LEE TIT FAN v. STRONG BASE INTERNATIONAL INDUSTRIAL LTD AND ANOTHER

DCCJ 3680/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3680 OF 2008

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JUDGMENT

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INTRODUCTION

1.  The action concerns the sale and purchase of 3 plastic straws manufacturing machines (collectively “Machines”): (1) traditional “straight” drinking straws (塑膠直管吸管設備) (“Straight Straw Machine”); (2) “flexible” drinking straws (塑膠彎管吸管設備) (“Flexible Straw Machine”); and (3) packing and logo-printing the straws (吸管包裝設備) (“Packaging Machine”).

2.  The Plaintiff (“Lee”), now 71 year old and retired, was the owner of the Machines at the material times.

3.  The 1^st Defendant (“Strong Base”) is a company limited carrying on its business of manufacturing plastic products used in food industry, such as plastic drinking straws. The 2^nd Defendant (“Kuen”) is its majority shareholder (owning 50% of its shares) and director. The other shareholders are his wife and his son.

4.  This action originated from the Small Claims Tribunal but was transferred to the District Court since the counterclaim amount exceeded the jurisdiction of the Small Claims Tribunal.

5.  Lee alleges that in or about April/May 2007, Kuen in his personal capacity orally agreed with Lee that he would purchase the Machines at HK$150,000 (“Oral Agreement”). At Kuen’s request, the Machines were duly delivered and installed at a factory in Shijie (石揭), China (“PRC Factory”). The PRC Factory turned out to be Strong Base’s supplier in China. Lee claims that Kuen had only paid HK$50,245.10 (which was revised to HK$59,262 after the parties have agreed during the trial on the conversion rate between RMB and HKD), leaving a balance of HK$99,754.90 (revised to HK$90,738) of the purchase price remaining unpaid up to today.

6.  On the other hand, despite the Oral Agreement, Lee and Kuen on behalf of Strong Base signed a written agreement dated 11 September 2007 under which Lee was to sell the Machines to Strong Base at HK$100,000 (“Written Agreement”). Lee claims that Kuen fraudulently misrepresented to him at the time when the Written Agreement was signed that the terms of the Written Agreement was the same as those of the Oral Agreement. It turned out that the Written Agreement differed materially from the Oral Agreement.

7.  As such, Lee asks for a declaration that the Written Agreement be null and void (on the ground of non est factum and fraudulent misrepresentation) and that only the Oral Agreement remains effective.

8.  In case the Written Agreement was found to be valid and subsisting, Lee seeks to recover from Strong Base the balance of purchase price in the sum of HK$49,754.90 (revised to HK$40,738). Ms Loh, Counsel for Lee, has conceded in her final submission that Lee no longer asks for return or assessment of damages in lieu of the return of the Packaging Machine.

9.  In relation to Kuen, Lee seeks damages in the sum of HK$90,738 under the Oral Agreement or, alternatively, by reason of the misrepresentation made by Kuen.

10.  By their Defence, both Strong Base and Kuen deny the existence of the Oral Agreement and state that the Written Agreement was valid in every respect. In particular, Kuen avers that at all material times, he had made it known to Lee that he acted on behalf of Strong Base.

11.  It is also their defence and counterclaim that Lee was in breach of the Written Agreement in that Lee failed to properly set up/install the Machines (Clause 1.2) and the Machines failed to function normally (Clause 1.6). By virtue of Clause 1.6, Strong Base was entitled to rescind the Written Agreement. Lee should refund all moneys paid to him in the total sum of HK$80,320 (revised to HK$80,106). Further, Lee should compensate them a further sum of HK$19,470 (or RMB$19,030.60), being the money spent on spare parts for assembling or refurbishing the Machines.

12.  In his Reply and Defence to Counterclaim, Lee avers that the Machines functioned properly and were put into production after its installation. They were irrevocably damaged by the PRC Factory.

THE ISSUES

13.  Under a statement of issue of dispute duly signed by both parties and filed on 26 September 2011, this court is asked to determine essentially if there was any Oral Agreement; if the Written Agreement was valid; and the amount of damages payable to each party, if any.

14.  It is submitted by Mr Cheung, Counsel for Strong Base and Kuen, that I am not bound by the sequence of the issues listed in the statement of issue. He suggests in his final submission that I should first consider and conclude if the Written Agreement was valid; in case I ruled that the Written Agreement was valid, there was no need for me to consider if the Oral Agreement was in existence because of the parole evidence rule.

15.  There is no dispute that the Written Agreement was signed by Lee. The main dispute in relation to the Written Agreement is whether it was his deed, ie whether his plea of non est factum can succeed. To decide on this dispute, one has to first consider if the Oral Agreement was already in existence when the Written Agreement was signed. Thus, I cannot agree with Mr Cheung’s proposed sequence of issues.

16.  In my view and based on the statement of issue, the core issues for the determination in proper sequence are as follows:

(1)  Whether there was Oral Agreement made in around May/June 2007; and if so, the terms of the same (including the contracting parties and the agreed consideration);

(2)  Whether the Written Agreement made between Lee and Strong Base was null and void due to non est factum and fraudulent misrepresentation;

(3)  If the Written Agreement was found to be valid and subsisting, whether the Machines were defective so that Strong Base was entitled to repudiate the Written Agreement;

(4)  The amount of damages to Lee, if any; and

(5)  The amount of damages to Strong Base/Kuen, if any.

17.  On the aforesaid issues, only Lee and Kuen themselves were called to give evidence in the trial.

18.  Dr Wico W Lai (“Dr. Lai”), the single joint ophthalmology expert who prepared a medical report dated 27 May 2011 on Lee’s eye condition, was not called to give oral evidence pursuant to an earlier court order.

WHETHER THERE WAS ORAL AGREEMENT & ITS TERMS

Evidence from Parties

19.  It is the evidence of Lee that the Oral Agreement was made between Lee and Kuen in his personal capacity in or about May/June 2007. He said that Kuen was introduced to him by a Mrs Sin, who was from the same church as Kuen. In April/May 2007, Kuen made 2 visits to in Boluo county (博羅縣), China to inspect the Machines. On his 1^st visit, Kuen gave him his name card (on which Strong Base’s name was printed). And on both occasions, Lee gave a demonstration on the Machines and the Machines were shown to be running properly. After the demonstration, Kuen offered to purchase the Machines at $50,000 each (ie $150,000 in total). At that time, there was no mention as to whether the said $150,000 should be in RMB or HKD. Lee added that Kuen also invited him to work as a consultant in his factory to supervise his workers in the operation of the Machines; in return, Kuen would pay Lee $5,000 per month on top of free lodging and meals. Lee told Kuen that he was agreeable to these terms and arrangement.

20.  On 6 June 2007, Kuen came to Boluo to collect the Machines. It was then agreed that the said $150,000 should be in HKD. After Kuen paid Lee RMB$15,000 (or HK$15,342), the Machines was sent to the PRC Factory. Lee also accompanied the Machines to the PRC Factory.

21.  After the Machines were sent to the PRC Factory up to the time immediately before the Written Agreement was signed, Lee said that he received further payment of the purchase price in the sum of HK$19,920 and HK$2,000 from Kuen on 25 June 2007 and 14 August 2007 respectively (which is not disputed by Kuen).

22.  It was Lee’s evidence that at no time did Kuen disclose that he acted on behalf of Strong Base in purchasing the Machines. Being well aware of the difference and implication between contracting with a person and with a company limited, Lee stressed that had he contracted with Strong Base in the Oral Agreement, he would have asked for full payment before the Machines were taken away, as it was easier for a company limited to walk away from its liabilities.

23.  On the other hand, Kuen denied on behalf of Strong Base and himself the existence of the Oral Agreement. He said that he was, and still is, a very devoted Christian and pastor (教會導師) of his church. Through the said Mrs Sin mentioned above, he first came to know that Lee and that Lee was in grave financial difficulty. Therefore, albeit there was no intention of Strong Base or Kuen himself to purchase the Machines at that time, Kuen nevertheless paid 2 visits to see the Machines in Boluo and nevertheless paid partly for the Machines in the total sums of HK$47,536 even before an agreement to sell and purchase the Machines was reached. He explained that all these were done out of no reason, but love and benevolence and to see what help he could provide to Lee.

24.  He said that he had made it known to Lee from the beginning that he acted on behalf of Strong Base. He further pointed out that on both occasions in Boluo, he was not able to inspect the Machines because entry to the residential unit (where the Machines were stored) was refused, for the reason that Lee had failed to settle the rent therefor. However, he told Lee that Strong Base would consider buying the Machines at no more than HK$100,000 only if the Machines were to function properly after assembling and full operation.

Discussion

25.  The question of whether there was the Oral Agreement and, if so, its terms is a question of facts to be resolved by credibility of witnesses of this trial.

26.  After considering all evidence, I do not believe in Kuen’s evidence that there was no oral agreement whatsoever on the sale and purchase of the Machines prior to the Written Agreement and that what he did to Lee was motivated by his Christian faith, mainly for the reasons set out below:

(1)   It is inherently implausible and against common sense (as well as business sense) for Strong Base or Kuen himself to pay for any portion of the purchase price of the Machines to Lee, who was a complete stranger to Kuen, before an agreement to sell and purchase of the same was concluded or before inspection of the subject matter, ie the Machines, was made. Even more so, by 14 August 2007 (the last payment to Lee immediately before the Written Agreement was signed), according to Kuen, Strong Base had paid HK$47,536 to Lee, representing almost 50% of the alleged purchase price of HK$100,000. Such portion of payment is highly indicative that an agreement to sell and purchase the Machines was reached and thus such share of the purchase price paid.

(2)   In an attempt to explain these inherent improbabilities, Kuen conveniently resorted to the excuse of love and benevolence in the name of God. He tried hard to paint a picture that he was a “giver” who did not eye on returns when “giving” to the others such as Lee. His alleged benevolence, in my view, does not sit well with the undisputed fact that he required Lee to sign to acknowledge receipt of almost each sum of money given to Lee, be it the alleged part payment of the purchase price or alleged personal loan from him to Lee. If his proclamation of love and benevolence was true, he would not have been that mindful about asking Lee to sign such receipts.

(3)   Kuen’s alleged love and benevolence to Lee changed abruptly without good reason in January 2008 when he allegedly sent a repudiation letter dated 18 January 2008 to Lee to repudiate the Written Agreement (“Repudiation Letter”). Knowing that the Machines were still kept at the PRC Factory and that Lee wanted to get them back, it was an unexplainable diversion in attitude of Kuen to do nothing more to help Lee than writing a letter to Fai requesting Fai to return the Machines to Lee. This attitude of Kuen was in stark contrast with his alleged “helpful” attitude back in April to June 2007 (when he physically went to China at least twice to meet and see what could be done to help Lee, a total stranger to him).  

(4)   In para 10 of his witness statement, Kuen claimed that the Machines were not fully installed and it could not be determined if they functioned properly or contained any defects/mechanical problems. He went on to say that “visually the Machines appeared to be very old and worn out…” His witness statement is starkly inconsistent with his oral evidence in court that he was unable to gain entry into the storage place of the Machines to view the same because Lee failed to pay rent. Such inconsistency is not explained in his evidence. This by itself discredits the evidence of Kuen to the result that I have grave doubt in my mind as to the truthfulness of his oral evidence.

27.  The balance of probability is clearly in favour of Lee’s allegation that an oral agreement of sale and purchase of the Machines in the sum of HK$150,000 was made, at the very least, immediately before the Machines were taken away from their storage place in Boluo to the PRC Factory on 6 June 2007, if not before.

28.  However, I am of the view that the evidence tends to show that at the time when the oral agreement of sale and purchase of the Machines was concluded, the contracting party with Lee is, more likely than not, Strong Base rather than Kuen in his own personal capacity. I base my conclusion on the following grounds:

(1)   When Lee first met Kuen, Lee admitted that Kuen gave him his name card on which the name of Strong Base was written. This strongly indicates that Kuen held himself out to Lee as representing Strong Base rather than Kuen himself.

(2)   The clarification given by Lee in re-examination that he took notice of the content of Kuen’s name card at a later stage with the help of somebody else to read it for him is not accepted by this court. When asked in re-examination if he could read the content of the name card at that time, his immediate reply was “都好朦, 嗰陣隻眼就比家陣好啲” [it was fairly blurred; but the eye at that time was better than now]. If it was Lee’s case that his eye sight had failed him in reading the name card at the material time, his natural and instant response to the question should have been a straight denial. The aforesaid instant reply of Lee, in my view, shows more probably than not that he could read, and in fact did read, the content of the name card, though the words were somewhat blurred to him.

(3)   A receipt printed in large font allegedly on the request of Lee was signed by him on 14 August 2007. In the receipt, he acknowledged receipt of HK$2,000 paid by Strong Base towards the purchase price of the Machines. Given that Lee admitted that he was well aware of the difference between an incorporated and unincorporated company, it remains unexplainable that he did not query why the receipt said the paying party was Strong Base, but not Kuen. The only logical and more probable explanation is: Strong Base was the party who contracted the oral agreement for sale and purchase of the Machines with Lee.

29.  Therefore, I rule that an oral agreement for Strong Base to buy and Lee to sell the Machines at HK$150,000 was made between Strong Base and Lee in or about May/June 2007 prior to the Written Agreement.

WHETHER THE WRITTEN AGREEMENT WAS NULL & VOID

Evidence from the Parties

30.  Lee said that Kuen was aware of Lee’s deteriorating eyes from the beginning. That was why the receipts of purchase price prepared by Kuen were printed in large font for easy reading by Lee.

31.  Lee added that on the date when the Written Agreement was signed, he told Kuen that the font in the Written Agreement was too small and he could not read it. He thus asked Kuen to read the content to him. He alleged that Kuen read to him that the contracting party and the purchase price was the same as the Oral Agreement, ie Kuen himself and HK$150,000 respectively. He relied on what Kuen said (which turned out to be fraudulent) and signed on the Written Agreement. On the other hand, he agreed that Kuen did read out clause 1.3 of the Written Agreement to me but this clause 1.3 was subsequently deleted upon his request.

32.  Kuen, on the other hand, stressed that he had faithfully read out the whole text of the Written Agreement to Lee and that Lee also read it himself by putting it close to his eyes. This was the first time that Kuen became aware of Lee’s eye problem. He further said that Lee made comment to the original clause 1.3 of the Written Agreement and requested Kuen to cross it out, which Kuen did. Clause 1.3 reads like this:

“安裝調試期間因機器零件需更換乙方代甲方購買後由甲方之餘款扣除。”

Non Est Factum: The Legal Principles

33.  It does not seem to me that either Ms Loh or Mr Cheung has any argument on the legal principles on non est factum, which I venture to briefly summarize as below:

(1)   The burden of proving fraud and establishing non nest factum is on the party who seeks to invoke this remedy and the burden is a heavy one: Gallie v Lee [1971] AC 1004 at 1016B per Lord Ried;

(2)   The standard of proof should commensurate with the seriousness of the nature of the alleged misconduct, ie the more serious the allegation, the less likely it is that the event occurred and hence, the stronger should be in the evidence before the court concludes that the allegation is established on the balance of probability: Nina Kung v Wang Din Shin [2005] 8 HKCFAR 387 at 440;

(3)   The court will entertain a plea on non est factum if satisfied that “consent was truly lacking” but will require of signers to act responsibly and carefully according to their circumstances in putting their signature to the document: Gallie v Lee (supra) per LordWilberforce at p1027.

Discussion

34.  There is no doubt that Lee is required to give cogent evidence to prove that the Written Agreement was not his deed and that he was fraudulently misled by Kuen into signing the same.

35.  It is noted that Dr Lai, the single joint ophthalmology expert, examined Lee on 12 April 2011 and diagnosed that Lee was suffering from pathologic myopia with extensive chorioretinal atropy and fibrovascular scar in both macula. He opined that the extent of the atrophy helped explaining Lee’s very poor visual acuity in both eyes and that the pathologic myopic changes in Lee’s case would have taken years to evolve. He concluded that it is highly unlikely that Lee was able to read the Written Agreement on 11 September 2007.

36.  However, this is not, in my view, conclusive evidence. Whether Lee could read the Written Agreement as at 11 September 2007 or not remains a question of fact to be decided by this court upon considering all relevant evidence. 

37.  After careful consideration of all relevant evidence, I would say that Lee has not successfully passed the stringent hurdles in establishing non est factum or misrepresentation.

38.  First (and in my view the most important), Lee gave inconsistent and constant shifting evidence. Solely on whether and/or when he could read and/or realize the actual content of the Written Agreement, Lee has given at least 4 versions. The first version appears in paras 12 and 13 of his witness statement in which he said that he could not read the content of the Written Agreement due to his eye problem (para12) and he found out the terms of the Written Agreement differed substantially from those of the Oral Agreement only when he gave the Written Agreement to his friend(s) to read, which was after October 2007 (para 13). This piece of evidence is in stark contradiction to the oral evidence given by Lee during cross-examination by Mr Cheung. In the afternoon of the 1^st day of trial (20 March 2012), Lee was referred to the Written Agreement on p79 of trial bundle D and was asked if he could read it on 11 September 2007. Here is what Lee said at about 2.56 pm of that day:

“Q: 2007年9 月11日嗰陣時睇唔睇到呀？

A: 睇到, 嗰陣應該有睇到。

Q: 有睇過吖嗎?

A: 無用放大鏡, 嗰陣時。

Q: 但你有睇過？

A: 我返去先睇, 但已經簽咗囉。

Q: 睇到條款?

A: 係呀, 佢又叫，叫…叫我唔好比人睇吖嗎！”

39.  The 1^st and 2^nd sets of questions and answers, when read together, show clearly that Lee admitted that he himself was able to read the Written Agreement on 11 September 2007 without magnifying glass. But at once, he changed his evidence again to a 3^rd version in the 3^rd set of question and answer by saying that he read the Written Agreement only when back home. Yet his 3^rd and 4^th answers aforesaid could not fit well with his witness statement (paras 12 and 13).

40.  Then on the 2^nd day of the trial towards the end of the cross-examination, Lee put up a 4^th version by saying that he gave the Written Agreement to the lawyer providing pro bono legal service at kaifongs association for advice and then he came to know the actual terms of the Written Agreement and that he was cheated. When hard-pressed for an explanation why he wrote in his witness statement that he gave the Written Agreement to his friend(s) to read it for him, Lee resorted to implausible excuse that “friend(s)” in his witness statement meant the lawyer at the kaifongs association.

41.  Secondly, clause 1.3 of the Written Agreement was a term detrimental to Lee but in favour to Strong Base. If Kuen, as alleged by Lee, intended to and did cheat Lee by misrepresenting that the terms of the Written and Oral Agreements were the same, why Kuen had to read out clause 1.3 faithfully to Lee but not simply omitted reading it and let Lee sign to confirm this clause which was favourable to Strong Base? In my view, it is inherently implausible that Kuen on one hand read out faithfully the unfavourable clause 1.3 to Lee but on the other hand cheated Lee by saying that the terms of the Written and Oral Agreements were alike.

42.  Thirdly, I am of the view that there was no factual basis for Lee to place his trust on Kuen to read out the terms of the Written Agreement. The insertion of clause 1.3 (though later deleted on Lee’s request) should have alerted Lee at the material times that the terms of the Written and Oral Agreements were not alike, and thus Kuen could not be possibly telling the truth to Lee when he said that terms of the Written and Oral Agreements were the same.

43.  On top of that, it is also Lee’s evidence that he had made report to the PRC police in August 2007 about the non-payment of purchase price by Kuen. There was simply no justification for Lee to repose trust in Kuen on 11 September 2007 when the Written Agreement was signed.

44.  Stepping back and assumed (just assumed) that Lee really had eye problem so that he could not have read the terms of the Written Agreement, he should have acted more carefully in signing the Written Agreement, because, in his eyes, Kuen must be somebody who wrongfully or unreasonably withheld or delayed payment; otherwise, Lee would not have made a report to the PRC police back in August 2007.  As rightly submitted by Mr Cheung, Lee should have exercised more care by, for example, bringing along a friend or relative to look at the terms of the Written Agreement for him, or requesting to take away the Written Agreement for reading or advice. Lee failed to prove that he acted responsibly and carefully in putting his signature to the Written Agreement.

45.  Accordingly, I rule that Lee did read the Written Agreement and was aware of the content therein before he signed it. If not, I find that Lee had not acted responsibly and carefully in putting his signature to the Written Agreement. I therefore conclude that the Written Agreement was a valid agreement made between Lee and Strong Base.

46.  Ms Loh submits in her final submission that in case I ruled that the Oral Agreement (purchase price at HK$100,000) was made between Strong Base (not Kuen) and Lee and if I upheld the Written Agreement, the Oral Agreement will be superseded by the Written Agreement (purchase price at HK$100,000). This is also my findings under this issue.

WHETHER THE MACHINES WERE DEFECTIVE

Evidence from the Parties

47.  Lee gave evidence that the Machines were re-assembled, electric wiring was connected and the Machines were put into normal production within 1 week after they were delivered to the PRC Factory. He said that the Straight Straw Machine was able to produce straight drinking straws which were shipped to Wellcome in Hong Kong between June to August 2007.

48.  However, Kuen/the PRC Factory later decided to replace some spare parts of the Machines. Lee warned them not to do so because of their very delicate design. Despite Lee’s warning, the Machines were dismantled by the PRC Factory but were unable to be re-assembled ever again.

49.  Lee added that the Machines were at the end of the day seized and disposed of by the landlord of the PRC Factory because the PRC Factory owed unpaid rentals. 

50.  It was Kuen’s evidence that the Machines were never properly installed after they were sent to the PRC Factory, let alone to say that they were able to be put into normal production. Further, in order to properly set up and test the Machines, Kuen had to order through Fai various spare parts and raw materials from June to September 2007. A total sum of HK$24,650 (RMB$5,000 + RMB$19,030.60) was thus spent. Kuen went on to say in his witness statement that by October 2007, despite all efforts made, the Flexible Straw Machine could not function and the Straight Straw Machine could only produce straws of uneven length which were not fit for trading purpose.

51.  Therefore, on or about 18 January 2008, Kuen sent the Repudiation Letter by courier to Lee notifying Lee that the Written Agreement was rescinded and the Machines was to be returned to Lee. Kuen added that Strong Base was entitled to rescind the Written Agreement because Lee was in breach of Clauses 1.2 and 1.6 of the same.

52.  Clause 1.2 of the Written Agreement provides that:

“甲方負責搬遷到乙方指定地方及安裝妥當”

53.  Clause 1.6 of the Written Agreement reads like this:

“如設備不能安[sic]正常生産或部份不正常生産,甲方未能履行時乙方將停止支付餘款及要求甲方退回先前所支付款項及退回設備給甲方。”

Discussion

54.  Mr Cheung has rightly pointed out in his final submission that apart from the oral evidence of Lee and Kuen, there is no direct evidence from either side to show that the Machines were defective or otherwise at the material time.

55.  The burden of proving that the Machines were defective and thus entitling it to rescind the Written Agreement under Clause 1.6 should lie, in my view, on Strong Base.

56.  Mr Cheung is adamant in saying that there is circumstantial evidence to prove that the Machines were defective. Despite his eloquent argument, I am not persuaded by him. Rather, I take the view that the totality of all evidence shows more probably than not that the Machines were not defective at the material times, mainly for reasons which I set out below.

57.  It is pertinent to say that apart from Kuen’s bare oral allegations, there was no concrete evidence from Strong Base to substantiate its allegations on the defectiveness of the Machines. However, the evidence of Kuen is self-serving.

58.  As rightly pointed out by Ms Loh in cross-examination of Kuen, there was not even a single letter of complaint from Strong Base/Kuen to Lee that the Machines were defective. In the Repudiation Letter, the alleged reason for repudiation was “未能成功交收” [unable to successfully delivered and collected]. There was not a single phrase or sentence in the Repudiation Letter on the alleged defective Machines, which is against common sense and business sense.

59.  According to Kuen’s own evidence (para 24(a) of his witness statement refers), by October 2007, Strong Base discovered that the Machines would not function normally despite its repeated attempts and efforts. It is inconceivable and remains unexplainable that against this background, Strong Base/Kuen did not exercise its right there and then under Clause 1.6 of the Written Agreement to repudiate the Written Agreement, but waited until 3 months later in January 2008 to enforce its right of repudiation.

60.  Also against the background set out in the preceding para 59, it is inherently implausible and against common sense (as well as business sense) for Strong Base to pay further for the purchase price to Lee in the total sum of HK$11,500 since October 2007 to December 2007 (before the issue of the Repudiation Letter). The only plausible conclusion is that the Machines were of normal functioning and were capable of production at the material time.

61.  Kuen, once again, attempted to offer an explanation by conveniently resorted to his faith in Christian love and benevolence. I would simply repeat my observations in para 26 in my Judgment.

62.  I would further add that in my view, it is inherently implausible and against common sense for Strong Base as the buyer to allow Lee as the seller to spend more than 6 months (from June 2007 to January 2008) to test the Machines. It would be too much of a benevolent gesture for Strong Base/Kuen to supply RMB$16,569.20 worth of raw materials (which was wasted and could not be re-used) and spend another HK$24,650 on spare parts and lodging of Lee solely for the purpose of testing and installing the Machines. The total sum spent by Strong Base, representing about 40% of the purchase price of the Machines, is simply out of any reasonable proportion, which makes its case not worthy to believe.

63.  On the other hand, it is noted that under the Written Agreement, Strong Base should first pay the 1^st instalment of the purchase price of the Machines in the sum of HKS25,000 (Clause 1.1); and the 2^nd instalment of purchase price, also in the sum of HK$25,000, should be paid 2 weeks after the Machines were installed, tested and put into normal production (Clause 1.4). There cannot be any dispute (and in fact it is conceded by Mr Cheung in his final submission) that by the time when the Written Agreement was signed, a total sum of almost $50,000 (representing the 1^st and 2^nd instalments) was already paid by Strong Base. Such total sum of payment, in my view and also in the clear wording of Clauses 1.1 and 1.4, would not have been made unless the Machines had in actual fact been installed, tested and put into normal production.

64.  Last but not the least, Lee signed a receipt dated 14 May 2008 acknowledging that he received HK$500 from Strong Base in part payment of the purchase price. It should be noted that this sum was paid after the alleged Repudiation Letter was sent to Lee by Strong Base. When asked to explain why this receipt was worded like this, Kuen said that he was not in the office at that time and so he instructed his manager, Ms Tse (who later became his daughter-in-law), to give Lee several hundred dollars so that he could return to China. He seemed to say that this sum was meant to be a personal loan from him to Lee, but did not know why Ms Tse somehow drafted the receipt in this way. I do not believe in this explanation. It is self-serving. There is no direct evidence from the said Ms Tse on this point. I am of the view that the clear wording of this receipt speaks for itself: the said sum of $500 was paid by Strong Base in part payment of the purchase price. I am of the further view that had the Machines been defective, Strong Base would not have paid this sum to Lee in part payment of the purchase price.

65.  Due to the matters aforesaid, I find that the defence has not proved on the balance of probability that the Machines were defective. The Machines, according to my ruling, was of normal functioning and was put into production after they were set up at the PRC Factory. As a result, Strong Base was not entitled to rely on Clause 1.6 to repudiate the Written Agreement. It is Strong Base, not Lee, which has wrongfully terminated the Written Agreement.

66.  Before I leave this topic, I need to address to Mr Cheung’s final submission that even without considering the defectiveness of the Machines, Strong Base has not breached any term in the Written Agreement, in that Clause 1.5 therein allows payment by instalments without stating a period within which full payment must be made.

67.  Clause 1.5 of the Written Agreement provides this:

“餘款乙方將由第二期付款后三個月分多期支付給甲方。”

68.  Mr Cheung submits that by virtue of Clause 1.5, Strong Base was required to pay the balance of the purchase price to Lee by various instalments after expiry of 3 months after the 2^nd instalment was paid.

69.  Ms Loh does not agree with Mr Cheung. She says that the clause should mean that Strong Base was required to pay Lee by various instalments within 3 months after the 2^nd instalment was paid.

70.  I will briefly say that I tend to agree with Mr Cheung’s interpretation of Clause 1.5 set out in para 68 above. Depending on where the Chinese character “分” is placed in the sentence, there is a clear difference in meaning between “付款后三個月分多期” (Mr Cheung’s interpretation) and “付款后分三個月多期” (Ms Loh’s interpretation).

71.  Though Clause 1.5 does not provides for a time table when the balance of the purchase price should be paid by Strong Base in full, it is trite to say that the balance must then by paid within a reasonable time. Mr Cheung has not objection to this principle, but argues that this court cannot rule on what the reasonable time should be without any evidence from either party on this point. That I do not agree. I would say that this court is entitled to form a view by adopting a reasonable man’s standard that a period of more than 3 years (ie from about the end of 2008 to now) cannot possibly be regarded as “reasonable time”. Strong Base has thus failed to pay for the balance of the purchase price in breach of the Written Agreement.

DAMAGES PAYBALE TO LEE

72.  In order to ascertain the damages payable to Lee, it needs to find out first of all how much Lee has received from Strong Base.

73.  In the trial, the evidence shows that Strong Base/Kuen had paid numerous sums of money to Lee between June 2007 and May 2008. For easy reference, Mr Cheung refers me to a table in Kuen’s witness statement (see para 17 on p53 of trial bundle B) setting out all sums of money allegedly paid by Strong Base to Lee during the said period and has identified with Ms Loh the following sums which are in dispute (either in their amount or the nature of payment):

Date	Strong Base/Kuen’s case (HK$)	Lee’s case (HK$)
6/6/07	20,473	15,000 (or RMB15,000)
7/7/07	5,143	NIL
14/9/07	5,180	NIL
16/1/08	1,500	1,500
21/2/08	1,500	1,500
11/3/08	1,500	1,500
7/4/08	890	890
14/5/08	500	500

74.  The dispute on the 1^st three items of the table above relate to the amount, while the remaining items concern the nature of payment.

75.  Given my finding aforesaid (para 64 refers), I find that the last item dated 14 May 2008 in the sum of $500 was part of the purchase price paid by Strong Base to Lee, but not personal loan as alleged by Kuen.

76.  There is no need for me to rule on the nature of payments made between 16 January 2008 and 7 April 2008 at this stage because it is common ground that these 4 sums of money were not part payment of the purchase price of the Machines.

77.  On balance, I reject Kuen’s evidence on the 1^st three items of the table because his evidence is not worthy to believe. There is no receipt produced to support the alleged payment, which is not in line with the practice of Strong Base/Kuen in relation to the other payments made to Lee. It is inherently implausible that Kuen would have given such an odd and non-round-up figure of $20,473 to Lee; the figure mentioned by Lee (ie RMB15,000), being a round-up figure, seems to me to be more in line with common sense. Further, the said sum of 5,180 made on 14 September 2007 was, in Kuen’s own evidence, payment of the spare parts, not of the purchase price.

78.  Thus, I find that Strong Base had paid RMB15,000 (or HKD15,342) to Lee on 6 June 2007 and that it had not paid Lee any part of the purchase price on 7 July and 14 September 2007.

79.  Given my findings set out above, I find that Lee has received HK$59,262 out of the purchase price of $100,000. He should thus be entitled to damages in the sum of HK$40,738 from Strong Base.

DAMAGES TO STRONG BASE/KUEN

80.  Since I have found that it is Strong Base who has wrongfully terminated the Written Agreement, it should not be awarded with any damages. Thus, its counterclaim must fail.

81.  Mr Cheung, however, says that the counterclaim will not fail in its entirety, because there were 4 sums of loans advanced personally from Kuen to Lee from 16 January 2008 to 7 April 2008 in the total sum of HK$5,390 supported by 4 written receipts signed by Lee (see pp 141,144 to 146 of trial bundle D & table in para 73 of this Judgment).

82.  Lee denied that these 4 sums were personal loan to him. He said that they were reimbursement for business trips taken under the instruction of Kuen.

83.  Despite the tempting argument made by Mr Cheung, it remains as a fact that in the pleaded case of the defence, this sum of $5,390 was pleaded as the loss suffered by Strong Base, not Kuen (see para 30 of the defence and counterclaim). I do not agree with Mr Cheung that paras 11 and 30 and the prayer of the defence and counterclaim, when read together, would entitle Kuen to overcome the pleading defect. It is abundantly clear from paras 11 and 30 of the defence and the counterclaim that this sum of $5,390 was pleaded to be “either advances or borrowings….made by the 1^st Defendant [Strong Base] to the Plaintiff [Lee]….”

84.  Putting aside this pleading point, it is Kuen’s own evidence in his witness statement (see paras 17 and 18) that this sum of $5,390 was either advances or borrowings made by Strong Base to Lee. That said, Kuen’s alleged counterclaim is not supported by his own witness statement. His alleged claim of $5,390 must also fail.

CONCLUSION 

85.  Due to the reasons set out above, I enter judgment for Lee against Strong Base in the sum of HK$40,738, together with interest thereon at judgment rate from the date of the claim issued at the Small Claims Tribunal (ie 20 May 2008) (Mr Cheung has fairly indicated that he has no objection to that) to the date of judgment and thereafter at judgment rate until payment.

86.  Lee’s claim against Kuen is dismissed.

87.  The counterclaim of Strong Base and/or Kuen is also dismissed.

88.  Costs should follow the event. Counsel for both sides agree that the principal judgment sum together with interest thereon will fall within the District Court jurisdiction and costs should be taxed in accordance with District Court scale. Accordingly, I make the following costs nisi:

(1)   Strong Base shall pay Lee’s costs of the action, with certificate for counsel, to be taxed if not agreed in accordance with District Court scale;

(2)   There be no order as to costs between Lee and Kuen;

(3)   Lee’s own costs be taxed in accordance with the Legal Aid Regulations.

89.  If no application is made to vary the above costs nisi, it shall become absolute within 14 days from the date of this Judgment.