Aldo Trading Ltd v. Partner Decoration Engineering Ltd
Read the full judgment text of HCA 1199/2005 on BabelCite. This High Court CFI judgment was delivered on 13 December 2007.
1. 98, Repulse Bay Road (“98 RBR”) was built in 1940. In 1960, half of it was purchased by the 2 nd defendant in the counterclaim, Mr Charlie Lee Chun Kee (“Mr Lee”). It was, and has been since, divided into flats. Originally there were six flats, two on each of the three floors. At the time of these proceedings however there were seven flats. A basement area had, at some time, been converted into a small 7 th flat.
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HCA1199/2005 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1199 OF 2005 -------------------------- BETWEEN
------------------------- (By Original Action) AND BETWEEN
------------------------- (By Counterclaim) Before : Hon Burrell J in Chambers Dates of Hearing : 19 November – 3 December 2007 Date of Judgment : 13 December 2007 ----------------------- J U D G M E N T ----------------------- 1.98, Repulse Bay Road (“98 RBR”) was built in 1940. In 1960, half of it was purchased by the 2nd defendant in the counterclaim, Mr Charlie Lee Chun Kee (“Mr Lee”). It was, and has been since, divided into flats. Originally there were six flats, two on each of the three floors. At the time of these proceedings however there were seven flats. A basement area had, at some time, been converted into a small 7th flat. 2.By 2003, Mr Lee’s property had become badly dilapidated. The flats had been regularly leased over the years but they were in need of extensive repairs and renovation. After a thorough upgrading, the potential gross monthly rental income from the seven flats would not be far short of the total sum he paid for his half of the building in 1960. 3.The plaintiff (“Aldo”) is a BVI company owned by Mr Lee’s family. Mr Lee assigned the ownership of 98 RBR to Aldo on 15 September 2003. 4.Several contractors were engaged to undertake the various aspects of the renovation works. The defendant (“Partner”) was one of them. It was engaged to carry out various works, two of which form the subject matter of this litigation. The two aspects of Partner’s work, upon which they have been sued by Aldo, are the installation of wooden strip flooring in each flat and waterproofing work to a number of roof areas. 5.The various team members of the renovation project were as follows. Mr Lee engaged Mr Tony Chan of Fairview Project Consultants (“Fairview”) as his consultant, his designer and his architect. Tony Chan subsequently, on Mr Lee’s behalf, engaged Partner as one of the several contractors. Two other key members of the project team were two of Mr Lee’s employees, Mr Ma Chi Man (“Mr Ma”), the project manager and Ms Irene Chiu (“Ms Chiu”) who was his personal assistant. Ms Chiu stood in Mr Lee’s shoes as far as the project was concerned. She had overall authority and responsibility to oversee and supervise matters. Preliminary Issue 6.A preliminary issue, enthusiastically pursued by Partner, concerns the true identity of the contracting parties. 7.Partner points out that it was invited to quote for the work on 8 August 2003 when the owner of the building was Mr Lee. Its quote (subsequently accepted) is dated 24 September 2003. Mr Lee had assigned the building to Aldo on 15 September 2003. However, neither Tony Chan of Fairview nor Mr Sit Wai Lun (“Mr Sit”, the owner of Partner) would have been aware of this. Fairview’s design drawings were submitted to Mr Lee; Partner’s invoices (except the final one) were paid by Mr Lee and correspondence was addressed to Mr Lee. 8.It is Partner’s case that Mr Lee was its employer. If so, Aldo has no locus standi and cannot sue Partner. Equally, if Partner’s counterclaim (for unpaid work and materials) is successful, it is submitted that the judgment should be entered against Mr Lee (D2 in counterclaim) and not Aldo (D1). 9.I have decided that it would be more logical to address this issue at the end of the judgment, not at the beginning. The real issues in this case are whether or not Partner carried out its work in a good and workmanlike manner and not defectively. If they did, the claim against them fails and it becomes academic by whom they have been sued. I will therefore consider the merits of the claim against them first of all. The contract 10.The only documents upon which the court can safely rely to determine what Partner was contracted to undertake are its own quotation (as accepted) dated 24 September 2003 and the final progress report dated 2 June 2004 as signed and certified by the project manager, Mr Ma. Mr Ma gave evidence at trial. I am satisfied that he was a “hands on” and experienced project manager. He had 30 years experience in similar types of projects and he was “on site” in this project once or twice every day. Having stated his experience however, it should be added that as a witness he did not contribute very much to the case. A number of matters were beyond his recollection and his answers in cross-examination were often vague. He had ceased to be in Mr Lee’s employ for some time. 11.Nevertheless, it was he who signed and certified each interim payment and the final report at the material time. The problems which form the core of this case only surfaced about six weeks after the final report was signed and two months after the main keys had been handed back to the employer. 12.The scope of Partner’s work, as discerned from the relevant documents, was sub-divided into four sections, A, B, C and D. In this case we are only concerned with Item D, waterproofing and Item C8, the laying of floors with wood strips to be supplied by the employer. (i) Waterproofing 13.Mr Sit quoted for six items of waterproofing of which two were deleted at the outset. He therefore undertook the following works :
Only Item D3 has become an issue in this trial. 14.It is helpful at this stage, briefly, to describe the layout of the building. 15.Mr Lee has only ever owned the right hand half of the building. That half has a central ground floor entrance. On each of the three floors there are two flats; A1 and B2 on the ground floor, C1 and D2 on the first floor and E1 and F2 on the top floor. Flat B2 on the ground floor has a small area of roof at the back of the building where it juts out. The 7th flat is G1 which is a small basement flat converted from an earlier car parking area. There is a slope at the back of the building, the original construction having been built into the hillside. 16.It should be noted that Partner’s scope of works did not include waterproofing works to the walls or floors of G1 or B2. (ii) Flooring 17.Item C8 was to lay strip flooring in every flat. The wood strips were to be supplied by the employer. Other materials necessary to do the job were to be supplied by Partner. Subject to that it was a labour only contract. 18.It is again useful to note what was not included in Partner’s scope of works. 19.98 RBR was a 63 year-old building. The brick structure was in need of considerable repair. All concrete repair works were undertaken by “Gladtone”. In particular, rectification of honeycomb concrete to the walls of flats G1 and B2 was outside Partner’s scope of works. 20.There were no specifications for Partner’s works and there was no defects liability period. The works were carried out under the supervision and direction of Tony Chan as architect, Mr Ma as project manager and Ms Chiu as supervisor for Mr Lee. 21.Partner completed its works on 14 May 2004. 22.Aldo submits that a letter from Fairview dated 25 September 2003 is evidence of the plaintiff’s acceptance of Partner’s tender. Although little turns on it, the letter merely provides further confusion as to the identities of the contracting parties. The letter is from Fairview addressed to Partner. So far so good. However, it then accepts Partner’s tender “on behalf of our client, Gold World Trading Co.”. This is another of Mr Lee’s companies which has nothing to do with this case. The letter is not signed by Tony Chan or anybody from Fairview. The contents of the letter are however “confirmed and accepted” at the end of the letter. One would expect the confirmor or acceptor to be Mr Sit or someone on behalf of Partner to whom the letter was sent. However, it is confirmed and accepted by Mr Arnold Lee (Mr Lee’s son). It seems therefore that the plaintiff was agreeing its own acceptance of Partner’s tender. Mr Sit had never seen this letter. 23.As stated, little turns on this confusion. What needs to be examined is the quality of Partner’s workmanship. ALDO’S COMPLAINTS 24.There was no evidence of any complaints during Partner’s occupation of the site. The works were certified as complete on 14 May 2004. 25.The first intimation of any complaints came in a letter written by Ms Chiu to Fairview and Partner dated Thursday, 8 July 2004. It referred to being “extremely unsatisfied your quality of work”. Without specifying any particular deflects it gave Fairview notice that “unless we receive your proposal with the undertaking regarding the rectification on or before 12 July 2004 (next Monday) by 5:00 p.m. otherwise we would engage another contractor for rectification of such matter”. 26.Partner had not been to the site since it left on 14 May 2004 and was not informed of any details of alleged defects. 27.In spite of the unreasonable and unrealistic deadline set by Ms Chiu (the Monday following the Friday when the letter would have been received), Fairview responded with commendable expedition and by Wednesday, 14 July 2004 they replied to the letter and enclosed two reports from other contractors. Fairview recorded its own findings following the site inspection by themselves, and those of the two other contractors, namely Macnotta Ltd and TRA Services Co. Ltd (the latter had been Partner’s sub-contractor doing waterproofing works on the roof). Both were “waterproofing consultants”. 28.The findings were of “interior water marks on walls and ceilings in G1 and B2”. The opinions of those who had inspected were unanimous. The damp patches were due to condensation. The flats had been locked up, unoccupied, with windows closed, with no air-conditioning and plastic sheeting covering the floors in particularly hot and humid months of May, June and July. 29.The recommendations were also unanimous. Better ventilation, use of air conditioners and removal of plastic sheeting was advised. 30.Ms Chiu did not agree. She had no expertise or special skills in such matters. She simply rejected Fairview’s response. She immediately engaged another contractor to carry out remedial works. At a site meeting on 23 July 2004, Ms Chiu told Tony Chan he would not be allowed on site again. She had already refused access to Mr Ma, the project manager and Mr Ocean Lau (of TRA Services Co. Ltd). 31.Oral evidence concerning the events of this time was in conflict. Where conflicts arose I preferred the evidence adduced by the defence. In particular I find that Ms Chiu was advised to lift the plastic sheeting covering the flooring but she refused to do so. She was more concerning with protecting the wood than letting it breath. She was annoyed that the air conditioners had been put on for one day on about 20 July 2004 without her consent. (Even though this had resulted in a noticeable improvement to the dampness.) She did not permit future use of air conditioners. The windows and doors had been kept closed ever since the handover in May 2004. 32.At this time no complaints had been made that any of the floor boards had become “crumpled”. “Crumpled” was the word used at trial to describe a slight curving of the wood strips across their widths. The first time this complaint was made to Partner was by a letter from Aldo’s solicitors dated 20 July 2004. Mr Sit had still not returned to the site. It would have been a waste of time for him to do so. Three others had already been barred. The letter also informed Partner that other experts and other contractors (“Chiu Chun”) had already been engaged to carry out inspections and remedial works. Thus, the time that Partner was provided with details of complaints was after Ms Chiu had engaged others to do further works. The solicitors’ letter also held Partner “fully liable for the loss and expense” which may be incurred. 33.The first complaints about the floor boards in G1 and B2 were made on 20 July 2004. The first complaints about the floors in the other five flats were made in a later solicitors’ letter dated 3 August 2004. THE PLEADED COMPLAINTS 34.The writ was issued by Aldo in June 2005. It was re-amended in December 2006. The following items are claimed :
((f) and (g) are claimed in the 2006 amendments.) 35.It should be noted that the remedial works recommended by Macnotta and TRA for the defects which had been brought to their attention in July 2004 were quoted at $7,600 (Macnotta) and $45,000 (TRA). LIABILITY 36.On factual matters I preferred the evidence of Mr Sit (Partner) and Mr Ocean Lau (TRA) where conflicts emerged. Both impressed as honest and reliable witnesses. They had been the people on site; they were experienced in their fields and, I find, carried out their tasks in a competent and efficient fashion. Each did what was asked and expected of them. 37.I will now deal briefly with each of the complaints. (A) G1 and B2 waterproofing and floor slab 38.I am satisfied that the root cause of such problems that emerged at G1 and B2 was due to poor ventilation after Partner had left the site. It is possible also that Gladtone did not carry out its re-concreting work adequately and, if so, Partner would not have been aware of this when it laid the floors. It is also possible that the fact that the building was built into a hillside and that G1 was a converted basement (possibly converted without proper authority) added to the problems. Such possibilities were not proved one way or the other. However, they are reasonable possibilities which merely add weight to the argument that the plaintiff has failed to prove on the balance of probabilities that Partner, and Partner alone, is liable for all the remedial work that was carried out in these two flats. 39.It is not disputed that the waterproofing in this area was outside Partner’s scope of work. I am satisfied that Mr Sit would not have laid the floors on a base which he had any reason to believe was anything other than adequately prepared to receive them. (B) G1 and B2 floor boards 40.The “possibilities” referred to above have equal relevance here. 41.The particular complaint about the wooden strips is that they “crumpled”. It has already been noted that this alleged defect was not referred to when the original complaint was made by Ms Chiu to Tony Chan of Fairview on 8 July 2004. 42.However, experts were called and opinions given as to how such floors should be laid. None of the expert witnesses were specialists in wood. The issue came down to whether or not a small gap should have been left (of about 1 mm) every 3rd or 4th strip to allow for expansion in the particular conditions in Hong Kong. 43.The wood laid by Mr Sit was tongue and groove strips of a hard (teak like) wood purchased by Mr Lee from China. It cost a little under $20 per square foot. 44.Having heard all the evidence (which was plentiful), I was satisfied that the wood purchased by Mr Lee was a very hard wood which was more likely to contract than expand. Nonetheless some provision for expansion should be made when the floors are laid. Mr Sit had laid hundreds of floors in his time and I am satisfied that what he described to the court was both accurate and proper. He said that such hard tongue and groove strips should be pushed together loosely, not tightly. Also a gap of 9 to 10 mm should be left around the outside of the room under the skirting. The effect of the loose fitting and the gap under the skirting would be sufficient precaution against expansion. It was not necessary to leave a 1 mm gap every 3rd or 4th strip. 45.He laid all the floors in all seven flats in the same way. Although later complaints were made about the strips in the upper floors, it is worthy of note that none of them were re-laid. 46.I am further satisfied that any excessive crumpling in G1 and B2 was contributed to by the particularly bad lack of ventilation experienced in the lower floors when they were completely covered by plastic sheetings. Ms Chiu did not heed the advice given to her about this state of affairs. 47.The provision of an adequate base onto which a wooden floor could be laid was outside Partner’s scope of works and any failure to so provide was not a defect for which Partner should be held liable. 48.It is finally worthy of note that when the new floors were relaid by other contractors a different and more expensive wood was used. The cost of the replacement wood was approximately double what Mr Lee had spent in China. The wood Mr Lee had purchased from China may have been perfectly adequate. However, the new wood was better. (C) The floors in A1 and the four upstairs flats 49.These floors were laid in the same way as the floors at G1 and B2. The plastic covering remained despite the advice given. The complaint was that these floors also became crumpled. However, the monetary claim by Aldo is only for resurfacing and polyurethaning. The details of this claim were only made in a recent amendment of the Statement of Claim in 2006. 50.Aldo’s main expert witness in support of the “crumpling” issue was Mr William Poon of PWL Surveyors Ltd. He had never seen the floor at G1 and relied on a very poor photograph as evidence of crumpling. His own photographs taken of the upper flats were far from convincing as evidence of a serious problem. Ultimately about $6,000 to $7,000 per flat was spent on waxing, etc, a total of $33,859. I did not find Mr Poon’s evidence compelling. I am sure that the complaints about the floors in the upper flats were exaggerated. Such crumpling that there was could not be proved to have resulted from Partner’s defective workmanship and in any event the relatively minor amount of money spent on rectification could be regarded as betterment. Waxing and/or polyurethaning was not within Partner’s scope of works. (D) Waterproofing the roof above Flats E1 and F2 51.This part of the claim falls into two amounts. In December 2004 Chiu Chun carried out remedial work on the roof at a cost of $18,000. In late 2006 another firm, Standard Waterproofing, re-waterproofed the entire roof of Mr Lee’s half of 98 RBR at a cost of $358,840. (i) 2004 work 52.The original waterproofing above Flats E1 and F2 had been done by TRA, Partner’s sub-contractor. TRA had given a 10-year guarantee but this had not been brought to the attention of Ms Chiu. She was genuinely unaware of it. TRA was never invited back to the site after 23 July 2004. Mr Ocean Lau (of TRA) gave evidence at trial and described the work he had done. 53.Suspected damp patches had been observed on the ceilings in Flats E1 and F2. Two experts were called by each side on this issue. Partner denied that the expert’s evidence and tests proved that there had been any water seepage from the roof. 54.The scientific tests which had been carried out were RITS scans (Rapid Infrared Thermographic Survey). A RITS camera takes an image of a patch of roof or wall. The image shows different colours for variations in temperature. The same patch is photographed again after a water test on the roof. If any water has seeped through the temperature of the affected area will have decreased relative to the drier areas around it. This will show up as a different colour on the image. It is a sophisticated test widely used in Hong Kong. 55.The plaintiff’s experts were of the opinion that a temperature difference of as little as 0.5oC could be evidence of water seepage. The defendants’ experts opined that the difference should be more in the region of 3oC before it could be regarded as meaningful or reliable as evidence of seepage. 56.In all 24 images were taken before and after a water test was conducted. On only one of those 24 pairs of images was a change of colour detectable (scan number 6). The temperature difference in scan number 6 was about 1oC. 57.In my judgment, having carefully considered all the expert testimony, as evidence of water seepage the RITS scans took the matter virtually nowhere. This too was the opinion of Mr Christopher Stanley, the Chairman of the Hong Kong Concrete Repair Association. Mr Stanley introduced the RITS camera into Hong Kong in the 1980’s and teaches people how to use it and interpret the results. He said that the only positive image (number 6) could be regarded as evidence of possible water vapour, no more. 58.I accept that apparent damp patches had been observed. However, in my judgment, based on the available evidence at the time, the plaintiff was wrong to engage Chiu Chun to commence remedial works which involved digging up and breaking the waterproof membranes which had been installed by TRA and which were, as it turned out, covered by a 10-year guarantee. It was also wrong to let a new contractor on to the roof without giving Partner or TRA a reasonable opportunity to examine the problem. 59.At that stage the possibilities were various. There might have been no damp at all. The damp might have been coming through the side walls. The damp might have been coming from parts of Mr Lee’s roof which had not been waterproofed. The damp might have been seeping through from the other half of the building. ii) Waterproofing work in 2005 and 2006 60.Partner is being held liable for further, more extensive work done in 2005 and 2006 culminating in the entire roof above E1 and F2 being re-waterproofed. 61.Chiu Chun was on the roof in December 2004, March 2005, April 2005 and May 2006. Its work in December 2004 was covered by a two-year guarantee. Thus, for the second time in this case the benefit of a guarantee was not utilized. 62.For the following reasons it would, in my judgment based on the whole of the evidence, be unjust to pin liability on Partner for approximately $350,000 worth of work done over two years after they were last allowed on site.
63.For all the above reasons the plaintiff has fallen well short of the required standard of proof to make Partner liable and to pay for the works done in 2006. It follows also that it cannot be held liable for any of the surveyors’ fees. CLAIM FOR LOSS OF RENTS FROM JULY 2004 TO DECEMBER 2004 64.This claim, for $1,240,000, represents over half of the plaintiff’s total claims. In view of my findings thus far it must fail in toto. In any event the claim would have faced difficulties. I am sure the flats should have been and could have been made available for letting well before December 2004. Compromises could have been and should have been made on the letting prices. 65.Given the relatively minor nature of the problems at the time, even if Partner had been at fault, they would not have been liable to reimburse the plaintiff for rentals at about $42,000 per flat for five months. As the matter is now academic it is unnecessary to consider it further. COUNTERCLAIM 66.Partner has counterclaimed the sum of $812,980.49. Partner has been paid $3,849,819.81 against a final valuation of $4,614,478.00. It also claims $48,322.30 for materials purchased but not reimbursed by the plaintiff. 67.In the counterclaim it has sued both Aldo (the 1st defendant) and Mr Lee in person (the 2nd defendant). This revives the issue as to the correct identity of the contracting parties. 68.As stated earlier Partner takes the view that, throughout, Mr Lee was the employer and Mr Sit was unaware of the BVI company named Aldo until the proceedings commenced. Mr Sit conceded that the word “Aldo” appears at the top of his invoice for interim payments. To that extent he had heard of the word “Aldo”. However, he neither writes, nor reads nor understands English. It was merely a word which Tony Chan instructed him to put on the invoices. He duly typed the four letters “ALDO” at the top of each invoice. There is no doubt that he was unaware that Mr Lee had assigned 98 RBR to Aldo in September 2003. 69.I will deal first with the merits of the counterclaim. 70.On 2 June 2004 Mr Ma, the project manager, signed and certified the final progress report. Mr Ma had also signed many interim progress reports. It is implicit in the signing of these interim reports that Mr Ma accepted the rates for extra works being claimed therein. Thus the sum claimed which exceeds the original contract price is due and owing. The final sum is merely the last portion of the works which were all approved and paid for as work progressed. The plaintiff cannot resist payment of the final sum merely because it exceeds the contract price and because there was no specific agreement as to rates at the outset. 71.As for the extra disbursements they were all supported by invoices produced by Mr Sit who gave evidence that he had paid for each item himself and had not been reimbursed. No evidence was led by the plaintiff to suggest that Mr Sit had not paid for them. 72.Partner should be paid $812,980.49 on its counterclaim. 73.The final question is by whom? I am persuaded that the truth of the matter and the reality of the situation was that Mr Lee engaged Tony Chan of Fairview as his design consultant/architect. Tony Chan, in turn, on Mr Lee’s behalf, engaged Partner. 74.Mr Lee agreed that he had signed the consultancy agreement with Fairview (albeit before 98 RBR had been transferred to Aldo). Fairview thereafter, for example, on all their drawings, referred to Mr Lee as the client. 75.There was an important meeting of the relevant parties at Mr Lee’s offices on 3 November 2003. At that meeting Mr Sit perceived Mr Lee as the employer. Mr Sit was later paid by Mr Lee’s cheques (save one) and much of the correspondence was for Mr Lee’s attention. I accepted Mr Sit’s evidence that at that meeting no mention was made of Aldo. Mr Lee did not disagree. 76.It was plainly Mr Lee’s project. I am satisfied that he was the contracting party. The consequences of the finding on the original claim by Aldo need not be addressed as I have determined the matter 100% in Partner’s favour on the merits. FINAL REMARKS 77.Save for the issue of the contracting parties this case has been entirely issues of facts and expert evidence. Both counsel, Mr Kenneth Chan (with Mr Herbert Yeung) for the plaintiff and Mr Samuel Wong for the defendants sensibly and helpfully focused on the factual issues and found it unnecessary to argue matters of law. 78.It being a purely factual matter it makes it all the more regrettable that a few damp patches in a badly ventilated basement flat grew into a 10-day High Court trial involving 13 witnesses (six of which were experts who had all written reports). 79.In the early stages Macnotta had estimated that the cost of repairs to G1 would be $7,600; Chiu Chun’s estimate for the roof work was $18,000. A modicum of patience, common sense and compromise with the assistance of one of the many well qualified mediators in Hong Kong might have saved millions of dollars. As matters unfolded however, the case became more and more difficult to settle because of the ever increasing costs in relation to the value of the claim. 80.In the original action there will be judgment for the defendants with a costs order nisi against the plaintiff. On the counterclaim there will be judgment against the 2nd defendant for $812,980.49 plus interest to be agreed between the parties with a costs order nisi against the 2nd defendant. There will be no order in respect of the 1st defendant’s costs in the counterclaim. 81.If the parties cannot agree interest each side may submit a short written submission after which I shall decide the issue on paper.
Mr Kenneth C.L. Chan & Mr Herbert Y.F. Leung, instructed by Messrs Chu, Lo & Lau, for the Plaintiff in Original Action and the Defendants in Counterclaim Mr Samuel Wong, instructed by Messrs Sit, Fung, Kwong & Shum, for the Defendant in Original Action and the Plaintiff in Counterclaim Appeal by 2nd defendant by counterclaim to Court of Appeal dismissed. Please refer to CACV30/2008 dated 14 October 2008 |
Further hearings and rulings under HCA 1199/2005