SHUN FAI DECORATION HANDICRAFT CO LTD v. F & F INVESTMENT LTD

HCA 1588/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1588 OF 2006

____________

____________

_______________

J U D G M E N T

_______________

Introduction

1.  The Plaintiff, which is controlled by Mr Chan Kan Fai, is an interior decoration and general building contractor.  It entered into a contract with the Defendant, the registered owner of a substantial house at 23, Royal Castle, Sai Kung, which I will refer to as “the house”, to carry out extensive refurbishment and decoration work there.  It is the home of Mr and Mrs Ng, he being a well-known film actor. 

2.  Mr and Mrs Ng had engaged the services of a Mr Benji Leung, who is an architect and interior designer, to draw up the plans for the works that they wished to have done and on the basis of those plans Mr Chan, on the Plaintiff’s behalf, prepared a quotation dated 5 March 2005 in the sum of $2,973,288.  Following the presentation of this Quotation, there were further discussions between Mr and Mrs Ng and Mr Chan which resulted in further work having to be done.  On 7 May 2005, Mr Chan prepared a revised Quotation in the sum of $3,338,233 which was accepted in early June 2005 and Mr and Mrs Ng instructed Mr Chan to carry on and do the work in the revised quotation.

3.  The works started either at the end of May or, at the very latest on 11 June 2005, it does not matter which, and on 12 February 2006 Mr Chan presented Mr and Mrs Ng with the Plaintiff’s completion statement.  That statement contained a mistake in that it had duplicated an insurance premium of $40,000. This was corrected by Mr Chan and he presented a revised completion statement on 10 May 2006 in the sum of $3,379,822.  This amount represented all the works done to the Defendant’s order.  The final cost of $3,379,822 was some $41,589 or 1.23% more than the amount set out in the revised quotation dated 7 May 2005.

4.  During the progress of the works, the Defendant made six stage payments totalling $2,500,000.  The first four, from 4 July 2005 to 12 December 2005, were for $500,000 each and the final two were on 19 January 2006 for $300,000 and on 19 March 2006 for $200,000.  This therefore is a claim for the unpaid balance of $879,822.

5.  There is also a much smaller claim in respect of minor works done to the old home of Mr and Mrs Ng.  They required what one might describe as a  “touch-up” job to be done in order to freshen up the property so as to present it nicely to would-be purchasers.  This property is at 38, Wing Lung Road, Sai Kung.  For this work, Mr Chan presented a quotation dated 3 January 2006 for $35,400.  An item for $4,000 was not done and so the completion statement which the Plaintiff presented was for $31,400.  This amount remains outstanding.

6.  The third element of the claim is for additional works requested by Mr and Mrs Ng over the course of the programme of work done at the house.  These works total $289,800 and appear in four bills of $42,000, $143,000, $35,000 and $69,000.  

7.  Part of the revised works were the result of Mr and Mrs Ng having taken advice from Mr Guo Chun, a Feng Shui master.  I have heard Mr Guo’s evidence but it does not seem that he was greatly involved and that most of his input related to the positioning of a statute of the Buddha.  Ultimately, nothing really turns on his involvement in this matter.

8.  In the usual way of performing works such as these for a  small contractor the Plaintiff, which employs a few permanent staff in its office and for work on site, substantially sub-contracted out the work to the appropriate trades; plumbers, electricians, painters and decorators and so forth.  Mr Chan has paid these sub-contractors for the work that they carried out at the house and for the minor works done at Mr and Mrs Ng’s previous home and so, as matters presently stand, he is out of pocket. 

9.  The work was completed in mid-December 2005 and the Plaintiff delivered possession of the house to Mr and Mrs Ng who expressed themselves very satisfied with the outcome, so much so that they entertained the main workmen to a seafood banquet in Sai Kung to express their thanks and appreciation.  Mr Chan says that during the meal he reminded Mr and Mrs Ng that should they discover any defects they should inform him so that he might send workmen to put matters right.

10.  By then the bills had been presented and final payment had been confidently expected by Mr Chan.  Up till now he has never had a dispute with any of his clients.  He takes pride in his work and clients have always been satisfied and paid him in full without question.  Five months went by and no final payment was forthcoming.  During this time the Plaintiff received no complaint as to the quality of its workmanship.  Then on 26 May 2006 the Defendant instructed a firm of solicitors, Messrs Tung, Ng, Tse and Heung, to write a letter to the Plaintiff.  It is at C/148-151.  Having first set out the terms upon which the work should have been performed [148-149], the rest of the letter said this:

“But in breach of the said agreement, you have committed the following breaches, (non exclusive) :-

a.      causing water leaking in kitchen and master’s bedroom due to bad installation of window or inadequate (or lack of any) leakage precaution on wall and/or window edges;

b.      wrongfully and negligently advised our client not to repair the roof top flooring; failing to repair the roof top flooring; allowing water leakage from roof top;

c.       defective plumping design and/or system in basement;

d.      uneven wooden flooring found on floor due to bad quality of wood and/or bad workmanship and/or bad materials;

e.       inferior quality of wood supplied for flooring, furniture, fixture and fittings;

f.        ill placement of air-conditioning system machines on roof top resulting in taking up unnecessary space;

g.       cracks found on tiles;

h.      most (if not all) furniture were cut and made in China and delivered to the Property for installation only;

i.         the study desk was wrongly and badly design and made.  The drawer of which was not useable due to wrong design and/or measurement;

j.        late completion of work in the Property; delivered possession to our client only on or after 24^th December 2006;

k.      insufficient/inadequate water proofing work done to wall and/or windows edge causing water leakage; and

l.         removal of two palm trees without prior approval;

m.     insufficient mosquito net installed to doors and windows;

n.       bad quality and finishing on furniture, fixture and fittings including walls and cupboards;

o.      lock on main door was of poor quality;

p.      repeated mal-function of lighting system due to bad design, bad workmanship or otherwise;

q.      fall of ceiling light due to bad installation;

r.        failing to take any or reasonable step to ascertain the need of repair of roof;

s.       some alleged works were done without authority and/or prior knowledge of our client.

We also put on record that notwithstanding repeated demands and requests you only sent our client your final statement in February 2006 and the amount of which is totally unacceptable to our client.  In fact our client has reasons to believe that substantial amount of work claimed was never done.

Our client also objects to your charge on electrical appliances in that you have over charged our client.  The same was excessive unreasonable and extortionate.  In particular the charge of air-conditioning machines was almost double to their market values at the material times.

Our client has serious doubt as to the true qualification of the personnels of your company, your contractor, staff and workers who are involved in the decoration work.

Your act has also caused serious distress to our client’s representatives.

You are now demanded to :-

1.      provide copies of all record of disbursements of your claims such as receipts (including all electrical appliances, subcontractor and insurance payment etc;)

2.      provide information as to the identity and qualification of your representatives involved the decoration work, your sub-contractor in particular the licensed plumber, electrician, carpenter as previously demanded by our client repeatedly’

3.      all necessary certificate such as water proofing materials and/or fire test confirmation (if any).

Nothing herein shall be treated as admission on our client’s part, including but not limited to be validity and/or enforceability of the agreement.

You are warned that we have advised our client to report the matter to the police for investigation for fraud.

Your prompt reply is expected within 7 days failing which we shall consider advising our client to institute legal proceeding for damages without delay.

Our client intends to instruct an expert to assess the loss and damages suffered by our client and you are advised to send your expert along.  In this respect we shall write to you again shortly.

Our client’s rights are reserved.  In particular our client reserves its right to claim against you for negligence, breach of collateral contract, misrepresentation or otherwise.”

11.  The vehemence of this letter is to be contrasted with the expression of appreciation on the completion of the work and also with the final position arrived at between the parties at the trial which I will come to presently.  This letter was acknowledged by the Plaintiff’s solicitors on 6 June and replied to substantively in great detail and in a measured way on 13 June 2006 [C161-166].  The letter set out precisely how the Plaintiff’s account was calculated and provided answers to each of the Defendant’s criticisms of the quality of the Plaintiff’s workmanship.

The Nature of the Trial

12.  The Plaintiff has called Mr Chan to give evidence largely in accordance with his detailed witness statement [A164-178] and he has produced and spoken to the original quotation and the revised quotation as well as producing all the documents in support of the claims.  The Plaintiff has also called its expert, Mr Chan Yuen Kwong whose report at B1-213 is, as the number of pages suggests, extremely comprehensive.

13.  The Defendant has decided not to call either Mr or Mr Ng, preferring to leave the matter to their expert Mr Patrick Lau whose report is at B214-243.  As a result of Mr and Mrs Ng’s absence from the witness box, both of them having provided witness statements which I must now ignore, the evidence of Mr Chan Kin Fai is unchallenged as to the discussions that he had with them before, during and after the works.  It may well be that they did not care for the publicity which would have come with their appearance at court given their fame in the film industry but Mr Martin Wong, who appears for the Defendant, says that they have always sought to pay a fair price for these works and for this reason they have decided to leave the matter of what is such a price to the court.  That wish and willingness to pay a fair price, conciliatory as it now seems, hardly sits well with the tone of that aggressively, and one can say threateningly, drafted letter of 26 May 2006, the material parts of which I have reproduced at paragraph 10 above.

14.  In the event, I will need to attend to the evidence that has been called in coming to my decision on what, if anything, is still due to the Plaintiff.

15.  I will begin with the position as it was at the time when the expert evidence was filed in readiness for the trial.  Happily, the experts have been able to move closer on the figures and this has narrowed further following a joint view that they held at the house during the trial so that now there really is very little between them compared to the very substantial gulf that divided them when they lodged their reports.

The Issues

16.  The way that the case has developed is that, as I have already observed, there has been a coming together of the parties positions.  Basically, I have two tasks to perform which is to determine what the parties agreed on the cost of doing these works and then to place a value on the works actually done.  This latter aspect also involves an assessment of the cost of alleged defects in the work done by the Plaintiff.

17.  The total of the claim is, as it is pleaded in the statement of claim, for $1,201,022 being made up of three amounts which I have already referred to, [$879,822 + $289,800 + $31,400].  This sum is arrived at after deducting the $2,500,000 already paid by the Defendant.

18.  The sums claimed come from the revised Quotation of May 2005 and the additional bills for the old home and the added works.

19.  The experts have applied their mind to the work done and have now sought to provide a valuation of these works less the cost of putting right any defective workmanship.

The Development of the Defendant’s Case

20.  I am afraid to say, and I will explain why as the judgment proceeds, that the Defendant, and this really comes down to Mr and Mrs Ng, have tried to get away with paying $1.9 million for these works with the result that the very lengthy amended-defence and counterclaim suggests an overpayment by the Defendant of just over $600,000.  Now that all the evidence is before me, it is quite apparent that they had hoped that by getting their then solicitors (they have employed 5 over the course of this litigation) to write a very strong letter [see para.10 above] that this might frighten off the Plaintiff and, at the very least, cause it to abandon any claim for the unpaid balance.  When it became clear that Mr Chan was made of sterner stuff and issued a statement of claim, this was first met with a defence, then an amended-defence followed by an amended defence to which a counterclaim was added involving the employment of at least two firms of solicitors, neither of which had written the letter of 29 May 2006 [para.10 above] nor is either the one which has instructed Mr Martin Wong in the trial.

21.  The length and detail of these pleadings might well have discouraged a less determined Plaintiff particularly when one adds to this a request for further and better particulars, and other contested interlocutory applications including one for security for costs.  Of course, all Defendants are entitled to take this course, and this was the Defendant’s undoubted right but, now that this is all over, it is very plain to me, in circumstances where the Defendant has shifted its position as the case has gone along, that those controlling the Defendant company had thought that by presenting a strong case on paper and perhaps having regard to their social standing relative to that of Mr Chan that they might be able to bully him into submission.  I have made these strong comments advisedly and I now propose to demonstrate why I have felt able to do so.

22.  The Defendant’s case had started with a suggestion that the Plaintiff had agreed to do the not inconsiderable amount of work involved for a “capped” fee which would not involve the Plaintiff is making a profit.  What one might informally refer to as “at mates rates”.  It was pleaded as “such reasonable price would be based on what a contractor would charge to his good friends without any profit [A/34] ”.  This was further pleaded as an allegation that “the reasonable price without profit which the Plaintiff is entitled to be paid under the contract for the renovation works as claimed by the Plaintiff is no more than $1,899,064” and it is this which forms the basis of the plea that there has been an overpayment of $600,936.  This suggestion has now been abandoned against a background of the Plaintiff having incurred actual costs of over $3 million in doing the work.  This not involving any element for its own overheads let alone a profit.

23.  Since then and from a position where in the letter of 26 May 2006, the Plaintiff was being threatened with a report to the police for fraud, the Defendant’s expert, Mr Lau has agreed under cross-examination that the work done can be valued at $3,044,047 plus 5% for overhead costs and a further 15% mark-up for profit, which adds up to $3,675,686.75.  Mr Lau conceded that this would be reasonable.

24.  It is the Plaintiff’s expert, Mr Chan Yuen Kwong who has put forward this valuation of the work [$3,044,047] but differs from Mr Lau to the extent that he says the overhead costs should be 7.84% plus 15% for profit.  His total therefore is $3,775,104.83, which means that the difference between the two of them is $99,418.08.  What the Plaintiff had actually invoiced the Defendant for was $3,701,022 which amounts to $25,335.25 (less than 1%) more than Mr Lau’s final assessment of the value of these works.

25.  The Plaintiff has had to come to trial, facing a plea that all that he was entitled to be paid was just under $1.9 million and that he had been overpaid $600,000 only to hear from the Defendant’s own expert at the trial that an invoiced price of $3,675,686.75 for these works was perfectly reasonable.  As Mr Jeremy Chan, on behalf of the Plaintiff, very reasonably submits, it is inconceivable that the Plaintiff would not have been prepared to concede a less than 1% difference to avoid the anxiety and expense of having to come to trial, subject to the dispute on the cost of putting right allegedly defective workmanship.  Had at worst, the dispute been confined to that issue the cost of this litigation would have been far less than it has become.

26.  From these comments, I now turn to the substantive issues beginning with the small bill for the old home.

The Old Home

27.  The claim for $31,400 for these minor works is unanswerable.  This was touch-up and freshen up work to make the property cosmetically more attractive to a would-be buyer.  Even on these minor works, Mr and Mrs Ng had misled their own expert by telling him that the Plaintiff had been contracted to renovate the external and fence walls and the “stairhood” of the premises, which resulted in Mr Lau applying a cost for remedying the failure to do these works.  Quite rightly, Mr Lau has now abandoned this complaint once it had become clear that this work was not part of the Plaintiff’s brief on this property.

The House

28.  Fortunately as a result of the joint view which the experts have had at the house during the course of the trial, they have been able to instruct their respective counsel and solicitors as to each individual item in the Plaintiff’s bills.  Both counsel have very helpfully attached a schedule to their closing written submissions which show their respective cases on the numerous items that comprise the list of works done by the Plaintiff.  I gratefully reproduce and attach these schedules to the judgment.  The Defendant’s is marked “A” and the Plaintiff’s is “B”.  By looking at the schedules, I have been able to consider the differences between the parties and in some, although by no means all, the reasons for those differences.

29.  As is made plain in the Defendant’s schedule [”A”] many of Mr Lau’s assessments were made as he was being cross-examined by Mr Jeremy Chan, and a lot of what he was saying, whilst he was undoubtedly doing his best, was a matter of feel based on experience.  Mr Chan (the Plaintiff’s expert) was unquestionably more assured on these matters and at the end of the day, I have concluded that of these two witnesses his evidence is to be preferred.  In coming to this assessment, I have taken into account the evidence of Mr Chan Kin Fai who impressed me as a highly competent and experienced contractor who takes pride in his work.  I also accept his evidence that he has never had a client before this occasion, who complained about the standard of his workmanship.  He has told me that he considered that his men had done a good job and that he was confident that when he handed over the house to the owners that he had accomplished all that had been asked of him.  Whilst initial client satisfaction is in no way conclusive, I get some support for my assessment of the evidence that, subject to the inevitable “snagging” items which a contractor would be expected to return and put right, the works were done in accordance with the revised quotation and the additional bills, to a competent standard and finish.

30.  This being my view, I find as a fact that the measurement and costing of these works as they appear in schedule “B” (the Plaintiff’s) is the correct one.  Ultimately, what I got from Mr Lau were answers in cross-examination delivered ex improviso and without sufficient analysis.  Most of his answers were, as Mr Jeremy Chan correctly submits, unsupported bare allegations, as opposed to Mr Chan Yuen Kwong’s reasoned appraisal and valuation of these works.

Costing of the Defects

31.  Originally, Mr Lau was saying that the defects would have cost a very substantial $1,350,000 to put right which, if correct, went to support a final figure of $600,000 as an overpayment by the Defendant.  This has now come down to $410,000 which as a concession of $940,000 only serves to damage his credibility.

32.  There is in this case, a marked difference in approach to defects.  Now three years after the event, Mr Chan Yuen Kwong values the cost of putting right the defects at $15,000 which is a very large difference of opinion.  But it seems to me that there is an important principle at stake.  The fact is that had the Defendant called back Mr Chan Kin Fai to put right defects he would have done so.  I accept his evidence that this is what he had told Mr and Mrs Ng to do more than once at the celebration banquet.  I also accept that had they done so, Mr Chan Kin Fai would have sent over the appropriate workmen to carry out this remedial work to a proper standard.  Notwithstanding this advice, Mr and Mrs Ng did nothing for six months until they caused the letter of 26 May 2006 to be sent which had followed a visit to the premises by Mr Lau to inspect the works and comment on them which in turn formed the basis of the letter.

33.  It is said that the letter of 26 May amounted to a request that these defects should be remedied.  I cannot accept that this was the effect of the letter.  It has been described by Mr Jeremy Chan as a letter before action.  In my judgment, it was a lot more than that.  Its threatening tone would have been a positive disincentive to Mr Chan Kin Fai going anywhere near these premises and he very sensibly went to see his solicitors instead.

34.  Mr Jeremy Chan has also correctly placed reliance on the case of Pamax v Cross Max Interiors, HCA 2181/2002 (31 March 2008) where it was held that the contractor could not be held to be in breach for defective workmanship in circumstances where he had been denied the opportunity to put right items which required further work.  In my view, this is precisely the situation here.  Mr Chan Kin Fai should have been requested to return to put matters right.  This is what he had asked should be done.  Had he been asked, I have no doubt that he would have returned.  In such circumstances, the Plaintiff cannot now be held in default for the defects and, in any event, I find as a fact that such defects as he would have been liable for would only cost $15,000 to put right and not the $410,000 assessed by Mr Patrick Lau.  I also accept that Mr Chan Kin Fai would have put these right at no cost whatsoever to the Defendant.

The Result

35.  Accordingly, there must be judgment for the Plaintiff in the sum claimed which is $1,201,022 together with interest on this amount from 1 June 2006 at 1% above prime rate until the date of judgment and thereafter at the judgment rate until payment.  I have taken the 1 June 2006 as the starting date to allow for some time for the parties to have any discussion in respect of “snagging items” which needed putting right had Mr and Mrs Ng been willing to act reasonably and engaged Mr Chan Kin Fai on a sensible basis to put defects right which, as I have already said, he would have done.

Costs

36.  Costs will follow the event and will therefore be to the Plaintiff.  It seems to me that this is a case where the Defendant’s conduct has been egregious.  A party and party taxation would not adequately reimburse the Plaintiff for the costs of having to bring this action.  He should have his costs on an indemnity basis.

37.  The orders for costs and for interest will be orders nisi.

38.  Finally, I wish to say that where I have been highly critical of the Defendant and those in control of it for the way that they have conducted themselves in this action, those remarks are in no way directed at Mr Martin Wong and his instructing solicitors.  Mr Wong in particular has dealt with this matter in a very sensible and proper manner doing his best for his clients in difficult circumstances.