Hung Tat a. I. Garment Machinery Company Ltd v. Hong Kong Melt Blowing Production Company Ltd and Another

DCCJ 515/2022

[2025] HKDC 1450

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 515 OF 2022

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JUDGMENT

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Introduction

1.The plaintiff was the seller of certain face-masks production machineries. The 1^st defendant was the buyer, and the 2^nd defendant (which is the plaintiff in the counterclaim) was the user of such machines.

2.This is the trial for (i) the plaintiff’s claim against the 1^st defendant for the outstanding balance of the purchase price, as well as (ii) the 2^nd defendant’s counterclaim against the plaintiff for certain losses arising from the malfunctioning of such machineries.

3.Facts that are undisputed or indisputable are scarce in the present case. They can be summarized as follows.

4.The plaintiff was in the business of selling garment manufacturing machinery as well as purpose-built machinery. It was represented by Mr. Hung Kwai Chuen (“Hung”), one of its shareholders, in all incidents that are material to the present case.

5.The 1^st defendant was a manufacturer of “melt-blown” fabric (“Fabric”), which was the main material used for the production of face masks. The 2^nd defendant entered into the business of manufacturing face masks at the beginning of the COVID-19 pandemic in 2020. Both the 1^st and 2^nd defendants were owned by Mr. Wong Dak Sun (“Wong”) and operated at a factory in Fanling (“Factory”). Wong also owned Palinda Wines Limited (“Palinda”) which operated at an office at Hung Hom. Wong deployed both defendants and Palinda interchangeably in those transactions that are material to the present action.

6.On 20 October 2020, the plaintiff sold to the 1^st defendant a welder machine which was used to repair the ear-strings of face masks (“Welder Machine”) under an invoice dated the same date for a price of $3,500. The Welder Machine was delivered by the plaintiff on a date that is not mentioned in any of the evidence.

7.On 23 October 2020, the plaintiff as seller and the 1^st defendant as purchaser entered into a sale and purchase agreement (“S&P Agreement”) for certain machinery that produced a model of face masks known as “KF-94” (“Subject Machine”) on, inter alia, the following terms:

(a)  The 1^st defendant should pay the plaintiff HK$0.1 for each mask produced by the Subject Machine as “consultation fee” (“Consultation Fee”) until the total amount of Consultation Fee paid by the 1^st defendant reached the purchase price of HK$450,000;

(b)  The 1^st defendant should report the number of masks produced by the Subject Machine daily, and the Consultation Fee should be settled twice per month; and

(c)  The title of the Subject Machine would remain with the plaintiff and be transferred to the 1^st defendant when the Consultation Fee paid by the plaintiff reached HK$450,000.

8.Nevertheless, what exactly was the Subject Machine comprised of is intensely contested in this action. Such dispute involves three machines, namely (i) a mask production machine (“Mask Machine”), (ii) a mould shaping the Fabric into a mask and also applying the logo of the 2^nd defendant onto the masks (“Logo Mould”), and (iii) a machine that would pack each of the masks produced by the Mask Machine into a transparent plastic bag individually (“Packing Machine”).

9.The Mask Machine (which included a mould that did not contain any logo) was delivered to the Factory on 31 October 2020, whilst the Logo Mould and the Packing Machine were delivered on 15 November 2020 and 28 November 2020 respectively.

10.Since the delivery of the Mask Machine on 31 October 2020, the plaintiff had sent technicians to the Factory to assemble the said machine, and to provide trainings to the 2^nd defendant’s technicians as well as maintenance support until early January 2021. Whether such support was provided in mid-January 2021 is disputed by parties.

11.On 31 December 2020, after a meeting between Hung, Hung’s colleague one Mr. Raymond Choi, and Wong at Wong’s office at Hung Hom (“Negotiation Meeting”), the plaintiff, the 1^st defendant and the 2^nd defendant entered into a written supplemental agreement (“Supplemental Agreement”), which provided that:-

(a)  The price of the Subject Machine and the payment terms of the same as provided in the S&P Agreement be substituted by a one-off payment of HK$295,000 (“Substituted Price”);

(b)  After the payment of the Substituted Price, the title of the Subject Machine would belong to the 2^nd defendant; and

(c)  The maintenance period of Subject Machine be extended to 30 April 2021. During such period, the maintenance service as well as the necessary parts would be free of charge. (“Maintenance Obligation”)

12.Also on 31 December 2020, the plaintiff received a cheque for HK$295,000 issued by the 2^nd defendant. It is not disputed that this is the only sum that has ever been paid by the defendants to the plaintiff in relation to the present dispute.

13.Parties hold diametrically opposite stances in respect of the events from 1 January 2020 onwards. Any effort to extract undisputed or incontrovertible facts in the said period would be of little practical utility.

The plaintiff’s case for its claim

14.The plaintiff claims for:

(a)  $155,000, being the balance of $450,000 payable under the S&P Agreement after giving credit to the $295,000 received from the 2^nd defendant on 31 December 2020 (“SPA Balance”); and

(b)  The unpaid prices of the Welder Machine ($3,500), the Logo Mould ($5,700) and the Packing Machine ($73,000).

15.The plaintiff’s case is summarized as follows:

(a)  The Welder Machine was purchased by the 1^st defendant from the plaintiff prior to the S&P Agreement, duly delivered and the 1^st defendant has failed to pay for the price of the same.

(b)  Under the S&P Agreement, the only subject matter for the sale was the Mask Machine.

(c)  After the Mask Machine was delivered to the Factory and started operating normally, Wong on behalf of the 1^st defendant further ordered the Logo Mould and the Packing Machine from the plaintiff.

(d)  The payment terms for the Welder Machine, the Logo Mould and the Packing Machine under the respective invoices (“Invoices”) were cash on delivery. After all of those three machines were delivered, the 1^st defendant failed to pay the prices notwithstanding the plaintiff’s repeated demands.

(e)  The SPA Balance remained payable by the 1^st defendant, as the Supplemental Agreement should be set aside on the ground of economic duress:-

i.  After the delivery of the Mask Machine, the 1^st and 2^nd defendants began to produce masks with it and sold the same through their retail channels.

ii.  Despite repeated requests and demands by the plaintiff, the 1^st defendant refused and/or failed to report to the plaintiff the number of masks produced with the Mask Machine as required under the S&P Agreement, and to pay the outstanding prices under the Invoices.

iii.  At the Negotiation Meeting on 31 December 2020, Hung revealed to Wong the plaintiff’s financial difficulty in meeting payment obligations before the Chinese New Year, and demanded the 1^st defendant to pay for all outstanding payments under the S&P Agreement and the Invoices.

iv.  Upon learning about the plaintiff’s financial difficulty, Wong indicated that the 1^st defendant would only agree to settle the payments under the S&P Agreement on those terms which were subsequently set out in the Supplemental Agreement. Wong also demanded that the plaintiff should waive the price of the Packing Machine.

v.  Hung protested to Wong about his proposals. However, Wong threatened that the 1^st defendant would withhold all payments due under the S&P Agreement and the Invoices if the plaintiff did not accept the said proposals.

vi.  As a result of the plaintiff’s urgent need for cash and the economic duress exerted through Wong’s threat, Hung acceded to the demands and signed the Supplemental Agreement.

vii.  Thereafter, the plaintiff repeatedly protested to the 1^st and 2^nd defendants, insisted that the Supplemental Agreement should be rescinded, and demanded for the SPA Balance.

The defendants’ case

16.The 1^st defendant denies liability for all sums claimed by the plaintiff.

17.The price for the Welder Machine has already been set off by the price of the Fabric purchased by a related company of plaintiff from the defendants.

18.Insofar as the Subject Machine under the S&P Agreement is concerned:

(a)  The 1^st defendant claims that the Subject Machine consisted not only the Mask Machine, but also the Logo Mould and the Packing Machine, the three of which were all indispensable components of a single production line (“Purported Production Line”); and

(b)  The respective invoices of the Logo Mould and the Packing Machine did not give rise to separate payment obligations.

19.The allegation of economic duress is also denied. The Supplemental Agreement was entered into under the following circumstances:

(a)  The Purported Production Line went through a testing period between 31 October 2020 and late December 2020, during which no masks of acceptable quality were in fact produced at all.

(b)  Up to 31 December 2020, because of the frequent technical problems encountered in the Purported Production Line, the number of masks of acceptable quality that were produced was less than 10,000.

(c)  In the afternoon of 31 December 2021, at the Negotiation Meeting, Hung requested a one-off payment of $295,000 as the full purchase price of the Purported Production Line, instead of adhering to $0.1 per mask produced as provided under the S&P Agreement.

(d)  Wong however hesitated to accept such request given the technical problems of the Purported Production Line had extended the estimated time to produce 4.5 million masks from 2 years to 3 years. Wong further expressed his concern that, upon receiving the one-off payment, the plaintiff would refuse to assist in resolving the technical problems of the machines.

(e)  In response to Wong’s concerns, Hung proposed to extend the warranty period to 30 April 2021, and the plaintiff might be made liable for any failure to maintain the Purported Production Line. Hung also reassured Wong that the price would be inclusive of the Packing Machine.

(f)  Wong eventually agreed to the request for a one-off payment of $295,000, and instructed his secretary to draft the Supplemental Agreement, which was executed immediately at the end of the Negotiation Meeting.

(g)  After the Negotiation Meeting, in the evening of the same day, Hung delivered an invoice to the defendants stating that the price of $295,000 had included the Packing Machine. Upon the receipt of the said invoice, the 2^nd defendant gave Hung a cheque of $295,000.

20.On 5 January 2021, the 2^nd defendant entered into an agreement with one Ample Harvest Enterprises Limited (“Ample Harvest”) whereby it was agreed that the 2^nd defendant should:

(a)  sell 800,000 KF-94 masks to Ample Harvest at the price of $2,400,000;

(b)  deliver the masks on or before 28 January 2020; and

(c)  pay a liquidated damage of $720,000 if it failed to deliver the masks on time.

(“Ample Harvest Agreement”)

21.On 14 January 2021, the 2^nd defendant entered into an agreement with one “香港銘博商務貿易有限公司” (“Ming Pok”) whereby it was agreed that the 2^nd defendant should:

(a)  sell 100,000 KN-94 masks (which is practically the same as KF-94) to Ming Pok at the price of $300,000;

(b)  deliver the masks on or before 21 January 2021; and

(c)  pay a liquidated damage of 30% of the purchase price, i.e. $90,000, if it failed to deliver the masks on time.

(“Ming Pok Agreement”)

22.On 16 January 2021, the operation of the Mask Machine was halted by the breaking of a gear. In breach of the Maintenance Obligation under the Supplemental Agreement, the plaintiff refused to replace the gear free of charge. The plaintiff also refused to provide the price of the gear for replacement and to respond to the 2^nd defendant’s further inquiry.

23.On 19 January 2021, upon the plaintiff’s failure to repair the Mask Machine, Wong placed an order with a third-party vendor for a replacement gear which was specifically crafted at a price of $3,500 (“Replacement Gear”).

24.On 22 January 2021, the 2^nd defendant obtained the Replacement Gear and carried out the necessary repair of the Mask Machine without the assistance of the plaintiff.

25.Subsequent to the installation of Replacement Gear, the Purported Production Line continued to frequently suffer various technical problems and eventually ceased production altogether on 10 March 2021.

26.As a result of the break-down of the Mask Machine and/or the Purported Production Line, the 2^nd defendant failed to deliver the masks under both the Ample Harvest Agreement and the Ming Pok Agreement.

27.Upon subsequent negotiations, the 2^nd defendant managed to persuade Ample Harvest and Ming Pok to reduce the liquidated damages to $450,000 and $65,000 respectively (“Third-party Compensations”). The 2^nd defendant had duly paid those liquidated damages to Ample Harvest and Ming Pok respectively.

28.The 2^nd defendant therefore counterclaims against the plaintiff for the followings as damages for breach of the Maintenance Obligation under the Supplemental Agreement:

(a)  $3,500 for the cost of the Replacement Gear; and

(b)  $515,000 for the Third-party Compensations.

The plaintiff’s case in respect of the counterclaim

29.The plaintiff denies being subject to the Maintenance Obligation, asserting that the Supplemental Agreement ought to be set aside on the ground of economic duress.

30.The plaintiff asserts that, on 16 January 2021, a technician was sent to inspect the Mask Machine at a charge of $2,500. The said technician informed the staff of the 2^nd defendant that the replacement gear had to be ordered from Mainland at the price between $50 and $180 depending on the quality, and it would be delivered to the 2^nd defendant within 7 to 14 days upon a purchase order being placed. However, the 2^nd defendant did not respond to the said quotation thereafter.

31.The plaintiff further denies that there was other substantial malfunctioning of the Mask Machine.

32.The plaintiff also argues that (i) the 2^nd defendant had failed to prove the causation between the breach of the Maintenance Obligation and the Third-party Compensations, and (ii) such compensations were too remote and therefore not recoverable as damages. In this regard, the 2^nd defendant argues that the plaintiff ought to be precluded from relying on remoteness as it had failed to plead the same in the defence to counterclaim.

Issues

33.In light of the parties’ respective cases as summarized above, the following issues are material to the disposal of the present dispute:

(a)  Whether the price for the Welder Machine has been set off by the price of the Fabric;

(b)  Whether the plaintiff’s cause of action for the SPA Balance has accrued as of the Writ;

(c)  Whether the Subject Machine under the S&P Agreement included the Logo Mould and the Packing Machine;

(d)  Whether the Supplemental Agreement, which purported to supersede the S&P Agreement, was procured by economic duress and therefore should be set aside;

(e)  If the Supplemental Agreement remained in force at the material times, whether the plaintiff has breached the Maintenance Obligation; and

(f)  If the plaintiff has breached the Maintenance Obligation, whether the plaintiff should be liable for the costs of the Replacement Gear and the Third-party Compensations.

The Witnesses and the Evidence

34.Both parties rely heavily on the evidence of witnesses.

35.Hung is the only factual witness for the plaintiff.

36.On the other hand, the defendants have called the following individuals to give evidence:

(a)  Wong;

(b)  林瑞森 (“Lam”), the secretary of Wong; and

(c)  張清華 (“Cheung”), a technician at the Factory who had dealt with the Mask Machine at the material times.

37.Parties have adduced a limited amount of documentary evidence. The credibility of the witnesses, and the reliability of their evidence will have a significant impact on disposal of the present action.

38.In assessing the credibility of the witnesses, I bear in mind the observations of the Court of First Instance in Leung Chin Sing, Rabo and Another v Ko Chun Hay, Kelvin [2021] HKCFI 2242, in particular the following:

“41. Since this case concerns the existence of an alleged oral agreement, and turns on my assessment of the credibility of witnesses, the legal principles on evaluating the truthfulness of an account given by a witness are relevant. These principles were referred to in Hui Cheung Fai v Daiwa Development Ltd (HCA 1734/2009, 8 April 2014) at [77-80] by DHCJ Eugene Fung SC, and helpfully summarized by Recorder Yvonne Cheng SC in Joint and Several Trustees of the Property of Yeung Wing Sing v Yeung Wing Sing [2021] HKCFI 2018 at [26] as follows:

‘(1) contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

(2) in deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

(3) regard should be had to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence;

(4) care should be taken in drawing conclusions about truthfulness and reliability solely or mainly from the appearance of a witness or from the assessment of a witness’ character;

(5) witnesses’ credibility should be tested by reference to the objective facts proved independently of their testimony, and regard should be had to their motives and to the overall probabilities.”

39.I have the following general observations about the credibility of the respective witnesses:

(a)  Hung is a quick thinker. During his oral testimony, he could always swiftly come up with an answer that would be superficially advantageous to the case of the plaintiff. However, certain significant assertions were new and contradictory to the documentary evidence. As such, I will not accept any of his contested evidence unless it is cogently corroborated by documentary evidence.

(b)  Wong shares the same problem with Hung. Demonstrably quick-thinking, he made assertions during his oral testimony that were important to the defendants’ case but were never recorded in the pleadings, the witness statements as well as documentary evidence. No explanations were given on such lateness. Also, some assertions he made were self-contradictory and/or contradicted by documentary evidence. I therefore will not accept Wong’s evidence unless it is cogently corroborated by documentary evidence.

(c)  Lam’s evidence is largely consistent with the documentary evidence, and in those parts of her evidence which did not overlap with any documentary evidence, her testimony was coherent. However, her evidence is only of limited relevance.

(d)  Cheung left the employ of the 2^nd defendant in 2023 and has since been working as a repair technician for kitchen stoves. Despite occasional admission of minor mistakes in his witness statement, his evidence is generally straightforward, coherent and consistent with the documentary evidence. I find him a credible and reliable witness.

40.Notwithstanding my general observations as to the credibility and reliability of the witnesses, the disposal of the material factual disputes shall depend on the assessment of the entirety of the relevant evidence which is to be detailed below.

Issue 1:  The price of the Welder Machine

41.The plaintiff relies on an invoice which was addressed to the 1^st defendant, dated 20 October 2020 and bore the chop of Palinda acknowledging receipt (“WM Invoice”) as the basis for its claim for the price of the Welder Machine. The payment terms were stipulated to be on a cash-on-delivery basis.

42.The 1^st defendant pleaded that the price for the Welder Machine was set off by price of the Fabric purchased by “a related company of the Plaintiff” from the “Defendants” (plural). There were no further particulars of such purchase (e.g. date, quantity and price), and the basis of the set-off (e.g. express agreement, legal or equitable set-off) was unspecified.

43.In Wong’s witness statement, he suggested that there was a visit to the Factory in mid-October 2020 by Hung and a couple bearing the surname Wong. During the visit, Hung took away 4 rolls of Fabric which were worth $4,000 and suggested that it would be set-off with the price for the Welder Machine. Wong allegedly accepted Hung’s proposal.

44.During cross-examination, Hung accepted that he had taken a group of people to visit the Factory and had taken away a few rolls of the Fabric. The rolls of the Fabric were gifted to one Mr. Lee and one Ms. Tong who visited the Factory as samples. Hung denied there were any agreement to set off the price for the Welder Machine with the price for the Fabric.

45.Other than the WM Invoice, there is no further documentary evidence in relation to the Welder Machine.

46.I have considered the evidence as a whole and reject the 1^st defendant’s defence of set-off for the following reasons:

(a)  Given the nature of the defence, the burden is on the 1^st defendant to establish its case of set-off.

(b)  In the pleaded defence, as I summarised in paragraph 42 above, the date and the price of the alleged purchase of the Fabric were missing. Also, identities of both the buyer and the seller of the Fabric were ambiguous. Purely from the perspective of sufficiency of pleading, the defendants had failed to plead the crucial elements of a contract, which is the factual basis of its case for set-off. The lack of pleading of the nature of the set-off, whether it was pursuant to an express agreement, legal set-off or equitable set-off, was also fatal to the validity of the same defence.

(c)  In any event, the pleaded case is different from Wong’s evidence in certain crucial aspects. The identities of purchaser of the Fabric changed from “a related company of the Plaintiff” in the defence and counterclaim to Hung or a couple surnamed Wong (which remained very ambiguous in the evidence), either of which could not be a related company of the plaintiff in any event. The seller of the Fabric changed from “the Defendants” as pleaded to the 1^st defendant in Wong’s evidence.

(d)  Also, the price of $4,000 was not pleaded but mentioned for the first time in Wong’s witness statement. And the basis of set-off, namely an express agreement between Hung and Wong, was not pleaded but only mentioned in the witness statement for the first time.

(e)  There were no explanations given for those discrepancies.

(f)  Both accounts of Hung and Wong in respect of what happened during the relevant visit to the Factory were not supported by any documentary evidence. As I have explained earlier, I do not attach any significant weight to the oral evidence of Hung and Wong unless it is corroborated by cogent documentary evidence.

47.For the above reasons, I find the 1^st defendant liable for the price of the Welder Machine in the amount of $3,500.

Issue 2:  Has the claim for the SPA Balance accrued as of the Writ?

48.The plaintiff’s claim for the SPA Balance is based on the S&P Agreement, which provided that the plaintiff would be entitled to the Consultation Fee, i.e. $0.1 per mask produced by (in the plaintiff’s case) the Mask Machine, until the total Consultation Fee payable has reached $450,000, i.e. the quantity of production reached 4.5 millions.

49.The plaintiff has pleaded in the statement of claim that the 1^st defendant had failed to discharge its obligation to make a daily report of the amount of masks produced, or to actually pay the Consultation Fee due under the S&P Agreement. However, based on such purported failures, the plaintiff jumped to the conclusion that the 1^st defendant was therefore liable for the entire sum of $450,000. No pleaded averment in the statement of claim could establish how the plaintiff’s entitlement to $450,000 had accrued as of the Writ.

50.Moreover, the plaintiff’s claim for the SPA Balance is pleaded as a liquidated sum, not as damages.

51.Therefore, the statement of claim has not disclosed a reasonable cause of action insofar as the SPA Balance is concerned.

52.In the reply and defence to counterclaim, the plaintiff sought to fill the void of its claim by pleading that according to the report from the technicians (plural), the daily production of masks of merchantable quality of the Mask Machine was not less than 20,000. As a result, it was “anticipated” that the outstanding Consultation Fee payable by the 1^st defendant had already exceeded $450,000. Such pleaded averment is apparently a speculative one.

53.The only piece of evidence that was relevant to the actual production quantity was 1 sentence in Hung’s witness statement where he suggested that the plaintiff’s technician 熊祖豐 observed that the 1^st defendant managed to produce not less than 20,000 masks of merchantable quality per day between 1 November 2020 and 31 January 2021. No further evidence adduced by the plaintiff could shed light on the quantity of masks produced by the Mask Machine.

54.I cannot accept that one statement as such was sufficient for proving that the Mask Machine had already produced more than 4.5 million masks of merchantable quality as of the date of the Writ:

(a)  First, this statement differed from the pleaded averment in the reply and defence to counterclaim. Whilst it was pleaded as a report from “technicians” (plural) in the reply, it was only said to be the observation of one technician, namely 熊祖豐 in Hung’s witness statement. This discrepancy was never explained.

(b)  Second, the statement itself was in the form of a hearsay from 熊祖豐, who is not called to give evidence. Hung suggested that 熊祖豐 was scared of Wong and therefore refused to testify. It therefore remains that there is no corroborating evidence to show that 熊祖豐 did make such a report.

(c)  Also, whether in the S&P Agreement or in any other documents, it was never mentioned that the Mask Machine was capable of producing 20,000 masks of satisfactory quality per day. Therefore, there is no evidence to corroborate the substance of the purported report from 熊祖豐.

(d)  Finally, the defendants have adduced the production records for the material period prepared by their staff including Cheung (“Production Records”) which showed that, before the Negotiation Meeting, the actual outputs of the Mask Machine and the Packing Machine (which overlapped) before quality checking were far below 20,000 masks per day. Whilst the plaintiff fiercely contested the veracity of the Production Records, it has never filed the notice of non-admission in respect of the authenticity of the Production Records in accordance with Order 27 rule 4(2) of the Rules of the District Court, and therefore it was deemed to have admitted the same under Order 27 rule 4(1). In fact, when Cheung was cross-examined, it was never put to him that the Production Records were not genuine or inaccurate.

55.For the above reasons, the plaintiff has failed to prove that its entitlement had accrued as of the date of the Writ. The claim for the SPA Balance is therefore dismissed.

Issue 3:  The prices of the Logo Mould and the Packing Machine

56.This dispute largely arises from the vagueness of the term “KF94 口罩機” (with no further particulars) as adopted to describe the subject matter in the S&P Agreement.

57.In the pleadings or the witness statement, the plaintiff provided no substantive explanation as to the circumstances in which the Logo Mould and the Packing Machine were ordered by Wong on behalf of the 1^st defendant. The plaintiff has only set out the particulars of the relevant invoices in the pleadings and the witness statement of Hung.

58.During cross-examination, Hung suggested that the Mask Machine originally included a mould which was without logo, and therefore it was operable even without the Logo Mould. Wong only decided that the logo of the 2^nd defendant should be applied onto the masks about 10 days after the Mask Machine was installed and became operable. He therefore ordered the Logo Mould from Hung. After about another 10 days, Hung further ordered the Packing Machine.

59.The details as to the circumstances for the purchase of the Logo Mould and the Packing Machine were equally missing from the defendants’ case. It was asserted in the pleadings that the subject matter under the S&P Agreement was the Purported Production Line, consisting of the Logo Mould, the Packing Machine together with the Mask Machine. Wong’s witness statement did not elaborate any further.

60.During cross-examination, Wong suggested that when the Mask Machine was delivered on 31 October 2020, it included a plain mould without the logo of the 2^nd defendant to train the defendants’ staff as to the tuning of the machines. About two weeks later, Hung delivered the Logo Mould and replaced the plain mould with it. As to the Packing Machine, Wong simply insisted that it was clearly included in the S&P Agreement, which covered the whole Purported Production Line.

61.Cheung was also cross-examined about his understanding as to what had the defendants acquired from the plaintiff. Cheung answered that he was told by Wong that the defendants had acquired a production line which consisted of a mask production machine, a mould, a packing machine and an electrical power unit.

62.The only documentary evidence that expressly mentioned the Logo Mould is the invoice dated 10 November 2020 (“Mould Invoice”). The copy of the Mould Invoice in the evidence (which was adduced by the plaintiff) also bore the handwritings and signature of Wong. The handwritings consisted of:

(a)  the crossing out of the price of $5,700 at various places on the Mould Invoice and the term “取消”[1] underneath such crossing;

(b)  Wong’s signature; and

(c)  “4/1” represent the date of 4 January 2021, which according to Wong was the date when Hung delivered the Mould Invoice to him.

63.There was no suggestion or evidence that the plaintiff had ever objected to Wong’s handwritten note which apparently suggested that no payment was required for the Logo Mould.

64.I find two emails sent from Tiffany Chan, the “Admin & Accounting Manager” of the plaintiff, to Wong reflective of parties’ intention in respect of the Logo Mould:

(a)  In the first email dated 31 December 2020, Tiffany Chan attached, inter alia, a note explaining how the plaintiff had already given the 1^st defendant a bargain, and pleading to Wong that no further discount would be possible (“Explanatory Note”).

(b)  It is noteworthy that whilst the quotation of $398,000 for a “KF94魚形機” (apparently the Mask Machine even though the amount did not match) was mentioned, there was no mention of any quotation or price for the Logo Mould.

(c)  Further, Tiffany Chan set out three items of costs that were incurred by the plaintiff in the sale, namely (i) “扣減29/11安排送一台包裝機75000港元”, “扣減包裝機運費4000港元” and “扣減口罩機運輸費16,000港元”. Again, there was no mention of the Logo Mould.

(d)  On 25 January 2021, Tiffany Chan sent another email to Wong, whereby she acknowledged that the plaintiff had received the $295,000 by way of a cheque on 4 January 2021, and chased for the SPA Balance. An invoice for the SPA Balance (“SPA Balance Invoice”) was attached therein. Again, Tiffancy Chan did not mention the Logo Mould or the price of it in her demand.

65.Having considered the Mould Invoice and the two emails from Tiffany Chan as summarised above, as well as the fact that the plaintiff was strongly demanding the 1^st defendant to settle what the plaintiff considered to be the outstanding payment for the relevant machines, I find it more likely than not that the Logo Mould was not intended to be a separately chargeable item but part of the Mask Machine under the S&P Agreement.

66.As to the Packing Machine, the two emails from Tiffany Chan as analysed above are equally instructive:

(a)  In the Explanatory Note annexed to the email dated 31 December 2020, the following statement suggested that the Packing Machine was a gift from the plaintiff upon the request of Wong:

“29/11 黃特平提出要送包裝機才給安排付機器款項，我司即便安排送安[2]裝機”

(b)  In the same email, Tiffany Chan also attached an invoice dated 23 October 2020 for the entire sum of $450,000 with the remark of “機器交貨後三個月內付清”. There was no separate demand for the price of the Packing Machine.

(c)  In the email dated 25 January 2021, Tiffany Chan annexed the SPA Balance Invoice, which described the subject of the said invoice was “中日合資佳優牌一拖一全自動高速伺服超聲波魚型口罩機**送包裝機一台”. (emphasis added) The price was said to be $450,000. The remark that the Packing Machine was a gift was consistent with the Explanatory Note. Consistently, Tiffany Chan did not demand the 1^st defendant to settle the price of the Packing Machine under the invoice dated 25 November 2020 (“Packing Machine Invoice”).

(d)  In fact, the remark “**送包裝機一台” first appeared in the invoice that was delivered by the plaintiff to the 2^nd defendant on 31 December 2020 after the Negotiation Meeting (“31 December Invoice”).

(e)  On 27 January 2021, one Carrie Wong of Palinda replied to Tiffany Chan’s email dated 25 January 2021. Carrie Wong stated that the S&P Agreement was updated on 31 December 2020, and all payments due thereunder had been settled. Carrie Wong further referred Tiffany Chan to the Supplemental Agreement and the 31 December Invoice.

(f)  Also on 27 January 2021, a person named Angela (Hung’s wife) replied to Carrie Wong’s email by protesting against Wong’s threat to withhold all payments, and the plaintiff only changed the contract (“臨時改單”) upon such threat. No further demand was mentioned in the said email.

67.The documentary evidence as detailed above contradicts the respective cases of the plaintiff and the defendants in respect of the Packing Machine, albeit in different manner:

(a)  Even when Tiffany Chan and Angela were challenging the legitimacy of the Supplemental Agreement, they never suggested that the Packing Machine was separately payable. On the contrary, in both the Explanatory Note and the SPA Balance Invoice, Tiffany Chan made it clear that the Packing Machine was a gift, and only the SPA Balance remained outstanding. She had never mentioned that the price under the Packing Machine Invoice remained payable. There is no attempt by the plaintiff to disown Tiffany Chan’s statement.

(b)  On the other hand, the Explanatory Note was inconsistent with Wong’s evidence that the Packing Machine was included in the S&P Agreement. The Explanatory Note suggested that it was sent to the 1st defendant pursuant to a request of Wong in late November 2020. I, however, have not lost sight of the fact that it was a statement made by the staff of the plaintiff, and the remark “ **送包裝機一台” was included into the 31 December Invoice by the plaintiff.

68.Having considered all evidence, I find that the plaintiff has failed to prove that the Packing Machine Invoice was enforceable on its face value. For avoidance of doubt, whether the Supplemental Agreement is to be set aside on the ground of economic duress would not have any impact on the outcome of this issue. I therefore dismiss the plaintiff’s claim for the price of the Packing Machine.

Issue 4:  The Supplemental Agreement and economic duress

69.The plaintiff relies on the principle of lawful act economic duress in its claim to set aside the Supplemental Agreement, which is still relevant to the 2^nd defendant’s counterclaim even after the dismissal of the claim for the SPA Balance.

70.Parties agree that the applicable principles in relation to economic duress have been set out in Times Travel (UK) Ltd & another v Pakistan International Airline Corp [2023] AC 101, at §25:

(a)  Lawful act duress, including lawful act economic duress, exists in English law;

(b)  Three elements need to be established for lawful act economic duress: (i) an illegitimate threat; (ii) sufficient causation; and (iii) that the threatened party had no reasonable alternative to giving in to the threat;

(c)  As the threat is lawful, the illegitimacy of the threat is determined by focusing on the justification of the demand;

(d)  In focusing on the justification, the court has regards to, amongst other things, the behaviour of the threatening party including the nature of the pressure that it applies, and the circumstances of the threatened party;

(e)  A demand motivated by commercial self-interest is, in general, justified. Lawful act economic duress is essentially concerned with identifying rare exceptional cases where a demand, motivated by commercial self-interest, is nonetheless unjustified; and

(f)  A commercial party in negotiation with another is entitled to use its bargaining power to obtain by negotiation contractual rights which it does not have until the contract is agreed. A powerful commercial party, such as a monopoly supplier or purchaser, can impose onerous terms, for example demanding a premium, as a condition for entering into a transaction with another party.

71.The above principles have also been applied by the Court of First Instance in Fine Vision Opportunity III Ltd v Xinyuan Real Estate Co Ltd [2024] HKCFI 2773; [2024] 5 HKLRD 300.

72.As at the Negotiation Meeting on 31 December 2020, the plaintiff did not have basis to demand for the payment of the entirety of $450,000. Even on the plaintiff’s own evidence, the Mask Machine could only have produced about 1.2 million masks (20,000 masks per day x 60 days) on that day, i.e. the Consultation Fee payable was only $120,000. The plaintiff would have no basis to demand $450,000 from the 1^st defendant as of that meeting.

73.Also, as I have held above, the Production Records show that the Mask Machine had only produced 346,581 masks (before any quality check) between 17 November 2020 (the first date of the said records) and 31 December 2020. Even assuming all such masks were of merchantable quality, which again is denied by the defendants, the Consultation Fee accrued was only less than $35,000.

74.Further, Hung accepted during cross-examination that the Mask Machine had a digital display of the number of masks produced. In accordance with the plaintiff’s own attendance record of its technicians, they had access to the Mask Machine well into December 2020. In fact, it is also the plaintiff’s case that 熊祖豐 was aware of the Mask Machine’s rate of production until 31 January 2020. Therefore, it is not a situation where the plaintiff was completely in the dark as to the actual production output by the Mask Machine before the Negotiation Meeting, such that the defendants could exploit such ignorance of the plaintiff in order to strongarm it into accepting a discount for the overall sum payable under the S&P Agreement.

75.Having considered the relevant evidence, I find that the plaintiff has failed to prove its allegation that the Supplemental Agreement was procured by economic duress:

(a)  As of the Negotiation Meeting, the amount of Consultation Fee that the plaintiff was entitled to, whether on the plaintiff’s case or the defendants’, was far below $450,000. To demand the 1^st defendant to pay $450,000 up front at that point of time was to in fact a request to put the plaintiff in a much better position than the one under the S&P Agreement.

(b)  Under such circumstances, there was no illegitimacy in Wong’s demand for a discount and the Maintenance Obligation, and even for the alleged waiver of the price for the Packing Machine assuming it was only suggested for the first time during the Negotiation Meeting as alleged by the plaintiff.

(c)  What happened at the Negotiation Meeting, as the evidence stands, was a genuine commercial bargaining process where the plaintiff on one hand asked for a significant acceleration of the payment of the Consultation Fee, most of which was yet to accrue, whilst the defendants demanded a discount and some other benefits in return for the acceleration of payment.

(d)  For completeness, the plaintiff has adduced no evidence to establish that it had no alternative for raising funds in the same amount as the Consultation Fee which had already accrued.

Issue 5:  Whether the plaintiff was in breach of the Maintenance Obligation

76.As I have held that the Supplemental Agreement remains valid, the plaintiff was subject to the Maintenance Obligation until 30 April 2021.

77.The 2^nd defendant has pleaded that the plaintiff was in breach of the Maintenance Obligation by “failing and/or refusing to repair the Mask Production Machine free of charge and even respond to the 2^nd Defendant” from 16 January 2021 onwards (see §36 of the defence and counterclaim; see also §37-40).

78.Even on the plaintiff’s own case, it had breached the Maintenance Obligation by charging the defendants $2,500 for the technician’s attendance at the Mask Machine and the costs of the replacement gear. The plaintiff was also in breach by halting repairment service pending the confirmation of the 2^nd defendant for the quoted price of a replacement wheel, whilst they should simply proceed with the work and bear all costs as required under the Supplemental Agreement.

79.In fact, parties have a dispute on whether, as the plaintiff suggests, the plaintiff did provide the estimate of $50 to $180 as the cost of the replacement gear to the defendants which failed to respond, or in the defendants’ case, the plaintiff simply failed to inform the defendants of the cost of replacing the relevant gear and refused to answer their calls altogether.

80.I am of the view that the defendants’ case on this factual dispute is more likely to be the reality under the prevailing circumstances:

(a)  There is no dispute that the Maintenance Obligation was introduced into the Supplemental Agreement at the request of Wong.

(b)  The Mask Machine was manufactured and maintained by the plaintiff. There was no suggestion that Cheung or other staff of the 2^nd defendant were so familiar with the machinery to the extent that they regarded the assistance of the plaintiff dispensable.

(c)  On the contrary, when the Mask Machine broke down on 16 January 2021, the 2^nd defendant did reach out to the plaintiff for assistance as evidenced by the WeChat messages between Cheung and 洪祖豐.

(d)  The 2^nd defendant was in the course of fulfilling the demanding obligations under both the Ample Harvest Agreement and the Ming Pok Agreement.

(e)  The cost purportedly quoted by the plaintiff was so insubstantial.

(f)  Under such circumstances, there was no conceivable reason for the 2^nd defendant to suddenly refuse to resort to the plaintiff’s knowledge, skill and experience in maintaining the Mask Machine, and the low cost for the replacement gear, but to wait for 3 days until 19 January 2021 to commission the Replacement Gear at a much higher cost for self-help repairment.

(g)  The plaintiff’s forensic arguments in respect of the records of the WeChat conversation involving at least Chueng and 熊祖豐adduced by the defendants into the evidence are invalid. The plaintiff should have access to the same WeChat records through the mobile phones of those who were also within the same WeChat group, including 熊祖豐. It is not open to the plaintiff to criticise the defendants for purportedly withholding the more material part(s) of the same WeChat conversation, whilst it has failed to disclose the same records altogether (or to seek specific discovery in respect of the purportedly withheld part(s) of the same before trial).

81.As such, I find that the plaintiff was in breach of the Maintenance Obligation by failing and refusing to repair the Mask Machine for free from 16 January 2021 onwards.

Issue 6:  Damages for the breach of the Maintenance Obligation

82.The 2^nd defendant counterclaims the plaintiff for the following heads of damages:

(a)  $3,500 for the cost of the Replacement Gear; and

(b)  the Third-party Compensations, consisting of $450,000 for Ample Harvest and $65,000 for Ming Pok.

83.As a result of my ruling that the plaintiff was in breach of the Maintenance Obligation, the claim for the cost of the Replacement Gear should be allowed accordingly. The receipt issued by the provider of the Replacement Gear suggested the cost of $3,000, as opposed to $3,500 as pleaded by the 2^nd defendant. In fact, it was consistent with Wong’s evidence in his witness statement. I therefore allow $3,000 as the cost of the Replacement Gear.

84.As for the Third-party Compensations, the plaintiff argues that the 2^nd defendant had failed to prove that they were caused by the breach of the Maintenance Obligation, and in any event they were too remote to be recoverable.

85.The 2^nd defendant accepts that it bears the legal burden to prove causation. However, it argues the legal burden is on the plaintiff to prove remoteness, which must be pleaded, and the plaintiff has neither pleaded nor proved the remoteness.

86.Insofar as causation is concerned, both parties agree that a loss is recoverable only where the breach of the contract is the “effective” or “dominant” cause of the loss, and whether the breach was the cause of the loss or merely the occasion for the loss must in the end depend on “the court’s common sense” in interpreting the facts: Chitty on Contract, 35^th ed., §30-075.

87.Having considered all evidence and parties’ arguments, I am not satisfied that the 2^nd defendant has established the causation between the plaintiff’s breach of the Maintenance Obligation and the Third-party Compensations.

88.The fundamental question is the basis of the 2^nd defendant’s claim that, had it not been the plaintiff’s breach of the Maintenance Obligation by failing and/or refusing to repair the Mask Machine from 16 January 2021 onwards (as formulated in §§36-40 of the defence and counterclaim), the 2^nd defendant would have been able to fulfil its obligations under the Ample Harvest Agreement and the Ming Pok Agreement.

89.It is both defendants’ pleaded case and Wong’s evidence that:

(a)  During the testing period from 31 October 2020 until late December 2020, no masks of acceptable quality were in fact produced at all; and

(b)  From 31 October 2020 to 31 December 2020, there continued to be frequent technical problems encountered in the production process and the number of masks produced of acceptable quality were less than 10,000 altogether.

90.The Production Records reveal that:

(a)  Between 17 November 2020 (the earliest date of the record) and 30 November 2020, the Mask Machine had operated for 13 days and managed to produce an average of 7,260 masks daily;

(b)  Between 1 December 2020 and 31 December 2020, the Mask Machine had operated for 26 days and produced 9,700 on average; and

(c)  Altogether, only 346,581 masks were produced from 17 November 2020 to 31 December 2020.

91.During cross-examination, Cheung testified that he was informed by the colleagues in charge of quality checking that the masks produced by the Mask Machine in such period were not of merchantable quality. Cheung also confirmed that the Production Records only set out the number of masks produced, but not the number of masks that could pass the quality checking process, which was in charge by other colleagues and Cheung had no role in it. It is noted that no quality checking records were adduced in evidence, and there is no evidence as to the percentage of the masks produced that could pass the quality checking process.

92.On 5 January 2021, the 2^nd defendant entered into the Ample Harvest Agreement, which required the 2^nd defendant to deliver 800,000 masks by 28 January 2021, i.e. the Mask Machine and the Packing Machine would have to produce 33,333 masks of merchantable quality per day within that 24-day period. It would require a very drastic improvement of production quantity as well as quality of the Mask Machine compared to the situation up to 31 December 2020.

93.In the live evidence of both Wong and Cheung, the 2^nd defendant started to increase the production volume of the Mask Machine on 1 January 2021. According to Wong, he was informed by the staff that the result was satisfactory in the first few days, and he therefore had the sufficient confidence to formally entered into the Ample Harvest Agreement. Assuming Wong’s evidence was to be accepted, the average daily production volume starting on 1 January 2021 would have to be 28,571 masks of merchantable quality per day throughout the whole period until 28 January 2021 (assuming there is no need to shorten the production period to allow for time for transportation).

94.During cross-examination, Wong was questioned about the basis of his understanding that the Mask Machine would have sufficient production capacity to fulfil the Ample Harvest Agreement:

(a)  For the first time ever in the present action, Wong alleged that, during the negotiation of the S&P Agreement, Hung had orally reassured him that the Mask Machine could produce 40,000 masks per day.

(b)  No documentary evidence whatsoever could corroborate the existence of such reassurance.

(c)  No explanation was given by Wong for the failure of stating the said reassurance of Hung in his witness statement.

(d)  No such averment was pleaded. On the contrary, such allegation is contradictory to the 2^nd defendant’s pleaded case that according to the projection as of the Negotiation Meeting, production of 4.5 million masks would take more than 2 years to complete (i.e. 6,164 per day on average), and in light of the frequent technical problems encountered, it might take up to 3 years. Wong repeated such assertion in his witness statement.

(e)  Wong was further questioned about the reason as to the sudden change of the condition of the Mask Machine, from only being able to produce less than 10,000 masks of acceptable quality in total between 31 October 2020 to 31 December 2020, to functioning well enough before 5 January 2021 to give Wong’s confidence that it could produce 800,000 masks of merchantable quality before 28 January 2021 to fulfil the Ample Harvest Agreement.

(f)  In his answer, Wong made another completely new allegation, namely there was some repair work for the Mask Machine on 1 January 2021, which was promised by Hung during the Negotiation Meeting. Such repair of the Mask Machine had significantly improved the condition of the Mask Machine, rendering it capable of meeting the order of Ample Harvest. Again, no explanation was provided for the failure to mentioning the same in his witness statement.

(g)  In his cross-examination, Cheung recalled the repair work performed by 熊祖豐on 1 January 2021. The said repair was requested by Cheung in the end of December 2020 because of an ad hoc problem. None of Cheung’s evidence support Wong’s assertion that the repair on 1 January 2021 had a significant transformative effect on the Mask Machine.

(h)  The condition of the Mask Machine before 5 January 2021 can be gleaned from the Production Records.

(i)  On 1 January 2021, 12,779 masks (remarked as “Ample Harvest KF94 口罩”) were produced. A remark “机唔順” was recorded in the day-shift record, and “多故障停機” was recorded in the night-shift record. Both the day-shift and the night-shift records remarked “生產狀況” as “異常”.

(j)  On 2 January 2021, 35,854 masks were produced with no record of malfunctions.

(k)  On 3 January 2021, 17,683 masks were produced. The problems of “卷布走位多故障” and “卷布走位維修” were recorded. Both the day-shift and the night-shift records remarked “生產狀況” as “異常”.

(l)  On 4 January 2021, 25,942 masks were produced. The day-shift records remarked “12:30 – 17:30 坏机”, and “生產狀況” was “異常”.

(m)  As the Production Records from 1 to 4 January 20201 show, on only 1 out of 4 days could the Mask Machine produce more masks than the daily average of 28,571 required to fulfil the Ample Harvest Agreement. The daily average in those 4 days was only 23,064.5. The Mask Machine was recorded as malfunctioning on occasions as set out above. Also, the quality checking records were not available. There is no evidence of the passing rate.

(n)  The average daily production number from 1 to 15 January 2021 was only 27,581.2 (before quality-checking), which was still short of the requisite average for discharging the Ample Harvest Agreement even assuming a 100% passing rate for the quality check. In fact, malfunctioning of the Mask Machine was recorded on 6, 7, 8, 10 and 15 January 2021 with various problems set out in the Production Records, which are at least not supportive of any assertion that the production quality of the Mask Machine had drastically improved during the said period.

(o)  There is no suggestion that Wong had ever complained to Hung about the failure to produce up to 40,000 masks of acceptable quality in accordance with Hung’s purported reassurance during the negotiation for the S&P Agreement.

(p)  Even though the number of masks produced on 2 January 2021 had significantly increased compared to that on 1 January 2021, and Cheung’s evidence was consistent with Wong’s evidence on the existence of repairment work on 1 January 2021, I do not accept Wong’s evidence that (i) Hung had ever guaranteed that the Mask Machine could produce 40,000 masks of merchantable quality per day, and (ii) the repair on 1 January 2021 had solved the problems that the Mask Machine suffered before 31 December 2020 and had drastically improved the production capacity and quality of the Mask Machine. Both assertions are uncorroborated, if not contradicted, by the evidence I have analysed above.

(q)  I am therefore not satisfied that the 2^nd defendant had discharged the burden of proof that the Mask Machine would be able to produce sufficient masks of merchantable quality to fulfil the Ample Harvest Agreement had it not been the plaintiff’s failure or refusal to repair the Mask Machine on 16 January 2021 onwards.

95.I am of the same view in terms of the causation between the breach of the Maintenance Agreement and the breach of the Ming Pok Agreement. The actual production of the Mask Machine was already below the requisite quantity for fulfilling the Ample Harvest Agreement. There is no basis to suggest that the Mask Machine had the additional production capacity required to fulfil the Ming Pok Agreement, namely 100,000 masks of merchantable quality to be produced between 14 and 21 January 2021, whether or not the plaintiff had breached the Maintenance Obligation by failing or refusing to repair the Mask Machine on 16 January 2021 and afterwards.

96.For reasons above, the 2^nd defendant has failed to prove that the Third-party Compensations were caused by the breach of the Maintenance Obligation. The evidence does not support the assertion that the quantity of masks required by both Ample Harvest Agreement and the Ming Pok Agreement was within the production capacity of the Mask Machine.

97.Given my ruling in respect of causation, the issue of remoteness is not material to the disposal of the issue of Third-party Compensations. However, for completeness, I will set out my analysis briefly.

98.I agree with the 2^nd defendant that remoteness has to be pleaded and the plaintiff had failed to do so.

99.In Armstead v Royal & Sun Alliance Insurance Co Ltd [2024] 2 WLR 632, at §§58-64, the UK Supreme Court pointed out that those defences that parties have a legal burden to prove, e.g. failure to mitigate and contributory negligence, would normally be required to be pleaded. Remoteness should fall into such category. Even though the UK Supreme Court discussed the relevant requirement of pleading in the context of tort, I see no principled reasons why the said pleading requirement should be different in the case of a contract (even though the substantive test for remoteness in contract is different from the test for tort). The plaintiff relies on the Court of Final Appeal’s judgment in Richly Bright International Ltd v De Monsa Investments Ltd (2015) 18 HKCFAR 232 to refute the requirement of pleading remoteness. However, Mr. Ian Chu, counsel for the plaintiff, rightly accepted that the issue of pleadings was not explored in the said judgment at all.

100.Aside from the lack of pleading, the plaintiff would fail on the defence of remoteness in substance.

101.To the express knowledge of the plaintiff, the Mask Machine was sold to the 1^st defendant for business use. The Maintenance Obligation was provided to 1^st and 2^nd defendant in furtherance of the latter’s business venture in selling face masks produced by Mask Machine. It is plainly (let alone reasonably) foreseeable that the plaintiff’s failure to repair and maintain the Mask Machine would cause the 1^st and/or 2^nd defendants to suffer loss arising from (i) their failure to fulfil the sales contracts with the buyers of the products and/or (ii) loss of profits for the quantity of masks that was within the production capacity of the Mask Machine. Were the required quantities under the Ample Harvest Agreement and the Ming Pok Agreement actually within the production capacity of the Mask Machine (i.e. causation was proved), the Third-party Compensations would be sufficiently likely to result from the breach of the Maintenance Obligation unless they could be proved to be penalty rather than genuine pre-estimate of loss (which was not argued by the parties).

102.The plaintiff relies on Richly Bright International Ltd v De Monsa Investments Ltd to support its case of remoteness, but the said decision is distinguishable from the present case. It concerned the damages that a sub-purchaser would be liable to the confirmor arising from the former’s failure to complete. The more specific issue was, in addition to the deposit forfeited by the confirmor and the portion of the loss of profit suffered by the confirmor in excess of the deposit, were the forfeited deposit paid by the confirmor to the upsteam vendor and other damages that the confirmor was liable to the upsteam vendor too remote to be recoverable.

103.The Court of Final Appeal held that the liability incurred by the confirmor vis-à-vis the upstream vendor was too remote to be recoverable because of the role of the forfeitable deposit as an ernest of its performance in such conveyancing transactions. The deposit (plus the part of the loss of profit in excess of the amount of the deposit, if any) represented the extent of liability that was within parties’ reasonable contemplation or of the responsibility assumed by the sub-purchaser in the event of non-completion. Also, each upstream purchaser had also given substantial deposit as an earnest of its performance: see in particular §§61-65, 79.

104.In the present case, there was no (i) similar provision for forfeitable deposit in the Supplemental Agreement, or (ii) any factor limiting the plaintiff’s liability in a similar manner. I therefore reject the plaintiff’s argument on remoteness.

Disposition

105.For all reasons stated above:

(a)  The plaintiff’s claim for the price of the Welder Machine be allowed, and the 1^st defendant shall pay the plaintiff $3,500;

(b)  All other claims by the plaintiff be dismissed;

(c)  The 2^nd defendant’s counterclaim be allowed only for the costs of the Replacement Gear, and the plaintiff shall pay the 2^nd defendant $3,000;

(d)  All other parts of the counterclaim by the 2^nd defendant be dismissed; and

(e)  As an order nisi, there should be no order as to costs for the action.

Mr Ian Chu, instructed by Messrs Damien Shea &Co, for the plaintiff

Mr Oliver Tse, instructed by Messrs Chong & Partners LLP, for the 1^st and 2^nd defendants