MBA TECH HK LTD. v. YUEN NGA LAN t/a TAT SHING ENTERPRISE CO.

HCA 15260/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15260 OF 1998

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J U D G M E N T

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Background:

1. The Plaintiff, MBA Tech HK Ltd (hereafter referred to as "MBA") is a private trading company in Hong Kong. According to PW1, Mr Fu, who is the manager of the company, MBA is part of the holding company, Legend, based in America. Another company under the Legend umbrella is ACT Electronics Ltd (hereinafter referred to as ACT). Apart from Mr Fu, PW2 Madam Huang is another employee of MBA, and at the material time she was the engineer and also the person in charge of sales.

2. The Defendant company, Tat Shing Enterprise Co (hereinafter referred to as Tat Shing) is a manufacturer of electronic module including LED. DW1 Mr Wong is the general manager of the company in Hong Kong.

Facts:

3. In December 1997, MBA received a purchase order from ACT to ship 360,000 pieces of LED lamps with yellow lighting colour to a company in Thailand called Century Electronics and Systems Co Ltd (hereinafter referred to as "Century").

4. After considering several companies, MBA decided to order the pieces from the Tat Shing. So on December 12, PW2, Miss Helen Huang sent a purchase order to Tat Shing, Document 1 in the Bundle of Documents. It can be seen that the order was for 360,000 pieces of LED with the part no. "LTL-907 YK yellow, LED" and the manufacturer's name is "Lite-On". It is not in dispute that the "YK" in the item description refers to the lighting colour being yellow. The contract for the sale and purchase of this lot was accepted when Tat Shing signed as confirmation on the document.

5. As a result, the 360,000 pieces was delivered to MBA's office on December 15. Upon a visual inspection, Miss Huang saw that 2 packets of about 10,000 pieces did not conform to the description in the Lite-On product description short form (Document 20 in the Bundle of Documents) in that the lens should be water clear. There 10,000 pieces instead of being water clear were yellow in colour. Tat Shing replaced these pieces after Miss Huang spoke to Mr Wong of Tat Shing. MBA then paid in full for the goods and they were shipped to Thailand.

6. Subsequently, Miss Huang of MBA contacted Mr Wong of Tat Shing that part of the goods did not conform to the specification of having yellow lighting colour. This was also evidenced by the 8 faxes produced in the Bundle of Documents from pages 10 to 30.

Plaintiff's case:

7. It is the case for the Plaintiff that at the time the goods were ordered, Miss Huang of MBA had stressed orally to Mr Wong of Tat Shing that these goods were to be sent overseas and that the LED lamps must have yellow lighting colour. Miss Huang said that this was so important that when she wrote out the purchase order, which was faxed to Tat Shing, she had written out the word "yellow" after the part number although it was unnecessary as the part number already refers to yellow lighting colour in the description "YK" following the part number.

8. Both Madam Huang and Mr Fu gave cogent and credible evidence. Although it appeared to me that Madam Huang was more familiar with the details than Mr Fu.

9. I find that both witnesses were honest and reliable. I therefore have no difficulty in finding that Madam Huang did stress to Mr Wong of Tat Shing that the subject LEDs were for a customer in Thailand and that it is important that they be yellow in colour.

10. I also find as a fact that when Miss Huang was informed about the non-yellow colour in about 30% of the LEDs, she did fax Tat Shing on January 21, and spoke to Mr Wong of Tat Shing asking him to accept the return of those goods or refund MBS. Mr Wong said he would make enquiries from the factory if the said goods could be repacked into another form.

11. Having received no response from Mr Wong, Miss Huang sent further faxes dated January 22, February 3 and February 9. These are all produced in the Bundle of Documents No. 11, 12 and 13.

12. Finally, on February 12, Mr Wong suggested to Miss Huang 3 options:

1) that he be given 2 to 3 months to re sell the said goods first, then he will refund MBA or

2) to repack the goods into "tape reel" form, or

3) MBA could choose other items in Tat Shing's stock list of the same value to replace the rejected goods.

On the following day, Mr Wong informed Miss Huang that he was unable to carry out the first 2 options. Miss Huang, after consulting her boss, told Mr Wong that the 3rd option was not acceptable to MBA and that the only solution was for Tat Shing to refund MBA.

13. Having received no positive response from Mr Wong, Madam Huang sent another fax on March 2 and a registered letter on March 9 (see Document 14 and 15). When she telephoned Mr Wong, he disconnected the phone.

14. Finally, Madam Huang sent a registered letter dated March 13 and a final fax on March 26.

15. The Plaintiff relies on the telefax from Century Electronics and Systems in Thailand (Document 7 in Bundle of Documents) as evidence that at least 15% to 23% of the rejected goods of 265,877 pieces were of the wrong colour. The facts stated in the telefax was not challenged by the Defence. So I accept that at least up to 15% of the 76,500 pieces of the rejected goods received by Century were not yellow in lighting colour.

16. The Plaintiff claims that it is entitled to reject the 265,877 LEDs and claims damages for breach of contract.

Defence case:

17. Mr Wong of Tat Shing gave evidence on behalf of the Defence.

18. I can say right away that he was not an impressive witness. It was clear that when he was answering questions about the 3 suggestions for settlement that he had mentioned to Madam Huang, he initially evaded the question then denied he made the suggestions but finally agreed that he did suggest a period of grace of 2 to 3 months for Tat Shing to refund MBA.

19. I find that he knew from the beginning that the Plaintiff only wanted LEDs of yellow lighting colour and when he was informed of the non yellow colour of some of the said goods he did make these 3 suggestions that Madam Huang said and he subsequently employed delaying tactics to avoid talking to Madam Wong about the refund.

Right to reject:

20. Under S37(1)(b) of the Sale of Goods Ordinance (Cap 26) the buyer is deemed to have accepted the goods when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller.

21. I am satisfied that in this case by sub selling the LEDs and transferring possession to Century in Thailand, the Plaintiff has acted inconsistently with the ownership of the Defendant and is deemed to have accepted the goods and has therefore lost its right of rejection.

22. As Counsel for the Defence properly conceded, the Plaintiff is nevertheless entitled to claim for damages.

Damages:

1. Cost of the goods:

23. The purchase price for the 265,877 pieces of LED is $126,291.58.

24. I accept the Plaintiff's evidence that these goods are of no use to them and the cost involved to test each LED to weed out those which do not conform to the description would be too prohibitive to do. I also accept Mr Fu's evidence that even if that was done, i.e. to test each LED, the tested LEDs would be of no commercial value as they would have been unpacked from its original packaging and potential buyers may not believe they were "Lite-On" LEDs.

25. I am satisfied therefore that these 265,877 pieces of LED have no commercial value and I award the Plaintiff the full cost of the goods at $126,291.58.

Other claims:

26. The Plaintiff has failed to prove the freight charges involved so I make no award under this claim.

27. The Plaintiff has to prove its estimated profit loss for the sustained cash flow and loss of interest with satisfactory and cogent evidence.

28. Neither Mr Fu nor Madam Huang managed to prove to the satisfaction of this court on what proper basis they had calculated their claims. I therefore make no award under these 2 claims.

29. I give judgment to the Plaintiff in the sum of $126,291.58. There will be interest on the said sum at 10% from issue of writ until judgment and thereafter at judgment rate until payment.

30. I make an order that the Defendant should pay the Plaintiff its costs of the action.