Wai Dick Toys Co Ltd v. Gift Line Co Ltd
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DCCJ 3285/2006 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 3285 OF 2006 _________________ BETWEEN
_________________ Coram : Deputy District Judge K. Lo in Chambers (open to public) Date of Hearing : 8th August 2007 Date of Handing down Judgment : 7th November 2007 _________________ JUDGMENT _________________ The Application 1.Between years 2001 and mid 2004, the Plaintiff, a manufacturer of toys had ongoing business relations with and had maintained a running account with the Defendant, a trader in toys. The Plaintiff now seeks summary judgment against the Defendant in sum of $660,737.81 i.e. the alleged sum due from the Defendant to the Plaintiff in such account. 2.It was known to the Plaintiff that the toys supplied would be resold to the end buyer Reeves by the Defendant. 3.The Defendant opposed such application. 4.For the present purpose, this Court would adopt the same definitions to “1st Toys”, “2nd Toys”, “3rd Toys” and “1378 Contract Toys” as used by the parties. Issues 5.The Defendant now alleged, which was disputed, that:-
a) the sale of toys to the Defendant was a sale by sample approved by the Defendant and Reeves. 6.The Plaintiff says although there was a meeting in late year 2000 at the Plaintiff’s factory with the Defendant and Reeves, there was no agreement between the Plaintiff and the Defendant that future dealings between them are sale by samples approved by the Defendant and Reeves. The Plaintiff says he had not communicated with Reeves since then in relation to purchase orders placed with him. He said the occasion was merely an effort by the Defendant to promote his business. 7.The Plaintiff said usually the Defendant would provide the Plaintiff prototypes of toys which it intended to order. The Plaintiff would then produce the samples, usually 2 pieces for each of the particular toy and deliver the same to the Defendant for its approval. He said if the samples are approved, the Defendant would sign on both samples and return one of them to the Plaintiff. The Plaintiff would then begin manufacturing the required toys. Plaintiff said he played no part in any discussion regarding those samples between the Defendant and Reeves. 8.The Defendant said after the said meeting, every time before Reeves placed orders with them, Reeves would ask the Defendant and the Plaintiff for samples for approval. Defendant said Reeves would provide the Defendant moulds and other tooling necessary for manufacturing toys as well as a sample of toys. Sometimes, the Defendant would have to manufacture the toolings itself. The Defendant said he would pass the toolings and the toy sample to the Plaintiff who would manufacture at least 2 samples. The Defendant said the Plaintiff would send these to the Defendant and Reeves for their approval and if the same met with their approval, both Reeves and the Defendant would sign on the 2 samples. Both the Plaintiff and the Defendant would each return one of these samples. 9.The Defendant said once sample was approved, Reeves would place orders with the Defendant and the Defendant would in turn place order with the Plaintiff. 10.Clearly on evidence before the Court, except for the meeting in year 2000, the Plaintiff was not involved in the communication with Reeves regarding Reeves’s requirements and needs in each purchase order. The Plaintiff only dealt with the Defendant whom in turn deal with Reeves. 11.The fact that all emails disclosed in the present case from Reeves to the Defendant and vice versa were not copied to the Plaintiff further supported this point. 12.The alleged defects in the goods supplied by the Plaintiff were also not directly communicated to the Plaintiff by Reeves. 13.This was clearly not a case where sale of goods by the Plaintiff was sale by sample approved by the Defendant and Reeves, as alleged by the Defendant. 14.It was a sale by sample approved by the Defendant. It did not matter to the Plaintiff whether the same was also approved by Reeves. The Plaintiff dealt with the Defendant alone and all terms and conditions of the transactions were as agreed by them. b) part of the toys supplied, i.e. 1st Toys, 2nd Toys and 3rd Toys were defective and/or not conform with the approved sample and/or not fit for purpose of resale to Reeves, as a result of which they suffered loss. 15.According to the Plaintiff, they were never informed of defective quality of any of the goods supplied to the Defendant nor did they receive any complaint from the Defendant, not until they demanded from the Defendant in April 2004 the outstanding monies of the running account. 16.The Plaintiff said even in course of litigation, despite requests, they were not supplied with the credit notes of the Defendant in favour of Reeves, resulting from deductions made by Reeves, invoices and amended invoices of the Defendant to Reeves, copies of correspondence and emails between Reeves and the Defendant regarding existence of and particulars of defects of the goods in question nor samples of the defective goods. 17.The Plaintiff said apart from the allegation by the Defendant as to existence of and particulars of defects of these goods disclosed subsequent to the demand letter, the only evidence which tended to support this allegation is an email from Reeves to the Defendant dated 16 April 2002 where deductions totalling US$55,754.60 from invoices #G-018/02/TT, G-016/02/TT, G022/02/TT and invoice G-030/02/TT were mentioned. As said, these invoices were not disclosed. 18.The other document relied on by the Defendant was an email from Reeves to the Defendant dated 22 August 2002. In this email, Reeves stated that as they had now completed the farm animal analysis and were settled, they requested the Defendant to move the tooling equipment to another factory. 19.Reeves also stated in this email that they were leaving tools of other toys with the Defendant for time being and would see how things go. 20.The Plaintiff also said had there been defects in these goods, then the Defendant would have to notify them so that they would not repeat the mistakes again in further orders. He queried why the Defendant failed to do so. 21.The Defendant stated that all along, once they received complaints from Reeves, they had informed the Plaintiff, though orally. They admitted that none of the complaints from the Defendant to the Plaintiff were in writing. They said that all along, during the dealings between the parties, they had often orally agreed things and communicated. They did not know that one day, parties would come to court over these matters. 22.The Defendant said sample of defective toys were sent to him by Reeves and the Defendant had in turn sent the same to the Plaintiff but with no response from the Plaintiff. They said that since parties were still doing business during the time, they did not bother to reduce the complaint into writing. They confirmed they had informed the Plaintiff particulars of defects. 23.The Defendant also produced several emails exchanged with Reeves between 22 August 2003 to 27 August 2003 in relation to the defects of the 2nd Toys. 24.In these emails, ‘defective goods’, ‘replacement horses’, ‘repacking’ were mentioned. 25.There was however no mention of what the defects were. 26.The Defendant also said the Plaintiff did refuse Defendant’s request to go and inspect the defective 2nd Toys in the States. 27.The Defendant said he incurred $76,111.20 for purchasing replacement goods, $97,770.87 air freighting the replacement to States, $141,132.43 labour costs to repackage the replacement goods in States and $19,705.00 purchase of new gift boxes for repackaging. 28.The Defendant said as the 2nd Toys were all defective and in order to maintain the business relationship with Reeves, he had placed another purchase order with the Plaintiff to replace same quantity of goods. He said he had told the Plaintiff the same was a replacement order but the Plaintiff insisted on a new purchase order. He said as the tooling equipment for the manufacture of these goods was with the Plaintiff and due to time urgency, he agreed to place another purchase order with the Plaintiff, i.e. P.O. GF-2244 totalling $76,111.20. 29.The Defendant said he had informed the Plaintiff of the defects of the 2nd Toys before he placed the new purchase order to make sure the replacement goods comply with the 2nd Toys sample. 30.The Defendant said as a result of the defective 3rd Toys, he was not able to make profit of $18,910.26 which he would otherwise be able to make. He said he also lost $38,232.00, i.e. purchase price for these 3rd Toys which he had not been paid for. 31.Apart from the emails from Reeves aforesaid, there was no contemporaneous records or other documents particularising the complaints from the Defendant to the Plaintiff or Reeves to the Defendant. 32.In fact, there was no document from Reeves to the Defendant, let alone to the Plaintiff, detailing such complaints. 33.Whilst deduction might have been made by Reeves, in the absence of the knowledge of what these complaints were, this Court could not guess whether the same resulted from the defective quality of goods and/or whether the same resulted from non-compliance of goods with the approved sample. 34.The Defendant had failed to produce to this Court any evidence, e.g. defective goods sample and/or photos of defective goods, even upon requests by the Plaintiff, to show the goods supplied did not accord with the approved sample. 35.The failure by the Defendant to produce these documents were indeed unusual and dubious in the circumstances. 36.It was also strange why Reeves and/or the Defendant did not copy the complaints emails to the Plaintiff, if they existed, knowing that Plaintiff was the manufacturer of the goods, if the defects related to the manufacturing process. 37.It should be noted that Reeves was a corporation operating in US and it would not resort to just oral complaints. 38.Further, although the Defendant said that 2nd toys were all defective and were of no use to him and that the Plaintiff on learning these complaints i.e. defects of their goods was still so unreasonable that he insisted on a new purchase order from the Defendant and failed to respond at all to the complaints, the Defendant continued to do business with the Plaintiff even after the ‘replacement’ shipment. 39.Although the Defendant said they had previously voiced the complaints to the Plaintiff, when one looked at the Chinese letter dated 13 April 2004 one would note the letter was really the first telling to the Plaintiff by the Defendant of the deductions made by ‘client’. 40.In this letter, the Defendant informed the Plaintiff the numerous deductions totalling US$55,754.60 made by its client regarding the 1st Toys, loss and damages suffered by them resulting from defects in the 2nd Toys such as airfreight charges, costs of repackaging of replacement goods and purchase price for replacement goods, totalling $334,718.70, deductions made by client in sum of $38,232.00 and loss resulting from extra packaging expenses of $10,287.00 totalling $48,519.00 in respect of the 3rd Toys. 41.It was clear from the letter that it was the first time the Defendant told the Plaintiff of the same. 42.There was no mention of previous complaint or previous deductions claimed by the Defendant. 43.It was odd that had there been deductions made by Reeves and loss suffered by the Defendant resulting from defective goods supplied by the Plaintiff in years 2002 and 2003, that the Defendant would only voice out the same in 2004 after payments were demanded from them and not claimed for deductions or loss from the Plaintiff previously. 44.This Court noted however that the said emails from Reeves to the Defendant regarding 2nd Toys did mention ‘replacement goods’, ‘defective goods’. The particulars of the defects alleged by Reeves however was not disclosed by the Defendant. 45.As for the 3rd Toys, there was nothing apart from the allegations of the Defendant to substantiate the alleged defects. 46.Although the Defendant claimed loss of profit, the invoice of the sale of 3rd Toys to Reeves was not disclosed. There was no mention of credit note issued to Reeves, but even an email from Reeves mentioning any such alleged ‘deduction’ or non-payment of goods. 47.Despite the alleged loss of the 3rd Toys, there was not even a single email or document from the Defendant to the Plaintiff, voicing their anger and dissatisfaction. I don’t find this allegation credible. c) in relation to 1st Toys, there was a compromise agreement reached between the parties in July 2004 whereby the Plaintiff agreed to pay the Defendant the sum of $169,059.12 in full and settlement of the loss suffered by the Defendant resulting from defects of the 1st Toys and therefore the Defendant was entitled to a set off. 48.The Defendant alleged that on or about 24 July 2004, parties reached a compromise agreement whereby the Plaintiff shall pay $169,059.12 i.e. 60% value of the 1st Toys in full and final settlement of the defects in the 1st Toys. 49.The Defendant said he did send a fax to the Plaintiff on 31 July 2004 confirming the same, copy of which was produced. 50.The Plaintiff denied the existence of such a compromise agreement. 51.It is noted that the Plaintiff did not deny receipt of the 31 July 2004 fax. 52.There is however nothing in support that the compromise agreement related to defects of 1st Toys and which was due to fault of the Plaintiff. d) the unit price for 1378 Contract Toys was not agreed at $23.70/unit and that the Plaintiff should only be entitled to $16.24/unit (as pleaded), being reasonable unit price for the same and accordingly the claimed amount would be reduced by $181,970.00. 53.The Defendant said when he placed purchase order with the Plaintiff, the unit price of goods was not agreed. It was due to the fact that very often, the toy requirement changed thereby affecting the manufacturing costs of the Plaintiff. They therefore would agree on unit price after the toys were manufactured and sometimes shipped. Invoice would then be issued by the Plaintiff, as agreed. 54.The Plaintiff said for the 1378 Contract Toys, the unit price of $23.70 was, as before, agreed after the shipment. 55.The Plaintiff also said that the 1st invoice for 1378 Contract Toys were issued and delivered to the Defendant on 28 June 2002 (A02/169) following the 1st shipment of such goods and thereafter numerous invoices were issued until 20 August 2002 mostly with $23.70 as the unit price for these goods. 56.The Plaintiff said the Defendant did not complain they did not agree to the unit price then. 57.The Plaintiff said again, the Defendant only complained after the demand letter for outstanding monies in April 2004. 58.The Plaintiff said they then asked for the cost breakdown of the goods and after the Plaintiff had furnished the same to them the Defendant said the unit price should be $16.24 instead. 59.The Defendant said they had complained of unit price once they received the 1st invoice bearing unit price $23.70 from the Plaintiff. He said he then asked for cost breakdown of the same. 60.On reading the 13 April 2004 Chinese letter however, clearly, the Defendant did not dispute the unit price or ask for the cost breakdown prior. 61.Although the cost breakdown of the 1378 toys by the Plaintiff was undated, it must have been done at request of the Defendant, subsequent to the 13 April 2004 letter. The Defendant responded to the cost breakdown by the Plaintiff its Chinese letter to the Plaintiff on 3 January 2005 stating that the reasonable unit price to be $16.24. 62.It was the Defendant’s evidence that usually, only after the goods ordered were manufactured and sometimes even after shipment, would parties discuss and agree on the unit price. 63.Now, regarding the 1378 Contract Toys, if the unit price of $23.70 was not agreed after discussion then, the Defendant must have another unit price in mind (as opposed to the $23.70 suggested by the Plaintiff). In that case, in the letter by the Defendant after the demand letter by the Plaintiff in April 2004, the Defendant would have insisted on that unit price as he should have already asked Plaintiff for the cost break previously when there was disagreement/discussion on the unit price. To suggest that whilst Defendant had another figure in mind that the Plaintiff without further discussion had kept on issuing invoices to the Defendant, adopting the unit price of $23.70 was not credible at all. Applicable laws 64.It is settled principle that in order to resist a summary judgment application, the Defendant must show that he has a real or bona fide defence. The allegations must be credible or believable. Otherwise, summary judgment should be granted. 65.However, in case the Court is on the urge of granting summary judgment, then conditional leave to defend may be given to the Defendant. Conclusion 66.In the present case, for reasons said I find the defence as well as the counterclaim of the Defendant shadowy. I therefore grant conditional leave to defend to the Defendant on condition that the Defendant shall pay the sum of $660,737.81 into Court within 21 days, costs of and incidental to the application be costs in the cause. 67.Should the Defendant fail to comply with the said condition, then judgment be entered against the Defendant a) in sum of $660,737.81, b) interest thereon from 5 July 2006 to date of payment at judgment rate, and c) costs of the action (including costs of the application and all costs reserved) be to the Plaintiff in any event, taxed if not agreed with Certificate for Counsel.
Representation: Mr. Lee Shu Wun, instructed by Messrs. Tony Kan & Co., for the Plaintiff Mr. Hew Yang Wahn, instructed by Messrs. Benjamin Au & Billy Chan, for the Defendant |
Further hearings and rulings under DCCJ 3285/2006