Arnold Robert Ltd v. Glorious Motors Ltd

CACV 568/2018

[2021] HKCA 126

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 568 OF 2018

(ON APPEAL FROM HCA NO 950 OF 2014)

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Before:  Hon Kwan VP, Yuen and Au JJA in Court

Date of Hearing:  5 September 2019

Date of Judgment:  5 September 2019

Date of Reasons for Judgment:  28 January 2021

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REASONS FOR JUDGMENT

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Hon Au JA (giving the Judgment of the Court):

A.  INTRODUCTION

1.By way of an agreement dated 28 January 2014 (“the Agreement”), the plaintiff agreed to purchase from the defendant (a dealer in used luxury automobiles) a McLaren (model number MP4-12C with registration number “SA 1280”) at the price of $3.48 million, which was to be paid for partly by cash and partly by the plaintiff trading-in its used Ferrari (model number 599-F1 with registration number “00LALA”) (“the Ferrari”) valued at $1.49 million.

2.However, the defendant later refused to take up the Ferrari for trade-in purpose as it claimed that (a) the Ferrari did not have the full “HGTE package”[1] as specified in the Agreement, and (b) the Ferrari had certain defects which constituted more than reasonable wear and tear depreciation or “damage” to its exterior body work or interior of the car.  It therefore demanded the plaintiff to either pay for the installation of the missing part of the HGTE package and the repair of the defects, or agree to cancel the Agreement.  The plaintiff refused and maintained that the conditions of the Ferrari complied with the terms of the Agreement.  The defendant then terminated the Agreement and returned the deposit paid by the plaintiff.

3.The plaintiff thereafter brought the action herein against the defendant for damages for breach of the Agreement.

4.After trial, by way of the judgment dated 8 November 2018 (“the Judgment”), Recorder Stewart Wong, SC (“the Recorder”) found that the defendant was in breach of the Agreement in refusing to accept the Ferrari as the trade-in vehicle and in terminating the Agreement.  He therefore gave judgment in favour of the plaintiff and ordered the defendant to pay damages in the sum of HK$696,000.

5.This is the defendant’s appeal against the Judgment.

6.At the end of the hearing, we dismissed the appeal with costs, and indicated that we would hand down our reasons.  This is what we do now.

B.  BACKGROUND

7.The undisputed background facts leading to the dispute were summarized by the Recorder at [1] - [29] of the Judgment.  We shall not repeat them but only summarize below those that are relevant to this appeal.

8.Mr Adrian Petter (“Petter”) was a consultant of the plaintiff and he acted on its behalf in all the dealings with the defendant.  In May 2013, the plaintiff through Petter purchased the Ferrari which was manufactured in 2007.

9.It is common ground that:

(1)  There were different HGTE features or options that could be installed in certain models of Ferrari, depending on their years of manufacture, for enhancing driver’s experience and the vehicle’s performance.

(2)  For a 2007 model, like the one the plaintiff had, it was only capable to be installed with up to three HGTE packages or kits[2], namely (a) the HGTE handling package, (b) the HGTE exhaust package, and (c) the HGTE aesthetic package.  They were expensive to install[3]. Thus, a 2007 model Ferrari could have no HGTE package at all, or one or a combination of any of these three packages.

(3)  The plaintiff had caused the Ferrari to be installed with only the HGTE handling package through its official dealer Auto Italia Limited (“Auto Italia”) in May 2013 at the price of $179,094[4].  In other words, the Ferrari did not have the HGTE exhaust package or HGTE aesthetic package.

10.Sometime in December 2013 to January 2014, Petter visited the defendant’s showroom.  He was attended by Ms Chen Jiaxuan (“Cherry Chen”), a sales consultant of the defendant.  Petter offered to trade in the Ferrari as partial payment for the purchase of the McLaren.  Cherry Chen later went to have a viewing of the Ferrari on 23 January 2014 at the car park of Petter’s apartment building (“the Viewing”).  She took some pictures[5] of the Ferrari and sent them to her supervisor Mr Fan Chun Hung (“Fan”) on the same day.

11.After the Viewing, the plaintiff and the defendant signed the Agreement on 28 January 2014 whereby the plaintiff agreed to trade in the Ferrari and purchase the McLaren with equality monies.  Clauses 8.1, 8.2 and 10.2 of the Agreement provided as follows:

“8.1 The Purchaser warrants that the particulars of the trade-in vehicle stated above are true and accurate. If not, the Seller is entitled to reduce the price of the trade-in vehicle or cancel the trade-in. If the price of the trade-in vehicle is reduced, the Purchaser must make good the difference. If the Seller cancels the trade-in, the Purchaser must continue to perform this Agreement and complete the purchase of the Vehicle.

8.2 The Purchaser warrants that the trade-in vehicle has no structural and mechanical defects, that the trade-in vehicle has not been involved in serious collision or serious traffic accident resulting in the welding of the engine compartment to the body of the Vehicle, the welding of the luggage compartment to the body of the Vehicle, the welding of the axles and drive shafts, and that the trade-in vehicle has not been flooded. The Seller shall accept the trade-in vehicle if it has reasonable depreciation and reasonable wear and tear. The Seller can demand the trade-in vehicle be inspected by the dealer. If the inspection report shows that the condition of the trade-in vehicle is different from the Purchaser’s above warranties, the cost of inspection shall be borne by the Purchaser and the Seller is entitled to reduce the price of the trade‑in vehicle or cancel the trade-in. If the price of the trade-in vehicle is reduced, the Purchaser shall make good the difference. If the Seller cancels the trade-in, the Purchaser must continue to perform this Agreement and complete the purchase of the Vehicle. If the inspection report confirms the warranties of the Purchaser, the costs of inspection shall be borne by the Seller.

…

10.2  If the Seller fails to complete this transaction in accordance with this Agreement after receiving the deposit from the Purchaser, the Seller shall refund the deposit to the Purchaser and compensate the Purchaser in the amount of 20% of the Vehicle Price as stated in clause 7.1. The Purchaser shall have no other claims against the Seller including but not limited to damages or specific performance.”

12.More pertinently, the following two clauses of the Agreement feature significantly at trial and in this appeal.

13.Clause 11.11 (“Clause 11.11”) of the Agreement is titled “Remarks”, and with these words inserted by hand by Cherry Chen: “The trade‑in vehicle 599F1 with HGTE package”.

14.Further, the following additional handwritten clause (“the Handwritten Clause”) was also inserted in the Agreement in a space between clause 8.5 and clause 9.1 by Cherry Chen:

“If either party find that after inspection by the offical car dealers namely Auto Italia LTD and McLaren HK LTD for the respective vehicles described within, that the dealers inspection discovers any damage to either vehicle in terms of the exterior of the vehicles body work, the interior, or the mechanincal parts or structura of the vehicle then both partys have the right to cancel the deal and the deposit shall imeadietly be returned” [sic] (emphasis added)

15.Pursuant to the Agreement, the McLaren and the Ferrari were sent for inspections by their official dealers respectively.  On 12 February 2014, Cliff Louie (“Louie”) of Auto Italia emailed Petter and attached a pro‑forma invoice of $10,682.10 for the annual service of the Ferrari.  He informed Petter on the next day that the defendant had settled the invoice.

16.On 14 February 2014, upon the defendant’s request, Louie prepared another quotation (“the Quotation”) for various works to be done on the Ferrari, including the installation of the HGTE exhaust system, and the repair or replacement of the seatbelt lock, the front underfloor fender, and the roof upholstery, at a total sum of $213,907.  The defendant through Cherry Chen showed Petter the Quotation and requested him to pay for the matters as stated in the Quotation.  Petter refused to do so.

17.As a result, the defendant through its solicitors sent a letter dated 19 February 2014 to the plaintiff, which stated relevantly as follows:

“The abovesaid arrangement was subject to the conditions as highlighted in Clauses 8.1 and 8.5 together with the handwritten supplemental clause in the Agreement. In particular, we wish to draw your attention to the following clauses:-

[After citing clauses 8.1 and 8.2, the letter continued:]

It was an implied term that owner of the two vehicles shall take their own vehicle to the official care dealers to conduct the inspection and repair …

We are instructed that our client has duly conducted inspection and repair of the McLaren on or about 14^th February 2014 for you as requested. Copy of the corresponding reports, quotations and invoices have been delivered to you promptly. At about the same time, we received from you or your agent an inspection report and a quotation from Auto Italia Ltd, regarding the Ferrari. Nonetheless, we are told that you have not proceeded with the required repairing work as per the Agreement.

In addition, we notice from the quotation from Auto Italia Limited that HGTE Exhaust Kit needs to be installed in the Ferrari. As such, we put on record that the Ferrari does not come with full HGTE package as claimed and stated in the Agreement.

We are now instructed, which we hereby do, to urge you taking appropriate steps to complete this matter. You could either complete the deal in accordance to the terms and conditions of the Agreement and to settle all outstanding sum due to Auto Italia Limited; or you confirm to cancel the deal and have the deposits refunded in the appropriate manner.” (emphasis added)

18.It is therefore the defendant’s position that, given the matters set out in the Quotation, the Ferrari did not comply with the terms and conditions of the Agreement.  In particular, the defendant complained that the Ferrari did not come with “full HGTE package as claimed and stated in the Agreement”.  It demanded the plaintiff to either complete the Agreement in accordance to its terms and conditions by settling all outstanding sum due under the Quotation, or confirm to cancel the deal and have the deposits refunded.

19.The plaintiff however refused to pay for the works stated in the Quotation and demanded the transaction be completed with the Ferrari to be accepted as the trade-in vehicle.  It further attempted to tender the balance of the price (in the sum of $1,976,694) by sending a cheque to the defendant.  The defendant returned this cheque and the deposit (in the sum of $25,000) to the plaintiff thereby terminating the Agreement.

C.  THE JUDGMENT

20.In May 2014, the plaintiff brought the present action against the defendant claiming damages for breach of the Agreement.

21.In defence, the defendant said it was entitled to terminate the Agreement as:

(1)  Clause 11.11 was a material term of the Agreement, which properly interpreted, meant that the Ferrari was installed with all the HGTE packages which could possibly be installed on it.  Given that the Ferrari only had the HGTE handling package, the plaintiff was in breach of this material term of the Agreement, which breach was accepted by the defendant.

(2)  The Ferrari came with defects which were more than reasonable wear and tear depreciation, or alternatively constituted damage to exterior body or the interior of the Ferrari.  In the premises, pursuant to the Handwritten Clause, the defendant was entitled to cancel the transaction.

22.Given these defences, the Recorder rightly summarized the issues for trial at [71] of the Judgment as follows:

“71.  In my judgment, the crucial issues in this case are whether the defendant was entitled not to accept the Ferrari as the trade-in vehicle because (i) the Ferrari did not have the ‘full’ HGTE package, and/or (ii) it had defects which were more than reasonable wear and tear or depreciation, or otherwise entitling the defendant to cancel the transaction under the Handwritten Clause.”

23.After trial, by way of the Judgment, the Recorder found in favour of the plaintiff and rejected the defences.

24.He rejected the defendant’s Clause 11.11 defence for the following reasons:

(1)  He found that Clause 11.11 was essential and material to the Agreement and that the Ferrari for the purpose of the sale should have the details as stated in clause 8, and “with HGTE package” as stated in Clause 11.11: see [72] - [83] of the Judgment.

(2)  However, in construing the meaning of the words “with HGTE package” against the factual matrix that three HGTE packages could have been installed on a pre-2009 Ferrari, the Recorder came to the view that objectively Clause 11.11 could not have meant that the Ferrari must have all the HGTE packages that could have been installed in it as contended by the defendant.  In this respect, the Recorder did not find it necessary to conclude if the clause was too uncertain (as submitted by counsel for the plaintiff) and therefore had no effect.  This was so as the defendant could only successfully show that the plaintiff had breached Clause 11.11 if the clause bore the meaning the defendant had contended for, which he rejected.  See [84] - [89] of the Judgment.

(3)  Further, although he found it not necessary to resolve the factual disputes between the parties as to what was or was not said during the course of negotiations, the Recorder expressed the view that it was most unlikely that Petter would have said or conveyed a message to Cherry Chen that the Ferrari had “everything” HGTE as suggested by Cherry Chen in evidence.  Thus, if required to do so, he would accept Petter’s evidence and reject that of Cherry Chen and Fan in this regard.  See [90] of the Judgment.

25.The Recorder also rejected the defendant’s reliance on the Handwritten Clause for the following reasons:

(1)  He held that on a proper construction against clause 8.2, the Handwritten Clause was not intended to cover wear and tear defects, and would only cover those defects that went beyond reasonable wear and tear.  In other words, to be caught by this clause, the defect “must be some physical harm or injury to the vehicle not caused by the process of ordinary use”.  See [91] - [98] of the Judgment.

(2)  The Recorder then ruled that, of the four defects identified by the defendant, the item of “missing screw at the radiator” did not fall within the meaning of the word “damage” as described in the Handwritten Clause, and thus was not caught by it.  For the other three items, namely the crack or damage to the underfloor fender, the damaged seat belt and the damage to the roof upholstery, the Recorder concluded that, in the absence of expert evidence, he was unable to resolve the factual questions as to whether they constituted more than reasonable wear and tear and thus fell within the Handwritten Clause.  In the premises, the defendant failed to prove that the plaintiff was in breach of the Handwritten Clause.  See: [99] - [106] of the Judgment.

(3)  Further and alternatively, even if those defects were more than reasonable wear and tear, the Recorder noted that when the defendant purported to terminate the Agreement through its solicitors’ letter dated 19 February 2014, it only relied specifically on clauses 8.1 and 8.2 but not the Handwritten Clause. In the premises, applying the principle in Glencore Grain Rotterdam BV v Lebanese Organization for International Commerce [1997] 4 ALL ER 514 at 526e-h, the defendant was not entitled to rely on the Handwritten Clause now because if that “good” reason was taken at that time, the plaintiff could have been in a position to put right the defects[6].  See [107] - [110] of the Judgment.

D. THIS APPEAL

D1.    Grounds of appeal

26.The defendant raised two grounds of appeal.  It challenged under the first ground the Recorder’s interpretation of Clause 11.11 (“Ground 1”) and, under the second ground, the Recorder’s ruling regarding the Handwritten Clause (“Ground 2”).  We will now turn to consider these grounds in detail.

D2.    Ground 1

27.Under this ground, the defendant contended that on a proper construction, Clause 11.11 should bear the meaning as advanced by it, in that the Ferrari was installed with all HGTE packages which could have been installed in that model.  Alternatively, the defendant submitted that the Recorder, after finding that the clause was uncertain, should have concluded that the Agreement was unenforceable given his (correct) conclusion that Clause 11.11 was a material term of the Agreement.

28.At the hearing, Mr Yau (together with Mr Li) for the defendant focussed his submissions on the alternative basis that the uncertainty of Clause 11.11 rendered the Agreement unenforceable.  In relation to this, it is perhaps helpful to first look at the Recorder’s reference to the uncertainty of Clause 11.11 at [87] - [89] of the Judgment:

“87. The words in clause 11.11 could of course have been more clearly drafted, by identifying the specific package or packages (handling, exhaust or aesthetic), or by saying that the Ferrari was with ‘a HGTE package’ or ‘the HGTE package’ or ‘all HGTE packages’. However, I must construe the actual words used in the light of the factual matrix.

88. In my judgment, the reasonable man would, with the aforesaid knowledge in mind when he reads clause 11.11, not have thought that the words meant that the car would necessarily have all the HGTE packages or features which could have been installed. That would be reading too much into the words. A more realistic reading is that they describe a car with some HGTE package. Most probably, knowing that there were a number of different HGTE packages available, the reasonable man would, on reading this clause, find out more, namely exactly what package or packages the car had? Viewed in this light, I tend to agree with Mr Thomson’s submission that clause 11.11 is uncertain. However, it is not necessary for me to express a concluded view as to whether the clause is too uncertain and is therefore of no effect. In my judgment, one simply cannot construe clause 11.11 in the manner suggested by the defendant, which is the only manner in which the plaintiff could have breached the same. If clause 11.11 is too uncertain, in my judgment that would not render the Agreement unenforceable, but only that I shall proceed as if clause 11.11 is not there.

89. Given that the Ferrari did have a HGTE package, namely the HGTE handling package (see §9 above), which is an agreed fact (§8 above), I find that the defendant was not entitled to terminate the Agreement, or require the plaintiff to pay for the installation of other HGTE features, or to reject the Ferrari as the trade-in vehicle, because of clause 11.11. It is either too uncertain to have legal effect, or it has not been breached by the plaintiff.” (emphasis added)

29.Fastening upon these parts of the Judgment, Mr Yau now submitted that[7], after rightly finding that Clause 11.11 was a material term of the Agreement and effectively accepting that its meaning was uncertain, the Recorder erred in concluding that the uncertainty did not render the Agreement enforceable.

30.In support, Mr Yau highlighted that, given the common ground that the Ferrari could be installed with up to three HGTE packages, Clause 11.11 was indeed uncertain and the Agreement was thus enforceable because:

(1)  The absence of any adjective to qualify the word “package” after the expression “HGTE” in the clause cannot give the reader any idea what “kit” or “package” the car was installed with;

(2)  The word “package” was not preceded with the article “a” or “some” and it was not in plural form.  Since “package” could be in collective form, it could mean that the car contained “a group of HGTE factors”, which should mean all HGTE factors unless it was appropriately qualified;

(3)  Since the Recorder rightly found that Clause 11.11 was material and essential to the Agreement, it was wrong for him to find that the uncertainty of the clause would not render the Agreement unenforceable because if it was uncertain, there would be no way that a party could comply with it satisfactorily.

31.We are not persuaded by these submissions.  As indicated at the hearing, for the following reasons, we are of the view that, on a proper construction, Clause 11.11 is clear in its meaning.

32.There is no dispute that in ascertaining the proper meaning of the words “HGTE package” in Clause 11.11, the court is to interpret the clause together with all the other relevant clauses in the Agreement and against the background knowledge which would reasonably have been available to the parties.  This is an objective exercise.

33.Further, Mr Yau rightly did not dispute that at the time of the Agreement, the relevant objective background information which was reasonably available to the parties was (a) there were three HGTE packages that could be installed in the Ferrari, namely, the HGTE handling package, the HGTE aesthetic package and the HGTE exhaust package, (b) both the HGTE aesthetic package and the HGTE exhaust package bore external distinctive differences which are visually identifiable[8], (c) the physical state of the Ferrari that would have been objectively and reasonably apparent to the defendant by its visual inspection at the Viewing.

34.Once considered against the above background information and context, a reasonable person in the position of the defendant (as an experienced dealer in used luxury cars) objectively should and would have noticed or discovered that the Ferrari was not installed with the HGTE aesthetic package (because its front grille was visually different from an HGTE grille) and the HGTE exhaust package (because its tailpipes were visually different from an HGTE exhaust tailpipes).

35.In other words, objectively, it must be apparent to a reasonable person in the position of the defendant that the Ferrari did not have the HGTE aesthetic and exhaust packages.  In the premises, when Clause 11.11 was inserted in the Agreement, it could only be objectively intended by the parties to refer to the HGTE handling package which was installed in the Ferrari.

36.In response, Mr Yau submitted at the hearing that Cherry Chen might not be experienced enough to find out the differences and it was also not apparent in the photos sent by her to Fan that the tailpipes of the Ferrari did not have the features of HGTE exhaust pipes.

37.Leaving aside that the submission is not supported by any factual finding by the Recorder in relation to Cherry Chen’s alleged lack of experience, they do not assist the defendant.  As mentioned above, the interpretation of Clause 11.11 is an objective exercise carried out against the objective context and the background information that was reasonably available to the parties at that time.  As explained above, objectively, the defendant reasonably would have found out at the Viewing that the Ferrari did not have the HGTE aesthetic and exhaust packages.  In the premises, the contention that the defendant somehow sent someone to inspect the Ferrari who allegedly did not have the necessary knowledge to find out what HGTE packages the Ferrari was installed with (even if true) is neither here nor there for the purpose of interpreting the objective meaning of Clause 11.11.

38.Further, it is important to note that this is an agreement for sale and purchase of a specific car but not by way of description.  As pointed out by Yuen JA at the hearing, Cherry Chen had sent to Fan the photos of the Ferrari taken at the Viewing, including ones showing the rear of the Ferrari (depicting the exhaust pipes).  If the defendant had intended the Ferrari to have all the HGTE packages but was in doubt as to whether there were indeed the HGTE exhausts after seeing the photos (which Mr Yau submitted were not clear), it should have ascertained it further by for example arranging another viewing, or by specifically stating in the clause that the Ferrari was installed with the HGTE exhaust package[9].  However, it did not do so.  The absence of any such follow-up act by the defendant viewed in the above‑mentioned context further supports the objective interpretation that Clause 11.11 was intended by the parties to refer to the HGTE handling package only.

39.Clause 11.11 is therefore not uncertain, and the Agreement is not unenforceable as submitted by Mr Yau.

40.A fortiori, for the same above reasons, as a matter of proper interpretation, Clause 11.11 could not have been objectively intended by the parties to mean that the Ferrari was installed with all HGTE packages that could have been installed.

41.Ground 1 is therefore without merit, and we reject it.

D3.    Ground 2

42.Under this ground, Mr Yau did not challenge the Recorder’s finding at [97] of the Judgment that the Handwritten Clause covered only defects that constituted some physical harm or injury to Ferrari not caused by the process of ordinary use.  In other words, it only covered those defects that went beyond ordinary wear and tear.

43.However, Mr Yau first contended that the Recorder erred in concluding that in the absence of expert evidence, he was unable to resolve the factual questions as to whether the defects of the seatbelt, the underfloor fender and the roof upholstery constituted more than reasonable wear and tear[10].

44.Counsel contended that given the photos showing the defects and Fan’s oral evidence at trial identifying by reference to these photographs what he regarded as damage more than just wear and tear, the Recorder should have been able to conclude that these defects constituted more than ordinary wear and tear damage.  In support, Mr Yau further submitted that (a) the damage to the underfloor fender was plain to the naked eye, (b) the seat belt served the important function of protecting the safety of the people on board and it should be in a state of good function at all times, and (c) as to the roof upholstery, it was a defect which Auto Italia found necessary to report to Petter after initially indicating to him that the car was ready for collection.  Mr Yau reiterated that such defect did not only affect the appearance of the interior, it might also cause irritation to the driver in the course of driving.

45.As to the absence of expert evidence, Mr Yau pointed out that the defendant should not be blamed as both parties did apply before a Master for leave to adduce expert evidence in this respect for the trial, but the application was refused.

46.There is nothing in these contentions.

47.In our view, it is simply not plain to us as to whether the damage or defects as identified were caused by ordinary wear and tear or beyond.  Indeed, as pointed out by this court at the hearing, the fact that both parties initially sought to adduce expert evidence in relation to this question shows that whether the damage went beyond ordinary wear and tear was not something which could be regarded as “plain” and “obvious” to the layman’s naked eyes as submitted by Mr Yau.  The fact that the Master refused to grant leave does not assist the defendant.  It could have appealed against that refusal.

48.The Recorder therefore did not err in finding that he could not resolve this question in the absence of expert evidence.  As the burden rested on the defendant to prove that the identified defects went beyond ordinary wear and tear, which it had failed to do, the Recorder was also correct in rejecting this defence on this basis.

49.Given that the Recorder is correct in this part of his conclusion, strictly speaking it is not necessary for us to deal with Mr Yau’s challenge against the Recorder’s alternative reason in rejecting this defence based on the Glencore principle. However, for completeness sake, we would deal with it briefly as follows.

50.As mentioned above, the Recorder also concluded that he would still reject this defence even if the defects were more than wear and tear and fell within the Handwritten Clause.  He explained this at [108] - [109] of the Judgment as follows:

“108. In Glencore Grain Rotterdam BV v Lebanese Organisation for International Commerce [22], Evans LJ (with whom Nourse LJ and Sir Ralph Gibson agreed) said:

‘Basic rule

“It is a long established rule of law that a contracting party, who, after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not.’ (See Taylor v Oakes Roncoroni & Co (1922) 127 LT 267 at 269 per Greer J.)

First qualification …

“This rule is, however, subject to a proviso. If the point not taken is one which if taken could have been put right, the principle will not apply.” (See [1954] 2 All ER 770 at 773, [1954] 1 WLR 1273 at 1278 per Somervell LJ.)’

109. Had the defendant given the ‘good reason’ at the time, namely that there were three defects falling within the Handwritten Clause entitling it to terminate (I am assuming here (without making a finding) in favour of the defendant that the three defects referred to above were more than wear and tear and fell within the Handwritten Clause), it is something which could have been put right by the plaintiff. According to the Quotation, material and labour costs for these would be HK$55,053. Thus, these defects could have been put right by the plaintiff by paying those sums. Of course there is no evidence whether Petter would have agreed to pay this sum (instead of the full HK$213,907 in the Quotation demanded by the defendant), as he was not offered that option. But the test is not whether the defects would have been put right if the plaintiff was told the true reason by the defendant, but whether it could have been put right. It would not be right that the test is the former, because since the fact is always that the party has not been told of the real, good, reason, whether if told the party would put it right is always a matter of ex post facto speculation (sometimes perhaps with a firm basis to come to a view, but perhaps most of the time not), and the point is that by not giving the real, good, reason, that party has been unfairly deprived of the opportunity to put it right.” (emphasis added)

51.In challenging this part of the Recorder’s reasons, Mr Yau made it clear that he had no quarrel with the principle in Glencore as set out by the Recorder. However, counsel submitted that the qualification that a defect “could have been put right” by the party if he had been told the correct reason why the other party could be excused from performance must be understood “realistically”.  In that, Mr Yau said the proper question that the court should ask was whether there was evidence to show that if after being told the correct reason, the party being told would have put the matter right.

52.In this respect, Mr Yau submitted that in the present case, there was no evidence from the plaintiff to show that if Petter was told the correct reason (ie, the defendant was entitled to rely on the Handwritten Clause to cancel the Agreement as the identified defects constituted beyond wear and tear damage), he would have agreed to pay for their repair.

53.Counsel sought to further support his argument by pointing out that in the present case, Petter had been told to fix the defects of the Ferrari including these defects, apart from installing the HGTE exhaust.  He objected to do so, taking the sweeping view that all of these defects were reasonable wear and tear of the car.  Mr Yau therefore submitted it would be improbable that had Petter been told “Look, these 3 items were damage within the meaning of the Handwritten Clause, you must pay or Glorious Motors would cancel the Agreement”, he would have backed down and put the matter right.  Mr Yau further drew the court’s attention that in his Supplemental Witness Statement (which was made after the defendant had obtained leave to amend the Defence to raise the alternative reason for not proceeding with the Agreement based on the Handwritten Clause), Petter still adhered to his long-held view that all these defects were wear and tear.  Nowhere in his statement did he say he would change his mind.

54.There is also nothing in this argument.

55.As rightly pointed out by the Recorder at [109] of Judgment, under the principle laid down in Glencore, the proper question to be asked is whether the party could (but not would) have put right the breach if the correct reason was given by the party seeking to terminate the contract.

56.What Mr Yau had submitted above amounted to asking the plaintiff to show by evidence that the breach would have been put right.  This is simply incorrect[11]. We further agree entirely with the Recorder’s conclusion that, the relatively small amount of the costs to be involved to repair the three items of defects was sufficient to show that these defects could have been put right by the plaintiff by paying those sums.

57.The Recorder was therefore correct to also reject this defence based on the Glencore principle.

E.  CONCLUSION

58.For all the above reasons, we dismissed the appeal with costs to the plaintiff, to be taxed if not agreed.

Mr Albert Yau and Mr Philip Li, instructed by Lau, Chan & Ko, for the Defendant (Appellant)

Mr James Thomson, instructed by Dundons, for the Plaintiff (Respondent)