DEFOND ELECTRICAL INDUSTRIES LTD v. PARTMINER WORLDWIDE INC. (formerly known as PARTMINER DIRECT INC.)

HCA 760/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 760 OF 2010

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D E C I S I O N

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1.  This is an application by the defendant to set aside an order by Master Ho dated 21 June 2010 granting leave to the plaintiff to issue a concurrent writ of summons and serve it on the defendant in Colorado, USA. The plaintiff’s claim is for damages for defective goods sold to it by the defendant.

The argument and the respective standard terms

2.  The argument is a narrow one.  It is on whose terms and conditions that govern the contract of sale and purchase made between the parties.  Clause 14 of the plaintiff’s standard purchase order terms and conditions provide:

“14. Compliance with Laws.

          The Order shall be deemed to have been made in Hong Kong and shall be governed by and construed in accordance with the laws of Hong Kong SAR.”

3.  Clause 16 of the defendant’s standard terms and conditions of parts sales provide:

“16. Legal proceedings.

         The validity, enforcement, construction and interpretation of this Agreement are governed by the laws of the State of Colorado and the federal laws of the United States of America, excluding the laws of those jurisdictions pertaining to resolution of conflicts of laws of other jurisdictions.  The parties expressly exclude the applicability of the United Nations Convention on Contracts for the International Sale of Goods. Seller and purchaser (a) consent to the exclusive jurisdiction of the state and federal courts having jurisdiction over the City and County of Denver, Colorado, and (b) waive any defense, whether asserted by motion or pleading, that venue in these courts is improper or an inconvenient venue.”

4.  Both sides take the same view that if the plaintiff’s standard terms and conditions should apply to the contract, then this action should be allowed to continue.  If, however, it should be the defendant’s standard terms and conditions that apply, then the Master’s order should be set aside and this action should be stayed in favour of an action to be instituted in Colorado, USA.  The parties do not argue on forum convenience and agree that there is no such issue in this application.

5.  The contract was one for the sale by the defendant to the plaintiff of 300,000 pieces of electronic component called “TRIAC” manufactured by a European company NXP Semiconductors N.V. (“NXP”) in order to consider whose terms have prevailed, I have to look into the history of the making of the contract.

The correspondence and the making of the contract

6.  I can start with an email dated 11 May 2009 from Ms Madelyn Leto, an OEM sales representative of the defendant to Ms Peggie Lau of the plaintiff.  Ms Leto provided a quote to Ms Lau and requested Ms Lau to discuss the quote by phone.  The quote provided at the bottom and above the signature spaces the following:

“This quote/proposal is conditioned upon, subject to and otherwise governed by PartMiner’s Standard Terms and Conditions of Sale (“Terms”) currently located at www.partminer.com/pmdstandardsales.jsp.”

These terms include Clause 16 referred to above. 

7.  The next email was also from Ms Leto and dated 14 May containing a revised quotation from the defendant.  The same provision for standard terms and conditions again appeared at the bottom of the revised quotation.  It seemed that there was some discussion between Ms Leto and Ms Lau before this email was sent out by Ms Leto.  The email reads:

“Hi Peggie, I am able to expedite Line 1 to a 10-14-day delivery time. The price increased a bit, but delivery time is much less. Please let me know if you will move forward as soon as possible. Thank you. Madelyn.”

8.  There was a further email from Ms Leto to Ms Lau a few minutes later and it reads:

“Hi Peggie, I just sent you a Revised Quote with a change in leadtime for Line 1, p/n BT137S-600E.

Please let me know as soon as possible if you plan on moving forward with this part, so we can secure them.”

9.  On 15 May Tsang Man Sze of the plaintiff then sent by email a purchase order to the defendant.  The purchase order provided for payment for the goods at 60 days after statement.  It also stated that it was subject to the plaintiff’s standard terms and conditions for purchase order.  A set of these terms and conditions including Clause 14 abovementioned was also included in this email. 

10.  This email further asked the defendant to advise the confirmed delivery date within 3 days.  It further said that:

“PO remark as following:

(1) Date code should be within 2 year

(2) Delivery must be within 2wk as quoted

(3) Otherwise it will be cancel order.”

11.  Ms Leto, after receiving the purchase order, responded by email seeking to reduce the credit period to 30 days and to impose a term of NC/NR which means “no cancel/no return”.  This email reads:

“I just got a PO from Tsang for 300,000 pieces of p/n BT137S-600E. Thank you.

In order to order them, I need bank and trade references to establish credit and net 30 terms.

I also need you to acknowledge that these parts are NC/NR. NC/NR simply means that once PartMiner places this order and pays to bring them in, you cannot cancel the order. Once you get the parts, PartMiner offers a 30-day return policy due to manufacturer’s form, fit and function.

You can just agree by replying to this email that you understand that these parts are NC/NR.  Please try to get this information to me this morning (today), so I can secure and order these parts.  After ordering them, expected delivery time is 10-14 days.”

12.  Ms Peggie Lau replied by email on the same day. She agreed with NC/NR but persisted in 60 days’ credit.  She said:

“Maybe there is some other buyer contact your side before but we did have business before, and our company having term of 60 day, as stated in the PO. Please kindly check. Our company’s name is ‘Defond Electrical Industries Limited’. We have place (sic) PO to your side in 2008 Apr, with PO No. ED00035 before. I think it should be fine to proceed the PO, or the contact (sic) will be in your Asian counterpart?

I understand there is NC/NR term that (sic) why I also highlighted in the PO with additional term - we are required (sic) the goods is (sic) within 2-year date code of the original manufacturer and the leadtime of max 14 day as agreed in the quote.  …”

13.  The defendant’s Boston Division Manager Mr Gregg Vater then responded by email of 16 May: 

“Hello Peggy (sic),

We have approved terms for you, we will send you confirmation once order is placed you should have it sometime Monday, Thanks again for the order look forward to working with you in the future.”

14.  This email showed that Mr Vater had accepted the terms of the plaintiff’s PO including the 60-day credit period and the delivery schedule and with the incorporation of the NC/NR term.

15.  Mr Wong, counsel for the defendant, however, submitted that Mr Vater had only agreed with the 60-day credit period and not the plaintiff’s standard terms and conditions. 

16.  Ms Peggie Lau then replied.

“Thanks for your update. Looking forward to hear from you soon.”

17.  The last email that I need to consider was from Ms Leto on 18 May.  She said,

“Hi Peggie,

We have ordered your parts, thank you very much for your business. Due to the size and dollar amount of the order, we are bringing in 2,500 first for you to test and approve. Once these are approved by you, we will bring the remaining pieces in. All parts will be in by the end of this month.

We expect the 2,500 pieces within the next week.” 

18.  The first 2,500 pieces of TRIAC components were delivered on 25 May.  It was accompanied by a delivery note and a commercial invoice.  The delivery note contained this statement:

“By accepting the goods accompanying this document, customer expressly acknowledges its agreement with [the defendant’s] Standard Terms and Conditions of Parts Sales currently posted at www.partminer.com/pmdstandardsales.jsp. Any purchase order, acknowledgment form, or other form of buyer containing terms different from, or in addition to, the terms herein is specifically rejected and shall not have the effect of modifying the terms herein. No agent, employee, or representative of seller has any authority to alter or delete any term or condition of this contract or bind seller to any warranty, covenant, or representation concerning the goods described in this contract unless that warranty, covenant, or representation is contained in this contract.”

19.  The invoice contained the same statement. 

The defendant’s submissions

20.  Mr Wong for the defendant submitted that Mr Vater’s email of 16 May only agreed the credit period at 60 days, but did not deal with the issue of whose standard terms and conditions were to apply.  The contract was only formed after the approval of the first 2,500 pieces which were delivered to the plaintiff on 25 May.  Since the contract was formed after 25 May, it should be governed by the defendant’s standard terms and conditions which were referred to in the defendant’s delivery note and invoice sent on 25 May. 

Analyses and decision on the application

21.  I, however, take a different view.  I think the objective reading of Mr Vater’s email in the context of the series of emails exchanged shows that Mr Vater had accepted all the terms of the plaintiff including the then outstanding issue of credit period.  He referred to “terms”, but not just to the credit period.  He also said he would send confirmation to the plaintiff once the order was placed by the defendant with its supplier.  That was to invoke the NC/NR term.  The confirmation was indeed given by Ms Leto in her email of 18 May.

22.  If there was not yet any contract between the plaintiff and the defendant, the defendant would not have proceeded to place the order with its supplier as there was no NC/NR term to protect the defendant yet.  If the defendant was not going to place the order with its supplier, there would also be nothing to confirm to the plaintiff. 

23.  Regarding the last email from Ms Leto offering to ship 2,500 pieces to the plaintiff for testing and approval, that arrangement was apparently accepted by the plaintiff.  I would, however, take this as a variation of the contract already concluded by Mr Vater’s email. The variation was to allow the plaintiff to cancel the rest of the contract if the first 2,500 pieces were not approved by the plaintiff.  The NC/NR term was also varied accordingly so that it would only apply to the rest of the contract after the plaintiff had approved the first 2,500 pieces. 

24.  Since the contract had already been made when the defendant purportedly imposed its standard terms and conditions by the delivery note and invoice, the defendant’s terms could not be incorporated in the contract (see paras 2-037, 2-038 and 12-010 of Chitty on Contracts, 30th Edition). 

25.  I therefore hold that the contract was governed by the plaintiff’s standard purchase order terms and conditions including Clause 14 abovementioned which made the laws of Hong Kong the governing laws of the contract.  This court, therefore, has jurisdiction over this action.  I therefore would not set aside Master Ho’s order and the action can proceed.

Decision on material non-disclosure

26.  There is, however, the question of material non-disclosure.  Prior to the commencement of the action by the plaintiff, the defendant had asserted at least twice that the contract was governed by the defendant’s standard terms and conditions, to which the plaintiff did not even demur.  However, the plaintiff’s supporting affirmation for an order to serve the writ out of jurisdiction merely said that the plaintiff’s standard terms and conditions were incorporated into the contract.  Not a word was said about the existence of the defendant’s standard terms and conditions, the defendant’s attempt to incorporate those terms and the defendant’s subsequent assertion that the terms had been incorporated.

27.  Master de Souza considered the application and raised some queries.  The plaintiff in an affidavit to respond to the queries merely produced the invoices it received from the defendant.  It did not even highlight the statement in the invoice as referred to above or that the defendant had some standard terms and conditions which it had tried to incorporate and thought to have incorporated into the contract.

28.  This omission, in the light of the repeated assertions by the defendant that the contract was governed by the defendant’s standard terms and conditions, amounts to a grave breach of the duty of full and frank disclosure as what had been concealed from the Master was certainly material for his consideration of the application.  If it were an ex parte injunction, I would have discharged it with costs against the plaintiff.  However, it is futile to set aside the Master’s order for service out of jurisdiction, because the plaintiff is entitled to apply again in the light of my finding of the governing laws for the contract.  

Costs order nisi

29.  I would therefore not set aside Master Ho’s order.  But I would make a costs order nisi that the plaintiff do pay the defendant the costs of this application, with certificate for counsel. Such costs are to be assessed by me at a 9.30 am hearing to be fixed outside the next 14 days unless the parties can in the meantime agree the amount of such costs.  Such costs are payable upon assessment or agreement.