Inspur (HK) Electronics Ltd v. Kb (Asia) Ltd

HCA1476/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1476 OF 2007

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BETWEEN

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Before : Deputy High Court Judge H. Wong SC in Court

Dates of Hearing : 27 to 30 July and 31 August 2009

Date of Judgment : 18 February 2010

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JUDGMENT

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THE ACTION

1.This is an action for goods sold and delivered. The plaintiff claims that it has sold and delivered to the defendant a total of 23,888 complete sets of LCD TV components (“TV components”) at an agreed unit price of US$182 per set. One complete set of TV components consists of a LCD panel, PCB with tuner, DVD combo SKD kit (semi-knocked-down kit), DVD loader and DVD decoder. The total price of the complete sets of TV components is US$4,347,616. Apart from the complete sets of TV components, the plaintiff claims that it has further sold and delivered to the defendant some excess TV components which the defendant has accepted. These excess TV components (“Excess Components”) were worth US$230,166.10. The plaintiff has only received payment from the defendant in the total sum of US$2,617,524 in respect of the goods sold and delivered. Accordingly, the plaintiff claims against the defendant the sum of US$1,730,092 in respect of the complete sets of TV components that have been delivered to the defendant which has remained unpaid. The plaintiff also claims the sum of US$230,166.10, being the value of the Excess Components, which has not been paid. The basis for the claim in respect of the Excess Components was originally pleaded as one of contract. At the beginning of the trial, I have allowed the plaintiff’s application (which is not objected to by the defendant) to amend the Statement of Claim to plead an alternative claim based on restitution.

2.The following matters are not in dispute, and I find them as facts:

(a)  in about July 2006, Mr Sunder Khemlani (“Khemlani”), a director of the defendant, was informed by Mr Martin Goldman (“Goldman”), the managing director of a company called Naiko UK Ltd (“Naiko”), that one of Naiko’s customer’s in UK, namely the DSG Group (“DSG”), required some 60,000 sets of LCD Televisions (“LCD TVs”).  The LCD TVs ordered by DSG were televisions with DVD functions, under 2 brand names “MATSUI” and “LOGIK”, which were DSG’s in-house brand names;

(b)  Naiko was unable to take up the order of DSG itself as it was in need of financing.  Accordingly, he approached Klemlani, his long-time friend and business associate, for assistance and co-operation on the deal.  Eventually, the defendant took over the deal from Naiko, and DSG placed its order with the defendant.  Letters of credit were issued by DSG in favour of KB as the beneficiary.  It is important to note that although Goldman described Naiko’s relationship with the defendant on the deal as one of “joint venture”, the exact terms of “co-operation” between Naiko and the defendant are not made known to the Court.  For the purpose of this action—as is also clear from the pleadings—defendant’s counsel (Mr Jonathan Wong) accepts that the defendant must be treated as having taken over the deal from Naiko completely and that the defendant was acting in its own right and as principal in its dealings with the plaintiff.  There is therefore no question of the defendant merely acting as the agent for Naiko or Goldman.  This is despite the fact that Goldman remained actively involved in the deal (in his words, acting as “the man on the ground”[1]), in terms of dealing with and liaising with DSG and the suppliers mentioned below;

(c)  import of completely-assembled LCD TVs into UK attracted heavy custom duties (14%).  In order to save the heavy custom duties, it was decided that the defendant would import sets of TV components instead, and have them assembled in UK to meet the orders of DSG;

(d)  accordingly, the defendant placed orders for TV components with a company known as SVA Group (“SVA”), which was introduced to Goldman by a Mr Wang Feng (“Jeason Wang”).  Goldman had met Jeason Wang previously at a trade fair;

(e)  as a result of certain licence issues, SVA subsequent dropped out of the deal.  Again through the introduction of Jeason Wang, the defendant contracted with 2 companies, namely one CVT and Shanghai World Trade Development Company Ltd (“World Trade”) for supply of the TV components to the defendant.  However, due to changes in the management structure of World Trade, the 2 companies also dropped out their contracts with the defendant;

(f)  Mr Guo Yuqing (“Guo”) of CVT then introduced the plaintiff to the defendant to supply the TV components required by the defendant.  On 13 October 2006, a meeting was held at the Shangri-la Hotel in Shenzhen (“the Meeting”).  The Meeting was attended by Goldman and Khemlani, and representatives of the plaintiff, Mr Chen Qiang (“Chen”) and Mr Wang Miao;

(g)  at the Meeting, an agreement was orally reached (“the Agreement”) whereby the plaintiff agreed to sell and the defendant agreed to buy 53,000 sets of TV components (“the goods”) at a unit price of US$182 per set F.O.B. any Asian port except North Korea, Myanmar, Sudan and Iran;

(h)  the Meeting was also attended by representatives of CVT, namely Guo and one Mr Wang Zhen Chong.  Before CVT dropped out of its contract, CVT was to be the supplier of the PCB main boards.  The main boards to be supplied by CVT contained a software (including the on-screen menu, or “OSD”) which had already been pre-approved by DSG.  Accordingly, even though CVT had dropped out of its contract with the defendant, it was intended that CVT would continue to supply the main boards which the plaintiff agreed to contract with the defendant to sell.  In other words, as far as the main boards were concerned, the plaintiff would source its supply of main boards from CVT for sale to the defendant;

(i)  on about 16 October 2006, the defendant paid a deposit of US$305,760 to the plaintiff (“the Deposit”).  Although this deposit was in fact paid to a company called Lang Chao (HK) Electronics Limited (“Lang Chao”), there is no dispute that Lang Chao received the money as agent for and on behalf of the plaintiff;

(j)  on about 17 November 2006, the defendant issued a letter of credit (“the LC”) in favour of the plaintiff.  The LC was for the amount of US$3,057,600, with an expiry date of 6 January 2007.  The latest shipment date provided in the LC was 25 December 2006;

(k)  the LC was subsequently amended on 19 January 2007 and the latest shipment date and expiry date of the LC were amended to 27 January 2007 and 8 February 2007 respectively;

(l)  between the end of October 2006 and early February 2007, the plaintiff delivered a total of 23,888 sets of TV components.  The plaintiff also delivered to the defendant the Excess Components consisting of 39 LCD panels, 2,644 PCB with tuners, 2605 DVD combo SKD kits, 2,644 DVD loaders, and 2,644 DVD decoders;

(m)  the defendant paid the plaintiff a total sum of US$2,311,764 only (by 3 telegraphic transfers on 28 December 2006, 9 January 2007 and 19 January 2007 respectively).  This represented the price of 12,702 sets of TV components (US$182 x 12,702 = US$2,311,764).  Thereafter, no further payment was made by the defendant;

(n)  the plaintiff presented the amended LC for payment in early February 2007 but the LC was rejected by HSBC (the issuing bank) on the ground of the discrepancies in the documents presented under the LC;

(o)  thereafter, the plaintiff refused to make any further delivery and commenced the present action against the defendant on 9 July 2007.  As pointed out above, the defendant has paid the plaintiff a total sum of US$2,311,764 by TT.  The plaintiff has previously been paid a Deposit of US$305,760.  Giving credit to TT payments and the Deposit received, the total claim of the plaintiff in respect of the complete sets of TV components delivered to the defendant is US$1,730,092.  On top of this, the plaintiff also claims the sum of US$230,166.10, being the value of the Excess Components that have been delivered to the defendant.

DISPUTE BETWEEN THE PARTIES

3.In his Closing Submission, Mr Wong, representing the defendant, does not dispute that the defendant has either accepted or is deemed by law to have accepted all the deliveries made by the plaintiff. In the circumstances of this case, I am of the view that the concession is rightly made. Accordingly, I am not concerned in this case with any question of rejection of the goods and the defendant, having accepted (or deemed to have accepted) the deliveries is liable for the price of the goods (at least insofar as the complete sets are concerned—the Excess Components, which did not constitute complete sets, may require separate consideration). As conceded by Mr Wong, the defendant’s defence is one of set off against the plaintiff’s claim. By its Counterclaim, the defendant counterclaims against the plaintiff for damages for breach of the Agreement. The defendant seeks to set off the plaintiff’s claim against the damages counterclaimed by it against the plaintiff. This being the position, the Court’s principal concern in this case is the Counterclaim of the defendant.

4.There are a number of matters which are in dispute between the parties. As will be pointed out below, not all of them are material to the issues that I have to resolve in the present case. Briefly, the disputed matters between the parties are as follows:

(a)  it is the defendant’s pleaded case that the Agreement was a “novation” from the previous agreement made between the defendant with CVT and World Trade (which in turn was said to be the result of a novation of the agreement between the defendant and SVA).  The plaintiff’s case is that there is no question of any novation at all and the Agreement is nothing more than a fresh contract reached orally between the representatives of the plaintiff and the defendant at the Meeting;

(b)  the terms of the Agreement are in dispute.  It is the defendant’s case that at the Meeting, the plaintiff had agreed to make delivery of the TV components in accordance with certain specified shipment dates (“the alleged Shipment Dates”).  The alleged Shipment Dates have been pleaded and set out in Schedule 1 to the Re-Amended Defence and Counterclaim filed by defendant, which is reproduced inSchedule 1annexed to this Judgment (“Schedule 1”).  The plaintiff denies that the alleged Shipment Dates had been agreed at the Meeting.  The plaintiff’s case is that no specified dates of shipment were fixed at the Meetingat all.  What was agreed was thatan initial quantity of 16,800 sets of TV components would be delivered first, which would be delivered as soon as they were available;

(c)  the parties are in further dispute as to the terms of the Agreement regarding the mode of delivery, with the defendant contending that it was agreed that the TV components would be delivered by the plaintiff in complete sets only, and the plaintiff claiming that the goods may be delivered component by component;

(d)  there is also a dispute regarding the agreed payment method.  The plaintiff’s pleaded case is that the parties’ agreement was that the LC to be issued by the defendant (for US$3,057,600) was for security only.  According to the plaintiff, the defendant had agreed to pay for the goods by TT, and the goods became payable when complete sets of the TV components were delivered by the plaintiff.  On the other hand, the defendant’s pleaded case is that the agreed method of payment was by LC only, and not by TT;

(e)  finally, there is some dispute between the parties as to the extent of the involvement of CVT in the performance of the Agreement after the Meeting.

5.It is the defendant’s case that the plaintiff has acted in breach of the Agreement by (a) failing to deliver the TV components in accordance with the alleged Shipment Dates as allegedly required by the Agreement; and (b) failing to deliver the TV components in complete sets. These are the twin bases of the defendant’s Counterclaim. The defendant claims to have suffered damage as a result of the plaintiff’s breach, and it is alleged that the damages arising therefrom exceeds the plaintiff’s claim.

6.Hence, of the matters that are in dispute between the parties, it is the matters set out in paragraph 4(b) and (c) that constitute the principal issues in this case. The dispute regarding the payment method (as set out in paragraph 4(d) above) is not central to the issues, but the evidence on the payment method is connected to the principal issues in some respects, which I would deal with later. For reasons set out below, it is my view that the other matters in dispute are of little relevance to the resolution of the principal issues in this case. At most, the evidence relating to these other matters provides some very limited assistance to me in my assessment of the overall credibility of the witnesses.

7.The question of “novation” may be quickly disposed of. In my judgment, it is nothing but a red herring. By pleading that the Agreement was a novation of previous agreements, the defendant seeks to argue that instead of entering into a fresh contract with the defendant, the plaintiff had assumed the rights and obligations that had previously been undertaken by SVA, CVT and World Trade under their respective agreements with the defendant. The argument however falls on the first hurdle in that the defendant has led no evidence on the terms of these alleged “previous agreements” said to have been made with SVA, CVT and World Trade. Nor were the terms of these previous agreements pleaded in the defendant’s pleadings. Insofar as it is alleged that there was a delivery deadline under the previous agreements for the goods to be delivered latest by 25 October 2006, that delivery deadline is irrelevant in any event as it is the defendant’s own pleaded case this alleged delivery deadline had been revised by the Agreement, and replaced by the alleged Shipment Dates mentioned above. I therefore accept the submission of Mr Victor Dawes, representing the plaintiff, that “it is far more straightforward to simply ask ‘what is the content of the Agreement … as reached by the parties during the 13/10/06 meeting’?”

8.Connected with the question of novation is the question as to the continued involvement of CVT in the performance of the Agreement after the Meeting. Mr Wong, representing the defendant, has spent quite some time during cross-examination attempting to elicit evidence to show CVT “remained heavily involved in [the plaintiff’s] dealings with [the defendant]”.[2] As pointed out above, CVT remained interested in the deal after it had dropped out of its contract with the defendant and after the plaintiff had made the Agreement with the defendant on 13 October 2006. This is because CVT was retained by the plaintiff to supply the main boards as part of the TV components to be sold and delivered to the defendant pursuant to the Agreement. However, as pointed out by Mr Wong, in my view rightly, that CVT had appeared to have gone to rather great lengths in assisting the plaintiff on the deal, in a way which have gone well beyond its role as a supplier of the main boards. Indeed the evidence does show that Wang (who joined CVT shortly after the Meeting) and Guo had provided considerable assistance to the plaintiff on the handling of the transaction (e.g. by compiling packing lists, issuing invoices including invoices for components which CVT did not supply, liaising with the defendant’s assembler, and directly communicating with the defendant etc.). When cross-examined on this matter, Wang and Guo’s response was that they provided assistance to the plaintiff as “messengers” as the success of the transaction would also benefit CVT as the supplier of the main boards. This response may not be entirely satisfactory, and it may well be that, as Mr Wong suggests, CVT might have a deeper interest in the transaction that went beyond its being a supplier of the main boards. However, in my view, this does not affect any of the issues that I have to resolve in this case. I have already held above that the question of novation is a red herring. Whatever might be the relationship between the various companies (SVA, CVT, World Trade and the plaintiff)—a matter in respect of which this Court has little evidence—it is not disputed that the plaintiff was the sole contracting party with the defendant. There is never any suggestion, either in the pleadings, in the evidence, or in the submissions of counsel, that the plaintiff was not, in contracting with the defendant, acting in its own right. It has not been suggested that the plaintiff was merely acting as the agent of CVT in this transaction. So whatever might be the relationship between CVT and the plaintiff, the plaintiff’s contractual rights and obligations under the Agreement was its own. In Mr Dawes’ words, which I accept, “any possible relationship, economic or otherwise, between [the plaintiff] and CVT (or SVA or World Trade) has no or little relevance to the Court’s present concern of ascertaining the contents of the obligations of [the plaintiff and the defendant] under the Agreement”.

9.Accordingly, in my judgment—as indeed submitted by both Counsel—the principal issues in this case are:

(1)  whether it is a term of the Agreement that the TV components would have to be delivered by the plaintiff in accordance with the alleged Shipment Dates; and

(2)  whether it is a term of the Agreement that the TV components would have to be delivered in complete sets only, as opposed to component by component.

If the answer to either of these question is “yes’, the plaintiff would have been in breach of the Agreement as it is accepted that the goods as delivered by the plaintiff were not delivered in accordance with the alleged Shipment Dates, and deliveries were in fact made by the plaintiff component by component, rather than in the form of complete sets.

THE ALLEGED SHIPMENT DATES

10.As the Agreement was reached orally between the parties, in resolving the principal issues in this case I would need to assess the oral evidence given by the witnesses with care. I would also examine the inherent probabilities of the matter, the circumstances surrounding the Meeting, and also any contemporaneous documents that may shed light on the issues.

11.The plaintiff called 3 witnesses at trial, namely, Jeason Wang, Guo and Chen. Goldman and Khemlani gave evidence for the defendant.

12.The burden of proof rests with the defendant in proving its Counterclaim and establishing the alleged breach of the Agreement by the plaintiff.

13.Of particular importance is Goldman’s testimony. I regret to say that I find Goldman to be a very poor witness. Under the cross-examination of Mr Dawes, the inconsistencies in his evidence have been fully imploded.

14.Under cross-examination, Goldman told me that at the time of the Meeting, the defendant’s primary concern was to ensure that 30,000 sets of TV components would be delivered to UK by the end of October or the beginning of November 2006. This would give the defendant time to have the components assembled in UK to meet the demands of DSG for the Christmas sale. Goldman was at pains to emphasise that DSG had put “so much pressure” on him with regard to the delivery of 30,000 sets of TV components. He told me that his primary objective at the Meeting was to secure from the plaintiff an agreement to make delivery of such quantity by the beginning of November 2006. In his words, “30,000 was the main thing”.

15.According to Goldman, at the Meeting Guo gave him a range of figures and told him that the plaintiff would be in a position to deliver around 28,000 to 30,000 sets of TV components at the end of October or the beginning of November. Goldman told me that this was the best that the defendant could get out of the Meeting—i.e. a promise by the plaintiff to deliver around 30,000 sets by beginning of November. The time for the delivery of the remaining quantities “had to be dealt with a little later”. He said in evidence that the plaintiff made no promises at the Meeting beyond the 30,000 sets mentioned by him.

16.It is plain that Goldman’s evidence is materially inconsistent with the defendant’s case as pleaded. As can be seen from Schedule 1, a total quantity of 54,750 sets of TV components were required to be delivered by the plaintiff on various specified shipping dates before 27 October 2006, i.e. within 2 weeks after the Meeting. The defendant has not explained to me why 54,750 sets of TV components were, according to its case, required to be delivered by the plaintiff, when only 53,000 sets were ordered by the defendant from the plaintiff. That aside, Goldman’s evidence that what was agreed at the Meeting was that 30,000 sets were to be delivered by the plaintiff at around end of October or the beginning of November 2006, and shipment of the remaining quantities to be dealt with later, is clearly contrary to the defendant’s pleaded case. If Goldman’s evidence is to be accepted, the specified shipment datesset out in Schedule 1 could not be right.

17.I note that when Mr Dawes very fairly pointed out to Goldman that his evidence contradicted the defendant’s pleaded case, Goldman changed course and suggested that the alleged Shipment Dates ought to be the correct dates agreed by the parties at the Meeting as it must be correct if he gave his solicitors “this schedule”. I find this change of course utterly unconvincing. Later on in his cross-examination, Goldman was questioned again on the delivery dates. He reverted to his original position and claimed that at the Meeting, he was more concerned to have the 30,000 sets delivered quickly, and “the 20,000 odd would be later”. When it was pointed out to him again that this was inconsistent with the defendant’s pleaded case, Goldman switched course again and stated that the alleged Shipment Dates were correct. How the alleged Shipment Dates could sit with his oral evidence Goldman was unable to explain.

18.As pointed out above, if one looks at the alleged Shipment Dates set out in Schedule 1, one would see that a total of 54,750 sets of TV components were required to be delivered by the plaintiff within 2 weeks of the Meeting. Quite apart from the discrepancy between the quantities ordered and the quantities to be delivered, it seems to me quite improbable that the plaintiff would have agreed to such a shipping schedule at the Meeting. The plaintiff had not done business with the defendant before. 54,750 sets of TV components were worth a lot of money (nearly US$10 million) and the plaintiff had had no assurance at all for payment of the bulk of the goods. The plaintiff was to receive a deposit of US$305,760, and a LC was to be issued in its favour for US$3,057,600 only. It is the plaintiff’s case that the LC was to serve as security for the plaintiff as the goods were agreed to be paid by TT upon delivery (of the completedsets). This is disputed by the defendant, but what is not in dispute is that the plaintiff had, and would have, no security for payment in respect of any components delivered beyond the initial quantity of 16,800 sets. As it happened, the LC for US$3,057,600 was only opened by the defendant (through HSBC) on about 17 November 2006. If the Plaintiff had agreed with the defendant to deliver the 54,750 sets on the alleged Shipment Dates, it would have been obliged to make delivery of nearly US$10 million worth of goods before 27 October 2006, without any security of payment in respect of the bulk of the same.

19.In my view, it is inherently unlikely that the plaintiff would have agreed to do business with the defendant on such terms. The defendant was in a rather weak bargaining position at the time of the Meeting. As pointed out above, CVT was the supplier of the main boards and its design of the main boards, which included the OSD, had already been pre-approved by DSG. It was not feasible for the defendant to switch to a new source of supply for the main boards for that would entail going through the approval process of DSG all over again. Thus at the Meeting, the defendant was “desperate” to conclude a deal with the plaintiff whose relationship with CVT was such that CVT could be retained to work with the plaintiff insofar as the supply of the main boards was concerned. As Goldman acknowledged during cross-examination, the defendant was “stuck” with CVT and had little choice on the matter. In the circumstances, the defendant had little bargaining power at the Meeting and in my judgment it was most unlikely the plaintiff would have agreed to supply almost US$10 million worth of goods within 2 weeks time, when there was no security for payment in respect of the bulk of the same. As pointed out by Mr Dawes, while the plaintiff’s witnesses agreed in their testimony that there was no reason at the time of the Meeting to doubt the financial position of the defendant, they also said that there was nothing known to them which showed that the defendant had a particularly strong financial position either. The fact was that the plaintiff had no business dealings with the defendant before, and the goods to be sold and delivered were worth a significant amount of money. In my judgment, it is improbable that at this first meeting with the defendant, the plaintiff would have agreed to such strict terms of shipment, which would have obliged them to deliver all the goods within 2 weeks without any assurance of payment in respect of the bulk of the goods. The defendant’s bargaining position was too weak to be able to dictate upon the plaintiff terms of this sort.

20.Mr Wong submitted that prior to the Meeting, there were already a number of shipment schedules which formed the subject of discussions between the defendant and CVT. My attention was drawn to a email dated 13 September 2006 sent by Jeason Wang to Goldman which mentioned that he had “finished a new delivery schedule”. I am not sure how this could assist the defendant, for there is simply no evidence to show that the plaintiff had any knowledge of these discussions between the defendant and Jeason Wang, or CVT. Chen’s evidence, which I accept, is that apart from the price at which CVT and World Trade sold the components to the defendant, the plaintiff was not aware of any other terms that might have been agreed between CVT, World Trade and the defendant. In any event there is no evidence that the plaintiff had agreed to adopt or be bound by whatever shipment schedule that might have been agreed or discussed previously between the defendant and other parties, including CVT.

21.Given the weak bargaining position of the defendant at the time of the Meeting, in my view it is improbable that the defendant would have got the plaintiff to agree to commit themselves to deliver all the goods to the defendant within 2 weeks.

22.Goldman said in his evidence that after the Meeting, he went with Jeason Wang to DSG’s office in Hong Kong to inform DSG of the new dates of shipment that the defendant had agreed with the plaintiff. During examination-in-chief, Goldman pointed to a document in the trial bundle (the document is partly truncated and appears to be a shipment schedule relating to the order of DSG) and alleged that during the visit, DSG was told that the dates written on the left hand bottom corner of the document would be the dates of shipment. The dates written in the left hand bottom corner of the document relate to 26,700 sets of TV components only, and the dates did not tally with the alleged Shipment Dates. When this was pointed out to him during cross-examination, Goldman said that he had made a mistake and the dates written on the document were not the dates provided to DSG as the dates of shipment of the TV components. When asked what information was provided to DSG on that occasion as regards the dates and quantities of the goods to be shipped by the plaintiff, Goldman said that he informed DSG of the delivery dates of 30,000 sets only, and not 54,750 sets, as “the balance was not 100% sure”. He said also that DSG was only informed of the approximate dates in respect of “28,000, 29,000 or 30,000” sets. This is plainly inconsistent with the defendant’s case that at the Meeting, the alleged Shipment Dates were specified, fixed and agreed.

23.Going back to Schedule 1, it could be seen that the alleged Shipment Dates involve fairly elaborate information regarding the quantities of goods to be delivered on various specific dates. If these dates and quantities were in fact discussed and agreed upon at the Meeting, one would expect Goldman and Klemlani to have taken notes of the same, rather than memorising such detailed information in their heads. As it were, no contemporaneous written records have been produced by the defendant. Upon cross-examination, Khemlani stated that during the meeting, he did make notes on a piece of paper and recorded down the dates and quantities of goods agreed to be delivered by the plaintiff. However, such contemporaneous notes have not been produced by the defendant although Khemlani said that the notes were stored in his office. Goldman also claimed in his oral evidence that he had jotted down the “approximate” dates and quantities of goods agreed to be delivered by the plaintiff—which he said added up to 30,000 sets. Again, what he claimed he had jotted down has not been produced. Neither Khemlani nor Goldman was able to offer any satisfactory explanation for the defendant’s failure to produce such notes, if they had in fact been taken as they alleged. In my judgment, the complete absence of any contemporaneous notes or documents evidencing the alleged Shipment Dates casts considerable doubt on the veracity of the defendant’s case in this regard.

24.In his evidence Khemlani stated that the alleged Shipment Dates were agreed at the Meeting but added that “the agreement could not be a few days up and down for this”. His evidence in this regard does not sit well with Goldman’s evidence.

25.I accept the evidence of the plaintiff’s witnesses regarding what was agreed at the Meeting. All of them testified to the effect that no specified dates of delivery were discussed at the Meeting, let alone agreed. Guo testified that the plaintiff had indicated at the Meeting that the plaintiff would try their best to deliver the goods but the plaintiff was unable to commit themselves to any specific dates. This might not be something that the defendant would be very happy to swallow if it had other options. The fact, however, was that the defendant was at the mercy of the situation that it was in—to use Goldman’s expressions, the defendant was “desperate” and “stuck”—and in the circumstances it had to bite the bullet and conclude the Agreement even though the plaintiff was not prepared to commit themselves to any specific dates of shipment.

26.I accept the evidence of the plaintiff’s witnesses that it was agreed at the Meeting that the goods were to be delivered by separate lots, and payment was to be made by TT. I also accept their evidence that it was agreed at the Meeting that an initial quantity of 16,800 sets would be delivered first, and the defendant agreed to open a letter of credit (“L/C”)for the amount of US$3,057,600 to serve as security for the payment of this initial quantity of 16,800 sets. Chen testified that at the Meeting, Khemlani explained to him the mechanism of a “rolling L/C” on a piece of paper—the L/C to be opened by the defendant would be rolled over periodically by extending the expiry date of the L/C so that it would remain as security for future deliveries. Guo also confirmed that this “rolling L/C” mechanism as being agreed at the Meeting. I accept their evidence. In fact, the defendant’s subsequent conduct was fully consistent with the plaintiff’s case, as the 3 payments made by the defendant for payment of 12,702 complete sets of goods were all made by TT. It was only after the defendant failed to make payment of the remaining goods (11,186 sets) that had been delivered by the plaintiff that the plaintiff presented the LC for payment in early February 2007.

27.It may be noted that although the defendant has pleaded that “the LC was to be the only acceptable method of payment and not by telegraphic transfer as alleged”,[3] and Goldman has stated in his witness statement (which he has adopted as his evidence in chief) that “payment was only to be made by L/C”[4], the defendant’s witnesses resiled from this position at trial. In his witness statement filed on 8 April 2008, Khemlani expressly stated that he agreed to and adopted the contents of Goldman’s witness statement as his own.[5] When questioned by the Court on this point, Goldman confirmed that payment could be made either by L/C or by TT and that his witness statement to the contrary was incorrect. Khemlani also partly resiled from the defendant’s original position. In his evidence, Khemlani suggested that L/C was the agreed form of payment for 16,800 sets and payment for the rest of the goods could be made by L/C or TT. Such last minute change of stance by Goldman and Klemlani, in the absence of any satisfactory explanation, casts further doubt on their credibility as witness.

28.Khemlani also claimed in his evidence that the defendant had in fact offered to issue an L/C for the full amount of 53,000 sets of goods at the Meeting but the plaintiff rejected the offer and preferred the defendant to open an L/C for a much smaller amount. I find this claim to be extremely implausible. It does not make business sense for the plaintiff to have rejected an offer from the buyer to open an L/C for a larger amount, rather than a smaller amount.

29.I do not find Goldman and Klemlani to be reliable witnesses. I prefer the evidence of the plaintiff’s witnesses. I find that there was no agreement made at the Meeting for the plaintiff to deliver the goods at the alleged Shipment Dates. I find that the alleged Shipment Dates were not discussed at the Meeting at all. The defendant has not shown that the plaintiff was in breach of the Agreement on this ground.

DELIVERY OF COMPLETE SETS

30.I turn now to consider the defendant’s claim that it was a term of the Agreement that the TV components had to be delivered in complete sets, and not component by component.

31.What is clear from the evidence is that the TV components (except the main boards, which were to be supplied by CVT solely) were sourced by the plaintiff from different countries. The defendant was aware of this, as Goldman’s evidence (during cross-examination) confirmed. Chen’s evidence was that the LCD panels, for example, were sourced from 4 different suppliers and the origin and delivery dates were different in respect of each supplier.

32.The defendant’s case is that it was agreed by the plaintiff that all the TV components would first be consolidated (in the Mainland or Hong Kong) before they would be shipped to the defendant. This is denied by all of the plaintiff’s witnesses, who gave evidence that there was never any request by the defendant nor any agreement by the plaintiff to ship the TV components in complete sets. Guo gave evidence that it would be “meaningless” (I take him to mean “pointless”) to consolidate the various components sourced from different suppliers in different countries before shipping them to UK, as that would entail extra transportation costs and/or custom duties in that the components would have to be transported to China and Hong Kong first before they were shipped to their final destination (UK). It seems clear that apart from the increase in costs, shipping the components to China and Hong Kong for consolidation (into complete sets) would inevitably delay their despatch to UK. This does not seem to sit well with the general tenor of the defendant’s case, with Goldman repeatedly emphasising in his evidence that he was under a lot of pressure from DSG to expedite the shipment of the goods. Indeed, if this (i.e. shipping the components to HK or China for consolidation before shipment to UK) was what was agreed by the plaintiff, the suggestion that the plaintiff had agreed to deliver all the goods within 2 weeks after the Meeting would seem even more inherently incredible.

33.The evidence of Goldman and Khemlani was unsatisfactory in this regard. When taxed by Mr Dawes during cross-examination on this issue, Goldman’s answers were ambiguous and he appeared to be very uncertain as to whether there had been any discussion or agreement at the Meeting on the requirement to ship in complete sets. His final answer on this question was that he could not remember what was discussed at the meeting in this regard.

34.Khemlani gave evidence on this issue which was utterly inimical to the defendant’s pleaded case on this issue. He testified during cross-examination that there was in fact no agreement at all between the parties to ship the TV components in complete sets. He however qualified his answer by adding that while the TV components were to be shipped separately, they had to be shipped “within a short time frame from each other, within 10 to 12 days”. In his Closing Submissions, Mr Wong relied upon this part of Khemlani’s evidence and submitted that the defendant’s case was not that the TV components must be shipped in complete sets, but that they had to be shipped within a short timeframe. I agree with Mr Dawes that this is a drastic change of the defendant’s case, which should not be permitted at this late stage, and without any proper amendment of the defendant’s pleadings. By the time Khemlani volunteered to give such evidence, the plaintiff had already finished its case. The defendant’s new case was never put to the plaintiff’s witnesses during cross-examination and the plaintiff has had no opportunity to respond to the same (c.f. Browne v Dunn (1893) 6 R 67, Kaifull Investments Ltd v Commissioner of Inland Revenue[2002] 1 HKLRD 858). The defendant never applied to amend their pleadings in this regard. I therefore agree with Mr Dawes that the defendant should not be permitted to adopt the position that while there was no agreement to ship the TV components in complete sets, there was an agreement that they had to be shipped within a “short timeframe” from each other.

35.In any event, this last minute change of the defendant’s case appears to me to be utterly unconvincing. There has been no explanation why this was not put forward earlier and the change of stance at this late stage smacks of last-minute invention. I do not believe it to be true.

36.I find that there was no agreement reached at the Meeting for the TV components to be shipped in complete sets. The defendant has accordingly failed to establish that the defendant was in breach of the Agreement in shipping the goods component by component. I reject the defendant’s Counterclaim based on this ground.

ABSENCE OF COMPLAINT

37.In the present case, the goods were sold by the plaintiff to the defendant on F.O.B. terms. The freight forwarder or shipping agent engaged to carry the goods was nominated by the defendant. When a particular lot of TV components was ready for delivery, the defendant would be notified and it would then arrange for its freight forwarder or shipping agent to collect the goods for shipment to UK. The defendant was thus fully aware of the details of the deliveries made by the plaintiff, including the dates of the deliveries, and the components that were being shipped.

38.Accordingly, when the plaintiff made deliveries of the various consignments in this case, it must have been plain to the defendant that the plaintiff was not making deliveries in accordance with the alleged Shipment Dates, or in complete sets. Indeed, if the defendant’s case was true, one would expect that the defendant would start complaining very soon after 13 October 2006. If the plaintiff had indeed agreed to make delivery of the goods in accordance with the alleged Shipment Dates, all the goods should have already been delivered by the plaintiff before 27 October 2006. Yet the first delivery was only made by the plaintiff on 31 October 2006. It would have been plain to the defendant by late October 2006 that the plaintiff was not performing its obligations. One would expect the defendant to start complaining about the breach of agreement on the part of the plaintiff soon after late October 2006.

39.Yet there is no evidence of any written complaint made by the defendant during the period between late October 2006 and early February 2007, when the plaintiff made delivery of various consignments of the goods to the defendant. As pointed out above, all these deliveries were accepted by the defendant. The defendant had arranged for its freight-forwarder to collect the deliveries for shipment to UK.

40.Goldman was cross-examined on this. He initially suggested that he had in fact made complaints both by phone and email. When pressed by Mr Dawes as to why the emails have not been disclosed, Goldman claimed that the complaints were “mainly made by phone calls”. I do not believe this. Goldman’s answers were evasive and I do not find his evidence credible.

41.If the defendant’s case was true, the plaintiff would have been acting in serious breach of its agreement with the defendant. It defies belief that the defendant would have failed to make any written complaint in respect of such breach, and was contented to accept deliveries from the plaintiff as if there was nothing wrong about the time and mode of deliveries.

42.Khemlani similarly failed to offer any evidence of any complaint made by the defendant about any breach of contract on the part of the plaintiff.

43.Even by the time shortly before the plaintiff commenced the present action, the defendant’s solicitors, in a letter dated 14 June 2007 sent to Hastings & Co. (the plaintiff’s solicitors) in reply to its letter before action dated 8 June 2007, failed to raise any complaint at all about the alleged failure on the part of the plaintiff to make deliveries on the alleged Shipment Dates or in complete sets. The letter of the defendant’s solicitors claimed that there was no contract between the plaintiff and the defendant at all and that the goods had not been delivered to or received by the defendant. These allegations have not been pursued by the defendant at the trial, and in my judgment, they are plainly unfounded.

44.The above fortifies my view that the defendant’s contentions regarding the alleged Shipment Dates and the alleged requirement that the TV components had to be delivered in complete sets are simply false. I have no hesitation in rejecting the defendant’s Counterclaim and its defence ofset-off.

QUANTUM

45.There is no dispute that if I reject the defendant’s claim forset-off, which I do, the plaintiff is entitled to the price of the complete sets of goods that have been delivered to the defendant which has not been paid. Accordingly, the plaintiff’s claim for US$1,730,092 succeeds.

46.The Agreement between the parties was that the goods were only payable upon delivery of complete sets. As the Excess Components do not constitute complete sets, it is doubtful if the plaintiff has a contractual basis for claiming the price of the Excess Components.

47.Mr Dawes has advanced an interesting argument in support of his submission that the plaintiff is entitled to make a contractual claim for the price of the Excess Components. I must say that despite the force of the argument, I have serious doubt as to its correctness. For one thing, the parties have not fixed a price for the individual components. The price of US$182 is the price of the complete set.

48.Suffice for me to say that I remain doubtful that the plaintiff is entitled to make a contractual claim for the price of the Excess Components. It is however not necessary for me to deal with Mr Dawes’s argument in detail, as I am satisfied that the plaintiff is entitled to recover the value of the Excess Components on a restitutionary basis, namely, on unjust enrichment.

49.It is well-settled that a claim in restitution is established where the defendant is enriched by the receipt of a benefit at the plaintiff’s expense and it would be unjust to allow the defendant to retain the benefit at the expense of the plaintiff.

50.In the present case the delivery of the Excess Components to the defendant clearly constitutes a freely accepted benefit to the defendant at the plaintiff’s expense. In my judgment it would be unjust to allow the defendant to retain the benefit without paying for the same.

51.It does not matter that the Excess Components might not be of any use to the defendant. The defendant has accepted the same and it does not lie in its mouth to say that the same was not a benefit to it.

52.The value of the Excess Components, according to the evidence of Chen, was US$230,166.10. This figure has not been challenged by the defendant during cross-examination, and the defendant has not adduced any contrary evidence to contradict Chen’s evidence in this regard.

53.In my judgment, the plaintiff is entitled to recover from the defendant the sum of US$230,166.10 in respect of the Excess Components delivered to the defendant.

ORDER

54.I order that judgment be entered in favour of the plaintiff for the sums of US$1,730,092.00 and US$230,166.10, with interest at the rate of 1% above the prime rate specified by the Hong Kong and Shanghai Banking Corporation Limited from 9 July 2007 until the date of this judgment, thereafter at judgment rate until payment.

55.The defendant’s Counterclaim is dismissed.

56.I will make an order nisi that the costs of the present action be paid by the defendant to the plaintiff, to be taxed if not agreed.

Mr Victor Dawes, instructed by Messrs Hastings & Co., for the Plaintiff

Mr Jonathan Wong, instructed by Messrs Lister Swartz, for the Defendant