Multiple Surveyors Ltd v. Multiple Surveyors & Consultants Ltd
Read the full judgment text of DCCJ 1596/2015 on BabelCite. This District Court judgment was delivered on 1 November 2017.
1. The present dispute arose mainly out of auditing works conducted by the plaintiff on sales brochures compiled for the purpose of the Residential Properties (First-hand Sales) Ordinance (Cap 621) (“RPO”) in respect of 7 residential developments, as well as some other property-related consultancy services rendered by the plaintiff.
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DCCJ 1596/2015 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 1596 OF 2015 --------------------
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-------------------- JUDGMENT -------------------- INTRODUCTION 1.The present dispute arose mainly out of auditing works conducted by the plaintiff on sales brochures compiled for the purpose of the Residential Properties (First-hand Sales) Ordinance (Cap 621) (“RPO”) in respect of 7 residential developments, as well as some other property-related consultancy services rendered by the plaintiff. BACKGROUND FACTS 2.The plaintiff and the defendant are both companies incorporated in Hong Kong that provided surveying and other property-related consultancy services at the material time. 3.In the years 2013 and 2014, the defendant engaged the plaintiff:-
4.The scope of services and the terms of each engagement were recorded in the form of a retainer letter. Although not all the retainer letters were signed by both parties, there is no dispute that the plaintiff was put under contract for each of those engagements, and the retainer letters accurately recorded the scope of services and the terms of engagements[1]. (1) Brochure Auditing Services 5.The bulk of the parties’ dispute herein lies in the quality of the Brochure Auditing Services. Adopting the terminologies used in the Amended Statement of Claim, the 7 first-hand residential property developments concerned are referred to hereinbelow as:-
6.Section 15 of the RPO requires the vendor of a first-hand residential property development to prepare a publication to be made available to the general public entitled “Sales Brochure” in English and “售樓說明書” in Chinese. Sections 18 to 25 of and Schedule 1 to the RPO set out the requisite contents of such brochures, and the timing and manner by which they are to be prepared and made available to the public. Non-compliance of those requirements constitutes a criminal offence, and the party responsible would be liable on conviction to a fine or imprisonment. 7.Section 17 of the RPO provides that a vendor may examine a printed sales brochure to ascertain whether the information contained therein is accurate at the date of the examination. Any inaccuracy identified must be corrected by a revision to the brochure, and any such revision must be notified in writing within 3 working days to the Sales of First-hand Residential Properties Authority (“Authority”). By virtue of section 25(9), following its initial printing, the sales brochure should be examined, or if necessary examined and revised, once every 3 months. 8.As far as the 7 subject property developments are concerned, there is no dispute that the initial draft sales brochures were prepared by the relevant developers, which then engaged the defendant to conduct an audit thereon for compliance with some of the requirements under the RPO. The defendant then subcontracted such audit work to the plaintiff, whose scope of services in relation to each of the 7 developments is identical, and is set out in 7 retainer letters[9]. 9.Each of those 7 retainer letters relevantly provides as follows:-
(2) HK Spinners Services 10.As regards the HK Spinners Services, the plaintiff’s engagement was verbally agreed between the parties’ representatives in February 2014. The terms were subsequently recorded in a retainer letter dated 13 March 2014. That retainer letter relevantly provides as follows:-
(3) Club Services and Pool Services 11.The plaintiff’s terms of engagement for the Club Services and Pool Services are contained in two retainer letters dated 16 January 2014. The respective scopes of services are identical, and are described as:-
12.The fee payable in respect of the Club Services and Pool Services are different. For the Club Services, the agreed terms are:-
13.As regards the Pool Services, the agreed terms are:-
PLAINTIFF’S CLAIM 14.The plaintiff’s primary claim is for unpaid contract sums in the total amount of HK$985,500 for having rendered the aforesaid services. 15.For the Brochure Auditing Services, the plaintiff claims a total of HK$937,500, the breakdown of which may be set out as follows:-
16.In respect of the HK Spinners Services, the plaintiff claims the agreed sum of HK$8,000 pursuant to the retainer letter dated 13 March 2014. The plaintiff had invoiced the defendant for this sum by way of a Debit Note dated 9 December 2014 (No 19214) and issued reminders. 17.As regards the Club Services and Pool Services, the plaintiff claims the respective sums of HK$20,000, both stated to be payable “upon appointment” under the two retainer letters dated 16 January 2014. The plaintiff had invoiced the defendant for these by way of two Debit Notes both dated 3 November 2014 (Nos 19130 and 19131) and issued reminders. 18.Apart from primary contractual claims, the plaintiff also pleads alternative claims for “reasonable fees” in respect of the Brochure Auditing Services rendered for the Fuk Wing Street development, the Fuk Wah Street development and the Broadwood Road development[11]. In these alternative claims the plaintiff’s case is that the “reasonable fees” are the same amounts as the agreed sums under the respective retainer letters. 19.It is not entirely clear why the plaintiff has pleaded these alternative claims (effectively for quantum meruit) only in relation to these three developments. But be that as it may, given that there is no dispute that the plaintiff was under contract to perform all the services in question, it would be unnecessary for this court to consider these alternative claims separately. The parties indeed did not contend otherwise. DEFENDANT’S DEFENCE AND COUNTERCLAIM 20.The defendant’s case is that (with the exception of the HK Spinners Services) the plaintiff was not entitled to be paid the claimed amounts because it either had not rendered the services to the requisite standard (re the Brochure Auditing Services) or its work was not worth the claimed amounts (re the Club Services and Pool Services). 21.The defendant’s specific complaint in relation to the Brochure Auditing Services is that the plaintiff had omitted or incorrectly added or notated many items of information in the brochures which must be included under the RPO, as a result of which the defendant was “subject to claims” by the relevant developers and “had to do a lot of additional remedial work such as conducting site inspections to rectify the situation”[12]. 22.The errors alleged by the defendant all relate to the location plan for the 7 developments. By section 19(2)(f) and sections 6(2)(b)(ii) and (iii) in Part 1 of Schedule 1 to the RPO, the location plan is required to show, inter alia (i) the name of every street situated within 250 meters from the boundary of the development and (ii) every building, facility or structure situated within the same distance the principal use of which falls within any of those listed in sections 6(4)(a) to (zq) of Schedule 1. The pleaded errors for the 7 developments are tabulated below:-
23.Based on these errors, the defendant contends that the plaintiff had breached the 7 retainers and “its duty to perform the work diligently and accurately, [had] not provided a satisfactory service to the Defendant and [had] breached Section 5 of the Supply of Services (Implied Terms) Ordinance (Cap 457) by failing to carry out the service with reasonable care and skill”[13]. 24.I pause to note that part of the defendant’s above contention suggests that the plaintiff may not be required to observe a strict contractual standard as per the 7 retainer letters. Upon this court’s enquiry during opening, the plaintiff conceded that its standard of duty under the relevant retainer letters was strict, in that it would be a breach of contract for the plaintiff to omit any item of information required to be included in the brochure under the RPO. With that concession, the defendant accepted that it would not be necessary for it to rely on the notions of “diligence”, “satisfactory” or “reasonable care and skill”. It also follows that whether the plaintiff acted as “Authorized Person” in the auditing works would be irrelevant. Put simply, the plaintiff’s duty was to ensure that all items required to be present under the RPO are included in the sales brochures. 25.Turning to the Club Services and Pool Services, the defendant’s case is that, while the plaintiff had provided some services, the respective services “[were] not worth HK$20,000 and the Plaintiff’s charge of HK$20,000 [was] excessive”. On this basis, the defendant contends that the plaintiff was only entitled to part of the HK$20,000 invoiced for each of the Club Services and Pool Services, and that any such partial payment should be set off against its counterclaim.[14] 26.As to the HK Spinners Services, while the defendant admits that the plaintiff had rendered those services and that it was entitled to be paid the said sum of HK$8,000, it contends that it is entitled to set-off its counterclaim against this HK$8,000 sum.[15] 27.The defendant’s counterclaim is pleaded in this way:-
28.Although part of the counterclaim (§§23 and 24) is premised on the defendant being “subject to claims” by the relevant developers as a result of the plaintiff’s breach of duty, the defendant conceded at trial that there had in fact been no such claims and confirmed during closing submissions that it would not pursue prayers 1 and 2 of the counterclaim. 29.In view of that concession, only §25 and prayer 3 of the counterclaim require determination by this court. While it is clear that the defendant was seeking special damages in this part of the counterclaim, it has only described the loss suffered as “a lot of additional remedial work such as conducting site inspections to rectify the situation” and pleaded no particulars on, inter alia, the quantum of damages it is seeking. I shall return to this pleading point below. PLAINTIFF’S REPLY AND DEFENCE TO COUNTERCLAIM 30.Against the defendant’s complaints on the Brochure Auditing Services, the plaintiff’s defence to the counterclaim is that[16]:-
31.In respect of the Club Services and Pool Services, the plaintiff contends that the respective sums of HK$20,000 claimed was payable upon appointment, and that it had provided “a lot of services after the appointment”, which warranted the service charges of HK$20,000[17]. ISSUES FOR DETERMINATION 32.In view of the foregoing, there are five issues which require determination by this court:-
WITNESS EVIDENCE 33.The parties called a total of three witnesses, all of which filed witness statements and testified at trial. Neither side called any expert witness. 34.The plaintiff’s first witness was Mr Leung Cheuk Man (“Mr Leung”), who made three witness statements on its behalf. Mr Leung was an associate director of the plaintiff who had signed all the subject retainer letters on behalf of the plaintiff. According to Mr Leung, his duties included overseeing and sometimes undertaking the plaintiff’s works associated with auditing sales brochures, including the Brochure Auditing Services. He confirmed that the plaintiff has done all the works as described in the relevant debit notes, but had not received any payment from the defendant. 35.On the defendant’s complaints over the Brochure Auditing Services, Mr Leung explained that the location plan of a sales brochure only forms a “small part” of the document, and is “not of much importance” as the potential purchasers can see for themselves what are situated in the vicinity of the development. Relying on an email dated 7 May 2015 from the Authority[18], Mr Leung further explained that what needs to be included in the location plan as per Part 1 of Schedule 1 to the RPO is “sometimes a matter of professional judgment”. 36.On the alleged errors with respect to the location plans, Mr Leung specifically took issue with those in relation to “electricity sub-stations”[19]. He made the point that, when the plaintiff started doing the auditing work, “transformer rooms” situated in individual buildings were generally not regarded as “electricity sub-stations”. It was only as time progressed that people in the trade gradually regarded such “transformer rooms” as “electricity sub-stations”. Hence, Mr Leung contended, there is no hard and fast rule as to whether a particular item should be included in the location plan, which is a matter of professional judgment. 37.Under cross-examination, Mr Leung emphasized that “transformer rooms” situated within individual buildings do not constitute “electricity sub-stations” within the meaning of section 6(4)(t) in Part 1 of Schedule 1 to the RPO. He explained that it was debatable whether “transformer rooms” are “electricity sub-stations” and that he did consult his boss Mr Wong Sai Ning (“Mr Wong”) for his view at the material time. According to him, Mr Wong’s view was that since there is a “transformer room” inside each building, such “transformer rooms” would not affect a potential purchaser’s decision as to whether to purchase the relevant first-hand property. Thus, based on Mr Wong’s view, he believed that “transformer rooms” did not need to be marked on the location plans. 38.As a further attempt to rebut the defendant’s complaints regarding “electricity sub-stations”, Mr Leung referred to the prosecution of the developer for the “Ocean One” development in case No KTS 8525/2016 (“Ocean One”). In that case, the developer was charged for having failed to set out in the location plan one electricity sub-station contrary to sections 19(2)(f) and 19(6) of the RPO[20], to which the developer pleaded guilty. Mr Leung emphasized that there were five other buildings within 250 meters of Ocean One which were equipped with “transformer rooms” similar to those complained by the defendant as missing “power plants (including electricity sub-stations)”[21]. Relying on the fact that the Ocean One developer was not prosecuted for failing to set out those five “transformer rooms” on its location plan, Mr Leung contended that “transformer forms” do not constitute “power plant (including electricity sub-stations)” under section 6(4)(t) in Part 1 of Schedule 1 to the RPO. 39.Apart from the alleged errors regarding “power plant (including electricity sub-stations)”, Mr Leung took no issue with the other errors. During his cross-examination, he conceded that it was possible that the plaintiff did make those errors. Mr Chan, solicitor for the plaintiff, also conceded that the location plans for the 7 developments as the plaintiff audited were “not perfect”. Despite that, to rebut Mr Tsoi’s evidence that the defendant incurred total costs of HK$1,000,800 in carrying out remedial works (see §§45-46 below), Mr Leung contended that the cost of remedial works on the location plans would only amount to HK$87,000. 40.The plaintiff’s second witness was Mr Wong. Mr Wong was the managing director of the plaintiff. He has given a short witness statement in which he simply confirmed that the plaintiff had not been paid for the work under the debit notes issued to the defendant. Referring to certain WhatsApp communications[22], Mr Wong explained that Mr Tsoi Chi Yin of the defendant had assured him that the plaintiff would be paid after the defendant received payment from the relevant developers. 41.Under cross-examination, Mr Wong explained that his participation in the Brochure Auditing Services was limited to giving his view on the staff assigned for the task, discussing with Mr Leung when major issues arose, and receiving monthly reports from Mr Leung. He accepted that Mr Leung did mention to him that there were omissions in the location plans after they were audited by the plaintiff, though he could not recall when Mr Leung told him. Despite Mr Leung’s testimony that he did consult Mr Wong as to whether “transformer rooms” constitute “power plant (including electricity sub-stations)”, Mr Wong gave no evidence in chief in this regard, nor was he cross-examined by the defendant at the trial. 42.The defendant’s only witness was its director Mr Tsoi Chi Yin (“Mr Tsoi”). In his witness statement, Mr Tsoi provided particulars on the alleged errors made by the plaintiff on the location plans. Although the defendant had not separately adduced into evidence copies of the plaintiff’s individual work product, Mr Tsoi exhibited copies of marked-up location plans illustrating the alleged errors for each of the 7 developments, as well as copy photographs and other evidence in support. According to Mr Tsoi, each of the marked-up location plans was a summary of all the alleged errors made by the plaintiff in the auditing works concerned herein. 43.I note that there appear to be some discrepancies between the alleged errors as particularized in the Defence and Counterclaim and those set out in Mr Tsoi’s witness statement for 4 out of the 7 developments[23]. That being said, the plaintiff took no issue with this at trial. Nor was it suggested by the parties that such discrepancies would have a material impact on the outcome of this case, whether as to liability or quantum. 44.Apart from identifying the alleged errors in the location plans, Mr Tsoi also explained the following[24]:-
45.In terms of remedial works for the location plans, Mr Tsoi explained how the total sum of HK$410,250 was calculated as follows[25]:-
46.Other than the above, Mr Tsoi also particularized the cost the defendant allegedly incurred on remedial works for other parts of the sales brochures, namely (i) aerial photos, (ii) outline zoning plans, (iii) layout plans, (iv) floor plans, (v) areas of residential properties, (vi) floor plans of parking spaces and (vii) further information. Based on Mr Tsoi’s calculation, the total cost incurred for all the remedial works was HK$1,000,800, which formed the quantum of this counterclaim[26]. 47.Where it is necessary to resolve conflicting evidence of fact, I bear in mind the oft-cited considerations of inherent probability and consistency with contemporaneous documents[27]. In deciding the weight to be attributed to a piece factual evidence, I also bear in mind the cogency of such evidence and the relevant witness’ source of knowledge. THE ISSUES Issue 1: Did the plaintiff act in breach of contract in rendering the Brochure Auditing Services? 48.In view of the plaintiff’s concessions that it was possible that it did make the alleged errors except for “power plant (including electricity sub-stations)” (see §39 above) and that its duty under the 7 relevant retainer letters was strict (see §24 above), there seems to be little question that the plaintiff did make the alleged errors to that extent. This is particularly so as the plaintiff made no attempt to defend those alleged errors at trial. I accept that the plaintiff had acted in breach of contract to that extent. 49.As for the alleged errors in relation to “power plant (including electricity sub-stations)”, it is undisputed that, by virtue of section 19(2)(f) and section 6(4)(t) in Part 1 of Schedule 1 to the RPO, those items are required to be set out in the location plan if they are situated within 250 meters of the relevant developments. Since there is no dispute that those items did fall within 250 meters of the relevant developments, Issue 1 thus turns on whether they constitute “power plant (including electricity sub-stations)” within the meaning of section 6(4)(t) in Part 1 of Schedule 1. 50.The RPO itself provides no definition for the term “power plant (including electricity sub-stations)”. In ascertaining the meaning of this term, the court would apply its plain and ordinary meaning (see Bennion on Statutory Interpretation (6th ed) §195; Craies on Legislation (10th ed) §§17.1.1-17.1.3) as supplemented by the intention, context and purpose of the legislation and/or its legislative history to the extent appropriate (see, eg Ng Cho Chu Judy v Chan Wing Hung [2016] 1 HKLRD 1073 per DDJ Winnie Tsui (as she then was) at §76 and Competition Commission v Nutanix Hong Kong Ltd & Ors (unreported) CTEA 1/2017; 3 October 2017 per G Lam J at §49). 51.While the plain and ordinary meaning of the term “power plant” is clear[28], what is perhaps less obvious is what “electricity sub-stations” are. While expert evidence could be admitted to explain technical statutory terms (see Bennion (supra) §365), neither side has contended that this was necessary in the present case. Accordingly, the only option for this court is to interpret the plain and ordinary meaning of the term in view of the context and purpose of the RPO on the basis of evidence available. 52.In arguing that all the alleged errors concerned “transformer rooms” but not “electricity sub-stations” under section 6(4)(t) in Part 1 of Schedule 1 to the RPO, Mr Chan for the plaintiff submitted that[29]:-
53.On the other hand, Mr Lam for the defendant submitted that this court should adopt the definition of the term “sub-station” as defined in section 1 of the Electricity Supply Regulations (Cap 406A). The relevant part of section 1 of those regulations reads as follows:-
54.Although the RPO makes no express reference to those regulations, Mr Lam submitted that it is nevertheless open for this court to adopt that definition by taking judicial notice of the existence and contents of all public statutes, all ordinances as well as every branch of the unwritten law, citing Phipson on Evidence (16th ed) §3-07 in support. 55.With respect, I am unable to accept either of these contentions. 56.While it is tolerably clear that, applying its plain and ordinary meaning in the English language, the term “electricity sub-stations” in section 6(4)(t) in Part 1 of Schedule 1 to the RPO means any building, facility or structure at which electricity is transmitted or processed after it leaves a power plant, it is unclear to this court why, as Mr Chan submitted, the term must be limited to mean “a sub-station relative to a power plant” and “could not be a sub-station relative to a sub-station”. 57.Section 6(4)(t) in Part 1 of Schedule 1 to the RPO does not carve out “transformer rooms” as exceptions to “electricity sub-stations”. Nor does it limit the meaning of “electricity sub-stations” to only a “sub-station relative to a power plant” but not a “sub-station relative to a sub-station”. Section 6(4)(t) simply uses a broad and generic term “electricity sub-stations”. In my judgment, so long as a building, facility or structure the principal use of which is an “electricity sub-station”, it falls under section 6(4)(t) and must be marked on the location plan if situated within 250 meters from the boundary of the relevant development. 58.In order to make good its case that “transformer rooms” are not “electricity sub-stations”, the evidential burden rests on the plaintiff to explain why that is so. However, the plaintiff’s only evidence in this regard is Mr Leung’s evidence on the basis of Mr Wong’s view as conveyed to him at the material time (see §37 above). Mr Wong himself gave no evidence, nor has the plaintiff adduced any expert evidence to explain the why “transformer rooms” are not “electricity sub-stations”. Given the hearsay nature of Mr Leung’s evidence and that he was a factual but not an expert witness, I do not accept such evidence of Mr Leung. 59.I should also point out that Mr Leung’s reliance on the Ocean One prosecution is, with respect, misplaced. The mere lack of complaint by the Authority against certain “transformer rooms” in the Ocean One development could not constitute proof that they do not constitute “electricity sub-stations” properly construed. The lack of complaint by the Authority could result from many factors, not necessarily because “transformer rooms” do not constitute “electricity sub-stations”. Likewise, I also reject the plaintiff’s suggestion that whether “transformer rooms” should be marked up on the location plan depends on “professional judgment”. In my view, it is a pure exercise of statutory interpretation. 60.On the other hand, I equally find no basis to apply the definition for “sub-station” from section 1 of the Electricity Supply Regulations (Cap 406A) in the context of the RPO. Section 1 of those regulations provides that the definition applies “in [those] regulations” (but not beyond) and there is no reference in the RPO to those regulations. Although this court can take judicial notice of the existence and contents of the definition in section 1 of those regulations, it does not follow that the definition ought to be applied in interpreting what “electricity sub-stations” mean under the RPO. Given the likely different context and purpose of those regulations (as to which Mr Lam made no submissions), I am not satisfied that the definition from section 1 is applicable here. 61.In support of its case, the defendant adduced 7 marked-up location plans[30] showing, inter alia, the location of these alleged errors in relation to “power plant (including electricity sub-stations)”, and photographs showing the locations of the alleged “electricity sub-stations” (which the plaintiff called “transformer rooms”)[31]. The photographs show that the exterior of entrance doors are affixed with signs with logos of CLP Power or HK Electric. Each sign bears the description “substation” and its relevant address. Adjacent to the signs are red signs showing the words “Danger” and “High Voltage” and emergency contact telephone numbers. There was no suggestion by the plaintiff that what were behind those entrance doors were different from the descriptions as stated on the signs. 62.On this state of the evidence, it seems to me clear that all the alleged “electricity sub-stations” do fall within the plain and ordinary meaning of the term “electricity sub-stations” in section 6(4)(t) in Part 1 of Schedule 1 to the RPO. Even assuming they are “transformer rooms” as the plaintiff suggested, it does not necessarily follow that they are not “electricity sub-stations” within the meaning of section 6(4)(t). In view of the signs showing they are facilities relating to supply of electricity, the express descriptions of “substation”, the plaintiff’s stance is unsustainable on the present evidence. In passing, I note that even according to Mr Leung’s evidence, “transformer rooms” had become gradually regarded as “electricity sub-stations” by people in the trade (see §36 above). 63.This conclusion is also consistent with the context and purpose of sections 19 to 22 of RPO in prescribing the contents of the sales brochure so that prospective purchasers of the first-hand residential properties are informed of matters material to the enjoyment of the properties. Such purpose is revealed not only by section 19(2) and Part 1 of Schedule 1 to the RPO requiring the inclusion of specific items in the sales brochure, but also by section 20 requiring the inclusion of “relevant information” specific to the property, ie “information on any matter that is likely to materially affect the enjoyment of the residential property”. In view of the strict statutory regime prescribing what must be shown in the sales brochure, I have no hesitation in rejecting Mr Leung’s evidence that the location plan in the sales brochure is “not of much importance” as purchasers can see for themselves what are in the vicinity (see §35 above). 64.According to two emails from the Authority dated 7 May 2015 and 2 October 2015[32] cited by the defendant (the reliance of which was not disputed by the plaintiff), all items listed under section 6(4)(a) to (zq) in Part 1 of Schedule 1 to the RPO (ie including “electricity sub-stations”) are matters of concern to prospective purchasers of first-hand residential properties. In those emails, the Authority explained:-
65.I agree. In light of such context and purpose of section 6(4)(t) in Part 1 of Schedule 1 to the RPO, I hold that the “transformer rooms” as alleged by the plaintiff do fall within the meaning of “electricity sub-stations” in section 6(4)(t). In my view, the presence and the precise location of buildings, facilities or structures the principal use of which involve transmitting or processing high-voltage electricity in the alleged “transformer rooms” would give rise to concerns affecting the day-to-day living of residents and must be marked up in the location plans if they are situated within 250 meters of the boundary of the relevant development. 66.For the above reasons, I find that the alleged errors in relation to “power plant (including electricity sub-stations)” are also made out. I therefore hold that the plaintiff did act in breach of contract in rendering the Brochure Auditing Services to the full extent as the defendant alleged. Issue 2: Should any such breach of contract by the plaintiff deprive it the entirety of the agreed contract sums? 67.On Issue 2, the defendant contended that, by reason of the plaintiff’s breach of contract in rendering the Brochure Auditing Services, the plaintiff is not entitled to the entire agreed contract sums because such breach was in the nature of a “fundamental breach”. 68.The crux of the defendant’s contention rests on the importance of accuracy of the location plans and the seriousness of the plaintiff’s breach, which it says could give rise to criminal liability under the RPO. The defendant also drew attention to the fact that, under the 7 retainer letters for the Brochure Auditing Services, there is no splitting of fees payable to the plaintiff for auditing different parts of each sales brochure. 69.Despite the request of this court, Mr Lam cited no authority which supports its contention that the plaintiff’s said “fundamental breach” would entitle the defendant to deprive the plaintiff its entire remuneration. During closing submissions, Mr Lam, by reference to Chitty on Contracts (32nd ed) Vol 1 §15-024 (p 1149) cited by the plaintiff, described the plaintiff’s “fundamental breach” as “a breach of contract more serious than one which would entitle the other party merely to damages and which (at least) would entitle him to refuse further performance of the contract.” 70.It thus appears the defendant was relying on the plaintiff’s breaches of contract as amounting to repudiatory breaches. It is well-established that when an innocent party is faced with a repudiatory breach, he can either treat the contract as continuing or accept the repudiation and bring the contract to an end. If the innocent party treats the contract as continuing, the contract remains in existence for the benefit of both himself and the wrongdoing party, though the innocent party could generally maintain a claim for damages for any loss suffered as a result of the breach. If on the other hand the innocent party accepts the repudiation, either party is thereby discharged from further performance of the contract.[33] 71.In the present case, the defendant has not pleaded that it had accepted the plaintiff’s breach of contract in relation to the Brochure Auditing Services and terminated the relevant retainers. In the Defence and Counterclaim[34], the defendant refers to two letters dated 11 February 2015 and 18 February 2015[35] by which it informed the plaintiff of its breaches. In neither letter did the defendant purport to terminate the relevant retainers. In the absence of pleading or evidence that the defendant had unequivocally accepted the plaintiff’s repudiatory (or “fundamental”) breaches of contract, there is no basis for this court to hold that the plaintiff is not entitled to any payment purely as a result of breach. 72.In any event, even if the defendant did purport to accept the plaintiff’s breaches and terminate the relevant retainers, I would have held that the plaintiff’s breaches were not repudiatory in nature. While the errors on the relevant location plans were numerous, it should be borne in mind that the plaintiff’s engagement was to audit nine areas of the sales brochure in respect of each of the 7 developments, and the location plan only constitutes one such area under the scope of services (see §9 above). Other than location plans, there is no dispute that the plaintiff had made no errors on the other areas. Accordingly, I would not have held that errors made on the location plans amounted to repudiatory breaches that would entitle the defendant to deprive the plaintiff of the entire contract sums. 73.For the above reasons, I hold that Issue 2 should be answered in the negative. Issue 3: Did any such breach of contract by the plaintiff cause the defendant to suffer loss, and if so what is the recoverable quantum? (a) The pleading point 74.Before going to the substance of Issue 3, it is necessary for me to deal with a pleading point in relation to quantum of the counterclaim. 75.As mentioned above, the defendant has failed to particularize the special damages it is seeking from the plaintiff’s breach of contract in rendering the Brochure Auditing Services. Apart from pleading that it had suffered loss from having to conduct “a lot of additional remedial work such as conducting site inspections to rectify the situation”, the defendant pleads no particulars of loss in its counterclaim beyond the phrase “to be assessed”. It was only in Mr Tsoi’s witness statement that the defendant revealed the quantum of damages it is seeking in its counterclaim. 76.Given there is no serious dispute that what the defendant is seeking are special rather than general damages, its failure to plead quantum could mean it is only left with nominal rather than substantial damages. The principle of pleading that a party must fully particularize special damages is trite, and may be seen from, inter alia, RDC O 18 r 12(1)(c); HKCP (2017) Vol 1 §§18/12/10, 18/12/41; Bodum AG v Renco Trading Ltd (unreported) HCA 460/2011; 19 October 2011 per Master Marlene Ng at §§44-52; Lam Sik Ying, Administrator for the Estate of Lam Tim Alias Stan Lam Tim, Deceased v Lam Sik Shi & Anr (unreported) HCA 4713/2001; 21 September 2015 per DHCJ Marlene Ng at §§25-29. 77.That principle serves to ensure fairness in line with the modern “cards on the table” approach of civil litigation. The pleading of full particulars of special damages not only has implications on the type of evidence that could be admitted at the trial on quantum, but also impacts upon a defendant’s decision on whether and how to defend the claim, including whether to make a suitable offer for settlement. As explained by the learned authors of McGregor on Damages (19th ed) at §49-007:-
78.Indeed, the general importance of pleadings was also emphasized by the Chief Justice in Kwok Chin Wing v 21 Holdings Ltd (2013) 16 HKCFAR 663 at §21, where he reminded practitioners that:-
79.During opening submissions, I observed that the defendant had failed to properly plead the loss and damage said to be suffered in §25 of the counterclaim, and that the plaintiff had not pleaded anything in response on the quantum of the counterclaim. Mr Lam then suggested to this court that, if liability on the counterclaim is established, an order could be made for damages to be separately assessed. Without an order for split trial, I did not think this course was appropriate. Mr Lam also, upon further reflection, acknowledged that this case was not one suitable for a split trial. 80.On day two of the trial, the plaintiff agreed that it would not take issue with the defendant’s reliance on §§38 and 39 of Mr Tsoi’s witness statement regarding alleged remedial works performed on the location plans, and the defendant agreed for leave be given to the plaintiff to file Mr Leung’s 2nd supplemental witness statement to respond to the alleged remedial works pertaining to location plans. The plaintiff however maintained its objection against reliance on §§40-56 of Mr Tsoi’s witness statement as regards remedial works allegedly done on other parts of the sales brochures. In line with the authorities cited in §§76-78 above, I agree with the plaintiff that the defendant should not be permitted to rely on §§40-56 of Mr Tsoi’s witness statement to substantiate its counterclaim. (b) The remedial works 81.On the actual remedial works, the defendant contended that it had suffered loss by incurring substantial time in rectifying the errors on the location plans and other parts of the sales brochures which came to a total of HK$1,000,800 (see §§45-46 above). But as this court has already held that the defendant was not permitted to rely on Mr Tsoi’s evidence in §§40-56 of his witness statement to substantiate its counterclaim, the only relevant issue relates to the alleged remedial works on the location plans. 82.As was made clear by Mr Chan, the plaintiff’s case was that the defendant had not carried out such remedial works at all. He argued that the carrying out of checking by the defendant did not amount to remedial works, and the identification of errors after such checking were effectively “litigation works” but not “rectification works”. Based on Mr Chan’s cross-examination of Mr Tsoi, it soon became apparent that the basis for Mr Chan’s argument in this regard was that the defendant had never informed the relevant developers of the errors on the location plans. 83.I pause to note that there is, in my view, no necessary correlation between whether the defendant in fact carried out remedial works and whether the defendant had informed the developers of the errors. As the main contractor engaged by the developers to audit the relevant brochures, I see no incentive for the defendant to voluntarily alert its clients (ie the developers) of the mistakes made by its subcontractor (ie the plaintiff). Even if the defendant did not inform the developers of those errors, it does not follow that it had not carried out the remedial works. 84.The defendant answered the plaintiff’s attack by referring to copy sales brochures downloaded from the developers’ websites[36] which were at least partially rectified. By comparing them with the defendant’s marked-up location plans (see §61 above), it seems that many of the errors had been rectified. Mr Lam further submitted that the defendant would not have discovered the mistakes after doing some checking, and it was only natural that the defendant would take steps to rectify the errors upon their discovery to minimize its own exposure to claims by the developers. I agree. As Mr Lam also pointed out, other than putting to Mr Tsoi in cross-examination that the defendant had not informed the developers of the errors, Mr Chan never directly put a case to Mr Tsoi that the defendant had not in fact carried out any of the remedial works on the location plans. 85.It is also unclear why the defendant’s checking of the plaintiff’s work, as Mr Chan contended, could not be regarded as remedial works. As the plaintiff’s Mr Leung accepted, if the defendant were to check the plaintiff’s auditing work, it would need to send someone to conduct a site visit, and the process of checking would not be materially different from the plaintiff carrying out an audit for the first time. In view of this evidence (which I accept), I do not accept Mr Chan’s contention. 86.Finally, Mr Chan also repeatedly referred to the facts that the defendant had received full payment from the developers, and that the defendant had not complained of any errors before receiving the plaintiff’s pre-action letters. In view of the undisputed existence of errors in the plaintiff’s works and the plaintiff’s concessions (see §39 above), I do not regard these facts as bearing sufficient weight to tip the balance. 87.Taking into account Mr Tsoi’s testimony, the inherent probabilities and the documentary evidence, and for the above reasons, I accept Mr Tsoi’s evidence and find on the balance of probabilities that the defendant did take immediate action to carry out remedial works as a result of the plaintiff’s errors in rendering the Brochure Auditing Services. (c) Quantum 88.The parties’ dispute on quantum is two-fold: first, whether the defendant should be compensated for all or only part of the remedial works carried out on the location plans, and second, the quantum of compensation. 89.The first question is one of remoteness of damages. The defendant’s case is that it had conducted six items of remedial works all in respect of the location plan (see §45 above). These six items are identical to the six bullet points listed under Part A, §1.1 of each of the 7 retainer letters (see §9 above). On the other hand, the plaintiff argued that the defendant should only be compensated for remedial work on the third item, namely “To check on the buildings/ structure required to be listed in the sales brochure by the Ordinance that are within 250 meters of the site”, as the plaintiff’s errors only related to that item alone. 90.Though neither Mr Chan nor Mr Lam cited any authorities in this regard, the relevant law was reviewed by the Court of Final Appeal in De Monsa Investments Ltd v Richly Bright International Ltd (2015) 18 HKCFAR 232 at §§15-41, and may be summarized as follows:-
91.Applying the above approach, the issues here are whether the type of loss the defendant suffered by carrying out all six items of remedial works was objectively within the parties’ contemplation, and whether the plaintiff could objectively be regarded as assumed responsibility for the defendant’s loss from having to carry out all six items of remedial works. 92.Mr Lam submitted that, while the plaintiff’s errors rested on the third bullet point under Part A, §1.1 of the 7 retainer letters, it was important for the defendant to re-check everything as the engagement was meant to be an “audit” work. In fact, the defendant contended that it had to re-check not only the location plan but all areas of the sales brochures audited by the plaintiff. But in view of this court’s decision that the defendant could not rely on §§40-56 of Mr Tsoi’s witness statement (see §80 above), it is unnecessary to determine the defendant’s latter contention. 93.Bearing in mind the nature and object of the plaintiff’s engagement being to conduct an “audit”, and the potential criminal liability arising from inaccuracies in the sales brochures, I take the view that it must have been within the parties’ reasonable contemplation that if the plaintiff had failed to properly audit the location plans, the defendant would have to re-check all six items in relation to the location plans. I also think that the defendant’s loss from having to re-check the location plans do fall within the plaintiff’s assumption of responsibility in the engagements.[37] 94.Mr Tsoi’s evidence was that the cost incurred in carrying out remedial works for all six items came to HK$410,250 (see §45 above). This total figure as well as the relevant breakdown were not challenged by Mr Chan during Mr Tsoi’s cross-examination. Despite having had the chance to put in rebuttal evidence, Mr Leung only chose to address the third item and provided an estimate of HK$87,000, and provided no alternative for carrying out all six items of remedial works. 95.In these circumstances, I accept Mr Tsoi’s evidence and find that the defendant has suffered loss in the total amount of HK$410,250 from having carried out all 6 items of remedial works, and hold that the plaintiff is liable to compensate the defendant in the same amount for its breach of contract in rendering the Brochure Auditing Services. Issue 4: How much is the plaintiff entitled to be paid in respect of the Club Services and Pool Services? 96.As Mr Lam made clear during closing, the defendant’s case on Issue 4 is not that the plaintiff is not entitled to be paid at all nor that the plaintiff had committed any breach of contract. The defendant’s case is that the work done by the plaintiff in rendering the Club Services and the Pool Services were not worth HK$20,000 each, but only HK$500 each.[38] 97.As Mr Lam elaborated in his submissions, the defendant’s case is premised on the termination of the two respective retainer letters dated 16 January 2014. Clause 3 of those retainer letters reads:-
98.Notwithstanding Clause 3, it is not the defendant’s pleaded case that the two retainers for the Club Services and Pool Services had been terminated. The defendant has not even pleaded Clause 3. In §§28-29 of Mr Tsoi’s witness statement, he made no mention that the two retainer letters had been terminated. In these circumstances, I do not think it is open for the defendant to rely on Clause 3 in substantiating its case. 99.Under cross-examination, Mr Leung explained the details of the work the plaintiff did in rendering the Club Services and Pool Services. He referred to letters the plaintiff had written and the meetings the plaintiff attended with the developer. In my view these are not directly relevant. The defendant’s agreement was that the plaintiff shall be paid HK$20,000 “upon appointment” under each of the two retainer letters. Absent any pleading or evidence that those contracts had been terminated, I see no reason why the parties’ bargain under contract should not be upheld. 100.I therefore hold that the plaintiff is entitled to be paid a total of HK$40,000 in respect of the Club Services and Pool Services. Issue 5: What are the relief that should be granted? 101.For these reasons, the plaintiff succeeds in its claims in the total amount of HK$985,500, subject to a set-off against the defendant’s counterclaim to the extent of HK$410,250. Accordingly, the plaintiff is entitled to receive a net principal sum of HK$575,250 from the defendant. 102.There is no dispute that pre-judgment simple interest on the plaintiff’s claim is payable at 1% above HSBC prime rate accruing from the date of the plaintiff’s last debit notes, being 9 December 2014, and that post-judgment interest at the judgment rate is payable until full payment. 103.Costs is in the discretion of the court. Taking into account the relative extent to which the parties have succeeded, and that they have both conceded parts of their claim or counterclaim in the course of trial, I believe a fair costs order would be for the defendant to pay 60% of the plaintiff’s costs in this action, to be taxed on a party and party basis if not agreed. Order 104.I order that final judgment be entered in the following terms:-
105.It remains for me to thank both Mr Chan and Mr Lam for their assistance rendered to this court.
Mr Chan Siu Chung, of S C Chan & Co, for the plaintiff Mr Lam Chi Yau, of C Y Lam & Co, for the defendant [1] §3, the defendant’s Closing Submissions. [2] §§3-5, Amended Statement of Claim. [3] §§6-7, Amended Statement of Claim. [4] §8, Amended Statement of Claim. [5] §§9-11, Amended Statement of Claim. [6] §§12-14, Amended Statement of Claim. [7] §§18-21, Amended Statement of Claim. [8] §22, Amended Statement of Claim. [9] These retainer letters are dated 29 November 2013 (the High Point, Centre Point, Cite 33 and Ping Shan developments), 18 August 2014 (the Fuk Wah Street and Fuk Wing Street developments) and 27 March 2014 (the Broadwood Road development). [10] Item numbers refer to individual items listed under “Scope of Services” in the respective retainer letters. [11] §§11, 14 and 20, Amended Statement of Claim. [12] See, for example, §§3(f), 3(g) and (i) of the Defence and Counterclaim. [13] See, for example, §3(h) of the Defence and Counterclaim. [14] §§14(c), 14(d), 15(c) and 15(d), Defence and Counterclaim. [15] §13, Defence and Counterclaim. [16] See, for example, §2 of the Reply and Defence to Counterclaim. [17] §§9 and 10, Reply and Defence to Counterclaim. [18] B2/651-656. [19] In Mr Leung’s witness statement, he used the term “power sub-station”, which he clarified during cross-examination that he in fact meant “electricity sub-station”. [20] B2/682. [21] §6, Mr Leung’s supplemental witness statement; B2/698-21 to 698-25. [22] B2/637-650. [23] The exceptions are the Fuk Wing Street, Fuk Wah Street and Ping Shan developments. [24] §§36 and 37, Mr Tsoi’s witness statement. [25] §§38 and 39, Mr Tsoi’s witness statement. [26] The defendant was prepared to waive the excess above HK$1,000,000 to bring the counterclaim within this court’s jurisdiction. [27] See, generally, Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd & Anr (unreported) HCA 1957/2005 etc; 28 July 2011 per Poon J (as he then was) at §§21, 24-25; Hui Cheung Fai & Anr v Daiwa Development Ltd & Ors (unreported) HCA 1734/2009; 8 April 2014 per DHCJ Eugene Fung SC at §§76-82 for the principles adopted in assessing witness evidence. [28] According to an extract from the BBC English Dictionary cited by Mr Chan, the meaning of a “plant” includes “a factory, or a place where power is generated”, which I accept. [29] Page 3, the plaintiff’s Closing Submission. [30] C/5, 68, 136, 250, 350, 428, 439. [31] C/9-42, 70-109, 140-187, 253-323, 352-408, 430-433, 441-443. [32] B2/651 and B3/1369. [33] See, generally, Chitty on Contracts (32nd ed) §§24-001 to 24-013 (pp 1731-1747). [34] §§3(j), 6(j), 8(i), 10(j), 12(j), 17(i) and 19(j). [35] B2/698-54 to 698-57. [36] C/4, 67, 249, 349, 427, 438. [37] The same cannot however be said of the alleged remedial works done on other parts of the sales brochures which did not relate to location plans. Thus, even if the defendant were to be allowed to rely on §§40-56 of Mr Tsoi’s witness statement in substantiating its counterclaim and that the defendant did as a matter of fact carry out the remedial works described therein, I would have held that losses arising from carrying out such remedial works were too remote as: (a) such parts of the sales brochures were quite separate from the location plans, and (b) the plaintiff made no errors on such other parts at all. [38] §62, the defendant’s Closing Submissions. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment