ARTLANE DESIGN CONSULTANTS LTD v. CHAN WEN MEE MAY

HCCT12/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 12 OF 2008

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J U D G M E N T

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1.  The defendant, Michelle Chan and her husband Mr Gerald Alserda purchased a residential property in Sai Kung for approximately HK$17 million in 2007.They planned to renovate the property extensively.The plaintiff, “Artlane”, was engaged by Ms Chan as the building contractor to carry out all the works.  In addition, she engaged a separate design company, “And Plus Ltd” to provide interior, landscape and architectural design services.“And Plus” is not a party to these proceedings and no witness from And Plus has testified.

2.  Almost every aspect of the house was to be changed.Inside the house was to be virtually rebuilt—staircases, floors, doors, furnishings, electrics, plumbing, air-conditioning, decorations, glazing were all affected; cladding, concreting, drainage, roofing and waterproofing were some of the structural tasks and externally a new swimming pool was built with a new glass room (a dining area) overlooking the new patio and pool. 

3.  The above is a thumbnail sketch to describe the extent and variety of the works.The sad fact is that because the parties fell into dispute towards the end of the contract and because they have been unable to settle their differences, the sheer variety of the works has meant that a vast number of issues and a vast number of items of work require resolution. 

4.  The experts and the legal representatives have worked hard to narrow the issues but a huge amount of paper has nonetheless been generated.To demonstrate this fact I will mention only one statistic.In spite of counsel’s effort to deal with issues as expeditiously and as sensibly as possible there was no time, after seven days of evidence for oral final submissions.It was agreed, again sensibly, that final submissions would be in writing.In view of the amount of detail involved I did not set a limit on the length of the final submissions.By 29 June 2009 the court had received the submissions which comprised nearly 200 pages.

5.  I have also had the assistance of experts’ reports from four experts.They are all lengthy because of the annexed documentation and photographs.Both parties called their “defects expert” (Mr John Cock for the plaintiff and Mr Robin Howes for the defendant), both also called quantum experts (Mr Charles Liu for the plaintiff and Mr Ronald Squair for the defendant).

6.  There were three factual witnesses.The key witness for the plaintiff was Mr Raymond Ko, a director of “T & L Construction Ltd” the company to whom Artlane has subcontracted the work and Mr Mo Kwok Ming of Artlane.  The defendant Ms Chan, had made lengthy witness statements but did not give evidence at trial.  Instead, her husband, Mr Alserda, who had adopted his wife’s witness statement in addition to his own was the only factual witness for the defence.

7.  There are three main headings to this judgment :

(1)  issues arising out the terms of the agreement itself;

(2)  the details of the plaintiff’s claim; and

(3)  the details of the defendant’s counterclaim. 

Before embarking on those headings, which I propose to do as succinctly as is reasonably possible, I think it pertinent to observe that this case has grown and grown, but the seed from which it grew was the defendant’s decision not to pay the 3^rd and final instalment due under the contract (being 30% of the contract sum namely approximately $1.25 million), at a time when the plaintiff says it was due, primarily because the defendant was not satisfied with the quality of the new marble flooring.  There were of course other issues but this one, apparently, was at the forefront of the dispute at the material time.There was $410,000 in retention money. 

8.  Before dealing with individual issues I should identify the counsel in this case.Mr James Niehorster has represented the plaintiff and Mr David Tsang the defendant.Both (and those instructing them) have used the time both in and out of court efficiently and sensibly.Their knowledge of the numerous files has been exemplary and they have been of considerable assistance to the court.

A.THE AGREEMENT

(i)  Terms

9.  The terms of the agreement are contained in three written quotations.The first, dated 1 June 2007, is for the external works at a fixed price of $2 million.Later, on 23 August 2007, two further quotations were accepted for internal works and additional variations for $1.7 million and $400,000 respectively.  The agreement also contained 16 drawings, 4 prepared by the plaintiff and 12 by And Plus.

10.  It should be noted that the internal works quotation was significantly trimmed as a result of negotiations during August 2007.  The original quote was for $2.35 million.  Ms Chan asked for a cost cutting exercise.  One of the main items to be reduced was the marble tiling.The original price was $200 ft².  Ms Chan agreed to an alternative source of the marble in Mainland China with a much lower cost of $110 ft².  This helped to reduce the quotation to $2 million.  Further cost cutting and discussions resulted in the final figure of $1.7 million.

11.  The payment terms are also not in issue.  30% was due as a deposit, 30% half way through and 30% on completion.The 10% retention was split into 5% due three months after completion and 5% due six months after completion.

12.  The original completion date was 100 days after commencement, namely 30 November 2007.

(ii)  Issues under the agreement

13.  As to the operation of the agreement there are four main disputed issues.

(a)  Was there a project manager?

14.  Put another way, the role played by Mr Mo was in dispute.  The defendant’s position was that Mr Mo of Artlane agreed to perform the role of project manager and that he failed in his duties as such.Mr Alserda referred to him as the project manager in a number of emails.The timing of these emails were after the dispute had arisen.During the early part of the contract there seems little evidence of Mr Mo being the ‘project manager’ in the commercial sense of that description. 

15.  There was no designation of Mr Mo as the project manager in the contract.  Neither was there any separate agreement between him and the defendant.  It seems rather that he became labelled as the project manager when Ms Chan and Mr Alserda felt it necessary to direct their complaints at the plaintiff.

16.  Artlane is the plaintiff and Mr Mo was therefore the main contractor.  As such he co-ordinated the various parties but not in a formal role of ‘project manager’.This was not a major construction development, it was a renovation of a domestic residence.The parties worked together, namely Mr Mo, Mr Ko, Ms Chan, Mr Alserda and And Plus.It was not a situation where there were clearly defined roles.In fact Mr Alserda could be said to have managed the project more than Mr Mo.

17.  Mr Mo gave brief but helpful oral testimony.  I did not doubt his belief in the truth of what he said which boiled down to him being a general co-ordinator rather than a specific project manager; a necessary role due to there being no contract between Raymond Ko, the builder, and Ms Chan.

(b)  The role of “And Plus”

18.  Unlike the project manager, there was a distinct contract for a ‘designer’ to provide consultation and interior design services which was defined as relating to construction design work and landscape design including the swimming pool.

19.  It is true to say that Artlane undertook certain design responsibilities as well and, again, it is not easy to draw a line between the responsibilities of the plaintiff builder on the one hand and the design contractor on the other, such was the informality of the arrangements.

20.  However, the defects experts’ joint report identifies 23 “design” issues.The defendant holds the plaintiff responsible for most if not all of these in this action.  The plaintiff on the other hand argues that the role of the designer is akin to that of an architect. 

21.  I find the reality to be somewhere in between, but falling nearer to that of an architect than contended for by the defendant.It is not realistic, as contended for by the defendant, to, effectively, dismiss the responsibility of the designer in the face of a separate contract governing its role.

22.  Artlane’s building contract does not refer to ‘design’ works.On the other hand And Plus’s involvement in the project was not confined to preliminary designs.Their role was distinct and continuing.For example in September 2007 they produced a further 55 sets of drawings.

23.  In the circumstances the plaintiff’s primary task was to build in accordance with the plans to a sufficient standard of workmanship.This, in a contract such as the present one, is subject to a degree of common sense.Being a professional and experienced builder (whose full company name actually includes the word “Design”) the plaintiff would not and should not be a mere blinkered slave to the plans.Once again, as there was an element of teamwork in the whole project, the edges become blurred.

(c)  Claims for delay

24.  The bare facts are that the work were not complete on 30 November as per contract.Ms Chan and Mr Alserda in fact moved back into the house on 24 December 2007.

25.  The plaintiff’s explanation for the delay is that there were many many instructions for additional work which inevitably led to the completion date being pushed out.

26.  The defendant submits that the plaintiff has not proved that the extra works caused the delay and in any event the plaintiff had rescheduled for a delayed completion irrespective of the additional variations.Further, that some of the extra works had been caused by poor workmanship.

27.  The plaintiff argues that these were not minor additions, neither were they due to any earlier poor workmanship.The plaintiff further argues that a programming expert (adding to the expense of the legal proceedings) is not necessary to prove the primary cause of the delay.I agree.An analysis of the cost of the variations is a good indicator of their extent and their impact on progress.The total (agreed) value of the internal additional works was approximately $1.2 million (of which the disputed internal items, on liability only, value little more than $100,000).This represents an extra $1.2 million on top of the original $1.7 million for internal works.  The same argument applied to the external works is less significant, only an extra 10%.

28.  Nonetheless, taken together the value of the works went up by $1.4 million from an original price of $4.1 million.  This is a 34% increase.That 34% in value resulted in a 24-day delay in a 100-day contract.34% extra cost, 24% extra time.

29.  The plaintiff makes the additional point that 11 instructions were received after 30 November, thus further delaying the delayed progress.

30.  The plaintiff claims $207,450 for delay caused by the defendant.The defendant claims costs for a lease extension and hotel expenses of about $90,000 plus liquidated damages, as per contract, of $3,000 a day which it is claimed, somewhat unrealistically, is still accumulating (albeit the hotel expenses and the liquidated damages cannot both be claimed).The liquidated damage claim can only succeed if the plaintiff is proved to have been responsible for the delay.I have already, above, resisted a detailed analysis of each and every additional work instructed both before and after 30 November.  I similarly decline to embark on a detailed analysis of those matters, which the plaintiff claims are numerous, where Mr Alserda acknowledges causing delay.

31.  I find the overall picture to be as follows.The additional instructions inevitably delayed the works.They were outside the contract and put time at large, thus requiring the plaintiff to complete the works within a reasonable time.The issues as to whether the works were ‘complete’ on 24 December is a separate issue to which I turn later.  As for the issue of delay up to 24 December I reject both claims.  I am not satisfied that the defendant has proved any delay was caused by the plaintiff (for the reasons stated above).Neither am I satisfied that the claim of $207,450 by the plaintiff is justified.Their pricing of the additional works which caused the delay would include overheads and the site clearance cost would have had to have been incurred in any event.

32.  As a final stroke of the broad brush the defendant’s extra rental costs and the plaintiff’s extra labour costs, roughly speaking, cancel each other out.

(d)  Completion

33.  No one would pretend that all the works were ‘completed’ in the ordinary sense of the word when Ms Chan and Mr Alserda chose to move in on 24 December 2007.  All parties agree that there were many incomplete items, many snagging items and defects outstanding.Issues as to why items were incomplete and the reasons for defects abound.

34.  Mr Tsang submits that the works were plainly incomplete and relies on a passage from Mariner International Hotels v Atlas Ltd [2007] 1 HKLRD at p.421 :

“… as used in building contracts ‘practical completion’ is a legal term of art well understood to mean a state of affairs in which the works have been completed free from patent defects other than ones to be ignored as trifling.” (per Bokhary PJ)

35.  However, Mr Niehorster points out that the defendant moved in on 24 December and occupied the premises as their residence.  The contract was an entire contract and so the comment from Bokhary PJ on the same page in the same case above is apposite :

“…practical completion and substantial performance are distinct, the doctrine of substantial performance having been developed in order to ascertain the right to payment under an entire contract.”

36.  The issue of completion must be viewed in context.As at the end of December the defendant refused to pay the final payment of 30%, a sum of about $1.25 million.  The main area of dispute at the time concerned the quality of the marble, an item which could have been remedied for a sum in the region of 10% of the final sum due.In broad terms the $1.25 million was for work done and material supplied.I am satisfied that there had been substantial performance at that time when the defendant’s took up residence.

37.  These factors combine to make me conclude that the 30% payment should have been made.$410,000 of retention money remained at large. 

38.  In addition, by 3 January 2008 there was an additional claim of $982,443 for the additional works done and completed.

(e)  Termination

39.  Not surprisingly each side blames the other for the fact that the agreement was terminated.The simple facts are that the plaintiff has not returned to the site since 3 January 2008.  There is a factual dispute concerning whether the plaintiff said it was willing to continue but was not allowed to, on the one hand, or whether it refused to go back having been invited by the defendant to do so, on the other hand.In a contract like this one, different perceptions of how and why and when the parties “fell out” is hardly surprising.I agree with Mr Niehorster’s remark “the issue of termination is not to be determined in a vacuum but in the context of events at the time”.It is sometimes unrealistic to place too much weight on a letter inviting a contractor back to the site to finish the work which has been sent soon after the parties have fallen out and all trust and confidence has been lost on both sides.I do not believe that the plaintiff would have been truly welcome back on site.I believe that the defendant had decided that she wanted a new contractor to finish the works. 

40.  Over $2 million was outstanding at the time.  Ms Chan refused to pay unless the plaintiff promised to replace all the marble and wood cladding.  The plaintiff’s stance was that it had done the work in accordance with the design and contract requirements.They were at loggerheads.Solicitors’ letters soon followed.

41.  The final answer as to who repudiated the contract can only be ultimately discerned by an examination not only of the events leading up to early January 2008 but also the events which followed.  To what extent did the plaintiff fall short of its contractual requirements and standards?To what extent have issues and disputes emerged later in the atmosphere of the ever growing dispute?To what extent has the defendant overreacted and overpaid her new contractor?These and other questions, permeate the issues which follow.

(f)  Rectification works

42.  Before considering all the individual items which still require a decision, it will be helpful to state the court’s general view—and the issue of the rectification contract is a useful context in which to state it.

43.  The plaintiff is claiming for contractual payments and cost of variations done or nearly done.The defence on the other hand are counterclaiming full payment of the rectification contractors works (the “CS Contract”) of $2.574 million (much of which is still to be done) plus liquidated damages of $1.677 million plus overpayment on variations of $318,000 plus other items resulting in a total of about $4.4 million.  As a general comment I find this to be seriously disproportionate.

44.  I agree also that there are certain curiosities in the evidence relating to the defendant’s tendering for a rectification contractor.CS Contractors were eventually engaged later in 2008 to carry out extensive “remedial and rectification” works for $2.574 million.  In fact they had already submitted a tender as early as March 2008 for $3.953 million although it was admitted in evidence that this was not a genuine tender but one produced for the purpose of litigation in the early exchange of solicitors letters.

45.  There is nothing improper in obtaining such a tender but the fact that it is at a much higher price and not a genuine tender is a piece in the jig-saw revealing the way in which this litigation has been defended.

46.  Later in 2008 four genuine tenders were made.One was for over $9 million which, in itself, is extraordinary.  CS was the second lowest.Woo Hing Co. were a little bit cheaper.CS Contractors project manager was, according to the tender, Mr Robin Howes, the defendant’s defects expert.  However, I accept from him that he never actually performed the role of project manager.Had he done so it would have called into question his independence as an expert witness.(A question which Mr Niehorster poses in any event to which refer I shall refer later.)

47.  The remaining curious feature of the tenders which were considered is the amazing difference in pricing of numerous items.Some are extraordinarily high in the CS tender and low in the Woo Hing tender and vice versa.It is a fact that many of those which are very high in the CS tender relate to items which remain in issue in this case.One example will suffice.A sum of $153,900 is claimed for the installation of a triangular piece of glass in a wooden frame over a door.The glazed area is just over half a square metre.Happily, in this particular instance, common sense has prevailed and $8,000 is now claimed.

48.  The “general view” to which I refer in paragraph 42 is that the defendant’s counterclaim has been inflated in order to bolster its complaints about the plaintiff’s work.

B.  THE PLAINTIFF’S CLAIM FOR SUMS DUE UNDER THE CONTRACT

49.  The total value of the works claimed is $4,100,000 plus $1,480,433 variations which totals $5,580,433.Of the variations $1,217,897.50 has been agreed, thanks to the experts and the lawyers.What remain in dispute is nine variations in respect of which the quantum has been agreed at $147,285.26.

50.  I will deal with each item briefly.Having done so the plaintiff’s entitlement to payment for variations will be somewhere between $1,217,897 and $1,365,180.

(a)  CK61 ($11,787)

51.  This is the cost of relocating air condensers on the outside of the house.They were installed by a specialist contractor after consultation with the designer.A neighbour complained about them and the defendant agreed to relocate them lower down.The plaintiff lowered them as instructed.

52.  Thus, the plaintiff was not involved in the original choice of location, could not reasonably have foreseen the complaint from the neighbour, was not privy to the discussions with the neighbour and relocated them when instructed.I do not agree with the defendant’s submission that the plaintiff should be required to do this work free of charge.It is an allowable variation.

(b)  CK79a ($14,550)

53.  I accept that what Mr Alserda contended was a duplication was not so.  I accept that CK109 was an extra item and there has been no duplication.$14,500 is allowed.

(c)  CK111 ($20,289)

54.  This is for the cost of switches purchased in Shenzhen.Mr Alserda says he or his cousin paid for them.  Mr Ko says he paid for them.  Mr Ko has the receipt.  Mr Alserda says he gave him the receipt for collection purposes.

55.  Mr Alserda’s original case was that the plaintiff could not charge for the switches, not because he had paid for them but because they formed part of the original contract.  I think Mr Alserda’s memory has failed him.  He knows he paid for some electrical items and has therefore assumed that he or cousin paid for these as well.Mr Ko on the other hand impressed me in evidence as having a specific recollection of making the purchase.  If there was any doubt about the matter I do not believe he would have claimed for it.$16,289 is allowed (as Mr Ko acknowledged that $4,000 related to some different switches.)

(d)  CK112 ($10,112)

56.  This is a labour cost arising out of furniture storage.It is agreed that liability for it depends on the delay issue.The plaintiff is therefore entitled to it.

(e)  CK119 ($10,843)

57.  This is for the cost of a wardrobe in the study room.

58.  I am not satisfied that the plaintiff has proved its entitlement to this item.Mistakes in measurement were made and the old wardrobe (which was in fact quite new) was disposed of without consultation.

(f)  CK136 ($10,000)

59.  This was a deposit paid by the plaintiff to the Incorporated Owners of Emerald Garden.I think if Artlane want this money back they should get it back form the Incorporated Owners, to whom they gave it or the Incorporated Owner’s solicitors.

(g)  CK145 ($23,142)

60.  This is for cleaning services provided by a sub-contractor named “ISS”.This item is claimed as a variation by the plaintiff and is also part of the defendant’s counterclaim.I consider it to be part of the plaintiff’s scope of work.

(h)  CK147 ($35,381)

61.  This is the cost of aluminium cladding to the front porch.This item was not priced in the original quotation.The fact that it appears on a contract drawing does not mean that the plaintiff must pay for it out of its own pocket.It was not in the tender.It is an extra cost to be met by the property owner.

(i)  CK150 ($11,180)

62.  This is for kitchen cabinet edging and shelves.These are additional items.I am satisfied they were not included in the original quote for kitchen fittings.Extra shelves were requested.

63.  I have thus allowed variations CK’s 61, 79a, 111, 112, 147 and 150.These total $99,299.

64.  I assess the total value of the plaintiff’s claim to be :

Contract sum for external works		800,000
Contract sum for internal works		680,000
Contract sum for variation works		160,000
Further additional works	1,217,899
	+ 99,299
	1,317,198
Less already paid	498,000
	819,198	819,198
Delay costs not allowed	0	0
		___________
		$2,459,198
		___________

C.  THE COUNTERCLAIM

65.  I will deal with this substantial issue under the following headings (a) introduction; (b) the expert witnesses; (c) the major items; (d) minor items; (e) new defects; (f) summary and (g) retention money.

(a)  Introduction

66.  The particulars of the defendant’s counterclaim are in Schedule B of the pleading.  It contains 338 items which have been re-categorized as a result of the experts’ joint report, as follows :

(i)  97 items are agreed to be the plaintiff’s responsibility.16 are defects, 17 are incomplete items and 64 are snagging items which would, in the normal course of events have been dealt with by the plaintiff in the defects liability period.

(ii)  23 items are agreed to be ‘design’ issues.

(iii)  121 items are agreed to be irrelevant.

(iv)  Which leaves 102 items upon which the experts find themselves unable to agree.Of these 102 it has been agreed between the parties that the bulk of the counterclaim is contained within 19 of these items.  Each of the 19 items will be addressed separately.A determination on the remainder will be made separately and partly on a pro rata basis using a percentage calculated by reference to the defendant’s degree of success on the 19 items.

67.  On the question of quantum for each of the 19 issues, Mr Tsang claims, as a starting point, the price quoted in the “CS” rectification contract.This I decline to do for two reasons.

68.  Firstly, the defendant has not proved the plaintiff to have repudiated the contract.Secondly, in many instances the CS prices seem to be unacceptably high.As already noted the “high” prices in the CS contract largely relate to the very items which are in dispute.In relation to the 19 items, the CS prices do not provide a reliable starting point.  Instead I shall compare the assessment made by the two experts and decide accordingly.

(b)  The experts

69.  I have already introduced the four experts in paragraph 5 of this judgment.

70.  Bearing in mind the variety of issues in this case and that the Statement of Claim was served in early 2008, it has come to trial reasonably expeditiously.  Within a tight timetable, all the experts have managed to produce lengthy and detailed reports, supplemental reports and joint reports with voluminous appendices containing numerous meticulously prepared schedules and tables.

71.  As usual, each counsel urges the court to prefer the approach and conclusions of the experts called by them.Mr Niehorster goes a little further and questions the true independence of the defendant’s defects expert, Mr Howes, and the methodology of their quantum expert, Mr Squair.

72.  I say at the outset that I have no doubt about the integrity of either witness.Neither do I question their expertise and conscientiousness.Mr Niehorster’s points are nonetheless worthy of mention.

73.  At the time of the filing of the Counterclaim in May 2008 the only tender for rectification works was from CS Contractors.As conceded by Mr Alserda, this tender was for “legal purposes only” and Mr Howes had no involvement in it.  However, it was Mr Howes who later prepared a ‘tender document’ sent to four contractors for the purpose of tendering, one of which was CS Contractors.

74.  CS Contractors were awarded the contract, based on Mr Howes’ tender document, on which his name appears as project manger to carry out the same works that they had already tendered for three to four months earlier.  The plaintiff was wholly unaware of what rectification work was being carried out until the following year in May 2009, a month before the trial.

75.  This unusual state of affairs is compounded by the timing of the remedial works.Whilst it is entirely understandable that Ms Chan did not want further upheavals at home until after the birth of their baby, in June 2008, the works did not in fact get under way until 2009.  They are still ongoing and it transpired in course of evidence that substantial sums have already been paid to CS Contractors for items which appear to be strangely overpriced and in respect of works which have not yet been carried out.

76.  Such factors add to Mr Niehorster’s criticisms as follows.  Firstly that Mr Howes both prepared the document upon which the CS contract is based and also has given expert evidence on its content.Secondly that large payments have recently been made, just prior to trial, for works that have not yet been done.Whilst I do not accept Mr Niehorster’s submission that Mr Howes’ evidence should be disregarded for want of independence, I do acknowledge that it is an unusual state of affairs.Although unusual I am satisfied that Mr Howes has fulfilled his duties to the court.

77.  Mr Cock’s evidence, expertise and conduct in this case merit no criticism whatsoever.

78.  The observation made of Mr Squair’s methodology is also valid.In the course of the trial Mr Tsang clarified that the defendant’s counterclaim was based on the CS contract, as to quantum.At the time of preparing his report of 25 April 2009 Mr Squair was unaware of the CS contract.  Mr Niehorster highlighted three examples where Mr Squair had made substantial allowances for alleged faulty workmanship (in the sums of $290,000, $125,000 and $70,000) when the same items in the CS contract were priced at $0, $6,000 and $500 respectively.It seems that Mr Squair did not become fully informed of the CS contract until his supplemental report dated 8 June 2009.The trial commenced on 11 June 2009.Moreover his assessment of the quantum of the alleged defects is confined to the 19 major items only (to which I now turn).

79.  Mr Liu’s reports on the other hand are comprehensive and free from criticism. 

(c)  The 19 major items

(i)  Item B1

“  Take down and cart away marble tiles including the water feature steps, level and square as necessary, lay waterproof membrane, prepare surface and lay marble slabs with compatible quality as existing, including submission of samples (not limited to one submission) to Employer for selection and approval, prior to ordering”

80.  $66,500 is claimed under this item.

81.  The cost‑cutting exercise in relation to the marble slabs has already been noted.A much cheaper product was selected.The complaints about the marble relate to “veining” and “staining”.The veining was originally described as cracks.There were not any “cracks” in the usual sense of the word.  The veins are a natural feature of marble.Both experts agreed that veining may be more prevalent with a cheaper product.

82.  There is no doubt that the defendant and Mr Alserda were not happy about the amount of veining in the marble when it was revealed in late December.  It had hitherto been covered for its protection.It is also true to note that Mr Alserda had been on site when the marble was being laid and made no complaints at that time (because, he explained, he did not pay particular attention to the marble at that time).

83.  I do not think that the plaintiff can be blamed for the defendant’s dissatisfaction with the amount of veining in the marble tiles.The marble supplied was the marble specified in the contract namely “Kah Sah Fooi”.This product covers different shades of grey.In my judgment, given that the correct product was installed, given that veining is an unavoidable natural feature and given that there was ample opportunity to form an opinion about the quality at an early stage either before or at the start of the installation, it is not open to Ms Chan and Mr Alserda to insistthat it is all replaced only after it has all been installed.

84.  A separate complaint about the marble is staining.There were some patches where the tiles appeared to be stained.Such patches were few and opinions differed as to whether it was caused by dampness or whether it was a natural feature of the variation in colour.

85.  I agree that improvements, short of complete replacements, could have been carried out to the apparently “stained” marble tiles in the foyer.I allow Mr Liu’s assessment for the costs likely to be incurred to remedy the staining namely $22,000.

(ii)  Item B2

“  Take down and cart away marble tiles to staircase, from symmetrical and equal sized treads as necessary, and relay marble slabs with compatible quality as existing, including submission of samples (not limited to one submission) to Employer for selection and approval, prior to ordering, and with copper or stainless steel anti-slip bead”

86.  This item (other than the veining issue dealt with above) relates to the fact that it was discovered that the depth of a small number of marble treads on the upper staircase were not of uniform depth.The correct depth was 24 cm.  Some were in fact 23 cm, others 25 cm.

87.  Mr Cock opined that the difference was within acceptable tolerances.  Mr Howes did not agree and emphasized the element of danger associated with stair treads of different depths.

88.  This issue is marginal.  To allay fears about any danger minor surgical alterations could have been carried out.Relaying the entire staircase is an overreaction and plainly unnecessary.Mr Cock and Mr Liu assess this item at nil.  The defendant’s claim for a total replacement is $45,600.In my judgment $10,000 would be sufficient.

(iii)  Item B3

“  Check for de-bonded tiles throughout building, source replacement of identical material, size, thickness, texture, pattern and origin, take out and cart away tiles, prepare substrate and re‑lay”

89.  The plaintiff accepts liability for this item in the sum of $28,500.

(iv)  Item B12

“  Take down and cart away external shower wall tiles, prepare wall and apply waterproof membrane, prepare and lay new tiles to match existing”

90.  The difference of opinion here relates to the extent of the necessary remedial work.The amount claimed is for the re‑tiling of the whole external shower wall.  The plaintiff’s experts however regard the necessary repairs as extremely superficial and minor.$76,000 appears in the CS contract for this item.

91.  Given that it is acknowledged that some work is necessary I can do no better, on this item, than to take a median position between the two experts on quantum.I allow $7,000.

(v)  Item C19

“  Design and build surface water drainage channel not less than 150 mm square to all four sides of the swimming pool in concrete, render in waterproof render, apply waterproofing layer and, re‑tile to match existing, form gully traps using proprietary materials and supply and install proprietary swimming pool channel gratings, including submission of design and sample of channel gratings (not limited to one) to Employer for selection and approval, prior to work and ordering”

92.  This item concerns two issues.Firstly the adequacy of the existing drainage system around the pool and secondly whether the pool should have been built with a drainage channel around its perimeter.

93.  It is agreed that this is a design issue, the question is whether the plaintiff should be responsible for the alleged design defect.CS contractors propose to charge $114,000 if all the work is done.

94.  Taking the drainage channel first, it is agreed that such a channel did not feature on any design drawing nor was it included in the agreement.It is a fact that swimming pools can be designed without such a channel, indeed the pool in the next-door house is identical in this respect and Mr Ko has built several pools of a similar design.It is submitted by the defendant that the plaintiff should have been aware that this was a design defect and built the pool with such a channel and not in accordance with the plans.I do not agree.

95.  As for the existing drainage the main complaint is that, whilst there are a number of drain holes around the pool surround there are none for a discrete and self‑contained area where the patio furniture is located.  This can be remedied for $7,600.I award this sum.

(vi)  Item C23

“  Design, supply and install filtration system for the waterfall system, including submission of system proposal (not limited to one) to Employer for selection and approval, prior to ordering”

96.  The filtration system for the waterfall and its position at one end of the pool is purely a design issue.There is no criticism that the waterfall fails to comply with the design.The basis of the claim is that the plaintiff was under a duty to warn the defendant that there was a design problem.I do not agree that it was “an obvious design problem” or that the plaintiff was under any duty other than to build both the waterfall and the filtration system in accordance with the plans or that a specialist sub‑contractor should have been engaged.

(vii)  Item C29

“  Take up slates to water‑feature, supply and apply liquid applied waterproof membrane, prepare surface and re‑lay slates to match existing, including replacement of defective slate, the replacement slate shall be compatible quality as existing, including carry out water test under the instruction of the Project Surveyor, and make good other defects if the water test demonstrates that the water seepage is arising from other defects”

97.  I agree that the water channels should have a waterproof membrane.  Mr Squair’s estimate for this ($36,200) includes some alterations to the lighting in the channels which should be excluded.  I therefore allow a slightly reduced sum of$31,000.

(viii)  Items D30-32

98.  These three items all concern the drainage system to the house and can be considered together.The total amount claimed (in the CS contract) is the same as Mr Squair’s assessment namely $215,650.

“  D30; Investigate the underground pipe system, and identify all defects including oversized or displaced joints, blockages, or other defects and prepare a report including drawings of the layout and submit and agree necessary remedial works with the Project Surveyor, prior to the work.(This is a priority item which the Project Surveyor will instruct the Contractor to commence work immediately after award of the contract and to be completed as soon as possible)”

“  D31; Repair or replace as necessary the underground drainage pipes, including excavate trenches and replace all oversize underground drainage system providing manholes as necessary; a CCTV Survey Report is enclosed with this tender document, but the Contractor can carry out his own CCTV test for investigation.(This is a priority item which the Project Surveyor will instruct the Contractor to commence works immediately after the award of the contract and to be completed as soon as possible)”

“  D32; Locate and reveal any concealed manholes, remedial works which may require include re‑construction of the underground drain pipes and manholes, with the proposal to be confirmed with the Project Surveyor, prior to work”

99.  The drainage system was undoubtedly a problem.The issue took up some time at trial.In early 2008 the system “backed up” on more than one occasion causing considerable distress and inconvenience.

100.  A key cause was, as acknowledged by Mr Cock, that the back inlet gully trap, built by the plaintiff was simply not good enough.It is probably necessary to build one or more drop manholes.

101.  Another key cause was the failure to locate what at trial was referred to as “manhole A”.  The evidence satisfied me that the plaintiff was at fault in this respect.

102.  Item 30 is not seriously challenged by the plaintiff ($20,900).  Item 32, concerning the missing manhole A is also allowed ($38,000).  As for item 31 Mr Squair’s estimate includes remedial works for parts of the drainage system which the plaintiff did not install and is not responsible for.If the plaintiff’s only liability is to rebuild the back inlet gully, Mr Liu assesses the cost to be $16,500.  I do not think this is enough.  Mr Howes opines that further manholes may be required.  It is clearly not a job that should be done piecemeal or in the hope that minor remedial jobs will solve the entire problem.I allow $150,000 for D30–D32.

(ix)  Item D38

“  Take down and cart away canopy, design and build new canopy including all roofing and cladding with a 10 year waterproof warranty, including submissions of design and samples of all materials used (not limited to one) to Employer for selection and approval, prior to work and ordering”

103.  The item provides one of the more stark examples of an extraordinary difference in pricing.It is agreed that the work was incomplete when the plaintiff’s work on site ceased.The claim is substantially the same work as the variation claimed by the plaintiff as CK147 for $40,000.The defence valuation when considered as a variation was $30,762.

104.  Now the amount claimed in the CS contract is $380,000 and Mr Squair’s assessment is $252,000.

105.  The plaintiff was in a position to complete the work.The aluminium cladding for the canopy had been ordered, paid for and delivered.

106.  There seems to have been a mistake in Mr Squair’s assessment.He priced it on the basis of 20 square metres of cladding whereas in fact the area is only 2.65 square metres.  He also included $90,000 for a new door which is not required.I therefore allow ($252,000 - $90,000) ÷ 20 x 2.65 = $21,500plus the cost of re‑hanging the door ($500) = $22,000.

(x)  Item D47

“  Take down and cart away the surface to substrate, prepare surface, pay waterproofing membrane with a 10 year waterproof warranty and closed foam insulation bond and, lay screed to falls, paint surface with exterior use epoxy paint, carry out water test under the instruction of the Project Surveyor”

107.  It is agreed that this waterproofing is necessary.The difference is in the cost.Mr Cock opines that a simple repair job could be done for about $6,000.Mr Squair assesses it at $32,640.  The CS contract price is $95,000.

108.  I think there is an obvious risk in doing patch repairs where water leakage is concerned.I think Mr Howes’ approach is reasonable.I allow $32,640.

(xi)  Item E53

“  Take down and cart away those glazed panels not in laminated or tempered and UV filtered glass, supply and install new tempered UV protected ‘Belgium Origin Low E’ glass or equally and similar of a size and thickness as determined by the Independent Checking Engineer and necessitated by the span, including submission of glass certificates upon completion”

109.  This is the major major item.$270,750 is claimed.It involves replacing all the glass in the foyer, the massage room and, most significantly, the entire dining room which is a room built almost entirely of glass adjoining the swimming pool.Although the full sum has been paid to CS Contractors for this item the work has not yet been done.

110.  In the foyer the agreement provided for “10 mm Belgium Low E tempered glass”.  In the sky lounge (dining area) it was for 6+6 acoustic glass with UV protection Belgium Low E glass.  According to the drawings it should be laminated.

111.  Mr Ko installed 8 mm Belgium Low E glass called Glaverbel Sunergy Stopsol.He said in evidence that there would have been a delay to the contract if he had waited for a supply of 10 mm glass.

112.  The evidence adduced in relation to the various issues related to glass was plentiful.

113.  Ultimately I was satisfied that the glass installed was tempered, safe and structurally sound.It had UV protection of about 62% (it was, after all, called “Sunergy Stopsol”).A laminated equivalent would have been 73%.It was not laminated.The specification of “6+6” is for laminated glass (laminated glass being two panes stuck together).If glass is not laminated it will be accordingly thinner, being a single pane.The contract did not provide for laminated glass but the drawings did.The glass installed was structurally adequate.

114.  In my judgment the only appropriate remedy under this heading is damages.Indeed  Mr Howes’ original report confirms this (although he later changed his stance and now seeks complete rectification).His original opinion was correct.The defendant is entitled to damages limited to the difference in cost for 10 mm glass in the foyer and 6+6 laminated glass in the sky lounge.

115.  The plaintiff’s quotation (August 2007) for the sky lounge was $271,400 and for the foyer $72,500.Mr Squair’s assessment for rectification is $292,800.  In order to assess damages however I refer to Mr Liu’s supplemental report where he gives a detailed breakdown of costs differences.In round figures I assess damages under this heading, relying on Mr Liu’s report, in a total sum of $50,000.

(xii)  Item E54

“  Supply and install tempered glass panels and framing to space over the folding doors and seal as necessary, all to match existing”

116.  This concerns a triangle of glass which was not on the contract drawings.An area of 15 squares metres of glass was originally quoted for at a price of $153,900.  In fact the area involved is 0.65 square metre and the defence has amended the claim (during the trial) to $8,000 even though, for reasons which are not apparent, Mr Alserda has already paid $153,900 before the work has been commenced.  This is equivalent to $237,000 per square metre of glass.

117.  I reject this claim because it did not form part of the original agreement and neither does it appear on the plans.

(xiii)  Item E61

“  Supply and install glazed panels in tempered and UV filtered 12 mm UV protected “Belgium Low E” glass, or equal and similar as necessitated by the span, to form the lightwell together with all necessary aluminum framing and sealing to make waterproof with ‘Dow Corning’ sealant or equivalent”

118.  I accept Mr Ko’s evidence that he installed the glass to the light well area, that is “frosted glass”, as instructed.I accept also that the frosted glass remains on site.Clear glass would not be logical in that area as it would not conceal the drainage pipes and other unsightly items in that area.

119.  Had it been wrongly installed in the first place it would have been immediately obvious.However it was not the subject matter of the complaint until many months later.I regard this item as a late “make weight” to the counterclaim which should be rejected.

(xiv)  Item F68

“  Take out all timberwork to asymmetrical treads to the staircase and relay symmetrical treads in similar and equal”

120.  By applying the same approach as already considered under (ii) Item B2 I allow approximately 25% of the amount assessed by Mr Squair, $7,000.

(xv)  Item G92

“  Take down and cart away existing glazed balustrade to the staircase and install new close fitting tempered laminated glass balustrade with rounded arises and exposed corners including all necessary fitting, making good and structural sealant, including submission of glass certificates upon completion”

121.  The complaint is that each glass balustrade has an acute corner at the top of each flight, which is sharp, and that there is a gap between each balustrade where each flight turns through 180°.

122.  I am satisfied that these balustrades were installed in full compliance with the contract and the drawings.Had a handrail over the edge of the glass been provided for it would have covered the acute edge.

123.  I have seen the photographs.I do not consider the gap to be a danger or a breach.

124.  In my judgment a greater danger is created by the absence of a handrail on either side of the treads, there is none on the wall nor over the edge of the glass.Safety improvements may well be advisable but not at the plaintiff’s expense.

(xvi)  Item H98

“  Prepare, prime and paint all external metalwork including the car‑port and fencing with car paint”

125.  It is agreed that this item needs to be completed.I will spilt the difference (approximately) between the two quantum experts and accordingly allow $4,000.

(xvii)  Item H103

“  Review all drylining, window reveals and filler to fittings and rake out and replace all rough, cracked or otherwise defective areas and re‑fill”

126.  Four minor items have been identified which Mr Liu prices at about $2,000.  On the basis that there are probably some more, albeit not agreed, I allow $5,000.

127.  The total allowed for the “19 major items” is $380,340.

128.  The amount claimed (under the CS contract) was $1,884,800, of which $380,340 is approximately 20%.

(d)Minor items

(i)  Scott Schedule SSD1

129.  This contains the 97 alleged defects, incomplete and snagging items where classification and remedial work is agreed but quantum is not.

130.  Under the CS contract the total value is $207,575.Mr Liu’s assessments total $41,874.I do not think it fair to simply adopt the 20% percentage because that figure has resulted from an assessment of many issues where liability was contested.Under SSD1 only quantum is contested.

131.  My approach is as follows.I have considered the CS contract prices, generally speaking, to be unacceptably high.  The CS prices should be significantly discounted.I will then split the difference between the discounted price and Mr Liu’s price.

132.  I will reduce $207,575 by approximately one third to $140,000.A median figure between $140,000 and $41,874 is, in round terms, $90,000.

(ii)  Scott Schedule SSD2

133.  Some items are agreed at $5,795.

134.  According to the revised and final schedule the outstanding items under the CS contract come to $70,300.It is not possible to make a meaningful determination in respect of each item.I allow 50% which, in round terms, added to $5,795 totals $36,000 under SSD2.

(iii)  Scott Schedule SSD3

135.  Under this schedule it is appropriate to adopt a similar percentage as has emerged under the “19 major items”, namely 20%.

136.  $198,977 is the total amount claimed in the schedule.I allow $40,000. 

(e)  New defects

137.  In May 2009 four further defects were said to have emerged.Three of them fall for individual consideration.The fourth has been abandoned.

(i)  Debonded tiles around the swimming pool, planters, sky house and parapet walls.

138.  The defendant claims a minimum of $64,800.The plaintiff concedes a claim of $25,400.I will split the difference, $45,000. 

(ii)  Retile entire swimming pool

139.  A minimum of $129,600 is claimed under this item.Mr Cock opines that some retiling is necessary but other areas could remain satisfactory for years to come.If the rectification was confined to the pool steps and the pool floor Mr Liu assesses the costs to be $43,920.The same compromise approach as before produces a figure of $85,000.

(iii)  Relaying timber floor to master bedroom

140.  A minimum of $59,200 is claimed.

141.  Rainwater leaked through a window to the closet adjoining the master bedroom.Although it seems that this first occurred in the summer of 2008 no remedial work was commenced until many months later.

142.  I propose to reduce this claim significantly because (a) the initial damage was to the closet floor only and yet the entire bedroom is said to have suffered and (b) repairs were effected late.

143.  I allow $20,000.

144.  The total for the “new” defects is $150,000.

145.  I have considered but reject all residual items claimed by the defendant save an award for general damages for discomfort in the sum of $25,000.

(f)  Summary of the defendant’s award

146.  

(1)	“19 Major items”	$380,340
(2)	SSD1	$90,000
(3)	SSD2	$36,000
(4)	SSD3	$40,000
(5)	New items	$150,000
(6)	Discomfort	$25,000
		_______
		$721,340

(g)  Retention money

147.  The defendant is still in possession of $410,000 retention money.I have rejected Mr Tsang’s submission that the defendant is entitled to keep this sum in any event because the claim was launched on a date before the retention money was ever due to be paid.

148.  In my judgment the retention money should be used for the purpose for which it was intended regardless of when the parties engaged lawyers and commenced proceedings.It would otherwise be a windfall to the defendant.

149.  As per paragraph 64 the judgment sum on the claim is $2,459,198.  As per paragraph 146 the quantum of the counterclaim is $721,340 (before application of retention monies).

150.  Interest on both claim and counterclaim judgment sums shall be at prime plus 1% from the date of the writ (on a nisi basis).

151.  I will consider further written submissions to be filed on or before 21 July 2009 and limited to 4 pages on (a) the appropriate costs order and (b) arithmetic corrections, if any and (c) interest.