Advance Tech Machine Tools Sdn. Bhd. v Arex Precision Manufacturing (M) Sdn. Bhd. (JA-22NCVC-15-10/2016)

The plaintiff’s case was a case of goods sold and delivered. However, the defendant’s defence was that although the particular machine was delivered to the defendant, it had yet to be sold. That particular machine was delivered to the defendant on a trial-run basis, and the sale has yet to be concluded. Therefore, the plaintiff was not entitled to its claim, the defendant argued. The defendant counter-claimed for storage charges of that particular machine against the plaintiff and sought for an order for the plaintiff to take back that machine.

After a full trial, on 21.11.2017, this Court allowed the plaintiff’s claim and dismissed the defendant’s counter-claim. The reasons for the decision are set out as below.

On 4.1.2016, the plaintiff delivered a 50 metric ton (50,000 kilogramme) machine known as ‘YOU JI’ CNC Vertical Turning Center, Model: VTL2500ATC+C, S/N: 1VTL250TC05318 (hereinafter referred to as ‘the machine’) to the defendant. Besides the said machine, the plaintiff had also delivered other goods to the defendant, but the plaintiff withdrew its claim in respect of the other goods, except the machine.

The defendant admitted to have received the machine, and the machine is now lying idle at the defendant’s premises. The defendant pleaded that the machine was received based on the understanding that it was on a trial-run basis. The defendant was not satisfied with the Page 3 of 16 machine, therefore, the plaintiff ought to take back the machine at the request of the defendant.

The defendant counter-claimed the plaintiff for a sum of RM54,000.00 as storage charges for the machine and other charges amounting to RM4,800.00. The defendant also sought for an order for the plaintiff to take back the machine.

The above are the pith of the parties’ contentions.

The Court had condensed the issues to be tried to only two issues during case management stage. The two issues are: First, whether the machine was delivered to the defendant’s premises on a trial-run basis or as an outright sale; and secondly, if the answer to the first issue is that the machine was meant for a trial-run, then whether the defendant is entitled to its counter claim?

The Court had considered the parties’ stories and the evidence in support of their contentions. After having examined the evidence carefully, this Court is satisfied that, on a balance of probabilities, the machine was not delivered to the defendant on a trial-run basis. The reasons for this finding are explained as below.

The plaintiff’s only witness, Mr Fah Wah Thung, a.k.a Tony Fah (PW1), stated in his witness statement that the plaintiff had supplied Page 4 of 16 many machines to the defendant in the past. He dealt with one Mr. Chua Cin Han (Mr. Chua) from the defendant company for the sale of many machines in the past. Mr Chua was an ex-director of the defendant company.

PW1 explained that the procedure for purchase of machines which the parties had adopted in the past was as follows: The defendant would inform the plaintiff the type of machine the defendant was interested. The plaintiff would then source the appropriate machine for the defendant. The plaintiff sourced most of the machines from Taiwan or Japan. When a machine arrived at the port, the plaintiff would arrange for the machine to be delivered to the defendant’s premises. When a machine arrived at the defendant’s premises, the plaintiff’s workers would install and set up the machine. Once a machine had been installed and set up, the plaintiff would issue its delivery order followed with an invoice.

PW1 further explained that the defendant would start using the machine set up by the plaintiff, and at the same time the defendant would apply for financing to pay the plaintiff’s invoice. PW1 also explained that this was the procedure the parties had adopted for more than 40 machines since 2011. The plaintiff did not encounter any problem with the defendant, except for the machine in this action.

PW1 stated that Mr Chua, Mr Masataka Akita (DW2) and himself went to Taiwan to view and inspect the machine in April 2015. After the trip to Taiwan, Mr. Chua and DW2 agreed to purchase the machine. PW1 then proceeded to arrange the purchase of the machine and issued a quotation dated 7.5.2015 (the Quotation) (see pp. 117-118 Bundle A / Page 5 of 16 also see pp13-14 Bundle B1 – Defendant’s Document) to the defendant. The price quoted in the Quotation was RM2,750,000.00. The Quotation was addressed to Mr. Chua.

Subsequently, the machine was delivered to the defendant’s premises on 1.12.2015. A delivery order No. 15/0062 dated 1.12.2015 (the DO) (see pp. 14-15 of Bundle A) was issued to the defendant. The defendant had placed its company’s stamp on the DO as acknowledgement of the receipt of the machine in good order and condition. There was no dispute over the condition of the machine. Following from the successful delivery of the machine, the plaintiff issued a tax invoice No. 16/0001 (corresponding with the issued DO) dated 4.1.2016 (hereinafter referred to as ‘the tax invoice’). The amount stated in the tax invoice was RM3,000,000.00 plus 6% GST amounting to RM180,000.00. The total amount in the invoice was RM3,180,000.00.

PW1 explained that the price quoted in the Quotation was based on the currency exchange rate as at May 2015. Between the period May 2015 and April 2016, the Malaysian currency exchange rate had gone lower, therefore, there was an increase in the pricing of the machine in the tax invoice.

PW1 refuted the defendant’s claim that the machine was delivered on a trial-run basis. PW1 referred the Court to page 15 of Bundle A (agreed bundle), it was a copy of the purchase order dated 20.4.2016 (hereinafter referred to as the PO) issued by the defendant to the plaintiff. The PO stated the unit price was RM3,000,000.00. The PO has a stamp mark “CHUA C.H” in circle at the column ‘Approved By’ at the bottom right hand corner.

PW1 explained that in their normal course of dealings with the defendant, no purchase order was issued, but for this machine, the PO was issued. This was because Mr Chua was having internal problems with the management of the defendant company, and Mr. Chua had intended to resign from the defendant company. In order to protect the plaintiff’s interest, Mr Chua, therefore, advised the plaintiff that he will issue the PO, in case any question was raised by the management of the defendant company after he leaves the company. PW1 further explained that it was because of the above reason the date of the PO was dated after the DO’s date (the DO was dated 1.12.2015; and the PO was dated 20.4.2016).

The defendant disputed the plaintiff’s story. First, the defendant raised the fact that the original PO was and still is in its possession. The original and its carbon copies (two copies) of the PO were shown to this Court for inspection by the defendant. This Court inspected the document (and the carbon copies). The Court found that the first copy is indeed the original PO. This confirmed that the original PO was not sent to the plaintiff. However, PW1 later explained that it was Mr. Chua who had provided a scanned copy of the original PO to him.

The defendant’s witnesses, DW1 and DW2, stated that in their normal course of dealings in purchasing any machines, the procedure was as follows: There must first be a quotation sent by the supplier. Upon approval by the management of the quotation, the defendant would issue a purchase order. Following from the purchase order, the machine would be delivered to the defendant’s premises, and the defendant would acknowledge a delivery order for the supplier. An invoice would then be sent to the defendant company by the supplier. With the invoice, Page 7 of 16 the defendant would seek financing to pay the invoice by hire-purchase. For the machine, the plaintiff had delivered the machine before the defendant issued the PO to the plaintiff. As such, the defendant did not purchase the machine; therefore, it was meant for a trial-run.

This Court was not convinced with the defendant’s story that the machine was meant for a trial-run just because the PO was issued after the machine had been delivered to the defendant’s premises or that the original PO was not sent to the plaintiff.

If the defendant’s story was probable, the defendant would be able to adduce two important evidence in support of its case. First, there must have been some form of negotiation, whether oral or in writing, that the machine was meant for a trial-run. The defendant should have adduced evidence of discussions between the parties on matters such as who bears the shipping and transportation costs, the duration of the test run period, and if the machine could not satisfy the defendant’s requirement, then how soon the plaintiff would have to remove the machine and etcetera. The defendant failed to adduce any such evidence to suggest the machine was meant for trial-run. The only supporting evidence in the defendant’s case was that the original PO was never sent to the plaintiff and that it was not in accordance with the defendant’s company’s procedure for purchase of machines.

Why the PO was issued and a copy was passed to the plaintiff by Mr. Chua after the machine was delivered to the defendant has been explained by PW1. The mere fact that a transaction did not follow any alleged normal course of dealing does not render the plaintiff’s story not proven. This Court accepted PW1’s explanation. It was in evidence that Page 8 of 16 the previous dealings between the plaintiff and defendant was based on trust, particularly the relationship between the Mr. Chua and PW1. There was no issue between the parties even though the sequence of exchange of documents were not conventional in the past.

In the absence of any cogent evidence to suggest that the machine was delivered on a trial-run basis, the Court was not persuaded by the defendant’s story which was premised only on the ground of non-compliance with the defendant’s procedure for purchase of machines, i.e. the non-delivery of the original PO to the plaintiff or that it was issued after the date of the DO.

The founder and Managing Director of the defendant company, Mr. Yoshinobu Akita (DW1), had admitted that there were no hard and fast rules applied by the defendant company for the purchase of machines from the plaintiff that there must be a quotation, purchase order and invoice (see cross-examination of DW1 – Nota Keterangan p.23, line 30, Q&A).

Further, if the defendant’s story was probable, the defendant ought to have adduced evidence to prove that the performance or output of the machine did not meet the defendant’s requirement. The parties must have agreed to a minimum standard of performance or output to be achieve during the trial-run. But, there is not an iota of evidence in the defendant’s case to suggest that there was such agreed requirement and that the machine did not meet the requirement.

The defendant did not adduce any data or records to suggest that the machine could not meet the defendant’s requirement, and therefore, the defendant was not satisfied with the performance of the machine.

The defendant did not adduce any evidence as to the defendant was not satisfied with the machine. It would not make sense for the plaintiff to import such a mammoth machine weighing 50 tons just for the defendant to have a trial-run without any agreement reached as to what was expected of the machine.

In the absence of the above mentioned material evidence in the defendant’s case, this Court was not persuaded by the defendant’s story that the machine was delivered to the defendant on a trial-run basis.

The documentary evidence adduced by the parties, particularly the contents of an email sent from Mr. Chua to DW1, appear to shed some light on the reason for the defendant rejection of the machine.

Pages 1-2 of Bundle B1 (Ikatan Dokumen Tambahan Defendan) is an email dated 27.6.2016 that was written by Mr Chua to DW1. The relevant paragraph is stated as follows: “2) Purchase of Youji VTL 2500ATC+C Vertical Turning Lathe (Advance Tech Machine Tools) As you are aware, we had customers who can place orders from our company but we are not able to produce unless we purchase this machine. I then told you and you requested me Page 10 of 16 to look into the purchase of this machine. I then approached Advance Tech Machine Tools Sdn Bhd who is the agent of Youji Taiwan. We were advised to visit Youji Taiwan. So on 17 March 2015, I emailed you proposing the visit to Youji Taiwan and provided the schedule whereby we will travel on 14 April 2015 and return on 18 April 2015. You then confirmed your flight booking. We visited the factory of Youji Taiwan on 16 April 2015 and after both you and I were briefed of the specs, you agreed to purchase. So we informed Youji Taiwan. (enclosed is my email date 17 March 2015 and your reply dated 17 March 2015). On 7 May 2015, Advance Tech Machine Tool Sdn Bhd gave a quotation in respect of the machine. Attached herewith is the quotation. On 6 August 2015, Masataka Akita san forwarded to you an email enclosing further details of the machine, the condition of Arex Precision Manufacturing (M) Sdn Bhd explaining the market usage, competitors requirements, purpose of purchasing this machine, Masataka Akita’s san advise to you, the plan for repayment, the product, list of customers and the reasons why we need the machine (Enclosed herewith the email together with the Annexures). Subsequently, Masataka Akita san asked me to issue the purchase order. So the purchase of this machine is known to you and Masataka Akita san. So when Masataka Akita san (your son) asked me to issue the Purchase Order, I followed his instructions as he is your son and he was dealing with you in respect of the purchase of this machine.”

The above email was a response to an earlier email sent to Mr. Chua by DW1 questioning his purchase of the machine. The email was dated 23.6.2016, and the contents are as follows: Page 11 of 16 “Dear Mr Chua, We have not receive any reply from you in our email below to you on 17 June 2016 at 2.41 p.m. where we have given you a time period to reply to us from 17 June 2016 to 20 June 2016 on the two machines named below:

Takisawa Taiwan LS_1000L30

Youji VTL2500ATC+C As per the attached picture which is your LINE on 24.3.2016 at 11.33 p.m. which is self-explanatory, you have promised to take responsibility for the return of the above mentioned machines and will take responsibility. Please abide by what you have promised in your LINE on 24.3.2016 at 11.33 p.m. Should you continue to fail to reply to us on the status of the return of the machine by 24 June 2016, please note that the company will take the actions as it deems appropriate against you. Thank you. Yoshinnobu Akita” [31] The above emails were adduced by the defendant, and the contents were not disputed by the defendant (note: the email dated 27.6.2016 sent to DW1 by Mr. Chua could also be found in pp. 77-78 of Bundle A – Ikatan Dokumen Bersama – Bhg B). [32] The contents of the emails seem to suggest that there was some disagreement between Mr Chua and the management over the purchase of the machine. Mr Chua alleged DW1 had agreed to the purchase of the machine after Mr Chua was told to take responsibility for return of the machine. No reason was given in DW1’s email (dated 23.6.2016) as to Page 12 of 16 why DW1 asked Mr Chua to return the machine. All DW1 had stated was that Mr Chua was supposed to take responsibility for the return of the machine. [33] However, there is an earlier email from one Kotani, a staff of the defendant company, to Mr Chua dated 17.6.2016 (see pages 3-4 of Bundle B1 – Ikatan Dokumen Tambahan Defendan), and the relevant part of the email states as follows: “The following items, be sure to run the responsibility of Mr. Chua. TAKISAWA LS1000 and YOUJI VLT2500 of machine of Oil & Gas, which have not gotten the permission from Akita President, please be sure to return responsibly. Oil & Gas TAKISAWA LS1000 and YOUJI VLT2500 of the machine, Mr. Chua is sure to negotiate alone, Masataka san does not negotiate. Masataka san has no responsibility. The result of the negotiations be sure to report on until 20 June 2016. Kotani” [34] From the above email, an inference could be made out that DW1 did not approve the purchase of the machine. Mr. Chua and the management of the defendant company had some misunderstanding over the purchase of the machine. Mr Chua had then resigned from the defendant company sometime in June 2016. [35] In evidence, DW2 told the Court that his employer (the exact term used was his ‘boss’ referring to DW1) had rejected his proposal to purchase the machine (see Nota Keterangan, p. 34, line 30, O&A). Page 13 of 16 DW1’s evidence was contradictory with the defendant’s case that the reason as to why the defendant rejected the machine was the defendant was not satisfied with the machine. [36] The evidence in the defendant’s case was inconsistent. On one hand, DW2’s evidence was the defendant rejected the machine because the ‘boss’ did not approve his proposal for the purchase of the machine. On the other hand, the defendant pleaded that the machine was meant for trial-run and that the defendant was not satisfied with the machine. Dissatisfaction with the machine and not getting approval to purchase the machine are two distinct reasons. DW1’s evidence also suggested that he did not approve the purchase of the machine, not that the machine did not satisfy the defendant’s requirement. Not giving approval to purchase the machine and not satisfied with the machine are also two distinct reasons. On this score, this Court again could not accept the defendant’s story as probable that the machine was meant for trial-run basis. [37] Upon analysis of the evidence in the defendant’s case, this Court is satisfied that the rejection of the machine was not because it did not meet the defendant’s satisfaction, rather the rejection of the machine was because there was an internal disagreement between the ex-director Mr Chua and the management of the defendant for the purchase of the machine and also DW2 did not get the approval form his ‘boss’ (or rather his father, DW1) to purchase the machine. The reasons for the rejection of the machine were an internal affair of the defendant company. It had nothing to do with the performance of the machine or that the machine did not satisfy the defendant’s requirement. Page 14 of 16 [38] The defendant has to bear responsibility for the purchase of the machine. The defendant could not avoid responsibility when the problem was an internal one within the company. Hence, this Court could not accept with the defendant’s story that the machine was delivered to the defendant on a trial-run basis. The trial-run argument could well be an afterthought defence riding on the non-compliance with the conventional documentation for purchase of the machine. [39] As far as the plaintiff is concerned, the plaintiff had delivered the machine to the defendant’s premises. It took three weeks to ship over the machine and about a month to install the machine. It would not make any commercial sense for any supplier to agree to supply a 50 ton machine just for trial-run purposes. Any supplier would have obtained some form of agreement from a purchaser for the purchase a machine of such size before it takes the trouble to bring the machine into the country and deliver it to the purchaser. [40] Based on the above analysis of the evidence before this Court, this Court is more inclined to accept the plaintiff’s story as more probable than the defendant’s story. Hence, the answer to the first issue would be that it was an outright sale of the machine. Consequently, the defendant’s counter-claim ought to fail. Other Considerations [41] The defendant ought to have called Mr Chua to testify in its case, but the defendant did not do so. The defendant’s defence was that the machine was to be used on a trial-run basis, therefore, the best person to give evidence on this would have been Mr. Chua. As far as the Page 15 of 16 plaintiff’s case was concerned, the machine was delivered to the defendant. The plaintiff’s evidence was coherent and believable as to why the machine was delivered to the defendant. Therefore, the burden shifted to the defendant. It was for the defendant to throw weight to its defence. The reason the machine was delivered to the defendant would best be explained by the defendant. But, the defendant failed to call a material witness to support its case. [42] The parties’ counsel’s submissions on the law as to whether the property (the machine) has legally passed to the defendant is irrelevant because the defendant’s defence was that it was just for a trial-run. If the Court finds it was not a trial-run, therefore, the property would have passed to the defendant because the defendant had received it in good order and condition. Hence, the defendant would be responsible to pay since the defendant had already accepted and acknowledged the property in good order and condition. Conclusion [43] Based on the above findings and reasoning, this Court allowed the plaintiff’s claim and ordered the defendant to pay to the plaintiff the sum of RM3,180,000.00 and interest at 5% per annum calculated from the date of the filing of the writ (10.10.2016) until date of full payment and also ordered the defendant to pay costs of RM30,000.00 to the plaintiff. -Sgd- ……………………………………… (CHOO KAH SING) Judicial Commissioner High Court Johor Bahru Page 16 of 16 Counsel for the plaintiff : Mr. Manian K. Marappan Tetuan Manian K. Marappan & Company Counsel for the defendant : Simon Tay Tetuan Tay L.E. & Co.