SECRETARY FOR JUSTICE v. LEE KIN CHUN t/a LEE CHAI MOTOR SPARE PARTS
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DCCJ3647/2001
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO.3647OF 2001
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BETWEEN
| SECRETARY FOR JUSTICE | Plaintiff | |
| and | ||
| LEE KIN CHUN trading as LEE CHAI MOTOR SPARE PARTS | Defendant |
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Before:Her HonourDistrict Judge Marlene Ng in Court
Dates of Hearing:19th, 20th and 23rd August, 8th and 9th September, 2004
Date ofHanding DownJudgment: 24th December, 2004
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JUDGMENT
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Introduction
1. On/about 25th October 1996, Lee Kin Chuntrading as Lee Chai Motor Spare Parts(“D”)entered into a contract with the Government of Hong Kong (“P”) to purchase unserviceableex-government vehicles (“UGV”)under the categories listed in columns A-D of Schedule II hereto (“Schedule II”) within a 12-month period commencing on 1st November 1996 at an estimated total price of HK$1,034,900.00 (columns E-F of Schedule II)(“Contract”). D paid HK$20,000.00 as deposit to P (“Deposit”).
Contract
2. Contract wascontained in and/or evidenced bythe following:
(a) Form of Tender (“Tender Form”) signed by D forming part of “Tender for the Purchase of Articles Or Materials from the Hong Kong Government” (“Tender”);
(b) Terms of Tender being Part I of Tender;
(c) Conditions of Sale (“Conditions”) being Part II of Tender;
(d) Special Conditions of Sale (“Special Conditions”) beingPart IIIof Tender;
(e) Notes for Tenderers which formed part of Tender and Contract (“Notes”);
(f) letter of acceptance (“Acceptance”) dated 25th October 1996 issued by the Government Supplies Department (“GSD”) to Dby fax and registered post.
3. Conditions provided inter alia as follows :
“ 2. Description The description given of the goods in the Schedule has been given by way of identification thereof only and the use of such description shall not constitute this Contract a sale by description. …… 6. Default in Payment If the Contractor shall made default in any payment, …… the Government Representative shall be at liberty to resell or dispose of the goods as he may think proper without giving prior notice to the Contractor. Any deficiency arising from such sale or attempted sale shall be made good and paid by the Contractor. …… 11. Recovery of Sum Due Whenever under this contract any sum of money shall be recoverable from or payable by the Contractor, the same may be deducted …… from any deposit which the Contractor has paid in connection with this …… contract.”
4. Special Conditions provided inter alia as follows :
“ (2) Estimated Quantity The total quantity specified in Tender Schedule and Appendix “A” is an estimate given for the guidance and assistance of Tenderers only, and the Government can in no way guarantee that it is an actual figure. The actual quantity available for sale may be more or less than the estimate stated and the Contractor must be prepared to accept any increase or decrease of 20% of the stated estimate. (3) Collection and Removal…… (b) The Contractor must effect collection and removal of the unserviceable vehicles in any such quantity as may be available each time during the contractual period within 7 working days from the date of payment against each Demand Note issued by the Director of Electrical and Mechanical Servicesafter the award of this Contract.…… (5) Payment (a) Payment for the purchase of unserviceable vehicles must be settled by the successful Tenderer within 7 working days from the date of each Demand Note issued by the Director of Electrical &Mechanical Services after the award of this Contract; failing this, Clause 6 ‘Default in Payment’ of the Conditions of Sale …… shall apply. (b) The Contractor shall not effect removal/collection of any unserviceable vehicle under this Contract until payment for the purchase is made. …… (8) VehicleRegistration (a) The Contractor acknowledges that motor vehicles are sold as is and with no warranty that they comply in any respects with the provisions of any enactment relating to the construction and use of vehicles. TheContractor further acknowledges that the vehicles are phased out ex-government vehicles and these vehicles may not be registered or licensed for use in Hong Kong …… unless the vehicles (for Items 1 – 13 and 17 – 24 only in the Tender Schedule) conform to [various statutory requirements]. ……”
5. Appendix A ofTender/Contract titled “Estimated Quantity of Vehicles Condemned as Unserviceable in the next 12 months commencing 1.11.96 to 31.10.97” (“Appendix A”) set out 24categoriesof UGV with the type, make and modelforeach categoryexcept forcategories23 and 24whichwere unserviceable for reasons beyondP’scontrol. D made an offer for 23 categoriesby Appendix B/Tender Schedule (“Appendix B”)and wassuccessful in hisbidfor 9 categoriesas listed in columns A, E and F of Schedule II. By Acceptance (which constituted a binding contract),P accepted D’s offerforsuch 9 categoriesof UGV.GSD sent copy Contract to D under cover of its letter dated1st November 1996viaregistered post.
6. Clause 3 ofTender Formand clause 1 of Conditionsprovided inter alia that D acknowledged he had examined orhadbeen givenreasonable opportunity to examineUGVsold under Contract. However, Notes provided inter alia as follows :
“ (7) Inspection The vehicles to be sold under this Contract will not be available for inspection. However, a list of the vehicles which may be available for sale is shown on Page 11 (Appendix A) for reference of the Tenderers. (8) Condition of Unserviceable Vehicles for Sale Unserviceable vehicles available for sale under this tender may be completed with or without major components. Unserviceable vehicles are offered to Tenderers as they stand.”
7. At the time when Tender was issued, P did not knowwhatspecificUGVwould be included in Contract. D was therefore not given any opportunity to examinesuchUGV, includingitems 1-41 of Schedule I hereto(“Schedule I”)(“Disputed Vehicles”),prior to entering into Contract.
P’s claim
8. From time to time, D paid for and collected UGV sold under Contract. Pclaimed itsoldDisputedVehicles to D under Contract andthe Electrical and Mechanical Services Department (“EMSD”)issued demand notes forthem in the sum ofHK$718,060.00aslisted in columnFof Schedule I (“Demand Notes”). D failed/refusedto settle Demand Notesand/orcollectDisputedVehicles.P resoldDisputedVehicles by public auction on 21st August1997 (“1st Auction”) and4th and 25th September 1997 (collectively, “Auctions”) for a total sum of HK$188,100.00. Pthereforeclaimedagainst D forHK$509,960.00 being the difference betweencontractprice ofDisputedVehicles lessresaleproceeds and Deposit.
D’s defence
9. Dclaimedthat(a)3 refuse collection vehicles (“RCV”)out of items 1-21of Schedule I(“Part A”)failed to correspond to contract description as they were “without engine” and (b)P was in breach of an implied termof Contractthat D should have a reasonable opportunity to examineDisputed Vehicles to decide whether to accept themagainst theircontractdescription.ThereforeD was entitled to rejectDisputed Vehicles under Part A (“Part A Vehicles”). As Contract was an entire one,Dwasalso entitled to reject Disputed Vehicles foritems 22-41 of Schedule I (“Part B”)(“Part B Vehicles”).
10. It was not disputed that EMSD issued Demand Notes to D’s address by ordinary post. But D argued P was in breach of the term/conditionimpliedbylawthatDemandNotesshouldbe sentby registered post.
11. D’s case was that hewas not required to payDemand Notesuntil he received them.Hedenied receipt of Demand Notes for items 26-41 of Schedule I.In respect of the demand noteforitems 22-25 of Schedule I(“Old Demand Note”)in the sum of HK$111,480.00, D had requested P to replaceit with a new demand note in the correctamount of HK$93,180.00.Dnever received such revised demand note,sohe wasnot liable topayP forthe said items.In the circumstances, D was not liable to pay for Demand Notes under Part B (“Part B Demand Notes”).
12. There was no dispute that Disputed Vehicles were resold forthe prices set out in columnGof Schedule Itotalling HK$188,100.00. But D argued that P failed to mitigate lossin that the resale price of Disputed Vehicles was more than 70% less than the contract price.
13. Although D denied receipt of GSD’s/EMSD’s demand letters,Mr Sooinformed the court that D would not challenge (a) the issuance of such demand letters by GSD/EMSD to Dand(b) D’s address and fax numbers stated therein.However, when D gave evidence, it appeared that he claimed that D’s Fax Number (see below) was his friend’s and not his and that he did not give D’s New Fax Number (see below) to P.
Issues
14. The following are the issues in the present case :
(a) whetherthe contractdescriptionforcategory 16 of Appendix A (“Category 16”) was RCV “with engine” and if so, whether such description meantRCV fitted withcompleteengine inside the engine bracket;
(b) if so,whether 3RCVof Part AVehicleswere not “with engine” as described above;
(c) whether the obligations under Contract were entire or severable;
(d) whether D was entitled to rejectPart A and/or Part BVehicles;
(e) whether it wasanimplied term of Contract that Demand Notesmust besent by registered post;
(f) whether it was a condition precedent to D’s liability to pay Demand Notes that he should receive them;
(g) whether D received Part B Demand Notes;
(h) whether the condition ofDisputedVehicles put up for Auctions was materially different from before;
(i) whether P failed to mitigate loss on the resale ofDisputedVehicles to D by Auctions;
(j) if D is found to be liable to P, whatis the applicable rate of interest on damages payable to P.
P’s case
(1) Identification of UGV for Contract
15. After P and D entered into Contract, government vehiclesfalling within the relevant categories and condemned asunserviceable were ascertained and sold to P under Contract.
16. Whengovernment vehiclesbecame unserviceable, they would be condemned and disposed of. EMSD would issue aGF233 formcalled“List of Materials for Condemnation as Unserviceable”(“GF233”)attachinga list of UGV to be condemned (“Vehicle List”). Vehicle List set outinter aliaUGV’sengine number or GF277 (see below) reference if there was no engine. It also gave thereasonsfor condemnation(egbeyond economic repair(BER),board of survey inspection(BOS)or accident investigation report (AIR)).
17. SometimesEMSD’s Sung Wong Toi Workshop (“SWT Workshop”)would remove UGV’s engine before condemnation.In such case,SWT Workshopwouldissue a GF277 form called “Allocated Combined Requisition & Issue Voucher (“GF277”)for such purpose.Upon condemnation of such UGV (with engine removed), GF277 would be attached to GF233 and the GF277 reference would be stated in Vehicle List.GF277 forDisputedVehicles listed in items 19-21, 28-29 and 33-36 of Schedule I showed their engines had been removed.Although some minor vehicle parts(not main components such as gearbox or rear axle) mightberemoved fromUGVwithout filling any form, no vehicle parts would be removed after submission ofGF233even ifGF277 were received.
18. If UGV had its engine removed for investigation and repairs but was eventually condemned by reason of being beyond economic repair,the practice wasnot to re-install the engine but leave itatthe back ofUGVwhere itwould remain when such UGV was towed toSai Tso Wan Vehicle Pound in Kwun Tong (“STW Pound”). SuchUGVwould be regarded as “with engine”.
19. There was another use for GF277. When contractors/buyers came to collect purchased UGV from STW Pound, they would have to signGF277 in triplicateto acknowledge receipt of the collected UGV. STWPound wouldthensendtheduplicate copyGF277to Mr Cheung Sun Biu (“Cheung”), EMSD’s Supplies Officer (Electrical & Mechanical) Administration, for record.
(2) Inspection ofRCV underPart A
20. Mr Chan Fat Sing (“FS Chan”), Mechanical Inspector (MI/PS) of EMSD’s Caroline Hill Hong Kong Vehicle Workshop (“CH Workshop”),inspected RCVforitem 1 of Schedule 1and found itcomplete with engine. He could not remember whether the engine wasinthe engine bracket or placed at the back of RCV. Hecheckedsuch RCV’sengine numberagainst its vehicle registration record (“VHR”)and recorded the engine number onVehicle Listasattached to GF233.
21. Mr Ko Ying (“Ko”), Works Supervisor IatSTW Pound, inspected UGVforitems 2-41 of Schedule I.After checking his inspection results against SWT Workshop’s computer database, heprepared GF233 and Vehicle Lists. GF233/Vehicle Listswere then passed to Mr Leung Yau Chuen (“Leung”), EMSD’s Assistant Mechanical Inspector, whotheninspected the relevant UGV.
22. In respect of Part A Vehicles,Ko and Leungfound(a) 2 RCV (items 9 and 10 of Schedule I) with complete engine (ie cylinder block, centre/cylinder head and lubricating oil sump)removed from the engine bracket andplaced at the back and (b) 1 RCV (item 13 of Schedule I) withcylinder block and lubricating oil sumpfound in theengine bracketandthe centre/cylinderhead in the driver’s cab(according to Ko) or at the back (according to Leung).Vehicle List stated that these 3 RCV werecondemned for BER reason.
23. After Leung/board of condemnation signed GF233, GF233 with Vehicle Listsand GF277 (forUGVwithoutengine)were sent to Cheung. There was no GF277 for the aforesaid 3 RCV.Asrequired under P’s Stores Regulations, Cheung inspectedUGVtoverify Vehicle Lists in orderto properly classify UGVunder Contract.If Vehicle Listssaid UGV had engine, he would check if the engine was therebut not the engine number. If Vehicle Listssaid UGV had no engine, he would not checkat allbecausea contractor would hardlycomplainabout an extra engine.Cheung did not have any record of inspection,buthe confirmed hefoundRCV for items 2-16 of Schedule I (including the aforesaid3 RCV)withengine.This was compatible with there being no GF277 for such RCV.
(3)Demand Notes
24. Cheung forwardedGF233in triplicate to GSD’s general registry for signature by itsresponsible staff.GSD retained a copy of GF233 and returned 2 copiesto EMSD. CheungthenpassedGF233 to EMSD’sAccounting Services Unit(“ASU”)to issueDemand Notesto D with copies toCheung. Cheung forwardedcopiesof Demand Notesto Leung.
25. When EMSD found out thatthe amount of HK$111,480.00 in OldDemandNote should be HK$93,180.00, Cheung telephoned D’s number andspoke to a female on 25th April 1997to say thata replacementDemand Notewould besentin afewdays.Old Demand Notewas returnedon 30th April 1997and was cancelled byASU. A replacement Demand NoteforHK$93,180.00issued to Don/about 1st May 1997.
(4) GF277 (for collection of Disputed Vehicles)
26. When Leung receivedcopy Demand Notes,heasked Ko to prepare in advanceaGF277 for each Disputed Vehicle for use whenthe contractor came to collectsuch vehicles. Ko wrotedown the engine number (if any),the contractor’s nameand the relevant Demand Notenumberin each GF277.
(5)D’s enquiry on3 RCV on7th May 1997
27. On/about 7th May 1997, D attended STW Pound’s office and asked Ko why 3 RCV were considered to be with engine. Ko repliedthe 3 RCV “…… havecylinder blocks, and are therefore not classified in the category of vehicles without engine”.Dthenleft the officeand continued with his owninspection.
28. Leung shared Ko’s view,which wasalsoreflective of STW Pound’s stance.Leung/Ko confirmed UGV would still be regarded as“with engine”whether the enginewasin the engine bracket or at the back ofUGV. Contract only referred to “unserviceable vehicles” without specifying whether they were operable or whether the engine was workable or intact.
(6)Did D complain aboutDisputedVehicles?
29. D had previouslycollected UGVunder Contract from STW Poundwithout complaint. On 7th May 1997 Cheung wrote to D urging D to collect 11 UGV (not Disputed Vehicles) under Contract (“7/5/97 Letter”). D subsequently collected such UGV and Cheung took no further action.Further, the attachments to EMSD’s memo to GSD dated 5th August 1997 revealed that D had previously collected 5 RCV. D made no complaint in respect of these UGV or RCV.
30. It was P’s case that D never complained aboutDisputedVehicles. STWPoundhad no record ofcomplaint from D or of any referral of D’s complaint from other government departments. D also did not complain to FS Chan,Ko,Leung,Cheungor EMSD. Had there been any complaint,action would have been taken to handle thesame.
31. Kodid not consider D’saforesaidenquiry on 7th May 1997a complaint orarequest to resolve a problem.Ko further denied D had requested him to inspect Part A Vehicles together or asked him whether theengine was complete.Had D done so,Ko would have givenhiman explanation, accompanied him to examine Part A Vehicles and reported to Leung.If they had received complaint from D,Leung would haveconsultedhis superiorand Cheung wouldhave liaised with STW Pound toresolve the problem.No such action was taken because there was no complaint.
32. If D had madea complaint and EMSD wasable to resolve the problem after investigation or D acceptedEMSD’sconclusion,EMSD would not informMadam Chan Suk Fun (“Chan”), Senior Supplies Officer (Group B) of GSD’s procurement division and GSD’s officer in charge of Contract. If the problem could not be resolved, EMSD would inform Chan to take action.
33. Chan deniedreceiving any notice of complaint from EMSD or any direct complaint fromD. IfDhadcomplained to her, shewould havemade a record of such complaint andaskedD for more details to facilitateinvestigation. After investigation, she would inform Dof the investigation resultsin writing.
(7) D’s default and P’s follow-up action
34. D failed to pay Demand Notes and/or collectDisputedVehicles. Up to August 1997,P sentthe following letters to D :
(a) Following the usual practice for the relevantgovernmentdepartment to issueaninitial demand letter without prior noticeto GSD, Cheung by a letter dated26th May 1997 (copied to GSD) urged D tointer aliaremove 23 Vehicles(items 1-16 and 19-25 of Schedule I)within 10 days(“1stLetter”).
Chan and Cheung denied that the handwritten “26”of the date of 1st Lettershowed Cheung was waiting for the results of Chan’s meeting with D (see below) before issuing such letter. Chanexplainedit was usualgovernmentpractice to insert the date by hand whenletterswere signed.
Chan deniedthat GSD/shetelephonedD on/about26th May 1997 to ask him to come to GSD’s office for a meetingor that she metD at all. Normally a written invitation would beissuedforsuchmeetingfollowed bytelephoneconfirmation of theappointment. There was no record of such invitationorof anyminutes of meeting withD. Further, it wasnotChan’s practice(as D alleged)to attend meetings with contractors on her own without her supervisor.
(b) Pursuant to D’s continued default,Cheung requested GSD to take action. By a letter dated 26th June 1997 sent by registered post and faxedto D’sfax number stated in Appendix B (“D’s Fax Number”), Chan demanded D to pay Demand Notes and collectDisputedVehicles referred to in 1st Letter (“2nd Letter”).
(c) By a letter dated 7th July 1997 to D(copied to GSD), CheungpointedoutD’s failure to collectDisputed Vehicles foritems 26-29 of Schedule I and asked D to remove suchDisputedVehicles within 10 days(“3rdLetter”).樊玉群collected 3rd Letterfromthe post office on 14th July 1997.
(d) On/about 23rd July 1997, Cheung asked his colleague Madam Lin Oi Ki (“Lin”) to find out why D failed to settle Demand Notes.Lin telephoned Don/about 23rd and 25th July 1997. D told Lin hereceivedsomeDemand Notes(including the most recent onedated 18th July 1997for3 RCVfor items 39-41 of Schedule I)but heneededto check whetherhadhe received all. Linpromised tosend him a list of outstanding Demand Notes with details ofDisputedVehicles.WhenLin askedDwhyhehad not paid fororcollectedDisputedVehicles,heexplained he had difficulties in resellingthembut promised tomake payment andinspect them at or collect them from STW Pound.
Lin enclosed a list (not copies) of Demand Notes(“Demand Notes List”)under cover ofherChinese letter dated 23rdJuly 1997 (“4thLetter”)andherEnglish letter dated 25th July 1997(“5thLetter”)to D.Theseletters stated that after D/Lindiscussed thematter, D informed Lin hewould settleDemandNotes and collectDisputed Vehicles as soon as practicable.Theletters werefaxed on 25th July 1997 toa newfax number whichDgavetoLin during the telephone conversations (“D’s New Fax Number”).
(e) Lin sent a further demand letterto Ddated 4th August1997againenclosingDemand NotesList(“6thLetter”)by fax toD’sFax Number (with fax transmission report) and by registered post (with certificate of posting).
(f) Due to D’s continued default, EMSD requested GSD to take action. By a letter dated 7th August 1997 to D, Chanrequired D to remove Disputed Vehicles by14th August 1997(“7thLetter”). Thisletter was sent by faxto D’s Fax Number(withfax transmission report) and by registered post (withcertificate of posting). Itwas collected from the post office by樊玉群on 19th August 1997.
(8) AuctionsofDisputedVehicles
35. As Dstillfailed to collectDisputedVehicles, Chan requested Madam Mo Wai Ying (“Mo”), who was attached to GSD’s Storage and Distribution Section, to arrange for their resale by public auction.Normally, valuation would bedonetodetermine the reserve price before auction, but it was not compulsory to inspectUGVbefore auction.Mo could not remember whetherDisputedVehicles wereinspected prior to Auctions.
36. GSD informed the auctioneerthe reserve priceof Disputed Vehicles(eg HK$7,100.00 for each RCV).Mo did not have GF233 and was unaware of Contract; otherwiseshe might haveusedthe contract price as reference. GSD prepared the auction lists(available from auctioneer’s office) andpublishednotices ofauction in English/Chinese newspapers prior to each Auction.
37. Leung denied that vehicle parts were removed from Part A Vehicles prior to Auctions. Ko said that STW Pound would not havevehicle parts lying around as it was not a workshop.Although any buyer could inspectUGVon confirmation of identity,EMSD had no record of D or his representatives inspecting Part A Vehicles before Auctions.
38. Except for items 19, 29 and 33-35 of Schedule I,D purchased Disputed Vehicles(including all RCVunder Part A) at Auctions in his personal nameatthe pricesset outin columnGof Schedule I.
39. Between August and October 1997, D’s representatives collectedDisputed Vehicles which D purchased under Auctionsfrom STW Poundon production of the auctioneer’sRelease Notes.In accordance with standard procedure,Ko’s assistant, senior artisanMr Lee Hoi Fat (“Lee”),accompaniedD’s representativesto check the condition of such DisputedVehicles before release.So at the time of collection of such Disputed Vehicles,D’s representatives clearlyknewwhether they were “with”or“without”engine.
40. D’s representatives signed GF277(previouslyprepared by Ko)to acknowledgethe condition of Disputed Vehicles collected by them. Assuch DisputedVehicles were ultimatelyresoldunderAuctions, Ko’s colleagues amendedeach of the correspondingGF277 to state D’s name and the auction lot number in place of the contractor’s name and Demand Note number. But the description ofDisputedVehicle on each GF277 (including the engine number(if any))remainedunchanged.
41. Leung also confirmed thatpending collectionof Disputed Vehiclesby D’s representatives, there was no change totheircondition and no engine was removed.
(9) The claim
42. Chanissued demand letters toDdated 11th Novemberand 30th December 1997 to claim for the price difference of HK$529,960.00 betweenthecontractpriceand resale price ofDisputedVehicles. The letters were sent by fax toD’s Fax Number(withfax transmission report) andbyregistered post (withcertificate of posting).
D’s case
(1) Background and Tender
43. D had been buying/selling vehicles for 30 yearsand buyingUGVforabout 25 years byauction in his personal name. Contract was the only time hepurchasedUGVby tenderin the name of LeeChai Motor Spare Parts, which company he formed7 odd years ago.Under Tender, D made a bid for 23 categories of UGV. P informed him by Acceptance that he was successful in respect of 9 categories. Dagreed hewanted to make a profit fromTender/Contract but deniedhe made up hisdefencein order toback outfrom a bad bargain under Contract.
44. D was aware thatUGVbecame unserviceable for many reasons, egwhenUGVreached the end of their service life, sustained accident damage or were beyond economic repair.More recently manufactured UGV had better value than older UGV.But wherethe age ofUGVwas similar, anoperableUGVwould have a higher value than anaccident-damagedone.
(2)D’s inspection of Part A Vehicles on 7th May 1997
45. In accordance with usual practice, GSD/STW Poundwould not arrange for joint inspection of or offer D any opportunity toexamineDisputedVehicles.But on receipt of the 2 Demand Notesunder Part A,D went to STW Pound on/about 7th May 1997 to examine Part A Vehiclesforhimself before making payment.Although D’s pleadings only referred to 3 RCVfrom Part Aas “without engine”, Dsaw (a) 2RCV withthe cylinder block removed from the engine bracket and placedat the backwith other key parts of the engine missing,and (b) 1 RCVwithno engine at all.D had no complaints on the condition ofDisputedVehicles except for the above 3 RCV.
46. Dtold Kowhat he found. Ko looked through some documentsin the office andsaid“on paper the 3 vehicles had engines”. HerefusedD’s request to inspect Part A Vehicles together, saying theenginenumbers and other information showedthepresence of cylinder blocks. Dcomplained thatKo was bureaucratic and left.D’s past experience was thatKo’s superior never bothered with him, so he did not complain to Ko’s superior.
(3)Post-inspection communciations
47. On/about 26th May 1997,a female identifyingherself as from GSDtelephoned Daskingabout unpaid UGV. She asked whether he could come toGSD’soffice and he agreed to so do immediately. D said in evidence that he did not know who telephoned himbut when he met Chan at GSD’s office(see below), he assumed that it was Chan.ButDstated in hissupplemental witness statement that it was Chan who telephoned him claiming she was Chan of GSD.
48. D met Chan at GSD’s office.Hetold herthathe found 3 RCV had no engineand requested herto excludethemfrom Demand Notes beforehe madepaymentand/orcollected UGV.Chan looked at some documentsandthensaidher records showed all RCV had engines/engine numbers.After much argument, Chanstillinsisted all RCV had engines andsaidP would not amend Demand Notes after issuance. D then suggested to Chan to senda technician/engineer toaccompanyhim to STW Pound to examine the relevant UGV. Chan refused, claiming that no engineer was available and insistingthat her records were correct.Dcomplained thatChan was bureaucratic. In the circumstances, herefusedtoacceptDisputedVehiclesand left asnothing could bedone.Ddid not approach Chan’s superioras he thought thatChan,whowas in a senior position,was the final authority.
49. P was inbreach of Contract(a) because the aforesaid3 RCV did not correspond with thecontractdescription that theyshould be“with engine”,(b) byrefusing/depriving D’s right of a joint examination ofDisputedVehicles to ascertain whether theyconformed to contract and (c) by refusingto exclude 3 RCV from Demand Notes.By reason of such breach,D was entitled to rejectPart AVehiclesand to refuse payment of Demand Notes under Part A.
50. D was prepared topay for and collectthe balance of DisputedVehicles if theaforesaid3 RCV were excludedfrom Demand Notes.Without such exclusion,Dbelieved P would not allow him justtopay Demand Note for item 1 of Schedule Iand Part BDemand Notes.AsDlost confidence in P after meetingChan, he did nottry to checkwith P to see if he could do so.By reason of P’s breach in relation to theaforesaid3 RCV,D was also entitled to reject Part B Vehicles andto refuse payment of Part BDemand Notes.
(4)Demand Notes andP’scorrespondence
51. AsAcceptance (which concluded and formed part of Contract) was sent by registered post,it was clearly intended that P would andP was under an express/implied duty to forward Demand Notes by registered post.IfP did so by ordinary post,P was in breach of contract and D was not obliged to make payment.
52. D said in hiswitness statementthat he couldnot recollect whether he had received Part B Demand Notes.However, hesaid in evidencethatusually hiswife樊玉群(who did his clerical work) handledP’s correspondencesent to his home and she would passP’sdemand notes to him for him to inspect UGV and then to make payment.As D lost confidence after P’s breach of contract andafter the meetings with Ko/Chan, hetold his wife not totell or show him P’s correspondenceabout Disputed Vehicles. D’s wife did not give Part B Demand Notes to him.
53. D claimed that it wasalsoclearly intended that P’s correspondence would besentby registered posttoensure receiptby D.P’sdemand letters were addressed to D’s homeaddress, but D’s Fax Number was supplied by D’s friend when he typed Appendix B for D. What D said was D’s Fax Number was not his.D agreed hiswife collected 3rd and 7th Letters, but he did not know whether she receivedthe demand letters of 11th November and 30th December 1997 from Chan of GSD. His wifemight have kept them from him.
54. D knew his wife read P’s correspondence because when shefellill, she told him P threatened to sue him and urged him to read P’s correspondence. D’s wife later passed away. It was more than ayear later(ieprobablyin/about 2000 but D wasnotsure) that D came to knowthat P claimed for the price difference between the contract and resaleprice of Disputed Vehicles.
55. Ddeniedhaving spoken with Lin by telephoneor having told herhe had difficulties in reselling Disputed Vehicles. His practice was to switch off his mobile telephone and forward all telephone calls to his company. He had no impression ofand did not giveD’s New Fax Number to Lin.
(5)P’s failure to mitigate loss
56. P failed to mitigate loss by not taking positive action toascertainDisputed Vehicles’fairmarket price orobtain any valuation for that purposebefore putting them up forauction. The resale proceedsofHK$188,100.00were unreasonably low, iemore than 70%less than the contract priceofHK$718,060.00.
57. Doften attendedpublicauctions of government materials.Auctionsat whichDisputedVehicles were soldwere public auctionsattended bythe general public and tradersinUGV.D did not discuss/agree his bid and did not colludewithother bidders to hold down the price.D successfully bid for someDisputed Vehicles(includingmostofRCV at HK$7,100.00 each) at Auctionsby offeringthe highest bid.D claimed that the auction price of RCV was substantially lower than the contract price because such RCV hadmany missingvehicleparts (see below).
(6) Examination of Part A Vehicles prior to Auctions
58. D examinedPart AVehiclesat STW Pound about 2-3 days prior to 1st Auctionand found that their condition wasmaterially different from before (ie with manyvehiclepartsmissing). D found most RCV were either without engine orhadmanyvehiclepartsmissing, ie (a) 3 RCV were without engine, (b) about a third of RCV were without gearbox, (c) more than half of RCV were withouthydraulicpumps, (d) a few RCV were without rear axle housings (but D found some disassembled parts on thegroundat the time of his inspection), and (e)some RCV were without drive shafts. D had noted down the registration numbers of such RCV butcould nolongerfindhisnotes. Dthereforemade a commercial decisiononthe price to bidat Auctionsbased onthecategories, age and condition of Disputed Vehicles.
59. Some ofthe missing vehicle parts had been there during D’s inspection on 7th May 1997 although he noticed then that the gearbox of some Part A Vehicles had been dismantled and left on the ground. He did not mention this to Ko, but on that occasionhe was concerned to first examinethe engine(ie themost expensive part)andhe did not checkthe othervehicleparts.D only laterrealised the hydraulic pumps and drive shafts were also missing.D said UGVwould be worthlessif the engine was removed and/or the other vehicle parts were missing.
Sale by description
60. I find that the evidence from both parties show there is common ground between them that Category 16 (ie “Refuse Collection Vehicle”) refers to RCV “with engine”. In my view, although the limited express descriptions for different categories of UGV in Contract are not “descriptions” within the meaning of section 15 of the Sale of Goods Ordinance Cap.26 (“Ordinance”) as to give rise to animplied condition thatUGVshall comply withsuchdescriptions, it is clear from the evidence that the parties’ common understanding of the requirement of “with engine” amounts to such description.Much therefore turns on the meaning of “with engine”. But in this respect, I disagree with D’s contention that it means RCV with complete engine fully fitted inside the engine bracket.
61. Mr Soo submitted that thesale of UGV under Contract was a sale by description.He contended that Appendix A made clear that the description for Category 16 wasRCV“with engine” even though there was no express requirement of “with engine”.His argument was that sinceCategory 22of Appendix A (“Category 22”) wasfor“Vehiclebody/chassis …… (without engine)”and the price for UGV under such categorywasmuch lowerthanUGV forother categories of Appendix A, it necessarily meant that UGV for other categories must be “with engine”.Mr Soo further submitted that Clause 8 of Notes (whichprovided that UGVsold under Contractmight be with or without major components)did not detract from the above proposition.
62. Mr Shum noted thatthe only express words used inContractin respect of RCVwere“unserviceable vehicles” and “Refuse Collection Vehicle”.He also pointed out that there was noexpress reference as to whetherthecategoriesof UGV in Appendix A (including Category 16)other than Category 22 were“with”or“without”engine. He therefore argued that one could not read “with engine” into the descriptions for such categories. However, I note that it is clear from the evidence of Leung, Chan and D thatboth parties understood that RCV under Category 16were“with engine”andifRCVwere “without engine”, they should beexcluded from Category 16 and the relevant Demand Note should becancelled and replaced by a revised demand note to reflect the rectified position.Leung accepted that if RCV were in fact “without engine”, it should be classified under Category 22 rather than Catgeory 16. I am therefore not with Mr Shum on this argument.
63. The key question istherefore the meaning of “with engine”. It is not disputed that there is no express definition or explanation of the meaning of “with engine” in Contract. Both counsel argued that the meaning of such phrase could be understood from the fact that Contract was a sale of “unserviceable vehicles”.
64. Mr Soo argued that the ordinary/plain meaning of “vehicle”wasa vehicle with complete engine properly installed in the engine bracket and the word “unserviceable” did not detract from such meaning.Mr Sooreminded thatUGV for categories 23 and 24 ofAppendix A without any make/model were UGV that became unserviceableforreasons beyond P’s control.He argued it therefore followed thatUGV for other categories in Appendix A with make/model(egRCV underCategory 16)were those thatbecome unserviceable for reasons within P’s control.Such reasons must be understood in light of Clause 8 of Special Conditions which provided that UGV were phased out ex-government vehicles that might not be registered or licensed for use in Hong Kong unless certain statutory requirements were met.In such context,RCVunderCategory 16must be referable tothose that were condemned for ordinary and stated reasons within the parameters of Clause 8 of Special Conditions, in which case the complete engine should still be properly installed in such RCV.
65. Mr Shum, on the other hand, submitted that the reference to RCVin Appendix Ashould be givenitsordinary/natural meaning against the relevant background of the transaction.The subject of salewas“unserviceable vehicles”, not “vehicles” in normal use and condition.Bothparties(as apparent from D’s evidence) knewthat ex-government vehiclesbecame unserviceable for many reasons, including BER. If an ex-government vehicle was condemned forBER reason, it meant that EMSD had carried out investigation (eglifting the engine out of the engine bracket and checking it)or preliminary repairsbut deemed it uneconomical to carry outfullrepairs.This is consistent with the evidence of FS Chan, Ko, Leung and Cheung which I accept. I also accept their evidence that in such circumstances, in order not to waste manpower, the usual practice was to leave the BER engine at the back of UGV instead of reinstalling it in the vehicle.
66. In my view, for “unserviceable vehicles”included under Category 16,it is inappropriate to limit inferences to be drawn from the condition of an operable vehicle. Rather, it is more reflective of the parties’ understanding and more appropriate to refer to the known reasons for condemnation and the circumstances naturally and ordinarily associated with vehicles that were “unserviceable”. In such circumstances,“with engine”clearlymeansthe presence ofthe engine(including an engine being left at the back of UGV) which isnot necessarily intact and/or installed in the engine bracket.
67. I am not with Mr Soo in his interpretation of clause 8 of Special Conditions. In fact the conclusion I reached aboveis supported by clause 8 of Special Conditions and clause 8 of Notes. D acknowledges by clause8 of Special Conditions inter aliathat: (a) UGV under Contractaresold “as is”, (b) thereis nowarrantythat such UGV complied with statutory requirements for their construction and use, and (c) such UGVare phased out ex-government vehicles that maynot be registered or licensed for use in Hong Kong.The meaning of“unserviceable”cannot be limited tojust(b) and/or (c).I considerthe words “as is” in(a)wide enough to cover thestateof UGVwhenCH orSWT Workshopcondemned it as unserviceable for BER reason,egwith the engine left at the backof UGV.
68. Clause 8 of Notes providesthat “unserviceable vehicles” are offered to the tenderers “as they stand”and goes on to say that“unserviceable vehicles …… under this tender may be completed with or without major components”.Leung and D both pointed out thatmajor components included gearbox, rear axle and drive shaft. Since Clause 8 of Notes contemplatesUGV under Contractcan come with or without these major components,the parties could not have intended thatsuchmajor component beproperly installed inside UGV.It follows thatthe partiescould not have implicitlyintended that theengine alsohad to be properly installedfor, say,UGV under Category 16.
69. Given my conclusion as to the meaning of RCV “with engine”, it is perhaps unnecessary to consider at lengthMr Soo’ssubmissionsthat a contract for the sale of unascertained goods wasasale by description and that a strict/technical view should be taken on the description of unascertained future goods. In any event, I find such contention toosweeping.Halsbury’s Laws of Hong KongVol.23 2004 Reissue paras.355.077-355.078 at pp.226-227 cited by Mr Soo says : “…… it is a question of construction whether those words form part of the description under which the goods are sold or amount only to a condition or warranty or are no more than a means of identifying the goods ……”(see alsoBenjamin’s Sale of Goods6th ed,para.11-012 at pp.477).Benjamin’s Sale of Goods(supra,para.11-014 at p.479)alsodiscusses the case of Reardon Smith Line Ltd v Hansen-Tangen [1976] 3 All ER 570 referred by Mr Soo as follows :
“…… Lord Wilberforce drawing a distinction between words which identify in that “their purpose is to state (identify) an essential part of the description of the goods,” and words which merely “provide one party with a specific indication (identification) of the goods so that he can find them and if he wishes to sub-dispose of them.” Words identifying the goods in the second sense can be more liberally construed, so that not every element in them need be given contractual force. ……”
70. In my view, the express references to “unserviceable vehicles” and “Refuse Collection Vehicles” in Contract only identifiedthe things soldand did notdescribetheirsubstantial ingredients.Further, clause 2 of Conditionsprovidesthat UGV’sdescription intheTender Schedule (ie Appendix B)isby way of identification only and shall not constitute Contract a sale by description. D has not givenanysatisfactory reason whythis clause could be ignored.
71. However, as explained above,both parties’ witnesses agreedthat RCVunderCategory 16 should be“with engine”. Ifindthe requirement of being“with engine” a contractual ingredient and essential part of the descriptionof RCV sold.Indeed,Leung, Chan and D all agreedthat if RCVwere “withoutengine”, it should be excluded from Demand NotesandD should not be forced to acceptthemunder Category 16. Thus,I am prepared to accept that thesale of RGV under Category 16 constitutes a sale by description insofar as it relates to the ingredient of “with engine”.
WasRCV under Part A“with engine”?
72. I am impressed with P’s witnesses whom I find to be honest and reliable. Their evidence is in various aspects supported by contemporaneous documents.On the other hand,I findD’s evidence unreliable and self-serving. I am particularly unimpressed with his excusesregardingthe non-receipt of Part B Demand Notes and P’sdemand letters, which I find arepoor attemptsto explain awaythe steps he took to resile from a bad bargain.
73. Since D has no complaints about the condition of Disputed Vehicles other than 3 RCV under Part A, I will confine my discussion to the said 3 RCV. D’s complaint is thatparts of the engines of2 RCVweremissing and 1 RCV had no engine at all. I have found that D is not entitled to complain about the engine being left at the back of RCV. P does not dispute that 2 RCV had their engines removed but theircomplete engines were left at the back. In respect of the third RCV, P claims that it was still installed in the engine bracket withonlythe cylinder head left at the back.
74. The 1st issue is whetherall or parts of the engines ofthe 3 RCVwere missing.Iaccept the evidence of P’s witnesses that P had stringentdocumentaryrequirementsforthe removal of engines from government vehicles. Indeed, during the service life ofagovernment vehicle, engine replacement requires completion of a V-4 form called “Change of Engine Report” and entry in the vehicle’s VHR. If the engine is to be removed, GF277 is required so that when in due course the vehicle is condemned as unserviceable, GF277 will be attached to the relevant GF233. Here there is no GF277 for any RCV under Part A and in my view, this supports P’s stance thatCH or SWT Workshops have not removed anyenginefrom such RCVbeforethey were sent to STW Pound.
75. Likewise, the absence of GF277 thereafter shows that no engine was removed from RCV under Part A at STW Pound. In any event, STW Pound did not havethe requisiteheavy machinery for lifting the engine out of theengine bracket. Any removal of engine had to be done at SWT Workshop (which had heavy machinery) but STW Pound’s security guard had no record of Disputed Vehicles leaving the pound for SWT Workshop or at all. I also accept the evidence from P’s witnesses that no vehicle parts would be removed fromthe condemnedUGV after GF233 was submitted and I find that EMSD adhered to such practice in respect of RGV under Part A.
76. I find thatRCV foritem 1 of Schedule Icannot be 1 of the aforesaid 3 RCV. I accept FS Chan’s evidence that he found such RCV complete with engine irrespective of whether it was in the engine bracket orleftat the backof RCV. Ko/Leung did not inspect such RCV after it was towed to STW Pound and I find that such RCV remained in the same state as FS Chan found it.
77. In respect of RCV for items 2-16 of Schedule I,Iprefer Ko’s/Leung’s evidence in relation to their inspection of Disputed Vehicles and find that (a) 2 RCV (items 9 and 10 of Schedule I) had complete engines at the back and 1 RCV (item 13 of Schedule I) had its engine in the engine bracket and cylinder head at the back, and (b) these 3 RCVwerecondemned for being beyond economic repair.Since these 3 RCV were beyond economic repair, itis improbable that their engine parts (which were the more expensive items of the vehicles) were still salvageable and worth removal for use elsewhere.I acceptthe evidence of FS Chan, Ko and Leung that theworkshop staff’s usual practicewasto leavethedismantledengine of UGV condemned as beyond economic repair at thebackof the vehicles. I further accept their evidence and Cheung’s evidencethatUGVin such condition are still regarded as “with engine”.
78. Mr Soo challenged Ko’s evidence on his observations in relation to thesaid3 RCV by relying on a discrepancy between FS Chan’s and his evidence. FS Chan said that the removal/opening up of an engine for repairs might cause engine parts to break up so that in some cases it might not be possible to put the engine back together. Ko said the removal/opening up of an engine would not cause engine parts to go missing or become damaged and it would be possible to reinstall the engine in the vehicle. Such discrepancy is immaterial as irrespective of whether a dismantled BER engine can be reinstalled or not, the practice was to leave it at the back of UGV so as not to waste manpower on reinstallation.Further, it is a matter of common sense that the condition of the engine and its capacity for being repaired/reinstalled will depend on the nature of the damage or mechanical problem and the investigation required for carrying out repairs.
79. It was also suggested that there is discrepancy between(a)Ko’s observation of the presence of complete engine for thesaid3 RCV although such engine or partsof it werekept at the back of RCV and(b)Ko’s reply to D on 7th May 1997 that 3 RCV had cylinder blocks. There is no dispute that the engine number is engraved on the cylinder block and that the cylinder block constitutes a main component of the engine. It has always been the stance of STW Pound (as confirmed by Ko and Leung and as evident from Ko’s reply to D on 7th May 1997) that the presence of the cylinder block was sufficient, but I find this does not conflict with the fact that Ko actually observed thesaid3 RCV had allofthe engine parts.
80. In any event Ko’s observations during his inspectionaresupported by the evidence from Leung and Cheung in respect of theirowninspections.Mr Soo in his cross-examinationraised some doubt as to whether Leung and Cheung carriedoutany inspection of Disputed Vehicles. I find thatthey did andtheir inspections were in accordance with EMSD’s usual procedure for condemnation of UGV. Ko was aware that Leung inspected UGV although he did not know the details. Further, amendments in Vehicle Lists show that Leung actually inspected UGV andcorrectedthe contents of Vehicle Lists. In relation to Cheung’s inspection,apart from Cheung’s own evidence,FS Chan and Kobothaccepted that Cheung might have been to CH Workshop and STW Pound for inspection of UGV, andLeedidreport to Leung that Cheung had been to STW Pound to inspect UGV.
81. Mr Soo suggested that my finding in respect of the condition of the 3 RCVwascontradictedbyChan’s evidence that UGV should be classified under Category 22 if they had no engine.Buta careful study ofthe totality of Chan’s evidence is in fact unhelpful for Mr Soo’s contentions becauseChan made clear she would consult EMSDin relation to the engine statusand her stance wasinline with EMSD’s. Chan confirmed she was unversed in technical matters and would rely on EMSD’s expertise and documentary record.She considered it was within EMSD’s purviewto investigate and tell her whetherUGVwere “with” or “without” engine.If EMSD told herUGVwere “with engine”, she would notify the contractor to collectUGV sold under contract. If EMSD told herUGVwere “without engine”, she wouldarrangeto exclude suchUGVfrom the demand notes.
82. D also suggested that P’s contention in relation to the condition of thesaid3 RCV was unbelievable because he hadalreadycomplained to P on 7th and 26th May 1997.
83. I reject D’s suggestion that he complained about the condition of 3 RCV to Ko or requested joint inspection of UGV with Ko on 7th May 1997. I find that D only enquired why thesaid3 RCV were considered “with engine” andhedid not raise any demur after Ko explained they had cylinder blocks and were thus not classified as“without engine”. This finding is also consistent with the fact that there is a significant absence of any record of complaint or referral of complaintorany action or investigationnormallycarried out by Ko, Leung or EMSD in response to complaintsorany written response to D.
84. In relation to the meeting between D and Chan on 26th May 1997,Mr Soo submittedthatD’s version of events was credible because (i)Chanonlysaid in her supplemental witness statement that she could not remember having such meeting and(ii)D had little incentive to make upa story aseven on his casenoconclusions were reached at the meeting. However, Chan did say in evidence (and I accept) that according to her recollection there was no suchmeeting. My analysis of the evidence is as follows :
(a) EMSD sent 1st Letter of 26th May 1997 to D without prior notice to GSD/Chan. It is unlikely thatChanwould have madearrangements to meet Dto discuss his defaulton thatverydaywhen D’s response to 1st Letter was pending.In fact Chan only became involved in dealing with D’s default (ie by issuing 2nd Letter to D) after Cheung requested her to take action by memo dated 10th June 1997. I find itimprobable that Chanmet Don 26th May 1997.
(b) There is noor nosufficient justification to infer from the handwritten date of 1st Letter thatCheung was waiting for the results of Chan’s meeting with D before issuing such letter,particularly in light of Chan’s explanation ofthe usual government practice of dating letters by hand when they were signed.
(c) Mr Soo also queried Lin’s lack of memory in respect ofD’s mobile telephone number written in manuscript on1st Letter. The short answer to this isthatLin did not become involved in Contractuntil Cheung asked her to telephone D in July 1997.Further D did not allege that Lin telephoned him on 26th May 1997. In fact he claimed he did not know Lin at all.
(d) The lack of paper trail (eg written invitation, minutes of meeting, etc) for the alleged meetingbetween Chan and Don 26th May 1997 suggestsit never took place.I also accept Chan’s evidence she would not have attended any meeting with D without her supervisor.
(e) Dexplainedin his evidence thathe assumedthe femalewho telephoned him on 26th May 1997was Chan. Yethe specifically saidin his witness statement that the caller actually identified herself as Chan from GSD. D was unable to give any convincing explanationof the discrepancy.
(f) I also find it unlikely thatChanjustlooked at some documentsand told Dall RCV had engines/engine numbers. I accept Chan’s evidence thatshedid not have Vehicle Lists or GF277 (for removal of engine), so she had no information on the engine status/engine numberon file. For the same reason, she would not have (as D alleged) rejected out of hand D’s request to exclude 3 RCV from Demand Notes or to have joint inspection ofUGV.She would have asked D to identify the 3 RCV, consulted EMSD and asked EMSD to provide the relevant documents on engine status.
85. D’s representatives made no complaint as to the engine number stated on GF277 for RCVunderPart A when they collected such RCVfrom STW Pound after Auctions. This suggests that up till the time D’s representatives collected such RGV the engines were still there. In light of the above, I find that thesaid3 RCV complied with the description of “with engine” and were properly classified under Category 16.
Right of inspection
86. Mr Soo submitted that D should have been afforded an opportunity to examine Disputed Vehicles to ascertain whether they corresponded to description pursuant to section 36(2) of Ordinance. In this respect, I accept that the acknowledgment in clause 3 of Tender Form and clause 1 of Conditions is irrelevant as UGV under Contract were unascertained and D did not inspect any such UGV prior to or at the time of entering into Contract. On the other hand, Mr Shum submitted that clause 7 of Notes excluded by agreement any right of inspection of UGV under Contract.
87. However, D’s claimed right of inspection (if any) is immaterial asD had no complaint about the condition of Disputed Vehicles except for the said 3 RCV and I have found that the said 3RCVwere “with engine” at the time when D inspected Part A Vehicles (including the said 3 RCV) on 7th May 1997. Therefore D has had an opportunity to examine Part A Vehicles and knew they were “with engine”. I also reject D’s evidence that he has requested Ko and/or Chan forjoint inspection of Part A Vehicles. In such circumstances,Phas not breachedthe obligation(if any)pursuant to section 36(2) of Ordinance to affordDon requesta reasonable opportunity to examine Disputed Vehicles for the purpose of ascertaining whether they conform with Contract.
Entire Contract?
88. D is therefore not entitled to reject Part A Vehicles. Consequently, he is also not entitled toreject Part B Vehiclesby reason ofthe condition ofthe said 3 RCV.There is therefore no need to considerwhether the obligations under Contract were entire or severable.For completeness, I am of the view thatContract or the obligations thereunder (Chitty on Contracts(supra at para.21-037 at pp.1255-1256)) are severable and not entire.
89. Mr Soo citedMaple Flock Company, Limited v Universal Furniture Products (Wembley), Limited[1934] 1 KB 148to suggest that Contract was an entire one and he made reference to section33(2) of Ordinance. However, they are distinguishable becauseContract is not a sale of goods to be delivered by stated instalments.Indeed,Contract did not specify the total sale quantity or delivery by instalments.Clauses 2 and 3 of Special Conditions provide that (a) the total quantity in Appendix A is merely an estimate and D must be prepared to accept 20% increase or decrease, and (b) D must collect and removeUGV“in any such quantity as may be available each time” within 7 days from the date of payment against each demand note issued by EMSD. The obligations for payment and collection ofUGVunder each Demand Note are discrete. Indeed, D had previously(eg subsequent to 7/5/97 Letter) collectedUGVunder Contract even though, on D’s case, the condition of the said 3 RGV was in issue.
Demand Notes
90. Itis not disputed that(a) EMSD issuedDemand Notes toDaddressed to D’s home addressby ordinary post, (b) there is no expresscontractualmode of delivery of Demand Notes, (c) D received Demand Notesunder Part A and (d)Acceptanceand GSD’s letter to D dated 1st November 1996 enclosing copy Contract weresent by registered post.
91. Dargued that(a) it was an implied term of Contract that Demand Notes shouldbesent by registered post, (b)D’s actual receipt of Demand Notes is a condition precedent to his obligation to make paymentand(c) D had not received Part B Demand Notes.
92. D justified the implied term by pointing outthat Acceptance “and other correspondence at the time”weresentby registered postandthat Demand Notes wereimportant in thatthey werethe only means by which D was informed UGV had been ascertained under Contract.I agree with Mr Shum thatP’scorrespondence issued after Acceptance is unhelpful. Acceptance constituted a binding contract and it only reflectedP’sacceptance of D’s tenderbid(which made no reference to the mode of delivery of Demand Notes). Anyfresh offer by P on the mode of deliveryof Demand Notes allegedlyimplicit from Acceptance requiresfresh consideration andacceptance by D,neitherof whichis forthcoming. In any event, the consensual mode of delivery (if any) should not depend on GSD’s unilateral choice on how to deliver Acceptanceto D. In my view, the allegedimplied termis not necessary or required forbusiness efficacyand is notan obvious inference from Contract. A term is not to be implied merely because in all the circumstances it will improve the contract or make the carrying out of the contract more convenient (see Chitty on Contracts(supra atpara.13-009 at pp.777-778)).
93. Further, I find that D/his agent (his wife) received all Demand Notes, including Part B Demand Notes, soD cannot refuse payment:
(a) D’s wife handled his clerical work and collected/went through P’s correspondence on his behalf. She passedP’s demand notes to Dfor him to inspectUGVandtomake payment.It is evident shecollected 3rd and 7th Letters(sent to the same address as Demand Notes)from the post office.
(b) I find that LintelephonedD twice on 23rd and 25th July 1997andissued 4th and 5th Lettersto him on 25th July 1997. But for such telephone conversations,Lin could not have known ofD’sNew Fax Number. D’s claim that he did not speak with Lin because it was his practice to switch off his mobile telephone and forward calls to his company is not credible because he also claimeda female caller (whom heassumedto be Chan)calledhis mobile telephone on 7th May 1997 after his morning swim.D did not complain of non-receipt of Part B Demand Notes although Lin chased him to pay Demand Notes.Instead heconfirmedreceipt ofsome Part B Demand Notes including the one dated 18th July 1997. This supports the fact that D has received Demand Notes. Anyway, by his telephone conversations with Lin, D was well aware of the outstanding Demand Notes.
(c) I reject D’sexcuse thatP would not allow him to pay Part B Demand Notes and/or Demand Note for item 1 of Schedule I because he has asked for exclusion of the said 3 RCV. First, Clause 3(b) of Special Conditions makes clear UGV must be collected with a specified time from the date of payment against each demand note.Secondly,Iaccept that following Cheung’s telephone callin April 1997, D returnedOld Demand NotetoEMSDfor cancellation andDsubsequently received the replacement Demand Note from EMSD.SoDmust have knownDemand Notes can be adjusted.Thirdly,as stated above,D still paid for and collected 11UGVunder Contract after receipt of 7/5/97 Letter(and P allowed and accepted such payment)despite, on his case,hiscomplaintofthe unsatisfactory condition of said 3 RCV to P on 7th and 26th May 1997. Fourthly, D’s suggestion that he lost confidence in P so that he did not bother to find out whether P was prepared to accept separate payment of each Demand Note isimprobable. Thelikelyreason is what he told Lin, ie he found it difficult to resell Disputed Vehicles (probably because of the price he paid for them under Contract as D did not complain of any problems in reselling Disputed Vehicles purchased under Auctions).
(d)D gave evidencethat afterhismeetings with Ko/Chan, he told his wife not to tell/show him P’s correspondence in relation to Contract.However, she did receive or collect P’s correspondence becauseshe was aware of the contents andurged him to readthem. Demand NotesList was attached to4th, 5th and 6thLetters, so D’s wife could not have been unaware oftheoutstanding Demand Notes. I also find that some of these correspondence said to be sent by fax were successfully sent toD’s Fax Number or D’s New Fax Numberthat D gave to P by Appendix B orduring his telephone conversations with Lin. The natural inferenceisand I so find that D’s wife actually received Demand Notes as D’s agent.It was D who chose not tolook at them.
94. Since D hasno complaint about the condition of Part B Vehicles and hereceived Part B Demand Notes, heisliable forto pay them.
Mitigation of loss
95. Mr Soo suggested that P failed to mitigate loss because it failed to accede to D’s offer to Chan at the meeting on 26th May 1997 to exclude the said 3 RCV from Demand Notes whereupon D agreed he would pay the balance and collect the remaining Disputed Vehicles. However, as I havefoundno such meeting took place betweenD and Chan on 26th May 1997 and D did not put forward such offer, there is no need to deal with this aspect of the alleged failure to mitigate loss.
96. Mr SooconcededthatDisputedVehicles could be sold bypublicauction, but pointed outthatP adduced no evidence to explain the build-up for the reserve price to refute D’s claim that the low resale pricedid not reflect the market value of Disputed Vehiclesand/or that theircondition had materially changed.He submitted that the low reserve price also evidencedthatthe condition ofDisputedVehicles had changed. Mo saidhad she been aware of Contract, she would have usedcontract priceas reference.
97. I rejectD’s contentionthat the condition of RCVunder Part Ahasmaterially changedwith many vehicle parts missing. STW Pound did not have heavymachinery toremove engines, gearboxes, hydraulic pumps, rear axle housings and drive shafts. There is no GF277 andno record of Disputed Vehicles leaving STW Poundto suggest removal of vehicle parts atSWT Workshop. P’s witnesses agreed and I accept thatnovehicleparts would be removedaftersubmission ofGF233.EMSD knewDisputedVehicles were to be sold under Contract and later under Auctions.There is no reason for EMSDtobreach their standard practice, particularlyin light ofthe potential claim against D under clause 6 of Conditions.
98. D bears theburden of proofon the issue of mitigation of loss.In my view,it is not fair to say the reserve price for RCV was unreasonably low just by comparing it to thecontract price(whichis the same as D’s price bid underTender).Thereis no objective evidenceofthe market value of Disputed Vehiclesin 1996and of how the different modes of saleby tender andbyauction will impact on the price.Apublic auction sells specific vehicles, but acontract by tender allowsthecontractorto have asteadysupplyof UGV over a whole year. There is no assessment as to how this impactson the price.
99. I find that D, as he told Lin, had difficulties in resellingDisputedVehicles in the market and in his efforts to back out of Contract, he became the author of his breach of contract as well as the successful bidder at Auctions. In short, he acquiredsuch DisputedVehicles he wanted at a much lower price than under Contract.D should not in the circumstances be heard tocomplain that Phasfailed to take reasonable mitigating steps in the ordinary course of business.
100. The general public and traders inUGVhave beenwidely informed of Auctions by newspaper advertisements and available auction lists.Both thegeneral publicandtraders(including D who had many years of experience in bidding forUGVat auctionsand another trader, Wah Hing Loong)attended Auctions.D insistedhe did not collude with other bidders to keep the price down, soeven on his case Disputed Vehicles went to the highest bidders (includingD) available in the market.In my view, the resale price of Disputed Vehicles under Auctions is the market price and P has not failed to mitigate its loss.
Conclusion
101. In the circumstances, I grant judgment in favour of the Plaintiff against the Defendant for the sum of HK$509,960.00 with interest thereon atthe short-term 7-day deposit rate of the Hongkong and Shanghai Banking Corporation Limitedfrom 1st January 1998 to the date of judgment and thereafter at judgment rate to payment.
102. Komala Deccof & SA and others v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina)[1984] HKLR 219 held that in a commercial setting, the rate of interest payable should reflect the general rate at which a successful party would have to borrow money to take the place of that which was withheld andthe rateof 1% above prime is adopted as a rule of thumb.
103. I do not think the argumentthat a relatively long period elapsed from the commencement of proceedings to judgment assists D because he hashad the benefit/use of thejudgmentsum which he ought tohave paidP in the meantime.Mr Soo confirmed D did not contend P was dilatory in the conduct of the proceedings.
104. Mr Soo suggestedP’s financial size and prestigeif it had to secure money elsewhere excluded theKomala Deccofprinciple.Mr Shum argued that P should not be penalised because it was unlikely tohaveto borrow funds. I bear in mind any award of pre-judgment interest should be compensatory in nature and althoughPis not in a commercial setting, P hasstilllost the benefit/use of the judgment sumover a period of time and such sumcould have either earned interest orbeused for other government purpose. I therefore award interest on a short-term deposit rate. Since the claim for the price difference was crystallised in Chan’s demand letters dated 11th November and 30th December 1997,looking at the matter in the round, I considerpre-judgment interest should run from 1st January 1998.
105. As the parties wish to address me on costs, I refrain from making a costs order nisi and give liberty to apply.
| (Marlene Ng) | |
| District Judge |
Mr Edward Shum instructed by the Department of Justice for the Plaintiff.
Mr Gary Soo instructed by Messrs Edmund Cheung & Co for the Defendant.
Schedule I
A | B | C | D | E | F | G | H |
Item | Vehicle No | Vehicle Type | Demand Note No | Date of | Contract Value (HK$) | Auction Value (HK$) | Difference (HK$) |
PART A | |||||||
1 | UC1118 | RCV | D77-002-0975392-7 | 23/4/97 | 28,300 | 7,100 | 21,200 |
Total for Demand Note : | 28,300 | ||||||
2 | RC5022 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
3 | RC5032 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
4 | RC5033 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
5 | RC5034 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
6 | RC5037 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
7 | RC5041 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
8 | RC5042 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
9 | RC5044 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
10 | RC5045 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
11 | RC5047 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
12 | RC5048 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
13 | RC5051 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
14 | RC5059 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
15 | RC5060 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
16 | RC5061 | RCV | D77-002-075403-6 | 29/4/97 | 28,300 | 7,100 | 21,200 |
17 | AM7511 | Saloon/estate car (accident) | D77-002-075403-6 | 29/4/97 | 1,880 | 150 | 1,730 |
18 | AM3099 | Small van | D77-002-075403-6 | 29/4/97 | 3,980 | 1,200 | 2,780 |
19 | AM4342 | Vehicle body (less engine) | D77-002-075403-6 | 29/4/97 | 680 | 300 | 380 |
20 | AM4819 | Vehicle body (less engine) | D77-002-075403-6 | 29/4/97 | 680 | 200 | 480 |
21 | AM8970 | Vehicle body (less engine) | D77-002-075403-6 | 29/4/97 | 680 | 200 | 480 |
Total for Demand Note : | 432,440 | ||||||
PART B | |||||||
22 | UC1098 | RCV | D77-002-075406-0 | 1/5/97 | 28,300 | 7,100 | 21,200 |
23 | UC1115 | RCV | D77-002-075406-0 | 1/5/97 | 28,300 | 7,100 | 21,200 |
24 | UC1120 | RCV | D77-002-075406-0 | 1/5/97 | 28,300 | 7,100 | 21,200 |
25 | UC2013 | Towing tractor | D77-002-075406-0 | 1/5/97 | 8,280 | 7,000 | 1,280 |
Total for Demand Note : | 93,180 | ||||||
26 | UC5046 | RCV | D77-002-075436-2 | 28/5/97 | 28,300 | 7,100 | 21,200 |
27 | AM4457 | Small van | D77-002-075436-2 | 28/5/97 | 3,980 | 1,200 | 2,780 |
28 | AM5125 | Vehicle body (less engine) | D77-002-075436-2 | 28/5/97 | 680 | 200 | 480 |
29 | AM8277 | Vehicle body (less engine) | D77-002-075436-2 | 28/5/97 | 680 | 160 | 520 |
Total for Demand Note : | 33,640 | ||||||
30 | AM8281 | Large van/light bus (accident) | D77-002-075448-6 | 11/6/97 | 2,680 | 100 | 2,580 |
31 | AM3010 | Small van | D77-002-075448-6 | 11/6/97 | 3,980 | 1,200 | 2,780 |
32 | AM3097 | Small van | D77-002-075448-6 | 11/6/97 | 3,980 | 1,200 | 2,780 |
33 | AM6577 | Vehicle body (less engine) | D77-002-075448-6 | 11/6/97 | 680 | 90 | 590 |
34 | AM7473 | Vehicle body (less engine) | D77-002-075448-6 | 11/6/97 | 680 | 200 | 480 |
35 | AM7572 | Vehicle body (less engine) | D77-002-075448-6 | 11/6/97 | 680 | 100 | 580 |
36 | AM7641 | Vehicle body (less engine) | D77-002-075448-6 | 11/6/97 | 680 | 200 | 480 |
Total for Demand Note : | 13,360 | ||||||
37 | AM3118 | Small van | D77-002-075489-3 | 14/7/97 | 3,980 | 1,200 | 2,780 |
Total for Demand Note : | 3,980 | ||||||
38 | RC5085 | RCV | D77-002-075490-7 | 14/7/97 | 28,300 | 7,100 | 21,200 |
Total for Demand Note : | 28,300 | ||||||
39 | RC5072 | RCV | D77-002-075492-3 | 18/7/97 | 28,300 | 9,900 | 18,400 |
40 | RC5081 | RCV | D77-002-075492-3 | 18/7/97 | 28,300 | 7,100 | 21,200 |
41 | RC5086 | RCV | D77-002-075492-3 | 18/7/97 | 28,300 | 7,100 | 21,200 |
Total for Demand Note : | 84,900 | ||||||
TOTAL : | 718,060 | 188,100 | 529,960 | ||||
Schedule II
A | B | C | D | E | F |
Category | Vehicle type | Make/model | Estimated contract quantity | Unit rate (HK$) | Total Amount(HK$) |
2 | Small van | Suzuki SK410 | 31 | 3,980 | 123,380 |
11 | Heavy truck | Mitsubishi Fuso FV 413K | 1 | 26,800 | 26,800 |
15 | Towing tractor | Ford 3910H, Dennis Eagle | 4 | 8,280 | 33,120 |
16 | RCV | Dennis Phoenix 18, Dennis Phoenix 2M10, Isuzu CVR14K, Seddon Atkinson M17P16 | 24 | 28,300 | 673,200 |
17 | Road sweeper | Johnston 2000, Ford Cargo 1213 | 1 | 16,800 | 16,800 |
18 | Street washer | Mitsuibishi Fuso FM15 | 2 | 28,000 | 56,000 |
22 | Vehicle body / chassis including motorcycle (without engine) | 40 | 680 | 27,200 | |
23 | Large van/light bus | 20 | 2,680 | 53,600 | |
24 | Saloon/estate car | 10 | 1,880 | 18,800 | |
Estimated total amount : | 1,034,900 | ||||