Techmart Industrial Ltd v. Ip Hung Yuen Trading As Easy Plastic Moulding Co
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DCCJ 5287 OF 2005 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 5287 OF 2005 _____________________ BWTWEEN
__________________________ Coram: H. H. Judge Yung in Court Dates of Hearing: 27th to 29th October & 7th December 2009 Date of Handing Down of Judgment : 13th May 2010 ___________________________ J U D G M E N T ____________________________ Causes of Actions/Claim/Counterclaim 1.The Plaintiff sold a machine to the Defendant for $380,000. The purchase price was to be settled by three instalments. The machine was delivered and installed. A dispute followed. By then two of the three instalments had been paid. The Defendant then stopped the cheque given for settling the final instalment of the purchase price. The Plaintiff is now suing for the amount of this cheque, namely, $133,000. 2.The Defendant alleges misrepresentations by the Plaintiff. These misrepresentations form the basis of defence and counter-claim. Rescission of the Sales Contract 3.Mr. R Lau, counsel for the Defendant, makes a succinct analysis on the law of misrepresentation applicable to the instant case. Propositions of law he submits are not disputed by Mr. W C Lau, counsel for the Plaintiff. Those propositions are simple, relevant and correct. That being the case, not surprisingly both counsels focus on basic factual disputes, namely whether any of the alleged misrepresentations were made by the Plaintiff and, if any was made whether it was relied upon by the Defendant. 4.The time of rescission of the sale contract was not argued. Perhaps it was because this point carried no significant consequence. It is common ground that the only defence is total failure of consideration and rescission of contract operate retrospectively to avoid the contract. If the Defendant is entitled to rescind the contract, he would also succeed in his defence to the action for dishonoured cheque. Misrepresentation---The Defendant’s Version 5.The Defendant himself gave evidence and was the only defence witness. His account of events is summarised below in paragraphs 7 to 13. 6.The Defendant carried on production business of mould parts for years. Welding was one the production process and the Defendant himself was familiar with it. Sometime in 2004 he was thinking of expanding his welding work to a new area. A new machine was required to provide a stronger and better heat source. Such machine would be able to perform welding for copper/steel interface and other functions. In the meantime, Mr. Kwok of the Plaintiff introduced him welding machines using laser as heat source. After some discussion, the Defendant provides Mr. Kwok work pieces to take back to obtain sample performance of the machine. 7.Several months elapsed before Mr. Kwok returned in May 2004. This second visit he brought back the work pieces with sample welding work done by the laser machine. This time Mr. Kwok wanted to sell the Defendant a machine (“LRS 100”) at $380,000. He told the Defendant that the sample work was done in Germany and that the work took 10 minutes to complete. The Defendant noticed certain fault on the sample work and queried Mr. Kwon on it. Mr. Kwok then told him the fault can be rectified by doing more rounds of welding, each round taking 5 minutes and at most 2 more rounds would be needed. The Defendant therefore understood that LRS100 would require at most 20 minutes to do the work he required it to do. The capability of the machine as represented to and so understood by the Defendant quite satisfied him. Despite that he told Mr. Kwok that he needed time to consider, after it cost $380,000. At the same time he requested for an official report or evidence of the machine’s performance. Mr. Kwok then said none was available but would try to obtain one. 8.Thereafter, Mr. Kwok made no serious attempt to sell LRS100 or the like for over 6 months until he visited the Defendant on 28 December 2004. This time he wanted to sell a higher power model of the same series (“LRS120”). The Defendant told Mr. Kwok his worries. He had not seen the machine in operation or any official report on its performance. It was in the course of the ensuing discussion in the same meeting that Mr. Kwok made the following assurance and misrepresentations of the following three functions that the machine could perform:
9.Relying on these representations, the Defendant agreed to purchase one LRS120 and signed on the quotation brought along by Mr. Kwok. The quotation had printed at its end standard terms and conditions, including payment terms. The Defendant alleged Mr. Kwok agreed to vary these terms. Such agreed variations were not reflected in writing. The Defendant let it be because he trusted Mr. Kwok to keep his words. To his understanding he was the boss of the Plaintiff company and the other company with a similar name, the latter of which he had previous dealings with. 10.The machine LRS120 was delivered to the premises of the Defendant on 4th March 2005. About a week later Mr. Chung, the technician of the Plaintiff came to install the machine. When the installation was complete (though some minor accessory parts of no importance were still missing), he turned on the machine and directed the laser beam on a piece of metal. Then he requested the Defendant to sign a document entitled in bold “CERTIFICATE OF ACCEPTANCE”. At first, the Defendant was reluctant to sign on it as it had not yet been demonstrated that the machine could do what Mr. Kwok represented it could. After Mr. Chung indicated that specific performance of the machine was not to be demonstrated at the time of installation, the Defendant signed on the Certificate to acknowledge the installation. The reason the defendant gave for signing was that he did not want to antagonise Mr. Chung, an employee. 11.After the installation, Mr. Chung came back three times to give demonstration, carrying out the three welding functions. None of the three was up to the requirements. In respect of collapse welding, it could only be performed on smaller objects not larger ones and it took more than 30 minutes to perform. Mr. Chung also told the Defendant that the system was not able to produce one copper/steel welding at 120 W. Indeed when the output power was pushed near the limit, the built-in alarm kept ringing. 12.Shortly after the failure of demonstrations, the Defendant on 1st April 2005 started to enter into correspondence with the Plaintiff/Mr. Kwok. Despite that, the parties failed to came to terms resulting in the present litigation. Misrepresentation---the Plaintiff’s Version 13.Mr. Kwok gave an account of the sales talk leading to a successful conclusion. He denied he ever made any such alleged representations. Not even that, he was adamant that the Defendant did not mention his intention to use the machine to perform the three functions. In December 2004 he had meetings with the Defendant. In these meetings he introduced to the Defendant three machines of the same LRS series, LRS50, LRS120, LRS160. Each of these three machines was of the power as their model number indicates, namely 50 watt,120 watt, and 160 watt. The Defendant found that 120 watts would be sufficient for his requirement. Therefore he chose LRS120 and declined the LRS160, the model of higher power. Except that he would use the machine to weld metal steel and/or copper pieces, the Defendant was reluctant to reveal his intended use. Mr. Kwok explained that it was because the Defendant was not willing to disclose its trade secret. In his witness statement and evidence, he also suggested a reason for the Defendant’s complaint. He contended that the Defendant had changed his requirement since the purchase of the machine and such requirement was beyond the capability of LRS 120. He based this contention on the Defendant’s complaint letters of 1st and 8th April 2005. 14.Like what the Defendant said, after the test run on the day of installation Mr. Chung returned to give demonstration of the working of the machine. Each demonstration/training session last about three to four hours. The Defendant gave him three samples to work on. One consisted of two circular rings of copper and steel, another one of a steel part with a nozzle and a base, and third one of two steel parts. He attempted various parameter settings of the machine to find the suitable one. He completed welding the three samples. In the course of demonstration, he mentioned to the staff of the Defendant about the need to install ancillary equipment, for instance, an automatic revolving table top, a clamping tool and a welding rod feeder. 15.Mr. Chung also referred to the specification in the catalogue of LRS 120 pointing out that the catalogue did not contain any representation that the welding speed could be achieved within 20 minutes. He also prayed in aid of the fact that no other buyers of machines of the same LRS series, here in Hong Kong or overseas had raised any complaint. Credibility of Witnesses and Findings 16.The Defendant and Mr. Kwok, a director of the Plaintiff are the two key witnesses. They are privy to the conversation and dealing in which the misrepresentations are alleged to be made. Mr. Kwok denied categorically that he had made these misrepresentations. Needless to say their credibility is the main issue in this case. 17.In criticising the Defendant’s veracity, Mr. W C Lau quite unwarrantedly censured the conduct of his learned friend at his closing submission. At the early stage of cross-examination of the Defendant, I have pointed out to his counsel, Mr. R Lau, that it is not proper for him to make any gesture to his witness. He did that apparently because he was anxious that the Defendant should not wander off from the matter he was asked. There is nothing sinister about the intention of Mr. R Lau and I made this clear at the time when I interjected. He immediately, unreservedly tendered his apology. That should be the end of the matter. That his learned friend in the closing submission chose to make use of this incident to attack his integrity is as surprising as it is uncalled for. To demonise the benign tenor of my comment on the occasion so as to throw doubt on the credibility of the Defendant verges on the opportunistic. Perhaps, Mr. W C Lau did not quite fully understand my comment, or else he would not make such futile attempt. 18.Apart from the aforesaid argument by Mr. W C Lau, both counsels managed to adopt the right approach in arguing the credibility issue. The evidence of the witnesses, especially the two key witnesses were analysed in the context of their evidence with reference to contemporary documents. Each counsel has made an analysis in terms of logic and reasonableness, the best possible for the parties under the circumstances of the case. 19.The discussions leading to the conclusion of the sale of the machine in December 2004 took several hours. Both parties did not give exact details stage by stage of the discussion. I cannot expect them to be able to do so. What the defendant had said was no more that the gist of the discussion and the resultant representations Mr. Kwok had made. The burden of proof is on the Defendant to establish that such misrepresentations were made. I accept that he had worries in May 2004 about the performance of LRS 100 which Mr. Kwok wanted sell him at the time. When Mr. Kwok came back to renew his sales effort, he did not have the official report or other written evidence of similar effect. Two things followed logically. Firstly the Defendant would have raised the same worries as before. Secondly, Mr. Kwok would have to orally persuade the Defendant that the higher power model, namely LRS 120 would be capable of doing the three functions to ease the mind of the Defendant. 20.Mr. Kwok denied that he had made such representations. He did not give any hint how he persuaded the Defendant to buy the LRS 120. It should be noted that the Defendant did not buy the LRS 100 some 6 months ago. The change of mind of the Defendant was not explained. Perhaps, that the price might go up, as the Defendant said he was told by Mr. Kwok, might have prompted him to make a decision. The reason was not sufficient for him to make the purchase without some assurance on the part of Mr. Kwok of the capability of the machine. Mr. Kwok was adamant that it was the Defendant’s decision to choose LRS 120. Yes of course it was Defendant’s decision. The point at issue is whether he made the decision only after the alleged misrepresentations were made. Mr. Kwok went further to advance the argument that the Defendant would not have revealed his intended use of the machine. I do not believe Mr. Kwok when he said the Defendant snapped back “none of your business” when he asked for the intended use of the machine. It should be noted that the Defendant had already revealed in some way his intend use by requesting welding work on the test samples. I do not find any force in Mr. Kwok’s argument. It is only logical that the Defendant would make sure the he could use the machine for his purpose. The specifications in the catalogue did not spell out any indications whether or not they could perform the functions. He could only look to Mr. Kwok for details. In fact Mr. Kwok admitted at one time he did some calculations and told the Defendant the results. 21.In his witness statement the account of how he successfully concluded the sale is brief to the extreme. He omitted his sales effort previous to the December 2004 visit. Mr. R Lau rightly criticised him for not being frank and that his purpose was to cover the early dealings in respect of LRS 100. In this regard Mr. W C Lau for the Plaintiff, criticised the late production of LRS 100 catalogue. I do not find any merit in it. The production would only serve to collaborate the evidence of the Defendant that an earlier attempt to sell him LSR 100. This earlier attempt was admitted by Mr. Kwok in cross-examination. The production of the catalogue is superfluous. Mr. Kwok made no mention at all about the LRS 100 in his witness statement. He simply said that work samples had been done and the Defendant was satisfied before the sale in December 2004. When the truth of the matter is that the sample work was done relating to the earlier attempt to sell, not the concluded sale in December. He did not even say which model was used to perform the work on the test samples. On reading his witness statement one was left with the impression that, he only put forward, without introducing any facts to support, his argument of the improbability of him making any misrepresentation. When giving evidence he did not add much to the facts supporting his argument. At the very least he was not frank with the court. 22.The other minor point also shows Mr. Kwok was not frank. The Defendant had dealings with the other company with similar name. Mr. Kwok was a director of both companies. Yet he did not know the nature of work the Defendant contracted the other company to do for him. His explanation was that he was mainly responsible for the Plaintiff’s business. If he meant to say he knew nothing about the Defendant’s business from the dealings the Defendant had with the other company, I do not believe him. It did not make any good business sense that Mr. Kwok would not be aware of such readily available information. Especially, this information would have, if not in fact had, assisted him to target the Defendant as a potential purchase of the machine. 23.After Mr. Chung gave the demonstrations, the Defendant wrote to the Plaintiff on various occasions. His complaint about his dissatisfaction were recorded in those letters to the Plaintiff. Laymen might not easily understand the complaint by the mere look of the letters. The Defendant explained various technical terms and welding types and their process. His evidence on these technical matters was not challenged. With the assistance of this evidence on technical matters, I am satisfied that the totality of the complaints in these letters substantially if not fully covered the extent of the alleged misrepresentations. Mr. R Lau rightly submitted that the correspondence was consistent with the claim for misrepresentation. 24.In the letters of 1st April, the Defendant alleged that the functions of machine failed to measure up to the standard Mr. Kwok so verbally represented to him. The Plaintiff made no reply and the Defendant sent a second letter on 8th April. On the same day the Plaintiff responded by a letter. In this letter Mr. Kwok only dealt with the matters raised in the Defendant’s letter of 8th April. In particular, no denial was made to the allegation of Mr. Kwok’s verbal representations. I do not see any reason why such allegation could not be conveniently refuted in this letter of reply. It should also be noted, as Mr. R Lau pointed out, Mr. Kwok took the trouble of pointing out that the Defendant had not mentioned the requirement of working to 2 mm depth for a sustained length of time----“長期加工2mm”. Vaguely and inadvertently he admitted that the Defendant had mentioned about the required depth of welding joint, though he maintained the Defendant did not make it clear that he required such performance continuously or in quick successions for a considerable length of time. This contradicts his evidence that the Defendant did not mention anything at all about the requirement of depth of the joint. 25.The main criticisms Mr. W C Lau for the Plaintiff on the Defendant’s evidence are three (1) he signed on the Certificate of acceptance; (2) Mr. Chung said the Defendant had no comment after the demonstrations were completed; (3) his letter asking for welding rods outside the range specified in the Catalogue showed he had changed his requirement. 26.The Defendant explained that he signed the Certificate on the insistence of the Mr. Chung. He did not want to antagonise the employee. He himself was the boss of his own company and Mr. Kwok is also the boss of a company, the Plaintiff. I accept his explanation. The test run appeared to be in order. There is no allegation that the machine had some inherent defects. The test run cannot be faulted and he needed only to wait for the demonstrations for his satisfaction to be complete. Of course by signing the Certificate, he was acknowledging the non-existence of the verbal representations by Mr. Kwok. However, Mr. Kwok was no ordinary salesman but also the boss. At the time, he had confidence that Mr. Kwok would keep his words. For similar reason he did not insist on amending the terms of payment to which Mr. Kwok verbally agreed to vary. Of course in coming to my decision to accept his explanation I do not loose sight of the heavy burden for the Defendant to prove that he signed the Certificate or the contract contrary to his interest. 27.Mr. Chung was not an independent witness. He offered an argument in his witness statement. He stressed that the Catalogue did not contain the representations that the welding speed could be achieved within 20 minutes. This shows he took an interest in defending his employer without knowing the details. It also shows he could not deny that the welding speed could not be within 20 minutes. He was a technician conducting the demonstration, and should be aware of its capability. If the machine could perform the relevant welding function within 20 minutes, he would have said so, given his interest in defending the Plaintiff. I prefer the Defendant’s evidence to that Mr. Chung’s whenever there is a conflict. 28.Mr. Kwok and Mr. W C Lau both alleged that the Defendant had a change of requirement. In particular the Defendant requested for welding rods outside the range of the specification of the Catalogue. In this regard I accepted the evidence of the Defendant and the submission of his counsel. The Defendant was merely testing the machine for a different function. He made no complaint for the inability of the Plaintiff to supply the welding rods or make up a similar allegation of misrepresentation. 29.I accept the Defendant’s evidence that the machine could not perform the three functions. The Plaintiff did not contend that the three functions could be performed in the state the machine was supplied and installed. In fact they suggested a change of a higher power model or installation of additional accessories. The Plaintiff also alluded to the proposition that an appropriately skill worker might be able to perform the functions. There was no evidence to that. On the contrary, if it was in fact the case, Mr. Chung would certainly be able to do it or given his anxiety to defendant the Plaintiff, would have referred to it and would have given the nature and details of the skill required. 30.It is only reasonable for the Defendant to know exactly what the machine he was buying could do. After all, it was going to cost him a substantial sum. Nothing in the catalogue could enable him to see if the machine was suitable, Mr. Kwok was naturally the person he looked to for information, clarification, and assurance. He could not have obtained such information without disclosing his requirements. Mr. Kwok would have no reason not to provide answers and assurance in so far he could give. What the Defendant in fact alleged is that Mr. Kwok overreached himself giving assurances which turned out to be false. Timing of a welding job is important. Quality of the joint and the type of welding it could perform were equally important. Looking at the history of the sale, and that the meeting lasting several hours in December 2004, I believe on the balance of probability that the Defendant is truthful and reliable when he testified to representations made by Mr. Kwok. Such representation I also find to be untrue. I also believe that the Defendant entered into the contract relying on the representations. The fact that he said in evidence that he did not believe at the time of sale what Mr. Kwok said about the capability of the machine did not preclude him from relying on the representations in the circumstances. Many a customer may have said they do not believe the wonder a new machine can do for him when described by the salesman, but if he wanted to see the wonder, he would have to rely on the salesman. If the representation of wonder proved to be false, one cannot say that there was no misrepresentation. Similarly it happened here. The Defendant merely doubted the capability of the machine using his own knowledge and experience, but he trusted that Mr. Kwok to know better. There is no contradiction in terms or in reality that the Defendant relied on the representations of Mr. Kwok. On the contrary he had to rely all the more on the representations of Mr. Kwok. Order 31.The main claim be dismissed and judgment be entered for the Defendant in the counterclaim for the amount claimed with interest at judgment rate from date of counterclaim. I will hear party on costs on 28th May 2010 at 9:30am which time I understand is convenient to both parties.
Ms. Lau Wan Ching instructed by M/S K.Y. Lo & Co. for the Plaintiff. Mr. Roy Lau instructed by M/S Leung & Lien for the Defendant . |