SUNITA TRADING COMPANY v. SUNFIRST INDUSTRIES LIMITED t/a EDUCATOY COMPANY

1994, No. A9510

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The Plaintiff is and was at the material times a trading company. The Defendant has been carrying on business as a manufacturer of toys.

2. By two contracts in writing, i.e. Contract No. K 8001/94 and Contract No. 8002/94, the Plaintiff agreed to buy and the Defendant agreed to manufacture and supply to the Plaintiff 3,125 gross of '1-5/8' Suction Cup Ball Article No. SM-888 and 2,800 gross of Miniball without key chain Article No. SM-889' at a total price of HK$225,150. The date of delivery under both contracts was at or about 15th May 1994 which was amended to the end of May 1994. These contracts were signed by Ms. Sunita Mohan Daswani on behalf of the Plaintiff and Mr. Andrew Wong on behalf of the Defendant. In the Statement of Claim, the Plaintiff also claimed that it was an express or implied term that the casting moulds for manufacturing the articles under the two contracts belonged to the Plaintiff and were held by the Defendant as bailee or trustee of the Plaintiff.

3. It is the Plaintiff's case that the goods were required for resale to a customer in Mexico for sale during the World Cup which took place in the United States of America in the month of July 1994 and therefore time was of essence of the contracts. Once the World Cup Games were over, there would be little or no market for these articles which included miniature soccer balls, basketballs, baseballs and tennis balls.

4. The Defendant admitted the signing of the two contracts but disputed that the casting moulds were to be reverted to the Plaintiff. While accepting that the goods were to be sold by the Plaintiff for profit, the Defendant denied any knowledge that the goods were for resale to the Plaintiff's customer in Mexico during the event of the World Cup. Therefore, time was not of the essence of the contracts. The Defendant also counterclaimed. In it, the Defendant says that after the two contracts were made, the parties verbally agreed to extend the delivery date to an unspecified date in early June 1994. The Defendant further says that 76,000 pieces of goods were delivered on 9th June 1994 and were accepted by the Plaintiff. The purchase price for this quantity of goods amounting to HK$20,055.56 remains unpaid and this forms part of the counterclaim. It is also alleged that on 11th June 1994 the Defendant made delivery to the Plaintiff 134,000 pieces of goods worth HK$35,361.11 which the Plaintiff refused to accept and the goods have been kept in a warehouse in China at a daily charge of HK$200. Lastly, the Defendant says that pursuant to a verbal request by the Plaintiff on 7th June 1994 to vary performance of the remainder of the two contracts not yet performed, the Defendant stopped production.

5. In the Reply and Defence to Counterclaim, the Plaintiff admitted that the date of delivery had been amended as a result of repeated requests by the Defendant on the condition that at least half of the goods under both contracts would be delivered by the end of May 1994 and the remaining goods on or before the first week of June but the Defendant only delivered 36,000 pieces under the first contract and 40,000 pieces under the second contract on 9th June 1994. On 3rd June 1994 the Plaintiff informed the Defendant that by reason of the delay in delivery and if the balance of the goods undelivered yet could not be delivered by 6th June 1994, 30% of the balance of the goods should be changed to another design, namely, Halloween design.

6. The Plaintiff appears in person and is represented by its manageress, Ms. Sunita Mohan Daswani. The defence called two witnesses and they were Peter Wong, the person in charge of operation and Andrew Wong, the Defendants' president and general manager. Mr. Peter Wong agreed that all the dealings were between Mr. Andrew Wong and Ms. Daswani and his evidence is therefore of little assistance.

7. I deal first with the casting moulds. Ms. Daswani's evidence suggests that the price quoted in the contracts included the costs of the casting moulds. There is nothing in the contracts that can lead me to this conclusion. If this had been the case, it should and would have been incorporated as a term of the contract. There is, therefore, no express term to be found in the contracts that the quoted price for the goods including the casting moulds and that they belonged to the Plaintiff and should be returned on demand after the goods had been manufactured. I also reject any implied term. Again there is no evidence to support that such a term could be implied. Even Ms. Daswani in paragraphs 27 and 28 of her witness statement had this to say about the casting doubts :-

"At last I requested the Defendant to let us have the casting moulds so that I could arrange manufacturing of the goods with other manufacturers. I was however informed that the casting moulds were broken. When I asked them to make a new set of casting moulds, the Defendant told me that the costs was $78,000, which was three times higher than the price I know.

I offered that I would take all the goods available and the casting moulds which I would pay for separately. I did not receive any reply from them."

8. One would ask rhetorically if the Plaintiff had the ownership of the casting moulds, why should she offer to pay this large amount of money for something which they already owned. Ms. Daswani also agreed under cross-examination that in the past she had not asked for the return of the moulds. They only wanted the merchandise and not the moulds. The only reason they asked for the moulds on this occasion was because they could ask other companies to make the goods for them.

9. In paragraphs 16 and 17 of his witness statement, Mr. Andrew Wong also had a rather different story to tell. He said :-

"The Plaintiff did request to buy the casting moulds and half completed toys in early July but I say that she, and not myself, was the one who made an offer of HK$78,000 as the price of the casting moulds. However, I refused such sum as I could not release such moulds to a third party to enable another factory to manufacture the product. I deny that the casting moulds were broken at that time or any subsequent time.

I further said to Ms. Daswani that they could have the goods and casting moulds upon payment of the goods already delivered. Ms. Daswani suggested that we give her the casting moulds first and then she would pay for both the casting moulds and the goods available. I rejected this proposal."

10. On this issue alone and on the evidence before me, I reach the conclusion that there is no express or implied term in the contracts that the casting moulds were to be reverted to the Plaintiff and the Plaintiff is not entitled to specific performance for the delivery up of the casting moulds as pleaded in (c) of the Prayer in the Statement of Claim.

11. Be that as it may, I must say that I prefer the evidence of Ms. Daswani on other substantial issues. It must be clear that goods of this particular type could only be sold in large numbers during the time of the World Cup, which was in July 1994. The Plaintiff, naturally enough, wanted the goods to be in the shops of their customer well before the commencement of the matches and could not have overlooked to bring to the attention of the Defendant this important fact. The Defendant, in my judgment, was all along aware that time was of essence of the contracts. Even giving the most charitable allowance to Mr. Andrew Wong's evidence, that there was a purported delivery of 134,000 pieces of goods under the two contracts to a value of HK$35,361.11, on 11th June 1994, the simple fact remains that up to that day the Defendant was only able to deliver or offer to deliver not more than 25% or one quarter of the goods ordered or 210,000 pieces against 853,200 pieces. The total purchase price under the two contracts was HK$225,150 as compared to HK$55,416.67 (HK35,361.11 + HK20,055.56) for the goods actually delivered and the goods the Defendant said that they attempted to deliver on 11th June. One does not have to stretch one's imagination too much to reach the conclusion that the Defendant would not be in a position to produce all the goods under the two contracts within a reasonable time. It took about 20 days for the goods to arrive in Mexico by ship from Hong Kong. Shipment also depended on the availability of ships sailing from Hong Kong and you could only book the shipment date if you knew the time the goods would be available. The Plaintiffs offered, through Ms. Daswani, to Mr. Andrew Wong that if the Defendant was still unable to deliver the balance of the goods on or before 6th June 1994, 30% of the goods should be changed to Halloween printing samples. Again, it is obvious that the Defendant was not able to meet the request. The offer by the Plaintiff was an attempt to accommodate the Defendant and help themselves and the Defendant to cut down losses, which seems to me to be perfectly sensible and reasonable.

12. I reject that the Defendant had attempted to deliver 134,000 pieces of goods on 11th June and dismiss the counterclaim for the purchase price and storage charges.

13. In the course of cross-examination, Miss Longmore for the Defendant showed Ms. Daswani two identical contracts written on the letterhead of Sunita Trading Co. with the exceptions of the date, name and address of the seller or manufacture. The company was Good Sing Industrial Co. Lt. of 8th floor, Li Ko Factory Building, 224 Kwun Tong Road, Kowloon, Hong Kong. Ms. Daswani said that these two documents were copies faxed to Mr. Andrew Wong at his request that they were required for the Certificate of Origin and she was told to put down the name of Good Sing and the address. It was suggested to Ms. Daswani that on 16 May 1994 the Plaintiff had entered into contracts with Good Sing to produce the goods. This was denied by Ms. Daswani who explained that the date of 16 May was written because this was the day Mr. Andrew Wong gave her the Certificate of Origin. I accept her explanation in regard to these two documents.

14. In a letter dated 29th July 1994, Industries Plastics Martin S. A. DE. C. V. of Mexico demanded payment from the Plaintiff a sum of US$20,000 by way of damages they had suffered as a result of the Plaintiff's failure to send the goods. On 2nd August 1994, the Plaintiff remitted US$20,000 and a copy of customer's receipt issued by Hang Seng Bank was produced. These two documents were produced under a hearsay notice pursuant to Order 38 of the Rules of the Supreme Court and no counter notice was served by the Defendant. On balance of probabilities, I find that damages in the sum of US$20,000 or HK$154,580 had been paid by the Plaintiff to their customer in Mexico. Ms. Daswani agreed that this sum included freight charges.

15. I should mention the letter dated 27 September 1994 from Messrs. K. C. Tsang & Co. solicitors for the Defendant to Messrs. Hoosenally & Neo who was then solicitors acting for the Plaintiff. This letter makes perhaps, the most telling point in this case. Paragraph 11 at page 3 reads :-

"Our client also proceeded to prepare a production sample for your client's approval in respect of the Halloween contract. The same basic toy casting mould was used but a fresh painting mould had to be made. A sample was duly delivered to Sunita for their clients' approval on 12th June 1994. However, their client's approval was never obtained so no production order was signed. Therefore no contract for the balance of the First contract was ever made. Furthermore, our client denies ever having received a specific order for the purported Second Contract referred to on page 2 of your letter. The second contract therefore never came into existence."

This passage speaks for itself and does not require comment. It is so fundamentally inconsistent with the Defendant's pleadings and their evidence at the trial. Mr. Andrew Wong had been trying to avoid the Halloween issue. His evidence was evasive and unsatisfactory.

16. The loss of profits suffered by the Plaintiff amounted to US$6,968 or $54,355.95 in Hong Kong currency. Compensation paid to the Plaintiff's customer for breach of contract was US$20,000 which included freight charges or HK$154,804.

17. On the claim there will be judgment for the Plaintiff for the sum of HK$209,159.95 with interest and costs. The claim under paragraphs (b) and (c) for a declaration and specific performance are dismissed.

18. On the counterclaim, I allow the claim for $20,055.56 being the purchase price of the 76,000 pieces of goods delivered on 9th June 1994, with interest. The money will be set off against the award to the Plaintiff. The Defendant is not entitled to the declaration and specific performance under (b) and (c) of the Prayer in the Defence and Counterclaim and they are dismissed.

19. I make an order nisi that the Plaintiff will have 2/3 of the costs of the action.