Hectic Interior Design Ltd t/a Jp Interior Design & Contracting v. Wong Ching Kai, Angus t/a Essence Industrial Co

DCCJ 5689/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5689 OF 2004

BETWEEN

Coram:  Deputy District Judge Anthony Chow in Court

Dates of Hearing:  20^th & 21^st June 2006

Date of Handing down Judgment:  30^th June 2006

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JUDGMENT

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1.This is a claim for balance of contract price by a contractor against one of its customer, the property owner.

2.The plaintiff alleged that all contract works, together with works under 2 variation orders have been completed and claims balance of contract price in the sum of HK$129,500.10.

3.The defendant alleged that the contract works were not completed and the defendant incurred HK$53,634.00 to finish the contract works. The defendant also paid HK$12,000.00 to conduct a survey report and the defendant counterclaims the sum of HK$65,634.00 against the plaintiff.

4.Originally, the counterclaim included loss of enjoyment due to delay, at the commencement of this trial, the defendant agreed to waive this item of counterclaim. On her closing submission, counsel for the defendant also agreed that HK$7,000.00 owed under the 2 variation orders is due and payable as well.

5.As to the counterclaim for HK$12,000.00 survey report, this report was clearly prepared for the purpose of litigation and properly should be part of the defendant’s costs and not claimed as an item of damages.

6.Accordingly, I only have to decide the plaintiff’s claim for outstanding contract fee in the sum of HK$122,500.10 and the counterclaim for remedial work in the sum of HK$53,634.00.

The agreed facts:

7.The parties entered in a contract for fitting out and decorate the defendant’s property at Flat A, 23/F., No. 1 Homantin Hill Road, Homantin, Kowloon (the “Property”).

8.The contract was revised twice to account for increased contract work and fees. The 3^rd contract was split up into two contracts, the design contract for HK$10,000.00 and the works contract for HK$700,000.00 (the “Works Contract”).

9.Full payment has been received for the design contract.

10.The Works Contract required 82.5% of the contract fees be paid on the date of contract, 12.5% of the contract fees be paid on completion date (“完工日”) and balance 5%, 30 days after completion date.

11.82.5% of the Works Contract fee had been paid by the defendant.

12.By a delay form dated 13/4/2004, the parties agreed to postpone completion date to 31/5/2004.

The Plaintiff’s case:

13.All works under the Works Contract was completed on 24/5/2004. Notice of project completion was issued on 24/5/2004. On 27/5/2004, the parties conducted a joint inspection of the Property and the plaintiff wrote down 16 items on a defects list. All defects, except the glass wall in the games room, had been remedied on or before 19/7/2004.

14.As to the glass wall, on the date of inspection it was fully installed, but Mr. Wong of the defendant was not satisfied with the quality and the plaintiff attempted to satisfy Mr. Wong by first, replacing 5 glass panels and when Mr. Wong was still not satisfied, all of the panels were replaced. Mr. Wong was still not satisfied and in or about June 2004, instructed the plaintiff to remove all of the installed panels.

15.Mr. Wong then suggested the plaintiff should get replacement glass panels from Wilson Glass Company, but Mr. Wong changed his mind after viewing samples provided by Wilson Glass. On or about 19/7/2004, Mr. Wong requested the plaintiff to order glass panels from Ozone Glass Design Hong Kong Limited, which used glass panels 8mm thick, 2 mm thicker then the glass panel stated on the Works Contract. Ozone’s price to supply the material was HK$18,000.00, when the price for the glass panel, including both installation and material on the Works Contract was HK$18,600.00 only. 

16.On or about 16/7/2004, the plaintiff received the defendant’s solicitors’ letter requiring completion of all works on or before 22/7/2004. As all remedial work had been completed and the glass panels were removed only at the unreasonable request of Mr. Wong, the plaintiff considered all of their obligation under the Works Contract completed and on or about 19/7/2004, issued a second notice of project completion to the defendant.

The defendant’s case:

17.The Works Contract specified that 12.5% of the contract fee was due “於完工日”, meaning on completion date, but the works were never completed. There were 16 items listed on the defects list dated 27/5/2004, the plaintiff had never completed the required remedial work and therefore not entitle to claim the balance of contract fees.

18.The plaintiff admitted there were defects in the glass wall and duly noted the same on the defects list, however, the plaintiff was unable to fix the defects, even after replacing all of the glass panels. It was up to the plaintiff to resolve their problem. It was the plaintiff who suggested trying Wilson Glass Company, but the plaintiff’s designer could not accept samples provided by Wilson. Mr. Wong of the defendant then suggested trying Ozone Glass Design Hong Kong Limited. The defendant had no idea about the different thickness between the plaintiff’s original design and Ozone’s new design. Additionally, the plaintiff’s own surveyor noted there were other defects that the plaintiff failed to complete.

19.So far as the defendant is concerned, there were problems with the works and the plaintiff is responsible to remedy those problems. The plaintiff failed to do so, the Works Contract was not completed and the plaintiff is not entitled to its claim.

20.The defendant paid HK$22,418.00 for supply of glass panels and HK$18,800.00 for labour to install them. The defendant also spent HK$12,416.00 to repaint the whole house and to remedy all of the other incomplete items on the defects list.

The issues:

21.Counsel for both parties agree the issues at trial are:

(a) Whether the plaintiff has failed to complete the works as the defendant alleged?

(b) If, yes, whether the defendant is entitled not to pay the remaining balance under the Works Contract in full?

(c) Also, if the answer to (a) is yes, did the defendant engaged other contractors to conduct the remedial works?

(d) If yes to (c), should the plaintiff liable for those expenses?

Findings:

22.I think it is more convenient to deal with the issues in two groups. As to the first two issues, completion has many meanings. Here we are dealing with fitting out and decoration works, which by its nature involves numerous material suppliers and trades. Defects in either material or workmanship are bound to happen, and therefore the construction trade evolved a concept called practical completion.

23.Practical completion is really just another name for the legal concept of substantial completion. Substantial completion has its roots in Boone v Eyre (1 Hy. Bl. 273), where Lord Mansfield C.J. stated:

“… where mutual covenants go to the whole of the consideration on both sides, they are mutual conditions, the one precedent to the other. But where they go only to a part, where a breach may be paid for in damages, there the defendant has a remedy on his covenant, and shall not plead it as a condition precedent”.

24.In Hoenig v. Isaacs [1952] 2 All E.R. 176, a case where an interior decorator and designer of furniture was employed by the defendant to decorate and furnish the defendant’s flat for a sum of GBP750, on terms of ‘net cash, as the work proceeds, and balance on completion’. The defendant paid GBP400 by installments, occupied the flat, and used the furniture, but refused to pay the balance on the grounds that certain work done and articles of furniture supplied were defective. The English Court of Appeal applied the principle of substantial completion. The head note perhaps summarized the concept best. It reads:

“Held: (i) in an action on a contract for work and labour and articles supplied for a lump sum payable on completion the defendant cannot repudiate liability on the ground that the work, though substantially performed, is in some respect not in accordance with the contract, and, therefore, the defendant was liable for the balance sued for, less a deduction based on the costs of making good the defects or omissions proved.”

25.What is substantial completion in building contracts? In Keating on Building Contracts, 7^th Edition, para. 4-12, the learned author stated:

“ One test to be applied is whether the work was ‘finished’ or ‘done’ in the ordinary sense, even though part of it is defective. And ‘it is relevant to take into account both the nature of the defects and the proportion between the costs of rectifying them and the contract price’.”

26.Here, we have a lump sum contract, involving work and labour and articles supplied. As at 27/5/2004, there were 16 defects that required remedy. Most of these items involved cleaning, patching and other sundry matters. The only significant item was the glass wall; but even this was completed and only required cleaning of excess sealant and replacing several pieces of glass panels. Whilst there is no evidence how much is required to complete the defects, it cannot be substantial.

27.The plaintiff’s expert report gave a price of HK$21,800.00 for all defects noted on the inspection dated 23/8/2004, including replacing all of the glass panels. But on 27/5/2004, only a few glass panels had to be replaced. The costs cannot be more than a few thousand dollars. When compared with the total contract price of HK$700,000.00, the defects were only a small percentage of the total works.

28.Miss Wong, counsel for the defendant, argued that I should not look only at the costs of remedying the defects against the total contract price, but I should look at the purpose of the contract. Because of the defects, specially the incomplete glass wall, Mr. Wong and his family was prevented from moving into the Property. I do not agree. All of the defects were minor in nature, a few panels may have to be replaced but the glass wall was complete. Only minor remedial work was needed, the Property was capable of being occupied. Mr. Wong may, for one reason or the other, decided not to move into it, but the defects did not prevent occupation of the Property.

29.Having considered the evidence as a whole, I find as a matter of fact that on 27/5/2004, in the ordinary sense, the Works Contract was ‘done’, it was ‘finished’, subject only to remedial works on minor defects. The plaintiff should succeed in the claim, subject to the defendant’s counterclaim.

30.Now I come to the third and fourth issues. Even the plaintiff’s own expert found defects on 23/8/2004, clearly the plaintiff failed to complete all of the remedial work required and the defendant did engage other contractors to complete the defects. The plaintiff’s allegation that there was tempering of the Property between late July 2004, the last day the plaintiff did work on the Property, and the inspection date was preposterous. There was no evidence in support of this allegation and it was nothing more than mere speculation.

31.As to the glass wall, although the wall was substantially completed on 27/5/2004, subject only to replacing a few panels, but the plaintiff did not restrict its remedial work to just replacing the panels. The plaintiff later replaced all of the glass panels and when the replacement did not meet with Mr. Wong’s approval, it then removed the whole of the glass wall. The plaintiff argued it did so on Mr. Wong’s instruction; however, unless the plaintiff agreed with Mr. Wong that the replacement glass wall was of unacceptable quality or workmanship, there was no reason to remove the whole wall. I find the plaintiff’s action in removing the whole glass wall, clearly demonstrated its agreement that the replacement glass panels were substandard.

32.The plaintiff was then faced with a situation where its remedial work had increased the defects. It is undisputed that the plaintiff had a contractual duty to remedy all defects, including the glass wall, but instead of installing a new glass wall, on 19/7/2004 the plaintiff issued a second notice of completion. This notice clearly indicated to the defendant that the plaintiff would not do any further remedial work. The plaintiff was in breach and the defendant was then entitled to accept that breach and find other contractors to complete the remedial work. The defendant should succeed in its counterclaim.

33.Now I come to quantum of the counterclaim. The plaintiff argued it was not fair for the plaintiff to be liable to the replacement costs of the glass wall because the original design only required 6mm thick glass panels, when the replacement glass wall used 8mm thick panels and at a cost substantially higher then the contract price for the glass wall.

34.Whether the glass panel was designed to be 6 mm or 8 mm thick is a red herring. The issue is not whether the replacement glass wall obtained by the defendant was of the same exact quality as in the contract, but what is the proper measurement of damages.

35.In McGregor on Damages, 15^th Edition para. 1086, when a builder failed to build at all or in part, the learned author stated: “The normal measure of damages is the cost to the owner of completing the building in a reasonable manner less the contract price, …”. 

36.Here, the proper measurement of damages should be an amount necessary for the defendant to build a glass wall to a reasonably acceptable standard. The plaintiff has failed twice to complete the glass wall to a reasonable standard using its own supplier and workmen. Clearly the plaintiff had underestimated the requirement of material or the difficulty in installing the glass panels. It would be unreasonable to restrict the defendant’s damages to the price charged by the plaintiff.

37.The proper measurement of damages should be the costs of completing the glass wall up to a reasonably acceptable standard. The plaintiff has no evidence that the sums charged by the defendant’s supplier and installer were unreasonable, I therefore find the defendant should recover HK$41,218.00 as damages for the plaintiff’s breach to complete the glass wall.

38.As to repainting the whole house, there was no defect that required repainting the whole house. There was only one item in respect to painting on the defects list dated 27/5/2004: uneven wall painting under the TV cabinet. The same was noted in the defendant’s survey report. The cost of repainting one area under the TV cabinet is a far cry from repainting the whole house. The defendant cannot recover this part of its counterclaim.

39.As to the sundry items claimed by the defendant, the plaintiff’s counsel questioned the authenticity of the receipts submitted by the defendant; however, the plaintiff’s own expert opined that it would costs HK$21,800.00 to remedy all of the defects he observed on the inspection date. When I deducted HK$18,600.00 for the glass wall, the plaintiff’s own expert valued the remedial work at HK$3,200.00. Since the defendant’s expert did not include an estimate for the remedial costs in his report, I am left with only one figure: the defendant should recover HK$3,200.00 as damages for all other defects.

40.Order:

(1) Judgment for the plaintiff on the claim in the sum of HK$129,500.10.

(2) Judgment for the defendant on the counterclaim in the sum of HK$44,418.00.

(3) Costs of the claim be to the plaintiff and costs of the counterclaim be to the defendant, to be taxed if not agreed, with Certificate for Counsel.      

(4) Interest for both the claim and counterclaim in accordance with section 50 of the District Court Ordinance.

Mr. Tommy Wong, instructed by M/s Huen & Partners for the Plaintiff.

Miss Becky B.Y. Wong, instructed by M/s Kenneth C.C. Man & Co. for the Defendant.