TECHNIC STAR UNIVERSAL LTD v. TINY LOVE LTD

HCA 192/2014 and HCA 208/2015
(Consolidated)

[2021] HKCFI 2284

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.192 OF 2014

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.208 OF 2015

(Transferred from DCCJ 2909/2014)

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(Consolidated pursuant to the Order of
Master Hui dated 10 December 2015)

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J U D G M E N T

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A. INTRODUCTION

1.  There are two actions (i.e. HCA 192/2014 and HCA 208/2015)  in relation to various disputes arising from the sale and purchase of educational toys and baby products between the seller, namely, the Plaintiff (“Technic Star”)  and the buyers, namely, the Defendant in HCA 192/2014 (“Tiny Love Israel”)  and the Defendant in HCA 208/2015, Dorel Juvenile Group, Inc (“Tiny Love USA”), for onward sale to Tiny Love’s customers.   Unless otherwise specified, Tiny Love Israel and Tiny Love USA will be collectively referred to as “Tiny Love” below.

2.  Technic Star is a company incorporated in Hong Kong carrying on the business of manufacturing and supplying educational toys and baby products.  Tiny Love’s headquarters are based in Israel (i.e. Tiny Love Israel)  and Tiny Love USA is its distributor incorporated in the state of Massachusetts, USA.

3.  In HCA 192/2014, Technic Star’s claims against Tiny Love Israel consist of:

(1)  Contract price of products delivered to Tiny Love Israel under 7 invoices in the sum of US$66,410.84 ("List A Claims”).

(2)  Miscellaneous expenses including short payments, outstanding sample charges and costs of materials in the sum of US$103,136.11 (“List B Claims”).

(3)  Loss and damage arising from Tiny Love Israel’s alleged repudiation of purchase orders by failing to arrange shipment for products that had been completed (“List C Claims”).  The claim pleaded is for the sum of US$62,915.01, being the total contract price of the products involved.

(4)  Loss and damage arising from Tiny Love Israel’s alleged repudiation of 9 purchase orders in purporting to cancel 4 of those purchase orders and putting “on hold” the shipment of products under the remaining 5 purchase orders (“List D Claims”).  The claim pleaded is for US$283,937.01, being the total contract price of the 9 purchase orders.

(5)  Loss and damage arising from Tiny Love Israel’s alleged breach of an implied term in failing to place corresponding purchase orders for outstanding frame orders (“List E Claims”).  The claim pleaded is for US$803,011.43, being the total sum of the contract price of the frame orders.

4.  As I will further explain below, Technic Star’s List A Claims and List B Claims are no longer disputed, subject to the issue of equitable set-off.  List C Claims and List D Claims (which arose from the alleged failure to arrange shipment, cancellation of orders and also withdrawals of shipment)  are quite self-explanatory in view of the usual course of dealings for sale and purchase of goods.

5.  The disputes regarding List E Claims turn on the commercial arrangements specifically made by the parties in the present case, which will be briefly summarised below.  In essence, Tiny Love denies there being any outstanding pre-2012 frame orders (i.e. frame orders with no corresponding purchase orders)  for the reason that all pre-2012 frame orders had been agreed by Technic Star and Tiny Love Israel to be “zeroed”.  Tiny Love also denies liability under List E Claims on the basis that Technic Star had repudiated all frame orders by its breaches of certain purchase orders, which will be further explained below. With regards to quantum, Tiny Love claims that Technic Star has failed to mitigate and, in any event, should receive only nominal damages since Technic Star was unable to produce the products for which purchase orders should allegedly have been placed.

6.  Tiny Love Israel, on the other hand, counterclaims against Technic Star for the following breaches of purchase orders and frame orders:

(1)  Late delivery of an average 13.7 days over 111 shipments in 2012 (“Delayed Shipments”).

(2)  Non-delivery of two products, namely Tiny Princess Electronic Books (“TP E-books”)  and Animal Concert Electronic Books (“AC E-books”).

(3)  Quality issues (namely that “[t]he gearboxes of the mobiles contained a defective component connected to the mobile’s engine”)  with 4 products[1] that had been shipped and delivered.

(4)  Technic Star’s refusal to return moulds and tooling upon reasonable notice by Tiny Love Israel in breach of an alleged implied term of the frame orders.

7.  In particular, regarding Tiny Love Israel’s counterclaim based on Technic Star’s obligation to return the relevant mould and tooling, the dispute is mainly whether the frame orders contained any implied term that Technic Star was required to return the moulds and tooling upon reasonable notice and whether Tiny Love is entitled, by way of a lien, to retain the moulds and tooling (in the event that the alleged implied term exists).

8.  In HCA 208/2015 (transferred from DCCJ 2909/2014), Technic Star claims against Tiny Love USA for the unpaid contract price of products that had been delivered in the sum of US$80,277.18. 

9.  By Master Hui’s Order dated 10 December 2015, HCA 192/2014 and HCA 208/2015 were consolidated with the former being the lead action.  

10.  For the purpose of this trial, the parties have prepared an Agreed Scott Schedule dated 18 May 2020 pursuant to Coleman J’s PTR Order dated 19 March 2020, listing 27 live issues. They were eventually reduced to 16 issues in the Agreed List of Issues lodged on 25 May 2020. 

11.  The parties’ Agreed Scott Schedule and the Agreed List of Issues, nonetheless, failed to properly identify and present the core issues in a concise and well-structured manner.  

12.  For example, the issue regarding List C Claims was formulated as “[w]hether it was the Plaintiff who refused to deliver these products or it was the Defendants that failed to make payments in accordance with the agreed mechanism?”.  This formulation simply begs the question of liability in relation to List C Claims and does not assist anyone in understanding the real underlying issue which concerns whether Tiny Love failed to arrange shipment for the products and whether such failure, if established, would amount to a repudiatory breach.

13.  Another example can be found in paragraph 9 of the Agreed List of Issues which contains this question: “[w]hether Tiny Love Israel is liable to pay for the outstanding frame orders under List E [Claims]?”. Again, the question, so formulated, is not helpful.  It transpires that the real issue concerns whether Tiny Love was in breach of any implied term of the agreement by failing to place the relevant purchase orders which (as alleged by Technic Star)  either were or should have been under the umbrella of the outstanding frame orders.   Further, whilst paragraphs 10 and 11 of the Agreed List of Issues appear to be relevant to Technic Star’s List E Claims, there is no mention of how such paragraphs are correlated to List E Claims or indeed any other claims.

B.  RELEVANT BACKGROUND

14.  In order to understand the factual background, in particular that relating to List E Claims, it is necessary to explain the mode of operation between Technic Star and Tiny Love in some detail.

(1)  The business relationship between Technic Star and Tiny Love was mainly governed by two agreements, namely the bulk purchase orders (or “frame orders”)  and the purchase orders (and, occasionally, Materials Purchase Authorisation forms which provided the mandate for the purchase of certain, usually electronic, components).

(2)  Tiny Love would first issue to Technic Star frame orders for a certain quantity of products.  Depending on the nature of the frame orders, Technic Star would procure the raw materials required to produce the quantities required and/or manufacture all products ordered. 

(3)  Tiny Love would then, from time to time, issue to Technic Star purchase orders which require Technic Star to deliver the products to the customers within 60 days of receiving the said purchase orders.  The purchase orders were typically for products covered by existing frame orders (except “open purchase orders” which were orders for products not already covered by any previous frame orders).

(4)  The commercial rationale of the above arrangement was that the frame orders were for Technic Star to prepare a relatively large quantity of products, by taking advantage of cheaper raw materials bought in bulk, more cost-effective assembly lines and general economies of scale.  Purchase orders were then placed to deliver select and varying portions of such products to different customers in different locations.

(5)  Payment was made upon delivery of the products. If insufficient corresponding purchase orders were made to use up the raw materials procured and/or products manufactured under frame orders, Technic Star would be left with unused raw materials which might become obsolete. Therefore, it was in Technic Star’s interest that sufficient purchase orders were placed to exhaust the available raw materials and products.  From May 2008 to late 2011, the arrangement worked without problems, with quantities in purchase orders almost always exceeding those in frame orders.  However, as the demand for the products declined in early 2012, outstanding frame orders for which insufficient purchase orders were placed began to accumulate.  These proceedings, in particular the issues relating to List E Claims, arose out of theses outstanding frame orders.

15.  A relevant concept in this context is the “minimum order quantity”, which is the minimum quantity of raw materials required for Technic Star to acquire such raw materials from its own suppliers.  If the minimum order quantity was not met by an open purchase order, Technic Star, on its case, might have difficulties performing the purchase order.

16.  The relevant periods regarding the relationship between Technic Star and Tiny Love can roughly be summarised as follows:-

(1)  Firstly, between May 2008 to January 2012, when the business relationship ran relatively smoothly.  

(2)  Secondly, between January to November 2012, where various issues between the parties arose, including the alleged delays, purported cancellations by Tiny Love Israel of purchase orders and Technic Star informing Tiny Love Israel that certain purchase orders did not meet the minimum order quantity and could not be performed.  

(3)  On 17 July 2012, Tiny Love Israel informed Technic Star that “[Technic Star] leave [Tiny Love Israel] no other choice but to take the unambiguous step of stopping immediately any payment and money transfer to [Technic Star] till TS will resume PO’s shipments as committed”.

(4)  In around August to October 2012, the relationship between the parties deteriorated when Tiny Love Israel indicated that it would move its business with Technic Star to other suppliers, requested for the return of some 135 moulds and tooling from Technic Star, and refused to make further payments.  Technic Star refused to release certain shipping documents (in particular, bills of lading, without which customers were unable to access the shipments)  for shipments that had already arrived at the destination ports, and refused to return the moulds and tooling.

(5)  Thirdly, from November 2012 onwards when the deadlock was partially resolved through the mediation of lawyers including Mr Ziv Wassercug of Yuval Levy & Co, Law Offices & Notaries and the use of a “trustee/escrow mechanism” (whereby Tiny Love Israel would make payment to Technic Star’s solicitors as stakeholders before delivery is made), which led to the successful release of certain shipments and payments.  For example, in or around November 2012, the parties reached an agreement based on the “escrow mechanism” whereby shipping documents were successfully released and payments made.  The success was short-lived, and soon the deadlock resumed, before these proceedings were commenced.  

C.  LATE INTERLOCUTORY APPLICATIONS AT TRIAL

Tiny Love’s application to adduce a further witness statement

17.  By Summons dated 28 May 2020, Tiny Love sought leave to adduce the 2^nd Supplemental Witness Statement of Mr Eddi Bilgorai.  The parties made submissions on this Summons on 1 June 2020 (i.e. the first day of trial).  I dismissed Tiny Love’s application and indicated that reasons for my decision would be provided in due course.

18.  The new witness statement sought to be introduced by Tiny Love dealt with two matters: (1)  further factual matters regarding the return of the moulds on 16 January 2018; and (2)  an explanation for the differences between Technic Star’s figures and Tiny Love’s figures in relation to List E Claims.

19.  Tiny Love has all along counterclaimed for loss and damage on the basis that Technic Star failed to return the moulds to Tiny Love.  It is therefore quite wrong and inappropriate for Tiny Love to say that it only “became aware that the return of the Moulds would be relied on by P at the trial” when the matter was stated in the Agreed Scott Schedule and also Technic Star’s Opening Submissions.  In the circumstances, it was incumbent upon Tiny Love to put forward all relevant factual matters if it considered it necessary to do so.  It seems clear to me that Tiny Love decided to make this application at the eleventh hour when it, in the course of preparing for the trial, realised that that it had not adduced all necessary materials in support of its counterclaim.  Apart from attempting to shift its own burden to Technic Star, Tiny Love failed to provide any explanation whatsoever as to why the materials contained in the 2^nd Supplemental Witness Statement of Mr Eddi Bilgorai in this regard could not be adduced earlier.

20.  In relation to the alleged explanation for the parties’ differences in relation to List E Claims, Tiny Love’s application has the same problem in that it completely failed to provide any reasons as to why it only manged to produce the materials only a few days before the commencement of the trial.  In particular, the new evidence is apparently based on Tiny Love’s internal records and there is no explanation why it was unable to make use of such records earlier.

21.  Counsel for Tiny Love submitted that the new evidence was “objective and uncontroversial”.  However, there is no basis for me to accept the submission, given that the evidence represented Tiny Love’s account of the matters, which Technic Star did not have a chance to verify or rebut.  In the circumstances, I agree with Technic Star that if the application were to be allowed, Technic Star would need to consider the new evidence and, if necessary, provide its response, and the trial would necessarily be derailed.

Late disclosure of documents

22.  Further, on the first day of trial, there was also an issue as to whether the documents numbered 105-108 (“the New Documents”)  in Tiny Love 3^rd Supplemental List of Documents could be adduced and relied upon by Tiny Love.  The documents consisted mainly of certain correspondence[2] in which Tiny Love had purportedly made offers to Technic Star which, on Tiny Love’s case, are relevant to Technic Star’s duty to mitigate.

23.  In order that the time reserved for the trial would not be  taken up by another interlocutory application, I allowed the parties to refer to the New Documents de bene esse and reserved my decision on this application.

24.  In Hong Lok School Limited & Anor v. Chow Sai Yiu & Anor [2003] 2 HKLRD 782, Deputy High Court Judge Lam (as Lam VP then was), in dealing with a litigant giving discovery at the eleventh hour, held that such a litigant should provide the court and the other side with full and accurate information regarding (1)  the reasons why the subject documents were not disclosed earlier; (2)  the provenance and the makers of such documents; (3)  the relevance of such documents to the issue before the court; and (4)  the availability or unavailability of the makers to attend trial for cross-examination in case the opponent objected to the hearsay evidence.

25.  Furthermore, where discovery is given at the eleventh hour just before trial, it is impermissible for the litigant giving such discovery to do so under the guise of voluntary discovery without seeking leave of the court to give further discovery out of time, and it is incumbent on a litigant giving such late discovery to make proper inter partes application to seek leave of the court: Kinetcs Medical Health Group Company Ltd  & Anor v Dr. Tse Ivan Cheong Yau HCA1115/2010 unrep., 8 May 2013 at §§32-33 per Deputy High Court Judge Marlene Ng (as she then was).

26.  In the present case, apart from the fact that no summons has ever been filed for this application, there was no affirmation explaining the delay and why it was necessary to adduce the New Documents at such a late stage.  I therefore accept Technic Star’s submission that there is simply no reason why disclosure of the New Documents could not have been made much earlier, in view of the fact that the New Documents being inter partes correspondence between Technic Star and Tiny Love Israel in 2012 and 2013 had apparently been in the latter’s possession since at least the commencement of these proceedings in 2014.

27.  I also accept that if the New Documents were adduced, Technic Star would be required to put in further materials to deal with the same, which may cause the trial to be disrupted. 

28.  For the above reasons, I dismiss Tiny Love’s application for discovery of the New Documents.

D.  AGREED ISSUES: LISTS A & B (ISSUES 5 & 6)  AND P’S CLAIMS AGAINST TINY LOVE USA

29.  Technic Star’s claims against Tiny Love Israel under List A Claims and List B Claims and its claim against Tiny Love USA are actions for an agreed sum, in contrast to its other claims which are claims for damages.

30.  List A Claims (see table “LIST A: Products collected by Tiny Love Israel” in the Schedule to the Consolidated Statement of Claim (“CSOC”))  consist of 7 invoices for products that had been delivered to and accepted by Tiny Love Israel for the total sum of US$66,410.84.  Tiny Love has accepted liability for these invoices subject to any defence of equitable set-off, which would depend on whether Tiny Love’s counterclaim can be established and proved.

31.  List B Claims (see table “LIST B: Short payments, outstanding sample charges, materials costs and other miscellaneous expenses” in Schedule to the CSOC)  relate to miscellaneous expenses including short payments, sample charges and costs of materials in the sum of US$103,136.11.  Technic Star’s original claim under List B Invoices consisted of 36 Invoices for a total sum of US$103,136.11.  In the course of the trial, Technic Star agreed to remove 2 disputed items (TUDN120012 and TUDN120051)  from List B Invoices and Tiny Love Israel accepted liability for the remaining 34 invoices under the revised List B Invoices for a total sum of US$80,740.79, subject to any defence of equitable set-off.

32.  Technic Star’s claim against Tiny Love USA (not in the Agreed List of Issues)  relates to 4 products (see the list titled “Products collected by Tiny Love USA” as shown in the Schedule to the CSOC)  for a total sum of US$80,277.18.  It is undisputed that these products had been accepted by Tiny Love USA and delivered to its customers. Tiny Love USA has also accepted liability for these products. 

E.  LIST C POS (AGREED ISSUE 7)

Liability

33.  List C Claims consist of PO12000674 and PO12000675.  The total contract price is US62,915.01.  It is common ground that the products under these purchase orders had been manufactured and were ready to be shipped.  The particulars of these two purchase orders are as follows.

PO#	Amount (US$)
PO12000674	47,105.73
PO12000675	15,809.28
	Total: 62,915.01

34.  In a letter from Mr Bilgorai to Mr Kam of Technic Star (“Mr Kam”)  dated 18 October 2012, Tiny Love Israel purported to “stop” the shipment of products under all open purchase orders, which on Technic Star’s case, included PO12000674 and PO12000675.  This is not seriously disputed by Tiny Love Israel.  The email dated 18 October 2012 stated that:

“Since you are not responding to our requests to release immediately the shipping documentation for all shipped PO’s and since you ignore my mails asking to settle this issue, I’m ordering hereby to stop immediately the shipments of all our PO’s from factory to any destination, any warehouse and any port. This is effective immediately for all open PO’s including PO 675 which supposed to be shipped this afternoon”.

35.  Accordingly, Technic Star’s case is that Tiny Love Israel had refused to arrange shipping for these products and were therefore in repudiatory breach.

36.  In a letter from Mr Fredy Aboukrat of Tiny Love Israel to Mr Kam dated 29 October 2012, Tiny Love Israel made an offer to “approve” the shipment of the products under PO12000674 and PO12000675 upon Technic Star releasing the shipping documents for certain other shipments that it had allegedly withheld:

“1. TS will release immediately the shipping documents for 5 PO’s which have been shipped already…

2.  Conditioned on fulfilling the above, LT will approve shipping the 2 ready for shipment PO’s we put on hold.”

37.  This offer dated 29 October 2012 was not accepted by Technic Star.

38.  In December 2012, these two purchase orders were the subject of further negotiations between Tiny Love Israel and Technic Star.  In an email dated 7 December 2012, Tiny Love Israel offered to pay for the products in these purchase orders and to arrange for their shipment, based on a “stakeholder mechanism” to the effect that Tiny Love would pay a sum of money to Technic Star’s solicitors, which would only be released to Technic Star upon delivery of the goods.  The offer was repeated in an email dated 20 December 2012.  This is where the parties’ accounts of the events diverge.  Tiny Love Israel’s case is that the offer had not been accepted by Technic Star whereas Technic Star’s case is that it had accepted the offer but Tiny Love Israel did not make payment as the parties had agreed.  It is undisputed that Tiny Love Israel never made payment for these two open purchase orders.

39.  It is Technic Star’s evidence that it had accepted Tiny Love Israel’s offer to pay made in December 2012. There is nothing in Mr Bilgorai’s witness statements which specifically deal with this issue.  In particular, there is nothing in Tiny Love Israel’s evidence as to the conduct of the parties after the offers were made.  On the contrary, there was an Escrow Agreement dated 30 November 2012 which referred to a proposal consistent with the stakeholder mechanism.  Whilst the Escrow Agreement was dated before Tiny love’s offers, it would not have been necessary for the parties to take the trouble of suggesting such a mechanism in the Escrow Agreement if the parties simply had no intention to implement the same. In the circumstances, I agree with Technic Star that Tiny Love shall be liable to pay for the two purchase orders under List C Claims in the total sum of US$62,915.01.

40.  Alternatively, even on the assumption that Technic Star did not accept Tiny Love Israel’s offers, Tiny Love Israel’s pleaded defence in relation to List C Claims is simply that Technic Star failed to deliver the products (i.e. not on the basis that Technic Star failed to accept the offers).  However, I take the view that this defence must fail in view of the evidence that Tiny Love Israel asked Technic Star to put the relevant shipments on hold.  

41.  Counsel for Tiny Love complains that according to the pleadings, Technic Star’s claim in this respect is for damages and hence Technic Star should not be entitled to claim the unpaid price of the goods.  However, it appears to me that the parties clearly understood that the dispute regarding List C Claims related to the two unpaid purchase orders and proceeded to argue on that basis.  Further, as stated above, there is no dispute that Technic Star had already manufactured the goods under these purchase orders.  Hence, there is no reason why Technic Star should not be entitled to the unpaid price of the two invoices, whether its claim is formulated as one for damages or otherwise.

F.  LIST D Claims (AGREED ISSUE 8)

42.  List D Claims consist of 9 purchase orders which Tiny Love Israel allegedly failed to perform.  The total contract price is US$283,937.01.  In the Consolidated Statement of Claim, Technic Star claims a sum of US$283,937.01 for “Purchase Orders not honoured” and a table entitled “LIST D: Purchase Orders not honoured” in the Schedule attached to the CSOC sets out the following:

PO#	Amount (US$)	Date of PO
PO12000662	40,137.19	02.08.2012
PO12000680	40,956.96	09.08.2012
PO12000696	18,195.84	18.08.2012
PO12000743	13,920.12	21.09.2012
PO13000005	4,592.40	27.09.2012
PO12000764	60,088.80	04.10.2012
PO12000765	42,464.88	04.10.2012
PO12000779	45,025.20	14.10.2012
PO13000040	18,555.62	29.10.2012
	Total: 283,937.01

43.  It should first be noted that according to a “Dismantle (Handling)  Goods List” (銷毀 (處理)  貨品清單）dated 7 February 2015 notarised by a PRC law firm, the disposed goods were described as “Semi finished goods and products (LISTED AS BELOW)”.   The items listed in that document were referred to as “All related electronic & metal parts components”, “All related plastic injection components”, “All related fabric components” and “All related packing material components”.  I wish to flag this matter at the outset of the discussion of List D Claims as it may have a material impact on the question of quantum.

Aug-Sept 2012 POs: purported cancellation

44.  In defence, Tiny Love Israel’s case is that 4 of those purchase orders placed in August and September 2012 i.e. PO12000662, PO12000680, PO12000696 and PO12000743)  (“Aug-Sept 2012 POs” had been validly cancelled.  The aggregate contract price for these 4 purchase orders is US$113,210.11.  It is common ground that neither party performed its obligations under these purchase orders.  The issue to be determined is whether Tiny Love Israel was entitled to terminate, by purporting to cancel, these purchase orders.  

45.  Technic Star’s case, as explained by Mr Kam in §17(6)  of Mr Kam’s Witness Statement, is that whilst it accepts that Tiny Love Israel had sought to cancel these purchase orders, Technic Star did not accept those cancellations because they came too late, and that as a result, Technic Star was left with no choice but to scrap the raw materials already purchased for the fulfilment of those purchase orders and the semi-finished products.

46.  Tiny Love Israel provided two reasons for its cancellation of the purchase orders:-

(1)  The Aug-Sept 2012 POs were cancelled because (a)  “as a result [of] the Plaintiff’s delays customers no longer wanted the product” and (b)  “the relationship between the parties had broken down (which can also be seen from… the Plaintiff’s refusal to return the moulds)”.

(2)  Regarding specifically PO12000662, Tiny Love Israel relies on a letter sent from Ms Liu Xiao Ni of Technic Star dated 22 October 2012 which purportedly shows that it was Ms Liu who on the behalf of Technic Star cancelled the purchase order of PO12000662 on the basis that Technic Star had to wait for certain “test report” to effect shipping.

47.  I am of the view that neither of the reasons stated in §47(1)  above constitutes a valid ground for Tiny Love Israel to terminate the Aug-Sept 2012 POs. 

(1)  Firstly, Tiny Love has not provided evidence of any delay in Technic Star’s performance of the Aug-Sept 2012 POs.  Tiny Love sets out a list of purchase orders for which shipments had allegedly been delayed in Appendix B to Mr Bilgorai’s 1^st Witness Statement (Schedule of Delay)  but the list does not include any of the Aug-Sept 2012 POs.  Therefore, I do not accept that there was any delay which would entitle Tiny Love Israel to terminate the Aug-Sept 2012 POs.

(2)  Secondly, neither the fact that “the relationship between the parties had broken down” nor “the Plaintiff’s refusal to return the moulds” should entitle Tiny Love Israel to terminate the Aug-Sept 2012 POs.  In particular, with regards to the Technic Star’s alleged refusal to return the moulds, as explained below in paragraph 113, I reject the submission that there was any implied term to the effect that Technic Star would be required to return the mounds to Tiny Love Israel. 

48.  I accept, however, that Ms. Liu Xiao Ni had on 22 October 2012 on behalf of Technic Star requested Tiny Love Israel to cancel the PO12000662, and that it was Technic Star that had terminated PO12000662.

49.  Accordingly, I arrive at the conclusion that Tiny Love Israel had purported to terminate, by purporting to cancel, PO12000680, PO12000696 and PO12000743, and had in so doing repudiated these 3 purchase orders.  It is therefore liable to Technic Star for damages.

Sept-Oct 2012 POs: purported restrictions on shipping

50.  For the remaining 5 purchase orders placed in September and October 2012 (i.e. PO13000005, PO12000764, PO12000765, PO12000779 and PO13000040)  (“Sept-Oct 2012 POs”), Technic Star’s case is that it had never refused to deliver any products as alleged by Tiny Love Israel.   Technic Star alleges that it was Tiny Love Israel that demanded Technic Star to stop the shipment of the products under the Sept-Oct 2012 POs, purporting to place restrictions on the shipping of those products. This does not seem to be disputed by Mr Bilgorai of Tiny Love Israel who, under cross-examination, when asked whether Tiny Love Israel had requested Technic Star to stop the shipment of these products, replied “that as a fact, yes”, and when asked as to whether Tiny Love Israel had ever subsequently lifted such a purported restriction, replied “not as I remember”. 

51.  Tiny Love Israel submits that the request to stop the shipments was not a “restriction” and that hence did not have the effect of repudiating the relevant purchase orders since “clearly, it was not backed up by the force of law” and that it was “merely a request from Tiny Love Israel in the context of a broader dispute with P”.  In essence, Tiny Love’s allegation is that since it was seeking to address the broader dispute and to “prevent the dispute from getting even worse… it had little choice but to request [Technic Star] to withhold shipment of POs including those under List D”.

52.  I am unable to accept Tiny Love Israel’s arguments.  First, the submission that the request to stop or withhold shipment was “backed up by the force of law” is neither here nor there without examining the reasons for and the surrounding circumstances of such request.  Secondly, I cannot see how Tiny Love’s intention to address the broader dispute and “prevent the dispute from getting even worse” could provide a justification for what would otherwise be a repudiation by Tiny Love Israel of its contractual obligations under List D Claims.

53.  In the circumstances, Tiny Love Israel’s unilateral decision to withhold shipment would, prima facie, constitute a repudiatory breach.  In any event, Tiny Love Israel has not been able to provide any concrete evidence showing that Technic Star had ever accepted the request.  During cross-examination, Mr Bilgorai was asked who came up with the idea of requesting Technic Star to withhold shipment but he was unable to give any clear answer.  Further, when he was asked whether there was any document showing such cancellation, Mr Bilgorai’s answer was that there must have been some document showing this, but Tiny Love Israel has not managed to disclose any such documents.

54.  Accordingly, I find, as a matter of fact, that it was Tiny Love Israel that had purported to “stop” the shipments under Sept-Oct 2012 POs, and that Technic Star had not refused deliver these products, and that Tiny Love Israel had, by asking Technic Star to withhold the shipment of the products in Sept-Oct 2012 POs, committed a repudiatory breach. 

55.  For the sake of completeness, I wish to mention that Tiny Love Israel also relies on the fact, much like its case for List C Claims, that it had made an offer on 19 November 2012 and 17 January 2013 (following its request that Technic Star stop the shipments)  to Technic Star to make payment for the Sept-October 2012 POs, which Technic Star unreasonably refused.  However, whether Tiny Love Israel had subsequently made an offer to perform the Sept-Oct 2012 POs by making payment and accepting delivery and whether Technic Star should have reasonably accepted such an offer should not affect the analysis on liability.

Damages

56.  Mr Kam says at paragraph 17(6)  of Mr Kam’s 1^st Witness Statement that:

“As to paragraph 29(d)(i)  of the CDCC [regarding List D POs], whilst the Defendants had indeed sought to cancel Purchase Orders 12000662, 12000696, 12000743 and 12000680, such cancellation came too late. By then, production of the relevant products has already been largely completed. As a result of the Defendants’ repudiatory breach of their contracts with Technic Star, we were left with no choice but to strap all materials purchased for the fulfilment of those Purchase Orders and semi-finished products” (emphasis added).

57.  Therefore, Technic Star’s own case is that the production for the purchase orders under List D Claims purchase orders had only been “largely completed”, rather than fully manufactured and ready to be shipped, in contrast to the products regarding the purchase orders under List C (PO12000674 and PO12000675)  which had been fully manufactured and were ready to be shipped.  As mentioned above, according to the “Dismantle (Handling)  Goods List”, the disposed goods were components or semi-finished products.

58.  It is unclear from Technic Star’s case regarding the extent to which the components or “semi-finished products” under List D Claims had been used by Technic Star, the remaining costs needed to complete them, and the value of the materials that would have been used to complete the products that Technic Star was forced to “strap”.

59.  As stated in McGregor on Damages (20^th Edn)  §10-011, where the claimant is unable to provide evidence for the amount of damages suffered such that it is virtually impossible to assess damages, the court will generally permit an award of nominal damages.  Counsel for Technic Star also refers to Perestrello E Compenhia Limitada v United Paint Co Ltd[1969] 1 WLR 570 at 579 for the proposition that “a plaintiff who has the advantage of being able to base his claim upon a precise calculation must give the defendant access to the facts which make such calculation possible”.   These principles are not in dispute.

60.  I am not satisfied that Technic Star has discharged its burden to plead and prove the necessary particulars for the damages sought under List D Purchase Orders (“List D POs”). The following material facts are pleaded by Technic Star:-

(1)  The CSOC refers to “Purchase Orders not honoured” and the amount of “US$283,937.01”.

(2)  Schedule C to the CSOC sets out the breakdown of the List C POs by purchase orders (stating the contract price and date of each of the purchase order)  as reproduced in paragraph 33 above.

61.  However, since not all products under List D Claims have been fully manufactured and were ready for shipping (as in the case for List C Claims), being only “largely completed”, particulars regarding the remaining steps of production needed for all products under List D Claims to be fully manufactured and the cost of production for those steps are needed to particularize its claim. 

62.  I agree with Tiny Love Israel that it is insufficient for Technic Star to simply plead the total unit price and that Technic Star has failed to provide information regarding (1)  the costs of the raw materials, (2)  costs of converting the raw materials into final products, (3)  any incidental expenses and/or (4)  Technic Star’s estimated loss of profits.   The absence of such evidence puts the Court in an impossible position to properly assess the quantum of damages, since the Court cannot pluck a figure in the air or accept any bare assertion without adequate support or evidence.  I therefore take the view that only nominal damages can be awarded.

G.  LIST E CLAIMS (AGREED ISSUE 9)

63.  List E Claims relate to the alleged outstanding frame orders, for which, according to Technic Star’s case, Tiny Love Israel failed to place the corresponding purchase orders. Mr Kam’s evidence is that once a frame order was placed, Technic Star would manufacture the full quantity of products ordered, and in the case of List E Claims, the products ordered were already “in near-finish state, pending mostly final packaging”.

64.  Paragraph 8 of the CSOC states:

“The Plaintiff avers that it was an implied term of the Israeli Materials Contracts (the “Implied Term”), by convention and/or in order to give business efficacy and/or by obvious implication, that Tiny Love Israel was obliged to make Purchase Order(s)  and/or further instructions in respect of the materials purchased and/or processed by the Plaintiff under the outstanding Frame Orders.  Further, in the case that Tiny Love Israel fails to do so, Tiny Love Israel shall reimburse and compensate the Plaintiff for the costs of acquiring and/or processing the materials, together with any incidental expenses and loss of profit thereof”.

65.  The alleged implied term consists of two parts.  The first part is that Tiny Love Israel was required to place purchase orders and/or further instructions in respect of materials purchased and/or processed under all frame orders (“First Part of Implied Term”). The second part is that, where Tiny Love Israel was in breach of the First Part of Implied Term, Tiny Love Israel would compensate Technic Star for costs of the raw materials, any incidental expenses and loss of profit (“Second Part of Implied Term”).

66.  Counsel for Tiny Love Israel, in his closing submissions, accepted the First Part of Implied Term, but continued to dispute the Second Part of Implied Term.  Even if the Mr Thomas Wong had not conceded the existence of the First Part of the Implied Term, I would have accepted Technic Star’s submission and found that, taking into account the relevant previous course of dealings in particular the practice from 2008 to early 2012 whereby Tiny Love Israel would always place sufficient purchase orders to cover for quantities under the frame orders (as acknowledged by Mr Bilgorai under cross examination)  and by reason of business efficacy or the obvious intention of the parties, such an implied term existed in the frame orders between the parties. 

67.  In relation to the Second Part of Implied Term, Tiny Love Israel’s case is that there was at most an implied term that it would be obliged to reimburse Technic Star for any unused raw materials actually and reasonably purchased under frame orders where Tiny Love Israel failed to place sufficient corresponding purchase orders.  In fact, counsel for Technic Star, in his closing submissions, instead of insisting on the Second Part of Implied Term, indicated that if Tiny Love Israel were found to be in breach of the First Part of the Implied Term, Technic Star would be be entitled to damages which would be regarded as directly and reasonably arising from such breach including the costs of raw materials, any incidental expenses and loss of profits as if the First Part of Implied Term is found to be breached by Tiny Love Israel.

68.  Hence, there is no reason why Technic Star should not be allowed to claim damages for breach of First Part of Implied Term, subject to the following arguments raised by Tiny Love Israel, which I will now deal with.

Tiny Love Israel’s “zeroing” argument (Agreed Issue 4)

69.  Tiny Love Israel contends that all pre-2012 frame orders had been “zeroed”, and superseded and replaced by the A1200003 dated 11 January 2012 and A1200004 dated 18 January 2012 (revised on 23 January 2012)  (collectively, the “2020 FOs”).  The quantity of outstanding pre-2012 frame orders has therefore been “reset” to zero.  On Tiny Love Israel’s case, the “zeroing” arrangement was made pursuant to the agreement between Tiny Love Israel and Technic Star in two emails dated 8 and 11 January 2012, and the effect of the “zeroing” is that Tiny Love Israel’s obligations under all outstanding frame orders prior to 1 January 2012 were extinguished.

70.  Technic Star’s case is that the parties did agree to “zero” the negative balance of pre-2012 frame orders, but not the positive balance, whereas on Tiny Love Israel’s case, both negative and positive balances were agreed to be “zeroed”.  According to Technic Star, “zeroing” the negative balance is largely an accounting exercise (since a negative balance simply means that the quantity of products under the purchase orders, presumably open purchase orders, placed has exceeded that under frame orders), to “zero”.  However, since a positive balance would affect the parties’ substantive rights in that, for the outstanding frame orders (i.e. the positive balance), Tiny Love Israel, if its case is accepted, would no longer have any contractual obligation to place corresponding purchase orders, such that Technic Star would be left with unused or processed raw materials and/or manufactured products for those outstanding frame orders that have been “zeroed”.

71.  I reject the “zeroing” argument, having considered the following matters.  Firstly, a key document which needs to be considered  by the Court is an email from Mr Eyal Sharabi of Tiny love Israel to Technic Star dated 8 January 2012 which states that “we need to ‘Zero’ frame order balance since I cannot find any meaning for current negative balance (if these orders had already shipped so what is the negative balance meaning and what the point to release retroactive frame order to cover it?)”, which demonstrates that at least as of 8 January 2012, Tiny Love Israel’s suggestion and intention were only to “zero” the negative balance, for the simple (and sensible)  reason that a negative balance (which simply means that more products have been ordered under purchase orders than frame orders)  would no longer serve any useful purpose.  

72.  Secondly, Tiny Love Israel in the second paragraph of the letter dated 8 January 2012 states that “second: current balance follow up should show what POs # and qty was deduct so we can manage and support current frame order balance”, thereby requesting Technic Star to provide information regarding the “current frame order balance”. Technic Star has submitted, and I accept, that had Tiny Love Israel’s intention been to reset both negative and positive balances to zero, there would have been no need for it to request for information regarding the “current frame order balance”.

73.  Thirdly, at trial, Mr Kam explained that Technic Star would not have agreed to “zero” any positive balance because a positive balance indicated that products had already been manufactured (save for packaging), or at the minimum raw materials for such products had been acquired, and that it would have been “absurd” for Technic Star to agree, to its own detriment, to “zero” the positive balance thereby waiving Tiny Love Israel’s obligation to place corresponding purchase orders to use up such products or raw materials.  Indeed, Mr Bilgorai, under cross-examination, fairly accepted that he was not aware of any reason why Technic Star would have agreed to “zero” the positive balance.

74.  Fourthly, whilst Tiny Love places emphasis on the chart of frame orders attached to the email dated 11 January 2012 which, on Tiny Love’s case, evidences the parties’ agreement to “zero” the positive balance of frame orders, I accept Mr Kam’s evidence that the purpose of the chart was only to provide a forward-looking account of expected frame orders for the upcoming period and did not reflect an intention or agreement to “zero” the balances, both positive and negative, of all frame orders.

75.  The above ruling on the “zeroing” argument (Agreed Issue 4)  also disposes of Agreed Issue 10 which concerns whether, in the event that the Court accepts the “zeroing” argument and finds that pre-2012 frame orders had been reset to zero, there were any products under frame orders placed in 2012 that remain outstanding i.e. for which no corresponding purchase orders have been placed.  As I have rejected the “zeroing” argument, this issue does not arise for determination.

Proof of outstanding frame orders

76.  List E Claims originally consisted of 15 frame orders.  The parties have since been able to agree on the outstanding quantities for 10 of those frame orders for 10 different products, namely “Take Along Mobile”, “Take Along Mobile Princess”, “Tiny Smart – Jittering Jay”, “Tiny Smart – Jittering Giraffe”, “Tiny Smart – Hippo”, “Tiny Smart – Frog”, “Tiny Smart – Lily Sheep”, “Tiny Smart – Betty Butterfly”, “Tiny Smart – Chloe Cow” and “Tiny Princess Mobile”[3].  The agreed quantities of these 10 products are as follows.

Product Name	Unit Price (US$)	Outstanding Quantity	Amount (US$)
Tiny Smart – Jittering Jay	1.88	4024	7,565.12
Tiny Smart – Jittering Giraffe	2.28	7832	17,856.96
Tiny Smart –Frog	1.55	1320	2,046.00
Tiny Smarts – Lily Sheep	1.59	6608	10,506.72
Tiny Smarts – Betty Butterfly	1.46	5168	7,546.28
Tiny Smart – Chloe Cow	1.46	7184	10,488.64
			Total: 56,009.72

77.  The outstanding quantities for 5 products (all involving pre-2012 FOs)  remain in dispute.  Those products are “MSP Elephant”, TP E-book, “Tiny Smart – Baby Seal”, “Tiny Smart – Blue Elephant” and “Tiny Smart – Pink Elephant” involving a total sum of US$191,072.72.  Accordingly, on Technic Star’s case, it is entitled to US$56,199.79 in relation to the revised List E FOs.  These 5 products are as follows.

Product Name	Outstanding Quantity	Unit Price (US$)	Amount (US$)
MSP Elephant	2990	6.68	19,973.2
TP E-book	17212	6.48	111,533.76
Tiny Smart – Baby Seal	12608	1.91	24,081.28
Tiny Smart – Blue Elephant	11640	1.62	18,856.80
Tiny Smart – Pink Elephant	10264	1.62	16,627.68
			Total: 191,072.72

78.  I note that whilst the outstanding quantities for these 5 products as alleged by Technic Star remain in dispute, Tiny Love Israel has not provided any positive case on what the correct quantities should be.

79.  Having considered the evidence available, especially contemporaneous documents including table compiled by Technic Star in 2012, I now summarise my rulings on the outstanding quantities:-

(1)  For “MSP Elephant”, I accept that the outstanding quantity is 2,990 units.  Technic Star has compiled a table illustrating its calculation.

(2)  For TP E-books, Technic Star’s primary position is that the outstanding 17,212 units outstanding under the frame orders.  Technic Star has compiled a table illustrating its calculation.  There is, however, a notable inconsistency between Technic Star’s figure of 17,212, and a contemporaneous document compiled by Tiny Love Israel on 22 November 2012 showing an outstanding balance of 15,236.  The disparity has not been adequately explained by Technic Star.  In the circumstances, I am unable to accept that Technic Star has proved on a balance of probabilities that there is an outstanding balance of 17,212 units for TP E-books, and I find that the outstanding balance is 15,236.

(3)  For “Tiny Smart – Baby Seal”, I accept that the outstanding quantity is 12,608 units.  Technic Star has compiled a table illustrating its calculation based on 5 frame orders.  Notably, the figure of 4896 units taken in the table to be the quantity of products used up by purchase orders in 2012 is corroborated by Tiny Love Israel’s own “TS BOA Balance” which records the same figure.  I accept that Technic Star has proved the outstanding balance of 12,608 on a balance of probabilities.

(4)  For “Tiny Smart – Blue Elephant”, Technic Star’s primary case is that there is an outstanding balance of 11,640 and, alternatively, 2,792 (being the difference between 20,000, the undisputed quantity under the #003 FO and #004 FO, and the undisputed PO quantity of 17,208 in 2012).  Tiny Love Israel admits to only 920 units as the outstanding balance and puts Technic Star to strict proof in respect of the figures on which Technic Star relies.  Having considered submissions from counsel of both parties, I am unable to accept the figure of 11,640 as Technic Star has not been able to adequately explain how the figure of 11,640 is arrived at or provide any documentary evidence for it.  I am prepared to accept, however, that Technic Star has proved on a balance of probabilities that the outstanding balance is at least 2,792, since neither the quantity under the quantities ordered under #003 FO and #004 FO nor the quantities used up in 2012 (being the quantity covered by purchase orders)  is disputed by Tiny Love Israel, and the figure of 2,792 reflects the difference between the units ordered in frame orders and units used up.

(5)  For “Tiny Smart – Pink Elephant”, similarly, I am unable to accept Technic Star’s bare allegation that the outstanding balance is 10,264. However, I accept that the outstanding balance is at least 2,112 (being the difference between the quantity under #003 FO and #004 FO being 15,000 and the quantity used up in 2012 being 12,888, neither figure has been disputed by Tiny Love Israel). 

Damages

80.  In the circumstances, regarding the 5 products in dispute under List E Claims, the relevant quantities (given the reasons set out above)  should be as follows:-

Product Name	Outstanding Quantity (as ruled above)	Unit Price (US$)	Amount (US$)
MSP Elephant	2990	6.68	19,973.2
TP E-book	15,236	6.48	98,729.28
Tiny Smart – Baby Seal	12,608	1.91	24,081.28
Tiny Smart – Blue Elephant	2,792	1.62	4,523.04
Tiny Smart – Pink Elephant	2,112	1.62	3,421.44
			Total: 150,728.24

81.  In view of the above and also on the basis that the products under List E frame orders (“List E FOs”)  had already been fully manufactured and/or were “in near-finish state, pending mostly final packaging” as alleged by Technic Star, which has not been contradicted by Tiny Love Israel, I conclude that Technic Star should be entitled to the value of the relevant 10 purchase orders in the total sum of US$150,728.24.

 Mitigation for List E FOs and List D POs (Agreed Issues 12 & 13)  and Causation 

82.  Tiny Love Israel’s case is that Technic Star had failed to mitigate its losses as it did not accept the offer made by Tiny Love Israel on 7 December 2012, which was then substantially repeated on 20 December 2012 (“7 & 20 December Offer”).  Technic Star’s case is that it did accept Tiny Love Israel’s offer to, inter alia, use the “escrow mechanism” to perform purchase orders, but it was Tiny Love Israel which had refused to make payment pursuant to their agreement.

83.  The 7 & 20 December Offer, insofar as List E Claims are concerned, was for Tiny Love Israel to place further purchase orders (that would, on Tiny Love Israel’s case, use up unused raw materials from outstanding frame orders).  The orders offered to be made consist of:

Product Name	Quantity
Classic Mobile Units	10,000
Island Mobile Units	10,000
MSP Units (which P understands to refer to MSP Elephant Redesign)	10,000
Island Stroller Set Units	10,000
Smart Tiny Units (6 types with 5,000 per type)	30,000

84.  Even accepting Tiny Love Israel’s case that Technic Star never accepted the 7 & 20 December Offer, I am not prepared to find that Technic Star had failed to mitigate by unreasonably rejecting the offer. 

85.  Firstly, Technic Star submits, and I accept, that the first 4 of the 5 products referred to in the offer were not covered by existing frame orders.  In other words, placing purchase orders for these products would not consume any unused raw materials in Technic Star’s possession, and Technic Star’s losses arising from Tiny Love Israel’s breach of First Part of the Implied Term regarding List E FOs would not be mitigated had Technic Star accepted the further placements of purchase orders for these 4 products.

86.  Secondly, I accept Mr Kam’s evidence that most of the unused raw materials arising from the purchase orders under List E Claims (except the plastic resins), cannot be used for manufacturing products other than those ordered by Tiny Love.  The end-products that were tailored to Tiny Love’s uses, likewise, could not be easily sold to other buyers.

87.  In making this determination, I bear in mind that the onus of proof on the issue of mitigation is on the defendant (see McGregor, 21^st Ed para 9-020), that hindsight is to be avoided in reviewing the relevant circumstances, and that the plaintiff is not under any obligation to do anything other than in the ordinary course of business.  In Banco de Portugal v. Waterlow and Sons Ltd [1932] AC 452 at 506, Lord Macmillan said in an oft-cited passage:

“Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of the contract has occasioned the difficulty”.

88.  I also reject Tiny Love Israel’s submission that Technic Star’s factories would not have any capacity to produce the products even had Tiny Love Israel complied with the First Part of Implied Term and placed sufficient corresponding purchase orders that would exhaust all unused raw materials.  There is simply no concrete evidence for Tiny Love Israel to establish this allegation. 

Termination of List E FOs (Agreed Issue 11)

89.  Further, in relation to the frame orders under List E Claims, Tiny Love Israel argues that that all transactions between Technic Star and Tiny Love Israel in 2012 (111 shipments arising from various frame orders and purchase orders)  had been terminated (in August to October 2012)  on the basis that Tiny Love Israel had purportedly accepted Technic Star’s repudiatory breaches in relation to late-delivery and defective products.  I do not, however, agree that the late delivery and defective products could form any basis for Tiny Love Israel to terminate the frame orders or purchase orders on which those products were based because all such products that purportedly carried the defects or were purportedly late in their delivery were ultimately accepted by Tiny Love Israel, and in circumstances where Tiny Love Israel had, on its own case, knowledge of the alleged delay and defects.  Accordingly, I find that Tiny Love Israel had not terminated any of the purchase orders.  Tiny Love Israel’s allegations of late delivery and defects will be discussed in greater detail below when I deal with Tiny Love Israel’s counterclaim.

90.  Tiny Love Israel also submits that all these frame orders and purchase orders between Tiny Love Israel and Technic Star in 2012 formed one single composite agreement of which all such orders were components and that it had terminated all frame orders and purchase orders in 2012 by accepting the repudiatory breach of Technic Star in refusing to provide TP E-books and AC E-books.   Having considered the submissions from counsel and all relevant evidence, I am unable to find that the parties had intended for all their agreements in 2012 to have formed a single composite agreement.  Tiny Love Israel has failed to demonstrate, and I am not satisfied, that the numerous frame orders and purchase orders in 2012 (involving 111 shipments)  were so interrelated that the reality of the bargain was that all such orders formed a single contract and that the repudiatory breaches of certain purchase orders that placed the orders for 3,144 TP E-books and 6,480 AC E-books (for example PO# TS-12000345)  entitled Tiny Love Israel to terminate all frame orders and purchase orders in 2012. 

91.  I also reject the submission that the frame orders and purchase orders for all 111 shipments in 2012 formed one single contract (Agreed Issue 1).

H.  TINY LOVE ISRAEL’S COUNTERCLAIM: DELAY (AGREED ISSUE 14)  AND QUALITY ISSUES (AGREED ISSUE 16)

Liability

92.  I now turn to the issues of delay and defects raised by Tiny Love Israel.  In relation to the issue of delay, it is undisputed that a number of shipments had been delayed in that the products moved out of the factory on a date later than that agreed between Tiny Love Israel and Technic Star.  It is common ground that it was an express term of each of the purchase orders that Technic Star would manufacture the products specified within 60 days of receiving the purchase order.

93.  The length of delay is, however, in dispute.  Tiny Love Israel alleges an average delay of 13.7 days, based on the “committed ex-factory dates”, which admittedly cannot be expressly found in the purchase orders.  Tiny Love Israel claims that the delay was caused by problems with the manufacturing capacity of Technic Star’s factories, which Technic Star denies.  Technic Star alleges there was an average delay of 0.5 to 1.24 day, based on the ex-factory date stated on the purchase orders as Technic Star objected to the use of the “committed ex-factory date” which Technic Star considers “elusive” and “something of a mystery” not being supported by any documentary evidence.  Technic Star’s case that the average delay was around 0.5 to 1.24 day is based on a comparison between the final inspection date before the products left the factory (the actual ex-factory date)  and the ex-factory date as recorded in the relevant purchase orders. 

94.  The various reasons that Technic Star provided for the delay do not take the matter any further either, given the lack of evidence that the delay had in fact been caused by each of the purported reason.  For completeness, those purported reasons included the long labour holiday in 2012, the Chinese New Year holidays, the quality checks conducted by Tiny Love Israel and the delay in the appointment by a shipping forwarder by Tiny Love Israel.

95.  In relation to the issue of defective products, Tiny Love Irael confirmed, via its counsel’s closing submissions, that that the claim based on alleged corrosion on the metal contacts in the electronic books (detailed in Appendix A of Mr Bilgorai’s 1^st WS)  was no longer being pursued by Tiny Love.  Therefore, the only remaining issue is that relating to alleged defects in the gearbox of the mobile category of products (in particular “Pond Mobile”, “Classic Mobile”, “Nature Pals Mobile”, “Sweet Island Dreams Mobile” and “Tiny Princess Mobile”).  

96.  Technic Star accepts that there existed certain defects with the gearbox, the defects being discovered in early 2012, but disputes its liability for such defects, claiming, inter alia, that the defective gearboxes were supplied by an independent and unrelated manufacturer nominated by Tiny Love Israel, and that the defective inductors had been approved by Tiny Love Israel. 

97.  Technic Star’s case is that it does not know what the actual cause of the defect was and therefore it cannot be firmly established that it was Technic Star who was at fault.  In its pleading, Technic Star denies liability for the defect and avers that “the gearboxes of the mobiles were supplied to it from an independent and unrelated manufacturer nominate[d] by the Defendants”.  At trial, Technic Star drew the Court’s attention to a corrective action plan dated 2 February 2012 suggesting that the defect arose from the inductor being too brittle which was later shown to be incorrect.  Technic Star also relies on the facts that it continued to produce the goods using the old method (without removing the defect)  because it had appeared to Technic Star that Tiny Love Israel would soon adopt a gearbox that would not require the (defective)  inductor, and that Tiny Love Israel had continued to authorize and request Technic Star to produce such goods in April 2012 notwithstanding having knowledge about the defects, thereby “condoning” the defects.  

98.  On the contrary, it has been submitted by Tiny Love Israel, and I accept, that the duty to supply satisfactory goods under Section 16(2)  of the Sales of Goods Ordinance is strict and that it is no defence that all possible care was taken nor that the seller relied on an undertaking given by his own supplier” (Benjamin, para 11-038).  In Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454 (HL), the House of Lords held that the fact that the builders had specified tiles made by one manufacturer did not exclude the ordinary implied warranty of equality of the sub-contractors.  I am also unable to accept the submission that Tiny Love Israel had by making further orders of the same product in any way “condoned” the defects in such products as the situation regarding each order should be examined separately.

99.  Accordingly, I find that the late delivery of products by Technic Star and the admittedly defective gearbox constituted breaches of the relevant purchase orders. 

Quantum

100.  However, it is plain that no losses or damages have been pleaded by Tiny Love (in Schedule C of the Consolidated Defence and Counterclaim or otherwise).  Mr Bilgorai in his 1^st Witness Statement refers to “necessary action to protect its commercial interests by charging the Plaintiff between $1,000 and $3,000 for each Purchase order delayed and transferred product lines to alternative suppliers” but, even then, no attempt was made in Mr Bilgorai’s witness statements to quantify Tiny Love’s loss arising from the alleged delay and/or quality issues.  Therefore, insofar as Tiny Love claims to recover any damages for these alleged breaches of contract, there is simply no basis upon which the Court could make any proper assessment.  In the circumstances, only nominal damages can be awarded.

I.  TINY LOVE’S COUNTERCLAIM: FAILURE TO DELIVER TP E-BOOKS AND AC E-BOOKS (AGREED ISSUE 15)

Liability

101.  It is undisputed that purchase orders for 3,144 TP E-books and 6,480 AC E-books had been placed by Tiny Love Israel.  The total contract prices were US$13,080 and US$30,910 respectively.

102.  It is also not in dispute that that Technic Star had not delivered any of these e-books, and that Technic Star had in early July 2012 informed Tiny Love Israel that since the minimal order quantity requirement for certain raw materials had not been met by the purchase orders, the purchase orders could not be performed.  In particular, the order for 6,480 units of AC E-books was insufficient to meet the minimal order quantity requirement for raw materials which was a minimum of 10,000 units.  On 17 July 2012, Tiny Love Israel removed the two products from TS-12000345. It is common ground that the products were removed from all relevant purchase orders.  

103.  In an email from Ms Noel Lai of Technic Star to Mr Luke Li of Tiny Love Israel dated 3 July 2012 (15:57), Technic Star informed Tiny Love Israel that it would stop supplying the TP E-books and AC E-books.  In reply, Mr Luke Li said that he did not understand why P approved the orders if they could not be completed.  In a letter from Ms Noel Lai to Mr Luke Li dated 4 July 2012, Ms Lai explained that Technic Star was unable to produce the TP E-books and AC E-books as ordered because the relevant minimum order quantity had not been met. 

104.  Since the purchase orders had already been placed, I find that Technic Star had, by indicating that the purchase orders could not be performed (for whatever reason), evinced an intention that the products would not be produced, thereby committing an anticipatory breach of the purchase orders.  Such an anticipatory breach was then accepted by Tiny Love Israel who removed the products from the relevant purchase orders.  Technic Star is therefore liable to Tiny Love Israel for its breach of contract.

Quantum

105.  In terms of quantum, Tiny Love Israel claims, under Section 53(2)  Sales of Goods Ordinance (Cap. 26), its loss of profits as a result of Technic Star’s failure to supply the contracted quantity of TP E-books and AC E-books.  It is the evidence of Mr Bilgorai (of Tiny Love Israel)  that Tiny Love Israel had been forced to cancel all orders for such e-books from Technic Star and to notify its customers that no more e-books could be supplied.  Tiny Love Israel’s case is that Technic Star had knowledge that Tiny Love Israel would resell the products to its customers and on that basis claims the loss of profit suffered as follows[4].

Product Name	Quantity of open orders	Total loss of profit in US$
TP E-books	3,144	13,080
AC E-books	6,480	30,910
		Total: 43,990

106.  Technic Star argues that, even if it had been in breach, only nominal damages should be awarded since Tiny Love Israel has failed to discharge the burden of proving its loss of profits, having provided no evidence to substantiate the “gross profit percentage” on which it relies.  It has been submitted on behalf of Technic Star that there are no meaningful particulars, either in the relevant pleadings or in the evidence adduced, as to how the loss of damages claimed can be assessed.

107.  In my view, the loss of profits claimed by Tiny Love Israel is not of a kind which was the necessary and immediate consequence of the wrongful act, and therefore it is incumbent on Tiny Love Israel to particularize the calculation on which the loss of profit is based. 

108.  In the Consolidated Defence and Counterclaim, Tiny Love simply pleads that Technic Star had “refused to supply Tiny Princess electronic books and Animal Concert electronic books from July 2012” and produces the table above in Schedule C of the Consolidated Defence and Counterclaim.  No material facts and/or particulars are provided as to how the “Total Loss of Profit in USD” of $13,080 and $30,910 is arrived at or the calculation on which it is based, for example the customers to whom the TP E-books and AC E-books would be on-sold, the unit price at which such products would be on-sold and Tiny Love Israel’s gross or net profit margin.    In the absence of such evidence, the Court is not in a position to properly assess the quantum of Tiny Love Israel’s claim in this regard.  Accordingly, only nominal damages may be awarded for this head of damages.    

J.  TINY LOVE’S COUNTERCLAIM: MOULD IMPLIED TERM (AGREED ISSUE 15)

109.  There is no dispute that Tiny Love is the owner of the some 135 moulds and tooling purportedly worth around US$600,000 in the possession of Technic Star.  Tiny Love’s case is that the frame orders contain an implied term that Technic Star would return the moulds retained by Technic Star for the manufacturing of Tiny Love’s products upon reasonable notice (“Mould Implied Term”), and that Technic Star had unlawfully refused to return the moulds despite repeated requests for their return by Tiny Love from August to November 2012.

110.  Tiny Love claims to have suffered damages as follows.

Description of loss	Amount (US$)
Cost of replacing moulds	135,272
Value of retained moulds (excluding replaced moulds)	496,766
Loss of profit to Tiny Love Israel arising from inability to produce electronic books	171,232 + 43,990
Loss of profit to Tiny Love Israel arising from inability to produce ISS/MSP/CLASSIC MOBILE	452,464
Loss of profit to Dorel	253,920
Loss of royalties relating to losses of sales by Dorel	20,175
	Total: 1,573,819

111.  Tiny Love claims that Technic Star’s breach in withholding the moulds when asked to return them had necessitated the manufacture of new moulds or the termination of otherwise profitable product lines.  The methodology adopted to calculate the losses incurred by Tiny Love is described in the Consolidated Defence and Counterclaim as:

“…to estimate lost monthly sales revenue for each affected Product based upon an average of all preceding 2012 monthly sales, subtract the cost of purchase and multiply by eight, being the number of months it took for the Defendants to manufacture new moulds and put in place a new supply chain”

112.  It is well-settled that the test for implying a term is one of necessity and that a term would only be implied if, without it, the whole transaction would be inefficacious, futile and absurd.  The Court of Appeal in Lo Yuk Sui v Fubon Bank (Hong Kong)  Limited formerly known as International Bank of Asia Limited(CACV47/2017, unreported, 1 March 2019)  agreed with the proper test for implication of a contract term set out by the Privy Council in Nazir Ali v Petroleum Company of Trinidad and Tobago [2017] UKPC 2 at §7:

“It is enough to reiterate that the process of implying a term into the contract must not become the re-writing of the contract in a way which the court believes to be reasonable, or which the court prefers to the agreement which the parties have negotiated. A term is to be implied only if it is necessary to make the contract work, and this it may be if (i)  it is so obvious that it goes without saying (and the parties, although they did not, ex hypothesi, apply their minds to the point, would have rounded on the notional officious bystander to say, and with one voice, ‘Oh, of course’)  and/or (ii)  it is necessary to give the contract business efficacy. Usually the outcome of either approach will be the same. The concept of necessity must not be watered down. Necessity is not established by showing that the contract would be improved by the addition. The fairness or equity of a suggested implied term is an essential but not a sufficient pre-condition for inclusion. And if there is an express term in the contract which is inconsistent with the proposed implied term, the latter cannot, by definition, meet these tests, since the parties have demonstrated that it is not their agreement.”

113.  I am not satisfied that the frame orders contained the Mould Implied Term.  In this regard, I agree with Technic Star that the frame orders concerned the manufacture and supply of products from Technic Star to Tiny Love, and could be performed without any contractual provision relating to the moulds.  It is therefore not necessary, let alone strictly necessary, for the frame orders to make provision for the return of the moulds upon reasonable notice.  Indeed, the moulds were left in the possession of Technic Star for the purpose of enabling it to manufacture products under various frame orders or purchase orders, and were not specific to a particular frame order.  It is neither necessary nor commercially workable to imply into each frame order a contractual term that all moulds are to be returned upon reasonable notice. 

114.  Having considered submissions from counsel of both parties, I also reject Tiny Love Israel’s alternative case based on the torts of conversion and detinue.  I accept Technic Star’s submission that Tiny Love Israel has not properly pleaded its title to sue on the basis that there is no plea in either the Consolidated Defence and Counterclaim or the Consolidated Reply to Defence to Counterclaim that Tiny Love Israel or Tiny Love USA was entitled to possession to the moulds even though a claimant’s title to sue (i.e. its possessory title with an immediate right to the goods)  is an essential element of the cause of action for the tort of conversion (and the tort of detinue)  that must be specifically pleaded[5]. Tiny Love’s claim for tort of conversion/detinue appears to be based simply on the alleged implied term regarding the return of moulds, which has been rejected. 

115.  Further, since I have found that the frame orders did not contain the Mould Implied Term, it would be unnecessary for me to deal with the issue of whether Technic Star can assert a lien over the moulds (Agreed Issue 15(2))  and the issue of Tiny Love’s loss and damage suffered as a result of the alleged breach of the Mould Implied Term (Agreed Issue 16).

K.  CREDIBILTIY OF WITNESSES

116.  The resolution of the present disputes does not largely turn on the issue of credibility.   It transpires that the parties’ differences were primarily caused partly by their perceptions and interpretations of their dealings and partly by the disparity in their levels of understanding of various incidents and the effects of the same.

117.  In any event, I find Mr Kam to be a credible witness.  He was able to answer questions directly in cross-examination and was generally forthcoming and unassuming in his oral evidence.  Further, subject to my observations and rulings above, I tend to think that his evidence is largely consistent with the contemporaneous documents.  I also find Mr Bilgorai to have made genuine efforts in addressing the relevant issues in his oral testimony though on certain occasions displaying a lesser sense of familiarity with some of the factual details.  I further observe that during cross-examination, when Mr Bilgorai was unable to offer any answers to a question, he would acknowledge (sensibly so, I think)  his limitation instead of pressing otherwise.

118.  In relation to Ms Kempfner, the Chief Financial Officer of Tiny Love Israel, I agree with Technic Star that her oral evidence at trial, which focused on the quantification of damages for Tiny Love Israel’s counterclaims, had not provided much more than what can readily be seen in documentary evidence.  Little turns on her oral evidence and there is no need for me to make any specific findings on the quality of her evidence.

L.  CONCLUSION

119.  I therefore grant judgment in favour of Technic Star (i.e. the Plaintiff in HCA 192 of 2014)  against Tiny Love Israel (i.e. the Defendant in HCA 192 of 2014)  for:

(1)  Contract price in the sum of US$66,410.84 for List A Claims;

(2)  Contract price in the sum of US$80,740.79 for List B Claims;

(3)  Damages in the sum of US$62,915.01 for List C Claims;

(4)  Nominal damages for List D Claims; and

(5)  Damages in the sum of US$150,728.24 for List E Claims.

120.  I also grant judgment in favour of Technic Star (ie the Plaintiff in HCA 208 of 2015)  against Tiny Love USA, namely, Dorel Juvenile Group, Inc (i.e. the Defendant in HCA 208 of 2015)  for the contract price of US$80,277.18 for the “Products collected by Tiny Love USA”.

121.  Further, I make an order nisi that (1)  Tiny Love Israel (i.e. the Defendant in HCA 192 of 2014)  shall pay interest to Technic Star (i.e. the Plaintiff in HCA 192 of 2014)  on the sums found due as stated in paragraph 120 above, at prime rate plus 1% from the date of the writ in that action until this Judgment, and at judgment rate thereafter until payment; and (2)  Tiny Love USA, namely, Dorel Juvenile Group, Inc (i.e. the Defendant in HCA 208 of 2015)  shall pay interest to Technic Star (i.e. the Plaintiff in HCA 208 of 2015)  on the sums found due as stated in paragraph 120 above, at prime rate plus 1% from the date of the writ in that action until this Judgment, and at judgment rate thereafter until payment.

122.  For Tiny Love Israel’s counterclaim, I grant nominal damages to Tiny Love regarding the alleged late delivery and defects and Technic Star’s failure to deliver TP E-books and AC E-books.

123.  In view of the above, I make a costs order nisi that, subject to the costs orders previously made herein, 80% of the costs of these two actions (consolidated), including all costs reserved, be to Technic Star (ie the Plaintiff in HCA 192 of 2014 and HCA 208 of 2015), to be taxed if not agreed.  

124.  The above orders nisi shall become absolute unless there is any application to vary any of them within 14 days from the date of this Judgment.