The Bank of East Asia Ltd v. Tsien Wui Marble Factory Ltd and Others

HCCT000031/1994

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

CONSTRUCTION AND ARBITRATION LIST

Coram: The Hon Mr Justice Findlay, in Court

Dates of hearing: 26 - 30 May, 2 & 3, 10 - 13, 16 & 17 June 1997

Date of handing down of judgment: 25 June 1997

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JUDGMENT

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The Background

1. In the late seventies, the plaintiff (the Bank) decided to build new headquarters in the middle of the business district in Hong Kong. At that time, the second to fifth defendants, with others, were practising as architects and structural engineers under the name of Palmer and Turner. I will refer to these defendants collectively as Palmer and Turner. Palmer and Turner acted as architects and structural engineers on the project. The main contractor was Gammon Building Construction Limited (Gammon). The nominated sub-contractor for granite cladding for the building was the first defendant (Tsien Wui).

2. The granite cladding failed. The Bank blamed Tsien Wui and Palmer and Turner for this. It commenced proceedings against Tsien Wui on 20 June 1994 and against Palmer and Turner on 25 May 1996. Tsien Wui joined Palmer and Turner as third parties on 16 July 1996.

Why did the Cladding Fail?

3. I do not think there is any need to go into the technical details of the cause of the failure. Five of the six experts who gave evidence agree that the cause was that the design of the system of fixing the granite panels to the concrete structure of the building was inadequate to cope with movement and load. They say, therefore, that the designer of the system was to blame for the failure.

4. The sixth expert, Mr John Perry, who was called by Palmer and Turner, told me that he thought that the design was adequate, and that the cause of the failure was due to the manner in which the panels were installed. In other words, Mr Perry says that the person to blame for the failure of the system was not the designer, but the installer.

5. I do not accept the evidence of Mr Perry on this point.

6. Generally, Mr Perry gave me the impression that he was arguing a case for Palmer and Turner as an advocate, rather than giving evidence as an objective expert. I was not happy with the way that he sought to fit the known facts into his theory; sometimes by brushing aside some of those known facts. Things that were done when installing the panels are not consistent with what Mr Perry sees as the adequate design. He suggests, without any real basis for doing so, that Tsien Wui did not follow the design in its entirety, and did some things not contemplated by it. Mr Fong Wing Hong, who gave evidence on behalf of Tsien Wui, told me that the panels were installed according to the design. He was not challenged on this, and there is no suggested in Palmer and Turner's pleaded case that Tsien Wui did not follow the design. What Mr Fong says is generally supported by the other experts. I believe that Mr Clayton successfully demonstrated during cross-examination of Mr Perry that he had not taken account of all the proper and relevant factors in coming to his conclusion that the design was adequate.

7. I believe it is much more likely, as the other experts say, that the designer simply made mistakes; mistakes that no competent designer purporting to have specialist skills in this field should have made. Accordingly, I find that the cause of the failure of the cladding was the faulty design, and not any fault in the installation.

The Bank's Case against Tsien Wui

8. The Bank seeks to recover from Tsien Wui on the basis of a breach of warranty and Tsien Wui's negligence.

The Pleaded Warranty Claim

9. The Bank alleges that Tsien Wui, as part of its tender, gave a collateral warranty that it "has exercised and will exercise all reasonable skill and care in

10. The Bank says that the damages or defects were caused by a breach of that warranty, and, by way of particulars, says that the "design and/or fixing of the cladding does not satisfy the performance specification contained in Clause 2.15 of the Specification" in that "since approximately 1991 to 1992" the way in which the cladding was fixed to the concrete and the arrangement of the cladding failed to provide for movement. The Bank says that this "failure has occurred and continues to occur within the life of the building".

11. Tsien Wui asked for particulars of this allegation, seeking to find out in what way it was said by the Bank that Tsien Wui failed to exercise reasonable skill and care, but the Bank simply referred back to the particulars.

12. Clause 2.15 of the specification appears under the heading "Materials and Workmanship". It reads -

The Pleaded Negligence Claim

13. The Bank says that the damages or defects were caused by Tsien Wui's negligence in that it "failed to exercise any or any reasonable skill and care in the design of the granite cladding and the fixing thereof" to provide for movement.

14. There is also an allegation that Tsien Wui were in breach of a duty of care "details of which were set out in the said Agreement". The reference to "the said Agreement" seems to be a reference back to the warranty. The implication is that this claim is something different to the claim under the warranty, and something different to the claim based on tortious negligence, but that is not how Mr Scott put his case, and I do not see how it can be a different claim given that Tsien Wui's duty under the warranty and under the claim based on tortious negligence was to exercise reasonable skill and care.

Who was Responsible for the Design of the Cladding?

15. Broadly, the Bank says that Tsien Wui was responsible for the design of the cladding system, and that it failed to exercise reasonable skill and care in creating that design because it did not allow for movement.

16. Tsien Wui's answer, in general terms, to this, as it developed at trial, was that it was not responsible for designing the system, but only the metal fixings used to secure the panels to the concrete, or, perhaps, only the type of material from which the metal fixings were made. Tsien Wui says that it did exercise reasonable skill and care. In particular, it says, it appointed an Italian consultant, Mr Paolo Ragaglini, to choose the fixings, to advise Tsien Wui on the granite works and to prepare the shop drawings. Tsien Wui alleges that Mr Ragaglini was an architect, and was recommended to Tsien Wui as experienced in the design of dry-hung cladding for high-rise buildings.

17. The evidence relied upon by the Bank to establish that Tsien Wui was responsible for the design is primarily contained in the contemporaneous documents. In this respect, as generally in this case, for obvious reasons, I attach much more importance to the contemporaneous documents than the oral evidence of what happened something like sixteen years ago.

18. I have already recited the warranty and Clause 2.15 of the specification. In addition, there is Clause 2.24 of the specification. This says -

Fully detailed shop drawings will be required from the successful Tenderer prior to ordering of materials."

19. There is also a provision in the Schedule of Quantities that reads -

20. I am left in no doubt at all that under the contract the parties contemplated that Tsien Wui would be responsible for designing the system of fixing the granite panels to the concrete, and that this system included making proper allowance for movement. I reject the interpretation of Clause 2.15 that seeks to construe it as laying down a standard only for the design of the anchorages, or even only the material from which the anchorages would be made. Clause 2.24 supports the conclusion that Clause 2.15 seeks to impose a standard for the system. It speaks of the shop drawings showing "joints", the "kind of control and thermal movement joints, the "kind of pressure relieving joints", and "jointing systems". Mr Clayton argues that there is no evidence that the shop drawings were ever submitted with Tsien Wui's tender. This may be so, but nevertheless Clause 2.24 clearly points to the tenderer being responsible for the designing the aspects of the fixing system mentioned.

21. This, as I see it, is the clear meaning of the contract documents. Insofar as they may be relevant, other contemporaneous documents support this conclusion. They show, in my view, that, even if it could be argued that contract documents do not impose a clear obligation on Tsien Wui, it undertook this responsibility during the period leading up to the acceptance of its tender and thereafter.

22. The minutes of a meeting at the offices of Palmer and Turner on 12 March 1981 record, amongst other things, that Tsien Wui "confirmed that the external granite panel will be 30mm thick", stated that "they will provide 4 nos. anchors per piece of granite for the external spandrel and 6 anchors per piece for the external column" and "all fixing will be made by stainless steel".

23. The minutes of a meeting on 17 March 1981 at the offices of Palmer and Turner show that Tsien Wui confirmed that "the external granite panel will be 30mm thick", stated that "they were investigating to put 6 nos. of stainless steel anchor instead of 4 nos. of anchor for the spandrel granite panel", confirmed that "6 nos. of stainless steel anchor will be provided for the column granite panel", and confirmed that "shop drawing will be prepared in Hong Kong and takes 4 weeks after award of contract".

24. The minutes of another meeting at Palmer and Turner's offices on 16 April 1981 show the Bank requesting a "full time experience supervisor, (may be Italian) on site", Tsien Wui explaining that this had not worked on another job and that they would place "2 full time supervisors", one of whom was well trained with "more than twenty years experience of granite installation and can take 100% responsibility of this contract".

25. Tsien Wui wrote to Palmer and Turner on 22 April 1981, referring to a meeting on 16 April 1981, and said "Regarding the 30mm thick material for External Elevation, we will use six stainless steel anchors for each piece."

26. On the instructions of the Bank, through Palmer and Turner, on 8 May 1981, Gammon wrote to Tsien Wui accepting its tender for the supply and installation of the cladding. Gammon asked Tsien Wui to proceed with "working drawings and ordering of materials". Gammon also said "we would draw your attention to the fact that this project requires a hollow fixing system using stainless steel brackets and hangers".

27. On 21 May 1981, Gammon wrote to Palmer and Turner, with a copy to Tsien Wui, saying that "we are concerned about the fixing of the granite and would prefer that an agreed design was arrived at prior to the commencement of the associated civil work. We do not think that the responsibility for this design work should lie with Messrs Tsien Wui Marble Factory Ltd. For although we have a high respect for the work they have done in the past, we must point out that by their own admission they have no experience of Hollow Fixings, nor indeed is this experience on such scale available in Hong Kong." Gammon said there was a "need for extensive pre-planning involving all parties including specialist fixing contractors from overseas". Gammon also said that they "do not accept... the building life time guarantee and if such is required then it must be done through a direct warranty between the Client and the subcontractor". On this letter, Mr Ben Lee, who was employed by Palmer and Turner at that time, wrote in manuscript "What do they object to? Hanging? Workmanship?"

28. The minutes of a meeting on 5 June 1981 record that Gammon said that it "was seriously concerned of the fixing details for the external granite". It also suggested that it was better for Tsien Wui to submit the shop drawings directly to Palmer and Turner for inspection. Palmer and Turner had no objection to this.

29. On 11 June 1981, Tsien Wui wrote to Gammon, with a copy to Palmer and Turner, submitting shop drawings and saying that "final shop drawings as well as fixing method will be resubmitted to you approximately end of this month with our overseas consultants. As you know very well that all external granite will be cut in Italy and the fixing system will be up to The Marble Institute of America standards. We trust that will be accepted with no further worry".

30. On 22 June 1981, Gammon wrote to Palmer and Turner saying -

"We would draw to your attention an apparent discrepancy between the available drawings for the granite work and the specification which requires all fixings to be carried out to C.P. 298.1972 which covers non-load bearing natural stone cladding. This discrepancy is over the thickness of cladding units, as your drawings state that all granite slabs are to be 30 mm thick, whereas Table 1 of C.P.298 requires all granite cladding above the first floor level to be 40mm thick unless supported by a continuous structural member, which is not the case on the Bank of East Asia project. Table 1 also states that there must be a minimum of 20 mm of materials left behind the cramp mortice or any other hole or groove cut in the granite for fixing purposes. We would strongly urge that the recommendations of C.P.298 in this matter are followed and await your instructions on this matter."

31. On the copy of this letter from Palmer and Turner's files, there appears the manuscript notation "Pending our confirmation from Tsien Wui that the cladding system is in compliance with American Standards".

32. On 3 July 1981, there was a meeting at the offices of Palmer and Turner. Mr Fong and his wife, of Tsien Wui, were at this meeting, as was Mr di Cola, then a director of Tsien Wui, Mr Ragaglini, Mr Ben Lee, Mr CH Tong, of Palmer and Turner, and someone from Gammon. The brief minutes read as follows -

33. There is a drawing on Palmer and Turner tracing paper, dated 3 July 1981, showing "6 mm" joints at each floor and "mouvement horiz. Joint 20 mm each 6 floors".

34. There was a great deal of debate during the trial about this document. This was because this document shows the design of the system to cope with movement. It was the design that Tsien Wui followed, and which proved to be inadequate. On the evidence, it is probable that Mr Ragaglini made this document. The fact that he made the document does not say, of course, that the design originated with him. It is possible to say that he may have written down what he was told by Palmer and Turner. But I do not accept that this is probable. In my view, the whole weight of the evidence points to Mr Ragaglini having come to Hong Kong to design the system. The minutes of the meeting of the same day as the drawing point to Palmer and Turner looking to Tsien Wui, and their expert, to describe what system they intended to use. Amongst other things, Tsien Wui was asked to confirm the "expention" joint allowance, which is just what they did. On 7 July 1981, Tsien Wui wrote to Palmer and Turner saying "Also kindly note that a 2cm expention joint will apply in every 6 floor".

35. On 22 July 1981, Gammon wrote to Tsien Wui, with a copy to Palmer and Turner, saying "We are still awaiting your long promised submission of details and methods of fixing the granite which you were instructed to submit formally."

36. On 7 August 1981, Palmer and Turner wrote to Gammon saying "please be advised that every fixing related to the granite works to be in accordance with our specification Clause 2.15 - FIXING Page 8-26", which is the clause containing the reference to CP 298.

37. On 11 August 1981, Gammon wrote to Tsien Wui referring to the requirement of BS CP 298 that the fixings be non-ferrous.

38. On 18 August 1981, Tsien Wui wrote to Gammon, with a copy to Palmer and Turner, saying "We are pleased to submit our final shop drawings together with details and methods of fixing". On the copy of the letter from the files of Palmer and Turner appears the manuscript notation "Checked and commented". These documents have not emerged for consideration at this trial.

39. The minutes of a meeting of 20 August 1981 record that Palmer and Turner advised that the drawings had been received from Tsien Wui and Palmer and Turner "will advise in due course". Palmer and Turner also advised that "particular attention should be paid to the anchor/junction detail between granite panel and concrete surface".

40. On 27 August 1981, Tsien Wui wrote to Gammon, with a copy to Palmer and Turner, saying that CP 298 permitted the use of ferrous metals for fixing, but Gammon pointed out in its letter of 2 September 1981 that CP 298 gave only qualified permission. Gammon said that "our only consideration is the future public safety and we would suggest that formal BOO comment be sought as regards their views and interpretations of the BSI's Code of Practice recommendation."

41. At a meeting on 10 September 1981, Palmer and Turner "advised that Tsien Wui's shop drawings is generally in order."

42. All this evidence, in my judgment, creates an overwhelming case that Tsien Wui were responsible for the design of the system of fixing, including making allowance for movement, under the contract, and it well knew this. Even if it could be said that Tsien Wui did not have responsibility under the contract, clearly it accepted that responsibility after the contract was concluded, and was under a duty to exercise that function with reasonable skill and care.

Did Tsien Wui Discharge this Responsibility with Reasonable Skill and Care?

43. The duty to exercise reasonable skill and care was, as I see it, the same under the contractual claim and the tortious claim. The difference is that, under the contractual claim, Tsien Wui is in difficulty in alleging that it is not responsible for the failure of Mr Ragaglini to perform his function with reasonable care and skill. The contractual claim only arises for consideration if it is not time barred. As I will say more fully later, it seems to me that, on the arguments advanced by Mr Scott, it is time barred. Accordingly, I will deal hereafter in this section only with the tortious claim.

44. There is no doubt in my mind that, on the evidence of the experts, other than that of Mr Perry, Mr Ragaglini did not do his job with reasonable skill and care. Even a cursory reading of CP 298 would have provided the guidance needed to avoid the errors into which Mr Ragaglini fell. But Mr Ragaglini was an independent consultant engaged by Tsien Wui, not an employee. Gammon and Palmer and Turner knew that Tsien Wui did not have the expertise to design the system itself. Even if the Bank did not know this directly - and it may have done because the minutes of the meeting of 16 April 1981 indicate the Bank's concern with supervision and that it knew of some Italian involvement - it knew it through Palmer and Turner, who were the Bank's agents for just this sort of purpose. Palmer and Turner also knew that, to overcome this disability, Tsien Wui would engage an Italian expert. The Bank, through its agent, raised no difficulty about this, and, after interviewing him, approved of Mr Ragaglini.

45. In the ordinary course, a principal is not responsible in tort for the negligence of an independent contractor such as Mr Ragaglini. Mr Scott, however argues that the task that was delegated to Mr Ragaglini was not the sort of thing that can be delegated without the principal remaining responsible. There is no doubt that the law does contemplate cases of this kind, although the selection of those cases seems to be somewhat arbitrary. All I can say is that I do not consider that the matter before me is the kind of case in which, as a matter of policy, the principal should be liable in tort for the negligence of his independent contractor.

46. Mr Scott also seeks to argue that Tsien Wui was itself negligent in that it failed to instruct Mr Ragaglini properly, it failed to check if Mr Ragaglini was properly qualified and it failed to ensure that Mr Ragaglini followed CP 298. These are particulars of negligence that should have been pleaded. They were not pleaded in spite of Tsien Wui asking specifically for such particulars. It is too late, in my view, to seek to raise them now. In any event, I do not think these allegations can be said to be negligence. The Bank, through Palmer and Turner, knew about Tsien Wui's ignorance and that it would need to rely on Mr Ragaglini, Palmer and Turner knew just what Tsien Wui and Mr Ragaglini were going to do, Palmer and Turner knew that Mr Ragaglini was purporting to use some American system, Palmer and Turner interviewed Mr Ragaglini, and Palmer and Turner gave its blessing to what Tsien Wui were doing. The Bank cannot now, in my view, criticise what Tsien Wui did, knowing what they were doing through Palmer and Turner, and approving of it.

The Bank's Case against Palmer and Turner.

47. The Bank's case against Palmer and Turner was also originally founded both on contract and negligence, but Mr Scott has conceded, on the urging of Mr Harris, that the contract claim is time barred. So, the Bank's claim against Palmer and Turner is now based only on the allegation that "At all material times the Plaintiff relied on Palmer and Turner to exercise such skill and care [as would be exercised by a reasonably competent architect and structural engineer] in the performance of the Consultancy Services".

48. Somewhat late in the day, Palmer and Turner accepted a great deal of the Bank's case. Mr Harris helpfully summarised the present position in his written closing submission as follows -

49. Mr Harris said that the remaining matters in dispute between the Bank and Palmer and Turner were -

What Acts or Omissions were the Cause of the Damage?

50. I have already made my findings in this regard. The cause of the damage was the design by Mr Ragaglini, which was inadequate to cope with movement. This design was the responsibility of Tsien Wui, which it had delegated to Mr Ragaglini as an independent contractor. I have already rejected Mr Perry's theory of the adequacy of the design. Palmer and Turner accept that they "breached [their] duty of care to the Bank to produce or procure the design of a fixing system for the cladding that provided adequately for the differential movement between the cladding and the reinforced concrete structure of the Building".

The Date of the Bank's Cause of Action

51. It is convenient here to deal with the limitation point raised by Tsien Wui, as well as that raised by Palmer and Turner. This part of my judgment also deals with the Bank's contractual claim against Tsien Wui.

52. The Bank's writ was issued against Tsien Wui on 20 June 1994. The writ was issued against Palmer and Turner on 25 May 1996.

53. The case on this point mounted by both Tsien Wui and Palmer and Turner is similar. The only difference is that, against Tsien Wui, the Bank still maintains a case on contract. Although Mr Scott concedes that the contractual claim against Palmer and Turner is time barred, that against Tsien Wui, he says, is not. This is because, argues Mr Scott, the contractual claim against Tsien Wui is based on a continuing warranty for the lifetime of the building so the limitation period does not begin to run until the end of the lifetime of the building. I have already recited the terms of the warranty. It was that Tsien Wui had exercised and would exercise all reasonable skill and care in the design, the selection of materials and goods and in satisfying any performance specification or requirement. Clause 2.15 says that Tsien Wui "will be expected to guarantee the fixing for the life of the building bearing in mind the typhoon conditions in Hong Kong." The only thing we know about this guarantee is that Gammon did not want it. There is no evidence that it was asked for, or given by Tsien Wui to anyone. Even if one assumes that, by tendering, Tsien Wui impliedly gave the guarantee to the Bank, that is not the basis for the Bank's contractual claim. That claim is based fairly and squarely on the failure to exercise the skill and care I have mentioned, and that only in relation to the satisfaction of any performance specification or requirement. Mr Scott expressly conceded that the claim is not based on an absolute obligation to guarantee that the cladding would not fail during the lifetime of the building. The failure to exercise skill and care upon which the claim is based could not have happened certainly after the cladding was completed in 1982.

54. On this basis, it follows, in my view, that the contractual claim against Tsien Wui, like that against Palmer and Turner, would be time barred. I base this conclusion on the contentions and arguments advanced by counsel. As will appear later, I believe that there might have been other arguments that could have been advanced on the question of when the cause of action arose on the contractual claims.

The Limitation Ordinance, Chapter 347

55. Tsien Wui pleads that the cause of action founded on negligence and breach of duty accrued more than 6 years prior to -

"namely prior to 1988", and the Bank's claim is barred by section 4 of the Ordinance.

56. Alternatively, Tsien Wui says, if section 31 has effect, the Bank had both the knowledge required for bringing the action for damages in respect of the relevant damage and a right to bring such action over 3 years before the commencement of these proceedings. The plaintiff's claim is therefore barred by section 31.

57. Palmer and Turner plead limitation in much the same terms.

58. Section 4 of the Ordinance says that "an action founded on tort" "shall not be brought after the expiration of 6 years from the date on which the cause of action accrued".

59. Section 31 (1) of the Ordinance says that the section applies to any action for damages for negligence where the earliest date on which the plaintiff first had both -

... falls after the date on which the cause of action accrued.

60. Sections 31 (3) and (4) say that an action shall not be brought after the expiration of -

61. By section 31 (5), the "knowledge required for bringing an action for damages in respect of the relevant damage" means knowledge -

62. Section 31 (6) says that "Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (1)."

63. Section 31 (7) reads -

"For the purposes of this section or section 33 a person's knowledge includes knowledge which he might reasonably have been expected to acquire -

but a person shall not be taken by virtue of this subsection or section 33 to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice."

64. Section 38A (2) says that "Nothing in section .. 31 .. shall -

65. Section 38A (3) reads that "Subject to subsection (2), sections ... 31 ... shall have effect in relation to causes of action accruing before, as well as in relation to causes of action accruing on or after, 1 July 1991".

The Significant Dates

66. From this recital of the provisions of the legislation, it can be seen that the relevant dates for the purposes of limitation are -

The Law in Relation to Accrual of a Cause of Action

67. The relationship between the Bank and both Tsien Wui and Palmer and Turner is such, as counsel have recognised, that the Bank would be entitled to recover economic loss arising from the tort of negligence. That being the case, any question of the Bank recovering on the basis that the building presented a danger to the public or neighbours does not arise. I do not accept Mr Scott's argument that involves the proposition that, where a plaintiff has a cause of action for the recovery of economic loss, it may also have a cause of action to recover the cost of rendering a building safe, and a plaintiff may proceed under the latter cause of action although the former cause of action is time barred. There is only one tort, one cause of action.

68. On first principles, a person has a cause of action in tort when he has been wronged and, excluding those cases where the tort is actionable per se, he has suffered harm as a result of that wrong. In cases of torts of negligence involving damage to property, that harm is measured in terms of financial loss, and the financial loss is either the diminution of the value of the property or the cost of reinstatement. It might be a respectable argument to say that the person cannot be said to have that cause of action if he does not know that he has it. If my holiday cottage is vandalised, but I do not know this until I visit my property some years later, it might be unreal to say that I had a cause of action when the wrong was committed. But it is very hard for me to understand the logic of some middle road that says that I do not have a cause of action until some physical damage to the property occurs. In the case before me, for example, can it be sensibly said that, if the cladding system had been installed with supports too weak to take the weight of the panels in a typhoon, but no physical damage had occurred, the Bank had no cause of action? Surely, the Bank had a cause of action, and its loss was either the difference in value between the building with a proper system of cladding and the building with the cladding as installed, or the cost of installing a proper system.

69. But, if Pirelli General Cable Works Ltd. v Oscar Faber & Partners [1983] 2 AC 1 states the law, this is not the case, unless one can say that the building was "doomed from the start". In that case, Lord Fraser said -

"It seems to me that, except perhaps where the advice of an architect or consulting engineer leads to the erection of a building which is so defective as to be doomed from the start, the cause of action accrues only when physical damage occurs to the building. In the present case that was April 1970 when, as found by the judge, cracks must have occurred at the top of the chimney, even though that was before the date of discoverability."

70. Pirelli decided that the cause of action accrued only when that physical damage occurred, and not the date when the damage was discovered, or should with reasonable diligence have been discovered.

71. In Invercargill City Council v Hamlin [1996] AC 624, a decision of the Privy Council on appeal from the Court of Appeal of New Zealand, in a single judgment of their Lordships, Pirelli was referred to as "an unfortunate decision", and their Lordships gave convincing reasons for this view.

72. Their Lordships quoted Deane J. in Council of the Shire of Sutherland v Heyman, 157 CLR 424, who, at 505, said "The alternative, and in my view preferable, approach is that any loss or injury involved in the actual inadequacy of the foundation is sustained only at the time when that inadequacy is first known or manifest. It is only then that the actual diminution in the market value of the premises occurs.", and they went on to say -

"Once it is appreciated that the loss in respect of which the plaintiff in the present case is suing is loss to his pocket, and not for physical damage to the house or foundation, then most, if not all the difficulties surrounding the limitation question fall away. The plaintiff's loss occurs when the market value of the house is depreciated by reason of the defective foundations, and not before. If he resells the house at full value before the defect is discovered, he has suffered no loss. Thus in the common case the occurrence of the loss and the discovery of the loss will coincide.... the cause of action accrues when the cracks become so bad, or the defects so obvious, that any reasonable homeowner would call in an expert. Since the defects would then be obvious to a potential buyer, or his expert, that marks the moment when the market value of the building is depreciated, and therefore the moment when the economic loss occurs.... The approach is consistent with the underlying principle that a cause of action accrues when, but not before, all the elements necessary to support the plaintiff's claim are in existence. For in the case of a latent defect in a building the element of loss or damage which is necessary to support a claim for economic loss in tort does not exist so long as the market value of the house is unaffected. Whether or not it is right to describe an undiscoverable crack as damage, it clearly cannot affect the value of the building on the market. The existence of such a crack is thus irrelevant to the cause of action.... Whether the Pirelli case should still be regarded as good law in England is not for their Lordships to say."

73. In Murphy v Brentwood DC [1991] 1 AC 398, Lord Keith said, at 466 A-B-

"Consideration of the nature of the loss suffered in this category of cases is closely tied up with the question of when the cause of action arises. Lord Wilberforce in Anns [1978] AC 728, 760 regarded it as arising when the state of the building was such that there was present an imminent danger to the health or safety of persons occupying it. That state of affairs may exist when there is no actual physical damage to the building itself, though Lord Wilberforce had earlier referred to the relevant damage being material physical damage"

74. Lord Keith then went on to consider Pirelli, and he said -

"If the plaintiffs had happened to discover the defect before any damage had occurred there would seem to be no good reason for holding that they would not have had a cause of action in tort at that stage, without having to wait until some damage had occurred. They would have suffered economic loss through having a defective chimney upon which they required to expend money for the purpose of removing the defect"

75. Lord Keith cited the passage I have mentioned above from the judgment of Deane J. in Shire of Sutherland v Heyman with approval, saying, at 468D, the reasoning was "incontrovertible". The other Law Lords agreed with Lord Keith's judgment. This view was not obiter, their Lordships were necessarily examining the nature of the loss suffered, and this, they recognised, was closely tied up with the question of when the cause of action arose. That being the case, the view expressed in Murphy is not consistent with the relevant dicta in Pirelli.

76. Whatever may the present status of Pirelli technically, there can be no doubt, in my view, that it has been "re-interpreted" by both Murphy and Invercargill. Their Lordships, in Invercargill, criticised the Pirelli decision on principle. It was not "unfortunate" only because of some peculiar circumstances of New Zealand. Consequently, on the same reasoning as was adopted in De Lasala v De Lasala, 1979 HKLR 214, to say that Hong Kong courts would be well advised to treat House of Lords decisions as strictly binding, I should treat Invercargill as binding. Also, in my view, Murphy and Pirelli cannot stand together on this point; the House having decided that the reasoning for the view taken by Deane J. was "incontrovertible". Accordingly, I take it that the law of England and Hong Kong is that stated by Deane J., and approved by Lord Keith in Murphy: "... any loss or injury is sustained only at the time when [the defect] is first known or manifest." I take this to mean, for obvious practical reasons, when the extent of the defect is first known or manifest. Otherwise, it is not possible to know that the market value has been depreciated.

77. It might be argued that the legislature, by enacting section 31 of the Ordinance, recognised the rightness of the decision in Pirelli. That may be so, but this does not say that the legislature made the law in Pirelli immutable. It cannot be said, in my view, that the enactment of section 31 debarred the courts from finding, as I think they have done, that Pirelli was wrongly decided.

78. Pirelli, Murphy and Invercargill were actions in tort, but, if it is right that the cause of action in the tort of negligence arises only when the loss is known, it may be that the same reasoning applies to negligence claims under contract. If this is so, the contractual claims against Tsien Wui and Palmer and Turner may be good. It may be that Tsien Wui's defence based on the use of an independent contractor would not prevail in a contractual claim. But the contractual claim against Tsien Wui was not argued on this basis, but only on the ground that it was not time barred because it was based on a continuing warranty. And it was conceded by the Bank that the contractual claim against Palmer and Turner was time barred. Palmer and Turner do not make any claim or counterclaim for a contribution from Tsien Wui at all so there is no room for examining, in this context, the basis on which they might be responsible for any damage. It seems to me that I cannot now examine a possible ground of liability not advanced by the parties.

The Evidence Relevant to Limitation

79. In July 1982, the granite cladding work was completed.

80. The view of the experts is that physical damage to the cladding system started to occur within the first few years after 1982. From then, over the years, the physical damage got worse until, at some uncertain time, risk of injury to the public was unacceptable. There was a risk of whole panels becoming dislodged. I accept this evidence. There is some evidence that marks on the surface of the granite panels could be seen in 1984 and 1985, and one of these marks coincides in place with where damage was later seen.

81. On the contemporaneous evidence, after completion of the building, all was quiet until November 1989. In that month, there was a report by Mr Michael Tang of Hong Kong Land following a survey of the external walls of the building. The report itself is undated, but, in a memo dated 4 November 1989 from Mr Terry Chan to Mr Norman Leung, Mr Chan says that Mr Tang "carried out a complete survey to the external wall at end of September 1989". Mr Leung was asked to forward a copy of the report to "TST for their information". I do not know what the reference to "TST" means. Such evidence as there is indicates that this report was not passed to the Bank.

82. The report says that its main purpose was "to determine the current condition of the external granite claddings". Part of the survey was conducted from a gondola and part by the use of a telescope. The south elevation is said to be "in a stable and good condition although some of the granite tiles have chipped edges". The west elevation is said to be "generally good although again some granite cladding have chipped edges". Regarding the north elevation, the report says "No significant defects noted. Granite cladding have chipped edges". The east elevation was inspected through a telescope. Regarding this elevation, the report says "No major or significant defects observed. The fascia is generally good although there are slight leaching/water stains, and the granite cladding have chipped edges at various locations". The photographs taken by Mr Tang bear out what he says in his report.

83. In December 1989 and September 1990, it appears that some minor work was done on the cladding.

84. The minutes of meetings relating to the management of the building reveal nothing of significance, other than cleaning of the curtain wall.

85. It appears from documents from Harvest Interior & Contracting Co. that between 12 May 1992 and 26 May 1992, one panel was replaced, and about March 1993, another panel was replaced.

86. And then there is a letter dated 3 June 1993 from Bolton Construction Co. Ltd., referring to a site investigation on 20 May 1993, and saying that it would cost about $40 million to replace the granite or about $5.6 million to install anchor bolts and touch up.

87. On 11 June 1993, in an internal note by the property agents, Kevin Chung wrote to Kelly Lam saying "During the last year, two pieces of the external granite had cracked and had subsequently been replaced. The Bank is concern on the safety of the remainder of the external wall and I would therefore appreciate if you could arrange for an inspection and advise if the cladding is in good condition."

88. On 23 June 1993, Jones Lang Wootton, the Bank's property agent, said that some panels showed signs of compression cracking, that they believed that the problem might be due to "inadequate provision of supports at each floor level and a general lack of movement joints", that "From our cursory inspection, we did not notice any panel which might be classified as dangerous, and proposed a detailed inspection without delay.

89. On 6 July 1993, Mr Douglas Collins of the Palmer and Turner company and Kelly Lam met on the roof of the building. Mr Collins saw the defects, but it appears that he thought there was no "immediate emergency".

90. On 7 July 1993, the Palmer and Turner company wrote to Tsien Wui asking it to check and give an opinion on the reasons for the failure.

91. On 8 July 1993, those interested in New Henry House, an abutting building, wrote to the Bank saying that some tiles "are found loosen and displaced", and that "there is a possibility of more wall tiles falling ... which will jeopardize the safety of our maintenance staff". The Bank responded, saying that they were checking.

92. On 22 July 1993, CDC Ltd., a company commissioned by Tsien Wui, wrote to Tsien Wui saying that they recommended an "in-depth" inspection, but said that it was concerned about the condition of the backs of the granite.

93. On 19 August 1993, Jones Lang Wootton reported saying that they "estimated about 70% of the claddings at two columns were noted having problems" of misalignment, gaps and cracks. Jones Lang Wootton said they believed that the affected panels were under considerable compressive stress and were showing signs of movement. They thought that most of the panels would require replacement.

94. CDC reported to Tsien Wui on 7 October 1993. They said that the "most probable cause for the spalling ... is due to lack of movement capacity within the stone anchorage.... The concrete structure has shortened with time (long term creep), and instead of freely compressing caulk in the expansion joints, it has compressed and pried the stone via the split tail anchorage." They said that "The safest and structurally most advantageous solution to the problem would obviously be to replace the stone. There will always be the risk of further damage due to the inflexible anchors if it is not replaced." The report said it was possible to repair the existing stone, but it is clear to me that the suggestion is not regarded with enthusiasm.

The Assessment of this Evidence in Relation to the Significant Dates

95. Regarding the marks on the granite cladding in 1984 and 1985, I do not accept that any reasonable owner seeing these marks would have concluded that there were defects in the cladding justifying the calling in of an expert. To my eye, and that of Mr Kinnear, an expert who impressed me, these are nothing more than marks from which no inference would have been drawn.

96. In my view, the report of November 1989 would not have led any reasonable person to conclude that there was anything seriously wrong with the cladding. The impression given by the report is that the defects seen were unremarkable incidents of wear and tear over the years. I do not think that, on the basis of this examination, the defects so obvious that any reasonable person would have called in an expert. On the contrary, if this report had come to the attention of the Bank - and I accept the Bank should be treated as having knowledge of it because it came to the mind of its property agent - it would have been reassuring rather than alarming.

97. There is evidence that, in about March 1993, there was some cause for the Bank to believe that all was not well with the cladding. This is probably why Bolton Construction conducted a site investigation in May 1993. Outside the contemporaneous documents, this evidence, and, indeed, generally the oral evidence, is, understandably with the lapse of time, vague. The limitation point is a defence, and it is for the defendants to establish it.

98. In my view, assuming that the Bank should have been suspicious about the condition of the cladding in about March 1993, it acted with reasonable despatch in following up on its suspicion.

99. The evidence leads me to believe that it was not until about the middle of 1993 that the defects so obvious that any reasonable person would have called in an expert, and, having done so, would have been aware of defects and realised that a loss had been suffered. It is impossible to be precise about when, on this basis, it can be said that the cause of action accrued. It cannot be at the moment in time when the owner decides to call in the expert. There must be a reasonable time gap to enable the expert to examine the building and report his findings on the cause and extent of the defects. It is only then that it can be said that what is suspected is verified, and this "marks the moment when the market value of the building is depreciated, and therefore the moment when the economic loss occurs". This, in my judgment, must have been after 24 May 1993. So, in my view, the writs against Tsien Wui and Palmer and Turner were issued within three years of the cause of action accruing to the Bank.

100. On my findings, the actions were brought within the time allowed by both sections 4 and 31.

The Liability of Palmer and Turner

101. On my findings, and on the concessions made by Palmer and Turner, they are liable to the Bank.

Quantum

102. The Bank claims the costs of the work of a consultant in the sum of $93,265.35. This claim was not seriously contested by Tsien Wui or Palmer and Turner.

103. The Bank also claims the sum of $38,409,686.50 being the costs of the rectification works. In this respect, Tsien Wui says that the proper cost of the rectification works is $5,103,551.50. In their pleadings, Palmer and Turner took a different line. They simply denied the Bank's claim without putting a positive case. Palmer and Turner did not, however, support Tsien Wui's scheme of bolting the panels to the structure. Palmer and Turner do maintain that it is not necessary to replace all the panels. The problem with the attitude of Palmer and Turner is that, having advanced no positive case on what they say the remedial work should be, it has not been properly examined or costed.

104. I do not think that Tsien Wui's proposal for the remedial work is acceptable as a measure of damages suffered by the Bank. It is important to note here that I am proceeding on the basis of the Bank being entitled to recover its loss, not on the basis that the Bank was entitled recover only the cost of performing remedial work to remove a danger to the public. It may be that Tsien Wui's proposal would be acceptable if all the Bank were entitled to recover was the cost of putting the building into a condition that did not present a danger to the public or neighbours.

105. The Tsien Wui remedial scheme changed during the course of the trial as Tsien Wui sought to adapt it to meet objections raised. For example, the original scheme proposed was that holes made in the granite face would be made good with granite powder and epoxy resin. To meet allegations that this would be unsightly, the proposal changed so that the holes would be plugged with granite plugs, although, as I understood the scheme, even as amended, the spalls would still be repaired with powder and resin. Again, to meet the point that one would need something behind the panel to support it during the operation, the scheme was amended to include the injection of some building foam, and drill through this into the concrete. The scheme was also adapted to include provision for replacing defective panels, and a process by which such defective panels could be identified.

106. The scheme involved starting from the top of the building, cutting away the top fixings to relieve the stress on the panel, testing the panel for defects, boring two holes in the panels in two operations, injecting foam behind the panel, drilling into the concrete structure, fitting two new bolts, cutting away the remaining old fixings, further cutting away protrusions of the old fixings, drilling a further four holes in two operations, injecting foam through these holes, drilling a further four holes in the concrete structure, fitting four other bolts, plugging all the holes with matching granite plugs, cutting the panels to widen the expansion joints, adding additional stress relieving joints, and generally making good. If the drilling operation encountered reinforcing in the concrete, it would probably have been necessary to drill holes in other places at an appropriate distance away from the first holes.

107. I have to ask myself whether a remedial scheme of this nature would adequately compensate the Bank for its loss. The Bank was entitled to a building with a proper system of cladding. What it would have after the implementation of a remedial scheme of this nature would be what I can only describe as a patch-up job. I do not think this is satisfactory. And I do not think that a potential purchaser of the building would regard it as satisfactory. Would a potential purchaser, knowing all the facts, pay the same price for the building with this scheme in place as it would have done with the cladding as it should have been installed? I doubt it. In fact, I believe that such a purchaser would be so uneasy with what would have been done under the proposed remedial scheme that it might well shy away from acquiring the building at all. A purchaser might well think he was buying himself a package of potential trouble.

108. On this basis, I reject the Tsien Wui scheme. I also reject some, not clearly defined or explored, scheme "somewhere in between" proposed by Palmer and Turner. I think the only reasonably acceptable remedy for the Bank to adopt was the one it did adopt; that is, the complete job being done again as it should have been done in the first place.

109. Accordingly, I find that the Bank is entitled to damages against Palmer and Turner as claimed.

Result

110. In the result, the Bank's claim against Tsien Wui is dismissed. The Bank's claim based on tort against Palmer and Turner is upheld, and judgment is granted in favour of the Bank against Palmer and Turner as claimed. Tsien Wui's third party claim against Palmer and Turner is dismissed.

Costs

111. The matter of costs has not been argued. However, I will make orders nisi on the basis of how the matter appears to me at this stage in the hope that a further hearing can be avoided.

112. The Bank has failed in its claim against Tsien Wui. On this basis, the Bank should pay Tsien Wui's costs, save for any wasted costs involved in the adjournment during the trial because Tsien Wui's expert witnesses were not available. These wasted costs should be paid by Tsien Wui to the Bank. I make orders nisi accordingly.

113. The Bank has succeeded in its claim against Palmer and Turner. Here, on the basis that costs should follow the event, Palmer and Turner should pay the Bank's costs. I make an order nisi to this effect.

114. The third party proceedings by Tsien Wui against Palmer and Turner were, in the event, unnecessary. On the face of it, Tsien Wui should pay the costs of these third party proceedings. I make an order nisi accordingly.

Representation:

Mr John Scott, QC, instructed by Messrs Masons, for the plaintiff.

Mr Peter Clayton, instructed by Messrs Denton Hall, for the first defendant.

Mr Jonathan Harris, instructed by Messrs McKenna Minter Ellison, for second to fifth defendants and the third parties.