BLISS ELECTRONIC (HK) CO LTD v. BILLWIN LTD

DCCJ 34/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 34 OF 2009

____________

J U D G M E N T

1.  Bliss Electronic, the Plaintiff, claims against Billwin, the Defendant, for outstanding price of goods sold and delivered and damages for non-acceptance of goods. Billwin denies liability and counterclaims for late delivery.

Background

2.  This was the first business deal between the two companies.  By an agreement evidenced by two purchase orders (“PO”) dated 6 May 2008 and 16 June 2008 respectively, Bliss Electronic agreed to sell and Billwin agreed to buy a total of 124,359 pieces of sound modules at the following prices:

3.  Payment for the goods was by letter of credit at sight.

4.  The sound modules were designed and produced by Bliss Electronic for assembly to a toy product known as “Wooden Puzzle”.  The sound modules were manufactured by Bliss Electronic’s factory at Dongguan in the Mainland.  As specified in the PO, Billwin requested the sound modules to be delivered to a factory called Yunhe Hamande Craft Wooden Toy Factory at Zhejiang.  This is the factory contracted by Billwin to assemble the “Wooden Puzzle”.

5.  Billwin specified the following delivery dates on the PO:

6.  Notwithstanding that, the parties eventually agreed on the following delivery schedule:

7.  Some components of the sound modules had to be supplied by Billwin.  They include, for each sound module, a battery box, a battery door, 5 holders for light cap/sensors, 5 rubber rings and a screw.

8.  During the period between 10 July 2008 and 28 August 2008, Bliss Electronic delivered the sound modules by various instalments to Billwin’s factory, as evidenced by the following invoices issued by Bliss Electronic:

9.  Billwin has settled the amount under the first and the second invoices but not that under the third and the fourth invoices.  The amount outstanding is therefore US$61,885.27.  The remainder of the order for the sound modules was never delivered.

10.  By its solicitors’ letter dated 9 December 2008, Bliss Electronic demanded Billwin to settle the outstanding invoiced amounts.  It also demanded Billwin to accept delivery of the remaining 6,693 pieces of sound modules within 3 days; or the agreement would be treated as repudiated.  No reply was received.  By letter dated 17 December 2008, Bliss Electronic through solicitors gave notice to accept the alleged repudiation on the part of Billwin.

11.  Bliss Electronic commenced the present action, claiming for the outstanding invoiced amount of US$61,885.27 and damages to be assessed for Billwin’s alleged breach in refusing to accept delivery of the remainder of the sound modules ordered.

12.  For the record, it was clarified during the trial that properly calculated, the remainder of the sound modules undelivered should be 6,694 instead of 6,693 pieces.  However, the pleaded quantity of 6,693 pieces has been accepted by the parties all along. Mr Yim for Electronic Bliss confirmed in court that his client would stand by the pleaded quantity and did not seek to amend its claim.

13.  Billwin does not really dispute liability to pay for the outstanding invoiced amount, subject to its claim of right to deduct of the amount for 2,831 pieces of allegedly defective goods and alleged short delivery of 3,306 pieces.  Billwin also puts forward a counterclaim for damages for alleged late delivery of the sound modules; and claims to offset the amount owed to Bliss Electronic.

14.  In view of the amount of the counterclaim, Billwin had pleaded its intention to apply to transfer the proceedings to the Court of First Instance of the High Court.  That was never done.  When the trial commenced, Mr Cheung for Billwin confirmed that his client now confines its counterclaim to the jurisdictional limit of this court.  Leave was therefore given to Billwin to amend the pleading accordingly.

15.  The above background is not in dispute.

Issues

16.  There are broadly the following issues:

(1)                 the outstanding price of the goods sold and delivered;

(2)                 the remaining 6,693 pieces of sound modules undelivered;

(3)                 the alleged late delivery and the counterclaim; and

(4)                 the quantum of loss and damage.

Outstanding price of goods sold and delivered

17.  The outstanding invoiced amount is not disputed; but Billwin claims the right to deduct from the amount the prices of (1) alleged defective goods and (2) alleged short-delivered quantity.

Alleged defective goods

18.  Billwin alleges that of the goods delivered, 2,831 pieces were defective in that they were “without sound”.

19.  As mentioned above, Billwin contracted the factory at Zhejiang to assemble the toys.  In court, Yau of Billwin agreed that the assembly process involved the connection of the 5 wires of the sound modules to the corresponding parts of the toy.  Billwin’s case is that it was only after the sound modules were assembled to the toys did its factory discover that they were “without sound”.  Yau confirmed that in court.

20.  In view of that, Mr Yim questioned how it is possible to tell whether it was the sound modules that were defective or the assembly process that caused the toys to be “without sound”.  In his evidence, Yau could not rule out this possibility; but somehow suggested that the chance of that was relatively low.  I wonder how Yau managed to say that.  Apart from referring to what the factory informed him, Yau could give no detail of any investigation or finding in this respect.

21.  There is no dispute that at the request of Billwin, Bliss Electronic had actually sent 2 engineers to station at Billwin’s factory since July 2008.  Yu of Bliss Electronic gave evidence that the engineers were there to assist if there was problem and to repair any sound modules damaged in the assembly process.  Since the factory was independently contracted by Billwin to assemble the toys, the presence of the 2 engineers there to assist, if necessary, would not render them or Bliss Electronic responsible for any part of the assembly process or its quality.

22.  Having said that, I would have expected that the factory had informed and requested the engineers to deal with any sound modules that were found to be not working both prior to and after the assembly.  Had that been done, the factory should have known whether there was any defective sound module beyond repair and whether replacements would be needed.

23.  The fact was that the assembly came to a halt and the engineers left Billwin’s factory in September 2008.  In the correspondence throughout the assembly period, Billwin did mention about short delivery and complained about delay in delivery; but there was no mention about defect in the sound modules supplied or request for replacements for such reason.

24.  Billwin first mentioned about defect when it referred to its customer’s inspector having found “seven (7) puzzles without sounds totally in the third & [fourth] inspections.” Billwin was instructed to “unpack the puzzles to test the sound function one by one and ensure they [work] before shipment”.  That was its email dated as late as 24 November 2008.  Another document suggesting the 2,831 pieces of sound modules “without sound” was the summary by Billwin’s factory in January 2009.

25.  The alleged findings in the so-called third and fourth inspections by the customer cast no light on whether it was the sound modules or the assembly process that caused the problem.  If at all, they tend to suggest that Billwin must have found no defect prior to or even after assembly; otherwise the factory would not have proceeded to pack the toys for shipment.

26.  It is Billwin’s burden to prove the alleged defective goods and their quantity.  Considering the evidence, including those discussed above, I am not satisfied that it has discharged the burden.

Alleged short delivery

27.  Bliss Electronic’s invoices evidence the delivery of a total of 117,665 pieces of sound modules to Billwin’s factory.  Billwin alleges that it only received 114,359 pieces. 3,306 pieces are said to be missing.

28.  Among the contemporaneous correspondence, the first one in which Billwin suggested that there was short delivery was its email dated 20 August 2008.  There Billwin suggested that its factory had reported that each of Bliss Electronic’s delivery by then was 8 to 9 pieces short.

29.  However, by the same email, Billwin apparently informed Bliss Electronic that the discrepancy presumably between the terms of the LC and the documents presented by Bliss Electronic for obtaining payment had been accepted.  In other words, Bliss Electronic could expect payment for the first and the second invoices.  Billwin did not take any issue of deduction from the invoiced amount on account of any short delivery.

30.  In the same email, Billwin did request for about 1,000 pieces to compensate the short delivery. Yet by then, there had been about 21 instances of delivery.  As to how the short delivery of 8 to 9 pieces per each of those 21 deliveries made a total shortage of 1,000 pieces, it was not explained.

31.  On 13 October 2008, Billwin informed Bliss Electronic by email that the exact quantity outstanding was 11,400 pieces.  Taking out the 6,693 pieces that were undisputedly yet to be delivered, Billwin would be suggesting a total shortage of 4,407 pieces.

32.  On the same day, Bliss Electronic supplied to Billwin a table setting out the quantity of the sound modules delivered with reference to the courier reference numbers.  Billwin was requested to ask its factory to list out the quantity received upon each delivery according to its record.  Bliss Electronic repeated the request a few days later.  Billwin’s reply was that its staff had looked around the warehouse and office of the factory and found no extra carton from Bliss Electronic.  It even challenged Bliss Electronic to send representative to find for themselves any extra carton in Billwin’s factory.

33.  Now Billwin is alleging short delivery of 3,306 instead of 4,407 pieces.  According to Yau in court, the reason for the difference in the quantity then suggested and now claimed is exactly that his company did subsequently locate some more cartons of sound modules which were thought to be missing.

34.  Reference was also made to the figures according to a letter in November 2008 from the end customer of Billwin in Germany.  When discrepancy was pointed out in court, Yau sought to explain that even the German customer was wrong and there had been correction. The fact is that this is the document, and no other, that Billwin seeks to rely on to substantiate its counterclaim.  At one stage, Yau seemed to acknowledge that it was difficult for him to tell whether 3,306 pieces was the accurate quantity.

35.  Despite request for further and better particulars of its pleading, Billwin admittedly could not tell the goods allegedly short-delivered were under which deliveries or invoices.  This is material because the sound modules under the PO were supplied at two different unit prices.  Billwin’s pleaded case is that the allegedly missing 3,306 pieces warrant a deduction at US$1.025 per piece from the amount claimed by Bliss Electronic.

36.  As evidenced by the invoices, all the deliveries covered by the first 3 invoices relate to the sound modules supplied under the first PO at the unit price of US$0.948.  Only the last two deliveries on 15 August and substantially on 28 August 2008 (covered by the last invoice) consisted of the sound modules under the second PO at the unit price of US$1.025.

37.  If the missing sound modules belonged to those last 2 deliveries, the complaint about missing pieces in each delivery prior to 20 August 2008 had to be wrong.  Yet by 20 August 2008, the last delivery of substantial quantity of sound modules at US$1.025 each under the second PO had yet to take place; and there is no basis for Billwin’s deduction at such unit price as alleged.  Either case of Billwin is problematic.

38.  Considering the evidence, including those discussed above, I find that Billwin has failed to discharge the burden of proving the alleged short delivery or its value.

Conclusion

39.  Having accepted the sound modules and by incorporating them into the toys, Billwin must pay for their price as goods sold and delivered.  Had any defect been proved, Billwin would have been entitled to claim for breach of warranty of quality and hence damages.  There is no such claim.  There is no defence to the claim by reference to the alleged right to deduct from the amount claimed.  

The 6,693 pieces undelivered

40.  Bliss Electronic claims that by refusing to accept the proposed delivery of the remaining 6,693 pieces of the goods, Billwin has wrongfully repudiated the agreement between the parties.

41.  The pleaded case of Bliss Electronic is that in November 2008, Billwin requested it to withhold delivery of the remaining 6,693 pieces of the goods.  But in his evidence, as stated in writing and given in court, Yau confirmed that Bliss Electronic withheld the delivery of the remaining 6,693 pieces of the goods because Billwin had failed or refused to pay for the outstanding invoices despite repeated demands.  Such stance was made clear in Bliss Electronic’s emails to Billwin between 13 and 16 October 2008, including its reply to Billwin’s request for delivery of the remainder of its order within a week from mid-September.

42.  To justify such stance of Bliss Electronic, Mr Yim relies on the unpaid seller’s right of lien over undelivered goods.  Section 43 of the Sale of Goods Ordinance, Cap.26 provides for the unpaid seller’s lien over goods for the buyer but in his possession.  Section 44 covers the case where an unpaid seller has made part delivery of the goods contracted for.  Unless the part delivery was made in such circumstances that the seller has agreed to waive his right of lien, the unpaid seller is entitled to exercise his right of lien over the remainder yet to be delivered.

43.  Mr Yim submitted that his client was therefore entitled to withhold further delivery in the absence of settlement of the price of the part already delivered.  I agree that section 44 of the Ordinance is on his side.

44.  The contemporaneous correspondence by November 2008 shows that Billwin wanted the goods no more. Nonetheless, the agreement between Electronic Bliss and Billwin subsisted then.  Indeed, Billwin confirmed by pleading (i.e., further and better particulars) that it is not its case that the alleged late delivery amounted to repudiation of the agreement on the part of Electronic Bliss.  In other words, Electronic Bliss was strictly under the contractual obligation to deliver the remainder of the goods as much as Billwin was under the obligation to take delivery of them.

45.  By letter dated 9 December 2008, Bliss Electronic, through its solicitors, gave notice to Billwin and making time for accepting delivery of the remainder of the goods of the essence.  In the circumstances explained above, Bliss Electronic was entitled to do so.

46.  No reply to Bliss Electronic’s demand has been received from Billwin.  As mentioned above, Billwin’s stance is quite clear.  Bliss Electronic was entitled to treat that as repudiation of the agreement and to accept the same for the purpose of terminating the agreement.  Bliss Electronic has since been properly discharged from further performance of the agreement.

47.  Bliss Electronic claims US$6,861.35 as damages, which is equivalent to the price of the undelivered goods.  Whilst the goods seemingly remain with Bliss Electronic, Billwin has not by pleading put in issue the question of mitigation.  No evidence could properly be adduced as to whether Bliss Electronic could and should have taken steps to dispose of the goods to minimise its loss.  I find that Bliss Electronic is entitled to the amount, which is what it would have received under the agreement.

Counterclaim – late delivery

48.  The sole pleaded basis for the counterclaim is late delivery.

49.  The first thing to note is that the delivery dates that Billwin specified in its PO were never acted upon.  This was so not so much because the PO were not signed by the parties (as apparently required by its terms), but because this was the reality.

50.  The first PO was placed on 6 May 2008, after Bliss Electronic had produced the sample of the sound module for approval.  However there is no real dispute that there was subsequent modification. The contemporaneous correspondence shows that the modified sample was supplied to Billwin on 4 June 2008; and it was on 6 June 2008 when Bliss Electronic put forward the delivery schedule mentioned above, namely:

51.  The correspondence shows that Billwin confirmed the sample on 7 June 2008.    Bliss Electronic’s email dated 23 June 2008 gave an account of what happened during the month between the date of the first PO and then.

52.  Though the correspondence then suggests that Billwin was unhappy about the above delivery schedule, the fact was that it could not realistically or reasonably refer to the delivery dates as per its PO, in view of the change in circumstances since placing the first PO.  Billwin should know that, when it formally placed its second PO on 16 June 2008.

53.  However it turned out to be unrealistic and unreasonable for the parties even to stick to the above delivery schedule.  The correspondence shows that after the second PO had been placed, Bliss Electronic was still awaiting Billwin to supply the components for producing the sound modules.  The components were not delivered until late June 2008.  Of them, the first batch of the light/sensor holder and rubber rings was not delivered until 10 July 2008.

54.  In the circumstances, the parties could not reasonably expect that the delivery deadlines, namely, 10 July and 14 July 2008, could be met.  In court, Yau confirmed that; and agreed that this caused his company eventually to amend the LC to extend the deadline for Bliss Electronic’s delivery to 15 August 2008.

55.  When the components arrived, Bliss Electronic encountered another problem.  The first 200,000 pieces of rubber rings were white in colour as opposed to the specified colour of black. According to Yu, his company had to await the instruction of Billwin and hence its customer.    Subsequently it was confirmed that Bliss Electronic could proceed to use the white rubber rings in hands.  There seems to be dispute as to the time wasted on such confirmation.  I tend to believe that this should be a matter of days, as mass production and delivery really started in mid-July 2008.

56.  As mentioned above, the quantity of sensor/light holders and rubber rings required for producing the sound modules were 5 times that of the other components.  During the period between mid-July and August 2008, Billwin arranged delivery of the holders and rubber rings by various instalments.  The correspondence also shows that Bliss Electronic has also actively chased Billwin for the supply of the components during this period.

57.  Billwin complains that Bliss Electronic’s factory failed to allocate sufficient production capacity and thus failing to fulfil its commitment.  The correspondence shows that parties indeed had discussion of this issue.  In its email dated 18 July 2008, Bliss Electronic represented that after meeting with its factory, it projected a maximum daily production capacity of 8,500 pieces from 20 July 2008.  Yau suggested in court that this was an agreed production capacity that Bliss Electronic was obliged to meet.

58.  Mr Yim submitted that it is not open to Billwin to allege that, as that was not Billwin’s pleaded case.  I agree.  It is true that on the whole Bliss Electronic was not able to meet its own projected maximum daily production capacity since 20 July 2008. But this is not the same thing as saying that it was in breach of a term of the agreement between the parties.

59.  To be fair, this was actually not the only instance of Bliss Electronic’s failure to fulfil its own projected delivery schedule.  In its subsequent email dated 22 July 2008, Bliss Electronic represented that all the 120,000 pieces sound modules ordered by Billwin would be completed by 10 August 2008.  Apparently, Billwin proceeded to amend the LC to extend the deadline for delivery to 15 August 2008.  Yet Bliss Electronic did not deliver the quantity on 10 August 2008.

60.  However, the correspondence also shows this:  Even on 18 August 2008, Bliss Electronic was still receiving the rubber rings and making enquiry with Billwin about the supply of 20,000 more pieces or else it could not complete the production. Notwithstanding the lapse of the extended delivery deadline, Billwin still arranged to enable Bliss Electronic to get paid for its second invoice; and expected that Bliss Electronic would be paid for its third invoice.  Though Billwin complained in the same email about the delay, it still extended the deadline for the delivery of the balance of the sound modules further to 22 August 2008.  Having said that, I note that Billwin did not deliver the last instalment of the rubber rings until 26 August 2008.

61.  Bliss Electronic made a further and the last delivery on 28 August 2008.  As mentioned above, 6,693 pieces remained undelivered.  Not surprisingly, Billwin further complained about that.  Notwithstanding that, Billwin in its email dated 16 September 2008 once again extended its indulgence and demanded the delivery of the remainder within a week.  That did not happen.  As mentioned above, in its email dated 13 October 2008, Bliss Electronic indicated that the remaining 6,693 pieces of sound modules would be delivered upon Billwin’s confirmation of the payment of its third invoice that had been outstanding since mid-August 2008.

62.  So the reality was this:  On the one hand, Bliss Electronic did not quite succeed in meeting its projected delivery schedule.  On the other hand, Billwin was only able to supply the components of the sound modules by instalments until late August 2008.  Billwin had in fact agreed to extend the delivery deadline from time to time.  By doing that, Billwin must be taken to have waived the deadline previously imposed: see Benjamin’s Sale of Goods (7^th ed) at 8-030.  In its email dated as late as 16 September 2008, Billwin argued that Bliss Electronic was in breach for failing to meeting the delivery deadline originally imposed by the PO.  Such contention is not well founded in the circumstances.

63.  When Bliss Electronic failed to meet the last deadline that Billwin imposed in mid-September 2008 and refused to make further delivery without first getting paid for the outstanding invoice, there was no indication that Billwin treated Bliss Electronic as being in repudiation of the agreement.  As mentioned above, Billwin confirmed that stance by further and better particulars of its pleading.

64.  Billwin’s email dated 24 November 2008 further shows its contemporaneous stance.  By that email, Billwin informed Bliss Electronic that its customer had cancelled half of the order placed with it.  The reason was that the toys could not be shipped out of the Mainland to meet the promotion need of its customer in Germany that month. Billwin claimed to have suffered loss of about US$329,000 as a result.

65.  Billwin produced 2 waybills for the shipment of the toys by air apparently on 13 and 26 October 2008 respectively.  By mid-August 2008, Bliss Electronic had already delivered about 100,000 pieces of sound modules to Billwin.  After receipt of the last delivery of the rubber rings in late August 2008, Bliss Electronic had also made the last delivery of over 15,000 pieces of sound modules to Billwin. However, the air shipment of the toys somehow took place more than one and a half to two months later.

66.  The only explanation evidenced by the contemporaneous documents is what Billwin stated in its email dated 24 November 2008.  According to that letter, the customer’s inspector found 7 puzzles “with no sound” during inspection.  Besides rejecting the toys to be re-worked, the customer required Billwin to unpack all the toys to test the sound function one by one before shipment.  The process took 12 days. Eventually Billwin could only ship as many toys as it could even by air.

67.  As mentioned above, this email casts no light on the question of whether the alleged “no sound” of the 7 pieces of toys was attributable to the quality of the sound puzzles or the quality of Billwin’s assembly.

68.  Notwithstanding the situation, Billwin indicated in that email that it would still pay its contractors, including Bliss Electronic, once it had got paid by its customer. Billwin further asked Bliss Electronic for help in introducing customers which might be interested in taking over the toys that its German customer had refused to accept.  At the end, Billwin even thanked Bliss Electronic for its kind attention and understanding.  The correspondence shows that Billwin did write to its customer and pushed for payment.

69.  The impression one reasonably gets from that email from Billwin to Bliss Electronic does not reflect the stance or attitude that one would have expected Billwin to adopt, if it was attributing its difficult situation to any breach on the part of Bliss Electronic.

70.  In conclusion, even though Bliss Electronic might have failed to live up to its projected production capacity and delivery schedule, that, I find, was not the real effective cause of Billwin’s delay in shipment of the toys.  The real effective cause, I tend to believe, was the delay on the part of Billwin in supplying the components to Bliss Electronic and in the assembly of the toys.  Any alleged loss Billwin has suffered as a result, I find, is not proved to be attributable to Bliss Electronic.

71.  Billwin claims: (1) extra transportation cost in the sum of US$80,088.91; (2) loss of profit in the sum of US$204,321.10; and (3) indemnity in respect of the penalty in the sum of Euro 100,000 imposed by its German customer.

72.  There is dispute as to whether Bliss Electronic reasonably contemplated that the toys were manufactured by Billwin for overseas customer.  Mr Yim emphasized that the relevant time at which the parties’ knowledge is judged should be when the contract was made.  According to Yu, his company came to know about that in June 2008 after the first PO had been placed.  Mr Yim submitted that the loss arising out of the transportation of the toys overseas, even if proved, is not reasonably contemplated and is too remote.

73.  Considering the evidence including the contemporaneous correspondence, I doubt whether what Bliss Electronic contends was likely, on the balance of probabilities.  Nevertheless, Billwin has relatively more significant problems to overcome than the issue of remoteness.  As discussed above, breach and causation are two of them.

74.  Purely on the amount claimed, neither waybill reveals the amount of freight charges.  No further and better particulars could be given, despite request.  In court, Yau admitted that the charges were paid by its customer.  He only obtained the information about the freight charges from the customer.  However he also agreed that his company’s claim ought to take into account the transportation cost that would have had to be incurred in any event so that the claim of the customer, and hence Billwin, ought to be confined to any extra transportation cost.  As Mr Yim pointed out, Billwin is unable to offer any figure or evidence in that respect.

75.  Again purely on the amount of alleged loss of profit, Billwin put forward the amount of US$204,321, allegedly being the price of toys rejected that Billwin would have received from its customer at US$4.15 per piece.  To begin with, no contractual document between Billwin and its customer for the toys is available to verify the amount claimed.  Further, to arrive at the loss of profit, Yau agreed that besides having to deduct the amount payable to Bliss Electronic from what it would have received from its customer, Billwin also needs to deduct the amount payable to its Mainland factory.  Yau agreed that using the alleged sale price of US$4.15 as the multiplicand would not be correct.

76.  Billwin claims for an indemnity against the penalty that its customer allegedly imposed on it in the sum of Euro 100,000, which was the result of reduction from the original penalty in excess of Euro 205,000.  In its further and better particulars of the counterclaim, Billwin confirmed that the penalty was imposed as a result of the alleged short delivery of 3,306 pieces of sound modules by Bliss Electronic.  However, when cross-examined in court, Yau considered such answer to be a mistake.  Notwithstanding the reference to such amounts in the correspondence between Billwin and its German customer, the exact basis for such penalty in such amount on top of the claim for loss of profits is far from clear.

77.  Billwin has failed to overcome the hurdle of proving breach and causation.  Considering the evidence, including what is discussed above, I am also not satisfied that Billwin manages to prove the amount of its counterclaim.

 Order

78.  Judgment is entered against Billwin in the sum of US$68,746.62, or its equivalent value in Hong Kong currency, together with interest thereon at the judgment rate from the date of writ until full payment.  The counterclaim is dismissed.

79.  I make a nisi order that Billwin shall pay Bliss Electronic's costs of this action, including any costs reserved.  Cost shall be taxed, if not agreed.  To avoid doubt, I certify the engagement of counsel.  In the absence of application within 14 days to vary, the costs order shall become absolute.