MAXIM INTEGRATED PRODUCTS INC v. TEKTRON ELECTRONICS (HK) LTD

IN THE HIGH COURT OF HONG KONG SAR

COURT OF FIRST INSTANCE

-----------------

JUDGMENT

-----------------

1. This is a Action in which the Defendant counterclaimed against the Plaintiff for US$78,746.25 as the Defendant's 5% commission for 7 Orders placed by customers in 1990-1 through the Defendant with the Plaintiff. The claim by the Defendant against the Plaintiff was made pursuant to an alleged contract and alternatively as quantum meruit. The Plaintiff resisted the contractual claim on the basis that there was no contact and opposed the alternative quantum meruit claim on the basis that the Defendant in the circumstances was not entitled for various reasons to 5% commission in respect of each of the 7 Orders.

2. The Plaintiff was an American manufacturer of computer components. The Defendant was a Hong Kong trading company which represented and distributed in Hong Kong electronic parts and components for foreign manufacturers. The relationship between the Plaintiff and the Defendant went back to 1985, when the Defendant was appointed the Distributor of the Plaintiff's components in Hong Kong and China under an International Distributor Agreement dated 1st September 1985 ("DA") signed by Mr. Lo Wai Kong ("Lo"), the Managing Director of the Defendant and Mr. Fred Beck ("Beck"), the President of the Plaintiff. In addition to being appointed a Distributor under the DA, the Defendant says that it was also appointed shortly after the DA was signed, a Representative under a written Representative Agreement ("RA") on the Plaintiff's standard form, signed by Lo of the Defendant. The Plaintiff denies the existence of the RA.

3. Like most manufacturers with world wide sales, the Plaintiff had established in each country where it did substantial business, a system of representative and distributor governed in each situation by the Plaintiff's standard written contact of Representative Agreement and Distributor Agreement. In essence, the difference between a Representative under a Representative Agreement and a Distributor under a Distributor Agreement is that the former acts as the direct sales agent of the manufacturer Plaintiff and effects sales to the customer in the capacity as the Representative and agent of the manufacturer Plaintiff and receives a 5% commission from the Plaintiff whereas a Distributor buys direct from the manufacturer Plaintiff and in turn the Distributor resells to the local customer. The profit made by the Distributor is the difference between what he pays to the manufacturer and what the customer pays him. A Distributor does not receive a 5% commission from the Plaintiff manufacturer. A Representative however is entitled to receive a 5% commission under the Representative Agreement, even when the sale was not made by him to the customer as Representative but when the Distributor effects a sale to the customer. In respect of any sale by a Distributor to a customer, the Representative of that country is entitled to receive from the manufacturer Plaintiff, 5% of the sale price achieved by the Distributor. One reason for the difference between the two kinds of contractual relationship with the Plaintiff manufacturer is that when the manufacturer is uncertain as to the value and certainty of a direct sale to a customer through the agency of a Representative, the manufacturer prefers a sale to the Distributor so that the Distributor absorbs the risk of selling to the customer. Therefore when the Plaintiff manufacturer has appointed in any country both a Representative as well as a Distributor (it can be of course the same person), it gives the Plaintiff the flexibility of utilising whichever system of sales appropriate for that transaction whereas when the Plaintiff has appointed only either a Representative or a Distributor the Plaintiff thereby restricts its own freedom of effecting sales. There is finally one more feature of the Representative type of sale which is relevant and that is the matter of split commission. In cases where another Representative in another country has done work or made contribution in relation to the sale by the Representative from a particular country to a customer, then the 5% commission payable by the Plaintiff manufacturer can be split by the Plaintiff manufacturer amongst the two Representatives of two different countries.

4. It was common ground between the parties at the Trial that from 1985 onwards, sales by the Plaintiff in Hong Kong had been effected both in an indirect form from the Plaintiff to the Defendant as Distributor which in turn sold to the local customer and in a direct form to the local customer through the agency of the Defendant. The uncontested figures in a table form ("Sales Table") produced by Miss Wong for the Defendant show that the sales by the Plaintiff with and through the Defendant from 1987 onwards in US Dollars are as follows:-

It was also not in dispute at the Trial that whenever a customer in Hong Kong showed interest and required a quotation by the Plaintiff, it was always the Plaintiff who decided and chose whether the sale was to be effected by an indirect sale with the Plaintiff selling to the Defendant as Distributor which then resold to the customer or by the direct sale to the customer through the agency of the Defendant acting as an agent/Representative of the Plaintiff.

5. The first sale effected by the Defendant to a customer in Hong Kong was in 1986, to a customer which was originally known as Miniscribe, subsequently known as Silkmount and finally known as Maxtor. In essence, Miniscribe, Silkmount and Maxtor was one company and for convenience I will refer to this customer Miniscribe/Silkmount/Maxtor hereinafter as Maxtor. Maxtor was in the business of manufacturing disk drives and was therefore a natural consumer and buyer of the Plaintiff's product, namely DG-211. Maxtor was without question the most important customer in Hong Kong both for the Plaintiff and for the Defendant. 5% commission was paid by the Plaintiff to the Defendant on that first order of Maxtor done on the basis of a sale through the Defendant as agent and Representative of the Plaintiff. Many subsequent orders from Maxtor done on this agency basis followed. In total, some 16 orders for the period from 1986 to 1989 (see Miss Wong's 1st Schedule) were effected through the Defendant by Maxtor and in respect of all these orders the Plaintiff paid the Defendant 5% commission. The Defendant says that throughout in relation to these 16 Maxtor orders, it was acting as a Representative under the RA and that is why it was paid the 5% commission as provided by the RA. The Plaintiff denies this and says that the payment of the 5% commission to the Defendant by the Plaintiff was not pursuant to the RA but by reason of a special arrangement made by a Fax dated 20th June 1986 from the Plaintiff to the Defendant ("June 86 Fax").

6. It is to be noted from the above Sales Table that the figure for each year in respect of sale by the Distributor system was not large except for the year 1990. What happened that year was that at the end of 1989 Maxtor the major customer went into severe financial difficulties and the Plaintiff declined to continue selling as before direct to Maxtor through the agency of its sales Representative, the Defendant. The Plaintiff was only willing to sell to its Distributor, the Defendant. To support that customer Maxtor, the Defendant took on the sales desired by Maxtor as Distributor. It is for that reason for the year 1990, the figure for the sale to Distributor was very high at some US$947,411. Maxtor however recovered later that year and placed very large orders and that is also why the Agent/Rep, column in the Sales Table for 1990 shows the extraordinarily huge figure of some $1.4 million. 1990 was a critical year because of the explosion of sales that year. It was in fact the high sales orders towards the end of 1990 and beginning of 1991 which provided the catalyst for the present dispute.

7. In late 1990 and in early 1991, three groups of Orders (see the 7 Orders of Miss Wong) were placed by Maxtor with the Defendant, being Order A placed in September 1990, Orders B, C and D placed in October 1990 and Orders E, F and G placed in January and February 1991. The value of the 7 Orders in total amounted to over US$1.5 million. Order A and Order D were particularly valuable because each Order was worth some US$590,000 odd. These 7 Orders were placed by Maxtor and transmitted by the Defendant to the Plaintiff and the 7 Orders were executed. The Plaintiff however refused to pay to the Defendant the usual 5% commission on these 7 Orders and in 1991, the relationship between the parties turned so negative that the Plaintiff terminated the relationship by service of the appropriate notice of termination on the Defendant in late February 1991.

8. To supply to other customers in Hong Kong, in early 1991 the Defendant purchased components from the Plaintiff in its capacity as Distributor under the DA. Some US$74,981.36 of components had been thus purchased by the Defendant from the Plaintiff which invoices were unpaid. The Defendant justified its non payment of the outstanding invoices under the aforesaid indirect sales by contending that the Plaintiff owed to the Defendant more or less the same amount of money in respect of the 5% commission on the 7 Orders which the Plaintiff was refusing to pay to the Defendant.

9. The Plaintiff issued Californian proceeding against the Defendant in relation to the aforesaid US$74,981.36 and judgment was obtained by the Plaintiff in the Californian Court for that sum. The Plaintiff commenced the present Action in Hong Kong to enforce that Californian Judgment and there was no contest by the Defendant that the Californian Judgment was owing, the defence and counterclaim being that the Plaintiff ought to pay to the Defendant the 5% commission on the 7 Orders and that therefore there was no net sum owing by the Defendant to the Plaintiff. The Plaintiff brought Order 14 application for summary judgment and Affidavits by Mr. Richard Slater ("Slater") and by Lo were filed. On the 25th of June 1991, the Master ordered summary judgment against the Defendant for US$74,981.36, subject however to a stay of execution pending the trial of the Counterclaim by the Defendant in respect of its 5% commission for the 7 Orders.

10. At the commencement of the Trial, it was agreed that the Defendant should begin as the Trial was in relation to the Counterclaim. In relation to Order A, 2.5% commission in the sum of US$11,924.47 was already conceded by the Plaintiff to be due to the Defendant and pursuant to that concession, on 2nd October 1997 judgment on the Counterclaim in that sum of US$11,924.47 was entered against the Plaintiff. The Trial was in respect of the Counterclaim by the Defendant for the remaining 2.5% commission on Order A and for the 5% commission on Orders B, C, D, E, F and G in the total sum of US$66.821.78. The parties agreed that there were two issues before the Court namely:-

CREDIBILITY OF WITNESSES

11. The nature of this case is such the credibility of the only witness called by each party assumes a vital importance. Both Lo of the Defendant and Gordon Christian Brown ("Brown") of the Plaintiff gave very full evidence to the Court and was each extensively cross-examined. The two witnesses are very different. Lo is an old fashioned Chinese gentleman apparently in his sixties. He gave gentle evidence and in his answers he preferred not to be rude or too direct. At times he might appear to be slow, ponderous and wandering in his evidence. Brown on the other hand was younger (late thirties), fast, direct, aggressive and slick. I have no doubt that Brown is clever and shrewd and that he had anticipated all questions and had his answers ready but I do not believe that he was a truthful witness. He struck me as someone who was very ready to sacrifice the truth to achieve his objective of winning. I reject him as a witness of truth. Lo on the other hand notwithstanding all the criticisms levelled at him by Mr. Coleman impressed me as a witness of truth and reliability. For me, Lo has the old fashioned kind of honour and honesty and I have no doubt that even with his occasional inconsistency, he was telling the truth on the main and substantial issues. Whenever therefore there was any conflict between his evidence and that of Brown, I prefer Lo's evidence and reject Brown's evidence.

FIRST ISSUE-EXISTENCE OF REPRESENTATIVE AGREEMENT

12. The case of the Defendant on the existence of a RA is that there was a 10 minute telephone conversation in 1985 between Beck and Arthur Chau, the marketing manager of the Defendant in which Beck invited the Defendant to be the Plaintiff's Sales Representative in Hong Kong and the Defendant accepted and that about 3 or 4 weeks after Lo signed the DA, Lo received from the Plaintiff duplicate copies of the Representative Agreement on the Plaintiff's standard form which was to be signed by the Defendant and returned to the Plaintiff. The clear evidence of Lo was that he did sign both copies of the RA and returned them to the Plaintiff and that it would be natural that Beck signed the RA and sent back to the Defendant the Defendant's copy of the RA but somehow the Defendant could not find its copy of the RA. The Plaintiff's case on the existence of the RA was superficially simple. It said that there was no such document as the Plaintiff had never signed such RA and had never agreed to appoint the Defendant as a Representative under a Representative Agreement and had never sent to the Defendant any copy of the standard form Representative Agreement and had never received back from the Defendant the Lo signed copies of the Representative Agreement. Lo gave direct evidence on his having signed and sent off the 2 copies of the signed Representative Agreement. On the Plaintiff's side, the person who ought to give direct evidence on this matter of the signing of the Representative Agreement, namely Beck was not in my Court to give evidence and for me Brown (even if he could be believed which he was not) could not be a substitute as he was not involved with this at the time. Much of what he had told me on this issue of the existence of the existence of the RA was either not admissible or of doubtful probative value as there was much self-serving in his evidence. But as I have said earlier, Brown did not impress me as a reliable witness whereas Lo was for me a man of integrity. I have no doubt that Lo was telling the truth and his evidence was reliable.

13. In reaching my decision that Lo's evidence was to be believed and reliable, I have considered all the various factors raised by Mr. Coleman as pointing against the existence of the RA and I nevertheless reach my conclusion that I should accept Lo's evidence on the existence of the RA. It seems to me that there was a great deal of validity in what had been submitted to me by Miss Wong. I will mention a few of the material considerations which were discussed in the course of the Trial.

14. The first and foremost consideration is that neither party has in its possession a copy of the RA document. This is of course a matter of considerable weight and the Defendant was candid and forthcoming from the very beginning (even before the Hong Kong proceedings formally commenced), acknowledging that it could not find its copy of the RA. Lo in his evidence was even frank enough to say that he had not himself seen it being returned to the Defendant signed by Beck but that he had always acted on the basis that there was in existence the RA. I accept his evidence that he had signed the RA and sent the duplicate copies to the Plaintiff and I also accept and find that the Plaintiff did also sign the RA and send back a signed copy to the Defendant. It is unfortunate that the Defendant was unable to find its copy of the signed RA but companies over long periods of time do sometimes lose or misplace documents and I accept that this is such a case. As for the non-production of the Plaintiff's copy of the RA by the Plaintiff, all I need to say is that I do not believe the Plaintiff's evidence. Having seen and heard Brown and the documentary evidence, I do not believe that the Plaintiff is the sort of company which given the choice of self-interest and honourable behaviour will choose the latter.

15. The second most significant consideration on the existence of the RA is the conduct of the parties in the payment of the 5% commission over the long period from 1986 onwards. The existence of the DA of course could not explain the payment of 5% commission. Plaintiff's payment of the 5% commission is consistent and highly suggestive of the existence of the RA. If there was no RA, why did the Plaintiff consistently pay the Defendant 5% commission for sales which were within the province of a Representative under a Representative Agreement and not within the province of a Distributor under a Distributor Agreement. The original case of the Plaintiff as sworn by Slater in his Order 14 Affidavit of 22nd June 1992 was the following:-

"...It is true that prior to 1988. in certain circumstances, in addition to supplying goods to Tektron which Tektron would sell on to its customers, Maxim would agree to pay a commission to Tektron where Tektron's profit margin in its on-sale was perceived as being low or where Maxim's customers in Hong Kong needed special attention or assistance which would be provided by Tektron. Such arrangements were agreed separately in respect of each transaction."

The Plaintiff's case of agreeing to pay commissions to the Defendant separately in respect of each transaction was also repeated in the Amended Defence to the Counterclaim at paragraph 2(1)(e) and (f). That original case of the Plaintiff was more or less abandoned at the Trial and Brown in fact said that Slater was wrong in his Affidavit and reliance was placed by Brown on the June 86 Fax as providing for the reason for the payment of the 5% commission. There is no doubt that the June 86 Fax is a most relevant document on this issue but there was no mention anywhere in the Slater Affidavit or in the Plaintiff's pleading of this document. So why did the Plaintiff make no earlier mention of this document when Brown and Mr. Coleman placed so much weight on this document to justify the payment of 5% commission. A close reading of this document is necessary and Miss Wong in an able submission has shown the proper way this document ought to be read.

16. Maxtor and its predecessor Miniscribe was a Hong Kong customer whose parent was in USA and where there was a relationship between the two American groups, the Plaintiff and Maxtor USA. When Maxtor first came on the Hong Kong scene in 1986, there was already not only contact made between Maxtor USA and the Plaintiff's Colorado Representative but substantial progress had been made in Colorado to enable the Plaintiff to sell the product DG-211 (which was to be the only product sold until 1990 to Maxtor) to Maxtor. In USA, the Plaintiff's Colorado Representative had DG-211 qualified for Maxtor and the design-in process (process whereby the Maxim product was developed with input from a potential consumer/buyer such as Miniscribe/Maxtor) had been done for DG-211 in Colorado. Therefore in June 1996, when the June 86 Fax was sent by the Plaintiff to the Defendant, a Split Commission situation under the RA would have arisen if the Defendant was a Representative under the RA. Paragraph 1.1 of the RA Schedule governing Split Commission provided that:-

" From time to time various aspects of the business between MAXIM and Customer will cross territory boundaries. Should this occur. MAXIM will invoke a Split Commission Schedule as follows:

17. Twenty percent (20%) of the full commission payable on the sale shall be paid to the Representative responsible and involved in:

The important June 86 Fax recognised in its first and second paragraphs the work which had already been done in Colorado by the Plaintiff's Representative. It follows therefore that this would have been a case of split commission if the Plaintiff decided to sell by the direct sale basis rather than by the indirect Distributor basis. Paragraph 3 of that Fax showed that the Plaintiff decided it was to be a direct sale and not by the Distributor system and to assure the Defendant that this proposed order of 300,000 units (or less) to Maxtor was worthwhile for the Defendant, the Plaintiff informed the Defendant that the full 5% Commission would be paid. In other words, there would be no Split Commission even though the situation would otherwise call for a Split Commission. In my view, instead of this June 86 Fax providing the Plaintiff with a valid reason for paying the 5% Commission, this document demonstrates very convincingly for me the existence of the RA. That this document is not against the Defendant but against the Plaintiff is clear when history shows that the Plaintiff did not attempt to rely on the document or even to mention it, from the beginning of the proceedings until long after the Plaintiff had filed the Brown Witness Statement in October 1995. At the Trial, this June 86 Fax was the only document relied on by the Plaintiff to justify and explain why it paid 5% Commission to the Defendant and yet this most important document was not even mentioned by the Plaintiff throughout the proceedings until the Trial. The skill of the Plaintiff's team attempted to turn this document on its head by proving the opposite but for me the attempt failed. This document could not in anyway support the present case of the Plaintiff, namely the only documented arrangement and agreement governing the future Maxtor agency sale relationship between the Plaintiff and Defendant whereby 5% Commission would be paid. The June 86 Fax dealt with only a proposed immediate order of 300,000 units of the component and certainly was not to be read or intended as covering all future possible orders from Maxtor. It therefore does not support the present case of the Plaintiff that all 16 Maxtor Orders from 1986 onwards whereby 5% Commission was paid were governed by that June 86 Fax which in any event did not even purport to define the precise rights and obligations of the parties. Once the case of separate arrangement for commission made for each transaction was abandoned by the Plaintiff, the justification or reason for paying 5% Commission rested solely on this June 86 Fax and nothing else. When the Court rejects as I do the Plaintiff's case on this June 86 Fax, the Plaintiff has no viable case left to defend the claim of 5% Commission based on contract. It has been shown that the matter of Split Commission (which is of course a provision unique to the RA) is crucial for the question of why the Plaintiff paid 5% Commission. There is one further twist in this matter of Split Commission and that is what Brown wrote on 29th September 1988 to the Defendant when, new on the scene as being in charge of the Far East for the Plaintiff, he sought to impose a regime less beneficial to the Defendant. Brown wrote that Parker-Webster the Plaintiff's Colorado Representative had played a major role in the development of the Maxtor account and that therefore it was decided to amend its standard commission plan and that for all orders placed in Hong Kong by Maxtor, the Defendant would receive only half of the commission with the other half going to Parker-Webster. There was no reference in that Fax of Brown to the June 86 Fax but the reference to standard commission plan certainly pointed more to the RA commissions provisions rather than to the unique situation in the June 86 Fax which could not in any way be considered as standard commission plan. Although not of great weight, this 29th June 1988 Fax of Brown suggests to me again that the Plaintiff recognised the existence of the RA and was taking advantage of it when it purported to split the commission 50/50 between the Defendant and the Colorado Representative.

18. The third relevant consideration is the circumstances of the signing of the RA. It was contended by Mr. Coleman that it was inherently improbable that the DA and RA were not signed together and that the RA should be signed some one month after the DA was signed. I agree that normally the two documents would be signed together and that they would be sent together by the Plaintiff to the Defendant (there was no covering letter of the Plaintiff to the Defendant enclosing the DA) but what had been told to me by Lo was perfectly possible and probable and I believe and accept what he had told me. Then it was said that there was no direct evidence that the Plaintiff received the duplicates from Lo or that Beck signed the duplicates or that the Plaintiff had sent back to the Defendant the signed copy of the RA. I agree that there was no direct evidence on this but it seems to me that once I accept Lo's evidence unless there was some other evidence which I also accept to suggest that in the natural course of things either the duplicates would not have been received by the Plaintiff or that for some reason the Plaintiff would decline to sign and send back the signed RA to the Defendant, there was more than sufficient evidence for this Court to make the finding which I do, that a signed copy of the RA had been sent back by the Plaintiff to the Defendant and that there came into existence the RA. It must be borne in mind that prior to the receipt of the RA by the Defendant, there was also the telephone conversation between Beck and Arthur Chau of the Defendant whereby the invitation of the Plaintiff to appoint the Defendant as the sales Representative was accepted and it must follow naturally from this that the parties acted on that agreement and arrangement by the subsequent formal signing of the RA and the sending of the signed copy to each other. With due respect to Mr. Coleman, his argument on this point did not reflect his usual independent good judgment and smacked too much of Brown pushing any line to advance the Plaintiff's case.

19. The fourth relevant consideration is the contents of the documentation generated by the parties in relation to the Maxtor orders. It was pointed out at the Trial that documents such as Representative Copy of Sales Invoices sent to the Defendant by the Plaintiff and the Customer Profiles (pages 51 onwards) and Distributor Branch Review (page 79) wherein the Defendant was shown as the Representative all suggest that the Defendant was a Representative under a Representative Agreement and not merely a Distributor under a Distributor Agreement or some "ad hoc" appointee under the June 86 Fax with totally uncertain rights and duties. I agree with the suggestion.

20. The fifth consideration submitted is the fact that the Defendant had not claimed for its 5% commission in relation to indirect sales done between 1988 and 1989 by another Hong Kong Distributor, Dynatek Electronics Ltd. Lo gave evidence on this and I accept his evidence. Lo is not the sort of person who wanted his last pound of flesh and fortunately for Lo, I do not measure his honourable sense of commercial morality by the Brown standard, who would not dream of foregoing something lawfully due and who would not, by my assessment, flinch to take forcefully something when it was not his to take.

21. I therefore conclude on this Main Issue and I find as a fact that in 1985 shortly after Lo sent the duplicate signed copies of the RA to the Plaintiff, there came into existence the RA and that the Plaintiff had sent back to the Defendant a copy of the RA signed by Beck of the Plaintiff. I find as a fact that the relationship between the Plaintiff and the Defendant after 1985 in relation to all orders given by Maxtor to the Plaintiff through the Defendant acting as agent was pursuant to the RA and that accordingly the Defendant was entitled to 5% Commission of the orders.

SECOND ISSUE - QUANTUM MERUTT

22. The Second Issue only arises if it is held that I ought to find in favour of the Plaintiff on the Main Issue. I can dispose of this Issue more shortly. On the basis that there was no contract of RA between the Plaintiff and the Defendant, then the payment of 5% Commission by the Plaintiff to the Defendant must be outside of contract and paid on a quantum meruit basis. Whether it was so does not seriously matter because it cannot be denied that the parties must have regarded throughout the period from 1986 to 1990 that 5% Commission was a fair quantum to pay for Maxtor orders placed by Maxtor with the Defendant acting as a sort of agent with duties of follow up etc., evidence of which could be found amongst the Trial Bundle papers. The question I have therefore on this Quantum Meruit Issue is whether there were any special circumstances which should persuade the Court that the long prevailing 5% Commission should not apply or should be reduced.

23. At the Trial, again pushing impossible points Mr. Coleman valiantly tried to persuade the Court that the proper way to decide on Quantum Meruit of each of the 7 Orders is to ask what the Defendant had done in relation to each Order and then determine what is the proper quantum meruit. I disagree. The parties normally are the best judge of what is the proper quantum meruit and if they were satisfied with 5% Commission for such a long period of time and had acted on that basis then surely it would be reasonable for them to proceed on that basis and the Court should only reduce or change that amount because of some special circumstances which had taken place in relation to any one of the particular 7 Orders. I regard this aspect as being particularly important because the Defendant had over a long period of time supported this important account, nursed it through a very bad period back to health for the mutual benefit of the Plaintiff and the Defendant and supported the Maxtor account to its own disadvantage (the Plaintiff lost some US$120,000 during the 1990 Distributor sales period). Then when it could be seen that this account was finally going to take off in a big way, the Plaintiff by one tack or another tried to take away the advantage of the account from the Defendant. Mr. Coleman asked me not to take the past into account and to adjudge the matter as though it was virgin territory. But he forgets that it was not virgin territory and that the Defendant had laboured over the land for long years and that it would be inequitable to drive the Defendant from the land which is now fertile without taking into account the past. I find no merit in the submission of ignoring the past. Without that past and work done by the Defendant in the past, one could not arrive at the 7 Orders. I therefore take into account the past and what the parties had regarded as fair quantum of 5% Commission for all Maxtor orders and then ask myself what had happened with Order A to G which should change that percentage.

24. In relation to Order A, the answer is simple, nothing. Part of that Order A had in fact been paid by the Plaintiff at the full 5%. This Order A was no different from previous 16 orders where the payment by the Plaintiff in relation to the same product was 5%. I see no reason why it should be any different. Submission was made to me that the percentage should be reduced because of the design-in element. But the design-in element discount was something expressly provided for in the RA contract. If there was no RA contract, then design-in is irrelevant and one is really left with what was reasonable in the circumstances of this case, in the absence of contract and as I said I see this Order A as no different from previous 16 Maxtor orders in which 5% Commission was paid in all cases.

25. Orders B, C and D are to be treated together as a group in relation to time because the 3 Orders were all placed by Maxtor with the Defendant at the same time on 25th October 1990 and submitted by the Defendant to the Plaintiff by the Defendant's Fax dated 6th November 1990. In terms of product Order D was simply another large order for the same product DG211 as under Order A one month earlier, but Order B and Order C was each in relation to a new product of the Plaintiff, 7628 which the Defendant had been promoting for some time with Maxtor and Order B and C was the culmination of the work put in by the Defendant with Maxtor in relation to this new product. Was there anything which should take these three Orders out of the past 5% category. So far as product and work were concerned, there was nothing to suggest that the 5% Commission should be denied. Order D was in many respects merely a much welcome repeat of the large Order A. Order B and Order C were smaller orders but were for new product and I could not possibly imagine that for this new product order, the quantum should be less than 5%. The only justification therefore for reducing the quantum on Orders B, C and D would be the "defection" factor.

26. What happened was this. Maxtor placed Orders B, C and D on 25th October 1990 and apparently without checking with the Plaintiff, the Defendant confirmed these 3 Orders to Maxtor by the its fax dated 1st November 1990. Brown alleged in evidence that he received a call in Japan from Miss Shek of Maxtor inquiring about the three Orders and that on 6th November 1990, Brown received a fax from Miss Shek written on the body of the Fax dated 1st November 1990 from the Defendant to Maxtor. Brown's evidence is that further enquiries by him from the Plaintiff in California revealed that the 3 Orders had not been recorded in the Plaintiff's system and that therefore Brown suspected that the Defendant had been disloyal and had tried to divert the business to a competitor and that his suspicions were confirmed by his conversations with Mr. Ling of the Defendant and Mr. Stanley Lam of Maxtor. Brown told the Court that he was displeased with what had happened and what he perceived to be the growing disloyalty of the Defendant. By his Fax dated 22nd November 1990, he wrote to the Defendant and said that at the request of Maxtor, the Plaintiff was handing the Maxtor business independently of the Defendant. Nothing was there said directly about depriving the Defendant of its usual 5% Commission. Arthur Chau answered this Fax in a manner as courteous as I could imagine by his Fax dated 27th November 1990. Two questions arise from the above account. First was the Defendant defecting and disloyal and second if it was not disloyal, was any act of the Defendant of such quality as to reduce the 5% quantum.

27. The first question can be answered quickly with a no. There was not an iota of credible evidence to suggest that the Defendant was acting disloyally or defecting to another manufacturer. No one from Maxtor came to give evidence about defection and there was no other evidence of defection except the insinuations of Brown, whose evidence (the parts admissible) I reject. It was inherently improbable that the Defendant was disloyal or was defecting in circumstances when at last the major customer was bringing in big business to the Plaintiff and the Defendant. After all, this was a business where there was considerable lead in time for even a similar product and where you could not just switch to product of another manufacturer overnight and there were such things as pre-qualification which took time and effort. If there was disloyalty, it would be the other way round namely Brown trying to find some excuse to cut out the Defendant without running the risk of losing Maxtor in the process. I therefore find as a fact that the Defendant was not disloyal to the Plaintiff in its actions in fulfilling Orders B, C and D.

28. Once the disloyalty question was decided against the Plaintiff, the second question did not require much consideration or elaboration. Lo explained that the Defendant was confident from past experience and its knowledge of the Plaintiff's business that the Defendant could send out the Fax confirmation of 1st November 1990 to Maxtor and I accept his evidence. As for the delay of time by the Defendant to transmit the 3 Orders of Maxtor to the Plaintiff, I found nothing surprising or sinister in that. The delay was only a few days and I do not accept that Maxtor was prejudiced or unhappy as alleged by Brown in his evidence. The only major step taken in relation to the three Orders was that Brown decided to take them in-house and cut out the Defendant. The Defendant was effected the Orders and was able and willing to continue as before. Brown did not want it because Brown was looking for an excuse to cut out the Plaintiff and this was merely part of the unfolding effort by him to keep to the Plaintiff itself what was the growing advantage of the exploding Maxtor sales. There was nothing in the evidence which I have seen and heard which persuade me that I ought to order a different percentage of Commission in respect of Orders B, C and D.

29. Orders E, F and G came from Maxtor in January and February 1991 and were confirmed by the Defendant to Maxtor by its Faxes dated 11th and 12th February 1991. The three Orders all related to the new product 7628. The resistance of the Plaintiff to paying the 5% Commission on these 3 comparatively small Orders was based on the Defendant failing to comply with the conditions laid down in the Fax of Brown dated 11th January 1990. What happened was that Brown sent a Fax undated but apparently on 11th January 1991 (page 226 of Bundle) laying down a number of conditions for earning commission on future Maxtor orders and these conditions include:-

(a) Defendant achieving half its total quarterly bookings budgets exclusive of Maxtor, and

(b) Defendant by 30-6-91 identifies, qualifies and books Maxtor, an additional Maxim product.

Brown in his evidence said that he was in fact being kind and generous with the Defendant when he laid down those conditions. I reject that evidence. Brown was putting down further mines to blow up the Defendant. What matters in this context is that we are not considering a contractual relationship where the parties agreed on the terms of commission being payable when certain conditions were met. The parties did not agree contractually and hence we have the quantum meruit claim. Therefore the conditions laid down by Brown are irrelevant. He could lay down 5 conditions and reduce what he said was payable to even 1.5% commission but so long as there was no contract then these conditions are irrelevant. What is relevant is that the Defendant accepted the Orders from Maxtor and the Plaintiff took advantage of these Orders and executed them. Then the Plaintiff terminated the relationship and prevented the Defendant from doing its usual work to earn its full commission. In these circumstances, I see nothing to deprive the Defendant of its usual 5% Commission and I see every injustice if the Plaintiff was allowed to take advantage of its unfair actions.

CONCLUSION

30. I conclude therefore both on the First and Second Issue in favour of the Defendant and I hold that the full 5% Commission on all 7 Orders should be paid by the Plaintiff to the Defendant. There shall be Judgment on the Counterclaim against the Plaintiff in the remaining sum of US$66,821.78 in addition to the Judgment sum of US$11,924.47 already entered on the 2nd October 1997. The Plaintiff of course has a Judgment in its favour of US$74,981.36. The Defendant in the circumstances is entitled to the net payment (according to my calculation) of US$3,764.89. The Defendant is also entitled to an Order Nisi of interest at 2% above prime from the date of the Writ and costs of the Counterclaim.