AGFA HONG KONG LTD. v. JOINTAK INDUSTRIAL CO. LTD.

HCA 3379/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3379 OF 1998

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J U D G M E N T

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1. This action concerns the sale by the plaintiff and the purchase by the defendant of the plaintiff's revolutionary digital printing system known as the chromapress system ("the CMP system").

2. The plaintiff is a wholly owned subsidiary of Agfa Gevaert N.V., a German manufacturer of, inter alia, printing systems and the distributor of Afga Gevaert N.V.'s products in Hong Kong. One such product was the CMP system. This was a revolutionary digital printing system. Digital colour printing, as opposed to conventional offset printing, prints colour images on a computer directly from the computer onto paper through an electrophotographic imaging process which can be efficiently controlled by an operator. By not using films and printing plate, digital printing compresses the printing process by eliminating prepress steps such as output film, colour proofs, colour separations, stripping and plate-making. Thus all these steps which require individual highly skilled professionals are eliminated thereby saving both time and costs. It also has the advantage and flexibility in that the image to be printed can be customised on the computer to meet specific needs before it is sent to the press without having to go through the difficult and expensive process traditionally associated with redoing a publication by offset printing. With direct digital printing the content can be changed, rearranged or updated until the operator sends the digital file to the press.

3. There is no dispute that the plaintiff and the defendant entered into two contracts both dated 20 November 1995 whereby the plaintiff sold and the defendant purchased the CMP system and equipment. By contract no. GC95-0154-CO3 the plaintiff sold the CMP system and the Power Mac computer, software and the other goods as set out therein for the total price of HK$4,180,000. By contract no. GC95-0155-C07 the plaintiff sold and the defendant bought the colour scanner, software and other goods set out therein for the total price of HK$520,000. The total price under both contracts was HK$4,700,000. The deposits payable under both contracts was 25% of the purchase price and this was duly paid. The balance of HK$3,525,000 payable under both contracts was not paid by the defendant and the plaintiff claims the said sum with interest in the action.

4. The defendant's case is that the CMP system was not fit for the particular purpose made known to the plaintiff and also that it was unmerchantable. The defendant further alleges that it entered into the contracts as a result of misrepresentation by the plaintiff's representative and that it was entitled to rescind the contracts. The defendant claims to be entitled to reject the CMP system and counterclaims for damages for breach of contract, repayment of the deposits paid and for rescission of the contracts.

5. The agreed list of issues set out the issues which are :

(1) whether Mr. Larry Chan ("Mr. Chan") of the plaintiff had misrepresented to Mr. Lau Tak Wai ("Mr. Lau") of the defendant that the CMP system was as good as offset printing process?

(2) whether there were any implied terms that the CMP system should be fit for the purpose and/or of merchantable quality?

(3) whether the CMP system was unmerchantable?

(4) whether the plaintiff may rely on exclusion clauses in the contracts at law?

(5) what is the effect of the pleaded contractual provision that terms cannot be modified, supplemented or rescinded except in writing (clause 1(b))?

(6) what is the effect of the pleaded contractual provision of cl. 16?

(7) whether the plaintiff is estopped from relying on cl. 16 by reason of the alleged representation?

Although not agreed as being issues the defendant contended that there were the following further issues :

(8) whether Mr. Lau of the defendant had relied on the alleged misrepresentation of Mr. Chan of the plaintiff when entering into the two contracts?

(9) whether the CMP system was not fit for the purpose of printing labels for garment fashion?

6. The representation relied on by the defendant is pleaded in para. 11 of the re-re-amended defence and counterclaim. The defendant's pleaded case is that in the course of the negotiations Mr. Chan represented to Mr. Lau that the CMP system could produce colour printing "the quality of which is as good as that produced by offset process printing". It was also pleaded that the plaintiff further represented that the user of the CMP system could also enjoy the benefit of "High productivity", "High accuracy" and "Consistency in quality". Acting in reliance on those representations the defendant entered into the two contracts. It is further pleaded that the representation was false as the quality of printed matters produced by the CMP system was not as good as and was below the standard of that produced by offset process printing.

7. In November 1995 the plaintiff participated in the "Mac World 95" computer exhibition at the Hong Kong Convention and Exhibition Centre to promote various Agfa products including the CMP system. The CMP system was on display at the plaintiff's booth. Mr. Chan then the sales manager of the plaintiff was in charge of the booth. The CMP system was also operated and demonstrated at the plaintiff's booth to interested persons. As Mr. Chan said, and as I accept, both the English and the Chinese versions of the CMP system brochures (Exhs. P3A and P3B) were available at the counter of the plaintiff's booth as was the flyer printed by a customer of the plaintiff, Power Colour. Although Mr. Chan believed that he met Mr. Lau of the defendant at the plaintiff's booth he could not be sure of this. Both Mr. Lau and Mr. Hung Kwan Yee ("Mr. Hung") of the defendant said that they did not meet Mr. Chan at the booth. On their evidence Mr. Lau exchanged business cards with Mr. Ram Lam of the plaintiff. It seems to me that Mr. Lau must have realized that someone from the plaintiff would contact him in relation to the CMP system displayed at the exhibition. Nothing turns on whether or not Mr. Chan met Mr. Lau at the plaintiff's booth at the exhibition as Mr. Chan did contact Mr. Lau and met him at the defendant's factory a few days after the exhibition.

8. There is a dispute between the parties as to what transpired at the precontractual meetings and discussions between Mr. Chan and Mr. Lau.

9. In support of its pleaded case on misrepresentation Mr. Lau gave evidence that when Mr. Chan met him at the defendant's factory and introduced the CMP system to him he told him that the defendant was interested in opening a factory to engage in printing hang tags and referred to such tags as were hung up in the conference room. At that time the defendant was in the business of weaving labels and had subcontracted the printing of hang tags for the garment industry to subcontractors, like Faster Printing Factory, who had produced hang tags using offset printing machines. According to Mr. Lau, Mr. Chan told him that the CMP system was suitable for such purpose and explained the CMP system by reference to the Chinese brochure. His evidence was that the English brochure, which was not a direct translation of the Chinese brochure, was not presented to him. Mr. Lau said that Mr. Chan pointed to several references in the brochure. It was his evidence that Mr. Chan had made it clear to him that the CMP system could produce colour quality as good as offset printing. This was denied by Mr. Chan who gave evidence that when he met Mr. Lau at the defendant's factory he gave him both the English and Chinese versions of the plaintiff's brochure (Exhs. P3A and P3B). He said that he went through the Chinese version with him. Mr. Lau told him that he was looking for new technology to do printing work. Mr. Lau did not tell him that he was looking for an offset printing machine.

10. The defendant relied on a certified translation of parts of the Chinese brochure where the text was translated in one part as :

"Its second to none technology produces colour quality equivalent to that of offset printing."

And in another part the text was translated as :

"The quality is stable. Through the employment of high-accuracy and variable-pixel technology, each pixel can attain up to a maximum of 64 levels of gray. It is equivalent to 2400 DPI at 150 LP1 in traditional printing."

11. The plaintiff, however, presented a certified translation of another part of the Chinese version of the brochure where the text was translated by another translator as :

"The unique technology offers the colour quality that compare favourably with that of offset printing".

12. Both the translators Mr. Wu Ting Wu and Ms. Lam Lai Ping gave evidence. They both said that the certified translations done by them were correct translations and were acceptable translations. It is clear on the evidence that the relevant Chinese text could be correctly translated either as "equivalent to" or "about the same as". In the context of what is contained in the plaintiff's Chinese version of its brochure anyone reading the same must have realized that what was being said was that the colour quality was "about the same as" or "compares favourably" with that produced by offfset printing. Nowhere is it stated in the plaintiff's brochure that the colour quality was "as good as" that produced by offset printing process. This is even clearer when reading the English version of the brochure (Exh. P3B). Mr. Lau said that Mr. Chan did not bring with him the English version when visiting the defendant's factory and that he did not see the English version until 1999. His evidence was that from the conversations he had with Mr. Chan and the references to the Chinese brochure he got the impression that the CMP system could do the work of offset printing machine but that the English version (Exh. P3B) made no comparison with offset printing machine at all. It seems to me that he accepted that from the English version one would not get the impression that the CMP system could produce colour quality "as good as" that produced by an offset printing machine.

13. I have no hesitation in preferring the evidence of Mr. Chan to that of Mr. Lau and find that Mr. Chan left both the English version and the Chinese version of the plaintiff's brochures (Exhs. P3A and P3B) with Mr. Lau when he visited the defendant's factory for the first time. Mr. Chan also gave evidence that Mr. Lau never said to him that he was looking for a printing machine that could produce images as good as an offset printing machine. I believe Mr. Chan and accept his evidence. I disbelieve Mr. Lau and reject his evidence. In my view Mr. Chan was an honest, truthful and credible witness whereas Mr. Lau was not. Where their evidence is at variance, I have no hesitation in preferring the evidence of Mr. Chan to that of Mr. Lau.

14. The defendant's pleaded case was that in about November 1995 Mr. Lau informed Mr. Chan that the defendant required an offset printing machine (para. 10 of the re-re-amended defence and counterclaim). In his witness statement he said that the defendant "started to arrange to deploy part of its employees as well as recruiting new employees for the operation of the new workshop for label printing" (para. 8). The defendant then started to look for offset printing machines to set up the workshop (para. 9). He further said therein that when he met Mr. Chan when he visited the defendant's premises he let Mr. Chan know that the defendant was looking for "appropriate offset process printing machines" (para. 16). When he gave evidence, however, he said something quite different. He said that what he wanted to do was to buy a computer first in the latter part of 1995 to do design work and at an appropriate time in the future to buy a printing machine. He also said that at the "Mac World '95" exhibition he told Mr. Ram Lam at the plaintiff's booth that the purpose of his visit there was solely to buy a machine to do design work. Although the plaintiff did not sell computers to do design work as such he nevertheless exchanged business cards with Mr. Ram Lam and was told that a salesman would approach him. At that time, however, the defendant must have known that the CMP system was on display at the booth and that the plaintiff was not selling offset printing machines nor just a computer to do design work as such. I do not believe him when he said in evidence that he was at that time looking solely for a computer to do design work. He must have appreciated that a salesman would contact him as regards the CMP system and he must have shown some interest in it otherwise he would not have exchanged business cards with the representative at the plaintiff's booth. As Mr. Chan said, and as I accept, when he visited Mr. Lau at the defendant's factory Mr. Lau told him that he was looking for new technology to do printing work. He did not tell Mr. Chan that he was looking for an offset printing machine. I accept Mr. Chan's evidence. The evidence that Mr. Lau was simply looking for a computer to do design work when he attended the "Mac World '95" exhibition is contradicted by Mr. Lau's own witness statement.

15. Although he said that he told Mr. Chan that he wanted an offset printing machine to print hang tags similar to the ones displayed in his conference room, Mr. Lau also said that at the first meeting with Mr. Chan he told Mr. Chan that he was not very interested in the CMP system as he only wanted to buy a computer to do design work. I do not believe Mr. Lau.

16. Mr. Hung in his witness statement also said that the defendant in 1995 decided to expand its business to cover label printing which would include printing hang tags and swing tickets. The defendant then looked for an appropriate offset printing process for producing printed labels. In his evidence, however, he said that Mr. Lau had told him that the defendant decided to expand its business and the plan in 1995 was to look for a computer to do design work. He discussed that shortly before he and Mr. Lau attended the "Mac World '95" exhibition in November 1995. He also said that at that time the defendant's plan was just to buy a computer to do design work but not to buy a printing machine. He also contradicted his witness statement. I do not believe him and do not accept his evidence.

17. I find that the plaintiff did not make the representation to the defendant that the colour quality of the CMP was "as good as" the colour quality produced by offset process printing. It was also the evidence of Mr. Chan, which I accept, that he did not represent to Mr. Lau that the user of the CMP system could also enjoy the benefit of "High Productivity", "High Accuracy" and "Consistency in Quality" although such descriptions were in the plaintiff's brochures.

18. As there were no such representations, I also find that Mr. Lau did not rely on the said representations when entering into the two contracts with the plaintiff. Issues (1) and (8) are resolved in favour of the plaintiff.

19. I do not believe that Mr. Lau or the defendant was left with any impression that the quality of the colour in the printed matter from the CMP system was as good as that produced from an offset printing machine. I was referred to the defendant's flyer that was on display at the "Mac World '96" exhibition in November 1996. Copies of that flyer were printed using the CMP system and the flyers, together with flyers from other customers of the plaintiff, were kept in the plaintiff's booth at that exhibition. In the defendant's flyer it is clearly stated, inter alia, that the CMP system "the world's fastest digital printing technology, not something the usual digital printing can compare to, almost as good as the traditional printing". Far from acting on a representation that the CMP system could produce colour printing the quality of which was as good as that produced by offset process printing, the defendant was making it plain in its own flyer in November 1996 that the CMP system was "almost as good as" the traditional offset printing. As regards the defendant's flyer, Mr. Lau gave evidence that he received the letter Exh. D1 dated 25 October 1996 from the plaintiff asking for the promotional leaflets to be delivered to the plaintiff not later than 4 pm on 30 October 1996. He gave instructions to his colleagues to prepare 200 to 300 copies of the defendant's flyer. Mr. Lau said that he was not interested in the said flyer nor did he know where the contents of the defendant's flyer came from. He believed that the contents were supplied by the plaintiff but he had no personal knowledge of this. According to Mr. Hung he had seen a fax from the plaintiff containing the contents of the information in the defendant's flyer. Such document was never produced in evidence. I do not believe Mr. Lau and Mr. Hung. I accept that the plaintiff might have assisted the defendant and its other customers when they produced their promotional flyers for their services using the CMP system. As Mr. Chan said, and as I accept, the plaintiff did not design the flyer for the defendant. He pointed out that in the Chinese text of the flyer reference was made to "Omnigloss". This was apparently misspelt as "Omingloss" in the flyer. This was an option which was not yet available in 1995 and the defendant had not purchased this option. However, the defendant and other customers exchanged ideas and information in chromapress sales association meetings. The role of the plaintiff in those meetings was to act as co-ordinator in discussions they had and the information in the flyers printed by those customers might have come from such meetings. In my view there is no reliable and cogent evidence to show that the flyer was designed by the plaintiff and that the contents in the flyer were provided by the plaintiff. The defendant failed to call the colleague of Mr. Lau who was entrusted with the task of producing the flyer for the display at the "Mac World '96" exhibition and I am not satisfied that the information contained in the flyer came from the plaintiff. Also, I do not think that the spelling mistakes "Omingloss" for "Omnigloss" and "Pleace Send Me More Information" for "Please Send Me More Information" in the box in the flyer would have been made if the plaintiff was responsible for the design and the contents thereof. I find that the defendant by issuing the flyer knew that it was promoting the CMP system which the defendant itself described as "almost as good" as traditional printing and not "as good as" traditional printing.

20. S. 16(3) of the Sale of Goods Ordinance (Cap. 26) provides that :

"Where the seller sells goods in the course of a business and the buyer expressly or by implication, makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller's skill or judgment."

The defendant's case is pleaded in para. 13(a) of the re-re-amended defence and counterclaim where it is pleaded that there were statutory implied conditions that the CMP system "should be reasonably fit for the purpose for which the defendant required it, namely for label printing the quality of which is as good as that produced by offset process printing" ("the said purpose"). It is important to bear in mind that this is the purpose for which it is said that the defendant required the CMP system.

21. Whether or not the defendant relied on the plaintiff's skill and judgment to supply a CMP system reasonably fit for the said purpose is a question of fact. It is important to bear in mind the evidence. Mr. Chan said in evidence that when he saw Mr. Lau at his first visit to the defendant's premises he saw some hang tags pinned on the wall in Mr. Lau's room. Mr. Lau did tell him that they were in the business of weaving labels but were interested to start a business of printing hang tags. Mr. Lau told him that he understood hang tags were printed by offset printing but Mr. Lau did not tell him that they were looking for an offset printing machine for printing hang tags. Mr. Chan invited Mr. Lau to the plaintiff's premises for a demonstration of the CMP system. Mr. Lau went there and brought with him jobs in electronic files on a disc. Mr. Lau wanted to print hang tags from the electronic files on the CMP system in the demonstration conducted at the plaintiff's premises. Mr. Lau took away the printouts from the CMP system that he himself printed. Mr. Chan also showed Mr. Lau a multi-media compact disc ("the CD") as he wanted Mr. Lau to be clear of the market position of digital printing and what the technology of digital printing was like. H also gave him the CD to take away.

22. Mr. Chan said that there was also another demonstration of the CMP system, in the premises of another of the plaintiff's customers, namely Power Colour. Mr. Lau wanted to see for himself the operation of the CMP system in the market. The demonstration was one of Power Colour's jobs.

23. It was Mr. Chan's evidence that during the two demonstrations Mr. Lau did not make much comment about the quality of the printout but subsequently Mr. Lau told him that he had shown the samples to people in the printing business and they said that the quality was not as good as that done by conventional offset printing machine. Mr. Chan said that he explained to Mr. Lau that this was a product of 600 dots per inch ("dpi") resolution but that it had its own advantages. However, he never told Mr. Lau that the CMP system was as good as offset printing machine. In any event, he was not familiar with the quality of hang tags expected by the garment industry, which I accept as he was just a salesman selling the plaintiff's products which did not include offset printing machines.

24. Mr. Lau, however, denied that he was ever given a demonstration of the CMP system either at the plaintiff's premises or at the premises of the plaintiff's customer. He also denied that the CD was shown to him or was given to him. His evidence was that he was never given a demonstration before he purchased the CMP system from the plaintiff. I do not believe Mr. Lau. Mr. Lau has a Masters degree in Accountancy and Finance from an English University. He joined the defendant in 1988. The defendant was a family company started by his father. Prior to that he was employed as an accountant. He had also been employed by Cathy Pacific Airways Ltd. as a manager, financial accounting with responsible duties including preparing the Annual Report for Cathay Pacific Airways Ltd. and loan documentation. Since 1988 he was in business after joining the defendant. It is inconceivable in my view that with his background in business and accountancy that Mr. Lau would have purchased the CMP system without a demonstration of the CMP system in actual operation. This was a substantial investment with both contracts amounting to a total price of HK$4,700,000. It was, on the evidence, considerably more expensive than the second-hand offset printing machine which cost Mr. So Kwok Kuen $200,000 in 1991. Although new offset printing machines could cost as much as HK$4,000,000 the CMP system was certainly more expensive than the most expensive offset printing machine available at that time on the evidence before me. Mr. Lau did not strike me as a person who would enter into the two contracts without having first seen a demonstration of the CMP system in operation. I prefer the evidence of Mr. Chan and reject the evidence of Mr. Lau. I find that samples were produced from the two demonstrations that Mr. Chan gave evidence about. I also find that Mr. Lau was fully aware of the quality of the samples so produced, which included hang tags, by the CMP system during such demonstrations and he well knew that some of his customers had said to him that the quality was not as good as that done by conventional offset printing machine. Nevertheless he still decided to purchase the CMP system from the plaintiff. I am satisfied that the circumstances show that Mr. Lau as buyer did not rely on Mr. Chan's skill or judgment to supply a CMP system which would be reasonably fit for the said purpose. In my judgment the circumstances also show that it was unreasonable for Mr. Lau to rely on the skill or judgment of Mr. Chan to supply a CMP system which would be reasonably fit for the said purpose. I find that the exception in S. 16(3) of the Ordinance applies and that there was no implied condition as alleged.

25. The defendant's case as pleaded in para. 19 of the re-re-amended defence and counterclaim was that the CMP system was neither reasonably fit for the purpose made known nor of merchantable quality. The specific complaints particularised were :

(i) the production capacity of the CMP system was over-exaggerated;

(ii) there were frequent occasions of system breakdown;

(iii) there was high consumption of specialised printing paper and material supplied exclusively by the plaintiff in the preparation stage of the CMP system before the same was ready for production;

(iv) apart from the complaint that the quality of colour produced by the CMP system was not as good as that produced by offset process printing, the quality of colour produced by the CMP system was by itself poor in quality;

(v) the quality of colour of printed matters produced by the CMP system was not consistent;

(vi) the precision of each and every printed images on the printing papers produced by the CMP system was not in alignment with each other thus producing serious errors and problems during the process of trimming;

(vii) the printed matters became curled up after the printing process was completed;

(viii) the colour on the printed matters would easily peel off when being folded up.

26. It was, of course, for the defendant to establish that the CMP system was defective in the manner as pleaded and particularised. It is surprising that apart from the defendant's flyer kept at the plaintiff's booth at the "Mac World '96" exhibition not a single sample of a printed document or hang tag printed from the CMP system purchased by the defendant was produced in evidence to demonstrate any of the alleged defects in the CMP system. The CMP is still with the defendant and there is no sufficient reason why a sample could not have been produced in evidence if indeed the CMP system was in fact defective. It is also surprising that Mr. Hung, who was one of the operators of the CMP system, was not asked to give evidence about any of the alleged defects. And the other operator Mr. Koo Wai Ming, who is still employed by the defendant, was not even asked to give evidence. The defendant's case rests largely on the oral testimony of Mr. Lau who, as I have said, was not a credible witness and I do not believe him.

27. It is common ground that the plaintiff's staff went to the defendant's factory frequently after installation of the CMP system for maintenance and service calls. Mr. Wong Yuet Kau ("Mr. Wong"), the plaintiff's chief engineer, gave evidence that although he was not present at the installation and testing of the CMP system at the defendant's factory he would receive service reports which showed details of the maintenance work that was carried out and such reports contained statements of the complaints made by the customer. These reports were in triplicate with one copy given to Mr. Wong, one to the customer and one kept by the engineer. The defendant has not produced any service reports recording any of the alleged defects. Mr. Wong also gave evidence, which I accept, that after the installation and testing of the CMP system at the defendant's factory he was shown the UT5 chart, which was a chart to test all the colours that the CMP system could print, and he was satisfied with the UT5 chart printout that he was shown. He did not receive any report indicating that the defendant was not satisfied with the installation and testing of the CMP system. He himself went to the defendant's factory in the period after 1996 and before April 1998 for about four or five times to do upgrading work. On none of the occasions that he personally went there did the operator of the machine ever complain of any defect in the CMP system. Mr. Wong also explained that the CMP system was programmed in such a way that before a job was printed it would first emit about 40 sheets of blank paper smaller than A4 size paper or 15 sheets of blank paper larger than A3 size. This was the way the machine was programmed and it was not a defect. He also said that customers were advised to do all the jobs together to avoid wastage of paper as the blank sheets would be emitted only before the first job out of a number of different jobs being done together. He denied that the defendant had complained about the alleged defects.

28. Mr. Wong explained that when he looked at the service reports he found that no defects were noted therein but that the defendant did have problems using the CMP system. The defendant had operational problems and there was also a problem with maintaining humidity control at a stable level notwithstanding that a customer as part of the after sales training course was taught how to maintain the humidity level in the room. The defendant had problems in operating the application software.

29. Mr. Wong also gave evidence that for the first three months after installation his staff went there almost on a daily basis for after sales service. The reason for this was that the defendant's operators had not yet familiarised themselves with the operation of the machine and did not know how to use some of the application software procedures. Thereafter the plaintiff's staff went there about four to five times a month on average until about March 1998. Mr. Wong also explained that the alignment of the printout from the CMP system was 1mm. to 2 mm. off. He emphasized that this had absolutely nothing to do with the machine. This would occur because of the paper. He explained that the paper was cut from a large roll of paper into very small rolls and the paper would shift its position in the rolling process within a range of 1 mm. to 2 mm. which was acceptable in the printing industry. If it was over this range then they would consider the paper to be out of specifications. He also said that in 1997 an option called "INPRINT" was available for purchase to reduce the alignment by + or .5 mm. and he emphasized that if the roll of paper was properly aligned the images printed would be properly aligned even without using this option of "INPRINT".

30. I have no hesitation in believing Mr. Wong and in accepting his evidence. I find that he gave his evidence honestly and truthfully. He was a credible witness.

31. The evidence of Mr. Lam Chi Shing does not assist the defendant's case. He gave evidence that his company Everbest (Far East) Company Ltd. in 1995 entered into business transactions with the defendant for the production and supply of woven labels. When the defendant declared its involvement in the second half of 1995 to go into the label printing business his company did not hesitate in planning to place orders with the defendant as they had previously supplied woven labels with above standard quality. Later on the defendant produced samples of hang tags printed from a digital printing machine for him to see but the colours on the hang tags produced were not that good. His specific complaint about the samples shown to him was that the colour was not solid enough. By that he meant that if a large part of a piece of paper was covered by the same colour, the colour quality was not that good. He did not look at the samples any further to see if there were other defects. He did not place any orders for printed hang tags from the defendant. His evidence does not assist the defendant in showing that the CMP system was defective in the manner alleged. These samples were never produced in evidence. The defendant has failed to establish that the complaint of Mr. Lam Chi Shing that the colour of the samples that he was shown was not solid enough was because of a defect in the CMP system rather than the failure of the defendant's operator of the CMP system to properly operate the same.

32. I am unable to see how the evidence of Mr. Lam Chi Shing assists in establishing that the CMP was defective in the manner as alleged.

33. Where the evidence of Mr. Chan and Mr. Wong is at variance with the evidence of Mr. Lau and Mr. Hung, I prefer the evidence of Mr. Chan and Mr. Wong, which I accept, to that of Mr. Lau and Mr. Hung, which I reject.

34. The defendant did complain after Mr. Chan pressed the defendant for payment in about April or May 1996 about problems in the operation of the machine by the defendant's operators. It was for this reason that apart from the initial training programme given to the operators a re-training programme was also provided.

35. The defendant has failed to establish that the problems that it had were not operation related problems but were in fact problems because of defects in the CMP system.

36. The defendant has in my judgment failed to establish that the CMP was defective as alleged and that it was unmerchantable.

37. I am satisfied that there was an implied condition that the CMP system should be of merchantable quality (S. 16(2) Sale of Goods Ordinance Cap. 26). As to Issue (2), there was in my judgment no implied condition that the CMP system should be fit for the said purpose but there was an implied condition that it should be of merchantable quality. As to issue (3) on the findings that I have made the defendant has failed to establish that the CMP system was unmerchantable.

38. Issue (9) is not an agreed issue and in my judgment does not arise on the pleadings. As I have said, the defendant's case is pleaded in para. 13(a) of the re-re-amended defence and counterclaim where the said purpose is pleaded namely, that the CMP system "should be reasonably fit for the purpose for which the defendant required it, namely for label printing the quality of which is as good as that produced by offset process printing".

39. In any event, the defendant has in my judgment also failed to establish that the CMP system could not be used to print hang tags. I have already made findings that the defects as pleaded and particularised have not been established and the defendant has failed also to establish that the CMP system could not print hang tags for the garment industry.

40. In view of my findings, issues (4), (5), (6) and (7) do not arise and it is not necessary for me to deal with them.

41. It is accepted that the defendant has not paid the balance of the purchase price of HK$3,525,000. In my judgment the plaintiff is entitled to this sum and I give judgment to the plaintiff in the sum of HK$3,525,000. The counterclaim is dismissed. There will be interest on that sum from issue of writ, namely, 25 May 2000 until judgment at 1% above prime rate and thereafter at judgment rate. I also make an order nisi for costs of the action and the counterclaim to be paid by the defendant to the plaintiff. Such costs to be taxed if not agreed.