MICRO STAR INTERNATIONAL CO LTD v. SOUTH CHINA HOUSE OF TECHNOLOGY CONSULTANTS LTD

DCCJ 4481/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4481 OF 2009

____________

J U D G M E N T

1.  SCHOT, the Defendant, used to be a distributor of the computer products of MSI, the Plaintiff, in Hong Kong. MSI claims against SCHOT for outstanding cost of goods sold and delivered. SCHOT alleges wrongful repudiation of distributorship agreement on the part of MSI. It has allegedly settled all that was due and owed to MSI upon the termination of the agreement. It now counterclaims for alleged consequential loss and damage.

Introduction

2.  MSI is a Taiwanese company in the business of manufacturing and sale of computer products.  SCHOT carries on business as distributor, wholesaler and retailer of electronic and computer products in Hong Kong, Macau and the Mainland.

3.  Since 2006, MSI had sold various computer products, including computer motherboards and notebook computers, to SCHOT.  As confirmed when the trial began, the goods sold and delivered included those under the following invoices from MSI:

4.  In respect of the above invoices for the motherboards, SCHOT has paid MSI a sum of US$42,151.42 on or about 6 November 2008.  The lesser sum was paid because SCHOT has set off the following items of expenses:

5.  MSI acknowledges the receipt of the sum of US$42,152.42; but disputes the above items of deduction.

6.  The invoiced amount for the notebook computers was not paid until after the business relationship between the parties has been terminated.  Again SCHOT paid MSI a lesser sum of US$190,152.04 after setting off various items, namely:

7.  Except for the first 2 items (credit note and price protection), the above items of deduction are in dispute.

The claim

8.  After giving credit to the deductions not in dispute and the amounts received, MSI now claims for the balance of the cost of the motherboards and notebook computers under the above 6 invoices in the total sum of US$120,466.54.

The defence

9.  According to the pleading, SCHOT claims to have been the sole agent and distributor of MSI’s computer products pursuant to the parties’ agreement in July 2006 or alternatively by conduct.

10.  Allegedly in breach of the parties’ agreement, MSI appointed a new distributor in November 2008 without prior notice to SCHOT.  This constituted repudiation of the parties’ agreement.  SCHOT accepted such repudiation and the agreement was terminated.

11.  Upon termination of the parties’ agreement, the parties allegedly arrived at an agreement whereby MSI would accept the return of all the unsold stock of MSI products at the original price from SCHOT.  MSI took back the notebook computers but refused to take back the motherboards except for those aged not more than 3 months.  SCHOT eventually sold the unsold stock in hands to various buyers (at the total sum of US$54,000).

12.  SCHOT also held MSI responsible for reimbursement of various other expenses (above).  Taking those into account, SCHOT arrived at the balance in the sum of US$190,152.04 and hence the sum paid to MSI in September 2009 as mentioned above.

The counterclaim

13.  SCHOT goes further and put forward a counterclaim for the alleged loss and damage in the form of (1) cost and expenses of the unsold stock; and (2) loss of profit.

14.  As SCHOT has already deducted the cost of the unsold stock in arriving at the amount paid to MSI in September 2009, it is difficult to see how it is entitled to claim for the same again in the counterclaim.  Mr Shum for SCHOT acknowledged that at the beginning of the trial; and responded by amending the pleading.  MSI raised no objection to the amendment.

The issues

15.  The question of SCHOT’s alleged entitlement to the various deductions from the amount of the 6 invoices in question owed to MSI entails the determination of the following issues:

(1)  the alleged sole distributorship agreement;

(2)  MSI’s alleged wrongful repudiation the agreement;

(3)  the alleged agreement to return the unsold stock at cost;

(4)  the alleged liability of MSI for the various other expenses;

(5)  the amount MSI is entitled to; and

(6)  the counterclaim.

The distributorship agreement

16.  There is no dispute that MSI did appoint Hornington Computers Company (“Hornington”) as a distributor of its products in Hong Kong sometime in November 2008.  The dispute is whether SCHOT was at the time contractually the sole distributor of MSI products and therefore whether MSI had the liberty to appoint any other distributor.

17.  In its reply to the former solicitors for SCHOT in as early as March 2009, MSI stated its case (as now pleaded) that SCHOT was indeed appointed as the sole distributor of MSI notebook computers in about July 2006.  But the contractual term of the distributorship lasted for 1 year and expired in 2007.  As to the sale of motherboards, SCHOT has never been MSI’s sole distributor.

18.  Philia Tsai (“Tsai”) is the Assistant Manager in charge of the sale of MSI computer motherboards in Asia.  She took over from her predecessor, Ivy Chang, the charge of the business dealings of the so-called motherboard team of MSI (“MB Team”) with SCHOT in July 2008.  In court, she confirmed the fact that prior to the appointment of Hornington, SCHOT was indeed the only distributor of MSI motherboards in Hong Kong.  But that, she emphasized, did not render SCHOT the sole agent or distributor and thus preventing MSI from appointing additional distributors.  She also described in her evidence the mode of sale and purchase of motherboards between the parties at all material times.

19.  Grant Huang (“Huang”) is the Assistant General Manager in charge of the sale of MSI notebook computers in Greater China.  He took over from his predecessor, Sam Lee, the charge of the business dealings of the so-called notebook team of MSI (“NB Team”) with SCHOT in February 2007.  According to him, SCHOT used to order MSI bare-bone computer products for resale in SCHOT’s own brand name during the first half of 2006.  The parties then negotiated the sole distributorship of MSI notebook computers by SCHOT in Hong Kong and Macau.  Huang explained the business concern of his company then which led to its decision to limit the sole distributorship to notebook computers and the term of 1 year.

20.  Huang gave the details of the agreement between the parties.  It was a written agreement on 4 August 2006 under the title of 制式經銷合約.  Pursuant to the written agreement, SCHOT became the authorised sole distributor of MSI notebook computers in Hong and Macau for 1 year (from 1 August 2006 to 31 July 2007).  SCHOT undertook to order from MSI notebook computers worth not less than NT$3 million every 3 months.  In default, MSI would be entitled to cancel the sole distributorship or to terminate the agreement all together.

21.  The above evidence is not exactly in line with the pleaded stance of MSI.  In its Reply, MSI denies that there was any sole agency agreement entered into between the parties in July 2006 or at any other time as alleged by SCHOT.  However no issue had been taken in this respect until MSI attempted to produce what was said to be the written agreement referred to by Huang in his evidence.

22.  Indeed, the written agreement has somehow failed to find its way into the trial bundle.  The fact is that it has not been formally disclosed.  Nor has SCHOT requested for specific discovery of it, except for the request made in its former solicitors’ written reply to MSI in March 2009.  In court, Mr Tjia for MSI sought to produce the document only after having closed her client’s case.  Not surprisingly, this met with the objection by Mr Shum.

23.  Besides pointing out the stance of MSI as pleaded in the Reply as mentioned above, Mr Shum referred to the prejudice caused to his client if the document was adduced at that stage.  Authenticity of the document was allegedly in dispute.  The representatives of the parties who apparently signed the document were also not witnesses in the trial.  I accepted his argument and ruled against the production of the document.

24.  However, when it came to the evidence of Martin Wong (“Wong”), sales director of SCHOT at the material times, he actually identified the document, that MSI sought to produce, as a written agreement signed by Stanley Kwok on behalf of his company with MSI.  Only that the agreement was said to concern the sale and purchase of a style of notebook computer called “STAMP” rather than the MSI notebook computers in question.

25.  In view of Wong’s evidence, I wonder where the dispute as to authenticity of the document once suggested by Mr Shum lies.  Also the document, if adduced, should have supported what Wong said and presumably undermined MSI’s case.  Nevertheless, the fact was that it was MSI which sought to produce it and SCHOT objected to that.

26.  According to Wong, he personally reached the verbal agreement on sole distributorship of MSI notebook computers and MSI computer motherboards with Ivy Chang and Sam Chen of MSI respectively in July 2006.  He could not explain why his company’s former solicitors stated in their letter to MSI in March 2009 that the agreement was made in about October 2005.

27.  According to Wong, on the sketch of the verbal agreements with Ivy Chang and Sam Lee of MSI, he let his subordinates Stanley Kwok and Dennis Lam work out and finalise the details with MSI.  Neither of these subordinates was called as witness.  One of them was said to be overseas while another one has left the employment.

28.  Both Tsai and Huang testified in court in respect of their understanding that no such verbal sole distributorship agreements as alleged by Wong ever existed by the time when they succeeded Sam Lee and Ivy Chang respectively.  For what is worth, Tsai also obtained Sam Lee’s comment by way of a recent email that rebuts Wong’s suggestion.

29.  Though Wong found it necessary to instruct his subordinates to work out and to finalise the details of the parties’ agreement with MSI, this did not result in any form of written agreement or even record of the parties’ agreement.  Wong explained that he had known Ivy Chang for too long; and the Hong Kong market is too small to accommodate more than 1 distributor.  Therefore it was not his concern about the need for his company’s protection by way of a written agreement.  From a business point of view, this sounds unusual.

30.  Copies of the parties’ email correspondence during the period between mid-July 2006 and mid-September 2009 were produced as circumstantial evidence.  Until October 2008, the correspondence invariably involved the personnel of the NB Team of MSI.  Both references to agreement with SCHOT in mid-July 2006 and the plan to launch MSI brand in August 2006 were related to notebook computers.  There was no mention of MSI motherboards or indication of sole distributorship.

31.  As the sole distributor of MSI notebook computers, SCHOT had to fulfil target order quantity.  Wong eventually agreed to that in court.  The correspondences during late 2007 suggest that there was concern about the sale performance of MSI notebook computers in Hong Kong.  In his evidence, Huang also set out the declining quantities ordered by SCHOT.  MSI even had to adjust the pricing of the notebook computers to accommodate SCHOT.

32.  Since January 2008, MSI was seen raising the issue of overdue cost of the notebook computers sold to SCHOT.  In response, SCHOT attributed the poor sale to the high prices set by MSI.  Worth noting is that in his email to SCHOT dated 29 January 2008, Huang described SCHOT as the only distributor in Hong Kong so far.

33.  In discussing its order for MSI notebook computers, SCHOT in its email dated 3 October 2008 to Huang suggested that SCHOT was willing to put effort into the sale of MSI notebook computers; but MSI had to guarantee that SCHOT would be the sole distributor for at least 3 or 6 months.  SCHOT explained that in a small market like Hong Kong, it would be impossible to have more than 1 distributor of 1 product.  In his reply on the same day, Huang stated his company’s position that in view of the small quantity of order by SCHOT so far, it would not be easy to maintain the requested sole distribution.  According to Huang, similar indication had already been made to SCHOT during a telephone conference in 2007.

34.  Huang’s reference in its email to SCHOT as the sole distributor of MSI notebook computers in Hong Kong suggested nothing more than the fact so far by then.  The request to MSI to guarantee the sole distributorship for 3 or 6 months in October 2008 clearly reflects SCHOT’s own understanding that it was not contractually the sole distributor at least at that time.

35.  The exercise of MSI’s right to appoint additional distributor in Hong Kong was further hinted a month later even by the MB Team of MSI.  As a result of unsatisfactory sale performance and the overdue account of SCHOT, Tsai in her email to SCHOT dated 19 November 2008 advised that something needed to be done in the Hong Kong market.  Reference was made to what MSI informed SCHOT the previous day that MSI was considering adding an agent in Hong Kong.

36.  It was only in its reply to the above email did SCHOT mention Hornington.  What SCHOT then complained about was that Hornington was telling customers that it was the new distributor of MSI motherboards; and that the customers were advised not to buy from SCHOT.

37.  Tsai made no secret of her company’s consideration of appointing an additional distributor.  But Hornington had yet to be so appointed by then.  In court, Tsai was adamant about that.  In another email on the same day, even SCHOT described what Hornington allegedly did was spreading a rumour, though that sufficed to affect its business adversely.

38.  There is not suggestion that MSI authorised or condoned what Hornington allegedly did.  More importantly, Tsai’s email reflects the lack of understanding that SCHOT was the sole distributor.  Hence the idea was to appoint an additional distributor in Hong Kong rather than to appoint one in place of SCHOT.  Indeed she still requested SCHOT to provide a proposal to promote MSI brand in Hong Kong, while she would fight for the necessary resources for SCHOT.

39.  Yet SCHOT found the situation unacceptable.  In his company’s correspondence with MSI and in court, Wong explained and emphasized that Hong Kong market is too small to accommodate more than one distributor.  That was how his company would do business.

40.  From a business point of view, what Wong said here is understandable.  But if the suggestion was that there should be an implied term as to sole distributorship to the parties’ agreement, whether by virtue of business efficacy or practice, nothing of that sort is actually pleaded.  The issue is simply whether there was in fact agreement between the parties that SCHOT was the sole distributor of all the computer products of MSI in Hong Kong and Macau as alleged.

41.  In my view, the inference that SCHOT would not have agreed with MSI if the distributorship conferred were not sole is outweighed by the inference of the parties’ understanding in this respect that can be drawn from the contemporaneous correspondence.

42.  SCHOT refers to the conduct of the parties.  However, the undisputed fact that SCHOT was the only distributor of MSI products in Hong Kong prior to the actual appointment of Hornington would not transform the status of SCHOT into one of contractual sole distributor.

43.  Wong also referred to the alleged representation by MSI during a press conference in Hong Kong that SCHOT was the sole distributor of MSI products even in 2008.  The representative of MSI who attended the press conference gave evidence.  He was Chang from the research and development department of MSI.  According to his evidence and the relevant press release on that occasion, the theme of that press conference was really to explain the technical aspects of a newly developed motherboard.  Chang was not involved or authorised to make any representation about the marketing aspect.  His evidence was not effectively challenged.

44.  Considering all the evidence including those discussed above, I prefer the evidence adduced on behalf of MSI to that of SCHOT in this respect.  I reject SCHOT’s allegations about the terms of the sole distributorship agreement.  I find that even though SCHOT had been the sole distributor of MSI notebook computers at one stage, SCHOT was no longer the sole distributor contractually by the time when the parties’ business relationship turned sour in late 2008.

MSI’s alleged wrongful repudiation

45.  MSI was not contractually prevented from appointing another or additional distributor of its products in Hong Kong.  SCHOT’s complaint about Hornington competing by offering longer warranty period in the market falls away as well.

46.  No alternative case is pleaded on the basis of competition amongst distributors, even if SCHOT was not contractually the sole distributor.  Further, both Tsai and Huang were adamant that the warranty period MSI offered to SCHOT and Hornington were the same.  Any extended warranty period would have been the own decision of Hornington independent of MSI.

47.  It was the stance of SCHOT that it would carry on only if it was the sole distributor of MSI in Hong Kong.  That was what it preferred; but not what was actually agreed.  That, I find, was what caused SCHOT to decide to terminate the business relationship with MSI; and to do so forthwith.  There is no question of wrongful repudiation on the part of MSI as alleged.

The alleged agreement to return the unsold stock at cost

48.  The pleaded case of SCHOT is that upon termination, the parties reached an agreement whereby the unsold MSI stock would be returned to MSI at original price.  But MSI allegedly retracted from its promise and refused to take back the motherboards except for those aged not more than 3 months.

49.  To begin with, the alleged acceptance of the return of the unsold stock is not said to be the contractual obligation of MSI under the distributorship agreement.  Even according to SCHOT, it existed as an independent agreement upon the termination of the distributorship.  But when it came to his evidence, Wong suggested that even in the case of termination of the agreement by notice (and thus without breach), MSI should still have taken back the unsold stock.  He said that was the nature of their business.

50.  In her evidence, Tsai explained that SCHOT did request his company to take back the unsold stock; and she did ask to see the unsold stock list first.  But she discovered that a lot of the items in stock were aged.

51.  In its email to Tsai dated 31 December 2008, SCHOT stated that it intended to settle the payment owed to the NB Team of MSI as soon as possible; but it requested Tsai to confirm the taking back of the unsold stock of motherboards.  When asked why his company still asked for MSI’s confirmation in as late as the end of 2008, Wong could not explain.

52.  In any event, in her immediate reply, Tsai referred to the previous discussion between the parties during which she made clear that MSI would not buy back the models in the stock that were aged more than 3 months.  If not agreed, SCHOT would have to settle the payment to the NB Team of MSI as soon as possible.

53.  SCHOT followed by explaining in its email why it needed to return all the stock; and complaining about the imposition of a 3-month age limit on the stock to be returned.  In her reply, Tsai explained why her company was willing to accept the return of SCHOT’s normal stock conditionally.  She requested for SCHOT’s feedback with a view to closing the issue soon.

54.  The correspondence continued.  In its last email in early March 2009 just before instructing its former solicitors to write, SCHOT again explained why it needed to return all the unsold stock.  The reason given was that the alleged sudden appointment of another distributor in Hong Kong by MSI without prior notice to SCHOT had immediately affected its business.  SCHOT was said to have been forced to give up and to return all the unsold stock.

55.  The contemporaneous correspondence shows that SCHOT did request for MSI’s confirmation of taking back the unsold stock.  In response to MSI’s reply, SCHOT referred to the alleged sudden appointment of another distributor (and hence the termination) as the reason for its need to return the stock.

56.  There was suggestion that Tsai had once said “OK” to the return of the stock.  But the readiness of MSI to do so was never disputed.  Even in as early as January 2008, Huang had indicated that in the worst case, MSI might “pull back” a specific model of notebook computers that SCHOT found difficulty in selling.  Huang indicated that in the context of his complaint about SCHOT’s withholding of payment. Tsai said “OK” but only to the extent of the stock aged not more than 3 months.  In her evidence, Tsai was adamant about that.

57.  According to the pleading (including the further and better particulars), MSI had taken back the notebook computers pursuant to the parties’ agreement.  However, in Wong’s statement, it was stated that upon receipt of MSI’s proposal in early 2009 that it would not take back most of the notebook computers and the motherboards aged more than 3 months, SCHOT decided to reject the proposal.  SCHOT immediately instructed its former solicitors to send formal demand to MSI.

58.  The fair impression one gets from Wong’s statement is that there was no concluded agreement in respect of the return of the unsold stock.  The two versions of Wong’s evidence, according to his statement and in court, in respect of the conclusion of the alleged agreement to return the unsold stock and the alleged performance of such agreement by MSI do not sit well together.  Wong attributed that to the possible misunderstanding of his company’s solicitors in preparing the statement.

59.  It was suggested that 97 sets of notebook computers were returned to MSI, which was evidenced by the RMA Credit Note issued by MSI on 5 December 2008.  In court, Tsai explained her understanding of the circumstances under which a RMA Credit Note would normally be issued.  The repair and maintenance department issues such credit note in respect of the products returned from the distributor for quality problems. Huang gave similar evidence in court.  Among the documents, there are indeed RMA forms recording the products returned and the quality problems complained about.  Tsai was not surprised by the quantity returned as evidenced by this particular RMA Credit Note that SCHOT referred to.  Those 97 sets of notebook computers returned were said to have been delivered directly to Hornington. But there is no document such as delivery note or receipt in support.

60.  I prefer the evidence adduced on behalf of MSI in this respect.  There was indeed negotiation for the return of the unsold stock; but I find that MSI was only prepared to accept that on terms as mentioned above.  Neither was there concluded agreement whereby MSI was obliged to accept the return of all the unsold stock as alleged; nor has MSI acted pursuant to such alleged agreement.

The alleged liability of MSI for the various other expenses

Payment of US$42,151.42 for the motherboards

61.  In arriving at the sum of US$42,151.42 in settlement of the 3 invoices in question concerning the motherboards in early November 2008, SCHOT deducted 4 items of expenses.  The 2 relatively substantial items were described as the marking fund and advertising expenses.  The former was allegedly MSI’s contribution of HK$40,000 (or US$5,128.20 at US$1.00: HK$7.80) towards the rental of exhibition space at the computer show in Hong Kong in late August 2008.  The latter was allegedly cost of advertising at the e-Zone magazine on 25 May 2008 in the sum of US$570.

62.  The contemporaneous email correspondences show that MSI queried the amount SCHOT had paid in settlement of the above invoices for the motherboards in early November 2008. In reply, SCHOT explained that it had deducted the above 2 items of expenses from the payment to MSI.  SCHOT undertook to provide the document for the computer show later.  MSI followed up by questioning those deductions having been made without prior notice to MSI; and requesting for documents in support. No more correspondence between the parties regarding those deductions could be seen during the trial.

The advertising expenses of US$570

63.  According to SCHOT, invoice for the advertising expenses of US$570 has been issued to MSI.  What it referred to was actually an invoice dated 14 June 2008 addressed to the associated company of MSI in Shenzhen.  SCHOT also disclosed a credit note to MSI in Hong Kong in respect of such advertising expense.

64.  As proof of the request for reimbursement of such advertising expense and MSI’s prior approval of it, the credit note has doubtful evidential value.  It was dated 18 November 2008, which was 6 months after the placement of advertisement.   It was dated even after SCHOT had already deducted this item from the amount paid for the invoices concerning the motherboards in early November 2008.  Further, the name of MSI’s counterpart under the credit note was not SCHOT but that of another computer company.  Wong could not explain that in court.  Contrary to what was apparently required, the credit note was not signed by either party named.  In court, Tsai confirmed that she had never seen this document before the dispute.

65.  I am not satisfied that this item of advertising expenses was approved and accepted by MSI so as to found SCHOT’s entitlement to reimbursement.  No alternative basis is pleaded for this item of deduction.

The rental contribution of US$5,128.20

66.  As to the HK$40,000 contribution towards renting exhibition space at the computer show in Hong Kong in late August 2008, the request was made to the NB Team of MSI in mid-August 2008.  SCHOT suggested that the MB Team of MSI would also contribute its share in the same amount.  Whilst Tsai confirmed in court that there was a market development fund in place in relation to the marketing of the motherboards, no such payment of contribution has been made as far as she understood.

67.  In its reply, MSI actually declined SCHOT’s request for rental contribution from the NB Team of MSI on the basis that SCHOT only sell one style of MSI notebook computer whilst SCHOT would market numerous other products in the computer show.  No other document has been produced to evidence MSI’s acceptance of liability to make the proposed contribution.  Nor was Wong in a position to testify as to the accounts of his company in respect of these expenses.

Others

68.  Nothing much was said about the expenses on repair and maintenance (US$10.50) and pre-payment (US$550.88) during the trial.  There is lack of document too in support of the liability of MSI to pay for or reimburse SCHOT against such expenses.

Conclusion

69.  SCHOT fails to prove by evidence the alleged liability of MSI to reimburse it against the above expenses; and therefore the set off that it unilaterally applied in settlement of the amount of the 3 invoices for the motherboards in early November 2008.

Payment of US$190,152.40 for the notebook computers

70.  Against the amount of the 3 invoices in question concerning the notebook computers, SCHOT set off, among others, two types of expenses, namely, warehouse rental and advertising expenses.

Warehouse rental

71.  SCHOT alleged warehouse rental has been incurred as a result of storage of the unsold MSI stock in March and April 2009 before they were eventually sold.  Each month’s rental was US$10,000.  In view of the above finding that SCHOT was not entitled to return the unsold stock; and MSI was under no obligation to accept their return as alleged, the basis for holding MSI responsible for such rental expenses falls away.

72.  Further it transpired from Wong’s evidence in court that the unsold stock were allegedly stored in SCHOT’s office at Fortress Hill and some storage facility in the New Territories.  There is no documentary evidence in support of the claim that SCHOT actually had been made out of pocket in such amount due to the storage. In its email to Huang in late August 2009, SCHOT indicated that the alleged warehouse rental was somehow negotiable.  Even Wong admitted in court that the alleged rental amount was merely suggested by the accounts department; and he has no personal knowledge about that.

73.  I find that the set off of the alleged warehouse rental was clearly arbitrary.

Advertising expenses

74.  The advertising expenses deducted were allegedly incurred for advertisements again at e-Zone magazine on 2 occasions costing HK$4,000 (or US$519.48 at US$1.00: HK$7.70) each.

75.  In its Final Statement of Account, SCHOT referred to 2 invoices for such expenses dated 27 November 2008 and 4 December 2008 respectively.  It transpired that the invoice dated 27 November 2008 referred to in SCHOT’s Final Statement of Account was that issued by the relevant newspaper media to SCHOT for the expense.  The other invoice dated 4 December 2008 is nowhere to be found.

76.  Though Wong accepted in court that MSI’s confirmation in writing would be required, there is again no document to indicate that MSI had approved and accepted liability to reimburse SCHOT against these advertising expenses.  Wong was admittedly unable to explain.  Again there is no alternative basis pleaded for claiming for such amounts.

Others

77.  The substantial deduction that SCHOT made from the invoiced amount of the motherboards in question was indeed the cost of the alleged unsold stock.  Notwithstanding the documents produced, Wong turned out to be incapable of explaining the figures satisfactorily or at all.  As he admitted in court, he simply took what the accounts department stated to be correct.

Conclusion

78.  Even Mr Shum had to concede that SCHOT suffered from lack of relevant documentary evidence in the above areas.  I find that SCHOT is far from able to substantiate its entitlement to the set off unilaterally applied to the invoiced amount of the motherboards in question.

The amount MSI is entitled to

79.  In the circumstances, MSI is prima facie entitled to its claim for the balance of cost of goods sold and delivered in the total sum of US$120,466.54.

The counterclaim

80.  If what SCHOT alleges is true, its stance should have been to hold MSI onto the agreement to take back the unsold stock; and as a result of which, SCHOT should be discharged from any further liability for the cost of the goods.  But SCHOT goes further and puts forwards a counterclaim.  In view of the above findings, the basis for the counterclaim falls away.  In any event, the counterclaim is problematic.

81.  SCHOT claims the difference between the cost of the unsold stock (US$147,189) and their resale price (US$54,000).  As mentioned above, the amount being claimed has already been applied by SCHOT to set off the amount due and payable to MSI. Notwithstanding the amendment of its pleading when the trial commenced, I fail to see how the further claim for such price difference does not amount to double recovery.

82.  It was suggested that on the basis of past record since 2006, SCHOT could have generated on average 4% profit from the sale of MSI profits.  SCHOT claims for loss of profit at such rate that would have been obtained from the sale of MSI products during the alleged 6 month notice period for the termination of the distributorship agreement.

83.  No such alleged loss of profit was suggested or taken into account when SCHOT calculated the amount payable to MSI in the Final Statement of Account.  One the one hand, Wong expressed his understanding that the statement of account was final insofar as the parties’ respective liabilities were concerned.  On the other hand, he suggested that somehow the alleged loss of profits had yet to be taken into account when the statement of account was prepared.  In my view, had the claim for loss of profit been genuine, it would have been taken into account in the set off that SCHOT applied to the amount payable to MSI.

84.  Further, even Wong emphasized in his evidence that the pricing of computer products in the Hong Kong market was volatile.  The unsatisfactory sale of at least the notebook computers prior to the termination was undisputed.  It is therefore difficult to see how SCHOT could justify the projected sales and hence the profits.  Wong admitted in court that he was not in a position to testify as to the figures which were basically provided by the accounts department.

85.  The counterclaim is devoid of merits.

Order

86.  I give judgment in favour of MSI against SCHOT for the sum of US$120,466.54 (or its equivalent value in Hong Kong currency) with interest thereon at the judgment rate from the date of writ until full payment.  The counterclaim is dismissed.  MSI shall have the costs of this action, including any costs reserved.  Costs shall be taxed, if not agreed, with certificate for counsel.  The costs order is nisi; and will become absolute in the absence of application within 14 days to vary.