BMB DESIGN CONSULTANT CO. LTD. v. GLORY KING CONTRACTING LTD.

HCA14474/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 14474 OF 1996

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J U D G M E N T

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1. The plaintiff's claim by its Writ of Summons issued on 18 December 1996 is for $3,417,098 for works done by the plaintiff. Since the issue of that Writ, however, there was an Order made by consent of the parties in this matter on 17 February 1997 whereby the plaintiff was given part judgment for $1,389,085.25. In order to properly adjudicate the disputes between the parties in this matter, I shall ignore, for the time being, the Consent Order and deal with the claim as it was pleaded due to the fact that the part judgment given to the plaintiff does not specify which part of the plaintiff's claim had been dealt with.

2. The plaintiff's claim is based on 10 invoices dated between 22 August and 29 November 1996. With the exception of the last invoice, the first nine of them (totalling $3,961,903) related to renovation works carried out by the plaintiff as a subcontractor of the defendant in respect of renovations and decorations of various counters in three Lane Crawford stores, namely the Ocean Terminal branch, the Queen's Road Central branch and the Pacific Place branch. The last invoice (for $94,812) related to a completely different matter, namely the decoration by the plaintiff of a model flat at Kingswood Villa. Credit is given by the plaintiff for partial payment of $639,617 received by the plaintiff before the Writ was issued.

3. There is also a counterclaim by the defendant for the cost of defective works which the plaintiff failed to remedy and also for loss of goodwill and reputation to the defendant due to the defective or substandard works performed by the plaintiff.

4. There is no dispute that the plaintiff had been engaged by the defendant sometime in June 1996 to be the subcontractor for decoration works in relation to the three Lane Crawford branches and that the plaintiff had given a quotation for those works to be $2,930,785. There is also no dispute that as the works progressed, the plaintiff was requested by Lane Crawford or its agent for the renovation, one Lawson & Co. ("Lawson"), to do some additional works which were made known to the defendant and was agreed by the defendant. All the works and additional works were completed by the plaintiff by late August 1996. Variation works which the plaintiff was asked to carry out by Lawson were completed by mid September 1996.

5. The disputes between the parties are over, firstly, the terms agreed between them, namely, as to payment terms and also the defect liability period; and secondly, whether the work done by the plaintiff, or some of it, was so defective that the defendant had to incur further expenses to have such defect rectified.

The plaintiff's evidence

6. The plaintiff called only one witness, Mr Au Chi Ming ("Au"), a director of the plaintiff. He gave evidence that, in June 1996, he was approached by Mr Lau Yiu Wing ("Lau") of the defendant to give quotations for renovations of certain counters at various Lane Crawford branches based on drawings supplied by the defendant for such renovation works. Because the drawings did not specify the materials to be used and Lau told him that he would be able to provide the sample board for the material to be used when it became available, therefore the quotations submitted by the plaintiff were subject to the material to be used. On this basis, he quoted the subcontract works for the renovation in the sum of $2,930,785. After this quotation had been sent to the defendant, it was not only accepted by the defendant, but Lau also asked the plaintiff to supply the defendant with the computer diskette on which the quotation was so that the defendant can prepare its own marked up quotation to submit to Lawson.

7. In mid July, he was told by Lau that everything had been finalised and the plaintiff became the subcontractor of the defendant for this project. It was only at meetings arranged by Lawson that he learnt that the material required by Lawson/Lane Crawford was different from what was advised by the defendant, and that the time allowed for the works had been reduced from 45 to 24 working days. He then informed Lau that these matters will affect the price quoted. Lau agreed but told him to leave it to a later stage and to deal with it by way of variations or additions. Due to the shortened work period, he decided to get on with the work.

8. The plaintiff started work on site on 27 July and during the progress of the work, the plaintiff was requested by Lawson to carry out additional works outside of what was quoted. By 30 August, all the works and the additional works were completed by the plaintiff. However, in early September, the plaintiff was further requested by Lawson to carry out further variation works which was done by the plaintiff within some 14 days. Quotations bearing nos.BMB-QUO-729 and 735 for the further variation works were submitted by the plaintiff on 3 and 13 September as these further variation works were being carried out. These quotations were accepted by Lau on behalf of the defendant.

9. By reason of the variation and additional works, the total contract sum came to $3,961,903.75. Thereafter he had issued the following invoices for the plaintiff :

(a) Invoice nos.BMB-INV-832, 833 and 834 dated 22, 22 and 23 August 1996 corresponded to the quotation no.BMB-QUO-711(R1);

(b) invoice nos.BMB-INV-894 and 895 both dated 24 October 1996 for the 1st part of the variation corresponded to the quotation nos.BMB-VAR-150 and 155;

(c) invoice no.BMB-INV-910 dated 12 November 1996 for the overtime works;

(d) invoice nos.BMB-INV-918 and 919 both dated 14 November 1996 for the 2nd part of variation corresponded with the quotation nos.BMB-VAR-735 and 729; and

(e) invoice no.BMB-INV-922 dated 22 November 1996 which was for the 5% retention money held by the defendant.

10. To date, the plaintiff has only received $639,617 in part payment from the defendant as well as the amount pursuant to the Consent Order in the sum of $1,389,085.25 and interests thereon.

11. The plaintiff did receive two defect lists from the defendant in respect of the works carried out by the plaintiff, the first one dated 30 August in relation to the entire works and the 1st part of the variation, and the second dated 8 October in relation to the 2nd part of the variation. The defects contained in these two lists had already been rectified by the plaintiff within 14 days of receipt of the lists.

12. The plaintiff did not receive any other defect list from the defendant. Looking at the defect list dated 18 December (which the plaintiff did not receive), the rectification needed was only minor touch up works which would only take two workers about two to three days to carry out.

13. In respect of the Kingswood Villa's claim, Au's evidence was that invoice no.BMB-INV-926 dated 29 November 1996 was issued for work done by the plaintiff at the request of the defendant for the decoration of a mock-up flat in the earlier part of 1996 which was for the purpose of the defendant tendering for a project providing furnishing and decoration for a large number of flats in Kingswood Villa.

14. Lau had also requested the plaintiff to submit the quotation for the works upon confirmation of the tender being given to the defendant but that did not mean that the plaintiff had agreed to decorate this one mock-up flat for free. Pursuant to such request by Lau, the plaintiff had issued a quotation no.BMB-QUO-773 together with the said invoice on the same date. The plaintiff had never been told by the defendant whether the defendant had been successful in obtaining the tender.

The defendant's evidence

15. The defendant also called one witness, namely, Lau, its managing director. Lau gave evidence that, since 1995, the defendant was doing decoration works for Lane Crawford through its supervising agent, Lawson. Lane Crawford, being a high class department store, required high quality service.

16. In 1996, Lawson approached him that Lane Crawford required renovation works to be carried out at three of its branches at Ocean Terminal, Queen's Road Central and Pacific Place. Lawson provided him with drawings specifying the particulars, dimensions, specification and material required for the renovation works and asked the defendant for quotation for the works.

17. He then approached Au of the plaintiff in about May 1996, asking the plaintiff to give a quotation as a subcontractor of the works required by Lane Crawford on the basis of the drawings supplied. It was agreed between them that the quality of the works should be of a high standard and any defective or substandard works will have to be made good by the plaintiff. It was also agreed that the defect liability period be 12 months after completion of the works. He also informed Au that Lawson expects the on-site works to be completed within a short time and in order not to disrupt the business of Lane Crawford, it was expected that much off-site work be carried out in the plaintiff's workshop before the on-site works started. These matters were all agreed by the plaintiff and in June 1996, Au orally gave a quotation of $2,930,785 for the whole project which was accepted by the defendant.

18. Based on this quotation by the plaintiff, the defendant then quoted to Lawson the sum of $3,450,635 for the work and material supplied in respect of the project expecting to earn for itself about $500,000 by subcontracting those works to the plaintiff. This was accepted by Lawson by its letter of 22 July 1996 to the defendant.

19. The plaintiff started work on the project in late July and on about 20 August, delivered to the defendant its written quotation for the amount agreed previously, namely $2,930,785. However, in that written quotation, the plaintiff unilaterally imposed a payment term of :

a) 15% deposit payment upon confirmation of quotation;

b) 45% mid-term payment upon completion of job; and

c) 40% final payment after one month defect liability period.

As these terms and the one month defect liability period were unacceptable to the defendant, the defendant did not sign or return the quotation to the plaintiff but he informed Au that those terms were not acceptable and that the defendant would require a longer period to pay. In that conversation, Au agreed that the defect liability period should be 12 months.

20. Moreover, when the plaintiff delivered the various invoices to the defendant in this matter, all the invoices stated that payment should be made within seven days of the invoice date and interest will be charged on all overdue amount at 18% per annum. These terms were never agreed between them.

21. Notwithstanding that those terms had never been agreed, the defendant did pay to the plaintiff a total of $639,617 on divers dates between 12 August and 12 October.

22. It is not disputed by the defendant that during the progress of the works, Lawson had asked the plaintiff to do certain works, but whether these were additional works or variation works must depend on how they are viewed by Lawson. If Lawson agreed to pay the defendant for such works as additional works, the defendant would pay the plaintiff accordingly, but if Lawson treated such works as merely variation from the original quoted works, then the defendant will have to treat it similarly vis-à-vis the plaintiff. Because of this, the defendant have never agreed to the variation quotations which were submitted by the plaintiff.

23. Based on the variation quotations submitted by the plaintiff, the defendant had also submitted its own variation quotations to Lawson, but Lawson had disallowed many of the additional items in those quotations as they were, in the view of Lawson, already included in the original quotation. Lawson also did not allow any claim for overtime.

24. Ultimately, by its overall summary dated 16 December 1996, Lawson calculated that the total sum for the works payable by Lane Crawford to the defendant would be $3,478,441 which represented an increase of $27,806 over the original quoted sum of $3,450,635 given by the defendant to Lawson based on the plaintiff's original quotation.

25. After the works were purportedly finished by the plaintiff, the defendant had received defects list from Lawson - one in August and one in October. The defendant have passed on these defects lists to the plaintiff but notwithstanding the promise by the plaintiff to rectify such defects, the plaintiff kept on delaying to do so. Instead the plaintiff kept on pressing the defendant for payment. Since mid October, the parties have been discussing payment and on 19 November 1996, the defendant had proposed to make the following payments to the plaintiff : $550,000 by 16 December, a further $550,000 by 10 January 1997 and a still further $900,000 by 28 February 1997. This proposal was made on the basis that the plaintiff would remedy all the defects.

26. By letter of 16 December 1996 to the defendant, Lawson enclosed a defect list in respect of the works and asked the defendant to make good the defects, failing which Lawson would engage another contractor to do so on the defendant's account. By a similar letter dated 27 December 1996 to the plaintiff, the defendant passed on the same request to the plaintiff but the plaintiff did not rectify such defects. The defendant therefore engaged other contractors to remedy those defects costing the defendant totally $771,270. The defendant also incurred a further $75,000 for its own staff expenses in liaising and supervising the rectification works.

27. Lau also gave evidence that the defendant further lost an estimated $1 million in goodwill, reputation and lost profits because of the faulty works of the plaintiff since in January 1997 when Lane Crawford required renovation works at its Times Square branch, the defendant was not even permitted to submit a tender for that project as Lane Crawford and Lawson refused to have any further business dealings with the defendant because of the plaintiff's defective works.

28. As for the invoice no.BMB-INV-926 for $94,812, the evidence of Lau was that this invoice concerns the decoration by the plaintiff of a mock-up flat in Kingswood Villa. The defendant concedes that the decoration works had been done by the plaintiff and completed in about April 1996, but that it was mutually agreed between him and Au of the plaintiff that such work was for promotion purpose and was provided by the plaintiff free of charge. The reason for that was that it was agreed between them that if the developer of Kingswood Villa accepted the plaintiff's mock-up decoration, a large number of flats would be allocated by the developer to the defendant for decoration and which the defendant would subcontract to the plaintiff to do as that would be highly profitable.

29. According to Lau, it was only in November 1996, when relationship turned sour between them that Au went back on the agreement between them and issued this invoice for the mock-up flat. Moreover, the defendant had never received the quotation in respect of it. He only saw such a quotation for the first time when it was exhibited to the 2nd affirmation of Au in this matter and when that affirmation was shown to him.

30. Lau confirms that the defendant has paid to the plaintiff the sum of $639,617 before the Writ in this matter was issued, and also the amount of $1,389,085.25 and interests thereon pursuant to the Consent Order in this matter in 1997.

Assessment of the evidence

31. The difficulty with this case is that a large part of the matters in dispute between the parties have not been reduced into writing in documentary form. Very much depends on whose evidence is accepted at the end of the day as to what matters were agreed between them orally. This difficulty is further complicated and added to by the fact that, after hearing the evidence of both Au and Lau called by the plaintiff and the defendant respectively, I am left with the distinct impression that each of them have, at times, been exaggerating (if not being untruthful) in some parts of their evidence to exaggerate their own claims and downplaying the claim by the opposite party.

32. This situation was not helped either by the fact that no other witnesses were called except the two of them. Whilst the defendant attempted to prove the defective works by producing defect lists compiled by Lawson, no witnesses were called from Lawson or even from Lane Crawford. Furthermore, in their attempt to prove the additional costs of engaging others to remedy the alleged defective works of the plaintiff, the defendant did not call any one of these other contractors to give evidence.

33. In the circumstances, I am left to assess as best as I can the evidence given by Au and Lau, and to come to a decision in this case on that basis.

Findings of facts

34. The first matter in dispute involves the payment terms between the parties. The defendant agrees that the sum of $639,617 had been paid to the plaintiff. This amount was made up of $200,000 paid on 12 August, $239,617 paid on 30 August (both payments by cheques of the defendant) and a further sum of $200,000 by a personal cheque of Lau.

35. The first two of these payments, totalling $439,617, come to 15% (rounded off) of the quoted amount of $2,930,785 which conforms with the payment term of 15% upon confirmation of the quotation as contained in the plaintiff's quotation no.BMB-QUO-711(R1). This casts some doubt upon the defendant's evidence that those payment terms had never been agreed to by the defendant as it shows that the defendant had acted upon at least the first of those payment terms for the initial 15%. But even so this payment of the first 15% itself late.

36. In the absence of any explanation by the defendant and in the absence of any documentary evidence to show otherwise, I accept the plaintiff's evidence that those payment terms (subject to the defect liability period which I shall deal with separately) were agreed to by the defendant. That, however, goes only to the quoted amount for the tendered works.

37. In so far as the defect liability period is concerned, the plaintiff's quotation states that it is to be for one month after completion of the works. The defendant, being a regular contractor engaged by Lane Crawford, says that Lane Crawford has a policy of imposing a 12-month defect liability period for works done for it. This evidence has not been challenged by the plaintiff. In my view, it is unlikely that the defendant would agree to a one-month defect liability period when they were aware that Lane Crawford demands 12 months. Equally I cannot visualise that the plaintiff would put in the quotation a one-month defect liability period if they had agreed to a 12-month period with the defendant. What seems most likely to have happened was that in their rush to get the project started, bearing that this was a rush job pushed through with great haste, they had not agreed the defect liability period. By the time this was discussed between them, work had already been started (the plaintiff's quotation no.BMB-QUO-711(R1) was dated 20 August 1996). By that time, the plaintiff had in mind a one-month period due to the nature of the work while the defendant had in mind 12 months being aware of Lane Crawford's demands. This explains why the defendant did not sign a copy of that quotation and return it to the plaintiff.

38. In the circumstances, I find that there was no concluded agreement between the parties as to the defect liability period.

39. The next matter that needs to be dealt with concerns the additional or variation works. Both parties here are experienced in the field of decoration works. I cannot imagine that the defendant would simply agree (as suggested by the plaintiff) to the plaintiff's quotation for the additional or variation works without obtaining some similar agreement from Lane Crawford or Lawson for their own protection. I accept the defendant's evidence in this respect that the agreement between them was that the plaintiff's quotation for such additional works would only be paid for by the defendant subject to such additional works being accepted and paid for by Lane Crawford or Lawson.

40. I come now to the findings in respect of the overtime and additional or variation works. In so far as the overtime work is concerned, I accept the evidence of Au that the plaintiff had to engage extra workers for overtime work in order to meet the shortened time schedule for the on-site work. Although no evidence was forthcoming from the plaintiff that such overtime work was approved by Lawson, from one of the letters produced by the defendant dated 18 September 1996 from Lawson to the defendant, it can be seen that Lawson was ready to accept $192,000 as being reasonable for the overtime claim.

41. As for the additional works, again there is no evidence from the plaintiff as to what was the amount of the additional works approved by Lawson. However, once again, from a two-page document produced by the defendant entitled "Build up of Contract Sum" dated 16 December 1996, it can be seen that Lawson assessed the total amount of payment to the defendant to be $3,478,441. This is $27,806 above the sum quoted by the defendant to Lawson for the project. On that basis, I therefore find the value of the additional works assessed by Lawson to be $27,806 over and above the contract works.

42. I turn now to deal with the counterclaim. I find that the items of defect for which the plaintiff was responsible and contained in the August and October defect list prepared by Lawson had been rectified by the plaintiff. This was the evidence of the plaintiff which Au was unable to dispute when asked about it.

43. In so far as the defects contained in the defect list in December 1996 is concerned, having found that there was no agreement between the parties as to the defect liability period, in my view and accepting the evidence from Au, a reasonable defect liability period would be three months. Since the majority of the contracted works were completed by late August, the December defect lists, if it referred to the contract works, would be outside the three months defect liability period and the plaintiff would be under no obligation to remedy such defect. On the other hand, if the defects related only to the variation works completed by the plaintiff in mid September (and for which I have found that the plaintiff was only entitled to claim $27,806), then the defendant's counterclaim for $771,270 with a further $75,000 for its own staff expenses is highly inflated.

44. Moreover, as already indicated, the evidence adduced by the defendant on this aspect is highly unsatisfactory. Lau was the only witness called by the defendant. The defendant tried to rely on the quotations given and prepared by the other contractors engaged to remedy such defects but none of the other contractors were called by the defendant as witnesses nor were those quotations agreed into evidence by the plaintiff. Moreover, the defendant also produced copies of various cheques which purported to prove the payments made to these other contractors. Nothing on these copy cheques indicate that payment of the cheques have been effected nor were there any receipts by these contractors. No evidence came from these contractors. No attempt was made to relate the items on the defect lists to the items of works stated in such quotations.

45. In the circumstances, I find that the defendant has failed to prove, albeit on a balance, the amount which the defendant had to spend to remedy such defects.

46. In so far as the defendant's counterclaim for loss of goodwill or reputation is concerned, without any evidence being called from either Lawson or Lane Crawford, I am unable to come to a finding as to why the defendant was not allowed to tender for the other projects. Neither is there any evidence to show the amount of such loss despite the fact that the defendant claims $1 million for it. In the circumstances, the defendant has also failed to prove that part of its counterclaim.

47. Finally, I turn to deal with the Kingswood Villa's matter which is wholly unconnected with the Lane Crawford renovation project. I find that there was a joint venture between the parties for the plaintiff to decorate the interior of one mock-up flat (probably as a sample) and should the tender be awarded to the defendant by the developers, the work would be subcontracted by the defendant to the plaintiff to do. It is also not disputed between them that there was no outlay by the defendant at all in so far as the decoration of the mock-up flat goes. That was wholly done by the plaintiff at its own expense.

48. The real dispute between them is whether or not it was agreed between them that the mock-up flat was to be done for free by the plaintiff in the event that the tender was not to be awarded to the defendant by the developer.

49. I find as a fact that the agreement between them was that if the tender was awarded to the defendant who in turn would subcontract it to the plaintiff to do the decoration works, then the plaintiff would not charge for the decoration of the mock-up flat. But that agreement did not extend to where the tender was not awarded to the defendant. I further find that the parties, probably in their hope that the tender would be awarded, did not specifically agree any terms if it should turn out that the tender was not awarded to the defendant by the developer.

50. In those circumstances, I find that, since that was a joint venture between them, the parties should jointly bear the expenses of the decoration of the mock-up flat in equal shares between them.

51. As for the cost of the decoration, whilst the plaintiff has submitted an invoice for $94,812 dated 29 November 1996. This amount, although not previously agreed between the parties, on the face of it would appear to be a reasonable amount for the entire decoration of a whole flat. However, apart from the evidence of Lau that the invoice amount for that decoration was too high, no other evidence has been adduced by the defendant to support that contention. Furthermore, the quotation given in support of that amount contains a detailed breakdown of that figure and none of the items in that quotation has been challenged at the trial by the defendant as being excessive or unreasonable. Nor has the defendant disputed any of the items in the quotation as not having been performed by the plaintiff in the decoration of the mock-up flat.

52. In the circumstances, I find that the amount of $94,812 to be a reasonable amount for the decoration of the mock-up flat.

Decision

53. Based on the findings above, the plaintiff is entitled to the amount of the contract sum of $2,930,785, the cost of overtime work which Lawson was prepared to accept in the amount of $192,000 as well as the price of additional works assessed by Lawson at $27,806. These three amounts together come to $3,150,591. From this total amount will have to be deducted the sum of $639,617 being partial payment already paid to the plaintiff as well as the sum of $1,389,085.25 being partial judgment already given, this gives the figure of $1,121,888.75.

54. In so far as the claim in respect of the decoration of the mock-up flat in Kingswood Villa is concerned, the plaintiff is entitled to half of the decoration costs, namely $47,406.

55. Accordingly, there will be judgment for the plaintiff for the sum of $1,169,294.75. Interest is awarded on the judgment sum at 18% from the date of the Writ until judgment and thereafter at judgment rate until payment.

56. The defendant's counterclaim is dismissed.

Costs

57. There will be a costs order nisi that the defendant do pay the plaintiff the costs of the plaintiff's claim as well as the costs of the counterclaim.