SAMAKE CONSTRUCTION CO. LTD. v. THE INCORPORATED OWNERS OF LAI WAN BUILDING

HCA 10862/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10862 OF 1996

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J U D G M E N T

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Background:

1. The Defendant is and was at all material times the Incorporated Owners of Lai Wan Building which is a 34 year old building with 16 to 18 storeys (hereinafter called "the Building"). In May 1994, the Buildings Department issued a Building Order requiring the Defendant to carry out certain remedial works to the Building. The then management committee of the Defendant (hereinafter called "the 9th Committee") hired Mr Michael Yuen as the Authorized Person to co-ordinate the works required by the Building Authority. Twenty-eight contractors tendered for the works with quotations ranging from $4.2 million to $7.8 million. The Plaintiff's bid of $4.2 million was accepted apparently as it was the lowest (hereinafter called "the Contract").

2. The contract sum for the entire contract was $4.2 million and the Defendant paid $3,865,000, leaving $335,000 outstanding, which formed the subject matter of the Plaintiff's claim. It is also common ground that the Defendant authorized some variation works to the value of $94,000, which had been performed by the Plaintiff and paid by the Defendant. The defence is one of set-off and counterclaim and relates to 7 out of 17 items of works under the Contract.

3. The works had been substantially completed except Item 16 in respect of replacement of underground drainage pipes at the back lane. On 23 June 1995, the Authorized Person reported to the Buildings Department completion of the repair works relating to "all external walls, common areas, staircases and common drains". So far as replacement of underground drainage pipes in the back lane was concerned, that certainly was incorrect. On 11 August 1995, the Buildings Department confirmed that the Building Order had been complied with.

4. In the meantime, the Environment Protection Department discovered that trade effluent from the Building was being discharged into government storm drains and that rain water drains have been wrongly diverted into the sewage drains. The second problem was rectified by the Plaintiff but not the first one, which resulted in the Defendant being prosecuted and fined $20,000 on 20 November 1996. The unlawful discharge into the government storm drains was finally rectified by the Defendant engaging another contractor to replace the drainage in the back lane.

The Contract:

5. The Contract between the Plaintiff and Defendant is contained in three documents, namely, (a) the Tender Documents, (b) the Principal Agreement dated 14 December 1994 and (c) a Supplemental Agreement dated 18 December 1994.

6. The works which the Buildings Department required the Defendant to carry out were:

(a) Remove loose/cracked/defective concrete, clean exposed rusty steel bars, replace/add steel bars as necessary, and reinstate with new concrete.

(b) Remove all loose/defective external rendering and internal plastering.

(c) Repair/secure/replace all loose and defective window frames and replace broken glazing.

(d) Repair/renew all defective rain water, waste, soil and/or vent pipes.

The works covered by the Contract were more extensive than those required by the Building Order.

7. Mr Wong, for the Plaintiff, submits that the "genesis" of the Contract was in large part due to the dilapidated state of this 34 year old building and as such foremost on the Defendant's mind must be to meet the requirements of the Building Order. He asks me to consider the locality in which the Building is located, which consists of mostly very old buildings, that the Plaintiff was employed because of its lowest tender and that the aim of the Contract was primarily to achieve "repair" but not "luxury".

8. The basic rule in interpretation of a document is to discover what a reasonable person would have understood the parties to mean from the words they have used, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. The works to be covered by the Contract were more extensive than that required by the Building Order. The works included cosmetic works such as renovation of the lifts and the lobby of the Building. This negates the inference that the purpose of the Contract was for carrying out necessary repairs only. This is a building contract. The Plaintiff has spelt out with sufficient particularity what has to be done. There are no ambiguities. The words used in the Contract should be given their ordinary meaning. I do not think the age of the building and the contract price should be used to restrict the clear terms of the Contract. They may perhaps indicate that the Plaintiff has made a bad bargain, but that does not mean the Plaintiff should not be bound by the terms of the Contract. Nothing turns on this aspect of interpretation of the Contract. I shall now turn to the seven items of works in dispute.

Defective work on the external wall: Repairing and refurbishing spalled reinforced concrete (Item 3) and replacement of all communal drainage and sewage pipes (Item 4):

9. Under Item 3, the Plaintiff shall repair and refurbish spalled reinforced concrete of all the external walls, light wells, staircases, parapet walls, machine rooms, entrance lobby, roof top water tanks, corridors and common areas. It shall remove all loosen concrete and render the walls. Thus this item of work included both structural and cosmetic aspects. Damaged walls, cracks and losen concrete had to be made good or rendered. According to Stewart Wong's report and photographs, there are voids or holes on the external walls. Those cracks or voids were found next to and behind the locations of the pipes or hoppers and not elsewhere on the external wall. There were cracks and voids in 80% of the locations where the pipes were previously installed, suggesting that they were caused by hacking while removing the old pipe work and installing the new ones. There is nothing to suggest any other works have taken place between the work of the Plaintiff and the inspection by Stewart Wong which could have accounted for the cracks and voids nor could they have been the result of normal wear and tear. Even the Plaintiff's director, Mr Lam, agreed under cross-examination that some parts of the external wall were not finished properly and for which the Plaintiff should be responsible.

10. Item 4 covers replacement of communal drainage and sewage pipes in the Building. The Defendant's complaint relates to about 70 hoppers not being properly fixed with screws or anchors on the external wall and a few hundred anchors used in securing the old pipe work were left behind, either wholly or in part.

11. The Defendant's case about the hoppers is that there were holes in the hoppers for securing them to the wall, but they were not so secured. According to the Plaintiff's supplier of the hoppers, the holes were a standard feature on the hoppers. The hoppers are made of PVC material and have a sleeve which allows 45 mm (and not 20 mm as counsel thought) of the connecting pipe to fit into it. The joint is to be bonded by a special kind of adhesive for PVC material and would be adequate for ordinary installation, for example where the hopper and the joining pipe rest against a vertical wall. A hopper will only be secured with screws or anchors if it has to be installed against a protruding surface, then the holes will be used.

12. Counsel criticises the supplier's evidence as he has not established his competence as an expert. However, in my view, his evidence accords with common sense and the fact that none of the hoppers have fallen from their position for six years since their installation simply proves his point. According to the Plaintiff's expert, Mr Kwan, there are hoppers in the market without screw holes. This lends support to the evidence of the supplier. Mr Mak for the Defendant refers to one of the photographs showing a hopper in a slanting position and suggests it was insecure. I do not agree. The reason is that, as shown in the photograph, the pipe into which the hopper was inserted is fixed in a slanting position. Mr Mak refers to regulation 36(1) of the Building (Standards of Sanitary Fitments, Plumbing, Drainage Works and Latrines) Regulations which provides that "every soil pipe, waste pipe and rain water pipe shall be securely fixed to the wall of the building for which it is provided." In my view, if the vertical pipes to which the hoppers are inserted and bonded are securely fixed to the wall then the hoppers are so securely fixed. There is nothing to suggest that the pipes are not so securely fixed to the wall. There is no requirement under regulation 36(1) for the hoppers to be so affixed as well. Even assuming that the regulation applies to hoppers as much as to the pipes, I am satisfied that there was no breach of that regulation.

13. Stewart Wong complains of a few hundred of spikes, brackets or old anchors which had not been removed or completely removed by the Plaintiff's workers when removing the old pipe work. 80% of these protruding screws or spikes or anchors are found in locations where the old pipes used to run. The irresistible inference is that they were remains from the old pipe work which the Plaintiff should have removed and covered up and rendered with cement.

14. Mr Wong submits that there were no complaints about these anchors, spikes, brackets, cracks or holes have been made in the various defect lists. The complaints only arise as a result of experts having been instructed for the purpose of litigation. This certainly is the case. There is no question about waiver. The issue is not when the complaints were made but whether they were genuine, i.e. whether the works were defective. While delay may cast doubt on the genuineness of the complaint, I have no doubt on Stewart Wong's credibility. The photographs show there are holes and old spikes and brackets left on the wall from where the old pipe work used to be. The Plaintiff's workers must have simply removed the old drains but left the old anchors behind. Many holes on the damaged wall surface are not filled up. Obviously, the works were not carried out in a responsible and workmanlike manner. I do not agree with Mr Wong that the work was merely cosmetic. If the old spikes are not removed, they will rust and cause damage to the concrete. Loosen and exposed concrete would result in structural damage to the Building and that was the reason for the issue of the Building Order. The Plaintiff is liable for cost of remedial works to have these remains from the old pipe work removed and the part of the wall rendered, made good and repainted.

15. The cost of rectification works for these defects could conveniently be dealt with together as they are all related to the external walls of the Building. The works involve removing protruding spikes or anchors, filling the holes and cracks on the external wall of the Building, rendering and repainting the wall. To execute the above works, scaffolding will have to be erected. The cost of erecting the scaffolding may be out of proportion with the cost of the above remedial work. The defective works were so extensive that I cannot consider them as de minimis and excuse the Plaintiff from liability. If the Plaintiff chose to carry out its works negligently, it only have itself to blame if the consequence is more serious than it anticipated.

16. Ho Kam Kee offered a quotation of $205,000, which Stewart Wong considered to be on the low side when compared with the Plaintiff's own contract price for erecting the scaffolding for the works. Mr Wong argues that the quotation was unscientific and took the hoppers into consideration. I cannot agree with that. The locations where there are spikes or anchors to be removed are along the pipe work where the hoppers are installed. I consider the quotation fair and according to Stewart Wong, it was on the low side. I allow the cost of erecting scaffolding at $205,000 as part of the damages.

17. The Defendant produced a quotation from Ho Kam Kee in the amount of $190,000 for screwing the hoppers to the wall and making good the damaged wall with cement. The quotation is excessive as compared with the contract sum of $260,000 under Item 3 of the Contract for repairing the concrete wall of the entire Building. Though the locations of spalled concrete requiring repairs are not many and the hoppers do not required to be affixed to the wall, there are a few hundred locations where spikes or anchors of the old pipe work have been left behind. These will have to be removed, covered and rendered with cement. I shall assess the damages for these two items with a 50% adjustment at $95,000 from that quotation.

Replacement of communal drainage pipes inside Fu Lam Sea Food Restaurant (Item 4)

18. The Defendant complains that the Plaintiff failed to replace the soil and waste water drainage pipes installed above the false ceiling of Fu Lam Sea Food Restaurant on the first floor of the Building. The works were covered by Item 4 of the Principal Agreement. It was agreed in the Supplemental Agreement that in respect of communal pipe work inside private premises, if the owners of the premises refuse to have the pipes replaced or to sign any document, then the communal pipes inside the premises are deemed to have been replaced.

19. In April 1995, in response to the Plaintiff's notice, the person in charge of Fu Lam Sea Food Restaurant confirmed that it required the communal pipes inside the restaurant to be replaced. However, when the Plaintiff's staff negotiated with the operator of the restaurant and indicated that the work would take one to two weeks to complete during which the restaurant could not be open for business, the operator refused to allow the Plaintiff's workers to execute the work.

20. As a result of further negotiation between the Plaintiff and the newly formed management committee of the Defendant (hereinafter called "the 10th Committee"), on 2 August 1995, the Plaintiff wrote to the Defendant, not Fu Lam Sea Food Restaurant, and offered to replace the pipe inside the restaurant on condition that the Plaintiff would not be responsible for the damage to the interior decoration of the restaurant. There was no response either from the Defendant or from the restaurant. The Plaintiff's staff further liaised with the staff of the restaurant, but was told that the restaurant did not want to have the pipes replaced as it did not wish to disrupt its business. On 12 September 1995, the Plaintiff wrote to the Defendant and again offered to execute the work within the year 1995 subject to the cooperation from the restaurant. Then on 30 October 1995, Fu Lam Sea Food Restaurant wrote to the Plaintiff and requested to have the work carried out after 11 p.m. The Plaintiff refused as it considered the request was unreasonable.

21. Mr Wong refers to Keating on Building Contracts, 7th edition at paragraph 3-43 in which the learned author writes:

"Generally speaking, where B is employed by A to do a piece of work which requires A's co-operation ... it is implied that the necessary co-operation will be forthcoming. The employer impliedly agrees to do all that is necessary on his part to bring about completion of the contract."

Hence, he submits that the Defendant should make the restaurant accessible to the Plaintiff at reasonable hours to perform the work. On the other hand, Mr Mak argues that the Plaintiff was unreasonable in refusing to co-operate with Fu Lam Sea Food Restaurant by working outside normal hours.

22. The parties' rights and obligations are governed by the express terms of the contract and such terms as may necessarily be implied to give the contract business efficacy. Under the Moorcock principle, I have no doubt that a term imposing on the Defendant a duty to co-operate with the Plaintiff must be implied into the contract. In general, the employer should co-operate by allowing the contractor's workers access to the site, handover the site in accordance with schedule, assist in the contractor's application for electricity or water supply if necessary, or provide him the same subject to payment of reasonable charges, and assist and co-operate in obtaining licences where appropriate. The question here is what was the extent of the co-operation that would be implied into the Contract. Would that require the Defendant to ensure that the restaurant closed down its business so that the Plaintiff could carry out its work during the ordinary hours? If not, would it be an implied term that the Plaintiff should carry out night work at increased costs so as to enable the restaurant to continue with its business during its opening hours?

23. This is a building contract. A very common provision to be included in a building contract is compensation for night work and acceleration, though there were no such provisions in the Contract. The Contract did not involve a very large scale building operation. It was entered into between the contractor and the Owners Incorporation, without the assistance of lawyers. Apparently the function of the Authorized Person was perfunctory. I think the exclusion of such provision was the result of an omission rather than a conscious decision. In Hong Kong, where cost of land is a premium and it certainly was back in 1995 when the contract was performed, restaurant rental was very high. Business turn over in restaurant is and was also very high. It does not make business sense to close down a restaurant for renovation work because expensive rental will be wasted on non-production activities and the restaurant will suffer loss of very substantial income. On the other hand, it makes more business sense to pay renovation workers overtime to carry out night when the restaurant is closed for business. This is part of the usual scene in Hong Kong and certainly was back in 1995. Thus applying the Moorcock test, the officious by-stander at the time the parties entered into the Contract would no doubt have balanced all these considerations and said, "The employer must co-operate and enable the contractor access to the restaurant during reasonable hours to execute the works. But if the employer requires the work to be carried out at a time which is unreasonable, then it goes without saying that the contractor shall perform the work at such time as may be required and be paid overtime."

24. What is reasonable access or reasonable hours depends on the circumstances. The work took 7 days for 3 to 4 workers. The parties could have worked out viable alternatives, such as the restaurant allowing access during non business hours, say between 2 and 6 p.m. and the Plaintiff engaging more man power to reduce the number of days required so as to minimise the inconvenience to the restaurant. Or alternatively, the Defendant or the restaurant should offer compensation for night work as is usual in construction contracts. To refuse access during reasonable hours and require the Plaintiff to work from 11 p.m. overnight without compensation was unreasonable. The Plaintiff was entitled not to execute the work. After all, the Plaintiff had allowed the restaurant ample time to allow access for the work to be carried out. The Defendant's claim for deduction for this part of the work not carried out could not be allowed.

Repair of water tanks on the roof (Item 9)

25. Item 9 requires the Plaintiff to restore the water tanks on the roof by removing the existing tiles, re-waterproofing and re-tiling the tanks. The Defendant now complains of water leakage from one of the tanks directly above Flat I on the 18th floor. Stewart Wong's report and photographs taken in April 1999 show there was severe water leakage into the ceiling of that unit and some water leakage through the parapet wall to the exterior of the Building.

26. Mr Mak also refers to the reference to water leakage in the Defendant's defect list given to the Plaintiff on 14 August 1995. My reading of the defect list is that the leakage referred therein did not relate to Flat I on the 18th floor, but to leakage into the lift shaft of Lift No 3. There was also no complaint about leakage into Flat I in the very comprehensive defect list enclosed in the Defendant's solicitors' letter dated 21 November 1995. The inference must be that the leakage now found four years later was probably not due to the inadequacy of the Plaintiff's work.

27. It is hardly credible that the leakage had been spontaneously occurring for four years since 1995. The water tank was kept full all the time and such spontaneous leakage would have rendered the flat immediately below it uninhabitable during these four years. Photographs taken by the Plaintiff's expert in August 2000 show the ceiling had been renovated with no sign of leakage and the floor on the roof had been retiled. If leakage remains a problem, it was unlikely that the tenant would have the ceiling renovated. It was suggested that there were some water marks on the ceiling which had been covered up by the tenant. As the tenant has not been called, I would ignore that suggestion.

28. In fact, I cannot be satisfied at all that the water tanks had not been renovated. There is no evidence that the tiles had not been replaced. There is a void space between the bottom of the tank and the floor slab of the roof so that the tank does not rest directly on the ceiling of the flat below. Any leakage from the tank would have ended up on the roof slab and evaporated. There is no evidence that the void space beneath the tank was wet. In my view, the likely cause of the leakage to Flat I was from the roof slab rather than from the tank and the roof slab together. It is more likely than not that the leakage as shown in the photograph was the result of leakage through the roof during the raining seasons only. Furthermore, the later photographs taken by the Plaintiff's expert show that probably the leakage has stopped. This could well be because the re-surfacing and re-tiling and possibly re-waterproofing of the roof have cured the problem. A claim for deduction of the costs of work relating to this item is not justified.

Replacing existing fire service system (Item 11)

29. The work under this item included replacing existing fire service pipes and fire alarms and installing fire service control wiring and fire service pump. The Defendant's complaints are that there were false alarms caused by negligent wiring, that the floor slabs through which the fire service pipes run had not been properly filled and reinstated with matching mosaic tiles.

30. As to negligent wiring, the Defendant's complaint is that all wiring for the fire alarm, fire service control and fire service pump were housed in the same conduits and the circuits were not properly earthed. There is no dispute that the wiring for the three circuits were all housed in the same conduits. As for the earth connection, the Plaintiff's evidence is that the conduit itself, being a metal conductor, provided the earth connection. Other than providing a letter from its contractor, Perfect Fire Protection Company, recommending separate conduits for the individual circuits and earth wiring, the Defendant offered no expert evidence that the method of installation and the use of the conduit as earth connection is not permissible under any of the Building Regulations or other regulations. On the contrary, the Plaintiff's evidence is that the installation complied with applicable regulations and produced a certificate certifying that the installation complied with the Fire Service (Installations and Equipment) Regulation. There is also evidence that there were instances where occupants in the Building had damaged the glass of the fire alarm switch box which caused the false alarm. In the circumstances, I cannot be satisfied that there was negligent installation by the Plaintiff.

31. As for the void space on the floor/ceiling slabs, Stewart Wong's evidence is that he has found at numerous locations that the space was filled by paper and then covered up with cement on the surface. The concrete in this state cannot maintain the fire resistant period required under the Code of Practice for Fire Resisting Construction. The Plaintiff does not deny liability for such defective work but disputes the extensiveness of the defective. This is a very common malpractice. If well surfaced, the defective work could not be discovered upon a visual inspection. As the defect was discovered in almost every floor in Block K examined, it would be reasonable for the Defendant to assume that all holes were filled up in similar manner and to have the work checked and done again.

32. Another complaint of the Defendant is that the floor around the fire service pipes damaged during the installation work had not been reinstated and covered with mosaic tiles. This is not disputed by the Plaintiff. The Plaintiff's case is that there was no obligation to reinstate the floor under the terms of the Contract and the work had been accepted by the 9th Committee without complaint after two thorough inspections. The complaint only arose after litigation started and as a result of appointment of the Defendant's expert.

33. Mr Wong submits that on a proper construction of the Contract, there was no express obligation to reinstate the floor and the Plaintiff could only be in breach if there was an implied term for reinstatement. He refers to paragraph 13-009 in Chitty on Contracts, 28th Edition, Vol 1 which reads:

"A term ought not to be implied unless it is in all the circumstances equitable and reasonable. But this does not mean that a term will be implied because in all the circumstances it would be reasonable to do so or because it would improve the contract or make its carrying out more convenient. The touchstone is always necessity and not merely reasonableness."

Mr Wong submits that it is clearly not necessary to imply a term for reinstatement into the Contract and the fact that reinstatement was not expressly provided for militates against implying such a term as now contended for the Defendant. He further argues that the lack of reinstatement must also be considered in the light of the fact that the Building was itself very old and it was not part of the repair works to completely renovate the corridors of each individual floors.

34. I cannot subscribe to that view. The tiled floor surfaces were extensively damaged by the removal of the old fire service pipes. The corridors were made unsightly. That the Building is a very old one is not a reason that the contractor may carry out its works negligently and make it look worse. To have the damaged surface re-tiled by similar mosaic tiles was not a very difficult or expensive task. The costs of workmanship and materials were minimal and negligible if performed at the same time when filling the space between the pipes and the concrete slab. Balancing the costs in the reinstatement work to the Plaintiff and the cosmetic effect of lack of reinstatement to the Defendant, and having regard to the fact that the damage was caused by the Plaintiff, it goes without saying that the Plaintiff who damaged the tiled surface must have the damaged surface restored as nearly as possible to its original state. It is both reasonable and within the confines of necessity. The Defendant is not requiring the Plaintiff to have the entire corridor re-tiled. I have no hesitation in implying such a term into the Contract and find that the Plaintiff is liable to compensate the Defendant for the costs of reinstating the concrete floor. In any event, as the holes will have to be re-done again, the costs of reinstating the floor at the same time would not be a very unreasonable or heavy burden.

35. In respect of the reinstatement of the concrete floor and filling up the space between the fire service pipes and the concrete slab, I consider Ho Kam Kee's quotation of $35,000 fair and reasonable.

Main lobby decoration (Item 14)

36. The Defendant complains of overcharging. According to Stewart Wong, the cost of wall tiles in 1995 should be between $25 and $28 per square foot, whereas the Plaintiff charged at $35 per square foot. The Defendant therefore complains of overcharging by $9,275. This is just a matter of bargain. The parties entered into the Contract on the basis that the Plaintiff shall be remunerated at the rate of $35 per square foot irrespective of the materials specified by the Defendant. The Defendant made a bargain. It might be a good bargain or it might be a bad one. The Defendant is bound by it. Depending on the materials it specified, it could have turned a good bargain into a bad one or a bad one into a good one. The Defendant could have specified more expensive tiles to be used and the Plaintiff would be bound to provide those tiles at a loss without any right to adjustment in the contract sum. It would be wrong for the Defendant to dispute liability merely because the approximate price of tiles was between $25 and $28 at the time. I do not think the Defendant could have a counterclaim for overcharging.

37. There is no dispute that the Plaintiff had not installed a marble signage as required. The Defendant is entitled to a deduction in respect of work that has not been performed or damages.

38. Yau Shing offered a verbal quotation of $14,000 for the signage at the entrance of the building. No specification for the signage was provided. On the face, the quotation appears excessive. Given the doubtful credibility of Mr Yeung of Yau Shing and his attitude towards the Defendant (see below), I reject his quotation as reasonable. The cost of the marble specified for use on the floor of the lobby was $90 per square foot. Assuming the same type of marble to be used and the size of the signage to be 30 square feet, the cost of material would be $2,700. I think an allowance of $7,000 for the signage is more than generous and would provide for much better quality marble, workmanship and installation.

Replacement of underground drainage pipes at the back lane (Item 16)

39. There is no dispute that this item of works had not been performed by the Plaintiff and the Defendant is entitled to claim a deduction from the contract sum for work not performed or to claim damages for breach of contract being the cost of hiring alternative contractor to complete the work. The dispute is as to quantum.

40. The Defendant's evidence is that it advertised for the work, but only Mr Yeung of Yau Shing Cleaning Service Co (hereinafter called "Yau Shing") made a bid for $120,000. Yeung was very familiar with the Defendant as he was responsible for providing cleaning service for the Building. After negotiation, Yeung agreed to complete the work in one month for $80,000. The contract provided for liquidated damages of $1,000 per day. Yau Shing took five months to complete the work. Yeung issued four receipts, two in August 1996 for $24,000 and $16,000, one in October 1996 for $16,000 and the fourth one in November 1996 for $24,000. However, the copies of cashier orders produced by the Defendant in support of those payments do not tally with the receipts. The Defendant was only able to produce two cashier orders dated 4 November 1996 for $16,000 and another one dated 24 November 1998 for $24,000, which was two years after the work was completed. Thus, in effect, the Defendant could only show a payment of $16,000 in November 1996 and not $24,000 as recorded on the receipt. The payment of $24,000 two years after is unexplained, and in any event is irrelevant as it could not support any of the four receipts. These receipts are demonstrably false. While I have no doubt that Yau Shing had performed the work, I cannot be satisfied as to how much it charged the Defendant and likewise how much the Defendant had paid. While the Defendant is entitled to a deduction for work not performed by the Plaintiff, if it wishes to claim damages for breach of contract or for the cost of engaging a replacement contractor to complete the work, it has to discharge the burden of proving to my satisfaction the cost involved. I must say, it has failed to discharge that burden. In the circumstances, I only allow a deduction of $70,000 from the contract sum for the work not executed but not damages. As the entire amount in respect of this item is to be deducted, I do not find it necessary to make a finding whether Item 16 covered the pipe works from inside the shops on the ground floor to the underground drainage in the back lane, though that was an issue hotly debated at trial.

Counterclaim: security intercom system:

41. The Plaintiff was required to replace the iron gate at the entrance of the Building. This necessitated disconnection of the intercom panel installed at the entrance of the Building from the security system before the old iron gate could be removed and replaced. After replacement of the gate, the Defendant discovered that the security system was not functioning. Upon inspection by the maintenance contractor of the security system, Mr Tse discovered that the wiring of the intercom and unlocking system in the panel had been cut and certain components of the system had been damaged by short circuiting when cutting the wires. Had the system been turned off before the cutting, the damage would not have resulted. The estimated cost of repairs was $30,000 but was increased to $40,000 after a fire.

42. The Plaintiff's foreman admitted cutting the power cable that operated the motor of the unlocking device but not the wiring of the intercom system. Mr Wong queried the probability of the Defendant's allegation in that it was not until two months after the damage was done to the wiring that Tse was asked to inspect the system. However, this was explained by the secretary of the Defendant incorporation that the delay was caused by the Defendant accepting the Plaintiff's verbal assurance to rectify this defect together with the other defects. I have no reason to disbelieve the very cogent evidence of Tse who examined and repaired the system. I award the Defendant the estimated cost of repairs of $30,000 before the fire under this head of its counterclaim.

Counterclaim: removing scaffolding left by Plaintiff (Item 4)

43. As a result of an inspection by the Environment Protection Department on 20 December 1995, it was discovered that certain rain water drains had been connected to sewage drains. The Plaintiff was required to carry out rectification work, which it did. That required re-erection of some scaffolding, as the earlier scaffolding had all been removed in June 1995. But the Plaintiff failed to remove this second set of scaffolding erected for the rectification work. This was removed by Yau Shing for the Defendant for $6,000. This payment and receipt were documented. I have no doubt that the scaffolding had not been removed by the Plaintiff and that the cost of removal claimed is reasonable. I award the Defendant this amount on the counterclaim.

Fine by Environment Protection Department (Item 16)

44. On 20 November 1996, the Defendant was fined $20,000 for discharging soil water into communal drain for the carriage of surface drainage water ("the storm drain") in water control zone. The Defendant seeks to recover the fine from the Plaintiff on the basis that the discharge was caused by the Plaintiff's defective work.

45. The joint inspection by the Environment Protection Department, representatives of the Plaintiff and Defendant and the Authorized Person on 20 December 1995 showed that the rain water drains running from each flat along the external wall had been connected to the sewage drains but not the other way round. This was impermissible but could not be the cause of the prosecution. In fact, at the meeting that followed immediately, Mr Lee of the Environment Protection Department was unable to identify what caused the discharge of trade effluent into the storm drain.

46. Yeung said that he discovered a pipe installed immediately above the original sewage pipe in one of the manholes examined during the inspection. He said the Plaintiff's worker had worked in the back lane and was responsible for that connection. Presumably he thought this installation by the Plaintiff was the cause of the pollution. Even assuming this pipe was installed by the Plaintiff, it only discharged into the sewage drains and not the storm drains. It could not have been the cause of the pollution.

47. Subsequently, Yau Shing replaced the entire underground drainage in the back lane and cleaned the manholes and there was no further complaint from the Environment Protection Department. He had not done any work on the vertical sewers installed by the Plaintiff. The inference must be that the drainage system in the back lane which was replaced by Mr Yeung, was the cause of the pollution and not the work of the Plaintiff.

48. Yeung was noted to be particularly hostile to the Plaintiff. He was not engaged by the Defendant to carry out works in the back lane until August 1996 and had no purpose to attend the inspection by the Environment Protect Department on 20 December 1995 and the meeting held afterwards. He produced receipts in relation to the work in the back lane which were obviously false. I have reservation about his credibility. I do not accept his evidence that the Plaintiff's workers had carried out work in the back lane. In fact there is no dispute that the Plaintiff had not carried out any work on the drainage system in the back lane. Whatever that might have caused the discharge of trade effluent into the storm drain had nothing to do with the Plaintiff's work. This claim must be dismissed.

Liquidated damages:

49. Clause I of the Tender Document provides that all works must be completed within 90 days regardless of weather condition. However, in the Principal Agreement it is stipulated that the completion period shall be 90 days counting only fine days. This being a later agreement must prevail over the Tender Document. The Plaintiff commenced work on 8 February 1995. Excluding inclement weather conditions, the Plaintiff should have completed the work on or before 24 May 1995. At the committee meeting on 3 June 1995, the Authorized Person informed the 9th Committee that as at that day over 90% of the works have been completed. On that basis, Mr Mak submits there was at least 9 days delay. According to the Plaintiff's own expert, the date of completion was 11 August 1995. Hence, Mr Mak submits there was a delay of 69 days. However, the Defendant's claim is limited to a maximum of 15 days by the terms of the Contract.

50. Mr Wong argues that the Plaintiff was prevented from completion by the Defendant. In a notice dated 21 June 1995, the Plaintiff informed the residents of the Building that except for three items, all works have been completed. These three items were the drainage works in the back lane, the renovation work on the lifts and the marble work at the entrance of the Building. There were other complaints which I consider as defects only and should not be taken into consideration for the purpose of considering completion of works.

51. The Plaintiff says as early as 15 May 1995, it was prevented from demolishing the scaffolding at the request of the Defendant. This was to enable the individual owners to use the scaffolding for demolishing the illegal structures as required by the Buildings Department. It was not until 19 June 1995 that the Plaintiff was able to demolish the scaffolding, which it completed on 25 June 1995.

52. The renovation work on the lifts was delayed until the illegal structures had been removed, lest the lifts would be damaged when removing building materials and building wastes arising from the demolition of the illegal structures. The marble work at the entrance of the Building could not proceed because of some illegal structures. Most of the work was subsequently completed, except for the marble signage. The Plaintiff says it was prevented by the lack of co-operation of the Defendant in completing these works in time.

53. As for the work in the back lane, understandably the work could not commence until the scaffolding had been removed. It was certainly inadvisable to dig up the back lane on the surface of which the scaffolding rested. In the circumstances, the Plaintiff could only have started work after 25 June 1995. A notice was given by the Plaintiff to the Defendant on 24 June 1995 that the work in the back lane would be completed within 10 days. Thus it is obvious that at that stage, the Plaintiff was evincing an intention to perform that part of the Contract. However, there were a lot of unauthorized structure and obstructions in the back lane which had been used by the tenants on the ground floor as part of the extension of their premises. The Plaintiff's foreman had been requesting the Defendant since June 1995 to remove the obstructions in the back lane, but to no avail. Hence, the work could never commence. Thereafter, there were further correspondence between the parties and/or their solicitors about outstanding works and about removing the obstructions. By May 1996, the parties were in dead lock in relation to two pump rooms, a metal staircase and a metal gate which the Defendant failed to remove. There is no evidence when it was that the Defendant was able to deliver the back lane to the Plaintiff under the above condition. Even if the Defendant were able to deliver the site in that condition in early 1996, it was half a year after the Plaintiff had vacated the site. To require the Plaintiff to re-mobilise its plant and equipment after six months must result in the Plaintiff incurring additional costs and render the performance of this part of the Contract separate and different from what it was as part of the original contract. The Plaintiff may consider itself discharged from performance by reason of the Defendant's lack of co-operation. Eventually, Yau Shing was employed in the place of the Plaintiff to complete the work. The work was completed without removing these structures, but after five months.

54. In the present case, to a large extent, the Plaintiff was prevented from completing the work either at the Defendant's request or because of its lack of co-operation. There is an implied obligation on the part of the employer to co-operate and not to obstruct the performance of the contract by the contractor. Prevention by the owner must be seen as a repudiation, if not of the entire contract, at least of the provision as regards completion date. The contractor is therefore be excused from compliance and relieved of the consequence of having to pay liquidated damages. The same result could be arrived at by treating the employer's act of prevention as a waiver, thereby invalidating the liquidation damages clause. If an employer prevents the completion of the works in any way, the general rule is that he loses the right to claim liquidated damages for failure to complete within time. He cannot insist on liquidated damages, if it is his own fault or neglect which brought about the delay.

55. It is not clear from the authorities whether delay caused by the employer would set time at large so that works do not have to be completed before a reasonable time has lapsed and thereby invalidate any liquidated damages clauses: paragraph 9-09 of Keating on Building Contracts 17th edition. The learned authors of Hudson on Building and Engineering Contracts, 11th edition, after reviewing the authorities, submit that prevention by the owner would set time at large and invalidate any liquidated damages clause. I do not find it necessary to embark on this issue. Apart from the work in the back lane, the other outstanding items were completed reasonably shortly afterwards after the prevention ceased. As for the work in the back lane, I find the parties have mutually discharged themselves from performance of that part of the contract. Accordingly, I find the Defendant is not entitled to claim liquidated damages.

Conclusion

56. There is no dispute that the works under the Contract were substantially completed, except for the installation of signage and the works in the back lane. Accordingly, I award the Plaintiff $258,000 being the balance of the contract sum less the contract price for the works in the back lane of $70,000 and the cost of the signage of $7,000.

57. I award the Defendant $365,000 being damages for defective works which are assessed as follows:

(a)	Removing spikes and anchors, and refurbishing external wall	$ 95,000
(b)	Erecting scaffolding	$205,000
(c)	Reinstating floor slab and filling holes	$ 35,000
(d)	Repairs to intercom system	$ 30,000
	Total:	$365,000
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58. After setting off the award to the Plaintiff against the award to the Defendant on its counterclaim, I enter judgment for the Defendant in the amount of $107,000. The Plaintiff shall pay the Defendant's costs of the counterclaim, to be taxed if not agreed.