NORTH SEA A/C & ELECT. ENG. CO. v. COLLECTIONS INTERIOR LTD.

1993, No. Con. 15

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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Background and Issues

1. The defendant was the main contractor for some work done the ballroom and other rooms at the Sheraton Hotel, Kowloon. The contract price for work on the air-conditioning and heating system (the AC work) was $979,675, but this was later increased by $500,000 because the hotel insisted upon the defendant using a sub-contractor on its approved list. The AC work was sub-contracted to the plaintiff at a lump-sum price of $1.6 million. The AC work was not the only work for which the defendant was responsible. There was much other work, including work carried out within the ceiling void of the ballroom, which is, in the main, the work area with which I am concerned in this action.

2. On 12 July 1993, the plaintiff issued a writ against the defendant. The plaintiff claimed the balance of the contract sum of $506,710 (later increased to $566,710) and a sum of $133,750 being for agreed variations. In 1994, the plaintiff obtained summary judgment against the defendant in the sum of $422,940, leaving a balance of $277,520. Leaving aside the counterclaim for the moment, the defendant concedes liability for this sum of $277,520, save in respect of two items of variations; one of $37,050, in respect of which the defendant says only $18,240 is due, and the other for $2,400, for which the defendant denies liability entirely.

3. The defendant counterclaims against the plaintiff for two sums -

1. $429,327.50 "representing the balance of the sum outstanding for the work of dismantling high ceiling and 3 openings for access to A/C ducts and construction of a new high ceiling in replacement thereof carried out at the site of works at the request of the Plaintiff particulars of which are known to and previously not contested by the Plaintiff";

2. $245,000 in respect of work done "to make good certain items in the Plaintiff's workmanship".

The plaintiff denies liability to pay these sums.

The Plaintiff's Claims

4. The claim for $2,400 is in respect of work done in relocating some thermostats. This arises from a request by the plaintiff to the defendant to confirm that the defendant wished this to be done. There is a note by the plaintiff to the defendant saying, in essence, "Please confirm that you want this done by signing this memo. The price has been quoted." The memo was signed on 8 August 1992 by the person in charge of the defendant's mechanical and electrical work on site.

5. The defendant attempted to claim $2,880 from the hotel for this work, but it was not accepted by the hotel's quantity surveyor. I do not know why, but it matters not. The parties to this action clearly entered into an agreement for this work to be done for the price claimed. Mr Tsang's only answers to this claim are that the agreement was not pleaded and it is not supported by the evidence. It is clearly pleaded, and the signed memo is not disputed. Mr Tsang says that there is no evidence that the person who signed was not authorised to do so. I do not accept this. Indeed, the only factual witness called by the defendant, Miss Corrina Au Yeung, the defendant's project director, made excuses for her failure to do many things by insisting that the defendant's mechanical and electrical people on site were authorised to attend to matters within this area.

6. This claim is allowed.

7. The plaintiff's other claim for $37,050 is in respect of work done by the plaintiff for air duct recesses for lights. The plaintiff has not adduced any evidence of any agreed quote for this work. The defendant claimed it from the hotel as a variation in the sum of $44,400, but was allowed only in the sum of $22,800. This allowance by the hotel's quantity surveyor is the only evidence I have of the reasonableness of the sum. Mr Eric Lam, the plaintiff's proprietor, accepts that this quantity surveyor was usually reasonable in making these valuations. The question is: The defendant having been allowed $22,800 as a reasonable sum, what sum is payable to the plaintiff? Mr Brian Meharg, the defendant's expert quantity surveyor, says that "it would be inappropriate for the plaintiff to anticipate payment at a rate higher than that received by the defendant". In the ordinary course, this is undoubtedly so, but, in this case, the defendant's contract price was far lower than the plaintiff's contract price for the same work. In these circumstances, it seems to me, there is no valid reason why I should not assess the value of the plaintiff's work as that assessed by the hotel's quantity surveyor.

8. I allow this claim in the sum of $22,800.

9. In the result, I give judgment for the plaintiff in the sum of $263,270.

The Defendant's Counterclaims

Dismantling and Replacing the Ceiling

11. Possession of the site was given to the defendant on 13 July 1992. The completion date for all the work was 26 August 1992. There was a penalty of $264,000 per day liquidated damages for late completion. The contract for the AC work was awarded to the plaintiff on 17 July 1992. Before this, on 14 July 1992, the plaintiff pointed out that it was impossible to do the pipe and duct insulation works within the ceiling void while all the existing ceiling remained in place. The contract provided for only part of the ceiling to be demolished and replaced. The remainder was to remain in place, subject to some thirty access panels being opened to allow work to take place within the void. Following this letter of 14 July 1992, those acting for the hotel agreed that the insulation could be done by means of cement plastering, as had been suggested by the plaintiff.

12. On 17 July 1992, the plaintiff wrote to the defendant saying that, during a joint on site inspection, it was found that replacement of the air ducts was impossible without dismantling part of the ceiling (the low ceiling), and asked for a decision on this by the defendant.

13. On 27 July 1992, the plaintiff wrote to the defendant mentioning "recent requests for dismantling of high ceiling and 3 openings for access to R/A Ducts at Ballroom" and asking for this work to be done "so as to follow the work programme".

14. After receiving this letter, the defendant demolished the whole of the ceiling. The plaintiff says that this letter was referring to requests to dismantle that part of the ceiling that was to be removed under the contract. Miss Au Yeung says that she understood the requests to be for the removal of the whole ceiling, including parts not to be removed under the contract. She was unable to explain coherently that, if the whole ceiling was demolished, why the 3 openings requested were necessary. She suggested, somewhat half-heartedly, that perhaps the ducts were obstructed by supporting brackets. The defendant's expert was led to suggest that perhaps the openings were to be made outside the ballroom, but this does make sense either. The request was for openings "at Ballroom".

15. On 31 July 1992, the plaintiff wrote to the defendant saying that the installation of the air duct work at the high ceiling would take at least 10 working days. Mr Lam said, from his site inspection on 31 July 1992, "the dismantling work for high ceiling has not been completed". Mr Lam asked for a revised programme.

16. Miss Au Yeung said that the ceiling had not been completely dismantled on 31 July 1992; only about half. Her recollection was that the whole ceiling was taken down between on some date between 1 and 10 August 1992.

17. When the whole ceiling was demolished it was found that frame and hangers were bent and rusted, so they had to be replaced.

18. On 11 February 1992, the defendant wrote to the hotel's agents saying, as I understand the letter, that the ceiling was "full of holes" after the chandeliers were removed and that re-plastering "would never be possible should the ceiling not be taken down". The letter concluded that the remaining area would "become so little that cost to patch up old and new ceiling would definitely be greater than to construct full piece new ceiling". This, apparently, was not accepted by the hotel's agents. It was only after the defendant's application for this variation was refused that the defendant turned to plaintiff to meet the cost.

19. On 28 April 1993, the defendant wrote to the hotel in another attempt to get it to accept that it was necessary to demolish and replace the whole ceiling "due to architectural and M&E requirement". "M&E" means mechanical and electrical. There is no need to go into the reasons given. It is sufficient to say that one of the reasons given was not that the plaintiff had requested that the whole ceiling be removed so that the plaintiff could do its work. The hotel's agents made some allowances, but refused to recognise the need to remove and replace the whole ceiling.

20. There is no evidence, outside the documents written by the plaintiff, about any requests by the plaintiff to remove the ceiling. Miss Au Yeung told me that she instructed the demolition of the whole ceiling because she understood from the defendant's M&E staff that the plaintiff had requested this. She knew that prior approval of the hotel's agents was required before the whole ceiling could be removed. She did not seek to obtain this approval because the plaintiff "kept asking" for it to be taken down. At another time, she told me that the defendant subsidiary company should have sought approval. She knew that the removal and replacement of the whole ceiling would incur great expenditure, but she did not seek approval from the hotel's agents or the plaintiff's undertaking to pay for this.

21. Miss Au Yeung agreed that, apart from the AC work, other services, including light fittings, sprinklers and speakers, would need work in the ceiling void. She opined that the 30 openings stipulated in the contract would not be enough to install these services. Other sub-contractors made requests for more openings.

22. Miss Au Yeung told me that the defendant was concerned about the time schedule and that, if there was delay, the consequences were great. She considered that, without removal of the ceiling, the completion date would not be met so the whole ceiling had to be removed.

23. In answer to questions from me, Miss Au Yeung said that she thought that the plaintiff was responsible for only a percentage of the cost of removing and replacing the ceiling. She seemed unsure what percentage, but said more than half. When asked why the plaintiff was responsible for only part of the cost, she said that this was because the decoration work also required demolition. I asked her why the defendant first sought payment from the hotel. She said this was because she thought it was responsible. She also said that she thought that the plaintiff was responsible because, if the plaintiff had not said that it could do the insulation work by re-plastering, the hotel would have agreed the demolition and replacement of the whole ceiling.

24. On the evidence before me, I am satisfied that the defendant has not proved that the plaintiff requested that the whole ceiling be removed. Although the defendant's evidence is confused and confusing, a fairly clear picture emerges of what happened in this matter. When the sub-contractors got on site and started their work, it quickly became apparent to the defendant that the sub-contractors were going to have difficulty completing their work within the required time-frame if they were to be required to do part of their work within the confines of the ceiling void. As the defendant said to the hotel's agent, once the required parts of the ceiling were removed under the contract, the chandeliers were removed and the openings made for access to the void, it was as well to remove the whole ceiling so that work could proceed at a greater pace. The defendant decided to do this. At that stage, it did not occur to the defendant that the plaintiff should or could be held responsible for the cost of removing and reinstating the whole ceiling. The defendant thought that the hotel should accept this cost. Only after the defendant failed to convince the hotel of this did it come up with the idea of attempting to fix the plaintiff with the cost.

25. In my view, the defendant's decision was motivated by a desire to get the job done within the stipulated time schedule in order to avoid the heavy liquidated damages provided for in the main contract.

26. I find that there was no basis at all, as pleaded or otherwise, for imposing an obligation on the plaintiff to pay for the cost of removing and reinstating any part of the ceiling.

27. In this event, there is no need to examine the quantum claimed by the defendant. If I had found the plaintiff liable, this, on the defendant's own case, would have been for only about half of the cost, and I would have awarded the defendant $75,000.

28. This counterclaim is dismissed.

Remedying Defects

30. The defendant's other counterclaim is for $245,000 in respect of work done "to make good certain items in the Plaintiff's workmanship".

31. The defendant makes no attempt to plead the relevant terms of the contract between it and the plaintiff, to allege that the plaintiff was in breach of these, to give particulars of what it is alleged that the should have done but did not do, or what it omitted to do, and to particularise the damages it suffered as a result of a breach or breaches.

32. And there is no evidence before me to establish these allegations even if they had been properly made.

33. It appears from the quotations by an entity called Perfect Electrical & Mechanical Engineering Company (Perfect), that the sum of $245,000 is made up as follows -

"To make good of the following items -

1. Return air ductwork not completed behind timber RA Grilles.
2. Prefunction A/C not working air too humid/temp. too high. No adequate control.
3. Ladies ballroom toilet - A/C very hot - no cold supply air.
4. False air registers loose in pre-function Sung & Tung Rooms.
Total	$190,000
To produce as-fitted drawings	$ 30,000
Total	$220,000"
"Addition of acoustic enclosure to seal the break-out noise from the Centrifugal in-line fan.
To test the noise level to meet NC50.
Addition of a 600mmx600mm ceiling diffuser in the ceiling area being replaced. To block-off the original diffuser and re-route the flexible duct to serve new diffuser.	$25,000"

34. On 27 October 1992, the hotel's agent wrote complaining about a noisy fan in the female toilet. When this was passed to the plaintiff, it wrote asking for "the procedure and arrangement for rectification". On 26 November 1992, the defendant passed onto the plaintiff another letter from the hotel's agents about this noisy fan. On 17 November 1993, the hotel wrote to the defendant about defects, giving the defendant 2 months to rectify them. Demand on the plaintiff was not made until 14 January 1994, asking for a response within 3 days. There is no evidence that the defendant made any earlier demand on the plaintiff to remedy these defects. Miss Au Yeung explained this by saying that she thought that the defendant's subsidiary would handle this.

35. Miss Au Yeung referred to quotes, purchase requisitions, purchase orders, invoices, payment vouchers and receipts relating to work allegedly done by Perfect to remedy the defects and to produce as-fitted drawings. These documents do not provide evidence of what the plaintiff did wrongly, or did not do at all. Nor do they provide evidence of what was done to remedy the deficiencies in the plaintiff's workmanship.

36. No other quotes for this work were obtained because the hotel had recommended Perfect, which was doing some work at the hotel. Miss Au Yeung was unhappy with the quotes by Perfect and she negotiated a reduction. There is no evidence of the details of the defects alleged, the work required to remedy them or of the work done by Perfect. When asked if Perfect knew it was the only tenderer, Miss Au Yeung said that Perfect was very firm on the price and seemed confident. The implication was that Perfect knew it was the only company being asked to quote. She asked her boss if she could get other quotes because the price was too high. He refused.

37. It appears that the plaintiff was suspicious about this work allegedly done by Perfect. This was so to the extent that, unusually, under Order 27, the plaintiff denied the authenticity of these documents, and the defendant was required to prove them. I can understand this suspicion. Apart from the complaint about the noisy fan, in respect of which the plaintiff indicated a willingness to rectify, the plaintiff had no notice of the alleged defects until January 1994; nearly 18 months after the plaintiff had done the work, and some 5 months after the plaintiff had issued a writ against the defendant. And then the plaintiff is given 3 days to make "a favourable response" to the complaints. I should also say that this demand does not even mention the one complaint the plaintiff knew about - the noisy fan. Even now, at a trial taking place some 4 years after the work was allegedly done by Perfect, and in the face of the plaintiff making it quite clear that it does not even accept the authenticity of the documents concerned, no evidence whatsoever has been produced by the defendant to explain the nature of most of the defects alleged, what was done to remedy them and how the cost is calculated. What is clear is that the defendant made no attempt whatsoever to quantify the damages alleged to have been suffered by seeking to ascertain the market cost of doing the work by obtaining other quotes for the work. Miss Au Yeung knew that Perfect's quotes were too high. She knew the defendant should have obtained other quotes. She made an attempt to do this, but the defendant refused to allow this. The defendant made absolutely no attempt to mitigate the cost of doing the work.

38. As a result of all this, I have no adequate material before me on which I can make any finding as to whether the plaintiff was in breach by failing to do its work properly, or by omitting to do work, if it was so in breach, what damages have been suffered by the defendant as a result.

39. This counterclaim is also dismissed.

Interest

Interest on the sum of $263,270 awarded to the plaintiff will run from 26 September 1992 to the date of this judgment at the rate of the bank lending rate plus 1.5%. Interest from the date of this judgment will be at the judgment rate.

Costs

41. There seems no reason why costs should not follow the event. I make an order nisi that the defendant pay the plaintiff's costs of the claim and counterclaim.