YU TAI KAN AND ANOTHER v. MOREWELL ENGINEERING LTD

DCCJ537/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 537 OF 2013

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JUDGMENT

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Background

1. This is a decoration contract dispute.  The plaintiffs (“Mr. and Mrs. Yu”) are the registered owners of the property known as Flat G, 31/F, 8 Clear Water Bay Road, Kowloon, Hong Kong (“the Property”).  The defendant is a limited company incorporated in Hong Kong carrying on business of interior design and decoration services.  At the material times, Mr. Yip Kwok Yan (“Mr. Yip”) was the sole director and shareholder of the defendant and was responsible to its daily operation.

2. On 9 June 2012, the plaintiffs and the defendant entered into contract in which the defendant was engaged to provide design and decoration services to the Property (“the works”).  The total contract price was $280,000 and the plaintiffs had paid a deposit of $90,000.

3. After the commencement of the works, there were disputes as to the quality of the works.  It is the plaintiffs’ case that the defendant refused to rectify some defects and subsequently refused to carry on with the works.  On the other hand, it is the defendant’s case that the plaintiff repudiated the contract by requesting the defendant to cease work. 

4. In any event, it is common ground that the defendant ceased to carry on with the works after 17 October 2012 and the works had not been completed.  The plaintiffs now claim against the defendant damages of $59,500, being the difference between the deposit paid and the value of the work done (according to the plaintiffs), costs of rectifying the defects, extra rent incurred and costs of surveyor’s report.  The defendant counterclaims damages of $91,690, being the difference between the deposit paid and the value of the work done (according to the defendant) and loss of profit.

The proceedings

5. Since the commencement of the proceedings, the defendant had been represented.  On 9 May 2014, the defendant filed to the court a notice to act in person with supporting affirmation. However, the defendant was absent at the pre-trial review on 8 July 2014. Deputy District Judge Timon Shum directed that the defendant’s counterclaim be provisionally struck out pursuant to Order 25 rule 4 of the Rules of District Court.  Up to the date of the trial, no application has been made by the defendant to restore the counterclaim.

6. At the trial, the defendant was again absent.  Having satisfied that all the documents had been properly served to the defendant and the defendant had been put on sufficient notice of the date of the trial, the court decided to proceed with the trial in the absence of the defendant.

The plaintiffs’ case

7. Both plaintiffs gave evidence at trial.  In essence, it is the plaintiffs’ case that after the commencement of the works, they found the quality of the work done by the defendant was below standard and there were various defects.  For example, the bathtub had been installed at the wrong location and electric cable conduits were not made under the plastered floors of the corridor and the bedrooms.  Despite repeated complaints from the plaintiffs, the defendant refused to rectify the defects. 

8. On 17 October 2012, the parties met at the Property to discuss how to proceed with the works.  During the meeting, Mr. Yip indicated that he would not rectify the defects.  He further instructed his workers to pack up their tools and leave the Property.  No further work had been carried out by the defendant thereafter.

9. The plaintiffs engaged Assured Reliance (Hong Kong) Limited (“the surveyor”) to prepare a survey report on the workmanship and value of the works.  It was the opinion of the surveyor that there were various defects and rectifications were needed.  The surveyor concluded that the value of the work done was $54,800 and the cost for rectifying the defects was estimated at $10,968.

10. Further, as a result of the defective works, the plaintiffs had to engage another contractor to rectify the defects and complete the works.  It took one more month to complete the works. At the material times, they were residing at a rented property at a rent of $17,000 per month.  Because of the delay, the plaintiffs had incurred extra rental of $17,000. 

11. To sum up, the plaintiffs claim against the defendant:-

Surplus of deposit paid	$35,200
Cost of rectification	$10,968
Extra rent incurred	$17,000
Cost of survey report	$5,500
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Total:	$68,668

The defendant’s case

12. The defendant was absent at trial so no witness had testified on its behalf.  According to the pleadings and witness statement of Mr. Yip, it is the case of the defendant that the plaintiffs never raised any complaint during the works were in progress. However, on or about 17 October 2012, the plaintiffs suddenly requested the defendant to stop carrying on with the works.  The defendant had no alternative but to comply with the plaintiffs’ request. 

13. It is the defendant’s case that the plaintiffs repudiated the contract and the defendant should be entitled to the balance of the contract price.  According to the defendant’s expert, the value of the works being carried out by the defendant is $121,690.  As the plaintiffs only paid a deposit of $90,000, the plaintiffs are liable to pay the defendant the sum of $31,690, being difference between the value of the work done and the deposit paid.  Further, the defendant counterclaims the plaintiffs $60,000 as damages for loss of profit.

Discussion

Did the defendant repudiate the contract?

14. The first issue of this case is whether the acts of the defendant amount to repudiation of the contract?  To prove that it was the defendant who repudiated the contract, the plaintiffs rely on the following two acts of the defendant: First, the defendant refused to rectify the defects despite repeated requests.  Second, after the negotiation broke down, Mr. Yip instructed his workers to remove all their tools from the Property and the defendant ceased all work.   

15. Considered all the evidence, as there is no evidence from the defendant to prove the contrary, I accept the plaintiffs’ evidence that the defendant refused to rectify the defects as requested by the plaintiffs.  However, I do not find that this act alone amounts to repudiation of the contract.  It was the defendant’s refusal to carry on with the works that shows the defendant no longer intended to be bound by the contract.  As the defendant’s act clearly showed that it had no intention to carry out the contract, the plaintiffs is entitled to treat the contract as at an end and accept the repudiation. 

16. As it was the defendant who repudiated the contract, the plaintiffs are entitled to sue for damages including any costs to rectify the defects.

Value of the work done

17. The next issue is what is the value of the work done by the defendant?  According to the joint statement, the plaintiffs’ expert, Mr. Tsang said the total value of the work done is $60,000.  On the other hand, Mr. Tsim, expert of the defendants, said the value should be $97,300.  As both experts were not called to testify at trial, the court will resolve this issue by examining their respective reports and the joint statement. 

18. According to the joint statement, the values of the following items are in dispute:-

(1)   Item 2  Demolition and rebuilding of partition wall

(2)   Item 11  Laying tiles in master bathroom

(3)   Item 14  Laying tiles in guest bathroom

(4)   Item 16  Installation of bathroom fittings

(5)   Item 17  Laying tiles in kitchen

(6)   Item 24  Demolition of wall and installation of sliding doors in kitchen

19. Concerning Item 2, the quoted price is $9,800.  Mr. Tsang said the value of the work should be $6,500 because there was hollowed plaster on the wall and the defective plaster should be removed.  Mr. Tsim said although there was hollow sound when tested, it was not caused by defective plastering and there should be no deduction.  After consideration, I accept the observation of Mr. Tsang that plasters on the wall were found hollowed in places and agree that it should be re-plastered.  I accept that the value of this item should be $6,500 only after deducting the costs of rectification.

20. Concerning Item 11, the major complaint of the plaintiffs is that the bathtub was installed at the wrong place.  Further, there was hollowed plaster on the walls and tiles had not been laid at all.  Mr. Tsang opined that the work done under this item has no value.  Mr. Tsim, on the other hand, said although tiles had not been laid, plastering was finished and the defendant is entitled to have half of the price of this item i.e. $7,400.  After consideration, I am of the view that as the bathtub has to be re-installed, inevitably the wall and the floor will have to be re-plastered.  I prefer the opinion of Mr. Tsang that there is no value in the work done by the defendant under this item.

21. Next I deal with Items 14 and 17 together as the disputes are very similar.  It is Mr. Tsang’s opinion that the plaster on the wall was hollowed and defective in both items.  The plaintiffs have to redo the work and therefore the work done has no value.  Mr. Tsim opined that as plastering had been finished, the defendant is entitled to half of the price of this item.  Again, I prefer the opinion of Mr. Tsang because even Mr. Tsim admitted in the joint statement that hollowed plaster was found in the work.  In the premises, I find that there is no value in the work done under Items 14 and 17.

22. Item 16 concerns the installation of bathroom fittings.  Though the work had not been carried out, it is the defendant’s case that labour costs of $1,000 had been incurred to prepare for the carrying out of the work.  After consideration, as the work had not even started, I am not convinced that any labour costs were incurred by the defendant. 

23. The last disputed item is Item 24 which concerns the demolition of wall and installation of sliding doors in the kitchen.  The quoted price is $18,800.  It is common ground that the wall was demolished but doors had not been installed.  Further, the plaintiffs complained that the plastering on the wall was hollowed.  After consideration, I disagree with the estimation of both experts.  I am of the view that the defendant had completed about half of this item and therefore the value should be $9,400.

24. To sum up, my assessment of the value of the disputed items is $15,900.  According to the joint statement, as the value of the agreed items is $49,000, the total value of the work done should be $64,900.  As the plaintiffs had paid a deposit of $90,000, they are entitled to have refund of $25,100.

Costs for rectification

25. In the statement of claim, the amount claimed by the plaintiffs for costs for rectification is $10,968. However, in the joint statement, Mr. Tsang assessed that the amount should be $7,000 while the amount suggested by Mr. Tsim is $4,000.  After consideration, my assessment for costs for rectification is $6,000.

Extra rent incurred

26. It is the plaintiffs’ case that extra time was used to rectify and complete the works.  As a result, they had to stay in the rented premises they were residing for one more month.  The monthly rent of the said premises was $17,000 therefore the plaintiffs claim against the defendant damages of $17,000.

27. As I already found that it was the defendant who repudiated the contract, the plaintiffs are entitled to be compensated for any costs reasonably incurred as a result of the repudiation. I find that it is reasonable for the plaintiffs to spend one more month to complete the works and it is also reasonable for them to stay in their rented premises for one more month.  Therefore, I find that the defendant is liable to pay the plaintiffs damages of $17,000.

Costs of survey report

28. Lastly, the plaintiffs claim the costs of survey report as damages.  Generally speaking, any costs incurred for expert report should be claimed as costs of the proceedings.  Counsel for the plaintiffs, Mr. Yung, submits that the costs of expert report are recoverable as damages if the main purpose was to help the plaintiffs to deal with the defendant’s breach of contract.  As the survey report was prepared even earlier than the pre-action letter from the plaintiffs’ solicitors, the purpose of the report was mainly for the plaintiffs to deal with the defendant’s repudiation of contract.  He quoted Keating on Contraction Contract, 9^th Ed, at 9-018, to support his submissions.

29. After consideration, I am of the view that the costs of survey report incurred by the plaintiffs could be recovered as damages.  As it was prepared at the very early stage of the proceedings, the main purpose of making the report was to assist the plaintiffs to deal with the defendant’s repudiation. 

Conclusion

30. In conclusion, I find the plaintiffs have successfully proved their claims and they are entitled to the following damages:-

Surplus of deposit paid	$25,100
Cost of rectification	$6,000
Extra rent incurred	$17,000
Costs of survey report	$5,500
Total:	$53,600

Order

31. I make the following orders:-

(1)   The defendant do pay the plaintiffs damages of $53,600;

(2)   Counterclaim be dismissed;

(3)   Interest from the date of writ until payment at judgment rate;

(4)   Costs of this action, including counterclaim, be to the plaintiffs, to be taxed if not agreed, with certificate for counsel.  The costs order is nisi and shall become absolute in 14 days in the absence of application to vary.