WOON LEE (HK) CO LTD v. HOLYROOD LTD

HCCT4/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 4 of 2009

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BETWEEN

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J U D G M E N T

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The background to the action:

1.  In this action Woon Lee (HK) Co Ltd (the contractor) sues Holyrood Ltd (the owner) for the unpaid price for fitting out and alteration works on a new development at 10-12 Peak Road Hong Kong (the project).  By counterclaim, the owner sues the contractor in respect of defects the owner alleges are the responsibility of the contractor.  The owner is the corporate persona of Ms Lilian Oung (Ms Oung).

2.  There were in all three contracts between the parties.  These were known in the proceedings, for convenience, as contracts A, B and C. 

3.  The owner began developing the project in about 2001, first employing Hip Hing Construction Company Ltd (Hip Hing) to construct the building.  The project comprises a residential block, with two portions, known as Block A1 and Block A2, each 10 stories high, a detached house, an equipment and maintenance block, (E&M block), and certain external works.

4.  Hip Hing left the site as a result of payment disputes with the owner in mid-2002 and a company associated with, but separate to, the contractor, Woon Lee Construction Company Ltd, (WLC), was awarded a contract to complete the project up to the point when an occupation permit could be obtained.  WLC were not employed to carry out any fitting out works. WLC had completed the majority of its work by the time the contractor became involved with its three contracts.

5.  There was, initially, an issue in this litigation as to whether a sum of $8 million, apparently paid to the contractor, was in fact a payment to WLC.  In separate arbitration proceedings between WLC and the owner, the arbitrator, subsequent to the completion of the evidence in the trial, ruled that:

(i) there was no reasonable possibility that the owner’s assertions in regard to the payment of that sum of $8 million were correct;

(ii) there was no basis upon which the payment of the sum of $8 million could be understood to be anything other than what appeared on the face of the cheque, namely a payment to the contractor.

The parties were agreed that they would be bound by the finding of the arbitrator in that respect. Other than noting that in the arbitration the owner asserted that the payment of $8 million was a payment made to WLC, and in these proceedings that it was a payment made to the contractor, I need deal no further with that matter.

6.  It was not in dispute that during the period of construction by WLC the owner suffered significant financial problems.  In June 2003, the owner’s bankers, Bank of China, appointed Ernst & Young to be the receivers over the project.  Prior to that appointment, Zion Equities Ltd, an architectural company effectively owned by the owner, was acting as the architect and authorised person under the Buildings Ordinance.  A Mr Sadlie Dianto was the principal person involved with Zion.

7.  After the appointment of Ernst & Young, P&T Architects became involved as architect and authorised person, and remained so until practical completion was certified in March 2005.  At that time, the owner terminated the employment of P&T Architects, and the quantity surveyor, Levitt & Bailey, and work under the WLC contract came to a halt.

8.  The contract for fitting out works and certain alteration works to the main structures was initially undertaken by a company known as Marriott Engineering and Construction Ltd under the direction of an different architect, Marriot Design Ltd.  That contract too was ultimately terminated, and the work taken over by the contractor.

9.  At the same time as the two Marriott companies ceased work, Mr Dianto effectively became the authorised person for the alteration works that were being undertaken.  It was not in dispute that there is no legal requirement for the involvement of an authorised person in relation to fitting out works, and there was no provision in the contracts for someone to act in the role of an architect.  However, the reality of the situation was that Mr Dianto acted as a “de facto” architect and authorised person, and was, in that role, the owner’s agent in relation to the project during most of the period of contracts A, B and C.

10.  Contract A was to carry out certain fitting out works in units 2A, 3A, and 8A of Block A2 of the project.  The contract began in April 2006, and, on the contractor’s case, was completed in about December 2006.

11.  Contract B was to carry out fitting out works on units 2A, 2B, 3A, 3B, and 5A of Block A1 of the project.  That contract began in about May 2006, and on the contractor’s case was completed in about December 2006.

12.  Contract C was to carry out fitting out works and alteration works at units GA, GB, 1A, 1B, 8A, 9A, 9B, 10A, and 10B of Block A1, units GA, GB, 1A, 1B, 9A, 9B, 10A, and 10B of Block A2, and Block B of the project.  That contract began in about late August 2006.  The case for the contractor was that by early 2008, the work required in contract C was some 93% completed.

13.  By 30 December 2008, the contractor took the view that the owner had evinced an intention no longer to be bound by contract C.  The contractor’s case is that by a letter on that date it accepted the owner’s repudiation, and terminated the contract.

14.  The principal issues addressed in the trial were:

(i) Whether or not the owner was liable for variations of the various contracts, evidenced by documentation provided by the contractor that was not signed by Ms Oung;

(ii) the percentage of the work that had been completed in respect of contract C;

(iii) whether or not there were defects in respect of the work in relation to each of the 3 contracts, for which the contractor should be responsible; and

(iv) whether or not the contractor had been entitled to accept the alleged repudiation of contract C in December 2008, and, if having been wrongly prevented from completing the work was entitled to recover loss of profits suffered as a result of that prevention.

The evidence of Ms Oung:

15.  At the centre of Mr Manzoni’s submissions at the end of the trial was a submission that it was open to the court to reject entirely the evidence of the owner as unreliable and to find entirely in accordance with the case of the contractor.  I accept Mr Manzoni’s submission that the evidence of Ms Oung is unreliable, and in virtually every respect, simply incapable of belief.

16.  While the demeanour of a witness is now considered to be very much a less significant factor in assessing the credibility of witness, in this case the inability of Ms Oung to answer simple questions with straightforward answers was a factor which must adversely affect her credibility.

17.  On a number of occasions it was necessary for me to intervene in Mr Manzoni’s cross-examination to require Ms Oung to give a direct answer to a question.  I went to the extent of explaining to her that a judge may take into account, in assessing whether or not a witness is truthful, whether questions are answered or are evaded.  Notwithstanding my explanation, which was clearly understood, Ms Oung continued to evade questions put, and to give answers which demonstrably failed to adress the point of the question.

18.  However, it was not upon her demeanour alone that I have reached the conclusion that I cannot rely on any of the evidence given by Ms Oung.  Certain of her evidence demonstrated that Mr Manzoni was perfectly entitled to submit that Ms Oung was either deliberately dishonest, or held such a radically different view of reality from that which was plainly the case, that her evidence simply could not be accepted.

19.  Mr Manzoni, in his closing submissions, put to me the following examples of circumstances of these positions taken by Ms Oung:

(i) Notwithstanding the virtually identical nature of the claims in respect of defects made in the arbitration and in these proceedings, (save for formatting differences), Ms Oung would not accept that the bulk of the claims made against contractor for defects were effectively the same claims the owner had made in the arbitration against WLC.

(ii) To justify her position, Ms Oung asserted that contract C was a contract between the owner and WLC, and that the contractor and WLC were one and the same. That allegation was not contained in the defence, and was directly contrary to the distinction Ms Oung drew between the two companies in her witness statement. It is factually incorrect.

(iii) Ms Oung signed a statement of truth to a defence accepting that there were three separate contracts, all dated differently, but in her evidence asserted that there was only one contract between the parties in respect of all of the work. That assertion was inconsistent with her witness statement and her pleaded defence. She said that her evidence was the true version and that, notwithstanding her statement of truth, the defence was not correct.

(iv) Variations to the contracts were said in Ms Oung’s second witness statement to have been part of the original scope of work. In particular Ms Oung contended, (at trial and for the first time, and it was only she who contended it), that variation 24 was part of the original scope of work. When shown contract C, which clearly and expressly excluded this very item, Ms Oung was evasive.

(v) Ms Oung made the same assertion that variation 37, also excluded from contract C, was part of the contract, and described, at trial and for the first time, the contract as a “turnkey contract” to contend that the variation was part of the original scope of work. The suggestion of a turnkey contract was in neither her witness statements, nor the pleadings.

(vi) Ms Oung asserted that it was the obligation of the contractor under contract C to remedy all defects, irrespective of their origin, in relation to variation 2, which concerned an instruction to the contractor to open up a blocked access from the ground floor to the lower ground floor of Block A2. When it was pointed out to Ms Oung that in her defence this had been admitted as a variation, and that she had signed a quotation for $20,000 to do the work, she asserted, at trial and for the first time, that the contractor had blackmailed her into signing that document.

(vii) Variation 8 to contract C related to the installation of fan coils, a part of the air-conditioning system. Ms Oung’s expert had agreed that this work had been 100% completed. In her second witness statement Ms Oung had asserted that she had no knowledge of a number of variations, including variation 8. In evidence Ms Oung asserted, at trial and for the first time, that she should not have to pay for this variation because the contractor had “torn down somebody else’s work on the fan coils and installed a new set”.

(viii) Variation 14 related to a name sign for the project, at the entrance on Peak Rd. In the original defence, and the amended defence, it was asserted that neither the price nor the scope of work of this and other variations had been agreed. In her second witness statement it is said, without particulars, that there was “a defect in the works under this item”. The expert instructed by Ms Oung had agreed with the expert instructed by the contractor that variation 14 had been 100% completed.

In her evidence, Ms Oung introduced two new suggestions as to why she should not have to pay for the sign. First, she said the sign was defective, in that it should have been solid copper rather than being hollow. That answer implied that quite specific instructions had been given in respect of sign. When it was demonstrated to her that she had denied having agreed to, or given instructions for the variation, she asserted, at trial and for the first time, that she had already paid for it as part of an original $4 million deposit at the beginning of contract C. The quotation for variation 14, however was dated 23 January 2007, a long time after the deposit had been paid.

When faced with these contradictions, she asserted that the quotation had been subsequently changed by the contractor.

(ix) By a quotation dated 19 May 2006, and signed by Ms Oung, the contractor quoted for a number of items including an “additional maid room in toilet, kitchen” to be installed in a number of units. The design of the units in Blocks A1 and A2 was somewhat unusual for units in a location and of a quality contained in project, because no provision at all was made for facilities for a domestic helper.

This was remedied by the installation of the “additional maid rooms” which were in the form of a cockloft.

Ms Oung’s initial position was that there were no cocklofts in the project. When shown photographs plainly showing cocklofts, Ms Oung asserted that the contractor had installed these of his own volition. When shown the quotation, she said that the contractor’s director, Mr Y H Wong, had sent a quotation to her “afterwards” and that she had never read it. When shown the copy of the quotation that she had signed, she then said that she simply wanted the fitting out done in accordance with flat 7. The unchallenged evidence of the contractor’s foreman, Mr Siu, was that flat 7A and 7B had cocklofts.

When faced with that evidence, Ms Oung said, plainly appreciating that cocklofts were illegal, that she would never instruct the contractor to build a cockloft and repeated that she had no knowledge of any cocklofts.

A subsequent witness, Mr Franki Lai, called by the owner, gave evidence of undertaking repair work on the project on the instructions of the owner in March 2009. He acknowledged his presence in photographs showing him painting a cockloft, and agreed that he had been instructed to paint a cockloft rather than to demolish it. Mr Lai was employed in March 2009, at which time the existence of the cocklofts was plainly known to the owner.

In September 2008, according to the unchallenged evidence of Mr Y H Wong, Mr Dianto had refused to sign a form BA 14, required by the Buildings Department, because of the existence of cocklofts in flats GA, GB, 1A, 1B, 9A, and 9B, of Block A1, and GA, GB, 9A and 9B in Block A2. Mr Y H Wong said that Ms Oung refused to agree to the demolition of these and a number of other illegal items in the project and that that was the reason why Mr Dianto would not sign form BA 14. Mr Dianto was not called to contradict that evidence.

20.  Mr Manzoni put before me another matter which he said added to what he described as the catalogue of dishonesty on the part of the owner and justified the rejection of the evidence led on the part of the owner.

21.  On the first day of the trial, Mr Bell sought leave to adduce additional expert evidence on an issue of illegality.  In support of that application was an affidavit from Mr M Y Li, who described himself as a representative of the owner, and a person who assisted Ms Oung in dealing with matters relating to the project and the proceedings.  In the affidavit Mr Li said:

“I understand that (the owner) has also approached Mr Wong Man Hong, another authorised person. However, he has also refused (the owner’s) request.”

22.  Mr M H Wong gave evidence as an expert on other matters for the owner.  In cross-examination he was asked by Mr Manzoni if he had been approached a few days earlier to give further evidence about issues of illegality.  He denied that any approach had been made.

23.  Thatdemonstratedimmediately the falsity of the assertion made by Mr Li.  No explanation was offered as to why or how the assertion came to be made on behalf of the owner.  Mr Li was not called to give evidence.

24.  Mr Manzoni had to accept that it did not demonstrate whether the falsity came from Ms Oung or Mr Li, but he was entitled to say that it was a demonstration of an element of untruthfulness in the manner in which the owner has conducted these proceedings.  That untruthfulness, Mr Manzoni said, went with the approach of the owner in quite unjustifiably making identical claims against both Woon Lee Construction and the contractor, to justify a submission that a dishonest case, based on barefaced lies, was pursued with audacity.

25.  I am quite satisfied, having regard to all of these matters, that it would be quite wrong to place any weight whatsoever on the evidence of Ms Oung.  I reject that evidence entirely.

The failure to call Mr Dianto:

26.  In the light of the rejection of the evidence of Ms Oung, there was no other evidence to support the case for the owner. Although Mr Li had described himself as the owner’s representative, and an assistant to Ms Oung, there was no indication that he was engaged in any way during the period of the contractor’s involvement with the project.

27.  The “authorised person” for the project, a person who represents the owner, had throughout virtually all of the relevant time been Mr Dianto.  The unchallenged evidence of Mr Y H Wong was that Mr Dianto was the owner’s agent, responsible for inspecting and accepting the works involving the 3 contracts.  In those circumstances, one would have expected that Mr Dianto would have been called to give evidence for the owner.

28.  Mr Dianto was not called.

29.  Ms Oung sought to explain his absence by suggesting that Mr Dianto was in partnership with Mr Y H Wong, a director of the contractor, and the person principally engaged in the administration of the contracts for the contractor.  Ms Oung accepted that Mr Dianto had been her employee, and said that he was not called, first because he was a partner with Mr Y H Wong, and second, because Mr Dianto specifically did not want to be involved in the proceedings.  Ms Oung was unable to say precisely what that partnership was, only suggesting, without any supporting evidence, that it was related to real estate in New Territories.

30.  Nothing at all was put to Mr Y H Wong in cross-examination as to any relationship he might have with Mr Dianto.  It is right that Ms Oung’s evidence came later in the trial than that of Mr Y H Wong, but if there had been any basis at all in the assertion of such a partnership made by  Ms Oung, I have no doubt that her counsel would have been instructed appropriately, and would have cross-examined Mr Y H Wong on the point.  I am satisfied that the assertion made by Ms Oung of a partnership between Mr Dianto and Mr Y H Wong was yet another example of Ms Oung asserting, at trial for the first time, whatever would be convenient at the time, without regard to the truth.

31.  Where a party fails to call a witness who might be able to deal with certain evidence, the court may draw an adverse inference against that party.  Sensibly, Mr Bell did not say that Mr Dianto could not be called because of a partnership association with Mr Y H Wong.  No such association was established.  But more importantly, that Mr Dianto might subsequently have entered into a partnership with Mr Y H Wong would in no way be a bar to Mr Dianto giving evidence.  It may be a factor relevant to his credibility, but even that is unlikely.

32.  Even if it is right that Mr Dianto told Ms Oung that he did not wish to be involved in the proceedings, that is no basis upon which he could not be called.  One can readily understand the reluctance of a person to become involved as a witness in court proceedings, but that reluctance can be overcome by a subpoena if the party wishing to call the witness believes that the witness may have useful evidence.  That is especially so in respect of a witness such as Mr Dianto, whose involvement was as a professional person and not a mere bystander.  He was plainly closely involved in the project on behalf of the owner, and in dealings with the contractor in respect of the project, and he was clearly in a position to give evidence to support the case of the owner.

33.  In the absence of evidence from Mr Dianto, the adverse inference to be drawn against the owner is that Mr Dianto’s evidence would not have supported the assertions made by Ms Oung, or the case on the part of the owner.

The case for the owner:

34.  The case for the owner, as advanced by Mr Bell, was that liability for the variations was accepted where Ms Oung signed the quotation to signify acceptance, but denied where she had not signed to acknowledge acceptance.  In addition, specific defences were raised in respect of variations 44, 49, 63 and 65.

35.  Mr Bell said that the pleaded case of the contractor was that in circumstances where Ms Oung had not signed a quotation, there was an understanding whereby if she did not sign or reject a quotation within a reasonable time it would be assumed that she had agreed to it and it would be as valid as if countersigned.  That was not in fact the pleaded case, but it was the effect of the evidence of the contractor’s witnesses.

36.  Mr Bell argued that the case of the contractor was simply not credible.  Certainly, it was not sensible on the part of the contractor, in the light of past history of difficulties in which the owner had been engaged to work on such a basis, for it can easily be seen to be, as it became, a recipe for disaster.

37.  Mr Bell was right that it would have been a simple thing to have recorded the arrangement in writing.  He pointed out that the quotations stated “please stamp for confirmation”, indicating that confirmation was still necessary.  The quotations also sought an initial deposit of 50% before commencement, indicating, Mr Bell said, that unless the deposit was paid, the owner did not agree to the proposal.  Finally, Mr Bell said that the arrangement was inconsistent with the fact that on some subsequent occasions, Ms Oung did sign quotations.  That, he said, would have been unnecessary if the arrangement existed.

38.  Those are all arguments which may be made, but they ignore the reality of the way in which many construction projects proceed.  I do not find it incredible, even in the present circumstances, that a contractor, or his foreman, would accept oral instructions in respect of variations to work, and carry out that work, subsequently confirming the arrangement by way of an invoice.  In the absence of any credible evidence from Ms Oung as to the circumstances in which the variation quotations were made, it is open to me, on the balance of probabilities, to accept the evidence of the contractor.

39.  Some of the quotations were sent after the work was either started or even after the work was completed.  There was nothing in the evidence to suggest that parties might not orally agree to a particular variation, with the arrangement being subsequently confirmed by an invoice.

40.  It is right that Mr P W Siu, who was the general foreman who supervised works on the project for the contractor, was not involved in contractual matters, but there was no reason why he would not be involved in, as Mr Y H Wong said, “getting on with the work”.  As a result of that, if requested to undertake certain work by either Ms Oung or Mr Dianto, there was no reason why Mr Siu would not do so, leaving costing and the price for the work to be dealt with by Mr Y H Wong.  That Mr Siu was not involved in contractual matters, did not impact upon his credibility.

41.  The case of the owner is no better in respect of the four specific variations which were challenged.  Each of these items depended upon evidence from Ms Oung as to the original scope of work.  That evidence has been rejected.

The consequences of the rejection of the evidence of Ms Oung

42.  Having rejected the evidence of Ms Oung, there is nothing at all, either by way of oral evidence, or documentary evidence, to support the assertion that the owner or the owner’s representative did not agree to the three contracts, or the variations argued for by the contractor. There being nothing at all to support pleaded case of the owner, I accept the evidence of the contractor in its entirety.

Contract A:

43.  There was no dispute as to the contract price in respect of contract A.  Neither was there a dispute as to the liability for the variations to that contract.  The dispute was limited to whether or not there were defects for which the contractor should be responsible.  I accordingly find that the original price of contract A was $4,140,000, and that the variations to that contract agreed to by the owner, totalled $427,000.

Contract B:

44.  There was no dispute as to the contract price in respect of contract B.  There was a dispute as to the liability for 4 variations to that contract.  The evidence for the contractor was that the variations, if not signed by Ms Oung, were agreed to either by Ms Oung, or Mr Dianto on Ms Oung’s behalf.

45.  In the absence of any evidence to contradict that of the contractor, I find that the original price of contract B was $7,100,000, and that the variations to that contract, agreed to by the owner, totalled $1,100,000.

Contract C:

46.  There was no dispute as to the contract price in respect of contract C.  The dispute centred on the extent of the work that had been done, and liability for the variations.  I shall deal with the extent of the work had been done later in this judgment.

47.  In the absence of any evidence to contradict that of the contractor, I find that the original contract price of contract C was $40 million, and that the variations that contract agreed to by the owner, totalled $40,898,240.08.

The extent of the completion of the work in contract B &C:

48.  Each item that was subject to challenge was the subject of detailed evidence from Mr Siu.  In his evidence, Mr Siu comprehensively explained each item, placing a percentage by which each item had been completed.  He was unshaken in cross-examination in that evidence.

49.  The only apparent challenge to Mr Siu’s evidence came from Mr M H Wong, but that amounted to no challenge at all.  For eleven of the variations, Mr M H Wong merely stated a percentage completion figure, without in any way explaining either how he arrived at that figure, or why his figure should be in any way different from Mr Siu.  For eleven of the variations, Mr M H Wong was unable to assess a percentage completion, and consequently his evidence is of no assistance to me.

50.  I accept Mr Manzoni’s submission that in those circumstances I should be satisfied on the balance of probabilities, from the evidence of Mr Siu, that the percentage completion of work was as asserted by Mr Siu.  I so find.

Assessing the value of the partially completed work:

51.  Having assessed the percentage completion of work, it is then necessary to determine the correct approach to the sum the contractor is entitled to charge for overheads and profit in order to determine the amount due by the owner to the contractor.

52.  The only difference between the parties in this respect was that Mr Battersby calculated the percentage profit at 36%, but Mr Yu, for the owner, took the view that that profit should be no more than 15 %.

53.  Mr Yu based his figure on what he described as the “industry standard” based upon Buildings Department Tables, but accepted in cross-examination that one ought to stick to the contract as closely as possible when assessing the value of the variations.  On that basis, plainly, a 15% figure is unjustified.

54.  Following consideration of unredacted documents evidencing the actual costs incurred by the contractor, and supplied during the trial, Mr Yu reassessed the figure overnight, reaching a figure of 25.28% before preliminaries, which he said was still provisional.  That figure should be compared with Mr Battersby’s figure of 29.55%, before preliminaries of 5.13%.  Mr Yu accepted that he could not argue with Mr Battersby’s figure of 5.13% for preliminaries.  The real difference between the two was the manner in which the preliminaries were assessed.  Mr Battersby said it was legitimate to take a percentage based on the original contract percentage, Mr Yu preferred to assess it based upon proven costs.

55.  There is difficulty in placing any reliance upon Mr Yu’s evidence.  He had not addressed the issue of his original report, even though it was plain that the matter was an issue between the parties.  In his own words his assessment was provisional.  Mr Battersby on the other hand was firm and confident in his explanation to me.

56.  It is a situation where I think I should take a broad view of the matter.  I assess the profit figure to which the contractor is entitled at 30%.  As will be seen, it will be for the parties to undertake the consequent mathematical calculations.

A dispute as to the rate of variations 19 & 49:

57.  There was a dispute as to the rate for two variations 19, and 49.  I accept Mr Manzoni’s submission that I must simply take a view on the issue.

58.  Having considered the evidence, including the photographs and plans, I am satisfied that in respect of variation 19 the two men were working together and the rate must be assessed accordingly.  For the same reasons, in respect of variation 49, I am satisfied that the rate must be for demolition by machine.

The defects:

59.  Mr Manzoni was quite right to say that the way in which the defects claim had been pursued left a great deal to be desired, and on the evidence he was justified in saying that this was a further example of the way in which the whole case had been defended by the owner.

60.  The work in respect of contract A was completed in December 2006, and the flats were occupied shortly thereafter.  It was not until two years after the work was completed, and long after the flats were occupied and that any claim for defects was made.  There is no evidence that any rectification work was carried out.

61.  The unchallenged evidence of Mr Siu was that the contractor undertook some repair works in the “contract A” units as a matter of goodwill, to repair defects for which it was not responsible, prior to the occupation of the flats.  The balance of the alleged defects, including matters such as toilet seats and shower hoses broken by occupants, or water overflow, were not demonstrated to be matters for which the contractor could be responsible.

62.  Mr Bell identified certain matters which he said “must have existed” at the time the contractor completed the works.  The submission fails to pay proper regard to the fact of occupation of the flats prior to complaint, and the length of time between the completion of work and the raising of the complaint.

63.  I reject the claim for defects in respect of contract A.

64.  The position under contract B is virtually the same.  Again the work was completed in about December 2006, and again nothing was said in respect of defects by the owner until after the writ was issued.

65.  While I accept that there was no defects liability period in any of the contracts, that does not save the position for the owner.  It is right, as Mr Bell says, that the fact that a defect may not be evident at the time of handover does not relieve the contractor from responsibility for poor workmanship.  But at the same time the mere fact that an item does not meet the satisfaction of the owner does not relieve the owner from the burden of establishing that the matter is a defect which is the responsibility of the contractor.  Again, having regard to the fact of occupation of the flats prior to complaint, and the length of time between the completion of work and the raising of the complaint, the owner has failed to meet the burden of proof to establish responsibility for the alleged defects.

66.  I reject claim for defects in respect of contract B.

67.  The contractor had completed the work under contract C to the extent of over 90% by early 2008.  Between then and August 2008 the work appears to have been confined to minor matters, as the contractor greatly restricted by the refusal of Ms Oung to give instructions in respect of the project, and understandably reluctant to commit men and material to work with accounts totalling some $12 million outstanding appeared to have done only that work which was barely neccesary.

68.  The evidence of Mr Y H Wong and Mr Siu, contradicted only by the evidence of Ms Oung, whose evidence I reject, was that on 1 September 2008, the contractor was refused access to the project.  By letter on that day, the contractor wrote to the owner seeking an explanation as to the refusal of access.  No reply to that letter has ever been received by the contractor from the owner.

69.  By letter dated 30 December 2008, the contractor accepted what it described as the owner’s repudiation of contract and terminated the contract.  By letter dated 9 January 2009, the contractor made a demand on the owner for a sum in excess of $51 million then claimed to be due. The writ was issued on 22 January 2009.

70.  Mr Manzoni says that there is no reliable evidence to suggest that at that time there had been any suggestion, either orally, or in writing, from the owner to contractor, that there were defects in the contractor’s work in relation to contract C that required remedy.  To the contrary, he says, the unchallenged evidence of Mr Y H Wong and Mr Siu was that none of the defects had been raised by the owner with the contractor prior to the commencement of proceedings.

71.  It is right that during 2008, there had been an issue in relation to illegal/unauthorised works.  These were principally works related to the cocklofts, the conversion of store rooms and toilets, open kitchens in two units and other similar items.  These were matters upon which Mr Dianto refused to sign the Form BA 41.  But those illegal works were plainly authorised by the owner, (see § 19(ix) above), and were not in any way a basis on which the owner could refuse payment to the contractor, neither did the discussions constitute any notice of defects to the contractor.

72.  In pursuing the claim in respect of defects in manner it has been pursued, the owner faces certain difficulties.

73.  First, as I have set out above, although there were discussions in respect of illegal works, the owner elected to put nothing at all in writing as to what defects were claimed to exist at any particular time.  There is accordingly no contemporaneous evidence as to claims by the owners of the existence of defects.  The only evidence that assertions were made as defects came from Ms Oung, whose evidence I reject.  The only other possible source of evidence was Mr Dianto, who was not called.

74.  Second, following the issue and service of the writ the owner failed to file statement of defence and judgment was entered by default.  It is right that that judgment was subsequently set aside, in part, because of an issue as to whether or not the writ had in fact been received following being left at the owner’s office premises.

75.  But when the defence and counterclaim was filed, three months after the default judgement was entered, the defects were still not particularised except as to certain sums claimed to be the cost of rectifying work.

76.  Further and better particulars of the allegation of defects were requested.  In response the owner referred to a survey report prepared by Mr M H Wong which had been attached to an affirmation from Ms Oung in support of the application to set aside the default judgment.  However, as I have indicated in § 49 above, Mr M H Wong’s report merely identifies items alleged to constitute defects, but does not attribute responsibility for any of those defects to contractor.

77.  It is right that Mr M H Wong put photographs with his report, but as Mr Manzoni pointed out, a photograph without any proper explanation is of little assistance.  For example, he said, a floor shown in a photograph taken three years after the event may not even be the same floor as was laid by the contractor.

78.  The evidence of Mr Franki Lai was that he had carried out some $5 million worth of work at the flats, but no attempt was made to lead evidence from Mr Lai as to the nature of the work he undertook, other than most general terms, or to relate that work to the alleged defects.  There was nothing to indicate that defects shown in the photographs might not be the responsibility of, for example, Mr Lai.

79.  This identifies the third problem faced by the owner in respect of the defects.  It is clear that a number of flats, in particular many of those in which defects are alleged to have existed were occupied during the period between physical completion of work and the allegation of defects being raised.  Matters purporting to constitute defects cannot be sheeted home to the contractor in circumstances where not only have other contractors worked on the project, but flats have been left either empty for long periods of time or occupied.  A good example of the difficulty faced by the owner was claims for water damage.  There was nothing at all in the evidence to show how water damage occurred, when water damage occurred, or whose responsibility damage might be.  The mere fact of water damage has occurred does not, by itself, give rise to liability on the part of the contractor in this case.

80.  Further, certain defects were, at least, equally arguably the responsibility of WLC, and had been claimed by the owner, in the course of the arbitration against WLC.  No attempt at all was made by Mr Wong to distinguish defects which might have been the responsibility of the contractor or WLC.  Instead the owner simply claimed the same defects against each party in the two separate sets of proceedings.

81.  An allegation was made, in broad terms, that work had not been completed in accordance with authorised plans.  An example was a claim in respect of the absence of a floor drain in a toilet.  But the photograph does not show the entire area of toilet floor, no plan or specifications were produced to show a requirement to install a floor drain, and, as Mr Siu said, the floor drain may have been a vertical drain on wall, which he pointed out in photograph 19.

82.  Allegations were made that some flats were not constructed in accordance with approved drawings.  But no approved drawings were produced, and the manner in which the work was said to be different from the approved drawings was not identified.

83.  Mr Manzoni’s submission again, was that the owner, as plaintiff in the counterclaim, carried the burden of proof, and on the evidence it had failed to establish that the defects were defects which contractor was responsible.  I accept that submission.

84.  In so far as contract C is concerned, the claim for defects must fail.

The termination of contract C:

85.  There is no doubt that contract C was brought to an end by the contractor’s  letter of 30 December 2008.  Mr Manzoni says, and I accept, that there were five issues which had caused the contractor to terminate the contract.  They were:

(i) the contractor had, on the instructions of Ms Oung, constructed certain aspects of the work which were unauthorised or illegal structures. These included the cocklofts, the conversion of toilets and storerooms, and similar items. Mr Dianto instructed that they should be removed in order that he might sign and submit form BA 14 to the Buildings Department. Ms Oung refused to allow the removal of the illegal items. The contractor was left in an impossible position between the owner and the authorised person.

(ii) Some of the work that had been undertaken by a previous contractor required approval by the Buildings Department. That approval required certain test certificates which could only be obtained by opening up completed work and undertaking certain approved tests. Ms Oung would not permit the opening up, and required the areas to be closed. Again the contractor was left in an impossible position.

(iii) Ms Oung refused to give instructions that were required before certain other aspects of work could be undertaken. She failed to give instructions as to the type of railing to be installed on the roof, which meant that the granite flooring could not be installed on the roof. She failed to approve the lift for House B, which could not be installed. The contractor was thereby prevented from completing its work.

(iv) The owner failed to get Buildings Department approval for glass canopies to be constructed at the main entrance to Blocks A1 and A2 and a glasshouse on the 2nd floor level of House B, even though those works were included in contract C. The contractor was thereby prevented from completing its work.

(v) At the time the contractor terminated the contract there was outstanding unpaid invoices in the order of $12 million.

86.  I accept Mr Manzoni’s submission that a term should be implied in the contracts, in order to give them business efficacy, that the owner would not hinder or prevent the contractor in carrying out and completing the contract works.  That term was pleaded in respect of contract C.

87.  The matters set out in § 85(ii), (iii) and (iv) above, were not, as Mr Bell submitted, mere failures to perform certain specific tasks.  They had the effect of putting a barrier between the contractor and a continuation of his work.  The acts of the owner in that respect were in breach of the implied term of the contract.

88.  Even if they were a mere failure, no satisfactory explanation has been offered by the owner for failing to perform those tasks.  It is right that by August 2008, the contractor had effectively demobilised its work staff and equipment.  It did not do so to evince an intention to repudiate contract, but in response to its inability, arising from the actions of the owner, to complete its work.

89.  Mr Bell said that it could not be established by the contractor that the time for payment of the various progress payments had elapsed.  To support that submission he relied upon a passage from the decision in Tombs v Wilson Connolly Ltd [2004] 98 ConLR 44 at 60.  The decision does not assist his case, because it is a decision on the specific terms of the contract in that case.  The terms of the contract for payment in contract C were:

“Payment terms will be 30% deposit to be paid on acceptance of quotation and the remaining 70% to be paid as interim progress payment on a monthly basic.”

90.  While a delay in payments by itself might not go to the root of the contract, when taken with the owner’s denial of access to the contractor to the property in order that it may continue work on the project, a substantial delay in making payments may go to justify acceptance of repudiation of the contract.

91.  The signal event demonstrating repudiation on the part of the owner, and justifying termination of the contract on the part of contractor was the act of the owner in barring the contractor from the site on 1 September 2008, and not in any way responding to the letter written by the contractor on that date. That, together with a failure over a period of some 8 months to pay outstanding progress payments to the extent of $12 million, and the owner’s failure to give appropriate instructions to enable work to continue, are clear evidence of an intention on the part of the owner no longer to be bound by the contract.

92.  I am satisfied that the termination of the contract on the part of the contractor was lawful, and that in consequence of the owner’s repudiation of the contract, lawfully accepted by the contractor, the contractor is entitled to recover the loss of profit that has resulted from that repudiation.

93.  The only evidence as to that loss of profit was that of Mr Battersby, whose evidence I accept.  The owner is entitled to loss of profits, appropriately calculated.

Conclusion:

94.  Mr Manzoni suggested that the appropriate course was that I should give judgment in principle, leaving the calculations to follow from the principles, to be undertaken by the parties.  I agree that that is the appropriate course in this case, even on the basis of the findings that I have made which are substantially in favour of the contractor.

95.  Leave is accordingly reserved to apply in respect of the calculation of the amount due consequent upon the findings that I have made.  If necessary there may be an order for an account between the parties.

The illegal structures:

96.  It is apparent from this judgment that there are aspects of the project which constitute illegal structures.  I refer particularly to the cocklofts.

97.  Illegal structures within residences in Hong Kong are not unusual.  On many occasions they serve only to enhance the property but remain illegal.  Examples constitute the incorporation of a window box into the floor area of a room, or an unauthorised roof structure.  While illegal, these usually offer no danger at all to residents or visitors to the premises. They are technically illegal because they have the effect of increasing the gross floor area of the development above that lawfully permitted.

98.  But the cocklofts in the project fall into a quite different category.  They do not appear to have natural lighting or ventilation and do not appear to be fit for human habitation.  I find it quite extraordinary that it should ever be suggested that a domestic helper should be required to live in such conditions.  Access to the cocklofts appears to be gained by way of a simple ladder, which while being convenient, does not provide proper means of access.  More especially a ladder to a cockloft would not provide a safe means of access or egress in the event of fire or other danger.

99.  There may well be other breaches of regulations consequent upon the construction of cocklofts.  Mr Bell, sensibly, did not suggest that the cocklofts were legal.

100.  I direct that a copy of this judgment shall be forwarded by the Registrar to the Buildings Department, in order that they may undertake such investigations as they consider appropriate into illegal structures at the project, and thereafter such actions they may consider appropriate.

Interest and costs:

101.  The contractor is entitled to interest on the outstanding sums due.  There will be an order nisi that the owner must bear the contractor’s cost of the proceedings on a party and party basis.  I will hear counsel on interest and costs if agreement cannot be reached.