ACCURATE CONTRACTORS & RENOVATORS CO v. THE INCORPORATED OWNERS OF BEVERLEY HEIGHTS

CACV 280/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 280 OF 2012

(ON APPEAL FROM HCA 2482/2006)

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REASONS FOR JUDGMENT

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Hon Cheung JA:

1.  I agree with the Reasons for Judgment of Au-Yeung J.

Hon Yuen JA:

2.  I agree with the Reasons for Judgment of Au-Yeung J.

Hon Au-Yeung J:

3.  This is an appeal by the plaintiff against To J’s judgment dismissing its claim in part for a sum outstanding for building renovation works under what was known as “Item 17” of the renovation contract.  At the conclusion of this hearing, we dismissed the appeal with costs.  Here are the reasons.

The background

4.  The facts as found by trial judge that are relevant to this appeal are as follows.  The plaintiff was a registered general building contractor who had done renovation works for the defendant (“the Incorporated Owners”) in respect of a building known as Beverley Heights.  There are 48 units in that building. The appellant has done common works under Item 17 of the contract which it said amounted to $722,800.  It applied to the Architect for payment of $417,580 under Item 17 (“the appellant’s application”) and the Incorporated Owners had paid the same.  In the Statement of Claim, the appellant claimed for, amongst others, the balance amount of $355,220[1] for Item 17 works.

5.  To J found that the final quotation accepted by the Incorporated Owners for Item 17 (“the final quotation”) consisted of 3 tables which clearly identified the common works items and the private works items.  The parts concerning common works were as follows:

Item number		Number of units	Unit rate 單價(HK$)	Total rate 總價(HK$)
17.1A0	for removal and installation of sanitary fittings, and fitting of pipes in the bathroom of the master bedroom (bathtub)	48	6,000	288,000
17.1B0	for rendering of the floor in the same bathroom	48	2,100	100,800
17.2A0	for removal and installation of sanitary fittings, and fitting of pipes in the bathroom of the master bedroom (shower stand)	48	6,000	288,000
17.2B0	for rendering of the floor in the same bathroom	48	2,100	100,800
17.3A0	for removal and installation of sanitary fittings, and fitting of pipes in the kitchen and servant’s bathroom	48	2,000	96,000
17.3B0	for rendering of the floor of the kitchen and servant’sbathroom	48	6,000	288,000

6.  Subsequently, the parties agreed that the unit owners were only allowed to opt for Item 17.3 plus either Item 17.1 or 17.2. Thus the total price for Item 17 was $772,800.  These were common works items to be paid by the Incorporated Owners. The private works items were to be paid by individual unit owners who were free to engage the plaintiff or their own contractors (paragraph 14 of To J’s judgment).

7.  The cost of sanitary fittings, such as bath tubs and basins, would be provided by the individual unit owners.

8.  To J then found as follows:

“26.  The renovation of the bathroom was work inside the unit. It consisted of common works and private works. It is understandable that individual owners may have their own preference as to the choice of the sanitary fittings, tiles, accessories, layout design and even workmanship. Some of those fittings and accessories might be very expensive. That was why it was first agreed that the cost of the sanitary fittings be excluded from the quotation and the plaintiff would only charge for removal of the old sanitary fittings and installing new ones. It is not disputed that later some owners even wanted to have the new sanitary fittings installed by their own contractors at their own cost instead of by the plaintiff at the Incorporated Owners’ cost. This was the complication I referred to in paragraph 17 which subsequently surfaced. Those owners found it convenient and preferable to do so because in any event tiling the wall and floor inside the bathroom and kitchen were private works items to be paid by the individual owners. Looked at realistically, such installation cost was minimal when compared with the costs of the fittings which might be very expensive. Hence, in a case in which the plaintiff had removed the old sanitary fittings but the owner of the unit waived the rights to have the new fittings installed by the plaintiff, the question arose as to whether the plaintiff should be allowed the full price of the common works of that unit. It was against that background that the Incorporated Owners agreed to adopt the “buffet” concept. The minutes must be understood in this light. The Incorporated Owners reasonably acknowledged that the removal and installation of sanitary fittings should be treated as one sub‑item of work under Item 17 and the plaintiff would be paid the price of the whole item for that unit if any single sub‑item of work had been executed by the plaintiff. Thus, for example, if the plaintiff had removed an old sanitary fitting, but the individual unit owner waived his right to have the new fitting installed by the plaintiff, the Incorporated Owners will pay for the whole item. On the basis of the minutes, I accept Cheng’s evidence. The minutes do not support Mr Wu’s contention. What was agreed at the meeting is consistent with the common intention that Item 17 was not a lump sum item. No inference that Item 17 was a lump sum item could be drawn. That the rate was a lump sum rate for one unit does not necessarily mean that item of work was a lump sum item. It should also be recalled that where a unit rate is provided, the prima facie inference is that the item of work is not a lump sum or fixed price item. Accordingly, I find on the true construction of the Contract, Item 17 was not a lump sum item, though the rate was a lump sum rate for each unit. The plaintiff was only entitled to be paid the cost of works in respect of a unit if it had actually executed some works in that unit, no matter how minimal. But it is not entitled to be paid in respect of any unit in which no works at all had been executed.” 

“30. On the true construction of the Contract, Item 17 was not a lump sum item, though the sub‑items in respect of each unit were. The plaintiff was only entitled to be paid the price of works in respect of a unit if it had actually executed works in that unit, no matter how minimal. But it is not entitled to be paid in respect of any unit in which it had executed no work at all. The plaintiff bears the burden of proving the number of units in which work had been executed.”

9.  Upon that ruling, To J held that the appellant was entitled to be paid $417,580, the amount which it applied for from the Architect and was fully paid. The appellant has failed to show that it has executed works in other units apart from those stated in the appellant’s application. Accordingly, its claim under this head was dismissed (paragraphs 28 and 30 of the judgment).

Issues on appeal

10.  The appellant does not seek to overturn the factual findings.  The only issue on appeal is whether, on a proper interpretation of paragraphs 22, 26 and 30 of the judgment, the plaintiff was entitled to be paid more than $417,580 for Item 17 works.

11.  In the Amended Grounds of Appeal, the appellant contends that it was entitled to $16,100 for each unit if it had actually executed some works, however minimal, in one unit.

12.  The appellant further relies on the finding that it was entitled to be paid $417,580 to contend that that sum was not based on lump sum rate per unit basis but the re-measurement concept, ie actual work done (“the alternative contention”).  It was arrived at by:

(1) Breaking down the lump sum rate per unit into various rates for sub-items such as (i) rendering of the floor, (ii) demolition of sanitary fittings, (iii) installation of sanitary fittings, (iv) fitting of pipes, (v) surveying, evaluation and reporting at individual unit, (vi) protective measures, (vii) daily cleansing, making good units and management, and (viii) liaison and coordination work (collectively “the sub-items”), all of which were part and parcel of work under Item 17.

(2) Counting how many sub-items of works had been carried out in various units;

(3) Multiplying the sub-item rate by the number of units which had this sub-item work; and

(4) Adding up the amount in (3) to get the amount of entitlement.

The appellant contends that in accepting the plaintiff’s application for the sum of $417,580, To J must have accepted that the various sub-items adding up to that sum formed part of the Item 17 works.

13.  In the course of the arguments, Mr Chung, counsel for the appellant, withdrew that part of his case based on execution of sub-items (v) to (viii). That withdrawal was rightly made as those sub-items simply did not form part of Item 17.  Upon that withdrawal, Mr Chung rests his case on having done works for 33 instead of all 48 units.  The appellant therefore claims a sum of $531,300, ie $16,100 x 33 units.  After deduction of the $417,580 already received, the appellant seeks $113,720.

Analyses

14.  In coming to his decision that Item 17 was not a lump sum item, To J had analyzed the background which gave rise to the final quotation, the complications which had developed among the owners, the contract terms, a letter of the IO’s representative and minutes of a meeting on 3 May 2005.

15.  The initial quotation was in the form of a figure for $75,500 per unit, subsequently reduced to $53,000 (paragraph 12 of the judgment).  It was at the invitation of the Architect and the Incorporated Owners that the appellant came up with a breakdown of Item 17 in the 3 tables.  That breakdown was clearly not on the basis of $16,100 per unit but was further broken down.  

16.  Complications arose when some unit owners wished to engage their own contractors to execute the private works and even part of the common works in their units at their own costs.  In fact a substantial number of owners declined to allow the appellant to execute Item 17 works inside their units at all (paragraphs 16 and 18 of the judgment).

17.  To J also referred to clause 1 of the Contract which stipulated that the Incorporated Owners may by notice issued before specified dates to the appellant require it to execute the optional works.  The unit rate and/or the total price for those works shall be in accordance with those stated in the quotation (paragraph 17 of the judgment).

18.  To J then referred to a letter dated 23 November 2004 from the Incorporated Owners to the appellant.  He considered that when Mr Cheng (the secretary and representative of the Incorporated Owners) used the caption “lump sum per unit”, Mr Cheng could not have meant anything but the total price for that item of works for one unit.  There, in referring to the rates, Mr Cheng put in parenthesis, “ie lump sum for each of the units concerned”.  To J took the view that Mr Cheng was not talking about a lump sum contract, but the total price of the various sub‑items under Item 17 for one unit.  The term “unit rate” 單價 meant the price of works for each unit (paragraph 22 of the judgment).  To J said:

“To my mind, ‘a lump sum for each of the units concerned’ means the total price for each unit, ie $8,000 for Item 17.3 and $8,100 for either Item 17.1 or 17.2, making a total price of $16,100 for each unit. I fail to see how Mr Wu could turn a lump sum rate for each unit into a lump sum or fixed price for all 48 units.”

19.  At a weekly meeting among the representatives of the appellant, the Incorporated Owners, the Architect and the building manager held on 3 March 2005 the parties agreed to adopt the “buffet” concept in calculating payment.  It was minuted (paragraph 24 of the judgment).  To J explained the proper understanding of the minutes in paragraph 26 of his judgment.  He gave the example of the appellant removing an old sanitary fitting but the individual unit owner waiving his right to have the new fitting installed by the appellant.  The Incorporated Owners would pay for the whole item.  It was on the basis of the minutes that he accepted Mr Cheng’s evidence.

20.  At this hearing, Mr Lin, counsel for the Incorporated Owners,   draws our attention to the evidence of Mr Cheng in this respect in paragraph 15 of his witness statement [B271-272].  There Mr Cheng explained the computation of the $417,580 which (i) was based on the number of units for which work was done and the unit price under items 17.1A0, 17.1B0, 17.3A0 and 17.3B0 respectively; (ii) included an additional sum allowed to the appellant for what were known as preliminaries; and (iii) included an additional sum in settlement.

21.  Further, in paragraph 11 of Mr Cheng’s 2^nd witness statement [B305], it was stated that:

“Therefore, the defendant had only agreed with the Plaintiff (subject to the enforceability of such agreement) that if an owner chose to do only part of all processes in a [common work]Sub-Sub-Item it would pay for a particular[common work] Sub-Sub-Item in full under the category of works in Item 17 of the Contract with regard to that particular flat (i.e. 1 flat x HK$6,000 per flat = HK$6,000) but not to mean paying for all the 48 units for all the public works under Item 17 (as a whole) of the Contract (i.e. 48 flats x HK$16,100 per flat = HK$772,800) as twisted or alleged by the Plaintiff.”

22.  Considering all these findings and on a proper interpretation of the judgment, an individual owner was at liberty to select the item of common works which he wanted the appellant to do.  If the appellant had done part (however minimal) of one item of common works, the full price per unit for that item (eg 17.1A0 or 17.2A0 or 17.3A0 as the case may be) would be paid to it.  Mr Chung’s contention that the plaintiff should be entitled to $16,100 per unit must be rejected. 

23.  The alternative contention can be disposed of easily.  Firstly, it has never been pleaded as the appellant’s pleaded case all along was that Item 17 was for a lump sum.  It is not permissible for unpleaded issues to be raised out of the evidence: Kwok Chin Wing v 21 Holdings Ltd, FACV No. 9 of 2012, 30 September 2013, at paragraph 21.

24.  Secondly, the appellant’s computation of the sum of $417,580 was based on unit rates (eg of $1,400 for demolition of sanitary unit, $800 for re-installing the same) not found in the final quotation.  Mr Chung concedes that there was no contractual basis for the unit rates claimed for sub-items (i) to (iv).

25.  Thirdly, when seeking payment from the Architect, the appellant has not reserved its position to claim for more than $417,580 in the appellant’s application.

26.  On a proper interpretation of To J’s judgment and based on paragraph 28 of his findings as to the extent of work done, the correct amount which the appellant could recover from the Incorporated Owners should be:

Item 17.1A0 and 17.2A0 (Removal and installation of sanitary fitting in bathroom of the master bedroom)	27 units x $6,000	$162,000
Item 17.1B0 and 17.2B0 (rendering of the unit of the bathroom in the master bedroom)	18 units x $2,100	$37,800
Item 17.3A0 (removal and installation of sanitary fittings in the servant’s bathroom)	17 units x $2,000	$34,000
Item 17.3B0 (rendering of the floor in the kitchen and servant’s room)	11 units x $6,000	$66,000
Total		$299,800

27.  The appellant has in fact been paid more than it was entitled to under To J’s judgment. 

Conclusion and costs

28.  This appeal was dismissed. 

29.  Although the Incorporated Owners sought costs on an indemnity basis, this appeal did involve the proper interpretation of To J’s judgment.  An order for costs on party-and-party basis was considered appropriate.

30.  I thank counsel for their assistance.