A A

DCCJ 4522 of 2008

B B

IN THE DISTRICT COURT OF THE

C C
HONG KONG SPECIAL ADMINISTRATIVE REGION
D CIVIL ACTION NO. 4522 OF 2008 D

E E
_________________
F F
BETWEEN
G G
TECHTREND LIMITED 1 st Plaintiff
KINGMAN TECHNOLOGY (HK) LIMITED 2nd Plaintiff
H H
and
I I
st
MAJESTIC DESIGN LIMITED 1 Defendant
J MAJESTIC FURNITURE & INTERIOR DESIGN LIMITED 2nd Defendant J

K K
_________________
L L

Coram : Deputy District Judge A. Kot in Court M

M
st rd
Date of Hearing : 1 September 2010 to 3 September 2010
N N
Date of Judgment : 28 September 2010

O O
_________________
P P

JUDGMENT
Q Q
_________________
R R

INTRODUCTION
S S
st nd st nd
1. The 1 and 2 Plaintiff claims against the 1 and 2 Defendant for
T T
the sum of HK$281,600 (“the Deposit”) being deposit paid for the service

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A A
of the 1st Defendant in the design and decoration of a property as well as
B the design and making of furniture by the 2nd Defendant. B

C C

2. The Defendants counter-claim against the Plaintiffs for the sum of

D D
HK$5,000 being administrative fee for the cancellation of the purchase
E order signed by the 2nd Plaintiff as well as damages for the Plaintiffs’ E

wrongful termination of the contract.

F F

G G
3. The Plaintiffs are prepared to give credit to the HK$5,000 claimed by
H the 2nd Defendant. And it is also admitted by the Defendants at the end of H

the trial that there is no evidence of damages suffered to support the

I I
counter-claim lodged.
J J
4. The factual issue to be determined in this case is whether there was
K K
an oral warranty made by the Defendants as to the refund of the Deposit.
L Should there be such a warranty made before entering into the contract, L

whether such evidence is inadmissible under the parol evidence rule. And
M M
should the evidence be admissible to form a collateral contract, whether the
N entire agreement clause in the purchase order denuded the legal effect of a N

collateral warranty.
O O

P P
5. Furthermore, should the court find no oral warranty existed, the
Q Plaintiffs argued that the court still need to consider whether the Deposit Q

were part payment which should be returned or just an earnest of

R R
performance which the Defendants are entitled to forfeit. The certainty of
S the terms in Clause 1 and 3 of the Purchase Order between the 1st Plaintiff S

and the 1st Defendant is also in issue.

T T

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A A

B UNDISPUTED FACTS B

C 6. The Plaintiffs and the Defendants are limited companies incorporated C

in Hong Kong. Madam Michelle Chan (“Madam Chan”) is the major

D D
shareholder holding over 90% of the shareholdings in the Plaintiffs and is
E also the director of the Plaintiffs. E

F F

7. The Defendants are under the same group of companies called

G G
“Majestic Group”. The 1st Defendant is carrying on business of design and
H building project and the 2nd Defendant is carrying on business of furniture H

and interior design.

I I

J 8. On 30th April 2008, Madam Chan, for and on behalf of the 1 st J

Plaintiff, entered into a provisional agreement for the purchase of the
K K
property known as Flats A & B on 11th Floor and the Roof and Car Parking
L Spaces Nos. 17 and 21 on Ground Floor, Viva Court, No. 290 & 290A L

Prince Edward Road West, Kowloon (“the Property”) with completion of

M M
the purchase scheduled on 31st July 2008.
N N

O 9. The 1st Plaintiff agreed to engage the 1st Defendant for the design and O

decoration work of the Property at the total price of HK$620,000 by way of

P P
a purchase order dated 28th June 2008 (page 155-166 of Bundle) signed by
Q Madam Chan (“the 1st Purchase Order”). By another purchase order signed Q

by Madam Chan (page 167-169 of Bundle) on the same occasion, the 2 nd

R R
Plaintiff agreed to engage the 2nd Defendant for the design and made-to-
S measure furniture and fittings for the Property at the price of HK$168,000 S

(“the 2nd Purchase Order”).

T T

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A A
10. Under the 1st Purchase Order, the 1st Plaintiff had paid by way of
B credit card payment an initial deposit of HK$16,400 (page 171 of Bundle) B

on 28th June 2008 and a further deposit of HK$231,600 by way of cheque

C C
(page 173 of Bundle) on 30th June 2008. Under the 2nd Purchase Order, the
D 2nd Plaintiff had paid a deposit of HK$33,600 by credit card payment (page D

170 of Bundle) to the 2nd Defendant upon signing of the purchase order.
E E

F F
11. The Defendants were informed by the Plaintiffs on or about 31 st July
G 2008 that the purchase of the Property had fallen through due to the G

defective title of the Property. The Plaintiffs then requested for the refund
H H
of the Deposit and on the instruction of the Defendants, had provided the
I Defendants with a written request for refund on 23rd August 2008 (page 180 I

of Bundle). By a letter dated 3rd September 2008 issued by the Plaintiffs’

J J
solicitor, the Plaintiffs further requested the Defendants to refund the
K Deposit of HK$281,600 paid by the Plaintiffs. By a letter from its K

solicitors dated 11th September 2008, the Defendants denied the entitlement
L L
of the Plaintiffs to any refund.
M M

N 12. The relevant provisions of the 1st Purchase Order printed on the back N

of it are as follows :
O O
Clause 1 – If customer cancelled this contract order, all deposits
P P
would not be refunded and the company shall forfeit all deposits.

Q
The company reserves rights to claim against customer for all loss Q
and damages.
R R
Clause 2 – An order should remain valid only within six months from
S the date of confirmation. The customer should make a written S

request to the company for extension of the contract. The company

T T

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A A
should forfeit the deposits if no written request received. In addition,
B the customer is liable for all loss and damages of our company. B

Clause 3 – If customer suspended or terminated the contract by no

C C
reason or the customer is delaying the contract, all deposits would
D not be refunded. The customer is needed to pay all started items in D

full and the company also reserves rights to claim against customer
E E
for all loss and damages.
F F
備註 4 – 訂單金額 HK$620,000 包括以上 132 項, 一切口頭承諾經
G 已列明於合約上 , 一切協議均以上列合約內容為 (page 162 of G

Bundle)
H H
(Remarks No. 4 – contract price HK$620,000 including the above
I I
132 items, all verbal undertakings have been set out in this contract,

J all agreement refer to the contents of the above contract as) (Court’s J
translation)
K K
備註 4 – 一切口頭承諾經已列明於合約上 , 一切協議均以上列合
L 約內容為準, 合約以外之項目,我司 (page 165 of Bundle) L

M (Remarks No, 4 – all verbal undertakings have been set out in this M

contract. All agreement referred to the contents of the above

N N
contract as correct. For items not included in this contract, our
O company) (Court’s translation) O

P P

13. The relevant provisions of the 2nd Purchase Order printed on the back
Q Q
of it are as follows :
R R
Clause 2 – The purchase order will be valid for 6 months from the

S
date of issue. S

Clause 3 – Unless a notice for extension of time for measurement in

T T
writing is given before expiration of six months from the date of
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A A
purchase order, the purchase order will be void automatically and
B the deposit paid thereunder will be confiscated. Our company is B

under no obligation to give notice before expiration of six months

C C
from the date of purchase order.
D Clause 8 – In any event, our company shall charge administrative D

fee of HK$5,000 for each purchase order upon receipt of application

E E
for cancellation by the customer. After deduction of the said
F administrative fee, the balance of the deposit payable under the F

purchase order shall only be used for purchase of goods in our

G G
company. If the deposit payable under the purchase order is
H insufficient to set off the administrative fee, our company reserves its H

rights to claim the customer for the outstanding balance. If

I I
measurement and design work is under progress, our company shall
J charge the measurement and design fee HK$3,000 respectively. J

K K

WITNESSES
L L
14. The Plaintiffs called its director Madam Chan and her brother-in-law,
M Mr. Chan (“Mr. Chan”) to testify whilst the Defendants called Mr. Lai, the M

General Manager of the Sales Department (“Mr. Lai”) as witness at this

N N
trial.
O O

P
PLAINTIFFS’ CASE P
15. The Plaintiffs contended that they are entitled to a refund of the
Q Deposit since the employees of the Defendants involved in the negotiation Q

of the 1st and 2nd Purchase Order had warranted to the Plaintiffs that should
R R
st
the 1 Plaintiff’s purchase of the Property fall through, the Defendants
S would refund the Deposit to the Plaintiffs. S

T T

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A A
16. Madam Chan, upon signing the provisional agreement for the
B purchase of the Property, had entrusted Mr. Chan to oversee the renovation B

work of the Property including looking for the decoration and furniture
C C
designers. Mr. Chan started to shop around in mid-May 2008 and had
D come into contact with Miss Ling Lam (“Ling”) and Mr. Gary Tam D

(“Gary”) of the Defendants at a shop called “Majestic” in Hung Hom. An

E E
on-site inspection and measurement-taking had been arranged on 24th May
F 2008 with Ling, Gary and the designer of the Defendants called Ah Bun F

(“Bun”) attending. Measurement was took and a draft floor plan of the
G G
Property was prepared.
H H

I 17. On 18th June, Madam Chan was informed by her solicitor that there I

might be a problem with the title to the Property. Another on-site

J J
inspection was arranged on 28th June with Ling and Gary attending.
K Madam Chan received another call from her solicitors about the defective K

title whilst waiting for the estate agent with Ling and Gary at the ground
L L
floor of the Property. Madam Chan then told Gary and Ling that the
M purchase may not be able to complete due to the defective title. Both Gary M

and Ling acknowledged this fact.

N N

O O
18. After the inspection, Madam Chan together with Mr. Chan were
P invited to attend the Defendants’ office in Kowloon Bay to discuss further P

about the draft plan. At the office, Madam Chan was asked to choose the
Q Q
materials from the samples. Bun also told Madam Chan that the three
R dimensional draft design plan would only be prepared after they have R

received some deposit. At this juncture, Madam Chan left the room to
S S
bring her son to the toilet. Mr. Chan then asked Gary and Ling what if the
T purchase of the Property fell through due to defective title. Both Gary and T

Ling assured Mr. Chan that should this be the case, the Deposit would be
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A A
fully refunded. Mr. Chan then related the same to Madam Chan on her
B return. With such assurance, Madam Chan signed the 2 purchase orders B

prepared by Gary after negotiation for a discount.

C C

D D
19. According to Madam Chan, only the work items and the price on the
E 2 purchase orders were explained to her and at no time did Ling or Gary E

explain the terms and conditions on the 2 purchases orders, nor had Madam
F F
Chan ever read them. Madam Chan just signed and paid the Deposit on the
G understanding and representations by Gary and Ling that the Deposit would G

be refunded should the 1st Plaintiff fail to complete the purchase of the
H H
Property.
I I

J 20. Only a draft outline plan but no detail design plan or three J

dimensional plan was ever prepared by the Defendants. On 31 July 2008,

K K
Mr. Chan attended the Defendants’ shop in Hung Hom and told Ling that
L the purchase of the Property fell through and asked for the refund of the L

Deposit. Ling indicated there was no problem and asked Mr. Chan to fill in
M M
a claim form and it would take about one week to prepare a report to their
N boss before the claim form could be submitted. N

O O

21. On 13th August 2008, Mr. Chan got into contact with Gary and was
P P
told that the claim form was with Ling who was on leave and will be back
Q in one week’s time. On 19th August 2008, Mr. Chan attended the shop Q

again and was told that both Ling and Gary had resigned and his case was
R R
being followed up by Bun. Mr. Chan then called Bun and on 20 th August,
S Bun faxed him a claim form and asked Mr. Chan to fill in the reason for the S

refund. The claim form signed by Madam Chan was faxed to Bun on 25th
T T
August and Mr. Chan was told to contact Miss Lam (“Miss Lam”) of the
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A A
customer department of the Defendants. Mr. Chan did as told and upon
B request, had faxed to Miss Lam a letter (page 194-195 of Bundle) from the B

Plaintiff’s solicitor confirming the falling through of the purchase of the

C C
Property. Miss Lam had indicated to Mr. Chan that the deposit would be
D refunded after deducting HK$5,000 administrative fee and the cheque D

would be ready in one week’s time.

E E

F 22. However, by a letter dated 11 September 2008, the Defendants F

denied the Plaintiffs’ right to a refund of the deposit. Hence, this claim
G G
filed on 24th November 2008.

H H

I THE DEFENDANTS’ CASE I

J
23. The Defendants denied that there was any oral warranty to refund the J
Deposit and relied on the written terms on the 2 purchase orders in
K K
particular those stated in paragraph 10-11 above to defend the claim and as

L
basis for its counter-claim. L

M M

24. Mr. Lai said that had there been an oral warranty, such should be
N N
included in the written purchase orders and signed by both parties to
O acknowledge the same. This is the usual practice of the staff according to O

the instructions of the Defendants and it was also stated in Remarks No. 4
P P
st
of the 1 Purchase Order that all verbal undertakings had been set out in the
Q purchase order (page 162 and 165 of Bundle). It is also the requirement by Q

the Defendants that the printed provisions on the purchase order should be
R R
read to the customers. So Madam Chan who signed on the 2 purchase
S orders should be fully aware of the terms and conditions. The falling S

through of the purchase of the Property had nothing to do with the 2

T T
purchase orders.
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A A
25. By the letter dated 11th September 2008, the Defendants had given
B the Plaintiffs 6 months to enable the Defendants to carry out the purchase B

orders and in failing to do so, the Plaintiffs had been in breach of the
C C
contract. The Defendants were entitled to forfeit the deposits for the 1st
D Purchase Order and charged an administrative fee of HK$5,000 for the 2 nd D

Purchase Order with the balance of the deposit to be used by the Plaintiffs
E E
for purchase of goods from the 2nd Defendant.
F F
FINDING OF FACTS
G 26. The first question to resolve is whether there was an oral warranty G

H
uttered by Ling and Gary before Madam Chan signed on the 2 purchase H
orders and whether the terms on the purchase orders had in fact been
I I
explained to Madam Chan. This solely turns on the credibility of the

J
witnesses. Having heard the evidence and on a balance of probability, I J
accept the evidence of the Plaintiffs.
K K

L L
27. I found both Madam Chan and Mr. Chan truthful witnesses. They

M
are not shaken under cross-examination and most importantly there is no M
evidence to the contrary to rebut their evidence. Mr. Lai had not been
N N
involved in the dealings with Madam Chan and could tell nothing about

O
what had actually happened on 28th June 2008 except for the usual practice O
of the Defendants. Mr. Lai had fairly admitted in the witness box that he
P P
could not be sure if Gary and Ling had in fact followed the company

Q practice. The manner of the Defendants in dealing with the request for Q
refund after 31 July 2008 is also inconsistent with its denial of the existence
R R
of the oral warranty.

S S
28. Given the fact that Madam Chan and Mr. Chan were already made
T T
aware of the likelihood of the purchase of the Property falling through, it

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A A
would not be surprising for Mr. Chan to be concerned and raised this issue
B with Gary and Ling. Should the terms at the back of the 2 purchase orders B

have been explained to Madam Chan or Mr. Chan, it would be beyond

C C
belief that Madam Chan would still proceed to commit and sign on the 2
D purchase orders. D

E E

29. And, had the terms of the 2 purchase orders been read to Madam
F F
Chan, the mistake on Remarks No. 4 (page 162 & 165 of Bundle) due to a
G misprint of the computer as well as the inconsistency between the costs for G

the moving of electrical socket (page 165 of Bundle) should have been
H H
discovered and rectified. One can come to the conclusion that these terms
I are not read and explained at the time of signing, hence no rectification had I

been made. The fact that those terms appeared on the front of the purchase
J J
orders had not been read to Madam Chan, it is highly unlikely that the
K terms at the back of the purchase orders had been instead. K

L L

30. As for the attack that had there been an oral warranty, Madam Chan
M M
should have asked for such to be included in the written purchase orders, I
N found this to be consistent with the fact that the terms at the back of the N

purchase orders were not brought to the attention of Madam Chan. Had it
O O
not been so, she would definitely asked for the oral warranty to be added
P since it was apparently inconsistent with the terms on the back of the P

purchase orders.
Q Q

R 31. Furthermore, from the evidence of Mr. Lai, he also agreed that a R

number of other agreed terms had in fact not been included in the written
S S
purchase orders. This includes there was a charge for the design but not
T for the measurement taking, three dimensional plan will only be available T

upon payment of the deposit and the payment method other than by cash
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A A
and by cheque. All these tends to show that the contention by the
B Defendants that everything agreed should be recorded in the purchase B

orders is not actually the case.

C C

D 32. I found as a fact that Gary and Ling did indicate to Mr. Chan that D
should the purchase of the Property fall through, the Deposit would be
E E
refunded and based on this oral warranty, Madam Chan signed on the 2

F purchase orders without anyone explaining to her the detail provisions on F

the document.
G G

H
DISCUSSION H

33. There is no argument that if there is a written contract, verbal

I I
evidence is not allowed to contradict, vary or qualify the written contract.
J However the parol evidence rule is and has long been subject to a number J

of exceptions.
K K

L L
34. The Plaintiffs submitted that one of the exceptions that is applicable
M in this case is that “if it is shown that the document was not intended to M

express the entire agreement between the parties” (paragraph 12-097 of

N N
th
Chitty on Contracts, 30 Ed, Vol 1). And it is stated in Chitty on Contracts
O at paragraph 12-100 that “where it appears that the parties did not intend to O

record all the terms of their agreement in a particular document, then on the
P P
same analysis extrinsic evidence would be admissible to prove other terms
Q even if they varied or contradicted those in the document.” Q

R R

35. It is clear from the evidence of Mr. Lai that not all the terms of the
S S
contract had been put into writing. This is clearly inconsistent with the
T contention of the Defendants. Judging from the fact that not all the terms T

of the contract were included in the written purchase orders, I found

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A A
extrinsic evidence should be allowed to prove that the oral warranty did
B exist even though it was inconsistent with the terms on the back of the B

purchase orders.
C C

D D
36. And even though the parties intended to express the whole of their
E agreement in a particular document, extrinsic evidence will nevertheless be E

admitted to prove a contract or warranty collateral to that agreement. And

F F
“more recently, the courts have admitted evidence to prove an overriding
G oral warranty or to prove an oral promise that the written contract will not G

be enforced in accordance with its terms. ” (paragraph 12-103 of Chitty on

H H
Contracts). It is also stated in paragraph 12-004 of Chitty on Contracts that
I “The courts are prepared in some circumstances to treat a statement I

intended to have contractual effect as a separate contract or warranty,

J J
collateral to the main transaction. In particular, they will do so where one
K party refuses to enter into the contract unless the other gives him an K

assurance on a certain point or unless the other promises not to enforce a

L L
term of the written agreement”.
M M

N 37. Since Madam Chan was well aware of the likelihood of the purchase N

of the Property being fallen through, it would be inevitable for Mr. Chan to
O O
raise the issue as to what if it really fell through. And if not for the fact that
P Gary and Ling had assured that the Deposit would be refunded should the P

purchase fall through, Madam Chan would not have signed the purchase
Q Q
orders. Such assurance by Gary and Ling did amount to a collateral
R agreement between the parties and extrinsic evidence should be admissible R

to prove its existence. The collateral contract is an exception to the parol

S S
evidence rule and such a promise inducing the contract prevents the
T Defendants from invoking the printed terms in the purchase orders to the T

contrary effect.
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A A
38. To conclude, I found the oral warranty made by Gary and Ling
B amounted to a promise by the Defendants to refund the deposit should the B

purchase of the Property fall through and this is very important to the
C C
Plaintiffs. Without such warranty, Madam Chan would not have signed the
D 2 purchase orders. To allow the Defendants to rely on the forfeiture of D

deposit clause at the back of the purchase orders would render the promise
E E
to be illusory.
F F

G 39. I also found the entire agreement clause argument advanced by the G

Defendants must fail. Entire agreement clause operates to denude what

H H
would otherwise constitute a collateral warranty of legal effect and it
I renders inadmissible extrinsic evidence to prove terms other than those in I

the written contract. The purpose of such a clause is to achieve the

J J
exclusion of liability for statements other than those set out in the written
K contract. The effect of the clause will necessarily depend upon its precise K

wordings.
L L

M M
40. The entire agreement clause in this case only appeared on the 1st
N Purchase Order (Remarks No. 4 on page 162 and 165 of Bundle). Both of N

these terms appeared to be incomplete with the precise wordings unknown.

O O
Given the incompleteness of these terms, I cannot accept that these are in
P fact entire agreement clause. P

Q Q

41. Given my ruling on facts above, the other arguments raised by the
R R
Plaintiffs need not be dealt with.
S S

T 42. I found the Plaintiffs are entitled to a refund of the Deposit based on T

the oral warranty made by the Defendants. Since the Plaintiffs agreed to
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A A
give credit to the HK$5,000 being administrative fee claimed by the 2 nd
B Defendant, such amount should be set off from the award. B

C C

THE ORDER
D D
43. It is ordered that :-
E E
a. Judgment be given for the Plaintiffs and the 1st Defendant
F do pay to the 1st Plaintiff the sum of HK$248,000 whilst the F

2nd Defendant do pay to the 2nd Plaintiff the sum of

G G
HK$28,600;
H b. Interest on the said sum at half of the judgment rate from H

the date of writ to the date of judgment, thereafter at full

I I
judgment rate until full payment ;
J J
c. The Counter-Claim of the Defendants for damages be
K dismissed; K

d. Costs order nisi that the Defendants do pay the costs of the
L L
action to the Plaintiffs with certificate for counsel to be
M taxed if not agreed. Unless any of the parties applies by M

N
summons to vary it, the costs order nisi shall be made N
absolute upon expiry of 14 days.
O O

P P

Q (Angela Kot) Q

Deputy District Judge

R R
Mr. Matthew T. S. Tse instructed by
Messrs Bobby Tse & Co for the 1st and 2nd
S Plaintiff S
Ms. Lau Wan Ching instructed by
T Messrs K. Y. Lo & Co for the 1st and 2nd Defendant T

U U

V V