Orient Trading House (A Firm) and Another v. Kat Tak Investment Co Ltd and Another

HCA004303/1979

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION No. 4303 of 1979

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Coram: Mr Commissioner Litton Q.C. in Court

Date of Judgment: 2nd July, 1980.

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JUDGMENT

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1. The Defendant, Kat Tak Investment Co. Ltd., is the owner of Cheong Tak Commercial Building which stands at the corner of Lyndhurst Terrace and Pottinger Street in the Central District of Hong Kong. The 1st Plaintiff, Orient Trading House, is a firm engaged in the business of importing and exporting oriental rugs; the partners are Mr Dahir Rashid Mir (Mr. Mir) and his wife. The 2nd Plaintiff, Mir Persian Carpets, formed in July 1979, is engaged in the retail business; the partners in the 2nd Plaintiff firm are Mr Mir and his brother. The brother resides overseas, so effectively Mr Mir is in sole control of the operations of the two Plaintiff firms.

2. Mr Mir has been in the carpet business for about twelve years importing, exporting and retailing. In May 1979 he was looking for premises for his business and he found Cheong Tak Commercial Building, the construction of which was then nearing completion. The occupation permit was issued in the same month. He inspected the ground, first, second and third floors of the building in the presence of a representative of the Defendant company. He expressed interest in the shop units on the ground floor but these were too expensive, so he decided to take rooms 101-2 on the first floor. It was clear from the beginning that Mr Mir was going to conduct a retail business in the premises.

3. There was some discussion between Mr Mir and the Defendant's representative about putting up a signboard in the window space overlooking the street. Mr Mir said in evidence that this was at first agreed to by the Defendant's representative and later on the Defendant company changed its mind. This was a live issue between the parties at the beginning of the trial because the Defendant was then counterclaiming against the 1st Plaintiff on the ground that the 1st Plaintiff was in breach of the terms of the tenancy agreement for using the premises as a retail shop; but the counterclaim was abandoned by counsel for the Defendant in the afternoon of the first day of trial, and I therefore need to say no more about the discussion between Mr Mir and the Defendant's representative except to find, as I do, that from the start it was within the contemplation of the parties that a quantity of rugs and carpets would be stored in rooms 101-2.

4. The tenancy agreement was signed on 1st June 1979. The premises were then not ready for occupation. Construction work on the building was completed but work was still going on in relation to the central air-conditioning plant.

5. I will now attempt to describe the air-conditioning plant installed in Cheong Tak Commercial Building. This plant, and in particular the cooling pipes, is central to the issues in this case. The main unit is located on the roof of the building. The building is sixteen storeys high. Two pipes conducting chilled water lead from the roof down the flank of the building where it abuts a rear lane and enter the building at room 101. The pipes are covered with a thick layer of polystyrene; the joints in the polystyrene are sealed with pitch. The two pipes are held in place to the exterior wall by means of iron brackets attached to the beams at each floor. The brackets are spaced approximately 20' apart. Wooden collars hold the pipes in place inside the iron brackets; these collars act both as insulation and also as shock-absorbers. The entire length of the pipes is covered with cement plastering. The cement plastering serves three purposes :

6. The system is designed in such a way that the chilled water is conveyed at 45^oF. Insulation thus becomes important because of the considerable difference between the inside temperature of the pipes and the ambient temperature during normal summer conditions. Without adequate insulation, water would condense on the pipes. At the point where the pipes enter the building, that is, through room 101, there is an aperture 12" x 6" in the external wall. As the diameter of the pipes together with the polystyrene is 5" each, there is space between the pipes and the wall. Once the pipes have entered room 101, there is no cement plastering over the polystyrene. The pipes branch to different parts of the building.

7. In the contract between the Defendant and the Third Party, the responsibility for cement plastering of the pipes, including cement plastering of the aperture where the pipes enter the building, is assumed by the Defendant.

8. Although the pipes pass through the Plaintiffs' premises, they are clearly not part of the fixtures let to the Plaintiffs under the tenancy agreement, nor has this been suggested by counsel for the Defendant. The pipes form part of the central air-conditioning system for the entire building and of the installations such as the main electricity supply cables and the main drains which serve equally all the occupants of the building.

9. Mr Mir took possession of the premises on about the 15th June 1979; the decoration work was not finished until 3rd July 1979. During part of this period the Third Party - I will refer to them as International Engineering -had workmen in the premises working on the air-conditioning installations. Mr Mir had false ceilings installed and a plywood box cover erected. These effectively hid the cooling pipes within his premises from view.

10. On 3rd July in the evening, Mr Mir moved his stock of carpets into the premises. He had altogether three truck-loads. Trouble arose between the parties in relation to the third truck-load because it was then past 8.30 p.m. and the watchman would not allow the goods in. Furthermore, two of the Plaintiff's employees were locked inside the building. Eventually the police was called. Nothing turns on this incident in the present case except that from the facts which I have just outlined, it must have been apparent to the Defendant that the Plaintiffs had a considerable number of carpets stored in room 101.

11. On 6th July 1979 Mr Mir found that water had leaked into the premises from behind the wooden panelling and made three of his carpets wet. He told the management of the building. The Defendant's employees came and removed the wooden panelling. The wall behind and underneath the pipes where they led through the wall to the outside was wet, and water was coming on to the floor.

12. I come now to 30th July 1979 and to the events which directly give rise to the claim of this case. Mr Mir returned to the office at about ten o'clock in the morning. It was a Monday. He found the corner of the premises where the pipes are located flooded. There were about fifty carpets in that area; some were rolled up, others piled on top of each other. Ten were completely soaked. Altogether forty-six carpets got wet and stained to varying degrees.

13. Mr Mir immediately complained to the management of the building and at the same time he wrote a letter, Exhibit L(1), telling the Defendants that he had appointed a surveyor to inspect the damaged goods and suggested that they send their own.

14. The Plaintiffs' surveyors were a firm called Wood and Browne and the person who attended the Plaintiff's premises was a Captain Cauvin who made a report, Exhibit A. Captain Cauvin was not available to give evidence at the trial. Captain Cauvin in his report states at page 2 that the Defendant's workmen removed the plywood casing surrounding the air-conditioning pipes in his presence. He found the plaster in the area of the cooling pipes damp, rust stained and loose, i.e. not adhering to the concrete of the wall. This is consistent with the evidence of Mr Mir. Captain Cauvin and the Defendant's workmen tried to discover the cause of the leakage; the loose plaster was removed to expose the concrete; part of the concrete behind and underneath the pipes was wet.

15. I pause here to remark on the suggestion put in cross-examination by Mr Barretto, counsel for the Defendant, to the effect that the Plaintiffs might have left a window open over the weekend of the 28th and 29th July, thus resulting in the flooding. I do not know the basis for this line of questioning. There was no suggestion in the course of the evidence that any of the carpets got wet from the top;. it was common ground that the parties tried to ascertain the cause of the flooding by opening up the plywood casing of the cooling pipes; it is not in dispute that remedial work was done on the 4th, 5th and 6th of August in the premises. In these circumstances, Mr Barretto's questions put in cross-examination were somewhat surprising.

16. Pausing here to consider the issues as between the Plaintiffs and the Defendant, the position is simply this : on 6th July, the Defendant company knew that the water-proofing of the external wall around the two pipes was defective. As to what steps were taken, if any, to ascertain why rainwater found its way into room 101, as to what precisely was done to remedy the situation and prevent the same thing happening again, these are matters peculiarly within the knowledge of the Defendant company. All that Mr Mir could say in evidence was that he saw a man working on the outside wall sealing the area around the pipes with cement sometime after the 6th July.

17. The Defendant called as their only witness one Cheung Kwong-wing, a young technician employed by them since May 1979. I did not find Mr Cheung an impressive or reliable witness. Mr Cheung was put forward as an expert witness. Quite obviously he has none of the qualifications which would have given his expressions of opinion, as opposed to his observations, any particular validity, especially on matters which fall on me to decide. It is not clear from his evidence whether on 30th July he was merely there as an observer when the "Carrier" people, (meaning the representatives of International Engineering), arrived at the premises or whether he himself was doing some work. His duties for the Defendant are rather humble: he cleans and changes the fan-coil filters of the air-conditioning system and does a bit of repair work to the lights. If anything goes wrong with the air-conditioning, he calls the "Carrier" people.

18. He suggested in evidence-in-chief that on 30th July water was seen to have accumulated in the insulating material around the valves in the horizontal pipes near the ceiling of room 101. As to what relevance that may have to the issues in this case, I have no idea. No one has suggested that water was leaking from those pipes or that the false ceiling underneath those pipes was wet. Possibly Mr Cheung was confusing that observation with another occasion on 7th September 1979 which has nothing to do with the matters in issue in this case.

19. Another piece of evidence given by Mr Cheung is this. He said that on 4th August he inspected the fittings for the pipes on the outside wall; he found that the cement plaster covering one of the iron brackets was cracked. The tenor of his evidence was that, in his opinion, the water found on the floor of room 101 on the 30th July was a result of two matters :

I should add here that when he was asked by counsel for the Defendant to express his opinion, objection was taken by Mr Lee on the ground that his expertise had not been established, an objection which I upheld.

20. In the course of Mr Cheung's evidence-in-chief, counsel for the Defendant attempted to adduce in evidence what he called a "Report" made by Mr Cheung purporting to summarise on two typewritten sheets various complaints made by tenants of the building. The complaints relate to the air-conditioning plant and span the period 21st June 1979 to 25th April 1980. Objection was taken by Mr Lee, counsel for the Third Party. It transpired that the matters in the so-called "Report" were extracted from a diary kept by Mr Cheung. The diary was never disclosed on discovery by the Defendant, as it quite clearly should have been.

21. The diary was put in evidence, Exhibit D6. As statements against the interests of the maker and the party he represents, the diary entries are clearly admissible in evidence; as evidence in support of the Defendant's case, those entries are self-serving and can be used only for the purpose of refreshing the recollection of the maker. The maker, Mr Cheung, was never asked to refresh his recollection by reference to the diary. I am not surprised.

22. In his examination-in-chief, in relation to 30th July, Mr Cheung talked about discovering water in the insulation around the valve in the horizontal pipe, about drips of water from the cooling pipe in the bathroom on the ground floor, about a crack in the cement plastering outside, but he never referred to water leaking into room 101 through the aperture in the wall. When he was asked in-chief about the state of the wall on 30th July, he said - I quote :

"The wall was dry but some joining points in the insulation coating on the pipe was wet. I pressed my hand on the points, water dripped."

His diary entries tell a different story. On page 38 of the diary, there is an entry which verbally translated in court reads thus :

"Water entered Room 101 ... same situation as on 6th July, but repair work as done on 7th July and up to 28th July, no leakage. As there was no heavy rain, therefore no leakage. Night of 29th July rained heavily, therefore rain water inside the room. 4.30 p.m. wood panelling removed for inspection. Plastering of wall peeling off and there was water stain. Water leakage at hole surrounding inlet pipe."

The diary entries are consistent with the evidence given by Mr Mir and by Mr Lee Ping-keun, the sales supervisor of the Third Party. Both Mr Mir and Mr Lee impressed me as fair and reliable witnesses. Mr Lee became involved only on the 30th July, but to give consistency to the story I have to go back to 6th July. To avoid making this judgment too lengthy, I will summarise my findings :

23. I should add that without the diary entries, my findings would have been the same; with the diary entries, the evidence became conclusive.

24. The fact that the diary was not disclosed on discovery reflects ill on those responsible for the preparation of the Defendant's case. There were at least three people involved with management in the Defendant company who were concerned with investigating the cause of the water leaking into room 101. They were a Mr Lam, the site superintendent, a Mr Fok and the managing director himself who spoke at least on one occasion with Mr Lee about injecting water-proofing material into the wall to prevent water leaking into room 101. One or other of them must have known about the diary. Mr Cheung never suggested that he made those entries, all fifty-two pages of them, purely for his own consumption. Yet the diary was never disclosed on discovery. Mr Cheung had no responsibility for the management of the building nor for the water-proofing of the building, but he was the sole witness put up by the Defendant company in an attempt to persuade the court that the leakage of water into room 101 was from some cause other than the defects in the external wall.

25. Exhibit D4, the so-called Report, was prepared in an attempt to discredit the Third Party by suggesting that the entire air-conditioning system was unmerchantable and unfit for its particular purpose; an attempt which wholly failed.

26. To come back to the facts of the case, it is obviously impossible to determine the exact quantity of water which entered room 101. Captain Cauvin, in Exhibit A, thought it might have been about twelve gallons, I mention the quantity for this reason: it was suggested in the evidence of Mr Cheung and in Mr Barretto's cross-examination of Mr Lee that condensation from the chilled water pipes might have been the cause of the damage or at least a contributing factor. The suggestion, in my judgment, is untenable. The air-conditioning plant was idle throughout Sunday, 29th July, and was only switched on at 8.30 a.m. The flooding was discovered at about 10 a.m. Quite apart from the fact that no defect was discovered in the insulation of the chilled water pipes which would itself virtually eliminate the suggestion of condensation, the amount of water in the premises was quite inconsistent with that suggestion. Such condensation as there was could only have occurred between 8.30 a.m. and 10 a.m.

27. Another matter I should mention is this : Mr Cheung claims to have discovered a crack in the cement plaster covering the pipes on 4th August. As to how long or wide the crack was, and whether it penetrated to the polystyrene underneath, I have no idea. In my judgment, such crack as there might have been was only a minor cause of the leakage; it cannot detract from the main cause which was the defect in the sealing of the aperture in the wall.

28. In any case, as between the Defendant and the Third Party, the responsibility for cement plastering to protect the polystyrene insulation of the pipes and to fill the aperture in the wall with cement plaster fell on the Defendant. This is clear from Exhibit D7. If there was some defect in the cement plaster work, whether on the pipes or within the aperture, that cannot be the responsibility of International Engineering, the Third Party.

29. As to the question why, if it was rain water which came through the wall, it did not continue to do so on Monday, 30th July, when it continued to rain, the answer lies, I think, in the position of the cooling pipes vis-a-vis the adjoining building. The building next door is six storeys high. The aperture in the wall with which we are concerned is on the first floor of Cheong Tak Commercial Building. The lane is only five feet wide. Accordingly the place where the pipes led into the building is relatively sheltered. The incursion of water depended, to a large extent, on the direction of the wind and the way the rain came slashing down.

30. From the findings I have made above, I will now attempt to attribute legal responsibility as between the three parties. I should add here that although the order of the Registrar dated the 14th May 1980 was for the question of liability between the Third Party and the Defendant to be tried after the trial of the main action, counsel before me very sensibly agreed that the issues should all be tried at the same time. This has undoubtedly resulted in a saving of time and costs.

31. I deal firstly with the landlord's responsibility in Common Law. The Defendant company is not an insurer of the safety of the Plaintiffs or their goods. Inevitably, in a sixteen storeyed commercial building, with all its pipes, drains, conduits and building services of various kinds, things will from time to time go wrong. It does not mean that every time something goes wrong the landlord is responsible. Defect is not synonymous with fault. The 1st Plaintiff is the tenant of a small unit, 964 square feet, and has exclusive possession of that unit: rooms 101-2. No more. The Defendant company retains control of the rest of the building and this must include the external walls. It is on the external wall that the chilled water pipes serving the entire building are mounted. Together with the water inside, the pipes weigh about a thousand pounds. The maintenance of the insulated pipes, the cement-plaster casing for the pipes, the wall-mounted brackets holding the pipes - all these must be the responsibility of the Defendant. The Defendant must exercise reasonable care to see that the installations are maintained in a reasonably good condition. If damage resulted to a tenant from breach of this duty of care, the Defendant is liable. This is a duty imposed by the courts arising out of the relationship of landlord and tenant. In my judgment, the same duty applies in relation to the sealing of the aperture in the wall where the pipes enter the buildings.

32. In paragraph 17 of the Defence, the Defendant company says that the Plaintiffs knew, by the matters pleaded in paragraph 6 of the Statement of Claim, that there might be a recurrence of the matters complained of, that is, rain water escaping into the premises through the aperture in the back concrete wall and therefore should have "taken all reasonable precautions to safeguard his property". Mr Barretto, counsel for the Defendant, has not suggested that those "precautions" included taking on the responsibility of sealing the aperture properly. This concession was, in my judgment, well founded.

33. To test the point, let us see what happened after the 30th July. A firm called Inter-Pacific Salvage Company was engaged by the Defendant to do the work. It was decided to inject a chemical compound into the aperture. The compound was incompatible with the polystyrene insulation of the chilled water pipes, so the polystyrene had to be stripped off and cork was substituted. Such a procedure would clearly be outside the scope of the tenant's duties; it included a substantial interference with the air-conditioning installation and if the tenant had done that, the landlord could reasonably have complained.

34. I next consider whether the landlord was in breach of his Common Law duty. The substantial question in my mind is whether, after the 6th July, the Defendant company should have taken more steps than they did to determine the cause of the leakage and to take steps to remedy the defects thereafter.

35. Prior to 6th July, the Defendant company had no reason to know that the sealing of the aperture was badly done. It was done, presumably, by the general contractor responsible for the construction of the building. If Mr Mir had sued the Defendant company for damages arising out of the incident on 6th July, he would have been met with the defence that the responsibility for the construction and maintenance of the building, including the external wall, was entrusted to a reputable firm of contractors and the Defendant had no reason to believe hat the sealing of the external wall was badly done. This, if established, would have been in my judgment, a complete defence. Generally, a tenant takes the premises as they are, and cannot complain that the building should have been constructed differently.

36. Is the position different then on 30th July? The difficulty in answering the question is this. No evidence has been adduced as to what steps were taken by the Defendant company after the 6th July. Mr Cheung's diary (page 38) refers to repair work on 7th July, but when he was asked by counsel for the Third Party what that was, he replied :

"Our company assigned someone in doing the work. I don't know what work."

That was the only evidence coming from the Defendant company as to the steps taken. In my judgment this is simply not good enough. If they had engaged competent contractors to examine the problem, to prescribe the remedy and to carry out the remedial work, and the contractors had let them down, they could easily have said so in evidence. I infer from the absence of evidence that they did not do so. In my judgment the Defendant company is in breach of its Common Law duty to the 1st Plaintiff as between landlord and tenant in relation to the repair and maintenance of the wall.

37. I next consider whether the landlord is in breach of Clause 3(b) of the Tenancy Agreement. Clause 3(b) requires the Defendant company (inter alia) :

"To amend and repair such defects in the .... main drain pipes main walls and exterior window frames of the Building ... as the Landlord shall discover or as the Tenant or other authorised person or Authority shall by notice in writing bring to the attention of the Landlord and to maintain the same in a proper state of repair and condition at the cost of the Landlord ..."

It follows from what I have said above that the Defendant company was clearly in breach of this provision in the tenancy agreement. The absence of a written notice has been pleaded in the Defence but Mr Barretto has not sought to maintain that point of defence; quite rightly so. As the landlord admittedly knew of the defect on the 6th July and sought to remedy it on the 7th July, the point was clearly not viable.

38. I turn now to consider the issues as between the Defendant company and the Third Party. The allegations of the Defendant company against International Engineering are stated in obscure terms. A consent order was made on 3rd April 1980 that the Third Party Notice dated the 18th October 1979 should stand as the Statement of Claim for the Defendant in the Third Party issue. The allegation in the Third Party Notice is that International Engineering was in breach of the warranty in the sale of the said plant to the Defendant that the said plant was of merchantable quality and of the warranty that the said plant would be fit for the particular purpose of the Defendant. The "said plant" in the Third Party Notice is the air-conditioning plant at the Plaintiffs' premises at rooms 101-2, Nos. 2-10 Lyndhurst Terrace as appears from the Writ of Summons.

39. Mr Barretto, during the discussion on the admissibility of Exhibit D4, stated however that the Defendant's complaint related not merely to the installation in rooms 101-2 but to the entire system. The installation in rooms 101-2 was, he said, an integral part of the whole.

40. The Defendant company did not, however, attempt to make good this serious charge against International Engineering beyond putting forward the "Report", Exhibit D4. As a piece of evidence suggesting that the entire air-conditioning system was defective (which was the basis on which the "Report", Exhibit D4, was adduced in evidence by Mr Barretto), its probative value was nil. Mr Lee Ping-keun, the international Engineering sales representative, was responsible for the installation of the air-conditioning system in the building. Mr Lee was called as a witness by the Third Party. The only matter put to Mr Lee in cross-examination by counsel for the Defendant was that the insulation of the pipes in room 101 was allegedly defective; not that the whole system was defective. There was also some suggestion that vibration of the cooling pipes might have cracked the cement plastering on the outside wall. Not a scrap of evidence was adduced to say that there was excessive vibration or indeed any vibration. Furthermore, the contract between the Defendant and the Third Party, Exhibit D8, called for the refund of retention money three months after the testing of the equipment. The whole of the retention money has been released by the Defendant company. As the fan-coil units were still being installed in the various rooms in the building in the month of June 1979 as they were progressively let to tenants, I presume that the repayment of the retention money must have been after the 30th July 1979.

41. In my judgment the allegations of the Defendant company against International Engineering are misconceived. The contract, Exhibit D8, under the heading "Owner's Provisions", clause 5, clearly placed the responsibility for "cement plastering for chilled water piping at open area" on the Defendant. The reason why water entered room 101 on the 30th July was because the cement plastering was defective. This was known to the Defendant company. That is why they engaged Inter-Pacific Salvage Company to remedy the defect on the weekend of 4th, 5th and 6th August by injecting a sealant into the aperture in the back wall. It is true that in paragraph 7 of the Statement of Claim the Plaintiffs pleaded in relation to 30th July the water had escaped into the premises "this time through leakages from the air-conditioning cooling pipes", but this could not have misled the Defendant since they were perfectly aware at all times what the problem was. They knew far better than Mr Mir could have done.

42. I now consider the question of damages.

There will therefore be judgment for the Plaintiffs as follows:

General Damages $24,500 plus $10,000 making the sum of $34,500; Special Damages $3,600, making a total of $38,100. As to interest, as all the special damage was incurred prior to the issue of the writ on the 1st of October 1979, there will be interest on the sum of $38,100 at the rate of 10% from the date of the writ until today's date.

43. The claim of the Defendant against the Third Party will be dismissed.

44. There will be an order that the Defendant pays the cost of the Plaintiffs in this action including the costs incurred on the counterclaim, and the Defendant will also be ordered to pay the costs of the Third Party in these proceedings; and I further order that the sum of $25,000 now in court be paid out to the Plaintiffs or their solicitors.

Representation:

Mohan Bharwaney, instructed by (H.A. Hoosenally & Co.) for the Plaintiffs

R. Barretto, instructed by (Philip K.H. Wong & Co.) for the Defendant

Sammy Lee, instructed by (Lo & Lo) for the Third Party