LEUNG KAM CHUEN t/a WING LEE METAL WORKS COMPANY v. KWOK SHING CATEREES (HOLDINGS) LIMITED t/a NEW GARDEN CITY RESTAURANT

H. C. Action No. 5392 of 1985

Contract - installation of ventilation and refrigeration equipment - contractor claimed $95,590 being unpaid balance of contract sum of $243,090 - implied term that work to be done in good and workmanlike manner and materials supplied fit for particular purpose - defects not remedied by contractor - defendant employer entitled to instruct other contractors as a cost of $55,800 to remedy defects - Held:

1. Employer entitled to deduct sum of $55,800 from balance owing of $95,590; 2. Judgment for plaintiff for remaining $39,790.

H. C. Action No. 5392 of 1985

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The plaintiff carries on business as a metal works company whose activities extend to ventilation and refrigeration engineering. From 5th September 1984 to 10th April 1985 the plaintiff carried out ventilation and refrigeration work at the defendant's restaurant at 2-3 Sai On Street, Aberdeen, Hong Kong. During that period a series of invoices totalling $243,090 were rendered by the plaintiff to the defendant of which $137,500 was originally pleaded as having been paid.

2. In this action the plaintiff originally claimed the balance of $105,590. The defendant in its defence claims that $147,500 has been paid and denies liability for the balance. In summary the defendant pleads that the work was not done in a good and workman like manner and that materials supplied were not fit or suitable for their purpose. The defendant goes on to counterclaim for $55,800 for the cost of alleged remedial works. The plaintiff in its reply admitted, that it expressly agreed and warranted that the work should be done well and efficiently with skill and care in a proper and workman like manner. The plaintiff further admitted that the materials supplied should be good and suitable for the particular purpose made known by the defendant to the plaintiff, namely for the purpose of operating a restaurant. In the reply the plaintiff further admitted that the defendant had paid $147,500 and not merely $137,500. This admission reduced the plaintiff's claim to $95,590 to which lesser sum the statement of claim has been amended.

3. By consent the defendant opened, having accepted that as work had been done it was obliged to discharge the burden of proof. The disputed work was carried out in the kitchen of the restaurant. The kitchen was divided into two sections relevant to the dispute, namely the dim sum section and the stove section. The agreed work included ventilation of both sections of the kitchen and the installation of 5 refrigerators of which 4 were to be for the storage of meat and 1 for vegetables.

4. I will consider the conflicting evidence in relation to the disputed work in the following order.

Ventilation for dim sum section:

5. Mr. C.C. Chan, the manager of the restaurant gave evidence for the defendant. He had been in the restaurant business for many years and was responsible on behalf of the defendant for securing the services of the plaintiff to carry out the work. Seven years earlier he had similarly been involved in organising the installation of a ventilation and refrigeration system for another new Aberdeen restaurant.

6. Mr. Chan stated that before the quotation of the plaintiff was accepted he took Mr. K. H. Leung, the plaintiff's brother, who managed the plaintiff's business, to inspect the empty shell of the new restaurant and asked him to design a powerful ventilation system. Mr. Chan stated that he relied on the plaintiff to design the system.

7. Upon the restaurant starting business on 9th April 1985 the ventilation system, according to Mr. Chan, did no draw out the steam. The dim sum section became misty and condensation fell from the ceiling, according to Mr. Chan "as if raining. " At the request of the defendant the plaintiff returned to rectify the system but according to Mr. Chan there was no improvement. Mr. Chan stated that dim sum kitchen workers complained and a number left because of the poor ventilation conditions. Mr. K.C. Yau, the defendant's dim sum cook gave evidence. He had 20 years cooking experience and was employed by the defendant when the restaurnat opened in April 1985. He stated that he complained to Mr. Chan about the poor working r conditions due to the ventilation. He stated that he had worked in more than 10 other restaurants and that the New Garden City Restaurant when it opened was below the standard of the others. Among his complaints was the amount of steam and the heavy fall of condensation "like rain. " In June 1985, Mr. Yau stated, remedial work was carried out which largely improved conditions. The earlier steam and water drops no longer existed. Mr. Yau was not cross-examined. The remedial work in June 1985 was carried out by Wilson Air-Conditioning Company.

8. The defendant called Mr. Y. K. Wai, the proprietor of Wilson Air-Conditioning Company. Mr. Wai had more than 20 years experience in ventilation systems. After completing courses on ventilation and air conditioning systems, he obtained a diploma from the Haking Wong College in 1979. Since 1984 his Company has been an approved registered ventilation contractor of the Hong Kong Government.

9. Late in June 1985 at the request of Mr. Chan, he inspected the ventilation system in the dim sum section. In his opinion the design of the system contained two defects and he recommended a different new system. He considered the airflow capacity of the system insufficient and the position of the fan improper. However, the installation of the different blower type fan system he recommended, would have required the kitchen to close while the work was carried out. This was not acceptable to the defendant. Another alternative which did not require the kitchen to be closed was then suggested by Mr. Wai and accepted. This included a new fan, if of the same diameter as the old, but driven by a motor with one-third increased horse power. These changes produced, according to Mr. Wai, a higher air flow capacity. Mr. Wai gave his detailed evidence impressively and with authority. His expert evidence as to the design defects in the plaintiff's system and the advantages of the improved system he installed, corresponded closely with the practical observations of Mr. Yau, the dim sum cook, of the operating efficiency of the two systems.

10. Mr. Leung, when he gave evidence for the plaintiff, pointed out the new system included a different but same sized 16 inch diameter fan as the original system which I accept. Mr. Leung went on to state that in designing the system there were 3 different sized motors for a 16 inch fan and he described these as high, medium and low. In explaining why he selected a medium sized motor he stated - "I installed medium power as in my opinion medium power was sufficient to draw fumes out. "

11. On the pleadings the plaintiff agreed that he was to exercise skill and care and that the materials should be suitable for their particular purpose. In evidence the plaintiff's manager admits it was he who selected the medium sized motor as being sufficient to draw out the fumes. The factual evidence of Mr. Chan and Yau is that the plaintiff's design was not sufficient to draw out the fumes but that Mr. Wails alternative system was adequate. Mr. Wails expert evidence is that the plaintiff's design was defective. The major change of the successful alternative system was to instal a more powerful motor.

12. The evidence that the plaintiff's designed ventilation system, principally due to the inadequate horse power of the motor, was defective is overwhelming. I hold that the defendant relied on the plaintiff's skill and other warranties as admitted in the reply. I find that in breach of those warranties the ventilation system was defective. After the plaintiff on several visits had failed to remedy the defects the defendant was entitled to go to a third party to have those defects remedied. The cost of the remedial works, namely $2,500 was reasonable.

Ventilation in stove section:

13. I accept that the originally installed ventilation was defective. After the plaintiff had failed to improve the ventilation of this area, the defendant instructed Ho Wah Chang Iron Works to remedy the situation. Ho Wah Chang Iron Works carried out remedial work at a cost of $13,000. At the hearing Mr. Ho Wah Chang was beyond the jurisdiction. However appropriate hearsay notice had been served to which a counter-notice had been given. After hearing submissions I ordered that a number of invoices and receipts be admitted. These documents included receipts for the $13,000 Mr. Chan stated the defendant had paid Ho Wah Chang Iron Works for the remedial ventilation works. One of those receipts also itemised that payment had been made for ventilation work in the kitchen in June 1985 of the type described by Mr. Chan on completion of which the ventilation improved.

14. Mr. Leung stated that he had constructed the original ventilation system which principally was to deal with the heat, steam and fumes of 6 woks. He stated that if the system as originally completed was not satisfactory, there were two adjustments available for improvements. First, the outlet plates could have been opened wider. Secondly, the motor could have been turned on to a higher speed but he recognised that would have been noiser. Counsel for the plaintiff had cross-examined Mr. Chan on whether the efficiency of the ventilation was not due to design defects but because the outlet necessarily closely abutted an adjacent building. I accept Mr. Chan's evidence that the outlet in fact immediately abuts a lane and this was not a complicating factor. It was then put to Mr. Chan that the new outlet does not have an exterior deflecting plate as required by the Urban Services Department. I similarly accept Mr. Chan's uncontradicted evidence that the new outlet also has a deflecting plate. So there is no material difference in that part of the design. I also take into account that when Mr. Leung was cross-examined he agreed that a larger ventilation cabinet above the stove section could have improved ventilation. This was one of the improvements Mr. Chan stated was carried out by Ho Wah Chang Iron Works and is referred to in one of their receipts.

15. From those facts I find that the original system was defective; the plaintiff failed to remedy the defects; that the defendant was entitled to instruct Ho Wah Chang Iron Works to design improvements to remedy the defects. I am satisfied that after those improvements were effected the ventilation was improved and became satisfactory. I am prepared to infer that it is more probable than not that the improvement was due to the work done by Ho Wah Chang Iron Works. I further find that the amount claimed by that Company and paid by the defendant, namely $13,000 was reasonable.

Refrigerators

16. Under the original contract the plaintiff designed and installed 5 refrigerators. Both Mr. Chan and Leung were in agreement that the defendant specified the cubic size of the refrigerators. They also agreed that the motors were to be installed outside the kitchen windows. Mr. Leung stated that the better ventilation for the motors in that position enabled him to design cheaper refrigerators with 1 horse power motors. He further stated that the next sized motors were 1½ and 2 horse power which are more expensive than 1 horse power motors and would have increased the plaintiff's quoted contract price.

17. Before the motors were installed they were at the defendant's request moved to an light well. Mr. Leung stated that at this stage he pointed out to Mr. Chan, that because of the reduced ventilation, more powerful motors would be required and the contract price would have to be increased. According to Mr. Leung, Mr. Chan refused to pay for the more powerful motors and instructed the plaintiff to proceed with the 1 horse power motors. When Mr. Chan was cross-examined on this point he denied there was any discussion on horse power at the time the decision to relocate the motors occurred. Mr. Chan stated that from the beginning he told Mr. Leung that the refrigerators had to be cold enough for the restaurant and the plaintiff assured him that they would be cold enough. Mr. Chan agreed that there was a discussion about horse power and more expensive motors but only at a much later stage after they had been installed in the light wells. At that time when the plaintiff was attending at the restaurant in response to the defendant's complaints, Mr. Chan stated that Mr. Leung suggested one remedy was to increase the horse power of the motors. Mr. Chan stated that it was only at that stage that he indicated that the defendant would not pay any additional sum to implement that remedy.

18. On this dispute of fact I found Mr. Chan's explanation more credible than Mr. Leung's allegation. I am satisfied on the balance of probabilities that Mr. Leung did not raise the desirability of increasing the horse power of the motors at the early stage when they relocated but only later and what occurred was accurately related by Mr. Chan.

19. Upon the refrigerators being installed but before they were used I am prepared to accept that they were tested in the joint presence of Mr. Chan and Mr. Leung when the temperature was below freezing point and was found to be satisfactory. The difficulty of that test was that the refrigerators were then all empty. A further difficulty was that in the original contract no precise temperature level was expressly stipulated. I find that the defendant orally required that they be cold enough and the plaintiff orally assured the defendant that they would be cold enough. That general contractual term has to be considered in the light of the fact that the plaintiff is a ventilation and refrigeration contractor and in the undisputed pleadings expressly warranted to exercise skill and care and use materials suitable and fit for the purpose.

20. In evidence Mr. Chan variously stated that the refrigerators containing frozen meat should be between minus 15 to minus 20 degrees and at least minus 10 degrees below freezing point. When tested by him they were on occasions 5 degrees above freezing point. At least on one of those occasions Mr. Leung was present and he showed him the thermometer reading. Mr. Chan said large quantities of ruined meat worth more than $7,000, had had to be destroyed. He went on to say that the refrigerators were large enough to store 30 boxes of meat but because of their defective refrigerating equipment were at present only able to store 10 boxes.

21. Mr. Leung stated that when the refrigerators were first tested in Mr. Chan's presence, the day before the restaurant opened, they registered, when empty, minus 10 to minus 11 degrees. The exposed copper pipes within the refrigerators were covered with frost. Frost appears at temperatures below 0 degrees. Mr. Leung pointed out that refrigerators in a restaurant kitchen can be affected by many causes. He listed outside high temperature; the number of times the doors of the refrigerators are opened; the exterior being knocked so as to cause refrigerant to leak; excessive goods loaded inside. Mr. Leung stated that 4 of the 5 refrigerators were for meat and that the 1 horse power motors would have been adequate if installed outside the windows. After complaints about 2 of the refrigerators he had measured the temperatures of all 5 refrigerators and obtained readings of minus 10 to minus 11 degrees.

22. Mr. Leung agreed that Mr. Chan complained about the refrigerators but asserted that on checking the temperatures were always satisfactory. He never saw any meat affected by high temperatures. Nevertheless after the complaints Mr. Leung installed additional copper piping, which contains the refrigerant, into the refrigerators. This work was done at the plaintiff's expense. In evidence Mr. Leung stated that this additional work would not have altered the freezing capacity or performance of the refrigerators. In fact it would not make any practical difference. He explained that improved freezing capacity could only be achieved by increasing the size of the motors. Longer lengths of copper piping would make no difference. The reason he gave for these alterations was that the defendant was refusing to pay the balance of the account on the ground that the refrigerators were not operating properly. According to Mr. Leung it was merely to give the defendant face and secure payment of the balance that the plaintiff did these alterations. In the event the defendant remained unsatisfied and continued to refuse to make payment of the balance.

23. There were several other return visits made by the plaintiff following complaints by the defendant. I accept that these were for a variety of reasons. On two occasions, after electricity cut offs, the defendant had omitted to turn the refrigerators back on. Clearly the plaintiff was not responsible for those incidents. On two other occasions the plaintiff replaced leaking refrigerant. The probable cause stemmed from actions of the plaintiff's workmen when they had earlier extended the length of the copper piping. None of these incidents is relevant to the important issue whether the refrigerators had been built with care and skill and with materials suitable for their particular purpose.

24. To return to that issue, there is obviously a direct conflict between Mr. Chan and Mr. Leung as to the temperature of the two refrigerators when they were tested in their presence. Generally where there was a conflict I prefer the evidence of Mr. Chan. I appreciate that Mr. Chan is not an expert in refrigeration matters. But reading thermometers in the joint presence of Mr. Leung and himself, is a less demanding task. I am satisfied that the temperatures were not as low as Mr. Leung claimed and were not adequate to preserve the boxes of meat stored. On the evidence I am unable to find in favour of the plaintiff that the quantity of meat stored was excessive. In the result I also find the plaintiff in breach of contract in respect of the refrigerators in relation to their inadequate temperatures. I also find that the defendant promptly and regularly complained to the plaintiff, who had full opportunity to remedy the defects. The only step taken by the plaintiff was little more than a misleading ruse, to instal additonal copper piping which, as an expert, he now admits he well knew, would not make any difference. I appreciate that the defendant's initial major complaints were limited to 2 refrigerators and later to a third refrigerator. But as all 5 were made by the plaintiff to the same specification it was reasonable for the defendant also to check the position of the remaining 2 refrigerators.

25. The steps taken by the defendant after the plaintiff had failed to rectify the defects were threefold. First, it spent $3,500 on repairs to two refrigerators. Secondly, according to the pleadings it paid $15,000 for 1 new refrigerator but the evidence was that it paid that sum for 2 new refrigerators. Thirdly, it obtained a quotation for $21,800,000 for remaining repairs. The evidence of Mr. Chan was that in the difficulty it was facing, the plaintiff purchased 2 new refrigerators and obtained the quotation from Wing Sun Refrigeration Service Company. No witness was called from that Company. What happened was that pursuant to the order on the hearsay notice, a number of documents issued by Wing Sun Refrigeration Service Company, against the defendant, were admitted in evidence.

26. The first of these documents is an invoice for $3,500. The narration on the invoice is that it was for the repair of two old refrigerators and the replacement of 2 motors and refrigerant. The second is the quotation. The third is a receipt dated 12.6.1985 for $5,000 described as a deposit payment for a refrigerator. The fourth is a receipt dated 4.9.1985 for $10,000. In evidence Mr. Chan stated that the two receipts are for payment in full for the two new refrigerators purchased to replace the defective refrigerators, pending the carrying out of the work in the quotation on the remaining 3 refrigerators.

27. These documents reflect the steps taken by the defendant to remedy the defects. The proposals were to buy 2 new replacement refrigerators and to continue to use 3 of the remaining 5 at under capacity, pending the improvements being effected. I am satisfied that these proposals were in the circumstances reasonable. I am further satisfied that defendant has discharged its prima facie burden to establish that the prices were reasonable. As to the first part of those proposals, I find that the 2 new refrigerators have been purchased at a total price of $15,000. Although there is a discrepancy in the pleadings as to numbers, the pleaded sum of $15,000 has been proven in evidence and is allowed.

28. In evidence Mr. Chan was taken through the 6 detailed items in the quotation item by item. I am invited to accept the contents of the quotation on that basis. The preferable course would have been for a representative of Wing Sun Refrigeration Service Company to have been called on these items. Instead the defendant relies on the order admitting the quotation and Mr. Chan's detailed comments on its contents. I have considered whether the totality of that evidence discharges the burden placed on the defendant.

29. In considering that question I have taken into account that although Mr. Chan is not an expert, this is the second restaurant he has been responsible for supervising the installation of machinery prior to opening. His oral evidence to the Court indicated a very detailed familiarity with these items and other factual matters. Mr. Chan was not cross-examined on the contents of the quotation nor was evidence led from Mr. Leung disputing any of the items. After consideration I am satisfied that the defendant has just discharged that burden.

30. The result of these various findings is that the defendant has established that the work of the plaintiff was defective. The cost of remedying the defects is the sum of the several amounts I have already found, which total $55,800. The defendant is entitled to offset that sum against the balance of $95,590 otherwise due to the plaintiff. The reduced balance outstanding by the defendant is $39,790 for which there will be judgment for the plaintiff. Liberty to apply in relation to costs, which are reserved, together with any other consequential matters.