Bel Trade Co Ltd v. Polaroid Far East Ltd

HCA005626/1986

Commercial law - sale of goods - fraudulent misrepresentation - recission - contract for sale of photographic products to Hong Kong China trader at special low prices for re-sale in China - 96% of large quantities of film sold and shipped to China by Hong Kong China trader were reshipped by it to Hong Kong and thence re - exported to other countries - whether plaintiff induced to enter into contract by Hong Kong China trader's fraudulent misrepresentations - whether Hong Kong China trader's contractual obligation merely to ship the photographic goods to China - Held : 1. Contract induced by Hong Kong China trader's fraudulent misrepresentation; 2. Contract rescinded; 3. Plaintiff awarded damages of US$2,118,426.81 being loss suffered as result of products supplied at special low prices for sale in China being sold at higher prices in other countries; 4. Plaintiff entitled to an account to be taken of profits made by Hong Kong China trader on sales of the photographic products to other countries.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

H.C. Action No. 5485 of 1986

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H.C. Action No. 5626 of 1986

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Coram: Deputy High Court Judge Cruden

Dates of hearing: 13th-16th, 19th-23rd September; 21st-25th, 28th-30th November. 1st December 1988

Date of Judgment: 31st January 1989

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J U D G M E N T

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1. This consolidated action is the consequence of efforts taken by Polaroid Far East Ltd. ('Polaroid') during 1984, 1985 and 1986 to establish a market in the People's Republic of China ('PRC') for photographic products comprising films and cameras. Until 1984 Polaroid had been less successful that its competitors in selling its products to the PRC. Up to 1984 Polaroid sales to the PRC had only amounted to annual gross figures in the region of US$100,000.00.

2. These sales were principally achieved by selling Polaroid products to China traders in Hong Kong who then resold the products to PRC buyers. Polaroid is one of a world wide group of companies who are subsidiaries of the Polaroid Corporation whose head office is in Cambridge, Massachusetts, United States. The sale prices of the products sold by Polaroid in the Far East are fixed in accordance with a strict world wide pricing control system imposed by the Polaroid Corporation. Prices for the same product may vary from country to country, depending on the Polaroid Corporation's assessment of the marketing conditions in those countries in relation to its overall marketing strategy.

3. Examples of the price variation for different countries are reflected in Polaroid's Official Export Price List for 1985. The ex Hong Kong warehouse price for 600 High Speed Film (Single Pack) was US$5.95 for consumption in Hong Kong. The equivalent price for sales to the PRC was US$4.95. In the case of purchases by Bel Trade Co. Ltd. ('Bel Trade') for re-sale in the PRC the latter price was reducible under an incentive scheme to US$3.92. Because of these substantial price differentials it was clearly in Polaroid's interests to endeavour to ensure that products destined for particular countries at lower prices, were not resold by the purchaser in countries where they could obtain much higher prices. Quite apart from the additional profit earned by the wholesales, Polaroid's attempt to develop new markets in loss affluent and other countries by setting lower prices, would largely be frustrated.

4. In fact the wholesale price for sales to the PRC was a special low price set in an attempt to develop a market in that country. The price was so low that Polaroid claimed that it suffered a less on those sales but was reimbursed for that loss by a grant from the parent Polaroid Corporation in the United States. One step taken by Polaroid to ensure that products sold at the special PRC price, at least reached their PRC destination, was to assume responsibility for shipping the products from Hong Kong to the PRC. But the products were shipped in the name and at the cost of the Hong Kong China trader, who effected the wholesale purchase.

5. By October 1984, Polaroid were selling relatively small quantities of film to several China traders in Hong Kong, for re-sale to the PRC. Earlier annual sales were only in the region of US$100,000.00. One of Polaroid's China traders was Yuen Cheung Co., who in October 1984 ordered 20,000 600 single pack films which at that time was a relatively large order. On further enquiry Polaroid discovered that Yuon Cheung Co. were making the order on behalf of another China trader, namely Bel Trade. Polaroid's General Manager, Mr. Joseph Ho, arranged for his Sales Manager Mr. Paul Ip and his China Manager Mr. David Chien to make further enquiries into Bel Trade's business. These enquiries culminated in agreement being reached for Polaroid to sell films and supply cameras direct to Bel Trade.

6. Mr. Ho was an honest and reliable witness and I find that from the beginning he wanted to be satisfied on two points. First, that Bel Trade was an established China trader with the ability to develop the PRC market for Polaroid products. Secondly, that Polaroid could rely on Bel Trade's integrity to re-sell Polaroid's products in the PRC and not divert them elsewhere.   Mr. Ho had two early meetings with Mr. Stephen Sy, the Managing Director of Bel Trade, at which other officers of both companies were present. As a result of those meetings Mr. Ho was satisfied that Bel Trade was a substantial China trader and could be relied upon to develop the PRC market and not sell elsewhere.

7. There was a dispute between Mr. Ho and Mr. Sy as to when the first of these two meetings took place. The first meeting was held in Bel Trade's office while the second meeting was held in the Unicorn Restaurant. I am satisfied that the first meeting was held in late October or early November 1984 and not on 11th January 1985. Shortly after the first meeting Polaroid accepted Bel Trade's purchase order dated 30th November 1984 totalling US$90,000.00. for 20,000 single packs of 600 film at a unit price of US$4.50. Polaroid under the same order provided 200 cameras free of charge. The goods were shipped to Xiamen by Polaroid in the name of and at the expense of Bel Trade. This was the usual practice insisted upon by Polaroid to ensure that the goods did in fact enter the PRC. Later there were also shipments to Hainan.

8. Sales to Bel Trade after that first order soared. The sale price of subsequent orders, expressed in United States dollars, included $90,000.00 on 5.11.84; $68,000.00 on 26.2.85; $42,500.00 on 23.2.85; $80,000.00 on 26.4.85; $127,500.00 on 4.3.85 and 26.3.85; $127,500.00 on 10.4.85; $127,500.00 on 15.5.85; $53,300.00 on 2.8.85; $48,400.00 on 2.8.85; $149,150.00 on 2.8.85; $431,200.00 on 5.7.85; $152,096.00 on 14.10.85; $347,410.00 on 3.10.85; $299,800.00 on 22.11.85 and 24.12.85; $172,480.00 on 16.11.85; $358,100.00 on 29.11.85; $126,000.00 on 8.1.86; $254,297.50 on 9.1.86 and $522,400.00 on 8, 15, 22.1.86.

9. Following the negotiations late in 1984 and 1985 and as a consequence of the large orders being placed, the parties agreed to enter into a long term contract in which their respective positions could be protected. Draft letters of agreement were prepared by Polaroid during February 1985 covering price, incentive scheme reductions based on sales volume and other provisions to protect Polaroid's requirement that the goods were only sold for export to the PRC. The original draft included the following provision which is set out in its final amended form with the deletions shown and the additions underlined :

"For the avoidance of doubt, the above-mentioned reimbursement and incentive on both A. and B. will operate upon written purchase orders being placed notwithstanding that the goods may not be available. On the other hand, relevant reimbursement or incentive will be automatically default should any of the above goods purchase not be shipped to China and being shipped to other parts of the world."

The original draft was forwarded by Polaroid to Bel Trade on 23rd February 1985. The final amended agreement was signed by Bel Trade en 26th March 1985.

10. According to Polaroid, from 1984 until 1986 it sold Bel Trade 712,785 packs of film for the PRC market but Bel Trade re-exported 684,915 of those packs to North America and Europe. Mr. Sy, although at one stage contending that a slightly lesser amount of film had been re-exported by or behalf of Bel Trade from the PRC, agreed that 96% of the film exported from Hong Kong to the PRC had been re-exported to North America and Europe. Polaroid's witnesses claimed that the first time they became aware of the re-exporting was when it received a series of telexes from its parent Company in the United States commencing on 6th March 1986 informing it that film exported from Hong Kong to the PRC was on sale in Germany and later in Canada and the United States.

11. At the hearing, Bel Trade did not dispute that film was re-exported. The mainly undisputed evidence established that large quantities of film, after arrival in Xiamen, was within days sent beck to Bel Trade or its associated companies in Hong Kong and then re-exported to other countries. Following formal discovery in this action, a number of contract documents covering re-export transactions, indicated that on several occasions Bel Trade had resold the film to North American purchasers before the film had even been exported from Hong Kong to Xiamen so well before it had commenced its circuitous journey back to Hong Kong and thence to North America. Bel Trade paid its Xiamen customer 2½% of Polaroid's sale price for its assistance in shipping the film, in most cases within days, back to Bel Trade in Hong Kong. Mr. Sy estimated that from its re-exports to other countries, Bel Trade made a profit of about US$500,000.00.

12. Bel Trade's explanation was that its PRC customers were unable to sell the film in the PRC and that Bel Trade was forced to accept the film back and for economic reasons was then obliged to find customers elsewhere in the world. Mr. Sy further assorted that as time progressed, Polaroid's officers well know that the PRC could net absorb the huge orders Bel Trade was placing and were content to continue to accept purchase orders, without enquiring into their ultimate destination. Mr. Sy further alleged that it was only when Polaroid's parent company became aware of the position, that Polaroid's employees in Hong Kong tool action and refused to accept any further purchase orders.

13. The final 3 purchase orders placed by Bel Trade, which Polaroid refused to accept, were for huge quantities. Earlier accepted purchase orders placed in 1984 and down to mid-1985 typically ranged in value from about US$40,000.00 to US$150,000.00. In the latter half of 1985 they increased and included orders for US$431,200.00. In January 1986 orders were received for even larger sums including one for US$522,400.00. These were followed by the 3 final rejected orders :

Throughout the period these orders were placed, Mr. Sy consistently affirmed that the products would be sold in the PRC. As late as 1st November 1985 he was writing to Polaroid pressing for exclusive selling rights in the Fukien Province and seeking a higher commission for sales within the PRC.

14. For completeness I would record, that on 22nd May 1986, Polaroid wrote to Bel Trade referring to its requirement that products sold should be consumed in the PRC. The parties had discussed a proposal that Bel Trade should execute a performance bond, which would be forfeited in the event of any or all of Polaroid's products sold to Bel Trade, being found to be available for sale outside the PRC. No agreement was reached on the amount of the bond. None was over executed. One consequence of the non-execution of a performance bond was that the final 3 orders were never accepted by Polaroid. On 3rd June 1986 Bel Trade's solicitors wrote to Polaroid stating that Bel Trade accepted that the films were intended to be sold in the PRC but, despite its best endeavours, Bel Trade had little control over the film once it was sold to purchasers in the PRC. The solicitors letter concluded that Counsel had advised that Bel Trade's obligation was limited to shipping the products to the PRC and that obligation had been discharged.

15. Bel Trade's response at the hearing, to the clear evidence that at least 96% of the products exported to the PRC had boon re-exported by Bel Trade elsewhere, was that the solo contractual obligation was to ship the products to the PRC. There could be no dispute that all the Polaroid products sold to Bel Trade had been shipped to the PRC, for Polaroid itself had shipped them to the PRC on behalf of Bel Trade. Bel Trade submitted that after shipping it had not contracted that Polaroid's product would be sold within the PRC. Mr. Sy pointed to the alteration of the Letter of Agreement which reduced Bel Trade's contractual liability to shipping to the PRC, unlike the draft proposal that the products were to be used in the PRC. Polaroid's witnesses maintained that the alteration was made to meet Mr. Sy's objection, that while Bel Trade would sell within the PRC to customers in that country, it was unable to guarantee that those customers might not resell elsewhere. Polaroid disputed that Bel Trade's legal obligation was merely to have its products shipped to the PRC.

16. Polaroid founded its claim against the defendants on alternative grounds. First Polaroid pleaded that it entered into the contract in reliance on Bel Trade's representation that Bel Trade would sell the products to the PRC for use in the PRC; would not re-export elsewhere; and would establish a market for Polaroid products in the PRC. Secondly, that it was an express or implied term of the contract that Polaroid products sold to Bel Trade would be resold and used only in the PRC; would not be re-exported to any areas outside the PRC; would not be re-bought and re-exported by Bel Trade.

17. During the hearing lengthy and at times involved evidence, was adduced by both parties on the various discussions and meetings held between their respective employees. I also had the advantage of listening to and observing Mr. Ho, Mr. Chien, Mr. Ip, Mr. Gordon Fok and Mr. Stephen Lam for the plaintiff and Mr. Stephen Sy for the defendants. Where the evidence of the plaintiff's witnesses conflicted with that of Mr. Sy, I prefer the evidence of the plaintiff's witnesses. I find that Polaroid entered into the contract with Bel Trade upon the basis of the representation that Bel Trade would sell Polaroid's products within the PRC and use its best endeavours to ensure that such products were not resold outside the PRC.

18. The factual position is that Polaroid, on the basis of those representations, was induced to enter into the contract and accepted a series of purchase orders which, in terms of that contract, were tendered by Bel Trade to Polaroid. Each of those purchase orders resulted in new individual contracts for the goods described in those orders. I have considered whether the initial representations continued. According to Bel Trade, it was only some time after the contract was entered into that its PRC customers were unable to complete the sales it anticipated making to them. As a matter of law, Bel Trade was always at liberty to withdrew or modify its original representation to Polaroid. However, if it failed to do so, the representation is deemed to be repeated at each successive moment thereafter and amounts at law to a continuing representation.

19. Before deciding whether Bel Trade's representation continued and affected the subsequent purchase orders, it is necessary to consider two incidents which, according to Mr. Sy, supported his allegation that Polaroid knew that Bel Trade was re-exporting and with such knowledge indicated its approval by continuing to accept further substantial purchase orders. The first relates to what occurred at a meeting between Mr. Ho and Mr. Sy, when Mr. Ho raised with Mr. Sy the possibility that film sold to Bel Trade, was being re-exported from the PRC.

20. Mr. Sy informed Mr. Ho that he was aware that Bel Trade's Xiamen customer had outlets in Northern China and it was possible that some film was crossing the PRC border and being sold in Russia and Eastern Europe. Mr. Sy stated that when he had discussions with Polaroid's employees, the word "Russia" was used as a codeword to cover re-export of film from the PRC to any other country in the world. He agreed that this meaning of Russia was never expressly mentioned by him or by any of Polaroid's employees but he stated its wide meaning was clearly understood. Polaroid's witnesses denied that they ever understood Russia to have this wider or codeword meaning. I accept their denials. I also record that when Mr. Sy spoke to Mr. Ho he cleanly conveyed that it was possible that the Xiamen customer had resell film which may have crossed into Russia. Mr. Sy never told or indirectly suggested to Mr. Ho, that Bel Trade was re-exporting to Russia or to any other country. I equally reject Mr. Sy's explanation that the reason he did not expressly tell Mr. Ho and his colleagues that Bel Trade was re-exporting was to make them "free more comfortable" as untrue.

21. The second incident concerns the return of container of Polaroid film shipped on the "Hua Sheng" from Xiamen which arrived in Hong Kong an 11th October 1985 and was devanned at Bel Trade's premises on 15th October 1985. Quite fortuitously, Mr. Gordon Fok, Polaroid's present China Manager, but then employed in a more junior position, passed Bel Trade's premises on board a tram on the evening of 15th October 1985. He saw a container being unloaded and its contents appeared to be Polaroid products. Mr Fok, who was carrying a Polaroid camera, alighted and took a photograph of the unloading operations which was produced as Exhibit P.5. When the following morning this incident was brought to Mr. Ho's attention, he directed Mr. Ip and Mr. Chien to attend on Mr. Sy at Bel Trade's premises to obtain an explanation.

22. I accept Mr. Ip's evidence that at first Mr. Sy denied that a container with Polaroid film had been unloaded the previous evening but later admitted that was the portion when confronted with Mr. Ip's evidence. I further find that Mr. Sy then took Mr. Ip and Mr. Chien to the godown where they inspected water damaged cartons of film and also observed substantial quantities of undamaged cartons of film. Mr. Sy claimed that Mr. Ip and Mr. Chien knew that the bulk of the container's contents were undamaged and had been returned to Hong Kong for re-export to other countries. Mr. Sy asserted they only made a perfunctory visit to dispose of Mr. Fok's report. Mr. Sy also pointed out that thereafter from 22.11.85 down to 22.1.86 several large purchase orders were accepted by Polaroid notwithstanding its actual knowledge of the return of the container with a substantial quantity of undamaged film.

23. Mr. Ho's evidence was that Mr. Fok's report raised the possibility that it was Bel Trade and not suspected other China traders, who were re-exporting and Polaroid took immediate action to check the position. After Mr. Ip and Mr. Chien's visit they reported that water damaged cartons had been inspected. Further, Bel Trade made an insurance claim for the damaged goods and a survey report from Gellatly Hankoy Marine Services was obtained. In addition, Bel Trade at the same time, made a claim against Polaroid for compensation. Polaroid's witnesses when cross-examined on the fact that there were more undamaged cartons that damaged cartons, replied that they accepted it was normal trade practice for a consignee to reject the whole consignment even when only part of the contents are damaged. They considered that the return of the full contents of the container was not suspicious and had not suggested to them that in fact the undamaged contents were on route to another country.

24. After reviewing the whole of the evidence on the container incident, including the credibility of the various witnesses who gave evidence, I reject Mr. Sy's allogations. I am satisfied that after Mr. Fok's report aroused Polaroid's suspicions, Mr, Ip and Mr. Chien's investigations satisfied Polaroid that the sole reason for the return of the container to Hong Kong was that it had been rejected in Xiamen because part of its contents were water damaged. I also record that each of the purchase orders after this incident continued to be prepared by Bel Trade. Each provided for products purchased thereunder to be shipped to the PRC. As a matter of fact each shipment contined to be arranged by Polaroid who had the actual knowledge that their products were shipped from Hong Kong to the PRC.

25. On the evidence I an satisfied that Polaroid entered into the contract to sell products to Bel Trade at reduced prices because of Bel Trade's representation that the products would be sold to and used only in the PRC. I am also satisfied Bel Trade made the other representations pleaded in paragraph 4A of the Re-Amended Consolidated Statement of Claim. The remaining issue is whether the misrepresentations were fraudulent, negligent or innocent. There is no direct evidence as to Mr. Sy's state of mind when the first purchase order was accepted. But the contract was only executed after the first four purchase orders were accepted. The series of purchase orders resulted in the representations being continuing representations. Accordingly the crucial time to determine whether they were fraudulent is not when they were made but later when Polaroid acted upon them.

26. There is a substantial body of evidence relevant to the issue whether the representations were fraudulent. I have already found that I prefer the evidence of the Polaroid witnesses to Mr. Sy, where there is any conflict. Mr. Sy was an unimpressive witness. He varied his evidence as the hearing progressed and on several material matters his evidence was not consistent either with the pleadings, the documents adduced nor with other parts of his own evidence. I am satisfied that he lied in respect of the "Russia" codeword allegation. I also reject his evidence that Polaroid's officers in Hong Kong in officers conspired to prevent its United States parent from knowing products exported to the PRC, were nearly all being re-exported elsewhere.

27. My adverse finding against Mr. Sy is reinforced by the documents, only disclosed at a late stage in discovery, by Bel Trade in relation to some the re-exports. From these and earlier documents discovered or otherwise available to Polaroid, three schedules were prepared for the hearing, the contents of which were not really disputed. I generally accept their accuracy. Schedule A showed details of the shipment from Hong Kong to the PRC of film sold by Polaroid to Bel Trade. Schedule B showed similar details of shipments of 96% of the same film from the PRC back to Hong Kong. Schedule C showed details of the later shipment of some of the film returned to Hong Kong, on to North America.

28. Film under the first Purchase Order dated 30.11.84 was shipped to Xiamen on 24.1.85. The film under the final accepted Purchase Order dated 21.3.86 was shipped on 4.4.86. The shipments by Bel Trade back to Hong Kong were invoiced as early as 18.3.85 and shipped on 28.3.85. The return shipments under Schedule B continued down to 6.4.86. The re-exports to other countries listed in Schedule C cover the period from 4.4.85 to 9.5.86. The short intervals before the film was sent back to Hong Kong, is strong evidence that Bel Trade never made any real or genuine attempt to sell the reshipped film in the PRC. There are several instances where Bel Trade had even arranged for the resale of film from Hong Kong to North America, before it had been shipped from Hong Kong to the PRC.

29. Bel Trade had clearly devised an elaborate and deliberate scheme to buy film in Hong Kong at low PRC export prices and then re-export it via the PRC and Hong Kong, to higher priced North American and European markets. The evidence of such a scheme being instigated from the very beginning, does not rest on the documents alone. After Polaroid refused to accept any more purchase orders from Bel Trade, Polaroid's Mr. Gordon Fok was in 1986 approached by Mr. Chen Yen Quian. Mr. Chen was the Assistant Manager of the Xiamen Special Economic Zone International Information Development Co. Ltd. ('XIID') which had been one of Bel Trade's main customers in the PRC. Mr. Chen visited Hong Kong and asked Mr. Fok to meet him in a North Point Restaurant on 6th May 1986. Mr. Chen enquired why exports of film to Xiamen had stopped. Mr. Chen disclosed that from the very beginning of Bel Trade's exports to the PRC, XIID and other PRC companies had assisted Bel Trade to ship the film back to Hong Kong. Mr. Chen wanted the same practice to continue and as Bel Trade was no longer involved, naively offered to deal direct with Polaroid. Mr. Chen stated that XIID would arrange for the film to be shipped back to Hong Kong at a cost of 7% of the invoiced cost of the film.

30. Mr. Chen's assertion that Bel Trade from the beginning re-exported film back to Hong Kong, also does not stand alone. Under cross-examination, Mr. Sy while at first maintaing that less than 90% of the film shipped to the PRC was returned to Hong Kong, later agreed that the total returned to Hong Kong would have been in the region of 96%. This extremely high percentage covers nearly all the film shipped to the PRC. The very short period between the arrival of the film in the PRC and its return to Hong Kong negates any real effort by Bel Trade to try and sell the returned film in the PRC. From that evidence, I am prepared to infer that it is more probable than not, that Bel Trade at least from the time when Polaroid first acted upon the misrepresentations, did not honestly believe the representations were true. On the facts any other inference would be fanciful and unreasonable. The lies told by Mr. Sy also tend to reinforce the primary evidence I have found of a clear intention from the beginning to defraud.

31. I turn now to consider whether it was an express or implied term of the contract that Polaroid products sold to Bel Trade would be sold and used in the PRC and not re-exported by Bel Trade to other countries. This was a commercial contract drafted and settled by the parties themselves as businessmen without recourse to lawyers. The contract requires to be construed in the light of its commercial purpose in relation to the factual circumstances in which it was negotiated. For Polaroid it was submitted that the word "shipped" in the extract from the contract already quoted in full, should not be given a narrow literal meaning.

32. Polaroid submitted that the scheme of the contract was that special low prices were payable by Bel Trade for products which it would use its best endeavours to sell within the PRC. The importance that the products should be sold in the PRC was evidenced by the unusual procedure, that while the film would be at Bel Trade's risk from the time of its sale in Hong Kong, it would be shipped by Polaroid in Bel Trade's name and at Bel Trade's expense. At the risks of over summarising Polaroid's submissions, it was contended that the proper meaning of the provision was that it after using its best endeavours Bel Trade could not sell any of the film in the PRC and was obliged to sell the film elsewhere, then the price incentives special to the PRC would not apply.

33. Counsel for Polaroid also referred to Clause 2 of the contract which provided for Polaroid to have the right to ship the film to the PRC. It was submitted that the price and other contractual advantages granted to Bel Trade on the film being shipped to the PRC, only made sense if the implied intention of the parties was that the film was to be sold in the PRC. Bel Trade's contrary submission that the contract only required the mere shipping of the film to the PRC to entitle it to the lower price and other advantages, was also attacked on the basis that if that were the proper construction, the unusual requirement for Polaroid to attend to the actual shipping, would have been both unnecessary and meaningless.

34. Counsel for Bel Trade submitted that the express terms of the contract clearly show that the lower rice and other incentives apply, if the film is first shipped to the PRC whatever thereafter happens. It was submitted that the default provision in the contract only applied if the film were exported direct to a third country and not through the PRC. It was common ground that no such defaulting direct shipment to a third country had occurred. In the instant case, it was submitted, the contract contained no ambiguity and there was therefore no need to look outside the contract. The purported contractual scheme advanced by Polaroid, it was submitted, was at best an attempt to conjure non-existent terms out of thin air. In any event as a matter of law, it was not open to the Court, in construing a contract to look at previous negotiations. But even if these negotiations were looked at it was undisputed that the parties had deleted the more onerous provision requiring the goods to be used in the PRC and substituted the lesser requirement that they merely be shipped to the PRC.

35. In summary, Counsel for Bel Trade submitted that the contractual terms were clear; there was no ambiguity to resolve. Polaroid, contrary to authority, was trying to refer to extrinsic evidence in order to add provisions to the contract which simply never existed. Finally, it was submitted that the strict requirements that required to be satisfied, before the Courts will imply an additional term in a commercial contract, had not been established.

36. On the construction of the contract and on all the other legal issues which arose at the hearing, including those on misrepresentation, fraud, burden of proof, personal liability of directors, remedies, damages, recission, and taking accounts, I was referred by both parties to a long list of authorities. I have read and considered each of them, which is one reason for the delay in delivering this judgment. I am also obliged to the clear and helpful submissions of Mr. Ma and Mr. Bell in developing their respective opposing legal submissions on those authorities and from the several textbooks to which I was also referred. However, the factual evidence was so clear and the relevant legal principles arising on those facts so well settled, that I do not propose expressly to refer to any of those authorities or textbooks, except to record that I have taken them fully into consideration.

37. The contract extends over two pages and was drafted and amended by laymen. The contract is in English but I infer from its contents that it was drafted by a person for whom English is a second language. However, its contents are tolerably clear. I recognise the limitations the law imposes on referring to extrinsic evidence as an aid to construction and similarly strict limitations on implying additional terms. There is much force in Counsel for Polaroid's submission, that at least some of the contract's provisions seem to be unnecessary, unless the intention of the parties was that Bel Trade contracted that the price and other advantages it enjoyed, were conditional upon the products being sold and used in the PRC.

38. I may well have boon prepared, because of the commercial nature and surrounding circumstances of this contract, to accede to those submissions. However, it seems to me that those submissions face the insuperable obstacle that the parties had altered the contract by deleting the original express requirement that the products be used in the PRC to the lesser obligation that they be shipped to the PRC. If with reluctance, I have reached the conclusion that the contract cannot be given the wider construction urged by Counsel for Polaroid, nor may the suggested additional term be implied.

39. Accordingly, Polaroid has succeeded in its first cause of action based on fraudulent misrepresentation. One of the consequences of that finding is that the contract between the parties is rescinded. However, I reject in relation to the second cause of action in contract, Polaroid's submissions on the proper construction of the terms of the contract.

40. The next question relates to the defendants separate liability. Clearly Polaroid is entitled to judgment against Bel Trade. Counsel for the defendants submitted that if I reached that conclusion, liability had still not been established against the 2nd and 3rd defendants personally. The separate legal personality enjoyed by a limited liability company, means that where it is liable, its directors are not necessarily liable. It is necessary to consider the separate role of eath director. Mr. Sy, the 2nd defendant, carried out on behalf of Bel Trade nearly all the material negotiations between the parties. The fraudulent misrepresentations were made by him on behalf of Bel Trade. Depending on the circumstances wrongful acts of a person when acting as a director may not be protected by the concept of limited liability or the separate legal personality of the limited liability company. A director may, in accordance with the normal principles of vicarious liability, be personally liable for any wrongful acts he commits, even though acting as agent. Mr. Sy's knowing, deliberate and wilful participation in the fraudulent misrepresentation of his Company, is sufficient in the present case to make him also personally liable. I hold Mr. Sy to be personally liable.

41. Mrs. Anita Hung, the 2nd defendant, is the wife of Mr. Sy. Although present for periods during some of the early meetings between the parties, any participation by her in the negotiations was limited and falls short of establishing personal liability. In the result Polaroid is entitled to judgment against Bel Trade as 1st defendant and Mr. Sy as 2nd defendant but the action against Mrs. Hung, as 3rd defendant, is dismissed.

42. Finally, I turn to the remedies Polaroid seeks. Where a plaintiff succeeds in establishing fraudulent misrepresentation, it is entitled to have the contract rescinded and to recover damages for deceit. I record that before arriving at that conclusion I have recognised that in many cases a successful party will not be entitled to both recission and damages. However, in the case of fraudulent misrepresentation the defrauded party is entitled to damages in tort quite independently of the operation of the doctrine of recission in contract. I hold that Polaroid is entitled in the instant circumstances to both recission and damages. Polaroid also asks for an account to be taken of the profits Bel Trade made under the contract.

43. Dealing first with the issue of damages Polaroid claims US$2,118,426.81. This sum is particularised in Schedule I to the Re-Amended Consolidated Statement of Claim. In that Schedule the PRC price, invoiced to Bel Trade for products supplied, is deducted from the Hong Kong dealer price and to that difference the value of free products supplied is added. Polaroid claims that the loss it suffered on each sale is represented by that final sum. The total losses so calculated on all sales to Bel Trade at the PRC rate, plus the value of the PRC rebates granted to Bel Trade, produces the damages claimed of US$2,118,426.81.

44. Bel Trade attacked the claim for damages on a number of grounds. It was submitted that due to the unclear evidence of the cost of production and the pricing adjustments between Polaroid and its parent United States corporation, it was not clear whether any profit would have been made if all the products had been purchased and used in the PRC. On this promise, Bel Trade built an intricate argument that in the event Polaroid had suffered no loss. There was also criticism that the in later sales, the rebate had already boon included in Polaroid's bills. After considering these submissions I am satisfied that the loss suffered by Polaroid was in the region of US$2,118,426.81 and it is entitled to judgment for that sum.

45. Polaroid founded its right to an account, on the equitable principle that an innocent party is entitled to recover benefits conferred on the other party, where a contract is subsequently rescinded. I am satisfied that where, as here, the Court has rescinded the contract on the ground of fraudulent misrepresentation, it may also order the restoration to the innocent party, of benefits received by the fraudulent party under the contract. This equitable principle is available to an innocent party where a contract is so rescinded and arises independently of common law remedies.

46. Where a contract is rescinded on the different ground of innocent misrepresentation or in other cases where damages are not awarded, a Court may particularly consider it just that, in addition to rescinding the contract, any financial benefits received by the representor under the contract, should be restored to the misrepresented party. In the case of fraudulent misrepresentation, the defrauded representee is, of course, entitled both to rescind the contract and recover damages in tort. In accordance with the latter principles the present contract has been rescinded and Polaroid awarded damages. I accept that, as a matter of law, this Court also has a discretion, in the exercise of its equitable jurisdiction, to order accounts and inquiries into profits made by Bel Trade.

47. Before ordering accounts, care must be taken to ensure that the outcome would not necessarily result in the award of double compensation. The damages awarded in tort, were to put Polaroid in the position it would have been, if the fraudulent misrepresentations had not been made. If Polaroid had known that Bel Trade were not going to sell the products in the PRC, it would not have charged the special low PRC wholesale prices. In its damages claim, Polaroid elected to calculate its loss principally on the difference between the higher Hong Kong and the lower PRC wholesale prices. Mr. Sy's estimate that Bel Trade made a profit of US$500,000.00 on its sales to other countries, even if accurate, does not assist in determining whether the same products would have been resold within Hong Kong at a Greater or lesser profit. The damages awarded have been calculated on the basis of Hong Kong prices.

48. At this stage it is entirely speculative to conjecture whether, if an account were taken, Bel Trade would be shown to have earned a greater profit that if, having paid Hong Kong wholesale prices, it had resold the products in Hong Kong. In view of the damages already awarded, that would be the lessor basis on which any account of profits would require to be taken. I have paused to consider whether, on the probabilities, the taking of an account would in the circumstances be a useless exercise. On balance I consider that this is proper case in which to order that an account be taken.

49. Finally, in view of the findings made in favour of Polaroid in the action the Re-Re-Amended Counterclaim of Bel made fails. The counterclaim is therefore dismissed. As to costs, there will be an order nisi pursuant to Order 42 Rule 5B (6) RSC that the 1st and 2nd defendants will pay the plaintiff's costs on the claim and that the 1st defendant will pay the plaintiff's cost on the counterclaim. There will be a further order nisi that the plaintiff will pay the 3rd defendant's costs on the claim. The orders nisi as to costs, will become absolute if application to the contrary is not made within 14 days. There will be liberty to apply on the taking of accounts and ashy other consequential matters.

Representation:

Mr. Geoffrey Ma and Mr. J. Fok instructed by Baker & McKenzie for the plaintiff.

Mr. Gilbert Rodway Q.C. with Mr. A. Bell instructed by Hastings & Co. for the defendants.