UNIVERSAL HOUSING ENGINEERING CONSULTANTS LTD. v. THE INCORPORATED OWNERS OF TUNG SHUN HING BUILDING

DCCJ 2514/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2514 OF 2000

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JUDGMENT

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INTRODUCTION

[1] The Plaintiff is an engineering consultant firm and the Defendant is the Incorporated Owners of an older mixed-use building in To Kwa Wan.

[2] In or about 1997 and 1998, the Incorporated Owners received certain notices from the Buildings Department in respect to the condition of the building. As a result, the owners decided to commence a major renovation of the building (the "Renovation").

[3] By an agreement dated 24th August 1998 (the "Agreement"), the Plaintiff agreed to provide engineering consulting services to the Defendant at a total fee of HK$45,000. The Agreement provided that the fees should be paid in 3 stages: (1) HK$13,500, at the time the Agreement was signed; (2) HK$13,500 in the middle of the Renovation; and (3) the balance, HK$18,000, when scaffolding for the Renovation was removed.

[4] The Plaintiff prepared the plans, specifications, bills of quantities, form of tender and contractor contract for the Renovation. The Plaintiff also assisted in the evaluation of the tenders and in the selection of the main contractor for the Renovation.

[5] The Renovation progressed and the Incorporated Owners duly paid the first 2 instalments under the Agreement.

[6] On 6th July 1999, the Plaintiff certified the Renovation as completed. Scaffolding was removed and the Renovation entered into the one-year warranty period. The Incorporated Owners issued a recommendation letter to the Plaintiff in appreciation of its work during the Renovation.

[7] On 8th July 1999, the original members of the Incorporated Owners were replaced in an election. The new Incorporated Owners found defects in the Renovation and ordered the Plaintiff to require the contractor to remedy the same.

[8] The Plaintiff contacted the contractor and some of the remedial work was completed. The new Incorporated Owners was not satisfied with the Plaintiff's performance and refused to pay the 3rd payment under the contract.

THE PLAINTIFF'S CASE:

[9] The Plaintiff alleged that it had performed all of its duties under the Agreement. In a meeting dated 12th October 1999, the new Incorporated Owners was not satisfied with the location of the new attendant's booth and agreed to pay the Plaintiff HK$17,000, to provide drawings for a new booth, to be located in the corridor leading to the residential lift lobby.

[10] At the same meeting, the new Incorporated Owners also agreed to pay the plaintiff HK$15,000 for additional work and HK$3,000 for secretarial and administrative work (the "Additional Works").

[11] The Plaintiff had duly completed their duties under the Agreement, provided the required drawings and the Additional works to the new Incorporated Owners; however, despite repeated demands, the new Incorporated Owners refused to pay any of the Plaintiff's fees.

[12] The Plaintiff claimed against the Defendant: HK$18,000, for the 3rd payment under the Agreement; HK$17,000 for the new drawings; and HK$18,000 for the Additional Works.

THE DEFENDANT'S CASE:

[13] The Plaintiff failed to properly supervise the contractor's work, resulting in: numerous cracks, peeling paints and other defects in the building; some materials used in the Renovation were not those specified in the tender document; removal of the fire detection system for the G/F, 1/F, and 2/F; newly constructed fire services water tank (the "New Tank") being substantially smaller then required under the relevant legal requirement and anchoring bolts being left on the exterior wall of the building after the removal of the scaffolding.

[14] The New Tank was built in accordance to the Plaintiff's design and specification; however, it was only one-tenth the required size and was useless. The Defendant had to reconnect the fire service system to the original concrete fire service tank. The Defendant counter-claimed against the Plaintiff for the costs of the reconnection for HK$45,000 and the costs of the New Tank for HK$24,800.

[15] Furthermore, the Plaintiff refused to provide the Defendant with a list of defects prior to the expiry of the one-year warranty period. The Defendant had to engage another firm of consultant to investigate and report on the defects. The Defendant also counter-claimed against the Plaintiff, costs of the new report for HK$70,000.

ISSUES:

[16] The arguments between the parties were factual disputes. Each claim and counter-claim must be resolved on its own facts. For convenience, I will deal with the Plaintiff's claims first.

FINDINGS:

The Plaintiff's claim for HK$17,000 for new drawings and HK$18,000 for the Additional Works

[17] The Plaintiff's pleadings on both of these items were based on contract. The allegation was, in the meeting on 12th October 1999, the new Incorporated Owners, specifically one of its members 楊鎮誠 ("Mr. Yeung") agreed with Mr. Wong Siu Keung of the Plaintiff ("Mr. Wong"), to pay HK$17,000 and HK$18,000, respectively for the new drawings and the Additional Works.

[18] Paragraphs 9 and 11 of Mr. Wong's witness statement clearly stated that the Defendant had agreed to pay the aforesaid sums; however, during the trial, Mr. Wong admitted that no agreement had been reached between the parties on paying either the drawings or the Additional Works. Mr. Yeung had never agreed to pay the Plaintiff anything at all.

[19] It is trite that a legally enforceable contract requires an offer, an acceptance and consideration. In The Law of Contract in Canada, 2nd ed, Carswell 1986, Professor Friedman defined a contract, at page 3, as:

"Contract is a jural relationship that is founded upon agreement, that is, upon the manifestation of a mutual concordance between the parties as to the existence, nature and scope of their rights and duties. A contract is a legally recognized agreement between two or more persons, giving rise to obligations that may be enforced in the courts."

[20] One of the foundations of a contractual relationship is this "mutual concordance" or "mutuality". In other words, the parties must have both agreed to be bound by the terms of the contract. In some circumstances, the law is willing to imply an agreement, even though one of the parties may not have physically manifested his agreement. The law of contract, however, could not be stretched to cover a relationship where both parties agreed that one of them did not agree to be bound.

[14] The Plaintiff's claims for additional payment for the drawings and Additional Works had been framed solely in contract, there being no mutuality and thus no contract between the parties, the Plaintiff's claims for these two items must fail.

The Plaintiff's claim for HK18,000 for balance of the Agreement:

[15] The Agreement provided for the 3rd payment upon removal of the scaffolding. Scaffolding was removed on or about 6th July 1999. Prima facie, the Plaintiff was entitled to the 3rd payment, unless the Defendant's allegation that the Plaintiff has breached the Agreement can be substantiated. To decide this we must look at the Defendant's counter-claims.

The Defendant's counter-claim for HK$70,000 for the new report:

[16] The new report was originally filed as an expert report. The content of the report was far from the traditional expert reports. It was in fact a report of defects on the Renovation (the "Defects Report") issued by Planning Services International (Asia) Ltd., the new consultant hired by the new Incorporated Owners.

[17] Prior to commencement of trial, Mr. Dawes, Counsel for the Plaintiff, objected to the production of the Defects Report as an expert report. The Supreme Court Practice 1999, vol. 1, at page 707 described expert witnesses as follows:

"Their function is (inter alia) to explain words, or terms of science or art appearing on the documents which have to be construed by the Court, to give expert assistance to the court, e.g. as to the laws of science, or the working of a technical process or system or to inform the Court as to the state of public knowledge with regard to the matters before it: ... In no case is it competent for them to express their opinion upon any of the issues, whether of law or fact, which the Court or a jury has to determine... ."

[18] The Defects Report was separated into two parts: the first was an evaluation on the Plaintiff's performance under the Agreement; the second was a report on physical defects found on the building. The first part of the Defects Report clearly concerned one of the issues to be determined by this Court, the second part was on the existing condition of the building. The Defects Report contained no explanation on any technical or scientific terms.

[19] The Defects Report was clearly not an expert report; however, it did contain facts that will assist me; therefore, with the agreement of Mr. Dawes, I allowed the Defects Report to be exhibited if the writer testified as well. Mr. Tse, solicitor for the Defendant, agreed and the writer 陳元正 ("Mr. Chan") was allowed to testify as a factual witness for the Defendant.

[20] As to the first part of the Defects Report, Mr. Chan testified that his report was based solely on the documents given to him by the new Incorporated Owners, he had no actual knowledge of what the Plaintiff had done before, during or after the Renovation. Mr. Yeung also admitted that he did not have all of the correspondences between the old Incorporated Owners and the Plaintiff.

[21] In fact, my review of the bundle of agreed documents submitted for this trial revealed that there had been regular site inspections by the Plaintiff, periodical meetings were held with the contractors and members of the old Incorporated Owners, required form BA 14 had been filed by the Plaintiff, clear records during the construction period, including photographs, had been kept by the Plaintiff and a list of defects, including photographs, had also been kept.

[22] I will not go into each and every item stated in this part of the Defects Report, except to say that I was very surprised by the allegations stated thereon. Mr. Chan had no personal information on any of these allegations, he was not present when the Plaintiff gave advises to members of the old Incorporated Owners, he was not present during the planning stage when the Plaintiff and the contractor planned the construction schedule, he was not present during the construction period, he was not present when the contractor encountered unexpected problems, which was inevitable in these type of renovation projects, he was not present when the Plaintiff meet with the contractors and members of the old Incorporated Owners and resolved these problems.

[23] In other words, Mr. Chan's unqualified accusations against the Plaintiff in the first part of the Defects Report, was based only on incomplete documentations given to them by members of the new Incorporated Owners, who were also not present during any of the critical period of the Renovation.

[24] In any event, this part of the report was nothing more than Mr. Chan's personal opinion on what the Plaintiff should have, but failed to do under the Agreement. I reject this part of the Defects Report.

[25] As to the allegation that because there was such a long list of defects, as stated in the second part of the Defects Report, the Plaintiff must have failed to properly supervise the contractor. The obligation for an architect was stated by the authors of Keating On Building Contracts, 7th ed. (at 13-63) as follows:

" The architect is not required personally to measure or check every detail, but should check substantial and important matters, such as, for example, the formation under a concrete floor slab, especially if failure to do so will result in the work being covered up and thereafter not being capable of inspection at a later stage. It has been held on particular facts that following the key setting out, there was no duty on the architect to see that proper setting out was maintained. It is for the architect to tell the quantity surveyor, if there is one, about defects for which allowance should be made in the measurement and valuation for interim certificates. But prolonged and detailed inspection and measurement at interim stage is impractical and not to be expected.

As is well-known, the architect is not permanently on the site but appears at intervals, it may be of a week or a fortnight, and he has, of course, to inspect the progress of the work. When he arrives on the site there may be many very important matters with which he has to deal; the work may be getting behind hand through labour troubles; some of the suppliers of materials or the sub-contractors may be lagging; there may be physical trouble on the site itself, such as, for example, finding an unexpected amount of underground water. All these are matters which may call for important decisions by the architect. He may in such circumstances think that he knows the builder sufficiently well and can rely upon him to carry out a good job.; that it is more important that he should deal with urgent matters on the site than that he should make a minute inspection on the site to see that the builder is complying with the specifications laid down by him... It by no means follows that, in failing to discover a defect which a reasonable examination should have discovered, it fact the architect was necessarily thereby in breach of his duty to the building owner so as to be liable in an action for negligence. It may well be that the omission of the architect to find the defect was due to no more than an error of judgment, or was a deliberate calculated risk which, in all the circumstances of the case, was reasonable and proper."

[26] Except for the fire services tank (for which I will cover in detail on a later part of this judgment), the second part of the Defects Report, listed out three major areas of deficiencies in the Renovation. The failure to use a closed drainage system, the failure to remove all of the anchor bolts on the exterior wall and failure to use the required anti-oxide primer on the steel bars before they were covered by concrete.

[27] Mr. Chan however, failed to notice that the original price quoted by the contractor and the final contract price for the drainage system was different by more then HK$100,000. The difference in the original and the final price could be explained by a variation in the drainage specifications.

[28] As to the anchor bolts, the report failed to note that there were a number of illegal flower cages attached to the exterior wall of the building. The Plaintiff had some difficulty in convincing the unit owners to remove these cages. Mr. Wong testified that he had to report these to the Buildings Department and the Buildings Department had to issue removal notices to these owners before they would remove these cages.

[29] Some of these cages were removed after scaffolding for the Renovation was removed. Under cross-examination Mr. Chan agreed that later scaffoldings, erected for the removal of these cages, could have left some of the anchor bolts.

[30] As to the steel bars, Mr. Chan testified that the contractor had used red primer rather then the zinc/bonding agent combined primer specified in the contract. Mr. Chan testified that concrete would not stick to red primers as well as the primer specified. This may be true, but the Plaintiff could not be expected to supervise all of the contractor's work. There may have been some momentary lapses or it could have been a calculated compromises. In any event, this one item did not indicate the Plaintiff had breached the terms of the Agreement.

[31] The Defects Report also listed numerous other minor items, like thinning or cracking paint, cracks in concrete patches, missing tiles and minor discrepancies in materials supplied and those specified in the contract. I will not address these individually, suffice to say that the Plaintiff could not be expected to cover each and every detail in a renovation of this type.

[32] The Plaintiff's effort to have these defects remedied was also frustrated by the new Incorporated Owners refusal to pay a substantial part of the contract fees to the contractor. Mr. Yeung testified that the Defendant had refused to pay the contractor approximately HK$1,500,000. When the contractor was not getting paid, it was a miracle for the Plaintiff to get them to do any remedial work at all. The numbers of defect were not proof that the Plaintiff had failed in its duties under the Agreement. There was only one party that was qualified to comment on the Plaintiff's performance, the old members of the Incorporated Owners, and they had clearly stated their satisfaction by the appreciation letter dated 8th July 1999.

[33] As to the Defendant's counter-claim for HK$70,000, my review of the Agreement did not reveal any requirement for the Plaintiff to supply the Incorporated Owners with a report on the defects before or after the warranty period had expired. The cost of the Defects Report was more then 11/2 times what the Plaintiff charged the Incorporated Owners for completing the entire project. Although once agreed, a professional should perform its duties regardless of the actual remuneration received, under the circumstance, I will not impose any implied duties on the Plaintiff to provide a defects report, when it was not specifically stated in the Agreement.

[34] The Defendant required the Defects Report because new members of the Incorporated Owners did not have all of the documents and information in the possession of the old members. This was not the fault of the Plaintiff and the Defendant's counter-claim on this item must be dismissed.

The Defendant's counter-claim for HK$24,800 for the new fire services tank:

[35] The Defendant's allegation was that the original fire services tank had a capacity of 30,000 liters and the Plaintiff's specification for the New Tank was not more then 3,000 liters. The Fire Department refused to certify the New Tank and the costs of constructing it was wasted.

[36] Mr. Wong's testimony was that a member of the old Incorporated Owners saw a stainless steel fire services tank on a neighbourghood building and insisted to have the same installed. The Plaintiff had advised the Incorporated Owners that if a stainless steel tank of 30,000 liters was to be built, an evaluation of the roof structure, by a qualified structural engineer, would be required. The old Incorporated Owners insisted that a new tank be built based on the same size as the neighbourghood building. The Plaintiff had advised the Incorporated Owners that the size of the new tank would likely not pass fire department inspection; however, the Incorporated Owners insisted to proceed with construction of the new 3,000 liters tank.

[37] Mr. Dawes submitted that the letter from the Plaintiff to the Defendant, dated 16th September 1998, was evidence the Plaintiff had properly advised the Incorporated Owners. Mr. Tse, however, argued that the letter should not be read as proper advice. My own review of this letter revealed that the Plaintiff was trying to achieve two purposes with this letter: First, seeking the Incorporated Owners' formal approval of the specification stated in the tender documents; and Second, to document the fact that the Plaintiff had advised the Incorporated Owners that in they opinion, the New Tank was not of suitable size.

[38] The language in this letter may not be crystal clean that the Incorporated Owners had decided the size of the New Tank against the Plaintiff's advise and was solely to be blamed for all consequences, but one must remember that the Plaintiff had to be careful not to upset the members of the old Incorporated Owners and at the same time document the fact that it had ignored the Plaintiff's advice. It was a difficult course for the Plaintiff to chart and read under those lights, the letter was clear enough. The Plaintiff had given proper advice to the Incorporated Owners, who decided to not to follow the same. The Plaintiff should not be liable for the costs of the New Tank.

The cost of rectifying the defect on the fire service installation for HK$45,000.

[39] This part of the counter-claim was for the cost of reconnecting the fire services systems back to the old concrete tank.

[40] The parties agreed that after the fire department issued an abatement notice on 28th January 2000, the contractor had sent its employees to reconnect the fire service system back to the old concrete tank. Mr. Yeung, on behalf of the new Incorporated Owners, refused them entrance to affect the necessary reconnections.

[41] Mr. Wong testified that, during the planning stage of the Renovation, he knew the new fire services tank was unlikely to pass the fire department's requirements and, as a contingency plan, had obtained the contractor's agreement to reconnect the fire services system to the old tank free of charge, if required. Once he learned of the abatement notice, he arranged with the contractor to complete the reconnection. Irrespective of the fact that they have not received a large portion of they contract fees, the contractor sent their employees to complete the task, however, they were prevented by the new Incorporated Owners from doing so.

[42] Mr. Yeung testified that the contractor showed up a few weeks before Lunar New Year, during this period the owners of the building traditionally did a lot of burn offerings. If the fire system was turned off for this period, that would be dangerous. After the Lunar New Year holidays, Mr. Yeung contacted the contractor, who refused to complete the reconnection again. The Incorporated Owners had no choice, but to hire a new contractor to complete the reconnection. The old tank was found to be leaking and waterproofing work had to be done before the whole system could be completed.

[43] Mr. Wong and Mr. Yeung's testimony clearly indicated that the Plaintiff had made reasonable arrangement after the old Incorporated Owners ignored their advice on the fire services tank. If the contractor was not prevented from doing their work, the reconnection may have cost very little to the Incorporated Owners. The fact that a new contractor was required was due solely by the refusal to allow the contractor to commence work. The plaintiff had no fault at all. This part of the counter-claim is also dismissed.

COSTS:

[44] As to costs, the Plaintiff's claims for providing the new drawings and the Additional Work were so obliviously flawed, they should not have been brought in the first place. With out these two claims, the Plaintiff's claim would have been HK$18,000, well within the Small Claims Tribunal's exclusive jurisdiction of HK$50,000. Costs for the Plaintiff should therefore, be on the Small Claim Tribunal scale, for which I will assess at HK$500.

JUDGMENT:

(1) Judgment is for the Plaintiff on its claim for balance of contract fee in the sum of HK$18,000.

(2) Balance of the claims is dismissed.

(3) All of the Defendant's counter-claims are dismissed.

(4) Interest is for the Plaintiff at the judgment rate, commencing from the day of writ, until payment is received.

(5) Costs to the Plaintiff is fixed at HK$500.