BRAND VISIONAIRE LTD v. DEBREU LTD

DCCJ 1281/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1281 OF 2011

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JUDGMENT

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INTRODUCTION

1. The Plaintiff was a scent consultant and the Defendant a designer and manufacturer of gift items at the time when disputes arose. In May and November 2010 the Plaintiff agreed to buy from the Defendant Aroma USBs. The total sales amount for the two contracts was $34,350. The Plaintiff issued a Writ with a statement of claim on 1 April 2011. The claims therein included damages caused to the Plaintiff arising from the alleged misrepresentation and breach of the Sale of Goods Ordinance (“the SOGO”) on the part of the Defendant. The amount claimed was $477,418.79. The writ and the statement of claim were amended on 31 August 2012 (“the Amended Statement of Claim”).

BACKGROUND

2. The undisputed facts are these. The Plaintiff came to know about the Defendant through Ms Tracy Pepe a web advertiser based in Canada. The Plaintiff approached the Defendant and arrangement was made for the parties to meet on 17 March 2010 (“the March Meeting”). Mr David Cheung, director of the Defendant, (to be called “David” to avoid possible confusion with Mr Cheung, Counsel for the Defendant), met Mr and Mrs Klitsie, the two directors of the Plaintiff. At the meeting, David introduced to the Klitsies various models of Aroma USBs including the Ultrasonic and Classic USBs (“ARD-11 Model”). The aroma USBs according to David and the materials produced by him were to emit scent of aroma when being plugged into USB ports of computers in addition to the usual function for memory storage. The Klitsies were given 5 samples at the conclusion of the meeting.

3. On 25 March 2010 agreement had been reached between the parties that the Plaintiff be engaged to launch a rebranding exercise for the Defendant’s product (“the Rebranding Exercise”). On 29 March 2010, at the request of Mrs Klitsie, David again brought some samples to CPL Aroma (Far East) Limited (“CPL”) for tests for the purpose of the Rebranding Exercise. CPL was the fragrance supplier of the Plaintiff. Tests were carried out by CPL in April 2010. The Plaintiff was informed by CPL that the ARD-11 Model worked well but the Ultrasonic samples needed some modification.

4. It was in May 2011 that the first purchase order was made for 600 pieces of White ARD-11 Model with the Plaintiff’s logo imprinted on the cell. The price for this purchase was $2,400 (“the 1st Order”). The 1st Order was delivered on 18 June 2010 which was 5 days late. The Defendant had then given 100 extra pieces of ARD-11 Model to the Plaintiff for the late delivery.

5. In August 2010, there was an email from the Plaintiff to David diverting a complaint from a staff of the Plaintiff saying “no smell and seems no work and the case break when they put in computer whole day”.

6. A second order was made by the Plaintiff on 19 November 2010 for 4,500 pieces of ARD-11 Model at the price of $31,950 (“the 2nd Order”) for its client, Health and Care Dental Limited (“HCDL”). By the 2nd Order, again the logo of HCDL was to be imprinted on the case of the USBs. The delivery was made two days ahead of the agreed delivery date on 15 December 2010.

7. At a meeting held on 9 December 2010, the Klitsies informed David of the problem with the 2nd Order. They also requested for test reports relating to the 1st and 2nd Orders from David.

8. On 20 December 2010, HCDL informed the Plaintiff that there were problems with the USBs in the 2nd Order. They included:

(a)  the silkscreen-printed logo on the USBs would dissolve in the fragrance when it come to contacted with the logo ;

(b)  a substantial number of USBs in the 2nd Order would bend, deform or explode at the heating point. It was recommended by HCDL that a new usage instruction manual should be introduced to warn users against having the fragrance coming into contact with the silkscreen-print logo;

9. As a result, a new instruction manual was issued by David but the cost was borne by the Plaintiff.

10. On 21 December, the Plaintiff summarized the problem in the 2 orders by email (content denied by the Defendant).

(a)  The 1st Order:

(i)  Late delivery;

(ii)  Breakage rate of about 40%;

(iii)  USBs bent/deformed at the heating point; and

(iv)  Some fragrance bottles were not filled with fragrance;

(b)  The 2nd Order:

(i)  The silk-screen imprinted logo was damaged by 100% fragrance oil;

(ii)  Some of the USBs exploded.

11. Another email was sent on the following day stating the initial findings made by Mrs Klitsie. First, plastic of Polypropylene (“PP”) would not react with fragrances and secondly, plastic of Acrylonitrile Butadiene Styrene (“ABS”) would be slightly softened. However, the USB melted within 7 hours when there was no sign that the part came into contact with the fragrances. The Plaintiff also asked that the Defendant should go through the same and to provide specification and documentation for the materials used for both batches.

12. On 3 January 2011, Mrs Klitsie wrote an email to David setting out a summary of a meeting held on 31 December 2010 at which design flaws and quality of plastic, especially on ABS being used. As alleged Mrs Klitsie had at the meeting pointed out that according to chemical literature, quite a lot of perfume raw material would have some reaction to ABS at room temperature and therefore ABS is not suitable as a material if it comes in contact with the fragrance/aroma.  She also stated for future action (i) the Plaintiff to recall the 2 Orders and return all remaining items to the Defendant; (ii) the Defendant was to test ARD-06 model and provide test results; (iii) the Defendant was to provide sample of ARD-15 for presentation to client.

13. Unfortunately there was no constructive communication between the parties after January 2011.

14. The Plaintiff’s Case against Defendant:

(i)  Misrepresentation :

David had represented to the Klitsies at the March Meeting that the ARD-11 Model could be used with “any fragrance”, but this turned out to be false as it was found that there was reaction between the USBs and a fragrance solution causing the USBs to crack, bend or break;

(ii)  Breach of Implied Terms :

The 1st and 2nd Orders were in any event not of merchantable quality nor fit for the purpose and the Defendant is therefore in breach of such implied term under the Sale Of Goods Ordinance (“SOGO”);

15. Summary of the Defendant Case:

(i)  Misrepresentation:

There was no misrepresentation made by the Defendant; if David had said “any fragrance could be used on ARD-11 Model”, he was referring to the state of fragrance, not the chemical composition or concentration of fragrance which was unknown to him; if there was misrepresentation, which is denied, there was no reliance by the Plaintiff ;and falsity had not been proved.

(ii)  Breach of Implied Term on Merchantable Quality:

The two Contracts were within the exceptions under s16(2) of SOGO, and therefore there was no implied term on Merchantable Quality:

a.  S16(2)(b ): the Plaintiff had tested the ARD-11 samples to find that they were in order,

b.  S. 16 (2)(c) for sale by sample:

(1) the Plaintiff had ample time in testing the samples;

(2) the defects if any, which is denied by the Defendant, would have been apparent on a reasonable examination of the sample;

(iii)  Sale by sample under s.17:

The two Contracts were contracts for sale by sample, if any defects found, which is denied by the Defendant, they corresponded with the samples sent to the Plaintiff.

(iv)  Breach of Implied Term on Fitness for Purpose under s.16(3) of SOGO:

There was no implied term on Fitness for Purpose because:

(a)  The Defendant did not know the real purpose for the purchase of the ARD-11 Model under the two Contracts, i.e. to be used with a fragrance oil containing certain chemical components, one of which might react with the ARD-11 Model

(b)  The Plaintiff being expert in fragrance should have the knowledge of how fragrance worked with plastic, also as it was the Plaintiff who provided the fragrance oil for use by the ARD-11 Model, it was not reasonable for it to rely on the skill or judgment of the Defendant;

(c)  The Plaintiff relied on the result of the CPL Test to place the two Orders and had at no time relied on the skill or judgment of the Defendant.

DISPUTED ISSUES

16. Based on the aforesaid contentions, the issues in the present case are as follows:

1.  What was the cause of the damage to the USBs;

2.  Whether the two Contracts were contracts for sale by sample

3.  Whether in Breach of Implied Terms

(a)  whether the goods in the two Orders were unmerchantable;

(b)  whether the exceptions under s16 (2) SOGO apply so that there was no implied condition on Merchantable Quality; and

(c)  whether the Plaintiff did rely or it being reasonable for the Plaintiff to rely on the skill and judgment of the Defendant under s. 16(3) SOGO regarding implied condition on fitness for purpose.

4.  Whether Misrepresentation made

(a)  whether David had represented to the Klitsies that any fragrance could be used on the ARD-11 Model in the sense that any fragrance can be used (“the Representation”);

(b)  what is the reasonable meaning of the Representation;

(c)  whether the Representation was false;

(d)  whether it was reasonable for the Klitsies to rely upon the Representation;

(e)  whether the Klitsies were induced by the Representation to make the purchase order.

5.  Assuming that the Defendant was in breach of the implied term, or guilty of making misrepresentation, whether the Plaintiff is entitled to claim for all the damages pleaded in the Amended Statement of Claim.

CAUSE OF DAMAGE

17. If the Plaintiff could not prove that the breaking of ARD-11 Model was caused by defects resulted from the production process or any process that was within the Defendant’s responsibility under the two Orders, the Defendant should not be made liable to pay any damages to the Plaintiff. 

18. The Plaintiff said that it was the reaction between the fragrant solution called Dipropylene Glycol Methyl Ether (“DPM”) that had reacted with the ABS in the plastic of the USBs and caused the USBs to break. The Defendant’s case was that there was no proof on the cause of the chemical reaction and that such chemical reaction could have been caused by defective formula/quality of the Plaintiff’s oil.

19. Two test reports were produced by the Plaintiff, one compiled by The Hong Kong Standards and Testing Centre Limited (the “HKSTC Report”), as appointed by the Plaintiff, the other one by the Plaintiff itself (“the Plaintiff’s Report”). The Plaintiff carried out tests in December 2010 and January 2011 whilst the HKSTC Report was finished in May 2011.

20. It is the case of the Defendant that the USBs in the two Orders were same as the sample which also contained ABS. The samples were tested by CPL with different kinds of fragrance unknown to the Defendant, the result was positive as far as ARD-11 Model was concerned (“the CPL Test”). It was submitted that the reaction might have been caused by the defective quality/ formula of fragrances.

21. In regard to the two Reports it was submitted for the Defendant that no weight should be attached to both Reports. And even if they were made admissible with full weight attached, neither of the two Reports set out the possible causes leading to chemical reaction and thus the breaking of the USBs. Further Mr Cheung submitted that the HKSTC Report was produced through Mr Chan as a witness on facts, Mr Chan however did not conduct or attend to the tests throughout. Further, as opposed to the tests carried out by the Plaintiff, there was no “control” set in which the USBs were not filled with any kind of fragrance and it was said that such omission might have rendered the result unreliable. Mr Cheung further submitted that the HKSTC Report was open to danger of bias because it was Mrs Klitise who assigned the job to STCHK; she also prescribed the procedure for the tests to be carried out. Relying on an email sent by Mrs Klitsie to Ms Tracy Pepe, Mr Cheung complained that while suspecting that the USBs could not survive 8 hours with 5 drops of oil [B1-2075] she gave instruction for 5 drops of oil to be used in the HKSTC tests.

22. As to the Plaintiff’s Report, Mr Cheung criticized the methodology of tests as well. It was said that there was no sound basis for applying that amount of oil during the tests. It was also said that the Plaintiff’s Report was not independent and was open to danger of being bias as the Plaintiff is a party to the litigation.

DISCUSSIONS ON CAUSE OF DAMAGE

23. The primary question remains to be what had caused the USBs to break, or if it was agreed that it was caused by chemical reaction, what was that and what had caused the chemical reaction. It is not disputed that the two Reports did not disclose any answers to the above questions. From the evidence before me, the only evidence that the damage to the USBs was caused by reaction between ABS and DPM came from Mrs Klitsie only. There was no independent expert opinion before the court to prove the same. Mrs Klitsie gave no evidence on how she had found that out as a matter of fact save for saying that she had relied on some undisclosed literature and did not say how she was qualified to give evidence on opinion. In the circumstances, I do not think the Plaintiff had proved that it was the reaction between ABS and DPM that had caused the damage to the ARD-11 Model in the present case. In fact it was her case that she had no knowledge on chemical reaction between fragrances and plastic. Although the two Reports could not disclose the cause, I however believe I should make a ruling on the reliability of the two Reports and the weight to be attached for what it is worth.

Weight to be attached to the Reports

(I) The HKSTC Report

24. The Plaintiff sought to produce the HKSTC Report which as I have found earlier contained no possible causes leading to the breaking of the USBs. The Plaintiff sought to produce it for the purpose of saying that the USBs broke when they were filled with the oil supplied by the Defendant (“said to be those in Set B”). Without challenging the admissibility of the HKSTC Report, the Defendant however said that it should not be relied upon and one of the main reasons being that the witness, Mr Chan, was not the one who carried out the test, any evidence given by him in court was not reliable including the HKSTC Report produced by him.

25. The Plaintiff asserted that full weight should be attached to the HKSTC Report as the evidence adduced therein corroborated with the test result of the Plaintiff’s Report. I cannot agree with this. First, there was no control set in the HKSTC Report; secondly, the Plaintiff did not carry out test on USBs with oil allegedly supplied by the Defendant; and thirdly the oil used on the USBs were different in the 2 tests.

26. Further, in the HKSTC Report, no test was carried out on the composition of the oil. So there was no independent proof to say whether the apple taste oil did come from the Defendant.  Primarily Mr Chan was not the one who conducted the test. He said he could not remember who gave him the instructions as to the test procedures, but he knew that all oils put on test came from the Plaintiff.  Under cross-examination he said that he had supervised the test and for that purpose he gave his advice as to how the test should be conducted but he would not be present all the time during the test.  But then he also said that it was his colleague who called the client to confirm the test procedures and his colleague worked with the client to work set down the test procedure. He could not tell which part was suggested by his colleague and which part was suggested by the client.

27. I must say that I find Mr Chan’s evidence not of good quality. Strictly speaking although he had affixed his signature on the front page he did not state the reason for his signing on the HKSTC Report; whether he signed to verify the content being truthful and correct or for any other reasons. In fact the HKSTC Report contained no statement of truth. Further although it appeared that he was the maker of the HKSTC Report, from his evidence, he only relied on information given to him by his colleague who conducted the test. There was no evidence showing on what material/records he prepared the HKSTC Report and whether such material/records were made contemporaneously with the occurrence or existence of the matters stated; whether he did check the progress to assure that the test procedure had been adhered to; and whether he had checked the progress and the result at material intervals before he affixed his signature on the HKSTC Report to perhaps verify its accuracy. In these circumstances, although I have no suspicion on the motive of Mr Chan, I agree with the Defendant’s saying that the circumstances in which the HKSTC Report was compiled was unclear if not unknown before this court, I agree that little weight should be attached to it and this court would not rely on the findings set out therein. 

(II) The Plaintiff’s Report

28. Again, the Plaintiff did not seek to produce the Plaintiff’s Report as expert report but on facts only. The purpose is to prove that the USBs broke during the test and therefore they were not of merchantable quality and it was untrue to say that the USBs could work with “any fragrance”. As mentioned the Defendant challenged its reliability saying that it was not independent and was therefore open to danger of being biased. I am of the view that as a report on fact, the possible unreliability arising from lacking independence is just the same as other evidence adduced by Mrs Klitsie. Since I have already found that the Plaintiff’s Report had failed to prove the cause leading to the breaking of the USBs when oil had been applied, I do not think that the test carried out on USBs filled with oil supplied by the Plaintiff could assist the Plaintiff, I do not think I need to consider those results. The Plaintiff relied on the result showing that empty USBs of the 1st Order still broke and that proved the unmerchantability quality of the USBs. But this still could not get around the fact that the test did not show the cause of the breakage of the USBs. Further, there is no evidence before me to prove that the methodology was appropriate. The state and the condition of the computers testing the USBs were unknown, the state and the condition of the USBs put under tests was unknown, the environment in which the tests was carried out was unknown. More importantly, the results were contradicted by the test result carried out by CPL where it was found that the ARD-11 Model worked well. In the circumstances, I would prefer the findings of the CPL test which was done by an independent third party and such result was accepted by the Plaintiff as reliable.

29. Last but not the least, according to what was put in the Plaintiff’s Report, the tests were carried out by Marco Cheng and Suki Siu, employees of the Plaintiff. Mrs Klitsie was the one who prepared the Plaintiff’s Report. Again those who carried out the test were not called to give evidence.

30. Can the Plaintiff rely on the Plaintiff’s Report to say that those were the empirical results during the test? I think not. I am of the view that having failed to prove the cause of the chemical reaction, the Plaintiff cannot rely solely on the breaking of the USBs to say that the Defendant should be liable to the Plaintiff’s damage. I therefore reject the findings of the Plaintiff’s Report.

31. As I have found that there was no proof on the cause of the damage, and the two Reports would not be relied on, the Plaintiff claim must fail.  For completeness however I would apply the relevant provisions in SOGO and assess the evidence before me to see whether the Defendant should be liable for damages suffered by the Plaintiff under SOGO.

BREACH OF IMPLIED TERMS

Merchantable Quality

32. Was the Defendant in breach of s.16 (2)? Merchantable quality is defined in SOGO under s. 2 (5).

(5) Goods of any kind are of merchantable quality within the meaning of this Ordinance if they are-

(a) as fit for the purpose or purposes for which goods of that kind are commonly bought;
(b) of such standard of appearance and finish;
(c) as free from defects (including minor defects);
(d) as safe; and
(e) as durable,

33. The Plaintiff’s case is that the USBs were not of merchantable quality because they do not conform with s2 (5) (a), (c), and (e). Mr Hoe for the plaintiff relied on the two Reports and the evidence of the Klitsies to say that the goods were not free from defects and not durable. I am of the view that defects here must be referring to defects which could be attributable to the Defendant, be it in the process of manufacturing or other process undertaken by it. As I have made my ruling that the Plaintiff has not proved the cause of the breaking of the USBs, I do not think the Plaintiff could successfully prove on balance of probability that the goods had failed to comply with s2(5). 

34. Even if I am wrong in the above finding, this court would still have to be satisfied that the Defendant could not invoke the exception provisions under s.16 (2).

16 (2): Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition:

(a) as regards defects specifically drawn to the buyer's attention before the contract is made; or
(b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal; or (Amended 85 of 1994 s. 4)
(c) if the contract is a contract for sale by sample, as regards defects which would have been apparent on a reasonable examination of the sample. (Added 85 of 1994 s. 4)

35. The Defendant’s case is that since there had been examination on the goods before sale (s.16(2) (b)) and the 2 Orders subsequently made were contracts for sale by sample (s.16(2) (c)), the implied condition under s.16 (2) of SOGO does not apply. The Plaintiff’s case on examination is that since the delivery of the 1st Order was late the Plaintiff did not have time to inspect the goods before they were dispatched to customers. The point in s.16(2) (b) is the buyer examines the goods before the contract is made, not after delivery.

36. There was in fact a test carried out by CPL in April 2010. Subsequent to the test, the Plaintiff was informed by CPL that the Ultrasonic needed modification and the ARD-11 Model worked well. Later on the Plaintiff placed the 1st Order in May 2010. Although the Plaintiff’s case on the test was that it was for the Rebranding Exercise and not for placing of the 2 Orders, I am of the view that the Plaintiff did rely on the result in deciding whether and what to buy. I am of the view that assuming that the test was for a different purpose, it is unbelievable that the Plaintiff did not draw reference to the test result when considering whether and what to purchase. Further this was not the Plaintiff’s pleaded case. In paragraph 6 of the Amended Statement of Claim, it was clearly pleaded that “Since the tested ARD-11 samples worked well and came within the Plaintiff’s budget constraint, the Plaintiff decided to use ARD-11 as their promotional items at the Retail Expo 2010.” In the light of the pleaded case, it does not lie in the mouth of Mrs Klitsie that the test had no relevance to the subsequent purchase. I am of the view that for the purpose of s.16 (2)(b), the Plaintiff had examined the USBs before the two Orders were made and therefore the Defendant can rely on s16(2) (b) to say that there was no implied condition.

37. In the circumstances, I do not think I need to discuss whether the contracts were contract for sale by sample, I find it sufficient for me to determine there was no implied condition on merchantable quality as I am satisfied from evidence before me that the exception provided under s.16 (2)(b) is available for the  Defendant to rely on.

Fitness for Purpose

38. Section 16(3) of the SOGO provides that:

“Where the seller sells goods in the course of a business and the buyer expressly or by implication, makes known to the seller any particular purposes for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller’s skill or judgment.”

39. As mentioned, for reasons I have set out in paragraph 36 above, I am of the view that Plaintiff relied on its own skill and judgment when deciding to place the 1st Order and not Defendant’s skill or judgment. 

40. It is true that the Defendant was given to know that the Plaintiff would apply its own fragrance oil onto the USBs. Evidence however shows that the Plaintiff had not made it known to the Defendant as to the specific type of fragrance, oil, solvent, scent to be used to make the specific fragrance for its own customers.  I am of the view that it is not reasonable for the Plaintiff to rely on the seller’s skill or judgment as the Defendant was left in the dark in relation to these important aspects. In Sure Woollen Yarns Company Limited and Global Apparel Group Ltd DCCJ 13107/2001, HHJ CB Chan as she then was, had stated in paragraph 41 that:

“In this case, it is clear that the Defendant sought a quality yarn sample from the Plaintiff and relied on its own judgment as regards whether the quality was suitable for the purpose for which they would use it. Having approved the quality of the yarn sample according to its own judgment the Defendant did not rely on the Plaintiff’s skill or judgment. In the present case, all that the Plaintiff was aware of in relation to the purpose for the yarn is that the yarn would be knitted into garments. However the evidence showed that it was not made known to the Plaintiff as to the specific type of garments or the type of market in which the goods would be sold or whether the goods would be high quality goods. Such being the case even were there no quality sample approved by the Defendant prior to the Purchase Order, which is not the case, it is not reasonable for the Defendant to rely on the seller’s skill or judgment as the Plaintiff was left in the dark related to these important aspects related to the purpose for the dyed yarn. I am of the view that for the reasons aforesaid, section 16(3) of the Sale of Goods Ordinance does not apply to this case.”

41. To conclude, from the evidence in the present case, I am of the view that the exception in s. 16(3) of SOGO does apply and therefore there is no implied condition in regard to fitness for purpose.

MISREPRESENTATION

Whether the Representation had been made

42. On this issue the Klitsies said that David had told them at the March Meeting that the USBs “can be used with any fragrance” (“the Representation”). They said that “any fragrance” means any fragrance or all fragrance in the world. They understood from the Representation that the ARD-11 Model could work with “any fragrance” in the world.  In reliance on the Representation, they decided to place the 1st Order for those USBs.

43. The Defendant’s case in this is that even the Representation had been made, there was no misrepresentation. The pleaded case for the Defendant was that David had said at the March Meeting that ARD-11 Model could be refilled with “other usual or common fragrance, aroma or scent including perfume, fruit, flower, oil etc.” and that David had not made any representation to the Klitsies that the Aroma USB’s could be refilled with liquid substances/solution of any concentration, formula or chemical composition without the Plaintiff’s need to carry out tests on the samples.

44. In Court the evidence of David was that at the March Meeting, he had presented various models of aroma USBs to the Plaintiff. The first model he introduced was ARD-14 which would not contain fragrant in liquid form but in the form of EVA plastic (a scented rubber). The next model introduced was Ultrasonic. What he said about this model was that it could only work with fragrance of low viscosity. When he came to introduce the ARD-11 Model, he recalled what he had said was “this could work with any fragrance regardless of viscosity, whether it was an oil or perfume, and whether it had scents of coffee, bakery, lavender, rose or jasmine”. David said the he had never warranted or claimed that the USBs could be used with “any fragrance or any fragrance in the world”, nor had he said any fragrance of any chemical without tests being carried out before hand. Further when he said the words “any fragrance”, he did not have in mind the chemical or technical aspect of the oil such as the solvent to be used, but rather, he was thinking of its state (e.g., its viscosity), concentration or price.  He said that although he did not specifically and expressly ask the Klitsies to test the samples, having given the samples to them, he expected that they would tests the USBs with their own oil.

45. Further the Plaintiff complained that David had failed to inform the Plaintiff that when DPM was used as a solution of the fragrance it would react with the material of the USB. It was said that this reinforced David’s misrepresentation.

Whether there was Reliance

46. The Plaintiff’s case was that it had relied on the Representation to place the two Orders. The Defendant said that as a scientist and scent consultant, having tested the sample and found that it worked well without chemical reaction, Mrs Klitsie could not have relied on David’s Representation nor was it reasonable for her and the Plaintiff to rely on it.

DISCUSSION AND ANALYSIS ON MISREPRESENTATION

47. In the present case, to establish that there was actionable misrepresentation, the Plaintiff must prove on balance of probability that (i) a representation had been made; (ii) there was reliance on such representation when entering in a contract; (iii) such representation was false.

48. There is not much dispute as to whether the Representation had been made at the March Meeting but as to how the Representation was made and the true meaning of it. In this regard, I find David’s version more believable. The version suggested by the Klitsies was vague and out of context. It is not reasonable for the Representation to have been made and accepted as alleged in a business setting. The Klitsies almost could not recall any other thing said by David apart from the Representation. It was a meeting where David was to introduce his product. He did not introduce just one but 5 in total. The 5 models had different features and would work with fragrance of different state or viscosity. I accept the evidence of David that if he had said the ARD-11 Model could work with “any fragrance”, he was not referring to all fragrances in the world but to any fragrance regardless of viscosity or different type of scent. This was said in the context of telling the state of fragrance by which different models could be used, for example, whether in solid form or liquid form, and if it was in liquid form, its viscosity.  I accept that he said that to tell that ARD-11 Model could be used with a wider range of oils as compared to Ultrasonic model which could work only with oil of low viscosity.

49. Further I find the interpretation of the Klitsies not reasonable because, as scent and fragrance expert, they admitted there were millions of fragrances in the world. Mrs Klitsie herself was an expert in creating scent by combining wide varieties of fragrances with wide varieties of solvent not to mention the varieties in scent and oil. I am of the view that even if the Representation had been made in the manner and in the sense as alleged by the Plaintiff, the Klitsies should not have formed the view as alleged but be aware that it could not have meant that the ARD-11 Model could be used with “any fragrance in the world”.

50. Mr Klitsie said that as manufacture or designer, David should,or was assumed to, have carried out test regarding the chemical reaction between fragrance and the plastic of the USBs. I do not accept it was reasonable to assume that David had tested his USBs against all fragrances in the world when they admitted that there were millions kind of fragrances. I find the Plaintiff’s interpretation of the Representation not reasonable.

51. To conclude, having considered the evidence before me, I find it not reasonable for the Plaintiff to rely on the Representation even if it was their interpretation that what David had said meant that the ARD-11 Model could be used with any fragrance in the world. As an expert in scent with a degree in Chemistry, Mrs Klitsie should be alert to chemical reaction between plastic and fragrances and solutions. It would only be reasonable for her to make specific enquiry with the Defendant or to carry out tests on the USBs with her own fragrances before order was made. If she was to carry out any test, the test should cover the chemical aspect instead of only on the aspect as to how the scent would perform through the work with the USB. In fact, when being cross-examined, Mrs Klitsie agreed that if there were any problem with the USBs, it could also be picked up by the performance tests on the scent.

52. Further, in the present case, as mentioned above, David had been asked to bring samples to CPL for tests and result was made available in April 2010. The 1st Order was made on 20 May 2010 which was two months after the March Meeting and one month after the result of the test was made available. I do not want to repeat what I have said in paragraph 36 above, but I would like to reiterate that it was clearly pleaded that “Since the tested ARD-11 samples worked well and came within the Plaintiff’s budget constraint, the Plaintiff decided to use ARD-11 as their promotional items at the Retail Expo 2010.”  Recorder Kwok S.C. (as he then was) has in Lee Li And Fung Sek Hang v Cheung Chi Keung and others HCA 3799/1997 held that after having inspected the property carefully on at least 3 occasions,…..the purchaser clearly relied on what they saw with their own eyes and could not complain about the Property being too small. In support of his such holding, he quoted Hartlelid and Hartlelid v Sawyer and McClocklin Real Estate Ltd [1977] 5 WWR 481 which the learned editors find support in the proposition that “where an estate agent’s particulars misrepresented the size of a garage, and the buyer had examined the whole property thoroughly on two separate occasions, it was held that the misrepresentation had had no effect.” See Chitty On Contract 31^st Ed., Volume 1,paragraph  6-035.

53. The Plaintiff’s case on the 2^nd Order was even weaker. When the 2nd Order was made in November 2010 it was 8 months after the Representation and 6 months after the 1^st Order took place. Although denied by the Defendant, it was the Plaintiff case that there was at least one complaint in August 2010 that the case of the USB broke and by October 2010, there were other complaints that a substantial number of USBs in the 1^st Order were broke, cracked or deformed.  Mrs Klistsie insisted that she had brought the deformed USBs to see David and requested David to improve his product. According to her, David had promised to improve (which is denied by the Defendant) and on the basis of such promise, she placed the 2nd Order.  In these circumstances, from the Plaintiff’s own version, I do not think it is entitled to say that it had relied on the Representation when the 2nd Order was made. Further, if it is the case that David not been informed of the complaints and no promise had been made as alleged, it is more probable than not that the 2^nd Order was made by the Plaintiff on the satisfaction of the 1^st Order.

54. More over since there was no evidence to prove the cause of the problem with the USBs, if they ever exist, the Plaintiff had failed to prove that the Representation was false.

55. To conclude, I find that on balance of probability the Plaintiff had not proved its allegation on misrepresentation against the Defendant on the two Orders.

A Note on Credibility

56. As could be seen from my findings above, most of the issues could be resolved with undisputed facts butI have made my finding on credibility as and when necessary. Submissions have been made by counsel for both parties on credibility in areas including whether David had asked the Plaintiff to test the USB samples at the March Meeting; whether a substantial number of USBs in the 1st Order broke, bent or cracked; whether David had been informed of these complaints with deformed products shown to him and whether David had been asked and had promised to improve the quality of the ARD-11 Model.  I believe it would be desirable if I make my findings here for completeness.

57. Having heard evidence and viewed the relevant correspondences, I resolve these issues in favour of the Defendant. I find it quite illogical that if there were such substantial number (40%) of USBs from the 1st Order broke there was not one single correspondence before December 2010 to document the unsatisfactory performance of the Defendant nor was there any feedback or complaint in writing from any of the customers/staff  except the one made in August 2010 mentioned above. It would be illogical, if this had truly happened, that the Plaintiff would not have got the ARD-11 Model from the 1^st Order to be tested and gave the customers some explanation in good time. And, if this had truly happened, it would be illogical if the Defendant was not asked to find out the problem instead of just being asked to improve the product without any specific suggestions. From evidence of Mrs Klitsie it seems that at the time she allegedly asked David to improve the problem, she had no specific possible cause of the problem in mind.  There were no follow up enquires to see whether David had found out the cause to the problem.  It would again defy common sense that the 2^nd Order was not inspected specifically to see whether David had honoured his promise, what had indeed been improved and whether the improvement was effective. It would be against commercial sense that if the 2nd Order was placed on the basis of the promise of David to improve his product, there was no documentation for such promise. Further, in reply to a complaint that the USBs from the 2nd Order melted, she told Kenny Hui there was never “such experience” before.

58. When the evidence was put together, the inference I could draw is that there was no such situation of “a substantial number of USBs in the 1^st Order broke, cracked or bent” nor was there such a promise from David that he would improve the product. I find Mrs Klitsie’s evidence exaggerating. In fact there was another incident that I find her evidence also exaggerating and that is the complaint from Kenny Hui. Mrs Klitsie said Kenny Hui was screaming in anger and told her that the USB “exploded”. But what I could read from the relevant correspondence was that Kenny Hui complained that the USB melted. “Melted” is very different from “exploded” in all sense. In fact, Mrs Klitsie herself had never quoted the word ‘exploded” in her email to Kenny Hui. If explosion was the subject of the complaint, I do not think Mrs Klitsie should have left it out. I do not accept that Kenny Hui had ever used the word “exploded”.

59. Further, Mr Hoe criticized David for being evasive when asked whether he had asked the Plaintiff to put the USBs on test. It was said that he was asked 4 times on the same question and yet he refused to give a straight forward answer. I have read the summary of evidence helpfully set out by Mr Hoe. With respect, I do not form the view as he did. David might not be focused when giving his answers but he made the point that when the Klitsies said they would put their own oil to the USBs, he left with them samples for them to do their own job. I do not find this attitude offensive at all. As a reasonable businessman with the plan to use their own invention on a product supplied by others, the very natural thing to do is to test the performance of the marriage of the two. I do not think explicit suggestion is necessary. More importantly, test had been carried out by CPL.

CONCLUSION ON LIABILITY

60. The Plaintiff alleged that the USBs in the two Orders broke, bent or cracked and therefore were not of merchantable quality nor fit for purpose. As I have mentioned above, the Defendant would not be liable if the Plaintiff could not prove that such problems were caused by the manufacturing or other process carried out by the Defendant. It was said that there was chemical reaction between plastic and DPM but there was no reliable proof on this. I refuse to give any weight to the HKSTC Report and the Plaintiff’s Report because I find them not reliable.  Further both Reports had failed to suggest the cause of problem and they were not consistent with the CPL Report. Having viewed the evidence, I am of the opinion that the Plaintiff had failed to prove the cause of the problems if such problems ever existed. In the circumstances, there was no evidence proving the quality of the USBs.

61. Further, I find that the Plaintiff could not seek assistance from s 16(2) and (3) of SOGO because of the exceptions provided thereunder; mainly because the Plaintiff had put the samples under test by CPL. Finally, I am of the view that the Plaintiff had failed to prove misrepresentation as I find the Representation had not made in the sense as alleged and that there was no reliance upon the Representation by the Plaintiff when the two Orders were made. For these reasons, the claim by the Plaintiff must be dismissed.

QUANTUM

62. The Plaintiff’s claim is adjusted to $339,683.68 at the conclusion of the hearing. If I am wrong in my findings and that the Defendant should be liable for the loss suffered by the Plaintiff, I find the claim by the Plaintiff exaggerating.

Goodwill : $93,554

63. It is submitted that the Plaintiff suffered actual losses as a consequential loss under the tortuous measurement arising out of the misrepresentation action. It was however never clearly set out in the pleading and the witness statements as to how the misrepresentation had caused the Plaintiff to enter into the Rebranding Exercise engagement. There was simply no evidence on causation. Further I am not convinced that damages on goodwill are measurable in the time spent on the Rebranding Exercise by Mrs Klitsie. 

Marketing Costs: $108,382.38

64. Mr Hoe submitted on behalf of the Plaintiff that it was estimated that the employees (other than Suki and Marco) at the Plaintiff’s company worked on the ARD-11 project for about 21.13% of the time between April 2010 and January 2011 collectively. Assuming that this ARD-11 project means the Rebranding Exercise, the claim under this head is disallowed for same reason set out in paragraph 63. 

Administration Costs: $34,513.92

65. This is the staff costs of Suki and Marco’s work on the ARD-11 project. The item is refused for reasons same as those set out in paragraphs 63 and 64.

Manpower Costs : $7,174.80

66. This is staff cost for carrying out test by the Plaintiff for the Plaintiff’s Report. This is to be dealt with as costs instead of damages. This should not be allowed.

Expenditure for Expo : $9,450

67. This claim arose from delay of delivery of 1^st Order. It was said that the delivery was made 1 day after the expo had started and therefore the Plaintiff claims one day rental of the booth out of 3 days. The 1^st Order, according to the Plaintiff was to be given away as promotional items and not sale for profit. There is no evidence showing that the Plaintiff had decided to take part in the expo because of the 1^st Order. In the circumstances, neither damages nor causation has been proved. This head shall not be allowed.

Rental costs for storage of returned goods: $5,645

68. The rental was for the office premises of the Plaintiff and there was no proof that extra costs had been incurred on such storage. This claim is refused.

Utilities: $230

69. The Plaintiff says that this is 15 days worth of electricity charge for testing the USBs. Again this is to be dealt with as costs instead of damages.

Website Costs : $802.94

70. According to the plaintiff service had been obtained for web site development and design service for two months in May and June 2010 and it now asks for damages equivalent to 21.13% of the total costs.  Seems this was expenses incurred under the Rebranding Exercise. For reasons same as those set out in paragraph 63 above, the claim under this head is not allowed.

CONCLUSION ON DAMAGES

71. It is my view that had the Plaintiff been successful in proving the liability of the Defendant on breach of contract and/or on misrepresentation, the Plaintiff should be entitled to  purchase costs of the two Orders and the oil, profit loss and recall costs, total being $79,930 ($2,400+$31,950+4,864+$38,186+2,530).

COSTS

72. As the Plaintiff’s claim is dismissed, I see no reason why costs should not follow the event. I order the Plaintiff do pay the cost of the Defendant to be taxed if not agreed. This is an order nisi to become absolute within 14 days if no application is made to vary the same.