CAMEL TECHNOLOGY (HK) CO LTD v. ROCOM ELECTRIC CO LTD

DCCJ7602/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 7602 OF 2002

D E C I S I O N

1.  This is my decision for the plaintiff’s application for Order 14.

2.  In the plaintiff’s statement of claim filed on 9 December 2002 the plaintiff claims the sum of $386,020 for the price of goods ordered and delivered to the defendant and the sum of $28,040 as the price of goods ordered but the delivery was rejected by the defendant.

3.  The defendant  filed a defence and counter-claim on 12 March 2003 and the plaintiff took out an Order 14 summons on 2 March 2004 for the price of the goods delivered at costs, including delivery charges.  This is the sum the plaintiff is now asking for summary judgment, the sum of $310,000 with interest and costs.

4.  The defendant’s supporting affidavit in opposition to the Order 14 application discloses that the defendant’s staff, one Mr Chan Yip-fong, was related to two of the former shareholders of the plaintiff, each holding 25 per cent of the plaintiff’s shares; that Mr Chan was for a time a partner in a former supplier of electronic materials and parts together with a Miss Kwok Siu-ling, who, after April 2001, became a 25 per cent shareholder of the plaintiff company, while the other 25 per cent shares was held by Madam Kam, who is Mr Chan’s mother.  Both Miss Kwok and Madam Kam transferred their shares sometime in late April 2001.

5.  The majority shareholder of the plaintiff, Mr Wang Chung-lan, holding 500 shares - that is 50 per cent shares - in the plaintiff is also a major shareholder of the plaintiff’s supplier, Carry Electronics (HK) Limited. 

6.  The defendant had commenced a High Court Action against Mr Chan -  that is the former employee of the defendant - and Madam Kam, Miss Kwok and Protech for an order of discovery and for damages for conspiracy to defraud the defendant, alleging that Mr Chan had made use of his position as the engineer and later manager of the plaintiff to profit from ordering electronic parts and materials from a firm he had interest in, namely Protech.

7.  The defendant’s defence and counter-claim against the plaintiff in the present District Court Action is similar to the statement of claim in the High Court Action against the four parties named. 

8.  It is the submission of Mr Lam, counsel for the plaintiff, today, that even if a former shareholder of the plaintiff had been a relative of a former employee of the defendant, the plaintiff should be entitled to recover the costs of the electronic parts and materials supplied and used by the defendant which the defendant had not rejected or returned, and that is what the plaintiff is asking for in the present application, the costs of the electronics parts supplied.

9.  It is also Mr Lam’s intention that the balance of the claim should be determined at the trial.

10.  Mr Lee, counsel for the defendant, disagreed.  He submitted that the conspiracy and fraudulent conduct of its former employee Mr Chan and a former shareholder of the plaintiff would nullify the contract of sale between the plaintiff and the defendant.  Mr Lee submitted that it is a complete defence and that the fraudulent conduct required full investigation at the trial. 

11.  Mr Lee further informed the court the plaintiff had taken up action to join the plaintiff in the High Court Action as a defendant.  The defendant had also considered consolidating this action with the High Court Action but up to now no application for consolidation had been made by the defendant.

12.  As to the present application, Mr Lee had taken me through a large number of documents which he claims linked up the different parties to the conspiracy, in particular, Mr Chan with Miss Kwok and Madam Kam and Protech.  Mr Lee had also tried to show that Mr Wang, the major shareholder of the plaintiff, who may be a legitimate businessman in the supply of electronic components in Taiwan since the 1970s, his family also own a factory in China producing electronic parts, and a Hong Kong company called Carry Electronics, and Carry Electronics happened to be a supplier to the plaintiff which in turn was the supplier to the defendant. 

13.  Mr Lee pointed out that Carry could have supplied directly to the defendant without the intervention of the plaintiff.  By doing so, Mr Lee suspected that Mr Wang obviously was giving a 26 per cent profit on the goods supplied to the plaintiff, to which Mr Chan could be shown to have an interest in.  On this basis, Mr Lee claimed the matter should be further investigated.

14.  After careful consideration of the submissions of Mr Lam and Mr Lee, I find the defence to be shadowy.  It remains in the realms of suspicion whether there was a conspiracy to defraud the defendant.  I understand the defendant had already started a High Court Action against Mr Chan, Miss Kwok, Madam Kam and Protech for conspiracy to defraud and the plaintiff may be joined in that action.  However, up to the time of hearing it had not yet been joined.  Damages of the conspiracy alleged would be calculated based on the actual value of the goods supplied and the profits made by the company supplying the goods to the defendant.

15.  I agree with Mr Lam that even if there were profits intended to benefit the plaintiff and that Mr Chan may be the ultimate beneficiary in part, the fact remained that the defendant had accepted the goods supplied and had already applied these goods in their manufacturing process.  The damage to the defendant would therefore at most be the profits made for these transactions between the plaintiff and the defendant.

16.  I am also not convinced that under these circumstances the sale of these electronic components can be vitiated unless the defendant is going to return the goods intact to the plaintiff.  There was no such suggestion.

17.  On this basis, I find the proper course is for the defendant to make a payment into court within 14 days from the date hereof of the sum that the plaintiff claimed to be the cost price of the good supplied, which is the sum of $310,000, as a condition for leave to defend.

18.  I also find under the circumstances, costs should be in the cause of the action with certificate for counsel.