INTERNATIONAL SUNBEAMS CO LTD v. CHEPSTOW INTERNATIONAL LTD

HCA1751/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1751 OF 2007

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J U D G M E N T

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1.  The plaintiff claims the price of goods sold and delivered to the defendant as particularized in the Statement of Claim.  The goods in question were a quantity of Unsaturated Polyester Resin packed in drums and sold under the description and brand name Eterset 2126 AP(1).  After delivery of the goods, the plaintiff issued various invoices dating from 22 December 2006 up to the last invoice dated 13 February 2007.  The total price of the goods, including additional transportation charges, amounted to HK$1,662,440.  The plaintiff claims this sum together with interest pursuant to section 48 of the High Court Ordinance. 

2.  It was not disputed that the goods were delivered at the defendant’s request to a factory in Dongguan City, China by the name of Julon Manufacturing.  The date of the 1^st delivery was 20 December 2006 and the date of the last delivery was 11 February 2007.  However, the defendant set up a counterclaim in diminution of the plaintiff’s claim for the price of goods sold and delivered.  The counterclaim was made in the sum of USD126,132.00, being the price of goods, namely statues or figurines made from the poly resin supplied by the plaintiff which had been sold by the defendant to its purchaser, Mega-1 Merchandising Inc., a firm carrying on business in California, U.S.A., and which goods had been rejected by the said firm on account of alleged defects in the goods.

The evidence of the defendant

3.  As the burden of proof was on the defendant to establish its counterclaim, the case was opened by Mr Samuel Yip, Counsel for the defendant.  He called the defendant’s only witness, Mr Law Kam Wing, who gave evidence before me and adopted his witness statement dated 2 October 2008 as his evidence.  Mr Law explained that the business of the defendant was to produce relatively high quality toy products known as decorative figurines.  Some of these were collector items or limited edition items and could be sold for several US hundred dollars.  These figurines were often of famous action figures and enjoyed copyright protection.  He had joined the defendant company in March 2004 and described himself as the accountant of the defendant company.  He explained that his main duty included receiving purchase orders from American customers and informing the factory to carry out production.  He would go to the factory to see if time was available for production and to deal with requests in respect of delivery dates.  After he had gathered preliminary information about the schedule of manufacture and delivery, he would decide the date for the purchase and the delivery of the raw materials.  When the factory started production, he would go there to see what the situation was.  After the goods were delivered, he would prepare vouchers to ask for payment from customers.  If there were complaints, he would have to discuss them with the production staff of the factory.  The factory was in Dongguan, China and was called Julon Manufacturing and he would visit it one to two days every week.

4.  He would receive purchase orders from customers including Mega-1.  The delivery date was not confirmed at that time but normally, delivery would occur 3 to 4 months after the purchase order was placed.  The two purchase orders in question were dated 8 July 2006 and 18 September 2006.  The 1^st order was in respect of 1,000 pieces of Sentinel FS Resin Statues and the 2^nd order was in respect of 2,598 pieces of Obi Wan in Clone Armor Statues.  Mr Law said that the delivery for these orders started in January 2007 in different batches.

5.  According to Mr Law in 2006, the defendant company ordered about 2 to 3 containers of poly resin on average every month from the plaintiff.  These were 20-foot containers, each containing 80 drums of poly resin, each drum weighing 220 kg.  The statues for Mega-1 were manufactured from poly resin supplied by the plaintiff. 

6.  Mr Law said that he had basic knowledge about the production process, but was not himself involved in the actual production.

7.  Mr Law explained that after the production and delivery schedule had been worked out, a sample would be produced based on the sample supplied by the customer.  The production sample would be sent to the customer to see if there were any problems with it.  When the customer confirmed that there were no problems with the sample, they would produce a soft mould made of silicon.  A mixture of poly resin and other materials would be injected into the mould.  After the mixture dried, the mould would be removed and the product examined for shrinkage and distortion.  If the raw material was of good quality, that would not happen.  After this was done, the product would be polished and painted and accessories fixed to it before packaging and shipment.  If the raw material was of very poor quality, one could see the shrinkage immediately but if the raw material was of better quality, shrinkage could only be detected at a later date, 1 to 2 months after production.  The production process took about 3 weeks from commencement up to the time of shipment.  The customer would receive the product 2 to 3 months from commencement of production.

8.  The defendant had ordered poly resin from the plaintiff from as early as 1999 and certainly, since 2004 when Mr Law joined the defendant company.

9.  Although there had been problems with shrinkage in the past, they had not been so serious and had not resulted in non-payment of the price of the poly resin.  After the purchase orders in question, the defendant did not place any further purchase orders with the plaintiff for poly resin but obtained poly resin from a new supplier. 

10.  Mr Law did not know how much poly resin was needed to make the statues which were the subject matter of the purchase orders placed by Mega-1, as seen on pages 186 to 187 of the Trial Bundle.

11.  Mr Law said that after the problem arose in January and February 2007, he contacted the factory as well as complained to Mr Tam of the plaintiff.  Mr Tam’s actual name is Tam Liu Ming. He is also known as Mingo Tom and he made a Witness Statement and gave evidence for the plaintiff in this case.

12.  The complaints from Mega-1 are documented in e-mail exchanges between one Dorothy Hu of Mega-1 and Mr Law who was referred to in the e-mails as “Rain” or “Rain Law”.  The 1^st e-mail that has been disclosed was dated 25 January 2007 and stated :

“Another complaints from the trade.  At least 160 pcs returned to us as our distributors found the right arm was smaller than the right arm.  If the production molds were perfect, the problem then should be the casting.  Something wrong with your resin material.  It shrunk.  Please kindly prepare to make replacement for more as there will be more returns.  Will call you for more detail.”

13.  In response, Mr Law replied by e-mail dated 26 January 2007 that they would talk to the factory regarding this case.  The last e-mail in this sequence is from Dorothy Hu to Mr Law dated 12 February 2007 in which she stated :

“As mentioned on the phone, please just cancel the balance (470 pcs.) as market has lost interested in this item.  For the returns, we will not send it back for re-work, just deduct from the acct payables.”

14.  That e-mail was followed by a letter from Mega-1 to Mr Law dated 13 February 2007 which stated :

“Dear Rain,

Because of the polyresin shrinkage problem had caused us loosing business on the Sentinel SF statue.  We will have to deny the payment on this item.  Please note, besides the cancel order of 470 pcs, our customers also refused to pay the pieces they have received because every piece was rejected due to the bad resin quality.  We have shipped 160 pcs, therefore, we will not pay those $9,600 (unit cost is $60).

Please confirm your understanding and you have to let the factory know the decision we have made.

Regards,

Dorothy”

15.  Notwithstanding this exchange from Mega-1, apparently no written complaint was made to the plaintiff.  Mr Law explained that this was because normally they would inform the party verbally and not do it formally in written form because they were still using raw materials from them and had not found a new supplier yet.  There were not many suppliers of this material.  They did not want to make the situation turn bad.

16.  There was another series of exchanges by e-mail in relation to the Obi-Wan statues starting from the e-mail from Ms Dorothy Hu to Mr Law dated 14 March 2007 in which she stated :

“Rain,

RE: Obi-Wan in Clone Armor

I think the factory should change the polyresin or change the guy making molds.  The cape is too small and the shape also changed—obviously it’s shrank.  Stop making and shipping any more.  Inform us how many left in the factory.  Replace the cape and send us new production sample.

Dorothy”

17.  Mr Law replied on 15 March 2007 stating :

“Dorothy,

The factory also found the same problem.  When making thinner shape, the existing resin will shrink.  They are now re-work on it.  Either to change the thickness of the cape or to change the resin.  We may try to import from Taiwan directly.  But it will take some time.

Total re-work needed: approx. 1,500 pcs.

Best regards

Rain”

18.  On 17 March 2007, Ms Dorothy Hu responded as follows :

“Rain,

I will call you while you are in China.  I want to talk to Tung as well.  We should not change the shape of the cape.  Try better quality resin.  We can’t afford making defectives and loosing money.  I will inform the final qty to ship as distributors may cut their orders.

Dorothy”

19.  This sequence of e-mails ended with two e-mails dated 23 March 2007 and 29 March 2007.  In the 1^st of these, Mr Law confirmed the defendant’s agreement to cancel the balance of 1,500 pieces of statues which had not been shipped.  In the later e-mail, Mega-1 stated that they would not pay for the defective 1,098 pieces already shipped.  That e-mail was followed by a letter dated 2 April 2007 stating :

“Rain,

This letter is to inform you that Mega-1 Merchandising Inc will not pay for 1,098 pcs of Obi Wan In Clone Armor, unit cost is $34, so we will not pay $37,332.  Again the reason for refusing the payment is the same as last case-Sentinel Statue.  The shrinkage is so bad that our customer only got lots of complaints and that’s a damage to their reputation and business.  I heard you have already made the balance of 1,500 pcs.  Please DO Not ship those, these will be cancel orders.

Regards,

Dorothy”

20.  Mr Law said that it was after the receipt of this letter that he had told Mr Tam of the plaintiff that they would not pay for the raw materials.  The decision not to pay for the poly resin was made by his boss, Mr Fred Tange, and he informed Mr Tam of this either at the end of April or in May 2007.  He could not be sure of the exact date.  He could not recall discussing the matter with Mr Tam of the plaintiff after he had received the earlier letter dated 13 February 2007 from Mega-1.  This was because the sum involved (USD9,600) was not big.

21.  In his Witness Statement, Mr Law said that between 25 January 2007 and 2 April 2007, he had made several verbal complaints to Mr Tam of the plaintiff about the defective quality of the goods and he had told him that the defendant should not pay for the goods if the defendant could not receive payment from its customers.  As a result of this shrinkage problem, Mega-1 cancelled 470 pieces of Sentinel statues and 1,500 pieces of Obi Wan statues and also refused to pay for 160 pieces of Sentinel statues and 1,098 pieces of Obi Wan statues already shipped to Mega-1.  Accordingly, the defendant had not received payment of USD126,132 from Mega-1. 

22.  Mr Law said that the statues of the Sentinel and Obi Wan figures had all been broken because they were copyright products and that it did not occur to the defendant company to preserve some of these statues as evidence in this case. 

23.  Mr Law concluded his evidence in chief by saying that he left the defendant company in April 2008 and was working for another company.  He was not very forthcoming about this other company and, when asked whether it had any connection with the defendant company, he only said that it dealt with similar sort of products. 

24.  In the course of his cross-examination by Mr. Tony Ko, Counsel for the plaintiff, Mr Law was asked about tests carried out on poly resin samples provided by the new supplier after the defendant had stopped ordering poly resin from the plaintiff.  He said that the test would be performed by the Dongguan factory which would prepare a mixture and pour it into the mould but he did not know in great detail how the test was conducted nor did he know how long the test would take.  The problems that could be encountered included shrinking and distortion.  Sometimes, shrinking could only be seen 1 to 2 weeks after the removal of the product from the mould.  If the quality of the resin was not too bad, the shrinkage may not appear immediately, but if the quality of the resin was very bad, the shrinkage could be seen immediately.  Mr Law said that he was not 100% sure of the cause of shrinkage and distortion and that he was not sure that he entirely knew what caused these problems.  He was not sure whether a damaged mould could cause distortion.  However, he said that a new mould was used after every 50 to 80 pieces of products had been made from the old one.  He confirmed that it was possible that other causes, other than the quality of the raw material, might cause shrinkage and distortion and he further confirmed that he was not responsible for the manufacturing procedures.  He could also not be certain what were the causes of the distortion.  Although not an expert in manufacturing courses, he did have some basic knowledge.  He agreed that the mixture comprised of resin and fastener as well as plastering powder but he was not sure of the proportions.  He agreed that if too much hardener was added, serious shrinkage could be detected immediately.  If too much plastering powder was added, the product could be fragile whereas if too little was added, the material would be tougher.  Although it was not the only possible cause of the problem, the quality of the raw material was the “greatest possible” cause. 

25.  Mr Law was asked whether he had ever seen the statues that had shrunk and he said that he had seen them at the factory and had seen photographs taken by Mega-1 of the statues that had been delivered to them.  Those photographs had been sent over to him by e-mail.  However, they were no longer retrievable because of a problem with the computer in which they had been stored.  In the course of his re-examination, Mr Law said that he had only seen the photographs and that he had not seen the actual products.

26.  It became apparent from the further questioning of Mr Law that he had left the defendant company some time in April 2008 and had gone to work for Blue Max (Holdings) Ltd where he is still working.  Blue Max (Holdings) Ltd has the same directors as the defendant company.  Mr Law was pressed for the reason why he had failed to mention this matter in his evidence in chief and he answered that it was “because I was not sure they had the same shareholders, but I knew there were the same directors in the two companies.  I do not know whether companies can be said to be related when they have the same directors …  From what I had heard yesterday, I was asked if they had the same shareholders”.  The question he had been asked was much more general than that: the question was whether or not there was any connection between his current employer and the defendant company.  Mr Law further confirmed that there were business dealings between the two companies in that the defendant company supplied Blue Max (Holdings) Ltd with raw materials and poly foam materials and that Blue Max (Holdings) Ltd also produced similar statues and figurines. 

27.  Mr Law also stated that he was not sure whether the poly resin supplied by the plaintiff had all been used to manufacture the two different types of statues for Mega-1.  This was surprising since one could clearly see from the price payable for the poly resin that it exceeded the price of the goods sold to Mega-1.  The price payable for the poly resin was HK$1,662,440 whereas the price payable by Mega-1 for the subject matter of the two purchase orders was USD148,332, or HK$1,156,990 (rounded off and taking the exchange rate of US$1 = HK$7.8).  Clearly, the cost of the final product would have included cost of the other raw materials, the cost of the moulds, and the manufacturing costs as well as a certain margin of profit for the defendant.  When I asked Mr Law about this, he said “sometimes we made a loss, it was the boss who set the price”.  I found this evidence difficult to accept.

28.  He was not sure when the 1^st complaint was made to the plaintiff about the shrinkage, but he thought it was some time between February and March 2007.  He was not sure how often the complaint was made.  He thought complaint was made once every 2 to 3 weeks.  He was not sure when he had told Mr Tam of the plaintiff that the defendant company would not pay if the customers did not pay, but he thought that he had said that around March or April 2007.  When he told Mr Tam about the problem of shrinkage, Mr Tam did not ask him for the cause.  He said that Mr Tam was more experienced than him about these matters.  He was also not sure if Mr Tam had asked to see the products. 

29.  I asked Mr Law whether the defendant company had kept shipment samples from the shipments made to Mega-1 and he answered that he thought that these had been kept, but he did not himself see the shipment samples.  As he was not an engineer, he would not be able to properly examine the product himself.  He only saw the photographs sent by Mega-1.  He had some knowledge of shrinkage and distortion problems in these goods, but he did not have technical knowledge of the same.  He agreed that it was the responsibility of the quality control personnel in the Dongguan factory to deal with that.  He further said that he had read their reports prepared in respect of the shipments of the Sentinel and Obi Wan statues.  However, he could not find those reports because the QC Department of the factory had moved and there had been changes in the QC personnel.  The QC Department had moved at least two times in 2007 and the QC personnel had changed 2 to 3 times.  Although he had read those QC reports, he had not thought it important to keep a copy of those reports nor did he think that he had to show those reports to Mr Tam, and neither did he think of sending the photographs to Mr Tam.  He confirmed that he had never shown Mr Tam the defective product at any time and the reason he gave for this was that “I have told them verbally but since customer had not sold the product in the street, we could not disclose the product.  Our customer feared piracy, so they felt that it was important that the product design should not be seen by anyone”.

30.  He confirmed that they had not received any serious complaints from other customers about similar problems during January to July 2007.   It was then put to Mr Law that if the problem arose from the poly resin supplied by the plaintiff and that poly resin had been used to produce goods for other customers, then logically those products should also have been defective.  Mr Law accepted this, but then went on to say that as far as he knew during that period, “a lot of products were wasted and broken because they were not successfully produced”.  This is another aspect of Mr Law’s evidence that I found difficult to accept.

31.  In re-examination, Mr Law confirmed that he had only read the QC reports in relation to the goods that had not been shipped to Mega-1, including the 1,500 pieces of Obi Wan statues.  However, he could not remember the number of pieces of the Sentinel statues that had been referred to in the QC report he had read. 

32.  Mr Law agreed that there had been two further deliveries of poly resin from the plaintiff even after the 1^st complaint of the shrinkage that was made on 25 January 2007.  However, he explained that they could not stop deliveries as they had only one supplier and they could not stop the operations of the factory.

33.  Although the 1^st e-mail of 25 January 2007 suggested that the problem might have been with the mould, he did not think that that was the case since each mould would make 40 to 50 pieces of statues and it was unlikely that so many moulds would be problematic.  Mr Law also acknowledged that it was suggested in the e-mail of 14 March 2007 that the problem in relation to the Obi Wan statues could have arisen from the quality of the poly resin or from the moulds.  Mr Law explained that the e-mail of 15 March 2007, which he had sent, raised the possibility of changing the design to accommodate the raw material.  Finally, Mr Law confirmed that if the quality of the raw material was very bad, the shrinkage problem would be seen very quickly and could be recorded in the QC report, but if the raw material was not too bad, the shrinkage would take a long time to become apparent.

The evidence of the plaintiff

34.  Mr Tam Liu Ming, also known as Mingo Tom, gave evidence for the plaintiff.  He adopted his Witness Statement served in these proceedings and he gave evidence that from early February 2007 until the date of the letter before action issued on behalf of the plaintiff on 5 July 2007, he had made repeated requests and demands for payment from the defendant.  In addition to faxes and monthly statements, he made repeated oral requests over the phone to Mr Rain Law of the defendant calling every 2 to 3 days.  He also went to the defendant’s office in Kwun Tong about 12 to 15 times to request for payment.  He said that during this period, never once did the defendant communicate to him that there was anything wrong with the quality of the poly resin.  Mr Law even arranged a meeting for him to meet the director of the defendant company, Mr Fred Tange, which took place on 3 April 2007 at the defendant’s factory in Dongguan.  At that meeting, Mr Tange was very hospitable and they discussed new projects and new products.  During the meeting, he asked Mr Tange whether the defendant could settle the outstanding invoices.  Mr Tange instructed Mr Law to follow up on the invoices.  There was no complaint made about the quality of the poly resin.  The 1^st complaint that he received was from Mr Law in mid July 2007, after their letter before action had been sent to the defendant.  He had never seen the e-mails from Mega-1 nor shown any photographs of the products said to be defective.

35.  Mr Tam relied on the Certificates appearing on pages 92-109 of the Trial Bundle which were Certificates of Analysis from the manufacturer of the poly resin in Taiwan.  These were all dated 9 November 2007 and related to the poly resin which had been shipped and delivered to the defendant.  The Certificates confirmed that the poly resin had been analysed and found to conform to standard specifications.  Mr Tam confirmed that these Certificates were reproductions of the original analysis which had been prepared of the poly resin at the time of the shipment. 

36.  Mr Tam said that he had worked in this trade for many years and had worked for 20 years with the plaintiff.  He acknowledged that shrinkage could have been caused by poor quality poly resin but he said that the chance was minimal in the present case given the quality of the poly resin supplied to the defendant as demonstrated by their Certificates of Analysis.  He also said that shrinkage could be attributable to the quality of the hardener or the quality of the plaster powder that was used as filling.  It could also be attributable to the mixing ratio of the 3 materials, namely the poly resin, the filling and the hardener.  Finally, Mr Tam confirmed that the defendant usually paid late and paid for the poly resin 3 to 4 months after delivery but that the plaintiff company never charged interest for this delay of 3 to 4 months. 

My findings

37.  On this evidence, Mr Samuel Yip for the defendant submitted to me that I should be satisfied that the goods supplied to Mega-1, which had been manufactured from the poly resin supplied by the plaintiff, were defective and that the defects were caused because of the poor quality of the plaintiff’s poly resin.  Whilst I am satisfied that the goods delivered to Mega-1 had been produced from the poly resin supplied by the defendant and that 160 pieces of Sentinel statues and 1,098 pieces of Obi Wan statues were defective, I am far from satisfied that the defects in those goods were caused by the quality of the poly resin. 

38.  The defendant was given an opportunity to adduce expert evidence to prove that the cause of the defect was the alleged poor quality of the poly resin supplied by the plaintiff.  However, the defendant declined to do so, apparently for the reason that the defective goods could no longer be retrieved.  It is extremely surprising to me that the defendant would plead and seek to maintain its defence and counterclaim in these proceedings without taking any steps to preserve the evidence to prove its allegations. 

39.  No written complaint was made to the plaintiff about the alleged defective quality of the poly resin until after the plaintiff’s letter before action had been issued on 5 July 2007.  Neither the e-mails from Mega-1 nor their contents were ever relayed to the plaintiff prior to the letter before action of 5 July 2007.  The plaintiff was never provided with an opportunity to examine the defective goods and ascertain the cause of such defects.

40.  No evidence has been adduced before me of any attempt made to retrieve some of the defective statues which had been delivered to Mega-1.  I was told by Mr Law that the statues, which had been produced in Hong Kong but not delivered because of the cancellation of the orders by Mega-1, had all been broken up for copyright reasons.  No evidence was adduced before me of any attempt to contact the copyright owners for permission to retain a few pieces of the statues for evidentiary purposes in these proceedings nor any explanation given to me why that was not done. 

41.  Mr Law said that he had seen photographs of the defective statues which had been sent to him by Mega-1.  He also said that he had seen or read the QC reports in relation to the statues produced for Mega-1.  However, neither were the photographs nor the QC reports produced before me.  The explanations given to me by Mr Law, which I find difficult to accept and which I do not accept, were that the computer containing the photographs had crashed and that those photographs could not be retrieved and also because the QC Department had relocated a number of times and its personnel had changed a number of times.  No evidence was provided to me about any attempts made to obtain the photographs from Mega-1 for the purposes of being produced in these proceedings.  Further, if, as Mr Law contended, the shrinkage problem would not have materialised until some time later, the QC reports he said he had read could not possibly have identified any such shrinkage problems.

42.  It was very clear to me from the evidence contained in the e-mails and given by Mr Law and Mr Tam that shrinkage and distortion problems could be caused for a number of reasons, including defects in the moulds, poor quality of the hardener or plaster powder filling or of the poly resin, or the use of a wrong proportion of these materials when the mixture was created for the purpose of injection into the moulds. 

43.  It is incumbent on the defendant to prove its case.  Mr Law was not involved in the production process.  He could not give any direct evidence about the quality of the mould or the quality of the hardener or plaster filling used, nor of the adoption of proper mixing proportions of these materials.  No one with personal knowledge of the actual production process, and whether or not it was carried properly, was called from the Dongguan factory to give evidence before me.  Instead, the defendant relied on the opinion of Mr Law, who acknowledged that he was not an expert in the field and lacked technical knowledge of the matters in question, but who nevertheless offered his opinion that the “greatest possible cause” of the shrinkage was the poor quality of the resin.  He offered this opinion notwithstanding that he had only seen photographs of the defective products and had not examined the products themselves. I find it difficult to accept that opinion and I do not accept it, particularly when I have regard to the evidence of the Analysis Certificates, which I accept, and which proved, to my satisfaction, that the poly resin delivered to the plaintiff was in accordance with the normal specifications of the poly resin ordered by the defendant. 

44.  I find Mr Tam to be an honest and straight-forward witness and I accept his evidence entirely.  I find that Mr Law did not make any oral complaints to him about the quality of the poly resin supplied by the plaintiff.  Mr Law’s concerns about piracy and his reluctance to show the statues to Mr Tam further supports my finding that he did not complain to Mr Tam about the quality of the poly resin.  If he had done so, Mr Tam would have taken steps to examine the statutes and ascertain the cause of the shrinkage and distortion.  Insofar as Mr Tam’s evidence conflicts with the evidence of Mr Law, I accept his evidence and reject the evidence of Mr Law.

45.  Mr Law was less than forthcoming about his current association with the defendant company and he gave evidence on many matters that I found to be difficult to accept, including his suggestion that his boss set the price in a way that sometimes, they made a loss, which was given as an answer to my proposition that, as the price of the poly resin exceeded the price of the goods sold to Mega-1, not all the poly resin delivered by the plaintiff would have been used to produce the statues for Mega-1.  Although Mr Law said he was not sure whether or not all the poly resin supplied by the plaintiff had been used to make the Mega-1 products, I find that some of that poly resin must have been used to make products for other customers.  I do not accept Mr Law’s evidence that a lot of products made from the plaintiff’s poly resin were “wasted and broken because they were not successfully produced”.  The absence of any evidence of complaints from the customers of those products supports the inference that the defects found in the Mega-1 products were not caused by the quality of the poly resin supplied by the plaintiff.  I would be prepared to draw that inference if it were necessary for me to do so to support my conclusions in this case.

46.  I do not accept that Mr Law made oral complaints to Mr Tam of the plaintiff in March and April 2007.  The documentary evidence showed that the plaintiff had provided written quotations to the defendant on 1 March 2007, 21 March 2007 and 14 April 2007.  Mr Law suggested that these quotations were obtained so as to ascertain the market price of the poly resin and that they did not intend to order the poly resin from the plaintiff.  If so, there did not seem to be any good reason why three quotations were sought within a period of 1½ months from the defendant if there was no intention of ordering goods from the plaintiff.

47.  I also found other aspects of Mr Law’s evidence to be unsatisfactory, including his suggestion that he did not wish to disrupt deliveries of the poly resin from the plaintiff as they had not yet located another supplier and they did not wish to stop the operations of the factory.  Mr Law admitted that there were a number of reputable suppliers of poly resin in the market and the failure to switch to these suppliers at the time suggests to me that the defendant did not believe that any shrinkage problem was the result of the quality of the poly resin supplied by the plaintiff.  Even if the defendant suspected or believed that shrinkage problem was the result of the quality of the poly resin supplied by the plaintiff, the decision to continue taking deliveries from the plaintiff without informing them of potential claims left much to be desired from the standpoint of business ethics.

48.  For these reasons, I conclude that the defendant has failed to satisfy me that it has a valid defence and counterclaim to the plaintiff’s claims.  I enter Judgment for the plaintiff in the sums claimed in §4 of the Statement of Claim, totalling $1,662,440, and I further order that the defendant pays interest on those amounts at the rate of HSBC prime plus 1% for the period commencing from 4 months after the date of delivery up to the date of Judgment.  I also award costs of the action to the plaintiff, to be taxed if not agreed.  The counterclaim is dismissed with costs to the plaintiff, to be taxed if not agreed.