CAPELLA LTD v. ABILITY R&D LTD

CACV 142/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 142 OF 2014

(ON APPEAL FROM DCCJ NO 4509 OF 2011)

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J U D G M E N T
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Hon Poon J (giving the Judgment of the Court) :

INTRODUCTION

1. In September 2010, the defendant, Ability R&D Limited (“Ability”), engaged the plaintiff, Capella Limited (“Capella”), to carry out renovation works at its registered office.  Disputes subsequently arose, which eventually resulted in litigation.

2. In the proceedings below, Capella sued Ability for outstanding balances for the works it performed under 4 quotations and an additional invoice in the total sum of HK$473,785.00.  Ability denied the claims and counterclaimed for the costs for remedying and rectifying Capella’s defective works and liquidated damages for delay in completion of the works.

3. After trial[1], Deputy District Judge D Ho (“the Judge”) found for Capella on its claims in full.  He allowed part of Ability’s counterclaim on the remedial costs for defective workmanship in the sum of HK$242,694.85 but dismissed its counterclaim for liquidated damages based on delay in completion.  The final order that he made was :

(1) The sum to be awarded to [Capella] in the claim is $473,785.00 and the sum for [Ability] in the counterclaim is $242,694.85.

(2) there be judgment in favour of [Capella] in the net sum of $231,090.15, after taking into account of the sum of $242,694.85 awarded to [Ability] in respect of the counterclaim; and

(3) [Ability] to pay [Capella] 70% of the costs of the action, to be taxed if not agreed with a certificate for one counsel.

4. Ability’s subsequent application for leave to appeal was dismissed by the learned Judge on 8 April 2014.  Ability then sought leave from the Court of Appeal, which was granted by Yeung VP on 8 July 2014.

BACKGROUND

5. The background has been helpfully summarized by the Judge in his judgment[2], which we would gratefully adopt without repeating it here.

4 ITEMS UNDER APPEAL

6. This appeal has a very limited scope.  What Ability sought to challenge is confined to 4 specific items of its counterclaim which the Judge dismissed.  Ability contended that the Judge ought to have entered judgment on them instead.  The 4 items are :

(1) Cost of replacing the glass sliding door at the entrance of the premises in the sum of HK$40,250.00 (“Item 1”);

(2) Cost of rectifying the uneven staircases inside the premises in the sum of HK$51,750.00 (“Item 2”);

(3) Cost of replacing the signage, cladding and roller shutter with the correct type of stainless steel in the sum of HK$143,750.00 (“Item 3”); and

(4) Liquidated damages for delay in completion in the sum of HK$464,309.00 (“Item 4”).

7. Ability thus argued that the total sum awarded under its counterclaim should have been HK$468,968.85 ($242,694.85 + $40,250.00 + $51,750.00 + $143,750.00 + $464,309.00 – $473,785.00 (judgment sum awarded to Capella)) instead of HK$242,694.85.

8. On that basis, Ability further sought an order that its costs below be borne by Capella.

9. We will deal with the 4 items in turn.

ITEM 1

10. The glass door was installed at the main entrance to the premises.  It measured 6m (width) x 2.7m (height) with a thickness of 12mm.  It was made of tampered glass.  It was a frameless glass door hung up by an upper hinge facing a public road.  The experts engaged by the parties agreed that the gap between the glass door and the wall finishes was too wide; that the gap at the bottom of the glass door was too large and that the gap between the fixed glass panel and the door was too wide.  The experts also agreed that the glass door would vibrate when heavyweight vehicles passed by; and that it would easily move at the free edge with a minor finger push.

11. Ability complained that the workmanship of the glass door was defective and posed a safety problem to passers-by.

12. The Judge said :

“ 81. While Mr Leung’s[3] worry about the glass sliding door is understandable, the fact is that Ability did approve the design of the frameless glass door and is not alleging any breach of contract.  Having adopted the frameless design with an unavoidable gap at the bottom (which the experts did not say is too wide), Ability would have to live with both the pros and the cons of the same, including the associated safety concern of a large glass door facing a public road.  After hearing from Mr Ho[4], I am not satisfied that there is any structural problem with the glass sliding door which appears to have been in use for a few years by now.  While there may be room for improvement to make it more secured than the original design, I see no room for holding Capella liable for the costs of such improvement.

82. The main complaint of Ability is with the vibration of the glass door under item 55.  In the 2^nd joint report, Mr Ho did not elaborate on the complaints listed out under items 56 to 59, namely, the gap between the sliding door and the wall finishes, the gap at the bottom of the sliding door, the quality of the plastic floor guide, the gap between the fixed glass panel and the sliding door or the workmanship of the sealant applied to the surrounding of the glass panel, probably due to the fact that these less serious problems would go away if the glass door is replaced.  Without any expert opinion on these collateral issues, however, there is simply no basis for this court to say whether these are contractual breaches or problems with workmanship for which Capella should be held liable.”

13. In our view, in dismissing Ability’s complaint, the Judge had placed too much emphasis on the absence of structural problem with the glass sliding door.  Ms Yang for Ability also made the same mistake by stressing that there was no structural problem.  They were wrong in so doing because the absence of such structural problem does not necessarily mean that Capella’s workmanship was not defective.  According to what the experts had agreed, and absent any evidence to contradict or diminish their evidence, an inescapable finding must be that Capella’s workmanship was in fact defective as Ability alleged.

14. The Judge also erred when he found that having adopted the frameless design with an unavoidable gap at the bottom, Ability would have to live with both the pros and cons of the same, including the associated safety concern of a large glass door facing a public road.  It is because under the relevant quotation for the work[5], Capella was responsible for the design, supply and installation of the sliding glass door.  Plainly, Ability was relying on Capella’s expertise in designing, supplying and installing a glass sliding door which would not pose a danger to the passers-by, a duty which Capella had breached.

15. The Judge therefore erred in dismissing Item 1.

ITEM 2

16. There were 3 staircases in the premises.  The Judge proceeded on the basis that all the staircases were not constructed by Capella.  Mr Yau told us that in fact one of the staircases was constructed by Capella.  This is however a new point not covered by the Notice of Appeal at all.  That being the case, we will not allow Mr Yau to argue Item 2 on any factual basis other than the one adopted by the Judge.

17. The Judge dealt with Ability’s complaints about the staircase in these terms :

“ 114.  There is more than one staircase in the Premises on which Capella had laid timber coverings, the other two being items 185 and 187 in Section 7 of the 2^nd joint report.  In his witness statement, Mr Leung admitted that the structure of staircase (without specifying which) was not constructed by Capella but averred that since the Quotations included project management, Capella should have alerted Ability to the problems before laying the steps with timber treads and risers.  He said one of his staff and he himself had tripped over the stairs.

115.  At trial, with reference to the two staircases in items 185 and 187, Mr Ho said irregular tread widths and riser heights would cause danger to users and should therefore be replaced.  He said unevenness of (the bare shell of) steps would normally be fixed by adding inserts to wood panels to even out the steps.  The same comment presumably applies also to item 104 albeit not repeated thereunder.

116.  In this connection, my attention was drawn to a design manual published by the Buildings Department in 2008 which contains a ‘Best Practice Section’ which recommends that all steps should be uniform.  It is not immediately clear if the said manual applies to the staircases in question.  In any event, there appears to be no statutory requirement for steps in a staircase to be made uniform.  

117.  The difficulty with Ability’s complaints about the staircases lies in the fact that the structure of the staircases was not built by Capella who was not contractually required to make good any defects of the structure.  In my view, any defects of the structure should be made good by the actual builder and not Capella unless the latter was specifically engaged to make good such defects by evening out the steps with timber treads or risers.  Mr Leung said Capella was obliged to alert Ability to the problems as part of its project management duty.  If making steps uniform is no more than a best practice, I am not prepared to imply any duty on Capella’s part to alert Ability to problems with another contractor’s product, whether in the form of project management duty or otherwise.

118.  Ability’s claim in respect of this item as well as items 185 and 187 is not made out.”

18. Mr Yau argued, as did his predecessors before the Judge, that Capella had an implied duty to coordinate the renovation works and arising from that duty, a further implied duty to inform Ability of the existence of the uneven staircases.  In support of his argument, Mr Yau relied on the terms of the contract :

“ Our offer covers design, supply, project management, installation as listed on quotation in Hong Kong Dollars.” (Emphasis supplied)

However, Mr Yau’s reliance on that term is completely misplaced.

19. Properly read, the term only applied to works listed in Capella’s quotation and no more.  In other words, Capella was only responsible to project-manage the works that it had contracted to provide.  It had no duty to project-manage the works provided by other contractors engaged by Ability or to coordinate their works.  Without a proper basis, no implied duty to inform as alleged by Ability could possibly arise.

20. The Judge was correct in dismissing Item 2.

ITEM 3

21. Item 3 concerned the grade of stainless steel used for the roller shutter to be supplied by Capella.  It is not in dispute that the plates were not made of Grade 316 stainless steel.  Ability complained that under the relevant quotation[6], the entire roller shutter including the plates were to be made of Grade 316 stainless steel.  The veracity of Ability’s complaint depends on a proper construction of the relevant terms in the quotation.

22. Those terms read :

“ 註：

1. 招牌，鋼閘外框均用 #316不銹鋼。(‘Remark 1’)

2. 入牆所有螺絲必須為不銹鋼爆炸螺絲。

3. 鋼閘片與片之間之不銹鋼支均用 #316材質。”

23. Mr Yau argued that on a proper reading of Remark 1, the entire roller shutter should be made of Grade 316 stainless steel.  He said in effect that between “鋼閘” and “外框” there should be a comma so that “鋼閘外框”, one single item of the outer frame of the roller shutter should become two items, “鋼閘” and “外框”.  Such a construction is plainly wrong and must be firmly rejected.

24. Mr Yau prayed in aid of the undisputed fact that when Capella supplied the first roller shutter in January 2011, it was made of Grade 316 stainless steel entirely.  However, it is well-established that the parties’ post-contract conduct had no bearing on its construction.

25. Mr Yau also drew our attention to a letter sent by Mr Leung to Capella dated 30 March 2011 in which Mr Leung raised several questions about the roller shutter to be supplied by Capella.  Mr Yau argued that according to what Mr Leung had raised, his understanding was that the entire roller shutter must be made of Grade 319 stainless steel.  We doubt if Mr Leung’s own understanding of what the contract meant has any significant in construction.  In any event, what Mr Leung had said was :

“合同內要求外框為不銹鋼材質…”

Mr Leung was only referring to the outer frame of the roller shutter, which is exactly what Remark 1 had provided for.  What he said does not support Mr Yau’s argument.

26. The Judge was correct in dismissing Item 3.

ITEM 4

27. 3 of the 4 quotations had different completion dates.  The 4^th quotation did not state any completion date. The 4 quotations all provided that :

“ There will be a penalty of 1% of total sum due per working day if [Capella] post-pones the delivery dates without mutual consent.”

28. In the Amended Defence and Amended Counterclaim, the claim for delay in completion is pleaded in these terms :

“ 77. In addition, the Plaintiff specifically said in its various quotations including quotation no 20100021b that the liquidated damages is 1% per day and the date of completion is in 50 working days from the date of commencement which is 6^th October 2010, alternatively not later than 3^rd December 2010. Similarly, the same liquidated damages clause is provided in quotations 20100021b3 and 20100021Q3c.

78. In breach of the said term, the Plaintiff failed and continues fail to complete the said works on 3^rd December 2010 or within 50 working days from 6^th October 2010.  The works had not been completed as of today.”

29. Capella’s case was that completion took place on 20 January 2011 when Ability signed the document “Completion Key Delivery”. What Capella’s staff and sub-contractors did subsequently were mere touch-up or additional works.

30. The Judge dealt with Item 4 in §§24 to 52 of his judgment.  After analyzing the evidence of Mr Leung and Mr Caleb Chan of Capella (“Mr Chan”), the Judge said :

“ 43. In my view, Ability’s case on delay is totally misconceived.

44. For one thing, completion of individual items of works under the Project would naturally take place at different times in the run-up to completion of the entire project.  In asserting Capella’s failure to complete, Ability has never been able to state with any degree of precision as to how exactly Capella had failed to complete the Project.

45. It should be remembered that the relevant liquidated damages clause would apply only ‘if Capella Ltd Post-pones the delivery dates without mutual consent’.  The condition for the liquidated damages clause to apply appears to have escaped Ability’s attention as it’s claim for liquidated damages is built entirely on non-completion of renovation works as if delay per se would automatically give rise to liquidated damages.  This must be wrong.

…

47. From the undisputed background facts, one can readily conclude that progress of the renovation works undertaken by Capella was never smooth by reason of factors beyond its control.  The bursting of fire prevention pipes only made the matter worse and put Capella’s works on hold for a few weeks.  Ability did not (and could not) deny knowledge of the causes of delay or otherwise argue that the delay was not beyond Capella’s control.  Indeed, there is no evidence of Ability having ever complained to or otherwise held Capella liable for postponement of the completion dates set out in the Quotations.  On his own admission, Mr Leung had agreed to a postponement of completion of the renovation works and his reference to the date of 26 January 2011 mentioned in Capella’s email of 13 December 2010 could mean nothing other than his or Ability’s agreement, tacit or otherwise, to a postponement of completion to that date.

48. I am satisfied that the postponement of completion of Capella’s renovation works was with Ability’s consent, there being no requirement under the Quotations for such consent to be in writing.

49. In my view, the defence case is built on Ability’s (or rather, Mr Leung’s) failure or refusal to recognize the difference between completion of renovation works and performance of touch-up works after completion.  Mr Leung considered there could be no completion unless and until all outstanding defects were rectified to his satisfaction (but he did not deny having requested additional/improvement works on top of remedial works after January 2011 as averred to by [Mr Chan]).  This must be wrong.

50.   When the Completion Key Delivery was signed by either Eppwin or Mrs Leung, Mr Leung was not present.  As neither Eppwin nor Mrs Leung was called to testify, Ability could offer nothing to refute [Mr Chan’s] evidence that most if not all of the defects subsequently identified by Ability were not identified by Eppwin and Mrs Leung during the 45 minute examination of the work done by Capella before signing the Completion Key Delivery, which could signify nothing but acceptance by Ability of the renovation works, subject of course to any requirement for touching up during the one-year warranty period.

51. In the circumstances, this court can come to no finding other than that the delay in completion of the renovation works was with Ability’s consent and that completion took place upon Ability signing the Completion Key Delivery.  There is therefore no question of the liquidated damages clause ever coming into play….”

31. Before us, Mr Yau accepted that irrespective of the different completion dates stipulated in the quotations, the parties had by conduct extended the completion date to 26 January 2011.  However, he argued that completion did not take place on 20 January 2011 as found by the Judge. He placed reliance on the letter sent by Mr Leung to Capella on 19 January 2011 where he complained, among other things, about the roller shutter and the fact that the first roller shutter was only replaced in March 2011.  He argued that the roller shutter was a blatant defect, far from being trivial.  The replacement could not be regarded as touch–up work.

32. It is well-established that in the context of building work, completion means practical or substantial completion.  It means that the work has reached a stage of readiness for use by the owner and free from any known omission or defects which are not merely trivial.  Plainly, that was how the Judge approached Ability’s complaint in the present case.  The Judge had taken into account all the relevant circumstances and carefully analyzed Mr Leung’s and Mr Chan’s evidence in making his finding that completion took place on 20 January 2011.  We agree with his analysis.  In our view, the Judge was entitled to make that finding on the evidence available to him.  We are not persuaded that such a finding was plainly wrong.  We see no basis to disturb it.

DISPOSITIONS

33. For the above reasons, we allow Ability’s appeal to the limited extent that Ability’s counterclaim on Item 1 be allowed.  We therefore revise (a) the total sum awarded under the counterclaim to HK$282,944.85 (HK$242,694.85 + HK$40,250.00 = HK$282,944.85) and (b) the net judgment sum awarded to Capella to HK$190,840.15 (HK$231,090.15 – HK$40,250.00 = HK$190,840.15). We dismiss the remainder of the appeal.

34. On the costs below, we do not think the decision that we made on Item 1 would have any substantial bearing on the apportionment of the costs made by Judge.  Accordingly, we do not disturb his costs order.

35. On the costs of the appeal, since Capella has been substantially successful in resisting the appeal, it should have 75% of its costs of both the appeal and the leave application for leave against Ability.  We so order.