Secretary for Justice v. Lee Kin Chun t/a Lee Chai Motor Spare Parts

DCCJ3647/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3647 OF 2001

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BETWEEN

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Before: Her HonourDistrict Judge Marlene Ng in Court

Dates of Hearing: 19^th, 20^th and 23^rd August, 8^th and 9^th September, 2004

Date of Handing Down Judgment: 24^th December, 2004

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JUDGMENT

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Introduction

1. On/about 25^th October 1996, Lee Kin Chun trading as Lee Chai Motor Spare Parts (“D”) entered into a contract with the Government of Hong Kong (“P”) to purchase unserviceable ex-government vehicles (“UGV”)under the categories listed in columns A-D of Schedule II hereto (“Schedule II”) within a 12-month period commencing on 1^st November 1996 at an estimated total price of HK$1,034,900.00 (columns E-F of Schedule II) (“Contract”). D paid HK$20,000.00 as deposit to P (“Deposit”).

Contract

2.  Contract was contained in and/or evidenced by the following :

(a)   Form of Tender (“Tender Form”) signed by D forming part of “Tender for the Purchase of Articles Or Materials from the Hong Kong Government” (“Tender”);

(b)   Terms of Tender being Part I of Tender;

(c)   Conditions of Sale (“Conditions”) being Part II of Tender;

(d)   Special Conditions of Sale (“Special Conditions”) being Part III of Tender;

(e)   Notes for Tenderers which formed part of Tender and Contract (“Notes”);

(f)    letter of acceptance (“Acceptance”) dated 25^th October 1996 issued by the Government Supplies Department (“GSD”) to D by fax and registered post.

3. Conditions provided inter alia as follows :

“	2.	Description
		The description given of the goods in the Schedule has been given by way of identification thereof only and the use of such description shall not constitute this Contract a sale by description. ……
	6.	Default in Payment
		If the Contractor shall made default in any payment, …… the Government Representative shall be at liberty to resell or dispose of the goods as he may think proper without giving prior notice to the Contractor. Any deficiency arising from such sale or attempted sale shall be made good and paid by the Contractor. ……
	11.	Recovery of Sum Due
		Whenever under this contract any sum of money shall be recoverable from or payable by the Contractor, the same may be deducted …… from any deposit which the Contractor has paid in connection with this …… contract.”

4. Special Conditions provided inter alia as follows :

“	(2)	Estimated Quantity
		The total quantity specified in Tender Schedule and Appendix “A” is an estimate given for the guidance and assistance of Tenderers only, and the Government can in no way guarantee that it is an actual figure. The actual quantity available for sale may be more or less than the estimate stated and the Contractor must be prepared to accept any increase or decrease of 20% of the stated estimate.
	(3)	Collection and Removal……
		(b)	The Contractor must effect collection and removal of the unserviceable vehicles in any such quantity as may be available each time during the contractual period within 7 working days from the date of payment against each Demand Note issued by the Director of Electrical and Mechanical Servicesafter the award of this Contract. ……
	(5)	Payment
		(a)	Payment for the purchase of unserviceable vehicles must be settled by the successful Tenderer within 7 working days from the date of each Demand Note issued by the Director of Electrical &Mechanical Services after the award of this Contract; failing this, Clause 6 ‘Default in Payment’ of the Conditions of Sale …… shall apply.
		(b)	The Contractor shall not effect removal/collection of any unserviceable vehicle under this Contract until payment for the purchase is made. ……
	(8)	VehicleRegistration
		(a)	The Contractor acknowledges that motor vehicles are sold as is and with no warranty that they comply in any respects with the provisions of any enactment relating to the construction and use of vehicles. The Contractor further acknowledges that the vehicles are phased out ex-government vehicles and these vehicles may not be registered or licensed for use in Hong Kong …… unless the vehicles (for Items 1 – 13 and 17 – 24 only in the Tender Schedule) conform to [various statutory requirements]. ……”

5. Appendix A of Tender/Contract titled “Estimated Quantity of Vehicles Condemned as Unserviceable in the next 12 months commencing 1.11.96 to 31.10.97” (“Appendix A”) set out 24 categories of UGV with the type, make and model for each category except for categories 23 and 24 which were unserviceable for reasons beyond P’s control. D made an offer for 23 categories by Appendix B/Tender Schedule (“Appendix B”) and was successful in his bid for 9 categories as listed in columns A, E and F of Schedule II. By Acceptance (which constituted a binding contract), P accepted D’s offer for such 9 categories of UGV. GSD sent copy Contract to D under cover of its letter dated 1^st November 1996viaregistered post.

6. Clause 3 of Tender Form and clause 1 of Conditions provided inter alia that D acknowledged he had examined or had been given reasonable opportunity to examine UGVsold under Contract. However, Notes provided inter alia as follows :

“	(7)	Inspection
		The vehicles to be sold under this Contract will not be available for inspection. However, a list of the vehicles which may be available for sale is shown on Page 11 (Appendix A) for reference of the Tenderers.
	(8)	Condition of Unserviceable Vehicles for Sale
		Unserviceable vehicles available for sale under this tender may be completed with or without major components. Unserviceable vehicles are offered to Tenderers as they stand.”

7. At the time when Tender was issued, P did not know whatspecific UGV would be included in Contract. D was therefore not given any opportunity to examinesuch UGV, including items 1-41 of Schedule I hereto(“Schedule I”) (“Disputed Vehicles”), prior to entering into Contract.

P’s claim

8. From time to time, D paid for and collected UGV sold under Contract. P claimed it sold Disputed Vehicles to D under Contract and the Electrical and Mechanical Services Department (“EMSD”) issued demand notes for them in the sum of HK$718,060.00 as listed in column F of Schedule I (“Demand Notes”). D failed/refused to settle Demand Notes and/or collectDisputed Vehicles. P resoldDisputed Vehicles by public auction on 21^st August 1997 (“1^st Auction”) and 4^th and 25^th September 1997 (collectively, “Auctions”) for a total sum of HK$188,100.00. Ptherefore claimed against D for HK$509,960.00 being the difference between contract price of Disputed Vehicles less resale proceeds and Deposit.

D’s defence

9. D claimed that (a) 3 refuse collection vehicles (“RCV”) out of items 1-21 of Schedule I (“Part A”)failed to correspond to contract description as they were “without engine” and (b) P was in breach of an implied term of Contract that D should have a reasonable opportunity to examine Disputed Vehicles to decide whether to accept them against their contract description. Therefore D was entitled to reject Disputed Vehicles under Part A (“Part A Vehicles”). As Contract was an entire one, D was also entitled to reject Disputed Vehicles for items 22-41 of Schedule I (“Part B”) (“Part B Vehicles”).

10. It was not disputed that EMSD issued Demand Notes to D’s address by ordinary post. But D argued P was in breach of the term/condition implied by law that Demand Notes should be sent by registered post.

11. D’s case was that he was not required to pay Demand Notes until he received them. He denied receipt of Demand Notes for items 26-41 of Schedule I.In respect of the demand note for items 22-25 of Schedule I (“Old Demand Note”) in the sum of HK$111,480.00, D had requested P to replaceit with a new demand note in the correct amount of HK$93,180.00. D never received such revised demand note, so he wasnot liable to pay P for the said items.In the circumstances, D was not liable to pay for Demand Notes under Part B (“Part B Demand Notes”).

12. There was no dispute that Disputed Vehicles were resold for the prices set out in column G of Schedule I totalling HK$188,100.00. But D argued that P failed to mitigate loss in that the resale price of Disputed Vehicles was more than 70% less than the contract price.

13. Although D denied receipt of GSD’s/EMSD’s demand letters, Mr Soo informed the court that D would not challenge (a) the issuance of such demand letters by GSD/EMSD to D and (b) D’s address and fax numbers stated therein. However, when D gave evidence, it appeared that he claimed that D’s Fax Number (see below) was his friend’s and not his and that he did not give D’s New Fax Number (see below) to P.

Issues

14. The following are the issues in the present case :

(a)   whether the contract description for category 16 of Appendix A (“Category 16”) was RCV “with engine” and if so, whether such description meant RCV fitted with complete engine inside the engine bracket;

(b)  if so, whether 3 RCV of Part A Vehicles were not “with engine” as described above;

(c)  whether the obligations under Contract were entire or severable;

(d)  whether D was entitled to reject Part A and/or Part B Vehicles;

(e)  whether it was an implied term of Contract that Demand Notes must be sent by registered post;

(f)   whether it was a condition precedent to D’s liability to pay Demand Notes that he should receive them;

(g)  whether D received Part B Demand Notes;

(h)  whether the condition of Disputed Vehicles put up for Auctions was materially different from before;

(i)    whether P failed to mitigate loss on the resale of Disputed Vehicles to D by Auctions;

(j)    if D is found to be liable to P, what is the applicable rate of interest on damages payable to P.

P’s case

(1) Identification of UGV for Contract

15. After P and D entered into Contract, government vehicles falling within the relevant categories and condemned as unserviceable were ascertained and sold to P under Contract.

16. When government vehicles became unserviceable, they would be condemned and disposed of. EMSD would issue a GF233 form called “List of Materials for Condemnation as Unserviceable” (“GF233”)attaching a list of UGV to be condemned (“Vehicle List”). Vehicle List set out inter alia UGV’sengine number or GF277 (see below) reference if there was no engine. It also gave the reasons for condemnation (egbeyond economic repair (BER), board of survey inspection (BOS) or accident investigation report (AIR)).

17. Sometimes EMSD’s Sung Wong Toi Workshop (“SWT Workshop”) would remove UGV’s engine before condemnation.In such case, SWT Workshop would issue a GF277 form called “Allocated Combined Requisition & Issue Voucher (“GF277”) for such purpose. Upon condemnation of such UGV (with engine removed), GF277 would be attached to GF233 and the GF277 reference would be stated in Vehicle List. GF277 for Disputed Vehicles listed in items 19-21, 28-29 and 33-36 of Schedule I showed their engines had been removed. Although some minor vehicle parts(not main components such as gearbox or rear axle) might be removed from UGVwithout filling any form, no vehicle parts would be removed after submission of GF233even if GF277 were received.

18. If UGV had its engine removed for investigation and repairs but was eventually condemned by reason of being beyond economic repair, the practice was not to re-install the engine but leave it at the back of UGV where it would remain when such UGV was towed to Sai Tso Wan Vehicle Pound in Kwun Tong (“STW Pound”). Such UGVwould be regarded as “with engine”.

19. There was another use for GF277. When contractors/buyers came to collect purchased UGV from STW Pound, they would have to sign GF277 in triplicate to acknowledge receipt of the collected UGV. STW Pound would then send theduplicate copy GF277 to Mr Cheung Sun Biu (“Cheung”), EMSD’s Supplies Officer (Electrical & Mechanical) Administration, for record.

(2) Inspection of RCV under Part A

20. Mr Chan Fat Sing (“FS Chan”), Mechanical Inspector (MI/PS) of EMSD’s Caroline Hill Hong Kong Vehicle Workshop (“CH Workshop”), inspected RCV for item 1 of Schedule 1 and found it complete with engine. He could not remember whether the engine was in the engine bracket or placed at the back of RCV. He checked such RCV’s engine number against its vehicle registration record (“VHR”) and recorded the engine number on Vehicle Listas attached to GF233.

21. Mr Ko Ying (“Ko”), Works Supervisor I at STW Pound, inspected UGV for items 2-41 of Schedule I. After checking his inspection results against SWT Workshop’s computer database, he prepared GF233 and Vehicle Lists. GF233/Vehicle Lists were then passed to Mr Leung Yau Chuen (“Leung”), EMSD’s Assistant Mechanical Inspector, who then inspected the relevant UGV.

22. In respect of Part A Vehicles, Ko and Leung found (a) 2 RCV (items 9 and 10 of Schedule I) with complete engine (ie cylinder block, centre/cylinder head and lubricating oil sump) removed from the engine bracket and placed at the back and (b) 1 RCV (item 13 of Schedule I) with cylinder block and lubricating oil sump found in the engine bracket and the centre/cylinder head in the driver’s cab (according to Ko) or at the back (according to Leung). Vehicle List stated that these 3 RCV werecondemned for BER reason.

23. After Leung/board of condemnation signed GF233, GF233 with Vehicle Listsand GF277 (for UGVwithout engine) were sent to Cheung. There was no GF277 for the aforesaid 3 RCV. Asrequired under P’s Stores Regulations, Cheung inspected UGV to verify Vehicle Lists in orderto properly classify UGV under Contract.If Vehicle Lists said UGV had engine, he would check if the engine was there but not the engine number. If Vehicle Lists said UGV had no engine, he would not check at all because a contractor would hardly complain about an extra engine. Cheung did not have any record of inspection, but he confirmed he found RCV for items 2-16 of Schedule I (including the aforesaid 3 RCV) with engine.This was compatible with there being no GF277 for such RCV.

(3) Demand Notes

24. Cheung forwarded GF233in triplicate to GSD’s general registry for signature by its responsible staff. GSD retained a copy of GF233 and returned 2 copiesto EMSD. Cheung then passedGF233 to EMSD’s Accounting Services Unit (“ASU”) to issueDemand Notes to D with copies to Cheung. Cheung forwarded copies of Demand Notes to Leung.

25. When EMSD found out that the amount of HK$111,480.00 in Old Demand Note should be HK$93,180.00, Cheung telephoned D’s number and spoke to a female on 25^th April 1997 to say that a replacement Demand Note would be sent in a few days. Old Demand Note was returned on 30^th April 1997 and was cancelled by ASU. A replacement Demand Note for HK$93,180.00 issued to D on/about 1^st May 1997.

(4) GF277 (for collection of Disputed Vehicles)

26. When Leung received copy Demand Notes, he asked Ko to prepare in advance a GF277 for each Disputed Vehicle for use when the contractor came to collect such vehicles. Ko wrote down the engine number (if any),the contractor’s name and the relevant Demand Note number in each GF277.

(5) D’s enquiry on3 RCV on 7^th May 1997

27. On/about 7^th May 1997, D attended STW Pound’s office and asked Ko why 3 RCV were considered to be with engine. Ko replied the 3 RCV “…… have cylinder blocks, and are therefore not classified in the category of vehicles without engine”. D then left the office and continued with his own inspection.

28. Leung shared Ko’s view, which was also reflective of STW Pound’s stance. Leung/Ko confirmed UGV would still be regarded as “with engine” whether the engine was in the engine bracket or at the back of UGV. Contract only referred to “unserviceable vehicles” without specifying whether they were operable or whether the engine was workable or intact.

(6) Did D complain about Disputed Vehicles?

29. D had previously collected UGV under Contract from STW Pound without complaint. On 7^th May 1997 Cheung wrote to D urging D to collect 11 UGV (not Disputed Vehicles) under Contract (“7/5/97 Letter”). D subsequently collected such UGV and Cheung took no further action. Further, the attachments to EMSD’s memo to GSD dated 5^th August 1997 revealed that D had previously collected 5 RCV. D made no complaint in respect of these UGV or RCV.

30. It was P’s case that D never complained about Disputed Vehicles. STWPound had no record of complaint from D or of any referral of D’s complaint from other government departments. D also did not complain to FS Chan, Ko, Leung, Cheung or EMSD. Had there been any complaint, action would have been taken to handle the same.

31. Ko did not consider D’s aforesaid enquiry on 7^th May 1997 a complaint or a request to resolve a problem.Ko further denied D had requested him to inspect Part A Vehicles together or asked him whether the engine was complete. Had D done so, Ko would have given him an explanation, accompanied him to examine Part A Vehicles and reported to Leung. If they had received complaint from D,Leung would have consulted his superior and Cheung would have liaised with STW Pound to resolve the problem. No such action was taken because there was no complaint.

32. If D had made a complaint and EMSD was able to resolve the problem after investigation or D accepted EMSD’s conclusion, EMSD would not inform Madam Chan Suk Fun (“Chan”), Senior Supplies Officer (Group B) of GSD’s procurement division and GSD’s officer in charge of Contract. If the problem could not be resolved, EMSD would inform Chan to take action.

33. Chan denied receiving any notice of complaint from EMSD or any direct complaint from D. If D had complained to her, she would have made a record of such complaint and asked D for more details to facilitate investigation. After investigation, she would inform D of the investigation resultsin writing.

(7) D’s default and P’s follow-up action

34. D failed to pay Demand Notes and/or collect Disputed Vehicles. Up to August 1997, P sent the following letters to D :

(a)   Following the usual practice for the relevant government department to issue an initial demand letter without prior notice to GSD, Cheung by a letter dated 26^th May 1997 (copied to GSD) urged D tointer alia remove 23 Vehicles (items 1-16 and 19-25 of Schedule I) within 10 days (“1stLetter”).

Chan and Cheung denied that the handwritten “26” of the date of 1^st Lettershowed Cheung was waiting for the results of Chan’s meeting with D (see below) before issuing such letter. Chan explained it was usual government practice to insert the date by hand when letters were signed.

Chan denied that GSD/she telephoned D on/about 26^th May 1997 to ask him to come to GSD’s office for a meeting or that she met D at all. Normally a written invitation would be issuedfor such meeting followed by telephone confirmation of the appointment. There was no record of such invitation or of any minutes of meeting with D. Further, it was not Chan’s practice (as D alleged) to attend meetings with contractors on her own without her supervisor.

(b)  Pursuant to D’s continued default, Cheung requested GSD to take action. By a letter dated 26^th June 1997 sent by registered post and faxed to D’s fax number stated in Appendix B (“D’s Fax Number”), Chan demanded D to pay Demand Notes and collect Disputed Vehicles referred to in 1^st Letter (“2^nd Letter”).

(c)  By a letter dated 7^th July 1997 to D (copied to GSD), Cheung pointedout D’s failure to collect Disputed Vehicles for items 26-29 of Schedule I and asked D to remove such Disputed Vehicles within 10 days (“3^rd Letter”).樊玉群collected 3^rd Letter from the post office on 14^th July 1997.

(d)  On/about 23^rd July 1997, Cheung asked his colleague Madam Lin Oi Ki (“Lin”) to find out why D failed to settle Demand Notes. Lin telephoned D on/about 23^rd and 25^th July 1997. D told Lin he received some Demand Notes (including the most recent one dated 18^th July 1997 for 3 RCV for items 39-41 of Schedule I) but he needed to check whether had he received all. Lin promised to send him a list of outstanding Demand Notes with details of Disputed Vehicles. When Lin asked D why he had not paid for or collected Disputed Vehicles,he explained he had difficulties in reselling thembut promised to make payment and inspect them at or collect them from STW Pound.

Lin enclosed a list (not copies) of Demand Notes (“Demand Notes List”) under cover of her Chinese letter dated 23^rd July 1997 (“4^th Letter”) and her English letter dated 25^th July 1997 (“5^thLetter”) to D. These letters stated that after D/Lin discussed the matter, D informed Lin he would settle Demand Notes and collect Disputed Vehicles as soon as practicable. The letters were faxed on 25^th July 1997 to a new fax number which D gave to Lin during the telephone conversations (“D’s New Fax Number”).

(e)  Lin sent a further demand letter to D dated 4^th August 1997again enclosing Demand Notes List (“6^th Letter”) by fax to D’s Fax Number (with fax transmission report) and by registered post (with certificate of posting).

(f)   Due to D’s continued default, EMSD requested GSD to take action. By a letter dated 7^th August 1997 to D, Chan required D to remove Disputed Vehicles by 14^th August 1997 (“7^thLetter”). Thisletter was sent by fax to D’s Fax Number (with fax transmission report) and by registered post (with certificate of posting). It was collected from the post office by 樊玉群 on 19^th August 1997.

(8) Auctionsof Disputed Vehicles

35. As D still failed to collect Disputed Vehicles, Chan requested Madam Mo Wai Ying (“Mo”), who was attached to GSD’s Storage and Distribution Section, to arrange for their resale by public auction. Normally, valuation would be doneto determine the reserve price before auction, but it was not compulsory to inspect UGVbefore auction. Mo could not remember whetherDisputed Vehicles were inspected prior to Auctions.

36. GSD informed the auctioneer the reserve price of Disputed Vehicles (eg HK$7,100.00 for each RCV). Mo did not have GF233 and was unaware of Contract; otherwise she might have used the contract price as reference. GSD prepared the auction lists (available from auctioneer’s office) and published notices of auction in English/Chinese newspapers prior to each Auction.

37. Leung denied that vehicle parts were removed from Part A Vehicles prior to Auctions. Ko said that STW Pound would not have vehicle parts lying around as it was not a workshop. Although any buyer could inspect UGV on confirmation of identity, EMSD had no record of D or his representatives inspecting Part A Vehicles before Auctions.

38. Except for items 19, 29 and 33-35 of Schedule I, D purchased Disputed Vehicles (including all RCV under Part A) at Auctions in his personal name at the pricesset out in column G of Schedule I.

39. Between August and October 1997, D’s representatives collected Disputed Vehicles which D purchased under Auctions from STW Pound on production of the auctioneer’s Release Notes. In accordance with standard procedure, Ko’s assistant, senior artisan Mr Lee Hoi Fat (“Lee”), accompaniedD’s representatives to check the condition of such Disputed Vehicles before release. So at the time of collection of such Disputed Vehicles, D’s representatives clearlyknew whether they were “with” or “without” engine.

40. D’s representatives signed GF277 (previously prepared by Ko) to acknowledge the condition of Disputed Vehicles collected by them. As such Disputed Vehicles were ultimately resold under Auctions, Ko’s colleagues amended each of the corresponding GF277 to state D’s name and the auction lot number in place of the contractor’s name and Demand Note number. But the description of Disputed Vehicle on each GF277 (including the engine number (if any))remained unchanged.

41. Leung also confirmed that pending collection of Disputed Vehicles by D’s representatives, there was no change to their condition and no engine was removed.

(9) The claim

42. Chan issued demand letters to D dated 11^th November and 30^th December 1997 to claim for the price difference of HK$529,960.00 between the contract price and resale price of Disputed Vehicles. The letters were sent by fax to D’s Fax Number (with fax transmission report) and by registered post (with certificate of posting).

D’s case

(1) Background and Tender

43. D had been buying/selling vehicles for 30 years and buying UGV for about 25 years by auction in his personal name. Contract was the only time he purchasedUGV by tender in the name of Lee Chai Motor Spare Parts, which company he formed 7 odd years ago. Under Tender, D made a bid for 23 categories of UGV. P informed him by Acceptance that he was successful in respect of 9 categories. Dagreed he wanted to make a profit from Tender/Contract but denied he made up his defence in order toback out from a bad bargain under Contract.

44. D was aware that UGV became unserviceable for many reasons, eg when UGV reached the end of their service life, sustained accident damage or were beyond economic repair. More recently manufactured UGV had better value than older UGV.But where the age of UGV was similar, an operable UGV would have a higher value than anaccident-damaged one.

(2) D’s inspection of Part A Vehicles on 7^th May 1997

45. In accordance with usual practice, GSD/STW Pound would not arrange for joint inspection of or offer D any opportunity to examineDisputed Vehicles. But on receipt of the 2 Demand Notes under Part A, D went to STW Pound on/about 7^th May 1997 to examine Part A Vehicles for himself before making payment. Although D’s pleadings only referred to 3 RCV from Part A as “without engine”, D saw (a) 2 RCV with the cylinder block removed from the engine bracket and placed at the backwith other key parts of the engine missing, and (b) 1 RCV with no engine at all.D had no complaints on the condition of Disputed Vehicles except for the above 3 RCV.

46. D told Ko what he found. Ko looked through some documents in the office and said “on paper the 3 vehicles had engines”. He refused D’s request to inspect Part A Vehicles together, saying the enginenumbers and other information showed the presence of cylinder blocks. D complained that Ko was bureaucratic and left. D’s past experience was that Ko’s superior never bothered with him, so he did not complain to Ko’s superior.

(3) Post-inspection communciations

47. On/about 26^th May 1997, a female identifying herself as from GSD telephoned D askingabout unpaid UGV. She asked whether he could come to GSD’s office and he agreed to so do immediately. D said in evidence that he did not know who telephoned him but when he met Chan at GSD’s office (see below), he assumed that it was Chan. But D stated in his supplemental witness statement that it was Chan who telephoned him claiming she was Chan of GSD.

48. D met Chan at GSD’s office.Hetold herthat he found 3 RCV had no engine and requested her to exclude them from Demand Notes before he madepayment and/or collected UGV. Chan looked at some documentsandthen said her records showed all RCV had engines/engine numbers. After much argument, Chan still insisted all RCV had engines and said P would not amend Demand Notes after issuance. D then suggested to Chan to send a technician/engineer to accompany him to STW Pound to examine the relevant UGV. Chan refused, claiming that no engineer was available and insisting that her records were correct. D complained that Chan was bureaucratic. In the circumstances, he refused to accept Disputed Vehicles and left as nothing could be done. D did not approach Chan’s superioras he thought that Chan,who was in a senior position, was the final authority.

49. P was in breach of Contract (a) because the aforesaid 3 RCV did not correspond with the contract description that they should be“with engine”,(b) by refusing/depriving D’s right of a joint examination of Disputed Vehicles to ascertain whether they conformed to contract and (c) by refusing to exclude 3 RCV from Demand Notes. By reason of such breach, D was entitled to reject Part A Vehiclesand to refuse payment of Demand Notes under Part A.

50. D was prepared to pay for and collect the balance of Disputed Vehicles if the aforesaid 3 RCV were excluded from Demand Notes. Without such exclusion, D believed P would not allow him just to pay Demand Note for item 1 of Schedule I and Part B Demand Notes. As D lost confidence in P after meeting Chan, he did not try to check with P to see if he could do so. By reason of P’s breach in relation to the aforesaid 3 RCV, D was also entitled to reject Part B Vehicles and to refuse payment of Part B Demand Notes.

(4) Demand Notes and P’s correspondence

51. As Acceptance (which concluded and formed part of Contract) was sent by registered post, it was clearly intended that P would and P was under an express/implied duty to forward Demand Notes by registered post. If P did so by ordinary post, P was in breach of contract and D was not obliged to make payment.

52. D said in his witness statement that he could not recollect whether he had received Part B Demand Notes. However, he said in evidence thatusually his wife樊玉群(who did his clerical work) handled P’s correspondencesent to his home and she would pass P’sdemand notes to him for him to inspect UGV and then to make payment. As D lost confidence after P’s breach of contract and after the meetings with Ko/Chan, he told his wife not to tell or show him P’s correspondence about Disputed Vehicles. D’s wife did not give Part B Demand Notes to him.

53. D claimed that it was also clearly intended that P’s correspondence would be sent by registered post to ensure receipt by D.P’s demand letters were addressed to D’s home address, but D’s Fax Number was supplied by D’s friend when he typed Appendix B for D. What D said was D’s Fax Number was not his. D agreed his wife collected 3^rd and 7^th Letters, but he did not know whether she received the demand letters of 11^th November and 30^th December 1997 from Chan of GSD. His wife might have kept them from him.

54. D knew his wife read P’s correspondence because when she fell ill, she told him P threatened to sue him and urged him to read P’s correspondence. D’s wife later passed away. It was more than a year later (ie probably in/about 2000 but D was not sure) that D came to know that P claimed for the price difference between the contract and resale price of Disputed Vehicles.

55. D denied having spoken with Lin by telephone or having told her he had difficulties in reselling Disputed Vehicles. His practice was to switch off his mobile telephone and forward all telephone calls to his company. He had no impression of and did not give D’s New Fax Number to Lin.

(5) P’s failure to mitigate loss

56. P failed to mitigate loss by not taking positive action to ascertain Disputed Vehicles’ fairmarket price orobtain any valuation for that purpose before putting them up for auction. The resale proceeds of HK$188,100.00 were unreasonably low, ie more than 70% less than the contract priceof HK$718,060.00.

57. D often attended public auctions of government materials. Auctions at which Disputed Vehicles were sold were public auctions attended bythe general public and tradersin UGV. D did not discuss/agree his bid and did not collude with other bidders to hold down the price. D successfully bid for some Disputed Vehicles (including most of RCV at HK$7,100.00 each) at Auctions by offering the highest bid. D claimed that the auction price of RCV was substantially lower than the contract price because such RCV had many missing vehicle parts (see below).

(6) Examination of Part A Vehicles prior to Auctions

58. D examined Part A Vehicles at STW Pound about 2-3 days prior to 1^st Auction and found that their condition was materially different from before (ie with many vehicle parts missing). D found most RCV were either without engine or had many vehicle parts missing, ie (a) 3 RCV were without engine, (b) about a third of RCV were without gearbox, (c) more than half of RCV were without hydraulic pumps, (d) a few RCV were without rear axle housings (but D found some disassembled parts on the ground at the time of his inspection), and (e)some RCV were without drive shafts. D had noted down the registration numbers of such RCV butcould no longer find his notes. D therefore made a commercial decision on the price to bid at Auctions based on the categories, age and condition of Disputed Vehicles.

59. Some of the missing vehicle parts had been there during D’s inspection on 7^th May 1997 although he noticed then that the gearbox of some Part A Vehicles had been dismantled and left on the ground. He did not mention this to Ko, but on that occasion he was concerned to first examine the engine (ie the most expensive part) and he did not check the other vehicle parts. D only laterrealised the hydraulic pumps and drive shafts were also missing.D said UGV would be worthless if the engine was removed and/or the other vehicle parts were missing.

Sale by description

60. I find that the evidence from both parties show there is common ground between them that Category 16 (ie “Refuse Collection Vehicle”) refers to RCV “with engine”. In my view, although the limited express descriptions for different categories of UGV in Contract are not “descriptions” within the meaning of section 15 of the Sale of Goods Ordinance Cap.26 (“Ordinance”) as to give rise to an implied condition that UGV shall comply with such descriptions, it is clear from the evidence that the parties’ common understanding of the requirement of “with engine” amounts to such description. Much therefore turns on the meaning of “with engine”. But in this respect, I disagree with D’s contention that it means RCV with complete engine fully fitted inside the engine bracket.

61. Mr Soo submitted that the sale of UGV under Contract was a sale by description. He contended that Appendix A made clear that the description for Category 16 was RCV “with engine” even though there was no express requirement of “with engine”. His argument was that since Category 22 of Appendix A (“Category 22”) was for “Vehiclebody / chassis …… (without engine)” and the price for UGV under such category was much lower thanUGV for other categories of Appendix A, it necessarily meant that UGV for other categories must be “with engine”. Mr Soo further submitted that Clause 8 of Notes (which provided that UGV sold under Contract might be with or without major components) did not detract from the above proposition.

62. Mr Shum noted that the only express words used in Contract in respect of RCV were “unserviceable vehicles” and “Refuse Collection Vehicle”. He also pointed out that there was no express reference as to whether the categories of UGV in Appendix A (including Category 16) other than Category 22 were “with” or “without” engine. He therefore argued that one could not read “with engine” into the descriptions for such categories. However, I note that it is clear from the evidence of Leung, Chan and D that both parties understood that RCV under Category 16 were“with engine” and if RCV were “without engine”, they should be excluded from Category 16 and the relevant Demand Note should be cancelled and replaced by a revised demand note to reflect the rectified position.Leung accepted that if RCV were in fact “without engine”, it should be classified under Category 22 rather than Catgeory 16. I am therefore not with Mr Shum on this argument.

63. The key question is therefore the meaning of “with engine”. It is not disputed that there is no express definition or explanation of the meaning of “with engine” in Contract. Both counsel argued that the meaning of such phrase could be understood from the fact that Contract was a sale of “unserviceable vehicles”.

64. Mr Soo argued that the ordinary/plain meaning of “vehicle”was a vehicle with complete engine properly installed in the engine bracket and the word “unserviceable” did not detract from such meaning. Mr Soo reminded that UGV for categories 23 and 24 of Appendix A without any make/model were UGV that became unserviceable forreasons beyond P’s control. He argued it therefore followed that UGV for other categories in Appendix A with make/model (eg RCV under Category 16) were those that become unserviceable for reasons within P’s control. Such reasons must be understood in light of Clause 8 of Special Conditions which provided that UGV were phased out ex-government vehicles that might not be registered or licensed for use in Hong Kong unless certain statutory requirements were met. In such context, RCV under Category 16 must be referable tothose that were condemned for ordinary and stated reasons within the parameters of Clause 8 of Special Conditions, in which case the complete engine should still be properly installed in such RCV.

65. Mr Shum, on the other hand, submitted that the reference to RCV in Appendix A should be given its ordinary/natural meaning against the relevant background of the transaction.The subject of sale was “unserviceable vehicles”, not “vehicles” in normal use and condition. Both parties (as apparent from D’s evidence) knewthat ex-government vehicles became unserviceable for many reasons, including BER. If an ex-government vehicle was condemned for BER reason, it meant that EMSD had carried out investigation (eg lifting the engine out of the engine bracket and checking it) or preliminary repairs but deemed it uneconomical to carry out full repairs. This is consistent with the evidence of FS Chan, Ko, Leung and Cheung which I accept. I also accept their evidence that in such circumstances, in order not to waste manpower, the usual practice was to leave the BER engine at the back of UGV instead of reinstalling it in the vehicle.

66. In my view, for “unserviceable vehicles” included under Category 16, it is inappropriate to limit inferences to be drawn from the condition of an operable vehicle. Rather, it is more reflective of the parties’ understanding and more appropriate to refer to the known reasons for condemnation and the circumstances naturally and ordinarily associated with vehicles that were “unserviceable”. In such circumstances, “with engine” clearly means the presence of the engine (including an engine being left at the back of UGV) which is not necessarily intact and/or installed in the engine bracket.

67. I am not with Mr Soo in his interpretation of clause 8 of Special Conditions. In fact the conclusion I reached above is supported by clause 8 of Special Conditions and clause 8 of Notes. D acknowledges by clause 8 of Special Conditions inter alia that : (a) UGV under Contract are sold “as is”, (b) there is no warranty that such UGV complied with statutory requirements for their construction and use, and (c) such UGV are phased out ex-government vehicles that maynot be registered or licensed for use in Hong Kong. The meaning of “unserviceable” cannot be limited to just (b) and/or (c). I consider the words “as is” in (a) wide enough to cover the state of UGV whenCH or SWT Workshop condemned it as unserviceable for BER reason, eg with the engine left at the backof UGV.

68. Clause 8 of Notes provides that “unserviceable vehicles” are offered to the tenderers “as they stand” and goes on to say that “unserviceable vehicles …… under this tender may be completed with or without major components”. Leung and D both pointed out that major components included gearbox, rear axle and drive shaft. Since Clause 8 of Notes contemplates UGV under Contract can come with or without these major components, the parties could not have intended that such major component be properly installed inside UGV. It follows that the parties could not have implicitlyintended that the engine alsohad to be properly installed for, say,UGV under Category 16.

69. Given my conclusion as to the meaning of RCV “with engine”, it is perhaps unnecessary to consider at length Mr Soo’s submissions that a contract for the sale of unascertained goods wasa sale by description and that a strict/technical view should be taken on the description of unascertained future goods. In any event, I find such contention too sweeping.Halsbury’s Laws of Hong Kong Vol.23 2004 Reissue paras.355.077-355.078 at pp.226-227 cited by Mr Soo says : “…… it is a question of construction whether those words form part of the description under which the goods are sold or amount only to a condition or warranty or are no more than a means of identifying the goods ……” (see also Benjamin’s Sale of Goods 6^th ed, para.11-012 at pp.477).Benjamin’s Sale of Goods (supra, para.11-014 at p.479)also discusses the case of Reardon Smith Line Ltd v Hansen-Tangen [1976] 3 All ER 570 referred by Mr Soo as follows :

“…… Lord Wilberforce drawing a distinction between words which identify in that “their purpose is to state (identify) an essential part of the description of the goods,” and words which merely “provide one party with a specific indication (identification) of the goods so that he can find them and if he wishes to sub-dispose of them.” Words identifying the goods in the second sense can be more liberally construed, so that not every element in them need be given contractual force. ……”

70. In my view, the express references to “unserviceable vehicles” and “Refuse Collection Vehicles” in Contract only identified the things sold and did not describe their substantial ingredients.Further, clause 2 of Conditions provides that UGV’sdescription in the Tender Schedule (ie Appendix B) is by way of identification only and shall not constitute Contract a sale by description. D has not given any satisfactory reason why this clause could be ignored.

71. However, as explained above, both parties’ witnesses agreed that RCV under Category 16 should be “with engine”. I find the requirement of being “with engine” a contractual ingredient and essential part of the description of RCV sold. Indeed, Leung, Chan and D all agreed that if RCV were “without engine”, it should be excluded from Demand Notes and D should not be forced to accept them under Category 16. Thus, I am prepared to accept that the sale of RGV under Category 16 constitutes a sale by description insofar as it relates to the ingredient of “with engine”.

WasRCV under Part A “with engine”?

72. I am impressed with P’s witnesses whom I find to be honest and reliable. Their evidence is in various aspects supported by contemporaneous documents. On the other hand, I find D’s evidence unreliable and self-serving. I am particularly unimpressed with his excuses regarding the non-receipt of Part B Demand Notes and P’s demand letters, which I find arepoor attempts to explain away the steps he took to resile from a bad bargain.

73. Since D has no complaints about the condition of Disputed Vehicles other than 3 RCV under Part A, I will confine my discussion to the said 3 RCV. D’s complaint is that parts of the engines of 2 RCV were missing and 1 RCV had no engine at all. I have found that D is not entitled to complain about the engine being left at the back of RCV. P does not dispute that 2 RCV had their engines removed but their complete engines were left at the back. In respect of the third RCV, P claims that it was still installed in the engine bracket with only the cylinder head left at the back.

74. The 1^st issue is whether all or parts of the engines of the 3 RCV were missing. I accept the evidence of P’s witnesses that P had stringent documentary requirements for the removal of engines from government vehicles. Indeed, during the service life of a government vehicle, engine replacement requires completion of a V-4 form called “Change of Engine Report” and entry in the vehicle’s VHR. If the engine is to be removed, GF277 is required so that when in due course the vehicle is condemned as unserviceable, GF277 will be attached to the relevant GF233. Here there is no GF277 for any RCV under Part A and in my view, this supports P’s stance that CH or SWT Workshops have not removed any enginefrom such RCVbefore they were sent to STW Pound.

75. Likewise, the absence of GF277 thereafter shows that no engine was removed from RCV under Part A at STW Pound. In any event, STW Pound did not have the requisite heavy machinery for lifting the engine out of theengine bracket. Any removal of engine had to be done at SWT Workshop (which had heavy machinery) but STW Pound’s security guard had no record of Disputed Vehicles leaving the pound for SWT Workshop or at all. I also accept the evidence from P’s witnesses that no vehicle parts would be removed from the condemned UGV after GF233 was submitted and I find that EMSD adhered to such practice in respect of RGV under Part A.

76. I find that RCV for item 1 of Schedule I cannot be 1 of the aforesaid 3 RCV. I accept FS Chan’s evidence that he found such RCV complete with engine irrespective of whether it was in the engine bracket or left at the back of RCV. Ko/Leung did not inspect such RCV after it was towed to STW Pound and I find that such RCV remained in the same state as FS Chan found it.

77. In respect of RCV for items 2-16 of Schedule I, I prefer Ko’s/Leung’s evidence in relation to their inspection of Disputed Vehicles and find that (a) 2 RCV (items 9 and 10 of Schedule I) had complete engines at the back and 1 RCV (item 13 of Schedule I) had its engine in the engine bracket and cylinder head at the back, and (b) these 3 RCV were condemned for being beyond economic repair. Since these 3 RCV were beyond economic repair, it is improbable that their engine parts (which were the more expensive items of the vehicles) were still salvageable and worth removal for use elsewhere. I accept the evidence of FS Chan, Ko and Leung that the workshop staff’s usual practice was to leave the dismantled engine of UGV condemned as beyond economic repair at the back of the vehicles. I further accept their evidence and Cheung’s evidence that UGV in such condition are still regarded as “with engine”.

78. Mr Soo challenged Ko’s evidence on his observations in relation to the said 3 RCV by relying on a discrepancy between FS Chan’s and his evidence. FS Chan said that the removal/opening up of an engine for repairs might cause engine parts to break up so that in some cases it might not be possible to put the engine back together. Ko said the removal/opening up of an engine would not cause engine parts to go missing or become damaged and it would be possible to reinstall the engine in the vehicle. Such discrepancy is immaterial as irrespective of whether a dismantled BER engine can be reinstalled or not, the practice was to leave it at the back of UGV so as not to waste manpower on reinstallation. Further, it is a matter of common sense that the condition of the engine and its capacity for being repaired/reinstalled will depend on the nature of the damage or mechanical problem and the investigation required for carrying out repairs.

79. It was also suggested that there is discrepancy between (a) Ko’s observation of the presence of complete engine for the said 3 RCV although such engine or parts of it were kept at the back of RCV and (b) Ko’s reply to D on 7^th May 1997 that 3 RCV had cylinder blocks. There is no dispute that the engine number is engraved on the cylinder block and that the cylinder block constitutes a main component of the engine. It has always been the stance of STW Pound (as confirmed by Ko and Leung and as evident from Ko’s reply to D on 7^th May 1997) that the presence of the cylinder block was sufficient, but I find this does not conflict with the fact that Ko actually observed the said 3 RCV had all of the engine parts.

80. In any event Ko’s observations during his inspection are supported by the evidence from Leung and Cheung in respect of their own inspections. Mr Soo in his cross-examination raised some doubt as to whether Leung and Cheung carried out any inspection of Disputed Vehicles. I find that they did and their inspections were in accordance with EMSD’s usual procedure for condemnation of UGV. Ko was aware that Leung inspected UGV although he did not know the details. Further, amendments in Vehicle Lists show that Leung actually inspected UGV and corrected the contents of Vehicle Lists. In relation to Cheung’s inspection, apart from Cheung’s own evidence, FS Chan and Ko both accepted that Cheung might have been to CH Workshop and STW Pound for inspection of UGV, and Lee did report to Leung that Cheung had been to STW Pound to inspect UGV.

81. Mr Soo suggested that my finding in respect of the condition of the 3 RCV was contradicted by Chan’s evidence that UGV should be classified under Category 22 if they had no engine.But a careful study of the totality of Chan’s evidence is in fact unhelpful for Mr Soo’s contentions because Chan made clear she would consult EMSD in relation to the engine status and her stance was in line with EMSD’s. Chan confirmed she was unversed in technical matters and would rely on EMSD’s expertise and documentary record. She considered it was within EMSD’s purview to investigate and tell her whether UGVwere “with” or “without” engine. If EMSD told her UGV were “with engine”, she would notify the contractor to collect UGV sold under contract. If EMSD told her UGV were “without engine”, she would arrangeto exclude such UGVfrom the demand notes.

82. D also suggested that P’s contention in relation to the condition of the said 3 RCV was unbelievable because he had already complained to P on 7^th and 26^th May 1997.

83. I reject D’s suggestion that he complained about the condition of 3 RCV to Ko or requested joint inspection of UGV with Ko on 7^th May 1997. I find that D only enquired why the said 3 RCV were considered “with engine” and he did not raise any demur after Ko explained they had cylinder blocks and were thus not classified as “without engine”. This finding is also consistent with the fact that there is a significant absence of any record of complaint or referral of complaint or any action or investigation normally carried out by Ko, Leung or EMSD in response to complaintsor any written response to D.

84. In relation to the meeting between D and Chan on 26^th May 1997, Mr Soo submitted that D’s version of events was credible because (i) Chan only said in her supplemental witness statement that she could not remember having such meeting and (ii) D had little incentive to make up a story as even on his case no conclusions were reached at the meeting. However, Chan did say in evidence (and I accept) that according to her recollection there was no such meeting. My analysis of the evidence is as follows :

(a)   EMSD sent 1^st Letter of 26^th May 1997 to D without prior notice to GSD/Chan. It is unlikely that Chan would have made arrangements to meet D to discuss his default on thatvery day when D’s response to 1^st Letter was pending. In fact Chan only became involved in dealing with D’s default (ie by issuing 2^nd Letter to D) after Cheung requested her to take action by memo dated 10^th June 1997. I find it improbable that Chan met D on 26^th May 1997.

(b)   There is no or no sufficient justification to infer from the handwritten date of 1^st Letter that Cheung was waiting for the results of Chan’s meeting with D before issuing such letter,particularly in light of Chan’s explanation of the usual government practice of dating letters by hand when they were signed.

(c)   Mr Soo also queried Lin’s lack of memory in respect of D’s mobile telephone number written in manuscript on 1^st Letter. The short answer to this is that Lin did not become involved in Contract until Cheung asked her to telephone D in July 1997. Further D did not allege that Lin telephoned him on 26^th May 1997. In fact he claimed he did not know Lin at all.

(d)  The lack of paper trail (eg written invitation, minutes of meeting, etc) for the alleged meeting between Chan and D on 26^th May 1997 suggests it never took place. I also accept Chan’s evidence she would not have attended any meeting with D without her supervisor.

(e)  D explained in his evidence that he assumed the female who telephoned him on 26^th May 1997 was Chan. Yet he specifically said in his witness statement that the caller actually identified herself as Chan from GSD. D was unable to give any convincing explanation of the discrepancy.

(f)   I also find it unlikely that Chan just looked at some documents and told D all RCV had engines/engine numbers. I accept Chan’s evidence that she did not have Vehicle Lists or GF277 (for removal of engine), so she had no information on the engine status/engine number on file. For the same reason, she would not have (as D alleged) rejected out of hand D’s request to exclude 3 RCV from Demand Notes or to have joint inspection of UGV.She would have asked D to identify the 3 RCV, consulted EMSD and asked EMSD to provide the relevant documents on engine status.

85. D’s representatives made no complaint as to the engine number stated on GF277 for RCV under Part A when they collected such RCV from STW Pound after Auctions. This suggests that up till the time D’s representatives collected such RGV the engines were still there. In light of the above, I find that the said 3 RCV complied with the description of “with engine” and were properly classified under Category 16.

Right of inspection

86. Mr Soo submitted that D should have been afforded an opportunity to examine Disputed Vehicles to ascertain whether they corresponded to description pursuant to section 36(2) of Ordinance. In this respect, I accept that the acknowledgment in clause 3 of Tender Form and clause 1 of Conditions is irrelevant as UGV under Contract were unascertained and D did not inspect any such UGV prior to or at the time of entering into Contract. On the other hand, Mr Shum submitted that clause 7 of Notes excluded by agreement any right of inspection of UGV under Contract.

87. However, D’s claimed right of inspection (if any) is immaterial as D had no complaint about the condition of Disputed Vehicles except for the said 3 RCV and I have found that the said 3RCV were “with engine” at the time when D inspected Part A Vehicles (including the said 3 RCV) on 7^th May 1997. Therefore D has had an opportunity to examine Part A Vehicles and knew they were “with engine”. I also reject D’s evidence that he has requested Ko and/or Chan for joint inspection of Part A Vehicles. In such circumstances, P has not breachedthe obligation(if any) pursuant to section 36(2) of Ordinance to afford Don request a reasonable opportunity to examine Disputed Vehicles for the purpose of ascertaining whether they conform with Contract.

Entire Contract?

88. D is therefore not entitled to reject Part A Vehicles. Consequently, he is also not entitled to reject Part B Vehicles by reason of the condition of the said 3 RCV.There is therefore no need to consider whether the obligations under Contract were entire or severable. For completeness, I am of the view that Contract or the obligations thereunder (Chitty on Contracts (supra at para.21-037 at pp.1255-1256)) are severable and not entire.

89. Mr Soo cited Maple Flock Company, Limited v Universal Furniture Products (Wembley), Limited [1934] 1 KB 148to suggest that Contract was an entire one and he made reference to section 33(2) of Ordinance. However, they are distinguishable because Contract is not a sale of goods to be delivered by stated instalments. Indeed, Contract did not specify the total sale quantity or delivery by instalments.Clauses 2 and 3 of Special Conditions provide that (a) the total quantity in Appendix A is merely an estimate and D must be prepared to accept 20% increase or decrease, and (b) D must collect and remove UGV “in any such quantity as may be available each time” within 7 days from the date of payment against each demand note issued by EMSD. The obligations for payment and collection of UGV under each Demand Note are discrete. Indeed, D had previously (eg subsequent to 7/5/97 Letter) collectedUGVunder Contract even though, on D’s case, the condition of the said 3 RGV was in issue.

Demand Notes

90. It is not disputed that (a) EMSD issued Demand Notes to D addressed to D’s home addressby ordinary post, (b) there is no express contractual mode of delivery of Demand Notes, (c) D received Demand Notes under Part A and (d) Acceptance and GSD’s letter to D dated 1^st November 1996 enclosing copy Contract were sent by registered post.

91. D argued that (a) it was an implied term of Contract that Demand Notes should be sent by registered post, (b) D’s actual receipt of Demand Notes is a condition precedent to his obligation to make payment and (c) D had not received Part B Demand Notes.

92. D justified the implied term by pointing out that Acceptance “and other correspondence at the time” were sentby registered post and that Demand Notes were important in that they werethe only means by which D was informed UGV had been ascertained under Contract. I agree with Mr Shum that P’s correspondence issued after Acceptance is unhelpful. Acceptance constituted a binding contract and it only reflected P’s acceptance of D’s tender bid (which made no reference to the mode of delivery of Demand Notes). Any fresh offer by P on the mode of delivery of Demand Notes allegedly implicit from Acceptance requires fresh consideration and acceptance by D, neither of which is forthcoming. In any event, the consensual mode of delivery (if any) should not depend on GSD’s unilateral choice on how to deliver Acceptance to D. In my view, the alleged implied term is not necessary or required for business efficacy and is not an obvious inference from Contract. A term is not to be implied merely because in all the circumstances it will improve the contract or make the carrying out of the contract more convenient (see Chitty on Contracts (supra at para.13-009 at pp.777-778)).

93. Further, I find that D/his agent (his wife) received all Demand Notes, including Part B Demand Notes, so D cannot refuse payment :

(a)  D’s wife handled his clerical work and collected/went through P’s correspondence on his behalf. She passed P’s demand notes to D for him to inspect UGV and to make payment.It is evident she collected 3^rd and 7^th Letters(sent to the same address as Demand Notes) from the post office.

(b)  I find that Lin telephoned D twice on 23^rd and 25^th July 1997 andissued 4^th and 5^th Letters to him on 25^th July 1997. But for such telephone conversations, Lin could not have known of D’s New Fax Number. D’s claim that he did not speak with Lin because it was his practice to switch off his mobile telephone and forward calls to his company is not credible because he also claimed a female caller (whom he assumed to be Chan) called his mobile telephone on 7^th May 1997 after his morning swim. D did not complain of non-receipt of Part B Demand Notes although Lin chased him to pay Demand Notes. Instead he confirmed receipt of some Part B Demand Notes including the one dated 18^th July 1997. This supports the fact that D has received Demand Notes. Anyway, by his telephone conversations with Lin, D was well aware of the outstanding Demand Notes.

(c)  I reject D’s excuse that P would not allow him to pay Part B Demand Notes and/or Demand Note for item 1 of Schedule I because he has asked for exclusion of the said 3 RCV. First, Clause 3(b) of Special Conditions makes clear UGV must be collected with a specified time from the date of payment against each demand note.Secondly, I accept that following Cheung’s telephone call in April 1997, D returned Old Demand Note to EMSD for cancellation and D subsequently received the replacement Demand Note from EMSD. So D must have known Demand Notes can be adjusted.Thirdly, as stated above, D still paid for and collected 11 UGV under Contract after receipt of 7/5/97 Letter (and P allowed and accepted such payment) despite, on his case, his complaint of the unsatisfactory condition of said 3 RCV to P on 7^th and 26^th May 1997. Fourthly, D’s suggestion that he lost confidence in P so that he did not bother to find out whether P was prepared to accept separate payment of each Demand Note is improbable. The likely reason is what he told Lin, ie he found it difficult to resell Disputed Vehicles (probably because of the price he paid for them under Contract as D did not complain of any problems in reselling Disputed Vehicles purchased under Auctions).

(d) D gave evidence that after his meetings with Ko/Chan, he told his wife not to tell/show him P’s correspondence in relation to Contract. However, she did receive or collect P’s correspondence because she was aware of the contents andurged him to read them. Demand Notes List was attached to 4^th, 5^th and 6^th Letters, so D’s wife could not have been unaware of the outstanding Demand Notes.  I also find that some of these correspondence said to be sent by fax were successfully sent to D’s Fax Number or D’s New Fax Number that D gave to P by Appendix B or during his telephone conversations with Lin. The natural inference is and I so find that D’s wife actually received Demand Notes as D’s agent. It was D who chose not to look at them.

94. Since D has no complaint about the condition of Part B Vehicles and he received Part B Demand Notes, he isliable for to pay them.

Mitigation of loss

95. Mr Soo suggested that P failed to mitigate loss because it failed to accede to D’s offer to Chan at the meeting on 26^th May 1997 to exclude the said 3 RCV from Demand Notes whereupon D agreed he would pay the balance and collect the remaining Disputed Vehicles. However, as I have found no such meeting took place between D and Chan on 26^th May 1997 and D did not put forward such offer, there is no need to deal with this aspect of the alleged failure to mitigate loss.

96. Mr Soo conceded that Disputed Vehicles could be sold by public auction, but pointed out that P adduced no evidence to explain the build-up for the reserve price to refute D’s claim that the low resale price did not reflect the market value of Disputed Vehicles and/or that their condition had materially changed.He submitted that the low reserve price also evidenced that the condition of Disputed Vehicles had changed. Mo said had she been aware of Contract, she would have used contract price as reference.

97. I reject D’s contention that the condition of RCV under Part A has materially changed with many vehicle parts missing. STW Pound did not have heavy machinery to remove engines, gearboxes, hydraulic pumps, rear axle housings and drive shafts. There is no GF277 andno record of Disputed Vehicles leaving STW Pound to suggest removal of vehicle parts at SWT Workshop. P’s witnesses agreed and I accept that no vehicle parts would be removed after submission of GF233. EMSD knew Disputed Vehicles were to be sold under Contract and later under Auctions. There is no reason for EMSD to breach their standard practice, particularly in light ofthe potential claim against D under clause 6 of Conditions.

98. D bears the burden of proof on the issue of mitigation of loss. In my view, it is not fair to say the reserve price for RCV was unreasonably low just by comparing it to the contract price (which is the same as D’s price bid under Tender). There is no objective evidence of the market value of Disputed Vehicles in 1996 and of how the different modes of sale by tender and by auction will impact on the price. Apublic auction sells specific vehicles, but a contract by tender allows the contractor to have a steady supply of UGV over a whole year. There is no assessment as to how this impacts on the price.

99. I find that D, as he told Lin, had difficulties in reselling Disputed Vehicles in the market and in his efforts to back out of Contract, he became the author of his breach of contract as well as the successful bidder at Auctions. In short, he acquired such Disputed Vehicles he wanted at a much lower price than under Contract. D should not in the circumstances be heard to complain that P has failed to take reasonable mitigating steps in the ordinary course of business.

100. The general public and traders in UGVhave been widely informed of Auctions by newspaper advertisements and available auction lists.Both thegeneral public andtraders (including D who had many years of experience in bidding for UGV at auctions and another trader, Wah Hing Loong) attended Auctions. D insisted he did not collude with other bidders to keep the price down, so even on his case Disputed Vehicles went to the highest bidders (including D) available in the market. In my view, the resale price of Disputed Vehicles under Auctions is the market price and P has not failed to mitigate its loss.

Conclusion

101. In the circumstances, I grant judgment in favour of the Plaintiff against the Defendant for the sum of HK$509,960.00 with interest thereon at the short-term 7-day deposit rate of the Hongkong and Shanghai Banking Corporation Limited from 1^st January 1998 to the date of judgment and thereafter at judgment rate to payment.

102. Komala Deccof & SA and others v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219 held that in a commercial setting, the rate of interest payable should reflect the general rate at which a successful party would have to borrow money to take the place of that which was withheld and the rate of 1% above prime is adopted as a rule of thumb.

103. I do not think the argument that a relatively long period elapsed from the commencement of proceedings to judgment assists D because he has had the benefit/use of the judgment sum which he ought to have paid P in the meantime. Mr Soo confirmed D did not contend P was dilatory in the conduct of the proceedings.

104. Mr Soo suggested P’s financial size and prestige if it had to secure money elsewhere excluded the Komala Deccof principle.Mr Shum argued that P should not be penalised because it was unlikely to have to borrow funds. I bear in mind any award of pre-judgment interest should be compensatory in nature and although P is not in a commercial setting, P hasstill lost the benefit/use of the judgment sum over a period of time and such sum could have either earned interest or be used for other government purpose. I therefore award interest on a short-term deposit rate. Since the claim for the price difference was crystallised in Chan’s demand letters dated 11^th November and 30^th December 1997, looking at the matter in the round, I consider pre-judgment interest should run from 1^st January 1998.

105. As the parties wish to address me on costs, I refrain from making a costs order nisi and give liberty to apply.

Mr Edward Shum instructed by the Department of Justice for the Plaintiff.

Mr Gary Soo instructed by Messrs Edmund Cheung & Co for the Defendant.

Schedule I

Schedule II