TAM INTERNATIONAL CONSULTANTS HK LTD v. BEKK SOLUTIONS LTD

HCA 63/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 63 of 2005

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JUDGEMENT

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1.  This is an appeal from the Master by the plaintiff, (Tam), against the grant of unconditional leave to defend.  The action is for goods sold and delivered.  The writ was originally issued for HK$1,870,695, but Tam now accepts that, by virtue of rebates, the correct amount due is HK$919,712.50.

2.  The goods at issue are a material, TamPur, a resin that is injected into cracks or joints of structures to stop water leakage and achieve soil stabilisation, and metal accessories, called “steel packers”, used as a framework to apply grouting and resin into cracks or joints.  The defendant, (BEKK), admits that all the goods were delivered, but contends that the TamPur products were defective.

3.  Mr Chang correctly reminds me that in a case based upon goods sold and delivered, when there is no dispute as to delivery, the onus is on the buyer to establish his entitlement to refuse to pay the purchase price.  In the present case BEKK contends that it ought not be required to pay the purchase price by reason first, of defective goods, and second, misrepresentation.

4.  The allegation of defective goods raised in the affidavits is that the product failed to form a permanent seal, that water leakage occurred in a KCRC West rail project necessitating remedial works alleged to amount to HK$1.1 million.  It is further alleged that leakage problems either “occurred or are anticipated” in 21 other projects, with the cost of remedial works estimated to be in the region of HK$5 million.  The Master found the defence to be “dubious”, but granted unconditional leave to defend.

5.  The test for summary judgement is simply whether the defendant’s assertions are believable.  Those assertions must not be taken in isolation but must be examined against the context of so much of the background as it is either undisputed or beyond reasonable dispute.

6.  It is clear that by April 2004, Tam was concerned at the amount overdue, which at that time had been overdue for in excess of 18 months.  There had been discussions and telephone calls between the parties.  On 1 April 2004, Mr Vaughan, a director of BEKK sent an e-mail to Tam in which he said as follows:

“We intend to clear outstanding account to date in full within the next six weeks.  We actually believe we can expedite the payments sooner than the date specified dependent upon the promptness of receivables from our reliable clients that we are using the Tam product on.  The amounts on each occasion should be higher as well.”

The e-mail went on to set out a payment schedule on the 18th days of April and May and June of that year.  There was not the slightest suggestion in that e-mail that there was any issue of defective goods.

7.  Payment was apparently not made as proposed.  In another e-mail from a Mr Bennett, the managing director of the BEKK, on 10 August 2004, confirmation was sought of Tam’s agreement on a number of matters including the clearing of the outstanding account by BEKK.  Again there is not the slightest suggestion that any goods used in Hong Kong were defective.  It is right that there is a reference to a situation in Thailand, but that does not form part of the defence.

8.  The affidavits for BEKK suggest that the problem of water leakage at the KCRC West rail project were raised with a Mr Keough of Tam in July 2004.  It is further said that in September 2004 that BEKK began to doubt the credibility and integrity of Tam’s officers.  Mr Fong was obliged to acknowledge that notwithstanding these assertions there was no contemporaneous documentary evidence to substantiate either the raising of concerns or any complaint.  His submission was that that is understandable when BEKK had doubts as to the credibility and integrity of Tam’s officers.  I do not accept that submission.  Quite to the contrary, if a businessman has concerns as to the quality of a product or doubts as to the credibility and integrity of the people he is dealing with, he has all the more reason to express those concerns or doubts in writing in order that they are on record.

9.  On 3 November 2003, the engineer for the head contractor on the KCRC West rail project had issued a Substantial Completion Certificate to which was attached a “Schedule of Outstanding Work to be Undertaken” during a “Defects Liability Period”.  The Certificate is exhibited.  Significantly, the “Schedule of Outstanding Work” was not exhibited.  It follows from the Certificate, and the attachment,  that by 3 November 2003, BEKK knew of the defects which they now contend were as a result of Tam’s defective products.  They said nothing to Tam.  They did not seek any technical assistance or support from Tam in remedying the defects.  They remained silent as to the defects while promising payment in full.  On 30 November 2004, over a year later, the engineer issued a “Defects Liability Certificate” certifying that on that date defects in the works had been corrected to his satisfaction.  Even then BEKK did not make any complaint to Tam about defective goods.

10.  The first suggestion of defective goods came in a letter from BEKK’s solicitors on 24 February 2005, following the issue of the writ.  The assertion of defective goods in that letter and in the defence, accompanied as it is with a refusal to pay, is quite inconsistent with the clear prior position of BEKK that the amounts due would be paid without question.

11.  Where a defendant seeks leave to defend on matters such as defective goods he is obliged to put proper detail before the court to substantiate the claim.  I gratefully adopt the following words from Reyes J in Sumikan Bussan International (HK) Ltd v The Precast Piling & Engineering Co Ltd HCA 3814/2001:

“Faced with an Order 14 application, a defendant cannot be sparing of the particulars of his defence and then claim, as a result of his own parsimony in detail, that there is an obscurity which must await trial for elucidation.”

In simple terms, a defendant must condescend to particulars of his defence.

12.  In the present case, until the writ was issued, there was no complaint of any defective materials.  It is right that an e-mail and a letter from Mr Keough has been exhibited, and that such hearsay evidence may be received, particularly in summary judgement proceedings.  Significantly however, Mr Keough makes no reference to raising concerns over water leakage problems on the KCRC West rail project in July 2004.  As this is a central part of the defence such confirmation may reasonably have been expected.  While hearsay evidence of this nature may be received, and is usually received, and accorded weight when the statement comes from someone who is overseas and not available to make an affidavit, regard must be had to the fact that Mr Keough is in Hong Kong, available to make an affidavit, but has apparently not been asked to do so.

13.  As to the particular allegation of defective material requiring remedial costs at HK$1.1 million, there is not a single letter of complaint from the head contractor, directed at defective materials.  It is right that a reduction was made in respect of a sum claimed by BEKK on the project, but there is no evidence to suggest that that sum arose from defective goods supplied by Tam.  Indeed had such a sum been deducted as a result of Tam’s defective goods, one would have thought that there would have been an immediate complaint to Tam.  This is particularly so when it is asserted that the problem arose in July 2004.

14.  The claim for HK$1.1 million is apparently to be substantiated by a schedule produced, received by BEKK from the head contractor on the KCRC West rail project.  This demonstrates that BEKK applied for a total of HK$6,709,753 in payments, and received HK$5,622,570, a differential of HK$1,047,183.  A subsequent explanatory letter from the head contractor explains the reduction in the following terms:

“As previously stated we would not pay for re-visits to Site to rectify repairs when in our opinion the initial repairs had failed to perform their function.”

This letter offers no explanation at all as to the reason why, either, initial repairs were required, or, those repairs had failed to perform their function.  Mr Chang correctly points out that BEKK would have a claim against Tam only if the product supplied failed to achieve the purpose for which it was supplied.  If it was poorly applied, or if there were some other aspect of BEKK’s workmanship which required repairs, plainly Tam would not be liable.

15.  It is in this respect that the words of Reyes J. are apposite.  It is not enough for the defendant to say that at trial he will produce the evidence to show that Tam’s products were defective.  There must be evidence to that effect now and there is none.  The affidavits filed for BEKK do not adequately condescend to particulars, and do not provide any basis upon which it may be said that there is an arguable case that defective products were the cause of the repairs that were required. The court cannot speculate, based simply upon BEKK’s experience in applying products, that it must be that the product was defective.

16.  BEKK asserts 21 other projects involving defective goods supplied by Tam.  None of the projects are named.  There is no date given as to when any leakage problems surfaced.  There are no particulars of any leakage problems.  There are no particulars of any remedial works.  No basis is supplied of the broad estimate of HK$5 million, allegedly “to be incurred” by way of remedial works.  There are no documents from head contractors indicating complaints or requiring remedial work.

17.  The bare assertion of defective goods, made in the complete absence of any supporting evidence, falls a long way short of providing a believable basis of the assertions upon which BEKK relies to substantiate its defence.

18.  The claim based upon misrepresentation relies upon documents which indicate that the product has failed certain tests.  These assertions are made only in e-mails from former employees of Tam who have been dismissed from Tam apparently in circumstances which question the integrity and honesty of those employees.

19.  There is no assertion from BEKK that the products were required to do anything other than stop water leaks.  An examination of the documents in relation to the tests shows that the tests that the product has apparently failed were potable water tests.  There is no suggestion at all by BEKK that it was a condition of the contract that the product must be such as to pass a potable water test.  There is no suggestion that as a result of the product failing a potable water test any claim has been made against BEKK.

20.  It may well have been that Tam represented the products as being suitable to seal cracks and stop water leaks.  There is no evidence at all of the products failing any test in relation to water leaks.  I do not disregard the evidence of the sample of product being produced in a cup.  This entirely unscientific arrangement does nothing to substantiate an assertion of misrepresentation.

21.  No arguable case for a triable issue is made out in relation to the alleged misrepresentation.

22.  In my view this is a clear case in which summary judgement ought to be given.  If BEKK have a claim against Tam they are free to proceed with that claim by way of counterclaim that has been lodged.  But there is no basis upon which judgement in favour of Tam ought to be delayed or stayed pending the resolution of any counterclaim.

23.  The appeal is allowed.  BEKK must pay Tam’s costs both here and below, to be taxed on a party and party basis.