AMERY CONSTRUCTION WATER PROOFING CO LTD v. YUE HING LAND INVESTMENT CO LTD

CACV 218/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 218 OF 2003

(ON APPEAL FROM DCCJ 16179 OF 2001)

___________________________

REASONS FOR JUDGMENT
AND DECISION ON COSTS

___________________________

Hon Ma CJHC :

1. I agree with the reasons contained in the judgment of Cheung JA for dismissing the appeal and the decision on costs.

Hon Cheung JA :

Reasons for judgment

2. On 10 March 2004 we dismissed the appeal by the defendant. These are my reasons.

The action

3. The plaintiff claimed against the defendant the sum of $309,320.89. The defendant denied that the plaintiff was entitled to this sum. It raised a counterclaim of $71,976.22.

4. The case was tried by H H Judge Muttrie in the District Court for three days. He gave judgment for the plaintiff in the sum of $186,367.49. He made no order as to costs on the plaintiff's claim and awarded the defendant 75% of the costs of the counterclaim.

5. The defendant appealed against the judgment.

6. The plaintiff had sought leave from the District Court to appeal against the costs order. Leave was refused and the matter was not pursued by the plaintiff.

The facts

7. The plaintiff was a company engaged in construction work. The defendant was the developer of a residential building in No. 62B, Robinson Road and No. 5 Seymour Terrace, Hong Kong ('the project').

8. The defendant had previously engaged a contractor to carry out building work in the project. However, the work was defective and a new firm of contractors was required to carry out the rectification work. The architects of the project, Dennis Lau and Ng Chun Man ('the Architects') invited tender for the rectification work. The plaintiff submitted a tender. The tender was accepted by the defendant through the Architects.

9. By a letter of acceptance dated 20 April 2000 ('the Letter'), the Architects set out the terms of contract between the parties. Some of the relevant terms are :

1) The contract sum was HK$635,550. The contract period was 21 days from and including 20 April 2000.

2) The payment term was that 50% of the contract sum would be paid upon 50% of the rectification works completed to the satisfaction of the Architects.

3) The remaining 50% of the contract sum would be paid upon the completion of the rectification works.

4) 10% of the retention would be withheld and would be released upon the expiration of the defects liability period or the issue of certificate of making good defects whichever is the later.

5) The defects liability period was 12 months after the date of completion as certified by the Architects.

10. The letter further stated that the contract was a lump sum fixed price contract and 'no adjustment is to be made unless in the case of adjustment for variation instruction, which has cost effect, to be issued by the Architects'.

11. The plaintiff proceeded to carry out the rectification work. In the course of carrying out this work it was instructed by the defendant to carry out additional work. The plaintiff pleaded that the parties agreed that the consideration for the additional work would be such as to be reasonably agreed by the defendant's surveyor namely, Davis Langdon & Seah ('the Surveyor'). The plaintiff carried out the additional work.

The claim

12. On 25 September 2001 the plaintiff commenced the present action seeking the sum of HK$309,320.89 from the defendant. This sum was made up as follows :

（1） HK$265,870 being the valuation of the additional work by the Surveyor on 2 August 2001;

（2） HK$15,000 as penalty for delay by the defendant;

（3） HK$635,550 being the amount of the original contract sum certified by the Surveyor on 15 December 2000;

（4） From these three sums, the plaintiff agreed to pay the defendant HK$35,149.11 as the amount of the electricity consumed by the plaintiff at the site.

（5） The total amount less deduction is HK$881,270.89.

13. As the defendant had only paid the plaintiff $571,950 the balance due to the plaintiff was HK$309,320.89.

The counterclaim

14. The defendant filed a defence and counterclaim in which the defendant denied that it was liable to pay the plaintiff although no specific defence was raised. The defence was in the nature of a set-off and counterclaim. The defendant alleged that the plaintiff had failed to exercise reasonable skill and care in the performance of the work by the completion date. The defendant did not particularise its counterclaim. This only appeared in the witness statement of Mr. Lo Wah Kee Kenneth ('Mr. Lo') of the defendant. The amount of the counterclaim was $71,976.22 which was made up as follows :

			HK$
Amount certified by the Architect			151,022.25
LESS:	(1)	reinstatement cost for the defective works as assessed by DLS (i.e. the Surveyor)	139,000.00
	(2)	electricity and water charges	38,998.47
	(3)	liquidated damages	45,000.00
			71,976.22 =======

The final account

15. On the first day of the trial, the defendant belatedly disclosed documents relevant to the action. Among the documents was a summary of statement of final account ('the final account') in which the final costs were assessed by the Surveyor to be in the sum of HK$758,317.49. The particulars of this account were as follows :

SUMMARY OF STATEMENT OF FINAL ACCOUNT
					HK$
1)	Original Contract Sum				635,550.00
			Omissions	Additions
2)	Valuation of Variations (Agreed by Amery in their reply to our fax ref. HK3482/DR/DLS/HK/2001/17429 dated 13th August 2001		-	265,870.00
			-	265,870.00
3)	Net Additions				265,870.00
4)	Final Contract sum				901,420.00
5)	Less	Cost Reimbursement of Electrical and Water Bills(as per Amery's letter ref. CLR-2796-01 dated 6th June 2001)			(35,149.11)
6)	Less	Cost Reimbursement of Electrical Bills from 20/4/2000 to 8/10/2000 (as per DL&NCM's fax ref. FX-1566 dated 18th July 2001)			(3,849.36)
7)	Less	Cost Deduction for Defects(as per DLS's letter ref. HK-3482/DR/LTR61327 dated 27th Sept 2001)			(117,000.00)
8)	Less	Liquidated and Ascertained Damages (15 days delays x HK$3,000.00/day) (as per DLS's letter ref. HK-3482/DR/LTR61303 dated 27th Sept 2001)			(45,000.00)
9)	Add	Cost Reimbursement for Loss and Expense Claims (as per DLS's letter ref. HK-3482/DR/LTR61303 dated 27th Sept 2001)			57,895.96
10)	Final Cost				758,317.49 ========

16. By a letter dated 7 March 2003 the Surveyor submitted this account to the Architects and asked for their comment before the final account was to be issued to the plaintiff for its agreement.

17. By a letter dated 13 March 2003 the Architects informed the Surveyor that 'we have no adverse comment on your draft and your onward issue of statement of final account to Amery (i.e. the plaintiff) is appreciated'.

18. By a letter dated 19 March 2003 the Surveyor supplied the final account to the plaintiff and asked the plaintiff to 'sign chop and return the copies of the account for their further action'. The plaintiff had not signed on the final account.

The judgment

19. HH Judge Muttrie gave judgment to the plaintiff for the sum of HK$186,367.49. This was based on the sum of HK$758,317.49 stated in the final account less the sum of HK$571,950 that had been paid by the defendant.

The defendant's position

20. In this appeal the defendant asked for the dismissal of the plaintiff's claim and judgment in its favour in the sum of HK$71,976.22.

21. Counsel for the defendant, Mr. Sakhrani (who did not appear in the trial below) grounded his appeal on the basis that the judge had described the plaintiff's action as being premature. On that basis he argued that it was wrong to give judgment to the plaintiff by relying on the final account which included a claim that the judge had stated to be 'premature'.

State of pleadings

22. The reference to the claim being premature was in respect of $265,870 which was the value of the additional work carried out by the plaintiff. The argument relied upon by the defendant was that this amount was required to be certified by the Architects to be payable to the plaintiff before it could sue for it.

23. It is clear that both parties had not paid particular attention to their pleadings. As pointed out earlier, the defendant did not quantify its counterclaim in the defence and counterclaim. This only appeared in the witness statement of Mr. Lo. Further the defence was by way of general denials only. It had never been pleaded in the defence that the claim for additional work was subject to a conditional precedent, namely, the Architects' certification.

Certified sum

24. The plaintiff's claim obviously included a sum which had been certified by the Architects, namely, $151,022.25 which the defendant had refused to pay at the time when the action was commenced.

25. The Architects had issued three certificates under the contract to the defendant. The first two certificates had been paid.

Particulars
	HK$
22 May 2000	280,000
8 August 2000	291,950
20 December 2000	151,022.25

Absence of respondent's notice

26. The plaintiff had not issued a respondent's notice on the question of the action being premature. But I do not consider what the judge said on this issue would flaw his judgment. He probably meant part of the claim was premature but not the whole action, otherwise he would not have given judgment to the plaintiff.

The plaintiff's pursuit

27. In this case the plaintiff was simply seeking to recover from the defendant the value of the work it had done on the project. This included the contract sum and the amount of the additional work. From this, it made concessions on certain items of deduction and further agreed that the sum of $571,317.49 which had already been paid by the defendant should also deducted. The sum claim was $309,320.89.

28. The judge did not award the full amount claimed by the plaintiff. Based on the final account he deducted some further sums from the plaintiff's claim and credited a further sum to its claim before the amount of $571,317.49 was deducted.

29. In my view he was clearly entitled to do so on the state of the pleadings and on the facts of this case.

The overview

30. To begin with, the defendant had raised a 'counterclaim' against the plaintiff. It contended that the plaintiff was liable to compensate it. In so doing the defendant had put in issue what precisely was the final account between the parties on this contract.

31. It is clear from the judge's finding that the defendant did not concern itself with the contract with the plaintiff. It left the matter to be dealt with by the Architects and the Surveyor. According to the two letters from the Architects to the plaintiff dated 22 and 29 June 2001 respectively, the practical completion date of the contract was 19 June 2000. The defects liability period was 12 months. By which time the retention money under the contract had to be released to the plaintiff.

32. According to the last certificate of the Architects dated 20 December 2000, the money retained was $146,087.75. The amount to be retained under the contract was 10%. For the lump sum contract price of $635,550, a 10% retention amounted to $63,550. In the third certificate the amount of the additional work was said to be $233,510, a 10% retention was $23,351. The total retained sum of $63,550 and $23,351 was $86,901. Yet the defendant had retained $146,087.75 and had refused to pay the certified sum of $151,022.25.

33. When the plaintiff commenced the action in September 2001, the defects liability period had already expired and the amount retained was still not paid to the plaintiff. The trial took place in March 2003, by which time the retention money was still not paid and the Architects had still not issued the final certificate.

34. Shortly before the trial, there was obviously some behind the scene moves by the defendant in respect of this case. I have already referred to the letters dated 7 and 13 March 2003 of the Surveyor and the Architects. The letters themselves stated that copies of these letters were sent to the defendant. The plaintiff was not a recipient of the copies of these letters.

35. If one of the relevant players to the project, namely the Surveyor had chosen at that stage to produce a final statement which the other important player, namely, the Architects had responded by saying he had no 'adverse comments' to make, then clearly that must represent the final account between the plaintiff and the defendant.

36. Once the significance of the document is recognized, the judge could clearly rely on it to achieve a final solution for the parties. This was not on the basis that the parties had agreed on a final account but rather the defendant had admitted the amount that was due to the plaintiff in respect of the value of the work performed by the plaintiff. For all practical purposes the value was accepted by the Surveyor and the Architects whom the defendant had relied upon in its dealing with the plaintiff. The respective claims of the parties were conclusively contained in the final account. It represented the best evidence of what was due between the parties.

37. It does not lie in the mouth of the defendant to argue that the plaintiff had not adduced evidence at the trial on some items in this final account or that the deduction for defects were larger in its counterclaim. After all it chose to produce the final account and obviously intended to rely on it.

38. Had the defendant chosen to contest the case simply on the issue of certification, this may be a different consideration. But having chosen to raise a counterclaim and introduced the new evidence, the judge was entitled to grasp the nettle and gave judgment in favour of the plaintiff based on the final account. It would be the height of absurdity if, after a three day trial and after the defendant relied on new evidence which clearly showed that it was indebted to the plaintiff, the judge should nonetheless dismiss the plaintiff's claim on the basis of some unpleaded condition precedent and gave judgment to the defendant on the counterclaim based on figures which clearly were no longer correct in the light of the final account.

39. The defendant clearly was not entitled to argue that it merely agreed on the figures in the final account but not its liability to pay the plaintiff. One may ask why did it produce the final account in the first place?

40. The judge was correct in his decision and accordingly we dismissed the appeal on the merits.

Decision on costs

41. In this case the plaintiff had succeeded in its claim although for a lesser sum. However it was disallowed costs of its claim and ordered to pay 75% of the costs of the defendant's counterclaim. This is an unusual order but may be justifiable on the special circumstances of this case. It perhaps reflected the fact that the plaintiff had not pleaded an alternative claim that some other sums were due from the defendant, if not the whole $309,320.89.

42. A calderbank offer was made in this case but Mr. Sakhrani accepted the Calderbank offer would have no impact on the costs below. This must be right. The defendant could have made payment into court if it genuinely wished to settle the case. Further the plaintiff must be given time to respond. The Architects' letter of 9 March 2003 was only disclosed to the plaintiff on the first day of the trial.

43. While the costs order below would not be disturbed, I see no reason why the defendant who had failed in its appeal should not be ordered to pay for the costs of the appeal. While the main ground for dismissing this appeal should perhaps have been in a Respondent's notice, I regard this as a counsel of perfection in this case. I will order the defendant to bear the costs of the appeal.

Hon Hartmann J :

44. I agree with the reasons contained in the judgment of Cheung JA and his decision as to costs.