BLAIR ACCESSORIES (HK) LTD v. STUTTGART INTERNATIONAL MOTORS (HOLDINGS) LTD

DCCJ3678/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3678 OF 2002

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Judgment

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1. The Plaintiff claims damages for misrepresentation and/or breach of warranty arising from its purchase of a Mercedes Benz S430 motor car.

2. On 6th May 2000 Gavin Watson, the Plaintiff's managing director, and his friend Stephen Mansfield went to the Defendant's motor car showroom in Gloucester Road Wanchai. The Defendants deal in what are known as parallel imports. Mr. Watson is highly knowledgeable about motor cars having bought and sold about 20 motor cars since his arrival in Hong Kong in 1992. He was looking for a car for his wife and saw a Mercedes Benz S320 which seemed suitable. He spoke to the salesman a Mr. Michael Wong. Mr. Wong spoke English well enough for there to be no difficulty in communication.

3. Mr. Watson was aware that the Defendant was not a Mercedes Benz authorised dealer and was keen to establish the provenance of the car that he was interested in. He knew that motor cars imported from certain countries were not always suitable for Hong Kong; inadequate air conditioning for example, and he was particularly anxious to confirm that the car was a brand new car; that is one manufactured in the year 2000. From his considerable experience of buying and selling motor cars in Hong Kong he knew that an important factor in the price is the year of manufacture which, of course, will be recorded in the registration document. This is common sense and, as I say, Mr. Watson was keen to ensure that whatever he decided to buy was brand new.

4. Mr. Watson therefore asked Mr. Wong about the S320 in detail. Mr. Wong said that yes it was a 2000 model and had been imported directly from Germany. Mr. Watson though was unsure about the colour and also felt that the engine was on the small side. He therefore asked Mr. Wong if he had anything else. The two of them looked through the stock list and saw a black Mercedes Benz S430. That is the same model as the S320 but has a larger engine. Mr. Watson asked if this car was brand new and whether it was from Germany. Mr. Wong confirmed that it was brand new, manufactured in 2000, was being shipped directly from the factory in Germany and was arriving in Hong Kong in June 2000.

5. However on further consideration Mr. Watson decided to purchase the S320. He and Mr. Wong agreed on a price of $950,000 and agreement was also made to trade in Mrs. Watson's existing car. A provisional sales agreement was drawn up and signed. Before signing Mr. Watson again asked Mr. Wong to confirm that the car was a 2000 model. Mr. Wong confirmed this pointing out the description of the car in the agreement which he was in the process of writing. In this agreement the car is described as "One unit Brand New S320L". A little after this appears "Prod. Month 2000". On being satisfied of this Mr. Watson signed the agreement.

6. The agreement also referred to the Land Rover that was being taken in past exchange. There was provision for the year of manufacture to be given; an indication that the date of manufacture rather than the date of first registration is significant. And indeed, when Mr. Watson said that he wished to trade in the Land Rover, the first question that Mr. Wong asked was what was the date of manufacture.

7. Mr. Watson had initially intended to pay the balance of the purchase price in cash but Mr. Wong raised the possibility of hire purchase which Mr. Watson agreed to.

8. A few days later Mr. Watson telephoned Mr. Wong saying that he had changed his mind and that he now wished to purchase the S430 that they had discussed on 6th May. Mr. Wong agreed to the change and went to Mr. Watson's office on 12th May bringing with him a purchase agreement. Mr. Watson read and signed this and Mr. Wong handed over a receipt for Mr. Watson's deposit of $10,000. The agreement described the car in this way "Brand New 2000 M. Benz S430L". The purchase price was $1,040,000. The receipt described the car in precisely the same way.

9. On the following day Mr. Wong collected Mr. Watson's wife's Land Rover and handed to him a receipt for $400,000 being the agreed price. This receipt described the car that Mr. Watson was purchasing as a "Brand New S430L".

10. The car was eventually delivered on about 19th June and the Defendant presented an invoice to Mr. Watson for the balance of the purchase price describing the vehicle as "Brand New 2000 M. Benz S430L". There was a further invoice from AGA Motors (Holdings) Ltd., the company that the Defendant had used to import the car. This again described the car as "Brand New 2000 M. Benz S430L". On 24th June Mr. Watson signed the Hire Purchase agreement with the finance company in which year of manufacture of the car is recorded as 2000.

11. Both Mr. Watson and Mr. Mansfield gave evidence in a straightforward manner and I was satisfied that each was telling me the truth. Mr. Wong did not give evidence. Apparently sometime after the events in question he left the Defendant's company and went to live and work in Taiwan.

12. Just over a year after the car was delivered, in August 2001 Mr. Watson took the car to Zung Fu the authorised Mercedes Benz dealer for servicing. There had, it seems, been a number of electrical faults. Mr. Watson later received from Zung Fu a letter stating that the date of manufacture of the car was not 2000 but 18th December 1998. Subsequently Mr. Watson received a letter from Jardines (Zung Fu's parent company) enclosing a copy of the vehicle's data card which stated that the "dispatch" date was 18th December 1998. It is plain, and I so find that manufacture of the car must have been completed, at the very latest, by 18th December 1998.

13. In the meantime the car had had a complete electrical breakdown. This coupled with the earlier faults as well as the revelation that the car had not been manufactured in 2000 but 1998 persuaded Mr. Watson that he should sell the car and on 8th February 2002 he sold it to a motor dealer for $490,000. Before this though he had had the car valued by Roger Houghton Motor Surveys Ltd.

14. Mr. Raymond Lee a director of this company surveyed the car and prepared a report. He has been a member of the Institute of Damage Surveyors, (United Kingdom) since June 1986 and a member of the Institute of the Motor Industry (Hong Kong) since April 1994. He inspected the car on 11th January 2002 and on the basis that the car was a 1998 model valued it at between $500,0000 and $520,000. A similar car manufactured in 2000 he said would have a market value at the same date of between $680,000 and $700,000. He explained that the depreciation of a luxury car such as this was of the order of 20% in the first year and 15% in the second year.

15. He was asked how the actual age of a vehicle could be checked and he explained that either the authorised dealer or the manufacturer would be able to tell from the chassis number. In cross-examination he accepted that the local distributor would be unwilling to co-operate with a parallel importer such as the Defendant and would not supply the date of manufacture. But he also said that the original manufacturer would always supply the date if asked. Indeed Mr. Watson himself had said that he had once contacted the manufacturer of an earlier car he had owned to establish the date it had been manufactured.

16. The Defendant's case was conducted by Mr. Chung Chun Choi, one of its directors. He did so with admirable vigour if I may say so. He has been in the motor trade for around 15 years. His company imports Mercedes Benz motor cars, usually from the United Kingdom or the Middle East where they have been shipped from the manufacturer in Germany. However the car in question had been obtained through a company in Singapore, Armani Impex Enterprise. The invoice, dated 21st March 2000, from this company to AGA Motors (the company through which the Defendant acted) described the car as a "Brand new Mercedes Benz S430L". The model and manufacture year is said to be 2000. The bill of lading similarly described the vehicle but indicates that the description is as supplied by the Shipper (Armani). It appears from this document that the car left Southampton U.K. on board the Dusseldorf Express on 2nd May 2000.

17. Mr. Chung explained that in order to establish the age of a motor vehicle a dealer will invariably rely on the date of manufacture recorded in the vehicle registration document. He accepted of course that the date of manufacture is an important consideration in the valuation of a car. What he did not accept was that his company or any member of his staff had misrepresented (whether innocently or otherwise) the age of the car. He was not present during the discussions between Mr. Watson, Mr. Mansfield and Mr. Wong but doubted very much that Mr. Wong had made any representation as to the actual date of manufacture. Indeed, it is pleaded in the Defendant's defence that the Defendant had no knowledge of the date of manufacture other than that recorded in the shipping document and the vehicle registration document. The latter is of course irrelevant as it had not been issued at the time of the discussions between Mr. Watson and Mr. Wong. But what Mr. Chung appeared to say was that since the date appearing on the registration document was all important and the one relied on by the motor trade the actual date of manufacture was irrelevant and, he implied, had little, if any, bearing on the value of the car. This last contention is plainly incorrect. Not only does it not accord with common sense but both the motor vehicle valuers agreed that the actual age of a car (as opposed to the manufacture date appearing on the registration document) is relevant to the value.

18. But, if I may say, this aspect of Mr. Chung's evidence rather misses the point. Because what Mr. Watson was after was not the date that was to appear on the registration document but the actual date of manufacture. And what Mr. Wong told him was that it was a brand new car manufactured in 2000. If he had said something along the lines of "I don't know the actual date of manufacture. All I know is that the shipping documents indicate that it was made in 2000 and that is the date that the Transport Department will use on the registration document" then the situation may be different. But he did not say this. The evidence of both Mr. Watson and Mr. Mansfield is plain. In answer to a direct question Mr. Wong gave a direct answer, namely that the car was manufactured in the year 2000.

19. I do not think though that the evidence justifies a finding that Mr. Wong's assurance to Mr. Watson was made fraudulently. All the information apparently available to him at the time was that the car was made in 2000. This information was contained in the invoice from Armani Impex Enterprise dated 21st March 2000 to the company the Defendant used to purchase the car. This invoice describes the car as "Brand new Mercedes Benz S430L ...... Model and manufacture year is 2000". This same information is contained in the bill of lading dated 2nd May 2000. The bill of lading, it is to be noted, states that the description is "as declared by the shipper (Armani) but not acknowledged by the carrier". So, the source of the information that the car was a 2000 model was the invoice from the company from whom the Defendant purchased the car.

20. The bill of lading incidentally states that the car was shipped from Southampton rather than from Germany which is where Mr. Wong said it was being shipped from. This is not though a point relied on by the Plaintiff.

21. Three further witnesses were called on behalf of the Defendant, Mr. Leung Wing Keung and Mr. Tao Leung Shing are both directors of Europe (Hong Kong) Ltd. motor dealers. Each confirmed that he would ascertain the age of a vehicle from the date recorded in the vehicle licence or registration document. Mr. Leung went rather further and said if the actual date of manufacture was 1998 but the date recorded in the Transport Department documents was 2000 then he, and other dealers, would value the car as a 2000 model. Mr. Leung also said that motor manufacturers and their Hong Kong distributors are unwilling to reveal the actual date of manufacture to parallel importers..

22. Both Mr. Leung and Mr. Tao thought that the S430 model was less popular than either the S320 or S500 models. Mr. Tao said that in February 2002 he would offer a customer $300,000 for a 1998 S430 which he would expect to resell for between $330,000 to $360,000. If it was a 2000 model then he would expect to buy $500,000 and resell it for between $550,000 to $580,000. He commented that the price paid by the dealer to whom Mr. Watson sold the car ($490,000) must have been on the basis that the car was a 2000 model.

23. The Defendant's valuer Mr. Hui Wing Ka a director of Anderson and Ashe Motor Survey and Adjusters Co. agreed with Mr. Tao on this point. He said that a luxury car of this sort would depreciate by 30% in its first year and by a further 20% in its second year. He assessed the market value of a 2000 S430 at between $560,000 and $600,000 as at February 2002 and valued a 1998 model at between $400,000 and $440,000 at that date. But a dealer he said would offer a customer $480,000 to $520,000 for the 2000 model or $350,000 to $380,000 for the 1998 model.

24. Mr. Hui emphasised the unpopularity of the S430 referring to the usual Hong Kong reluctance to have anything to do with the number 4. That may be but I think that he has made too much of this factor and it would not depress the value to the extent he claims. Mr. Hui was plainly of the view that Mr. Watson was only able to achieve the figure that he did when he sold the car because he sold it on the basis that it was a 2000 rather than a 1998 model. I do not accept this. It is true that the agreement for the sale to the dealer simply refers to the car being a used Mercedes Benz S430 without specifying the year. But it was never put to Mr. Watson that he failed to disclose the true age to the dealer and I would be slow to make a finding that Mr. Watson is guilty of deliberately misleading his buyer in the absence of any convincing evidence. Mr. Watson instructed Mr. Lee to survey his car in January 2002. Mr. Lee's valuation of $500,000 to $520,000 could not have been influenced by the subsequent sale at $490,000. Rather, the sale price achieved supports Mr. Lee's valuation. I do not know if Mr. Watson used Mr. Lee's valuation in his negotiations with the buyer, but whether he did or did not the plain fact is that Mr. Watson sold the car for $490,000 which is close to Mr. Lee's valuation of between $500,000 and $520,000. Further of course both Mr. Lee, and I assume, the dealer who bought the car, had the advantage over Mr. Hui of actually seeing the car. For these reasons I find that I prefer the evidence of Mr. Lee rather than Mr. Hui.

25. Turning to the law now I find the familiar case of Dick Bentley Production Ltd. v. Harold Smith (Motors) Ltd. [1965] 1 W.L.R. 622 where Lord Denning M.R. said (627G):-

"Looking at the cases once more, as we have done so often, it seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act upon it, and actually inducing him to act upon it, by entering into the contract, that is prima facie ground for inferring that it was intended as a warranty. It is not necessary to speak of it as being collateral. Suffice it that it was intended to be acted upon and was in fact acted on. But the maker of the representation can rebut this inference if he can show that it really was an innocent misrepresentation, in that he was in fact innocent of fault in making it, and that it would not be reasonable in the circumstances for him to be bound by it."

And at 628B

"...... in the present case it is very different. The inference is not rebutted. Here we have a dealer, Smith, who was in a position to know, or at least to find out, the history of the car. He could get it by writing to the makers. He did not do so. Indeed, it was done later. When the history of this car was examined, his statement turned out to be quite wrong. He ought to have known better. There was no reasonable foundation for it."

And at 628H

"The judge found that the representations were not dishonest. Smith was not guilty of fraud. But he made the statement as to [the mileage of the car] without any foundation. And the judge was well justified in finding that there was a warranty."

26. That was a case where the motor dealer had wrongly (not dishonestly) stated the mileage of a car to a customer. In this case Mr. Wong wrongly stated the age of the car to Mr. Watson. Again there was no fraud. But the true age of the car could have been ascertained from the manufacturer if not from the local distributor.

27. Mr. Watson had asked Mr. Wong the date of manufacture. It was important to him. Mr. Wong knew that it was important and made the reply that he did to persuade Mr. Watson to buy the car. Mr. Watson was persuaded and bought the car. Plainly Mr. Wong's statement as to the car's age was a warranty.

28. Strictly speaking Mr. Watson, or rather the Plaintiff did not purchase the car from the Defendant. There was a hire purchase agreement between the finance company and the Plaintiff financing the purchase of the car. This does not matter. The warranty given by Mr. Wong persuaded Mr. Watson (on behalf of the Plaintiff) to enter into the hire purchase agreement. Breach of that warranty entitles the Plaintiff to damages from the Defendant. See Brown v. Sheen and Richmond Car Sales Ltd. [1950] 1 All E.R. 1102 and Andrews v. Hopkinson [1957] 1 Q.B. 229.

29. For these reasons I have no hesitation in finding that the Defendant is liable to the Plaintiff in damages.

30. The measure of damages is the whole damage suffered by the Plaintiff including its liability under the hire purchase agreement and is not limited to the difference in value between the car as warranted (i.e. a 2000 model) and as in fact it was (a 1998 model). See Andrews v. Hopkinson (supra) and Yeoman Credit Ltd. v. Odgers [1962] 1 W.L.R. 215. Within a comparatively short time after discovering the true age of the car the Plaintiff sold it, and limits its claim to the difference between the sale price and the value of a 2000 model S430 as at the date of the sale. Arguably that difference is less than the difference between the actual price of $1,040,000 paid by the Plaintiff and the value of a 1998 model at the date of the purchase. But there was no evidence about that and I will adopt the Plaintiff's basis for the measure of damages as it is arguably more favourable to the Defendant.

31. I have already explained why I accept the evidence of Mr. Raymond Lee, the Plaintiff's valuer. The car was sold on 8th February 2002 for $490,000. Mr. Lee had on 18th January 2002 valued the car at between $500,000 and $520,000. I am satisfied that the Plaintiff acted reasonably in selling for $490,000 and achieved a realistic price. Had the car been a 2000 model then Mr. Lee estimated its value at between $680,000 and $700,000. I accept that and will adopt the median figure of $690,000. The measure of damages is therefore $690,000 less the sale price of $490,000 which is $200,000. In addition I allow the sum of $800 being the amount paid by the Plaintiff for Mr. Lee's survey.

32. There will therefore be judgment for the Plaintiff in the sum of $200,800 together with interest at the rate of 5% (being the current best lending rate and which has not varied greatly since February 2002) from 8th February 2002 until today and thereafter at the usual judgment rate.

33. There will be an order for costs in favour of the Plaintiff to include any costs occasioned by the Defendant's failure to file an authorisation permitting Mr. Chung to conduct its case. This costs order is nisi at first instance.