FALCON CONSTRUCTION ENGINEERING LTD v. KIRIN CIVIL ENGINEERING CONTRACTORS LTD

CACV 7/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 7 OF 2005

(ON APPEAL FROM HCCT NO. 11 OF 2003)

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J U D G M E N T

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Hon Le Pichon JA:

1.  I agree with the judgment of Tang JA and the order he proposes in para. 46.

Hon Cheung JA:

2.  I agree.

Hon Tang JA:

3.  The defendant was the sub-contractor for site formation and piling works at a Tai Po Kau building site.

4.  The plaintiff was the defendant’s piling sub-contractor in respect of 2 areas of work, namely, the Residential and Retaining Walls Areas.

5.  Maple Crest Development Limited (Maple Crest) was the employer, the main contractor was Kumagai Gumi (HK) Limited (“Kumagai Gumi”), Maunsell Consultants Asia Limited (“Maunsell”) was the structural engineer.  The architect was P&T Architects and Engineers Limited (“P&T”).  The superstructure contractor was Kai Tai Construction & Engineering Co. Limited (“Kai Tai”)

6.  The piling works in the residential area (“RB”) was substantially larger than those at the retaining walls areas (“RA”).

7.  The piling works were formally completed in February 2000.

8.  However, in relation to RA, the as-built record plans prepared by the plaintiff were submitted to the defendant and then up the chain to the architect on 27 April 1999 and to the structural engineer on 28 May 1999.

9.  Deviation of pile positions in relation of RA were discovered by Maunsell on 3 June 1999.

10.  Although the defendant withheld $100,000 retention money from the plaintiff’s interim payment application due to pile deviation in RA works on 28 June 1999, they were eventually released to the plaintiff on 7 March 2000.

11.  Apparently, the plaintiff submitted remedial proposals which involved no additional costs.

12.  However, in relation to the piling works in RB, the as-built record plans were supplied in batches commencing in September 1999.

13.  They were in turn supplied to P&T and Maunsell.

14.  There were deviations in the piling works at RB.

15.  However, they were not discovered until early July 2000 when Kai Tai obtained possession of the site.

16.  The judge awarded the defendant damages in the sum of $760,000 in respect of Maunsell’s design fee of $160,000 for remedial works and $600,000 for additional building costs due to the re-design of pile caps to take account of the deviation.

17.  However, the judge rejected a claim by the defendant for $900,000 which was described in the Defence and Counterclaim at para. 16.1(3) as:

“… delay damage claim of Kai Tai at $900,000 against Maple Crest passed down the line to Kumagai Gumi and to the defendant;”

18.  The $900,000 was said to represent damages for delay to Kai Tai for 45 days at $20,000 per day, which was a negotiated figure.

19.  This is what the judge said in his judgment:

“55.   I am not, however, persuaded that the $900,000 for Kai Tai was a direct and foreseeable consequence of Falcon’s default. 

56.    There is no evidence, for instance, that Falcon was aware at the time of contracting of the amount of liquidated damages payable to Kai Tai. 

57.    Nor is it clear to me that Falcon would or should have realised at the time of contracting that pile deviation was only likely to be discovered by Kirin after the pile cap contractor had moved on site.  Although the cut-off levels of many of the piles were below ground, it does not follow from that alone that Falcon ought to have foreseen that deviations could only be detected after Kai Tai had taken possession and that Kai Tai would then be idle while remedial measures were undertaken.”

20.  The defendant appealed.

21.  It is clear from transcript provided to us that the judge regarded this claim as too remote.

22.  The rule regarding remoteness of damage is to be found in the judgment of the Court of Exchequer in Hadley v Baxendale [1854] 9 Exch. 341.

23.  In para. 26-047 of Chitty on Contract, 29^th Edition, one finds a modern statement of the rule as follows:

“… A type or kind of loss is not too remote a consequence of a breach of contract if, at the time of contracting (and on the assumption that the parties actually foresaw the breach in question), it was within their reasonable contemplation as a not unlikely result of that breach.”

24.  It is helpful to note the classic statement from the judgment in Hadley v Baxendale as follows:

“Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either as arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.  Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated.  On the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract.”

25.  The defendant’s counterclaim was based on the delay to Kai Tai.  The delay was the result of the deviation not having been discovered until after Kai Tai had taken possession of the site, some 9 months after the first as-built plans were supplied to the defendant.

26.  There was no evidence as to what, if any, loss the defendant would or might have suffered, had the deviation been discovered earlier.

27.  It was, in such circumstances, that the judge found that the plaintiff could not have foreseen that the deviation could only be detected after Kai Tai had taken possession.

28.  On the evidence, the judge was quite entitled to come to that view.

29.  In relation to the deviation in RA, they were discovered shortly after the as-built record plans were supplied to the structural engineer.  It seems from the limited basis upon which we were taken to the evidence and transcript that there was no evidence that the deviation in RB could not have been detected if the as-built plans had been examined thoroughly.  Indeed, the contrary was very likely to be the case.

30.  It is not known why the deviation had not been discovered earlier.

31.  Mr Thomas Lai, who appeared on behalf of the defendant, submitted that the defendant owed the plaintiff no duty of care to discover the deviation earlier and that the plaintiff had not pleaded or relied on a failure on the part of the defendant to mitigate its loss.

32.  I do not believe that the court was concerned with duty of care or failure on the part of the plaintiff to mitigate.  The damages must not be too remote, and remoteness is to be determined according to the rule in Hadley v Baxendale.

33.  What is critical in this case is whether it was within the reasonable contemplation of the plaintiff that the deviation could only be detected after Kai Tai had taken possession of the site.

34.  At the end of the trial which lasted 6 days, the judge concluded that it was not within the reasonable contemplation of the plaintiff.

35.  There is nothing before us to show that the judge was wrong.

36.  Mr Lai also complained about the order relating to the costs of the plaintiff’s application for summary judgment.

37.  The plaintiff applied for summary judgment which was concluded by a consent order made by Master Yuen on 19 February 2002.

38.  By the consent order, judgment was entered in favour of the plaintiff against the defendant for the sum of $1,409,791.96.  The execution of the judgment was stayed pending resolution of the defendant’s counterclaim.  The defendant, however, was given conditional leave to defend the balance of the plaintiff’s claim in the sum of $117,057.50.  The condition was that the defendant should pay $500,000.00 into court.

39.  Then the consent order provided:

“(4) Upon the Defendant fulfilling the aforesaid condition of payment into Court, costs of the Plaintiff’s application by way of Summons dated 17 February 2001 be costs in the cause with Certificate for Counsel;”

40.  Shortly before the trial, the plaintiff abandoned its claim for the balance of $117,057.50.

41.  The judge awarded those costs to the plaintiff on the basis that the plaintiff had succeeded in the cause.  That is because the defendant had succeeded in its counterclaim for a sum of $760,000 only, leaving a net balance of about $649,000 payable by the defendant to the plaintiff.

42.  Mr Lai submitted that the judge erred because the cause referred to in the consent order was concerned solely with the plaintiff’s claim for the balance of $117,057.50.

43.  I do not believe that to be correct.

44.  I believe the consent order provided that the costs of the summary judgment application should depend on the outcome of the trial which would in turn depend on who would have to pay who at the end of the day.

45.  As it turned out, the defendant was liable to pay the plaintiff about $649,000.

46.  For the above reasons, I would dismiss the appeal.  I would also make a cost order nisi in favour of the plaintiff.  Such costs to be taxed, unless agreed.