COWEALTH MEDICAL SCIENCE & BIOTECHNOLOGY INC v. WORLD CAPITAL PACIFIC LTD

HCA1122/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1122 OF 2006

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REASONS FOR JUDGMENT

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1.     The plaintiff is a Taiwan company.  It is a sole agent and distributor of “CyberKnife” which is an electronic surgery knife involving high technology.  Accuray Inc is a US company and the manufacturer of CyberKnife. 

2.     On 7 March 2005, the plaintiff entered into two written sale and purchase agreements (“the 1^st and 2^nd Agreements”) in respect of 6 and 4 more units of CyberKnife respectively. 

3.     By a Chinese Letter of Confirmation Agreement, the parties herein confirmed the validity of the 1^st and 2^nd Agreements and the acceptance of the 1^st  L/C and the 2^nd L/C.  They were issued for payment of the 6 and 4 units of the 1^st and 2^nd Agreements respectively.

4.     Pursuant to the agreements and the instructions of the defendant :

(i)	4 units of CyberKnife were shipped to Tianjin on 27 August 2005 (the “First Four Units”);
(ii)	3 units were shipped to Tianjin on 21 October 2005 (the “Next Three Units”); and
(iii)	3 more units were shipped to Tianjin on 28 October 2005 (the “Last Three Units”).

5.     Proper custom clearance was done for the First Four Units and the Last Three Units respectively and 90% of the L/C value thereof had been paid by the defendant subsequently.

10% balance

6.     According to the terms of the 1^st and 2^nd L/C and Article 9 of the 1^st and 2^nd Agreements, the remaining 10% of the invoice value of the First Four Units and the Last Three Units should be paid after installation and testing or alternatively by the defendant on indemnity basis within three months after shipment if the delay was not caused by the fault of the plaintiff. 

7.     The said three months period had expired and the defendant had failed to confirm the places for installation and testing of the 7 units of CyberKnife.  They had also failed to pay the remaining 10% balance of the First Four Units and the Last Three Units.

8.     Hence, the plaintiff is now claiming against the defendant a sum of US$2,081,000.00 being the said 10% remaining balance.  It should be noted that the Next Three Units had been shipped back to the manufacturer according to the direction of the plaintiff.

Discount interest

9.     The L/C for the Last Three Units was 180 days L/C.  On 30 December 2005, the defendant agreed to permit Accuray to arrange the L/C to be negotiated and discounted through the L/C advising bank and to bear the discount interest in respect thereof from 30 December 2005 onwards at the rate of 6.2%.

10.     By a letter dated 11 January 2006, the defendant asked the plaintiff to confirm its calculation of interest.

11.     On 8 February 2006, a debit note was sent to the defendant for reimbursement of the discount interest.

12. On 4 March 2006, the defendant, in writing, agreed to pay the discount interest in the sum of US$200,880.00 to the plaintiff by 7 March 2006.  The defendant has still failed to pay the aforesaid amount to the plaintiff by way of discount interest. 

The defendant’s defences

13.     The defendant contended that although the purchase of 10 units of CyberKnife were made under two agreements, the parties actually treated the purchase of 10 units as one transaction. 

14.     However, the CyberKnife as submitted by the plaintiff, is a very advanced radiosurgery system and the purchase thereof involves very extensive ancillary works.  Thus I accept the plaintiff’s submission that the installation of each single unit should be managed as an unique project. 

15.     Secondly, the defendant alleged that the plaintiff has failed to rectify certain alleged discrepancies of the documents submitted under the 1^st L/C.  However, those alleged discrepancies in the documents under the 1^st L/C were related to the Next Three Units only and they are not the subject matter of this summary judgment application (which is only concerned with the First Four Units and the Last Three Units).

16.     The defendant alleged that the transactions were disrupted because of the aforesaid plaintiff’s failure to procure Accuray to rectify those alleged discrepancies in the 1^st L/C.  It further alleged that the sole cause of the delay in the installation was because of those discrepancies arising from the 1^st L/C.  

17.     The defendant said that it has attempted to pay the 10% outstanding balance but Accuray had acted unreasonably and failed to sign a letter of guarantee for the installation of CyberKnife as proposed by the defendant.

18.     Thus the defendant said that the plaintiff had acted in breach of Clause 9 of the 1^st and 2^nd Agreements and it was therefore not entitled to rely on the indemnity clause against the defendant.

19.     However, the alleged discrepancies of the 1^st L/C were immaterial and invalid since the documents presented for the Last Three Units for payment were almost identical to those of the Next Three Units.  But there were no such alleged discrepancies raised by either of the two banks : HSBC and/or ABC.

20.     In any event, the Letter of Credit or the documents involved in the sale and purchase of the goods is a separate contract from the sale of goods contract itself.  The working of the documentary credits are governed by the Uniform Customs and Practice for Documentary Credits (1993 Revision) ICC Publication No. 500 (“UCP500).  Article 3 of UCP500 provides that the credit is separated from and independent of the underlying contract of sale. 

21.     In any event, there is no legal duty on the seller to cooperate with the buyer to finalise the terms of credits (see Siporex Trade SA v. Banque Indosuez [1986] 1 Lloyd’s Rep. 146 at p.162).

22.     Thirdly, the defendant alleged that there had been several subsequent oral agreements referred to as the Shanghai Oral Agreement, Shengzhen Conferences, Telephone conference, and the Quadrilateral Conferences.  It alleged that they in effect varied the 1^st and 2^nd Agreements and the defendant was not liable to the discount interest and the outstanding 10% balance.

23.     However, according to the evidence before this court, the memorandum of the Shengzhen Conference signed by the plaintiff concerned with the Next Three Units only and again they are not the subject matter of this summary judgment application.  The other memorandum dated 16 January 2006 had not been signed by the plaintiff.  

24.     Although the evidence from the plaintiff according to its Philip Yang was only hearsay evidence that he was told and verily believed that there was no oral agreements reached between the parties in the Quadrilateral Conference, the oral variation, if any, is not admissible as it was intended to be adduced as evidence to contradict a written agreement. 

25.     In any event, those alleged additional obligation of the plaintiff is not supported by any consideration.  It has been said that “an agreement whereby one party undertakes an additional obligation, but the other party is merely bound to perform his existing obligations, or an agreement whereby one party undertakes an additional obligations, but for the benefit of that party alone, will usually not be effective to vary the contract, as no consideration is present” (see Chitty on Contracts, 29^th Edn, paragraph 22-035).

26.     After the master’s decision in granting summary judgment, the defendant further alleged that their marketing manager of one World Medical Investment Limited (which is a related company of the defendant) had in around March/April 2005, submitted to the plaintiff a list of prospective hospitals for the installation of CyberKnife.  

27.     In May 2005, the manager had made arrangements for the plaintiff and the American manufacturer Accuray to visit eight hospitals.  It is alleged that the plaintiff had failed to submit any formal inspection report or advice or how to proceed further with the site preparation.  In the circumstances, the defendant said that it could not confirm the final list of hospital to be installed with CyberKnife.  Thus, it said that the delay was caused by the plaintiff and not by the defendant and therefore the plaintiff is not entitled to activate Clause 9 of the Sale and Purchase Agreement for the payment of the 10% balance.  

28.     However, in May 2005 after various sites inspection, the plaintiff had submitted a summary of site inspection findings prepared by Accuray to the defendant (see p.97A3).  The report appeared to be in note form and the defendant alleged that they were not proper and formal reports.  However, together with the report, Accuray has submitted very detailed drawings of the sites and suggested where the CyberKnfie could be installed in respect of each of the hospital they had visited with a number of suggestions as to what installation and construction each hospital would have to do before the machine could be properly installed for operation. 

29.     Moreover on 18 June 2005, the plaintiff had asked the manager whether he had any problem with the post-inspection opinion of Accuray and it had received no reply from them.  Accuray had further invited several named personnel to visit USA for the purpose of training, but there was no reply to their invitation either.  Thus, the delay was caused by those hospitals which have not responded to the preparation and construction works required before a unit of CyberKnife could be installed in those hospitals.  The delay was therefore not the fault of the plaintiff.

30.     Finally the manager further alleged that there was a secret selling of a unit of CyberKnife to Tianjin Tumour Hospital and it had caused their “CyberKnife Joint Venture” to be arranged by the manager to lease one unit to them to fail.  The manager said that as a result of that secret selling, all the cooperation with the plaintiff on the installation of 10 units of CyberKnife had to be suspended.  The defendant said it happened in March to June 2005.

31.     However, Tianjin Tumour Hospital was not on the list of those anticipated end-users.  The two parties have never agreed expressly or otherwise, on any city that franchise would be given.  From the evidence before the court, the defendant was fully aware of the plaintiff’s sale of CyberKnife to Tianjin Tumour Hospital and had never raised any objection to the plaintiff prior to these proceedings.  Further the plaintiff had no knowledge about any “CyberKnife Joint Venture” as alleged by the defendant. 

32.     The plaintiff produced evidence that they only contacted Tianjin Tumour Hospital since September 2005 in a symposium held in Shangdong and that was long after the manager had ceased contact with Tianjin Hospital. 

33.     The defendant alleged that in November 2005, it had already discovered that the plaintiff had secretly sold one unit to Tianjin Tumour Hospital.  Admittedly, the parties had met several times and exchanged documents after that day.  There was not one single complaint or protest or even mentioning of this subject matter. 

34.     In respect of the discount interest agreement, it had been reached in writing on 4 March 2006.  The plaintiff had borne its share of discount interest payable under the 1^st Agreement and 2^nd Agreements.  The defendant before this action started had never raised any objection to the payment of the discount interest.  In fact it had agreed in writing that it would be paid within “the next three days”, i.e. before 7 March 2006. 

35.     The defendant does not dispute about the amount.  It only disputes that it is liable to pay under certain alleged conditions.  Those alleged conditions had never been raised until the proceedings had commenced.  The alleged subsequent oral agreement cannot be led to contradict or vary the written agreement which is clear and unambiguous.  If there were other conditions, they must be clearly stated in the Chinese Agreement and this kind of defence is not sustainable. 

Conclusion

36.     I do not find any of those allegations raised by the defendant genuine, they were just moonshine in order to escape the liability for these two sums.  In fact the defendant is shifting its grounds, as submitted by the plaintiff, in order to create a case to defend.  Its case is not reflected in any of the contemporaneous and documentary evidence.

37.     In the end, I have dismissed the defendant’s appeal with costs to the plaintiff, to be taxed if not agreed.