FORCE WAY ENGINEERING LTD v. THE INCORPORATED OWNERS OF GRAND COURT

CAMP 128/2018

[2018] HKCA 683

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 128 OF 2018

(ON AN INTENDED APPEAL FROM DCCJ 3216 of 2016)

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J U D G M E N T

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Hon Poon JA (giving the Judgment of the Court) :

INTRODUCTION

1.  By a judgment dated 19 December 2017, HH Judge Winnie Tsui (“the Judge”) dismissed the plaintiff’s claim for outstanding payment arising from an agreement for renovation work in the sum of HK$889,177.50 plus interest and costs and allowed the defendant’s counterclaim in the net sum of HK$14,550.50 with interest and costs.  The plaintiff’s application for leave to appeal against the decision was refused on 13 August 2018.  The plaintiff has now renewed the leave application before this Court by way of a summons dated 27 August 2018.  Having considered the parties’ submissions, we take the view that the summons for leave to appeal can be disposed of on paper without an oral hearing. We now hand down our judgment.

2.  The background leading to the present application is set out in the main judgment, which we would respectfully adopt.

3.  In brief, the plaintiff is and was a general building contractor and was employed by the defendant to conduct renovation to Grand Court, Kowloon City (“the Building”) at the price of HK$3,508,050 by tender dated 2 August 2010 which included a set of general terms applicable to the renovation project (“the General Terms”) and a formal agreement signed on 9 April 2011 (“the Formal Agreement”).  By a further agreement dated 17 May 2010, the defendant engaged Universal Housing Engineering Consultants Ltd (“the Consultant”) to act as consultant in the renovation project.

4.  The renovation works commenced in June 2011.  The plaintiff alleged that practical completion took place on 24 June 2012, as certified by the Consultant. On the other hand, the defendant was dissatisfied with the works done and denied there was any practical completion of the renovation work.  They refused to pay the plaintiff (a) the outstanding amount for the fourth (and final) stage of the completed works, as certified by the Consultant in the sum of HK$1,109,803.50 and (b) retention money in the sum of HK$342,447.

5.  In December 2012, the plaintiff commenced HCCT 13/2014 to recover the two sums against the defendant. Subsequently, the defendant made a payment of HK$563,073, thus reducing the sum owed in (a) to HK$546,730.50.  The case was then transferred to District Court for a reduced claim in the sum of HK$889,177.50 (HK$546,730.50 + HK$342,447).

6.  The defendant terminated the Formal Agreement on 16 October 2012 and hired a replacement contractor to rectify and complete the renovation work.  It counterclaimed against the plaintiff for (a) HK$414,883.50 as damages for breach of Contract and (b) HK$150,000 as liquidated damages for non-compliance with contract terms and delay, totalling HK$564,883.50.^[1]  By the time of the trial, the damages claim had increased to HK$857,539^[2], resulting in a total counterclaim of HK$1,007,539.

7.  In dismissing the plaintiff’s claim and allowing the defendant’s counterclaim :

(1)   The Judge accepted the oral evidence of Ms. Choy Wing Kam Christin, the chairperson of the defendant (“Choy”) and the documentary evidence produced by the defendant, in particular, the photographs taken at the site of the Building on 9 November 2012 which showed extensive defects of the renovation works.  Although the defendant did not adduce any expert evidence to prove the existence and extent of the defects, based on Choy’s evidence and the photographs, the defendant’s case was overwhelming and the defects “would be obvious even to an untrained eye”.^[3]

(2)   The Judge rejected the plaintiff’s contention that the fourth stage certificate issued by the Consultant on 3 October 2012 certifying the final payment was “final, binding and conclusive” on the defendant.  Although she found that the certificate was issued in accordance with the terms of the Formal Agreement, in the absence of any clear language excluding the defendant’s right to dispute the quality of the plaintiff’s works, the defendant could still pursue a claim for breach of warranty and to set off its loss against the amount payable to the plaintiff under the certificate.^[4]

(3)   Based on her finding that there was “an overwhelming case” on liability^[5] and that practical completion never took place because of the extensive defects unrectified by the plaintiff, the Judge ruled that the certificate of practical completion dated 4 October 2012 was not issued in accordance with the terms of the contract and was invalid.^[6]  She therefore held that the plaintiff was not entitled to any part of the retention money and the defendant might apply the retention money in satisfaction of any damages awarded on its counterclaim.[7]

(4)   In respect of plaintiff’s claim for works already executed under item 11.2a (the main gate) and 11.2b (the flowerbed) of the contract, the Judge found that the plaintiff fell short in its duty to execute its work in a good and workmanlike manner in producing the main gate and failed to comply with defendant’s express instruction for works done on the flowerbed, therefore, the defendant was not liable to pay for such works.^[8]

(5)   In assessing the quantum of the counterclaim, the Judge considered that the single joint expert’s evidence was not of much assistance as (i) the expert was unable to assess the loss caused by water leakage for his lack of knowledge of the exact affected area and (ii) because of the time gap between the rectification works done in late 2012 and the assessment of reasonable costs for rectification work done in 2016, the assessment could only be done by projecting an inflation rate of 42%.^[9]

(6)   The Judge found that as the plaintiff had failed to complete the works in time and in a satisfactory manner, it was reasonable for the defendant to take step to minimize its loss by engaging a replacement contractor to complete the work.  As such, having considered each of the items in respect of which the defendant claimed (some of which were disallowed in whole or in part), the Judge allowed the defendant’s counterclaim with an adjusted sum of HK$638,088.^[10]

(7)   The Judge further allowed the defendant’s claim of HK$150,000 as liquidated damages for the uncompleted work and 10% charge for the administrative fee on the defendant’s costs in engaging replacement contractor[11] as provided under the General Terms.

(8)   As the plaintiff’s claim was defeated in full by the defendant’s defence of set-off and based on the assessment of counterclaim, the Judge awarded a net sum of HK$14,550.50 payable by the plaintiff to the defendant.

8.  The plaintiff then applied for leave to appeal with four proposed grounds of appeal, namely: (i) the Judge erred in finding defects without expert evidence on liability; (ii) the Judge erred in accepting defendant’s alleged rectification costs as the reasonable costs of repair; (iii) the Judge erred in failing to find that the fourth stage certificate issued by the Consultant should be binding on the defendant and (iv) the Judge incorrectly denied the plaintiff’s right of payment for works already done in relation to the main gate.  However, the Judge did not see any reasonable prospect of success in any of the grounds because the four proposed grounds of appeal were based on arguments advanced at trial and canvassed in the closing submissions.  The Judge accordingly dismissed the leave application.

Discussion

9.  Leave shall not be granted under section 63A of the District Court Ordinance, Cap 336, unless this Court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interest of justice that the appeal should be heard.  The defendant bears the burden of satisfying this Court that the appeal has a reasonable prospect of success which means an appeal with prospect that are more than fanciful but which do not need to be shown to be probable (SMSE v KL [2009] 4 HKLRD 125 at §17).  When the plaintiff seeks to challenge the findings of facts made by the court below, unless it can show that the Judge was plainly wrong, for example, he misunderstood the evidence, or failed to appreciate its effects; or overlooked some other documentary evidence, or other indisputable evidence which should have compelled him to a different conclusion, this Court will not interfere those findings of facts.

10.  The Contractor sought to raise four grounds of appeal, namely :

(1)   The Judge erred in concluding that there existed significant defects as of 16 October 2012 when the defendant purportedly terminated the Formal Agreement.

(2)   The Judge erred in accepting the entirety of the defendant’s alleged rectification costs (except some deductions) as the reasonable costs of repair.

(3)   The Consultant was the defendant’s agent in issuing certificates and the certificates were therefore binding on the defendant on agency principles.

(4)   The Judge incorrectly concluded that the plaintiff should not have proceeded to work on the main gate and not entitled to payment for works already done.

11.  As for ground 1, the plaintiff contended that the Judge erred in finding significant defects existed on 16 October 2012 just by relying on Choy’s evidence without the assistance of expert evidence on liability.  The Judge summed up her findings on defects at [151] as follows :

“ 151. The defects as identified in the ten categories did exist as described and were never rectified by the Contractor. It is not easy to trace through the photographs attached to the letters exchanged between the parties from May 2012 onwards regarding the defects. However, the photographs taken on 9 November 2012 really speak for themselves. Mr Lung sought to make the point that the IO has not adduced expert evidence to prove the existence and extent of the alleged defects. In the present case, in my view, the factual evidence, including Choy’s evidence and the photographs, in support of the IO’s case are quite overwhelming. Further, many of the defects are of such a nature, eg, patches of walls of a different colour, rusty pipes, unpainted structures etc, that they would be obvious even to an untrained eye.”

12.  It is clear from the reading of [151] that the Judge did not just rely on the oral evidence of Choy in assessing the existence and extent of the defects but also the photographs taken on 9 November 2012.  Further, the Judge had also considered the Defects List by grouping 62 defects into ten broad categories and set out her observations at [74] to [112] of the judgment.  It was only after considering the evidence in totality that the Judge came to the view that the defendant’s case was overwhelming and the defects as shown in the photographs were obvious “even to an untrained eye”. Assessment of evidence and weight to be attached to the evidence are of course matters for the Judge and based on the evidence before her, the Judge was entitled to reach the conclusion at [151].  We see no basis to intervene in the Judge’s assessment of evidence and findings of facts.

13.  The plaintiff further contended that the Judge should have relied on the fourth stage certificate which proved that the Consultant were satisfied with the renovation works.  We do not consider this argument can assist the plaintiff.  It is the Judge’s finding that the certificate was open to challenge by the defendant for both defective works and delay at [198] to [199] of the judgment and the Judge found in favour of the defendant on this issue.  We agree with the Judge’s findings on defects and liability.  The plaintiff’s argument is bound to fail.

14.  Ground 1 is not reasonably arguable.

15.  As for ground (2), the plaintiff contended that the Judge wrongly concluded that the defendant had acted reasonably in its engagement of replacement contractor and incorrectly found that the cost of rectification incurred was reasonable without the assistance of quantum expert.  The Judge held at [230] to [232] of the judgment that as the evidence of the single joint expert was limited by his lack of knowledge of the actual condition of the water leakage in the site and there was a 4-year time gap in rectification work and the assessment of rectification costs, she did not consider the expert’s assessment was of much assistance in determining the issue on quantum.  It is trite that weight to be given to a single joint expert’s evidence is a matter of the trial Judge to be assessed with consideration of the circumstances of the case and in light of all other evidence before the court, see: Lam Kam Fai v Yau Shing Scaffolding Co Ltd & Another, CACV 6/2014, at [36].  As we do not see any error of law or principle in the assessment of the defendant’s counterclaim, ground 2 is not reasonably arguable.

16.  As for ground (3), the plaintiff contended that the Judge should have concluded that the Consultant was acting as the defendant’s agent and therefore the certificates which certifying the final payment and acceptance of the quality of the works issued by the Consultant should be binding on the defendant.  The Judge said :

“ 165. The issue here is therefore a familiar one in the construction context. It is this – where the consultant certifies a sum to be payable for works done by the contractor under the terms of the contract but where the employer claims that there are defects or delay, is the employer liable to pay the certified sum in full nonetheless? Or is it open to the employer to set up the contractor’s breaches as a defence to the price (or, alternatively, raise a cross-claim to the same effect)? The question often turns on, first, whether the certificate has been issued in accordance with the terms of the contract and, secondly, if it is final, binding and conclusive on the employer.”

17.  The Judge then found at [169] to [192] of the judgment that although the fourth stage certificate was issued in accordance with clause 15 of the Formal Agreement and was therefore valid, it did not necessarily mean that the same was “final, binding and conclusive” unless there were “clear unequivocal words” in the contract which have the effect of excluding the parties from recourse to the court for remedy, see: Hudson’s Building and Engineering Contracts (13^th ed) at paragraph 4-004 to 4-010.[12]  As neither the terms of the Formal Agreement nor any other contractual provision contained any words or language to that effect, the Judge had rightly concluded that the plaintiff had failed to establish the certificates were binding and conclusive on the defendant.  We do not find any error in law or legal reasoning in the Judge’s finding.  Ground 3 must fail.

18.  As for ground 4, the plaintiff contended the Judge incorrectly concluded that it should not have proceeded to work on the main gate of the Building even after the design of the gate was approved by the defendant and the Consultant.  The Judge had set out the relevant facts at [98] of the judgment which were not challenged by the plaintiff.  There were two points to note from those facts.  First, with the defendant’s dissatisfaction on the installation of the main gate, the plaintiff did not object to the defendant’s decision to look for a replacement contractor to rebuild and reinstall the main gate and such costs be set off from the contract: [98(5)] of the judgment.  Second, the main gate item was deleted from the contract by consent of the parties and the defendant could set off the contract sum by the extra costs of the replacement gate: [98(10)] of the judgment.  The Judge further found at [217] to [220] of the judgment that the defendant actually had not accepted the proposals made by the plaintiff on the main gate in its letter dated 16 August 2012 and the main gate installed by the plaintiff failed blatantly to function as a main gate, as such, the plaintiff had “clearly fell short in its duty to execute its work in a good and workmanlike manner”.  Based on the above findings, the Judge was entitled to come to the conclusion that it was reasonable for the defendant to reject the main gate and not liable for costs of work done.  We agree with the Judge’s finding and see no merit in ground 4.

DISPOSITION

19.  For the above reasons, we are not satisfied that the plaintiff’s intended appeal has any reasonable prospect of success.  Nor is there any other reason in the interest of justice why the appeal should be heard.  Accordingly, we dismiss the plaintiff’s summons dated 27 August 2018.

20.  As the plaintiff’s applications are devoid of merits, we make an order pursuant to Order 59 rule 2A (8) of the Rules of the High Court, Cap 4A that no party may under rule 2A (7) request the determination of this Court to be reconsidered at an oral hearing inter partes.

21.  Costs should follow event.  We order the plaintiff to pay the costs of the defendant summarily assessed at the sum of HK$90,000.00.