TENNYSON ESTATE LTD v. BOXWOOD DESIGN LTD

HCA 283/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 283 OF 2010

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J U D G M E N T

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A. FACTS

1. The matters recited in this section (§§2-25) are either admitted or supported by the evidence adduced by the Plaintiff or the contemporaneous documents, and I find them as facts.

2. The Plaintiff was at all material times the registered owner of two houses, numbered A5 and A7 respectively, at a development called Manly Villa, 38 Ocean Park Road, Deep Water Bay, Hong Kong.  The two houses will be referred to collectively as “the Property” in this Judgment.

3. The Plaintiff still owns House A7. House A5, however, was sold in early 2011 for $173,800,000.

4. The Defendant was at all material times a building contractor and an interior design consultancy company.

5. By a contract dated 11 September 2008 (“the Contract”), the Defendant agreed, subject to the terms in the Contract and to the plans, drawings and specifications annexed to the Contract, to carry out renovation and fitting-out works for the Plaintiff and to complete the works by 3 April 2009 for the sum of $6,743,900.

6. The following terms of the Contract are relevant:

“1. Scope of Contract

This contract comprises the provision of all necessary materials, labours, plants, tools etc. necessary for Renovation works at the site described below in accordance with the contract drawings and /or this specification including construction of internal partitions, built-in furniture, and all works mentioned in the attached quotations.[1] (The ‘Works’)

…

4. Programming and Completion of the Work

The Contractor is to commence the works from the 17 September 2008 and practically complete the works on the 3 April 2009. (‘Completion Date’) It is noted the Contract period stated is inclusive of all Sundays and public holidays with the permission to work on those days.

Notwithstanding anything herein contained to the contrary, the Employer may in writing grant to the Contractor an extension of time to complete the Works for such period or periods as he may in its absolute discretion thinks fit. For the avoidance of doubt, should the Employer requested any additional work or variation of work and the Contractor reasonably believes that the work could not be completed on Completion date, the Contractor must forthwith communicate with the Employer and sought the Employer’s written agreement/confirmation of extension of time.

Automatic extension of time will be granted upon occurrence of the following events:

(a) civil commotion, strike or lockout of workmen caused by the negligence of the Employer (fault or negligence of the Contractor excepted);

(b) the Employer unreasonably fails to respond to the Contractor’s reasonable enquiries within 3 working days thereby causing the delay of the Works;

5. Work included in Contract

The Contractor’s prices for the items contained in the contract shall be deemed to include but without limitation to the cost of all incidentals of labour, materials, all cutting and waste, packings, cartage, risk, moving, hoisting and fixing in the required position, scaffolding, plant, ladders, platforms, supervision, profit and all things and matters necessary for the carrying out of and for timely and satisfactory completion of the entire works contained in the Contract and Specification whether expresses or implied.

All the materials to be used in permanent works shall be of good high-class quality suitable for their use and purpose.

…

21. Materials

Upon the Employer’s requests, the Contractor shall immediately and at the Contractor’s own expense remove such material or pull down such works which the Employer in its reasonable opinion considers to be inferior or unsuitable.

22. Workmanship

All the materials shall be new and workmanship shall be of superior quality. The Contractor shall, if required, furnish satisfactory evidence as to the kind or quality of the materials to the Employer. Defects due to faulty materials or workmanship shall be made good or replaced at the Contractors sole expense.

23. Extension of time

Subject to Clause 4 herein above, the Contractor shall be allowed an extension of time,

(a) by reason of inclement weather only when the typhoon signal no8 or above is hoisted.

(b) by reason of Employer’s instructions only if they constitute substantial variations affecting the schedule of the work,

(c) by reason of delay on the part of nominated subcontractors or nominated suppliers which the Contractor has taken all practical steps to avoid.

24. Defects Liability Period

Upon declaration by the Contractor that the contract works are practically completed, the Employer and the Contractor shall conduct a joint inspection of the Works and note any defects or outstanding items. The defects liability period will commence on the date of practical completion for a period of twelve (12) calendar months and the retention money due to the Contractor shall not become due for release until one month after certified completion and completion of all defects or outstanding items.

27. Liquidated and Ascertained Damages Damages [sic] (Per Day)

If the Contractor fails to complete the works by the completion date stated in Clause 3[2] or within any extended time as set out under Clause 23 of this Agreement as certified by and the Employer in writing then the Contractor shall pay to the Employer HK$3,000.00 per day for House A7 and HK$2,000.00 per day for House A5 as Liquidated Damages.”

7. A total of 11 variation quotations had been issued subsequently for House A7 in the total sum of $2,012,830.  For House A5, there were three variation quotations totalling $347,750.

8. The Defendant commenced work at the Property on 17 September 2008. 

9. However, the quality of the work done by the Defendant, and the progress, proved unacceptable to the Plaintiff, resulting in numerous complaints by the Plaintiff.

10. The works were not completed by the contractual completion date of 3 April 2009.

11. On 5 May 2009, Mr Lam Chi Tat (“Mr Lam”), who was a shareholder and director of the Plaintiff, sent an email to the Defendant.  The email stated, inter alia, as follows:

“Ben Choi alleged that the delay was due to unable to do work on Sundays are not reasonable. Even if I allow the allowance and grant extra days, please appreciate that police were last called on or about 14/12/09. Therefore allowance of extra days would be practicably commencing from 14/12/09 giving 15 extra days allowing extension to only 24/4/09. The grant of allowance to 9/5/09 is more than our gracious allowance. I trust Ben could not possibly argue for public holidays as I have either excluded in the calculation of 15 extra days or otherwise would have anticipated in his estimation before he signed the contract.”

The “Ben Choi” referred to is Mr Choi Tin Yam Benjamin (“Mr Choi”), a director and shareholder of the Defendant.

12. Thus, the email of 5 May 2009 granted, or evidenced the grant of, an extension of the contractual completion date to 9 May 2009.  There is no evidence of any other extension of time granted pursuant to clauses 4 or 23 of the Contract.

13. Although the Lam family moved into House A7 on 16 June 2009, as evidenced by his own witness statement, various contemporaneous emails, as well as defect lists compiled by the Defendant itself in August 2009, the works at both Houses A5 and A7 remained not completed as at 7 December 2009.  In particular:

(1) On 15 August 2009, Mr Choi sent to Mr Lam and Mrs Lam a defect rectification report listing 63 items of defect for House A7 and 38 such items for House A5. 

(2) On 24 August 2009, the Defendant sent to Mr Lam and Mrs Lam a second rectification report adding four more items of defect for House A7.

(3) For most of the defects listed on the two rectification reports, it was stated that the rectification date was to be 31 August 2009.

(4) On 18 September 2009, Mr Lam sent to the Defendant an email complaining that the defects on the defect lists had not been rectified.

(5) On 25 November 2009, Mr Lam sent an email to the Defendant.  The email was titled “fed up with the job” and listed 24 defects, one of which was said to have caused an injury to Mr Lam’s daughters, and concluded by saying that

“As things had not been completed to my satisfaction, LD continues to accrue”.

    Three additional defects were stated in emails sent by Mr Lam to the Defendant on 26 and 30 November 2009.

(6) On 7 December 2009, Mr Lam sent an email to the Defendant in the following terms:

“Dear Mr Choi,

As professional, directors of [the Plaintiff] are more than happy to honour our undertaking to make payment pursuant to contract but we have workmanship issues and accounts issues on your project.

Pursuant to the terms and spirit of the contract, defects must be rectified by 31 August 2009 or otherwise within a reasonable time (which we believe no more than 15 days) but unfortunately, the defects had not been rectified by the deadline and more defects and workmanship issues continued to arise and brought to our attention.

Additional to the defect list you have compiled so far, additional defects are provided to you either verbally through your staff Martin or by my email. Nevertheless, you have completely ignored our concerns. We would also like to draw your attention that the white TV panel board to G/F and 1/F sitting room is defective and cracked. The skirts at 2/F are not replaced and skirt outside Kathleen’s room on G/F are done with different material and need to be changed.

We also write to put on record that you have not fulfilled your duty as a ‘liaison person’ for other contractors. To be frank, you are not fit and proper. Instances include giving wrong measurements and wrong information to Sie Matic, Swimming Pool contractor, AV contractor, etc. We have, despite our very busy schedules, arrange delivery on our own such as products of Sie Matic and products of Samsung. You have not let us know at an early stage that you are incompetent to work with 弱電 including Lutron. We have originally planned to have everything controlled remotely by Niles system on 1/F but as it turns out only one third of 1/F can be controlled by Niles system. The quality of work is far from my expectation and not commensurate with the money spent.

Please CEASE to attend the premises WITH IMMEDIATE EFFECT and you and your staffs do not need to do any rectification works from today. We shall engage an alternate contractor to finish your uncompleted work and to rectify the defects. Defective TV panel, Marble, tile pathways to lower garden etc. will be replaced at your costs. As you have not rectified the wallpaper, we put on record that the new contractor may or may not be able to source the same wallpaper and we may need to change all wallpaper at your costs as well.

Please also cease to call any of us by you or your staffs with immediate effect.

We shall engage a Clerk of Works (‘驗樓師’) to verify and assess the workmanship and condition of the work-done by you and a full report will be prepared to support our intended legal proceedings. A copy will be provided during discovery process of the proceedings.

We shall also engage a Surveyor to verify job-done, accounts and documentation including instances of double claim.

For your own benefit, you are suggested to provide all assistance and documentations to our Clerk of Works and Surveyor who will contact you in due course.

All our rights are hereby expressly reserved.”

(7) On 9 December 2009, Mr Lam sent another email to the Defendant as follows:

“… the defect list compiled by you in Aug had not been attended to eg the cracks on ceiling of Clayton’s room. So don’t even think you could twist around the facts by saying you will timely attend to the defects. The emails (including but without limitation those sent 25, 26 and 30 Nov are only a reiteration of what have been told to your staff or otherwise already in your defect list compiled so far. My email of 7 Dec 2009 also constitute other defects found.

We are concerned on the safety of our children and you blatantly ignored our notice that the ‘screws fixing the glass panel installed at the windows were loosen’ and the ‘ceiling light installed by you at 1/F dining room is falling’. You owe a duty to us when you have taken up the job of installation whether at a cost or without a cost. I cannot see you have ‘diligently’ carried out the job net [sic] to mention whether timely or not.

I find it most absurd and interesting for you to allege ‘genuine’ defects.  I can hardly follow and could find any ‘non-genuine’ defects.”

14. Pursuant to the Contract, the Plaintiff has paid the Defendant a total of $7,482,040.

15. The evidence of Mr Lam is that the defects stated in the August defect rectification reports, and in the emails of 25, 26 and 30 November 2009, had not been rectified  I accept his evidence.

16. Further, the Plaintiff has adduced an expert report dated 20 February 2013 by Mr Lee Siu Man Ervin.  Mr Lee is a registered architect and an authorised person and I accept him as an expert qualified to give the opinions stated in his report.

17. Mr Lee’s report was prepared based on inspections of the Property on 19 March 2010, 23 March 2010, 30 April 2010 and 7 February 2013.  Mr Lee also has had the benefit of a report prepared by Clerk of Works Services Limited which had inspected the Property on 27 January 2010, as well as details and photographs supplied by Mr Lam as stated in his report.  On the basis of the above, Mr Lee had prepared lists of defects.  The lists are reproduced in a Schedule dated 24 January 2014 which is attached as an Appendix to this Judgment. 

18. I accept the findings of Mr Lee and find that the Schedule contains a true and correct list of the defects of House A7 as at 7 December 2009, and the defects were caused by the defective quality of the materials supplied by, and/or poor workmanship of, the Defendant.

19. In the premises, I find that the Defendant had persisted in its failure to rectify the defects at the Property up to 7 December 2009 despite a promise made by Mr Choi to do so at a joint inspection on 13 August 2009 (during which most of the defects were identified).  Although not in so many words, read in context the Plaintiff had further demanded the Defendant to rectify the defects by sending the emails on 18 September, and 25, 26 and 30 November 2009.

20. In Mariner International Hotels Ltd v Atlas Ltd (2007) 10 HKCFAR 1, in the context of a contract which in substance (although not in form) was a sale of a hotel under construction, Bokhary PJ said at §27:

“In my view, what cl.2.01(b) means by ‘practical completion’ is a state of affairs in which the Hotel has been completed free from any patent defects other than ones to be ignored as trifling”.

21. In my judgment, this meaning of “practical completion” is also applicable to the Contract.

22. In the light of the long and extensive list of defects (which cannot be said to be trifling) which had remained not rectified by 7 December 2009, it is clear that there was no practical completion by the Defendant as at that date, and I so find and conclude accordingly.

23. Further, I find the persistent failure of the Defendant to rectify all the defects and to effect practical completion of the works to the quality and the standard required, despite its contractual obligations and the repeated demands of the Plaintiff, to be a repudiatory breach of the Contract.  The Plaintiff was entitled to, and it did properly, terminate the Contract by the email of 7 December 2009.

24. The Plaintiff has also adduced an expert report dated 16 April 2013 by Mr Chang Ka Chung, a Chartered Quantity Surveyor, and I also accept him as an expert qualified to give the opinions stated in his report.

25. Based on the lists of defects prepared by Mr Lee, Mr Chang provided his assessment of the cost of remedial work for each defect based on prices in the last quarter of 2009.  The cost in relation to each defect is set out in the Schedule, amounting to a total of $2,449,556.13.  I accept his evidence and find that the remedial cost of all the defects identified by Mr Lee is $2,449,556.13 based on prices in the last quarter of 2009.

B. THE PLAINTIFF’S CLAIMS

26. The Plaintiff’s claims are as follows:

(1) Liquidated damages for delay of completion of House A7 for the period of 9 May 2009 to 7 December 2009 (213 days x $3,000 = $639,000).

(2) Liquidated damages for delay of completion of House A5 for the period from 9 May 2009 to 7 December 2009 (213 days x $2,000 = $426,000).

(3) Cost of remedial work for House A7 for $2,449,556.13.  This amount is based on the prices in the last quarter of 2009 as assessed by Mr Chang, and the Plaintiff does not at the trial ask for damages to be measured at a later time which given inflation would not have been lower than the amount claimed.

(4) Cost of insurance at $48,991.12.

It should be noted that as House A5 has since been sold by the Plaintiff, it is no longer claiming any cost of remedial work for the defects therein.

27. The Plaintiff accepts that if I award damages to it for rectification works, there should be deducted therefrom future payments that would have been made to the Defendant for House A7 had there been no breach of the Contract.  That sum would be:

Contract sum as per the quotations	$4,552,439.89
Variation quotations	$2,012,830.00
LESS:
Proportionate payments under the Contract	$4,324,789.50[3]
Payments under the variation quotations	$  889,085.00
TOTAL:	$1,351,395.39

I should mention also that the Plaintiff has also alleged that adjustments ought to be made to the calculations because the Defendant had double-charged some items, and some of the work alleged by the Defendant to have been done, and for which the Plaintiff had paid, were in fact not done.  However, at the trial the Plaintiff abandons these claims.

B1.   Liquidated damages

28. House A5 was sold in early 2011 for $173,800,000.  There is no reason for me not to accept that as a good indication of its market value at the time.  Mr Lam’s evidence, which I accept, is that while Houses A5 and A7 are roughly the same internally, the latter has a much larger garden and carport.  Thus, House A7 must be of a higher market value than House A5.  It seems to me that it is fair to say that the value of each House far exceeded $100,000,000 in 2008 to 2009.

29. The Contract price was $6,743,900.  Subsequent variations amount to $2,012,830 and $347,750.

30. In the light of the value of the Property and the Contract prices, I accept that the agreed liquidated damages at $2,000 and $3,000 per day respectively for Houses A5 and A7 are more than reasonable and in no way can they be suggested to be extravagant or unconscionable or oppressive, and certainly does not go beyond (and is indeed less than) a genuine pre‑estimate of the likely loss to the Plaintiff, in terms of loss of use (which could reasonably be anticipated) of the two Houses (each of which had a value in excess of $100,000,000) as properly completed due to the delay.  I hold that the liquidated damages clause (ie clause 27) of the Contract to be valid and enforceable: see Philips Hong Kong Limited v The Attorney General of Hong Kong [1993] 1 HKLR 269 at 280 per Lord Woolf.

31. In the light of my findings at §22 above, I find this claim by the Plaintiff to be substantiated.  It was foreseeable by the Defendant at the time the Contract was made that if there was any delay in the practical completion of the works, the Plaintiff would suffer loss and damage from the loss of use, which was pre‑estimated by clause 27 of the Contract.  There are, in my judgment, no causation or remoteness issues.

B2. Cost of remedial work

32. The Plaintiff relies on clauses 5 and 22 of the Contract as to the quality of the materials to be supplied, and the workmanship of, the Defendant.

33. The Plaintiff also alleges, and I accept, that the Defendant owed to it:

(1) A duty to carry out the works with reasonable care and skill.

(2) A duty to supply goods in the renovation works which are reasonably fit for the purpose for which the goods were acquired.

(3) A general duty of care in carrying out the works.

34. In the light of my finding at §18 above, I find that the Defendant was in breach of clauses 5 and 22 as well as the duties stated at §33 above.

35. As stated by the editors of Hudson’s Building and Engineering Contracts (12^th ed, 2010) at §7‑008:

“Accordingly, in those cases where, in breach of contract, the work has been left incomplete or containing defects, whether by abandonment or determination or otherwise, the measure of damages will prima facie be the difference between the reasonable cost to the Employer of repairing the defects or completing the work, together with any sums paid by or due from the Employer under the contract, and the sums which would have been payable by the Employer under the contract if it had been properly carried out.”

36. I find that in the circumstances of this case this is the appropriate measure of damages to the Plaintiff for the defects.  Mr Lam has already declared in his email of 7 December 2009 that the Plaintiff would remedy the defects, which I accept to be the Plaintiff’s intention.

37. It does not matter that the Plaintiff may have not effected the rectification works yet: see eg Wm Cory & Son Ltd v Wingate Investments (London Colney) Ltd (1980) 17 BLR 104.

38. I find this claim of the Plaintiff to be substantiated.  It was foreseeable by the Defendant at the time the Contract was made that if the works were defective the Plaintiff would suffer loss being the costs that it would have to incur to rectify the defects.  There are, in my judgment, no causation or remoteness issues.

B3.   Insurance

39. This refers to the insurance for the Property itself during the remedial works, and it is the evidence of Mr Chang, which I accept, that the premium is normally between 1% to 3% of the cost of the works.  Adopting the figure of 2%, the amount is $48,991.12. 

40. I find this claim of the Plaintiff to be substantiated.  It was foreseeable by the Defendant at the time the Contract was made that if the works were defective works the Plaintiff would need to arrange for rectification work and to take out insurance for House A7. There are, in my judgment, no causation or remoteness issues.

C. THE COUNTERCLAIM

41. Since the Defendant did not appear at the trial to argue its counterclaim (which claims for various payments allegedly payable under the Contract and the variation quotations and for work allegedly done, as well as damages for delay alleged caused by the Plaintiff) and to adduce any evidence in support, it should be dismissed and I so order.

D. DISPOSAL

42. I give judgment to the Plaintiff against the Defendant for following:

(1) Liquidated damages for delay in the sum of $1,065,000.

(2) Damages for breach of Contract and for breach of duty in the sum of $1,147,151.86.

43. As for interest, for the liquidated damages for delay, interest for each day should start to accrue from that day, so the interest for 10 May 2009 should accrue from that date, and for 11 May 2009 from that date, and so on.  To simplify calculation, it is fair to take the mid-point of the period of delay and I order that interest on the sum of $1,065,000 to accrue thereon as from (and including) 23 August 2009 until payment.  As for damages for $1,147,151.86, the interest is to accrue thereon as from (and including) 7 December 2009 until payment.

44. As for the rate, I order that the pre-judgment interest be at the rate of 1% above HSBC’s prevailing prime rate.  The post‑judgment interest is to be at the judgment rate.

45. The counterclaim is dismissed.

46. I also make an order that the costs of this action and of the counterclaim be to the Plaintiff, to be paid by the Defendant, to be taxed if not agreed.

Defects Schedule of House A7