TAI FAT HONG PROVISION CO v. ENTERPRISE SOLUTION SYSTEMS CO LTD

DCCJ 7709/ 2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 7709 OF 2002

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JUDGMENT

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The plaintiff's case

1. The plaintiff was a wholesaler of food products.  The defendant was a company of computer consultants.  By the defendant’s recommendation, the plaintiff contracted with the defendant to install and set up a computer system for the plaintiff’s business.  The plaintiff paid half of the contract price as deposit.  The defendant failed to make the system meet fundamental requirements of the plaintiff.  The plaintiff terminated the contract.  The plaintiff claimed the return of the deposit, wasted manpower, interest, and costs.

The defendant's case

2. The plaintiff was in breach of the contract in not fully cooperating with the defendant in the process.  The plaintiff also refused to give time to the defendant to complete the task.  The defendant counterclaims the outstanding contract price. 

The issues to be determined

3. I have to determine the issues of:

(1) The credibility and reliability of the witnesses;

(2) The terms of the contract;

(3) The breach;

(4) The remedies.

The plaintiff’s evidence

4. The plaintiff calls 3 witnesses:

(1)  PW1 Bau Wai Man [“Bau”: Statement at p. 36 – 50];

(2)  PW2 Chan Pui Yi [“Chan”: Statement at p. 29 – 35];

(3)  PW3 Yu Kam Suen [“Yu”: Statement at p. 51 – 52].

The General Rundown

5. Bau was its president and director.  Chan was its Senior Business Officer.  Yu was its Administration and Financial Controller.  Since 1979, the plaintiff carried on the business as a wholesaler of food products in Hong Kong.  It had no knowledge of computer.  Most of its customers were Chinese.  They transacted with Chinese documents, and both the Hong Kong and Chinese currencies.  The defendant was a company of computer consultants [Bau’s Statement, para. 1 – 3, at p. 36 – 37]. 

6. Since 1999, the defendant through Lawrence Law, a computer consultant, began to support the plaintiff’s business system known as JSS.  JSS could issue invoices.  Lawrence Law was very clear about the business requirements of the plaintiff.  As time progressed, JSS could no longer satisfy the plaintiff’s growing business requirements.  The plaintiff enquired the defendant of a system that could carry out tasks like order entry, inventory control, accounts receivable and payable, and general ledger.  Lawrence Law also said that it could be adapted to the plaintiff’s current computer system without great difficulty.  It could support Chinese characters editing and printing, and handle multi-currency transactions in the plaintiff’s day-to-day business.  Lawrence Law introduced Terrence Lee [DW1], another computer consultant, of the defendant to the plaintiff.  Both Terrence Lee and Lawrence Law were the directors of the defendant.  They jointly recommended a system known as Accpac to the plaintiff.  They said that it could meet the plaintiff’s business requirements [Bau’s Statement, para. 4 – 8, at p. 37 – 39]. 

7. On 17 August 2001, the plaintiff entered into a Sales Confirmation (“the Agreement”, Document, at p. 7) of HK$158,000.00 with the defendant in reliance on the defendant’s recommendation.  It provided, amongst others, as follows:

Terms and Remarks: -

Payment – 50% Deposit & Balance by C.O.D.

Delivery – 4 weeks after the [Agreement] signed and deposit received.

(if the product cannot be delivered on time, demo copy will be installed first)

Training – Total 7 days on-site training will be offered to [the plaintiff]

…

Features – Can support Chinese character editing & printing, can handle multi-currency transaction.

It was an implied term that the system should be fit for the plaintiff’s use and be completed within a reasonable period of time [Bau’s Statement, para. 9 – 10, at p. 39]. 

8. On 20 August 2001, the plaintiff paid HK$79,000.00 as the 50% deposit [Bau’s Statement, para. 11, at p. 40]. 

9. In about September 2001, the defendant commenced with the installation and setup of the system.  The defendant said that it would take 6 months to perform the Agreement [Bau’s Statement, para. 12, at p. 40]. 

10. Despite the passage of time, the system remained fraught with problems.  It could not support the Chinese character editing and multi-currency transactions in the plaintiff’s business.  It could not generate sales orders, receipts, measure units and inventory lists in Chinese characters.  As a result, the accounting procedures could not be carried out properly.  The plaintiff informed the defendant of such in divers meetings [Bau’s Statement, para. 14 – 15, at p. 41]. 

11. On 15 May 2002, Bau Man Wai (“Bau”) had a meeting with Lawrence Law.  Lawrence Law promised that the defendant could organize the final testing within 2 weeks if the plaintiff abandoned the use of Chinese characters on various aspects of the system.  Lawrence Law promised the plaintiff that the defendant would complete the system for the plaintiff’s testing on 11 June 2002.  Bau specifically told Lawrence Law that if any problem should arise during the final testing, the plaintiff would rescind the Agreement.  Lawrence Law agreed that in such event, the defendant would refund all deposit paid by the plaintiff within 7 days upon being notified of such a decision [Bau’s Statement, para. 16 – 17, at p. 41 – 42; Document, at p. 58; Document, at D9, para. 4, at p. 1].  

12. On 11 June 2002, the test could not be conducted because the system was not yet ready [Bau’s Statement, para. 18, at p. 42]. 

13. The following days saw repeated postponements sought by the defendant.  The plaintiff requested for a deadline, otherwise the plaintiff would rescind the Agreement and seek the return of the deposit [Bau’s Statement, para. 29, at p. 46].  The defendant wrote back, on or before 13 June 2002, to fix the deadline of 1 July 2002 [Document, at p. 60].  Both parties accepted the deadline.  The plaintiff selected this date because it was a public holiday.  Its office would have no external transactions and could focus on the final testing.  However, the defendant was absent on 1 July 2002.  The plaintiff issued an ultimatum for 6 p.m. of 2 July 2002[Document, at p. 82]. 

14. On 2 July 2002, the final testing proved to be a failure, with a lot of problems remaining unsolved.  The plaintiff orally notified the defendant of the rescission of the Agreement [Bau’s Statement, para. 31, at p. 46 – 47]. 

15. On 10 July 2002, the plaintiff issued a letter to the defendant as a formal notice of rescission and asked for the return of the deposit [Bau’s Statement, para. 32, at p. 47]. 

16. The defendant refused to return the deposit [Bau’s Statement, para. 33, at p. 47].

17. The system was of no use to the plaintiff.  The plaintiff had to pay about HK$160,000.00 to get another system.  The subsequent system could meet the plaintiff’s business requirements.  

       The cause of termination of the Agreement

18. Up to 2 July 2002, the system remained fraught with a lot of problems, the major ones being:

(1)The failure to set up the RMB unit automatically [Chan’s Statement, para. 5(a), at p. 31]: 

Particulars

The plaintiff had a large demand for RMB sales order, invoice and receipt.  Every time, the plaintiff had to set up the RMB unit manually for such document.  This wasted much time and manpower.  The defendant could not explain or remedy the problem.

(2) The failure to print the sales order for delivery of goods [Chan’s Statement, para. 5(b), at p. 32 – 33]: 

Particulars

The plaintiff had to issue a sales order for delivery of goods each time.  Despite the defendant’s promise that the system could edit and print out Chinese characters, the system could not print out any usable sales order.  The defendant could not explain or remedy the problem

(3) The failure to show any decimal numbers or automatically round up figures [Chan’s Statement, para. 5(c), at p. 33]. 

(4) The failure to perform calculations accurately [Chan’s Statement, para. 5(c), (e), at p. 32, 33]: 

Particulars

Take for an example, the quantity of a certain product was 30,000 bags and the price was $8.5 per bag with 2.94% discount rate.  In normal circumstances, the total amount should be $247,503.  However, the system could only show a figure of $247,500.  For another example, the quantity of a certain product was 1 box and the price for each box was $162.  The total amount should be HK$162 but the figure as shown by the system was $216.

Besides, assume that the discount rate given to a customer was 3%.  In normal circumstances, there should not be any change in discount rate when the data regarding quantity of goods ordered was input into a computer with the price of the goods being unchanged.  However, when the plaintiff input the quantity of the goods ordered, the system would show an inaccurate discount rate.  The defendant could not explain or remedy the problem.

(5) The disparity between the data on screen and the data printed out on paper [Chan’s Statement, para. 5(d), at p. 32 – 33; Document, at P 23]:  

Particulars

Data on screen

日本神戶肉眼A3   16.00 Kg公斤             HKD500                      HKD8,000.00

Data printed out on paper

日本神戶肉眼A3   16.00 Kg公斤             HKD220                      HKD8,000.00

The disparity rendered counterchecking impossible.  Apart from the disparity, the data printed out on paper was incorrect. 

The defence evidence

19. The defendant has 2 witnesses on the list, Terrence Lee and Lawrence Law.  Lawrence Law is on a business trip to Japan.  The defendant applies for an adjournment to an indefinite date to accommodate Lawrence Law’s indefinite diary.  I refuse the application.   

20. I will not repeat common grounds between the plaintiff’s and the defendant’s evidence. 

21. Terrence Lee was a qualified and approved seller of the system.  He knew the system in and out.  Three years after the present case, he was commended for his excellent services for Accpac by a user [Document, at D 21].  There was no mention of when he provided such services, though. 

22. He knew of the present case quite well although most parts were handled by Lawrence Law.  Lawrence Law had conversed with him from time to time when the Agreement was being performed.  The Accpac was a highly popular and acclaimed system developed in America.  It had standard functions.  The defendant was to adjust the functions to meet the plaintiff’s business requirements.   

The defendant’s reply to the alleged problems

23. The contact person on the plaintiff’s part had been Michelle Chan until June 2002.  Yu and a Silvia Luk took up her position in June 2002.  Both were not clear about the plaintiff’s business operations or the system.  As a result, the defendant had to slow down the performance of the Agreement to accommodate Silvia Luk [Terrence Lee’s Statement, para. 9, at p. 104]. 

24. The parties had communicated orally or in writing from time to time.  The outstanding problems were not crucial.  He believes Lawrence Law had solved most of the problems before 2 July 2002.  It would usually take 6 – 9 months to perform the Agreement.  If the plaintiff had allowed the defendant more time instead of terminating the Agreement (only 10 ½ months afterwards), all outstanding problems could have been fixed.  The defendant was just 10 ½ months into the Agreement [p. 3 of Submission; Documents, at p. 89, 90]. 

25. Of the testing document prepared in late June 2002 [Document, at D 19], Terrence Lee explains [p. 5 of Submissions] that the Delivery Date “081.104.00” actually meant “04 November 2004”.  One could read it after some mathematical adjustment. 

This Court’s findings

On the defendant’s evidence

26. The defendant was a company of professionals.  The plaintiff was a company of lay people.  The defendant accepts [para. 8, at p. 89; p. 4, 5 of Submissions] that the outstanding problems had remained unsolved pending instructions from the plaintiff.  As I see it, there was nobody or nothing that ever prevented the defendant from taking instructions from the plaintiff at any time before the termination of the Agreement. 

27. The defendant stated [Terrence Lee’s Statement, para. 9, at p. 104] that Yu was unable to tell the defendant what the business requirements were.  The defendant submits [p. 2, 3 of Submissions] that despite her mention of incorrect documents generated by the system, she is unable to produce them as evidence.  As I see it, the defendant’s correspondences with the plaintiff in the bundles were up to 2 August 2002 [Document, at p. 94].  They never alleged that the change of contact person on the plaintiff’s part had hampered the progress.  This allegation only emerged several months later [Defence and Counterclaim, filed on 14 January 2003, para. 9(g), at p. 18].  I do not find such evidence credible.    

28. The defendant stated [Terrence Lee’s Statement, para. 9, at p. 104] that the defendant had to slow down the performance of the Agreement to accommodate Silvia Luk.  This allegation was never raised in its letter dated 3 July 2002 to the plaintiff or any documents at all.  It only emerged after 2 years [Terrence Lee’s Statement, dated 28 September 2004, para. 9, at p. 104].  I do not find such evidence credible.        

29. Of the testing document prepared in late June 2002 [Document, at D 19], the defendant submits [p. 5 of Submissions] that the Delivery Date “081.104.00” actually meant “04 November 2004”.  One could read it after some mathematical adjustment.  As I see it, this Delivery Date would make no sense to the plaintiff or its customers. 

30. I do not find Terrence Lee a credible or reliable witness.  

On the plaintiff’s evidence

31. I find all 3 witnesses credible and reliable. 

The issues as determined

The credibility and reliability of the witnesses

32. I reject the defendant’s evidence wherever in conflict with the plaintiff’s evidence. 

The terms of the contract

33. Apart from the express terms as mentioned by the plaintiff, I find there, as alleged by the plaintiff, an implied term that the system should be fit for the plaintiff’s use and be completed within a reasonable period of time [Bau’s Statement, para. 9 – 10, at p. 39].  In September 2001, the defendant had said it would take 6 months.  I find the deadline [1 July 2002 and then the ultimatum of 6 p.m. of 2 July 2002] agreed upon by both parties on or before 13 June 2002 [Document, at p. 60] reasonable.  Time was thereby made the essence of the Agreement.  There was sufficient advance notice for the defendant to perform the final testing pursuant to the Agreement.   

The breach

34. The defendant failed to perform the Agreement before the deadline.  The problems in the system remained unsolved.  It was in breach of the implied term that the system should be fit for the plaintiff’s use and be completed within a reasonable period of time. 

The remedies

35. The defendant’s breach went to the root of the Agreement.  The plaintiff’s business could not be operated with the system.  The system was of no use to the plaintiff.  The plaintiff was entitled to rescind the Agreement and claim the return of the deposit of HK$79,000.00.

36. Yu was responsible for compiling the table of manpower wasted [Bau’s Statement, at p. 49].  The staff involved had orally informed her of the figures.  However, she is not in a position to give further and better particulars.  I am not satisfied that I can put weight on such hearsay evidence.  I do not find such head of claim proved. 

The Conclusion

37. I give judgment to the plaintiff in the sum of HK$79,000.00 and interest at judgment rate from the filing date of the Writ of Summons.  There is no apparent reason why costs should not follow the event.  I make an order nisi that the plaintiff shall get costs.  This cost order shall become absolute 14 days from today.    

Dated this 8 February 2006