ARTECH PRINTING LTD. v. YEE FAT PRINTING EQUIPMENT LTD.

CACV92/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 92 OF 2000

(ON APPEAL FROM HCA 6053 and HCA 8590 OF 1997 (Consolidated))

______________

_______________

J U D G M E N T

_______________

Hon Rogers, Acting CJHC :

1. This is an appeal from a judgment of Deputy Judge Gill given on 28 January 2000 following a trial which took place earlier that month. At the conclusion of the hearing of the appeal, the appeal was dismissed and the parties were told that the reasons would be handed down at a later date. This we now do.

2. The judgment was in respect of an action and a cross-action arising out of the sale of a printing machine. The plaintiff, Artech Printing Limited ("Artech"), was apparently formed in 1996 and, in 1997, it approached amongst others the defendant Yee Fat Printing Equipment Limited ("Yee Fat"), who is the appellant in this case, with a view to purchasing a Roland Rekord two colour offset printing press, namely a model RZK3B.

3. We have not been shown the document but apparently the initial approach from Artech to Yee Fat was a fax requesting a "1980's" machine. A contract was entered between the two parties in January 1997 for the supply of the machine. For reasons which it is unnecessary to elaborate, that contract was never completed but the deposit paid under that contract of $216,000 was used in respect of a subsequent contract which is the subject of these proceedings.

4. By contract numbered CO-70006 dated 15 March 1997, the parties agreed, upon terms and conditions stated on the face and the back of the written contract, the sale and purchase of such a Roland Rekord printing press. The description of goods is set out on the face of the contract as follows :

" Description of Goods

One set of Roland Rekord Two Colour Offset Printing Press.

Model: RZK3B

Year: 1989

Format: 720 x 1020mm

Detailed equipment referred to seller's quotation no. QU-70012

Accompanied with operation tools and accessories."

5. The quotation QU-70012 contained little more of significance save that the price is given as HK$1,780,000.00, the delivery is specified as two months after the signing of the contract and the last line of the quotation reads : "the machine above-mentioned is subject to remaining unsold".

6. Despite that final line and the fact that the relevant sales personnel of Yee Fat had shown photographs and indeed a video recording of a specific Roland Rekord RZK3B printing press in operation, which showed, in particular, the serial number 639/18963, the learned judge came to the conclusion that this was not a contract for the sale of a specific machine but was a contract for the sale of a second-hand machine according to the description.

7. There is one term in particular around which the arguments in this case have revolved namely, condition (7). That reads as follows :

"(7) The goods shall be properly described by the serial number(s) stated above. The year(s) of goods described above is approximately inaccuracy of the description of year(s) will not render this contract void."

8. As the judge recorded at page 6 of his judgment, when Mr Cheung of Artech saw the machine at Yee Fat 's premises, he was concerned because it seemed dirty and old, not like that depicted in the photographs and video. As a result of his enquiry, he was told that the serial number of this machine was 633/15331B. It would, perhaps, be a reasonable deduction from a comparison of the serial numbers to conclude that the machine which Mr Cheung saw was of considerably earlier manufacture than the machine which had been shown in the video. Thereafter, Mr Cheung requested to see the machine working at Yee Fat's premises prior to taking delivery of the machine. That was resisted because of the difficulties that would be entailed in erecting and subsequently dismantling the machine as well as the costs involved. As a result, Artech refused to pay anything further under the contract and Yee Fat sold the machine after some months of attempt for $1.35 million.

9. The deputy judge held that the contract was a contract for sale by description and that because the printing press which Yee Fat wished to supply under the contract had been manufactured in 1985 and not in 1989, there was a misdescription and therefore a breach of the condition implied under section 15(1) of the Sale of Goods Ordinance, Cap.26. He considered that the misdescription was a material one. He then considered condition (7) of the printed terms and conditions on the reverse of the contract and held that the obligation which arose under section 15(1) of the Sale of Goods Ordinance could not be excluded because of the provisions of section 11(2) of the Control of Exemption Clauses Ordinance, Cap.71. That section prevents the exclusion of the obligation as against a person dealing as consumer.

Dealing as consumer

10. Under section 4 of the Control of Exemption Clauses Ordinance:

"A party to a contract "deals as consumer" in relation to another party if

(a) he neither makes the contract in the course of a business nor holds himself out as doing so;

(b) the other party does make the contract in the course of a business; and

(c) in the case of a contract governed by the law of sale of goods or by section 12, the goods passing under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption."

11. On this appeal, Mr Merry took the point that whatever else was relevant, a printing press of the type under consideration here is not one which is ordinarily supplied for private use and certainly not for consumption. This would appear to be correct and, indeed, Mr Lam on behalf of the respondent, Artech, did not seek to argue otherwise. Indeed, Mr Lam did not seek to argue in any way the application of section 11(2) of the Control of Exemption Clauses Ordinance. Since the points on section 11(2) and section 4 of this Ordinance have therefore not been aired in argument, nor have the authorities under the corresponding English legislation been considered, it seems to me to be more advisable simply to draw attention to the fact that there may be doubt as to whether the respondent, Artech, could bring itself within section 4(1)(a) since it was clearly intending to use the printing press in the course of its business and as an integral part thereof.

Construction of condition (7)

12. The crucial point on this appeal is, it seems to me, the proper construction of condition (7) of the contract. Mr Merry on behalf of the appellant seeks to argue that condition (7) should be read as being in three parts with a full stop between the words "approximately" and "inaccuracy". For the reasons which I shall indicate below, I consider that this cannot be a correct construction of the contract since it would lead to an unacceptable result.

13. It is clear that the opening sentence of condition (7) relates to a contract for specific goods. It relates to a situation where a machine is being described by serial number and therefore it must relate to a particular printing press. Mr Lam on behalf of the respondent, Artech, said that the remaining part of condition (7) should be construed as also applying to a sale of specific goods. He pointed out that each of the numbered conditions on the reverse of the contract referred to particular situations. Mr Lam's argument proceeded that given the fact that the first sentence of condition (7) was dealing with a sale of a specific machine described by serial number, the year of manufacture became less important because the machine was identified and the age of it would be known or ascertainable by the parties from the serial number.

14. There is considerable force in Mr Lam's construction of condition (7). I would, however, be prepared to give the appellant the benefit of this doubt that the two sentences in condition (7) might be construed separately: the first part relating to sales of specific goods and the second part relating to sales of machines described by their age. Given that approach to construction, it appears to me that the second sentence of the condition (7) provides for what is to happen when a machine is being supplied which was not manufactured in the year specified. I see no grounds for inserting a full stop as suggested by the appellant. It appears to me that the effect of the second sentence is that the description of the year is not to be taken wholly literally but is to be approximate and if it is within the range of what is approximate, albeit inaccurate, the contract will not be rendered void.

15. The question then turns as to whether in the context of this case, a description of the machine as being 1989 was approximately accurate given that the press was manufactured in 1985. In my view, it is not. In the first place, the finding of the judge below was that the identification of the year of manufacture as 1989 was a misdescription and in the context of this case was a material one. As the judge himself pointed out in another passage in the judgment a printing press can be put to a great deal of use in a period of four years. To put it in another way, the contract was made in March 1997. It provided for a machine manufactured in the year 1989. That was some 61/4 to 71/4 years earlier. 1985, however, was 4 years earlier than that. Hence, 1985 is in the order of 4 years more than the contracted age of the machine: a difference of at least 50% if not more. In my view, the judge was correct in his approach to the question that it is the quality of the work produced by the machine rather than the age which counts. Obviously, the condition of the machine and the quality of the print it produces is highly material but in my view age cannot be excluded.

16. Mr Merry sought, at first, to say that a machine manufactured in the 1980's would fall within the description. In argument he fell back upon a year margin as being appropriate. To my mind, the "1980's" bracket was far too wide and the attempt to justify it by reference to the initial fax some months earlier does not succeed. The 5-year period might be convenient because it would cover this case but seems to me to have nothing to support it.

17. In those circumstances, given the findings of the judge which in my view were correct and unassailable, on the proper construction of condition (7), the supply of a 1985 machine in this case was not in compliance with the contract and condition (7) did not exclude liability.

Section 12(3) of the Control of Exemption Clauses Ordinance

18. For completeness, I would deal with the matter on the basis that condition (7) could be divided as argued for on behalf of the appellant. In that case, the condition would read as if the final sentence read "Inaccuracy of the description of year(s) will not render this contract void." That would mean that it would have been open to Yee Fat to supply a machine of any year of manufacture subject only to what would, in effect, be a reduction in the price since Artech would have been bound to accept any machine and limit its claim merely to damages, if otherwise claimable. In my view, that could not have been the intention of the parties in entering the contract. It would be tantamount to Yee Fat being able to foist something very different from that contemplated under the contract upon Artech. In his argument, Mr Lam referred to the possibility of a 1957 machine being supplied. In argument, other years such as 1975 were used. To my mind, it matters not. If the appellant's arguments on construction were correct, such a clause would be unreasonable and in my view fall foul of section 12(3) of the Control of Exemption Clauses Ordinance since it would enable the supply of a printing press which would be wholly different from that which had been the subject of the contract.

Result of the appeal

19. At the conclusion of the hearing of this appeal, after hearing submissions, it was left that when the reasons were handed down an order nisi as to costs would be included. In the event, it appears to me that the respondent should have the costs of this appeal. Although the reasons that the appeal has been dismissed differ in part from the reasons in the judgment below, I am of the view that, nonetheless, the court should not depart from the usual rule that costs should follow the event.

Hon Wong JA :

20. I agree that the appeal should be dismissed with costs.

Hon Keith JA :

21. I agree that this appeal must be dismissed, but I add a few words of my own because I have reached that conclusion by a different route from that taken by the judge. Mr Christopher Lam for the Plaintiff contended that the second sentence of condition 7 of the contract had never been triggered because the contract was not a contract for the sale of specific goods. However, for the purpose of disposing of the appeal, I propose to assume in favour of the Defendant, but without deciding, that the second sentence of condition 7 of the contract was activated, even though the contract was not for the sale of specific goods.

22. The problem with condition 7 is that it has been drafted by someone for whom English is not the first language. Having said that, the first 8 words of the second sentence are, I believe, tolerably clear if one reads the word "approximately" as "approximate". The effect of these 8 words was to provide that, although the machine to be supplied under the contract was to accord with its description in the contract, the machine to be supplied did not have to be manufactured in 1989 provided that it had been manufactured in approximately 1989.

23. On the application of these words, I find myself in complete agreement with the judge. I do not regard a machine manufactured in 1985 as one which could be said to have been manufactured in approximately 1989 - particularly when the contract was made in March 1997, only 7 years after the end of the approximate year of manufacture of the machine to be supplied.

24. Accordingly, the critical question relates to the circumstances in which the last 12 words of the second sentence of condition 7 applied. Mr Malcolm Merry for the Defendant contended that they applied when the machine supplied under the contract did not correspond with its description. It is in that situation that the last 12 words prevented the Plaintiff from treating the contract as repudiated. The judge proceeded on the assumption that that was correct. I cannot agree. I read the last 12 words as only applying when the machine supplied under the contract corresponded with the description as qualified by the first 8 words. In other words, those words identified what the consequence would be of the Defendant supplying a machine which, though not manufactured in 1989, had nevertheless been manufactured in approximately 1989. It made it clear that in that event the Plaintiff could not reject the machine simply because it had not actually been manufactured in 1989. I prefer that construction to the one advanced by Mr Merry, because on Mr Merry's construction the Plaintiff would have been prevented from rejecting any machine on the basis of the year of manufacture, however old it may have been. I do not believe that the parties could have intended that. That anomaly would be avoided if the alternative construction is preferred. In any event, the construction which I prefer is consistent with (a) the contra preferentem rule and (b) the rule that if a clause is to have the effect of restricting the remedies of the innocent party to a breach of contract, the language of the clause must be shown plainly to have that effect. Accordingly, the restriction on the Plaintiff's remedies contained in the last 12 words of the second sentence of condition 7 did not apply to the present case.

Hon Rogers, Acting CJHC :

25. The appeal is therefore dismissed with an order nisi that the costs of the appeal will be to the respondent.