SUNWILL LTD. v. MOK TOA SUN

HCA 15870/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15870 OF 1998

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J U D G M E N T

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1. This is a claim by the plaintiff for delivery up of a set of moulds made by the defendant on its behalf, and, it is claimed, wrongfully retained by him, and damages representing the costs of making replacement moulds.

2. The plaintiff is a company that carries on business in the manufacture and marketing of toys. The defendant also operates as a manufacturer of toys and, prior to the events which give rise to these proceedings, had had dealings with the plaintiff in manufacturing toys for them.

3. One of the plaintiff's customers is called Mr Christmas Ltd, and in December 1996 requested the plaintiff to manufacture a set of toys called a mini carousel, or Christmas merry go round (the carousel). The plaintiff was also sent the design drawings and specifications. The plaintiff in turn sent these to the defendant who was asked to quote a price for manufacturing the moulds for making the toys and for making the toys themselves. In the statement of claim only the quotation for the moulds is pleaded, but from the defendant's evidence and the quotation itself, it is clear that he was asked to quote for both, which he did on 20 January 1997, giving a figure of $376,000.00 for making the moulds, which was later negotiated down to $357,200.00, and $40.06 for the manufacture of each carousel.

4. An agreement for the manufacture of the moulds was made in February 1997 and a timetable of about 50 days set by the defendant. The plaintiff paid to the defendant the sum of $178,600.00 in April 1997, being half the agreed price for the moulds. When the other 50% should be paid is one of the matters in issue here, and, although it is conceded by the plaintiff that credit must be given in these proceedings for it, it has not yet been paid. The moulds were completed in July 1997 and samples of the toys made for approval by the plaintiff. In or about August and September 1997 the plaintiff placed an order for 12900 pieces of the carousel, which the defendant manufactured and shipped according to the plaintiff's instructions. Invoices for this were sent to the plaintiff and settled except for a sum of $11,876.61 outstanding for transport costs, which the plaintiff also concedes.

5. Meanwhile, in April 1997, the plaintiff had ordered from the defendant 3282 pieces of another item, an advent tree, to be manufactured and sent to a customer in France in July. However, in early July the plaintiff told the defendant to withhold shipping the order, which the defendant had already produced and packed, and later that month the order was cancelled and replaced by a similar order to a customer in Canada. As a result of this the defendant had to change the packing of this order, and claims to have incurred additional costs of $20,867.00 in packaging expenses which the plaintiff agreed to pay, which is also the subject of his counterclaim.

6. The plaintiff maintains that the defendant agreed to waive any claims under this order, and, indeed, no details of the defendant's claim were given to the plaintiff until relations between them began to deteriorate in December 1997. There were clearly at the time continuing amicable business relations between the parties, and the defendant admits that he did not consider the extra costs a substantial sum. In addition to this, the invoice for this order, which was settled by the plaintiff in September 1997, did not include any reference to these charges. In the circumstances I consider it likely that the defendant did agree to waive these costs, and I reject his claim for it here.

7. Returning to the matter of the carousel, on 3 December 1997 the plaintiff sent a fax to the defendant asking him to produce 25 pieces of the toy which the customer, Mr Christmas, required for an exhibition. The defendant's wife informed the plaintiff that the quantity was too small as it was their busy time of year, so the plaintiff increased the order to 100 pieces and asked for them to be produced by the end of the month. However, the defendant failed to confirm the order with the plaintiff, he says because he was too busy, so the plaintiff on 16 and 17 December wrote to the defendant indicating that they wished the moulds returned, failing which they would have to order a new set, and that they were prepared to settle their outstanding account. In reply the defendant said they were still proceeding with the 100 carousels, understood from the faxes that the plaintiff wished to cease all business dealings with them, and were preparing an account.

8. On 19 December the plaintiff wrote requesting an appointment at the defendant's factory on 23 December to collect the moulds and settle the balance owing, and on 20 December saying that there was no longer any need to produce the 100 carousels as they wished to have the moulds returned. There was again no confirmation from the defendant that the moulds could be collected on 23 December, but on 24 December sent an account to the plaintiff claiming not only the balance due on the moulds, but interest, the sum of $80,000.00 "development and planning charges", and the other items included in the counterclaim herein, and requiring payment by bankers order. In return for this he said that he would hand over the moulds. The claim for interest and the development and planning charges is not now pursued by the defendant.

9. The plaintiff replied rejecting the defendant's figures and giving their own calculations and again demanding the handover of the moulds. However, the response of the defendant was to say that he had to have the consent of Mr Christmas Ltd, as they were the owners of the moulds and the copyright in them, and suggested a meeting of all parties. Although the plaintiff again attempted to arrange a time to resolve the matter, the defendant's insistence on the participation of Mr Christmas Ltd meant that no agreement was reached and the defendant did not return the moulds.

10. While it is true that, under the master agreement that the plaintiff had with Mr Christmas Ltd, the latter did own the moulds and the copyright, and the defendant had been made aware of this, the plaintiff was clearly acting as the agent of Mr Christmas Ltd throughout and was quite entitled to claim the return of the moulds to them. In the circumstances, the requirement of the defendant at that time of the consent of Mr Christmas Ltd was in my view unnecessary, and apparently designed to create difficulties for the plaintiff.

11. A letter from the plaintiff's solicitors was finally sent to the defendant on 10 January 1998 claiming return of the moulds and the sum of $420,000.00, which they said was the cost of manufacture of a new set of moulds. The response from the defendant's solicitors was to demand the sum now claimed in the counterclaim, and indicate a willingness to return the moulds upon settlement of that sum. The excess over the sum now conceded by the plaintiff was just $24,696.12, and it is worth noting that, had the plaintiff been prepared to pay that sum, or even negotiate it being held by a stakeholder while the dispute was settled, they would have had the moulds immediately and have no need to spend time and a large amount of money acquiring new ones, and, I might add, indulging in lengthy and expensive litigation. But I will return to this matter later.

12. The first issue here is whether the defendant was entitled to retain the moulds, and still retain them, until payment by the plaintiff. Miss Fung, for the defendant, submits that he has a statutory lien under sections 41 and 43 of the Sale of Goods Ordinance, Cap 26 as an unpaid seller where the goods have been sold without any stipulation as to credit. There is no doubt that the defendant has not been paid, and had not been paid by December 1997 when this dispute arose. I accept the evidence of Miss Mok, the defendant's daughter who assisted him in his business, that she telephoned a Mr Chan of the plaintiff company, and Mrs Fung, the wife of Mr Fung Yiu Kin, the director of the plaintiff, who was their only witness, in October 1997 requesting payment of the balance for the moulds. Mr Fung was in no position to deny these calls as they were not made to him, and neither his wife nor Mr Chan were called to give evidence. If there had been any understanding as to credit before that, it ceased from that moment. Indeed, Mr Fung's evidence in his witness statement was that the understanding was that the plaintiff would pay when called upon to do so.

13. However, while the defendant must have a lien until payment, it is only in respect of payment for the goods themselves, not other charges and interest unrelated to them. Secondly, it would seem unjust for a seller to claim a lien while making it difficult, if not impossible, for the buyer to pay and collect the goods. I am satisfied that the defendant, in December 1997 and early January 1998, was offered ample opportunity by the plaintiff to meet for settlement at least of the balance owed on the moulds, and to hand them over. He either failed to respond to the proposed arrangements, or created obstacles such as the alleged necessity of the consent of Mr Christmas Ltd. In any event, Mr Christmas Ltd informed the defendant in early January 1998 that he should pass the moulds to another factory, with the agreement of the plaintiff.

14. The plaintiff was clearly trying to pay, but was not given an opportunity by the defendant. On that basis, the defendant cannot continue to claim a lien on the moulds after, at the latest, 23 December 1997. The plaintiff must therefore succeed in its claim for delivery up of the moulds, in the possession or ownership of which the defendant has no rights.

15. The next issue is the plaintiff's claim for damages in the sum of $420,000.00 claimed to have been paid to Kimco Ltd (Kimco) for the production of new moulds.

16. I have to say at the outset that there are a number of matters surrounding this transaction and the evidence of it which cause me some concern. The plaintiff claims to have entered into an agreement with Kimco in January 1998, although precisely on what date is not revealed. The only documentary evidence at that time is a quotation dated 10 January 1998 from Kimco. There is no evidence of any negotiation by the plaintiff, nor of delivery to Kimco of the designs and specifications, and none of any order being formally made. Bearing in mind that when the defendant was given the order in 1997, he had been sent the designs in December 1996, gave his quotation in January 1997, and the contract was made in February 1997 with a time estimate of 50 days for manufacture. All we have here is a quotation. Even assuming that the plaintiff received the quotation the same day by hand, it seems extremely odd that its solicitors should have been able to write to the defendant the same day saying that the plaintiff had no alternative but to have ordered a new set of moulds and quoting the price agreed for the new order. Mr Fung said that his agreement with Kimco was on a friendly informal basis, but even so the deal seems to have been struck with unlikely speed.

17. The next unusual aspect of this order was that there was no invoice for the moulds until over 11 months later, in December 1998, and no payments until January 1999 and July 1999, and then each of only $120,000.00. There is no evidence of any further payments. I would add that the quotation, and the cheque of 11 January 1999, were both put into the plaintiff's notice under the Evidence Ordinance, and a counter notice was served in respect of them. In spite of that, there has been no evidence from the makers of these documents, Kimco Ltd, and Mrs Fung, respectively, and no explanation as to why no evidence has been given. I am accordingly bound to treat them with the gravest suspicion. Other documents have been put in by the plaintiff showing an amount due to Kimco of $420,000.00, and two refer to the carousel, but there is no other documentation regarding this order, no confirmation by oral evidence by anyone from Kimco that it was carried out, no delivery note in respect of the moulds nor any product produced from them, and, indeed, no evidence of any further orders from Mr Christmas Ltd to justify their necessity. This is also a matter about which Mr Fung was clearly not telling the truth in his witness statement when he said that the sum of $420,000.00 had been paid to Kimco. At most the plaintiff has paid $240,000.00, and I have to say that, on the evidence before me, or the lack of it, I am not satisfied that there was a genuine transaction between the plaintiff and Kimco, nor that the plaintiff incurred the cost of $420,000.00 as a result of the defendant withholding the moulds. That part of the plaintiff's claim must therefore fail.

18. The only matter left for consideration is the sum of $3,829.12 claimed by the defendant for materials for the 100 samples of the carousel which the plaintiff cancelled in December 1997. In the counterclaim this is claimed as the cost of materials purchased for the order. However, in his witness statement, the defendant says this:

In fact, I did make an order for the said material later in bulk as I also required the said material for other products.

19. This was confirmed by the defendant in evidence and clearly indicates that the material purchased was not wasted and could be used by him. He cannot therefore now claim the cost from the plaintiff. In any event there is no direct documentary evidence of the purchase, or the cost. In his account rendered to the plaintiff on 24 December 1997, the defendant lists this charge as a cost per piece for the 100 samples at USD 4.96 each, yet the samples have never been delivered, and there is no evidence that they have ever been manufactured. On either basis the defendant's claim must fail.

20. For the above reasons there will accordingly be judgment for the plaintiff on its claim for delivery up of the moulds, and for the defendant on his counterclaim for the sum conceded by the plaintiff, namely $190,475.61.

21. As to costs, it is true that these proceedings were to some extent the result of the defendants' behaviour in December 1997 and January 1998. However, he has been successful on the larger part of his counterclaim, and the plaintiff has failed on a substantial part of his claim. I also refer to what I have said above about the possibility of the parties, and in particular the plaintiff, in dealing with this matter at a very early stage in January 1998 upon receipt of the open offer from the defendant's solicitors. While he was under no obligation to make a payment to which he considered the defendant was not entitled, as indeed I have found he was not, when faced with an opportunity of negotiating when only a modest sum separated the parties, and recovering the moulds almost immediately, and not taking it, I consider the consequences of this litigation should not be visited entirely on the defendant.

22. In the circumstances, I consider it equitable for both sides to bear their own costs, and I make an order nisi, subject to the right of the parties to be heard further on the matter if they wish, that there be no order as to costs.