ROHM ELECTRONICS (HK) CO LTD v. CHENG WAI HUNG t/a SUPER ELECTRONICS

HCA 2120/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2120 OF 2001

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J U D G M E N T

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1.  The Plaintiff is a supplier of electronic components.  The Defendant is one of their customers.

2.  The contract the subject of the dispute relates to the supply of 200,000 Integrated Circuits (IC’s) in February 2000.

3.  These IC’s are part of a circuit board which is controlled by what has been referred to as a micro control unit.

4.  What all of this is designed to achieve is to enable characters to appear on a television screen when photographs are transmitted from a closed circuit digital camera which is used primarily for security purposes.

5.  The said characters consist of particulars of the date and time of the occurrences depicted on the television screen.

6.  The case for the Plaintiff is based upon the written contract dated the 23^rd February 2000 between the parties when they agreed to supply the IC’s in question.

7.  They were to be delivered in batches from the 30^th April 2000 until the end of May 2001.  The total purchase price was US$236,000.

8.  The Defendant refused to take delivery of any of the batches.

9.  The defence which is run by the Defendant is that when the IC’s were ordered Mr Cheuk a salesman representing the Plaintiff assured her that a circuit board referred to as a Demo Board would be provided by the Plaintiff for testing a sample IC and all the IC’s delivered, and that the necessary technical assistance would be given by the Plaintiffs.

10.  Mr Cheuk was not called as a witness.  There was evidence that he left the Plaintiff’s employment in October 2000.

11.  It is essential for a necessary understanding of this case to have an elementary knowledge of the electronic items which have been referred to in this case.

12.  An IC is not a simple component.  Amongst the documents which were before the Court was the specification for the Plaintiff’s IC.  It ran to 28 pages of particulars including diagrams.

13.  A circuit board is of even greater complexity.  Mr Fukuda, one of the Plaintiff’s engineers gave evidence that a circuit board has to be tailor made for an application such as is required in the present case.

14.  It took him and members of his staff a month to adapt a circuit board so that it could be enabled to achieve the requirement of projecting the necessary characters on a television screen.

15.  This evidence was not challenged.

16.  It will accordingly be appreciated that a great deal of skilled work has to be undertaken to produce a circuit board which will incorporate the requisite functions.

17.  The Plaintiff is able to design and manufacture circuit boards and indeed does sell them independently of the sale of their IC’s.

18.  One of the matters which has to be considered in this litigation is whether it is likely that the Plaintiff would agree to undertake the considerable work involved in preparing a circuit board for a Purchaser of IC’s when as was the case here the Purchaser had no intention of also purchasing a circuit board.

19.  However the starting point in this judgment must be the written contract between the parties.

20.  This consisted of a Purchase Order on the Defendants note paper.  This was in this form.

“SUPER ELECTRONICS

Room 1602 16/F., FORTUNE COMMERICAL BULG, 362 SHA TSUI ROAD. TW. HONG KONG.

TEL: (852) 2429-5885                                                               FAX: (852) 2429-4657

We hereby confirm our order for the following goods subject to the terms, conditions, specifications and instructions stipulated hereunder.

21.  It will be observed that there is no reference in the contract to the requirement that their Demo Board or application diagram is to be provided by the Plaintiff.  Nor is there any provision requiring the Plaintiff to provide technical assistance.

22.  As indicated Mr Cheuk did not give evidence and no reason was forthcoming for this lacuna.

23.  This being the case it will be necessary to consider the oral evidence carefully to ascertain whether the Plaintiff did in fact agree to provide the Demo Board and other assistance referred to by the Defendant and Mr Mok, her husband.

24.  It will also be necessary to consider whatever correspondence there is which might illuminate the position.

25.  There were two witnesses for the Plaintiff.  The first was Mr Stanley Lam a Vice President of the Plaintiff.  He explained briefly the practice adopted by the Plaintiff when a salesman sold the Company products to a customer.  In the instant case Mr Cheuk would be required to inform the customer that it would take 2 months to fulfil the order as the function provided by the IC was of a specialised nature.  The salesman would also at the request of the customer provide a sample for testing and a copy of specifications relating to the product.

26.  It was apparent from the Plaintiff’s records that instructions were transmitted to Japan for the manufacture of the IC’s.

27.  It was further apparent from the records that the Defendant had failed to take delivery of the IC’s as and when they arrived in Hong Kong pursuant to the delivery schedule laid down in the Purchase Order.

28.  On the 7^th August 2000 the Plaintiff received a fax from the Defendant in which she sought to “cancel” the Order for 100,000 IC’s.  It is perhaps significant to add that there is no complaint contained in this fax that the Plaintiff had in any way been in breach of its contractual obligations.

29.  A meeting was arranged on the 20^th October 2000 which was attended by Mr Raymond Lau Senior Sales Manager for the Plaintiff and the Defendant.  We do not have Mr Lau’s evidence of what transpired at the meeting as he disappeared while wind surfing on the 2^nd December 2000.

30.  Following this meeting the Plaintiff wrote to the Defendant requiring her to take delivery of the IC’s in accordance with the Purchase Orders.

31.  A further meeting was held on the 14^th November 2000 which was attended by Mr Lam.  There is a dispute as to what was discussed at this meeting.  According to Mr Lam he pressed the Defendant to take delivery of the IC’s.  The Defendant’s version was that she advised him of the problems which had been encountered with the sample IC and the failure to provide the Demo Board and technical assistance.

32.  After the meeting Mr Lam sent a proposed delivery schedule to the Defendant by fax.  A faxed copy was returned to him by the Defendant with some Chinese characters written on it.  So far as these goods were concerned the translated characters read “For the moment not yet.  Delivery dates still waiting.”

33.  As the Defendant was not prepared to take delivery of the IC’s the present action was commenced.

34.  The other witness to give evidence for the Plaintiff was Mr Fukuda.  I have already referred to his evidence.  He indicated how the equipment was supposed to function and outlined the amount of work required to modify a circuit board which would fulfil the performance requirements of the Defendant.

35.  The only witnesses for the Defendant were the Defendant herself and her husband Mr Mok.  Ms Cheng is the sole proprietor of the Defendant.  She has not received any Tertiary Education nor formal training in Electronics.  Indeed she gave evidence that on technical matters she placed reliance upon her husband.  He also did not receive a Tertiary Education nor did he undergo any apprenticeship in the Electronic Industry.  He did however have 10 years working experience in the Industry.

36.  My reason for referring to the technical knowledge of the Defendant and her husband is that the relative lack of education and training in this field may shed some light upon how misunderstandings may have arisen particularly having regard to the sophistication of the equipment which is the subject of this litigation.

37.  It may well be the case that neither Ms Cheng nor her husband realised how much work and effort would need to be expended to achieve the requirements of the CCD cameras they were endeavouring to arrange to be manufactured.

38.  Ms Cheng gave evidence concerning the Modus Operandi of the Defendant firm.

39.  It was their practice to order components from manufacturers and have them sent to factories in the Mainland for assembly into electronic goods.

40.  It was normally the practice of the manufacturers who were supplying the components to furnish technical assistance as how they could be assembled so that the equipment could operate satisfactorily.

41.  In this present case Ms Cheng had placed reliance upon the promise made by Mr Cheuk to provide a Demo Board and diagrams.  This was in spite of the fact that she said that it had not been her intention to purchase any circuit boards from the Plaintiff.  Indeed in cross examination she went further and said that what she had intended to do was to obtain the necessary information from the Plaintiff so that her husband could modify it and pass it on to the manufacturers in the Mainland.  They could then manufacture circuit boards which could be incorporated into the CCD camera system.

42.  She said that there had been discussions as to how a Demo Board might be prepared.  Mr Cheuk had informed her that the Plaintiff did not have any engineering section in Hong Kong and that the Demo Board could not be designed in here.

43.  Ms Cheng said that her husband had attempted to assemble a circuit board himself.  These endeavours however had not met with success as he had informed her in June 2000 that when the equipment had been assembled irregular horizontal and vertical lines had appeared and there had been unsteady vision.

44.  Mr Mok’s evidence was generally supportive of his wife.  He was the person in the Defendant firm who provided technical expertise.  He said that with the knowledge which was available to him he had been unable to design a circuit board which would enable the CCD camera to operate in a satisfactory manner.

45.  I was impressed by both Ms Cheng and her husband as witnesses.  Particularly Ms Cheng.  She said that the main reason why she had placed such a large order with Mr Cheuk was his promise that the necessary technical assistance would be forthcoming.

46.  Earlier in this judgment I surmised that it might well be the case that the Plaintiff would be reluctant to undertake the necessary work to ensure that the CCD camera was able to operate if the Defendant did not intend to purchase circuit boards from the Plaintiff.

47.  However this might not be the case so far as Mr Cheuk was concerned.  Presumably what he wanted to do was to sell a large volume of IC’s to the Defendant.  It may well have been the case that Mr Cheuk may have offered the inducements referred to by Ms Cheng.  Indeed it seems more likely than not that he did.  I say this because it would appear to be unlikely that Ms Cheng would commit herself to an order of this magnitude unless she had some assurance that the IC’s would in due course be able to work in the desired manner.

48.  There is the further point that the Defendant firm’s comparative lack of technical expertise does not necessarily militate against them.

49.  In all probability neither Ms Cheng nor Mr Mok would have been aware of the magnitude of the task facing them in designing a circuit board which would achieve their objectives.  It may have been for this reason that they did not insist upon a provision being included in the Purchase Order requiring the Plaintiff to render the assistance Mr Cheuk promised.

50.  However what has concerned me over and above everything else is the fact that Mr Cheuk did not give evidence and no explanation was forthcoming for this.  He was the person who would be able to give evidence on the Plaintiff’s behalf as to what transpired.

51.  When everything is boiled down all we have on the Plaintiff’s behalf is Mr Lam’s reconstruction of the Plaintiff’s records and the action he himself took to press Ms Cheng to take delivery of the goods.

52.  In my view there was nothing in the correspondence which would indicate that Ms Cheng’s evidence was seriously flawed.

53.  I do not attach great weight to the fact that she did not reduce her complaints to writing in correspondence with the Plaintiff.  After all she was declining to take delivery of the IC’s and the ball was in the Plaintiff’s Court.

54.  As I have said it was definitely my impression that Ms Cheng was a truthful and reliable witness.  I accept on the balance of probabilities that Mr Cheuk did indeed promise to supply a Demo Board and the necessary technical assistance to enable the CCD camera to operate as required.

55.  This being the case I dismiss the Plaintiff’s claim and order that judgment be entered for the Defendant.  I make an order nisi that the Defendant is to have her costs.