TANG HONG FAR EAST CO LTD v. YIU SAI HOI t/a MODERN ENGINEERING & CONSULTANT CO

DCCJ 6019/2016

[2018] HKDC 781

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.6019 OF 2016

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ASSESSMENT OF DAMAGES

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1.  On 14 Dec 2016, the plaintiff issued writ of summons indorsed with statement of claim (the SOC) seeking to recover against the defendant damages for breach of an agreement (the agreement) to carry out waterproofing works at roof E1 (the roof and the waterproofing works) of Hoi Bun Industrial Building (the building) as recorded in two defendant’s quotations[1] sent to the plaintiff on 6 Jan 2016 (the 2 quotations).

2.  On 6 Feb 2017, in default of notice of intention to defend, interlocutory judgment was entered against the defendant for damages to be assessed (the judgment). The assessment of damages (AOD) now comes before me.

3.  After the judgment, on 4 Oct 2017, the plaintiff filed and served its list of documents. On the same date, a witness statement of Ms Hui Mui Kwai (Ms Hui), an accountant of the plaintiff, was filed and served by the plaintiff’s solicitors.

4.  On 23 Nov 2017, the plaintiff took out its Notice of Appointment of AOD.

5.  By order of Registrar Ho dated 12 Dec 2017, the defendant was required to file its list of documents and witness statement as to quantum by 16 Jan 2018, failing which it shall be deemed to have elected not to adduce documentary evidence on quantum or evidence on quantum from factual witnesses.

6.  By the same order, leave was given to the plaintiff to adduce expert evidence on the quality of the waterproofing works undertaken by the defendant and a report of plaintiff’s expert, Mr Jacob Tsang (Mr Tsang) of K&K Chartered Architect & Associates dated 26 Aug 2017 (the expert report)[2], unless otherwise directed, be adduced in evidence at the hearing for AOD without calling the maker thereof.

7.  The defendant failed to file its list of documents or witness statement as to quantum by 16 Jan 2018.

8.  By another order of Registrar Ho dated 6 Mar 2018, this matter was set down for AOD hearing on 14 May 2018.

9.  At AOD hearing before me, the plaintiff was represented by counsel Ms Astina Au (Ms Au). The defendant was unrepresented and absent before me. But I was satisfied on 1^st and 2^nd affirmations of Lui Kit Yin[3], and undertaking of plaintiff’s solicitors to file another affirmation of service[4], that the defendant had been properly notified of the AOD hearing date and served with the assessment bundle, plaintiff’s written opening submissions and list of authorities. Hence, I proceeded with the hearing in the absence of the defendant as requested by Ms Au.

10.  Ms Au adopted her written opening submissions and expanded on them orally. For the 5 heads of plaintiff’s claim set out at para 17 of the SOC, she made it clear that the plaintiff abandoned that of rental for tenancy of Unit E2, 10/F of the building pleaded at para 17(4) thereof.

11.  For such professional fees incurred by the plaintiff for the compilation of the expert report and moisture content measurement test done by one Building Diagnostic Consultants Ltd. (BDCL), Ms Au accepted that the plaintiff should seek to recover these sums by way of disbursements as part of plaintiff’s costs of these proceedings.

12.  Accordingly, the plaintiff’s claims at the hearing before me add up to $779,944 and they consist of:

(1) return of deposit in sum of $200,000 paid to the defendant under the agreement;

(2) loss of bargain in sum of $236,000, being the difference of the contract sum under the agreement ($400.000) and the alleged sum ($636,000) for engaging another contractor by the name of Sino Sky Engineering Planning Company (Sino Sky) to re-do the waterproofing works;

(3) rentals, rates and management fees totaling $156,384 incurred by the plaintiff for extension of its alleged existing tenancy of Unit B2B, 7F of the building (the 7/F unit); and

(4) additional fees totaling $187,560 charged by renovation contractor by the name of A3 Design Company (A3 Design) in respect of renovation works carried out at Unit E1, 14/F of the building (the 14E unit and the renovation works) due to alleged delay of the renovation works resulting from water seepage to the 14E unit.

13.  Ms Au called her only witness on quantum i.e. Ms Hui who, with my leave, gave her evidence in punti and adopted her witness statement as her evidence-in-chief with one correction[5]. Afterwards, Ms Hui answered some questions of this court and Ms Au did not see the need to re-examine. With my leave, the plaintiff next called Mr Tsang to clarify a few matters of the expert report.

14.  After the conclusion of the plaintiff’s case, Ms Au made comprehensive oral closing submissions on behalf of the plaintiff. I am grateful for her assistance.

Analysis

15.  I have carefully and fully considered all evidence, submissions and authorities before me.

Assessment of evidence

16.  I have reminded myself to consider the inherent probabilities of the evidence before me, their consistency and inconsistency, if any, on its own and/or with other evidence before me. I have also watched out for any material document(s), if any, not produced before me. Finally, I have also taken the opportunity open to me observing the demeanor of Ms Hui in answering my questions.

17.  Having so considered, I am prepared to accept as truth such contents of the documentary evidence in the assessment bundle I set out below in the next section and give full weight thereto. In this respect, I also accept, and give full weight to, the expert opinion of Mr Tsang expressed in the expert report and in the box set out below.

18.  There are, I note, documents material to plaintiff’s claims which are missing before me. Among others, they include:

(1) such tenancy agreement of the 14E unit and the roof allegedly entered into by the plaintiff[6];

(2) existing tenancy agreement, if any, of the 7/F unit entered into by the plaintiff;

(3) alleged quotation (the quotation)^[7] and alleged timetable (the timetable)^[8] issued by A3 Design to the plaintiff in respect of the renovation works; and

(4) receipt, if any, issued by A3 Design acknowledging receipt of, or documentary record evidencing plaintiff’s payment to A3 Design of, sums totaling $187,560 in settlement of 2 invoices of interior variation orders[9] issued by A3 Design in respect of the renovation works (the 2 variation invoices).

19.  Ms Hui further claimed in the box she had, prior to the agreement, informed the defendant that both the waterproofing works and the renovation works were to be completed “in or around May 2016” as per para 7(e) of her witness statement by way of alleged WhatsApp message to the defendant, but such material WhatsApp message was also noticeably absent before me.

20.  In fact, Ms Hui contradicted herself in the box by saying that, by reference to the timetable (which, she admitted in the box, was not relayed to the defendant), the renovation works was to be completed “by Aug/Sept 2016” though she qualified her answer by saying that she could not recall clearly whether the first works procedure began “in April/May 2016” as she said.

21.  The aforesaid and other absence of material documents and inconsistencies in Ms Hui’s evidence before me do, I am afraid, adversely affect the credibility and/or reliability of her evidence. And I have carefully considered whether they prevent the plaintiff from having made out any of its claims.

22.  But, at the same time, a tenancy agreement in Chinese of the 7/F unit entered into by the plaintiff with its 1-year term commencing as from 1 May 2016 was produced to support Ms Hui’s evidence of plaintiff’s extending its tenancy of the 7/F unit. The 7/F unit was also stated to be the address of the plaintiff in the 2 quotations.

23.  The 2 variation invoices produced also support Ms Hui’s evidence of the existence of the renovation works to the 14E unit (and that they were entrusted to A3 Design) at the material times.

24.  The access given to Mr Tsang etc. to carry out testing etc. on the roof and the 14E unit immediately below the roof also supports plaintiff’s claim of tenancy over it with the roof. And common sense suggests that the waterproofing works to the roof were likely sought to solve alleged water seepage to the 14E unit below.

25.  Last but not least, it accords with inherent probabilities as claimed by Ms Hui for the plaintiff to have informed the defendant of its intended removal of its office and warehouse to the 14E unit and the existence of the renovation works in order to coordinate the simultaneous and/or sequential carrying out of the waterproofing works and the renovation works (the completion of both are required to enable the 14E unit to be used by the plaintiff).

26.  All things considered, I am prepared to accept only such of Ms Hui’s evidence I set out below in the next section. For example, I am not prepared to accept Ms Hui’s bare assertion of having informed the defendant the expected completion date of both the waterproofing works and the renovation works “in or around May 2016” without having sight of the alleged WhatsApp message.

27.  On my assessment of the totality of the evidence before me, I find the facts as I set out in the next section.

Findings of facts

28.  At all material times, the plaintiff was a private company engaging in perfume trading business[10] and the defendant a contractor of minor works (and registered as such).

29.  At all material times, the plaintiff was the tenant of the 14E unit and the roof immediately above. The area of the 14E unit is about 3,200 square feet. At all material times, its ceiling suffered from water seepage from the roof immediately above.

30.  Ms Hui was working as an accountant in the employment of the plaintiff at all material times. She was assigned by the plaintiff to engage contractor to fix the said water seepage problem to the 14E unit. After comparing the quotations from a number of contractors, the plaintiff decided to engage the defendant for that purpose.

31.  On or about 7 Dec 2015, the plaintiff paid the defendant a sum of $200,000 as deposit for the waterproofing works and the defendant has acknowledged receipt thereof[11].

32.  On 6 Jan 2016, the defendant sent the plaintiff the 2 quotations[12] recording the agreement. In consideration of the sum of $400,000 stated therein[13], the defendant agreed to supply materials and labours to carry out the waterproofing works by, inter alia, laying a waterproofing layer and a thermal insulating layer in accordance with the specifications and descriptions in the agreement. A total of 9 procedural steps were detailed in the agreement, including flood test of 48-hour duration by way of step No.7. The waterproofing works was to be completed in 45 days (excluding rainy days). On the same day, the defendant commenced the waterproofing works.

33.  The address of the plaintiff stated in the 2 quotations was the 7/F unit. At all material times, the plaintiff was also tenant of the 7/F unit (which tenancy was going to expire in Apr 2016) and occupied it as its office. At all material times, the plaintiff intended to remove its office from the 7/F unit to the 14E unit after the said original expiry of its tenancy of the 7/F unit.

34.  At all material times, the plaintiff also occupied other units of the building as warehouse and planned to remove its warehouse to the 14E unit as well.

35.  In order to use the 14E unit as an office and warehouse, the plaintiff had, prior to the agreement, already engaged one contractor i.e. A3 Design to carry out design works and renovation works to the 14E unit. The plaintiff could not use the 14E unit as its office and warehouse until both the waterproofing works and the renovation works were completed.

36.  Prior to the agreement, Ms Hui on plaintiff’s behalf had informed the representatives of the defendant that: - (1) the plaintiff was the tenant of the 14E unit and the roof; (2) the plaintiff intended to remove its office from the 7/F unit, and its warehouse, to the 14E unit and had engaged a contractor to carry out the renovation works; (3) the ceiling of the 14E unit suffered from water seepage from the roof immediately above, for which problem the defendant was engaged to carry out the waterproofing works; and (4) the plaintiff could only use the 14E unit as its office and warehouse upon completion of both the waterproofing works and the renovation works.

37.  By March 2016, the defendant had only completed part of the waterproofing works. The agreement had been carried out up to step No.7 thereof and a new waterproofing layer has been laid. The defendant had carried out flood tests on the roof but water seepage remained to be found at the ceiling of the 14E unit.

38.  In April 2016, the plaintiff engaged BDCL to carry out moisture content measurements at the ceiling to the 14E unit on 14 Apr 2016 and BDCL prepared a report dated 18 Apr 2016[14].

39.  In June 2016, the plaintiff further engaged Mr Tsang, a chartered building surveyor and a registered inspector, to inspect such of the waterproofing works carried out by the defendant and to provide a report thereon.

40.  Mr Tsang conducted site inspection on 3 June 2016 with photos of the roof taken[15]. Flooding test was also done by him on 3 June 2016. A second inspection was done by him on 21 June 2016 with photos of the roof and the 14E unit[16] taken. Apart from visual inspection, measurement by way of microwave equipment and infrared scanning had been done during his investigation.

41.  Based on the testing results and his visual inspection at site, Mr Tsang opined, and I accept, that (1) the defendant had not applied reasonable and proper materials in carrying out the waterproofing works; (2) the workmanship and skill of defendant in carrying out the waterproofing works was defective; and (3) such of the waterproofing works completed cannot perform its waterproof function properly even after completion or laying of the thermal-insulating layer in accordance with the agreement (as such, the defendant was in breach of the agreement as pleaded in para 10 of the SOC).

42.  Owing to the defects he identified in his report dated 26 Aug 2016, Mr Tsang opined, and I accept, that such incomplete part of the waterproofing works carried out by the defendant should be completely removed[17] and re-roofing works should be re-done in accordance with 9 procedures he recommended in section 6 of the expert report (the 9 recommendations).

43.  The plaintiff thereafter engaged another contractor by the name of Sino Sky to re-do the waterproofing works of the agreement in line with the 9 recommendations.

44.  By its quotation dated 22 Sept 2016 (the Sino quotation)[18], Sino Sky agreed to carry out and complete within 90 working days (excluding rainy days and holidays) waterproofing works at the roof for the sum of $636,000[19]. After comparing items Nos.1-24 appearing in the Sino quotation with the 9 recommendations, Mr Tsang opined in the box, and I accept, that, except for recommendations Nos.4 and 8 (regarding laying of insulating board) the rest of the 9 recommendations had all been included in the Sino quotation.

45.  On about 1 Nov 2016, 7 April 2017 and 26 Sept 2017, the plaintiff paid Sino Sky respectively the 3 sums of $254,400[20], $190,800[21] and $190,800[22], making the said total payment of $636,000 due from it to Sino Sky under the Sino quotation.

46.  By reason of the matters in para 37-45 above, the plaintiff was unable to remove its office from the 7/F unit to the 14E unit on the original expiry of its tenancy over the former and had to enter into another agreement in Chinese[23] to rent the former i.e. the 7/F unit for another one year from 1 May 2016 to 30 Apr 2017[24] at a monthly rent of $12,000 with the plaintiff agreeing also to bear the rates and management fees thereof.

47.  As a result, the plaintiff had, for this extended renting of the 7/F unit, paid (1) rental totaling $144,000 ($12,000 x 12 months) for the period from 1 May 2016 to 30 Apr 2017; (2) rates totaling $3,840 ($1,280 x 3 quarters) for the 3 quarters from July 2016 to March 2017; and (3) management fees totaling $8,544 ($712 x 12 months) for the months from May 2016 to Apr 2017. These sums add up to $156,384.

48.  Finally, A3 Design had, by the 2 variation invoices, charged the plaintiff a total sum of $187,560 for 6 items of variation works thereof in respect of the renovation works.

Return of the deposit paid to defendant

49.  Ms Au submitted that the plaintiff can at law seek refund of the deposit of $200,000 paid to the defendant under the agreement on the two basis of (1) breach of implied term of the agreement pleaded at para 7(c) of the SOC; (2) total failure of consideration.

50.  I agree with Ms Au that the plaintiff is entitled to recover the said deposit of $200,000 on the above 2^nd basis on the facts I find above and, as such, I say no more on the first basis relied by her.

51.  Among others, Ms Au relied on Bolton v Mahadeva [1972] 1 WLR 1009, 1013E-1014D, CA, which held that a contractor cannot recover the agreed price unless there is “substantial performance” of the contract, which issue one must take account both the nature of the defects and the proportion between the costs of rectifying them and the contract price[25].

52.  She further relied on para 31-32 of the case of Gartell v Yeovil [2016] EWCA Civ 62[26], where the court held, notwithstanding work was done on the pitches and materials supplied, there was a total failure of consideration when the claimant had not performed its works on the pitches with reasonable care and skill to make an improvement to the pitches.

53.  On the facts I find above, including the divers serious defects of such of the waterproofing works completed as identified by Mr Tsang, and his opinions, expressed in the expert report, the contract sum in the agreement and the amount required to re-do the waterproofing works in the Sino quotation, I hold that the defendant had failed to render substantially what the plaintiff had bargained for and there was a total failure of consideration in this case such that the defendant should refund the deposit to the plaintiff.

54.  I allow this head of claim in full.

Loss of bargain to re-do the waterproofing works

55.  Ms Au submitted that the plaintiff is entitled to recover the difference of the contract sum under the agreement and the contract sum of the Sino quotation. She referred to para 26-036 at p.1822 of Chitty on Contracts, 32^nd Ed, Vol.1: “In a contract to perform services or for work and materials it will be assumed that the claimant will have the incomplete or defective performance completed or corrected and the damages will be assessed by the cost of getting this done”.

56.  I agree.

57.  Indeed, in Gartell v Yeovil, supra, the court at para 33 of the judgment also held that the damages to be awarded by way of counterclaim “could be assessed by reference to the additional costs to [defendant] of arranging for the work contracted for to be done by someone else (underline original emphasis)” and the claimant “cannot be denied payment and then rendered liable for the entire costs of obtaining a substitute performance (italics supplied)”.

58.  Having regard to the expert opinion of Mr Tsang in the box that the works in the Sino quotation do not go beyond the 9 recommendations, so long Sino Sky was reasonably selected by the plaintiff, I agree with Ms Au that the plaintiff is at law entitled to recover the additional costs to be incurred by the plaintiff in engaging Sino Sky to re-do the waterproofing works under the agreement i.e. the difference between the contract price of the agreement and the contract sum in the Sino quotation.

59.  Notwithstanding Ms Hui admitting in the box that quotations from other contractors of lower sums than that of the Sino quotation were forthcoming at the material times, I further agree with Ms Au that plaintiff’s choice of Sino Sky being the replacement contractor to re-do the waterproofing works cannot be criticized.

60.  I agree with Ms Au that the price to re-do the waterproofing works should not be the sole consideration for the said selection, all the more so as Ms Hui said in the box that it was the contractor with the lowest contract sum i.e. the defendant which failed, and disappointed, the plaintiff in the first place.

61.  Having regard to the failed experience of the agreement, the disruption and delay so caused, it was, I think, reasonable for the plaintiff to pay more to get a reliable replacement contractor to sort out the matter. On Ms Hui’s evidence in the box, the plaintiff selected Sino Sky based on recommendation of the manager of the building due to satisfactory work performance of Sino Sky in another building nearby. That sounds to me a reasonable approach adopted by the plaintiff and I so hold.

62.  I also allow this head of claim in full.

Extra rentals etc. of the 7/F unit as extended

63.  This head of claim, Ms Au submitted, is not too remote to be recoverable by the plaintiff from the defendant by way of damages caused by defendant’s breaches of the agreement.

64.  Ms Au recited the applicable remoteness principles by reference to para 26-111 at p.1872 of Chitty on Contracts, supra: “The combined effect of these cases may be summarized as follows: A type or kind of loss is not too remote a consequence of a breach of contract if, at the time of contracting (and on the assumption that the parties actually foresaw the breach in question), it was within their reasonable contemplation as a not unlikely result of that breach”.

65.  On the facts I find above, including such matters known to the defendant prior to the agreement in para 33 & 36 above, I agree with Ms Au that extra rentals, rates and management fees payable for the 7/F unit was a type or kind of loss within the reasonable contemplation of the defendant as a not unlikely result of its breach of the agreement at the time of the agreement. As such, this head of claim is not, I agree, too remote and is recoverable at law.

66.  As to amount recoverable for this head of claim, I further accept Ms Au’s submissions that the plaintiff cannot be said to have failed to mitigate by extending its tenancy of the 7/F unit at $12,000/month for another one year as it did.

67.  This court does notice Ms Hui’s evidence in the box that the plaintiff was not originally required to pay any rent for its existing tenancy of the 7/F unit (because the landlord was related to the plaintiff) and that the plaintiff had not explored at the material times through estate agent or otherwise whether there were other vacant units than the 7/F unit in the building or other buildings nearby.

68.  Nonetheless, I accept Ms Hui’s evidence or explanation that any removal of plaintiff’s office from the 7/F unit to other units would cause the plaintiff to incur additional removal and renovation costs and any new tenancy in such other units to be sought would, in plaintiff’s own experience of renting other units of the building as warehouses at the material times, often be of a longer term of 2 years, though sometimes a break clause after one-year occupation may be agreed upon.

69.  A short extension of another one year of the existing tenancy of the 7/F unit sounds to me a reasonable option in plaintiff’s circumstances in this case, though it had to pay, I find, a reasonable monthly rental of $12,000 during such extension to its related landlord (which originally required the unit back for its self-use on Ms Hui’s evidence), which monthly sum, I accept Ms Hui’s evidence of plaintiff’s renting of other units of the building as warehouses at the material times, was within or around market rates.

70.  Accordingly, I also award this head of claim in full.

Extra renovation fees etc. to the 14E unit

71.  For this last head of plaintiff’s claim, on the limited evidence adduced by the plaintiff on this head, I do not think it has made out this claim.

72.  Notwithstanding my findings of facts above, I cannot further conclude that the total sum of $187,560 charged by A3 Design for the 6 items of variation works in the 2 variation invoices were caused by defendant’s breaches of the agreement, the resulting water seepage to the ceiling of the 14E unit, and failure to complete the renovation works by the scheduled completion date of May 2016 as alleged by Ms Hui at para 28 of her witness statement.

73.  The quotation is, I am afraid, not before me to prove the scope of the renovation works in the first place. Neither is the timetable produced to prove the alleged scheduled completion date of the renovation works in the first place.

74.  Despite the defects of such of the waterproofing works completed as identified by Mr Tsang and continuing water seepage to the ceiling of the 14E unit after their completion as I accept above, the contents of the 6 items in the 2 variation invoices cannot, I am afraid, speak for themselves the reason(s) for variation being these defects and/or problem, though I notice item A002 of the invoice dated 20 July 2016 is “supply and apply spray paint on ceiling surface for office area and warehouse”.

75.  Though Ms Hui gave, I note, further evidence in the box in an attempt to explain the 6 items on the 2 variation invoices (and to relate them to defendant’s breaches of the agreement), they differed, and expanded, somewhat from those she gave at para 28 of her witness statement[27]. Absent further corroborative documentary evidence such as material correspondences from A3 Design, or photographs of alleged damage to the ceiling or wall of the 14E unit caused by continuing water seepage thereto, I am not prepared to accept Ms Hui’s explanation or evidence in this respect.

76.  In any event, there is no evidence before me that the plaintiff had paid the said total amount of $187,560 charged by A3 Design in the 2 variation invoices (if it is proved that they were caused by defendant’s beaches of the agreement as claimed by Ms Hui).

77.  This head therefore fails for want of sufficient evidence adduced by the plaintiff.

Summary

78.  The total amount of damages I award to the plaintiff against the defendant for breach of the agreement is therefore $592,384 i.e. $200,000 + $236,000 + $156,384.

Disposition

79.  I therefore enter judgment in plaintiff’s favour against the defendant in the sum of $592,384.

Interest

80.  I further award pre-assessment interest on the said judgment sum of $592,384 at 5% p.a. from 14 Dec 2016 to the date hereof as sought by Ms Au.

Costs

81.  Costs normally follow the event. I make an order nisi that the costs of the assessment of damages be paid by the defendant to the plaintiff to be taxed if not agreed, together with certificate for counsel for the hearing before me. If none applies in writing to vary it within 14 days from the date hereof, it shall become absolute.