Etech Fire Ltd v. Lee on Man

DCCJ 1392/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1392 OF 2011

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DCCJ 2961/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2961 OF 2011

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(Actions be tried together by the Order of Master KK Pang dated 27 December 2012)

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J U D G M E N T

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Introduction

1.This is a trial of two actions together: DCCJ1392/2011 (“the 1^st action) and DCCJ 2961/2011 (“the 2^nd action).  The plaintiff of the 1^st action, Kidde China Limited (“Kidde”) claims against the defendant, Etech Fire Limited (“Etech”) for 9 unpaid invoices of fire products sold and delivered to Etech by Kidde in the sum of US$65,800.30.

2.Etech counterclaims against Kidde in the 1^st action for breach of the Distribution Agreement by stopping the delivery of goods purchased by Etech and for loss of reputation, and claims against a manager of Kidde (“Lee”) in the 2^nd action for conversion of two cashier orders issued by Etech in the 1^st action and for breach of trust.

3.Leave was granted to Etech to discontinue its counterclaim in the 1^st action and the 2^nd action during the trial.

Background

4.Kidde is a worldwide manufacturer and supplier of fire prevention and extinguishing systems with manufacturing bases in the UK, the US and the PRC.  Parties do not dispute that within Kidde’s internal coding system, products manufactured in the UK are coded with prefix “KFP”, while the US counterparts are coded with prefix “KF”.

5.By a distribution agreement dated 15 December 2005, Etech became Kidde’s exclusive distributor of the FM-200 system products and the KFP parts within Hong Kong, Macau and China. 

6.There is no dispute that those goods under the 9 invoices for a total amount of US$65,800.30 claimed by Kidde were sold and delivered to Etech. 

7.The defence of Etech is simply that the 9 invoices have been settled by its two cashier orders:

(i) Cashier’s Order No.735 dated 13 October 2009 in the amount of US$33,922.52 (the “1^st Cashier Order”); and

(ii) Cashier’s Order No.744 dated 11 November 2009 in the amount of US$31,877.78 (the “2^nd Cashier Order”).

8.Kidde’s reply is that the above 2 Cashier Orders were applied to settle 2 other invoices and therefore the claimed 9 invoices are still outstanding:

(i) The 1^st Cashier Order was applied to discharge Invoice No. RI 9000367 dated 25 September 2009 in the  sum of US$33,920.52 (the “1^st Invoice”); and

(ii) The 2^nd Cashier Order was applied to discharge Invoice No. RI 9000432 dated 28 October 2009 in the sum of US$31,377.78 (the “2^nd Invoice”).

9.It is common ground that both the 1^st Invoice and 2^nd Invoice were issued to Acorp Engineering Limited (“Acorp”).  However, parties have very different versions as to their dealings with Acorp.

10.Etech contends that Acorp is a corporate vehicle set up by Lee to run a business of supply and installation of fire extinguishing system.  Further, Lee asked Etech to help Acorp to get some goods ordered from Kidde and requested Gerald Lau (“Lau”), the general manager of Etech, to cause Etech to make some pre-payments for goods to be ordered by Etech with the assurance that the pre-payments would be credited into the Etech’s account kept by Kiddie, after Acorp had taken delivery of the goods.

11.Accordingly, the 2 Cashier Orders were issued as pre-payments of the Etech’s future orders following the issues of the 1^st and 2^nd Invoices to Acorp respectively.  They should have been credited to Etech’s account and should not be applied to pay Acorp’s goods.

12.Lee of Kidde denies any involvement with Acorp.  Kidde alleges that there was an arrangement through which Etech agreed to “take over” the two batches of goods from Acorp and therefore assumed payment obligations for the 1^st Invoice and the 2^nd Invoice.

The Issues

13.Upon the discontinuance of the 2^nd action, the counsel for the parties have revised the List of Issues leaving 7 issues in dispute.   

14.In fact there is only one major issue, ie the circumstances and the purpose of drawing and tendering the two Cashier Orders by Etech.

15.It appears that two sides have mutually exclusive versions.  At the end of the day, it is either I accept that Etech has agreed to take over Acorp’s goods under the 1^st and 2^nd Invoices and settled them by the 1^st and 2^nd Cashier Orders, or Etech has acceded to Lee’s request to issue the two Cashier Orders to help Acorp to collect the goods but not to pay for the Acorp’s goods.

Discussion

16.The Etech’s case bases on the contention that Lee has set up Acorp and requested Lau to cause Etech to help by making pre-payments resulting in the issue of the two subject cashier orders and to collect Acorp’s goods and to store them temporarily.

17.Save as the evidence from Lau, the only witness from Etech, there is no trace of evidence to show Lee’s involvement, interest, or ownership in Acorp, not to mention evidence showing Lee’s setting up Acorp.  The company search result indicating that Lee is neither a shareholder nor a director of Acorp, does not support the Etech’s case at all. On the contrary, Lee has denied such allegation.  On balance of probability, I do not accept the Etech’s bare assertion of Lee’s involvement in Acorp.  Since such allegation is the premise of Etech’s case, Etech could hardly succeed on a failed premise.

18.Regarding the drawing of the two cashier orders, it is not clear even from Lau’s evidence as to why Lee needed those cashier orders.  Paragraph 30 of Lau’s witness statement states that,

“Alvin Lee never told me how he would use the Pre-payments but he told me that he would credit the payment amount into the Account between the Plaintiff and the Defendant. He further told me that the cheques or cashier orders would be used to enable the collection of the products by Acorp and after such collection, credit would be made to the Defendant’s account.”

19.It is unclear why the Cashier Orders could enable Acorps to collect the goods.  Mr Lung, Counsel for Kidde, has drawn my attention to another invoice (RI 90000337) dated 26 August 2009 issued to Acorp in the sum of US$23,948.76 which appeared on Acorp’s Statement of Account dated 19 October 2009 but disappeared on Acorp’s Statement the next month implying prompt settlement by Acorp.  Mr Lung submitted that Acorp was capable of collecting and paying for the goods without asking for the help of Etech by providing any pre-payments by way of cashier orders or otherwise.  Therefore, Etech’s contention of drawing the cashier orders for pre-payments is inherently improbable and unbelievable.

20.As for the Kidde’s case, the main criticism from Etech’s counsel Mr Shum is that the pleadings and witness statements of Kidde fail to state the tripartite agreement involving Kidde, Etech and Acorp regarding Etech’s takeover of the Acorp’s purchase under the 1^st and 2^nd Invoices. 

21.However, Kidde did plead the dealings with Acorp in paragraphs 13 to 19 of its Reply and Defence to Counterclaim.  It did mention that Etech was unhappy about the supply of the Shanghai-made FM-200 parts to Acorp by Kidde and thus threatened to protest by cut-throat sales tactic.  It also mentioned Acorp “felt discouraged to compete in the FM-200 market in Hong Kong”, but it did not plead further that Acorp would withdraw from Hong Kong market.  It also pleaded Lau on behalf of Etech agreed to take over the goods ordered by Acorp under the 1^st and 2^nd Invoices.

22.Since Kidde’s claim does not base on any breach of the so-called tripartite agreement but on the outstanding invoices of goods sold and delivered, I agree with Mr Lung’s submission that it suffices to plead those matters involving Acorp as per the Reply and Defence to Counterclaim.

23.I have also considered the other criticisms of the Kidde’s case such as the inconsistency of Lee’s role in negotiation with Etech and Acorp as between Lee’s evidence and the contents of a letter written by Kidde’s former solicitors, lack of documentation of the takeover of the goods sold to Acorp by Etech, and the inconsistency between the two witnesses for Kidde (Lee and his subordinate Nelson Liu).  I find all the inconsistencies are peripheral and do not affect my assessment of the credibility of the Lee and Liu.

24.For the above reasons and after weighing all the evidence before me, I accept the Kidde’s case and reject the Etech’s case. 

Conclusion

25.In view of my acceptance of the Kidde’s case and rejection of the Etech’s case, I make the following findings.  In September 2009, Etech agreed to take over the goods sold to Acorp under the 1^st and 2^nd Invoices and thus Etech subsequently drew the 1^st and 2^nd Cashier Orders to settle the said Invoices respectively.  Therefore the 9 invoices claimed in the present case remain outstanding.

26.Further, I accept that the letters dated 21 October 2009 and 13 November 2009 written by Liu on behalf of Kidde are contemporaneous documents with a view to giving credit to the excess payments of US$2.00 and US$500.00 by Etech’s two Cashier Orders.  After giving credit to the total excess payment of US$502, the outstanding sum of the claimed invoices should be reduced to US$65,298.30 (US$65,800.30 – US$502.00).

Costs

27.As I find in favour of Kidde, I do not see any reasons to depart from the usual rule that costs should follow the event.  The main dispute on costs is whether Etech should be ordered to pay costs of the discontinued counterclaim of the 1^st action and the 2^nd action on indemnity basis, as submitted by the counsel for Kidde.

28.Mr Shum for the Etech submitted that there is no evidence to suggest that Etech has commenced the counterclaim and the 2^nd action with ulterior motive, for improper purpose, or there being any underhand conduct or deception on the part of it.  I agree with Mr Shum that it lacks evidence to show that the counterclaim and the 2^nd action were initiated in bad faith.  Probably they are the result of bad legal advice.  No doubt Etech should bear the costs of both actions, but the proper basis of taxation for these two actions should be on party and party basis.

29.If necessary, the time taken up the 1^st action and the 2^nd action should be apportioned as 80% to 20%, as the 2^nd action was discontinued on the second day of the trial and most of the time of the first two days of the trial was spent on the issues of the 1^st action.

Order

30.For the reasons aforesaid,  I make the following order in DCCJ 1392/2011:

(i) judgment be entered in favour of the plaintiff for the sum of US$65,298.30 (or the equivalent amount in Hong Kong dollar at the time of payment) with interest at judgment rate from the date of the writ until payment;

(ii) the defendant’s counterclaim be discontinued; and

(iii) there be order nisi that costs of the whole action be to the plaintiff with certificate for counsel, to be taxed if not agreed on party and party basis.

31.In respect of DCCJ 2961/2011,  I make the following order:

(i) the action be discontinued; and

(ii) there be order nisi that costs of the whole action be to the defendant with certificate for counsel, to be taxed if not agreed on party and party basis.

32.Lastly, I wish to express my gratitude to Mr Shum for making sensible concession, saving the precious time and costs of the parties and to both counsel for their valuable assistance rendered to this court.

Mr Vincent Lung instructed by Messrs Hom & Associates for Kidde China Ltd and Lee On Man

Mr Kenneth KH Shum instructed by Messrs Simon Wong & Co for Etech Fire Ltd.

Please refer to HCMP1673/2014 for the relevant appeal(s) to the Court of Appeal.