TEAMAN DESIGN LTD v. LAKCO PACKAGING LTD

DCCJ 1906/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1906 OF 2012

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J U D G M E N T

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1.  The plaintiff (“Teaman”) claims for the outstanding balance of the cost of design and decoration work done and materials supplied to the office premises of the defendant (“Lakco”). Lakco disputes the amount claimed. It also complains about delay and defective work; and counterclaims for loss and damage.

BACKGROUND

2.  Lakco owns several units on the 6^th Floor, Block A, Hi-Tech Industrial Centre, Tsuen Wan, New Territories, Hong Kong (“the Premises”) where it carries on its business of packaging and design.  In 2010, Lakco obtained from Teaman quotation for the design and interior decoration of the Premises.  After negotiation, the parties entered into a Chinese written contract dated 14 October 2014 (“the Contract”).

3.  The Contract contained, among other things, the following terms:

(1)   The quoted cost of the work and material was HK$836,885.00 less 3% discount, ie HK$811,785, subject to the actual work done.

(2)   The work should commence on 20October 2012 and be completed by 16December 2010.

(3)   Payment should be by instalments at the various stages of the work as set out in the Contract, with 10% retention money withheld for one month after handing over of the Premises to Lakco upon completion of work.

4.  When the work was in progress, Lakco became dissatisfied with the progress and the quality of the work.  Since November 2010, Lakco had issued a series of letters of complaint to Teaman.

5.  On or about 29January 2011, Teaman informed Lakco of the practical completion of the work andhanded overthe premises to Lakco.  Dissatisfied with the delay and considering the quality issue as outstanding, Lakco issued another series of letters of complaint.  Teaman had apparently done some touch-up work afterwards.

6.  By the end of 2011, Lakco had made payments to Teaman in the total sum of HK$884,961.  It admits that a sum of HK$36,530, which is payable according to Teaman’s set of invoices dated 28 March 2012 (“the 28/3/12 Invoices”), is withheld pending rectification of the defects.

7.  On 6 June 2012, Teaman commenced the present action whereby it claims an outstanding balance of the cost of work done in the sum of HK$52,934.  This is HK$16,404 more than the balance under the 28/3/12 Invoices because Teaman is relying on further revised invoices issued on 8 May 2012 (“the 8/5/12 Invoices”).

8.  Lakco disputes receipt of the 8/5/12 Invoices.  It also contends that in the 8/5/12 Invoices, Teaman unilaterally adopted a calculation method different from that in the 28/3/12 Invoices.  Further, lists of defects had been prepared by the parties in April 2011, but 2 items of which are yet to be rectified.  On the basis of the alleged defects, Lakco counterclaims for loss and damage comprising: (i) loss of use of the Premises in the sum of HK$80,080; and (ii) cost of repair in the sum of HK$20,000.

9.  According to the pleading, whilst Lakco accepts that the outstanding balance payable to Teaman should be HK$36,530, it contends that it is only liable to pay HK$24,300 on account of the alleged defects in the work.  This is apparently some kind of set off.  Yet on top, Lakco put forward a counterclaim for the cost of repair of the defects.  This must be wrong.  When asked, Mr Chung for Lakco accepted that the reference to the sum of HK$24,300 should be ignored.

10.  When the trial was opened, Lakco, through counsel, abandoned the counterclaim on the ground of delay for HK$80,080.  With that substantial part of the counterclaim gone, Teaman becomes entitled to judgment, even assuming the rest of the dispute is found in Lakco’s favour.

THE CLAIM

11.  Teaman first issued a set of invoices dated 18 October 2011 (“the 18/10/11 Invoices”). In December 2011, Teaman through solicitors demanded Lakco to settle the amount as per those invoices.  Lakco tendered a sum of HK$112,941 in settlement.  Teaman through solicitors accepted the sum but only as part payment.

12.  Teaman then issued another set of invoices, the 28/3/12 Invoices, demanding Lakco to pay the outstanding balance in the sum of HK$36,530.  Lakco accepts that as outstanding; but claims to be entitled to retain the sum pending the rectification of the alleged defects.

13.  On 24 April 2012, Teaman, through its solicitors, demanded Lakco to settle the outstanding cost of the work done, but this time in the sum of HK$71,172.  The calculation was somehow based on the 18/10/11 Invoices, which, as mentioned, had already been superseded by the 28/3/12 Invoices.

14.  Then came the 8/5/12 Invoices just a month before the writ herein putting forward a claim for HK$52,934.

15.  The differences between the 8/5/12 Invoices and the 28/3/12 Invoices (a sum of HK$16,404) arise out of the following items:

(1)   Under electrical work, a sum of HK$6,500 is now charged for the supply and installation of the main cable for the MCB board.

(2)   Also under electrical work, a sum of HK$8,120 is now charged for the light points for down lights of the showcase at the conference (or sample) room.

(3)   A discount of 3% had been applied to the amount of the 18/11/11 Invoices and the 28/3/12 Invoices, amounting to a sum of HK$29,442.  Now under the 8/5/12 Invoices, the discount was applied to some but not all the invoices, amounting to a lesser discount of HK$27,658.  The difference in the amount of discount is HK$1,784.

Pleading point

16.  Mr Lai takes a pleading point; and refers to numerous authorities concerning the significance of proper pleading.  I need not set them out.  The essence of the principle is to enable the parties to know what each other’s case it is to meet so that they can prepare their cases accordingly.

17.  Here is an overview of the circumstances of the present case:

(1)   Teaman claims on the basis of the 8/5/12 Invoices, which are set out in the statement of claim.

(2)   In defence, Lakco admits balance payable under the 28/3/12 Invoices.  It set out the differences between the 28/3/12 Invoices and the 8/5/12 Invoices, which would have been identifiable from the pleadings by simple comparison.  But it pleads no positive case in respect of the differences.

(3)   In his short statement filed in April 2013, Teaman’s director, Mr Wong (“Wong”), reiterated that the work and material under the 8/5/12 Invoices had been done and supplied.  He too did not specifically deal with the differences between the 28/3/12 Invoices and the 8/5/12 Invoices.

(4)   As the disputed items of work were all said to be done by the time of the issue of the 28/3/12 Invoices, that they did not appear in that set of invoices but added in 8/5/12 Invoices are matters for Teaman to explain.

(5)   In his statement filed in May 2013, Lakco’s director, Mr Cheung (“Cheung”), referred to the negotiation and the contemporaneous correspondence between the parties. Yet the only explicit assertion is that Teaman changed its calculations allegedly with a view to enrolling its claim within the jurisdiction of this court.

(6)   The parties had engaged in correspondence since June 2013 with a view to identifying the items of the claim in dispute.  Indeed they did[1]. The disputed items of cost of supply and installation of the main cable to the MCB board and that of the light points for the down lights of the showcase were clearly identified.  There was however no mention of the difference in the application of the 3% discount, probably because Teaman had consistently applied the discount until it sought to retract from that in the 8/5/12 Invoices.

(7)   Neither party has done anything to the pleadings or witness statements since[2]. Nevertheless they have obviously been aware of their differences before the trial.  Hence the identification of the items in dispute in counsel’ opening submissions.

(8)   When it came to the evidence, Wong gave oral evidence in chief to explain why Teaman should be entitled to the cost of the installation of the main cable to the MCB board and that of the light points for the down lights of the showcase.  Lakco was entitled to cross examine him on such evidence.

(9)   However, the same cannot be said when Cheung sought to adduce in court evidence in chief in respect of the details of various alleged oral agreements, which were not pleaded or even put to Wong during cross examination.

Supply and installation of the main cable for the MCB board

18.  Under electrical work, one of the items contracted to be done, pursuant to the quotation and confirmed by sales confirmation in October 2010, was the main work of installing a 60AMP MCB board at the cost of HK$6,800.  Items of the electrical work were stated to be “provisional, subject to final confirmation for electrical device”.

19.  When Teaman issued the 8/10/11 Invoices,  this item of work became:

(1)   the installation of a 100AMP MCB board at the cost of HK$11,250; and

(2)   the supply and installation of the main cable for the MCB board at the cost of HK$6,500.

20.  In court, Wong referred to the original quotation and added that the main cable was first quoted as an optional item, which was estimated to be approximately HK$15,000, when the Contract was entered into.  Subsequently the change to 100AMP MCB board was considered necessary; and the MCB board had to be repositioned.  This was carried out with Cheung’s verbal agreement.  Teaman charges for the actual length of the cable supplied and installed.  Hence HK$6,500.

21.  Cheung disagrees; and complains that the change was carried out without Lakco’s prior agreement.  He also denies that the main cable has been replaced.  Its stance was first stated by letter to Teaman dated 12 December 2011.[3]  The letter consisted of 4 pages, which set out what Lakco considered to be items to be discussed after a telephone conversation between Cheung and Wong that day.  On the first page, Lakco offered to pay HK$10,000 in settlement of the MCB Board.  Lakco, as mentioned, also tendered payment of a sum of HK$112,941.

22.  Teaman replied on 19 December 2011 by its solicitors, which agreed with the recalculation set out in pages 3 and 4 but not the items set out in pages 1 and 2 of Lakco’s letter.  In other words, the above offer was not accepted.  As mentioned, Lakco’s payment of HK$112,941 was accepted only as part payment.

23.  On 17 January 2012, Lakco wrote further to Teaman[4]. It suggested that during a telephone conversation on that day, Wong accepted HK$10,000 in settlement of the cost of installation of the 100AMP MCB board.  There was no reply to that letter.

24.  However, in the 28/3/12 Invoice issued subsequently, the cost of the MCB board became HK$10,000, while the item of main cable to the MCB board no longer existed.  When asked, Wong explained that it was a mistake that item of main cable was left out of the 28/3/12 Invoices.

25.  It sounds odd that the change of the MCB board from 60AMP to 100AMP and its repositioning (metres away, according to Wong) did not entail the installation of new main cable.  On balance, I am satisfied that the main cable was indeed supplied and installed to the new and repositioned MCB board.

26.  Lakco seeks to rely on the above documents to suggest that Teaman had acted according to the alleged oral agreement.  I can see why.  The figure of HK$10,000 for the MCB board came about probably because of Lakco’s request mentioned in the correspondence.  Yet whilst demanding that sum in the 28/3/12 Invoices, Teaman somehow would leave out the cost of the main cable, if it was not included in the sum or waived.

27.  However, the lack of proper pleading of the alleged oral agreement has rendered the consideration of this item of dispute difficult.  This is compounded by the fact that Cheung sought to give evidence in chief of the details of the alleged oral agreement, which were not even put to Wong during his cross examination.

28.  Further, had there been proper pleading of the issue, the contentions might not have ended at whether Teaman verbally agreed or not, but possibly whether Teaman could legitimately change its mind.  In view of the fact that Teaman would have been prima facie entitled to charge for actual work done, argument in respect of consideration for such alleged agreement, for instance, could have been possible.  Counter-arguments by Lakco (such as estoppel) may also be contemplated.  The impact that the lack of proper pleading to challenge Teaman’s entitlement could have triggered cannot be ignored.

29.  Lakco was alerted and had the opportunity to amend its pleading when the trial began.  It did not take it.

30.  In the circumstances, I have to find that Teaman is entitled to this item of claim.

Light points for down lights of showcase

31.  Each spot light or down light required the opening of a light point, through which the power line would be led there and the light would be connected and installed.  The invoices reveal that the light points and the supply/installation of the lights were separately charged.  There is no real dispute in this respect.  In question are the light points for the down lights of the showcase, which Teaman was contracted to build and install at the conference/sample room.

32.  By a sales confirmation dated 9 December 2010[5], the parties confirmed that the showcase would be built and installed at the cost of HK$69,300 (measuring 12.6LM at HK$5,500/LM).  On the same day, Teaman supplied to Lakco quotation for 31 light points for the down lights of the showcase at the cost of HK$280 each[6]. As stipulated in the Contract, such item of work should be paid for as per the actual quantity.  Teaman now claims for the cost of 29 such light points at the total cost of HK$8,120.  Lakco contends that it was agreed between the parties that this item was already included in the cost of the showcase, HK$69,300.

33.  Again, Lakco pleads no positive case in this respect.  In his statement, Cheung referred to the correspondence with Teaman without actually saying anything about any agreement in this respect.

34.  On the day after the abovementioned sales confirmation and quotation, Cheung sent an email to Wong asking various questions.  One of them was that a staff of Teaman named Jack had allegedly informed him that “此飾櫃HK$69,300是已包所有射燈，現在不應再另收射燈費用。”   What Cheung referred to was that the cost of the showcase at HK$69,300 should include the cost of the down lights.  There is no dispute that Teaman did not charge Lakco for the down lights of the showcase.  That did not refer to the light points.

35.  Lakco refers to the revised quotation issued by Teaman on 22 December 2010[7], in which the quantity of the light points for down lights of the showcase became 3 at HK$480 each.  The total cost was HK$1,440.  This was confirmed by the sale confirmation issued on 10 January 2011[8]. The parties agree that these 3 new items were not actually light points for down lights.  This is quite obvious, judging from their different unit cost[9].  They were switches controlling the lights.  According to the 8/10/11 Invoices and the 28/3/11 Invoices, 2 such switches were eventually charged at the total cost of HK$960.

36.  According to Wong, that the 3 new switches were installed for the showcase did not mean that his company agreed to waive the cost of the light points. 

37.  On the one hand, if the new switches were additional to the light points of the showcase, it would be odd for it to issue the 8/10/11 Invoices and the 28/3/12 Invoices charging for these relatively minor additional items but leaving out the very light points.

38.  On the other hand, the representation or agreement was allegedly made by Jack, the designer, of Teaman, who is not a witness.  As mentioned, the email referred to down lights instead of light points.  Lakco’s case in respect of this item suffers the same problem of the lack of specific pleading discussed above, which I do not repeat here.

39.  In the circumstances, I have to find in favour of Teaman for this item of the work done.

The discount

40.  The Contract set out the contract price of over HK$830,000 according to the then quotation Q2584(R5) subject to actual work done.  It provided that the total amount less 3% discount amounted to just over HK$811,000.  The 2 sets of invoices issued by Teaman to Lakco for payment (ie that dated 8 October 2011 and the 28/3 Invoices) invariably set out the application of the discount to the total cost of work done as at the times.  Now by the 8/5 Invoices, Teaman applied the discount to only 4 of those invoices and effectively retracted the discount from the calculation of the amounts of the other invoices.

41.  As far as the pleadings are concerned, the application of the discount falls within Lakco’s allegation that Teaman unilaterally changed the calculation in the 8/5/12 Invoices from those in the previous sets of invoices.  This calls for an explanation by Teaman.  The contemporaneous correspondence cast no light on the issue of discount.  This is not surprising, as Teaman indeed applied the discount in all the invoices previously issued; and Lakco would have no objection in this respect.

42.  Teaman relies on its sales confirmations.  As mentioned, upon agreement on a quotation for variations to the work, Teaman in most cases issued sales confirmation.  Each invoice subsequently issued for payment corresponded to the relevant sales confirmation (or, if lacking, the relevant quotation).  Only the first 4 sales confirmations issued during the period between October and December 2010 contained the application of the discount.  Those sales confirmations gave rise to the 4 invoices in which the discount was applied in the calculation of the amount payable respectively (as pleaded).  The other quotations and sales confirmations issued subsequently did not contain the discount in their calculations.  The sales confirmations were signed by the parties.

43.  Notwithstanding the above, Wong was not even cross examined in respect of the discount issue.  This only paved the way for objection by Mr Lai, and I think legitimately, when Cheung attempted to give evidence in chief in this respect.  The sales confirmations were referred to during the cross examination of Cheung.  He sought to explain that it was an oral agreement between the parties that the discount should be applied throughout.  Yet no explanation was offered as to why he signed those sales confirmations that did not apply the discount.

44.  In the absence of pleading of the alleged oral agreement or estoppel arising out of payments made on the basis of the invoices previously issued, I have to find that Lakco fails to effectively impeach the liberty of Teaman to revert to the position in respect of the application of the discount as reflected by the mutually signed sales confirmations.

Conclusion

45.  Teaman is thus entitled to its claim as pleaded for the amount of HK$52,934.

COUNTERCLAIM

46.  Pleading point is also taken in respect of the claim for defects in the cabinets.  Lakco is criticised for un-particularised alleged defects and allegations beyond the pleaded case.  Lakco’s pleading says 2 items of the lists of defect prepared by the parties in April 2011[10] are yet to be rectified.  The items are unidentified.  Lakco is actually complaining about 3 pieces of furniture.

47.  The complaint about lack of particulars in the pleading is again justified.  Nevertheless, the correspondence between the parties, both pre-action and post-action, again shows that they have become aware of the exact pieces of furniture in question well before the commencement of trial.  Those 3 pieces of furniture were also identified for the purpose of obtaining expert evidence.  They consist of (i) the showcase; and (ii) 2 low cabinets.

48.  As mentioned, the pleaded claim for cost of rectification is HK$20,000.  Now relying on the expert evidence, Lakco adjusts its claim to HK$13,817.96.

49.  The experts have prepared their respective reports and their joint report.  Two things should be noted:

(1)   There is complete lack of particulars of what the agreed quality of the furniture was.  Nor is there pleading of term as to quality implied by law or otherwise. In any event, when assessing the question of defect, nothing more than objectively reasonable quality should be expected.  Any reference to what Lakco expected, as Cheung suggested in court, is rejected as being subjective.

(2)   It was November 2013 when the parties’ experts inspected the furniture in question.  That was more than 2 years after Lakco resumed possession of the Premises.  The condition of the furniture in question as observed by the experts and depicted in the photographs (subject to the discussion below) was largely the condition after use over time.  Both experts made similar findings to different degrees.

The showcase

50.  The experts’ findings regarding the showcase mainly included: (i) dislocation (or dropping) of 3 glass doors of the display compartment causing them not to be opened; (ii) scratches in the paintwork inside and outside with touch-up work rough and unfinished; (iii) little gaps and cracks in the sealant at joints.

51.  Considering all the evidence, including the contemporaneous correspondence, I am satisfied not to rule out that except for some cracks in the paintwork and sealant, which might have appeared over time after use, the findings were consistent with adjustments and touch-up work, albeit minor, that had not been properly, if at all, carried out before Teaman finally left the Premises.  Specifically I am not inclined to the view of Teaman’s expert that the quality problems that would not be noticeable unless closely looked at should be acceptable.

52.  Both Cheung and Mr Chung for his company refer to the list of defects prepared by Teaman in April 2011, which apparently recorded the undertaking by Teaman at one time to replace one of the showcases.  That not having been done, Lakco, Mr Chung submits, should be entitled to the cost of the replacement.

53.  I do not agree.  There is no pleaded claim for breach of an agreement for the replacement of the showcase.  Lakco is in principle entitled to the cost of repair, unless the defect is beyond economical repair.  Further, Lakco’s suggestion is also not supported by its own expert evidence.  The expert recommended minor adjustment to the hinges of the glass doors and painting the scratched interior.  As to the gap between the skirt of the showcase and the floor, Teaman had carried out rectification work.  Lakco’s expert accepted that no more repair would be required.

The cabinets

54.  Teaman’s expert opined that the cabinets are structurally sound.  Lakco’s expert also opined that use of the cabinets would not be affected.  Both observed that the cabinets were indeed being used for storage.  The experts’ findings impress me that the so-called defects of the cabinets are nothing but minor as well.

55.  Different materials were used for the decorative surfacing.  But the experts agreed that there was no specification in this regard in the contract between the parties. The extent of discrepancy, as depicted in the photographs, is barely conspicuous.  There is however no claim for abatement in value on the basis of inferior materials.

56.  Slight cracks and chipping of the exterior paintwork were found.  Teaman’s expert attributed them to normal fair wear and tear.  Whilst disagreeing, Lakco’s expert could only suggest that poor workmanship “can be one of the factors”. Considering the evidence, I am not satisfied that Lakco manages to prove that it is more probable than not that these were the conditions of the cabinets when Teaman last left the Premises.

57.  Cracks and chipping of surfacing of the interior near various screws could also be seen.  This was unlikely the result of normal use; and I find them to be the conditions upon installation.  The experts disagreed as to whether the users’ hands might thus be scratched during use.  There is indeed no evidence of such incident.  Nevertheless, this is immaterial, as far as whether the quality is objectively and reasonably acceptable or not.  They should have been made good.

Cost of repair

58.  The pleaded amount of claim was apparently based on a quotation Lakco has obtained.  The contractor quoted HK$15,200 for the replacement of 2 showcases or HK$4,800 if repair and repainting.  Hence the total sum of HK$20,000.  On the face of the quotation, the 2 sums quoted were alternatives.  I have no basis for accepting Cheung’s evidence in court that the contractor intended them to be cumulative.

59.  Lakco has also obtained quotation from another contractor, who quoted the relatively lower cost of HK$4,800 for the replacement of 1 showcase and HK$500 for adjustment of the hinges of the glass doors of another showcase.

60.  No quotation has been obtained in respect of the repair of the cabinets.

61.  Lakco’s expert provided her estimated cost of material and labour for the repair, all plus 30% profit.  The calculation by reference to the expected profit margin of the contractor to be engaged is in my view arbitrary and actually unexplained in the expert report.  The estimation cannot stand in view of actual quotations mentioned above.  The cost projected by Lakco’s expert is unreliable.  In the case of the cabinets, no quotation for their repair has been obtained from any contractor.

62.  Teaman’s expert estimated[11] the cost of repair of minor defects to be HK$600 and that of repair of normal wear and tear condition to be HK$600.  For normal wear and tear, that would not be Teaman’s responsibility to repair.

63.  In view of the extent of defect attributable to the quality of work done by Teaman, the repair should involve no more than minor adjustment and touch-up. They should reasonably be carried out by the same contractor to be engaged for the repair.  For that, I allow a lump sum of HK$1,200.

The abandoned item

64.  It was alleged that due to the delay, the premises could not be used for 44 days, which was basically the period between the original scheduled completion date and the handing over of the premises.  Lakco allegedly suffered loss in the form of loss of market rental of the premises, management fees and government rent in respect of the premises during that period.  The amount in total was over HK$80,000.  Effectively the claim was for loss of use of the premises and wasted expenses paid in respect of the premises.

65.  The premises were owned and used by Lakco for the operation of its business.  I would have understood, had Lakco claimed for the loss of business or income as a result of the loss of use of the premises.  There was however no basis for it to claim on the assumed basis that the premises could have been let for rental income.  As to the management fees and government rent, they were expenses incurred by Lakco for the purpose of its business without any regard to or in connection with the contract between the parties.  Causation between the two is thus lacking.

66.  This part of the counterclaim, had it not been abandoned, would have been doomed to fail.

ORDER

67.  Judgment is entered against Lakco in the sum of HK$51,734 (being HK$52,934 minus HK$1,200). I award interest from the date of writ until payment at the judgment rate.

COSTS

68.  Had it not been the amount of Teaman’s claim, Lakco’s counterclaim would have brought the dispute to this court in any event.  Of such counterclaim, the substantial item of claim for loss of use of use of the premises would have been unmeritorious and was abandoned only when the case was opened.

69.  Following the event, Teaman shall have its costs of this action to be taxed, if not agreed, with certificate for counsel.  The costs order is nisi and shall become absolute in 14 days in the absence of application to vary.