PRIME VIEW INC. LTD v. ASIAN RICHLY LTD

HCA 1672/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1672 OF 2015

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ASSESSMENT OF DAMAGES

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Background

1.  On 15 September 2015, the plaintiff obtained an interlocutory judgment against the defendant when no notice of intention to defend was given by the defendant, whereby it was adjudged that the defendant do pay the plaintiff damages to be assessed and costs.

2.  By Notice of Apportionment of Assessment of Damages dated 17 February 2017, the assessment of damages was fixed to be heard before me on 22 September 2017.  The defendant did not appear at the hearing, and the assessment was conducted in its absence.

3.  The plaintiff called two witnesses at the hearing to adduce evidence for the assessment.  One is Mr Chan Chung Pang Junly (“Mr Chan”) who gave evidence on the factual background of the case and the loss and damage suffered by the plaintiff, and the other is an expert witness, Mr Choi Kam Ping (“Mr Choi”), who gave his expert opinion on the value of the work done by the defendant amongst other things.  As the defendant was absent, their evidence was not challenged at all.

4.  In fact, by making default in giving notice of intention to defend, the defendant admits all the allegations in the statement of claim indorsed on the writ (see paragraph 13/0/10 of Hong Kong Civil Procedure 2018).

5.  Thus, I am to assess the damages based on the unchallenged facts and evidence before me.

The plaintiff’s case

6.  Mr Chan is the registered owner of the whole building at 145 Wong Nai Chung Road, Hong Kong (“the Building”) and has appointed the plaintiff to be the manager of the Building.

7.  In July 2014, the plaintiff, as employer, and the defendant, as principal contractor, entered into a partly oral and partly written agreement (“the Agreement”) for the renovation and refurbishment of the Building (“the Work”).

8.  By 4 variation orders made on 28 August 2014, 17 November 2014, 13 December 2014 and 20 January 2015 respectively, the Work was varied and the total contractual sum under the Agreement became $5,692,675.50 (after 5% discount from $5,992,290.00).

9.  The plaintiff made 8 part-payments of the contractual sum to the defendant totalling $2,766,678.03 as follows: -

	Date	Amount
Payment 1	8 July 2014	$260,436.23
Payment 2	19 September 2014	$288,681.00
Payment 3	14 November 2014	$93,599.57
Payment 4	19 December 2014	$250,000.00
Payment 5	4 February 2015	$1,133,969.70
Payment 6	9 March 2015	$356,135.95
Payment 7	24 March 2015	$184,538.45
Payment 8	1 April 2015	$199,317.13
	TOTAL:	$2,766,678.03

10.  For Payments 2, 3 and 7, the sums were paid by Mr Chan for and on behalf of the plaintiff and Mr Chan was subsequently reimbursed by the plaintiff.

11.  The defendant repudiated the Agreement by leaving the Building on 10 April 2015 without completing a substantial part of the Work.

12.  On 22 May 2015, the plaintiff contracted with a firm, Ever Trust Decoration Engineering (“Ever Trust”), with a view to completing the Work, and the contract sum quoted by Ever Trust was $2,660,000.00.

13.  Although not expressly pleaded, the plaintiff contends that the defendant’s repudiation was accepted by the plaintiff when the plaintiff contracted with Ever Trust by relying on the following passage from Chitty on Contracts:-

‘An act of acceptance of a repudiation requires no particular form. It is usually done by communicating the decision to terminate to the party in default, although it may be sufficient to lead evidence of an: “Unequivocal overt act which is inconsistent with the subsistence of the contract…without any concurrent manifestation of intent directed to the other party.”’

(see paragraph 24-013 of Chitty on Contracts, 32^nd ed)

14.  At the hearing, the plaintiff produced a letter dated 13 April 2015 from the plaintiff to the defendant (Exhibit P3) whereby the defendant was informed that its leaving from the Building was treated by the plaintiff as a breach of the Agreement and the plaintiff reserved its right to make claims against the defendant. 

15.  I accept that the act of contracting with another contractor Ever Trust to take over the Work is an unequivocal overt act that is inconsistent with the subsistence of the contract between the plaintiff and the defendant, and hence the plaintiff has accepted the defendant’s repudiation.  In any event, the defendant’s repudiation must have been accepted by the plaintiff’s issuance of the writ in this action at the latest.

16.  Thus, the plaintiff is entitled to damages resulted from the defendant’s breach of the Agreement.

17.  In its written submissions, the plaintiff proposed 3 methods of calculation, namely Method A, Method, B and Method C, to the court for assessing the plaintiff’s damages.

18.  The plaintiff accepts that in normal situation, the plaintiff’s damages would be calculated by reference to the additional cost incurred in engaging Ever Trust to complete the Work.  However, this method is not appropriate in the present case as the plaintiff has substantially varied the Work after the defendant’s breach.  Hence, the plaintiff has to propose other methods to calculate the damages suffered by the plaintiff.

19.  Nevertheless, after taking further instructions, counsel for the plaintiff confirms that the plaintiff is now only claiming damages calculated by Method B and will not pursue with Method A or Method C.

20.  Method B is the calculation of the refund of overpayment made to the defendant based on the total amount paid by the plaintiff setting off the value of the defendant’s work.

21.  In fact, in the Amended Statement of Claim dated 5 December 2016, the plaintiff only mentioned 2 particulars of loss and damages, namely (a) costs of registering minor works licences in the sum of $140,000.00 and (b) overpayment to the defendant (ie total payment of $2,766,678.03 to the defendant less the value of the defendant’s completed work of $1,331,771.50) in the sum of $1,434,906.53.

22.  The plaintiff has confirmed in its written submissions that it will not claim the costs of registering minor works licences as a separate item.  Thus, the only remaining claim is the overpayment to the defendant which is calculated by deducting the value of the defendant’s completed work from the total payment made to the defendant.

Legal basis for the claim of overpayment

23.  In East Ham Corporation v Bernard Sunley & Sons Ltd [1966] AC 406, Lord Cohen said this:-

“the learned editors of Hudson’s Building and Engineering Contracts, 8^th ed. (1959) say at p.319 that 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 work specified; or (c) the diminution in value of the work due to the breach of contract. They go on: ‘There is no doubt that wherever it is reasonable for the employer to insist upon reinstatement the courts will treat the cost of reinstatement as the measure of damage.’”

24.  The three possible bases of assessing damages as mentioned by Lord Cohen were adopted in Pamax Limited v Cross Max Interiors Limited, HCA 2181/2002 and Teamways Ltd v WP Engineering Limited,DCCJ 2753/2010.

25.  The plaintiff’s claim for refund of overpayment is derived from the second base of assessing damages as mentioned above (“Base (b)”), namely the difference in cost to the builder of the actual work done and work specified.

26.  In fact, the basis of claiming refund of overpayment in the situation where a contractor failed to complete the renovation project as agreed is succinctly summarized and addressed by the learned authors in Hudson's Building and Engineering Contracts (13th Edn.) at paragraph 7038:-

“In some cases, also, the state of accounts between the parties at the time of termination may mean that a Contactor has been overpaid in respect of the incomplete work, in which event, failing recovery under one or other of the conventional heads of damage for failure to complete, an Employer may be entitled to recover the overpayment in quasi-contract if the contract makes no provision for repayment”

27.  In D. O. Ferguson and Associates Ltd v Mr M. Sohl, 1992 WL 893890, the defendant employer engaged the plaintiff contractor to carry out works at some shop premises.  The contract price was £32,194.25, and £26,738.75 was paid.  The plaintiff contractor left the premises and the value of the work which the plaintiff had actually done was £22,065.75.  At issue was whether the plaintiff contractor could retain the overpayment of £4,673.00.  The English Court of Appeal held that there shall be a refund of the overpayment based on restitution, and Lord Hirst said this:-

“But the key point here is that the £4,673 was not awarded as damages for breach of contract, but in restitution for monies paid for work that had never been done to which, according to the judge's findings, the defendant was clearly entitled, and which cannot be affected by the fate of the parallel claim for damages for breach of contract since the two causes of action are separate and give rise to two separate claims."

28.  In paragraph 6.150 of Emden's Construction Law (Issue 179, 2017), the learned authors cited D. O. Ferguson and wrote this:-

"It was held that the employer could bring a restitutionary claim to recover the excess amount paid, on the basis that there was a total failure of consideration for the excess portion of the relevant payment. The modern law allows recovery wherever apportionment can be carried out.”

29.  Thus, the plaintiff’s claim for overpayment is a restitutionary claim, and in general, there must be a total failure of consideration.  However, where the contract is divisible, the divided parts could be viewed as separate contracts (see paragraph 42 of the case of Teamways, supra).

30.  In other words, the claim for overpayment is permissible if the Agreement is divisible.

31.  In Teamways, supra, Master Own quoted the following passage from Brainchild Productions Limited v Kam Kwong Design Company (a firm), HCA 311/1984:-

“99. I agree with counsel for the plaintiff that this was an entire contract. Although the parties had agreed that the plaintiff would pay two sums before the defendant had completed his obligations under the contract and that the balance of the contract price would be paid some days thereafter, I do not think that such an agreement created a divisible contract. This was not a case where certain sums were allotted to separate and distinct works to be performed independently of each other. The contract was not divisible in the sense that it created an obligation to pay for a divisible part of the performance which was independent of the performance of the other parts of the contract.”

32.  Master Own then proceeded to discuss whether the contract in the case he was dealing with was a divisible contract.  He found that each of the 27 items of work listed in the quotation contains an individual fixed amount without reference to the other items, and the fact that one particular item of work may, to some extent, in substance link or relate to another item of work does not affect the divisibility nature of the contract as 27 contracts.

33.  He also found that the absence of allocation of the amount of the down payment and subsequent payments towards the contractual price of each individual item of work would not affect the divisibility nature either, reason being that each item of the contractual works, though divisible, was to be carried out at or about the same time and to split and allocate payments made against each individual item of work would add nothing but complexity in accounting.

34.  The same situation can be found in the present case, as the Bill of Quantities under the Agreement sets out the charges separately for each item and all items are independent work which can be separated from each other.  Likewise, the payments made by the plaintiff would not affect the divisibility nature of the Agreement.  In substance, there is no difference between the present case and Teamways.

35.  I therefore come to the same conclusion as in Teamways and find that the Agreement is a divisible contract with 19 separate items as set out in the Bill of Quantities.

36.  The plaintiff is therefore entitled to claim the refund of overpayment based on the aforesaid authorities.

Assessment of damages

37.  In order to assess the value of those parts of the Work that were completed by the defendant, the plaintiff appointed a loss adjuster, namely Brooks Loss Adjusters Limited (“the Loss Adjuster"), to prepare two expert reports in April 2015 and July 2015 respectively.

38.  According to the first expert report, Mr Choi (a surveyor of 37 years of relevant experience) assisted by Mr Siu Tak Him (“Mr Siu”) (a surveyor of 7 years of relevant experience) of the Loss Adjuster attended the Building and inspected the value of the work completed by the defendant as of 24 April 2015.  The value of the works done by the defendant based on the percentage of completion as assessed by the Loss Adjuster was $2,116,388.15 (with 5% as the discount rate as agreed by the parties).

39.  On 3 July 2015, Mr Choi and Mr Siu attended the Building and carried out a second round of assessment to assess the value of the defendant’s works with defects and/or deviations from design.

40.  In particular, items 2, 3, 7 and 17 as set out in the first expert report were different form the original design and a deduction of value was included accordingly.  The second expert report was completed on 26 August 2015.

41.  According to the second expert report, the value of the work completed by the defendant with defects and/or deviations from design as assessed by the Loss Adjuster was $2,042,667.00 (with 5% as the discount rate as agreed by the parties).

42.  The plaintiff relies on the figure of $2,042,667.00 as stipulated in the first part of the second expert report for the purpose of the present assessment.

43.  The particulars of the calculation are provided as follows:-

Total Value of Completed Works
(1)	Total contract sum before discount	$5,992,290.00
(2)	Total contract sum after discount	$5,692,675.50
(3)	Discount		5%
(4)	Total value of completed work before discount		$2,150,176.00
(5)	Total values of completed works after discount		$2,042,667.00
Refund Amount
(1)	Amount paid		$2,766,678.03
	Less
(2)	Total value of completed works		$2,042,667.00
Refund Amount:			$724,011.03

44.  As Mr Choi’s evidence is unchallenged, and I have no reason to doubt his expertise in assessing the value of the works completed by the defendant, I find that the sum of $2,042,667.00 is the appropriate value for the works completed by the defendant.  I note that in the Amended Statement of Claim, the value of the defendant’s completed work was stated to be $1,331,771.50.  As there is no evidence to support this figure, $2,042,667.00 should be adopted instead.

45.  The 8 part-payments made to the defendant by the plaintiff and Mr Chan on behalf of the plaintiff totalling $2,766,678.03 are clearly substantiated by the evidence of Mr Chan.

46.  Thus, I have no difficulty in adopting the above calculation and find that the overpayment made to the defendant was in the sum of $724,011.03.

47.  The plaintiff is therefore entitled to claim the refund of overpayment in the sum of $724,011.03, and this is the amount of damages that I assess.

48.  The plaintiff is also entitled to interest on the amount assessed.  I accept that the rate of 8% per annum from the date of the writ to the date of Judgment and thereafter at Judgment rate until payment is appropriate in the present case.

Conclusion

49.  In the circumstances, I make the following orders: -

(1)  Damages be assessed at $724,011.03 together with interest thereon at the rate of 8% per annum from the date of the writ until the date of Judgment and thereafter at Judgment rate until payment.

(2)  Costs order nisi: The defendant do pay the plaintiff costs of the assessment of damages with certificate for one counsel to be taxed if not agreed.