TRIPLE 8 LICENSING CO LTD v. ASH (HONG KONG) LTD

HCA 1647/2014 and
HCA 2148/2014
(Heard Together)

[2021] HKCFI 917

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1647 OF 2014

________________________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2148 OF 2014

_________________________________

REASONS FOR DECISION

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A.     INTRODUCTION

1.  This is the trial concerning contractual claims against Triple 8 Licensing Company Limited (“T8”) by Highline United Asia Limited (“Highline”), the plaintiff in HCA 2148/2014 (the “2^nd Action”) and/or Ash (Hong Kong) Limited (“Ash HK”, together with Highline, the “Max Parties”), the defendant in HCA 1647/2014 (the “1^st Action”).  The claim is for the unpaid purchase price in respect of certain fashion goods supplied to T8 during 2013 and early 2014.

2.  In summary:

(1)  The claims of the Max Parties are straightforward, the bulk of which concerns the supply of 3,215 pairs Ash branded shoes (“Ash Shoes”) to T8 on 15 January 2014 (under an order known as the “SS14 Order”).  There is no dispute that the relevant goods were supplied to T8 and that no payment was made.

(2)  In defence, T8 claims that more than 10% of the Ash Shoes were defective and hence it was entitled to reject the entire batch of Ash Shoes.

B.     PROCEDURAL HISTORY

3.  As T8 has failed to attend the pre-trial review on 4 May 2018 and no application has been made for restoration within 3 months, its claim in the 1^st Action and its counterclaim in the 2^nd Action has been struck out in accordance with Order 25, rule 1C of the Rules of the High Court.

4.  For the purpose of this trial, the court is only concerned with determining Highline’s claims in the 2^nd Action and if necessary, Ash HK’s counterclaim in the 1^st Action.  The remaining issues are set out in Section D below.

5.  T8’s former solicitors had ceased to act since 24 January 2018. T8 failed to obtain leave to be represented by one of its directors under Order 5, rule 6(2).  

6.  Representative of T8 was absent from the trial. I ordered that the claim in the 2^nd Action do proceed in the absence of T8.

7.  Highline duly called 2 witnesses to testify in support of its claim in the 2^nd Action.

8.  Having considered the Opening Submissions of Highline and the evidence given at the trial, I was satisfied that Highline has proved its case against T8 in the 2^nd Action, and was minded to make an order in terms of the relief claimed in paragraphs 2, 3 and 4 of the prayer for relief in the Amended Statement of Claim in the 2^nd Action.

9.  I further ordered that the costs of Ash HK in the 1^st Action and Highline in the 2^nd Action be paid by T8 with certificate for two counsel, such costs to be taxed on a party and party basis if not agreed.

10.  Reasons for my decision were reserved, which I now give.

C.     BACKGROUND

11.  Both Ash HK and Highline are members of the Max Group of companies which is engaged in the business of wholesale distribution and fashion goods for luxury brands including Ash, French Connection (“FCUK”), Julian Hakes (“JH”).  Much of the background facts as set out below are documented and are largely undisputed.

12.  Between 1 April 2013 and 30 September 2013, Highline entered into 6 distribution agreements with T8 including, for present purposes, the following agreements for Ash or JH branded goods:

(1)  an agreement dated 1 April 2013 appointing T8 as non-exclusive distributor of Ash branded goods in Japan and the Middle East;

(2)  an agreement dated 1 April 2013 (which amongst others) appointing T8 as exclusive distributor of JH branded goods in Hong Kong, Taiwan and Japan (the “JH Agreement”);

(3)  an agreement dated 1 June 2013 appointing T8 as non-exclusive distributor of Ash branded goods in Japan, Saudi Arabia, Russia, Malaysia and Indonesia;

(4)  an agreement dated 30 September 2013 appointing T8 as exclusive distributor of Ash branded goods in Japan.

13.  The only distribution agreement with T8 which was entered into by Ash HK is a distribution agreement dated and signed on 1 September 2013 whereby T8 was appointed exclusive distributor of Ash branded goods for the Philippines for a term of 3 years beginning from 1 September 2013 (“Ash Philippines Agreement”).

14.  As will be dealt with in further detail, between about May 2013 and January 2014, it is not disputed that the Max Parties supplied fashion goods of various brands to T8.

15.  The present dispute was instigated by T8’s failure to pay for three categories of goods supplied by Highline to T8:

(1)  JH branded Shoes (“JH Shoes”) from July 2013 onwards;

(2)  3,215 pairs of Ash Shoes ordered for the spring/summer 2014 season (the “SS14 Order”);

(3)  Miscellaneous fashion goods including Ash goods (other than those covered by the SS14 Order), FCUK branded goods and samples (“Miscellaneous Goods”).

C1.   Dishonoured cheque for JH Shoes and Miscellaneous Goods (1^st Claim in the 2^nd Action)

16.  It is not disputed that from about July 2013 onwards, Highline began to supply JH Shoes to T8.

17.  By 1 January 2014, the total amount outstanding for the JH Shoes supplied and a number of other invoices for a small amount of the Miscellaneous Goods was US$137,063.68 (about HK$1,060,872.81) (“1^st Claim Amount”). T8 repeatedly made assurances to Highline that the outstanding amount would be settled by T8’s Japan team.

18.  To provide additional comfort to Highline, T8 delivered a cheque (post-dated to 17 January 2014) in favour of Highline for the 1^st Claim Amount (the “Cheque”) on about 3 January 2014.  It was expressly represented by T8 to Highline that if the said outstanding sum was not paid by T8’s Japan team by 17 January 2014, Highline would be at liberty to bank the Cheque on 18 January 2014.

19.  As there was no transfer from Japan for the 1^st Claim Amount on 17 January 2014, Highline banked the Cheque which was countermanded 20 January 2014.  Nevertheless, T8 continued to admit that it was liable to pay for 1^st Claim Amount.

C2.    SS14 Order (2^nd Claim in the 2^nd Action)

20.  On 28 August 2013, T8 placed an order for the Ash Shoes for spring/summer 2014 (ie the SS14 Order).

21.  It is T8’s case that the Ash Shoes were to be delivered to the Philippines to be sold to Canawell Holding SDN BHD (“Canawell”), a fact disputed by the Max Parties as Canawell is apparently a fictitious entity.  

22.  It was only after the SS14 Order was placed that Ash HK and T8 entered into the Ash Philippines Agreement on 1 September 2013.

23.  The final quantity to be delivered under the SS14 Order was eventually confirmed on about 25 September 2013 to be 3,215 pairs.  The pro forma invoices for the SS14 Order were issued on 20 November 2013.

24.  Prior to the delivery of the Ash Shoes, the parties agreed that payment for the SS14 Order was to be made by way of an irrevocable letter of credit (the “L/C”) issued by Suisse Credit Capital (2009) Ltd (“SCC 2009”).  The L/C was issued on 9 January 2014.  Under the L/C:

(1)  The L/C was expressed to be an irrevocable L/C by Suisse Credit Capital Limited (“SCC”) as “applicant bank” in favour of Highline for US$208,902.00, being amount payable by T8 for the SS14 Order.

(2)  Rather than T8, the applicant named under the L/C was “Metro Marketing”.  CTBC Bank Co, Ltd, Hong Kong branch (“CTBC”) was named as advising bank.

(3)  The latest date of shipment was 20 January 2014.  Payment was to be made at 40 days after cargo receipt date.

(4)  The L/C was to be governed by the then latest version of the UCP (ie UCP 600).

(5)  The documents (in forms as agreed with T8) to be presented for payment were: (a) 3 sets of commercial invoices; (b) 3 sets of packing lists; and (c) an original cargo receipt issued and signed by the named applicant of the L/C, Metro Marketing (the “Cargo Receipt”, collectively, the “L/C Documents”).

25.  The Ash Shoes were delivered to T8’s forwarding agent, Chun Tin Logistics (HK) Ltd (“Chun Tin”) on 15 January 2014.

26.  After delivery, T8 provided the Cargo Receipt dated 20 January 2014 to Highline on about 21 January 2014. In light of the earlier assurances from T8 that the Cargo Receipt would be valid for presentation, on 23 January 2014 Highline presented (through its advising bank, CTBC) the L/C Documents for payment.

27.  On 6 February 2014, SCC 2009 confirmed with CTBC the acceptance of the L/C Documents and claimed that it shall pay the amount under the L/C on 3 March 2014.

28.  Despite the L/C being expressed as “irrevocable”, T8 procured for the L/C to be cancelled.  On 28 February 2014, SCC informed CTBC that the L/C was cancelled and gave three different reasons for the cancellation: (i) upon request from the applicant; (ii) the Cargo Receipt was not issued by the applicant; (iii) there was no shipment of the goods.

29.  On 3 March 2014, T8 alleged that as there were quality issues in the SS14 Order, they would like to return the Ash Shoes and would hold the L/C for payment.

C3.    Miscellaneous Goods (3^rd Claim in the 2^nd Action)

30.  In addition to the above, there were also a number of outstanding payables in respect of Miscellaneous Goods supplied by Highline to T8 which were not covered by the Cheque.  The amount claimed is US$12,052.97.

C4.    Subsequent termination of the Distribution Agreements

31.  In light of the above, on 14 and 17 March 2014, notices were given to T8 to terminate the JH Agreement and the Ash Philippines Agreement respectively.

D.     THE ISSUES TO BE DETERMINED AT TRIAL

32.  The claims/counterclaims of the parties and the defences raised in respect of the same according to the pleaded cases in the 2^nd Actions are as follows:

2ndAction:
Claim (by Highline)	Defence (by T8)
1st Claim2 - Claim for the Dishonoured Cheque in settlement of receivables for JH Shoes and Miscellaneous Goods supplied being US$137,063.68 (SOC§2.01-3.08).	1. Alleged late delivery of the JH Shoes (DCC §11,24). 2. Payments were made by T8 towards the Outstanding Amount after the Cheque was countermanded (DCC§§12, 24). 3. T8 was entitled to a partial set-off because of two debit notes issued on 27 November 2013 (DCC§§13,24). 4. The JH Shoes supplied were defective and hence there was a total failure of consideration (DCC§§16, 24).
2nd Claim - Claim for failure to pay for the amount due under SS14 Order being US$208,901.55 (SOC§§5.01-9.01).	1. Highline was not the contracting party to the SS14 Order (DCC §§37-38). 2. The Ash Shoes supplied under the SS14 Order were defective and that Ash HK had agreed to return the goods (DCC§§56, 59-67).
3rd Claim – Claim for amounts due for Miscellaneous Goods (FCUK and Ash) supplied which were not part of the SS14 Order for a total sum of US$12,052.97 (SOC§10.01).	No defence is pleaded and Highline is put to strict proof (DCC§82).
Counterclaim (by T8)	Defence to Counterclaim (by Highline)
Loss of profit and decoration expenses incurred for alleged T8’s inability to open franchise shop in Hong Kong as a result of defective quality in JH Shoes (DCC§§17-22, 29)1.	1. The JH Shoes supplied were not defective (RDCC§6). 2. Highline had no knowledge of the alleged franchise shops (RDCC§12.2).
Loss of profit arising from alleged wrongful repudiation of the JH Agreement (DCC §§23, 25-30)1.	There was no wrongful repudiation and Highline had not supplied JH branded goods to third parties in Japan (RDCC§§16-20).
Loss of profit, third party claims and expenses arising from alleged defects in the Ash Shoes supplied under the SS14 Order (in the event that Highline rather than Ash HK is found to be party to the SS14 Order) (DCC §§72-73, 86)1.	1. The Ash Shoes supplied under the SS14 Order were not defective (RDCC §34). 2. Highline had no knowledge of T8’s alleged sale to Canawell (RDCC§37).
Loss of profit arising from the alleged wrongful repudiation of the Ash Philippines Agreement by Ash HK on 17 March 2014 (in the event that Highline rather than Ash HK is found to be party to the SS14 Order)  (DCC §§74-78, 86) 1.	1. Highline was not a contracting party to the Ash Philippines Agreement (RDCC§ 24). 2. Without prejudice to the position that Ash HK was the contracting party to the Ash Philippines Agreement, Highline was entitled to terminate the Ash Philippines Agreement in light of
	T8’s inability to pay various sums due to the Max Parties (RDCC§§24, 45).

¹ Struck out on account of T8’s absence at the pre-trial review on 4 May 2018.

² Settled by consent per order of Master M Wong dated 10 July 2015.

33.  As explained in the footnotes to the table above, the claims/counterclaims highlighted in grey are no longer live before the court in light of T8’s default.  Accordingly, the remaining issues to be determined at this trial are:

(1)  In respect of the 2^nd Claim in the 2^nd Action:

(a)  Issue 1 - Whether Highline was a contracting party to the SS14 Order?

(b)  Issue 2 - Whether the SS14 Order is subject to the Ash Philippines Agreement?

(c)  Issue 3 - Whether any of the Ash Shoes supplied under the SS14 Order were defective and if so, how many?

(2)  In respect of the 3^rd Claim in the 2^nd Action:

(a)  Issue 4 - Whether Highline can establish its claim for purchase price of the Miscellaneous Goods suppled?

E.     ISSUE 1 – THE CONTRACTING PARTY

34.  As both Highline and Ash HK are companies within the Max Group, the individual employees involved in the transaction may represent different companies at different times (eg Eddie Lee is a director and signatory of both companies, see: Ash Philippines Agreement signed by him on behalf of Ash HK; other distribution agreements relating to Ash products entered into by Highline also signed by him on behalf of Highline).

35.  A similar issue was considered by A Cheung J (as Cheung CJ then was) in Lai Wo Heung v Cheung Kong Fur Co Ltd [2004] 1 HKLRD 959 where the claimant negotiated an employment contract with a Mr Tuen Mo who was the majority shareholder of the defendant, Cheung Kong and also the beneficial owner of Cheung Hing, a mainland company.  In hiring the claimant, Mr Tuen Mo did not name who his principal was.  As Mr Tuen Mo was an agent for both companies, the question before the court whether Cheung Kong or Cheung Hing was the contracting party in the employment contract with the claimant.

36.  The court’s approach in answering the question was held at §§10-15 to be as follows:

(1)  Where an agent is effectively representing two principals at the same time, the question of who the agent is acting for in the contract depends on the subjective intention of the principal and agent as opposed to the objective intention.

(2)  However, objective appearances, such as pre-contractual as well as post-contractual words and conduct of the parties and the surrounding circumstances are relevant in assessing the credibility of the witnesses (particularly the agent and the supposed principal regarding their assertions as to what their intentions were at the time).

(3)  Furthermore, if the contract with the third party was in writing, then what the contract says – construed objectively in the light of the known circumstances, must be accorded much, if not conclusive weight in deciding the agent’s intention.

E1.    Contemporaneous documents

37.  The answer to the question (whether applying an objective or subjective test) is obvious when one looks at the contemporaneous communications and contractual documents in respect of the SS14 Order as all such documents inevitably point to Highline as the party to the SS14 Order:

(1)  Prior to placement of the SS14 Order, samples for Ash branded shoes in the Spring/Summer 2014 season were supplied in the name of Highline but not Ash HK.

(2)  All invoices for the SS14 Order were issued in the name of Highline but not Ash HK.  This is to be contrasted with other invoices which were issued by Ash HK to third parties.

(3)  Delivery of the SS14 Order was effected in the name of Highline.

(4)  The agreed forms of the L/C and the L/C Documents that the Ash Shoes were supplied and delivered were in the name of Highline and Highline was named under the L/C as beneficiary to whom payment was to be made.

(5)  Finally, as will be further explained below at Section E2, it is clear from the express terms of the Ash Philippines Agreement that the SS14 Order was not intended to be included within its scope.  The email from Xerxes dated 28 August 2013 made it clear that the placement of the SS14 Order (being an order for Japan/Russia/Philippines) was a pre-condition to the appointment of T8 as exclusive distributor in the Philippines as effected by the Ash Philippines Agreement.

E2.    Highline was not agent of Ash HK

38.  It is also alleged by T8 that Highline was only acting as agent or nominee for Ash HK for accepting the SS14 Order and for receiving the sales proceeds.

39.  An agency relationship can only be constituted either by (i) the conferring of authority by the principal on the agent either expressly or implied from the conduct or situation of the parties; or (ii) subsequent ratification by the principal of acts done on its behalf.

40.  No fact or particulars have been pleaded in support of the alleged agency relationship.  Also, there is simply no evidence which supports the creation of an agency relationship (whether express, implied or by ratification) whereby Highline acted as Ash HK’s agent in the course of its dealings with T8 or that Ash HK had somehow ratified the SS14 Order.

41.  On the contrary, the circumstances clearly show that Highline was at all times acting as principal with respect to the SS14 Order:

(1)  As already demonstrated in Section E1 above, Ash HK had no involvement in the performance of the obligations under the SS14 Order and was not named in any of the transaction documents.

(2)  Without the need to obtain authority from Ash HK, Highline is independently capable of supplying Ash goods in its own right, as demonstrated by the other distribution agreements it entered into with T8 in its own name both before and after the date of the Ash Philippines Agreement, see: paragraph 12 above.  As set out in the recitals/preambles of these agreements, Highline rather than Ash HK was identified as the “exclusive licensee” of the “Ash” trademark or “exclusive supplier” of Ash products.

(3)  As explained in an email from Eddie Lee dated 30 October 2013, the fact that there was a mistake in the entity named for the JH Philippines Agreement and that Highline (rather than Ash HK) was supposed to be the distributor named in the Ash Philippines Agreement further reinforces the notion that there was no intention that Highline was to act as Ash HK’s agent in any way but rather that Highline was envisaged to be acting as the principal in its dealings with T8 (as in the case of all the other distribution agreements).

42.  Finally, even if it is found that Highline was acting as agent of Ash HK in entering into the SS14 Order with T8, it does not preclude Highline from suing on the SS14 Order in its own right (without joining the principal as a party) given that Ash HK was an undisclosed principal as its name had not appear on any of the documents relating to the SS14 Order, see: Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 at 207 per Lord Lloyd.

F.     ISSUE 2 – WHETHERTHE SS14 ORDER IS GOVERNED BY THE ASH PHILIPPINES AGREEMENT

43.  As this court finds in Issue 1 above that Highline (but not Ash HK) is the contracting party to the SS14 Order, then obviously the Ash Philippines Agreement is irrelevant to Highline’s 2^nd Claim as Highline is not a party to the Ash Philippines Agreement.

G.     ISSUE 3 - WHETHER THE ASH SHOES DELIVERED UNDER THE SS14 ORDER WERE DEFECTIVE

44.  I reject T8’s defence based on the alleged defective quality of the Ash Shoes delivered, as T8 has not appeared at trial to adduce any evidence in support thereof.

H.     ISSUE 4 - THE 3^rd CLAIM – MISCELLANEOUS GOODS

45.  The particulars of the 3^rd Claim are as follows:

	Date of Invoice	Brand	Invoice No.	Amount (US$)
1	3/9/13	FCUK	DN131305	3,060.00
2	3/9/13	Ash	DN131306	7,442.50
3	23/9/13	Ash	AH19713	873.221
4	26/9/13	Ash	SMC44013	677.252

¹ The sum claimed for this invoice under the 3^rd Claim is only part of the invoiced amount as the remaining US$3,236.86 was supposed to be settled by the Cheque which is the subject of the 1^st Claim, see: Appendix II to 2^nd Action SOC.

² The sum claimed for this invoice under the 3^rd Claim is only part of the invoiced amount as the remaining US$4,110.08 was supposed to be settled by the Cheque which is the subject of the 1^st Claim, see Appendix II to 2^nd Action SOC.

46.  T8 has not pleaded any positive defence against the 3^rd Claim.  I am satisfied that Highline has proved its case that the invoiced amounts are due and payable:

(1)  T8 has accepted delivery of the goods under the first two invoices, although T8 claimed that a small portion of the goods supplied were subsequently returned.  The claim that the goods were returned and the legal basis on which such return is justified have not been pleaded by T8.

(2)  In respect of the third and fourth invoices, they were part of the invoices which were covered by the 1^st Claim, the validity of which were confirmed by T8 and T8 subsequently purported to effect partial settlement of these two invoices by the Cheque.  Unlike the JH Shoes and the Ash Shoes there is no claim that the goods supplied were defective, hence, T8 has no justification to withhold payment.