HANISON CONSTRUCTION CO LTD v. DIAMOND TERM LTD

HCCT 82/2004

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 82 OF 2004

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J U D G M E N T

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1.  The Plaintiff was the main contractor engaged by the Incorporated Owners of Wylie Court for the renovation and improvement works at Wylie Court, Homantin, Kowloon.  The Plaintiff engaged the Defendant as its subcontractor in relation to the renovation work at Blocks D and E of Wylie Court.  The subcontract was contained in or evidenced by an acceptance letter dated 16 January 2003.  Other documents forming part of the subcontract were also enclosed with the said letter of acceptance.  The subcontract was a lump sum subcontract.  Under the subcontract, the Defendant was required to complete the work on or before 31 July 2003.  There was a provision for the payment of liquidated damages of $20,000 per day of delay.  I have no hesitation in holding that under the subcontract, there were the implied terms that the Defendant would have to carry out the work in a workmanlike manner, and should use materials of merchantable quality and suitable for the job. 

2.  It is the Plaintiff’s case that in breach of the sub-contract, the Defendant did not carry out the work properly and there was delay in the progress of the work.  It was also the Plaintiff’s case that in fact the Defendant had further sub-contracted the works to 2 other persons.  The Defendant and/or its subcontractor had failed to pay the wages of their workers.  In consequence of that there was delay in the progress of the work and also the Plaintiff being the main contractor was put under an obligation to pay the arrears of the wages of the workers of the Defendant or its subcontractors.  This action is brought to recover the amount paid to these workers as well as for damages arising from the Defendant’s breach of the subcontract.  The Plaintiff eventually terminated the subcontract on 2 September 2003. 

3.  The Defendant was unrepresented before me.  In fact it transpired that there was a petition for the winding up of the Defendant presented on 2 March 2006.  The petition has not yet been heard.  There was no application for the stay of the proceedings.  Accordingly the Plaintiff went ahead to prove its case before me.

4.  The Plaintiff called 5 witnesses, 3 being witnesses of fact and 2 being expert witnesses.  In the absence of any challenge to their evidence I admit their witnesses’ statements or expert reports as the case may be and I found the Plaintiff’s case proved.

5.  The evidence of Albert Wong showed that between March and September 2003, the Defendant and its subcontractors had failed to pay wages to their workers.  As a result the workers lodged their claim to the Labour Department for arrears of wages in the total sum of HK$762,825, and statutory notices for payment were given to the Plaintiff.  In discharge of the Plaintiff’s obligation under s43D of the Employment Ordinance, a sum of $533,775 was paid by the Plaintiff to these workers in full and final settlement of their claims.

6.  In fact the Defendant did not dispute its liability to reimburse the Plaintiff of the direct payments made by the Plaintiff to the Defendant’s and its subcontractor’s workers.  By a memorandum dated 7 August 2003, the Defendant confirmed that a total sum of $747,075 was to be paid by the Plaintiff to these workers and the Defendant acknowledge liability to reimburse the Plaintiff of the same.  Some of these workers had lodged their claim through the Labour Department, and in fact out of this amount of $747,075, the amount of $370,025 was part of the sum of $533,775 paid out by the Plaintiff in circumstances referred to in the last paragraph.  Hence in effect, the Plaintiff only paid a further sum of $377,050 to those workers who had not lodged their claim through the Labour Department. 

7.  By another memorandum dated 16 august 2003, the Defendant further confirmed that a sum of $303,035 was owed by the Defendant’s subcontractor Po Heng Company to its workers.  The arrangement was that the Plaintiff should make direct payment of this amount to Po Hing to enable it to pay its workers, and the Defendant agreed to be responsible for this sum.  The Plaintiff made the payment in order to ensure that the work should progress properly. 

8.  Accordingly I find that the Plaintiff had proved its case for the recovery of the sum of $1,213,860.00 ($533,775 + $377,050 + $303,035 = $1,213,860).

9.  I also accept the evidence from the Plaintiff’s witnesses that the work done by the Defendant or rather its subcontractors was defective in the manner pleaded in the Statement of Claim.  As a result the Plaintiff had spent the amount of $1,917,165 to rectify the defective work.  I am satisfied that the works were defective and that the amount paid for the rectification work was reasonable.

10.  Since the Defendant had not completed the work, the Plaintiff had to engage some other contractors to finished the uncompleted work.  As a result the Plaintiff had to incurred the sum of $1,353,295 to other contractors to finish the work.  However credit should be given to the Defendant because the Defendant had not been paid for those uncompleted work.  After setting off the value of the work not yet paid for, the extra cost incurred by the Plaintiff in completing the work was $277,563.

11.  The Plaintiff also claimed damages for delay in completing the work.  The work was in fact completed on 10 December 2003.  The Plaintiff claimed the sum of $660,000 being the liquidated damages representing the delay between 1 August 2003 and 2 September 2003.  Because the Plaintiff would still have to engage other contactors to complete the work after the subcontract with the Defendant was terminated, the Plaintiff had to spend extra overhead on the wages and salary of its staff to oversee the work.  As a result the Plaintiff had spent an extra sum of $680,130.  Thus the amount of damages arising from the Defendant’s delay was $1,340,130.

12.  In the Statement of Claim the Plaintiff would also claim the sum of $65,000 being the administrative charges payable under the terms of the subcontract.  I take the view that these provisions under the subcontract were penalty provisions and the Plaintiff abandoned this item of claim.

13.  Further in mitigation of the further delay caused by the Defendant’s breach and the industrial action which might be taken by the Defendant’s subcontractor’s workers, the Plaintiff had also paid the sum of $686,000 and $562,150 to the Defendant’s subcontractor Po Heng in September 2003 and to the workers of the Defendant’s subcontractor in respect of the work at Block D.  I am satisfied that these payments were made in order to obtain back possession of the site in order to avoid further delay in completing the work.

14.  The total amount of damages awarded is $4,783,008. ($1,917,165 + $277,563 + $1,340,130 + $1,248,150 = $4,783,008).

15.  The value of the work completed by the Defendant disregarding the defects was $3,483,991.  However the Defendant was only paid the sum $1,984,375.  Hence the amount of $1,499,616 is still due to the Defendant.

16.  After setting off the amount due to the Defendant, there will be judgment in favour of the Plaintiff in the sum of $4,497,252 ($1,213,860 + 4,783,008 - $1,499,616 = $4,497,252).  There will be interest on the judgment sum at 1% above the prime rate of the Hong Kong & Shanghai Bank from the date of the writ until judgment.  The Plaintiff is also entitled to have the cost of the action.