OR SHELI MARKETING AND TRADE LTD v. TING LI LI t/a TRANS WORLD ENTERPRISE CO

DCCJ 2161/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2161 OF 2011

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BETWEEN

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JUDGMENT

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Background

1.  This is an action by the plaintiff against the defendant for the sum of :-

(a) US$44,308.62, being the balance of the purchase price of the 2^nd Shipment; and

(b) US$35,610.48, being the purchase price of the 3^rd Shipment.

Issues in dispute

2.  According to the Agreed List of Issues dated 20 November 2012, the issues are:-

(a) Whether the plaintiff is the supplier of the defendant for the fruit produce in Israel;

(b) Whether the defendant is entitled to refuse to accept part of the 2^nd Shipment and the entire 3^rd Shipment;

(c) Whether the plaintiff, Bar Cochva Mardix (“Mardix”) and/or Dudi Doron (“Dudi”) is/are the agent of the defendant;

(d) If the plaintiff is found to be an agent of the defendant:-

(i) Whether the plaintiff is nevertheless entitled to reimbursement for the purchase price of the fruit produce on behalf of the defendant;

(ii) Whether the plaintiff has breached any fiduciary duty as alleged by the defendant.

3.  In the trial, the defendant narrowed down the issues to:-

(1) Whether the said Agreement is an Agency Agreement or a Seller and Buyer Agreement;

(2) Whether the defendant is entitled to refuse to accept part of the 2^nd Shipment and the entire 3^rd Shipment in light of the delay;

(3) Whether the plaintiff can establish its claim by proving actual payments made to the fruit suppliers.

In other words, the defendant admitted that even if it is proved that the plaintiff as the defendant’s agent did make the payments to Mehadrin and Shoham, the suppliers of the fruits, the defendant has to reimburse the plaintiff.  

Common ground

4.  It is common ground that:-

(a) The defendant had received from the plaintiff Proforma Invoices, Packing Lists and shipping documents for the 1^st, 2^nd and 3^rd Shipments;

(b) The 1^st, 2^nd and 3^rd Shipments respectively arrived in Hong Kong on 3 November 2010, 21 November 2010 and 1 December 2010 ;

(c) The defendant had transferred US$45,508.32 into the plaintiff’s bank account (1109000/07) to settle the purchase price of the 1^st Shipment;

(d) The defendant had collected and sold 2 containers out of the 4 containers under the 2^nd Shipment; and

(e) The defendant had transferred US$48,971.00 to Mardix to settle part of the purchase price of the 2^nd Shipment.

The plaintiff’s case

5.  The plaintiff called David Doron, also known as Dudi (“Dudi”), to give evidence.  He is the General Manager, Director and shareholder of the plaintiff.  The case of the plaintiff can be summarized as follows:-

(1) In late 2009, Mardix, a relative of Dudi, informed Dudi that Chen Chih Lin, Charles (“Charles”) of the defendant, a long-time business partner of Mardix, was interested in fruit business, and asked Dudi if he had any connection with fruit suppliers in Israel.  Due to his close relationship with Mardix, Dudi agreed to, and did introduce various fruit suppliers (ie Or Fresh and Kedem Hadarim) to Charles.

(2) Charles later became dissatisfied with the suppliers Dudi introduced, and then asked whether Dudi would agree to be his supplier.

(3) Dudi considered Charles’s proposal viable.  To prepare for the potential cooperation with Charles, Dudi incorporated the plaintiff in or about March 2010.

(4) In or about May 2010, Dudi met Charles for the first time in Hong Kong together with Mardix.  On that occasion, it was agreed between the parties that:-

(a) The defendant would place order with the plaintiff, which would then purchase the fruits so ordered from suppliers in Israel and resold the same to the defendant with a profit (being 2% of the price); and

(b) Mardix would provide the purchase price of the fruits on behalf of the defendant to the plaintiff (as a loan) and the defendant would repay such sum to Mardix plus commission (being 3% of the price) after it sold the fruits.

6.  Pursuant to the said agreement, the defendant had placed 3 shipments of fruits with the plaintiff by e-mails respectively dated 11 October 2010, 13 October 2010, and 27 October 2010.

7.  From 9 November 2010 to 16 November 2010, Charles wrote in the e-mails that he wished to refuse the shipments due to the delays of the expected arrival dates of the shipments, and the quality of the fruits.

8.  The 2^nd Shipment arrived on 21 November 2010.

9.  In an e-mail dated 26 November 2010, Charles wrote, inter alia, that:-

“I did discuss with my sales about how to distribute, here are the plans:

4 containers will arrive at 21/11.

(a) 2 containers: I took out already, I will pay at 05/12

(b) 1 container: put in stock, start to sell at 01/12. I will pay at 15/12

(c) 1 container: put in stock, start to sell at 10/12, I will pay at 24/12

3 containers will arrive at 01/12

(a) 1 container: put in stock, start to sell at 10/12, I will pay at 24/12

(b) 2 containers: put in stock, start to sell at 20/12, I will pay at 04/01.”

The plaintiff submitted that the defendant changed his mind, accepted the fruits and proposed a payment schedule to pay for the 2^nd and 3^rd Shipments.

10.  The 3^rd shipment arrived on 1 December 2010.

11.  On 5 December 2010, Charles informed by e-mail that due to the purported delay, the defendant would not take the Shipments.

12.  Thedefendant only paid for part of the 2^nd Shipment.  As for the remaining balance thereof and the 3^rd Shipment, the defendant refused to pay on the ground of late delivery and poor quality of the fruits.  The plaintiff submitted that the real reasons for rejecting the fruits were Charles’s mismanagement for ordering schedule and the overestimation of the demand for fruits.

13.  Payments were made to Mehadrin and Shoham for the 2^nd and 3^rd Shipments, particulars of which are as follows:-

Date	Payee	Transferred sum (US$)
15.11.2010	Shoham	6,181.37
18.11.2010	Mehadrin	46,994.30
23.11.2010	Mehadrin	34,743.30
29.11.2010	Mehadrin	44,994.30

Defendant’s case

14.  The defendant called Chen Chih Lin, Charles to give evidence.  He was the General Manager of the defendant.  He is also the husband of Ting Li Li, the defendant herein.  The case of the defendant can be summarized as follows:-

(a) The plaintiff was the sourcing agent of the defendant;

(b) The defendant, who earned 2% commission on the purchase price of the fruits ordered, was responsible for negotiating with fruit suppliers in Israel on behalf of the defendant.

15.  The defendant rejected part of the 2^nd Shipment and the whole of 3^rd Shipment due to the delay of the plaintiff in ordering the fruits.  The defendant alleged that the date for ordering the fruits for the 2^nd Shipment was 9 October 2010, but Dudi delayed in ordering the fruits and as a result the purported on board date was delayed from 17 October 2010 to 27 October 2010 (10 days’ delay).

16.  For the 3^rd Shipment, the defendant placed order on 18 October 2010 but Dudi only ordered on 27 October 2010 (9 days’ late), the actual on board date was about 5 November 2010.

17.  Upon the breach of fiduciary duties under the Agency Agreement and the refusal/failure of Mardix and Dudi to return the remaining 2 containers of the 2^nd Shipment, the defendant forwarded the said remaining 2 containers to Mainland China, and suffered loss in the total sum of RMB154,000.

18.  As for the evidence of payments, the defendant alleged that the save and except the payment of US$46,994.30, the records only showed requests or instructions for payments.  There was no payment records evidencing that the amounts had been actually debited or transferred. 

Discussion and analysis of the evidence

Issue no 1: Whether the agreement between the plaintiff and the defendant is an Agency Agreement or Seller and Buyer Agreement.

19.  I find the Agreement between the parties is an Agency Agreement for the following reasons:-

(a) The defendant was the only customer of the plaintiff at the material time.  The purpose for setting up the plaintiff was to carry on business with the defendant.

(b) The plaintiff earned 2 % of the purchase price for each transaction.  Instead of deciding the price for the fruits, the income is only 2% of the purchase price as commission.  Any extra is admitted by the plaintiff as a mistake.  I find that this is one of the hallmarks of an agency relationship.

(c) The defendant had strict control over the plaintiff, including the time for placing the orders, the price negotiations, the packaging.  The plaintiff even provided to the defendant the price list of the suppliers.

(d) It also seemed clear that the plaintiff is not responsible for the quality of the fruits.  All those complaints were directed or instructed to direct to Mehadrin, the supplier.

Issue no 2: Are there delays in ordering the fruits?  If there are such delays, whether the defendant is entitled to refuse accepting the Shipments.

20.  I find that there are no delays in ordering the fruits.  It is true that the defendant wished to order fruits on a weekly basis so as to maintain a steady supply of fruits as evidenced by the Buy plan and the New Buy Plan.  But those plans are not legally binding documents.  They are only the intentions of the defendant.

2^nd Shipment

21.  For the 2^nd Shipment, the defendant alleged that the time of placing order was 9 October 2010, but no written evidence was produced.  According to the plaintiff, the ordering date was 13 October 2010.

22.  According to the e-mail dated 13 October 2010 from Charles of the defendant to Dudi of the plaintiff, Charles wrote:-

“Sunrise:

(1) 2 x containers, count 40 = OK

(2) 3^rd containers: 50% count 40 + 50% count 45, please insist Mehadrin to achieve, thanks.

Them add up one container more, 4^th container: 50% Sunrise count 32 + 50% Sweetie count 32 = Is it ok? …

If Pomegranate can be put with Sunrise + Sweetie (4^th container), then please arrange this 4^th container as follows:

(a) 50 % Sunrise, count 32

(b) 40 % Sweetie, count 32

(c) 10 % Pomegranate, count 7= At this 2.84/KG, it sell in a very small quantities per day.”

In the e-mail dated 18 November 2010 from Dudi to Charles, Dudi wrote:-

“… you invitation was at 09/10/10, you asked for 3 containers size 40. Up to date 16/10/10 we arrange the order because there wasn’t only a size 40 so I changed the order we waited for an answer whether the grenades can be in the same container with the sweetie, etc. The final order came out perfectly on 17/10/10 Sunday, the ship was scheduled to sail on 24/10/10 because of a delay sailed on 28/10/10.”

23.  According to the paragraphs 31 and 32 of Dudi’s statement dated 2 October 2012, “Charles placed a second order by an e-mail dated 13 October 2012.”  “After this order was placed, it could not be confirmed as quickly as possible because Charles kept on negotiating with me on the price of the fruits and changing the precise quantity of the fruits ordered.  On the other hand, I also needed time to confirm the grapefruits could be shipped with pomegranate in the same container.”

24.  It can be seen from the e-mail dated 13 October 2010 that the defendant was still giving the instructions as to the purchase and the addition of another container. Therefore the reply from the supplier was required.  I do not accept 9 October 2010 as the date of the 2^nd shipment and I also do not accept that there was delay on the part of the plaintiff in carrying out the order.

25.  The aforesaid date of 9 October 2012 even does not match the opening submission of the defendant.  As in paragraph 6 of the defendant’s opening submission, it is stated that “On 9 October 2010, Charles Chen informed Mardix and Dudi to place order for the 2^nd Shipment, and on 13 October 2010, details of the order for the 2^nd Shipment was confirmed to Dudi by e-mail.”  Only on 13 October 2010, the order was to some extent confirmed.

26.  Given the questions posed and the additional container requested, it is likely that the order could not be confirmed by the supplier on the same day.

27.  According to the e-mail dated 18 November 2010, it seems that the order was confirmed on 17 October 2010. Ship was scheduled to sail on 24 October 2010, and subsequently because of a delay, sailed on 28 October 2010.

3^rd Shipment

28.  Charles alleged that he had placed the order for the 3^rd Shipment on 18 October 2010.  The plaintiff alleged Charles only placed the order on 27 October 2010.

29.  The defendant relied on the e-mail dated 18 October 2010 in which Charles wrote:-

“How about the week 2 shipment details??, please let me know onue (sic?) you get it.

Week 3 quantities: Only Sunrise

(1) 2 containers of 100% count 40.

(2) 2 containers of 1/3 count 40 + 1/3 count 32-35

P.S.

(a) If fortunately, they can provide more count 40, please change count 45 to count 40, thanks.

(b) If there are too many count 45, please do let me know a.s.a.p., I maybe change the orders’details, please do follow, thanks.”

30.  The plaintiff relied on the e-mail dated 27 October 2010 sent by Charles in which he wrote:-

“Week 3:3 container

(a) 2 containers= Min 70% count 40 + Max 30% count 45

(b) 1 container + 70 % count 40 + 30% count 32-35”

31.  Also in the e-mail dated 11 November 2010, Charles wrote, inter alia, that:

“I get 2^nd orders packing list at 10/26, I order 3 orders at 10/27, DID I LATE TO ORDER ???”

At the end of the e-mail, he wrote:-

P.S.: One big question to me???

“a) Can I reject to take Mehadrin goods???, as their packing list’s arrival dates are wrong.

The wrong dates: ‘11/13 to 11/21’ & ‘11/24 to 12/01’

b) Please advise.”

32.  In the above e-mails, it is crystal clear that Charles ordered the 3^rd Shipment on 27 October 2010; it is also in his own words in the e-mail dated 11 November 2010 that he ordered on that day.  The alleged order dated 18 October 2010 can only be regarded as an instruction to Dudi. Follow up work is needed and the final outcome is different from the instructions, in particular only 3 containers were ordered.  There is also no evidence of delay in carrying out any order as alleged by the defendant.

33.  Furthermore, no allegations of delay on the part of the plaintiff were made in the e-mails.  The alleged delays were only directed to Mehedrin and the shipping company.  I find that the defendant’s witness is not honest in insisting that the order for the 3^rd Shipment was placed on 18 October 2010.  The evidence clearly indicated that the order was placed on 27 October 2010.

34.  In addition, I find that alleged delay is not the real reason of the defendant in rejecting the fruits.  In the e-mail dated 25 November 2010, Charles wrote:-

“Please note that I did buy from Or-Fresh after Dudi-Mehadrin:

(a) 1 container-Sunrise: USD20280

(b) 2 container-Sunrise: USD40560

(c) 1 container-Sunrise+Pomegranate: USD28470

(d) 1 container-Sunrise+Pomegranate: USD33404.

Total: 122714

My problem is: my Of–Fresh goods will be also interfered by Dudi- Mehadrin operation.

The most big headache thing is: I have the high prices’ goods, and my competitors are lower.”

35.  In the e-mail dated 1 December 2010, Charles wrote:-

“ Sunrise:

(a) The 3 containers arrive at H.K. Today, please note.

(b) Now, I have 5 containers of Mehadrin, and I have the most expensive prices in the market.

(c) Can I just reject there 3 containers by the reason of their low quality ??. Please help.

Or: I guess I can easily pick 30% to 50% of the fruits with STEINS, can we reject those % with steins???

It is really a nightmare to me in Mehadrin issue.”

36.  In the e-mail dated 3 December 2010, Charles compared the prices, quality and wrote, “It conclude to Mehadrin is 10% - 15% higher than other packing house.”  “The Mehadrin’s quality is the worse. ”  Payment: 02 containers: I will pay the Mehadrin invoice first to you next Monday……”.

37.  In the e-mail dated 6 December 2010, Charles wrote to Mehadrin stating that “as the delay & market changes, we can’t no longer take them……”.  “By the way, our Israel colleague did pay you the money, please also advise when you can return back our payment, thanks”.  There was also the complaint of the price of the goods.

38.  It can be seen that the real reasons for rejecting the fruits are that the defendant ordered too much fruits as he also ordered from other supplier; the time table for the arrivals of the fruits did not match his plan; and the price of the fruits, from Mehadrin according to Charles, was expensive.

39.  It can be seen from the e-mail that Charles did not mention the refusal of payment in the e-mail dated 3 December 2012.  He just said that he would pay the 2 containers first; it is also noted that, in the e-mail dated 26 November 2010, he confirmed the order and promised to pay.  Then on 6 December 2012, he rejected the fruits. Therefore, even if there were delays in ordering the fruits, Charles should be responsible as he was the one who handled the ordering schedule and confirmed the orders.

40.  It can also be seen from the e-mails that Charles is not an honest businessman.  He used different pretexts to reject the fruits; for example, the quality of the fruits as stated in the e-mail dated 1 December 2010, the discrepancy of the packing lists arrival dates as stated in the e-mail dated 11 November 2010.  I do not accept his evidence.

Issue no 3: Whether the plaintiff can establish its claim by proving actual payments made to the fruit suppliers?

41.  I find that the purchase price had been paid to Mehardin and Shoham, and the defendant has to repay it to the plaintiff.

42.  I accepted the evidence of Dudi, the plaintiff’s witness, who alleged all the payments had been made.  His evidence is clear and supported by documents.  He impressed me as an honest witness and I preferred his evidence to Charles’s if there is any discrepancy.  Save an except that he might try to get more money in the transaction of Shoham, alleging that there was some transportation cost , the difference is around US$1,148.71 (7,453.30 – (6,181.32 x 1.02)) (US$6,181.21 was the sum the plaintiff transferred to Shoham), he also made a mistake as to the price for Grapefruit Sunrise of size 45.  The price should be US$16.32 instead of US$16.83, the difference is only US$0.51.  The total price difference is only US$722.67 (1,417xUS$0.51). I do not regard these as secret profit as all the subject price lists were sent to the defendant as requested, the mistake could be easily found out by comparing the documents.  After all, the documents sent to the defendant were only a proforma invoices and there may be room for variation in the invoices (if any).  But such sum of US$1,870.98 (722.67+1,148.71) should be deducted from the amount claimed by the plaintiff.

43.  The payments were supported by the documents issued by the bank.  I do not accept the defendant’s submission that the documents were only requests or instructions.  It seems to me the documents were printouts from the bank.  It is true that in the 3^rd payment record for the sum of US$46,994.30, there was another debit note which cleared any doubt as to whether the transaction had gone through.  Even without this in other printouts, I am satisfied that they were records of payments.

44.  Another evidence to support that the purchase price had been paid is that up to the date hereof, Mehedrin or Shoham have not asked the defendant to pay the purchase price.  It is clear that the defendant did directly approach Mehedrin and rejected the goods, he even asked for the refund of money.  There is another e-mail also dated 6 December 2012 in which Charles wrote to Mehadrin and stated that “it is impossible for us to pay you the invoice”.  If the purchase price had not been paid, it would not be surprising for Mehedrin to write back to deny that such payments had been made and demand for it.

45.  The defendant submitted that in the last paragraph of the e-mail dated 7 December from Mehadrin to the defendant, Sandra of Mehadrin wrote that “from my side, I will turn to the management and try to get some credit/reduction on price in order to help you”, which implied that the purchase price had not been paid. I did not accept that.  It only showed the intention of Sandra, and even if the price had been paid, some credit or reduction could be given.

46.  As for the counterclaim, the defendant failed to produce any documentary evidence to prove the Import tax and the cooling storage charges.  In view of the above, the defendant is not entitled to them even if they are paid.  I dismiss the counterclaim.

47.  For the quantum, it seems both parties used the figures paid by the plaintiff to the suppliers for calculation, and as a result, no deduction mentioned in paragraph 42 above is necessary. It is agreed to be US$79,361.23.  In the circumstances, I order the defendant to pay the sum of US$79,361.23 together with interest at judgment rate from the date of issuance of the writ to the date of judgment, and thereafter at judgment rate until payment.

48.  I also make an order nisi that the defendant shall pay the costs of this action, including any reserved costs, together with certificate for counsel, to be taxed if not agreed. Unless varied, such order shall be made absolute within 14 days.

49.  I thank counsel for their assistance.