SIREALTON LTD v. STANDARD TOOLING AND PRODUCTS CO LTD

DCCJ4007/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4007 OF 2001

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J U D G M E N T

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1. The Plaintiff claimed for a sum of HK$187,967.00 being the price of goods sold and delivered to the Defendant at the Defendant's request and interest thereon. The goods were copper moulds of plastic parts of toy trains.

2. The Defendant's defence is essentially set out in paragraph 2 of its Re-Amended Defence and Counterclaim. It is more convenient to set out that paragraph in full as follows :

"Save it is admitted that the Defendant did order the Plaintiff to make various copper moulds of toy trains, paragraph 1 of the Statement of Claim is denied. The Defendant avers that the goods given to the Defendant has not been completed. The goods did not comply with the descriptions and specifications as requested by the Defendant. Due to the poor workmanship of the incomplete goods of the Plaintiff, the Defendant has incurred costs on rectification of the defects left by the Plaintiff in the goods in the sum of HK$164,004.

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Particulars
(i)	Rectification costs done by Ching Choi Plastic Manufactory	HK$1,150.00
(ii)	Rectification costs done by the Defendant
	燒焊	HK$18,930.00
	鉗工	HK$36,928.00
	EDM	HK$34,080.00
	鐵床	HK$24,880.00
	省模	HK$4,976.00
	磨床	HK$1,440.00
	切割	HK$8,400.00
	雕刻	HK$33,220.00
Total		HK$164,004.00
		============

The Defendant claimed for damages in the sum of HK$164,004.00 in their counterclaim against the Plaintiff. No defence of set-off was pleaded.

3. At the commencement of the trial, the Defence and Counterclaim had not been amended yet. Ms Yeung, counsel for the Defendant, applied to add the words "in the sum of HK$164,004" in paragraph 2 (see above) and in the prayer of relief for damages in the Defence and Counterclaim. Despite opposition by Mr Tang, counsel for the Plaintiff, I allowed the amendment on the basis that it was just and proper in the circumstances for the determination of the true controversy between the parties. Further, such information had been disclosed in the attachments to the witness statement filed on behalf of the Defendant and during discovery, and the Plaintiff had not shown that it could not be protected by costs or upon time being given to deal with this matter. Indeed, after allowing the amendment, Mr Tang confirmed that the Plaintiff would not need any adjournment so long as the Defendant did not produce further documents other than those in the trial bundle.

4. Ms Yeung, however, applied to include two further documents from the Defendant's list of documents in the trial bundle. As these documents had been discovered previously, Mr Tang informed the court the Plaintiff had no objection to their inclusion in the documents bundle as pages 34 to 38.

5. On the second day of the trial during cross-examination of the Plaintiff's sole witness, Ms Yeung applied to re-amend paragraph 2 of the Amended Defence and Counterclaim by adding the parts in italics in paragraph 2 above. Mr Tang opposed this application. After hearing submissions from both sides, I allowed the re-amendment and gave oral reasons therefor. Ms Yeung and Mr Tang then agreed that Ms Yeung's cross-examination should be interrupted to enable Mr Tang to lead further evidence-in-chief from the Plaintiff's witness on matters raised by such re-amendment and to be followed by Ms Yeung's further cross-examination. I allowed the evidence from the Plaintiff's witness to be taken in such agreed manner.

6. Mr Tang and Ms Yeung confirmed that all the documents in the trial bundle as well as the documents in the attachments to the witness statements were agreed as to admissibility and authenticity. Save for a few original documents which were formally produced as exhibits, Mr Tang and Ms Yeung were also content that I refer to the photocopies of such documents without sight of the originals. References to documents in the trial bundle in this judgment are marked as "DB" below.

7. Mr C M Ho (何振謀) ("PW"), a director of the Plaintiff, gave evidence for the Plaintiff and Mr W Y Wang (王維一) ("DW"), a former director of the Defendant, gave evidence for the Defendant. Both of them adopted their Chinese witness statements with attachments as part of their evidence-in-chief. The witnesses gave evidence in Chinese.

The Plaintiff's case

8. PW said that since 1989, the Plaintiff was in the business of producing plastic moulds (塑膠工模) and copper casting (鈹銅鑄造). PW was and is a director and shareholder of the Plaintiff. PW has been in the plastic mould trade for about 30 years and has been involved in copper casting work for over 8 years (ie since 1995). He has worked in the mould production industry since 1971. He started out as an apprentice so he was well familiar with the procedural steps and the machinery operation in producing moulds. PW was involved in and supervised the Plaintiff's production procedure and was responsible for negotiating business deals. In 1997, the Plaintiff established a production factory in Dongguan in Mainland China and PW then became involved in soliciting business and maintaining customer contact in respect of the manufacture of plastic, copper and other moulds and parts. Prior to the events being the subject matter of the present proceedings, the Plaintiff had no business relationship with the Defendant.

9. PW had known Uncle Kin (堅叔), the tooling engineer of Lung Cheong Toys Limited (龍昌公司), for over 10 years (ie since 1990) when he did work for Lung Cheong Toys Limited. Uncle Kin told PW that the Defendant required copper moulds. In PW's witness statement, it was said that in or about February/March 1999, DW telephoned PW saying that he was the Defendant's representative and that the Defendant intended to place orders for the supply of copper moulds. DW said Uncle Kin recommended the Plaintiff so he telephoned PW. Under cross-examination, PW said that he telephoned DW and introduced himself, saying that Uncle Kin of Lung Cheong Toys Limited asked him to call DW as the Defendant wanted the Plaintiff to supply some copper moulds. Arrangement was made for PW to attend the Defendant's offices to view some samples.

10. Subsequently, PW and the Plaintiff's employee met DW and his colleagues (whom PW did not know) at the Defendant's Dongguan factory. DW showed PW a toy train (similar to exhibit D1) with only the outer structure and no accessories. DW unscrewed and dismantled the same into various plastic sample pieces (塑膠模辦) (the "Defendant's Samples"). The parting lines could be seen on the Defendant's Samples. DW requested PW to provide a quotation for supplying copper moulds of the Defendant's Samples consisting only of the outer structure and without the inner accessories or bottom part of the toy train. DW did not say who the Defendant's customer was and did not state any purpose other than the Plaintiff was to supply the copper moulds for the production of toy trains. PW only contacted DW all along and did not know other members of the Defendant's staff.

11. The Plaintiff provided the Defendant with a quotation dated 9th March 1999 (DB1). The Defendant then issued purchase order no.00041 dated 10th March 1999 (the "Contract") to the Plaintiff (DB2). Pursuant to the Contract signed by DW and Mr Yu ("Yu") on behalf of the Defendant and the Plaintiff respectively, the Defendant requested the Plaintiff to supply copper moulds for transformer toy train parts (item nos. #1, #2 and #7) for the aggregate price of HK$96,330.00.

12. The following were express terms of the Contract :

(a) The modified plastic samples were to be delivered by the Plaintiff to the Defendant in 5 days (16th March 1999) and the copper moulds were to be delivered within 10 days (25th March 1999).

(b) Delivery should be made to the Defendant's Dongguan factory on the respective agreed delivery dates and 10% of the price would be deducted for each day for which delivery was overdue.

(c) The material to be used for the copper moulds was American copper and the hardness was HRc32-36.

(d) The Defendant had to pay 40% of the purchase price upon completion of the silicone samples by the Plaintiff, a further 30% of the price 10 days after delivery of the copper moulds to the Defendant, and the balance 30% of the price 45 days after the delivery of the copper moulds.

(e) The size/thickness, weight and quantity of 9 pieces each of items nos. #1, #2 and #7 were specified.

The descriptions and specifications of the copper moulds were drawn from the aforesaid description in the Contract and from the Defendant's Samples.

13. Copper moulds were mainly used for plastic injection work, including production of plastic toys, electronic and other goods. Each copper mould had two parts (ie the core and cavity parts) which together formed a unit. Making copper moulds involved three procedural steps : the manufacture of plastic samples (塑膠樣辦), followed by silicone samples (矽膠樣辦) and then copper moulds (鈹銅鑄件), being the final products. The copper moulds would only be produced after the customer had examined and approved the plastic and silicone samples.

14. The skill of the maker of the moulds was important. If the two parts of the copper mould did not align or fit well, the parting lines of the produced pieces would not look good. According to PW, such problem would be obvious and easily spotted by just visual inspection of the copper moulds. Indeed, PW pointed out that the Defendant was able, upon delivery of the copper moulds, to identify the changes he required in respect of the parting line(s) and requested re-casting immediately (see below). PW said that the non-alignment or inappropriate fit of the toy train parts (if any) would be caused by miscalculation in subsequent processing procedures, such as the positioning of the screws used for affixing the moveable parts. If the screws were not properly positioned, the moveable parts could not be folded back against the body of the toy train into the spaces designed for such parts. PW agreed though that if the dimensions of the left and right complementary moveable parts differ, polishing could be done to achieve alignment. PW said that copper moulds were more concerned with the design on the surface parts and the Plaintiff was not involved in the subsequent procedures.

15. PW said that the plastic samples produced by the Plaintiff could fit well and were approved by the Defendant. The copper moulds were based on such approved samples. Hence, problems with alignment, if any, would be the result of subsequent processes done by the Defendant.

16. The Plaintiff had a factory in Dongguan with 60 odd workers and various machines. The Plaintiff initially had a factory in Hong Kong and moved to Dongguan in 1997. In the early part of 1999 (including April 1999), the Plaintiff still had the Hong Kong factory with six workers and other types of machinery. The copper moulds in this case were produced in the Plaintiff's Dongguan factory. PW (who spent most of his time in Dongguan) and Yu (chief of the mould injection department and stationed at the Dongguan factory) supervised production at the Dongguan factory, but decision-making rested with the "boss", ie PW.

17. Four to five days after receipt of the Defendant's Samples, the Plaintiff made modifications as requested and produced the plastic samples (the "Plastic Samples") of items nos. #1, #2 and #7 of the transformer toy train which were delivered to the Defendant for approval on 16th March 1999. The Plastic Samples were approved and accepted by the Defendant. The Defendant was pleased with the Plastic Samples, so they requested the Plaintiff and Yu on behalf of the Plaintiff agreed to manufacture copper moulds for another set of transformer toy train (items nos. 001, 010, 011 and 018) (the "2nd Contract"). It was agreed that the price of the copper moulds under the 2nd Contract and the manner of payment therefor were the same as those under the Contract but Yu gave a discount to the Defendant on behalf of the Plaintiff. The Defendant supplied the relevant Defendant's Samples (in separate pieces) under the 2nd Contract to Yu.

18. The silicone samples (the "Silicone Samples") were made after the approval of the Plastic Samples and were delivered three to four days later. Thereafter the Defendant also orally approved and accepted the Silicone Samples of items nos. #1, #2, #7, 001, 010, 011 and 018. Depending on the degree of difficulty, the quantity, and the fine detail of the various parts, the supply of the Plastic and Silicone Samples required 7 to 8 days. Finally, the Plaintiff cast the copper moulds in accordance with the approved Silicone Samples by pouring copper alloy into ceramic moulds formed from the Silicone Samples. This step would take 7 to 10 days.

19. The copper moulds were delivered in batches to the Defendant's Dongguan factory between 20th March and 11th April 1999 (DB3-9). Prior to delivery, PW would use equipment to test the copper moulds for their hardness and inspect them under a magnifier to check for defects. He would also use equipment to measure the dimensions of the moulds and check their quantity. The tests would take several hours. Once they were found to be in order, the copper moulds would be delivered to the Defendant.

20. Yu delivered the first batch of copper moulds under the Contract to the Defendant on 20th March 1999 and demanded for payment of the 40% deposit. Yu then informed PW that the Defendant's reply to such demand was that their Hong Kong office was not able to issue cheque as yet. Yu also delivered the Plastic Samples in respect of items nos. 001, 010, 011 and 018 to the Defendant four to five days after 16th March 1999. The Defendant approved and accepted the same.

21. Yu probably chased the Defendant twice for the 40% deposit. PW also initially chased the Defendant about twice for the same. He telephoned DW and also telephoned the Defendant's Hong Kong office. A female staff at the Defendant's Hong Kong office told him that DW was not there and they were unable to issue cheque to him. PW did not insist on waiting for the cheque before making the copper moulds. The Defendant had placed the 2nd Contract with the Plaintiff. Yu had accepted the same on behalf of the Plaintiff and brought back the Defendant's Samples. Having committed to the 2nd Contract, PW said that the Plaintiff as a responsible business entity could not in the circumstances cease production. Further, the Defendant was introduced by Lung Cheong Toys Limited, which was also one of the Plaintiff's customers. The Plaintiff had business dealings with Lung Cheong Toys Limited for five years (ie from 1995 to 2000) and their business relationship had been good. PW said the Plaintiff's business came from recommendations by its own customers and it did not work for walk-in customers. The Plaintiff could not afford to have the Defendant bad-mouth the Plaintiff that it refused to honour commitments under contracts.

22. Upon receipt of the third batch of copper moulds, DW told Yu that the moulds were in order except that the copper moulds for "三指拳頭" of the transformer toy train for items nos. 007 and 018 had to be re-done because DW wanted the parting line(s) to be positioned differently. Yu reported to PW who decided to re-cast the copper moulds at the Defendant's request. Re-casting in this situation meant making new silicone samples, ceramic moulds and copper moulds with differently positioned parting line(s). There was no written record of the original position(s) of the parting line(s) but PW said the original copper moulds were made in accordance with the Defendant's requirements. The Plaintiff considered the Defendant's request unreasonable but still agreed to re-cast the copper moulds. PW said that in any engineering work, slight modifications were acceptable and they were prepared to meet customer's requirements. The cost for the new copper moulds was the same as the cost of making the original moulds but the Plaintiff did not ask the Defendant to pay for the same. The new copper moulds were delivered to the Defendant on 3rd April 1999 (DB7). Apart from the aforesaid, the Defendant had never requested the Plaintiff to re-do any of the copper moulds delivered to the Defendant, and had never informed the Plaintiff that the quality of the copper moulds was not up to standard or that the same would be returned.

23. The Plaintiff issued 11 invoices dated between 29th March to 14th June 1999 to the Defendant for the aggregate sum of HK$187,167.00 (DB10-20), which remains wholly unpaid. The first invoice dated 29th March 1999 (DB10) was for 40% of the price, namely, HK$38,532.00, under the Contract upon completion of the Silicone Samples. The second invoice dated 29th March 1999 (DB11) was for 30% of the price, namely HK$28,899.00, under the Contract after delivery of the copper moulds. DW countersigned these two invoices on 8th April 1999. The third invoice dated 3rd April 1999 (D12) was for the balance 30% of the price, namely, HK$28,899.00, under the Contract. These 3 invoices are referred to below as the 1st Set of Invoices.

24. Yu asked DW to countersign the third invoice of the 1st Set of Invoices but DW did not do so. DW further wrote the phrase "待試模後整理，鈹銅件不良造成創藝加工困難所造成之花費總數再通知更改發票金額" thereon. When Yu returned with this invoice, PW instructed him to proceed with the production work under the 2nd Contract. PW was confident because the Plaintiff had never had deductions made to their invoices. PW filed the invoice and chased DW by telephone for payment of the 40% deposit. He thought it would be a small matter of deduction of the price by HK$1,000.00 to HK$3,000.00. DW told him that he was not sure what the problems were but the Defendant would only pay after completing the testing of the copper moulds. PW said that, as was usual in the industry, normally 45 days would be required to insert the copper moulds into the mould base. PW saw no reason to chase for the remaining 60% of the price where the Defendant had not even paid the initial 40% deposit.

25. The Plaintiff issued 4 invoices all dated 21st April 1999 (the "2nd Set of Invoices") for both 40% and 30% of the price for items nos. 001, 010, 011 and 018 in the sums of HK$20,540.52, HK$12,578.475, HK$13,702.325 and HK$17,324.580 respectively (DB13-16). It was the Defendant who suggested to the Plaintiff to add the 40% and 30% deposits into one invoice. DW countersigned each of these invoices on 8th May 1999 and wrote the characters "暫收待核" thereon. PW said that this was not unusual because customers normally stamp on delivery notes the words to the effect that the goods were temporarily received and if the goods were not in order they would be returned. DW merely wrote this in manuscript form.

26. The Plaintiff issued 4 further invoices all dated 14th June 1999 (the "3rd Set of Invoices") for the balance 30% of the price for items nos. 001, 010, 011 and 018 in the sums of HK$8,803.080, HK$5,390.775, HK$5,872.425 and HK$7,424.820 respectively (DB17-20). The Defendant did not countersign these invoices at all.

27. As described above, PW chased for the outstanding invoices. PW told DW that if the Defendant considered the copper moulds defective and refused to pay the price, they ought to reject and return the copper moulds to the Plaintiff who would not charge for the same. If the Defendant retained the copper moulds, they had to pay for the same.

28. DW did not give any particulars of the bare assertion of defects (不良). PW also tried to make arrangements with DW to go to the Defendant's Dongguan factory to inspect the copper moulds but DW said he had no time. He even suggested having a joint inspection by an independent surveyor. PW did not contact any other staff of the Defendant as all along he dealt with DW. PW said that the Plaintiff had never received any complaint from customers about the quality of their goods. Had DW approached him to discuss about this matter, PW would have tried to resolve this with him.

29. Despite many requests by the Plaintiff, the Defendant still refused to pay any of the invoices. PW chased DW by telephone and mailed the copy invoices to the Defendant. The Plaintiff issued a statement of account dated 14th November 2000 to the Defendant (DB21). The Plaintiff's solicitors issued a letter dated 11th December 2000 to the Defendant demanding for payment (DB22-23). The Defendant's reply letter dated 19th December 2000 stated that it had no record of receiving the said invoices (DB24). The copy invoices were provided to the Defendant under cover of a letter from the Plaintiff's solicitors dated 27th December 2000 (DB25). The Defendant's reply letter dated 18th January 2001 referred to additional costs incurred as a result of the poor workmanship by the Plaintiff who had never completed the copper moulds (DB26). The alleged additional expenses were listed in a schedule titled "鈹銅鑄造不良所引起工時費用增加明细" (DB27) (the "Schedule") which was first received after 18th January 2001 under cover of the Defendant's letter.

30. PW also denied that the Plaintiff or Yu had ever received the Defendant's summary report titled “鈹銅鑄造不良所引起工時費用增加造成模具延誤明細" (DB30-32) (the "Summary"). PW said Yu could not have received this document because if he had, PW would have given the Plaintiff's company chop to him and authorised him to acknowledge receipt and sign (as Yu signed and affixed the company chop on the Contract on PW's instructions - DB2). The Defendant had never informed or shown any document to the Plaintiff of how the copper moulds were below standard or that the Plaintiff had not completed the copper moulds. PW said it was a delaying tactic and denied that the Defendant suffered any loss or had any counterclaim against the Plaintiff.

31. Under the Contract and 2nd Contract, the Plaintiff's obligation was to supply copper moulds of prescribed materials, weight and dimensions, and in compliance with the Defendant's Samples. The Defendant had to carry out other processes and procedures such as 鐵床加工，鑽項針孔，打磨，抛光before inserting the copper moulds into a plastic mould base (塑膠模座) for plastic injection production. The Plaintiff was not responsible for those further processes and procedures.

The Defendant's case

32. DW was a former director of the Defendant. He left the Defendant in August 2000 and carried on trading in Taiwan. Since 1972, he formed his own injection mould company. DW denied that he himself was in or had substantial experience in the mould industry as he mainly did administration work and engaged engineers. He placed orders with factories to supply moulds, so he was not familiar with the production of moulds. He became more familiar after he had more dealings with the mould factories. By the time of the Defendant's dealings with the Plaintiff, he had been with the mould industry for over 20 years and had a network of customers and suppliers in Taiwan. The Defendant only entered Mainland China in 1998.

33. The traditional method of making moulds was to first enlarge the relevant sample two times (which was particularly important for small pieces) because the cutting machine operated on a 2:1 scale. The cutting machine was hooked to the tracing pattern on one side and the cutting tool on the other. The cutting process would follow the tracing pattern in large to small concentric circles. This procedure was called copy milling. Then there would be ancillary procedures, including 立體雕刻，放電加工and 鐵床加工.

34. Making copper moulds involved positive and negative parts. The original sample was a positive part from which the negative silicone samples were made. From the silicone samples, a positive plaster mould would be formed and fixed in a box. Copper alloy would be poured into the opening of the mould at high temperature to create the negative part of the copper mould. The wall thickness of the copper mould would be determined and the positive part of the copper mould would then be made. Each copper mould has a positive and negative part (ie the core and cavity parts). The copper moulds would then be inserted into the pockets of the plastic mould base. Throughout the whole production process, there would not be any machinery processing work. The parting lines were cast and not cut. As there were no other ancillary processes, the making of the copper moulds took shorter time than the traditional method and would be suitable when pressed for time.

35. The Defendant opted for the use of copper moulds and not the traditional method because it was quicker. The Defendant accepted an order for making plastic injection moulds for toy trains. The toy trains designed by the Defendant were for a Japanese company and were intended to meet the Children's Day marketing target date in Mainland China. Much money had been spent on advertisement including TV advertisement. The customer emphasised that production must not be delayed, otherwise it would lose several million dollars.

36. DW said that as all parts of the toy train must align properly for assembly into the final product, the precise fitting of the various parts was vital. Toys such as these transformer toy trains case were attractive to children because they could be easily transformed from one shape to another. When assembled, the toy train looked like a bullet train and could slide horizontally on wheels. However, it could be transformed into a robot by shifting the moveable parts. Therefore, the copper moulds must duplicate the parts precisely.

37. Uncle Kin of Lung Cheong Toys Limited introduced the Plaintiff to the Defendant. DW had visited PW once prior to the introduction but he was not sure. DW said that on 9th March 1999, DW requested the Plaintiff to supply copper moulds for the transformer toy trains. On the same day, the Plaintiff faxed its quotation to the Defendant (DB1). On 10th March 1999, DW on behalf of the Defendant entered into the Contract with the Plaintiff at the Defendant's Dongguan factory (DB2). At the request of Lung Cheong Toys Limited, the Defendant on 26th March 1999 cancelled transformer toy train models nos. #8 and #9 and replaced the same with model no. #1 and two other models (DB28). The Defendant informed the Plaintiff on 28th March 1999 of the change of plans.

38. On 8th April 1999, DW signed on the 1st and 2nd invoices of the 1st Set of Invoices (DB10-11). However, DW did not sign on the 3rd invoice of the 1st Set of Invoices (DB12) because by that time, the Defendant discovered that the quality of the copper moulds was very poor. On 8th May 1999, DW signed on the 2nd Set of Invoices (DB13-16) but wrote the characters "暫收待核" thereon.

39. DW said the poor quality of the copper moulds caused delay in the testing of the copper moulds and difficulty in subsequent processing work. This led to delay in delivery of goods to the Defendant's customer who claimed against the Defendant. DW said that the shape of the copper moulds produced by the Plaintiff had altered so that they could not be fitted into the pockets of the mould base. DW said that the parting lines (分型線) did not align well and welding was required to fill the gaps. As there would be sparks from the cutting machine for the EDM process for rectification of the shape of the copper moulds, steps had to be taken to minimise the damage. This was major repair work. A parting line was to match two mirror parts of a toy part. If the parting line were not well aligned, there would be a gap. When the plastic material was injected into the copper mould at high temperature and pressure, the colour plastic material would be squeezed out through the gap.

40. DW said the Defendant had to carry out rectification works and incurred time costs in respect of the same. In order to have a clear record, DW requested the frontline workers of the Defendant's mould factory to clearly record each rectification step in detail by comparing against relevant standards and then prepare a detailed Summary setting out the rectification costs in Hong Kong dollars (DB30-32). DW did not say what the standards were. He said he was not personally involved but the information in the Summary was examined by 課長，部長and 經理. The Summary was first prepared in draft in manuscript form (DB35-38). The purpose of the Summary was to let the Plaintiff know what had been done to rectify the problems and to let the Plaintiff check the same. DW said the Schedule set out the relevant models and costs of the corresponding rectification costs totalling HK$162,854.00. It was handwritten on the Schedule as being addressed to the Plaintiff/PW from the Defendant together with the date of 16th June 1999 and the chop of the Defendant's Dongguan factory. DW said that as only the Plaintiff supplied copper moulds to the Defendant, therefore all models listed in the Schedule were referable to copper moulds made by the Plaintiff. He said that the model numbers (eg J99015, J99016, etc) in the Schedule were also listed in the Summary which cross-referenced those model numbers to the items as listed in the Plaintiff's invoices (eg items nos. 010, #001 etc).

41. DW said that the Summary and the Schedule were faxed to the Plaintiff on 16th June 1999 to the Plaintiff's fax number as stated on PW's name card but he did not know whether the Plaintiff received the same. DW accepted that there was nothing on the face of the Summary and the Schedule to show that they were faxed to the Plaintiff. He had requested the person in charge to keep a copy of the Summary and he himself kept a photocopy.

42. The Plaintiff knew that copper moulds were defective. DW said that he had told PW that the Defendant had not anticipated that such rectification costs would be incurred, that such costs had to be paid by someone and it ought not be paid by the Defendant. DW invited PW to inspect the moulds. The moulds were brought to Hong Kong for welding two to three times. Subsequently, as the copper moulds were too heavy, the factory requested to have the welding done in Mainland China. After welding was done, the copper moulds had to undergo cutting and EDM processes. DW acknowledged that it was not mentioned in his witness statement that the copper moulds were brought to Hong Kong for welding.

43. DW said he also had face-to-face meetings with PW as well to attempt to resolve this matter. The Defendant did suffer loss because its factory carried out the rectification works and could not do other work. Carrying out rectification works was more difficult than making new moulds. DW agreed that the quantity of the moulds delivered by the Plaintiff was correct but the quality was poor as the shape had been altered and could not be used.

44. DW agreed that there was no independent survey of the defective copper moulds. He said that the production process did not require any independent survey and it was not appropriate to request a competitor factory to give an assessment of the rectification works.

45. DW also said that the Defendant's customer alleged that they suffered great loss and orally threatened to claim against the Defendant. Although mentioned in DW's witness statement, the claim against the Defendant by its customer for their loss has not been pleaded in the Re-Amended Defence and Counterclaim. DW explained this was because they sincerely wanted to resolve this matter and did not want to see the matter litigated in court. But their customer ceased giving new orders to the Defendant. For the same reason, there was no mention of any rejection of the copper moulds but this did not mean that the Plaintiff was correct in its assertions.

46. DW said that as the Plaintiff did not properly make "火車腳" and "火車下模包R線"，the Defendant had to engage Ching Choi Plastic Manufactory ("Ching Choi") to carry out rectification works. Time was pressing. As Ching Choi was very busy, they had to ask Ching Choi to slip in this job between other orders. The Defendant chose Ching Choi because it was near to the Defendant's Dongguan factory and the Defendant's factory staff had used Ching Choi before joining the Defendant. Ching Choi issued a quotation dated 8th June 1999 for such works in the sum of HK$1,150.00 (DB34). DW wrote on the quotation that the amount was to be deducted from the price of the copper moulds in order to remind his colleagues to add this sum into the Summary/Schedule. When it was pointed out to DW under cross-examination that there was no item in the Schedule for HK$500.00 or HK$650.00 or the total sum of HK$1,150.00, DW said that such sums were already included in the Schedule but were not separately itemised. He was unable to say under which item in the Schedule such sums were included. DW said that the Defendant had paid the sum of HK$1,150.00 to Ching Choi but no relevant document was disclosed.

47. DW was cross-examined at length in respect of the remark in Ching Choi's quotation that the delivery time was 9th June 1999. This suggested that the rectification works could be done in one day. DW at first denied that the relevant rectification works could be done in such a short time. Then he said that it must have been an error on the part of Ching Choi. Later, DW explained that the rectified goods were returned by Ching Choi to the Defendant on 10th June 1999 as noted on the bottom of the quotation. DW then said he was unsure of the dates stated on the quotation, but the rectification works did not appear to be expensive so the short period between the dates might be correct. On the second day of cross-examination, DW said that as the document was only a quotation, the Defendant placed the order on 10th June 1999. He accepted on the face of the quotation that it seemed that they could take delivery of the rectified goods on the same day. Still later in cross-examination, DW said he recalled that during the Defendant's discussions with Ching Choi, they had already requested Ching Choi to prepare the plaster samples. However, the Defendant's staff only gave DW the quotation on 10th June 1999. In re-examination, DW said that as the matter was urgent, Ching Choi was requested to carry out the rectification works and later DW agreed. The signatures on the quotation indicated that the rectification works had been done

48. The Plaintiff's solicitors issued a demand letter dated 11th December 2000 (DB22). DW made a personal record on 15th December 2000 of the above to remind himself (DB29). DW wrote on DB29 (which was addressed to Mr Tao) that the rectification works carried out (so as not to cause delay to Lung Cheong Toys Limited) could not wholly remedy the existing defects of the copper moulds. It was declared that the Plaintiff should bear the rectification costs incurred by the Defendant and that DW's former colleague吳課長 had faxed the Schedule to the Plaintiff on 16th June 1999 to which no reply was received until they received the demand letter on 15th December 2000. There was no evidence as to who Mr Tao was.

49. In respect of the Plaintiff's copper moulds, it was the first time for the Defendant's Dongguan factory to use copper moulds although the Defendant had used copper moulds in Taiwan. DW was cross-examined on whether the Defendant had suppliers of moulds other than the Plaintiff. DW said that for copper moulds, their sole supplier was the Plaintiff. Ching Choi did not make copper moulds. The Defendant would consider alternative suppliers using the traditional method only if they had no pressure for time, which was not the case here. The Defendant had other copper mould suppliers in Taiwan, but DW had no idea whether there were other copper mould suppliers in Mainland China. He would not look for alternative suppliers outside Mainland China.

Burden of proof

50. In light of the Defendant's pleadings, particularly the pleaded allegation that "the goods given to the Defendant has not been completed", and a similar assertion in the Defendant's letter dated 18th January 2001 (DB26), the Plaintiff opened the case at the trial hearing. During the hearing, it was revealed from DW's evidence that there was in fact no dispute that the contracted quantity of copper moulds was delivered to the Defendant. There was also no dispute as to the contract price. Ms Yeung in her closing submissions agreed that the Defendant could not say that the copper moulds were not completed and delivered to the Defendant. She agreed that the issues only related to the poor quality and workmanship of the copper moulds. The burden is on the Defendant to prove so on the balance of probabilities. In such circumstances, as the Defendant carries the burden of proof on the contested issues, the Defendant and not the Plaintiff should have opened the case. Practitioners are reminded to carefully ascertain the true controversy and issues between the parties so that the evidential and procedural rules can be properly observed.

The issues

51. The issues in this case are :

(a) what were the descriptions and specifications in respect of the copper moulds;

(b) whether the copper moulds complied with such descriptions and specifications;

(c) whether the workmanship of the copper moulds by the Plaintiff was poor;

(d) if so, whether such poor workmanship constituted a breach of contract;

(e) if so, whether the Defendant suffered any loss and damages;

(f) if so, what was the quantum of loss and damages suffered by the Defendant.

52. Ms Yeung in her closing submissions submitted that there were further issues, namely, that the copper moulds were (a) unmerchantable and (b) not fit for the purpose for which they had been bought. Ms Yeung accepted these causes of action have not been pleaded but argued that these are implied conditions in the sale and purchase of goods. The material fact of "poor workmanship" has been pleaded in paragraph 2 of the Re-Amended Defence and Counterclaim.

53. There is a difference of HK$23,963.00 between the Plaintiff's claim of HK$187,967.00 and the amount of damages of HK$164,004.00 claimed by the Defendant. Ms Yeung in her closing submissions agreed that the Defendant did not contest liability to the Plaintiff in respect of the sum of HK$23,963.00.

Pleading point

54. The purpose of pleadings is, inter alia, to inform the other side of the nature of the case that they have to meet as distinguished from the mode in which that case is to be proved, to prevent the other side from being taken by surprise at the trial, and to enable the other side to know with what evidence they ought to be prepared and to prepare for trial (see Hong Kong Civil Procedure 2002 Vol.1 para.18/12/1 at pp.284-285).

55. Even though fitness for purpose and merchantability were implied conditions in the sale and purchase of goods, the material facts in support of such contentions and breaches thereof should be expressly pleaded (see Atkin's Encyclopaedia of Court Forms in Civil Proceedings 2nd ed (2001 issue) Vol.35 pp.189-190 Form 20).

56. Ms Yeung submitted that the purpose of the copper moulds was pleaded in the first sentence of paragraph 2 of the Re-Amended Defence and Counterclaim which stated that the Plaintiff was to make various copper moulds "of toy trains". There was no allegation or evidence that the Defendant was to manufacture toy trains. DW's evidence was that the Defendant was to make plastic injection mould and the copper moulds were for insertion into the mould base for ultimate production of toy trains. There was no proper pleading (as distinct from how the case was to be proved) as to the precise purpose or how the copper moulds did not fit the purpose other than a general assertion of "poor workmanship". Further, no particulars were pleaded (other than the general assertion as aforesaid) on unmerchantability of the copper moulds.

57. During the trial, the Defendant amended its pleadings twice but did not see fit to plead the material facts of the causes of defence on fitness for purpose and unmerchantability. The Defendant is not entitled to advance these arguments which were raised only at the stage of closing submissions.

58. However, for completeness' sake, I will consider the Defendant's defences and Ms Yeung's arguments, including her submissions that the copper moulds were unmerchantable and not fit for purpose.

The defences

59. I have observed the demeanour of and heard evidence from PW. I find that he is an honest and reliable witness. I do not find DW a credible witness. I find him evasive and unreliable. In particular, I have reservations on the reliability of his evidence on the allegations of poor workmanship or defective quality of the copper moulds. I came to this conclusion after careful consideration and despite Ms Yeung's submissions that DW is no longer with the Defendant and is therefore unlikely to have any material interest in the outcome of this case. I do not propose to set out all the reasons for such findings but the main reasons were :

(a) I do not accept DW's allegations (i) of poor workmanship of the copper moulds, or (ii) that the poor alignment of the parting lines, the alteration of the shape/size of the copper moulds and the alleged defects as set out in the Summary were caused by the Plaintiff.

In this respect I bear in mind the unchallenged evidence that PW was experienced in the making of copper moulds. He supervised production and carried out tests (by visual inspection and by equipment) of the copper moulds before delivering the goods to the Defendant. He was well familiar with the specifications in the Contract, and with the Defendant's Samples, the Plastic Samples and the Silicone Samples. On the other hand, DW confirmed that he was more involved in administrative work. He also gave evidence that he was not personally involved in the preparation of the Summary/Schedule and that he merely gave instructions for the same to be prepared. In short, he entrusted the matter to the frontline staff and relied on their report. It is clear that he had no personal knowledge of the alleged poor workmanship and defects of the copper moulds. There was also undisputed evidence that this was the first occasion in which the Defendant's Dongguan factory used copper moulds whilst the Plaintiff had experience in copper casting since 1989. Whilst the above does not necessarily lead to the conclusion that the copper moulds were in order, such background evidence (particularly as it is undisputed) is relevant in assessing the evidence of PW and DW.

DW complained of the poor alignment of the parting lines. PW gave evidence to the effect that any problems with the parting lines could be easily spotted by visual inspection. This was reflected by the Defendant's request to re-cast the copper moulds for items nos. 007 and 018 to position the parting line(s) differently upon delivery of the relevant moulds. There was no challenge to this evidence at all. It was clear that the Defendant was not shy of asking the Plaintiff to re-cast the copper moulds if they considered necessary and the Plaintiff had shown their cooperation in this regard. This was again not challenged.

Although there were numerous complaints in the Summary of problems with parting lines, there was no evidence that the Defendant through DW or otherwise made any specific complaint of the parting lines on receipt of the copper moulds or prior to 16th June 1999 other than a vague suggestion that the copper casting was "不良". Delivery of the copper moulds was completed by 11th April 1999 and by 16th June 1999, it would be almost 10 weeks. Ms Yeung referred to a testing period of 45 days. First, this testing period had long expired before 16th June 1999. Secondly, the testing period was according to PW for insertion of the copper moulds into the pockets of the mould base. I find DW's suggestion that the poor alignment of the parting lines as being caused by the poor workmanship of the Defendant implausible. I will discuss the weight to be attached to the Summary/Schedule below.

Certain copper moulds for items nos. 007 and 018 were re-cast by the Plaintiff. The Summary at DB32 identified problems in respect of these re-cast copper moulds. As the Defendant had specifically asked the Plaintiff to re-cast the copper moulds because of the parting lines, ie they had given the Plaintiff a second chance, it is implausible that the Defendant would rather take time to prepare the Summary than make immediate complaint of these specific defects to the Plaintiff. DW gave no evidence that such specific complaints were raised other than by faxing the Summary to the Plaintiff on 16th June 1999.

Further, it was odd that there was no attempt by the Defendant to open a technical dialogue with the Plaintiff on how to remedy the defects. First, the Defendant was new to using copper moulds. Secondly, if the Plaintiff were at fault, they ought to remedy the problems at no cost. Indeed, the Defendant had experience of the Plaintiff re-casting copper moulds for them at no cost. Thirdly, the Defendant was pressed for time and the traditional method using cutting and other processes was much slower.

DW gave evidence that he invited PW to inspect the copper moulds but he did not elaborate on what happened after he made the invitation. DW also said that he had telephone conversations and face to face meetings with PW to resolve this matter but he again did not elaborate on the same. In short, there is no evidence that DW gave details of the complaints to the Plaintiff until the Summary/Schedule was faxed to the Plaintiff in mid-June 1999 save that DW said that he told PW that the rectification costs should be borne by someone, presumably the Plaintiff. Indeed, DW said he had no personal knowledge of the contents of the Summary/Schedule. I find PW's assertions in this regard, namely, that DW was unable to state what were the alleged defects when PW chased him for payment and that DW declined inspection of the copper moulds on the ground that he had no time, were more plausible. I also find that no useful reliance can be placed on the self-serving statement made by DW on 15th December 2000 (D29) after receipt of the demand letter from the Plaintiff's solicitors.

According to DW, the Defendant had also sought outside assistance in respect of the rectification works, eg they engaged the services of Ching Choi and they also took the copper moulds to Hong Kong for welding. If such rectification works were caused by the Plaintiff's poor workmanship, I find it very surprising that there was no evidence that the Plaintiff were informed of their responsibility for such out-of-pocket costs. DW could not even identify how Ching Choi's costs were included in the Schedule and it was doubtful whether they were in fact so included (see below). There was no evidence that Ching Choi's quotation was sent to the Plaintiff.

Further, there is no credible evidence from the Defendant to refute PW's evidence that the Defendant had to carry out further processes before the copper moulds could be inserted in the pockets of the mould base and that further and ancillary processes by the Defendant could cause non-alignment of the parting lines.

(b) I do not accept DW's assertions that he had complained to PW about the alleged defects of the copper moulds and that the Defendant had faxed the Summary/Schedule to the Plaintiff.

In respect of the alleged verbal complaints to PW, DW in his evidence only mentioned the vague suggestion that the copper casting was "不良". I also repeat my findings above in relation to the invitation to inspect the copper moulds, and the telephone and face to face discussions. In respect of the Summary/Schedule, I find that PW's evidence that he had not received the Summary and the Schedule in 1999 more plausible. Indeed, DW admitted under cross-examination that he did not know whether the Plaintiff received such documents by fax. DW gave evidence that the Summary was prepared for the Plaintiff to understand and check the rectification works. There is no evidence of any subsequent response or dialogue between the parties on the alleged defects. This void is implausible. Had the Plaintiff received the Summary/Schedule, one would expect that there would be some communication on the same, even if only for the Plaintiff to concede liability for the defects.

(c) DW's evidence in respect of the quotation from Ching Choi (DB34) exposed his lack of personal knowledge of the alleged defects of the copper moulds and the rectification works that were carried out. His various explanations in respect of the placing of the order with Ching Choi and the completion of the works and his non-involvement with the preparation of the Summary/Schedule highlight the unreliability of his evidence in relation to the alleged rectification works generally.

60. DW alleged and it was so stated in the Summary that some of the copper moulds were too large or too small in size and could not fit into the pockets in the mould base. Ms Yeung submitted in her closing submissions that the specifications and descriptions of the copper moulds included the Defendant's Samples and the size/dimensions and weight of the pieces set out in the Contract. There was no evidence that the copper moulds did not meet the specifications of size/dimensions and weight in the Contract. None of the Defendant's Samples or photographs thereof was produced and there was no documentary or oral evidence describing their size, weight, condition or detail. More importantly, there has been no challenge at all to PW's evidence that the Plastic and Silicone Samples had been delivered to and approved by the Defendant and that the copper moulds were made in accordance with the approved samples. Indeed, PW said and it was unchallenged that the Defendant placed the 2nd Contract because they were pleased with the Plastic and Silicone Samples under the Contract. Other than a bare assertion without particulars on DB32 in respect of item no. 001 that "分型面未能按辦做", there was no evidence before the court that the copper moulds in any way differed from the Plastic or Silicone Samples as approved by the Defendant. PW gave evidence that he measured and tested the copper moulds by equipment and found them to be in order. In this respect, I accept his evidence and reject DW's allegations and the bare assertions in the Summary that the sizes of some of the copper moulds were incorrect.

61. The Summary and its draft, although vital to the defence case, are clearly hearsay documents. The Summary was signed by "吳課長". DW had no personal knowledge of their contents and indeed the Summary and its draft were clearly the result of compilation of various information. The maker of the document was not called to give evidence and the primary information for the compilation of the Summary was not produced. For example, no evidence had been led by the Defendant as to how the costs of the rectification works as set out in the Summary and the Schedule were calculated. It is not known whether they were based on man-hours or on any other basis. If they were based on man-hours, there was no evidence as to what was the cost per man-hour. For a further example, there was a bare assertion in the Summary that there was an error in respect of the parting line, namely, "分 型 面 做 錯, 造 成 錯 位 嚴 重", without giving any particulars as to how that error was the Plaintiff's fault.

62. Ms Yeung accepted that for the last three items on page DB32 of the Summary being "重新雕刻" for J99022, J99021 and J99023 totalling HK$2,300.00, there was no evidence of how this rectification work was associated with any defect of the corresponding copper moulds or that such works were caused by the Plaintiff's workmanship. Further, DW gave evidence that Ching Choi's charges were included in the Summary/Schedule although he did not know under which item they were so included. However, the particulars in paragraph 2 of the Re-Amended Statement of Claim (which were added to the pleadings on the second day of trial) clearly treated the Summary/Schedule as exclusive of Ching Choi's charges. The Defendant's letter dated 18th January 2001 (DB26) suggested that the total rectification costs exceeded those stated in the Schedule. No evidence of these extra costs (other than Ching Choi's charges which DW said were included in the Schedule) were led in evidence.

63. I bear in mind the factors in section 49 of the Evidence Ordinance Cap.8 in considering the weight of the Summary/Schedule. No evidence is forthcoming as to why the maker could not be called to give evidence. Given the analysis above and all the circumstances as shown in the evidence before me, I find that I cannot place any substantial weight on the Summary/Schedule.

64. There is no dispute that the Defendant's Samples were parts that could be fitted into toy trains. PW confirmed that the Plaintiff had made the copper moulds in accordance with the Defendant's, Plastic and Silicone Samples and the contractual specifications. PW also explained that the poor alignment of the parting lines and of the various parts was not caused by the copper moulds and was the result of subsequent processes such as the positioning of the screws and ancillary procedures carried out by the Defendant. DW said otherwise but I have found that he was not a credible witness. Further, DW clearly relied on the Summary/Schedule and I have found that I cannot place any substantial weight on the same.

65. I therefore make the following findings of fact on the balance of probabilities :

(a) The descriptions and specifications of the copper moulds were the size/dimensions and weight as set out in the Contract and as represented by the Defendant's Samples. The Plaintiff's copper moulds had complied with such descriptions and specifications.

(b) The Defendant approved the Plastic and Silicone Samples and the copper moulds were made in accordance with the approved samples.

(c) The Plaintiff had tested the copper moulds prior to their delivery to the Defendant and found them to be in order.

(d) The copper moulds were required by the Defendant for insertion into the pockets of the mould base for making the plastic injection mould. The Defendant relied on the skill of the Plaintiff to make the copper moulds.

(e) The Defendant had not informed the Plaintiff who the Defendant's customer was or that the copper moulds were required to meet an urgent toy production and marketing deadline.

(f) The workmanship and quality of the copper moulds were not poor nor were the copper moulds defective or not in compliance with the descriptions and specifications aforesaid.

(g) Even if there were any problems in using the copper moulds, they were not caused by the Plaintiff's poor workmanship but from other processes and procedures by the Defendant in their insertion of the copper moulds into the mould base.

(h) The copper moulds were merchantable and fit for the purpose for which they were purchased, ie, for insertion into the mould base for making plastic injection mould for toy trains.

(i) The Plaintiff did not receive the Summary/Schedule from the Defendant in June 1999. The Plaintiff only received the Schedule under cover of the letter of the Defendant's solicitors dated 18th January 2001.

(j) Any loss and damage suffered by the Defendant were not caused by the Plaintiff's poor workmanship or any defect of the copper moulds.

Conclusion

66. In the circumstances, the Plaintiff succeeds in its claim. There will be judgment for the Plaintiff against the Defendant for the sum of HK$187,967.00 with interest thereon at the rate of 8% p.a. from the date of the writ of summons to the date of judgment and thereafter at judgment rate until the date of payment. The Defendant's counterclaim is dismissed.

67. There is no reason why costs should not follow event. I therefore make an order nisi that the Defendant do pay the Plaintiff the costs of the action (including the counterclaim) to be taxed if not agreed with certificate for counsel.