TOPTECH CO. LTD. v. TSE WANG CHEUNG, PETER t/a DELUXE DESIGN & CONTRACTING CO.

1998, No. CT 17

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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Background

1. The plaintiff's business is the supply and installation of building materials. The defendant is a building and design contractor. The defendant was the contractor on several building and design projects in Beijing. In respect of these projects, the plaintiff entered into several contracts with the defendant under which the plaintiff sold building material to the defendant, and, in some cases, contracted to install this material. There was another contract regarding two escalators that did not, in reality, follow this description. It is agreed by the parties that this contract was essentially one under which the plaintiff agreed to provide money to the defendant so that he might acquire these escalators. There was also another contract (the master contract) that governed the general relationship between the parties.

2. After what was, I am sure, a great deal of hard work by the solicitors, for which I am most grateful, the parties have agreed the contract sums concerned, and the payments and adjustments for which the defendant should be credited. The total of these contract sums amount to $9,835,347.56. The payments, and adjustments, are agreed at $5,715,218.16. So, if the defendant fails in the defences and counterclaims raised by him, the amount due to the plaintiff is agreed at $4,120,129.40. It is convenient to deal with this matter under the headings of the various defences and counterclaims raised by the defendant, but, before doing so, I have some comments to make on the evidence.

The Evidence

3. The main witness for the plaintiff was Mr Cheung Tai Ming, Ringo, its managing director. The principal witness called to support the defendant's case was the defendant himself. I found both these witnesses to be unconvincing and unreliable. Both gave versions of the facts that were, at times, improbable, and not consistent with the contemporaneous documents and their earlier statements.

4. Mr Lau Kam Wo was another witness for the plaintiff. I was not comfortable with the evidence of this witness either. Although no longer employed by the plaintiff, he admitted, after some pressure, that he had a stake in the outcome of these proceedings.

5. The plaintiff's witnesses, Mr Kan Wai Ming and Mr Chu San Kwok, were, I believe, honest and reliable. I accept their evidence.

6. The defendant also called Mr Jiang Xi Wei and Mdm Xiang Ming. These witnesses, I find, were not convincing, and I cannot rely on their evidence unless supported by the probabilities, other satisfactory evidence or contemporaneous documents.

7. In the result, save as to the evidence of Messrs Kan and Chu, I must decide this case on the probabilities, consistent supporting satisfactory evidence, the contemporaneous documents and the onus.

8. The general credibility of the case put forward by the defendant is affected adversely by the unconvincing way in which it has been prepared, supported and presented, and the fact that, in some respects, his claims are obviously exaggerated and baseless.

9. The genuineness of the complaints now raised by the defendant is also thrown into doubt by contemporaneous documents. In particular, there is a letter dated 28 November 1995. On that date, Mr Ringo Cheung wrote to the defendant, Mr Peter Tse. This letter said "Further to the meeting with you in September regarding your outstanding accounts, as per your agreement to settle the whole contract by giving special discount for the following items and enclosed please find the revised invoices:" The items concerned were the red veneer, the parks furniture and the sofas. The letter went on to say "The original contract sum is HK$9,360,851.82 and after deduction of the special discount for settlement of unsatisfactory goods, the final contract sum has come to HK$9,304,571.82 plus the import tax and transportation charges for the above two projects we have billed you for HK$274,060.00, therefore, the total amount should be HK$9,578,631.82. This is the final contract sum that has been agreed by both parties and there will not be any further claims on both parties for these contracts."

10. Mr Tse says that he received this letter, but did not answer it, although the facts stated were untrue. He says this was because he wanted to discuss the letter with his employer to see if it accepted the terms. He also said he was very busy pursuing the employer. He suggested that he did not attach much importance to the letter because the parties were not then seriously in dispute. This is not true because, on 22 November 1995, the plaintiff's solicitors had written to the defendant, demanding payment and threatening proceedings. In fact, Mr Tse was quite unable to give any satisfactory reason for failing to dispute the false facts stated in this letter.

11. Mr Hingorani points out that the solicitors' letter of 22 November 1995 does not reflect the discounts mentioned in the letter of 28 November 1995. This is so, but I do not think this affects the fact that Mr Tse's failure to challenge what he says were blatant lies is extraordinary.

12. There are also other documents from the plaintiff to the defendant in 1995, also not challenged by the defendant, consistent only with the defendant's acceptance of an obligation to pay the plaintiff's claims by instalments. There is also a document made by the defendant dated "January - September 1995" and headed "Payment to Toptech for materials" in which is set out a "payment plan". This document is inconsistent with an honest belief in the defendant's mind that he did not owe money to the plaintiff, but the plaintiff owed money to him. Mr Tse's only explanation for this document was that it was internal.

The Corian Round Columns

13. One of the contracts concerned was one requiring the plaintiff to supply materials for, and to install, some cladding on columns. The cladding was to be done using a material called by the proprietary name of Corian. There were complaints about this work, but it is now accepted that the balance of the contract sum is due, subject to the defendant's claim for prolongation and rectification expenses. The defendant's argument now is that the contract sum was not due until 60 days after 28 May 1996; that is, after the date of the issue of the writ.

14. The writ was issued on 30 March 1996 with a statement of claim, and the statement of claim was amended on 12 July 1997. The amendment, so far as it is relevant here, deleted the averments about this contract, and substituted other particulars that were similar, but not identical. Mr Shieh referred me to Woo Suk King v Lam Lee Yuet Ha Lilian [1995] 3 HKC 701, but that case, which was concerned with adding a post-writ cause of action, is not relevant here. In the case before me, both the original statement of claim and the statement of claim of claim as amended allege that the debt under this contract was due before the issue of the writ. The defendant, on the other hand, pleads that the defects were made good only on 28 May 1996, and this was after the issue of the writ. This is a factual issue.

15. The master contract between the parties entered into in October 1994 contains some relevant clauses. These are -

"4) PRICES. TERMS AND CONDITIONS

The prices to be charged to the DEALER for the PRODUCTS purchased hereunder shall be CIF H.K. but delivered in PRC as specified in the purchase order with an additional costing inclusive of the custom charges and related freight charges etc.

Prices, terms, and conditions may be revised by TOPTECH at any time, effective upon written, telex, facsimile or other notice to DEALER.

5) SALES COMMISSION

5.1 DEALER entities to have a sales commission for the purchase order made between DEALER or DEALER's Register customer with Toptech. The order should achieve the maximum Gross Profit margin set in attached appendix II. The commission will be calculated on 1.25% of the Sales turnover amount of Toptech invoices.

5.2 The commission will be paid to the DEALER provided that the amount of Sales invoices is collected from the register customers or DEALER.

6) CREDIT TERM

DEALER should have a 60 working days credit on sales invoice after the date of the goods arriving the designated place, port or warehouse stipulated in each purchase order, if in proper shape and correct quantity upon delivery. The credit is secured by a personal Guarantee of Mr. Peter W. C. Tse of HK I.D. card no. . . . to Toptech. The maximum purchasing credit limit is HK$5,000,000, a deposit of 5% to 10% is required for each purchase order, or otherwise specified.

An overdue interest of HK prime rate + 4% will be charged on all overdue payment. In addition, the credit term with DEALER will be ceased, if there is any overdue payment. TOPTECH reserves absolutely right to change the conditions of the credit and/or withdraw such credit in any time without prior notice."

16. There is a document dated 18 and 19 May 1995 signed on behalf of the defendant. This refers to the materials and work to be done under this contract. The form recites a job description as, in translation, "Work at Beijing Asian Plaza, using Corian material for a total of 29 Circular columns. Installation work has now been completed." After these characters, there appear, in English, the following words in capital letters - "HAS BEEN COMPLETED AND SATISFACTORILY ACCEPTED BY US". Then there are some other Chinese characters that, in translation, read "Installation of 29 columns basically completed. Quality inspection and acceptance need to be assessed after party has confirmed.". Following this, the plaintiff issued an invoice dated 31 May 1995.

17. The defendant relies on another document. This records that "Asian Plaza commercial building's 'Corian' columns damaged, already sent our people for repairs. Have been inspected and accepted by Party A." It is not clear to whom "Party A" refers, but it clear from other parts of the document that the work was accepted on behalf of the employer on 28 May 1996.

18. The question here is whether or not the period of "60 working days credit on sales invoice after the date of the goods arriving the designated place, port or warehouse stipulated in each purchase order, if in proper shape and correct quantity upon delivery" expired before 30 March 1996. This clause does not, on the face of it, apply to installation after delivery, but the specific contract provides for payment of 5% on signature of the contract and 95% "within sixty days after installation." I take it, then, that the requirement of the goods being "in proper shape" applies to both the goods and the installation.

19. There is no evidence that there were any defects in the goods themselves so that it could be said that they were not "in proper shape". The complaints are about the installation. These complaints relate to defects that were, in my view, comparatively minor. There was no failure to install; the plaintiff delivered the materials and installed them, but there were some minor defects that required some patching and polishing. I do not think these minor defects released the defendant from its obligation to pay, subject to a claim for the cost of remedying these small defects. It cannot, in my view, have been the intention of the parties that "in proper shape" meant "perfectly" so that any minor defects would totally debar the plaintiff from recovering anything. This view, I believe, is supported by the document of 18 and 19 May 1995. If there had been substantial defects in the plaintiff's work, one would have expected the defendant to say this in the document. Instead, that document indicates that the defendant was broadly satisfied, subject to a quality inspection.

20. Accordingly, I find that the plaintiff did have a cause of action to recover something at the date of the issue of the writ. The fact that the full amount was not recoverable until after the minor defects were remedied after the issue of the writ does not enable the defendant to escape its admitted obligation.

21. At one stage, the defendant claimed an abatement of the price of 50% because of the defects. This claim is no longer pursued.

Granite

22. This is another contract under which the defendant accepts that payment is now due, but says this was not so at the time of the issue of the writ. Under this contract, the plaintiff agreed to supply Italian granite. The defendant complained that there was unacceptable colour variation in the granite, that some of the pieces had broken edges and some pieces, designed to be fitted in a row, did not match. The colour variation was said originally to effect 15% of the granite. The defendant now says that the percentage was only 5%. The pieces with broken edges were trimmed down, and the defendant accepted these by having them installed. The non-matching pieces were accepted by the defendant by installing them, albeit that he says this cost him more time and labour. So the granite, with whatever defects existed, was accepted by the defendant well before the issue of the writ.

23. The defendant relies on the fact that it was not until 2 February 1996 that the plaintiff's supplier provided additional granite for rectification purposes, and, therefore, payment was not due until 60 days after this. In my view, the supply of the additional granite was to satisfy any claim that the defendant might have had in this respect; it does not fix the time at which the plaintiff was due some payment for the granite supplied and accepted.

24. Accordingly, I find that it was not the position that the plaintiff had no cause of action arising out of this contract before the date of the issue of the writ.

The Escalators

25. This contract, it is now accepted by the defendant, was not a supply and installation contract, in spite of the fact that some documents signed by the parties might give this impression. The real contract was one under which the plaintiff was to finance the defendant's acquisition of the escalators from the manufacturer. Accordingly, the defendant's complaint that the plaintiff did not obtain a "pass" certificate so that the escalators could be used by the public is not valid. Indeed, the defendant accepted this when giving evidence, although he still wants to make some unpleaded complaint that the plaintiff did not pay what it had undertaken to pay. Apart from the fact that this complaint is vague and unpleaded, the evidence does not establish that the plaintiff was in any way responsible for the fact that the "pass" certificate was not obtained. This was entirely the responsibility of the defendant and in his hands. The defendant has no legitimate complaint against the plaintiff under this heading.

The Corian Worktop

26. It appeared from the evidence that the situation with regard to these items was simply that, although they were in accord with the sample supplied, the employer did not like them. This is a spurious attempt to avoid payment for no good reason at all. The claim is not pressed, but it does have some relevance in reflecting on the credibility and genuineness of the defendant's claims in general.

The Red Veneer

27. It is accepted by the plaintiff that the first batch of this wood veneer supplied was not in the dimensions agreed by the parties. Nevertheless, the defendant accepted and used it. He then ordered a second batch, not, as one might have thought, in accordance with the dimensions he first wanted, but in the dimensions of the first batch supplied. For whatever reason - one possibility is that the veneer in the dimensions the defendant first wanted was too expensive - the defendant was content to use the veneer supplied, and to order a second batch of the same size. The defendant signed a contract under which he agreed to pay for the second batch. The defendant's plea is that the veneer "was too flimsy, dried-out and easily broken", but he made no real attempt to show this by evidence. The defendant also pleads that the plaintiff agreed to give a 30% discount, and, indeed, the plaintiff has given a discount of 20% without protest by the defendant. The plea also said that the veneer - presumably the first batch - was rejected, but this is obviously not so. There is no suggestion in the plea of what now seems to be the defendant's case; that the second batch was supplied free of charge. If this had been so, the defendant would not have signed a contract agreeing to buy the second batch, or, at least, if obliged to do so, would have protested about this.

The Park Furniture

28. The defendant's original complaint about this furniture was that the wooden parts did not fit the metal frame, but the complaint later, and maintained at the trial was not this, but that the furniture was the wrong shape so that it could not be fixed to a curved wall. On 17 August 1995, the defendant wrote about this furniture. Then it was said that "The wooden board on the chair on the balcony was 1cm short on each side as compared with the metal frame, for which the employer demands a refund." There has been no explanation for this change in the nature of the complaint. In my view, it is inconceivable that, if the complaint that the furniture could not be fixed to a curved wall was genuine, this would have been the complaint that was made contemporaneously, and not some other completely different complaint.

Custom Modules and Footrest

29. The defendant says that these items had wrinkles that persisted after ironing. Nevertheless, the defendant accepted them. The purchase price of these items amounted to $173,100. The defendant claims an abatement of this price amounting to $129,825. How the defendant arrives at this abatement figure I have no idea. The defendant's expert says that he would not have accepted them. There is no acceptable evidence on which I could base any reduction in the price.

The Corian Round Table

30. It transpired during the defendant's evidence that he was not making any complaint in respect of this item. The crack about which he originally complained has long been repaired. The crack the experts saw was a different crack for which there is no evidence that the plaintiff is responsible.

The Rubber Floor Mats

31. The complaint here is that there was a colour variation in the mats supplied and there was some cracking around the edges of the steps. When the experts saw the mats some three years later, they did not attach much significance to these complaints. The defendant's own expert described the visual impact of the colour variation as "trivial" and the cracks as "minor". If this was the situation about three years after the mats were laid, taking into account normal wear and tear, it is not possible to regard these complaints as anything other than unjustified carping.

Leather Sofas and Console

32. The plaintiff supplied a leather sofa and console under one order, and, subsequently, another leather sofa. The defendant's original case seemed to be that both sofas and the console were defective in that the leather was "badly pressed" and "foot finishings" of the sofas and the console were unsatisfactory. Now the defendant says that he is willing to pay for the set, but not the second sofa, which was a replacement for the first sofa.

33. The defendant's defence says that the first sofa "had now been disposed of". The employer told him that it had been removed to a warehouse but it cannot be found.

34. The defendant cannot legitimately expect any relief here when he cannot give any assurance that the sofa is available for return to the plaintiff.

Corian Claddings on the Balconies

35. The trouble with this item was that, initially, expansion joints were not inserted, and, because of the extremes of temperature in Beijing, the Corian cladding cracked at, according to the defendant, "the junctions between the sections".

36. The defendant's evidence is that he knew that there should be expansion joints; he did not think that the cladding would survive without expansion joints. Mr Kan Wai Ming of Speed Top Construction & Engineering Company Limited, a specialist supplier of Corian materials, told me that he warned the defendant that expansion joints were necessary, but the defendant did not want them. The defendant's evidence is to the contrary; in fact, Mr Jiang Xi Wei, of the defendant, says he was told expressly that joints were not required. I accept the evidence of Mr Kan. In my view, it is unlikely that, if expansion joints were inserted into the Corian columns, which were indoors, expansion joints would not be recommended for these claddings, which were out of doors. It is also most improbable that the defendant would be told expressly that no such joints were required when it was known that they were.

37. So, I find that the defendant decided that there would be no expansion joints, and must take the consequences.

The Vertical Blinds

38. Here the defendant complains that the blinds were wrinkled and the track rails were deformed.

39. There is no independent evidence on this matter. What the experts saw is consistent with wear and tear over the years. I do not accept the defendant's unsupported case on this. Mr Hingorani did not address any argument on this item, other than to argue against any claim by the plaintiff for air freight.

The Sanitaryware Mock-up

40. The defendant does not want to pay for some sanitaryware used to build mock-ups of bathrooms at the Xing Cheng hotel. The strange thing here is that the defendant ordered other sanitaryware for the same purpose, signed a contract for this and paid for it. For the relevant sanitaryware, he did not sign a contract, although he concedes that he ordered the items. He was not told that the goods were supplied free of charge; he just understood this to be the case. When he received the invoice for this sanitaryware, he simply ignored it. This is not consistent with an honest belief that the items were supplied free of charge.

41. In his pleading, the defendant relies on clause 12 of the master agreement, but this clause does not cover the situation. These items were not samples of the plaintiff's products, but were provided so that the defendant could obtain an order from the hotel to install bathrooms.

Air Freight

42. There is no challenge that the plaintiff incurred these costs. The defendant says that the plaintiff should not have incurred them. The probability is that the plaintiff would not have incurred these additional costs unless the defendant had asked it to do so. It may be, of course, that the defendant's real case is that the plaintiff delayed delivery so that it was necessary to send the goods by air freight, and the plaintiff should be responsible for these extra costs for that reason, but the defendant has not put its case on that basis, and has not attempted to present such a case in evidence.

Customs Duty and Import Tax

43. In resisting the plaintiff's claim under this heading, the defendant seems to rely on clause 4 of the master agreement. This provides that "The prices to be charged to the Dealer for the products purchased hereunder shall be CIF H.K. but delivered in PRC as specified in the purchase order with an additional costing inclusive of the customs charges and related freight charges etc." To me, this clause makes it perfectly clear that the defendant is liable to pay customs charges as "an additional costing".

Money withheld by Employers

44. The defendant claimed a wide range of sums under this heading, eventually settling on $493,316.58 withheld by the employer Motorola and $4,078,950.46 withheld by the employer Asian Plaza.

45. I do not understand these claims. Whether or not the defendant's employers withheld money from the defendant is, without more, not a good foundation for claims against the plaintiff. The foundation should be a breach by the plaintiff resulting in damage to the defendant; that damage being the fact that the defendant was unable to recover money from the employers. The defendant has made no real attempt, under this head, to show breaches by the plaintiff leading to this consequence. In any event, the evidence from the defendant and Mr Jiang regarding the withholding of money by these employers is highly unsatisfactory and almost totally unsupported by an satisfactory documentary evidence. Apparently, the defendant settled its claims against the employers, but there has been no attempt to show how any reduced sum paid to the defendant is linked to any breach by the plaintiff.

The Legal Costs

46. The defendant claims a total of $421,968.70 legal expenses from the plaintiff. There is no need to deal with this. Mr Hingorani concedes that it is not recoverable from the plaintiff.

Transportation Costs

47. There is no satisfactory evidence that the defendant incurred any transportation expenses recoverable from the plaintiff. The only real evidence of such transportation expenses being incurred was in respect of the escalators, and the plaintiff is clearly not liable for those expenses. The defendant himself seemed to concede this.

Prolongation Costs

48. Under this heading, the defendant claims "Prolongation cost in the projects (Additional general and site overheads)". The claim here in relation to the Motorola project started at $1,292,500, before being reduced through $541,500 to $239,119.25. The claim in relation to the Asian Plaza project started at $2,337,810, was reduced to $954,000 and then to $606,648.57.

49. The defendant has made very little, if any, attempt in his pleading or his evidence to ascribe any particular delay to any particular breach by the plaintiff. This is necessary because, without this pleading or evidence, it is impossible to ascertain if any particular breach caused delay that was crucial; that is, that the breach alleged alone caused the delay, and not that some other factor would have resulted in delay in any event.

50. The claim is little short of ludicrous. For example, the claim in respect of Asian Plaza is for a delay of 24 months and continuing, yet the work that is said to have been done in this extraordinarily long period is very little. In respect of Motorola, where the delay is said to have been 10 months, and the work is said to have consisted of silly tasks like ironing furniture and taking it away and replacing it. Even the defendant was forced to concede that things could have been managed more efficiently.

51. It may be that the defendant suffered some uncertain delay by reason of some unascertained defaults by the plaintiff, but I would not regard it as my task to sort out the little portion of wheat from the great amount of chaff that the defendant has presented to this court, even if this were possible. He has not pleaded his case properly, and he has not advanced any credible evidence on which I could make any finding in his favour.

Exhibition Expenses

52. The defendant's claim here depends on his credibility. I decline to accept his evidence as capable of being believed.

Hotel and Travel Expenses

53. Again this claim depends on the evidence of Mr Tse being accepted. I do not accept his evidence so the claim cannot succeed.

Rectification Expenses

54. Under this heading, the defendant claimed $101,962.26 in respect of the Motorola project, but has increased this to $197,203.26. In respect of the Asian Plaza project, the defendant claimed $226,479.35, but has reduced this to $63,222.61.

55. These claims are much the same as those under the leading of prolongation. The defendant says that the prolongation costs were indirect, whereas these were direct expenses. Again there has been no attempt, in pleading or evidence, to say "This was the plaintiff's breach and this was the expense I incurred by reason of that breach.". The whole claim is lumped together, leaving it to the court to sort out which expense can be said to be attributable to which alleged breach. I am not prepared to do that. If the defendant cannot present his case properly, he cannot reasonably expect the court to perform his task for him.

Commission

56. The defendant says he is entitled to commission. This has never been challenged by the plaintiff.

The Result

57. In the result, I find that the defendant has not established any defence or counterclaim, other than in relation to the uncontested commission. The plaintiff is entitled to judgment in the sum of $4,120,129.40, less the commission due to the defendant. The commission is, according to the master contract, to be "calculated on 1.25% of the Sales turnover amount of Toptech invoices". This I calculate to be $118,995.84, leaving a balance due to the plaintiff of $4,001,133.56. Judgment is entered for the plaintiff in that sum. Other than in relation to the commission, the counterclaim is dismissed.

The Costs

58. The plaintiff has been entirely successful, and, on the face of it, is entitled to its costs. I make an order nisi that the defendant pay the plaintiff's costs of the claim and counterclaim.