Faithful Trading Co Ltd v. Noble Crown Restaurant Ltd

CACV000037/1974

IN THE SUPREME COURT OF HONG KONG

(APPELLATE JURISDICTION)

CIVIL APPEAL NO. 37 OF 1974

(On appeal from O.J. 867/74)

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Coram: Huggins, McMullin & Pickering, JJ.

Date of Judgment: 15th January, 1975.

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JUDGMENT

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Huggins, J.:

1. There were in the District Court two separate actions brought by different Plaintiffs against the same Defendants. An order was properly made for the trials of these actions to be consolidated, but a further order was then made for them to be transferred to the Supreme Court. Unfortunately the formal order was drawn up as though there was, after the order for consolidation, only one action. That was incorrect and, since the present appeal is brought in respect of only one of the actions, reference to the other action and the inclusion of papers relevant only to that action have been not only unnecessary but confusing. It should be borne in mind that consolidated actions can at any time be deconsolidated if the court thinks fit. The titles of both actions should therefore appear as the heading to documents filed during the period of consolidation. We are concerned only with the claim by the Faithful Trading Co., Ltd. against the Noble Crown Restaurant Ltd. for the balance of the purchase price of a water heater and in my view it is irrelevant to that claim that an associated company was responsible for the installation.

2. The judge found that there was no express representation by the Plaintiffs that the heater supplied would be suitable for the purpose for which it was supplied and there is no appeal against that finding. However, the judge held that there was a condition implied by s.16(a) of the Sale of Goods Ordinance that the heater was suitable for the purpose for which it was intended and he further held that that purpose was not merely to provide all the hot water required by the restaurant but to provide that water through the existing system of pipes. It is this last ruling which has been the issue on the appeal, for it is not really disputed that with suitable pipes the heater could have done all that was expected by the Defendants.

3. The technical details were not explored as fully as one might have hoped, but as I understand the evidence the truth is that no heater of any kind would have been satisfactory with the existing pipes. They were said to be too small even for the old heater which was being replaced and they could safely operate at no greater pressure than three pounds a square inch. When it was said that they were too small even for the old heater it is not clear exactly what was meant, for we do not know what type of heater it was - only that it was different from the Plaintiffs' heater. The latter incorporates a heat exchanger and the oil burners do not heat the out-flowing water directly nor are they controlled directly by the out-flowing water. The burners heat the "primary" water in the boiler. This is contained in a closed circulation system and is constantly re-used. The prime water is heated until steam is raised and the pressure in the boiler builds up. The "wash", or out-flowing, water passes through small bore copper pipes which are arranged in the top of the boiler so that they are surrounded by the steam. Heat from the steam is transferred to the wash water. When the pressure in the boiler rises to a predetermined level the burners are automatically cut off. As the steam from the prime water is exchanged into the wash water the temperature of the prime water drops. That in turn reduces the pressure in the boiler and when a predetermined level is reached the burners automatically light once more. The heater is designed to operate with the incoming wash water at a pressure of fifty to sixty pounds a square inch. From what I have said it will be seen that that does not mean, as it would with some other types of heater and as apparently happened with the old heater, that unless the wash water entered at a sufficient pressure the burners would not light: it means that only at the prescribed pressure can the wash water pass through the heater in the desired quantities and the optimum value be obtained from the heat exchanger. Provided that the pressure is sufficient to force the wash water through the heater the heater will operate. However, inefficient operation can result not only from low pressure on the inlet side: it can result from limiting the capacity of the pipes, or the pressure in the pipes, on the distribution side. In the present case both defects were found to be present on the distribution side and what the Defendants contend is that the Plaintiffs ought to have told them that their heater would not operate satisfactorily with those pipes, however good it might be in itself. Does it make any difference that, in truth, the Defendants were asking for the impossible and no heater of any kind, however efficient, could have done what they wanted? As it is accepted that a reasonable inspection of the system of pipes would have revealed its unsuitability, I have, though with considerable hesitation, come to the conclusion that it does not and I therefore agree that in so far as the appeal is against the finding of liability it must be dismissed.

4. The parties having agreed that the Appellants should pay less than the sum awarded under the heading of electricity charges the ground of appeal based upon those charges has not been proceeded with. As the other grounds have been, in my view, demonstrated to be without substance the appeal should be allowed to the extent only that the damages are to be reduced by a sum of $562.50. The Respondents should have the costs of the appeal.

15 January 1975.

Representation:

IN THE SUPREME COURT OF HONG KONG

(APPELLATE JURISDICTION)

CIVIL APPEAL NO. 37 OF 1974

(ON APPEAL FROM O.J. 867/74)

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Coram: Full Court (Huggins, McMullin & Pickering, JJ.)

Date of Judgment: 15 January, 1975.

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JUDGMENT

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McMullin, J.:

5. The Noble Crown Restaurant Ltd. was the defendant in two separate actions brought against it in the District Court by two similarly named companies arising from the purchase from one of those companies of a water heater and the installation of the same heater by the other company at the defendant company's premises in Kowloon. The Faithful Trading Co. Ltd. (appellants in the present appeal) claimed $14,340 being the price of the water heater less a sum of $4,302 paid pursuant to the contract by the defendant restaurant (the respondents in the appeal) the balance being $10,038. The Faithful Engineering Co. Ltd. claimed $4,224 as the cost of installing the machine. The respondents denied that the water heater was suitable for the purpose intended. They demanded a sum of $41,130 as damages for electricity used in procuring an alternate supply of hot water and claimed also the refund of a deposit of $4,302. These actions were subsequently consolidated and were transferred for hearing to the Supreme Court.

6. The learned trial judge found that the water heater, which had been installed in August 1972, had never thereafter worked satisfactorily and that it was in effect unfit for the purpose for which it was required viz. : the heating of water for the three floors of the restaurant. It was common ground between the parties that the reason for this was not that there was any inherent defect in the machine itself but that it was unsuited to the existing water pipe system at the respondents' premises. The reason for this was that the heater was designed to operate at a water pressure of 50 to 60 pounds per square inch whereas the piping system in the defendants' premises was capable of carrying a pressure not in excess of 8 pounds per square inch. The judge accepted the respondents' contention that they had relied upon the skill and judgment of the appellants and, although not expressly stated, it is implicit in his judgment that they would have been entitled to reject the heater and to claim back their deposit. Since, despite many complaints and some unsuccessful attempts at remedial alterations, they had never finally done so until the commencement of the proceedings, he dealt with the question of damages on the basis that the appellants were entitled to the price of the heater against which, however, were to be set off such sums as were to be awarded to the defendants upon their defence and counterclaim. The formal order drawn up pursuant to his judgment provides that the claim of the Faithful Trading Co. Ltd. be dismissed and that judgment be entered for the defendants on their counterclaim but this is clearly an error. Plainly, what the judge intended to do was to give judgment for the plaintiffs on their claim and judgment for the defendants on their counterclaim.

7. Judgment was also entered in favour of the Faithful Engineering Co. Ltd. in the sum claimed, being the cost of the installing of the water heater. The respondents do not now seek to contest the propriety of that order.

8. It was one of the grounds of appeal that the judge erred in including the sum of $4,224, the installation costs, as part of the award of damages made in favour of the respondents. This was faintly argued however and I do not think that error has been shown. It is true that a form of wording was employed by the judge at one point in the course of his judgment which, interpreted in one way, might seem to imply that he had forgotten that there were two separate actions and two separate plaintiffs and that he was treating the cost of installation as though it were part of the purchase price of the water heater itself. For my part, I think that what he meant was that the cost of installation of the heater, which was necessarily incurred by the respondents, and which was wholly thrown away as a result of the appellants' breach of contract, was itself a consequential loss resulting from that breach for which the appellants must be answerable.

9. Another ground of appeal related to the award of damages made in the respondents' favour arising from the electricity charges incurred in supplying hot water from an alternative source. Originally it was argued by Mr. Bokhary for the appellants that the judge should not have made any award in respect of this because, it was said, the documentary evidence put forward in support of it was inadequate and confusing. Since however a compromise in relation to this claim was announced by counsel in the course of the hearing of the appeal I prefer, at the moment, to say nothing more of it save that I cannot agree that the learned trial judge was not entitled to take this evidence as he found it and, lacking any assistance by way of explanation from the side proffering the documents, or by way of criticism from the other side, to make out as best as he could a figure roughly equivalent to the excess expenditure upon water heating necessitated by the failure of the appellants' machine. The bills supporting this claim are indeed complicated in their co tents and are also apparently not complete. I am not prepared to say that the judge was wrong to examine them and base his award upon them. No attempt has been made in this court to indicate to us where the error lay in his actual calculations.

10. The principal ground of appeal was that the learned trial judge was wrong in concluding that the respondents were covered by paragraph (a) of Section 16 of the Sale of Goods Ordinance Cap. 26. The trial judge had rejected an alternative contention made on behalf of the appellants to the effect that a representative of the appellant company had actually made a representation that the water heater would be suitable for use with the existing piping system. In relation to the Section he said:

"It must be admitted that Mr. Cheung used his own judgment to some extent in that he alone decided upon the size of the heater required, that is, as to the hourly capacity of the machine. But there is no evidence that he went further and considered what was the water pressure required to enable the machine to exploit that capacity to the full or even to work at all. This is a technical matter within the competence of the plaintiffs, easily discoverable upon an inspection of the defendants' overall system. I accept that Mr. Cheung relied upon the plaintiffs to exercise that competence, and that they were aware of this or should, as reasonable persons, have been so aware."

There was in my view abundant evidence upon which he could so find. Firstly, there was the fact that the reason for purchasing the new heater was that the old heater, a locally made machine, although it had performed with some degree of success was not capable of supplying sufficient hot water to all the floors of the restaurant. Then there was the undoubted fact that a survey of the piping within the boiler room of the restaurant was carried out by an employee of the appellants prior to the installation. He was not the only employee of the appellants to visit it and inspect the system, although it appears that neither he nor any of the others who did so ever looked at the distribution pipes outside the boiler room before the new machine was supplied and installed. The employee principally charged with the duty of seeing to the system was Mr. NG Cheuk-hang and he told the court that after the installation he discovered that the distribution pipes were too long and narrow and he said that had he known this before the installation he would have told the customer. There was a very sharp division in the evidence as to whether the appellants had represented that they would guarantee the efficiency of the machine in relation to the existing water system. Mr. Cheung the Director of the respondent company, said that he had left everything in the discretion of the appellants after the inspection. The appellants' witnesses, principally a Mr. Sze, denied this strongly. Mr. Sze insisted that Mr. Cheung in fact alleged that he knew a lot about machinery. The trial judge although he found that Mr. Cheung "used his own judgment to some extent in that he decided upon the size of the heater required" was satisfied that Mr. Cheung had never turned his mind to the question of what pressure was required to enable the machine to work properly.

11. When one considers that the two plaintiff companies were sister companies charged respectively with the duty of selling these machines and of installing them and that experts from the engineering company did have the opportunity of surveying the entire available water pipe system before the machine was installed, and that they did so at the invitation of the respondents, it seems clear that the respondents were indeed relying upon their skill and knowledge in supplying a heater which was supposed to overcome the difficulties of water supply already encountered at the restaurant. Added to that there is the fact that, after the install tion of the heater, more thorough inspection revealed that the existing water pipes system was wholly unsuited to that particular heater which, although it did not fail to function altogether, functioned with considerably less efficiency even than had the former heater. The trial judge found - and this was not disputed before us - that the question of the pressure in the heater and in the pipes was the vital question. Mr. Ma of the Engineering Company explained that the pressure factor was important in relation to whether or not the fire in the heater could be maintained without cutting out so frequently that hot water could not be delivered to the more distant parts of the premises.

12. It appears to me that these considerations are sufficient to dispose of the appeal purely on the facts. Even on the facts which were not in dispute I think that the conclusion must be that the respondents were not simply buying goods from the appellants, they were buying something which could only be of value to them if it was capable of integration in the existing equipment, a fact known to the appellant company; in inspecting the premises before delivery and in making recommendations concerning the water supply the appellants made it clear they were shouldering the onus of a special knowledge in the matter. That being the case it was incumbent upon them to make quite sure that what they were selling would fulfil the demands which they knew the respondents intended to make upon it. It was not shown that there was in the water system at the restaurant, to the knowledge of the respondents, some exceptional peculiarity which might have relieved the appellants of the burden placed upon them. Mr. Bokhary sought to assimilate this case to those cases in which goods supplied, and which would be adequate within the context of the usual circumstances of buyers of goods of that description, had nevertheless proved to be inadequate or dangerous because of some hidden and unusual circumstance in the buyer's situation which had not been made known to the seller - such cases, that is to say, as Griffiths v. Conway ⁽¹⁾ a case in which the purchaser of a Harris tweed coat developed dermatitis from wearing it because of an abnormally sensitive skin condition, a fact which was unknown to the seller at the time of the sale. I do not read the evidence in the present case as showing that the water pipe system at the respondents' restaurant could be regarded as suffering from an abnormality of which the appellants could not have been expected to know and which would have wholly defied the efficiency of any water heater. Indeed the evidence seems to show that the previous system worked to some extent; but even if the evidence does go so far, nevertheless that particular line of authority would not apply since, in the present case, steps were taken by the suppliers to see whether the system was adequate. Those steps themselves proved to be inadequate and the point about them is they show clearly that the appellants, if they did not know of the deficiencies which their heater was going to encounter, ought to have known of them.

13. Mr. Bokhary also sought to rely upon the decision of the House of Lords in Cammell Laird & Co. v. The Manganese Fronse & Bross Co. ⁽²⁾. In my view neither that case nor yet Manchester Liners, Ltd. v. Rea, Ltd. ⁽³⁾ (relied upon by Mr. Tang for the respondents) is exactly in point. In those cases it was held that because either the actual identity of the ship (the former case) or else the nature of the ship (the latter case) was revealed to the supplier of the goods the supplier in each case, had been put on notice of the precise purpose for which the goods were intended and was therefore obliged to use its skill in supplying goods exactly suitable to that description. The supplier was saddled with this responsibility either by virtue of its special knowledge of the nature of the ship or because it was aware of the need to make due inquiry as to any special circumstances connected therewith. It may be that the special skills of a firm which manufactures propellers for ships, or the special knowledge of a coaling firm dealing largely in the supply of coal to ships, put such firms somewhat more acutely upon enquiry in relation to the circumstances of the recipient of their goods than is the case where the supplier is the seller of a hot water heater of common pattern. As to that I do not think that it is necessary, in the circumstances of the present case, to express an opinion either way. The fact remains that the conduct of the parties, in particular the supply of skilled inspection of the respondents' premises by the appellants, was quite sufficient warrant for the learned trial judge to come to the conclusion to which he came, namely that the buyer had made known to the seller the particular purpose for which the goods were required in such a manner as to show that he was relying upon the latter's skill and judgment.

14. The parties having agreed that the appellants should pay less than the sum awarded under the heading of electricity charges the ground of appeal based upon those charges has not been proceeded with. As the other grounds have been, in my view, demonstrated to be without substance the appeal should be dismissed with costs.

Representation:

(1) (1939) 1 All E.R. 685.

(2) (1934) Appeal Cases 402.

(3) (1922) 2 A.C. 74.