KONE ELEVATOR (H.K.) LTD v. CITYBASE PROPERTY MANAGEMENT LTD

HCA 1898/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1898 OF 2008

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J U D G M E N T

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BACKGROUND

1. In this case the Defendant (the “Defendant” or “Citybase”) is a property management company and is the property manager of a number of properties in Hong Kong.  At all material times to this action, one of the properties managed by the Defendant was Kingswood Ginza, 12 and 13 Tin Yan Road, Tin Shui Wai, Yuen Long, New Territories, Hong Kong (“Kingswood Ginza” or the “Development”). Kingswood Ginza was completed in about 2000, and consisted of 2 phases.  There were altogether 14 escalators and 22 lifts in the Development: in Phase I there were 4 escalators and 9 lifts, and in Phase II, 10 escalators and 13 lifts.

2. The Plaintiff (the “Plaintiff” or “Kone”) is a manufacturer of lifts and escalators and also carries on business as provider of maintenance service to lifts and escalators.  According to the Plaintiff, it has been carrying on such business in Hong Kong since about 1980.

3. Prior to April 2005, OTIS Elevator Company (HK) Limited (“OTIS”) was engaged by Citybase to provide maintenance service to the lifts and escalators in Kingswood Ginza (with the exception of escalators 2 and 3 in Phase II).

4. In January 2005, Citybase invited tenders for the maintenance service of the lifts and escalators in Kingswood Ginza.  The Plaintiff was successful in its tender, and in about June 2005 it replaced OTIS as the maintenance service provider.  On 28 April 2005, a Lift and Escalator Comprehensive Maintenance Contract was signed between the Plaintiff and the Defendant, whereby the Plaintiff agreed to provide maintenance service to the lifts and escalators for Phase I and Phase II during the respective periods of 26 April 2005 to 30 June 2006 and 30 June 2005 to 30 June 2006.  That was the first contract signed between the Plaintiff and the Defendant.

5. Upon the expiry of the first contract, the parties agreed that the Plaintiff would continue to provide its maintenance service for another 2 years up to 30 June 2008.  A new Lift and Escalator Comprehensive Maintenance Contract was signed between the parties in July 2008 (the “Contract”). This was the second contract signed between the parties, and is the contract that is relevant to this action.

6. By the Contract, the Plaintiff agreed to provide maintenance service to the lifts and escalators in both Phases I and II of Kingswood Ginza during the period from 1 July 2006 to 30 June 2008, at a charge of HK$71,280 per month.

7. The Contract consists of 2 Parts, with Part A relating to “Lift Comprehensive Maintenance” and Part B relating to “Escalator Comprehensive Maintenance”.  Subject to some small differences (which are mostly differences necessitated by the different technical requirements of lifts and construction, such as the “covered equipment” mentioned below), the general provisions in Part A and B are largely identical.  Clause 30 in both Part A and Part B of the Contract provides as follows:

“The [Plaintiff] shall provide bank guarantee of a sum of TWELVE MONTHS’ MAINTENANCE CHARGE to settle any claim in full for any loss due to malpractice of comprehensive maintenance included in the Contract. The validity of this guarantee shall cover the contract period and 3 months after expiry of contract. If there shall be issues that cannot be agreed before expiry of the Contract, then the [Defendant] shall have the right to deduct from the bank guarantee the sum in disputes.” (underline added)

8. Pursuant to the said Clause 30, the Plaintiff provided to the Defendant a bank guarantee in the form of a Performance Bond  dated 22 July 2006 (the “Performance Bond”) issued by the Standard Chartered Bank (Hong Kong) Limited (“SCB”).  The Performance Bond was for the sum of HK$855,360.00 and was valid for the period between 1 July 2006 to 30 September 2008.  I will return to deal with the terms of the Performance Bond in greater detail below.

9. At the end of March 2008 ‑ that is, about 3 months before the expiry of the Contract ‑ the Defendant again invited tenders for the maintenance service of the lifts and escalators in Kingswood Ginza.  OTIS submitted the lowest bid and was selected by the Defendant to take up the maintenance service from July 2008.  Accordingly, OTIS was required to take over the lifts and escalator from Kone at the end of June 2008, to be in a position to commence its maintenance service on 1 July 2008.

10. Clause 31 of both Parts A and B of the Contract provides for the takeover procedures as follows:

“Upon approaching the expiry of the contract, the selected Contractor, who shall take over the escalator maintenance, before commencement of this Contract, is required to prepare taking over procedures and inspection report for verification of all visual and hidden defects in the [lift/escalator] system with sufficient technical supporting and assurance of all the defects to be rectified by the existing [lift/escalator] maintenance contractor up to satisfaction of the [Defendant] before expiry of the [lift/escalator] maintenance contract entered with this existing [lift/maintenance] contractor. All the taking over procedures shall be approved by the [Defendant].

The existing Contractor who is undertaking the existing maintenance under the contract shall fully cooperate with the newly selected Contractor and rectify all confirmed visual and hidden defects according to the taking over inspection report to the satisfaction of the [Defendant] before the expiry of this Contract.” (emphasis added)

11. In the present case, it is not disputed that the takeover of the lifts and escalators took place in the late afternoon of 30 June 2008.  A few days earlier, OTIS had written to the Electrical & Mechanical Services Department (“EMSD”) to inform it that OTIS had confirmed with the owner to take over the maintenance work for the lifts and escalators in Kingswood Ginza with effect from 1 July 2008.

12. For the purpose of the takeover, 2 joint site inspections were carried out and attended by representatives of Kone and OTIS.  The first inspection took place on 20 June 2008 (“1st Inspection”).  This was followed by another joint inspection on the day of the takeover, i.e. 30 June 2008 (“2nd Inspection”).  Following the 1st Inspection, a 4‑page handwritten defects list, followed by a typed-up list (which took the form of a letter dated 23 June 2008 from OTIS to Citybase) were produced by OTIS purporting to set out the defects and problems of the lifts and escalators found in the 1st Inspection. Similarly, after the 2nd Inspection, a 2-page handwritten defects list, followed by a typed-up list (which took the form of a letter dated 30 June 2008 issued by OTIS to Citybase) was produced by OTIS listing out the defects/problems that OTIS required rectification by Kone before the takeover. I should add, for completeness’ sake, that although the typed-up list purported to refer to “the joint inspection conducted on 20 June 2008”, it is now accepted that this reference was a typing error, and that the correct reference should be “the joint inspection conducted on 30 June 2008”.

13. By a letter dated 22 July 2008, OTIS wrote to Citybase and purported to “summarize” its “observations and findings” based on the 2^nd Inspection. It is to be noted that although the 2-page handwritten list, the typed-up list, and the letter dated 22 July 2008 all purported to set out the defects/problems allegedly found on 30 June 2008 by the 2nd Inspection, they are not entirely the same; and there are items of alleged defects/problems that were not originally recorded in the handwritten list but were subsequently included in the typed-up list or the letter of 22 July 2008.

14. Kone did not accept the defects/problems purportedly identified by OTIS as being defects/problems outstanding at the time of takeover.  It is Kone’s case in this action that although some of the defects/problems purportedly identified in the 1st Inspection were genuine, those defects/problems had already been rectified during the period between the 1st and 2nd Inspection. Further problems identified during the 2nd inspection had also been addressed or rectified by Kone’s technicians immediately on that day, and Kone did not accept that as at the time of the takeover (at around 5:30 pm on 30 June 2008) there were still outstanding problems/defects with any of the lifts or escalators for which Kone, as the outgoing maintenance contractor, was responsible.  In a letter dated 9 July 2008 from Kone to Citybase, Kone stated that it would not “be able to entertain any more unreasonable requests merely according to the futile claims of [Citybase’s] existing contractor.”  Although Kone subsequently compromised this position somewhat by conceding to a few of the items (of alleged defects) as being within its responsibility (in a letter dated 19 August 2008 sent by its solicitors to Citybase), subject to those few concessions the above remained largely the position of Kone, and was maintained by it throughout these proceedings.

15. By another letter also dated 22 July 2008, OTIS informed Citybase that the alleged defects/problems had not been rectified and stated that “in order to ensure the concerned lifts & escalators operating in normal/safety condition, [OTIS] would like to furnish [Citybase] with assistance to complete such items by submitting a quotation for [Citybase’s] consideration”.

16. A quotation dated 23 July 2008 was submitted by OTIS to Citybase.  That quotation set out the costs of the works that OTIS was prepared to undertake to rectify what it claimed to be the outstanding items of defects/problems that had not been rectified by Kone.  It also included, inter alia, the costs of certain works for Lift no. 12 of Phase I, in respect of which Citybase subsequently accepted were works that should be covered by insurance and were not the responsibility of Kone.  The total amount of this quotation was $844,940.00.  Kone was also provided with a copy of this quotation.

17. It is to be noted that the so-called rectification works referred to in the quotation dated 23 July 2008 are essentially works required to replace alleged “defective components”, and replacing them with new ones.  Hence the costs of the rectification works were costs of the new components to be installed, plus the labour costs for carrying out the replacement works.

18. By a letter dated 1 August 2008, Citybase wrote to SCB stating that they “would like to execute” the Performance Bond for the amount of $844,940.00 because Kone had allegedly “failed to complete the required maintenance duties under [the Contract] during 1 July 2006 to 30 June 2008”.

19. By letter dated 19 August 2008, Kone’s solicitors, Messrs Ip, Kwan & Co (“IPC”), wrote to Citybase to set out Kone’s position regarding OTIS’s quotation dated 23 July 2008.  In the letter, IPC informed Citybase that Kone was prepared to agree the following items in OTIS’s quotation as “outstanding works to be rectified”, namely, items 1.1, 1.2, 4.6, 5.1, 7.2, 15.1, 16.1, 16.2, 17.1 and 18.1.  Apart from these 10 items, Kone denied responsibility for the other items in the said quotation.

20. OTIS furnished a second quotation (the “Quotation”) to Citybase on or about 19 August 2008.  This Quotation was in effect a revision of the earlier quotation dated 23 July 2008 by removing therefrom the costs of the works relating to Lift no. 12 of Phase I.  As a result the amount was reduced from $844,940 to $771,400.  Apart from the removal of the items of work (items 20.1 to 20.5 and part of the labour costs), the other items of the previous quotation were retained (and identified by the same item numbers).

21. The Quotation set out all the items that OTIS allegedly found defective at the time of the takeover, and for which “rectification work” was allegedly required. As in the case of the earlier quotation dated 23 July 2008, by “rectification” OTIS actually meant “replacement”, and the Quotation was given by OTIS on the basis that the components or parts referred to in the items set out therein would be replaced by new components or parts.  Hence the rectification works were not mere repair work or adjustment work, and the costs of work quoted included both the material costs of the new components or parts, and the labour costs for installing them.  The total amount of the Quotation was $771,400.00. This amounted to almost 11 months of Kone’s remuneration (at the monthly charge of $71,280) under the Contract.  If Kone is to be responsible for this, it would mean that effectively almost half of its remuneration earned under the Contract would have to be used up to replace the allegedly defective components of the lifts and escalators when the Contract expired at end of June 2008.

22. As the Quotation sets out all the allegedly defective items at the time of takeover, with each item referenced by an item number (item 1.1, 1.2 etc.), I shall adopt the same item numbers when I refer to the relevant items of alleged defects in this Judgment.  Accordingly, unless the context otherwise indicated, all references in this Judgment to item numbers for the alleged defects are references to the corresponding item numbers in the Quotation.  In the paragraphs below, when I refer to “the alleged items of defects” or “allegedly defective items”, I am referring to the items of defects as set out in the Quotation.

23. By a letter dated 16 September 2008, Citybase wrote to SCB and informed the bank that they “have decided to execute the [Performance Bond] based on the professional advice from [OTIS] and requested to draw $771,400 from the Performance Bond.”

24. On or about 29 September 2008, SCB wrote to Citybase seeking “further details and information evidencing the alleged default [of Kone] so as to substantiate [Citybase’s] demand under the Performance Bond”.

25. Citybase replied by letter dated 30 September 2008.  In its letter Citybase referred to various telephone conversations between it and SCB, and purported to enclose under Appendix 1 what was alleged to be “sufficient information as requested”.  However, it is not clear what exactly was the “sufficient information” that was enclosed, as the Appendix 1 that was supposedly annexed to the letter was not reproduced in the trial bundle, and I do not know what information was contained in it.  No factual witness from Citybase itself has given evidence at trial to shed light on the contents of Appendix 1 (the only 2 factual witnesses called by Citybase were employees of OTIS, and although witness statements had been filed by one Pierre Leung and one Davis W.C. Leung ‑ both of whom were employees of Citybase ‑ neither witness was called by Citybase to give evidence on its behalf).

26. On the same day, i.e. 30 September 2008, SCB released the sum of $771,400 to Citybase under the Performance Bond.

27. In early October 2008, Citybase instructed OTIS to carry out the rectification works set out in the Quotation.

28. By a letter dated 29 October 2008, OTIS wrote to Citybase and stated that 9 items of work have already been completed on the dates set out therein. Amongst the items alleged to have been completed is item 4.3, which related to the step chain bearing of Escalator 5 of Phase I.  It was stated in that letter that the item of work was completed on 12 August 2008.

29. By a letter dated 15 December 2008, OTIS wrote to Citybase to advise it that it had completed the works set out in the Quotation.  The letter set out, in respect of each of the item of work specified in the Quotation, the time when the item of work was allegedly completed by OTIS.  It can be seen from the letter that the items of work were allegedly completed in the months of October and November 2008.  That was some 3 or 4 months after the takeover.  Photographs of the replaced parts or components were also attached to the letter by OTIS for Citybase’s reference.

30. Citybase signed a Works Order Acceptance on 17 December 2008 confirming acceptance of the works, and on or about 21 May 2009, paid OTIS the sum of $771,400.00.

31. Kone commenced the present proceedings against Citybase to recover the sum of $771,400.00 and damages.  It is Kone’s case that it has not committed any default or ‑ to follow the language used in Clause 30 of the Contract ‑ “malpractice of comprehensive maintenance included in the Contract”.  As Kone has not committed any default or malpractice, Citybase should not have been entitled to draw the amount of $771,400.00 from the Performance Bond.  As a result of Citybase obtaining payment under the Performance Bond, Kone has suffered loss and damage and now seeks to recover its loss from Citybase in this action.  It is Kone’s case that Citybase is liable to account to it any payment obtained under the Performance Bond that it should not otherwise have been entitled to be paid without default or malpractice on the part of Kone.

32. Citybase counterclaimed against Kone, inter alia, for a declaration that it is entitled to retain the sum of $771,400.

THE ISSUES

33. As I see it, the following issues have been raised by the parties:

(1)   Was Kone guilty of any “malpractice of comprehensive maintenance included in the Contract”?

(2)   If the answer to (1) is “yes”, did Citybase suffer any loss arising from Kone’s malpractice?

(3)   Was Citybase entitled to request payment by SCB under the Performance Bond?

(4)   Having obtained payment from SCB, is Citybase liable to account to Kone for any payment which it had obtained from SCB?

(5)   Quantum: what amount, if any, is Kone entitled to recover from Citybase?

34. In relation to issue (1), as Citybase’s case against Kone for “malpractice of comprehensive maintenance” consists in its claim that Kone had failed to rectify the alleged items of defects specified in the various handwritten and typed-up defects lists mentioned above (which alleged outstanding defects were reflected in the Quotation produced by OTIS, and for which OTIS ultimately charged the sum of $771,400.00 for rectifying the same),  the following matters or sub-issues will have to be considered, namely:

(a)   to what extent was Kone responsible, under the terms of the Contract, for rectifying the alleged defects before the takeover?

(b)   were the items of defects alleged by OTIS/Citybase (as set out in the Quotation) within Kone’s contractual responsibility to rectify?

WITNESSES

35. At trial, the Plaintiff called 6 factual witnesses to give evidence on its behalf:

(a)   Mok King Tong, a technician of  Kone;

(b)   Yuen Ka Hing, the on-site technician of Kone at Phases I and II of Kingswood Ginza;

(c)   Lau Kam Chuen, a foreman of Kone;

(d)   Chan Kam Chuen, an assistant manager of Kone;

(e)   Man Tat Yan, a supervisor of Kone;

(f)   Lau Wai Keung, a maintenance sub-division supervisor of Kone;

36. The Plaintiff also called Law Yu Wing as an expert witness.  Mr Law used to be the Chief Electrical and Mechanical Engineer of EMSD before his retirement in November 2003.

37. The Defendant called Choi Hung Kwong (a supervisor of OTIS) and Chiu Ming Fai (an Assistant Service Engineer of OTIS Kowloon West Branch).  As pointed out above, no employee or personnel of Citybase has attended the trial to give evidence.  Dr Albert So of the Department of the Building and Construction, City University of Hong Kong, was called by the Defendant as its expert witness.

38. I have carefully observed the witnesses when they gave evidence in the witness box.  I am satisfied that all the factual witnesses called by the Plaintiff are honest witnesses, and that they have tried their best to assist the Court in giving evidence on matters which happened some years ago.  I also find Choi Hung Kwong, called by the Defendant, to be an honest witness generally.

39. I regret, however, that I cannot say the same with the evidence of Chiu Ming Fai (“Chiu”), who is the chief witness of the Defendant.  Under cross‑examination, Chiu has shown himself to be a witness who has an inclination of tailoring his evidence to suit his case.  He often gave inconsistent answers, and contradicted himself frequently in his evidence.  Some of his answers are clearly inconsistent with contemporaneous documents, and some are inherently improbable given the circumstances of the case.  Mr Alan Ng, counsel for the Plaintiff, has appended an Appendix B to his Closing Submissions highlighting the various aspects of Chiu’s evidence that cast doubts on his credibility as a witness.  I accept Mr Ng’s submission in this regard.  I find Chiu to be an unsatisfactory witness and where his evidence contradicts that of the Plaintiff’s witnesses, I have no doubt in preferring the Plaintiff’s evidence to his.

40. As far as the expert evidence goes, I am particularly impressed by the evidence of Mr Law, the Plaintiff’s expert.  He is, in my judgment, a role-model of what a good expert witness should be like.  His evidence was clear, fair and balanced.  When a point arose which went beyond his expertise, he would point out to me and alert me of his deficiency in regard to the particular matter (for example, at one point at trial, he told me that he was not an electrical man, and was not familiar with how a certain part of a circuitry actually worked).  I have been very much assisted by his expert evidence on various technical matters (although at the end of the day, these technical matters played only a relatively small part in my resolution of the issues in this case).  Mr Law’s expert report is detailed and clear and I commend him for that.

41. On the other hand, I have some reservation regarding the expert evidence of Dr So.  I certainly would not describe Dr So as a “hired gun”, but I have not found his evidence to be as fair and balanced as that of Mr Law.  What is more important is that Dr So appears to have been instructed by the Defendant with a limited mandate, which is described by him in his expert report in the following terms:

“We were invited by Mr C.P. Leung, Senior Property Manager of [Citybase] to conduct a site investigation to components replaced by [OTIS] after they took over the maintenance responsibility from June 2008. This report serves to make comments on the significance of these components to the overall safety standard of lifts and escalators and the necessity of replacement. However, we only inspected the status of all faulty components during the site inspection on 23^rd May 2009 and we had difficulty to judge whether these components were faulty back in June, 2008”

42. Accordingly, Dr So’s mandate was limited.  He was instructed only to comment on the replaced components to the overall safety standard of the lifts and escalators, and the necessity of replacement.  On these questions, Dr So had admittedly experienced difficulty as he was asked to comment on the condition of these replaced components and also the necessity of replacement based on an inspection of the replaced component on 23 May 2009, almost a year later.  I would have thought that his difficulty is compounded (and in my judgment, likely to be seriously compounded) by the fact that even on Citybase’s case, it had continued to use the components in question for another 3 or 4 months before replacing the same in October and November 2008.  What Dr So saw at the inspection on 23 May 2009 were components that had been replaced not in June 2008, but in October or November 2008.  Even if the components or parts were found to be in defective condition, it is doubtful whether the condition truly reflected the condition of the components and parts at the time of takeover in June 2008, (after they had been subject to several months’ operational use before replacement and then inspected many months afterwards).

43. Before I leave this part of my Judgment, I would record that at trial I had expressed great surprise when I was told by Mr Law that when he conducted the inspection on 4 March 2009 (made pursuant to an Order made by Master De Souza dated 16 January 2009), he was not provided with any opportunity to inspect the replaced components or parts.  Accordingly Mr Law could only refer to the photographs (particularly those enclosed with OTIS’s letter to Citybase dated 15 December 2008) in commenting on the condition of the replaced components and parts.  Miss Queenie Lau, counsel for the Defendant, has asked me not to believe in Mr Law’s evidence in this regard, making the point that Mr Law had not complained about this in his report, nor has the Plaintiff’s solicitors  raised any complaint about not being provided with the opportunity of inspecting the replaced components and parts.  I have, however, no doubt that Mr Law was telling me the truth.  As I told Miss Lau (who argued the case of the Defendant with skill and moderation, and I would like to make clear that my criticism of the Defendant in this regard is not meant to be directed at counsel) at trial, if the Defendant’s case is that it had in fact shown Mr Law the replaced components and parts for his inspection, the Defendant could very well produce witnesses to counter what Mr Law alleged.  I would have no hesitation in granting leave to Miss Lau if she had applied to call any witness to deal with this point.  As it is, there is no evidence before me to counter the evidence of Mr Law, and I have no doubt at all that Mr Law was telling me the truth.  The long and short of it is that the Defendant had chosen not to show the Plaintiff’s expert the replaced components at the time when he conducted his inspection, but proceeded to provide the same to its own expert for inspection about 2 months later on 23 May 2009.  This, in my view, is a very unfair way of conducting litigation, and I cannot help expressing my great disapproval of it.

KONE’S OBLIGATION TO RECTIFY DEFECTS UNDER THE CONTRACT

Meaning of “defects”

44. I have already set out above Clause 31 of Parts A and B of the Contract.  That Clause requires “the existing Contractor”, namely Kone, to rectify “all confirmed visual and hidden defects according to the taking over inspection report to the satisfaction of “Citybase.  The parties are in dispute as to the meaning of “defects” for the purpose of this provision.

45. Miss Lau submitted that in construing the word “defects”, I should adopt its dictionary meaning as being the ordinary meaning of the word.  Miss Lau refers me to the Shorter Oxford English Dictionary, 6th edition, where I find, as one of the meanings given for the word “A shortcoming, a failing; a fault, an imperfection”.  I note that the dictionary also gives another meaning (although Miss Lau has not relied on it) as “the absence of something essential to completeness: a lack, a deficiency”.

46. On the basis of the dictionary meaning, Miss Lau contended that “a part may be defective in that it has shortcomings or imperfections even though the part could still function”.  Any “shortcoming” or “imperfection” of any component or part is a defect even though such shortcoming or imperfection may not affect the safety of the equipment (of which the component is part) or the proper function of the same.

47. I do not think that I can simply take the dictionary meaning as the ordinary meaning of the word “defect” and apply it to the construction of the Contract.  Plainly the word “defect” may mean different things in different contexts.  The word may have one meaning in the context of a contract for the sale of goods, and a different one in a contract of maintenance service.  In the context of, say, the supply of goods by description or sample, any “failing, fault or imperfection” in the goods that cause the goods not to conform with the contractual description/specification or sample may ‑ subject to the de minimus rule ‑ legitimately be said to be “defects” such as to render the goods supplied “defective” I am of course not concerned in this case with a contract for the supply of goods.  Kone did not agree with Citybase to supply or install the lifts and escalators at Kingswood Ginza.  What Kone agreed was merely to provide maintenance service for them.  It is plain that in their ordinary operation, the lifts and escalators would suffer ordinary wear and tear.  It would indeed be extraordinary that the intention of the parties, in making the Contract, was to impose upon the maintenance service contractor, namely Kone, an obligation to maintain the lifts and escalators in such a way as to keep it always in a brand-new condition.  If the contention of Miss Lau is right, Kone would be obliged to replace each and every component and part of the lifts and escalators that has undergone wear and tear (because those components and parts would be suffering from “shortcomings” and “imperfections”, compared with brand-new ones), even though the component or part concerned may still be functioning properly and safely.  I do not think that any sensible maintenance contractor in its right mind would contract to assume for itself such an extraordinary obligation.

48. In construing the word “defects” in Clause 31, I have regard to the entirety of the Contract.  In particular, I note the following provisions in the Contract:

(a)   Clause 4 of both Parts A and B provided that Kone would “repair or replace any parts detailed in Clause (5), which in [Kone’s] sole opinion, are defective as inclusive in this Comprehensive Maintenance Contract with no extra cost incurred to the [Defendant]” (underline added);

(b)   Clause 5 of Parts A and B then set out the “covered equipment” in respect of the lifts and escalator maintenance respectively (the “covered equipment”).  In particular, Clause 5(e) set out in detail the components and parts of the lift or escalator (as the case may be) in respect of which the Plaintiff is required to “systematically examine, adjust, lubricate as required, and repair or replace”.

(c)   Clause 6 of both Parts A and B provided as follows:

“Maintenance of Safety Standards

The [Plaintiff] will, in accordance with the terms hereof, maintain the equipment in Equipment Schedule to the safety standards of the original equipment and will advise on any changes required by, amongst others, governmental authorities, codes and/or regulations.”

(d)   Clause 7 of both Parts A and B provided as follows:

“Maintenance of Performance

The [Plaintiff] will, where applicable, maintain the performance characteristics of the equipment in Equipment Schedule as originally designed and installed or as amended by mutual written agreement between the [Defendant] and the [Plaintiff].”

(e)   Clause 14 of both Parts A and B provided that “the [Plaintiff] is prepared to carry out work at the [Defendant’s] expense in connection with the equipment in Equipment Schedule falling outside the scope of [the Contract].  Such work would be carried out under the terms and conditions of [the Contract] and the prior agreement from [the Defendant] is required.”

(f)   Clause 25 of both Parts A and B set out, respectively for the lift and escalator maintenance, the items and equipment that are excluded from the scope of service and covered equipment.

49. Having regard to the entirety of the Contract, particularly having regard to Clauses 6 and 7 in Parts A and B, I am of the clear view that as the maintenance contractor, Kone was only required to maintain, subject to special provisions expressly provided in the Contract (for some such special provisions, see for example, Clause 5(a) to (c) in Parts A and B), the safety and proper functioning of the covered equipment.  The intention of the parties were clearly expressed in Clauses 6 and 7, which expressly provide for Kone to maintain equipment to “the safety standards of the original equipment” and “the performance characteristics of the equipment”.  Nothing in the Contract requires the maintenance contractor to maintain the equipment to a brand-new condition, or to rectify or remove all shortcomings or imperfections that do not affect the safe working order of the equipment.  Construing the Contract in the present case, having regard to its nature and its terms, I am of the view that it is only where the safety and performing characteristics of the equipment have been compromised that the equipment may properly be said to be suffering from “defects”.

50. Having reached the conclusion above it is not necessary for me to decide the point made by Mr Ng, who relied on various circulars issued by the EMSD (including Circular no. 7/98 issued on 1 April 1998, Circular no. 11/01 issued on 3 September 2001 and Circular no. 8/2004 issued on 5 August 2004) as evidencing an alleged trade custom or usage (in the trade of lifts and escalator maintenance service) whereby the term “defects” are commonly understood or interpreted as referring only to those problems or deficiencies in the equipment, component or part that would affect safety.  In support of the argument, Mr Ng points to the evidence of Mr Law to the effect that the EMSD Circulars were issued after EMSD had conducted consultation with companies in the trade, and that it is clear from the Circulars that the focus, insofar as maintenance of lifts and escalators are concerned, is “to ensure that the lift or escalator is in safe working order” (see, as an example, Circular 11/2001).  I see the force of this argument, and agrees with Mr Ng that the emphasis of the EMSD Circulars was on safety, but I have some reservation as to whether the evidence goes as far as Mr Ng would like me to take ‑ namely, as establishing a trade custom or usage.  I certainly have no problem in looking at these Circulars as part of the factual matrix of the Contract, which fortifies the conclusion that I have reached based on my reading of the terms of the Contract.  It is however not necessary for me to find any trade custom or usage based on the Circulars, and as I have some reservation as to the quality or sufficiency of the evidence in this regard, I am not prepared to go to the length that Mr Ng invited me to go.

Kone’s responsibility to rectify only “confirmed” defects

51. Returning now to Clause 31, it is to be noted that, in relation to Kone’s obligation to rectify, the Clause does not just speak of “defects”, but “confirmed visual and hidden defects according to the taking over inspection report”.  The earlier part of the Clause expressly provides for verification of the defects, which is to be done by means of an inspection report to be prepared by the incoming contractor (in this case OTIS) with “sufficient technical supporting and assurance”.  Hence Kone’s obligation to rectify is confined only to those confirmed defects that have been properly verified in accordance with the provisions of Clause 31.

52. That the defects must be “confirmed” defects in the sense that they must have been “verified” in the manner provided under Clause 31 cannot be over-emphasized.  This requirement for confirmation or verification makes good sense in the context of the present contract, because:

(a)   Clause 31 is a special clause designed for takeover. The clause imposes an additional obligation on Kone which is over and above the obligations provided for in Clauses 4 and 5.  It should be remembered that ordinarily (i.e. where there is no question of takeover), Clause 4 provides for a discretion on the part of Kone to decide, in its sole opinion, whether a part or equipment is defective and requires either repair or replacement.  As part of the takeover procedure, however, this discretion is taken away, and it is not difficult to see why a mechanism is built into the clause to ensure that the additional obligation on the part of Kone does not become too wide and unreasonably oppressive.  Any alleged defects have to be confirmed by a kind of verification process: before Kone’s obligation is triggered, the incoming contractor would have to verify the defects by preparing an inspection report with “sufficient technical supporting and assurance”.

(b)   it is also not difficult to see that there is likely to be a potential conflict of interest on the part of the incoming contractor. From his point of view, it would be to his benefit to take over the lifts and escalators in as best and impeccable condition as possible.  If he could have it, he would obviously prefer to take over the lifts and escalators in a brand-new condition.  Hence there is likely to be motivation on the part of the incoming contractor to require, as much as possible, for old components or parts to be replaced by new ones.  This would obviously help the new contractor save costs for itself after taking over the lifts and contractors, and at the expense of the outgoing contractor.  The mechanism provided for in Clause 31 ensures that such potential conflict of interest on the part of the incoming contractor is kept in check.  If he alleges any defects that require rectification by the outgoing contractor, he must verify them by sufficient technical supporting and assurance.  If Citybase wishes to rely on the outgoing contractor’s advice (as in the present case) in alleging defects which it requires the outgoing contractor to rectify, Citybase should ensure that the incoming contractor prepare a proper inspection report verifying the defects with sufficient technical supporting and assurance.

(c)   in a case such as the present, where relatively little time was given to the outgoing contractor to verify for itself the alleged items of defects before the takeover (many of the alleged items of defects in the present case were raised for the first time on 30 June 2008, the very day of the takeover itself), it is all the more important that sufficient technical supporting be provided to the outgoing contractor to enable it to see quickly if an item alleged is genuine or not.  Otherwise disputes are bound to arise as to whether the items of defects alleged by an incoming contractor genuinely exist.  The provision of technical supporting and assurance helps to reduce or minimize such potential disputes.

53. As to what constitutes “sufficient” technical supporting and assurance must depend on the nature of the item of defect alleged.  Where the item of defect has been admitted by Kone or is not in dispute, there is obviously no need for any technical supporting for the defect to be treated as “confirmed”. Or where the alleged defect is of such a nature that verification by technical supporting is plainly unnecessary or meaningless.  As an example, plainly it is unnecessary, indeed meaningless, to require the provision of technical supporting to verify that a light bulb is burnt and requires replacement (either the light bulb is burnt or not burnt ‑ no technical supporting would help to verify it).  This is only common sense.  But subject to such plain cases, Kone is quite entitled to refuse to accept any item of defect that has not been verified by sufficient technical supporting and assurance.

WHETHER KONE GUILTY OF “MALPRACTICE OF COMPREHENSIVE MAINTENANCE”

Meaning of “malpractice of comprehensive maintenance”

54. I turn now to consider the words “malpractice of comprehensive maintenance” in Clause 30 of Parts A and B of the Contract.

55. Mr Ng referred me to the Shorter Oxford English Dictionary, 3rd edition, where the word “malpractice” is given the following meanings (a) improper treatment or culpable neglect of a patient by a physician (b) illegal action by which a person seeks a benefit for himself, while in a position of trust (c) a criminal or overtly mischievous action; wrongdoing.  Relying on this dictionary meaning, Mr Ng submitted that in order for this Court to find Kone guilty of malpractice of comprehensive maintenance, there must be cogent evidence that the Plaintiff had committed “culpable neglect, criminal or overtly mischievous act or wrongdoing of its maintenance duty during the period of the Contract”.

56. On the other hand, Miss Lau pointed to a later edition (6th edition) of the same dictionary where I find the following meanings given for the word “malpractice”: (a) improper treatment or culpable neglect of a patient by a physician or of a client by a lawyer (b) a criminal or illegal action; wrongdoing, misconduct. Relying on this, Miss Lau submitted that the word “malpractice” should simply be construed to mean any wrongdoing or misconduct.

57. Again, I do not think that I should just adopt a dictionary meaning of the word “malpractice” in my construction of the word in the context of Clause 30.  As the dictionary clearly shows, the word may mean different things in different contexts.  Plainly, when one speaks of malpractice in the context of professional negligence (say, of a doctor or a lawyer), the meaning may be quite different from that when the word is used in the context a commercial contract.  Construction of the meaning of a word, being a hermeneutical exercise, can only be made in context.

58. In the context of the Contract, particularly Clause 30, I have no doubt that the word “malpractice” simply means breach or default.  The word is used as part of the phrase “for any loss due to malpractice of comprehensive maintenance included in the Contract”, and in the context of the obligation by Kone to provide a bank guarantee to cover such loss.  Plainly the intention of the parties was to provide for a kind of security, in terms of a bank guarantee, to secure the payment of any loss that may be suffered by Citybase in case Kone failed to carry out its obligations in respect of the comprehensive maintenance of the lifts and escalators within the scope of the Contract.  I can see no reason at all why the parties would have wanted to limit the security to cover loss arising only from “culpable neglect, criminal or overtly mischievous act or wrongdoing”, as contended by Mr Ng.  If Kone should breach or default in complying with its obligations under the Contract, and loss is suffered by Citybase as a result, it makes no commercial sense for the parties to require further proof of criminality, culpability, negligence or mischief before Citybase is allowed resort to the bank guarantee.  In the context of this Contract, which is a commercial contract, the introduction of such requirements as criminality, mischief and culpability seems to me to be oddly out of place.

59. It is true that the use of the word “malpractice” in Clause 30 is itself odd, but construing the word in its proper context, I have no doubt that the parties intended the word to simply mean breach or default.  Any breach or default by Kone of its obligations under the Contract is sufficient to amount to “malpractice” within the meaning of Clause 30.  In the context of Clause 30, I hold that the word “malpractice” carries no tortious or criminal connotations.

Was Kone guilty of “malpractice”?

60. As pointed out above, in my judgment Kone was only obliged under Clause 31 to rectify “confirmed visual and hidden defects according to the taking over inspection report” and the taking over inspection report must contain “sufficient technical supporting and assurance” to verify any alleged item of defect.  Except where the item concerned is admitted, or is of such a nature that it plainly requires no technical supporting to verify, Kone is entitled not to accept the item as a confirmed defect within the meaning of Clause 31.

61. In the present case, Citybase relies on the 2 handwritten defects lists, the 2 typed-up lists and the letter dated 22 July 2008, all of which were compiled by OTIS, as the “taking over inspection reports” for the purpose of Clause 31 (collectively as “OTIS Reports”).  In none of the OTIS Reports was there any “technical supporting and assurance” provided by OTIS to verify the items of defects purportedly alleged.  No technical data, test reports, or other supporting documentations had been provided by OTIS to verify the alleged items.

62. This being the case, apart from those items that have been admitted by OTIS, none of the other alleged items are, in my judgment, confirmed visual and hidden defects within the meaning of Clause 31.  Looking at the OTIS Reports, none of the non-admitted items are so plain that they could be regarded as confirmed or verified without proper or sufficient technical supporting and assurance.

63. As regards the admitted items, it is not disputed that Kone had not rectified the same.  According to Chan Kam Chuen (a witness called by Kone), at a meeting held on 7 or 8 June 2008, Kone had offered, out of goodwill, to rectify some of the alleged items set out in the typed-up defects list dated 22 July 2008, but upon the condition that it would not have to pay OTIS’s costs for supervising or overseeing the rectification works to be carried out by Kone.  The meeting was in fact referred to in a witness statement of Davis Leung.  Although Davis Leung was not called by the Defendant at trial, Chan Kam Chuen referred to Mr Leung’s witness statement and confirmed the meeting as having been held between OTIS’s representatives and Kone’s representatives to discuss the alleged items of defects.  I accept the evidence of Chan Kam Chuen but do not consider that it helps Kone as far as the admitted items are concerned.  It is not clear from Chan Kam Chuen’s evidence what exactly were the items that Kone had offered to rectify, out of goodwill, at the meeting. In any event, the offer was merely made out of goodwill and was not followed through by Kone.  In respect of the admitted items, Kone had the obligation ‑ not merely as a matter of goodwill ‑ to rectify the same.  Mr Ng submitted that Kone did not rectify the admitted items because after the takeover, Citybase and OTIS would not allow Kone to enter the site to do any rectification work.  There is no or no sufficient evidence of this, and the contemporaneous correspondence and documents (not even after IPC had admitted some of the items by its letter dated 19 August 2008) do not suggest that Kone had made any earnest attempt to make arrangements with Citybase to do any rectification works at all.  In my judgment, in respect of the admitted items, Kone has failed in its obligation under Clause 31 to rectify the same and to that extent (and to that extent only), it was guilty of the “malpractice” provided under Clause 30 of Parts A and B of the Contract.

64. I accordingly conclude that, except for those items of defects that have been admitted by Kone, Kone was not otherwise guilty of “malpractice of comprehensive maintenance” under Clause 30 of Parts A and B of the Contract.

ASSUMING THAT NO TECHNICAL SUPPORTING AND ASSURANCE IS REQUIRED

65. The above should have been sufficient to dispose of the issue as to whether Kone was guilty of “malpractice of comprehensive maintenance”.

66. I would point out, however, that even if I am wrong on my view that technical supporting and assurance of the alleged items of defects (except those that have been admitted) are required before the same can be considered as “confirmed”, I would still have come to the same conclusion that except for the admitted items, Kone was not otherwise guilty of the malpractice provided for in Clause 30.  This is because I take the view that, on the evidence before me, the alleged items of defects (except those admitted by Kone) have not been sufficiently proved by Citybase as being genuine defects within Kone’s responsibility to rectify; and accordingly Citybase was not entitled to require Kone to pay for the rectification or replacement work in respect of the same.

The alleged items of defects ‑ some general comments

67. As has already been noted above, the rectification or replacement works carried out by OTIS on the alleged items of defects were only made and completed in October and November 2008.  That was some 3 or 4 months after the takeover.  During this interim period, the components and parts that were supposedly defective were still being used by Citybase/OTIS for the ordinary operation of the lifts and escalators.  Apparently OTIS did not consider that there was any problem, particularly safety problems, in continuing to use the allegedly defective components or parts for another 3 or 4 months.  If OTIS had considered that the continued use of the components or parts would raise any issues of safety, or would otherwise compromise the performance characteristics of the equipment, one would expect OTIS to have written to Citybase to warn against such safety and performance issues, and to urge it to expedite the authorization of the rectification/replacement works.  There is nothing of this kind in the evidence before me.  This fact militates strongly against the alleged items of defects as being genuine items of defects in the sense I mentioned above i.e. defects that would compromise the safety and performance characteristics of the equipment(s) in question.

68. Instead of voicing concern over any safety issues of the lifts and escalators, between July 2008 and September 2008 OTIS had submitted examination reports to EMSD (see, reports dated 2 July 2008, 3 July 2008, 4 July 2008, 11 July 2008, 18 July 2008, 21 July 2008, 22 July 2008, 26 July 2008 and 6 September 2008), signed by its lift/escalator engineers, certifying that in respect of the lifts or escalators mentioned in the reports:

“... the equipment was thoroughly examined and found to be free from obvious defects, and to comply with Part 4 of the Design Code, COP [i.e. Code of Practice] for Lift Works and Escalator Works and COP on Building Works for lifts and Escalators....”

These certified examination reports, are required by the relevant EMSD Circulars, including in particular Circular no. 8 of 2004, which was issued by EMSD for the specific purpose of “providing a clearer demarcation of contractors’ liabilities in relation to the operation of lifts/escalators undergoing a transfer of maintenance”.

69. The examination reports were quite detailed and required the certifying engineer to confirm (by ticking various boxes) that various components and parts of the lifts and escalators were checked for correct operation.  There was also a box in the form of the relevant reports for the certifying engineer to set out any exceptions to his certification.  In all the reports, the certifying engineer had confirmed that he had checked the various parts of the lifts and escalators concerned for correct operation, and no exception was put forward in the reports.

70. In my judgment, such conduct of OTIS again strongly militates against the alleged items of defects as being genuine defects that require rectification/replacement.  It is to be remembered that the OTIS Reports, which Citybase relied upon as the “taking over inspection report”, were all prepared by OTIS.  It is difficult for OTIS to maintain, on the one hand, that the alleged items of defects mentioned in the OTIS Reports were genuine defects that required rectification; while on the other hand advised EMSD that the lifts and escalators had been thoroughly examined as to be “free of obvious defects”.  In her Closing Submission, Miss Lau made a valiant attempt to explain OTIS’s conduct by submitting that “[h]ypothetically, for example, it would be possible for OTIS to have properly identified defects that are of a type that ought to be reported to the EMSD but which OTIS did not in fact report to the EMSD”.  I am unable to accept this hypothetical proposition.  If OTIS is prepared to lie to EMSD on whether the lifts and escalators are free of obvious defects, I would need a magnifying glass to examine its conduct before accepting its allegations regarding the alleged items of defects.

71. On 28 October 2008, a “surprise” inspection was conducted by the EMSD on the lifts and escalators of Phases I and II of Kingswood Ginza.  Only 4 items of defects were found by EMSD in the escalators of Phase I and none in Phase II.  Of the 4 items of defects in Phase I found by EMSD, only one of them (relating to Escalator no.5) appeared in the defects lists of OTIS.  As rightly pointed out by Mr Law (see, in particular section IV(D) of his expert report), although by 28 October 2008, OTIS claimed to have already rectified some alleged defects, the “rectified” defects have little bearing to the surprise inspection of EMSD.  The fact that the inspection of EMSD revealed so little to support the existence of the alleged items of defects certainly casts doubt on the veracity of these alleged defects.

72. Finally, the way the OTIS reports were compiled by OTIS do not lend credence to their accuracies.  According to Chiu, the handwritten defects list prepared after the 1^st Inspection was in fact drawn up by a Mr Yu at the management office of Kingswood Ginza.  Mr Yu allegedly drew up the list based on some original notes taken by someone at the inspection but Chiu was not clear as to who was the person jotted down the original notes. Chiu himself was the person who wrote out the handwritten list at the management office of Kingswood Ginza after the 2nd Inspection, but again he was not clear who jotted down the original notes during the inspection.  The person or persons who jotted down the notes were not called to give evidence and the notes have not been produced to the Court.

73. Turning to the 2 typed-up defects lists, they were compiled by a Mr Wilson Li (who was Chiu’s superior but was not called to give evidence) based on the handwritten lists.  According to Chiu, Wilson Li had no personal knowledge of the alleged items of defects and had consulted him when he prepared the typed-up list dated 30 June 2008.  The problem is that Chiu himself had only limited knowledge of what was contained in the handwritten list prepared by him on 30 June 2008.  The is because the inspection on that day was carried out by 2 separate teams simultaneously and Chiu only joined one of the 2 teams, and he plainly had no personal knowledge of what the other team might have seen or found.  Chiu was not the person who jotted down the notes from which the handwritten list was compiled.

74. There are notable discrepancies between the various handwritten and typed-up list and also the letter of 22 July 2008.  As already pointed out before, there are items of alleged defects/problems that were not originally recorded in the handwritten lists but were subsequently included in the typed-up lists or the letter of 22 July 2008.  According to Chiu, more items or details (which did not appear in the handwritten lists) were added to the typed-up lists and the letter of 22 July 2008 after referring to the photographs taken during the inspection and the notes taken by his colleagues. The notes purportedly taken by Chiu’s colleagues that contributed to the subsequent additions have not been produced.

75. All in all, the objective circumstances do not lend credence to the assertion by OTIS that the alleged items of defects existed, or that they necessitated replacement of the components and parts referred to in the Quotation. With this in mind, I now turn to consider the individual items (leaving aside those which are admitted and therefore not in dispute).

Step Chain Bearings and Motor Bearings (items 1.5, 1.6, 4.3, 4.4, 6.4, 6.5, 11.1, 11.2, 13.1 and 13.2)

76. In the Quotation, OTIS alleged that the step-chain bearings and motor bearings of Escalators no.2 and no. 5 of Phase I, Escalators no. 3, 10 and 12 of Phase II were defective and required replacement.  However, defects of the step chain bearings and motor bearings were never mentioned in any of the handwritten lists, typed-up lists, or the letter of 22 July 2008 at all.  In other words, in none of the OTIS Reports was there any mention at all of defects in the said bearings.  All that was mentioned in the OTIS Reports was alleged “running noise” and/or “vibration” in the upper landing of some of the escalators.

77. Except for the alleged running noise and vibration in relation to Escalator no. 5 of Phase I (i.e. Items 4.3 and 4.4), the Plaintiff’s witnesses (i.e. Yuen Ka Hing and Lau Kam Chuen) disagreed that there were vibration or abnormal running noise for the other escalators.  They agreed that for Escalator no. 5 of Phase I, there was some vibration and a little bit of strange noise.  Chan Kam Chuen gave evidence that the usual way of handling problems of vibration and strange noises was to make adjustments, and the problem, according to Lau Wai Keung, could be easily dealt with by adding some lubrication oil.  I am not sure that the problems of vibration and noise would necessarily be solved by the methods suggested by Chan and Lau in their evidence, but as I see it, if Citybase is to say that the noise and vibration problems were caused by defective step chain bearing and motor bearing in the escalator concerned, and could only be solved by replacing these bearings, it bears the burden of proving it.  Indeed this is an example that highlights the importance of requiring verification by “technical supporting and assurance”, as provided for in Clause 31 of Parts A and B of the Contract.  Dr So, the Defendant’s own expert, agreed that one could not simply decide that the bearings have to be replaced simply because there was vibration and noise. Both experts agreed that before any such decision could be made, further testing and investigation were required.

78. The motor bearing and the step chain bearing are located in very different parts of the escalator.  No satisfactory explanation has been given by Chiu as to why, if vibration and noise was found in the upper landing of the escalator (which is where the motor is located), the step chain bearings would have to be replaced.  The position for Escalator no. 5 of Phase I is even stranger.  The records show that the step chain bearing for this escalator was changed twice by OTIS (for the first time on 12 August 2008, and then again on 4 November 2008: see OTIS’s letter to Citybase dated 29 October 2008 and 15 December 2008 respectively).  Chiu sought to explain the second replacement on the basis that the 2 bearings formed one set and when the motor bearing was replaced in November 2008 (an assertion which both experts disagreed ‑ both experts were of the view that the 2 bearings were quite independent), the step chain bearing should be replaced as well.  This explanation is plainly unacceptable, for it cannot possibly account for the fact that on 12 August 2008, only the step chain bearing was replaced.  It also does not answer the question as to why, if the problem was that of the noise and vibration in the upper landing, OTIS would choose to replace the step chain bearing first in August 2008 instead of replacing the motor bearing.

79. Miss Lau submitted that the fact that the step chain bearing for Escalator no. 5 of Phase I had been replaced twice by OTIS is irrelevant, as Citybase was only charging Kone for the costs of one set of the step chain bearing.  I think the submission missed the point.  What concerns this Court is whether there was any good reason for the replacement of the step chain and motor bearings.  The only reason suggested by Citybase and OTIS was that there were vibration and running noise in the upper landing.  If that is the reason it is legitimate to ask why OTIS had handled the replacement of the bearings in the way it did.  The way OTIS handled the replacement simply did not sit well with the very reason it gave for requiring the replacement in the first place.

80. In his Closing Submission, Mr Ng has annexed an Appendix B in which he set out, inter alia, the evidence of Chiu in some detail regarding the alleged defects.  I agree with Mr Ng’s summary and analysis of Chiu’s evidence and would not repeat the same in this Judgment.  Suffice to say that the evidence of Chiu in this connection is in my view highly unsatisfactory, and I have no hesitation in rejecting it.  I prefer the evidence of the Plaintiff’s witnesses.

81. I hold that Citybase has failed to prove the step chain bearings and motor bearings of the escalators in question was defective and required replacement.

Escalator Handrail (items 2.4, 3.3, 12.3)

82. Item 2.4 relates to the handrail of Escalator no. 3 of Phase I.  The handwritten list prepared by OTIS after the 2^nd Inspection did not include this item.  More importantly, as evidenced by the relevant logbook records, the handrail was only recently replaced in April 2007.  It is not disputed that the normal life span for an escalator handrail is about 6 to 7 years.  In these circumstances I hold that, on the balance of probabilities, the handrail of this escalator was not defective and required no replacement.

83. Item 3.3 relates to Escalator no. 4 of Phase I.  The only mention in the handwritten list of the 2nd Inspection was that there was vibration when the right handrail was in operation.  The presence of alleged vibration was denied by Mr Yuen Ka Hing in his evidence, whose evidence I believe.  That aside, there is no evidence before me to explain why the handrail would have to be entirely replaced merely because there was vibration.  In fact, the item was replaced twice ‑ for the first time on 9 October 2008 and again on 18 November 2008.  Chiu has not been able to give any satisfactory explanation for replacing the handrail twice.

84. I accept the evidence of Mr Law who, after examining the photographs of the replaced handrail, told me that the condition of the handrail was in his opinion acceptable, and no replacement should have been required.  I also accept Mr Law’s evidence that one cannot condemn a handrail simply by observation.  Replacement may not be necessary if adjustment could be made. One needs to conduct testing and adjustment before one can decide if a replacement is necessary.  There is no evidence to show that OTIS had ever conducted any testing or adjustment on the handrail before alleging that it should be replaced.

85. I hold that Citybase has not proved, on the balance of probabilities, that the handrail (for item 3.3) was defective and required replacement.

86. Item 12.3 relates to Escalator 11 of Phase II.  In the handwritten list compiled after the 2nd Inspection, there was merely a mention of powder coming out of the right handrail (a matter which was Mr Yuen Ka Hing disagreed).  Yet, strangely, the entire left handrail was replaced on 8 October 2008.  Chiu said in his evidence that he believed that one of the 2 handrails was not working properly but he could not remember which was the one.  This is not satisfactory.

87. I accept the evidence of Mr Law who, after examining the photographs of the replaced handrail, expressed the opinion that the condition of the handrail was acceptable, and no replacement should have been required.

The EB Coil (items 6.2, 10.3 and 13.3)

88. The alleged defect relates to the EB coil of Escalators 3, 9 and 12 of Phase II.  OTIS only raised this problem on the day of the takeover.  Yuen Ka Hing gave evidence, which I believe, that he attended to the matter after the problem was raised and carried out some adjustment work.  The problem was satisfactorily dealt with after he had made the adjustments.

89. According to OTIS, the EB coils in question could stop the escalators but not reset them.

90. As the evidence before me shows, there could be very many reasons why an EB Coil might not be working properly.  Screws may get loosened, a relay supplying electricity to it may not be working, even the gathering of dust may affect the proper functioning of an EB coil.  I accept Mr Law’s evidence that it is only where the internal coils had burnt out that a replacement is necessary.  Without conducting tests on the EB coil, it is impossible to determine if a replacement was required.

91. In my view, Citybase has failed to discharge its burden in showing that the EB coils in question were defective and required replacement.

Change of Circuitry (items 1.3, 2.1, 3.1, 4.2, 6.1, 7.1, 8.1, 9.1, 10.2, 12.1, 12.2)

92. These items all relate to a change of circuitry resulting from the Plaintiff replacing a relay called the K03 relay by K03.1 relay with a 4-diode bridge rectifier.

93. It is common ground between the parties that a change of circuitry is not a defect per se.  So long as the change of circuitry does not affect the safety and function of the equipment, there is nothing wrong with it.

94. At trial Mr Law explained to me clearly how the new K03.1 relay would serve the same function as that of the old K03 relay, and I accept his evidence.  Dr So disagreed with Mr Law principally because he took the view that the bridge rectifier (i.e. the 4 diode full wave rectifier) would not be able to produce a steady DC current, thereby rendering the new relay unstable in its function.  Mr Law referred me to 2 textbooks, namely the Practical Electronic Handbook and Electrical Circuits and Systems, to demonstrate to me how the bridge rectifier would work.  It is not necessary for me to recite the technical principles, based on Mr Law’s expert evidence, that govern the workings of the bridge rectifier.  Suffice for me to say that I am satisfied that Mr Law is correct and I would prefer his evidence to that of Dr So.  If anything, the facts speak for themselves.  After the takeover, OTIS continued to use the K03.1 relays for another 4 or 5 months before replacing them in October and November 2008.  There was no suggestion that during that period of 4 or 5 months, the K03.1 relays had not been functioning properly or that any problems in the operation of the escalators concerned had been caused by the use of the K03.1 relays.  Dr So’s suggestion that the bridge rectifiers would render the relays unstable is not borne out by any evidence.

95. There is also some disagreement between Dr So and Mr Law on the resetting function of the K03 relays.  Dr So pointed out that with the change to K03.1 relay, the original reset button could no longer reset the new relay. Mr Law did not disagree with Dr So on this, but took the view that this did not matter at all.  This is because resetting function was controlled by a complicated system that involved the Mobo II computer control panel and other relays and circuits (including the Star Delta Circuit and Fault Finder Circuit).  If for any reason an escalator is stopped, one could not simply reset the escalator using the reset button of the K03 relay.  The fault that brought about the stop would have to be cleared by maintenance personnel first, before the escalator can be restarted by resetting the Mobo II control panel. In other words, the system cannot be reset simply by pressing the reset button of the K03 relay, but can only be done through clearing the fault and resetting the control panel.  Again I accept Mr Law’s evidence in this regard.  I also accept his evidence, in preference to that of Dr So, to the effect that nothing in the Design Code required the K03.1 relay to have a resetting function.

96. Dr So told me that while a change of circuitry may be made, in his opinion the change of circuitry should be certified by the original equipment manufacturer.  Dr So has not been able to point to any regulations, Code of Practice, or any other authoritative source to support this opinion.  I find Dr So’s suggestion wholly unrealistic.  As Mr Law sensibly pointed out, no original manufacturer would be prepared to issue a certificate of this sort to enable its competitors to use other substitute relays.  What matters is whether the change of circuitry can perform the original function equally well.  There is no regulation or Code of Practice to require certification by the original equipment manufacturer.

97. Having considered all the evidence relevant to this matter, I am satisfied that the change of circuitry and the use of K03.1 relays was not a defect and there was no reason why the same should be “rectified” or replaced.

Emergency Stop Button (item 1.4) and Control Panel (item 2.2)

98. Item 1.4 relates to the emergency stop button on the control panel of Escalator no. 2 of Phase I.  The control panel is also called a key switch, and is located at the skirting at the upper/lower landing.  Item 2.2 relates to the control panel at Escalator no.3 of Phase I.

99. As pointed out by Mr Law, both the emergency stop button and the key switch are external control mechanisms that are actuated or operated by manual efforts (pressing the emergency stop button by hand stops the escalator and turning the key switch with a key starts the escalator).

100. The external control panel or key switch, and the emergency stop button are, in Mr Law’s opinion, not part of the “covered equipment” as set out in Clause 5(e) of Part B of the Contract.  As noted by Mr Law, insofar as that part of Clause 5(e) provides that “Controller, all Relays, Contacts, Coils .... and all other control equipment” (underline added) are covered equipment, all the components listed out in that part of Clause 5(e) are  all internal parts of the escalator, which came into operation after the escalator has been switched on.  None of these parts or components are actuated by manual effort. The key switch and the emergency stop button are hence very different in their nature and function, as being external control mechanisms that are operated manually and not as part of the internal system.  Accordingly it is Mr Law’s opinion that the key switch and the emergency stop button are not part of the covered equipment.  In particular, the words “and all other control equipment” do not include the key switch and the emergency stop button, as the general words must be construed to cover only control equipment of the same kind i.e. equipment of internal control.

101. I agree with Mr Law.  Although Mr Law did not use the Latin expression to express his opinion in this regard, what he said was simply that the ejusdem generis rule should apply in construing the words “and all other control equipment” in that part of Clause 5(e).  The ejusdem generis rule is a fundamental principle of construction, and I see no reason why the rule should not be applied in construing this part of Clause 5(e).

102. This being the case, the 2 items relate to parts and components that are not covered equipment under the Contract, and Kone was not responsible for their replacement even if they were defective at the time of takeover.

103. In any event, I am not satisfied that the key switch in question was defective at the time of takeover, or that it required any replacement.  Chiu agreed during cross-examination that the problem with the key switch was merely that it had loosened, and the problem would not affect the safe operation of the escalator.  This being the case, the key switch was not defective at all.

Deflector devices and Rubber Strip (items 2.3, 3.2, 4.1, 7.3, 10.1, 11.3 and 9.3)

104. These deflector devices and rubber strip are not part of the covered equipment as set out in Clause 5(e), and Kone was not responsible for the replacement or repair of the same, whether or not they were defective.

Handrail entrance cover plate (items 4.5, 6.3, 9.2, 10.4 and 19.1)

105. These handrail entrance cover plates are similarly not included as part of the cover equipment set out in Clause 5(e) of Part B of the Contract. Whether or not they were defective, Kone was not responsible for their replacement or repair.

CCTV monitor (item 14.1)

106. Item 14.1 relates to the CCTV monitor in Lift no. 2 of Phase II. It is not part of the covered equipment.

107. Clause 32(c) of Part A of the Contract provided that “the [Plaintiff] is required to supervise any installation and/or maintenance of CCTV system in lifts which is carried out by Security Contractor”.  Hence it is clear that the maintenance of CCTV in lifts is the responsibility of Citybase’s Security Contractor, not Kone.  Kone is only responsible for supervision, not the maintenance itself.

Kone’s Responsibility

108. It follows from the above that, even if I am wrong on my view regarding the requirement of “technical supporting and assurance” under Clause 31of Parts A and B of the Contract, I would still hold, in any event, that Kone was not responsible for any of the alleged items of defects except for those that have been admitted by it.

109. To the extent of the admitted items only, Kone has committed “malpractice of comprehensive maintenance” within the meaning of Clause 30 of Parts A and B of the Contract.

DID CITYBASE SUFFER ANY LOSS?

110. Citybase has suffered loss to the extent ‑ and to the extent only ‑ for having to incur costs and expenses to rectify/replace the items of defects admitted by Kone.  As Kone had failed to rectify the admitted items, Citybase was entitled to engage OTIS to carry out the rectification/replacement works on those items and had suffered loss as a result.

WAS CITYBASE ENTITLED TO REQUEST PAYMENT FROM SCB?

111. It follows from the above that as Citybase had only suffered loss in respect of the admitted items, it was only entitled to draw on the bank guarantee provided by Kone pursuant to Clause 30 of Parts A and B of the Contract (i.e. the Performance Bond) to settle any claim for loss suffered by it in respect of those items.

112. However, Clause 30 also provides, inter alia, as follows:

“.... If there shall be issues that cannot be agreed before expiry of the Contract, then [Citybase] shall have the right to deduct from the bank guarantee the sum in disputes.”

113. Plainly, before the expiry of the Contract, the parties were in dispute as to whether Kone was responsible for rectifying the alleged items of defects.  The parties had not reached agreement on the items purportedly set out in the handwritten defects lists and the typed-up defects lists, and there were clearly issues as to whether Kone was guilty of any “malpractice” within the meaning of Clause 30.  Accordingly, by virtue of the express provision under Clause 30, Citybase was entitled to request “the sum in disputes”, being the sum of $771,400, be “deducted” from the bank guarantee.

114. That Citybase was entitled to deduct from the bank guarantee “the sum in disputes” does not mean that Kone is not entitled to recover from Citybase, upon resolution of the disputes (either by agreement or if necessary, by the Court), any amount that might have been over-deducted by it.  I think that this is plain from Clause 30, as Citybase’s right of deduction under the last part of Clause 30 is confined to “the sum in disputes”.  The right is clearly only an interim right pending the resolution of the disputes between the parties. If, upon resolution of the disputes, it is found that either Kone had not committed any malpractice, or that Citybase had not suffered the loss alleged by it, Citybase is clearly liable to return any amount that has been over-deducted by it in the interim.  If it were otherwise, Clause 30 would become an instrument of oppression in that Citybase could avail itself the right to deduct any amount it wished (by simply disputing or not agreeing with Kone on any issue or issues) from the bank guarantee without having to account to Kone for any over‑deduction even if the disputes are ultimately resolved against it.  I do not think that this could be the intention of the parties when they made the Contract.

115. However, Miss Lau, relying on the terms of the Performance Bond, contended otherwise.  She submitted that as the Performance Bond in this case was a conditional bond, Kone was not entitled to require Citybase to account to it for any overpayment obtained by Citybase under the bond.

116. In deference to the submissions of Miss Lau, I now turn to consider the terms of the Performance Bond.

THE PERFORMANCE BOND

117. The Performance Bond dated 22 July 2006 provided, after referring to the Contract made between the parties, as follows:

“NOW THE CONDITION of this Bond is such that if the [Plaintiff] shall duly perform and observe all the terms, provisions, conditions and stipulations of the Contract on the [Plaintiff’s] part to be performed and observed according to the true purport intent and meaning thereof or if on default by the [Plaintiff] the Surety [i.e. SCB] shall financially satisfy and discharge the damages sustained by [Citybase] thereby up to the amount of the above-written Bond then this obligation shall be null and void but otherwise shall be and remain in full force and effect...”

118. I readily accept that the Performance Bond, in these terms, is a conditional bond.  In terms, the bond is not a “single” or “on demand” bond (under which payment is made simply upon the presentation of a demand, without any other conditions).

119. The Performance Bond was couched in archaic language, and it is indeed surprising that bonds couched in such language are still being used in 21st century Hong Kong.  In Tins’ Industrial Co. Ltd v Kono Industrial Ltd [1998] 2 HKLR 36, at 42, the Court of Appeal was also dealing with a performance bond also couched in such language.  Hunter JA cited the words of Duncan Wallace QC  in his book on Construction Contracts as follows:

“why insurance of credit or contracts, if insurance is intended, or guarantees of the same if guarantees are intended, should not be expressed in appropriated language, passes comprehension.”

120. Be that as it may, it is clear that the bond in this case is a conditional bond.  Payment under the bond is conditional upon “default” by the Plaintiff and “damages sustained” by Citybase.

121. Precisely because the Performance Bond is conditional, the underlying contract is relevant and the Performance Bond, which made express reference to the Contract, must be read together with the underlying contract.  As pointed out by the Court of Appeal in the Kono case, supra, the underlying contract is relevant to a conditional performance bond, as liability under such a bond is only in the nature of “secondary liability”: see Kono, at p.42A-D and 43A-B.

122. As the underlying contract is relevant to liability under the Performance Bond, SCB could not, when presented with a claim by Citybase under the bond, ignore the provisions of Clause 30 in Parts A and B of the Contract. That clause, as it may be recalled, expressly provided that where there were issues that could not be agreed before the expiry of the Contract, Citybase would have the right to deduct from the bank guarantee the sum in disputes.

123. In my judgment, the conditions of the Performance Bond can only be understood and construed against the terms of the underlying contract.  By virtue of Clause 30 of the Contract, SCB was bound to recognise Citybase’s right to deduct any sum in dispute from the Performance Bond.  Once it is shown to SCB that there is a sum in dispute between Kone and Citybase within the meaning of Clause 30, SCB could not refuse Citybase’s claim to draw on the Performance Bond the sum in dispute.

124. Test it this way: given Clause 30 of the Contract and the disputes between Kone and Citybase regarding the alleged items of defects and Citybase alleged loss, would it be have been possible for Kone to obtain an injunction to restrain SCB from making payment on the ground that default on its part had not yet been established?  The answer must clearly be negative.

125. Hence, in my judgment, although the Performance Bond is a conditional one, when the bond is read and construed together with the underlying contract, the only condition for payment, in effect, is the mere existence of unagreed issues between Citybase and Kone that have given rise to a “sum in dispute”. This still would not make the Performance Bond an unconditional one, but one very close to it.  The condition is easy to satisfy ‑ nothing more is required other than the existence of some unresolved issues between Kone and Citybase that give rise to a “sum in dispute”.

126. As I pointed out earlier, it is clear that insofar as Clause 30 gives Citybase a right to obtain payment of any sum in dispute, such a right can only be a right in the interim pending resolution of the dispute.  In the absence of some clear words in the Contract to a different effect, it must be intended that after the dispute has been resolved, there should be an accounting between the parties.

127. In taking this view, I draw support from the judgment of Potter LJ in Comdel Commodities Ltd v Siporex Trade SA [1997] Lloyd’s Report 424.  At p431, the learned judge said as follows:

“The law in this respect has recently been the subject of an illuminating decision of Mr Justice Morison, in Cargill International SA v Bangladesh Sugar and Food Industries Corporation, [1996] 2 Lloyd’s Rep 524 in which the authorities are reviewed, most notably decisions in two Australian cases and dicta of Lord Denning MR in State Trade Corporation of India Ltd v E.D, & F Man (sugar) Ltd., July 17, 1981, transcript.

These authorities are to the effect that it is implicit in the nature of performance bond that, in the absence of some clear words to a different effect, when the bond is called, there will at some stage in the future be an “accounting” between the parties to the contract of sale in the sense that their rights and obligations will finally be determined at performance; it is not to be treated as representing a pre-estimate of the amount of damages to which the beneficiary may be entitled in respect of the breach of contract giving rise to the right to call for payment under the bond. If the amount of the bond is not enough to satisfy the seller’s claim for damages, the buyer is liable to the seller for damages in excess of the amount of the bond. On the other hand, if the amount of the bond is more than enough to satisfy the seller’s claim for damages, the buyer can recover from the seller the amount of the bond which exceeds the seller’s damages.

It does not appear that there is anything in the words of the contracts of sale in this case to exclude the implication that there would at some stage be an “accounting” between the parties in the sense that their rights and obligations would be finally determined at some future time.”

128. The judgment of Morison J in Cargill SA v Bangladesh Sugar and Food Industries Corporation in fact went subsequently to the Court of Appeal (see, [1998] 1 WLR 461), but the reasoning of the judge in this respect was not challenged on appeal.  The Court of Appeal, however, described Morison J’s reasoning as having been “subject to the approving comment by” the Court of Appeal in the Comdel case (at p.465).

129. Miss Lau sought to distinguish the Cargill case on the ground that, unlike the present case, the Cargill case concerned an unconditional bond and Morison J’s reasoning must be confined to cases of unconditional bonds.  I do not accept that this is a proper ground for distinguishing Cargill, for as I pointed out above, although the Performance Bond in the present case is conditional, it is in truth and effect a bond which is very close to an unconditional bond.  The effect of Clause 30 in Parts A and B of the Contract is that Citybase would be able to obtain payment under the Performance Bond by simply showing that there is a sum in dispute.

130. There is nothing in the Contract in this case to exclude the implication that Potter LJ alluded to, namely that there would be an “accounting” between the parties when the dispute between them is resolved and their rights and obligations finally determined.

131. The authorities have not clearly identified the legal basis for the “accounting” exercise referred to by Potter LJ.  Speaking on my part I have no difficulty in that regard.  I think the accounting is best rested upon basic restitutionary principles.  A party who has obtained an overpayment pending resolution of his dispute with another party is plainly liable to reimburse the same under well-settled principles of restitution and unjust enrichment.

132. As regards Miss Lau’s complaint based on the pleading, I am afraid that I have little sympathy for it.  There is no need for the Plaintiff to plead law.  Paragraph 9H of the Re-amended Reply and Defence to Counterclaim of the Plaintiff expressly pleaded that “the Defendant should make repayment of the sum paid under the bank guarantee or any part thereof if it were proved subsequently that the sum paid to it under the bank guarantee or any part thereof was not loss suffered by the Defendant due to the Plaintiff’s malpractice of comprehensive maintenance included in the Contract.”.  This makes it quite clear that Kone is seeking to recover from Citybase any overpayment that it has obtained under the Performance Bond.

QUANTUM

The Admitted Items

133. As pointed out above, by a letter dated 19 August 2008, IPC wrote to Citybase to inform it that the following items are “agreed by [Kone] to be outstanding works to be rectified”:

“1.1, 1.2, 4.6, 5.1, 7.2, 15.1, 16.1, 16.2, 17.1 and 18.1” (collectively as “the Admitted Items”)

134. It appears that Kone would like, in respect of some of these admitted items, retract their admission.  At trial, certain evidence was led by the Plaintiff in respect of some of the items (including, for example, the combplate at Escalator 5 of Phase I (item 4.6), the escalator step at Escalator no. 4 for Phase II (item 7.2), and the DBC Relay for lift no. 13 of Phase II (item 17.1)) to show that the same were not in fact defective or required rectification.  Mr Ng in his Closing Submission has also referred to these items and has argued that some of them were not defects.  For example, he referred to the combplate at Escalator no. 5 of Phase I and submitted that a combplate with one broken tooth was acceptable to EMSD: see Annex 2 to EMSD Circular no. 11/2001.  He also made other submissions in relation to other items (particularly in relation to the DBC Relay), which I do not need to recite.  I do not think that it is permissible for Kone, having expressly admitted through its solicitors that the Admitted Items were “outstanding works to be rectified”, to seek to retract from that admission to argue at trial that the items concerned were not defective after all.  When Citybase authorized OTIS to carry out the rectification/replacement work, clearly Citybase was entitled to take into account the fact that the Admitted Items were not disputed by Kone as defective.  It is plainly too late for Kone now to withdraw its admission.

135. I would, for the sake of completeness, mention specifically item 15.1. The undisputed evidence is that lift no. 4 of Phase II could not stop at the B1 and B2 floors, and hence there was no arrival lamp on these 2 floors.  This prompted Mr Ng to argue that despite IPC’s express admission, it could not be possible for there be a defect in the arrival lamps at B1/F and B2/F for this particular lift.  This may well be so, but as explained by Chiu, the reference to B1/F and B2/F was merely an error made by the frontline worker after they carried out the relevant rectification work on the arrival lamps at the Ground and 1st floors.  I accept Chiu’s explanation in this regard.

136. As regards the prices charged by OTIS for the rectification works carried out in respect of the Admitted Items, evidence was given by Chan Kam Chuen that he had obtained two quotes for certain lift and escalator parts, which show that the prices for the parts were much lower than those charged by OTIS.  Relying on the evidence of Chan Kam Chuen, Mr Ng suggested that the prices charged by OTIS had been grossly inflated and he invited me to reject OTIS charges as unreasonable.

137. I do not accept Mr Ng’s submission.  I do not think that in making this submission, Mr Ng is “comparing apple with apple”, so to speak.  The parts mentioned in Mr Chan’s quotes were not OTIS parts, but parts manufactured by other third-party factories, and it is not clear from the evidence how the quality of these parts stand up against original OTIS parts.  I am not making any finding on the quality of these non-OTIS parts, nor am I finding them to be sub-standard or of inferior quality when compared to the OTIS parts.  I simply do not have sufficient evidence to make any such findings.  What I do find, however, is that Kone had failed to rectify the Admitted Items despite the admission of its solicitors that they were “outstanding works to be rectified”. I have already held above that the contemporaneous correspondence and documents do not show that Kone had made any earnest attempt to make arrangement with Citybase to carry out the necessary rectification, and I am not satisfied, as Mr Ng sought to contend, that the evidence showed that the reason why Kone had not carried out the rectification work was due to the refusal by Citybase/OTIS to allow them to enter the site to carry out the works.  Kone having failed to carry out the rectification works, I do not think that it can complain that Citybase’s contractor, OTIS, used OTIS parts for the rectification works.  I see no reason why OTIS should not use original OTIS parts to carry out the rectifications works.  There is no evidence that the prices for the OTIS parts had been inflated in any way.

138. For the above reasons, I reject Mr Ng’s submission that the prices charged by OTIS were inflated or were grossly unreasonable.  I hold that Citybase was entitled to claim loss against Kone in respect of the Admitted Items, and its loss was represented by the corresponding amounts that it paid to OTIS for carrying out the rectification works.

139. The amounts charged by OTIS for the Admitted Items are as follows:

Item	Amount ($)
1.1	1,200
1.2	1,200
4.6	900
5.1	76,800
7.2	18,800
15.1	5,100
16.1	3,000
16.2	5,100
17.1	3,520
18.1	1,520
Total	117,140

140. As Citybase has obtained payment of a total sum of $771,400 under the Performance Bond, it is liable to repay to Kone the net amount of $654,260 ($771,400 - 117,140 = $654,260).

INTEREST

141. As regards interest, I agree with Miss Lau that interest should only run from the time when the fact that there has been an overpayment to Citybase is established by judgment or agreement: see Tradigrain SA. v State Trading Coporation of India [2006] 1 Lloyd’s Rep 216, 221 and Andrews and Millett on the Laws of Guarantee, 5^th edition, para. 16-035.

ORDER

142. I would order that judgment be entered against the Defendant by the Plaintiff in the sum of $654,260, with interest thereon at judgment rate from the date of this Judgment until payment.

143. As regards costs, I bear in mind that the net result of my judgment is that the Plaintiff is able to recover about 85% of its claim.  To this extent, the Plaintiff has been partly successful in this Action.  Some time has been spent on evidence relating to the Admitted Items, and as pointed out above, Mr Ng has argued that some of the Admitted Items were not in fact defective, and I have given my reason for rejecting it.  No separate time has been spent on the Counterclaim.  Exercising my discretion in all the circumstances of the case, I would make a Costs Order nisi that the Defendant pays 85% of the Plaintiff’s costs in this action.

144. The amount claimed by the Plaintiff in this action is within the jurisdiction of the District Court.  No satisfactory explanation has been given to me as to why the Plaintiff would commence this action in the High Court.  I order that all costs payable be taxed on the District Court scale, if not agreed.

145. I cannot leave this Judgment without thanking Counsel.  Both have obviously spent a substantial amount of time in the preparation of the case, and I have derived much assistance from their helpful submissions.