IMADA LUENWAH WORLD LTD v. YIP MING CHEONG AND ANOTHER
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DCCJ5540/2003
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO. 5540 OF 2003
BETWEEN
____________________
DCCJ6521/2003
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO. 6521 OF 2003
BETWEEN
| YIP MING CHEONG and WONG CHI NANG both trading as MEI-KING MACHINERY ENGINEERING | Plaintiff | |
| and | ||
| IMADA LUENWAH WORLD LTD. | Defendant |
(Consolidated pursuant to the order of
Acting Registrar K W Wong dated 24th March 2004)
Coram: H H Judge Marlene Ng in Court
Dates of Hearing: 17th, 18th, 19th July, 2006 and 6th, 7th and 14th November, 2006
Date of Handing Down Judgment: 23rd January, 2007
J U D G M E N T
I. Introduction
(a) Parties
1. Imada Luenwah World Limited (“Imada”) produced/sold inter alia red flower medicinal oil (“Oil”). Yip Ming Cheong (“Mr Yip”) and Wong Chi Nang (“Mr Wong”), partners of Mei-King Machinery Engineering (“Mei-King”), manufactured/sold automated production line facilities (“Facilities”). Prior to April 1998, Mei-King manufactured/sold about 10 and 200 Facilities respectively for filling (a) medicinal oil and (b) soft drink, soya sauce, milk powder and pills. Their mechanism and functions were similar to those of the Machine (see below).
(b) Contract
2. By a quotation dated 20th April 1998 (“Quotation”), Mei-King proposed to sell an automated fill-plug-cap-label Facility (“Machine”) to Imada on the following terms for HK$480,000.00 (“Machine Price”) :
“設計說明
本生產線為全新按[Imada]要求設計，參照GMP規格要求而制造，全部組件和材料，尤其針對[Imada]產品的化學特性 ……。
灌裝容量 : 20ML – 100ML [“Specified Volume”]
生產效率 : 每小時3000 – 4000瓶 [“Specified Rate”]
……
付款方式 : 30%訂金 (簽約時支付)
30%中期貨款於完成大樣時繳付
40%交付試車後付清
質量保証 : …… 在正常生產操作情況下，[Mei-King]提供永久保用。在安裝首年內，維修及零件損耗，均免費提供，在次年始即略收回工本成本費用[“Maintenance Term”]。
安裝培訓 : 為適應本港客戶，設計方針以簡單靈活為主，調較容易，一般非技術性橾作員，經簡單培訓後，都會在短時間內熟習操作，且控制自如。……”
3. By a contract dated 28th April 1998 (“Contract”), Imada purchased the Machine for the Machine Price on the following terms :
“交易細則
支付日期 : 98年7月31日 付款方式 : 30%訂金 (簽約時支付) 30%中期貨款於完成大樣時繳付，約於工程進行一個半至兩個月之間 40%交付試車後付清 備註 : 參照[the Quotation]之條款為本。 其他條款若有添加或更改，買賣雙方再行議定。……”
(c) Machine’s design and functions
4. Mei-King adapted a basic liquid packing machine to suit Imada’s requirements (eg Imada’s 25ml and 50ml bottles (“Bottles”), plastic inner plugs (“Plugs”) and plastic outer caps (“Caps”)). Imada delivered samples of such packaging materials (“Materials”) to Mei-King for designing the Machine.
5. The Machine’s automated functions (“Functions”) were as follows. First, workers would place the Bottles on the loading platform (“Loading Platform”) for the robotic arm to push them onto the conveyor belt to carry them to thefilling nozzles (“Nozzles”) (送樽, “Convey Function”). When the Nozzles filled the Bottles with the Oil, the combined vacuum force and volumetric pistons (活塞注射及真空定位雙結合方式) would standardise the fill volume (灌樽, “Fill Function”). The conveyor belt would carry the Bottles to the turn wheel (星盤/轉盤, “Wheel”), which would rotate and take them to the other side. The Machine would push the Plugs down to cap the Bottles (放塞, “Plug Function”) and screw on the Caps (上蓋, “Cap Function”). Then the Machine would apply glue to Imada’s labels (“Labels”) to paste them onto the Bottles (貼標紙, “Label Function”). The Bottles would pass along the conveyor belt to the collection platform (“Collection Platform”) where the workers would remove them for final packaging.
(d) Piping works and auxillary pump
6. Mei-King also agreed to supply/install optional piping works (“Pipes”) and auxillary filling pump (“Pump”) for HK$27,560.00 (“Pipes/Pump Price”). The Pipes/Pump would pump the Oil from the preparation room to the storage tank (“Tank”) in the adjoining filling room and then to the Nozzles. The Pipes/Pump had no function independent of the Machine.
(e) Background
7. Imada paid part of the Machine Price and Pipes/Pump Price in the total sum of HK$440,440.00 (“Paid Price”) leaving an unpaid balance of HK$39,560.00 (“Balance Price”) :
Date Invoice Description Amount (HK$) 07-08-98 1754 Machine Price 480,000.00 07-08-98 1755 Pipes/Pump Price 27,560.00 28-04-98 Deposit (“Deposit”) (144,000.00) 09-09-98 2nd payment (72,000.00) 05-12-98 3rdpayment (40,000.00) 17-12-98 4thpayment (32,000.00) 11-01-99 5thpayment (50,000.00) 20-01-99 6thpayment (50,000.00) 14-04-99 7thpayment (40,000.00) 26-05-99 8thpayment (40,000.00) Balance Price 39,560.00
8. In or about August/September 2002, Mei-King repaired/renovated the Machine (“2002 Repair/Renovation”) and issued invoice no.1850 dated 14th September 2002 (“Invoice”) to Imada for HK$14,265.00 (“Invoice Sum”). Imada did not pay the Invoice Sum.
(f) Mei-King’s claims
9. Mei-King claimed for the Balance Price and Invoice Sum. It denied the Machine was defective and further averred (a) any observed problems in respect of the operation of the Machine were caused by the diverse specifications, changed shape and poor quality/finishing (collectively, “Changes”) of Imada’s Materials and (b) Imada had accepted and was precluded from rejecting the Machine.
(g) Imada’s claims
10. Imada claimed :
(a) the Machine failed to achieve the Specified Volume/Rate, could not perform satisfactorily “as what [Imada] needed”, was not in good function and/or did not fit the purpose for which it was purchased;
(b) Mei-King failed to supply the operation/instruction manual (“Manual”) and/or 電腦方程式and 電腦版圖 (collectively, “Computer Documents”) for the Machine;
(c) Mei-King delayed/failed to reply to Imada’s requests to repair the Machine and its repairs were in vain;
(d) the Machine could not work smoothly/properly or be used for production purpose.
11. Imada was unwilling to confirm the Machine was in order and never accepted the Machine, so there was total failure of consideration or it was entitled to reject the Machine. Imada asked for repayment of the Paid Price or, alternatively, loss/damages equivalent to or being the Paid Price. Further, Imada claimed to have no knowledge of the contents of the Invoice and no obligation to pay the Invoice Sum.
II. Issues
12. The issues in this case are as follows :
(a) Was the Machine designed for the Specified Rate?
(b) Did the Machine achieve the Specified Rate during the production trial runs in/about July 1998 (“Mei-King’s Trials”) at Mei-King’s Tsuen Wan factory (“Mei-King’s Factory”)?
(c) When was the assembly/installation of the Pipes/Pump and the Machine (“Installation”) at Imada’s Chai Wan factory (“Imada’s Factory”) completed?
(d) Did Mei-King supply the Manual to Imada?
(e) Was the Alleged Implied Term (see below) an implied term of the Contract?
(f) If so, did Mei-King breach the Alleged Implied Term (see below) by failing to supply the Computer Documents to Imada?
(g) Was Mei-King’s on-site training to Imada’s staff after the Installation (“On-Site Training”) adequate?
(h) Did the Machine achieve the Specified Volume/Rate during production trial runs of the Machine after the Installation (“Imada’s Trials”)?
(i) Did Mei-King breach the Contract and/or its implied conditions of merchantable quality and fitness for purpose/description in that the Machine failed to achieve the Specified Volume/Rate or its Functions failed to work properly?
(j) If not, why did Imada pay the Paid Price and not pay the Balance Price?
(k) Is Mr Yip’s remark (“Mr Yip’s Remark”) in Mei-King’s monthly statement dated 2nd May 2001 to Imada (“2/5/01 Statement”) consistent with Mei-King’s case?
(l) What led to the 2002 Repair/Renovation that resulted in the Invoice?
(m) Was Imada obliged to pay the Invoice Sum?
(n) Was Imada entitled to reject the Machine or was it precluded from doing so by acceptance?
(o) Was there total failure of consideration?
(p) If Imada could/did reject the Machine, was it entitled to repayment of the Paid Sum?
(q) If Imada accepted the Machine, what was the measure of its loss/damages (if any)?
13. At the trial I granted leave for Mei-King to withdraw its counterclaim in DCCJ5540/2003 for the price of the herbal cooker sold to Imada (“Cooker Counterclaim”) and reserved the question of costs.
III. Witnesses and dramatis personae
(a) Imada’s witness
14. The expurgated affirmation of Mr Shun (or Suen) Ching (“Mr Shun Sr”) was read at the trial. He was the chairman of Imada’s board of directors, but passed away in September 2006. Imada’s sole witness Mr Suen Hung (“Mr Suen”) was since 1993 its production supervisor who supervised the production process and the workers. Mr Shun Sr’s son Mr Shun (or Suen) Kwok Lung (孫國龍, “Mr Shun Jr”) and daughter Madam Shun Mei Mei Mimi (“Madam Shun”) were/are Imada’s directors/shareholders.
(b) Mei-King’s witness
15. Mr Yip and Mr Wong acted in person. Mr Yip had 40 years’ experience in designing/selling Facilities and gave evidence for Mei-King. Mr Wong was responsible for inter alia manufacturing such Facilities.
(c) Absence of other evidence
16. Imada did not adduce any expert surveyor evidence as to the Machine’s alleged defects and their cause(s) or produce any single piece of the Materials still in its possession. In the circumstances, much turned on the credibility of witnesses.
(d) Overview of witnesses’ credibility
17. Upon considering the totality of the evidence and despite detailed critique by Ms Lau, counsel for Imada, of his evidence, I find Mr Yip reliable/ credible. It is unfair to say he took advantage of Mr Shun Sr’s death to embellish Mei-King’s case. Mr Yip gave evidence in a straightforward manner and stood firm on core matters despite vigorous cross-examination. Minor discrepancies in his evidence do not detract from the reliability of his other evidence which I accept. Where there is any difference, I prefer his evidence to that of Mr Shun Sr/Mr Suen.
18. I have considered the factors in section 49 of the Evidence Ordinance Cap.8 in assessing the weight of the hearsay evidence in Mr Shun Sr’s affirmation. Given the hot debate between the parties on some of the factual matters asserted therein, I am unable to place substantial weight those matters (which were untested by cross-examination) although I have taken them into account.
19. I am not convinced of the reliability of Mr Suen’s evidence. His knowledge (partly derived from Mr Shun Sr) was limited (eg he was not even aware of the terms of the Contract) and he was at pains to emphasise his inadequate technical expertise for understanding the Machine’s problems. In the circumstances, his explanations concerning the alleged defects of the Machine are not persuasive. I also cannot agree with Ms Lau’s suggestion that Imada’s willingness to instruct solicitors/counsel right up to the trial notwithstanding the small amounts claimed by Mei-King in these proceedings reflected the righteousness of Imada’s case.
IV. Was the Machine designed for the Specified Rate (ie 3,000 to 4,000 Bottles per hour)?
20. The parties’ dealings began in 1998 when Mr Shun Sr and Mr Yip negotiated the terms of the Contract. Mr Suen was not involved apart from reminding Mr Yip of the corrosive nature of the Oil at a meeting. I prefer Mr Yip’s evidence that Mr Shun Jr and Madam Shun were not involved in the contract negotiations although they attended some negotiation meetings.
21. Mei-King’s Facilities had a volume range of 0.5ml to 2,000ml per Bottle, a production range of 1,000 to 5,000 Bottles per hour and a Nozzle range of 6 to 12, so a specific production rate and fill volume had to be set for each Facility to suit the customer’s needs.
22. During negotiations Imada specified that the Machine would be used for producing 25ml and 50ml Bottles of the Oil at 3,000 Bottles per hour, so Mei-King proposed the Specified Volume/Rate and the use of 8 Nozzles which would provide some margin for future expansion. Despite extensive cross-examination of Mr Yip on the correlation between the number of Nozzles and the price of the Machine, I cannot say the Machine Price and/or the use of 8 Nozzles in the design for the Machine would not support the Specified Rate.
23. Ms Lau next referred me to the photograph Mr Yip took of the Machine after the Installation on 8th August 1998 (“8/8/98 Photo”) and displayed on Mei-King’s webpage under the caption “Automated Fill-Plug-Cap-Label Production Line KBF-FLP8-CP-CS-LB (Piston Type)” with the description “…… Production Capacity : 2000 – 3000 bottles per hour”. She argued that the Machine’s production rate could not have been the Specified Rate because Mei-King would have described its best rate on the webpage. Mr Yip fairly accepted (a) Mei-King’s webpage was for advertisement of its Facilities and (b) production speed was generally a marketing point. But I also accept that Mei-King’s market research indicated its target customers were mid- to small-sized factories that would look for cost-effective Facilities that met their general requirement of a production rate of 2,000 to 3,000 bottles per hour rather than ones with top production speed. I find on balance that Mei-King’s decision to pitch a production rate of 2,000 to 3,000 bottles per hour on its webpage does not mean that the Machine was not designed for or was unable to achieve the Specified Rate.
V. Did the Machine achieve the Specified Rate during Mei-King’s Trials?
24. In about late July 1998, Mei-King invited Imada to attend Mei-King’s Trials. I prefer Mr Yip’s evidence that Mr Shun Sr attended Mei-King Trials with Mr Shun Jr, Madam Shun and a site supervisor of Imada whom Mr Yip met during contract negotiations (ie Mr Suen). After all, Mr Suen was directly responsible for production.
25. Ms Lau criticised the reliability of Mr Yip’s evidence as to Mei-King’s Trials. Nothing turned on the number of 25ml Bottles that were sent to Mei-King’s Factory or whether 50ml Bottles were so sent as well. There is no dispute that Imada delivered Materials to Mei-King’s Factory for Mei-King’s Trials and both Mr Suen and Mr Yip confirmed in evidence that (a) the 50ml Bottles were not used during Mei-King’s Trials and (b) Imada supplied about 200 25ml Bottles. In any event, I am of the view these matters do not affect the veracity of Mr Yip’s other evidence.
26. During Mei-King’s Trials, Mr Yip carried out production demonstrations of the Machine using water and the Materials. Mr Yip agreed the production trial runs were mainly for the Fill/Plug/Cap (and not the Label) Functions. Even though there was no written record, I find that Mei-King’s Trials achieved a production rate of over 3,000 Bottles per hour, which Mr Shun Sr found satisfactory. Ms Lau challenged Mr Yip’s recollection of the achieved rate of 3,300 Bottles per hour on the basis that Imada never supplied 3,000 to 4,000 Bottles for Mei-King’s Trials. The short answer is in Mr Yip’s evidence (which I accept) that the Machine was tested over 2 hours by repeatedly filling, emptying and re-using the 25ml Bottles supplied by Imada.
27. Despite complaint that Mei-King’s Trials were unsuccessful, Mr Shun Sr did not refer to Mei-King’s Trials in his affirmation. Further, Imada’s pleadings admitted that on enquiry Mei-King confirmed the Machine would be delivered on time. Had Mei-King’s Trials been unsatisfactory, I find it improbable that Mr Yip would have suggested (and Mr Shun Sr would have allowed) delivery of the Machine to be made shortly.
VI. When was the Installation completed?
28. On 6th August 1998, Mei-King delivered the Machine to Imada’s Factory. Mr Shun Sr/Mr Suen complained that the Installation (which was delayed) took 2 to 3 weeks. However, I prefer Mr Yip’s evidence that right after delivery Mr Yip, Mr Wong and Mei-King’s technicians started to assemble/install the Machine, which was completed by 8th August 1998 (see the contemporaneous 8/8/98 Photo). I reject Mr Suen’s feeble denial that the 8/8/98 Photo depicted the Machine’s condition on 8th August 1998.
29. I accept Mr Yip’s recollection when he gave evidence that the Pipes/Pumps were delivered on/about 1st and not 6th August 1998 and installed in/about a week’s time. It is sensible/logical for Mei-King to first carry out piping works along the ceiling that connected the preparation and filling rooms before aligning/positioning the Machine that was close to 6m in length. I do not accept Mr Suen’s claim that the Pipes/Pump were installed last. After all, he did not watch over Mei-King’s staff going about the Installation work. In any event, the Installation was completed by 8th August 1998 so the Pipes/Pump must have been installed during the first week of August 1998.
VII. Did Mei-King supply the Manual to Imada?
30. I accept Mr Yip prepared operation/instruction manuals for all Facilities designed/manufactured/sold by Mei-King (including the Machine) that gave information on inter alia (a) introduction to the Facility’s functions, production rate and specifications, (b) preparatory matters in relation to the site, power/water source, piping works and packaging materials, (c) pre-production inspection, (d) starting up the Facility, (e) post-production cleaning and (f) trouble-shooting techniques.
31. Imada claimed it never received the Manual otherwise Mr Shun Jr would have told Mr Suen and/or given it to him. But I prefer Mr Yip’s evidence that he gave the Chinese computer-printed Manual to Mr Shun Jr with other tooling and spare parts.
32. Ms Lau’s criticism that Mei-King failed to produce to the court a copy of the Manual ignored Mr Yip’s evidence (which I accept) that following replacement of its computer several times over the years Mei-King no longer possessed any hard/soft copy of the Manual. Ms Lau next complained Mr Yip was uncertain as to the Manual’s number of pages. I accept Mr Yip could not remember the exact number of pages, but it would be more than 1 to 2 pages. It must be remembered this happened 8 years ago and Mr Yip drafted over 200 (see paragraphs 1 and 30 above) operation manuals for Mei-King’s Facilities.
33. I find that Mei-King supplied the Manual to Imada after the Installation and used it for the On-Site Training. Mr Shun Sr claimed Imada pressed for the Manual many times in vain (which I disagree), but did not explain why Imada did not protest about this when it made various written complaints from 2001 to 2003 (see below) and paid the Paid Price over an extended period. I also prefer Mr Yip’s evidence that Mei-King gave a toolbox to Imada at the same time.
34. Ms Lau argued that Mei-King’s failure to supply the Manual was highlighted by Mr Yip’s assertion that the Manual explained how to tune/adjust the in-built tolerance for certain parts of the Machine (eg the width of the Plug/Cap Feeders and Indentations (see below)) (“Tolerance”). She submitted that if such assertion were true, Mei-King would have taught Imada’s staff to tune/adjust the Tolerance themselves instead of providing free maintenance service over the years (see below).
35. Mr Yip agreed he did not explain about the Tolerance during the On-Site Training because he thought Imada’s suppliers (“Suppliers”) would supply Materials with standardised specifications within the Tolerance. But I accept he referred Imada to the relevant explanation in the Manual during subsequent Visits (see below) when Mei-King discovered the Changes to the Materials. However, Imada tended to telephone and ask Mei-King to come and repair the Machine whenever a problem arose. As Mr Yip said, Mei-King could not force Imada to apply the trouble-shooting techniques in the Manual.
VIII. Was the Alleged Implied Term (see below) an implied term of the Contract and if so, was Mei-King in breach of the same?
36. Imada claimed that in order to give business efficacy it was an implied term of the Contract for Mei-King to supply inter alia the Computer Documents to Imada (“Alleged Implied Term”), but Imada requested for them in vain. There was no such express term in the Contract. Mei-King claimed it would not have agreed to such term since the design of the Machine was its trade secret or “專利”. I reject the Alleged Implied Term.
(a) Legal principles
37. BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1978) 52 ALJR 20, 26 set out the test of an implied term as follows :
“(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract”.
(b) Time of contract
38. Mr Suen confessed Imada would not understand the Computer Documents or have the technical skill to repair/maintain the Machine, so the Computer Documents would be reference material for third party repairer(s) of the Machine (“CD Purpose”). I do not believe the parties contemplated repairs by third party repairer(s) at the time of contract. After all, Imada was contractually entitled to free maintenance service for the first year after the Installation.
(c) Abnormal/improper use of the Machine
39. Ms Lau argued the Maintenance Term was premised on Imada’s normal/proper use of the Machine (“Proviso”), so Mei-King should supply the Computer Documents in case it withdrew its maintenance service due to potential abnormal/improper use of the Machine by Imada. I find such argument commercially unreal. The parties would hardly be contemplating possible abnormal/improper use of the Machine at the time of contract, and there is no such evidence from Mr Suen or Mr Shun Sr. Indeed, Mr Suen had no idea of the Maintenance Term or any contractual provision concerning the Computer Documents. I also reject his bare assertion that a buyer of any machine should be given the Computer Documents.
40. I prefer the explanation by Mr Yip who drafted the Maintenance Term that the Proviso gave Mei-King discretion to decide whether to continue or decline maintenance service if there was abnormal/improper use of the Machine. Mei-King could continue such service if the consequences of the abnormal/ improper use were not serious (eg just causing wear and tear of certain parts of the Machine). In my view, it is not reasonable to draw the inference suggested by Ms Lau.
(d) Business efficacy
41. Although Mei-King’s technicians were best placed to repair/ maintain the Machine, I accept any technician with adequate experience could do so. The easiest way for such technician was to ask Mei-King for the design drawings and Computer Documents. But if Mei-King were unhelpful, he could still use an instrument to download sufficient computerised information from the Machine to fix the control mechanism, which was how Mei-King repaired the Facilities its customers purchased from overseas manufacturers. Ms Lau’s criticism that Mr Yip did not put the above explanation to Mr Suen during cross-examination was unjustified because Imada only pleaded the Alleged Implied Term based on business efficacy after Mr Suen finished his evidence. Further, Mr Yip’s explanation sat well with the fact that Mei-King’s customers did not have to retain Mei-King for maintenance service (eg Lee Kam Kee and Watsons repaired/maintained the Facilities they purchased from Mei-King in-house). There was no necessity or business efficacy for the Alleged Implied Term.
(e) Trade secret and confidentiality
42. I find Mei-King would not have agreed to provide the Computer Documents to its customers (with consequent risk of disclosure to third parties/ competitors) since it was jealous to protect the trade secret and confidentiality of its machine designs. Ms Lau argued that if computerised information could be downloaded from the Machine, there would be no secrecy concerning at least “電腦方程式” if not “電腦版圖”. But there was no evidence that such downloaded information would be the same as “電腦方程式”. Further, Ms Lau’s argument (as well as the alleged CD Purpose) did not sit well with Mr Suen’s awareness of the concept of “專利”, ie he claimed that had Mei-King supplied the Computer Documents Imada would not just pass them to third parties but would first seek legal advice on how they could be used without infringing Mei-King’s rights. I find it improbable the parties had not expressly discussed the scope of use of the Computer Documents if there was concern Mei-King’s rights might be potentially infringed.
(f) Mei Lee
43. In my view, Imada requested the Computer Documents when (a) Mr Shun Sr invited 美利包裝機械公司 (“Mei Lee”), another Facility manufacturer/repairer and Mei-King’s competitor, to repair the Machine after the 2002 Repair/Renovation and (b) Mei Lee requested sight of such documents before it would render a quotation or confirm whether the Machine could be repaired. Mei Lee later abandoned the repair attempt, but I need not speculate whether it failed to download computerised information from the Machine. Suffice to say I find Imada was alerted to the Computer Documents when Mei Lee asked for them, which sat well with (a) the absence of complaint concerning the Computer Documents in Imada’s prior written protests in 2001 and 2002, (b) Mr Yip’s evidence that Imada only asked for the Computer Documents after Mei-King commenced its legal claim for the Invoice Sum in the Small Claims Tribunal in January 2003 (“Tribunal Proceedings”), and (c) Mr Suen’s admission that Imada never told Mei-King the CD Purpose (which suggested that Imada knew such purpose infringed Mei-King’s right and/or trade secret).
IX. Was the On-Site Training adequate?
44. I accept non-technicians or ordinary workers could operate (操作) the Machine and carry out daily maintenance after (a) brief explanation about the Machine and (b) simple training on how to operate the switches and coordinate operation procedures. Daily cleaning/maintenance after production/use included (i) emptying the remaining Oil from the Tank, (ii) removing Oil traces from the plastic tubes (“Tubes”) to minimise the corrosive effect of the Oil on their use life, and (iii) removing unused Materials from the Machine. But repair/ maintenance under the Maintenance Term had to be done by technicians.
45. Although the demand letters of Imada’s solicitors dated 19th June and 10th July 2003 claimed Mei-King failed to provide requisite training, the absence of such averment in the pleadings is sufficient to dispose of the matter. In any event, I do not accept Imada’s contentions. Neither Mr Shun Sr nor Mr Suen made such complaint in their affirmation or witness statement.
46. I prefer Mr Yip’s evidence that parallel with the tuning/adjustment of the Machine and Imada’s Trials Mei-King provided the On-Site Training until Imada’s staff was familiar with the operation procedures. There was no reason for Mei-King to delay (as Mr Suen suggested) when it was entitled to receive the remaining balance of the Machine Price after Imada’s Trials.
47. Mr Suen claimed Mr Wong only briefly introduced the Machine to Imada’s designated trainees when he expected Mei-King’s on-site training to consist of 2 to 3 days of meetings with Imada’s staff using the Manual to teach them to operate the Machine and to understand the switches. However, I prefer Mr Yip’s evidence that (a) he requested Imada to send smart workers to attend the On-Site Training although technicians or experienced workers were not required for operating (操作) the Machine, and (b) he (and not Mr Wong) used the Manual to give the On-Site Training to Imada’s trainees. I note that Mr Yip was the one who designed the Machine and who liaised with Imada all along whilst Mr Wong’s role at that stage was that of Mei-King’s senior technician who supervised the manufacture/Installation of the Machine. It was Mr Yip’s usual responsibility to handle production trial runs for Mei-King’s customers after installation of the Facilities.
48. There is no mileage in Ms Lau’s suggestion that Mr Yip’s failure to mention cleaning the Tubes as part of the daily maintenance demonstrated he was not the one who gave the On-Site Training. She conceded Mr Suen confirmed such instructions were in fact given to Imada. I also reject Ms Lau’s argument that Mr Yip insisted he and not Mr Wong gave the On-Site Training because he wanted to present more persuasive “first-hand” evidence. Indeed, despite the lack of pleadings vis-à-vis the On-Site Training, Mr Yip already stated in his witness statement of 4th May 2005 that Imada’s Trials did not stop “until it was proved to me” (my emphasis) Imada’s staff was familiar with the operation procedures.
49. But irrespective of how the training was done, Mr Suen admitted Imada’s staff knew how to operate the Machine. He also agreed Mei-King advised Imada to empty the remaining Oil in the Tank and the Oil traces in the Tubes (which he claimed was difficult) after daily operations. But I find that Imada failed to follow Mei-King’s instructions to remove unused Materials from the Machine after operations (since Mr Suen thought it was unnecessary).
X. Did the Machine achieve the Specified Volume/Rate during Imada’s Trials?
50. Mr Shun Sr said Imada had to chase Mei-King to carry out Imada’s Trials which were unsuccessful and the Machine failed to achieve an average production rate of over 3,000 Bottles per hour. Imada observed problems with various Functions (see below) due to “不正確因素”. Despite assigning 2 further workers to assist the 2 workers required to operate the Machine, the Machine still could not perform all the Functions in one go.
51. On the other hand, Mr Yip said that between 8th and 11th August 1998 Mei-King carried out continuous and successful production trial runs and achieved a production rate of 3,200 to 3,300 Bottles per hour. But about 2 weeks after the Installation, Imada reported it could not operate the Machine and asked Mei-King to carry out repairs. Mr Yip and Mr Wong went to Imada’s Factory the following day and noticed Imada’s workers could not fully handle the efficiency of the Machine, ie the production rate was too fast for their timely collection of the Bottles from the Collection Platform so many fell onto the floor. At Mr Shun Jr’s and Mr Suen’s requests, Mei-King reduced the production rate to about 2,700 Bottles per hour for ease of handling by Imada’s workers.
52. Upon careful consideration of the evidence, particularly Imada’s specific complaints discussed below, I prefer Mr Yip’s evidence and disagree that his evidence above was contradicted by his witness statement which stated that he trained Imada’s staff until he was satisfied “they were familiar with the procedures of operating the [Machine]”. Getting familiar with the procedures of how to operate (操作) the Machine can be a far cry from being fully capable of handling the efficiency of the Machine on a regular production basis in the long run. Further, Mr Shun Sr’s affirmation accepted Mei-King did at one stage protest that Imada’s workers were not yet familiar with the operation of the Machine (see also Imada’s letter to Mei-King dated 23rd August 2001 (“23/8/01 Letter”) and circular letter to medicinal and food manufacturers dated 26th August 2002 (“Circular Letter”)).
53. There was also no plausible explanation why Imada paid HK$72,000.00 to Mei-King on 9th September 1998 (ie shortly after Imada’s Trials) as part payment of the Machine Price if the Machine could not function properly. The pleaded suggestion that it was paid in hope that Mei-King would repair the Machine was commercially improbable given the free maintenance service under the Maintenance Term for the first year after the Installation.
XI. Alleged defects of the Machine
54. The key issue here is what caused the observed problems of the Machine. Mr Suen’s reference to “不正確因素” is unconvincingly vague and he was at pains to emphasise he was not a professional technician and could not be expected to know how to repair/maintain the Machine. I am not persuaded that his evidence in relation to the alleged cause(s) of the problems is reliable.
(a) Convey Function
55. I reject Mr Suen’s complaint that sometimes the robotic arm would pick up and place 6 instead of 8 Bottles onto the conveyor belt to be carried to the Nozzles. I note Mr Shun Sr did not refer to this at all in his affirmation.
56. Mr Shun Sr and Mr Suen claimed (and Mr Yip denied) Imada had to place a carton box beneath the Loading Platform to catch the Bottles that fell to the floor during the Convey Function. Mr Suen vaguely said it was due to a design flaw (“機器唔到位”), but I need not be concerned with any alleged design defects. Ms Lau in her final submissions confirmed Imada would not rely on design defects. But in any event, I reject Imada’s complaint.
57. Although there was no electronic sensor at the Loading Platform, there was no satisfactory explanation why the Bottles would fall down during the Convey Function. Overloading could be easily avoided because new Bottles were placed on the Loading Platform manually. Since (a) the Loading Platform and the section of the conveyor belt connecting it to the Nozzles had fenced sides, (b) Mr Suen claimed the robotic arm picked up less (not more) Bottles (see paragraph 55 above) and (c) the Bottles moved along the fenced conveyor belt in single file, there is no cogent reason why or how the Bottles fell down during the Convey Function.
(b) Fill Function
58. Mr Shun Sr and Mr Suen claimed the fill volume of the Bottles was not standardised resulting in some Bottles having more Oil (with overflow) and others less, so Imada’s workers had to manually remove those with incorrect fill volume.
59. Mr Yip claimed the Fill Function was upset due to changes in the thickness/shape/size of the Bottles Imada used subsequent to Imada’s Trials (ie they were shorter and thicker than those used for designing the Machine and during Mei-King’s/Imada’s Trials). Mr Suen claimed Imada never changed the design of its Bottles which were supplied by the same Taiwanese supplier華夏玻璃製造廠 (“Bottle Supplier”) all along.
60. The key issue here is why the fill volume was not standardised. Imada did not identify any mechanical, electrical or other defect of the Machine that would upset the Fill Function. In my view, it did not necessarily follow from the fact Imada had not changed its Bottle design/Bottle Supplier that the specifications/quality of the Bottles would be standardised/consistent since this turned on quality control in the manufacturing process. But Mei-King gave an explanation which I accept. I also refer to the analysis below in relation to the Changes to the Materials and Mei-King’s liaison with the Bottle Supplier.
(c) Wheel
61. The conveyor belt would carry the Bottles to the Wheel. Each Bottle should slide into 1 of 12 indentations (“Indentations”) on the rim of the Wheel, which would rotate and carry it to the other side of the Machine for the Plug Function. So the width of the Indentation must be compatible with the thickness of the Bottle.
62. Mr Suen claimed that due to a design problem the conveyor belt chute did not accurately align with the Indentations so some (but not all) Bottles became stuck at the point between the conveyor belt and the Wheel. When that happened the electronic sensor would stop the Wheel and Imada’s workers would have to forcibly align the conveyor belt chute with the Indentation to let the stuck Bottle slide in.
63. On the other hand, Mr Yip claimed that whilst the Bottles could successfully slide into the Indentations during Imada’s Trials, the Bottles from subsequent supplies had different shape/size/thickness/specifications. If such Changes exceeded the Indentations’ Tolerance, the Bottles would become stuck as described by Mr Suen. Imada’s workers could remove such Bottles to allow others to slide into place, but if the Changes were too diverse they would cause too many stoppages for normal production. The Materials were Imada’s responsibility, but Mei-King tried to assist Imada by widening the fenced conveyor belt chute and tuning/adjusting the Indentations.
64. I need not be concerned with Mr Suen’s suggestion of a design problem, but I reject Imada’s contentions in any event. First, Imada did not satisfactorily explain why some Bottles could and some could not slide into the Indentations. Imada could not pinpoint any mechanical, electrical or other defect of the Machine that would cause an intermittent alignment problem. This interesting feature gives credence to Mr Yip’s explanation that the Changes to the Bottles were diverse (ie some within and some without the Tolerance) amongst different batches and even within the same batch of the Bottles. Secondly, it is not disputed Mei-King at one stage dismantled the Wheel and re-worked it at Mei-King’s Factory. Mr Suen claimed it was to do with the alignment problem, but he did not say how re-working the Wheel itself would improve the coordination of the Wheel and the conveyor belt chute. I prefer Mr Yip’s explanation that Mei-King re-worked the Wheel by tuning/adjusting the Indentations’ Tolerance in an attempt to accommodate the Changes to the Bottles. I also refer to the analysis below in relation to the Changes to the Materials and Mei-King’s liaison with the Bottle Supplier.
(d) Plug Function
65. The Plugs slided down a metal feeder (“Plug Feeder”) one by one to cap the Bottles passing underneath. The Plugs could not enter the Plug Feeder if they changed shape or exceeded the Plug Feeder’s 5% Tolerance. But if the change in size was within the Tolerance, the width of the Plug Feeder could be tuned/adjusted to fit the new size. If the Plugs were smaller than the Tolerance, they would (a) shift left/right and not fit the Plug Feeder snugly to come down in a straight line, (b) ride under to push out the Plugs in front (騎膊馬 or 翻筋斗) or (c) drop down in a bunch rather than one by one.
66. Mr Shun Sr and Mr Suen claimed some Bottles were not properly/securely plugged with (a) Plugs flying out to become stuck at the cogwheel (齒輪) or conveyor belt and (b) Oil spilling from the relevant Bottles so that Imada’s workers had to remove them manually. Mr Suen said it was due to a design flaw and faulty connection point (接駁位).
67. Mr Yip frankly accepted that some time after Imada’s Trials and during the Visits (see below) he saw some Plugs fell out of the Plug Feeder to the floor. He claimed the Plugs then used by Imada were smaller than those used for designing the Machine or during Mei-King’s/Imada’s Trials and of poorer quality/finishing, which led to the observed problems, but these problems were unrelated to the Machine which remained operable. Mei-King assisted Imada by narrowing/adjusting the width of the Plug Feeder within the Tolerance, but this could not fully resolve the problem because the Changes to the Plugs in size/thickness and shape (eg some were warped) amongst different batches or within the same batch were quite diverse.
68. I prefer Mr Yip’s explanation. Mr Suen knew the blue Tube adjacent to the Plug Feeder had a vacuum force that created a suction effect to guide the Plugs down the feeder and prevent them from riding under the ones in front or coming down in a bunch. Mr Suen agreed that if (a) the rim of the Plugs had “水口”, (b) the thickness of the Plugs was uneven or (c) the flat surface of the Plugs was warped (扭曲), the vacuum force would lose its effect. Plainly Mr Suen knew the Plug Function could be sabotaged by inappropriate size/quality/ shape of the Plugs causing the observed results, which is consistent with Mei-King’s case.
69. I disagree with Mr Suen’s claim that if there were Changes to the Materials as Mr Yip alleged they could not be used even for manual production. As Mr Yip said, automated production could not hope to match the dexterity of the human hand in manually capping the Plugs/Caps one by one, so more precision and consistency in the specifications/quality/shape of the Materials were required.
70. Mr Suen next claimed (but Mr Yip denied) Mr Wong used some transparent tape to affix some carton paper to the side of the Plug Feeder in a futile attempt to resolve the problems with the Plug Function. Mr Yip claimed he did not know why/when Imada affixed such carton paper to the Machine, but he did not see it when he had the meeting with Mr Shun Sr at Imada’s Factory in late August 2002 (see below).
71. I prefer Mr Yip’s evidence. First, I agree with Mr Yip that the carton paper was not appropriately placed for catching any Plug springing out from the mouth of the Plug Feeder/Bottle or for preventing such problem. Secondly, Mr Suen did not say when Mr Wong affixed such carton paper, but Mr Yip was clear it was not so affixed even by late August 2002. Thirdly, the exposed screws near the carton paper indicated that a stainless steel casing had been removed. But Mei-King would not have removed such casing or affixed the carton paper since the good manufacturing practice (ie the Department of Health’s health/hygiene requirements for manufacturing medicine and food, “GMP”) specified in the Contract and adopted for designing/manufacturing the Machine required (a) the use of non-contaminative materials (eg stainless steel) and (b) all component parts to be covered. I accept that Mr Wong (who was responsible for Mei-King’s manufacturing process) and Mei-King’s workers were aware of the GMP and would have notified Mr Yip had they observed any loose carton paper (ie contaminative material) affixed to the Machine.
72. Ms Lau complained that Mr Yip did not cross-examine Mr Suen about the carton paper, but it was never part of Imada’s pleaded complaints. Ms Lau next complained Imada had no reason to affix the carton paper since Mr Yip claimed Imada would telephone and ask Mei-King to repair the Machine whenever they ran into problems. This argument does not stand because after the 2002 Repair/Renovation in August/September 2002, Mei-King no longer provided maintenance service for the Machine and shortly thereafter Mei Lee also declined to carry out repairs. About 4 years elapsed until Imada took photographs of the Machine on 11th July 2006 (“Photographs”) that showed the carton paper affixed to the Machine. It will not be surprising if during the intervening period Imada resorted to home-made attempts to salvage the Machine for which it had paid a large part of the Machine Price and Pipes/Pump Price.
(e) Cap Function
73. The Caps slided down a metal feeder (“Cap Feeder”) and were screwed onto the Bottles. The same considerations described in paragraph 65 above applied to the Tolerance of the Cap Feeder. Mr Shun Sr and Mr Suen claimed sometimes the Caps were screwed so tightly that they (a) would burst or (b) could not be unscrewed manually. At other times they were not tight enough or screwed along the screw threads. Mr Suen denied such problems were caused by the poor quality of the Caps.
74. I prefer Mr Yip’s evidence that the successful Imada’s Trials did not reveal any problem with the Cap Function, but the Caps subsequently used by Imada (like the Plugs) had similar problems in that their specifications/ quality/shape were different from those used for designing the Machine and during Mei-King’s/Imada’s Trials. They had poor quality/finishing and some were so brittle they could not be screwed on properly. Even tuning/adjusting the Cap Feeder could not solve such problems (which were unrelated to the Machine) given the diverse Changes amongst different batches or within the same batch of the Caps.
(f) Label Function
75. After some trial and error Mei-King found the glue from Taiwan’s 藍寶樹脂股份有限公司 (“Glue Supplier”) to be best suited for the Label Function. I accept Mei-King supplied 20 litres of such glue (“Glue”) to Imada during Imada’s Trials.
76. Mr Yip claimed Mei-King recommended Mr Shun Sr to use the Glue and offered to contact the Glue Supplier on Imada’s behalf, but Mr Shun Sr preferred to deal with the matter on his own. Mr Suen claimed the Glue was used for production trial runs and there was still a quantity remaining at Imada’s Factory, so it was unlikely Imada made further purchase of glue. I accept that subsequently, irrespective whether it was due to expiry of the Glue’s use life or due to the use of other glue, there was a problem with non-stickiness/adhesiveness.
77. Mr Shun Sr and Mr Suen claimed (a) the Label Function was a total failure, (b) the Labels could not be pasted onto the Bottles or if so pasted were not quite straight and (c) Mr Wong admitted the Label Function was never operational/successful. So Mr Shun Sr claimed that Imada consequently did not have to pay the Balance Price.
78. I accept Mr Yip’s evidence that Imada’s Trials carried out prior to the Changes were successful using the Glue and the Bottles. He frankly accepted that Mei-King’s staff observed some problems with the Label Function (ie the Labels pasted onto the Bottles were not quite straight) during the Visits (see below) in the first year. I accept his evidence that such problems stemmed from the uneven Bottle surface and non-stickiness/adhesiveness of the glue used.
79. I disagree that Mr Yip shied away from such assertion after Mr Suen testified that Mei-King supplied the Glue. Such explanation was found in Mr Yip’s witness statement dated 4th May 2005 which he adopted as his evidence after Mr Suen gave evidence. I also disagree that Mr Yip changed his evidence when he went on to explain that upon subsequent discussions with the Bottle Supplier for improving the specifications/quality of the Bottles (see below) the parties had an understanding that further tuning/testing of the Label Function would be deferred until there was stable/consistent improvement. I accept such evidence and further accept that since there was no such stable/consistent improvement even up to the 2002 Repair/Renovation, the Label Function was not fully tuned/tested. I do not accept Mr Wong admitted the Label Function was a failure.
(g) Collection Platform
80. Mr Suen claimed Imada’s Trials were unsuccessful so the Bottles did not even reach the Collection Platform let alone fall down from there to the floor. However, I have found the Bottles fell from the Collection Platform because Imada could not cope with production speed and therefore requested reduction to a more manageable level. Mr Suen next asserted there was no risk of the Bottles falling off the Collection Platform because the electronic sensors would automatically stop the Machine if Imada’s workers could not collect the Bottles fast enough. The unreliability of such assertion is exposed by Mr Suen’s eventual concession that there was no electronic sensor at the Collection Platform.
(h) Summary
81. In summary, although there were some observed problems with the Machine after Imada’s Trials, Imada failed to prove on balance they were caused by defect(s) of the Machine. In coming to such conclusion, I also bear in mind the discussion below on the Changes to the Materials and Mei-King’s liaison with Imada’s Suppliers.
82. Mr Suen’s complaint that the Functions could not be performed in one go due to intermittent malfunction of each Function and that Mei-King adopted “頭痛醫頭，腳痛醫腳” approach to repairs in fact supported Mei-King’s contention that the observed problems were due to the diverse Changes to various Materials within the same batch and from batch to batch with some Materials within and some without the Tolerance. This conveniently brings the discussions to Mei-King’s case (which I accept) that (a) at Imada’s requests Imada’s Suppliers re-worked the moulds and ran off new samples of the Materials and (b) Mei-King attempted to tune/adjust the Machine to accommodate such new samples only to have Imada’s quality control over the Materials slip after a while with re-emergence of the problems. In my view, this also explains why there were intermittent or cyclic relapse/malfunction.
XII. Mei-King’s tuning/adjustment, repair and maintenance of the Machine
83. Both Mr Yip and Mr Suen confirmed in evidence that after Imada’s Trials and between August 1998 and August 2002, Mei-King’s staff attended Imada’s Factory 12 to 13 times to fix the Machine on Imada’s requests (“Visits”), ie about 3 Visits per year.
84. Mr Suen said that after the On-Site Training and Imada’s Trials, the Functions had one problem or another and could not be performed in one go even though Imada added further workers to operate the Machine. Imada’s staff would try to resolve minor problems (eg giving the stuck Bottles a push to release them) themselves, but had no professional/technical expertise to repair the Machine. Mr Shun Sr/Imada’s staff telephoned many times to ask Mei-King to repair the Machine, but Mei-King adopted delaying tactics and its repairs were unsuccessful. Mei-King blamed the poor skill of Imada’s workers in operating the Machine, but when they became more adept, the Machine still did not work and was useless for production purpose. Mr Suen recalled only 1 occasion in/about August 1999 when the Machine barely managed to produce 200 half-finished Bottles with 4 workers operating the Machine.
85. I prefer Mr Yip’s evidence, which I shall discuss below.
(a) Which Mei-King’s staff attended Visits?
86. Mr Suen claimed mostly it was Mr Wong and at times Mr Wong and another Mei-King’s technician. I find Mr Suen’s denial that Mr Yip attended the Visits unreliable. Mr Suen did not know the distribution of work between Mr Yip and Mr Wong. His claim of having seen Mr Yip and Mr Wong checking the Machine’s electronic sensor box (電眼箱) once did not mean Mr Yip only attended 1 Visit. Mr Suen agreed he had his own work and was not necessarily present when Mei-King’s staff came to work on the Machine. Although Imada’s office would inform him of the arrival of Mei-King’s staff, he would not know whether Mr Yip was amongst them.
87. I accept that whenever there was a problem with the Machine Imada would just telephone to ask Mei-King to fix it. I agree 2 persons (mostly Mr Yip and Mr Wong) were required since 1 person had to be stationed at each end of the 6m long Machine to inspect and work on it. Further, it was only appropriate for Mr Yip (Mei-King’s “boss”) to liaise on the same level with Mr Shun Sr (Imada’s “boss”) over the Machine. I therefore accept Mr Yip and Mr Wong together attended 70% of the 12 to 13 Visits (ie about 7 to 8 times).
(b)Mei-King’s discovery ofthecause of the observed problems
88. Mr Yip drew sensible distinctions amongst repair, general maintenance and tuning/adjustment (eg manipulation of the Tolerance of various parts of the Machine or adjustment of the focus of the electronic sensors). I accept Mei-King at first thought the problems with the Machine required repair and were mechanical in nature, but it discovered by the end of 1998 or early 1999 they were caused by the diverse Changes to the Materials. On most Visits Mei-King’s staff found the Machine was still operable and just required tuning/adjustment to accommodate the Changes. On other occasions, certain parts of the Machine worn and torn as a result of production overuse were repaired/replaced.
(c) Meetings with the Suppliers
89. Even so Mr Yip still attended Imada’s Factory because Mr Shun Sr invited him to meet with Imada’s Suppliers. Between the end of 1998 and mid-2001, Mr Yip attended several (not more than 10) such meetings (“Meetings”) to discuss how to improve/standardise the specifications/quality/shape of the Materials to meet the Tolerance and to resolve the problems caused by the diverse Changes to the Materials received after Imada’s Trials.
90. Mr Yip drew rough drawings during the Meetings to illustrate his suggestions and gave them to the Suppliers’ representatives who agreed to re-work the moulds. When new samples were run off the re-worked moulds after 1 to 2 months, Mei-King’s staff (including Mr Yip) would attend Imada’s Factory for production trial runs and try to tune/adjust the Machine to accommodate the new samples. This explained why Mr Yip still attended the Visits as distinct from the Meetings after 1998.
91. Ms Lau submitted it was normal to expect variations in the specifications since the Materials were low-priced items. Such submission did not sit well with Mr Suen’s denial of any change to the Materials, but sat comfortably with Mr Yip’s evidence that after a while Imada’s quality control would slip and the Changes would re-emerge to affect the production process. Imada would again telephone and ask for Mei-King’s help, and together with Mei-King would again go through the process described in paragraphs 89 and 90 above, which happened several times. It took some time for the Suppliers to run off new samples of the Materials and then for the problems to re-emerge, which explained why there were several Visits after 1998 and the frequency was on average 3 times a year.
92. Despite Mr Yip’s reminder to Imada to liaise with the Suppliers to establish quality control of the Materials, there was no consistent/stable improvement of the quality/finishing of the Materials and/or standardisation of their specifications, so by the latter half of 2001 there was no longer any point for Mr Yip to continue with the Visits. Thereafter Mr Wong attended the Visits on his own or with another Mei-King’s technician to tune/adjust the Machine. This explained why Mr Yip only attended about 70% of the Visits.
(d) Quality control of the incoming Materials
93. Mr Yip said Mei-King’s other customers (eg Yu Yan Sang, Lee Kam Kee and Watsons) did not have similar problems because (a) they gave standardised written specifications/drawings to Mei-King to design/manufacture the Facilities and (b) their incoming quality control (IQC) departments inspected the packaging materials to ensure compliance with the standardised specifications. Imada did not provide any written specifications/drawings to Mei-King. I accept Imada did not have any IQC department. Although Mr Suen claimed Imada would inspect the Materials supplied by the Suppliers, his admission that Imada did not inspect the Bottles for Mei-King’s Trials because it would not open the Bottle Supplier’s original carton packaging is telling.
94. I find on balance Imada did not have effective quality control to ensure the Materials were of consistent and standardised specifications/ quality/finishing. But this was Imada’s (not Mei-King’s) responsibility since Mei-King did not know or have any contractual relationship with the Suppliers. Mei-King could only advise Imada to pay attention to these matters and help by tuning/adjusting the Machine to accommodate the new samples of Materials received by Imada from its Suppliers.
(e) Imada’s evidence that supported Mei-King’s case
95. Ms Lau criticised Mr Yip for not referring to the Meetings in his witness statement, but the best corroboration came from Mr Suen who admitted that (a) during the Visits Mr Wong/Mr Yip complained the Materials were “不標準” and “不合規格”, and (b) in/about 1999 Imada arranged a meeting between Mr Yip and the Supplier for the Plugs/Caps 曾銓記塑膠廠 (“Plastic Supplier”) to discuss such problems.
96. Mei-King’s case also finds support in Imada’s 23/8/01 Letter to Mei-King as follows : “…… 基於以下某些不正確因素，首次試機是瓶子瓶塞不標準，第二次試機是瓶蓋有問題，經長時間修改，……” (my emphasis). This was repeated in Mei-King’s Circular Letter dated 26th August 2002. 2 matters are immediately obvious. First, Mei-King had actually complained of the non-standardised specifications and poor quality of the Materials to Imada at the material time. Secondly, there could not have been just a one-off meeting with the Plastic Supplier. Imada admitted a long time was spent in improving the Materials, which sat well with Mei-King’s case.
97. Ms Lau doubted whether the Suppliers “were all so stupid that they failed to produce [the Materials] meeting the standard” after 3 years of advice/suggestion from Mr Yip. But if (as Mr Suen claimed but I disagree) Mr Yip were unable to identify any specific problem with the Plugs during his Meeting with the Plastic Supplier or if (as Ms Lau submitted but I also disagree) the Suppliers would have been able to resolve the problems with the Materials, Imada would not have spent “長時間修改” the Materials.
98. In my view, Mr Shun Sr must have been aware of the problems with the Materials to have initiated the Meetings or at the latest learnt about such problems at the Meetings. I disagree this is contradicted by Mr Yip’s witness statement which stated that “the problems …… would be reported to [Mr Shun Sr], but he did not appear to agree to [Mei-King’s] observation”. The tenor of the evidence showed that Imada and Mr Shun Sr were caught between a rock and a hard place. On one hand, they plainly knew there were problems with the Materials that affected the operation of the Machine, yet they could not make the Suppliers supply Materials of consistent standard/quality. On the other hand, given the known problems with the Materials, they did not wish to forgo continued maintenance/tuning service by Mei-King and/or their assistance in liaison with the Suppliers. If Imada openly acknowledged that the problems rested with the Materials, not only would it risk losing maintenance support from Mei-King but Imada would become immediately liable to pay the Balance Price. In short, Imada was unwilling to face reality.
(f)Mei-King’s advice to Imada on theMaterials
99. I now turn to Ms Lau’s various criticisms of Mr Yip’s evidence. Mr Yip claimed that prior to signing the Contract he suggested to Mr Shun Sr that a Facility buyer should ensure the packaging materials were standardised in order to facilitate automated production (“Advice”) and Mr Shun Sr accepted the suggestion. Ms Lau complained the Advice was not found in the Quotation/ Contract or in Mr Yip’s witness statement. In my view, it is not commercially necessary (as distinct from being prudent) to expressly include the Advice and/or to expressly exclude liability for the quality of the Materials in the Contract. After all, the Quotation/Contract set out the specifications for the Machine and not those for the Materials. I particularly reject Ms Lau’s submission that Mr Yip took deliberate advantage of Mr Shun Sr’s death to give evidence on the Advice without fear of rebuttal.
100. Further, the Advice is a red herring because it did not further advance Mei-King’s case. Even if Mei-King did not give such Advice, Imada and not Mei-King was still the party responsible for the specifications and quality/finishing of the Materials.
(g) Trouble-shooting
101. Even though Mei-King introduced Imada to the trouble-shooting techniques in the Manual, it could not force Imada to use them. But during the Visits Mei-King’s staff would jokingly remind Imada’s staff they could also tune/adjust the Tolerance by referring to the Manual without asking Mei-King to repair the Machine. Ms Lau complained that these matters were not in Mr Yip’s witness statement, but I do not think it affected his veracity. After all, there was no pleaded complaint of inadequate On-Site Training and, as Mr Yip said, these fine details were only elicited under extensive cross-examination.
(h) First year under the Maintenance Term
102. Mr Yip agreed it was improper/abnormal to use Materials with diverse specifications and poor quality/finishing. Ms Lau submitted that in such case there was no reason for Mei-King to provide maintenance service under the Maintenance Term even during the first year. I refer to paragraphs 39 and 40 above for discussion on Mei-King’s continued maintenance service despite abnormal/improper use of the Machine.
103. Mr Yip explained that Facility manufacturers invariably offered 1 year free maintenance service (akin to a defect liability period) to enable them to put right any manufacturing/installation/workmanship error. Mr Yip fairly accepted the Machine’s initial problems included these errors (eg incorrect alignment of the robotic arm or of the focus of the electronic sensor). But I agree they were rectified and the Machine tuned/adjusted shortly after the Installation.
(i) Continued maintenance service after the first year
104. Ms Lau submitted Mei-King would not be so “kind” to provide free maintenance service and to attend the Meetings until the end of 2001 when (a) the Maintenance Term provided “在次年始即略收回工本成本費用”, (b) Imada was not a big customer and (c) the Balance Price was not substantial. But in fact immediately after the expiry of the first year Mei-King sent a letter dated 21st August 1999 (“21/8/99 Letter”) to inform Imada the period of free maintenance service had expired and to propose 2 maintenance service plans. Imada did not respond or commit to any maintenance service plan.
105. Mr Yip explained (and I accept) Mr Shun Sr “misunderstood” the Maintenance Term to mean free life maintenance for the Machine. This I believe explained why Imada freely telephoned to ask Mei-King to repair the Machine whenever it ran into problems. I further find such “misinterpretation” fed (a) Mr Shun Sr’s refusal to openly acknowledge that the problems with the Machine were caused by the Changes to the Materials as well as (b) his insistence that Mei-King should repair the Machine to make it work.
106. Mr Yip said it was not a done thing amongst Chinese commercial community to cut off maintenance service abruptly even though Imada failed to commit to a maintenance service plan. Further, with a view to facilitate Imada’s use of the Machine and to persuade Imada to commit to a maintenance service plan and/or give some commercial return, Mei-King still attended the Visits and replaced worn and torn parts (eg corroded Tubes) free of charge from the second year onwards, but made clear to Mr Shun Sr such state of affairs could not last. When Imada still failed to (a) commit to any maintenance service plan, (b) pay for the repair/maintenance service or (c) pay the Balance Price by the end of 2001, Mr Yip informed Mr Shun Sr at about the end of January 2002 (ie around Chinese New Year) that Mei-King would suspend maintenance service and the Visits ceased.
107. Between the end of January 2002 and the 2002 Repair/Renovation, Mr Yip and Mr Wong worked on several projects in the PRC. They could be contacted via their PRC mobile telephones, but did not receive any call from Mr Shun Sr. On return to Hong Kong they were told by Mei-King’s office that Imada had called. But when Mr Yip tried to contract Mr Shun Sr by telephone, he was told Mr Shun Sr was out of Hong Kong.
XIII. DidImada use the Machinefor production purpose?
108. On balance I reject Imada’s claim that it had not made any use of the Machine for production purpose. I accept that during the Visits Mei-King’s staff observed a high mechanism depreciation rate contributed partly by normal/ heavy use of the Machine and partly by the corrosive nature of the Oil, which necessitated replacement of worn and torn parts. This was supported by Mr Suen’s admission that during the second or third year (ie before the 2002 Repair/Renovation) Mei-King on 1 or 2 occasions replaced certain parts of the Machine with newly purchased and/or re-worked materials/parts. Further, the Invoice showed that during the 2002 Repair/Renovation Mei-King re-worked and/or replaced certain parts of the Machine.
109. More significantly, Mr Yip said (and I accept) Mei-King replaced some corroded Tubes for which no invoice was issued (ie prior to the 2002 Repair/Renovation). Although Mr Suen at one stage claimed there was no replacement of the Tubes even up to July 2006 (ie when Imada took the Photographs), he also gave contradictory evidence that he noticed some Tubes were corroded and asked Mei-King to purchase replacements. The latter evidence was corroborated by the Invoice issued about 4 years prior to July 2006. In my view, Mr Suen’s assertion that there was no replacement of the Tubes was to bolster his suggestion that the reddish patches on the Machine shown in the Photographs were rust patches due to non-use of the Machine. I prefer Mr Yip’s evidence that they were Oil traces due to Imada’s failure to clean the Machine properly.
110. The corroded condition of the Tubes is material because the Oil (an organic solvent that caused corrosion) would only remain in the Tubes for substantial periods if it was regularly pumped into the Tubes during production or if the traces were not properly cleaned afterwards. Given Imada’s claim that (a) Mr Suen knew from experience and/or was told during the On-Site Training of the need to clean/remove the Oil from the Tank/Tubes after use, (b) Imada did so accordingly after the trial runs, and (c) the Machine was never used for bulk production, there is no satisfactory explanation for the significant corrosion of the Tubes that required replacement before and during the 2002 Repair/ Renovation. Although Mr Suen tried to brush this aside by saying the Tubes were difficult to clean, in my view the corroded Tubes speak strongly of Imada’s use of the Machine for production purpose.
111. I accept that after Imada’s Trials the Functions had intermittent problems and could not at times be performed in one go due to the Changes to the Materials. But this did not mean the Machine was not used for production purpose at all. After all, the Quotation/Contract provided that “[the Machine]各段裝置獨立控制，亦可同步生產，適合各廠户因實際需要而整體或個別操作……”. Indeed, the Machine was put to use/production for the Fill/Plug/Cap Functions only during Mei-King’s Trials. I find on balance Imada used the Machine for production purpose after each tuning/adjustment of the Machine to accommodate new batches of the Materials until the problems re-emerged.
112. Mr Suen complained Mei-King did not sufficiently take into account the corrosive nature of the Oil in its design of the Machine and in the choice of materials for the Tubes. This was not part of Imada’s pleaded complaints and I am not concerned with allegations of design defects. In any event I prefer Mr Yip’s evidence that no material would be completely corrosion-resistant and Mei-King had used durable and “耐腐蝕性”materials.
113. Ms Lau referred to (a) Mei-King’s 2/5/01 Statement indicating that Imada “驗收” the Machine (see below) and (b) the Invoice noting that the Tubes were replaced in August/September 2002, and suggested that if the Machine were used for production purpose and had the same rate of wear and tear, it was strange that Imada did not purchase/replace parts between August/September 2002 and the trial. But I am not persuaded Mr Suen’s assertion of no replacement of the Tubes was reliable (see above). I also refer to the discussion in paragraphs 120-122 below in relation to the 2/5/01 Statement.
XIV. Payment ofthe Paid Priceand non-payment of the Balance Price
114. Imada did not pay the second 30% of the Machine Price (HK$144,000.00) when “完成大樣”, but paid the same by the 2nd to 4th payments referred to in paragraph 7 above between 9th September and 17th December 1998. It also paid the 5th to 8th payments between 11th January and 26th May 1999. Mr Shun Sr’s affirmation did not explain why Imada made the 2nd to 8th payments for the Paid Price over a span of almost 9 months. Mr Suen could not assist because he did not know about payment matters. So Imada’s plea that it paid the Paid Price because it “needed to pay the fee for the Machine” under the Contract and wanted Mei-King to fix the Machine quickly was unsupported by evidence.
115. In any event, such pleaded allegation is unconvincing. If (a) Mei-King’s/Imada’s Trials were unsuccessful, (b) the Machine could not be used for production purpose, and (c) there was no Manual and no proper On-Site Training, all of which I disagree, there would have been no commercial reason for Imada to pay for the useless Machine and Pipes/Pump at all, especially when it claimed Mei-King persistently adopted delaying tactics in relation to the futile repairs.
116. In my view, the various payments of the Paid Price were consistent with Imada’s use of the Machine for production purpose and reflected Imada’s awareness that the problems were unrelated to the Machine.
117. Ms Lau submitted that Mei-King knew it was not entitled to claim for the Balance Price because it only chased Imada twice for the same. But apart from Mei-King’s monthly statement to Imada dated 21st August 1999 (“21/8/99 Statement”) and the 2/5/01 Statement, the disclosed documents showed that Mei-King also demanded payment of the Balance Price by the 21/8/99 Letter. I also prefer Mr Yip’s evidence that Mei-King followed its standard practice by issuing regular monthly statements to chase Imada for the Balance Price until litigation commenced, but did not retain copies of all such statements. Although normally Mei-King’s staff would liaise with the customers’ accounts departments on outstanding payments, Mr Yip personally chased Mr Shun Sr for the balance of the Machine Price, and when so pressed Mr Shun Sr would arrange the issuance of cheques in part payment of the Machine Price and Pipes/Pump Price.
118. The part payments ceased after 26th May 1999. When Mei-King’s staff thereafter chased for the Balance Price, Imada’s accounts department proffered many reasons for not being able to pay the Balance Price, which Mr Yip felt were excuses for delaying payment. In my view, this led to Mei-King’s formal demand to Imada to pay the Balance Price by the 21/8/99 Letter and the 21/8/99 Statement. Ms Lau submitted that Mr Yip’s evidence to the effect that Mr Shun Jr told him Imada could not make punctual payments because it was indebted to various firms did not sit well with his assertion that he would not chase Mr Shun Jr for payment. But Mr Yip explained (and I accept) that he elicited this from his “旁敲側擊” chat with Mr Shun Jr and not from any demand he made to Mr Shun Jr.
119. In my view, the above speaks clearly of Imada’s knowledge that the observed problems were caused by the Changes to the Materials after Imada’s Trials otherwise there would have been no sensible or commercial reason for Imada to pay the Paid Price.
XV. Is Mr Yip’s Remarkconsistent with Mei-King’s case?
120. Ms Lau submitted that Mr Yip’s Remark of “[the Machine] 已於去年底前完全調校妥當，並於今年三月五日由[Mr Shun Sr]及[Mr Shun Jr]現場顴察，作為驗收。因此，敬希[Mr Shun Sr]幫忙，將其餘貨款早日付清。謝謝” showed that Imada did not accept the Machine in 1998. Neither Mr Shun Sr nor Mr Suen gave evidence on the subject, so I turn to Mr Yip’s evidence.
121. Mr Yip explained (and I accept) that some time before the end of 2000 (but he could not remember exactly when) Mei-King at Imada’s request tuned/adjusted and re-tested the Machine as “驗收” since “…… [Imada]做咗一啲新嘅包裝材料，要我哋重新調整，好似嗰啲蓋，或者係樽，或者啲咩嘢，咁嘅時侯，所以我吔係講畀佢聽，係重新做過呢個調校妥當” . I have found there were cycles of (a) the Suppliers supplying new sample Materials from the re-worked moulds and (b) Mei-King attempting to tune/adjust the Machine and carrying out production trial runs with the new samples. Hence, the fact that Imada was satisfied with production trial run and “驗收” for certain new samples of the Materials did not mean the specifications/quality of the Materials would be consistent/standardised for all future supplies. They were only good until the problems with the Materials re-emerged some time later.
122. There was also no need for Mr Yip to refer to the problems with the Materials in Mr Yip’s Remark since (a) both Mr Shun Sr and Mr Yip knew about such problems, liaised with the Suppliers and were present at “驗收”, and (b) Mei-King had just “調校妥當” and the problems had not yet re-emerged. But after May 2001 and before the end of 2001 or early 2002, Imada still telephoned to ask Mei-King to fix the Machine, and Mei-King’s staff did tune/adjust the Machine due to the re-emerged Changes in the Materials.
123. Imada’s written response to Mr Yip’s Remark came almost a year later by way of the 23/8/01 Letter (ie “…… 迄今仍未清付款項問題，實因未正式驗收 ……”). The 23/8/01 Letter referred to the matters in paragraph 96 above and concluded by saying “直至目前為止，雙方仍未合理清楚解決，而拖延不是辦法，故本人曾親自電約面談解決，可惜令本人失望，故此特書函通知，盡速合理解決 ……”. In my view, Imada’s allegations of “未正式驗收” and “拖延” were tactical strategies to justify why it “迄今仍未清付款項”. I also refer to paragraphs 98 above and 125-130 below to say that when faced with problems with the Materials that were difficult to resolve and with the risk of losing Mei-King’s assistance coupled with an immediate liability to pay the Balance Price if it acknowledged such problems, Imada attempted to shift blame to Mei-King.
124. Mr Yip explained (and I accept) that whilst Mei-King was irritated by the 23/8/01 Letter, he felt the parties should resolve commercial differences across the table and not by bickering correspondence that would impair mutual business relationship. So Mei-King did not respond in like manner and still tuned/adjusted the Machine for Imada until the end of 2001 or early 2002. Mr Yip said and I accept that neither party referred specifically to the 23/8/01 Letter and that they focused on dealing with the problems instead.
XVI. 2002 Repair/Renovation
125. Imada published an advertisement (“Advertisement”) in the newspaper on 5th August 2002 as follows :
“嚴重警告 聲明通知
[Mei-King] 葉銘昌董事經理
[Imada]於一九九八年四月廿四月買賣合約，自動灌瓶、封蓋、貼標，依馬打藥油，生產線壹套，迄今仍未正式驗收，曾經多次函電催馳，全是故意借口拖延，毫無商德。除影響[Imada]營業額生產外，並造成商譽受損。現特此登報聲明，由即日起限十四日內，由[Mei-King]派員前來[Imada]試機，[Imada]將委任國際認可之公証行依合約驗收，解決問題，否則依法追究，賠償一切頂失。特此聲明。
[Imada] 啓
二零零二年八月五日”
126. Mei-King did not know of the Advertisement until mid-August 2002 when Mr Shun Sr mailed it to Mei-King’s office. Mr Yip was surprised because the problems were due to the Materials and Imada could have liaised with Mr Yip/Mr Wong directly without communicating via such indirect medium. I find it strange (and there is no satisfactory explanation from Imada why) Imada saw fit to publish the Advertisement when it could easily have written to Mei-King or instructed solicitors to do so. Indeed, Imada was able to and did instruct its former solicitors to issue a letter to Mei-King in the same month of August 2002 (“8/02 Letter”) with similar contents as follows :
“…… In breach of the Contract, the Product has shown not to be of merchantable quality. In breach of the Contract, you had failed to, despite repeated requests, by letter and by telephone, from the Buyer since at least August 2001, failed to carry out the final examination. As such, the Buyer has not accepted delivery of the Product.
Unless we or the Buyer hears from you on or before 2 September 2002 to arrange for a final examination to take place within 14 days thereafter, the Buyer shall appoint a qualified surveyor to carry out the final examination and such examination to find out the cause(s) of the Product’s defect. If that happens, the Buyer shall claim against you for the costs of engaging the surveyor and their losses suffered arisen out of the Product’s defects.”
In my view, there is a strong tactical element of publishing bad publicity against and putting pressure on Mei-King, and I am unable to place strong weight on the Advertisement and/or the 8/02 Letter.
127. I accept that Mr Yip did not respond in writing because he was not into “針針對對” correspondence. But he did express dissatisfaction directly to Mr Shun Sr’s/Imada’s agent Mr Lau on/about 20th August 2002 when Mr Lau approached Mei-King on behalf of Mr Shun Sr/Imada. On that occasion Mr Lau showed the Advertisement to Mr Yip, who complained that “「喂，有冇搞錯，咁樣嚟亂咁「baang」架咁」……所謂亂咁「baang」嘅意思即係話喺報紙亂咄登呢啲咁嘅廣告 ……”. It is all the more difficult to understand why the Advertisement was necessary at all when Imada was able to send Mr Lau to see Mr Yip and Mr Yip was willing to meet and promptly met Mr Lau. This adds weight to my conclusion that the Advertisement was a pressure tactic against Mei-King.
128. There is no dispute that despite the aspersions cast on Mei-King by the Advertisement, Mr Yip at Mr Lau’s request promptly agreed to meet with Mr Shun Sr at Imada’s office on 27th August 2002 to discuss about the Machine (“27/8/02 Meeting”). This reflected Mei-King’s practical commercial attitude. The alacrity of Mr Yip’s response also defied Imada’s assertion that Mei-King adopted delaying tactics.
129. Despite Mei-King’s agreement to attend the 27/8/02 Meeting, Imada on 26th August 2002 (ie the day before such meeting) issued the Circular Letter (not addressed to Mei-King) to warn medicinal and food manufacturers (ie Mei-King’s customers) as follows :
“購買機械 小心提防
葉銘昌虛假宣傳 美景機械工程爆光
欺騙欺詐 追究賠償
[the contents similar to the 23/8/01 Letter] ……直至目前為止，均是故意借口拖延，並有欺騙、欺詐業界等行為，毫無商業道德，除影響[Imada]生產運作外，並造成營業額巨大損失，並曾多次函電催馳面談解決，可惜令本人失望，故只有依法追究控訴賠償一切損失。特此順告同業廠商知照，以免受損、留意受騙是盼。”
In light of the 27/8/02 Meeting to be held on the following day, I cannot see any useful commercial purpose in issuing the Circular Letter except for the questionable motive of broadcasting bad publicity against Mei-King. But Ms Lau tried to cast suspicion on Mr Yip because Mei-King did not reply to the Circular Letter. However, Mr Yip said (and I accept) Mei-King only received a copy of the Circular Letter from Imada after commencement of the Tribunal Proceedings in January 2003. Mr Yip thought it unnecessary to make any reply since “…… 佢呢個係所謂向行業，或者喺各界嚟公佈，咁我冇理由見到要逐個接觸過呢封信嘅人嚟解釋”. In my view, there is also little point for any reply since by that time the 2002 Repair/Renovation was completed and the parties were already in litigation.
130. Imada disclosed in these proceedings a document titled “[Mei-King]協商解決程序” of “二零零二年九月十一日記事” (“11/9/02 Record”). There is no information as to who prepared the 11/9/02 Record although the maker appeared to be Mr Shun Sr (eg “本人示意[Mr Lau]預約[Mr Yip]來公司洽談” (my emphasis)). Strong and vindictive words were used in the 11/9/02 Record against Mei-King, but of greater interest is its statement that “因此，本人才佈局了一些策略，希望能合理解決，亦待事情的演變 ……” (my emphasis), which sat well with the above conclusions. I find Imada’s stance as stated in the 23/8/01 Letter, the Advertisement, the 8/02 Letter and the Circular Letter unreliable and unconvincing, and nothing more than tactical strategies.
131. The 27/8/02 Meeting was attended by Mr Shun Sr, Mr Shun Jr, Mr Yip and Mr Lau. The 11/9/02 Record noted as follows : “主題：試機驗收。葉云，時間已久，可能機件電腦零件等問題，希望能更換膠喉、充填零件，每天人工1300元，補貼一半，而膠喉零件按原單代支補貼，最重要是電腦問題，本人亦按原則同意，但時間不能拖延，葉云，將盡快解決，即八月卅日，再來公司查視。” There was no plea that Mei-King would bear half of the cost of the 2002 Repair/Renovation and I reject such contention.
132. Mr Yip suggested that if the Machine’s computer programme was lost/damaged so that re-formulation was necessary, the repair cost might be HK$70,000.00-HK$80,000.00, but otherwise repair/maintenance on a “實報實銷” basis (ie labour cost at HK$1,300.00 per man-day (as echoed in Mei-King’s 21/8/99 Letter and Imada’s 11/9/02 Record) and replacement of parts at cost) would be about HK$20,000.00-HK$30,000.00. I accept that Mr Shun Sr agreed to the proposal.
133. On 30th August 2002, Mei-King sent staff to Imada’s Factory and they discovered the computer programme was still working, but Imada’s workers failed to properly clean the Oil traces from the Tubes after production, so the Oil could not be pumped through the leaking/corroded Tubes to the Nozzles for production purpose. Such corroded Tubes and other parts of the Machine (eg the robotic arm) worn and torn due to long use had to be and were replaced/repaired during the 2002 Repair/Renovation. On 31st August 2002, Mei-King’s staff dismantled and brought certain parts of the Machine back to Mei-King’s Factory for re-working/replacement. Mei-King also purchased components and materials for making new parts.
134. The 2002 Repair/Renovation was completed on 13th September 2002. I accept the Machine was eventually tested and confirmed to be operable, but the problems with the Materials were still not resolved. Interestingly, although Imada made detailed written record of the 27/8/02 Meeting, it did not record the result of the 2002 Repair/Renovation at all.
XVII. Was Imada obliged to pay the Invoice Sum?
135. The Invoice comprised 6 man-days at HK$1,300.00 each man-day (HK$7,800.00) and expenses for the purchase of materials/parts (HK$6,465.00). There is no dispute that Mei-King actually carried out the 2002 Repair/ Renovation and no suggestion that it was free of charge, so Imada was liable to pay for the cost thereof. The only question is the quantum.
(a) Labour costs
136. Ms Lau submitted “實報實銷” only applied to the purchase of materials/parts only, but such submission ignored paragraph 19 of Mr Shun Sr’s affirmation that acknowledged labour cost would be charged on that basis as well (ie “由於[Mr Yip]承諾實報實銷，故此本人要求[Mei-King]解釋工人的計算方法……”). Ms Lau did not argue any other basis of charge. I find labour cost was charged on “實報實銷” basis.
137. Mr Yip explained (and I accept) the cost of HK$1,300.00 per man-day was based on average daily remuneration of 2 workers each of HK$650.00 (ie monthly wages of HK$11,000.00 ÷ 24 working days plus the cost of employees’ compensation insurance, statutory holiday, paid annual leave, overtime pay and lunch allowance). This was Mei-King’s “行家價”, ie the rate it charged customers for repairs (see the 21/8/99 Letter). Such rate was exclusive of profit, cost of using Mei-King’s transport, fuel charges, harbour tunnel fees, carpark charges and other expenses. Further, the 11/9/02 Record also showed the parties had actually discussed such man-day rate at the 27/8/02 Meeting.
138. I find it justified to premise the rate on 2 workers since the 2002 Repair/Renovation required 1 to 2 workers and a driver. 1 worker had to be stationed at each end of the 6m long Machine for inspection/repairs. 2 workers were required to dismantle and transport the worn and torn parts to Mei-King’s Factory. Mei-King sent a driver with 1 or 2 workers to purchase the materials/parts listed in the Invoice the total weight of which exceeded 200kg. Back at Mei-King’s Factory, a lathe worker and a milling worker had to carry out additional works on the materials/parts. Then Mei-King’s driver and 2 workers delivered the repaired/renovated parts to Imada’s Factory for assembly/ installation before testing the Machine and carrying out production trial runs.
139. Ms Lau submitted it was unbelievable for Mei-King not to keep formal or detailed log of the involved workers, the works undertaken and the hours spent for the repair/renovation of the Machine. But Mei-King’s workers would as a matter of practice make brief notations on the calendar and inform Mei-King’s management of the work done and materials/parts purchased for the issuance of bills (if appropriate) to customers. Mr Yip did not expect the workers and they would not have been able to make formal/detailed written record. I find Mr Yip’s evidence realistic.
140. Imada admitted Mei-King carried out repair/renovation work at Imada’s Factory on 31st August and 6th, 11th and 13th September 2002 (see Mr Shun Jr’s statement dated 3rd October 2003 for the Tribunal Proceedings). I am satisfied the 2002 Repair/Renovation took 6 man-days. As early as in July 2003, Mr Yip in his statement for the Tribunal Proceedings explained that the 6 man-days comprised (a) 2 workers working at Imada’s Factory for 3 man-days dismantling worn and torn parts, re-installing new parts and carrying out tests and production trial runs (corroborated by Mr Shun Sr’s statement dated 16th September 2003 for the Tribunal Proceedings) and (b) 2 workers incurring 3 further man-days outside Imada’s Factory, ie carrying out additional works at Mei-King’s Factory and purchasing materials/parts.
(b) Materials/parts
141. Mr Yip said (and I accept) all purchased materials/parts listed in the Invoice were either used for the Machine or given to Imada. Ms Lau complained that this was not mentioned in his witness statement, but in fact Mr Yip in his statement dated 26th July 2003 for the Tribunal Proceedings already stated that “零件費 …… 實報實銷，安裝後剩餘零件亦全部交付[Imada]”. I reject Imada’s pleaded complaint that it had no knowledge of the contents of the Invoice.
142. Mr Yip fairly accepted Mei-King did not produce any bill/receipt for the purchased materials/parts. But since Imada was unable to say which materials/parts listed in the Invoice were not purchased or not used for the Machine or not given to Imada, and further since the purchased materials/parts were admittedly not free of charge, the court should do its best to ascertain the quantum of the “實報實銷” cost. There is no countervailing evidence to suggest the contemporaneous listed cost of the materials/parts in the Invoice was excessive or unreasonable. I accept on balance they were the “實報實銷” cost.
143. It was also suggested that Imada was not obliged to pay the Invoice Sum because the 2002 Repair/Renovation was unsuccessful. I disagree that such repair/renovation was unsuccessful, but in any event no such condition was discussed at the 27/8/02 Meeting or noted in Mr Shun Sr’s affirmation or the 11/9/02 Record. On the contrary, Mei-King in its letter to Imada dated 14th November 2002 (“14/11/02 Letter”) stated that at the 27/8/02 Meeting “[Mr Yip]承諾派技術員維修跟進，閣下亦承諾支付所有的維修費用及零件費用，按照承諾，[Mei-King]隨即派員進行維修。” I accept that Mei-King refused Mr Shun Sr’s proposal to pay half of the Invoice Sum in full and final settlement.
144. Ms Lau argued Imada would not have avoided payment of the small Invoice Sum and “waste the Paid Price”. But such argument did not sit well with the lack of response from Imada (which all along had not been shy in making written complaints) to the 14/11/02 Letter that stated “維修工作於2002年9月14日完成，亦經閣下滿意接受 ……” and demanded payment of the Invoice Sum.
(c) Summary
145. I find the Invoice Sum was the “實報實銷” cost of the 2002 Repair/Renovation. Imada was liable to pay the same to Mei-King.
XVIII. Tribunal Proceedings
146. On 15th January 2003 Mei-King issued the Tribunal Proceedings, but did not at the same time claim for the Balance Price. After careful consideration of the totality of the evidence, I do not consider this detracted from the veracity of Mr Yip’s evidence or Mei-King’s case.
XIX. Was Imada entitled to reject the Machine or was it precluded from doing so by acceptance?
147. I have found that Imada failed to prove on balance any failure of the Machine to meet the Specified Volume/Rate or to perform all Functions in one go was due to defects of the Machine itself. There is no breach of the implied conditions of merchantable quality and fitness for purpose/description. This is sufficient to dispose of Imada’s claim.
148. But if I am wrong and there were breach of such warranties, Mei-King argued Imada was precluded from rejecting the Machine because it (a) used the Machine in its business since August/September 1998, (b) retained the Machine ever since August 2002 without intimating to Mei-King after lapse of a reasonable time it rejected the same, (c) was deemed to have accepted the Machine by accepting the Pipes/Pump which formed part of the Facility, and (d) continued to effect part payments constituting the Paid Price.
149. There is no doubt Imada took physical delivery of the Machine and Pipes/Pump. However, Imada all along claimed it “never accepted” the Machine. Ms Lau submitted that since Imada paid the Paid Price it was prepared to accept the Machine if Mei-King’s repairs were successful, but since they were not Imada was entitled to and rejected the Machine.
150. Ms Lau at first submitted that Imada rejected the Machine between 5th and 26th August 2002 by the Advertisement and Circular Letter. But such proposition did not sit well with the subsequent 27/8/02 Meeting that discussed repair/renovation of the Machine, the 2002 Repair/Renovation and Imada’s still later invitation to Mei Lee to repair the Machine. Ms Lau was therefore constrained to submit that Imada rejected the Machine by issuing its claim in DCCJ5540/2003 on 23rd September 2003. But Mr Suen (who finished his evidence before Imada amended its pleadings to add the formal plea on rejection) seemed to think otherwise. He said that after the 2002 Repair/Renovation Imada left the unused Materials on the Machine even up to the trial in July 2006 because Imada was inter alia still waiting for Mei-King to send staff to repair the Machine despite the litigation. Had there been clear and unequivocal rejection of the Machine in September 2003, it is strange indeed for Mr Suen to still expect Mei-King to come and repair the Machine in 2006. Such evidence is inconsistent with the plea of rejection.
(a) Relevant law
151. A buyer exercising his right to reject must communicate to the other party clearly and unequivocally otherwise he may lose the right to reject as under certain circumstances an affirmation of the contract may be implied by law. But a buyer who rejected goods is not bound to return them to the seller.
152. Section 37 of the Sale of Goods Ordinance Cap.26 (“Ordinance”) deals with conduct/inaction by the buyer which constitute acceptance by him, upon which his right to reject will be lost. A buyer will be deemed to have accepted the goods if he so intimates to the seller or does something inconsistent with the seller’s ownership (section 37(1)). But if the buyer has not previously examined the goods, he is not deemed to have accepted them until he has had a reasonable opportunity to do so for the purpose of ascertaining whether they are in conformity with the contract (section 37(2)(a)). The buyer will also be deemed to have accepted the goods if a reasonable time has elapsed after his retaining the goods without intimating to the seller that he has rejected them (section 37(4)). In deciding whether a reasonable time has elapsed, it is material to consider whether the buyer has had a reasonable opportunity of examining the goods for the abovementioned purpose (section 37(5)).
153. Section 35(6)(a) of the Sale of Goods Act 1979 has no application to Hong Kong, so it is not expressly clear from the Ordinance whether a buyer’s attempt to remedy defective goods or to have them remedied by the seller or third party would amount to deemed acceptance under section 37(1). But since what is a “reasonable time” for rejection is a question of fact, I am of the view that there is flexibility for the court to consider whether and how much time taken for repairing the goods should be taken into account in deciding what “reasonable time” is in each case.
(b) “驗收”
154. Mr Shun Sr claimed Imada never formally “驗收” the Machine in writing. But such “驗收” was not strictly necessary as it was not provided in either the Contract or the Ordinance. Irrespective of such “驗收”, I have found that Imada used the Machine after Imada’s Trials for production purpose that was more than necessary for testing or trial runs. By such act which was inconsistent with Mei-King’s ownership, Imada was deemed to have accepted the Machine.
(c)Reasonable opportunity to examine
155. After the Machine was delivered/assembled/installed in August 1998, Imada kept it for more than 5 years before the alleged rejection in September 2003. Has a “reasonable time” elapsed for Imada to be deemed to have acepted the Machine?
156. I disagree there is any inchoate state of “non-acceptance” beyond (a) a reasonable opportunity for examining the goods and/or (b) a reasonable time for retaining the goods without intimating rejection to the seller. I bear in mind that whilst rejection must be unequivocal, acceptance can be deemed under section 37(1) and (4) of the Ordinance. I now first consider whether Imada had a reasonable opportunity to examine the Machine under section 36(2) of the Ordinance.
157. Imada by paragraph 3 of its Reply and Defence to Counterclaim in DCCJ5540/2003 admitted that after delivery of the Machine to Imada’s Factory on 6th August 1998, “when the staffs of [Imada] examined and tested the Machine, the Machine could not perform satisfactorily as what [Imada] needed” (my emphasis). Such admission together with Ms Lau’s concession that the alleged defects of the Machine were readily apparent/obvious as early as Mei-King’s/Imada’s Trials lead to the inevitable conclusion that Imada already had a reasonable opportunity to examine the Machine in 1998.
158. There was again reasonable opportunity to examine the Machine when in August 2002 Imada (with the benefit of legal advice)warned Mei-King it might retain qualified or internationally recognised surveyor to examine the Machine to ascertain the cause of the defect(s). I reject the argument that it was not possible to retain a surveyor without the Computer Documents. I note Imada did not ask for the Computer Documents when it warned Mei-King it might engage a surveyor, and there was no evidence that the proposed exercise by the surveyor as distinct from repair/maintenance of the Machine required the Computer Documents.
(d) Repair/maintenance of the Machineand lapse of time
159. Even if Mei-King were in breach of the implied warranties of merchantable quality and fitness for purpose/description, I am not persuaded the whole period up to September 2003 was a “reasonable time” for rejection because of the need to repair/tune the Machine. Imada’s production supervisor Mr Suen (who had some experience with automated machines from his studies at the technical institute) said that in mid-1999 he realised from the way Mei-King tuned/adjusted the Machine that it could not be successfully repaired. Further, Mei-King ceased to provide maintenance service after the 2002 Repair/ Renovation (which Imada claimed was unsuccessful). Not only did Imada not reject the Machine then, Mr Shun Sr approached Mei Lee to carry out repairs because Imada had “invested” in the Machine (ie paid the Paid Price) and wanted to see if the Machine could be fixed in order to contribute to Imada’s business (which conduct/intention appeared to be inconsistent with Mei-King’s ownership). Although Mei Lee eventually abandoned the repair attempt and litigation commenced in January 2003, Imada still did not reject the Machine. Indeed, even when Imada’s solicitors issued demand letters to Mei-King in June/July 2003, Imada only demanded compensation without any intimation of rejection of the Machine. No or no satisfactory explanation was forthcoming on the above stance, and in my view, more than a reasonable time had elapsed and it was too late for Imada to reject the Machine in September 2003.
(e) Imada’s webpage
160. Mr Suen knew a picture of the Machine was posted on Imada’s webpage some time after the Installation until at least 12th December 2003. There is no doubt that the webpage was to promote Imada and its products. In my view, Imada by posting such picture on the webpage held out that the Machine was part of its production facilities. This did not sit well with Imada’s alleged rejection of the Machine in September 2003. Ms Lau argued there was no narrative description of the Machine on Imada’s webpage, but could offer no credible explanation for the presence of the picture on the webpage. Mr Suen’s admission that it was due to commercial consideration (商業意識) supports the above conclusions.
(f) Payments by Imada
161. I have rejected Imada’s claim that it paid the Paid Price because it “needed to pay the fee for the Machine” and wanted Mei-King to fix the Machine quickly. Bearing in mind the above factual matrix, I find that Imada’s conduct in paying the Paid Price by the Deposit and 7 other payments over about a year was consistent with Imada having accepted the Machine.
162. Ms Lau cited All Fund Industrial Limited v Queentex Company Limited HCA11750/1995, Yuen J (as she then was) (unreported, 10th February 1999) in support of the proposition that payment of the price did not debar rejection. In that case, the plaintiff sold/delivered circuit boards to the defendant. After problems with the circuit boards were found and following a meeting, the defendant made part payment of the total invoiced sum. It was held that it did not lose the right to refuse further quantities of circuit boards. But the defendant in that case actually set aside a sum considered to be more than enough protection before making the part payment. Further, it remained liable to pay the plaintiff for some deliveries in any event and indeed judgment was granted in favour of the plaintiff for the price of certain circuit boards less the price of the rejected goods. I am unable to draw assistance from this case, the facts of which are a far cry from those of the present proceedings.
(g) Acceptance of the Pipes/Pump
163. Mei-King argued (but Imada disagreed) that by accepting the Pipes/Pump Imada was deemed to have accepted the Machine since they formed part of the Facility. I need not be concerned with such argument because I have found that Imada had used the Machine and Pipes/Pump for production purpose that was beyond what was necessary for testing or fitting.
(h) Summary
164. In my view, Imada had accepted the Machine and had lost the right to reject. It therefore follows there was no total failure of consideration.
XX. Loss and damages
165. In case I am wrong and Mei-King was in breach of the Contract as alleged by Imada, I shall briefly consider the issue of damages. Ms Lau confirmed that despite claims in Imada’s pleadings for loss of profit and/or damages for loss of use of factory space occupied by the allegedly idle Machine, Imada’s damages were in fact the Paid Price.
166. Section 55 of the Ordinance provides inter alia as follows :
“(1) Where there is a breach of warranty by the seller, or where the buyer elects, or is compelled, to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer …… may-
(a) set up against the seller the breach of warranty in diminution or extinction of the price; or
(b) maintain an action against the seller for damages for the breach of warranty.
(2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty.
(3) In the case of breach of warranty of quality, such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty. ……”
167. Section 55(1) reflects the first rule of Hadley v Baxendale but excluding the element of knowledge of special circumstances, and section 55(3) appears to apply equally to breach of warranty of description/fitness as it does to breach of warranty of quality (McGregor on Damages 17th ed. para.20-056 at p.717). The normal measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the wrongful party’s breach of contract. Where there is an available market, the measure is prima facie the difference between the contract price and the market/current price at the time of delivery.
168. Ms Lau submitted that the Machine Price and Pipes/Pump Price should be the best guide of the value of the Machine and Pipes/Pump if they had answered to the warranty. But McGregor on Damages (supra) para.20-258 at p.718 stated that “[the] contract price may be taken as evidence of the value of the goods as warranted where it is difficult to assess, but it is generally irrelevant and is not to be taken in lieu of the value as warranted. Where the contract price has been taken without argument this has probably been because it represented the market price” (my emphasis).
169. Here there was an available market of available sellers. Mr Yip said other machine companies (eg Mei Lee and Mei-King’s other competitors) also designed/manufactured/sold Facilities similar to the Machine. He said both Mei-King and other such companies normally took 2 odd months from the time the customer committed to the purchase to design, manufacture, deliver and install the Facility.
170. Imada did not lead any evidence at all in respect of (a) the warranted value of the Machine from the available market at the time of delivery (eg price quotation from other machine companies) and/or (b) any difficulty in gathering evidence of such warranted value to justify the reference to other evidence of value. In the absence of such evidence, it is not appropriate to adopt the Machine Price and Pipes/Pump Price as the warranted value. After all, Mr Yip said that the price of a Facility depended on the cost of steel. Plainly the warranted value would depend on a host of factors including the price of steel at the material time.
171. I find on balance that Imada has failed to prove its case for damages on the balance of probabilities.
XXI. Conclusion
172. I therefore grant judgment in favour of Mei-King against Imada for the Balance Price (HK$39,560.00) and the Invoice Sum (HK$14,265.00) in the total sum of HK$53,825.00, and interest on the Balance Price from 17th November 2003 and on the Invoice Sum from 15th January 2003 both to the date of judgment at 10.934% pa and thereafter at judgment rate until payment. Imada’s claims against Mei-King are dismissed.
173. There is no reason why costs should not follow event. I grant a costs order nisi that Imada do pay the costs of the present proceedings, ie DCCJ5540/2003 and DCCJ6521/2003 (with all costs reserved if any) to be taxed if not agreed, but Mei-King do pay Imada costs of the Cooker Counterclaim to be taxed if not agreed.
(Marlene Ng) |
Representation:
Ms Lorinda Lau instructed by Messrs Huen & Partners for Imada Luenwah World Limited.
Mr Yip Ming Cheong, partner of Mei-King Machinery Engineering, in person and present.
Mr Wong Chi Nang, partner of Mei-King Machinery Engineering, in person and present.