EMS PRODUCTION LTD. v. SUPERIOR TECHNOLOGY (HONG KONG) LTD.

DCCJ 20342/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 20342 OF 2001

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J U D G M E N T

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This is a claim by the Plaintiff against the Defendant for the sum of HK$201,322.96 being the outstanding price of goods sold and delivered to the Defendant at the Defendant's requests between July 2000 and January 2001. The particulars of the invoices are as follows:-

PARTICULARS
Invoice No.	Date	Amount in HK$
N0007031	12th July 2000	268,320.00
N0007032	13th July 2000	31,200.00
N0007036	14th July 2000	37,440.00
N0007037(R1)	15th July 2000	53,040.00
N0010005	4th October 2000	159,970.98
N01-01018	10th January 2001	124,152.00
	Sub-total	674,122.98
Sale Invoice No.	Date	Amount in HK$
1177	23rd December 2000	221.00
1203	28th December 2000	390.00
1219	29th December 2000	143.00
1266	4th January 2001	100.00
1282	5th January 2001	252.00
1383	17th January 2001	143.00
1393	18th January 2001	378.00
1404	19th January 2001	327.00
	Sub-total	1,954.00

2. Against the total price on the aforesaid invoices, the Plaintiff gives credit in respect of the sums on the Credit Notes as follows:-

Credit Note No.	Date	Amount in HK$
CN00016	4th October 2000	456,174.42
CN00017	9th November 2000	18,579.60
	Sub-total	(474,754.02)

3. After taking into account the amounts of the Credit Notes, the sum of HK$201,322.96 was the sum claimed in this action.

4. The Plaintiff pleaded that the Defendant issued two Hong Kong Bank cheques on or about January 2001, namely, cheque no. 846848 and cheque no. 846849, to the Plaintiff in purported settlement of the sums claimed. The two cheques were dishonoured upon presentation for payment.

The Undisputed Facts

5. The Plaintiff is and was at the material time a manufacturer of electronic components, and in particular, accessories for video game machines. The Defendant is and was at the material time a company engaging in the trading of accessories for video game machines. The Defendant buys components from local manufacturers and sells to overseas buyers.

6. Some time in late June 2000, the Defendant ordered from the Plaintiff 15,000 sets of receivers and remote controllers, two types of electronic components used as a pair in a video game machine known as Playstation 2.

7. On divers dates in the period between 30 June 2000 and 6 July 2000, the Plaintiff delivered and invoiced the Defendant for 15,000 sets of receivers and remote controllers ("15,000 pieces") at USD5.00 per set. The price for the receivers were at USD3.70 per piece and that for remote controllers at USD1.30 per piece. The total amount of the invoice was USD$75,000.00 which the Defendant settled on 4.7.00.

8. The Defendant shipped the same goods to the Defendant's customer in Japan called Suncrew Ltd (hereinafter referred to as "Suncrew").

9. It is common ground that some or many of the 15,000 pieces were defective. It is also common ground that on or around the 7 July 2000, Newton Ng Beng Kwang, DW1 of the Defendant telephoned Ng Hung Kong, PW1 of the Plaintiff to notify him of that fact.

Invoices No. N00031, N00032, N00036, N00037(R)

10. On or about 7 July 2000, the DW1 on behalf of the Defendant ordered 10,000 sets of receivers and remote controllers (10,000 pieces). It was the Defendant's case that he ordered these as replacement for the defective goods during the conversation when DW1 informed PW1 of the defect in the 15,000 pieces of receivers and remote controllers. PW1 stated in examination-in-chief that DW1 placed the order of 10,000 pieces of replacement receivers and remote controllers in the same telephone conversation on the 7 July 2000 when DW1 informed him of the defects in the 15,000 pieces. Subsequently under cross-examination he stated that it was within those 2-3 days but probably not in that same telephone conversation when the 10,000 pieces were ordered. He even stated that the order may have been placed before the telephone conversation reporting the defect in the 15,000 pieces on the 7 July 2000.

11. These 10,000 pieces were delivered to the Defendant between 12 to 15 July 2000. The deliveries were the subject of invoices no. N007031, N007032, N007036, N007037(R) at 75 to 78 of the Bundle of Documents (BD). These were dated respectively 12 July 2000, 13 July 2000 and 14 July 2000 and 15 July 2000. The total price for the 4 invoices came to HK$390,000.00.

12. The Defendant does not dispute liability for the aforesaid four invoices in the total sum of $390,000. The Defendant is liable therefore.

Disputed Facts

Invoice No. N00015

13. This is found at page 79 of the BD. This invoice comprise two items, namely 4663 pieces of receivers at US$3.70 per piece totaling the sum of HK$134,574.18 and secondly for 880 pieces of receivers at the unit price of US$3.70 in the total sum of HK$25,396.80 making a total of HK$159,970.98.

14. The Defendant disputes liability for both of these items in the invoice as he stated that he did not order them.

15. PW1 stated that DW1 asked for the goods sometime on 8 July 2000 to replace the defective 15,000 pieces. He was asked to deliver the goods as soon as possible. He had this quantity in the Plaintiff's warehouse. That was why they had this odd number. He stated that DW1 told him to send it to Suncrew. He therefore did so. He sent these on the basis of 1 for 1 namely the price of a returned defective item would be set-off against the price of one of these 4663 pieces. He stated that the Defendant asked for the replacement of the defective goods and placed an order for that. PW1 stated that the Defendant stated that the goods would be returned in batches. For those that were returned PW1 gave the Credit Note at page 90 of the BD. For those not returned he gave a discount as at Credit Note at page 91 of the BD.

16. In relation to the 880 pieces, PW1 stated that these were also replacement goods. However the evidence of PW1 related to these is rather confused. He stated that these were part of the 10,000 pieces ordered. He said that at that time the order for the 10,000 pieces were being processed but the other party wanted these goods to be replaced urgently. He gave them these. He stated that the reason why the Delivery Note for these 880 pieces at page 103 was marked "FREE" under the column headed "Total Amount" and endorsed in the box for "No Payment" was because at the time of delivery on the 15 July 2000, the Defendant had on 14 July 2000 already returned a total of 5477 pieces. The Delivery Note stated those words because the Defendant did not intend to charge for these 880 pieces. But on the 4 October 2000 when the Plaintiff had already given credit to the Defendant for the 5477 pieces, they had to charge the Defendant for these 880 pieces.

Invoice No. 01-01018

17. There is no dispute that the goods in that invoice was ordered by the Defendant. The Defendant denies liability for this because the Defendant alleges an agreement over the telephone whereby PW1 agreed with DW1, to compensate the Defendant in respect of the damage caused to the Defendant's relationship with Suncrew, arising from the defect in the 15,000 pieces. DW1 alleged that PW1 agreed to compensate the Defendant by giving credit to the Defendant in the sum of US$37,500, against the price of purchases from the Plaintiff placed by the Defendant. This sum of US$37,500 is equivalent to half of the sale price of the 15,000 pieces.

18. The Hong Kong Dollar equivalent of the sum of US$37,500 is HK$292,500. According to DW1, the agreement was that this sum was not to be paid as a cash compensation but was to be a credit against purchase of goods made by the Defendant from the Plaintiff.

19. The Plaintiff denies that there was such a compensation agreement.

The Sales Invoices

20. These are the 2nd category of invoices particularized in the Statement of Claim under the heading "Sale Invoice No." (hereinafter referred to as "Sales Invoices"). The Defendant does not dispute delivery of the pieces of components in these sales invoices. DW1 stated that the components in these invoices were samples and the Plaintiff gave out samples for the Defendant to distribute to potential customers for promotion. The Plaintiff does not charge for samples.

21. The Plaintiff denies that these were samples or that the Defendant is not liable to pay for them. PW1 stated that the Defendant sent a staff to their Sham Shui Po shop and obtained the items of goods in those invoices. PW1 stated that the Defendant ordered these. Further PW1 stated that the Plaintiff gave away samples in relation to new products only. They would only give a distributor one sample of a new product and no repeat samples would be given of the same product. In any event, he stated that these Sales Invoices were not samples. It has been the trade practice of the Plaintiff to mark the word "Free" against an item in an invoice where such item is intended to be given to the Plaintiff's distributors as samples.

Credit Note CN00016

22. There is no dispute related to this credit note at page 90 of the BD. The Defendant's client Suncrew returned 13,113 pieces of receivers and 7,666 pieces of remote controllers to the Plaintiff via the Defendant on various dates as shown on the credit note. For these, the Plaintiff gave credit therefore amounting to HK$456,174.42.

CN00017

23. There are two items on this credit note. They are:-

(1) 2,334 pieces of remote controllers for which a credit of US$0.50 was given. This amounted to US$1,167.00.

(2) 2430 pieces of receivers for which a credit of US$0.50 was given, amounting to US$1,215.00.

24. 2,334 pieces of remote controllers represent the shortfall between the 10,000 pieces of remote controllers ordered and 7666 pieces returned by Suncrew through the Defendant to the Plaintiff.

25. The Defendant alleges that the Plaintiff had agreed during a telephone conversation in late July 2000 to give full credit for these 2334 pieces of remote controllers. Full credit should be 2,334 x US$1.30 = US$3,034.20 = HK$23,667.76. Hence the Defendant disputes the sum of credit given in this item in the Credit Note. PW1 of the Plaintiff stated that because the full number of the defective goods had not been returned, he telephoned DW1 asking for payment. DW1 asked for a discount. PW1 denied that he agreed to give full credit for these pieces. He stated that he agreed to give credit in the sum of US$0.50.

26. In relation to the 2430 pieces of receivers, this arises from the shortfall of the delivery of 10,000 + 4663 + 880 = 15,543 pieces of receivers delivered by the Plaintiff less the 13113 pieces of receivers returned to the Plaintiff by Suncrew via the Defendant between the 14 to 21 July 2000. The shortfall amounts to 2,430 pieces.

27. The Defendant disputes his liability to pay for the 4663 and 880 pieces of receivers. The Defendant's position is that as he does not have to pay for these, there is in fact no short fall and he does not have to pay for the 2,430 pieces. There is no need to give credit anyway as he is not liable to pay for the 2,430 pieces. The Defendant's case is that this item on the credit note should be deleted. The Plaintiff denies this.

28. The Defendant's position is that the credit on this Credit Note should be HK$23,667.76.

The Counterclaim

29. The Defendant's counterclaim is based on the Defendant's assertion that the credit does not show an admission on the part of the Plaintiff for the sums owing to the Defendant for the amount stated thereon. The counterclaim is based on the difference between the amount DW1 states the Defendant is liable to pay and the amount of credit which was due him pursuant to CN00016 and the amount he claimed was the agreed credit in item (1) of CN00017.

30. The Plaintiff denies the Counterclaim. However it can be seen that the Defendants position on the Credit Notes as being a sum he could get paid for is different from that pleaded in paragraph 18 of the Defence and Counterclaim. This was pointed out to me by the Plaintiff's Solicitor his closing submission. Paragraph 18 of the Defence and Counter claim state:-

"The Plaintiff's Credit Note No. CN00016 dated 4th October 2000 as pleaded in paragraph 1 indicates that:-

(a) the Defective Goods have been returned by the Defendants to the Plaintiff; and

(b) the Plaintiff has offered to the Defendant full credit or discount of the entire price of the Defective Goods so returned."

The Cheques

31. PW1 stated that these 2 cheques were obtained when they delivered the goods in the Invoice No. N01-01018 on the 10 January 2001. The cheques were post-dated to the 23 January 2001. DW1 gave evidence to state that the Cindia Kwok, a Director of the Defendant issued the cheques. At the time when she issued the cheques she was unaware of the compensation agreement for credit in the sum of US$37,500 against purchases. She was not aware of the history of the transaction related to the 15,000 pieces. She signed the cheques under a mistake of fact.

The E-mail on 23rd March 2001

32. This is at page 95 of the BD. PW1 stated in evidence that after the Defendant failed to pay the sums on the claimed he two cheques, the Plaintiff instructed a debt collection agency to handle this matter for them. A few days thereafter they received the e-mail from DW1 dated 22 March 2001. Although this e-mail contained statements like,

"I can only pay you money when my new Gameboy Advance accessories are released. Which will be end of next month." And

"I promised I will pay you once I have the money."

33. DW1 stated that he wrote this when he was under a lot of pressure from his staff. He stated that his staff were frightened and were against his proposal to report to the Police. He chose to tell a lie when he stated that he would pay once he had the money or that when his Gameboy Advance accessories are released. He wrote those to placate the debt collecting agents and did not mean what was stated therein.

Credibility

34. The case hangs on the credibility of the Plaintiff's only witness PW1 and the Defendant's only witness DW1. I note the burden of proof in relation to each of the disputed facts.

Credibility of PW1

35. I do not find PW1 to be intentionally dishonest although his evidence in relation to the 4553 pieces and the 880 pieces was confused. It seems to me that the confusion arose from lack of clarity in his dealings with the Defendant through DW1 in relation to these two items. I believe he was well intentioned and had the genuine and honest wish to rectify the situation when the 15,000 pieces were found to be defective. I would consider each part of his evidence with care but I would not discount the entirety of his evidence as incredible. I believe he is in the main not an intentionally dishonest witness.

36. In relation to DW1, I find his evidence not credible. I particularly found his evidence related to his e-mail to show his lack of credibility. In effect he stated that he would lie his way out of a tight spot. I formed the impression from the manner he gave his evidence and in particular, his replies in the course of cross-examination, that DW1 was neither truthful nor credible. His evidence related to his management style is totally incredible. This includes not informing his staff, including those who have to know these matters, agreements made between him and the bosses of other companies. He stated that he would place orders for goods orally on the phone without written documentation. When asked under cross-examination how his staff would follow up on an order, he stated that his staff would follow up by telephoning the staff of the company on whom he placed the order to ask whether they knew of such an order. When he was referred to a purchase order placed by his company on the Plaintiff Company at page 197 of the BD, he explained, "For this, probably the Plaintiff staff asked my staff to put this in." In relation to his basis for stating that the items in the Sales Invoices were free samples, under cross-examination, he was shown an Invoice at page 190 of the BD of a sample. The second item therein stated in the "Unit Price" column, "FREE". It was put to DW1 that where a sample is given free the invoice states the item is free. When he was asked whether it was the practice of the Plaintiff when giving out samples to mark "Free" against that item in the invoice, he stated, "In this case, yes." In relation to the Sales Invoices, under cross-examination, he stated that he asked his staff to go to the Customer Service Centre of the Plaintiff in Shamshuipo to pick up the samples he wanted to send to his customer overseas. He stated that his staff said when they picked up the samples that they think the samples were free sample. That was his only basis for saying that the items in the Sales Invoices were for free. From the aforesaid, I form the view that DW1 is a wholly unreliable witness and his evidence is not credible. I discount his evidence of facts that are not consistent with the facts stated by the Plaintiff.

The Facts in Issue

Whether the Defendant was liable to pay the 4663 pieces of receivers

37. I agree with the submission of the Defendant's Counsel that, in the face of the denial of the Defendant that they ordered the 4663 pieces of receivers, the onus of proof is on the Plaintiff to establish that the Defendant ordered the 4663 pieces of receivers. The evidence of PW1 related to the 4663 pieces of receivers have been recited aforesaid. I shall not repeat the evidence.

38. To summarize, PW1 stated that they were for replacement of the defective 15,000 pieces. He stated that he had these receivers in stock, therefore he sent this odd number. The evidence of PW1 was that usually when the Defendant ordered components these would be delivered to the warehouse of the Defendant's forwarder and the Defendant would send it on to his overseas customer. However in this case the Plaintiff sent these through his own forwarder, Sagawa Express (HK) Co. Ltd. to Suncrew (see Instruction Form at page 165 and Airway Bill at page 166 of the BD). Another unusual feature is that these were sent to Suncrew on 8 July 2000 (page 170 of the BD), and an invoice was issued to Suncrew dated 8 July 2000, showing the unit price of US$1. PW1 explained that he had to issue the Invoice to Suncrew because the Carrier required an invoice to be shown for the sending the components. The invoice issued to the Defendant, shown at page 79 of the BD, was dated 4 October 2000.

39. The evidence of PW1 related to the date of the order of the 10,000 pieces is relevant to the issue of whether the 4663 pieces were ordered. PW1 at first stated in evidence-in-chief and in his witness statement that the 10,000 pieces were ordered by Defendant in the same telephone conversation on the 7th July 2000 between DW1 and PW1 when DW1 informed PW1 of the defect of the 15,000 pieces. DW1 obviously ordered this to replace the defective pieces. Subsequently PW1 changed his evidence and tried to state that the 10,000 pieces were ordered in the 2 or 3 days around then. However, in my view, the second version of the evidence cannot be true. Having found that DW1 ordered the 10,000 pieces in the same telephone conversation as when he informed PW1 of the defect in the 15,000 pieces for the purpose of replacement, it would be strange that he would order 4663 pieces to replace the 15,000 pieces in addition. It seems to me that these 4663 pieces were not ordered by the Defendant as such but were sent by the Plaintiff as replacement for the defective pieces. This may explain the unusual features of the invoice for these not having been sent to the Defendant until 4 October 2000 despite delivery on 8 July 2000. This is different from the way in which invoices in respect of the 10,000 pieces were sent immediately on delivery.

40. Despite considering;-

(1) that after sending the 4663 pieces to Suncrew direct, the Plaintiff sent a copy of the Airway Bill to the Defendant and

(2) that in the e-mail at page 101 which sent from Peggy Chan, to Newton Ng, which stated that, among other items sent to Suncrew, were the 4663 pieces of receivers with the Airway Bill number, which e-mail, Newton Ng forwarded to Mr. Sotaro Inami of Suncrew, and

(3) that the amounts of the two cheques issued by the Defendant in the sums of $124,152 and $76,372.96 would come to the amount of this claim suggesting that the Defendant had originally intended to pay this sum.

(4) the e-mail from DW1 at page 95 stated that he would pay the Plaintiff once he had the money.

I come to find that the Plaintiff has not established on a balance of probability that the 4663 pieces of receivers were goods ordered by the Defendant. I come to the view that the 4663 pieces were sent by the Plaintiff as replacement for the defective goods on his own initiative to rectify the defect in the 15,000. As these were not ordered by the Defendant it is not something the Defendant is liable to pay for.

Whether the 880 Pieces of Receivers delivered on 15 July 2000 was pursuant to the order placed by the Defendant

41. I agree with the Defendant's Counsel that the evidence of PW1 related to this was confused. The Delivery Note at page 103 stated that the goods were "Free". PW1 stated that the Delivery Note stated that goods were free because credit has to be given for the 5477 receivers returned a day earlier. I find that in the light of the confusion in the evidence I am of the view that the Plaintiff has not discharged the onus of proof that the Defendant ordered these goods.

Whether the Plaintiff has agreed with the Defendant to pay a compensation in the sum of US$37,500 to be credited against purchase of goods by the Defendant.

42. I find the evidence of DW1 on this to be wholly incredible. As stated earlier I do not find the Defendant to be a credible witness. I find that the Defendant has not discharged the onus of proof in relation to this allegation and I find there has been no such agreement by the Plaintiff with the Defendant.

Whether the Sales Invoices No.s 1177, 1203, 1219, 1266, 1282, 1383 1393 and 1404 related to goods ordered or whether they related to free samples supplied

43. I find the evidence of DW1 and his basis for stating that these were free samples to be wholly incredible. I wholly reject his evidence on this. I find that these goods are payable by the Defendant as goods ordered by them.

Whether the Plaintiff has agreed to give full credit for the value of 2334 pieces of remote controllers

44. As I find DW1's evidence to be unreliable and lacking in credibility and as the allegation of the existence of such an agreement comes from him, I am not able to accept his evidence on this. I therefore find that the Plaintiff has not agreed to give full credit for the value of 2334 pieces of remote controllers but has only agreed to give credit in the sum of US$0.50 per piece as stated in the 1st item of the Credit Note CN00017. As I have found against the Plaintiff in respect of the 4663 pieces and 880 pieces of receivers there would be no credit in respect of the item of 2430 pieces of receivers at US$0.50 as there would be no shortfall between the 10,000 receivers goods ordered by the Defendant and the returned defective receivers which exceed the 10,000 receivers ordered.

The Claim and Counterclaim

45. Having found as I have done, the Plaintiff has succeeded in establishing the claim in relation to the following Invoices:-

Invoice No.	Date	Amount in HK$
N0007031	12th July 2000	268,320.00
N0007032	13th July 2000	31,200.00
N0007036	14th July 2000	37,440.00
N0007037(R1)	15th July 2000	53,040.00
N01-01018	10th January 2001	124,152.00
	Sub-total	514,152.00
Sale Invoice No.	Date	Amount in HK$
1177	23rd December 2000	221.00
1203	28th December 2000	390.00
1219	29th December 2000	143.00
1266	4th January 2001	100.00
1282	5th January 2001	252.00
1383	17th January 2001	143.00
1393	18th January 2001	378.00
1404	19th January 2001	327.00
	Sub-total	1,954.00

46. The Defendant is entitled to set-off the amount in

(1) the Credit Note No. CN00016, in the sum of HK$456,174.42 and,

(2) the amount in the 1st item in Credit Note No. CN00017 in the sum of U.S.$1,167.00, equivalent to HK$9,102.60 at the exchange rate of U.S.$1 to HK$7.8.

47. The total amount to be set-off is $465,277.02. After taking into account the amount to be set-off, the Defendant is liable to pay the Plaintiff the sum of $50,828.98.

48. I give judgment to the Plaintiff against the Defendant in the sum of $50,828.98 together with interest thereon at judgment rate from date of Writ to date of judgment and thereafter at judgment rate until payment and an order nisi for costs of the action to the Plaintiff to be taxed if not agreed. Counterclaim dismissed.