BLU ENERGY DRINK (ASIA) LTD v. CHAMPION IN LTD (WHY CLUB)

DCCJ 274/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 274 OF 2016

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JUDGMENT

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Introduction

1.  The plaintiff was at the material time the sole agent and importer of the energy drinks named “BLU” (“Product”).  By these proceedings, the plaintiff claims against the defendant for breach of contract as it is alleged that the defendant failed to place orders for the Product after the initial period of 5 months.

2.  Mr Nahoom appeared in court for the plaintiff which has been all along acting in person.  He informed the court that he is the Chief Executive Officer of the plaintiff company.  The defendant has since 7 November 2016 been acting in person but none of its representative appeared in court.  As due notice of trial has been given to the defendant, the trial was to proceed in the absence of the defendant.

3.  In the opening submission, the plaintiff claims loss of profits and loss of goods for the sum of $143,648 and cost of storage for the sum of $4,560. After clarification with Mr Nahoom, the plaintiff’s claim for loss of profits/loss of goods should be $143,640.  He further explained that the defendant entered into a contract in writing with the plaintiff dated 31 December 2014 (the “Contract”), under which the defendant had to order 35 cases of the Product for 24 months.  As the defendant only placed orders with the plaintiff for 5 months and stopped placing further orders, the plaintiff claims the orders of 35 cases for the remaining 19 months.  As each of the cases were selling at $216, the claim is therefore $143,640 (being $216 X 35 cases X 19 months).

4.  As to the cost of storage of $4,560, Mr Nahoom explained that the storage charge of the 35 cases would be $240 per month and hence, the claim is for $4,560 (being $240 X 19 months).  Mr Nahoom confirmed that the plaintiff did not claim cost of storage in the statement of claim.

5.  The parties did file the list of issues respectively.  However, I have come to the view that the ultimate questions to be resolved are:-

(1) What is the nature of the Contract signed between the plaintiff and the defendant on 31 December 2014?

(2) Was there a breach of Contract when in May 2015, the defendant refused/failed to place further orders with the plaintiff?

(3) Whether the plaintiff could claim for loss of profits/loss of goods and cost of storage, as claimed or at all?

6.  It is noted that neither the statement of claim, nor the witness statements relied on by the plaintiff, mentioned any other breach of contract on the part of the defendant, save for its failure to place orders as set out above.  Upon closing submission, Mr Nahoom submitted that in fact, the defendant was also in breach of the Contract in that they sold other energy drinks within their premises. This was neither pleaded nor mentioned in the statement of claim or his witness statements.  I cannot give any weight to this allegation.

Relationship with defendant

7.  Mr Nahoom gave evidence in court.  He informed the court that in 2014, he started the business of importing the Product in Hong Kong, while is manufactured in Poland.  He said that in the first year he had a couple of clients just like the defendant, and the Product has become more and more popular.  At the moment, the Product has been placed on the shelf of some well-known supermarkets, grocery stores, and a number of bars, restaurants and sports centres.  There were 2 salespersons initially, and through their efforts they came to know the defendant which operated a very successful bar in Tsimshatsui called WHY CLUB.  They would like to put forward the business proposal to the defendant.  When their salespersons began to discuss with the defendant’s representative on the Contract, he was told that the plaintiff had to leave the Contract to them as he would need to discuss with his boss.  Very soon later, the plaintiff received the Contract duly signed by the defendant.

8.  After the defendant signed the Contract, they initially contacted the plaintiff stating that they would need to have a small quantity of the Product to test whether it was good for sale within their premises.  Then the defendant placed orders with the plaintiff more or less in accordance with the expected sale volume of 35 cases per month for 5 months.  Each time, the defendant would either make a phone call or by text messages to place the order to the plaintiff.  The plaintiff would then arranged delivery for the required amount of the Product to the defendant.

9.  In June 2015, the defendant failed to place any orders with the plaintiff.  Nor did the plaintiff managed to speak to the defendant’s contact person on the telephone.  The defendant’s representative simply did not reply to text messages and slammed the phone whenever he knew that it was the plaintiff’s staff members calling.

10.  Mr Nahoom gave evidence to confirm that:-

(1) The wording in the Contract set out that if the defendant was to place orders for the Product with the plaintiff within a period of time, he could achieve some savings or rebate.

(2) The period of 2 years was set out in the Contract as an example to show to the defendant how the rebate and savings worked.  The plaintiff looked for long term relationship with the defendant.

(3) The Contract did not set out the consequence to the defendant if the defendant failed to place sufficient or any orders for the Product within a 6-month period, save that the defendant would not be entitled to rebate.

(4) The Contract did not have a mechanism for termination.

(5) No rebate was paid to the defendant as the defendant only placed orders for 5 months for the expected sale volume of 35 cases.

11.  On the other hand, Mr Nahoom also gave evidence that the plaintiff’s claim is for loss of goods.  The plaintiff ordered the Product in anticipation of the defendant’s orders for 24 months.  The Product was sent to Hong Kong, but the defendant’s orders were only lasted for 5 months.  The plaintiff did not manage to find other buyers to absorb the Product.  The Product had expiry date and as they were not sold before that, they were dumped. 

12.  Mr Nahoom also explained that after the Product arrived in Hong Kong, the period remaining before expiry would be about 17-18 months before which they have to be sold.

The Contract

13.  A copy of the Contract was set out in the trial bundle at pages 52 – 56.  The following is the relevant features of the Contract:-

(1) The First line of the Contract wrote:-

“BLU Energy Drink

Exclusive Agreement Proposal”

(2) A few lines down the first page, it reads:-

“BLU Energy Drink would like to formally offer WHY CLUB the opportunity to purchase BLU Energy Drink on the following basis. We request the opportunity to set a meeting and discuss these terms further at your next availability.”

(3) After the above paragraph, the Contract set out a table comparing the price of the Product and one other competitor, and the savings per case over a period of 1 year and 2 years.

(4) The Contract further provides that:-

“This table shows savings of $45,360 by making a switch to BLU Energy drink with an average of 35 cases purchased every month over a 2 year term. This table shows saving from Energy Drink invoices only. Additional bonuses/incentives from sponsorships and BLU merchandise will further increase your gross profits to $62,560 over 2 years as compared to our competitors while still serving a premium tasting product.”

(5) On the second page of the Contract, it further provides that:-

“Exclusive Pouring Rights

During the term of this agreement BLU Energy Drink shall have the exclusive rights to make all Energy Drinks available for sale throughout the premises, including all locations located within the premises where beverages are sold….”

(6) Further, on the third page of the Contract, it provides that:-

“A. BLU Sponsorships

Cash Sponsorship:

BLU Energy Drink (Asia) can offer Why Club a sponsorship fund, after agreement of exclusivity terms and commitment to purchase a minimum of 35 cases per month for a duration of 2 years (840 total cases in 2 years).”

(7) The above was then followed by 2 tables setting out the rates for rebate at $4,100 every 6 months for 2 years.

(8) The third page of the Contract sets out that:-

“Buying Price $216 per Case Sponsorship Program. Only at the end of every 6 months WHY CLUB can change the case requirement commitment and rebate target.”

(9) The fifth page of the Contract provides that:-

“IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the date set forth below.”

(10) After from the details of the plaintiff, the Contract was designed to leave the blanks to be filled in.  Those blanks were duly filled in as follows:-

“BY:	CHAMPION IN LIMITED______
PRINT NAME:	Sam Ho______________________
TITLE:	Manager (Mis-spelled as Manage)_
DATE:	31/12/14_____________________
(Chopped by the company chop of CHAMPION IN LIMITED”

Findings of the Contract

14.  I make the following findings:-

(1) The plaintiff was the sole agent and importer of the Product, which was made in Poland with the expiry period of about 17-18 months after its arrival in Hong Kong.

(2) The plaintiff and the defendant signed the Contract which was dated 31 December 2014.

(3) The nature of the Contract was that the plaintiff would supply to the defendant certain quantity of the Product upon placement of orders by the defendant.

(4) The Contract provided that the plaintiff would pay a rebate to the defendant every 6 months if the orders placed would be over 35 cases or more per month.

(5) The Contract did not have provision to terminate the Contract.  It did not provide any consequence of not placing sufficient orders of 35 cases per month, apart from the fact that the defendant would not be entitled to rebate.

(6) The Contract only provided a calculation of rebate and savings if the defendant ordered 35 cases of the Product per month, by using a period of 24 months as an example.  It was not a term of the Contract to require the defendant to order not less than 35 cases of the Product for a period of 24 months.  Under the Contract, the defendant did not have any obligation to place orders for 35 cases per month.

(7) If the plaintiff would seek to argue that the intention in the Contract was to bind the defendant for them to order at least 35 cases of the Product for a period of 24 months, the Contract did not reflect such an intention.

Any Breach?

15.  Having considered the nature and features of the Contract, when considering whether there is any breach of the Contract the following authorities would be instructive on the present case.

16.  In Burton v The Great Northern Railway Company (1854) 9 Exch Rep 507, a railway company entered into an agreement with a plaintiff supplier that the latter undertook to provide all wagons, horses, and necessary for the cartage of grain and merchandise for 12 months.  The supplier purchased wagons, horses, etc, and the price was also agreed.  Five months later, the railway company informed the supplier stating that they would cease to present any goods to the supplier for carriage.  The supplier claimed against the railway company that the supplier should convey all grain and other merchandise for the railway company at the rate ratified for one year, and there was a breach.  It was held that the above was an unilateral agreement, the only contract over the part of the railway company being to pay the stipulated price for the carriage of such goods as may be presented by the supplier for that purpose.  The supplier’s claim was consequently not proved.

17.  In R v Demers [10900] AC 103, a printer sued the United Kingdom Government for damages for breach of contract in respect of the printing and binding of certain public documents.  The printer was entrusted the work for 8 years and a contract to such effect was made for the prices and considerations expressed in the schedules thereto.  The contract was not signed, and after a change of the Government, the printer was advised that the contract was not binding on the Government.  It is held that the contract imposed no obligation on the Government to pay the printer for work not given to the printer for execution.  There was nothing in the contract binding the Government to give to the printer all or any of the printing work referred to in the contract, nor is there anything in it to prevent the Government form giving the whole of the work, or such part as they think fit, to any other printer.  The House of Lords allowed the appeal and dismissed the printer’s claim.

18.  In Percival Ltd v LCC Asylums and Mental Deficiency Committee (1818) 16 LGR 367, 87 LJKB 677, the supplier agreed to supply goods if and to the extent the same should be ordered by the committee, and in any quantity.  Under the agreement, the committee may order quantity in excess of those specified in the agreement. Eventually, the committee did not order the amounts specified in the schedule to the tendered form, and the supplier claimed that they were entitled to supply goods to the full amount therein specified.  It was held that in true construction of the tender, the committee was under no obligation to order any of the goods, but that the suppliers were bound to deliver the goods specified as and when they obtain orders for them from the committee.

19.  I refer to my finding that the Contract did not require the defendant to order not less than 35 cases of the Product for a period of 24 months.  I come to the view that the defendant was not in breach of the terms of the Contract as alleged by the plaintiff.

Any Loss?

20.  I proceed to assess the evidence on the plaintiff’s claim for loss of profit, loss of goods and cost of storage, as the plaintiff stated in the opening submission.

21.  The plaintiff did not demonstrate any or any sufficient and credible evidence to prove its claim for the loss of profit and/or loss of goods it has suffered:-

(1) Mr Nahoom claimed that he ordered the Product for the whole period of 24 months for the defendant at 35 cases per month.  After the initial 5 months, the defendant failed to place orders for 19 months.  The total of 665 cases (being 35 cases X 19 months) were sent to Hong Kong, and these were not ordered by the defendant.  The plaintiff could not find another buyer to absorb this lot of the Product and the Product had to be sold before its expiry date.  Accordingly, he discarded the whole lot of 665 cases of Product as garbage. 

(2) No evidence has been produced for the plaintiff to have ordered 665 cases of the Product.  No evidence has been produced to show the disposal of these 665 cases.

(3) No evidence has been produced the time when these 665 cases of the Product arrived Hong Kong, how the Product was stored, and the time when and the way how they were discarded as garbage.

(4) I do not accept that the plaintiff would have ordered the Product for the whole 24 months in anticipation that the defendant would place orders.  If the plaintiff did so, some of the Products with the expiry period of 17-18 months after its arrival in Hong Kong (see §§12 and 14(1) above) would have been expired before they were delivered to the defendant.  I do not accept that the plaintiff suffered any loss as it claims.

(5) I do not accept that 665 cases of the Product were discarded as garbage.  The plaintiff tried to impress that the Product has become increasingly popular since its launch in 2014.  There has been more and more outlets for the sale of the Product.  As a reasonable man, the supplier would of course try as hard as he could to shift the Product and make a profit.

(6) If the plaintiff is to base his claim on loss of profit, then he will have to show the costs of the Product when they were shipped to Hong Kong, the costs of freight and local transportation, and so on.  The plaintiff did not lead any evidence, documentary, oral or otherwise, to substantiate the costs of the Product.  There is no evidence before the Court how much profits which the plaintiff could have made but for the breach of the Contract by the Defendant.

22.  As to the claim for cost of storage:-

(1) the plaintiff’s statement of claim did not contain a claim for cost of storage.  The plaintiff’s witness statement dated 23 June 2016 did not mention any claim for cost of storage.

(2) In his witness statement of 20 November 2016, Mr Nahoom for the first time mentioned that “the Storage charges for the remainder of the Contract for 19 months - $4,560 HKD.”  When he was giving evidence in the witness box, he explained that one cubic metre of storage for one month would cost $240.  Therefore, for 19 months it would be $4,560 (being $240 X 19 months).  He stated that this was a trade practice and the cost of storage was the market price.  If the cost of storage is so well known, I fail to see why the plaintiff did not adduce any documentary evidence to support this claim which should be readily available.

(3) I do not accept this part of his evidence.  There is no evidence as to the amount of the Product which had been ordered, arrived and stored in Hong Kong.  If the plaintiff would claim loss for the whole period of 19 months being the remainder of the term of 24 months as alleged, the plaintiff would have to show that why the Product would have been ordered and stored for 24 months, when the Product’s lifespan would only be 17-18 months after the Product arrived in Hong Kong.  It did not make sense for any supplier like the plaintiff to order excessive stocks, only to find that some of those would be expired before they were delivered or sold.

Conclusion

23.  I hold that the plaintiff has failed to prove its claim that the defendant was in breach of the Contract.  The plaintiff also failed to prove that it had suffered loss as claimed, or at all.

24.  The plaintiff’s claim is dismissed.  Costs shall follow the event.  I therefore make an order nisi that the plaintiff do pay the costs of the defendant including all costs reserved, which shall become absolute after 14 days from the date of judgment if there is no application to vary the order nisi.