TAT HONG HEAVY EQUIPMENT (HK) LTD v. KAU LUNG GEOTECHNICAL ENGINEERING LTD

DCCJ 2983 / 2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. DCCJ 2983 OF 2003

J U D G M E N T

1. The claim arises from an agreement (“the Agreement”) to lease a piling machine made between the Plaintiff as owner and the Defendant as hirer on 17 December 2002.

2. The Plaintiff’s case is that the Defendant has failed to pay the agreed rental charges for a total sum of $121,211.99.  There was a payment made by the Defendant for $58,000.00 upon judgment entered for part of the claim, the outstanding sum now claimed by the Plaintiff is $63,211.99.

3. The Defendant does not dispute that the contractual sum has not been paid in full but avers that the piling machine was not in safe working condition and most of the time it was sitting at the construction site waiting for repair.  The Defendant therefore refuses to pay the claimed amount.  It is admitted that the Defendant is liable for payment of rental for 1 month, that is the minimum charge pursuant to the Agreement and that was why part judgment had been entered by consent. 

4. The disputes between parties are (a) whether there were implied terms that the piling machine should be of merchantable quality and in safe working condition; and (b) whether the piling machine was in breach of the implied terms. 

The Defendant’s case

5. I find it more convenient to set out the Defendant’s case first because the most important part of the Plaintiff’s case was basically in reply to the allegations made by Defendant. 

6. The Defendant does not dispute the terms as stated in the Agreement.  It however says that there were implied terms as set out in paragraph 4 above.  And in breach of the said implied terms, the Plaintiff supplied to them one piling machine which could not pass the test required by statute because of an oil leakage problem which rendered the piling machine unsafe to operate.

7. The Defendant calls altogether 5 witnesses.

DW1 Mr. Wong Yum Wah

8. He is a registered engineer, one of the directors of Sam and Sam Testing & Surveyor Services (“Sam & Sam”). He tested the piling machine on 8 January 2003.  Some defects were noted at the time of inspection and he refused to issue a certificate to say no defects noted. He found that the piling machine was not in safe working order and he so reported them in the Form 4 Certificate issued by him on same day [p31 of the Bundle of Documents].

9. He goes on to tell the court that the oil leakage in the stay cylinder would affect the performance of the machine, it had to be repaired and tested again.  Oil leakage according to him would affect the stability of the whole machine.  As the piling machine has to carry 22 tons of weight, stability is most crucial.  If there is insufficient stability, the leader in the middle would incline to one side and the whole structure would topple.  On 5 February 2003, he tested the piling machine again and found that it was in good order.  He then issued a Form 4 Certificate at p32 of the Bundle of Documents.

10. In cross examination he says that although the oil leakage was obvious, he was not in a position to find out the reason causing it. It might take one day or half a day to fix it.  He says that with that extent of oil leakage, it would not render the whole machine inoperative, but one would have to take the risk on the aspect of safety.

DW2 Mr. Tse Kwong Leung

11. He is a driver of piling machine.  He tells the court that the piling machine had not been in use because of the oil leakage problem before the issued of a Form 4 Certificate by Sam & Sam in early February 2003.

DW3 Mr. Wong Yuk Fuk

12. He is the foreman of the Defendant.  He says that piling machine was delivered to the construction site on 18 December 2002.  The delivery was arranged by the Defendant.  Technician of the Plaintiff had come to the site to assist in the assembly of the piling machine.

13. The assembly of the piling machine was completed on 27 December 2002.  He therefore made arrangement for the piling machine to be tested under the statutory requirement.

14. The piling machine was tested by a Mr. Wong of a Loong Sang on 30 December 2002. After testing, a Form 4 Certificate was issued but Mr. Wong said to him that there was a problem of oil leakage in the stay cylinder on the right side which needed to be repaired.

15. He then informed Mr. Chan Cheung Chau, the Person-in-Charge of the Defendant.  He also informed Mr. Fung of the Plaintiff.  Then on 8 January 2003, he made arrangement with another company called Sam and Sam to test the piling machine again.  The result for that was “Yes (Defect Noted), Not in safe working Order”.  Again he informed Mr. Chan of the Defendant, and Mr. Fung of the Plaintiff.  Technicians were sent to the construction site by the Plaintiff to repair the oil leakage but of no avail.  During that period, the piling machine could not be used.  Then on 27 January 2003, he issued a letter to the Plaintiff to formally complain about the oil leakage and that the piling machine could not be used [p16 in Bundle of Document].  

16. Then on 29 January, the Defendant changed the stay cylinder. As it was near Lunar New Year, he managed to make arrangement with Mr. Chan of Sam and Sam on 5 February 2003 for another test and the result was “None (Defect Noted, In Safe Working Order)”, and a Form 4 Certificate was issued.

17. During examination-in-chief, Counsel for the Defendant asks if the machine could not be used as he had alleged, why in the said letter dated 27 January 2003 he said that “since 10 January 2003, we have used the captioned Pile Driver to drill H-pile hole.”  His reply is that he meant to write “since 10 January 2003, we have not used…”.

18. He is referred to another letter at p29 of the same bundle and asked if the stay cylinder was replaced on 29 January 2003, why in that letter he mentioned that the replacement took place on 19 January 2003, he says that it might have been a typo mistake, it should be 29 January 2003.

19. In cross examination, Counsel for the Plaintiff asks if by the said letter at p16 of Bundle of Document, he really meant they had not used the machine, if so, that would make the following sentence out of place.  He disagrees, and says the machine was not even used once. When asked what he had meant by “firstly we cannot find out where the problem lie”, he says what he meant was the problem could not be repaired after many attempts.  When asked about the meaning of “Later on we discover the mast is leaking and we informed you on 22 January 2003”, he says he did not quite know the meaning of later on, it was something happened first then something happened later, but he disagrees that 22 January was the first time the Plaintiff was informed of the oil leaking problem.  When asked whether the problem of oil leakage had been disclosed to him by Mr. Wong of Loong Sang, he agrees and adds that the problem could not be fixed after many attempts and so he thought there might be some other problems.  But he says that he did not understand machine and that was only his subjective understanding only.  

20. When further asked whether Mr. Wong of Loong Sang told him that the leakage would not affect the safety aspect of the piling machine, he says he was not so told.  He says he received the Certificate prepared by Loong Sang after New Year.  He says he could not pass it to the Principal Contractor Chun Wo because it would be to deceive them as there was a problem in oil leakage.

21. When asked how many times the Plaintiff had sent staff over to repair the leakage problem, he says he could not remember as they came from time to time.  Those staff came before 23 January but did nothing so concrete, only on 23 January 2003, it was the first time they started to change some parts.  He disagrees to the case put by Counsel for the Plaintiff that there were only two occasions where major repair was carried out.  He also disagrees that the machine had been in used before 22 January 2003.  He disagrees that Wong Kwan Ho of Plaintiff had suggested that the stay cylinder be replaced on 27 January 2003 but it was postponed by two days as suggested by the Defendant to suit their tight schedule of work.

DW4 Mr Chan Cheung Chau

22. He is the in-charge of Defendant. In cross examination he says that Loong Sang has always been a company hired by them to test the machines.  Sam & Sam is another one. In fact there is no preference for one over the other, it just depends on their availability to take the job.  In cross examination he explains why since a Form 4 Certificate had been issued by Loong Sang he would still refuse to use the machine.  He says that after checking they tested the machine but the machine could not perform some tasks and the leader inclined to one side so he asked Mr. Wong Yuk Fuk to follow up with the Plaintiff. He says the piling machine was tested from 2-5 January 2003, but it could not be controlled by the driver as it inclined to one side after running for sometime.  He says the Plaintiff had been informed of the problem many times, but there was no real improvement made.  On 22 January 2003, Chun Wo gave them notice that the machine must be repaired, otherwise it had to be removed from the site, so he spoke to Mr. Yeung of the Plaintiff direct.  Then the Plaintiff’s staff came more often to see the problem.  A stay cylinder was changed eventually on 29 January 2003.  They had to wait two days for the Plaintiff to repair the one in the warehouse before it could be taken out to replace the one at the site.

DW5 Mr. Hui Hon Fai

23. He is site foreman hired by Chun Wo, the Principal Contractor.  He worked at the site in question everyday at the material time.

24. His evidence is that after the piling machine was assembled on 27 January 2003, the Defendant appointed a testing and surveying company to test the machine under the law.  Normally, upon a certificate issued by such surveyor saying that the machine was safe, he would approve the use of the piling machine in the construction site.  When he inspected the piling machine on or about 27 December after it was assembled, he found that it inclined to one side, he did not allow the Defendant to use it in the construction site but asked that it had to be repaired.  Although he agrees that Loong Sang is a good company, he says he would not recommend the piling machine to be used at the site from what he had seen even if he were shown the Form 4 Certificate issued by Loong Sang at the end of December 2002.  In re-examination, he says that the inclination of the leader was upto 30 degrees, he found it possible that the machine would topple and he had to stop the Defendant from using it until it was repaired.  After that he saw staff of Plaintiff coming to repair on many occasions but the problem was not improved.

The Plaintiff’s case

25. The Plaintiff calls 4 witnesses to prove its case that the piling machine was not in unsafe working condition and that it had been used by the Defendant for most of the time in January 2003.

PW1 Mr. Wong Chan Chong

26. He is engineer.  He works for Loong Sang.  He signed the Form 4 Certificate at p11 of the Bundle of Document.  He says that there was a Form 5 attached to the said Form 4.  Form 5 is to tell the weight the machine can carry in safe condition.  He says that if he noted a defect which would not affect the safe operation of the machine, he would still issue a Form 4 Certificate but would inform the user the defects to be fixed as what he had done in the present case.  He is however not sure whether that is the practice of other engineers in the trade.  He refers to a report at p33 of the Bundle of Document saying that it was a draft issued to client at site as evidence that the machine had been checked.  The date appeared at the bottom was 30 December 2002 and that was the day before the final certificate at p 11 was issued.  He explains to the court how a piling machine operate and says that in his opinion, the piling machine in question was safe for use despite the oil leaking problem.  He says that the problem was very minor and needed no repair, one could just add hydraulic oil sometime after using it.

27. He says that at the site he gave Mr. Wong Yuk Fuk a copy of Form 4 Certificate [p33] but without the handwriting stating the oil leakage.  The one with handwriting was only issued few weeks afterwards.  So at the site, what Mr. Wong Yuk Fuk had got was a draft certificate with no qualifications.

28. In cross examination he says that with that draft certificate the Defendant could start using the machine.  He says that Form 5 for a machine is good for one year and not to be issued every time the machine is tested.

29. He says that the problem of oil leakage in the piling machine can be rectified if the damaged parts, the oil seal, could be replaced, but he says he cannot tell definitely what to be replaced, a mechanic would be able to tell.  He agrees that some oil leakage might affect the safe operation of the machine.

PW2 Mr. Yeung Lui

30. He is general manager of the Plaintiff.  He gives evidence on how the contract was concluded.  He tells the court that 95% of the Plaintiff’s client would ask the Plaintiff to assemble the piling machine and they would be willing to pay an extra sum of $30,000-$40,000 for such service.  He says this arrangement would offer more protection for hirers because they could be sure that they would get a machine which is in good condition without all the hassles of handling the transportation, assembly and testing by themselves.

31. He says in cross examination that the machine was tested before leasing out but he did not know when this was done and how.  Normally, the piling machine would not be assembled for the testing.  He agrees that he gave the approval for change of stay cylinder.  He agrees that in the letter at p26 of Bundle of Document, dated 6 March 2003, it mentioned about some minor repair carried out in January 2003 but they were not supported by any site visit reports.  He says he cannot tell the reason why there were no reports.

PW3 Mr. Goh Kia Teck

32. He was mechanic involved in the maintenance and service of construction machinery since 1988.  He assigned mechanics to assist in the assembly of the piling machine for the Defendant.  He says he saw the machine working in January 2003 and not idled as said by the Defendant.  He says he did not go inside the site to check and just checked it from outside of the site. He further says that he had visited the site again on a day between 25-27 January 2003.  He says first he saw that the machine was in operation and secondly he tested the machine and found no problem with it. He says he found no oil leakage.

33. In cross examination, he agrees that in the first half of January 2003, his staff did go to the site to make some minor repair on oil leakage, he also agrees that as there was no instructions from supervisors, the machine was not actually repaired until 23 January 2003 and that it was decided that the cylinder had to be changed and was changed on 29 January 2003.

PW4 Mr. Wong Kwan Ho

34. He was mechanic for the Plaintiff.  His evidence is mainly that he found some damage in the stay cylinder which might have been caused by bumping and that might have caused oil to leak.  He also says that the change of stay cylinder could not be done on 27 January although the decision was made on that day because the piling machine was in operation and the schedule was tight so they had to wait two days before they could change the stay cylinder.  He says that oil leakage would not cause the machine to be inoperative but the stay cylinder could get shorter overtime.  It can been rectified by jacking it up from time to time.

Analysis of evidence

35. I find Mr. Goh Kia Teck (PW3) not a reliable witness.  His assertion of visit to the site without going inside is unbelievable.  First I do not see any reason he had to check to see whether the machine was working unless there was complaint as they said hirer had to pay rental anyway; secondly, I do not see why he did not go inside the site to confirm with operator to know whether there is problem; thirdly, I see no reason why he made no record of his such visits to the sites.  I attach no weight to his evidence except those which are not disputed by the Defendant.  I do not find Mr. Wong Kwan Ho (PW4) telling the whole truth when he said he saw the machine working on 27 January 2003.  I however accept his saying that there were staff of Plaintiff attending the piling machine several times in the first half of January 2003.  This is consistent with the letter at p26 in Bundle of Document. 

36. I find Wong Yuk Fuk (DW3)’s evidence not reliable as it seemed to be contradicted by his letter dated 27 January but I would not say that his letter reflected the whole truth.  The content of this letter is contradicted by other witnesses such as whether the Defendant knew about  the problem of oil leakage and whether the piling machine was being used prior to the writing of the letter. 

37. I find the two engineers, Mr. Wong and Mr. Chan truthful but I prefer the opinion of Mr. Chan of Sam & Sam who found the piling machine not in safe working condition.  As evidence unfolds, the stay cylinder has to be changed eventually. 

38. I also find Mr. Hui Hon Fai (DW5), the site foreman of Chun Wo truthful.  I accept his evidence that he saw Plaintiff’s staff coming to fix the problem of oil leakage in January 2003 many times but that could not be fixed and that he had not allowed the piling machine to be put in use until the problem was removed.  In his evidence he never mentioned that he was shown the Form 4 Certificate signed by Mr. Wong of Loong Sang and it was not disputed that he had seen this, so I accept Mr. Wong Yuk Fuk (DW3)’s evidence that the Form 4 Certificate signed by Mr. Wong of Loong Sang had not been shown to Chun Wo.  As Mr. Hui’s approval was necessary and would only be granted upon production of a Form 4 Certificate, this proved the fact that the Defendant had no intention to put the piling machine in use before the oil leakage problem was rectified. 

39. Further as the problem was so serious, I do not see any reason why the Defendant would not have told the Plaintiff about it.  The Plaintiff tries to say that the duty to repair rested with the hirer.  But from evidence before, their staff had been attending the piling machine trying to remove the problem with it.  In my view, Mr. Wong Kwan Ho’s evidence explained the reason why the problem was not rectified earlier.  Even when he gives evidence in court, he still takes the problem lightly.  He still maintains his view that the piling machine needed not be repaired, but to jack up the shortened stay cylinder from time to time and the problem would be improved.

Finding of facts  

40. I make the fact findings as follows with evidence before me:

(a)	The piling machine had not been assembled for testing before it was taken out by the Defendant from the warehouse.
(b)	Parties agreed that the rental period commenced on 27 December 2002.
(c)	The piling machine in the present case is a lifting appliance and is required by section 5 of Factory and Industrial Undertakings (Lifting Appliances And Lifting Gear) Regulations of Cap. 59 that it be tested and examined prior to use.
(d)	A draft Form 4 was issued on 30 December 2002 by Mr. Wong of Loong Sang and Mr. Wong Yuk Fook of Defendant was informed of the oil leakage problem, formal Form 4 was issued on 31 December 2002.
(e)	Mr. Hui, the site foreman of Chun Wo had stopped the Defendant from using the piling machine in or about end of December 2002 until the problem was removed; and the piling machine was not in use since then.
(f)	A test on the piling machine was done again by Mr. Chan of Sam and Sam on 8 January 2003 and he refused to issue a Form 4 Certificate with no defect because of an oil leakage problem.
(g)	Staff of the Plaintiff had been informed of the problem and came to the site a few times in January 2003 but the problem was not rectified.
(h)	The stay cylinder was changed on 29 January 2003.
(i)	Mr. Chan of Sam and Sam tested the piling machine again and issued a Form 4 Certificate on 5 February 2003.
(j)	The Defendant started to use the piling machine after the issue of the Form 4 Certificate by Mr. Chan of Sam and Sam.
(k)	The piling machine was returned to the Plaintiff on 28 February 2003.

41. Counsel for the Plaintiff argues that even the machine was not in use, the Defendant had to pay rental after delivery.  He also submits that it would be unfair if those terms as stated in paragraph 4 above were to be implied as they were vague without specifying the period.  Counsel for the Defendant contends that the piling machine was not in use prior to 5 February because it was not in a safe working condition and it would be in violation of the law if they used the machine.  Concerning the Agreement, he submits that there must be implied terms that the piling machine was in merchantable quality and safe working condition and as the Plaintiff was in breach of the implied terms, the Defendant is therefore not obliged to pay rental for the whole period, it is however agreed that they should pay the minimum charge for one month’s rental pursuant to the clauses under “Rental Period” and “Agreed Rental Rate Without Operator” of the Agreement. 

42. I agree with Counsel for the Defendant that there must be implied terms that the piling machine should be of merchantable quality and in safe working condition.  This is more the case when the safe operation of the machine is governed by statute.  Although the Plaintiff tries to say that if the Defendant had paid an extra sum of $30,000 -$40,000 for the transportation and assembly of the piling machine, the client would be more protected.  This cannot go so far as to take no liability even if the piling machine could not be put in use from day one.  In fact Mr. Yeung says in cross examination that by saying this, he did not mean that the client would have to take their own risk if they make arrangement for transportation and assembly, that is not the way they run the business.  From Mr. Yeung’s evidence, it was not the intention of the Plaintiff that they would charge fully even if the piling machine cannot pass the test laid down by statute. This has not been put down in the Agreement. I find it necessary to imply the two terms to give business efficiency to the Agreement and the two terms represent the obvious but unexpressed intention of the parties.

43. From evidence before me, I find that the piling machine was not of merchantable quality and safe working condition before 5 February 2003.  I find that the Plaintiff was in breach of the said implied terms. Counsel for the Plaintiff argues that pursuant to General Condition 2 of the Agreement,  the Defendant was responsible for choosing the equipment.  If the machine was not suitable for the Defendant’s purpose, the Plaintiff would not be responsible.  The problem of the piling machine in the present case was not on suitability for Defendant’s purpose.  It was a defect which rendered the piling machine not safe to work with.

44. For reason aforesaid, I find that the Plaintiff has failed to prove its claim for rental payment over the minimum charge and the claim is therefore dismissed.

45. I make an order nisi on costs that the Defendant do pay costs of this action up to the date part judgment for $58,000 was entered, and the Plaintiff do bear costs of and incidental to the proceedings thereafter, to be taxed if not agreed. Certificate for Counsel is granted.