KINNEX INTERNATIONAL LTD v. KINGPIN TRADING LTD

DCCJ 1546/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1546 OF 2012

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JUDGMENT

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1.  The plaintiff and defendant both claim against each other for damages sustained as a result of a breach of an agreement to sell household goods to third parties.

2.  On the first day of trial, counsel for the plaintiff applied to amend the Reply and Defence to Counterclaim.  After hearing submissions from counsel, I refused the application with costs reserved.  Reasons for the decision were reserved and are now set out below in this judgment.

Background

3.  The following facts are not disputed between the parties:-

1) Li Siu Keung (“Li”) is the director of the plaintiff (“Kinnex”) and Ho Yiu Wing (“Ho”) is the director of the defendant (“Kingpin”).

2) On 9 May 2011, Kinnex and Kingpin agreed to incorporate a new company (“the New Company”) for the purposes of producing and selling goods to third parties.

3) The terms of the agreement are as set out in paragraphs 2(a), (c) - (f), (h) and (j) in the Re-Amended Statement of Claim.

4) The first customer of the New Company is VanGo Convenience Store owned by China Resources Vanguard (Hong Kong) Company Limited (“VanGo”).

5) In or around July 2011, Kingpin instructed Kinnex to issue purchase orders (“the Purchase Orders”) to produce 6 batches of goods (“the Goods”) to be sold to VanGo. Kingpin further instructed Kinnex to prepare the artworks on behalf of the New Company.

6) The Goods were produced and delivered to VanGo. The Goods included rice cookers, garment steamers, kettles, body massagers, toasters, and neck and shoulder massagers.

7) On or about November 2011, VanGo returned the unsold Goods to Kingpin.

8) On 2 November 2011, Kinnex sent an invoice to Kingpin demanding payment of 55% of the total costs of the 6 Purchase Orders.

9) On 4 December 2011, Kingpin sold the unsold Goods under auction at a price of HK$170,000. The storage costs of the unsold Goods incurred up the date of the auction amounted to HK$66,090.

10) On 15 December 2011, Kinnex sent 3 debit notes to Kingpin and asked them to settle the same. 

11) On 17 December 2011, Kinnex sent a letter to Kingpin purportedly terminating their agreement.

4.  All matters agreed between the parties during May and July 2011 shall be referred to collectively as “the Agreement”.

5.  Kinnex claims Kingpin breached the Agreement on 4 grounds:-

1) On or about 22 July 2011, there was an agreement between the parties that Kingpin would pay 55% of the production costs of the goods ordered under the 6 Purchase Orders.  Kingpin agreed to settle its share of the production costs within 30 days from the date when the Purchase Orders were issued.  Kingpin failed to settle the production costs on time.

2) Pursuant to the agreement mentioned above and due to Kingpin’s failure to pay 55% of the 6 Purchase Orders on time, Kinnex issued 3 debit notes.  Kingpin failed to settle the said debit notes.

3) Kingpin’s duty was to obtain and provide Kinnex with a copy of the sales reports upon receipt of the same from VanGo and a copy of the sales contract Kingpin signed with VanGo (“the Consignment Agreement”).   Kingpin failed to provide Kinnex with the same.

4) Kingpin failed to distribute 45% of the sales profit to Kinnex. 

6.  Kingpin counterclaims against Kinnex for breach of the agreement on the following 3 grounds:-

1) Kingpin never agreed to pay the 55% of 6 Purchase Orders within 30 days from the date of issuance.  Furthermore, Kinnex demanded Kingpin settle the entire sums set out in the 6 Purchase Orders instead of 55% of the total sum.  Kinnex’s demand for payment of the entire sums of the 6 Purchase Orders was a breach of the Agreement.  

2) The Agreement between the parties was that all costs and expenses would be paid on an Open Book Arrangement, that is, Kinnex was required to provide all invoices, receipts and vouchers before it could claim reimbursement of such sums (see paragraph 6(a) of the Re-Re-Amended Defence and Counterclaim).  However, other than the 6 Purchase Orders, Kinnex failed to provide any supporting documents to show they had incurred the expenses claimed.

3) On or about 29 November 2011, Kingpin calculated the outstanding sums to Kinnex. After deducting the expenses incurred by Kingpin, Kingpin offered to pay a sum of HK$220,102.02 to Kinnex. However this payment was wrongfully rejected by Kinnex.

Reasons for refusing the amendment to the Reply and Defence to Counterclaim.

7.  The application to amend the Reply and Defence to Counterclaim was made orally on the first day of trial without a summons or a draft amendment.

8.  Having heard submissions of counsel, I refused the late application on the following grounds:

1) On 20 January 2015, I granted leave to Kinnex to re-amend the Amended Statement of Claim. I gave further consequential directions for amendments to pleadings including granting leave to Kinnex to amend its Reply and Defence to Counterclaim. Kinnex chose not to amend its Reply and Defence to Counterclaim despite leave being granted.

2) The application was made on the first day of trial. Despite the numerous directions hearings and the pre-trial review held before myself 2 months before trial, no mention was ever made of Kinnex’s intention to amend the Reply and Defence to Counterclaim. No good reason was provided by Kinnex as to why the application to amend was made at such a late stage of the proceedings.

9.  By reason of the matters set out above, I found there was no good reason to grant the late application for amendment. I therefore refused the late application for amendment.

The Issues

10.  The issues of this case are as follows:-

1) What were the terms of the agreement?

a) Was Kinnex obliged to provide vouchers or other supporting documents before it could claim reimbursement of expenses and/or production costs?

b) Did Kingpin agree to settle the 6 Purchase Orders within 30 days of issuance?

2) Whether the parties breached the agreement?

a) Whether Kingpin failed to provide a copy of the Consignment Agreement and the sales reports to Kinnex?

b) Whether Kingpin failed to distribute 45% of the sales profit to Kinnex?

c) Whether Kinnex did demand Kingpin pay for the whole sums set out in the 6 Purchase Orders?

3) What is the quantum of damages to be awarded to the successful party?

Was Kinnex obliged to provide vouchers or other supporting documents before it could claim reimbursement of expenses and/or production costs?

11.  In its Reply and Defence to Counterclaim at paragraph 8, Kinnex denies the parties agreed to cooperate on an Open Book Arrangement as defined in paragraph 6(a) of the Re-Re-Amended Defence and Counterclaim and instead put its case as follows:

“Paragraph 6(a) is denied. The Plaintiff avers that the [sic] all costs to be incurred by the Parties, in order to be claimable, must be pre-agreed by the Parties. However, only relevant supporting document insofar as to reasonably prove such costs has been incurred is to be provided to the other party (the “Open Book Arrangement”).”

12.  However the pleaded case is directly contradictory to the emails exchanged between Kinnex and Kingpin.  On 25 July 2011, Kinnex sent an email to Kingpin stating the following:-

“ . . . Per our teleconv today, note for all purchases of Moose brand products, Kinnex will acted on behalf of you and I, or thereafter a company (or Moose Ltd.) established among us. Kinnex will not be responsible for risks of defraud, bankrupt, quality inspection, administration and logistic costs, or similar costs, as may be incurred during the course of purchase. Kinnex will charge a finance costs of 2% over the purchase price and remittance by Moose Ltd shall be within 30 days from the date of issuing the PO. . . .”

13.  On 25 July 2011, Kingpin sent an email in reply stating:-

“As you know, we in the course of customer relationship management we incur expenses in salesmen travelling, seasonal gifts (Mid autumn\, Festival, X’mas, Ch [sic] New Year etc) and entertainment with the customers. On our internal accounts these expenses represent 3.8% of our sales turnover. This will be charged to Moose Limited. Pls note, I will draft the M/A for your review. Thx.”

14.  On the same day, Kinnex sent an email stating:-

“I agree with the charges of direct expenditure, including travelling, gifts and entertainments, against Moose Ltd on present of receipts.”

15.  Finally in reply, Kingpin sent an email confirming the parties’ understanding by stating:-

“Yes, we agreed to co-operate on open book basis. That should apply to both sides and all expenses. Only then can we work together with mutual trust.”

16.  The email correspondence shows Kinnex agreed all expenditure should only be charged to the New Corporation on presentation of receipts. This is further confirmed in Li’s witness statement at paragraph 16.

17.  Having considered the email correspondence and evidence of the parties, I accept Kinnex did agree to cooperate with Kingpin on an Open Book Arrangement such that any direct expenditure was only chargeable upon presentment of receipts or supporting documents. 

18.  Hence I find Kinnex was obliged to provide receipts, vouchers or other supporting documents before it could charge the expenses to the New Company or claim reimbursement.  I accept Ho’s evidence that the parties agreed to cooperate on an Open Book Arrangement as defined in paragraph 6(a) of the Re-Re-Amended Defence and Counterclaim.

Did Kingpin agree to settle the 6 Purchase Orders within 30 days of issuance?

19.  I have also considered the evidence of Li and Ho on this matter.  Having considered the evidence, I found the evidence of Ho to be the more inherently probable version.  I set out my reasons below. 

20.  Firstly, there is no documentary evidence to support Li’s assertion that the actual payment of the Purchase Orders did not follow the stipulated payment terms.  Li conceded he could not remember which Purchase Order’s payment term was varied and how the payment terms were varied. Since Li’s assertions are vague and without supporting documentation, I do not accept Li’s contention.  I find the payment terms of the Purchase Orders are as stipulated in the Purchase Orders.

21.  Secondly, it makes no commercial sense for Kingpin to agree to pay the Purchase Orders within 30 days of issuance (“the 30 day payment term”).  

22.  All Purchase Orders were issued on 18 July 2011 with different payment terms and delivery dates as follows:-

a) The 1^st Purchase Order (PB110702): The estimated time of delivery of the goods was by 15 August 2011. The payment terms were 30% deposit and 70% balance against BL copy.

b) The 2^nd Purchase Order (PB110703): The estimated time of delivery of the goods was by 15 August 2011. The payment terms were 20% deposit and 80% balance against BL copy.

c) The 3^rd Purchase Order (PB 110704): The estimated time of delivery of the goods was by 15 September 2011.  The payment terms were 30% deposit and 70% balance against BL copy.

d) The 4^th Purchase Order (PB 110705): The estimated time of delivery of the goods was by 15 September 2011.  The payment terms were 30% deposit and 70% balance against BL copy.

e) The 5^th Purchase Order (PB 110706): The estimated time of delivery of the goods was by 15 October 2011.  The payment terms were 30% deposit and 70% balance against BL copy.

f) The 6^th Purchase Order (PB 110707): The estimated time of delivery of the goods was by 10 October 2011.  The payment terms were 30% deposit and 70% balance against BL copy.

23.  Kinnex’s obligation to pay the remaining balance of the Goods ordered pursuant to the 3^rd and 4^th Purchase Orders did not arise until after mid-September.  Similarly, Kinnex’s obligation to pay the remaining balance for the Goods ordered under the 5^th and 6^th Purchase Order did not arise until after mid-October 2011.  It is evident that the Goods in the 3^rd to 6^th Purchase Order were estimated to be 2 to 3 months from the date of the issuance of the Purchase Order.  I further note the Goods under the 1^st Purchase Order were not delivered until 16 September 2011 (see paragraph 8 Re-Amended Statement of Claim). 

24.  If the parties did agree to the 30 day payment term, Kingpin was obliged to pay for all Purchase Orders by 18 August 2011 irrespective of whether Kinnex has paid for all the goods and irrespective of whether the goods have been delivered by the manufacturers.  In such circumstances, Kingpin would have unnecessarily assumed the risk of overpaying or pre-paying Kinnex. There is simply no commercial incentive for Kingpin to assume such a risk.  This rationale is made explicit by Kingpin in its email dated 9 November 2011, where Kingpin adamantly denied any obligation to pay Kinnex in advance.  Hence I find it improbable Kingpin would agree to pay all Purchase Orders within 30 days of issuance regardless of Kinnex’s payment obligations under the Purchase Orders.

25.  Thirdly, the 30 day payment term does not accord with the parties’ agreement to cooperate on an Open Book Arrangement and a Financing Arrangement.  

26.  The emails exchanged between the parties during 22 to 25 July 2011 are set out above and I shall not repeat the contents.  The content of the emails, in particular the email sent by Li on 25 July 2011, is contradictory to the assertion that Kingpin agreed to settle the Purchase Orders within 30 days of issuance.  The emails show Kingpin did not accept the 30 payment term as proposed by Kinnex.  On the contrary, Kingpin reiterated the parties’ agreement to cooperate on an Open Book Arrangement, which was subsequently confirmed by Li.

27.  Moreover, in paragraph 9 of the Reply and Defence to Counterclaim, Kinnex admits the parties agreed to a Financing Arrangement:

“the parties would first finance their own costs to be incurred in performing their respective duties . . .”

(See also paragraph 6(b) Re-Re-Amended Defence and Counterclaim).  

28.  Kinnex further avers in the Reply and Defence to Counterclaim:  

“that costs financed by the Party under the Financing Arrangement shall be reimbursed within 30 days from incurring of such sum subject to the Open Book Arrangement. . . ” (own emphasis added)

29.  It is clear that the parties intended for each party to pay the costs of discharging their duties and then be reimbursed after producing the relevant vouchers or supporting document to prove they incurred the expenditure.  The assertion of the 30 day payment term is contrary to the Agreement.

30.  Fourthly, Li’s explanation as to why the parties agreed on the 30 day payment term is contradictory to the documentary evidence. Li explained the parties were unsure of the delivery dates of the Goods and therefore agreed on 30 days being a reasonable period of time for Kingpin to settle the amounts due therein.  However the Purchase Orders clearly set out the estimated date of delivery of the various batches of goods. The Purchase Orders were issued on 18 July 2011 and the agreement between the parties on the 30 day payment term was purportedly reached on 22 July 2011.  By the time the parties discussed and agreed to the 30 day payment term, the parties knew exactly the estimated delivery dates of each batch of goods because the estimated delivery dates are clearly written in the Purchase Orders.    Hence Li’s assertion that the parties were uncertain as to the delivery dates is contrary to what is written in the Purchase Orders. Moreover, for reasons given above, I found it improbable Kingpin would, in view of the estimated delivery dates, agree to pay Kinnex in advance.

31.  Counsel for Kinnex submitted Ho’s evidence in court on the reconciliation of costs against production costs is contrary to Kingpin’s pleaded case.  I do not accept such submissions.  Ho all along explained the parties agreed to reimbursement of costs on an Open Book Arrangement.  The reconciliation agreement operates on the Open Book Arrangement to set off the production costs with the costs incurred by the parties.  When Ho was asked when the reconciliation agreement was reached, he honestly conceded he could not remember but guessed it was around July or August 2011.  The email sent by Ho on 23 November 2011 indicated Kingpin’s willingness to pay, subject to the Open Book Arrangement.  This is also consistent with the Financing Arrangement as agreed by Kinnex in its Reply and Defence to Counterclaim. As previously stated, Ho had honestly conceded he forgot the exact date. Moreover, I note his evidence is consistent with his assertion that the parties agreed to cooperation on an Open Book Arrangement and a Financing Arrangement. Hence although Ho was unable to remember the correct date of the reconciliation agreement, I do not find this to be a material discrepancy so as to cast doubt on his credibility and reliability. Furthermore, I do not find Ho’s evidence in this regard to be contradictory or inconsistent with Kingpin’s pleadings.

32.  Having regard to the matters set out above, I preferred the evidence of Ho and find that Kingpin did not agree to pay for the Purchase Orders within 30 days from the date of issuance.

Whether Kingpin had failed to provide a copy of the Consignment Agreement and the sales reports?

33.  Having considered the evidence of the parties and the submissions of counsel, I accept Ho’s evidence he provided a copy of the Consignment Agreement to Kinnex.

34.  Ho explained any reasonable businessman would not enter into a business arrangement if he did not know the profit margin of the business. Similarly, it would not make commercial sense for Kinnex to agree to cooperate with Kingpin without knowing the profit margin of the transactions and profit to be made by the parties from the Goods. It would therefore be unreasonable for Kinnex to continue to procure the sale and delivery of the Goods in absence of a copy of the Consignment Agreement.

35.  I am in agreement with Ho’s observations. If Kinnex had not received a copy of the Consignment Agreement, it would not know how much VanGo would charge for selling the Goods and whether VanGo would charge for other expenses. This information is crucial when sourcing the manufacturer of the Goods because the price paid to the manufacturers will directly affect the profit margin and thereby affecting the profit to be ultimately distributed to Kinnex and Kingpin. Without the terms of the Consignment Agreement, it would be impossible and impracticable to negotiate with the manufacturers the price of the 6 Purchase Orders.  Hence, Kinnex must have been aware of the terms of the Consignment Agreement before it issued the 6 Purchase Orders with the various manufacturers. In all the circumstances, I find Ho’s version of events and his explanation to be more probable than that asserted by Li.

36.  In respect of disclosing sales report, Kinnex pleads Kingpin’s duty in this regard to be as follows: “Where the contemplated sales with VanGo is by consignment, the defendant would deliver the sales reports to the plaintiff upon receipt of the sales reports from VanGo (VanGo’s Sales Report).” (own emphasis added) (See paragraph 2(j) Re-Amended Statement of Claim)

37.  Ho does not deny Kingpin has a duty to obtain the same and provide copies to Kinnex.  However Ho explains that despite his best efforts, he was unable to obtain the same from VanGo.  The following email correspondences shows Kingpin’s efforts to obtain the sales reports as well as keeping Kinnex informed of the payment records sent by VanGo:-

1) By an email dated 8 July 2011, Kingpin sent to Kinnex the details of the 1^st, 2^nd, and 3^rd redemption program as discussed with VanGo.  The attachment contains information relating to the retail price of the Goods, costs to VanGo and gross profit ratio (see Bundle C1, page 380-387).

2) On 10 October 2011, Kingpin received payment from VanGo in the sum of HK$23,735.20 (Bundle C2, page 673).

3) By email dated 27 October 2011, Kingpin sent an email to Kinnex attaching VanGo’s return note for the 1^st redemption program (Bundle C2, page 591).

4) On 28 October 2011, Kingpin forwarded to Kinnex via email VanGo’s recent payment record.  The same was acknowledged by Li (Bundle C2, page 597-598).

5) On 10 November 2011, Kingpin sent an email to Kinnex informing them they were awaiting payment details from VanGo in respect of the payment of HK$23,735.20.  Attachments included a statement of accounts calculating the outstanding amount to be paid to Kinnex (Bundle C2, page 648-655)

6) On 16 November 2011, Kingpin sent an email to VanGo asking for an updated payment list for the payment of HK$23,735.20.  In particular, Kingpin asked for information relating to the commission rate, model quantities, and model number to be included in the payment list.  VanGo replied on the same day asking for a few days to prepare the breakdown (Bundle C2, page 675-676).  A copy of the payment list provided by VanGo is shown at Bundle C2 page 674.

7) On 29 November 2011, Kingpin informed Kinnex they were ready to issue a cheque to Kinnex in the sum of HK$220,102.20 and attached a statement of accounts (Bundle C2, page 691-692).

8) On 7 December 2011, Kingpin asked VanGo for the sold quantity of 2 specific items (Bundle C2, page 693).

9) On 16 December 2011, Kingpin chased VanGo for an updated payment list for the sum of HK$23,735.20 and HK$45,002.40 (Bundle C2, page 700).  The payment list provided by VanGo for the payment of HK$45,002.40 is found at Bundle C2, page 704.

10) On 17 December 2011, Kinnex terminated the partnership agreement with Kingpin.

11) On 2 March, 8 March and 25 May 2012, Kingpin continued to chase VanGo for the payment details relating to the sums of HK$23,735.20 and HK$45,002.40 (Bundle C2, page 736, 750, and 771 respectively).

38.  The above events show Kingpin to repeatedly chase VanGo for proper sales reports since the payment records sent by VanGo were insufficiently particularized. However, VanGo failed to provide the proper sales reports to Kingpin. The term of the Agreement was for Kingpin to provide the sales reports after it obtained the same from VanGo. However due to the lack of any proper sales reports from VanGo, Kingpin’s duty to provide the sales report has yet to arise. Therefore I do not find Kingpin to have breached its duty to provide sales reports. 

Whether Kingpin failed to distribute 45% of the sales profit to Kinnex?

39.  It is not disputed that on 29 November 2011, Kingpin had offered to distribute a sum of HK$220,102.02 to Kinnex as being its share of profit (Bundle C2, pages 691-692). This sum was not accepted by Kinnex.

40.  After Kingpin received further payment from VanGo, it revised the sum to HK$223,317.11 and informed Kinnex by an email dated 18 January 2012 (see Bundle C2, pages 714-717). This sum was also rejected by Kinnex (See Bundle C2, page 718).

41.  Kinnex disagrees with Kingpin’s quantification of the profit to be distributed.  In particular, Kinnex disputes whether Kingpin is entitled to deduct the expenses as listed in its statement of accounts. Furthermore, Kinnex raises 3 sub-issues as follows:-

1) The parties agreed that profit would be calculated and distributed on a monthly basis.

2) Kingpin was not entitled to charge for the expenses relating to container charges because there was no consent between the parties in respect of the container charges.  

3) Kingpin should have mitigated its losses and could have given 45% of the Goods directly to Kinnex instead of storing the Goods and subsequently auctioning the Goods at a low price.

42.  Having considered the evidence and submissions of counsel, I do not accept Kingpin breached the Agreement by failing to distribute 45% of the profits.

43.  The documentary evidence clearly shows Kingpin was willing to distribute profit to Kinnex:  

1) On 7 October 2011, Kingpin received Kinnex’s invoice for the payment of all 6 Purchase Orders. On the same day Ho sent an email to Kinnex asking for an update on all direct expenses incurred by Kinnex in respect of the Goods.  Ho indicated that after verifying the Purchase Orders and after deducting Kingpin’s expenses, Kingpin would pay 55% of the balance (Bundle C1, page 575).

2) On 8 November 2011, Kingpin sent an email to Kinnex indicating they were willing to pay for the 1^st redemption program (Bundle C2, page 638).

3) On 9 November 2011, Kingpin sent an email to Kinnex confirming that all reimbursements were on a voucher basis (Open Book Arrangement).  Ho confirmed Kingpin was willing to pay its share but had no obligation to make advance payments to Kinnex in respect of the Purchase Orders since Kinnex had only paid for 2 of the Purchase Orders at the time of the email.

4) During the period from November to December 2011, Kingpin sent a number of letters and emails asking Kinnex for receipts to prove expenditure incurred so that distribution of profits could be made.  However Kinnex had ignored all requests (See Bundle C2, pages 649, 687, 689-690).  It is under these circumstances Kingpin proceeded to calculate the profits to be distributed and arrived at the figures of HK$220,102.02 and HK$223,317.11.

44.  The emails set out above show Kingpin had all along expressed its willingness to distribute Kinnex’s share of profits. However Kingpin’s offers were rejected by Kinnex. In all the circumstances, I do not accept Kingpin had failed to distribute 45% of the profits from the Goods to Kinnex.

45.  Counsel for Kinnex submitted if the court finds the Agreement is still effective, Kingpin’s continued failure to distribute the profits to Kinnex amounts to a breach of contract. However that is not Kinnex’s pleaded case. Paragraph 20B of the Re-Amended Statement of Claim pleads the following:

“Alternatively, if it is found that the Plaintiff’s purported acceptance of the Defendant’s repudiation of the Agreement was wrongful (as pleaded in paragraphs 20(b) and 31(b) of the Amended Defence and Counterclaim), the Agreement is still subsisting. The Plaintiff is entitled to 45% of the total sales revenue of the Goods, 55% of the production costs of the Goods, 55% of total other disbursements (as particularised in (Paragraph 20 above) and 45% of the unsold Goods or the proceeds of sale thereof (as pleaded in Paragraph 20A above) which are due and owing by the Defendant but have remained unpaid.”

46.  I therefore do not accept counsel’s submission.

47.  In respect of whether the profit was to be calculated on a monthly basis, I noted the email correspondence does not support Li’s assertion that this was agreed between the parties.  On the documentary evidence before me, there is no correspondence indicating the parties had agreed to calculate the profits on a monthly basis. Kinnex never sent any emails to Kingpin to chase for an account for profits on a monthly basis.  Having considered the evidence, I prefer the evidence of Ho as being the more probable version of events.  I do not accept there was an agreement to distribute the profits on a monthly basis.

48.  In respect of the issue relating to mitigation of damages, this has not been pleaded by Kinnex.  It is trite law that if a party wishes to set up a positive case of failure to mitigate loss or damage, it must be specifically pleaded: see paragraph 18/8/17AA Hong Kong Civil Procedure 2015, Vol 1.  Since the issue is not pleaded, I fail to see how Kinnex can raise the issue of mitigation by way of submissions. I therefore do not accept counsel’s submissions on the issue of mitigation.

49.  In respect of whether Kingpin is entitled to charge for container charges, I note the following:-

1) On or about 7 September 2011, Kingpin notified Kinnex the delay in shipment may cause extra unexpected charges including rental fee of container etc (see Bundle C1, page 487).  Li responded to the same email saying he would bear this cost personally (Bundle C1, page 488).

2) On 26 October 2011, Kinnex sent an email discussing the delay in the shipment of toasters, kettles and massager.  Kinnex was clearly aware of possible warehouse charges in the event VanGo did not accept the delivery of the goods to their warehouse (Bundle C2, page 588).

3) On 2 November 2011, Kingpin informed Kinnex that they had to collect the returned Goods and such goods needed to be placed in a 40 feet container.  The cost of rental of the container was set out in the email and Kinnex was specifically asked to confirm the matter or provide other suggestions (Bundle C2, page 623).

4) On the same day, Kinnex agreed to the rental of a 40 feet container and the price for the rental as quoted by Kingpin (Bundle C2, page 624).

5) Subsequently, Kingpin rented one 40 feet container and one 20 feet container to store the goods (see Bundle C2 page 717).  Ho explained since one container was insufficient to store all the goods, they needed to rent 2 containers.  Instead of renting two 40 feet containers, Ho rented one smaller container to reduce the costs of storage.

50.  By reason of the email correspondence set out above, I find Kinnex had in fact agreed to the container charges.  I accept Ho’s evidence that in fact the parties have an understanding that container charges would be incurred.

51.  Although there was no specific agreement to rent a 20 feet container, it was in the best interest of the parties to rent a smaller container if it could reduce costs.  Since Kinnex agreed to the storage costs at the price of a 40 feet container, I fail to see how Kinnex can now object to the storage costs being lowered by renting a smaller container. I do not find Kinnex’s objection to the container charges tenable.

Whether Kinnex did demand Kingpin to pay for the whole sums set out in the 6 Purchase Orders?

52.  Having considered the email correspondence, it is evident Kinnex demanded Kingpin to settle the whole sum of the 6 Purchase Orders. I note it is conceded by Kinnex in its Reply and Defence to Counterclaim as well as in Li’s evidence that they only seek a payment of 45% of the whole sum of the 6 Purchase Orders.  However the emails sent by Kinnex are directly contradictory to the pleaded concession.

53.  The email dated 29 December 2011 and documents attached show Kinnex demanded Kingpin pay a total sum of HK$508,112.93. This sum included the total sum of the 6 Purchase Orders and the charges set out in the 3 debit notes dated 28 December 2011 which included gift box charges and various art work charges.  There was no apportionment made in the attached invoices or debit notes. Hence this demand is in breach of the parties’ agreement to share the profits and expenses on a 55:45 ratio.

54.  Moreover, Kinnex demanded settlement of charges in the 3 debit notes are directly in conflict with the terms of the agreement and the agreed duties of the parties. In the Re-Amended Statement of Claim, Kinnex pleaded its duty was to design the artworks such including gift boxes (See paragraph 2(c)(ii) Re-Amended Statement of Claim). This duty is reflected in the email dated 7 May 2011, where Kinnex specifically stated: “Kinnex can bear the costs and take care of the gift box, silk screening, rating label and instruction manual, QA spec . .  etc.” (See Bundle C1 page 342). In such circumstances, the demand for the payment of HK$508,112.93 is in breach of the Financing Arrangement.

Summary

55.  By reason of the matters set out above, I find Kingpin did not breach the Agreement and Kinnex wrongfully treated the Agreement as being repudiated. Hence I find on a balance of probabilities Kinnex is unable to prove its claim against Kingpin.

56.  For reasons given herein, I find Kinnex to have breached the Agreement. Since Kingpin has not proved any actual loss or damage by reason of Kinnex’s breach of Agreement, I shall award nominal damages in the sum of $100.

57.  Kingpin concedes that 45% of the profit made from the selling of the Goods should be distributed to Kinnex and asks for an account of profits to be made.  Having regard to Kingpin’s duty to account to Kinnex under the Agreement, I am of the view there should be an order for taking an account of profits.

Orders

58.  I make the following orders:

1) The plaintiff’s claim be dismissed.

2) The defendant’s counterclaim be allowed.

3) A declaration be made that the plaintiff had breached the Agreement.

4) Nominal damages be awarded to the defendant in the sum

5) An order for account to be taken to ascertain the sums due and owing to the parties pursuant to the terms of the Agreement as found by this court.

6) The account of profits shall be taken and determined by the trial judge of this action.

7) The defendant shall take out a summons for the necessary directions for the account of profits within 28 days hereof. Further directions will be given at the directions hearing.

59.  I make the following costs order nisi:

1) The costs of the plaintiff’s application to amend the Reply and Defence to Counterclaim be to the defendant to be taxed if not agreed, with certificate for counsel.

2) The costs of the main action and the counterclaim be to the defendant’s to be taxed if not agreed, with certificate for Counsel. 

60.  Unless any party applies to vary the costs orders within 14 days hereof, the costs order shall become an order absolute.