ELPE INTERNATIONAL (FAR EAST) LIMITED v. HEWLETT PACKARD HONG KONG LIMITED

1990, No. A4154

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The plaintiff is a watch manufacturer specialising in designing and making samples for well-known brand names. The defendant is the local agent and supplier of Hewlett Packard computer systems and softwares, a brand of international fame. These proceedings are brought by the plaintiff against the defendant for damages arising out of a purchase of two sets of HP9000 series 350SRX with ME30 solid modelling software system ("the said system") from the defendant in 1987. The hearing lasted for 5 days, at the end of which I recalled the parties for a further day's hearing for submissions on the question of damages. Though leave was given to the parties to submit further case law on the issue of damages within seven days from 9th December 1992, none was received from any party. I now hand down the reserved judgment.

2. Though very substantial disputes of facts were raised over a wide spectrum in pleadings which had evolved from black to yellow, the case has been sensibly trimmed down to three main issues of law and fact at the trial. In late 1986, Mr Alan Sporn, a director of the plaintiff, was looking for a computer system that can produce a lifelike image of a sample on screen so that photographs of it can be taken for the customers without the necessity of actually making a physical sample. He approached one Tang Siu Ming, a director of Electcom Computer System & Consultants Limited, a "value added retailer" of Hewlett Packard products, for advice on a suitable system. They went to Prime Computers and tried out a corkscrew opener on their "Medusa" software as well as going to Tokyo to try the SPRC system. Both systems were capable of producing a lifelike image of a sample of the corkscrew opener. Then they also tried the same on the said system. But the said system was not capable of producing a lifelike image as it lack the feature called "sculpture surface" (also known as "complex surface"). Ultimately the plaintiff opted for the said system and purchased two sets of the same from the defendant.

3. The plaintiff contended that it purchased the said systems from the defendant which could not provide sculpture surface instead of the other two systems which could provide it because, inter alia, it had purchased Hewlett Packard products before and that the defendant's staff promised that such a feature would be made available to the plaintiff as part of the updating service within six months. It alleges that the purchase was made on the strength of such a promise/warranty but not otherwise. The defendant denies ever making such a promise/warranty. This is the first issue of fact in dispute.

4. Though other problems in respect of the said systems were solved in the course of 1987, sculpture surface feature was never provided by the defendant within the said six months after the purchase, or at all. By a letter dated 2nd May 1988, the plaintiff lodged a complaint with the Chief Executive Officer of Hewlett Packard in USA. That prompted an immediate reaction within the Hewlett Packard group which led to a settlement agreement with the plaintiff on 11th July 1988. It is the defendant's case that the plaintiff is barred, by virtue of the said settlement agreement, from claiming against the defendant in these proceedings. This is the second issue, of mixed law and fact, to be decided. The third, and last, issue relates to the question of damages.

5. On the first issue of the existence or otherwise of a promise/warranty, both parties called two witnesses who were present at the demonstration and negotiations for the sale and purchase of the said systems. Both Mr Sporn and Mr Tang testified for the plaintiff that they had expressly made it known to the defendant that they required the system to produce samples without the need for making an actual sample and thus sculpture surface feature was essential to the system they intended to purchase. Ignatius Kung, of the sales department of the defendant, ultimately conceded, after much persuasion from counsel for the plaintiff, that the said purpose might have been mentioned. Of the four witnesses that gave evidence on whether the promise/warranty for provision of sculpture surface feature within six months was made by the defendant, I am able to accept the evidence of Mr Tang only. The other three witnesses, Mr Sporn for the plaintiff, and Ignatius Kung and Jack Lee (managing director of the defendant) for the defendant impressed me as unreliable and evasive witnesses. Furthermore, they all have self-interests to serve (Ignatius Kung though no longer employed by the defendant is still involved with Hewlett Packard products). I find Mr Tang to be a comparatively more honest and independent witness. I find as fact that the defendant did promise and warrant that sculpture surface feature would be provided to the plaintiff within six months after the purchase of the said systems by the plaintiff. I am satisfied that the plaintiff did make the purchase in reliance on such promise/warranty. It is not disputed that the defendant did not, and is still not in a position to provide sculpture surface feature to the said system. In the premises, the defendant is in breach of the said promise/warranty. As there is no suggestion that there existed any reasonable grounds for a reasonable belief that sculpture surface could have become available within the promised six months or at all, the defendant is also guilty of negligent misrepresentation in making that promise/warranty.

6. On the second issue, the terms of the 11th July 1988 settlement agreement addressed to Mr Sporn c/o MIT provide as follows:-

"1. (The defendant) shall procure free of charge one Gerber System Technology's product for use by Manufacturing Information Technology Ltd. (MIT).

2. (The defendant) shall, jointly with MIT, be responsible for selling one of MIT's existing MP9000 series 350 hardware modeling (sic) software at a price agreeable to MIT, within 3 months starting May 20, 1988. At the expiry of the 3 months period, if no sale has been consummated, (the defendant) shall take back the system at MIT's purchase price.

3. (The defendant) shall send a V.A.R. contract to MIT.

4. (The defendant) shall provide the most recent MP3000 software update to Elpe, Electcom will then be responsible to take over and update the system accordingly.

5. In consideration of (the defendant's) completion of (1) through (4), (Sporn) acknowledge that the issues (he) brought up in (his) letter of May 2, 1988 to Hewlett Packard Company had been fully and satisfactorily settled and (Sporn) hereby agree that (he) shall not, directly or indirectly through any third party, institute, or threaten to institute any legal proceedings, demands, action whatsoever against Hewlett Packard Company, any of its subsidiaries or affiliated companies, or their respective officers, employees, or members in respect of any issue contained in the aforesaid May 2, 1988 letter and any matter incidental thereto."

7. The origin case of the plaintiff on this issue, as pleaded in the Re-Re-Re Amended Statement of Claim, was that the July settlement agreement contained a mistake of fact in that clause (1) should read as "the defendant should procure for the plaintiff free of charge an equivalent product of Gerber System Technology capable of performing the functions as pleaded in paragraph 3 herein for use by MIT until the said perfected "sculptured surface" feature to the defendant's said ME30 software was available" (para.18(i)). And since the Gerber System could not provide the said functions and that no perfected "sculpture surface" was made available to the said remaining system, the plaintiff contended that it is not barred by the said settlement agreement from bringing these proceedings. In the Amended Reply served less than a fortnight before the trial, the plaintiff brought in for the first time a complaint that the defendant has failed to supply the VAR contract as per clause 3 of the settlement agreement. And in the opening by Mr Faulkner for the plaintiff, a further complaint of the lack of a user's licence to use the Gerber System was made for the first time. This new complaint was made after the abandonment by the plaintiff of any reliance on the alleged mistake of fact as pleaded in paragraph 18 of the Re-Re-Re Amended Statement of Claim. Thus, the only grounds relied upon by the plaintiff at the trial to defeat the effects of the said settlement agreement are the two recently added complaints, i.e. no VAR contract or user's licence for the Gerber System were provided by the defendant. Though I was asked by Mr Lewis for the defendant to bear in mind the plaintiff's last minute change of stance, no objection has been raised against such change of stance itself. Neither did the defendant seek leave to amend its pleadings consequential upon such a change.

8. I have to digress here to explain the involvement of MIT in these proceedings. After Mr Sporn conceived the idea of using computers to produce for the plaintiff lifelike images to be photographed without producing a physical sample, he and Mr Tang quickly saw it as an innovative service which might be very profitable in Hong Kong. Very soon they conceived the idea of forming a joint venture to provide such service to local manufacturers. Mr Sporn said they had decided to set up the new company in January 1987 before they went back to discuss the price for the said systems with Jack Lee of the defendant. The order was placed after the idea of forming the joint-venture company was decided on. MIT was then purchased by Mr Sporn and Mr Tang to implement their joint venture. MIT was incorporated on 8th April 1987 under the name of Beechland Limited. The corporate name was changed to MIT on 4th August 1988 after its acquisition by Mr Sporn and Mr Tang. Mr Sporn rented the office at the Harbour City in the name of MIT and for use by MIT. Though the plaintiff was to purchase the said systems from the defendant, it was in fact MIT which would be using the equipment. In his evidence, when Mr Sporn spoke of the purpose for acquisition of the said systems and of leasing the equipment to MIT he definitely gave me the impression that he did not intend to and was not drawing any distinction between the two sets of the said system. However, in a letter dated 1st May 1987, which was prepared by the plaintiff and backdated at the request of its accountant for audit purpose, it was alleged that only one set of the said systems was to be leased to MIT. It set out as a term of "the agreement" that the rental fee would be HK$10,000.00 per month for the said system "which shall include Bureau and Design Service fees from MIT". It is the evidence of both Mr Sporn and Mr Tang that MIT, and not the plaintiff, which was intended to become a value added retailer for Hewlett Packard after the purchase of the said systems. A substantial discount was in fact given to the plaintiff in the price of the said systems as if it were a value added retailer, because of such an intention. In fact, Mr Sporn had already made business cards describing MIT as a VAR of Hewlett Packard. Both sets of the said system were installed at MIT's office. Designers from the plaintiff were trained by Hewlett Packard personals at MIT's office and were to work for MIT, according to Mr Tang's evidence. Mr Sporn said rental fees were in fact paid by MIT to the plaintiff. The customer service agreement as well as the user's licence, for both sets of the said system, were signed by MIT in its own name. In his own evidence, Mr Sporn said "Elpe wanted the machine for other customers in Hong Kong, service to produce samples without making samples for other customers." The complaint letter dated 2nd May 1988, written by Mr Sporn on behalf of the plaintiff to the Hewlett Packard Group in USA, is a rather telling letter. He wrote in this letter :-

"In addition to the above complaints, our company opened a CAD/CAM computer office here in Hong Kong, When we sign the contract with Hewlett Packard Hong Kong Ltd over 18 months ago the sole purpose of this new company (my emphasis) was to sell the Hewlett Packard Model HP9000 series ME30 while using the computer to teach CAD/CAM here in Hong Kong as well as running a bureau service."

"We invested a great deal of money for purchasing two complete systems, opening a nice office, training staff, advertising etc."

"We emphasized that we needed that feature because the entire idea of buying the system was to address the manufacturers and designers in helping them design products (my emphasis) ..."

"As a result, we have severely suffered in selling the HP9000 series 350SRX and the ME30 software. Our bureau service cannot produce the drawings and solid modelling in which we were promised and we have only been able to sell the Gerber Systems."

"A final point that should be made is that our second company, Manufacturing Information Technology Ltd has not received any promised hardware and software support as stated in the Service Agreement. This is basically the same situation as our company with the Model 3000 system."

"As a result of all the above, we are finally disgusted with the false promises of Hewlett Packard concerning the ME30 software, no software support, no promised enhancements etc. Our computer company (my emphasis) has invested heavily and has severely suffered."

"In addition, it is our intention to seek a second cause of action on behalf of our computer company, Manufacturing Information Technology Ltd. for breach of contract, etc."

It is beyond doubt that the letter sets out the true position, and not a trade bluff as Mr Sporn would have me believed. It is therefore not surprising that the defendant addressed all correspondence and invoices (at the latter stage) to MIT and Mr Sporn c/o MIT and not the plaintiff. And the defendant, in its pleadings, also alleged that its dealings were with MIT and not the plaintiff. I am satisfied that though the plaintiff might have provided the funds for the purchase of the said systems (and perhaps also for the joint venture in the form of MIT) and might have been the purchaser of the same in law, it was MIT who was all along intended to be, and was in fact, the user of both sets of the said system. The purpose of the plaintiff in buying the said systems was to lease them to MIT for the implementation of the joint venture of Mr Sporn and Mr Tang. MIT was then to supply such bureau service to the plaintiff in view of the low rental the plaintiff charged it for the said systems ($10,000 as compared with $27,000 per month after MIT was sold to a third party). This is so despite the backdated letter of 1st May 1987 which was created solely for audit purpose as the plaintiff had been receiving rentals from MIT without any form of documentation explaining the same. Furthermore, there is no suggestion that the business of the plaintiff justified the acquisition by itself for its own use two sets of expensive computer systems such as those in question in 1986/1987 at a cost of $2.39 million. The business turnover of the plaintiff shrunk from $50 million in 985/1986 to $27 million in 1986/1987. Mr Sporn said since 1987 the plaintiff had other more pressing problems than the defects in the said systems to deal with. And in fact, not too long after that the plaintiff went into receivership for a short period and did not resume trading thereafter. On the other hand, despite the problems with the said systems, MIT managed to have a turnover of $4.8 million for 1987/1988.

9. Coming back to the second issue, it is not disputed that purchasers of softwares are required to obtain a user's licence from the manufacturer before they can legally enjoy the merchandise. Such user's licences would invariably set out in detail the conditions of use and restrictions in dealing with the copyrighted software. Mr Sporn said he has never seen any user's licence for the Gerber System, nor any VAR agreement being received by MIT. But it is his evidence that he had sold all his interests in MIT in October 1988, i.e. three months after the July settlement agreement, and was not involved with the affairs of that company anymore thereafter. He said he did not even know what MIT did with the Gerber System, though he did try unsuccessfully to sell it after it was returned to the plaintiff by MIT in July 1989. Quite apart from the lack of credibility of Mr Sporn as a witness, his evidence is not helpful on this issue. Mr Tang said he also sold his interests in MIT at the same time as Mr Sporn, though he remained as a director until January 1989. He said MIT had not received any VAR contract, or user's licence for the Gerber System before he left MIT. He further said to his knowledge that is still the position as at the time of trial.

10. When Mr Jack Lee for the defendant attempted to give evidence to establish that two copies of VAR contract had been sent to MIT, such evidence was objected to by Mr Faulkner on the ground that the alleged documents have never been disclosed, nor had such a case been put to Mr Tang when he was giving evidence. After taking instructions, Mr Lewis decided not to lead further evidence about the supply of the VAR agreement to MIT. As regards the user's licence for the Gerber System, the defendant attempted to produce a photocopy of an alleged user's licence purportedly signed by MIT through a Mr John Lee of Schmidt & Co. (H.K.) Ltd, the supplier of the Gerber System, which was objected to by Mr Faulkner as the witness was unable to verify the signatories on that document. The document was admitted de bene esse as D.1 at the suggestion of Mr Lewis who said he will be making further submission to me on the basis of the Evidence Ordinance at a later stage. In the event, no further submission has been made by anyone on D.1, and its admissibility has been left in abeyance. The document does bear a chop of MIT similar to those appearing on other documents which the plaintiff says are authentic MIT documents. I have no reason to doubt the honesty of Mr John Lee when he said the photocopied document was retrieved from Schmidt's files. Had the plaintiff raised the issue of the failure to provide a user's licence earlier than the first day of trial, the defendant would have been able to comply with all necessary procedural rules, as well as prepare properly, for the production of this document. I am satisfied that justice requires this document to be admitted as evidence and I do so admit it. In the premises, I find no substance in the plaintiff's allegation that the defendant had failed to procure a user's licence to MIT for the Gerber System to enable it to be lawfully used by MIT. I accept and find as a fact that the defendant had duly complied with this implied requirement of the July settlement agreement.

11. On the other complaint of a failure to provide a VAR contract to MIT. Mr Jack Lee was interrupted from giving further evidence about the issue after saying that the day following the execution of the July settlement agreement he had instructed his subordinates to "commit things (that) need to be done", including signing the VAR agreement. There is no further evidence from the defendant to rebut the plaintiff's case. However, there is an inexplicable absence of complaint against such a failure from the plaintiff or MIT until 2 weeks before the trial when the plaintiff amended its Reply to change its case on the alleged breach of the July settlement agreement by the defendant. The plaintiff has abandoned totally its allegation that it was a term of the agreement that the Gerber System was to be a temporary loan pending the availability of the sculpture surface feature to the remaining system. It is obvious that such a plea is totally incapable of being maintained in the face of Mr Sporn's letter of 6th June 1988 when he clearly complained to the plaintiff that the agreement was for the Gerber System to replace the ME30 and not as a temporary loan. Thus, its original case that the Gerber System still failed to provide the sculpture surface ceased to be relevant to this issue anymore. However, not only was all of the plaintiff's past complaints against the July settlement agreement centered on this alleged failure of the Gerber System, that was the plaintiff's only complaint in its solicitor's letter dated 28th February 1990. Neither were the newly alleged complaints spelt out in the letters in April and May 1990 from Mr Sporn to the defendant's American head office when he drew their attention to the adverse effect on their reputation if the matter goes to court. This conspicuous absence of complaint against the absence of a VAR contract (as well as the user's licence) is totally out of character with Mr Sporn in view of the way he pestered the defendant, the defendant's American head office, and even taking the matter to Standard Chartered Finance. He does not appear to me to be the sort of person who would allow such a good ground of complaint to be left unexploited, especially at a later stage after the plaintiff had ceased business and the only activity being carried on was to pursue the present claim. No one was called from MIT, nor was any document from MIT adduced to prove no such VAR contract for the user's licence) has ever been supplied by the defendant after the departure of Mr Sporn and Mr Tang from MIT. The evidence from Mr Sporn and Mr Tang on this issue is at best hearsay. Mr Sporn is not a witness I can place any reliance on. Mr Tang only said he knew no VAR agreement was received by MIT by January 1989 i.e. six months after the July settlement agreement. He had since migrated to and lives in Canada, and had come back to Hong Kong to give evidence. No basis of his alleged belief or knowledge of the situation in MIT after he had left it has been explained to me. The plaintiff has never put its case on the basis of a failure to supply the VAR contract within a reasonable time after the July settlement agreement and that the defendant had contracted to do so. It is put on the basis of a complete and total failure. Thus, Mr Tang's evidence that the VAR contract was not supplied before he left MIT, which he might have personal knowledge of, cannot be decisive of the issue in respect of events occurring thereafter. Furthermore, he did support the unsupportable allegation of the plaintiff that the Gerber System was a loan and not a permanent replacement (which the plaintiff had already abandoned). Mr Sporn clearly accepted the payment of $789,699.44 as a full and final settlement in respect of the returned set in his letter to the defendant dated 12th August 1988 which is almost one month after the delivery of the Gerber System to MIT (receipt of which was acknowledged on 14th July 1988). It would be totally out of character for a person like Mr Sporn to accept it as such if there had been any non-compliance by the defendant of any term of the July settlement agreement, and if the waiver was ever intended or agreed to be conditional upon full compliance of all terms. Mr Sporn was most anxious to ensure due performance of the July settlement agreement by the defendant as evident by his letters of 27th July 1988 and 12th August 1988. He demanded payment of the said sum as per the time agreed in clause 2. I would not expect him to remain silent about the alleged breaches as regards the VAR contract and the user's licence until shortly before the trial if there is any truth in it. On the other hand, the defendant was under considerable pressure from the American head office to resolve the matter urgently as a result of Mr Sporn's complaint. The regional head, a Mr Bickell who was a vice president of the Hewlett Packard group and the managing director of intercontinental operations, took charge of the complaint immediately, and dealt personally with Mr Sporn by letter dated eight days after Mr Sporn's letter of 2nd May 1988. The defendant acted quickly and agreed to provide free of charge to the defendant an expensive software at double the cost of the ME30, as well as taking back the other one with payment of full compensation (including loss of interest even) to the plaintiff. It is obvious that the Hewlett Packard group, and consequently the defendant, had regarded the matter as one of great concern, which was required to be resolved without delay or any damage to their reputation. It is thus totally inconceivable that the defendant, after all that urgent efforts to resolve the plaintiff's complaints, would either deliberately or be so careless as not to send over a VAR contract to MIT. Afterall, the defendant stands to lose nothing by appointing one more agent to promote their products. After giving all due consideration and careful thoughts to the feeble evidence called by the plaintiff against other evidence and the surrounding circumstances, I am satisfied that the defendant has not been guilty of a failure to provide the VAR contract to MIT as alleged by the plaintiff. It is more likely then not that the said complaints in issue, both of them, were mere last minute desperate efforts by the plaintiff to preserve its ability to continue these proceedings against the defendant. As a result, the plaintiff is estopped from maintaining these proceedings against the defendant by reason of the July settlement agreement which had finally and fully settled all claims arising from the purchase of the said systems from the defendant.

12. I am also convinced that the plaintiff had entered into the July settlement agreement, not with an intention to attempt to mitigate loss or to salvage what it can of the situation, but was the result of a conscious choice to keep the remaining set of the said system with an extra free Gerber System. The plaintiff has abandoned any claim that it was still trying to get sculpture surface from the defendant after the July settlement agreement. In view of the contents of Mr Sporn's letter of 6th June 1988, I reject any oral testimony (in particular Mr Tang's) that the plaintiff intended or required the provision of sculpture surface feature from the defendant after it was provided with the extra free Gerber System. There is no evidence that the plaintiff was under any illusion that the Gerber System could provide sculpture surface, nor that the plaintiff was again misled by the defendant that it could. Thus, it is abundantly clear, on the plaintiff's case as it now stands, that the plaintiff was happy to keep the remaining set of the said system with an extra free Gerber System though no sculpture surface could be achieved. It would be wrong and totally inequitable to allow the plaintiff to resile from its former conducts, and to claim a total loss. Whatever wrong the defendant had committed in selling the said systems to the plaintiff had been waived by the plaintiff by its aforesaid conducts, and the plaintiff is estopped from claiming a total loss as alleged. It is to be noted that the defendant has pleaded a very general waiver and estopped on the basis of the July settlement agreement. There is no need for the defendant to specifically rely on clause 5 of the July settlement agreement in order to raise successfully a plea of extinction of the cause of action. The whole purport of the negotiations, Mr Sporn's said letter of 6th June 1988 and the settlement clearly supported an intention of an unconditional waiver (particularly in the absence of any express saving provision preserving a right to sue on the original cause of action upon a breach of the July settlement agreement). A breach of the July settlement agreement would merely give rise to a cause of action on that agreement itself for entirely different kind of damages. I am unable to read clause 5 to contain any intention or meaning that any such right to sue could be revived upon a breach of that settlement agreement as Mr Faulkner suggests. It says that "in consideration of our completion of (1) through (4)" and not "upon", "conditional upon", or "provided". It is a description of the reason for the acknowledgment of a full and final settlement, and not a condition for any waiver. It then further went on to set out the agreement of the plaintiff not to sue either by itself or indirectly etc. As the agreement was drafted by the defendant, the purpose and intent of clause 5 is presumably to protect the defendant, and was not inserted for the benefit of the plaintiff. This becomes more obvious when one considers the choice of words used as analysed above. In the premises, even if there had been breaches of the July settlement agreement as alleged by the plaintiff, I am still satisfied that the consequence of that is a separate cause of action on such breach and not a revival of the cause of action for the promise/warranty made in respect of the said systems.

13. However. I will also deal with the third issue. The plaintiff contends that the damage suffered by the plaintiff as a result of the defendant's wrongful acts is the total cost paid by the plaintiff for the two sets of the said system less the rentals it received from MIT. The defendant contends that the plaintiff did not suffer the damages as pleaded. It is submitted that the plaintiff has not claimed for loss of profits, but has claimed on the basis that the said systems were a total loss to the plaintiff as it cannot be used by the plaintiff for the intended purpose of enabling photographs to be taken of a sample product without the need to produce a physical sample of it. It has been contended that as the evidence shows that the said system was in fact put to use by the plaintiff, as distinct from MIT's inability to use it to provide the intended bureau service, i.e. being leased to MIT, there can be no damage on the basis as pleaded.

14. Heavy reliance has been placed upon Mackenzie Patten & Co. v. British Olivetti Ltd. 48 MLR 344, by the plaintiffs. In that case a firm of solicitors purchased an office computer from the defendant to put their accounts in order. The solicitors firm was in deep trouble as the 62 year old retired zoo telephonist they employed was unable to keep any accounts, and neither did the two solicitors of the firm have time to do the accounts themselves. They were in urgent need of a machine to put right the position. As in the present case the court found the defendant's salesman, having sold an obsolescent and out of date machine to the plaintiffs, was guilty of breach of warranty, misrepresentation and negligence. The plaintiffs were awarded all sums they paid for the hire-purchase of the Machine as it was held that they had not been guilty of a failure to mitigate loss when the machine was returned to the defendant and resold by it at a very low price. The defendant contended that the plaintiffs' calculation was misconceived as it was made as if recession and restitution was sought, and that the plaintiffs should have kept the machine, made the best use of it and claimed the difference in value. That plea was rejected by the court. Factually, the said case is distinguishable from the present in that for the solicitors in that case the machine was not only unsuitable for their needs, it was totally useless to them as the defendant was not in a position to provide the necessary training and help for their aged employee as promised. It could not be used at all by those plaintiffs for any purpose 1et alone the intended purpose. Furthermore, the defendant in that case had collected back the machine from the plaintiffs and resold it.

15. I have already found as a fact that the intention of the plaintiff in the acquisition of the said systems was to operate the innovative bureau service of MIT, which would in turn provide back the intended service to the plaintiff; MIT being the joint venture of Mr Sporn and Mr Tang (though a third minor shareholder of unknown role does appear on the register of shareholders). The said systems were in fact so leased, not only at a time when Mr Sporn and Mr Tang operated MIT but also after they had sold their interests to third parties. I will have more to say later on about the lease agreement to MIT after the retirement of Mr Sporn and Mr Tang. Rentals were received by the plaintiff without any problem despite the defects and inadequacies of the said systems. What the plaintiff suffered was the inability of MIT to provide back the intended bureau service to it.

16. The post-dated letter of 2nd May 1987 evidencing the rental of one set of the said system to MIT did not spell out the period of the lease. The evidence confirms that both sets of the said system were delivered directly to MIT's office and remained there throughout, being used by them until the July settlement agreement in 1988. Pursuant to paragraph 2 of the July settlement agreement one set of the said system was returned to the defendant when the plaintiff was fully reimbursed and compensated for the full cost, including not only the price but also 15 months' interest on the down payment and the interest portion of the 15 installments paid to the finance company under the hire-purchase as well as loss of interest on the said 15 installments. In other words, the plaintiff was fully compensated for all possible sufferings that could have arisen out of the purchase of the returned set of the said system, save loss of profits which it is not claiming in these proceedings. I am unable to see what other damage it could maintain to have suffered in respect thereof apart from loss of profits which is not being claimed. It is worthwhile to note again that Mr Sporn had stated the payment of $789,699.44 in respect of the returned set of the said system was a "full and final settlement" in his said letter to the defendant.

17. In respect of the remaining set of the said system, since the July settlement agreement a set of Gerber System was supplied free of charge to MIT by the defendant. The Gerber System and the remaining set of the said system continued to remain on MIT's premises until they were returned to the plaintiff in July 1989. By a lease agreement dated 14th October 1988, when Mr Sporn and Mr Tang sold their interests in MIT, the remaining set of the said system as well as the Gerber System (and other office equipment) were leased by the plaintiff to MIT at an increased rental of $27,000 per month with elaborate terms of agreement giving an option to purchase to MIT at an agreed price. If MIT failed to exercise the option and the plaintiff was able to sell to others at a higher price, the plaintiff was to pay over the excess to MIT. I am convinced the plaintiff had, by entering into the July settlement agreement and the said lease agreement with the "new" MIT, committed itself to a stance, and had embarked upon a path, that is totally inconsistent with its present claim against the defendant on the basis of a total loss. Though in the event MIT did refuse to purchase the remaining set of the said system from the plaintiff whilst saying it will try to sell it for the plaintiff. And further, the defendant had in fact frustrated an attempted sale by the plaintiff of the said remaining set by alleging to a potential purchaser by fax dated 28th August 1990 that the copy of ME30 the defendant possessed was an illegal copy.

18. The plaintiff has not claimed nor pleaded a recission of the contract of sale. Nor could the plaintiff now claim it has the right to rescind in view of the lapse of time as well as its entering into the July settlement agreement and the lease agreement with the "new" MIT. Apart from relying on the Mackenzie Patten & Co. case which deals with a different factual situation, I have not been satisfactorily explained why the plaintiff should be entitled to treat the case as if one of total loss (save the rentals received) and recission. The intention throughout was to lease the said systems to MIT, and subsequently to the "new" MIT, which the plaintiff did. MIT had made no claim against the plaintiff, nor is it a party to these proceedings. Mr Faulkner agrees with me that if a purchaser bought a sports car, with an express request that the top speed it can reach should be 120 mph, with an intention to hire it out. And, though the sports car fails to live up to a warranty to that effect, the purchaser is able to gain normal hires for it by hiring it out without any complaint by its hirers. The damages the purchaser could recover would only be nominal damages as the sports car in fact serves the purpose for which it was purchased though it could not provide the feature warranted. In any event, it can be nowhere near a total refund of the purchase price. I am unable to agree that the plaintiff is entitled to claim a full refund of all hires and other charges paid to the finance company as well as interests thereon as if both of the said systems were a total loss to it. Furthermore, it appears that the plaintiff had settled with the finance company by paying full hire charges for the whole hiring period without taking into account the element of accelerated payment, and without applying "the rule of 78".

Neither did the plaintiff pay off the finance company earlier in respect of the returned set of the said system though it had already received full compensation from the plaintiff in 1988.

19. For the reasons given above, the plaintiff's claims are dismissed in its entirety. There will be an order nisi for costs of the action to the defendant.