Brand Visionaire Ltd v. Debreu Ltd

HCMP 2637/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 2637 OF 2013

(ON AN INTENDED APPEAL FROM DCCJ NO. 1281 OF 2011)

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BETWEEN

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D E C I S I O N

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Hon Kwan JA (giving the decision of the Court):

1.This is an application of the plaintiff for leave to appeal against the judgment of Deputy Judge T Chan given on 30 April 2013 dismissing its claim against the defendant for damages arising from two purchase orders for aroma USBs placed by the plaintiff with the defendant as seller (“Judgment”). Leave to appeal was refused by the judge in a decision handed down on 25 September 2013 (“Decision”).

2.The plaintiff renewed its application for leave to appeal to this court by a summons issued on 9 October 2013.  We exercise our power under Order 59 rule 2A(5) of the Rules of the High Court to determine this application on paper without an oral hearing.

3.Leave to appeal shall not be granted unless this court is satisfied that the appeal has reasonable prospect of success, or that there is some other reason in the interests of justice why the appeal should be heard, see section 63A(2) of the District Court Ordinance, Cap 336.  Reasonable prospect of success involves the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable” (SMSE v KL [2009] 4 HKLRD 125 at §17).

4.The relevant facts and findings may be shortly stated as follows.  The defendant normally supplied aroma USBs to customers with its own fragrance oil in a package.  However, in respect of the purchase orders placed by the plaintiff, which was a scent consultant, the defendant was informed that the plaintiff would apply its own fragrance oil onto the defendant’s USBs.  Before any purchase order was placed by the plaintiff, the plaintiff had arranged for its own fragrance supplier CPL Aroma (Far East) Limited to test the defendant’s USB samples and found that the samples worked well.  Later, problems were found in the USBs supplied under the purchase orders when used with the fragrance oil of the plaintiff or its customers.  The plaintiff brought this action against the defendant claiming damages of $477,418.79 (adjusted to $339,683.68 at the conclusion of the hearing; Judgment, §62), alleging misrepresentation and breaches of implied terms under the Sale of Goods Ordinance, Cap 26 (“SOGO”).

5.To establish liability, it is incumbent on the plaintiff to prove that the problems in the goods supplied were caused by the manufacturing or other process carried out by the defendant, in other words there were defects that resulted from any process that was within the defendant’s responsibility.  It is the plaintiff’s pleaded case that it was the chemical reaction between the fragrant solution called Dipropylene Glycol Methyl Ether (“DPM”) and the plastic substance of the USBs known as Acrylonitrile Butadiene Styrene (“ABS”) that caused the USBs to break.  The plaintiff relied on two test reports, one compiled by the Hong Kong Standards and Testing Centre Limited (“HKSTC”) and the other by the plaintiff to support its case, as well as the evidence of one of its directors Mrs Klitsie.

6.The two test reports did not answer the pertinent questions of what had caused the USBs to break, or, if it was caused by chemical reaction, what was the chemical reaction and what had caused it.  The judge declined to give any weight to the HKSTC report or the plaintiff’s report because she did not find them reliable, for the reasons given in §§25 to 30 of the Judgment.  As for the evidence of Mrs Klitsie, she did not say how she was qualified to give expert evidence on opinion.  In any event, she relied on “undisclosed literature” and she had “no knowledge on chemical reaction between fragrances and plastic” (Judgment, §23).

7.As the plaintiff failed to prove the breaking of the USBs was caused by defects that resulted from a process within the defendant’s responsibility, the judge held liability was not established (Judgment, §§31 and 60).

8.The case for breach of the implied term of merchantable quality under section 16(2) of SOGO was not made out, as the defects in that provision must be defects which could be attributable to the defendant (Judgment, §33).  Besides, the defendant could invoke the exception in section 16(2)(b) that the buyer had examined the goods before the contract was made and the defects were such that the examination ought to reveal (Judgment, §§34 to 36).

9.The case for breach of the implied term of fitness for purpose under section 16(3) of SOGO was rejected, as the exception in that provision applied, namely that the circumstances showed that the plaintiff did not rely, or that it was unreasonable for the plaintiff to rely, on the defendant’s skill or judgment (Judgment, §§39 to 41).

10.The case on misrepresentation failed on the findings of fact and law, for the reasons given in §§42 to 55 of the Judgment.  The plaintiff does not seek to challenge this part of the judgment.

11.The judge also made findings on quantum, in the event liability was made out, contrary to her earlier ruling.  She held that the total amount of damages recoverable by the plaintiff would be $79,930 (Judgment, §§63 to 71).  The plaintiff appears to challenge the quantum of damages assessed by the judge, as it seeks to set aside the dismissal of its claim and replace it with judgment in its favour of $339,638.68[1], but no grounds of appeal were advanced to challenge the findings of the judge on quantum and no argument on this was advanced in the plaintiff’s submission placed before us.

12.Four grounds of appeal were put forward in the draft Notice of Appeal appended to the plaintiff’s summons, reduced from six grounds of appeal that featured in the leave application heard by the judge.  We will deal with them in the order raised in the plaintiff’s submission.

13.Ground 2 seeks to attack a finding of fact of the judge.  It was contended that the judge should have found that the tests executed by HKSTC were based on deploying fragrance oil supplied by the defendant as this was supported by “uncontroverted evidence”.  The judge rejected this as a viable ground of appeal for the reasons given in the Decision, §4, see also the Judgment, §§24 to 27.  We agree with her.  The plaintiff has plainly failed to meet the high threshold to succeed on challenges to findings of fact as stated by the Court of Final Appeal in Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336.

14.Grounds 1 and 3 can be considered together.  They are in relation to the implied term of fitness for purpose and the contention is that the judge was wrong in holding that it was not reasonable for the plaintiff to rely on the defendant’s skill or judgment.

15.Mr Jeremy Cheung submitted for the plaintiff that reliance could be partial, quoting Lord Wilberforce in Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 at 490B that “there may be cases where the buyer relies on his own skill or judgment for some purposes and on that of the seller for others.”  He argued it was incumbent on the defendant to make known to the plaintiff that the USBs the defendant supplied contained ABS and that ABS is a chemical which might cause chemical reaction when it comes into contact with DPM in the fragrant solution.  He submitted that the plaintiff might rely on “full and frank disclosure” by the defendant to make sure that the USBs supplied by the defendant would not be “non-compatible or non-workable” with fragrance oil used by the plaintiff.  He placed particular reliance on the statements of Lord Wilberforce in Ashington Piggeries at490B to H.

16.Similar submissions of Mr Cheung made to the judge in the leave application were rejected by the court.  The judge did not think his arguments could get over a number of evidential difficulties: firstly, the plaintiff had failed to prove that the breakage of the USBs, if any, was caused by the chemical reaction of DPM and ABS (Decision, §5); secondly, there was no evidence that DPM is a common solvent used to dilute in fragrance, or that DPM has chemical reaction with ABS (Decision, §§5 and 10); thirdly, there was no evidence that the plaintiff had disclosed to the defendant the ingredient and particularities of the fragrance oil that the plaintiff would apply to the USBs; to the contrary, the plaintiff took the defendant’s USB samples to its own fragrance supplier for testing before any purchase order was placed and found that the USBs worked well (Decision, §§5 and 9).

17.We agree with the judge.  On the facts as found, we do not think it reasonably arguable that the plaintiff could make out a case of general unsuitability of the goods supplied to found liability on the part of the seller or that there were circumstances which would make it reasonable for the plaintiff to rely or partially rely on the defendant’s skill or judgment.

18.Ground 4 seeks to contend that the judge had failed to take cognisance there was breakdown or malfunctioning of the USBs within an unusually short period of delivery.  The argument was that this should raise a presumption that the goods supplied were not of proper quality and condition at the time of delivery and not of merchantable quality.  Hence, the burden of proof would rest on the defendant to show that the breakdown was not due to faulty design or manufacture on its part, and it is not for the plaintiff to establish there were defects that resulted from a process that was within the defendant’s responsibility.  Mr Cheung submitted judicial guidance is desirable on what constitutes durability for the purpose of merchantable quality as defined in section 2(5)(e) of SOGO, although he accepted the extent of durability to be expected in a given case is fact sensitive.

19.He made similar arguments to the judge in the leave application and they were rejected for the reasons given in the Decision, §12.  Ground 4 fails on the evidence as found by the judge, who held that the complaint made on the first purchase order had not been proved and the circumstances in which that particular USB in the second order broke were not clear (Judgment, §58).  There is no factual basis to give rise to the presumption asserted by Mr Cheung, not to mention that non-durability of the USBs was not the pleaded case of the plaintiff.

20.None of the grounds of appeal in the draft Notice of Appeal are reasonably arguable.  Nor do we think there is some other reason in the interests of justice why the intended appeal should be heard.  The plaintiff’s summons for leave to appeal must be dismissed.

21.We make a further order pursuant to Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination to be reconsidered at an oral hearing inter partes, as the application is wholly without merit.

22.We make an order nisi that the plaintiff is to pay the defendant’s costs of this application, which we assess summarily on a gross sum basis at $20,000.  Any party who seeks to vary the order nisi shall lodge a written submission within seven days hereof, failing which the order shall become absolute.  The other party may serve a response thereto within seven days thereafter.

Written submissions by Mr Jeremy Cheung, instructed by Chak & Associates, for the plaintiff (applicant)

Written submissions by Chan Wong & Lam, for the defendant (respondent)

[1] It is not clear if this is a typing error and that the correct figure should be $339,683.68 as mentioned in the Judgment, §62.