SUN CHEONG CONSTRUCTION CO LTD v. THE INCORPORATED OWNERS OF KING FU, HO FU, KI FU & KA FU BUILDINGS

HCCT 27/2010

[2019] HKCFI 2076

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 27 OF 2010

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J U D G M E N T

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Background

1.  The Plaintiff is a contractor engaged by the Defendant (“Owners”) to carry out maintenance and repair works for the property at Dock Street, Hunghom in Kowloon, known as the King Fu, Ho Fu, Ki Fu and Ka Fu Buildings (collectively, “Buildings”).  The Building Authority had on 18 April 2005 issued a Building Order (“Building Order”), requiring certain rectification works to be carried out on the structure of the Buildings, and in respect of detached or damaged plastering on the external walls of the Building to be removed (“BO Building Works”).  In December 2005, the Owners resolved to take this opportunity to carry out large scale maintenance works to the external walls, common parts and other parts of the Buildings.  Wealthy Gate Architects & Associates Limited was appointed by the Owners to be the architect and authorized person (“AP”) in respect of such works.

2.  By a contract in writing dated 15 December 2006 (“Agreement”), the Owners engaged the Plaintiff, and the Plaintiff agreed to carry out building repair and maintenance works at the Buildings (“Works”), for the total sum of $14,484,112 (“Contract Sum”).  The Contract Sum was later revised to $14,428,054.75, with 2 items of Work excluded from the scope of the Agreement.

3.  The Plaintiff claims that the Works were completed on 19 December 2007, a Certificate of Practical Completion was issued by the AP on 20 December 2007, and that the retention period of one year from the date of issue of the Certificate of Practical Completion expired on 19 December 2008.  The Plaintiff claims that of the Contract Sum, a balance of $1,277,957.59 (“Retention”) had been wrongfully withheld by the Owners, is due and payable by the Owners, and seeks recovery. 

4.  The Plaintiff claims that under the Agreement, 80% of the Retention is payable within 30 days upon receipt of the AP’s Certificate for Completion of Liability during Retention Period, and the final balance upon the AP’s issue of the Retention Payment Certificate on 27 July 2009.  These Certificates had been duly issued by the AP, but the Owners failed to make payment and the Plaintiff claims that they were in breach of the terms of the Agreement.

5.  By way of defence and counterclaim, the Owners allege that the Plaintiff had failed to complete the Works and to carry out the Works with proper care and skill, in that parts of the Works executed by the Plaintiff were defective.  By the time of trial, the issues relating to these claims of the Owners have been confined to the following:

(1)   the Plaintiff failed to remove badly rusted metal objects which were left on the external walls of the Buildings (“Foreign Objects Claim”);

(2)   the Plaintiff failed to carry out proper survey/investigation of the condition of the concrete surfaces (a) inside the pump rooms on the ground floor; and (b) on the external walls  of the Buildings by hammer tapping test; and failed to record and report on the locations where the concrete was found to be hollow/defective, such that the necessary concrete repair works were not carried out in respect of these hollow/defective parts;

(3)   the Plaintiff failed to carry out the hammer tapping test, and failed to identify and completely remove all loose, detached and/or defective concrete on the wall surfaces in the internal common areas of the Buildings, thus failing to remove the corresponding defective concrete cover to carry out the necessary repair works with the proper care and skill;

(4)   the same failures as (3) above, but in respect of the ground floor lobbies of the Buildings ((2) to (4) referred to collectively as “Defective Concrete Claim”);

(5)   the Plaintiff carried out defective waterproofing work for the water tanks, by failing to remove all finishing layers inside the water tanks, failing to carry out repair to the concrete surface, and failing to apply protective and waterproofing layers on the repaired concrete surface with protective tiling or finishes, causing water leakage from the fire service tanks/fresh water tanks/flush water tanks of the Buildings (“Defective Waterproofing Claim”); and

(6)   the Plaintiff carried out defective sealing up work between the drainage pipes and the surrounding concrete structure (“Defective Sealing Claim”).

6.  The Owners counterclaim for their damages and costs sustained as a result of the Plaintiff’s breach of the Agreement, which damages they claim to be $8,907,392.10 (as reduced by the time of trial).

7.  The issues for determination at trial are whether the Certificate of Completion of Work and the Certificate of Defect Liability were properly issued under the Agreement, and were conclusive and binding; the scope of the Works under the Agreement, and whether the Plaintiff had failed to carry out any part of the Works; and whether the Works carried out by the Plaintiff were defective.

The Certificates

8.  Counsel for the Plaintiff sensibly accepts in Closing (paragraph 28 of his submissions) that the Court has jurisdiction to review the Certificates issued by the AP under the Agreement.  This must be right, as there is nothing in the Agreement which states that the Certificates were to be final, conclusive or binding as to the sufficiency or quality of the Works, or that any remedy available to the Owners would be waived or abandoned. Counsel only highlights that the burden is on the Owners to prove that they were outstanding work and/or defects, as alleged.  The pleaded disputes as to the binding effect and correctness of the Certificates need not be resolved, the focus being on the scope of the Works defined in the Agreement, and whether there were defects in the Works carried out. 

1.   The Foreign Objects Claim

The Agreement and scope

9.  This dispute turns on the scope of the Works, and whether the Plaintiff is required within the scope of the Agreement to remove the rusty nails and other foreign objects detected on the external walls of the Buildings.  The Owners claim that there were over 2000 metal objects which were left on the external walls of the Buildings, which ought to have been but were not removed by the Plaintiff upon completion of the Works.  As a result, the Owners had to incur $3,985,762 to erect, maintain and eventually dismantle bamboo scaffolding for the purpose of removing these foreign objects. Costs of $1,840,000 were also incurred to remove the objects themselves.

10.  Clause 1.4.8 of the Conditions of Contract expressly provides that in the event of any inconsistencies in the provisions of the quotations, drawings, Conditions of Contract, and Work Standard Specifications which apply to the Agreement, the order of significance is to be: (1) Conditions of Contract; (2) quotations; and (3) Work Standard Specifications and drawings.  This is not disputed by the parties.

11.  The quotation submitted by the Plaintiff to the Owners (“Quotation”) sets out details of the different categories of work proposed to be carried out by the Plaintiff: survey work, reinforced concrete repair work, external wall repair and renovation work, internal areas painting and renovation work, waterproofing work, water tanks repair work, water pipes work, flushing water drainage work, fire services installation work, sewage drainage work, metal works, and a category under “others” which include dismantling and removal of discarded installations from the Buildings. 

12.  In turn, the Work Standard Specifications Particulars (“Particulars”) set out details of the work procedure and materials required for all the different works covered by the Quotation. 

13.  It is not disputed that the Plaintiff was only awarded 7 of the 20 categories of the work included in the Quotation.

14.  Item 3 of the Quotation provides for work relating to the repair (修葺) of reinforced concrete (“RC”) (“RC Repair Work”).  This refers to the removal of all unstable, hollow or defective RC and finishing.  Item 3 also refers to the employment of specified work procedures and materials to clean the RC.

15.  Item 4 of the Quotation provides for the repair (維修) and renovation (翻新) of the external walls (“EW Renovation Work”). Item 4.1 refers to the use of high pressure water gun to clean （清洗）the external wall to remove all loose objects, oil stains, dirt and rust stains.

16.  Item 14 of the Quotation refers to work categorized as “Others”.  The work included in item 14 refers to the inspection and dismantling of all discarded or abandoned installations of the Buildings, including discarded electrical wiring, electrical conduits, antenna racks, water pipes, drainage pipes, any metal racks and any discarded/abandoned installations.  It also refers to the removal of public or personal items such as air conditioners, pipes, and electrical wiring.

17.  It is not disputed that the Agreement awarded to the Plaintiff and made between the parties excludes the work covered in item 14 of the Quotation.  The Plaintiff was not required to carry out such work.

18.  Under the section of the Particulars headed “renovation of external wall” （“翻新外牆”）(“Renovation Section”), Clause 1 defines “external walls” to include the parapet wall, tie beam, balcony and canopy of the external wall of the Buildings.  Clause 2 states that the survey and repair of RC has to be carried out in accordance with the Particulars.

19.  Clause 3 of these Particulars applies to the cleaning of the external wall（“清理外牆”） and the treatment of the wall surface（“處理表面”）.  Clause 3.1 refers to the survey and repair of the RC, and states that high pressure water guns should be used to clean （“清洗”）the surface of the mosaic tiles, and that all dirt, dust, defects/blemishes, and foreign objects have to be removed（“清除”）.

20.  Under the section of the Particulars headed “dismantling external wall foreign objects” （“拆除外牆異物工程”）(“Dismantling Section”), clause 1.1 provides that “if the Quotation does not specify any scope of work”, then “all foreign objects” on the external wall (for example discarded supporting racks, nails and billboards) are included, and the contractor has to be responsible for the appropriate cleaning or clearing （“清理”）, transportation and discarding of dismantled objects.

21.  On the Owners’ pleaded case, the Plaintiff failed to remove over 2000 metal objects which remained on the external walls of the Buildings after completion of the Works.  These foreign objects included nails, bolts, metal bars and metal tubes which protrude from the surface of the walls, and were scattered or distributed all over the external walls of the Buildings.  The Owners claim that this constitutes breach of clauses 1.1, 3.1 and 3.4 of the Dismantling Section, and clauses 3.1 and 4.4 of the Renovation Section.

22.  The references to foreign objects in the Dismantling Section of the Particulars apply to the work of dismantling discarded supporting racks, nails, billboards and other discarded installations left on the Buildings.   However, reading the Quotation and the Particulars as a whole, since the Quotation clearly separates the different categories of work into RC repair, EW repair and renovation, and (under “Others”) the dismantling of discarded installations, and the Particulars in turn provide details and specifications of the standard of the corresponding work of RC repair, EW repair and dismantling, I accept the submissions made on behalf of the Plaintiff that the Dismantling Section of the Particulars and the references to cleaning or clearing therein refer only to the dismantling work under item 14 of the Quotation, which is not included in the Agreement.  Item 14 of the Quotation makes specific provision for the work of dismantling, so the Dismantling Section of the Particulars does not apply to item 4, where it refers to the clearing of dismantled items and foreign objects. 

23.  I accept, however, that clause 3 of the Renovation Section of the Particulars (which is within the scope of the Works under the Agreement) extends to the cleaning and treatment of the external walls and the surfaces of the Buildings.  Clause 3.1 provides not only that the surface of the mosaic tiles have to be cleaned with high pressure water guns, but further requires all dirt, “defects/blemishes” and “foreign objects” to be removed.  On reading clause 3.1, I do not accept that the cleaning, treatment and removal is only confined to washing, cleaning and removal by high pressure water jets (as the Plaintiff contends).

24.  On a plain reading of the language used in clause 3.1, and giving it commercial meaning as would be understood by the parties against the factual matrix of this case, I find that this includes the removal of the metal objects and rusty materials which were found on the surface of the external walls, or left on the walls upon completion of the Plaintiff’s Works.  The work is said to include the repair of the RC, the cleaning of the exterior wall, and the treatment of the surface by the “removal” of the dirt, defects and foreign objects.  It is pertinent that the BO Building Works specified in the Building Order included the removal of loose metal and foreign objects on the exposed RC.  The Building Order was the cause of the Agreement for the execution of the Works.  It is inconceivable that the parties would have intended the Agreement to only require the removal of such foreign and metal objects which could only be removed by high pressure water jets.  By application of mere common sense, it is incomprehensible that metal objects on the wall can be removed by water jets, and the parties could hardly have intended, at the time of the Agreement, that the scope of the Works should cover removal of foreign objects by high pressure water jets only.

25.  However, having reviewed the evidence adduced at trial, I am not satisfied that the Owners have discharged their burden of proving their claim, that 2000 items of foreign objects were left on the external walls after the Plaintiff had completed their Works.

The evidence

26.  The question of expert evidence was dealt with in this Court’s Decision of 28 January 2019.  With leave of the court granted on 26 November 2015, expert evidence was allowed on quantum and defects.  The expert called by the Owners, Dr Sammy Yin Nin Chan (“Chan”), produced a report on the outstanding and defective works dated February 2017 (“Chan 2017 Report”).  At paragraph 1.7 of the Chan 2017 Report, he confirmed that he was commissioned by the solicitors acting for the Owners to be the structural engineering expert witness to answer the specific questions posed by the parties and directed by the Court in the 2015 Order.  In Chan’s 2017 Report, he appended 9 “assessment” and “condition survey” reports (“Assessment/Survey Reports”) prepared by Wong & Cheng Consulting Engineers Limited (“WC”) on the condition of the pipe and drainage system, the external walls, the concrete structure at various locations, the structural condition of the external walls, and water leakage at various locations, of the Buildings.  These Assessment/Survey Reports were made on different dates, from August 2009 to October 2013, all prior to the 2015 Order. 

27.  By reference to and on the basis of the Assessment/Survey Reports, Chan expressed his opinion and conclusions in the Chan 2017 Report, including, in the context of foreign objects left on the walls, that there were 118 abandoned nails and bolts observed on 5% of the total surveyed area of the external walls of the Buildings (paragraphs 4.1.3 and 6.2.1 ii); that they were likely used for the installation of scaffolding, or had been left from external work carried out by other contractors, and which should have been removed by the Plaintiff (paragraph 6.2.1 iii); and that as a result, water with rusty stain dripped from these objects, causing damage to the structure of the Buildings.

28.  On the basis of the WC Assessment Report of December 2009, and 5% only of the total area of the external walls surveyed, Chan stated in paragraph 6.2.1 ii of the Chan 2017 Report that the “total number of foreign objects on the external walls of all the Buildings is estimated to be more than 2000”.  He further stated his opinion (in paragraph 6.2.1 iii) that the nails and bolts observed “were likely used for the installation of scaffolding by (the Plaintiff) or had been left over from the previous external work carried out by other contractors”, and that the Plaintiff should have removed the scaffolding together with the nails and bolts to complete the entire repair and renovation of the external walls.  Such opinion was based on observations made of the Buildings between 30 October 2009 and 28 November 2009.

29.  The Owners also rely on Chan’s Supplemental Report dated October 2018 (“2018 Supplemental Report”).  This refers to the visual inspection carried out, between 28 July and 1 August 2018, of the external walls of 2 of the 4 Buildings, namely, King Fu Building and Ka Fu Building.  The 2018 Supplemental Report records that there were a total of 498 metal objects seen at 317 locations of the external walls of King Fu Building, and 166 metal objects seen at 166 locations of the external walls of Ka Fu Building.  Chan explained in the 2018 Supplemental Report that the surface area of King Fu Building and Ka Fu Building (the 2 of the 4 Buildings inspected) represented 2.5% and 1.4% of the total surface area of the 4 Buildings, and that there were 1.2 locations of each square metre of the wall area of King Fu Building, and 0.8 locations of each square metre of the wall area of Ka Fu Building, where foreign objects were found. 

30.  It was on the above basis that Counsel for the Owners justified Chan’s estimation by extrapolation that there were a total of 2000 foreign objects on the external walls of all the Buildings.  No other explanation was given by Chan in his expert reports.

31.  From the photographs of the foreign objects, appended to the December 2009 Assessment Report and the “Photographic Records” dated December 2018, the Owners sought to argue that there were “systematic” or “symmetrical” patterns in the positions of the foreign objects seen on the external walls of the Buildings photographed, suggesting that they were put up or installed by the Plaintiff when they erected the scaffolding to carry out the Works, but had been left behind on completion of the Works and removal of the scaffolding.

The Further Renovation

32.  It was only in the course of the cross-examination of the Owners’ witness, Mr Chang Zhong Kai Kenneth (“KC”), the Vice-Chairman of the Management Committee of the IO, that it was revealed that in 2016, after the completion of the Plaintiff’s Works and after the commencement of these proceedings in October 2009, the Owners appointed   another contractor  (“Ample”)    to carry out large scale renovation and extensive repair works for the Buildings (“2016 Renovation”), including repair and renovation of the external walls, the internal areas, the water tanks and the rooftop surfaces of the Buildings.  The 2016 Renovation works were resolved by the Owners at an annual general meeting on 1 March 2016.  $2 million was resolved to be raised to carry out the renovation works, which was part of the continual general repair and renovation of the Buildings.  Last minute discovery was made by KC in relation to the 2016 Renovation, and such discovery revealed that approximately HK$3,270,700 had been invoiced by Ample and paid by the Owners for the repair and renovation works which were carried out at various locations in the 4 Buildings, between 2016 and at least 2018, and which (according to KC) were still continuing.

33.  From the evidence adduced in the course of KC’s cross-examination at trial, the 2016 Renovation works were not confined to simply rectifying defects allegedly left by the Plaintiff, but included works on the external walls and other parts of the Buildings not covered by the Agreement, as the Buildings had by then shown further signs of deterioration from age.

34.  On behalf of the Plaintiff, it was emphasized by Counsel that at no time before trial had the Plaintiff or its legal advisors been notified or made aware of the 2016 Renovation and the further work carried out to the Buildings.  The Owners of course claimed the costs of repairs of the Plaintiff’s allegedly defective works, but no mention of the major renovation works carried out after 2009 had been made in either the pleadings or the witnesses statements.  The Plaintiff had had no opportunity to consider the effect of the 2016 Renovation works on the Owners’ counterclaim for the costs and expenses allegedly incurred for the purpose of rectifying the allegedly defective and incomplete works of the Plaintiff.  This is particularly so when, on the face of the quotations and invoices produced by the Owners in respect of the works carried out as part of the 2016 Renovation, such works overlapped with the nature and location of the allegedly defective and incomplete works of the Plaintiff under the Agreement.  The Plaintiff had not been given the opportunity to examine whether the costs allegedly incurred by the Owners which are the subject matter of the counterclaim were incurred only for the repairs of the defective or omitted works of the Plaintiff, or were part of the overall 2016 Renovation.

35.  In this context, the evidence of the Plaintiff’s expert, Dr James Lau (“Lau”), is pertinent.  At the time when the Works were made the subject matter of the Agreement in 2006, the Buildings were already 30 years old.  The Works were required and the defects of which the Owners complained were mainly associated with the spalling of concrete and the corrosion of steel reinforcements inside the concrete walls of the Buildings.

36.  As Lau explained in his report, when reinforcement steel in concrete is corroded, the steel reinforcement increases in volume, causing the concrete to expand, bulge, crack and be separated from the main body of the concrete.  Since there is carbon dioxide in the atmosphere, when the carbon dioxide dissolves from the moisture in the air, a weak carbonic acid is formed, which diffuses through the concrete surfaces and enters the body of the reinforced concrete.  Carbonation is the process of the weak carbonic acid traveling into the concrete, neutralizing the alkaline environment of the concrete, and turning the concrete slightly acidic.  The neutralized zone in the concrete is the carbonated zone.  Under the neutralized or acidic conditions, steel reinforcements in the concrete can be corroded.  On corrosion, the reinforcement expands in volume, causing the concrete to separate and crack, leading to concrete spalling and damage.  At this stage, if the concrete element is tapped with a hammer, a hollow sound can be heard by the investigator, indicating that a separation has formed between the surface lose concrete and the main body of the concrete element.  As the weak carbonic acid travels deeper into the concrete, the carbonation zone increases in depth, affecting more reinforcement in the concrete, and the degree of spalling and damage to become more serious.

37.  At paragraphs 61 to 66 of his report dated 11 January 2018, Lau further explained:

“61. The diffusion of the weak carbonic acid through the concrete element is a slow process. If the concrete is dense and the quality and workmanship in concrete casting are good, it may take a long time for the carbonated zone to reach the reinforcement steel. Hence the rate of diffusion and corrosion can be different at different parts of the building.

62. The Buildings concerned in this Court proceeding are old. Due to the age, one expects to find spalled concrete at different parts of the Buildings. When these concrete elements are hammer tested, hollow sounds can be heard on the damaged concrete.

63. I told the Court that corrosion and expansion of reinforcements cause a separation of the surface concrete from the main body of concrete. The separation causes hollow sound to be heard when the concrete element is hammer tested. On the other hand, if the expansion of steel reinforcement is not sufficient to cause a separation in the concrete, the tapping will not give the investigator the hollow sound. It does not mean that concrete elements without the hollow sound on tapping are concrete without corroded steels. It just means that the expansion in the steel reinforcements is insufficient to cause a separation of concrete at that moment in time.

64. Carbonation is a continuous process. The corrosion and expansion of reinforcements is also a continuous process. Corroded reinforcements are present in all concrete elements in old buildings. Certain parts of the building may be satisfactory when tested on certain date. However, a year (or even a few months later) later, the same parts may be found unsatisfactory. The only way out is to carry out comprehensive rectification work on the whole building. By whole building, I mean basically all structural elements in the building. The repair must be carried out on both sides of the reinforced concrete element. The repair should be carried out not only in the common areas, it must also include structural elements inside the flats of private owners. This is going to be expensive and time consuming. As a matter of fact, to properly repair an old building can be a lot more expensive than rebuilding the building to the same size and volume.

…

66. In the case of old buildings such as those in the present case, the scope of repair work is severely limited by IO’s budget.  Items in the BD Order must be repaired.  For the rest of the renovation work, only the most critical and defective items that could be identified at the time were repaired.  Items that could not be identified as defective at the time were not repaired.  It does not mean that these unrepaired items were in perfect conditions.  It just means that the problems in these items did not manifest themselves at the time of the investigation. It is perfectly logical that with the passage of time more and more defects will be found in the unrepaired areas of the buildings.”

38.  Lau highlighted the fact that by the time that he was engaged as the Plaintiff’s expert in these proceedings and could inspect the Buildings, it was in 2015, 2016 and 2018.  Due to the long time gap between the completion of the Works in 2009 and 2015/2016, any inspection he conducted made little sense for identifying defects in the Plaintiff’s Works in 2007 or 2009.  The physical state and appearance, and the location of the defects identified in the Assessment/Survey Reports dated August 2009 to October 2013, which were relied upon by Chan, would not be the same at the time of Lau’s inspection.  The concrete Buildings are subject to material aging and corrosion through chemical and physical weathering, which is a natural and continuous process, such that new defects would become apparent over time, and from time to time.

39.  Lau pointed out that it was natural and inevitable that there would have been repair and renovation work carried out by individual owners on the external walls of the Buildings since the completion of the Plaintiff’s Works, whether or not due to any fault or omission on the part of the Plaintiff.  Lau referred to owners modifying or removing the canopies above the windows of their flats, by way of example.  Even prior to obtaining knowledge of the 2016 Renovations, Lau already pointed out in his report that during his first inspection in December 2015, he had observed that there were scaffolding on the external walls of some of the flats, indicating that work was being executed in the area of the scaffolding.

40.  Due to the age of the Buildings, and the lapse of time intervening since the completion of the Works in 2009, any defects or foreign objects detected or observed on the external walls of the Buildings in 2018 – as referred to in Chan’s 2018 Supplemental Report, cannot reliably be said to have been caused by the Plaintiff’s Works, or as indicative of what had been left behind by the Plaintiff, when they completed the Works in 2009.  With the evidence of the 2016 Renovation, it is equally probable that the foreign objects detected in 2018 were left behind by the contractor responsible for the 2016 Renovation works.  According to the quotations produced for the 2016 Renovation, the works inevitably involved the erection of scaffolding.  As Lau had also observed, in December 2015, there were already scaffolding on the external walls of some of the flats, suggesting that works had been carried out then.  The iron anchors, nails, bolts or pipes referred to in Chan’s 2018 Supplemental Report, and observed between July and August 2018, could also have been left behind by the contractors responsible for these works, carried out in 2015 on the instructions of individual owners of the Buildings as part of their own renovation plans.

Conclusion on the evidence of the Foreign Objects Claim

41.  In the context of the Foreign Objects Claim, the Photographic Records dated December 2018 relied upon by the Owners to show that the positions of the foreign objects seen on the external walls of the Buildings cannot be accepted as reliable evidence that the foreign objects claimed to form the pattern alleged are, on the balance of probabilities, left by the Plaintiff’s Works or the Plaintiff’s erection of scaffolding.  By the time the photographs were taken in 2018, the 2016 Renovation had been carried out.  No evidence has been offered by the Owners, or Chan, to confirm that the 2018 photographs depicted the pattern formed before the commencement of the 2016 Renovation works, and was not formed by the scaffolding erected by other contractors engaged for the 2016 Renovation.

42.  Second, it does not appear from the evidence that the Owners complain only of bolts and nails which may have been put up for the scaffolding erected for the Works, but were not removed by the Plaintiff.  The table set out in paragraph 2.1.1 of the 2018 Supplemental Report shows that there were other items said to have been left on the walls, such as copper tubes, plastic pipes or tubes, and bars.  Although I can agree that some of the photographs referred to in the December 2009 Assessment Report (showing the condition of the Buildings observed in 2009), suggest a pattern on the external walls of King Fu Building and Ka Fu Building where the foreign objects were said to appear, (by way of example only, those on pages 3196g, 3196k, 3196m and 3196ab of Bundle B13,) other photographs produced and relied upon by the Owners, and appended to Chan’s reports, show that other alleged foreign objects were scattered over sporadic positions (eg photograph T101 on page 4068, photographs T109 and T110 on page 4069 and photograph T253 on page 4102 of Bundle B17).  If Chan’s estimate of 2000 objects was based on his observation that the objects formed a pattern, he has not explained or made clear how many of the 118 foreign objects observed, on the 5% of the walls inspected, were likely to form the systematic or symmetrical pattern relied upon, and how many were sporadic in location.  Nor can it be seen from the table set out in paragraphs 2.1.1 and 2.2.1 of the 2018 Supplemental Report (even if that should be taken into consideration) which of the metal objects are likely to be those which are said to comprise the pattern, and which are not objects which are expected to be involved in the erection of scaffolding which forms the pattern.  The fact that according to the December 2009 Assessment Report, only 8 foreign objects could be observed at Ki Fu Building when there were approximately 40 objects observed on the other 3 Buildings, suggests that there is no consistent “pattern”.  Without further details, it is difficult to conclude that Chan’s estimate of 2000 foreign objects existing on the external walls of all the 4 Buildings is, on a balance of probabilities, justified and reliable.

43.  I have borne in mind that according to Chan’s December 2009 Assessment Report, he had only observed 5% of the total area of the external walls of the 4 Buildings, and found 118 foreign objects.  In his 2018 Supplemental Report, Chan sought to explain that he had visually observed further portions of King Fu Building and Ka Fu Building.  However, he did not disclose the effect of the 2016 Renovation, or was not informed of the 2016 Renovation, to explain why it was his opinion that any foreign objects observed in 2018 as forming part of the scaffolding work pattern were not left as a result of the works carried out by the contractor responsible for the 2016 Renovation. 

44.  It is also significant that the Chan 2012 Report and the 2018 Supplemental Report make no distinction whatsoever between the work comprised in Item 4 of the Quotation, namely the EW Renovation Work, which includes the cleaning and treatment of the external walls (including the removal of foreign objects), and Item 14 of the Quotation, which relates to the work of dismantling abandoned installations - and is excluded from the scope of the Agreement.  That may explain the references in the 2018 Supplemental Report to the existence of other abandoned items observed on the exterior walls of the Buildings, besides nails and bolts. The fact that the reports make no distinction between the foreign objects which fall within the scope of Item 4, and the abandoned foreign objects which may fall within the scope of Item 14, makes Chan’s estimation of “2000 foreign objects on the external walls” unreliable and inappropriate for the purposes of the Court’s determination of the number of foreign objects which fall within the scope of Item 4 of the scope of works within the Agreement.

45.  On behalf of the Owners, it was argued that Chan’s evidence was not challenged in court, and should therefore be accepted. Chan is not a witness on facts.  Chan’s evidence and reports were admitted as expert evidence with leave of the Court granted on 26 November 2015.  The duty of an expert is to assist the Court in determining issues on a subject which require expertise and specialist knowledge.  His evidence of opinion or belief has to be explained, rationalised and analysed.  It is trite, that the Court is not bound to accept the opinion evidence of an expert, as the Court has to be satisfied that the opinion is well-founded and justified as reliable evidence. As Lam J (as His Lordship then was) explained in Chinachem Charitable Foundation Limited v Chan Chun Chuen HCAP 8/2007 (at paragraph 483 of the Judgment):

“When faced with conflicts in the expert opinions of a highly subjective nature, a judge has to do the best he can (always bearing in mind that he himself lacks the expertise, training, and experience of the expert) to see whether the evidence of a particular expert is convincing and cogent.”

His Lordship also pointed out at paragraph 498:

“Paragraph 8 (c) of the Code of Conduct requires an expert witness to set out the reasons for his opinion in his report. The purpose is to inform the court and the other parties the reasoning process of the expert witness. This is because as observed by Chan PJ in Nina Kung,

‘The acceptability of an expert’s opinion depends very much on how sound and convincing the reasons for his opinion are.’

Unless an expert set out in his report his reasons for arriving at his opinion in a manner that is comprehensible to a layman, the report would not be of much use to the court.  In some instances, the court has to consider the expert report in interlocutory applications without the benefit of hearing oral evidence from an expert.  Further, an expert should not leave the substance of his reason to his elaboration in the course of his oral evidence. That would be contrary to the rationale of the requirement in the Code, which is to facilitate full and frank discussion of expert issues at the pre-trial stage with a view to cut down unnecessary issues at the trial.”

46.  I regret that Chan has failed to give any convincing reason or basis in his reports to support his estimate of 2000.  His estimate, and his opinion in the 2018 Supplemental Report, is further cast in doubt because of the 2016 Renovation.

47.  By reason of all the above matters, I find that there is no reliable evidence that there were 2000 foreign objects left behind by the Plaintiff in 2009, as Chan estimated, and as the Owners allege. 

48.  On the available evidence, I only accept that 118 rusty foreign objects had been observed in October and November 2009 on the external walls of the Buildings inspected, and that they should have been but were not removed by the Plaintiff under the Agreement.

2.   Defective Concrete Claim

49.  This includes the claims that the Plaintiff failed to properly survey and/or investigate the condition of the concrete surfaces inside the ground floor pump room and lobbies, the external walls, and the internal common areas of the Buildings, and failed to carry out the hammer tapping tests and identify, remove and repair the defective concrete on the wall surfaces.  For these claims, the Owners seek to rely on Chan’s expert evidence, comprised in his 2017 Report and his 2018 Supplemental Report.

50.  In deciding this issue, I have borne in mind the age of the Buildings at the time of the Works (over 30 years), and the scope of the repair Works to be carried out under the Agreement.  I have also carefully considered, and accept, the expert evidence of Lau as to the condition of the Buildings.  Paragraphs 36 and 37 above set out a summary of Lau’s evidence.  In particular, Lau stated in paragraphs 62 and 66 of his report of 11 January 2015:

“The Buildings concerned in (these) Court Proceedings are old. Due to age, one expects to find spalled concrete at different parts of the Buildings. When these concrete elements are hammer tested, hollow sounds can be heard on the damaged concrete.

…

In the case of old buildings such as those in the present case, the scope of repair work is severely limited by IO’s budget.  Items in the BD Order must be repaired.  For the rest of the renovation work, only the most critical and defective items that could be identified at the time were repaired.  Items that could not be identified as defective at the time were not repaired.  It does not mean that these unrepaired items were in perfect conditions.  It just means that the problems in these items did not manifest themselves at the time of the investigation.  It is perfectly logical that with the passage of time more and more defects will be found in the unrepaired areas of the buildings.”

51.  In gist, the Agreement was to identify and locate such defects in the concrete surface that could be identified as requiring repair at the time of the Agreement, and to carry out the Works on the terms and conditions set out in the Agreement.  As Lau has sought to highlight, the project and budget contemplated by the Agreement was not the general/overall replacement of the concrete structure of the Buildings.

52.  After having explained the process of carbonation leading to concrete spalling, Lau observed in paragraph 82 of his report that “for an old building, with the passage of time, more and more defects will be discovered”.  He went on to explain:

“This is inevitable. The Buildings are old. We are expected to find corrosion of reinforcements on every part in the Buildings. The renovation contract did not ask for stripping of all the surface concrete and had the whole building repaired. Instead, hammer tapping tests were carried out to find the areas of repair in the renovation concrete. This is certainly not a long-term solution. With the passage of time, new spalling will be found and new areas will have to be repaired.

This is to be expected.  So the time of discovery of the defects is very important.  If new defects were not found within the defects liability period, the Plaintiff could not be held liable for the defects.  Similarly if defects were found in sports repaired by the Plaintiff within the defects liability period, the plaintiff is liable.  Indeed that was what happened during the prolonged defects liability period.  Documents and questionnaires disclosed by the Plaintiff showed that the Plaintiff did carry out rectification work to defects discovered during the period.”

53.  I agree with and accept such evidence of Lau.  The timing of any inspection or tests conducted for the Buildings is material in the present proceedings.  The deterioration process of the aged Buildings means that in a period of 6 or 12 months, the state and condition, and in particular the state and condition of the exposed parts, of the Building might be very different, to the extent that many more defects might be identified which might not have existed to a reasonably noticeable state before.

54.  As Lau pointed out, the alleged defects in the ground floor pump rooms were not referred to in the first 8 WC Assessment Reports relied upon by Chan, from August 2009 to June 2012.  The defects in the pump rooms were only mentioned in the 9^th Assessment Report dated July 2012.  The defects located during the joint inspection by Chan and Lau of the internal common areas of the Buildings were found in March 2016. 

55.  Bearing in mind the age of the Buildings, any defects claimed to be detected in July 2012 or March 2016 cannot be accepted as reliable evidence that the Works carried out by the Plaintiff between 2007 and 2009 were defective.  The defects discovered in 2012 and 2016 could have been due to the continuing carbonation process after completion of the Works and the expiry of the defects liability period under the Agreement.

56.  For the same reason, Chan’s reliance on his July 2012 Assessment Report on the condition of and defective concrete located in the ground floor lobbies of the Buildings in June 2012 is not accepted as reliable evidence of the existence of defects in the Plaintiff’s Work between 2007 and 2009.

57.  Additionally, I refer to and repeat all the observations and criticisms I made in my Decision of 28 January 2019 (“Decision”) on Chan’s expert reports and on the Assessment Reports relied upon by Chan.  In particular, I refer to paragraphs 7, 12, and 21 - 38 of the Decision.  After a renewed consideration of Chan’s reports and the Assessment Reports on which he relies in tendering his expert opinion on the defects, I maintain my criticisms. The Court of Appeal has held that the Assessment Reports are admissible evidence, and only go to weight.  In my judgment, their weight is insignificant.

58.  I do not require Chan, as the expert, to do all the tests and work required to give his expert report.  However, it has to be emphasised that it was Chan who was appointed as the expert, by reason of his accepted qualifications, expertise and experience.  If Chan considers it appropriate, he may delegate the tasks of carrying out the hammer tapping tests or visual inspection to his assistants or associates.  However, such delegation has to be fully disclosed, and the assistant or associate must give details of his experience, any qualifications he may hold, the methodology of the tests carried out, the procedures of the tests involved, and the test results if appropriate, and then it is for either such assistant or Chan himself to analyze the data compiled, and to explain the findings reached on the basis of and by reference to such data.  None of such details is contained in any of the Assessment Reports.  Chan only states in his expert report that it was “on the basis of the Assessment Reports” that he reached his conclusion or opinion, eg that severe concrete defects existed at the time of the inspection made, that such defects ought to have been in existence at the time of the contract period, that there were hollow/debonded surfaces on the external walls, that the defective concrete at the locations were in existence and ought to have been discovered by the Plaintiff during the contract period of the Works, etc.

59.  Despite Chan’s references to, for example, the condition survey report for the concrete structure of the ground floor lobby and pump room of July 2012 having been “prepared under his supervision” (emphasis added), the only reference to his involvement in the different hammer tapping tests was that the test in July 2009 (referred to in his August 2009 Assessment Report) was carried out “under his supervision”.  As I highlighted in paragraph 24 of the Decision, the conduct of hammer tapping tests requires experience and the employment of skills and specialist knowledge.  The conclusion made, that damage exists or has been noted from the tonal or other relevant changes detected in the course of the tapping is a process of inference made by the operator or examiner, drawn from and entirely dependent on the skill and experience of the operator.  Without the necessary information on the technical skills and experience of the person who had actually conducted the hammer tapping tests referred to in Chan’s different reports of different times, and without the details of the methodology and results of the tests carried out, whether by Chan, or his assistant or agents under Chan’s supervision, the Court cannot assess the reliability of Chan’s evidence and opinion, and decide how cogent the expert evidence is.  Nor can the expert of the other party test the correctness, soundness and reliability of the evidence and the data supplied, and proffer any contrary opinion.  All that was stated in the WC Assessment Reports was that unnamed engineers (with no information provided as to their experience and qualifications) had been sent by WC to carry out the different hammer tapping tests.  The only information furnished of the tests was that not less than 15 hits were made within an area of one square metre.

60.  Further, and significantly, at paragraph 6.3.1 of the Chan 2017 Report, dealing with the subject of the defective repair work carried out at the external walls, Chan stated (by reference to the WC December 2009 Assessment Report) that hammer tapping test had been carried out at areas “representing about 5% of the total area of the external walls”.  His estimate, of there being around 3000 hollow/debonded concrete surfaces on the external walls, was on the basis that “there was no reason to believe” that other areas not tested were of a better quality.  Chan has not given any reason for such belief of his, that the quality of the Plaintiff’s work at other locations could not have been of better quality, and I cannot accept his estimate on this stated basis.

61.  Finally, for the reasons set out in paragraphs 50 to 52 above, any inspection and identification of defects in 2012, as referred to in Chan’s Assessment Reports of June 2012 and July 2012, are unreliable as evidence of defects in the Works carried out by the Plaintiff in 2007 and during the Defects Liability Period extended up to 2009.

62.  I do not accept the argument made on behalf of the Owners, that the Plaintiff’s expert had accepted the existence of defects in the concrete.  By the time of Lau’s inspections in 2015, 2016 and 2018, any defects he may have detected then cannot reliably indicate that such defects had existed in 2009, or were caused by any work or lack of work carried out by the Plaintiff in or before 2009.  Again, the context of the age of the Buildings, the continuous process of carbonation, corrosion and expansion of reinforcements since the completion of the Works in 2007 and 2009, and the fact that carbonation and its effect will only become more severe with the lapse of time, must be borne in mind. 

63.  In the absence of reliable expert evidence from the Owners as to the existence of defects in 2007 up to 2009, and bearing in mind the fact that the Plaintiff’s expert, Lau, had not been able to carry out any timely inspection of the Buildings in 2009, the Court has to take into consideration the fact that on completion of the Works in 2007, the AP as independent consultant engaged by the Owners for the project had, on 20 December 2007, certified that the Works under the Agreement had been completed.  The AP had also, upon expiry of the extended Defects Liability Period, and after defects had been identified by the Owners during the Defects Liability Period and rectified by the Plaintiff, issued the Certificate of Completion of Defects Liability Period on 23 July 2009, pursuant to the terms of the Agreement.  It is also pertinent that the Buildings Department had accepted the Works carried out by the Plaintiff, such that the Building Order was duly discharged on 3 January 2008.  The Building Authority in fact pointed out in its letter to the Owners of 4 June 2013 that if repair works were only carried out to apparent defects, defects may manifest at other locations after the repairs.  That is some relevant evidence of the Plaintiff’s satisfactory completion of the Works under the Agreement.

64.  In all, I find that there is no satisfactory evidence to establish the Defective Concrete Claim to the necessary standard of a balance of probabilities.

3.   Defective Waterproofing Claim

65.  Under Item 7 of the Quotation, the Plaintiff was to repair the cracks in the reinforced concrete inside the water tanks on the roof of the Buildings, apply protective and waterproofing layers on the repaired concrete surface and apply protective tiling or finishes on top of the waterproofing work.  The Owners claim that the Plaintiff had failed to carry out such work with the proper care and skill, with the result that shortly after the completion of the Works, there was leakage from the water tanks, which led to cracks appearing in the external wall and in the brick border between the base of the tanks and the floor slab of the rooftop.  The leakage also led to water marks appearing on the ceiling of some of the top floor units below the roof of the building.

66.  Lau stated in his report that at the time of his inspection of the water tanks in 2015, he could not observe any leakage, and did not see water dripping from the base of any of the tanks.  Nor did he notice any ponding of water below the tanks.  Lau reported that when he made a further inspection with Chan in 2016, Lau did not see any signs of leakage either.

67.  On the issue of the water leakage from the water tanks resulting from defects and cracks within the tanks, the Owners and Chan in his 2017 Report rely on the Assessment Reports dated March 2010 and July 2010.  The March 2010 Assessment Report refers to hammer tapping tests, CCTV surveys as well as visual inspections conducted in January and February 2010.  The July 2010 Assessment Report refers to visual inspections and CCTV surveys conducted in April and June 2010.  In support, there are also CCTV survey reports prepared by Forwin Site Investigation Engineering (“Forwin Reports”) which sets out the scope of the survey, the equipment used, the methods adopted and the photographs taken within the water tanks with the results of the survey. According to the Forwin Reports, signs of water leakage were detected within the water tanks of the Buildings, and standing water was also detected inside the enclosed gap between the water tank and the floor slab.  According to Chan, views support his opinion that the Plaintiff had failed to comply with the requirements of the Agreement with regard to the proper completion of the waterproofing of the water tanks.

68.  I can find no fault in the CCTV surveys conducted by Forwin between January and June 2010.  I find that these tests and inspections were, marginally, carried out within a reasonable period of time after the execution and completion of the Plaintiff’s Works, and accept such as evidence of the improper execution of the Works specified in Item 7 of the Quotation, and breach of the Agreement.  On the available materials, I cannot find any evidence that the costs of the 2016 Renovation had any material effect on the Owner’s costs of rectifying the water leakage involved in their claim against the Plaintiff.

4.   Defective Sealing Claim

69.  Under Item 11 of the Quotation, the Plaintiff agreed to replace the ground drainage system.  This involved the supply and replacement of all the drainage pipes located below the 1^st floor podium of the Buildings.  Item 11.1 of the Quotation covers not only the installation of the drainage pipe, but expressly provides for the application of “Nitromortar S” to “repair all damage caused by the work to the exterior or interior of the Buildings” (“修補工程引致室內及室外的破損”).  The Owners claim that upon replacing the drainage pipes which pass through the structure of the Buildings to the ground floor level, in particular the pipes running down from the podium through the ceiling of the shops on the ground floor of King Fu Building (occupied by a bank) and of the ground floor lobby of Ka Fu Building, the Plaintiff’s sealing up work was defective, as a result of which there was leakage of water from the concrete patches around the relevant pipes.

70.  As evidence, the Owners rely on Chan’s 2017 Report, which in turn refers to the WC Assessment Report of May 2010.

71.  The Plaintiff denies that it was required under Item 11.1 of the Quotation to do any sealing up work between the pipes and the structural parts of the Buildings.  What Item 11.1 states is that the repair mortar “Nitromortar S” is to be applied to repair any damage in the structure of the building which may be caused as a result of the drainage replacement work. The application of such mortar obviously has strengthening and waterproofing effect.  On a plain reading of Item 11.1, I agree that it does not require the general sealing up of gaps between the pipes and the concrete structure of the Buildings.  However, it is clear that it requires repair work to be properly executed by the application of the specified mortar to areas of the structure which may be damaged as a result of the replacement of the pipes which is envisaged under Item 11 of the Quotation.

72.  From the photographs appended to the May 2010 Assessment Report, water leakage or dampness was detected in April 2010 in the areas of the concrete patches in the vicinity of the drainage pipes.  The concrete patches on the surface of the concrete structure had clearly been worked upon, as part of the replacement work carried out by the Plaintiff under Item 11 of the Quotation.  If water seepage was seen in the concrete patches, that can only be the result of improper or inadequate sealing or finishing of the structure damaged and affected by the drainage replacement work.

73.  The Plaintiff also claims that it had not been able to carry out the drainage pipe replacement work in all the shops on the ground floor, due to lack of cooperation from the occupiers.  It claims that as a result of this, the contract sum had been reduced, by agreement with the Owners/AP.

74.  However, according to the letter dated 30 September 2008 from the Plaintiff to the AP, it was stated that the replacement of the drainage pipes in the 4 shops on the ground floor occupied by the bank had been “completed”.  The photographs produced by the Owners, depicting the water leakage from the concrete patches within the affected areas of the bank, show that the drainage pipes were indeed the new ones which had been replaced.

75.  On the available evidence, I accept that there was leakage from the concrete patches observed within a reasonable period of time after 2009, and that there were defects in the Works carried out by the Plaintiff under Item 11 of the Quotation.  I am not satisfied that the 2016 Renovation works had effect on the costs of the repair works carried out for the leakage.

Costs of engaging Authorized Person and Clerk of Works

76.  Bearing in mind the substantial reduction of the claims made by the Owners in respect of the execution of the allegedly outstanding Works and the allegedly defective Works of the Plaintiff, I do not accept that the engagement of either an authorized person or a foreman is necessary, and do not consider the costs of such engagement to be justified for the limited work involved.

Disposition

77.  I only allow the Owners’ Foreign Objects Claim to the extent of 118 items which were observed on the external walls in 2009, and which ought to have been removed by the Plaintiff under the Agreement. 

78.  The Defective Concrete Claim is dismissed in its entirety.

79.  The Defective Waterproofing Claim and the Defective Sealing Claim are allowed.

80.  The parties have agreed on the quantum of damages, including the costs of the erection, maintenance and removal of the scaffolding, on a unit rate basis.  Parties should submit a draft order for the amounts to be awarded for the parts of the claims allowed.

81.  The amount allowed on the counterclaim is to be set off against the Plaintiff’s claim for the outstanding Contract Sum, as prayed for in the Amended Statement of Claim.

82.  A substantial part of the Owners’ counterclaim has been disallowed. The Defective Concrete Claim, linked with the Foreign Objects Claim, took up the major part of the evidence and submissions for trial. They also comprise the most substantive claims in the Re-Amended Defence and Counterclaim, respectively $6,104,022.31 and $5,825,762. Of the Foreign Objects Claim, only the costs of the removal of 118 out of 2000 foreign objects have been allowed.  In these circumstances, the costs order nisi is that the Owners have to pay to the Plaintiff 80% of the costs of the original claim and 80% of the costs of the Counterclaim, with Certificate for 2 Counsel.