PRESTIK LTD t/a FREDERICK L.C. LUI & COMPANY v. HANG FAI CONSTRUCTION MATERIALS (GROUP) LTD t/a QUICK STEP SHOP

DCCJ 2073 /2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2073 OF 2012

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JUDGMENT

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1. This is a case concerning a dispute between a supplier of some floorboards made of natural wood, namely the Defendant and an interior designer who was the purchaser of these floorboards, namely the Plaintiff.

2. The Plaintiff’s case is simple. The Plaintiff argued that the contract for supply of the floorboards was a contract of sale by sample and the floorboards supplied by the Defendant did not correspond with the 2 sample floorboards supplied by the same, namely Exhibits marked “P2” and “P3”. For these reasons, the Plaintiff said that the Defendant was in breach of the statutory implied term (or otherwise common law implied term of similar nature) for contract of sale by sample, namely section 17 of the Sale of Goods Ordinance, Cap. 26. The Plaintiff therefore asked for rejection of the goods and for refund of the contract price.  The relevant section provides that:-

“(1) A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied,to that effect.

(2) In the case of a contract for sale by sample-

(a) there is an implied condition that the bulk shall correspond with the sample in quality;

(b) there is an implied condition that the buyer shall have a reasonable opportunity of comparing the bulkwith the sample;

  (c) there is an implied condition that the goods shall be free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample”

3. The issue of this case turns mainly on sub-section (2)(a) above, namely whether or not the “bulk”, namely the floorboards, corresponded with the samples in quality. The Plaintiff originally further alleged that the floorboards supplied by the Defendant were not of merchantable quality as well and therefore the Defendant was also in breach of the statutory implied term as to quality, namely sub-section (2)(c) above and section 16 of the Sale of Goods Ordinance, Cap. 26. During the trial, I have repeatedly pointed out to the Plaintiff that there was no evidence before me that the floorboards were not of merchantable quality and I wonder how the Plaintiff was going to proceed with this cause of action. And in the final submissions, the Plaintiff formally abandoned this cause of action and informed the Court that it no longer relied on this implied term as to quality. For this reason, the parties no longer required a decision from this Court on this issue and I therefore make no further comment.

4. The Plaintiff therefore claimed that, by reason of the breach of the implied term for contract of sale by sample, the Plaintiff was entitled to reject the floorboards and asked for refund of $175,463 which was paid to the Defendant as part of the contract price. The Plaintiff also claimed for damages of $2,500 being transportation costs incurred due to the Defendant’s failure to collect the rejected floorboards.

5. Turning to the Defendant’s case, this is my understanding of the defence put forward by the Defendant. First of all, the Defendant argued that the contract of sale of the floorboards was not a contract for sale by sample. Alternatively, if this Court were to find otherwise, the Defendant argued that an express term of the contract excluded the application of the implied term for sale by sample entirely, or otherwise qualified the same to the extent that the “colours and shadings” of the samples were only “indicative” and therefore the floorboards supplied were not required to correspond with these 2 aspects of the samples, particularly the “colours”. Further and alternatively, the Defendant argued that, as a matter of fact, the floorboards supplied by the Defendant corresponded with the samples.

6. There is no dispute that there was an express term of the contract between the parties:-

“The products are made of natural floor boards, therefore, colours and shadings may vary from the sample which are intended to be indicative and not binding.”

The issue, however, turns on the construction of this express term. Mr. Chien the Plaintiff’s counsel, argued that this express term will not exclude or qualify the implied term at all. But if this Court does not accept this argument, alternatively the he argued that, on true construction of it, this express term only qualified the implied term to the extent that only the “natural colours” of the material of the floorboards, but not the colour of the “finished products”, may vary from the sample. And Mr. Chien told me that the Plaintiff never complained about the natural colours of the material. Mr. Tse, the Defendant’s counsel , on the other hand, said that if this Court were to accept that this express term only qualified the implied term to the extent that the “colours” may vary from the samples instead of excluding the same entirely, the Mr. Tse argued that the word “colours” means the colours of the “finished products”, and was not just limited to the “natural colours” of the material.

7. If the Defendant succeeds in its case, the Defendant counterclaims against the Plaintiff for the balance of the contract price of $9,235 or alternatively for damages.

8. The Plaintiff called 2 witnesses in support of its case, namely Mr. Leung Wai Kwong, Tim (“Tim”) who personally dealt with the Defendant and Mr. Lui Lai Cheung, Frederick (“Frederick”) who was the owner of the Plaintiff and supervisor of Mr. Leung, or colloquially Mr. Leung’s “boss”. The Defendant, on the other hand, in proving its defence and counterclaim, called a Miss Chan Tsz Lei, Yokie (“Yokie”), who was a customer services manager of the Defendant. There was no dispute that she represented the Defendant and she personally dealt with Tim and his boss, Frederick.

9. There is no great controversy of the evidence of this case. Tim of the Plaintiff went to the shop of the Defendant in or about June 2011 and the Plaintiff purchased 2 types of floorboards made of natural wood for installation at the Plaintiff’s client’s premises. The floorboards were given product numbers respectively. The product number of one of them was “Holland 23-2” and was called “Saw Mill White Oiled Heavy Smoked” (“Saw Mill”) and the product number of the other type was “Holland 19-2 003” which was called “Old Dutch White Oiled” (“Old Dutch”).

10. For the purpose of this litigation, parties have agreed that before the agreement for supply of the floorboards was reached, Tim and Yokie had a discussion about the price and the quality of the floorboards. 3 pieces of floorboards, including 1 piece of Old Dutch and 2 pieces of Saw Mill (Exhibits marked “P1”, “P2” and “P3” respectively) were given by Yokie to Tim for the Plaintiff’s retention. Parties also agreed that the agreement was reached after several rounds of negotiation and several visits to the shop of the Defendant. Initially, Tim came alone and in the subsequent one he was accompanied by Frederick. Later when Fredrick came to the shop again, he was accompanied by the Plaintiff’s client Miss Fong. As evidenced by a Sales Confirmation dated 2 July 2011 with number KCT-201107003 signed on 12 July 2011, the Plaintiff agreed to purchase and the Defendant agreed to supply the Saw Mill and Old Dutch floorboards to the Plaintiff for installation at its client’s premises at a total consideration of $184,698. Pursuant to the Sales Confirmation, a sum of $175,463 was paid leaving a balance of $ 9,235.

11. On 13 March 2011, the Saw Mill and Old Dutch floorboards were delivered to the Plaintiff’s clients’ premises. On the next day, namely 14 March 2011, Tim complained to Yokie about the colour concept of the Saw Mill floorboards that they were “a bit greenish yellow” (the evidence of Tim in Chinese was “帶青黃色調”) instead of white as shown by the 2 pieces of floorboards given to him early on (Exhibits marked “P2” and “P3”). Based on these facts, the Plaintiff argued that the 2 pieces of floorboards (Exhibits marked “P2” and “P3”) were in fact samples given to the Plaintiff for checking the quality of finished product and the contract was a contract for sale by samples. And since the colour of the finished products did not correspond to the samples, the Plaintiff therefore argued that the Defendant was in breach of the said implied terms and the Plaintiff was entitled to reject the floorboards. The Plaintiff asked for refund of the money paid.  Regarding the other product, the Old Dutch floorboards, although Tim also mentioned in his evidence that he had some complaint about their quality, but I was told, at the beginning of the trial, that in so far as this litigation is concerned, there is no longer any complaint against them. However the Plaintiff still argued that if this Court were to accept the Plaintiff’s case that the Saw Mill floorboards were not acceptable, the Plaintiff was entitled to reject both the Saw Mill and Old Dutch floorboards as they were part of the same transaction.

12. In support of its case, the Plaintiff further submitted that when these floorboards were delivered on 13 March 2011, they were rejected by the Plaintiff right away and the Defendant was then asked to collect them on 19 March 2011. Thereafter, on the request of the Plaintiff, the Defendant had carried out some improvement work to the Saw Mill floorboards but the result was not satisfactory and the Plaintiff rejected them again. For these reasons, the Defendant took the Saw Mill floorboards back again on 26 March 2011 and subsequently carried out further improvement work to them. The colour of these floorboards, after the further improvement work was completed, was still not satisfactory and the Plaintiff therefore rejected them, the third time, on 30 March 2011. These allegedly rejected floorboards are still in the possession of the Plaintiff and one piece of these floorboards was produced as an exhibit at the trial (Exhibit marked “P4”). The Plaintiff therefore relied on the evidence above to show that there was proper rejection of the floorboards.

13. The Defendant took issue of the Plaintiff’s version of events. In a nutshell, the Defendant said that the Plaintiff, in fact, accepted the floorboards without any compliant when they were initially delivered on 13 March 2011. Although the Defendant agreed that the Plaintiff said that the colour of the floorboards being “slightly yellowish”, the Defendant argued that, as matter of fact, the Plaintiff accepted the Saw Mill floorboards when they were delivered at the Plaintiff’s client’s premises. The Defendant’s willingness to follow up and to carry out improvement work on the floorboard was, in using the Defendant’s words, totally “out of best service”. I was therefore asked to decide whether or not as a matter of fact the Plaintiff had accepted the floorboards. However, due to my findings later in this judgment, this issue may become academic and the decision from this Court is therefore not required.

14. First of all, I would like to deal with the issue: whether or not the contract for supply of the floorboards was a contract for sale by sample. The Plaintiff’s counsel, Mr. Chien, cited two authorities, including Richmond (HK) Ltd v Wing On Cheong Watch Industries Ltd, HCA 16479 of 1998 Date of Judgment: 14 May 2001, (unreported) and Ultimate Winner Ltd v Apo Ltd DCCJ 3580 of 2008, Date of Judgment: 16 December 2010 (unreported), in support of his argument that the contract in question was a contract for sale by sample. Mr. Tse, for the Defendant, on the other hand, argued that the Sales Confirmation did not mention that this was a contract for sale by sample and the mere fact that a sample was provided during the negotiation did not make it so and he cited Gardiner v Gray (1815) 4 Camp 144 in support of that proposition. Mr. Tse further argued that it would be impossible to give sample to a customer when the product was made of natural material. He then cited a Canadian authority East Asiatic Co v Canada Rice Mills Ltd [1939] 3 DLR 695 which was about a contract for sale of rice.

15. In my judgment, these authorities do illustrate, by way of examples, how different courts approached the same question in the past and I do find them useful in that sense. But I also have to say that the decision of each case on the same question of “sale by sample” turns on its own facts and sometimes it is very difficult to apply the same reasons of these past decisions in the present one. In my judgment, on the facts of the present case, the contract must be a contract for sale by sample, although the Sales Confirmation dated 2 July 2011 (but signed on 12 July 2011) did not expressly mention about these samples. The contract between the Plaintiff and the Defendant was partly oral and partly written. From the evidence before me, I have no doubt that the 2 pieces of Saw Mill floorboards, namely Exhibit marked “P2” and “P3”, were samples supplied to the Plaintiff for showing to its client and for checking the quality of the finished products when they were delivered later. The purpose of the Defendant in providing the samples to the Plaintiff was obvious and that must be the intention of the parties. Further, against the Defendant’s submissions, in fact the express term relied on by the Defendant did mention about “sample” and this would not have been the choice of words if the 2 pieces of floorboards supplied to Tim were not intended to be samples for the Plaintiff. This further supports my judgment that the parties, particularly the Defendant, must have intended these Saw Mill floorboards given to the Plaintiff before they entered into the contract for supply of the same were, in fact, samples.

16. The Defendant argued that even if this was a contract for sale by sample, the statutory, or otherwise common law, implied term as suggested by the Plaintiff was excluded by the said express term mentioned above. Alternatively, the Defendant argued that this express term qualified implied term.

17. The Defendant relied on the principle that a term will not be implied if it contradicts any express term of a contract. However, in my judgment, to exclude the operation of the said implied term, the express term to exclude must be clear, unambiguous and unequivocal. However, the said express term did specifically mention about the “colours and shadings”. It is therefore more like than not that if any exclusion was intended, it would be limited to just “colours and shadings” and no more. Further according to Yokie’s (the Defendant’s witness) evidence, she admitted that, at least, the “samples”, namely Exhibits marked “P2” and “P3”, would provide reference to the customers about the thickness, width and structure of the floorboards. In other words, if the thickness, width and structure did not correspond with the samples, the customer would be entitled to complain or even to reject the goods. I therefore find that, on true construction of the express term, it only qualified the implied term, instead of excluding the same entirely, to the extent that the “colours and shadings” of the floorboards may vary from the samples provided to the Plaintiff and are not required to correspond with them.

18. Further, in my judgment, it was reasonable to qualify the effect of the implied term as explained in the express term itself that these floorboards were, in fact, made of natural materials and there was no certainty of their colours and shadings. This express term certainly shifted the risk to the purchaser if there should be any dispute regarding the colours or shadings of the finished products. Owing to the nature of the products, it was certainly reasonable for the Defendant to qualify the effect of this implied term, but of course subject to the agreement of the Plaintiff.

19. Mr. Chien, for the Plaintiff, further argued that even if this Court accepts that the implied term was qualified, the word “colours” in the express term meant only the “natural colours” of the floorboards and not the colour of the finished product. I do not accept that submissions at all. This was against common sense. As I have had the benefit to see and inspect the finished product in question, namely Exhibit marked “P4”, I find that the colour of the finished product is made up of 2 elements:- first, the “man made” effects which included the “worn out effect” made by hand saw and the “white oil or paint” applied on the floorboards and, secondly, the natural colour of the floorboards. The colour of the finished product obviously was contributed by these 2 elements. From my own observation of the exhibits in court, the colour of the finished product appeared to be darker in colour when compared to the 2 pieces of samples and, although different persons might have different impression, in my judgment, it would be very difficult, if not impossible, to tell whether the difference in colour between the sample and the finished product was due to the “man made” effects only, the natural colour only or a mixture of both. In short, given the factual matrix of this case, on balance of probabilities, I do not see that it would be reasonable to come to a conclusion that the parties would have intended the words of “colours and shadings” in the express term to mean the “natural colours” of the materials only because it would be extremely difficult to distinguish one from the other. In my judgment, the parties must have intended that the words of “colours and shadings” in the express term to mean the colours and shadings of the finished product.

20. In conclusion, I find that the contract for supply of the Saw Mill and Old Dutch floorboards was a contract for sale by sample and the statutory implied term for sale by sample applied, save and except that it was qualified by the express term to such an extent that the “colours and shadings” of the finished product may vary from the samples. And since I find that the Plaintiff was not entitled to rely on the statutory implied term regarding the colour variation of the floorboards between the samples and the finished products, the Plaintiff was therefore not entitled to reject the Saw Mill floorboards. As there is no dispute that the Old Dutch floorboards were also acceptable, there is no reason for the Plaintiff to reject any of the floorboards at all. The issue of whether or not these 2 types of floorboards were part of the same transaction was therefore also irrelevant.

21. By reason of the above, it is therefore unnecessary for me to make any findings on whether or not the floorboards was accepted by the Plaintiff on 13 March 2011 or on any other days because, according to my findings, the Plaintiff was not entitled to do so in any event. This issue is perhaps academic now. That means if the Plaintiff did not, in fact, accept the floorboards on any one of the 3 occasions, the non-acceptance or rejection was therefore wrongful. However, as the Defendant did not accept the Plaintiff’s repudiation and has elected to carry on with the contract despite the Plaintiff’s wrongful rejection, the Defendant is entitled to claim for the balance of the contract price in the sum of $9,235. On the other hand, if the Plaintiff did, in fact, accept the floorboards on 13 March 2011 or on any other days, the Defendant was, of course, entitled to carry on with the contract and to ask for the balance now.

22. Mr. Tse, for the Defendant, fairly informed the Court that even if the Defendant succeeds in its defence and counterclaim, the law is not entirely clear as to whether or not the Defendant is entitled to ask for the outstanding balance of the contract price for $9,235, instead the Defendant could be just entitled to damages. Mr. Chien, for the Plaintiff, however made no submissions regarding this point. In my judgment, if the Defendant was ready, willing and able to carry on with the contract and did elect to carry on, despite the wrongful repudiation by the Plaintiff which prevented the Defendant’s performance of the work, the Defendant was still entitled to the balance of the contract price. I do not see any reason why, in the present instance, the wrongful act by the Plaintiff could prevent the Defendant’s rightful entitlement under the contract.

23. In the premises, the Plaintiff’s claim is dismissed and the judgment in favour of the Defendant’s counterclaim for the balance of the contract price in sum of $9,235 is hereby granted.

24. There was in fact an argument advanced by the Defendant regarding an express term in the Invoices that all money paid pursuant to the contract was not refundable. As I have decided in favour of Defendant’s defence and counterclaim, this, again, will be academic. But, as obiter dicta, I would like to point out that it would be very difficult for the Defendant to argue that this express term was part of the contract as it was only introduced after the formation of it. Even if I were wrong, on true construction of it, the express term only allowed the Defendant to keep the money paid by the Plaintiff when the Plaintiff unilaterally cancelled or withdrew from the contract. This express term had no place in a dispute when the Defendant was alleged to have been in breach of the implied term of the contract as in this case.

25. Regarding costs, I will make an order nisi that the Plaintiff do pay costs of this action, including all costs reserved, to the Defendant with certificate of counsel, to be taxed if not agreed. In the absence of application to vary within 14 days hereof, this costs order shall become absolute.

26. Lastly I would like to thank both counsel for their helpful assistance. I am grateful for their useful submissions.