HOMEBRIDGE INDUSTRIAL LTD v. GIMAN INTERNATIONAL LTD

DCCJ 710/2022

[2025] HKDC 378

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 710 OF 2022

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BETWEEN

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JUDGMENT

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1.  The Plaintiff claims against the Defendant for damages for breach of contract and a refund of deposit of HK$576,000. The Defendant counterclaims for damages for breach of contract.

2.  The Plaintiff and Defendant entered into an agreement in writing on 22 July 2021 (the “Agreement”), which contains the following material clauses:

(a) Party A (the manufacturer) is the Defendant; Party B (the sole distributor in Hong Kong and Macau) is the Plaintiff;

(b) The contract period is 1 August 2021 to 31 December 2021 (the “Contract Period”);

(c) The product to be manufactured and exclusively distributed is face mask under the trademark “Frozen” owned by Walt Disney Company (Hong Kong) Ltd (“Disney”) (the “Frozen Series Masks”). Disney licensed Innoduction Group Inc Limited (“Innoduction”), which in turn licensed the Defendant to manufacture the Frozen Series Masks;

(d) The Frozen Series Masks does not include:

(i) Masks of specific models and designs which Disney requests the Defendant to manufacture during the Contract Period;

(ii) Masks which had already been on sale before the commencement of the Agreement, as listed in Annexure I to the Agreement.

(e) The minimum guaranteed quantity of sales is 30,000 boxes, each containing 30 face masks (the “Minimum Guaranteed Quantity of Sales”);

(f) The recommended retail price is HK$128 per box of 30 face masks;

(g) Clause 3 states that the Defendant shall be responsible for the design and production of the Frozen Series Masks, while the Plaintiff shall be responsible for the sales of the same;

(h) Clause 5 states that the Plaintiff shall pay HK$576,000 to the Defendant as deposit upon the execution of the Agreement. Further, the Defendant shall return the whole of the deposit to the Plaintiff within 7 working days, if the Plaintiff fulfils the Minimum Guaranteed Quantity of Sales. If the Plaintiff fails to fulfil the same, then the Defendant may return / deal with the deposit in the manner stated in Annexure II of the Agreement.

3.  According to the Plaintiff, the parties, on 22 July 2021, further agreed orally that (the “2 exceptions”):

(a) The model of Frozen Series Masks set out in Annexure I of the Agreement (i.e. the “Volume 1 Masks”), the 175mm model of which the Defendant had already sold to Watsons and 7-Eleven before the execution of the Agreement was exempted from the Frozen Series Masks to be exclusively distributed by the Plaintiff under the Agreement;

(b) With the Plaintiff’s prior consent and approval in writing, the Defendant could sell size 140mm and 160mm models of the Volume 1 Masks to the two said retailers, but on the conditions that the profits earned by these sales shall belong to the Plaintiff, and the quantities of such sales shall count towards the Minimum Guaranteed Quantity of Sales stipulated in the Agreement;

4.  Accordingly, the Defendant granted the Plaintiff the right of sole distributorship of the relevant Frozen masks for the Contract Period, subject to only two exceptions.

5.  The term:“獨家分銷”appears multiple times throughout the Agreement. For instance, the Plaintiff was described as “獨家分銷商”. The relevant masks were described as “獨家分銷產品”. The Agreement was described as“獨家分銷協議”. The right granted by the Defendant to the Plaintiff was described as “獨家分銷權限”. The terms of the Agreement were described as “獨家分銷合約條款”. The Plaintiff’s right of sole distributorship is fundamental to the Agreement.

6.  The Defendant was absent from the trial hearing, which took place between 20 and 26 February 2025. At the Pre-Trial Review hearing on 10 December 2024, the Defendant was also absent and that the Defendant’s counterclaim was provisionally struck out by the Court for its absence. The Defendant did not apply to restore its counterclaim. Pursuant to Order 25, Rule 4(6) of the Rules of the District Court, Cap 336H, the Defendant’s counterclaim should stand dismissed with costs of the counterclaim to the Plaintiff upon the expiration of 3 months from the date of the pre-trial review hearing, i.e. by 10 March 2025.

7.  At the conclusion of the trial, counsel for the Plaintiff confirmed that the Plaintiff would only claim for the refund of the deposit and would not seek any damages arising from the Defendant’s breach. In respect of the grounds of breach, the Plaintiff would only rely on the breach of the sole-distributorship by the Defendant.

8.  The Plaintiff called two witnesses to testify, namely, Ms Lillian Siu and Mr Chan Yat Man. Ms Lillian Siu is the director of Sim Group Limited which handled the marketing of the Plaintiff’s products and retail shops. Mr Chan Yat Man is the director of the Plaintiff. Both confirmed and adopted the contents of their respective witness statements. Their evidence as contained in their respective statements is clear and supported by documents such as some contemporaneous WhatsApp records.

9.  According to the Plaintiff’s witnesses, the Defendant was always late in delivering the masks ordered by the Plaintiff and often unable to confirm the quantity to be delivered or the delivery date with the Plaintiff since August 2021. As the matter later transpired, the Defendant was secretly delivering the masks to its own shop Gimans Care and other unauthorised third parties without the Plaintiff’s knowledge and consent since August 2021 and thereafter throughout the Contract Period.

10.  In an email from Mr Alex Lee of the Defendant to Ms Lillian Siu of the Plaintiff dated 13 December 2021 attaching an excel file, the Defendant admitted selling the relevant Frozen masks (ie. vol. 1 of size 16/14 and vol. 2 of all sizes) to third parties, namely, “Watsons”, “Disneyland”, “HK Wholesaler” and “Gimans Care”. According to the Plaintiff, such sales/deliveries were unauthorised.

11.  In its Defence and Counterclaim dated 15 June 2022, the Defendant also admitted that it had sold the relevant Frozen Masks to third parties including “Watsons”, “Hong Kong Disneyland”, “LC Enterprise Limited” and “Wealth Trend Group Limited”. The defence raised by the Defendant in its pleading is that while it did not deny its act of selling the relevant Frozen masks to third parties during the Contract Period, it alleged that there were two oral agreements which varied the Agreement by creating 5 exceptions. Under the purported 5 exceptions, the Defendant could freely sell all different sizes of Vol I and Vol II of the relevant Frozen masks to any of its clients. This is denied by the Plaintiff. Both Ms Siu and Mr Chan denied and refuted any such 5 exceptions alleged by the Defendant and that they confirmed that the only exceptions ever agreed between the parties were the 2 exceptions set out in the Agreement.

12.  I agree with the Plaintiff that the alleged defence that the parties had agreed to vary the Agreement to the extent that the Defendant could freely sell all different sizes of Vol I and Vol II of the relevant Frozen masks to any of the Defendant’s clients defies logic and all business sense in that the sole-distribution right granted to the Plaintiff under the Agreement would have been rendered nugatory as a result.

13.  The Defendant is absent at the trial and that the witness statements filed by the Defendant will not be considered by the Court. There is simply no evidence in support of such alleged variations as pleaded in the Defence. I accept the evidence of the Plaintiff’s witnesses that there was no such variations and I have no hesitation in rejecting such defence as pleaded in the Defence and Counterclaim.

14.  Mr Chan had obtained from WHO Protection Hi-Tech Limited (“WHO”), a facial masks manufacturer engaged by the Defendant, some purchase orders and delivery notes which show that the Defendant had placed order to WHO to manufacture a total of 728,180 pieces of Frozen masks (about 24,272 boxes of masks) within the Contract Period for sale to unauthorised third parties.

15.  There is also evidence to show that by selling the masks through its own shop Gimans Care or to other third parties, the Defendant could obtain more profits as compared to selling to the Plaintiff. The Defendant had to sell to the Plaintiff at a fixed discount rate of 50% under the Agreement but there was no such restriction with its other clients.

16.  There is clear evidence in this case that the Defendant had breached the fundamental term in the Agreement, and as a result, the Plaintiff was never really a sole distributor of the relevant Frozen masks at all material times.

17.  Upon discovery of the Defendant’s breach, the Plaintiff immediately instructed its solicitors to issue a demand letter on 20 December 2021, setting out the Defendant’s breach, the Plaintiff’s termination of the Agreement due to the Defendant’s breach, and its demand for, inter alia, return of the deposit in the sum of HK$576,000.

18.  In the circumstances, I am satisfied that the Defendant had breached the fundamental term of the Agreement and that the Plaintiff is entitled to terminate the Agreement which it did. It is ordered that the Defendant do return the deposit of HK$576,000 to the Plaintiff with interest thereon at judgment rate from the date of writ until payment. I shall also make an order nisi that the Plaintiff is entitled to costs of the action with certificate for counsel, including any costs reserved, to be taxed if not agreed. The order nisi is to be made absolute upon the expiration of 14 days from the date this judgment is handed down.