K & M JEWELLERY CO LTD v. COLOUR SILVER TECHNOLOGY CO LTD AND ANOTHER

HCA2467 and 2514/2006
(Consolidated)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2467 and 2514 OF 2006

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(Consolidated by order of Master Lung dated 11^th November 2008)

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J U D G M E N T

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Introduction

1. The plaintiff is and was at all material times a company incorporated in Hong Kong carrying on the business of, inter alia, manufacturing, trading and distributing low and middle priced karat gold jewellery.

2. Tong Kwok Kwong (“Tong”) is and was at all material times the managing director and shareholder of the plaintiff and the person in control of the plaintiff.

3. The 1^st defendant is and was at all material times a company incorporated in Hong Kong carrying on the business of manufacturing, trading and distributing, inter alia, chemicals for electroformed and electroplating jewellery pieces.

4. The 2^nd defendant Pang Siu Chung (“Pang”) is and was at all material times a director and shareholder and the person in control of the 1^st defendant.

5. The plaintiff carries out its manufacturing activities at its factory in Zhongshan in the Mainland (“the factory”).

6. Prior to 2004 the plaintiff was not carrying on the business of manufacturing and selling electroformed jewellery.

7. Since about the beginning of 2004 Pang had been assisting the plaintiff to design, set up and operate the plaintiff’s production line at the factory for the manufacture of karat gold jewellery and accessories by the use of electroforming techniques.  There is a dispute between the parties as to the role played by Pang and his relationship with the plaintiff.

8. The plaintiff’s case is that Pang had been assisting the plaintiff as its consultant to set up and operate its production line for producing karat gold jewellery and accessories by the use of electroforming techniques (“the production line”).

9. The defendants’ case is that the 1^st defendant was only a supplier of chemicals to the plaintiff for the production of electroformed jewellery and that Pang was providing technical support to assist the plaintiff on setting up the production line.  The defendants’ case is that prior to September 2006 Pang was providing after sales service in respect of the chemicals which the 1^st defendant exclusively supplied to the plaintiff and that such after sales service included trouble shooting. 

10. There is no dispute that since about 2004 the plaintiff had been purchasing chemicals from the 1^st defendant for the production of karat gold jewellery and accessories by the use of electroforming techniques at the factory and that the production line at the factory was set up with the assistance of Pang.  There is also no dispute that the electroforming techniques carried out at the factory since 2004 involved the traditional methods of holding the stone in place which were either to glue the stone in place or to clamp it or to weld it onto the piece of jewellery (“the old techniques”).

11. The plaintiff’s case is that the production of electroformed products at the factory using the old techniques had resulted in a high product wastage rate thereby causing it to suffer a loss in its business.  Towards the end of 2005 and early 2006 Tong repeatedly informed Pang that he was considering closing down the production line at the factory for producing karat gold jewellery and accessories by the old techniques.

12. It is the plaintiff’s case that in May 2006 at the factory Pang provided Tong with some samples of karat gold rings which were made using a different electroforming technique by mounting the rings with a precious stone as one piece (“the new technique”) and that Pang made certain representations to Tong at the factory which were intended to be relied on by the plaintiff.

13. The representations allegedly made by Pang to Tong in May 2006 (“the representations”) were:

(1)    that Pang had invented the new technique;

(2)    that the product wastage rate using the new technique would be reduced;

(3)    that the new technique was suitable for use at the factory and would be commercially viable for mass production;

(4)    that the new technique would give the finished product a much higher value.

14. The plaintiff’s case is that acting in reliance on the representations in early September 2006 the plaintiff entered into an agreement with the 1^st defendant which is evidenced by and/or contained in the written document in Chinese dated 9 September 2006 made between the plaintiff and the 1^st defendant (“the contract”).

15. By the contract the plaintiff agreed to purchase from the 1^st defendant the chemicals as specified therein and at the prices set out therein for a period of 10 years with a minimum guaranteed amount of $800,000 per year. 

16. The defendants’ case is that no representations as relied on were made by Pang and that the plaintiff did not enter into the contract acting in reliance of the same.

17. The plaintiff’s claim against the defendant is for a declaration that the contract is voidable by reason of misrepresentations made by the defendants and that the contract has been validly rescinded by the issue of the writ.

18. The plaintiff also claims damages to be assessed.

19. The defendants deny that the plaintiff is entitled to rescind the contract.  They counterclaim for damages for the plaintiff’s breach of the contract to be assessed.

20. By an order made by Master Lung on 11 November 2008 it was ordered by consent that HC Action No. 2467 of 2006 commenced by the plaintiff against the defendants be consolidated with HC Action No. 2514 of 2006 commenced by the defendants against the plaintiff and that HC Action No. 2514 of 2006 do stand as the defendants’ counterclaim.

21. By an order made by consent at the pre-trial review on 15 September 2009 it was ordered that there be a split trial on the issues of liability and damages with the issue of liability to be tried first.

22. This is the trial of the issue of liability.

The main issues

23. The main issues are:

(1)    whether the representations or any of them were made in May  2006 by Pang to Tong;

If the answer to (1) is yes, then

(2) whether the representations or any of them were made for the purpose of inducing the plaintiff to enter into the contract;

(3) whether the plaintiff relied on the said representations or any of them in entering into the contract;

(4) whether the representations or any of them were true;

(5) whether Pang was negligent in making such representations or any of them;

(6) whether the plaintiff was entitled to and did rescind the contract;

(7) whether the plaintiff is entitled to damages;

If the plaintiff was not entitled to and did not rescind the contract, then

(8) whether the plaintiff has wrongfully repudiated the contract;

(9) if so, whether the defendants are entitled to damages.

24. Although in its consolidated statement of claim the plaintiff also relied on fraudulent misrepresentations, deceit and conspiracy against the defendants, these were not pursued at trial.  Mr Smith SC, together with Mr Chang, for the plaintiff, made it plain in their opening submissions that the plaintiff was no longer relying on fraudulent misrepresentation, deceit and conspiracy.

The witnesses

25. I heard evidence from Tong and Pang.  I also heard evidence from Chong Lung Sam (“Chong”).

26. I found both Tong and Chong to be honest, truthful and reliable witnesses.  I believe them.  I cannot say the same for Pang whom I found to be untruthful and unreliable.  Where Pang’s evidence is at variance with Tong and Chong’s evidence, I prefer Tong and Chong’s evidence, which I accept, to Pang’s evidence, which I reject.  I believe Tong and Chong and disbelieve Pang.

The evidence and findings

27. It is common ground that Tong first met Pang towards the end of 2003 through his friend Henry Lam (“Lam”).  At about that time one of the plaintiff’s customers QVC Cable Shopping (“QVC”) approached the plaintiff to establish a production line for manufacturing electroforming karat gold jewellery products.

28. The 1^st defendant was incorporated in October 2003 and started with the business of electroformed silver sculptures.  It changed to producing and supplying electroforming chemicals shortly thereafter.

29. Pang is a chemist and from about 1994 he was working in the field of electroforming chemicals and the technique involved in the industrial application of such chemicals.

30. Prior to the incorporation of the 1^st defendant, Lam and Pang were in business together.  They went into business together in about 2001 for the production of karat gold electroformed jewellery products using electroforming chemicals and the old techniques.  They first produced these products at a factory in Hong Kong.  Later on, the factory in Hong Kong had to be closed down and Lam proposed to Pang that the electroforming and the final stage jewellery processing could be done in Lam’s factory in Panyu.  Lam and Pang agreed that the electroforming equipment be transferred to Lam’s Panyu factory for this purpose and that the Panyu factory would carry on with the production of electroformed karat gold jewellery pieces.  However, it transpired that Lam was unable to obtain the necessary licence in the Mainland to carry out electroforming production there and the equipment that had been transferred to the Panyu factory were left idle there.

31. When Tong met Pang towards the end of 2003, the plaintiff was interested in starting a new production line to manufacture electroformed karat gold jewellery pieces and Pang was willing to assist the plaintiff in so doing. 

32. On the undisputed evidence I am satisfied and find that towards the end of 2003 the plaintiff was interested in setting up the production line at its factory to manufacture electroformed karat gold jewellery pieces and accessories so as to supply the same to QVC and that Pang agreed to assist the plaintiff in this.  Pang had the relevant experience and the expertise to assist the plaintiff in setting up the production line at the factory.  It was envisaged that Pang, through the 1^st defendant, would also be supplying the plaintiff with the chemicals required for the purpose of manufacturing electroformed karat gold jewellery pieces at the factory.

33. As I have said, there is a dispute between the parties as to the role of Pang in relation to the production line.

34. Although in his witness statement Tong said that he had over 19 years’ experience in the manufacture of electroformed and electroplating jewellery, this was, as Tong acknowledged in evidence, a mistake.  I believe him.  It is clear that Tong and the plaintiff had no prior experience of manufacturing electroforming karat gold jewellery pieces.  The plaintiff obviously required the assistance of someone who did have the relevant experience in the manufacture of electroformed jewellery pieces.  Pang was that person.  When Pang was involved with Lam in his joint venture Pang was the one who was solely responsible for the electroforming production line. 

35. On this issue of fact, I prefer the evidence of Tong to that of Pang.  I believe Tong and disbelieve Pang.  I am satisfied and find that Pang agreed to assist in the setting up of the production line at the factory as a consultant to design, set up and operate the plaintiff’s production line at the factory.  The production line was a new production line of the plaintiff at the factory.  In setting up the production line at the factory the plaintiff purchased the equipment which had been left lying idle at Lam’s Panyu factory.

36. I would observe that early on in their relationship the plaintiff and Pang by an agreement in Chinese dated 29 January 2004 (“ the January 2004 agreement”) agreed to co-operate in the production of colour electroformed silver sculpted handicrafts by opening a factory in Zhongshan for that purpose.  The plaintiff was to be responsible for the entire amount of the investment for the establishment of that factory and Pang’s investment was in kind by providing the colour silver electroforming technology.  Pang was to own 50% of the shareholding of the colour silver electroforming handicraft factory.

37. It was provided in the January 2004 agreement that Pang was not to co-operate with others or to teach others anything in relation to electroforming technology including karat gold and silver jewellery electroforming.  It was also provided that Pang had the obligation “to provide the necessary technical support and the responsibility of factory management to ensure smooth factory operation and the production of perfectly high-quality goods”.  Pang was also required to “frequently go to the factory to handle production matters according to the actual production circumstances”.

38. It is clear that by the January 2004 agreement Pang was to be in charge of the overall supervision of the coloured silver electroforming production in that factory.

39. The colour silver handicraft factory was never actually set up and the January 2004 agreement was never implemented.

40. Although the January 2004 agreement was for the setting up of a different type of factory to deal with colour electroformed silver sculpted handicrafts, it does, in my view, demonstrate that the relationship between the plaintiff and Pang was more than one of simply supplying chemicals for the production line at the factory with an after sales service.

41. It is also plain that by the January 2004 agreement Pang had agreed not to supply chemicals to anyone other than the plaintiff and not to provide technical assistance on karat gold electroforming to any other party.  Pang had also turned down a business opportunity with Chow Sang Sang Jewellery by entering into this exclusive arrangement with the plaintiff.  Pang was making an exclusive commitment to the plaintiff not to supply chemicals to anyone other than the plaintiff and not to provide technical assistance on karat gold electroforming to any other party.

42. It seems to me that as Pang was charged with the overall supervision of the coloured silver electroforming factory, it is highly likely that he was also expected to have the same supervisory role in the karat gold electroforming process in the production line at the factory which was set up in early 2004.  I so find.

43. Tong was adamant that the production line at the factory was run by Pang although this was denied by Pang.  I believe Tong and accept his evidence.  I disbelieve Pang and reject this evidence.

44. Neither Tong nor Tong Hiu Ming (“Ming”), the plaintiff’s employee at the factory who occupied the position of supervisor to head the electroforming department, had any prior experience in the manufacture of electroforming gold jewellery and they relied on Pang.  Tong said that Ming was learning electroforming production from Pang.  I accept his evidence.

45. Pang was not on the payroll of the factory.  However, he was provided with free accommodation at a hostel near the factory.  On the evidence of Tong, which I accept, Pang stayed there more often when the factory received more orders.  I find that the reason for this was to enable Pang to attend the factory and to be on site as he was required for the overall supervision of the electroforming process at the factory.

46. It is not disputed that there were 17 stages involved in the production line for karat gold electroformed as set out in the second supplemental witness statement of Pang at paragraph 17:

“ (1) Design

(2)  Making a plastic prototype

(3)  Silver casting

(4)  Polishing the silver casting

(5)  Making a silicone rubber mould

(6)  Wax injection into the mould

(7)  Polishing the wax item

(8)  Silver conductive coating onto the wax item

(9)  Electroforming (which required the maintenance of a bath with an optimal proportion of silver, gold and other ingredients)

(10)  Removal of the wax

(11)  Removal of the silver conductive coating

(12)  A semi product was formed

(13)  Welding

(14)  Grinding

(15)  Polishing

(16)  Electroplating (gilding)

(17)  Drying”

47. Pang said that he was only involved in the after sales service for stage (9) confined only to trouble shooting when required by the staff of the plaintiff.  I do not believe Pang on this.  I find that he was much more involved in the production process than he was prepared to admit.

48. Tong said that Pang was involved in giving his input in stage (1) the design stage and that Pang was also involved in stages (8), (9), (10) and (11) with some involvement also in stages (16) and (17).  I prefer the evidence of Tong to that of Pang on this dispute of fact and find that Pang was involved in different stages of the production process and not just for stage (9).  I believe Tong and accept his evidence on this.  I disbelieve Pang and reject his evidence on this.

49. It seems to me that both Tong and Pang had confidence in the success of the production line when it was set up.  However, as Tong said, because of high production wastage things did not progress as he had hoped and the plaintiff suffered loss in its business in the manufacture and sale of karat gold jewellery pieces produced by the old techniques in the production line at the factory.  I believe him.

50. The tables at bundle B pages 1 to 3 clearly show that there was a problem of wastage in the products in the production line.  From the total number of pieces used in the electroforming process (as shown in the third column) there was a large reduction in the number of pieces what were actually sold as being fit and suitable for sale (as shown in the sixth column).  There was also a difference in the weight of karat gold deposited on the goods by reference to the fourth and seventh columns of the tables which show that there was a high percentage of karat gold wasted.  According to Tong, there was gold loss or gold wastage to the extent of 3% to 5% every time a product was redone.  Pang agreed that there would be gold loss when the product was redone resulting in wastage of material but he said that it would not be as high as 3% to 5%.  He was of the view that it would be less than 1%.  I prefer the evidence of Tong to that of Pang on this.

51. Tong explained that product wastage was in two respects:

(1)  the percentage of gold that was successfully deposited onto the mould; and

(2)  any defects on the finishing of the electroformed products e.g. holes, incomplete plating, texture of surface.

52. Tong said that the reason for the product wastage was that the electroforming process was not well done.  He rejected any suggestion that the reason for the product wastage was because of what occurred after the items had been taken out of the electroform bath.  I believe him and accept his evidence.

53. I am satisfied and find that there was a high wastage problem in the production of electroformed jewellery pieces at the factory from early 2004 onwards as shown in the tables in bundle B pages 1 to 3.  This was due to problems in the electroforming process which was under the supervision of Pang.  The extent of the wastage was in some instances about 50%.  Where the quantity of goods was larger the percentage of wasted products was higher as is borne out by the tables.

54. According to Tong, towards the end of 2005 and early 2006 he had been telling Pang that in view of the poor performance of the production line, he was seriously considering closing the production line.  However, Pang gave him different reasons for the poor performance of the production line such as the quality of the material, insufficient quantity of gold, negligent quality control of the production and quality of the mould.  This was denied by Pang who gave evidence that Tong did not tell him that there was a high production wastage problem encountered by the plaintiff in the production line. 

55. I prefer the evidence of Tong to Pang on this dispute of fact and find that Tong did tell Pang that he was seriously considering closing the production line because of the high wastage problem and that Pang was trying to put the blame on other processes in the production.  I find that the plaintiff was experiencing a high wastage problem at the factory in the production line and that Pang knew about this.

56. Tong said that in early May 2006 Pang provided him with samples of karat gold rings mounted with a precious stone and told him that it was manufactured by the new technique.  Tong was pleased with the finish of the samples.  Tong said that Pang told him that the new technique was his own invention as involving the manufacture of electroformed jewellery pieces and accessories after being mounted with a precious stone as one piece.  Pang assured Tong that the new technique was suitable for commercial use and for mass production.  Pang assured him that the problem of high wastage would be overcome if he were given some time and with the necessary factory cooperation and provision.  He also told Tong that in a few months’ time he would be able to achieve a production wastage rate of about 10% which Tong had indicated would be acceptable.

57. Tong gave evidence that in view of what he had been told by Pang and relying on Pang’s assurances, he told Pang that he would invest and promote the production of gold jewellery and accessories at the factory using the new technique.  He would promote the same in forthcoming trade fairs in a few months’ time. 

58. It seems to me that both Tong and Pang were excited at the high quality of the samples produced for Tong’s inspection using the new technique.  Tong was going to invest and promote the same and Pang and the 1^st defendant were going to benefit by this.  Instead of closing down the production line, the plaintiff was going to actively promote the new technique.

59. Tong wanted to apply to register a patent in the United States of America (“the US patent”) for the new technique.  He said that in June 2006 he raised this with Pang and that Pang agreed that a patent application be made.  Apart from this, Tong also wanted to register a trade mark for the jewellery which would be produced using the new technique.

60. The contract was signed on 9 September 2006.  This replaced the one signed by the plaintiff and the 1^st defendant on 4 September 2006.  On that day Pang also assigned for the consideration of $1 the entire right, title and interest in respect of the new technique so as to enable the plaintiff to apply for the US patent in respect of the new technique. 

61. It is common ground that the agreement signed on 4 September 2006 which was replaced by the contract on 9 September 2006 together with the assignment of the patent was all part of one package.

62. Under the contract the plaintiff agreed to purchase the specified chemicals at the prices set out therein from the 1^st defendant for a period of 10 years from 1 January 2007.  The plaintiff guaranteed the 1^st defendant a minimum guaranteed yearly amount of $800,000 of purchases from the 1^st defendant.  The value of the contract to the 1^st defendant was therefore a minimum of $8,000,000 over the span of 10 years.

63. It was also provided in clause (6) of the contract that the plaintiff and the 1^st defendant agreed that the validity of the contract was founded on the successful application of the US patent.  It was agreed that “this contract shall remain effective during the period of patent application for the [new technique].  But if the patent application shall be unsuccessful, this contract shall also become invalid immediately for such reason, but [the plaintiff] agrees that in such circumstances the minimum guaranteed amount already paid to [the 1^st defendant] does not have to be refunded to [the plaintiff].”

64. I believe Tong’s evidence and find that acting in reliance on the assurances and representations made by Pang in May 2006, he on behalf of the plaintiff entered into the agreement with the 1^st defendant on 4 September 2006 at which time Pang assigned the patent to the plaintiff.  The agreement was replaced by the contract on 9 September 2006.  The contract and the assignment were all part of one package. 

65. In my judgment it is inconceivable that Tong would have made the decision to carry on with the production line and to invest further time and money to promote the new technique had he not been given certain assurances from Pang as to the commercial viability of the new technique and that the same was suitable for mass production.  It seems to me that it was natural for Tong to want to be assured that the new technique would be commercially viable and suitable for mass production before he would consider investing more money and time in applying for the US patent and promoting the new technique.  I find that Pang did make the representations to Tong which he relied on in entering into the agreement which was replaced by the contract.

66. As to issues (1), (2) and (3), I find that the representations were made by Pang to Tong in May 2006 for the purpose of inducing the plaintiff to enter into the contract and that the plaintiff relied on them in entering into the contract.

67. As Tong was confident of the new technique being a commercial success, he actively promoted the new technique at the Hong Kong Jewellery and Watch Fair held in September 2006 (“the Fair”) and in advertisements in jewellery magazines.

68. The plaintiff also accepted 3 purchase orders from Bel Oro International in the USA for the manufacture and sale of 2,322 pieces of jewellery on 22, 23 and 30 August 2006 (“the Bel Oro orders”).  Tong said that the Bel Oro orders were for the pieces of jewellery to be manufactured using the new technique.  Tong also said that before accepting the Bel Oro orders he had carried samples to show to Bel Oro International in the USA which had been produced using the new technique and that Pang had been in charge of producing the samples for Bel Oro International.  I believe him and accept his evidence.

69. Pang denied any knowledge of the Bel Oro orders and the samples for Bel Oro International which Tong said he had shown to Bel Oro International before accepting the Bel Oro orders.  I do not believe Pang and reject his evidence.

70. Pang claimed to have invented the new technique.  He helped in the production of the samples for the Fair to be held in September 2006.  I see no reason why Tong would not ask Pang to assist in the production of the samples for Bel Oro International.

71. On this issue of fact, I prefer the evidence of Tong to that of Pang.  I find that, as Tong said and as I accept, Pang was responsible for producing the samples for the Bel Oro orders.  Tong said that they were both promoting the new technique.  I believe him.

72. The US patent application was filed on 5 September 2006.  I would observe that as the US patent application had not been filed before the samples for the Bel Oro orders which were made by using the new technique were shown to the buyer Bel Oro International it is doubtful that it can be maintained that the new technique was novel at the time of the patent application. 

73. Tong gave evidence that he met Pang at the factory in September 2006 to discuss about the production of the Bel Oro orders.  Pang told him that he had no confidence to be able to properly manufacture the rings using the new technique.  Pang also admitted that the production wastage rate was higher than when using the old techniques.  Pang denied this but I disbelieve his evidence.  I prefer the evidence of Tong whom I believe. 

74. Pang also denied that he had told Tong that the new technique was his own invention although he maintained that it was his own invention.

75. I would observe that in earlier pleadings (paragraph 5 of the defence and the amended defence in HC Action No. 2467 0f 2006) Pang’s solicitors had made an admission that Pang had told Tong that the new technique was his own invention.  There was also an admission that Pang had represented to Tong that the new technique was suitable for use for commercial production.  Both those admissions were withdrawn in a later amendment of the pleading.  In evidence Pang said that those admissions were mistakenly made and that he had not noticed them until they were withdrawn later.  I do not believe him.  It seems to me to be highly unlikely that the solicitors would have made those admissions without instructions in this case where the plaintiff seeks to set aside the contract for misrepresentation.  I find that Pang made those admissions which were pleaded by his solicitors and it was decided to withdraw them later on after realizing that they might prejudice the defendants’ case.

76. Chong, who has a background in chemistry, gave evidence that he knew Pang from the time he worked as a technical manager at Myer Jewellery in Hong Kong in 1989.  Pang was working for a company supplying chemicals to Meyer Jewellery.  In 1996 Chong set up Pinco Aliprandini (HK) Ltd (“Pinco HK”) with Pinco Alipandini Laboratorie  (“Pinco Swiss”) as partners.  Pinco HK and Pinco Swiss are the leading suppliers of electroforming chemicals in particular, karat gold in the trade. 

77. Chong’s evidence was that the new technique was not an invention created by Pang.  The idea of using a wax mandrel for electroforming in the new technique had been tried by Pinco HK in the past without success.

78. Chong’s evidence was to the effect that there were two significant defects in the new technique leading to a very high product wastage :

(1)  there were gaps (highlighted in blue at Figure 1 attached to his witness statement) between the gem stone and the wax mandrel where no metal could be coated thereon in the electroforming process.  The existence of such gaps means that there is a significant chance that the gem stone could not be affixed firmly onto the finished product as one piece; and

(2)  the wax mandrel is pre-painted with a layer of conductive metal coating before the gem stone is placed thereon.  In the process of placing the gem stone, more often than not it will strip off part of the conductive coating.  It is difficult to notice such strip off and even if noticed, repainting of the conductive coating will affect the finishing and in turn, the quality of the final product.

79. The first defect relates to gaps between the gem stone and the wax mandrel where no metal could be coated.  This meant that the gem stone could not be fixed firmly to the finished product as one piece.  To remedy this defect it is possible to do the electroforming in layers, say 10% first then 20% and so on.  Chong, however, said that this was not a popular way to overcome this problem.  He explained that the composition of chemicals included poisonous chemicals like potassium cyanide and if one deposits 10% or 20% on it he has to take it out and rinse it very well during the manufacturing process.  As it was quite a dangerous process this was unpopular. 

80. Pang also said in evidence that he would not use the method of electroforming in layers as it was too troublesome.

81. The second defect relates to the scraping of the coating caused by contact with the gem stone when it is put into position.  This leads to uneven electroforming. 

82. Pang accepted that in the new technique it was possible to have the scraping problems mentioned by Chong.  He suggested that the problems could be overcome if the workers were highly skilled and used some methods e.g. using a toothpick and chewing gum in helping to fix the stone at the right position.

83. The methods suggested by Pang to remedy the defects mentioned by Chong are, in my view, impractical.  It shows that the new technique was not commercially viable for mass production.

84. At the Fair held in September 2006, the plaintiff exhibited about 250 different pieces of jewellery which were produced using the new technique.  Pang helped in the production of these samples.  Tong said, and I accept, that there was a high wastage rate in the production of these samples.

85. I would observe that it took about 4 months to produce about 250 pieces of jewellery fit to be exhibited at the Fair.  This also suggests, in my view, that the new technique was not commercially viable for mass production.

86. Where the evidence of Chong and Pang is at variance, I prefer the evidence of Chong.  I find that there were the two significant defects that Chong gave evidence of in using the new technique.  I am satisfied that the new technique was not commercially viable for mass production.

87. As to issue (4) I find that the representations were untrue.  I find that Pang did not invent the new technique, that the product wastage rate using the new technique was not reduced and that the new technique was not commercially viable for mass production.

88. A person who voluntarily assumed to act on behalf of, or to advise another in law assumes a duty to that other to act or to advise with care.  (Henderson v. Merrett [1995] 2 AC 145 at 205 F-H).

89. It seems to me that Pang owed the plaintiff a duty of care when he took it upon himself to advise and recommended the new technique to the plaintiff and in representing to Tong that it was commercially viable for mass production.

90. He failed in his duty by failing to inform Tong of the two defects in the new technique which rendered it unsuitable for use at the factory for mass production.  As a result of Pang’s negligence, the plaintiff has suffered loss and damage.  As regards issue (5), I find that Pang was negligent in making the representations to Tong.

91. Tong said that because of the high production wastage rate, the plaintiff had no practical alternative but to manufacture the jewellery rings under the Bel Oro orders by the old techniques of gluing the precious stone to the manufactured rings.  I believe him.

92. Tong gave evidence which I accept that he decided in October 2006 to close down the production line at the factory.

93. As is evident from the email at Bundle A page 240 the plaintiff was unable to use the new technique any further and had to revert to the old techniques which involved gluing the stone in place. 

94. As regards issue (6) I am satisfied and find that the plaintiff was entitled to rescind the contract.  By issue of the writ in HC Action No. 2467 of 2006 on 9 November 2006 the plaintiff has validly rescinded the contract. 

95. As to issue (7) I find that the plaintiff is entitled to damages to be assessed.

96. Issues (8) and (9) do not arise.

Conclusion

97. I give judgment to the plaintiff against the 1^st defendant for a declaration that the contract has been validly rescinded by the issue of the writ in HC Action No. 2467 of 2006 on 9 November 2006.  I also give judgment to the plaintiff against the 1^st and 2^nd defendants for damages for misrepresentation such damages to be assessed by a master.  I dismiss the counterclaim of the 1^st and 2^nd defendants. 

98. I also make an order nisi that the costs of the action and the counterclaim be costs to the plaintiff to be paid by the 1^st and 2^nd defendants such costs to be taxed if not agreed.