MISSION & ASSOCIATES LTD v. CHU YIN SANG KEN

DCCJ 1502/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1502 OF 2006

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JUDGMENT

1.  On 15 December 2003 the Plaintiff, Mission & Associates Limited (“Mission”), an interior design company, entered into a design and build agreement with the Defendant, Mr. Chu Yin Sang Ken (“Ken Chu”) (“the Main Contract”) to design and carry out decoration work to Mr. Chu’s newly purchased property located at Apartment D1, 23^rd Floor with portion of roof immediately above of Block D, Greenville Gardens, No. 17 Shiu Fai Terrace, Hong Kong (“the Property”).  The price quoted under the Main Contract of 15 December 2003 was $1,257,138.80. 

2.  On 15 July 2004, at the request of the Defendant, Mr. Chu, there were changes and additions to the original works under a variation order (“the Variation Contract”) for the additional contract sum of $267,182. 

3.  The Plaintiff claimed that in addition to the Main Contract and the Variation Contract, Mr. Chu requested further additions and changes to the project which were not covered by the Main Contract or the Variation Contract.  Upon completion of the project a final re-measurement was carried out and final accounts were delivered to Mr. Chu by Mission for: (1) extra work outside the Main Contract and the Variation Contract; (2) additional work carried out by Mission based on re-measurement at the rate quoted under the Main Contract; (3) adjustments after taking into account the deleted items from the original Main Contract and the Variation Contract.  The charges for further additional works after adjustments of deleted items from the Main Contract and the Variation Contract came to $292,231.20.  Mission duly invoiced Mr. Chu on 22 July 2005.  Mr. Chu refused to pay the sum.  Mission is claiming for the said sum against Mr. Chu in the present action.

4.  It is Mr. Chu’s defence that he did not request Mission to effect changes and additions to the project which were outside the Main Contract and the Variation Contract.  Furthermore, Mr. Chu denied that he had agreed to pay for the changes and additions.  He claimed that all the changes and additions in the further variation works were covered by the Main and Variation Contracts.  The Defendant counterclaims against the Plaintiff for damages suffered due to the delay in completion of the project.  Mr. Chu claimed he had to pay four extra months of rental for alternative accommodation between 22 August 2004 and 21 December 2004 in the total sum of $160,000.  There is a further sum of $18,000 for the repair of defective work done to the glass house erected on the roof of the Property.  The Defendant counterclaimed an amount of $178,000. 

5.  At the trial, Mr. Chu’s legal representative, Mr. Cheng, raised the issue in addition to the pleaded defence, that the contract between the parties was not a re-measurement contract but a lump sum contract.  Mr. Wong, Counsel for the Plaintiff, objected to the Defendant’s last minute departure from the pleaded case.  He submitted that the Defendant’s defence as pleaded is the items of work (on pages 79 to 104 of the documents bundle) were included in the Main and Variation Contracts.  At the trial, Mr. Cheng conceded that the Defendant would not challenge the quantum of the individual items or the items of work at pages 79 to 104 had been carried out.

The Issue

6.  I am satisfied that in spite of the lack of clarity in the pleaded Defence, during the course of the trial, and upon the Defence’s amendment the issues framed are:-

(1)	Was the Main and Variation Contract a lump sum or re-measurement contract?
(2)	Did Mr. Chu request extra or additional works and changes to the original contract works?
(3)	If he did request extra and additional work, were they covered by the Main and Variation Contracts?

Re-measurement Contract vs. Lump Sum Contract

7.  According to the author of Keating on Building Contracts, 6^th Edition, Chapter 4 on page 74:-

“

The contractor’s right to payment depends upon the wording of the contract.  Within the limits of legality parties can make what arrangements they please, but there are three broad heads under which the right can arise, viz: (a) a lump sum contract, (b) an express contract other than for a lump sum and; (c) a claim for a reasonable sum frequently called a quantum meruit.”

8.  The author of Hudson on Building and Engineering Contracts vol. 1 1995 edition said on page 415:-

“	3-012
	(a)	“Fixed price” or “lump sum” contracts
		These are contracts where a fixed price or prices are quoted for carrying out and completing the work described in the drawings and specification.
	3-013
		Contracts of this kind, where in the absence of variations re-measurement of work and re-calculation of price is not intended, are the classical fixed price or “lump-sum” contracts, and in the RIBA/JCT forms are somewhat ineptly described as contracts “where quantities do not form part”.”

9.  As to the “measure or bill of quantities contracts”, the author of Hudson on Building Contracts said at para. 3-014:-

“	(b)	Measured or bill of quantities contracts
		These will be contracts which, apart from a specification and drawings, will also include documents which, however entitled, not only contain items or units of work for pricing by the contractor, but also estimated quantities of all the items of work required so as to produce, when grossed up (often in conjunction with so-called “preliminary” or “general” items), a total price for the work as a whole. …… The relevant incorporating provisions of contracts of this kind make it clear that the contractor’s quoted tender prices (but not his completion obligations) are only for the stipulated quantities, and that, whether or not variations are subsequently ordered, the ultimate contract price is to be re-calculated in the light of the final “as built” quantities of work carried out.”

10.  Keating on Building Contracts 6^th edition on page 91 said:-

(c)

Measurement and value contracts

In a measurement and value contract it is usually immaterial whether any particular item of work that a contractor has to do is in the contract or not, because the contractor is entitled to be paid for it at the contract rate if it is applicable, or at a reasonable price if it is not.  But where such a contract provides for the payment of a specified sum of money for a specified item of work, it is a question of construction to determine what work is impliedly included in that item of work and is not therefore extra work.  It is submitted that the principles of construction applicable to lump sum contracts apply to each item.  And it may be important to determine whether work is of the type contemplated by the contract and therefore governed by the conditions of the contract including price, or is work outside the contract and not therefore subject to the contract conditions or price.”

Was the Main Contract and the Variation Contract a lump sum contract

11.  Mr. Chu admitted that before he formerly retained Mission, Mr. Lai and his staff had visited the Property for inspection and measurement.  Mr. Chu had explained to Mr. Lai that he would move into the Property as soon as the decoration works completed.  The parties then had a few meetings on Mission’s design during which Mr. Chu made some suggestions to the design.  After the design was approved, Mission submitted to Mr. Chu a quotation for the work to be done.  The original quotation (pages 1 to 13 of the documents bundle) was approved by Mr. Chu and he signed on the last page of the quotation on 15 December 2003.  It became the Main Contract.  The Variation Contract was in the form of a work adjustments table (工程異差對帳明細表) dated 15 July 2004 (pages 14 to 28).  The Variation Contract was signed by Mission on 20 July 2004.  Mr. Chu signed the Variation Contract on or about the same day. 

12.  There is no dispute the Main Contract sum was $1,257,138.80 while the Variation Contract was $267,182.  These sums had been settled by Mr. Chu and there is no dispute on these amounts.

13.  The parties’ dispute is over the 2^nd Variation Order, the documents on pages 29 to 38 of the bundle were issued on 24 January 2005.  According to Mr. Lai, Mission’s director, Mr. Chu did not make any comments after receiving a copy of the 2^nd Variation Order.  However, Mr. Chu did not sign on the document, neither did he settle the sum demanded under the 2^nd Variation Order.  Mr. Chu claimed he had never agreed to pay for the items under the 2^nd Variation Order and he had never been told that he would be charged for the further additional works.  He claimed he had never given instructions for any extra or additional work; even if he had agreed to the work being done, they were covered by the Main and Variation Contracts. 

14.  Mr. Lai claimed there had been 35 project meetings after the project work commenced.  They were held either at Mission’s office or at the Property.  He claimed that at most of these 35 meetings, Mr. Chu was present.  Subsequent to the meetings, the minutes of the project meetings would be faxed to Mr. Chu together with the drawings or plans of the variations or additional work requested.  Mission placed reliance on the project meeting minutes faxed to Mr. Chu between 22 March 2004 and 13 December 2004 (pages 124 to 176 of the documents bundle).

Findings

15.  Based on the evidence of the Main and Variation Contracts, I cannot find any descriptions or wordings in the two documents that identified the two contracts to be lump sum contracts.  On the contrary, clause 2 of the Main Contract (page 12) specified that the items of quotation in the document to be subject to the final approval by the customer of the design drawings and the quotation signed.  Furthermore, it is clear the Variation Contract (pages 14 to 29) contained substantial changes and variations to the work in the Main Contract of 15 December 2003.  Mission’s charges were based on the unit prices quoted in the Main Contract.  As Mr. Chu did not dispute the Variation Contract and had settled the charges thereunder, it indicated the agreement between Mission and Mr. Chu was not a lump sum contract but a measured or bill of quantities contract.  Furthermore, the Main Contract did not refer to any contractual drawings or specifications, and para. 2 of the Main Contract (page 12) stated the quotation was subject to the final approved drawings and specifications. 

16.  This showed the Main Contract was a measure or bill of quantities contract where items and units of work for pricing were set out as well as estimated quantities of all the items of work required with a grossed up total price.  It has all the features of a measure or bill of quantities contract.  It is not a lump sum contract which specified a lump sum to be paid by Mr. Chu to Mission as the lump sum project price.  The 35 project meeting minutes identified a lot of changes and additions to the project after work commenced.  These are clear indicators that the contract could not have been a lump sum contract.  Furthermore, contrary to the standard form contract of the First RICS (HK Branch) edition which is a standard form lump sum contract, the Main Contract did not bear the words “without quantities” nor did it describe the obligation of a sub-contractor such as “the main contractor shall complete the works shown upon the contract drawings and described by and referred to in the specification to the reasonable satisfaction of the architect” etc.  The usual features of a lump sum contract are absent in the Main Contract.

Extra Work

17.  Even if the contract was a lump sum contract, the Plaintiff should be able to recover from the Defendant charges for the work done under the 2^nd Variation Order as extra work.

18.  According to page 87 of Keating on Building Contracts, 6^th edition :-

“	There is no generally accepted definition of extra work, but in a lump sum contract it may be defined as work not expressly or impliedly included in the work for which the lump sum is payable.”

Examples given of lump sum contracts for whole work on page 87 of Keating are contracts “to build a house” or “to execute so many cubic metres of diggings”; and in cases where:

(i)	Work not expressly specified;
(ii)	Work not taken out on the quantities supplied to the contractor for tender, or wrongly stated on the drawings; or
(iii)	Unexpected labour caused by difficulties of the terrain, or by the proposed method of carrying out the works; or
(iv)	Work caused by the lawful and not unreasonable exercise by the employer of statutory powers existing at the time of entering into the contract; or
(v)	Work carried out in a manner directed by the engineer, where the contract set out no specific method of carrying out particular operations necessary to complete the works but provided that the works should be carried out under the engineer’s directions and in the best manner to his satisfaction.

19.  Mr. Lai’s evidence was, he had obtained the oral approval from Mr. Chu before Mission commenced each item of extra work.  Because the preliminary drawings did not cover all parts of the project, the quantities in the quotation could only be estimates.  As Mr. Chu wanted to have the work commenced before detailed drawings were completed and approved, the Main Contract was signed so that work could commence as soon as possible.  Furthermore, the work under the 2^nd variation order was mainly on the 24^th floor (roof) of the Property where a lot of extra items were put in at a late stage as newly added items such as the domestic staff toilet and the outdoor washbasin area etc.

20.  Mr. Chu admitted in his evidence in Court that some of the variations in the 2^nd Variation Order were proposed by him while the others were proposed by Mr. Lai which he had accepted at the time.  He admitted he had not studied the minutes of the project meetings though the variations were minuted and sent to him for approval.  It is apparent that the extra work had the consent of Mr. Chu at the project meetings and if he did not raise obligations to these items of work at the time of the meeting or soon after the minutes were sent to him, consent must be assumed.  Consequently, Mr. Chu will have to be responsible for the cost of the variation and extra work done under the 2^nd Variation Order. 

The Defendant’s Counterclaim

21.  Mr. Chu claimed that because of Mission’s delay in completion of the project work, he had to remain in rented accommodations for a further four months between 21 August to 21 December 2004 at a monthly rental of $40,000.  A total of $160,000 was incurred. 

22.  According to Mr. Lai’s evidence, possession of the 23^rd floor of the property was delivered to Mr. Chu at the end of September 2004.  Mr. Chu and his family had moved into the 23^rd floor by October 2004.  Mr. Chu disagreed.  He claimed only part of his household items and the domestic helper had moved into the 23^rd floor in October 2004.  His family and himself had remained in the flat he rented. 

23.  Mission relied on the project meeting minutes of 8 September 2004 (page 156 of the documents bundle) where it recorded that the contractor Hung Wai had informed the parties at the meeting in the presence of Mr. and Mrs. Chu the expected date of completion of the 23^rd floor would be 18 September 2004 and possession to be delivered to Mr. Chu on 20 September 2004 after cleaning.

24.  Mission claimed that even if there was delay, it was caused by the delay in the Building Authority approving the structural changes to the 23^rd and 24^th floors.  Upon the granting of approval for structural works, consent to commence work had to be obtained from the Buildings Department and that had caused further delay.  As the submission of plans for the construction of the staircase between the 23^rd and 24^th floors was the responsibility of the architect, Mission claimed it is not liable for the architect’s delay who was engaged directly by the Defendant.  In addition to the delay in the planning approval and consent from the Building Authority and the Buildings Department, Mission claimed there were late changes and additional works ordered and approved by Mr. Chu.  These late changes were ordered between September and December of 2004.

25.  It is the Plaintiff’s case that because Mr. Chu had ordered and approved late changes and additional works in addition to the delay caused by planning approval and consent to commence building works from the Building Authority and Buildings Department and work undertaken to the structure due to the erection of an internal staircase, the original estimated time of completion was rendered inapplicable. 

26.  Based on the meeting minutes, it is apparent that Mr. Chu had approved the additional works and made late changes.  Furthermore, there was a change of architects because the first one was found to be unsuitable and Archidesign Associates was engaged.  The delay caused by the aforesaid changes cannot be described as unreasonable.

27.  Page 250 of Keating on Building Contracts stated:-

“

If the employer prevents the completion of the works in any way, as, for example, by failing to give possession of the site or to provide plans at the proper time, or by interfering improperly through his agent in the carrying out of the works, or by ordering extras which necessarily delay the works, or by failing to deliver components he is bound to provide, or by delay in giving essential instructions, the general rule is that he loses the right to claim liquidated damages for non-completion to time, for he “cannot insist on a condition if it is his own fault that the condition has not been fulfilled”.”

28.  Mission had stated in the Main Contract it was the architect’s responsibility to obtain building approval from the Building Authority and the consent to commence work from the Buildings Department.  It is not disputed that the architect was directly engaged by Mr. Chu even though the firm was recommended by Mission.  Any delay caused by the architect in obtaining planning approval and consent to commence work should not be taken into account in the computation of time of completion under the contract.  It is beyond dispute that Mission’s work had to accommodate the construction of the internal staircase between the 23^rd and 24^th floors and the structural work which was not originally anticipated.  I accept that until the structural changes to the 23^rd and 24^th floors were approved and the work completed, Mission would not be able to complete the decoration project in the Property. 

29.  When the additional work and changes to the original plans were ordered, it must be within Mr. Chu’s contemplation that delay would be caused.  On the other hand, even though it was Mr. Chu who ordered the changes and additional work, Mission would still be obliged to complete within a reasonable time.

30.  Going through the 2^nd Variation Order, it is clear that most of the items under the 2^nd Variation Order were ordered in November 2004.  In fact, a large number of these items were work done to the 24^th floor which included the rooftop glass house, the domestic helper’s toilet, the laundry area and the rear staircase.  In spite of the late changes and extra work done under the 2^nd Variation Order, the project was completed and the 24^th Floor was handed over on 31 December 2004.  Under the circumstances, I find the delay was a reasonable one taking into consideration the number of items of changes and extra work done and that they were mostly ordered in mid to late November 2004.

31.  For the aforesaid reasons, I find the Defendant’s counterclaim not proved.  Due to the late changes and additional items ordered, it was to be expected that the completion of work and handover of the Property would be delayed.  I therefore dismissed the Defendant’s counterclaim. 

Conclusion

32.  I am satisfied Mr. Chu did request the Plaintiff to effect the changes and had ordered additions to the project which were not covered in the Main Contract or the 1^st Variation Contract.  Based on the evidence of the 35 project meeting minutes between Mission and Mr. Chu, it is clear that all the additional works and changes were either ordered by Mr. Chu or had the consent and or approval of Mr. Chu and his wife.  It is also evident when the Main Contract was signed the final drawings were not yet ready and the Main Contract was subject to variations and additions to be made.  Consequently, the contract could not be a lump sum contract but a mere quotation on the project.  The Defendant is therefore liable for the costs and charges under the 2^nd Variation Order.

33.  As to the Defendant’s counterclaim, because of the structural work required in the conversion of the Property into a duplex unit, involving the construction of an internal staircase between the 23^rd and 24 floors and a glass house to be erected on the roof area, planning approval had to be obtained and consent to commence work had to be applied for.  Consequently, completion of the decoration work was delayed.  Furthermore, when there were late changes ordered by Mr. Chu, the originally agreed completion time of 60 days could no longer be applicable.  The time of completion therefore was at larged.  I find the completion at the end of December 2004 to be reasonable.

34.  As to the leakage claimed by the Defendant, the Defence claimed there was leaking at the ceiling of the glass house on the roof of the Property, there was no independent evidence from a surveyor or the contractor who did the repair.  I find the Defendant’s claim had not been established.  Further, the alleged leakage appeared in April 2006 which was one year and four months after the handover of the roof glass house.  Failing cogent evidence on the leakage and the cause, I am not prepared to make an award on the cost of repair of $18,000.  The claim is dismissed. 

35.  I gave judgment to the Plaintiff in the sum of $292,231.20.  Interests at half judgment rate from the date of writ to the date of judgment, thereafter at full judgment rate until full payment.

Costs

36.  Costs to follow the event.  The Defendant shall bear the Plaintiff’s costs to be taxed if not agreed with certificate for counsel.  This order will be made absolute should there be no application on costs within 14 days hereof.