HIROMORI INTERNATIONAL LTD v. GOLD OCEAN ENTERPRISES LTD

HCA 1015/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1015 OF 2004

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BETWEEN

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ASSESSMENT OF DAMAGES

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Background

1.  At all material times, the Plaintiff was a company carrying on the business of sourcing and supplying gift items to its customers including one AIG Credit Card Company (Hong Kong) Ltd (“AIG”).

2.  By a Purchase Order made between the Plaintiff and the Defendant in early December 2003, the Defendant sold 3,000 units of “Walkie Talkie Watch” (“the watches”) to the Plaintiff at the price of $120 per unit.  With the knowledge of the Defendant, the watches were resold by the Plaintiff to AIG and which were to be used by AIG as gift items in one of its promotion campaigns.  The Plaintiff sold the watches to AIG at the price of $138 per unit.

3.  After the resale to AIG, it was discovered that the watches supplied by the Defendant had infringed the registered design and/or patent owned by one American company called the U.S. Electronics Inc. (“U.S. Electronics”).  AIG was thus required to withdraw the watches from its promotion campaign and claimed damages against the Plaintiff.  After negotiations among the parties involved, the Plaintiff paid a sum of $189,142 to AIG as compensation.

4.  In April 2004, the Plaintiff commenced the present proceedings against the Defendant.  In April 2005, summary judgment on liability was granted by Master de Souza in favour of the Plaintiff against the Defendant with damages to be assessed.  The Defendant lodged an appeal against the order of Master de Souza and it was dismissed by Deputy High Court Judge Mayo.  This is the hearing for the assessment of damages.

Points of Claim

5.  In the Points of Claim filed by the Plaintiff on 14 September 2007 for the assessment of damages, the Plaintiff made the following heads of claim: -

(1)    Loss of profit: -

(a)    a sum of $54,000 being the price difference for the watches resold to AIG by the Plaintiff [i.e. ($138 - $120) x 3,000 units = $54,000];

(b)    a sum of $18,000 being the further 1,000 units that AIG had agreed to purchase from the Plaintiff [i.e. ($138 - $120) x 1,000 units = $18,000];

(2)    Compensation paid by the Plaintiff to AIG in the sum of $189,142;

(3)    Pre-action legal costs incurred by the Plaintiff in the sum of $157,467;

(4)    Damage to the Plaintiff’s reputation and loss of business: -

(a)    a sum of $50,000 is claimed as damages for injury caused to the Plaintiff’s reputation;

(b)    a sum of $700,000 is claimed as estimated loss of business with AIG.

6.  However, at the assessment hearing, Mr. P. Wong, Counsel for the Plaintiff, informed the Court that the Plaintiff would abandon the claims under item 1(b) above (i.e. the sum of $18,000 being the further 1,000 units AIG had agreed to purchase from the Plaintiff) as well as under item 4 being the claim for damages for injury to the Plaintiff’s reputation and for loss of business with AIG.  Mr. P. Wong explained that the Plaintiff would abandon those claims on the basis that Mr. C.Y. Wong, Counsel for the Defendant, has agreed that the Defendant would not adduce evidence to contest the other claims of the Plaintiff (i.e. items 1(a), 2 and 3 above).  Upon confirmation by Mr. C.Y. Wong that the Defendant would not challenge the other claims of the Plaintiff, the assessment proceeded on the basis that no evidence would be adduced by the Defendant.

The Claims

7.  At the assessment hearing, a Mr. Ling Sau Shan Samuel (“Mr. Ling”), the General Manager of the Plaintiff, was called to give evidence.  He adopted his witness statement and supplemental witness statement dated 10 November 2005 and 19 November 2009 respectively as his evidence.  As the Defendant chose not to cross-examine Mr. Ling nor has the Defendant adduced evidence to contradict the Plaintiff’s claims, I accept the evidence of Mr. Ling.

8.  I accept that if not for the fact that the watches supplied by the Defendant had infringed the intellectual property rights of U.S. Electronics, the Plaintiff would have made a profit of $54,000 out of the resale of the watches to AIG.  I will allow the Plaintiff’s claim for loss of profit [i.e. ($138-$120) x 3,000 units = $54,000].

9.  In respect of the claim for the compensation paid to AIG, I accept the evidence of Mr. Ling that the Plaintiff had agreed with and given a warranty to AIG that the goods (including the watches) supplied by the Plaintiff to AIG would not infringe the intellectual property rights of another party and that in breach of such agreement or warranty, the Plaintiff would have to fully indemnify AIG and hold AIG harmless against all claims, demands, complaints, disputes, queries, legal proceedings and costs incurred in respect of the goods supplied (see the letter from the Solicitors for AIG to the Plaintiff dated 23 December 2003 at page 46 of the hearing bundle).

10.  According to the supplemental witness statement of Mr. Ling dated 19 November 2009, AIG had by its letter to the Plaintiff dated 6 September 2004 demanded the Plaintiff to immediately indemnify AIG a sum of $189,142 being legal costs incurred by AIG; wasted marketing costs and costs incurred in notifying card members of the change in promotional product.  A breakdown of the said costs was also sent to the Plaintiff for consideration (see page 76 to 120 of the hearing bundle).  Mr. Ling further stated that the Plaintiff had sought legal advice in respect of the claim by AIG.  Having obtained advice from the legal advisor, the Plaintiff accepted that the amount claimed by AIG as reasonable and accordingly agreed to pay the said sum to AIG.  The said sum was paid to AIG on 4 October 2004.

11.  In support of this claim, Counsel for the Plaintiff has referred me to the judgment of Sakhrani J in the case of Atico International (HK) Ltd v Sparko (Far East) Ltd [2007] 2 HKC 124.  At page 125 thereof, it is held: -

“(2) If the plaintiff reasonably settled the overseas buyer’s claim out of court, it might recover as damages from the defendant a reasonable amount paid under the settlement, and it was relevant to prove for this purpose, that the settlement was made under advice legally taken. Although a detailed breakdown was not provided for loss of profit and administrative and management time, the court was satisfied that the damages would be somewhere around the figure at which the plaintiffs had settled for and that it would be justified in awarding the plaintiffs the settlement figure. It was not part of the court’s duty to examine every item in those circumstances. Dicta of Singleton LJ in Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314 applied (paras 46-54).”

12.  I have considered the breakdown and the documents supplied by AIG to the Plaintiff, bearing in mind also that the Defendant has not challenged the evidence of Mr. Ling, I accept that the compensation paid by the Plaintiff to AIG as reasonable and that as per the judgment of Sakhrani J, it was not part of the Court’s duty to examine every item in question.  I allow the claim in the sum of $189,142.

13.  In respect of the claim for legal costs incurred by the Plaintiff in the sum of $157,467, Mr. Ling stated in his witness statement dated 10 November 2005 that in view of the complaints by U.S. Electronics, the Plaintiff had sought legal advice from its lawyer in order to handle the matter and to deal with all parties concerned.  He stated that at some stage, and before the Plaintiff was forced to cancel the contract with the Defendant, the parties had attempted to resolve the matters amicably by negotiating with U.S. Electronics for a licence agreement, but this turned out to be in vain.  Mr. Ling stated that the Plaintiff had incurred further legal costs in the negotiations with the solicitors for U.S. Electronics, AIG and the Defendant.  In support of this claim, the Plaintiff has produced the bills of costs issued by its solicitors Messrs. Benny Kong & Yeung (see page 150 to 170 of the hearing bundle).

14.  Again, as the Defendant has chosen not to challenge this claim nor the amount, I am prepared to accept the evidence of Mr. Ling and allow the claim as being reasonable.

15.  As Counsel for the Plaintiff confirmed that the Plaintiff would not pursue the other claims, I will formally dismiss those claims under items 1(a) and 4 (see paragraph 5 above).

Summary

16.  The amount of damages awarded to the Plaintiff will be as follows: -

(a)    Loss of profit	$54,000
(b)    Compensation paid to AIG	$189,142
(c)    Pre-action legal costs incurred	$157,467
$400,609

17.  Counsel for the Plaintiff also claims interests on the amount awarded at the judgment rate from the date of judgment until payment.  The same is allowed.

Costs

18.  The parties have also agreed that the Plaintiff should be entitled to costs of the action on the High Court Scale to be taxed if not agreed with Certificate for Counsel.  I so order.