ELECTRO CHEM (ASIA) TRADERS LTD v. MAK KWAI SUM AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The plaintiff's claim against the defendants - MAK Kwai-sum (DW3) and CHAN Poon-kwan, both trading as Wing Fai Electroplating Factory - is for the recovery of $100,000.00 being the balance of the price of a "fishing rod" type automatic plating line sold to the defendants pursuant to a sale contract dated the 15th October 1984.

2. The defendants admit the contract but claim that the plaintiff was in breach of its terms in that the machine which was manufactured and delivered did not conform to the various dimensions and, more particularly, of an oral stipulation specifying the load carrying capacity of each of the lifting arms as 14 lbs. In the alternative, the defendants averred that the machine was not of merchantable quality and that they were entitled to reject it. They counterclaimed for the refund of $33,000.00 paid as deposit; $27,100.00 being the cost of five electroplating tanks which they had to buy as the best substitute for the machine; loss of profits of $20,000.00 per month limited to two months and damages.

3. In its reply and defence to the counterclaim, the plaintiff avers that the variation of the various dimension was done at the request of the defendants. It denies the oral stipulation regarding the loading capacity as pleaded, and maintained that the defendants overloaded and misused the machine causing the bearings and the shaft to break. Also denied is the averment that the machine was not merchantable.

4. The defence adduced evidence first. MAK Kwai-sum (DW3) has been in the electroplating business for some thirty years. Before this transaction he electroplated semi-manufactured articles manually. Later, he took another partner and bought the present factory premises just across the road from his previous factory. He said that in September 1984 he decided to go in for automatic electroplating and initially thought of the rectangular rack type automatic machine but, after visiting the Wing Cheong Electroplating Co., changed his mind as he found that the rectangular rack type was not suitable and decided in favour of the fishrod type machine instead.

5. DW3 was surprisingly unable to explain the difference in the two types of electroplating machine. It came out in evidence however from one of his own witnesses that the rectangular rack type, besides being costlier, is more suitable for heavier objects.

6. Mr MAN and Mr CHOW (PW3) of the plaintiff company have known each other for some years, and have had some business transactions in the past. It is common ground that during the same month, September 1984, DW3 bought a vibrator and two rectifiers from the plaintiff for use in the new premises; and Mr CHOW also helped him sell the old workshop and equipment. It is not disputed that it was then that DW3 asked Mr CHOW to get him a fishrod type machine. They visited the Chung Wai electroplating Industrial Ltd. who, according to Mr CHOW, were the pioneers in the field of electroplating and manufactured such machines also. After visiting two other factories the Sum Kee and the Kwong Leung - Mr CHOW typed out the sale contract for a fishrod style automatic plating system. The agreed price was $130,000.00 and it set out the following terms and conditions:

The "Shipment" was originally stated to be around the end of December 1984 but it is agreed by the plaintiff that it was amended to be around the middle of that month.

7. After the frame of the machine was installed on a concrete platform inside the defendant's new premises, the plaintiff's manufacturer, Mr YIM (PW2) started making the various tanks within the same factory. It is not disputed that the whole machine was assembled about the 28th or the 29th December 1984 and on the 2nd January 1985 it was tested in the morning without any load and it worked satisfactorily; in the afternoon it was tested with a load of 9 lbs. per lifting arm when some bearings broke. Those were replaced and on about the 5th January another test was done with a load of 9 lbs. This time, some ten bearings, on arm and the gear shaft broke. This was repaired and on the 7th January PW1 affixed a plate to the machine stating that the maximum load carrying capacity of each arm was 7 lbs. Mr MAK said that he carried out another test on the 7th January, with a load of 7 lbs. on some 20 arms and some bearings broke and he instructed his lawyers to write to the plaintiff. This letter is dated the 15th January 1985 and after setting out the contract, and that the machine was to be delivered around the end of December 1984, the third paragraph states:

"

Despite repeated demands made by our client, you failed and/or still refuse to deliver the said item to our client in accordance with provisions of the said contract up to the moment of our writing this letter. "

Delivery was demanded within fourteen days, threatening legal action in the event of failure to do so for recovery of the deposit and damages for breach of contract. The plaintiff's solicitors replied on the 19th January denying non-delivery and stating that the machine was tested on the 2nd January and found to be in good order. They demanded payment for the balance of the contract price.

8. However, the defendant asked Y.C. Lau & Co. Ltd. for a survey report and on the 28th and 29th January Mr MUI (DW1) took some measurements which are set out in his report, Ex. D2. On 9th February, another surveyor, Mr TONG (DW2) tested the machine with a load of 12 lbs. attached to three lifting rods when some of the bearings broke.

9. Mr MAK disagreed with the suggestion that the dimensions and figures in the sales contract were only tentative and subject to actual measurements of the new premises where the machine was to be installed. According to Mr CHOW, after DW3 had asked him to look for a manufacturer for a 40 foot long machine, DW3 told him about an estimate that had been given to him for a 50 foot machine and enquired whether the price quoted by Mr CHOW would change for a machine of 50 feet. Mr CHOW said that he had told Mr MAK that the price would remain unchanged and that he would allow for an extra 32" for any imponderable, making the length 1,232", but said that he had pointed out that the end result might be shorter or longer. He maintained that at the time of signing the contract the parties knew that the specifications set out in the document might not necessarily fit the new premises and that those dimensions were simply preliminary without consultation with the designers and without taking measurements of the premises. He said that after the contract had been signed it was agreed that Mr YIM (PW2), who was to manufacture the machine, would take the measurements and give a practical figure as to the dimensions.

10. I find nothing in the evidence of Mr MAK to show affirmatively that by the time of the contract, either Mr YIM or Mr CHOW had in fact taken nay measurements of the premises. He said in general terms that he had completed the platform "long before" and had given the keys of the premises to Mr YIM also "long ago". I find this simply incredible going by his own testimony that the first time he saw PW2 in connection with this transaction was at his old premises on the 15th October after the contract had been signed. Furthermore, PW2 said that, on seeing the contract and a rough sketch, he had pointed out to Mr MAK that the size of the machine would not necessarily be in accordance with the contract stipulation as all parts had to be consistent with each other. Based on the description in the contract PW2 prepared a proposal set out in pp. 3, 4 and 5 of the agreed bundle for a plating line of 58.83 feet. Mr MAK admitted that he was given pp. 3 and 5 on the 16th October. PW2 said that he went to the now premises two days later to take the measurements and found that the platforms which had been made was not long enough. He said that he then handed to Mr MAK a set of papers (pp. 3-13 of the plaintiff's bundle) for his reference, for plating line lengths ranging from 33.3333 feet to 80.0833 feet. He said that Mr MAK then selected a plating line of 39 feet, based on which he prepared the details for such a line giving the dimensions of the various tanks and the times in seconds for the corresponding plating baths, together with a sketch of the outlay of the tanks (pp. 7 and 8 of the agreed bundle) which he handed to Mr MAK on the 23rd October. At the bottom of the data set out on p. 7 are the words : "we agreed to accept this design and please set the speed range to ......... in/sec ......... in Sec." It is signed by Mr MAK and is dated the 23rd October. DW3 admits all this, save that the date was not put on it when he signed it. Mr YIM said that it was impossible to installs machine longer than that on the platform.

11. Considering this evidence it is manifest that at the time the contract was signed, no measurements of the premises or the foundation on which the machine was to be fitted had been taken. As I have indicated already, it was futile for Mr MAK to say that he had handed the keys of the premises to Mr YIM "long ago". Taking this together with the fact that after the 15th October, Mr MAK was given different documents of various dimensions and timings which he admits, I am of the opinion that the preponderance points to the probability that the plaintiff's version is true. I find that the various specifications as to the dimensions stated in the contract were provisional subject to practical dimensions to be given by Mr YIM after taking the appropriate measurements.

12. Mr MAK said in relation to those different papers which were produced by Mr YIM that all that was explained to him was that they referred to the timings and speed, and not the actual length of the plating line. Mr MAK has vast experience in this field, far greater than either Mr CHOW or Mr YIM. I find that it would be extremely naive of a man of his experience to say that he did not know what those papers meant or that he would commit himself to paper which he did not understand fully. He may not be able to read English, but he can read numbers. P.7, which he signed, is clearly headed and the straight length of 39 feet is mentioned. The sketch of the layout of the tanks at p. 8 states the overall length of the plating line from tank 4a to tank 7 as 46'4". I do not believe that these figures could possibly have missed his experienced eye. I reject his evidence on this issue and find that in signing p. 7, which sets out the lengths of the various tanks and the corresponding timings for the plating baths, Mr MAK indicated his acceptance of those dimensions for a 39 foot automatic machine. To that extent therefore the original contract was varied.

13. P. 7 sets out the lengths of the various plating tanks which are shorter than those mentioned in the original contract. This is understandable for the obvious reason that the straight line as agreed on the 23rd October being shorter than that mentioned in the contract, the tanks had to be proportionately shorter or, in the words of Mr YIM, all the parts had to be consistent with each other. Inherent in the defendant's acceptance of a shorter straight length therefore is his acceptance of the corresponding reduction in the length of the various tanks from that stated in the main contract. In the circumstances, I do not think that the defendant can now justifiably hold the plaintiff to the plating length as stated in the main contract, nor can he complain about the consequential reduction in the length of the various tanks as stated in his acceptance at p. 7.

14. Having said this and keeping in mind that it was on the 23rd October that the contract was varied as stated above, learned counsel for the defence was quick to pounce upon the date mentioned in the written contract between Mr CHOW and Mr YIM - Ex. P.7 - for the manufacture of the machine. It is dated the 20th October and attached to it is a copy of p. 7 (agreed bundle) which represents the acceptance of the defendant of the shorter machine. On the face of it, the disparity in the two dates significant for if Ex. P7 was signed on the 20th October, the acceptance of the shorter machine had not been signed by then. This confusion was explained by Mr YIM and Mr CHOW in that they signed Ex. P7 on a date subsequent to the 23rd October. No point was made of this, but it was strongly put to these witnesses and urged upon me also that they had decided between themselves to alter the dimensions of the tanks before the 20th October. I am not persuaded that this must be so, particularly if it is accepted that Ex. P7 was signed after the 23rd October. This seems to be consistent in that the lengths of the plating tanks stated in Ex. P7 are the same which are to be seen in p. 7 (agreed bundle). Whereas P. 7 does not mention the number of tanks, Ex. P7 mentions the number as 13. As stated earlier those tanks were measured by Mr MUI (DW1) of Y. C. Lau Ltd. and the measurements are set out in his report, Ex. D2. It may be useful for the purposes of a quick comparison if I were to set out the two sets of measurements (i.e. from p. 7, Ex. P7 and Ex. D2) side by side :

15. Mr MAK maintained that he had never discussed the dimensions of the tanks with Mr YIM, and he denied that either he personally or his partner had ever asked for those dimensions to be altered from those set out in the main contract. I have already dealt with this a little earlier on. Considering the alternation to the width, it seems to me that the plaintiff does not dispute that it had to be the same as in the main contract, though the length was varied by the defendant's acceptance on p.7. It is obvious that the width of the rinsing tanks was brought down to 24", that of the plating tanks to 28" and the length of three tanks (as underlined in the table above) is also different from that stated on p.7. About the width of the plating tanks Mr YIM said that this was due to a misunderstanding between the parties. He did not say what that misunderstanding was but said that the reduction was because the defendant did not want too much space blocked. With regard to the length of the tanks, he said that after the 23rd October, Mr CHAN instructed him to make amendments to the tanks; he wanted to change the time for electroplating and wanted the time in a certain tank to be slightly longer and in others slightly shorter. He could not remember the exact date this was said. He mentioned' also the relocation of one of the four original tanks from position 5 to position 15 (the position of the tanks is laid out in the sketch on p. 8) at the defendants' request. With regard to the reduction in the rinsing tanks by two, Mr YIM said that the original 15 were in relation to a line of 58 feet and if the same number were to be maintained for a plating line of 39 feet, there would not be sufficient space left to accommodate all the plating tanks which in electroplating process are the more important than the rinsing tanks. He said that this number was reduced after the 23rd October and he reiterated that the length of the rinsing tanks had to be consistent with the plating tanks, so that the length of the tanks could not be altered as one wished.

16. In considering this issue, I think that what is important to bear in mind is the fact that these tanks were made at the defendants' premises. Whereas at the material time Mr MAK spent most of his time at the former workshop and went to the new premises in the evenings after Mr YIM had left, the evidence left me with a strong impression that his partner Mr CHAN was always at the new premises. It is highly probable that besides being aware of the work on the tanks, Mr CHAN would have been in constant contact with Mr YIM. Of course Mr MAK would have seen what was being done during his visits in the evening.

17. Mr CHAN did not testify, so that there was no direct evidence from him about his requests for certain alternations as was alleged by Mr YIM. Mr MAK agreed that a request for the relocation of one tank was made jointly by him and his partner. The fact that he also noticed that the tanks were shorter is admitted by Mr MAK and he maintained that he reported this to Mr CHOW who told him that he would claim from Mr YIM later. This was denied by Mr CHOW. Mr MAK, however, felt satisfied in that he had discharged his responsibility in bringing this to the notice of the man who had signed the contract. I think that this has to be compared with his subsequent conduct. After the tests which were done between the 2nd and the 7th January 1985 I see nothing in his evidence that would even remotely suggest that he had complained about the dimensions as a whole, nor was it mentioned in the letter which his solicitors wrote to the plaintiff on his instructions.

18. Looking at the evidence as a whole, I find that its weight suggests the probability that the dimensions of the tanks were varied to those in the end product at the request of the defendants, and I so find.

19. I turn now to consider the issue concerning the alleged oral stipulation of the loading capacity of the lifting arms. The defence case was that it was agreed before the main contract was signed that each arm would be able to carry a load exceeding 14 lbs. I may interpose to say that this seems to be contrary to para. 4 of the written defence where the maximum loading capacity is stated to be 14 lbs. However, the plaintiff denies any such oral stipulation, which he described as a "big lie" and a "fairy tale". He said that he first heard of it when Mr YIM explained that the breakdown of the machine during the tests was due to overloading.

20. No point is taken of the fact that the machine has 53 lifting arms instead of 56. The head of the arm is 'T' shaped as can be seen in photograph Ex. D¼. The horizontal bar, which is 12" long, is divided into three sections, each of 4". Articles to be electroplated are attached to a frame of the type Ex. D3 with the aid of a clasp (Ex.D4) and it is then hung by its hook from the horizontal bar. At the material time the defendants were processing belt buckles of the type Ex. D12. Twenty-two such buckles made up one pound and twenty, which the frame could take, would weigh slightly less than that. Taking into account the weight of the frame itself (about 1½ lbs.), each fully laden frame would weigh less than 2½ lbs., and four slightly less than 10 lbs. Mr MAK agreed to this calculation but only after his arithmetic was corrected.

21. However, Mr MAK maintained that each lifting rod could take four fully laden frames at a time, i.e. two on each outer section of the horizontal bar. This was denied by the manufacturer and also by Mr CHOW and they claimed that the lifting head was meant to take one frame at each outer section and one frame of heavier objects in the middle section, so that it would take three frames at a time. Mr YIM explained that the fasteners on the horizontal bar, which can be seen in photograph Ex. D14, were provided to prevent the frames from sliding due to the movement engendered when the machine was in operation, so that the frames did not clash with each other. Mr MAK disagreed and said that the hook of the frame being ½" wide would still leave sufficient space for two frames on the outer section to be about 3" apart, which suited them in the electroplating process.

22. In so far as the motion of the machine is concerned, it is twofold as I understand it. First, the machine moves along the line on a horizontal plane; secondly, there is the up and down movement of the lifting arms whereby the frames are dipped into the various tanks and lifted out again one tank after the other. Mr YIM said that the fasteners are adjustable and their purpose is to keep the frames sufficiently apart, as a clash of the frames would affect the electroplating at the point of impact. I am inclined to accept this explanation which certainly look the more probable to me in view of the peculiar movements to which I have referred. Accordingly, I find on balance that each lifting head was designed to take three frames only as was explained by Mr YIM.

23. The machine was ready for delivery on the 2nd January 1985. It was switched on without any load and it is agreed that if functioned satisfactorily. I may mention briefly an incident which occurred that morning when Mr CHOW took some photographs to which Mr MAK objected vehemently and the police had to be called in. I do not think that anything turns on it. The second test was done the same afternoon in the presence of Mr YIM with a load of 9 lbs. On each lifting arm, notwithstanding the latter's advice that fewer frames be put on each lifting head. Some bearings of the type Ex. D9 broke, a broken bearing was exhibited as Ex. D10. Mr YIM pointed out that this break down was due to overloading. The broken bearings were replaced and the machine was tested next on the 5th January, again with a load of 9 lbs. This time, besides some bearings that broke, also broken were one lifting arm and the gear shaft. It transpired that the lifting arm did not actually break, only one of its bolts was loose which Mr YIM ascribed to overloading. He told Mr MAK again that this breakdown was due to overloading. He said that Mr MAk's response was that it was due to the ignorance of his workers and the latter enquired if the loading capacity could be increased. Mr YIM then affixed a plate to the machine indicating that the maximum loading capacity was 7 lbs., and at the request of Mr MAK he carried out some modification to the gradient of the lifting arm whereby an increase to 10 lbs. was confirmed in a subsequent test in the presence of Mr CHAN. He said that with a load of 11 lbs., the lifting arm quivered a little. Mr MAK agreed that following the modification, the loading capacity improved.

24. Mr MAK spoke of another test on the 7th January with a load of about 7 lbs., when some bearings broke. It was after this test that he instructed his solicitors to write to the plaintiff.

25. Mr MAK admitted that later in January 1985 he asked Mr CHOW for a discount of 30%, which was rejected by one of Mr CHOW's fokis, CHEUNG Chi-hang. Mr CHOW said that Mr MAK asked for such discount on 21st January 1985 saying that although the defects had been rectified the machine was "like this", adding that if it was not agreed, Mr CHOW would never get paid. Mr CHOW said that he rejected this offer.

26. This issue of the loading capacity represents a direct conflict in the evidence of Mr MAK and Mr CHOW. The former agreed under crossexamination that this was an important term and said that when he raised its omission from the main contract, he was told that not everything could be included in the contract, which he accepted on the basis that both of them were businessmen who honoured their word. I find that there are pointers in his own testimony which militate against his claim concerning the oral stipulation as to the loading capacity being 14 lbs. The machine having broken down during those tests, there is nothing in his evidence to indicate any immediate reaction at least by way of remonstration if not an outright rejection. Instead repairs were carried out and he permitted the notification about the maximum loading capacity of 7 lbs. being put up on the machine. This taken together with his request for modification so as to increase the loading capacity are pieces of potent evidence against the defendants. It seems to me that in order to counter Mr YIM's claim that the modification increased the loading capacity to 10 lbs, Mr MAK mentioned another test with a load of 7 lbs. when some more bearings were alleged to have failed. I find this quite contrary to his own admission that the modification had in fact improved the capacity and this was after the previous tests with 9 lbs. weight If the capacity improved, it must by inference relate to the 9 lbs. weight, which improved to 10 lbs. on Mr YIM's evidence. It is simply illogical to say that the improvement resulted in a deterioration! The absurdity is taken a step further when Mr MAK called in the surveyor, Mr TONG (DW2), whom he directed to test the machine with a load of 12 lbs. represented by four fully laden frames which he handed to him. DW2 said that he was not asked to ascertain the exact loading tolerance of the machine. By the time of Mr TONG's test, the defendants' request for a 30% discount had been rejected. It seems manifest to me that the manner in which the surveyor was directed to conduct the test was with the intention to accumulate evidence by using a heavier weight which Mr MAK well knew the machine would not be able to carry.

27. For these reasons I reach the conclusion on the balance of probabilities that no such oral stipulation about the loading capacity as was claimed by Mr MAK had been agreed upon before the main contract was signed. I am mindful that learned counsel for the defence described Mr CHOW as a "con man"; learned counsel for the plaintiff called Mr MAK a habitual bad paymaster. For the reasons I have endeavoured to give I find no evidence to substantiate the epithet given to Mr CHOW. In saying this, I have taken into account the hire purchase application that was made to Wayfoong credit in respect of this machine, and the circumstances in which it wee made. If there was any impropriety in the manner in which it was made, I do not see why Mr CHOW should bear the sole responsibility for it since it remained essentially Mr MAK's application whose track record of some previous dealings with the finance company was not flattering of him, which he must have known also. On the other hand, there is evidence of the two District court actions which the plaintiff had to initiate to recover the money owing by the defendants for the vibrator and the rectifiers which indicated that Mr MAK had not only delayed payment but had converted his firm into a limited liability company, thus frustrating execution of the judgments obtained in those two actions. It was also admitted by him that some money is still owing by the defendants for the tanks which they ordered from Wing Cheong Electroplating company in January 1985. Learned counsel for the defence urged me not to take that previous litigation into account on the ground that the prejudicial effect exceeded its probative value. As can be seen, I have indeed excluded these matters from my deliberations, but I must say now that where aspersions are cast on the other side and motives are brought into issue such previous conduct becomes relevant. The manner in which Mr MAK sought to make payment on one of his post dated cheques for the vibrator and the rectifiers which was due in December 1984 dependant upon the completion of the machine and dishonouring it on its due date and subsequently asking for a 30% discount with the comment about non-payment if that was not agreed are factors which, in my opinion, affect the bona fides of his intentions. When thrown into the balance they add to the degree of the tilt; without them the balance of probabilities remains sufficiently tilted against the defendants for the reasons which I gave earlier.

28. It was submitted that the machine had to be merchantable and fit for the purpose at the date of delivery. I accept that but here the defendants had not only waived the late delivery, they had agreed to let the plaintiff repair and modify the machine. In other words, the defendants had in the circumstances of this case rejected the tender of the machine but kept the contract open for performance by a fresh tender of the machine duly repaired and modified. Having accepted the plaintiff's case, I find that the repairs and the modification which increased the loading capacity to 10 lbs. was sufficient performance by the plaintiff which, in the light of the evidence accepted by me, precludes the defendants from denying that they had adopted the transaction. That, in my view, is reinforced by Mr MAK's request for a 30% discount on or about the 21st January. Having retained the machine until then and thereafter for a sufficiently reasonably long period of time without intimating their rejection if it, the defendants must be deemed to have accepted it in terms of s.37 of the Sale of Goods Ordinance, Cap. 26. In the circumstances, I see no substance in their counterclaim and it is dismissed with costs.

29. I enter judgment for the plaintiff in the sum of $100,000.00 with costs, together with costs of the counterclaim. I was asked to award costs on an indemnity basis. which I decline to order as I do not see sufficient justification for so doing. Interest on the principal amount at the rate of 12% from 21st January 1985 until today and thereafter in accordance with s.49 of the supreme court Ordinance, Cap. 4, until satisfaction.