Miracle Health & Herb Products Ltd. v. Watson's the Chemist O/B a.S. Watson Group (HK) Ltd.
Read the full judgment text of DCCJ 19704/2001 on BabelCite. This District Court judgment was delivered on 8 January 2003.
1. The plaintiff is an importer and wholesaler of health and herbal products. The defendant is a well known chain store in Hong Kong which sells, inter alia , such products. The plaintiff claims for the price of goods sold and delivered; on the final calculations of the plaintiff's counsel, the figure claimed is $436,978.57. The defendant denies liability and counterclaims for $440,253.30. There is no dispute that goods were sold and delivered but the major issue is whether as the plaintiff clai
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DCCJ019704/2001 DCCJ19704/2001 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 19704 OF 2001 __________
__________ Coram: H.H. Judge Muttrie in Court Date of Trial: 2 & 3 December 2002 Date of Judgment: 8 January 2003 _______________ JUDGMENT _______________ 1.The plaintiff is an importer and wholesaler of health and herbal products. The defendant is a well known chain store in Hong Kong which sells, inter alia, such products. The plaintiff claims for the price of goods sold and delivered; on the final calculations of the plaintiff's counsel, the figure claimed is $436,978.57. The defendant denies liability and counterclaims for $440,253.30. There is no dispute that goods were sold and delivered but the major issue is whether as the plaintiff claims they were sold outright, or whether, as the defendant claims, they were sold on "sale or return". 2.The parties entered into a written agreement, the 2000 Trading Term Agreement, dated 9 August 2000 ("the Agreement"). This Agreement provided for the terms of sale of goods by the plaintiff to the defendant. It is in the form of a chart and provides for a trading discount of 37% off the invoice price. Also to be deducted from the net invoice price after deduction of the 37% , were the following:
3.The agreement provided for a settlement term of 90 days. At the foot of the chart is a note which reads
and it is the interpretation of this note, and in particular the term "deleted" which is at issue here. 4.It is also not in dispute that the plaintiff agreed to pay the plaintiff a listing fee of $350,000.00, which was a payment for putting the plaintiff's goods on the defendant's shelves. 5.The plaintiff's case is that it sold the defendant goods as follows, the price shown being that after deduction of the trading discount:
and that after deduction of the listing fee and the various other deductions provided for, the total due under these invoices is $354,125.96. 6.In addition, says the plaintiff, there was a further oral agreement in September 2000 whereby the plaintiff agreed to supply a produce called Miracle Bust 60 to the defendant on consignment, for a promotional period of one month, in four-bottle packs, to be sold on the basis of four for the price of three, under a slogan saying "Buy 3 Get 1". Any packs unsold at the end of the period were to be returned. Under this agreement the plaintiff supplied goods priced at:
7.Deductions in respect of the various allowances, the free gift element of one free bottle in four and goods returned to a value of $101,871.00 bring the figure down to $82,852.61 and this plus the $354,125.96 noted above makes up the plaintiff's claim. 8.The defendant's case is that by an oral agreement made between the plaintiff and the defendant, the goods were to be sold on the "sale or return" basis. Further by the express term of the agreement noted above, expired, deleted and un-merchandisable quality products were returnable to the plaintiff who would give credit for them. Pursuant to that agreement, in late November or early December 2000 the defendant exercised its right to delete the plaintiff's goods and return them to the plaintiff. The defendant does not dispute the supply of goods under the first two invoices at the discounted prices shown thereon, but it says that the discounted price of the goods under the third invoice was $222,264.00 so that it bought goods to a total of $1,040,545.80. It says that after deduction of the various other discounts and allowances plus a figure in respect of returned (but uncollected) goods of $993,535.20, the plaintiff now owes it (after deduction of figure of $2,000 for anniversary allowance abandoned at trial) $440,253.30. 9.So far as the Oral Agreement is concerned, the defendant says that the promotional goods were subject to the Agreement; that it managed to sell a total of six promotional packets, and that the plaintiff failed or refused to take back the rest; and therefore the plaintiff is not entitled to any relief. Evidence 10.Evidence for the plaintiff comes from its Executive Director, Ms Chan Luk Ping, Bonny. In her first statement she says that when she was exhibiting the plaintiff's goods at an exhibition a representative of the defendant invited her to see the defendant's marketing manager, Mr. Derek Wong. This she did, in July 2000. Mr. Wong suggested the that the terms for sale of goods by the plaintiff to the defendant be a one-time listing fee of $350,000.00, 3 months' credit and discounts in the range of 1% to 45%. Ms Chan agreed to the listing fee, but only if the order was to be a large one; and she could only offer 1 month's credit. They negotiated, and orally agreed terms. On about 8 August 2000 she sent the defendant a quotation for seven lines of health products for $848,496.00, with payment terms of 60 days, a discount of 45% on all products, a damaged goods allowance for all goods if a claim was made within 14 days of delivery, and an interest charge of 1.25% per month for late payments. On 12 August 2000 she saw Mr. Wong again, and he showed her the Agreement, the terms of which were inconsistent with the terms she says were earlier agreed. He told her that this was the standard form for every supplier and that he would immediately place orders if she signed; so she signed it. After that the two orders were placed, and the goods supplied to the defendant. All the goods were accepted save one damaged bottle which was returned. 11.Then in September 2000, the plaintiff held a promotional programme for the defendant for a product called "Miracle Bust 60". This was to run for a month and to be advertised in newspapers. The customer was to get four bottles of the product for the price of three. The plaintiff consigned to the defendant 120 four-bottle packs. At the end of the promotional period, the plaintiff collected 55 unsold packs. 12.In December 2000, after the invoices became due for payment, Ms Chan went to see Mr. Wong to remind him to pay. He said that the sales were not good. He sought to rely on the term of the Agreement which provided for the return of "un-merchandisable quality products". Miss Chan refused this, saying there was nothing wrong with the products and they were not returnable. 13.In her second statement Ms Chan said that the plaintiff always sold for cash or credit and never on consignment or sale or return. She had told Mr. Wong this at their first meeting. He was concerned that there was a risk that the goods might be "expired, deleted or of un-merchandisable quality". She asked what this meant, and he explained that "deleted" meant discontinued from manufacture; and "un-merchandisable quality" meant that the goods had some defect like mould or other damage, wetness, damaged packaging or the like. She guaranteed to him that her products would not be expired or of un-merchandisable quality. She also reiterated that she had agreed to pay the listing fee only on the basis that the order would be a large one. As to the promotion of the Miracle Bust products she said that this was done on the basis that the plaintiff would collect unsold goods and would only bill for those sold; but it was not a "consignment". 14.Cross-examined Ms Chan insisted that Mr. Wong had explained the meaning of the word "deleted" in the Agreement. It was put to her that "deleted" must mean deleted from the defendant's lines of sale. She said:
15.I asked her what she understood "expired" to mean; and she said that it meant that the goods had an expiry date on them, and the plaintiff would not provide the defendant with out-of-date goods. The date was fixed by the factory which made the goods. 16.Evidence for the defendant came from its marketing manager, Mr. Wong Ping Ching, Derek. In his first statement he said that he had first met Miss Chan in 1999 when she had tried to interest him in the idea of the plaintiff's operating counters for the sale of its products in the defendant's stores. He said that after a meeting between the defendant's merchandise controller, Mr. Mak, and Ms Chan, she had telephoned for an appointment; and he had met Ms Chan in his office on 8 August 2000. 17.Mr. Wong's evidence was that he told Ms Chan that according to the defendant's usual practice, it would buy products from the plaintiff on sale or return basis. This meant that the defendant would sell the products in its stores, but if the demand was slack, it would return them to the plaintiff. He emphasised that the defendant only bought products on this basis. Ms Chan agreed to this basic term and after that they went on to negotiate the other terms. Ultimately they came to the agreed terms set out above including 3 months' credit. The payment of the listing fee was not dependent, as Ms Chan says, on the placing of a large order. Pursuant to this oral agreement the parties executed the Agreement and Miss Chan also signed a Warranty giving the plaintiff absolute discretion to and return the entire shipment or order at the plaintiff's expense or require replacements thereof and set of the price against the payment due. 18.Goods priced at $643,422.60 and $183,859.20 were delivered to the defendant subject to the Agreement. Then in late August the matter of the promotional sales of the Miracle Bust product came up. It was agreed that the plaintiff would place 120 bonus packs of four bottles with the defendant; but according to Mr. Wong, this was done pursuant to the Agreement and not to any separate oral agreement. The same terms applied. 19.After that it was found that the sales of the plaintiff's products were unsatisfactory. In October the defendant told the plaintiff to take away the bonus packs. The plaintiff did in fact collect 57 packs from the various stores. The other products did not sell either. So at the end of November or the beginning of December 2000 Mr. Wong informed Ms Chan of the sales figures and told her that he was deleting them and would return them. There was no response from the plaintiff who later sent reminder notes for the price of the goods. Ultimately Ms Chan refused to take back the goods. 20.In a second statement, Mr. Wong expanded on the first one; and he expanded even further in oral evidence. It is not necessary to go through all the figures which were set out in great detail. However the tenor of the evidence is all the same; all the defendant's purchases from suppliers in Hong Kong were done on the sale or return basis. The reason for this was that the local suppliers had to do all the marketing and advertising; the defendant was just a channel for sales. Only purchases from outside Hong Kong were bought outright; and for these the defendant itself did the marketing. All local suppliers had to sign the contract in the standard form. Ms Chan for the plaintiff, at the two meetings had agreed to the "sale or return" term. He also said that it was never agreed that the payment of a listing fee was conditional on the defendant's placing a large order; the listing fee was the same for everyone, and was in any event a bargain by comparison with that charged by other retailers, considering the number of stores which the defendant operated. In fact however it had been agreed in this case that the listing fee was not to be paid "up front" but deducted from the invoiced figures. 21.Mr. Wong explained his understanding of the "expired, deleted..." clause. In particular, his understanding was that "deleted" meant that the goods were deleted from the list of goods on his shelves. In other words, the defendant had the right at any time to delete and return goods which did not sell, whether or not there was anything otherwise wrong with them, and whether before or after the expiry of the agreed credit period. He said that in effect the defendant could not do business otherwise. He also produced a standard form used by the defendant's major competitor, Manning's, which appears to provide for "Agreements made between suppliers and each business of Dairy Farm retail outlets on return of damaged, expired or non-sale stock for an agreed sales period". 22.So far as the Miracle Bust promotional products are concerned, Mr. Wong produced sales records showing that, in all the stores, only six packs had been sold. He said that the plaintiff had collected only 55 packs though the he various lists in his two statements appear to show different figures. 23.So far as the major part of the goods were concerned i.e. those other than in the Miracle Bust promotion he said that he had told the plaintiff to wait for warehouse recall. None of the goods were expired, in the sense of having passed their "sell-by" date; and none were of "un-merchandisable quality". He had "deleted" them; he decided to do this, and told Ms Chan, by the end of November 2000; but the actual deletion from the "planogram" or shelf plan was not until 15 December. 24.I asked Mr. Wong if the defendant had a time limit on the "sale or return" policy. He said that it did not but had had an internal policy of three months. On this occasion the decision was taken after 31/2 months. Evaluation 25.It is interesting to note how the pleadings and statements have evolved in this case. In the beginning there was no averment of an oral agreement for "sale or return". It appeared, in the early stages of the case, that the defendant was relying on its "expired, deleted..." clause as giving it the right to return unsold goods. The oral agreement was not pleaded until the amendment of the defence and counterclaim pursuant to a Master's order dated 23 November 2002, though, to be fair, it did appear in Mr. Wong's first statement dated 7 June 2002. One wonders, however, if there was an oral agreement, why the defendant did not plead it at the outset. At the same time Ms Chan said nothing in her first statement dated 6 June 2002 about her company's policy of selling only outright. Nor did she say that she had told Mr. Wong this; it only appeared in her second statement dated 29 November 2002; obviously in reply to the defendant's amendments. 26.It is also to be noted that, in a letter dated 6 June 2001 to the plaintiff's solicitors in answer to their letter before action, the defendant's assistant legal counsel purported to rely on the "expired, deleted..." term without specifying which of those descriptions was applied to the goods, and made no mention whatever of sale or return or of any oral agreement to that effect. 27.The witnesses are telling very different stories of what was agreed at their meeting. One of the difficulties that I have is that both of them are engaged in marketing goods. Their job is to sell. It is very difficult to know what was said by way of negotiation, and what was meant to be agreed. Much of what they say they said would be open to interpretation of one sort or another. For instance, Ms Chan says that she would only agree to pay a listing fee of $350,000 if she got a large order. In practice that makes sense. But then it advances from a common-sense position to some kind of condition. Mr. Wong's position is that the listing fee was necessarily an "up-front" payment; but then he says that he agreed that it could be deducted from the price, rather than paid "up-front". He says that after consideration the defendant accepted that it should be a deduction, because it wanted the plaintiff to have more money available to advertise. 28.Another difficulty is that neither of the witnesses was to me particularly impressive. Ms Chan seemed hesitant. Mr. Wong, on the other hand, was tremendously self-assured; the kind of witness who very plausibility raises suspicion. Ms Chan is accused of being illogical in saying that Mr Wong relied on her assurance that the products were not "expired, deleted or un-merchandisable" when he had no need to rely on such an assurance, for it was written in his standard form agreement. However, as she says, all this was said at the first meeting, before the Agreement was signed, and, it appears, before she had even read it. Mr Wong, for his part also seems illogical in at least one respect; he said quite specifically
29.This in itself seems to me illogical. There must come a time when "sale or return" becomes sale; that is the point of Rule 4 in section 20 of the Sale of Goods Ordinance, Cap 26, which provides:
30.On Mr. Wong's account no time is fixed. That does not make business sense; a seller might agree to sell on sale or return but must have some certainty as to when the sale is finally completed. 31.One point which does seem to have the ring of truth about it in Ms Chan's evidence is her account of what was said in December when she went to ask for payment; that Mr. Chan said that the sales were not good (which was true) and that the plaintiff should change the packaging; and then said that under the agreement, "un-merchandisable quality" products are returnable. This appears in the first statement and cannot be regarded as some kind of afterthought or something made up to counter the defendant's pleaded defence or evidence. 32.Now it may very well be that the defendant has a policy of buying only on sale or return. There is no evidence to contradict Mr. Wong on that. Obviously, Mr. Wong thinks that that is what the "expired, deleted.." term means. Perhaps he thinks it is obvious, or it goes without saying, because he has produced a document from Mannings which seems to indicate that his competitor at least may make that arrangement as regards its individual shops. But having heard both the witnesses I am left in grave doubt as to whether Mr. Wong told Ms Chan that he would only buy on "sale or return" or Ms Chan ever told Mr. Wong that she would only sell outright. It seems to me more probable than not that this was not specifically discussed and that no oral agreement was reached on the point, but that the story that the contract between the parties had a specific oral element as to "sale or return" as well as the written elements contained in the Agreement has been thought up later to make up for the Agreement's lack of clarity. Interpretation of the Agreement 33.Can the Agreement be interpreted as providing for "sale or return"? Unfortunately it is not clear on this major issue between the parties. Nowhere in it appears the term "sale or return", "consignment" or the like. This is the defendant's standard form of agreement, for use with all suppliers. If the defendant's invariable practice is to buy on "sale or return", one wonders why this is not made an express term of the agreement. 34.The meaning of the "expired, deleted..." clause is not clear. There is no definition of what "deleted" means. For something to be deleted, it must be removed or expunged from something; as Carthage was to be deleted from the earth. The Agreement is silent as to what it is from which a product is to be deleted; and therefore the natural and ordinary meaning of the clause is uncertain. Even Mr. Wong accepts that while on his understanding it means that the product is deleted from his shelves it can also mean that it has been deleted from Government lists in the sense of being de-licensed. The Warranty is not of any assistance either; it appears to give the defendant a free hand to return whatever it likes on inspection of the goods but not necessarily later. 35.In interpreting a contract one must apply the principles set out by Lord Hoffman in Investors Compensation Scheme Ltd. v West Bromwich Building Society [1998] WLR 896 at 912:
36.No doubt from the defendant's point of view it makes perfect business common sense that "deleted" should mean "deleted from the defendant's shelf plan". But it makes no business common sense at all for the plaintiff or anyone else to sell goods which can simply be sent back if the buyer cannot sell them on, whether before or after it actually receives payment; especially if the plaintiff has to pay a large, non-returnable fee for the privilege of selling the goods to the defendant in the first place. Business common sense cannot be applied in a one-sided way. 37.If one looks at the words "expired, deleted or un-merchandisable quality" they all refer to some kind of defect in the product which it was in the seller's power to rectify. "Un-merchandisable quality" is presumably intended to mean "unmerchantable quality" in the usual sense of that term. "Expired" means "past the 'sell-by' date". It is true that goods may expire after being delivered, in which case they could be returned; but the expiry date is something in the seller's control. On the basis of the eiusdem generis rule "deleted" must, it seems to me, mean "deleted from manufacture" or "deleted from licensing" (which Mr. Wong agrees it can mean) or something of that sort, rather than "deleted from the buyer's shelf plan". 38.I am not therefore satisfied that the Agreement was an agreement for "sale or return". If, however, I am wrong in this, or in my finding that there was no oral agreement as to this term, it seems to me that the plaintiff should still be able to recover the sale price of the goods. Under Rule 4, above, the property would pass after a reasonable time. What is a reasonable time is a question of fact. Mr. Wong says that his shelf space is precious. The credit term is 90 days. It is not in dispute that payment was due at the end of November. It seems to me that 90 days is a reasonable time at the end of which the property in the goods, if they are not returned, should pass to the buyer. Yet on Mr. Wong's evidence the final deletion from his shelf plan did not take place until 15 December 2002 i.e. outwith the reasonable period. Miracle Bust Products 39.I turn to the arrangement for the Miracle Bust products. This obviously was something outwith the normal course of dealing between the parties as expressed in the Agreement. There is no dispute that these products were only placed with the defendant for a period of a month, and the plaintiff could take them back quickly; which in fact it did. I am satisfied that this was a separate agreement and it was for "sale or return". 40.The defendant has produced a computer print-out of a Product Sales Report for November 2000 which shows that of 120 four-bottle packs received, only 6 were sold. The plaintiff sent a notice to the defendant's individual stores on 14 October 2000 to the effect that the promotion from 8 September to 5 October was finished, and the plaintiff would send its staff to the stores to collect the remaining goods. It sent another notice to the same effect (but without giving the dates of the promotion period) on 1 December 2000. The defendant's Goods Return Notes show that between 12 October and 28 December some packs were collected; the parties appear to agree that it was 55 packs though from Mr. Wong's charts in his second witness statement there appear to be 47 entries on one chart and 57 on another for "Miracle Bust" or "Gaokurua" which is apparently the same thing. 41.The plaintiff's case is that it should be paid for all the "Miracle Bust" products not returned, i.e. those not shown on the Goods Return Notes. Mr. Wong says that he has 102 stores in Hong Kong and 4 in Macau, and that is why he took 120 packs in the first place; he only sold six packs so the plaintiff should have taken back the rest. The plaintiff cannot have gone to all the stores. Is it true that there are only 51 Goods Return Notes (if I have not miscounted) in the bundle and most of them are for one pack only, but it is not clear whether in the first place only one pack was placed at those stores or indeed all but a few of the 106 stores. If there were other packs which the plaintiff missed one would have expected the defendant to have said so, and reminded the plaintiff to collect them, but there is no indication of this. It seems to me that the only thing which can be relied on here is the defendant's own notes; if they have not noted the return of the goods they must be taken as still having them and they must pay for them. Conclusion 42.It follows that the plaintiff's claim must succeed and the defendant's counterclaim must fail. I accept Counsel's final arithmetic. There will be judgment in favour of the plaintiff for $436,978.57 with interest at the best lending rate plus 1% from the date of the writ to the date of judgment and thereafter at the judgment rate until payment, and costs (nisi) to be taxed if not agreed. The defendant's counterclaim is dismissed with costs (nisi) to be taxed if not agreed.
Representation: Ms. Jane Lo instructed by M/S. Wong, Poon, Chan & Law & Co. for the Plaintiff Mr. Kenneth Ng instructed by M/S. Alfred Lam, Keung & Ko for the Defendant |