Wong Sai Chung t/a Concord International Trading Co v. Kwan Min

Case No.CACV 77/1986

Court

Court of Appeal

Date24 Dec 1986

Judge—

Case Document

100%Judiciary

CACV000077/1986

IN THE COURT OF APPEAL

1986, No. 77
(Civil)

BETWEEN

WONG SAI CHUNG trading as CONCORD INTERNATIONAL TRADING COMPANY

Plaintiff
(Appellant)

AND

KWAN MIN

Defendant
(Respondent)

___________

Coram: Sir Alan Huggins, V.-P., Fuad, J.A. & Macdougall, J.

Dates of Hearing: 21 and 24 November 1986

Date of Judgment: 24 December 1986

___________

JUDGMENT

___________

Fuad, J. A.:

1. On 14 May this year Penlington J. dismissed an action brought by Mr. Wong Sai Chung (Who trades as the Concord international Trading Company) against Mr. Kwan Min, and gave judgment for Mr. Kwan on his counterclaim.

2. Mr. Wong had claimed damages for fraudulent or negligent misrepresentation, or for breach of collateral warranties. Mr. Kwan's counterclaim was for his entitlements under a contract of employment with Mr. Wong. Mr. Wong now appeals.

3. Mr. Wong make and sells quartz watches. Until towards the end of the year 1983, the watches he made were of the liquid crystal display type. The market for this type of watch fell and he wanted to go into the manufacture of analog type watches which are more difficult to produce.

4. Mr. Wong had no experience in the analog watch field and co, at the beginning of February 1984, he engaged Mr. Kwan as the Manager of his quartz watch department.

5. By his re-amended Statement of Claim, Mr. Wong averred that to induce him to employ Mr. Kwan, Mr. Kwan had falsely represented:

"(i)

that [he] had been operating an electronic factory, as a partner, for the manufacture of analog quartz watches for several years and he had business connections to secure the sale by the Plaintiff of not less than 30,000 analog watches per month should the Plaintiff employ [him] as its manager in charge of the Plaintiff's quartz watch department:

(ii)

that [he] had production experience and business connections to secure the costs of maufacture of not more than $27.00 per analog quartz watch and the selling price per analog watch of not less than $33.00."

6. Mr. Wong also pleaded that Mr. Kwan had shown him lists of suppliers, letters of credit, invoices, processing and assembly contracts, and calculations as to the costs of processing and assembly of analog quartz watches, together with a list of customers who had purchased substantial quantities of analog watches from him.

7. The re-amended Statement of Claim went on to allege, further or in the alternative, that in consideration of Mr. Wong employing Mr. Kwan, Mr. Kwan had warranted with him the matters earlier pleaded.

8. It was also pleaded that the "representations/warranties" made or given by Mr. Kwan were false and untrue in that:

(i)

[he] had no, or insufficient, business connections to secure the sale of 30,000 analog quartz watches per month or at any time;

(ii)

[he] had no, or insufficient, business connections to secure the sale of analog quartz watches for not less than 30,000 pieces per month at the price of not less than $33.00 each."

9. Mr. Wong further averred that if the representations or warranties were not made fraudulently, they were made negligently, and he relied, in the alternative, on s.3 of the Misrepresentation Ordinance.

10. As it turned out, sales did not reach anything like 30,000 per month, the watches that were sold did not fetch the expected price, and Mr. Wong incurred expenses in sending Mr. Kwan to Switzerland and to China on his firm's behalf, and was ultimately left With thousands of unsaleable watches.

11. Mr. Kwan gave one month's notice and left the firm on 19 July 1984.

12. By his action, Mr. Wong claimed:

	(a)	the loss of the expenses of Mr. Kwan's trips to Switzerland and China;
	(b)	rescission of Mr. Kwan's contract of employment and the repayment of the salary paid to him;
	(c)	the loss suffered by having to sell 28,700 analog quartz watches at less than cost price; and.
	(d)	the cost of 15,200 unsaleable watches and movements.

13. If my calculations are right on Mr. Wong's figures, he quantified his loss at $933,185, after giving Mr. Kwan credit for the net profit made on the 6,100 watches which were sold.

14. It is plain, therefore, that Mr. Wong rightly or wrongly, blamed Mr. Kwan for the failure of his firm's new enterprise, and sought to recover all consequential losses from him.

15. In his judgment, after reviewing the evidence led by the parties the learned judge discussed the authorities cited to him and distinguished Esso Petroleum Co. Ltd. v. Mardon⁽¹⁾, commenting:

"	Here while the defendant did hold himself out as an expert in the production of analog watch movements, the plaintiff himself was heavily involved in the production and sale of watch movements, albeit not analog movements."

16. On the law, the judge added:

I realise that the trend seems to be towards holding persons who make representations liable if proved wrong but I think the facts here are much closer to Bisset v. wilkinson⁽²⁾ than to either Dick Bentley Productions v. Harold Smith Motors⁽³⁾ or Esso Petroleum v. Mardon⁽¹⁾."

The judge then said:

Decision

I am satisfied on the evidence that no representation as to sales was made by the defendant to the plaintiff such as was intended to form any contractual liability between them. I accepted the evidence given by Miss Wong that what the defendant said was that there should be no problem with the sale of 30,000 movements a month. It is quite true that when pressed in cross-examination, she went further than that and said the defendant guaranteed sale of that number. I do not accept it was a guarantee and am satisfied that it was an estimate and no more. It was not intended to form any part of the contract and this is confirmed by the fact that there is no mention whatever in it in the subsequent written contract of employment which I find was prepared by the plaintiff. I am satisfied that the defendant was asked about potential sales and gave his opinion that the plaintiff would be able to sell 30,000 movements a month. I am also satisfied that he showed the plaintiff lists of potential customers. I am, however, also satisfied that while his opinion on that aspect was important he was being employed because of his knowledge of production and the statement of likely sales was not intended to be a warranty made for the purpose of inducing the plaintiff to employ him.

I am satisfied that there is no representation made by the defendant upon which the plaintiff can rely as a collateral warranty and the claim is dismissed."

17. With the utmost respect to the learned judge in my judgment, after making this finding he should have gone on to consider whether Mr. Kwan had been guilty of any misrepresentations that were actionable despite his decision that what Mr. Kwan said was not intended to be a contractual term. The distinction between a warranty and a misrepresentation, stressed in the older cases, and the legal consequences that flow from that distinction, have diminished since the enactment of the Misrepresentation Ordinance, but the difference has still some relevance.

18. The point I venture to make is illustrated by Esso Petroleum Co. v. Mardon⁽¹⁾. There the trial judge had rejected Mr. Mardon's primary submission that he was entitle to damages for breach of warranty but had held that Esso were liable for damages in tort for negligent misrepresentation. The trial judge's decision was upheld by the Court of Appeal, but both Ormrod L.J. and Shaw L. J. were inclined to the view that Mr. Mardon had also established breach of warranty. I will quote brief passages from their judgments which are, to my mind, relevant to the present case.

Ormrod L. J. said at p.826:

A representation of fact in much more likely to be intended to have contractual effect than a statement of opinion; so it is much easier to infer that in the former case it was so intended, and more difficult in the latter. Similarly, where statements of future fact or forecasts are under consideration, it will require much more cogent evidence to justify the conclusion that such statements were intended to he contractual in character."

And at pp.832-833, Shaw L J. had this to say:

It is difficult to see why, in principle, a right to claim damages for negligent misrepresentation which has arisen in favour of a party to a negotiation should not survive the event of the making of a contract as the outcome of that negotiation. It may, of course, be that the contract ultimately made either expressly or by implication shows that once it has been entered into, the rights and liabilities of the parties are to be those and only those which have their origin in the contract itself.

In any other case there is no valid argument, apart from legal technicality, for the proposition that a subsequent contract vitiates a cause of action in negligence which had previously arisen in the course of negotiation. In the present case the proposition would not save Esso from liability if they be held to have given a warranty. Thus Mr. Mardon is entitled in my view to damages for breach of warranty or for negligent misrepresentation."

19. The fact that the learned judge had only the contractual cause of action in mind is clear from the judgment, and is further indicated by the following which occurs in the notes of proceedings at the end of the Plaintiffs case:

"	[Court indicates that, as matter now stands, it is unlikely it could be held that any misrepresentation made would be such as to create legal liability even if evidence of it was admissible - parole evidence rule.]"

Since this note was recorded before the Defendant embarked upon his evidence, it seems plain that the judge's whole approach to the case was coloured by his preliminary view that the Defendant had only to meet a claim which was contractual in character.

20. In my view, it is not possible to say what conclusion the learned judge would have reached had he expressly dealt with the alternative claim based, not upon a breach of a contractual warranty, but upon actionable misrepresentation founded in tort.

21. If Mr. Wong was induced by a deliberate or negligent misrepresentation to employ Mr. Kwan and thus to embark on the new enterprise, and if Mr. Wong relied upon that representation with the result that he suffered loss, Mr. Kwan would be liable.

22. In view of the conclusion I have reached about the order which should be made on this appeal, I do not want to say too much about the evidence. The learned judge does not mention Mr. Wong's evidence in any part of his judgment under the heading "Decision". It may be that it should be inferred, from the passage of the judgment I have read in full, that the judge rejected Mr. Wong's evidence in its entirety. However, I do not think that this would be a safe assumption to make. The learned judge might have omitted to consider parts of the evidence given by Mr. Wong which he was prepared to believe because he was concentrating on the cause of action founded in contract which he had decided had not been made out.

23. After anxious consideration, I conclude that the learned judge's judgment cannot stand. I would allow the appeal and order a re-trial of the whole action (including the counterclaim).

(1)    [1976] Q. B. 801
(2)    [1927] A. C. 177
(3)    [1965] 2 All E. R. 65

Sir Alan Huggins, V.-P.:

24. The judge found that the Defendant said "that there should be no problem with the sale of 30,000 movements a month" and, further, appears to have accepted the evidence that he said he "guaranteed sale of that number". He then found that the ''guarantee"

"	was not intended to form any part of the contract and this is confirmed by the fact that there is no mention whatever in [sc. of] it in the subsequent written contract of employment which I find was prepared by the Plaintiff".

However, it was never the Plaintiff's case that the alleged guarantee formed part of the contract of employment: the contention was that there was a collateral warranty, which induced the Plaintiff to enter into the contract of employment. The alleged representation was summed up by Mr. K. M. Chong on the appeal in these words:

"	I have business connections to ensure the sale of 30,000 watches a month".

25. The judge said that the Defendant was doing no more than giving his opinion and did not intend that it should "form any contractual liability between them". It is not disputed that the Defendant's intention was material, for it is well established that

"	... an affirmation at the time of the sale is a warranty, provided it appear on evidence to have been so intended": per Holt, C. J. in Crosse v. Gardner 1689 Carth. 9O,

and it is the judge's finding that the Defendant had no intention to give a warranty which is the subject of the first line of attack on the judge's decision.

26. In rejecting as a determining factor in relation to intention

whether the vendor assumes to assert a fact of which the buyer is ignorant, or merely states an opinion or judgment upon a matter of which the vendor has no special knowledge, and of which the buyer may be expected also to have an opinion and to exercise his judgment", (De Lassalle v. Guildford 1901 2 K.B. 215, 221)

Lord Moulton said in Heilbut, Symons & Co. v. Buckleton 1913 A. C. 30, 51:

"	The intention of the parties can only be deduced from the totality of the evidence, and no secondary principles of such a kind can be universally true".

27. It is argued on behalf of the appellant Plaintiff that where neither the terms of the statement nor the circumstances are in dispute it is a matter of law whether a representation was intended as a warranty and that there can only be no warranty where the party making the representation has no special knowledge of the matter. He relies upon a passage in the judgment of Lord Denning, M.R. in Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. 1965 2 All E. R. 65,67 D:

... it seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act on it, and it actually induces him to act on it by entering into the contract, that is prima facie ground for inferring that the representation was intended as a warranty".

Mr. Chong for the Appellant submits that that was the position here and that the Defendant has not shown any ground for not drawing the inference of a warranty.

28. Here the judge has found that the representation alleged by the Plaintiff was not made at all: there was a representation, but it was in very different terms. That representation - to the effect that there would be no problem with the sale of 30,000 movements a month - was, in the opinion of the judge, clearly not intended to be a warranty, so that, even on Lord Denning's approach, the inference of a warranty was found to have been rebutted. I am disposed to agree with the submission of Mr. Chong that the representation must have been intended to induce the contract and I think it is apparent that the judge so believed, for he said:

"	I am, however, also satisfied that while his opinion on that aspect was important he was being employed because of his knowledge of production and the statement of likely sales was not intended to be a warranty made for the purpose of inducing the plaintiff to employ him."

The second sentence appears to confuse two separate issues, but the passage as a whole suggests that the representation was one of the factors inducing the contract, although not the only factor or even the major factor. Nevertheless the judge had clearly found that the representation was not intended to be a warranty, and that in my view was a conclusion he was entitled to reach and one which was fatal to the Appellant's claim in contract. The representation was as to the Defendant's opinion on the likelihood of future sales and it is almost inconceivable that the Defendant would have been willing to guarantee a business result which was inevitably dependent upon future trading conditions unforeseeable by either party.

29. My only anxiety is whether Penlington, J. 's failure expressly to deal with the claim in tort is necessarily fatal to his decision. When he said that he "accepted the evidence given by Miss Wong that what the Defendant said was that there should be no problem with the sale of 30,000 movements a month" (emphasis supplied), it seemed to me to be implicit that he was satisfied that that was all the Defendant had said and that the judge therefore rejected anything alleged by the Plaintiff to the contrary. In particular he appeared to have found that the Defendant had not represented that "he had business connections to secure the sale by the Plaintiff of not less than 30,000 analog watches per month should the Plaintiff employ the Defendant as its manager in charge of the Plaintiff's quartz watch department", as alleged in para. 2 of the Statement of Claim, or that he would "bring whole business", as the Plaintiff is recorded as saying in his evidence. If the judge had found that the latter representation had been made, it is inconceivable that he would not have said so.

30. Even if one were to treat the representation found to have been made as equivalent to the representation pleaded, the position would then be that the Defendant, having been disbelieved when he denied showing the Plaintiff lists of suppliers and other documents, might well have been disbelieved if he had said that he honestly and reasonably held the opinion he was found to have expressed. However, the disbelief of that evidence could not have amounted to proof to the contrary. In an action in tort for misrepresentation the burden is on the plaintiff to establish not only the representation of a past or present fact but also the untruth of that representation. Where the representation is as to an opinion held by the defendant, it seems to me that the plaintiff must prove either that the defendant did not hold that opinion or that he was negligent in expressing it, i.e. that he failed to use reasonable care to see that it was reliable. All that has been shown here is that the opinion proved to be wrong. It does not necessarily follow that the Defendant had been fraudulent or negligent: there could have been many causes of the Plaintiff's poor sales. In the circumstances I think it would not have been open to the judge on the evidence before him to conclude that a false representation had been made, and the claim in tort inevitably failed. It seems to me that to order a retrial would give the Plaintiff an opportunity to call evidence which (if it be available) ought to have been called at the trial, and I do not think that should be allowed.

31. I would dismiss the appeal.

Macdougall, J.:

32. I find myself unsure as to the precise extent of the learned trial judge's findings. Moreover, on close analysis of his decision, it appears that he did not address himself specifically to the matter of whether there had been a misrepresentation actionable in tort.

33. In the passage in his judgment in which the judge appears to have come closest to a consideration of this matter, he said:

I am satisfied that the defendant was asked about potential sales and gave as his opinion that the plaintiff would be able to sell 30,000 movements a month. I am also satisfied that he showed the plaintiff lists of potential customers. I am, however, also satisfied that while his opinion on that aspect was important he was being employed because of his knowledge of production and the statement of likely sales was not intended to be a warranty made for the purpose of inducing the plaintiff to employ him."

34. The judge was there plainly considering whether the defendant had warranted that the plaintiff would sell 30,000 movements a month. He was not considering, nor did he specifically consider elsewhere in his judgment, whether the defendant had, as pleaded, represented to the plaintiff that "he had business connections to secure the sale by the plaintiff of not less than 30,000 analog watches per month should the plaintiff employ the defendant as its manager in charge of the plaintiff's quartz watch department" and, if so, whether it was an actionable misrepresentation founded in tort.

35. Although it is true that the judge accepted Miss Wong's testimony ''that what the defendant said was that there should be no problem with the sale of 30,000 movements month" (emphasis supplied) and found that this was an estimate and no more", I am unable to bring myself to assume that the judge was there doing any more than merely focus on whether what the defendant had said in this connexion amounted to a guarantee or was no more than an estimate. In the context in which this passage appears in the judgment I do not think that it would be legitimate to read anything further into the word "what".

36. Moreover, apart from failing to consider what the defendant had said in anything other than the context of a contractual claim, the judge gave no specific indication as to what part, if any, of the plaintiff's evidence he did not accept. It is clear, however, that he must have accepted at least part of it, particularly since he rejected the defendant's testimony that he had not shown the plaintiff lists of customers kept by his previous firm.

37. In my view it is not safe to conclude with any degree of confidence what the judge would have found had he directed his mind to the claim founded in tort and had made clear and positive findings on all material parts of the plaintiff's evidence. Indeed, the plaintiff's testimony that he had been shown lists of customers by the defendant is particularly germane to the issue of whether the defendant had made a deliberate or negligent misrepresentation that he had business connections to secure the sale by the plaintiff of not less than 30,000 analog whatches a month.

38. Since the defendant's denial that he had shown these lists to the plaintiff was not accepted by the judge. It is possible that, had he considered the matter, he might have found that the defendant had made such a misrepresentation and that the plaintiff should succeed in tort. I, therefore, agree with Fuad J. A. that the appeal must succeed and that there should be a re-trial of the whole action including the counterclaim.

Representation:

Mr. K.M. Chong (David C.K. Lam & Co.) for the Appellant/ Plaintiff.

Mr. R.J. Faulkner (Hui and Wu) for the Respondent/Defendant