Formalex Ltd. v. Abdoolally Ebrahim & Co. (H.K.) Ltd.

DCCJ014886A/2000

DCCJ14886/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 14886 OF 2000

 

BETWEEN
	Formalex Limited	Plaintiff
	AND
	Abdoolally Ebrahim & Co. (H.K.) Ltd	Defendant

Coram: H H Judge Carlson

Date of Hearing: 25 February 2002

Date of Judgment: 6 March 2002

_____________________

J U D G M E N T

_____________________

1. On 24 October last I delivered judgment in this matter but, having regard to the way in which I dealt with the plaintiff's claim, I decided that the proper manner in which to proceed with the counterclaim was to allow the parties time to consider the terms of the judgment first and then to give them the opportunity of addressing me further on the counterclaim before I pronounced on that.

2. This they have done and I now propose to deliver judgment on the counterclaim which forms part of my judgment in the action as a whole, and which therefore must be read together with my judgment of 24 October.

3. The counterclaim seeks:

(1) damages to be assessed;

(2) an order that alleged breaches of clauses 4(a) and 4(b) of the lease be purged by rectifying poor water pressure at the flat. This part of the claim has been abandoned and therefore requires no further consideration;

(3) costs of repair to the premises;

(4) interest;

(5) further and/or other relief;

(6) costs.

4. I have been addressed on the measure of damages for the landlord's failure to provide air-conditioning that functioned for a period of eight months; that is to say, from February 2000 until 14 September 2000 when the system was repaired and back in working order.

5. There is also a claim for specific expenditure by the defendants to put right items resulting from the failure of the air-conditioning system. To these matters I will return in a moment.

6. Having regard to the apportionment in the judgment on the claim, it seems to me that if I were to award the defendant damages on the counterclaim, I should discount those damages by 35 per cent being the percentage attributable to the defendant's failure to properly maintain the air-conditioning system.

7. The most important matter to determine is the appropriate measure of damages for the plaintiff's to provide a functioning air-conditioning system which I have already found to have failed by virtue of fair wear and tear as to 65 per cent, with the balance being attributed to a breach of the defendant's repairing and maintenance obligations in respect of that system.

8. It seems to me that the best way to approach this is to adopt the measure of damages applied by the courts for a landlord's breach of a repairing covenant. The parallels to this factual situation are obvious. The landlord let these premises with central air-conditioning. The tenant was obliged to keep the system in repair, fair wear and tear excepted.

9. I have already drawn attention to the relevant clauses in the lease which relate to these obligations. As a result of fair wear and tear and lack of maintenance by the tenant in the proportions found by me, the system broke down and the value and comfort that was provided by the air-conditioning was no longer available to the tenant.

10. Whilst this problem was ongoing in the course of 2000, the Lands Tribunal had been asked to fix a rent for the premises as from 16 April 2000 at the prevailing market rent. This was done by the tribunal, inter alia, on the basis that the air-conditioning was in "a normal reasonable state" (see paragraph 5 of the tribunal's judgment dated 5 June 2001). The rent was fixed at $95,750, a reduction from its previous level of $110,000.

11. I get particular assistance from the English Court of Appeal's decision in Calebar Properties Limited v Stitcher [1984] 1 WLR 287. In that case, the landlords had been held to be in breach of their covenant to repair. Water had leaked into the premises. The damp had got so bad that the tenant and her husband had to find alternative accommodation until the problem had been eliminated and the resulting damage put right, and also redecoration had to be carried out.

12. The Court of Appeal held that the fundamental principle to be applied in measuring and assessing the defendant's (the tenant's) damages was to restore her, so far as money could, to the position she would have been in had there been no breach of the covenant.

13. In applying that principle, the court held that the judge had properly assessed damages on the evidence as presented to him as the difference between the value the flat would have had to the defendant (the tenant) in the condition it was, and the value the flat would have had to the tenant if the landlords had fulfilled their obligations under the repairing covenant, which they had refused to do.

14. Griffiths LJ (as he then was) held that the damages in such a case should include the cost of redecoration, a sum to compensate for the discomfort, loss of enjoyment and health involved in living in the damp and deteriorating flat, and any reasonable sum spent on providing alternative accommodation after the flat became uninhabitable (see page 299F).

15. It is not necessary for me to attend to the particular factual details of that decision. Suffice it to say that there are material differences in the facts of that case and the present one, but it seems to me that the court's reasoning on principle is one that should be applied here based on the particular facts of this case and in the light of my findings as appear in my judgment on the claim.

16. In this matter, the repairs were ultimately done by the landlord, they initially having refused to carry them out for a period of many months resulting in no air-conditioning during the long and hot summer in 2000. Much of the defendant's complaint relates to the discomfort caused to Mr Ebrahim and his family. They had to endure the hot and humid conditions without air-conditioning.

17. In the course of the argument, I drew attention to the fact that the defendant (the tenant) is a limited company, and not Mr Ebrahim himself. A question then arises as to whether an inanimate entity, such as a limited company, can be compensated in such circumstances for the physical discomfort suffered by its nominated occupant, or should Mr Ebrahim have been joined for these purposes as a party in the counterclaim so as to make this head of damages recoverable?

18. In Calebar Properties Limited v Stitcher (supra) the tenant was an individual. It seems to me that on principle such damages are not recoverable by the company. It saying this, I have in mind cases such as Jarvis v Swan Tours [1973] 1 QB 233 where Mr Jarvis was able to claim damages for a disappointing holiday and all that went with that on behalf of himself and his family.

19. But in those types of cases the breaches by the other contracting party were such as to impinge on the innocent party as an individual. This type of inconvenience cannot be suffered by a limited company and so, it seems to me, that I should not include any element of compensation for distress and inconvenience and so forth in this case as it is constituted, without Mr Ebrahim as a party. I must assess the defendant's losses on the counterclaim as its losses qua tenant and qua, a tenant that is a limited company. Its losses therefore can only be pecuniary losses.

20. It entered into a lease for a luxury flat with central air-conditioning. It had no air-conditioning system from April until September 2000 and, in addition, one that was not working properly since February 2000.

21. In this regard, one needs to consider the facts as found by me in the judgment on the claim. It is clear that not all was well with the system from mid-1999 and Mr Ebrahim was complaining about that to the landlords. Some remedial works were attempted at the tenant's expense for which there is a separate claim for $13,460, to which I will come presently.

22. The landlords then came to inspect in June 2000 and the works did not get going until August 2000. Applying Calebar Properties Limited v Stitcher (supra), it seems to me that I must assess the value of the flat to the tenant without the air-conditioning, as compared to its value as contracted for with functioning air-conditioning, subject to the 35 per cent discount.

23. I have not been presented with any valuation evidence, but this is not simply a valuation exercise of the type performed in the Lands Tribunal in assessing the prevailing market rent. Mr Nasir says, and I agree, that realistically speaking nobody would wish to rent a flat of this type in Hong Kong with malfunctioning air-conditioning, and indeed no landlord would attempt to offer it for rent without a working system.

24. In the absence of precise valuation evidence, I propose to do my best on all the available evidence to perform the exercise required of me as set out in Calebar Properties Limited v Stitcher. Of course, it should be remembered that notwithstanding the lack of air-conditioning the tenant still retained the benefit of a large well-appointed flat with all the amenities that Estoril Court provides. I propose to approach the matter broadly.

25. Although the air-conditioning system was clearly sub-standard by February 2000, the cooler weather at that time of year would not have affected the situation very much. It broke down completely in April. The hot weather started in May. The usefulness and amenity value provided by the air-conditioning system would have been needed from May until 14 September, a period of four and a half months, when it was recommissioned.

26. I will assess damages for these four and a half months at $12,000 per month, which makes $54,000. For February, March and April, I take a lesser figure of $8,000 per month, making an additional amount of $24,000, giving a total of $78,000.

27. There is also a claim for $13,460 which is the cost of damage to carpets, cupboards, woodwork, furniture and fittings, the re-insulation of the chiller pipe, and for cleaning the condenser, the replacement of a solenoid valve and the repair of the drain pan insulation and consequential decorations. This claim, which is evidenced in the agreed bundle at pages 36, 38 and 40, is the result of the, by then, defective air-conditioning system in 1999. Of that I am amply satisfied.

28. This amount must be added to the $78,000, giving a total of $91,460, which must be discounted by 35 per cent for the reasons that I have already given, which produces a net amount of $59,449 on the counterclaim. Accordingly, there must be judgment on the counterclaim in this sum.

29. This sum must be set off against the plaintiff's judgment on the claim, leaving a balance over in favour of the defendants in the sum of $4,149 for which they must have judgment. That is the net effect of the judgment.

30. I will hear the parties on costs but, given the outcome where, for all practical purposes, neither party has substantially succeeded, I would have thought that the appropriate order for costs is to let these lie where they have fallen and say no order for costs on the claim and the counterclaim. But, as I say, that is a highly provisional view and I will hear the parties in respect of that.

31. Before I leave this matter, I would like to say that given the outcome, where both parties have gone to the trouble and cost of expensive litigation of what was always likely to produce modest rewards given the figures, and to have only their legal fees to show for it, I regret that some hard-headed common sense had not prevailed at the outset before a point of no return had been reached and before the litigation, in effect, turned into a contest over the costs of the action.

Argument on Costs and Interest:

32. There are two outstanding matters which follow on from the judgment that I have just delivered: firstly, the question of interest and, if I may say so, the parties have very sensibly taken the view that, given the overall outcome, it simply would not be profitable for them to pursue their respective claims for interest. That was certainly my provisional view of that and so I will not be awarding interest, although pleaded, on either the claim or the counterclaim.

33. The more difficult aspect concerns the issue of costs and I can quite see that the joint costs here may well exceed $1 million before the incidence of taxation so that this is a very substantial item. That is very much what I had in mind when I added the footnote to my judgment.

34. There are a number of possibilities here. One would be to award the plaintiff its costs on the claim and similarly the defendant its costs on the counterclaim and then allow the matter, if it could not be agreed, to proceed to what would probably be an expensive and at times complicated taxation. That is one course.

35. The other course would be to say that where the defendants have fortuitously got their noses ahead on quantum and achieved a little over $4,000 overall, then they should have their costs of the action as a whole. Let me say straight away that that is not a course that has really been strongly pressed upon me by Mr Nasir on behalf of the defendant, and I think rightly so. That simply would not properly reflect the justice of the situation.

36. There is then the other view, which was my provisional approach, which is to say that there should be no order as to costs. There are also other slightly different approaches which were canvassed in the judgment of Hale J (as she then was) in the case of Universal Cycles Plc v Grange Briar Limited, a decision of the Court of Appeal in England. The judgment has been shown to me, taken from a computer database dated the 8 February 2000.

37. When one stands back, having regard to everything that has been said so well by both Mr Chiu and Mr Nasir, I am driven to the conclusion that the just order is to say that the costs should lie where they have fallen.

38. Both parties have had their successes and their failures in this litigation and have effectively come out just about even in monetary terms and I think even on the merits overall.

39. With regret that is the order that I make. I say, with regret, because at the end of the day, it has left both parties in terms of dollars and cents, out of pocket. But I take the view that that is the correct order.

40. I shall also say, for completeness, that there will be certificate for counsel in respect of the plaintiff's costs.

41. There will be no order for costs on the claim, no order as to costs on the counterclaim.

	Ian Carlson
	District Court Judge

Representation:

Present: Mr M C Chiu, instructed by Messrs. Therese P F Chow & Co., for the Plaintiff

Mr Nasir, of Messrs. A B Nasir & Co., for the Defendant

Present: Mr M C Chiu, instructed by Messrs. Therese P F Chow & Co., for the Plaintiff

Mr Nasir, of Messrs. A B Nasir & Co., for the Defendant

DCCJ014886B/2000

DCCJ14886/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. CJ 14886 OF 2000

___________________

BETWEEN
	Formalex Limited	Plaintiff
	AND
	Abdoolally Ebrahim Co. (HK) Ltd	Defendant

___________________

Coram: H H Judge Carlson in Court

Date of Hearing: 15, 16, 17, 18 October 2001

Date of Judgment: 24 October 2001

_________________

J U D G M E N T

_________________

1. This is a claim by the plaintiffs ("the landlords"), in the sum of $158,000, which is brought against the defendants ("the tenants"), being the cost of repairing the air-conditioning system at Flat E, 41st Floor, Block 3, Estoril Court, 55 Garden Road, Hong Kong ("the premises"), which form part of a large and well-appointed block of flats, which were let to the tenants under a lease ("the lease"), dated 21 April 1998, at a monthly rent of $110,000. I will need to make specific reference to some of the terms of the lease presently. The flats were constructed in the early 1980s and occupied from 1983. Many of the flats, including these premises, are fitted with a French-manufactured Trane air-conditioning system. It is the system that was originally installed in 1983 when the buildings were originally constructed. The tenant first went into occupation on 6 November 1989, under a lease signed at that time. The flat has been continuously occupied by Mr Jaffer Ebrahim, who is the chairman of the tenants company, as a home for himself and for his family under successive two-year agreements.

2. Briefly, the issue in this matter comes about in this way. As required by the various leases signed by the tenants, the tenants have engaged air-conditioning engineers to service the air-conditioning system on annual agreements. As from about mid-1999, Mr Ebrahim began to complain that the air-conditioning was not functioning properly and he paid for repairs to be carried out to it. It finally broke down completely in about the spring of 2000. Following this breakdown, there was a dispute between the parties as to the cause of the failure of the system and whether it required complete replacement or merely extensive repairs. This resulted in considerable delays and it was not until September 2000, following a long, hot summer without air-conditioning, that the landlords' contractors carried out extensive repairs and the system could be recommissioned. The landlords now claim reimbursement of those costs, alleging breaches of the lease by the tenants for failing to properly maintain the equipment. The tenants say that this is an old system, having been in continuous use since 1983 and, inevitably, as with any mechanical equipment, its useful life-span is finite, and that notwithstanding proper servicing, it had finally broken down. The tenants rely on the exception to the repairing covenants in the lease which excludes "fair wear and tear". There is also a counterclaim against the landlord which, inter alia, seeks damages to be assessed for the lack of air-conditioning during the summer. So this is what the case is all about.

3. I should now set out the various clauses in the lease which have a direct bearing on the dispute between these parties. The lease starts at page 14 in the bundle of agreed documents. The tenant's repairing covenant is at clause 2(e). In its material parts, it is as follows:

"Save as provided by clause 5(b) hereof, keep all the interior non-structural parts of the premises and in so far as damaged or destroyed by the act and neglect of the tenant, the landlord's fixtures therein, including but not limited to all doors and windows and electric wiring installations, air-conditioning plant and ducting in good, clean, tenantable, substantial and proper repair and condition, fair wear and tear excepted, and will so maintain at the expense of the tenant and deliver up the said premises to the landlord at the expiration or sooner determination of the said period in the like condition."

Clause 2(h) contains the notice provisions, whereunder the tenant is required to repair defects for which he is liable within 30 days of a notice in writing served on him by the landlord. It is as follows:

"Well and sufficiently repair and amend all defects and wants of repair for which the tenant is liable hereunder within 30 days after notice in writing thereof, given to the tenant or left on the premises by the landlord, and in the event of the tenant's failure to comply with any such notice, in all respects the tenant will permit the landlord and the landlord's agent, with or without workmen or others, with or without appliances, to enter with prior notice upon the premises to remedy all or part of such defects or wants of repair at the cost and expense of the tenant."

That notice has been served.

Clause 2(i) is an indemnity clause which purports to require the tenant to put right defects which he is required to keep in good repair under the lease, and to indemnify the landlord for any claims brought against the landlord by any third party in respect of such defects. Its terms are these:

"Save in the events for which provision is made by clause 5(b) hereof, if any damage is caused to the landlord or to any other person whomsoever directly or indirectly, through the defective or damaged condition of any part of the interior of the premises for which the tenant is responsible hereunder, including but not limited to doors, windows, electric wiring installations, air-conditioning plant and ducting and other landlord's fixtures, be wholly responsible therefor and shall make good the same by payment or otherwise and shall fully indemnify the landlord against all claims, demands, actions and legal proceedings whatsoever made upon the landlord by any person in respect thereof."

Clause 4 contains the landlord's covenants. These are referable to the counterclaim. (a) and (b) are as follows:

"(a) The tenant duly paying the rent and observing and performing the terms of this agreement shall have quiet possession and enjoyment of the premises during the said term without any interruption by the landlord or anyone lawfully claiming under, or through, or in trust for the landlord."

"(b) The landlord shall ensure that the roof and the main drain services and pipes and all the main walls and lifts and other common building services and facilities of the building are maintained in a proper state of tenantable repair and condition, the cost to the landlord. The landlord shall not be liable under the terms of this provision unless and until notice in writing shall previously have been given by the tenant to the landlord for the want of repair and amendment, or a request in writing shall have been previously sent to the landlord to come to view the state thereof, provided the landlord shall be entitled to have a reasonable time wherein to view and ensure the repair and amendment of the said defects."

Additional mutual covenants are contained in clause 5. Clause 5(f) relates to air-conditioning. It is as follows:

"During the tenancy hereby created, the tenant shall be entitled to the use of the air-conditioning plant and ducting where installed in the building by means of any individual unit in the premises ("the individual unit"), by the landlord in the property of the landlord, provided that the tenant shall be solely responsible for its running costs and proper maintenance. For such purposes, the tenant agrees that the landlord, or such other person as shall be appointed by the landlord, shall carry out the regular comprehensive maintenance and repair of the individual unit. The cost of this work and running costs shall be borne by the tenant absolutely, provided further that the tenant shall not be entitled to any abatement of rent in respect of any period during which the said air-conditioning plant shall not, for whatever reason, be operated. The tenant further agrees not to install any additional private air-conditioning units in the premises without the landlord's prior consent."

4. It is now convenient to consider the law regarding repairing covenants of this type and the exceptions accorded for fair wear and tear. Firstly, the standard of repair. Clause 2(e) contemplates "good, clean, tenantable, substantial and proper repair and condition". This type of expression is considered in the current edition of Woodfall, Volume 1, paragraph 13.041. Where the word "repair" is qualified by some such expression as "good, habitable" or "tenantable", it would appear that these expressions mean, in general, much the same thing, although this must not be regarded as an inflexible rule. Such factors as the length of the term and the circumstances of the lease may affect the construction used in a particular covenant, so that a definition of the expression "tenantable" or "habitable repair" laid down in one case is not necessarily to be imputed to every other case where the same or similar words are used. In the leading case of Proudfoot v Hart [1890] 2 QBD 42, Lopes LJ defined "good, tenantable repair" as being such repair as having regard to the age, character and locality of the house would make it reasonably fit for the occupation of a reasonably-minded tenant of the class who would be likely to take it, and he contrasted what it would mean in Grosvenor Square with what it would mean in Spitalfields. Whilst this may be accepted as an authoritative definition of what is meant by "good, tenantable repair", the editors of Woodfall note that caution must be exercised in applying it to a case where the facts differ materially.

5. Whilst this definition holds good to this day, I must be careful to remind myself that the facts and the sort of premises which have given rise to these authorities come from Victorian England, and that I am required to pronounce on an air-conditioning system in Mid-Levels, Hong Kong, at the turn of the 21st century.

6. Notwithstanding this distinction, I do find the passage in Woodfall, at paragraph 13.042, relating to the repair of an older building of considerable assistance, where I am here having to consider a repairing covenant relating to an air-conditioning system that was certainly getting on, to put it as neutrally as I can. The material part of this passage bears repetition here.

"When an old building is demised the lessee, by his repairing covenant is bound only to keep up the house as an old building and not to give back to the lessor a new one. In order to determine the standard of repair imposed by the covenant. The age and general condition of the premises, when demised, may be taken into account but the court is not concerned with matters of detail as to the exact state of repair in the premises when demised."

The question of fact which the court has to decide is, in the words of Tindal, CJ;

"Whether the lessee's have done what was reasonably to be expected of them. Looking at the age of the premises, on the one hand and to the words of the covenant which they have chosen to enter into on the other the operation of time and the elements are bound to result in some unavoidable deterioration which could be remedied only by building a new house. This the tenant is not obliged to do. He must however undertake all repairs which are possible to make good and protect against damage caused by time and the elements and his duty is to take care the premises do not suffer more than is unavoidably brought about by those agencies.

Time must be taken into account. An old article is not to be made new but so far as repair can make good or protect against the ravages of time and the elements it must be undertaken."

7. I apprehend that I must take as a starting point of this matter the state of this air-conditioning system as at 21 April 1998. It was by then 15 years old. As I judge it the fact that the defendants had been the tenants for the previous nine years or so, under identical repairing covenants, is neither here nor there.

Each tenancy brings its own self-contained rights and obligations. This is of some importance in this case because the landlord's case is put on the basis of long-term lack of repair and maintenance by the tenant which has resulted in the eventual, and I daresay, inevitable break down of the whole system. Nevertheless it is right to observe that at the end of each tenancy it would have been open to the landlord to have the system inspected and any dilapidations or defects caused by lack of proper repair over the life of the previous tenancy to have been put right. This has not happened. What has happened here is that these tenancies have, in effect, "rolled over" with negotiations on the rent but nobody has bothered to consider the state of the air-conditioning system so long as it appeared to be operating satisfactorily, which it did until it began to give trouble in 1999, a year into this particular tenancy. During this period, that is to say from 1989 until the final breakdown in early 2000, the tenant had employed air-conditioning engineers to service the system without any notable mishap until repairs were required as from 1999.

8. The standard of repair must therefore be viewed by reference to the age and the nature of the premises at the commencement of the lease - see also Hill and Redman paragraph 6544, page A1766.

9. Next I consider the exception of "fair wear and tear". The burden lies on the tenant to establish his case when an issue such as this falls to be decided. This is helpfully discussed at 13.046 and 13.047 in Woodfall as follows, 13.046:

"The liability under a repairing covenant is sometimes limited to the exception of dilapidations caused by fair or reasonable wear or tear. This is most usually found in furnished lettings of residential accommodation. The exception includes dilapidations caused by friction of air, by exposure and by ordinary use. So the painting of outside woodwork and re-pointing brickwork have been held to be excluded by the exception. So also has the repairing of a floor affected by dry rot, though a question arises whether this can be said to be the normal operation of natural causes within the principle laid down in later cases. In a case where there was an exception of fair, wear and tear, the court laid down the principle that while the tenant was responsible for repairs necessary to maintain the premises in the same state as when he took them, yet if wind and weather had a greater effect on the premises, having regard to their character, than if the premises had been sound, the tenant was not bound so to repair as to meet the extra effect of the dilapidations so caused. Reasonable wear and tear does not include destruction by a catastrophe never contemplated by either party, even if it resulted from the reasonable use of the premises. When the lessee has covenanted to repair the interior of premises, reasonable wear and tear excepted, you will not be liable for damage caused by the bursting of an outside water pipe which the landlord to whom it belonged had failed to repair after notice."

Next, 13.047, Tindal CJ stated the effect of a repairing covenant containing an exception of reasonable use and wear as follows:

"What the natural operation of time flowing on effects and all that the elements bring about in diminishing the value constitutes a loss which, so far as it results from time and nature falls upon the landlord and the tenant is to take care that the premises do not suffer more than the operation of time and nature would effect. He is bound by seasonable applications of labour to keep the house as nearly as possible in the same condition as when it was demised. More recently it was held that to bring dilapidations within an exception of reasonable wear and tear, two things must be shown: first, the dilapidations for which exemption is claimed were caused by normal human use or by the normal action of the elements; and secondly, that they are reasonable in amount, having regard to the terms of the contract to repair and the other circumstances of the case. Although the second branch of the above rule was later rejected by the court of appeal it has since been approved by the House of Lords. Reasonable wear and tear means the reasonable use of the premises by the tenant in the ordinary operation of natural forces. The exception of want of repair due to wear and tear must be construed as limited to what is directly due to wear and tear the reasonable conduct on the part of the tenant being assumed. He is bound to do such repair as maybe required to prevent the consequences flowing originally from wear and tear from producing others which wear and tear would not directly produce. If prove is given that the tenant is not keeping the premises in a fair and tenantable manner and not keeping the interior clean and well repaired and decorated, then at the very least, the tenant must establish that the matters complained of ought to be attributed to dilapidation or damage resulting from reasonable wear and tear and to nothing else."

10. What I get from these references therefore, is that I must attend with care to the particular defects of this air-conditioning system and decide to what extent this breakdown is due to want of proper repair and maintenance and therefore to a breach of the repairing covenant by the tenant for which he ought to compensate the landlord for having carried out the tenant's obligations by putting it back into proper repair. And to what extent, if any, this breakdown can be attributed to fair wear and tear thereby exempting the tenant from any liability.

Both parties have urged an all or nothing approach but clearly it is possible to examine the evidence in order to discover whether the proper outcome on the evidence is an apportionment of this cost. That could only be achieved if the evidence demonstrates that part of the breakdown is due to lack of repair and maintenance and another element can properly be ascribed to fair wear and tear as contemplated by Tindal, CJ in Gutteridge v Munyard 7C&P 129, C13.047 Supra. This examination is one that must be carried out in the context of a case which concerns plant and equipment which was 17 years old when it broke down, but of necessity in a fairly broad sort of way where the experts, helpful as they have been, have not been invited to specifically apply their expertise to this sort of exercise. And it must follow therefore that I must move with caution when I come to a conclusion of this sort and attempt such an apportionment.

11. From this I now turn to the evidence. The landlord's case, as one might expect, is relatively straight-forward. It starts with the repairing covenant, clause 2(e) supra. Mr Chiu, who appears for them, submits that it is common ground that the system was fully operational at the start of the tenancy. When one then considers the state of the components to the system that became inoperative and required either repair and/or renewal the evidence points to a failure to repair and maintain the equipment and that this is the sole attributable cause of the breakdown of the system. In relation to the claim that old age caused the breakdown, Mr Chiu points to the fact that 99 of the 101 chiller units at Estorill Court which are serviced by Trane are those that were originally installed in 1983. He says that this must substantially dispose of the argument that age explains the failure of the system at these premises. Proper servicing should have kept the unit operational.

12. The plaintiff's expert is Mr Patrick Chow. His witness statement starts at page 20 of the witness bundle, but he was also examined and cross-examined at some length. He is well qualified to speak on air-conditioning systems of this type. A graduate of a Canadian university and a chartered engineer, he has spent his professional career in this field. Whilst his expertise has not been challenged, Mr Nasir for the tenants, has rightly drawn attention to the fact that he does not come to court as a disinterested expert because he is the principal of Associated HVAC Contracting Company Limited who were the contractors engaged by the landlords to report on the causes of the breakdown and to carry out the repairs. He is therefore in a position of having to justify his involvement as an interested contractor as well as an expert whose task it is to assist the court. That is a fair point for Mr Nasir to make. It must affect the weight that I should attach to his evidence whilst in no way impugning his knowledge of the subject matter of his evidence.

13. The other matter which Mr Nasir has drawn attention to is also a valid point which comes about in this way. Once the system had broken down there had been much to-ing and fro-ing between the parties as to how the repairs should be effected and whether this was a case of total breakdown, requiring wholesale replacement of the units. On 8 June 2000, Mr Chow's company sent in Mr Yeung, an experienced technician to examine the unit and report on it. When he got there he found that it had been disabled from the mains, so that he could not operate it to discover what had caused the breakdown. He ran a practised eye over the dormant machinery and made, of necessity, a brief report over the telephone to Mr Chow. Based on that conversation, Mr Chow felt able to write a report to the landlords on 12 June which is at page 30 of the witness bundle. I am bound to say that it reads like a reasoned report with reasoned and detailed conclusions and it comes with a price tag of $180,000 for repairs.

Mr Chow accepts that a visual inspection of the sort carried out by Mr Yeung can be no substitute for a running test. He says the report at page 30 was written on a worst case basis and because the landlords required something in writing from him. That may have been so, but for my part I would have expected a highly provisional report such as this to have explained its limitations on its face and that it could not properly be relied on without a running test. I think Mr Chow was ill-advised to send it out in this way and I accept Mr Nasir's submission that this is something to be properly taken into account in assessing his technical credibility on the other aspects of his evidence. In saying this I wish to emphasise that this reflects no moral turpitude on his part. Mr Chow came over as a perfectly pleasant and patient witness who gave evidence for much of the trial itself, but nevertheless it is a shortcoming in his evidence.

14. That having been said, a running test was conducted by Mr Yeung and his team on 14 August for over two and a half hours - see page 33. And Mr Chow was able to say that the system was not as bad as had been set out in his first letter and the repair costs were then estimated down to $158,000. The extent of the required work is at page 41 of this bundle. It can be seen that both compressors needed replacing. The condenser coil, a large piece of equipment which has been brought to court for me to examine, was also so clogged up and damaged that it needed replacing, as were the fan motors which also needed replacing. Other items set out there also required serious attention but the main items that I have identified were the most serious defects. Mr Chow concludes that these replacements would not have been necessary but for the fact that any maintenance work that the tenants service engineer, Splendor Air-conditioning Service Company, had carried out was inadequate to meet the requirements of a proper maintenance regime.

As I follow his evidence the condenser coil has simply not been properly cleaned to keep its airways open. This should have been done by the application of proper "elbow grease" by the service technicians to clear out dust and dirt and to wash it down with water and six-monthly applications of cleaning chemicals. The effect of the clogging that was allowed to develop on the coil meant that the integrity and efficiency of the system was compromised. More particularly, this caused the compressors to work under greater pressure than was necessary. They operated under stresses, which they should not have been subjected to causing an early breakdown. All of this and the general dirty state of the equipment has led him to the conclusion that servicing has been perfunctory and rather shoddy. Although these were not the expressions that he used, that is the flavour of his evidence.

15. He then examined Splendor's service contract with the tenant, which is at page 26 of the agreed bundle, and found it to be deficient in content and the fee so modest that it simply would not be possible to carry out the maintenance tasks on a commercially viable basis.

16. The tenant's expert, Dr. Lim, comes, if I may say so, with impressive academic credentials, including a PhD. in mechanical engineering. He has experience in giving evidence in court on a regular basis which Mr Chow did not, and he comes as a neutral expert in the sense that he has no association with the party calling him, of the type that Mr Chow has, and to which I have drawn attention.

That having been said, he is less experienced, on a practical basis. He is a younger man, having graduated in 1991. Mr Chow had graduated in 1978. Dr. Lim's report starts at page 55 of the witness bundle. He has considered Mr Chow's reports and the nature of the work that was required to repair the unit with particular reference to the specific parts that needed replacing, because they could not be repaired. He also examined the condenser coil which had been stored at the landlord's premises and concluded that it was sufficiently clear to operate efficiently. Unfortunately his inspection was about 18 months after it had been removed from the unit and I simply cannot tell how it had been treated over this period so I am unable to have much regard to his observations on this.

I also examined it myself and it did appear rather dilapidated although parts of its surface were clear. Dr. Lim's material evidence is that one cannot expect a system, even if properly maintained, to run for as much as 25 years as had been contended on behalf of the landlords. Whilst not seeking to be mathematically precise about it, he considered that the life of a condenser coil could well be in the order of 15 years, after which it would require replacement.

His evidence is to the effect that equipment of this sort must be expected to fail through normal use even assuming competent servicing after this sort of timeframe of around 17 years.

17. The tenant has also called Mr Santi, page 17, a mechanical engineer largely with marine experience. He is an employee of the tenants. He was asked by Mr Ebrahim to have a look at the system. He confirmed that it had broken down. His visit was on 21 July 2000. He considered that the breakdown was the result of the normal ageing of the equipment. He is a ship's engineer and has much experience of air-conditioning systems at sea. He rather thought that the life of a compressor of this type would be about 10 years. He is not surprised that after 17 years these compressors have failed.

18. Mr Carlos Chan from Splendor also gave evidence. He has been in the business for many years. He described his company's costing of their service contracts with the tenants. He accepted that the cost was competitive but as the labour charge for the technicians, who were salaried, was fixed, Splendor was able to carry out these service contracts profitably. He produced various work sheets and was able to say, as best he could, given that it was not he who did the servicing, that the services described on his company's contracts had been carried out.

19. My findings on the evidence are these: I'm bound to say that I found Mr Carlos Chan a straight-forward and trustworthy witness, although of course his time in the witness box was brief and I am conscious of the fact that it was not he, but his workmen who did this servicing work. He has satisfied me that his company contracts are commercially viable and standard in the industry as to the scope of their work. Even Mr Chow agreed that theoretically they provided most of the servicing that would be required but he had doubted that it could be done on a commercial basis and he considered that for this money only a sub-standard service could be offered. I am against him on that.

The next question to determine is whether the contracted for work had been done. Some of the work sheets are there but the tenant has not been able to call the technicians who did the work and so there is an evidential gap there. I must assess the matter on all the evidence and draw the appropriate and correct inferences. As to the condenser coil, my sense of the evidence is that it has been maintained in an effective and substantial state of repair by the tenants service contractor. Mr Yeung has said that it was completely clogged up but his evidence needs to be tempered by the fact that he is hardly neutral in this matter. His employers have recommended the replacement of the condenser coil on the basis that it had not been properly maintained.

I also need to have regard to the age of this piece of equipment and to Mr Chan's evidence, he having impressed me as a competent operator who knows about running an efficient service company. I think inevitably with this type of equipment, that is to say the condenser coil, I cannot imagine that even a reasonably conscientious service technician would give it the sort of detailed cleaning that Mr Chow described to me and which I consider would be required to keep it in proper working condition after 17 years. That having been said, age is a real factor to be weighed in this.

Of this equipment the breakdown of the condenser coil I find to be a combination of perhaps less than ideal cleaning and the function of the passing years. I will leave over my apportionment between maintenance and the ageing process until after I have considered the other parts of this unit.

20. Next, the compressors which I think have very fairly been described as the heart of the system. Both have broken down to varying degrees and needed replacing. I have listened to the rival explanations for this breakdown and again I am satisfied that an apportionment between age and therefore normal use, and less than thorough or conscientious maintenance, is required and justified.

Similarly, I come to the same conclusion in respect of the fan motors and the other equipment that needed replacing. I find that the tenants service technicians have carried out regular maintenance but overall to a lesser standard that might have prolonged the life of this system, but I remind myself that the starting point for this servicing was a 15 year old system. It is impossible to arrive at a mathematically precise apportionment in this sort of matter.

Doing my best on all the evidence I conclude that 35 per cent is the result of a failure to repair and maintain as contemplated in the repairing covenant, but that 65 per cent, the majority, is the product of the ageing process within the fair wear and tear exception.

21. On these findings, it would not have been right to effectively provide the landlord with a substantially re-furbished or new air-conditioning systems at the tenants expense when at the start of the tenancy it was already 15 years old. On the other hand, the evidence has persuaded me that this breakdown, although substantially the result of ageing, has also been contributed to by some lack of repair and maintenance by the tenant. These are the proportions that the evidence suggest as being appropriate.

Accordingly, there must be judgment to the plaintiff in the sum of $55,300 on the claim being 35 per cent of $158,000. I will now hear the parties as to the question of interest and on how this leaves the counterclaim. In their final speeches, Mr Chiu and Mr Nasir had approached this on an all or nothing basis with the result that if the claim had succeeded in full, the counterclaim would have stood dismissed or if I had found that the tenant had made out the exception of fair wear and tear in full, I would have entered judgement on the counterclaim with damages to be assessed. But in these circumstances I propose to adjourn the question of the counterclaim for further argument to a date to be fixed.

I will not require argument today on costs until I decide on the fate of the counterclaim. No doubt the parties will wish some time to consider the terms of this judgment, and in any event the landlord may wish to have Mr Chiu on the argument, he having been released by me from attendance today. So that is the judgment.

	Ian Carlson
	District Court Judge

Representation:

Mr M C Chiu, instructed by Messrs P F Chow & Co., for the Plaintiff

Mr Nasir, of Messrs A B Nasir & Co., for the Defendant

Ms T Chow of Messrs Therese P F Chow & Co., for the Plaintiff

Mr Nasir, of Messrs A B Nasir & Co., for the Defendant

DCCJ014886/2000

DCCJ14886/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 14886 OF 2000

BETWEEN
	Formalex Limited	Plaintiff
	AND
	Abdoolally Ebrahim & Co. (HK) Ltd	Defendant

Coram: H H Judge Carlson

Date: 18 October 2001

______________________

R U L I N G

______________________

1. The matter comes about in this way: the defendant seeks to call Mr Carlos Chan who is one of the principals of Splendor Air-con Services Limited, who over a number of years now have been servicing the air-conditioning system at the premises which relate to this action.

2. The plaintiff's expert, Mr Patrick Chow, having looked amongst other things at the service contract between the defendant and Splendor Air-con Services Limited has given evidence to the effect that the price charged for these services, the most recent being $6,800, is so low, and relatively speaking, so out of line with the current market rate that the nature of the works which are being provided under that service contract are quite inadequate to give proper service to this air-conditioning system. So that is an important piece of evidence.

3. Now, on what is the fourth day of the trial, Mr Nasir, who appears for the defendants, wishes to call Mr Carlos Chan to give evidence, amongst other things, about the nature of the works offered under the service contract and no doubt to try and justify, if he can, the relatively speaking, low price charged for these services. Mr Chiu, who appears for the plaintiffs, not unreasonably, objects. He says they have had plenty of time to do this. They have been aware of this point because so much appears in Mr Patrick Chow's witness statement, which is in dated March this year. The point has also been pleaded and it is simply not right on the fourth day of what had originally been listed as a three day trial to bring the witness along to deal with these points. I think there is a lot of force in this.

4. But I have decided that I will allow Mr Chan to give evidence, but just limited to that point. The reason for my decision is that I take the view that there is no evidential prejudice to the plaintiff. The plaintiff has been able to call evidence itself on this point and although there is no witness statement from Mr Carlos Chan, much of this area is covered in the documents and I am going to allow him to do that. So that is the limit of it.

5. If Mr Chiu wishes for an adjournment to deal with any of these points, if that arises, then I shall consider any application for an adjournment and I would have thought that the costs occasioned by that adjournment would inevitably have to be borne by the defendant, but that is another matter which may not arise and I hope does not arise.

	Ian Carlson
	District Court Judge

Representation:

Present: Mr M C Chiu, instructed by Therese P F Chow & Co., for the Plaintiff

Mr Nasir, of A B Nasir & Co., for the Defendant