EDEN CONNECTIONS DESIGN & ENGINEERING CO v. AYASH OMER

DCCJ 2739/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2739 OF 2009

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Judgment

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Introduction

1.  The parties entered into a contract for renovation works to be done at the restaurant of the Defendant.  The Plaintiff claimed for the balance of the contract price.  The Defendant defended the proceedings and counterclaimed for, inter alia, damages, loss of business and goodwill.

Background

2.  On 9 June 2009, the Plaintiff commenced the present proceedings against the Defendant for the sum of $67,611.50, being balance of work done and materials supplied as evidenced by various invoices.  Despite repeated requests and demand, the Defendant still failed to pay the sum.

3.  The Defendant filed his Defence and Counterclaim.

(a) By a contract (“the Contract”) made between the parties, as contained in a quotation (“the Quotation”) issued by the Plaintiff dated 16 September 2008, it agreed to perform certain renovation works (“the Works”) at the premises at G/F, 14-16 Kin Wah Street, North Point, Hong Kong (“the Premises”) for a total price of $480,415.

(b) The Premises was to be used as a fast food restaurant, and as such, it was an express or implied term in the Contract that the Works had to be designed and performed for such purpose.

(c) The Plaintiff should complete the Works within 50 days from the initial deposit period.  Further, the Plaintiff warranted the Defendant for a period of one year against any defective material and workmanship under normal use.

(d) The initial deposit of $144,124.50 was paid on 29 September 2008 and parties further agreed the following payment schedule.

2nd payment	$193,975.00	On or before 31.10.2008.
3rd payment	$96,083.00	On or before 21.11.2008.
4th payment	$24,020.75	Upon completion of the Works to the satisfaction of the Defendant [sic. the Plaintiff].
5th payment	$24,020.75	Upon the Plaintiff’s obtaining the necessary provisional food license for the Defendant.
Final payment	$24,020.75	Upon the Plaintiff’s obtaining the necessary food license for the Defendant.

(e) The Plaintiff nevertheless only commenced the Works as late as on 10 October 2008.  Further, the working progress was for behind the agreed schedule and the craftsmanship of the Plaintiff was extremely poor.  The Defendant therefore gave numerous warnings to the Plaintiff and withheld payments to reflect the actual progress of the Works.

(f) On 17 March 2009, in light of the said problems, parties came up with an agreement (“the Agreement”) that the Plaintiff had to complete or rectify a list of works on or before 25 March 2009, failing which ,the Plaintiff should be liable to pay the Defendant liquidated damages of $2,000 per day.

(g) Despite the Agreement, almost of the works on the list remained outstanding, even though the Plaintiff did obtain the provisional food licence on 1 April 2009.

(h) Further to the works identified by the Agreement, the Defendant discovered 3 major defects, namely:

(1) defective drainage system;

(2) only a scrap air-conditioning unit was installed when a brand new one had been contracted for; and

(3) many of the materials supplied were defective.

(i) Worse still, in about mid June 2009, the Fire Services Department informed the Defendant that the Plaintiff had directed it to stop processing the Defendant’s application for the food license.  It was done so without the Defendant’s knowledge or consent.

(j) As a result of the above, the Plaintiff was not entitled to the balance of contract price.  Further, in late June 2009, the Defendant engaged another company.  Environmental Improvement Interior Design Company (“EIIDC”) to conduct a check on the Works.  EIIDC advised that $59,000 should be deducted and an additional sum of at least $100,000 had to be incurred to fix the said 3 major defects.  Around 14 days would be required and during which, the business of the Defendant had to be suspended.

(k) The Defendant therefore counterclaimed, inter alia, for:-

(1) $59,000 uncompleted/defective works at cost;

(2) $110,000 costs of rectification of the said 3 major defects;

(3) loss of business, from 1 December 2008 to 1 April 2009, to be determined;

(4) liquidated damages of $148,000 from 25 March 2009 to 9 June 2009 ($2,000 x 74 days);

(5) costs of defective materials to be determined;

(6) $3,800 fees payable to EIIDC; and

(7) loss of goodwill to be determined.

4.  The Plaintiff did not agree with the Defendant’s case.  In its Reply and Defence to Counterclaim, it averred the following:-

(a) Parties did enter into the Contract.  It was subsequently supplemented by 2 variation orders dated 27 October 2008 and 16 February 2009 respectively. The sums of $36,900 and $8,500 should be added to make the total contract price as $525,815.

(b) The Plaintiff agreed that the Premises were to be used as a fast food restaurant and the works were designed and performed for the same.

(c) The Plaintiff drew reference to the exact wordings in the Quotation, namely:-

“Construction Period:-

Almost 50 days from the date of starting of works (Subject to the confirmation for the design”

“5.0 The Contractor warrants the Client for a period of one year after completion of works against any defective material workmanship under normal use. Such warranty shall not apply to the said works if it has been tempered with, repaired, altered or services by any party other than the Contractor.”

(d) The Plaintiff further drew reference to the payment schedule and construction period as per the Quotation.

“Payment Terms

a. Deposit of 30% for the sum of grand total will be paid upon confirmation

b. 2^nd payment of 35% for the sum of grand total will be paid after 25 days

c. 3^rd payment of 20% for the sum of grand total will be paid after 40 days

d. 4^th payment of 5% for the sum of grand total upon completion

e. 5^th payment of 5% for the sum of grand total upon obtain provisional food license

f. Final payment of 5% for the sum of grand total will be paid upon obtained full food license

Construction Period:-

Almost 50 days from the date of starting of works (Subjected to the confirmation for the design)”

It was further said that the Defendant had all along been late in making payments as well as confirming instructions of the works at the outset and from time to time.  Despite the same, the Plaintiff had tried to expedite the progress by carrying out preliminary demolition works in early October 2008.

(e) The Plaintiff denied that it had commenced the Works late.  It was the Defendant who failed to confirm the design of the Works.  Further, as the Defendant did not pay the instalments according to the Contract. The Plaintiff was therefore entitled to refuse to continue with the progress of the Works.  Upon the belated payment by the Defendant, the Plaintiff immediately resumed the Works and completed them substantially in early March 2009.  As to the craftsmanship of the Plaintiff, it was up to the expected standard.  For minor defects, they were inevitable, tolerable and remediable.  No warning or complaint about the craftsmanship was given to the Plaintiff when it was carrying out the Works.

(f) The Agreement was indeed signed by the parties.  However, it was not due to delay or poor craftsmanship of the Plaintiff.  In fact, the Defendant told the Plaintiff that the restaurant was due to open on 1 April 2009.  There were altogether 28 items of additional works or improvements raised by the Defendant. He promised to pay the outstanding balance immediately upon completion of the same.  These additional works or improvements were completed on 25 March 2009. The Premises were handed over to the Defendant.  He made no complaint, but requested to delay the payment after the issuance of the provisional food licence.  Although such licence was issued and delivered to the Defendant on 1 April 2009, the Defendant still failed to pay the balance.

(g) The Plaintiff stressed that all the additional works or improvements had been completed on 25 March 2009.

(h) The so-called 3 major defects were denied.  The Plaintiff’s design of the drainage system was fit for a restaurant and as such, the provisional food licence was issued.  The air-conditioning unit was not a scrap, but a second-hand one.  It was something agreed by the parties.

(i) The Plaintiff did not direct any Government Department to stop processing the Defendant’s application for licence.  The Plaintiff only informed that it no longer followed up the matter for the Defendant.

(j) On the one hand, the Defendant should pay the balance of the contract price.  On the other, the Plaintiff should never be responsible for the Counterclaim. It was never heard of prior to the filing of the document.  The Defendant was asked to prove his case, including that it was genuine, necessary and justified.  Even if the Plaintiff should be liable to anything, which was denied, the Defendant had failed to mitigate the loss.

(k) None of the items under the Counterclaim was admitted. 

5.  After the closing of the pleadings, the parties went further through the discovery stage.  As from 10 and 17 February 2010, both the Plaintiff and the Defendant decided to take up the proceedings by themselves without the assistance of solicitors.  They thereafter acted in person until the trial of the proceedings.

6.  To assist parties to get their cases ready for trial, different Masters gave a number of directions for them to comply with, including the preparation of Scott Schedule, Statement of Issue in Dispute, expert evidence, exchange of witness statements and Trial Bundle.

PTR

7.  On 20 May 2011, parties appeared before me for the pre-trial review (“the PTR”).  Mr. Charles Ching (“Mr. Ching”) appeared for the Plaintiff and the Defendant in person himself.  The followings were noted.

(a) The pleadings required no amendment.

(b) The Defendant said that he had been refused by Masters to submit further documents.

(c) The Plaintiff would call 2 witnesses to give evidence, Mr. Ching and Ms. Catherine Lee (“Ms. Lee”).  They were the director and the liaison officer of the Plaintiff respectively.  There would be no expert for the Plaintiff.

(d) The Defendant would also call 2 witnesses, the Defendant himself and his expert herein, Mr. Brian Tsang of EIIDC (“Mr. Tsang”).

(e) In relation to the Scott Schedule, the Defendant basically adopted the Defects Report prepared by Mr. Tsang.  Mr. Ching also made his Reply upon it.

(f) Regarding the Statement of Issue in Dispute, parties prepared for their own documents.  To save time and costs, they would not be pursued further.

(g) The trial would be conducted in English.  Parties needed not prepare any translation of the documents.  The Defendant would approach the Court for interpretation of the witness statements and Reply to Scott Schedule of the Plaintiff.

(h) The Master approved the Trial Bundle when he granted leave to set down the case for trial.  The Bundle was kept in the Court for the use at trial. Parties were directed to make copies of the same 7 days before the PTR.  The Plaintiff did so, but not the Defendant.

8.  At the end of the PTR, I gave a number of directions.

“1. On or before 27^th May, 2011, Defendant shall:-”

(a) file and serve his supplemental list of documents together with the documents themselves, as particularized in the followings: (i) receipts of the done work by the second contractor (including issuing the licence), (ii) the tenancy agreement of the premises, and (iii) the contract of a daily delivery which was canceled because of the daily of receiving the premises ready;

(b) contact the interpreters’ office of this Court (situated at Lands Tribunal) to make an appointment so that the following documents written in Chinese  will be interpreted to him: (i) the witness statement of Charles Ching Yan Cheuk (程人卓), (ii) the witness statement of Catherine Lee (李景琳) and (iii) the Reply made by Plaintiff to the Scott Table prepared by Defendant; and

(c) make a copy of the Trial Bundle from the Court notwithstanding that the time for so ding has expired.

2. On or before 12^th July, 2011, Plaintiff shall lodge and serve its Opening Submissions together with all relevant documents;

3. On or before 15^th July, 2011, Defendant shall lodge and serve its Opening Submissions together with all relevant documents; and

4. Costs of today be in the cause.”

9.  Subsequently, on 1 June 2011, the Defendant wrote to this Court asking for more time to comply with the above because he had left Hong Kong for business.  He was directed to contact the Plaintiff for consent, failing which, to take out proper summons.  He did the latter and I allowed a further 7 days for him on 20 June 2011.  However, until the trial, he did not file any supplemental list of documents as he prayed for.

10.  Anyway, parties did appear before me for trial of 3 days in July 2011. It proceeded with its usual way and, and at the end of the trial, I reserved my judgment to be delivered.

Ruling and Reasons

11.  Now, upon consideration of all the evidence authorities and submissions from the parties, I have decided to rule in favour of the Plaintiff.  My reasons appear in below.

12.  First, all contemporaneous documents before the Agreement largely support the case of the Plaintiff, rather than that of the Defendant.  The Defendant was late in confirming the design of the Works as well as making timely payments.

(a) The Defendant did not pay the initial 30% deposit when the Contract was signed on 17 September 2008.  It was only paid about 2 weeks late on 30 September 2008.

(b) The Defendant also did not pay the 2^nd instalment of 35% within time.  It was only after request and demand, he settled it by 3 instalments: $50,000 on 12 November 2008, $50,000 on 25 November 2008 and $94,000 on 18 December 2008.

(c) On 16 September 2008, the Defendant wrote to Ms. Lee:-

“sorry for this mistake and here is the new one.

also u can find the design of the kitchen with the name of the equipments. ……”

And, she replied a few days later on 20 September 2008:-

“We have revised the kitchen layout base on your design. Pls check that the size for the kitchen and the catering equipments whether suitable for you or not as we have put additional equipments on the layout and the bar area as well.”

On 24 September 2008, she further chased up the matter:-

“How are you? Any update regarding the layout?”

(d) The Defendant enquired about the progress on 3 October 2008, Miss Lee told him on 7 October 2008:-

“Haven’t receive your call yet, so not sure you are arriving to Hong Kong or not. We have started the demolish work already.

The air condition system will started soon also.  While the elect & drainage work could not be started as we tried to discuss about this before we do.”

The Defendant wrote back on 14 October 2008:-

“thank ur for ur email.

in fact i didn’t send u the design as i am still checking with some of my friends and contacts about what is the best to serve the students in HK then i will know what we want.

hope that this will not stop our working for the decoration.

c u soon”

Miss Lee followed up the matter on the same date and 16 October 2008.

“The lisence that we are going to apply is the general food lisence and the purpose for that is allow people to eat in this premise and people can also take away. Sure student can order and take away (but not thought school)

If you like to be the nominated food supplier for school, that would be a different case. First you need to apply for the Food Factory License and be the on list supplier for school. I think you need to get more information before planning to do so. And people are not allow to eat in the premise as the requirement for the Food Factory Licence. Also please be reminded that we cannot apply both of the lisence at the same premise.

Besides, it would be better to have the kitchen design asap as we cannot do the elect work and the drainage work as not sure what equipment you would used and the town gas as well.

“We are doing the bar counter design and preparing the tile materials, how about meet tmr afternoon time on site?  Then we can take about it (hope that the kitchen layout would be ready that time) and also the lisence issue.”

(e) Even up to 2 December 2008, Ms. Lee still reminded the Defendant that:-

“Also pls find the attached file for your reference, that is tha revised dwg that we submitted to FEHD.  Pls be reminded of any change for the kitchen equipments we need to revise and submit again, so if any charge for in the future, pls inform us asap.”

13.  Second, the evidence of Mr. Ching and Ms. Lee is preferred to that of the Defendant.

(a) With respect, the Defendant is not telling the Court the truth.  One of the 3 major defects named by the Defendant is that only a scap air conditioning unit was supplied when it should have a brand new one.  The Plaintiff disagreed and said that parties agreed it to be a second hand.  Although the relevant term in the Variation Order dated 27 October 2008 did not tell us anything because it only stated that:-

“A5 To supply 5 HP split type

wall mounted A/C unit  1  Nos  $10,000.00”

Mr. Tsang, for the Defendant, confirmed that the price of $10,000 could not be sufficient for a brand new 5 HP split type wall mounted air conditioning unit.  It needed about $35,000.

(b) I am not impressed by the fact that the Defendant continued to do his business in the Premises for more than 2 years when it was handed over to him on 1 April 2009.  Despite the various complaints lodged, he did not take any “actual” steps to remedy the same.  He simply obtained the Report or Quotation from EIIDC only.

(c) I am also not impressed by the fact that the Defendant did not supply with me the documents he had told me. At the PTR, I discussed with him specifically as to how he would like to prove his counterclaim for damages to be determined.  He then complained that Masters had refused him.  It was on that basis I exercised my discretion to allow him to do so late.  I further went on to identify the documents he would provide. He failed me on the first deadline.  I extended the time later.  He did not do so ultimately.  He did not offer to this Court any or any satisfactory explanation at all.

(d) Quite to the contrary, I find both Mr. Ching and Ms. Lee relatively truthful witness.  Their cases are consistent at all times apart from minor matters, including that a toilet door was to be fixed after 25 March 2009.  However, it was something having been agreed by the parties.

14.  Third, as to Mr. Tsang, the “expert” for the Defendant, I declined to accept his evidence generally.  It is not due to his credibility but limited information available to him when he did the Report.  Of course, as admitted by Mr. Tsang himself, he was only holding a professional diploma in construction management. Such qualification is rather elementary in the industry. Even bearing in mind his working experience in the field for years, I do not consider him the usual expert accepted by this Court.  Anyway, even if Mr. Tsang was to be accepted as an expert in the present proceedings, he told me that he was provided with the Quotation by the Defendant, and no more relevant documents.  Further, he just went up to the Premises to conduct visual inspection.  If I have to compare the evidence of him with those of Mr. Ching, who is also holding a professional diploma in interior design and enjoying even more years of practical experience in the field, the latter is preferred to as he is more involved in the matter and generally accepted as a credible witness by this Court.

Findings of Facts

15.  As a result, on balance, I find the following facts:-

(a) By the Quotation and 2 subsequent variation, the parties agreed the works to be performed at the Premises for a total price of $525,815.

(b) The Defendant is the defaulting party in the Contract.  He failed to pay the instalments and to confirm the design on time.  It therefore delayed the progress of the Works.

(c) On 17 March 2009, the parties conducted a joint inspection at the Premises.  28 items were identified.  They are only minor improvements or additional jobs.  The Plaintiff agreed to sign it in order to finalize the matter with the Defendant amicably.  It was not due to its delay or poor craftsmanship.  The Plaintiff further agreed to pay damages of $2,000 per day because it was confident that all these matters could be completed within the scheduled time.

(d) The matters completed as expected, apart from a toilet door.  The Defendant accepted that it was to be installed later.  He also accepted the condition of the Premises and agreed to pay the balance.  However, he then changed his mind and said that he would only pay until the issuance of the provisional food licence.

(e) The provisional food licence was issued and given to the Defendant by Ms. Lee on 1 April 2009, but he did not pay her immediately and excused himself because he was busy on that day when the restaurant started business.

(f) The Defendant then made up with all sorts of excuses trying not to pay the balance.  He picked unnecessary faults on the Works.  He contracted Mr. Tsang to help him to do so 3 months later in July 2009.

(g) Even if there were some minor defects covered by the 1 year warranty of the Plaintiff under the Contract, the Defendant did not inform the Plaintiff to remedy it.  If he would do so, the Plaintiff could easily put right the matters.

(h) The Plaintiff did not inform the relevant Government Departments to stop processing of the application of formal food licence by the Defendant.  It only informed them that it was not taking up the food licence for the Defendant further as the latter was not paying the balance of the contract price.

16.  By a document dated 17 January 2011, the Defendant identified 11 issues to be disputed.  They are:-

“Part A (Contract Works)

1. Whether the Plaintiff should complete the Contract Works within 50 days from the date of the initial payment by the Defendant (i.e. paid on 29^th September 2008) according to the said Contract as that alleged by the Defendant.

2. Whether the Contractor [the Plaintiff] warrants the client [the Defendant] for a period of one year after completion of works against any defective material and workmanship under normal use as that alleged by the Defendant.

3. Whether the Plaintiff delayed in commencement of Contract Works as late as on 10^th October 2008 as that alleged by the Defendant.

4. Whether the craftsmanship of the Plaintiff’s works was extremely poor that caused defective works to the Premises as that alleged by the Defendant.

5. Whether there were several major defects in the Plaintiff’s works, namely, (i) the Plaintiff’s wrong design of the drainage system for the Premises; (ii) the broken air conditioning unit being previously thrown away by the neighbor of the Premises for scrap; and (iii) may of the materials supplied by the Plaintiff and fixed at the Premises became defective, as alleged by the Defendant.

6. Whether the Plaintiff failed to carry out the rectify works to the defective works under the Agreement dated 17^th March 2009 (“the said Undertaking”) signed by the Plaintiff to the Defendant as that alleged by the Defendant.

7. Whether almost all of the work set out in the said Undertaking remained outstanding on the date of obtaining provisional food license (i.e. 1^st April 2009) as that alleged by the Defendant.

8. Whether the Plaintiff is liable to pay the Defendant liquidated damages at the rate of HK$2,000 per day until the completion of the said works to the satisfaction of the Defendant if the Plaintiff fails to complete the said works by 25^th March 2009 according to the said Undertaking as that alleged by the Defendant.

Part B (Application for Food License)

9. Whether the Plaintiff has failed to perform works and has failed to carry out its duties in application for the food license for the Defendant.  If yes, the Plaintiff’s quoted amount of HK$35,000 being the services fees for application of food license should be deducted from the Grand Total of the Contract ($480,415 - $35,000) = $445,415.

10. Whether the Plaintiff, without the consent and knowledge of the Defendant, in or about mid-June 2009 directed the Fire Services Department to stop processing the Defendant’s application for the necessary food license owing to the dispute between the parties as that alleged by the Defendant.”

11. Whether the Plaintiff has completed the Contract Works before 10^th April 2009 as that alleged by the Plaintiff.”

17.  I will answer them as such:-

(1) The starting point being that the 50 days is expressly such subject to confirmation of the design.  Not only the Defendant was at fault in the same, but he also delayed in making the instalments.  In any event, by the Agreement on 17 March 2009, the delay issue, if any, was resolved by the parties.

(2) Under the Contract, the Defendant was entitled to a warranty of 1 year for defective material and workmanship under normal use.  However, I find that the Defendant has failed to come up with his case for defective material and workmanship on the part of the Plaintiff.  Even if there were, the Defendant did not inform the Plaintiff to remedy the same within time.

(3) No.

(4) No.

(5) No.

(6) No, apart from the fixing of a toilet door.  However, the Defendant accepted it to be done later.  The Plaintiff did so accordingly.

(7) No.

(8) No.

(9) No.

(10) No.

(11) Yes.

18.  As to the issues mentioned by the Plaintiff as per its document filed on 17 January 2011, it explained why those set out by the Defendant was not agreed. I do not propose to set out then here as I have answered all those issues named by the Defendant.  The Plaintiff only asks this Court to answer 2 issues:-

“C. Issues In Dispute by Plaintiff

I. Whether the defendant had continuously failed to made the 2^nd and 3^rd Payment which causing the postponement of the working schedule which the plaintiff had informed the defendant verbally and by email and post letter also.

II. Whether the defendant verbally agreed that the plaintiff had completed the defective works on 25^th March 2008 and agreed to make the payment once the defendant obtained the provisional food license.”

19.  My answers are:-

(I) Yes.

(II) Yes.

20.  I do not intend to deal with the items as per the Scott Schedule or the Report of Mr. Tsang as I have decided not to accept the “expert” evidence of the Defence.

21.  Up to now, I have dealt with all disputes between the parties, apart from a preliminary issue, namely, at the outset of the Trial, the Plaintiff asked to amend its claim to add further claims of about 32,600 being additional works and/or improvements done.  At the junction, in order not to waste time and costs, I allowed it to be proceeded with on a de bene esse basis. After thought, especially upon hearing all the evidence, now, I have decided to refuse such application.

(a) The Plaintiff took out no application and offered no explanation, not to mention affidavit evidence, as to its late application.  At the PTR, it confirmed with me that its pleadings stood good.

(b) Late amendment is usually not allowed after CJR, unless there is good reason justifying the same.

(c) In any event, the Plaintiff did not adduce any or sufficient evidence to support these additional claims.

Conclusion

22.  To conclude, I will order that:-

(a) The Defendant shall pay the Plaintiff the sum of $67,611.50.

(b) The Defendant’s counterclaim is dismissed.

(c) The Defendant shall also pay the Plaintiff costs of the whole proceedings, to be taxed by the Master, if not agreed.

23.  Paragraph 22(c) above is an order nisi and will be become absolute after 14 days from the date hereof, unless either of the parties will apply to vary the same.

The Plaintiff acted in person by its director Mr. Charles Ching.

The Defendant acted in person.