IVANHO ARCHITECT LTD. v. GUANGZHOU SUPER SHOW CENTRE LTD.

HCA10008/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO.10008 OF 1999

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J U D G M E N T

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Introduction

1. The trial of the present action took place before me on 10 December 2001. The defendant was absent. I was, however, shown a number of letters from the plaintiff's solicitors to the defendant dated 14 November, 1 December and 3 December 2001, which made it quite clear that the trial was to take place on that date. Separately, the court has also notified the defendant of the trial date.

2. Accordingly, the plaintiff, through its counsel Mr Jonathan Wong, proceeded to prove its case. Mr Ivan Ho, a director of the plaintiff and probably its founder ("Mr Ho") gave evidence in support of the plaintiff's case.

3. In this action, the plaintiff claims against the defendant the sum of HK$806,675.30, together with interest thereon pursuant to contract. The claim arises out of an agreement for architectural design consulting services, under which the plaintiff (an architectural company) agreed to provide these services to the defendant in connection with a project in Guangzhou called the "Proposed Guangzhou Super Show Centre Phase I" ("the Project").

4. The terms of the agreement are contained in a letter dated 15 September 1997 from the plaintiff to the defendant signed by the plaintiff and countersigned by the defendant (on 18 September 1997). I will refer to the agreement as contained in this letter as "the Agreement".

The Agreement

5. The agreement is divided into several parts, dealing with the scope of work to be performed by the plaintiff, the remuneration for this work, extra services which might be required of the plaintiff and the remuneration for such extra services and other matters.

6. Clause 2 of the Agreement sets out the scope of the work to be carried out by the plaintiff.

"2) Scope of Work

The architectural design consultancy services provided by Ivanho Architect Ltd. [the plaintiff] shall include the following work for the phase 1 (i.e. Hall 1) only :-

a) Conceptual Design/Outline Schematic Proposals

* Analyse the Client's [the defendant's] requirements, prepare the design brief and describe through the preparation of plans sections and elevations the proposed design for the site.

* Undertake preliminary design meetings with the respective Client appointed consultants and analyse their specific requirement.

* Seek for approval on the scheme design.

* Prepare any necessary design drawings in A3 format in accordance with the Client's brief and requirement for the Client to discuss with the respective authorities.

* The Client's appointed Chinese Design Institute shall be responsible for provision of all detail on local regulation, code and submission requirement which shall form the base for design development and preparation of the building plan submission.

b) Design Development

* To follow and modify the conceptual design according to the detail, comment and requirement given by the Client's appointed local Design Institute to confirm any specific local planning requirement.

* To incorporate the requirements of all other Client's appointed Consultant received before finalizing the design into a scheme again.

* As required, co-ordinate with the Client appointed project manager and co-ordinator and provide information necessary.

* Develop the design of the project in accordance with the information and requirement given by all other Consultants including the project manager, co-ordinator and the Chinese Design Institute.

c) General Building Plan Preparation/Extended Preliminary Design

* Having incorporated the requirements of the other consultants and the Client's appointed local Design Institute in the development of the design, proceed to prepare the General Building Plan and Planning Submission Drawings in collaboration with Client's appointed local Design Institute in China.

* Ivanho Architect Ltd. shall only be responsible for the preparation of the submission drawings assisted by the Client's local Design Institute the latter whom shall be responsible to undertake to prepare the essay description and discussions with the local authorities, and submit and obtain approval of the design from the respective authority department. Ivanho Architect Ltd. will make the presentation of the design scheme to the local authorities as and if required."

7. The work described in clause 2 represented what was called the "normal services" to be provided by the plaintiff as distinct from "extra-services". In short, this work covered the stages of the Project from the concept state to the drafting of general building plans for Phase I (i.e., Hall 1).

8. Of particular note in the Agreement is the division of responsibility between the plaintiff and the consultant engaged by the defendant for the purpose of seeking and obtaining the necessary building approval from the relevant authorities in Guangzhou. Clause 6 of the Agreement defined the scope of the work expected of the consultant. I shall return to this aspect below.

9. Clause 3 of the Agreement sets out the plaintiff's remuneration for providing the normal services :-

"3) Professional Fees

a) The fees for the architectural consultancy services described in item 2 above shall be charged in a lump sum of HK$1,500,000.00 and shall be payable in Hong Kong Dollars; taxes in China if any, will be paid by the Client.

Ivanho Architect Ltd. shall be remunerated according to the following schedule of staged payments :-

i) Upon the confirmation of the appointment - 20%

ii) Upon completion of concept design proposal ready for submission - 25%

iii) Upon approval of planning proposal by Chinese Government - 15%

iv) Upon completion of building plans and extended preliminary design ready for submission - 25%

v) Upon approval of general building plans and extended preliminary design submission by Chinese Government - 15%

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d) The Architect shall be reimbursed for expense incurred during the duration of the project. These expenses shall include reproduction, copying, IDD, film, telefax, postage, delivery, travel expenses, out-of town living expenses, statutory fee payable to Government and other similar items.

The photocopying cost of A3 and A4 sheet is charged at HK$1.00 and HK$0.50 per copy respectively. Printing cost is charged at HK$8.00 per print and HK$34 per polyester for A2 size, HK$10.00 per print and HK$45.00 per polyester for A1 size, HK$16.00 per print and HK$100.00 per polyester for A0 size.

e) Additional services shall be based on sum agreed by the Architect and if no agreed lump sum, on time charged per the hourly rates in accordance with The Hong Kong Institute of Architects Standard Hourly Rate with a fifteen (15%) discount rate.

f) Invoice for fee and remiburseable expenses are rendered upon partial completion and / or completion of each phase(s) payable within fifteen (15) days.

Invoice outstanding in excess of thirty (30) days will bear interest at the rate of 1.5% per month in compound interest."

10. Clause 4 provides for the extra services that may be required of the plaintiff. These services were to be regarded as additional to the normal services set out in clause 2 and, unless otherwise stated or mutually agreed, such work was to be charged on a time basis in accordance with clause 3(e). One such extra services was :-

"a) Making revisions (exclude minor revision) in drawings, schedules, specification or other documents when such revisions are inconsistent with Client's previous approvals or instruction, or required by the revision of codes, laws or regulations or due to insufficient information and requirement given by the Client's appointed project manager and co-ordinator or Chinese Design Institute subsequent to the preparation of such drawings and documents."

11. Clause 5 further defined the normal services to be provided by the plaintiff and in sub-clause (b) thereof referred to the number of trips to be made by the plaintiff that would be included within the scope of the normal services provided by it. Any additional trips would be separately charged and reimbursed.

The Plaintiff's Claim

12. I have already referred to the division of responsibility between the plaintiff and the consultant to be appointed by the defendant. As the plans for the Project had to be approved by the relevant authorities in Guangzhou, it was necessary for the defendant to engage architects qualified in practice in the Mainland. The plaintiff was not so qualified. The defendant therefore had to appoint the Chinese Design Institute ("the CDI") for the purposes as identified in clauses 2(a) and (c) and clause 6 of the Agreement.

13. It will be remembered that under clause 3(a) of the Agreement, the plaintiff's fee of HK$1.5 million was payable in five stages :-

(1) Stage 1 : upon confirmation of the plaintiff's appointment (20%).

(2) Stage 2 : upon completion of concept design proposal ready for submission (25%).

(3) Stage 3 : upon approval of planning proposal by the Mainland authorities (15%).

(4) Stage 4 : upon completion of building plans and extended preliminary design ready for submission (25%).

(5) Stage 5 : upon approval of general building plans and extended preliminary design submission by the Mainland authorities (15%).

14. The plaintiff has been paid up to and including Stage 3. Invoices were issued on 10 June 1997 and 19 September 1997 (in respect of Stage 1), 20 February 1998 and 2 April 1998 (in respect of Stage 2) and 16 June 1998 (in respect of Stage 3). There is no dispute about these invoices.

15. The dispute between the parties involves the following invoices set out in paragraph 3 of the Re-Amended Statement of Claim (for which I give leave) :-

(1) Invoice No. 98/I-001/9518A dated 9 February 1998 for the sum of HK$1,048.30 in respect of expenses under clause 3(d) of the Agreement.

(2) Invoice No. 99/I-002/9518A dated 26 May 1998 for the sum of HK$375,000.00 in respect of the payment due under Stage 4. This invoice was revised on 1 December 1998.

(3) Invoice No. 99/I-004/9518A dated 1 December 1998 for the sum of HK$225,000.00, in respect of the payment due under Stage 5.

(4) Invoice No. 99/I-001/9518A dated 1 December 1998 for the sum of HK$11,628.10, in respect of expenses under clause 3(d) of the agreement.

(5) Invoice No. 99/I-005/9518A dated 1 December 1998 for the sum of HK$194,072.00, in respect of expenses under clauses 3(e) and 5(b) of the Agreement.

16. I deal first with the payments claimed for Stages 4 and 5. It is convenient to deal with them together.

Invoice No. 99/I-002/9518A dated 26 May 1998 : Stage 4
Invoice No. 99/I-004/9518A dated 1 December 1998 : Stage 5

17. The Stage 4 payment was due upon completion of building plans and extended preliminary design ready for submission. In his evidence, Mr Ho said that the term "General Building Plan" and "Extended Preliminary Design" had the same meaning. The former was the term used in Hong Kong while the latter was the term used in the Mainland. For convenience, I will refer to these plans simply as the general building plans.

18. It was Mr Ho's evidence that payment under Stage 4 was due since the plaintiff had completed the general building plans ready for submission for approval by the Mainland authorities. The general building plans referred to in this context were referred to during the trial as the Revision C plans (these being, as the name suggests, the third revision of the plans). The Revision C plans were provided to the defendant on 23 May 1998, receipt of which was acknowledged. The invoice for the Stage 4 payment was sent, as we have seen, two days later.

19. There is no evidence before me that the defendant had at any stage complained about this invoice or even tried to have it reduced. Instead, the defendant made use of the Revision C plans because, based on them, in June 1998, the defendant through the CDI submitted general building plans to the Guangzhou City Planning Board for approval.

20. The general building plans that were submitted to the Guangzhou City Planning Board were also sent to the plaintiff. By a letter dated 16 June 1998, three days after receiving the plans, the plaintiff stated it had reviewed them and found many discrepancies, deviations and changes from the Revision C plans. Comments were made on the plans and the defendant was invited to clarify and confirm the comments as so to enable the plaintiff to amend the plans if necessary. The letter ended, "Your immediate attention and action is much appreciated". This letter was delivered by hand by Mr Ho to a Miss Patty Wong, the Project Secretary for the Project appointed by the defendant.

21. On 16 June 1998, Mr Ho received a phone call from Mr Y.Y. Yung (a director of the defendant) who told him to suspend work on the Project, on the ground allegedly that the costs of construction had exceeded the defendant's budget. Mr Yung told Mr Ho that there were on-going discussions and negotiations with the Guangzhou authorities with a view to persuading the authorities to dispense with a carpark requirement for the Project. Mr Yung further told Mr Ho that the defendant was encountering difficulties in obtaining the necessary financing for the Project owing to the financial crisis then prevailing in Hong Kong.

22. On 29 June 1998, Mr Ho attended a meeting in Guangzhou with the defendant, Mainland government officials and the CDI. After the meeting, Mr Alung Wong (the Project Manager for the Project appointed by the defendant) verbally instructed Mr Ho to carry out further amendments to the Revision C plans even though he was told what Mr Yung had earlier said to Mr Ho on 16 June 1998.

23. Faced with inconsistent instructions, the plaintiff sent a letter dated 2 July 1998 to the defendant seeking confirmation of the instructions given verbally by Mr Alung Wong as to the amendments to be made to the Revision C plans. All such amendments were extra services within the meaning of the Agreement, which therefore explained why the defendant's express confirmation was sought.

24. The defendant never gave the confirmation sought despite continually being pressed by the plaintiff. There was simply no response to the said letter.

25. Instead, by a letter dated 24 November 1998, purportedly being a summary of discussions between Mr Ho and Mr Yung, the defendant stated that due to prolonged negotiations with the Mainland authorities, construction work on the Project had to cease until a final building plan was agreed by all concerned. It was further stated that no definite time frame was known at that time. The letter then continued that in the circumstances a settlement agreement had been made between the plaintiff and the defendant to the effect that the defendant would only make payment for Stages 1 to 3, i.e., for the sum of HK$900,000.00, "in full and final settlement of your [the plaintiff's] appointment".

26. This caused the plaintiff to issue the said invoice numbered 99/I-004/9518A seeking payment in respect of Stage 5.

27. By a letter dated 2 December 1998, the plaintiff responded to the letter dated 24 November 1998. In it, the plaintiff denied any settlement agreement and further stated that as it was the defendant who had decided to cease work on the Project and the plaintiff having completed all that was required of it under the Agreement, the plaintiff was therefore entitled to payment in full under the Agreement. Significantly, there was no response to this letter from the defendant.

28. Mr Ho states that the defendant suspended the Project owing to financial difficulties.

29. In my judgment, the plaintiff is entitled to payment under Stage 4. The Revision C plans were the general building plans contemplated under clause 2(c) of the Agreement and this stage of the payment schedule.

30. There was no evidence before the court to suggest that these plans were incomplete or in any other way deficient. It is true that after the meeting in Guangzhou on 29 June 1998, Mr Alung Wong of the defendant instructed the plaintiff to make the amendments referred to in the said letter dated 2 July 1998 from the plaintiff to the defendant. However, as indicated in that letter, such amendments, if carried out by the plaintiff, would have constituted extra services under the Agreement.

31. By a letter dated 9 July 1998 from the Guangzhou City Planning Board, approval was given in principle to the plans that had been submitted to it in June 1998 by the CDI. The following amendments were, however, suggested :-

(1) that consideration be given for building a foyer and path out of the water pump room and the basement carpark to be changed to indoors; and

(2) that the roof and front of the exhibitional hall should be more vivid so as to highlight its functional characteristics and effect.

32. It will be remembered that the plans that were submitted to the Guangzhou City Planning Board were based on the Revision C plans. In evidence, Mr Ho said that the letter dated 9 July 1998 (which incidentally was not received by the plaintiff until discovery) was tantamount to approval of the Revision C plans. He said that the amendments referred to in that letter related not to work that the plaintiff ought to have done in preparing the said plans but represented extra services. In other words, it could not therefore be said that the plaintiff had in any way failed to prepare general building plans in accordance with its obligations under clause 2(c) of the Agreement.

33. The significance of the 9 July 1998 letter coupled with Mr Ho's evidence is twofold. First, it supports the plaintiff's case that it had fulfilled its responsibilities under clause 2 of the Agreement. Secondly, it also represented effectively approval of the Revision C plans, thus entitling the plaintiff to payment under Stage 5.

34. In my judgment, the plaintiff is entitled to payment under Stage 5. I say this for the following reasons :-

(1) The 9 July 1998 letter, as I have held, constituted approval of the general building plans supplied by the plaintiff.

(2) Even if this letter did not constitute approval, there would in all probability have been approval of the said plans but for the defendant having prevented this by ceasing work on the Project.

(3) In any event, it is in my view arguable that approval was not necessary in the first place. The plaintiff's obligations under clause 2 of the Agreement (which it will be remembered, sets out the scope of the work to be carried out by the plaintiff) are not qualified by the need to obtain approval. The reference to approval in clause 3 of the Agreement relates only to the timing of payment and does not in my view make approval a condition precedent to payment.

35. I now deal with the remaining invoices.

Invoice No. 98/I-001/9518A dated 9 February 1998

Invoice No. 99/I-001/9518A dated 1 December 1998
Invoice No. 99/I-005/9518A dated 1 December 1998

36. These invoices relate to claims for reimbursement for various items of expense. Mr Ho said that they were due and owing. I have no reason to doubt this. There is moreover no contemporaneous document from the defendant or otherwise disputing the plaintiff's entitlement to payment under these invoices.

37. Only the claim under invoice no. 98/I-001/9518A needs modification. In that invoice, a claim is made for $1,048.40. The correct sum, using the formula set out in clause 3(d) of the Agreement, should be $975.30. Mr Ho accepted that the contractual rate should be used.

The Defence and Counterclaim

38. As pleaded in the Amended Defence and Counterclaim, the defendant's defence consists of the following allegations :-

(1) That it was the plaintiff who was in breach of the Agreement by failing to perform the services required of it, with the result that no final plan could be provided for approval by the Mainland authorities.

(2) There was in any event a full and final settlement agreement between the parties as reflected in the said letter dated 24 November 1998 from the defendant to the plaintiff.

(3) In the premises, the defendant was not liable to the plaintiff and furthermore had suffered loss and damage, for which the plaintiff was responsible.

39. As the defendant has not turned up for the trial of this action, there is no evidence to support these allegations or to contradict the plaintiff's evidence rebutting them.

Conclusion

40. For the reasons given above, there will be judgment for the plaintiff in the sum claimed of HK$806,675.30.

41. The plaintiff also claims interest on the said sum under clause 3(f) of the Agreement. This amounts to $657,853.11 and the plaintiff is also entitled to judgment for this sum.

42. Accordingly, the plaintiff is entitled to judgment in the sum of $1,464,528.41. I also dismiss the counterclaim. There will be an order nisi that the plaintiff is entitled to its costs of the action, such costs to be taxed if not agreed.