CHOY BING WING t/a BING CHOY & ASSOCIATES v. THE HONG KONG & SHANGHAI HOTELS, LTD

IN THE COURT OF APPEAL

ON APPEAL FROM THE HIGH COURT

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ASSESSMENT OF DAMAGES

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1. By a writ dated 8 January, 1991, the Plaintiff, a structural engineer, claimed against the Defendant, owner of the Peninsula Hotel, professional fees for work carried out for the Defendant at the hotel in the sum of $3,504,860.

2. By an Agreement made on 5 October, 1987, the Plaintiff was to be paid 1.5% of the total construction costs involved in building an extension to the hotel, now the tower block to be seen there. The project included various building works of a temporary nature to keep the hotel in operation prior to and during the building of the extension.

3. On 25 July, 1990, the Defendant terminated the engagement of the Plaintiff in regard to the full extension project but asked him to continue as structural engineer in connection with the building works of a temporary nature. Unfortunately, the parties at that time did not make any agreement as to how the Plaintiff would be paid for that work.

4. The action was tried before Mr. Justice Kaplan. He concluded that the Plaintiff was entitled to be paid in accordance with the original Agreement by reference to stage payments based on the total construction costs of the whole project. Quantum was to be assessed by a Master.

5. Both sides appealed against that decision in regard to part of it

6. The Court of Appeal held that the Judge's decision was wrong and ordered that the matter be-

          "referred to a Master to assess what is a reasonable sum to be paid by the Defendant to the Plaintiff for the services rendered by the Plaintiff to the Defendant between 25 July, 1990 and 5 November 1990 in relation to Activities A, C and D in the pleadings mentioned".

Activities E and F.

8. The question of payment for two other Activities, known as E and F, had also been referred to a Master by Kaplan, J. and this was not subject of the appeal to the Court of Appeal. In relation to those Activities the parties have reached agreement. By consent, I award the sum $125,000 in respect of those Activities.

9. In dealing with the appropriate payment for Activities A, C and D, I think it useful to mention that the Plaintiff has already been paid, as found by Kaplan, J. a little under $8.9 million by the Defendant in relation to his work on the hotel project.

10. The parties agreed that the assessment be based upon the provisions of the ACEHK (Association of Consulting Engineers of Hong Kong) Conditions of Engagement, Agreement 3. Despite that agreement, the way in which the parties seek to apply the Agreement leads to a gross disparity in the sums they calculated as being appropriate.

11. The Plaintiff relies on Para 10 of the Agreement headed "Payment for Normal Services" which sets out 3 methods of payment:

          1. Payment based upon the total costs of the works calculated in accordance with a table containing a sliding scale of charges.

          2. Payment of a fixed sum.

          3. Payment on a time basis.

12. Method 2 is not relevant in this case.

13. The problem about payment on a time basis is that, during the trial before Kaplan, J., the Plaintiff produced time sheets purporting to set out the hours spent by himself and his staff during the relevant period. For reasons I need not detail the judge rejected the time sheets as not being a proper contemporaneous record. Before me, the Plaintiff was cross-examined about the time sheets and said they were only "a proposal to settle the matter". His position was that they should be forgotten about as they were rejected by the trial judge. Clearly, there is no reliable evidence upon which I can base this assessment on method 3. However, I shall not forget about the time sheets as I do consider them relevant to the extent I shall indicate.

14. I am satisfied that I should deal with this assessment using the first method set out in the Agreement.

15. The Plaintiff's position, which never varied during the assessment, was that the sliding scale set out in the table should be applied to the total costs of the works comprised in activities A, C and D. It was common ground that the total cost of Activity D alone was $63,745,000. The Plaintiff then applies the table to that sum and produces a fee of $3,209,750. With regard to Activity A he claims in the same way a fee of $200,500, and in regard to Activity C a fee of $100,500.

16. The Defendant's opening position, based upon the way in which their expert witness applied para 10 of the Agreement, was:

Activities A & C.

18. I will deal first with Activities A and C. It is the case for the Defendant that construction work on these Activities was completed before the period of time with which I am concerned, and that only minimal fees are payable, if any, under the Agreement in respect of the "maintenance period" during which the Plaintiff would have responsibilities. This is the first respect in which I consider that the Plaintiff's time records are relevant to my considerations. The Plaintiff did not dispute that, when totalled for the period under consideration, his time records produce a total of "$689,000 odd". He further agreed that the records contained no time at all recorded in respect of Activities A and C. The Plaintiff says that the time sheets were used merely as a "proposal to settle the matter". Common sense dictates that, in putting forward such a proposal, a party is not going to understate his demands. I am satisfied that in regard to Activities A and C there were in fact no "services rendered by the Plaintiff to the Defendant" during the relevant period and I make no award in respect of those Activities.

Activity D.

20. The first reason for the wide gap between the parties with regard to the fees which should be paid for Activity D is that they disagree as to "the works" for which the Plaintiff was responsible as structural engineer.

21. The Plaintiff maintains that he was structural engineer for the whole of the works covered by Activity D, whereas the Defendant maintains that the Plaintiff was only structural engineer for the part of Activity D which amounted to structural works. The cost of those works was $4,854,060. The full fee for those works, as calculated in accordance with the percentages the Plaintiff says are appropriate, and using the sliding scale set out in the table, is $265,203.01. The Defendant then goes on to argue that the structural engineer's fee must be apportioned over the stages of the work involved. The Agreement contains a table "provided for guidance only" (my emphasis) "typical of the proportionate amount of the services at the end of each stage:

22. In a further refinement, the Defendant's expert says that, after construction is complete, there follows a maintenance period which is normally calculated as 2.5% of the total fee. The expert therefore says that the appropriate fee for the construction stage supervised by the Plaintiff is 12.5% of the full fee, hence the figure of $33,150.38.

23. As to "the works" for which the Plaintiff was employed during the relevant period, I am in no doubt whatever that they were the whole of Activity D. The Plaintiff was originally appointed structural engineer for the whole project and his fee of 1.5% was to be calculated on the total costs of the whole project. In my view, once the Plaintiff was taken off the whole project and restricted to Activity D, he was still the structural engineer for the whole of that project, and his responsibility cannot be reflected by a fee based solely upon the structural works constituting part of Activity D.

24. I have to say at this stage that my understanding of the issues involved in this assessment was enormously assisted by the Defendant's expert Dr. R M Kennard, who wrote the Agreement.

25. Having decided that the fees of the Plaintiff should be based on the total cost of Activity D, there remain two problems to be resolved. Firstly, the percentage to be applied to that figure, and secondly how the fee should be apportioned over the stages of the works, it being common ground that the construction stage began and concluded during the relevant period.

26. During the trial counsel for the Defendant submitted that the judge should chose 1.5% of the total value of the works in Activity D and allowed the Plaintiff one quarter of that on the basis that "the Plaintiff did not fully complete the work". It is not clear to me what counsel meant by that last phrase. That calculation would produce a figure of ($63,745,000 x 15% x 25%) $239,043.25. The Plaintiff several times stated that Kaplan J. had said that a percentage of 1.5% would not have been sufficient. What in fact Kaplan J. said was that he accepted the evidence of the Plaintiff that he (i.e. the Plaintiff) would not have agreed to 1.5%. I am not sure that this can be interpreted as meaning that the judge thought 1.5% would not be enough. Even if he did, Dr Kennard said he couldn't understand why the judge should take that view, pointing out that the judge heard no expert evidence on the appropriate ways to calculate the fees.

27. Para.10 of the Agreement, which the Plaintiff relies upon, states that "this method of payment is recommended for use in normal circumstances". I interpret that to mean the situation where an engineering project is put out to tender for an engineer to come fresh to a project. The situation which arose when the Plaintiff was removed as engineer for the whole of the Peninsula project was far from such a normal situation. The Plaintiff was not coming to Activity D without prior knowledge of the project; he had been closely involved from the outset and working on the project for some time. I do not accept that the sliding scale of fees set out in the table of 5% upwards can be considered appropriate in the present situation. As I discussed with Dr Kennard during his evidence, the position was that the Defendant wanted to the Plaintiff to continue with Activity D and if the question of payment had been considered at the time, bargaining would have taken place. It was clearly in the interest of the Defendant to keep the Plaintiff on board, rather than bring in another engineer who would have needed to "get up to speed" to take on the job. Therefore, the Defendant may well have been able to negotiate a higher percentage than the 1.5% he was already being paid. On the other hand, at some point in the Plaintiff's demands the Defendant would have concluded that it made more financial sense to let the Plaintiff go altogether and have another engineer take over.

28. As Dr Kennard explained, whether an hourly rate is chosen as the appropriate remuneration for a particular job, or a percentage of the cost of the works, the end result should be more or less the same level of remuneration. I return again to the Plaintiff's rejected time records and the "$689,000 odd" they indicated for the relevant period. Again, as a matter of commonsense the Plaintiff was not putting forward claims for time spent which would produce too low a fee. I am satisfied that the figure now being claimed cannot possibly be justified.

29. The Defendant's witness Neil McCallum was in overall charge of the Peninsula Hotel project and in evidence he estimated the number of hours actually worked on the site during the relevant period was at most 250, with about 30 of those being worked by the Plaintiff himself. Using hourly rates taken from an invoice submitted at one point in the negotiations over fees by the Plaintiff, Mr. Munro calculated that by this means of calculation the fees payable to the Plaintiff would be $109,000. Dr Kennard gave evidence that "one might expect a similar amount of work in the office to that which took place on site". Looked at in this way, on the most generous point of view to the Plaintiff, the fees would be $218,000.

30. It seems to me that the figures produced in the last 2 paragraphs are helpful in supporting my conclusion that the Plaintiff's claim is unrealistic.

31. I conclude that an appropriate percentage is 1.75%, which would produce a full fee for Activity D of ($63,745,000 x 1.75%) $1,115.537.50

32. There remains the question of how the fee should be apportioned over the stages of the work. The position of the Defendant is that, by the start of the relevant period, all the stages set out in the Agreement were complete up to the construction stage. The Plaintiff's evidence was that this was not so, and that he was still submitting plans to the Building Authority during the relevant period, producing evidence to that effect. He pointed out that the stages which may be appropriate in talking about a new building project are inappropriate when dealing with work done on an existing building. He said that on such a job as Activity D at the Peninsula the problems which needed to be dealt with only became apparent when the old building was opened up and work began. That is why he says it was impossible for the design stage to have been completed before the relevant period. Dr Kennard said in evidence "there are always items, especially in alteration and addition works, where you have to cope with the design aspect during the construction phase". Dr Kennard conceded that he has used the figure of 85% for the period before construction started "because 85 per cent was in the book, but of course it might have been 80 per cent or it might have been 75, but a large amount had been done".

33. I accept the Plaintiff's evidence that assigning a percentage of only 12.5% of his fee to the construction stage of Activity D would not be fair in the particular circumstances of the work involved. The figure I adopt is 40%

34. I assess the sum to be paid to the Plaintiff for his services rendered during the relevant period on Activity D to be $446,215.

35. I will hear the parties on the question of interest and costs on a date to be fixed.