SUPER TECHNOLOGY LTD v. WAH SHING TOYS CO LTD AND ANOTHER

HCA1541/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1541 OF 2004

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J U D G M E N T

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1. The plaintiff applies for summary judgment against the 1^st defendant for :

(1)     return of those of the moulds mentioned in the Amended Statement of Claim as set out in the schedule attached to the summons (“the said Moulds”) or the value of the said Moulds or alternatively a declaration that the 1^st defendant is liable to return the said Moulds to the plaintiff free from any lien; and

(2)     damages for detention and/or conversion of the said Moulds and interest thereon to be assessed.

2. Earlier in the proceedings,some of the said Moulds were returned to the plaintiff against the payment into court of the sum of $2,153,100.53 under Order 29, rule 6.

3. The said Moulds were delivered to the 1^st defendant against the 1^st defendant’s receipts.  The receipts contained the following statement :

“WE, HEREBY CERTIFY AND CONFIRM RECEIPT FROM ‘SUPER TECHNOLOGY LIMITED’ THE ABOVE MENTIONED MOLDS WHICH WERE STORAGE AT OUR PREMISES/FACTORY.  WE UNDERSTAND THAT THE CAPTIONED MOLDS WERE THE PROPERTY OF ‘SUPER TECHNOLOGY LIMITED’ WHICH HAVE THE RIGHT TO COLLECT OR EXAMINE THE SAID MOLDS AT OUR PREMISES/FACTORY IN HONG KONG OR CHINA ANY TIME WITHOUT ADDITIONAL TERMS AND CONDITIONS UPON RECEIPT YOUR ONE DAY PRIOR NOTIFICATION BY FAX OR VERBAL.  AS THE MOULDING OF ABOVE PRODUCTS ARE THE PROPERTY OF ‘SUPER TECHNOLOGY LIMITED’.  WE SHOULD RETURN THE WHOLE SET OF MOULDING TO YOU WITHIN 3 DAYS FROM THE DATE OF NOTICE BY VERBAL OR BY FAX WITHOUT FURTHER DELAY.  ‘SUPER TECHNOLOGY LIMITED’ HOLD THE RIGHT TO RE-MAKE A NEW MOULDING OF ABOVE PRODUCTS IF WE DO NOT RETURN THE WHOLE SET OF MOULDING WITHIN 3 DAYS TIME, WE SHOULD PAY 3 TIMES CHARGE OF WHOLE SET MOULDING WHICH TO BE CHARGE BY YOUR NEW MAKER OF MOULDING.  FURTHERMORE, WE ENSURE TO PROVIDE YOUR COMPANY THE CORRECT ADDRESS OF OUR PREMISES/FACTORY WHERE TO KEEP THE SAID MOLDS WITH DETAILS OF TELEPHONE NUMBER AND CONTACT PERSON FOR YOUR COLLECTION OF SAID MOLDS WITHOUT ANY PROBLEM.

FINALLY, WE GUARANTEE THAT YOU SHOULD RECEIVE THE SAID MOLDS IN PERFECTLY GOOD IN ORDER AND CONDITIONS.  IN CASE OF YOU FOUND DAMAGE IN THE SAID MOLDS OR MISSING PART OF THE SAID MOLDS WHICH AROUSE FAILURE IN PRODUCTION OF GOODS, OUR COMPANY SHOULD TAKE FULLY RESPONSIBILITY FOR COMPENSATION ALL YOUR LOSS INCURRED IN YOUR PROJECT DUE TO THE ABOVE CIRCUMSTANCES.

ACCEPTED AND CONFIRMED BY :

WAH SHING TOYS CO., LTD”

4. The matter came before me for hearing on 30 July 2004.  On that occasion the 1^st defendant applied for an adjournment : “to raise the defence of lien at common law as well as way of agreement and/or trade practice or usage”.  The application was supported by the 3^rd Affirmation of Wong Lo See where he said :

“4.   The person who has first hand knowledge of the initially dealings between the Plaintiff and the 1^st Defendant was Mr. K. C. Lo who has left the 1^st Defendant in middle 2003.  Mr. Raymond Ip who succeeded Mr. K. C. Lo in handling the business between the 1^st Defendant and the Plaintiff, unfortunately, also left the 1^st Defendant in around April 2004.

5.     The business relationship between the Plaintiff and the 1^st Defendant which consists of receiving the moulds from the Plaintiff; the making of additional items to the moulds and also the production from the moulds began in around 2001.  Most of the agreements were conducted verbally or through correspondence between the Plaintiff’s representatives and the respective employees of the 1^st Defendant mentioned in paragraph 4.  This being the case, we need more time to make enquiries with the above mentioned former employees and to try and recover as much evidence as possible from the written correspondence between the parties especially at the beginning of the business relationship when most of the terms, if not all, were determined, in particular with a view to setting up a defence that there were indeed contractual provisions made for the right of lien over the moulds.  Furthermore, we also need time to find out whether the production costs for the moulds have been fully settled by the Plaintiff bearing in mind the number of the moulds involved.

6.     To my knowledge, such right of lien is quite common among our trade where, frequently, moulds are deposited to other factories for productions especially in the Mainland due to the limited quotas for production and retained by each factory until payment for production has been fully settled.  Again enquiries are being made with other factories within this trade to gather materials in making good a case that such right of lien exists in the present case as a matter of trade practice or usage.”

5. I granted the adjournment and as a result the 1^st defendant has produced two affirmations by a Wong Cho Kuen.  I think I need to refer to the first affirmation. The relevant paragraphs are reproduced below :

“1.    I am now a retired merchant since last year.  I have been in the toy industry for over 35 years.  For the final 10 years of my working career, I was working for a company named Equity Marketing Hong Kong Limited whose parent company is Equity Marketing Inc. in Los Angeles (‘EMII’) a large corporation based in the USA, which, among other business, engage in the manufacturing of various toy products.

…

4.      From time to time, the subsidiaries of EMI would deposit various items of moulds to factories similar to the 1^st Defendant where instructions would be given to the factory in question to manufacture certain toy products and that the moulds would be returned when such assignments are completed.  However, from the experience I had in the toy industry, in particular when moulds have to be deposited to other factories for production, it is the normal business routine that such factories would withhold the moulds pending settlement of all outstanding payment owed by us to the factories.  The outstanding payment could relate to moulds charges, material charges and/or production expenses.  As long as the outstanding payment relates to the particular assignment of which the moulds were deposited in the first place, they had to be settled before the moulds would be returned.

5.      By way of example, I remember in or around 2002, one of EMI subsidiaries named Logistix UK had a dispute with the 1^st Defendant with regard to certain outstanding payment owed to the 1^st Defendant, where a number of moulds were involved and deposited with the 1^st Defendant for production.  Eventually, the normal business routine was followed whereby the dispute on the outstanding payment was fully resolved before the moulds were returned to us.

6.      In my experience, the above practice of withholding moulds for outstanding payments although frequently occur, is very rarely reduced in writing between the contacting parties; neither are most of the other contracting terms within the businesses of this industry for that matter.  However, the positions of the respective parties are usually well governed by the usual trade practices and past business relationships.”

6. Mr Lin has argued that there is a triable issue of a lien.  He relied on the following extract from Chitty on Contracts, 29^th edition, Vol.1, para.13-018 :

“If there is an invariable, certain and general usage or custom of any particular trade or place, the law will imply on the part of one who contracts or employs another to contract for him upon a matter to which such usage or custom has reference a promise for the benefit of the other party in conformity with such usage or custom; provided there is no inconsistency between the usage and the terms of the contract. … even in cases where the party alleged to be liable upon an implied promise, arising solely from the usage of a particular trade, is not shown to have been cognisant of the usage, he can still be held to be liable by virtue of it.”

7. As Mr Chain, counsel for the plaintiff, put it : Mr Wong’s affirmation did not establish any trade custom.  What Mr Wong said in paragraph 4 of his affirmation was that “such factories would withhold the moulds”.  So did the 1^st defendant.  But that did not show or establish any right to a lien.  Moreover, if there was a trade custom or usage, it is surprising that the 1^st defendant seemed to be unable to find anyone within its employment who was able to speak to such custom or usage.  Nor am I satisfied that Mr Wong was sufficiently knowledgeable about the trade so that I could rely on his evidence.  Furthermore according to Mr Wong the outstanding payment in relation to which a lien might arise had to be “related to the particular assignment”.  Here, the 1^st defendant has not even attempted to identify which of the moulds related to which assignment or that any sum was outstanding relating to the particular assignment.  In Order 14 proceedings, a defendant has to condescend upon particulars.

8. Furthermore, as Mr Chain put it, any such usage or custom is inconsistent with the clear terms of the 1^st defendant’s receipt.  Mr Lin argued that what the receipts provided was that the plaintiff had the right to collect the moulds at the 1^st defendant’s factory “without additional terms or conditions upon receipt your one day prior notification by fax or verbal”.  Mr Lin submitted that the 1^st defendant was not be entitled to impose “additional” terms or conditions for the return of the moulds but that if the lien was implied by trade usage or custom it was implied at the time of contract and was not an “additional” term or condition.  I do not believe that that is a fair or proper way to read the receipts.  In my opinion the reference to “without additional terms or conditions” meant that no terms in addition to those which were to be found in the receipts could be imposed.  It was perhaps an inelegant way of saying that the return of the moulds would be unconditional.  But having regard to the language of the receipt I have no doubt that it left no room for a supposed trade usage which would entitle the 1^st defendant to refuse to return the moulds. 

9. It is said that the 1^st defendant intends to issue a counterclaim and a cross-application for summary judgment against the plaintiff for the outstanding sum of $2,153,100.53 owed by the plaintiff to the 1^st defendant as reflected in the debit note issued by the 1^st defendant to the plaintiff.  Whether the 1^st defendant has a good claim against the plaintiff in relation to the debit note is not a matter which I need to decide.  The issue between the plaintiff and the 1^st defendant in this action is whether or not the 1^st defendant has any defence to the return of the moulds.  The payment into court made by the plaintiff under Order 29, rule 6 was made on the basis that the 1^st defendant might have a lien on the said Moulds. 

10. For the reasons given above, it is my opinion that the 1^st defendant has no lien.  In that case, the plaintiff was entitled to the return of the said Moulds unconditionally.  In relation to that the 1^st defendant has no defence.  That being the case, the payment into court by the plaintiff to await the adjudication over the lien ought to be repaid to the plaintiff.

11. Thus, in all the circumstances, I will give judgment in favour of the plaintiff against the 1^st defendant for :

(1)     a declaration that the plaintiff is entitled to the return of all those moulds listed in exhibit WLS-5 to Wong Lo See’s 2^nd Affirmation free from any lien;

(2)     damages for wrongful detention of the said Moulds to be assessed; and

(3)     the sum of $2,153,100.53 paid into court by the plaintiff on 21 June 2004 be paid out to the plaintiff’s solicitors.

12. I also make a cost order nisi in favour of the plaintiff.

13. I also give liberty in case the plaintiff wishes to pursue its claim in relation to the moulds which have yet been returned.