GERMAC TECHNOLOGY LTD v. HILLJOY CORPORATION LTD

DCCJ 19/2017

[2019] HKDC 891

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 19 OF 2017

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JUDGMENT

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1.  This is a breach of contract claim.

2.  The plaintiff was a second hand phone and computer trader and purchased 1,600 pieces of phone screen panels (“the Screens”) and 100 batteries (“the Batteries”) for a total sum of HK$839,051 from the defendant, a factory dealing with used mobile phone components and mobile phone repair.

3.  The plaintiff alleged that the defendant had “refused and / or failed to deliver” the Screens and the Batteries “or any part thereof to the plaintiff, despite repeated requests by the plaintiff”. (Paragraph 6 of the Statement of Claim page 3 of the Trial Bundle).

4.  The plaintiff therefore claimed the refund of HK$839,051 with interest.

Background

5.  It is not in dispute that Madam Lau Yuk Ping (“Madam Lau”), the sole director and shareholder of the plaintiff, had bought a lot (around 4,200) of “scrap phones” (the “Phones”) from a trading company in United States and has shipped them to Hong Kong and placed in the defendant’s premises.

6.  Madam Lau explained that these were “scrap” IPhone 6 mobile phones. They were phones rejected by customers and returned to the manufacturer for whatever reasons and the factory resold them to traders in the United States.

7.  It was also not in dispute that Madam Lau had ordered the Screens (over a period of time and over several batches) and Batteries from the defendant and these were installed on various of the Phones by the defendant.

8.  The purpose of such purchase and instalment was in dispute: the plaintiff claimed that this was for “testing” the Phones but the defendant’s case was that the Phones were missing such components and Madam Lau had instructed the defendant to restore and reassemble the Phones.

9.  In any case, it is not in dispute that a Mr. Pei Yongcai (“Mr. Pei”, who is a witness for the defendant) from China agreed to buy the Phones from the plaintiff but all without the screens.

10.  It was (rather confusingly) pleaded in the Amended Reply (paragraph 7A of the Amended Reply, page 38 of the Trial Bundle) that Mr. Pei agreed to buy the Phone without the Screens (i.e. the 1,600 new screens purchased by the plaintiff) but subsequently in court, Madam Lau confirmed that Mr. Pei, in fact, did not want any of screens on the Phones (which would have totalled around 4,200 screens, including the 1,600 Screens), that is, he would only buy the bodies of the Phones.

11.  It is also not in dispute that, after the sale, Mr. Pei had the Phones delivered to China with the Screens and the Batteries still installed.

The parties’ cases

12.  The essence of the plaintiff’s case is that Madam Lau had discussed with Madam Ng Wai Chor (the mother of the director and shareholder of the defendant and who also worked in the defendant company (“Madam Ng”)) who advised Madam Lau to buy the Screens and Batteries for testing the “functioning percentage” of the Phones. The test was to ascertain the percentage of the phones within the lot which could be switched on (that is, the “functioning percentage”).

13.  Madam Lau explained in court that if a phone was tested and could not be switched on, it could be a “phone computer board” problem or a “phone screen” problem. She claimed that Madam Ng had advised her to buy new phone screens to be installed on the phones that failed to be switched on. The “test” was that if the new screens were installed and the phone still failed, the problem could be identified as a “phone computer board” problem.

14.  The plaintiff’s case hinged upon the claim that there was all along an oral agreement with Madam Ng that, should the eventual buyer refused to buy the Phones with the Screens, the defendant would remove the Screens (that is, only the 1,600 new screens) from the Phones and to sell them separately on behalf of the plaintiff (the “Alleged Original Agreement”).

15.  As a passing comment, this very crucial claim was never raised in the Statement of Claim but only in the Amended Reply (paragraph 7, page 38 of the Trial Bundle). This might raise a question as to why such an important matter was not pleaded earlier.

16.  As it happened, Mr. Pei only agreed to buy the Phones without the screens but then took delivery of the Phones with all the screens still installed, so the plaintiff’s claim was that “without consent of the plaintiff, the defendant wrongfully allow Mr. Pei to collect…without removing” the Screens and the Batteries (see paragraph 9(b) of the Amended Reply, page 39 of the Trial Bundle).

17.  This was disputed by the defendant: the defendant’s case was that Madam Lau all along instructed the defendant to restore the phones to increase the “functioning percentage” in order to obtain a higher price, and that the Alleged Original Agreement never existed.

18.  In court, Madam Lau claimed that, after she agreed with Mr. Pei on the sale, she told Madam Ng, “Mr. Pei did not want the screens, please remove the screens.” And Madam Ng allegedly said “Yes!”

19.  On questioning, Madam Lau claimed that, by this conversation, she took that Madam Ng had agreed not only to remove the Screens in accordance with the Alleged Original Agreement but to remove all the screens of the Phones (that is, the whole lot of 4,200 phones) as well as the Batteries.

The Batteries

20.  Firstly, the evidence given by Madam Lau during the trial was that Mr. Pei only said he did not want the screens on the Phones, and did not mention that he did not want the Batteries. I would find that the agreement for sale must have included the Batteries.

21.  Further, even in Madam Lau’s evidence as above, she did not specifically ask Madam Ng to remove the Batteries.

22.  As such, there was simply no grounds to claim that Madam Ng had allowed Mr. Pei to take away the Batteries without the plaintiff’s consent, especially that, even if the court accepts Madam Lau’s evidence entirely, she had only asked Madam Ng to remove the Screens.

23.  Therefore, the plaintiff’s claim regarding the Batteries must fail.

The Screens and the Alleged Original Agreement

24.  The court also finds that the plaintiff’s scenario of “testing” the Phones not credible.

25.  Firstly, it would be unlikely that the plaintiff would spend HK$839,051 (which was around 10% of the cost of the whole lot of the Phones) just to “test” whether the Phones could be switched on. This was especially when she claimed that she was aware that if the buyer did not want the screens eventually, she would lose money because these brand new screens would then be considered second-hand and be sold as such.

26.  Further, Madam Lau said that, before she bought the Phones in United States, a test had already been conducted for the “functioning percentage”. This was done by taking a sample of 8 or 9 phones from each batch and the trading company was able to demonstrate that the vast majority of the phones could be switched on (some by simply putting in new batteries).

27.  If this was true, it would be easy for Madam Lau to arrange the same test for Mr. Pei without the need to spend HK$839,051 to buy the Screens and Batteries.

28.  Of course, she had earlier told the court that the trading company in the United States had guaranteed that the “functioning percentage” of the lot was “more than 50%” and that this figure was reliable.

29.  Madam Lau admitted that Mr. Pei never gave her an offer initially but only that he wanted to know the “functioning percentage” of the lot, and he commented that the higher the “functioning percentage”, the higher the price.

30.  As such, if Madam Lau’s evidence was to be believed, she must already know at that stage that the Phones had a “guaranteed” and “reliable” “functioning percentage” of greater than 50% which could be demonstrated by the same sampling method employed by the trading company in the United States. There would have been no need to spend HK$839,051 for the alleged “testing”.

31.  And, more surprisingly, after spending HK$839,051 for the purpose of the alleged “testing” by the defendant, under cross-examination, Madam Ng admitted that she did not know the result nor had asked the defendant for the result.

32.  On further questioning, she gave various inconsistent explanations: “I did not follow-up with them (the defendant)”, “I trusted them”, “they were very disorganized and it might take 3 days for them to count”.

33.  In any case, Madam Lau confirmed that she never asked the defendant for the test result.

34.  Of course, it was not in dispute that, after the completion of the installation of the Screens and Batteries, the Phone was then tested by a firm of surveyors.

35.  One wonders why there was such need (not to mention incurring more costs) if the plaintiff has already instructed (and paid HK$839,051 to) the defendant to do precisely just that.

36.  Further, since Mr. Pei was present even before Madam Lau purchased and installed the Screens and Batteries, and since that Madam Lau was aware of the risk of the need to remove and re-sell the Screens at a lower price if Mr. Pei did not want the Screens, it would make sense that Madam Lau should ask Mr. Pei upfront whether he would agree to buy the Screens or not before incurring such costs at such risks.

37.  When asked, Madam Lau simply said, “I had not thought about that.”

38.  In fact, all along, Madam Lau came across as a very evasive witness who shifted her evidence as it suited her: for example, when asked how she thought that the defendant would be able to identify the Screens in order to remove them, i.e. the 1,600 new screens out of the 4,200 odd phones after the installations, she initially said she did not know. Then, she claimed that the defendant knew because she had seen labels at the back of the new screens. So logically it must follow that, by agreeing to the Alleged Original Agreement, the defendant must have been prepared to take off every screen of the 4,200 phones to look at the labels at the back to ascertain all the Screens for re-sale!

39.  Overall, Madam Lau was alternatively shifting from the position of “I don’t know much about the trade” “I was not looking at or following them carefully” “I relied on / trusted the defendant” to the position of “they were very disorganised”, giving very technical knowledge on the mobile phones (e.g. how many times a screen or connecting wire might be installed and re-installed before breaking) and giving details of the operations (e.g. claiming that the defendant could tell the Screens from other screens from the labels at the back).

40.  The court finds that Madam Lau was simply lying whenever it suited her case and she was clearly not a credible witness.

41.  Having considered all the evidence given by the witnesses, the court finds that the defendant’s scenario was far more likely: that the Phones were of poor overall quality (or even largely in component form) and that was the reason why Mr. Pei did not make an offer initially. So Madam Lau sought the assistance of the defendant to try to restore or reassemble them (e.g. by installing the Screens and Batteries, and also by shipping some phone boards to China for restoration). The plaintiff was doing this in order to obtain an agreement for sale (or an agreement for sale at a higher price) from Mr. Pei.

42.  It is therefore clear that Madam Lau has “drummed up” the scenario of this rather elaborate “testing” of the Phones because this scenario made it more likely that the Alleged Original Agreement existed: if the Screens and Batteries were purchased solely for the purpose of “testing” the Phones, it would be logical that Madam Lau would have contemplated the possibility of removing them after the “testing”.

43.  On the other hand, if the original intention of the plaintiff was to restore or reassemble the phones in order to get a higher sale price, the intention must also be that the Phones should be sold “as restored”. As such, it would be unlikely that the Alleged Original Agreement existed: why bother restoring the Phones if there was a contemplation of the extra work and costs risk in removing and reselling the Screens?

44.  Further, if the Alleged Original Agreement did not exist, the alleged conversation between Madam Lau and Madam Ng after the sale (during which Madam Lau instructed Madam Ng to “remove the screens” and Madam Ng simply said “yes”) would not likely have occurred: why would Madam Ng agree so readily if there was never any prior agreement?

45.  I would only speculate that Mr. Pei was driving a hard bargain and only agreed to buy the Phones at a cheaper “without screen” price. Under the circumstances, Madam Lau have reluctantly agreed that Mr. Pei would only help to re-sell all the screens (including the Screens) on her behalf. I might speculate that she did not obtained a good re-sale price of the Screens so she was trying to find a way to recover the loss against the defendant instead. Of course, this is pure speculation and in no way affect the court’s finding.

46.  In any case, the court finds that the Alleged Original Agreement did not exist and that the plaintiff had never asked the defendant at any point of time to remove the Screens (or Batteries) from the Phones.

Any breach of the Alleged Original Agreement?

47.  Having found that the Alleged Original Agreement did not exist, the plaintiff’s claim must fail.

48.  Nevertheless, for sake of completion, I would go on to discuss the conduct of Madam Lau after the sale.

49.  During the trial, when Madam Lau was asked what she did when she discovered that Mr. Pei had taken the Phones away without the defendant removing the Screen (and Batteries), her answer was that :-

“I asked Madam Ng: “Why did you release the screens?” She explained that: “Mr. Pei would remove the screens in China and helped to sell them there. If you ask me to re-sell, I would have also sold them in China, and there would be no difference between removing the screens here in Hong Kong or in China.””

50.  Madam Lau was then asked whether she agreed to this arrangement.

51.  Madam Lau was very evasive, she firstly said, “What can I say, she had released to Mr. Pei.” Then she claimed that she would need to pay for “transportation fee” for the return of the Screens. And then she claimed that “my objection would have been ineffective” and that she was “forced to agree”.

52.  Madam Lau then told the court that she had latter called Mr. Pei and asked him “how he would deal with the screens” :-

“Mr. Pei said: “Madam Ng told me that she would allow me to take the screens away to sell them here. She asked me to re-sell on behalf for you. So I am helping you to re-sell.””

53.   When Madam Lau was asked how she replied to Mr. Pei, she said :-

“I did not say anything. I would need someone to sell the screens on my behalf”;

“If I ask for the screens to be returned to Hong Kong, they would be accumulating unsold in the warehouse here”;

“I reluctantly agree. If at that time I ask him to remove the screens and return them, I would offend both sides, that is, both Madam Ng and Mr. Pei.”

54.  The court fails to understand how, under the circumstances, Madam Lau was in any way “forced to agree” to this arrangement.

55.  If she had really wanted the Screens back, she could have expressed her objection to Madam Ng and Mr. Pei’s proposed arrangement, and could have asked Mr. Pei to remove and return all the screens immediately without charging her any transportation fees, and she could have threatened to call the police: after all, if this really happened as alleged, it would be theft.

56.  In fact, Madam Lau admitted that she failed to do any of this.

57.  As such, even on the plaintiff’s own evidence, and even if the Alleged Original Agreement existed (contrary to the court’s findings above), it was clear that she did not object to this arrangement proposed by Madam Ng and Mr. Pei.

58.  Thus, by Madam Lau’s conduct, the plaintiff must be deemed to have agreed to such variation of the Alleged Original Agreement (even if it existed) so there would not be any grounds to claim against the defendant for any breach.

59.  Alternatively, if there was any breach of the Alleged Original Agreement (even if it existed), the plaintiff has accepted it by way of Madam Lau’s conduct so the plaintiff is not entitled to any relief of rescission.

60.  Further, the court noted that under cross examination, it was put to Madam Lau that Mr. Pei had removed all the Screens from the lot of Phones and sold them separately on behalf of the plaintiff, and that eventually, some 3,700 of the Screens were sold with the money and the remaining unsold screens were returned to Madam Lau.

61.  Madam Lau denied this: she claimed that Mr. Pei did not sell nor return any of the Screens.

62.  However, it was her earlier evidence that she never requested Mr. Pei to return the Screens. As such, it was put to her that Mr. Pei did not return any of the Screens because she had never asked him to do so. Madam Lau agreed.

63.  This is, of course, totally incredible: why didn’t Madam Lau ask Mr. Pei to return all the Screens if Mr. Pei failed to sell even one?

64.  As such, the court accepts the defendant’s case that some 3,700 of the Screens were sold and the rest, together with the sale proceeds, had been returned to Madam Lau. There is clearly no basis for any claim of damages against the defendant in any case.

Order

65.  The plaintiff’s claim be dismissed with costs of the action to the defendant to be taxed if not agreed, with certificate for counsel.