Star Telecom Ltd v. Cellstar (Asia) Corporation Ltd
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HCA 1263/2006 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1263 OF 2006 ____________ BETWEEN
____________ Before: Mr Recorder A Chow, SC in Court Dates of Hearing: 4, 6 & 8 April 2011 Date of Judgment: 26 April 2011 ___________________________ J U D G M E N T ___________________________ Introduction 1.In this action, the Plaintiff claims against the Defendant for damages for non acceptance of goods (mobile handsets and accessories) which the Defendant had allegedly contracted to purchase from the Plaintiff. Background facts 2.The Plaintiff is a distributor of mobile handsets and accessories of various brands, including Grundig and NEC, and obtains its supply from the manufacturers directly. 3.The Defendant is a trader of mobile handsets and accessories, and obtains its supply from distributors such as the Plaintiff for re-sale to retailers in Hong Kong and other places including Taiwan and the Middle East. 4.The subject matters of this action relate to three purchase orders (each a “Purchase Order” and collectively the “Purchase Orders”) bearing numbers 2546, 2563 and 2571 (“PO 2546”, “PO2563” and “PO2571”) issued by the Defendant to the Plaintiff dated 14 December 2005, 4 January 2006 and 27 January 2006 respectively. Apparently, the Plaintiff and the Defendant had business dealings with each other for a few years prior to these Purchase Orders. A number of purchase orders issued by the Defendant to the Plaintiff bearing dates as early as February 2003 have been referred to at the trial of this action. I shall come back to these early purchase orders later in this judgment. 5.PO 2546, dated 14 December 2005, relates to (i) a batch of 1,300 units of “GRUNDIG TRI BAND X5 BLACK/SILVER” mobile handsets, and (ii) another batch of 700 units of “GRUNDIG TRI BAND X5 SILVER” mobile handsets (collectively the “Grundig handsets”). The unit cost is US$167.00, and the “Expected Arrival” date is “2006/01/18”. At the bottom of this purchase order, the following is stated:
6.PO 2563, dated 4 January 2006, relates to (i) a batch of 200 units of “NEC TRI BAND L1 BLACK” mobile handsets, and (ii) another batch of 500 units of “NEC TRI BAND L1 SILVER” mobile handsets (collectively the “NEC handsets”). The unit cost is HK$2,650.00, and the “Expected Arrival” date is “2006/02/15”. There is no specific date of delivery of the goods stated in this purchase order. 7.Lastly, PO 2571, dated 27 January 2006, relates to a batch of 100 units of “GRUNDIG X5 BATTERY BLACK”. The unit cost is HK$50.00, and the “Expected Arrival” date is “10/02/06”. There is no specific date of delivery of the goods stated in this purchase order. 8.The terms of the Purchase Orders were negotiated between Mr Ernest Chan (“Mr Chan”), General Manager of the Plaintiff, and Mr C K Lai (“Mr Lai”), Business Planning Director of the Defendant. Mr Chan and Mr Lai were also the points of contact between the Plaintiff and the Defendant in respect of follow up matters relating to the Purchase Orders. 9.On 20 January 2006, the Plaintiff delivered, and the Defendant accepted, 300 units of the Grundig handsets under PO 2546, notwithstanding the fact that this delivery was made after the expected arrival date of 18 January 2006 and also after the specific delivery date of 18 January 2006 for the first tranche of 500 units as stated in that purchase order. 10.There is no dispute that the 300 units of the Grundig handsets delivered on 20 January 2006 were defective, leading to various demands for compensation by the Defendant as set out in an email sent by Mr Lai to Mr Chan dated 14 February 2006. There is no evidence in writing that the Defendant’s demands were accepted by the Plaintiff. However, according to Mr Chan, all the Defendant’s demands were fully complied with and all defects in the mobile handsets were rectified. 11.In a further email from Mr Lai to Mr Chan dated 17 February 2006, the Defendant requested that, in respect of the “X5 project in Taiwan”, apparently a reference to PO 2546, the terms thereof should be varied by (i) the provision of an extra battery (per unit) free of charge by the Plaintiff, and (ii) the reduction of the unit price from US$167 to US$160. It was also made clear in the email that these variations were without prejudice to those demands set out in the earlier email of 14 February 2006. Again, there is no evidence in writing that the Defendant’s requests were accepted by the Plaintiff. Mr Chan said, however, that the Defendant’s requests were agreed to by the Plaintiff. 12.Mr Lai stated, in his witness statement which he adopted as his evidence in chief, that the Plaintiff did not respond to the Defendant’s requests as set out in his email of 17 February 2006. In his oral evidence, Mr Lai said that he did not receive any reply in writing from Mr Chan, but he could not recall whether there was any verbal reply. 13.I am not satisfied on the evidence that the Plaintiff had accepted, or made known to the Defendant that it had accepted, all the Defendant’s demands and requests as set out in Mr Lai’s email of 14 and 17 February 2006. If the Plaintiff had accepted all those demands and requests, which were matters of some importance, I would expect some written confirmation of the position by the Plaintiff to the Defendant. 14.In any event, it is Mr Chan’s evidence that all the remaining goods under the Purchase Orders were ready for delivery as from about February 2006. He repeatedly requested Mr Lai over the phone to take delivery of the goods, but Mr Lai kept asking for deferral of delivery. At one point, by an email dated 8 March 2006, Mr Lai requested that all “open orders” with the Plaintiff should be transferred to DirectPoint Limited, a company apparently owned by Mr Lai himself. Mr Chan said that the Plaintiff was agreeable to this request, but Mr Lai subsequently failed to give him a schedule for delivery of the goods to DirectPoint Limited. 15.On the other hand, Mr Lai said that: (i) in respect of PO 2546, Mr Chan never informed him that the mobile handsets were waiting for the Defendant’s acceptance, and he never received notification from Mr Chan or anyone else from the Plaintiff that the handsets which were free from defects were ready for delivery and awaiting the Defendant’s instruction, and (ii) in respect of PO 2563, on or about 7 February 2006, Mr Chan contacted him and proposed to make delivery of a small quantity of the NEC handsets, namely, 100 units, on 10 March 2006, but the delay and the small quantity available were not acceptable to the Defendant. As such the Defendant did not accept the Plaintiff’s proposal and the Plaintiff did not attempt to make any delivery of the goods under PO 2563. 16.Eventually, by a fax dated 2 May 2008, the Defendant informed the Plaintiff of the cancellation of the Purchase Orders (save in respect of the 300 units of the Grundig handsets already delivered under PO 2546) with immediate effect. 17.This was followed by a letter before action issued by the Plaintiff’s solicitors (P C Woo & Co) to the Defendant dated 10 May 2006 alleging, inter alia, that the Defendant was in breach of the Purchase Orders for failing to take delivery of the goods. There was, apparently, no reply to this letter by the Defendant. 18.On 12 June 2006, the Plaintiff commenced the present action against the Defendant for damages for breach of the Purchase Orders. Issues for determination 19.It is not the Defendant’s case that it was excused from taking delivery of the goods under the Purchase Orders by reason of some repudiatory breach of contract committed by the Plaintiff for delivering defective goods in respect of the first batch of 300 units of the Grundig handsets under PO 2546. In essence, the Defendant’s case is that:-
20.Accordingly, the following issues arise for determination:-
Whether there were any binding contracts between Plaintiff and Defendant 21.The Purchase Orders were signed by the Defendant but not by the Plaintiff, and therefore could not, by themselves, constitute binding contracts between the Plaintiff and the Defendant. 22.The Plaintiff’s case that there were binding contracts between the Plaintiff and the Defendant is pleaded in paragraph 3 of the Reply, as follows:-
23.It can be seen that the Plaintiff is advancing two alternative bases for its case that there were binding contracts between the Plaintiff and the Defendant, namely, (i) acceptance of the offers contained in the Purchase Orders “by conduct”, and (ii) “oral agreements” preceding the issuance of the Purchase Orders. 24.Logically, if there were binding oral agreements reached between the parties prior to the issuance of the Purchase Orders, it would not be necessary for the Plaintiff to rely on any subsequent acceptance of the Defendant’s offers by conduct. In what follows, I shall therefore first consider the Plaintiff’s alternative case of “oral agreements” before moving on to consider the Plaintiff’s case of “acceptance by conduct”. 25.In respect of the Plaintiff’s case of “oral agreements”, Mr Chan’s evidence is that generally Mr Lai would, prior to issuing a purchase order to the Plaintiff, discuss and agree the terms of the proposed purchase order with him over the phone. Having regard to the details appearing on the Purchase Orders, including the description and specification of the goods, the quantity, the unit price, and the expected arrival date and/or delivery date, I would accept that there must have been some discussion between the parties and probably agreement in principle on the terms prior to the issuance of the Purchase Orders by the Defendant to the Plaintiff. 26.It is not suggested by Mr Chan that there was any explicit agreement or discussion on whether there would be any binding contract for the sale and purchase of goods upon the agreed terms. It is, by nature, unlikely that there would be such explicit agreement or discussion. Whether the parties intended that there would be a binding contract coming into existence upon reaching oral agreement on the material terms, or upon the issuance of a purchase order by the Defendant, or upon the signing and return of the purchase order by the Plaintiff, is a matter of inference to be drawn from all the surrounding circumstances of the case. 27.In cross examination, Mr Chan accepted that:-
28.Mr Anson Wong (for the Defendant) put to Mr Chan in cross examination that in cases where the Plaintiff was in a position to supply the goods from its existing stock, the Plaintiff would sign the purchase orders issued by the Defendant which would then constitute binding contracts on the part of the Plaintiff to sell and the Defendant to purchase. In this connection, Mr Chan was shown five purchase orders signed by the Plaintiff which Mr Chan confirmed were in respect of goods which the Plaintiff was in a position to deliver from its existing stock. However, Mr Chan said that these five purchase orders, dated between February and May 2003, related to early transactions between the Plaintiff and the Defendant when there was more attention paid to formality. Since I have not seen all purchase orders issued by the Defendant to the Plaintiff over the years, I am not in a position to decide on the validity of Mr Chan’s explanation as to why these five purchase orders were signed by the Plaintiff. 29.Mr Wong further put to Mr Chan that in those cases where the Plaintiff was not in a position to supply the goods from its existing stock, the Plaintiff would choose not to sign the purchase orders issued by the Defendant for essentially two reasons: (i) the Plaintiff might not in fact be able to supply the goods on or before the expected arrival dates or delivery dates stipulated in the purchase orders, because the Plaintiff would be dependent on the manufacturers to supply the goods which was not something that it could guarantee would happen; and (ii) the Plaintiff would rather preserve flexibility so that it could sell the goods to other wholesalers who might be willing to offer a higher price than that offered by the Defendant. It was suggested that the Purchase Orders fell into this category which the Plaintiff deliberately chose not to sign so that it would not be committed to selling the goods to the Defendant. 30.In considering whether there were binding oral agreements reached between the parties prior to the issuance of the Purchase Orders, the following matters seem to me to be significant. 31.First, it is clear from the corresponding purchase orders that the Plaintiff placed with its suppliers that the dates of delivery thereunder could be after the expected arrival dates or delivery dates stipulated in the Purchase Orders. 32.In respect of PO 2546, the stipulated expected arrival date was 18 January 2006 and the delivery dates were between 18 and 26 January 2006. However, in the Plaintiff’s corresponding purchase order dated 8 December 2005 issued to Skyspring & Vitelcom Inc, the delivery date was stated to be by “27 Jan 2006”. 33.Similarly, in respect of PO 2563, the stipulated expected arrival date was 15 February 2006, whereas in the Plaintiff’s corresponding purchase order dated 16 December 2005 issued to NEC Hong Kong Ltd, the delivery dates were on or before 23 January 2006 for the first lot of 100 units, 20 February 2006 for the second lot of 500 units, and 28 February 2006 for the third lot of 800 units. 34.Thus, it must have been obvious to the Plaintiff, at the times when it received PO 2546 and PO 2563 from the Defendant, that it might not be in a position to deliver the goods under those purchase orders in compliance with the stipulated expected arrival dates or delivery dates. It would make commercial sense, in those circumstances, for the Plaintiff not to sign PO 2546 and PO 2563 in order not to commit itself to any binding obligation to deliver the goods on or before those stipulated dates. 35.Second, although it is the Plaintiff’s pleaded case that the expected arrival dates and delivery dates stipulated in the Purchase Orders were merely “anticipated dates and not binding”, it is clear from Mr Chan’s evidence that those dates had contractual effect or significance, in that if the Plaintiff was not able to deliver the goods on or before the relevant expected arrival date or delivery date stipulated in a Purchase Order, the Defendant would be entitled to cancel that Purchase Order. 36.More significantly, Mr Chan also said that the Defendant’s only right or remedy, in the event of the Plaintiff failing to deliver the goods on or before the expected arrival date or delivery date would be to cancel the Purchase Order, but the Defendant would not be entitled to claim damages against the Plaintiff for late delivery or non delivery. In substance, therefore, Mr Chan’s understanding of the agreement reached with Mr Lai was that the Plaintiff was under no legal obligation to deliver any goods under the Purchase Orders, but the Defendant was bound to take delivery of the goods under the Purchase Orders, save that it had a right to cancel the Purchase Orders if the Plaintiff was unable to deliver the goods on or before the relevant expected arrival dates or delivery dates. 37.A contract of sale of goods would normally impose bilateral obligations on both the seller to deliver, and the buyer to accept, goods. A “contract” which imposes obligations on only one party cannot be a contract of sale of goods, or be binding on that party in the absence of consideration moving from the other party. 38.It is not suggested by Mr Jose-Antonio Maurellet (for the Plaintiff) that Mr Chan might have misunderstood the Plaintiff’s legal obligation under the arrangement that he had come to with Mr Lai in respect of the Purchase Orders. It seems clear from Mr Chan’s evidence that under the arrangement that he had reached with Mr Lai, the Plaintiff was under no obligation or commitment to deliver the goods under the Purchase Orders. 39.Faced with this difficulty, Mr Maurellet puts forward in his closing submissions the following analysis of the contractual relationship between the parties which he admits to be “somewhat ‘strained interpretations’” and requires “some degree of ex post facto rationalization and conceptualisation which is [sic] carries with it a degree of artificiality”:-
40.The problem with the contractual analysis in (1) or (2) above is that effectively only the Defendant was obliged to purchase without any corresponding obligation on the part of the Plaintiff to sell. I do not consider that there can be a contract which is binding on one party only, save in respect of the special case of what is sometimes referred to as an “unilateral contract” which has no relevance to the present case. Also, the contractual analysis in (1) or (2) above is not reflected in the terms of the Purchase Orders, which on the Plaintiff’s case should contain or evidence the agreed terms between the parties. 41.I shall deal with Mr Maurellet’s contractual analysis in (3) above when I come to consider the Plaintiff’s case of “acceptance by conduct”. 42.On the evidence, I find that it was mutually agreed and understood by the parties that the Plaintiff was under no binding obligation to deliver goods under the Purchase Orders, whatever might have been their understanding as regards the obligation (if any) on the part of the Defendant to accept the goods as and when they were tendered by the Plaintiff. On the basis of this finding, I further find that there were no binding oral agreements reached between Mr Chan on behalf of the Plaintiff and Mr Lai on behalf of the Defendant for the sale and purchase of goods upon the terms as set out in the PO 2546, PO 2563 and PO 2571. I therefore reject the Plaintiff’s case of “oral agreements”. 43.I should add that I have considered the emails exchanged between Mr Chan and Mr Lai referred to by counsel in their closing submissions, but I do not consider that they clearly indicate one way or another whether the parties had entered into binding oral agreements for the sale and purchase of goods as described in and upon the terms of the Purchase Orders. 44.In respect of the Plaintiff’s case of “acceptance by conduct”, the Plaintiff has clarified in its Answer to the Defendant’s Request for Further and Better Particulars of the Reply the “conduct” relied upon, as follows:-
45.The above specific pleaded case of the Plaintiff is not made out on the evidence.
46.In his closing submissions, Mr Maurellet relies on the opening sentence in the Plaintiff’s Answer to the Defendant’s Request for Further and Better Particulars of the Reply mentioned above, viz. “Without prejudice to the facts and matters pleaded in the Statement of Claim”, as extending the scope of the matters which the Plaintiff can rely upon in support of its case of “acceptance by conduct”, and seeks to bring in the facts and matters pleaded in paragraph 5 of the Statement of Claim as conduct suggesting that the Defendant’s offers were accepted by the Plaintiff. As I understand Mr Maurellet’s argument, it is here that his contractual analysis mentioned in paragraph 39(3) above comes into the picture. 47.I have some reservation as to whether it is permissible for the Plaintiff to expand its case on “acceptance by conduct” in this manner. The opening sentence in the Plaintiff’s Answer to the Defendant’s Request for Further and Better Particulars of the Reply is general in nature and does not identify the precise facts or matters which allegedly constitute the “conduct” relied upon by the Plaintiff as “acceptance” of the Defendant’s offers. It seems to me to be inconsistent with the purpose of seeking and giving further and better particulars of the pleading to permit the Plaintiff to rely on a general statement of this nature to expand its case in this manner. 48.In any event, I do not think the Plaintiff’s case of “acceptance of conduct” will be improved even if the Plaintiff is permitted to rely on the facts and matters pleaded in paragraph 5 of the Statement of Claim as conduct suggesting that the Defendant’s offers were accepted by the Plaintiff. 49.In paragraph 5 of the Statement of Claim, it is pleaded that:-
50.There is no written evidence in support of this allegation. In an email dated 23 January 2006, Mr Chan provided a shipment schedule to Mr Lai for the remaining goods under PO 2546, namely (i) 408 units (black) and 510 units (silver) to be delivered on 25 January 2006, and (ii) 612 units (black) and 204 units (silver) to be delivered on 27 January 2006. 51.Mr Chan’s evidence is that (i) in early February 2006 he was informed by the Plaintiff’s supplier that there would be delay in the delivery of the NEC handsets under PO 2563 and he informed Mr Lai of the same, (ii) on or around 1st February 2006 he informed Mr Lai that the balance of the goods under PO 2546 and all the goods under PO 2571 were ready for delivery, and (iii) starting from about 20 February 2006, he repeatedly reminded Mr Lai that all remaining goods under PO 2546 and the goods under PO 2563 and PO 2571 were available for delivery. 52.On the other hand, Mr Lai’s evidence, as earlier mentioned, is that (i) in respect of PO 2546, Mr Chan never informed him that the mobile handsets were waiting for the Defendant’s acceptance, and he never received notification from Mr Chan or anyone else from the Plaintiff that the handsets which were free from defects were ready for delivery and awaiting the Defendant’s instruction, and (ii) in respect of PO 2563, on or about 7 February 2006, Mr Chan contacted him and proposed to make delivery of a small quantity of the NEC handsets, namely, 100 units, on 10 March 2006, but the delay and the small quantity available were not acceptable to the Defendant. As such the Defendant did not accept the Plaintiff’s proposal and the Plaintiff did not attempt to make any delivery of the goods under PO 2563. 53.In respect of PO 2571, Mr Lai said that there was no attempt by the Plaintiff to deliver the batteries to the Defendant on or before the expected arrival date of 10 February 2006. 54.It is clear that even on Mr Chan’s evidence, he did not in January 2006 repeatedly informed Mr Lai that all the remaining items under the Purchase Orders were ready for delivery as alleged in paragraph 5 of the Statement of Claim. I therefore reject the Plaintiff’s case of “acceptance by conduct” in so far as it is based on the facts and matters pleaded in paragraph 5 of the Statement of Claim. 55.For the sake of completeness, I should add this. I accept that at some stage in or after February 2006, after the expiry of the expected arrival dates or delivery dates stipulated in the Purchase Orders, Mr Chan might well have informed Mr Lai that the remaining goods under the Purchase Orders were ready for delivery. However, I am not prepared to find, on the evidence, that Mr Lai indicated to Mr Chan that the Defendant was prepared to accept late delivery but wished to defer taking delivery of the goods, not least because of the defects in the first batch of 300 units of the Grundig handsets delivered under PO 2546 and the outstanding issues relating to claims for compensation in respect of those defective goods. 56.Further, I do not accept that Mr Chan’s indication to Mr Lai, made after the expiry of the expected arrival dates or delivery dates stipulated in the Purchase Orders, that the remaining goods under the Purchase Orders were ready for delivery could amount to a valid acceptance of the offers by conduct (see Chitty on Contracts, 30th Ed, Vol 1, paragraph 2-095). 57.For all of the above reasons, I reject the Plaintiff’s case on “acceptance by conduct”. Whether the Defendant was entitled to cancel the Purchase Orders on 10 May 2006 58.Even if, contrary to the above conclusion, there were binding contracts entered into between the parties for the sale and purchase of goods upon the terms of the Purchase Orders, in view of the fact that the Plaintiff was not in a position to deliver the remaining goods under PO 2546 and the goods under PO 2563 and PO 2571 on or before the expected arrival dates or delivery dates stipulated in the Purchase Orders, the Defendant was, as accepted by the Plaintiff in final submissions, entitled to cancel the Purchase Orders. I consider that the Defendant did validity cancel the Purchase Orders by the aforesaid fax of 2 May 2006. 59.The above conclusions make it unnecessary for me to consider the issue of damages. Conclusion 60.I dismiss the Plaintiff’s claim herein against the Defendant. I also make an order nisi that the Defendant shall have the costs of this action, to be taxed if not agreed. Lastly, I wish to thank counsel for their helpful assistance in this matter.
Mr Jose-Antonio Maurellet, instructed by Messrs P C Woo & Co, for the Plaintiff Mr Anson Wong, instructed by Messrs Robertsons, for the Defendant | |||||||||||