Novus International Pte. Ltd v. Good Earth Agricultural Co Ltd

HCCL 16/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 16 OF 2008

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Before: Hon Stone J in Court

Dates of Hearing: 6, 7, 8, 9, 10, 16, 20 December 2010

Date of Judgment: 10 February 2011

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J U D G M E N T

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This action

1.This action represents a further dispute between the plaintiff, Novus International Pte Ltd. (‘Novus Singapore’), part of an international group with its head office in the United States and a dominant world player in the manufacture and supply of animal feed supplements, and the defendant, Good Earth Agricultural Company Ltd (‘Good Earth’), a Hong Kong company and erstwhile distributor of the plaintiff’s animal feed supplements.

2.In short, this action concerns the plaintiff’s claim for recovery of secret profits alleged to have been made by its distributor, the defendant, to the details of which I shortly allude.

3.There is, however, some history to this case, which has resulted in the evolution of the current action.

Factual background

4.Reference is made at the outset to this being a ‘further’ dispute, because these parties have litigated before in the Commercial Court some years ago, albeit in a direct reversal of roles.

5.In HCCL 74 of 2002, the current defendant Good Earth, was in the position of plaintiff, and was claiming against the current defendant, Novus Singapore, as 1^st defendant, and Novus’ US parent company, Novus International Inc., as 2^nd defendant.

6.Good Earth’s claim in this first action was for damages for wrongful termination by Novus of the distributorship agreement hitherto in place between the parties, and it is the ambit of this selfsame agreement which once again is the subject of the present action. 

7.On that earlier occasion Good Earth was successful in its claim as to the required period of notice of termination under that agreement; by its judgment dated 25 January 2007 this court awarded Good Earth damages against Novus Singapore (that is, the present plaintiff) in the sum of US$542, 594.00, together with interest and costs.  The parallel claim against the American parent company, Novus International Inc., was dismissed with costs.

8.This earlier judgment, which speaks for itself, was not the subject of appeal.

9.That which is notable about this first action, however, was a belated application by Mr McLeish on behalf of the then two Novus defendants to amend their pleadings in order to add a Counterclaim.

10.This amendment application was declined for the reasons set out in an extemporary interlocutory decision of this court delivered on 24 October 2006, a transcript of which appears in the documentation assembled for the current trial (vide Bundle D, pp. 1274-25 – 1274-29). 

11.Once again, that decision speaks for itself.  Suffice it to say that when faced with an amendment application to add a Counterclaim in the sum of US$4.5 million (in response to a claim which had been pleaded out at US$1.5 million) some 5 weeks prior to a 10 day trial which had been set down for hearing since October 2005, and which application, if allowed, would have necessitated adjournment of such trial, the court took the view that this was not a course it was prepared to permit at that very late stage, and the first trial as originally scheduled thus took place on the appointed dates absent the hearing of the purported Counterclaim.

12.That which thereafter occurred is that the unsuccessful 1^st defendant in this earlier trial, Novus Singapore, which now is the current plaintiff, issued a High Court action in Singapore against Good Earth in order to recover that which it had been alleged (in the Counterclaim the subject of the earlier putative amendment) to be due and owing to Novus Singapore by Good Earth in the form of secret profits wrongly obtained by Good Earth consequent upon operation of the distributorship agreement formerly in place between these parties.

13.Whilst for present purposes it does not greatly matter, I am told by leading counsel that these Singaporean proceedings were initiated, by Writ issued on 14 March 2007, at a time when Good Earth was attempting to recover in Singapore the judgment sum as awarded against Novus Singapore in the earlier Hong Kong action, and further that it was the position that in these Singapore High Court proceedings – which bear the number S164/2007/T – that Good Earth took out a forum non conveniens to stay the Singaporean action in favour of the High Court of Hong Kong.

14.At first instance this stay application was refused; it is fair to say that both during argument and in the judgment of the learned Singaporean judge some perjorative (and, it must be said, wholly incorrect) observations were made on behalf of Novus as to a fraud allegedly perpetrated by Good Earth on the Hong Kong court, and also, and somewhat surprisingly by the Singaporean court at first instance, an assertion of bias on the part of the Hong Kong court which had heard the first action which had given rise to the judgment debt which Good Earth then was in the process of attempting to execute against Novus in Singapore.

15.In the event, the decision of the Singaporean first instance court to refuse the stay application was overturned by the Singaporean Court of Appeal – in Appeal No. 83 of 2007/C, by judgment dated 16 January 2008, reported at [2008] SGCA 13 – and Novus Singapore’s claim duly was remitted to Hong Kong on Spiliada principles as the ‘natural or more appropriate’ forum; it is worth formally recording that in its judgment the Singaporean appellate court went out of its way to express its respect for the Hong Kong legal system, observing that “if Novus’s claim for secret profits is heard in Hong Kong, any suggestion centring on the possibility of actual or apparent judicial bias is, in our view, wholly unjustified.”

16.Hence, the return of the present plaintiff’s ‘secret profits’ case to Hong Kong, and to the occurrence of this second trial between these parties.

17.I might add, I hope unnecessarily given the well-publicised attitude of the Hong Kong Commercial Court towards mere prejudice, that whilst events as they occurred in Singapore have been recounted as part of the historical factual matrix leading up to this second round of Hong Kong proceedings, for the purpose of judging the present ‘secret profits’ dispute I have ignored this Singaporean litigation, and solely have focused upon the evidence in the case as now presented to this court – to which aspect I now turn.

Viva voce evidence

18.In addition to the usual assemblage of very considerable amounts of paper, a total of seven (7) witnesses gave viva voce evidence in this action.

19.For the plaintiff, two witnesses were called.

20.The first was Mr Chua Chong Hin, formerly a Novus Singapore director during the period 1 June 1995 to August 2001.  In those six years of employment, from 1 June 1995 he was ‘Director, Rest of Asia’ for Novus Singapore, reporting directly to the then Managing Director, Mr George Chew; thereafter Mr Chua succeeded to Mr Chew’s position as Managing Director on 1 July 1996, and remained in that position until his departure from the company in August 2001.

21.Had Mr Chua not been indisposed, this current trial would have taken place as originally scheduled in June 2010; however, so integral was Mr Chua perceived to be to its case that the plaintiff successfully applied for an adjournment so that Mr Chua could be accommodated on the present adjourned dates.

22.The plaintiff’s second witness was Miss Cecilia Chan.  Miss Chan is currently Director, Finance of Novus Singapore, and her task in this case was primarily to give accounting evidence/analysis on behalf of her employer.

23.For the defendant, Good Earth, five witnesses were called.

24.The first was Mr Antonio Choa, a Philippine entrepreneur whose witness statement recounted the manner in which his company, Camden Industries Inc., had dealt with distribution of Novus products in the Philippines.

25.Mr Choa was not cross-examined, and I have found his witness statement of no assistance in the resolution of the current litigation.

26.The second witness for Good Earth was Mr Goh Liang Chye, who had been employed by Novus Singapore between 1991 and 1999, initially in an engineering capacity, and latterly in a marketing role; at the outset he had reported to Mr George Chew, then Managing Director of Novus Singapore, and latterly, in his marketing capacity, to Mr Chuah Chong Hin, who then had taken over the managing directorship, between 1995 to 1999.

27.Mr Goh was but briefly cross-examined, and his discursive narrative did not strike me as adding to the sum of relevant knowledge in the present case: in fact, I do not know why he was called at all, since in his witness statement (at paragraph 8) he opines that “I do not have any detailed knowledge of what had happened with Good Earth in Thailand because I did not have responsibility for Thailand within my marketing area.”

28.The third witness for the defendant was Mr Edwin Wong, the Managing Director of Good Earth, and a gentleman who had given evidence in the previous litigation in this court between these parties.

29.Mr Wong gave two witness statements: the first dated 16 July 2009, and the second dated 25 June 2010.  I think it probably fair to say that Mr Wong was a key witness in terms of the fundamental dispute between these parties, and I return to his evidence later in this judgment.

30.Mr Herbert Wong, the brother of Mr Edwin Wong, was the defendant’s fourth witness.  This gentleman is the Deputy Managing Director of Good Earth, and like his brother, Edwin, also had given evidence in the previous case.  He also proffered two witness statements, respectively also dated 15 July 2009 and 25 June 2010, and his evidence essentially was corroborative of that of his brother.

31.Miss Mirinda Wuttiattapong, the fifth witness for the defendant, was and is a Good Earth employee, who had joined the company in April 1997 as Marketing Coordinator.  She had assisted Mr Edwin Wong to co‑ordinate the defendant’s business and, although based in Hong Kong, periodically would visit Thailand to assist with the business of Good Earth’s Thai subsidiary company, Good Earth Thailand, invariably referred to in this case by the acronym ‘GET’.

32.Miss Wuttiattapong proffered no less than four witness statements: the first dated 15 July 2009, the second dated 5 July 2010, the third dated 2 December 2010, and the fourth (the third supplemental statement) also dated 2 December 2010.

33.This lady’s evidential contribution reflected in general her experience of the manner in which business was done between Good Earth/GET and Novus Singapore, and in particular, within the broad evidential framework, she occupied like ground to that of Miss Cecilia Chan for the plaintiff, with particular reference to the numerical/financial aspects of this claim. Once again, in due course I shall need to refer to certain parts of her evidence.

The broad ‘shape’ of the case

34.Although this case is hugely larded with detail – as indeed had been the previous dispute tried by this court – once again at bottom the nature of the disagreement is relatively straightforward.

35.The plaintiff, Novus Singapore, says that during its contractual relationship with Good Earth a certain pricing/commission structure was in play between these parties which reflected (or should have reflected) the agreement first made between these parties – by Mr George Chew of the one part and Mr Q N Wong, father of Edwin and Herbert and the patriarch and founder of Good Earth’s business, of the other – and that in the course of this relationship Good Earth consistently and surreptitiously had breached this agreement and had made ‘secret profits’ in its resale transactions to third party buyers, profits which not only were unauthorized but had remained unrevealed to the plaintiff, at least until discovery had taken place during the first tranche of litigation; in turn it had been this discovery which had prompted the unsuccessful attempt to mount a counterclaim in the earlier action, the subject-matter of which had been the focus of the Singaporean litigation which, on Good Earth’s application, was stayed to trial in the courts of Hong Kong.

36.Accordingly, the plaintiff sought either an account of such secret profits as had wrongfully accrued to Good Earth on the basis of breach of fiduciary duty, alternatively damages for breach of contract.

37.The position of Good Earth is and remained to the contrary.  The terms of and the manner of operation of the distributorship agreement were/are disputed, there had been no ‘secret profits’ made, as alleged or at all, and if and in so far as such primary defence were to fail, then not only was the quantum as now claimed by the plaintiff egregiously inflated, but in addition Good Earth asserted that the factual matrix enabled it to mount the various defences of waiver, acquiescence and limitation.

38.Clearly the judgment in this case will be required to examine each of these elements.  Nor, I apprehend, is there any real difference between leading counsel as the various issues as are raised by this case, albeit unsurprisingly each side proffers differing answers to that which are common questions.

39.Given the considerable assistance this court has received from both sets of counsel, not least in their eminently sensible and co-operative approach in getting the matter before the court in intelligible and logical form, I propose to structure this judgment by adopting the broad classification of the issues as suggested by Mr Burns SC for the plaintiff, which classification, with which Mr Whitehead SC does not demur, seems to me to encompass all outstanding factual and legal disputes between these parties.

The Issues

(1) The terms of the distributorship agreement

40.This comes down to the following primary dispute:

Was it the contractual position, as the plaintiff maintains, that under the Distributorship Agreement hitherto in place between the parties that Good Earth was required to pay Novus Singapore, as supplier, 92% of the ‘Novus-approved’ resale prices to be charged by Good Earth to its third party customers for the Novus feed-products, and that in all such resales Good Earth should conform to such pre-agreed price, and thus should be restricted to an 8% commission on revenue from such sales? 

Or to the contrary, as Good Earth maintains, was it the case that under the agreement it was free to charge its third party customers a price in excess of the product price as thus approved by Novus, and to pay Novus 92% only of such prior agreed price, thereby permitting Good Earth to receive not only its 8% commission on such agreed price, but in addition to retain for itself such price differential as may have been achieved over and above the agreed price as reflected in the primary Novus/Good Earth invoice?

41.The answer to this argument is a central facet of this case, and it is one from which all other arguments follow.

42.For the plaintiff, Novus Singapore, Mr Burns submits that Good Earth owed a contractual duty not to charge its customers more than the Novus-approved price, of which 8% thereof was the only permitted income from the distributorship as then was in place.

43.Leading counsel pointed out that Good Earth’s pleaded case prior to the re-amendment as was permitted at trial was that with regard to the animal feed purchased by Good Earth from Novus and thereafter re‑sold to Good Earth’s customers, that “Good Earth would receive 8% of the price…of the Resales”, and that the latter reference to the price of the resales only could have referred to the resale price as earlier agreed/approved by Novus. 

44.In fact, said Mr Burns, in relation to Good Earth’s ‘large customers’ in Thailand (the so‑called ‘integrators’) prior to amendment implicitly it had been accepted on the face of Good Earth’s pleading that it was not permitted to on-sell at more than the resale price earlier agreed/approved by Novus, the ‘pre‑amendment pleading’ (and Good Earth’s case) at that stage seeking to drive a wedge between such ‘large customers’ and the distributor’s ‘small customers’, to which latter customer category the resale price agreement was, on Good Earth’s original case, then said not to apply.

45.However, the re-amendment applied for by the defendant during trial, and permitted by the court in face of the plaintiff’s non‑objection, was in terms that:

“It was agreed… that, with regard to goods purchased by the Defendant from the Plaintiff, the Defendant would receive 8% of the price invoiced by the Plaintiff to the Defendant…”

as the result of which any distinction between ‘large’ and ‘small’ customers seemed to me to have become practically irrelevant, and thus to have been subsumed under the general (and fundamental) issue of whether Good Earth contractually was permitted to re-sell Novus’s goods at higher on‑sale prices than earlier had been agreed with Novus, and thus whether as a result Good Earth was entitled to 8% of the actual resale price achieved from its customer(s), or whether it was limited to the 8% of the pre-agreed Novus/Good Earth invoice price ‑ it being common ground that no separate commission payments were made as such, and that in practice payment of the 8% commission was effected by Novus invoicing Good Earth for 92% of the value of the goods thereafter to be re‑sold to Good Earth customers at the pre-agreed/Novus approved price.

46.On the primary and wholly fundamental issue of the figure to which the 92%/8% agreed distribution percentage should attach, and whether the relevant invoice figure was intended to represent the GE onsale price as earlier agreed by Novus, Mr Whitehead found himself, I think, in some difficulty. 

47.I say this because his helpful written opening had taken pains to emphasise the “clear distinction” between Good Earth’s ‘big/large’ and ‘small’ Thai customers, in fact going so far as to suggest that this case “can only be understood” if this distinction clearly was borne in mind; however, the re‑amendment as subsequently was permitted rather put paid to this line of argument.

48.Notwithstanding this, however, in his final submission Mr Whitehead stoutly maintained that it was entirely understandable if, with regard to sales to ‘small customers’, as a matter of business efficacy and logic that Good Earth should have been permitted “some elasticity” as to the prices it charged on resale, since it was undisputed that in terms of ‘small customer’ transactions – wherein Good Earth shipped product directly to those small customers (in contrast to the situation in which upon receipt of relevant ‘large customer’ purchase orders shipment of product would be effected directly to that customer by Novus) that Good Earth had taken on “myriad risks” in terms of exchange rates, credit terms, warehousing, personnel, marketing and transportation overheads; accordingly Mr Whitehead invited the court to accept the evidence of the Good Earth witnesses that there never had been any question of ‘secret profits’, and that this whole case in effect had been trumped up by a corporate “bully” which wished to control all its distributors absolutely, and that having suffered a bloody nose in the first action, this now was ‘pay back’ time, and this small family company thus was yet again to be run through the highly expensive ‘litigation mill’.

Decision on Issue (1)

49.As a matter of hard analysis I have no doubt but that the plaintiff, Novus, is correct in its contentions as to the contractual position, and that protestations to the contrary by the Good Earth simply are not borne out by the available evidence.

50.It is common ground that the oral distributorship agreement the subject of this case initially was concluded in 1978 between Mr Q N Wong, the founder of Good Earth and the entity then known as Monsanto, then represented by Mr George Chew, whereby Good Earth was to act as exclusive distributor of the animal feed supplements then manufactured by Monsanto.

51.In or about 1991, the existing Monsanto business of the development and marketing of feed supplements, in particular those supplements known as ‘Alimet’and ‘MHA’, was acquired by two Japanese companies, and in June 1991 this acquisition was transferred to the Novus parent company, Novus International Inc., a Delaware corporation owned by these Japanese interests.

52.Thereafter, in July 1991 the current plaintiff, which in this judgment I have referred to as ‘Novus Singapore’, was incorporated.  The judgment of this court in the first action between these parties records ‑ and as a matter of history this is undisputed – that the practical significance to Good Earth of such corporate rearrangement appears to have been minimal; as this court earlier expressed the position (at paragraphs 16 and 19 of its Judgment dated 25 January 2007), “it is evident that [Good Earth’s] existing role as South East Asian distributor continued under the same terms as when Monsanto had been supplying the product…notwithstanding the change in corporate ownership, it further is evident…that Good Earth continued in its established distributorship throughout the 1990’s, albeit since 1991 its point of reference primarily had become Novus, which was operating from its Singapore base, although contact continued with the staff of Novus International in Delaware.”

53.The earlier trial, in December 2006, was concerned solely with whether the distribution agreement Good Earth had with Novus had been wrongfully terminated by Novus, and, if so, what should be the appropriate redress.  That which that earlier trial was not concerned with, however, albeit the matter was aired in passing (and indeed, would have been directly in issue had the court acceded, which it did not, to the late amendment application by Novus to add a counterclaim), was the differential, if any, between the Novus invoice price to Good Earth, and the Good Earth onsale price to its own third party customers in Thailand, and whether such differential contractually was justified under the distribution agreement as then operating between Novus/Good Earth prior to its termination, (which termination had had its origin in these parties’ inability to agree to Novus’ firm intention/desire to bring Good Earth into line with its other distributors in South East Asia, and to reduce the general commission level on sales from 8% to 5%).

54.It is precisely this price differential, of course, which represents the focus of this second trial, with Novus Singapore seeking redress in the form of the ‘secret profits’ it now alleges Good Earth wrongfully had achieved.

55.As far as I am concerned, on this element of the argument Mr Burns for Novus had few fences to jump and a clear run to the finish line; as he drily observed in his closing address, the suggestion now put forward by the GE witnesses (whilst not pleaded) that notwithstanding the Novus/Good Earth sale price that Good Earth nevertheless was entitled to charge whatever it chose to its own customers, and thereby to retain for itself the excess over and above the Novus ‘pre-approved sale price’, which was the price reflected on the face of the Novus/Good Earth invoices, “cannot withstand scrutiny”.

56.I agree.  In my judgment there is no question of the 8% being confined/calculated solely with reference to the stated Novus/Good Earth invoice price in situations wherein the Good Earth onsale price was higher, and thereby to ignore and remove from the commission equation the actual sale price achieved in excess of such pre-agreed/approved sale price; as far as Novus was concerned (and as I so find) each transaction as thus invoiced at 92% of the value of the goods as sold by Novus to Good Earth always was initiated by receipt from Good Earth of the relevant ‘customer order entry’ (in effect Good Earth’s purchase order referring to the goods then intended to be onsold to each Good Earth customer).  To put the matter shortly, in my view the contractual position was that onsales were to be effected by Good Earth solely at the ‘Novus-approved price’, no more and no less, and in failing so to do (by selling higher and in retaining the consequent financial margin) Good Earth was in breach of its obligations under the distributorship agreement.

57.Mr Burns submitted, in my view correctly, that the best evidence of the terms of the relevant agreement is contained in a letter dated 20 October 1992 written by Mr Q N Lee, the Good Earth founder/patriarch, to Novus Singapore, attention Mr Scott Wang (then Novus Singapore Director of Sales), copied to the Managing Director, Mr George Chew, the most pertinent parts of which emphasize that Good Earth was limited to earning commission on the resale price as actually agreed with Novus:

“…In most cases, a distributor would purchase products from the principal for its own account, take title to the products purchased and then resell them to its customers…A distributor usually takes its remuneration from the margin between the prices at which it purchases the products and the prices at which it sells them on. In our case, however, we cannot price the products to the ultimate purchaser at our own discretion. We are limited to an 8% commission and in that respect are perhaps somewhat at a disadvantage…

With regard to the price, we would always try to sell the Products at the highest price possible so as to achieve your aim of maximizing total sales volume. As we only receive a commission on sales, it would be in our interests too to achieve the best price possible in the market….

As in the past, price changes should not be unilateral but must be subject to discussion and be by mutual agreement.  We would like to define it as the eventual ultimate sale price to our customers.  This has been our practice in the past…” [emphasis added]

58.In his closing address Mr Burns made recurring references not only to this but also to other letters in the documentary evidence which clearly refer to the earnings of Good Earth from the resale of Novus products to its customers as being derived solely from commission; he further made the point that the contemporaneous documents are “replete” with references to Novus agreeing/approving the resale prices at which Good Earth was permitted to onsell Novus’s products to its Thai customers, and of this latter category three particular examples are set out in his written closing: a fax dated 4 September 1995 from Mr Edwin Wong to Novus to the effect that he had negotiated a higher resale price with a customer [Metro] for Alimet, an exchange of emails between Mr Herbert Wong and Novus respectively dated 4 and 5 October 2000, and an email exchange between Ms Mirinda Wuttiattapong and Novus respectively dated 17 and 21 August 2000.

59.Compelling numerical evidence of Novus’ position on this element of the case, wherein consistently it was consulted as to resale prices to Good Earth third party customers – including for this purpose the Good Earth subsidiary, GET – also is contained in a detailed annexure to the plaintiff’s final written submissions, material which strikes me as gainsaying any legitimate or logical dispute.

60.I further agree with the contention that it makes (or would make) no commercial sense to contend that a distributor of products ‑ which in this instance happens to be species of animal feed supplements – not only is entitled to a commission calculated in terms of a percentage of an agreed/approved sale price, but also on resale to be able to charge above that approved price, and yet not have to account for the monetary differential.

61.It seems tolerably clear that a distributor either can carry on business on the basis of an agreement as to a percentage of an agreed/approved resale price (the situation in the present case) or he can buy from the supplier and resell at a profit at a price he chooses above such purchase price as he has paid to the supplier: these methods are mutually exclusive, and I find it difficult to understand why the defendant appears to believe that contractually it can have its cake in terms of the guaranteed 8% commission on the Novus/Good Earth price and thereafter eat it as well in the form of pocketing for itself a price margin over and above that agreed 8% sum.

62.On this basis, therefore, I reject the contrary evidence of the defendant’s witnesses, in particular in this context that of Mr Edwin Wong and his brother Herbert, and the submission arising therefrom in so far as such submission purports to justify contractual entitlement to an 8% commission on the approved/agreed resale price plus a profit margin on resale over and above such agreed commission rate.

63.I suspect that as a matter of practical politics this ‘onsale margin’ practice on the part of the defendant emerged when Mr Q N Wong’s sons took over the running of the business, and that the ‘price differential’ between the agreed sale price and the actual sale third party sale price was introduced to factor in additional/collateral commercial expenses incurred by the defendant under the existing agreement when it became obvious to those then running Good Earth on a daily basis that such collateral expenses were not being adequately defrayed by the terms of the existing (and historical) agreement.

64.However, I should have thought that the answer to this is not commercial (and allegedly undisclosed) ‘self help’, but overt renegotiation of the distribution agreement with the supplier, Novus, in order to take account of a situation in terms of collateral expenses, or at the least a level of expenses, which may well not have existed at the date of striking the agreement.

65.Hence the rationale for the supplier/plaintiff’s present claim ‑ which, as earlier observed, belatedly was sought (but refused) to be introduced as a counterclaim in the original High Court Action, HCCL 74 of 2002.

66.It follows from the foregoing that I hold in the plaintiff’s favour on Issue 1, and conclude that Good Earth was required to pay Novus 92% of the actual resale price obtained by GE for its distribution/onsale of Novus products in so far as such onsale price exceeded the Novus pre-approved onsale price for such products.

(2)  Did GE owe Novus a fiduciary duty?

67.The plaintiff puts its case on the further basis that the defendant distributor owed it a fiduciary duty, and that in breach of such duty GE failed to account for the secret profit it allegedly made.

68.As I understand the submission, Mr Burns SC puts this element of his case purely as an alternative to breach of contract.  In purely practical terms as to monetary remedy, a successful cause of action in breach of fiduciary duty means that, were the plaintiff to succeed, it thus would recover 100% of the secret profits allegedly so made, as opposed to the 92% to which it says (correctly in my view) it would be contractually entitled pursuant to the then existing distributorship agreement between the parties.

69.Mr Burns made it clear in his skeleton closing that his submission on this issue is premised on the fact that it is assumed that under the Distributorship Agreement GE is not permitted to make any additional sum over and above its entitlement to 8% commission upon the agreed sale price – a primary contention with which I now have agreed.

70.Mr Burns also specifically does not say that the relationship between it and GE was that of principal and agent, albeit he maintains that “it was akin to an agency relationship”, with all that that imports, including for present purposes a fiduciary duty upon GE not to make a secret profit from its position as Novus’ distributor.

71.In the context of this submission Mr Burns has taken the trouble to rehearse the usual legal principles, commencing with Bowstead and moving on to the seminal decision of the High Court of Australia in Hospital Products Ltd v US Surgical Corp & Ors (1984) 156 CLR 41, and in particular the observations of Gibbs CJ [op cit., at 47].

72.During his persuasive arguments, both in Opening and Closing, this court made it clear to Mr Burns that so far as it was concerned this was a breach of contract case, and that in the circumstances the court was disinclined to accept his invitation to treat GE as a fiduciary of Novus.

73.I have reconsidered the issue, once again with regard to all the factual circumstances as reflected in the evidence before the court in this case, and I have not altered my initial view, and thus decline to analyse the case in agency/fiduciary terms. 

74.In essence this was purely an arm’s length commercial relationship which had run over a lengthy period since its 1978 inception between Mr Chew, then of Monsanto, and Q N Lee of Good Earth, and in my view it would strain the factual matrix to hold that any fiduciary duty arises therefrom; there is no need for further elaboration, and I make this decision expressly since the issue was canvassed in some detail on behalf of the plaintiff, and in the event that this matter should go further.

75.This being the situation, my decision on Issue (2) is simply ‘No’.  I so hold.

(3)  Remedies available to Novus

76.It follows from the foregoing conclusion on Issue (2) that this court finds that the remedy, if any be sustainable at law, available to Novus in this case is one for damages for breach of contract.

77.The practical result of this finding is that, if damages be payable, Novus would be entitled to but 92% of the monies of which it has been deprived by the contractual breach on the part of Good Earth, rather than 100% which otherwise would have accrued upon the order for an account of profits.

(4)  Defences available to Good Earth

78.Two main lines of defence are raised: (a) that of waiver and acquiescence; and (b) the defence of limitation.

79.I take each in turn.

(a)  Waiver and/or acquiescence

80.It is fair to say that Mr Whitehead SC runs this line very much as a secondary argument to limitation.  In my view he was correct to do so, although I recognize that components of his submission under this head find resonance elsewhere.

81.He submits that it is plain that Novus either knew that Good Earth was onselling ‘at margin’ or, at the least, regarded such onsales by GE at margin as none of its business and accepted the situation, thereby simply closing its eyes and ignoring whatever commercial arrangements GE had entered into with its purchasers.  Thus, he maintained, in these circumstances Novus clearly had acquiesced in what was happening, having stood by and allowed or induced GE into believing that it had assented to the course that clearly was being taken, alternatively that it had waived any right to require that the commercial relationship between the parties be performed in the manner for which Novus now contended.

82.In response, Mr Burns SC countered by pointing out that, purely as a matter of law, in order to succeed on the defence of waiver and/or acquiescence the defendant, GE, had to satisfy the court first, that Novus had made a “clear and unequivocal representation” either by words or conduct that it would not exercise its strict legal rights to treat the contract as repudiated; second, that Good Earth must be shown to have altered its position in reliance upon such representation or at least acted on it; and third and finally, that in the circumstances prevailing it would be unconscionable for Novus now “to insist on its strict legal rights”.

83.Mr Burns insisted that on the available evidence these threefold requirements could not be satisfied, and on the evidence I agree with this contention.

84.In the circumstances of this case, therefore, I reject the defences of waiver and/or acquiescence.

(b)  Limitation

85.In my judgment the only significant point in this case is that of limitation; in fact, on a number of occasions during this trial Mr Whitehead alluded to the probability of this turning out to be the principal issue, and if I may say so it is no surprise that the principal emphasis within his final written submission is devoted to this aspect of the case.

86.In this regard Mr Whitehead points out that in the Updated Opening Submissions of the plaintiff the prima facie engagement of the limitation period is accepted by Novus (vide para 118 thereof) wherein the fact is admitted that since the matters the subject of this case all pre-date 30 June 2002 – which represents the date when Novus ceased to supply GE with product under the then terminated distributorship agreement ‑ and thus the date of issuance of the writ in this action, namely 27 June 2008, in normal course would put the plaintiff out of court as being time-barred.

87.This being the case, the parties’ attention, and that of the court, inevitably is drawn to the provisions of section 26(1) of the Limitation Ordinance, Cap 347, which reads in relevant part:

“…where in the case of any action for which a period of limitation is prescribed by this Ordinance, either –

(a) the action is based on the fraud of the defendant;

(b) any fact relevant to the plaintiff’s cause of action has been deliberately concealed from him by the defendant;

(c) the action is for relief from the consequences of a mistake;

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.” [emphasis added]

88.Mr Whitehead’s submission on this element of the case is straightforward.  He says that the express Novus position (vide para 122 of its updated Opening Submissions) to the effect that there was nothing to suggest the plaintiff ought, with reasonable diligence, to have found out about GE’s general practice of making ‘secret profits’ any earlier than the discovery in 2004 in the context of that earlier action, or indeed Ms Wuttiattapong’s evidence in December 2006 in the trial of that earlier action, is a contention which factually is “utterly untenable”.

89.Mr Whitehead maintains that it is as plain as a pikestaff that Novus had been alerted to that which was occurring in this regard with GE as early as 1997, but that despite having obvious opportunities so to do, had declined properly to investigate, and simply stood by and did nothing.

90.In this context, leading counsel relies principally not only on contemporaneous documents, but also specifically on parts of the evidence at this trial of Mr Chua Chong Hin, a witness whom Mr Whitehead variously characterized as “thoroughly unsatisfactory” and whose evidence, he submitted, was “littered with contradictions, exaggerations, speculations and at times just straightforward untruths”.  Even allowing for the element of forensic exaggeration, it is difficult to disagree with the broad thrust of this criticism.

91.The court’ attention has been drawn in Mr Whitehead’s closing submission to evidence going to the state of knowledge on the part of Novus in both 1997 and 1998.

92.As to 1997 events, he drew attention in particular to a letter dated 21 November 1997 by Mr Chua, then Novus’ Managing Director, which was sent to the then President of Novus Worldwide, one Mr WJ Privott, wherein Mr Chua had expressed his serious concern as to GE “making a margin on top of our price”, and that “this was a very serious allegation” and represented “a red flag” that something was wrong, although when questioned as to this Mr Chua accepted that he had decided not to question GE’s customers on this issue because “it was inappropriate to do so”.

93.It is not clear to the court why it thus was considered “inappropriate”, since the following exchange thereafter took place in cross-examination of Mr Chua:

“Q. Yes, you didn’t trust them at all, did you? As far as you were concerned, they were fraudulent and …they misrepresented important facts to your main customers?

A. Right.”

94.To this Mr Whitehead adds that not only was Novus clearly put on notice as to what was occurring on GE’s resales, but that Mr Chua also confirmed in his evidence that Novus had kept detailed data on the end users of its products in Thailand and that it would ‘triangulate’ information via direct communication with such end-users.

95.The issue of Novus being alerted to matters of which complaint now is made, allegedly on the basis that it was only subsequent discovery in the first action which first had disclosed what had been happening on Novus resales, is re-emphasised, asserted Mr Whitehead, in 1998, and became characterized as Mr Chua’s ‘Detective Columbo’ email to Mr Hooks, Novus’ VP of Marketing, copied to Mr Privott, dated 7 July 1998, the opening paragraphs of which read thus:

“Eddy,

We know CP Thailand took delivery of 2128MT in 1997. We have 228MT unaccounted for (imported at CP price) which GE claimed is meant for CP Thailand. One does not have to be Detective Columbo to know that GE is using this 228MT for resale to smaller customers like Sunfeed, Thai Rungkit, Bangkok Ranch to name a few. In short, GE is not only getting the 8% resale commission, they are also making a margin as these 228MT were imported at CP’s price.

Part of the reason why Herbert [Wong] got abusive (a natural defensive response of the Wongs) with me in Bangkok last week was the fact I brought this up. It was like I caught them cheating Novus. Long story short, 2 days later before I left Bangkok, Herbert very politely admitted to me that it is not as though they are out to cheat Novus. GE needs the extra margin to cover the high biz cost in the resale biz. But to say it was none of my biz (Herbert’s first response two day’s before), I cannot accept as an explanation. This is a moral/integrity issue.

Herbert made an appeal (after he confessed that I was right about GE’s false representation) to allow them to continue doing it because they need the extra margin.  If not, they have to give up these smaller resale biz and I know they are going to be more pissed with me for showing them out on this…”

96.Subsequent to cross-examination about the content of this particular letter, the thrust of Mr Chua’s evidence was that he well knew of GE’s practice of making an on-sale margin, and would not have asserted this to the worldwide head of Novus International if he had felt this merely to be “ a suspicion”.

97.In response, Mr Burns SC, who conducted his case with his usual precision and skill, attempted to ring-fence the “Detective Columbo” letter, and the implications deriving therefrom, by asserting that Mr Chua’s answers under cross-examination had been confined to a particular shipment, namely the 228MT intended for CP Thailand – one of the so‑called ‘integrators’ – and suggested with some force that Mr Chua’s answers could be so limited if properly read in context.

98.Mr Burns submitted that in terms of the operation of section 26 of the Limitation Ordinance, the facts relevant to the causes of action on which Novus’ claims now were based, namely as to the ‘secret profits’ wrongfully enuring to GE on third party resale, had been deliberately concealed by GE, and that such concealment had not been discovered until December 2006, with the consequence that the limitation period for Novus’s claim, which otherwise would be statute-barred, did not begin to run until that time.

99.At this stage I note that, entirely properly in my view, Mr Burns did not attempt to characterize the limitation issue as now prayed in aid by GE as the type of “procedural road block” that in the pre-existing Singapore proceedings the Singapore Court of Appeal had expressed itself anxious should not get in the way of the merits of the matter which ultimately were to be adjudicated in the Hong Kong court qua forum conveniens.

100.Mr Burns also accepted, as indeed he had to, that the burden of establishing that the true state of affairs could not with reasonable diligence have been discovered by his client at an earlier date – and thereby precluding the limitation clock from beginning to tick – lay upon Novus, but went out of his way to emphasise that the meaning of ‘reasonable diligence’ varies according to the particular context, citing particularly in this context the observations of Webster J in Peco Arts Inc v Hazlitt Gallery Ltd [1983] 1 WLR 1315, at 1322H-1323B to the effect that:

“…reasonable diligence means not the doing of everything possible, not necessarily the using of any means at the plaintiff’s disposal, not even necessarily the doing of anything at all; but that it means the doing of that which an ordinarily prudent [person] would do having regard to all the circumstances…”

101.It was insufficient, he said, to demonstrate that the plaintiff might have discovered the fraud in question by pursuing an inquiry in some related matter, but that it must be shown that there had been something to place him on inquiry in respect of the matter in question, and that if inquiry had duly been made it would have led to discovery of the real facts.

102.However in the present case, leading counsel maintained, for the like reasons advanced in terms of the analysis regarding Novus’ alleged waiver and acquiescence, the defence of limitation now mounted by GE also should be rejected; indeed, in the present case it was, said Mr Burns, possible to assert with some confidence that the first time that Novus had been put on notice that GE may have been engaging in the wrongful and long-standing practice of on-selling to its third party customers specifically including for this purpose the Good Earth subsidiary, GE Thailand – at prices net of discounts and rebates higher than those notified to/agreed by Novus, and by failing to account at least for 92% of the differential, came in 2004 with the discovery in the earlier action by GE against Novus of copies of GE’s sales invoices to its customers for such third party resale.

103.Mr Burns further stressed that such sales invoices disclosed revenue to GE of over US$5 million in excess of that which GE should have earned had it simply resold at the ‘Novus-notified and agreed’ resale price, and that at the time the response on the part of GE was that such additional revenue was accounted for by rebates and/or customer discounts; indeed, it had been only as the result of the evidence of Ms Wuttiattapong at the first trial in December 2006 that it had been confirmed that GE’s revenue from resale of Novus products net of rebates and discounts was in the region of US$1.7 million higher than should have been the case if these products had been resold at the price agreed by/notified to Novus.

104.If, of course, Mr Burns is correct in this submission, this must be the end of the point, and Novus thus may take advantage of the section 26 limitation exception.  But is he correct?

Decision on GE’s limitation defence

(1) The law in Hong Kong

105.The leading case on the application of section 26, Cap 347 is contained in a recent decision of this territory’s highest court: see Peconic Industrial Development Ltd v Lau Kwok Fai, (2009) 12 HKCFAR 139.

106.nbsp;            In fact, in this case there were two distinct issues which were dealt with by the CFA: first, whether the section 20 defence of limitation in principle was available to a person who had assisted in a fraudulent breach of trust – to which their Lordships answered in the affirmative; and second, and for present purposes directly on point, the proper approach to the application of section 26, which was the question of what the plaintiff could with reasonable diligence have discovered, is a question which must be answered objectively and without regard to what otherwise may be perceived as ‘the merits’.

107.In this particular case, a dissenting judgment in the Court of Appeal had opined that it was wholly unattractive that the fraudster in Peconic, a solicitor named Danny Lau, a professional lawyer of good reputation “embedded” within a solicitors’ firm of equally unblemished reputation, to be able to successfully take the point that, by reason of the operation of section 26, Cap 347, it was open to him successfully to maintain that the bank’s claim against him was time-barred because the bank should have done more to uncover precisely that fraud which this devious and dishonest gentleman had spent a good deal of time and trouble in devising and in seeking to obscure from the bank’s view.

108.However, this approach unceremoniously was rejected by Lord Hoffmann NPJ (op cit., at paras 28-33 of the CFA judgment).

109.His Lordship therein observed:

“…I think it [the approach of the dissenting judge below] was the wrong approach. No doubt a gentleman who knows he is liable does not plead the Limitation Ordinance any more than the Gaming Act, but if he does so it must be applied according to its terms. The purpose of the Act is not, after all, to enable people to escape liability for fraud. It may incidentally have that result, but that is not the policy which underlies it. Its purpose is to avoid the investigation of whether the defendant was fraudulent after a lapse of time which could prejudice his ability to rebut the charge. The fact that this sometimes allows people who were undoubtedly fraudulent to escape liability is the price which the legislature was willing to pay for having a general and clear-cut rule. But it begs the question to approach the construction of s. 26 on the assumption that the defendant has committed the fraud. The question of what the plaintiff could with reasonable diligence have discovered must be answered dispassionately and without regard to what may be perceived as the merits…

What does ‘the plaintiff… could with reasonable diligence have discovered [the fraud] mean? The word ‘reasonable’ denotes an objective standard. But that is not the end of the matter. It is the plaintiff who is supposed to have shown reasonable diligence. This leaves open to argument the extent to which the personal characteristics of the plaintiff are to be taken into account in deciding what diligence he could reasonably have been expected to have shown. It does not follow that because an objective standard is applied, he must be assumed to have been someone else. The extent to which the characteristics of the actual plaintiff are ignored depends upon the reason for invoking the objective standard…

The question then is what steps it could reasonably have taken to try and obtain a remedy. In some cases it may be necessary to decide whether the plaintiff must be assumed to have had the resources and other opportunities for investigation which he actually had or whether this too must be determined according to some objective standard…

For my part I would prefer to leave this question open, because in the present case [the plaintiff being the Agricultural Bank of China] it does not arise…

What is important is that the burden was upon the bank to show that it could not with reasonable diligence have discovered the fraud: see Millett LJ in Paragon Finance Plc v Thakerar & Co at p. 418.  For example, if the bank’s case is that it took whatever steps could reasonably have been taken but that they proved fruitless, it is for the bank to satisfy the court that it actually did so.”

(2)  The present factual matrix

110.It is at this juncture that the evidence at this trial of Mr Chua Chong Hin assumes stark profile, because he was the only person giving evidence for the plaintiff whose evidence was relevant to this seminal issue.

111.As earlier observed (vide paragraph 20 above), Mr Chua was a Novus Singapore employee for a period of some 6 years, and had been Managing Director thereof from 1 July 1996 until he left the company in August 2001.

112.Nor, it is clear, can there be any suggestion – and indeed there was none – that the plaintiff did not have sufficient resources properly to investigate what clearly (and at the least) it suspected to have been Good Earth’s wrongful re-sale ‘margin policy’.

113.I do not wish to be unfair, but in many ways I found Mr Chua an unsatisfactory witness, often striking me precious and ingratiating, and on occasion deliberately and rather obviously evasive; however one area in which I believe he basically was telling the truth was, paradoxically, an area the precise legal relevance of which perhaps he did not completely grasp.

114.After seeing and hearing Mr Chua, and after re-reading in full his evidence in transcript, I find myself in little doubt (and so find) but that first, he knew what Good Earth was doing in terms of adding a margin on resale, notwithstanding the ‘agreed’ Novus price, and second, that he deliberately and specifically refrained – perhaps by reason of the considerable history behind the initial commercial relationship between Novus Singapore/Mr Chew and Good Earth/Mr QN Lee – to follow and investigate an issue which clearly was vexing him greatly when he was in post as Managing Director.

115.Moreover, even if I be wrong in so finding actual knowledge, it is manifest that Mr Chua entertained very real “suspicions” as to the situation with reference to GE’s resale practices in breach of Novus guidelines, and thus that the section 26 rubric of “reasonable diligence” is more than satisfied.

116.I recognise that Mr Burns SC, made a skilful effort in re‑examination to limit the evidential damage, and Mr Chua’s overall state of knowledge, to the 228MT so‑called ‘buffer stock’ which had been earmarked for CP Thailand – historically the major GE connection in Thailand which no doubt initially had secured for GE the Novus distribution rights – but I remain wholly unconvinced by the attempt to ‘ring fence’ the state of Mr Chua’s knowledge, or, at the very least, his very clear grounds for what he himself was prepared to admit was a “suspicion”.

117.In short, it is clear on the evidence before the court that the “permission” which had been given to Mr Chua by Head Office to continue the current practice of resale at margin was general in nature and could not be thus restricted to any particular shipment: see, for example, the following exchange between Mr Whitehead and Mr Chua in cross‑examination:

“Q. It’s correct is it that when he [Mr Scott Wang, Novus Commercial Director] recommended to continue the current practice to maintain the Good Earth resale business, he wasn’t just talking about this particular situation; he was saying ‘we are just going to let them go on selling CP stock that’s leftover in any sort of way, buffer stock whatever it is, at margin’. Is that correct, is that your understanding?

A.     Yes.”

118.Earlier on the same day, when questioned as part of the same cross-examination sequence about Mr Chua’s view regarding that which GE was doing in its third party resales, the following exchange took place:

“Q. But my question is this: at the time you informed, expressly informed, the worldwide chief of Novus International that they were making a margin, you assumed that, you say, your judgmental assumption?

A. Yes,

Q. …because you knew it from before, because that’s the way they did business.

A. I have the suspicion but I don’t have the evidence…

Court: Well, you’ve put it in a very – all I will say gently to you is that you put it in a very positive way, the present tense.

A. Yes.

Court: You don’t say, ‘In short, I suspect’, you say, ‘In short, GE is not only getting the eight percent, they are also making…’ not ‘I suspect they’re also making’.

A. That’s an affirmative statement, yes.

Court: So did you know or not?

A. Well, you know, My Lord, when you write email, you know, I – the choice of words, grammars, it’s – when I was writing this I was not thinking from a legalistic interpretation part of it, so it was a…

……..

Q. …You’re obviously a very highly intelligent man.

A. Thank you.

Q. You also were entrusted with running a very important business for Novus as a managing director and, on that basis, you will agree that this document wasn’t just written to a friend, this was written to Mr Hooks and cc’d to the worldwide CEO of Novus International. You would have chosen your words, I suggest, carefully, in writing such an important document and in making such a serious allegation against people who had done business with Novus for over 20 years, wouldn’t you? You agree?

A. Yes.”

119.In my view, on a fair reading of the entirety of his evidence, it is plain that from very early in his tenure as Managing Director Mr Chua was, to use his own term, “disturbed” by what he then perceived that Good Earth was doing, and a propos this point he responded to Mr Whitehead in cross-examination in the following manner:

“Q. Given that in 1997 you regarded my clients as cheats who had made false representations to your company, who had, at an earlier time – the year before, in relation to Kun Eam ‑ had cheated them – you remember the earlier situation we talked about…

A. ..in 1997

Q. Yes, with all the – the one that caused you to be very disturbed. Now, if you add this to that – remembering Detective Columbo, how easy these things are to find out ‑ what steps did you take to discover the ambit to all the ‑ the size of what I called the ‘iceberg’?

A. There’s no further action from my side…”

120.True it is that Mr Chua qualified this last answer by reference to the 228MT, but there is no doubt in my view that with regard to the Wong family and Good Earth’s activities that Mr Chua, either independently in light of the historical background, or perhaps under specific instructions from above, deliberately had followed an ‘ask no questions’ policy, as encapsulated in the following exchange between the Bench and the witness:

“Court: So what did you mean by ‘Ask no questions’?

A. What I mean ‘Ask no questions’, say – it was made very blatantly clear to me…

Court: By who, by who?

A. The Wong family, okay? What they do beyond the transaction that I have with them, in concluding – once conclude the price, how they handle the invoicing, the rebates, it’s none of our business.

Court: And you accepted that?

A. I accepted that.

…….

Q. …You asked no questions, you accepted the situation, but, nevertheless, you could have, in an ordinary case, in any other case, easily found out whether a company, a distributor, was trading on margin in the following ways. First – and see if you agree with these – first, you could ask to see the distributor’s invoices to his third party customers, couldn’t you?

A. I have no access to that.

Q. No, but you could ask, you could make a call; you could ask?

A. I could have asked but we didn’t ask.

Q. Yes, you didn’t ask. You could have asked, but you didn’t ask.

A. Yes.”

121.It follows from the foregoing that I have come to the conclusion that, far from first ‘discovering’ the element of wrongful ‘onsale margin’ by Good Earthduring the process of discovery in the earlier Good Earth/Novus litigation, which is the argument now put forward, what clearly was happening either was plain to Mr Chua, alternatively that a distinctly ‘Nelsonian’ eye was turned to the situation, and, as he succinctly put it, “I just left it as it is”.

122.It seems to me that this is the basis for the comment appearing within the internal Novus email of 8 July 1998 wherein reference is made by Mr Chua to the strained relationship with GE “because I would not kowtow to our GE masters”, a view which further reflects the frustration clearly felt by Mr Chua (and ultimately by Novus, which of course eventually terminated the agreement) in perceiving a situation plainly adverse to his company’s commercial interests.  However for whatever reason – be it GE’s commercial ‘clout’ in Thailand arising from the long‑standing relationship between Mr QN Wong and Kun Eam of CP Thailand, or the long history of the distribution arrangement made between QN Wong and Mr Chew of Novus (a history which had made GE very resistant to the Novus-proposed reduction, from 8% to 5%, in distributorship percentage between Novus and its other South East Asian distributors, which had formed the basis of the first bout of litigation regarding termination of the distributorship) – matters clearly were left as they were.

123.It follows therefore that from a section 26 perspective there is ample evidence to illustrate that what now has been characterized as GE’s so-called ‘secret profit’ on resales “could, with reasonable diligence” have been discovered. 

124.In fact, as I have observed, I strongly suspect, and indeed so find, that the truth of GE’s resales’ margin activity was known to Mr Chua at the time – in fact, reading the accumulated documents/correspondence it is almost impossible to avoid that conclusion – but if and in so far as this be incorrect, then on Novus’ case not only was there a good and cogent basis for so suspecting, but ample opportunity with reasonable diligence to discover the position from GE’s buyers themselves: as Mr Chua indeed accepted: “I could have asked but we didn’t ask”.

125.It follows from the foregoing, therefore, that qua plaintiff Novus in my view is unable to surmount the limitation defence and to take advantage of the section 26 exception to postponement of the running of the limitation period.

126.Accordingly, and, if I may say so, without a great deal of hesitation, having taken all the evidence into account, I hold that the plaintiff’s claim is statute-barred.  There is no question of viewing the issue through the rose-coloured lens of ‘intrinsic merit’, as Lord Hoffmann in Peconic, op cit., has emphasised should not occur or interfere with the analysis; indeed, on its particular facts it strikes me that Peconic must represent the high watermark of the ‘strictly objective’ application of the juristic principles underlying the application of section 26, Cap 347.

127.If this analysis be correct, as I believe it to be, Novus manifestly has failed to discharge the burden upon it of demonstrating to the court that it could not with reasonable diligence have discovered the now-alleged ‘concealment’ in 1997 and 1998 of its alleged ‘secret profits’; on the evidence it appears that a deliberate decision was taken to refrain from appropriate investigation at the time, and that it was accepted that that was how GE handled its invoicing and rebates, and that Novus had taken the commercially calculated view that this was to be “none of its business”.

128.Accordingly, Novus’ present claim must fail, and fail clearly, on this basis alone.  I so hold.

(5)  Quantum

129.In light of my conclusion upon, and the success of, Good Earth’s limitation defence, the fifth and final issue, that of the quantum of the plaintiff’s claim, becomes academic.

130.However, if and in so far as the holding that this case is time‑barred is held to be incorrect, I should deal with this element also, albeit more briefly than would be the position if it had been directly relevant.

131.This case is similar to the earlier litigation between these parties in that in this instance, like the former, this court is indebted to counsel for attempting to sort out, without prejudice to the issue of liability, the various heads of the quantum claim as now are mounted by Novus.

132.In this connection the court has received much assistance in the form of a Schedule bearing the heading ‘Agreed Note on Quantum (Revised)’, with notes and bundle references attached.

133.On the face of this document, Novus’ amended pleaded claim of US$1,751,363.38 has been reduced by the sum of US$121,355.65, leaving a balance at issue of US$1,630,007.73.

134.Of this now claimed residual sum, subject to the issue of liability Good Earth now admits that the sum of US$940,921.65 is accounted for by the profit that it made on resales to the so-called ‘small customers’ at prices higher than those at which it bought the relevant stock from Novus, and thus made profits (which it denies were ‘secret’) in excess of the 8% to which the plaintiff says that GE was limited.

135.Given this helpful admission, the amount of the claim remaining in dispute thus is US$689,086.08.

136.This amount comprises:

(i) the sum of US$421,363.90, which is derivative from a disagreement as to how relevant exchange rates in the defendant’s audited financial statements should be treated;

(ii) the sum of US$18,335.16, derivative from the imposition of Singaporean Good and Sales Tax [GST];

(iii) the sum of US$207,894.79, derivative from rebates granted by Good Earth to Good Earth Thailand (‘GET’) which had been erroneously deducted in respect of 1995 and 1997 sales of ‘Other Feed Supplements’ – which were non-Novus products ‑ when the true position, as explained by Miss Miranda Wuttiattapong during her evidence, was that sums instead should have been deducted from Novus sales figures; and

(iv) a relatively small discrepancy of US$41,492.23 for which the defendant has been unable arithmetically to account.

137.I do not intend to spend a great deal of time on this aspect; as I have observed, absent the sterling efforts of counsel this matter probably would have remained unresolved by an innumerate court.

138.As to the GST figure, I accept the uncontradicted evidence of Miss Cecilia Chan on behalf of Novus, which was to the effect that Novus had been obliged to collect GST from GE for the sale of goods physically delivered to Singapore, and to pass on to the Singaporean tax authorities the amounts thus collected.  Accordingly, the GST figure of US$18,335.16 must in any event be added to the admitted sum.

139.As to the ‘unaccounted sum’ this is pretty small beer, if I may be permitted to say so.  In the circumstances I am minded to split it down the middle, and to say no more about it.  This is a somewhat rough and ready solution, but strikes me as not inequitable.  It follows therefore that the amount of US$20,714.62 should also be added to the admitted figure.

140.As to the erroneously deducted rebate figure, I can see no reason in the circumstances not to accept Miss Wuttiattapong’s evidence on the issue, which struck me as the type of understandable error that can creep in when dealing with rebates relating to a wide variety of feed products, some Novus products and some not.  Miss Wuttiattapong accepted that in the original table of GE sales net of rebates, originally appearing in her witness statement in HCCL 74 of 2002, and thereafter reproduced in like form in her Supplemental Witness Statement in these proceedings, this sum erroneously was not deducted against Novus sales figures in the amounts of approximately HK$305,000 for 1995 and approximately HK$1.28 million for 1997.  In light of this error, and my acceptance of Miss Wuttiattapong’s explanation, I see no reason to add this amount to the GE admitted figure, and I do not do so.

141.Finally, as to the ‘exchange rate argument’, there has perhaps been more energy/debate expended upon this aspect than on any of the others.

142.For the defendant, Mr Whitehead has stressed that the audited accounts of GE of which discovery was made in the earlier action clearly had stated the exchange rates used, and indeed these accounts have been exhibited at this trial.  He noted that the sales figures in the audited statements for the years 1993‑2002 corresponded to the figures appended to Miss Wuttiattapong’s supplemental witness statement, and that this lady gave viva voce evidence verifying their content.

143.Mr Whitehead observed that notwithstanding the fact that the plaintiff has been in possession of audited statements of GE since December 2006, and the evidence of Miss Wuttiattapong confirmed the exchange rates therein indicated, Miss Cecilia Chan for Novus has “doggedly insisted” that the rates used were not apparent on the face of the audited statements, and that anyway the plaintiff was not aware of those rates; accordingly, counsel submitted that the differential of US$421,363.90 clearly was attributable to such exchange rate differences, and should be held to be such, and should not be added to the present claim.

144.For Novus, Mr McLeish, who helpfully dealt with the details of quantum on behalf of his client, has gone to considerable lengths in the Novus closing submissions on this element of the case (at paragraph 170 et seq), and has stressed that whilst Novus repeatedly had pointed out that GE had failed to identify the source of its US$/HK$ exchange rates, it was not until Miss Wuttiattapong gave evidence at the trial of this action that Novus had been informed that the source was the rates adopted in the audited accounts ‑ and in this regard it was clear that in calculation of its annual revenue in terms of the resale of Novus products, GE had adopted higher exchange rates than those used by Novus in converting the relevant HK$ figures back into US$: hence the present differential dispute.

145.Mr McLeish then has produced an analysis of the relevant years 1993 to 2002 with reference to the differing rates used in conversion of US$ transactions into HK$, and has concluded as follows:

That for 1993 and 1994, there is no change to Novus’s calculations of GE’s additional (secret) revenue; that for 1995 and 1996 the use of the GE rate as per its audited accounts – instead of the average rate hitherto adopted by Novus – has resulted in a reduction of the additional revenue alleged to have been wrongfully obtained by GE in those years by the sum of US$298,536.41; that for 1998 the like adoption by Novus of GE figures results in a reduction in the GE ‘secret profit’ from resale of Novus products of US$24,133.49; and that for the years 1997,1999, 2000, 2001, and 2002, like treatment of the exchange rates via use of ‘median rates for the range’ results in respective increases in ‘secret profits’ of US$19,891.54, US$14,703.54, US$31,920.28, US$47,995.60 and US$459.84.

146.The end result of this exercise, said Mr McLeish, was that there was a net reduction in the total amount of the secret profits claimed to have been obtained by GE on resale of Novus products, significantly including for this purpose sales to GET, for the period encompassed by the years 1993-2002, of US$208,678.87.

147.Thus, as I understand the calculation, this reduces the plaintiff’s claim under the ‘exchange rate head’ to US$212,685.03 [US$421,363.90 - $208,678.87].

148.Having taken into account the differing arguments, and the reduction in the figure now maintained, in my view the fairest solution to a potential imponderable is once again to split this figure down the middle, which produces a sum of US$106,342.52.

149.Accordingly, if and in so far as quantum would have been relevant – which for reasons given above in my view is not – had this court found the defendant liable to the plaintiff (which it has not), the quantum assessed on the basis of the material placed before me would have been thus: US$940,921.65 + US$20,714.62 + US$106,342.52 = US$1,067,978.79.

Order

150.It follows from the foregoing that the result of this action is that the plaintiff’s claim is dismissed.  I so order.

151.As to costs, after some reflection I make an order nisi that the defendant, Good Earth, which has succeeded in this case solely upon the limitation aspect, is to have 60% of the costs of this action, such costs to be taxed if not agreed.  I so order.  Any application to vary this order nisi must be made within 14 days of the date of this judgment.

Collateral matter

152.It has been drawn to the court’s attention that there exists a ‘reserved costs’ order in these proceedings which also requires to be addressed.

153.I am told that this is in relation to the joint application of the parties resulting in a Consent Order dated 5 October 2010 which arose from the amendment to the Defence, and in continuing disagreement over the calculation of quantum.

154.Mr McLeish suggests that this court follow a broad brush approach in this regard, and that – as he points out that Novus suggested at the time of the application – the fairest order would be ‘no order as to costs’.

155.I agree, and so order.

Finally

156.I repeat the sentiment expressed at the conclusion of my judgment in the earlier case between Novus and Good Earth, and once again express my thanks to both teams of counsel for the very significant assistance rendered to the court in unravelling what I hope is the final litigation instalment between these two parties, between whom sadly there appears to have existed, and to continue to exist, considerable mutual antipathy.

Mr Ashley Burns SC and Mr Robin McLeish,instructed by Messrs Boughton Peterson Yang Anderson, for the plaintiff

Mr Robert Whitehead SC and Mr Francis Haddon-Cave, instructed by Messrs Blank Rome, for the defendant