Converge Design and Construction Co Ltd v. Mount Kelly International Ltd

HCCT 72/2018

[2021] HKCFI 1591

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 72 OF 2018

____________________

____________________

Before: Hon Mimmie Chan J in Court

Dates of Hearing: 19 to 21 October 2020 and 29 December 2020

Date of Judgment: 3 June 2021

_______________

J U D G M E N T

_______________

Background

1.The Plaintiff in these proceedings carried on business at the material time of doing interior fitting out works.  At the material time, the Defendant’s primary business was to provide educational services to students ranging from toddlers to secondary school level.  It claims to run premium international schools in Hong Kong.

2.The Plaintiff and the Defendant were parties to two contracts, under which the Plaintiff was engaged by the Defendant to carry out and complete certain renovation works.  The first contract was evidenced by the Plaintiff’s quotation dated 18 August 2017 (“18/8 Quotation”), for electrical and floor works to be carried out at the ground and 1^st floors of Tower B, Cheung Kei Centre (“Centre”), Hung Hom for the total sum of $1,467,379.50 (“Contract A”).  The second contract was evidenced by the Plaintiff’s quotation dated 30 November 2017 (“30/11 Quotation”), for renovation works to be carried out at Shop 1, ground floor, the Austine Place, 38 Kwun Chung Street, Jordan, Kowloon (“Shop 1”) for the total sum of $1,080,000 (“Contract B”).

3.The Plaintiff claims that the Defendant failed to make payment of the outstanding sums of $1,813,689.80 due under the two Contracts, and seeks recovery with interest and costs.

4.By way of Defence, the Defendant claims that the Plaintiff failed to duly carry out and complete the works under Contract A and Contract B, in that there were defects in the works, such that the Plaintiff is not entitled to payment of the contract sums.  On its pleaded case, the Defendant claims that in respect of Contract A, the floor works were defective, in that rainwater seeped into the floor of the Centre (“Water Seepage Issue”).  The Defendant further claims that the cement sand screeding was improperly done, the contact between the cement and screed in the concrete floor was loose, such that cracks appeared on over 70% of the floor area of the premises in the Centre (“Premises”) (“Cracks Issue”).

5.The Defendant claims that it had suffered loss and damage as a result of the Plaintiff’s breach of contract and counterclaims for damages, including the costs of rectifying the defective works and the costs of reinstating the Premises.  By the time of Closing at trial, the Defendant abandoned its original pleaded claims of the Plaintiff’s breach of implied terms of Contract A, that the Plaintiff would carry out the works with reasonable care and skill and that the works would be reasonably fit for their purpose, for use by children and/or toddlers (“Implied Terms”).  It maintained that by virtue of the defects (namely the water seepage and the cracks) the Plaintiff was in breach of Contract A in that the works thereunder were not completed, which breach went to the root of the contract, such that the Plaintiff was not entitled to payment.  The Defendant further claims that it was as a result of the Plaintiff’s breach of contract that the Defendant was liable to the landlord of the Centre to reinstate the Premises when the Plaintiff had to vacate the Centre.

6.For Contract B, the claims of breach of implied terms were maintained.  The Defendant claims that prior to entering into Contract B, the Defendant had made known to the Plaintiff that the Defendant operated educational facilities in Hong Kong, and that Shop 1 would be used by children and/or toddlers, such that Shop 1 had to be safe for children and/or toddlers to use.  In breach of contract and in particular in breach of the Implied Terms, the Defendant claims that there were defects in the carpentry works carried out by the Plaintiff under Contract B (“Defects”), in that the edges of various works designed, completed and/or installed by the Plaintiff were sharp, unsafe and/or not reasonably fit for use by children and toddlers. The Defendant claims that as a result of such breaches, two students using Shop 1 were injured and the Defendant had to engage another contractor to rectify the Defects, incurring costs of $1,850,000.  During the period when rectification works were carried out, Shop 1 could not be used for the Defendant’s business, and the Defendant seeks recovery of the rent paid, in the sum of $1,640,000, and loss of business or profits in the sum of $2 million.

7.The other pleaded defence, as to the alleged agreement on the time for completion of the Contract A works, was also abandoned by the time of the Defendant’s Closing.

8.I do not find the Defendant’s case which is based on the evidence of its founder Mr Edward Wong (“Wong”) to be credible.  The Defendant’s case was shifting and Wong’s claims were exaggerated and unsubstantiated, consisting mainly of his bare assertions unsupported by the evidence.  The Defendant’s originally pleaded claim, that the Contract A works were to be completed before September 2017, is totally contradicted by the contract and the contemporaneous documents, which show that even as at 18 August 2017, the work schedule under Contract A was “to be confirmed”, and the quotation for Contract A and the Plaintiff’s engagement thereunder was only confirmed on 22 August 2017, making completion of all the works by 31 August 2017 to be incredible.  According to the program for works advised by the Plaintiff on 18 August 2017, the floor levelling work alone would take 14 days, and the electronic meter application would take 3 weeks.

9.The Defendant’s pleaded case and Wong’s claim, that the Defendant’s business at Shop 1 could not be operated during the period of rectification works for Shop 1 from April 2018 to January 2019, when rent had to be paid and was sought to be recovered from the Plaintiff, is likewise contradicted by the evidence of the photographs downloaded from the Defendant’s Facebook and social media accounts, which show clearly that the school had operated at Shop 1 with children attending classes, in the months of January, February, May to July and October 2018.  As will be detailed below, Wong’s evidence on the Water Seepage Issue and the extent of the damage to the screeding works was shown by the expert evidence to be totally exaggerated and unfounded.

10.Wong’s complaints of the defects and incomplete works under Contracts A and B are unsupported by any of the contemporaneous documents and Whatsapp messages exchanged during the relevant period.  A substantial part of the Defendant’s Counterclaim for damages had to be abandoned by the time of Closing.  In all, I find Wong’s evidence to be incredible and consider him to be a totally unreliable witness.

Water Seepage Issue

11.Wong was responsible for the daily operation and management of the schools operated by the Defendant, and he claimed in his witness statement that the Defendant’s plan was to operate a preparatory school at the Centre, starting with the September 2017 intake of students.  Wong claimed that the work involved for Contract A was not substantial as the Premises were only about 2000 m² in size.  According to Wong, all that the Plaintiff was required to do for the flooring works was to level the uneven cement flooring and to raise the height of the floor platform.  He explained that this was required because the Premises had problems with rain water seepage and without the necessary rectification works, it would not be possible to lay vinyl or carpet floor tiles.  In his reply witness statement, Wong claimed that this was communicated to the Plaintiff at the outset.  However, nowhere in Wong’s statements, nor in his testimony, did Wong give any details of when and how the water seepage problem was communicated to the Defendant, and who of the Defendant had been so informed.

12.The Plaintiff denies that the rainwater seepage problem had ever been communicated to the Plaintiff, and further denies that the Defendant had made known to the Plaintiff that works had to be carried out to improve such seepage problem.

13.The 18/8 Quotation which was submitted by the Plaintiff to the Defendant, for the attention of Wong, in respect of the Contract A works only specified, for the floor, that the Plaintiff would provide labour and material for preparing “new floor finish in cement sand with even leveling”, which service included “final touch work when dismantling existing hoarding”.  It is surprising, if Wong or anyone else of the Defendant had specified at the outset to the Plaintiff that there was a rainwater seepage problem, that proper waterproofing would not be included in the quotation which was the only document setting out the works for Contract A.  The 18/8 Quotation did not even mention the raising of the floor platform.

14.In the Whatsapp messages exchanged between Mr Jason Leung of the Plaintiff (“Jason”) and Wong over a period of more than 12 months, from 18 August 2017 to 27 September 2018, there was no mention of the alleged rainwater seepage problem at the Centre, and no hint of any complaint in relation to the water seepage which was alleged to have been detected after the completion of the Plaintiff’s works under Contract A.

15.This illustrates the main and essential defect in the Defendant’s case, as Counsel for the Plaintiff has highlighted.  There are no contemporaneous documents to support the Defendant’s claims most of which remain bare assertions made by Wong.  The problem runs through the rest of the Defendant’s Defence, in relation to the claims of defects, damages, and initially, the time allegedly specified for completion of the Contract A works. Counsel for the Defendant sought to excuse the absence of supporting and coorborative contemporaneous documents, by explaining that apart from the Whatsapp messages which were produced in evidence, Wong had met with Jason, as the Plaintiff’s representative, to discuss matters or had spoken to Jason on the telephone.  Even if that was the case, it would be reasonable to expect the parties to have referred to these discussions in their frequent and constant Whatsapp communications, and the absence of any such reference casts doubt on the veracity of the allegations that the matters had in fact been discussed, on the phone, or at face-to-face meetings.  Another explanation given for the absence of anything in writing from Wong, whether on defects or on the work to be carried out, was that Wong had left minor details of the contracts and their execution to his staff, including the Defendant’s Project Manager Jacky Chan (“Jacky”), but that only highlights another issue: Jacky was never called to give any evidence in the action.

16.In the context of the Water Seepage Issue, and the absence of any reference made in the 18/8 Quotation to either waterproofing or improvement works being required to deal with the problem of rainwater seepage, Wong accepted in cross-examination that neither the “Preliminaries” nor the “Floor” works of the said Quotation made any mention of such works or to water seepage problems.  He accepted that the terms and conditions of the 18/8 Quotation in fact expressly stated that “items not covered in this quotation are excluded”. He also accepted in cross-examination that improvement works for the rainwater seepage formed no part of the works covered in either Contract A or the quotation therefor.

17.The Defendant sought to rely on the fact that there was a photograph taken at the site where the Contract A works were carried out, which depicted cartons with labels “EVA Admix” (“Admix”) on the ground, together with bags of cement sand.  Jason accepted in his evidence that Admix was one of the essential ingredients of the mixture used for screeding works, and that the photograph had been taken to show the Defendant that Admix had been applied when the Plaintiff carried out screeding works on the ground floor of the Premises.  Jason also accepted that Admix had the effect of adding waterproofing properties to the screeding works.  On behalf of the Defendant, it was argued that this supports the Defendant’s case, that rainwater seepage was a problem identified and which had to be addressed by the Plaintiff under Contract A.  Counsel relied on the fact that Jason had only taken a photograph of Admix having been applied for the screeding works on the ground floor, but not for the 1^st floor, when according to Jason, Admix was an essential ingredient for the mixture used for screeding works, and that the materials and procedure for both ground and 1^st floors should be the same.

18.Counsel’s argument loses force, when Jason pointed out in his evidence and referred to other photographs taken on the 1^st floor of the Premises, which also show cartons or bags for Admix at the site.  They are consistent with Jason’s case that Admix was part of the mixture applied when the screeding works which form part of Contract A were carried out on the ground and the 1^st floors of the Premises.  There is no basis to infer from the evidence that rainwater seepage had been identified by the Defendant and that the Plaintiff was to solve the problem as part of its works under Contract A.

19.The 18/8 Quotation provides only for labour and materials for preparing “new floor finish in cement sand”, “with even leveling”.  I am not satisfied on the evidence that the flooring works under Contract A included works to improve rainwater seepage, as alleged by the Defendant.

20.In any event, even if it was part of the Contract A works to carry out proper waterproofing to improve rainwater seepage, there is no evidence to prove that the Plaintiff’s works were incomplete or defective, by virtue only of the photograph of the water seepage which allegedly had continued after the completion of the Contract A works.

21.Wong’s evidence is that the Plaintiff’s work under Contract A was not completed until December 2017, and inspection of the work was carried out by Jacky.  According to Wong, Jacky was of the view that the Plaintiff’s work was not carried out properly, in that the floor was not properly leveled or raised and the water seepage problem could not be mitigated.  According to Wong, he had also inspected the works shortly after he had been informed of the defects by Jacky, and he had observed that rainwater was still seeping indoors which rendered the floor unsuitable for vinyl or carpet tiles.

22.The evidence of the alleged continuing water seepage consists of one photograph which had been taken by the landlord of the condition of the Premises.  According to the Defendant, it can be seen from the photograph that even after the Plaintiff had completed the Contract A works, there were still signs and marks of water seepage on the ground of the Premises on the ground floor of the Centre (“Seepage Photo”).

23.The evidence of the single joint expert on defects, Mr Andrew Kung, was based on the Seepage Photo, and according to the expert, it was not possible to tell where the rainwater or seepage complained of emanated from.  Mr Kung’s evidence is as follows:

“For the rainwater seepage problem, I have reviewed the photo in Appendix E1 – page E-5 supplied by the Defendant. From the photo record I cannot tell where the rainwater came from, if the timber hoarding on the right hand side of this photo is facing the external, rainwater is the source. If the rainwater came from the external wall, it is not possible to stop rainwater ingress with laying of 30mm to 40mm thick cement sand screeding on the floor. Normally, such problem could only be resolved by rectification works outside the shop front/at the external envelop of the building. If the rainwater came from the floor directly below the new screeding (rising damp), installation of waterproof cement sand screeding can stop or at least mitigate the problem and if the Plaintiff was explicitly informed of this rainwater seepage problem, it was essential to use waterproof cement sand to lay the screeding. But from the photo in Appendix E1 – page E-5, the water stain mark is along the timber hoarding and at the top of this photo but not appeared evenly on new screeding so it is not likely a rising damp problem. Laying of the new screeding cannot solve the water seepage problem with rainwater entering above the screeding.”

24.It is obvious from Mr Kung’s evidence that the Seepage Photo cannot show that the rainwater complained of had come from the floor.  He also ruled out “rising damp” from the floor below the new screeding as a likely cause of the stain marks detected in the Seepage Photo.  On behalf of the Plaintiff, it was emphasized that the expert evidence also highlighted the inherent implausibility of the Defendant’s case, that the cement sand screeding work was required under Contract A in order to improve rainwater seepage, as it would more likely be the case that rainwater would emanate from the external wall and works on the screeding alone would not be effective to prevent any rainwater seepage.

25.In the course of his testimony in Court, Mr Kung further explained that from what was depicted in the Seepage Photo, the dark patches of water stains were at high points, suggesting that the water emanated from a high level down to the ground, and that the dark patches showing the damp areas were more serious at high rather than low levels.  If the seepage had been from below the floor, the damp patches would be more evenly distributed on the ground.

26.Counsel for the Defendant sought to criticize Mr Kung’s evidence and expert conclusions, eg on the basis of their lack of solid factual basis as to the direction to which the timber hoarding faced.  I do not consider such criticism to be either fair, or sufficient to justify disregard of Mr Kung’s opinion evidence.  Factual evidence should properly be given by the factual witnesses, and presented to the expert for his consideration.  The only evidence on the Water Seepage Issue which was presented to Mr Kung was apparently the Seepage Photo.  If anyone is to be blamed for the lack of facts presented, that should be the Defendant which alleged the defect and which presented the only evidence of the Seepage Photo, without more factual particulars.

27.The cause of water leakage is not a straightforward matter which can be addressed on the basis of one photograph, with no site inspection at the material time and no tests having been done.  Counsel for the Defendant submitted that the Court should infer from the photograph of Admix having been used on the ground floor that the water seepage defect had been identified and disclosed by the Defendant to the Plaintiff, and effectively, also to infer from the Seepage Photo taken by an unidentified person on an unidentified date, that part of the rainwater stains along the hoarding was caused by rising damp from water having accumulated under the screeding works for a period of time.  Those submissions cannot be accepted.  Inferences can only be drawn from proved facts. None of the facts sought to be relied upon by the Defendant to establish the Plaintiff’s alleged breach of contract have been proved.

28.To conclude, on the extremely limited evidence presented, I am not satisfied that the water seepage detected after the completion of the Plaintiff’s works under Contract A had been caused by the defects in the Plaintiff's flooring works.

Cracks Issue

29.The Defendant’s evidence on this is just as deficient.

30.The Defendant’s pleaded case, and Wong’s evidence, is that the contact between the cement and sand screed installed by the Plaintiff and the concrete floor was loose, and that as a result, cracks started to appear on the floor finish, and the cracks amounted to over 70% of the floor area of the Premises about 3 months after the completion of works.

31.The Defendant claims that it was not able to carry out any further rectification or other renovation works at the Premises, because it was barred from entering the Premises some time after April 2018.  This was because the Defendant’s application to the Town Planning Board for the necessary approval to operate its business at the Premises was rejected, and also because the Defendant had defaulted in making payment of rent in respect of the Premises.  It eventually surrendered the Premises to the landlord in December 2018, and was required to reinstate the Premises in accordance with the terms of the lease.  On behalf of the Plaintiff, Counsel pointed out that any reinstatement of the Premises was required not because of the Plaintiff’s allegedly defective works, but was required pursuant to the Defendant’s own contractual obligation under its lease, upon its termination.

32.The only evidence which was adduced by the Defendant of the allegedly defective cement sand screeding work under Contract A was 3 photographs, 2 of which show some cracks at 2 locations of the Premises, and one depicting cracks at an unidentifiable area.

33.Mr Kung, the joint expert on defects, had this to say on the Cracks Issue:

“Cracks in cement sand floor screeding is common as during the curing process heat will be generated by the cement content in contact with water and this may cause surface crack due to moisture loss from the surface of screeding which is a weak surface layer. Placing of wetted hessian/plastic sheet and spraying water on top of cement sand screeding during the curing process could avoid the development of cracks. The defect reported by the Defendant could either be surface cracks only without debonding from the substrate (the original concrete floor surface) or through cracks with debonding problem (deboned from the original concrete floor surface). I cannot distinguish which is the case by looking at the photos available to me. Normally, hammer tapping test is required to ascertain whether there is debonding of screeding from the substrate. No matter it is surface cracks or cracks with debonding problem, they are defects of the Plaintiff.”

34.Mr Kung was not able to say whether the cracks shown in the photographs were surface cracks, or cracks with debonding issue, but he considered that they were defects.  The distinction would only affect the work which would have to be carried out to rectify the defects, those with debonding issues requiring more work and the costs of rectification being higher.

35.As to the area affected by cracks, Mr Kung’s evidence is as follows:

“I have made a request to the Defendant’s solicitors for all photos recording the defect of cracks appeared at the new screeding and I was provided 4 photos of a high resolution for this item at my request (Appendix E1 – pages E2 to E5). I estimate from these photos that the total area with cracks is about 11sq.m, even if the cracks were extending to adjacent areas (say by 30%) not captured by these photos, the estimated total area is about 14.3sq.m. From the other photos available to me in item 25 of the List of Documents to Single Joint Expert (copy extracted and attached at Appendix G – pages G-4 to G‑13), I could not see any cracks in the floor screeding.

(c) I could not see any evidence that cracks appeared in over 70% of the floor area of Cheung Kei Centre. From the photos supplied by the Defendant (Appendix E1 – pages E2 to E5), the approximate area of screeding with cracks is 11sq.m – 14.3sq.m or about 0.61% to 0.79% of the total floor area with new screeding installed.” (Emphasis added)

36.Wong’s own evidence, of there being cracks which extended to more than 70% of the total floor area (of 1806 m², or 19,434 ft.²), was based on his own view of the condition of the Premises, observed through gaps in the hoarding of the Premises (since he could no longer gain access thereto after the Defendant was barred from entering the Premises upon its default in payment of rent).  Wong claimed in his testimony that the landlord had provided a number of photographs showing the extent of the cracks to the Defendant, and Wong had passed these photographs to someone on the board of the Defendant, who was allegedly a professional surveyor and he had estimated, on the basis of the photographs, that the cracks extended to around 70% of the floor area of the Premises.  However, this was only Wong’s bare assertion.  The alleged professional surveyor was not called to give evidence and be examined on his assessment, nor were the photographs which the surveyor had allegedly examined to make his assessment of 70% been produced.

37.The Defendant’s evidence on the extent of the cracks is therefore based on its own arbitrary and unproved assessment, is unreliable and is rejected, particularly in light of the expert evidence of Mr Kung.  In cross‑examination, Wong accepted that Mr Kung’s professional assessment (that the cracks extended to at most 0.61% to 0.79% of the ground of the Premises) was possibly correct.

38.Counsel for the Plaintiff sought to highlight that the Defendant’s claim of the allegedly defective screeding work is unreliable and should be rejected in its entirety, because the Defendant never made any complaint to the Plaintiff as to the existence of any cracks, or defects, particularly if the defects were as serious and extensive as claimed by Wong.  The Whatsapp messages exchanged between the Plaintiff and the Defendant during the entire period of their communication from 18 August 2017 to 6 September 2018 made no mention of the defects or the cracks.  On the contrary, Counsel referred to the fact that in the Whatsapp messages, Wong had repeatedly guaranteed and promised payment of the contract sum to the Plaintiff, which contradicts any assertion that the works under Contract A were defective.

39.The anomaly in the Defendant’s case is that on its own pleaded case, and until Closing, its claim (in paragraph 8 of the Defence and Counterclaim) was that it was as a result of the Plaintiff’s breach of the implied terms of Contract A and the improper screeding work, that it sustained loss and damages which included the costs and expenses of reinstating the Premises at the request of the landlord.  Its case on implied terms was abandoned by the time of Closing.  The damages sought were claimed as damages sustained as a result of the breach of implied term, and in Closing, Counsel submitted that the issues of whether rectification works were required, and whether the reinstatement works at the Premises requested by the landlord were due to the breach of Contract A (issues 5 to 8 of the Statement of Issues produced for trial) were no longer live issues.  The Defendant only maintained its claim that the Plaintiff did not complete the Contract A works, which was a breach going to the root of the contract and that the Plaintiff was accordingly not entitled to payment of the contract sum.

40.Even if there were defects in the Plaintiff’s works under Contract A, represented by the cracks depicted in the photographs, and even if these were only discovered by the Defendant after its surrender of the Premises in December 2018, I am not satisfied that any reinstatement work was or would be required in respect of the concrete and sand floor of the Premises shown in the photographs.  On the Defendant’s evidence, the Premises had already been let out by the landlord before August 2019, and as at the date of the trial in late December 2020, no demand had been made by the landlord in respect of any costs of repairs or reinstatement with regard to the concrete floor.  Counsel for the Defendant did not pursue the Defendant’s claim of entitlement to reinstatement costs of the Premises under issues 5 and 6 of the Statement of Issues, and made no further submissions on the alleged damages for breach of the implied terms of Contract A.

41.In short, the Defendant has failed to establish any damages sustained as a result of the appearance of cracks in the concrete screeding.

42.As for the Defence that the Plaintiff was not entitled to payment of the Contract A sum on the basis of the improper execution or completion of the works, the costs of rectifying the defects in the cracks assessed by Mr Kung are so insignificant (from $5,000 to $14,300 at the maximum) that it cannot be said that the defects went to the root of the contract, as claimed by the Defendant on the authority of Hoenig v Isaacs [1952] 2 All ER 176. That defence is rejected.

Contract B and Defects Issue

43.As evidenced by the 30/11 Quotation, Contract B included (inter alia) works relating to the ceiling and floor finish as well as carpentry works at Shop 1 on the ground floor of Austine Place.  The Defendant claims that it had made known to the Plaintiff that Shop 1 was to be used by children and/or toddlers, that the premises would have to be safe for them and that safety of the children and/or toddlers attending Shop 1 was one of the Defendant’s top priorities.

44.The Defendant further claims that shortly before entering into Contract B, it had been agreed between Jason and Wong, on about 19 December 2017, that the works covered by Contract B would be completed before the commencement of the new school term, by 31 December 2017.

45.The Defendant claims that the Plaintiff was in breach of contract: in failing to duly complete the Contract B works; the works were not carried out with reasonable care and skill; the materials used were not of merchantable quality and/or the works were not reasonably fit for children and/or toddlers to use; and the works were not completed on or before 31 December 2017.  The Defects were identified in paragraph 10.1 of the Defence and Counterclaim, in that the edges of various parts were sharp, the floor locks of the doors protruded and were easy to open, and there were spaces where the fingers and toes of children might be trapped or caught.

46.The Defendant pleads that in late December 2017, before the Christmas vacation, Jacky had informed Jason of the existence of the Defects, so that they could be rectified during the Christmas vacation period when there were no students at school, but the Plaintiff failed to take any action to rectify the Defects.  The Defendant claims that two students were injured as a result of the Defects, and the Plaintiff had been notified of the incidents.  The Defendant further claims that as a result of the injuries and safety concerns, Wong requested Jason to provide, upon completion of the Contract B works, a safety certificate in respect of the work done, as part of the Plaintiff’s obligations under Contract B.  On the Defendant’s case, the Plaintiff had agreed to this in around late March 2018.

47.The Defendant claims that the Plaintiff was in breach in failing to provide the safety certificate, and that accordingly it was not entitled to payment of any balance due under Contract B.  The Defendant engaged another contractor (“YF”) to carry out rectification works at costs of $1,850,000, and claims that during the 10 months when rectification works had to be carried out at Austine Place, the school could not be operated, but monthly rental of $160,000 for 8 months and $180,000 for 2 months continued to accrue.  The Defendant accordingly claims damages sustained as a result of the Plaintiff’s breach of Contract B, comprising loss of business of $2 million, wasted rental of $1,640,000, and rectification costs paid to YF of $1,850,000.

Time for completion of Contract B works

48.The pleaded case is that under Contract B, the works were to be completed before 30 December 2017, and that in late December 2017, Jacky had inspected the works and found that there were Defects.  According to Wong, he was informed by Jacky, that Jacky had told Jason about the Defects before the Christmas vacation, with the hope that the Defects would be rectified during the vacation, but that the Defects were not so rectified.

49.There is no contemporaneous documents which support the Defendant’s claim, that either Jacky or Wong had informed Jason or anyone of the Plaintiff, of either the existence of the Defects, or that the Defects had to be rectified during the Christmas vacation.  Wong acknowledged in cross‑examination that there was no contemporaneous record of any communication between the Plaintiff and the Defendant in this regard, despite Whatsapp messages exchanged during the period.  The messages during 15 to 25 December 2017 show that the parties were only concerned with a rope hanging from the scaffolding, and there was no mention at all of any of the alleged Defects.

50.Nor was Jacky called to give evidence of his alleged conversation with Wong on the existence and need for rectification of the Defects during the Christmas vacation, and Counsel for the Plaintiff urged the Court to draw adverse inferences against the Defendant on this disputed issue, when Jacky was the best person to give direct evidence on what he had allegedly told Jason, and particularly in circumstances when Jacky was still in the Defendant’s employment at the time of trial.  Jacky was at the material time the project manager for the works and one of the main and key contact between the Plaintiff and the Defendant.  Counsel submitted that the fact that Jacky was not called should be inferred to mean that he would not be able to give any evidence which can support the Defendant’s case.

51.In Wong’s statement, he claimed that he had reached out to Jason to request for rectification, but that was only in around March 2018.  Even this claim was not supported by any contemporaneous documents.  The only reference to any alleged defect was contained in the Whatsapp messages exchanged between Wong and Jason on 21 March 2018, when Jason referred to fixing a sliding door, and Wong had pointed out “Not just the sliding door”, when he asked for rectification.  In response, Wong had retorted that no one had ever told him that there were any other matters to be rectified, and in reply to that, Wong pointed out that his son had been injured.

52.As Counsel for the Plaintiff highlighted, the sliding door to which Wong and Jason referred in their Whatsapp messages of 21 March 2018, which was involved in the accident, is not one of the Defects identified in paragraph 10 of the Defence and Counterclaim, and of which Jason had allegedly been notified by Jacky, in December 2017.

53.Instead of referring to any Defects, the Whatsapp messages exchanged between Jason and Wong in March and April 2018 only discussed Jason’s requests for outstanding payment, and Wong’s assurances of payment.  On 12 February 2018, Wong had even guaranteed that the Plaintiff would be receiving payment.  If there had indeed been any defects at all found at Shop 1 or at the Centre, one would expect Wong’s response to Jason’s chasers for payment to be a demand for the defects to be rectified first, and it would have been natural for Wong to have referred to the defects and their rectification before any payment was promised.  One would also expect Wong to have reminded Jason that Jacky and Wong himself had mentioned the Defects to him, when Jason stated in his message on 21 March 2018 that no one had informed him of any defects or rectification works required.

54.In fact, Wong accepted in the course of cross-examination that he had not mentioned the 8 Defects identified in paragraph 10 of the Defence and Counterclaim to Jason.  He conceded that he only knew of the incident in which his son was injured (by the edge of the sliding door) at Shop 1, which he had complained to Jason about, and that it would be his staff’s responsibility to discuss with Jason any defects for rectification.  Wong’s testimony was that by his message of 21 March 2018, he had only wanted Jason to check every aspect of the Plaintiff’s work, and not to deal with things in a piecemeal fashion.

55.On the evidence, I reject the claims that the Defects had been notified to the Plaintiff in December 2017 and discussed between Jason and Wong in March 2018, and that it had been agreed by the Plaintiff that the Defects were to be rectified by 31 December 2017.

March 2018 Agreement for Safety Certificate

56.The Defendant’s pleaded case is that in late March 2018, Wong requested Jason and Jason agreed to provide, upon completion of Contract B, a safety certificate in respect of the works carried out under the contract, as part of the Plaintiff’s obligations under Contract B (“March 2018 Agreement”). The Defendant claims that the March 2018 Agreement amounted to a variation of Contract B, but that in breach, the Defendant failed to provide the safety certificate and accordingly is not entitled to payment under Contract B for the works done.

57.The Plaintiff denies that there was any such agreement.

58.Wong’s evidence is that it was as a result of the injuries sustained by the students as a result of the sharp edges of the Plaintiff’s works at Shop 1 that he asked Jason to provide a safety certificate, to be issued by an independent third party, so that there would not be any argument or dispute as to whether the works were safe for children.  Wong explained that this was as a result of the stance taken by the board of the Defendant, and because Wong himself was not a professional, and he did not want further arguments when the safety of children was of importance.  Wong relied on the fact that a certificate had been issued by Play Safe Consultancy Co Ltd in respect of Shop 3 of Austine Place (“Shop 3”), which were different premises at which the Defendant operated its business, and Wong claimed that since that had been produced for Shop 3, the Plaintiff could likewise do the same for its works at Shop 1.

59.The certificate issued for Shop 3 was a certificate of compliance (“CC”) issued in respect of play areas and play equipment, and their alleged compliance with specified safety standards and guidelines which were published.  There is no evidence as to whether the safety standards and guidelines specified in the CC were applicable to any of the works under Contract B.  In any event, the fact that the CC was issued for Shop 3 in respect of works designed and carried out by different contractors under different requirements of the Defendant is not evidence that the Plaintiff had agreed in March 2018 to issue a safety certificate in respect of the works under Contract B.  Nor is there any basis to make any inference from the issue of the CC, that the Defendant would have asked for a safety certificate from the Plaintiff.

60.Wong accepted in evidence that he had not told Jason in March 2018 that the issue of the safety certificate was part of the Plaintiff’s obligations under Contract B.  He claimed however that he had told Jason that the safety certificate he required was a variation of Contract B.

61.I accept the submissions made on behalf of the Plaintiff, that the Defendant’s claims of the existence of the March 2018 Agreement and the Plaintiff’s alleged agreement to provide a safety certificate in March 2018 as part of its obligations under Contract B is not credible.  It is not disputed that the Plaintiff had delivered and handed over Shop 1 to the Defendant in January 2018 upon its completion of works.  The Defence admits that Shop 1 was opened on 10 January 2018 for operations, when there was a “Grand Opening”. There was at least practical completion of the Contract B works in early January, even if, as the Defendant alleges, there were still 8 Defects as pleaded.  On the evidence, it is incredible and inherently improbable that the Plaintiff would have agreed in March 2018 to vary the terms of Contract B to include, as part of its obligations and performance as alleged by the Defendant, the issue of the safety certificate.  Even on Wong’s evidence, it would appear that his request for a safety certificate was for the purpose of furnishing evidence of the safety of the works upon completion by the Plaintiff, to avoid arguments and disputes as to the quality and safety of the works carried out and any defects which may be complained of.  At most, it was the Defendant’s request for evidence of compliance with Contract B, as opposed to a request for introducing a condition to the contract.

62.I also accept the submissions of the Plaintiff, that the March 2018 Agreement as alleged is invalid and unenforceable for lack of consideration for the variation claimed.  The works under Contract B had been completed before March 2018, in January 2018.  The Defendant was already under an obligation to make payment for the works carried out.  The Plaintiff in its Reply and Defence to Counterclaim already pleaded the lack of consideration and the invalidity/unenforceability of the March 2018 Agreement.  Consideration is a material fact which must be pleaded (paras 18/12/7 and 18/7/4 of the Hong Kong Civil Procedure 2021).  There is no pleading from the Defendant in response, to raise any fact which may constitute consideration, and as the case which the Plaintiff has to meet at trial on consideration for the March 2018 Agreement.  There is no pleaded fact of any claim against the Plaintiff which is alleged to have been foregone by the Defendant, as the consideration which Counsel attempted to argue.

Whether Defects constitute breach of implied terms

63.The Defendant claims (in paragraph 10.1 of the Defence and Counterclaim) that the Plaintiff had not completed the Contract B works with reasonable care and skill, that the materials used were not of merchantable quality and that the works were not reasonably fit for children and/or toddlers to use.  The 8 Defects identified in paragraph 10.1 of the Defence and Counterclaim were that:

“(1) The edge of the washing basin was sharp (i.e. not round). Children and/or toddlers may suffer injury after they hit their head and elbow against the edge of the washing basin.

(2) The edges of the wall cabinets were sharp. Adults may suffer injury after they hit their head against the edge of the wall cabinets.

(3) The edges of the four-sided wall at the entrance of Classroom A and Classroom B were sharp. Children and/or toddlers may suffer injury if they lose their balance and hit their head against the edge of the four‑sided wall.

(4) The edge of the window frame in the classroom was sharp. Children and/or toddlers may suffer injury after they hit their head against the edge of the window frame.

(5) The edge of the reception counter was sharp and may cut the hands of children, toddlers and/or adults.

(6) The edge of the underground display frame was sharp and may cut the toes of children, toddlers and/or adults.

(7) The floor locks of the classroom doors bulged out and were easy to open, which made it easy for children and/or toddlers to bury their fingers and/or toes inside.

(8) There was space between the mirror walls of the classrooms and the floor line of the Austine Place Premises, which made it easy for children and/or toddlers to bury their hands and/or toes inside.”

64.The Plaintiff admits in the Reply and Defence to Counterclaim that it had been informed that Shop 1 would be used by babies and toddlers, because the premises would be used as a “babies and toddlers centre”, but not that it would be used by children.  The Plaintiff admits that the Defendant had made known to it that the Defendant operated educational facilities in Hong Kong, and that safety of children and/or toddlers attending the Defendant’s educational facilities was one of its top priorities.

65.I accept therefore that Contract B was subject to an implied term that the materials to be used for the works would be reasonably fit for the purpose known to the Plaintiff, namely that Shop 1 was to be used by toddlers (Keating on Construction Contracts, 10^th Ed 2016 at para 3‑078).  There is no pleading that the Defendant had not relied on the Plaintiff’s skill and judgment, or that its reliance was unreasonable.

66.The Defects identified in paragraph 10.1 of the Defence and Counterclaim have been examined and considered by the joint expert.  Mr Kung’s expert opinion is that the edge of the wall cabinets, the corner edge of the window frame in the classroom, and the edge of the underground display frame were not rounded, were sharp and hence were considered to be defects, as it would be unsatisfactory to have sharp edges for children.  However, Mr Kung was clear in his evidence that these defects could be easily rectified, by installing wooden trimming or protective padding around the edges, or otherwise sanding down and repainting the edges, and that the costs were insignificant.

67.In respect of the edge of the wash basin and of the 4 sided wall at the entrance to the classrooms, Mr Kung did not consider these to be defects. Mr Kung did not consider the edges of the wall to be sharp at all.  The basis of his opinion was that firstly, on the evidence, the Defendant had not stipulated in Contract B that round edges should be provided for the works.  Further, Mr Kung compared the edges of the washbasin provided by the Plaintiff to those installed and provided under the rectification/substitute works carried out by YF, and considered them to be the same, which suggests that the edges in fact complied with the Defendant’s requirements, and were not defects as alleged.

68.Counsel for the Defendant criticized the expert’s reasons for accepting the edges and designs as acceptable, simply because they were not an express contract requirement, or because YF’s replacement works provided the same design or quality. 

69.It may be that having known that Shop 1 would be used by toddlers, and further that the safety of toddlers was one of the top priorities of the Defendant, even if the Defendant had not specified in Contract B that edges which it was reasonable to expect toddlers to come into contact with should not be sharp, the Plaintiff should have incorporated rounded edges or protective covering to the edges, or warned the Defendant of the risks of any defective design which may have been specified by the Defendant.

70.In any event, Mr Kung’s expert evidence is that even if the edges of the washbasin and the wall were defects, the cost of rectifying same were insignificant as the rectification works were simple.

71.As for the edge of the reception counter which was said by the Defendant to be sharp, Mr Kung’s evidence is that the reception counter would be manned by adults, and the edge said to be sharp faces the receptionist.  Mr Kung therefore considered that it was not necessary for the inward facing edge of the reception counter to have rounded edges, unless it was an express requirement of the Defendant at the design stage, and he considered that the edge complained of cannot be regarded as a defect.  He also pointed out that the reception counter completed as part of the rectification/substitute works carried out by YF was similar, which indicated that it was a requirement or standard accepted by the Defendant.

72.I accept Mr Kung’s evidence and analysis in relation to the reception counter.

73.According to Mr Kung, the total costs of rectifying the Defects are $16,800, excluding the costs of rectifying the edge of the reception counter.

74.Considering the minor rectification works required and the insignificant costs involved, I reject the Defendant’s claim that the Defendant’s breach of Contract B goes to the root of the contract so as to disentitle the Plaintiff to payment for its works under the contract.  Even on the authority relied upon by Counsel for the Defendant, the works under Contract B can be said to have been completed free from patent defects other than ones to be ignored as trifling (Mariner International Hotels Ltd v Atlas (2007) 10 HKCFAR 1).  The Defendant had taken possession of Shop 1 and used them as facilities for toddlers, as intended, since 10 January 2018.

Whether demolition work and alleged rectification costs were necessitated by the Plaintiff’s alleged breach

75.It is clear from the evidence, and in particular that of the joint expert Mr Kung, that even if the Defects identified by the Defendant had to be rectified, the rectification works were minor and simple and the costs required were insignificant.  It is thus incredible that the Defendant had to incur $1.8 million for the works carried out by YF, as a result of the Plaintiff’s Defects.  It is also clear from the evidence that the demolition of the works carried out by the Plaintiff under Contract B, and the costs paid to YF for the works YF carried out at Shop 1 were all necessitated and carried out for the purpose of the Defendant’s own plans to combine Shop 1 with the new premises acquired by the Defendant at the adjacent Shop 2 on the ground floor of Austine Place, in order to operate a new childcare centre at the combined and expanded space.  The Defendant had intended to combine Shop 1 and Shop 2 before March 2018.  As early as December 2017, the Defendant had been in discussion with the Plaintiff in relation to the possibility of combining the premises, and the Plaintiff was instructed in January 2018 to prepare the layout plans and design for the combined premises, and to provide a quotation for the intended works.  Shop 2 was vacated by the former tenant in April 2018 and the Plaintiff took measurements at Shop 2 and submitted a quotation on 9 April 2018 for the renovation works to be carried out at Shop 2.  The contemporaneous emails and Whatsapp messages support the Plaintiff’s evidence in this regard.

76.In cross-examination, Wong accepted that Shop 1 and Shop 2 were combined, and the renovation and decoration works for the amalgamated premises were carried out by YF in September 2018.  Wong confirmed that because of the combination of Shops 1 and 2, 70% to 80% of the works carried out by the Plaintiff under Contract B were demolished, and that this was necessitated by the amalgamation of the premises.

77.The joint expert Mr Kung examined the original plans for Shop 1 and the plans for the amalgamated Shops 1 and 2, and inspected the premises on 20 November 2019.  His assessment was that most of the works completed by the Plaintiff had to be demolished for the purpose of works under the plans for the amalgamated premises.  This was because the main entrance to the amalgamated premises had been moved to Shop 2, the classrooms on the premises had been enlarged, the internal corridor had been shifted from Shop 1 to Shop 2, and the original toilets in Shop 1 were all demolished.  Mr Kung also confirmed that the reception counter, the water sink, the glass folding door and other parts as shown in the original layout plans for Shop 1 had been shifted, demolished or removed.  According to Mr Kung, the design layout reflected in the quotation which had been submitted by the Plaintiff in April 2018, by contrast, had kept all the completed works as far as possible, without alterations in the classrooms, entrance and corridor.  This shows that the amalgamation of Shop 1 and Shop 2 was possible without demolishing all the works carried out by the Plaintiff under Contract B, and that it was the Defendant’s choice to demolish all of such works.

78.On the evidence, I reject the Defendant’s claim that the demolition of all the works carried out by the Plaintiff was necessitated by the existence of the alleged Defects.  In my judgment, such demolition was due entirely to the Defendant’s own changes in design and layout for the amalgamation of Shop 1 and Shop 2 to form an enlarged space.  The Defendant has not established that any part of the cost of $1.8 million paid to YF was for the demolition or rectification of the Defects as such.  Accordingly, the entire sum is disallowed.

79.No other item of loss remains of the Defendant’s Counterclaim, since it has abandoned the claim for loss of business and rental expenses.

80.In my judgment, the Defence and Counterclaim made in these proceedings are entirely unsubstantiated, and grossly exaggerated.  The Defendant’s pleaded case and Counterclaim appear to have been prepared without any concern as to whether the claims made can be proved in Court, on a balance of probabilities, on the best evidence to be properly adduced.

Disposition

81.The Defendant has failed to establish its Defence, and I allow the Plaintiff’s claim for the sum of $1,813,689.80 as the remaining unpaid balance of the contract sum under Contracts A and B, with interest.

82.The Defendant’s Counterclaim is allowed only in respect of the costs of rectification assessed by the expert, of $16,800.

83.The Plaintiff has succeeded in this action, and of the Defendant’s original Counterclaim for $5,490,000, only a nominal sum of $16,800 has been awarded.  Costs orders should act as effective sanctions against unwarranted applications and unreasonable resistance in the conduct of litigation, and to give effect to the underlying objectives of the CJR.  In this case, the appropriate costs order nisi is that the Defendant is to pay to the Plaintiff the costs of the original action and of the Counterclaim, on indemnity basis.

84.The parties should within 14 days from the handing down of this judgment file submissions (confined to not more than 3 A4 pages each of double spacing in clearly legible 14 point or larger typeface (font style: Times New Roman)) on the rate and period of interest to be allowed on the Plaintiff’s claims in the main action.

Mr Adrian Leung, instructed by Wong & Lawyers, for the plaintiff

Mr Desmond Leung and Mr Adrian TY Wong, instructed by MB Kemp LLP, for the defendant