SAN FAI CONSTRUCTION & DECORATION ENGINEERING LTD v. TSANG, FUSON

DCCJ 3133/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3133 OF 2004

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JUDGMENT

1.  Tsang (the Defendant) was the owner of a piece of land in Shatin, New Territories.  In 2001, he had a contractor commenced building a village type house there.  Partially built, the house did not meet Tsang’s expectation.  He changed contractor and engaged San Fai (the Plaintiff) as replacement in 2002.  San Fai says the work had been completed.  This action was commenced to claim the balance of the contract sum.  Tsang disputes and counterclaims for incomplete and defective works.

ISSUES

2.  Tsang raised numerous issues, some by pleading and some by his witness statement.  Putting aside the question of the propriety of doing that, I find the issues raised are basically:

(1)	whether San Fai did not complete the works;
(2)	whether the works were defective;
(3)	whether San Fai is entitled to the claim and its amount; and
(4)	the counterclaim.

BACKGROUND

3.  Tsang acquired the land by way of a new grant in May 1999.  Grant of this nature normally came with a building covenant.  In the present case, Tsang should complete the building of a typical 3-storey village house for occupation in 36 months from the date of the grant (special condition 3 of the grant).

4.  Tsang engaged a contractor to carry out the construction work.  That ended up in a dispute which was eventually settled in March 2002.  The project manager of San Fai, Lui, ran another company which had been engaged to carry out the site formation and footing of the house for the outgoing contractor.  Tsang approached San Fai with a view to its taking over the project.  In June 2002, Tsang and Lui (on behalf of San Fai) signed a written contract.

5.  According to the contract, the scope of services (clause 1) consisted of (1) demolition of the partly built concrete structure; (2) construction of the house; (3) finishing works including interior fittings; (4) windows and doors; (5) electricity and drainage; and (6) painting of the interior.  Construction period was 210 days and maintenance period was 12 months after completion (clause 2).  Construction fee was a lump sum of HK$1,080,000 payable at the various stages as specified in the contract (clause 3).  The balance of the contract sum – HK$120,000 – should be paid after completion by 12 consecutive monthly instalments of HK$10,000 each.

6.  Extension of the original deadline for construction under the grant (May 2002) was necessary and Tsang applied for it.  The works commenced.  San Fai says construction was completed in late January.  In March 2003, San Fai started to issue monthly invoices to Tsang for payment of the balance of the contract sum, i.e., the monthly instalment of HK$10,000.

7.  In April 2003, Tsang requested the District Lands Office (DLO) to issue the certificate of compliance.  However the certificate was not forthcoming.  The DLO demanded that certain part of a fence on the site be removed in compliance with the grant.  After some argument, Tsang finally complied and asked San Fai to carry out such work.  That was in July 2003.  By then, the amount under 4 invoices issued by San Fai to Tsang (i.e., HK$40,000) was outstanding.  Tsang started to pay San Fai.  The additional works were completed at the end of the same month.  In September 2003, Tsang also obtained the certificate of compliance.

8.  San Fai sent monthly invoices and written demands to Tsang for the outstanding balance of the contractual sum.  Tsang started querying San Fai’s entitlement to payment and complaining about defects in the works.  This led to the commencement of the present action in June 2004.

9.  The invoiced amount was HK$120,000 plus HK$4,350 for additional works.  By the time of this action, Tsang has paid HK$43,000.  The balance being claimed is HK$81,350.  Tsang however counterclaims damages for various items, most of which are to be assessed.

10.  The above background is evidenced by contemporaneous documents.

COMPLETION OF WORKS

11.  By pleading, Tsang complained that several items of work were incomplete.  More precisely, he argued that the works should not be considered as complete until the time when these items were completed:

(1)	Concrete pavement on the garden area was completed only in late July 2003.
(2)	Tiles to be provided on top and sides of the retaining wall surrounding the house, including the one at slop toe, was incomplete and grouting was not done.
(3)	Construction debris was not disposed of until Tsang arranged the same to be done in July 2003.
(4)	Gas supply work was not done until Tsang arranged the same to be done in February 2002.

12.  In his statement, Tsang added 2 items of complaint:

(1)	Roof lamps were not installed until April 2003.
(2)	Laundry rail was not installed until May 2003.

Concrete pavement and removal of debris

13.  San Fai’s case, as confirmed by Lui, is that construction of the building was completed in January 2003.  This was reported to the DLO for Tsang’s application for the certificate of compliance.  As mentioned above, the DLO raised the issue regarding the part of the fence on the site which needed to be demolished.  Tsang did not agree until July 2003 when he asked San Fai to carry out such work.  Lui said it was on such occasion when Tsang also asked San Fai to construct the concrete pavement adjacent to the house and to remove construction debris, if any.

14.  Though these were additional items of work in July 2003, San Fai did not charge Tsang additionally.  Lui explained that the reinstatement of the fencing and gate outdoor (under “Finishing”) was supposed to be carried out after the certificate of compliance was issued.  In view of the DLO’s requirement regarding the fence, it was cancelled from the contract.  Therefore San Fai agreed to just carry out the additional works to compensate this cancelled item.  Lui said that was an agreed arrangement with Tsang.

15.  Having said that, in view of the outstanding monthly instalments owed by Tsang by then, San Fai refused to proceed with the work immediately.  Upon Tsang’s commitment to start paying in the same month, San Fai then started to carry out those new instructions in July 2003.

Tiles on the retaining wall and slope toe

16.  There is no dispute that provision of tiles on the retaining wall and slope toe was one of the items of work within the contractual scope of service (under “Finishing”).  San Fai does not dispute such tiles were not provided and grouting was not done.  However Lui said that it was Tsang who instructed San Fai not to do so in order to achieve what was said to be a better outlook.

Gas supply

17.  The contract specified gas supply to be provided on balcony for the 2^nd Floor and others on the ground (under “Electricity and Drainage”).  San Fai’s case is that it had already constructed and reserved a place with stainless steel door for storing gas cylinder.  It was for Tsang to make arrangement with the gas company for the installation and provision of gas supply to the house.

Roof lamps and laundry rail

18.  Lui of San Fai admitted that by January/February 2003, the roof lamps and laundry rail were probably the only items yet to be installed.

Tsang’s position and the contemporaneous documents

19.  Towards the end of April 2003, Tsang wrote to the DLO.  He referred to the completion site visit in February 2003 and requested for the issuing of the certificate of compliance.  The DLO must have been notified of the completion so that the completion site visit was arranged in February.  This corroborates Lui’s evidence about the report of completion to the DLO.  This also shows Tsang’s position at the time, i.e., he too considered that the works were completed.

20.  In his letter to the DLO in August 2003 after completion of the demolition of part of the fence, Tsang requested again for the certificate of compliance.  In the same letter, he repeated his position that the house had been completed for 6 months by then, i.e., since February.

21.  It follows that the 12-month maintenance period and the contractual obligation to pay the balance of HK$120,000 by monthly instalment should have begun.  As mentioned above, San Fai in fact also started to demand Tsang for payment in March.  On the contrary, Tsang’s position is that by then, the 12-monthly instalment period (or maintenance period) was yet to run and therefore San Fai was yet to be entitled to be paid the balance.  However this is not what the contemporaneous correspondence show.

22.  In his reply in July 2003 to San Fai’s demands, Tsang expressed his intention of paying San Fai but he simply did not have the finance.  He undertook to pay as soon as his financial position permitted.  He also urged San Fai to carry out the works requested by the DLO.  Parties had apparently met when San Fai proposed to carry out the works requested only upon Tsang’s payment of the overdue instalments of the balance of the contract price.  Tsang agreed to make a first payment of HK$15,000.  There is no dispute that Tsang did make such payment in the same month.

23.  In August, Tsang still wrote and informed San Fai of another forthcoming payment of HK$5,000.  There is no dispute that such amount was paid that month.  As mentioned above, Tsang obtained the DLO’s certification of compliance in September.  There is no dispute that payment then stopped.  San Fai demanded again.  In his reply in October, Tsang explained that he simply did not have the finance but hoped to pay within 4 to 5 weeks when the property was rented out.

24.  In January 2004, Tsang wrote to San Fai.  He for the first time raised the allegation of outstanding works.  Notwithstanding that, he explained that the payment would be made regularly once a month because he had found a job.  He would also make larger payment once the house was rented out. But for the time being, he was unable to settle the outstanding HK$70,000 in one payment.

25.  The position of Tsang as revealed in the contemporaneous correspondence by January 2004 was hardly consistent with his current denial of liability to pay on the ground of non-completion of works.  Tsang did seek to explain.  According to his statement, Tsang allegedly paid in 2003 as a result of duress.  In court, Tsang explained that his replies and payments to San Fai were meant to induce it to agree to carry out the other works.  Making these allegations in the absence of pleading and against the contemporaneous documentary evidence would only be viewed with scepticism.  I have no difficulty in rejecting such explanation.

26.  I accept Lui’s evidence and find the above case of San Fai to be the fact.

DEFECTS

27.  In the same letter in January 2004, Tsang alleged outstanding rectification works.  In line with my above finding, the 12-month maintenance period should be expiring in about February 2004.  It was about then when Tsang submitted separately 3 lists of alleged defects to San Fai.

28.  In reply, San Fai pointed out that the house was handed over back to Tsang in April 2003.  San Fai did not deny that Tsang had made requests for rectification of defects.  Indeed on 2 consecutive days in May 2003, Tsang sent 2 e-mail messages to San Fai listing out the items which needed to be rectified and cleaned.  The second list actually only supplemented the first list by one item.  Lui said that these items were indeed followed up and finished subsequently.  This is credible.  Otherwise one would have expected such complaint from Tsang after May 2003.  As mentioned above, even Tsang stated that items like the roof lamps and laundry rail, which Lui admitted to be outstanding by February, were installed by May.  I find that the reality since then until January 2004 was what the contemporaneous correspondence between the parties reveals.  Now more than half a year after May 2003, Tsang suddenly came up with lists of alleged defect.

29.  Notwithstanding the expiration of the maintenance period by then, upon receipt of the recent defect lists, San Fai attended a site inspection again, but not without much disagreement with Tsang, in the same month.  Subsequent appointments with a view to carrying out rectification work were far from being smooth.  Eventually San Fai managed to carry out some cleaning work.  The correspondence recorded this but Tsang in court claimed he did not remember.

30.  In any event, Tsang now alleges defects including:

(1)	Cracks on walls of various parts of the house;
(2)	Possible subsidence on left of the house;
(3)	Main power circuit cut during bad weather;
(4)	Broken light and utility switches;
(5)	Faulty door handles and locks;
(6)	Water leakage;
(7)	Blocked drainage;
(8)	Marked floor tiles;
(9)	Cracks on window sills;
(10)	Rusting over various parts of the house;
(11)	Loose door stopper;
(12)	Loose window handles;
(13)	Concrete pavement disintegration;
(14)	Lose shower head;
(15)	Rusting of screws in steel rails at the balconies;
(16)	Metal gratings missing from drainage channel.

31.  The above list is alarming, particularly in view of the background and Tsang’s position prior to these complaints as I found above.  Lui in his evidence denied the condition of the house was as alleged when it was handed over to Tsang.  He also gave his explanation of some of these items.  But to begin with, it is Tsang’s burden to establish the existence, extent and cause of these alleged defects before they could be attributed to San Fai and its workmanship.  This is particularly so when fair wear and tear over time, as a probable cause of many of these complaints (such as (10) to (15)), could not be ruled out.

32.  There should be proper evidence, even from expert, in respect of various items (such as (1), (2), (3) and (6)).  However the apparently objective evidence which Tsang produced was a mere handful of photographs of a few parts of the house.  The only specification one can refer to is the fitting out and interior decoration plans prepared at the time of contract.  But meaningful comparison in substantiation of Tsang’s claim simply could not be made.  According to Tsang in court, he was still intending to engage structural and electrical engineers to carry out inspection.  But he instead produced a quotation by a certain company in November 2004 for certain rectification works for the house.  Such evidence is not even close to the threshold.  Curiously, while Tsang alleged water seepage through the concrete (not cracks) of the walls, the quotation contained proposed repair to the cracks of the walls and waterproofing works in other areas but no waterproofing works on the concrete of the walls.  Tsang admitted that he could not explain.

33.  The alleged loss and damage as a result of the alleged defects is equally problematic.  The amounts of nearly all the heads of claim were still yet to be given during trial.

LIABILITY TO PAY AND COUNTERCLAIM

34.  Imperfection in the works, assuming that it existed, does not necessarily entitle the employer to refuse to pay the contractor.  In an action on a construction contract for a lump sum payable on completion, the employer cannot repudiate liability to pay on the ground that the work, though substantially performed, is in some respects not in accordance with the contract.  The employer is liable to pay subject to any deduction for cost of rectifying defects and omissions.  See Hoenig v Issacs [1952] 2 All ER 176; Chitty on Contracts (29^th ed) Vol. II at para.37-009.

35.  During trial and his closing submission, Tsang put forward arguments about construction of various terms used in the contract, including what was meant by completion of works.  Again suggestion of such argument was not made in the pleading.  But curiously Tsang’s submission ended with the conclusion that this was a case of miscommunication and misunderstanding of the terms.  If there were misunderstanding, such could only exist on Tsang’s part alone.  I am not prepared to accept even that as a matter of fact.

36.  In view of my above findings, I do not see any valid defence to the claim.  Failing to prove the alleged defects, Tsang’s counterclaim also cannot stand.  I should also mention that Tsang also claims damage to a small house of his uncle used by San Fai’s workers during the construction period and misappropriation of a few items from it.  It suffices for me to say that this is neither relevant nor credibly proved as a matter of fact.

THE AMOUNT CLAIMED

37.  There could be no dispute about the amount of HK$120,000 pursuant to the contract.  As to the HK$4,350 for additional works, San Fai issued the relevant invoice dated 5 May 2003 to Tsang for (a) additional cost for full welding to window meshes; (b) one additional mesh at the 2^nd Floor bedroom and one additional mosquito roller at Rear Floor stair hood; and (c) one lamp on the Ground Floor.

38.  By pleading, Tsang objected to (a) and (b) above.  Yet even when he started to take issue about outstanding or rectification works required in January 2004, and not to mention at any time before then, no such objection had been raised regarding this invoice received in May 2003.  He contended that full welding of window meshes, installation of window meshes and mosquito roller were part of the contract works.  Lui confirmed, and I accept, that full welding of all window meshes was neither usual nor contemplated under the contract.  The additional mesh and mosquito roller were installed at the request of Tsang after contract.  I accept that too.

39.  Lastly, Tsang claims deduction for 6 window meshes not provided on the 2^nd Floor.  San Fai did not dispute that.  But Lui confirmed, and I accept, that the 6 window meshes were not installed on the instruction of Tsang.  San Fai had installed all the window meshes on the Ground and the 1^st Floor of the house in accordance with the contract.  There is in any event no evidence of the appropriate amount of any such alleged abatement.

CONCLUSION AND ORDER

40.  The claim is proved.  The counterclaim fails and is dismissed.  I give San Fai judgment in the sum of HK$81,350 together with interest thereon at 1% above HSBC prime rate from the date of writ to today and thereafter at the judgment rate until full payment.  Tsang shall pay San Fai’s costs of this action including any costs reserved.  Such costs shall be taxed, if not agreed.  In the absence of any appointment to argue costs in 14 days, this costs order nisi shall become absolute.