WO KEE HONG LTD. v. SANJU ENTERPRISES LTD. t/a SANJU AIR-CONDITIONING ENGINEERING

HCA 18214/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 18214 OF 1998

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REASONS FOR JUDGMENT

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Introduction

1. In this action, the plaintiff claimed against the defendant for price of air conditioners sold and delivered under 3 contracts in the total sum of $5,733,122, damages for non-acceptance of 200 sets under one of the contracts in the sum of $364,000 and unliquidated damages for 807 sets returned. The defendant, while not denying the 3 contracts, counterclaimed, inter alia, damages allegedly suffered under the contracts. On 21 November 2000, the defendant was ordered to provide security for the plaintiff's costs in respect of its counterclaim in the sum of $200,000, failing which, the plaintiff may apply to dismiss the counterclaim with costs. The defendant failed to do so.

2. The trial came before me on 11 December 2000. The defendant was absent. Pursuant to the order of 21 November, the plaintiff applied to dismiss the counterclaim with costs. I so ordered. In the course of the trial, the plaintiff abandoned its claim for unliquidated damages. After trial, I entered judgment for the plaintiff in the sum of $5,733,122 and $364,000 respectively with interest at the judgment rate from the date of writ to payment and costs. These are my reasons for judgment.

3. The following is a summary of the undisputed facts and evidence adduced by the plaintiff at the trial. The plaintiff called 3 witnesses: PW1, its project general manager; PW2, its senior sales manager; PW3, its then sales engineer, having retired in February 1999. The defence raised against the 3 contracts are also dealt with in turn.

The first contract

4. The first contract was dated 23 August 1995. The defendant agreed to buy 2,582 sets of air conditioners at the price of $1,500 each. The total price was $3,873,000. The air conditioners were to be collected by the defendant. Until June 1996, the defendant had taken delivery of and paid for a total of 676 sets. On or about 20 June 1996, the plaintiff issued 4 delivery orders for the remaining 1,906 sets to be collected by 15 December 1996 and an invoice of $2,859,000. As evidenced by a handwritten note dated 12 September 1996 and signed by the parties, the plaintiff agreed to pay the defendant "transportation subsidy" at $150 for each of 1,906 sets, totalling $285,900. Between 22 July and 6 August 1996, the defendant took delivery of the 1,906 sets. But the defendant only paid a further sum of $300,000 on or about 10 October 1997, leaving the balance of $2,273,100.

5. The defendant raised the defence of misrepresentation. In mid-August 1995, during a business lunch, Billy Kwan of the plaintiff ("Kwan"), represented to Chan Bing Wong of the defendant ("Chan") that the air conditioners were in high demand in Hong Kong; that they could be easily disposed of at $2,000 each at least; and that they could be sold within a year. PW2 was also present at the meeting. In his evidence, PW2 denied that Kwan had made such representation. Since there was no evidence from the defendant to contradict PW2, I accepted his evidence and found that the plaintiff did not make the misrepresentation as alleged. In any event, I accepted the submission of Mr Lam, counsel for the plaintiff, that it was unreasonable for the defendant who was an experienced dealer trading in air conditioners in Hong Kong for at least 13 years to have relied on the alleged misrepresentation: see Chitty on Contracts, (28th edn, 1999), Vol 1, paras 6-004 to 6-010 at pp 338-341.

6. The defendant put forward a further defence of variation agreement. On 8 July 1997, PW2 and Chan agreed that the re-selling price for the air conditioners be set at $1,500 which was the same as the contract price; and that if any of them was sold below that price, the loss would be borne equally. In this connection, the contemporaneous notes of the meeting kept by PW2, a letter prepared by him subsequently on 22 July 1997 and a short note kept by PW3 also dated 22 July were pertinent. The plaintiff's evidence in short was this. All the PWs attended the meeting on 8 July. The purpose of the meeting was to discuss with Chan regarding the defendant's various debts due to the plaintiff. The plaintiff did agree to bear half of the loss if the air conditioners were sold below $1,500 each. However, PW1 had made it clear to Chan that the agreement was conditional upon the defendant settling the other trade debts in accordance with an agreed time table. But the defendant failed to do so.

7. I had examined the relevant documents. The notes kept by PW2 was a brief record of the meeting. It clearly showed that various debts including that under the first contract had been discussed. It also recorded the plaintiff's agreement to bear half of the loss and a time table for payment of the outstanding debts. So was his subsequent letter. The notes dept by PW3 also showed the time table. I noted that the condition had not been expressly spelled out in the documents. However, I accepted that the documents were not meant to be a complete record of what had transpired during the meeting. It had to be supplemented by oral evidence. In this respect, since there was no evidence to the contrary, I accepted the PWs' evidence. The defence of variation agreement therefore failed.

The second contract

8. The second contract was dated 30 July 1997 in connection with 1,000 sets of Mitsubishi split-type air conditioners at the price of $12,300 each, totalling $12,300,000. The goods were to be collected by the buyer. Between April and May 1997, the defendant took delivery of a total of 720 sets. But it had only paid $2,281,978. It had failed to take delivery of the remaining 280 sets. The plaintiff had resold them at $11,000 each and had suffered a loss of $364,000, being the difference between the contract price and the resale price.

9. The defendant alleged that the second contract was in fact a consignment contract as orally agreed between PW2 and Chan. PW2 in his evidence denied this. Mr Lam asked if it was in fact a consignment, why was there not similar written evidence as for the third contract dated 2 May 1997 which was originally on consignment basis? Further, he complained that the alleged consignment agreement was grossly lacking in particulars. In the circumstances, I was satisfied that the 2nd contract was not on consignment as alleged.

10. The defendant also alleged that about 50 sets were of unmerchantable quality. The plaintiff denied this. According to PW2, after complaints were raised in the meeting on 8 July 1997, he immediately asked for particulars of the alleged defects by a fax dated 21 July. It was followed by another fax dated 4 August. The defendant gave no reply to either. Further, by a report dated 23 March 1998 prepared by Mitsubishi Heavy Industries (HK) Ltd, the supplier of the air conditioners in question, the alleged damage was caused by mishandling during transit from Hong Kong to China. The defendant had not adduced any evidence to the contrary. Accordingly, I was satisfied that this defence must failed as well.

The third contract

11. Initially, the plaintiff engaged the defendant as an agent to transport 1,000 Mitsubishi split-type air conditioners to China and to collect payments on its behalf. The plaintiff had agreed to pay the defendant service fees of $2,000 for each set. On 6 May 1997, the defendant took delivery of 1,000 sets. On 31 May 1997, it delivered 202 sets to Xiamen. The plaintiff accepted that it was entitled to charge $404,000. As to the remaining 798 sets, PW1 and Chan orally agreed to vary the contract to the effect that they should be brought by the defendant at the price of $12,300 each, totalling $9,815,000.

12. The defendant alleged that it was entitled to $2,000,000 by merely taking delivery of 1,000 sets. I agreed with counsel that there was simply no basis for such entitlement.

13. The defendant denied that the agreement had been so varied. Again, in the absence of any evidence to the contrary, I accepted PW1's evidence in this respect.

14. The defendant further alleged that the 202 sets delivered to Xiamen were in fact under the second contract and that 100 sets under the third contract had been seized by the Shantou Customs Authority and the remaining 900 sets had been returned to the plaintiff. There was, of course, no evidence on the alleged seizure.

15. The plaintiff' case, which I accepted, could be summarised as follows. It had delivered to the defendant a total of 1,720 sets of Mitsubishi air conditioners, that is, 720 sets and 1,000 sets under the second and third contract respectively. They were all sold at $12,300 each except the 202 sets under the third contract which had been delivered to the plaintiff's designated client in China. That would leave a total of 1,518 sets. In mid- July 1997, in order to mitigate its loss due to the defendant's failure to pay, the PWs and Chan agreed that the defendant was to return the air conditioners to the plaintiff and the plaintiff would pay the defendant transportation fee of $2,000 for each set. The defendant had duly returned 807 sets. The plaintiff was prepared to give credit of $1,614,000. There remained 711 sets of air conditioners not yet returned. The number tallied with the defendant's case.

16. The plaintiff was prepared to give further credits of $485,300. It had also drawn on a bank guarantee of $500,000 which the defendant had issued in its favour. The defendant alleged that there was an oral agreement that before the plaintiff drew on the guarantee, it must give written demand to the defendant. It was denied by the plaintiff. Further, I had examined the guarantee. The only written demand required thereunder was to be given to the bank, which the plaintiff did.

Conclusion

17. For the above reasons, I accepted that the plaintiff had proved its claim. Under the first contract, the sum due was $2,273,100. Under the second and third contract, the price remained payable was $12,300 x 711 = $8,745,300. Against the sums due, the following credits in the total sum of $5,285,278 need to be given:

(1) $2,281,978, being part payment under the second contract;

(2) $404,000, being the service fees under the third contract for the 202 sets delivered originally;

(3) $1,614,000 as transportation fee in mitigation of loss for 807 sets under the second and third contract;

(4) $485,300, being further credits;

(5) $500,000 being the sum drawn under the guarantee.

18. The net sum was therefore $2,273,100 + $8,745,300 - $5,285,278 = $5,733,122.

19. The plaintiff was also entitled to damages for non-acceptance of 202 sets under the second contract in the sum of $364,000.

20. Accordingly, I gave judgment to the plaintiff as aforesaid.

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