Smith & Associates Far East Ltd v. Ez Ram Technology Ltd
Read the full judgment text of DCCJ 1268/2019 on BabelCite. This District Court judgment was delivered on 31 March 2023.
1. This is a sale of goods case. On 9 August 2018, parties entered into a sales agreement (“SA”) evidenced by a purchase order numbered 202104 (“PO”) whereby the plaintiff (“P”) purchased 4,000 pieces of LPDDR4 memory manufactured by Samsung Semiconductors numbered K4F6E304HB-MGCJ (“Samsung Memory”) from the Defendant (“D”) at US$15.50 each totalling US$62,000. P purchased the Samsung Memory as a sourcing agent for one of its end-customers in the United States (“Customer”).
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DCCJ 1268/2019 [2023] HKDC 435 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 1268 OF 2019 ------------------------- BETWEEN
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__________________ JUDGMENT ___________________ BACKGROUND 1.This is a sale of goods case. On 9 August 2018, parties entered into a sales agreement (“SA”) evidenced by a purchase order numbered 202104 (“PO”) whereby the plaintiff (“P”) purchased 4,000 pieces of LPDDR4 memory manufactured by Samsung Semiconductors numbered K4F6E304HB-MGCJ (“Samsung Memory”) from the Defendant (“D”) at US$15.50 each totalling US$62,000. P purchased the Samsung Memory as a sourcing agent for one of its end-customers in the United States (“Customer”). 2.Earlier on, the Customer placed a purchase order (the “Customer’s Order”) with P’s associated company (“Smith Houston”) for 20,710 pieces of Samsung Memory on 20 July 2018. According to the Customer’s Order, the Samsung Memory are to be delivered to JSI, a consolidator engaged by the Customer to confirm quantities before onward delivery to the Customer’s manufacturer. 3.P fully paid the purchase price on 15 August 2018 and D purportedly delivered 4,000 pieces of Samsung Memory (“Delivered Products”) the next day. 4.On 17 August 2018, P delivered the Samsung Memory to the Customer, who subsequently used 1,100 pieces for installation onto 550 Jexton TX2 motherboards. 5.On 11 September 2018, P received Customer’s report of failure in the installation of the Samsung Memory causing 550 motherboards totally unmerchantable. P then reported to Samsung, the manufacturer of the semiconductors, which eventually completed the investigation and issued a report dated 17 September 2018 stating that the Delivered Products were defective and non-compliant with the SA. The report suggested that those were “counterfeits”. 6.The Customer therefore claimed against P in the sum of US$164,450 (the “Customer’s Claim”) being the cost of the Damaged Motherboards. Eventually P and the Customer were able to reach a settlement agreement of US$107,250 (“Settlement Sum”) and P paid the Customer through Smith Houston accordingly on 8 January 2019. 7.On 28 September 2018, P informed D of the failures caused by the Delivered Products, followed by a series of text messages communication and correspondence between parties on this matter. 8.In particular, P relies on one of its letters to D dated 22 October 2018 and countersigned by D on 29 October 2018, which P refers as D’s admission letter (“Admission Letter”), as it states that “You previously indicated that [D] would be willing to issue an RMA, refund [P] the full purchase price, and compensate the damages caused to [P’s] customer and [P]”. 9.Subsequent to the letter before action to D dated 19 December 2018, P commenced the present action on 14 March 2019 claiming D for breach of the SA by supplying defective and/or non-conforming products causing loss and damages to P in the sum of US$152,200 (or its equivalent amount in Hong Kong dollar) including the following two heads:
10.According to D’s pleaded case, the gist of its defence is as follows:
ISSUES 11.Mr Lung for P has streamlined parties’ Agreed Statement of Issues In Dispute filed on 14 September 2021 which I take the liberty to adopt and reproduce them herein:
12.In addition to the agreed statement of issues in dispute, Mrs Daley for D has taken other issues in her closing submissions and in particular various challenges to the Samsung Report are raised, including but not limited to:
13.Apart from the challenges to the Samsung Report, Mrs Daley also takes issue with the following:
14.Mr Lung submitted that unpleaded contentions should be disregarded with which I totally agree. “It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced[1] ”. 15.According to the Defence, D only denies that the Samsung Memory delivered to P are not genuine, defective, nonconforming, not fit for the intended purpose, unmerchantable, and not corresponding with the description, but D has never denied in its pleadings that the Samsung Memory examined by Samsung have the alleged problems. In short, the main thrust of D’s contention is that the Samsung Memory examined are not from the Delivered Products but they are purchased elsewhere. No dispute of the findings of the Samsung Report has ever been pleaded by D. 16.Besides, no notice to dispute authenticity under O.27 r.4 of the Rules of the District Court (Cap.336H) (“RDC”) has ever been served. It is therefore not open for D to challenge the authenticity of the Samsung Report at the closing submission stage and thus D is deemed to have admitted its authenticity. 17.Regarding the nature of the evidence contained in the Samsung Report, P submits that the factual findings of the report are being relied on, so it is not adduced as expert evidence but as factual evidence. Mr Lung also submits that the mere fact that factual evidence is given by someone with expertise in a particular discipline does not transform that evidence into expert or opinion evidence and citing Koninklijke Philips Electronics NV v Wealth Full Technology[2] in support of his submission. I agree with the above submissions. 18.The hearsay notice for the JSI Report and the Samsung Report was issued on 26 May 2021. It is the duty of the court to consider at the case management stage whether directions are required in relation to hearsay evidence[3]. D all along has not raised any formal hearsay objection until its closing submissions which deprives P’s opportunity to call the maker of the report to give evidence to deal with the hearsay objection. 19.For the above reasons, D is not allowed to challenge authenticity and admissibility of the Samsung Report and such matters are not issues at trial. 20.It is trite that mitigation of damages must be specifically pleaded with supporting particulars. D submits that such matter has been pleaded in paragraph 10 of the Defence. It is an averment that D asked P to return the defective goods for a full refund but P refused and demanded for a refund without return of goods. Obviously, it does not satisfy the requirement of giving particulars of facts on which D relies in mitigation of the amount of damages according to O.18 r.12(1)(c) RDC. Thus this is not a triable issue. 21.Another unpleaded point raised by D is the alleged countersignature of the Admission Letter being appended “under pressure”. This again could not be accepted as an issue for the trial. 22.Therefore, only the issues defined by the pleadings and the agreed issues in dispute as summarised by P’s counsel are to be considered. The unpleaded contentions are to be disregarded as discussed above. DELIVERY OF GOODS FROM THE PLAINTIFF TO THE CUSTOMER The Invoice 23.On 9 August 2018, P issued the PO and D issued an invoice to P the same day showing the following descriptions of the goods:
The Packing List 24.It is undisputed that delivery of the purchased goods to P’s address in Kowloon Bay was on 16 August 2018 and the details were recorded in D’s packing list:
The Receiving Report 25.On 16 August 2018, P received the Delivered Products and it was recorded in its receiving report as follows:
26.It is the P’s case that the Delivered Products were stored safely in P’s warehouse before delivery to JSI the next day on 17 August 2018. Allegedly, P adheres to the highest industry standard for its handling, warehousing and shipping process and security measures which include CCTV and access card authorisation. It is not in dispute that there were no reports of security incidents in relation to the Delivered Products on the day of P’s receipt or the delivery to JSI on the next day (ie. 16 to 17 August 2018). The JSI Report 27.On 17 August 2018, P delivered the Delivered Products to JSI , the Customer’s designated consolidator and freight forwarder. JSI’s duty is to consolidate, count goods and record any discrepancies in shipping documents and receipts, but JSI did not open the packaging to determine whether the Delivered Products were genuine or conforming to its contractual specifications. 28.According to the JSI Report, 13 pieces were found missing in one of the reel boxes after counting (ie 1987 pieces were found instead of 2000 pieces as shown on the inner label and the MBB label). The issue here is whether the goods counted and reported by JSI came from the Delivered Products. The salient features of the goods referred in the JSI Report are as follows:
29.In light of the above, it is highly unlikely for JSI to mix up the Delivered Products with other products. As JSI did not open the wheel packaging of the Delivered Products, I am satisfied that the Delivered Products were delivered to JSI and onward delivered to the Customer in the same conditions as they were delivered by D to P on 16 August 2018. CHAIN OF EVIDENCE RE EXAMINATION OF THE GOODS The Samsung Report 30.In gist, the factual findings of the Samsung Report are as follows:
Whether the tested products were the Delivered Products 31.The following identifying markers confirm the tested products were the Delivered Products:
32.I accept P’s submissions that the D’s challenge of the tested products not being the Delivered Products is based on an incorrect premise and I thus reject D’s contention. The distinctive feature of the “G” Lot Numbers is overwhelming evidence in support of the tested products were indeed the Delivered Products. BREACH OF THE SALES AGREEMENT 33.The SA evidenced by PO contains the following express terms:
34.Having considered the legal principles set out in the English authority Harlingdon and Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd[4], I am satisfied that the sale of goods in the present case is “sale of goods by description”, pursuant to s.15(1) Sale of Goods Ordinance (Cap. 26) (“SOGO”). 35.Accordingly, the SA contains an implied term that the Samsung Memory to be supplied by D should conform with the descriptions set out in the PO:
36.The findings of the Samsung Report clearly show that the tested products do not correspond with the description. Irrespective of Mrs Daley’s unsuccessful attacks of the report on some unpleaded grounds[5], the test results have never been challenged by D’s pleaded case. Therefore, I attach full weight in the findings of the Samsung Report. 37.Although only 9 pieces of the Delivered Products were tested by Samsung, it is reasonable to infer in the circumstances that the rest of the Delivered Products would have the same non-conformity problem and breach of specification, since they came from the same source with the same aforesaid distinctive feature: Atico International (HK) Ltd v Sparko (Far East) Ltd[6]. 38.Besides, D’s breach is corroborated by the Admission Letter signed by Daphne of D which is relied on by P as a piece of contemporaneous document. It is stated that D would be willing to “refund [P] the full purchase price”. and D’s admission of its liability: “You have previously indicated that EZ RAM would be willing to issue an RMA, refund Smith the full purchase price, and compensate the damages caused to our customer and Smith”. 39.D argues that the undertaking on damages in D’s Admission Letter was dependent on proof of Delivered Products being defective and P’s return of the Delivered Products to D. However, such requirement was not stated in the letter. In any event the D’s witness conceded that Daphne’s signature in the Admission Letter was to confirm what had already been agreed between the parties and the superior of Daphne thought that they should be responsible for it. Therefore, I attach full weight to this letter as a proof of D’s admission of liability. 40.In the circumstances, I find that D has acted in breach of the express terms and conditions as per clause 1 & 3 of the SA and the implied term as to correspondence with description pursuant to s.15(1) of SOGO. DAMAGES 41.P claims 2 heads of losses totalling US$152,200:
Settlement Sum 42.It is P’s case that Smith Houston is P’s agent. As Smith Houston has reached a settlement agreement with the Customer and paid the Settlement Sum, P is obliged to repay Smith Houston. In fact, Settlement Sum has been booked to P’s account. 43.It is not in dispute that D knew at the time of the SA that the Delivered Products would be sold onward to P’s end customer because of the long history of past dealings with P. The main issue here is whether the Settlement Sum is reasonable in the circumstances. 44.P’s legal team was involved in negotiation with the Customer and succeed in reducing the initial claim of US$164,450 by 35% to US$107,250. Further, P emailed to D on 27 November 2018 explaining why P considered the settlement deal as reasonable, because it would be more expensive to rework the damaged motherboards. 45.Having considered all the circumstances and the authorities[7] cited by P’s counsel, I find that the Settlement Sum is reasonable and thus recoverable. Damages for the remaining 2,900 Samsung Memory 46.P is suing for the contract price of US$44,950 including the claim of 13 missing units pursuant to s.53 SOGO for non-delivery and 2,887 delivered products pursuant to s.55 SOGO for breach of warranty. 47.D argues that P has failed to:
48.As I have stated in the above, D has failed to plead mitigation of loss. D is debarred from raising this issue at trial. In any event, P is only required to act reasonably. P has proposed the following 4 options to D:
49.However, none of the above options were accepted by D. As the goods are found to be of counterfeit nature, any cross-border transportation of them may lead to P’s contravention of the relevant Hong Kong or US criminal law. Therefore, it is reasonable for P to dispose of the unused goods without returning them to D. 50.Regarding the challenge of the sample size of test conducted by Samsung, I agree with P that notwithstanding the small sample size for testing, it is reasonable in the circumstances to infer that the untested goods are also non-conforming, as they come from the same source (Atico International (HK) Ltd at §39). 51.Having regard to the counterfeit nature of the Delivered Products, I am satisfied that there would be no resale value and thus P has suffered loss of the contract price. I accept the measure of damages would be the original contract price and allow such sum claimed under this head. CONCLUSION 52.For the reasons aforesaid, I enter judgment in favour of P for the sum of US$152,200, or its Hong Kong dollar equivalent at the date of payment, with interest at HSBC prime rate plus 1% from the date of the writ up to the date of judgment and thereafter at judgment rate until full payment judgment. 53.Costs should follow the event. I thus make an order nisi that costs of the whole action (including any reserved costs) be to P to be taxed if not agreed with counsel certificate for Mr Lung. 54.Lastly, I thank counsel for their assistance rendered to this court.
Mr Vincent Lung & Ms Nicole Chui instructed by Simmons & Simmons for the plaintiff Mrs Angel Mak Daley instructed by S.M. Chiu & Co. for the defendant [1] Hong Kong White Book 2023 §18/0/3 [2] [2002] 3 HKC 87 [3] O.25 r.6(a) RDC [4] [1991] 1 QB 564 [5] §12-19 above [6] [2007] 2 HKC 124 at §39 per Sakhrani J [7] Atico International (HK) Ltd (supra) at §§45-46, Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314, 125 OBS (Nominees1) v Lend Lease Construction (Europe) Ltd [2017] EWHC 25 (TCC) at §§186-187 and Monarch Steamship Co., Limited v Karlshamns Oljefabriker (A/B) [1949] AC 196 at 224 per Lord Wright. |
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