3.3.5 of the HKIA contract amounted in value to 40% of the total fee chargeable thereunder.

23. In the premises, damages being professional fees and disbursements the Plaintiff is entitled to pursuant to the HKIA contract in respect of services rendered in relation to the Guilin Sight-seeing Hotel is awarded in the total sum of $648,058.95:-

24. Pursuant to the judgment entered on 30th October 1987, interest on the sum of $648,058.95 at 8% per annum will run from the date of writ to the date of judgment and thereafter at judgment rate until payment. There will be an order nisi for costs of the assessment to the Plaintiff with certificate for counsel.