RUDICK INTERNATIONAL LTD v. HOIDA INDUSTRIAL CO LTD

1994, No. CL 172

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

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THE ACTION

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1. This is an action in the Commercial List. At the trial, I was supplied with two bundles, the Trial Bundle ("T/B") and the Chronological Bundle ("C/B").

2. By the Amended Points of Claim, the Plaintiff claims against the Defendant damages, alternatively the sum of U.S.$71,333.32, alternativeIy repayment of the sum of HK$402,622.18, and interest thereon. Mr. Surman, Counsel for the Plaintiff, clarified that the claim for damages was in effect also in the sum of US$71,333.32 or alternatively HK$402,622.18.

3. By the Defence and Counterclaim, the Defendant denies the Plaintiff's claim and counterclaims damages the amount of which have not been specified or particularised.

4. I shall deal with the substance of the claim and the counterclaim below.

THE PARTIES

5. The Plaintiff is a trading company carrying on the business of ordering goods for export to the United States.

6. The Defendant is a manufacturer of toys. It has a factory or factories in China employing over, 1,700 workers.

7. The Plaintiff and the Defendant started trading with each other in about 1988. Their relationship had been good prior to the dispute in this case.

THE FACTS AND THE DISPUTE

8. The subject-matter of the dispute consists of a toy known as "Frogbats II" and Ball Sets and other articles incidental to the production of the Frogbat sets. Basically, a Frogbat is like a cricket bat and each ball is shaped like a frog. Instead of being made of wood, the bat consists of a moulded plastic handle and a moulded plastic frame with a piece of printed polyester fabric mounted on it. A manufactured Frogbat set has been produced as Exhibit P-1.

9. In 1992, the Plaintiff first instructed the Defendant to order unprinted polyester knit material from Taiwan sufficient for 93,000 Frogbats. The Plaintiff paid for such fabrics.

10. Eventually, in the latter part of 1992, the Plaintiff placed an order with the Defendant for the manufacture of 85,092 Frogbat sets. Subsequently, in December 1992, the Plaintiff cancelled part of the order and reduced it by 33,000 sets because of a cancellation by the Plaintiff's overseas buyer. The Defendant apparently accepted the cancellation. There has been no claim by the Defendant for breach of contract arising out of this partial cancellation.

11. It is not in dispute that the Plaintiff and made payment to the Defendant in respect of the following items :-

This is one of the sums claimed by the Plaintiff in the alternative. The figure in the Amended Points of Claims is actually HK$402,622.18. I believe that the slight difference has arisen out of a typographical error.

12. The Plaintiff's case was that, as a result of the Defendant not delivering the abovementioned goods for which the Plaintiff had paid to the Defendant the sum total of HK$402,672.18, the Plaintiff was entitled to claim damages against the Defendant in the sum of HK$402,622.18 or, alternatively, US$71,333.32.

13. In the course of the hearing, the Plaintiff conceded that 1,704 finished Frogbat sets worth HK$32,205.60 had subsequently been delivered and therefore the Plaintiff's claim should be reduced to that extent.

14. As a result of the cancellation of the 33,000 sets by the Plaintiff, the Defendant had to keep the materials and finished goods in respect of the same in its factory or warehouse in China. The Defendant indeed agreed to do so. In one of the faxes dated 10th December 1992 from the Defendant to the Plaintiff (C/B page 23), the Defendant said:-

"And we promised to store the mat'ls in our warehouse for maximum period of 6 months, but we don't responsible for any insurance."

15. The Plaintiff certainly did not take delivery or collect the materials and finished goods in question within 6 months from December 1992. On the other hand, it does not appear that the Defendant had issued any reminder to the Plaintiff to collect the same until sometime before 21st December 1993. In a fax of that date (C/B page 43), the Defendant said to the Plaintiff: -

"Recap to our telecon last week, please be informed that we are going to dispose the mat'l inventory that has been held in our store for almost a year. Should you have other disposition for these mat'ls, please feed back on/before January 15, 1994. Otherwise, we will go ahead to dispose those mat'ls accordingly."

16. According to the Plaintiff's witnesses, the reason why the Plaintiff did not collect the materials and finished goods was that it was hoped that another order in replacement of the cancelled order for 33,000 sets could be obtained.

17. According to Mr. Raymond Cheung, the only witness called for the Defendant, he had said to the Plaintiff on a number of occasions that, if the Plaintiff did not take the materials and finished goods away, the Defendant would have to charge for their storage. This is denied by the Plaintiff's witnesses.

18. I accept the evidence of the Plaintiff's witnesses and reject the evidence of Mr. Raymond Cheung. In none of the letters or fax messages produced (except the fax from the Defendant to the Plaintiff dated as late as 19th July 1994 C/B page 88) was the question of storage charge ever mentioned by the parties. I find that in all probabilities the Defendant would also prefer to keep the materials and finished goods in the hope that a replacement order could be obtained. In my judgment, the parties had only a loose arrangement for the keeping of the materials and finished goods, both hoping that a replacement order could be obtained.

19. According to Miss Amy Wong, an employee of the Plaintiff who was in charge of the matter in question, upon receipt of the fax from the Defendant dated 21st December 1993 (C/B page 43), she spoke to a Miss Anita Wan of the Defendant. Miss Wan asked Miss Wong whether any replacement order was forthcoming, if not, then the materials and finished goods should be disposed of. Miss Wong replied that she would have to ascertain the position with a company called Spectra Star in the United States which was the ultimate buyer. She specifically said to Miss Wan that the materials and finished goods should not be disposed of without the written confirmation by the Plaintiff. Miss Wan agreed. I accept the evidence of Miss Wong. Her evidence was not contradicted. Miss Wan who allegedly had left the employment of the Defendant was not called as a witness.

20. What subsequently happened was also consistent with the version given by Miss Wong. She said that she spoke to Miss Wan again in January 1994. She informed Miss Wan on the telephone that the Plaintiff would want to place an order for 33,000 Frogbat sets and this order would use up all the remaining materials and finished goods. She asked Miss Wan to check with her boss what the best price for the 33,000 Frogbat sets would be, using the left-over materials and finished goods. Subsequently Miss Wan gave several quotations to Miss Wong. See the faxes dated 26th January 1994 (C/B page 44), 27th January 1994 (C/B page 45) and 1st February 1994 (C/B page 46). Miss Wong was going to contact Miss Wan again after the Chinese New Year holiday. She tried to do so but discovered that Miss Wan had left the employment of the Defendant by then.

21. According to Miss Wong, she had great difficulty in contacting Mr. Raymond Cheung. She only succeeded in March 1994. By a fax dated 9th March 1994 (C/B page 47), Mr. Raymond Cheung gave a new quotation to the Plaintiff. It was a wrong quotation because it only related to 25,000 Frogbat sets. There were subsequent discussions between Miss Wong and Mr. Cheung but they could not agree on the price.

22. Ultimately, there were two meetings held, one on 18th March 1994 between Miss Wong and Mr. Barry Rudick of the Plaintiff and Mr. Cheung and one on 31st March 1994 between Miss Wong and Mr. Jules Rudick of the Plaintiff and Mr. Cheung. There is some dispute In the evidence as to whether Mr. Cheung did say that he had already ordered the materials to be thrown away or whether he said he would go back and check. In my judgement, it does not really matter. The conduct of the parties since 1993, culminating in the fax dated 21st December 1993 (C/B page 43), the conversations between Miss Wong and Miss Wan and the various quotations given by the Defendant to the Plaintiff must mean that the Defendant had expressly or impliedly agreed to keep the materials and finished goods for the Plaintiff pending the finalisation of a replacement order. In other words, the Defendant must have assumed responsibility for the further safe custody of the materials and finished goods.

23. Furthermore, according to both Miss Wong and Mr. Jules Rudick, at the meeting on 31st March 1994, Mr. Cheung stated that he no longer wished to manufacture the 33,000 Frogbat sets. He agreed that he would make available to the Plaintiff the 1,704 finished sets and 3,288 tricot balls together with the unused materials so as to enable the Plaintiff to find another factory to process the same to fulfill the replacement order. He also agreed to replace any missing items already paid for by the Plaintiff. He agreed to go back to check and reply by 6th April 1994 with details and arrange a mutually convenient date for collection of the goods by the Plaintiff. This is denied by Mr. Cheung. I accept the evidence of Miss Wong and Mr. Jules Rudick on this aspect. It is consistent with what happened subsequently.

24. According to Miss Wong, Mr. Cheung did not reply by 6th April 1994 as promised. She had great difficulty in contacting him. This is borne out by the subsequent correspondence between the Plaintiff and the Defendant. See the faxes dated 12th April 1994 (C/B page 59), 12th April 1994 (C/B page 61), 12th April 1994 (C/B page 63), 13th April 1994 (C/B pages 64 and 65), 13th April 1994 (C/B page 74), 13th April 1994 (C/B page 66), 15th April 1994 (C/B page 75), 25th May 1994 (C/B page 77) and 1st June 1994 (C/B page 78).

25. I pause to observe at this stage that the "agreement" by Mr. Cheung on 31st March 1994 to make available the materials and finished goods and to replace any missing items does not appear to be supported by any consideration moving from the Plaintiff. Paragraphs 7 and 8 of the Amended Points of Claim certainly do not plead any such consideration. In any event, this became irrelevant because subsequently the Plaintiff did charge the Defendant for the missing and defective items and also accepted delivery of the 1,704 finished sets (see below).

26. On or about 21st June 1994, the Plaintiff sent a Mr. Lee Shu Kan to the Defendant's factory in China with a view to inspecting the materials and finished goods in question. He was received by a Mr. Chan in the factory and was given a list of goods (T/B pages 127-128). According to Mr. Lee, he noted that various items of finished goods and materials were missing and the polyester knit fabrics were defective. He brought back to Hong Kong some samples of the polyester knit fabrics and the Plaintiff caused the same to be examined by the CMA Testing and Certification Laboratories. A Miss Vivian Lun who did not personally examine the fabrics gave evidence and produced the report by her colleague which was the subject of a hearsay notice. There was no objection by the Defendant to the giving of evidence of Miss Lun. I accept the evidence of both Mr. Lee Shu Kan and Miss Lun. I find that the Plaintiff has proved the missing and defective items as alleged.

27. The missing and defective items were valued at HK$98,150.34 by the Plaintiff. See the fax dated 30th June 1994 (C/B page 82). The Plaintiff also issued a Debit Advice dated 18th July 1994 against the Defendant (C/B page 87).

28. According to Miss Wong in evidence, the Plaintiff would have been satisfied just to charge the Defendant the sum of HK$98,150.34 for the missing and defective materials as set out in the fax dated 30th June 1994 (C/B page 82) provided that the Defendant would first confirm the items set out at the bottom of that fax (see below).

29. As I have mentioned earlier, in the course of the hearing. Mr. Surman conceded that the 1,704 finished Frogbat sets worth HK$32,205.60 had subsequently been delivered to and accepted by the Plaintiff. In my judgment, the Plaintiff is entitled to claim the sum of HK$98,150.34 - HK$32,305.60 = HK$65,944.74.

30. Going back to the fax dated 30th June 1994 from the Plaintiff to the Defendant (C/B page 82), the latter part thereof reads : -

"PLEASE ALSO CONFIRM THE FOLLOWING COMPONENTS LISTED PER YOUR REPORT RECONCILE WITH THE QUANTITIES THAT WE HAD PAID.

PLEASE REPLY IMMEDIATELY AS WE NEED TO ARRANGE TRUCK TO PICK UP INVENTORY." (emphasis provided)

The Defendant replied by a fax dated 4th July 1994 (C/B page 83A) and said that it was "impossible to guarantee all the inventory without any missing or defects". It also said that the 1,704 finished sets were still in the warehouse.

31. The Plaintiff sent a further fax dated 6th July 1994 but did not get any co-operation or response from the Defendant. As a result, the fax was re-faxed on 8th and 13th July 1994. See C/B page 84.

32. The Plaintiff sent another fax dated 15th July 1994 (C/B page 86) urging response from the Defendant.

33. Finally, the Defendant responded by a fax dated 19th July 1994 (C/B page 88) which reads as follows : -

34. In the end, the Defendant never gave the information asked for in the fax dated 30th June 1994 (C/B page 82) and the Plaintiff never collected the materials and finished goods (except the 1,704 finished Frogbat sets) from the Defendant. In the meantime, the ultimate purchaser from the Plaintiff, Spectra Star in the United States, had cancelled the replacement order and debited the sum of US$71,333.32 against the Plaintiff because the Plaintiff could not fulfill the order in time. The Plaintiff says that it could not fulfill the order because the Defendant refused to give the information or confirmation as requested in the fax dated 30th June 1994 (C/B page 82) or deliver the materials to the Plaintiff. The Plaintiff therefore in turn claims the sum of U.S.$71,333.32 against the Defendant.

THE DEFENDANT'S COUNTERCLAIM

35. The Defendant counterclaims against the Plaintiff for damages on the basis that as a result of the Defendant having to keep the materials and finished goods for the Plaintiff, the Defendant had to incur extra storage charges for its own goods.

36. As I have mentioned before, the damages claimed by the Defendant has never been specified or particularised. I have also rejected the evidence of Mr. Cheung that he had stated to the Plaintiff quite early on that the Defendant would have to charge for storage.

37. At the hearing, the Defendant sought to adduce evidence to prove the storage charges which it had allegedly incurred in China as a result of its having to keep the materials and finished goods for the Plaintiff. I ruled such evidence to be inadmissible.

38. In the result, I find that the Defendant has failed to prove its counterclaim both on liability and quantum.

CONCLUSION

39. In my judgment, the position between the parties is as follows : -

40. In the result, I give judgment for the Plaintiff in the sum of HK$65,944.74 with interest thereon at the judgment rate from 19th July 1994 until the date of judgment.

41. I dismiss the Defendant's counterclaim with costs.

42. In view of the fact that the Plaintiff has succeeded in claiming a sum below the jurisdiction limit for the District Court as prescribed by section 32 of the District Court Ordinance Cap. 336, I would award costs to the Plaintiff only on the District Court scale by virtue of section 43 (2) of the same Ordinance.

43. I therefore make an order nisi for costs in favour of the Plaintiff and against the Defendant as follows : -

44. The order nisi will be made absolute unless either party notifies my clerk within 14 days from the date of the handing down of this Judgment that it wishes to make submissions to me in which case a date will be fixed for me to hear arguments by Counsel.