BIG ISLAND CONTRACTING (HK) LTD v. SKINK LTD

Headnote

            Contract for work and materials. The terms "practical completion" and "substantial performance" considered. Judge's conclusion that "practical completion" had not been achieved and his decision to refuse application to amend Particulars of Claim upheld. Appeal dismissed accordingly. Effect of sections 53 and 60 of District Court Ordinance (Cap 336) criticised.

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JUDGMENT

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Kempster, JA (giving the judgment of the Court) :

1. This is an appeal, brought by leave of Penlington JA, against that part of the Order made by His Honour Judge Yam in the District Court on 12 October 1989 whereby he dismissed the plaintiffs' Claim for HK$99,609.99 being 25 per cent of the agreed price for work done and material supplied to the defendants at the 12th and 13th floors of Chao's Building, East Bonham Strand, Sheung wan.

2. By their grounds of appeal the plaintiffs, Big Island Contracting (HK) Ltd, contend that they were entitled to judgment for the sum claimed since practical completion of the works was achieved and acknowledged by the defendants, Skink Ltd, on or about 9 September 1988 when they went into occupation. The sum in question then became payable pursuant to the terms of the agreement between the parties which, it is common ground, were set out in or evidenced by documents dated 15 August 1988.

3. The plaintiffs also seek to rely on an excuse for not achieving substantial completion at a later date but since no basis for such an alternative claim is pleaded in the Particulars of Claim the point is not open to them. That is why they challenge the exercise, in the course of the trial, of the judge's discretion in refusing them leave to amend. The plaintiffs do not specifically ask us to grant such leave.

4. It has at no stage been suggested that, by moving-in on 9 September 1988 and thereby taking the benefit of the work done and materials supplied by the plaintiffs,the defendants waived the condition precedent to 25 per cent payment, namely that requiring practical completion, and were therefore liable to pay the sum claimed subject to appropriate deductions. No more were the matters raised in para 5(b) of the Reamended Reply and Defence to Counterclaim pursued at trial and:they are not the subject of appeal. That sub-paragraph reads:-

"…the provisional sum provided to relocate the fire sprinklers on the 13th floor was subject to a quotation being obtained once the final layout of the 13th floor was known and thereafter subject to the defendants' acceptance of the said quotation and agreement to the terms thereof. Although a quotation was obtained on 2 September 1989 and notified to the defendants on the same day, the defendants never accepted or agreed the terms at any time and caused delays to the plaintiffs' efforts to obtain the said quotation by the defendants' repeated alterations to the specification and layout of the premises under the contract".

5. Oral judgment was given on 12 October 1989. Unhappily counsel present did not note its terms. A written judgment, which expanded on reasons previously given in the course of the trial for refusing the application to amend and which appear on the record, was furnished in or about January 1989. This course is permissible by reason of and subject to the terms of s 60 of the District Court ordinance (Cap 336) which reads : -

6. He can give yet further grounds if he reviews his decision pursuant to s 53.. We cannot think that these provisions enhance general confidence in the administration of justice in the District Court. However, so long as sections 53 and 60 remain part of our law we would invite counsel engaged in that Court to note the terms of oral judgments given.

7. We return to the issue of "practical completion" which we cannot distinguish from "substantial performance." The law in this regard is explained in Hoenig v Isaccs [1952] 2 All ER 176 and Bolton v Mahadeva [1972] 1 WLR 1009. To quote Somervell LJ at p 179 in the earlier authority : -

"The question here is whether in a contract for work and labour for a lump sum payable on completion the defendant can repudiate liability under the contract on the ground that the work though 'finished' or 'done' is in some respects not in accordance with the contract. ... I think on the facts of this case the work was finished in the ordinary sense, though in part defective, ..."

The Court of Appeal upheld the Official Referee who had found that the defendant was liable for the sum claimed less a deduction based on the cost of making good the defects or omissions proved.

8. In the second authority, also decided by the English Court of Appeal, it was held on the facts that the plaintiff had not substantially performed the contract and that in coming to such a conclusion it was relevant to take into account both the nature of the defects and the proportion between the cost of rectifying them and the contract price. It was also held that it would be wrong to say that a contractor is only entitled to payment if the defects are so trifling as to be covered by the de minimis rule. The agreement there under consideration was for the installation in a house of a central heating system. Such a system was, installed but it did not eat the douse adequately and gave off fumes. The defects were not susceptible of easy rectification.

9. In the instant case Judge Yam found not merely defects, the rectification of which would not, it appears from the evidence, have cost more than HK$40,000 to 60,000, being less than the sum claimed, but a failures by the plaintiffs to execute an important part of the agreed works namely modification to the sprinkler system on the 13th floor. Albeit a provisional sum of only $20,000 had been allowed for this particular item the judge was entitled to accept expert evidence that it affected the safety of the premises and also that it would have taken between 2 and 10 days to make good the omission. On this basis he found that practical completion had not been achieved. We see no grounds for coming to a different conclusion. The judge reached it in circumstances where, by reason of the failure to modify the sprinkler system, the work contracted for was, in the words of Somervell LJ in Hoenig v Isaccs, neither  "finished" nor "done" in the ordinary sense. This determination is also consistent with the small sum, namely 5 per cent, which was not to be payable until the expiry of 90 days after practical completion.

10. As to the exercise of the judge's discretion in refusing the application to amend the Particulars of Claim, he, and possibly the plaintiffs themselves appear to have been under the impression that what was sought by way of amendment was to sue in the alternative upon a quantum meruit for a reasonable sum for such work as had been done and for such materials as had been supplied. On the footing that the defendants had wrongly prevented practical completion such a claim would have been sustainable as was pointed out by Denning LJ in Hoenig at p 181 : -

"A plaintiff who cannot recover in contract can do so on a quantum meruit if he can show that the work was incomplete due to the defendant's fault to impossibility or to frustration."

But, as Mr Bell, who appeared on their behalf, explained to us the plaintiffs wished to affirm and not to repudiate the contract and to claim damages for the defendants' breach of an implied term requiring them to facilitate the execution of the works at whatever time though, at one stage, he suggested that they were so required only until 23 September 1988; being forty days after 15 August and therefore the date agreed for practical completion. The amount of damages, he told us, would be the equivalent of the sum claimed to be due on the basis that practical completion had been achieved. Had the amendment been allowed it would have involved the trial of issues as to when the forty days started to run and whether failure to complete resulted from the fault of the defendants or from the insistence of the plaintiffs on the payment of 25 per cent of the contract price before they carried out or supplied any further work or materials.

11. In our view the evidence showed that time was of the essence in this contract. The defendants' draft pleading, submitted to Judge Yam and to us, omits a number of averments critical to a claim for damages and to the defendants' appreciation of its nature. At the trial, the lacunae having been pointed out, counsel then appearing for the plaintiffs declined to amplify the draft. Whether or not he really thought it was a claim under a quantum meruit the judge was therefore entitled in the exercise of his discretion to refuse the application.

12. The appeal fails and falls to be dismissed.