LIONWAY INVESTMENTS LTD v. STACK ELECTRONICS ASIA LTD

HCA 1272/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1272 OF 2011

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J U D G M E N T

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Backgrounds

1. The plaintiff’s claim arose out of goods sold and delivered by the defendant which the plaintiff says were defective in quality.  The plaintiff carries on business as an original design manufacturer of electronic appliances including panel heaters.  The defendant is a supplier and distributor of parts and components of electronic appliances.

2. The goods in question are called “TRIAC” which stands for Triode for Alternating Current. TRIAC is an electronic component that can conduct current in either direction and is used as a power transistor. The plaintiff says that the TRIACs supplied by the defendant were supposed to be assembled by the plaintiff onto printed circuit boards which would in turn be assembled into devises known as “controllers”. The controllers would then be built into panel heaters and act as thermostats and timers.

3. The goods in question were supplied under 16 Purchaser Orders issued between 6 January 2009 and 22 December 2009. Delivery of the goods to the plaintiff and payments by it to the defendant totaling USD37,000.00 were admitted in pleadings. The dispute between the parties lies in the quality of the goods delivered. The plaintiff says they were not of merchantable quality and/or not reasonably fit for the purpose for which they were bought.  The defendant denies and put the plaintiff to strict proof. It also sought reliance on a purported contractual term described as “60 days of guarantee & COC only”. The plaintiff claims for damages arising out of the defective quality of the TRIACs totaling USD312,302.00 as set out in the Schedule to the Statement of Claim.  The defendant puts the plaintiff to strict proof of its loss and alleged that the plaintiff failed to mitigate its loss and damage.

Procedural history

4. Leave to set down the action for trial was granted on 5 November2012. On 18 December 2012, Deputy High Court Judge Mayo made an order that the defendant’s solicitors on record, upon compliance with the requirements of RHC Order 67 rule 6(1), would cease to act for the defendant.

5. On 20 December 2012, when the plaintiff’s solicitors attended before the Listing Clerk for the fixing of trial dates, neither the defendant nor its legal representatives appeared. The current trial dates and a date for the PTR were then fixed.  Notice of trial (and of the PTR) was issued on 3 January 2013 and sent to the defendant through its solicitors on record.

6. The defendant’s solicitors on record ceased to act for the defendant since 11 January 2013 upon filing a certificate stating that a sealed copy of the Order of Deputy Judge Mayo made on 18 December 2012 had been served on the defendant at its registered office and last known address.

7. Up to the 1^st day of the trial, no application for leave has been made pursuant to RHC Order 5 rule 6(2)(b) for the purpose of ensuring that a director of the defendant could represent the limited company in these proceedings.  I note that at paragraph 5/6/2 of the Hong Kong Civil Procedure 2013, the author stated that a judge has no jurisdiction to grant leave under Order 5 rule 6(2)(b) citing China Top Consultants Ltd. v. Prosperity Construction and Decoration Ltd. (unreported, HCA 6903/2000) and Bank of China (Hong Kong) Ltd. v. Expert Promised Ltd. (unreported, HCMP 1136/2003).

8. On 14 May 2013, the plaintiff’s solicitors wrote to the defendant asking for its comments on the draft PTR bundle index. There was no reply.  Furthermore, the defendant did not appear at the 1^st PTR hearing on 30 May 2013.  Neither did it appear at the 2^nd PTR hearing on 15 July 2013. 

9. The defendant did not appear on the first day of the trial.  Counsel for the plaintiff invited the Court to proceed with the trial in the defendant’s absence. According to the latest Annual Return of the defendant filed as of 22 August 2012, it has two shareholders, namely Mr Steve Patsis and Madam Laurie Ann Patsis.  I note that on or about 4 July 2012, Mr Steve Patsis filed an application form for the incorporation of a new company in the name of “Stack Electronics Limited”. The name of this new company bears striking similarity with that of the Defendant. Mr Steve Patsis was stated to be the founding member and the first director of this new company.  By a Notice of Change of Address of Registered Office of “Stack Electronics Limited” dated 22 October 2012, the registered address of this new company was changed to that of Unit 2304, 23^rd Floor, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon.  That was the same address of the defendant as appearing in its latest filed Annual Return as of 21 August 2012. The same address was used by Mr Steve Patsis and Madam Laurie Ann Patsis. Incidentally, on 22 October 2012, the defendant changed its registered address to an address of Yinat Secretaries Limited, the company secretary of the defendant. It thus seems that the new company is now running its business at the original address of the defendant. It also seems likely that the defendant has now been reduced to a corporate shell.  That probably explains why the defendant has taken no further step in defending these proceedings. In the circumstances, I am prepared to proceed in the absence of the defendant pursuant to my power under Order 35 rule 1(2).  I am satisfied that Notice of the trial had been given to the defendant and its conduct demonstrated a lack of intention to participate further in these proceedings.

The plaintiff’s case

10. At the 2^nd PTR on 15 July 2013, Mr Justice A Chan ordered, inter alia, that:-

(1) leave to the plaintiff to adduce the test report of the Hong Kong Science & Technology Parks dated 20 June 2013 (“the Report”);

(2) on or before 5 August 2013:

(a) the plaintiff’s witnesses do confirm their witness statements on oath by way of affidavit/affirmation; and

(b) the maker of the Report do set out his/her qualifications and confirm the contents of the same by way of affidavit/affirmation.

(3) in default of appearance by the defendant at the trial, the plaintiff’s evidence be admitted without calling the witnesses.

11. Pursuant to the aforesaid Order, the following affirmations were filed:-

(1) affirmation of Lam Sin Fung confirming the truth of the contents of his witness statement dated 22 June 2012 and his supplemental witness statement dated 5 July 2013;

(2) affirmation of Chau Hau Wan confirming the truth of the contents of his witness statement dated 22 June 2012;

(3) affirmation of Wong Hip Sang Sammy confirming the truth of the contents of his witness statement dated 22 June 2012; and

(4) affirmation of Lam Tsz Lik confirming his qualification as an expert and the truth of the contents of the Report dated 20 June 2013.

12. I have considered the evidence contained in the abovementioned witness statements, supplemental witness statement and the Report which are admitted without further proof pursuant to the Order of A Chan J made on 15 July 2013. I accept the evidence of these witnesses. On the first day of the trial, I indicated to counsel for the plaintiff that I need some clarifications on the evidence pertaining to quantum. On the second day of the trial, Mr Wong Hip Sang Sammy filed a 2^nd Affirmation providing further evidence on the issue of quantum. I granted leave for the filing of the said 2^nd Affirmation of Mr Wong and decide to adopt the same approach of A Chan J, namely to accept the 2^nd Affirmation of Mr Wong without the need of further proof. I am satisfied on balance of probabilities that the plaintiff has proven its case. In particular, I make the following findings:-

(1) pursuant to 16 Purchase Orders as particularized in paragraph 3 of the Statement of Claim (“the Purchase Orders”), the plaintiff agreed to buy and the defendant agreed to sell and deliver to the plaintiff a total quantity of 74,000 pieces of TRIACs (“the Goods”);

(2) pursuant to and in performance of the Purchase Orders, the plaintiff had duly paid to the defendant the contract sum of USD37,000.00;

(3) the defendant knew that the Goods were purchased by the plaintiff for the purpose of assembling them into electric circuit boards to control electric current, and that such electric circuit boards would then be installed into panel heaters manufactured by the plaintiff;

(4) the defendant further knew that the plaintiff would supply the panel heaters to its associated company for onward sale to the latter’s customer in Europe;

(5) the Goods were not of merchantable quality and were not fit for the purpose for which they were bought in that they were prone to short-circuiting by reason of “poor die-attach condition (voids, lack of solder)” as well as “poor solder coverage on solder pad”;

(6) the defendant was in breach of the implied terms pursuant to sections 16(2) and 16(3) of the Sale of Goods Ordinance, Cap. 26, Laws of Hong Kong;

(7) the Purchase Orders did not contain the alleged term of “60 days of guarantee & COC only”;

(8) by reason of the defective qualities of the Goods, EME (the associated company of the plaintiff) was held liable to its European customer for damages in the total sum of USD291,405.00 (figure rounded-up).  This sum was settled by EME by crediting this amount in favour of its European customer under a running account maintained between them. This is the sum claimed under Part A of the Schedule to the Statement of Claim;

(9) as a result, EME issued 3 invoices/debit notes to the plaintiff charging the plaintiff for the total amount of USD291,405.00.  This amount was settled by the plaintiff by way of a credit entry made in the inter-companies account maintained between the plaintiff and EME;

(10) further more, as a result of the defective qualities of the Goods, certain quantities of controllers underwent re-working in the Dongguan Plant. The plaintiff settled the costs of USD10,842.82 by crediting this sum in favour of the Dongguan Plant under the running account maintained between them.  There was also a sum of USD8,904.64 being the price of the defective TRIACs returned by the European customer to EME. EME again held the plaintiff responsible for this sum. The plaintiff again credited this sum in favour of EME in the inter-company account maintained between them.  These two sum totaled USD 19,747.00 which was the first sum mentioned in Part B of the Schedule to the Statement of Claim;

(11) the second sum mentioned in Part B of the said Schedule, namely USD1,150.00 actually represented the price of 2,300 extra pieces of good condition TRIACs that had to be sent to Europe for the reworking of controllers. The plaintiff had previously paid for these good condition TRIACs. Since they were appropriated and sent to Europe for remedial measures, the plaintiff charged the defendant for the price of these TRIACs and issued a debit note directly to the defendant.

(12) the last mentioned two sums added up to USD20,897.00 which was claimed under Part B of the said Schedule;

(13) there is no evidence that the plaintiff had in any way failed to mitigate its loss.  The burden of proof is on the defendant (see McGregor on Damages, 18^th ed., paragraph 7-19) and it had clearly failed to discharge such burden; and

(14) in the circumstances, the plaintiff suffered a total loss of USD312,302.00.

13. I therefore grant judgment in favour of the plaintiff against the defendant in the sum of USD312,302.00. After hearing Mr Chang, counsel for the plaintiff, and having considered his written submission on applicable interest rates, I order that interest shall be paid by the defendant to the plaintiff on the said sum of USD312,302.00 at the rate of 6% per annum from the date of the Writ (22 July 2011) to the date of judgment, and from then on at judgment rates until payment. I also order that costs of this action (including all costs ordered to be reserved) be paid by the defendant to the plaintiff on party-and-party basis, to be taxed if not agreed.