The Hong Kong Society for Rehabilitation v. Ho Lai Chuen Cadia t/a Resolution Software Consultants

HCA18618/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.18618 OF 1998

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Coram: Hon Suffiad J in Court

Dates of Hearing: 12 - 16, 19 - 23 and 29 May 2003

Date of Judgment: 9 October 2003

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J U D G M E N T

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1.This is a claim brought by the plaintiff for the return of a deposit in the sum of HK$1,063,716.00, by reason of the defendant's repudiation and/or breach of contract in failing to supply to the plaintiff a customized version of a computer software programme known as ROADSHOW 85, being a route management programme, as agreed between them. The plaintiff also relies on misrepresentation as pleaded in the Statement of Claim.

2.In the alternative the plaintiff claims for damages to be assessed for the breach of contract.

3.The defendant denies that he was in breach of contract vis-à-vis the plaintiff, but avers that the plaintiff had wrongfully repudiated the contract. In the circumstances the defendant counterclaims against the plaintiff for :

(a) $620,501 as being the second payment due under the contract between the parties;

(b) $693,617 being the amount of the additional works performed by the defendant.

Background

4.The plaintiff is a charitable organization established in 1959 and is active in the rehabilitation of physically handicapped persons. The plaintiff is effectively funded by the HKSAR Government. One of the services provided by the plaintiff is the Rehabus which started its operation in 1978. The Rehabus service is monitored by the Transport Department. Effectively it is both a bus service as well as a taxi service for the physically handicapped in that it has a scheduled route and also a dial-a-ride service.

5.The Scheduled Route Service (or SRS) relates to when a handicapped customer requires to be picked up daily at a fixed point at a fixed time and to be carried to another fixed point. Instances of these would be regular daily attendances at work or going to school in the case of a student. As such they are long standing order and will continue until the customer terminates the order. Application for the SRS service is by written form which will be processed after it is received by the plaintiff. For the SRS a bus will be shared by a number of customers.

6.As for the Dial-a-Ride service (or DAR) it is categorised into single orders and group orders. Single orders are defined as where there is only one pick up and one drop off point for the journey requested by the customer. Group orders are defined as where there are multiple pick up points for the journey requested. For the DAR service a customer can request for the bus to be non-sharing such that the customer will have the entire bus to himself for the journey requested or the customer can agree to sharing a bus with other customers for part or all of the journey. The DAR service is, as the name suggests, ordered by the customer by a mere phone call without the need for any written application. After the phone call is made, assuming there is an available bus, the order is then processed by the plaintiff.

7.From this it can be seen that the planning of the daily routing is a monumental task for the plaintiff and is particularly so for the daily DAR service. For the year 1995 to 1996, Rehabus was handling some 128,000 SRS orders and 173,000 DAR orders with a fleet of 63 buses. All the routing were at that time done manually.

8.In about December 1995, the Audit Department and the Transport Department of the Hong Kong Government suggested to the plaintiff to make a study of options to computerise the routing of the Rehabus with a view to maximizing the efficiency of the routing in order to maximize the use of the service.

9.As a result, the plaintiff learnt from the Hospital Authority that the Pamela Youde Hospital was using a computerised programming system provided by the defendant for their Non Emergency Ambulance Transport Service (NEATS) which was considered to be close to the operation of the Rehabus (although NEATS does not operate any dial-a-ride service like Rehabus). The plaintiff thereupon got in touch with the defendant with a view to having the defendant devise a software programme to maximise the efficiency of the routing and scheduling of the Rehabus operation.

The plaintiff's case and evidence

10.The factual evidence in respect of the plaintiff's case came from its Transport Manager, Rex Luk Chi Keung.

11.He got in touch with the General Manager of the defendant, Alfred Ng, as early as December 1995 with the intention of seeing if the defendant, being computer software consultants, could advise the plaintiff as to their needs and/or provide the plaintiff with a system which would be suitable for the plaintiff's requirements and operation of its Rehabus.

12.In that connection he had provided Alfred Ng all the available information as to the plaintiff's operation of its Rehabus service making clear to Alfred Ng that the Rehabus operation had to deal with single order as well as group orders. He also told Alfred Ng the size of the plaintiff's present fleet of buses as well as the extent of its operation and that it was the plaintiff's intention to maximize the efficiency of its fleet in its operation with the use of the system for its routing and scheduling.

13.It was also the evidence of Rex Luk that Alfred Ng had come to the offices of the plaintiff and saw for himself the plaintiff's operation of manually scheduling and routing of the Rehabus service.

14.At all times, the plaintiff relied upon the skill, knowledge and expertise of the defendant in the matter since the plaintiff had not the necessary skill or knowledge of computer programming system which could meet their requirement.

15.Thereupon, Alfred Ng advised the plaintiff that 'Roadshow' was a transportation software package in the USA for the purpose of routing large number of vehicles and that system, when equipped with an updated road map of Hong Kong, Kowloon and the New Territories, can maximize efficiency by computerizing the route scheduling system. The system can make time estimation, differentiate road conditions, mark pick up and drop off points of passengers and other functions as was stated in the product summary of the Roadshow system, a copy of which was given to Rex Luk.

16.An initial demonstration of the Roadshow system was given to Rex Luk and later demonstrations given to the plaintiff's Executive Director and Transport Officer as well as to the Management Committee and representatives form the Transport Department.

17.During these demonstrations, Alfred Ng introduced the defendant's company, their services and also explained that the Roadshow system allowed the user of it to choose the best routes. Ng also explained that the system would provide a method for accepting order information and that the user can customize and programme its own ordering system. Ng then proposed the plaintiff to computerise its Order Entry System including both the SRS and the DAR services, both in relation to single and group orders. All documents and information requested for by Alfred Ng for this purpose was supplied to the defendant by the plaintiff.

18.An initial quotation was given by the defendant to the plaintiff dated 29 January 1996 for the installation of the Roadshow system. Further meetings were held with the defendant and at their request further material were made available to the defendant for their testing and study.

19.The quotation was revised several times. One reason for that was that the funding of this project was to come from the Jockey Club which is a one-off funding. Therefore it was important for the plaintiff that whatever contract that was entered into was to be a lump sum contract which would cover the complete system to suit the plaintiff's requirement. This was made clear to Alfred Ng and that the plaintiff did not seek to set any upper limit on the contract sum but instead intended for it to cover everything including maintenance.

20.In October 1996, sample screens were prepared by Rex Luk and sent to the defendant to further indicate the requirements of the plaintiff in respect of the system.

21.Based on all the information supplied to Alfred Ng and the defendant, the final contract sum agreed between the plaintiff and the defendant was revised to include the maintenance charges for the next 10 years as well. That was included in an Order Confirmation dated 25 October 1996. Thereafter a Purchase Order (incorporating the Order Confirmation) was entered into which was dated 31 December 1996 whereby the plaintiff purchased from the defendant Roadshow 85 at the total contract price of $1,772,860.

22.$1,063,716.00, being 60% of the contract amount, was paid to the defendant in March 1997.

23.After the Purchase Order was entered into, the defendant's programmer, Chris Yuen, started to work on the project to modify and/or adapt the Roadshow 85 system to suit the needs of the plaintiff. It was only after Chris Yuen started to work on the project and shortly thereafter that the defendant came to realize that they had underestimated the amount of work involved in the entire project. Thereupon Alfred Ng discussed with Rex Luk seeking the agreement of the plaintiff to delay the implementation of some of the less important features of the project but at the same time promising that the main system would not thereby be affected. To this the plaintiff agreed on the understanding that the main system (or core module) would be developed first.

24.Throughout the time Chris Yuen was working on the project, progress reports were being supplied to the plaintiff at regular intervals to keep the plaintiff posted as to the progress of the works. All along, the plaintiff was of the impression that from the progress report, group orders and single orders were very much a part of the main module as promised by the defendant.

25.However, in the progress report dated 5 January 1998 received by the plaintiff, the status of group orders were changed to "pending, wait for later decision". This caused some surprise and concern on the part of the plaintiff. Rex Luk queried the defendant as to this change of status and came to learn from Chris Yuen some time in February 1998 that the defendant had met up with a difficulty relating to group orders which they could not overcome. He was told by Chris Yuen that the Roadshow 85 had a limitation in that it could only process 36 orders in a batch relating to group orders. Such a limitation had never been told to the plaintiff by the defendant hitherto. This was a real problem for the plaintiff because at the time, the plaintiff was handling manually some 60 to 70 group orders daily and which was expected to increase with the expansion of its fleet of buses.

26.Hurried meetings were set up between the plaintiff and the defendant to discuss this problem due to such limitation in the system and to see if any viable solution could be found. At a meeting on 10 March 1998 Alfred Ng confirmed the problem of the limitation of 36 orders in a batch. At that same meeting four options were suggested to the plaintiff by the defendant in an attempt to solve that problem. On the day following that meeting (i.e. 11 March 1998) these four options were put in writing and faxed over to the plaintiff under cover of a letter by the defendant. (That piece of paper with the four options is included in page 249 of Trial Bundle B.)

27.The first three options do not really provide a solution to the problem faced while the 4th option, which relies on what is called virtual orders, while it may provide some solution, but only partly to the problem, involves very cumbersome and complicated procedure in computerization and moreover would involve very much extra programming work to implement it.

28.As there was no ready answer to this problem of the limitation to the group order, the plaintiff did not opt for any of the four options since none of the four options appealed to the plaintiff.

29.The defendant purported to make delivery of the Roadshow system on 6 March 1998 when Chris Yuen came up to the plaintiff's offices and brought with him a computer and software which was installed by him several days later. However, the software installed on that day did not include the group order as part of the system, but only single orders. After its installation, the computer and the software for the Roadshow was simply left at the plaintiff's offices and was never used by the plaintiff.

30.Since the time for the implementation of the system had strayed well beyond the time originally scheduled for the system to be delivered by the defendant and it still did not appear that the defendant would be able to come up with an acceptable solution to the problem of the group order, the plaintiff by letter dated 23 April 1998 gave notice to the defendant that they should deliver the completed system by 15 May 1998 failing which the plaintiff will consider legal proceedings for compensation.

31.When no further headway was made in the matter by the defendant, by letter dated 26 June 1998 the plaintiff's solicitors, Messrs K.B. Chau informed the defendant that the plaintiff has accepted the repudiation of the agreement by the defendant on the grounds that the defendant had failed to deliver the completed system as contracted for by the plaintiff, at the same time reserving the plaintiff's rights to claim for damages and loss.

32.The plaintiff also called in evidence an expert on computer and programming system, Dr T.H. Tse.

33.However, when Dr Tse came to examine the software programme which had been delivered to the plaintiff, the programme had already been corrupted, possibly due to its non-use for the time between its delivery and the time of examination which was in 2001.

34.I shall come back to the evidence from Dr Tse in due course in this judgment.

The defendant's case and evidence

35.The defendant called two factual witnesses in support of its case, namely Chris Yuen, the defendant's computer programmer, and Alfred Ng, the defendant's general manager.

36.The defendant is a software consultant and is the distributor of a route management software programme called "Roadshow". Alfred Ng has been in the computer software and hardware and project implementation business since 1988 and the general manager of the defendant since 1992.

37.Roadshow International Inc. is the developer of the "Roadshow" system in the U.S.A. and the defendant its distributor in Hong Kong.

38.In about January 1996, Alfred Ng was contacted by Rex Luk enquiring about the "Roadshow" system and asking for a demonstration of it. As a result, Alfred Ng had arranged several demonstrations for Rex Luk and other members of the plaintiff's staff. At these demonstrations, he had explained to them that the "Roadshow" system was a system to choose the best routes and that it provided a standard method for accepting order information which would normally be stored in another computer and that the user can customize and programme its own ordering system accordingly. He also provided them with a user manual.

39.He was told by Rex Luk that the plaintiff had by itself developed a simple invoicing and accounting system, and order entry was being done manually with the order information recorded on paper only.

40.Alfred Ng then proposed that the plaintiff should computerise the order entry system and if the plaintiff chose to engage the defendant to do it for them, the defendant would need from the plaintiff the specifications and list of the functions required by the plaintiff to enable the defendant to estimate the costs. In that respect it would be preferable for the plaintiff to indicate what it required by supplying the defendant with a screen-by-screen description. Such sample screens were later provided to the defendant by Rex Luk who also told Alfred Ng that the plaintiff preferred buying from a "one-stop shop" instead of dealing with several suppliers. It was based on the sample screens supplied by Rex Luk that the defendant estimated the cost of system ordered by the plaintiff.

41.Between January and October 1996, the defendant had submitted a number of quotations to the plaintiff in respect of the "Roadshow" system.

42.The first quotation dated 29 January was for a 75-truck Roadshow licence with one-year free maintenance.

43.Two quotations dated 14 June were for 75 trucks and 85 trucks respectively with one year free and four subsequent years charged maintenance for the Roadshow system only.

44.The quotations dated 17 June inflated the licence fees to include a build-in five years free support service at Rex Luk's request.

45.Some time before 25 October, the plaintiff asked to add the multi-user Ordering System which led to Alfred Ng asking Rex Luk to supply the defendant with sample screens which Rex Luk did. As a result, the Roadshow licence fee was reduced to $559,200 in the quotation dated 25 October but the defendant were to provide free support service for 10 years. It was understood that the defendant was to provide support service for all the other systems and not just the Roadshow system. Because Rex Luk said that the plaintiff had a tight budget and was a charity Alfred Ng agreed to waive the maintenance fees for the 10 years support. The drastic reduction in fees was made on the understanding that the plaintiff would undergo a three months period of training and implementation so as to reduce their reliance on the defendant for support and maintenance to a minimum. Rex Luk also said that the plaintiff was considering using satellite global positioning system to replace the Roadshow system in two to three years time therefore the plaintiff would not use the full 10 years maintenance service.

46.The contract between the parties, in so far as it was in writing, was contained in the Order Confirmation No.290733 dated 25 October 1996 and the Purchase Order dated 31 December 1996.

47.In calculating the price as agreed between them in the Order Confirmation and the Purchase Order, it is the evidence of Alfred Ng that based on the sample screens provided by Rex Luk, the initial estimate of development time was 90 man-days. But in order to lower the price for the plaintiff, 40 man-days was stated in the Order Confirmation as the defendant intended to absorb the extra 50 man-days at his own cost.

48.It was also the evidence of Alfred Ng that the date 31 December 1997 stated in the Order Confirmation was never intended to be contractually binding as the date of delivery of the system but only a tentative reference date estimated on the assumption that the consultancy services would commence immediately after issue of the Order Confirmation.

49.Moreover, since the First Payment of the 60% ($1,063,716.00) was only made by the plaintiff on 4 March 1997 and not on the placement of the Purchase Order, and due to the unavailability of the plaintiff staff, there was a delay of some four months before the defendant could start work on the specification study.

50.When the defendant was able to start work on the specification study in February 1997 and after consulting with the plaintiff's staff to find out the user requirement and prepared specifications for the development of the Ordering System, it was discovered the plaintiff's programming requirements relating to the Ordering System would need 300 man-days instead of 40 man-days to develop. This was because the plaintiff had expanded tremendously their requirements well beyond the sample screens.

51.Between February 1997 and April 1998, there were numerous discussions with Rex Luk and other staffs of the plaintiff to agree on the procedure and specifications as well as the charging of additional costs for the extra programming man-days under the terms of the Order Confirmation.

52.By a fax dated 11 July, Alfred Ng set out the revised time schedule for the project with the first trial run scheduled for 1 June 1998. It is the defendant's case that the plaintiff did not object to the revised schedule, but that in about October 1997 Rex Luk indicated orally to Alfred Ng that the plaintiff would like to bring forward the first trial run to before 31 March 1998 being the end of the plaintiff's financial year in order to show the auditors that the Roadshow system was installed during that financial year.

53.At a meeting on 20 October 1997 attended by Alfred Ng and Chris Yuen for the defendant and Mabel Chau for the plaintiff, it was orally agreed that :

(a) the defendant would deliver the Roadshow system, Address system and main logic flow of the Ordering system on or before 31 March 1998 for trial run;

(b) upon such delivery, the plaintiff would make the second payment of 35% of the price ($620,501.00);

(c) the user friendliness features and reports and unnecessary "cosmetic" finishing of user interfaces would be reduced to save time, but the defendant would fine-tune the Ordering system in future if necessary;

(d) the defendant would provide monthly progress reports to the plaintiff;

(e) the defendant would waive its rights to charge for the additional man-days of the programming work for the Ordering system beyond the first 40 man-days;

(f) the plaintiff would provide a technical staff with database programming knowledge to support the programmer of the defendant to speed up the progress.

54.The delivery date was scheduled for 6 March 1998. Before the delivery date, by faxes dated 26 February, 3 March and 5 March, Alfred Ng had clarified what modules would be delivered for trial run on 6 March 1998 and what modules would not be delivered on that date, but would be discussed and to be agreed later. The plaintiff had no objection to such proposal. The pending items were mainly the group (organization) orders.

55.On 6 March, the defendant duly installed on the plaintiff's computers and demonstrated to the plaintiff's staff including Rex Luk the Roadshow system, the Address system and the main logic flow of the Ordering system. The plaintiff acknowledged receipt of same on the defendant's Delivery Note dated 6 March 1998. At the same time the defendant presented an invoice to the plaintiff for the second payment as well as a further invoice in the amount of $14,720.00 for an additional Graphic Display Board.

56.However, the plaintiff required the defendant to give a detailed schedule for the further programming work before the release of the second payment. It was then agreed between them that the plaintiff would release the second payment when the defendant provided a detailed schedule for further programming work and completion date. This was contained in a letter dated 25 March from the plaintiff.

57.The defendant submitted a detailed schedule for the further programming work on 20 March and 23 March 1998 but the plaintiff still refused to release the second payment.

58.Between 11 March and 7 May, Alfred Ng had suggested to the plaintiff different options to deal with the pending item in the Ordering system and asked the plaintiff to agree on which of the option it would choose. Alfred Ng had suggested one of the first three options but the plaintiff favoured the fourth option which was complicated to programme and to operate.

59.Alfred Ng pressed for the second payment on behalf of the defendant while the plaintiff wanted from the defendant a detailed list of items that have not yet been completed and also the respective completion date.

60.It was wrong for the plaintiff to allege that the system as delivered could not serve any useful purpose for their dial-a-ride bookings.

61.It is the defendant's case that the Roadshow system is by itself a complete programme which can be used without any additional programming. Likewise the Address system. The Ordering system as delivered by the defendant can process single orders and thus can be usefully employed. All these systems were delivered and demonstrated to the plaintiff on 6 March 1998 after being installed in the plaintiff's computers. The plaintiff has chosen not to use these systems. It is only the group or organisation modules of the Ordering system which were still pending the mutual agreement between the parties as to the specifications.

62.By fax of 23 March addressed to Rex Luk, Alfred Ng submitted a tentative programming schedule for the pending items.

63.In reply, by his fax of 27 March, Luk informed the defendant that the tentative schedule and the decision about the second payment were under consideration.

64.By letter of 23 April 1998 from Mabel Chau, the plaintiff refused to pay the second payment and unilaterally set a new deadline of 15 May 1998 for completion of the outstanding items.

65.By fax of 13 May, Alfred Ng agreed that the programming would be developed in accordance with Option 4, but that the two outstanding invoices had to be paid first before the defendant would render further services. By letter dated 8 June, Mabel Chau refused the second payment. The invoice for the $14,720 (for the additional graphic display board) was paid by the plaintiff on 19 June 1998.

66.By letter of 26 June, Messrs K.B. Chau, then acting for the plaintiff, alleged that the defendant had failed to deliver the complete system contracted for to the plaintiff by 1 May 1998. Such amounted to a repudiation of the agreement by the defendant which the plaintiff accepted thereby terminating the agreement.

67.Such allegation is denied by the defendant. The defendant denies having repudiated the agreement by failing to deliver the system. The defendant says that the Roadshow system, the Address system and the Ordering system for single orders had been delivered to the plaintiff on 6 March 1998.

68.The defendant admits that the programming for the group or organizational orders in the Ordering system had not yet been fully completed. However the defendant's case is that firstly, that is not part of the main module or main logic flow and secondly, the failure for completion of that part of the system was due to the failure of the plaintiff to timeously specify which of the four options the plaintiff wished to adopt for the proper completion of that part of the Ordering system and as such the fault does not lie with the defendant.

69.In all the circumstances therefore the defendant denies that it was in breach of the agreement between the parties.

70.Accordingly, by reason of the wrongful repudiation of the agreement by the plaintiff, the defendant counterclaims for the second payment in the sum of $620,501 (being 35% of the contract price) which the defendant says was due but remain unpaid by the plaintiff.

71.The defendant also claims for the additional work in the total amount of $693,617 which the defendant says it was put to by the plaintiff and which was outside of the contract. This amount is worked out as follows :

First 40 man-days spent on developing Ordering system	$221,100
Additional 171.5 man-days @ $4,800	$823,200
Sub-total	$1,044,300
Less credit from first payment	$350,683
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Total :	$693,617 ========

The amount of $350,683, being the credit from the first payment, is arrived at by deducting from the first payment sum of $1,063,716 the contract amount of the Roadshow system ($559,200) and also the contract amount of the Address system ($153,833).

Assessment of the evidence and findings of fact

72.I shall deal first with the expert evidence called by the plaintiff at the trial. As had already been referred to above in this judgment, Dr Tse, an expert in computer programming and technology, was called by the plaintiff to give expert evidence. That evidence related to his viewing of the programme delivered by the defendant to the plaintiff. The viewing took place in November 2001 at the plaintiff's premises. It appears that the programme delivered by the defendant in March 1998 had been sitting in a computer in the plaintiff's premises throughout that period of time until its viewing by Dr Tse. It had not been touched or used by the plaintiff or anyone in the plaintiff's office for that whole period. That viewing by Dr Tse took place in the presence of representatives from the defendant.

73.It is common ground that when the delivered product was viewed in November 2001, that programme had been corrupted. It is not clear what caused that programme to be corrupted. Very likely it was due to the long period of time for which that programme had simply sat there unused and untouched.

74.Whatever may have been the reason for the corruption of the programme, the fact that it was corrupt when examined by Dr Tse makes it such that I am unable to place any reliance on his evidence in so far as it purports to be an assessment by him of what was delivered by the defendant in March 1998 and its shortcomings.

75.That in itself is already a full and complete basis for my inability to place any reliance on that evidence of Dr Tse. A further reason (not that it is needed) is the fact that Dr Tse was unable to say, when cross-examined, as to what material or documents had been supplied to him by the plaintiff or what was the precise factual basis for his coming to the opinion that he did. The reason for Dr Tse's inability to give that answer was because all the material and document supplied to him by the plaintiff (or the plaintiff's solicitor) had been returned by Dr Tse and that he had not made a note of what had been supplied to him. Neither was it apparent from his written report.

76.I hardly need to repeat that it is always important for an expert witness to be able to say what was the factual basis of the case as fed to him by the party calling him when he is asked for an opinion so that at the trial the accuracy or reliability of that opinion can be tested when the actual fact of the case has been determined by the trial judge.

77.In the present case, it is fair to say that this was the first time Dr Tse has been asked to be an expert witness in court. If he was not fully aware of the proper procedure relating to an expert witness, that was a matter which the plaintiff's solicitors should have seen to and ensured.

78.As matters transpired, the obtaining of Dr Tse's report and his giving evidence as an expert was an exercise in futility. I place no reliance on his evidence at all.

79.That leaves only the evidence of Rex Luk for the plaintiff on the one hand and Alfred Ng and Chris Yuen for the defendant on the other hand for me to assess.

80.In so far as the evidence of Rex Luk is concerned, I find him to be a truthful and honest witness doing his best to tell the truth as to what happened in the matter. His evidence is supported by the documentation and correspondence and is also logically acceptable when the entire picture is considered as a whole. I have no difficulty accepting his evidence.

81.I have grave reservations with the evidence from both defence witnesses on the disputed facts. In giving their evidence both defence witnesses have emphasized matters which tended to support what they alleged to have been the case and have skirted over or ignored those matters which are against them. In the final analysis their evidence do not fit logically with the entire picture when that is looked at as a whole.

82.Firstly, in so far as the user requirement of the plaintiff is concerned in getting the defendant (in particular Alfred Ng) to customize the Roadshow system together with the Address system and Ordering system as well as to quote the fees for putting together such system for them, I accept the evidence of Rex Luk that not only was the full operation of the plaintiff for the Rehabus made known to the defendant, but that the plaintiff was relying wholly on the defendant as professionals to develop a system for them which would enable the plaintiff to properly computerise its operation for the Rehabus. That being the case, I cannot imagine that the plaintiff would have failed to make known to the defendant any part of its operation which was being done manually during the period from January to October 1996 when the defendant was revising its quotations given to the plaintiff in respect of this project.

83.The plaintiff's requirements would include not only the handling of the SRS as well as the DAR service but also the routing as well as the availability of buses and drivers. Since the availability of the buses would depend on their maintenance and the availability of drivers on their rotation and/or leave schedules, these were not only important, but also very much an integral part of any system that was intended be developed for that purpose.

84.Moreover, in so far as the DAR service is concerned, it must have been clear to the defendant that in the system that was being employed by the plaintiff, the single order is as important as the group order and that system cannot properly function if either the single or group order is left out.

85.I do not accept the evidence of Alfred Ng that the requirement of the plaintiff is only as per the sample screens attached to the Order Confirmation. While the sample screens are what the plaintiff expect to find on screen when the system is developed by the defendant, the sample screens cannot be looked at in isolation but must be considered together with the whole operation of the plaintiff for the Rehabus which has been made known to the defendant between January and October 1996.

86.I find therefore that the plaintiff has fully made known to the defendant its entire operation of the Rehabus service between January and October 1996 and had indicated to the defendant that what it required from the defendant was a customised version of a computer programming system which would enable the plaintiff to maximise the efficiency of the routing of its Rehabus service.

87.Moreover, when the various quotations given to the plaintiff by the defendant are looked at it can be seen that the first quotation dated 29 January 1996 quoted an amount of $1,040,100 for Roadshow '75 together with certain options but which did not include the customized Order Entry and processing. There was no mention of maintenance costs in this quotation.

88.The second quotation dated 14 June was effectively two quotations, one for Roadshow '85 and the other for Roadshow '75 quoting respectively the amounts of $1,123,700 and $1,040,100. Both these quotations included the Chinese Address system as well as Training and Implementation but did not include Customised Order Entry, Drivers' Assignment nor maintenance. It can also be seen that the amount quoted for the Roadshow '75 is exactly the same as in the January quotation.

89.The third quotation is dated 17 June 1996, just three days after the second quotation. Initially it was by fax quoting $1,804,860 for 85 trucks and $1,874,733 for 100 trucks but without any breakdown. There were also two proper quotations of the same date respectively for 85 trucks and 100 trucks but with itemised amounts for each of the items. The total amounts of these two quotations, including the amounts of the options, come to exactly the same figures given in the two faxed quotations of the same date.

90.The final figure in the Order Confirmation, being $1,772,860, was slightly reduced from the figure given in the quotation for 85 trucks on 17 June 1996.

91.When these various quotations leading to the Order Confirmation are looked at in its proper context, it supports the evidence of Rex Luk that the plaintiff desired to enter into a lump-sum contract which was all inclusive of the plaintiff's requirements for computerization of its Rehabus operation. The main reason, which I accept, given by Rex Luk for this was that the funding for this project was coming from the Hong Kong Jockey Club and that it was to be a one-off funding. This must necessarily have been made known to the defendant since by its Letter of Intent dated 19 June 1996, the defendant agreed that the prices quoted on 17 June by it would be valid until 31 December 1996 due to the fact that the plaintiff's application for funding would take time.

92.Moreover, from the payment scheduled stated in the Order Confirmation, 60% of the price was payable upon order placement, 35% upon system delivery and the final 5% on or before 31/12/1997. Based upon this payment schedule and the dated stated there for payment of the final 5% of the price, I also accept the evidence of Rex Luk that it was the contemplation of the parties that the project was to be completed and the system delivered well before that date.

93.However, the defendant's programmer only came onto the scene in so far as this project was concerned after the Purchase Order has been entered into. There was also some initial delay by the plaintiff in that the initial payment of the 65% which ought to have been paid upon the signing of the Purchase Order, was not paid to the defendant until March 1997. However, despite the delay with the initial payment, Chris Yuen, the programmer, started on the Study Review some time in February 1997 to ascertain what had to be done and the amount of work involved. That Study Review showed up that the amount of work involved far exceeded the 40 man-days initially estimated by the defendant when they prepared the Order Confirmation.

94.For the reasons already given above, I find that this underestimation of the work involved was not due to any additional programming required by the plaintiff after the Purchase Order was entered, but rather was due to the defendant's own fault in either failing to properly assess the amount of work required because the programmer was not, prior to the Order Confirmation, consulted to assess the amount of work required or that Alfred Ng had not fully appreciated the complexities of the dial-a-ride ordering system required by the plaintiff for their operation.

95.In any event, the defendant suggested a time schedule for the project the details of which are contained in a fax from Alfred Ng to Rex Luk dated 11 July 1997 which provides for the finishing and set up of the system in the latter half of May 1998 with the system first trial run to be carried out on 1 June 1998.

96.By early October 1998, the plaintiff was chasing up the defendant for the progress of the works that the defendant was doing.

97.On 21 October 1997, a meeting was held between representatives of the plaintiff and the defendant where the defendant agreed (inter alia) to put the main flow of the programme on trial run on or before 31 March 1998 and to submit monthly progress report to the plaintiff of the project.

98.The progress report given by the defendant and dated 30 November 1997 in so far as it related to the item "DAR Organization Order Maintenance (with class assignment)" stated its progress to be "Started, in Progress".

99.The next progress report dated 5 January 1998 stated the progress for the same item to be "Pending, wait for later decision". When this change in the progress report for that item was noticed by Rex Luk of the plaintiff some time in February 1998, I accept his evidence that he immediately contacted Chris Yuen of the defendant and was told by Chris Yuen that the defendant had run into a difficulty with the programming of that item which was that the Roadshow programme had a limitation of only processing no more than 36 orders in a batch. I also accept his evidence that he was told by Chris Yuen that the defendant could not find a way to solve this difficulty.

100.This new difficulty was obviously of concern to the plaintiff as they were, at that time, handling around 60 to 70 group orders as well as over 100 single orders a day. As a result, a meeting was arranged between the plaintiff and the defendant for 10 March 1998. At this meeting the defendant had put four possible options to the plaintiff as being means to overcome this difficulty with the limitation of 36 orders in a batch. The four options, in written form, are at page 249 of the Trial Bundle B.

101.For present purposes, I do not need to consider the first three options since it is common ground between the parties that the first three options cannot solve the difficulty raised by the limitation of 36 orders in a batch.

102.The dispute between the parties relate only to the fourth option. In so far as the fourth option is concerned, the plaintiff's case is simply that even that option does not meet the requirement of the plaintiff, not to mention the difficulties and complications acknowledged by the defendant as contained in the "disadvantages" column of the written sheet supplied to the plaintiff containing the four options (page 249 of Trial Bundle B).

103.Even on the defence's own case, option 4 still suffers the restriction of being only able to process 36 orders in a batch. Without going into all the technical details of its workings, the defendant's evidence is that this can be overcome to a certain extent by the creation of what it calls "virtual orders" and then for each batch of 36 orders to be processed by the Roadshow system. After the Roadshow system has processed the final routing for each batch of 36 orders, the information is then uploaded and fed into the Order and Entry system in another computer for any number of different batches. In that way all the orders (from any number of batches) can be dealt with by the Order and Entry system together.

104.That is precisely the complaint which the plaintiff makes as to option 4. The plaintiff contends that since only a batch of 36 orders can be processed at one time by the Roadshow system, it is therefore unable to maximise the efficiency of the routing; something which it should be able to do if it processed all the orders together at one go.

105.Indeed so much is conceded by Chris Yuen, the defendant's programmer when he said in evidence that where the orders are processed in batches of 36, that would not maximise the efficiency of the routing system but that there was no alternative. He further agreed that ideally if the system could process all the orders at one go without splitting it into batches of 36, that would give maximum efficiency for the routing.

106.Connected with this issue of option 4 are two further issues disputed by the parties and which I need also to resolve.

107.Firstly while the plaintiff says that this limitation of 36 orders in a batch was only told to Rex Luk of the plaintiff by Chris Yuen of the defendant some time in February of 1998 which led to the meeting of 10 March, it is the defence case that this matter was made known to Rex Luk by Chris Yuen some time in June 1997 when he (Chris Yuen) came to realise that there was such a limitation in the Roadshow system. When Alfred Ng gave evidence on this, he said he had told Rex Luk of this in around August or September 1997.

108.I have no difficulty accepting the evidence of Rex Luk on this issue. Quite apart from the discrepancy in dates between the evidence of Chris Yuen and Alfred Ng as to when Rex Luk was told of this problem, there is also the Progress Report supplied by the defendant to the plaintiff as to the progress of the project. If Rex Luk had been told of this problem either in June, August or September of 1997, it would indeed be strange for the change of status in the progress reports for the item 'DAR Organization Order Maintenance (with class assignment)' to have taken place between that report dated 30 November 1997 and the one dated 5 January 1998.

109.Moreover, the meeting called on 10 March to discuss this problem and the written sheet of the four options bearing the fax date of 11 March 1998 further support the evidence given by Rex Luk.

110.The second issue in dispute and related to option 4 is that while Rex Luk says that it was the defendant (Alfred Ng and Chris Yuen) who tried to persuade the plaintiff to agree to accept option 4 as a possible solution to the problem created by the limitation of 36 orders in the Roadshow system, it is the defendant's evidence that in fact it was Rex Luk who was pressing for option 4 when the defendant was not for it because of the difficulties and complexities involved in its programming.

111.Again I have no difficulty in accepting the evidence of Rex Luk on this issue for these reasons.

112.The four options came from the defendant. At the trial, the defendant was at pains to paint to the court the picture of how workable option 4 was, even to the extent of providing two flow charts in their attempt to explain the technical aspects of the matter. But for option 4 the defendant would have no other possible alternatives even coming near as a solution to the problem created by the limitation of 36 orders in the Roadshow system.

113.I therefore find that when the plaintiff rejected option 4 after the meeting on 10 March it was well within the plaintiff's rights to do so since option 4 did not provide a solution to the problem which would have met the requirements of the plaintiff.

Conclusion

114.On the above facts as I have found, the complete system was not delivered by the defendant on 6 March 1998 by reason of the fact that what was delivered did not include the DAR group order which was an integral part of the system ordered by the plaintiff.

115.I further hold that it was not unreasonable for the plaintiff to have given the notice when they did to the defendant and to have accepted the repudiation by the defendant at the expiry of that notice when the defendant was still unable to complete the contract by delivering the complete system required by the plaintiff.

116.This is particularly so when one looks at the full picture. The project itself has taken over one year since the signing of the purchase order. Almost at the eleventh hour the plaintiff was informed of an insurmountable difficulty which originates from the Roadshow system which the defendant not only recommended but was at all times the distributor of that system in Hong Kong. That there was such a limitation with the Roadshow system ought to have been a matter which the defendant should have known about and of which the plaintiff should have been told well before it entered into any contract for the purchase of the Roadshow system. But that was not the case here. Had that happened, the plaintiff may not have entered into the agreement which it did with the defendant. Therefore to that extent there was a misrepresentation. This is all the more so where the plaintiff was relying on the expertise of the defendant to properly advise it in the technical matters relating to the project, both before and after the agreement was entered into.

117.Accordingly, for the reasons given, there will be judgment for the plaintiff for the return of the deposit amount of $1,063,716.00 with interests thereon at 7% from the date of the Writ until judgment and thereafter at judgment rate.

118.The defendant's counterclaim is dismissed.

Costs

119.There will be a costs order nisi that the defendant pays the plaintiff's costs of this action as well as the plaintiff's costs of defending the counterclaim such costs to be taxed if not agreed.

Representation:

Mr Sanjay Sakhrani, instructed by Messrs Andrew Law & Franki Ho, for the Plaintiff

Miss Winnie Chan, instructed by Messrs Ho, Wong & Wong, for the Defendant