CHOW KWAI CHU t/a SALAMON EXPRESS PHOTO SERVICES v. KONICA MINOLTA PHOTO IMAGING (HK) LTD

DCCJ 4589/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4589 OF 2004

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JUDGMENT

Background

1.  The Plaintiff, sole proprietor of photo-printing business had on or about 25 March 2002 bought inter alia, a photo-printing printer model QD21 from the Defendant, a supplier of photo-printing printers.

2.  The Plaintiff alleged that before signing of the Contract (“the Contract”) to purchase the said QD21 at $760,000, Mr. Yu of the Defendant had represented on two occasions to Mr. Tsui, husband of the Plaintiff that the said QD21 is fit to be used in the premises known as Shop 54B, Peninsula Centre, Tsim Sha Tsui East, Kowloon, Hong Kong (“the Premises”). 

3.  The Plaintiff said the Defendant well knew that QD21 was to be used by the Plaintiff in her business with a view to profit.

4.  The Plaintiff now alleged that she had relied on such representations by Yu and other staff of the Defendant and was induced to enter into the Contract.

5.  She said in fact, she later knew that the said QD21 was not suitable/fit to be used in the Premises; reason being that according to the manufacturer’s specifications, there should be 60 cm space on all sides of the QD21 after installation.

6.  She said further that according to a brochure of the said QD21 that the space needed to operate the QD21 was 130 sq. ft. and that the Premises in question was only about 105 sq. ft.

7.  She said relying on the said misrepresentation, she had bought the said QD21, but the same did not function properly and had frequent problems arising from reasons including unsatisfactory heat dissipation etc. and thereby affected the proper functioning of the QD21.  This had led to problems such as quality problems of photos printed and customer dissatisfaction, thereby affecting the business and accordingly, profits of the Plaintiff.

8.  The Plaintiff also said in the alternative, the said QD21 was not of merchantable quality.

9.  In addition, the Plaintiff said when she was told by technician of the Defendant during the installation of QD21 at the Premises, that the space was not suitable for installation of QD21, she had tried to return the said QD21 to the Defendant but was refused by the Defendant who agreed to repair and maintain the said QD21, even problems ensuing from the lack of space for heat dissipation i.e. the lack of the ’60 cm space’ requirement.

10.  The Plaintiff said as result, she had agreed to accept the QD21, relying on such undertaking by the Defendant.

11.  The Plaintiff said subsequent thereto, the Defendant had breached his undertaking and had refused and/or failed to properly repair and maintain the QD21 during the 1 year free warranty.

12.  The Plaintiff said the Defendant also refused to repair the QD21 free after the 1 year warranty period although the defects of QD21 during the 1 year free warranty period had not been rectified.

13.  The Plaintiff said as a result, in or about April 2004 she had traded in the said QD21 for another photo-printing machine from Kodak, another supplier at the price of $125,000.  She incurred an extra $635,000 for the said new machine.

14.  Tsui gave evidence in support of the Plaintiff’s case.

15.  It is not in dispute that:-

(a)	at all times, the Defendant knew the Plaintiff was in business of photo-printing for a profit and had bought the QD21 for such business;
(b)	Tsui had been in photo-printing business since 1995 and was familiar with, inter alia, Michael Leung technical manager of the Defendant years before the Contract;
(c)	that at time the said QD21 was sold to the Plaintiff, the Defendant had already sold 10 odd machines to others in Hong Kong;
(d)	that under the Contract, the Plaintiff was entitled to one year free warranty (labour and parts included);
(e)	that in year 2006, the Defendant had already ceased business in Hong Kong and had dismissed all the sales persons and technicians involved in the case.

Issues

Issues

(a) Was there misrepresentation by the Defendant?

17.  Tsui of the Plaintiff said before signing of the Contract, staff of the Defendant, including a sales person Peter Yu did say the Premises had adequate space for the installation and proper operation of the QD21.

18.  Since the Defendant had ceased operation in Hong Kong at time of trial, only Michael Leung, a former technical manager of the Defendant was called to give evidence for the Defendant.  He was not in a position to contradict what was alleged against Yu.

19.  He said however that he had been to the Premises, the first time being on 10 April 2003, the date after the QD21 was installed at the Premises.

20.  Leung said he was told at the regular meeting between the Sales Department and the Technical Department about the installation problem of QD21 in the Premises the day before.

21.  Leung said according to the service call report, technician Chung when installing the QD21 on 9 April 2002 did tell Tsui that the “space where machine was installed did not conform with manufacturer’s requests”.  The Plaintiff had acknowledged the remarks and signed and chopped on the report.

22.  According to Leung, the QD21 was installed at the Premises close to the wall, leaving insufficient space for heat dissipation.  He said the manufacturer had set a 60 cm requirement for the QD21 for it to function properly.  He said lack of space for such purpose could lead to heat dissipation problem and the QD21 might not be able to operate properly.

23.  Leung said if the QD21 was installed more to the middle of the Premises, that could satisfy the 60 cm requirement and solved the problem.  He said although Tsui said as the QD21 needs regular maintenance which involves opening of the two doors, usually only one door need be opened for the purpose.

24.  He said he had told Tsui of this solution but Tsui did not agree to the proposal.

25.  Leung also said if the room at the rear of the Premises was pulled down, there could be more space for the machine.

26.  Leung further said it would be better to leave more space at the back of QD21, even though less than 60 cm than putting it close to the wall as Tsui had chosen to do.

27.  Leung said he was also told that Tsui had insisted the QD21 be installed close to the wall despite the advice by Chung and Yu to the contrary and that Tsui had explicitly admitted that the space he selected for installing QD21 was not right and therefore he would take full responsibility for any problems arising on QD21 done to poor heat ventilation.

28.  According to Tsui, when Yu and he inspected the Premises before the signing of the tenancy agreement back in March 2002, the Premises was a bare shell and therefore he would not have told Yu that he intended to demolish the rear room (which he subsequently partitioned), as Yu alleged.

29.  This means also that when staff of the Defendant said the Premises was suitable for QD21, they did not have knowledge that there would be a room in the rear.

30.  It is clear that Tsui had been alerted of possible problems of QD21 due to heat ventilation problem, even as early as installation stage.  Against that background, it is difficult for this Court to accept that Tsui was very concerned about operation problem of the QD21.  If this were true, he would at least place the QD21 further from the wall and not insist on placing the same closed to the wall, as he had been forewarned of the possible problems of heat ventilation earlier.

31.  This Court accepted the evidence of Leung, that there are in fact ways to place the QD21 so that the 60 cm requirement can be satisfied.  The fact that Tsui refused to place QD21 in the way suggested by Leung could not mean QD21 is not suited for use in the Premises.

32.  Although the Plaintiff pleaded in paragraph 6 of the Re-amended Reply and Defence to Re-Re-Amended Counterclaim that the Defendant did not offer advice as to alternative to the space where the QD21 was installed, yet in Court, he admitted the Defendant did make 2 other suggestions to which he did not accept and had made counter proposals.

33.  In the letter from the Defendant’s solicitors to the Plaintiff dated 17 May 2004, the Defendant alleged that they had made suggestions on how to place the machine properly but the Plaintiff had not accepted any of them with various excuses, such as affecting the “fung shui” of the shop.  The Plaintiff did not reply to such letter. 

34.  Although there was no other witness for the Defendant apart from Leung, it is not disputed that the staff of the Defendant were all dismissed due to global reorganization of the group of which the Defendant was a member company.  The fact that the Defendant did not manage to call the other witness was, in the circumstances, understandable.

35.  Coming to the sales brochure of QD21 produced by Tsui at trial, the Court on reading the same is of the view that although the same says that the QD21 system “can be installed in a small shop of about 13 sq. m.”, the same does not mean that shop of any smaller size cannot properly use the system.

36.  If one reads the brochure of QD21, the dimension of the QD21 system, even allowing a space of 60 cm on each side of the sytem, the total area required for its installation is much less than 130 sq. ft. 

37.  Surely, the ‘130 sq. ft.’ shop size mentioned is not meant to be, strictly, a prerequisite in using the system.

38.  This Court does not find there was misrepresentation in this case.

(b) If there was misrepresentation by the Defendant, was the Plaintiff entitled the to sue on such misrepresentation?

39.  Even assuming, which the Court does not find, that in fact there was misrepresentation by the Defendant, as alleged by the Plaintiff, as to shop size requirement in using QD21, the fact that the Plaintiff had on his own admission, accepted the QD21 on day of installation, after he was made fully aware of the “space” issue, had deprived him the right to sue on misrepresentation.

40.  According to Tsui, when he first knew that there need to be 60 cm distance from the wall after QD21 was installed, he had tried to return the QD21 but was refused by the Defendant.  Tsui said he then agreed to install the QD21 in reliance of the Defendant’s undertaking to repair and maintain the QD21 even if there are problems resulting from the space problem. 

41.  It is not suggested by the Plaintiff nor is there evidence before the Court that subsequent to the installation and the above acceptance, the Plaintiff had at any time evinced intention to return the QD21 system in the 2 years’ period.

42.  In fact, Tsui in Court said after he learnt of the ‘space’ issue, later in the evening, he paid further deposit of $102,000 for the purchase of the QD21.

43.  Tsui also admitted that in fact at time of installation of the QD21, he had not paid balance of purchase price of the QD21, not until May 2002 when he borrowed the same from the finance company. 

44.  The Plaintiff had clearly affirmed the Contract to buy QD21 even after she learnt of the ‘space’ issue.

45.  Moreover, she had used the system from 10 April 2002 till April 2004 when she traded in the same with Kodak for a new system. 

46.  Whatever was said by Tsui/the Plaintiff regarding the QD21, the evidence of the Defendant that when they offered the Plaintiff to trade in the QD21 with a new model R1 (with more functions than QD21) at the price of $250,000, the Plaintiff had refused them.

47.  The Plaintiff by her conduct had clearly affirmed the Contract and waived her right to sue for damages,  in return for the Defendant’s promise to repair and maintain the QD21.  She also did not dispute the Defendants’ saying that the Defendant was never informed of the Plaintiff’s intention to sell the QD21 (before she sold it to Kodak).

48.  The Plaintiff clearly had lost her right to sue on misrepresentation, even if she had the same earlier.

(c) Was the QD21 of merchantable quality or fit for the purpose the Plaintiff required of it?

49.  Although Tsui complained of frequent problems of the QD21 since its installation, the Plaintiff had been using it until April 2004 when the same was traded in.

50.  According to the Re-amended Statement of Claim of the Plaintiff, there was heat ventilation problem, overheating problem, laser head unit problem, colour balance problem and problem with the Auto Negative Carrier (“ANC”) of the Advanced Photo System of the QD21.

51.  The Plaintiff said these problems were not rectified despite repair and maintenance by the Defendant. 

52.  Leung, the former technical manager of the Defendant testified and said that at the time of sale of QD21 to the Plaintiff, 10 odd sets of QD21 system were already sold to others in Hong Kong.  There was no serious problems relating to these systems.  Leung said the performance of this model was steady without any serious mechanical problems.

53.  Leung said the Defendant had a system whereby when client called the service hotline and asked for maintenance service, the service hotline staff would note down the date, client calling time, client’s name, contact person, contact number and the specified problem on the APS Service Call Registration Record (“Call Record”).  The Defendant then would send technician to attend the problem as soon as possible, usually on the same day and if really too busy, then on the next day. 

54.  The technician would go to the client shop and render repair services.  After the service work is completed, the technician would note down on these Service Call Report the date of attending service, the client’s name, the name of the technician, model number of the subject machine, the problem and its solution, remarks (if any).

55.  In the case of the Plaintiff, either the Plaintiff or Tsui could call the service hotline or Yu would call the technician direct and the technician would go and render service to the Plaintiff.

56.  Leung said according to the records, there were about 21 Service Calls during the one year free warranty period.  Most of these service calls were problems caused by wrongful computer setting up, wrongful use of software and common problems like streaky appearing on printer photos, photo paper jamming etc.

57.  He said technicians also went to the Premises for routine quality checks or for updating software of QD21 whenever there were new updates.

58.  Leung said he recalled there were no serious or special problems with the Plaintiff’s QD21 system.

59.  Leung said he had not learnt of any failure report of ANC from other customers.

60.  Regarding the one year free warranty period, Leung said there was only one service call regarding colouring problem of photos which were later fixed by calibrating the computer set-up.

61.  In cross-examination, Leung agreed if the Defendant received oral complaints of problems and problems rectified after advice by the Defendant staff on phone, there would not be any service calls records.  He said however, the Defendant never failed to send technician to the Premises if they received complaints from the Plaintiff which remained not rectified and so there would be service call records.

62.  In support of his evidence, Leung had in the annex to his Witness Statement dated 15 June 2005 set out a chart showing 21 Service Calls Records to the Premises from installation of the QD21 in April 2002 till 9 April 2003 when the one year free warranty period expired.

63.  The said chart also showed the problem defined in each service call.

64.  These records did not support the QD21 supplied to the Plaintiff was not of merchantable quality or that they were not fitted for the use at the Premises although it was noted that some of the Service Calls Records related to suspected overheating of the machine.

65.  According to Leung, there was instance when the ANC-APS was not working properly in the Premises and when they tested the same in the Plaintiff’s showroom, the same when cooled off, was functioning properly.  Leung said there was no problem with the ANC-APS, the problem was really as a result of the lack of space for the heat ventilation of the QD21 system, as installed at the space chosen by Tsui.

66.  This Court noted Leung was an ex-employee of the Defendant.  No purpose was served for him to lie.  In fact, he was unwilling to come and testify in Court earlier.

67.  Leung was also an experienced technical person in the field of photo printing machines repair and maintenance.

68.  He did not agree that the QD21 system was of unmerchantable quality or not fit for the purpose for use at the Premises save that the QD21 was installed at an inappropriate space in the Premises against the advice of himself and other technical persons of the Defendant.

69.  In the circumstances, it is not proved that the QD21 in question was not of merchantable quality and/or suited for the purpose.

(d) Was the Defendant in breach in the 1 year free warranty under the Contract and/or the undertaking by the Defendant to repair and maintain the QD21, if it did exist, as alleged by the Defendant, at time of installation of the QD21?  Was the Defendant in breach the alleged agreement between Tsui and Matsuda of the Defendant?

70.  Under the Contract, the Plaintiff was entitled to one year free warranty from date of installation, against routine maintenance and repair job by the Defendant and supply of replaced parts.  It is said that the warranty will be void if the machine is damaged under other conditions due to the Plaintiff’s misuse.

71.  The Service Call Records clearly showed that the Defendant had been maintaining the QD21 for the Plaintiff during the one year warranty period.

72.  Although Tsui said, both in Court and in his Witness Statement that the Defendant had not performed its contractual repair and maintenance duties, within the 1 year free warranty period and further after the one year free warranty period expired, the Service Call Records however showed otherwise.

73.  According to Leung, on 9 April 2003, i.e. the last day of the free warranty period, he had gone to the Premises with his colleague Chung (who was involved in the installation of the QD21 at the Premises).  He said Chung was there to complete the uncompleted service call the day before and he was there to see if there was other problem with the QD21 and whether the Plaintiff would renew the Repair and Maintenance Agreement.  Leung said if there was other problem with the QD21, they would repair the same also, alternatively they would start the repair and finish the same, albeit after the expiration of the free warranty free of charge.

74.  Leung said the uncompleted service order just before the expiration of the one year free warranty, related to malfunction of Automatic Negative Carrier (ANC) of the QD21, therefore on the day, Chung brought along with him the Defendant’s own ANC, which had been tested to function properly in the Defendant’s showroom beforehand and used the same to test the Plaintiff’s QD21.  Leung said as the ANC was installed in the rear part of the machine, they had to check the inside of the machine to find out the actual cause of the problem.  Leung said he requested the QD21 be moved away from the wall in order to enable Chung and him to examine QD21 from the backside and that would require about 2 to 3 hours’ work.  He said if there were spare parts that needed replacement, the Defendant could on that day, apply for the same from their Tokyo office without any extra cost to them or the Plaintiff as it was still within the free warranty period.

75.  Leung said however Tsui refused and Tsui further said since the problem only affected the size of the photos, he could still print the photos by manually fixing the size and he did not require Leung and Chung to do the repair.

76.  Leung’s evidence contradicted what Tsui said, that Leung and Chung failed to repair the same on the day, had promised to return and continued the repair free of charge later but failed. 

77.  This Court prefers the evidence of Leung to Tsui, i.e. that Tsui had refused Chung’s request to move the QD21 machine for inspection.  Under the Defendant’s company policy, which was not disputed, Leung could not obtain the spare parts free for the Plaintiff in the event that the Plaintiff refused to allow them to check the QD21 and/or to renew the Repair and Maintenance Agreement as in this case, therefore he could not have promised Tsui to repair the QD21 later i.e. after the one year free warranty had expired free as that would involve possible cost of spare parts to the Defendant.

78.  According to Leung, all the spare parts of QD21 were supplied to the Defendant by their Tokyo office.  If they ask for spare parts of QD21 after the one year free warranty period from their Tokyo office, they have to pay for the spare parts but not if they ask for the spare parts within the free warranty period.

79.  Leung said however if Tsui agreed to renew the Repair and Maintenance Agreement, he would be able to supply all spare parts to the Plaintiff free of extra charges. 

80.  In fact, Leung said after the one year free warranty period expired, the Plaintiff did further engage the services of the Defendant in the repair and maintenance of the QD21 on a piecemeal basis. 

81.  According to Leung, Tsui indicated in or about February 2004 that he wished to renew the Repair and Maintenance Agreement i.e. 10 months after the free warranty had expired, but it was the policy of the Defendant that they needed to examine the QD21 to ensure that the same was functioning properly before they would be willing to accept entering into maintenance agreement for the QD21.

82.  In this case, after their checking of the QD21, the same needed repair with replacement of spare parts which amounted in total to $100,274.75.  On learning this, the Plaintiff and Tsui again indicated unwillingness to renew the maintenance agreement.

83.  Leung said later the Defendant learnt that the Plaintiff had traded in the QD21.

84.  Leung said throughout, the Defendant had treated the Plaintiff as a valued customer and had never neglected nor delayed providing services to the Plaintiff and/or Tsui.

85.  Tsui on the other hand, doubted the accuracy of the Service Call Records chart.  He said according to his memory, there were still other problems with the QD21 which were not included in the chart, possibly where the Defendant had failed to come and repair despite their complaints.

86.  Apart from the oral evidence of Tsui, there was no contemporaneous record nor was there complaint letters to the Defendant during the 1 year free warranty period supporting what Tsui now alleged.

87.  This Court did not find, on evidence before the Court, that the Defendant did fail in their duty to maintain and repair the QD21 in question in the one year free warranty period.  This Court accepted Leung’s evidence that the Defendant had been responding responsibly to the calls of the Plaintiff.

88.  Furthermore, even if there was indeed the agreement between Tsui and Matsuda of the Defendant to repair and maintain the QD21 after the expiry of free warranty period, Matsuda of the Defendant, even on the evidence of Tsui of the Plaintiff, did not agree to repair and maintain the QD21 free of charge.

89.  According to Leung, policy of the Defendant was always only to consider to renew repair and maintenance agreement of the machine after the same has been checked and is found to be free from defects as the previous maintenance agreement had expired for sometime already and there was a time lag in between.  In this case, the Plaintiff had refused to pay for the repair fee and replacement costs of the spare parts, a prerequisite before the Defendant will accept renewal of the Repair and Maintainance  Agreement. 

90.  Based on the above findings, I do not find the Plaintiff did breach the free warranty or said undertaking or alleged agreement.  The claim of the Plaintiff is not proved.  Claim dismissed.

(e) What was the quantum of damages, if any?

91.  It is not necessary in the circumstances to assess damages.

92.  In passing, the Court would add that the claim by the Plaintiff was totally unreasonable.

93.  It is undisputed that the Defendant had offered to trade in the QD21 at $250,000 for a new model R1.  Why would the Plaintiff claim $635,000 for a model at Kodak?

94.  The Plaintiff also did not consider the depreciation allowance for the two year old QD21.  Further, the business of the same company at different shop location is always different, for obvious reasons and could not be used as a reliable comparable in computing the loss of profit.

(f) Was the counterclaim of $32,076.75 due and payable?

95.  Now coming to the counterclaim of $32,076.75 i.e. charges for supplies to the Plaintiff claimed by the Defendant, the Plaintiff had admitted that the sum due from the Plaintiff to the Defendant should actually be $26,000, as confirmed previously by Leung of Accounts Department of the Defendant and not $32,076.75 as claimed.

96.  As the only witness from the Defendant Leung did not testify regarding this counterclaim, this Court finds the sum due from the Plaintiff to the Defendant as $26,000.

97.  Although the Plaintiff alleged that there was previously an agreement between the parties that the Plaintiff needed only to pay the same when the arrangement for the repair and maintenance of QD21 was agreed which this Court does not accept as a fact, as it turned out there was to be no agreement on maintenance, the sum of $26,000 became due and payable.

98.  This Court finds the counterclaim proved in sum of $26,000 and therefore the Plaintiff is adjudged to pay the Defendant:

(a)	the sum of $26,000;
(b)	interest on the said sum of $26,000 at judgment rate from the date of counterclaim i.e. 30 September 2004 till date of judgment and thereafter at judgment rate till date of payment.

99.  I also make an order nisi that the Plaintiff shall pay the costs of this action (including all costs reserved), the same to be taxed if not agreed, with certificate for counsel, the said order to be made absolute 14 days after the handing down of judgment.