WIDE PROJECT CONSTRUCTION (HK) LTD v. THE INCORPORATED OWNERS OF YEN DACK BUILDING

HCA3759/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3759 OF 2002

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JUDGMENT  ON  QUANTUM

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INTRODUCTION

1. This judgment should be read together with the judgment on liability that I handed down on 5 December 2005 (“the December Judgment”).  Unless otherwise stated, I shall adopt the same abbreviations used in the December Judgment for present purposes.

2. In the December Judgment, I set out my findings on liability and invited the parties to make submissions on quantum and other outstanding matters.  Pursuant to my directions, counsel handed in their written submissions dated 26, 27 January and 7 February 2006, which I have already considered carefully.

3. I will now proceed to deal with quantum and the outstanding matters.

FINDINGS ON LIABILITY

4. For convenience, I will first repeat my findings on liability as follows :

(1)     The plaintiff had completed 95% of the Concrete Works.  But the plaintiff’s work at 4 out of 504 Locations was defective (“the 4 Locations”).

(2)     The plaintiff had completed 100% of the Roof Plant Room Top Waterproofing Works.

(3)     The plaintiff had completed 80% of the Roof Waterproofing Works.

(4)     The plaintiff had failed to remove the nails and screws at the external walls of the Building.

(5)     The plaintiff had not provided the surety bond.

5. The 5^th and 6^th Certificates are to be opened and reviewed by the court to the extent that the plaintiff had completed 95% of the Concrete Works and 80% of the Roof Waterproofing Works.

HEADS OF CLAIMS AND COUNTERCLAIMS

6. The parties’ claims fall into the following heads :

(1)     The plaintiff’s claims for payments under the 5^th and 6^th Certificates.

(2)     The defendant’s counterclaims for the loss and damage suffered as a result of the plaintiff’s aforesaid breaches of the Contract.

(3)     The plaintiff’s claims for charges for additional services rendered.

7. I will look at them in turn.

ENTITLEMENTS UNDER THE 5^TH AND 6^TH CERTIFICATES

8. The plaintiff claims for HK$482,278.00 under the 5^th Certificate and HK$69,921.30 under the 6^th Certificate, totalling HK$552,199.30.  The claim is based on 100% completion of the Contract.  It needs to be adjusted in light of my findings on the extent of completion.

9. Under the Contract, the contract price for full completion of the Concrete Works and the Roof Waterproofing Works is HK$846,626.00 and HK$209,166.00 respectively.  Based on the my findings repeated in paragraphs 4 and 5 above, the following adjustments have to be made :

Item	Percentage Adjusted	Amount Reduced
Concrete Works	From 100% to 95%	$846,626.00 x	5% =	$42,331.30
Roof Waterproofing Works	From 100% to 80%	$209,166.00 x	20% =	$41,833.20
			Total :	$84,164.50

10. After the adjustments, the plaintiff is entitled under this head to HK$552,199.30 – HK$84,164.50 = HK$468,034.80.

COUNTERCLAIMS

11. Mr Chai, counsel for the defendant, first submits that the defendant is entitled to nominal damages in respect of the plaintiff’s failure to provide surety bond.  I agree.

12. On the plaintiff’s defective workmanship at the 4 Locations and failure to remove the screws and nails at the outer walls, Mr Chai contends that the defendant is entitled to the cost of reinstatement, which amounts to some HK$1.17 million.  A substantial part of the reinstatement cost is the cost for erecting scaffolding for the purpose of removing the screws and nails at the outer walls (HK$978,000.00).

13. Mr Chai relies on Hudson’s Building and Engineering Contracts,11^th Edn, Vol.1, where the learned editors said at para.8.137 :

“Consideration of the case illustrated above shows that, in the case of defective work (that is, work not in accordance with the contract) there are in fact three possible bases of assessing damages, namely :

(a)     the cost of reinstatement;

(b)    the difference in cost to the builder of the actual work done and the work specified; or

(c)     the diminution in value of the work done due to the breach of contract.

The cases leave no doubt that, wherever it is reasonable for the owner to insist upon reinstatement, the courts will treat the cost of reinstatement as the measure of damage…”

14. Mr Chai next relies on Keating on Building Contract, 7^th Edn, where it is stated at para.8-47 that :

“Where there has been substantial completion the measure of damages is the amount that the work is worth less by reason of the defects and omission, and is normally calculated by the costs of making them good, ie, the costs of reinstatement, unless this is disproportionate to the end to be attained.”

And at para.8-48 that :

“Sometimes the proper measure of damage is not the cost of reinstatement but the difference in value between the work as it is and as it is ought to have been.”

15. In my view, the authorities relied on by Mr Chai shows plainly that the defendant is not entitled to claim for reinstatement cost.  First, it is unreasonable for the defendant to insist upon reinstatement.  It had, as I have found, repudiated the Contract.  It had also failed to mitigate its loss in connection with the plaintiff’s failure to remove the screws and nails.  When the Contract was still afoot and before the dismantling of the scaffolding, the defendant could have asked the plaintiff to rectify, failing which, engaged some else to rectify the omission.  It is now too late to insist on reinstatement.  Second, it is wholly disproportionate to spend more than HK$1 million simply to remove some screws and nails at the outer walls.  I hold that the defendant is only entitled to the diminution of value.

16. For the defective concrete works at the 4 Locations, the parties arrive at the same figure, namely HK$3,449.22.  I round it up to HK$3,450.00.

17. For the failure to remove the nails and screws, Mr Chai submits that the step is one of the 6 steps for the works.  Thus a reasonable assessment is 1/6 of the original contract price, namely, HK$159,365.00.  In my view, given its scope and nature of work and the amount of resources likely to be involved, it is wrong to attribute 1/6 of the contract price to removal of nails and screws.

18. Mr Chan, counsel for the plaintiff, submits that removal of nails and screws was one of the items cancelled in May 2002, namely, Item 12.3, which dealt with removal of abolished items at the outer walls, including signboards, metal bars, pipes and electricity wires, for HK$20,000.00.  He submits that an assessment of HK$10,000.00 is reasonable.  This particular item had been cancelled.  There is no evidence before me to support Mr Chan’s suggestion that this should cover removal of nails and screws at the outer walls.  In fact, I doubt if Mr Chan’s suggestion is correct.  Removal or nails and screws was included as one of the steps for the painting work at the outer walls.  Item 12.3 could not have covered the same subject matter again.  But I accept Mr Chan’s submission that Item 12.3 may provide some sort of indication as to how much can be reasonably attributed to removal of nails and screws, which are smaller objects than signboards, metal bars and pipes.

19. There is no evidence on the exact number of nails and screws which the plaintiff had failed to remove.  Mr Chan submits that by reference to the defendant’s inspection recorded in the compact disk, there were about 90 numbers of nails and screws head.  About 30% of them are covered with paint while 70% are not, which suggests that they are newly made.  There are numerous metal bars, stands and pipes, the removal of which is beyond the scope of the Contract.  Mr Chai has not made any submission to contradict Mr Chan.

20. In the circumstances, I accept Mr Chan’s assessment for failure to remove the screws and nails at HK$10,000.00.

21. For the above reasons, the total amount that the defendant is entitled to under its counterclaim is HK$3,450 + HK$10,000 = 13,450.00.

ADDITIONAL SERVICES

22. Under paragraph 17 of the Statement of Claim, the plaintiff’s claim for additional services rendered to the defendant thus :

“Date	Invoice No.	Particulars	Amount (HK$)
07/08/02	002935	Half share of the insurance premium for additional works for decoration of the exterior wall in a sum of HK$956,190.00	26,000.00
28/06/02	002932	Additional work for scaffoldings	33,000.00
28/06/02	002933	Additional insurance premium for the extended contract paid from 19/05/02 to30/06/02	57,530.99
28/06/02	002934	Deposits payable to the Plaintiff’s domestic sub-contractors for entering into respective sub-contracts with them for the Contract works but parts of original contract works were omitted as per the Defendant’s instructions on 28/02/02 (but only HK$50,000.00 out of the invoiced sum of HK$260,000.00 demanded by and actually paid to a sub-contractor)	50,000.00
		Total :	166,530.99 ” =========

23. Mr Chan rests the plaintiff’s claims on two bases.  First, he relies on the principle of restitution and in particular, unjust enrichment : If a defendant has freely accepted services or goods, then the general rule is that he must pay their reasonable value at the date they were rendered or delivered respectively.  See Goff & Jones on Law of Restitution 2002, para.1-034 at p.30.  Second, he submits the plaintiff is entitled to claim loss and damage as a result of the defendant’s repudiation of the Contract.  However, the plaintiff has not pleaded any loss and damage arising from the defendant’s repudiation.  Nor has it pleaded that the payments referred to in paragraph 17 of the statement of claim arose out of the defendant’s repudiation for which the plaintiff claims for damages.  In my view, in the absence of the proper plea, the plaintiff is not entitled to rely on the second basis.

24. I will now consider the payments in turn to see if the plaintiff’s restitutionary claim is established.

(A) Invoice No.2935

25. This invoice is for payment of half of the insurance premium for the two months’ period between 1 July and 31 August 2002.  The first month was part of the extension of time as per Sunfield’s instruction in the letter dated 2 July 2002.  The second month was the period for the individual owners to use the scaffolding for repairs of their own.  The plaintiff requested the defendant to buy the insurance policy for the continued use of scaffolding in July or afterwards.  The undisputed evidence before me is that the defendant had agreed to pay for it : see the letter issued by the plaintiff to the defendant and Sunfield dated 4 July 2002, where it was stated that the parties had agreed to bear the insurance equally and that the plaintiff would pay the premium first and the defendant would reimburse the plaintiff of its 50% share later.  The plaintiff is plainly entitled to this claim.

(B) Invoice 2932

26. This item is for the repairs to scaffolding damages by some of the individual owners.  Since the damages were caused by individual owners, the owners concerned should be responsible for the repair costs.  I see no basis for claiming against the defendant for the repair costs.  This item fails.

(C) Invoice 2933

27. This item is for the additional insurance premium for the extended contract between 19 May and 30 June 2002.

28. Under the Contract, the work was to be completed on or before 18 May 2002.  However, instructions on the scope of works were not finalized until 23 May 2002.  Sunfield had to grant extension of completion up to 31 July 2002.  The original insurance taken out by the plaintiff did not cover the extended period.  Accordingly, the plaintiff had to extend the coverage up to 30 June 2002 for an additional premium of HK$57,530.00.

29. In my view, this additional insurance coverage was plainly necessitated by the defendant’s conduct.  But I doubt if it can be regarded as a benefit that the defendant had freely accepted for the purpose of raising a restitutionary claim.  Under the Contract, which is a lump sum contract, the obligation fell upon the plaintiff, as contractor, to take out the requisite insurance for the work to be carried out.  After the extension, in performing the Contract, the plaintiff had to take out the additional insurance coverage.  It was thus for the plaintiff’s own benefit and need to do so.  In my view, when the Contract was extended beyond the original completion date by consent, the additional premium that the plaintiff had to incur for the extended period had to be absorbed by the contract price or be funded by further price agreed by the parties, as is the case for Invoice No.2935.  Absence any express agreement, the plaintiff may arguably raise an implied term in the Contract or a collateral agreement that the defendant had to bear the additional premium.  But it is not how the plaintiff has run its case.  For these reasons, this claim fails.

(D)    Invoice 2934

30. This item is for the deposits paid to the plaintiff’s sub-contractors for the plumbing work which was later cancelled by the defendant.

31. The difficulty with the plaintiff’s reliance on the unjust enrichment principle referred to in paragraph 23 above is this.  The plumbing work had never been carried out.  It cannot be said that the defendant had accepted the service as such by way of the sub-contracts.  One may reasonably argue that it is open to the plaintiff to raise an implied term in the Contract that in a scenario such as the present, the defendant should reimburse the plaintiff any loss and damage suffered as a result of the variation, including expenditure incurred in connection with the works cancelled.  But that is not how the plaintiff pleaded its claim.  For these reasons, this claim also fails.

32. In the circumstances, the plaintiff is only entitled to HK$26,000.00 under this head of claim.

CONCLUSION

33. I will enter judgment for the plaintiff on its claim for :

(1)     the sum of HK$468,034.80 with interest at the judgment rate from the date of writ until payment;

(2)     the sum of HK$26,000.00 with interest at the judgment rate from the date of writ until payment.

34. I will enter judgment for the defendant on its counterclaim for HK$13,450.00 with interest at the judgment rate from the date of writ until payment.

35. On costs, having regard to the findings that I have made in the December Judgment and the quantum that I have arrived at above, I am of the view that the plaintiff should be entitled to the costs of the action but a proper discount should be made to reflect the fact that it has not entirely succeeded in its claims and the defendant has succeeded in part of its counterclaims.  In my view, a deduction of 20% is appropriate.  I will therefore make an order nisi that the plaintiff shall have 80% of the costs of the action, to be taxed if not agreed.