BEST TACT INTERNATIONAL LTD t/a TACK CHEONG TRADING CO v. SQUARE PRODUCTION CO LTD

HCA 1643/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1643 OF 2008

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BETWEEN

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JUDGMENT

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1.  The plaintiff claims against the defendant 2 sums:

(a)   $2,094,952.00 being the difference between money that the plaintiff had paid the defendant in advance for production of goods sold to the plaintiff, less the total value of the actual products supplied to and accepted by the plaintiff;

(b)   $315,025.00 being the amount for invoices wrongly settled by the plaintiff.

2.  The defendant denies owing any money to the plaintiff and counterclaims for $14,855,464.00 for outstanding price of goods sold and delivered to the plaintiff as per the parties’ running account.

BACKGROUND

3.  Mr. Ma was the founder of the plaintiff and used to trade under the name of Tack Cheong Trading Company.  In about 2003, Mr. Ma and a firm called Pro-A embarked on a business venture whereby Pro-A would exclusively design, manufacture and sell airsoft and related products to Tack Cheong through a running account arrangement.  Tack Cheong paid money in advance to Pro-A to enable Pro-A to design and manufacture products and run its business.  The product specifications would be agreed between Mr. Ma and Pro-A and production would be based on the approved samples.  Pro-A would manufacture the products in Mainland China and deliver them to Tack Cheong in Hong Kong.  The price of the products delivered would be set off against the money paid by Tack Cheong in advance.

4.  The plaintiff was incorporated in 2004 to take up Tack Cheong’s operations.  The defendant was incorporated in September 2007 to take up the business of Pro-A.  It is common ground that the parties carried on the same previous business arrangement as Tack Cheong and Pro-A respectively. 

5.  In 2008, there was a breakdown of relationship between the parties.  At a meeting held on 28 July 2008 (“the July meeting”), the parties agreed that from then on, the defendant did not need to supply any of the outstanding stocks to the plaintiff and the defendant was at liberty to sell any outstanding stocks to outsiders.  The plaintiff did not need to pay any outstanding price to the defendant.   The parties would close the running account as of that day to compute the final figure.  Any excess of money paid in advance would be repaid to the plaintiff and any shortfall in purchase price would be paid to the defendant.

6.  The final accounts produced by the defendant was disputed by the plaintiff as being in contravention of the agreement reached at the July meeting.  The defendant, on the other hand, alleged that there had been prior agreement for Tack Cheong to purchase a “minimum quantity” of the products in every order with Pro-A at a preferential price.  The plaintiff disputed this claiming that the “minimum quantity” was only the threshold amount beyond which Pro-A would give a discount in the unit price; the plaintiff was only liable to pay for the actual goods delivered.

7.  The total amount paid in advance by the plaintiff to the defendant was $51,869,687 (admitted by the defendant). The plaintiff claims that the total amount of airsoft products sold by the defendant and accepted by the plaintiff was $49,774,735. 

8.  In addition, the plaintiff seeks to recover from the defendant $315, 025.00 for wrongly settled invoices on the following grounds:

(a)   The sample did not accord with the specifications.  The plaintiff never placed an order with the defendant for production of airsoft products but the latter nevertheless invoiced it.

(b)   Some products were defective.  The defendant nevertheless invoiced the plaintiff.  The plaintiff incurred $30,000 repair costs before those products could be resold.

(c)   The plaintiff had paid an invoice for deposit for production of products but the defendant never delivered any product to the plaintiff.

(d)   Products delivered to the plaintiff were found to be defective and beyond repair. 

9.  The defendant disputes the amount claimed.  It asserts that the defendant had ordered minimum quantities at preferential prices but had only taken partial delivery.  The balance was held in stock pending its request for delivery.  There was thus more money due to the defendant than the money in advance.  Regarding the allegedly wrongly settled invoices, the defendant contends that products were delivered; and that the defendant had incurred a charge for modification to complete guns as requested by the plaintiff.

ISSUES

10.  The issues, based on those framed by Mr Chang, are:

(a)   What was the arrangement between Tack Cheong and Pro-A in respect of the production and payment of goods?  In particular, whether it was agreed between the parties that:

·    Tack Cheong had to pay for a certain “minimum quantity” of the products every time it placed an order with Pro-A (as the defendant contends); or

·    Tack Cheong did not have any particular “minimum quantity” to meet, but that the threshold amount merely set out the quantity beyond which Pro-A would give a discount in the unit price and Tack Cheong was only liable for the actual goods that had been delivered to and accepted by it.

(b)   What were the terms of the agreement reached at the July meeting?

(c)   Whether the plaintiff’s claim for $315,025 could be proved?

(d)   The final accounts between the parties.

11.  The plaintiff has called 2 witnesses.  The defendant is absent at the trial notwithstanding that it is aware of the trial date, it having been represented at the pre-trial review 8 weeks ago.

12.  The plaintiff’s witnesses have proved the plaintiff’s claim by their witness statements.  Since the defendant has not come forward to put forth its case, the defence fails and the counterclaim is dismissed. 

Costs

13.  Costs should be to the plaintiff.  This case is not complicated.  Pleadings and witness statements were much too prolix insofar as setting out the history of the parties’ relationship was concerned.  The costs as shown in the plaintiff’s supplemental costs statement for instructions and communication with counsel appear to be excessively high. I disallow part of the costs for communication with client, instructions to and communications with counsel, preparation of documents, costs of counsel in advising in conference and settling witness statements.  I also reduce the costs for preparation of trial bundles (which are simple and not voluminous).  As for counsel’s unused refreshers charged on the basis of the vine formula, they are not recoverable on party-and-party basis of costs. I summarily assess the costs at $750,000.

CONCLUSION

14.  I give judgment to the plaintiff for the sums of $2,094,952.00 and $315,025.00.  The counterclaim is dismissed. I make an order nisi that:

(i)    interests shall be on the judgment sums at judgment rate from the date of the writ to the date of payment; and

(ii)   costs should be to the plaintiff, summarily assessed at $750,000 and paid by the defendant.

Any application for variation of this order nisi should be made within 14 days of the handing down of this judgment.