KAM YING HUNG t/a C.T. INTERIOR CONTRACTORS CO. v. DIANE CECILE FREIS

1995, No.A12067

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an appeal from the decision of a Master by which summary judgment was entered against the defendant in the sum $364,300 with interest and costs, giving the defendant leave to defend the plaintiff's claim as to the balance of the sum claimed, namely, $53,400. There is a counterclaim in respect of which no order was made.

2. The plaintiff carries on business as a decorator. The defendant is a director and the Chief Executive Officer of a company incorporated in Hong Kong, Diane Freis Limited ("the company"). The company carries on a fashion business, specialising in designs for women.

3. In May 1994, the company purchased a residential property, Flat 16, Stewart Terrace, Peak Road, Hong Kong. In the same month, May 1994, the plaintiff was engaged to carry out construction, renovation and decoration works for that property. The plaintiff says that contracts were made between him and the defendant. The defendant, by her Defence, says that she was not a party to the contracts, and that the contracts were made between the plaintiff and the company. It is common ground that a company of interior designers were used by the defendant or her company to engage decorators to carry out the work and to supervise the execution of it. That company was Graham Taylor Designs (Hongkong) Ltd ("Graham Taylor Designs").

4. There were two contracts with which this claim is concerned. The first is evidenced by a Letter of Award dated 10th May 1994. By it, the plaintiff was engaged to carry out work at the flat for the sum of $38,000. The completion date for that work was stipulated in the contract to be 19th May 1994. It provided for staged payments. A sum of $1,900 was designated as retention money to be paid six months after practical completion. It is said that it was agreed that the plaintiff should carry out additional work for the sum of $1,900. In relation to this contract, the plaintiff has been paid $36,100 and $3,800 has not been paid.

5. The second contract is again evidenced by a Letter of Award. It is dated 24th May 1994. The contract sum is $1.83 million. Again, staged payments are stipulated. The completion date is 15th July 1994, with retention money at 5%, i.e. $51,500. The plaintiff has been paid $618,000, but has not been paid the balance provided for by the agreement which is $412,000, made up as to $360,500 which under the contract was due upon practical completion, the balance constituted by the retention money.

6. The total claimed, therefore, is $415,800. The plaintiff instituted proceedings claiming that sum in November 1995.

7. By her Defence dated 15th January 1996, the defendant says that she has never been a customer of the defendant, nor has she entered upon any agreement with him. The agreements, she contends, were made between the plaintiff and the company of which she is an employee. She says that she acted at all times only as the company's director. It is pleaded that each of the two contracts was "expressly stated to be made by the company and the plaintiff". In any event, she says, that works under the both contracts were not performed or completed, that they were not effected in a good and workmanlike manner, and that they were defective. In consequence, she says that it has been necessary to carry out remedial works, so that if contrary to her contention the agreements were made with her, she has suffered loss and damage. She counterclaims for that loss and damage, the particulars and quantum of which are not provided in the pleadings. She puts forward her counterclaim as an equitable set-off and defence to the claim itself.

8. Mr Chiu on behalf of the defendant says that the order of the Master cannot stand for two reasons :

(1) that unconditional leave to defend was given to defend the claim to the extent of $53,400, that sum representing the retention money, and that since the retention period has lapsed, that decision is inconsistent with the order that judgment be given for the balance; and

(2) that since there is a counterclaim which should be and which the Master clearly thought should be tried, and which gives rise to a set-off, established principle dictates that on the plaintiff's claim there should be unconditional leave to defend.

9. The evidence which has been put before me discloses, in my judgment, a case by the defendant which on its face is very weak.

10. There is no substance to the contention that the contracts or either of them expressly stated that they were made between the company and the plaintiff. This first issue, namely, the suggestion that the defendant was not a party to this contract is not a point or aspect that Mr Chiu pursues for the purpose of this application, and it suffices for me to state that I have studied the documents, and all the evidence which has been put before me demonstrates that the agreement was concluded as between the plaintiff and the defendant. There is nothing of any substance put before me to show otherwise.

11. As far as concerns the defects claim, it is first to be noted that a certificate of practical completion was issued. It is dated 15th August 1994. According to the contract, that certificate triggered liability for payment of $360,500. It is highly pertinent to note that it is a certificate issued by the defendant's own agents, Graham Taylor Designs. To suggest, in the face of that certificate, that there were defects now requiring expenditure in the sum of over $450,000 is, on its face, to stretch credibility to a considerable degree.

12. The plaintiff accepts that upon completion there were defects that required attention, but asserts that these were rectified and that the defendant's conduct as reviewed by the documentary evidence placed before me gives the lie to the suggestion that they were not rectified, and to the suggestion that such defects as might remain have required or may require substantial outlay by the defendant or her company. It seems to me, from the papers which I have seen, that there is much in that contention.

13. There are three memoranda or letters submitted to the plaintiff by Graham Taylor Designs which refer to defects. The first is dated 9th September 1994. Miss Gomez of Graham Taylor Designs wrote that :

"We would like to bring to your attention the fact that during our site inspection with Mr Graham Taylor this morning, a number of shortcuts with regard to the construction of the units were noted.

I am highly disappointed to find out that after all the effort we put in to awarding you the contract, that everywhere you turn in the apartment, items are unfinished."

There is then a short list of defects, and the letter ends as follows :

"These above items are only a portion of the shortcuts that have been taken, we suggest that to avoid any further frustrations; we resolve all these matters and complete the works accordingly."

14. There is then a list of defects dated 14th September. It is a lengthy list itemising matters which require attention. I note that that list stipulated the dates by which each defect was to be remedied. Those dates ranged between 16th to 24th September, with most of the dates specified as 16th or 17th September. In other words, the nature of the defects were such as suggested to Graham Taylor Designs that they could be remedied in those stipulated periods.

15. A further note to the plaintiff dated 19th September evidences the fact that there was a site inspection on 19th September 1994, and there is set out a short list of items that required attention.

16. In her affirmation, the defendant exhibits some photographs which she says show part of the defects. The affirmation does not provide the date upon which the photographs were taken. I have seen the photographs. There are three in number. If there are defects which cost over $450,000 to remedy, one would have expected photographs showing something considerably more dramatic than these.

17. It is then said that since 15th August, the plaintiff "had attempted to remedy these defects but failed to remedy all of the said defects". Yet, after the correspondence of September 1994, there is, save to the limited extent to which I shall refer, no suggestion made, and certainly no correspondence placed before me showing, that the defendant or her company or Graham Taylor Designs made any further representation to the plaintiff that the defects which he had been asked to remedy in September 1994 were not in fact remedied.

18. There is a memorandum dated 30th March 1995 addressed by Graham Taylor Designs to the defendant's company saying that "the contractor will be providing us with a schedule for completion of the work". What that means, whether it related to work carried out by the plaintiff, and what the extent of the remaining works might be is not stated. The plaintiff himself has exhibited to his affirmation in reply a letter dated 4th January 1995 from Graham Taylor Designs to the plaintiff asking for attention to be given to air-conditioning units. The plaintiff contends that all defects were remedied within the defects period. The absence of complaints of any real significance is particularly noteworthy given the fact that it is evident from the documents that Graham Taylor Designs were hardly backward in coming forward when there were remaining defects. The plaintiff further points to the fact that in January 1995, the defendant, through Graham Taylor Designs, again engaged the plaintiff to do further works to the apartment. I have seen the confirmation of the order issued in respect of the work and although the amount involved is small, and although on its own the point is of no great weight, nevertheless, it does appear to be an element of conduct inconsistent with the suggestion that so remiss was the plaintiff in the work he carried out, that the defendant or her company had to spend about $450,000 in putting it right.

19. Finally, I note that the defendant's counterclaim was not particularised until very late. In her affirmation dated 5th March 1996, the defendant prayed in aid a note from Graham Taylor Designs signed by Miss Gomez and addressed to the defendant's company. It suggested that certain items were not rectified in the defects period. Eleven items were listed and it is said that :

"We have estimated a budget of approximately HK$450,000.00 for completion of these proposed works. A more accurate figure can be obtained on tendering the listed works."

There are a number of matters to note :

(1) There is no breakdown then of any kind justifying the estimate. A broad breakdown was for the first time given in a recent affirmation dated 23rd May 1996. Given that the extent of the counterclaim is so large, it is a matter of considerable surprise that no breakdown was available before then.

(2) If the defects complaint were bona fides, one might have expected a response, and in robust terms, to the reminder sent by the plaintiff to the defendant on 20th March 1995 concerning payment, and to the letter before action dated 18th October 1995. There was none.

(3) The letter of 5th March 1995 was written a year after the expiry of the defects period, and after demands, and after the institution of proceedings.

(4) There remains no support in the affirmations for the contention in the Defence that the works have been carried out. All I am told today is that some works have been carried out.

(5) There is no evidence on oath from the designers, who were closely connected with the project, about the suggested remaining defects or their cost.

20. I make the following observations as to law. It is urged before me that the appeal is only against part of the Master's decision, namely, in so far as she gave judgment for the plaintiff. It is accordingly suggested or implied that if I were to find that her decision was illogical, in that judgment should either have been for the whole sum claimed or leave should have been given to defend the whole of the claim, I would somehow be forced into granting leave to defend the balance. My attention has been drawn to two passages in the Supreme Court Practice, the White Book, at pages 909 and 910; commentaries to O.58, r.1. It is clear that the matter is before me de novo, and at large, and that I can make such order on the plaintiff's original application to give summary judgment as I deem just.

21. Then it is said that in so far as there is a real issue to be tried on the Counterclaim, especially since the counterclaim and the set-off arise in relation to the same subject matters in the claim, unconditional leave to defend should be given. The passages to which my attention has been drawn in that regard, namely, the commentary to O.14, r.3 at p.159 and p.160 of the Supreme Court Practice and the authority of Morgan & Son Ltd. v. S. Martin Johnson & Co. [1949]1 KB 107 support that proposition, but the principle encompasses an important proviso, namely, that the set-off and counterclaim must be bona fide. That is the very issue in this case, that is, the bona fides of that counterclaim. It seems to me that the very matters which undermine the bona fides of the defence which had been put forward go also to the bona fides of the counterclaim.

22. The onus is on the defendant to show that there is a question or issue in dispute that ought to be tried. I am entitled to look at the evidence before me, and test the credibility of the defendant's contentions. I have to say that the factors to which I have pointed and rehearsed, including in particular the issue of the certificate and the behaviour of the defendant, which appears to me to be inconsistent with the defence put forward, took me to the stage where I was very nearly prepared to give judgment for the plaintiff. I am not, however, prepared on the evidence before me to say that the defendant should be shut out without more ado.

23. In the circumstances, I should allow this appeal to this extent, that I shall give the defendant leave to defend on condition that she pays into court the whole of the sum claimed by the plaintiff within a time which I shall specify after I have heard counsel further. I shall also hear counsel as to costs.