CORNERSTONE DEVELOPMENT LTD v. LICO (H.K.) MANUFACTURING LTD

DCCJ 716 of 2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 716 OF 2009

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J U D G M E N T

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INTRODUCTION

1.  The Plaintiff claims against the Defendant for the sum of HK$120,000 being the price for goods manufactured by the Plaintiff upon a purchase order placed by the Defendant together with the storage charge at HK$1,000 per month from 10 September 2008.  The Plaintiff alleged that the Defendant had failed to take delivery and pay for the goods. 

2.  The Defendant counter-claims against the Plaintiff for the sum of US$45,000 plus transportation costs, being loss and damages sustained by reason of the Plaintiff’s breach of its duties as supplier of the goods.

3.  The issue to be determined in this case is which party had been in breach of the sales contract between them.

UNDISPUTED FACTS

4.  The Plaintiff carried on the business as a manufacturer and supplier of kitchenware.  The Defendant carried on the business of trading in respect of food preparation tools and kitchenware.  There are previous dealings between the two companies including an order of 9,696 pieces of 6” fish pincer in July 2007. 

5.  By a Purchase Order No. LP802085 dated 4^th March 2008 (“the Purchase Order”), the Plaintiff was engaged by the Defendant to manufacture 9,600 pieces of 6” fish pincer (“the Goods”) at the unit price of HK$12.50, with the total price of the Goods being HK$120,000 and the date of delivery being fixed to be 10^th September 2008.  The Purchase Order was negotiated between Mr. Law of the Plaintiff and a Mr. Leung, an employee of the Defendant.  It is also the terms of the Purchase Order that the logo “TREND” was to be etched on each fish pincer and the packaging material (“the packaging material”) were to be provided by the Defendant.

6.  The manufacturing of the Goods was conducted at the Plaintiff’s mainland factory called 深圳市龍崗區坪地年豐又生五金廠 (“the Factory”).  No packaging material was provided to the Plaintiff and no delivery of the Goods had been arranged by the Defendant.

WITNESSES

7.  The Plaintiff called its director Mr. Law and its manager Ms. Law to testify whilst the Defendant called its director Mr. Sun and its quality controller Mr. Quian as witness at this trial.

PLAINTIFF’S CASE

8.  The Plaintiff alleged a breach of contract by the Defendant for its failure to take delivery of the Goods on 10 September 2008.

9.  Mr. Law admitted that only one of the production lines of the Factory, i.e. stamping workshop (衝壓車間) and not the whole factory was suspended by the China authority between 29 July 2008 and 30 August 2008 after a fatal industrial accident.  Yet, this had not affected the manufacture of the Goods which had eventually completed in early September since there was another stamping workshop still in use.  And the Plaintiff knows nothing about the visit by Mr. Quian to the Factory as alleged since it was never agreed nor the practice for inspection to be conducted during manufacture.  Documents including electricity bills (page 213-215 of the Bundle), water and sewage treatment bills (page 216-218), insurance payment (page 219-221), export record of products manufactured (page 222-239), daily production report (page 178-193 of Bundle) and record of inspection of goods by other customers (page 177 and 194 of Bundle) were produced in support of the fact that the Factory was in operation during July to September 2008.

10.  Since mid-August 2008, there were several contacts between the parties, including but not limited to e-mail contacts (page 206-262 of Bundle) in which the Plaintiff re-confirmed time and again that the Goods were ready for delivery as scheduled and had urged the Defendant to deliver the packaging materials.  However, the Defendant failed to do so.  Mr. Law denied ever had any contact with Mr. Sun before 10 September 2008.

11.  On 10 September 2008, Ms. Law called the Defendant Company but failed to get into contact with Mr. Leung or Winnie who used to liaise with the Plaintiff concerning the Purchase Order.  The gentleman who answered the call told Ms. Law that the Purchase Order had already been cancelled.  There were several contacts between Mr. Law and Mr. Sun after 10 September including a meeting on 22 September. Mr. Sun told Mr. Law that the Defendant failed to take delivery since the overseas buyer (“the Buyer”) had cancelled the order but promised to follow up on the matter to make sure that the Buyer will take delivery in order to avoid any loss on the part of the Plaintiff.  Mr. Sun also promised to give Mr. Law a reply by end of September.  Yet, no concrete reply was forthcoming. 

12.  Faced with financial difficulties, the Plaintiff had all along been going after Mr. Sun for the payment of the Goods.  On 17 December 2008, Ms. Law had a telephone conversation with Mr. Sun who agreed to pay HK$50,000 for the Goods within that week leaving the balance to be discussed in due course.  No condition whatsoever was mentioned.  After Ms. Law had sent out an email to the accounts department of the Defendant relating the agreement with Mr. Sun and asked for payment arrangement (page 270 of Bundle), Mr. Sun sent out an email on 18 December (page 271 of Bundle) reneging what was agreed and referred the payment as a funding assistance upon delivery of the Goods to the go-down of the Defendant.

13.  Met with no response from the Defendant after Ms. Law’s reply email on 18 December 2008 (page 272 of Bundle) proposing delivery of goods to the worth of HK$50,000, the Plaintiff instructed its lawyer to issue demand letter on 5 January 2009 and commenced this proceedings on 13 February 2009.

14.  As for the Goods, it had been conveyed to Hong Kong by the Plaintiff as required by the Purchase Order and are still in the possession of the Plaintiff.  Mr. Law explained that since a brand-name logo had been etched onto it and the removal of the same involved great costs, the Plaintiff cannot re-sell the same.  And given the demand of the Goods are mostly in Northern Europe and Canada, this makes it more difficult as far as resale is concerned.

THE DEFENDANT’S CASE

15.  The Defendant alleged that the contract was repudiated by the Plaintiff on 13 August 2008 on representation made by Mr. Law to Mr. Sun that since the operation of the Factory was suspended due to safety problem, it was not possible for the Plaintiff to deliver the Goods on time or at all. 

16.  The suspension of the Factory was discovered by Mr. Quian when he attended the Factory intending to conduct inspection of the Goods on 5 August 2008 and 13 August 2008.  Mr. Quian said that these were pre-arranged inspection and on both occasions, he was told by a gentleman who claimed to be the in-charge of the metal section (五金部主管) that the manufacture of the Goods had not yet commenced and neither had the material been processed (開料).  Mr. Quian was led to the only stamping workshop of the Factory and found no one working there except 3 repair workers.

17.  Mr. Sun testified that upon being made aware of Mr. Quian’s report on the suspension of the Factory, he tried to contact Mr. Law, failing which, he called the Buyer.  The Buyer instructed that should there be a definite negative answer from the Factory, the order of the Goods would be cancelled.  Mr. Sun managed to get into contact with Mr. Law on the phone on 13 August.  Over the phone, Mr. Law indicated he couldn’t tell when the operation of the Factory could be resumed and it would not be possible for the Goods to be delivered on 10 September.  Mr. Sun then responded if that was the case, he would follow the Buyer’s instruction and cancelled the Purchase Order.  Yet such decision had never been recorded by any means in writing.

18.  After this telephone conversation, Mr. Sun was reminded by Winnie and the General Manager of the Defendant that there was another factory in China (“China Factory”) which had manufactured the same kind of goods for the Defendant before the Plaintiff was being engaged.  So liaison started with the China Factory and eventually a contract had been entered into between the Defendant and the China Factory on 19 August 2008 with goods to be delivered on 20 September 2008 at a rate of RMB$10.50@ (page 254b of Bundle). 

19.  On 16 August 2008, Winnie sent an email to the Plaintiff saying that the Defendant would contact the Buyer to see whether they would continue with the order but the Plaintiff had to strictly observe the delivery deadline, being 10 September.  The Plaintiff confirmed by return email of the same.  (Page 260-261 of Bundle)  The email from Winnie reads as follows :

“有關上列PO LP802085 的訂單事宜,我方在聯繫貴司前也跟客人聯繫過及提及個中的原因,因此已通知過客人取消訂單.

另外,根據剛剛貴司在電話中回覆我方貴司可以如期在9月10日出貨, 我方會通知客人繼續訂單,但若客人同意,則不能再延遲出貨(10/09), 否則要寄飛機的話貴司將要全部負責.請再次確認回覆,以便我方即與客人聯繫.”

20.  On 19 August, the Defendant, by email informed the Plaintiff that the Buyer had already placed the order elsewhere and the Defendant will continue with the following up of the matter (page 262 of Bundle). The email reads as follows :

“您好! 有關上列訂單 P.O. LP802085, 由於早前生產出現狀況, 通知客人後,客人隨即採購了其他產品代替,此舉亦保障了避免交不出貨來的其他高昂費用,包括飛機費等.在悉知 貴司生產已經恢復後, 非常欣慰.由於客人已用其他產品代替, 因此要等客人另行安排推廣時間, 再重新下單,我方會繼續跟進. 謝謝”

21.  On 22 September 2008, Mr. Law and Ms. Law had a meeting with Mr. Sun.  At the meeting, Mr. Sun agreed to pay HK$50,000 as financial assistance to the Plaintiff on condition that the Goods were to be delivered to a go-down in Hong Kong.  Mr. Sun also agreed to locate another buyer for the Goods.

22.  As far as the counter-claim is concerned, it is Mr. Sun’s evidence that because of the delay in the delivery of the Goods, the Buyer asked for a handsome discount in another business transaction with the Defendant.  As a result, the Defendant had suffered a loss of US$45,000 (page 259a-c of Bundle).  Moreover, since the contract with the China Factory did not include the transportation of the Goods to Hong Kong, the Defendant had incurred a costs of HK$2,149 (page 254e-f of Bundle).

DISCUSSION

23.  The whole case turns on the credibility of the witnesses.  Having heard the evidence and on a balance of probability, I accept the evidence of the Plaintiff and found the Defendant’s evidence unbelievable. 

24.  I found both Mr. Law and Ms. Law a truthful witness.  They are not shaken under cross-examination and their evidence are supported by the documentary evidence before this court.  The contention that the Factory was in fact still in operation in July and August of 2008 and only one production line being suspended was supported by the document issued by the China authority (page 104 and 108 of Bundle) as well as the document particularised in paragraph 9 above.  The amount charged on the utility bills for the months of July to September 2008 are maintained in more or less similar figure.  Had the whole Factory been suspended as alleged by the Defendant, one would expect a substantial decrease in the usage of these utilities.

25.  The email from Ms. Law to the Defendant dated 16 August 2008 also supports the Plaintiff’s case that there was no admission by Mr. Law on 13 August as alleged.  Had there been such an admission by Mr. Law that the Goods cannot be delivered as scheduled, it would be unreasonable for the Plaintiff to send out an email on 16 August confirming the date of delivery when the Factory was still under suspension. 

26.  It is suggested by Counsel for the Defendant that the request by Ms. Law to Mr. Leung for the delivery of the packaging material as early as 15 August 2008 was not in line with normal practice and was motivated by fears of cancellation of the Purchase Order.  This suggestion is inconsistent with the Defendant’s own allegation that the Purchase Order had already been cancelled by Mr. Sun on 13 August.  If so, why would Ms. Law still ask for the packaging material by 15^th August and thereafter or still had the fear of cancellation of the Purchase Order.  Moreover, from the purchase order in previous dealings back in July 2007 (page 163 of the Bundle), it can be seen that the actual delivery of the packaging material was about 17 days before the contractual date of delivery of the goods.  Ms. Law’s request for packaging material on 15 August was far from exceptional.

27.  On the other hand, the evidence of Mr. Sun is contradictory to the documentary evidence before this court.  Had Mr. Sun informed Mr. Law on 13 August of the cancellation of the Purchase Order due to the fault of the Plaintiff in failing to meet the deadline for delivery, one would wonder why no written confirmation had been prepared to confirm the same.  This is against commercial sense.  The failure on the part of the Defendant to put this important fact into record points to the conclusion that there is in fact no such conversation between the parties.

28.  And had there been a cancellation of the Purchase Order due to the fault of the Plaintiff, why did Winnie send the Plaintiff the email dated 16 August (page 260 of Bundle) without alleging the breach on the part of the Plaintiff but just mentioned about the Buyer cancelling the order.  And since the Defendant had already been liaising with the China Factory since 14 August, why did Winnie still mention about getting the Buyer to continue with the Purchase Order and asked the Plaintiff to confirm the date of delivery instead of raising the fact that since the Plaintiff had been in breach, the Defendant had already found another supplier.  Mr. Sun had confirmed his knowledge of Winnie’s said email as well as the fact that he had told Winnie about the cancellation, so there is no room for misunderstanding.  The same applies to the email from Winnie to the Plaintiff dated 19 August 2008 (page 262 of Bundle).

29.  And if the Buyer was eager to have the Goods delivered on 10 September, why did the Defendant still proceed with its order with the China Factory on 19 August where the Goods can only be delivered on 20 September when the Plaintiff had on 16 August confirmed delivery can be done as scheduled, i.e. 10 September.  Why didn’t the Defendant accept the delivery from the Plaintiff but entered into another contract with delayed delivery date.  No explanation can be offered by Mr. Sun under cross-examination.  I found the evidence of Mr. Sun contradictory and beyond belief.

30.  As for the evidence of Mr. Quian, I also found him not to be a credible witness.  His evidence is that his two visits to the Factory was pre-arranged by calling a staff of the Factory.  Yet he could not recall who did he talk to on those two occasions but instead can recall the name of the staff he contacted before those two occasions.  When asked why this is so, Mr. Quian failed to give a reasonable explanation.  Had Mr. Quian called to arrange for the inspection and had the manufacture of the Goods not been commenced, it would be absurd for the staff of the Factory to allow such an inspection to be arranged and not telling Mr. Quian over the phone of the situation.  And in his evidence in the witness box, he said he saw some workers walking around inside the Factory whilst in paragraph 3 of his witness statement he mentioned apart from a few security guards and the in-charge of the metal section, he saw no one inside the Factory.  Mr. Quian was trying to paint a picture that the whole factory was in suspension but this was clearly rebutted by the document issued by the China authority about the details of suspension (page 104 and 108 of Bundle). 

31.  I found as a fact that the suspension of the Factory only involved one stamping workshop instead of the whole factory and Mr. Law of the Plaintiff had never told Mr. Sun that because of the suspension of the Factory, the Goods cannot be delivered as scheduled.  I accept the evidence of the Plaintiff that the Goods are ready for delivery by early September and it was the Defendant who had failed to deliver the packaging material and to take delivery of the Goods on 10 September 2008.  Hence, it was the Defendant who had been in breach of the contract.

DUTY TO MITIGATE

32.  The Defendant contended that the Plaintiff failed to mitigate its loss by selling the Goods.  I accept the Plaintiff’s contention that it is difficult, if not impossible, for the Plaintiff to find other buyers as the Goods are tailor made with brand names etched on it. 

THE COUNTER-CLAIM

33.  Given my ruling on the question of who is in breach above, the Defendant’s counter-claim bound to fail.  But even if I am wrong in my finding on liability, I found the Defendant had failed to establish any loss incurred as a result of the Plaintiff’s breach.

34.  The Defendant relied on the email exchanged between the Defendant and the Buyer concerning another sale (page 259a-c of the Bundle) to establish the loss of US$45,000 being a discount given to the Buyer.  Having read the said emails, it is apparent from the contents that it was just a discount for a bulk purchase instead of resulted from the Plaintiff’s breach.  Mr. Sun in his own evidence also agreed that these emails did not support the contention that the Defendant had been forced to give a discount to the Buyer or in any way connected to the Plaintiff’s breach.  Counsel for the Defendant submitted that Mr. Sun had been honest in making such concession.  I beg to differ since the content of the emails can afford no other conclusion.

35.  Mr. Sun had also mentioned about the transportation charge for the Goods manufactured by the China Factory (receipt of the same at page 254e and 254f of Bundle). This is not pleaded in the Counter-Claim itself.  Even if this is, the fact that the Defendant had managed to purchase the Goods at a cheaper price rendered the Defendant faced with no loss whatsoever even taking this transportation charge into account.

The Order

36.  It is ordered that :-

a.  Judgment be given for the Plaintiff and the Defendant do pay to the Plaintiff the sum of HK$120,000 as well as the storage charge of HK1,000 per month from 11 September 2008 till the taking of delivery of the Goods by the Defendant;

b.  Interest on the said sum at half of the judgment rate from the date of writ to the date of judgment, thereafter at full judgment rate until full payment ;

c.  The Counter-Claim of the Defendant be dismissed;

d.  Costs order nisi that the Defendant do pay the costs of the action to the Plaintiff with certificate for counsel to be taxed if not agreed.  Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.