KIN HING DOOR & WOOD CO LTD v. STRONG RICH INTERNATIONAL LTD

DCCJ 227/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 227 OF 2008

____________

J U D G M E N T*

1.  This is a dispute arising out of a contract for the sale and purchase of PVC folding doors between Kin Hing, the Plaintiff, and Strong Rich, the Defendant. Each party alleges wrongful repudiation of the contract on the other’s part; and claims damages against the other. Just before the trial, Strong Rich, which had been legally represented, became litigating in person.

Background

2.  China State Construction (HK) Ltd (“China State”) and Yau Lee Construction Company (“Yau Lee”) were the main contractors of the construction projects at Choi Wan Estate and Un Chau Estate respectively under the Hong Kong Housing Authority (“HKHA”) in 2006-2007.  They subcontracted the supply and installation of doors of the units in the Estates to Kin Hing.

3.  Since 2006, Kin Hing and Strong Rich had had discussion of the sale and purchase of PVC folding doors for the above projects.  Samples of the folding doors having been supplied for approval by the main contractors on behalf of HKHA, Kin Hing and Strong Rich eventually entered into a written sales contract dated 1 June 2007 (“the Contract”).

4.  By the Contract, Strong Rich agreed to sell and Kin Hing agreed to buy 1,774 sets of PVC folding doors for the 2 projects at the total price of HK$339,831.60.  The Contract contained, among others, the following terms:

           Clause 1

“If the buyer confirm to replace the small plastic lock opener to plastic rotary opener of diameter 32 mm. 50% of a tooling cost of HK$12,168.00, i.e., HK$6,084.00 shall be borne by the buyer and 50% shall be borne by the seller.

50% deposit shall be paid upon signing of this contract, balance to be paid upon completion of the sample.

Delivery Time of sample opener: 40 days.”

Clause 2

“Payment terms of 1,774 sets of doors:-

30% - upon signing of this contract.

……”

Clause 3

“Delivery: suit the progress of the projects scheduled as November and December 2007. The Seller agrees no extra charge claimed due to schedule revised by buyer or Main Contractor, should any change for delivery, the buyer should give at least 30 days notice to Seller. The Seller shall be responsible for all consequential damages of delay. However, the delay shall be one time and not exceeding 30 days.”

Clause 6

“This Contract is subject to HKHA’s approval of sample and mock up for this project.”

Clause 7

“The Seller should provide with Shanghai, China manufacturer’s valid ISO Certificate, C/O, DN and drawings (if any) for HKHA approval.”

Clause 8

“The Seller should be responsible for reply to quality/technical query from main contractor or HKHA.”

Clause 9

“The Seller agrees to provide technical support for correct installation to the buyer free of charges.”

5.  The parties signed the Contract on 4 June 2007.  Upon that, Kin Hing paid Strong Rich HK$101,949.48 being 30% of the contract price for the folding doors pursuant to clause 2; and HK$3,042 being 50% of half of the tooling cost for the 32 mm rotary opener (known in Chinese as擰手) pursuant to clause 1.  The total sum paid was HK$104,991.48.

6.  According to the pleading, Kin Hing says that Strong Rich had repeatedly failed and refused to supply samples of the doors and the rotary opener to meet the approval of the main contractors on behalf of HKHA.  Kin Hing considered that as repudiation of the Contract and eventually contracted another supplier for the PVC folding doors needed.  Kin Hing now claims for the return of the money paid to Strong Rich and damages for loss as a result of Strong Rich’s breach.

7.  Strong Rich’s pleaded case is that the rotary opener of the folding doors was agreed to be 40 mm in diameter.  It was Kin Hing which has failed, neglected or omitted to confirm or request to replace the rotary opener to 32 mm.  It was also Kin Hing’s duty or obligation to obtain or procure HKHA’s approval of the samples supplied by Strong Rich; but Kin Hing has failed or neglected or omitted to inform HKHA of the origin of the opener and to obtain approval of it from HKHA.

8.  Strong Rich contends that it was Kin Hing which has wrongfully repudiated the Contract. Strong Rich claims for the balance of the contract sum that it would have received from Kin Hing.

9.  As to the claim, Strong Rich contends that Kin Hing has failed to return any of the samples supplied.  The claim of Kin Hing is also said to be wholly unconnected to Strong Rich, unreasonable and remote; and Kin Hing is said to have failed to mitigate its loss.

10.  Parties have submitted their agreed list of issues, which I shall discuss under the following four parts:

(1)  the agreement;

(2)  the doors and the rotary opener;

(3)  the party in breach; and

(4)  the loss and damage.

The agreement

11.  Clause 6 provides that the Contract was subject to HKHA’s approval of the sample and mock up for the projects.  There is no dispute that these samples for the mock up at the sites had to be supplied by Strong Rich. The obligations of Strong Rich in connection with HKHA’s approval were set out in clauses 7 and 8 of the Contract (above).

12.  It should be clear that Kin Hing does not actually say that it was Strong Rich that had to obtain approval from, or to reply to the technical query from, HKHA or the main contractors directly.  Its obligation was to supply the samples as requested by the HKHA through the main contractors.  Kin Hing would forward the samples supplied by Strong Rich to the main contractors.  If accepted, the main contractors would obtain the approval from the architect of HKHA.

13.  The real dispute is whether it was Strong Rich that has failed or refused to supply the samples of the folding doors and the rotary opener as requested; or whether it was Kin Hing that has failed or refused to submit the samples to the main contractors for approval on behalf of HKHA.

The doors and the rotary opener

14.  Strong Rich refers to a purchase order dated 21 April 2007 from Kin Hing.  In that purchase order, the rotary opener of the doors was specified to be 40 mm in diameter.  This forms the basis for its allegation that that was the agreed diameter of the opener of the doors to be supplied.

15.  According to Hwang, director of Kin Hing, her company and Strong Rich began discussion of the intended order for the PVC folding doors for the 2 projects since early 2006.  Various sizes of the rotary opener of the doors had been proposed and studied.  Samples had been submitted.  Wong did not deny that her company did place the purchase order dated 21 April 2007.  But that, according to her, did not contain or evidence the concluded contract between the parties.

16.  That purchase order expressly required Strong Rich to signify its agreement by signing and returning the document to Kin Hing.  That never happened.  Strong Rich also did not draw up any contract for that order.  The parties never acted upon that purchase order either.  Strong Rich never issued any invoice for payment in accordance with the payment terms in the purchase order.  Kin Hing also never paid the deposit pursuant to that purchase order.

17.  The written confirmation by China State in early May 2007 clearly instructed Kin Hing to proceed with the 32mm diameter design of the rotary opener.  Kin Hing accordingly conveyed such instruction to Strong Rich in writing on 19 May 2007; and requested for actual samples (or “實樣樣板”) of the 32mm rotary opener for examination by the architect.  The Contract came afterwards.

18.  It is clear from the evidence that the Contract had superseded Kin Hing’s purchase order issued in April 2007.  The quantities of the items ordered under the purchase order and the Contract were different.  Under the Contract, doors were also ordered for phase IV of the project at Un Chau Estate for the first time.  The unit price of the doors according to the purchase order and the Contract, and hence the total contract price, were also different.

19.  The fact was that even the sources of supply of the doors contemplated by the parties at the time of that purchase order and that at the time of the Contract were different.

20.  There is no dispute that by the time of the Contract, the doors and hence the samples that were submitted to the HKHA had been sourced from a manufacturer in Taiwan.  Strong Rich then informed Kin Hing that the source of the doors had to change from Taiwan to another manufacturer in Shanghai, the Mainland.  By letter dated 1 June 2007, Strong Rich formally informed Kin Hing of the change.

21.  In court, Cheng, the managing director of Strong Rich, explained that it was due to Kin Hing’s pressure to lower the price that Strong Rich had to change to source the doors from Shanghai instead of Taiwan.  First, such explanation was not apparent from the contemporaneous documents, the pleading or the witness statement.  Second, the unit price under the Contract was actually higher than that under the purchase order in April 2007.  Last, why the source of the doors was changed is not really relevant.  The standard and quality expected of the doors to be supplied did not change.

22.  Indeed, by the letter dated 1 June 2007, Strong Rich found it necessary to assure Kin Hing, and hence the main contractors, that the manufacturer in Shanghai was its affiliated factory; and the quality of its products would be the same as those from Taiwan.  This explains the provision in clause 7 of the Contract whereby Strong Rich was to provide the Shanghai manufacturer’s valid ISO certificate, certificate of origin, design notes and drawings of the doors needed for HKHA’s approval.

23.  By the time of the Contract, Strong Rich has supplied samples of the 32mm rotary opener.  But as confirmed by Cheng, they were merely made of cardboard.  Those cardboard-samples were produced during the trial.  As mentioned above, pursuant to the instruction of the main contractors, Kin Hing requested Strong Rich in May 2007 for actual samples of the 32mm rotary opener.

24.  During the trial, Cheng gave evidence of the alleged telephone conversation with Mr Wong, a manager of Kin Hing; and suggested that this Mr Wong confirmed with him that Strong Rich could go ahead with the 40mm rotary opener design instead of the 32mm size. This was never mentioned in any contemporaneous documents, pleading or his witness statement.

25.  In fact, it was the adoption of the 32mm rotary opener that caused Strong Rich to request Kin Hing to be responsible for half of the tooling cost for making the new opener.  This brought about the provision of clause 1 in the Contract.  Upon signing of the Contract on 4 June 2007, Strong Rich indeed issued its invoice and demanded Kin Hing to pay not only the 30% contract price but also the 50% deposit of half of the tooling cost pursuant to clause 1.  As mentioned above, Kin Hing made the payment accordingly.

26.  The evidence of Hwang is in line with what the documents tell.  Strong Rich’s pleaded case that the diameter of the opener of the doors was agreed between the parties to be 40 mm and that the change to 32 mm was never confirmed is against the evidence and must be rejected.

The party in breach

27.  So far, Strong Rich had supplied cardboard-samples of the 32mm rotary opener.  Since the request for actual samples were made until after the Contract was signed, Kin Hing had been repeating the request to Strong Rich.  The correspondence during this period evidence that.

28.  On or about 4 July 2007, Strong Rich delivered new samples of the doors sourced from Shanghai.  There is no dispute that the rotary opener of these samples was still 40mm.  Nevertheless, Kin Hing forwarded the samples to China State and Yau Lee on the following day.

29.  Cheng queried why the receipt of the samples was acknowledged, if Kin Hing was not satisfied with the doors or the rotary opener.  But acknowledgement of receipt was far from being an indication of approval.  Further, Hwang explained in her statement that that was done out of concern about further delay.  Meanwhile her company would follow up the matter with Strong Rich.

30.  Kin Hing indeed did that; and Strong Rich also replied.  By its letter dated 5 July 2007, Strong Rich referred to the purchase order placed by Kin Hing on 21 April 2007 and argued that the diameter of the rotary opener should be 40mm instead of 32mm.  It suggested that to change the size of the rotary opener, Kin Hing had to pay 50% of the tooling cost (HK$6,084).  However Strong Rich advised against such change so as to save the extra tooling cost.

31.  As mentioned above, upon the signing of the Contract, Kin Hing also paid 50% of its half share of the tooling cost of the 32mm rotary opener pursuant to clause 1 of the Contract and Strong Rich’s request.  By its letter dated 5 July 2007, Strong Rich somehow ignored that fact.

32.  Those new samples of the door sourced from Shanghai met with the main contractor’s adverse comments.  On 11 July 2007, Kin Hing received the written complaint from China State about colour discrepancy between the door samples previously approved and the new samples from Shanghai.  It demanded a quality assurance proposal.  On 19 July 2007, Kin Hing conveyed such complaint to Strong Rich and demanded a substantive reply in 7 days.  Strong Rich was also reminded of the deadline for delivery of the doors on 5 December 2007.

33.  In court, Cheng suggested that his company did not understand what quality assurance proposal was expected of his company.  But he made no enquiry about that.  I wonder if he had ever intended to do so.  In its reply dated 26 July 2007, Strong Rich actually denied the colour discrepancy of the door samples and simply asked Kin Hing and China State to trust it on the basis of its experience.  If China State refused to accept the doors sourced from Shanghai, Strong Rich offered to source the doors needed from Taiwan but would ask for a higher price.

34.  In its letter dated 27 July 2007, Kin Hing complained about the contesting and uncooperative attitude of Strong Rich.  Strong Rich was demanded to confirm, pursuant to the Contract, by 28 July 2007 that, among other things, the quality and colour of the doors sourced from Shanghai would be the same as or approximate to those sourced from Taiwan.

35.  On 27 July 2007, Strong Rich delivered another batch of door samples to the Un Chau Estate site.  The opener was still 40mm.  Besides, the screw positions, that Strong Rich was supposed to have rectified by then, were still problematic.  By email on the following day, Kin Hing conveyed its complaint to Strong Rich.

36.  A meeting was held on 30 July 2007 between Kin Hing and Strong Rich to discuss the quality of the samples of the door supplied.  There is no dispute about that.  However, Strong Rich wrote to Kin Hing on the same day requesting Kin Hing to press ahead with obtaining the HKHA’s approval of the samples of the door sourced from Shanghai as they were.  Strong Rich made clear in the letter that pending that, it would not further discuss the delivery standards of the doors.

37.  On the following day, Kin Hing replied and again complained about the attitude of Strong Rich. A set of the door quality confirmation checklists (or “富强膠摺門品質確認單”) was enclosed, which set out in detail the particulars of complaints about the samples of the door supplied with illustrating photographs.  Among the complaints, the need for 32mm rotary opener was reiterated.  The thickness of the door sourced from Shanghai, according to the samples, was also found to be 2mm thinner than that of the samples from Taiwan previously approved.

38.  In that letter, Kin Hing demanded Strong Rich to confirm by 5 pm that the quality problems would be rectified.  In the meantime, Kin Hing would refrain from pressing ahead with seeking the main contractors’ approval on behalf of HKHA.  In default, Kin Hing would take that Strong Rich was not ready and willing to abide by the Contract.  In that case, Strong Rich should return the money paid by Kin Hing pursuant to the Contract.

39.  As stated in that letter, Hwang explained in court that performance of the contractors in HKHA projects are subject to an evaluation points system.  Frequent rejection of samples submitted could lead to deduction of points adverse to the main contractors or Kin Hing.  In view of the history of rejections and complaint by the main contractors, Kin Hing was reluctant to take further risk of submitting apparently non-complying samples of the door in hands.

40.  On about 7 August 2007, Kin Hing received Strong Rich’s reply together with comments written on the checklist.  None of items of complaint in the checklist was acknowledged.  Strong Rich made clear that any request in respect of the size of the rotary opener and the thickness of the door would not be acceded to unless at an extra cost to be borne by Kin Hing.  In the same letter, Strong Rich also suggested that the money paid by Kin Hing could be returned, if Kin Hing would return in 3 days all the samples previously supplied.  Further, HK$12,168 would be deducted as the tooling cost of 40mm opener.

41.  On the same day, Kin Hing put on record that due to Strong Rich’s repudiation, the Contract was terminated.  Kin Hing demanded for the return of the money paid and reserved the right to claim against Strong Rich for the consequential loss and damage. On the following day, Kin Hing undertook that the samples would be returned, but Strong Rich should also return the cost of those samples in the total sum of HK$2889.60 that Kin Hing had previously paid.

42.  As stated in the above reply, Hwang explained in court that some of the door samples supplied by Strong Rich had been installed as mock up at the sites.  Consent from the sites needed to be obtained for their dismantling and removal.  That, according to her, was eventually done and the samples were returned to Strong Rich by October 2007.  Some samples were in fact purchased and paid for by Kin Hing; and therefore not liable to be returned.  The relevant invoices evidence that.

43.  Cheng explained that the manufacturer in Shanghai from which the doors were to be sourced had its own specifications (or in his terms 規格).  It was not up to Strong Rich to dictate.  Therefore variation of the thickness of the door was impossible unless Kin Hing would pay extra cost.

44.  Such stance of Strong Rich is difficult to accept.  The samples of the door sourced from Taiwan had been approved by the main contractors by the time of the Contract.  That became the basis of what were agreed to be sold and bought under the Contract.  The change of the source of the doors to be supplied did not change that.  To put it simply, Kin Hing did not expect discrepancy, except for the different source.

45.  This had to be understanding between the parties, as evidenced by Strong Rich’s assurance by its own letter dated 1 June 2007.  Whether the Shanghai manufacturer managed to supply the doors in accordance with the samples sourced from Taiwan, that had been approved, was Strong Rich’s concern.  In case of discrepancy, there would be no basis for either Strong Rich or Kin Hing to expect the main contractors or HKHA to agree to accept.

46.  In view of the provision of the fixed price under clause 4 of the Contract (above), there was also no basis for Strong Rich to seek to transfer to Kin Hing the burden of any cost to make good the doors to be sourced from Shanghai for fulfilling the Contract.

47.  I reject Strong Rich’s pleaded case that Kin Hing has failed to obtain HKHA’s approval because of its failure or neglect to inform HKHA of the place of origin or source of the openers is contradicted by the evidence.  Kin Hing duly informed the main contractors of the change of source of supply of the doors by forwarding to them Strong Rich’s letter dated 1 June 2007 for such purpose.  The fax to the main contractors in June 2007 evidence that.  During his cross-examination, Cheng had to concede that.

48.  When it comes to Cheng’s statement, the case of Strong Rich becomes that it did not supply the actual sample of the 32mm rotary opener because Kin Hing has failed to honour its purchase order in April 2007 and refused to pay the tooling cost of the 32mm opener (para.6 of the statement of Cheng).  As mentioned above, Kin Hing duly paid 50% of half of the tooling cost for the 32mm opener both pursuant to the Contract and at the request of Strong Rich upon the signing of the Contract.

49.  When it comes to Cheng’s evidence in court, the allegation becomes that during a visit to the site of Un Chau Estate on 26 July 2007, the architect confirmed to Cheng that approval had been obtained for the 40mm opener.  However, nowhere in the pleading or witness statement of Strong Rich can one find such an allegation.  Such allegation also contradicts its pleaded case that on 27 July 2007, Strong Rich still found it necessary to enquire whether Kin Hing would request the diameter of the opener to be changed to 32mm (para.6(b) of the Amended Defence and Counterclaim).  Apart from a self-serving receipt dated 27 July 2007, there is no document from Yau Lee or HKHA evidencing such alleged approval.  The documents, including the subsequent checklist of complaint about the quality of the samples, evidence the contrary.

50.  Cheng also suggested that the thickness of the door, though 2mm thinner than the Taiwanese samples, and the 40mm rotary opener should still be acceptable as they would not affect the overall structure of the doors.  He also referred to his other experience of supplying allegedly similar doors for other projects of HKHA.  In my view, none of these allegations is relevant, if admissible.

51.  Hwang impressed me as a straightforward witness, whose evidence is supported by the contemporaneous documents.  On the contrary, Cheng was highly subjective and his stance somehow reflected a disregard of what the parties actually agreed.  I prefer the evidence of Hwang to that of Cheng.

52.  Considering the evidence, I find that it was Strong Rich’s breach and Kin Hing was entitled to terminate the Contract pursuant to clauses 6, 7 and 8 of the Contract.

Loss and damage

The claim

53.  According to Hwang, the samples supplied were returned to Strong Rich by October 2007.  This seems to be a matter of dispute.  I say this because whilst denying that by pleading, Strong Rich also pleaded an alternative that the samples were not returned within 3 days as requested in its letter dated 7 August 2007 (para.12 of the Amended Defence and Counterclaim).  Whilst Strong Rich questioned the lack of document to evidence the return of the samples, its stance as pleaded introduces ambiguity as to whether the samples have been returned.  At one point, Cheng even suggested that the samples were retained so that Kin Hing could use them for the purpose engaging another supplier for the doors.  Again, no allegation of this sort has ever been made before.

54.  I accept Hwang’s evidence in this respect.  I attach no significance to the 3-day deadline imposed by Strong Rich in its letter for the return of the samples.  I also accept Hwang’s explanation (above) of what it took before the samples and mock up could be dismantled from the sites and returned to Strong Rich.  I find that Kin Hing is entitled to the return of the money paid.

55.  Upon termination of the Contract, Kin Hing engaged another supplier for the doors needed for the projects.  As a result, it has incurred additional expenses on submission and coordination in the sum of HK$37,500.  The new supplier was approved by the main contractors on behalf of HKHA.  Kin Hing had to pay HK$67,561.51 more than what it should have paid to Strong Rich under the Contract.

56.  Kin Hing has produced documentary evidence in support and I accept them.  I reject the contention of Strong Rich as to reasonableness, remoteness and mitigation of the above claim. I also reject Cheng’s suggestion that the engagement of the alternative supplier was a sham.  Not only was such allegation never made before, but there are also documents evidencing the HKHA’s approval of this supplier.

57.  I find that Kin Hing is entitled to the following:

The counterclaim

58.  In view of the above, the counterclaim must fail.  In the correspondence up to the time when the Contract was terminated, Strong Rich made clear that mass production was yet to commence.  In the circumstances, Strong Rich would not have been entitled to claim the balance of the price under the Contract in any event.  Strong Rich never bothered to allege or to adduce evidence in respect of any loss of profits instead.  I say no more in respect of the counterclaim.

Order

59.  Judgment is entered in favour of Kin Hing against Strong Rich in the sum of HK$210,052.99 together with interest thereon at 1% above HSBC prima rate from the date of writ until today except for the period between 26 March 2008 and 29 January 2009#. Interest from today runs at the judgment rate until full payment.  The counterclaim is dismissed.

60.  Kin Hing shall have the costs of this action, including any costs reserved.  Costs shall be taxed, if not agreed, with certificate for counsel.  In the absence of any application within 14 days to vary, this costs order shall become absolute.

*Both parties have been legally represented until Strong Rich act in person less than 2 weeks before the trial.  The court documents, including Cheng’s own statement, are in English.  I have decided to write this judgment in English.  If necessary, Strong Rich may make arrangement with the court for the assistance of the court interpreter in receiving the judgment.

#According to the court record, this action went dormant during this period.