PRISM TECHNOLOGY LTD v. TOPWIN & COMPANIES LTD

HCA 1190/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1190 OF 2011

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AND

HCA 1930/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1930 OF 2011

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___________________

J U D G M E N T
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Introduction

1. This is a dispute involving the sale of headsets for two popular TV games ie Sony’s PS3 and Microsoft’s Xbox from the Defendant (“Topwin”) to the Plaintiff (“Prism”) for onward sale to Prism’s customer viz. Accessories4Technology Ltd (“A4T”). 

2. In HCA 1190/2011, Prism claims against Topwin under five purchase orders dated 16 July, 30 August and 3 September 2010 (“POs” or “PS3 POs”) issued by Prism and countersigned by Topwin in respect of 108,250 units of PS3 headsets. The total contract price was over US$1.36 million.

3. Prism’s claims consist of:

(1) late delivery under the POs, as a result of which a large number of headsets had to be shipped out by air, resulting in the incurring of airfreight charges – the claim pleaded is for the sum of US$182,672.22, being the difference between the airfreight charges and the average seafreight charges; and

(2) non-delivery of the remaining 31,574 PS3 headsets resulting in loss of profits in the sum of US$144,321.64. On Prism’s case, owing to the delay in delivery and the failure of Topwin to rectify certain quality problems with the headsets, it canceled the orders for the 31,574 units of PS3 headsets (“Remaining Orders”).

4. Topwin, on the other hand, counterclaims against Prism for the latter’s wrongful failure to approve pre-production samples, give shipping instructions for the Remaining Orders and their wrongful cancellation. It counterclaims for the sum of US$485,514.86 consisting of:

(1) contract price of the Remaining Orders in the sum of US$390,151.16;

(2) cost of wasted raw materials in the sum of US$93,755.70 caused by Prism’s request to modify certain design and function of the Remaining Orders so as to reduce the “Pop” noise of the headsets;

(3) testing fee and packaging costs in the sum of US$1,608.

5. In HCA 1930/2011, Topwin claims against Prism under four sales confirmations dated 20 September 2010 (“SCs” or “Xbox SCs”) issued by Topwin to Prism in respect of 18,008 Xbox headsets and 13,504 Xbox online packs (“collectively “Xbox headsets”) with a contract value of US$248,944.80.  These SCs corresponded with Prism’s purchase order dated 9 September 2010 no. PIl0208-1 and three purchase orders dated 15 September 2010 no. PIl0222-1, PIl0223-1 and PIl0224‑1 (“POs” or “Xbox POs”) issued by Prism to Topwin. Topwin claims Prism has wrongfully cancelled all orders for the Xbox headsets on 17 November 2010. It claims:

(1) the full contract price of the Xbox headsets in the sum of US$248,944.80; 

(2) alternatively, US$122,126.14 comprising;

(i) loss of profit - US$110,292;

(ii) value of unused raw materials - US$10,072.48;

(iii) costs of research and development - US$1,761.66.

6. In addition, Topwin claims against Prism for US$4,000 and US$6,000, being the outstanding balance of toolings and moulds (“Toolings”) charges for the PS3 headsets and Xbox headsets respectively.

7. Prism’s defence is principally one of denial. It denies there was any concluded agreement on the production of Xbox headsets as neither the Xbox POs nor the Xbox SCs had been accepted, signed or returned by Topwin to Prism and vice versa. On 17 November 2010, Prism’s customer A4T decided to cancel all orders for Xbox headsets when it was evident that Topwin could not make timely delivery. As the Xbox POs had never been accepted by Topwin, Prism was entitled to and did withdraw them.

8. Prism further denies that there was any concluded agreement between the parties on the production of Toolings for Xbox and, in any event, Topwin had failed to produce the Toolings or pre‑production samples which were acceptable to A4T. As far as Toolings for PS3 were concerned, Prism said it had fully settled the charges in the sum of US$38,100.

Commercial Background 

9. Both Prism and Topwin are companies incorporated in Hong Kong.

10. At the material time, Prism carried on the business of sourcing and supplying audio and video accessories to foreign importers. A4T was one such importer based in the UK and an important customer of Prism. According to the testimony of Ms Yeung Yuk Wan, Scarlet (“Scarlet”), marketing manager of Prism, A4T accounted for 50% or more of Prism’s business.  A4T’s customers were wholesalers and retailers all over Europe.

11. Topwin, on the other hand, carried on the business of manufacturing audio and video accessories. At the material time, its manufacturing facilities were in Mainland China.

12. From about January 2010 onwards, Mr Lui Kam Lim, William (“Mr Lui”), director of Prism, entered into discussion with Ms Ng Bun Lai, Maria (“Ms Ng”), director of Topwin, to explore the possibility of manufacturing PS3 headsets and Xbox headsets for Prism (respectively “PS3 project” and “Xbox project”). Although Mr Lui had known Ms Ng for years prior to 2010, this was the first time the two companies discussed and eventually entered into business relationship with each other.

13. Both PS3 and Xbox projects were initiated and driven by A4T. It is Mr Lui’s evidence that when he and Ms Ng were engaged in discussion in early 2010, he had made it known to Ms Ng that the PS3 headsets were targeted to reach consumers during the peak season of Christmas 2010. On the other hand, Ms Ng initially denied this in her cross examination. After some cross examination, she finally accepted that she was made aware that the PS3 headsets were targeted for Christmas 2010, but she said that it was only after the PS3 POs had been issued.

14. For reasons set out later in this judgment, this court finds Mr Lui a truthful witness and prefers his evidence to that of Ms Ng. Furthermore, Mr Lui’s evidence is corroborated by the contemporaneous emails exchanged between the parties, some of which will be outlined below. His evidence is also corroborated by the shipment dates set out in the PS3 POs which ranged between 16 August and 10 November 2010. If A4T and hence Prism were targeting the peak season of Christmas 2010, there was no reason or logic why Mr Lui would not inform Ms Ng about it in the course of their negotiations. And if Mr Lui were to inform Ms Ng about the target date of Christmas 2010, there was no reason or logic why he did not do so before placing the POs on Topwin, but only afterwards.

15. For PS3 headsets, three different models were involved viz. CP‑PRO (entry-level model), CP-NC1 (“premium”/ mid-range model) and CP‑NC2 (“ultimate”/ high-end model). For Xbox headsets, there were only two models viz. SPC 7111 (headset) and SPC 7112 (online pack). A4T had obtained licences from Sony Computer Entertainment Europe Limited (“Sony”) to sell the PS3 Headsets in question. As the PS3 headsets would bear the Sony logo, prior to mass production, all samples must be approved not just by A4T but also by Sony in order to protect its goodwill. On the other hand, the Xbox headsets would bear A4T’s logo “4Gamers” and their samples required only the approval of A4T. 

16. The headsets were not inventions as such – rather they were fashionable gadgets with new and attractive designs. Like all fashion, their demand fluctuated. Since Topwin was required to develop and manufacture the PS3 headsets according to the specifications provided by A4T and to the satisfaction of the Plaintiff, A4T and Sony, the whole process from concept to actual shipment entailed regular and frequent meetings between Topwin and Prism, reviews, testing, modifications and final approval of various prototypes and samples before they could be put into mass production and ready for shipment. In turn, Prism had regular contact with A4T to obtain its and Sony’s comments and approval before the next step of the development could proceed.

17. The samples produced by Topwin in chronological order were as follows.

18. Dummy Samples (Prototypes). These were the very first samples hand-made by Topwin with only the outer shell of the headset without any electronic fittings.

19. Functional Samples. These were hand-made dummy samples with electronic parts inside and thus possessed the functions of the finished products. These functional samples were variously referred to in evidence as “working samples” or “working prototype”. 

20. Compliance Test Samples. These were a more advanced form of functioning samples.

21. Off-Tooling Samples. These were another form of functioning samples made from Toolings produced by Topwin in preparation for mass production. These samples were also referred to in evidence as “pre‑production samples”.

22. Golden Samples. These were off-Tooling samples which were ready to be sent to Sony for final approval before mass production. Mass production would commence once these samples were approved by Sony.

23. At every stage of production of the different samples, Prism would receive from A4T and/or Sony comments and feedback which were in turn relayed to Topwin for follow-up action.

PS3 Project

24. After some preliminary discussions, by email dated 1 April 2010 to Topwin, Prism confirmed the design of the headsets and stated that A4T had to see the “prototypes” ie dummy samples during April 2010 and then they could be presented to Sony “for final approval”.

25. Things got off to a bad start at Topwin’s end.

26. By email dated 23 April 2010, Topwin apologized for “the extended time required for the first prototype” and that “the delivery schedule of the various samples will be postponed slightly”.  In that email, Topwin also said:

“Please, however, be rest assured of utmost effort to keep the schedule to the interest of both of us.” (emphasis added)

27. By email dated 7 May 2010 to Prism, Topwin apologized again. The email stated:

“We are sorry that we have encountered bit disruption that has led to bit postponement…We are sorry for the delay that has affected the progress of the projects. We will certainly stick to the schedule and avoid further delay, with our utmost effort.” (emphasis added)

28. By email dated 11 May 2010 to Prism, Topwin attached a revised schedule postponing the submission of prototypes and working samples to various dates in May. 

29. From these early emails, as well as the subsequent emails exchanged between the parties, it is evident that Ms Ng was well aware of the critical importance of adhering to schedule and that delay at each stage of the process would have a knock-on effect on shipment of the headsets.

30. By email dated 17 June 2010, Prism informed Topwin that the overall response from clients to the samples was very well and they needed to move to the next stage “as quickly as possible”. Prism asked Topwin to go ahead with the Toolings for both PS3 and Xbox and mentioned that the PS3 “off-tool samples” were needed by 18 July for submission to Sony. By another email dated 17 June 2010 to Topwin, Prism asked for the provision of one “perfect sample” for each model of the PS3 headsets for Sony’s technical evaluation by 23 June, and the provision of 6 off‑tool samples before mass production.

31. As noted in an email dated 23 June 2010 from Prism to Topwin, there was a meeting between Scarlet and Ms Ng at Topwin’s factory the day before. The email put on record the discussion between the two at the factory as follows regarding PS3 headsets:

(1) One perfect working sample per model should be completed on 28 June.

(2) Toolings to be completed on 18-23 July.

(3) 6 pieces of off-tool perfect samples should be ready by end of July for approval prior to mass production.

(4) First shipment in mid-end August.

32. The parties then negotiated on the final Toolings charges and payment terms for both PS3 and Xbox headsets to which I shall return later in this judgment.

33. By email dated 13 July 2010 to Topwin, Prism set out A4T’s comments on the PS3 samples and asked Topwin to send improved samples “as soon as possible”.

34. By another email dated 14 July 2010 to Topwin, Prism expressed its concern since the PS3 project was its main project for that year. Many problems, in terms of sound quality and function, were still found in the samples last sent which were supposed to be final samples. Prism said it started worrying and asked Topwin to focus fully on the project.

35. Eventually, after receiving A4T’s purchase orders, Prism placed its first two orders on Topwin by email on 16 July 2010. Details of the two PS3 POs were as follows.

1^st PO

Date	PO No.	Shipment Date	Shipment Term	Quantity
16.7.2010	PI10134-1	16.8.2010	FOB HK	25,000

2^nd PO

Date	PO No.	Shipment Date	Shipment Term	Quantity
16.7.2010	PI10135-1	10.9.2010	FOB HK	17,000

36. In the 16 July 2010 email, Chan Mei Hung (“May”), merchandiser of Prism, asked Ms Ng to confirm Topwin’s acceptance of the terms of the two POs by email within 24 hours. There was a subsequent increase in the unit price for the PS3 headsets by US$0.23 each since A4T insisted on adding the so-called “Product Strings” to the headsets. On 20 July 2010, May sent two revised POs to Topwin and again asked Ms Ng to confirm their acceptance of the terms by email within 24 hours. Thereafter, May sent a total of five reminders to Ms Ng before Topwin replied.

37. Finally, on 6 August 2010, Mr Wallace Yuen (“Mr Yuen”) of Topwin returned the two PS3 POs to May by email. The POs were signed in the name of Topwin. At the same time, Mr Yuen sent two corresponding Sales Confirmations (“SCs” or “PS3 SCs”) of Topwin no. SC/10/347 and SC/10/348, both dated 23 July 2010, to May and asked her to return the signed PS3 SCs with bank payment details of the deposit.

38. On 30 August 2010, Prism placed its third order on Topwin by email with details as follows.

3^rd PO

Date	PO No.	Shipment Date	Shipment Term	Quantity
30.8.2010	PI10197-1	23.9.2010	FOB HK	6,250

39. By email on 2 September 2010, Mr Yuen returned the signed PO to Prism. The PO was signed in the name of Topwin. The words “To Be Advised” were written by hand next to the shipment date on the PO.  On 6 September 2010, Mr Yuen sent a corresponding SC of Topwin no. SC/10/420 dated 30 August 2010 to Prism and asked Prism to confirm by return. As with the two previous ones, the delivery date in the SC was simply marked “To Be Advised”. It is not in dispute that Prism has not signed and returned it to Topwin. 

40. Lastly, on 3 September 2010, Prism placed two more orders on Topwin by email with details as follows.

4^th PO

Date	PO No.	Shipment Date	Shipment Term	Quantity
3.9.2010	PI10202-1	15.10.2010	FOB HK	39,000

5^th PO

Date	PO No.	Shipment Date	Shipment Term	Quantity
3.9.2010	PI10203-1	10.11.2010	FOB HK	21,000

41. On 8 September 2010, Mr Yuen returned the signed POs to Prism. The POs were signed in the name of Topwin. At the same time, he attached two corresponding SCs of Topwin dated 6 September 2010 ie SC/10/430 and SC/10/431 with delivery dates marked “To Be Advised”. Prism never signed these two SCs and sent them back to Topwin.

42. The documentary evidence shows that Topwin commenced delivery under the 1^st PO on or about 4 October 2010. It did not deliver the next batch of headsets until 30 October 2010. Its deliveries under all the POs can only be described as piecemeal and the emails exchanged between the parties were littered with Prism’s complaints of delay. The following email from Scarlet to Ms Ng on 11 November 2010 is a good illustration of the dire situation faced by Prism:

“Maria,

You have told me that around 5500 pcs will be ready for this week, our customer has already make the allocation based on your schedule and it is for sure that we cannot let their customer down again. We have allocate 2000 pcs CP-NC1 to be produced and send to our forwarder before Nov 12 and balance 3500 pcs CP-PRO will be allocate to different customer and their closing as below:

….

I must tell you that these shipments are vital to us and we cannot afford any delay. Your production is far behind from your original plan, our customer are shouted by their customer and threaten to cancel the orders now. We all be the loser if they really cancel all their orders. I am sorry but I have to say that it is our last chance to keep this item.

Scarlet”

43. As evident from the emails in early November 2010, while Topwin was making deliveries under the 1^st PO, quality problems still persisted with regard to the headsets, one of which was the so‑called “Pop” noise problem. Put simply, it means whenever an end-user put on the headset and plugged it into the PS3 play station or unplugged it, he would hear a “Pop” sound. Sony and A4T kept requesting improvements to be made but the problem still persisted. As recorded in an email dated 12 January 2011 from Scarlet to Ms Ng which set out Scarlet’s note of a meeting held the day before, “Pop” noise remained a problem and Topwin had yet to figure out a way to resolve it.

44. In the end, Topwin has fully delivered under the 1^st, 2^nd and 3^rd POs as well as partially delivered under the 4^th PO, totally 76,676 headsets.

45. Before moving on to the next section, this court would make two further findings / observations.

46. First, although the shipment term stated in the POs was FOB HK, it is not in dispute that the headsets were destined for A4T and its customers in Europe, principally the UK. The original plan of A4T was to ship the goods out of Hong Kong by sea, for the obvious commercial reason that seafreight was much cheaper than airfreight.

47. Second, for the present purpose, the crucial difference between the PS3 POs and PS3 SCs was the shipment dates. While the shipment dates in the POs were fixed, the delivery dates in the SCs were simply marked “To Be Advised”. As I said earlier, it is not in dispute that Prism never signed the PS3 SCs or returned them to Topwin. Subsequently, on or about 22 November 2010, Topwin issued revised PS3 SCs to Prism (“Updated SCs”). In these Updated SCs, the shipment dates were marked “Before 31 December 2010”. Again, Prism never signed these Updated SCs or returned them to Topwin.

Xbox Project

48. The negotiation between Prism and Topwin on the Xbox project followed a similar pattern, save that Sony was not involved.

49. This project was just as ill-fated as the PS3 project, if not worse.

50. On 3 September 2010, Prism sent its first Xbox PO ie PIl0204-1, together with two PS3 POs, by email to Topwin. PIl0204‑1 covered 10,000 headsets with a shipment date of 15 October 2010. While Topwin chose to sign and return the two PS3 POs to Prism, it did not do the same for PIl0204-1. By email dated 8 September 2010, Mr Yuen told May that Topwin was still studying its details.

51. On 15 September 2010, Scarlet informed Ms Ng that Prism had tested and rejected the Xbox sample supplied by Topwin. The problems found included low volume of the microphone and a loud humming noise. On 16 September 2010, before Topwin indicated its acceptance of PIl0204-1, Prism cancelled it. This was acknowledged by Mr Yuen in an email dated 22 September 2010 to May.

52. On 9 September 2010, May sent Xbox PO PIl0208-1 by email to Ms Ng in respect of 1,008 units of SPC 7111 with a shipment date of 9 October 2010. In the covering email, May asked Prism to confirm and accept its contents, including inter alia shipment date. This PO went through two revisions, the last of which was sent to Topwin by email on 26 October 2010. By then, the quantities ordered had been changed to 1,008 units of SPC 7111 plus 504 units of SPC 7112. The shipment date was postponed to 10 November 2010.

53. On 15 September 2010, May sent three Xbox POs ie PIl0222‑1, PIl0223-1, PIl0224-1 by email to Ms Ng. These three POs covered 6,000, 8,000 and 3000 units of SPC 7111 and 4,000, 7,000 and 2,000 units of SPC 7112 respectively. The original shipment dates stated on these three POs were 20 October, and 5 & 15 November 2010 respectively. In the covering email, May again asked Prism to confirm and accept its contents, including inter alia shipment date.

54. Topwin never signed the Xbox POs or sent them back to Prism.

55. On 22 September 2010, in Topwin’s typical fashion, Mr Yuen sent four Xbox SCs, all dated 20 September 2010, to Prism.  These four SCs were supposed to “correspond” with POs PIl0208-1 PIl0222‑1, PIl0223‑1 and PIl0224-1. The shipment date on the SCs was “To Be Advised”.

56. Prism never signed the Xbox SCs or sent them back to Topwin.

57. By email dated 26 October 2010, May informed Ms Ng that Prism had cancelled PIl0223-1 and changed the shipment date of PIl0222‑1 from 20 October to 10 November 2010. The shipment date of PIl0224‑1 remained 15 November 2010.

58. Meanwhile, Topwin kept sending samples to Prism for A4T’s approval but they were all found to be unsatisfactory in one way or another. Without A4T’s approval, Topwin could not begin mass production of the Xbox headsets, never mind about shipping them.

59. The contemporaneous emails reveal that by early November 2010, Topwin has still failed to produce a fully functional sample to Prism.

60. On 23 October 2010, Scarlet sent the following to Ms Ng:

“Maria,

Here below is the email from our customer when he knows that the XBox 360 headset cannot be ready as promised. I really hope you can treat our orders seriously.

Quoted:

Tony tells me that, despite promises from Maria, he did not get a good working sample of the Xbox Headset to hand carry L

And worse still the sample still had a headphone jack and not RCA connectors as had been agreed with her on Tuesday ??

At least the Blister is now sorted, so assuming Tony’s bag turns up in Manchester (he has had a problem with this flight!) then Steph can confirm her artwork on Monday / Tuesday.

As I said we MUST have our initial shipment of the GXP 7111/ GXP 7112 no later than the 19^th November, which I know you said was a tight deadline last weekend – so now it is even tighter.

If the shipments are delayed beyond that date, we will need to cancel more of the current PO quantities, and it will be Topwin who have a problem with the components they have sourced and also those we have committed to for the Game Grips ready for production at other factory…

Unquoted

Best regards,

Scarlet”

61. That was followed by another email on 28 October 2010 from Scarlet to Ms Ng:

“Maria,

Customer finds the following problem when he tested the samples that you sent to me on this Monday. I will check with if the same problem are find in the last sample, though I don’t think it is as he does not mentioned it in the last comments. Anyway, can you look into it and give me a reply today.

1. When the USB plug is connected there is a very loud pop (it even hurt my ears) this happens even if the volume control is turned down !

2. When the 2.5mm microphone jack is connected there is a constant loud buzzing noise that can be heard via the headset, the buzzing noise volume can be turned up or down by using either the chat or game volume but the Mute switch does not affect it?

I’m getting worried that we won’t meet the shipping deadline of the 19^th Nov as we have never had a set that is fully working, it seems we have different faults on every sample we have received !

Best regards,

Scarlet” (emphasis added)

62. On 5 November 2010, Scarlet wrote:

“Maria

We have just tested your XBox360 sample with Turtle Beach headset. Customer using your 360 and we use the Turtle Beach. Here belos (sic) is the result.

1. The loud buzzing noise happens when a USB charging cable is connected to the controller, if this is disconnected then the buzzing stops ?

2. When I was wearing the Topwin sample it caused a lot of feedback on Lawrence’s Turtle Beach headset (he could hear his own voice) when I disconnected the Topwin headset and used our basic 4Gamers one the feedback on Lawrence’s stopped!

3. The microphone is very loose and will not stay in position (same problem as per the CP-PRO)

It looks as though the Topwin headset is causing problems with the other users headset? and also picking up interference from the charging cable?

Maria, when the improved sample can be ready?

Scarlet”

63. On 8 November 2010, Scarlet wrote again:

“Top Urgent! Top Urgent!

Maria,

We must have your reply on when the improved XBox360 headset will be ready. Customer have to consider to give up this project if we miss the Christmas sales. We must have the first delivery on Nov. 19, 2010.

It is very serious and I hope you can provide the improved sample soon.

Scarlet” (emphasis added)

64. Eventually, on 17 November 2010, Scarlet informed Ms Ng that Prism decided to cancel all Xbox POs, as Topwin could not ship out any headsets by 19 November 2010 and A4T had decided to drop Xbox for the Christmas peak season.

Issues Before This Court

65. The principal issues before this court are:

For PS3 headsets

(1) What, if any, was the agreed shipment dates for the PS3 headsets (“1^st Issue”)?

(2) Whether time of shipment was of the essence (“2^nd Issue”)?

(3) Whether Topwin was in breach of contract for failing to meet the agreed shipment dates (“3^rd Issue”)?

(4) Whether Prism was in breach of contract for failing to give shipping instructions and for canceling the Remaining Orders (“4^th Issue”)?

(5) The measure of the “innocent” party’s loss and damage (“5^th Issue”)?

For Xbox headsets

(6) Whether or not the parties had a concluded agreement for the sale and purchase of Xbox headsets? (“6^th Issue”)

(7) If yes, what were its terms, which party was in breach of it and what was the “innocent” party’s loss and damage (“7^th Issue”)?

(8) Whether or not the parties had a concluded agreement for the production of Toolings for Xbox? If yes, what were its terms, which party was in breach of it and what was the “innocent” party’s loss and damage (“8^th Issue”)?

The witnesses – general observations

66. At trial, Prism called three witnesses:

(1) Mr Lui.

(2) Scarlet.

(3) May.

67. Topwin called one witness: Ms Ng.

68. I have carefully considered the testimony, as well as the demeanour, of all four witnesses and assessed it against the documentary evidence, principally contemporaneous emails, and the known and undisputed surrounding circumstances of this case.  I have in particular considered the inherent probabilities or otherwise of the parties’ respective contentions and assessed the witnesses’ credibility accordingly. 

69. I find Mr Lui and Scarlet truthful witnesses.  They gave their evidence clearly and in a straightforward manner. Their answers to questions were direct and to the point. Importantly, their testimony was consistent with the contemporaneous documents and their credibility has withstood the test of cross‑examination. Similarly, I find May a truthful witness. In fact, there was no serious attempt by Topwin’s counsel to challenge her credibility in cross-examination which lasted about 15 minutes in the afternoon on Day 4 of the trial.

70. As for Ms Ng, I have reservations about her testimony. This is principally because many aspects of her testimony are at odds with the contemporaneous emails exchanged between the parties. Notwithstanding that, Ms Ng maintained her position even though the same was quite untenable in face of the documentation.

1^st & 2^nd Issues

71. These two issues can conveniently be dealt with together.

72. The PS3 POs have set out the terms on which Prism was prepared to purchase PS3 headsets from Topwin. One such term, and an important one, was the shipment date. Prima facie, by signing the POs and returning them to Prism, Topwin communicated its acceptance of the terms of the POs to Prism and was therefore bound by them. In this regard, the test is an objective one: Chitty on Contracts 31^st Ed. Vol. 1 para. 2-027.

73. At paragraph 2(9) of its Amended Defence and Counterclaim, Topwin pleaded the shipment date on the POs was of a tentative nature and the date would only be confirmed when pre-production samples were approved and shipping & packing instructions given by Prism. At paragraph 2(10) of the Amended Defence and Counterclaim, it was pleaded that Topwin signed and returned the POs to Prism simply as an acknowledgment of receipt of the documents. At paragraph 2(14) of the Amended Defence and Counterclaim, it was pleaded that the shipment dates on the Updated Sales Confirmation were “mutually agreed by both parties”.

74. This court rejects these defences and Ms Ng’s testimony in support of them.

75. First, when May sent the POs to Topwin, she specifically asked Topwin to confirm its acceptance of their contents including inter alia the shipment date. When Mr Yuen returned the signed POs to Prism, he did not say, expressly or impliedly, that the shipment date on the POs was a tentative date only. Nor did he say, expressly or impliedly, that Topwin signed the POs simply to acknowledge receipt thereof.  The fact is that Topwin was never asked to acknowledge receipt of the POs - Topwin was asked to confirm its acceptance of their terms.

76. Second, it was clear from the contemporaneous correspondence well before the POs were issued that Prism attached great importance to this PS3 project and time (as well as product quality) was of the essence. In its email to Topwin dated 14 July 2010, Prism made it very clear that the PS3 project was its main project for the year.  The fact that Prism sent five reminders to Topwin after issuing the 1^st two POs speaks for itself.

77. It was equally clear that Topwin was well aware of the importance of timing (as well as product quality) to the project, judging from the emails already outlined above. Further, by an email dated 31 August 2010 to Scarlet, Ms Ng said this:

“We will certainly devote our best effort to supply you with our best quality products, ensuring your interest. However, in view of the lead time for the arrival of the I.C. and some components, we would appreciate if you can confirm your order that to be delivered in October immediately and November before 10/9/2010, enabling us to maintain the schedule. Kindly understand and confirm soon.” (emphasis added)

78. In the view of this court, there was no way in which Prism would accept open-ended shipment dates and this was known to Topwin.

79. Third, Topwin’s SCs which left the shipment date “To Be Advised” were consistently ignored and/or rejected by Prism. For one, Prism never signed the SCs and sent them back to Topwin. Further, Prism has not indicated, either expressly or impliedly, to Topwin that such an “open-ended” shipment date was acceptable to it or even negotiable. On the contrary, in an email dated 12 September 2010 to Topwin, Mr Lui made it abundantly clear that Prism could not accept an “open‑ended” delivery date such as “To be Advised”, since he found it hard to tell its customer about it.

80. In her first witness statement, Ms Ng said after receiving the 1^st two POs, she called Scarlet and told her Topwin would not be able to deliver as per the 1^st PO. She said Scarlet represented to her that would be fine and what Prism asked for was that Topwin should complete the 1^st and 2^nd POs “as soon as possible”.

81. When Topwin’s counsel put his case to her in cross‑examination, Scarlet was adamant that she had never told Ms Ng the shipment dates were not meant to be rigid or that there would be no problem even if Topwin could not meet the shipment dates in the POs.

82. This court accepts Scarlet’s testimony and rejects Ms Ng’s. In the view of this court, this part of Ms Ng’s evidence is inherently improbable, unsupported by contemporaneous email exchanges between the parties and is not even supported by what Topwin put down in its own SCs. If Scarlet did make the representation to Ms Ng as alleged, there was no reason why Topwin did not put down “as soon as possible” or words to that effect as the delivery date in the SCs. Furthermore, even after Topwin had started making deliveries under the 1^st PO, the emails exchanged between the parties were littered with complaints by Prism of delay. Again, If Scarlet did make the representation to Ms Ng as alleged, there was no reason why Topwin did not respond to Prism’s complaint of delay by reference to the alleged representation made by Scarlet.

83. Ms Ng also said Topwin did not want to sign the POs because the terms were not right but owing to Prism’s insistence, it did so eventually but reluctantly. Ms Ng may well be right than Topwin was reluctant to sign the POs but once it did, it was bound by them. In the well‑known case of L’Estrange v F Graucob Ltd [1934] 2 KB 394 at 403, Scrutton LJ stated the legal principle as follows:

“When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.”

84. I would respectfully add that the party signing the document is bound, and it is wholly immaterial whether he did so gladly, willingly or reluctantly.

85. It is true that after signing and returning the POs to Prism, Topwin continued to negotiate for a more favourable payment term than what was stated in the POs. But in the view of this court, once the parties have reached a concluded agreement, the fact that they continue to negotiate or re-negotiate a term in it does not affect the legally binding nature of the contract between them: Chitty on Contracts 31^st Ed. Vol. 1 para. 2-029.

86. To conclude, on the 1^st issue, this court finds that the agreed shipment dates for the PS3 headsets were those stated in the PS3 POs.

87. The next issue is whether time of shipment was of the essence.

88. Generally speaking, whether or not a stipulation as to time is of the essence depends on the terms of the contract and the parties are at liberty to provide that, in a sale of goods contract, time of delivery is to be of the essence. In the absence of express provision, the court will look at the nature of the contract and the character of the goods in question in determining whether time of delivery is to be construed as of the essence: Benjamin’s Sale of Goods 9^th Ed. para. 8-025.

89. In Compagnie Commerciale v Czarnikow (C) Ltd. [1990] 1 WLR 1337 at 1347, Lord Ackner explained thus:

“In the Bunge Corporation case [1981] 1 W.L.R. 711, 719, Lord Lowry observed:

‘The treatment of time limits as conditions in mercantile contracts does not appear to me to be justifiable by any presumption of fact or rule of law, but rather to be a practical expedient founded on and dictated by the experience of businessmen . . .’

On the day before embarking upon the hearing of the present appeal, the Court of Appeal, identically constituted, gave judgment in State Trading Corporation of India Ltd. v. M. Golodetz Ltd. [1989] 2 Lloyd's Rep. 277. The leading judgment was given by Kerr L.J. and was concurred in by Lloyd and Butler-Sloss L.JJ. One of the questions to be decided in that case was whether a particular obligation of the sellers was a condition of the contract. Kerr L.J. quoted from the classic judgment of Bowen L.J. in Bentsen v. Taylor, Sons & Co. (No. 2) [1893] 2 Q.B. 274, 281:

‘There is no way of deciding that question except by looking at the contract in the light of the surrounding circumstances, and then making up one's mind whether the intention of the parties, as gathered from the instrument itself, will best be carried out by treating the promise as a warranty sounding only in damages, or as a condition precedent by the failure to perform which the other party is relieved of his liability.’

Having referred to, amongst other authorities, the Bunge Corporation case [1981] 1 W.L.R. 711, Kerr L.J. observed [1989] 2 Lloyd's Rep. 277, 283:

‘At the end of the day, if there is no other more specific guide to the correct solution to a particular dispute, the court may have no alternative but to follow the general statement of Bowen L.J. in Bentsen v. Taylor, Sons & Co. (No. 2) which I have already quoted, by making what is in effect a value judgment about the commercial significance of the term in question.’ ” (emphasis added)

90. In the present case, having regard to the testimony of Mr Lui which this court finds credible, the commercial background of the PS3 project, the known fact that PS3 headsets were fashionable gadgets the demand for which could fluctuate greatly and the intention of the parties as gathered from the contemporaneous emails and the POs themselves, this court is of the view that the stipulation as to time of shipment in the POs was of the essence.

91. To conclude, on the 2^nd issue, this court finds that time of shipment was of the essence of the contract between Prism and Topwin.

3^rd & 4^th Issues

92. These two issues can also be dealt with together.

93. In the present case, it is not seriously in dispute that Topwin failed to deliver any of the PS3 headsets on or before the dates set out in the POs.

94. On the evidence before this court,

(1) The first batch of delivery under the 1^st PO was made only on or about 4 October 2010 (and was sent out of Hong Kong by air) when the shipment date stipulated in the PO was 16 August 2010.

(2) The first batch of delivery under the 2^nd PO was made on or about 20 November 2010 (and was sent out of Hong Kong by air) when the shipment date stipulated in the PO was 10 September 2010.

(3) The first batch of delivery under the 3^rd PO was made on or about 24 November 2010 (and was sent out of Hong Kong by air) when the shipment date stipulated in the PO was 23 September 2010.

(4) The first batch of delivery under the 4^th PO was made on or about 4 December 2010 (and was sent out of Hong Kong by air) when the shipment date stipulated in the PO was 15^th October 2010.

95. Even on Topwin’s own case as pleaded in paragraph 2(16) and Schedule C of the Amended Defence and Counterclaim, all deliveries made by it missed the shipment dates in the POs by a large margin. The last lot of headsets was shipped out on 26 January 2011.

96. Topwin’s defences to Prism’s claim for late delivery were those pleaded in paragraph 2 of the Amended Defence and Counterclaim, which have already been considered and rejected by this court in connection with the 1^st Issue: see paragraphs 72 to 86 above. In the premises, this court finds that Topwin was in breach of contract for late delivery under the PS3 POs.

97. As for Prism’s case for non-delivery, it is again not in dispute that Topwin only completed delivery under the 1^st, 2^nd and 3^rd POs. It made partial delivery under the 4^th PO and no delivery under the 5^th PO.  Out of 108,250 PS3 headsets purchased by Prism, Topwin had in total produced and delivered 76,676 headsets.

98. At paragraphs 2(18), (22) & (24) of the Amended Defence and Counterclaim, it was pleaded that (i) in or around December 2010, Scarlet told Ms Ng that the production and shipping instructions of the Remaining Orders would be postponed to January 2011, (ii) despite demands and requests from Topwin, Prism failed to approve pre‑production samples and give shipping instructions for the Remaining Orders, and (iii) on 16 June 2011, Prism wrongfully and unilaterally cancelled the Remaining Orders.

99. In her 1^st witness statement, Ms Ng clarified that, in late December 2010, Scarlet spoke to Ms Janet Ng (“Janet”), a director of Topwin, rather than herself, on the phone and asked Topwin to withhold production of the Remaining Orders. For reasons best known to Topwin, Janet was not called as a witness. In court, Scarlet was adamant there was no such telephone conversation with Janet and May had formally notified Topwin the Remaining Orders were cancelled, not postponed.

100. This court does not accept Topwin’s case or Ms Ng’s testimony in support of it.

101. In light of this court’s findings on the 1^st and 2^nd Issues, and in accordance with well-established principles, if Topwin failed to deliver the PS3 headsets within the time stipulated in the POs, there was a breach of condition entitling Prism to reject the goods and treat the contract as repudiated. Alternatively, Prism could elect to keep the contract “alive”, accept the late delivery, treat it as a breach of warranty only and seek damages from Topwin: Benjamin’s Sale of Goods 9^th Ed. para. 8‑028.

102. The fact that the innocent party has demanded the party in breach to continue to perform the contract and accepted the latter’s performance will not without more amount to a waiver of his right to treat the contract as repudiated. This is because such a demand is not itself a clear and unequivocal representation that the right will not be exercised: Yukong Line Ltd of Korea v Rendsburg Investments Corp. of Liberia [1996] 2 Lloyd’s Rep 604. For “The law does not require an injured party to snatch at a repudiation and he does not automatically lose his right to treat the contract as discharged merely by calling on the other to reconsider his position and recognize his obligation”: per Moore-Bick J in Yukong Line Ltd of Korea v Rendsburg Investments Corp. of Liberia at 608.

103. In Stocznia Gdanska SA v Latvian Shipping Company [2002] EWCA Civ 889 at [87], Rix LJ explained the options available to an innocent contracting party in these terms:

“In my judgment, there is of course a middle ground between acceptance of repudiation and affirmation of the contract, and that is the period when the innocent party is making up his mind what to do. If he does nothing for too long, there may come a time when the law will treat him as having affirmed. If he maintains the contract in being for the moment, while reserving his right to treat it as repudiated if his contract partner persists in his repudiation, then he has not yet elected.”

104. Further, where it can be inferred from the circumstances of the case and the conduct of the parties that the seller is to deliver the goods by instalments (which I find to be the case here since on the evidence Topwin invariably delivered the headsets in batches under all POs), the buyer who accepts and pays for one instalment is not thereby precluded from rejecting any other instalments if they are not delivered in accordance with the contract: Sasson CIF and FOB Contracts 5^th Ed. paras. 14-044 – 14‑045.

105. In the present case, there is no dispute that Prism has accepted late deliveries from Topwin. The reason is most likely that Prism was anxious to cut its loss by having as many headsets delivered as Topwin could produce in time for Christmas 2010. This was in line with Mr Lui’s testimony that all along, the PS3 project was targeted at Christmas that year.  However, what also emerged from the evidence is that Prism had made it abundantly clear to Topwin it would not keep on accepting late delivery after 31 December 2010 because that was the deadline set by Sony:

(1) By an email dated 12 November 2010, Prism told Topwin, notwithstanding the “Pop” noise problem, Sony indicated it would accept headsets shipped in 2010 on condition that Topwin could work out a better solution to the problem. If Topwin could not deliver improved samples to Sony for approval on or before 10 December 2010, Sony would not accept any further shipment as from January 2011.

(2) By an email dated 23 November 2010, Prism reminded Topwin that if improved samples were not available by 10 December 2010, no shipment after 31 December 2010 would be accepted. 

(3) By an email dated 6 December 2010, Prism sent a chaser to Topwin for the improved “Pop” noise samples.

106. Topwin’s knowledge of this “deadline” of 31 December 2010 is also supported by its own documents – on or about 22 November 2010, Topwin sent the five Updated SCs to Prism, all of which stated 31 December 2010 to be the delivery date.

107. While Topwin purported to send some “improved” samples to Prism for Sony’s approval before 10 December 2010, the “Pop” noise problem still persisted and Sony never approved those samples. This is evidenced by the fact that the “Pop” noise problem, among others, was still very much a live issue at a meeting between Mr Lui, Scarlet, Ms Ng and a representative of A4T held in Hong Kong, as recorded in an email dated 12 January 2011. Between January and June 2011, there were frequent email exchanges between Prism and Topwin on the subject of “improved” samples but Sony never approved of them. Eventually, on 16 June 2011, Scarlet sent an email to Ms Ng putting on record that the Remaining Orders were cancelled.

108. In her evidence, Ms Ng accepted that reduction of “Pop” noise was indeed a subject of discussion at the meeting held on 11 January 2011. But she maintained that the Remaining Orders were only temporarily “suspended” pending Sony’s approval to the “improved” samples, rather than cancelled.

109. This court finds as a fact that Sony and A4T would not accept further delivery under the existing POs if the “Pop” noise problem could not be resolved before end of December 2010. This court further finds as a fact that, while Topwin tried to tackle the “Pop” noise problem and kept sending “improved” samples to Prism for Sony’s approval, Sony never approved any of them. In these circumstances, there was no reason for Prism to keep the Remaining Orders alive indefinitely and every reason for it to reserve its right to cancel them ie its right to treat the contract for the Remaining Orders as repudiated. Given the original shipment dates under the 4^th and 5^th POs, as well as the extended “deadline” of 31 December 2010, had expired, Prism was entitled at any time after 31 December 2010 to treat the contract as repudiated. In this regard, Scarlet’s evidence was that sometime after 31 December 2010, May had informed Topwin of Prism’s decision to terminate the Remaining Orders.

110. Another way of looking at the matter is this. Even putting aside the evidence of Scarlet and assuming the contract for the Remaining Orders was kept alive in January 2011 pending Sony’s approval to the “improved” samples, the fact remains the “improved” samples never received Sony’s approval. Hence, Topwin was never in a position to manufacture and deliver the Remaining Orders to Prism. On that basis, Topwin was in continuing breach of contract and while that breach persisted, Prism was as a matter of law entitled to treat the Remaining Orders as repudiated. It did so eventually by sending the email to Topwin on 16 June 2011.

111. To conclude, on the 3^rd and 4^th Issues, this court finds that Topwin was in breach of contract for failing to meet the agreed shipment dates entitling Prism to treat, and Prism did treat the contract for the Remaining Orders as terminated in or about January 2011, alternatively, on 15 June 2011. In the premises, this court also finds Prism was not in breach of contract for failing to give shipping instructions to Topwin in respect of the Remaining Orders or for canceling them.

5^th Issue

Non-Delivery

112. The right of a buyer to damages in respect of non-delivery of goods is set out in section 53 (2) of the Sale of Goods Ordinance, Cap. 26 (“SOGO”):

“(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract.”

113. Section 53 (3) of SOGO sets out the prima facie measure of damages where there is an available market for the goods in question. Since the headsets had to be custom-made according to A4T’s specifications and approved by Sony, it cannot be suggested that there was an available market for them at the time of Topwin’s breach: Benjamin’s Sale of Goods 9^th Ed. para. 17-021.

114. Where the seller knows the buyer bought the goods with a view to resale, and there is no readily available market in which the buyer can obtain substitute goods to satisfy its sub-buyer, he is entitled to his loss of profit when the seller fails to deliver: Lesters Leather & Skin Company Ltd. v Home & Overseas Brokers (1948) 82 Ll. L Rep 202; Sasson CIF and FOB Contracts 5^th Ed. para 14-034; Benjamin’s Sale of Goods 9^th Ed. para. 17-035.

115. At paragraphs 5 and 6 of the amended Statement of Claim, Prism claims loss of profit in the sum of US$144,321.64 for non‑delivery as follows:

Model	Profit per Unit	Undelivered Quantity	Loss of Profit
CP-PRO	US$3.97	20,272	US$80,479.84
CP-NC1	US$5.22	8,196	US$42,783.12
CP-NC2	US$6.78	3,106	US$21,058.68
	Total:	31,574	US$144,321.64

Late Delivery

116. As SOGO contains no express provision in this regard, the principles governing the measure of damages under the general law of contract are therefore applicable.

117. Where a buyer has incurred extra expenses as a result of not having the goods delivered to him on time, he may recover such expenses in damages provided that they were within the reasonable contemplation of the parties, at the time the contract was made, as not unlikely to result from a delay in delivery. This will often depend on the seller’s knowledge of inter alia the purpose for which the buyer intended to use the goods: Benjamin’s Sale of Goods 9^th Ed. para. 17-046.

118. On 29 July 2011, A4T issued a debit note to Prism for US$195,080.22 as the costs of shipping by air a total of 39,144 headsets from Hong Kong to London between October and December 2010. It is Mr Lui’s evidence that Prism had paid the said sum to A4T. The invoices evidencing the shipments by air from Hong Kong to London are particularised below:

Invoice

6/10/2010 28x12=336 sets

2/11/2010 250 x 12 = 3,000 sets

4/11/2010 90 x 12 = 1,080 sets

5/11/2010 77 x 12 = 924 sets

10/11/2010 167 x 12 = 2,004 sets

11/11/2010 167 x 12 = 2,004 sets

16/11/2010 248 x 12 = 2,976 sets

21/11/2010 410 x 12 = 4,920 sets

26/11/2010 292 x 12 = 3,504 sets

28/11/2010 167 x 12 = 2,004 sets

30/11/2010 212 x 12 = 2,544 sets

8/12/2010 374 x 12 = 4,488 sets

12/12/2010 368 x 12 = 4,416 sets

17/12/2010 125 x 12 = 1,500 sets

22/12/2010 84 x 12 = 1,008 sets

22/12/2010 84 x 12 = 1,008 sets

29/12/2010 119 x 12 = 1,428 sets

Total 39,144 sets

119. In light of this court’s finding that, well before the POs were placed by Prism, Topwin knew the PS3 headsets were required to fulfill Prism’s contract with A4T and they were targeted at Christmas 2010, it must be reasonably within the parties’ contemplation that the incurring of extra expenditure by A4T to make up for the lost time would likely result from Topwin’s delay in delivery. While the contract between Prism and A4T was on FOB terms so that strictly speaking, Prism was not responsible for the normal freight costs of shipping the headsets to the UK, it would be otherwise if extra freight costs had been incurred by A4T for which it held Prism responsible. As held in Re R and H Hall Ltd. and Wong Hui Pim (Junior) & Company’s Arbitration [1928] All ER Rep. 763, a buyer was entitled to recover from the seller the loss which he had incurred as a result of being made liable to his sub-buyer for breach of the contract for resale: see also Benjamin’s Sale of Goods 9^th Ed. para. 17‑036.

120. In its amended Statement of Claim, Prism was prepared to deduct from the sum US$195,080.22 the normal seafreight costs calculated at US$0.50 per headset. In his closing submissions, counsel frankly admitted that the figure of US$182,672.22 set out in the amended Statement of Claim was wrong. According to this court’s calculation, the correct figure should be:

US$195,080.22 – 39,144 x US$0.50 = US$175,508.22

121. In these circumstances, this court is satisfied that Prism is entitled to claim from Topwin the sum of US$175,508.22 as its losses arising from Topwin’s late delivery.

Conclusion

122. To conclude, this court is satisfied that Prism’s losses arising from Topwin’s breach of contract consist of (i) loss of profit in the sum of US$144,321.64, and (ii) airfreight losses in the sum of US$175,508.22. There will be an award in favour of Prism in the two sums.

6^th & 7^th Issues

123. The first question is whether the parties had reached a concluded agreement for the sale and purchase of Xbox headsets.

124. Mr Fong, for Prism, submitted that the only conceivable reason for Topwin not to sign the Xbox POs and returned them to Prism was that it was not prepared to be bound by them. I agree.

125. This court finds Ms Ng an experienced businesswoman and would understand why Prism sent the POs to Topwin for signature and what it meant by signing them. As I said earlier, when May sent the POs to Ms Ng, she specifically asked Ms Ng to check their contents and confirm Topwin’s acceptance of their terms. While testifying in Court, Ms Ng admitted that Topwin did not sign the POs as it did not agree with the shipment dates stated on them. That is fair enough but it also meant the parties did not have a concluded contract for the sale and purchase of Xbox headsets on the terms of the POs.

126. In these circumstances, the proper analysis of the situation is that the POs remained “offers” open to Topwin to accept until their withdrawal by Prism as the offeror or their rejection by Topwin as the offeree: Chitty on Contracts 31^st Ed. Vol. 1 para. 2-087.  The general rule is that an offer may be withdrawn by the offeror at any time before it is accepted but such withdrawal must be communicated to the offeree: Chitty on Contracts 31^st Ed. Vol. 1 paras. 2-088 – 2-089.

127. As far as POs no. PIl0204-1 and PIl0223-1 are concerned, they were “cancelled”, in other words, withdrawn by Prism on 16 September and 26 October 2010 respectively and such withdrawal was communicated to Topwin by emails. The cancellation was acknowledged by Topwin in an email from Mr Yuen to May on 22 September 2010 and by Ms Ng in Court.

128. As for the remaining three POs no. PIl0208-1, PIl0222-1 and PIl0224-1, they were “cancelled” ie withdrawn by Prism by email dated 17 November 2010 to Topwin.

129. According to paragraph 16 of the Statement of Claim in HCA1930/2011, it was Topwin’s pleaded case that the Xbox POs were accepted and confirmed by Topwin in around September 2010. It went on to state that:

“The terms and conditions of the production of Xbox headsets were set out in the 5 Sales Confirmations issued by [Topwin] on or around 9 September 2011 (sic) and 15 September 2011 (sic).”

130. This court has no hesitation in rejecting Topwin’s plea as wholly unsupported by evidence.

131. This court finds as a fact that Ms Ng and others in Topwin knew full well the shipment term of “To be Advised” in the Xbox SCs was not acceptable to Prism. This was so in relation to the PS3 project – Mr Lui had said in so many words in an email to Topwin on 12 September 2010. There was no reason why Topwin should think such a shipment term was acceptable to Prism in relation to the Xbox project. None was put forward by Topwin. This court further finds as a fact that Prism did notsign Topwin’s SCs was simply because it did not agree with their terms, specifically the shipment term.

132. At paragraph 20 of the Statement of Claim in HCA1930/2011, Topwin pleaded that, at the meeting on 11 January 2011 between Scarlet, Ms Ng and Andrew Sheppard of A4T, it was agreed that the Xbox orders would not be cancelled, only postponed.

133. This court rejects this plea and Ms Ng’s testimony in support of it. 

134. First, as a matter of law, once an offer has been withdrawn by Prism and the withdrawal communicated to Topwin, it could no longer be accepted. It is therefore meaningless to speak of “postponing” the Xbox POs.  The parties are of course free to conclude a fresh agreement on the supply of Xbox headsets at any time after the withdrawal of Prism’s POs but that was not Topwin’s pleaded case.

135. Second, on the contemporaneous evidence, after the said meeting on 11 January 2011, Mr Yuen sent an email to Prism on 17 January 2011 suggesting A4T had agreed at the meeting to just postpone the Xbox project, rather than cancelled it. Mr Lui immediately replied the next day refuting the suggestion. Ms Ng then brought this up again by email on 18 January 2011. In it, she asked Scarlet to confirm the Xbox project had been postponed only. Scarlet replied to Ms Ng the next day.  In her email, she said she had re-confirmed with Andrew Sheppard that A4T might wish to continue the Xbox project with Topwin but only if it could come up with satisfactory products in line with A4T’s production schedule. Scarlet also asked Ms Ng to discuss the Xbox project with Andrew Sheppard when he was next in Hong Kong in March.

136. In my view, far from supporting Topwin’s pleaded case, the correspondence shows Prism had never agreed to “postpone” the Xbox POs as such or that Prism and Topwin had reached a fresh agreement on Xbox in 2011. Instead, it asked Topwin to discuss directly with A4T concerning “future” orders. That is just a polite way of saying to Topwin: “Persuade A4T to keep you as a supplier of Xbox headsets if you can.”

137. To conclude, on the 6^th Issue, this court finds the parties have not reached any concluded agreement for the sale and purchase of Xbox headsets. In view of this, the 7^th Issue becomes wholly academic.

8^th Issue

138. In HCA1930/2011, Topwin’s pleaded case, at paragraphs 6(b), 24 and 25 of the Statement of Claim, was this.

(1) “After several rounds of exchange of quotations, samples rework and approval, [Prism] confirms Orders to [Topwin] for the production and supply of … all necessary toolings and moulds for the production of the PS3 Headsets and Xbox Headsets.” (paragraph 6)

(2) “In between July 2010 and January 2011, [Prism] has settled USD34,100, being part payment of Toolings and Mould fees for PS3 Headsets, with [Topwin], and leaving a sum of USD4,000 being outstanding and unpaid.” (paragraph 24)

(3) “In July 2010, [Prism] settled USD4,000, being part payment of the Toolings and Mould fees for Xbox Headsets, with [Topwin] and leaving a sum of USD6,000 being outstanding and unpaid.” (paragraph 25)

139. It is common ground that Prism and Topwin have reached a concluded agreement on the production of PS3 Toolings at the costs of US$38,100. They even have a written agreement governing the ownership, use and custody of the PS3 Toolings (“Custody Agreement”) which was signed by Topwin on 2 July 2010. What is in dispute is whether there was an outstanding balance of US$4,000 due from Prism to Topwin.

140. As for Xbox Toolings, Prism denied having entered into any concluded agreement with Topwin. Further, Prism averred that Topwin had failed to produce the necessary Xbox Toolings which were fit for the production of samples of acceptable quality as well as mass production. There was thus a total failure of consideration for the US$4,000 deposit paid by Prism and it had appropriated this sum to set off the outstanding balance of the PS3 Toolings charges.

141. The evidence before this court reveals the following.

142. By email dated 17 June 2010 to Ms Ng, Mr Lui confirmed that Topwin could go ahead with the Toolings for both PS3 and Xbox. By email dated 23 June 2010, Topwin provided Prism with a breakdown of the Toolings charges for PS3 at US$38,100 and Xbox at US$19,250.

143. By email dated 28 June 2010, Scarlet informed Ms Ng that Prism accepted Topwin’s quotation for PS3 Toolings and the 50/50 split between Prism and Topwin for Xbox Toolings charges. By further exchange of emails on that day, the parties agreed on the payment term as follows: the first 40% against “signing the contract”, a further 30% against “test shot” and the final 30% against “approval of final sample”.

144. The reason why there were different arrangements for PS3 Toolings and Xbox Toolings was that Prism would own and have exclusive use of the PS3 Toolings and hence it agreed to bear the entire costs of US$38,100. For Xbox Toolings, Prism and Topwin would jointly own and use them (for different markets) and hence the costs of production would be shared equally.

145. In the evening of 28 June 2010, Mr Yuen sent a Sales Confirmation no. SC/10/324 (“Toolings SC”) to Scarlet by email. The Toolings SC confirmed the total charges for PS3 Toolings were US$38,100 and those for Xbox Toolings (for which Prism was responsible) were US$10,000. The payment term was as agreed earlier that day: 40% against “signing contract”, 30% against “test shot” and 30% against “final sample approval”.  In the email, Mr Yuen asked Scarlet to:

“Kindly arrange 40% payment by cheque and advice when ready.”

146. While it does not appear from the evidence that Prism had signed or returned the Toolings SC to Topwin, Prism did remit a total of US$19,240 to Topwin, being the 40% deposit for both PS3 and Xbox Toolings and informed Topwin about it by email on 6 July 2010.

147. On these facts, my view is that the parties had clearly reached a concluded agreement for the production of PS3 as well as Xbox Toolings, by 28 June 2010, alternatively, by 6 July 2010.

148. First, by the exchange of emails up to and including 28 June 2010, Prism and Topwin had agreed on all the essential terms for the production of both PS3 and Xbox Toolings ie the subject matter, the price and the payment term.

149. Although the parties have yet to agree on the terms of custody of the PS3 Toolings (as the Custody Agreement was only signed by Topwin on 2 July 2010 and returned to Prism on 6 July 2010), that does not mean, as at 28 June 2010, their agreement on the production of the Toolings was incomplete. It is well-established that an agreement may be complete although the parties have not worked out its terms in meticulous detail. Thus, an agreement for the sale of goods may be complete as soon as the parties have agreed to buy and sell, where the remaining details can be determined by the standard of reasonableness or by law: Chitty on Contracts 31^st Ed. Vol. 1 para. 2-114.

150. Second, another way of looking at the evidence is to regard the Toolings SC as Topwin’s offer to Prism. One way in which Prism could have accepted the offer was, of course, by signing and returning it to Topwin. This Prism has not done. But it is trite law that an offer may also be accepted by conduct: Chitty on Contracts 31^st Ed. Vol. 1 para. 2‑030, provided the court is satisfied that the offeree did the alleged act of acceptance with the intention (ascertained in accordance with the objective principle) of accepting the offer. Hence, an offer to sell goods, made by sending them to the offeree, can be accepted by using them and, a fortiori, by paying for them: Confetti Records v Warner Music UK Ltd. [2003] EWHC 1274 at [97].

151. In the present case, this court is satisfied that Prism has accepted the offer contained in the Toolings SC by paying the 40% deposit for both PS3 and Xbox Toolings on 6 July 2010, and that when Prism made the payment, it did so with the intention of accepting the terms of the Toolings SC. If, as now contended by Prism, it did not intend to have a concluded agreement for production of Xbox Toolings, there was no reason why it should pay the 40% deposit for Xbox Toolings on 6 July 2010 – it could simply have paid the 40% deposit for PS3 Toolings alone.

152. For these reasons, this court finds there was a concluded agreement between Prism and Topwin for the production of the Xbox Toolings, the terms of which were contained in or evidenced by the Toolings SC.

153. That, however, is not the end of the matter.

154. Mr Lui explained in court that Prism had not paid the 2^nd instalment of 30% since the Xbox Toolings had never reached the stage of “test shot” ie when off-tool samples were available for testing. He further explained the last instalment of 30% was also not paid because it was due only upon “approval of final sample” which meant upon approval of pre-production sample by Prism. Again, the Xbox Toolings had not reached that stage.

155. This court accepts Mr Lui’s evidence. The contemporaneous emails reveal that by early November 2010, Topwin has still failed to produce a fully functional sample of Xbox headset. On 8 November 2010, Scarlet warned Ms Ng that A4T would give up the Xbox project if Topwin missed the Christmas sale and that it must have the first shipment on 19 November 2010. In the same email, Scarlet was still asking for the improved samples. On 17 November 2010, Prism cancelled all existing Xbox POs, as this court held it was entitled to.

156. Where no time is expressly fixed for Topwin to produce the Xbox Toolings, it must do so within a reasonable time: Cf section 31(2) SOGO.  In the view of this court, a reasonable time must have elapsed by the time the Xbox POs were withdrawn by Prism on 17 November 2010, as the whole purpose of having the Toolings produced had gone. After that day, Prism was not bound to accept or pay for the Xbox Toolings. As Topwin has failed to produce the Xbox Toolings within a reasonable time, Prism was entitled to terminate the agreement for the production of Xbox Toolings and recover the 40% deposit as wasted expenditure on the ground of total failure of consideration: Chitty on Contracts 31^st Ed. Vol. 1 para. 26-025. 

157. On the fact, by email dated 24 January 2011, Scarlet informed Ms Ng that Prism would “deduct” the US$4,000 deposit it previously paid for the Xbox Toolings. What that means was that Prism has appropriated the US$4,000 to set off against the outstanding balance due in respect of the PS3 Toolings.

158. In the premises, this court finds that Prism has fully settled the charges for the PS3 Toolings. This court also finds that no amount was due from Prism to Topwin for the Xbox Toolings.

Disposition

159. In HCA 1190 of 2011, there will be judgment in favour of Prism against Topwin, under paragraph 122 above, in the sums of US$144,321.64 and US$175,508.22 respectively.The judgment will carry interest at 1% above the prevailing US dollar prime lending rate from the date of the Writ to the date of judgment.  Thereafter, interest will be payable at the judgment rate until payment. Topwin’s counterclaim against Prism is dismissed.

160. In HCA 1930 of 2011, Topwin’s claims against Prism are dismissed.

Costs

161. There will be an Order Nisi that Prism is to have the costs of the action in both HCA 1190 of 2011 and HCA 1930 of 2011 against Topwin, to be taxed if not agreed.