ARTECH PRINTING LTD. v. YEE FAT PRINTING EQUIPMENT LTD.

HCA 6053/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 6053 OF 1997

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J U D G M E N T

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1. The plaintiff contracted to buy a second hand printing press from the defendant. Claiming that the defendant refused or declined to supply the machine the subject of the contract, it rescinded the contract and is suing for recovery of the deposit paid. The defendant denies liability, and claims that the plaintiff in refusing or declining to accept and pay for the machine it supplied was in breach. It rescinded the contract, withheld the deposit as a forfeit and resold the printing press to mitigate its loss. It is suing for the shortfall as damages.

Background

2. The plaintiff is called Artech Printing Limited (Artech). It was incorporated as a new enterprise by its founder Fung Siu Kei (Mr Fung) for the purpose of becoming printers. Artech hired Paul Cheung (Mr Cheung). His first duties included seeking out a printing press which was within Artech's budget having the necessary capacity to fulfil orders Artech was hoping to attract. Mr Cheung's enquiries led him to the door of the defendant, called Yee Fat Printing Equipment Limited (Yee Fat) one of whose functions is the import and supply of second hand printing machines. Mr Cheung dealt with a salesman called Chau Kam Hung (Mr Chau).

3. The upshot of negotiations that followed was a contract designated no. CO-20041 which the parties entered into on 27 January 1997 for the sale and purchase of a printing press described in the contract as follows:- one set of Roland Rekord two colour offset printing press model RZK3B year 1989 format 720 x 1020mm accompanied with operation tools and accessories. There followed terms of payment which included a deposit and how the balance should be met on delivery. The parties also entered into an agreement for the sale and purchase of a paper cutting machine. Artech paid deposits totalling $216,000 in respect of both contracts.

4. At the same time there was prepared and signed a document the English translation of which I shall set out in full as follows:-

"Yee Fat Printing Equipment Limited

The hereunder memorandum is given pursuant to contract CO-20041 of the sale and purchase parties:- The seller will go to inspect 2 sets of 2 colour RZK3B. Decision will be made on behalf of the buyer if necessary, but the buyer's consent must be obtained first Amendment contract certificate would be issued by that time and price would be adjusted as well.

Exact date to be 5 February 1997 or before.

It is hereby declared.

Buyer	Seller
Chop of Artech	Chop of Yee Fat Printing
Printing Limited	Equipment Limited
Signature	Signature
27/1/97	27/1/97 "

5. Mr Chau explained why this addendum was necessary. He said the RZK3B is a popular machine coming from Germany. As Yee Fat holds no stock but buys only when it has a confirmed purchaser, it is not generally possible to commit the parties to a particular machine. Artech was told on 27 January that there were two machines on the market that satisfied their requirements. One was a 1989 RZK3B. The other was a similar but older model, having been made in 1981. That described in the contract was the 1989 model. The addendum was to give flexibility depending on which model might be available and ultimately preferred, with a price adjustment to be negotiated if it was the older one.

6. In the event both contracts came to be cancelled. Again Mr Chau explained why. He said such was the demand that by the time Yee Fat's representatives sought to negotiate for the purchase of first one and then the other of the machines both had been sold and were no longer available. And it was agreed too that Artech be released from the contract for the paper cutter.

7. Then it was that on 15 March the parties came to execute a new contract, designated no. CO-70006. It is this contract which has given rise to the claim and counterclaim now being litigated. I shall refer to it as the second contract from now on. It records the subject matter as follows:-

" Description of Goods

One set of Roland Rekord Two Colour Offset Printing Press.

Model : RZK3B

Year: 1989

Format: 720 x 1020mm

Detailed equipment referred to seller's quotation no. QU-70012

Accompanied with operation tools and accessories."

8. The quotation referred to set out in full detail the additional equipment. This time there was no addendum. The price was $1,780,000, a bit less than before because of a more favourable exchange rate between the Hong Kong dollar and Deutsche mark. The two deposits held by Yee Fat for the two original, now cancelled contracts totalling $216,000 were transferred to the second contract. Delivery was due by the end of April, with leeway of one month. No serial number was specified. Included as one of eight conditions was condition 7 which read as follows:-

"(7) The goods shall be properly described by the serial number(s) stated above. The year(s) of goods described above is approximately inaccuracy of the description of year(s) will not render this contract void."

9. A material point of contention arises from whether or not there were express or implied additional terms to the effect that a specific printing press was intended by the parties to be bought and sold. Artech claims there was; Yee Fat says there was not.

10. Mr Cheung and Mr Fung of Artech say that prior to 15 March Mr Chau with his boss the sales manager of Yee Fat, Chiu Sing Nam (Mr Chiu) came to them with photographs and video recordings of a particular Roland Rekord RZK3B printing press which was filmed in operation, and represented that it was available for sale. The photography included zooming in to capture on film the machine's serial number which was 639/18963. They were repeatedly assured this was a model made in 1989. It was, they say, on the strength of this presentation that they were persuaded to negotiate the terms of and then execute the second contract. Alternatively it was in reliance of representations that it was this machine, and no other, that Artech was committed to buy. Mr Chau and Mr Chiu have a different account. They say that the photographs were presented to show a potential customer the operation of a typical RZK3B with an accessory attachment called a "Colordry", whose function is to aid and speed the drying process after printing. The video recordings were further demonstrations of these machines in operation featuring not just one press but up to ten. They say the photographs and films were to promote the RZK3B generally with or without the drying optional accessory, and in no way was a representation that any one machine and no other was to be bought and sold. So that is an important dispute of fact which I am required to resolve.

11. Following the signing of the second contract Mr Chiu on behalf of Yee Fat bought and had shipped to Hong Kong a RZK3B printing press. He was told by his supplier, with whom Yee Fat had consistently dealt in the past, that it matched the press described in the second contract, and that included the year of manufacture, 1989. It duly arrived in Hong Kong and was transported to Yee Fat's premises on 12th May. Mr Cheung was invited to come and inspect and was reminded that a further instalment of the purchase price was due. 15 May was scheduled to be the date of delivery to Artech's factory and Yee Fat arranged transport insurance for that day.

12. But then there was a development.

13. Mr Cheung had seen the machine at the time it arrived at Yee Fat's premises. He was concerned because it seemed dirty and old, not like that depicted in the photographs and videos. Mr Chiu gave him, on request, its serial number. That was 633/15331B, nothing like the one on film which was 639/18963. By fax to Yee Fat of 14 May he called for a pre-delivery working inspection of the machine the subject of the second contract at Yee Fat's premises. Mr Chiu resisted. There was no contractual obligation for this. And it was entirely unreasonable, given the time and cost needed to assemble the machine, run it and then dismantle and repack it for transport.

14. In the event there was no testing, no further payment and no delivery to Artech's premises. Artech came to learn that the machine in question not only not did not have the serial number 639/18963 but also it was not a 1989 model, having been made in 1985. Yee Fat has conceded that it was, after all, made in 1985. Artech refused to complete. Yee Fat tried to sell to a third party and eventually did so for $1.3m.

15. Both parties sued.

The issues

1. The first matter to establish is what it was the parties contracted to sell and buy. Was it the specific printing press having serial number 639/18963, because the photographs given by Yee Fat to Artech were for the purpose of identifying the press to be bought and sold?

2. If not that, did the representatives of Yee Fat misrepresent to Artech that it was that machine that would be bought and sold, in reliance upon which Artech signed the second contract?

3. If I am satisfied there was no specific printing press as per (1) and no misrepresentation as per (2) then I have to decide whether it was a sale of goods by description within the terms of section 15(1) of the Sale of Goods Ordinance Cap 26 (SGO) giving rise to an implied condition that the goods bought and sold corresponded with the description.

4. If I am satisfied about that I have to decide whether the recorded year of manufacture, 1989, is part of that description and was a misdescription giving rise to a prospective breach of the section 15(1) implied condition.

5. If I find that to be so then I have to explore by a step by step process whether Yee Fat escapes being liable for breach by virtue of condition 7 whose terms I have already reproduced; or whether by virtue of the Control of Exceptions Ordinance Cap 71 (CEO) it is prevented from contractually excluding or restricting its liabilities under Section 15(1).

Findings of Fact and Application of Law

16. I am not satisfied the second contract was for the sale and purchase of a specific printing press. Were it to have been intended I am certain the parties would have referred to it by serial number or by reference to the photographs in the contract or an addendum, with Yee Fat requiring an escape clause just in case it was already sold. There was no such reference. Nor am I satisfied, for the same reason, that the experienced salesmen of Yee Fat would have misrepresented that in order to get Artech to sign.

17. The second contract was, as I am satisfied, a sale by description, caught by the provisions of Section 15(1) SGO, giving rise to an implied condition that the goods must correspond with the description. That description is set out in the second contract in the form of words I have reproduced above.

18. Mr Fung, counsel for Yee Fat, has submitted that the year of manufacture was not a part of that description but for reference only. He relied on the evidence of the knowledgeable Mr Chiu who says that the value and worth of a printing press is dependent not on its age but on the quality of what it produces; thus a machine aged 40 years or more can be as worthy as one half its age. That may be so. But I cannot subscribe to the point of view that the year of make of a valuable and sophisticated piece of machinery being traded second hand is not an integral feature of its description. Of course the standard of what it produces is important. But the years take their toll on even the most carefully maintained machine. Its age must go directly to its reliability, cost of servicing and lifespan, and hence value.

19. The machine was described as having been made in 1989. It was in fact made in 1985. That is a misdescription and in the context of this case a material one.

20. But is Yee Fat protected from the consequences of that, by virtue of the second part of condition 7? There is argument to say it is not, because condition 7 should be read as one, and as the second contract is not one for the sale of a specific machine condition 7 does not apply. In the end I am not going to explore this, because even if the two parts of condition 7 are independent and Yee Fat can call upon the protection of the second part, it is caught in the barbed wire of CEO. Section 11(2) CEO states a seller cannot invoke an exemption clause excluding or restricting his liability for breach of an implied condition arising out of Section 15(1) SGO where the purchaser is "dealing as a consumer". Section 4 CEO states that a purchaser deals as a consumer if he does not make the contract in the course of a business nor holds himself out as doing so and the vendor does make the contract in the course of a business. Was Artech in the context of the second contract dealing as a consumer? Was it that Artech was not making the contract in the course of a business and not holding itself out as doing so? Was Yee Fat making the contract in the course of a business? I find there is no question but that the answer is "Yes" to both. Artech was not in the business of buying printing presses nor did it hold itself out as such. It was a brand new entity, whose staff were self-confessed strangers to the intricacies of buying a printing press. It was not even, as yet, engaged in printing, although I think this hardly matters. Yee Fat on the other hand had been in the game of selling printing presses for years.

21. It follows, then, that even if on the face of it Yee Fat's misdescription of the printing press it was trying to supply to Artech was protected from any untoward consequence by virtue of the second part of condition 7, that protection was taken away by Section 11(2) CEO.

The Outcome

22. Yee Fat contracted with Artech to sell it a printing press described as having been made in 1989, but tried to supply it one which was made in 1985. It was thus in breach giving Artech the right to rescind the contract and recover the deposit paid. Artech thus succeeds in its claim and Yee Fat fails in its counterclaim. Artech is also entitled to interest which I fix at 8% p.a. from 15 May 1997 to the date of judgment.

23. Costs

Costs will be to the successful party, Artech. But the order I will make having been so without the benefit of argument will be nisi at first instance.

Orders

24. There will be judgment for the plaintiff in the sum of $216,000 together with interest of $46,774. The counterclaim of the defendant is dismissed.

25. Costs will be to the plaintiff including any reserved taxed if not agreed. The order as to costs shall be nisi at first instance, with liberty for either party to restore for argument on notice given within 14 days of the date of this judgment.