HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. v. HAWAII DECORATION LTD.

HCA 2133/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2133 OF 2002

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ASSESSMENT OF DAMAGES

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The background

1. This is the assessment of damages pursuant to the interlocutory judgment dated 16 July 2002, which was entered against the defendant as the defendant had served no defence to the plaintiff's claims.

2. The plaintiff, as the main contractor of the Tung Chung Station Development package at TL No.4, Tung Chung New Town, Lantau Island, Hong Kong (the site), claimed against the defendant as the sub-contractor under an agreement (the contract) evidenced by a letter dated 20 August 2001 for breach of the contract. Under the contract, the plaintiff subcontracted to the defendant the bricklaying, plastering, tiling and stonework for tower blocks 1 and 2, basement, carpark and external works at a price of HK$41,222,583.97.

3. The plaintiff pleaded in its statement of claim that the defendant had failed to perform the contract and repudiated it before completion of the works. The plaintiff accepted the defendant's repudiation of the contract. The plaintiff had to get other sub-contractors and its own workers to complete the remainder of the sub-contract works and to rectify the defects caused by the defendant. The defendant had also failed to pay the wages of its own workers, who went on strike at the site in May 2002 and caused damage to the facilities there. Being the main contractor, the plaintiff is liable for the wages of the defendant's workers under the Employment Ordinance. The plaintiff had settled with the defendant's workers at the Labour Tribunal by making payments to them. In the statement of claim, the plaintiff seeks damages from the defendant.

The hearing

4. At the hearing for the assessment of damages, the defendant was absent. Having considered the following documents, I was satisfied that due notice of the interlocutory judgment, the notice of appointment for the hearing and the relevant documents including the expert report for this hearing have been served on the defendant and I proceeded in the absence of the defendant:

(1) the acknowledgement of service filed on 14 June 2002;

(2) the order dated 16 September 2002 by Master Yuen for substituted service;

(3) the 5th affirmation of Chan Chung Fai filed on 31 October 2002;

(4) the 6th affirmation of Chan Chung Fai filed on 9 January 2003; and

(5) the 7th affirmation of Chan Chung Fai filed on 18 January 2003.

5. The plaintiff's claims for loss and damages are summarized in its expert's report as follows:

(1)	the replacement contractor	$4,960,267.25
(2)	the direct labour (of plaintiff)	$1,311,635.00
(3)	the rectification of defects	$238,308.00
(4)	the non-conformance	$2,494,000.00
(5)	additional materials cost	$276,921.81
(6)	the vandalism by defendant	$369,165.66
(7)	liquidated and ascertained damages	$15,329,460.00
(8)	unpaid labour wages by defendant	$2,354,790.00
	(paid by plaintiff)
Total		$26,965,382.06

6. In respect of (1), it is the cost for the plaintiff to get other sub-contractors to carry out the works left by the defendant. The total cost is $9,918790.00. The plaintiff has taken into account of $4,211,439.00, which is the amount payable to the defendant but retained by the plaintiff.

The expert evidence

7. The plaintiff has called Mr. Li Chi Ho, the expert witness who has compiled the report to give evidence. He has confirmed the truth of his report, which is a rather detailed report with the supporting documents. He is still under the employment of the plaintiff as a quantity surveying manager. He gave evidence that there was a cost control manager of the Plaintiff, Mr. June, who had made the estimate of loss and damages for the plaintiff. The estimate was then passed to him for further assessment. He said that he was given all the documents he required for the assessment. He was not under any influence from his employer in the assessment. Mr. June is in another department of the plaintiff and he is not Mr. Li's superior. He confirmed that he reminded himself of taking objective views for the assessment and he made the assessment independently. Having considered his report, the supporting documents and his evidence in court, and in the absence of any challenge from the defendant, I have no reason to doubt his integrity. I can see from his report that he has checked through the documents of the works and made the assessments of each of the items estimated by Mr. June. If he finds no evidence to support the claim, such as the 15% overheads charge for the loss and damages for the vandalism caused by the labourers of the defendant, he expunges the 15% overheads charge from that item. He has also marked down the estimated costs for other items after he has checked them with the supporting documents. I am satisfied that he is an honest witness and I will rely upon his report as the basis for my assessment of plaintiff's damages.

The rejected items

8. Of the plaintiff's claims, I reject item (4): the damages for non-conformance of $2,494,000.00 and item (7): the liquidated and ascertained damages of $15,329,460.00. Item (7) relates to the loss of the plaintiff because of the delay of the defendant in the works under the contract. The cost manager made the claim based on the rate of Liquidated and Ascertained Damages in the main contract between the plaintiff and the developer. Mr. Li in his report paragraph 4.3.8.3 said that he was unable to locate any documentary evidence or other evidence to show that the defendant should be liable for such delay or any part of the delay. Counsel for the plaintiff concedes that there is no evidence to support the plaintiff's claim for this item and it should be expunged from the claims. I shall deal with item (4), which counsel for the plaintiff has argued that it should be included in the claims.

9. Mr. Li in his report relied upon the contract (page 256 of the bundle of documents), clause 4 of which provides that the plaintiff is entitled to withhold $20,000 for each of the Notice of Non-conformance (NNC) of the contract issued by the architect. Mr. Li found that the defendant was responsible for 124.7 NNC as some of the NNCs were covering other blocks of buildings than block 1 and block 2, for which the defendant is solely responsible. [see p. 28 of bundle A-B] The total amount is therefore $2,494,000.00.

10. I point out to Miss Cheung that from the term of the contract, the plaintiff is entitled to retention of the money, which is otherwise payable to the defendant for the works done. As such, the plaintiff is only entitled to retention of the money, or the suspension of the payments to the defendant, but may not be entitled to claim against the defendant for damage, which the plaintiff has not suffered any. Miss Cheung submits that she relies on loss of the plaintiff under the main contract between the plaintiff and the developer. She refers me to page 262 of the bundle of documents, which is a letter dated 20 June 2002 of valuation of work from the consultants Levett & Bailey to the architect of the site. In paragraph 2 of the valuation, Levett & Bailey said that the total amount of non-conforming work deducted in the valuation was $3.77 million including $0.57 million non-conforming works being not applied in the payment application. Miss Cheung submits that $3.77 million includes the amount for which the defendant is responsible. As the plaintiff has suffered loss in the valuation, the plaintiff is entitled to claim damages. However, she concedes that reading from of the letter of valuation, the developer was exercising its rights to withhold payments to the plaintiff. She also concedes that there is no evidence that the plaintiff has suffered any loss or damage in respect of the money retained. The money may be paid to the plaintiff after completion of the works.

Conclusion

11. I therefore find that the plaintiff has failed to prove, on the balance of probabilities, that it has suffered loss or damage in respect of item (4) and item (7). I disallow these 2 items. The final amount of the damages assessed is:

(1)	the replacement contractor	$4,960,267.25
(2)	the direct labour (of plaintiff)	$1,311,635.00
(3)	the rectification of defects	$238,308.00
(4)	additional materials cost	$276,921.81
(5)	the vandalism by defendant	$369,165.66
(6)	unpaid labour wages by defendant	$2,354,790.00
	(paid by plaintiff)
Total		$9,511,087.72

12. I make an order nisi under Order 42 rule 5B(6) of the Rules of the High Court that costs of and reserved relating to this application be to the plaintiff.