XCHRX PANASONIC SHUN HING INDUSTRIAL SALES (HONG KONG) CO. LTD. v. TECHWIN ELECTRONIC LTD.

1997, No. A5689

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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The Facts

1. On 8 May 1996, the defendant sent a purchase order to the plaintiff in respect of 600,000 micro motors for a price of US$300,000, specifying payment by letter of credit and delivery of 300,000 in July and 300,000 in August 1996. This order was accepted by the plaintiff.

2. On 20 May 1996, the plaintiff ordered these motors from its supplier. Between 24 May 1996 and 30 August 1996, the supplier delivered the motors to the plaintiff in 6 consignments. By 26 June 1996, the supplier had delivered 350,000 motors.

3. On 5 September 1996, the defendant opened a letter of credit for the delivery of 100,000 motors before 15 September 1996. These were delivered on 9 September 1996. On 26 September 1996, the defendant opened another letter of credit for 100,000 motors for delivery before 10 October 1996. These were delivered on 2 October 1996.

4. The other 400,000 motors were not delivered.

5. Thus far, the facts are not disputed.

6. On 28 May 1997, the plaintiff issued a writ claiming the balance of the purchase price or damages. In January 1998, the plaintiff applied for summary judgment. In May 1998, the plaintiff obtained judgment for damages for non-acceptance of goods to be assessed. The defendant appealed against that judgment. This appeal is now before me.

The Dispute

7. The plaintiff's case is that the defendant refused to accept delivery of the remaining 400,000 motors. The defendant says that it repeatedly chased the plaintiff, the plaintiff failed to deliver and the defendant justifiably cancelled the contract in October 1996.

8. In an affirmation dated 2 June 1997 in support of an application to represent the defendant, Mr Cheung Ngam Lam (Mr NL Cheung) said the business turnover of the defendant "had decreased significant from Oct., 1996 to present i.e. May 1997 as a result the company have a big cash flow problem. Accordingly, there is not enough fund for the company to hire solicitor."

9. In his affirmation in opposition to the application for judgment, Mr NL Cheung said that he had read the affirmation filed by Mr Kobatake on behalf of the plaintiff. Mr NL Cheung says that he spoke to Mr Benjamin Mo (Mr Mo) in April 1996. Mr Mo introduced himself as a new sales representative for the plaintiff. Mr Mo told him to speak to him about orders. Mr NL Cheung issued the purchase order dated 8 May 1996. In July 1996, he met Mr Mo again, and Mr Mo introduced Mr Kobatake. Mr NL Cheung understood that Mr Kobatake was "looking after the sale of micro motors" for the plaintiff. Mr NL Cheung says that "I do not recall ever speaking to either Mr Mo or Mr Kobatake in respect of the alleged conversation deposed to in paragraph 12 of Mr Kobatake's affirmation.".

10. In that paragraph 12, Mr Kobatake says that on 12 July 1996 Mr NL Cheung promised to take delivery of the 600,000 motors but requested the delivery to be re-scheduled between August 1996 and October 1996. Mr Kobatake reported this to the plaintiff, and he produces his written report in support.

11. Mr NL Cheung says that "in or around the end of August 1996" he spoke to Mr Mo on a number of occasions asking for delivery of the motors and threatening cancellation. Sometime before 5 September 1996, Mr NL Cheung spoke to Mr Mo again, repeating his demand for delivery and threatening cancellation.

12. On or about 5 September 1996, Mr Mo visited his office. Mr NL Cheung says that Mr Mo said that the plaintiff could deliver only 200,000 motors; 100,000 that month and 100,000 in October, and would deliver the other 400,000 motors as soon as possible. Mr NL Cheung says he accepted this, but said that unless the 400,000 motors were delivered within a reasonable time, he would cancel the order. Mr Mo asked for a letter of credit for 100,000 motors. Mr Mo said the address for the letter "should be '11th Floor, Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong.' It is our company's financial centre.". Mr NL Cheung says that he was not advised of the plaintiff's new address or told that he should address correspondence to the address given by Mr Mo. He says he first became aware of the plaintiff's new address when he received the plaintiff's letter of 17 April 1997.

13. Mr NL Cheung admits the deliveries of 200,000 motors. He says that during the period between September and October 1996 he repeatedly asked Mr Mo by telephone for the balance of 400,000 motors. Mr Mo promised to chase up the matter. Mr NL Cheung threatened cancellation again. Mr NL Cheung says that he followed up these telephone calls by his letters of 25 September 1996 and 11 October 1996, and another letter of 30 October 1996.

14. The letter of 25 September 1996 is addressed to the plaintiff at its old address, is marked "ATTN: SALES DEPT/MR T. YU", and says -

"Dear Mr Yu,

Kindly please inform us the delivery schedule for outstanding balance of goods under our P.O. No. FTP1164, we are going to collect the goods when they are ready."

15. Although what Mr NL Cheung says he produces is only a copy of the letter he says he sent, it is signed with his manuscript signature.

16. The letter of 11 October is similarly addressed and says -

"Dear Mr Yu,

We refer to our letter dd 25 September 1996, we still do not receive any positive answer from you about the outstanding balance of goods under our P.O. No. FTP1164. Can you immediate inform us about the delivery schedules by return. Thanks!

If we still do not receive any answers by return we will cancell our P.O. then."

17. This copy is also signed with Mr NL Cheung's manuscript signature.

18. The letter of 30 October 1996 reads -

"Dear Mr Yu,

Please be informed that this is a formal advice for the cancellation of the outstanding balance of our P.O. No. FTP1164."

19. Again this copy from the defendant's files of a letter sent by the defendant is signed in manuscript by Mr NL Cheung.

20. Mr NL Cheung says that "I do not recall speaking to Mr Mo in respect of the alleged conversation deposed to in paragraph 16 of Mr Kobatake's affirmation". In this paragraph, Mr Kobatake tells of a meeting between Mr Mo and Mr NL Cheung on 12 December 1996 in which Mr NL Cheung explained that he could not take delivery of the 400,000 motors because his "Chinese competitor" was charging lower prices and he could not get orders from his main Indian market. Mr NL Cheung says, on that occasion, he recalls that Mr Mo said that the plaintiff "has asked me to request you take delivery of the remaining 400,000 motors", and he relied "The purchase order has been cancelled because your company was not in a position to fulfil the order. The order is now effectively cancelled."

21. In his third affirmation, Mr NL Cheung produces a bundle of purchase orders from the defendant's customers. These purchase orders do not relate to motors. Mr NL Cheung does explain how they are relevant.

22. That was the defendant's case on the papers. However, the plaintiff produced a copy of a fax message sent by Mr Mo to the defendant on 15 January 1997. This said -

"According to our record the above P/O:FTP1164, issued at May, 10, 1996 and the balance qty 400Kpcs has not been settled.

We regret having to remind you that we have not received any delivery instruction from you. Please prepare L/C and cargo receipt A.S.A.P."

23. Mr NL Cheung had not dealt with this message in his evidence so, because the defendant was not represented, I gave him the opportunity to do so. Mr NL Cheung said that he had replied to it, but, after I had risen to enable him to find the reply, he said that, in fact, he had not replied to it. What he was thinking about was his letter of 19 March 1997 produced by the plaintiff. He did not explain why he had not replied to the fax message of 15 January 1997.

24. The plaintiff's letter of 14 March 1997 made no reference to the letters Mr NL Cheung says he sent to the plaintiff in September and October 1996, and demanded that the defendant take delivery of the balance of 400,000 motors by the end of March 1997. Although Mr NL Cheung says that first became aware of the plaintiff's new address when he received the plaintiff's letter of 17 April 1997, the plaintiff's letter of 14 March recites its new address.

25. The defendant's reply of 19 March 1997 is addressed to the plaintiff at its old address. Nevertheless, the plaintiff received it through the post office redelivery service on 26 March 1997. This letter said -

"Dear Mr Kobatake,

We are very surprised with your letter dd 14 March 1997. The outstanding balance of our P.O. No. FTP1164 had been treated cancelled because we were unable to contact your sales staff Mr T Yu for the delivery schedules.

We had sent three formal letters to Mr Yu but unfortunately we did not receive any answers by return."

26. There is a note on the bottom of this letter. It says - "Please refer our letters dd 25/9/96, 11/10/96 & 30/10/96 (as attached)"

27. The plaintiff wrote another letter to the defendant dated 25 March 1997. This letter complains again that the defendant has not taken delivery of the balance of the motors. The letter makes it quite clear that the plaintiff has heard nothing from the defendant. It also threatens legal action. In spite of the fact that it must have been clear to Mr NL Cheung from this letter that the plaintiff had not received his letters of September and October, he says that he did not reply to it. He explains this by saying that this was because this letter of the 25 March was the same as the one of 14 March.

28. When the plaintiff received the defendant's letter of 19 March 1997, it replied to the defendant setting out a detailed chronology of all that happened. Mr NL Cheung replied to this on 24 April 1997. This is a strange letter. It starts by reciting broken promises by the plaintiff's predecessor, and saying that the defendant never took legal action. The letter then comments that the plaintiff 's letter details discussions between Mr Kobatake, Mr Mo and Mr NL Cheung. Mr NL Cheung then says "I doubt the contents of your letter. Would you swear that content about the period from 8th May 1996 to 15 January 1997 is true, correct and sincere?" Nowhere in this letter does Mr NL Cheung say, in a straightforward manner, that the defendant cancelled the contract because the plaintiff failed to deliver. The letter then complains that he was not told of Mr Yu's resignation, although, on his own version, Mr NL Cheung never had any dealings with Mr Yu over this order.

29. It is significant to note that Mr NL Cheung wrote two letters to the plaintiff on 19 March 1997. The first I have recited above. The second refers to the plaintiff cancelling orders in the past. This is of no relevance to this action, save that Mr NL Cheung sends copies of two letters dated 1993 from the defendant's files. The first is a copy of a hand-written fax and is, as one would expect, signed by Mr NL Cheung. The second is a copy of a typed fax, and this, again as one would expect, is not signed by Mr NL Cheung.

Assessment of the Defence

30. The question I have to decide is whether the defence put up by the defendant is believable.

31. At around the relevant time, the defendant was in financial difficulties.

32. The plaintiff obtained the motors from its supplier so they were available for delivery to the defendant. There is no probable reason why the plaintiff would not have delivered them to the defendant, if the defendant had been willing to take delivery and pay.

33. Mr NL Cheung is wishy-washy about his version of the conversation with Mr Kobatake on 12 July 1996. Mr NL Cheung must have known, that on his version, what Mr Kobatake said in his affirmation was a lot of nonsense. But he does not say so; only that he does not recall the conversation.

34. Mr NL Cheung speaks about demanding delivery from Mr Mo. But his letter of 19 March 1996 complains about being unable to contact Mr Yu "for the delivery schedules". Mr NL Cheung says that between September and October 1996 he repeatedly asked Mr Mo for delivery. Yet, he says, at the same time, he was writing to Mr Yu complaining about non-delivery. All the defendant's dealings with the plaintiff about this order were with Mr Mo or Mr Kobatake. There is absolutely no reason why the defendant should seek to communicate with Mr Yu over this order. And the strong probability is that, if Mr NL Cheung had attempted to contact Mr Yu "for delivery schedules", he would have been told that Mr Yu was no longer employed by the plaintiff.

35. The defendant issued two letters of credit using the new address of the plaintiff, yet he does not use this in corresponding with the plaintiff. Even when he receives the letter from the plaintiff dated 14 March 1997 using this new address, he still writes to the old address. Nevertheless, this letter arrives at the new address. It is improbable that this would have been delivered promptly, but not one of the other three letters. It is not true that Mr NL Cheung did not become aware of the new address until the plaintiff's letter of 14 April 1997. If Mr Cheung was seriously trying to contact the plaintiff to obtain delivery, he would have tried the address that was given to him by Mr Mo.

36. The copies of letters Mr NL Cheung says he sent to the plaintiff are signed by him. It is not usual to sign copies of letters placed on file. Indeed, the only clearly genuine copy typed letter from the defendant's files written by Mr NL Cheung is not signed.

37. Again, Mr NL Cheung is weak in dealing with Mr Kobatake's evidence of the conversation with Mr Mo on 12 December 1996. This evidence is totally inconsistent with the defendant's case, but Mr NL Cheung does not, as one would expect, condemn it as rubbish. He admits that Mr Mo asked him to take delivery of the remaining 400,000 motors. He says his response to this was to say - "The purchase order has been cancelled because your company was not in a position to fulfil the order. The order is now effectively cancelled." He does not say - "Don't be silly. As you well know, I cancelled the order way back in October." He does not say he mentioned to Mr Mo the letters he says he wrote.

38. Mr NL Cheung did not reply to the plaintiff's message of 15 January 1997. This message is totally inconsistent with the defendant having cancelled the order in October, and Mr NL Cheung must have known this. Yet he does not hasten to deny that the contract is still subsisting.

39. Mr NL Cheung did not reply to the plaintiff's letter of 25 March 1997. His explanation for not doing so is unbelievable. Any reasonable person, having cancelled the order for good reason in October 1996 and receiving this letter in March 1997 ignoring the cancellation and threatening legal action, would have responded promptly, asserting the correct position.

40. Mr NL Cheung's letter of 24 April 1998 is not consistent with a letter written by an aggrieved customer who has been treated badly and then told a litany of lies. He does, in a half-hearted manner, challenge the lies, but he does not, as one would expect, say clearly that they are lies, and say that, as the plaintiff well knew, he cancelled the order for good cause in October. And again Mr NL Cheung raises the red herring of Mr Yu, well knowing that all his dealings over this order were with Mr Mo or Mr Kobatake.

41. The unavoidable conclusion that must be drawn from this totally unsatisfactory story raised as a defence is that it is incredible. There is, in my view, not the remotest chance of it being believed by any court.

The Result

42. In the result, the appeal is dismissed, and the judgment entered by the Master is confirmed. The defendant is ordered to pay the plaintiff's costs here and before the Master.

JK FINDLAY

Judge of the High Court
Court of First Instance