CHUM HING LIN v. PANG KI CHEUNG

DCCJ 3040/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3040 OF 2012

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J U D G M E N T

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Undisputed Background

1.  The plaintiff was and is the sole proprietor of a gift company selling gifts or souvenirs to travel agencies and drivers of tourist coaches.  She is operating the business at a ground floor shop in Tokwawan (“the Shop”).

2.  The defendant was, at the material time, trading as Hong Kong Gift (“D Company”) which involved in similar business as the plaintiff.

3.  By an oral agreement between the plaintiff and the defendant in or about November 2010 (“the 1^st Agreement”), the parties entered into a business arrangement as follows :

(a) the defendant were to provide gifts or souvenirs (“the Souvenirs”) to the plaintiff;

(b) all costs for the acquisition of the Souvenirs delivered were to be borne by the plaintiff;

(c) the Souvenirs would be sold by the plaintiff at the Shop to:

(i) specified travel agencies named by the defendant, ie customers of the defendant; or

(ii) customers of the plaintiff;

(d) the plaintiff and the defendant have the right to determine the selling price of the Souvenirs sold to their respective customers;

(e) the defendant is entitled to receive from the plaintiff, on the 1^st day of each month, the difference between the selling price and the purchase costs for all Souvenirs sold to the defendant’s customers whilst the plaintiff is entitled to keep all sale proceeds in the sale of the Souvenirs sold to her own customers;

(f) the plaintiff were to pay the defendant $50,000 as security (which was being paid on 1 December 2010) (“the 1^st Deposit”) (page 103-104 Bundle);

(g) the defendant was required to pay the plaintiff $5,000 per month as service charges;

(h) to facilitate clients of the defendant to place order with the plaintiff, the defendant had left a mobile phone with the plaintiff for such purpose together with a booklet of invoice with the D Company’s name on it; and

(i) the issued invoice will be provided to the defendant for an account to be prepared each month and then the defendant will issue a payment notice (“Payment Notice”) to the plaintiff every month for payment.

4.  On the request of the defendant, a further sum of $150,000 was paid by the plaintiff to the defendant on 15 February 2011 (“the 2^nd Deposit”) (page 105-106 Bundle) as further deposit for the 1^st Agreement.

5.  This case involved a dispute arising from further dealings between the parties in the arrangement of new design of souvenirs.

Plaintiff’s Case

6.  In about April 2011, the defendant said that the Souvenirs was too common and could be easily imitated and suggested using a different material called coloured glass.  A design specification was shown to the plaintiff on 11 May 2011 by Mr Yuan of 金元寶禮品中心 (“金元寶”) and the plaintiff signed on them (page 129 to 133-1 of Bundle).  The design specification involved 2 new styles of souvenir including (a) a set of 6 key chains in one box, 2 of which made of coloured glass (“Keychain Set”) and (b) bauhinia stand (“Bauhinia Stand”) which  was made of coloured glass (collectively called “the New Souvenirs”).  Upon seeing the design specification, the plaintiff indicated her acceptance to place order for the New Souvenirs.

7.  The defendant had also brought the plaintiff to a factory in China and showed her a plaster mould (石膏版) of the New Souvenirs.  Yet, the plaintiff denied ever seen the order form (page 127 Bundle) issued by the supplier金元寶 concerning the manufacture of the New Souvenirs nor had she ever been shown the finalized sample (大版) of the New Souvenirs which should be available before the products were to be manufactured.

8.  The defendant then asked for a payment of $700,000 as deposit for the New Souvenirs. The plaintiff said she could only afford to pay $200,000 as deposit and the defendant should use the 1^st and 2^nd Deposit in the 1^st Agreement for this purpose.  As for the costs of the mould, she will mark up the selling price of the New Souvenirs by $1 in future to settle such costs.  In return, the defendant asked for the payment of his share of sale proceeds under the 1^st Agreement to be paid weekly instead of monthly.  Eventually parties agreed to vary the payment day to every 10 days.

9.  Hence, the plaintiff and the defendant entered into a 2^nd Agreement that :

(a) the plaintiff was to purchase 50,000 sets of each design of the New Souvenirs, ie a total of 100,000 sets;

(b) the net costs for the Keychain Set is about $19.50;

(c) the plaintiff would pay a sum of $200,000 as deposit;

(d) the selling price for the New Souvenirs was to be marked up $1 each to cover the cost of the moulds; and

(e) the New Souvenirs would be delivered to the plaintiff in batches starting from June 2011 at 10,000 pieces on each delivery. (“the 2^nd Agreement”) 

10.  The plaintiff then paid the defendant a sum of $100,000 on 26 May 2011 (page 114 Bundle) and 27 May 2011 (page 115 Bundle) respectively, making a total of $200,000 (“3^rd Deposit”) being deposit for the 2^nd Agreement.

11.  Since the New Souvenirs were not delivered as scheduled, the plaintiff asked the defendant about it in July 2011.  The defendant’s reply was that the factory had to buy a new machine for the manufacture of the New Souvenirs and the New Souvenirs would only be available after the summer holiday.  The defendant also promised that if the New Souvenirs were still not available in September 2011, he would refund the 3^rd Deposit to the plaintiff.

12.  By end of August 2011, the defendant told the plaintiff that the New Souvenirs could not be produced and promised a refund of the 3^rd Deposit by installment of $20,000 per month to be deducted from the sales return payable to the defendant under the 1^st Agreement.  A sum of $20,000 was being deducted for the months of September and October 2011 respectively. 

13.  On a day in November 2011, the defendant suddenly showed up at the Shop and showed her a box of keychains, packed with plastic cover (“the New Keychain”) which the plaintiff had not opened for inspection.  The plaintiff thought it was the Keychain Set under the 2^nd Agreement so she asked was it not the case that this could not be produced (『又話做唔到』)?  The plaintiff then told the defendant to show it to the original supplier of the Souvenirs and told them to stop their supply.  So the defendant only stayed for 2 to 3 minutes and then left with the box of New Keychain and the plaintiff agreed that this should be the 大版 of the New Keychain but she had never committed to buy this New Keychain.

14.  The plaintiff agreed that the defendant had also said that the Bauhinia Stand could not be produced and the deposit paid for the Bauhinia Stand would be set off for the Keychain Set.  The plaintiff explained that since the defendant had managed to produce the Keychain Set made of coloured glass, she would accept it and that’s why the defendant mentioned about the setting off of the deposit.  And the defendant disallowed the plaintiff in deducting the $20,000 from his share of profits starting from November 2011 since the Keychain Set was produced.

15.  After some time, the defendant told the plaintiff that the keychains were ready for delivery.  5,400 sets of key chain in 90 boxes were being delivered to the Shop on 30 November 2011.  The defendant told the plaintiff that he had cash flow problem and asked the plaintiff to pay $42,120, representing 40% of the costs of the delivered keychains (ie $19.50 x 5,400 x 40%) (“the 40% Payment”) on his behalf.  The plaintiff did pay the same on 5 December 2011.

16.  Since 1 December 2011, the New Keychain was being sold to the defendant’s customers only and not the plaintiff’s customer.  The plaintiff explained that since these were goods of the defendant and she was still selling goods from other supplier, that’s why she had not inspected the New Keychain and thought they were made of coloured glass.

17.  On 7 December 2011, some of the defendant’s customers returned the unsold New Keychain to the plaintiff saying the New Keychain was only made of plastic and were not attractive to the tourists at all.  Since no refund is possible, the plaintiff replaced her own goods with these coach drivers.  The plaintiff then inspected the goods and discovered they were made of plastic instead of coloured glass.  Mr Yuan of 金元寶 happened to be at the Shop and confirmed the New Keychain was only made of plastic.

18.  The plaintiff then asked the defendant for a refund of the 40% Payment and the 3^rd Deposit.  She also suggested an alternative of changing the materials of some of the keychains to coloured glass or metal.  The defendant said that the New Keychain had to be changed to metal since the coloured glass in those shapes could not be made but he had to confirm whether this was feasible with the factory when it resumed operation after the Chinese New Year.

19.  On 19 January 2012, the defendant collected 70 boxes of unsold New Keychain from the Shop.  And the defendant also took away the mobile phone left with the plaintiff under the 1^st Agreement. 

20.  After the 15^th day of the Chinese New Year, the defendant informed the plaintiff that if the material for the New Keychain was to be changed to metal, she had to pay an extra $8 for each keychain set with a new cost of $16,000/$18,000 for the revised mould.  The plaintiff found this unreasonable and refused to accept.  The defendant then told the plaintiff to speak to Mr Yuan herself.  The plaintiff declined since she was only dealing with the defendant, not Mr Yuan.  The plaintiff then suggested the defendant to deliver goods that worth $200,000 to her but the defendant insisted the plaintiff should speak to Mr Yuan.

21.  Even since then, the plaintiff had not been able to get into contact with the defendant who either did not answer her call or hanged up immediately.  Since the New Keychain was not made in conformity with the agreed design, the defendant breached the 2^nd Agreement.  And the defendant was further in breach by refusing to perform the 1^st Agreement since January 2012.

22.  On 25 May 2012, the plaintiff issued a claim with the Small Claims Tribunal (“SCT”) for $50,000, being the 1^st Deposit, against the defendant (page 162 of Bundle). The plaintiff explained that since she got a cheque of $50,000 as proof, she just sued for the same.  As for the balance, she will sue the defendant again when she had money to engage a lawyer.  At the hearing of the Small Claims Tribunal, upon learning that the claim involved a sum of money outside its jurisdiction, the case was transferred to the District Court.

23.  On 30 August 2012, the plaintiff issued the writ of summons in this case and claimed against the defendant for the money paid as follows :

1st Deposit paid on 1 December 2010	$50,000
2nd Deposit paid on 15 February 2011	$150,000
3rd Deposit paid on 26 and 27 May 2011	$200,000
40% Payment paid on 1 December 2011	$42,120
Total	$442,120
Less : Deduction from payment to the defendant in September and October 2011	($40,000)
Amount Claimed	$402,120

24.  At trial, it is admitted by the plaintiff that the $18,315, being sale proceeds that the defendant entitled to receive for the month of January 2012 had not been paid and should be paid.  It is also admitted that 6 boxes of the New Keychain are still in the possession of the plaintiff which she is prepared to return to the defendant.

Defendant’s Case

25.  The defendant was all along the supplier of goods to the plaintiff since the plaintiff had not been able to secure any supply of goods from other manufacturers who did not want to trade with the plaintiff in view of the “keep changing” attitude of the plaintiff.

26.  In mid-November 2010, the defendant suffered from a stroke and was minded to cease the business.  The plaintiff approached the defendant suggesting souvenirs were to be ordered in the name of the defendant and the plaintiff would be responsible for the sale of them and the plaintiff would also handle the sale to the defendant’s clients.  Hence, the 1^st Agreement was being entered into with the 1^st and 2^nd Deposit being paid by the plaintiff.

27.  In early 2011, the plaintiff suggested changing the material of the Souvenirs to coloured glass from the original design of plastic.  The plaintiff then asked the defendant to approach 金元寶 to place an order of 50,000 pieces of Bauhinia Stand and 50,000 pieces of the Keychain Set in the total costs of $1,925,000 with a cost for the mould at $120,238.10 on her behalf. 

28.  The defendant then approached 金元寶 and acted as the go between for the plaintiff and 金元寶but the plaintiff would also liaise with Mr Yuan on her own.  Upon placing the order, 30% of the costs of the goods as well as the full costs of the mould (ie a total of $697,738.10) was required to be paid as deposit to 金元寶. 

29.  The 2^nd Agreement was for the defendant to cause the purchase of the New Souvenirs for and on behalf of the plaintiff who should pay 30% of the order together with the costs of the moulds upon placement of order.  The balance of the purchase price was to be paid upon delivery at 10,000 pieces per delivery.  But the plaintiff had only paid $200,000 as deposit (ie the 3^rd Deposit) and asked the defendant to pay the balance on her behalf.  The defendant then agreed to refund the deposit of the 1^st Agreement to set off towards the deposit of the New Souvenirs which means the plaintiff was taken to have paid $400,000 as deposit for the New Souvenirs with the balance of $297,738.10 paid by the defendant.

30.  Given such arrangement, the defendant asked for a change of the payment date for the 1^st Agreement from monthly to weekly basis and parties eventually agreed to vary that to every 10 days.

31.  According to the defendant, in the normal course of event, the manufacture process involved the following steps:

(a) preparation of the design specification according to the demand of the purchaser and such design specification has to be endorsed by the purchaser;

(b) 1^st sample (初版) made of wax, available in 2 to 3 days after endorsement of design specification by the purchaser;

(c) finalized sample (大版) about 1 month after the 1^st sample to be approved by the purchaser; and

(d) proceed to manufacture which takes 2 weeks.

32.  On 16 May 2011, 金元寶 issued a Purchase Order (page 127 of Bundle) to confirm the sale.  The defendant had also sent the design specification to the plaintiff for endorsement which she did.

33.  Yet, sometime around August 2011, 金元寶 told the defendant that due to technical problem, the New Souvenirs could not be made of coloured glass since the costs of manufacture would be out of budget.  The plaintiff, upon being told of this, agreed to vary the 2^nd Agreement to become the 3^rd Agreement in the following terms :

(a) The order of 50,000 pieces of Bauhinia Stand is cancelled;

(b) The order of 50,000 Keychain Set to stand but the material is varied to partly resin and partly metal, ie the New Keychain;

(c) The total contract price of the new goods be changed from $1,925,000 to $975,000;

(d) All costs of the moulds of $120,238.10 must be fully paid;

(e) The costs of the mould of making the Bauhinia Stand will be deducted from the contract price of the New Keychain. (“the 3^rd Agreement”)

34.  On the confirmation of the variation of the Purchase Order, 金元寶 had sent another finalized sample for the plaintiff’s approval and such finalized sample was made of metal.  The defendant said in evidence that 6 pieces of the finalized sample were left with the plaintiff in late October or early November 2011.  After a few days, the defendant called the plaintiff to confirm if the finalized samples were acceptable to her and whether the goods could be manufactured.  The plaintiff replied in the affirmative so goods were produced. 

35.  In September and October 2011, the plaintiff had deducted $20,000 each month from the payment due to the defendant under the 1^st Agreement.  The defendant only discovered the reduction after the balance of the sale proceeds was being paid into his bank account.  The defendant then called the plaintiff and the plaintiff said that since the New Souvenirs were not available, she had to deduct $20,000 per month.  Even though the defendant said that he was just a go between and not concerned with the production, the plaintiff insisted to make the deduction.  The defendant said that he had no idea why the plaintiff picked the figure of $20,000 or why she only deducted once when there were 3 payments per month but since the money were with the plaintiff, the defendant had to accept with reluctance.

36.  5,400 sets of the New Keychain were being delivered to the plaintiff in late November 2011 and the plaintiff paid $42,120 on 5 December 2011, being 40% of the purchase price of the delivered goods.  One day before the delivery, the plaintiff had promised to repay the defendant the $290,000 odd 2 weeks after delivery.  But the plaintiff raised a complaint about the New Keychain on 10 December 2011 and in breach of the 3^rd Agreement, refused to make any further payment and also informed 金元寶that she refused to accept further delivery of the New Keychain.

37.  The relationship between the parties turned sour ever since the complaint raised by the plaintiff so the original Agreements were all terminated.  The defendant said that in the course of the making of the New Souvenirs, the plaintiff had direct communication with Mr Yuan and he was only made aware of the costs as well as the fact that the plaintiff and Mr Yuan had agreed on the change of material from coloured glass to resin, and he had never told the plaintiff as to when the goods will be available.

38.  On or about 19 January 2012, the plaintiff told the defendant that she wanted to have 3 days vacation over the Chinese New Year.  Since it is trade custom and an implied term in the travel agency industry that public holiday will not be closed, the defendant indicated to the plaintiff that the defendant accepted the plaintiff’s repudiation and treated the 1^st Agreement as at an end.  By then, a sum of $18,315, being sale proceeds under the 1^st Agreement for the month of January 2012 should be paid to the defendant (“January Proceeds”).

39.  The defendant confirmed under cross-examination that he had not taken delivery of the rest of the New Keychain from 金元寶 since he had to pay before doing so and the goods were not his in any event.  And he was not aware if 金元寶 had manufactured all the goods.  He also confirmed that 金元寶 had gone after him for the balance of the purchase price initially but since 金元寶 had already received 60% of the purchase price, Mr Yuan then decided not to pursue.

40.  In the Defence and Counter-claim filed in answer to the Statement of Claim, the defendant denied liability in this case but accepted that the plaintiff is entitled to have a refund of all the deposits to be set off against the counterclaim of damages by the defendant concerning his loss in the New Keychain.  The defendant counterclaimed for the followings :

Loss in procuring the manufacture of the 50,000 sets of New Keychain (975,000 - 3rd Deposit – 40% Payment)	$732,880.00
Half of the costs of the moulds	$60,119.05
Total	$792,999.05
Less : Amount owed to the plaintiff under the 1st Agreement (1st Deposit + 2nd Deposit - $40,000 wrongful deduction – January Proceeds)	($141,685.00)
Amount Counter-claimed	$651,314.05

Agreed Issues in Dispute

41.  Parties had filed a Revised Agreed Statement of Issues in dispute on 30 January 2015 (page 73-74 Bundle). The issues in dispute are :

(a) Was the defendant in breach of the 2^nd Agreement and did the defendant agree that the plaintiff shall deduct a sum of $20,000 monthly from the amount payable by the plaintiff to the defendant pursuant to the 2^nd Agreement until repayment of $200,000 (deposit of the 2^nd Agreement) as damages?  Or did the 3^rd Oral Agreement, as alleged by the defendant, not exist at all?

(b) If the answer to issue 1 above is in the affirmative, whether :-

(i) a new agreement; or

(ii) the 3^rd Agreement;

existed when the defendant provided the sets of keychains to the plaintiff in December 2011?

(c) Was the $18,315 due to the defendant according to the 1^st Agreement?

(d) Whether the defendant is entitled to :-

(i) $975,000 being the alleged remaining balance of the price of 50,000 sets keychain; and

(ii) $60,119.05 being half of the costs of the moulds manufacturing the requested souvenirs?

Credibility of Witnesses

42.  The whole case turns on the credibility of the witnesses.  In assessing the credibility of a witness’s evidence, the followings are to be considered (see SFC v Yin Yingneng Richard & Ors, HCMP 2502/2012, 16 January 2015, §§58-60):

(a) whether the evidence is inherently plausible or implausible;

(b) whether the evidence is consistent with the witness’s conduct and contemporaneous documents, if any;

(c) where it is shown that the witness has been discredited over one or more matters to which he has given evidence using the above tests.  This is relevant to the assessment of his overall credibility; and

(d) the demeanor of the witnesses.

43.  Having heard the evidence of the plaintiff and the defendant, I do not find the defendant to be a credible witness.  His version of the event is inherently implausible.  His demeanor in the witness box is shifty and whenever he could not give a plausible explanation under cross-examination, he would say that the stroke he suffered had caused him a loss of memory or his health problem prevents him from participating in the dealings with either the plaintiff or Mr Yuan.  Yet, there is no medical evidence adduced before this court as to his health problem and how the stroke suffered had affected his memory or his life.  From the observation in court, I agree with Mr Liu for the plaintiff that the defendant did not appear to have such memory lapse as he alleged.  The only problem the defendant seemed to have is selective memory, like he said he could remember the issue about money but not the rest (『錢我記得好清楚，其他我唔記得』).

44.  The gist of the defendant’s case is that he was only asked by the plaintiff to secure the production of the New Souvenirs and whatever he did was done for and on behalf of the plaintiff and he had nothing to do with the goods.  If this is the case, one would wonder why he was prepared to do so when he had no interest in or benefit from this dealing.  And it is also beyond belief that he was prepared to give up the 1^st and 2^nd Deposit in the 1^st Agreement and also to pay another $290,000 odd in the production of the New Souvenirs when he was just a go between.  The defendant also kept saying in his evidence that because of his health problem, he had been staying in China to take rest and did not have the ability to deal with so many things for the plaintiff and that’s why the plaintiff had direct dealing with Mr Yuan.  If this is the case, why would he agree to take up the request of the plaintiff in the first place.  And if he had nothing to do with the New Souvenirs or the New Keychain, why did he take back the 70 boxes of the New Keychain from the Shop in January 2012?  Most importantly, the defence case raised in this case is inconsistent with the defence filed by the defendant in the SCT proceedings (page 164 of Bundle) in which he alleged that the New Keychain was products of a joint investment between him and the plaintiff.  I found the defendant’s evidence contradictory.

45.  The explanation by the defendant as to the deduction of $20,000 by the plaintiff was also illogical. Initially, under cross-examination, the defendant said that he did not know the reason why the plaintiff deducted the same.  If this was a unilateral move on the part of the plaintiff without the consent of the defendant, why didn’t she deduct the 3^rd Deposit all in one go when the defendant also accepted that the business turnover for the 1^st Agreement could reach $300,000 a month.  And why would the plaintiff just deducted once in a month by installment.  And there is no sensible explanation offered by the defendant as to why the plaintiff deducted the money since September 2011 when, according to the defendant, the plaintiff had already agreed to a variation of the 2^nd Agreement to the 3^rd Agreement in August 2011. The defendant also agreed that it was unreasonable for the plaintiff to deduct the money, if so, why would he accept the deduction with reluctance. On the contrary, the plaintiff’s series of event sits well to explain about the timing of the deductions.  Such deduction by installment also supports the evidence of the plaintiff that she had nothing to do with 金元寶 and she was only dealing with the defendant.  If not, why can’t the plaintiff just approached 金元寶 for the return of the deposit?

46.  The defendant is trying to paint the picture that other suppliers, including Mr Yuan of 金元寶 refused to have any business dealing with the plaintiff since they have no trust in the plaintiff.  If so, why would Mr Yuan be prepared to liaise with the plaintiff directly in the production of the New Souvenirs?  And if the plaintiff had been liaising with Mr Yuan directly, why would they need to tell the defendant about the costs of the products and the variation of the material.  And if there had been direct communication between the plaintiff and Mr Yuan, why would the plaintiff keep asking the defendant as to when the goods would be ready after July 2011 (this being a fact admitted by the defendant under cross-examination).  And if Mr Yuan and the plaintiff could liaise directly, why would the plaintiff need the defendant to be involved and why the defendant said that he had to be accountable to the plaintiff under cross-examination?

47.  As far as the time of handing over the finalized samples to the plaintiff is concerned, the defendant had given different versions in this regard.  In his witness statement dated 22 August 2013, he said before June 2011, the plaintiff had already been shown the finalized sample and confirmed the same.  Under cross examination, when it was put to him that it was illogical for the finalized sample to be shown to the plaintiff in June 2011, the defendant changed his version by saying that what he meant was just the sample made of wax and not the finalized sample.  When being queried that he was changing his evidence after hearing the evidence of the plaintiff, the defendant explained that he was just a go between and most of the dealings were done by the plaintiff and Mr Yuan and that’s why he had made the mistake about the finalized sample.  It is the evidence of the defendant that Mr Yuan was aware of this litigation and was closely monitoring this litigation.  If so, why did the defendant not call Mr Yuan as his witness when Mr Yuan, and not the defendant, was in a better position to rebut the plaintiff’s case?  It is now well established law that adverse inferences can be drawn against a party who fails to call a material witness to give evidence at trial or fails to produce material evidence on matters peculiarly within the knowledge of a party and that party might be expected to have material evidence to give on the issue (See Ng Choi Sang v Chu Yu Tin [2009] 4 HKLRD 747 at 757-759).  I am entitled to draw an adverse inference against the defendant that if Mr Yuan had been called to give evidence, such evidence would not have supported the defendant’s case.

48.  Whilst the defendant said in the witness box that he had left 3 to 6 pieces of the finalized sample with the plaintiff, this was not mentioned in his own witness statement.  When being pointed out to him that he had given different versions namely, from never mentioned about leaving the samples with the plaintiff in the Defence (dated 21 September 2012), Amended Defence (dated 12 April 2013) and in his witness statement (dated 22 August 2013), to leaving 1 piece of sample with the plaintiff in the Re-Amended Defence (dated 14 May 2014), the defendant then tried to put the blame on his health problem.  Eventually, he said that he could say for sure that he had left the finalized sample with the plaintiff but could not recall the exact number of samples.  If what the defendant said was true, why did he not raise this in the first opportunity for him to answer the allegation but only waited till after his witness statement filed.  The shifted version of whether it was the defendant or Mr Yuan who showed the finalized sample to the plaintiff is another example to demonstrate that the defendant is prepared to change his evidence to suit his case.

49.  The defendant’s case is that the 2^nd Agreement had been varied to the 3^rd Agreement with the material of the keychains being changed from coloured glass to resin and metal, a comparatively cheaper material.  There was not even a single piece of documentary evidence to support the same.  If this is the case, why would the costs of the product not varied?  The defendant said that the plaintiff had not asked for a variation.  This is beyond belief and not in commercial sense.  And when asked why the plaintiff was not required to sign or acknowledge anything after the variation, the defendant said that this was not done because there was trust.  Given the allegation that Mr Yuan had no trust in the plaintiff and not even prepared to deal with her, how would this trust be in place?  

50.  And when being asked about the fact that the defendant had paid more than $670,000 to Mr Yuan with only 5,400 sets of New Keychain being delivered, the defendant said that due to his stroke, he didn’t want to have further trouble so he had not followed up on this (『我病我唔想攪咁多嘢喇』).  This is incredible given the substantial amount of money paid by the defendant himself. 

51.  Mr Yip for the defendant had also raised a number of attack on the credibility of the plaintiff.  I found they are either not substantiated or did not affect my assessment of the credibility of the plaintiff.

52.  The plaintiff may have lodged a claim in a much lesser figure in the SCT, but I accept the explanation of the plaintiff given the fact that she was not represented then. In any event, the plaintiff must have told the SCT of the other sums involved in this case, if not, the SCT would not have transferred the case to the District Court.

53.  Mr Yip also submitted that the suggestion by the plaintiff of marked up $1 for the costs of the mould is not credible since there is no evidence to show that 金元寶 had agreed to waive such payment or allow late payment. But I found this to be consistent with the plaintiff’s contention that this was none of the plaintiff’s concern and it was for the defendant to deal with 金元寶 in settling the same.

54.  The plaintiff agreed under cross-examination that she had once gone to China with the defendant for the purpose of inspecting the sample when Mr Yuan was also present.  Mr Yip submitted that this was contradictory to the denial by the plaintiff that she had any contact with Mr Yuan.  I found this attack to be misconceived.  The plaintiff denied ever contacting Mr Yuan on her own and in any event, she was going to China with the defendant.  I do not agree that just this China trip could be taken that the plaintiff had been contradicting herself.  It is also suggested by Mr Yip that it would be absurd for the parties not to discuss about the technical limitations of coloured glass.  But there is no evidence as to what had been discussed during this trip which was in May 2011, a time when the product had not been put to manufacture.  In any event, the defence case is that the problem with the coloured glass was only told in August 2011, it would not be surprising that such issue was not discussed at this China trip.

55.  Mr Yip also submitted that there is no evidence to show that 2 out of the 6 keychains have to be made of coloured glass is a condition of the contract, hence the plaintiff had failed to prove a breach of the contract.  This is not something raised by the defendant in its pleadings or witness statement.  In any event, I found the material named under the 2^nd Agreement must be a condition of the contract which goes to the root of the contract.  According to Chitty on Contracts 31^st ed. Vol. 1, conditions are terms that :

“… go so directly to the substance of the contract or, in other words, are so essential to its very nature that their non-performance may fairly be considered by the other party as a substantial failure to perform the contract at all.” (at §12-026)

I found the failure in using the named material, ie coloured glass in the making of the New Souvenirs falls squarely in the definition quoted above, ie the non-performance of it will be a substantial failure to perform the contract.

56.  Having considered the evidence and on a balance of probability, I accept the evidence of the plaintiff. 

57.  Found as a fact that it was the defendant who proposed to manufacture the New Souvenirs and not the plaintiff.  The plaintiff had paid a sum of $200,000 as deposit for the New Souvenirs.  Yet, the New Souvenirs could not be produced and in August 2011, the defendant had promised to refund the 3^rd Deposit to the plaintiff by monthly installment of $20,000.  This is why the plaintiff had deducted the said amount from the money due to the defendant in September and October 2011.  The plaintiff had never agreed to a variation of the material of the New Souvenirs, ie there was never a variation of the 2^nd Agreement to the 3^rd Agreement and it was the defendant who had arranged for the New Keychain to be produced which the plaintiff mistaken to be the New Souvenirs under the 2^nd Agreement.  When the defendant showed the plaintiff the finalized sample of the New Keychain in November 2011, the defendant had only stayed for few minutes and had not left the samples with the plaintiff, nor had the plaintiff confirmed her acceptance of the samples.  The plaintiff only discovered that the New Keychain was only made of plastic on 7 December 2011.  Thereafter, the plaintiff had indicated to the defendant of a rejection of the goods and asked for a refund of the money paid.

Answer to the Issues Posted

58.  In view of the factual findings at §57 above, Issue (a) must be answered in the affirmative in the sense that the defendant had breached in the 2^nd Agreement by failing to provide the New Souvenirs made of coloured glass and the deduction by the plaintiff of $20,000 in September and October 2011 were made with the consent of the defendant.  And there was never any agreement between the parties or between the plaintiff and Mr Yuan to vary the 2^nd Agreement to the 3^rd Agreement which had never been in existence.

59.  As for Issue (b), it is the submission by Mr Yip for the defendant that the handing over of the New Keychain to the plaintiff in December 2011 should considered as a sale by sample and a new agreement had been entered into by the parties.  I found this contention is misconceived and not in line with the evidence of the defendant. According to the defence case, the New Keychain was being made as a result of the agreement between the plaintiff and Mr Yuan for the change of material in the 2^nd Agreement which become the 3^rd Agreement.  It was never intended to be a sale by sample nor a separate agreement between the plaintiff and the defendant.  As found in the case of Chi Choi Company Limited v Hong Kong Association of Youth Development Ltd (HCSA 21/2013, unreported, 6 September 2013), “a sale by sample is a sale whereby the seller expressly or impliedly promises that the goods sold should answer the description of a small parcel exhibited at the time of sale, but the mere fact that a sample is exhibited during negotiation for a sale does not necessarily mean that the sale is by sample” (at §20).  In any event, even if this is a sale by sample, there is no evidence that the sample had been supplied to the plaintiff for her “to compare the bulk with the sample” as required under section 37(2)(b) of the Sale of Goods Ordinance (“SOGO”).  I rejected the evidence of the defendant in this regard and the answer to Issue (b) must be a “No”.

60.  For issue (c), the plaintiff admitted liability during trial, so it is no longer in issue.

61.  For issue (d), given the factual findings above, the defendant’s counter-claim must fail.  In any event, the defendant had failed to prove that he had sustained the loss alleged. Nor had the defendant show that he had done anything to mitigate his loss.  It would be beyond belief that the defendant had not tried to strike some sort of settlement with Mr Yuan regarding the rest of the New Keychain and the deposit paid.

62.  It is also argued on behalf of the defendant that since the plaintiff had reasonable opportunity to inspect the goods after delivery, section 37(4) of the SOGO comes into play and the plaintiff should be considered to have accepted the New Keychain in December 2011 and was not entitled to reject the same.

63.  Mr Liu for the plaintiff argued that the plaintiff did complain and rejected the goods within reasonable time given the fact that :

(a) The mode of sale is that the plaintiff was just selling the goods to the defendant’s customers;

(b) The difference in material was not readily detectable when the keychains were packed in a box with plastic cover;

(c) Large quantity of goods involved; and

(d) Complaining to the defendant right after the ultimate consumers returning the goods.

64.  It is further submitted by Mr Liu that it is not in dispute that after 1 and a half month, the defendant saw fit to collect all the available sets from the Shop, leaving only 6 boxes with the plaintiff.  Even if it is the court’s finding that the plaintiff had accepted the goods, this should be reflected in the findings and the liability of the plaintiff should only confine to the 6 boxes left.

65.  According to the plaintiff, the New Keychain was being delivered on 1 December 2011 and by 7 December 2011, when the New Keychain was returned by some coach drivers, she discovered they were not made of coloured glass.  And it is also the evidence of the plaintiff that she had not inspected the goods since they were goods to be sold to the defendant’s clients only and not hers because she still got other goods from other suppliers to be sold to her own clients.  In any event, she found the agreement with the defendant being fell through so the goods are goods of the defendant only and not her concern, least to say to inspect the same.

66.  The issues about whether the plaintiff had lost the right of rejecting the goods by operation of law under the SOGO had never been pleaded by the defendant.  This explains why such an issue had not been included in the Agreed Revised Statement of Issue submitted by the parties.  There is no cross-examination of the plaintiff on the circumstances between the date of delivery and the date when the defendant took back most of the New Keychain.  This issue had not been considered fully with viva voce evidence.  I don’t think it would be fair to the plaintiff for the defendant to raise this at final submission and this court should refrain from dealing with the same.

67.  Even if I am wrong on this, I accept the submission of the plaintiff and found there had not been reasonable opportunity to inspect the goods and to discover the fact that the goods are not made in coloured glass after their delivery.  In coming to this conclusion, I accept the evidence of the plaintiff. 

68.  There was only a lapse of 7 days from delivery to discovery of the different material involved. No sample made of coloured glass had ever been shown to the plaintiff.  There is no evidence to show that the plaintiff should be able to differentiate between the different materials.  The New Keychain had been sold to the coach drivers and they had not detected the difference in material during the sale but only after some time.  This supports the contention that the difference was not readily detectable or readily obvious, possibly due to their packaging. 

69.  And given the nature of the business arrangement between the plaintiff and the defendant, ie the defendant supplied the goods to the plaintiff for sale to their respective clients and the New Keychain had only been sold to the defendant’s clients, the plaintiff had not done anything inconsistent with the ownership of the defendant. 

Conclusion

70.  Judgment should be entered against the defendant for the amount claimed by the plaintiff.  And except for the claim for the January Proceeds of $18,315 in the counterclaim, the counterclaim should be dismissed.

Costs

71.  Costs should follow the event.  The plaintiff should have costs of this action.

Order

72.  It is ordered that :

(a) The defendant do pay to the plaintiff the sum of $383,805.00;     

(b) Except for the $18,315 admitted by the plaintiff, the counterclaim of the defendant is dismissed; and

(c) Costs order nisi that costs of the action be to the plaintiff, including all costs reserved, 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.