Lucky Sky (Hong Kong) Ltd v. Bodum a.G.

HCA 1513/2017

[2022] HKCFI 1019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1513 OF 2017

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Before:  Madam Recorder Sit, SC in Court

Date of Hearing:  12, 15, 16 and 19 November 2021

Date of Judgment:  8 April 2022

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JUDGMENT

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1.This action concerns the sale and purchase of goods.

2.The Defendant manufactures and sells home appliances and household goods under the “Bodum” brand.  The Plaintiff was a supplier of the Defendant, who produced moulds as well as finished products for the Defendant.

3.In September 2016 the Plaintiff was late in delivering some products, which resulted in the Defendant’s end-customer cancelling certain orders.  Thereafter the parties entered into discussions to try to address the issues arising from the delay. Meanwhile, the Plaintiff was withholding finished products and the moulds for manufacturing the same, while the Defendant was withholding payment for some delivered products. 

4.The parties were unable to resolve their differences amicably, and this action was commenced on 27 June 2017, with the Plaintiff and the Defendant advancing claims and counterclaims respectively.  To date, the Plaintiff is still holding on to the products and the moulds, while the Defendant is still withholding payment.

THE FACTS

5.The Defendant is a Swiss company engaged in the business of manufacturing and selling home appliances and household goods under the “Bodum” brand.  Mr Jörgen Bodum (“Jörgen Bodum”), its chief executive officer, appears to be the person in ultimate control of the Defendant. 

6.Until 30 September 2021, the Defendant was supported by Bodum Hong Kong Limited (“Bodum HK”) in its operations in Hong Kong and the Mainland (including dealings with suppliers).  Ms Chow Mei Ki Maggie (“Maggie Chow”) was the general manager of Bodum HK at the material time.

7.The Defendant sources its branded products from suppliers in different countries.  At the material time the Plaintiff was one of the Defendant’s suppliers, based in Hong Kong.  Mr Shum Pui (also known as Sam, “Sam Shum”) appears to be the owner and person-in-control of the Plaintiff.  The Plaintiff did not manufacture the Defendant’s products itself but engaged OEM factories in the Mainland to do so.

8.The business relationship between the Plaintiff and the Defendant began in late 2009.  In the majority of cases the Defendant placed orders for the Plaintiff to manufacture moulds (or "tools”) and thereafter to use those moulds to manufacture Bodum-branded products.  There were also some occasions when the Defendant supplied existing moulds it retrieved from its other suppliers to the Plaintiff and asked the Plaintiff to manufacture products using the same.

9.To that end the parties entered into various (i) mould contracts or product contracts (where the Plaintiff was required to manufacture moulds as well as products) and (ii) purchase orders (where the Plaintiff was required to manufacture products using the moulds that the Plaintiff had manufactured and held for the Defendant). The mould contracts and product contracts were subject to (a) the Defendant’s standard mould terms (as revised from time to time) (“Standard Mould Terms”) and (b) the Defendant’s standard terms and conditions (also as revised from time to time) (“Standard Product Terms”), whereas the purchase orders were subject to (b) only.

10.In relation to the moulds ordered by the Defendant:-

(1)  They were subject to specific production schedule and payment terms stipulated in the respective mould contracts or product contracts.

(2)  The moulds produced were for the sole purpose of enabling the Plaintiff to manufacture products placed by the Defendant, and all right, title and interest in or over any of the moulds were vested in the Defendant (Standard Mould Terms clauses 2.1, 2.2(a), 2.4(B)).

(3)  Standard Mould Terms clause 2.3 provides as follows:-

“[The Plaintiff], or any third party holding the Moulds, shall at all times hold the Moulds strictly to [the Defendant’s] order … and [the Plaintiff] or any third party holding the Moulds shall, upon [the Defendant’s] demand in writing or pursuant to Clause 6 [“Termination and Delivery”] forthwith return and deliver up all the Moulds to [the Defendant] and/or to such other person or persons as [the Defendant] may direct at such place in such country or territory as [the Defendant] shall specify. [The Plaintiff] shall also provide to [the Defendant] all consents, approvals, licences or other documents necessary to allow the Moulds to exported to such country or territory as may be specified by [the Defendant].”

(4)  By Standard Mould Terms clause 2.4, the Plaintiff undertakes that until such time when the moulds are delivered up to the Defendant, the Plaintiff should “(C) keep the Moulds in good repair and condition and operate, maintain and repair them at [the Plaintiff’s own expense”.

(5)  Further, Standard Mould Terms clause 6.3 provides:-

“[The Plaintiff] shall within 7 days after the termination of the Contract or upon demand pursuant to Clause 2.3 deliver to [the Defendant]… the Moulds which [the Plaintiff has] in [its] possession, custody or control (including part or completely finished Moulds held by third parties involved in their production), in accordance with [the Defendant’s] instructions and at [the Defendant’s] expense.”

(6)  Two further sub-clauses in clause 6 of the Standard Mould Terms are also relevant:-

“6.4 [The Plaintiff] hereby acknowledge[s] and agree[s] that it will take approximately two (2) months to manufacture and deliver replacement Moulds to the factory which will use them. If [the Plaintiff] fail[s] to return any of the Moulds to [the Defendant] within the period specified in Clause 6.3, [the Plaintiff] hereby agree[s] to pay compensation to [the Defendant], of an amount equal to the cost of producing or acquiring any and all of the replacement Moulds. [The Plaintiff] hereby acknowledge[s] and agree[s] that this sum is a genuine and reasonable pre-estimate of [the Defendant’s] loss. This is without prejudice to any other rights [the Defendant has] under the Contract.

6.5 For the avoidance of doubt, if [the Plaintiff] fail[s] to return the Moulds in breach of Clause 6.3 and [the Plaintiff is] obliged to and do pay the liquidated damages in accordance with Clause 6.4, [the Defendant’s] intellectual property rights and other rights and [the Plaintiff’s] obligation under the Contract remain in force, including [the Plaintiff’s] obligation to return the Moulds under Clause 6.3.”

(7)  Finally, in all the mould contracts and product contracts there is a specific provision that the Defendant will have the right to take back the moulds.  In those contracts concluded prior to January 2012, there was also a further provision that “the conditions of mould must be good before move”.  Thereafter the relevant contracts only provide that the Defendant will have the right to take back the moulds in accordance with the Standard Mould Terms. 

11.As for the products:-

(1)  Throughout the parties’ dealings up to September 2016, the payment terms for the product had always been “T/T 45 days after on board date”.  It is common ground that this means the Defendant was required to settle payment by telegraphic transfer within 45 days from the date of shipment of the products.

(2)  The shipment dates for the products are set out in the relevant mould contracts, product contracts or purchase orders.

(3)  In the product contracts entered into since April 2013, the following conditions are stipulated:-

“3. [The Defendant] expects [the Plaintiff] to adhere strictly to both the Production Schedule … and the times of delivery agreed by the parties under any purchase orders in respect of the Product. [The Defendant] has made commitments to its retailers and distributors to supply perfect Products on time and has invested considerably in marketing and other costs in the expectation that the timetable for production and delivery will be met.

4. Should [the Plaintiff] fail to meet the agreed dates set out in the Production Schedule and any purchase orders that are placed, significant extra costs will be incurred and there will be wasted expenditure.  Accordingly, [the Plaintiff] will be liable to [the Defendant] for: (i) any extra costs that [the Defendant] has to incur as a result of any delay.  This will include (but not be limited to) any delay penalties that it has to pay any of its customers; and any additional delivery charge (including but not limited to air freight and carriage charges); and (ii) any loss suffered by [the Defendant] as a result of the delay.”

(4)  Further, clause 10 of the Standard Product Terms provides that “the delivery date(s) and time(s) specified in the Order shall be of the essence of the Contract.  [The Defendant] reserve[s] the right to cancel the Order if the delivery dates and times are not strictly adhered to.  The cancellation of an Order for reason of late delivery shall not affect [the Defendant’s] right to claim compensation for any losses thereby caused under the terms of Clause 13 below and other rights available to [the Defendant]”. 

(5)  Standard Product Terms clause 13.1 provides that:-

“Without prejudice to any other rights or remedies available to [the Defendant], [the Plaintiff] shall indemnify [the Defendant] and hold [the Defendant] harmless against all and any losses, damages, costs, expenses or liabilities (whether civil or criminal) and any legal or other professional costs (on a full indemnity basis) which may arise, directly or indirectly, as a result of a breach by [the Plaintiff] of any of these terms and conditions. … [The Plaintiff] agree[s] that [the Defendant] shall have the right to set off any such loss, damages, costs, expenses or liabilities against any monies due by [the Defendant] to [the Plaintiff].”

(6)  Standard Product Terms clause 11 also provides that title and risk in the products shall pass to the Defendant, without prejudice to its right to reject the same, when the products are unloaded at the address for delivery specified in the purchase order or delivered to a carrier nominated by the Defendant.

(7)  In addition, Standard Product Terms clause 7.1(A) stipulates that the products shall be of merchantable quality within the meaning of the Hong Kong Sale of Goods Ordinance (Cap.26), fit for purpose, of good material and workmanship, and free from all defects including latent defects. 

12.Although not stipulated in any contractual document, it is common ground that with respect to the products, the parties had all along adopted the “telex release” mode. While how this phrase impacts the construction of the agreement between the parties is a matter hotly in dispute (see below), the meaning of “telex release” is not.  It is common ground that “telex release” refers to a situation where, instead of the seller handing over the original bills of lading or other documents of title to the buyer so that the latter can present the same to the carrier or the godown to obtain release of the goods, the seller would simply notify the carrier or godown by telex that it could release the goods to the buyer.  In other words, it is a mechanism for the buyer to obtain the goods in lieu of presentation of the original documents.^[1]

13.The parties’ business relationship ran smoothly until around September 2016.

14.In early September 2016, shipment of products under 3 purchase orders Nos. 20160862, 20160864 and 20160865 was due but the Plaintiff failed to deliver the same. Those products were for on-sale by the Defendant to Tuesday Morning, a retail chain store in the United States and a customer of the Defendant (“TM Products”). 

15.By an email dated 27 September 2016 from Mr Benny Holm, the chief operation officer of the Defendant (“Benny Holm”), to Sam Shum and Ms Ho Ka Yan (also known as Karen, “Karen Ho”), the accounts manager of the Plaintiff, the Defendant complained that the TM Products were late, demanded an explanation, and stated that the Defendant would miss its delivery to its customer.

16.There was a conversation between Maggie Chow and a representative of the Plaintiff thereafter.  Maggie Chow says that the Plaintiff informed her the delay was due to the Plaintiff’s financial problems causing it to be late in its payment to the Mainland factories, and the factories were not prepared to manufacture the products until they were paid.  Sam Shum denies that.  Nevertheless, it is clear (from the email in §17 below) that the Plaintiff must have provided updated production and delivery information to Maggie Chow, namely save for 1,000 pieces of model No.  11249-294 which had been produced and were ready to ship (and were eventually shipped by air on 30 September 2016), all other products could only be shipped in October 2016.

17.The Defendant then notified Tuesday Morning of the same by email on 28 September 2016, and Tuesday Morning instructed that save for 3 models, it would cancel the rest of the orders. Subsequently Tuesday Morning decided to reinstate some of those cancelled orders.  The net effect (which is not disputed) was that only 2 models under purchase order No.  20160865 were cancelled (“Cancelled TM Products”). 

18.It appears that the Plaintiff was unable to confirm delivery of the outstanding orders, for on 4 October 2016 there was a series of email correspondence between the Plaintiff and the Defendant as follows:-

(1)  Jörgen Bodum first emailed Sam Shum (cc a number of staff on both sides as well as the Defendant’s former solicitors) that:-

“Dear Sam,

If you can not cooperate or dont want to we need to have all our tooling back.

You can not expect bodum to bear cover the cost be corse (sic.) you dont deliver as agreed and confirmed.”

(2)  This was followed by an email from Benny Holm asking Sam Shum to get back to him as the Defendant had orders pending and needed to know urgently if those products could be delivered.

(3)  In response, Sam Shum emailed as follows:-

“Dear Benny,

I’m fucking with my suppliers right now, they push very hardly on my outstanding payment.  I need to solve this problem first.  Thanks for your understanding.”

(4)  Benny Holm then replied asking Sam Shum to note that the “main topic” between the parties was whether there could be agreement over the Plaintiff’s financial responsibility due to the cancellation of customer orders, as indicated by Jörgen Bodum in his email.

(5)  This was followed by an email from Maggie Chow:-

“Dear Sam,

For the record, I just spoke with Karen today and she said you are currently producing 11149 EURO which should complete in these two days.

Although I have already sent out a priority list and explained to Karen how she should proceed, Karen explained she cannot arrange any further production due to your payment issue with factory. So nothing is being planned after 11149 finished.

We also have some US items which are produced but your factory is putting a hold on due to lack of payment from you.

Please note this will further delay all our outstanding orders and you are causing Bodum losing our customers, cancelling not only your orders but also our other item orders due to loss of trust. Those figures are way more than you can imagine.

You need to get back to us immediately what are the solutions or shall we arrange tooling pick up? Then our lawyers can go through all the numbers and let you know.  Sorry, we do not have time for you to fuck around, as we also have customers on our back pushing us for delivery!”

19.Meanwhile, products that the Plaintiff had already delivered to the Defendant in August 2016 and those it continued to deliver through September 2016 began to fall due for payment in the latter half of September 2016 (the payment term being 45 days from shipment).  The Defendant did not settle those payments.  I should point out there is no dispute that the Defendant had obtained delivery of those products, which showed that they must have been “telex released” by the Plaintiff before it received payment.

20.There was a telephone call between Maggie Chow and Sam Shum on 6 October 2016. Maggie Chow recorded what was discussed and agreed in her email of 7 October 2016 (at 00:34) to Sam Shum and Karen Ho.  For present purpose the following is relevant:-

“Dear Sam,

In regards to the call you made to me this afternoon, your proposal as below:

1) [The Defendant] gets to keep holding on all your outstanding payment until further discussion after you have cleared out all your delay shipment mess.

2) [The Plaintiff] have some items already produced and ready to ship, for those items, if [the Plaintiff] can prove you have got the cargos delivered to forwarder warehouse, [the Defendant] will send you payment slip within 2 working days …

We are going to agree to the above, but you must make sure

1) Maggie and Karen are going to work on a priority list, but [the Plaintiff] has to make sure no further delay is allowed or the deal is off

2) [The Defendant] still reserve the right to request air fright (sic.) at [the Plaintiff’s] cost for those orders what are delayed from your original confirmed delivery date …

3) …

Based on your performance above for the already produced products, Jorgen gets to decide if this “payment upon cargo delivery to forwarder warehouse” should apply to the rest of the orders or not.”

21.By emails dated 7 October 2016, Sam Shum agreed to the terms set out by Maggie Chow in the email in §20 above.

22.Maggie Chow wrote further on 13 October 2016 as follows:-

“Dear Sam,

In regards to payment terms

We have received your invoices for your already finished and shipped to forwarder cargo invoices LSK043619 to LSK043623 …

For any other invoices for further shipments, we will give payment slip within 8 working days upon cargo at forwarder warehouse until further notice. Please note that [the Defendant] has the right to change back to TT 45 days at any time.

It is important in order for payment to process, you need to submit correct invoice / packing list / AWB or BL, a reminder shipment needs to be telex released.”

That was confirmed and accepted by Sam Shum by email on the same day.

23.On 20 October 2016, Maggie Chow and Karen Ho were still in email discussions over the production of some outstanding purchase orders, including TM Products as well as products intended for other customers of the Defendant.  Later that day, the Defendant received notification from Tuesday Morning that the latter’s last outstanding order would be cancelled due to the delay.

24.Following that, a meeting took place between the parties on 28 October 2016 to discuss the progress of various outstanding orders.  During the meeting, the Defendant asked the Plaintiff to return all the moulds and to urgently supply a list stating where all the moulds were located so that the Defendant’s staff could visit the premises where the moulds were to verify the same.

25.The requested list was not provided, and Maggie Chow sent emails on 24 November, 2 and 7 December 2016 to chase for the same. 

26.On 7 December 2016, Sam Shum replied saying that the mould list for the 11381 model would be provided within that week; as for the rest he would have to discuss with Benny Holm at their next meeting in January 2017.  Following a further chaser from Maggie Chow, Sam Shum stated on 14 December 2016 that the Plaintiff would only provide the mould list for all models other than 11381 after the parties could agree on a solution on the outstanding payment, and also asked Benny Holm for update on the Defendant’s meeting with Tuesday Morning and news on outstanding payment as well as their future payment terms.

27.After the meeting between Benny Holm and Sam Shum in January 2017, on 6 February 2017 the Defendant followed up with the Plaintiff to arrange for a visit of the Defendant’s moulds.  After some chasers, on 20 February 2017 the Plaintiff provided the locations of the moulds for model 11381 only.  The Defendant explained that it required the locations of all its moulds.  After further chasers the Plaintiff only provided the location of some of the items for models 11381 and 11452 on 6 March 2017.

28.On 1 March 2017, Benny Holm and Sam Shum discussed on the telephone and over email as follows:-

(1)  The Plaintiff stated that it required US$500,000 urgently to keep its production and delivery of products going, and once it received this as part of the outstanding payments, it would revert to the “T/T 45 days” payment arrangement (see §11(1) above).

(2)  The Defendant stated the Plaintiff would have to compensate it for the Cancelled TM Products at US$258,000.  Sam Shum offered 2 proposals for this amount – (i) to give 10% discount on all new orders for model 11381 products until US$258,000 was reached; or (ii) the Plaintiff would only bear 50% of this amount (ie US$129,000) which it would settle in the coming 12 months against payment for orders from the Plaintiff.

(3)  The Defendant chased further on the location of all its moulds, which Sam Shum claimed would be provided within 14 days.

(4)  The Defendant further stated that there were returns of Bodum products due to quality defects which the Plaintiff had to compensate for, attached information from one customer account and stated that the staff of the Plaintiff and the Defendant were working on it.  Sam Shum stated he basically agreed on this, and would send the replacement free of charge with the new orders.

29.The above discussion continued between 7 and 13 March 2017:-

(1)  On 7 March, Benny Holm indicated that in order for the Defendant to transfer US$500,000, the Plaintiff would have to (i) provide the tool location list; (ii) immediately prepare to redeliver the moulds for models 11303 and 11138; and (iii) accept the delay penalty for the Cancelled TM Products in the sum of US$258,000.

(2)  In response, on 7 March, Sam Shum stated that (i) the Plaintiff would try to complete the tool location list in one to two days; (ii) the redelivery of the stated moulds was confirmed; and (iii) for the US$258,000 associated with the Cancelled TM Products, he counter-proposed the 2 alternative settlement methods as stated in his email of 1 March 2017 (see §28(2) above).

(3)  On 9 March, Benny Holm responded that for (ii), in addition to models 11303 and 11138 the moulds for models 11532 and 11179 would also be redelivered immediately after the outstanding purchase orders were completed, and for (iii), the Plaintiff would have to be responsible for the whole of US$258,000, but that could be deducted from payment.  He further stated that the transfer of US$500,000 would only be made after those matters were agreed.

(4)  On 13 March, Sam Shum emailed Benny Holm stating that his “best and last offer” was as follows. For (iii), since the total outstanding payments from the Defendant were US$900,000, the Defendant should pay US$500,000 within the week, deduct US$248,000 from the then remaining balance, and pay the final remaining US$142,000 before the end of June 2017.  For (ii), the Plaintiff would only return the moulds for models 11303 and 11138 after it received the US$500,000, and the rest of the moulds requested would only be returned 4 weeks after receipt of US$500,000 as the Plaintiff needed money to settle its outstanding payments due to the factories before it could recover the moulds from those factories.

(5)  Sam Shum’s email led to a response from Jörgen Bodum on the same day that given this was the second time the Plaintiff “screwed up completely”, “absolutely nothing will be paid before [the Defendant] have received all tooling”.

30.Meanwhile, on 8 March 2017, Karen Ho provided a tooling list to Maggie Chow, but stated that even for the moulds for models 11303 and 11138 (which Sam Shum had confirmed the previous day for immediate redelivery), they would not be released until after the Plaintiff had received partial outstanding payment (presumably a reference to the US$500,000).  By email dated 13 March 2017, Maggie Chow complained that the list sent by Karen Ho was incomplete, making it impossible for the Defendant’s staff to complete the on-site inspection of the moulds in preparation for retrieval, and requested that the Plaintiff should properly fill out the list to be prepared by the Defendant and to arrange for all the moulds to be gathered at one location for pick-up by the Defendant.

31.On 14 March 2017, Karen Ho requested the Defendant to settle payment for a number of invoices for products ordered since the dispute first erupted in September 2016.  Save for one invoice for US$86,280, all of those invoices were not paid and form part of the Annex B Claims (as defined below). 

32.It appears that the Defendant’s reason for not paying those invoices was the Plaintiff’s failure to arrange for the collection of its moulds.  On 17 March 2017, Maggie Chow sent a tooling list to Karen Ho asking her to complete it and to facilitate the Defendant’s collection of the moulds for models 11303 and 11138 as a matter of priority.  She reminded Karen Ho to make sure that the moulds would be ready for collection, otherwise there would be cost consequences for the Plaintiff if the Defendant’s staff travelled to the factories but could not collect the moulds, and that if the Plaintiff require the Defendant to sign any document upon or after collection of the moulds, those documents should be sent to her in advance as the collection staff would not have authority to sign any document on behalf of the Defendant.

33.In response, on 21 March 2017 Karen Ho provided the requested information for the moulds for models 11303 and 11138, and stated that the Plaintiff would like to reach an agreement with the Defendant that the moulds could be collected from specified factories but the Defendant would have to pay US$500,000 within 2 days of collection.  That request was rejected by Maggie Chow stating that the Defendant would need to collect all its moulds before any payment would be made.

34.Since 31 March 2017, the parties corresponded through their solicitors as follows:-

(1)  On 31 March 2017, the Defendant through their former solicitors (“Eversheds”) demanded the Plaintiff to provide a complete list of the moulds and to arrange for them to be inspected and collected by the Defendant at one location. 

(2)  Initially, by email dated 6 April 2017, Sam Shum claimed that the Plaintiff could not return the moulds as there were still open orders under production.  When that was rejected Eversheds as a reason not to return the moulds, on 12 April 2017 the Plaintiff’s solicitors (“F&C”) provided an updated tooling list, but requested that the return of the moulds be linked to payment of the outstanding sums for goods produced, in 3 instalments.

(3)  F&C’s request was rejected by Evesheds on 19 April 2017, stating that the obligation to return the moulds was separate from and independent of the settlement of accounts between the parties.  Eversheds gave notice to the Plaintiff that given the moulds were not returned, the Defendant would proceed to produce replacement moulds, and reminded the Plaintiff that it would be responsible for such cost.

(4)  There was no response to that letter, and on 16 May 2017 Eversheds wrote again to demand return of the moulds, threatening injunctive relief.  In response, F&C replied on 19 May 2017 stating that as some of the moulds were held by the Plaintiff’s suppliers who refused to release the same until they receive the outstanding payments due by the Plaintiff to them (which were outstanding due to the Defendant’s withholding of payments to the Plaintiff), the Plaintiff then had to arrange funds through borrowing or selling its assets to pay off its suppliers first, and would arrange for inspection and collection by 8 June 2017.

(5)  F&C’s proposal was taken on board by Eversheds who wrote on 23 May 2017 with details on the logistics (including a schedule for collection over 11 days), and stated that while the Defendant’s personnel carrying out the moulds collection would not sign any document on site, the Defendant would send an email to the Plaintiff confirming the details of the moulds collected upon satisfactory collection of the moulds. 

(6)  On 31 May 2017, F&C wrote stating (inter alia) that the Plaintiff would only agree to a movement schedule of 4 days, and rejected the Defendant’s proposal on email confirmation after collection, insisting that the Defendant must sign an inspection record on the spot particularizing the number of moulds collected and their satisfactory condition (which, as it became clearer in subsequent correspondence, it meant a waiver of liability on the part of the Defendant) before the moulds could be loaded.

(7)  Between 6 June and 13 September 2017, Eversheds and F&C continued to argue over the mould collection, with the main points of contention being the length of the movement schedule (the Defendant explained that when it moved one set of moulds in 2013 it took 2 full days, hence 11 days for 24 sets of moulds this time was not unreasonable, while the Plaintiff insisted on 4, and later 6, days) and whether the Defendant would have to sign what effectively was a waiver of liability vis-a-via the moulds before the moulds could be moved.

35.Meanwhile, the Plaintiff commenced this action on 27 June 2017, claiming outstanding payments for goods produced.  Its claims are denied by the Defendant, who also counterclaims for losses arising from the Plaintiff’s alleged breaches of contract and failure to return the moulds.

THE ISSUES

36.As indicated above, the Plaintiff and the Defendant have mounted claims and counterclaims respectively. 

37.To summarize, the following issues arise for determination:-

On the Plaintiff’s part

(1)  The Plaintiff claims outstanding payments for products already delivered to the Defendant between 5 August to 30 September 2016 totalling US$894,532.42, particulars of which are set out in Annex A to this Judgment (“Annex A Claims”). The Defendant does not dispute its receipt of these products or quantum, but claims that the obligation to pay for the same has been varied by agreement.

(2)  It also claims outstanding payments, totalling US$716,825.16, for products already produced and sent to the warehouses of the forwarder nominated by the Defendant in March 2017, but which the Plaintiff has not authorized release to the Defendant to date, particulars of which are set out in Annex B hereto (“Annex B Claims”).  The Defendant does not dispute that these purchase orders had been placed or the quantum on the face of the orders, but says it is not in a position to verify whether these products in the stated quantities are in the forwarder’s warehouses as suggested, and more importantly argues that under the terms of the parties’ agreement evidenced in an email dated 13 October 2016, the Defendant’s obligation to pay was conditional upon the Plaintiff having “telex released” the goods, which the Plaintiff had not done, such that the Defendant’s obligation to pay was not yet triggered at the time when the Writ of Summons herein was issued.

On the Defendant’s part^[2]

(3)  First, the Defendant says the Plaintiff was late in completing manufacture of one mould (as set out in Annex C hereto, “Annex C Claim”), for which the Defendant is entitled to compensation as per the relevant Mould Contract.  The sum originally claimed was US$25,500 but has been revised to US$10,200 at trial.

(4)  Second, the Defendant claims for loss arising from the Cancelled TM Products, as particularized in Annex D hereto, in the sum of US$258,000 (“Annex D Claims”).  The Plaintiff does not dispute its delay or the Cancelled TM Products in Annex D as a result, but disputes the quantum claimed. 

(5)  Third, it claims that certain of the products already delivered by the Plaintiff and sold to the Defendant’s end-customers contained defects, as particularized in Annex E hereto, for which the Defendant claims loss and damage in the sum of US$43,727.74 or US$34,831.78 (depending on whether the Defendant is entitled to recover for freight, set-up cost, insurance and import duty associated with these products) (“Annex E Claims”).

(6)  Fourth and finally, the Defendant complains that the Plaintiff has failed to return the Defendant’s moulds (as particularized in Annex F hereto) despite its demands (“Annex F Claims”).  Accordingly, it seeks (a) return of the moulds listed in Annex F (which, save for the 21 items in italics, are all accepted by the Plaintiff to be in its possession to date); (b) its cost of replacing some of these moulds in the meantime totalling US$1,614,550; and (c) its loss of profit for not being able to use its moulds totalling US$245,451.95. 

38.Further, the Plaintiff accepts that it owes the Defendant a credit in the sum of US$33,333,32.  This will be reflected in the final calculations below.

THE EVIDENCE AND THE WITNESSES

39.In this case, the parties’ dealings are mostly evidenced by the contractual documents, the orders placed, as well as detailed email and solicitors’ correspondence. 

40.Four witnesses have prepared witness statements and 3 of them testified orally. 

41.I bear in mind that in the fact-finding exercise, the credibility of a witness should be assessed by reference to contemporaneous documentation where it exists, or to its absence where one would expect it to be created, as well as inherent probabilities having regard to all the facts that are known: Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corporation Ltd [2007] 3 HKLRD 439, §135. 

42.The Plaintiff’s witnesses are Sam Shum and Karen Ho, both attended court for cross-examination. 

(1)  As indicated, Sam Shum appears to be the owner and person-in-control of the Plaintiff.  He is an intelligent person, with a good mastery of business English (he is able to write emails in English to the Defendant unassisted and he confirms he conversed in English with the Defendant’s representatives).  He obviously understands what are the issues in dispute between the parties.  He has a tendency to avoid answering the questions when he realized that a truthful answer may not be helpful to the Plaintiff’s case, and would either prevaricate or try to divert attention to other matters.  One such example was when he was questioned on the Plaintiff’s failure to deliver the TM Products on time due to the Plaintiff’s own inability to pay its manufacturing factories (which was reflected in contemporaneous emails exchanged).  He first tried to divert attention by referring to the email in §18(3) above and claimed that he never swore in his life but the Defendant had cause him to swear, and when pressed further that what he said was inconsistent with the emails, he claimed that there were many emails sent by the Plaintiff chasing for payment but they were not in the trial bundles.  I do not find him to be a truthful witness.  That said, given his evidence mostly concerns exchanges and agreement between the parties which have been documented in writing, and his subjective understanding on what specific words used means is not admissible or relevant for the interpretation of the written documents, I do not find it necessary to consider his testimony when determining those factual issues in any event.

(2)  As for Karen Ho, she is the Plaintiff’s accounts manager and her evidence mainly concerns the Annex C, E and F Claims.  She answered questions in a direct and matter-of-fact manner.  She has personal knowledge on the moulds retained by the Plaintiff, being the person involved in filling out the list requested by the Defendant when the parties were still in discussion, and who compiled the “comments” in annex C to the Amended Reply and Defence to Counterclaim in response to the Annex F Claims.  She was able to provide detailed and cogent answers when questioned on individual items of the moulds in the Annex F Claims.  I find her to be an honest witness, and would accept her evidence where any finding of fact turns on it.

43.As for the Defendant, it has filed witness statements of Benny Holm and Maggie Chow, but only Benny Holm gave evidence at trial, as Maggie Chow has left Bodum HK on 30 September 2021 upon its cessation of operations in Hong Kong and relocation to Singapore, and is unwilling to attend trial as the Defendant’s witness as a result.

(1)  Mr Harrison Cheung, counsel for the Plaintiff, criticized the absence of Maggie Chow and invited me to draw an adverse inference against the Defendant, on the basis that Maggie Chow was the main contact person at the Defendant the Plaintiff dealt with, as evidenced by the emails. 

(a)  Such contention fails to appreciate the true nature of adverse inference and I reject it. 

(b)  An adverse inference can only be drawn from a failure to testify where there is a need to meet an established prima facie case.  This means that the person seeking to draw the adverse inference would have to demonstrate that (i) a prima facie case has already been raised by the evidence adduced; and (ii) the party against whom the case is established has evidence (including witness testimony) available which could displace the prima facie case and which it omits to call: Nina Kung v Wang Din Shin (2005) 8 HKCFAR 387, §§367-369; Ip Man Shan Henry v Ching Hing Construction Co Ltd (No 2) [2003] 1 HKC 256, §155.

(c)  In this case, Mr Cheung has not (i) identify what is the specific issue for which the adverse inference is sought to be drawn; (ii) demonstrate that the Plaintiff has established a prima facie case on the same; or (iii) show why the oral testimony of Maggie Chow could have rebutted such case (if established). 

(d)  One must bear in mind that while Maggie Chow was the main personnel of the Defendant dealing with the Plaintiff, the bulk of the parties’ communication – at least those most pertinent to the issues in dispute – were recorded in writing and is in evidence.  Putting aside the Plaintiff’s failure to discharge its own burden for drawing adverse inference, it is difficult to see how an adverse inference could arguably have arisen against the Defendant in this case.

(2)  In closing, Mr Cheung made a similar criticism with respect to Jörgen Bodum, on the basis that he was the “head” of the Defendant and made decisions on its behalf (see §29(5) above), and that his evidence could reveal the reason for the Defendant’s failure to pay.  I reject this argument for the same reasons in Maggie Chow’s case, and will add that the motive or reason for the Defendant’s conduct is not relevant to the question whether the Defendant has or has not breached the contract.  

(3)  As for Benny Holm, he gave evidence via video-conferencing facilities from Switzerland as a result of the Covid-19 travel restrictions.  He was subject to cross-examination over the course of 2 afternoons.  Mr Cheung criticized him as evasive and unreliable but I do not agree with such criticism.  Benny Holm gave direct and immediate answers to the questions put to him, and fairly acknowledged the factual situation even though he must have been aware that his answers might not be favourable to the Defendant’s case, for example his answer to Mr Cheung’s questions on whether the Annex A Claims needed to be paid was that they were still outstanding.  Further, he fairly acknowledged that he did not have personal knowledge on many of the details pertaining to the Annex C, D, E and F Claims (as he was the Chief Operating Officer and not the person actually handling these matters).  Overall, I find him to be an honest witness, although the utility of his testimony is limited given (i) the matters pertaining to the main claim are mostly documented in writing; and (ii) his acknowledgement as to his lack of personal knowledge on many aspects of the counterclaim.

ANNEX A CLAIMS

44.As can be seen in §37(1) above, the Defendant does not dispute that (i) the products in Annex A had already delivered to and received by the Defendant between 5 August to 30 September 2016; (ii) the total amount was US$894,532.42, and (iii) such amount has never been paid. 

45.It is common ground between the parties that the Defendant’s obligation to pay had been varied by agreement on 7 October 2016 such that it was entitled to withhold payment “until further discussion after [the Plaintiff] have cleared out all [its] delay shipment mess” (see §§20-21 above).

46.The dispute between the parties lies in what “delay shipment mess” means – the Plaintiff says that it refers to the delivery of all the late TM Products (which was completed by October 2016), whereas the Defendant says that the issues arising from the late shipment of the TM Products had not been resolved by further discussions between the parties at the time of the issuance of the Writ.

47.It is trite that construction involves having regard not merely to the words used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912H; Eminent Investments (Asia Pacific) Ltd v DIO Corp (2020) 23 HKCFAR 487, §44.

48.In this case, an important context in the wake of the Plaintiff’s late deliveries was that not only was the Defendant chasing the Plaintiff for delivery of the TM Products, it was also insisting that the Plaintiff should be responsible for the financial losses that the Defendant had suffer as a result of the delay (which it was entitled to under the Standard Product Terms, see §11(3)-(5) above).  This is clear from the emails from the Defendant on 4 October 2016 informing the Plaintiff that the delay was causing the Defendant to lose its end-customers’ orders which would have financial ramifications and for which the Defendant would look to the Plaintiff for compensation (see §18(4)-(5) above). 

49.As such, the “clearing out” “all the delay shipment mess” refers to not only the actual delivery of all the delayed TM Products, but also the incidence of the financial liability for any loss arising from such delay.  The Plaintiff accepts that the Cancelled TM Orders were such a loss.

50.This, however, is not the end of the matter, for the agreement between the parties did not stipulate a time for performance.

(1)  The Plaintiff argues that in such a case, a term would be implied into the agreement that the resolution of the delay had to be resolved within a reasonable time.  Mr Cheung cites no authority in support of this proposition, but it appears to be derived from Chitty on Contracts, 34^th edn, Vol.1, §24-013.

(2)  The Defendant disputes the implied term on the basis that it would be contrary to the express terms in the emails exchanged on 7 October 2016.  That said, Mr Derek JY Chan, counsel for the Defendant, accepts that the Defendant could not hold back the payment of the Annex A Claims indefinitely.

(3)  I do not accept the Defendant’s argument, as I do not see how the words used in the 7 October 2016 emails are inconsistent with implication; the words do not suggest a point in time or an event with which the withholding of payment would cease and, as Mr Chan accepts, that cannot go on indefinitely.

(4)  However, that does not mean I accept Mr Cheung’s argument on the term to be implied. 

(5)  The citation in Chitty above in fact refers to 2 situations where the law would imply a term if no precise time for performance is specified:-

(a)  where a party to a contract undertakes to do an act the performance of the obligation depends entirely on the party, the law implies an obligation to perform the act within a reasonable time having regard to all the circumstances of the case; but

(b)  where the act to be done is one in which both parties to the contract are to concur, the implied engagement is not that the act shall be done within either a fixed or reasonable time or within the time usually taken, but that each shall use reasonable diligence in performing its part.

It is clear that the agreement on 7 October 2016 did not depend entirely on performance by one party; rather, the “further discussion” indicates that it requires input from and concurrence of both parties.

(6)  As such, the term implied into the agreement on 7 October 2016 should be that each party should use reasonable diligence in performing its part.

51.As can be seen from §§28-29 above, the parties did engage in discussion over the incidence of the financial liabilities for the Cancelled TM Orders in March 2017, but were unable to reach overall agreement since their attention was distracted by the issue of the moulds. 

52.Since F&C came on board in April 2017, the Plaintiff demanded payment of the outstanding sums, including the Annex A Claims.

53.In the premises, I find that by 13 March 2017, the parties had discharged their obligation to use reasonable diligence to perform their respective parts under the agreement on 7 October 2016.  Accordingly, the Plaintiff’s cause of action to demand payment for the Annex A Claims had accrued at the time of the issuance of the Writ.  As the Defendant does not dispute liability otherwise, I find in favour of the Plaintiff in the sum of US$894,532.42.

ANNEX B CLAIMS

54.As for the Annex B Claims (see §37(2) above), the Defendant does not dispute that it had placed the orders in Annex B or the amount stated to be due on such orders. 

55.Further, the parties are ad idem that the payment obligation of the products in Annex B was governed by agreement entered into via email on 13 October 2016 (see §22 above).

56.The dispute centres on whether, properly construed, the Defendant’s obligation to pay was conditional upon the Plaintiff having “telex released” the goods, which the Plaintiff admits it has not done even to date.  The relevance of “telex release” is that unless and until the shipper is directed by the holder of the documents of title to the goods (in this case the Plaintiff) to release the goods, the Defendant is unable to obtain possession of the goods since it has never been provided with the original documents of title for the same.  This is so notwithstanding the goods are stored in the warehouse of the shipper nominated by the Defendant.

57.Before I deal with the issue of construction I will first address a pleading objection made by the Plaintiff, that the Defendant has not pleaded a case that under the 13 October 2016 agreement payment was conditional upon “telex release”.  I do not think this criticism is made out.  In the Amended Defence and Counterclaim, the Defendant has pleaded (i) the requirement for “telex release” being one of the terms of the agreement reached on 13 October 2016 (§10(c)(iii)); (ii) the fact that the Plaintiff had failed to “telex release” (§10(d)); and (iii) by reason of the matters in §10, a denial that the Plaintiff was entitled to payment for the Annex B products (§12).  It seems to me that the Defendant’s case has been sufficiently pleaded.  Further, the Plaintiff clearly understood that this was the Defendant’s case, since it positively avers in the Amended Reply and Defence to Counterclaim that its case was “telex release” would only take place after receipt of payment.

58.Turning to the question of construction, I find in favour of the Defendant’s construction for the following reasons.

(1)  First, construction has to be done in context, and an important context to the 13 October 2016 agreement was the Plaintiff’s failure to deliver the TM Products on time resulting in loss of customs to the Defendant.  While the variation of the payment terms on 13 October 2016 was intended to give some immediate financial relief to the Plaintiff, one cannot ignore the fact that the financial relief was to enable the Plaintiff to produce and deliver the Defendant’s goods in time.  It would not make sense for the Defendant to part with its money earlier (from 45 days to 8 days) without any protection or comfort that it would receive the goods for immediate dispatchment to its end-customers.

(2)  Second, in construing an agreement (especially a short document like the 13 October 2016 email prepared by laymen) it is important to look at the document as a whole, instead of focusing only on a few words in isolation (which is what Mr Cheung is inviting me to do).  The 13 October 2016 is intituled “In regards to payment terms”, indicating it was concerned with the question of payment. It goes on to state that payment terms would be changed to within 8 working days upon the cargo arriving at the forwarder’s warehouse.  It then states “[i]t is important in order for payment to process, you need to submit correct invoice / packing list / AWB or BL, a reminder shipment needs to be telex released” (emphasis added).  Given the heading and the underlined words, it is clear that this final part of the email was also concerned with payment.

(3)  Third, one must also have regard and give meaning to the actual words used.  Although it may be said that this is an email prepared by lay persons and one cannot assume that they would necessarily have applied the same rigour in their choice of words as lawyers do, it would depend on the context and the words used.  In this case the parties involved were business persons with experience in dealing with the logistics of delivery and payment; and the words and language they used are plain English.  I am satisfied that Maggie Chow and Sam Shum would have been able to express themselves efficaciously using plain language like that in the 13 October 2016 email.

(4)  Looking at the words actually used in the email, Maggie Chow had prefaced the third paragraph by “it is important”, indicating she regarded that as significant, and would no doubt had taken care to make sure she clearly stated what she wanted. The sentence then goes on “in order for payment to process”, clearly showing that what follows are conditions or requirements for payment to take place. 

(5)  Mr Cheung argues that the “a reminder shipment needs to be telex released” part of the sentence should be treated as disjunctive and separate from the earlier part. I do not accept that.  It seems to me that the “a reminder …” part flows consistently from the previous part of the sentence, and the use of “a reminder” is also consistent with a desire on Maggie Chow’s part to emphasize the importance of “telex releasing” the goods, which dovetails the context in (1) above and the Defendant’s concern to ensure timeous delivery of the goods.

(6)  Fourth, I also do not accept the Plaintiff’s arguments that:-

(a)  it can rely on Maggie Chow’s witness statement §27(v) to support its construction (said to be consistent with it), for the subjective understanding of a party is not admissible for the purpose of construction; and

(b)  the Defendant’s construction is inconsistent with trade practice.  First, the allegation of trade practice has not been pleaded.  Second, it appears that the practice the Plaintiff refers to is based on the authority in fn1 above.  However, it is clear from 4077571 Canada Inc and Loandepot.com, LLC v Yingcai Tech Ltd [2018] HKCFI 2172; HCA 950/2015 (unrep., 21 September 2018) that the passages the Plaintiff relied on are merely description of what the parties did in those cases, and are not reflective of a trade practice which specifically provides for when payment has to be made.

59.In the premises, I find that Defendant’s obligation to pay was conditional upon the Plaintiff having “telex released” the goods, and since the Plaintiff had not (and still has not) done so, the obligation for the Defendant to pay the Annex B Claims has not arisen.

ANNEX C CLAIMS

60.The Annex C Claim concerns a single mould under mould contract No.100520/01 for latte milk frother which the Defendant says the Plaintiff was late in completing manufacture of by 8 weeks in late 2011, for which the Defendant seeks compensation.  In its pleadings the Defendant sought US$25,500 (being the price of the mould), but the amount claimed was reduced to US$10,200 at trial, on the basis that the relevant mould contract has an express provision for penalty for late production, being 5% of the mould price for each week of delay. 

61.Two issues arise for consideration.

62.The first is the Plaintiff’s pleading objection that since US$10,200 is not pleaded, the Defendant is not entitled to claim this amount.  I reject this argument as it conflates the cause of action with quantification of loss; in contractual claims the latter does not necessarily need to be particularized in the pleadings and can be addressed through the evidence.  Here, all the material facts concerning this counterclaim has been pleaded; it is just that the quantum of loss is now a smaller sum than that stated in the pleading.  In any event, if the case advanced at trial is a less ambitious version than the pleaded case, the party may rely on the less ambitious version on the ground that “the greater includes the lesser”: Waddington Ltd v Chan Chun Hoo Thomas, HCA 3291/2003 (unrep., 18 December 2013), §81 (not doubted on appeal in CACV 10/2014 (unrep., 20 May 2016)). 

63.The second issue is whether the Defendant has discharged its burden to show a breach on the part of the Plaintiff.  I am not satisfied that the Defendant has done so.

(1)  The only evidence the Defendant relies on are (i) the mould contract which provides for a production timetable that “100% good samples for production approval” should take place at the 31^st week of 2011 (week commencing 1 August 2011), and (ii) email correspondence between 19 and 26 September 2011 showing that the mould was only received and approved by the Defendant on 26 September 2011.  On this basis the Defendant says there was a delay of 8 weeks which was a breach of the relevant mould contract.

(2)  Karen Ho’s evidence (which is not challenged)^[3] is that the Plaintiff never received any complaint about that mould from the Defendant. 

(3)  Under the mould contract, a payment schedule was provided for which linked payment of instalments for the mould price to various stages of production, namely 40% after signing of contract and confirming of mould drawings; 30% after receipt and approval of 100% good samples; and 30% after first production release with various stipulated tests passed.  There was a further provision for penalty that “for every week of delay the price payable of the mould maker will be reduced by 5% per week of the total amount of USD 25,500” (emphasis added).  The evidence indicates that the mould price had been paid to the Plaintiff in full – in subsequent purchase orders placed for the same product the mould price was recorded as “nil”, and there is no suggestion by Karen Ho (who has checked the Plaintiff’s records) that the mould price was paid otherwise than in full (whereas she has confirmed – which is not disputed by the Defendant – that the Plaintiff had given credit for other moulds initially claimed by the Defendant but which were not pursued by the time of the trial).

(4)  Given the matters in (2) and (3) above, I do not think the Defendant has discharged its burden. Although the written mould contract stipulated a time, that time could be extended by mutual agreement.  Since the contemporaneous emails relied on by the Defendant did not suggest there was any delay amounting to breach on the Plaintiff’s part, the Plaintiff never received any complaint from the Defendant for delay, and the Defendant was contractually entitled to deduct from the then outstanding instalments any penalty for delay if such had occurred but had not done so, I find the Defendant has failed to show, on a balance of probabilities, that there was delay in production of the mould in breach of the mould contract. 

ANNEX D CLAIMS

64.The Annex D Claim concerns the Defendant’s counterclaim for loss arising from the Cancelled TM Products.  The Plaintiff does not dispute there was delay in delivery on its part which was a breach of contract, or that the Defendant has suffered loss by reason of the Cancelled TM Products.  The only issue in dispute between the parties is quantum.

65.The Defendant claims US$258,000, which Benny Holm explains was the loss of sales figures provided to him by the Defendant’s United States office.  This was also the figure Benny Holm put forward to the Plaintiff in the negotiations in March 2017 (see §§28-29 above). Although Sam Shum apparently no long took issue with the figure of US$258,000 in his email of 13 March 2017, no agreement had ever been reached between parties on the same at the time.  Accordingly, the Defendant could not rely on this figure as an agreed sum for the purpose of its damages claim.

66.Thus, one must look at the evidence available to see whether the Defendant can demonstrate the quantum of its loss.

(1)  The Defendant has not adduced any evidence specifically on this, other than relying on the US$258,000 figure in the emails in March 2017.

(2)  However, the oral evidence from Sam Shum was that US$258,000 corresponded to the total sales price the Defendant would have obtained by selling the Cancelled TM Products to Tuesday Morning, as he had ascertained at the time (in March 2017) that the retail price for these products was between US$129 to US$139, and US$129 multiplied by the 2,000 pieces of Cancelled TM Products would be US$258,000.

(3)  This piece of evidence is consistent with Benny Holm’s evidence that US$258,000 refers to loss of sales.

(4)  Since the Cancelled TM Products were never manufactured and there is no suggestion that the Defendant had ever paid for the same, its loss arising from this breach of contract would be limited to its loss of profits, which should be US$258,000 less the cost it would otherwise have to incur (US$146,730 as stated in the Defendant’s purchase orders), namely US$111,270.

67.Accordingly I find that the Plaintiff is liable to the Defendant for US$111,270 on the Annex D Claim.

ANNEX E CLAIMS

68.The Annex E Claims concern losses alleged suffered by the Defendant from defective products supplied by the Plaintiff.  Unfortunately both the evidence and the submissions are in shambles.  Doing the best I could by looking at the pleadings, the witness statements and the documents, the position appears to be as follows:-

(1)  There are 31 different types and a total of 2,224 pieces of allegedly defective products.

(2)  For the vast majority of these products (2104, Part 2 in Annex E), the Defendant relies on (i) the email from Benny Holm dated 1 March 2017 and the attachments to that email (see §28(4) above); and (ii) a table in annex 3 to the witness statement of Maggie Chow which sets out, in the column “particulars of defect”, short descriptions like “malfunction” or “blade does not turn when loaded / when motor is working grease and oil comes out from blade; malfunction”. For these items, the Defendant’s product cost totalled US$34,831.78, and if one adds the miscellaneous costs (which the Defendant says should be represented by a factor of 16% on top of the product cost) and import duty (US$1.027) the Defendant had also incurred to deliver the same to the end-customers that would come to US$40,849.54.

(3)  For 120 pieces of model 11138-01 EURO (Part 1 in Annex E), the Defendant relies on a credit note it issued to an end-customer in November 2017 in the sum of 2,340€ (~US$2,878.20).

69.Other than the matters referred to in §68(2) and (3) above, the Defendant has not adduced any evidence to support the alleged defects, whether by way of photographs, complaints from the end-customers, or internal contemporaneous reports recording the alleged defects.  Benny Holm, the Defendant’s only testifying witness, has no personal knowledge and is unable to give any evidence on the particulars of defect identified in Maggie Chow’s witness statement annex 3.  Nor is there any evidence on, or any attempt made to, correlate the information in the attachments to Benny Holm’s email of 1 March 2017 to the items in Annex E.

70.Having regard to the evidence, I am not satisfied that the Defendant has discharged its burden in showing that the items listed in Annex E were defective such that it is entitled to damages.

(1)  First, I do not consider the Defendant can rely on Sam Shum’s response to the email of 1 March 2017 (see §28(4) above) to say that the Plaintiff had agreed to be responsible for the allegedly defective products in Annex E.  It is common ground between the parties that there was an established procedure for dealing with defects, whereby the technical or quality control staff of both sides (Cheung Ting Kwok on behalf of the Plaintiff) would inspect the goods to confirm that the alleged defects were really due to the Plaintiff, and once so confirmed the Plaintiff would issue credit notes to the Defendant to set off against future payment. The credit referred to in §38 above was one such example.  Nothing in Benny Holm’s email suggested departure from this practice; in fact Benny Holm expressly stated that the Defendant’s staff (Calvin) and the Plaintiff’s staff (“Kwok”, which should be a reference to Cheung Ting Kwok) were working on this.  Sam Shum’s reply must be seen in this context, and cannot be regarded as an unconditional agreement to shoulder responsibility for all the Annex E items (which only a portion was included in the attachments to the email in any event).

(2)  Second, I do not consider that the attachments to Benny Holm’s email of 1 March 2017 amount to sufficient proof of defective products in Annex E.  Those attachments are in the form of excel spreadsheets showing about 300 entries of model number, with a few description of similar brevity as that in Maggie Chow’s witness statement annex 3 (eg “burned smell when use / smoke when use / light-on but won’t start”).  These bare information cannot be shown to correspond to the information in Annex E or Maggie Chow’s witness statement annex 3, and the brief description of the alleged defect do not correspond either.

(3)  Nor is the single credit note in §68(3) above sufficient proof of the alleged defect of those 120 items.  The credit note simply recorded “minus 120 pieces” and a 2,340€ credit given; there is nothing on the face of this document to show that deduction of the 120 items were due to defect, or what the alleged defect was. 

71.In light of my finding above, it is not necessary to deal with the defence raised by the Plaintiff that there was an agreement that the Plaintiff would only be liable if the defective products exceeded 2% of the total products delivered.  I would only point out that Sam Shum’s evidence on this matter is internally inconsistent – in his witness statement he alleged there was an oral agreement with an unidentified general manager of the Defendant to that effect, but in his oral evidence he claimed that it was a matter of trade practice and there was never any express discussion over the same with the Defendant.  For this reason I would not have accepted the Plaintiff’s contention of such 2% agreement in any event.

ANNEX F CLAIMS

72.The Annex F Claims cover 3 aspects:-

(1)  the return of the moulds in Annex F;

(2)  cost of replacing some of these moulds incurred by the Defendant totalling US$1,614,550; and

(3)  loss of profit for not being able to use the moulds totalling US$245,451.95.

73.On the return of the moulds:-

(1)  First, one has to identify what are the moulds currently in the possession of the Plaintiff.  The only remaining disagreement between the parties are the 21 italicized items in Annex F.  Only Karen Ho has given any evidence on these items; other than the table (which is now re-produced as Annex F) the Defendant has not provided any evidence as to the existence or otherwise of the moulds.  My findings on the outstanding 21 items are as follows:-

Mould Number	Findings
ZT11381.13	Accept Karen Ho’s evidence that this is not an independently existing mould, but is part of the mould for the speed control knob which has already been accounted for in Annex F.
ZT11142.07, ZT11142.12, ZT10945.15, ZT11142.18, other moulds (gasket), other moulds (keep warm plate support), other moulds (water collector support)	Karen Ho’s evidence is that these moulds were not created by the Plaintiff and are not in the Plaintiff’s possession.  The Defendant has adduced no evidence to suggest that they exist or are in the possession of the Plaintiff.  Accept Karen Ho’s evidence that they are not in the Plaintiff’s possession.
ZT10864.15	Karen Ho accepts this mould is in the possession of the Plaintiff, and only disagrees with its description as having “2 cavities”.  Accordingly the Plaintiff must return this mould to the Defendant.
Other moulds 11451/51_12 (x2), 11451/52_03 11451/53_02	Accept Karen Ho’s evidence that these are parts for the heater installed inside a kettle, which the Plaintiff did not produce and bought direct from its supplier, hence did not have the moulds in its possession.
Other moulds 11455/01_01	Karen Ho’s evidence is that this mould is for producing the glass core of the kettle, which the Plaintiff has sent to a German supplier for producing the same and is in a position to seek its return.  Accordingly I find that the Plaintiff has power over this mould and is liable to return the same to the Defendant.
ZT111539.05	Accept Karen Ho’s evidence that this is not an independently existing mould but is part of the mould for the lamp cover which has already been accounted for in Annex F.
ZT11592.01, ZT11592.02ZT11593.01 (11593/02_01_00)	Accept Karen Ho’s evidence that there are only 2 (instead of 3) moulds, in that the same filter frame in 11592 was used when the moulds for 11593 were ordered.  Accordingly, the Plaintiff should return the 2 moulds in its possession to the Defendant.
ZT11303.10	Accept Karen Ho’s evidence that the fixing ring was abandoned at the design drawing stage and no mould was ever produced.
Other moulds (strainer)	Accept Karen Ho’s evidence that the strainer was sourced directly from the Plaintiff’s supplier and it does not have the mould.
No mould number (inner lid)	Karen Ho’s evidence is that she is unable to comprehend on the limited information available what mould the Defendant refers.  The Defendant has not been able to provide any further information or evidence to substantiates its existence.  Accordingly the Defendant has failed to discharge its burden on this item.

(2)  Second, there is no dispute that the moulds so found in (1) above are the Defendant’s property.

(3)  Third and accordingly, one would have ethought the Plaintiff would not dispute its obligation to return the moulds to the Defendant now.  That, however, does not appear to be the case, for the Plaintiff’s pleaded case is that it will only return the moulds to the Defendant “on condition that the Defendant will send its representative to inspect the condition of the moulds and make records of the delivery by way of signing the record documents”. 

(a)  This appears to be based on the Plaintiff’s case that the Standard Mould Terms are subject to 4 implied terms, 3 of which are disputed by the Defendant including the italicized words above.

(b)  I reject the Plaintiff’s case that the Standard Mould Terms and the relevant mould contracts are subject to an implied term as per the italicized words above, as such a term is inconsistent with the express terms in the Standard Mould Terms.  It is clear from §10 above that the Defendant has an unconditional right to demand the return of the moulds and the Plaintiff has all the obligations to comply with the demand and return the same; there is no obligation imposed on the Defendant, as is consistent with the fact that the moulds are the Defendant’s property. 

(c)  Moreover, the proposed implied term requires the Defendant to sign “record documents” without defining what they are; but it is clear from the parties dealings in 2017 that what the Plaintiff insisted (and which led to the failure to reach agreement to return the moulds in 2017) was for the Defendant to sign an effective waiver stating the moulds are in good order and condition such that the Defendant would not be able to make any claim for damage against the Plaintiff.  If this is the Plaintiff’s contention (which appears to be the case given the matters above), it shows even more clearly that such term is inconsistent with the express terms and cannot be implied.

(d)  Accordingly the Standard Mould Terms and the relevant mould contracts are not subject to the implied term as contended for by the Plaintiff, and it is not open to the Plaintiff to say that it would only return the moulds upon the Defendant complying with such term.

(4)  Fourth, there is the further question whether the Plaintiff has breached the Standard Mould Terms and the relevant mould contracts by failing to return the moulds in 2017 and since.

(a)  In essence, the Plaintiff’s defence to the fact of the non-return of the moulds is to invoke the “prevention principle” in Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 and contend that the Defendant had obstructed or prevented the return of the moulds in 2017 by (i) not accepting the mould movement schedule proposed by the Plaintiff; and (ii) not agreeing to send its representatives to inspect and sign the acknowledgement receipt documents.^[4]

(b)  I have set out the relevant correspondence in §34 above.  The obstruction the Plaintiff refers to are (i) not accepting 6 days (as opposed to 11 days) for the movement and collection of moulds; and (ii) refusal to sign the waiver requested for by the Plaintiff.

(c)  Dealing with (ii) above first, in light of my finding in (3) above, it is not a term of the agreement for the Defendant to sign documents before collecting the moulds, least to say provide a waiver to the Plaintiff.  There was thus no obstruction on the Defendant’s part in refusing to do so.

(d)  As to (i) above, the Defendant had provided an explanation through Eversheds as to why 11 days were required (based on previous experience in collecting moulds and the large number of moulds to be collected), and it is pertinent to note that although the Plaintiff initially insisted on 4 days, it then conceded 6 days, and in the end also stated that if more time were required that could be separately negotiated.  That said, given Eversheds’ explanation as to the complex logistical issues involved in seeking to collect and move such a large volume of moulds, I do not consider it unreasonable for the Defendant to require a reasonable and fixed period of time in advance so that it can make its arrangements, or to ask for 11 days to move 24 sets of moulds, when previously it took the parties 2 days to move one set.

(e)  In the premises, the Plaintiff has failed to establish any basis to invoke the “prevention principle”, and I find the Plaintiff to be in breach of the Standard Mould Terms and the relevant mould contracts in failing to return the moulds in 2017.

74.Since I have found that the Plaintiff has breached the agreement in 2017 in failing to return the moulds to the Defendant, the second and third aspects (see §72 above) fall to be considered.

75.On the Defendant’s claim for the cost of replacement moulds, the US$1,614,550 claimed comprises of 2 parts, (i) US$456,936 for replacement moulds actually ordered and (ii) US$1,079,782.59 as estimated cost for ordering replacements for the remaining moulds.

(1)  The basis for this claim is clause 6.4 of the Standard Mould Terms (see §10(6) above).  It has never been suggested by the Plaintiff that this clause is a penalty and unenforceable; both parties are content to proceed on the basis that this is a liquidated damages clause proper.

(2)  The meaning of clause 6.4 is plain.  It begins by acknowledging that it would take some 2 months for replacement moulds to be produced and delivered to the factory, indicating the Defendant would not be able to produce goods for 2 months and would suffer loss as a result.  The pre-estimate adopted by the parties to cover such loss is the cost of all of the replacement moulds.  Looking at the matter in a rough-and-ready manner, the cost of an item of replacement mould actually ordered by the Defendant is significantly less than the Annex A Claims, which roughly covered about 2 months of products manufactured for the Defendant.  Tying the liquidated damages for the loss of business to the cost of the very moulds which withholding causes the Defendant to lose that business is not extravagant or unconscionable in comparison to the Defendant’s interest in having those moulds returned.

(3)  The only argument raised by the Plaintiff is that all of the cost of the replacement moulds is not an ascertained, specified or stipulated sum for the purpose of liquidated damages: Chitty §26-190.  I do not accept that, since I cannot see how the cost of the replacement moulds is not something that can readily be ascertained.

(4)  On the 2 sums claimed by the Defendant:-

(a)  US$456,936 is supported by documentary evidence including evidence of payment.  The relevant contracts show that the earliest of these replacement mould orders were placed in April 2017, after the parties’ dispute over the return of the moulds had erupted.  I accept this amount in full.

(b)  As to US$1,079,782.59, this amount is based on mould prices paid by the Defendant to third party suppliers in 2015 for some models, the mould prices paid by the Defendant to the Plaintiff earlier in time for the remainder of the models, there being no other more contemporaneous records of the replacement cost of the moulds.  I accept the calculations put forward by the Defendant, for while these figures are not contemporaneous, it is not unreasonable to assume that their being earlier in time means that they would not have taken into account the effect of inflation and would likely be lower than the contemporaneous prices in 2017.

(5)  Accordingly I find in favour of the Defendant that it is entitled to liquidated damages in the sum of US$1,614,550.

76.Finally, for the loss of profit of 2017 of US$245,451.95, the only evidence in support of it is the testimony of Benny Holm, who explains that it is based on the average of the gross profits for 5 models in 2015 and 2016, less the gross profits for the same models in 2017.  Not a single document has been disclosed in support of these figures.  I also have reservations as to whether this is necessarily an appropriate method to calculate loss of profits; the Defendant has not demonstrated that its estimate sales and hence profits for 2017 must be on a par with if not better than that for 2015 and 2016, and those are matters which one would assume the Defendant could readily have proved by reference to eg orders placed or its business plan.  Accordingly I am not satisfied that the Defendant has discharged its burden for this item of loss.

CONCLUSION

77.To summarize:-

On the main claim

(1)  I find in favour of the Plaintiff on the Annex A Claims in the sum of US$894,532.42.

(2)  I find against the Plaintiff on the Annex B Claims.

On the counterclaim

(3)  I find against the Defendant on the Annex C Claim.

(4)  I find in favour of the Defendant for US$111,270 on the Annex D Claim.

(5)  I find against the Defendant on the Annex E Claims.

(6)  I find in favour of the Defendant on the Annex F Claims, that (i) it is entitled to the return of the moulds as set out in Annex F and as found in §73(1) above; and (ii) it is entitled to liquidated damages in the sum of US$1,614,550.

78.As to costs, given my findings above, I direct that the parties should make written submissions on the appropriate costs orders:-

(1)  The Plaintiff do file and serve written submissions on costs within 14 days of the Judgment hereof, limited to 5 pages.

(2)  The Defendant do file and serve written submissions on costs within 14 days thereafter, limited to 5 pages.

(3)  The Plaintiff do file and serve written responsive submissions on costs within 7 days thereafter, limited to 2 pages.

Mr Harrison Cheung and Mr Matthew Cheung, instructed by Fan & Co, for the plaintiff 

Mr Derek JY Chan and Mr Dexter Leung, instructed by MinterEllison LLP, for the defendant

Annex C

Annex D

Annex E

Part 1

Model 11138-01EURO             120 pieces               credit note for 2,340€

Part 2

Annex A

Annex B

Annex F

Particulars of the Moulds in the Plaintiff’s Possession, Custody and/or Control and Not Returned to the Defendant