SHEFFIN DEVELOPMENT LTD. v. KA CONSTRUCTION CO. LTD.

CACV 270/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 270 OF 2002

(ON APPEAL FROM DCCJ NO. 16459 OF 2000)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1. This is an appeal from a judgment of Deputy District Judge Anthony Chow given on 9 April 2002. The claim before the judge arose out of a subcontract whereby the defendant, who was the main contractor for the construction of a residential building, awarded a subcontract to the plaintiff for the supply and installation of granite to be used in particular on the staircase of the house which was to be built.

2. The plaintiff's quotation, which was adopted as the basis of the material to be supplied, contained under the description "Re Granite Work of No. 22 Perkin Rd. Supply and Install of Italian Natural Graite (sic)". Underneath that were the words "Material: Rosa Lugo (Flame)". It would appear that some of the material was to be 50 mm thick, some 30 mm, and other parts were to be 20 mm thick.

3. The plaintiff's claim was based upon the allegation that the defendant had wrongfully refused to allow the plaintiff to carry out the work despite the fact that the plaintiff had already secured the necessary granite and was ready to perform its part of the contract. The defendant's pleaded case was that the plaintiff had not been in a position to perform the contract on time and that in the circumstances the plaintiff had evinced an intention to repudiate the subcontract which the defendant had accepted. The judge rejected that defence and nothing further needs to be said in respect of it.

4. At the trial the solicitor, acting on behalf of the defendant, had raised in cross-examination the question as to where the granite had been obtained. It was clear that the granite came from Spain. A question also arose because none of the granite which the plaintiff had obtained was 20 mm thick. However, no point had ever been taken in the pleadings that the goods which the plaintiff had ordered and proposed to supply were not in accordance with the contractual description. It is apparent from the written closing submissions in the court below and, indeed, from the transcript of the oral submissions that the point that the material was not in accordance with the contract was not taken by the defendant. It is also apparent, however, that the plaintiff had anticipated that the defendant might apply to amend its pleadings to take the point. Hence, in the plaintiff's written closing submissions the point was addressed and objection was taken to any application to amend.

5. Despite the fact that the defendant had neither taken the point that the goods which the plaintiff had obtained did not comply with the contractual description and despite the fact that no application had been made to raise this as a matter of defence, the judge dealt with the matter as if it were a live issue before him. In paragraph 27 of the judgment he said:

"Findings:

[27] In summary, the Defendant's case was that the Plaintiff failed to: (1) supply granite of 'Italian' origin; (2) supply granite slaps (sic) of 20mm thick for the staircase claddings; (3) cut the granite slaps (sic) to size; (4) deliver the granite slaps (sic) on site within 60 days after signing of the Subcontract and commence installation of the granite slaps (sic) on or before 12/4/1999."

6. The question as to the material which was secured by the plaintiff complying with the contractual terms was thus the first two of the four matters which were decided by the judge. The judge came to the conclusion that the term "Italian Natural Granite" referred to granite of Italian origin but that since there was "practically no difference in granite quarried in Spain, but cut into slaps (sic) in Spain or Italy" that the plaintiff was in breach of warranty and not of a condition of the contract. In respect of the thickness of the granite slabs, the judge came to the conclusion that the plaintiff could have used 30 mm slabs in place of 20 mm slabs and that this would only cause a "minor cosmetic variance" and that in the circumstances there was merely a breach of warranty. The judge awarded the plaintiff damages of $395,336. This court was informed that part of those only have been received by the plaintiff.

7. On this appeal the defendant sought to argue that the judge had been wrong to hold that supply of the granite from Spain of 30 mm thickness would only have been a breach of warranty and not a breach of condition. It was clear that by putting its case in this way the defendant was raising a new point which had not been taken in argument or in the pleadings. This court was not prepared to permit the defendant to take such a course without amending the pleadings. Thereupon Miss Ma, on behalf of the defendant, produced, for the court, draft amendments to the amended defence to raise the point. Miss Wong, on behalf of the plaintiff, objected to this course on the basis that the absence of a proper pleading had meant that the plaintiff had not been alerted to the point prior to trial and therefore had not called evidence in respect of it.

8. It was clear that the evidence which had been called at trial was unsatisfactory to establish what was meant by Italian Natural Granite. There were strong grounds for considering that Rosa Lugo is mined in the granite mines in Lugo Spain although this might not in itself be fully determinative of the matter. In the circumstances the only just way in which the point could be raised and fully considered would be if application were made to make an amendment in the court below and the matter decided on the basis of proper evidence.

9. In view of the way in which the defendant's case had been conducted hitherto, this court considered that the matter could only be remitted on the basis that the plaintiff were fully secured as to the costs that will have been thrown away and that, insofar as can be, it should not be prejudiced in respect of the damages. In the circumstances the plaintiff was given an opportunity to calculate the costs which had been incurred to date. On the basis of an estimate of total costs to date of $400,000, which was not seriously challenged, this court ordered that the judgment would only be set aside and the matter remitted for consideration by the court below upon the payment to the plaintiff of $300,000 in respect of costs and the payment of a further $100,000 in respect of costs into court. Upon that happening the plaintiff would pay into court the amount which had been secured in respect of part of the damages awarded in the court below.

Hon Le Pichon JA:

10. I agree.

Hon Waung J:

11. I agree.