KYOCERA CORPORATION (the successor of Kyocera Optec Co., Ltd) v. W. HAKING ENTERPRISES LTD AND ANOTHER

HCA 239/2015

[2019] HKCFI 2753

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 239 OF 2015

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JUDGMENT

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1.  This is a dispute over the sale of lenses for cameras. It is not in dispute that such lenses were manufactured and delivered, and the plaintiff’s contention is that it manufactured and supplied such lenses to the 1^st defendant. Further, the 1^st defendant refused to pay for the lenses in effect because it was not paid for them by its own customer. The 1^st and 2^nd defendants do not accept any premise of the plaintiff’s claim, but in particular it is not accepted that the plaintiff and the 1^st or 2^nd defendants were contractual counterparties.

Background

2.  There is, nevertheless, much common ground between the parties to the litigation.

3.  Kyocera Optec Co Limited is a Japanese Corporation which operated a business which included the manufacture and sale of optical equipment including lenses.  Kyocera Optec merged with Kyocera Corporation, which is now the plaintiff.  The manufacture of lenses by the plaintiff was undertaken (so far as relevant to the dispute) by a subsidiary company, based in China, and known as Dongguan Shilong Kyocera (“DSK”).

4.  The 1^st and 2^nd defendants were affiliates in a group of companies referred to as the W Haking group of companies (“the Group”).  The companies in the group are the 1^st and 2^nd defendants and one Haking Marketing Ltd (“Marketing”).  The majority shareholders in the companies in that group are a married couple, Dr Lo Tai Chin and Dr Tai Tony Chak Leung, both of whom gave evidence at the hearing.

5.  In about mid 2007 Dr Tai entered into negotiations for the sale of 35 mm film cameras to one JNC Tech International Ltd (“JNC”).  Those negotiations were conducted by Dr Tai with a Mr Akasaki, an employee of JNC, and a former employee of the plaintiff.  In due course JNC placed an order with Haking Marketing for the cameras, specifying that the lenses should be manufactured by DSK.

6.  On 5 December 2007 the 2^nd defendant (hereafter “Industries”) issued a Purchase Order (“the 1^st PO”) to DSK for the purchase of 200,000 lenses.  Those lenses were manufactured, and were delivered to Industries.  Invoices seeking payment for the work were issued by the plaintiff and not by DSK, and were addressed to the 1^st defendant (“Enterprises”) and not Industries, notwithstanding that it was Industries which had issued the PO.  After the initial invoice was issued in this manner, one Lan Man Leung of DSK (“Lan”) emailed one E H King, an employee of one of the Group companies, confirming that DSK had “entrusted our head company in Japan” to receive payment for the lenses.  Payments were therefore to be made to the plaintiff, under the invoice which had been issued, by Industries, and payments were made in respect of all lenses under this 1^st PO.  It appears however that there were some delays in payment being accomplished.

7.  JNC placed a further order for cameras in September 2008 with Marketing, which entailed Marketing (as the recipient of the PO) obtaining 110,000 further lenses, and this was communicated to the plaintiff.  Shortly afterwards, in October 2008, the plaintiff’s representative, Mr Ochiai, informed Enterprises that he had been requested by his “head office” to request Enterprises to sign a formal document with the plaintiff which would set out details of their intended trading relationship.  There is some disagreement as to the background and purpose of this agreement, but it is clear that it was formally drawn up, and stated in terms that it was an agreement made between Enterprises and the plaintiff.  It was signed by Dr Lo as a director of Enterprises and Tsutomu Tsubono the president of the plaintiff, but was left undated.  The terms of this “Business Agreement” as it has been referred to, are considered below.

8.  In January 2009 Dr Lo sent two emails addressed to Mr Ochiai confirming that the order for further lenses would be forthcoming, and confirming that production should be commenced.  On 2 February 2009 a further purchase order (“the 2^nd PO”) was issued again by Marketing, and again this was addressed to DSK.  The lenses were to be delivered in four batches, on specified dates at approximately the end of February, March, April and May 2009.  The 2^nd PO was signed by Lan and the plaintiff’s chop was stamped on the signed copy.

9.  The plaintiff itself responded to the 2^nd PO on the same day it was issued by issuing a pro-forma invoice.  This was addressed to Enterprises and was signed by Mr Ochiai on behalf of the plaintiff.

10.  Deliveries of lenses were made on 6 and 31 March and on 12 May 2009 (“the 1^st, 2^nd, and 3^rd lots” respectively) totalling 80,000 (out of 110,000) lenses.  A payment was made by Industries for the 1^st lot of lenses on 17 April 2009.  However, on 3 June 2009 Dr Lo wrote to the plaintiff informing it that JNC was “holding our shipment” and requesting, “for the balance delivery please do not send us”. The last (4^th) instalment of lenses, as it turns out, was never sent.

11.  A further payment was made by Industries in respect of 20,000 (out of the consignment of 30,000 lenses) sent as the 2^nd lot, on 8 March 2010. No payment has been made in respect of the balance of the 2^nd lot, the 3^rd lot, or the (undelivered) 4^th lot.

12.  Correspondence between the parties regarding the completion of the transaction and, more pertinently, regarding payment ensued, and some meetings took place, all without result.

13.  The plaintiff issued its writ on 23 February 2016, and amended the writ so as to add Industries as a party on 15 April 2016.

The defendants’ evidence

14.  The defendants called oral evidence from Dr Lo and Dr Tai.  As wife and husband jointly owning and running the Haking group businesses it might be expected that the gist of their evidence would be similar. However, with only a few exceptions, their written witness statements were identical, one being a verbatim copy of the other.

15.  Courts have frequently stressed the importance of witness statements reflecting accurately the knowledge and recollection of the witness personally, expressed in their own words.  Duplication in this way gives rise to the clear inference that the statements are no more than a “team effort”, at best summarising a collective recollection of events.  This practice is to be discouraged, not least because of the way it obscures the knowledge and recollection of the individual witnesses.  Perhaps fortunately however, this was not a case in which the facts were hotly disputed or in which the credibility of the witnesses was crucial.  It was clear from the cross examination that only Dr Lo had been involved in the key events.  Accordingly, save for his answers in cross examination, there is no real weight to be placed on the evidence of Dr Tai.

The Business Agreement

16.  The chronology of the 1^st PO has been outlined above, and it was in the context of that transaction that the parties came to execute the Business Agreement.  The plaintiff asserted, but did not pursue by the stage of closing submissions, that the Business Agreement was a legally binding agreement which Enterprises had breached by its failure to pay sums said to be due under the 2^nd PO.  Because this was not insisted on by the plaintiff, whether that was a contractually binding document, or whether there was a breach of its terms therefore need not be considered.  The Business Agreement nevertheless forms part of the factual matrix within which the 2^nd PO contract was made, and the plaintiff, for this reason, relies on this Business Agreement as a contemporaneous document supporting its case that Enterprises was the other contracting party to the 2^nd PO contract.  In my judgment, as a document self evidently intended to regularize business dealings between the parties, it is of great significance in this case.

17.  Mr Ochiai’s evidence was that the purpose of the Business Agreement was to avoid future disputes between the parties such as had arisen in relation to the 1^st PO.  He accepted that he was prompted into this by concerns expressed by his superiors, and in his oral evidence he confirmed that the Business Agreement had been drawn up by others in Japan within the plaintiff company.  Because the 1^st PO had given rise to issues over payment, and in particular, delay in payment, accordingly, it was intended that the plaintiff and Enterprises would assume responsibility for future transactions.  That evidence is entirely consistent with the written terms of the Business Agreement.

18.  The Business Agreement, as executed, spelled out a modus operandi by which orders were to be confirmed by the plaintiff and payments were to be arranged by Enterprises.  Title to goods sold was to remain with the plaintiff until payment while the plaintiff gave certain undertakings as to the replacement of defective lenses.  It seems clear to me that this formal agreement was intended to be acted on by the plaintiff and Enterprises.

19.  The defendants contend that this Business Agreement was little more than an internal document of the plaintiff.  Dr Lo recounted in her evidence how she had been approached by Mr Ochiai who asked her to sign this agreement relaying a request from his “headquarters”.  Dr Lo recalled there having been a few telephone conversations with Mr Ochiai about such an agreement, but said in her witness statement that she had no clear recollection of signing this, and in fact did so only because her husband, Dr Tai, was out of the office at the relevant time.  She sought to portray the document as insignificant, when clearly, on its face, it was not.

20.  As was clear from her oral evidence, Dr Lo is an experienced businesswoman, conversant in English, and evidently not prone to putting her signature to formal documents on a whim, or without careful consideration.  She was firm in her recollection of events generally, and well able to express her views, and there is no doubt in my mind that she would not have been pushed into signing the Business Agreement unwillingly or carelessly. There is no dispute that she did sign it and, as a director of Enterprises had the capacity to sign it on Enterprises’ behalf.  Accordingly, in my judgment the Business Agreement was a firm and clear expression of the intention of the parties as to their future business arrangements.

The 2^nd PO

21.  It is accepted that the issue of the purchase order, by itself does not give rise to a contractual engagement.  The purchase order is an offer to purchase on stated terms, and has limited legal effect until accepted.  Enterprises’ case is that the signature of the 2^nd PO by Lan, and its return to Industries by him was an acceptance of Industries’ offer by Lan’s employer, DSK.  The contract that was made was, therefore, a contract between DSK and Industries.  Lan was not called to give evidence, and the defendants submit that an adverse inference should be drawn against the plaintiff for this, in particular in regard to Lan’s capacity to sign and accept a purchase order on behalf of the plaintiff. 

22.  The signed purchase order was chopped with Enterprises’ chop, but Enterprises pleads that this is of no legal consequence because the chop was placed on the PO by a person “without authority” and cannot constitute acceptance of an offer.  I do not consider it appropriate to draw any adverse inference from Lan not being called, because any evidence to be given by him could not contradict the written documents, and because it does not appear that the defendants themselves sought to call Lan as a witness.

23.  So far as the factual evidence goes, Mr Ochiai was unable to confirm in cross examination whether the signature on the 2^nd PO was that of Lan, but he did confirm that the document had been signed and chopped before it was sent to him.  His evidence was that Lan had a chop of the plaintiff which was kept at DSK’s factory premises in China.  The clear likelihood is that Lan signed, and chopped, the 2^nd PO when he received it, and then immediately forwarded it to the plaintiff.

24.  The evidence is thus that the 2^nd PO was issued by Industries, addressed to DSK, and purportedly accepted by an employee of DSK affixing a chop of the plaintiff.

The pro-forma invoice

25.  On the same day that the 2^nd PO was issued, the plaintiff issued a pro-forma invoice in respect of the goods ordered under that 2^nd PO.  That invoice was addressed to Enterprises, and referenced and reiterated the contents of the 2^nd PO.  It was signed by Mr Ochiai on behalf of the plaintiff and was also signed, it appears, on behalf of Enterprises. 

26.  Who signed the invoice, or when, is unclear however.  The evidence as to whose signature was on the invoice came initially from Mr Ochiai in his witness statement where he identified the signature as being Dr Lo’s.  Dr Lo stated in her oral evidence that she was surprised to see the signed copy as it was not usual for Enterprises to sign such documents.  Enterprises had no copy on its file, and the plaintiff had been unable to produce the original to allow for a closer examination of the signature.  Dr Lo was doubtful that she herself had signed the invoice, but there is no evidence suggesting anyone else signed it, and I accept that this was most likely signed by Dr Lo before it was returned to the plaintiff.

Subsequent events

27.  Almost immediately after the issue of the above documents Dr Lo sent an email to Mr Ochiai requesting that the “processing” of the 2^nd PO “per your performa [sic] invoice” be stopped.  She felt (she said) that it would be better for the lenses to be the subject of a direct contract between the plaintiff and JNC.

28.  After some discussion it was agreed that the original arrangement would remain in place.  Thereafter, three batches of lenses were delivered by the plaintiff to the address which had been provided, namely the warehouse of Industries.  The plaintiff issued various invoices addressed to Enterprises.

29.  Payment was made for the 1^st lot of lenses, comprising 20,000 units, on 17 April 2009.  On 8 March 2010 payment was made for a further lot of 20,000 units. Overall, 80,000 lenses have been delivered, and 40,000 lenses have been paid for, by Industries.

30.   In June 2009 Dr Lo wrote an email to the plaintiff stating that JNC was “holding our shipment” for lenses and stating “for the balance delivery pls do not send us”.

31.  In a further email, responding to an enquiry by the plaintiff as to the status of the payments for the goods delivered, and what was to happen about the balance not then delivered, Dr Lo said that there had been some delay in the market requirement holding up payment.  As regards the balance, the defendants would resume delivery when the earlier deliveries had been cleared.  In other words, JNC was holding up both its orders and payments for the lenses, but when that was settled, deliveries could resume.  It appears those circumstances never eventuated, and certainly deliveries did not resume.

32.  The plaintiff sent audit confirmations to Enterprises which were signed and returned, and the plaintiff continued to chase payment.  On 11 July 2014 Dr Lo wrote an email to Mr Nemoto (who had by this stage taken charge of the matter on behalf of the plaintiff) finally ending any prospect of the further delivery of lenses or of payment for those already delivered but not paid for.

The contracting parties to the 2^nd PO contract

33.  This is a written agreement, and the starting point is the purchase order and its acceptance.  It was addressed to DSK and signed by Lan ostensibly on behalf of the plaintiff.  The defence contention that it was accepted by DSK is plainly incorrect.  The use of the plaintiff’s chop makes it clear that Lan was not accepting on behalf of DSK.  There is nevertheless some potential ambiguity in the document itself because of its signature by a DSK employee attaching the plaintiff’s chop, meaning that reference should be made to the factual matrix in which the agreement was made.  The relevant background includes the Business Agreement, by which the plaintiff and Enterprises set out their mutual intentions as to the conduct of future business.

34.  The plaintiff does not however accept that Lan was authorized to bind the plaintiff to a contract with Industries or at all, and the acceptance of the 2nd PO was, it is said, made by the issue of the pro-forma invoice and its signature on behalf of Enterprises.  Once again, in these premises there was a disparity between the offer (made to DSK) and the acceptance (made by the plaintiff).  Two questions arise therefore.  First, was the contract made by the signature of the 2^nd PO, and the application of the chop, or was it made and communicated through the issue of the pro-forma invoice?  Secondly, who were the contracting parties. 

35.  As is set out above, the documents themselves are ambiguous taken separately, and when considered purely on their face.  But this was a commercial transaction, made in the context of an earlier agreement intended to regularise the way in which the parties were to conduct their business.  Against that background it is clear to me that what was agreed was a sale by the plaintiff to Enterprises.  It was the plaintiff’s chop that was applied to the 2^nd PO and communication of the acceptance was forwarded immediately to Enterprises who immediately issued the pro-forma invoice.  The issue of the pro-forma invoice may be analysed as a counter offer made by the plaintiff which was accepted by Enterprises or may be analysed, as with the PO itself, as a patently ambiguous document, the meaning of which is to be found by reference to the background facts known to the parties.  I do not think it matters because, in either analysis the conclusion reached is the same, namely that the contract was made between the plaintiff and Enterprises. 

36.  The plaintiff submits that the true position is that Industries was acting as agent for Enterprises when it issued the 2^nd PO.  This is denied by the defendants, whose primary position is that the 2^nd PO contract was made by Industries on its own behalf but with DSK.  The plaintiff contends that the factual circumstances are very similar to those before the court in the case of Goei Tsusho Co Ltd v Leader Engineering & Construction Ltd [2010] 2 HKLRD 1084.  In that case the court held that the subjective belief of a contracting party as to the identity of the other contracting party was immaterial because the test as to which party made a contract was objective: “The real question is whether, looked at objectively, a reasonable businessman would have concluded that the second defendant was purchasing on behalf of the first defendant.”

37.  Applying such an approach leads me to the same conclusion as my analysis of the ambiguities apparent on the face of the documents, namely that it was Enterprises which was the contractual counterparty to the 2^nd PO contract.

38.  Although it is unnecessary to consider whether to take this into account, it is abundantly clear that the post contract conduct of the parties referred to above was all consistent with the above understanding as to the identity of the contracting parties.

What is Enterprises’ liability?

39.  The 2^nd PO was for 110,000 lenses to a value of US$283,800.00.  Not all lenses were delivered, and some payment has been made in respect of lenses which were delivered.  On behalf of the defendants issues are raised as to whether the 2^nd PO contract was a several/divisible contract, and as to whether the defendants were entitled to reject some of the lenses on the grounds of late delivery.

40.  The defendants submit that because the price was ‘per piece’, and separate deliveries were to be made, that it was open to the buyer to accept part and reject part, whether delivered or not.  The defendants’ submission is that, in the case of a contract providing for delivery by instalments, the true nature of the contract is that it is severable.  As stated by the authors of Benjamin’s Sale of Goods (at para 8-060): “A contract is severable if liability under it accrues from time to time as performance of a part or parts of the contract takes place”.  This is a matter of construction of the contract, and, as the authors of Benjamin’s go on to note; “Even though the contract is one for the delivery of goods by instalments, it may, on its true construction, be an entire and indivisible contract for the delivery of the quantity of goods stated therein”.

41.  The plaintiff does not take issue with those principles, but submits that the question of whether the contract was divisible arises only if there was a rejection of part of the goods by the defendants.

42.  The defendants’ case on rejection of the goods is that, on 3 June 2009, after the due date for delivery of the lenses, Industries notified DSK by email that it would not accept any delivery under the 2^nd PO.  That email has been referred to above, and two points are made by the plaintiff in regard to it with which I agree.  One is that the email of 3 June 2009 does not say that no delivery will be accepted, much less that the goods are rejected.  The email stated “please do not send us” the undelivered lenses.  This is equivocal as to the defendants’ intentions at best, but a follow-up email of 24 September 2009 stated that delivery would be resumed when the payment position with JNC was resolved. Taken together, there was clearly no rejection.

43.  The second point is that, taken at the highest, this refers only to the undelivered lenses, not to those already delivered.  The plaintiff submits that there was a deemed acceptance of the delivered lenses on the part of Enterprises by the retention of those lenses.  There was no express rejection of those lenses.

44.  The defendants submit that there would have been a right to reject the lenses already delivered on the ground of late delivery, and it is factually correct that delivery was, to some extent, late for each delivery of lenses.  There was no rejection on that (or any other) ground however, and while the defendants submit, I think correctly, that rejection for a ‘bad’ reason can be justified if a ‘good’ reason is later seen to exist, I do not accept that an acceptance of goods can be converted to a rejection of goods when a possible reason for rejection is later seen to exist.

45.  The plaintiff points to the various factors that indicate not only a deemed acceptance of the lenses, but an actual acceptance including several acknowledgements of liability to pay.  Throughout, there was no indication that Enterprises considered itself other than liable to pay for the lenses, although it clearly hoped to defer paying until such time as JNC paid for the cameras.  Having regard to all of that evidence I agree that Enterprises accepted the three deliveries of lenses that were in fact made.

46.  As to the 4^th lot of lenses which were not delivered, the plaintiff’s submission is convoluted, based upon of the non acceptance by Enterprises of what could have been a repudiation by the plaintiff arising from late delivery.

47.  The issue in reality is as to whether the contract was divisible and whether Enterprises was at liberty, without being in breach, to cancel the contract at an interim stage without accepting all, or perhaps any, deliveries.

48.  The only indication in the contract in support of that contention is that fact that the lenses carried a unit price and delivery was to be made in lots.  Set against that, the contract was for a stated total quantity to the value of US$283,800, and was placed as one order not as four separate orders as could easily have been done.  Although not part of the contract, the factual background includes two emails sent by Dr Lo to the plaintiff on 20 and 25 January 2009 requesting the plaintiff to start production of 110,000 lenses, that is, the total quantity under the 2^nd PO.

49.  I conclude that, on its true construction, the 2^nd PO contract was an entire contract between the plaintiff and Enterprises for the supply and delivery of 110,000 lenses, for the price of US$283,800. Only part of that sum has been paid by Enterprises.

Disposition

50.  For the above reasons the plaintiff’s claim against the 1^st defendant succeeds.  There will be judgment for the plaintiff against W Haking Enterprises Ltd in the amount of US$180,600.00 together with interest from the date of issue of the writ.

51.  On an order nisi basis, interest is to accrue, at a commercial rate of prime +1%.  The plaintiff is to have its costs, to be borne by the 1^st defendant, to be taxed if not agreed.