大通行文儀有限公司 AND ANOTHER v. CHERIE-MINT IMPEX LTD AND ANOTHER

DCCJ 2373/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2373 OF 2002

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J U D G M E N T

1.  In this claim the Plaintiffs claim against the 1^st 2^nd and 3^rd Defendants respectively for damages arising from the sale by the 1^st Defendant to the 1^st Plaintiff of ink cartridges which had the trade mark “Epson” which trade mark was found to have been forged.    The 2^nd and 3^rd Defendants were at the material times the Directors of the 1^st Defendant.    On the 17 July 2001, the Customs & Excise Depart of Hong Kong Special Administrative Region charged the 2^nd Plaintiff with the offence of possessing for sale goods to which a forged trade mark was applied, in relation to 2,550 pieces of printer ink cartridge contrary to Section 9(2) as read with Section 18(1) of the Trade Descriptions Ordinance Cap 362 of the Laws of Hong Kong and convicted of this charge.   The 2^nd and 3^rd Defendants were charged with the offence of selling 2,550 pieces of printer ink cartridge to the 1^st Plaintiff on 17 June 2000 to which a false trade mark namely “Epson” was applied.   The charge against the 2^nd Defendant was dropped.   The 3^rd Defendant was convicted of the charge.  

2.  The 1^st Plaintiff claims the price of the 2,550 pieces of printer ink cartridge in the sum of $182,870.80 together with loss of profit in the sum of $45,717.70.   The 2^nd Plaintiff claims compensation of his solicitor’s fee expended in defending the Magistrates Court proceedings in the sum of $255,275.00 together with the fine in the sum of $30,000.00.

3.  The Plaintiffs’ claim against the 1^st Defendant is based on breach of contract evidenced in the invoice, which stated that the 1^st Defendant should deliver to the 1^st Plaintiff genuine “Epson” printer ink cartridges.  

4.  The Plaintiffs’ claim against the 2^nd Defendant is based on fraudulent and or negligent misrepresentation that the source of the 2,550 pieces of “Epson” printer ink cartridge is legal and that the said 2,550 pieces of “Epson” printer ink cartridge were genuine “Epson” products.   

5.  The Plaintiffs also pleaded in their Re-Re-Amended Statement of Claim that the 2^nd and 3^rd Defendants knew or ought to have known that the 2,550 pieces of ink cartridge bore a forged “Epson” trade mark.   They also pleaded that the 2^nd and 3^rd Defendants used the 1^st Defendant to use dishonest and deceptive methods to sell the said ink cartridges to the 1^st Plaintiff in order to obtain payment for the said ink cartridges.   The 2^nd and 3^rd Defendants should not be permitted to hide behind the veil of incorporation of the 1^st Defendant and should be liable for the Plaintiffs’ loss.

6.  All three Defendants dispute the Plaintiffs’ claim.   

The Issues

1.	Whether the 1st Defendant breached the contract evidenced in the Invoice referred to.
2.	Whether the 2nd Defendant either fraudulently or negligently misrepresented to the Plaintiffs as pleaded in the Re-Re-Amended Statement of Claim.
3.	Whether the 2nd and 3rd Defendants used the 1st Defendant to obtain money from the 1st Plaintiff by fraudulent and dishonest means.   If so, whether they as Directors of the 1st Defendant ought to be personally liable.
4.	Whether the 2nd and 3rd Defendants misled the 1st and 2nd Plaintiffs by deceptive means thus causing loss to the 1st and 2nd Plaintiffs.
5.	Quantum of damages due to the 1st and 2nd Plaintiffs were any of the Defendants found liable.

The 1^st Issue

7.  There is no dispute that the 1^st Defendant had contracted with the 1^st Plaintiff to sell to the 1^st Plaintiff various types of ink cartridge for Epson stylus as evidenced in the two invoices at pages 1 and 2 of Section C of the Bundle of Documents.   The evidence showed that the 1^st Plaintiff contracted with the 1^st Defendant to purchase genuine parallel Epson ink cartridges.  The ink cartridges delivered pursuant to the invoices at pages 1 and 2 of Section C of the Bundle of Documents were delivered as a result of the agreement.  The 3^rd Defendant also gave evidence that the contract entered into between the 1^st Plaintiff and the 1^st Defendant was for the 1^st Defendant to sell and to supply genuine parallel Epson ink cartridges to the 1^st Plaintiff.   It is undisputed evidence that the Customs & Excise Department has confiscated 2550 pieces of ink cartridge in the 1^st Plaintiff’s premises on the basis that these ink cartridges had a forged Epson trade mark.   In the trial of the 2nd Plaintiff in the Magistrate’s Court, the 2^nd Plaintiff was convicted of the offence of possessing for sale 2550 pieces of ink cartridge on which a forged trade mark was applied.   The 3^rd Defendant was charged and convicted in the same Magistrates Court proceedings of the offence of selling the 2550 pieces of ink cartridge in which the false trade mark “Epson” was applied, to the 1^st Plaintiff.    In the said proceedings it was found that the 2550 pieces of ink cartridge were not genuine Epson products.  Section 62 of the Evidence Ordinance provide that “the fact that a person has been convicted of an offence by or before any court in Hong Kong shall, subject to subsection (3) be admissible in evidence for the purpose of proving, where to do so is relevant to any issue in those proceedings, that he committed that offence…” Subsection (3) of Section 62 is not relevant herein.    The fact that the 3^rd Defendant committed that offence is directly relevant to the issue as regards whether the 1^st Defendant sold and delivered the 2550 pieces of ink cartridge to the 1^st Plaintiff to which the false trade mark was applied.   The conviction points to the fact that the 1^st Defendant did so.   Although the 3^rd Defendant denied that the ink cartridges that were confiscated by the officers of the Customs and Excise in connection with these offences were the ones sold by the 1^st Defendant and delivered by the 1^st Defendant to the 1^st Plaintiff, the Magistrate found against the 3^rd Defendant in the Magistrates Proceedings on this.  In these proceedings the Plaintiffs pleaded this conviction in their Defence and Counterclaim.    The 3^rd Defendant admitted the conviction in the course of oral evidence.   The Defendants had adduced no evidence to rebut the findings in the Magistrates Court proceedings that the 2550 pieces of ink cartridge confiscated by the Customs & Excise Department were the ones sold and delivered by the 1^st Defendant to the 1^st Plaintiff.    The evidence of the 3^rd Defendant’s conviction of the charge against him is sufficient to establish that the 1^st Defendant did sell the 2550 pieces of ink cartridge the subject of the charges, to the 1^st Plaintiff.  

8.  In the light of the aforesaid, the Plaintiffs had established that the 1^st Defendant had breached the terms of the contract with the 1^st Plaintiff by selling ink cartridges to the 1^st Plaintiff to which a false trade mark had been applied.  The 1^st Defendant is liable to pay damages to the 1^st Plaintiff arising from this breach.    Owing to the principle of privity of contract, the 1^st Defendant is only liable to the 1^st Plaintiff for loss arising from the breach of contract between the 1^st Defendant and the 1^st Plaintiff.   The 1^st Defendant is not liable to the 2^nd Plaintiff for his loss arising from the breach of contract between the 1^st Plaintiff and the 1^st Defendant.  

The 2^nd Issue 

9.  The 2^nd Defendant gave evidence that she did not do sales nor did she promote the ink cartridges in question to the Plaintiffs.    She stated that she knew nothing about stationery.   She stated that as she did not know anything about stationery nor was she in charge of sales and promotion, she did not make the alleged fraudulent and/or negligent misrepresentation to the Plaintiffs.   Her responsibility in the 1^st Defendant Company was to look after the production of garments.  She buys material and supervises the production and also the workers in such production.  Her responsibilities in the 1^st Defendant Company, from 1998 to June 2000 were in merchandizing for customers when they want certain goods or samples.  

10.  Although she was charged with the same charge as the 3^rd Defendant, in the process of investigation, the Customs & Excise Officers soon found that she was not involved in the sale of the said ink cartridges to the Plaintiff and the charge against her was dropped.  

11.  From the contents of her evidence and from her manner and demeanour, I came to the conclusion that the 2^nd Defendant was a truthful witness and I accept her evidence that she did not make the alleged misrepresentations pleaded by the Plaintiffs.    On the other hand, I was not satisfied that the 2^nd Plaintiff was a truthful witness.  

12.  Further, the 2^nd Plaintiff admitted that when he ordered ink cartridges from the 1^st Defendant, he would check them himself to ensure that they were genuine articles and did not simply rely on the representations made to him related to the ink cartridges.   By his evidence it is clear that the 2^nd Plaintiff could not have been induced by any misrepresentations made to him if such had been made (but I do not so find), as he did not rely on them.   However I come to the clear finding that such misrepresentations as alleged had not been made to the 2^nd Plaintiff by the 2^nd Defendant.

The 3^rd Issue

13.  The 2^nd and 3^rd Defendants denied that the ink cartridges were not genuine articles or that they deliberately sold ink cartridges to which a forged Epson trade mark was applied.   The offence of which the 3^rd Defendant was convicted was under section 9 of the Trade Descriptions Ordinance.  There is no Certificate of Conviction of the 3^rd Defendant in the Bundle of Document but it was not disputed by the 3^rd Defendant that he was convicted of the offence of having sold the said ink cartridges to the 1^st Plaintiff to which a forged trade mark was applied.  

14.  The 3^rd Defendant gave evidence to state that the 1^st Defendant is a company that trades in garment and also stationery.   The 1^st Defendant sells genuine brand products as well as genuine brand products that are imported from authorized dealers of genuine brand products overseas.  These are known as “parallel products”.  These parallel products, which are genuine products imported from authorized dealers overseas, could be purchased at a lower price.   His company is known for dealing in parallel products.  Those who buy from the 1^st Defendant usually want to purchase parallel products from him.   Normally, the customer would obtain a sample from him first and check with an authorized dealer in Hong Kong to see whether the product is genuine.  After it has been verified to be genuine the customer would order goods from him.  Upon delivery of the goods the customer would check the goods against the sample the customer verified as genuine.  The customer therefore would not rely on the Defendants as regards whether the goods delivered are genuine but verify the genuineness of the goods themselves.   From the evidence of the 3^rd Defendant which I do not doubt to be true, the ink cartridges the subject of this claim were purchased by him from a Company in Singapore called Ink-Mark Ribbon Supply (“Ink-Mark”).   The company supplies Epson ink cartridge stylus.   He understood that this company is an authorized dealer of Epson brand ink cartridges in Singapore.  He has been trading with this company since 1988.   Despite having traded with Ink-Mark for so many years Ink-Mark has never supplied any product to him that has been found not to be genuine.   He has no reason to suspect that Ink-Mark would supply Epson products to him that has a forged brand.    He stated that the products that were confiscated by the Customs & Excise Department from the 1^st Plaintiff’s premises could not have been products delivered by him.   According to him, he is not satisfied that they came from the 1^st Defendant.    He stated that neither the 1^st Defendant nor he himself has ever been found to sell products with a forged trade mark before this present instance.  

15.  He stated that the 1^st Defendant had traded with the 1^st Plaintiff for 10 years and there has been no product, which the 1^st Defendant sold to the 1^st Plaintiff that was not genuine.  

16.  He confirmed the invoices at pages 1 and 2 at Section C of the Bundle of Documents were invoices issued by the 1^st Defendant to the 1^st Plaintiff related to the sale of ink cartridge for Epson Stylus stated therein.  These were signed by him.   He disputes that the goods sold in these invoices to the 1^st Plaintiff were the ones that were confiscated by the officers from the Customs & Excise Department as products with forged trade mark.  

17.  Having considered the evidence of the 2^nd and 3^rd Defendants and all the evidence adduced by the parties, I find that the evidence does not show that the 2^nd and 3^rd Defendants had intended to defraud the 1^st Plaintiff by dishonestly selling the ink cartridges to which a forged Epson trade mark had been applied.   There is insufficient evidence for me to come to the finding that the 2^nd and 3^rd Defendants knew that the ink cartridges supplied by Ink-Mark were not genuine.  

4^th Issue

18.  As I found that the 2^nd Defendant did not make representations to the 1^st and 2^nd Plaintiffs related to the Epson ink cartridges so as to induce them to purchase the said ink cartridges, this claim against the 2^nd Defendant couldn’t succeed.   I had also accepted the evidence of the 3^rd Defendant that his purchase of the ink cartridges from Ink-Mark and the subsequent sale of these to the 1^st Plaintiff was bona fide as he thought that Ink-Mark was an authorized dealer of Epson products in Singapore and he had no knowledge that the ink cartridges sold to the 1^st Plaintiff were not genuine products, I find that the 1^st and 2^nd Plaintiffs’ claim against the 2^nd and 3^rd Defendants based on deception and fraud cannot succeed.  

5^th Issue

19.  Damages only arise from the breach of contract between the 1^st Defendant and the 1^st Plaintiff and that is limited to the loss of the 1^st Plaintiff only.   

20.  Having found that the 1^st Defendant is only liable to the loss of the 1^st Plaintiff and not to the loss of the 2^nd Plaintiff, based on the breach of contract entered into between the 1^st Defendant and the 1^st Plaintiff, I award damages to the 1^st Plaintiff for the cost price of the 2550 ink cartridges.   The 2550 ink cartridges were of various styles and the 2^nd Plaintiff sets out in paragraph 9 of his witness statement the quantity, price of the various styles of ink cartridges that had been confiscated by the Customs & Excise Department.   This is supported by the description and quantity of ink cartridges confiscated and exhibited in the Magistracy proceedings as set out in the Exhibits List at page 87 of Section C of the Bundle of Documents.   I have no reason to believe that this is not an accurate statement of the ink cartridges that were confiscated by the Customs & Excise Department and were the subject of the Magistracy proceedings.   These are as follows:

Ink cartridge bearing ‘EPSON’ mark (S020187)	1,280	Pcs
Ink cartridge bearing ‘EPSON’ mark (S020093)	600	Pcs
Ink cartridge bearing ‘EPSON’ mark (S020191)	368	Pcs
Ink cartridge bearing ‘EPSON’ mark (S020089)	169	Pcs
Ink cartridge bearing ‘EPSON’ mark (S020108)	133	Pcs
Total:	2,550	Pcs

21.  Referring to the prices of the different styles stated in the invoices at pages 1 & 2 of Section C of the Bundle of Documents, calculation of the price of each of the styles and their total are as follows: 

Stylus #S020187 at	$61.50	X	1280	=	$78,720
Stylus #S020093 at	$61.50	X	600	=	$36,900
Stylus #S020191 at	$106.60	X	368	=	$39,228.8
Stylus #S020089 at	$106	X	169	=	$17,914
Stylus #S020108 at	$76	X	133	=	$10,108
					$182,870.80

22.  As regards loss of profit, the Plaintiffs did not give evidence of the basis for calculating the amount claimed for this.   There is no documentary evidence related to usual sale price for the ink cartridges at the time to substantiate his claim.   There is no reason why upon the confiscation of the ink cartridges by the Customs & Excise Department, the Plaintiffs could not have immediately replaced these ink cartridges with a fresh supply in order to mitigate loss.   In view of the above and in the light of the paucity of evidence, I grant a sum of 10% of the price of the ink cartridges for loss of profit in the sum of  $18,287.00.  Total damages in respect of the loss suffered by the 1^st Plaintiff comes to the sum of $201,157.80.     

23.  I make the following order :-

Judgment for the 1^st Plaintiff against the 1^st Defendant in the sum of $201,157.80 together with interest thereon at judgment rate from the date of writ to the date of judgment and thereafter at judgment rate until payment.    I grant an order nisi that costs of the 1^st Plaintiff’s claim against the 1^st Defendant be paid by the 1^st Defendant to the 1^st Plaintiff to be taxed if not agreed.  The claim of the 1^st Plaintiff against the 2^nd and 3^rd Defendants be dismissed.  I grant an order nisi that costs of the 2^nd and 3^rd Defendants in defending the 1^st Plaintiff’s claim against them be paid by the 1^st Plaintiff to them to be taxed if not agreed.  The claim of the 2^nd Plaintiff against the 1^st, 2^nd and 3^rd Defendants be dismissed.  I grant an order nisi that costs of the 1^st, 2^nd and 3^rd Defendants in defending the 2^nd Plaintiff’s claim against them be paid by the 2^nd Plaintiff to them to be taxed if not agreed.