Accurate Contractors & Renovators Co v. The Incorporated Owners of Beverley Heights
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HCA 2482/2006 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2482 OF 2006 -----------------------
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------------------------ J U D G M E N T ------------------------ INTRODUCTION Background 1.This is an action for recovery of outstanding building renovation costs. The plaintiff is a registered general building contractor and carrying on business as such. The defendant is and was the incorporated owners of Beverley Heights in Kowloon Tong (“Incorporated Owners”). 2.On or about 13 December 2004, the parties entered into a contract for the renovation of Beverley Heights (“the Contract”). Wealthy Gate Architects & Associates Limited (“Architect”) was the architect appointed by the Incorporated Owners to supervise the performance of the Contract. The works under the Contract were practically completed on 12 October 2005. 3.Disputes arose between the parties as to whether certain works had been satisfactorily completed and as to the amount payable under the Contract. On 13 November 2006, the plaintiff commenced the present action against the Incorporated Owners claiming the sum of $355,220 in respect of cost for work done under item 17 of the Contract (“Item 17 Claim”); the sum of $586,000 in respect of variation works done to rectify the “honeycomb” defect in the structure of the building (“Honeycomb works claim”); release of retention money in the sum of $400,425 (“Retention Money Claim”); and the sum of $534,084.96, being extra‑preliminaries in respect of the plaintiff’s office and site overheads incurred due to the Incorporated Owners’ prolongation of the building works (“extra-preliminaries claim”). 4.The Incorporated Owners denies liability and counterclaims the cost of rectifying the plaintiff’s defective work in respect of the retaining wall (“retaining wall defect”); water leakage in Unit A2 on 12th floor (“Unit A2 defect”) and failure to waterproof the windows in the common corridors (“window defect”). The plaintiff’s total claim amounts to $1,875,728.96, while the Incorporated Owners’ counterclaim amounts to $196,696. The Contract 5.The Contract was in Chinese. The works included in the Contract were divided into two categories: Part A and Part B. Part A comprised of items 1 to 14. These were described as basic works (基本工程項目) which the Incorporated Owners contracted to execute. A lump sum was agreed for each item of basic works. Part B comprised of items 15 to 21 described as optional works (可選擇項目) which the Incorporated Owners might by exercise of option made before specified dates require the plaintiff to execute. A unit rate was fixed for each item of optional works. 6.According to clause 2 of the Contract, the contract documents include, inter alia, the Contract signed by the parties, the Terms of the Contract, the drawings and the tender correspondence between the parties. Witnesses 7.The plaintiff called two factual witnesses and one quantum expert witness. The Incorporated Owners called three factual witnesses and one quantum expert witness. The case mainly turned on construction of the Contract. There were few factual disputes which were relevant. Most of the material facts were documented or could be inferred from contemporaneous correspondence and photographs. As in most building contract cases, such contemporaneous correspondence and photographs deserve more weight than oral evidence. I shall not be spending time on analysing the oral evidence of the factual witnesses and their credibility. 8.As for the quantum experts, the evidence of the Incorporated Owners’ quantum expert witness is to be preferred. The plaintiff’s quantum expert witness demonstrated obvious bias in favour of the plaintiff. He was unable to explain the basis of his assessment of the plaintiff’s “Honeycomb works claim”. On the other hand, in respect of the Incorporated Owners’ counterclaim, he gave a manifestly and unrealistically low assessment of the cost of remedial work which was far lower than the plaintiff’s contract price under the Contract. He was asked to give expert opinion on quantum. Yet, he declined to give an assessment of the cost of work for repairing the Retention Wall Defect saying that it was improvement work and not remedial work. The nature of the remedial work was exactly the same as that of the original work. He was attempting to give opinion on liability and exceeded his scope as a quantum expert. He was demonstrably biased and a typical hire gun. I do not accept his evidence. ITEM 17 CLAIM The claim 9.The plaintiff’s claim as pleaded in paragraphs 10 to 12 of the statement of claim is as follows :
The term “Public Works” referred to “公共工程” in the Contract. That is a mis‑translation. It should be more properly translated as “common works”. Principles of construction of contract 10.As indicated earlier, the outcome of this case depends very much on the true and proper construction of the Contract. I think it timely at this stage to remind ourselves of the principles of construction of contract. These principles have been usefully summarised by Lord Hoffmann in Investor’s Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 897 at 912 to 913 as follows :
These principles have also been affirmed by Lord Hoffmann sitting as a Non Permanent Judge of the Hong Kong Court of Final Appeal in Jumbo King Ltd v Faithful Properties Ltd & Ors [1999] 4 HKC 707. There, in delivering judgment of the Court of Final Appeal, Lord Hoffmann NPJ said at 726-727 :
11.Construction of document or contract is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. That meaning is to be obtained by reading the document as a whole in the light of the then factual matrix. Construction of a document is not the same as interpretation of the meaning of the words used in the contract. Construction of Item 17 12.The following exchanges between the plaintiff, the Architect and the Incorporated Owners formed part of the admissible background leading to the agreement on the contract price for Item 17. On 30 October 2004, the plaintiff lodged a tender for the renovation works offering a unit price for Item 17 of $75,500 for each unit. It was reduced to $53,000 per unit on 3 November 2004 by taking out the cost of sanitary fittings, such as bath tubs and basins etc, which would be provided by the individual unit owners. 13.On 16 November 2004, the Architect requested the plaintiff to re-submit quoting breakdowns for various options of work. In particular, the Architect requested the plaintiff to quote the price of rendering the floor of the bathroom and kitchen which would be changed to common works to be paid by the Incorporated Owners. The plaintiff complied and re-submitted an increased tender price of $54,800 for the various options of works under Item 17 on 19 November 2004. 14.On 22 November 2004, the plaintiff re-submitted that quotation in Excel format at the request of the Incorporated Owners. The quotation was made up of three tables: one for Item 17.1 works in the master bedroom toilet with bath tub; one for Item 17.2 works in the master bedroom with standing shower; and one for Item 17.3 works in the kitchen and servant’s room. The three tables clearly identified the common works items and the private works items and their respective costs. That was the final quotation accepted by the Incorporated Owners. Subsequently, the parties agreed that the unit owners were only allowed to opt for Item 17.3 plus either Item 17.1 or 17.2. The unit rate, described as “單價”, for Item 17.1 and 17.2 was $8,100 per unit making a total, described as “總價”, of $388,800 for all 48 units. The unit rate for Item 17.3 was $8,000 per unit making a total of $384,000 for all 48 units. Thus the total price for Item 17 was $772,800. These were common works items to be paid by the Incorporated Owners. The private works items were to be paid by the individual unit owners who were free to engage the plaintiff or their own contractors to execute works. 15.On the following day, the Incorporated Owners wrote back to the plaintiff :
16.As the negotiation continued, a complication started to develop. The renovation works in the bathrooms and kitchens consisted of both common works and private works. Some unit owners wished to engage their own contractors to execute the private works. Some even wanted to have their own contractors to execute some of the common works in their units at their own cost. In a letter dated 12 December 2004 to the Incorporated Owners and the Architect, the plaintiff explained the practical difficulties of executing common and private works with a private contractor engaged by the individual owner in the same unit. The plaintiff suggested letting the private contractors execute the common works in those units and to have the cost deducted from the unit rate. 17.Then, on the following day, the parties entered into the Contract. Clause 1 of the Contract reads :
Pursuant to this clause, the Incorporated Owners may by notice issued before specified dates to the plaintiff require it to execute the optional works. The unit rate and/or the total price for those works shall be in accordance with those stated in the quotation. The term “total price (總價)” was also used in this clause. 18.Mr Wu, counsel for the plaintiff, argues that the term “total price (總價)” in the quotation of 22 November 2004 and clause 1 of the Contract means lump sum and that Item 17 was a lump sum item so that upon the Incorporated Owners exercising the option of requesting for the works to be carried out the plaintiff was entitled to be paid the entire sum of $772,000, regardless of the actual number of units in which the works were executed by the plaintiff. He also draws support for his lump sum construction by referring to the term “lump sum” used in the caption as well as in the body of the Incorporated Owners’ letter to the plaintiff dated 23 November 2004. This construction of the term “total price (總價)”, is crucial to the plaintiff’s case because the complication I mentioned in paragraph 17 eventually surfaced during the course of the execution of the Contract in that a substantial number of owners declined to allow the plaintiff to execute Item 17 works inside their units at all. This construction led to the plaintiff’s claim that it was entitled to be paid the entire sum of $772,000 for Item 17, despite that no common works had been executed in some of the units. 19.Mr Wu argues that the unit rates in the quotation were lump sum rates for each unit, the total of $772,000 was the lump sum (一筆款項) or fixed price for Item 17 and the phrase “a lump sum for each of the units concerned” in the Incorporated Owners’ letter dated 23 November 2004 confirmed that Item 17 was a lump sum item. In support of his proposition, Mr Wu quotes Hudson’s Building and Engineering Contracts, Eleventh Edition, paragraph 3‑012 :
and in paragraph 3‑013 :
20.I do not think the above quotation from Hudson’s is of assistance to the plaintiff. The term “fixed price” or “lump sum” were not used in any of the quotations. The term “lump sum” was used in the Incorporated Owners’ letter dated 23 November 2004, which I shall turn to later. Instead, unit rates were quoted. Unit rate is inconsistent with a lump sum or fixed price contract. Where unit rates are quoted, the prima facie inference is that the parties intended that there will be measurement and calculation of price based on that unit rate. This negates the inference of a fixed price or lump sum contract. In the absence of clear language, at the highest one can argue in this case that a lump sum unit rate was quoted for one unit; that the sub‑unit rates were breakdowns of that unit rate; and that the number of units and the total price were just indications respectively of the quantum of work and amount payable if works were executed on all the units. Merely by quoting the unit rate for a contract or an item of works under a contract or quoting the total price do not necessarily turn the contract or the item into a lump sum contract or a lump sum item for all the units. 21.The term “lump sum” in the sense of a fixed price for one or a group of items was not used in any of the quotations submitted by the plaintiff. In the plaintiff’s quotation dated 22 November 2004, the plaintiff used the term “unit rate (單價)” and “total price (總價)”. By any reading of the quotation, they could only mean the unit rate and the total price for all 48 units based on that unit rate. The term “total price (總價)” used in that context could in no way be construed to mean lump sum rate or a fixed price contract. 22.The term “lump sum” was used for the first time in the Incorporated Owners’ letter dated 23 November 2004 in response to the plaintiff’s quotation dated 22 November 2004. That letter was written in English in response to the plaintiff’s Chinese quotation. It was not clear why Cheng, the secretary and representative of the Incorporated Owners, used that term. But its meaning is clear. In the caption, he mentioned “lump sum per unit”. He was not saying “lump sum for 48 units” or “lump sum for the item” or words to that effect. He could not have meant anything but the total price for that item of works for one unit. He made his intention amply clear in the part of his letter quoted above. There, in referring to the rates, Cheng put in parenthesis, “ie lump sum for each of the units concerned”. He was not talking about a lump sum contract, but the total price of the various sub-items under Item 17 for one unit. This construction is consistent with the ordinary meaning of the term “total price (總價)” as used in the context of the quotation submitted by the plaintiff, being the product of the lump sum per unit times the number of units in which works were executed. The plaintiff’s intention was clear. The term “unit rate (單價)” meant the price of works for each unit and the term “total price (總價)” meant the total price for 48 units and not a lump sum for that item. It should be noted that the term “lump sum” or “fixed price” was not even used by the plaintiff. It is utterly wrong for Mr Wu to take advantage of the use of the term “lump sum” by the Incorporated Owners to force on the term “total price (總價)” a meaning which by any objective view the parties themselves would never have intended. His lump sum argument is not based on a construction of the term in the context in which it was used. I must confess I have difficulties in following his argument. To my mind, “a lump sum for each of the units concerned” means the total price for each unit, ie $8,000 for Item 17.3 and $8,100 for either Item 17.1 or 17.2, making a total price of $16,100 for each unit. I fail to see how Mr Wu could turn a lump sum rate for each unit into a lump sum or fixed price for all 48 units. 23.In its letter just the day before the execution of the Contract, the plaintiff offered to deduct the cost of the common works under Item 17 executed by the private contractors of the unit owners. This reflected that it was the parties’ understanding and common intention that the plaintiff would only be paid the price of common works in an individual unit only if it had in fact executed the works in that unit. Had the parties agreed to a lump sum for all 48 units, the plaintiff would not have offered the deduction, but simply gave the individual unit owners the option to engage their own contractors to execute the common works inside their units. The parties could not have agreed on a lump sum or fixed price for all 48 units. 24.Mr Wu refers to the weekly meeting among the representatives of the plaintiff, the Incorporated Owners, the Architect and the building manager held on 3 March 2005 in which the parties agreed to adopt the “buffet” concept in calculating payment. It is recorded in the minute of the meeting kept by the Architect as follows :
He submits that this agreement reflected that the parties understood and intended Item 17 to be a lump sum item so that the plaintiff would be entitled to the full payment of the lump sum of $772,800, even if it had not executed the common works in every unit of the building. 25.The Incorporated Owners disputed the extent of the agreement reached at the meeting. According to Cheng, the “buffet” concept applied only to units in which the plaintiff had executed some common works no matter how minimal but not to units in which the plaintiff had not executed any works at all. 26.The renovation of the bathroom was work inside the unit. It consisted of common works and private works. It is understandable that individual owners may have their own preference as to the choice of the sanitary fittings, tiles, accessories, layout design and even workmanship. Some of those fittings and accessories might be very expensive. That was why it was first agreed that the cost of the sanitary fittings be excluded from the quotation and the plaintiff would only charge for removal of the old sanitary fittings and installing new ones. It is not disputed that later some owners even wanted to have the new sanitary fittings installed by their own contractors at their own cost instead of by the plaintiff at the Incorporated Owners’ cost. This was the complication I referred to in paragraph 17 which subsequently surfaced. Those owners found it convenient and preferable to do so because in any event tiling the wall and floor inside the bathroom and kitchen were private works items to be paid by the individual owners. Looked at realistically, such installation cost was minimal when compared with the costs of the fittings which might be very expensive. Hence, in a case in which the plaintiff had removed the old sanitary fittings but the owner of the unit waived the rights to have the new fittings installed by the plaintiff, the question arose as to whether the plaintiff should be allowed the full price of the common works of that unit. It was against that background that the Incorporated Owners agreed to adopt the “buffet” concept. The minutes must be understood in this light. The Incorporated Owners reasonably acknowledged that the removal and installation of sanitary fittings should be treated as one sub‑item of work under Item 17 and the plaintiff would be paid the price of the whole item for that unit if any single sub‑item of work had been executed by the plaintiff. Thus, for example, if the plaintiff had removed an old sanitary fitting, but the individual unit owner waived his right to have the new fitting installed by the plaintiff, the Incorporated Owners will pay for the whole item. On the basis of the minutes, I accept Cheng’s evidence. The minutes do not support Mr Wu’s contention. What was agreed at the meeting is consistent with the common intention that Item 17 was not a lump sum item. No inference that Item 17 was a lump sum item could be drawn. That the rate was a lump sum rate for one unit does not necessarily mean that item of work was a lump sum item. It should also be recalled that where a unit rate is provided, the prima facie inference is that the item of work is not a lump sum or fixed price item. Accordingly, I find on the true construction of the Contract, Item 17 was not a lump sum item, though the rate was a lump sum rate for each unit. The plaintiff was only entitled to be paid the cost of works in respect of a unit if it had actually executed some works in that unit, no matter how minimal. But it is not entitled to be paid in respect of any unit in which no works at all had been executed. The claim and the works executed 27.Mr Wu argues in the alternative that Item 17 works had in fact been executed to various degrees in all the 48 units. He argues that according to the interim payment certificate for Item 6 works, all the pipes inside the bathrooms had been removed to outside the building. The removal of the pipes must necessitate the demolition of the pipe duct inside the bathroom, taking down the bath tub and hacking the floor slab of that unit. He therefore submits that as the bath tub had to be removed and the floor slab hacked, the inference could be drawn that some of the Item 17 works had been executed to various degrees in all the 48 units. He also refers to Cheng’s evidence under cross‑examination in which Cheng agreed that removing the bath tub entirely required hacking of the floor slab. I am quite unable to see why demolition of the pipe duct must necessarily require removal of the bath tub or shower and why it must necessarily require hacking of the floor slab. Apparently, these fittings simply rested on the floor slab with the joints sealed by cement or other sealant. Their removal might require the hacking of the fittings, but not necessarily the floor slab. Cheng was not a building expert and was not even residing in Beverley Heights while the renovation works were being carried out. But even accepting Cheng was right, it does not necessarily follow that the removal of the bath tubs and showers were all carried out by the plaintiff and not by the contractors of the individual unit owners who opted not to use the plaintiff’s services. Indeed according to the plaintiff’s own evidence 19 of the 48 units owners opted to have the bath tubs and showers removed by their own contractors. 28.According to the plaintiff’s application for final payment in respect of Item 17, it had only carried out the common works under Items 17.1A0 and 17.2A0 (removal and installation of sanitary fitting in bathroom of the master bedroom) in 27 units, under Item 17.1B0 and 17.2B0 (rendering of the unit of the bathroom in the master bedroom) in 18 units, under Item 17.3A0 (removal and installation of sanitary fittings in the servant’s bathroom) in 17 units and under Item 17.3B0 (rendering of the floor in the kitchen and servant’s room) in 11 units. Thus, according to its own record, the plaintiff had not executed works in all 48 units. 29.Then, Mr Wu refers to the plaintiff’s evidence that the Architect refused to certify payment other than in respect of the above works and the plaintiff’s application for final payment was issued according to the instruction of the Architect. He argues that the plaintiff was being squeezed to a state where it really needed urgent payment to finance the project or else it would have gone bust. He relies on the following statement in the application in support of his argument :
He says that usually it is for a contractor to submit a claim and for the architect to certify the appropriate amount out of that claim to be paid. He argues that it is implicit from the above statement that the plaintiff was only allowed to apply for whatever amount the Architect agreed would certify and it was not open to the plaintiff to apply for payment for what it was due for works done. It may be less common to agree the amount to be paid before applying and certifying, but it is by no means unusual. On the other hand, the above statement may also be taken as an acknowledgement by the plaintiff that Item 17 was not a lump sum item and it did not execute work in all the 48 units. I think the above statement damaged the plaintiff’s case more than assisted it. Conclusion 30.In conclusion, I find on the true construction of the Contract, Item 17 was not a lump sum item, though the sub‑items in respect of each unit were. The plaintiff was only entitled to be paid the price of works in respect of a unit if it had actually executed works in that unit, no matter how minimal. But it is not entitled to be paid in respect of any unit in which it had executed no work at all. The plaintiff bears the burden of proving the number of units in which work had been executed. It applied for payment in respect of works executed in a number of units and has been fully paid $417,580. It has failed to show it has executed works in other units. Accordingly, its claim under this head is dismissed. “HONEYCOMB” WORKS CLAIM The claim, the issues and the facts 31.This is a claim for cost of repairing defective concrete common called by workers as “黃蜂巢” (“honeycomb”). The Incorporated Owners’ defence is that those works were covered by Item 3.2 of the basic works for which the plaintiff had been paid a fixed price in accordance with the Contract. The plaintiff’s case is that it is not. The main issue raised by this claim is again one of construction of contract, namely whether on the true construction of the Contract, repairing “honeycomb” defect in the concrete was within the scope of Item 3.2. If it is not, the next issue is quantum. The plaintiff also pleaded misrepresentation in paragraph 9B of its amended reply and defence to counterclaim in that the tender price was based on the defendant’s infra red report on the extent of defective concrete. But that issue was not pursued at trial or in Mr Wu’s final submission. 32.Before turning to the question of interpretation, I shall first outline the relevant facts. The plaintiff tendered for repairing the defective concrete works at a fixed price of $130,000, subject to a qualification. The plaintiff was concerned that the Architect would require it to hammer each square inch of the façade as required in clause 2, which might reveal more hidden defective concrete. Hence, it imposed a qualification limiting the area of defective concrete to not more than 320 square metres. At a tender interview, Tse of the Architect made it plain to the plaintiff that it was required to hammer each square inch of the façade. Then the Incorporated Owners offered the plaintiff to amend its tender price with regard to Item 3.2 such that the plaintiff would take up all the risks as to the extent of the defective concrete. On 19 November 2004, the plaintiff wrote to the Incorporated Owners offering to take up the risk for an additional sum of $50,000. The offer was accepted. The contract price was substantially increased from $130,000 to $150,000. 33.Upon discovering the “honeycombs” the plaintiff reported to the Architect and the Incorporated Owners on 5 May 2005 during the 19th progress meeting, the Architect did not there and then point out to the plaintiff that the defect was within clause 3.2 of the Contract but simply issued instruction on the method of repairing the “honeycombs” on the following day. On or about 6 July 2005, the plaintiff produced photographs depicting various portions of the external wall in which remedial works had been carried out. On 28 July 2005, the plaintiff wrote to the Architect and the Incorporated Owners claiming it had carried out remedial work for 631.59 square metres of “honeycomb” and claimed cost of additional work of $493,967.50. The Architect had all along resisted certifying the claim on the basis that it was covered by Item 3.2. At the 41st progress meeting on 6 October 2005, the Architect indicated unequivocally that “honeycomb” was within Item 3.2 of the Contract and the plaintiff was not entitled to payment. The Architect confirmed that decision by letter dated 13 October 2005. On 23 January 2006, the plaintiff issued another letter to the Architect and the Incorporated Owners setting out an alternative method of quantifying the additional cost of work. The plaintiff claimed $586,000. The claim was based on a total area 160 square metres of “honeycomb” at a unit rate of $3,400 per square metre and a total area of 300 square metre affected rendering at a unit rate of $140 per square metre. 34.The parties were in a deadlock. With a view to settle the claim amicably, the Incorporated Owners instructed the Architect to assess the “honeycomb” area and the unit rate for consideration by the Incorporated Owners. Upon examination of the photographs, Tse found that there were duplications and exaggerations. He assessed the “honeycomb” area to be 33.09 square metres only and the reasonable unit rate to be $1,200 square metre, making a total cost of work of $39,708. Construction of clause 3.2 35.Clause 3.2 provided as follows :
The plaintiff’s obligation under this clause was to use cutter and chisel to hack and remove “all loosen, loose, cracks, defective and unsecure concrete or rendering, maintain and clean reinforce steel bars, clean the surface of the concrete (所有鬆脫、鬆浮、裂縫、或有缺陷及不結實的混凝土及批盪，維修及請潔鋼筋、清理混凝土面)”, and to repair the defective concrete using Ronafix Mix A. The defective concrete referred to in this clause were “all loosen, loose, cracks, defective and unsecure concrete or rendering”. The term “honeycomb” was not used. The issue is whether on the true construction of the Contract, “honeycomb” was within the scope of clause 3.2. 36.Mr Wu submits that this clause should be read in conjunction with Drawing No 3027/T/D/R01 and that the contra‑proferentem rule of construction applies. He says that “honeycomb” is a defect created in the course of laying concrete during the construction stage due to insufficient or inadequate vibration of the concrete, while defects created as a result of ordinary wear and tear is described as spalling. He puts forward the proposition that spalling is caused by expansion of the steel bar in the reinforced concrete as a result of rusting which cracks the concrete covering it. “Honeycomb” is much more serious than spalling. His proposition as to the cause of “honeycomb” and spalling is full of common sense and may well be right, but is not supported by any expert evidence. Neither party called any engineering expert to give opinion on the formation of “honeycomb”. According to the quantum experts on both sides, it is just one way of describing a large area of defective concrete in Chinese. In English, all forms of defects in concrete are called “defective concrete” or “spalling” without any distinction as to size. There is no English equivalent for the term, “honeycomb”. The term “honeycomb” was not used in the contract. It was introduced by the plaintiff as a term commonly used in the trade to describe large areas of defective concrete, which Mr Wu says, in addition, is caused by poor vibration during the concrete laying process. In my view, even accepting Mr Wu’s proposition as to the cause of “honeycomb”, the question remains what is the true construction of clause 3.2. 37.Mr Wu submits that the term “defective concrete” in the context of a renovation contract means spalling and does not cover “honeycomb” which is a defect in construction. He further argues that as this renovation was the third renovation of the building, any such defect in construction should have been rectified by the earlier renovations and the plaintiff entered into the contract on the basis that there was no “honeycomb”. He argues that not even the Incorporated Owners’ representative Cheng was aware of the existence of “honeycomb” in the external wall. Hence, he submits that as “honeycomb” was not in the contemplation of the parties it could not have been within the scope of clause 3.2. 38.With great respect to Mr Wu, his approach in construction is badly flawed. Firstly, it appears to me that he is not construing the term “all loosen, loose, cracks, defective and unsecure concrete or rendering (所有鬆脫、鬆浮、裂縫、或有缺陷及不結實的混凝土及批盪)” in clause 3.2 but only a very small part of it, ie “defective concrete(有缺陷的混凝土)” or the term “defective concrete” as is commonly used. Secondly, his argument that neither the plaintiff nor Cheng had contemplated the existence of “honeycomb” is also flawed as a matter of fact and law. On the facts, the Incorporated Owners were represented by the Architect. It was confirmed at the tender interview that the plaintiff was required to hammer each square inch of the external wall to look for defective concrete in accordance with clause 2. Whether Cheng was aware of the existence of “honeycomb” is irrelevant. The parties knew there may be defects in the concrete and the plaintiff was tasked to look for them. Whether the defects were spalling or “honeycomb” is also irrelevant. Furthermore, construction of a contract is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. The test is an objective one. The subjective intention of the contracting party is not relevant. 39.Construction of a contract is to ascertain the intention of the parties by reading the contract as a whole. Drawing No 3027/T/D/R01 which prescribed the method of repairing reinforced concrete/rendering and paragraph 5.1 of the Detailed Standard of Work Revision 2 (施工標準細則Revision 2) which stipulated the detailed steps to be taken in removing and repairing defective reinforced concrete best reflect the scope of work covered by clause 3.2 as understood by the parties. 40.First and foremost, the words used in the term “all loosen, loose, cracks, defective and unsecure concrete or rendering” must be given their natural and ordinary meaning. The Contract was a formal document entered into between the plaintiff, a building contractor, and the Incorporated Owners with the assistance of their architect. The plaintiff and the Architect were experienced and knowledgeable in the trade or profession. They would not have made linguistic mistakes in their choice of words. There is nothing to suggest that the words “all loosen, loose, cracks, defective and unsecure concrete or rendering” in clause 3.2 bear any meaning other than their natural and ordinary meaning. They were wide enough to cover any forms of defects in reinforced concrete, large or small and whatever the cause, spalling or “honeycomb” or whatever one calls them. 41.According to the method prescribed in the drawing for repairing the defective concrete, the defective area shall be hacked and chiselled to remove all loosen and defective concrete. The drawing showed that the back of the reinforcement steel bar shall be exposed to a depth of 20 millimetres. All rusts on the steel bar shall be removed and, if necessary, the defective section of the steel bar replaced. The new and old steel bars should have an overlapping length of 40 times the diameter of the steel bar. For a steel bar of 10 millimetre diameter, which was not a particularly large steel bar, the overlapping lengths on both cut ends of the old steel bar alone would be 800 millimetres. The parties must have had in mind defects requiring removal and repair of concrete, some of which were of considerable linear length of about 1 metre and above. Repairs which necessitate replacing defective reinforcement steel bars of such a length could not be limited to minor repairs to damage caused by wear and tear only or spalling as Mr Wu calls them. 42.Paragraph 5.1 of the Detailed Standard of Work Revision 2 supplemented the drawing. It stipulated as follows :
This paragraph stipulated that if the defective concrete to be removed was to such an extent leaving a thickness which was not sufficient to protect the steel bar, the concrete had to be removed until the steel bar was exposed. There should be a gap of at least 20 millimetres between the exposed steel bar and the concrete. If the steel bar exhibited signs of erosion, the concrete should be further removed until to such a length as to expose at least 50 millimetres of rust free steel bar. From these provisions, it is clear that the parties had in mind defects which would necessitate very extensive repairs requiring exposing the reinforcement steel bar and removal of large area of defective and non‑defective concrete if there were signs of erosion. The parties were concerned about defective concrete and eroded steel bars and not about the cause of the defect. In fact, the first sentence of paragraph 5.1 referred to unsecure, hollow, soft, brittle, broken and other defects in concrete. These were the defects covered by the term “all loosen, loose, cracks, defective and unsecure concrete or rendering” in clause 3.2. Most of these defects would on a common sense view be caused by poor vibration during the process of laying the concrete. 43.In my view, the term “all loosen, loose, cracks, defective and unsecure concrete or rendering” is very extensive. It covers all loosen, lose, cracks, defective and unsecure concrete or rendering. Reading the Contract as a whole, in particular, Drawing No 3027/T/D/R01 and paragraph 5.1 of the Detailed Standard of Work Revision 2, objectively, I have no doubt that the intention of the parties was that clause 3.2 covered all forms of defective concrete, of whatever area, of whatever cause, whether caused by defective construction process or normal wear and tear. It covered the so-called “honeycomb” defects. Defendant’s liability 44.As Lord Hoffmann NPJ said in Jumbo King at 726-727, if the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, the court will give effect to that language even though the consequences may appear hard for one side or the other. If on the true construction, a party has made a bad bargain, it is his misfortune. It may be due to his lack of care or prudence. He is nevertheless bound by it. Thus, if a contractor contracts to execute certain works for a fixed price, he cannot abandon the contract upon finding out that the works are more extensive, more costly or more difficult than what he has anticipated. In the absence of misrepresentation or other guarantee as to certain material facts by the other party, he is bound by the contract he has entered into. 45.In Bottoms v Lord Mayor, etc of the City of York (1892) 2 HBC (4th ed) 208, a contractor contracted to execute sewage works for York Corporation in the vicinity of the River Ouse. He planned to use polling boards for his excavations, but the soil turned out to be too muddy and spongy which necessitated the driving of timber runners and the rendering of the entire excavation watertight before brickwork could be laid. No boreholes had been sunk by either party to investigate into the nature of the soil, but the corporation had reports prior to the signing of the contract that the contractor’s price was such that he was certain to make a loss in the type of soil to be expected. The contractor then asked the engineer to authorise payment for extra works as a variation. Upon that being refused, he abandoned the contract and sued for the value of work done. The Court of Appeal held that as there was no express guarantee or representation as to the nature of the soil, the contractor was not entitled to abandon the contract on discovering the nature of the soil or because the engineer refused to give written orders entitling him to extra payment in consequence of the unforeseen difficulties in executing the works. Lord Esher MR held at 222 :
46.This brings me to the plaintiff’s plea of misrepresentation. The plaintiff pleaded that it accepted the rate for Item 3.2 based on the representation contained in the infra‑red report provided by the defendant. Based on that report, the plaintiff estimated the spalling to be 800 square metres. The plaintiff pleaded that clause 3.2 should be construed to be limited to an area of 800 square metres. As mentioned earlier, this plea was not pursued at trial. Except for the assertion that the area of affected rendering was 300 square metres, which must have included the 160 square metres of “honeycomb”, no evidence was adduced as to the total area of spalling. This plea may be disregarded altogether. 47.The plaintiff has undertaken to repair defective concrete for a fixed price. It cannot by giving a defect a particular description take it out of the contract and charge the Incorporated Owners extra cost for doing what they were contractually bound to do. In the absence of any misrepresentation or guarantee as to the extent of the work, it is not open to the plaintiff to abandon the contract or to charge additional price if the work turns out to be more extensive than anticipated. This is particularly so as the plaintiff was conscious of the risk that the defect may be more extensive than anticipated and assumed that risk for an additional sum. The plaintiff is not entitled to claim the cost for repairing the “honeycomb” defect. “Honeycomb” area 48.In view of the conclusion reached above, there is no need to assess the plaintiff’s claim. The following assessment is made for completeness. Apart from the fact that the plaintiff is not entitled to claim the cost of work on the “honeycomb” defect, the plaintiff’s claim is ridiculous. On 28 July 2005, the plaintiff put forth a claim of $493,967.50 based on 631.59 square metres of “honeycomb”. On 23 January 2006, it claimed $586,000 based on 160 square metres of “honeycomb” at a cost of $3,400 per square metre and 300 square metres of affected rendering area at a cost of $140 per square metre. Though there was a change in method of calculating the cost involved, the areas claimed do not match. The unit rate claimed by the plaintiff was grossly excessive. The unit rate as calculated by its own quantum expert was just $1,698.54, while that calculated by Tse in accordance with the terms of the Contract was $1,200 per square metre. According to Tse, the area claimed was excessive. The photographs produced by the plaintiff showed duplication and exaggeration. From the photographs, Tse assessed a total area of 33.09 square metres only. The defendant’s quantum expert witness gave the same assessment. It is apparent that he simply adopted Tse’s assessment. For reason as already explained I find this witness incredible. Under cross‑examination, the plaintiff’s witness Tsang could not offer any convincing explanation for Tse’s observation other than disagreeing with him. Initially, the plaintiff’s own quantum expert assessed the cost of work at $271,765.94 assuming the “honeycomb” area to be 160 square metres as claimed. Under cross‑examination, he reduced his assessment to $129,617.15. I also reject this evidence. Having viewed the photographs, I agree with Tse’s observation and assessment of the quantity of work. The “honeycomb” area was about 33.09 square metres and the cost of work was about $39,708. Tse’s assessment was based on the photographs. Assuming in favour of the plaintiff, the actual “honeycomb” area could be marginally higher. But, looking at the photographs, Tse could not be far wrong. This case impressed me as one which the plaintiff, acting in bad faith, sought to extort additional fees from the Incorporated Owners. DELAYS AND EXTRA PRELIMINARIES The claim 49.In paragraph 24 of the statement of claim, the plaintiff alleged that the parties mutually agreed that the renovation works should be completed by 8 June 2005, but due to delay caused by the Incorporated Owners and/or its agents, the plaintiff could only complete all the renovation works on 26 January 2006, incurring extra-preliminaries in the total amount of $534,083.96. The plaintiff’s claim is comprised of:
The defence is one of denial. In addition, the Incorporated Owners pleaded the plaintiff’s failure to give notice of claim in accordance with clauses 1.7, 4.3.1 and 4.3.3 of the Terms of Contract. 50.Again, the major dispute is on construction of contract. The issues raised by the pleadings are : (1) what, on the true construction of the Terms of Contract, were the plaintiff’s obligations as regards giving of notice of claim and the time within which to make a claim; (2) whether adequate notice of claim has been given; (3) whether the claims have been made within time; and (4) the damages the plaintiff is entitled, if any. 51.Mr Wu argues that by virtue of clause 3 of the Contract the construction period (合約工期) was six calendar months from the date of execution of the Contract, ie 13 December 2004; whereas under clause 4, the commencement date (開工日期) shall be notified by the Architect which was 28 December 2004. He submits that the Architect was responsible for the inconsistency between the two clauses and applying the contra‑proferentem rule of construction, the commencement date should be construed as 13 December 2004. He argues that an extension of time of 15 days and corresponding extra-preliminaries incurred should be granted. This is an un‑pleaded claim and no evidence of quantum has been adduced. I ignore that submission. Construction of clauses 1.7, 4.3.1 and 4.3.3 of the Terms of Contract 52.The defence is based on the construction of clauses 1.7, 4.3.1 and 4.3.3 of the Terms of Contract. These clauses provide as follows :
Hereunder is the meaning which these provisions convey to a reasonable reader upon a plain reading. 53.Under clause 1.7, within seven days after the occurrence of an event giving rise to a claim, the plaintiff shall give notice of intention to make a claim to the Incorporated Owners and the Architect; and shall lodge the grounds of the claim with supporting documents and detailed calculation of the quantum of claim within seven days of its becoming quantifiable. If the plaintiff fails to provide details of the claim within the said seven days, the claim is deemed to have been waived. 54.Clause 4.3 provides for extension of time for execution of works under the Contract. Clause 4.3.1 provides that the plaintiff shall inform the Incorporated Owners and the Architect in writing within seven days of the occurrence of four specified events with supporting information; and the Architect shall within 21 days thereafter notify the plaintiff whether extension of time was allowed and the length of extension if allowed. Those four events were : (a) force majeure; (b) changes in the Incorporated Owners’ and the Architect’s instructions on the design of works; (c) the plaintiff being unable to obtain necessary instructions from the Incorporated Owners or the Architect at the appropriate time; and (d) suspension of work by (1) the Incorporated Owners or (2) the authorities, through no fault of the plaintiff. 55.Clause 4.3.2 provides for how the loss is split between the plaintiff, the Architect and Incorporated Owners in the case of force majeure. 56.Clause 4.3.3 provides for payment of reasonable compensation or adjustment of total contract price or amount of payment by the Incorporated Owners for direct loss suffered or costs incurred by the plaintiff in the events covered by clause 4.3.1(b) and (d)(1), ie changes of instructions on the design of works and suspension of work by the Incorporated Owners, respectively. The payment is subject to a proviso, which is a condition for liability, that the plaintiff shall (1) within seven days after the occurrence of an event giving rise to a claim give written notice of intention to make a claim and the clause pursuant to which the claim will be made to the Incorporated Owners and the Architect; and (2) within one month of the event submit an application for claim to the Incorporated Owners and the Architect, setting out detailed calculation of the quantum of claim and supporting evidence. The clause further provides that the plaintiff is deemed to have waived the right to claim if the application for claim is submitted out of time. 57.It is not Mr Wu’s argument that the plain meaning of these clauses is other than what I have outlined above. He accepts that in case of claims under clauses 1.7 and 4.3.3, notice of claim or intention to make a claim has to be given within seven days after the occurrence of an event giving rise to a claim. He only argues that the Terms of Contract should be interpreted strictly contra‑proferentem and as there is inconsistency between clause 1.7 and clause 4.3.3 as regards the time within which to make a claim, the time limit in clause 4.3.3 should be disregarded as it demands an unreasonable submission by the plaintiff within one month of any event causing extra-preliminaries, despite that the plaintiff might not be capable of submitting a claim within that time limit due to lack of cost data, or because the event has a continuing effect so that the cost kept accumulating and could not be quantified. He submits that clause 4.3.3 only requires the plaintiff to submit claims within seven days of the claim becoming quantifiable. 58.With respect, I am quite unable to follow Mr Wu’s argument on contra‑proferentem construction. I think he has quite failed to read the Terms of the Contract as a whole. On a fair reading of the Terms of Contract, there were two regimes of claim: one under clause 1.7 and another one under clause 4.3.3. 59.Clause 1.7 applies to any claim other than those relating to clause 4.3.1(b) and (d)(1), ie other than claims occasioned by change of instruction and suspension of work by the Incorporated Owners. In respect of claims under clause 1.7, the plaintiff has to give notice of intention to make a claim within seven days of occurrence of an event giving rise to a claim and to make the claim within seven days of its becoming quantifiable. Mr Wu has no disagreement with this interpretation. 60.Clause 4.3 governs extension of time for executing works upon the occurrence of four events occasioning delay specified under clause 4.3.1(a) to (d). Upon the occurrence of those specified events, the plaintiff intending to apply for extension of time shall give written notice of the occurrence of the events together with supporting information within seven days to the Incorporated Owners and the Architect. The Architect shall make a determination whether to grant extension of time within 21 days. Apart from being given extension of time for execution of works, the plaintiff may make a claim for damages for delay. If the delay was caused by events specified under clause 4.3.1(b) and (d)(1), ie change of instructions on design or suspension of work by the employer, clause 4.3.3 required the contractor to give notice of intention to make a claim within seven days and to file a claim within one month of the occurrence of the event. But in respect of delays otherwise caused, including events specified under clause 4.3.1(a), (c) and (d)(2), the procedure under clause 1.7 applies. Reading clause 1.7 and 4.3 in this way, there is no inconsistency between the two clauses. They apply to delays caused by different triggering events. 61.As was said by Lord Hoffmann NPJ in Jumbo King, if the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court shall give effect to that language. The plain meaning of clause 4.3.3 is clear and unequivocal. The regime under clauses 4.3 is fair and reasonable. The obligation under this clause is not incapable of performance. This is a building contract. Building works progress every day. The Incorporated Owners and the Architect may have difficulties in securing evidence in case of dispute relating to the execution of works. Hence, it is fair and reasonable that as soon as a change of instruction or suspension of work occasioned delay and gave rise to a claim, the plaintiff should notify the Incorporated Owners and the Architect so that they could be alerted of the facts, investigate the claim, minimise or contain the damage and secure evidence which may otherwise be lost. Mr Wu has no complaint that the plaintiff should give written notice of a claim within seven days. His complaint is that one month may not be enough time for the claim to be quantified and hence the agreed term should be struck out. This time limit is applicable to delays occasioned by change of instruction and suspension of work only. Once a delay has occurred under those specified circumstances, I do not see how the claim would be difficult or impossible of quantifying, especially as in the present case, the claims were mainly claims for overhead costs. The plaintiff may perhaps have difficulties in ascertaining when the delay or damage would cease. In that case, it could give notice of claim and make an application every month for as long as the delay continued. The clause is not incapable of performance. In construing the clause the way Mr Wu does, he is attempting to re‑write the Contract to suit his client’s case. In particular, I fail to see why the time limit for making a claim under clause 1.7 should be imported into claims under clause 4.3.3. 62.Mr Wu also argues that the time bars of seven days in the case of a claim under clause 1.7 or one month in the case of an application under clause 4.3.3 applied only to the making of the claim but not to giving notice of intention to make a claim or of occurrence of a specified event. I agree because the waiver under the two clauses expressly applied to the giving of particulars or information of the claim or the making of the application for claim, but not to the giving of notice of intention to make a claim or of occurrence of a specified event. Mr Wu further argues that therefore notice need not be given within seven days under clause 1.7 or one month under clause 4.3.3 or at all. With respect, I fail to see why this provision in clauses 1.7 and 4.3.3 requiring giving of notice, which is unambiguous, should be struck out. Nor could I see why this consequence must necessarily follow from the construction of the waiver. On a fair reading of the two clauses, both the giving of notice and the making of a claim are conditions of liability. This is particularly clear in the case of clause 4.3.3 in which these two conditions were stipulated after the word “惟 (provided)”. Thus, both conditions must be fulfilled before the Incorporated Owners will be liable. Viewed this way, the waiver is superfluous. The claims 63.It is not entirely clear under which clause were the six claims made. One was for storage cost, two were for the Architect’s delays in giving instructions and three were related to disputes between the Incorporated Owners and the individual unit owners. 64.Mr Wu submits that notices and other supporting documents as listed in paragraph 12(c) of the reply and defence to counterclaim had been issued within seven days of the overall loss being capable of calculation. Sixteen documents from the plaintiff’s list of documents were quoted in paragraph 12(c) of the reply and defence to counterclaim. Mr Lin, counsel for the Incorporated Owners, disputes that those documents constituted adequate notices. I have painstakingly identified and examined those sixteen documents. Those documents were just letters to the Architect or the Incorporated Owners applying for extension of time, explaining delays in the execution of works due to inclement weather conditions, illegal structures, or seeking instructions; or letters to the individual unit owners in connection with complaints or execution of works; or quotations for variation works and for renovating the LP gas storeroom. By no reading could these letters be construed as a notice of a claim or the making of a claim. It is not even apparent from the letters if any “claim” was made within seven days of the amount of claim becoming quantifiable under clause 1.7 or within one month of a notice under clause 4.3.3. The plaintiff bears the burden of proof. Even if clauses 1.7 and 4.3.3 were given the construction as contended by Mr Wu, the plaintiff has failed to prove the claims have been properly made. Accordingly, these claims are dismissed without the need to investigate into their merits. RETENTION MONEY CLAIM The claim 65.The plaintiff’s claim is based on the Practical Completion Certificate dated 19 October 2005 certifying practical completion on 12 October 2005 and Interim Payment Certificate No 15 dated 15 March 2006 in which the Architect certified that the retention money held was $398,175. In addition, the Architect certified 95% of the cost of painting the car park area under Item 11.3, leaving an amount of $2,250 uncertified. On 17 October 2006, a year after the date of practical completion, the plaintiff applied for payment of retention money and the balance of the price of work under Item 11.3 in the total amount of $400,425. 66.The defence is that the plaintiff failed to remedy defective works which made it necessary for the Incorporated Owners to engage another contractor to remedy the defects at a total cost of $196,696. Because of the plaintiff’s failure to remedy the defective works, the Architect was not obliged to issue defect liability period completion certificate to the plaintiff. Under clause 5 of the Terms of Contract, for as long as that certificate was not issued, the Incorporated Owners were entitled to withhold the retention money. 67.The issues raised by this claim are (1) what is the amount of retention money withheld; (2) whether there were any defective works not remedied by the plaintiff; (3) what, on the true and proper construction of the Contract, were the parties’ rights and obligations as regards withholding or release of retention money; and (4) specifically, where outstanding defects were remedied by another contractor employed by the Incorporated Owners pursuant to clause 5.4, whether the Incorporated Owners were entitled to withhold the retention money or anything more than the cost of the remedial work paid to that other contractor. Rights and obligations as regards retention money 68.The regime governing the withholding or release of retention money under clause 5 of the Terms of Contract was as follows. The defect liability period under the Contract was one year from the date of issue of certificate of completion (竣工證書): clause 5.1. The retention amount was 10% of the contract sum: clause 5.2. The plaintiff was responsible for all defects which arose during the retention period and shall complete all necessary remedial work: clause 5.3. The plaintiff shall commence remedial work within seven days after receipt of written notice of defect issued by the Architect and shall complete the same within the time required by the Architect: clause 5.4. The retention period for defects remedied during the original retention period shall be extended by one year from the date of completion of remedial work: clause 5.7. Failing commencement or completion of remedial work and in the absence of satisfactory explanation, the Incorporated Owners may employ another contractor to carry out the remedial works and deduct the cost of such works from the retention money: clause 5.4. Deficit, if any, shall be recoverable against the plaintiff by legal action: clause 5.4. Upon expiry of the defect liability period and confirmation of satisfactory completion of all remedial works, the Architect shall issue a further certificate, the defect liability period completion certificate (保固責任完成證書). It is only then that 80% of the retention money shall be released to the plaintiff within 14 days of the issue of that certificate and the balance upon production to the Incorporated Owners of certain warranty documents. 69.There is no argument that the above construction does not represent the true and proper construction of clause 5 of the Terms of Contract. The dispute is, assuming there were outstanding defects, whether when the defects were remedied by another contractor employed by the Incorporated Owners, the Incorporated Owners were still entitled to withhold the retention money or anything more than the cost of the remedial work paid to that other contractor. 70.Again, Mr Wu argues that clause 5 should be interpreted strictly contra‑proferentem. The focal point of his argument is aimed at clause 5.7. He argues it is absurd that extending the defect liability period of any defect discovered during the retention period by one year from the date of completion of remedial work would have the effect of perpetually extending the defect liability period and entitle the Architect to withhold the issue of defect liability period completion certificate and the Incorporated Owners to withhold the retention money. Hence, he submits that what was extended under clause 5.7 was the maintenance period of the particular item of remedial work, so that upon expiry of the original retention period the Architect shall issue the defect liability period completion certificate and the Incorporated Owners shall release the retention money in accordance with clause 5.6. 71.In theory, clause 5.7 could have the effect of extending the defect liability period from year to year until the defective work is absolutely defect-free for an entire one year period. This may be an onerous obligation for the plaintiff to assume but an obvious benefit for the Incorporated Owners. Mr Wu argues that this clause is absurd. But, equally absurd is his position that the plaintiff will not execute works which will be free from defect for one year. I think it is all a matter of agreement. In some building contracts, a reduced extended defect liability period is adopted. In others, a cap is imposed. But this is not the case in respect of this Contract. The meaning of clause 5.7 is clear and unequivocal. 72.My real difficulty is with Mr Wu’s contra‑proferentem argument. His construction requires giving to the term “defect liability period” one meaning in clauses 5.1 and 5.6 and another meaning in clause 5.7. Furthermore, the effect of his construction is that upon expiry of one year from the date of issue of the certificate of completion, the Incorporated Owners shall as a matter of course release the retention money in full to the plaintiff irrespective whether the outstanding defects have been remedied or not. In an extreme case, the plaintiff could simply do nothing to remedy the defects but wait for one year and then collect the retention money, leaving the Incorporated Owners with the plaintiff’s worthless promise to maintain the outstanding defects which it has failed to honour. The Incorporated Owners will lose its security of the retention money. This could not have been what was in the contemplation of the parties. The purpose of providing for retention money in all building contracts is to provide a security to the employer so that in case the contractor fails to remedy any defective work, the employer can have funds to put it right. With respect, Mr Wu’s construction is just as, if not more, absurd. 73.The Incorporated Owners’ construction of clause 5 is that its liability to release the retention money arises upon issue of the defect liability period completion certificate. For as long as that certificate was not issued, the Incorporated Owners was not obliged to release the retention money. That is the plain meaning which a fair reading of the clause gives to an objective reader. But it is a very partial view of the effect of the Terms of Contract obtained without reading it as a whole. The Incorporated Owners chose to ignore an important factual question of whether the Architect was entitled not to issue the certificate. The answer to that question depends very much on whether the regime under clause 5.4 has been followed. 74.Clause 5.4 empowered the Incorporated Owners to engage another contractor to complete the remedial works and deduct the cost from the retention money. It is silent as to whether the balance should be released to the plaintiff. Usually, an employer is under an implied, if not express, obligation to pay the cost of work upon completion of work or within a reasonable time thereafter. Under this Contract, the Incorporated Owners’ obligation was partially deferred. Upon certification by the Architect, 90% of the cost of work certified would be paid with the remaining 10% being withheld as retention money. The purpose of the retention money was to provide a security to ensure all defects arising from the works during the one year retention period would be remedied by the plaintiff. The retention money would be released if there were no defects or if the defects were duly remedied. If the Incorporated Owners wished to complain of any defect, it had to give written notice to the plaintiff in accordance with clause 5.4. If the plaintiff failed to remedy the defect, the Incorporated Owners might, but not obliged to, engage another contractor to execute the remedial work and to deduct the cost of remedial work from the retention money. If it did, thereafter, it should look to that other contractor for any defect arising from the remedial work. The defect liability period in respect of that item of work shall be a matter between the Incorporated Owners and that other contractor. The plaintiff must be deemed to have been released of its liability to remedy the defective works under clause 5.4 and would be entitled to the balance of the retention money after deducting the cost of remedial work. 75.Thus, if all defects have been rectified by the plaintiff, the Architect shall issue the defect liability period completion certificate upon the expiry of one year from the date of completion of the remedial work. Thereupon, the Incorporated Owners would be obliged to release the retention money. If the defects have been rectified by another contractor pursuant to clause 5.4 and the cost deducted from the retention money, the Architect would be obliged to issue the defect liability period completion certificate forthwith and the Incorporated Owners shall release the balance of the retention money to the plaintiff. If the retention money is insufficient to cover the cost of remedial work, the Incorporated Owners would be entitled to recover the deficit from the plaintiff. The Incorporated Owners would have to look to that other contractor for any defect arising from the remedial work. 76.If the Incorporated Owner did not engage another contractor to execute the remedial work or if it did but did not deduct the cost of remedial work from the retention money, it must be deemed to have waived its rights under clause 5.4. It will be left with its ordinary remedy in contract. Under that scenario, the Incorporated Owner has no other calls on the plaintiff under the Contract. It is not open to the Architect not to issue the defect liability period completion certificate. This is so, whether the defects were remedied by the plaintiff or by another contractor is irrelevant as the Incorporated Owners has waived its rights under clause 5.4. There are no more defects to be remedied. The Architect is obliged to issue the defect liability period completion certificate and the Incorporated Owners is obliged to release the retention money in just the same way as the plaintiff would be obliged to pay any deficit if the retention money is not sufficient to remedy the defect. The Incorporated Owners are left with its remedy in breach of contract. That apparently is the position taken by the Incorporated Owners in not deducting the cost of remedial work from the retention money and at the same time counterclaiming for the cost of remedial work. The amount of retention money 77.In Interim Payment Certificate No 15 dated 15 March 2006, the Architect certified that a sum of $398,175 was withheld as retention money and that only 95% the works under Item 11.3 was certified. Perhaps the amount was too small, neither party adduced any evidence as to whether the remaining 5% of the work under that item was completed. The burden of proof that it has completed remaining 5% of the work rested on the plaintiff. I have to accept on the basis of the certificate that it was not completed. On that basis, I find that the amount of retention money withheld is $398,175. Conclusion 78.The Incorporated Owners’ position is not that it is exercising the right of deduction under clause 5.4 of the Terms of the Contract, but that the plaintiff is not entitled to be released the retention money for as long as the plaintiff does not perform the remedial work and the defect liability period completion certificate is not issued. It is not setting up the cost of remedial work as a set off or partial defence, but is separately counterclaiming damages equivalent to the cost of remedial work, while withholding the retention money at the same time. The Incorporated Owners’ position is ridiculous. 79.The Contract works were practically completed. The remedial work arising during the defect liability period were also remedied, albeit by a contractor employed by the Incorporated Owners. There was no defective work to be remedied. Nearly two years lapsed since practical completion. By the time of hearing it was almost seven years since practical completion. Another renovation is in sight. The Incorporated Owners cannot by electing not to exercise its rights under clause 5.4 and by colluding with the Architect not to issue the defect liability period completion certificate, refuse to release the retention money due to the plaintiff. The Incorporated Owners’ case, put at the highest, is that it has a counterclaim of $196,696 against the plaintiff. That cannot justify withholding retention money of twice that amount. The course taken by the Incorporated Owners is absolutely unreasonable. It must be deemed to have waived its rights of deduction under clause 5.4. No other defence having been relied on, the plaintiff is entitled to be paid the retention money withheld in the amount of $398,175 even in the absence of the defect liability period completion certificate and with interest. INCORPORATED OWNERS’ COUNTERCLAIM 80.The Incorporated Owners counterclaims $196,696 being damages for the plaintiff’s failure to remedy three defective items of work. Defect 1 – window defect 81.The Incorporated Owners invited tender for erecting 24 reinforced concrete canopies over the windows and glass block areas in the corridors. The plaintiff offered to execute the work for $8,000 per canopy, making a total sum of $192,000. In the subsequent negotiation, the Incorporated Owners abandoned its plan to erect canopies but simply to apply water proofing materials to 24 window areas. In the plaintiff’s letter dated 19 November 2004 which formed part of the contract documents, the plaintiff agreed to execute the work at the cost of $1,000 per window area, making a total price of $24,000. The plaintiff’s argument is that the parties were negotiating about installing water‑proofing membranes for the glass block areas but not the window areas and that work had been done and certified by the Architect on 30 August 2005. The plaintiff referred to its letter dated 23 October 2006 asserting that all along its understanding was that the work was to be executed on the glass block areas. 82.There were indeed ambiguities as to where the work was to be executed. The word “window (窗)” means an open area but is wide enough to cover a glass window which could be open or closed, and arguably a glass block area, which is not actually open. But, most telling is the fact that there were 24 window areas but 12 glass block areas. The agreement was to execute work on 24 window areas. In the circumstances, it must have been the parties’ common intention to have work executed on the 24 window areas and not the 12 glass block areas. In my view, it is impossible to give the word “window” as used in the plaintiff’s letter dated 19 November 2004, the meaning of a glass block area as it now alleges or as it alleged in its letter dated 23 October 2006. It simply makes no sense why the Incorporated Owners would have wished to erect canopies over the glass blocks in the original plan. Looking at the factual background and the plaintiff’s letter of 19 November 2004, I find on an objective view that the parties agreed to contract for work to be executed at the 24 window areas. But by mistake, the plaintiff’s workers executed work at the glass block areas and the Architect’s staff negligently accepted that as the contracted work and certified payment. But the Incorporated Owners did not get what it had contracted and paid for. On the plaintiff’s refusal to execute the work, the Incorporated Owners was entitled to engage Tung Cheung Construction Company Limited (“Tung Cheong”) to carry out the work. It chose not to deduct the cost of work from the retention money, but to counterclaim. It is entitled to be reimbursed all the cost of installing water-proofing materials to 24 window areas and related expenses. 83.The plaintiff actually charged the Incorporated Owners $24,000 for this item of work. The cost of work paid to Tung Cheong as was certified by the Architect was $16,352. The Incorporated Owners’ quantum expert opined that the original tender price by Tung Cheong of $14,800 was reasonable. The plaintiff’s quantum expert said it was not and suggested a figure of $6,850. His assessment was about a quarter of what his client actually charged for the same item of work. His opinion has no air of realism and must be rejected. The amount actually certified and paid to Tung Cheong was within the range of reasonableness and in any event was just about two-thirds of the price paid to the plaintiff. 84.In addition, the Incorporated Owners also paid Tung Cheong other costs in connection with the work: cost of insurance and related expenses of $18,000, cost of erecting scaffolding of $43,000 and cost of installing temporary water and electricity supply of $5,000. The Incorporated Owners’ quantum expert considered these amounts reasonable. The plaintiff’s quantum expert considered they were not and quoted a considerably lower figure of about 50%. He was obviously biased. I reject his assessment. There was no evidence as to how these costs should be apportioned between the waterproofing work for the windows and the other works carried out by Tung Cheong for which the plaintiff was not responsible. I split the cost of insurance equally and exclude the cost of installing temporary water and electricity supply in view of the small scale of work involved. I apportion 80% of the cost of erecting the scaffolding to the remedial work. Accordingly, I assess these costs at $43,400 ($18,000 x 50% + $43,000 x 80%). 85.The Incorporated Owners also paid $30,000 as the Architect’s fees. I apportion one third of that to the cost related to remedying the window defect. 86.Accordingly, I assess the Incorporated Owners’ counterclaim in respect of the window defect in the amount of $69,752 ($16,352 + $43,400 + $10,000). Defect 2 – retaining wall defect 87.Under item 18, the plaintiff contracted to hack, clear and clean the surface of the retention wall and apply specified protective paint coating. The work was executed but the retention wall exhibited air pockets and the paint coating peeled off during the defect liability period. The plaintiff refused to make good the defect. The Incorporated Owners engaged Tung Cheong to re-execute the work which cured the defect. 88.According to the plaintiff, the defect was the result of improper design of work specified by the Architect. The plaintiff had advised against using spraying method but to install tiles instead. That was rejected. The contract between the Incorporated Owners and Tung Cheong Tung showed that Tung Cheong was required to hack, clear, clean and spray the retaining wall and to apply pressure grouting at extra cost wherever cracks were found on the retaining wall. No expert was called by either side to give opinion on the cause of the defect or the appropriateness of the design of work. However, the use of pressure grouting was an additional process. That may be taken as recognition by the Architect that its original design of work was inappropriate and caused the defect. 89.Mr Lin argues that under clause 8.1.6 of the Terms of Contract, the plaintiff was obliged to provide all indispensable material and workmanship in the execution of the works (所有工程不可或缺的物料及工作由承建商負責供應及施工) and that included applying pressure grouting to seal off the cracks even though pressure grouting was not specified under the Contract. I reject that argument. The plaintiff’s obligation under clause 8.1.6 was to provide material necessary for the execution of the works as specified in the Contract. The work which was specified was hacking, clearing, cleaning and spraying the retaining wall with specified paint coating. The plaintiff may be required to provide paints, bonding material or detergents, etc. Pressure grouting is a different and distinct work process requiring different kind of work procedures and materials. 90.According to Cheng, Tung Cheong applied pressure grouting prior to spraying the paint and the condition of the retaining wall has been good for two years by the time of hearing. Though I note from the payment certificate issued by the Architect to Tung Cheong that no cost was certified for pressure grouting work, I consider I am bound by Cheng’s evidence. On the evidence, I draw the inference that the defect was cured by using a different design of work involving pressure grouting; and the further inference that the defect was caused by the original design of work which was inappropriate. Accordingly, I dismiss the Incorporated Owners’ counterclaim in respect of the retaining wall defect. Defect 3 – Unit A2 defect 91.The Incorporated Owners complained that the work carried out on the external wall was defective as water seepage occurred at Flat A2 on the top floor. Mr Lin argues that the plaintiff was under an obligation imposed by clause 7.3 of the Contract to report all risks of damage to the paintwork especially those caused by water seepage. The plaintiff charged $10,000 for checking water seepage in the external wall and reported no seepage before and during the repair of the external walls, but cracks appeared at the exterior walls of the above unit causing water seepage during the defect liability period. He therefore argues that the repair work was defective. 92.The plaintiff argues that the water seepage was not caused by defective work in the external wall but by structural alteration made by the owner of the unit and other causes outside the scope of work of the Contract. It is common ground that the owner of the unit had obtained building approval from the Building Authority to construct a staircase from inside the unit to the roof. The plaintiff’s proposition is that the building work damaged the waterproof layer on the roof which resulted in water seepage. Other possible causes were the cracks on the roof and on the inside of the parapet wall, the repair of which was outside the scope of the Contract. 93.In the Architect’s letter dated 5 December 2006 to the Incorporated Owners, its general managing director Lau reported the finding of his investigation into the water seepage problem. He reported finding of large cracks on the roof over the living room and bedroom areas of the unit. He found seepage in the ceiling wall of the master bedroom, the beam over the sitting room and master bedroom and the walls generally. While acknowledging that some anchors left on the external wall might cause some seepage, he reported that he could not exclude the damage to the waterproof layer on the roof as the cause of the seepage. The cracks on the roof were so extensive which together with the finding of seepage on the ceiling and beams drive one to the conclusion that the waterproof layer on the roof was damaged so that water leaked through the cracks, seeped through the crevices and pores of the roof slab and travelled down the walls to the floor of the unit and the wall of the unit below. The seepage caused by the anchors would be just minimal. 94.The plaintiff also referred to the final account of the contract between the Incorporated Owners and Tung Cheong which indicated that repair works had been carried out on the inside of the parapet wall on the rooftop of the unit at a cost of $18,000. On a common sense view, the crack there probably contributed to the water seepage problem in the unit. 95.Furthermore, according to the contract between the Incorporated Owners and Tung Cheong, there was no item of works related to the water seepage in the unit. This indicated that the Architect did not consider the plaintiff responsible for the water seepage in the unit. 96.Though no expert evidence has been adduced on the cause of the water seepage, the evidence is so overwhelming that on a common sense view, the only reasonable inference is that the water seepage was more likely than not caused by the cracks on the roof and inside surface of the parapet wall rather than by defective repair works on the external wall. The fact that the plaintiff did not report any finding of leakage on the external wall prior to execution of works supports this inference. The repair of the roof and the inside of the parapet wall was outside the scope of the Contract. The plaintiff could not be held responsible for the seepage caused by these cracks. In the circumstances, the Incorporated Owners has failed to prove that the water seepage was caused by defective work of the plaintiff. Accordingly, I dismiss the Incorporated Owners counterclaim in respect of the retaining wall defect. Conclusion – Defendant’s counterclaim 97.In conclusion, on the Defendant’s counterclaim, I award the Incorporated Owners damages in the sum of $69,752. CONCLUSION 98.The plaintiff filed a claim of about $1.9 million. It only succeeded in a net award of about $300,000. Except for the Retention Money Claim which was genuine and the Item 17 claim which arguably was based on an erroneous interpretation of the Contract and/or inappropriate legal advice, the other two claims were grossly exaggerated and probably made in bad faith in order to extort more money from the Incorporated Owners. Apart from the fact that the case should have been commenced in the District, it should not have taken the course it took. The plaintiff should be deprived of its costs. 99.On the other hand, the Incorporated Owners is no passive victim of the plaintiff’s wrongful conduct. While it may feel aggrieved by the plaintiff attempting to extort more money and refusing to remedy defects, its withholding of the retention money, for reasons as I have given, was utterly spiteful. The Incorporated Owners might be honestly mistaken about its claim in respect of the retaining wall defect. Its claim in respect of the Unit A2 defect was not bona fide because even its Architect opined that the cracks on the roof was the likely cause of water seepage. The Incorporated Owners’ counterclaim, put at the highest, was $196,696. It cannot justify withholding the retention money of double that amount indefinitely. Such conduct demonstrates that it was retaliating bad faith with bad faith. In the end, it succeeded only in a very small amount of less than $70,000. It should also be deprived of its costs in the counterclaim. 100.This is a case which the parties should have settled, if not through mutual negotiation, through mediation. Probably, both parties have dug their heels too deep in the sand. The parties acting in bad faith opted costly litigation instead of settlement. The case took five years to come to trial. One thing which is certain is that the Incorporated Owners should not have withheld the retention money. The plaintiff have been wrongfully and in bad faith deprived of its money for a very long time. I, therefore, award the plaintiff interest on the balance of the plaintiff’s award in the claim after deducting the Incorporated Owners’ award in the counterclaim at judgment rate from the date of issue of the writ. 101.Accordingly, I enter judgment in favour of the plaintiff in its claim against the defendant in the amount of $398,175 and in favour of the defendant in its counterclaim against the plaintiff in the amount of $69,752. The defendant’s award shall be set off against the award to the plaintiff. I award the plaintiff interest on the balance of the plaintiff’s award in the claim after deducting the defendant’s award in the counterclaim at judgment rate from the date of issue of the writ. I also make a costs order nisi that there be no order as to costs.
Mr Bernard Wu, instructed by Sidney Lee & Co, for the plaintiff Mr Kenny Lin, instructed by Y.C. Lee, Pang, Kwok, & Ip, for the defendant Please refer to CACV280/2012 for the relevant appeal(s) to the Court of Appeal. | |||||||||||||||||
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