INTERPROCOM LTD v. SILVER WINGS TRADING CO., LTD.

DCCJ 4383/2012

[2018] HKDC 1378

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4383 OF 2012

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JUDGMENT

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INTRODUCTION

1.  This is a sale of goods case concerning 2 batches of watches, ie 150 watches bearing the brand name “Dolce & Gabbana” (“D&G Watches”) and 190 watches bearing the brand name “Armani” (“AR Watches”).  The plaintiff is the seller, and the defendant is the buyer.  The plaintiff has delivered the 150 D&G Watches and the 190 AR Watches to the defendant.  At a later time, the defendant has returned 25 AR Watches to the plaintiff for the reason that there were some defects on these watches.  The plaintiff sues for the unpaid balance due in respect of the 150 D&G Watches and the 165 AR Watches[1]. The defendant counterclaims for damages on the ground that the goods delivered are defective and not genuine.

2.  During the trial, the parties are able to reach an agreement concerning the D&G Watches and 54 AR Watches (which is a part of the 165 AR Watches) which have been sub-sold and delivered by the defendant to the defendant’s customers in Japan.  The defendant is willing to pay the prices of those watches to the plaintiff.  Accordingly, the matters concerning the D&G Watches and 54 AR Watches have been dealt with in accordance with the agreement between the parties.

3.  The only remaining issue to be resolved in this trial is the dispute concerning 111 AR Watches. 

BACKGROUND

4.  The plaintiff is a company incorporated in Hong Kong and is the principal of a company called Interprocom Solution Service SRL.

5.  The defendant is a company having a business of selling watches to its customers in Japan.

6.  In early April 2012, the defendant agreed to purchase from the plaintiff the 190 AR Watches.  On 9 April 2012, the plaintiff issued an invoice with invoice no. 09041201 (“the AR Invoice”) to the defendant for a sum of €13,517.00.

7.  It is stated on the AR Invoice that “All the watches are 100% genuine”.  It is common ground that this is an express term of the contract between the plaintiff and the defendant.

8.  On 18 April 2012, the plaintiff delivered the 190 AR Watches to the defendant.  The defendant conducted its quality assurance tests.  The defendant stated that there were some QC problems.

9.  On 30 April 2012, the defendant returned 25 of the AR Watches to the plaintiff.

10.  In May 2012, the defendant claimed that its customers in Japan were complaining that the AR Watches delivered by the defendant to them were counterfeits.

11.  The plaintiff denies that the AR Watches sold and delivered by the plaintiff to the defendant are counterfeits.

12.  During the trial, the defendant admits that it has sold and delivered 54 AR Watches to its customers in Japan.  During the final submissions stage, in response to the enquiries made by the court, Mr Chan for the defendant has agreed that the defendant would make payment to the plaintiff in respect of the 54 AR Watches.

13.  The defendant is still refusing to pay the plaintiff in respect of the remaining 111 AR Watches.

THE PARTIES’ RESPECTIVE CASES

The plaintiff’s case

14.  The plaintiff’s case is simple and straightforward.  It is an action for price.  The plaintiff is simply saying that it has sold and delivered the goods to the defendant in accordance with the contract.  The defendant must pay the price.

15.  The plaintiff denies that the AR Watches or any of them delivered to the defendant are counterfeits.  The plaintiff also denies that the 111 watches provided by the defendant to its expert for examination (“the Examined Watches”) are the AR Watches delivered by the plaintiff to the defendant.

16.  The plaintiff has called 2 factual witnesses to give evidence in support of its case:-

(1) Alessandro Mugnano (“AM”), a director of the plaintiff

(2) Enrico Palmentieri (“EP”), a director of the plaintiff

The defendant’s case

17.  The defendant is saying that all the 111 AR Watches are counterfeits and they are not genuine.  They are also not of merchantable quality.  Accordingly, the plaintiff is in breach of the contract and is not entitled to have payment.  The defendant also counterclaims for damages.  Mr Chan submits that in the counterclaim, the defendant is only seeking nominal damages.

18.  The defendant has called 1 factual witness in support of its case, ie Leung Ying Kit Jacky (“JL”), who is a clerk working in the defendant.

19.  The defendant has also filed a witness statement made by Ip Sing Yan Leon (“Ip”).  The witness statement was made by Ip on 29 June 2015.  At the time of the witness statement, Ip was a director of the defendant.  However, the defendant has not called Ip to give evidence in the trial.  According to the defendant, Ip has left the defendant.

20.  The defendant has also produced an expert report and a witness statement from Lai Kwok Hung (“Lai”). Lai is a technical and quality assurance manager of Fossil East Limited (“Fossil”).  Fossil is the authorized dealer of Emporio Armani watches in Hong Kong.  Since Lai is an expert witness appointed by the defendant, it would be more appropriate to call Lai’s witness statement as his supplemental report. At the commencement of the trial, with no objection from the parties, I direct that Lai’s report and his supplemental report be read as evidence in the trial without calling Lai to give oral evidence.

21.  The defendant’s case is that they have sent the 111 AR Watches originally from the plaintiff to Lai for examination, and Lai has found that each and every watch is a counterfeit.

THE PRINCIPLES

22.  In respect of assessing the evidence given by factual witnesses, a valuable guidance has been given by DHCJ Au (as he then was) in Lee Fu Wing v Yan Po Ting Paul^[2], in which the learned judge said:-

“53. In assessing the credibility of a party’s case on a particular issue, I accept the submissions of [counsel] that the Court should take into considerations the following:-

a. Whether the party’s case is inherently plausible or implausible.

b. Whether the party’s case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable.

c. Where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests.  This is relevant to the assessment of his overall credibility.

d. The demeanour of the witnesses.”

23.  It is worth to mention the dictum of Sir John Dyson in MA (Somalia) v Secretary of State for the Home Department[3]on the effect of lies by a witness on a central issue.  In that case, Sir John Dyson said:-

“31. …… where a claimant tells lies on a central issue, his or her case will not be saved by general evidence unless that evidence is extremely strong. It is only evidence of that kind which will be sufficient to counteract the negative pull of the lie. But much depends on the bearing that the lie has on the case. ……

32. Where the appellant has given a totally incredible account of the relevant facts, the tribunal must decide what weight to give to the lie, as well as to all the other evidence in the case, including the general evidence. ……

33. …… where the appellant tells lies on a central issue in the case, the [tribunal] may conclude that they are of great significance. …… It will be a matter for the [tribunal] to decide whether the general evidence is sufficiently strong to counteract what we have called the negative pull of the appellant's lies.” (Emphasis added)

24.  In respect of expert evidence, it is well established the court is not bound by the opinion expressed in the reports made by the experts, and can and should make its own judgment by considering all the materials available.  See Grand Wayfair Investment Company Limited v Chan Yung Kan^[4].

25.  I bear these principles in mind in evaluating the evidence.

THE EVIDENCE

AM

26.  In his evidence, AM mentioned that before the sale and purchase which was the subject matter of this case, the plaintiff had previous dealings with the defendant and had sold several hundreds watches to the defendant.  The practice between the parties was that after the watches were delivered to the defendant, the plaintiff would allow the defendant to have some time to examine the watches.  If the defendant was not satisfied with the quality of any watches, the defendant might return those watches to the plaintiff.  If the plaintiff had sufficient stock, the plaintiff would send replacement to the defendant.  After the defendant was satisfied with the quality of the watches, payment would be made immediately. AM said that the practice of allowing the defendant to have some time to examine the watches delivered was not something expressly provided in the contract but was a courtesy extended to the defendant.

27.  There is an email from JL of the defendant to Lindy Liang (“Liang”) of the plaintiff dated 18 April 2012, in which JL said:-

“We found so many QC problem watches on today shipment. Why? Better come to our office to check on this Friday.”

28.  It is not disputed that there was a meeting between JL and Liang in the defendant’s office on 20 April 2012 (“the 1^st meeting”).

29.  On 23 April 2012, Liang wrote an email to JL, in which Liang said:-

“Could you inform me how many pcs watches you will return to us? Are the quantity as below which I have counted last Friday?

……

By the way, could you tell me how are the repair cost if you will repair the watches?  So I will inform [AM] since maybe we do not have stock for replacement.  Thanks!”

30.  During cross-examination, AM was asked about the 1^st meeting.  AM said the he was unaware of that meeting before 20 April 2012.  He only knew that meeting after it had taken place.  Liang reported the meeting to him.  AM said that Liang was responsible for administration and sales in the plaintiff and she herself did not have the necessary expertise to inspect and confirm whether the watches were actually defective or not.  AM also explained that Liang would engage in customer service, including arranging an appointment for quality inspection, but Liang would not conduct quality inspection herself.

31.  After raising the issue of the genuineness of the AR Watches, the defendant asked the plaintiff to produce invoices issued by the plaintiff’s supplier to prove the genuineness of those watches.  As to this, AM said that in fact the invoices could not assist the defendant, for each AR Watch did not bear a serial number for identification purpose.  The invoices would reveal the name and the details of the plaintiff’s supplier, which were sensitive and confidential commercial information.  Nevertheless, on or about 19 October 2012, the plaintiff provided copies of 2 invoices concerning the AR Watches to the defendant with the name of the supplier redacted.

32.  In my view, AM is a forthcoming and reliable witness.  I accept his evidence.

EP

33.  EP was responsible for the delivery of the AR Watches and the D&G Watches to the defendant.  The last batch of watches delivered to the defendant was 77 D&G watches, delivered to the defendant on 2 May 2012.

34.  EP said that shortly after 2 May 2012, he attended the defendant’s office and requested to see the D&G Watches and the AR Watches.  EP requested to see the watches because the defendant was claiming that some of the watches were defective.  EP said that he met JL and a lady in the defendant’s office (“the 2^nd meeting”).  He was unable to remember the name of the lady due to the long lapse of time.

35.  EP requested JL to let him see all the watches which in the defendant’s view were defective.  JL told EP that all the watches had been shipped to Japan, and the defendant was unable to show him the watches.  During cross-examination, it was put to EP that the defendant’s staff in that meeting did not say to him that all the AR Watches had been shipped to Japan.  EP agreed.

36.  EP was asked whether the AR Watches delivered included packing boxes, guarantee cards and booklets as seen in the AR Invoice.  EP said that the shipment of watches was prepared by AM, and EP’s own job was primarily to inspect the watches.  EP said that he was also responsible for the deliveries, which were the actual physical deliveries of the watches in a big delivery box every time. However, he did not know the contents of the small boxes placed inside the delivery box.

37.  In my view, EP is an honest and reliable witness.  I accept his evidence, including that during the 2^nd meeting, JL did tell EP that all the watches had been shipped to Japan.  JL did not make any specific reference to the AR Watches when he was mentioning this to EP, hence it is not a surprise that EP agreed that the defendant’s staff in that meeting did not expressly said that all the AR Watches were shipped to Japan.  What JL told EP in that meeting is that all the watches (without mentioning whether the watches were the D&G Watches, or the AR Watches, or both) had been shipped to Japan.  My conclusion on this is further supported by the following:-

(1) It has not been put to EP that the 2^nd meeting mentioned by EP did not take place.  It has also not been put to EP that during that meeting, EP did not request to see the watches, or the defendant had actually shown some watches to EP upon his request.  So the undisputed facts are: (a) the 2^nd meeting did take place; (b) EP did request to see the watches which in the defendant’s view were defective in that meeting; (c) the defendant did not show any watch to EP upon the request.

(2) If the defendant was in possession of some defective D&G Watches or AR Watches at the time of that meeting, there is no reason why the defendant would not show any of these watches to EP.

(3) The only reasonable explanation for not showing any watch to EP notwithstanding the request made by EP is that the defendant was not in possession of any D&G Watches and AR Watches at the time of the meeting.  The defendant was not in possession of all these watches at the time of the 2^nd meeting because the watches had been shipped to Japan.

JL

38.  JL said that he was a clerk working in the defendant.  He completed secondary education and had a limited grasp on the English language.  He is the only factual witness giving evidence for the defendant.

39.  I am of the view that JL is not a truthful and reliable witness.  Save and except the following admissions made by JL during cross-examination, I reject his evidence.

40.  During cross-examination, Mr Yiu for the plaintiff drew JL’s attention to the AR Invoice.  As per the AR Invoice, the plaintiff was giving a 72% off discount to the defendant in respect of the AR Watches.  JL said that he was unsure whether he could get a similar discount if the defendant chose to buy the watches direct from the official dealer Fossil.  It was put to JL that the reason of such a big discount was because the AR Watches sold under the AR Invoice were old models and/or parallel imports (“舊款或水貨”), JL initially said that it was possible.  When JL was pressed further, he admitted that he knew that the AR Watches sold from the plaintiff were not directly from Fossil and were parallel imports (“水貨”).  This is an important admission and I attach full weight to this.

41.  Mr Yiu also drew JL’s attention to some photos produced by JL.  According to JL, these photos were showing some of the Examined Watches. JL claimed that the Examined Watches were the 111 AR Watches from the plaintiff.  Mr Yiu questioned JL why the watches shown in the photos were not in any boxes.  JL said that there were 111 boxes for these 111 watches, and there was a guarantee card in each box.  JL further said that the 111 boxes (including the guarantee cards therein) had been delivered to Japan, for there were customers in Japan having placed orders for the 111 AR Watches.  In other words, JL admitted that the defendant had contracted to sell the 111 AR Watches to Japan, and the defendant had delivered the 111 boxes together with the guarantee cards therein to Japan.  These are also important admissions and I attach full weight to these. 

42.  A hotly contested issue in these proceedings is whether the Examined Watches are the 111 AR Watches. The defendant relies upon JL’s evidence to establish this.  In his evidence, JL said that the 111 AR Watches were stored in a secured location in the defendant’s office at all times, and he personally took care of these watches. He took these 111 AR Watches to the defendant’s solicitors, and then the defendant’s solicitors passed the 111 AR Watches to Lai for Lai’s examination. JL said that the Examined Watches were exactly the 111 AR Watches.

43.  However, as set out in the above, JL has admitted that in fact the defendant had contracted to sell the 111 AR Watches to their customers in Japan, and the defendant had delivered the 111 boxes together with the guarantee cards therein to Japan.  Mr Chan submits that notwithstanding all these admissions, this court should still find that the 111 AR Watches have never been delivered to Japan and have been kept by the defendant at all times. Mr Chan submits:-

(1) As per JL’s evidence, the guarantee cards for AR watches were all the same.  This is consistent with AM’s evidence.  AM said in his evidence that AR watches did not bear any serial number or there was no certificate for each watch.  According to JL, each watch would be put into a box (with a guarantee card therein) before being sold to the end-user.

(2) JL said that the boxes and the watches would be sent to the defendant’s customers by different means and at different times.  The former would be sent in bulk by ship for minimizing the cost and the latter by air.

(3) JL said that the boxes and the AR Watches were received from the plaintiff at different times.  Since there were orders placed by the defendant’s customers for the AR Watches, as soon as the defendant received the boxes from the plaintiff, the boxes had been shipped to Japan without waiting for the arrival of watches.

(4) JL further said that at a later time, when the watches arrived, there were problems found as to their quality and genuineness, and the watches had not been sent to Japan.  The defendant had informed its customers in Japan of the existence of this dispute and litigation.

44.  Mr Chan submits that JL’s evidence is credible and reliable.  With respect, I am unable to accept the submission:-

(1) According to JL, the defendant had contracted to sell the 111 AR Watches to the customers in Japan, but the defendant was unable to deliver the watches to Japan since the watches were not genuine and not of satisfactory quality.  However, JL did not say what happened between the defendant and its Japanese customers thereafter.  This court requested JL to explain this while JL was in the witness box.  However, there is no satisfactory answer from JL on this question.

(2) In his witness statement, JL claimed that the defendant had refunded the payments concerning all the unsold AR Watches in the sum of €11,244.50.  In JL’s evidence, all the unsold AR Watches would be the 111 AR Watches.  If there is any truth in JL’s evidence, there must be documents in the defendant’s possession, custody or power recording details of these refunds: what amount has been refunded to whom at when, and the reason of the refund.  However, no document concerning the refund has been disclosed by the defendant. 

(3) JL said that there were many complaints from the defendant’s customers in Japan regarding the genuineness of the watches provided by the defendant.  The complaints led to cancellation of the orders already placed by these customers.  However, not even a single document concerning the dealings between the defendant and its customers in Japan has been disclosed.  I do not accept that there is no document concerning these dealings.  There are 111 AR Watches, and the complaints that the defendant has provided counterfeits to its customers in Japan are serious complaints.  It defies common and commercial sense that there is no document in the defendant’s possession, custody, or power in respect of the orders placed by the Japanese customers, the complaints from these customers, and the follow-up actions taken by the defendant.  If there is any truth in JL’s evidence, these documents should exist and should have been disclosed by the defendant.

45.  In my judgment, JL’s evidence that all the 111 AR Watches have been kept in the defendant’s office at all times and have never been delivered to Japan is untrue.

46.  Whether the 111 AR Watches have been kept by the defendant in the defendant’s office at all times is a central issue in this case.  Given my conclusion that JL’s evidence on this central issue is untrue, I do not regard JL as a credible and reliable witness.  Save and except the admissions made by JL mentioned above, I do not accept JL’s evidence.

Ip

47.  Ip has not confirmed his witness statement on oath and has not given any oral evidence in the trial.  I attach no weight to his witness statement.

Lai

48.  Lai is the technical and quality assurance manager of Fossil.  In his report, he said that he had compared the Examined Watches with the salesman samples kept by Fossil, and he concluded that each and every Examined Watch was a counterfeit.  The overall craftsmanship was poor in terms of maker styling, component colour, surface finishing and polishing skill.

49.  Mr Chan has made it clear that the defendant is relying upon the expert’s evidence to show both that the 111 AR Watches are not genuine and that the watches are not of merchantable quality.

50.  In my view, even assuming that the Examined Watches are the 111 AR Watches, the expert’s evidence cannot assist the defendant’s case.  That the Examined Watches are different from the salesman samples kept by Fossil does not necessarily mean that those watches are not products from Emporio Armani or not of merchantable quality.  JL admitted that he knew that the watches purchased by the defendant from the plaintiff were parallel imports.  A parallel import is not a counterfeit.  It is still from the original brand name owner, but is imported to a place not through the official dealer or distributor of that place.  Further, that a parallel import product is different from the product imported through the official dealer does not necessarily mean that the parallel import product is not of merchantable quality.  That the Examined Watches are different from the salesman samples kept by Fossil only means that the Examined Watches are not from Fossil.  However, this does not necessarily mean that they are counterfeits or not of merchantable quality.  As admitted by JL, the defendant was knowingly purchasing parallel import products from the plaintiff.

MY FINDING

51.  Based upon the evidence accepted by this court, I find that the 111 AR Watches have been delivered to Japan by the defendant at the time of the 2^nd meeting.  I also find that there is no reliable evidence showing that the Examined Watches are the 111 AR Watches.

52.  Further, even if the Examined Watches are the 111 AR Watches, I do not regard the expert’s evidence adduced by the defendant as satisfactory evidence showing that the Examined Watches are counterfeits or not of merchantable quality.

53.  Accordingly, the defendant’s case must fail.  I allow the plaintiff’s claim.  The defendant must pay price of the 111 AR Watches together with interest to the plaintiff.

54.  The plaintiff claims €13,517.00 as the price of all the 165 AR Watches.  The parties agree that the price of the 54 AR Watches is €4,538.24.  Therefore, the price of the 111 AR Watches is €8,978.76.  The defendant has to pay this sum to the plaintiff, together with interest thereon at 1% above the HSBC’s best lending rate from the date of the writ until the date of this judgment, and thereafter at the judgment rate until full payment of the judgment sum.

DISPOSITION

55.  I allow the plaintiff’s claim and order that the defendant to pay the aforesaid sum and interest to the plaintiff.

56.  I dismiss the counterclaim.

57.  Since the plaintiff has succeeded in establishing its own claim and in defeating the counterclaim, I am of the view that the plaintiff should be entitled to have costs of both the original claim and costs of the counterclaim.  For the purpose of facilitating taxation, I am minded to make a costs order in favour of the plaintiff covering the entire proceedings[5]. There be a costs order nisi that costs of these proceedings (including all costs reserved, if any) be to the plaintiff, with a certificate for counsel, to be taxed if not agreed.

58.  I thank Mr Yiu and Mr Chan for their assistance.