HCA 575/2011IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 575 OF 2011____________
BETWEEN
FASTWAY TECHNOLOGY LIMITEDPlaintiff
and
S.H.T. ELECTRONIC TECHNOLOGY CO. LTD.Defendant
____________
Before: Deputy High Court Judge S T Poon in CourtDates of
Hearing: 7 10, 13 October and 12 November 2014Date of Judgment: 1
September 2015_______________J U D G M E N T_______________
Background
At the material times, the Plaintiff was carrying on the
business of developing technological products and the Defendant was
a manufacturer, with its associate factory situated in Mainland
China. By this action, the Plaintiff claims against the Defendant
for damages allegedly caused by the Defendants failure to deliver
goods on time and refusal to produce the goods ordered. The
Plaintiff also sues for damages for the Defendants refusal to
return the Plaintiffs integrated circuit (IC) components stored in
the Defendants premises.The Defendant counterclaims against the
Plaintiff for unpaid purchase price. At trial, both parties were
acting in person. The Plaintiff was represented by Mr Rund, the
owner of a US company Shake Awake LLC, the sole director and
shareholder of the Plaintiff. The Defendant was represented by Mr
Tsang, a director of the Defendant.Initially, both parties were
legally represented. Before the end of pleadings, the Plaintiff
chose to act in person. At the PTR stage, the Defendant also chose
to act in person.The parties respective cases, especially the
Plaintiffs case, were not presented satisfactorily in their witness
statements, not to mention in the pleadings. Besides, the parties
witnesses did not focus on issues in their oral testimonies and the
documentary evidence exhibited was not referred to in an organized
way.At trial, only Mr Rund gave evidence for the Plaintiff and two
witnesses, namely Mr Zhang and Ms Yang, both the then employees of
the Defendant, gave evidence for the Defendant. However, Mr Tsang,
who was the most senior staff member involved in the dealings
between the Plaintiff and the Defendant, did not give evidence or
file any witness statement.The parties did not set out in detail
the essential facts in the witness statements. Mr Runds witness
statement put too much emphasis on how unreasonable he thinks the
Defendant conducted the present proceedings which is, in my view,
not of assistance in determining the issues in the present case.
Similarly, the Defendants witnesses only set out briefly the basic
facts without going much into the details.
After hearing the evidence of all the witnesses, I must say none
of them impressed me as a wholly reliable witness and some aspects
of their testimonies obviously do not sit well with the documents
or email correspondences. With this observation, I resorted to dig
out the facts from the contemporary email correspondences between
the parties at the relevant time, that is, between February 2010
and September 2010, in order to understand better the real issues
between the parties and what led to the present disputes.The
Plaintiffs case
The subject matters of this case concern 5 purchase orders
issued by the Plaintiff to the Defendant for manufacturing of the
Plaintiffs products. The first two purchase orders (P10-010
(incl.P10-017) & P10-011 dated 18 May 2010) were for production
of the Plaintiffs Shake Awake alarm clock (SA3.2) and Triple-bel
timer (1.12). For SA3.2, in gist, the Plaintiffs complaint is that
the Defendant has mistakenly ordered a wrongly designed LCD for
production of the alarm clock that rendered the redevelopment of a
new IC necessary, and the Defendant failed to place the order for
the redevelopment in time that caused the delay in
production.Regarding 1.12, the Defendant has delayed in production
and refused the delivery of the goods.The remaining 3 purchase
orders (P10-013, P10-014 & P10-016 dated 20 June 2010) were for
the production of the Plaintiffs other timers (model 1.7 and 1.10).
The Defendant unilaterally refused to start production
notwithstanding deposits had been paid by the Plaintiff in
accordance with the parties contract. The Defendant unreasonably
insisted on the Plaintiffs agreement to pay for the full purchase
price before delivery which is a variation of payment term of the
agreement governing the general terms of the contract between the
Plaintiff and the Defendant.In the Plaintiffs case, a written
agreement was signed by the parties stipulating the general terms
of the business relationship between them. The agreement was dated
3 February 2010 and titled as Manufacturing Agreement (MA). In
relation to the Plaintiffs claim for the return of the IC
components, in April 2010, a large bulk of IC components was
arranged to send to the Defendants warehouse in Shenzhen from the
Plaintiffs previous manufacturer which are still retained by the
Defendant as at today.The Defendants case
The Defendant says the Plaintiff has never signed or returned
the MA and the terms in it are therefore not binding. The Plaintiff
has agreed, by Mr Rund, orally in a meeting to pay the full
purchase price of the goods before delivery. Mr Rund has also
orally agreed to conduct inspections on the goods before bulk
production and delivery but he has failed to do so.Concerning the
products SA3.2, the delay of delivery was due to the delay in the
supply of IC by the Plaintiffs designated IC supplier and therefore
it was the Plaintiffs responsibility. For 1.12, the delay was due
to the Plaintiffs failure to provide packing information and
conduct inspections. The Plaintiff also refused to pay the balance
of the purchase price before shipment.The 3 purchase orders were
cancelled because the Plaintiff did not confirm its agreement to
the proposed delivery date.The Defendant admits that they are still
retaining the Plaintiffs IC components but they are retaining them
as a lien for the unpaid purchase price. The Defendant also says
that a small part of the IC components were used in the production
of the Plaintiffs products and the bulk is now of not much worth in
value. The evidence
The history of the present dispute can be gathered from the
email exchanges between the parties during the relevant period.How
the business relationship starts
In late 2009, Mr Rund started communicating with the Defendant
by email, exploring the possibility of engaging the Defendant as
the Plaintiffs manufacturer. It appears that the Plaintiff was then
having issues with its previous manufacturer and trying to find a
new one. After some negotiations between Mr Rund and Mr Tsang,
apparently by emails and also in a meeting at a hotel in Shenzhen,
the parties were interested to develop an on-going business
relationship. In or about January 2010, Mr Rund sent to the
Defendant a draft written agreement for consideration. As appeared
in the email exchange on 1 February, 2010, the Defendant proposed
certain terms for payment and the Plaintiff revised the draft
agreement accordingly. The term of payment was revised to 30%
deposit paid before production, 70% balance paid within 30 days
after shipment. This is indeed the same term as stipulated under
the MA.The Defendant signed the revised draft agreement on
23February 2010 and two original copies of the signed agreement
were sent to the Plaintiff by courier, for signature and return. On
2 February 2010, the Defendant, through MsYang (Susan), gave
quotations to the Plaintiff for production of the Plaintiffs timers
by email. The quotation has expressly excluded the price of the IC
and it was stated in the email that the IC was to be provided by
the Plaintiff.In between late February and early April, the parties
discussed through emails the production of SA3.2 and Series 1.12.
In an email dated 7 April 2010, The Defendant gave the final quotes
to the Plaintiff as below:Dear Richard,
Thanks for your kind email.
We are glad of the start for SA and double time timer.
We are discussing with our LCD supplier now, we are checking for
the LCD sample time and truth table, and also the LCD cost, we will
feedback to you and Joy asap. Please noted.
By the way, in order to clarify all details before our
cooperation and processing, could you confirm for us as below:
1.Price for SA and double time 1.12:
1.12 Unit price: USD2.65/2K, USD2.58/5K, USD2.52/10K (FOB
Shenzhen) Price term: do not include IC, based on color box packing
as sample;
SA Unit price: USD3.20/2K, USD3.11/5K, USD3.05/10K (FOB
Shenzhen) Price term: do not include IC, based on blister packing
as sample;
2.Please advise the order quantity for first order for these two
model.
3.Payment term: 30% deposit be paid before production once order
confirmed, 70% balance should be paid within 30 days after
shipment. (SHT may delay shipment as the same number of days that
deposit payment delayed).
4.For IC of these two model, the price and payment you discussed
with Joy directly, we can help you to place order and arrange
payment to Fully Logic, it says the order is how much money, then
you transfer how much money to our account according to the invoice
from Fully Logic.
Please confirm by returned email.
Thanks with best regards.
SusanAlthough no confirmation email from the Plaintiff can be
found in the email records as disclosed by the parties, there is no
suggestion that those terms were not agreeable by any party. The
names Joy and Fully Logic (Fully) were mentioned in the email.
Fully Logic was the company engaged by the Plaintiff for
development of the IC and Joy was working at Fully.It is noteworthy
that the payment term expressed in the email is the same as what
was stipulated in the MA.Yet, in an email from the Defendant to the
Plaintiff on 23April 2010, the Defendant proposed a different
payment term. MsYang wrote:Now we have problem of our floating
fund, we would like to request the payment term as: 30% deposit +
30% before shipment + balance paid within 30 days after
shipment.
However, the Plaintiff did not agree. In reply to this specific
request, Mr Rund made the following remark:Susan, we have an
agreement. Are you now not honoring this? This is not a good
sign!There was no mentioning on the payment terms on
correspondences until the Plaintiff issued the 2 respective
purchase orders, namely F10-010 and F10-011, both dated 18 May
2010. It was printed under the column Terms the words 30% Deposit,
Balance 30 days. The only reasonable interpretation of the words is
that a 30% deposit is to be paid then and the remaining balance of
70% purchase price is to be paid within 30 days from shipment,
which is the same payment term as in the MA.The MA and the alleged
oral agreement on payment terms It is to be noted here that, as
pleaded in the Defendants Re-Amended Defence, on or about 17 May
2010, Mr Rund agreed in a meeting with MsYang that the payment term
be changed to 30% deposit before placing the orders and paid 70% of
the purchase price before final shipment. Mr Rund denied he has
ever agreed to change the payment term.There was no mention of this
alleged change of payment term in any email correspondences or
otherwise between the parties. Except that in the proforma invoices
issued by the Defendant, such payment term was stated.I am unable
to accept there was such an oral agreement to alter the payment
terms. There has been many email exchanges between the parties
during the relevant period and there was simply no reason for the
parties not to mention at all such changes. The reason given by the
Defendants witnesses for insisting on such changes was that they
learnt from others that the Plaintiff has a poor record of honoring
payment. In that case it would be all the more important to
document such an agreement to prevent Mr Rund from not honoring his
words.The Defendant had proposed the change of payment terms, which
was less favorable than the final terms agreed by the Plaintiff as
they alleged, because they have problem of their floating fund. And
that was rejected by the Plaintiff. It would be strange that the
Plaintiff would, without reason, agree to a change much
disadvantage to him after a month. I find as fact that there was no
such oral agreement to change the payment terms as alleged by the
Defendant.As mentioned above, it is also the Defendants case that
the MA was not binding as is has never been signed and returned by
the Plaintiff. First of all, the purpose of the MA was to govern
the general contract terms between the parties. It does not oblige
any party to place any particular order or accept any particular
order. Each order shall be treated as a separate contract between
the parties and there can be different terms on any aspect provided
that such terms are agreed by the parties. The function of the MA
was to provide the usual terms such that the parties are not
required to negotiate each and every time when there is a new
order. Therefore, if there is a term agreed upon by the parties in
respect of a particular order which is inconsistent with the terms
under the MA, the newly agreed term is still valid. The relevance
of the MA is limited to this extent.Ms Yang gave evidence that she
has reminded Mr Rund to return the signed MA many times but he did
not respond. Mr Zhang said the Defendant could do nothing but to
ignore the MA. I do not believe. Apart from the email informing the
Plaintiff that the Defendant was to send the signed original copies
to them, there is no other email sent by the Defendant asking the
Plaintiff to return the signed copy. Mr Rund had in the emails
referred to the terms agreed under the MA and the Defendant had
never suggested the MA being not binding, until after the disputes
arose. I find it is more probable that Mr Rund had signed and
returned the MA to the Defendant. Even if Mr Rund had not done so,
I am of the view that the parties had intended that the MA was to
be binding upon them, at the time when the Plaintiff received the
signed MA from the Defendant, or soon thereafter.Causes of the
delayPursuant to purchase order PO-10-010, the Defendant is to
produce 12,000 units of the Plaintiffs 1.12 timer at a price of
USD2.48 each. The shipment date is 17 July 2010. As for purchase
order PO-10-011, the Defendant is to produce 10,000 units of the
Plaintiffs SA3.2 alarm clock at a price of USD3.24 each. The
shipment date is also 17 July 2010.As at 3 June 2010, the
production status of 1.12 and SA 3.2 is reported by the Defendant
as follows:Dear Richard,
The production status as below:1. 1.12 LCD sample will be ready
at June 5, we will approve before June 8, the production will be
finished at July 8. SA3.2 LCD production will be ready at July 5.
Please noted.
2. IC: SA3.2 IC will be ready at June 16, 1.12 use FTL stock
MS-1130.
3. We agree to pre-produce for PCBs and loaded with components,
we are preparing components now, we plan to start production for
PCBA (as bonding welding and mounting) at July 3. We think July 17
is the earliest delivery time, because of this is the first mass
production, there may be some problem and with high defects, we
need time for assemble, for quality control and QC etc.
4. Plastic part: This morning, regarding payment term, you
confirmed that you will sort it out with NS later, and requested us
order from NS for this order. We will place order to NS tomorrow,
Steven visit NS this afternoon, and we will confirm the plastic
delivery with NS asap.
5. Battery: Please confirm if you need battery with Ibon logo or
not for this two order (1.12 F10-010 & SA3.2 F10-011)? If not,
we will use East Power Carbon battery.
6. Plastic printing: please advise the plastic case silk
printing both for order 1.12 F10-010 & SA3.2 F10-011.
7. Packing: Please send us the artwork for the color box for
order 1.12 F10-010 & SA3.2 F10-011. Prices for these two order
are based on printed color box packing.
We are looking forward to your confirmation.
Thanks with best regards,
SusanOn 8 June 2010, Ms Yang informed Mr Rund by email that
there was a problem on the LCD production by the LCD supplier, the
delivery date on 17 July 2010 has to be delayed. On 15 June 2010,
Ms Yang advised Mr Rund by email that the updated delivery date for
1.12 and SA3.2 is 30 July 2010. In the same email, Ms Yang also
advised that the delivery date for products 1.7 and 1.10 is 70 days
after order confirmed.The new delivery dates were eventually
accepted by Mr Rund.Regarding 1.7 and 1.10, Mr Rund had once
requested the Defendant to explore other LCD suppliers for a
shorter production time. However, Ms Yang advised that the
production time given by the present supplier (Baosheng) is already
the shortest one. By an email dated 16June 2010, Mr Rund told the
Defendant to go ahead with the order.On or about 20 June 2010, the
Plaintiff sent by email the purchase orders of 1.7 and 1.10 to the
Defendant. But there was no company chop bearing on it. Mr Rund
advised in the email that he will chop the purchase orders later
and explained that the chop is only required to prevent his staff
from issuing unauthorized purchase orders.In late June 2010, Mr
Rund inspected the LCD sample for production of SA3.2 and
discovered that it has a 6-digit display, which is incompatible to
the IC developed by Fully which is intended for a 4-digit LCD. In
an email dated 30 June 2010 to Ms Yang, Mr Rund wrote:Hello
Susan,
It was always intended that SA would have a 4-digits LCD. We
could accept the mistake of preparing a 6-digits LCD if the
accuracy of seconds could be set in a user friendly way. Due to
limitations in the design of the software this is not possible. If
it was intended by SHT that 6-digits would be used there should
have been a provision in the software for the setting of seconds.
We are close to being out-of-stock on this item. Please advise best
solution.2.Please confirm delivery time tomorrow of packaging
(inner/outer boxes plus 2500 ea. White boxes w/label, lenses and
AG13 batteries.
3.To avoid a repeat of the SA3.2 LCD mistake, please send
drawings of 1.12 and 1.7 LCDs.
With thanks,
rrOn 1 July 2010, Ms Yang replied by suggesting to re-develop
the IC instead of ordering new LCDs to avoid further delay, and
that the parties are to share the additional costs incurred:Dear
Richard,
Attached please check the drawing for 1.12 LCD production.
Please confirm.
For 1.7 LCD, we have not start for this model as we have not
received your official purchase order with your sign & company
chop. Please noted.
For 77.24 packing material, we have sent to your HK office this
afternoon, you will received tomorrow, please noted.
For S3.2 LCD, We have checked with Baosheng today, they said the
production (10Kpcs) nearly finished, already cutted, printed, only
the liquid crystal have not filled in. Also attached please find
the LCD drawing from Baosheng for this model, please check.
We would like to advise:1. Could you advise that for future
SA3.2 orders, you will make LCD 4 digits or 6 digits, if future use
6 digits then it is not sensible that make a new 4 digits LCD
now.
2. We think make a new IC (6 digits and second can be set to
zero when alarm or timer mode) is the better way, as make new IC
only need 25- 30 days, we can arrange shipment for SA3.2 at Aug 10,
but in this way, need to pay masking cost RMB10000.00, and need to
order 10K IC again, the finished 10K IC can be used for future 1.12
orders.
3. If you want to have SA3.2 with 6 digits in future, you still
must to re-masking again, because of the second now cannot be set
to Zero.
4. We would like to suggest, that both S.H.T and FTL share the
responsibility of the mistake for SA3.2 LCD together.
We are looking forward to your comments.
Best Regards,
SusanIt is noted that in this email, Ms Yang also informed Mr
Rund that the Defendant has not started preparing production for
1.7 and 1.10 because the purchase order sent by the Plaintiff did
not bear a company chop. In response to this Mr Rund wrote:1.7 -
[It] is no[t] acceptable why this LCD was not ordered or why you
did not mention to me that you were holding production pending a
chop. I explained to you in email that the chop was required only
if a[n] employee was issuing a PO to SHT. Even so, if this is the
reason you held production why did you not ask me to chop the PO
when I was in your office last week?I share Mr Runds sentiment that
waiting for a chop should not be the real reason for withholding
production. Mr Rund has expressed to the Defendant many times in
emails that he needs the 1.7 timers urgently for supply to his
customers in the U.S. Mr Rund has also made clear that the chop was
required only to prevent his staff from issuing unauthorized
orders. It is absurd that the Defendant would withhold production
only to wait for the chop.In fact, on 9 July 2010, without waiting
for the Plaintiffs chop on the purchase orders, the Defendant
acknowledged the Plaintiffs orders for 1.7 and 1.10 and asked for
payment of 30% of the purchase price as deposits. In the same
email, the Defendant attached the proforma invoices for the orders.
The payment terms under the proforma invoice are different from the
MA in that the 70% balance of purchase price shall be paid before
shipment.On 12 July 2010, Mr Rund sent an email to the Defendant,
complained about the lack of project management on the Plaintiffs
orders:Dear Susan, Steven, and John,
I came to your office last week to seek a solution to the lack
of project management of FTLs production because of several
unnecessary errors and oversights. It is very rare that I will send
a message flagged as HIGH IMPORTANCE! so please pay attention to
what has happened.
I placed orders with SHT for 1.7 and 1.10 on 20 June 2010 with
delivery confirmed for 29 August 2010. I explained the urgency of
these orders and advised FTLs customers of this ship date.
As you know, SHT had made a serious error ordering the LCD for
SA3.2. When I discovered this last week (or the week before, I
forget) I asked SHT to also provide the drawings for 1.12, 1.7 and
1.10 to make sure errors were not repeated.
To my shock, I discovered that no effort was made to even order
LCDs for these orders. Not only that, but no drawings have even
been prepared. I am now told that delivery will be delayed again
because of this but ship date is still not confirmed.
It will be necessary now to airfreight these orders to my
customers. Please advise how SHT will handle this necessity and
what procedures will be put into place to prevent these errors from
happening in the future.
Regards,
Fastway Technology Ltd.It is apparent from the above email that
at that point of time the relationship between the parties has
deteriorated. In my view, it is attributable to, on one hand, Mr
Rund was desperately eager to ascertain the shipment dates of the
goods ordered so as to ease his clients concern but, on the other
hand, the Defendant was reluctant to proceed further, in particular
the production of SA3.2 and 1.7 and 1.10, without having the
Plaintiff first committed to bear half the responsibility of the
mistake made on the production of the LCDs and to pay the 30%
deposits for the new orders. In response to Mr Runds email, the
Defendant reiterated that they were waiting for the Plaintiff to
put their chop on the purchase orders and indicated that they will
start production only after receiving the 30% deposits.In the
subsequent email exchanges, Mr Rund queried why the Plaintiff has
to bear any costs for the re-development of the IC and pressed on
with the Defendant for confirmation of delivery dates. On 14 July
2010, the Defendant wrote to the Plaintiff:This morning John inform
me that your request and worrying. Also herewith I would like tell
some my worrys.
For SA3.2 order, we are preparing the material and production,
but have stopped prepare material for production now as the revised
IC have not confirmed. We think we are not in the position to
confirm the function of IC.
Please contact and confirm with Joy, Johnson told me yesterday
Joys engineer said they also not clear about your requirements,
they also has doubts. Our delivery is depend on the delivery of IC
and plus our production time. I understand your worrying but
production is production we will do our best to avoid any mistake.
Also I would like ask your confirmation of share the masking cost
for 10K new IC.
For 1.12, we are preparing to start the production soon. Still
we are wait many information that also worrys me that our
production can not produce whole quantity and may produce some
quantity and stop wait for information and packing, and make some
quantity stop again that will cause the increasing of production
cost.
For 1.7 and 1.10, We feel there are so many problem happened in
1.12-SA3.2 orders. My people are under very big pressure. I would
like suggest you to move the order to other vendor and we can
concentrate on 1.12 and 3.2 and finish it successfully, and in this
period we can fix the problem between us. That may be good for both
of you and us and also good for customer.
Thanks with best regards.
StevenAt this point, the Defendant has stopped preparing the
production of SA3.2, awaiting for the issue of who should bear the
additional costs for the new IC to be resolved. For 1.7 and 1.10,
notwithstanding purchase orders were issued and proforma invoice
was sent (on 9July 2010), the Defendant suggested the Plaintiff to
engage a different manufacturer.Mr Rund replied on the same day,
reminded the Defendant of the Plaintiffs commitment to its clients
to deliver, and asked the Defendant to take the responsibility and
start the productions.On 15 July 2010, the Defendant replied:Dear
Richard,
For SA3.2, we do not want to make the problem so complicated,
and do not want to discuss who should take the responsibility.
We will pay the masking cost for revised IC, But we need you
promise that you will use out the finished 10K SA/double:time IC
for future 1.12 orders, and send us a letter of guarantee. Please
confirm.
For SA3.2, we have stopped prepare material for production, our
delivery time is depend on the delivery of revised IC, we need
10days at least for production, please contact and confirm with Joy
for IC directly.
For 1.7 & 1.10, we are sorry, as really our team are under
very big pressure, and we are afraid if will make mistake again as
many information are not clear even shipment is coming. Please move
the order to other vendor and we will concentrate on 1.12 and 3.2.
We think that may be good for both of us.
Thanks with best regards.
StevenThe Defendant has in this email agreed to pay the masking
cost for the new IC but subject to the Plaintiffs guarantee to use
up the mistaken IC for 1.12 before using the Plaintiffs stock.
Again, the Defendant asked the Plaintiff to move the orders for 1.7
and 1.10 to someone else.Mr Rund replied informing the Defendant
that the technical details of the new IC for SA3.2 has been
confirmed with Joy. He also told the Defendant that he has no time
to find another manufacturer for 1.7 and 1.10. By another email, Mr
Rund indicated his intention to use up the existing stock of IC for
1.12 before using the mistaken ones.In reply, the Defendant
insisted on having the Plaintiffs guarantee to use up the mistaken
IC first before paying the masking cost for the new IC. Meanwhile,
the Defendant asked the Plaintiff to withhold payment of deposits
for the 1.7 and 1.10 orders.On 18 July 2010, Mr Rund informed the
Defendant that he has paid the 30% deposits for the 1.7 and 1.10
orders. In the email, MrRund reminded the Defendant the parties
obligations under the MA.On 19 July 2010, the Defendant
acknowledged the payment by email and gave a delivery time of 15
October 2010. They also requested that the 70% balance be paid
before delivery as the economic situation is not good now, many of
their suppliers request cash before delivery.Meanwhile, the
Defendant asked for packing details for 1.12 and Mr Rund duly
provided the same.On 20 July 2010, the Defendant informed the
Plaintiff that they are further checking the delivery time for 1.7
and 1.10 and asked the Plaintiff to confirm paying the 70% balance
before delivery.Mr Rund replied the next day that the change of
payment term is not acceptable and reminded the Defendant they have
a written contract.On 21 July 2010, the Defendant sent 2 emails to
the Plaintiff as follows:Dear Richard,
As our proforma invoice indicated, we already requested that 70%
balance should be paid before shipment. In fact, as we told you,
the economic situation is not good now, many of suppliers request
cash before delivery, they also change the payment term with us, we
have pressure and we have no way, please noted.
From July.14 we told you, for 1.7 and 1.0, We feel there are so
many problem happened in 1.12 and SA3.2 orders. Our people are
under very big pressure. And we suggested you to move the order to
other vendor. On July.15, we sent email to you and ask you hold on
the payment for 1.7 and 1.10 deposit, we really afraid we will make
mistake again.
We have not start for 1.7 and 1.10 production, we will return
you the deposit, please advise your bank information.
Thanks and regards.
StevenDear Richard,
For 1.12 delivery, as Susan talked with you in recently email,
and she prepared an excel form that show 1.12 order details to you,
the delivery time we always say is July 30.2010.
We have to tell you two questions now we have:
1.LCD delay, Today Baosheng told us the LCD will be delivered at
End of July, not as original plan July.23, please noted.
2.As you confirmed with Susan for the plastic case imprint at
last meeting at July.8 and July. 9, then we requested NS to make
plastic sample for each logo, the samples was not ok first time and
we requested them make again, but their progress seems a little
slow, till now, we have not received OK samples for your approval,
please noted.
Now we estimate the 1.12 delivery time will be around
Aug.10.2010, please noted.
For 1.12 carton packing quantity, I ask susan to sort out for
each customer and prepare a excel document to you for your final
confirmation.
Thanks with regards.
StevenIn the first email, the Defendant drew to Mr Runds
attention that the payment term printed on the proforma invoice for
1.7 and 1.10 is to pay the 70% balance before delivery. The
Defendant reiterated its reluctance to receive the order for 1.7
and 1.10 and indicated that they are to return the deposits to the
Plaintiff.Regarding the second email, the Defendant informed the
Plaintiff of the probable delay of delivery for 1.12 and SA3.2. NS
was the outsourced supplier of plastic casings. A new delivery date
of 10August 2010 was given for 1.12.On 28 July 2010, Mr Rund
replied to the emails, stressed again that his customers are
desperately in need of the 1.7 and 1.10 timers. In reply to the
second email, Mr Rund said that Boasheng is a vendor for the
Defendant to manage and the shipment of 1.12 is required to leave
in the end of July. On 29 July 2010, the Defendant wrote:Dear
Richard,
For 1.7 & 1.10, as we sent email to you on July 21, we told
you our situation and thoughts, but we do not receive your reply,
we thought you may cancel the order for 1.7 & 1.10, we have not
started for anything, please noted.
For 1.12, LCD will deliver to us at July 31, as our production
schedule, the production will be finished at Aug 10 2010, now we
only worry about the plastic parts, NS will send us samples
tomorrow, we will take photos to you for approval once we got them.
And NS told us, every Monday, Wednesday, Friday, their factory run
out of power, please noted.
For SA3.2, we will confirm with Joy asap.
Thanks with best regards.
StevenFor 1.12, due to the late delivery of the LCDs the
Defendant gave a new delivery date of 10 August 2010, as oppose to
the original date of 30 July 2010. Besides, there is also a
possible delay on the production of the plastic casings.Having
received this email from the Defendant, Mr Rund sent 4 emails to
the Defendant in a single day, all in bold letters, asking the
Defendant to confirm whether they will produce 1.7 and 1.10 and to
confirm the shipment date of SA3.2.On 30 July 2010, the Defendant
asked Mr Rund to confirm whether he will accept paying 70% balance
before delivery and delivery date on 20 October 2010 for 1.7 and
1.10. Meanwhile, the Defendant also asked for inspection
instructions for 1.12.In reply, Mr Rund reminded the Defendant the
terms in the MA and expressed that the delivery date of 1.7 and
1.10 should be 29August 2010. Obviously, Mr Rund has counted 70
days from the date of the purchase orders to work out the delivery
date.On 2 August 2010, the Defendant sent 3 emails to the Plaintiff
concerning 1.12, SA3.2 and 1.7 (and 1.10) respectively. In relation
to 1.12, the Defendant confirmed that the goods shall be available
for inspection on 10 August 2010. In the mean time, the Defendant
asked for shipping instructions from the Plaintiff.Regarding SA3.2,
the Defendant complained that Joy (Fully) requested them to pay not
only for the masking cost now, but also for the balance of the
price of the mistaken IC, together with 30% deposits for the price
of the new IC. The Defendant said this would be unfair to them.For
1.7 and 1.10, the Defendant explained again they need cash to pay
for the materials and therefore they need to change the payment
term. The Defendant also said that the Plaintiffs products are
complicated and the instructions given are not clear. They do not
want similar mistakes on the SA3.2 LCD to happen again and do not
want to process too many models of the Plaintiff at the same time.
As regard the delivery date, the Defendant reiterates that the
purchase orders of the Plaintiff do not bear any company chop and
therefore the delivery date should not be 29 August 2010. In the
end, the Defendant insisted on the payment of 70% balance before
delivery and 20 October 2010 as the delivery date.In reply, Mr Rund
said Fully is the Defendants vendor and the Defendant is obligated
to pay for the IC as required. On 4 August 2010, the Defendant
confirmed the delivery date of SA3.2 as 25 September 2010.On 6
August 2010, the Defendant informed the Plaintiff that the
inspection for 1.12 has to be postponed to 16 August 2010 due to
the delay on the part of NS for production of the plastic parts. On
9 August 2010, the Defendant advised again that the soonest date of
delivery for SA3.2 is 25 September 2010 and asked the Plaintiff for
acceptance. The Defendant stated that they will not start
production without the Plaintiffs acceptance of the new delivery
date. The Defendant also indicated that they are looking for
another IC supplier.In relation thereto, Mr Rund replied:Delivery
of 25 Sept is unacceptably late but you offer no acceptable
alternative for FTL and its customers.
Delivery of 1.12 is delayed again. This is unacceptable.
Goods must now be sent by airfreight. What do you believe is
SHTs obligation to compensate FTL for late delivery?
IC SHT has not sent correspondence from Joys company, as
required.
SHT does not have the right to source this component from any
other source. And in another email:
SA3.2 delivery. Delivery is needlessly late, and without
justification. Delivery date was confirmed 3 days ago. FTL has no
choice in this matter. SHT received and accepted FTLs deposit,
confirmed delivery and has repeatedly failed to ship on time.On 11
August 2010, the Defendant wrote to the Plaintiff, saying that the
Plaintiff has confirmed the delivery date of 25 September 2010 for
SA3.2. In reply to this, Mr Rund asked the Defendant to confirm
they have ordered the IC from Fully.On 12 August 2010, the
Defendant confirmed again inspection on 1.12 can be made on 16
August but part of the orders (P10-017) is not included. In reply,
Mr Rund asked why P10-017 is not included and mentioned about 4,000
pieces of 1.12 must be shipped by air.On 16 August 2010, the
Defendant expressed that as the contract is on FOB basis, they will
not be responsible for any airfreight charges.On 23 August 2010, a
meeting was held between the parties at the Defendants premises to
discuss the way forward. After the meeting, Mr Rund
wrote:---------------------------------------
Location: SHT/Hui Cui office.
In attendance:
Richard Rund
Steven Zhang
SA3.2 SHT confirms it has not ordered IC necessary to complete
order of SA3.2 even though SHT confirmed to FTL this component has
been ordered., originally scheduled for shipment on 17 July and
delayed several times. SHT ceased production and will not honor
purchase orders received from FTL and confirmed by SHT.
1.12 SHT refuses to allow for shipment of goods already made and
for which shipping instructions were requested. Goods on Packing
List were not complete, as advised.
Order given 18 May 2010. Shipment confirmed for 17 July 2010.
Deposit for plastic parts not given to Ngai Shing until end-July.
SHT cannot produce receipt for deposit.
SHT refuses to ship goods as contracted and refuses to honor
terms and conditions of the Manufacturing Agreement entered into
with FTL.
FTL requested solution to continuing problems with delivery. SHT
only replied that FTL should accept another delay in shipment.
SHT refused to pay airfreight necessary due to delay of
shipment.And the Defendant wrote:Re: Meeting on 23 August 2010
Dear Richard,
SA3.2 You did not confirmed as we requested at August 18, order
delay is due to IC factorys mistake.
1.12 We did not refuse shipment. We have informed you to come
for goods inspection, we asked you when you will come for
inspection, but you did not reply us.
Yesterday we inform you, you can go to our factory for
inspection. We have sent you inspection procedure in Chinese two
weeks ago, and we promised you we will translate into English when
you come for inspection, yesterday afternoon, we already sent you
English version.
Payment: As per our proforma invoice dated on May-18-2010,
#100518-105, you paid deposit to us, the balance should be paid
before shipment.
StevenOn 5 September 2010, Mr Rund sent an email to the
Defendant giving notice to the Defendant to cancel all the purchase
orders.Discussion
Series 1.12
As can be seen from the notes prepared by Mr Rund after the 23
August meeting, the Plaintiff accused the Defendant of refusing to
allow shipment. On the other hand, the Defendant said they did not
refuse shipment and it was the Plaintiff who refused to go for
inspections. At that point of time, the Defendant has no complaint
against the Plaintiff for giving late instructions on packing
details.As per the purchase order, the original scheduled delivery
date is 17 July 2010. By consent, the delivery date has been
postponed to 30July 2010. The delivery date was further postponed
due to the delay on the part of NS in supplying the plastic parts.
The date of inspection on 16August 2010 was subsequently
confirmed.It is the Defendants case that the Plaintiff is obliged
to conduct inspection before shipment as agreed orally in a
meeting. In MrZhangs evidence, he said Mr Rund sent him emails on
20 August 2010 and 28 August 2010 requesting that the 1.12 timers
be shipped immediately but without indicating when the inspection
would take place.However, there is nowhere in the MA obliging the
Plaintiff to conduct inspection before shipment. There is no
mention of such an obligation, allegedly agreed orally, anywhere in
the email correspondences between the parties. Similar to the
Defendants allegation of an oral agreement as to payment terms, I
am unable to accept that there was an oral agreement between the
parties that the Plaintiff must conduct an inspection of the goods
before shipment. The Defendant has no right to insist on an
inspection by the Plaintiff before shipment.I note that the on the
proforma invoices sent by the Defendant to the Plaintiff the
payment terms stated was consistent with the Defedants alleged
terms. However, in consideration of the parties conduct and the
email correspondences, I view that the terms stated therein do not
reflect the intention of the parties and shall have no effect
whatsoever. Nowhere in the parties correspondences had the
Defendant ever drawn to the attention of Mr Rund these terms.In the
evidence of Ms Yang, Mr Rund has confirmed all the revised packing
details of 1.12 on 11 August 2010. Any delay of shipment thereafter
cannot be attributable to the alleged late provision of packing
information on the part of the Plaintiff. As I found under
paragraph 36 above in this judgment, the payment term under the MA
has not been changed by any subsequent agreement. The Defendant has
no right to demand the Plaintiff payment of the 70% balance of
purchase price before shipment.I find the Defendant in breach of
contract by refusing to deliver the 1.12 timers as requested by the
Plaintiff.SA3.2
In the email of the Defendant after the 23 August meeting, the
Defendant accused the Plaintiff of not confirming the new delivery
date of 25 September 2010. The Defendant also blamed Fully for the
delay.In my view, the Defendant should bear the responsibility of
the mistake made by the LCD supplier to have produced a 6-digit,
rather than a 4-digit LCD. As can be seen from the email
correspondences between the parties, it has been all along their
understandings.Mr Zhang in his evidence said that there was an
inherent defect in the IC that rendered the re-design of the IC
necessary in any event. However, the re-design or redevelopment of
the IC was a suggestion from the Defendant as a solution to the
problem created by the wrong LCDs. This is evidenced by email
correspondences. I find that the redevelopment of a new IC was
resulted from the wrong production of the LCDs. Owing to their
reluctance to pay for the costs requested by Fully, the Defendant
has delayed in confirming the order for the redevelopment of the
new IC that caused the delay in the production of SA3.2.As
evidenced by the emails correspondences and skype communications
between the Plaintiff and Fully and as what was stated in Mr Runds
notes on the 23August meeting, the Defendant has never confirmed
the order for the new IC with Fully. Even if the Plaintiff accepted
the 25 September 2010 as the delivery date, the Defendant could not
realistically finish production in time.The Defendant was in breach
of contract and liable to the Plaintiff for damages.1.7 and 1.10
(PO 10-013, 014 and 016)The main issue for consideration regarding
these purchase orders is whether any contract between the parties
has ever been concluded. If there is no contract concluded, the
Defendant shall not be in breach in not producing 1.7 and 1.10. As
I mentioned above, the MA governs the general terms of the parties
contracts, it does not oblige the Defendant to accept every
purchase orders placed by the Plaintiff. The purchase orders of 1.7
and 1.10 were issued on 20 June 2010. Although the orders do not
bear the Plaintiffs company chop, the Plaintiff has made it
sufficiently clear that it is not required as the orders were made
by Mr Rund himself. In any event, Mr Rund had indicated that he
will affix the company chop later. The purchase orders shall not be
invalidated by the fact that they do not bear a company chop. At
the time the Defendant received the purchase orders, MrRund had
already indicated agreement to the Defendants proposed delivery
date, and told the Defendant to go ahead with production. There was
no mention of any alteration on specific terms and therefore the
general terms under the MA shall be applicable. As mentioned under
paragraph 55 hereinabove, the Defendant had on 9 July 2010
acknowledged receipt of the purchase orders, apparently after the
Plaintiffs complaint on the Defendants unreasonable insistence on a
company chop.However, the invoice for the orders was attached to
the email and what is material is that the payment terms on the
invoices are different from the general terms under the MA. But
what is equally important to note is that the Defendant did not
mention these terms in the email itself, similar to the situation
for the invoices of 1.12 and SA3.2.In my view, at that point of
time contracts had been concluded in respect of the purchase orders
for 1.7 and 1.10. Similar to my finding on the effect of the
payment terms stated on the invoices for 1.12 and SA3.2, they do
not represent the intentions of the parties and shall be ignored.As
the contracts have been concluded the Defendant cannot go back and
seek to alter or impose other terms. The delivery date shall be, at
the latest, 70 days after payment of 30% deposits and the balance
shall be paid within 30 days after delivery, pursuant to the
payment terms under the MA.The clear indication on the part of the
Defendant to return the deposits to the Plaintiff was a repudiatory
breach of the contracts and the Plaintiff had accepted it by its
email on 3 September 2010. Detained goods
There is no unpaid purchase price owed by the Plaintiff to the
Defendant and there can be no lien on the goods exercisable by the
Defendant. The Defendant has been in conversion or wrongful
detention of the Plaintiffs IC components by refusing to return the
same upon the Plaintiffs request.Damages
With my findings above, the Defendant is liable to pay damages
to the Plaintiff for breach of contract and conversion of the
Plaintiffs goods.The Defendant is to repay all deposits paid by the
Plaintiff in respect of the subject 5 purchase orders.The Defendant
has all along been aware of the fact that the goods ordered were
for resale to other distributors in the U.S. for profits. It is
within the real contemplation of the Defendant that its breach will
lead to loss of profits in respect of the 5 purchase orders placed
by the Plaintiff.There is however insufficient information in the
Plaintiffs evidence regarding the assessment of the loss of profits
of the purchase orders to enable me to assess this head of
damages.The Plaintiff also mentioned about the damage to his
business following the Defendants breach of contract. I am not
convinced that the fall of the Plaintiffs business was a direct
result of the Defendants breach and in any event, this is too
remote for the Defendant to be liable for compensation.I accept Mr
Runds evidence that the IC components worth much more in 2010 than
the present days as electronic components tend to become outdated
rapidly with time. In the circumstances it would be unfair to the
Plaintiff if the Defendant is required only to return the IC
components.Mr Rund has compiled a valuation listfor the goods and
Iaccept it as the value of the goods at the relevant time. The
total value of the goods amount to HK$2,009,882.Counterclaim
In view of my above findings, the counterclaims shall be
dismissed.Order
The Defendant is to refund to the Plaintiff all the deposits in
the sum of US$25,918.50 or its Hong Kong Dollar equivalent at the
exchange rate as at today and interest therein.The Defendant is to
pay to the Plaintiff HK$2,009,882 as damages for conversion of the
Plaintiffs goods and interest therein.Interest of the above sums be
calculated at 4 % per annum from the date of the writ of summons
until judgment and thereafter at 8 % per annum until payment.An
order nisi that costs of these proceedings be to the Plaintiff to
be tax if not agreed. (S T Poon)Deputy High Court Judge
Court of First InstanceThe Plaintiff appeared in person
The Defendant appeared in person P10-010 (incl.P10-017) &
P10-011 dated 18 May 2010 and P10-013, P10-014 & P10-016 dated
20June 2010.
P. 657.
See p. 786.
P. 780.
P. 788.
P. 796.
P. 796.
P. 663.
P. 664.
PP. 924 to 925.
P. 811.
P. 816.
P. 818.
P. 820
P. 821
P. 823
P. 825
PP. 568 and 569.
P. 826
P. 826 to 827.
P. 837.
P. 839.
P. 839.
P. 848.
P. 848.
P. 854.
P. 855 to 856.
P. 856.
P. 857.
P. 857.
P. 859 to 860.
P. 861.
P. 862.
P. 867.
P. 867.
P. 869.
P. 871.
P. 870.
P. 872.
P. 627.
P. 627.
PP. 874-875.
Paragraph 19 of witness statement.
Paragraph 24 to 25 of witness statement.
PP. 681-682.
