TUNG NGAR AIR CONDITION & STEEL HOLDINGS LTD v. SHING HIN CATERING GROUP LTD

HCA 1410/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1410 OF 2009

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J U D G M E N T

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1.  This is a claim by the plaintiff for outstanding payments under a contract for fitting out of a food factory on the 1/F of an industrial building Tai Wai and the refurbishment of an office on the 7/F of the same building. The defendant denied the claims and counterclaimed damages for defective works. Since there is no counterclaim relating to the works in the office on the 7/F, I will not deal with any allegation of defect in the works on that floor.

THE PLAINTIFF’S CLAIM

2.  The plaintiff pleaded in the amended statement of claim that it had at the request of the defendant made in November 2008 prepared plans for the defendant to invite tenders for the fitting out of the food factory and refurbishment of the office space.  The plaintiff also submitted a tender in form of various quotations for supply of equipment and services. 

3.  It then entered into a written contract dated 8 January 2009 with the defendant for (i) fitting out the premises to be used as a food factory; (ii) fitting out and engineering works to the food factory; (iii) supply of, among other things, restaurant refrigeration and kitchen facilities to the food factory; and (iv) to furnish the office.

4.  The contract sum is HK$3.6 million.  The contract further provided in clause 4.2 that the HK$3.6 million is the final price and no increase in this sum was allowed.  This is thus a lump sum contract.

5.  Clauses 2.3 and 3 both govern the payment of the HK$3.6 million by instalments.  They are however not in the same terms. 

6.  Clause 2.3 (translation) provided that:

“Instalment payments shall be in accordance with the progress chart (see Attachment 4). Construction period shall be 60 days commencing from 7 January, 2009 to 7 March, 2009, divided into four phases:

Phase 1: 1^st day of project.

Phase 2: date of completion of 25% of works, that is the 25^th day

Phase 3: date of completion of 75% of works, that is the 37^th day

Phase 4:  date of completion of 100% works, that is the 60^th day”

7.  However, clause 3 on page 2 of the contract provided a different schedule of instalment payments. Both sides have relied on this schedule though the defendant has sought to modify the meaning and effect of sub-paragraph (vi).  The schedule (translation) provided:

“Details of payment:

(i) Total project cost is HK$3.6 million. All payment details shall be in accordance with items 2 to 8 of this clause.

(ii) Upon signing of contract, pay 10% of the total project cost (“the 1^st instalment”).

(iii) On the 1^st day of commencement of works, pay 10% of the total project cost (“the 2^nd instalment”).

(iv) On the 25^th day after commencement of works, pay 20% of the total project cost (“the 3^rd instalment”).

(v) On the 37^th day after commencement of works, pay 30% of the total project cost (“the 4^th instalment”).

(vi) Within one week from the 60^th day after commencement of works, pay 20% of the total project cost (“the 5^th instalment”).

(vii) After the issuance of the food factory licence by the Food and Environmental Hygiene Department (“FEHD”) for the project, pay 9% of the total project cost (“the 6^th instalment”).

(viii) After the maintenance of the project and equipment for one year, pay 1% of the total project cost (“the 7^th instalment”).”

8.  Clause 4.11 of the contract further provided that the project works should commence on 7 January 2009 and be completed within 60 days.  Handing over should take place on 7 March 2009 at 12:00 noon when all construction works and installation of kitchen equipment should be completed.  On the date of handing over, the food factory premises should operate as a normal food processing factory and all kitchen equipment should function normally.

9.  The plaintiff claims that it had achieved practical completion of the project works on 6 March 2009 and a certificate of practical completion was delivered to the defendant on 6 March 2009 which the defendant failed to endorse.

10.  The plaintiff’s claim is for the outstanding 5^th and 6^th instalments at 20% and 9% of the contract sum respectively and also the sums of HK$82,771.00 and HK$107,340.00 for additional works that are characterized as March Variations (7/1498-1500) and April Variations (5/1095) respectively. 

11.  The defendant does not dispute the March Variations though it sought to set off the same against its counterclaim.

12.  For the April Variations, the plaintiff claimed that they were additional work done and materials supplied at the request of the defendant in or about April 2009 and are payable by the defendant by reason of an implied term for business efficacy and/or s 7 of the Supply of Services (Implied Terms) Ordinance; Cap. 457 or alternatively by way of quantum meruit. The defendant claims that the work done and materials supplied under these variations are part of the contract.

THE DEFENCE AND COUNTERCLAIM

13.  The defendant pleaded in the re-amended defence and counterclaim that it had in the latter half of 2008 had discussions with the plaintiff on the design, engineering and fitting out works for the food factory, the supply of equipment, installations and fittings in the food factory premises and the provision of services to the defendant for obtaining and/or procuring necessary licence for the food factory from the relevant governmental authorities (“the food factory works”). 

14.  In the latter part of the discussions, the plaintiff came to know that the food factory works were intended to be for the benefit of Shing Hin Food Processing Workshop Ltd (“Shing Hin Food Processing”) as the operator of the food factory.  This is relevant to whether the defendant can counterclaim the loss suffered by Shing Hin Food Processing by reason of the plaintiff’s failure to complete the food factory works in accordance with the contract it made with the defendant referred to below. 

15.  The defendant also had discussions with the plaintiff on the design, engineering and fitting out of the office and to supply the installations and fittings therein (“the office works”).

16.  Pursuant to the discussions, the plaintiff in about late 2008 to early 2009 prepared the following for the defendant to invite tenders from other contractors: -

(i) plans depicting in general terms the plaintiff’s design of the layout of the food factory and the proposed food factory works;

(ii) quotations setting out in general terms the plaintiff’s quote for the food factory works;

(iii) plans depicting in general terms the plaintiff’s design of the layout of the office, and also the proposed office works; and

(iv) quotations setting out in general terms the plaintiff’s quote for the office works.

17.  In the end, the defendant entered into a contract with the plaintiff for the plaintiff to carry out food factory and office works for the total contract sum of HK$3.6 million. 

18.  However, the defendant pleaded in §§7 and 9 of the re-amended defence that the contract was made partly orally and partly in writing.  In so far as it was made in writing, it was contained in the contract dated 8 January 2009.  In so far as it was made orally, it was made at meetings held in late 2008 to early January 2009 between Mr. Au-Yeung Kwan (the defendant’s Chairman) (DW1) (“Mr Au-Yeung”), Mr. Louis Chau (the defendant’s Senior Business Operations Manager) (DW2) (“Mr Chau”) and Mr. Tsang Tim Choy (the defendant’s Deputy General Manager) (not called as a witness) (“Mr Tsang”) for the defendant and Mr. Yeung Chi Ming (PW1) (the plaintiff’s Project Manager) (“Mr. Yeung”) and a Mr. Wong (PW2) (an Architect) for the Plaintiff.  (The evidence of Mr Chau that I will deal with below however suggests that he was not involved in the negotiation of the alleged oral terms of the contract.  Mr Au-Yeung also ceased to have any interest in the plaintiff on 24 June 2011 when he sold the plaintiff’s shares to another company (6/1146).)

19.  I would mention that the written part of the contract relied on by the defendant is not exactly the same as the written contract relied on by the plaintiff.  There is in the written part of the contract relied on by the plaintiff a set of quotations on furnishings and fittings which is not present in the defendant’s contract. Apart from this difference, the two documents are the same.  I will deal with below this difference and the other differences between the parties brought in by the defendant’s alleged oral terms of contract.

20.  Regarding the schedule of instalment payments, the defendant pleaded that the 5^th instalment is not payable within one week after the 60^th day from commencement of works, but is payable within 1 week of the due completion of the entire food factory works by the 60^th day of commencement of the works.  It is thus the defendant’s case that the 5^th instalment is only due upon completion of the works.

21.  I also refer to clause 4.12 of the written contract which provided that in the event of delay in completion, the plaintiff should compensate the defendant the daily business loss in pro rata of the total project cost.  The defendant regarded this as a provision for liquidated damages at HK$60,000 for each day of delay.  The plaintiff regarded this as an unenforceable penalty clause.  In the end, the defendant abandoned its reliance on this clause in its final submissions.

22.  In addition to the requirement in clause 4.11 of the written contract that upon handing over, the food factory premises should operate as a normal food processing factory and all kitchen equipment should function normally, the defendant further pleaded the following implied terms of the contract:

(i) that the plaintiff should carry out the food factory and office works with all due proper and reasonable skill and care, and with reasonable standard and workmanship;

(ii) that all materials, equipment, installations and fittings used or supplied and/or installed by the plaintiff for the food factory and office works would be of merchantable and good quality and would be reasonably fit for the purpose for which they would be used;

(iii) that the food factory works and its design as completed by the plaintiff would render the food factory reasonably fit for the purpose of being used as a food factory;

(iv) that the food factory works should comply with all relevant governing regulations; and

(v) that the plaintiff should, upon the request of the defendant, provide the defendant with all the relevant certificates and/or other documentations required for obtaining the food factory licence for the food factory.

23.  The defendant denies that the plaintiff has achieved practical completion of the food factory or office works on 6 March 2009 or otherwise.  It further denies that the plaintiff had handed over the food factory to Shing Hin Food Processing by 7 March 2009 as it was obliged to under the contract.

24.  The defendant says that the plaintiff on 23 March 2009 purported to hand over the food factory and office with all the works under the contract purportedly completed when in fact they were not.

25.  The defendant further pleaded that by late March 2009, it and Shing Hin Food Processing had discovered various defects in the plaintiff’s works which were said to be stated in a list given to the plaintiff in late March 2009.  They complained and demanded rectification by the plaintiff.  The undisputed evidence however shows that the list is actually dated 6 March and was given to the plaintiff on 7 March

26.  From about 30 March 2009, Shing Hin Food Processing started trial operation of the food factory. It and the defendant had kept discovering further defects in the plaintiff’s food factory and office works.  They made further complaints and demanded rectification by the plaintiff.  The defects were said to be contained in a list annexed to the minutes of a meeting of the representatives of the parties held on 30 April 2009.

27.  During the trial operation, the plaintiff’s staff had attended the food factory on daily or almost daily basis to rectify or attempt to rectify the minor defects.  The defendant has compiled a schedule of food factory and office works defects annexed to and in support of the re-amended defence and counterclaim.  The rectified defects are set out in Part II of the schedule.  However, the plaintiff has failed and/or refused to rectify the serious and fundamental defects which are set out in Part I of the schedule. By reason of these defects, Shing Hin Food Processing was unable to put the food factory into normal or full operation and was forced to stop the trial operation on about 23 May 2009.

28.  (The plaintiff has added an additional column to the schedule to spell out the plaintiff’s comments to the items of counterclaim therein.  I will use the schedule as amended by the plaintiff (the Schedule”)to deal with the items in the counterclaim.)

29.  The defendant pleaded that by reason of the plaintiff’s failure to rectify the defects, other contractors were engaged to carry out the rectification which were completed by March 2010.

30.  The plaintiff also failed to provide the defendant with the relevant certificates and other documentations required for obtaining the formal food factory licence for the food factory or to obtain or procure such licence for Shing Hin Food Processing. Such licence was eventually granted by the government on 29 March 2010.

31.  The defendant thus says that the plaintiff is not entitled to payment of the 5^th and 6^th instalments of the contract sum.  The defendant further counterclaims the plaintiff for loss and damage.  I will deal with them in detail below after I have dealt with the plaintiff’s claims.

THE REPLY AND DEFENCE TO COUNTERCLAIM

32.  The plaintiff denies that the contract between the parties was partly made orally and partly in writing.  It maintained that the contract between the parties was the written contract dated 8 January 2009.

33.  The defendant alleged that the plaintiff had become aware of the existence of Shing Hin Food Processing before 8 January 2009 when the contract between the parties was made.  The plaintiff however pleaded that it only learnt of the existence of Shing Hin Food Processing in about March 2009 when it assisted the defendant apply for the formal food factory licence.  It denies that the defendant is entitled to claim the loss suffered by Shing Hin Food Processing on whatever ground.  However, the evidence of PW2, Mr Wong makes it plain that the plaintiff was already aware of Shing Hin Food Processing on about 9 or 10 January 2009. 

34.  The plaintiff also denies that the 5^th instalment was only due upon completion of the works.  It pleaded that this 20% of the contract sum was payable within one week after the constructions works had commenced for 60 days (i.e. within one week after 7 March 2009) and was not linked to the completion of the food factory works.

35.  The plaintiff also accepts that there was the implied term that it should carry out the works with proper and reasonable skill and care and reasonable standard and workmanship, but denies the other implied terms advanced by the defendant.

36.  Regarding the plaintiff’s failure to obtain or procure the issuance of the formal food factory licence for the food factory, the plaintiff pleaded that the defendant had refused to give the plaintiff access to the premises to remedy the alleged defects or had failed to co-operate with it in the further processing of the application for the licence.

THE TERMS OF THE CONTRACT

37.  I have mentioned above that the defendant’s written part of the contract, though also dated 8 January 2009, is not the same as the plaintiff’s written contract of the same date as there is a bundle of quotations in the plaintiff’s contract that is absent from the defendant’s.  Furthermore, the defendant also alleged an oral part of the contract which is not shared by the plaintiff.

38.  The defendant pleaded to the composition of its written part of the contract in §8 of the re-amended defence as follows (5/947-960):

(a)   a written contract on the defendant’s letterhead dated 8 January 2009 signed by the plaintiff and the defendant;

(b)   a food factory floor plan prepared by the plaintiff as annexure I depicting some of the food factory works in general terms;

(c)   an office floor plan prepared by the plaintiff as annexure II depicting some of the office works in general term;

(d)   three sets of quotations all dated 2 January 2009 and prepared by the plaintiff (addressed to Mr Tsang, Deputy General Manager of the defendant) as annexure III, namely:

(i)   a 6-page quotation containing the specifications of a number of equipment and fittings for the food factory and the unit price of each equipment (“the Equipment Quotation”);

(ii)   a 1-page quotation mentioning various systems of work to be carried out for the food factory and the price for each system (“the Summary Furnishings Quotation”);

(iii)  a 1-page quotation summarizing the installations and fittings for and heads of works to be carried out in the office (“the Office Quotation”); and

(iv)  a work schedule for the food factory works prepared by the plaintiff dated 8 January 2009 as annexure IV.

39.  The Equipment Quotation had a total price at HK$1,874,410 for 22 items of kitchen equipment.  They included 6 freezers and coolers of various dimensions and with cooling machines of a designated German brand; different types of electric stoves, induction stoves, boilers and frying pans all of designated brands; and various other kitchen equipment many of which of designated brands.

40.  The Summary Furnishings Quotation is a one-page document containing 11 systems of work for a total price of HK$1,798,330. 

41.  The Office Quotation is for HK$222,800.

42.  The total sum of the three quotations at HK$3,895,540 is rounded down to HK$3.6 million as a lump sum in the contract for all the food factory and office works.

43.  The plaintiff admitted in §16 of its re-amended reply that the annexures to the written contract are the same as those pleaded by the defendant in the defence.  The reply was filed on 5 October 2009 and amended and re-amended on 12 May 2010 and 28 August 2012 respectively.  §16 remained the same in the amended and re-amended versions.

44.  The written contract disclosed by the plaintiff in discovery in this action is also the same as the defendant’s written part of the contract.

The Furnishings Sub-Quotations

45.  However, the written contract exhibited in the witness statement of Mr Yeung, PW1 filed by the plaintiff on 22 June 2010 has in addition a five-page sub-quotations prepared by the plaintiff and dated 2 January 2009 (“the Furnishings Sub-Quotations”) (3/588-592). They followed the one-page summary quotation of furnishings.  The one-page quotation provided for 11 systems of work as follows (translation):

“QUOTATION

Item	Content, Name and Grading	Quantity	Price
1	Electrical works for unit	1 item	$198,520.00
2	Drainage works for unit	1 item	$110,510.00
3	Air-conditioning works for unit	1 item	$248,000.00
4	Fire service works	1 item	$89,700.00
5	Plastering works for unit	1 item	$507,000.00
6	Carpentry works for unit	1 item	$35,000.00
7	Ventilation works for unit	1 item	$127,600.00
8	Iron works for unit	1 item	$292,000.00
9	Painting works for unit	1 item	$85,000.00
10	Licence application for unit	1 item	$60,000.00
11	Miscellaneous items for unit	1 item	$45,000.00
		Total	$1,798,330.00”

46.  The Furnishings Sub-Quotations produced by Mr Yeung set out the detail breakdown of the fittings to be supplied and installations to be carried out for each of the 11 systems of work in the Summary Furnishings Quotation. I set out below as examples three of the sub-quotations for the electrical works, air-conditioning works, and plastering works the price of which as set out in the summary quotation are HK$198,520, HK$248,000 and HK$507,000 respectively (translation):

“QUOTATION

Item	Content, Name and Grading	Quantity	Price
1	1 Newly install 400A master electricity switch box including labour and material (switch box has: One 400A Mitsubishi master switch, One 200A Mitsubishi sub-switch, two 100A Mitsubishi sub-switch, one water and gas meter, one electricity meter, one voltage meter, one set of power light for flat	1 item
2	2 Newly install master electricity switch box position connect to master electricity switch box of building 400A three phase main wiring for flat including labour and material	1 item
3	3 Application to China Light & Power & Co Ltd for 400A three phase electricity Meter (original electricity meter 300A)	1 item
4	Newly install three phase electricity sub-switch box (for supply power to kitchen equipment)	1 item
	a: newly install 200A three phase main wire from indoor main power switch200A sub-switch box	1 set
	b: new electrically heated double frying pan one power source electric induction stove with 30A three phase with earthing wire	2 sets
	c: newly install frying pan 20A three phase with earthing wire	1 set
	d: newly install electric steaming cabinet with artificial intelligence 60A three phase wiring	1 set
	e: newly install electrically heated single head induction boiler for soup 30A with earthing wire	1 set
	f: newly install electric tilted steaming soup boiler 30A three phase with earthing wire	1 set
	g: newly install electrically heated frying pan cocker 60A three phase with earthing wire	1 set
5	5 Newly install freezer illumination 100A three phase electricity sub-switch with main wire	1 item
	a: Newly install freezer low temperature freezer 10 horsepower machine assembly 15A three phase electric point	5 sets
	b: Newly install freezer 5 horsepower machine assembly 15A three phase electric point	5 sets
	c: Newly install freezer 3 horsepower machine assembly 15A three phase electric point	2 sets
6	Newly install air-conditioning illumination 100A three phase electricity sub-switch box together with main wire	1 item
	a: Newly install air-conditioning 15A three phase point together with 15A waterproof switch	8 sets
	b: newly install unit electrical 15A three phase equipment electricity point	5 sets
	c: newly install unit 13A socket	20 sets
	d: newly install unit 4 feet waterproof with cover double support frame	41 sets
	e: newly install platform 150W Philips waterproof halogen lamp including labour and material	6 sets
	f: newly install fire exit light box, emergency light electricity point	14 sets
	g: newly install unit exhaust fan of 25 horsepower three phase electricity point	1 set
	h: newly install unit three phase 10 horsepower fresh air handling unit electricity point	1 set
	i: newly install unit anti-theft, close circuit television electricity point conduit position (excluding machine installation and hanging wire)	13 sets
	j: newly install toilet ceiling tube light, exhaust fan electricity points	9 sets
		Total	$198,520.00
	Air-conditioning for flat item
1	1 Purchase Mitsubishi 20 horsepower water cooled A/C plant	2 units
2	Install 20 ton cooling tower, together with 2 horsepower vertical type water pump	2 units
3	Newly installed unit air duct with Heat insulation glass wool and diffuser	1 item
		1 item	$248,000.00
	Plastering Works
1	Newly install waterproofing works, waterproofing material Kanga brand black plastic apply twice
2	2 Newly install elevated flooring using light weight brick to 5-7 inches
3	3 Newly install flooring tiles, using 6 x 6 brick, 12-15mm thick
4	4 Newly built changing room, store room and toilet wall surface using light weight brick partitioned to 2.5 metre tall
5	5 Newly partitioned brick wall at drainage position to the top (behind freezer)
		1 item	$507,000.00”

47.  PW1, Mr Yeung was firm in his evidence that the Furnishings Sub-Quotations were included as part of the annexures to the contract.  They followed the Summary Furnishings Quotation and provided the breakdowns for the 11 systems of work in the summary quotation.  He also confirmed in oral evidence that he had prepared all the quotations. 

48.  Another relevant and undisputed issue is that before the parties had entered into their contract on 8 January 2009, the plaintiff had sent the Equipment Quotation and Summary Furnishings Quotation to the defendant for it to invite tenders from other contractors.  The plaintiff must have done so before 8 January 2009 and they should be without the plaintiff’s pricing as the pricing was for the tenderers to fill in.  The plaintiff should have filled in its pricing later when it responded to the defendant’s request to put in a tender for the works as well.

49.  Mr Yeung said he had sent all the quotations including the Furnishings Sub-Quotations by e-mail to the secretary of Mr Au-Yeung for the defendant’s tender purpose.  He at one time thought that he did so by his e-mail sent on 8 January 2009 at 17:59:42 hours (4/868-877). But the quotations attached to this e-mail had the plaintiff’s pricing and did not include the Furnishings Sub-Quotations.  I think this e-mail was not for sending the quotations to the defendant for the preparation of the tender.  It was too late for that purpose.  It should have attached the quotations with the plaintiff’s pricing to the defendant for annexing to the contract prepared by the defendant and to be signed on 8 January 2009.  Since Mr Yeung had not attached the Furnishings Sub-Quotations to the defendant in this e-mail, they were therefore not annexed to the contract as signed by and the copies of which distributed to the parties.  That also explains why the contract disclosed by the plaintiff and defendant in discovery did not have the Furnishings Sub-Quotations.

50.  The question is whether the Furnishings Sub-Quotations had been sent by the plaintiff to Mr Tsang of the defendant in the course and for the purpose of the negotiation.  If so, whether both sides had taken the one-page Summary Furnishings Quotation and the Furnishings Sub-Quotations together as constituting the quotation of the 11 systems of furnishings and fittings and had intended that they should be and laboured on the understanding that they had been incorporated into and treated as such in the contract.  If that was the case, the fittings and installations specified in the Furnishings Sub-Quotations formed part and parcel of the contract and contained works that the plaintiff was obliged to undertake.  In that event, the fact that Mr Yeung had somehow failed to include the Furnishings Sub-Quotations in the e-mail he sent to Mr Au-Yeung’s secretary in the late afternoon of 8 January 2009 resulting in their omission from the contract as signed is neither here nor there as both sides had entered into the contract on the basis that they were part of the contract.  The plaintiff cannot omit from doing or supplying anything contained in the Furnishings Sub-Quotations simply because they were unintentionally or mistakenly omitted from the signed contract.  The defendant is also entitled to all those fittings and installations in the Furnishings Sub-Quotations.

51.  Mr Au-Yeung dealt with the Furnishings Sub-Quotations in §17 of his 2^nd witness statement.  He denied of having ever seen them.  He pointed out that they were not included in the contract that was disclosed by the plaintiff in discovery. The plaintiff had also admitted in the reply that the contract had only the annexures pleaded by the defendant in its defence which did not include the Furnishings Sub-Quotations. 

52.  In oral evidence, Mr Au-Yeung admitted that the plaintiff had, before making the contract with the defendant, assisted the defendant in inviting tenders from other contractors.  The plaintiff did so by supplying the defendant with a kitchen equipment plan and a document listing the items to be supplied and installed in the food factory. He also said in §28 of his first witness statement that he had invited quotations from five or six contractors and three to four of them had submitted a quotation.  However, he maintained that the plaintiff had never sent the defendant the Furnishings Sub-Quotations.  He also said that if Mr Tsang of the defendant had received the sub-quotations, Mr Tsang would have told him so.

53.  Since the defendant says that the plaintiff had not supplied it with the Furnishings Sub-Quotations, it would thus not have had supplied the same to the other contractors when inviting tender or quotations from them.  One wonders how the defendant would have advised these contractors about the defendant’s needs.  Mr Au-Yeung seemed to have tried dealt with this question in §28 of his witness statement.  He agreed that the plan supplied by the plaintiff did not reflect all the works required by the defendant from the potential tenders.  He therefore briefed the potential tenders of his functional requirements so that they could put in their quotations.

54.  However, in the light of the tremendous amount of details in the three sets of quotations (in particular those in the Furnishings Sub-Quotations), I cannot see how he could have provided sufficient information to the potential tenders simply by giving them the plan and document on equipment (supposedly the Equipment Quotation and summary quotation of furnishings) and supplemented all the other necessary requirements by an oral briefing to the potential contractors.  The evidence of the defendant’s expert Mr Peter Wong, which I will deal with below, has also shown that this is not workable.

55.  PW1, Mr Yeung on the other hand said in §6 of his 2^nd witness statement that the original quotation (for the food factory) was divided into two parts.  One part was in the name of the plaintiff and was for the supply of kitchen equipment (the Equipment Quotation).  The other was for the fitting out works to be done (namely; the Summary Furnishings Quotation and Furnishings Sub-Quotations) and was issued in the name of Wai Lee Water and Electrical Engineering Company. However, the defendant subsequently asked that the quotation be submitted by one company only.  The plaintiff therefore combined the two quotations into one. 

56.  Mr Yeung further said in oral evidence that if there were no Furnishings Sub-Quotations, no client would accept the sum of HK$1,798,330 for the 11 items in the Summary Furnishings Quotation.  He referred to the sub-quotation for electricity works and said that without the sub-quotation, the client would not know how many sockets were to be installed and hence why the sum of HK$198,520.00 was charged for the electrical works in the Summary Furnishings Quotation.  He also referred to the sub-quotation for drainage works and said that the client would like to know the number of taps and their positions.  For the sub-quotation for air-conditioning works, the client would like to know the type of air-conditioning machine to be supplied and its brand name.  For the sub-quotation for fire service works, the client would like to know the number of sprinklers to be installed.  He also referred to the other items of works in the summary quotation and explained why the client needed to know the details in the sub-quotations.

57.  He was asked in cross-examination whether the client could look at (i) the food factory floor plan (annexure I) and (ii) the six-page Equipment Quotation to determine the power consumption and the electricity power points required in the food factory.  The floor plan depicted in general terms some of the food factory installations and works to be carried out and the Equipment Quotation summarized the brand names and dimensions of the kitchen equipment and their power consumption.  Mr Yeung’s answer was that he had never heard that a client would estimate the number of power points required by counting the equipment on the plan and in the list of equipment.

58.  The defendant’s expert witness DW3, Mr Peter Wong was also asked about the Summary Furnishings Quotation and Furnishings Sub-Quotations.  Mr Peter Wong is a loss adjuster and part of his everyday work is to consider the reasonableness of quotations.  He said in order to consider a quotation, he needed to know the size of the area and how much work was to be done.  Generally speaking, there should be information of quantity and unit price of the articles to be installed.  He opined that the information in the food factory plan annexed to the contract and the one-page summary quotation for furnishings were insufficient for the purpose of consideration.  The summary quotation only contained a lump sum for each of the 11 systems of work in the project.  Just to state that a system of work had to be done would not indicate the scale of the project. 

59.  For the lump sum of HK$198,520 quoted for electrical works in the summary quotation for furnishings, Mr Peter Wong said that there should be another list showing the details of each of the articles required and a plan showing the positions of the switches and the routing of the cable and wiring.  For a large project like the one considered in this action, similar information was required for the water supply and drainage works, air-conditioning works, and fire service works.  For a project that involved HK$1,798,330 (in the summary quotation for furnishings), there should be eight to ten plans.  Mr Yeung of the plaintiff indeed confirmed in oral evidence that he had supplied the defendant with plans for the electrical works, air-conditioning works, and water supply and drainage works, though not the fire service plan.  The plan on air-conditioning works indicated the positions of the cooling tower, the fresh air supply machine and the air-conditioners.

The defendant’s alleged oral part of the contract

60.  Though the defendant says that the written part of the contract did not include the Furnishings Sub-Quotations and hence the details of the furnishings and fittings provided therein, the defendant’s case is not without details of furnishings and fittings.  The defendant pleaded in its re-amended defence that there is an oral part of the contract which was made in meetings held in late 2008 to early January 2009 between the representatives of the parties. 

61.  The re-amended defence does not set out the particular terms that were orally agreed.  It merely set forth the terms of the contract which means all the terms agreed in writing and orally.  Some of these terms pleaded in §10 of the re-amended defence are obviously not mentioned in the written part of the defendant’s contract and are disputed by the plaintiff.  They provide that:

“1. the 6 walk-in freezers and coolers marked on the food factory plan should all be freely accessible by wheeled carts or trolleys and with all the fittings and accessories therefor including all plastic curtains for all freezer doors;

2. the carpentry works should include decoration of the main/front entrance to the food factory premises with Formica board fittings;

3. the painting works should include painting of the walls and floors of the flat roofs and repainting of the roller shutter at the main/front entrance to the food factory;

4. the 8 sets of compressors, including all their accessories, for the said 6 walk-in freezers and coolers should be of the German made “Copeland” brand, with one-year manufacturer’s warranty provided by “Copeland” or its distributor; and

5. all the entrances and exits to the food factory should be freely accessible by wheeled carts or trolleys. The main/front entrance to the food factory premises should be fitted with plastic flooring and plastic curtains.” (emphasis supplied)

62.  Mr Au-Yeung referred to the oral terms in §§34, 40 and 41 of his witness statement.  The relevant parts are as follows:

“34. After receiving the quotations from the plaintiff for the food factory works and the office works, I had a number of discussions with Mr. Mok (Mok Kam Hung, the Managing Director of the plaintiff) of the plaintiff on their quotations. I negotiated personally with Mr. Mok for a reduction in their charges ... In those discussions, I also emphasized to him that although the quotations had not set out in great detail each and every one of the various items of works that we would expect to be carried out, in particular the small items or miscellaneous works which we had previously discussed about and had consensus reached in our earlier negotiations and discussions, the plaintiff should nevertheless have all those works carried out as we had indicated in our earlier discussions. Mr. Mok assured me that that should not be a problem.

…

40. The terms of the Written Agreement were formulated based on the prior negotiations between the plaintiff and the defendant. …, the Written Agreement only set out in gist the main areas of the works required under Section II, with some of the details set out in Section IV. …

41. Based on the written terms of the Written Agreement and also the prior oral negotiations as confirmed by me and Mr. Mok …, various works were agreed to be carried out. …, and I would highlight those which are more relevant to this action:

...

(e) According to the Equipment Quotation, … I should supplement that: -

(i) ... It was also orally agreed between the 2 sides that the 6 freezers and coolers which should all be freely accessible by wheeled carts or trolleys.

(ii) ... It was specifically agreed orally between the 2 sides that plastic curtains should be installed at all walk-in freezer and cooler doors to reduce escape of cool air when the doors were left open.

(iii) According to … the Equipment Quotation …, all of the 8 sets of compressors for the said 6 walk-in freezers and coolers should be of the German made “Copeland” brand. ... The plaintiff did orally confirm with us in our discussions that the whole set of the system would be of the German made “Copeland” brand. Clearly, that should have included the accessories for the compressors.

(iv) The plaintiff also emphasized to us that there would be one-year manufacturer’s or distributor’s warranty from “Copeland” for the whole system. ...

(v) ...

(f) Under Clause II.2 …, all the carpentry ... It was therefore orally agreed between the 2 sides that the plaintiff should also carry out some simple decoration of the main/front entrance to the food factory premises with Formica board fittings. ...

(g) Under clause II.2 …, all the painting works. That actually refers to general pre-painting for the food factory premises as necessary. ... However, other parts of the food factory premises would definitely require re-painting. That was just common sense. Those areas which required re-painting but which the plaintiff had failed to do so included the walls and the floors of the flat roofs and also the roller shutter at the main/front entrance to the food factory premises.

...

(k) Under clause IV.4 …, the plaintiff should supply and install all the stainless steel doors at the food factory premises. ... the plaintiff and the defendant did have consensus on this aspect: -

(i) First, it was agreed that all entrances and exits to the food factory premises should be fitting with stainless steel doors. ...

(ii) Further, as mentioned above, there was the consensus that all entrances to and exits from the food factory premises should be freely accessible by wheeled carts or trolleys;

(iii) the flooring of the main/front entrance to the food factory premises should be fitted with plastic flooring, as part of decoration for the main/front entrance; and

(iv) the entrances and exits …, including the main/front entrance and those at the flat roofs, should be fitted with plastic curtains. ...” (emphasis supplied)

63.  DW2, Mr Chau was not involved in the making of the alleged oral terms.  He only heard about them from Mr Au-Yeung.  He said in §6 of his witness statement:

“The Written Agreement and the other documents annexed to it did not set out all the details of the works to be carried out by the plaintiff for the defendant under the contract. Mr Au-Yeung also told me about the various aspects of the food factory works and the office works which he had, in his prior negotiations with the representatives of the plaintiff, agreed to have to be carried out by the plaintiff for the defendant.”

64.  Mr Chau in fact had played very little role in the making of the contract as he was in another full-time job and only joined the defendant on 1 February 2009.  He also confirmed in oral evidence that he was not involved in the negotiating of the written terms of the contract.  

The defendant’s submissions on what are the contract terms

65.  Mr Lee, counsel for the defendant submitted in his closing submissions that the oral terms alleged by the defendant were part of the contract.  He submitted that the contract as signed by the parties was not a formal building construction contact where one may find all the details of the specifications.  The contract was a home-made one made by the parties apparently without professional or legal advice.  It is therefore not realistic to expect that each and every agreed item of work would have been set out in detail in it as it was for a project involving a contract sum of HK$3.6m. 

66.  Even in the Furnishings Sub-Quotations that the plaintiff alleged were part of the contract, when it referred to the water cooling towers for the air-conditioning, it did not mention the metal “caps” which Mr Yeung admitted to be integral parts of the towers.  There is also no express mention in the Furnishings Sub-Quotations of the construction of a grease tank or its dimension.  Another important omission from the contract are the plans for the air-conditioning/ventilation system, water supply system, water drainage system, electrical system and fire services system.

67.  Mr Lee also submitted that the five-page Furnishings Sub-Quotations were not part of the contract.  He pictured Mr Au-Yeung as a broad-picture person who would only be concerned with the operational needs of the food factory (such as what stoves or cooking equipment were required and where to position them).  He had little concern, if any, about the details like those contained in the Furnishings Sub-Quotations.  He was concerned about the total amount the plaintiff proposed to charge for the entire project.  That was apparently the basis upon which he had negotiated and eventually agreed with Mr Mok, the plaintiff’s managing director – to have the costs of the entire project rounded down to HK$3.6m. 

68.  Furthermore, the Furnishings Sub-Quotations only contained a lump sum for each system of work and did not provide the unit price for the individual items of work.  Thus, even if the defendant would have wanted to consider if the defendant’s quotes for the individual items of works were reasonable, the sub-quotations would not provide the answer.  In any event, Mr Au-Yeung would not have the knowledge or expertise to assess whether the plaintiff’s quotes for the various systems of work were reasonable or not.  Hence, Mr Lee submitted that it was quite unnecessary for the plaintiff to have supplied the Furnishings Sub-Quotations to the defendant for it to assess their reasonableness for the various systems of work mentioned in the Summary Furnishings Quotation. 

69.  Mr Lee also did not consider it necessary for the defendant to have the Furnishings Sub-Quotations for inviting tenders from other potential contractors.  He submitted that the fitting out of the air-conditioning/ventilation system, water supply system, drainage system, electrical system and fire service system all depended on the layout of the food factory as fixed in the layout plan.  With the aid of the layout plan, the contractors could provide their quotations for the various systems of work.  They did would not require the Furnishings Sub-Quotations for this task.  Furthermore, different contractors may have different ways for constructing these systems around the various installations fixed in the layout plan.  They did not have to do it in the same way as proposed by the plaintiff.  Different ways of constructing these systems may also result in different cost efficiency and competitiveness which would be reflected in their quotations or tenders.

70.  Mr Lee also dealt with the evidence of the defendant’s expert witness DW3, Mr Peter Wong on this issue.  Mr Peter Wong made it plain that the Summary Furnishings Quotation (5/952) was grossly insufficient for his consideration of the reasonableness of the price quoted for the systems of work.  Mr Lee submitted that the experts (PW3, Mr Law and DW3/Mr Peter Wong) might have required more information in order to assess the reasonableness of the plaintiff’s quote.  But that is not material because the experts were not involved at the material time.  In any event the defendant’s considerations at the material time were different from what the experts would have.

71.  Mr Lee also referred to the evidence and submitted that the contract should not have contained the Furnishings Sub-Quotations.  He submitted that:

(a)   the plaintiff had admitted in §16 of its reply that its contract had the same composition as the written part of the defendant’s contract.  The defendant’s contract is without the Furnishings Sub-Quotations.  §16 of the reply remained the same in the amended and re-amended versions.

(b)   the contract disclosed by the plaintiff in discovery did not contain the Furnishings Sub-Quotations.

(c)   there is no evidence that the Furnishings Sub-Quotations had been sent by the plaintiff to Mr Tsang or anyone else of the defendant.

(d)   the earlier version of the Equipment Quotation sent by the plaintiff to the defendant dated 18 December 2008 (6/1276-1281) did not contain the Furnishings Sub-Quotations.  (This is only an earlier version of the Equipment Quotation.  The Summary Furnishings Quotation was not part of it. It does not appear to have anything to do with the systems of furnishings.  Hence, I see no reason why the Furnishings Sub-Quotations should be there.  This point has no merit.)

(e)   The email dated 8 January 2009 from the plaintiff to the defendant disclosed by the plaintiff in discovery did not contain the Furnishings Sub-Quotations (4/868-877) though it contained the Equipment Quotation, Summary Furnishings Quotation, and Office Quotation all dated 2 January 2009 and the progress chart (dated 8 January 2009).  These documents were eventually incorporated as part of the annexures to the contract as disclosed by both the plaintiff and defendant in discovery.  This email is the only email disclosed by the plaintiff which attached the quotations to the defendant.

(f)   if the Furnishings Sub-Quotations were of such importance as Mr Yeung had suggested, it is difficult to see why or how its omission could have escaped the attention of everybody in the plaintiff (including Mr Yeung, his colleague and Mr Mok, the plaintiff’s managing director), when the 8 January 2009 email was sent out, when the contract was signed by Mr Yeung, and when the plaintiff’s pleading was prepared by its counsel and verified by the statement of truth signed by Mr Mok for 3 times.

The plaintiff’s submissions on what are the contract terms

72.  Mr Wong, counsel for the plaintiff submitted that there is no or no admissible evidence on the alleged “oral” part of the contract between the parties and that Mr Au-Yeung’s involvement in the making of the contract is not pleaded.  Mr Chau also admitted that he was not involved in the alleged “oral” part of the contract.  I think it is right that Mr Chau had admitted to have nothing to do with the making of the alleged oral terms.  However, the defendant’s case on the making of the oral terms is a pleaded issue though the pleading suffers from a lack of particulars. 

73.  Mr Wong further submitted that where the parties have arrived at a definitive written contract, there is a strong presumption that such contract is intended to contain all the terms of their bargain.  It is also trite that if a contract has been reduced to writing, verbal evidence is not allowed to be given so as to add to or subtract from, or in any manner to vary or qualify the written contract.  There are also insufficient particulars pleaded for the “oral” part of the contract.  He thus invited the court to find that the Furnishings Sub-Quotations were incorporated into the contract.  He also referred to the evidence of both experts and submitted that the Summary Furnishings Quotation (5/952) alone could not enable anyone to ascertain the scope of the works involved.  He said such conclusion accorded with reality.

Decision on what are the contract terms

74.  Though the written contract is not a formal building contract made professionally, it does not mean that the parties had not made an attempt to record in the document what they have agreed.  The plaintiff has produced an earlier draft of the two-page contract drafted on the defendant’s letterhead (3/573-574).  This was obviously prepared by the defendant.  Its content differed significantly from those in the final draft which became the contract as signed.  Its clause 2 did not mention anything about the work to be done whereas clause 2 of the contract contained all the systems of furnishing work to be undertaken by the plaintiff.  These are the same systems of work as stated in the Summary Furnishings Quotation and elaborated in the Furnishings Sub-Quotations.  Clause 2 of the contract also contained some works that were to be provided by the plaintiff free of charge. The same free of charge works were also stated at the end of the sub-quotations under the miscellaneous item.  

75.  Apart from the inclusion of the systems of work and free of charge works, there are other important differences between the two versions.  The project duration was changed from 50 days in the earlier draft to 60 days in the contract.  This necessitated changes to the instalment payment dates.  The penalty clause was also revised.  There was no annexure of any plan or quotation to the earlier draft. 

76.  The most important change in the final draft is perhaps the addition of the clause in clause 4.11 stipulating that upon handover by the plaintiff, the food factory shall be capable of providing the normal operation of a food processing factory and that all kitchen equipment shall function normally.  There was no such provision in the earlier draft.  All these show that the defendant had the intention to state in writing what the parties have agreed.

77.  Furthermore, the contract was not made in a rush.  Mr Au-Yeung said from §15 of his witness statement onwards that the defendant had started negotiating with the plaintiff in around mid-2008.  He referred in §34 to earlier negotiations and discussions.  After all terms of works were agreed, he still had another 3 to 4 discussions with Mr Mok on the final contract price. 

78.  Regarding Mr Lee’s argument that it is unrealistic to expect each and every agreed item of work to have been set out in detail in this substantial contract involving HK$3.6m and that there are omissions even in the alleged Furnishings Sub-Quotations which contain numerous details and breakdowns of the works.  He referred to the omissions of the metal caps for the cooling towers, the construction of grease tank or its dimension and the plans for the air-conditioning/ventilation system, water supply system, water drainage system, electrical system and fire services system. 

79.  I think there is always a limit on the amount of details that should be included in the description of any item in the quotation.  I do not consider it necessary to state that a freezer or cooler should have a door as it cannot work without one.  But if a particular kind of door such as an automatic door operated by an electronic sensor is needed, then it should be specified unless this is the only type of door that comes with the specified model.  For things like plastic curtains to be attached to the doors of freezers and coolers and at the entrances to and exits from the premises, they are not integral parts of the doors, entrances or exits as they are not indispensable for the use of the doors, entrances or exits.  They are things that are nice to have only. 

80.  For the cap for the cooling tower, it is an integral part of the tower.  I do not consider that it necessary for it to be expressly mentioned.  For the grease tank at the flat roof, its construction has been provided for in item 9 of the water supply and drainage sub-quotation though without the dimensions (3/589 and 3/634). It is also mentioned in items 7 and 8 of the same sub-quotation.  Regarding the plans Mr Lee mentioned, Mr Yeung has said in evidence that save the plan for fire prevention, the other plans had been furnished to the defendant though they have not been annexed to the contract.  It is also the plaintiff’s case that there were the Furnishings Sub-Quotations as part of the contract.  If that is the case, the absence of the plans would still not let the plaintiff the total freedom to install what systems it may desired as the sub-quotations have set forth numerous details of the works already.  

81.  In the light of the above analyses, I am of the view that the parties had recorded in the contract what they had agreed.  If the parties should have agreed on the items that the defendant now allege as oral terms, I cannot see why these items would not have been reduced in writing and be made part of the contract.  These items could have been incorporated in the Equipment Quotation or be appended to the end of the Summary Furnishings Quotation or added to clause 2 of the contract easily. Of course, if the defendant should have only thought of the need to have extra or different items after the contract was made, then the new items will have to be added as variation items.  To have variation items added to the contract afterwards is a most common thing in the field of building construction. 

82.  In fact, the quotations dated 11, 19 and 25 March 2009 are indisputably subsequent variations (the March Variations) (7/1498-1450).  There is also the dispute of whether the alleged April Variation is indeed a subsequent variation (5/1095).  I will deal with it below.

83.  Regarding the Furnishings Sub-Quotations, Mr Lee submitted that Mr Au-Yeung is a broad-picture person who would only be concerned with the operational needs of the food factory and the total price for the project rather than the details like those contained in the Furnishings Sub-Quotations.  The sub-quotations also contained only a lump sum for each system of work and not the unit price for the individual items of work.  Hence, they cannot be used by the defendant to consider the reasonableness of the quotes.  In any event, Mr Au-Yeung would not know how to consider the reasonableness of the quotes therein.  Hence, Mr Lee submitted that it was quite unnecessary for the plaintiff to have supplied the Furnishings Sub-Quotations to the defendant for it to assess their reasonableness. 

84.  I would point out that it is not the defendant’s case that it had expressly told the plaintiff not to furnish it with the Furnishings Sub-Quotations because the defendant would not rely on them or they would be of no use.  Hence, the question is whether the plaintiff would have in the ordinary cause supplied the defendant such sub-quotations in quoting a price for their works. 

85.  Secondly, if Mr Au-Yeung were indeed unable to assess the reasonableness or otherwise of the quotes in the sub-quotations with breakdowns, I wonder how he would be able to assess the price overall for the systems in the Summary Furnishings Quotation which has no breakdown or detail on the works.  If he had no interest even to consider the reasonableness of the Summary Quotation, I wonder what basis he had for considering how much to pay for the furnishings.  He surely could not have worked from a total lack of information on the various systems of furnishings. He would surely have to know what he would be provided with in the whole food factory before agreeing to pay HK$3.6 million for it.  If he did not enjoy going through the details in the sub-quotations, he could and would have asked the defendant’s staff to do it.  All the undisputed quotations and the Furnishings Sub-Quotations were addressed to Mr Tsang, the defendant’s Deputy General Manager and he was a member of the team that negotiated with the plaintiff on this project.  Surely, Mr Tsang would not have ignored the Furnishings Sub-Quotations if they had been sent to him.  Mr Tsang has not been called and there is no suggestion that he has already left the employment of the defendant or any company under Mr Au-Yeung’s control.

86.  Mr Lee also submitted that the defendant did not have to provide the Furnishings Sub-Quotations to the potential tenderers when inviting quotations or tenders from them.  It was enough for the contractors to rely on the layout plan and perhaps also the Equipment Quotation to come up with their quotations for the various systems of work.  They could choose ways different from those of the plaintiff for constructing the various systems around the fixed equipment and thus produce different cost efficiency and competitiveness reflected in their quotations or tenders. 

87.  Before considering this submission, I would briefly describe some of the contents of the Furnishings Sub-Quotations.  I have already set forth above three sub-quotations as examples of what they contain.  Their contents include the quantities of items like electric switch, ordinary socket, special socket for particular types of equipment, light point, emergency lighting point, water tap, drainage outlet point, electric pump for pumping waste water, water closet, air-conditioning machine, firefighting sprinkler, firefighting hose, emergency lighting set, and fire extinguisher. 

88.  The sub-quotations also specify matters like the water pipes for various purposes should be made of copper with plastic wrapping and be made in Australia, the four sets of pumps for grease tanks should be made in Taiwan, the two air-conditioning machines should be of Mitsubishi brand, the cooling tower should be of 20 horsepower, the Kanga brand of waterproof material to be used, the floor to be elevated to 5 to 7 inches, the size and thickness of floor tiles to be used, the height of the newly built storeroom, changing rooms and toilets should be at 2.5 metres and that their walls and doors be covered with fireproof plywood, all walls of the factory be lined up with stainless sheet of 1 mm thickness and up to 8 feet high, the stainless steel surface drainage channel should be of 10 inch wide and 100 foot long and be covered with stainless steel, the ceiling of the factory be painted in white with Camel brand paint, and the height of the flat roof be elevated and the floor slanted and then painted with Flying Fish brand of paint.  It is also stated at the end of the sub-quotations that the labour and material for constructing a refuse collection room with brick wall at the exit should be a gift. 

89.  Though there is no pricing for each and every item, there is a price at the bottom of each of the systems of work.  Mr Peter Wong called this a lump sum contract (3/588-592).  I think he was referred to each of the systems of work as a lump sum contract.

90.  Regarding Mr Lee’s submission on how the tender exercise was conducted, I suppose the defendant had only asked the tenderers to produce a quotation/tender for the furnishings that is similar to the Summary Furnishings Quotation.  It is not the defendant’s case that it had asked the tenderers to provide anything like the Furnishings Sub-Quotations but not from the plaintiff.  If the defendant had not received from the plaintiff such sub-quotations but could still go ahead with the tender exercise, I see no reason why it would have asked the tenderers to provide it with anything similar to the sub-quotations.  However, if the defendant should have received from the tenderers quotations/tenders similar to the sub-quotations, then I also see no reason why it would not have asked the plaintiff for the same at least for the purpose of comparison.

91.  Furthermore, the Furnishings Sub-Quotations are not only important for the defendant’s protection, they protect both parties.  They prescribed what the plaintiff had to undertake and provide for the defendant’s benefit and also limit the extent of the plaintiff’s liability.

92.  If the defendant in the tendering exercise had indeed not received from the plaintiff or the other tenderers any document similar to the Furnishings Sub-Quotations but just a document similar to the Summary Furnishings Quotation, then I wonder how the defendant could have considered which tender document (including the plaintiff’s) was more cost effective or competitive.  The Summary Furnishings Quotation has no information on how the systems would be built or what material or its quantity would be used.  This submission is simply unreasonable.

93.  Mr Au-Yeung said in §28 of his first witness statement that he had quotations from three to four contractors. I think these quotations must be similar to the Furnishings Sub-Quotations which provided quotes on similar items of furnishings and fittings and the defendant must have compared them with the Furnishings Sub-Quotations from the plaintiff.

94.  Mr Lee also submitted that the experts might have required more information as those in the Furnishings Sub-Quotations to assess the reasonableness of the plaintiff’s quote, but that is immaterial as the experts were not involved at the material time and their considerations were different from those of the defendant.  This submission in effect says that the defendant did not require the information in the sub-quotations in inviting tenders or in negotiating the contract with the plaintiff.  I have dealt with above all the reasons in support of this submission.  I would add that DW3, Mr Peter Wong’s evidence has shown that it would not have been possible for the defendant to invite tenders without supplying the potential tenderers the Furnishings Sub-Quotations and all the annexures in the contract. 

95.  Regarding the string of facts relied on by Mr Lee, I think what happened was that Mr Yeung did not realize that he had failed to attach the Furnishings Sub-Quotations to the e-mail he sent to the secretary of Mr Yeung on 8 January 2009 even when he made his first witness statement on 21 June 2010.  He also mistakenly regarded this e-mail as an earlier e-mail that he had sent to the defendant attachment documents for the purpose of the defendant’s tender when he made his second witness statement on 16 March 2011.  The fact that the sub-quotations had been omitted from the contract was obviously not discovered when the plaintiff filed the reply on 5 October 2009.  §16 of the reply was not amended in the amended and re-amended versions probably because there was no amendment to the corresponding §8 of the defence in its amended and re-amended versions.  What is indeed lacking is an explanation from the plaintiff of how this blunder had come about.  This is an important point that tilts strongly against the plaintiff’s case that the Furnishings Sub-Quotations were part of the contract. 

96.  However, in the light of the analyses above, I do not think it possible for the plaintiff and the defendant to have negotiated and then agreed in the contract without the plaintiff having given the defendant beforehand the Furnishings Sub-Quotations and for them to be read together with the Summary Furnishings Quotation.  The Summary Furnishings Quotation alone is not meaningful at all.  Even if it should be read together with the layout plan and the Equipment Quotation, it is still not of much use in conveying to the defendant what was proposed to do in return for the quote of HK$1,798,330.  The defendant needed the Furnishings Sub-Quotations in order to consider the reasonableness of the quotes for the various systems of work to be carried out. 

97.  The defendant, in saying that there was no Furnishings Sub-Quotations, was trying to make use of their accidental omission from the annexures of the contract to make the contract imprecise in scope and thus to advance the alleged oral terms to provide for things that are nice to have. 

98.  In doing so, the defendant was also trying to vary the written terms of the Equipment Quotation by extending the stipulation of the Copeland Brand for the machines of the freezers and coolers and manufacturer’s warranty for them to apply to their accessories as well.  It also wanted to include in the contract the provisions of ramps in front of the freezers and coolers so that trolleys can go in and out of them and also add plastic curtains for their doors.  The same also applies to trolley access to and plastic curtains for the entrances to and exits from the premises.  This is contrary to my observation above that the parties had recorded in the contract what they had agreed. 

99.  I also do not see any reason why Mr Yeung should have fabricated the Furnishings Sub-Quotations.  The sub-quotations contain a lot of specifications on brand names and detail stipulations on the materials and equipment to be used in the various systems of furnishings which the plaintiff had to provide.  They were all addressed to Mr Tsang of the defendant but Mr Tsang is not called to give evidence despite his being a member of the defendant’s team in the negotiation for the contract.

100.  In the light of my analyses above and the submissions of Mr Wong for the plaintiff, I hold on a balance of probability that the Furnishings Sub-Quotations had been sent by the plaintiff to Mr Tsang of the defendant in the course and for the purpose of the negotiation.  I further hold on a balance of probability that both the plaintiff and defendant had taken the Summary Furnishings Quotation and the Furnishings Sub-Quotations together as constituting the quotation of the 11 systems of furnishings and fittings and had intended that they should be and laboured on the understanding that they had been incorporated into and treated as such in the contract.  I further hold on a balance of probability that the defendant has failed to prove that the oral terms were part of the contract between the parties.  I also hold on a balance of probability that the plaintiff has proved that the Furnishings Sub-Quotations do form and are part of the contract though they were accidentally omitted from being included the annexures.

Responsibility to design the food factory

101.  The defendant pleaded in §6 of the re-amended defence that it had engaged the plaintiff by the contract to undertake:

(i)   the design, engineering and fitting out works for the food factory;

(ii)   the supply and installation of the equipment, installations and fittings therein;

(iii)   obtaining and/or procuring the food factory licence;

(iv)   the design, engineering and fitting out works for the office; and

(v)   the supply and installation of the installations and fittings therein.

102.  Though the defendant pleaded that the plaintiff had to design the works for the food factory, it accepted that it had participated in deciding what kitchen equipment was required for the operational needs of the food factory.  It had also taken part in deciding the positioning and layout of the equipment to suit the convenience of their daily use and the operation of the kitchen.  The equipment required and their positioning are reflected in the 6-page quotation (5/953-958) andlayout plan (5/950) bothattached to the contract.

103.  On the question of what equipment to acquire and their positioning in the food factory, I am of the view that Mr Au-Yeung should have played a pivotal role.  He has ample experience in the running of eating establishments.  He was going to run the food factory to supply food for sale in his restaurants and canteens.  He knew the kinds of food and the quantities thereof that his eating outlets could sell.  Hence, he knew what kitchen equipment he required to cook and process the required types and quantities of food.  This is not a matter that the plaintiff could decide for him though the plaintiff could advise him of the capability and/or capacity of different types of equipment.

104.  Regarding the positioning of the equipment, coolers, freezers, working stations and the layout of the kitchen overall, there is evidence showing that Mr Au-Yeung had a clear idea as to what he wanted.  PW1, Mr Yeung said in §10 of his witness statement that DW2, Mr Chau had attended one of the meetings for discussion of the draft layout plan.  Mr Chau also produced a draft layout plan which was different from the draft prepared by the plaintiff (3/571).  However, this plan was rejected by Mr Au-Yeung.  Mr Yeung added in oral evidence that Mr Au-Yeung regarded Mr Chau’s plan as unworkable.

105.  Mr Au-Yeung however said in oral evidence that it was Mr Yeung who said that this plan was no good and he had no right to oppose Mr Yeung.  When pressed further, he insisted that it was not his decision to reject this plan and it was rejected by Mr Yeung and DW2, Mr Wong who said the plan could not work.  Mr Chau however agreed with the plaintiff.  He said in oral evidence that his plan was rejected by Mr Au-Yeung who opined that it would require too much manpower.  I see no reason why Mr Chau would have lied or mistaken about this issue.  I do not believe Mr Au-Yeung on this point.  Mr Au-Yeung lied so as to place a heavy design duty on the plaintiff.  He is not a credible witness at least on this aspect. 

106.  The locations of the toilets and changing rooms were of course matters that the defendant could decide.  From the evidence that I have heard, I do not think Mr Au-Yeung would be contented to take the plaintiff’s suggestion on these matters, if any, without expressing his view.

107.  Mr Yeung in cross-examination said that the position of the equipment would be decided first.  The cables and drains will follow the equipment.  In the present case, the defendant told him what equipment was needed and where to position them.  He then advised the defendant on the viability of the plan.  The plaintiff also drew and amended draft layout plans for the defendant’s consideration.  After the layout plan was agreed, the plaintiff supplied the defendant with plans for water supply and drainage, electricity supply and air-conditioning ducts which indicated the locations of the cooling tower and air-conditioners.

108.  I think Mr Yeung’s evidence is reasonable.  Once the positions of the kitchen equipment, freezers, coolers and working stations are decided, the rest will follow.  There is not much room for design on the water supply, drainage and electricity supply. There may be more room for the design of the air-conditioning machines and ducts as there are technical issues to overcome so as to make the whole place cool and to satisfy the government regulations.  That is more a matter for the plaintiff.  The plaintiff may also have a more important duty on the design of the fire prevention installations as the defendant would not know how to comply with the government’s regulations on this aspect.  There are of course some installations or equipment the details of which the defendant had not decided. That would be left to the plaintiff to work out.  But there are not many of such installations or equipment.  One of which is the system of the sump pumps constructed at the end of the open drainage channel for driving the waste water to the grease tank constructed on the flat roof.

109.  I find that the kitchen equipment including the freezers, coolers, and working stations to be acquired for the food factory and their positioning in the kitchen were matters decided by the defendant whilst the plaintiff had the duty to design the ancillary installations and systems which were to serve and support the working of the equipment by the staff. 

THE TIME WHEN THE 5TH INSTALMENT WAS DUE

   Contractual interpretation

110.  There are two approaches to this. The first one is based on contractual interpretation.  Clause 3.6 of the written contract provided that the 5^th instalment should be paid within one week from the 60^th day after commencement of works.  That was the week after 7 March 2009.  The plaintiff issued an invoice for this instalment on 11 March 2009 and pleaded in the statement of claim that the defendant had failed to pay it when due.  It further pleaded in the reply that the payment of this sum was not linked to the completion of the food factory works.

111.  Mr Lee submitted in his closing submissions that on the proper construction of the contract, the 5^th instalment could only be payable if the works were duly completed.  His reason being that clause 4.11 of the written contract had provided that the project works should commence on 7 January 2009 and be completed within 60 days.

112.  He referred to Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 at 296D-I; Rainy Sky v Kookmin [2011] 1 WLR 2900 at para. 14; Fully Profit (Asia) Ltd v Secretary for Justice [2013] 6 HKC 374 at para. 15; and New World Harbourview Hotel Co Ltd v ACE Insurance Ltd (2012) 15 HKCFAR 120 at para. 34.  He submitted that a literal reading of clause 3.6 would mean that no matter how little the plaintiff had completed, the 5^th instalment would still have to be paid within the week after 7 March 2009.  That does not make sense and is wholly unreasonable.  He further submitted that this clause should be read in the context of the whole contract so that it can be seen that its reference to the 60-day period is a reference to the plaintiff’s obligation to have due completion of the works as required under clause 4.11.  Since the plaintiff had not properly completed the food factory works as required by clause 4.11, the 5^th instalment was not yet due at the time of the commencement of the action, i.e. 16 June 2009.

113.  Mr Wong accepted in his closing submissions that the plaintiff’s pleaded contention did not sit well with the proper interpretation of the entire written contract and especially when read in conjunction with clause 4.11.  He accepted that clause 3.6 itself was drafted to mandate payment within one week of an event which was to take place (i.e. completion of the project works) on the 60^th day after commencement of works.  He accepted that if this payment were not tied to the completion of the works, the clause would have been drafted to mandate payment on the 67^th day after commencement of the works. 

114.  I however differ from both Mr Lee and Mr Wong.  Unlike clause 3.7 which provided that the 6^th instalment would only become due upon the issuance of the food factory licence by FEHD, clause 3.6 did not provide that the 5^th instalment would only become due if the works were duly completed.  If the defendant’s interpretation of clause 3.6 is correct, then the 5^th instalment would only be payable (i) after the plaintiff had properly completed the works and (ii) within the week after 7 March 2009.  It would not be payable even if the plaintiff should have completed the works ahead of time.

115.  If the defendant is correct, then should the payment of the 4^th instalment (30% of the contract sum) be tied in to a certain extent of progress or completion of the works on the 37^th day after commencement of works?  A similar question can be asked regarding the 3^rd instalment of 20% stipulated to be payable on the 25^th day.  The absurdity of this argument by the defendant is really exposed if similar questions should be raised regarding the 1^st and 2^nd instalments which were provided to be payable upon the signing of the contract and on the 1^st day of work respectively.

116.  It is clear that the payment of the 1^st, 2^nd, 3^rd and 4^th instalments did not depend on the extent of completion of the works the plaintiff had achieved by their due days.  If the 1^st, 2^nd, 3^rd and 4^th instalments were payable on their respective due days regardless of how little or how much of the works the plaintiff had by then completed, I cannot see why the payment of the 5^th instalment should be tied in with the full completion of the works. 

117.  I cannot see any magic in the period of 60 days and I do not consider that they could have imported a further condition of due completion of all the works before the 5^th instalment was payable.  The defendant may argue that the words “one week after” are not present in the clauses providing for the payment of the 1^st, 2^nd, 3^rd and 4^th instalments.  But I cannot see why the mere presence of these words in clause 3.6 can make the 5^th instalment payable not just within the week after 7 March, but also upon full completion of the works.  Nor can I see such logic even when the words “one week from the 60^th day” are read as a whole.  This is so when the background leading to the making of the contract is considered and that clause 3.6 is read in the context of the whole contract.

118.  Furthermore, if the parties should have intended that the 5^th instalment should only be payable (i) after the plaintiff had properly completed the works and (ii) within the week after 7 March 2009, then it was open for them to so provide as they did in clause 3.7 for the 6^th instalment.  It is also not the case that the contract has no provision for what may happen upon delay of completion.  Clause 4.12 expressly provided for compensation to be paid by the plaintiff in the event of the plaintiff’s delay though the defendant has abandoned its reliance on it after the trial.  If the parties should have intended that the payment of the 5^th instalment should be within the week after 7 March and subject to completion of the works, they could and should have provided for it in clause 3.6 or 4.12 or somewhere else in the contract.

119.  Finally, there is no dispute that the three-page contract (excluding the plans and quotations) was drafted by the defendant on its letterhead.  If there should be any ambiguity in the meaning of clause 3.6 on whether payment of the 5^th instalment should be tied in with the due completion of all the works, the contra proferentem rule requires the ambiguity to be resolved against the defendant.  I of course find that there is no ambiguity.

120.  In the premises, I hold in favour of the plaintiff that the 5^th instalment of 20% of the contract or HK$720,000 was payable within the week after 7 March 2009.  This was so regardless of whether the plaintiff had completed all the project works on that day.

121.  However, if I were wrong on the interpretation of clause 3.6, the plaintiff still has a fall-back position as advanced by Mr Wong.  It is the plaintiff’s case that it had achieved practical completion by 6 March 2009 and thus entitled to the 5^th instalment then.  I would also say that if the plaintiff should have achieved practical completion not on 6 March 2009, but on a later date before the issuance of the writ, it would still be entitled to the 5^th instalment even on the defendant’s interpretation of clause 3.6. 

Date of practical completion of the contract

122.  If the 5^th instalment was only due within the week after 7 March and subject to completion of the works, then the plaintiff says that it had delivered the food factory premises to the defendant on 6 March 2009 upon practical or substantial completion of works.  Whether this was the case depended on whether the food factory works were in compliance with clause 4.11 of the contract which provided (translation):

“All construction works and kitchen equipment installations on 1/F shall be completed; on the handover day (7 January 2009), the unit on 1/F shall be capable of providing the normal operation of a food processing factory and that all kitchen equipment shall function normally.” (free translation)

123.  DW2, Mr Chau and the secretary of Mr Au-Yeung inspected the works as done and took measurement of the freezers and coolers.  He did not accept that the works had been completed.  He complained that there were defeats and omissions.  The items subject to complain were listed in a letter dated 6 March 2009 and sent to the plaintiff on the following day (5/1016-1017) (“the defects list”). I will deal with the items in the list below.  However, he referred in §12 of his first witness statement to what he found on 6 March and recorded in the defects list as “patent but seemingly not too fundamental defects in the food factory works”. 

124.  In order to consider whether the plaintiff had complied with the contract on 6 March 2009, it is necessary to consider the items in the defects list and see whether they are defects of parts of the works that the plaintiff had to undertake in the contract.  Mr Yeung said in §19 of his 1st witness statement that items 2, 5, 6, 9 to 11, 13, 15 to 20 and 25 in the defects list were subsequent additions. He also dealt with the defects in greater detail in §19 of his 1st witness statement and §§12 to 17 of his 2nd witness statement.  I list below each of the defects and Mr Yeung’s answers thereto (translation):

“1. Big floor not yet painted (due to rainy weather).

2. Concrete wall outside the large sliding door not yet painted (due to rainy weather); and

7. Garbage chute not yet painted (due to rainy weather);

Reply: Item 2 was a subsequent addition. (The defects list noted that all three items were not completed due to rainy weather.) They were painting works outside the door. They were completed on 8 March 2009.

3. Platform for walk-in freezer is raised, door too narrow for trolleys to pass through, [the plaintiff] shall take remedial measure; and

20. Omission of slanted board for walk-in freezer;

Reply: The ramps in these two items were subsequent additions. The Equipment Quotation has already set out the dimension of the door. Raising the floor is a normal method of cooling insulation. Five ramps had been installed on 12 March 2009.

4. Insufficient electricity supply for machines in excess of 400 amp;

Reply: The Equipment Quotation had already specified that the electricity supply was at 400 amp. Mr Yeung further explained in §17 of his 2nd witness statement that the power consumption was increased by the defendant’s replacement of equipment after the contract was made. This is evidenced by the quotation dated 19 March 2009 (one of the March Variations).

5. No plastic curtain for in walk-in freezers;

Reply: This was a subsequent addition. Seven plastic curtains were added to the freezers and coolers.

6. No stainless steel covering for the floor of the doorway for delivery of goods;

Reply: This was a subsequent addition. The stainless steel cover was completed on 12 March 2009.

8. Three electric soap cookers not delivered (sole agent indicated that they would arrive in Hong Kong on 15 March 2009);

Reply: Mr Yeung had also explained in §12 of his 1st witness statement that the three Canadian made boilers would only arrive in Hong Kong in April 2009. In fact, they were delivered and installed on 19 March 2009.

9. No drainage point for location of electric soap cooker, water can only be drained away by pouring onto the slanted floor area, drainage point needs to be added;

Reply: This was a subsequent addition. At the defendant’s request, the plaintiff lengthened the drainage channel by 8 feet to the location of the soap boiler.

10. Only one side of the fire exit doors has a vertical bolt installed. The other door has no vertical bolt. [The plaintiff] should add back one vertical bolt;

Reply: This was a subsequent addition. It has been completed.

11. An extra coating of paint needed for the platform of the large oil filter tank at the rear door (near the toilet);

Reply: This was a subsequent addition. It was completed on 8 March 2009.

12. Two oil filters tanks are installed to the sink near the logistic entrance (item no. 14 of [Equipment Quotation]). As [the defendant] has to purchase an automatic vegetable washing machine, [the plaintiff] will add back [the third tank] for [the defendant] later. If [the defendant] decides that the 3^rd tank is not needed, [the plaintiff] shall return the proportionate cost of a filter tank to [the defendant]; and

14. The blender next to the refrigerator should be a dehydrating machine;

Reply: These two items were occasioned by the defendant’s change of the layout of the kitchen. (Mr Chau said in his second witness statement that this merely involved the moving of a machine to another location.)

13. Free standing bone-slicing machine (model T250 CE) — If [the defendant] has not made a table, [the plaintiff] would provide a frame free of charge;

Reply: This was a subsequent addition.

15. [The defendant] accepts the change of door to a side door for the (-)25^o degrees walk-in freezer, and the change to no connecting door with the (-)18^o freezer adjacent to it;

Reply: This was a subsequent addition.

16. Computer wiring location not yet constructed for office;

Reply: This was a subsequent addition.

17. [The plaintiff] shall be responsible for renewing the plastic flooring of doorway of main entrance;

Reply: This was a subsequent addition.

18. Water drainage pipes for the steaming cabinet should all be replaced by copper pipes;

Reply: This was a subsequent addition. This was completed on 7 March 2009.

19. Steel boards should be added to all slanted platforms;

Reply: This was a subsequent addition.

21. Air leakage in (-)25^o degrees walk-in freezer;

Reply: The leakage was repaired on 10 March 2009.

22. Floor tiles should be paved at the doorway of all entrances;

Reply: This was not a problem.

23. Drainage pump function (not operating fully);

Reply: This was not a problem.

24. Water tap to be replaced by the “swing” type (left-right swinging);

Reply: This was not required in the contract. I was alter cancelled by the defendant.

25. Cylindrical water filter pipes to be added to all sinks.

Reply:   This was a subsequent addition.  This was completed on 12 March 2009.”

125.  Apparently no missing item recorded in the defects list can fit into any item in the Furnishings Sub-Quotations, but many such items are within the oral terms of the contract as alleged by Mr Au-Yeung.  The plaintiff remedied many of these items and later issued a quotation dated 12 May 2009 for additional work done and supply of materials (5/1095).  This is the April Variations. 

126.  Mr Yeung said items 2, 5, 6, 9 to 11, 13, 15 to 20 and 25 were new requests that were outside the scope of the contract.  On the basis of my decision that the Furnishings Sub-Quotations were part of the contract but the oral terms were not, Mr Yeung is right.

127.  Regarding the items that were within the scope of the contract, items 1 and 7 (together with the newly added item 2) were painting works delayed by rainy weather.  They were completed on 8 March.

128.  Item 4 involved the dispute of whether the Furnishings Sub-Quotations were part of the contract. The complaint by the defendant is the inadequacy of supply of 400 amp.  The plaintiff says that the sub-quotation for electricity in the Furnishings Sub-Quotations had specified the supply of labour and material for making a 400-amp master electricity with one 400-amp Mitsubishi master switch and one 200-amp Mitsubishi sub-switch.  Mr Yeung also explained in §17 of his 2nd witness statement that the power consumption was increased by the defendant’s replacement of equipment after the contract was made.  He further said in oral evidence that the replacement of four pieces of equipment (7/1499) had caused an increase of power consumption from about 65 amp to about 103 amp.

129.  In any case, the plaintiff had initially advised the defendant to have a power supply of 400 amp for all the equipment and installations it sought under the contract.  If the plaintiff should have replaced equipment to the defendant at the defendant’s request and the replacement would make the power supply inadequate, the plaintiff would have the duty to advise the defendant about the inadequacy and on what to do so as to have a smooth operation of the food factory and proper function of the equipment.  The plaintiff’s failure to do so would amount to a breach of the contract.  The defendant had carried on a trial run of the kitchen from the end of March to about 23 May 2009.  It appears that this insufficiency of power supply did not prevent the kitchen from functioning normally in that period.  Though there was a complaint of insufficient electricity supply in §4 of the defects list, there was no similar complaint in the minutes of a meeting purportedly held on 30 April 2009 which will be referred to in detail below.  However, the defendant would be entitled to damages for putting right the problem.

130.  Regarding item 8 on the delay of delivery of the three Canadian made boilers, both Mr Au-Yeung and Mr Chau did not challenge Mr Yeung’s case that there was an early understanding before making the contract that these boilers would come late (§15 of Mr Au-Yeung’s 2^nd witness statement).  They had indeed been installed on 19 March.  This is thus not a breach of contract by the plaintiff. 

131.  The defendant did not deny that items 12 and 14 were caused by defendant’s change of the layout of the kitchen.  Mr Chau also said that this complaint was only about the moving of a machine to a different location.  Thus, this cannot be a breach of contract by the plaintiff.

132.  Item 22 on the paving of tiles is not in the contract.  Mr Chau said in §20 of 2^nd witness statement that item 24 is not a matter of complaint in this action.  Thus only items 21 (air leakage in the (-) 25^o degrees walk-in freezer) and 23 (drainage pump function (not operating fully)) are within the contract.  However, they could not have affected the tendering the substantial completion of the food factory works by the plaintiff.  I also note that Mr Chau when giving evidence 3 July 2014 before the morning break confirmed that save items 23 and 24, all the items in the defects list had been rectified.

133.  Regarding substantial completion and the employer’s liability to pay the contract price, Keating on Construction Contracts, 10^th Ed. §§4-016 to 4-0019 state:

“4-016 In the ordinary lump-sum contract the employer cannot refuse to pay the contractor merely because there are a few defects and omissions. If there is substantial completion it must pay the contract price subject to a deduction by way of set-off or counterclaim. No deduction may be made from the price of omitted work unless the omission was a breach of contract by the contractor. Where work has been carried out in substantial compliance with the contract, the contractor is entitled to be paid the contract price less the cost of remedying any defects. The principle to be applied is usually traced back to Lord Mansfield CJ who said:

‘Where mutual covenants go to the whole of the consideration on both sides, they are mutual conditions, the one precedent to the other. But where they go only to a part, where a breach may be paid for in damages, there the defendant has a remedy on his covenant and shall not plead it as a condition precedent.’[1]

4-017 The principle is illustrated by the law relating to sale of goods, which makes a distinction between conditions, breach of which gives a right to reject the goods and warranties, breach of which gives no right to reject the goods but leaves the buyer to its claim for damages.

4-018 In applying the principle to construction contracts, although the question is one of construction:

‘… when a contract provides for a specific sum to be paid on completion of specified work, the courts lean against a construction which would deprive the contractor of any payment at all simply because there are some defects or omissions.’[2]

It is thought that words at least as strong as “complete in every particular” relating to the payment provision would be needed to exclude the principle.

4-019 Substantial completion. In determining whether there has been substantial or practical completion one test, in the absence of a contractual definition, is whether the work was finished or done in the ordinary sense, even though part of it is defective. It is relevant to take into account both the nature of the defects and the proportion between the cost of rectifying them and the contract price.” (emphasis supplied)

134.  The contract required “the unit on 1/F shall be capable of providing the normal operation of a food processing factory and that all kitchen equipment shall function normally”. Even if the complaint in items 21 and 23 were justified, they were small parts of the contract.  They would not have prevented the plaintiff from achieving practical or substantial completion on 6 March 2009 when plaintiff delivered the food factory to the defendant.  I thus hold that the plaintiff had achieved practical or substantial completion of the works on 6 March 2009.  The plaintiff was entitled to payment of the contract price when due subject to set-off or counterclaim for this defect.  The 5^th instalment would have been due upon the issuance of the invoice on 11 March 2009.

135.  Mr Yeung also said that item 21 was repaired on 10 March.  If this is correct and there is no evidence of any loss or damage suffered by the defendant by reason of the air leakage in (-)25^o degrees walk-in freezer, then the defendant would have no claim for any damages.  Otherwise, it would be entitled to a set-off or counterclaim for its loss and damage. 

136.  There is also a minor dispute as to whether Mr Yeung had presented a certificate of practical completion to Mr Chau for his signature.  But I will not deal with it as I do not consider this an issue of importance for resolving the issues herein.

The date of delivery of the food factory

137.  The plaintiff says that it had delivered the food factory with works completed to the defendant on 6 March 2009 when Mr Chau and Mr Au-Yeung’s secretary made an inspection and took measurements.  He also added in cross-examination that he had handed the keys to the defendant on that day.  Thereafter, the plaintiff could only gain access to the premises with permission of the defendant.  He also saw people in the premises doing cleaning up and that the defendant had cooked food there even before the opening ceremony on 25 March.  

138.  The defendant’s case, however, is that the delivery only took place on 23 March 2009.  Mr Chau also said in §§15 and 16 of his first witness statement that after the defects list had been sent to the plaintiff, he had chased the plaintiff to complete the works for weeks.  It was only on 23 March that the plaintiff delivered what purportedly to be the completed works to the defendant. However, Mr Chau also said in §12 of his witness statement that what he discovered on 6 March were “patent but seemingly not too fundamental defects in the food factory works”. 

139.  Since these defects were not too fundamental, that means the food factory could be operated.  In such circumstances, I see no reason why the defendant would not have taken delivery of the premises.  The taking of possession does not mean that the plaintiff would not have to rectify the defects.  The plaintiff also would not have required the control and occupation of the premises to carry out the rectification. 

140.  The plaintiff’s expert report has reproduced the defects in the defects list and the dates of completion of rectification.  For the items that are regarded by the plaintiff as within the contract, it is the plaintiff’s case that they had been rectified on or before 10 March save the three Canadian boilers which were delivered and installed on 19 March (2/273-274).  Mr Yeung has also said in §20 of his 1^st witness statement that on Monday, 9 March 2009, Mr Mok, he and Mr Wong had a meeting with Mr Au-Yeung, his secretary, Mr Tsang and Mr Chau in which Mr Tsang on behalf of the defendant agreed that the defendant would pay the sum then due under the contract upon the plaintiff completing the works in the defects list.  He further said that the plaintiff had finished the rectification of the defects in the list in one or two days.  I also note that the plaintiff had issued the invoice for the 5^th instalment on 11 March 2009.  I think all these tie in together and there is a ring of truth in Mr Yeung’s evidence. 

141.  The defendant has also produced a list of excerpts of a log book kept by the building manager of the building Jones Lang LaSalle (“Jones Lang”) to prove the water seepage problem (7/1546). The excerpts show that the only day before 25 March (the defendant’s opening ceremony) when there was water seepage was 19 March.  That may mean that there was no or no substantial operation of the factory on the other days before 25 March.  However, the defendant only held the opening ceremony on 25 March.  It would not be surprising if it did not operate or substantially operate the factory until after the ceremony. 

142.  In the light of the analyses above, I accept Mr Yeung’s evidence and find on a balance of probability that the plaintiff had delivered possession and control of the food factory to the defendant on 6 March, 2009.

FROM 9 MARCH 2009 TO COMMENCEMENT OF THIS ACTION

143.  Mr Yeung said in §20 of his 1^st witness statement that on Monday, 9 March 2009, Mr Mok, he and Mr Wong had a meeting with Mr Au-Yeung, his secretary, Mr Tsang and Mr Chau in which Mr Tsang on behalf of the defendant agreed that the defendant would pay the sum due under the contract upon the plaintiff completing the works in the defects list.  However, the defendant still did not make payment after the works had been completed. 

144.  Mr Chau gave a different story.  He said after the plaintiff was given the defects list, the defendant chased the plaintiff for completion as the defendant had arranged an opening ceremony on 25 March.  Eventually the plaintiff delivered the food factory and the office on 23 March purportedly having completed all the works. The opening ceremony duly took place on 25 March.  The defendant then started the trial operation of the food factory from the end of March.  Then it came to have a better understanding of the severity of the defectiveness of the works done by the plaintiff.

145.  The defendant made complaints to the plaintiff and the plaintiff sent workers along to rectify the problems.  But the more serious and fundamental defects were not rectified to the defendant’s satisfaction. 

146.  The parties then had a meeting on 30 April, 2009 to discuss the rectification of the defects by the plaintiff.  Mr Chau said that the plaintiff’s representatives had acknowledged the defects raised by the defendant and basically agreed to rectify the same. Mr Chau then prepared the minutes of the meeting to record the defects therein and to propose the rectification works that the plaintiff should carry out (“the minutes of meeting”).  He also gave copies of the minutes to Mr Mok and Mr Yeung in early May when they met for another meeting (4/707-710). 

147.  Mr Au-Yeung had also attended the meeting on 30 April but only for a short while.  He later learnt from Mr Chau that the plaintiff had agreed to rectify the problems raised by the defendant in the meeting.  Furthermore, Mr Mok later visited him at his office and requested him to give the plaintiff time to carry out the rectification works as the plaintiff had no money to compensate the defendant for its loss and damage.  Mr Mok also offered to redo parts of the flooring save the parts underneath the freezers and coolers.  But Mr Au-Yeung disagreed and insisted on the redoing of the whole flooring.  He also insisted that the plaintiff should pay HK$300,000 compensation to the defendant for loss of salaries spent during that period.  Mr Mok however maintained his disagreement.

148.  The minutes of meeting are important as they record the defendant’s complaints after the defects list.  The plaintiff says that they had been prepared by the defendant beforehand and were handed to its representatives at the start of the meeting. I will deal with this dispute below.  The minutes of meeting recorded the following (translation):

“Meeting mainly concerns the remedial measures and effective solutions method adopted for work and equipment failure in fulfilling the details of clause 4(11) of the contract dated 2 January 2009, which states that ‘on the handover day, the unit on 1/F shall be capable of providing the normal operation of a food processing factory and that all kitchen equipment shall function normally.’

	Item
1	Appearance of serious water seepage problem in the workshop, appearance of serious flooding and emission of bad smell in the front and back doors. Mr. Mok Kam Hung (Chairman of Tung Ngar Air-Condition & Steel Group) and the other representatives inspected on site and confirmed the problem, and are willing to take responsibility to reconstruct the present floor slab and redo the waterproofing and to program afresh according to the floor and drainage pipes plans of Shing Hin. Note: Mr. Mok Kam Hung … guarantees and willing to be responsible for all future leakage problems of freezers, therefore rebuilding of floor slab underneath the existing freezers is waived. Duration of construction works: 20 days
2	Shing Hin Catering Group reserves the right to calculate and claim the loss caused by the inability of the food factory to operate normally at present. The problems caused by mistakes in the project that appeared in the trial operation: a.   Serious problem in water drainage – water pump and sensor not working properly b.   Ventilation fan earthing switch disconnect c.   Floor of (-)18 walk-in freezer floated, side plastic coating coming off d.   Door lock of dry storage broken e.   Water drainage of large oil filter not ideal, larger pipe should be installed f.   Plastic ring of fan in (-)24 walk-in freezer melted g.   Pipe of electric sauce cooker not replaced (completed) h.   Pipe switch of small cooker not installed (completed) i.   Some screws in electric sauce cooker and electric fryer not installed (completed) j.   Wrong location of larger freezer engine in balcony, making it not able to be washed k.   Sewage cover of floor in front of office too heavy for lifting when cleaning, should be replaced by a more suitable cover (completed) l.   Main gate not painted m.   Silicone sealant on floors in all freezers wearing out n.   Absence of net filter in air pipe of water tank o.   Additional installation of hinges on large stainless steel door (completed) p.   Additional hinges on freezer doors already showing slanting q.   Safety Certificate of 2 hot sauce cooker (exhaust location) r.   All certificates and drawings for licensing s.   (-)25 degrees’ freezer not a standard freezer t.   Fire exit door lock too loose u.   Water seepage from the floor in the vicinity of the fire door at the rear staircase. v.   Air-conditioner not working properly w.   Insufficient water pressure

(emphasis supplied for more important items)

SHING HIN FOOD FACTORY CONSTRUCTION PROJECT (MAJOR RECTIFICATIONS)

Summary of Rectifications:

*   Design according to requests by Shing Hin Catering Group

*   Redo waterproofing facilities and flooring

*   Re-plan and re-construct location of water-draining pipes

*  Re-plan and re-construct sump pump system

*   Redistribute water supply pipes for avoidance of unequal water pressure

*   Problems of raised floor and separating of seams on freezer floors

*   Thorough check-up of all power supply equipment

*   Ventilation and air-conditioning system

*   Thorough check-up of freezer system

Note on Rectifications:

*   Supply of 2 cargoes storage facilities in podium outside the workshop

*   Flattening of re-constructed floors

*   Enlargement of freezer doors

*   Relocation of sump pump to near grease trap

*   Please use light concrete for flooring

*   2 layers of waterproofing (1 layer on the base first, then light concrete, and another layer of waterproof)”

(emphasis supplied)

149.  Mr Chau said he had another meeting with Mr Mok on 12 May wherein Mr Mok acknowledged the defects and was willing to rectify them.  However, Mr Mok insisted not to redo the flooring underneath the walk-in freezers and coolers as there was no leakage in the flooring underneath the freezers and coolers.  The defendant did not accept this.  There was thus a sort of deadlock. 

150.  Mr Chau then sent a proposed supplemental contract to the plaintiff which required rectification works that were estimated to take 20 days and compensation for waste of wages at HK$177,000.  The proposed supplemental contract stated that there were substantial water seepage problems at the front entrance and rear exit and water dripping on the floor downstairs.  It required the plaintiff to redo the flooring and sump pump system and lay the water pipes and drains.  It repeated some of the complaints in the defects list and the minutes of meeting.  It also required an 18-month defect free warranty.  Finally, it provided that after all the rectification works had been completed, the defendant would pay the plaintiff the outstanding payments due under the contract in instalments (5/1039-1042).

151.  The plaintiff did not accept the proposed supplemental contract.  It instead counter-proposed on 14 May that it would reinstate the situation as shown in the layout plan in the contract.  If there should be any change, the plaintiff would provide quotation for the same.  It also offered a warranty against seepage for the flooring underneath the freezers and coolers and the arear not redone.  It also offered a 12-month defect free warranty.  However, it wanted the outstanding sum due under the contract to be paid in instalments commencing before the start of the rectification works (5/1044).

152.  On 15 May, Mr Chau on Mr Au-Yeung’s instruction rejected the plaintiff’s counter-offer and imposed a deadline at 6:00 p.m. of 18 May for the plaintiff to accept the defendant’s proposed supplemental contract. 

153.  On 19 May, the plaintiff sent the defendant another letter offering rectification works.  The offer to redo the flooring included the flooring underneath two large walk-in freezer and cooler.  It also offered to redo all water supply and drainage pipes and the waste water channel.  But it did not offer any compensation (5/1047).

154.  On 21 May, Mr Chau on Mr Au-Yeung’s instructions maintained its proposed supplemental contract plus a demand of damages of HK$1,178,332 from the plaintiff. 

155.  The plaintiff on 22 May repeated its latest offer made on 19 May plus a two-year warranty for water seepage and the cooling machine system both to run from completion of rectification works (5/1048). 

156.  Mr Chau and Mr Yeung and their representatives had another meeting on 23 May on the rectification works.  The meeting did not bear fruit as the plaintiff did not want to redo the flooring underneath the office, changing room, store and toilets of the food factory.

157.  The defendant stopped the trial run on 23 May.

158.  The parties had another meeting on 25 May wherein the defendant demanded that the whole flooring be redone but the plaintiff only agreed to redo the flooring underneath the two large walk-in freezer and cooler and the flooring of the kitchen area but not the flooring underneath the small freezers and coolers and the office, changing room, store and toilets of the food factory.  The negotiation thus broke down.

159.  Mr Chau also confirmed in cross-examination that the main cause for the breakdown of negotiation was because they could not agree on how the waterproofing works should be done.

160.  Whilst the parties were trying to resolve their differences by proposals, counter-proposals and meetings, they had also engaged solicitors to further their demands.  The defendant’s solicitors complained to the plaintiff on 20 May that the standard and workmanship of the plaintiff’s installations were defective which had caused loss and damage to the defendant.  The problem was aggravated by water leakage to adjoining premises thereby causing nuisance and cancellation of job orders.  They demanded the plaintiff to commence rectification works and to finish the same by 7 June 2009 (7/1501).

161.  The plaintiff’s solicitors replied on 25 May.  They said that the plaintiff had complied with the contract and completed the works at a reasonable standard sufficient for the defendant’s business at the premises.  They also said many of the so-called rectification of defects were in fact additional works outside the scope of the contract that the defendant had forced the plaintiff to carry out (7/1518).

162.  Regarding water seepage, the plaintiff’s solicitors said that the plaintiff had identified two spots with minor water leakage upon inspection and they were not serious enough to have caused the cancellation of the defendant’s job orders.  Furthermore, the plaintiff had wanted to rectify these two minor problems but was prevented to do so by the defendant.  They also said that the plaintiff’s offers dated 19 and 22 May had been withdrawn.  They also demanded payment of the 5^th instalment.

163.  The defendant engaged another firm of solicitors.  They responded on 27 May.  They enclosed the minutes of the meeting held on 30 April and said that the defects had been discussed on many occasions including the meeting.  They referred to the plaintiff’s counter-proposal dated 14 May as admission of liability. They enclosed some photographs and a list of excerpts of a log book compiled by the manager of the building that housed the food factory Jones Lang LaSalle (“Jones Lang”) as evidence of the water seepage.  They demanded the plaintiff to carry out the rectification works in accordance with the defendant’s suggestions for improvements.  They also threatened the plaintiff with the defendant’s alleged loss and damage (7/1521).  

164.  The plaintiff’s solicitors replied on 30 May.  They maintained that there was practical completion on 7 March.  They also said that the minutes of meeting were prepared by the defendant in advance and produced to the plaintiff’s representatives soon after the commencement of the meeting.  The plaintiff’s representatives then left the meeting as the contents of the minutes were totally unacceptable to the plaintiff (7/1549). 

165.  For the purpose of resolving the dispute, the plaintiff through its solicitors proposed that an independent professional be appointed by the two sides to assess the various issues. The plaintiff further proposed that a joint inspection (and testing if necessary) be conducted by the independent professional and the two parties to the completed works, the alleged defects and the design problems for the said assessment. 

166.  They also asked for a list of the outstanding defects for the plaintiff’s consideration.  They further objected to the defendant’s engagement of another contractor to rectify the defects on the ground that such would alter the existing state and condition of the completed works which is the basis of a fair assessment of the defects and infringed the plaintiff’s rights and obligations to rectify the defects under the contract.

167.  The defendant’s solicitors responded again on 12 June.  Regarding the plaintiff’s allegation that the minutes of meeting had been prepared in advance, the defendant’s solicitors said “[w]e note what you say but suffice it to say that our instructions are different.” (7/1552)

168.  Regarding the plaintiff’s suggestion of the engagement of an independent professional by the parties jointly to assess the various issues, the defendant refused the suggestion on the ground that it had lost confidence completely with the plaintiff.  They further say that even an independent professional be appointed to point out the defects, the defendant would still engage another contractor to rectify the defects.  They further say that the dispute on whether the contract was a design and build contract was something that an independent professional could resolve.  At the end they asked the defendant’s solicitors if they had instructions to accept service.  That was the end of the negotiation. 

169.  The plaintiff’s solicitors engaged another firm of solicitors who replied on 16 June.  They said that they had advised the plaintiff to draw up a list of variations and additional works to add to its claim against the defendant if so advised by counsel.  They also stated that the defendant had refused the plaintiff access to the food factory premises.  The defendant had thus shut the door for mitigation despite the plaintiff’s willingness to rectify the defects (7/1555).

170.  I note that when the defendant’s solicitors were writing on 27 May, they were still demanding the plaintiff to carry out the rectification works, but they required the plaintiff to follow the defendant’s suggestions for improvements.  The plaintiff’s solicitors then replied on 30 May and suggested the appointment of an independent professional to carry out an assessment of the various issues. The plaintiff was willing to rectify the defects as assessed (which could mean the redoing the waterproofing for the whole premises).  Hence, the plaintiff was willing to abide by the assessment of an independent professional.  This was sign of cooperation and a reasonable attitude. However, the defendant suddenly changed its stance on 12 June and asserted that it had lost confidence in the plaintiff completely and would not let it carry out the rectification.  It did not say why or what the plaintiff had done in the meantime that had caused its loss of confidence.  Its further assertion that the independent professional could not tell if the contract was one for design and build is also unreasonable. 

Were the minutes of meeting prepared before the meeting?

171.  The defendant’s case is that Mr Chau only prepared the minutes of the meeting after the meeting on 30 April.  He did so to record the defects therein and to propose the rectification works only.  All these matters had been discussed at the meeting.  He gave copies of the minutes to Mr Mok and Mr Yeung in early May when they had another meeting at the defendant’s office.  He did not do so at the start of the 30 April meeting. 

172.  The plaintiff’s case is different.  Mr Yeung said in §25 of his 1^st witness statement that before the parties had proceeded to discuss anything at the meeting, Mr Chau had already produced the minutes of meeting that he had prepared in advance. The minutes also purportedly set out the matters discussed and the defects agreed to be followed.  Mr Mok and Mr Yeung regarded that the defendant had no sincerity to discuss and resolve the difference with the plaintiff.  They therefore left the meeting. 

173.  PW2, Mr Wong did not deal focus on this matter in his witness statements as he mainly dealt with the licensing issue.  He did say in §7 of his 2^nd statement that he had attended the meeting of the two sides held on 30 April and the defendant had raised a demand for revision.  Owing to the revision, he thought that the layout plans had to be revised.  He therefore asked for permission to enter the premises in May.  However, his request was declined.  Mr Lee took this evidence as Mr Wong’s implied admission that there was a meeting with discussions of issues rather than a meeting with the minutes prepared beforehand.  But Mr Lee ignored what Mr Wong had said when cross-examined by him.

174.  Mr Wong recalled in cross-examination that there seemed to be no discussion at the meeting.  Once the plaintiff’s representatives arrived, they were given a list of what had to be done.  He left very shortly afterwards as he did not recall that the parties had gone through the list.

175.  Taking the evidence of Mr Wong as a whole, I do not think that it was in conflict with the evidence of Mr Yeung.

176.  The plaintiff’s case that the minutes were prepared beforehand was also not anything new.  It had been set forth in its solicitors’ letter dated 30 May 2009 (7/1549). 

177.  The defendant’s case is that Mr Chau only prepared the minutes after the meeting and only gave copies of the minutes to Mr Mok and Mr Yeung in early May when they met for another meeting at the defendant’s office.  But the defendant’s solicitors did not say so in their letter dated 12 June replying to the letter of 30 May from the plaintiff’s solicitors.  The defendant’s solicitors only said “[w]e note what you say but suffice it to say that our instructions are different.” (7/1552). I wonder why the defendant’s solicitors were so economical in the use of words.  It would not have required a lot of efforts for them to set forth what Mr Chau had said at the trial.

178.  The more puzzling matter is the pre-amble of the minutes of meeting.  It set forth three representatives of the defendant all by their names.  For the plaintiff’s representatives, the pre-amble only referred to Mr Mok by name.  It then stated that there were two more representatives of the plaintiff, but made no mention of their names.  Both Mr Yeung and Mr Wong were known to Mr Chau.  Mr Yeung had been in charge of this project for the plaintiff from the end of 2008 when the parties were in negotiation.  Mr Wong was responsible for preparing and revising the layout plan and had been involved in the project also from the end of 2008.  Mr Chau had been involved in this project though to a relatively minor extent since the end of 2008.  He joined the defendant on 1 February 2009 and was then the person in charge of this project for the defendant.  He had also joined the meetings in which the layout plan was discussed and revised.  Hence, he was acquainted with Mr Yeung and Mr Wong.  Of the three persons who represented the plaintiff at the meeting, he should be most familiar with Mr Yeung.  If Mr Chau did not prepare the minutes in advance but did so after the meeting, I can see no reason why he would not have referred to Mr Yeung and Mr Wong by their names. 

179.  I also note that the plaintiff would not have secured any particular advantage by insisting that the minutes had been prepared ahead of the meeting as it had subsequent to 30 April admitted liability to various defects that also appeared in the minutes.  But the same cannot be said of the defendant.  The defendant would not want it to be said that it had made the conclusion for a meeting before it was held and then press the plaintiff to accept it because to do so would be high handed.

180.  By reason of the above analyses, I do not accept Mr Chau’s evidence.  I hold on a balance of probability that these minutes had been prepared by Mr Chau in advance of the meeting on 30 April 2009 and were distributed to the people attending the meeting before the meeting had proceeded to any discussion.  I will however take the minutes as a written complaint by the defendant against the plaintiff’s works.

EXISTENCE OF BAD SMELL AND EXTENT OF WATER SEEPAGE

181.  Since the water seepage problem was the main cause for the defendant to have stopped the negotiation of the parties and disallowed the plaintiff from rectifying the defects, I will consider the extent of this problem first.  There is also the associated problem of bad smell at the front entrance and rear exit.  

182.  Mr Au-Yeung said in §56(d) of his 1^st witness statement (4/744) that the waterproofing works were grossly defective which led to serious leakage of water to the floor below and common areas.  That resulted to lots of complaints from the downstairs occupants and the manager of the building.  In oral evidence, he said that the leakage was not limited to the front entrance and rear exit of the premises, but extended to the whole floor and everywhere and covering the carpark below.  It damaged the light box of other occupants. Someone had to use a tray to catch the dripping water.  He had personally paid HK$1,500 compensation to those affected.  He also received leakage complaint every day.  There was also leakage to a tyre repair workshop below.

183.  Mr Chau referred to the seepage problem in the Schedule.  That was compiled according to the findings of the expert report of the defendant’s expert.  I will refer to these complaints in detail below.

184.  Mr Chau also confirmed that the photos produced by the defendant showing the water seepage problem are all at the rear exit to the premises.

185.  I have mentioned above that the defendant’s solicitors have produced to the plaintiff a list of excerpts from the log book kept by Jones Lang referring to the seepage problem.  I reproduce their translation in table form below:

“Jones Lang Lasalle

(Building management Logbook)

O.B. No.	Date	Time	Staff who made complaint	Complained Item
2387	19/3/09 (Thursday)	1430	Bl/C Lee	G/F, 1, Wing Hing complained that there is some sewage coming out from 101-104.
	20/3/09 – 27/3/09 (8 days) (Friday to Friday)
	25/5/09 (Defendant’s cocktail party) (Wednesday)
2653	28/3/09 (Saturday)	0915 (morning)	Bl/C Lee	There is a patch of water at the 1/F back exit of Shing Hin.
2661	28/3/09 (Saturday)	1700	SPA Ng	When patrolling the floors, a patch of water was found at Shing Hin 1/F.
2681	29/3/09 (Sunday)	1100	P.A. Wong	When patrolling the floors, a patch of water was found at Shing Hin 1/F.
	30/3/09 (1 day) (Monday)
2746	31/3/09 (Tuesday)	0905	Bl/C Lee	The secretary of Shing Hin, Miss Lui was contacted regarding the water accumulating problem.
2779	1/4/09 (Wednesday)	0950	Bl/C Lee	BI/C Lee contacted the owner regarding the problem of water leaking from the exit on the 1/F.
2809	2/4/09 (Thursday)	0905	Bl/C Lee	The owner of Shing Hin, Mr. Au Yeung followed up on the matter of water leakage.
2839	3/4/09 (Friday)	0900	Bl/C Lee	On 2 April, at 15:10 pm, the interior designer for Shing Hin, Mr. Mak, repair …
2869	4/4/09 (Saturday)	0800	PA Wong	The water leaking problem from the exit of Shing Hin is serious.
2876	4/4/09 (Saturday)	1900	PA Wong	There is water coming out from the exit of the Shing Hin.
	5/4/09 – 6/4/09 (2 days) (Sunday to Monday)
2958	7/4/09 (Tuesday)	0800	PA Wong	There is a patch of water found on the No. 1 staircase on 1/F.
	8/4/09 – 19/4/09 (12 days) (Wednesday to Sunday)
3353	20/4/09 (Monday)	0800	SPA Ng	There is a patch of water found on the No. 1 staircase on 1/F.
3359	20/4/09 (Monday)	1405	Bl/C Lee	Accused Shing Hin Management of the water accumulating problem.
	21/4/09 – 28/4/09 (8 days) (Tuesday to Tuesday)
3646	29/4/09 (Wednesday)	1100	SPA Ng	There is a patch of water found on the exit of Shing Hin.
3670	30/4/09 (Thursday)	0645	SPA Shing	There is some bad smell coming from Shing Hin.
3674	30/4/09 (Thursday)	0800	PA Wong	There is vomit provoking bad odor coming from the exit of Shing Hin.
3703	1/5/09 (Friday)	0800	PA Leung	The bad odor from the exit of Shing Hin is unbearable.
3716	1/5/09 (Friday)	2300	PA Ko	There is some bad odor coming from the exit of Shing Hin.
3732	2/5/09 (Saturday)	0800	PA Wong	There is some bad odor coming from the exit of Shing Hin.
3763	3/5/09 (Sunday)	0800	SPA Ng	There is some bad odor coming from both the entrance and exit of Shing Hin.
3790	4/5/09 (Monday)	0630	SPA Shing	There is some bad odor sewage found on the 1/F exit of Shing Hin.
3795	4/5/09 (Monday)	0900	Bl/C Lee	There is some bad odor sewage found on the exit of Shing Hin.
3824	5/5/09 (Tuesday)	08:00	Leung P.A.	There is still bad odor coming from the 1/F exit Shing Hin.”

186.  There are 23 entries from 19 March to 5 May 2009.  I have also insert entries for the days where no complaint was made.  I note that none of these entries are on complaint of leakage of water downstairs.  Mr Chau has also confirmed that there was only one instance on 3 May that the log book referred to water at the front entrance of the premises.  This is in line with the photographs produced by the defendant which only showed the rear exit with water seepage. 

187.  It can be seen from the above table that prior to the defendant’s opening ceremony on Wednesday, 25 March 2009, there was only one complaint on Thursday, 19 March.  After the opening ceremony, the first occasion of water seepage was on Saturday, 28 March.  There were four breaks when there was no record of any seepage problem.  The breaks were for 1 day on Monday, 30 March; for 2 days from Sunday, 5 to Monday, 6 April; for 12 days from Wednesday, 8 to Sunday, 19 April; and for 8 days from Tuesday, 21 to Tuesday, 28 April.  There are 39 days from 28 March to 5 May.  The four breaks add up to 23 days.  The number of days when there was no seepage at the rear exit outnumbered the days when there was.

188.  Regarding the bad smell, it came into being for the first time on Thursday, 30 April; i.e. just over a month after the commencement of the trial operation of the food factory and the appearance of the seepage problem at the rear exit.  This complaint was recorded at 06:45 hours in the morning.  That was the day when the parties were going to have a meeting and Mr Chau had prepared the minutes ahead of time.  This problem recurred every day until Tuesday, 5 May when the excerpts ended.  But it was confined to the rear exit save and except Sunday, 3 May when it was found at 8:00 hours in the morning at both the front entrance and rear exit.

189.  The whole floor of the premises was later dug up on 12 and 13 October, 2009.  The defendant’s expert Mr Peter Wong visited the premises on these two days and made a 2^nd expert report recording his findings in the inspection on these two days.  He did not mention in the report that there was any bad smell.  He also said in cross-examination that if there was a little bad smell, he would have written it in the report.  The fact that the floor was only dug up some 5 months later would not have allowed the bad smell to disappear completely if it was there in May 2009.  Hence, the bad smell could not have come from the seepage from underneath of the flooring.  Otherwise, the flooring itself would exhibit the bad smell when dug up. 

190.  Though Mr Au-Yeung said in re-examination that the bad smell was caused by water of meat leaked out, I do not think his evidence is reliable.  If Mr Au-Yeung is right, this problem of smell should have occurred long before Thursday, 30 April as the trial operation of the kitchen had started at the end of March.  Furthermore, the flooring when dug up did not exhibit any smell.  In the light of the above analysis, I do not think there is sufficient evidence to prove on a balance of probability that such smell was caused by the plaintiff’s waterproofing work or other works.  I do not think the plaintiff should be liable for such smell.  In fact, I find the sudden appearance of the bad smell on 30 April and its persistence there every day suspicious.  But I would not want to make any guess on why it suddenly appeared.

191.  Regarding the dispute on the extent of leakage.  Mr Au-Yeung’s evidence as referred to above is that the leakage was everywhere extending to the whole flooring of the premises and resulted in daily complaints from the downstairs occupiers and the management office.  This is however not supported by the excerpts of the log book.  The excerpts do not say that there was any leakage to any unit downstairs including the tyre repair workshop.  Mr Au-Yeung in oral evidence alleged that the management office of not recording the complaints of leakage save and except the occasions of seepage at the rear exit and one occasion at the front entrance as shown in the excerpts above.

192.  Mr Peter Wong also recorded in his 1^st report that the seepage had nothing to do with the plaintiff’s works save one suspicion:

“The [defendant] advised that during the initial stage of their workshop operations, they received complaints from the Management Office regarding water, which seeped to affect the ground floor units, respectively affecting the ceiling of the parking area; a tyre repair workshop and a trading company.

We have undertaken inspections at the respective affected area, but at this stage, we established that the seepage appeared to have been caused by factors other than works undertaken by [the plaintiff], except for one specific spot inside the tyre repair workshop.

Inspection inside the cockloft of the tyre repair workshop revealed an area of seepage of water, whereby the ceiling plaster had seriously been affected, causing lifting of surface paintwork.

We also inspected the area above to establish that the damaged spot corresponds to the installation of the base frame for the grease tank, in which we noted that the base frame was secured onto the floor by use of metal screws, totalling 16 numbers, with 4 screws on each corner of the base frame.

The manner in which these screws were bolted onto the flooring may cause damage to the underlying waterproofing layer and subsequently causing rainwater to penetrate the concrete to affect the lower floor.” (2/322-323) (emphasis supplied)

193.  Save the undisputed seepage at the rear exit as shown in the photos produced by the defendant and excerpts of the log book and the one occasion seepage at the front entrance as shown in the log book, Mr Peter Wong could not find any evidence showing that leakage or seepage from within the premises was caused by the works undertaken by the plaintiff.  He only said that the leakage to the downstairs units were caused by other factors.  He also produced some photographs taken in his inspection. Three of the photographs are said to show water stain marks at the doorframe as evidence of water seepage.  But he confirmed in oral evidence that they all showed the same location at the rear (2/419-420).

194.  I would point out that there was a maintenance order dated 20 April issued probably on the complaint of the defendant.  It stated (5/1103):

“Water dripping in the freezer.

Not water dripping of freezer.  Water seepage from floor slab to downstairs.  (Water) dripping from ceiling to cable tray.”

However, there was just one such occasion despite the trial operation was between the end of March to 23 May.  It was also not corroborated by either Jones Lang’s log book or the expert report of Mr Peter Wong.

195.  Furthermore, though the minutes of meeting prepared by Mr Chau recorded a general complaint in §1 that there was “appearance of serious water seepage problem in the workshop (and) appearance of serious flooding and emission of bad smell in the front and back doors”, the specific problems recorded in §2 only 1 complaint of seepage at the rear exit in item 2u:

“u. Water seepage from the floor in the vicinity of the fire door at the rear staircase.”

196.  Mr Peter Wong also had a suspicion that leakage to the cockloft of the tyre repair workshop might have been caused by the installation of 16 screws in the flat roof at the bottom of the base frame for the grease tank.  The screws were used to fix the base frame in place.  However, there was subsequently no repair to the waterproofing works in this flat roof area.  The two layers of waterproofing works done by a subsequent contractor Yuen Lee Construction and Engineering Ltd. (“Yuen Lee”)were expressly confined to the kitchen area (4/922 C.1 to C.5).  The absence of such repair despite the suspicion of Mr Peter Wong as recorded in his 1^st report can only mean that the suspicion was not proven subsequently.

197.  Mr Peter Wong has also suggested there was no lapping up the wall of the waterproof material in the plaintiff’s waterproof work (3/482 §3 and 483 §6).  Without lapping up, there is no formation of a basin by waterproof material.  However, this has been proved to be wrong.  After being shown the photographs taken by the plaintiff in the course of undertaking its works, both Mr Peter Wong and Mr Chau agreed that there was lapping up of waterproof material in the plaintiff’s waterproof work (6/1224 (plate 138, and 1227, plate 144 to 1230, plate 150, 1231, plate 152, 1232, plate 154, 1233, plate 156, 1243, plate 157, 1235, plate 159 to 1236, plate 162).  Mr Yeung also said in cross-examination that the lapping up appeared to be more than 1 foot though he could not be sure.  But he said the usual practice was to lap the waterproofing material for more than 300 mm.  From the photographs, the height of the lapping is surely clear and significant and would have formed a basin to prevent seepage or leakage.

198.  Regarding the front entrance, there is only one occasion of seepage as recorded in the log book. None of the photographs produced by the defendant or its expert Mr Peter Wong shows seepage at the front entrance.  The minutes of meeting which were prepared by Mr Chau on about 30 April after the trial operation had gone on for a month did not mention seepage at the front entrance.  In the light of these matters, I consider that such infrequent occasion of seepage at the front entrance as recorded in the log book shows on a balance of probability of carelessness on the part of the defendant’s staff rather than a problem of seepage of the flooring at that location as caused by the works undertaken by the plaintiff. I would also reiterate my finding that the bad smell had nothing to do with the plaintiff.

199.  Mr Peter Wong had made other criticisms on waterproofing in his reports but no suggestion of actual water leakage or seepage.  I will deal with them below in the context of the counterclaim.

200.  The defendant relies on the plaintiff’s offers to redo the flooring as admission of liability for the seepage/leakage.  However, Mr Yeung explained in oral evidence that the plaintiff at that time had not had any expert to assist it.  The only way for it to resolve the dispute was to redo the flooring. 

201.  In the light of the evidence of Mr Peter Wong, the photographs which only show seepage at the rear exit, the log book excerpts, the only specific complaint of water seepage in the minutes of meeting is at the rear exit, and the absence of any waterproof repair to the flat roof, I do not consider the plaintiff’s admission of liability by its offers to redo the flooring as sufficient evidence to prove that there was water seepage or leakage in the premises or the flat roof which had been caused by the plaintiff’s works save and except the rear exit.  I find that there is only a water seepage problem at the rear exit of the premises and no water seepage or leakage problem in the other parts of the premises or out there at the flat roof. 

WHAT CAUSED THE PLAINTIFF’S STOPPAGE OF RECTIFICATION

202.  Though both Mr Au-Yeung and Mr Chau alleged that there were complaints from downstairs units of water leakage from the food factory, such complaints were only supported by one maintenance order dated 20 April 2009 which was issued probably on the defendant’s complaint (5/1103).  That single instance of complaint was not corroborated by the log book or Mr Peter Wong’s report.  If there were grounds to suggest that there were daily incident(s) or complaints that were caused by the plaintiff’s works, then there was no reason why Jones Lang would not have recorded them in the log book.

203.  The defendant’s serious allegations of water leakage are not only without independent support or support by its own expert; its own minutes of meeting also had only one specific problem in item 2u in addition to a general complaint of seepage in the whole workshop.

204.  I would also point out that this complaint was recorded in the plaintiff’s expert report as having been made by the defendant on 16 April (2/275, item 52).  But the complaints numbered 36 to 54 in this expert report are word for word the same as items 2a to 2w in the minutes of meeting (save 2d, 2m, 2q and 2r which are not in the report).  Such co-incidence can only be explained by the mistake of the plaintiff’s expert in noting down the date of the plaintiff’s receipt of these complaints. 

205.  I have referred to the defendant’s attempt to rely on the plaintiff’s offers to redo the flooring as the repeated admissions of liability by the plaintiff.  But the admissions should be considered in context.  The plaintiff made the offers because the defendant was refusing to pay it the 5^th instalment that was due. The defendant was demanding the redoing of the flooring as a condition for payment.  It was in such circumstances that the plaintiff offered to redo the flooring.  The offers were made in response to the defendant’s unreasonable demands.

206.  I further note that the defendant had demanded specifically in the minutes that the plaintiff should make “2 layers of waterproofing (1 layer on the base first, then light concrete, and another layer of waterproof)”.  This demand, when viewed against its circumstances, was most unreasonable.  No wonder that the plaintiff’s representatives left the meeting shortly after receiving the minutes. 

207.  The meeting on 30 April did not lead to anything.  The defendant then issued a proposed supplementary contract for the plaintiffs’ acceptance.  I have dealt with above the exchange of offers and counter-offers by the parties.  On 27 May, the defendant’s solicitors were demanding the plaintiff to carry out the rectification works by following the defendant’s suggestions for improvements. The plaintiff’s solicitors then suggested on 30 May the appointment of an independent professional to assess the alleged defects upon which assessment the plaintiff was willing to rectify.  This was a sign of cooperation and a reasonable attitude on the part of the plaintiff.  But the defendant changed its stance on 12 June and asserted without giving reason that it had lost confidence in the plaintiff completely and would not let it carry out the rectification.  That put an end to the negotiation and the plaintiff was not allowed to rectify any defects. 

208.  In the premises, I hold that the plaintiff was standing by the contract and trying to resolve the disputes on defects and their rectification reasonably.  The plaintiff was making a reasonable attempt to resolve the deadlock and to comply with the contract by rectifying the defects.  It was the defendant’s unreasonable attitude that put an end to the plaintiff’s reasonable attempt.  Even if there were indeed complaints from the downstairs occupiers and even if the defendant had been misled by these unjustified complaints, the plaintiff cannot be blamed for them as Mr Peter Wong has already made it clear that the water leakage had nothing to do with the plaintiff’s works.  The defendant should be blamed for believing the unjustified complaints.  The defendant is therefore to blame for the plaintiff’s inability to rectify the defects.  I think the plaintiff was denied of access to the food factory sometime after 12 May 2009 as the last maintenance order issued by the plaintiff on complaint was dated 12 May 2009 (7/1392 and 1395).

THE DEFENDANT’S LIABILITY TO PAY THE 6^TH INSTALMENT

209.  Clause 3.7 of the contract provided:

“After the issuance of the food factory licence by the Food and Environmental Hygiene Department (“FEHD”) for the project, pay 9% of the total project cost (“the 6^th instalment”)”

210.  The pre-condition for payment of the 6^th instalment is the issuance by FEHD of the formal food factory licence.  PW2 Mr Wong was responsible for obtaining the licence for the food factory.

211.  Mr Wong said in §3 of his 1^st witness statement that he had between April and May 2009 telephoned Mr Chau of the defendant several times seeking his permission to enter the food factory.  The purpose of his visit was to inspect the setting of the factory and see if he had to revise the layout plans that had been submitted to the FEHD.  This was for obtaining the formal licence as the provisional licence issued on 30 March was to last for 6 months only.  However, Mr Chau declined his requests on the ground of inconvenience. 

212.  Mr Wong had been advised by the defendant on 22 April 2009 of a letter from the FSD dated 3 April 2009 asking for correct labelling on the ventilation drawings (7/1398). Another letter dated 20 April 2009 from the FSD asking for the as-built ventilation drawings was given directly to the plaintiff’s representative (7/1400-1401).

213.  Mr Chau denied that Mr Wong had made any such phone call to him for inspection or that he had turned down such requests.  But he admitted in cross-examination on 3 July 2014 shortly before the lunch break that in April and May 2009, the parties were arguing.  No one at that time would have invited the government departments to inspect the factory.

214.  Since the provisional licence was only for 6 months and would expire on 30 September 2009 and it was Mr Wong’s duty to obtain the formal licence for the food factory, there was every reason for Mr Wong to have made the phone calls to Mr Chau with a view to visit the factory.  There were also the two letters from FSD asking for ventilation drawings.  Mr Wong thus had to inspect the facilities of the food factory as-built so as to provide revisions to the plans that had been submitted to FEHD previously in support of the application for licence.

215.  Furthermore, the plaintiff was still cooperating with the defendant in April and May with a view to resolve the problems of defects and eventually obtain payment from the defendant.  To obtain the formal licence is a pre-condition for the payment of the 6^th instalment.  What Mr Wong said in evidence was in line with what he should have done.  It was also in line with what the plaintiff was doing and hoping to achieve – to obtain the 5^th and 6^th instalments.

216.  Judgment from the counterclaim, there are not a lot to be done by the plaintiff in order to procure the issuance of the formal licence.  Not all the alleged defects would have affected the issuance of the formal licence.  There was thus every reason for Mr Wong to have wanted to proceed with the outstanding works so as to obtain the formal licence.  To update the plans was one of the things that had to be accomplished.  

217.  However, the defendant at that time was unwilling to pay the plaintiff any money unless the plaintiff would first comply with its demand to complete the substantial rectification works according to its directions.  The defendant wanted the plaintiff to redo the flooring and waterproof underneath from afresh and with two layers of waterproof materials.  From the evidence on the counterclaim to be considered below, it transpired that the design of the freezers and area of usage of the kitchen had to be changed too.  The defendant was thus not ready for inspection by the government departments for issuance of formal licence.  Mr Chau also admitted in oral evidence that in that period, no one would have invited the government departments to inspect the premises. 

218.  Furthermore, if Mr Wong should have inspected the premises and then provided the FEHD satisfactory revised layout plans leading to the issuance of the formal food factory licence in or about May or June 2009, that would have weakened the defendant’s demand for the plaintiff to undertake the substantial rectification works.  Hence, there was a reason for the defendant not to give Mr Wong permission to inspect the kitchen at that time despite its willingness to let him know about the demands of the FSD.  To the defendant, the appropriate time for the inspection should be after the rectification works had been completed by the plaintiff.

219.  Mr Lee submitted in §37 of his closing submissions that the workers of the plaintiff had access to the food factory for rectification or follow-up works up to 12 May 2009 (5/1100-1104; 7/1390-1392).  However, that position changed at the latest since 12 June when the defendant’s solicitors turned down the plaintiff’s suggestion of an assessment of the defects by a joint independent professional or the rectification of defects by the plaintiff.  There was no more defect maintenance order of the plaintiff after 12 May 2009 (7/1392-1395).

220.  In the light of the above considerations, I reject the defendant’s case on this.  I accept Mr Wong’s evidence which is reasonable.  I find that the plaintiff has proved on a balance of probability that Mr Wong had made the requests in April to May 2009 to Mr Chau for access to inspect the food factory for the purpose of obtaining the formal food factory licence.  However, Mr Chau turned down these requests.

221.  Apart from denying that Mr Wong had sought permission of access to the food factory for revising the plans, the defendant also claimed that there were other outstanding defects and works that had prevented the issuance of the formal licence.  They were rectified by other contractors.  I will deal with them in detail under the counterclaim below.  However, I would deal with a complaint on documents here first.

222.  Mr Chau listed in §2r of the minutes of meeting a complaint:

“r. All certificates and drawings for licensing”

223.  In so far as this complaint related to the revised layout plans and drawings that Mr Wong intended to compile after inspecting the factory, their unavailability was due to the defendant’s own fault in refusing access to Mr Wong.  In so far as they related to other certificates and drawings, they eventually did not prevent the defendant from obtaining the formal licence.  They are matters for the counterclaim which I will deal with below.

224.  Mr Chau in §30 of his 1^st witness statement also referred to a letter dated 17 April 2009 issued by the Fire Services Department (“FSD”) which advised the defendant that the requirements in “item 5 of PPA101(B)-2 and ventilation/air conditioning control systems” remained unfulfilled (6/1308). Mr Wong had been advised by the defendant on 22 April 2009 of another FSD letter dated 3 April on the labelling on the ventilation drawings (7/1398) and should have learnt of another FSD letter dated 20 April 2009 asking for the as-built ventilation drawings.  I therefore find that he should have been advised of this FSD letter dated 17 April 2009 on the unfulfilled firefighting requirements.

225.  Mr Chau explained in §30 of his 1^st statement that these unfulfilled firefighting requirements were the provision of various firefighting equipment or replacement of the poor ones provided by the plaintiff with new ones that were up to standard (3/674).  He also said in §53 of his 1^st statement that the defendant had engaged Wellex Company (“Wellex”)to install 2 sets of new emergency lighting system, replace one set of such system in the female toilet and provide fire blankets all for HK$2,600 (3/684 and 4/930).

226.  The other matters in the counterclaim that are relevant to the issuance of the formal licence are grouped by Mr Chau in §8 under (C) “The Air-Conditioning & Ventilation System” and in §§12, 13 and 14 under (F) “Miscellaneous” of the Schedule. 

227.  §8 under (C) alleged that the plaintiff had failed to provide for the ventilation/air conditioning control systems required by the FSD as per the letter dated 17 April 2009.  §14 of (F) alleged that the plaintiff had failed to install an emergency switch for activating the ventilation system in the event of fire.  I think these two are related installations.  §12 of (F) referred to the items made good by Wellex Company as referred to above. §13 of (F) alleged that the plaintiff had failed to install sufficient and proper fire sprinklers. These alleged defects were made good by Wellex and Yuen Lee at a total costs of HK$95,600 (4/926 and 930).  If the defendant should have allowed to proceed with the works that are necessary for the issuance of the formal licence, the plaintiff would have completed them in a week or two.  I will deal with them in detail as parts of the counterclaim below.  

228.  Without prejudice to the plaintiff’s liability to pay for the rectification of the above claims in the counterclaim, I am of the view that all these matters that had been done by the other contractors could have been done by the plaintiff had the plaintiff been allowed access to the factory premises to carry out the necessary works.  Hence, I find that the plaintiff’s inability to obtain the formal licence for the food factory was caused by the defendant’s obstruction.  I therefore allow the plaintiff’s claim for the 6^th instalment as to refuse this claim would amount to allowing the defendant to benefit from its own wrong as submitted by Mr Wong in §13 of his closing submissions (see Alghussein Establishment v Eton College [1988] 1 WLR 587 and Kensland Realty v Whale View Investment Ltd (2001) 4 HKCFAR 381).  I hold that the plaintiff is entitled to the 6^th instalment of HK$324,000.

THE APRIL VARIATIONS

229.  The April Variations are as follows:

	Description	Quantity	Unit price (HK$)	Total (HK$)
1.	Painting the wall outside the sliding door of big balcony	1	8,300.00	8,300.00
2.	Installing additional plastic curtains for all freezer doors	7	3,800.00	26,600.00
3.	Installing metal plate platform and painting below the door of the big balcony	2	2,300.00	4,600.00
4.	Painting of the floor (with additional layer of paint on top) of the small balcony platform	1	4,200.00	4,200.00
5.	Installing opening for computer wires in the office of the food factory	1	2,200.00	2,200.00
6.	Changing, supplying and installing plastic flooring to the main entrance platform	1	800.00	800.00
7.	Changing PVC tubes of all electric steamers and stoves to bronze tubes	1	700.00	700.00
8.	Installing additional tilting aluminium platform to the entrance point of freezers	5	950.00	4,750.00
9.	Adding overflow original pipes to sink	4	250.00	1,000.00
10.	Installing water supply together with water taps to western soup stoves	2	550.00	1,100.00
11.	Installing water supply together with water taps to low electric stoves	3	550.00	1,650.00
12.	Installing web filter to the exhaust pipe of water tank in the big balcony	2	460.00	920.00
13.	Installing plastic curtains to main entrance door	3	4,600.00	13,800.00
13A.	Installing plastic curtains to main entrance door	1	3,800.00	3,800.00
14.	Removing U-shape metal on low external wall of the big balcony	5	1,800.00	9,000.00
15.	Installing side metal plate to electric frying stove	1	420.00	420.00
16.	Installing metal plate (and painting oil) to big high/low temperature freezers	1	23,500.00	23,500.00
	Total			107,340.00

230.  The defendant has only denied liability for the whole item of April Variations.  It has, however, not disputed the reasonableness of the quantum claimed by the plaintiff for each and every of the items therein. 

231.  Mr Lee dealt with these items for the defendant in §§111 to 118 of his closing submissions.  He referred to the contemporaneous conduct of the plaintiff and submitted that the items in these alleged variations were not variations of the contract. 

232.  Mr Lee’s first point is that the defects list in the plaintiff’s expert report showed that the majority of items in the April Variations had been completed in March 2009.  However, they were not included in the 3 March Variations (7/1498-1450).  The first quotation of the March Variations was dated 11 March 2009.  It was for 5 working tables and 1 water boiler.  The next one was dated 19 March 2009. It was for change of equipment in the Equipment Quotation.  It quoted the replacement of two blenders, a dehydrating machine and a bone cutting machine (originally items 17, 21 and 22 of the Equipment Quotation) with similar machines of larger dimensions, capacities and power consumption.  The third one was dated 25 March 2009.  It was for the supply of 2 trolleys.  Mr Lee also said that the “quotation” for the April Variations was dated 12 May 2009 (5/1095). It could not have been a quotation for the defendant’s agreement before work was being done as the works had already been completed long before then.

233.  I note that these three quotations were issued for different categories of things.  However, the items in the April Variations are very varied.  Mr Yeung, when cross-examined, said that he had to complete all the works, calculate the price and then prepare the quotation.  He did not have time in March 2009 to prepare this quotation.

234.  Mr Lee’s next point is that Mr Yeung could not tell when the April Variation quotation was sent to the defendant.  It was never signed by the defendant.  No invoice had been issued by the plaintiff to the defendant for such “variation” works.  Mr Chau said in his statement that he had never received it (3/672-673 §26) and it was never mentioned in any statement of account issued by the plaintiff to the defendant including one dated 5 June 2009 (6/1312).  Despite this open challenge, the plaintiff still did not discover any subsequent statement reflecting the alleged sum being due for the April Variations.  Hence, there must be no such statement that reflected the sum due as the plaintiff never considered these items to be genuine variations or that the defendant had to pay for them.

235.  Mr Yeung was cross-examined on all these points.  He said he could not recall if this quotation dated 12 May (5/1095) had been sent to the defendant as this matter was handled by his colleague.  He agreed that it was not signed and returned by the defendant.  It was not listed in the statement dated 5 June 2009 because the parties were still arguing over it.  I also note that the statement dated 5 June 2009 (5/1085) stated that its cut-off date was 30 April 2009 which was before the date of the quotation for April Variations. 

236.  Regarding the point of no later statement reflected the sum due was disclosed by the plaintiff, I doubt if the issue of any further statement to the defendant after the one dated 5 June 2009 would be meaningful as this action was started on 16 June 2009.  Furthermore, if such further statement had been issued to the defendant, the defendant would also have disclosed it.  Since neither side has produced any further statement, I can only assume that there was no such statement.

237.  I further note that the quotation for the April Variations was addressed to Mr Au-Yeung and Mr Tsang. Mr Chau was emphatic in his witness statement that he had never received any quotation, invoice or statement for the April Variations.  However, Mr Au-Yeung in his 2^nd witness statement (4/839 §18) just dealt with the March variations and denied that there were lots of variation works.  He did not say whether he had received or seen the 12 May quotation for the April Variations.  Mr Tsang was not even called.  Hence, the defendant’s position is not free of doubt.

238.  Mr Lee then referred to the letter dated 16 June written by the plaintiff’s new solicitors which said that they had advised the plaintiff to draw up a list of variations and additional works to add to its claim against the defendant if so advised by counsel.  Mr Lee submitted that the plaintiff in this action only claimed the March and April Variations. It was therefore strange to see that as at 16 June 2009, the plaintiff’s solicitors were still talking about advising the plaintiff to compile a list of variations and additional works.  I do not quite understand this point.  Though the plaintiff’s new solicitors said that they would advise the plaintiff to put in a further list of additional works subject to counsel’s advice, there was none

239.  I am of the view that these items may either be within the scope of the contract or are gifts from the plaintiff or are items that the defendant has to pay for.  The defendant has pleaded in §22(b) of the defence that these are all works which the plaintiff was obliged to do under the contract.  However, in the light of my decision on the terms of contract, they are not within the scope of the contract.  Many of them are within the defendant’s alleged oral terms which I have held against.  The defendant has not pleaded that they are gifts or works that should be provided free of charge (save item 5 to be dealt with below).  Mr Lee also did not say that they were gifts.  Hence, they are items that the defendant has to pay for.

240.  Mr Lee also submitted that certain items claimed in the April Variations (5/1095) are plainly unsustainable: -

(a)   Item 1 was said to be for painting the walls of the newly built refuse room.  Mr Lee submitted that this is unreasonable when those walls were erected by the plaintiff for the defendant under the contract and the contract also included painting works for which the walls on the flat roof were all painted (3/569 (layout plan); 2/284 photo 3). 

(a.1)  Mr Yeung answered that the brick walls were constructed as a gift to the defendant (clause 2 of the contract and item 2 of “Miscellaneous” of the Furnishings Sub-Quotations (3/581, 592)).  But the gift did not include the painting of the two walls.  Hence, items 2 and 3 under “Painting” of the Furnishings Sub-Quotations for painting the floor and gate of the flat roof did not include these two walls. 

(a.2)  I, however, note that this item appeared as item 7 in the defects list of 6 March.  When Mr Yeung dealt with items in the defects list in §19 of his 1^st witness statement on 27 June, he did not refer to item 7 as a subsequent addition.  He in oral evidence also agreed that this item was not done because of the rainy weather rather than it was being outside the contract.  Furthermore, he accepted in oral evidence that the contract required the painting of the low wall adjacent to the sliding gate in the flat roof which partly enclosed and formed the refuse room (6/1184, plate 57).  I therefore do not accept that this is a subsequent addition.  I find that this is part and parcel of the painting job.  I therefore disallow this item for HK$8,300.

(b)   Items 2, 13 and 13A charged the defendant for the plastic curtains affixed to the entrances to the walk-in freezers and the entrances to the food factory.  Mr Lee submitted that they were items sensibly agreed to have to be provided under the contract. 

(b.1)  Mr Yeung however maintained that these curtains had not been discussed in making the contract and were not in the contract.  I do not consider these curtains as integral parts of to the entrances to the walk-in freezers and entrances to the food factory as stipulated in the contract.  Since I have held against the defendant’s oral terms, I can see no reason why the defendant should not be liable to pay for them.  

(c)   Item 4 is for painting the flooring of the small flat roof where the grease tank is situated.  Mr Lee submitted that it is plain that the original floor paint was not properly done (4/803). 

(c.1)   Mr Yeung denied that the painting was badly done.  However, this item appeared as item 11 of the defects list dated 6 March.  The painting of flat roof in item 3 under “Painting” of the Furnishings Sub-Quotations should include both the large and small flat roofs.  I do not think the defendant would have at that stage made an unjustified complaint on the quality/workmanship of painting on just one small area.  I hold that the complaint of defective work is justified.  I disallow this item for HK$4,200.

(d)   Item 5 is for making an opening for the computer wiring in the office of the food factory.  Mr Lee submitted that it was plainly an item that ought to be done under the contract, especially when the contract has expressly provided for similar opening for the office works (3/582 §4.10).  Mr Lee further alleged that the plaintiff had in the instructions to its expert Mr Law accepted that this item was part of the rectification works (2/273 §16).

(d.1)  Mr Lee had not cross-examined Mr Yeung on this item.  I would also note that the express provision for a similar item for the office on 7/F and the absence of such item for the food factory indicates that there was no such item in the contract.  If the plaintiff should have agreed to do it free of charge as pleaded in 22(c)(iv) of the defence and supported by Mr Chau’s evidence, then the parties would have included it in the contract.  I reject Mr Chau’s evidence on this.

(d.2)  Mr Lee is also wrong in his submission on the plaintiff’s instructions to its expert.  The expert report clearly reflected the plaintiff’s position that this item was subject to a charge of HK$2,200 as in item 5 of the April Variations.

(e)   Item 8 is for the ramps for the entrances to the walk-in freezers.  Mr Lee submitted that they were obviously part of the original contract works.  He submitted that Mr Yeung in his oral evidence had implicitly admitted the defendant’s case that accessibility by trolley was expected when the flooring of the walk-in freezers was some 6 inches above the floor of the food factory.  He further submitted that Mr Yeung’s suggestion that trolley access was possible without the ramp as the worker could somehow raise the end of the trolley on reaching the kerb is wholly unrealistic.

(e.1)   Mr Yeung, when cross-examined in the afternoon of 27 June 2014 on the defects list, was first asked to confirm that at the contract stage, the parties had agreed that the freezers could allow the trolleys to be pushed into them.  He did not seem to understand the question.  He asked for the question to be repeated. 

(e.2)   Mr Lee then asked him to confirm (a slightly different question) that the flooring of the freezers had to allow trolleys to be pushed into them.  He confirmed that (except one freezer the contractual dimension for the entrance was narrower than the width of a trolley).  He then went on to explain that for a kerb of 6 inches high, the worker could push down and tilt the rear of the trolley backward to raise its front to climb the kerb.  When questioned further, he said that access by the trolleys to the freezers could either be by rams or by the method he described.  He maintained that the width of freezers in the contract allowed trolley access and he compiled with that.  Since the defendant did not find the freezer kerb surmountable, it had to add the ram as a variation.  He also insisted that the contract did not provide for trolley access to the freezers. 

(e.3)   When he was cross-examined in the afternoon of 30 June 2014 on the April Variations, he insisted that the contract did not provide that trolleys could have access into the freezers. 

(e.4)   I am of the view that Mr Yeung never accepted the defendant’s case that accessibility by trolley was expected in the contract.  He was only making an argument that the width of the freezers as provided in the contract could allow trolleys to be pushed inside them despite a kerb of 6 inches high.  Whenever it came to the scope of the contract, he insisted that no ram was included. 

(e.5)   I am of the view that a ram is not an integral part of a freezer.  Since I have held against the oral terms advanced by the defendant and the contract has not provided for rams, the defendant has to pay for them.

(f)   Item 12 is a wire mesh for a hood of a water cooling tower. 

(f.1)   Mr Yeung accepted that the hood was part of the tower.  I see no reason why the wire mesh should be treated as a separate part.  Mr Wong is not resisting this item on behalf of the plaintiff.  I hold that it is an integral part of the hold and disallow this item at HK$960.

(g)   Item 14 is for the removal of 5 numbers of u-shape metal members left by the previous occupant on the parapet wall of the flat roof.  They were anchoring the name sign of the previous occupier.  Mr Lee submitted that it was unthinkable that the demolition works provided for in the contract would not have included the demolition of these metals (6/1184 & 1233). 

(g.1)  Mr Yeung said that these metals were not inside the food factory and had nothing to do with the application of the food factory licence.  I also note that they were not involved in the installation of equipment and the furnishing of the factory.  The contract has not required for their removal.  They could have been left there without affecting the running of the factory.  Their removal only produced aesthetic value to the parapet wall enclosing the flat roof.  I think this is a clear cut case of additional work performed by the plaintiff at the defendant’s request.

(h)   Item 16 is for the additional flooring for the largest walk-in freezer.  Mr Lee submitted that it was obviously a measure to deal with the unstable flooring of the walk-in freezer and the plaintiff should not be entitled to charge the defendant for it.

(h.1)  Mr Yeung said that the standard bottom layer of a freezer has polyester foam as an insulation material.  If the client would like to have a firmer freezer flooring, the client could choose iron plate, stainless steel plate or aluminum plate as flooring.  A different material would command a different price. 

(h.2)  Mr Chau in oral evidence given just before the morning break on 3 July described the original flooring of this large freezer (identified as freezer no. 2).  He said the flooring was made of many pieces of small size metal plate which were glued together by sealant.  The whole flooring was thus soft and unstable when walk upon.  Hence, the need to replace that flooring with the new one.  The new one is also made of metal pieces, but they were welded together and was strong and could be used.  He also confirmed that only the flooring of the large freezer was replaced.  The floorings of the other 5 freezers/coolers were not replaced as they could be used though with inconvenience.

(h.3)  I accept Mr Chau’s evidence on this.  I find the original flooring of this freezer unusable and had to be replaced.  Hence, I would not allow this item as a variation.  I disallow the sum of HK$23,500.

241.  In the light of the above analyses and decisions, I allow HK$70,420 for the April Variations.

JUDGMENT ON THE PLAINTIFF’S CLAIM

242.  I have allowed:

(1)   the 5^th instalment at HK$720,000

(2)   the 6^th instalment at HK$324,000;

(3)   the March Variations at HK$82,771.00; and

(4)   April Variations at HK$70,420.

The total sum is HK$1,197,191.  I give judgment to the plaintiff for this sum.

COUNTERCLAIM

   Defects list

243.  Mr Chau in oral evidence in the morning of 3 July 2014 accepted that the items in the defects list were not serious matters.  He further confirmed that save items 23 and 24, the rest had been completed.  Item 24 was on the type of water tap.  The defendant did not insist on changing the water tap and this was no longer an item of complaint.  Item 23 was on the operation of the waste water pump.  I will deal with this below as part of the items in the Schedule to the defence and counterclaim.

244.  The plaintiff also regarded that the items in the defects list had been completed.  Some of the items were treated as additional works in the April Variations. 

The complaints in the minutes of meeting

245.  Regarding the complaints in the minutes of meeting, I will deal with them in the context of the items in the Schedule.

Shing Hin Food Processing Workshop Ltd

246.  Significant sums had been spent by Shing Hin Food Processing in rectifying the alleged defects of the plaintiff’s works.  There is a dispute of whether the defendant is entitled to recover the loss including the costs for rectification incurred by Shing Hin Food Processing.   The defendant has pleaded in §14(c) of the defence that it had entered into the contract as agent or trustee of Shing Hin Food Processing.  I accept that the defendant had entered into the contract with the plaintiff as the agent or trustee of in §14(c) of the defence that it had entered into the contract as agent or trustee of Shing Hin Food Processing.  They were companies within the same group and the defendant was procuring the food factory for in §14(c) of the defence that it had entered into the contract as agent or trustee of Shing Hin Food Processing to operate.  If there was no such relationship, there was no reason for Shing Hin Food Processing to have incurred the substantial sums for rectification and upgrading of the food factory which was procured by the defendant initially.

247.  Mr Wong argued for the plaintiff that such relationship ceased upon the sale by Mr Au-Yeung of his interest in Shing Hin Food Processing to another company on 24 June 2011 onwards.  That may be so.  But I do not think such sale can affect the plaintiff’s liability to the defendant as the defendant had incurred the liability to account to Shing Hin Food Processing what it may obtain in the counterclaim upon its issuance.  This would remain even if the agency or trust relationship should be severed subsequently.  What matters is that there was such a relationship when the loss was suffered by Shing Hin Food Processing and such loss was recoverable by the defendant.

The Schedule and contractual requirement of the food factory

248.  The items in the Schedule are arranged in groups.  They are compiled according to the findings of the defendant’s expert Mr Peter Wong as set out in his expert report.  They cover more items than in the defects list and minutes of meeting.  Before dealing with the items in the Schedule, I would refer to the requirement in the contract on what the plaintiff should provide.  Clause 4.11 of the contract provided:

“on the handover day, the unit on 1/F shall be capable of providing the normal operation of a food processing factory and that all kitchen equipment shall function normally.”

249.  Mr Peter Wong, when conducting his inspections of the food factory and the equipment therein, did not use this contractual requirement as his standard of examination.  He applied the standard of a loss adjuster.  Hence, he criticised some of the installations designed and installed by the plaintiff suggested better ones even when such installations compiled with the contractual requirement. 

250.  I now deal with the items in the Schedule.  I will deal with the complaints about the waterproof works in section (E) ahead of the others because this item impacts on some of the other items discussed below.

(E) Waterproofing works

251.  I have already held above that there was only a localized water seepage problem at the rear exit of the premises.  That could be rectified by redoing the waterproof works at just before the rear exit.  Both experts have demonstrated how this could be done without redoing the waterproof works or the flooring above it in the rest of the premises.  However, the defendant insisted that the plaintiff should redo a large part of the flooring and the waterproof works underneath.  Mr Chau accepted that this was the main cause for the breakdown of the negotiation.  (The correspondence however revealed that it was the defendant’s refusal to allow the plaintiff to rectify the defects after the plaintiff had suggested to joint engage an independent professional to assess the defects that forced the dispute into a litigation.)  In any case, it is clear that the defendant was not entitled to insist on the redoing of the waterproof works and the flooring thereon. 

252.  The defendant has however stated a large number of other alleged defects relating to the waterproof works in the Schedule.   I deal with them one by one.

(1)   Penetration of or damage to the waterproofing layer on the flat roof of the premises caused by the installation of the grease tank was not properly rectified, leading to water leakage to the tyre repair workshop on the ground floor underneath.

(1.1)   This complaint was from Mr Peter Wong’s report which stated:

“The manner in which these screws were bolted onto the flooring may cause damage to the underlying waterproofing layer and subsequently causing rainwater to penetrate the concrete to affect the lower floor.” (2/322-323) (emphasis supplied)

(1.2)   Mr Peter Wong was stating a possibility, not a factual conclusion.  I have already dealt with this above. I found that there was subsequently no repair to the waterproofing works in this flat roof area.  The two layers of waterproofing works done by Yuen Lee were expressly confined to the kitchen area and did not cover the flat roof area (4/922 C.1 to C. 5 and 2/584).  I held that the lack of such repair can only mean that the suspicion was not proven subsequently.  The defendant claimed in the Schedule that Yuen Lee had repaired the waterproof of the flat roof.  That is wrong and in ignorance of the contents of items C.1 to C.3 of the Yuen Lee contract.

(2)   Substantial and persistent water leakage from the flooring inside the food factory, leading to frequent accumulation of fluids at both the front and rear entrance of the food factory, and also at the common areas of the building around the said front and rear entrances, and leading to frequent complaints from the manager of the building.

(2.1)   This is a long winded complaint that there was water seepage at the front entrance and rear exit.  I have already ruled out seepage at the front entrance.  Given proper waterproof repair to the location just before the rear exit, this seepage problem will come to an end.

(3)   Wide gaps existed between the floor tiles, allowing water to seep through to the underneath of the tile surface, which would lead to water leakage from the flooring. 

(3.1)   There was no such complaint before it was mentioned in the defence and counterclaim.  This complaint was in fact raised for the first time in Mr Peter Wong’s expert report.  Hence, even if this is a justifiable complaint, the plaintiff was never given the opportunity to rectify it. 

(3.2)   Mr Peter Wong also said in his 2^nd report that Yuen Lee had made two waterproof layers in the factory with morter-plus s material for the lower layer and morter-plus g for the upper layer.  He went on to say that Yuen Lee had also used cementious mortor as bonding agent for finishing the tiles.  But I cannot see from the Yuen Lee contract any reference to the use of such material in the last step.  Mr Peter Wong did not say where did he get the information that Yuen Lee had used such material as bonding agent in this last step (3/481, 4/922).

(3.3)   In any case, such bonding agent is not a proper waterproof material as its waterproofing properties can only prevent seepage to a large extent.  That means it can only delay the seepage so that it will take longer for the underneath layer(s) to be saturated with water.  But the defendant is not seeking a temporary waterproof treatment to the premises.  The food factory is supposed to be used for many years to come.  Mr Law said that the waterproof layer should last for 15 years before renewal is necessary.  Hence, to delay the seepage is not to provide for long term waterproofing. 

(3.4)   I also disagree with this complaint of wide gaps.  If the waterproof layer is watertight, then there cannot be any leakage from the flooring to downstairs.  The whole point of having the waterproof layer is to prevent water from seeping through to downstairs.  The existence of gaps between tiles is not a cause of water seepage to downstairs and cannot be a valid ground of complaint.  Mr Peter Wong also said in his 2^nd report that the light weight blocks, upon being dug up, were found to be saturated with water (3/482).  But he could not find water seepage or leakage to downstairs.  Hence, water seeping down to the waterproof layer but did not go beyond this layer is not a problem.

(3.5)   The wide gaps between the floor tiles also do not amount to a breach of the contractual requirement in clause 4.11 of the contract as this does not give rise to water seepage or leakage.

(4)   Water accumulated under the flooring of the walk-in freezers and coolers which would penetrate the flooring, leading to water leakage from the flooring.

(5)   Detachments of the welded joints of the stainless steel drainage channels allow water to penetrate and accumulate at the underside of the channels, leading to water leakage from the flooring.

(6)   Improperly sealed gaps along the side of the drainage channel allow water to penetrate and accumulate underneath the channels, leading to water leakage from the flooring.

(7)   Defects or gaps in the connection of the drainage pipes from the filter tanks to the drainage channels allow water to penetrate and accumulate underneath the channels, leading to water leakage from the flooring.

(7.1)   The complaints in (4) to (7) are again without previous notice to the plaintiff.  They are all similar to the complaint of wide gaps between the tiles in (3).  I say the same things about them without repeating what I have said.

(8)   Defects in the underlying waterproofing works in the flooring or damage by the plaintiff to the underlying waterproofing works in the flooring causing or allowing water to seep through and leak from the flooring. 

(8.1)  This complaint has no basis and is contrary even to the defendant’s expert evidence. 

(9)   Mr Lee also cited in his closing submissions what Mr Peter Wong has said in the schedule of the joint report.  Mr Wong said that the use of cementious mortar with acrylic emulsion polymer mix was the proper thing to do to reduce the amount of water that may seep through floor tile layer (3/540 §8) and that saturation with water would be undesirable for food factory as it would increase the humidity and chance of grown of bacterial or deleterious substances. 

(9.1)   However, Mr Peter Wong has also confirmed that he had no personal knowledge on whether there should be one or two layers of waterproof material for a food factory which sues a large amount of water.  His comment in the joint report (3/540 §8) is thus of little value.  I have also discussed the futility of using some material that can only prevent seepage “to a large extent” but not absolutely.  That can only delay the saturation of water at the lower layer above the waterproof material.  On the question of hygiene, the frequent use of sterilization water to clean the floor would be the answer.  If the floor is not so cleansed, there will be problem of hygiene regardless of how good the waterproof material is.

(10)   Mr Lee further submitted that when the saturation was severe coupled with the uneven application of the waterproofing layer and the lack of up-turn of the waterproofing layer at the corners (3/500-503), it would only be a question of time when water would also seep through those places.

(10.1) The first problem about this submission is that it is expert evidence tendered from the bar table. 

(10.2) The second problem is that Mr Peter Wong’s criticism of the plaintiff’s waterproof layer of being uneven is based on his observation of the floor in the course of and/or after the floor being dug up.  The photos he produced showed that some flooring materials had been removed and patches of waterproof materials were left on the ground.  I doubt if this was a proper state of the flooring for a proper conclusion to be drawn on how bad the waterproof layer was done. 

(10.2) The third problem is the alleged lack of up-turn of the waterproofing layer at the corners, Mr Peter Wong’s evidence was that he “failed to observe any such application having been done at the [defendant’s] workshop” (3/482) though the photos he took were at taken at one or two corners (3/501-503). However, after he was shown the photographs taken by the plaintiff in the course of its making of the waterproof layer (6/1224 (plate 138, and 1227, plate 144 to 1230, plate 150, 1231, plate 152, 1232, plate 154, 1233, plate 156, 1243, plate 157, 1235, plate 159 to 1236, plate 162),he agreed that there were such lapping ups or upturns.  These photos show that all walls and corners had lapping up.  What Mr Peter Wong saw and photographed was one or two corners that had the upper layer of materials hacked off.  If he should have done the hacking off personally, he would be able to tell what was there. But that was not his evidence.  Hence, I reject Mr Peter Wong’s evidence of no lapping up in the defendant’s workshop or even just at the corners. 

(10.3) I also do not agree that if the light weight bricks should be saturated with water, it would be a matter of time before the water would seep through to downstairs. The waterproof material is not said to be soluble.  I cannot see the logic of this submissions.  It is simply unscientific.  In any case, this assertion by Mr Lee does not amount to a breach of the contract in particular clause 4.11 thereof by the plaintiff.

253.  The defendant not only demanded the plaintiff to redo the waterproof of the kitchen, the minutes of meeting further showed that it in fact required the plaintiff to lay two layers of waterproof material.  Mr Chau in oral evidence cited the food factory or canteen of the Baptist University as an example where two layers of waterproof material were laid.  I accept that there may be food factories that have two layers of waterproof material underneath its flooring, but the evidence of the plaintiff’s expert Mr Law shows that is not the industry standard.  Mr Law said in oral evidence that he had the experience of applying for food factory licence for clients and had not come across a case where two layers of waterproof material were required.  The defendant’s expert Mr Peter Wong was cross-examined on this on 7 July just after the morning break.  He confirmed that he had no personal knowledge whether a food factory should require one or two layers or waterproof materials.  He had asked many contractors about this. Some of them said that if a large amount of water is used, they would suggest the use of two layers.  He did not say how many contractors he had consulted and how many suggested two layers.  There is also no evidence on the expertise of such contractors.  In these circumstances, I accept the evidence of Mr Law.

254.  There is certainly no evidence or even any suggestion that the FEHD would require two layers of waterproof material before a food factory licence would be granted to a food factory.  The granting of the provisional licence to this food factory is already proof of no such need.  The contract between the parties also did not require two layers of waterproof material.  In the light of the above analyses, I hold that the plaintiff is not liable to redo any part of the waterproof works and/or the flooring above it except the area at the rear just before exit. 

255.  The waterproof works done by Yuen Lee covered the whole kitchen area (4/922 C.1 to C.5).  It also had two separate layers of waterproof material.  The material was also lapped up the wall to 1,000 mm.  This is certainly excessive as Mr Law said that the Building Regulations required only 150 mm.  Mr Peter Wong also said in his 2^nd report (3/481) as well as oral evidence that 300 mm would be enough for this food factory though he later increased it to 500 mm for good measure.  There was no basis to carry out what Yuen Lee had done for rectifying the seepage at the rear exit.  The works of Yuen Lee (and those of Yiu Kee (4/932)) were way beyond the requirements of the contract between the plaintiff and defendant.  In fact, they were for the ultimate aim of redesigning, redoing and upgrading the waterproofing and flooring so that there were two layers of waterproofing and redesigning the freezers and coolers and the flooring thereunder so that there was no more kerb at the entrance of the freezers and coolers.  I do not think the plaintiff should be liable for the costs of such works.

256.  Further to my decision that the plaintiff has no liability to redo the flooring and waterproof works (save the rear exit), I further hold specifically that the plaintiff is not liable to pay or reimburse the defendant the costs charged by Yuen Lee for the works in items C.1 to C.5 in the Yuen Lee contract.

257.  Regarding the repair to the rear exit, PW3, Mr Law said in §4.2 of his report:

“The plaintiff has proposed to the [defendant] to construct a kerb across the exit door i.e. between the [food factory] and the common lobby area as illustrated in figure 3 at page 6 of this report. I consider it is the most appropriate method to solve the water seepage problem. However, we understand from the plaintiff that the [defendant] insisted the plaintiff to relay the entire 1/F with new waterproofing material which I consider is absolutely not required.” (2/243-245)

258.  The method is to build a waterproof vertical kerb across the exit door.  The waterproof material should join to the waterproof layer underneath the flooring.  

259.  Mr Peter Wong agreed with this method in the joint report.  The common view of the two experts is:

“1. The method of repairing the leakage as detailed at §4.2 of Law’s report dated 26 July 2010 is adequate and effective if the leakage was localized at the junction of the food factory and the smoke lobby.

2. It was a common trade practice to lay the waterproofing layer underneath the lightweight concrete.” (3/539)

260.  The costs estimated by Mr Law for this rectification work is HK$30,000.  Mr Law also estimated the time for the work to be 3 days (2/243).  Since the work is only undertaken at a small area, I do not think the operation of the food factory need to be stopped when it is carried out.  Hence, I allow HK$30,000 for the defendant for this rectification work.

(A) Walk-in Freezers and Coolers

261.  The defendant listed 13 complaints in the Schedule on the freezers and coolers.  They are:

(1a)   The stainless steel wall panels were poorly installed with the panels show signs of denting, depressions and deformation. 

(1a.1)   The defendant has simply used the wall panels as supplied by the plaintiff and has not changed to new panels.  There is thus no claim for this item. 

(1b)   Further, the stainless steel wall panels were poorly jointed, with gaps between panels not properly sealed;

(1b.1)   The contractor Yiu Kee Steel Works Co Ltd used silicone to fill the gaps, but it did not separately charge the defendant.  Hence, there is no claim for this item.

(2)   The plastic circular caps for sealing holes in the stainless steel panels were not properly capped;

(2.1)   Same as in item 1(b).  No claim.

(3a)   The floorings near the entrance of cooler no. “2” and freezer no. “1A” showed signs of depression when stepped on and could not properly withstand weight in normal use. 

(3a.1)   The flooring of freezer no. 2 has been replaced.  Mr Chau made no complaint about it in oral evidence given just before the morning break on 3 July.   Mr Chau also confirmed in oral evidence that the floorings of the remaining 5 freezers/coolers (including nos. freezer 1A and cooler 2) were not replaced as they could be used though with inconvenience. 

(3a.2)   Furthermore, the defendant did not ask Yiu Kee to rectify the purported defect, what it did as per the Schedule was to engage Yiu Kee to redesign and rebuild the three original freezers nos. 1, 1A and 1B to become a single freezer no. 1.  It then claimed the plaintiff for two sums of HK$37,500 and HK$6,500 that it paid Yiu Kee for this work (4/932-933-2). However, these two items were for paying a newly made stainless steel combination baseboard of freezer (large and small dual rooms) and a green plastic baseboard both of 15,500 mm (L) x 6,400 mm (W).  The length and width of these two baseboards covered the floor areas of both the enlarged freezer no. 1 and its adjacent freezer no. 2 (3/584).  It is thus clear that these two baseboards were made for a redesigned set of freezers and not for rectification of the original allegedly defective baseboards.  I disallow the claim for these two sums.

(3a.3)   The defendant also said that it had kept the original freezer no. 3, but scrapped the original freezer no. 4 with the space turned into a meat cutting room.  It then claimed the plaintiff two sums of HK$9000 and HK$2500 that it paid Yiu Kee for new baseboards to replace the defective ones made by the plaintiff for freezer no. 3 (4/932-933-2).  The two items purchased were newly made stainless steel combination baseboard and a green plastic baseboard for a freezer both of 3,020 mm (L) x 4,575 mm (W).  However, the original dimension of freezer no. 3 was 2,700 mm x 4,300 mm (3/584).  Hence, the newly made baseboards are much larger than freezer no. 3 as-built by the plaintiff.  The costs were not incurred for rectifying the alleged defective boards made by the plaintiff, but for an enlarged freezer no. 3.  I therefore disallow the claim for these two sums. 

(3a.4)   The defendant also claimed in the Schedule that part of a sum of HK$130,000 it paid Yuen Lee was for rectifying the flooring (4/922).  That item was for paving the entire premises including the freezers’ area with floor tiles.  I am of the view that that piece of work was necessitated by the redoing of the waterproofing works rather than any alleged defect of the flooring of the freezers.   

(3b)   Water has seeped into and accumulated underneath of the freezer no. “1A” (as marked on the food factory Floor Plan) through the improperly sealed gaps between the flooring panels, thereby creating hazards to environmental hygiene and contamination of food materials stored therein.

(3b.1)   Regardless whether this complaint was justifiable, there was no rectification.  The defendant just demolished this freezer and built a new and enlarged one by merging freezers nos. 1, 1A and 1B.  Since there was no rectification, I disallow this claim.

(4a)   Defective or improper installation of the heating element around the door of freezer No. “3” and Cooler No. “1B”, with condensation abnormally formed at the door edges, and leading to abnormal leakage of cool or cold air from the freezer.  The claim is only about freezer no. 3.  No claim was made in relation to freezer 1B.

(4a.1)   The defendant never complained to the plaintiff about this problem.  It was discovered by Mr Peter Wong who recorded it in his report with support of two photos (2/315, §4 and plates 33 and 34).  The problem only appeared at a small area on the freezer door.

(4a.2)   Yiu Kee had purportedly done the rectification at the costs of HK$12,000 and the defendant claimed this sum from the plaintiff (4/932).  Yiu Kee said in the invoice that this item was “for changing the edge enclosure steel of the footing and door frame of the freezer.  It does not say anything relating to the installation of the heating element of freezer no. 3.  I cannot see why the rectification of this localized problem would entail the change of the edge enclosure steel at the footing at the lower part of the freezer.

(4a.3)   I also doubt very much if this localized problem would have required HK$12,000 to put right when the problem was not even observed by the defendant.  Since freezer no. 3 had been enlarged, I cannot tell if this item was related to the enlargement of the freezer and hence the change to the edge enclosure steel at the footing and door frame or the reinstalling of the heating element around its door.  I therefore disallow this claim.

(4b)   Defective or improper/insufficient installation of insulation materials on the walls of Cooler No. “1B”, with condensation abnormally formed at the outer wall panels.

(4b.1)   Since this freezer had been merged with other freezers, no claim was made for this.

(4c)   Leakage of cool or cold air at or around the doors of freezer No. “3” and Cooler No. “1B”.

(4c.1)   Same as for problem (4b)

(5)   The door to freezer No. “3” slanted downwards (rather than perpendicular as it should be).

(5.1)   The defendant said that Yiu Kee had repaired it without charge.  Hence, no claim.

(6)   The kick plate of the door of freezer “3” could not properly unlock the door from inside the freezer, thereby creating hazard of the user being trapped inside the freezer.

(6.1)   Same as for problem (5). Hence, no claim.

(7)   The refrigerant piping in the fan coil inside the freezer or cooler unit was improperly connected so that the piping was in direct contact with the metal basin, leading to significantly increased wear to the piping due to frictional force from the vibration of the running unit, and thus increased the risks of refrigerant leakage.

(7.1)   This was not an operational problem but a problem of the longevity of the piping.  The plaintiff denied that it had been told of this problem.  The defendant said that it had informed the plaintiff of this problem upon discovery but did not say how the communication was made.  It was not in the defects list or minutes of meeting. I therefore cannot accept the defendant’s assertion. 

(7.2)   The defendant claimed that the rectification was done by Yiu Kee as part of the works that incurred HK$125,000.  Yiu Kee stated that this sum was for dismantling, removal and storage of all the panels of the freezers together with their 8 sets of machinery and then, after the completion of waterproofing works, reinstalling them in the new freezers and then changing the assembling of the 8 compressors into separate parts to be installed at the top of each freezer supported with angled steel brackets and placing the condensers in the flat roof with newly connected steel tubing and replacement of the required parts, laying cabling and wiring anew, installing independent control unit for each set including electronic control of temperature, magnetic switch, protection switch for electricity supply, indicator light and on off switch (4/932).

(7.3)   It is impossible to apportion any sum out of the sum of HK$125,000 to account for the rectification of this longevity problem of a pipe.  In fact, the sum of HK$125,000 was incurred for the ultimate of aim of redesigning, redoing and upgrading the waterproofing and flooring for two layers of waterproofing and redesigning the freezers and coolers and the flooring thereunder to get rid of the kerb at the entrance. The sum of HK$125,000 was spent as part of the costs for this large scale exercise.  The longevity problem of the pipe was just incidentally rectified in this operation, if there was such a problem.  I do not think there was any particular intent on the part of the defendant to pay Yiu Kee HK$125,000 or any part thereof for the purpose of rectifying this longevity problem of a pipe. 

(7.4)   Furthermore, clauses 4.5 of the contract provided that the contract sum:

“had included the costs for the warranty for the freezer machinery for the first year (including checking, parts and labour)”

 (7.5)   This problem was certainly within the scope of the warranty and the plaintiff should have been told to rectify it on the strength of the warranty.  Since the plaintiff was not advised of the problem and to render rectification, I do not think the plaintiff should be held liable for it.  For all these reasons, I disallow this claim.

(8)   The outdoor copper tube connecting the compressor for freezer No. “1” was broken, leading to leakage of refrigerant and lubricant from the compressor, and thus malfunction of the unit.

(8.1)   This problem was again discovered by Mr Peter Wong.  The defendant again claimed that the rectification costs was part of the HK$125,000 charged by Yiu Kee.  I disallow it for the same reasons as for problem (7).

(9a)   The 8 sets of condenser units for the 6 freezers and coolers were improperly aligned closely together, thereby failing to provide sufficient space for adequate ventilation and heat dissipation for the condenser units, leading to increased chance of overheating, reduced cooling performance and shortened lifespan of the condensers.

(9a.1)   This is not a complaint that the condenser units were not functioning normally or that they had rendered the food factory premises not operate as a normal food processing factory.  Hence, it does not amount to a breach of contract claim.  Furthermore, for the grounds under problem (7) which apply here, I disallow this claim.

(9b)   Further, the condenser units wrongly welded onto the supporting iron rack, unnecessarily creating difficulty in future maintenance of the units.

(9b.1)   The same answer for problem (9a) apply here.  I disallow this claim.

(10a)   Though the 8 sets of compressor units are of the German made “Copeland” brand, the accessories for each of the units are not of the German made “Copeland” brand.

(10a.1)    I note that the contract (the part undisputed pages (3/593-594))only provided for the machine to be of German made “Copeland” brand and not the accessories.  The defendant did say that the oral agreement had provided that the accessories should also be of “Copeland” brand.  But I have ruled against the oral terms.  This claim therefore has no basis.  In any case, the defendant is not pursuing this claim anymore.

(10b)   As such, the units do not carry any manufacturer’s warranty by “Copeland” or its distributor.

(10b.1)    The answer for (10a.1) applies here.

(11)   The compressor units were improperly installed in an open area with inadequate protection against sunlight and rain water, leading to unduly accelerated oxidation, rusting and corrosion of the units, and thus reduced lifespan.

(11.1)   This again is not a complaint that the compressor units were not functioning normally or that they had rendered the food factory premises not operate as a normal food processing factory.  The criticism says that the setup can be improved.  But this is beyond the contract.  Furthermore, the grounds under problem (7) also apply here.  I therefore disallow this claim.

(12a)   Condenser units A4 (for serving freezer No. “1”) and A8 (for serving Cooler No. “2”) are not working at all.

(12b)   Condenser units A2 (for serving freezer No. “1”) and A7 (for serving Cooler No. “2”) fail to achieve their designed range of working temperatures.

(12ab.1)   The defendant alleged that the said condenser units A2 and A4 appeared to be working upon “handover”, but it had no real chance of testing their operational function at that time.  They kept having problems in the trial operation and could never be put into normal operation.

(12ab.2)   The defendant claimed the plaintiff for reimbursement of its payments for three invoices of San Wo Engineering Ltd (“San Wo”)for HK$1,800, HK$600 and HK$1,600 (4/935, 937 and 939 respectively). 

(12ab.3)   The first invoice is dated 20 December 2009 and is for repairing a 5 HP compressor of a freezer and for supplying and replacing a machine protection switch and connecting the control circuit.  There is no evidence of complaint of any such compressor to the plaintiff.  Any such problem would have been covered by the plaintiff’s warranty.  I do not think the plaintiff should be liable for this when there is no evidence that it had been notified of the problem and given the chance to repair it. 

(12ab.4)   Furthermore, the repair by San Wo was only undertaken after the assembly of the 8 compressors had been changed by Yiu Kee into separate parts and re-installed at the top of each freezer (4/932).  I cannot find the plaintiff liable for the problem with one of them when they had been subjected to Yiu Kee’s operation.  I disallow this claim.

(12ab.5) The second invoice is for HK$600 and dated 26 March 2010.  It was for supply and injection of lubricating oil into the machine of the high temperature cooler.  It is obviously not a problem of the compressor.  It was a change of lubricating oil of a machine after the newly refurbished food factory had been in operation for over two months.  I disallow this claim.

(12ab.6)   The third invoice is for HK$1,600 and dated 19 May 2010.  It is for the supply and replacement of two cooling fans for a high temperature cooler.  If it was a problem of the plaintiff, I cannot imagine how it could have waited until May 2010 before it was rectified.  It is more likely than not that the replacement of fans was due to the fans having gone out of order after they had been used for months since March 2009.  I disallow this claim too.

(13)   The rubber rings of the fan coil in freezer No. “1A” had melted.

(13.1)   This complaint has been recorded in item 2f of the minutes of meeting and is justified.  The plaintiff should have rectified before it was refused access to the premises on or after 12 May.  Though the defendant was wrong in refusing access, the plaintiff should not have delayed the rectification of this problem.  Hence, the plaintiff should pay for its replacement.  However, the replacement was done by Yiu Kee as part of the work for the HK$125,000.  There is no way to carve out a portion of that sum for this claim.  I therefore dismiss this claim for want of evidence on quantum.

   (B) Drainage & Sump Pump Systems

262.  The defendant has the following 7 complaints on the drainage and sump pump system.

(1)   The capacities of the filter tanks installed at the underside of each of the sinks are insufficient to cope with the flow rate of liquid draining out of the sinks.

(1.1)  There was no complaint of this problem to the plaintiff.  The defendant claims that this item was rectified by Yuen Lee under item F.1 of the Yuen Lee contract.  This item charged HK$40,000 for the labour and materials for restoring the existing water supply and drainage systems and connecting to the existing sinks.  The redoing of the drainage system obviously was necessitated by the redoing and upgrading of the waterproof works underneath.  Furthermore, nowhere does this item say that it had anything to do with the enlargement of the capacities of the filter tanks or replacement of such tanks.  I disallow this claim.

(2)   The capacities of the surface drainage channels are insufficient, leading to overflowing of liquid upon continued discharge from the sinks. 

(3)   Overflowing of liquid from the 2 sump tanks, due to improper design, insufficient capacities or improper functioning of the electric pumps or pumping systems at the sump tanks.

(4)   The use and installation of wrong type or size of grease filters inside the sump tanks causes obstruction to liquid flow in the sump tanks.

(5)   Failure to maintain sufficient gradient/fall of the drainage channels towards the sump tanks, causing accumulation or overflowing of water at the end sections of the drainage channels.

(6)   The unduly small diameter of the inlet pipe to the grease tank restricts the capacities of the pumps of the sump tanks in pumping liquid away from the sump tanks to the grease tank.

(7)   The design and installation of the pumping system at the sump tanks of having one of the two pumps in each sump tank to operate at fixed time interval as regulated by the timer was improper. Failure of the pump that was supposed to operate at the time (as regulated by the timer) would deactivate the whole pumping system causing overflow of liquid from the sump tank.  The alternate operation of the two pumps in each sump tank should be regulated by electronic device enabling one pump to operate when the other is not.

(7.1)  Complaints nos. 2 to 7 all relate to the drainage of waste water by the open channel and then by two sump pumps (operating alternately) through a pipe of 30 mm diameter to the grease tank affixed at the flat roof.  The defendant claimed reimbursement for items B.5, C.2, C.4, and F. 1 of the Yuen Lee contract (4/922-923)and items 7 and 9 of an invoice of Yuen Lee dated 10 January 2010 (“Yuen Lee 2010 invoice”) (4/926). 

(7.2)  Item B5 was for providing special personnel to demolish and remove all the decoration on the surface of the flooring, the light weight brick at the bottom of the flooring, the existing waterproof layer and the drainage channel at HK$60,000.  This item is clearly for the redoing of the flooring and waterproof layer underneath.  It was incurred for upgrading the waterproof works and so on.  I disallow this claim.

(7.3)  Item C.2 was for providing labour and materials for applying light weight concrete and to elevate the entire flooring including the locations of the freezers and coolers at HK$122,000. This claim was again incurred for upgrading the waterproof works.  I disallow it.

(7.4)  Item C.4 was for providing labour and materials for making new open drainage channel(s) for the flooring of the whole premises, with porcelain tiles for the side of the channel, stainless grating for the cover, the adding to the flat roof a grease tank and two water pump (with meat mincing function) at HK$80,000. 

(7.5)  Item C.4 is directly related to the drainage channel and the sump pump system.  However, the making of new drainage channels was necessary because of the redoing and upgrading of the waterproof works and regardless of the capacity and gradient of the original channels. 

(7.6)  The criticism over the original system was because of its failure to quickly channel the waste water to the grease tank at the flat roof resulting in flooding along the open channels. The cause could be because of the capacity of the channels, the efficiency of the sump pumps, workability of the sensors of the pumps, and/or the diameter of the water pipe leading from the sump pumps to the grease tank being too narrow.

(7.7)  The plaintiff’s expert Mr Law suggested the replacement and upgrading of the efficiency of the sump pumps at a costs of HK$2,300 (2/243, 246).  He said in oral evidence that if a larger pump could not resolve the problem, then the pipes could be replaced by larger ones.  Mr Peter Wong at the end of his cross-examination also said that as a matter of procedure, the rectification could be done in this way.

(7.8)  Mr Peter Wong filled up all sinks and basins and then discharged the water all at once.  He observed that the 30 mm pipe diameter was not sufficient to allow a flow rate to pump away the waste water even if the sump pump system maintained working capacity.  He recommended a review of the sump pump system, the grease tank capacity, the drainage pipe diameter and the gradient of the open channel (2/319). 

(7.9)  I do not consider the gradient of the channel a significant problem.  If the sump pumps and pipes are sufficient to drive the waste away without resulting in overflowing, the problem of gradient would not result in overflowing as this channel is a stainless channel of 10 inches in width and 100 feet long (later added 8 feet more) (3/592, item 6). 

(7.10) I consider the proper thing to do is to follow the method suggested by Mr Law and agreed to by Mr Peter Wong. That is to replace the sump pumps first.  If the problem is not resolved, then change the pipes with ones that have a larger diameter to fit the new pumps. It would be too bold a suggestion to make a new open channel of larger capacity before trying out these two methods. 

(7.11) In any case, if the sump pumps and enlarged outgoing pipes are not enough to drive the waste water away, the water will just accumulate.  A bigger channel will only delay the overflowing.  It is unthinkable to build a large open so large that it can serve as a reservoir. 

(7.12) I therefore hold that there was not yet any justification for redoing the open channel.  In any case, there is no indication in item C.4 of the Yuen Lee contract on the dimension of the new open channel.  I cannot tell if it had a bigger capacity than the one built by the plaintiff.  I consider that this item was necessitated by the redoing of the flooring and the waterproof works.  I therefore disallow this claim for HK$80,000. 

(7.13) Item F. 1 in the Yuen Lee contract was for providing labour and materials to restore the existing water supply and drainage systems and connect to the existing sinks at HK$40,000.  It was not for resolving the overflowing problem.  I disallow this claim.

(7.14) Item 7 of the invoice of Yuen Lee of 10 January 2010 (4/926) was for making an open drainage channel at each of the three entrances with stainless steel grating covers at HK$7,000. This item was incurred for part of the works to make a newly designed drainage system where water will flow from the channel to the sump pumps which were affixed at the flat roof.  The pumps would then pump the water up to only the level of the top of the grease tank.  The sump pumps in the existing system instead would pump the water up to the ceiling and out to the flat roof.  The new system may be an improvement.  But, the existing system was workable.  Mr Law said in oral evidence that such system was frequently used in basement restaurants.  Mr Peter Wong shortly before the end of his cross-examination also agreed that this system was workable though of a poor design.  He only suggested a review of the system for improvement in performance, not replacement by a new system.  I therefore would not allow this item as it was for a new design and not for rectification of the existing problem. 

(7.15) Item 9 of Yuen Lee 2010 invoice (4/926) was for the supply of two pumps with a computer controlled pumping system at HK$8,000.  The sump pump problem was raised in point 23 of the defects list furnished by the defendant on 7 March.  The plaintiff should have supplied the new pumps to the existing system during the trial operation when the existing pumps did not appear to be sufficient.  It should not have waited for so long. For this special reason, I allow this item.

(8)   Mr Peter Wong said in his 2^nd report that there were some small larvae or worms moving around the dug up debris (3/484).  But he confirmed in cross-examination that such was only a localized problem and he only saw it on one of the two days of inspection.  Mr Law said that the worms could grow because the kitchen had stopped operation for some five months and the flooring underneath had become dry.  He suggested that the problem could be solved by using cleaning water that has sterilizing power like that used in hospitals.  I accept Mr Law’s suggestion.  I do not think this is a significant problem that would require the remaking of the waterproof layer or the flooring.

   (C) The Air-Conditioning & Ventilation System

263.  The defendant listed 9 problems under air-conditioning and ventilation.  They are:

(1)   The two units of Air Handling Unit (Model PW20YD), supplied and installed by the plaintiff as per its design were unable to satisfy the air-conditioning and ventilation requirements of the Food Factory as they were unable to transfer enough of the indoor heat to outdoor.

(1.1)  There was a complaint at §2v:

“Air-conditioner not working properly.”

(1.2)  The plaintiff did not put it right in good time.  Despite the plaintiff was refused access to the premises on or after 12 May, I allow this claim for rectification because of the plaintiff’s delay.  The defendant claimed that the problem was rectified by part of the works in items D.4, E.5, G.1 and G.2 of the Yuen Lee contract.  However, Mr Lee had abandoned items D.4 and E.5 in his closing submissions.  Hence, only items G.1 and G.2 are relevant.

(1.3)  Item G.1 was for improving the air-conditioning system and completing the inspection and item G.2 was for connecting all the subsequently added switches etc.  The two items together costed HK$20,000.  I allow this item at HK$20,000.  

(2)   All outdoor pipework was installed without any hanger or supporter which increases risks of cracking of the piping and leakage.

(3)   The electrical conduits were mostly secured onto their positions by plastic straps contrary to safety regulations.

(3.1)  Both problem (2) and (3) were rectified by Yuen Lee in the works in items G.1 and G.2 which I have allowed.

(4)   The water cooling towers installed in the flat roof could not properly work for the air-conditioning and ventilation systems.  They were of insufficient capacities.  Further, they were located too close to the condenser units of the walk-in freezers and coolers with warm air from the condensers being blown into them thereby significantly compromising their efficiency.

(4.1)  Mr Chau confirmed in oral evidence that the cooling towers had not been moved in the refurbishment works.  In any case, the costs claimed by the defendant are in items G.1 and G.2 which do not say that they are for relocating the cooling towers.

(5a)  Failure to install hand valve in the pump line;

(5b)   Welding the pump casing directly onto the hanger, instead of securing it in position by bolts and nuts as it should be, and

(5c)   Failure to install emergency switch near the moving parts of the pump and cooling tower, causing unnecessary and unwarranted difficulties in maintenance.

(6)   Poor workmanship in the installation of the galvanised iron water pipe leading to severe corrosion on the welded joint with substantial risk of bursting of the pipe upon using for a short period of time.

(7)   Filters which should be installed at the air pipe of the water cooling towers have not been installed.

(7.1)  Problems (5), (6) and (7) were included in items G.1 and G.2 which I have already allowed.

(8)   Failure to provide for the ventilation/air conditioning control systems as required by the Fire Services Department as part of the requirements for the issue of the food factory licence as per the letter dated 17 April 2009 from the Fire Services Department.

(8.1)  Though I have held above that but for the defendant’s fault in refusing access to the plaintiff, the plaintiff would have rectified this problem and applied for the formal licence.  However, the refusal of access is not an answer to the liability to pay for the rectification of this item.  The requirements in the letter of the FSD dated 17 April 2009 should have been compiled with upon handover on 6 March 2009.  They should not be outstanding when the trial operation was undertaken.  I have already held that this letter should have been brought to the attention of Mr Wong.  For this special reason, I think the plaintiff should be liable for the costs in making good this problem.  The defendant claimed that this problem was rectified by Yuen Lee in items 4 and 8 of the Yuen Lee 2010 invoice (4/926).

(8.2)  Items 4 was for the subsequent addition of two sets of emergency smoke stoppage system to comply with the issuance of ventilation system certificate of fire service regulations at HK$35,000.  Item 8 was for repairing the motors of two sets of fresh air machines and altering their power source and repairing the cooling towers of the air-conditioner at HK$28,000.  Part of this item should be for rectifying problem (4) above and §2v of the minutes of meeting.  I allow these two items.

(9)   Wrong connection of the “3-phase” electricity circuit for the air-conditioning and ventilation system.

(9.1)  The defendant said that the wrong connection was discovered by Yuen Lee despite the breaking of circuit having happened a number of times during the trial operation.  This was repaired by Yuen Lee as part of the works in item 8 of the Yuen Lee 2010 invoice.  This repair is a simple task and would not have been a substantial portion of item 8 which I have already allowed. 

(D) Electrical system

264.  The Schedule listed 7 problems on electrical system:

(1)   Loose connection of wirings at the joints between the conduit and the electric trunking.

(2)   Some machines do not have any emergency switch, when they should have.

(3)   Control box for the sump pump was improperly installed in that it was loosely positioned on the top of the door frame.

(4)   The electrical sub-panel box was made of sub-standard materials.

(5)   Electrical conduits running in the food factory were mostly secured by use of plastic straps, contrary to applicable regulations.

(6)   Fuses; mini-breakers; adaptors; and indicator lights found inside the sub-panel may not meet with the standards required by the regulations.

(6.1)  Problems (1), (2), (3), (4), (5) and (6) were all rectified by Yuen Lee in items E.4 and E.5 of the Yuen Lee contract.  Item E.4 was for newly made, reinstallation or restoration of switch positions and electrical box positions at HK$20,000.  It is related to the above-mentioned problems.  I allow it. 

(6.2)  Item E5 was for changing the position of some of the air-exhaust vent together with all connections and edge enclosures at HK$25,000.  This item is charged for air-conditioning and not for electrical works.  It could well be for altering the air-conditioning system as necessitated by the demolishing of freezer no. 4 and redesigning it for a meat cutting room.  In any case, I disallow it as it does not appear to relate to the problems numbers (1) to (6) above. 

(7)   The main electrical panel supplied and installed by the plaintiff, being one for 400A, with a sub-panel of 200A for the cooking equipment, was of insufficient capacity for all the electrical installations, including the cooking equipment, supplied and installed by the plaintiff under the contract.

(7.1)  I have already dealt with this problem above.  The plaintiff should have advised the defendant of the larger power consumption of the replacement kitchen equipment as it had previously advised for a 400-amp power supply which turned out to be inadequate because of the replacement.  The defendant claimed HK$3,000 for the rectification work undertaken by San Wo (4/941) and I allow it.

(F) Miscellaneous

265.  The defendant listed 15 problems under this heading:

(1)   The double doors at the main entrance of the food factory were not made of stainless steel, contrary to the (oral) terms of the contract.

(1.1)  The defendant alleged that the plaintiff had orally agreed to provide it.  The plaintiff denied liability.  In any case, the defendant said that Yuen Lee had provided it at no charge. Hence, the defendant is not maintaining this claim.

(2)   The roller shutter at the main entrance was not re-painted, contrary to the terms of the (oral) contract.

(3)   The Formica board decorations at the main/front entrance to the Food Factory was poorly and improperly installed, with lifting of the Formica board at various spots.

(3.1)  Problems (2) and (3) are based on alleged oral terms that were disputed by the plaintiff.  I have held for the plaintiff.  I therefore dismiss these two claims.

(4)   The two sets of double stainless steel doors opening to the flat roof were not properly welded or installed, causing significant risk of their collapse.

(4.1)  The defendant said that Yuen Lee had put right the problem at no charge.  Hence, the defendant is not maintaining this claim.

(5)   The locking steel bolt securing the stainless steel door opening to the flat roof (where the grease tank was situated) was rusty, and thus probably not made of stainless steel.

(5.1)  The defendant also said that Yuen Lee had put right this problem at no charge.  Hence, the defendant is not maintaining this claim.

(6)   The decorative aluminium panels around the outside of and the stainless steel outer panels of the walk-in freezers and coolers were poorly installed.

(6.1)  Nothing was done to rectify this alleged problem.  There is thus no claim for rectification. 

(7)   There is water leakage at the water tap installed adjacent to the electric warmer.

(7.1)  There was no previous complaint to the plaintiff.  If this was caused by the plaintiff’s workmanship, then it would have been revealed long before 30 April.  But there was no such complaint in the minutes of meeting.  I dismiss this claim.

(8)   The switch to the ventilation fan is out of order.

(8.1)  This was said to be a problem recorded in point 2b of the minutes of meeting which stated “ventilation fan earthing switch disconnect”.  I allow this claim which is part of item 8 of the Yuen Lee 2010 invoice that I have already allowed.

(9)   The lock of the fire door at the rear entrance to the Food Factory cannot properly secure the door.

(9.1)  The defendant also said that Yuen Lee had put right this problem at no charge.  Hence, the defendant is not maintaining this claim.

(10)   There is uneven water pressure in the water supply system in the Food Factory, with water pressure in parts of the premises being insufficient.

(10.1) This problem was recorded in point 2w of the minutes of meeting.  Mr Law said that there was sufficient pressure during his inspection.  But he admitted that not everything was turned on as there was no operation of the kitchen in his inspection.  The plaintiff’s answer to this claim is that the defendant had been advised to apply to the Water Works Department for a larger servicing meter to increase the water pressure.   The defendant claimed that the rectification was done as part of Yuen Lee’s work in item F.1 in the Yuen Lee contract.  This item charged HK$40,000 for the labour and materials for restoring the existing water supply and drainage systems and connecting to the existing sinks.  The bulk of these works were obviously necessitated by the redoing and upgrading of the waterproof works and remaking the flooring.  There is no way for me to carve out a portion of that sum for this claim.  I therefore dismiss this claim for want of evidence on quantum.

(11)   Contrary to the applicable regulations, no safety certificates have been provided for the 2 gravy stoves supplied and installed by the plaintiff under the Contract. 

(11.1) The defendant had raised this in point 2q of the minutes of meeting.  It complained that the relevant certificates were still outstanding.  But it had already been issued with the formal licence by the FEHD.  Hence, the unavailability of the certificates did not hamper its application or the formal licence and it suffered no loss from this problem.  The plaintiff is plainly wrong in not giving the certificates to the defendant.  But I cannot award anything to the defendant when it had suffered no loss from this wrong.

(12)   Failing to provide and install emergency lighting systems for the workshop (2 sets) and the female toilet (1 set) and failing to provide fire blankets (1 set), which were part of the fire services installations required for the issue of the food factory licence.

(12.1) This is a claim for provision of various firefighting equipment or replacement of the poor ones originally provided by the plaintiff with new ones that were up to standard (3/674).  All these should have been provided by the plaintiff and installed upon handover and be available upon trial operation.  The defendant had engaged Wellex to make good the omissions at HK$2,600 (3/684 and 4/930).  I allow this claim.

(13)   Failing to install sufficient and proper fire sprinklers, which were part of the fire services installations required for the issue of the food factory licence.

(13.1) The defendant claims reimbursement for the HK$30,000 charged in item 1 of the Yuen Lee 2010 invoice.  This was for adding nozzle(s) to the firefighting hose(s), adding firefighting hose(s), change hose(s) which did not comply with firefighting regulations and notify the FSD about the installations.  All these should have been installed upon handing over as they should all be in position upon trial operation.  I therefore allow this item.

(14)   Failing to install the emergency switch for controlling the ventilation system in the event of fire, which was part of the fire services installations required for the issue of the food factory licence.

(14.1) The claim is part of item 4 of the Yuen Lee 2010 invoice which I have already allowed.  The emergency switch should have been installed before the trial operation. 

(15)   Failing to obtain and/or procure the formal food factory licence.

(15.1) Mr Wong was trying to proceed with the application for formal licence, but was declined access to the premises by the defendant.  I do not think the defendant is entitled to this claim.  I dismiss it.

Judgment on the counterclaim

266.  I have allowed:

(1)   HK$30,000 for waterproofing works at the rear exit;

(2)   HK$8,000 in item 9 of the Yuen Lee 2010 invoice (4/926) for the supply of two pumps with a computer controlled pumping system;

(3)   HK$20,000 for items G.1 and G.2 of the Yuen Lee contract for improving the air-conditioning system and connecting all the added switches etc.;

(4)   HK$35,000 for item 4 of the Yuen Lee 2010 invoice for the addition of emergency smoke stoppage systems;

(5)   HK$28,000 for item 8 of the Yuen Lee 2010 invoice for repairing the motors of two sets of fresh air machines and repairing the cooling towers of the air-conditioner;

(6)   HK$20,000 for item E.4 in the Yuen Lee contract for newly made, reinstallation or restoration of switch positions and electrical box positions;

(7)   HK$3,000 for the replacement of electrical panel and connections undertaken by San Wo (4/941);

(8)   HK$2,600 for provision and replacement of firefighting equipment by Wellex (3/674, 3/684 and 4/930); and

(9)   HK$30,000 charged in item 1 of the Yuen Lee 2010 invoice for adding firefighting nozzle(s) and hose(s). 

The total sum awarded is HK$176,600. 

267.  I do not consider that it is necessary for the food factory to stop work in order for these rectification works to be undertaken.  The long period of stoppage of the food factory was caused by the desire of the defendant or Shing Hin Food Processing to redesign, redo and upgrade the waterproofing and flooring so that there would be two layers of waterproofing and to redesign the freezers and coolers and the flooring thereunder so that there would be no more kerb at the entrance of the freezers and coolers.  I therefore do not make any further award on the counterclaim for other alleged loss or damage like rental and wages as allegedly occasioned by the stoppage.

CREDIBILITY OF WITNESSES

268.  As can be seen from my findings of facts above, the evidence of Mr Au-Yeung and Mr Chau contains incredible statements and exaggerations.  The evidence of Mr Yeung and Mr Wong on the other hand is reasonable and credible.  Save and except the parts that I have accepted above, I reject the evidence of Mr Au-Yeung and Mr Chau whenever it is in conflict with the evidence of Mr Yeung and Mr Wong.

INTEREST

269.  I have given judgment to the plaintiff in the sum of HK$1,197,191.  I also order that interest on the judgment to the plaintiff be at the judgment rate from the date of writ to the date hereof.  I have also given judgment to the defendant on the counterclaim at HK$176,600.  I also order the same rate of interest on the judgment on the counterclaim to run from the filing of the defence and counterclaim to the date hereof.  The judgment on the counterclaim with interest is to set off against the judgment on the claim and interest thereon.

COSTS

270.  Since the plaintiff has succeeded on the claim which overtops the counterclaim substantially, I make a costs order nisi that the defendant do pay the costs of this action including the counterclaim to be taxed.