XCHRX INTERFORM (INTERIOR & MARBLE) CO. LTD. v. FAR EAST WAGNER CONSTRUCTION LTD.

HCA 6365/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 6365 OF 1998

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DECISION

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1. This is the Plaintiff's appeal from the decision of a master who dismissed its summons for final judgment in the sum of HK$2,634,246.85 (being part of the Plaintiff's claim) and gave unconditional leave to the Defendant to defend the action.

2. It is common ground that the Defendant was the main contractor for a building project at 23 Pokfield Road, and that the Plaintiff was its sub-contractor for the supply and installation of marble/granite.

The claim

3. The Statement of Claim sets out clearly the Plaintiff's total claim in the sum of $4,415,040.63 as the outstanding balance of certain amounts said to be owed by the Defendant to the Plaintiff.

4. The Defence does not deny that the marble/granite had been supplied and installed. Further, in its own Final Payment Recommendation, it has acknowledged that but for the various breaches of contract it alleges the Plaintiff had committed, it would owe the Plaintiff $3,335,352.81. From that figure, the Plaintiff has itself deducted $10,533.70 (as the invoice for that figure had not been included in its Statement of Claim) to arrive at $3,324,819.11 as the amount which indisputably is the cost of the work done.

5. The Defendant pleads that it is not liable to the Plaintiff for that amount because of various breaches of contract by the Plaintiff, particularizing its alleged loss in 5 items. The Plaintiff accepts that of those 5 items, 3 are arguable and it has deducted the amounts attributed to these 3 items (totalling $197,804.26) from the undisputed cost of the work. That leaves $3,127,014.85. From that, the Plaintiff has also deducted a further amount of $492,750 to reflect loss due to the delay of 45/600 days alleged by the Defendant, calculated on the basis of the costs set out in the preliminaries supplied by the Defendant, but excluding the amounts for 2 items in the preliminaries, viz. "levelling and setting out of works" and "scaffolding, plant, etc." (I will refer to the reason for this exclusion later).

6. That leaves the final amount of $2,634,264.85 which is the amount claimed on summary judgment. (I should add that in paragraph 7 of Ngan Man Hay's Affirmation filed on behalf of the Plaintiff, the figure of $2,634,246.85 is obviously in error; the error appears to be due to the fact that whilst the Defence pleads a loss of $824.40 for damage to red oak flooring, that figure is set out in Mr Ngan's Affirmation as $842.40).

The defence arguments

7. The Defendant's first argument was that it puts the Plaintiff "to strict proof" of the amount due by reference to the contract. I cannot accept that the Plaintiff is under such an obligation in an application for summary judgment under Order 14, where the burden is on the Defendant to satisfy the Court that there is a triable issue. In any event, for present purposes, the Plaintiff has adopted the figures shown in the Defendant's own Final Payment Recommendation.

8. The Defendant's main argument was that it is entitled to set-off its counterclaim for loss and damages due to (i) allegedly defective granite cladding as a result of colour variations; and (ii) delay.

Granite cladding

9. In respect of (i), the Plaintiff's submission is that the alleged colour variation is extremely minor, and it is in the nature of natural materials that there would be colour variations. I should record that Mr Walter Lau counsel for the Plaintiff had requested the Court to visit the building in question to inspect the allegedly defective granite. I declined to do so. The Court's summary jurisdiction under Order 14 should not be taken as an invitation to allow a "mini-trial" to take place.

10. There is contemporaneous evidence that the Defendant was dissatisfied with the colour of the granite. By a letter dated 2 May 1996 from the Defendant to the Plaintiff regarding rectification work, it is asserted that Mr Henry Law of the Plaintiff had agreed to replace the colour-variegated granite at the Ground Floor Car Park entrance, such work to take place from 6 May 1996 to 12 May 1996. Further, by a letter dated 18 May 1996 from the Defendant to the Plaintiff, the Defendant complained that no rectification had taken place, and consequently, the Defendant claimed to reserve its right to hold a sum of $925,300 until rectification was completed.

11. There has been no evidence from Mr Henry Law denying the Defendant's assertion that he had on behalf of the Plaintiff agreed to replace the granite in question.

12. However, the issue is not just whether there had been colour variation; it is also whether this has led to any loss or damage suffered by the Defendant so as to enable it to set-off such loss against the cost of the work.

13. In this respect, I find the Defendant's evidence most inadequate. It should be remembered that the Defendant is only the main contractor, and per se suffers no loss if the granite does not look as good as expected. If anyone is to find it unacceptable, one would expect that to be the employer/owner of the building.

14. Yet the Defendant has adduced no evidence to show that it has been asked by the employer/owner to replace the colour-variegated granite. It has not adduced any evidence of any list of defects which includes the granite in question. This is notwithstanding the fact that the granite is at the Ground Floor Car Park entrance, in a very conspicuous location. It has adduced no evidence that any money has been withheld from it on account of the colour variation. And it has not adduced any evidence that it still intends (2 1/2 years now after its letter of complaint) to replace the colour-variegated granite.

15. Further, Mr Firoz Nasir counsel for the Defendant has very properly referred the Court to the House of Lords decision in Ruxley Electronics and Construction Ltd v Forsyth 73 BLR 1, which held that the proper application of the general principle governing damages for breach of contract (that where a party sustains loss by virtue of breach of contract he is so far as money can do it to be placed in the same situation in respect of damages as if the contract had been performed) required the court to ascertain the loss the Plaintiff had in fact suffered by reason of the breach - it was not the monetary equivalent of specific performance. Thus, the cost of reinstatement (or replacement) was not the appropriate measure of damages where the expenditure would be out of all proportion to the benefit to be obtained, even if the alternative measure of diminution in value would lead to only nominal damages.

16. Applied to the present case, the only defect is colour variation: an aesthetic consideration (cf Ruxley p11); there is no diminution to the value of the part affected because it is a common area; and there is no evidence showing any serious or genuine intention of the Defendant to replace it. Applying Ruxley, the only damages recoverable would be nominal damages.

17. By reason of the above, the Defendant has failed to satisfy me that it has a triable issue of a counterclaim arising from the allegedly defective granite and it is not entitled to a set-off of $925,300 as claimed.

Delay

18. Then there is the question of delay. The Plaintiff acknowledges that there is at least a triable issue that it is liable to the Defendant for delay of 45 days. The argument is over the proper basis for calculating the loss suffered by the Defendant for that delay.

19. The Plaintiff argues that the preliminaries is not the proper basis for calculations because they just contain an estimate of the cost of the work, and now more than 2 years after the construction work has finished, the Defendant ought to be able to provide the actual cost of the work. The Defendant says that this was the simplest way, as a calculation of the actual cost would be too cumbersome a task requiring the production of substantial amounts of documents.

20. Further the Plaintiff says that even if one were to use the preliminaries as the basis for calculating the loss due to delay, it is wrong to include 2 particular items in the preliminaries:- the cost of level and setting-out of works ($4.8m) and scaffolding, plant etc ($19,815,000). This is because the installation of granite was at the final stages of construction, so that levelling and setting-out would not be required, scaffolding had been demolished and plant had been removed since about December 1995 (Ngan, paragraph 7).

21. As against this, Wong Kwok Fung, a Senior Estimator of the Defendant, has said on affirmation that "first, it is common practice that main contractors prices levellers in the item of `levelling and setting out works' and generators and labour in `scaffolding, plants etc.' Secondly, the Defendant still kept levellers, generators and labour during the period delayed by the Plaintiff".

22. With respect to Mr Wong, it is far too ambiguous to say "the Defendant still kept levellers, generators and labour during the period delayed by the Plaintiff". The Defendant can only lay this loss at the Plaintiff's feet if the levellers, generators and labour had to be kept on because of the Plaintiff's delay. Moreover, the Defendant has not condescended to particulars as to how much of the $4.8m was attributable to levelling and how much to setting out, and how much of the $19.8m was attributable to generators and labour.

23. These are all matters which are within the knowledge of the Defendant as main contractor, and since the work was completed more than 2 years ago, it cannot be said that the Defendant has not had the time to ascertain the proper amounts for these items. If the Defendant is to attempt to effect a set-off against the cost of work acknowledged by the Defendant itself in its Final Payment Recommendation to be due to the Plaintiff, it is in my view obliged to condescend into proper particulars, especially at this stage after (as it were) the Plaintiff's "trial run" before the master.

24. I would therefore agree with the Plaintiff that the Defendant has not shown a triable issue as far as its alleged set-off attributable to these 2 items are concerned. The set-off for damages attributable to other items has already been taken into account in the Plaintiff's claim.

Order

25. In conclusion I would allow the appeal and order final judgment for the Plaintiff against the Defendant in the sum of HK$2,634,264.85 being part of the Plaintiff's claim against the Defendant with interest at the commercial rate of prime plus 1% from date of writ to judgment and thereafter at judgment rate until payment. I would make an order nisi that the costs of the application here and before the master be to the Plaintiff.

26. Finally I would record that with the parties' consent, I order that the rest of the action be placed in the Construction List.