SKYTEX INTERNATIONAL LTD v. EASTOP COMPUTER CONSULTANTS LTD

DCCJ 5928/2019

[2024] HKDC 1258

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5928 OF 2019

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BETWEEN

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JUDGMENT

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1.  This is a dispute in contract concerning the installation of an Enterprise Resource Planning system (“ERP”).

2.  The plaintiff is a supplier of various electronic components and devices in Mainland China and Hong Kong. The defendant is an ERP software company.

Background

3.  The ERP system, as far as the court understands, is an integral computer system for the entire running of a business. The ERP centralised the data of all the transactions of that business from purchasing from suppliers, inventory management, sales, accounting, client information etc..

4.  Mr. Yeung Chi Shing (“Daniel”), the sole shareholder and one of the directors of the plaintiff, came to know Mr. Wong Shing Hung Lewis (“Lewis”), a director and Principal Consultant of the defendant, through Ms. Sophie Cheng (“Sophie”), who is the wife of Lewis and an old schoolmate of Daniel. Sophie also worked in the defendant company. Lewis has discussed with Daniel about the ERP system that the defendant has developed for a customer called “Dragon Technology Distribution Pte. Limited” (“Dragon”) whose business nature was similar to the plaintiff’s.

5.  At around September 2016 and August 2017, representatives from the defendant had contacted and held several meetings to discuss, amongst others, the plaintiff’s requirements and held demonstrations of the Dragon ERP system using the plaintiff’s test data.

6.  The parties signed the contract for provision of the ERP system on 16 August 2017 at the costs of HK$900,000 (“the Contract”, Trial Bundle C1 page 18-21). The plaintiff paid the requisite down-payment of HK$450,000 on 30 August 2017 (Trial Bundle C1 page 69). The plaintiff also provided a “Workflow Table and Requirement List” to the Defendant on 29 August 2017.

7.  The defendant installed a trial program on a notebook provided by the plaintiff on 26 September 2017.

8.  The plaintiff purchased the required hardware server from Skytex Consultant Limited (which was a IT consultant company providing IT support to the plaintiff when needed) which was set up on 20 March 2018.

9.  The defendant installed the Microsoft SQL licenses and the ERP on the new servers on 23 March 2018.

10.  It is not disputed that the defendant did not finish or complete the ERP system and the plaintiff did not make any further payments under the Contract. The crux of the case is whether the defendant’s refusal to complete the contract is justifiable under the contract.

11.  The plaintiff’s case was that Item 7 of the Contract (which concerned “implementation and tailor enhancements” of the ERP etc.) would be “all inclusive” in the Contract.

12.  The plaintiff in particular relied on the WhatsApp messages between Daniel and the defendant’s Mr. Paul Lau (“Paul”) dated 16 to 17 August 2017 (i.e. during the negotiation before the signing of the Contract) (Trial Bundle C1 page 22). Paul has agreed that item 7 was “基本包底” which the plaintiff took to mean “all inclusive”.

13.  Mr. Martin Ho, the plaintiff’s counsel (“Mr. Ho”) explained the plaintiff’s position regarding the term “包底” or “基本包底” under the circumstances in paragraph 2(1) of his Closing Submission:

“the defendant would fully complete the Project according to the plaintiff’s initial requirement list…, and in addition, if the plaintiff makes any further revisions according to actual needs and situation, the defendant will fulfil the plaintiff’s needs at “feasible, acceptable and reasonable extent”…”

14.  The defendant’s case was that the implementation of the ERP was not “all inclusive” but subject to a limitation of 20 man-days of work as specified under Item 7. It claimed that the defendant has in fact provided work beyond this limit already and, despite repeatedly informing the plaintiff that additional “man-days” needed to be purchased, the plaintiff failed to do so. Therefore the defendant was reasonable in refusing to do more implementation work after around 12 December 2018.

15.  The plaintiff claimed, amongst others, HK$450,000 as restitution of the deposit paid on the ground of total failure of consideration and HK$265,130 as lost and damages (HK$230,130 as the costs of purchasing three servers and HK$35,000 as costs of purchasing three Microsoft SQL licenses) (paragraphs 13 and 14 of the Statement of Claim, Trial Bundle A, page 6).

16.  The defendant denied this and counterclaimed, amongst others, HK$450,000 being the balance of the Contract price (paragraph 21 of the Amended Defence and Counterclaim, Trial Bundle A, page 20).

The Nature of Contract

17.  The nature of the Contract was not in dispute. The defendant was not going to write a brand-new tailored-made ERP for the plaintiff, but to modify / fine tune an existing ERP that the defendant has developed for Dragon for the plaintiff’s business purpose (paragraph 3 of the Amended Defence and Counterclaim, Trial Bundle A, page 10-11; and paragraph 3(2)(b) of the Amended Reply and Defence to Counterclaim, Trial Bundle A, page 25).

The WhatsApp messages

18.  As discussed above, there was a WhatsApp communication between Daniel and Paul regarding the contractual terms (Trial Bundle C1, page 22) on 16 August 2017:

Daniel: “I expect item 6-7 包底?”

…

Paul: “For 6) necessary reports forms only 10 quota is not enough…”

…

Daniel: “There is no report 包底?? Please call us on….”

…

Daniel: “Part 7) cust, implementation, etc….仲係基本包底?”

Paul: “Yes”

The Relevant Contractual Terms in the Contract

19.  On the next day, 17 August 2017, Lewis sent an email attaching a draft contract (Trial Bundle C1, page 27).

20.  Daniel replied on 18 August 2017 with “minor revisions and requests” (Trial Bundle C1, page 26). These include an addition in Item 7 of the Contract regarding “further enhancements” (Trial Bundle C1, p. 30-2; additional contract conditions a) to c) (Trial Bundle C1, p.30-3) and an additional to the 30% payment upon software delivery and installation upon “completion on implementation with customer acceptance” (Trial Bundle C1, page 30-2).

21.  Regarding Item 6 of the Contract, it was not disputed that Paul has clarified to Daniel that there was no “包底” for Item 6 of the Contract. This clause specified that “Tailor-Made Form / Report / Browser / Alert” for ERP are restricted to “10 Quota” and “One or more quota may be counted for each unit depends on the workload”.

22.  The dispute between the parties concerns the meaning of Item 7 (Trial Bundle C1 Page 19) in the context of the whole Contract and the circumstances under which it was made.

23.  Item 7 was set out under several columns.

24.  Under a column labelled “Description”, it reads:

“Eastop Implementation [6 hours / man day] (on-Site ot Off-site)

Key Tailor enhancements include:

-Add “MRP Date” to all MRP related modules…

…

-One time addition of tailor fields for MRP related modules

-Further enhancements will refer to “requirement list” provided by CUSTOMER later => “** Additional Contract Conditions” point b)

…”

25.  To the right of this “Description” column, there is a column labelled “QTY” (or quantity) stating “20 day”, another column labelled “Price” stating “5,500” and the final column labelled “Amount” stating “110,000”.

26.  Paragraph 1 under “Remarks” further explained such “implementation days” stated under Item 7 stated:

“Based on Eastop provided “Dragon Technology Distribution Pte. Ltd.:” operation flow, quoted implementation days is just a (an) estimation, final implementation days needed depending on requirements of operation flow fine to(u)ning, training days required and tailor modifications (if any)”

27.  Under b) of the “Additional Contract Conditions”, as requested by Daniel, stated:

“A preliminary “Workflow Table & Requirement List” will be provided by CUSTOMER, targeted to be completed within two weeks after signing the CONTRACT. However, the contents and details of this list could be compromised and revised from both parties from time to time during implementation period according to actual needs and situation. EASTOP commits to try the best to fulfil the CUSTOMER “Requirement List” at feasible, acceptable and reasonable extent.”

Considerations regarding the contractual terms

28.  The plaintiff argued that the when Paul replied to Daniel agreeing to “基本包底” for Item 7 of the Contract meant, inter alia, that that the defendant has promised to fully complete the ERP according to the plaintiff’s preliminary “Workflow Table and Requirement List” no matter the time and costs.

29.  I do not agree.

30.  From the relevant contractual terms as stated above, I find that the intentions of the parties were very clearly stated on the Contract:

a. The plaintiff agreed to purchase 20 “man-days” from the defendant (at the total costs of HK$110,000) for the implementation of all the objects under Item 7.

b. Such objects included various additions, implementations, enhancements of various modules and fields etc. (specified under the “Description” column and paragraph b) of the “Additional Contract Conditions” i.e. the preliminary “Workflow Table and Requirement List” and revisions from time to time etc.) as well as training and skill transfer and data conversation etc.

c. However, the 20 “man-days” for implementation of Item 7 was just an estimation. The final amount needed would depend on requirements of “operation flow fine tuning, training days required and tailor modifications”.

31.  There was nothing stated in the Contract that identified any individual objects under Item 7 (e.g. the preliminary “Workflow Table and Requirement List”) as an “all-inclusive” or “must-fully-complete-no-matter-what” object.

32.  Indeed, if there was no time and costs limitation for completion of any one (or more) of the objects listed under Item 7, there would be no need to state any details of this “man-days” costs calculation system in the Contract.

33.  The plaintiff did not dispute the contractual term stating that the 20 “man-days” was only an estimation.

34.  Daniel’s own evidence was that:

“Under the Contract, it was stated that the implementation works of the Project would take 20 “man-days”. It was the Defendant’s estimation. I understand that the Defendant’s estimation was based on its past experience…” (paragraph 12 of Witness Statement of Yeung Chi Shing, Trial Bundle B, page 6)

35.  Daniel was at pains to point out that the plaintiff has no relevant experience or knowledge on how many “man-days” were required and so relied upon the defendant’s estimation and reassurance.

36.  Although Paul was not called to give evidence as to the meaning of “基本包底” (Lewis’ explanation in court was that Paul has emigrated and left Hong Kong), it did not matter. If there was a contractual term that one (or more) of the objects under Item 7 was “all inclusive” and thus needed to be fully completed no matter what), Paul would have agreed to Daniel’s initial suggestion of “包底”. The fact that Paul only agreed that it was “基本包底” clearly showed that he intended that there should be a qualification.

37.  On balance, I think the meaning of “基本包底” is consistent with both the clear meaning on the Contract and the plaintiff’s own case. I would think that a reasonable interpretation of Paul’s meaning would be: “basically it can be considered all inconclusive because by our estimation based on past experience on implementation of ERP, 20 “man-days” should be enough.”

38.  In other words, it was more likely intended to be a reassurance (based on past experience) rather than an outright promise of implementation regardless of time and costs.

39.  Indeed, the court has asked Daniel:

“So “基本包底” meant according to discussions for about a year, the defendant estimated that 20 “man-days” should be enough to complete. It did not mean that HK$110,000 costs must be all inclusive, but just an estimation?”

40.  Daniel agreed.

41.  Furthermore, this is also entirely consistent with the nature of the Contract: this was for modification of an existing ERP. If there was a promise of unlimited tailoring as requested by the plaintiff, the Contract would have been in nature of writing a brand new tailor-made ERP for the plaintiff.

42.  Given the intentions of the parties under the Contract, the only dispute is whether 20 “man-days” were reasonably incurred by the defendant so that it was justifiable to stop work unless the plaintiff to pay for additional “man-days” for completion of the ERP.

IT expertise

43.  What becomes quite apparent in this case is the lack of reasonable IT support or expertise of the plaintiff’s company.

44.  It is clear from the evidence that Daniel is himself not an expert in IT and not acquainted with the operation of the ERP: he was more involved with liaising with the defendant. Instead, the plaintiff relied on Mr. Pao Lok Kwan (“Pao”), the Business Manager of Skytex Consultant Limited (a “sister” company to the plaintiff which provided IT support).

45.  Pao admitted in court that he was not an expert but only had more experience in software. Importantly, he also admitted that the staff working in the plaintiff only knew the operation side of things: i.e. inputting data.

46.  As stated before, the defendant has installed a trial version of the ERP on a notebook provided by the plaintiff on 26 September 2017. This was so that the plaintiff could test the system with its own data.

47.  Pao gave evidence that there were immediate problems reported by the plaintiff’s staff, who found that they could not get from one interface to another and there were repeated “error” messages. And when the defendant was contacted to solve this problem, they managed to get to the next interface, only for further “error” messages to occur etc.. He also said that the defendant then used “remote-access” to help solve the problems.

48.  Pao described the problems as “過咗一關又有一關” (“passing one barrier and then the next”).

49.  However, when cross-examined on whether he knew how the defendant was trying to fix the problems, Pao admitted he did not know: it was the staff of the plaintiff who was dealing with the problems.

50.  I find it surprising that Pao, being relied upon by the plaintiff to provide IT support, was apparently not involved in assessing (let alone solving) the problems encountered. He did not even know how the defendant was solving them.

51.  By contrast, Lewis was able to provide a much better explanation of the problems in court.

52.  Lewis explained that, at that stage, the plaintiff did not have a server and requested the defendant to install the trial ERP on an old notebook. It would still run the ERP on its own for testing (albeit a bit slow). However, when the plaintiff attempted to connect this notebook with other computers it ran into problems.

53.  A notebook is normally not running as a server so it runs on “Client Operating System” instead of “Server Operating System”. As such, it has all the anti-virus software and firewalls to prevent other computers attempting to connect with it. So when attempting to use the notebook as a server, the user would need to get into the “Operating System” to switch off these anti-virus software and firewalls, and to open certain “ports”.

54.  The plaintiff clearly did not know this and so the other computers were blocked, causing all the “barriers” and “error” messages. The plaintiff instead blamed the defendant’s software.

55.  The defendant spent much time to help the plaintiff but to make matters worse, the plaintiff has been switching off the notebook so the problems recurred whenever there was an automatic “Windows Update” and everything was switched back to “default” positions.

56.  Lewis was adamant that anyone with IT knowledge should know what was happening and could solve it. However, the plaintiff relied on the defendant’s help every time, and in the end, the defendant had to use “remote-access” to help.

57.  It is clear that much time (and thus “man-hours”) was wasted this way. I accept the evidence from Lewis that this was the plaintiff’s own networking (hardware) problem. The plaintiff failed to solve its own problem due to a lack of reasonable IT support. Indeed, the defendant was asked to help but this was not its responsibility.

58.  Further, it was clearly unfair for the plaintiff to blame the defendant despite the help. The defendant was a software company and this was not a software issue.

59.  Pao gave evidence that there were still “problems and errors” after the ERP was installed on the new servers on 23 March 2018 and that, initially, the defendant was “responsive and willing to assist throughout”. However, on 29 April 2019, “the defendant represented to the plaintiff that they would no longer work on the ERP” (paragraphs 9 - 12 of the Witness Statement of Pao Lok Kwan, Trial Bundle B, page 56).

60.  Pao stated that the ERP was still defective although he said that he did not personally participate in the operation of the ERP after its installation on the new servers. He said he was only informed of these problems when messages from the staff of the plaintiff were copied to him.

61.  Nevertheless, Pao conducted a series of test on the ERP between 14 and 18 August 2022 and documented a list of “errors and defects” in paragraphs 14.1 to 14.16 of his witness statement and illustrated by Appendices 1-6 enclosed therein.

62.  However, I do note that under cross-examination, Pao admitted that despite claiming that he “conducted” these tests, he was not involved in entering any data. Instead, the data were entered by the plaintiff’s staff.

63.  Under cross-examination, it was put to Pao simple data like the date was not entered in the testing and Pao agreed. It was also put to Pao that certain faults recorded was due to data entry error, Pao could only give bare denials. He could not elaborate on how he came to that view given that he was not involved in entering the data himself.

64.  The issues were rather technical but my impression was that Pao does not know much about the operation of the ERP. It would appear that he was only familiar with the operation of the Excel Spreadsheet System (“Excel”), which I presume to be the plaintiff’s old system.

65.  At one point, Pao explained to the court why he thought that the ERP has a “系統性問題” (which I took to mean a “systemic problem”). He stated that under Excel, certain data would appear in a certain way. Pao suggested that all the modules were linked so the user should be able to see such a field entered in other modules.

66.  Lewis gave evidence that these data would be in the print-out and might not needed to displayed on all the modules. The idea behind good data management is to minimise data replication and duplication so the aim should be for a system which only needed a single entry for all data. Adding such “display-only” field was possible but it was out-of-scope work and would require more “man-days”.

67.  Lewis further explained that the ERP was basically a set of computer language (so called “SQL” or “Structured Query Language”) written by the plaintiff to command a database (in this case Microsoft SQL Server) to write, extract, delete or analyse etc. the data entered.

68.  In other words, the ERP is a database management system which clearly operates very differently from Excel which is a spreadsheet system.

69.  The arguments were highly technical and I am of the view that if Pao (or the plaintiff) were to raise an allegation that the ERP was technically deficient in any way, independent computer expert evidence would be needed.

70.  Since the plaintiff has not adduced any expert evidence, I find that there is insufficient evidence to support Pao’s allegation that the ERP had any “systemic problem”.

71.  Indeed, given that the defendant has been in business of doing such modifications based on the Dragon ERP to suit client’s needs for over 20 years (since 1997), and given the apparent lack of reasonable IT skills in the plaintiff company, on balance, I do not think that the problem here lied with the ERP system.

72.  In fact, the disputes in this case support my overall impression that the plaintiff lacked reasonable IT skills and did not fully understand the operation of the ERP: it appeared to believe that this should operate exactly like their old system otherwise it must have some of sort of systemic problem or deficiency.

73.  As such, this belief has led the plaintiff to continue to request the defendant to make the ERP to operate like Excel. I do not think that this was reasonable given that it was agreed that the defendant was not writing a brand new ERP for the plaintiff.

74.  Further, such belief might explain why the plaintiff continued to think that the ERP could not be utilised for its use and constantly sought modifications whilst the defendant was seeking the plaintiff to test (and thus learn to operate) the new system. The parties were at cross-purposes from then on.

75.  In addition, I think that this apparent lack of IT skills also appeared to have hampered the plaintiff’s ability to communicate meaningfully and efficiently with the defendant. Lewis gave evidence that every time the plaintiff requested for additions, modifications or enhancements, it simply sent a 30 or more pages long document (“like an encyclopaedia”) to the defendant without clear instructions as to exactly what was needed and where. The defendant again had to spend much time trying to decipher the plaintiff’s requests.

76.  There was also a dispute whether on several occasions the plaintiff had given new instructions or whether all such instructions were already listed in the preliminary ““Workflow Table and Requirement List”.

77.  Daniel’s evidence appeared to suggest that that most, if not all, of the requests for modifications etc. were given to the defendant at one go in the preliminary ““Workflow Table and Requirement List”. However, when cross-examined on various individual requests, he said he could not remember.

78.  On the other hand, Lewis’s evidence was he was agreeable to make modifications / additions etc. in one go (i.e. by way of the preliminary “Workflow Table and Requirement List”) but further modifications requests were subject to remaining “man-days” available (with some degree of flexibility allowed). However, the plaintiff was constantly requesting new modifications etc. without clear instructions (as stated above).

79.  It was noted that the entire preliminary ““Workflow Table and Requirement List” was not in the Trial Bundle. The plaintiff applied to produced this in the second day of the trial. However, Daniel has already completed his evidence by this time so it was suggested that he could be recalled if needed.

80.  However, in the event, the defendant did not choose to recall Daniel.

81.  I do not think this is necessary: the dispute is irrelevant.

82.  The preliminary “Workflow Table and Requirement List” and paragraph b) of the “Additional Contract Conditions” (amongst others) were all objects under Item 7. I have found (and the parties do not dispute) that the time quoted (20 “man-days”) for the implementation of all these objects was the defendant’s estimation based on past experience. I have also found that the plaintiff lacked reasonable IT skills so it is self-evident that this would affect any reasonable estimation of time needed.

83.  Indeed, paragraph 1 of “Remark” has already catered for this possibility: the plaintiff clearly has more requirements for “operation flow fine tuning, training days required and tailor modifications” and thus needed more “man-days” than the original estimation.

The plaintiff’s case

84.  As pleaded in Statement of Claim, the plaintiff’s claim was that the defendant has breached the Contract because of incomplete implementation etc. of the ERP and it remained useless.

85.  The allegations support the alleged breach were that :

a. on 17 April 2018 Mr. Michael Cheung of the defendant (“Michael”) informed the plaintiff (on the phone and via email) that the defendant would not carry out modifications / customisation to the ERP since the estimated “man-days” was exceeded (“the First Allegation”, paragraph 8 of the Statement of Claim, Trial Bundle A, page 5).

b. from May 2018 to April 2019, despite repeated demands, the defendant refused or failed to respond to the plaintiff’s instruction to complete the implementation of the ERP etc. (“the Second Allegation”, paragraph 9 of the Statement of Claim, Trial Bundle A, page 5).

c. that Lewis represented to the plaintiff on 29 April 2019 that the defendant would no longer work on the project (“the Third Allegation”, paragraph 10 of the Statement of Claim, Trial Bundle A, page 5).

86.  With regard to the First Allegation, there was no allegation nor evidence that the defendant actually refused to carry out modifications etc. to the ERP from 17 April 2018 onwards. I cannot see how simply giving out a “warning” as such could constitute a breach.

87.  With regard to the Second Allegation, Daniel claimed that:

“From May 2018 to April 2019, upon further testing we discovered various deficiencies of the ERP system and repeatedly mentioned…to Sophie and Michael…but the defendant refused and/or failed to respond to most of our instructions for the purpose of completing the implementation of the ERP system…” (paragraph 31 of the Witness Statement of Yeung Chi Shing, Trial Bundle B, page 12)

88.  However, this is inconsistent with the evidence provided by the plaintiff’s other witness, Pao:

“Since its installation, the plaintiff encountered a number of problems and errors in operating the…ERP…Feedbacks…were provided to the defendant from time to time. The defendant responsive and willing to assist throughout…” (paragraph 11 of the Witness Statement of Pao Lok Kwan, Trial Bundle B, page 56)

89.  According to Pao, the “turning point” only came on 29 April 2019 “when the defendant represented to the plaintiff that they would no longer work on the…ERP System.” (paragraph 12 of the Witness Statement of Pao Lok Kwan, Trial Bundle B, page 56)

90.  I am of the view that the evidence (e.g. from the correspondence between the parties and the defendant’s “Implementation Log for Skytex”) shows that Pao’s evidence was more accurate: the defendant has continued to respond to the plaintiff’s feedbacks and worked on the ERP even after Michael’s message on 17 April 2018 up until 29 April 2019.

91.  In essence, the only allegation raised regarding the alleged breach concerned with the Third Allegation: that the defendant no longer worked on the ERP from 29 April 2019 onwards.

Regarding notifications of “man-days”

92.  The plaintiff appeared to be alleging that the defendant has not raised matters concerning “man-days”.

93.  In his witness statement, Daniel did not mention any communication between the defendant and the plaintiff regarding the running out of “man-days”. Indeed, he only stated under paragraph 32 of his witness statement (Trial Bundle B, page 13) that:

“Eventually, I could finally meet up with Lewis in person…on 29 April 2019. During the said meeting, Lewis clearly represented to me that the Defendant no longer work on the Project. He never mentioned to me that we would need to buy more “implementation dates” from the Defendant in order to complete the Project.”

94.  Pao also stated that he was not told of the need for purchasing additional “man-days”:

“Lewis or Paul never told me by any means additional “man-days” would need to be purchased…” (paragraph 11 of the Witness Statement of Pao Lok Kwan, Trial Bundle B, page 56).

95.  On the other hand, Lewis gave evidence that the defendant has repeatedly raised that “man-days” were running out (or has run out) to the plaintiff via telephone, WhatsApp and email but the plaintiff (presumably Daniel) did not respond to such nor agree to buy additional “man-days”.

96.  What is clear is that the documents in the Trial Bundle showed at least 3 occasions that the defendant has indicated the issue of remaining “man-days” to the plaintiff.

97.  Firstly, as early as 25 September 2017, Sophie has written an email to Daniel (Trial Bundle C1, page 109) enclosing the “implementation used list” (Trial Bundle C1, page 114). The “implementation used list” clearly stated at the top:

“合同備註 : Total 20 implementation days are purchased by Skytex

小時 : 120”

98.  The table that follows clearly lists out what work has been done (by whom, with dates and “man-hours” used) and that “尚餘小時” (“remaining hours”) was 50 “man-hours”.

99.  The last item on the table concerns “Data field / Screen Layout / MRP enhancement” which did not contain a date but was listed for 40 “man-hours”. Lewis explained that that this indicted that this last item would require 40 “man-hours”: it was not dated because it still needed to be done. As such, it would be understood that, even at that stage, only 10 “man-hours” were left before this last (and essential) step to complete the implementation.

100.  There was no evidence that Daniel, or anyone at the plaintiff, has raised any dispute, sought any clarifications or any remedy regarding this.

101.  Secondly, on 1 November 2017, Sophie has WhatsApp Daniel (Trial Bundle C1, page 100):

“…I will not suggest you implement at this moment. As you know, the implementation days are all used and there is no space for other new modules yet…”

102.  Again, there is no evidence that Daniel has raised any dispute, sought any clarifications or remedy regarding this.

103.  Thirdly, on 17 April 2018, Michael sent an email to Daniel (Trial Bundle C1, page 208) stating:

“經過你和 Lewis 的討論，Lewis已告知 Implementation Days 已經超額，沒空間再做任何流程改動 / 欄位增加 / Control 等.

Lewis 要我們接下來只可以做以下幾個方面…”

104.  This would indicate that there was likely at least another occasion that the defendant has informed the plaintiff that “man-days” were all used up: via a discussion between Lewis and Daniel prior to this email.

105.  Therefore, there is no doubt that Daniel (and the plaintiff) has been informed of “implementation days” (or “man-days” / “man-hours”) running low or having ran out on at least 4 occasions.

106.  However, neither Daniel nor Pao mentioned this in their witness statement. Instead, both only claimed that they were not told of the need to purchase more “implementation days” (or “man-days” / “man-hours”).

107.  On balance, I find it likely that the defendant must have informed the plaintiff of the need to purchase more “man-days”. It defies reason why the defendant would only tell the plaintiff that the “man-days” has run out without offering to sell more.

108.  Further, the Contract clearly stated that the plaintiff had purchased 20 “man-days”. So if Daniel (or the plaintiff) was told that the “man-days” were running low or had ran out, it was plainly common sense that he would need to buy more (even if he was not told such as he claimed), and if he was not sure, he could have inquired the defendant on what to do.

109.  More importantly, irrespective of such disputes, despite such repeated messages, it was clear from the defendant’s evidence (and supported by Pao’s evidence) that the defendant continued to work on the ERP until 29 April 2019, more than 1 year after the last email. This was without the plaintiff purchasing additional “man-days” from the defendant.

110.  Indeed, the circumstances seem to support the defendant’s case that the plaintiff has all along refused to buy additional “man-days” but instead demanded the defendant to continue to work free-of-charge to complete the ERP to its satisfaction. Lewis finally decided that it was “the final straw” on 29 April 2019.

111.  During the cross-examination of Lewis, Mr. Ho questioned the accuracy of the “man-hours” / “man-days” indicated in such messages.

112.  Lewis has exhibited an internal document labelled “Implementation Log for Skytex” (Trial Bundle B, page 40 - 42). Mr. Ho questioned that at the time Sophie wrote the email to Daniel, the balance of “man-hours” (according to this log on the date of 25 September 2017) was 59 and not 50 (as indicated in the “implementation used list” that Sophie sent).

113.  Further, Mr. Ho also questioned that this log only started to show a balance of “-1” man-hours on 7 February 2018, so it was not true that “the implementation days are all used” when Sophie WhatsApp Daniel on 1 November 2017.

114.  Lewis explained that there were “man-hours” that they had not documented and in any case, they have “done more, not less”.

115.  I am of the view that such disputes are rather academic: this log clearly documented that a lot more work was done even after the “man-hours” became negative on 7 February 2018. So, under all circumstances, the 120 “man-hours” the plaintiff has purchased under the Contract were well exceeded by 29 April 2019.

116.  This was almost 15 months of working for free.

117.  Indeed, according to paragraph b) of the Additional Contract Conditions, the plaintiff could “from time to time” “compromised and revised” the preliminary “Workflow Table & Requirement List”. However, the defendant should only “commit to try the best to fulfill” such to a “feasible, acceptable and reasonable extent” within the quoted 120 “man-hours”.

118.  In the circumstances, I find that the defendant has done more work than and beyond what can reasonably deemed to be a “feasible, acceptable and reasonable extent” (or, indeed, beyond any reasonable degree of “flexibility” on “man-hours” that Lewis might allow under the Contract).

119.  Therefore, for the question of whether 20 “man-days” (or 120 “man-hours”) were reasonably incurred by the defendant so that it was justifiable to stop work on 29 April 2019, the answer is clearly “yes”.

120.  Thus, I find no basis that the defendant has breached the Contract as alleged and the claim should be dismissed.

121.  As such, the plaintiff is not entitled to claim the restitution of the initial deposit nor the damages incurred in purchasing of the three servers and the three Microsoft SQL licences.

The counterclaim

122.  Although I find that it was reasonable for the defendant not to complete under the circumstances, I also note that the Contract (e.g. paragraph 1 under “Remarks”) does not impose any obligation on the plaintiff that it must pay all the costs of the “final implementation days” above the quoted 20 “man-days” required to complete (Trial Bundle B, p.19).

123.  With regards to completion, under paragraph 3.2 of “Delivery & Installation” in the Contract (Trial Bundle B, page 20), it was stated:

“Delivery of Service: Both Parties have the same target to finish the implementation of the project with three months.”

124.  On plain reading of this paragraph, this clause also does not impose any obligation on either parties that the implementation must be finished within 3 months.

125.  On the other hand, the payment terms stipulated under “Payment” (Trial Bundle C1, page 20) was that after the 50% down payment (which was paid), the next payment of 30% was condition upon:

“software delivery and installation; completion on implementation with CUSTOMER acceptance”

126.  It is clearly a condition that this should only be paid on “completion on implementation with CUSTOMER acceptance”. It is not in dispute that implementation was not completed with the plaintiff’s acceptance.

127.  As such, the defendant’s counterclaim based upon the remaining balance of the payment in the Contract must also fail.

Costs

128.  In the circumstances, given that the vast majority if not all of the court’s time was spent on the plaintiff’s claim and not on the defendant’s counterclaim, I would give an order nisi that the costs of the action be to the defendant to be taxed if not agreed, with certificate for one counsel granted.