Grand Palm International Ltd v. Win Smart International Development Ltd
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DCCJ 3612/2005 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 3612 OF 2005 ______________________ BETWEEN
______________________ Coram : Her Honour Judge C.B. Chan in Court Dates of Trial : 6th to 8th & 11th December 2006 Date of Handing down Judgment : 29th January 2007 JUDGMENT 1.The Plaintiff is a company trading in gift items that are from China to sell to Japan. 2.The Defendant is a manufacturer and supplier of electronic products. 3.The Plaintiff in this action claims for loss and damages in respect of defective goods sold and delivered by the Defendant to the Plaintiff. 4.On or about early March 2003, the Plaintiff, and the Defendant entered into an agreement wherein the Defendant will supply and deliver 3,100 pieces of “Ionic Fridge Freshener” model no. IF-60 (“the Goods”) to the Plaintiff in the total sum of US$14,700. Through subsequent discussions the terms of the contract were amended and the terms thereof are reflected in the Invoice from the Defendant at page 111 of the Bundle of Documents Tab B (“BD-B”) with a price of US$14,415.00. 5.The Plaintiff pleads that it was an express and/or implied term of the Contract that the Goods must be of merchantable quality and fit for the purpose of an ordinary ionic fridge freshener. 6.On or about mid-April 2003, the Plaintiff re-sold the Goods to its customer in Japan, namely, Mizcom in sum of USD17,623.00. Mizcom re-sold the same to its local Japanese customers (“Customers”). The Plaintiff gave evidence that the agreement with its customer Mizcom was that the Goods would be used as gifts in a giant promotion campaign on or about June 2003. 7.The Plaintiff’s pleaded case is that on or about 10 June 2003, the Plaintiff received a complaint from Mizcom and or its customer that the Goods were not up to reasonable standard with the following defects:-
8.On or about 10 June 2003, the Plaintiff, by fax, informed the Defendant that a consumer in Japan complained that one of the Goods caused an outbreak of fire during use. 9.It is the Plaintiff’s case that the representative of the Defendant, through various e-mails and faxes, admitted liability in respect of the defect in the Goods supplied and delivered and orally undertook to compensate all damages suffered by the Plaintiff as a result of the defective Goods. 10.As a result of breach of contract by the Defendant, the Customers nationally over all Japan re-called 1,800 pieces of the Goods which had already been distributed to consumers in Japan. 11.As a result, on or about June 2003, Mizcom claimed against the Plaintiff for total loss and damage suffered. The Plaintiff immediately informed the Defendant of the same. 12.On or about December 2003, the Plaintiff compensated Mizcom in a sum of US71,111.62, being the costs of examination and labour for attempting to cure the defects of the Goods received from the Defendant particulars of which are as follows:-
The Plaintiff’s pleaded case is that the Defendant admitted liability of the defective Goods and undertook to compensate the Plaintiff for all damages suffered by the Plaintiff as a result of the alleged defect in the Goods. The Defendant’s Case 13.The Defendant denies that there is any defect in the Goods supplied and delivered to the Plaintiff. 14.The Defendant denies that it has ever admitted liability of the alleged defect in the Goods supplied nor did it give any undertaking to compensate all damages suffered by the Plaintiff as alleged. Further and/or alternatively, the alleged loss and damage in sum of USD71,111.62 is totally excessive in that it is more than the production cost of the Goods. 15.The Defendant pleads that it has never been informed by the Plaintiff as to the expenses incurred by the Plaintiff to cure the alleged defects of the Goods. 16.The Defendant has never received from the Plaintiff any Test and/or Investigation Report or notice in relation to the alleged defects. The Issues
The 1st Issue 18.Referred to above, the Plaintiff’s pleaded case related to the Goods is that they were not up to reasonable standard and they had several defects. The particulars of these were:
19.In evidence, the Plaintiff’s witness Mr. Hitoshi Onodera produced an exhibit marked Exh. P2. He said that it was one of the Ionic Fridge Freshener supplied by the Defendant but the Plaintiff’s customer had put the label of “Suntory C C Lemon Vitamin” on it. The Defendant denied that this was one of the Ionic Fridge Freshener supplied by the Defendant because the Goods sent by the Defendant did not have labels on them and therefore there is no way for the exhibit to be identified as one of the Goods supplied by the Defendant to the Plaintiff. The Plaintiff states that this is one of the Goods and has been sent back to him by his customer, Mizcom Advertising Co., Ltd (hereinafter referred to as “Mizcom”). 20.There is no independent supporting evidence from the Plaintiff of the chain of evidence to show that Exh. P2 produced by the Plaintiff indeed is one of the Goods supplied by the Defendant to the Plaintiff and sent by the Plaintiff to Mizcom. There are no documentary evidence to show the return of Exh. P2 by Mizcom to the Plaintiff nor written verification from Mizcom that Exh. P2 is one of the Goods that had been delivered by the Plaintiff to Mizcom. I find there is insufficient evidence to identify that Exh. P2 is one of the Goods sold by the Defendant to the Plaintiff. 21.Even if the can in Exh. P2 was one of the Goods supplied by the Defendant, it is noted that the Plaintiff’s customer had processed it by sticking the label to it and it is not clear whether other work had been done to it after it was delivered by the Defendant. In view of this and the insufficient evidence to establish that Exh. P2 is made from one of the Goods as well as the fact that there was no investigation report on Exh. P2 done by an independent expert. Exh. P2 has little evidential value. 22.The Plaintiff adduced no expert report to show the alleged defects on one of the Goods supplied by the Defendant to the Plaintiff. 23.The Defendant as could be seen in the e-mail of Jason Lo to “Gin” the Plaintiff’s witness Mr. Hitoshi Onodera requested the Plaintiff to collect all the returned products from Japan and provide photos of the burnt products for their investigation. None of the burnt products were returned to the Defendant for investigation probably because the Plaintiff had difficulty in obtaining these from its customers. I find that the Plaintiff has not been able to adduce positive evidence of the alleged defects in the Goods. 24.The evidence relied on by the Plaintiff related to the defect of the Goods consists of reports from the Plaintiff’s customer in Japan. The Plaintiff refers to the hearsay complaint of its customer in its e-mail to Jason of the Defendant at pages 119 to 121 of the Bundle of Documents Tab B (“BD-B”). Plaintiff also relies on the various reports from Japan at pages, 123-124, 177 to 191 of BD-B purporting to be investigation reports. These reports have no signature or name of the persons who prepared the reports. They did not state the qualification or expertise of the persons who wrote the report or who conducted the tests. There is no explanation as regards why the Goods tested was turned on for 8 hours and at what setting. As these are Ionic Fridge Fresheners meant to be used in the refrigerator, there is no explanation as regards why they were tested as if they were air fresheners used outside a refrigerator. For these reasons no weight could be placed on these Reports. There is therefore no positive evidence of value or weight from the Plaintiff to establish that the Goods were defective as alleged by its customer. The Plaintiff in this action rely on the purported admissions of defect from the Defendant in its e-mails and its reports referred to establish liability. The 2nd Issue 25.The Plaintiff relies on the e-mail communications from the Defendant to itself and the reports conducted by the Defendant in relation to the Goods. To understand the real meaning of these e-mails, it is important to note the sequence of communications so that these communications could be seen in its true context. 26.In the first e-mail dated 10 June 2003, from the Plaintiff to the Defendant at page 119 of BD-B, where the Plaintiff stated that it was notified by its customer in Japan that morning, that a consumer in Japan complained that one of the Goods caused an outbreak of fire during use. The Defendant’s salesman Jason replied in his fax message at page 122 that “According to our records and analysis of our engineers, all the Ionic Fridge Fresheners we made are safe and no fire has been reported. Since none of the components has records of leading to fire, the incident in Japan should be an accident but not manufacturer’s fault…” 27.The Plaintiff has a Report regarding Air happy C.C. Lemon Can dated 11 June 2003 at page 123-124 of BD-B. This purported to do a test by using 6 pieces of the said can by switching it on for 8 hours. There is no reference to what level the switch is switched on whether “0”, “I” or in between “0” and “I” or “II”. The switch of the said can apparently has the aforesaid positions on the switch. This Report has been found by me to be of little weight of value. 28.The Plaintiff’s Solicitor in his Final Submission has prepared a table of the communications from the Defendant relied on by the Plaintiff. For ease of reference I set out the table with the sentences of the purported admissions relied on by the Plaintiff as follows:-
29.The Plaintiff also reies on the reports prepared by the Defendant which the Defendant’s solicitors elicited in his Closing Submission as follows:
30.The Defendant’s witness Mr. Cheung Wing Leung denied that the Goods he supplied are those described in the Pro-Forma Invoice of the Plaintiff to Mizcom at page 113 of BD dated 15 April 2003. This Invoice showed that what was supplied was “IF-60 Ionic Fridge Ionizer”. What the Defendant sold the Plaintiff (see Invoice at page 111 was “Ionic Fridge Freshener”. It is in “solid grey/spray silver colour” without sticker label nor manual. It is not easy to identify that Exh. P2 is one of the Goods supplied by the Defendant. The Defendant denies that the switch of the can could be kept in the position between “0” and “I” without it springing back either into the position at “0” or “I”. The Defendant stated that all its tests refer to the situation when the switch was forcibly kept at the position between “0” and “I”. This is a situation of misuse and is not the normal way or using the Goods. In fact under normal use, there is no defect. He is also saying that in fact it is not possible to put the switch into the misuse position accidentally because the switch will revert back to either “0” or “I” position unless held in between these positions by force. 31.As can be seen, thee-mail from Jason Lo dated 11 June 2003 at page 126 refer to the test of 3 samples in Hong Kong which were not produced with those shipped to Japan. He stated “We did find the short-circuit position of the switch”. This passage seemed to suggest that the short-circuit position was when the switch was held between “0” and “I”. However, it also says that this short-circuit position could not be held on for more than 10 minutes before the switch would spring back to one of the two positions of “0” and “I”. He states that the switch when held in that position for 10 minutes does heat up and “we do admit the fault of this component.” However they did not find any fire issue. They stated that they would need a certain time to retest a new switch. 32.The e-mail dated 13 June 2003 from Jason Lo at page 131 of BD-B states “Under normal use of the switch (according to manual: switch to “0”, “I” and “II”), the product should not get short-circuited and then overheated. The test conducted refer to a situation where the switch was held between “0” and “I” i.e. the “misused position” but it was stated that they could not hold it at that position for several minutes. 33.Jason Lo’s e-mail, dated 14 June 2003 at page 137 also refer to holding the switch at the position of misuse. This e-mail attached “the temperature change report on short-circuited batteries/switch of their Ionic Fridge Freshener. He stated that under the highest temperature the product melts and fire did not occur”. The Defendant’s witness Mr. Cheung stated that he was told by his staff in Mainland China, that to do the test at page 138, the switch was held in the misuse position by using adhesive tape to fix it there. It was under such unnatural circumstances that the test was conducted. I accept the evidence of Mr. Cheung that the tests were conducted in the manner described by him. 34.In his e-mail dated 17 June 2003 at page 139 of the BD-B, Jason Lo states
35.From the aforesaid and also again from the contents of the e-mail from Jason Lo dated 17 June 2003 at page 139 the short-circuit that occurred was caused when the switch was at “misuse” or wrong position. Mr. Cheung the Defendant’s witness stated that they wanted to improve the switch so that it would not heat up under misuse position. Reference to the change of the switch was in the circumstances aforesaid. 36.The e-mail dated 22 August 2003 at page 161 referred to the same situation of findings of short circuit when the switch was in misuse position. 37.The first test of the Defendant referred to aforesaid found at page 136 to improve the switch from short-circuiting by cutting a line at the location stated was to improve the situation so that short-circuit would not occur under misuse. The second test the results of which were at page 138 of BD-B referred to aforesaid was conducted by forcing the switch into misuse position as stated at page 137 which attached this report. 38.From all this, it could be seen that the Defendant’s references to short-circuit of the switch and heating of the switch was caused by a situation of “misuse” of the switch in putting it in the wrong position and holding it forcibly there. The Defendant never admitted to defect arising under normal use. 39.I have to consider whether the Defendant has admitted to the following:
40.The Defendant only admitted that the Goods would short-circuit when it was turned to between “0” to “I”. That is not an “on” position. I find that there was no admission that the Goods will short-circuit itself when it was turned on after a short period of time nor was there an admission that the Goods will burn when it became short-circuited. The Defendant seemed to admit that the Goods were composed with circuit design which should be improved so that when the switch was misused it would still not heat up. The Defendant did not admit per se that the circuit design was wrong or improper. The issue of circuit design only came about as a result of misuse. The Defendant’s position was that they should check through all the switches and improve them whether in normal use or in misuse to ensure that no short-circuit should occur. 41.The Plaintiff’s witness Mr. Hitoshi Onodera, stated that the switch of the Goods would naturally stop at a position between “0” and “I” without force. As regards whether that is the case, this cannot be verified. There is no independent evidence of what the switches of the Goods that are shipped to Mizcom are like. Exh. P2 has not been proved by the Plaintiff to be one of the Goods that have been sent by the Defendant to Japan and sent back by Mizcom to the Plaintiff in Hong Kong. Exh. P2 cannot be used as a sample of the Goods. 42.Page 100 of BD-B is the Instruction Manual that has been given by the Defendant to the Plaintiff to translate into Japanese for the users. In relation to the switch it states: 43.“Slide switch to either “I” or “II”. When the switch is on “I”, approximately every 5 hours the unit automatically turns on for 10 minutes. When the switch is on “II”, the unit automatically turns on for 10 minutes each time the refrigerator door is opened and then closed. If a user read the Manual or instruction, he will know that he has to slide the switch to either “I” or “II”. It is only when a user does not follow instructions that the switch would be deliberately left in a position between “0” and “I”. 44.From the aforesaid, I find there is no evidence as regards whether the switch would easily slide between the position of “0” and “I”, I have no expert evidence as regards the accepted standard for electrical items, whether switches have to be safe even under misuse condition. If consumers do not follow instructions and use an electrical item in the wrong way, whether the electrical item still has to be safe. It has to be noted that the Goods are Ionic Fridge Fresheners and under normal use has to be kept in a fridge. None of the tests were done with the Goods being placed in a refrigerator. However I also note that the Defendant in their e-mail at page 139 BD-B accepted that they should check with all their switches that they do not short-circuit even under misuse. They adopted a standard that the switches should not short-circuit even under misuse. They took the position that the circuit design should be changed so that this does not happen. All this suggests that the circuit design was wrong or improper. I therefore find that the Goods were composed with circuit of wrong/improper circuit design. I also find that the Plaintiff has established that the Defendant has admitted that the Goods were not up to reasonable standard because the Goods consists of circuit with wrong/improper circuit design which could short circuit when the switch is between “0” and “I” position. 45.I find that the Plaintiff has established this Issue that the Defendant has admitted liability that the Goods are defective in that the Goods were composed with circuit design that is wrong or improper. The 3rd Issue 46.The argument of the Defendant’s Counsel is that the name of the Goods is Ionic Fridge Freshener Model No. IF-60. That was in the packing list of the goods sold by the Defendant to the Plaintiff at page 114 of BD-B and in the Invoice issued by the Defendant to the Plaintiff at page 111 of BD-B. However in the Invoice from the Plaintiff to their clients Mizcom the description of the product is “Ionic Fridge Ionizer” at page 112 of BD-B. And in the Packing List from the Plaintiff to Mizcom the description of the goods was “Ionic Fridge Ionizer” again the word “Freshener” was not used and instead the “Ionizer” was used. The Defendant’s Counsel queries whether the goods sold by the Plaintiff to Mizcom and the goods complained of by Mizcom is the same goods that was sold to the Plaintiff. The Defendant refers to the Reports from the customer of Mizcom namely Legs Co. Ltd. at page 124 which describes the product as “Air happy C.C. Lemon Can”. In the e-mail from Mizcom to the Plaintiff dated 23 June 2003, at page 149 of BD-B the product is named “CC Lemon air freshener can.” In the Confirmation Note relied on by the Plaintiff from Mizcom at page 165-166 of the BD-B regarding the relationship of credit/debt, and debt settlement, the product referred to in one of the credit of A against B and B against A concerns with “CC Lemon-instant-win-Ion-can”. Again, in the Report at page 178 of BD-B the product is referred to as “Air Happy C.C. Lemon Can Report”. 47.The Defendant states that these descriptions could not be referring to the Goods which is an Ionic Fridge Freshener Model IF-60. Further, the Defendant referred to the Report at page 124 of BD-B wherein there is a reference to “Shinsen-kai” Can. There is another Can which Legs Co. Ltd. was referring to other than the one sold by the Defendant to the Plaintiff and by Plaintiff to Mizcom. It could be this other can that is of defective quality and not the Defendant’s can. 48.The Plaintiff gave oral evidence to state that the goods are described these various names but refer to the same item. These are like nicknames to be used to the same item. The “Shinsen-kai Can” was of inferior quality and was not used for distribution to the consumers. The Air happy C.C. Lemon Can referred to by Legs Co. Ltd is not this can. 49.In my view, the Plaintiff’s evidence is credible and the product referred to by the Plaintiff’s customer Mizcom and Legs Co. Ltd and the other sub-purchasers is the Goods sold by the Defendant. The reason is, the Defendant’s own tests on the Goods show short-circuit of the switch and the heating up of the can when the switch is put in the position between “0” and “I” and the Reports from Mizcom show that it was when the switch was put at the position between “0” and “I” that the switch would short-circuit and the can heat up. 50.I find that on the balance of probability, the product referred to by Mizcom and Legs Co. in their respective reports is the Goods sold by the Defendant to the Plaintiff. The 4th Issue 51.I have found against the Plaintiff on the 1stIssue and in favour of the Plaintiff on the 2nd and 3rd Issues. I have to find on the evidence before this Court, has the Plaintiff established the damages alleged to have been suffered by the Plaintiff? 52.The damages alleged to have suffered by the Plaintiff are pleaded in paragraph 6 of the Statement of Claim. They are:
53.In respect of the Invoiced Amount, the evidence shows that the Plaintiff has been paid that sum by its customer Mizcom. This sum is not an actual loss. 54.The “Additional labour costs of US$16,725.21” refer to the cost of collecting the faulty or defective Goods from the consumers to whom these items of Goods have been given. The Plaintiff is not able to give any particulars of how this sum was expended. The Plaintiff’s witness Mr. Onodera states that this item was expended by the sub-sub-purchaser Hakuhoudou Co. Ltd. It is a very large company. It is difficult for a small company to request these documents from this big company. Besides the purchaser from Mizcom, namely Legs Co., Ltd.(hereinafter referred to as “Legs”) discontinued relationship from Mizcom after this. Mr. Onodera explained that the document at page 165 was signed with the chop of the Representative managing director of Legs Co. Ltd. namely Junichiro Uchigawa. Legs is one of the companies comprised in the Nikkei Index and since the personal name of the Representative Managing Director Mr. Uchigawa is appended on it, he would be personally responsible for the statements made in this document at page 165. The English translation is at page 166. The monetary amounts stated therein are audited externally and are accurate down to the last yen. This document does not specifically refer to these “Additional labour costs”. It is not easy to understand from the document itself what are the credits the parties have against one another. The Attachments (1) and (2) referred to in the middle of the document are missing. The Plaintiff is not a party to this document. He said he was informed of its contents and the loss of Mizcom by Mizcom themselves. This is double hearsay evidence. 55.Under cross-examination, Mr. Onodera referred to the fax from Mizcom at page 148 with the English translation at page 149 of BD-B. He states that the Goods were ordered by Mizcom to sell to sub-purchasers, ultimate buyer being Suntory. Suntory used this as one of the gifts for a campaign. Page 149 show that there were three gifts ordered to be given out in the campaign, one of those being the Goods in question. Because of the defect, the ultimate purchaser and/or Mizcom abandoned this product as a gift to be given out in the campaign. The 1,800 pieces given out had to be collected from the consumers all over the nation. They had to pay for the expenses for this. The charges are stated to be 1.8 million yen. Letters of apology had to be sent out to the consumers and these Goods had to be collected. Staff had to be employed. It is clear that this sum was not expended by Mizcom, and Mizcom did not provide breakdown of this sum. The Plaintiff did not have documentary evidence of the expenditure nor clear documentation as regards who actually had to bear this loss down the chain of sub-purchasers. The evidence in relation to all this is also double hearsay evidence. 56.Since there is no breakdown of this sum nor is there clear documentary support for the expenditure or who ultimately paid it, I find that the Plaintiff has not been able to establish this item of damages as it is just a bare figure without sufficient documentary support or particulars. 57.The third item of damages in the sum of US$20,450.49 in paragraph 6 of the Statement of Claim at page 005 of BDA relates to the costs for the production fee for making 3,000 “tremble cushions” which would be replacement gifts for the consumers. There is again no documentary evidence in support of this item of expenditure apart from the statement in the fax from Mizcom at pages 148 and 149 of BD-B. It may again be an item of expense of a sub-purchaser down the chain of sub-purchasers. 58.The Plaintiff subsequently stated in evidence that Legs paid Mizcom the production fee for the 3,000 “tremble cushions”. Mizcom did not have to pay this sum out of its own pocket. As Mizcom did not have to expend this sum, Mizcom is not entitled to be reimbursed this sum by the Plaintiff. The Plaintiff has not established this item of loss. 59.The 4th item relate to the transportation and delivery costs for the “tremble cushions’. There is again no documentary evidence in support of this item of damages apart from the bare statement in the fax from Mizcom at pages 148 and 149 of the BD-B. The Plaintiff is not entitled to this item of damage. 60.In fact, the Plaintiff claims these items of damages because Mizcom had losses or claims against it from Legs and loss of future contracts with Legs. Arising from that, Mizcom refused to pay the running account of sums owed by it to the Plaintiff in the sum of US$133,114.82. This sum is reflected in the Statement at page 168. Because of that the Plaintiff’s actual loss in this transaction is the sum that Mizcom refused to pay and wished to set-off against its loss arising from its purchase of the Goods. This in fact is the Plaintiff’s justification for claiming the four items of damages. None of the 4 items of damages were actual losses suffered by the Plaintiff. These relate to alleged expenditures made by the Plaintiff’s purchasers and sub-purchasers down the chain of sub-purchasers. 61.There is no letter or document from Mizcom that they refuse to pay the sum owed by it to US$133,114.82 in order to set-off losses suffered by them arising from the alleged defect in the Goods. There is no itemized statement of the losses suffered by Mizcom arising from the defect in the Goods. Mizcom would not be able to set-off this sum without proof of its losses arising from the alleged defect in the Goods. Hence, the Plaintiff is not entitled to rely on this Statement at page 168 as the basis for its claim for the items of damages claimed in this action. As can be seen from my finding aforesaid, the Plaintiff has not been able to prove his entitlement to the items of damages claimed in his Statement of Claim. 62.There is also the principle of the requirement of a causal connection between the damages claimed by the Plaintiff and the alleged breach of contract by the Defendant. Is there a causal connection between the set-off by Mizcom of the sums owed by Mizcom to the Plaintiff and the Defendant’s alleged breach of contract. According to paragraph 26-029 at page 1440 of of Chitty On Contracts Vol I, 29th Edition,
63.Perhaps the loss suffered by the Plaintiff in accepting the alleged set-off by Mizcom has more to do with maintenance of relationship with Mizcom and other sub-purchasers than the establishment by Mizcom of actual losses suffered by Mizcom that flow and are consequentially due to the alleged breach by the Defendant. 64.In view of the aforesaid, in my view, despite the Plaintiff having succeeded in establishing that the Goods were defective as found by me, the Plaintiff is not able to establish the damages particularized in its Statement of Claim. 65.In view of the aforesaid, the Plaintiff’s claim must fail. 66.I dismiss the claim with an order nisi for costs of the action to be paid by the Plaintiff to the Defendant to be taxed if not agreed.
Representation: Mr. Yiu Man Kam of Messrs. Chak & Associates for the Plaintiff. Miss Ng Siu Ling Rowena of Messrs. K.Y. Lo & Co. for the Defendant. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||