Magicplus Solutions Ltd v. Quartic International Ltd

DCCJ 3738/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.3738 OF 2005

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BETWEEN

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Coram  :  Deputy District Judge S. T. Poon in Court

Date of Hearing  :  26^th and 28^th June 2006

Date of Handing Down Judgment  : 12^thSeptember 2006

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J U D G M E N T

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BACKGROUND

1.  The Plaintiff is a company carrying on business in commercial software supply and consultancy services. 

2.  On or about 20^th February 2004, the Defendant entered into a contract (“the Contract”) with the Plaintiff in respect of the supply, install, training and maintenance of a computer software named SAP Business One (“the Product”) by the Plaintiff.  The Contract was by way of a sales confirmation signed by the parties.  The overall price for the licence, installation and training of the Product was HK$142,000.  Pursuant to a written term of the Contract, the Defendant paid HK$71,225 to the Plaintiff as deposit before installation.

3. Since after the conclusion of the Contract, the Plaintiff started to install, configure and customize the Product to the Defendant’s computer system.  In the course of customization, the Defendant raised 2 problems on the Product which were allegedly essential to the Defendant’s business and could not be resolved by the Plaintiff.  As a result, the Defendant refused to signify the “user acceptance test” without which the Product could not “go-live” for implementation.

4. The Plaintiff considered the Defendant repudiated the Contract and sued for the balance of the contract sum and maintenance fees.

5. The Defendant counterclaimed for refund of the deposit and damages.  They alleged that they relied on the Plaintiff’s misrepresentations in entering into the contract.  They also said that the Plaintiff was in breach of the implied terms to warrant merchantable quality and fitness for purpose.

6. In counsel’s opening submission, parties agreed that:

(a)  the Plaintiff will not pursue its claim of maintenance fee; and

(b)  the Defendant will only rely on the 2 problems as pleaded under Paragraph 5(2) of the Defence. 

ISSUES

Misrepresentation

7. The relevant alleged misrepresentations are:

(a)  The Product having economic operation efficiency and strengthening internal control would result in much costs saving to the Defendant;

(b) The Product could be modified to satisfy all the Defendant’s business operation needs;

(c) The Product was so famous that it would definitely be suitable to the Defendant.  Should the Defendant find the Product not fit for the Defendant’s purpose, the Defendant could return the Product and have the deposit refunded;

(d) The Defendant has the right to finalize the System Configuration;

(e) The Defendant has the sole discretion to decide whether to sign the “User Acceptance Test” or not and only after the “User Acceptance Test” is signed by the Defendant that the balance of payment would become payable; and

(f) If the Defendant decides not to use the Product, there is no need for the Defendant to sign the “User Acceptance Test” and pay for the balance.

8. Items (d) to (f) of the above alleged misrepresentations are in fact terms of the contract allegedly orally promised by the Plaintiff.  What the Defendant now seeks to do is to introduce these oral terms into a written contract.  Which is prohibited under the “parol evidence rule”.

9. In the opening submission of Mr. Cheung, counsel for the Defendant, he indicated that the only misrepresentations relied on by the Defendant are items (a) and (b).  For item (b), Mr. Cheung had slightly rephrased it as “the Product could be modified to fit for the Defendant’s business operation.”

10. With this slight modification, there would be little dispute between parties in relation to whether these 2 representations had been given in the light of the contents of the promotional manual of the Plaintiff on the Product.  The remaining issue being whether they were misrepresentations as such.

11. As to whether they were misrepresentations, there was simply no evidence led by the Defendant to prove that item (a) was a false statement.  The evidence of the Defendant only focused on the Plaintiff having failed to achieve the 2 specific requirements of the Defendant.  There was nothing to prove that the Product on the whole have no economic operation efficiency or cannot strengthen internal control or would not result in much costs saving to the Defendant.  The Defendant must fail relying on this ground.

12. For item (b), the consideration of it is more or less similar to that of the issue on whether there was a breach of implied term on the part of the Plaintiff, which is analysed hereinbelow.

Breach of implied terms

13. The 2 problems as set out under Paragraph 5 (2) of the Defence are:

(a) the document draft function would change the document sequential number after confirmation processing thereby losing audit trail; and

(b) the opening balance for stock items could not have both audit trail and audit trail reports.

14. Mr. Sair Kwok Wah (“Sair”), Finance Manager of the parent company of the Defendant, admitted that it was problem (a) above that he mainly concerned at the time he decided not to sign the “user acceptance test”. This admission was given after Sair was asked why he showed little interest on the alternative solution to problem (b) suggested by the Plaintiff.

15. I accept the evidence of Miss Elsa Wong, Sales Manager of the Plaintiff, as supported by an email dated 23^rd December 2004 from the Plaintiff to the Defendant, that there has been in fact a viable alternative solution put forward to the defendant in solving problem (b) which received no feed back from the Defendant.

16. In that case there can be no breach on the part of the Plaintiff as regard problem (b).

17. For problem (a), Sair explained in his evidence that the practice of the Defendant was to send a temporary invoice to clients for approval and to reprint the approved invoice with the same serial number of the temporary one and sent to their client again.  Sair said that the Product could not achieve this function.

18. However, Sair in his evidence also admitted that there could be other methods for issuance of a temporary invoice for approval and to use the Product after receiving approval from clients.

19. It means that problem (a) would at most cause only inconveniences to the Defendant but not render the Defendant’s operations ineffective.  There is no evidence to suggest that the inconveniences caused would be so great that being disproportionate to the advantages that might be obtained by the Defendant from the Product. 

20. I am of the view that the failure to solve problem (a) was not fundamental enough to constitute a repudiation of the Contract or to entitle the Defendant not to perform further the Contract.

CONCLUSION

21. Having refused to sign the “user acceptance test”, the Defendant was in wrongful repudiation of the Contract and the Plaintiff is entitled to forfeit the deposit and also damages. 

22. However, the Plaintiff only claimed for the sum of HK$70,775 being the balance of the contract sum.  There is no evidence from the Plaintiff to prove that should the contract be performed, the Plaintiff would have generated profits more than the deposit.  There is simply no basis for the Plaintiff to claim for the balance of the contract sum.  The proper relief sought should have been forfeiture of the deposit or loss of profits under the contract.

23. Accordingly, it is hereby ordered that the Plaintiff’s claim and the Defendant’s counterclaim be dismissed.

24. Costs should normally follow the event.  However, the Plaintiff has basically substantiated its case.

25. I make a costs order nisi that there be no order as to costs for the Plaintiff’s claim and the costs of the counterclaim be to the Plaintiff to be taxed if not agreed, with certificate of counsel. This order nisi will become absolute after 14 days from handing down of this judgment.

Representation:

Mr. Stephen Yeung instructed by Messrs Huen & Partners for the Plaintiff.

Mr. Ivan Cheung instructed byMessrs Tam, Pun & Yipp for the Defendant.