Evermore International (Asia) Co Ltd v. Karrex (Hong Kong) Ltd

DCCJ 374/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 374 OF 2008

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Coram: H.H. Judge Chow

Hearing date: 10^th November, 2010

Date of handing in submissions : 2^nd Sept., and 10^th Nov., 2010

Date of handing in submissions : 4^th Jan., 2011

Date of handing down Decision : 10^th January, 2011

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Decision

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1.This is the Plaintiff’s application to this Court for the following order:-

(i)  the Defendant do pay the Plaintiff the sum of $489,436.47 forthwith;

(ii) the Defendant do take delivery of the goods under invoice ECIC 207008 and 207009 within 7 days from the date of the order made, failing which the Plaintiff may dispose the goods at will; and

(iii) the Defendant do pay the Plaintiff the sum of $50,000.00 as interest forthwith.

2.In this action, the Plaintiff claims against the Defendant as a purchaser for outstanding invoices in the total sum of $989,436.47.  On 13.1.2010, the parties reached a settlement agreement by way of a consent order, the terms of which are set out below:-

(i)  The Defendant shall pay the Plaintiff the amount of HK$989,436.47 as follows: -

	Date	Amount (HK$)
1st instalment	19.1.2010	500,000.00
2nd instalment	15.3.2010	489,436.47

(ii) The Defendant shall pay the Plaintiff the amount of HK$50,000 as interests on/before 15 April 2010.

(iii) The Defendant shall inspect the goods under the invoices ECIC 207008 and ECIC 207009 within 7 days of the full payment of the 1^st instalment by the Defendant to the Plaintiff.

(iv) The Plaintiff shall deliver the said goods together with their printed materials (which were supplied by the Defendant before) in good merchantable quality within 14 days of the full payment of the 1^st instalment by the Defendant to the Plaintiff.

(v)  Each party shall bear its own costs.

(vi)  Once the above conditions (i), (ii), (iii) and (iv) have been fulfilled, the Plaintiff’s claim and the Defendant’s counterclaim do stand dismissed.

(Underlines provided)

3.Pursuant to the consent order, the 1^st instalment was paid on 11.1.2010.  On 26.1.2010 the Defendant inspected the goods in Plaintiff’s China factory.  Thereafter the Defendant complained about the poor CD packing condition.  On 18.8.2010 a joint inspection was arranged and carried out by SGS at the factory.  An inspection report was issued by SGS on 27.8.2010, which shows that the CDs manufactured by the Plaintiff fulfilled all tests by SGS.  Therefore their quality was certified to be acceptable.  But the gift boxes were certified quality not acceptable for a number of reasons.

4.The overall inspection conclusion of the 1^st SGS report is “not conform” that “about 40% samples were found that holder which fixed disc was out of position” and (c) “about 50% of samples were found that Poor gift box”.  A second joint inspection was arranged and conducted in Sept., 2010.  The results of the inspection are almost identical to those shown in the 1^st Report.  The 2 SGS reports show that the goods are not of good mercantile quality. 

5.The only issue under Clause (iv) of the consent order is whether or not the Plaintiff has complied with it. This clause is unconditional.  There is no pre-condition to be satisfied before this term is to be carried out. The Plaintiff argued that it only manufactured CDs for the Defendant.  All the packaging materials were supplied by the Defendant, and not manufactured by the Plaintiff.  The Plaintiff complained about the defective packaging materials when they were supplied by the Defendant to the Plaintiff in 2007.  It requested the Defendant to provide additional supply for replacement in 2007.  But the Defendant refused to do so.  The packaging materials were stored in the Plaintiff’s warehouse since 2007, and normal fair wear and tear are expected.  It is impossible and unreasonable for the Plaintiff to be responsible for the packaging materials which were not manufactured by the Defendant.  In my judgment there cannot be any no issue under Clause (iv) as to whether or not the Plaintiff is under an obligation to deliver the goods when the materials delivered by the Defendant were defective.  If the materials were defective, rendering the goods not of good merchantable quality, there it should not have agreed to a good order to be made.  This term is mandatory.  The Plaintiff’s consent argument must fail.

6.It is also wrong for the Plaintiff to say that it only manufactured CDs for the Defendant.  The things that were to be delivered under the Plaintiff’s invoices EIV 071192 to EIV 071253 as set out were all the goods that had been finished and packed in accordance with instructions found under the Defendant’s Purchase Orders No. 0700338 and No. 0700336 (the “Relevant Purchase Orders”).

7.ECIC 207008 refers to the Defendant’s Purchase Order No. 0700338.  ECIC 207009 refers to packing fee under Defendant’s Purchase Order No. 0700306.  Purchase Order 0700338 and Purchase Order 0700306 state that the packaging work that the Plaintiff was required to carry out are as follows:-

(1) Insert a disc into EVA folder

(2)  Put 15 EVA Folder into outer box

(3) Shrink wrap

(4) Put outer box into inner carton

(5) Put inner carton into carton (10 sets per cartoon)

(6) Put 1 sticker on inner carton

(7) All boxsets are in individual mailer box, each box must H taped size: … … …

The above various stages of packaging work show that what the Plaintiff was required to do under both Purchase Orders for the goods to be delivered to the Defendants are fully packed “goods”.  This is reinforced by the factor that the defendant was required to pay packing fees for packing done by the Plaintiff under both Purchase Orders: -

“HKD 2.30 packing + HKD 0.79 CD price are included.”

The Plaintiff was required to produce and sold fully packaged things to the Defendant.

8.The Plaintiff submits that Clause (iv) should be subject to an implied term of “normal fair wear and tear”.  If this term had been in the mind of the Plaintiff, it should have been expressly stated in the consent order, as lawyers usually put down this term in agreements related to tenancies or where items are rented and used. The Plaintiff was legally represented.  There is no reason not to have put this phrase down if it intended for it to be relied on. 

9.Due to the reasons above-said, the Plaintiff was in breach of Clause (iv) of the consent order, and accordingly I dismiss the summons.

Costs

10.I make an order nisi, to be made absolute in 14 days’ time, that the Plaintiff do bear costs of this summons, to be taxed, if not agreed.

The Plaintiffs: represented by Mr. Chak Man Lai of M/S Chak & Associates, Solicitors

The Defendant: represented by Mr. Dundon of M/S Dundons, Solicitors