Keystone Associates Ltd v. Law's Cleaning Services Ltd
|
DCCJ6149/2005 & 2596/2006 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTIONS NO. 6149 OF 2005 & 2596 OF 2006 -------------------- BETWEEN
-------------------- Coram : H.H. Judge Chow Dates of Hearing : 29th to 30th October, and 30th December 2008 Date of handing down Judgment : 19th February 2009
-------------------- Judgment -------------------- 1.This is the Plaintiff's claim for value of goods sold and services rendered to the Defendant, particularized as follows:-
The Defendant does not oppose the claims under items (2) to (5). The only dispute is the clam on item (1). On the other hand it counterclaims against the Plaintiff for:-
2.By a quotation dated 5 September 2005, the Plaintiff agreed to sell 3 units of “Marathon MEA 250” type of garbage compactors to the Defendant at a total price of $564,300. By a quotation dated 5 September 2005, the Plaintiff agreed to sell to the Defendant ground rails, to be used together with the garbage compactors. In early October 2005, the Defendant paid 40% of the price as deposit for the 3 garbage compactors. 3.On 31 October 2005, the Defendant tendered a cheque to the Plaintiff in the sum of $353,880, being the remaining 60% of the price for the garbage compactors and the ground rails, but it expressly stated to the Plaintiff that if the equipment malfunctioned within 3 days, it would countermand payment under the cheque. On the same day, the Defendant collected the 3 garbage compactors from the Plaintiff’s warehouse. Subsequently the Defendant alleged that it discovered that there was malfunctioning in the garbage compactors. By a letter dated 3 November 2005 the Defendant notified the Plaintiff that it would countermand payment under the cheque, pending further inspection of the garbage compactors by a surveyor to be appointed. 4.By a letter dated 14 November 2005, the Defendant notified the Plaintiff that a firm of surveyors called “Flying Horse Engineering Surveyor Limited” (“Flying Horse”) had been appointed to inspect the garbage compactors, and that pending the results it would continue to withhold payment for the machines. Flying Horse rendered a preliminary survey report dated 19 November 2005, stating that the garbage compactors were not brand new machines. By a letter dated 26 November 2005, the Defendant’s solicitors demanded the Plaintiff to agree to the rescission of the agreement for sale of the garbage compactors and return forthwith the paid deposit. 5.In the final survey report dated 28 November 2005, Flying Horse claimed to have identified various defects and abnormalities in the garbage compactors, and concluded that it had reasons to believe that the garbage compactors were not brand new, re-conditioned and ex-stocked, that they were defective, and that they would encounter unexpected downturns and expenses at unscheduled breakdowns and defective repairs. 6.On 9 December 2005 the FEHD issued a warning letter to the Defendant. The Defendant stopped using the garbage compactors, and acquired 3 replacement garbage compactors elsewhere to continue with the FEHD contract, at a total price of $375,000. 7.In its letter dated 26 November 2005, the Defendant’s solicitors stated:-
8.The issue to be decided is whether it was orally agreed between the parties that the garbage compactors had to be brand new and not used products. According to the Shorter Oxford English Dictionary, “brand new” means “conspicuously or completely new”, and “new” means, inter alias, “not existing before; now made or existing for the first time”, “new known, experienced, used, etc. for the first time.” There is obviously a clear difference between the terms “brand new” and “new”. 9.In to her witness statement, Madam Chung Wai Ming, the Defendant’s company director, said that on or about 30 August 2005, Mr. Willie Chan (“Mr. Chan”) of the Plaintiff attended the Defendant’s office and had a meeting with him and the Defendant’s managing director Mr. Law Hon Man. During the meeting, Mr. Chan was informed that the Defendant was granted a contract with FEHD for the Tuen Mun Contract and that the Defendant would like to buy 3 brand new compactors and that the compactors should be delivered to the Defendant at the latest on 31 October 2005 as the Defendant’s contract with FEHD would commence on 1 November 2005. Mr. Chan said that the Plaintiff had possession of 3 brand new compactors at its warehouse. The Plaintiff never disclosed to him or anyone of the Defendant’s company that the garbage compactors had been stored in the Plaintiff’s warehouse for about 2 years, otherwise the Defendant would not have bought such “second hand” garbage compactors from the Plaintiff. 10.In or about the afternoon of 31 October 2005, Mr. Chan came to the Defendant’s office to collect the cheque in the sum of $353,800 for payment of the balance of the price of the garbage compactors and the price of the ground rail. She told Mr. Chan that the Plaintiff could cash in the cheque if the garbage compactors were proved to her brand new and proved to be operating and functioning well. If there was anything wrong with the garbage compactors, the Defendant would countermand the said cheque. At the material time, Mr. Chan assured her and Mr. Law that the garbage compactors were brand new and well functioned. In or about early November 2005, she was informed by the Defendant’s staff that the garbage compactors were defective and they were not operating well. It also appeared that the garbage compactors were not brand new. Upon Mr. Law’s instructions, she asked the bank to countermand the cheque of $353,800 forthwith. 11.According to her, the FEHD imposed a condition on the Tuen Mun Contract that all vehicles, refuse compactors, equipment and tools used for the performance of the Services shall be safe, of good working condition and properly maintained. If the Government representative is of the opinion that the vehicle refuse compactors, equipment, materials and tools are inadequate or insufficient, the Contractors shall repair, refurbish or replace such within a reasonable time to the satisfaction of the Government representative. 12.In its letter dated 3 November 2005 to the Plaintiff, the Defendant states:-
If the Plaintiff had claimed that the machineries/equipment were brand new products, then this letter should have reflected this point. But it did not do so. According to this letter the Plaintiff only said that the machineries / equipment were “new products” (新貨品). It did not claim that they were“brand new products” (全新貨品). This is consistent with the evidence of the Plaintiff. Hence it is untrue that the Plaintiff represented to the Defendant that the garbage compactors were brand new products, as alleged by the Defendant. 13.On 14 November 2005, the Defendant wrote to the Plaintiff, saying:-
This letter refers to the examination of the 3 compactors by Flying Horse as to whether the compactors were new products （“非新貨品”）. So that is the instruction given to Flying Horse. If the Plaintiff had represented to the Defendant that the 3 compactors were “brand new products”, then the instruction given to the Flying Horse should have been whether the 3 compactors were “brand new products”, and not merely “new products”. So in this respect, this letter is in line with the letter dated 3rd November, 2005. 14.In the affirmation of Chung Wai Ming, (“Chung”, company director of the Defendant), Chung said that the contract to provide waste collection services in Tuen Mun District imposed certain conditions. In respect of the contractor’s vehicle, it should be brand new. In respect of the garbage compactor to be used for 5 years or longer period, it should be brand new otherwise the compactor might not be lasted for such a long period of time. The Defendant therefore decide to purchase 3 new compactors to provide service for FEHD’s Tuen Mun Contract. In her affirmation Chung said:-
The basis of the Defendant’s allegation that the compactors had to be brand new is that one of the terms of the Tuen Mun contract is that the compacts “should be brand new”. The Defendant is legally represented and should have realized the importance of producing as evidence this part of the written contract to support its allegation. If the Tuen Mun contract imposes no such requirement, then there is no basis to ground the Defendant’s allegation. It has not produced this part of the written contract to support this allegation. If what Chung said is the truth, then it is inconsistent with the Plaintiff’s representation contained in the Defendant’s letter dated 3 rd November, 2005 and the Defendant’s requirement in the outcome of the investigation of Flying Hosue, as reflected in the Defendant’s letter dated 14th November, 2005. I conclude that Chung’s evidence is not credible. 15.According to the witness statement of Mr. Leung Wing Wah, in or about mid-October 2005, he and Mr. Richard Law, a director of the Defendant, attended the Plaintiff’s warehouse for the purpose of identifying the compactors to be sold to the Defendant. Mr. Richard Law and he saw some dirt and rust on the compactors and asked whether the compactors were brand new. One of the Plaintiff’s representatives confirmed to them that the compactors were brand new. He explained that the compactors were shipped from overseas to Hong Kong and were exposed in open area. As a result, there would be some rust on the compactors. Mr. Leung Wing Wah also referred to the fact that there were many other defects in the garbage compactors. One of the alleged defects was: “f) obvious and excessive rust were found on the compactors”. 16.On or about 10 October 2005, he and Mr. Leung Kin Wah made a visit to the Plaintiff’s warehouse because Chung had instructed him to ascertain whether or not the Plaintiff had possession of 3 garbage compactors at its warehouse. He took some photographs of the compactors. He said that neither he nor Leung Kin Wah made any comments on the garbage compactors and that Mr. Chan of the Plaintiff did not inform them that the 3 garbage compactors had been in storage for about 2 years. But Mr. Chan said that during the inspection Mr. K.W. Leung and Mr. Leung wing Wah made a comment that the surfaces of the compactors were too dirty. Mr. Bryan Yu of Otto (Hong Kong) Ltd. (the authorized dealers of the compactors) agreed to repaint all the 3 garbage compactors before delivery. 17.Or about 12th October 2005, Mr. Richard Law and Mr. Leung Wing Wah of the Defendant attended the Plaintiff’s warehouse to inspect the 3 garbage compactors. On this occasion only Mr. Bryan Yu attended this inspection. Mr. Yu reported to him, inter alias, that Mr. Richard Law commented on the dirt on the surface of the 3 garbage compactors, and recommended them to make them look more tidy to avoid any complaint from FEHD. On this inspection, Mr. Leung Wing Wah noticed dirt on the garbage compactors. According to the preliminary report by Flying Horse, the dirts are obvious and excessive. It must be truthful for Mr. Chan to say that Mr. K.W. Leung and Mr. Leung Wing Wah discovered that the surfaces of the compactors were too dirty, and made comments on the conditions of the compactors. Mr Leung Wing Wah said that neither Mr. K.W. Leung nor he had made any comments on the garbage compactors on the first inspection on or about 10 October 2005. I do not accept that piece of evidence. I accept the evidence of Mr. Chan in this regard. 18.On the second inspection, Mr. K.W. Leung and Mr. Leung Wing Wah saw some dirt and rust on the compactors and asked whether the compactors were brand new. They must have reported the state of the garbage compactors to the Defendant. If they had seen some rust they must have proceeded to see if these were more rusts on the surface of the garbage compactors. According to the report of the Flying Horse, the rust was “excessive and obvious”. So the rusts they saw must be those seen by the Flying Horse. How could the garbage compactors be called “brand new garbage compactors” if there were excessive and obvious rusts on them! Yet instead of rejecting them on the basis that they were not brand new, the Defendant received them on 31 October. On this basis alone, the only conclusion the court can draw is that the garbage compactors they intended to purchase from the Plaintiff were not “brand new garbage compactors”. 19.If rusts on the compactors had been seen on the second inspection, they must also have been seen on the first inspection, because according to Flying Horse they were excessive and obvious. They must have asked the Plaintiff the reasons for the formation of the rusts. Once they asked why there were dirts and rusts on the compactors, Mr. Chan must have given them an answer. But Mr Leung Wing Wah said that neither Mr. K.W. Leung nor he had made any comments on the garbage compactors, and that Mr. Chan had never informed them that the 3 garbage compactors had been in storage for 2 years. This is incredible. In this regard I accept the evidence of Mr. Chan, and I reject the evidence of Mr Leung Wing Wah. 20.Despite such obvious and excessive rusts on the 3 garbage compactors, which indicated that the 3 compactors were not brand new garbage compactors, the Defendant paid a deposit of $235,920 on 31 October 2005. Property of the 3 garbage compactors passed on that day, and they were used until the end of December 2005. Due to the matters above-said, I do not accept the defence that it was agreed between the parties that the 3 garbage compactors had to be brand new and not used products. 21.The Defendant produced two expert reports to support its contention that the 3 garbage compactors were not brand new compactors. In its first expert report prepared on 28 November 2005, the expert surveyor noted various defects in the operation of the garbage compactors and concluded that they had reasons to believe that the garbage compactors were not brand new, were re-conditioned and ex-stocked. This report referred to the following defects and abnormalities:-
This report was prepared on 28 November 2005. The conditions of the machines were assessed on 10 and 16 November 2005. By 10 November 2005 the Defendant had already used the machines for 9 days for the purpose of processing tons of rubbish each day. How could that be an accurate report for the purpose of ascertaining whether the garbage compactors were brand new garbage compactors! 22.The second written report was prepared on 20 March 2008 in which the expert reported on what he examined the garbage compactors on 17 January 2008. By this time 3 years had passed since December 2005, and the 3 garbage compactors had been placed for 3 years at a refuse collection area which was not a proper place for storing compactors. This report cannot reflect accurately the conditions of the garbage compactors at the time they began to be used more than 3 years ago. I attach no weight to it. 23.The Defendant also alleges that the garbage compactors were defective and thus not of merchantable quality, or fit for the purposes for which they were acquired. It says that because of the malfunctioning of the compactors that the FHED gave them a warning letter. But the warning were given for a number of reasons, not only for the malfunctioning of the defects of the garbage compactors. Nobody from the FHED testified on the contents of this warning letter. So I cannot make a finding that the warning is justified and that the Plaintiff is to be blamed for the warning. Despite the alleged malfunctioning the compactors continued to be used by the Defendant for some time. This very fact proved that they were fit for the purpose they were required. 24.I am satisfied that the sale contract signed by both parties on 17 September 2005 clearly refers to the 3 garbage compactors stored in the Plaintiff’s warehouse for about 2 years. They were new in the sense that they had not been used by anyone before. 25.Even though it was alleged that there were excessive and obvious rusts on the surfaces of the compactors, the Defendant made payment for them. Before they were delivered to the Defendant, they had had ample opportunities of examining them. But they never made a request to the Plaintiff to do so. They cannot now say that there is no opportunity to examine the compactors. I am satisfied that the Plaintiff was telling this Court the truth. The 3 garbage compactors were in fact new and not used, and had been kept in storage for about 2 years when the Defendant made enquiries about them. Accordingly I enter judgment in faovur of the Plaintiff in the sum of $357,880, and I dismiss all the counterclaims. 26.I order that the Defendant do pay, within 14 days from today, the sum of $357,880 to the Plaintiff, with interests thereon, at judgment rate on the sum of $353,880, commencing from 14th November, 2005, and on the sum of $4,000, commencing from 7th February, 2006, until satisfaction. Costs 27.I make an order nisi, to be made absolute in 14 days’ time, that the Defendant do pay costs of this action to the Plaintiff, to be taxed if not agreed.
The Plaintiff: represented by Mr. Chan Moon Tong, Director of the Plaintiff. The Defendant: represented by Mr. Jonathan Chang, instructed by M/S Chiu, Szeto & Cheng, Solicitors. Appeal by the Defendant to Court of Appeal dismissed. Please refer to CACV149/2009 dated 10 May 2010 |
Further hearings and rulings under DCCJ 6149/2005