MITSUBISHI ELECTRIC (HK) LTD v. PAN BILLION LTD

HCA1012/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1012 OF 2002

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J U D G M E N T

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The action

1. This is an action on the plaintiff's claim for monies owing for goods sold and delivered to the defendant during the period 2 March 2001 to 22 June 2001.

2. The defendant does not dispute that goods to that monetary amount were sold and delivered to it by the plaintiff as asserted in the statement of claim but opposes that claim on the following grounds.

3. Firstly, it is the defendant's contention by its defence and counterclaim that the plaintiff's breach of the terms of the written agreement of 17 September 1996 ("the agreement") between them released it from its obligation to pay the monies owing by it to the plaintiff and further occasioned the defendant damages which, in part, fall to be assessed. I might add that the defendant's pleadings in this regard do not readily encompass the evidence called on its behalf and its submissions on that evidence. Its pleadings could be said to barely reflect its presented case.

4. Secondly, the defendant separately counterclaims also two debts in the sums of US$10,951 and US$78,000 which it says became owing to it by the plaintiff during the course of their business dealings. I will deal with the defendant's claims in that regard later in this judgment.

The background

5. The background of this action, and common ground between the parties, was that the plaintiff was at all material times a supplier of parts and products relating to semi-conductors. The defendant company had in the course of its business sold those products on the Chinese mainland to various customers under the terms of the agreement between itself and the plaintiff.

The Agreement

6. That agreement by its general structure and terms required the defendant to locate customers on the mainland, obtain orders from those customers and then itself to purchase the products required by the customer from the plaintiff. In other words, the defendant was the actual purchaser of the required products from the plaintiff. But the agreement did not stop there.

7. Clause 2 of the agreement was as follows :

"Clause 2 Appointment

Subject to the terms set out in this Agreement, Party A [the plaintiff] appoints Party B [the defendant] as a non-exclusive sales agent for the Products and Party B accepts such appointment. The relationship between Party A and Party B shall not solely be that between a seller and a buyer; Party B shall be Party A's agent for the sale of the Products in the mainland China."

8. Clause 3 of the Agreement was as follows :

"Clause 3 Target Sales Area and Customers

Party B shall be responsible for the sales of the Products within the mainland China (exclusive of Hong Kong, Macau and Taiwan). Prior applications for approval by Party A of potential customers for the Products targeted by Party B must be lodged with Party A and Party B shall sell or supply the Products to customers previously approved by Party A. The list of customers approved and registered by Party A shall be reviewed by Party A once a year and Party A shall solely decided whether a customer should remain in the list or be replaced."

9. Clause 5 of the Agreement said, inter alia, as follows :

"Clause 5 Sales Promotional Activities

Party B shall at all times diligently promote and procure sales of the Product. Party B shall conduct sales promotional activities within the sales area for Target Customers and its other potential customers and in compliance with the manner and rules of sales designated by Party A.

Party B agrees to open up markets and promote sales of the Products within the mainland China so as to establish and maintain reputation of Mitsubishi and its Products among customers, and that the sales promotional activities conducted shall comply with the marketing policy for the time being of Party A."

10. Clause 8 of the Agreement said, inter alia, as follows :

"Clause 8 Acceptance of Orders

Party A shall either accept or reject an Order placed by Party B within 14 days of the receipt of such Order."

11. Clause 23 of the Agreement was in the following terms :

"Clause 23 Effective Date and Term of Agreement

This Agreement shall remain valid for a period of 1 year from the effective date. This Agreement shall be extended for the same term and under the same conditions if Party A and Party B do not express an intention to terminate this Agreement no less than three months prior to its scheduled date of expiration. Subsequent extensions shall be effected in the same manner."

12. Clause 24 of the Agreement was, inter alia, in the following terms :

"Clause 24 Termination of Agreement

(a) If either Party A or Party B becomes the subject of any of the following events, the other party may terminate this Agreement forthwith by serving a written notice to the other party.

(i) a breach of this Agreement which is not rectified within 60 days of the date on which a notice is received in relation thereto."

The deteriorating commercial relationship between the parties

13. Following the commencement of that agreement in 1996 the commercial relationship between the plaintiff and the defendant apparently operated smoothly enough for several years.

14. The procedures set out within the agreement for the purchase and supply of semi-conductors and other items between the parties were apparently in large part followed. But it is true to say and not in issue that at any one time the defendant was often in debt to the plaintiff for goods sold and delivered to the defendant by the plaintiff.

15. By about the end of 1998 business was not so good as it had been and the debt of the defendant as claimed by the plaintiff increased on occasion to over US$1 million.

16. On various occasions, the plaintiff requested the defendant to pay or reduce the outstanding debt. These requests or reminders had been sent to the defendant by the plaintiff from a very early stage of their business relationship.

17. What had been a smooth business relationship then started to develop problems. But up to early 2001 these problems were not of apparently great import and were generally resolved amicably between the parties.

The issues arising

18. What followed on from that background from about February 2001 then becomes very much in dispute.

19. The plaintiff presented its case through its primary witness Mr Lin Wai Keung. The only other witness for the plaintiff was a Mr Leung Tao Chiu who gave evidence mainly as to the debt owing by the defendant and as to requests for payment from the plaintiff to the defendant. The defendant's case was presented through Mr Chung Kwei Choi. He was the only defence witness. He was the owner and controlling mind of the defendant.

20. The plaintiff's case was that as a result of the deterioration in the defendant's sales performance concerning certain customers, the plaintiff then took specific customers over from the defendant and dealt with them directly. In this regard, because of the defendant's deteriorating sales position five customers of the defendant were taken over by the plaintiff in late March and early April of 2001 and another was taken over at the same time for what were described in evidence as geographical reasons.

21. According to the plaintiff's first witness Mr Lin, a section head of the plaintiff's marketing department, the defendant had begun a steady decline in its sales to these five customers in about 1998 and, in accordance with the provisions of the agreement between it and the defendant, the plaintiff had stepped in to take over these customers as well as the sixth customer for unrelated and, so far as this case is concerned, irrelevant geographical reasons.

22. The plaintiff's case was that this was done entirely within the contractual relationship established between it and the defendant by the terms of the agreement. According to Mr Lin the defendant had been given notice of the plaintiff's intentions by a letter or fax dated 16 February 2001 which informed the defendant that the six specified customers, including a company Konka Group Co. Ltd ("Konka"), would be dealt with directly by the plaintiff from 1 April 2001.

23. The defendant's case as given in evidence by its sole witness Mr Chung, its primary shareholder and managing director, was that the intervention of the plaintiff in this manner was in breach of the terms implied in the agreement and, further, was more extensive than was suggested by Mr Lin in his evidence, being in reality of such an extent that the viability of the defendant's customer base, and therefore its business, was undermined and effectively destroyed.

24. According to Mr Chung the plaintiff usurped a large part of the defendant's customer base without notice and the defendant's business quite simply dried up. He said the defendant at no time received any letter or fax in the terms of the 16 February 2001 document and he had not seen it until the present hearing commenced. He accepted in his evidence that the defendant did receive notice on the 23 March 2001 from the plaintiff specifically in regard to Konka that the plaintiff was to deal directly with that customer from that date due to its deteriorating sales performance.

25. The defendant's case is that as a result of the plaintiff intervening in its customer base, and usurping those customers from the defendant, in breach of terms implied into the agreement, that the defendant was unable to and no longer obliged to pay the monies for stock purchases owed by it to the plaintiff (though as I have said there are deficiencies in the pleadings in that regard) and suffered other damages relating to unsold and unsellable stock and loss of profits.

26. The implied terms the defendant seeks to incorporate into the agreement are :

(1) that the plaintiff would not hinder or obstruct the defendant acting as its agent in the sale of its products;

(2) that the plaintiff would not compete with the defendant in selling the plaintiff's products to the defendant's customers; and

(3) that the plaintiff would provide technical support for the defendant's customers.

27. It can be seen then that a central issue in this case is simply whether under the terms of the agreement between them the plaintiff was either expressly or by implication precluded from dealing directly with the defendant's customers.

28. As to the third asserted term above, there was no argument before me that the plaintiff was obliged to provide technical support to the defendant's customers. Indeed in my view, the plaintiff's sales policy statements which, as will be seen, are by both parties' cases said to be incorporated into the agreement by clause 5 thereof render, effectively, this an expressed term. Further, the plaintiff's witness Mr Lin agreed this to be one of its obligations under the agreement. So in this regard, there is no issue between the parties.

29. Before proceeding to deal with what terms, if any, should be implied into the agreement between the parties, an initial factual issue is the extent to which the plaintiff directly approached the defendant's customers.

To what extent did the plaintiff take over the defendant's customer base

30. Mr Chung, the managing director of the defendant, in his evidence suggested that the plaintiff had generally approached a large proportion of the more important of the defendant's 400 or so (at the time) customers and had proceeded to deal with them directly. He suggested that it was because of this the business of the defendant was so undermined that it was unable to service its debt to the plaintiff.

31. So far as Mr Chung's evidence was concerned, I did not regard him as a reliable witness. In considerable part that was because there were aspects of his evidence which simply did not make sense or at least did not ring true. For example, Mr Chung's evidence that the plaintiff had contacted many of the defendant's customers and told them they would not provide technical support to them if the customers continued to deal with the defendant did not really make sense if the purpose of this was simply to take over the defendant's customers. If the plaintiff wished to take over the plaintiff's customers, it could simply have done so by telling them it would deal with them directly in future. The latter approach, if it had happened, would have minimised the risk of those customers going to another supplier. There was quite simply no need for such an indirect approach to these customers if the plaintiff's purpose was to take them from the defendant.

32. Further if it was the plaintiff's intention to effectively get rid of the defendant as its agent, then it could have done so in September of 2001 by simply, after giving notice in June 2001 to that effect, bringing the agreement to an end pursuant to clause 23 thereof. Instead the agreement was renewed and continued to January 2002 when the plaintiff terminated it pursuant to clause 24 as a result of the defendant's continued non-payment of the present debt.

33. There were other aspects of the evidence of Mr Chung on this issue which did not make sense. If the plaintiff had embarked on the scale of conduct alleged by Mr Chung in undermining the business of the defendant, a matter which must have been of fundamental importance to the defendant, one would have expected to see some mention of precisely that in the extensive communications which passed between the two companies, and particularly between Mr Chung and Mr Chuman, the managing director of the plaintiff at that time who did not give evidence.

34. Instead in May 2001 the e-mail communication between those two individuals are primarily concerned with the defendant's outstanding debt being re-paid and the defendant's problems with old stock and its possible sale to another agent of the plaintiff. The tone of these communications is far from antagonistic but redolent with the defendant being in commercial or financial difficulties and being grateful for the plaintiff's assistance. That tone is entirely at loggerheads with the defendant's case of the plaintiff effectively trying to substantially usurp the defendant's customer base.

35. In his evidence, Mr Chung explained this attitude evident in his e-mails by saying he was unaware of the real position at the time, i.e. he was unaware then that the plaintiff had taken steps to interfere with and remove his customer base. But these e-mails were sent weeks after the "takeover" date that the plaintiff had set for intervention with a number of the defendant's customers and at the very least the defendant had been made aware on 23 March 2001 that its most valuable customer Konka would be removed from its customer base.

36. It was not until 18 June that a complaint was made by the defendant to the plaintiff about the plaintiff having commenced in April 2001 to take over the defendant's customers. But there was no suggestion in that communication that there was any general attempt by the plaintiff to undermine the whole of the defendant's customer base, simply that from time to time particular customers have been approached directly by the plaintiff. The contents of that letter are consistent with the taking over by the plaintiff of the six customers referred to in the 16 February letter.

37. So far as Mr Chung's assertions are concerned as to a wholesale undermining of his customer base by the plaintiff, I found his evidence in that regard to be unreliable and placed little weight upon it. It is noteworthy that as his business relationship with the plaintiff deteriorated into rancour his assertions as to this matter in his communications with the plaintiff became more extreme. In my view they were exaggerations.

38. Mr Lin of the plaintiff in his evidence said he had faxed the letter to the defendant on 16 February 2001 which informed the defendant in its terms that as a result of the diminishing sales performance in respect of specified customers of the defendant, the plaintiff would be dealing directly with those six named customers in future as of 1 April 2001. The defendant said he never got this document and had no knowledge of it until the commencement of this hearing (although it was included in the discovered documents).

39. The document itself is an unsigned copy. According to Mr Lin, the faxed original was signed by the plaintiff's general manager, Mr Chuman before being faxed. I accept Mr Lin's evidence in this regard. He was a witness who was straightforward and direct in his evidence. He did not embellish it. He said that he had prepared and sent the letter himself. I accept that the document was sent to the defendant as Mr Lin said and that the defendant, through Mr Chung, was aware as of that time the plaintiff intended to deal directly with those six specified customers.

40. But in any event even on the defence case some five weeks later on 23 March 2001, it is common ground that the plaintiff sent a further fax to the defendant bringing forward the date it would deal directly with the company Konka to that day. As I say that company was the defendant's most important customer.

41. In my judgment the defendant, through Mr Chung, was aware and had accepted by the time of the May 2001 e-mails between Mr Chung and Mr Chuman of the plaintiff that the plaintiff was taking over and dealing directly with important customers of the defendant. The plaintiff had taken the trouble to inform the defendant of just that. I can seen no logic to the plaintiff informing the defendant of its acts only in respect of these six customers if in reality the plaintiff was embarking on a much larger scale undermining of the defendant's customer base. The six customers, and certainly Konka, were the defendant's higher ranking customers.

42. The defendant's evidence as to the plaintiff's large scale intervention in its customer base was based on Mr Chung's evidence only, together with his own communications sent to the plaintiff in June and July of 2001. There was nothing else of an independent nature put before me of any sort, whether in writing or e-mail from whatever source, suggesting the large scale interference by the plaintiff in the defendant's customer base alleged by Mr Chung in his evidence.

43. As I say, the e-mail communications between Mr Chuman for the plaintiff and Mr Chung for the defendant during May 2001 are, contrary to the defendant's case, firmly expressive of the defendant being in simple commercial difficulties and of Mr Chung being grateful for Mr Chuman's assistance in attempting to resolve those difficulties, I cannot see how the defendant or Mr Chung would have been unaware of a plan to undermine the defendant's customer base on the scale suggested by Mr Chung in his evidence at that stage, in the circumstances of the business relationship between the defendant and the plaintiff and the nature of the defendant's business, if the plaintiff had embarked on a general plan of putting the defendant out of business.

44. Mr Chung struck me as a person who, when giving evidence, still harboured resentment stemming from the antagonistic relationship which developed between himself and the plaintiff towards the end of their business dealings. This is my view caused him to exaggerate his evidence and skew it in his own companies' favour so as to render his evidence unreliable.

45. In my judgment the plaintiff had, as Mr Lin said in his evidence, taken over a limited number, i.e. six only, of the defendant's customers because of their poor performance and in one case its geographical location. That intervention went no further, on the evidence I have accepted as reliable, than involving the customers set out in the 16 February 2001 communication addressed to the defendant. Accordingly, as a matter of fact, I find that the intervention by the plaintiff in taking over the defendant's customers did not constitute an intervention of a degree or nature so as to intentionally or otherwise prevent the defendant enjoying the benefits of the agreement or in performing its contractual role. In that regard I take into account that the annual sales to these six customers by the defendant as set out in that 16 February 2001 communication as of the year 2000 was a total of about US$938,000. Yet the whole of the defendant's customer base (about 400 according to Mr Chung) had in the year ended March 2001 generated a turnover of HK$57.9 million.

Was the plaintiff's intervention with these customers in breach of the Agreement?

46. Mr Leung for the plaintiff points out that there is no express term in the agreement which prohibits the plaintiff from dealing directly with customers.

47. Miss Gwilt for the defendant says such a term or terms must be implied in the agreement to give it business efficacy. I have summarised the terms she asserts in this regard earlier in this judgment.

48. As a starting point, the only express term which directly addresses the defendant's status under the agreement is clause 2 which describes the defendant as a "non-exclusive sales agent". But that the defendant under the terms of the agreement was not contemplated to have the rights of a sole or exclusive agent, in my view, is an equivocal matter.

49. The agreement obviously contemplated that others could sell the plaintiff's products in the Mainland. The real question is whether vis-à-vis its own customers, i.e. end users or purchasers of the plaintiff's products which the defendant had cultivated as customers, the agreement intended that the defendant have exclusive rights of sale to those customers.

50. Before embarking upon an examination of the agreement, some general observations can be made. The terms of the agreement seem to intend to create a relationship somewhere between that of agency and that of a distributorship so far as the parties are concerned. The agreement envisages the plaintiff's products being purchased by the defendant itself for onward sale to the defendant's customers. That is, the fundamental dealings between the plaintiff and the defendant so far as the defendant obtaining the plaintiff's goods are concerned is that of buyer and seller. But as the agreement states in clause 2 "the relationship between Party A (the plaintiff) and Party B (the defendant) shall not solely be that between a seller and a buyer; Party B shall be Party A's agent for the sale of the products in mainland China". And while the defendant was to purchase its stock from the plaintiff for resale to its customers, the defendant did operate on a commission basis. That commission was determined in advance of each sale by the plaintiff and the defendant pursuant to clause 11 of the agreement.

51. Further, the defendant was obliged by the terms of the agreement to sell the plaintiff's products at a price which was in large part controlled by the plaintiff. The defendant was further obliged by clause 5 of the agreement to conduct sales promotional activities so as to enhance the reputation of Mitsubishi products, and by clause 3 to have potential customers approved by the plaintiff. The plaintiff also had the right to reject any individual order placed by the defendant, i.e. to refuse to sell it the goods ordered.

52. Other aspects of the agreement generally which tended to suggest an agency relationship rather than that of single buyer and seller or distributorship were clause 20 which required the defendant to provide information to the plaintiff about the semi-conductor market in China and about particular customers, and clause 19 which imposed an obligation on the defendant not to reveal information it obtained from the plaintiff. In short, the relationship between the parties whilst not that of principal and agent in the classical sense was not that of arms length buyer and seller either.

53. As can be seen, the plaintiff exercised considerable control over the defendant's sales activities both in controlling the price of the defendant's sales to customers and thereby the amount of profit the defendant earned, and in controlling those to whom the defendant was allowed to sell.

54. In my judgment, the defendant was effectively an agent of the plaintiff and entitled to the protections the law provides to that category of person.

55. But having said that, the parties' relationship and their rights and obligations are primarily created by the agreement made by them and fall to be determined by reference to it, including the question as to whether the plaintiff was entitled to interpose itself between the defendant and the six specific customers mentioned in the faxed communication dated 16 February 2001.

56. These are a number of matters inherent in the general structure of the Agreement which suggest in their totality that the plaintiff was entitled to so intervene.

57. The first is that the defendant, by clause 5 of the Agreement, was to conduct its sales promotional activities "in compliance with the manner and rules of sales designated by the plaintiff" and further that such activities shall "comply with the marketing policy for the time being of the plaintiff".

58. The plaintiff's rules and policy of sales are set out in its Enduser Ranking Guidelines where various rankings are applied to customers. This was common ground between the parties before me, and I agree that that is so.

59. Customers, by those guidelines, may be catagorised by the plaintiff in ranks from A to F. The plaintiff decided the ranking of the customer of an agent by reference to its policy stated in those guidelines. The primary, but not only, determinant of a customer's rank was the level of annual sales to that customer generated by the agent. At a high level of sales the customer was ranked "A". That meant that no other agent was allowed to sell to that customer other than the agent registered by the plaintiff as the agent for that customer.

60. Ranks from B to F allowed increasingly freer access to a registered agent's customers by other agents. For example, with a rank B customer the plaintiff could allow other agents apart from the original or registered agent to approach that customer. That was within the plaintiff's discretion. By the policy guidelines, rank B customers were generally described as having the specifications of a rank A customer but without the same level of sales results.

61. As the customers were catagorised downwards from rank B to rank F, there was even less protection given to agents and other agents of the plaintiff could compete for those same customers.

62. Further, by the same policy guidelines as described under the heading "Concept of the Agency Business", it was stated that the plaintiff would visit or contact customers directly and under the heading "Sales Network Policy in China", it was significantly stated that some customers would be handled by the plaintiff directly and that in that regard "Final judgement is decided by (the plaintiff)".

63. In my view, these policy statements contained within the file produced before me and also relied upon in that regard by the defence are indeed the basis for the reference to "marketing policy" and the "rules of sales" referred to in clause 5 of the Agreement and are incorporated into it.

64. Further demonstrating the plaintiff's ability to govern the business activities of the defendant are the provisions of clause 8 of the agreement which allow the plaintiff, subject to some restriction, to simply refuse to accept orders from the defendant.

65. The plaintiff was also entitled to dictate the price of the defendant's sales to customers by the terms of clause 11.

The terms of the agreement and their construction

66. It seems to me that upon a proper construction of these terms of the agreement, the only conclusion is that, as between the parties, it was recognised and intended that the plaintiff would have extensive rights as to deciding whether an agent was to be allowed to continue with a particular customer.

67. The only real protection given to agents as to their dealings with customers related to those customers ranked "A". Customers given a lesser rank than that could in no way be considered the exclusive customer of any one agent. The guidelines, as I have said, envisaged also the plaintiff itself dealing directly with customers. The agreement then, in adopting these marketing policies of the plaintiff, contemplated the plaintiff's intervention on occasion with agents' customers. The exception was those customers ranked, at any time, as A customers.

68. The only rank A customer the defendant had at the relevant times was Konka.

69. The 16 February 2001 fax states quite directly that the plaintiff was taking over the six specified customers, including Konka, as a result of their poor sales figures. Those customers, other than Konka, were ranked in September 1999 at ranks lower than A.

70. I accept from Mr Lin's evidence that the figures in the 16 February 2001 communication were obtained by him and were reliable. It seems obvious to me that, on the basis of those figures and in accordance with the ranking guidelines, whether the original version or the updated version, that by the year 2000 the plaintiff was entitled to treat none of the six companies mentioned in that 16 February communication as being at rank A level.

71. In my judgment, in accordance with the guidelines relating to their sales policy as adopted by clause 5 of the agreement, the plaintiff was entitled under the terms of the agreement to intervene so far as Konka and the other five customers named in the 16 February 2001 communication are concerned and deal with them directly and otherwise than through the defendant as agent.

72. Perhaps, however, the strongest argument allowing the plaintiff to take over and deal with certain of the customers of the defendant are the terms of clause 3 of the agreement. That clause deals with the necessity of the defendant to seek the plaintiff's approval for any potential enduser of the plaintiff's products to be registered by the plaintiff as a customer of the defendant. The clause goes on to conclude "... and the plaintiff shall solely decide whether a customer should remain in the list or be replaced". The list referred to is the list of approved endusers registered and ranked by the plaintiff as customers to which the defendant could sell the plaintiff's products.

73. In my judgment, the terms of clause 3, taken together with the other matters I have referred to, are conclusive in allowing the plaintiff to take customers away from the defendant.

74. When read together with the policy guidelines asserting that the plaintiff could deal directly with some customers and that the final decision in that regard also was the plaintiff's, it seems to me that the agreement governing the relationship between the plaintiff and the defendant allows no room for the insertion of any implied terms as sought by the defendant to the effect that the plaintiff would not deal directly with the defendant's customers.

75. In my judgment, the expressed terms of the agreement taken together with the policy guidelines of the plaintiff as incorporated into the agreement by clause 5 thereof are inconsistent with the first two implied terms as to the plaintiff's non-intervention with the defendant's customers relied upon by Miss Gwilt for the defendant.

Conclusion

76. For that reason, I do not think those suggested implied terms in issue form any part of the Agreement and that, accordingly, in taking over the six customers, including Konka, specified in the communication of the 16 February 2001, the plaintiff could not be said to have acted in breach of the terms of the agreement it had with the defendant. In my judgment, the plaintiff was doing what the terms of the Agreement permitted. Obviously once the plaintiff had properly taken over those customers the question of denying them technical support, at the defendant's request, becomes irrelevant.

77. Further, I accept the evidence of Mr Lin as supported both by the fax sent to the defendant on 16 February 2001 and that sent to the defendant on 23 March 2001 that no outstanding orders of the defendant would be or were cancelled in respect of the customers taken over by the plaintiff. The defendant, in any event, has wholly failed to establish that stock in its possession which remained unsold was unsold because of the plaintiff's intervention with its customers, whether Konka or any other customer.

78. It follows from the above that it cannot be said that the plaintiff in any way wrongfully hindered the defendant's opportunity to obtain its remuneration under the agreement. The plaintiff has simply not been shown to be in breach of any term of the agreement. Indeed, in doing what it did, the plaintiff was exercising its rights under the agreement. The defendant's failure to pay the amount claimed to the plaintiff was not caused by any wrongful breach of their agreement by the plaintiff.

79. Accordingly, I find against the defendant so far as its defence to the plaintiff's claim in this regard is concerned and, so far as its counterclaim adopts its defence, that part of the counterclaim is dismissed.

80. Although it forms no part of the pleadings I might add that at no stage was there anything to suggest that the plaintiff accepted the defendant's non-payment. The defendant was always pressed for amounts owing and the plaintiff was entitled to accept eventually the defendant's repudiation of the agreement on the basis of its non-payment.

81. Another issue which arose on the evidence but which also was not pleaded was the question of delayed or late deliveries by the plaintiff to the defendant's warehouse.

82. I accept from the evidence of Mr Lin that the delayed or late deliveries asserted by Mr Chung were certainly not of the magnitude claimed by Mr Chung. Mr Chung in his evidence said that as a result of the plaintiff's late delivery of stock on a number of occasions the defendant's customers cancelled orders resulting in various losses to the defendant. As Mr Leung for the plaintiff pointed out such a claim was never part of the defendant's pleadings and should have been, but also was in no way shown to be related to any of the issues which arose out of the matters which were contained within the pleadings. Nothing therefore comes form this evidence of Mr Chung. I might add in this regard in any event that the defendant failed wholly to quantify any loss which it apparently hoped to establish arising out of this allegation of late delivery.

83. I might further add generally, though given my earlier findings perhaps unnecessarily, that in any event no evidence was provided by the defence which even began to establish the damages claimed by it in its pleadings.

84. So far as the balance of the counterclaim is concerned, the defendant pleads that by two agreements the plaintiff promised to reimburse the defendant certain sums of money.

85. The first agreement asserted by the defendant is that on 7 September 1998 at a meeting between it, Konka and the plaintiff attended by Mr Chung for the defendant and the then staff of Konka and staff members of the plaintiff, the plaintiff and the defendant agreed that in consideration of Konka paying a debt owed to the defendant so allowing the defendant to reimburse the plaintiff, the plaintiff and the defendant between them would equally bear the burden of an amount of US$21,900 odd representing an increase in the debt amount to be paid by Konka to the defendant resulting from currency fluctuations whereby the Renminbi had moved by 4.89% against the U.S. dollar.

86. Konka apparently paid the reduced amount (i.e. the debt amount at current exchange rates less US$21,900) to the defendant who then in turn paid the plaintiff's outstanding invoices but the plaintiff never repaid back to the defendant its half share of the sum of US$21,900 odd which amounted to the US$10,951 counterclaimed by the defendant. There is some support for the evidence of Mr Chung to this effect in a copy of a handwritten and but electronically generated note made, according to Mr Chung, at the time of the meeting when the agreement was reached.

87. That document which purports to be a handwritten and contemporaneous note made by both Mr Chung of the defendant and a staff member of the plaintiff during or shortly after the meeting under the heading "Agreement reached" states :

"... i) Konka bears 2.445% out of the difference of exchange rate. MEHK/PB bears 2.445% out of the difference of exchange rate (i.e. Konka will pay US$21,902 less)."

88. Mr Chung in explaining that document, which effectively in its terms sets out the defendant's case as to this debt owing to it by the plaintiff, pointed out it was in two different handwritings. Partly written by him and partly written by a staff member of the plaintiff, a Mr Lun, who wrote that part containing the terms of the agreement reached.

89. Nothing was apparently done about that agreement for some time but that according to Mr Chung was because a Mr Sato of the plaintiff had asked him to wait for payment until Konka made new orders. Things slipped and he did not send a debit note or a reminder until apparently in August 2001 in an e-mail and then his letter of 11 April 2002 when he reduced the claimed amount from US$10,951 to US$8,900. Mr Chung gave no detailed explanation for this reduction except that Mr Sato's successor at the plaintiff Mr Chuman asked for the agreed figure to be further reduced and he, Mr Chung, agreed in turn to that request.

90. In any event a further document supports Mr Chung's evidence in this regard. In response to the defendant's letter of 11 April 2002 the plaintiff replied to the effect that they were agreeable to allowing the defendant an amount of US$8,900 representing the exchange rate fluctuations.

91. In my view the defendant has sufficiently proven an agreement given the documents supporting Mr Chung's evidence in this regard, as between itself and the plaintiff as to the payment by the plaintiff of some sum of money to it relating to the exchange rate variation on the original Konka debt. In my judgment the original amount agreed was subject to a later agreement that it be reduced to US$8,900. I might add there also appears to be some reference to this sum in an e-mail (badly reproduced in evidence) from Mr Chung to Mr Chuman of the plaintiff as early as 28 October 1999. The amount stated in the later e-mail of 2 August 2001 of US$9,000 I accept from the evidence of Mr Chung was simply a shorthand rounding up reference to the sum of US$8,900. The plaintiff's two witnesses were unable to dispute the existence of this agreement and gave no evidence against it.

92. Accordingly so far as this part of the defendant's counterclaim is concerned I find for the defendant in this sum of US$8,900.

93. That leaves the final amount counterclaimed of US$78,000 which the defendant alleges represents an agreed compensatory payment due from the plaintiff relating to a price difference which occurred in a sale by the defendant of semi-conductors to a company Idall Audio Appliances Ltd.

94. The sale eventually went through at a lesser price than originally agreed and so the plaintiff then agreed according to the defendant's case to reassess the defendant's original purchase price of the items from the plaintiff and retrospectively lower it by making the defendant a payment of US$78,000.

95. The only evidence for this is that of Mr Chung. In my judgment, as I have said his unsupported evidence is unreliable for the reasons I have given.

96. In regard to this aspect of the defendant's counterclaim the only evidence put forward as available to be called in aid of Mr Chung's evidence is an e-mail of 28 October 1999 which Mr Chung asserts confirms such an agreement was made. In my view it does not. That e-mail simply consists of an assertion by Mr Chung that such an agreement was made.

97. The e-mail of Mr Chuman of the plaintiff of the same date which, in response to the e-mail of Mr Chung, directed a plaintiff staff member to inform him of the compensation stated (by the e-mail of Mr Chung) falls far short of any agreement or any confirmation of an agreement as alleged by the defendant through Mr Chung's evidence. It seems to me Mr Chuman was simply trying to find out whether there was such an agreement.

98. In short I am not satisfied that the defendant has established that the plaintiff agreed to pay any amount of compensation to the plaintiff arising out of this transaction as claimed by the defendant.

99. In this regard the counterclaim must fail.

100. Accordingly the plaintiff's claim is allowed subject to a set-off in the amount of US$8,900 only.

101. Judgment to the plaintiff in the sum of US$247,046.00.

102. I order nisi that interest run on that judgment debt at prime plus 1% from the date, in the circumstances of this case, of the writ, i.e. 14 March 2002, and that costs go to the plaintiff.