ASIA PRINTING EQUIPMENT CO LTD v. MANY-PRINT PACKAGING & PRINTING LTD

HCA 9331/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9331 OF 1997

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J U D G M E N T

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1. This is a claim for the balance purchase price of a second-hand four-colour printing machine sold by the plaintiff to the purchaser by contract dated November 1996 as adjusted and the cost of parts and labour also supplied. The defence is that the machine has failed to perform and that the defendant is entitled to withhold the balance purchase price because of non-compliance. In addition the defendant has counterclaimed for loss of profit or in the alternative losses associated with returning the machine to the plaintiff.

2. Both parties are Hong Kong companies. The plaintiff's (Asia Printing's) principal activity is the sale of printing machines and related equipment, new and second-hand. The defendant (Many-Print) runs a printing operation with a factory based in Shenzhen.

3. In or about November 1996, Mr Lok Yiu Cheung (Mr Lok), then managing director of Many-Print, approached Mr Yau Wai Kung, (Mr Yau) then a salesman employed by Asia Printing, to enquire about the purchase of a second-hand Roland RVK3B four-colour printing machine. Roland is a well-known brand manufactured in Germany. Asia Printing had 'on its books' a Roland, made in 1982. The parties negotiated, agreed a price and other terms and signed a contract and collateral letter of 26 November 1996. Whether or not there were additional express of implied terms is in dispute. Suffice to say that what was agreed in writing comprised a single sheet document headed contract no. 052H/96 and a letter form Asia Printing to Many-Print both dated 26 November 1996. The contract document was backed with a total of 20 conditions headed 'General Sales Conditions'.

4. The contract identified the Roland machine giving its year of manufacturer and serial number. The vendor and purchaser were named. The price was recorded at HK$2.6 million. The delivery date was recorded as mid-December. Delivery and installation were included in the purchase price. Payment was to be made in full prior to delivery. The conditions on the back were recorded as being terms of the contract. There was recorded 'If apparent stripe and doubling is found on test run, the buyer can return the machine to the seller and need not bear responsibility'. There were 7 conditions on the face of the document; only 2 are relevant:

"6. The seller provides half year's maintenance, if parts are required to be replaced, is the responsibility of the buyer.

7. The seller shall not be responsible for human fault, wear and tear."

5. The 'small print' on the back deals with all sorts of detail and contingencies most of which are not pertinent. Suffice to say clause 1 states that the contract shall not be varied except by amendments made in writing and signed by the parties; clause 12 provides that default in making of payment shall bear interest at 12% per annum. Clause 13 provides that if it is agreed that the price of the goods or any part is to become due after installation it is agreed that such sums shall be due not later than 1 month after delivery notwithstanding installation might not be completed until a later date.

6. Both parties signed and chopped the contract.

7. The covering letter purported to give a discount of $550,000 to what was stated to be a special price, namely, $2,050,000.

8. Although the parties were somewhat coy about giving an express reason for the discount to the special price I rather gather reading between the lines that the price was inflated to satisfy the demands of Many-Print's financier which it seems provided all the purchase price; the special price was the actual negotiated cost of the machine.

9. There were disputes as I shall come to. Those involved in the transaction itself were Mr Yau and his immediate boss and a director of Asia Printing, Mr Wong Chau Ching (Mr Wong). Both made witness statements and gave evidence at the trial. Mr Lok of Many-Print has since the advent of the proceedings resigned from office and is no longer with Many-Print. For some reason which is not apparent, save that there may have been a falling out, he was not asked to provide evidence or otherwise participate. That role fell on a co-director called Mr Kwok Chi Hung (Mr Kwok). But he has at all material times been holding the fort at the Shenzhen factory. Whilst he was able to give evidence from first-hand knowledge of events at the factory he had no direct knowledge of the negotiations and purchase of the machine which was left to Mr Lok based in Hong Kong.

10. That said I now came to the evidence; first dealing with the acquisition of the machine. Mr Yau said the machine landed at Hong Kong on 12 December 1996 and was delivered to Asia Printing's warehouse in Hong Kong. There Mr Lok inspected it and noted that the previous owner was from England. He complained about this because he held the view that printing machine operators in England did not maintain them as well as their Germen counterparts. As a gesture of goodwill, with Mr Wong's approval, Mr Yau agreed that the purchase price be reduced by $20,000, as to $10,000 off the amount due and $10,000 to be credited to parts. This was added by hand to the letter attached to the contract. Mr Wong confirmed this adjustment and the circumstances giving rise to it.

11. The machine was due to be delivered to Many-Print's Shenzhen factory. But shortly before that was done, Mr Lok sought from Mr Yau further accommodation. He told him that the cost of the machine was being provided by finance from IBA Credit Limited whose first payment of $589,045 was due to be paid on 4 January. He asked if he could defer paying 30% of the total purchase price pending delivery and installation of the machine, to give Many-Print cash flow to meet this sum. Again Mr Wong approved the arrangement.

12. The next step was that the machine was delivered to Many-Print's factory in Shenzhen on 24 December. It was accompanied by a delivery note which was signed with chop by Mr Kwok below the caption 'We have received from Asia Printing Equipment Co. Limited the following goods in good order and condition'. By invoice of 31 December Asia Printing billed Many-Print for the total purchase price $2,050,000. Many-Print caused IBA Credit Limited to pay Asia Printing $2,010,955, leaving a balance of $39,045. Accommodating Many-Print as aforesaid, Asia Printing paid a cheque to Many-Print of $575,955 being the agreed 30% to be withheld of $615,000 less the shortfall of $39,045. Mr Kwok said it was his understanding that the 30% withheld was not an accommodation as such but was money agreed to be paid as the balance of the purchase price pending installation and satisfactory testing. He said this was what he learnt from Mr Lok who was not, of course, called to confirm it; furthermore it is contrary to the express terms of the contract between the parties.

13. The machine duly arrived at Many-Print's factory on 24 December. By mid-January it had been installed and there was a test run. It is the plaintiff's case that it performed satisfactorily having regard to its age condition and worth. There is a dispute about this. In any event the plaintiff claims to have been entitled to payment of the balance purchase price of $615,000 with adjustment for the credit of $20,000 no later than 25 January 1997, invoking clause 13 of the contract. Payment was called for. Nothing was received. Notwithstanding Asia Printing provided a maintenance service in terms of clause 6. It also supplied the parts and labour falling outside the maintenance obligation which came to $19,750.

14. In late May 1997, the defendant's management complained, it being the plaintiff's case for the first time, that the machine was not performing as it should; specifically that the impression cylinder was worn. The plaintiff sent a repair and maintenance specialist, a Mr Chan To Kwong, (Mr Chan) sole proprietor of Kwong Tsuen Engineering Company, to carry out an inspection. Mr Chan's experience spanned 15 years in the trade. Kwong Tsuen's client list includes a large number of Hong Kong and Mainland printers. His expertise and experience were not challenged. He inspected the offending cylinder and concluded that some of the electroplating was peeling off and there was a need to replate. He undertook the work, at Asia Printing's cost, taking from 15 June to 1 July 1997 to do so. Asia Printing responded to the request to extend the maintenance period by adding a further year. Then it demanded payment of the balance still outstanding. Mr Lok promised this by the end of July. This was recorded by letter of 15 July.

15. But nothing was paid. Instead there was a further complaint that the cylinder had become discoloured. Mr Chan of Kwong Tsuen was summoned again. He noticed discolouration but said this was a cosmetic detail probably caused by the misuse of solutions used to clean the cylinder. In any event it would not affect the quality of the printing work. Notwithstanding Asia Printing's management offered to return to make good the discolouring. The offer was turned down. In September 1997 Asia Printing issued a writ, suing for the $615,000, the $19,750, interest and costs. The defence of October 1997 subsequently amended was as follows:-

(1)	It was an express term of the contract that the previous owner / user of the machine must not be from England. The machine was to be used 20 hours per day and must be in good working condition. In breach the machine was shipped from England. Its cylinder was badly dented or depleted rendering the product sub-standard. It could produce no more than 35-40,000 of the finished product per day, about half capacity;
(2)	following the testing of the machine after installation it was found not to be in good order, giving the defendant the right to withhold the 30% retention.

16. In addition, the defendant counterclaimed loss of profits of $748,800 or, in the alternative, loss of a tariff exemption it would be bound to suffer if the machine were to be returned to the plaintiff of $600,000, interest and costs.

17. There was a general denial pleaded by the plaintiff.

18. I return to the evidence. Mr Kwok's was that the machine did not perform satisfactorily from the date of installation because the cylinder was substandard. This meant that only printing up to 23 1/2" x 35" could be achieved against the maximum of 28" x 40" and a consequent reduction in capacity. The replating undertaken in June and July 1997 did not rectify the defect. But be produced no full-size or indeed any example to support these allegations. He went on to say the cylinder is presumably beyond repair and should be replaced. And returning the machine (as per the contract) would not be commercially feasible because of the advent of a tariff of 30% of the purchase price now imposed by the Mainland authority.

19. There was evidence adduced by Mr Chan and others refuting the proposition that the machine was malfunctioning from the outset and at reduced capacity. But that which I find most compelling as to the workability of the machine was evidence concerning a quality controlled test run undertaken by independent testers SGS Hong Kong Limited. This was carried out in December 2001, nearly five years after the original installation and four a half years after the replating following which it had been in operation ever since. Some electroplating on the cylinder in question had peeled off and at both ends there was staining or discolouration. Papers of maximum size were printed in solid colours only (red and blue) with variable pressures between cylinder and plate from 0.3mm to 0.1mm. The end results were made available for production and inspection.

20. The plaintiff called a Mr Gregory Handley to comment on the test and results. Mr Handley hails from Yorkshire. He has 28 years experience in the printing industry and for the last 18 has been employed by Drent Goebel UK Limited, a company providing consultancy worldwide on printing machines of various makes including Roland. He is now a director of Drent Goebel. His expertise and experience were not challenged. He said that a standard means of testing four-colour machines is to print a single colour as was undertaken by SGS. This is most likely to reveal a deficiency if there be one. Having examined the products of the test run, he was of the view that those produced at normal pressure (0.1mm) were of an acceptable standard. There was no apparent defect in the cylinder or other part of the machine revealed. Those examples produced at a lower pressure were defective because the pressure was not adequate. Having particular regard to the age of the machine, it was his view that provided the pressure was adjusted correctly there could be no justifiable complaint as to quality. He said that peel off can be readily rectified by electrolysis or electroplating whilst the cylinder is still in the press. The so-called discolouration is the result of copper becoming visible through the plating; this is cosmetic and does not affect production, either as to quality or quantity.

21. For completeness, I should mention that Many-Print had the machine inspected by a Mr Lau Kwok Leung. Mr Lau is of Hong Kong. He has had 49 years in the printing industry and 19 years experience in large printing machines like the Roland. He was invited by Mr Kwok to inspect the Roland in March 2003. He observed patches of copper colour on the so-called offending cylinder of about 4" to 5" in length at either end. He noticed some denting and other defects. He formed the view that the machine was not feasible for full-size printing. He did not however say why, or what repairs might achieve a better product, nor did he run the machine to provide, for inspection and comment, a test product.

22. It is apparent from the contract and evidence adduced that the balance of the purchase price was due and payable by 25 January 1997 without the need to invite installation and a satisfactory test run. Many-Print was not entitled to withhold the 30% as retention pending that. I am satisfied that the contract did not specify that the machine should not come from England. It being in dispute that the cylinder in question was all along substandard, I am not prepared to accept it was beyond the normal wear and tear expected of a machine that had been in use for 15 years or more and priced accordingly. It would have been simple to have produced samples were it to have been malfunctioning; none were. Nevertheless Asia Printing undertook repairs without cost. There is no evidence beyond a bare allegation that the machine did not properly perform after that. Even so, Asia Printing was prepared to have another attempt but was denied the opportunity. What is compelling is that a test run undertaken after 5 years of continuous use in Many-Print's factory produced prints which an expert found to be of acceptable quality, having regard to the age of the machine, and that as at 4 1/2 years after the electroplating undertaken by Asia Printing. Mr Lau's evidence did not contradict that result and could take the matter no further.

23. There was not a shred of evidence produced by Many-Print beyond Mr Kwok's bare allegation that the machine had been running at a reduced capacity and there was a resultant loss of profit.

24. I find the claim established and the counterclaim not; that is dismissed.

25. Judgment will be for Asia Printing as follows:-

(a)	for the sum of $615,000 - $20,000 = $595,000;
(b)	interest thereon at 12% per annum for 25 January 1997 to 24 October 2003 (6 3/4 years) being $481,950;
(c)	$19,750;
(d)	as from 25 October 2003 interest on $614,750 at the judgment rate.

26. Costs nisi at first instance are to Asia Printing taxed if not agreed.