Lee v. Shao Hsiung Enterprises Ltd.

2009 BCSC 728 Lee v. Shao Hsiung Enterprises Ltd.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Lee v. Shao Hsiung Enterprises Ltd., 2009 BCSC 728 Date: 20090602 Docket: S054123 Registry: Vancouver Between: Kenneth Lee, doing business as K.T.L. Projects Ltd. Plaintiff And Shao Hsiung Enterprises Ltd., doing business as Best Western Kings Inn and 550235 B.C. Ltd. Defendants Corrected Judgment: The text of the judgment was corrected at paragraph 31 on March 14, 2011. Before: The Honourable Madam Justice Gill Reasons for Judgment Counsel for the Plaintiff: S.P. Grey Counsel for the Defendants: G.F. Gregory Place and Dates of Trial: Vancouver, B.C. March 31, April 1-4, November 6, December 11, 12 and 23, 2008 Place and Date of Judgment: Vancouver, B.C. June 2, 2009 [1] The plaintiff seeks damages for breach of a contract to supply carpet, draperies and furnishings to the Best Western Kings Inn. The plaintiff relies upon a written contract dated March 19, 2004, which provided that the total amount payable was $500,347.03, being $467,614.05 plus GST of $32,732.98. On July 15, 2004, the plaintiff provided a quotation for further renovation work in the amount of $17,809.08, inclusive of GST, which was accepted by the defendant. Accordingly, the plaintiff alleges that the total contract price was $518,150.11. [2] The plaintiff was paid $400,277.62. The claim is therefore in the amount of $117,878.49 plus interest at the rate

stipulated in the contract. [3] It is the position of the defendants that for various reasons, no amount is owing. A counterclaim is also advanced. [4] The issues raised by the defendants may be summarized as follows. [5] First, it is asserted that the contract price, exclusive of taxes, was $440,400.00. Next, it is argued that $15,000.00 must be deducted from the contract price as that amount was paid to Dennis Lu, an employee of Best Western Kings Inn who negotiated the agreement with the plaintiff, as a "secret commission". [6] With respect to the items supplied by the plaintiff, the defendants raise issues in respect to the bedspreads, sofa beds, draperies and sheers and furnishings. It is argued that the bedspreads were defective and that the defendants are entitled to damages for the cost of replacement, being $29,024.40. The defendants say that the sofa beds sagged prematurely and sheets were torn because of rough edges. To compensate, there should be a $5,000 deduction in the contract price. It is alleged that draperies and sheers were defective in that some were the wrong size and sheers were not properly installed. The defendants claim the replacement cost of the sheers, which was $26,649.78 or alternatively, argue that the price of the sheers ($12,300) should be deducted from the plaintiff's claim. With respect to the draperies, it is submitted that there should be a

$10,000 deduction. Various issues are raised regarding the furnishings supplied by the plaintiff and it is argued that there should be a deduction of $44,000 because of deficiencies, which is approximately one third of the total price for the furniture. [7] The defendants say that there was a shortfall in terms of the number of table and floor lamps, mirrors, chairs, sofa beds and artwork supplies. $5,600.82 should therefore be deducted from the contract price. [8] Finally, it is submitted that there was a lengthy delay in completing the contract and as compensation, the defendants should receive $25,000, which amounts to approximately 5% of the contract price.

CONTRACT PRICE [9] The issue arises because there are two different versions of article 4 of the contract, which deals with price. In the first, the contract price is stated to be $440,400 plus PST and GST. No payment schedule is included and precise amounts due for PST or GST are not set out. On the copy of this page which is in evidence, someone had written the word "void". In the second version, the contract price is as described earlier in these reasons. The price is stated to be $467,614.05 plus $32,732.98 for GST and the total amount payable to the contractor is stated to be $500,347.03. Additionally, terms of payment are set out. The first draw was to be payable April 15, 2004, and was to be 30% of the contract price. The second was payable April 30, and was 50% of the price. The final draw was stated to be due upon completion. [10] The argument of the defendants is that there was an upward variation of the contract price made without consideration, the increase being $27,214.05, and as there was no consideration for the additional benefit which the agreement conferred upon the plaintiff, the plaintiff cannot enforce that agreement. Reference was made to several authorities including Blomidon Mercury Sales Limited v. John Piercey's Auto Body Shop Limited, [1981] N.J. No. 163. [11] As an initial comment, it is my view that neither the evidence nor the argument on this

issue was satisfactory. [12] The argument is premised on facts which do not clearly emerge from the evidence. The defendants plead that the first contract "was later amended to add items and to increase the pre GST price". As I understand the submission, it is that the court should conclude that the amendment or variation was made some weeks after the initial contract. [13] What actually occurred is not clear. The contract which provides for a price of $500,347.03 is dated March 19, 2004, but it was probably not signed on that date and it is also unlikely that any agreement was concluded by that point. Mr. Hung, the president of Best Western Kings Inn, testified that financing had to be obtained before a contract for the renovation work could be formalized. It would appear that financing was not obtained until April 19, 2004, and nothing was paid to the plaintiff until April 29, 2004, when he received a cheque for 80% of the contract price. Mr. Lu was presumably aware that financing had to be obtained as he was Mr. Hung's assistant. It is argued by counsel for the plaintiff that this evidence suggests that no contract was signed until after April 19. [14] Mr. Lu did not testify in these proceedings. It was Mr. Lu who negotiated with the plaintiff and signed all documents on behalf of the defendant. Mr. Hung's evidence is that Mr. Lu was terminated in August, 2004, because of

this contract. [15] Mr. Lee gave evidence about the change in price. He testified that he and Mr. Lu agreed to put the PST back into the contract price and the new price therefore included PST. He explained that because he did not have a PST number, he could not charge PST. Correspondence from Mr. Lu to Mr. Lee which is dated April 5, 2004, would appear to confirm that the parties were discussing an issue regarding PST at that time. That communication, which is somewhat difficult to understand, is as follows: Enclosed file is our room stats. Please kindly check it out. If you still have question, please don't hesitate to let me know. Since this project will commence from this week, can we have a meeting to discuss or to clarify some possible ambiguities in this 2 days? Additionally, there is an issue deemed form accounting side, Sharon checked the contract and came to my office mentioned about we won't bear P.S.T. on "Labor and Management" items; for fear your loss on carpet item, I convinced her we bear the PST of carpet. So, we really have to clear the Taxes issue before you put them in writing. [16] Although Mr. Lee agreed with defence counsel that the first version of the contract that he signed had a price of $440,400 plus GST and PST, I do not believe that when Mr. Lee was responding to such questions he was actually drawing any distinction between documents that he had

prepared and documents that he signed. Further, he was not asked about when the contract dated March 19, 2004 was signed or about when any "first version" may have been executed. [17] In such circumstances, it is difficult to draw conclusions about what actually occurred. The evidence is simply too vague to even conclude that the parties had executed an agreement reflecting the lower price. [18] Further, article 2.1 of the contract which includes the price of $500,347.03 states that the contract "supersedes" all prior agreements. The authorities differentiate between situations where a new agreement is substituted and those where the change was a variation of an existing agreement. No argument was directed to that provision, which would suggest that a new agreement was substituted for the old, or to such authorities. [19] It is, in any event, my view that the defence argument must fail simply because it is not clear from the evidence that the variation could only benefit the plaintiff. The argument assumes that an additional $27,214.05 went into the plaintiff's pocket or, to describe it another way, that the defendant was obliged to pay $27,214.05 more than it would have paid under the first contract. In my view, there is no evidence upon which to base either conclusion. [20] I therefore decline to accede to this argument.

THE ALLEGED SECRET COMMISSION [21] Mr. Lee testified that there was some urgency to the submission of the initial quotation which is dated February 23, 2004, and it did not provide prices for labour components or freight. A subsequent quotation, also dated February 23, 2004, included amounts for freight and installation as well as a management fee of $15,000. With respect to that fee, Mr. Lee testified that when he initially spoke to Mr. Lu, he was told that each of the buildings would be shut down to allow him to go in and do the work. However, he was later told that he could do only a few rooms per day which increased the time involved and therefore the cost to Mr. Lee. Because of that, they came up with the idea of a $15,000 management fee. If Mr. Lu was able to look after onsite management, $15,000 would be credited to the defendant. Mr. Lee testified that approximately 10-15% of that function was performed by a representative of the defendant. [22] The defendant argues that the plaintiff is not credible. That submission is based, on part, on the evidence of Mr. Hung and Mr. Chang. Mr. Hung testified about a discussion with Mr. Lee in which Mr. Lee told him that Mr. Lu had said that Mr. Hung wanted to be paid $15,000. He was also told by Mr. Lee that this money had either been given to Mr. Lu or to a third party. [23] Mr. Chang was present for part of the conversation

between Mr. Lee and Mr. Hung. It was difficult to follow Mr. Chang's evidence, but as I understood what he said it was that Mr. Hung was asking about payment of the $15,000 but Mr. Lee did not say how the money had been paid or when it had been paid. Mr. Chang testified that Mr. Lee avoided responding to Mr. Hung's question. [24] In support of the submission that the plaintiff was not credible on this issue, reference was made to his examination for discovery where he agreed that the $15,000 fee went to Dennis Lu. At trial, Mr. Lee was adamant that no monies were paid to Mr. Lu and that the arrangement was as he described in his direct evidence. While he did not disagree that the monies were to be paid to Dennis Lu, that was because Mr. Lu was Mr. Lee's contact at the Best Western Kings Inn. He testified that he did not deal with anyone else. [25] On this issue, it is again of significance that Mr. Lu did not testify. Obviously, he was involved in the formation of this contract. [26] I am not prepared to conclude that Mr. Lee paid a kickback of $15,000. [27] From Mr. Lee's perspective, Mr. Lu was the representative of Best Western Kings Inn, and Mr. Hung was its owner. As such, it is understandable that, as he testified, any reference to paying $15,000 to Mr. Lu or Mr. Hung was intended to be a reference to Best Western Kings Inn. Mr. Lee denied that $15,000 was, in fact, paid

to anyone. As counsel for the plaintiff argued, financial records and bank statements were produced and in respect of the one cheque in the amount of $15,000, there is evidence that it was paid to a subcontractor. Further, it does not make sense that Mr. Lee would tell Mr. Hung that he had, in essence, bribed Mr. Lu to obtain the contract. [28] The plaintiff does, however, accept that some portion of the $15,000 should be credited to the defendants and therefore $2,250, being 15% of $15,000, will be deducted from the amount claimed.

BEDSPREADS [29] It is acknowledged that approximately 30% of the bedspreads supplied by the plaintiff were defective. However, the remaining 70% were utilized until the replacements ordered by the hotel had arrived. The plaintiff says that there should be a reduction of approximately $6,000 in respect of the defective bedspreads but because the remaining 70% were used for several months, the defendant accepted the goods and must pay the amount owing for 70%. [30] Section 39 of the Sale of Goods Act deals with acceptance. It provides: 39 The buyer is deemed to have accepted the goods when (a) the buyer intimates to the seller that the buyer has accepted them, (b) the goods have been delivered to the buyer, and the buyer does any act in relation to them which is inconsistent with the ownership of the seller, or (c) after the lapse of a reasonable time, the buyer retains the goods without intimating to the seller that the buyer has rejected them. [31] A buyer may not use goods received or keep them for a longer time than is reasonable to inspect them without intimating to the seller that they are rejected and then attempt to repudiate the contract: Rotair Pacific Industries Ltd. (Receiving Manager of) v. Canada Bread Co., 2002 BCSC 1299, and Coast Hotels Ltd. v. Royal Doulton Canada Ltd., 2000 BCSC 857. It is argued on behalf of the defendants that complaints regarding the

bedspreads were immediate and frequent. The plaintiff's position is that the 70% were utilized for some time before they were rejected. [32] But even if the plaintiff is correct, the provision in the legislation may be ousted by a contrary clause in a contract and in this case, such a clause exists. Section 5.9.1 of the contract provides: No payment by the owner nor partial or entire use of the work by the owner shall constitute an acceptance of any portion of the work or products which are not in accordance with the requirements of the contract documents. It is clear that 30% of the bedspreads had torn after limited usage. The plaintiff was advised that the complete batch was considered unacceptable and would be returned for that reason. In my view, it cannot be concluded that the bedspreads had been accepted. [33] Counsel for the plaintiff calculated the total cost of the bedspreads, including freight and GST, as $19,895.58. It is not my understanding that the defence disputes this calculation. Accordingly, the contract price must be reduced by that amount. I do not accept that the defendant is entitled to receive the price of replacement bedspreads, which cost 50% more.

SOFA BEDS [34] Ms. Leung, an employee of Best Western Kings Inn, testified that soon after they were installed, a problem was noted. Because of rough edges, many sheets were torn and had to be discarded. Additionally, there were complaints from guests that the mattresses were too soft and were starting to sink. Upon investigation, it was determined that the complaints were warranted. Mr. Hung testified that a decision had been made to replace the sofa beds and as I understood his evidence, it was that they were to be replaced in late 2008 when it was hoped that funds would be available. [35] On behalf of the plaintiff, it was argued that no concerns were raised during the warranty period. Reference was made to clause 12.3 of the contract which requires the owner to promptly give notice in writing of observed defects and deficiencies and also requires the contractor to correct deficiencies. [36] The issue relating to sofa beds was not addressed at any length during this trial, either in the evidence or during argument. The evidence offered by the defendant as to torn sheets and soft and saggy mattresses was not contradicted. While it is correct that the issue was not raised during the warranty period, the suggestion of the defendant that there be a $5,000 deduction, which is approximately 30% of the total price, is appropriate in the circumstances.

DRAPERIES AND SHEERS [37] The plaintiff submits that the drapes and sheers were supplied and installed in accordance with specifications provided by the defendants. A memorandum dated February 23, 2004, signed by Mr. Lu states: This is to confirm that sizes and quantities of all draperies and sheers will be made according to sizes and quantities provided and requested by Best Western Kings Inn. In fact, specifications were provided to the plaintiff. Mr. Lu also confirmed in writing that all window sheers were to be installed inside the window frame. [38] Despite the fact that the plaintiff followed specifications and instructions as to installation, it is argued that the plaintiff bears responsibility for the fact that there were errors made in respect of sizes and installation. It is argued, first, that Mr. Lee knew that the requirements of Best Western International, the franchisor, had to be satisfied. I have difficulty understanding this submission. Even if he knew of those requirements, he was bound to supply and install in accordance with the contract. [39] The defendants also relied on the alleged agreement to pay Mr. Lu a secret commission. I have already dealt with the secret commission. [40] In my view, the defendants have advanced no meritorious arguments in respect of the draperies and sheers, and there is no basis for any deduction from the contract price.

FURNISHINGS [41] Mr. Lee testified that he discussed the furniture and the finish with Mr. Lu. It was his evidence that he gave Mr. Lu the option of stain grade furniture, which was supplied, or plastic laminate. Normally, stain grade is more expensive but he advised Mr. Lu that the defendant could choose either one, and there would be no additional cost. Mr. Lee denied the defence suggestion that there had been a discussion of the suitability of the furniture, reiterating that what was supplied was selected by Best Western Kings Inn, and as Mr. Lu did not testify, there is no evidence that there was any discussion beyond what was described by Mr. Lee. [42] Two issues are raised by the defendant. It is first argued that the furniture was not fit for its intended purpose as it scratches easily and repairs are virtually impossible to effect. It is also argued that the sample chair which was provided was solid wood whereas the remaining furnishings were not. It is alleged that this was a sale by sample. [43] I will deal first with the argument that there is an implied condition as to fitness. [44] Section 18(a) of the Sale of Goods Act provides: 18(a) if the buyer or lessee, expressly or by implication, makes known to the seller or lessor the particular purpose for which the goods are required, so as to show that the buyer or lessee relies on the seller's or lessor's skill or

judgment, and the goods are of a description that it is in the course of the seller's or lessor's business to supply, whether the seller or lessor is the manufacturer or not, there is an implied condition that the goods are reasonably fit for that purpose; except that in the case of a contract for the sale or lease of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose; [45] It is argued on behalf of the defendants that it is clear that Mr. Lee understood that the furniture must meet the requirements of both the hotel and Best Western International. Reference was made to Mr. Lee's evidence that the designer that he hired to assist with the work was to liaise with Best Western International to make sure that the work that he was doing would satisfy the requirements of head office. It is argued that, based on this evidence, the defendants made known the particular purpose for which the goods were required and were relying on Mr. Lee's skill or judgment. [46] The evidence as to any requirements of Best Western International is very limited. Obviously, Mr. Lee had knowledge of the purpose for which the goods were intended. These were furnishings for hotel rooms. It is not clear why the defendants submit that the furnishings provided were not fit for that purpose. In support of this argument, the

defendants seem to rely upon evidence that only a higher grade of hotel would select stain grade furniture and that plastic laminate would have been more appropriate. Such evidence does not, however, lead to the conclusion that the furniture was not fit for its intended use. Further, there is no evidence that Best Western International had guidelines or requirements which were not met. [47] In any event, Mr. Lu was given the option of choosing plastic laminate. Although Mr. MacCallum, maintenance supervisor at the hotel, testified that he would have preferred a laminate surface because it wears better than a veneer surface, that was not the choice made by Mr. Lu. In my view, it cannot be concluded that in terms of this choice, there was reliance on the seller's skill or judgment. Accordingly, the argument that there is an implied condition as to fitness which was not met cannot succeed. [48] It is also argued that this was a sale by sample. It appears that a sample chair was delivered to Best Western Kings Inn in early March, 2004. The delivery note says that it is for "style, wood material and finishing approval." The position of the defendants is that as the chair was solid wood, all furniture supplied was to be solid wood furniture and that is not what occurred. Instead, apart from the chair, the finish is a veneer. [49] Sale by sample is discussed in Benjamin's Sale of

Goods (Sixth Edition) London Sweet & Maxwell 2002. The authors state at para. 11-092: The mere fact, however, that a sample is exhibited during negotiation for a sale does not necessarily mean that the sale is by sample: it is only such if the contract made is for goods in agreement with the sample. Frequently samples are displayed to give no more than some indication of the nature of the goods offered. "Whether a seller who exhibits a sample does represent that the bulk is like the sample, or merely that the sample was honestly and properly taken, and that the buyer must take his own risk as to the bulk, is a question of fact in each case." [Footnotes omitted] The argument of the defendants seems to be that simply because a sample chair was provided, the contract which was made was for furnishings constructed of solid wood. As is apparent from the above, the exhibition of a sample does not necessarily make the sale one by sample. [50] Mr. Lee testified as to the purpose of the sample. He was dealing with a local company, Elite Systems Inc., which supplied furniture to different hotel chains. When asked about the purpose of delivering the chair, he responded: A. What happened, we were going to supply the whole set of furnitures (sic) to every single room. To get approval we actually delivered one chair sample to them, and to ask them to check on this chair and say, "Is this the

style" - - this is the right furniture for them here. He explained that it was necessary to coordinate with the Phoenix head office of Best Western and in respect of colour approval, there was a separate stain sample in one of the binders forwarded to the head office in Phoenix. The specifications also included such items as carpet, fabric and paint samples, photographs and drawings for the room layouts. Mr. Lee no longer had a copy of what was provided as he had given his binders to Best Western Kings Inn after Mr. Lu was fired. [51] I would add that the chairs which were delivered corresponded to the sample. It was the other furniture which was veneer. [52] In my view, it was also apparent from the evidence of Mr. Lee in its totality that at the time the chair was provided, he had given no thought to the exact material to be used in the construction of all furnishings. What Mr. Lu expected or believed is obviously not known. He did, however, sign a delivery note dated July 28, 2004, which stated "all furniture received in new and good conditions and as per approved sample." [53] In the end result, I am not prepared to conclude that this was a sale by sample.

SHORTAGES [54] The defendants say that the shortages were as follows: Table lamps 12 Floor lamps 10 Mirror 1 Chairs 10 Sofa bed 1 Artwork 31 With tax, the total amounts to $5,600.82. [55] The question of whether there were shortages was first raised by the defendants in 2004 and correspondence to the plaintiff dated December 13, 2004, set out the shortages which were determined after an inventory count. Ms. Leung, who did that count, testified at trial and her detailed spreadsheets were placed into evidence. She said that her work took approximately one week. [56] I accept her evidence. Accordingly, the amount calculated by the defendants is to be deducted.

DELAY [57] It is admitted by the plaintiff that there was a delay in completion of the contract, although there is a dispute about whether some of the fault rests with the defendant. However, it is also acknowledged by the defendant that it "cannot point to any specific loss". Given the absence of evidence which would support a conclusion that the defendant suffered any loss as a result of the delay, it is my view that it would be inappropriate to do what the defendant suggests, being to adjust the price by 5%, and I decline to do so.

SUMMARY [58] I accept the plaintiff's submissions as to the contract price. However, there are to be deductions for management fees, bedspreads, sofa beds and shortages in the amounts of $2,250, $19,895.82, $5,000 and $5,600.82. I leave counsel to calculate the interest. Costs will follow the event. "Gill J."