CHAN CHAM PONG CEDRIC v. TOO KA MAN AND ANOTHER

DCCJ 1463 / 2017

[2019] HKDC 971

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1463 OF 2017

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JUDGMENT

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Introduction

1.  This is a breach of contract action.  It arose out of a renovation project for an apartment in a private residential development known as The Merton (泓都) in Kennedy Town, Hong Kong (“the Apartment”).

2.  The Apartment was located within a building which was only completed in 2004.  The Plaintiff (“P”) bought it on 8 April 2006 (the date of the sale and purchase agreement) at a consideration of HKD 3,100,000, after which he started living there with his wife (“Ms Tam”) and their cat.  Given the general trend of the property market in Hong Kong since 2006, the value of the Apartment should have increased substantially since then.

3.  Having lived in the Apartment for close to 10 years, P entered into a written renovation contract with reference number MT-04042016-1 with the 2^nd Defendant (“D2”) on 4 April 2016 so as to get the Apartment substantially renovated (“the Original Contract”).

4.  Disputes soon arose out of the Original Contract, which led to the creation of yet another written contract between P and D2 dated 22 July 2016 (“the New Contract”).

5.  Disputes then arose out of the New Contract.  Those disputes eventually led to the commencement of this action on 22 March 2017.

6.  By the written opening lodged by P shortly before the start of the trial on 8 April 2019, P abandoned his claims against the 1^st Defendant (“D1”), who was just a shareholder and director of D2, but maintained his claims against D2.

7.  The main issues in dispute were: -

(1)  Whether disputes between P and D2 arising out of the Original Contract had been settled by the New Contract so that P could no longer sue on the Original Contract (“Issue 1”);

(2)  If so, whether P or D2 had acted in breach of the New Contract, or if not, whether P or D2 had acted in breach of either of the two contracts (“Issue 2”);

(3)  Whether P or D2 suffered loss as a result thereof and if so, what should be the quantum of damages recoverable (“Issue 3”); and

(4)  Given P’s 11^th hour abandonment of his pleaded claims against D1, and my judgment on Issues 1, 2 & 3 above, what would be the most appropriate costs orders in this matter (“Issue 4”).

(Collectively, “the Issues in Dispute”)

8.  The trial took 6 days. The following people gave evidence:

(1)  P;

(2)  Ms Tam;

(3)  D1;

(4)  P’s expert Mr Lee Kwok Chuen (“P’s Expert”); and

(5)  D2’s expert Mr Yung Chi Kin Boris (“D2’s Expert”).

9.  A 6^th person, Ms Fung Ka Lai Winnie (“Ms Fung”), who was the wife of D1 and a shareholder of D2, made and filed a witness statement but did not give evidence.  On P’s application, with D1 & D2 (collectively, “Ds”) not opposing, Ms Fung’s witness statement was expunged.

10.  On the last day of trial, after hearing closing submissions from (1) Mr Ernest Wong, Counsel for Ds and (2) Ms Elaine Liu, Counsel for P, I reserved my judgment and indicated I would hand down my judgment in writing, which I hereby do.

11.  I shall start by setting out my general and overall observations on the evidence of each of the witnesses, and then move on to analyze the Issues in Dispute one by one, before setting out my disposition.

The Evidence of P (the 1^st Witness)

12.  P gave evidence first. He struck me as an honest person who gave evidence in a fair manner.  In so far as factual matters within his own knowledge are concerned I accept his evidence as true and accurate.  I shall elaborate on this at appropriate places hereinbelow.

13.  In gist, P said D2 acted in breach of both the Original Contract and the New Contract in that D2 did not in fact complete the renovation of the Apartment.  P said the work of D2 was of low quality, that D2 refused to pay agreed compensation, and that as a result of D2’s breach of contract, P suffered loss and damage, which P particularized.

The Evidence of Ms Tam (the 2^nd Witness)

14.  Ms Tam gave evidence next.  She also struck me as an honest person who gave evidence in a fair manner.  She was a housewife and she dealt with the day-to-day liaison work vis-à-vis Ds whilst P was at work.  In so far as factual matters within her own knowledge are concerned I also accept her evidence as true and accurate.  I shall elaborate on this at appropriate places hereinbelow.

The Evidence of D1 (the 3^rd Witness)

15.  The 3^rd witness was D1.  He struck me as a dishonest, evasive, recklessly irresponsible and wholly unreliable witness.  I find the following non-exhaustive features in D1’s evidence wholly unacceptable: -

(1)  D1’s witness statement, dated 13 December 2017, was professionally prepared with the assistance of lawyers.  D1 signed a statement of truth verifying its contents as true.  During D1’s examination-in-chief, D1 corrected just one word in this witness statement and confirmed the rest of its contents as true.  When cross-examined, however, D1 changed his evidence and said 8 out of 32 paragraphs of this witness statement were wrong.  Of all these “inaccuracies”, the most serious one was D1’s false allegation that P had refused to grant Ds access to the Apartment.  That allegation was obviously false and flatly contradicted by the contemporaneous WhatsApp conversations which P produced.  Since D1 was himself a party to those WhatsApp conversations, and had a full opportunity to read them again before giving evidence, in my judgment D1 had given false evidence knowing the same to be false or at least not caring about its truth or falsity when he confirmed the contents of his witness statement as true without correcting this first.

(2)  D1 was shown the list of documents signed and filed by Ds’ lawyers on Ds’ behalf in August 2017, where only 9 items were disclosed by them in its Schedule 1 Part 1 as documents relevant to the issues in this action in the Peruvian Guano sense.  D1 was then asked why Ds had, via this list, declared that Ds did not have and never had in their possession, custody or power other obviously relevant documents such as copies of email messages, WhatsApp messages, other correspondence with the Consumer Council, etc., which Ds obviously had. D1 was also asked whether this was an attempt on Ds’ part to deliberately withhold and hide evidence perceived by Ds as adverse to their best interests in this case and to “blindfold” this Court into not seeing the whole picture. D1 alleged he had handed everything to his lawyers and never withheld anything.  In effect, D1 was alleging it was his lawyers’ fault.  To put this in context, save for a short period of time between 9 November 2018 and 3 December 2018, Ds were all along legally represented and Ds’ list of documents was professionally prepared by one team of lawyers (in August 2017) and reviewed by a second team of lawyers (after 3 December 2018). In my judgment, it would be unlikely for separate teams of lawyers to have jointly and/or successively withheld documents from this Court, knowing the same had been handed over by Ds to them.  On balance of probabilities, the more likely scenario must be that Ds never gave the other relevant documents to their lawyers, and that D1 was giving false evidence knowing the same to be false when he alleged he gave everything to his lawyers.

16.  By reason of the above, and as I shall elaborate at appropriate places below, in so far as D1’s evidence is self-serving or contradicted, I reject the same as false or unreliable.

The Evidence of P’s Expert (the 4^th Witness)

17.  The 4^th witness was P’s Expert.  He struck me as a fair expert who was most knowledgeable in the field of home renovation and assisted me independently in the most helpful way possible.  As I shall elaborate at appropriate places below, I accept most parts of his opinion as reliable and correct.

The Evidence of D2’s Expert (the 5^th & Last Witness)

18.  D2’s Expert gave evidence last.  In my judgment, he failed to discharge his duty to give his opinion impartially.  By way of examples: -

(1)  Under skillful cross-examination by P’s Counsel, D2’s Expert revealed that he based some of his opinions (for example his view that some doors within the Apartment were meant to come with “magnetic catches” so that handles would never be required) on some private and previously-undisclosed conversations between Ds and himself, instead of on disclosed witness statements and evidence actually adduced in Court.

(2)  He gave false factual evidence that Ds were “evicted” from the Apartment by P, when he had no proper basis to say so, and when it was not his role to give evidence on the alleged “eviction”.

(3)  When cross-examined, D2’s Expert was argumentative and evasive throughout.  In fact, Ms Liu, Counsel for P, was repeatedly forced to repeat her questions since D2’s Expert kept trying to say what he would himself like to say, as opposed to just answering questions directly.

19.  By reason of the above, and as I shall elaborate at appropriate places below, his opinion is largely rejected by me as unreliable.

Issue 1 – Effect of the New Contract

20.  Issue 1 can be disposed of fairly quickly as the parties agreed its resolution, one way or the other, should have no effect on the assessment of quantum.

21.  In gist, I agree with Mr Wong, Counsel for Ds, that the legal effect of the New Contract was to create “a clean plate” so that P could no longer sue on the Original Contract.  I find this to be the legal effect for the following reasons: -

(1)  The New Contract was preceded by P’s written notice of termination dated 16 July 2016, delivered by P to D2 by registered post, which in law terminated the Original Contract.

(2)  The New Contract on its face attempted to deal with all aspects of the renovation of the Apartment, setting new deadlines and new payment conditions, etc., but did not contain any clause dealing with P’s rights vis-à-vis the Original Contract.

(3)  The New Contract thus had an ambiguity in that it was not clear, on its face, whether P and D2 intended those rights of P vis-à-vis the Original Contract to be wholly preserved, or extinguished and replaced.

(4)  Significantly, the New Contract was (a) drafted; and (b) put forward by P so that if there were ambiguities, such ambiguities should be resolved against P’s interest – see Sir Kim Lewison, The Interpretation of Contract (6^th Edition), paragraph 7.08. The jurisprudential basis of this contra proferentem rule was best explained by Lord Mustill in the case of Tam Wing Chuen v Bank of Credit & Commerce Hong Kong Limited [1996] 2 HKLR 161 at 168, as follows: -

“…the basis of the contra proferentem principle is that a person who puts forward the wording of a proposed agreement may be assumed to have looked after his own interests, so that if the words leave room for doubt about whether he is intended to have a particular benefit there is reason to suppose that he is not…”

(5)  Applying the aforesaid contra proferentem principle to the ambiguity, it appears to me that P and D2 intended P’s rights vis-à-vis the Original Contract to be wholly extinguished and replaced.  If the truth were otherwise, P would have inserted a clause to explicitly preserve his rights.

(6)  By reason of the above, on a proper interpretation of the New Contract, the parties intended the New Contract to be “a clean plate” so that on signing the New Contract, the Original Contract and all legal rights which arose from breaches of the same would cease to exist.

22.  Since in my judgment, and for the reasons set out above, the Original Contract had been extinguished and replaced by the New Contract, I shall from now on focus on the New Contract.

Issue 2 – Breach of the New Contract

23.  In gist, by the New Contract, D2 agreed to properly complete the renovation of the Apartment by the deadline of 25 August 2016 (“the Contractual Deadline”), and that all work shall be “completed diligently using reasonable skill and care”. D2 further agreed, in the New Contract, that it shall not be entitled to any payment until it has “completed the works in its entirety”.

24.  There is no dispute between the parties as to how I should go about interpreting the phrases “completed diligently using reasonable skill and care” and “completed the works in its entirety”.  The key is the context.  In Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351, for example, Ma CJ held that if one were to construe the word “house” as it appeared in documents created in the 1960s, one should be looking at the characteristics of the houses actually standing in the 1960s.  The context is always the key because words considered out of context can have multiple meanings, whilst words considered in context reliably tell us what the true intention and true agreement of the parties must have been.

25.  The New Contract was created at a time when D1 had (1) met P and Ms Tam in person; (2) communicated with Ms Tam over WhatsApp for prolonged periods of time; and (3) visited the Apartment multiple times. By the time of the creation of the New Contract, Ds must be fully aware P and Ms Tam were a young middle-class couple owning a middle-class unit (the Apartment), and that P expected Ds’ work to create a reasonably high degree of aesthetic appeal which would be fitting for people like P and Ms Tam, and which would be fitting for a residential unit like the Apartment. Plainly, the parties were fully aware P expected D2 to make the Apartment “look nice”, instead of just “hospitable”.  The New Contract’s reference to “using reasonable skill and care” must be construed with this particular context in mind.

26.  So has P or D2 acted in breach of the New Contract?  Having carefully considered all evidence adduced, it is in my judgment as plain as a pikestaff that (1) D2 never used reasonable skill and care in its work; and (2) the work of D2 was of such low quality it would not matter whether we were to apply the test of “practical completion”, “substantial completion”, or “reasonable completion” – D2 simply never completed its renovation of the Apartment (within time or at all).  It follows from this that D2 had plainly acted in breach of the New Contract, whereas P had not.  In fact, at paragraph 31 of his written closing, Mr Wong, Counsel for Ds, submitted there was substantial completion on 30 August 2016.  The significance of this is even if I were to agree with Mr Wong on this (I do not), D2 would still be in clear breach of the New Contract, for D2 would still have failed to meet the Contractual Deadline of 25 August 2016.

27.  D2’s attempt to contest liability is in my view doomed to fail.  The real dispute between the parties should be on the issue of quantum, to which I now turn.

Issue 3 – Quantum

28.  The best starting point should be paragraph 66 of P’s written closing, where P said he wished to claim the following from D2: -

(1)  Cost of Rectification in the sum of HKD 51,800;

(2)  Diminished Value in the sum of HKD 105,600;

(3)  Accommodation Costs in the sum of HKD 47,382;

(4)  Liquidated Damages in the sum of HKD 57,910;

(5)  Medical Expenses in the sum of HKD 8,900; and

(6)  Damages for Inconvenience and Discomfort in the sum of around HKD 100,000.

29.  I shall deal with the above one by one, and then deal with D2’s counterclaims, before moving on to final adjustments.

Issue 3(1) – Costs of Rectification

30.  In order to rectify the defects in D2’s work, P engaged a home renovation contractor called Hop Chung Decoration Co. (合眾工程公司) (“Hop Chung”) and was charged HKD 51,800.  There was no dispute this sum was spent – the dispute was whether this was reasonable.

31.  Ms Liu, Counsel for P, most helpfully prepared and caused to be produced a Scott Schedule which set out the parties’ respective positions on each sub-item claimed.  Mr Wong, Counsel for Ds, equally helpfully set out his further submissions on the same in Annex 1 to his written closing.  I considered all submissions carefully.  In gist, Ms Liu maintains the whole sum of HKD 51,800 is reasonable and recoverable, whereas Mr Wong says at most HKD 24,900 (if not just HKD 19,900) should be recoverable.

32.  In my judgment, HKD 49,800 would be a reasonable amount of compensation for this item.  This would be the whole of P’s claim, minus the HKD 2,000 claimed for creating two holes in the “bunkbed sideboard” in the Apartment’s small bedroom.  On this HKD 2,000 sum, I agree with the submission of Mr Wong, Counsel for Ds, that D2 was never under any contractual duty to create those holes in the first place so D2 should not be asked to pay for the same.  The holes were not in the original drawings and were P’s afterthoughts.

33.  For other sub-items claimed by P under this head, I agree with the submissions of Ms Liu, Counsel for P, that they were reasonable sums.  If one looks at the photos adduced at the trial, one can see that the hanging cabinets in the kitchen, the door for the washroom, the door for the small bedroom, and many other features in the Apartment were “hideous-looking” prior to Hop Chung’s rectification.  I accept the opinion of P’s Expert that the costs incurred by P in fixing those defects were reasonable by the home renovation industry’s standard at the time.

Issue 3(2) – Diminished Value

34.  P’s case on diminished value is simple.  Damages for breach of contract should be forward looking in that one should seek to put P in the same position as if the contract had been performed.  On that basis, P claims the difference between (1) the value of D2’s actual work; and (2) the value of D2’s work had it been up to the standard as stipulated in the New Contract.

35.  Ms Liu, Counsel for P, being helpful, prepared and caused to be produced a separate Scott Schedule which set out the parties’ respective positions on this head of loss.  Mr Wong, Counsel for Ds, also helpfully set out his further submissions on the same in Annex 2 to his written closing.  I considered all submissions carefully.  Ms Liu relies on the opinion of P’s Expert and says a reasonable award under this head of loss should be HKD 105,600, whilst Mr Wong says it should be no more than HKD 23,600.  In my view, I should examine the parties’ submissions on each of the disputed items (21 in total).  For the reasons set out below, a reasonable award under this head of loss should in my judgment be HKD 105,000.

36.  The 1^st disputed item is an “uneven gap” between a split type air-conditioning unit and the living room wall on which it was mounted. P’s Expert says the diminished value should be HKD 3,000, whereas Ds’ Expert says the diminished value should be HKD 1,000.  Having carefully examined the photos jointly produced by the experts, I take the view that a sum of HKD 3,000 would be more reasonable.

37.  The 2^nd disputed item is a missing marble top which D2 was contractually obliged to provide to P.  The whole top was missing, and D1 admitted it was Ds’ fault that it was missing.  Given the size of the missing top, I agree with the opinion of P’s Expert that the diminished value should be HKD 3,500.

38.  The 3^rd disputed item is more controversial.  It is the L-shaped upper cabinet in the kitchen.  Due to Ds’ horrible measurement skills and horrible craftsmanship, the corner joining part of this cabinet looks horrible. Ds’ case is that this is “purely a visual problem” and that as such the value of this cabinet is not diminished at all.  P’s Expert says the problem is visual but the importance of aesthetic appeal in home renovation works needs to be emphasized.  According to P’s Expert visual defects in home renovation works are like scratches in brand-new cars.  In effect, P’s Expert is saying one cannot say for as long as a brand-new car can safely bring you from A to B it would be acceptable for it to be covered with scratches.  I agree with P’s Expert on this issue.  In this day and age, when a consumer pays a home renovation contractor to renovate his home, he expects the end product to be pleasing to the eye.  In our present case in particular, Ds must be aware when the New Contract said all works must be “completed diligently using reasonable skill and care” that required D2 to use reasonable skill and care to make the end product reasonably visually attractive.  Why, one may ask rhetorically, would P had agreed to pay D2 a substantial amount of money just to get a functional but hideous looking cabinet into his kitchen?  Had P wanted his kitchen cabinet to be functional but ugly he could have bought one substantially more cheaply from Taobao.com or similar Internet retail sites.  In my judgment, Ds, being rather experienced in the home renovation industry by the time of the New Contract (according to D1, he had been in the industry since 1995, and D2 had been in the industry since its formation in 2006), must be aware home renovation works which look hideous would never be considered to have been “completed diligently using reasonable skill and care” by any stretch of imagination.

39.  By reason of the above, having carefully examined all photos of the L-shaped upper cabinet in the kitchen, I come to the firm view that P is entitled to compensation for the said cabinet’s diminished value, and I accept the opinion of P’s Expert that its quantum is HKD 12,000.

40.  The 4^th disputed item is the “Corian top” in the kitchen.  Here, D2 similarly submits the “Corian top” is of reasonable quality because it serves its purpose and is functional.  With the greatest respect, for the same reason as above, I disagree.  I examined all photos produced.  The “Corian top” is not of reasonable quality at all, at least not from a visual perspective. P is entitled to compensation for its diminished value.  I accept the opinion of P’s Expert that its quantum is HKD 6,500.

41.  The 5^th disputed item relates to “poor cutting on the underside of the cooking hood” located within the Apartment’s kitchen.  I examined all photos.  D2’s workmanship can only be described as awful.  What was supposed to be a smooth straight line became a rugged edge and Ds covered it with some random pieces of aluminium foil.  D2 says this part of its work is concealed so that even if it looks horrendous there is no diminished value.  I disagree.  The opinion of P’s Expert is that even if one buys a brand-new pair of underpants and discovers there is a hole in them, he is quite entitled to say their value diminished and ask for a new pair – it is no answer to the claim to say we do not wear underpants on the outside so it would be okay for them to have holes.  I agree with P’s Expert.  I further agree the quantum of diminished value in relation to this is HKD 12,300 (as suggested by P’s Expert).

42.  The 6^th disputed item is the washroom’s door.  I examined all photos.  D2’s workmanship is unreasonably poor.  The door is meant to be “a concealed door”, but it is not in fact a concealed door.  There is a large gap between the door and the floor, rendering the door just like any other “non-concealed” doors.  D2’s argument that the door is still functional (in that if you push the door it will still open) missed the point.  P had plainly suffered loss of diminished value in relation to this and its quantum is HKD 6,300 (as suggested by P’s Expert).

43.  The 7^th disputed item relates to the wall tiles around the door frame inside the washroom.  I examined all photos.  D2’s workmanship is horrendous.  The tiles’ edges are meant to be straight and smooth, but they are in fact rugged.  D2 says the defects are “barely visible” so the standard is still reasonable.  I disagree.  The defects are in my judgment conspicuous and unacceptable by any standard.  P had in my judgment suffered loss of diminished value in relation to this and its quantum should be HKD 5,500 (as suggested by P’s Expert).

44.  The 8^th disputed item is a defective mirror.  By the horrendous workmanship of D2, a mirror in the washroom was installed in such a way its bottom left-hand corner “collided with” the top right-hand corner of an electric socket cover.  The mirror broke.  D2 cannot possibly say installing a mirror in this manner and breaking it could qualify as “using reasonable skill and care”, or that the value of its work did not diminish when it broke a mirror which should not be broken.  The only dispute between the parties is whether the diminished value should be HKD 1,800 (as suggested by P’s Expert) or HKD 1,200 (as suggested by Ds’ Expert).  I accept the opinion of P’s Expert that HKD 1,800 would be a more reasonable figure.

45.  The 9^th disputed item concerns the “mirror hanging cabinet” in the Apartment’s washroom.  The widths of the mirrors do not correspond with the contractual drawings.  The mirrors are asymmetrical.  This is sub-standard work done by D2 without “using reasonable skill and care”.

46.  In its written closing, D2, in dealing with this 9^th disputed item, claims that P and Ms Tam “agreed” to this asymmetrical arrangement.  D2 is effectively raising an estoppel argument.  With respect, this argument of D2 is objectionable at many levels and must be rejected.

47.  First of all, this alleged “agreement” has never been pleaded by Ds in their Defence.  As it was unpleaded, its alleged terms, reservations and/or consideration (if any) had never been explored at the evidential stage of the trial.  The requirement that all “agreements” to be relied upon by a party must be specifically pleaded with full particulars is not mere pedantry.  As Ribeiro PJ observed in Sinoearn International Ltd v Hyundai-CCECC Joint Venture (2013) 16 HKCFAR 632 (at paragraphs 30-34): -

“A party must raise all the issues he wishes to raise to be dealt with at the trial… The other party is entitled to know from a clear pleading what is the entire case he has to meet so that he can decide whether particulars should be sought; how he should plead in response; what discovery he is entitled to; what evidence he should adduce to meet it; and what points of law should be taken… The response of counsel for the plaintiff… that ‘the point was not disputed’ could not be accepted: How could one expect the other side to dispute, or to come ready with evidence to refute, a point that has not been pleaded or even formulated in draft? Pleadings are not mere formalities. They impose a necessary discipline and are fundamental to enabling every procedural facet of the adversarial system to operate fairly.”

48.  The above was adopted in Kwok Chin Wing v 21 Holdings Ltd (2013) 16 HKCFAR 663, where Ma CJ said (at paragraphs 21-26): -

“It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced…”

49.  In my judgment, had D2 wished to say P should not be entitled to damages for diminished value vis-à-vis this 9^th disputed item because P had previously agreed to this asymmetrical arrangement, Ds would have to specifically plead such an allegation with full particulars.  Since Ds never did so, and there was no application from Ds to amend the Defence, I would not consider such an argument.

50.  Secondly, even if we ignore all pleadings, the fact remains this allegation of Ds was not in D1’s witness statement and had never been put to P or Ms Tam in cross-examination.

51.  The requirement in our laws that all material allegations must be specifically put to witnesses in cross-examination is not mere pedantry either.  As Jackson LJ of the English Court of Appeal recently said in B (A Child) [2018] EWCA Civ 2127 [2019] 1 FCR 120 (paragraph 15) whilst applying Browne v Dunn [1894] 6 R 67 and Chen v Ng [2017] UKPC 27 [2018] 1 P & CR DG2 to the case before him: -

“It is an elementary feature of a fair hearing that an adverse finding can only be made where the person in question knows of the allegation and the substance of the supporting evidence and has had a reasonable opportunity to respond.”

52.  In our case, had Mr Wong, Counsel for Ds, specifically put to P and Ms Tam there was an “agreement” that the mirrors in question shall be asymmetrical and different from the contractual drawings, P and/or Ms Tam may have a lot of things to say.  They may deny the alleged existence of the “agreement” altogether, or they may say there was an agreement but they reserved P’s legal rights to claim damages for diminished value.  Since the allegation was never put to P or Ms Tam in cross-examination, it would be unfair to P for the allegation to be considered.  For this additional reason also, I would not consider arguments based on such an allegation.

53.  Thirdly, given the unreliability of D1 as a witness (as to which see paragraph 15 above), and the fact that this allegation of an “agreement” was neither pleaded in Ds’ Defence nor set out in D1’s witness statement, I would in any event have found this part of Ds’ case on quantum to be Ds’ recent fabrication and rejected it, even if I were to consider it.

54.  For all of the above reasons I reject Ds’ submissions on the 9^th disputed item.  I accept the opinion of P’s Expert that the diminished value in relation to this defect should be HKD 4,800.

55.  The 10^th disputed item is washroom drawers “with different widths”.  The opinion of P’s Expert is that this is clearly a defect, and D2’s work has a diminished value of HKD 2,300.  Once again, D2 attempted to say, at closing submission, that this was not a defect at all, but the allegation was never put to P’s Expert in cross-examination.  For the same reasons as those for rejecting Ds’ submission vis-à-vis the 9^th disputed item, I would also reject Ds’ submission on this item.  I accept the unchallenged opinion of P’s Expert that this is a defect with a diminished value of HKD 2,300.

56.  The 11^th disputed item is about “a glass shelf with defective supporting frame”.  The opinion of P’s Expert on this was never challenged by way of cross-examination.  Having examined all photos, in the absence of any challenge, I accept the opinion of P’s Expert that this is a defect with a diminished value of HKD 2,300.

57.  The 12^th & 13^th disputed items can be grouped together.  They concern the wall tiles in the shower area and the presence of a wooden rod which should not be there.  For both items, the opinion of P’s Expert was never challenged in cross-examination. Having looked at all photos, in the absence of any challenge, I accept the opinion of P’s Expert that they were defects with diminished values of HKD 1,500 and HKD 4,600 respectively.

58.  The 14^th disputed item concerns an uneven gap which appears when the cloakroom door is closed.  Ds’ poor workmanship is inexcusable.  The uneven gap appears because the cloakroom door cannot be closed fully – the skirting gets in the way.  Having examined the photos, and considered the opinions of both experts, I am satisfied the diminished value in relation to this is HKD 6,000 (as suggested by P’s Expert).

59.  The 15^th disputed item concerns cracks appearing on a timber wall.  The contractual requirement was to erect the wall by “泥水工程 (wet trade work)”.  In my judgment, in the context of the New Contract for the renovation of the Apartment, that phrase meant a homogenous brick wall.  What Ds had in fact erected was a “合成間牆 (composite wall)” which had conspicuous cracks.  Having examined all relevant photos and the experts’ opinions, I am satisfied the diminished value for this item is HKD 10,000 (as suggested by P’s Expert).

60.  The 16^th disputed item is a “missing gas meter cover” which D2 had argued should not be built because covering a gas meter would be dangerous.  I agree covering a gas meter by a sealed cover would be wrong but as Ds’ Expert frankly admitted in his oral evidence a gas meter can be concealed by movable covers and a reasonably skilled contractor would be able to get that done.  D2’s objection is therefore wholly misconceived.  I am satisfied the diminished value for this item is HKD 1,800 (as suggested by P’s Expert).

61.  The 17^th disputed item is yet another uneven gap that appears when a door (this time the sliding door for the Apartment’s small bedroom) is closed.  That defect exists because the track for that door was installed with poor workmanship.  P’s Expert used the phrase  “老鼠尾 (a rat’s tail)” to describe the track for that door – it was narrow at one end and wide at the other end when its width should have been consistent throughout.  I am satisfied, after considering the photos and the 2 experts’ opinions, that the diminished value for this item should be HKD 6,000 (as suggested by P’s Expert).

62.  The 18^th disputed item concerns 2 sockets installed at wrong locations so that they would be covered (and therefore unusable) whenever the sliding door for the Apartment’s small bedroom is open.  A reasonably skilled home renovation contractor would never have installed sockets at such locations.  P was forced to install alternative sockets elsewhere in the room but did not include the costs of doing so in his claim for “rectification costs”.  I am satisfied D2’s failure to use reasonable skill or take reasonable care in the installation of these 2 sockets reduced the value of its work and P is entitled to compensation for such diminished value in the sum of HKD 1,800 (as suggested by P’s Expert).

63.  The 19^th disputed item concerns 2 sockets installed at wrong locations too close to the desk in the small bedroom.  A reasonably skilled contractor would never have installed sockets in that manner, making them impossible or difficult to use.  Even after Hop Chung’s attempts to alleviate the gravity of the problem the end-result is still far from satisfactory.  I am satisfied D2’s failure to use reasonable skill or take reasonable care in the installation of these 2 sockets reduced the value of its work and there is no double-counting. P is entitled to compensation for such diminished value in the sum of HKD 1,900 (as suggested by P’s Expert).

64.  The 20^th disputed item is an ugly desk side wall with a timber panel of an incorrect size.  This is the result of Ds getting the measurements wrong.  A “hole” was created.  A reasonably skilled renovation contractor would never have made a mistake like this.  For this, P claims diminished value in the sum of HKD 2,300 while D2’s position is that (1) there was an unpleaded agreement between the parties on how this was to be fixed; and (2) just “filling the hole” with another timber panel would fix the problem and it would only cost P no more than HKD 600 so that the most P should be getting would be compensation in the sum of HKD 600.  I disagree with both points made by D2.

65.  First of all, this factual allegation of an “agreement” between the parties was neither pleaded in Ds’ Defence nor set out in D1’s witness statement.  It had not been put to P’s witnesses either.  For the same reasons as those set out in paragraphs 47 to 53 hereinabove, it would be unfair to P for me to consider Ds’ argument in relation to this.  I would not do so.

66.  Secondly, even if I were to consider an argument based on Ds’ unpleaded allegation, I would have held the alleged agreement (if it existed) did not contain any term to the effect that P’s right to claim compensation for diminished value had been waived.

67.  Thirdly, having examined the relevant photos, I am satisfied just “filling the hole” with another timber panel would not fix the problem.  Indeed, it would just make the ugly wall uglier.

68.  For all of the above reasons, I reject Ds’ submissions on the 20^th disputed item.  I accept the opinion of P’s Expert that the diminished value in relation to this defect should be HKD 2,300.

69.  The 21^st, and last, disputed item under this head of loss is the so-called “missing sealant” surrounding the air-conditioning window unit at the small bedroom. Ds’ argument in relation to this is simple.  Putting aside the adequacy (or otherwise) of the existing sealant, applying sealant at this particular spot is beyond the scope of the New Contract – D2 is not contractually required to do anything about this part of the Apartment.  This I agree.  In my judgment, the sum of HKD 600 claimed under this disputed item should be disallowed accordingly.  In such circumstances, I need not examine the adequacy (or otherwise) of the existing sealant.

70.  By reason of the above, the sum of HKD 105,600 claimed by P under this head should be reduced by HKD 600, and I assess the damages payable by D2 as compensation for “diminished value” as HKD 105,000.

Issue 3(3) – Accommodation Costs

71.  P claims HKD 47,382 as compensation for “accommodation costs” pursuant to an express term in the New Contract.  D2 says he should only be ordered to pay HKD 42,212.

72.  The 1^st point taken by D2 was the stamp duty penalties (HKD 570 + HKD 50 + HKD 50 = HKD 670) paid by P.  Had P stamped his lease within the statutory time limit as he should have, the penalties would not have been payable.  As a matter of law, in the case of a lease, irrespective of the contractual terms between the landlord and the tenant, all parties to the lease are jointly and severally liable to pay stamp duty to the Collector of Stamp Revenue (effectively the HKSAR Government) within statutory time frames – see Section 4(3) of and the First Schedule to the Stamp Duty Ordinance (Cap 117).  A person’s legal duty to pay stamp duty within time is statutory in nature and does not depend on disputes.  As such, says D2, the compensation payable to P should be reduced by HKD 670, as penalties of this nature are too remote to be recoverable.  I agree with D2 on this.

73.  The 2^nd point taken by D2 was the estate agency commission in the sum of HKD 9,000 incurred by P.  Mr Wong, Counsel for Ds, invites me to “take judicial notice” that commission fees are “sometimes shared between the tenant and landlord” and disallow half of the sum accordingly. While I would agree there are infinite ways by which commission fees are payable, I would also have to agree with Ms Liu, Counsel for P, that there is nothing particularly unreasonable or unusual about a tenant being asked to pay for the whole of the commission fees, or for the fees level to be set at HKD 9,000 for the lease in question.  In my judgment, the sum of HKD 9,000 should be payable by D2 to P in full.

74.  By reason of the above, I assess the damages payable by D2 as compensation for “accommodation costs” as HKD 46,712 (being HKD 47,382 minus HKD 670).

Issue 3(4) – “Liquidated Damages” / “Penalty”

75.  There is an express term in the New Contract which reads as follows: -

“Penalty

Upon period overdue of this extension deadline (25/8/2016) that is caused by [D2], [D2] shall pay to [P] penalty fees.  On each day delay, [D2] shall pay [P] equivalent to 2% of the total amount of the Contract until the work is fully completed.  A maximum amount of 20% of the total amount of the Contract is capped.”

(“the 2% Clause”)

76.  The parties’ disagreement is on enforceability.  If the 2% Clause is caught by “the no penalty rule”, it would be unenforceable, and nothing should be payable under this head.  If the 2% Clause is not caught, HKD 57,910 should be payable under this head.

77.  The starting point should be Cavendish Square Holding BV v Makdessi [2016] AC 1172 at 1197-A, paragraph 15, where Lord Neuberger PSC and Lord Sumption JSC jointly said the following: -

“… the classification of the terms for the purpose of the penalty rule depends on the substance of the term and not on its form or on the label which the parties have chosen to attach to it.”

78.  In the same case, Lord Hodge JSC went on to say, at 1278-D, paragraph 255, the following: -

“… the correct test for a penalty is whether the sum or remedy stipulated as a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party’s interest in the performance of the contract.”

79.  The “exorbitant or unconscionable” test in Cavendish Square had since been applied by Lam VP of our Court of Appeal in Bank of China (Hong Kong) Ltd v Eddy Technology Co Ltd [2019] 2 HKLRD 493 at 502, paragraph 38, and forms part of the laws of Hong Kong.

80.  Applying the “exorbitant or unconscionable” test, is the 2% Clause enforceable?  In my judgment, there is plainly nothing “exorbitant or unconscionable” about a 2% daily rate, capped at 20% overall.  It is not even “extravagant”.  It is a generous rate, given the background to the New Contract and its context.  One must remember the Apartment was P’s home.  I am satisfied the 2% Clause is enforceable, and I allow P’s claim of HKD 57,910 under this head accordingly.

Issue 3(5) – Medical Expenses

81.  P seeks to argue D2’s breach of the New Contract caused him to have a skin condition which he did not have, and on this basis, he claims compensation for his medical expenses in the sum of HKD 8,900.  D2 does not dispute the fact that the sum had been spent but submits causation had not been proved.

82.  On this issue, I agree with D2.

83.  According to P, he and Ms Tam moved into the Apartment on 31 August 2016 whilst Ds were still renovating it.  P developed rashes “in or about September 2016”, and went to seek treatment from a specialist in October 2016.  However, on being cross-examined by Mr Wong, Counsel for Ds, P fairly admitted he had a milder skin problem since at least 2 July 2016, prior to his moving back into the Apartment.  In these circumstances, while I am satisfied P had an honest subjective belief that his skin condition was caused by Ds’ renovation activities, I am not at all satisfied causation in law or in fact had been proved.

84.  I should add that P never adduced expert opinion on causation.  This is not a criticism. Given the relatively small amount involved, it was most sensible for the parties to have kept expert fees payable for this action within reasons.  I would imagine paying a suitably qualified dermatologist to write an expert report on causation and to come to this Court to be cross-examined would be an expensive exercise.  The fact that P never produced any expert report on causation, however, also meant I was never presented with the necessary evidence to link P’s skin condition with D2’s breach of the New Contract. Indeed, I have not even been told what are the potential causes (scientifically speaking) for the skin condition in question.

85.  By reason of the above, I disallow P’s claim for his medical expenses in the sum of HKD 8,900.

Issue 3(6) – Inconvenience and Discomfort

86.  It is crystal clear from the evidence adduced before me that P suffered substantial inconvenience and discomfort as a direct result of D2’s breach of the New Contract.  P’s experience with D2 can only be described as a nightmare, if not an ordeal.

87.  In particular, in an attempt to mitigate loss vis-à-vis the costs of renting alternative accommodation, P moved back into the Apartment on 31 August 2016, at a point when renovation work was still on-going at the Apartment.  The Apartment was dusty, smelly, dirty and noisy, and P had to put up with all that until mid-February 2017, when Hop Chung left the Apartment “hospitable”. Whilst Ds’ workers or Hop Chung’s workers were at the Apartment working, P or Ms Tam had to stay physically inside the Apartment to supervise the workers and/or to safeguard their personal chattels.  Usage of the Apartment was limited, and cleaning it was difficult.  To put all of these in context, had P chosen to stay outside of the Apartment from 31 August 2016 to mid-February 2017, his costs of renting alternative accommodation should be no less than HKD 18,000 per month times 5.5 months equals HKD 99,000.

88.  Ms Liu (Counsel for P) and Mr Wong (Counsel for Ds) most helpfully drew my attention to a large number of cases, including So John v Lau Hon Man [1993] 2 HKC 356, Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344, Leung Yung Chun v Chan Wing Sang [2000] 1 HKLRD 456, Pang Yau Shing Glendy v Sano Engineering Limited (unrep, DCCJ 61/2013, 29 January 2016, HH Judge Andrew Li) and Chung Che Sum v Dong Sai Ming Fernando (unrep, DCCJ 21504/2001, 15 February 2007, DDJ M Chow).  I considered each of these cases but am also mindful of the caveat that each case turns on its own facts. All things considered, I assess the damages payable by D2 under this head to be HKD 100,000.

Issue 3(7) – D2’s Counterclaims

89.  D2 counterclaims (1) the “remaining balance” of HKD 86,730; and (2) the “extra material costs” of HKD 43,010.  For the reasons below, I dismiss both counterclaims.

90.  First of all, it is an express term of the New Contract that D2 “is not entitled to any payment upon breaching the Scope of Work”.  As D2 was in fact acting in breach of the Scope of Work (for the reasons set out above), D2 is not and was never entitled to any payment.

91.  Secondly, it is also an express term of the New Contract that D2 “is not entitled to any payment until [D2] has completed the works in its entirety”.  Since D2 never completed its work, whether substantially or at all, D2 is not and was never entitled to any payment for this alternative reason also.

92.  Thirdly, for the “extra material costs”, the figures boldly put forward by Ds were just their guesswork.  The receipts, etc., had never been disclosed or produced by Ds – see paragraph 15(2) above.

93.  More should be said about Ds’ material non-disclosure.

94.  As I mentioned in paragraph 15(2) above, save for a very brief period of time, Ds were represented by lawyers.  Ds’ list of documents was professionally prepared by one team of lawyers (in 2017) and reviewed by a second team of lawyers (after 3 December 2018).  Ds would in any case be aware that the best proof of “extra material costs” would be the original receipts showing D2 had in fact paid for such materials.  Yet Ds had never disclosed such receipts in any part of Ds’ list of documents.

95.  I do not accept the explanation given by Ds for their material non-disclosure, which was essentially an allegation that Ds did everything right but two separate teams of lawyers successively “screwed up”.  Other than D1’s oral allegation, there is no evidence that the lawyers in question were in any way incompetent, negligent or unprofessional, or that they had failed to advise Ds on their legal obligation to give full discovery.

96.  In my judgment, Ds must have been aware full discovery was a serious and on-going obligation and that all relevant documents must be disclosed, even if the documents were just within Ds’ “power”, and even if the documents had been lost.  Ds must also have been aware if their list of documents was subsequently found to be defective, Ds’ legal duty would be to file and serve a supplemental one forthwith so as to cure that defect.  Ds’ lawyers, in particular, must be aware the Court of Appeal had in Deak & Co (Far East) Ltd v NM Rothschild & Son Ltd [1981] HKC 78 applied the English Peruvian Guano test in Hong Kong.  Ds’ lawyers must also be aware Ds’ legal duty to disclose all relevant documents continues until the conclusion of this action by reason of what was stated in HKCP 2019, page 630, paragraph 24/2/16 and Vernon v Bosley (No 2) [1999] QB 18 (at 35 D to G and 37 C to F, per Stuart-Smith LJ).

97.  As to the consequence of material non-disclosure, Yuen JA of the Court of Appeal said this in L v C [2007] 3 HKLRD 819 at paragraph 191(2): -

“… In my view, where a party has been guilty of failing to make full disclosure, she cannot complain if uncertainties are determined against her favour…”

98.  I respectfully agree with what Yuen JA had said.

99.  In our present case, given the context above, I can only think of two logical reasons as to why the original receipts for D2’s counterclaim of “extra material costs” were never disclosed or produced: -

(1)  Ds had never in fact paid for the alleged “extra material costs”, so receipts never existed; or

(2)  Receipts existed, but their contents were adverse to Ds’ interests, so Ds dishonestly “buried them”.

100.  Whatever the true reason for Ds’ material non-disclosure was, in the conspicuous absence of the original receipts, and in the conspicuous absence of a valid explanation as to why the original receipts had not been disclosed or produced, D2’s counterclaim in relation to the alleged “extra material costs” must in my view be dismissed as “not proven”.

Issue 3(8) – Final Adjustments

101.  Ms Liu, Counsel for P, fairly accepted in paragraph 113 of her written closing that P should not be unjustly enriched by “double recovery” so that final adjustments must be considered.

102.  I have thus far been assessing damages payable by D2 to P on the basis that my duty should be to put P in the financial position he should have been in had D2 performed the New Contract properly.  That gives rise to the need to make final adjustments because had D2 performed the New Contract properly, P would have to pay the “remaining balance” of HKD 86,730 to D2.  I have thus far been assessing damages for rectification costs and diminution in value without reference to that fact.

103.  In my view, I must make a final adjustment by subtracting the aforesaid sum of HKD 86,730 from the amount of damages payable by D2 to P for rectification costs and diminution in value, otherwise P would be unjustly enriched for that sum.

104.  Similarly, had D2 performed the New Contract properly, D2 would not have to pay liquidated damages in the sum of HKD 57,910 to P pursuant to the 2% Clause.  I have assessed damages for inconvenience and discomfort without reference to that fact.

105.  In my view, I must make a final adjustment by subtracting the aforesaid sum of HKD 57,910 from the amount of damages payable by D2 to P for inconvenience and discomfort, as they covered the same loss (being the loss due to D2’s delay, as opposed to the quality of the works as such), otherwise P would be unjustly enriched for that sum.

Issue 3(9) – Summary on Quantum

106.  In summary, for the reasons set out above, I assess the amount of damages payable by D2 to P as follows: -

(1)  Cost of Rectification in the sum of HKD 49,800; plus

(2)  Diminished Value in the sum of HKD 105,000; plus

(3)  Accommodation Costs in the sum of HKD 46,712; plus

(4)  Liquidated Damages in the sum of HKD 57,910; plus

(5)  Medical Expenses – wholly disallowed; plus

(6)  Damages for Inconvenience and Discomfort in the sum of HKD 100,000; minus

(7)  Adjustment for Remaining Balance in the sum of HKD 86,730; minus

(8)  Adjustment for Liquidated Damages in the sum of HKD 57,910; equals

(9)  An overall total sum of HKD 214,782.

107.  On the issue of interests, P asked for statutory interests to be awarded at judgment rate throughout.  In my view, no positive evidence on loss of interests having been adduced, the said sum of HKD 214,782 shall only carry statutory interests (1) at the rate of 1% above HSBC Prime Rate from the date of the Writ of Summons until today; and (2) at the judgment rate from today until full payment.

108.  As to the reason why pre-judgment statutory interests shall be at 1% above HSBC Prime Rate, reference should be made to what Lam VP had said in Chow How Yee Margaret v Wex Pharmaceuticals Inc [2018] 3 HKLRD 163, [2018] HKCA 344 (paragraphs 44 to 59).  In the absence of special reasons, the normal practice is for a judge to award pre-judgment statutory interests at the rate of 1% above HSBC Prime Rate.  Disagreeable conduct, or even fraud, cannot be a special reason as pre-judgment interest is not there to provide an alternative for aggravated or exemplary damages, or indeed to penalize the losing party in any other way.

Issue 4 – Costs

109.  As between P and D2, costs should follow the event.  Since P is the overall winner and D2 is the overall loser, I order D2 to pay all costs of this action, including costs of D2’s counterclaims and costs previously reserved, to P, to be taxed if not agreed.  This is a costs order nisi.  Unless a party takes out a costs variation summons within 14 days from today, this costs order nisi shall become absolute without further order.

110.  Both P and D2 engaged Counsel.  In my judgment, engaging Counsel for this action was reasonable, necessary and proper.  I certify the engagement of Counsel accordingly.

111.  The situation between P and D1 is slightly more complicated.  P sought a Sanderson order (i.e. an order that the costs of D1 shall be paid by D2).  D1, on the other hand, said he was unreasonably dragged into this litigation between P and D2, and asked for costs against P.  For the reasons set out below, I agree with D1 on this costs issue.

112.  The learned editors of HKCP 2019 explained their views on Sanderson orders at page 1240, paragraph 62/1/5, of their work, as follows: -

“Where a plaintiff has properly, in the court’s view, sued two defendants with his claim against them in the alternative but succeeds against only one, the court may order that the successful defendant’s costs be paid by the unsuccessful defendant. If the court orders that the costs be paid direct by the unsuccessful defendant to the successful, this is normally called a Sanderson order (Sanderson v Blyth Theatre Co [1903] 2 KB 533, CA)”

113.  In deciding whether to make a Sanderson order, I must decide whether it was reasonable in all the circumstances for P to have sued D1 in this action, taking into account “the vicissitudes of litigation” – Leung Lai Ha v Hon Sau Ling [1993] 1 HKLR 86 at 91 per Kempster JA.  In so doing, I must act judicially.

114.  Ms Liu, Counsel for P, in her attempt to persuade me to order D2 to pay for the costs of D1, invites me to closely examine the conduct of all parties (including pre-litigation conduct which gave rise to the dispute in question) pursuant to Order 62 rule 5(1)(e) of the RDC.

115.  I agree I should closely examine the conduct of all parties, and that includes examining facts connected with or leading up to the litigation – Donald Campbell & Co Ltd v Pollak [1927] AC 732 at 812 per Viscount Cave LC and Groupama Insurance v Overseas Partners [2004] 1 CLC 779 [2003] EWCA Civ 1849 paragraphs 29-32 per Brooke LJ.  See also HKCP 2019, page 1252, paragraph 62/5/6.  More importantly, however, I need to examine the pleadings.

116.  P filed a Statement of Claim (“SoC”) on 22 March 2017.  The name of Ms Liu, Counsel for P, did not appear in the SoC, so I assume she did not draft or settle it.  Given the poor quality of the SoC, I would be very surprised if Ms Liu had something to do with it.

117.  In paragraphs 5 and 13 of the SoC, P pleaded a huge number of representations (collectively, “the Alleged Representations”), some of which alleged to have been made by D1 “fraudulently, intentionally and/or dishonestly”.  In paragraph 18 of the SoC, P said D1 was unjustly enriched as D1 said P could pay D2 through him, and P paid a sum of HKD 130,820 to D2 via D1 in reliance on the Alleged Representations.

118.  I note the following about the way P pleaded his case against D1 in the SoC: -

(1)  At nowhere within the SoC did P seek to particularize in what way some of the Alleged Representations were made “fraudulently, intentionally and/or dishonestly”;

(2)  At nowhere within the SoC did P say anything about the truth or falsity of the Alleged Representations;

(3)  At nowhere within the SoC did P say D1 failed to hand over the sum of HKD 130,820 to D2 (as D1’s principal), or otherwise misappropriated or misused the sum for his own benefit to the detriment of P or D2;

(4)  Without saying anything about the truth or falsity of the Alleged Representations, and without explaining why it was allegedly wrong for D1 to have received money on behalf of D2 when D1 was obviously an agent of D2, P, at paragraph 34 of the SoC, jumped to the allegation that he somehow suffered loss in the sum of HKD 456,855 as a result, and then moved on to pray for “restitution” of 2 sums of money, payment of the fixed sum of HKD 456,855, a declaration that P entered into contracts by D1’s inducement, damages, interests and costs, against D1 personally.

119.  In my judgment, P never pleaded any complete, or reasonable, cause of action against D1.  As far as P’s case against D1 is concerned, the SoC was plainly defective, incomprehensible and bad in law.

120.  Faced with such a bad SoC, Ds filed and served a Defence on 12 June 2017, paragraph 17 of which reads as follows: -

“In any event, [P] has no ground to support any claim against [D1] and that the joining of [D1] in this action is an abuse of the court process and as such, the plea is superfluous and is liable to be struck out. [D1] is seeking to apply to strike out all claims against [D1] made by [P] in this action.”

(“D1’s Warning Plea”)

121.  Having read D1’s Warning Plea, P took no step to discontinue his claims against D1 until 27 March 2019, when P informed Ds and this Court via paragraph 50 of his Counsel’s written opening that claims against D1 would be dropped.

122.  Given the above, putting aside whether P could have sued D1 in some other way, it must be plainly wrong, and thus plainly unreasonable, for P to have sued D1 in the manner as set out in the SoC.  Further, having carefully examined the history of this matter, I am fully satisfied there was no real uncertainty.  P’s case against D2 had always been extremely strong, while suing D1 in the manner as set out in the SoC was inherently hopeless.  This case is plainly not one of those cases where the plaintiff did not know for sure who he should be suing.  On the facts of this case, P plainly should have just sued D2.  In my judgment, P’s attempt to drag D1 into this action in the manner as set out in the SoC was indeed an abuse of process.

123.  For the reasons set out above, P’s application for a Sanderson order must be rejected.  As between P and D1, P is the overall loser while D1 is the overall winner.  Costs should follow the event, and P should pay costs to D1.

124.  In terms of costs allocation, I have not been told on which date did Ds’ Counsel receive his brief for the trial.  I have not been told the fees arrangements as between D1 and D2 either.  What I can and do say is that in my judgment, D1 should not be allowed to claim any costs for attending the trial on 9, 10, 11 and 12 April 2019, when this Court was only dealing with issues as between P and D2.  For 8 and 18 April 2019, this Court did spend less than 45 minutes in total dealing with issues concerning the costs as between P and D1. There should be Certificate for Counsel as between P and D1 too.  Save as above, costs allocation can only be dealt with by the Taxation Masters responsible for the taxation proceedings arising from this judgment, if the matter cannot be agreed.

125.  For completeness, I should add that I did closely examine the conduct of D1, as invited by Ms Liu, Counsel for P, in considering whether I should or should not be depriving D1 of his costs.  While I do agree with Ms Liu that D1 played a major role in creating and/or prolonging this dispute, and that D1’s conduct (before and during this litigation) had been “far from satisfactory”, at the end of the day I am not satisfied I should be depriving D1 of his costs.  In this Court, even the most reprehensible person is fully entitled to be treated with fairness, and in fairness to D1 he should be allowed to recover all costs reasonably incurred by him in defending a legally unmeritorious claim brought against him personally (in the manner as pleaded in the SoC) by P.

Disposition

126.  By reason of the above, my formal orders are as follows: -

(1)  Final Judgment in favour of P be entered against D2 for damages in the amount of HKD 214,782 payable by D2 to P forthwith, such damages do carry statutory interests:

(a)  at the rate of 1% above HSBC Prime Rate from the date of the Writ until today; and

(b)  at the judgment rate from today until D2’s full payment;

(2)  P’s claims against D1 be dismissed;

(3)  D2’s counterclaims against P be dismissed;

(4)  As between P and D2, there be a costs order nisi that D2 shall pay all costs of this action, including costs of D2’s counterclaims and costs previously reserved, to P, to be taxed with Certificate for Counsel if not agreed;

(5)  As between P and D1, there be a costs order nisi that P shall pay all costs of this action (excluding the costs of 9, 10, 11 & 12 April 2019 but including costs previously reserved) to D1, to be taxed with Certificate for Counsel if not agreed; and

(6)  Unless a party takes out a variation summons within 14 days from today, the said costs orders nisi shall become absolute without further order.

Final Remarks

127.  In the course of these proceedings, concerns had been raised by P as to whether D2 was trying to render P’s judgment against it nugatory by removing D2’s assets away from D2 and injecting them into a separate corporation.  Ds denied such allegations.  In my judgment, it is unnecessary for me to determine the truth or falsity of the allegations.  However, in light of such concerns, I should say a few words, obiter, on the subject, which I hereby do.

128.  The starting point must of course be the case of Salomon v A Salomon & Co Limited [1897] AC 22 itself, where the UK House of Lords (see the speech of Lord Macnaghten at 51) famously held that a corporation is in law a separate legal entity which is neither the agent nor the trustee of its shareholders.  A corporation’s shareholders are lawfully shielded from the corporation’s own legal obligations.  There are exceptions, but none of them matters for the purposes of this discussion.

129.  The original policy reason for allowing businessmen to create corporations which shield themselves from legal liability was to encourage entrepreneurship.  Other things being equal, a businessman would be more willing to start a new business if he can see that his personal liability would be limited to the amount of capital he injects into the business, and personal bankruptcy can be lawfully avoided even if the new business fails.

130.  From time to time, corporate vehicles are used in questionable manners.  As the law stands, the test is whether a corporation is being used to avoid future legal liability (an unobjectionable act) or to evade existing obligation (an objectionable act rendering it possible for the corporate veil to be lifted) – China Ocean Shipping Co v Mitrans Shipping Co Ltd [1995] 3 HKC 123 at 127 per Bokhary JA, and Winland Enterprises Group Inc v Wex Pharmaceuticals Inc [2012] 2 HKLRD 757 at paragraphs 50-54 per Anthony To J.

131.  The downside of allowing businessmen to use corporations to shield themselves from legal liability is that sometimes the doctrine would operate in such a way so that genuine victims of civil wrongs would be left with nothing more than empty judgments, and no real remedy.

132.  In certain industries natural persons are simply not allowed to use corporations to shield themselves from liability.  The Hong Kong Bar is the best example.  Barristers in private practice in Hong Kong are never allowed to use corporations to accept instructions from solicitors to appear in Court as advocates.  They can only accept instructions as natural persons, and they are personally liable for their professional activities.  Insurance is compulsory for them, so their judgment creditors are rarely left with empty judgments.

133.  Other industries have other mechanisms in place to ensure that in so far as possible innocent victims would not be left with no real remedy.  In the travel industry, for example, there is a centralized “Travel Industry Compensation Fund” which makes payments towards innocent victims in certain scenarios.

134.  In the world of employees’ compensation, a fund established by the Employees Compensation Assistance Ordinance (Cap 365) exists to make payments in situations where the employers had become insolvent or dissolved.

135.  There is currently no protection mechanism similar to the ones identified above to protect consumers of home renovation services.  As the law stands, home renovation workers are perfectly entitled to use corporate vehicles to shield themselves from liabilities, and there is no central public fund from which an innocent victim with an empty judgment can receive payment.  Whilst there is nothing I can do about this situation, I do hope the executive and legislative branches of the HKSAR Government can look into the matter in the future so that consumers of home renovation services can be given more effective protection from irresponsible home renovation workers.

136.  I do thank both Counsel for their most able assistance.