JIN QIANG (HK) LTD v. GAIN UP (HONG KONG) TECHNOLOGY LTD

HCA1965/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1965 OF 2008

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REASONS  FOR  JUDGMENT

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1.  On 22 July 2010 I gave judgment to the plaintiff against the defendant for:

(1)  the sum of US$409,044 with interest on the said sum from 1 March 2006 until judgment at 1% above the best lending rate of HSBC and thereafter at judgment rate until payment;

(2)  an indemnity for any liability of the plaintiff to Ba Da (Hong Kong) Supply Chain Company for which the plaintiff may be found liable; and

(3)  costs of the action.

2.  At the time I indicated that reasons in writing would be given later.  This I now do.

3.  The plaintiff is a Hong Kong company and carries on the business of, inter alia, designing, installing, manufacturing and selling computer components including printed circuit boards.

4.  The defendant is also a Hong Kong company.  It carries on the business of, inter alia, manufacturing and processing computers and computer components including printed circuit boards.

5.  The defendant is a wholly owned subsidiary of Hedy Holdings Co. Ltd (“Hedy”).

6.  The plaintiff’s cause of action is for breach of contract by the defendant.

7.  The plaintiff’s case is that by a written contract no. GAG-5B0016 dated 24 November 2005 (“the contract”) made between the plaintiff and the defendant and on the terms and conditions contained therein the plaintiff agreed to manufacture and supply and the defendant agreed to buy printed circuit boards as follows:

(1) 100,000 pieces of MZ16 V2.0 printed circuit boards of the defendant’s product code HSM180M216001 at the unit price of US$2.427 amounting to the total sum of US$242,700;

(2) 100,000 pieces of MZ16 V2.0 printed circuit boards of the defendant’s product code HSM180M216009 at the unit price of US$2.343 amounting to the total sum of US$234,300.

8.  Clause 4 of the contract set out the delivery dates.

9.  By clause 5 of the contract it was agreed that the printed circuit boards were to be delivered to Ba Da (Hong Kong ) Supply Chain Company (“Ba Da”) at its warehouse address in Sheung Shui as set out therein.

10.  By clause 6 it was agreed that payment would be made by the defendant for the printed circuit boards upon delivery of the same.

11.  It is the plaintiff’s case that pursuant to the contract between 20 December 2005 and 31 December 2005 the plaintiff manufactured and supplied to the defendant a total of 28,000 pieces of printed circuit boards by delivering them to Ba Da at its said warehouse as follows:

(1) 10,000 pieces on 20 December 2005;

(2) 5,000 pieces on 22 December 2005;

(3) 13,000 pieces on 31 December 2005.

12.  The total price for the 28,000 pieces of printed circuit boards was US$67,956.

13.  The defendant paid the plaintiff for the 28,000 pieces of printed circuit boards in the total sum of US$67,956 as follows:

(1)    On 29 December 2005 two payments in the sum of US$24,270 and US$12,135 respectively;

(2)    On 11 January 2006 one payment in the sum of US$12,135; and

(3)   On 23 January 2006 one payment in the sum of US$19,416.

14.  It is the plaintiff’s case that pursuant to the contract the plaintiff delivered the balance of 172,000 pieces of printed circuit boards to Ba Da at its said warehouse as follows:

(1) 112,000 pieces on 14 February 2006;

(2) 60,000 pieces on 1 March 2006.

15.  The total price of the 172,000 pieces of printed circuit boards was US$409,044.

16.  Despite repeated demands the defendant has failed and refused to pay the said sum of US$409,044.

17.  The defendant accepts that it has received the 28,000 pieces of printed circuit boards delivered by the plaintiff as set out in paragraph 11 above.  The defendant also accepts that it has made payment for the 28,000 pieces of printed circuit boards to the plaintiff in the total sum of US$67,956 as set out in paragraph 13 above.

18.  The defendant, however, denies that it has ever entered into the contract with the plaintiff.  Its case is that the delivery of the 28,000 pieces of printed circuit boards by the plaintiff to Ba Da and the defendant’s acceptance and payment for the same was made pursuant to an oral agreement between the parties and not pursuant to the contract.  

19.  The defendant denies that it is liable to pay the plaintiff the said sum of US$409,044 as claimed.

The issue

20.  The main issue between the parties is whether the parties entered into the contract.

21.  Mr Wong, for the defendant, conceded in his opening submissions that if it is found that the parties did enter into the contract there would be no dispute as to the relief claimed by the plaintiff.

The witnesses

22.  I heard evidence from Xu Jin Jun (“Xu”) the plaintiff’s business manager and Yi Xianzhong (“Yi”) a director of the defendant.

23.  I found Xu to be an honest, truthful and reliable witness.  I believe him.  I have no hesitation in accepting his evidence.

24.  I cannot say the same for Yi.  I found him to be an untruthful and unreliable witness.  Where his evidence is at variance with the evidence of Xu I have no hesitation in preferring the evidence of Xu, which I believe and accept, to the evidence of Yi, which I disbelieve and reject.

25.  There is no dispute between the parties that they entered into a written contract no. GAG-5B0026 made on 12 November 2005 (“the earlier contract”) whereby the plaintiff agreed to manufacture and supply and the defendant agreed to buy printed circuit boards as follows:

(1) 100,000 pieces of MZ16 (M200 V2.0) at the unit price of US$2.427 amounting to the total sum of US$242,700;

(2) 200,000 pieces of MZ16 (M200 V2.0) at prices to be confirmed.

26.  By clause 4 of the earlier contract it was agreed that delivery was to be made to Ba Da at the same warehouse address as in the contract which was made subsequently.

27.  By clause 6 of the earlier contract it was agreed that 30% of the agreed price of US$242,700 was payable by the defendant to the plaintiff as a deposit and the balance of 70% was payable before delivery.

28.  30% of the agreed price of US$242,700 amounted to US$72,810.

29.  Xu gave evidence that the business practice of the printed circuit boards manufacturing industry in the Mainland and of the defendant was that the deposit was to be payable on the day the contract was made.  He explained that the reason that the plaintiff asked for a deposit of 30% of the price was because of the shortness of time between the date of the contract and the specified date of 15 December 2005 as the date of delivery under the earlier contract.  The deposit was required to enable the plaintiff to proceed with the manufacture of the goods to the defendant’s specifications under the earlier contract.  I believe Xu and accept his evidence.

30.  On the plaintiff’s case the deposit was payable by the defendant to the plaintiff on 12 November 2005 when the earlier contract was made.

31.  However, as is common ground between the parties, the deposit of 30% of the price in the sum of US$72,810 was not paid on 12 November 2005.  There is no dispute that the defendant paid the plaintiff the 30% deposit in the sum of US$72,810 only on 18 November 2005.

32.  Xu gave evidence that the plaintiff considered that as the defendant paid the deposit late in breach of the earlier contract the plaintiff would not have sufficient time to manufacture and deliver the goods on time on 15 December 2005.  For that reason, there was a mutual agreement between the plaintiff and the defendant that the earlier contract be cancelled and the deposit which had been paid by the defendant to the plaintiff should be refunded.  I believe him and accept his evidence.

33.  It is common ground that the parties agreed to mutually cancel the earlier contract and that on 28 November 2005 the plaintiff returned to the defendant the said deposit of US$72,810.

34.  Xu gave evidence that after the cancellation of the earlier contract Yi on behalf of the defendant offered to enter into a new contract with the plaintiff.  Xu said that it was he who negotiated the terms on behalf of the plaintiff with Yi on behalf of the defendant.

35.  The terms that were agreed were incorporated into the contract which is at page 11 of Bundle 2.  After the details of the terms and conditions in the contract were filled in by the defendant in the defendant’s printed form the defendant’s chop and a signature was put on the document.  The document was then faxed to the plaintiff.

36.  Xu said that after the document had been faxed to the plaintiff he noticed that the name of the buyer and the supplier at the top of the document did not match the information given at the bottom.  He then telephoned the defendant’s offices and spoke to Ms Qin Ping (“Ms Qin”) and requested her to make the changes.  Thereafter the plaintiff received a revised contract from the defendant where the name of the buyer was corrected from “Hedy Holdings Co. Ltd” to the name of the defendant.

37.  There was, however, no change in the name of the supplier at the top of the document which read “Guangzhou Jin Qiang Electronics Co. Ltd” which is a Guangzhou associated company of the plaintiff.  Xu again spoke to Ms Qin about the different description of the supplier at the top and the bottom of the document and was told that it would not matter.

38.  Xu then affixed the plaintiff’s chop on the document and faxed it back to Ms Qin at the fax number specified in the document.  There is no dispute that this was the fax number of the defendant.

39.  I believe Xu and accept his evidence.

40.  Xu also gave evidence that all the printed circuit boards purchased by the defendant under the contract were manufactured and delivered to Ba Da in accordance with the contract.

41.  There is no dispute that the plaintiff delivered a total quantity of 28,000 pieces of printed circuit boards to Ba Da on 20 December, 22 December and 31 December of 2005, respectively.

42.  Yi denied that he entered into negotiations with Xu which led to the making of the contract between the plaintiff and the defendant on 24 November 2005.

43.  The dispute of fact between the parties is whether the delivery of the 28,000 pieces of printed circuit boards was made pursuant to the contract or whether it was pursuant to an oral agreement between the parties as alleged by the defendant.

44.  From the plaintiff’s delivery orders in evidence there can be no doubt that 10,000 pieces were delivered on 20 December 2005, 5,000 pieces were delivered on 22 December 2005 and 13,000 pieces were delivered on 31 December 2005.  Ba Da acknowledged receipt of the deliveries on those dates by chopping the relevant delivery orders.

45.  As is stated at para 8-007 Benjamin’s Sale of Goods (7^th ed):

“Delivery of the goods to the buyer may be made by any method which the parties agree shall constitute delivery.  For example, it may be agreed that the goods shall be delivered, not to the buyer himself, but to a third party nominated by the buyer.”

46.  The defendant accepts that it received the total quantity of 28,000 pieces of printed circuit boards which were delivered to Ba Da its nominated agent to collect the same on its behalf from the plaintiff.  Yi confirmed in evidence that the defendant had appointed Ba Da to collect the 28,000 pieces of printed circuit boards on its behalf. 

47.  I would observe that Ba Da as the defendant’s nominated agent has acknowledged receipt of the 28,000 pieces of printed circuit boards as set out in the delivery orders in respect of the deliveries made on 20 December, 22 December and 31 December of 2005.  Each of the delivery orders states clearly that the delivery was in relation to “PO Number GAG-5B0016” which is the contract.

48.  There is no doubt that payment has also been made by the defendant to the plaintiff for the 28,000 pieces of printed circuit boards delivered on the said dates to the defendant’s nominated agent Ba Da.  It is not disputed that the defendant has made payments to the plaintiff on 29 December 2005, 11 January 2006 and 23 January 2006 respectively, amounting to the total sum of US$67,956.

49.  Yi gave evidence that the acceptance of the 28,000 pieces of printed circuit boards by the defendant and the payment for the same was made not pursuant to the contract (which he denied was ever made between the plaintiff and the defendant) but pursuant to an oral agreement made between him and Xu.

50.  That there was an oral agreement made between him and Xu was never mentioned in Yi’s witness statement and, in my view, there is no satisfactory explanation for this important omission.

51.  The allegation of an oral agreement made between Yi and Xu given in evidence by Yi was also contrary to the defendant’s pleaded case which was that the oral agreement was made between Xu of the plaintiff and Chan Chow of the defendant (para 17(f) of the amended defence).  I would observe that Yi signed the statement of truth in the amended defence.

52.  Yi was evasive and gave different versions in cross-examination as to when the oral agreement he gave evidence about was made.  At first he said it was at the time of delivery.  When it was pointed out to him that there were 3 deliveries making up the total of 28,000 pieces delivered he said that it was difficult for him to give an answer as these matters happened about 5 or 6 years ago.  He then said anyway it was before the goods were delivered.

53.  There is no dispute that the parties did not have any business dealings before the earlier contract was made on 12 November 2005.  The earlier contract was subsequently cancelled by mutual agreement.

54.  Yi said that it was the defendant’s usual practice to enter into commercial contracts in writing.  There is no satisfactory explanation as to why the defendant would depart from its usual business practice and make the alleged oral agreement with the plaintiff with whom the defendant had not dealt with before apart from entering into the earlier contract that was mutually cancelled subsequently.

55.  I do not believe Yi and reject his evidence.  I find that the alleged oral contract between the plaintiff and the defendant was never made.

56.  Xu gave evidence that pursuant to the contract the balance of 172,000 pieces of printed circuit boards were delivered to Ba Da in accordance with the contract.  112,000 pieces were delivered on 14 February 2006 and 60,000 pieces were delivered on 1 March 2006.  He himself was present when delivery was made to Ba Da.  I believe Xu and accept his evidence.

57.  There is no dispute that the defendant has failed and refused to pay for the balance of 172,000 pieces in the sum of US$409,044 as claimed.

58.  Mr Wong submitted that clause 8 of the contract provided that the contract should be signed by the legal representative or authorized representative of the parties and affixed with the company chop before it comes into effect.  He submitted that only the chop of the plaintiff was affixed but no signature of the legal representative or authorized representative was placed on the document.  His submission was to the effect that it was a condition precedent to the validity of the contract that there should be a signature on the document in addition to the affixing of a company chop and that there was no such signature on the document.  In my judgment it is not open to the defendant to raise this in his closing submissions.  That there was a condition precedent has never been pleaded by the defendant.  Had it done so no doubt the plaintiff would have served a reply and called evidence to deal with this.

59.  In any event, in my view, there is no merit in the submission.  The earlier contract was undoubtedly regarded by the parties as a legally binding contract until it was cancelled by mutual agreement subsequently.  The earlier contract also had the plaintiff’s company chop affixed without a signature of the legal representative or authorized representative placed on the document.

60.  Furthermore, in my judgment, the parties have acted in accordance with the contract.  I have found that the 28,000 pieces of printed circuit boards were delivered by the plaintiff to the defendant’s nominated agent and payment for the same has been made by the defendant pursuant to the contract.  The delivery of the 28,000 pieces by the plaintiff and the acceptance and payment for the same by the defendant clearly amounted to part performance of the contract by both parties.  It seems to me and I so find that the defendant has clearly affirmed the contract. 

61.  Yi did not accept in evidence that the contract was chopped with a chop of the defendant.  He also disputed that the signature below the chop was the signature of a representative of the defendant.  I do not believe him.

62.  I would observe that the parties have agreed that the documents in Bundle 2 including the contract are authentic documents.  It is not open to the defendant to depart from this agreement and dispute the authenticity of the documents including the contract.

63.  It seems to me that, in any event, the chop on the contract is very similar, if not identical, to the defendant’s chop on the earlier contract which was legally binding until its subsequent cancellation by mutual agreement.  Also, the signature below the defendant’s chop in the contract is similar to the signature of one of the defendant’s two representatives signing the contract at page 64 of Bundle 2 which is a contract between two different legal entities namely, Hedy and the plaintiff’s Guangzhou associated company Guangzhou Jin Qiang Electronics Co Ltd.

64.  I am satisfied that the plaintiff has performed its obligations under the contract and has delivered the balance of 172,000 pieces of the printed circuit boards to the defendant’s nominated agent Ba Da.  The obligation of the defendant was to pay for the goods on delivery.  It has failed to do so.  The plaintiff is entitled to judgment as claimed in the sum of US$409,400.

65.  Ba Da has demanded payment from the plaintiff in respect of storage charges for the 172,000 pieces delivered by the plaintiff.  In the event that Ba Da pursues its claim against the plaintiff, the plaintiff is entitled to be indemnified by the defendant.  It seems to me that the plaintiff is entitled to the indemnity claimed.

66.  For the above reasons, I gave judgment to the plaintiff against the defendant as set out above in paragraph 1.