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HCA 575/2011
C

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE

ACTION NO 575 OF 2011

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BETWEEN

FASTWAY TECHNOLOGY LIMITED

and

S.H.T. ELECTRONIC TECHNOLOGY CO. LTD.

Plaintiff

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Defendant

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Before: Deputy High Court Judge S T Poon in Court

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Dates of Hearing: 7 10, 13 October and 12 November 2014

Date of Judgment: 1 September 2015

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JUDGMENT
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BACKGROUND
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1.
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At the material times, the Plaintiff was carrying on the

business of developing technological products and the Defendant was a

manufacturer, with its associate factory situated in Mainland China. By

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this action, the Plaintiff claims against the Defendant for damages
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A
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allegedly caused by the Defendants failure to deliver goods on time and

refusal to produce the goods ordered. The Plaintiff also sues for damages

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for the Defendants refusal to return the Plaintiffs integrated circuit (IC)
components stored in the Defendants premises.
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2.
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The Defendant counterclaims against the Plaintiff for unpaid

purchase price.

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3.
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At trial, both parties were acting in person. The Plaintiff was

represented by Mr Rund, the owner of a US company Shake Awake LLC,

the sole director and shareholder of the Plaintiff. The Defendant was

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represented by Mr Tsang, a director of the Defendant.

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4.

Initially, both parties were legally represented. Before the end

of pleadings, the Plaintiff chose to act in person. At the PTR stage, the
Defendant also chose to act in person.

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5.

The parties respective cases, especially the Plaintiffs case,

were not presented satisfactorily in their witness statements, not to mention

in the pleadings. Besides, the parties witnesses did not focus on issues in
their oral testimonies and the documentary evidence exhibited was not
referred to in an organized way.

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6.

At trial, only Mr Rund gave evidence for the Plaintiff and two

witnesses, namely Mr Zhang and Ms Yang, both the then employees of the
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Defendant, gave evidence for the Defendant. However, Mr Tsang, who

was the most senior staff member involved in the dealings between the

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Plaintiff and the Defendant, did not give evidence or file any witness
statement.
7.

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The parties did not set out in detail the essential facts in the

witness statements. Mr Runds witness statement put too much emphasis

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on how unreasonable he thinks the Defendant conducted the present

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proceedings which is, in my view, not of assistance in determining the

issues in the present case. Similarly, the Defendants witnesses only set

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out briefly the basic facts without going much into the details.
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8.

After hearing the evidence of all the witnesses, I must say

none of them impressed me as a wholly reliable witness and some aspects

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of their testimonies obviously do not sit well with the documents or email
correspondences. With this observation, I resorted to dig out the facts from
the contemporary email correspondences between the parties at the
relevant time, that is, between February 2010 and September 2010, in
order to understand better the real issues between the parties and what led
to the present disputes.

THE PLAINTIFFS CASE

9.

The subject matters of this case concern 5 purchase orders 1

issued by the Plaintiff to the Defendant for manufacturing of the Plaintiffs

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products.
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1

P10-010 (incl.P10-017) & P10-011 dated 18 May 2010 and P10-013, P10-014 & P10-016 dated 20 June
2010.

A
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10.

The first two purchase orders (P10-010 (incl.P10-017) & P10-

011 dated 18 May 2010) were for production of the Plaintiffs Shake

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Awake alarm clock (SA3.2) and Triple-bel timer (1.12).

D
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11.

For SA3.2, in gist, the Plaintiffs complaint is that the

Defendant has mistakenly ordered a wrongly designed LCD for production

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of the alarm clock that rendered the redevelopment of a new IC necessary,

and the Defendant failed to place the order for the redevelopment in time

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that caused the delay in production.

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12.

Regarding 1.12, the Defendant has delayed in production and

refused the delivery of the goods.

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13.

The remaining 3 purchase orders (P10-013, P10-014 & P10-

016 dated 20 June 2010) were for the production of the Plaintiffs other
timers (model 1.7 and 1.10). The Defendant unilaterally refused to start
production notwithstanding deposits had been paid by the Plaintiff in
accordance with the parties contract.

The Defendant unreasonably

insisted on the Plaintiffs agreement to pay for the full purchase price
before delivery which is a variation of payment term of the agreement
governing the general terms of the contract between the Plaintiff and the
Defendant.

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14.

In the Plaintiffs case, a written agreement was signed by the

parties stipulating the general terms of the business relationship between

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them.

The agreement was dated 3 February 2010 and titled as

Manufacturing Agreement (MA).

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A
B
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15.

In relation to the Plaintiffs claim for the return of the IC

components, in April 2010, a large bulk of IC components was arranged to

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send to the Defendants warehouse in Shenzhen from the Plaintiffs

previous manufacturer which are still retained by the Defendant as at
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today.

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THE DEFENDANTS CASE

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16.
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The Defendant says the Plaintiff has never signed or returned

the MA and the terms in it are therefore not binding. The Plaintiff has
agreed, by Mr Rund, orally in a meeting to pay the full purchase price of

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the goods before delivery. Mr Rund has also orally agreed to conduct
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inspections on the goods before bulk production and delivery but he has
failed to do so.
17.

Concerning the products SA3.2, the delay of delivery was due

to the delay in the supply of IC by the Plaintiffs designated IC supplier

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and therefore it was the Plaintiffs responsibility.

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18.

For 1.12, the delay was due to the Plaintiffs failure to provide

packing information and conduct inspections. The Plaintiff also refused to

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pay the balance of the purchase price before shipment.

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The 3 purchase orders were cancelled because the Plaintiff did

not confirm its agreement to the proposed delivery date.

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20.
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The Defendant admits that they are still retaining the

Plaintiffs IC components but they are retaining them as a lien for the

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A
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unpaid purchase price. The Defendant also says that a small part of the IC
components were used in the production of the Plaintiffs products and the

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bulk is now of not much worth in value.

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THE EVIDENCE

21.

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The history of the present dispute can be gathered from the

email exchanges between the parties during the relevant period.

How the business relationship starts

22.

In late 2009, Mr Rund started communicating with the

Defendant by email, exploring the possibility of engaging the Defendant as

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the Plaintiffs manufacturer. It appears that the Plaintiff was then having
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issues with its previous manufacturer and trying to find a new one. After
some negotiations between Mr Rund and Mr Tsang, apparently by emails
and also in a meeting at a hotel in Shenzhen, the parties were interested to
develop an on-going business relationship.

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23.

In or about January 2010, Mr Rund sent to the Defendant a

draft written agreement for consideration.

As appeared in the email 2

exchange on 1 February, 2010, the Defendant proposed certain terms for

payment and the Plaintiff revised the draft agreement accordingly. The

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term of payment was revised to 30% deposit paid before production, 70%
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balance paid within 30 days after shipment. This is indeed the same term
as stipulated under the MA.

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P. 657.

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24.

The Defendant signed the revised draft agreement on

23 February 2010 and two original copies of the signed agreement were

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sent to the Plaintiff by courier, for signature and return .

D
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25.

On 2 February 2010, the Defendant, through Ms Yang

(Susan), gave quotations to the Plaintiff for production of the Plaintiffs

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timers by email4. The quotation has expressly excluded the price of the IC
and it was stated in the email that the IC was to be provided by the

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Plaintiff.
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26.

In between late February and early April, the parties discussed

through emails the production of SA3.2 and Series 1.12. In an email 5

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dated 7 April 2010, The Defendant gave the final quotes to the Plaintiff as
below:

Dear Richard,

Thanks for your kind email.

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We are glad of the start for SA and double time timer.

We are discussing with our LCD supplier now, we are checking
for the LCD sample time and truth table, and also the LCD cost,
we will feedback to you and Joy asap. Please noted.

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By the way, in order to clarify all details before our cooperation

and processing, could you confirm for us as below:

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1. Price for SA and double time 1.12:

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1.12 Unit price: USD2.65/2K, USD2.58/5K, USD2.52/10K

(FOB Shenzhen) Price term: do not include IC, based on
color box packing as sample;

SA Unit price: USD3.20/2K, USD3.11/5K, USD3.05/10K

(FOB Shenzhen) Price term: do not include IC, based on
blister packing as sample;

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See p. 786.
4
P. 780.
5
P. 788.

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2. Please advise the order quantity for first order for these two
model.

3. Payment term: 30% deposit be paid before production once

order confirmed, 70% balance should be paid within 30 days
after shipment. (SHT may delay shipment as the same
number of days that deposit payment delayed).

4. For IC of these two model, the price and payment you

discussed with Joy directly, we can help you to place order
and arrange payment to Fully Logic, it says the order is how
much money, then you transfer how much money to our
account according to the invoice from Fully Logic.

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Please confirm by returned email.

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Thanks with best regards.

Susan

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27.

Although no confirmation email from the Plaintiff can be

found in the email records as disclosed by the parties, there is no

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suggestion that those terms were not agreeable by any party. The names
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Joy and Fully Logic (Fully) were mentioned in the email. Fully
Logic was the company engaged by the Plaintiff for development of the IC

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and Joy was working at Fully.

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28.

It is noteworthy that the payment term expressed in the email

is the same as what was stipulated in the MA.

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29.

Yet, in an email6 from the Defendant to the Plaintiff on

23 April 2010, the Defendant proposed a different payment term. Ms Yang

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wrote:

Now we have problem of our floating fund, we would like to

request the payment term as: 30% deposit + 30% before

shipment + balance paid within 30 days after shipment.

P. 796.

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30.

However, the Plaintiff did not agree. In reply to this specific

request, Mr Rund made the following remark7:

Susan, we have an agreement. Are you now not honoring this?
This is not a good sign!

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31.

There was no mentioning on the payment terms on

correspondences until the Plaintiff issued the 2 respective purchase orders,

namely F10-0108 and F10-0119, both dated 18 May 2010. It was printed

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under the column Terms the words 30% Deposit, Balance 30 days.
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The only reasonable interpretation of the words is that a 30% deposit is to

be paid then and the remaining balance of 70% purchase price is to be paid

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within 30 days from shipment, which is the same payment term as in the
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MA.

The MA and the alleged oral agreement on payment terms

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32.

It is to be noted here that, as pleaded in the Defendants Re-

Amended Defence, on or about 17 May 2010, Mr Rund agreed in a

meeting with Ms Yang that the payment term be changed to 30% deposit
before placing the orders and paid 70% of the purchase price before final
shipment. Mr Rund denied he has ever agreed to change the payment
term.

33.

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There was no mention of this alleged change of payment term

in any email correspondences or otherwise between the parties. Except

that in the proforma invoices10 issued by the Defendant, such payment term

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was stated.
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P. 796.
P. 663.
9
P. 664.
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PP. 924 to 925.
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34.

I am unable to accept there was such an oral agreement to alter

the payment terms. There has been many email exchanges between the

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parties during the relevant period and there was simply no reason for the
parties not to mention at all such changes. The reason given by the
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Defendants witnesses for insisting on such changes was that they learnt

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from others that the Plaintiff has a poor record of honoring payment. In
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that case it would be all the more important to document such an

agreement to prevent Mr Rund from not honoring his words.
35.

The Defendant had proposed the change of payment terms,

which was less favorable than the final terms agreed by the Plaintiff as

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they alleged, because they have problem of their floating fund. And that
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was rejected by the Plaintiff. It would be strange that the Plaintiff would,
without reason, agree to a change much disadvantage to him after a month.
36.

I find as fact that there was no such oral agreement to change

the payment terms as alleged by the Defendant.

37.

As mentioned above, it is also the Defendants case that the

MA was not binding as is has never been signed and returned by the
Plaintiff.
38.

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First of all, the purpose of the MA was to govern the general

contract terms between the parties. It does not oblige any party to place

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any particular order or accept any particular order. Each order shall be
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treated as a separate contract between the parties and there can be different
terms on any aspect provided that such terms are agreed by the parties.

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The function of the MA was to provide the usual terms such that the parties
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are not required to negotiate each and every time when there is a new
order.
39.

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Therefore, if there is a term agreed upon by the parties in

respect of a particular order which is inconsistent with the terms under the

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MA, the newly agreed term is still valid. The relevance of the MA is
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limited to this extent.

40.
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Ms Yang gave evidence that she has reminded Mr Rund to

return the signed MA many times but he did not respond. Mr Zhang said
the Defendant could do nothing but to ignore the MA.
41.

I do not believe. Apart from the email informing the Plaintiff

that the Defendant was to send the signed original copies to them, there is
no other email sent by the Defendant asking the Plaintiff to return the
signed copy.

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42.

Mr Rund had in the emails referred to the terms agreed under

the MA and the Defendant had never suggested the MA being not binding,
until after the disputes arose.
43.

I find it is more probable that Mr Rund had signed and

returned the MA to the Defendant. Even if Mr Rund had not done so, I am
of the view that the parties had intended that the MA was to be binding

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upon them, at the time when the Plaintiff received the signed MA from the
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Defendant, or soon thereafter.

Causes of the delay

44.

Pursuant to purchase order PO-10-010, the Defendant is to

produce 12,000 units of the Plaintiffs 1.12 timer at a price of USD2.48

each. The shipment date is 17 July 2010. As for purchase order PO-10E
F

011, the Defendant is to produce 10,000 units of the Plaintiffs SA3.2

alarm clock at a price of USD3.24 each. The shipment date is also 17 July

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2010.
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45.

As at 3 June 2010, the production status of 1.12 and SA 3.2 is

reported by the Defendant as follows:

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Dear Richard,
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The production status as below:

1. 1.12 LCD sample will be ready at June 5, we will approve before
June 8, the production will be finished at July 8. SA3.2 LCD
production will be ready at July 5. Please noted.

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2. IC: SA3.2 IC will be ready at June 16, 1.12 use FTL stock MS-1130.
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3. We agree to pre-produce for PCBs and loaded with components, we

are preparing components now, we plan to start production for PCBA
(as bonding welding and mounting) at July 3. We think July 17 is the
earliest delivery time, because of this is the first mass production,
there may be some problem and with high defects, we need time for
assemble, for quality control and QC etc.
4. Plastic part: This morning, regarding payment term, you confirmed
that you will sort it out with NS later, and requested us order from
NS for this order. We will place order to NS tomorrow, Steven visit
NS this afternoon, and we will confirm the plastic delivery with NS
asap.
5. Battery: Please confirm if you need battery with Ibon logo or not for
this two order (1.12 F10-010 & SA3.2 F10-011)? If not, we will use
East Power Carbon battery.
6. Plastic printing: please advise the plastic case silk printing both for
order 1.12 F10-010 & SA3.2 F10-011.

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7. Packing: Please send us the artwork for the color box for order 1.12
F10-010 & SA3.2 F10-011. Prices for these two order are based on
printed color box packing.

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We are looking forward to your confirmation.

D

Thanks with best regards,

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Susan

46.

11

On 8 June 2010, Ms Yang informed Mr Rund by email that

there was a problem on the LCD production by the LCD supplier, the
delivery date on 17 July 2010 has to be delayed.
47.

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On 15 June 2010, Ms Yang advised Mr Rund by email 12 that

the updated delivery date for 1.12 and SA3.2 is 30 July 2010. In the same

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email, Ms Yang also advised that the delivery date for products 1.7 and
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1.10 is 70 days after order confirmed.

48.

The new delivery dates were eventually accepted by Mr Rund.

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49.

Regarding 1.7 and 1.10, Mr Rund had once requested the

Defendant to explore other LCD suppliers for a shorter production time.

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However, Ms Yang advised that the production time given by the present
supplier (Baosheng) is already the shortest one.

By an email 13 dated

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16 June 2010, Mr Rund told the Defendant to go ahead with the order.
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50.

On or about 20 June 2010, the Plaintiff sent by email the

purchase orders of 1.7 and 1.10 to the Defendant. But there was no
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company chop bearing on it. Mr Rund advised in the email that he will
11

P. 811.
12
P. 816.
13
P. 818.

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chop the purchase orders later and explained that the chop is only required
to prevent his staff from issuing unauthorized purchase orders.
51.

In late June 2010, Mr Rund inspected the LCD sample for

production of SA3.2 and discovered that it has a 6-digit display, which is

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incompatible to the IC developed by Fully which is intended for a 4-digit

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LCD. In an email14 dated 30 June 2010 to Ms Yang, Mr Rund wrote:

Hello Susan,
It was always intended that SA would have a 4-digits LCD. We
could accept the mistake of preparing a 6-digits LCD if the
accuracy of seconds could be set in a user friendly way. Due to
limitations in the design of the software this is not possible. If it
was intended by SHT that 6-digits would be used there should
have been a provision in the software for the setting of seconds.
We are close to being out-of-stock on this item. Please advise
best solution.

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2. Please confirm delivery time tomorrow of packaging

(inner/outer boxes plus 2500 ea. White boxes w/label, lenses and
AG13 batteries.

3. To avoid a repeat of the SA3.2 LCD mistake, please send

drawings of 1.12 and 1.7 LCDs.
With thanks,

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52.

On 1 July 2010, Ms Yang replied15 by suggesting to re-develop

the IC instead of ordering new LCDs to avoid further delay, and that the
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parties are to share the additional costs incurred:

Dear Richard,

Attached please check the drawing for 1.12 LCD production.

Please confirm.

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14

15

P. 820
P. 821

For 1.7 LCD, we have not start for this model as we have not
received your official purchase order with your sign & company
chop. Please noted.

For 77.24 packing material, we have sent to your HK office this

afternoon, you will received tomorrow, please noted.
For S3.2 LCD, We have checked with Baosheng today, they said
the production (10Kpcs) nearly finished, already cutted, printed,
only the liquid crystal have not filled in. Also attached please
find the LCD drawing from Baosheng for this model, please
check.

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We would like to advise:

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1.

Could you advise that for future SA3.2 orders, you will
make LCD 4 digits or 6 digits, if future use 6 digits then it is
not sensible that make a new 4 digits LCD now.

2.

We think make a new IC (6 digits and second can be set to

zero when alarm or timer mode) is the better way, as make
new IC only need 25- 30 days, we can arrange shipment for
SA3.2 at Aug 10, but in this way, need to pay masking cost
RMB10000.00, and need to order 10K IC again, the finished
10K IC can be used for future 1.12 orders.

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3.

If you want to have SA3.2 with 6 digits in future, you still

must to re-masking again, because of the second now cannot
be set to Zero.

4.

We would like to suggest, that both S.H.T and FTL share the
responsibility of the mistake for SA3.2 LCD together.

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We are looking forward to your comments.

O

Best Regards,
Susan

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53.

It is noted that in this email, Ms Yang also informed Mr Rund

that the Defendant has not started preparing production for 1.7 and 1.10

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because the purchase order sent by the Plaintiff did not bear a company
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chop. In response to this Mr Rund wrote16:

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16

P. 823

1.7 - [It] is no[t] acceptable why this LCD was not ordered or
why you did not mention to me that you were holding production
pending a chop. I explained to you in email that the chop was
required only if a[n] employee was issuing a PO to SHT. Even
so, if this is the reason you held production why did you not ask
me to chop the PO when I was in your office last week?

E
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54.

I share Mr Runds sentiment that waiting for a chop should

not be the real reason for withholding production. Mr Rund has expressed
to the Defendant many times in emails that he needs the 1.7 timers
urgently for supply to his customers in the U.S. Mr Rund has also made
clear that the chop was required only to prevent his staff from issuing
unauthorized orders.

It is absurd that the Defendant would withhold

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production only to wait for the chop.

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55.

In fact, on 9 July 2010, without waiting for the Plaintiffs chop

on the purchase orders, the Defendant acknowledged the Plaintiffs orders

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for 1.7 and 1.10 and asked for payment of 30% of the purchase price as
deposits.

In the same email 17, the Defendant attached the proforma

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18

invoices for the orders. The payment terms under the proforma invoice
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are different from the MA in that the 70% balance of purchase price shall
be paid before shipment.
56.

On 12 July 2010, Mr Rund sent an email 19 to the Defendant,

complained about the lack of project management on the Plaintiffs orders:

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Dear Susan, Steven, and John,

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I came to your office last week to seek a solution to the lack of

project management of FTLs production because of several
unnecessary errors and oversights. It is very rare that I will send

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17

P. 825
18
PP. 568 and 569.
19
P. 826

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a message flagged as HIGH IMPORTANCE! so please pay

attention to what has happened.

I placed orders with SHT for 1.7 and 1.10 on 20 June 2010 with
delivery confirmed for 29 August 2010. I explained the urgency
of these orders and advised FTLs customers of this ship date.
As you know, SHT had made a serious error ordering the LCD
for SA3.2. When I discovered this last week (or the week before,
I forget) I asked SHT to also provide the drawings for 1.12, 1.7
and 1.10 to make sure errors were not repeated.

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F

To my shock, I discovered that no effort was made to even order

LCDs for these orders. Not only that, but no drawings have even
been prepared. I am now told that delivery will be delayed again
because of this but ship date is still not confirmed.

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It will be necessary now to airfreight these orders to my

customers. Please advise how SHT will handle this necessity and
what procedures will be put into place to prevent these errors
from happening in the future.

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Regards,
K

Fastway Technology Ltd.

57.
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It is apparent from the above email that at that point of time

the relationship between the parties has deteriorated. In my view, it is

attributable to, on one hand, Mr Rund was desperately eager to ascertain

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the shipment dates of the goods ordered so as to ease his clients concern
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but, on the other hand, the Defendant was reluctant to proceed further, in
particular the production of SA3.2 and 1.7 and 1.10, without having the

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Plaintiff first committed to bear half the responsibility of the mistake made
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on the production of the LCDs and to pay the 30% deposits for the new
orders.
58.

In response to Mr Runds email20, the Defendant reiterated that

they were waiting for the Plaintiff to put their chop on the purchase orders
20

P. 826 to 827.

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and indicated that they will start production only after receiving the 30%
deposits.
59.

B
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In the subsequent email exchanges, Mr Rund queried why the

Plaintiff has to bear any costs for the re-development of the IC and pressed

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on with the Defendant for confirmation of delivery dates.

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60.

On 14 July 2010, the Defendant wrote to the Plaintiff:

This morning John inform me that your request and worrying.

Also herewith I would like tell some my worrys.

For SA3.2 order, we are preparing the material and production,

but have stopped prepare material for production now as the
revised IC have not confirmed. We think we are not in the
position to confirm the function of IC.
Please contact and confirm with Joy, Johnson told me yesterday
Joys engineer said they also not clear about your requirements,
they also has doubts. Our delivery is depend on the delivery of
IC and plus our production time. I understand your worrying but
production is production we will do our best to avoid any
mistake. Also I would like ask your confirmation of share the
masking cost for 10K new IC.
For 1.12, we are preparing to start the production soon. Still we
are wait many information that also worrys me that our
production can not produce whole quantity and may produce
some quantity and stop wait for information and packing, and
make some quantity stop again that will cause the increasing of
production cost.
For 1.7 and 1.10, We feel there are so many problem happened in
1.12-SA3.2 orders. My people are under very big pressure. I
would like suggest you to move the order to other vendor and we
can concentrate on 1.12 and 3.2 and finish it successfully, and in
this period we can fix the problem between us. That may be good
for both of you and us and also good for customer.
Thanks with best regards.
Steven

I
J
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A
B
C

61.

At this point, the Defendant has stopped preparing the

production of SA3.2, awaiting for the issue of who should bear the
additional costs for the new IC to be resolved.

For 1.7 and 1.10,

notwithstanding purchase orders were issued and proforma invoice was

E

sent (on 9 July 2010), the Defendant suggested the Plaintiff to engage a

D
E

different manufacturer.
F
G

62.

Mr Rund replied21 on the same day, reminded the Defendant of

the Plaintiffs commitment to its clients to deliver, and asked the

H

Defendant to take the responsibility and start the productions.

H
I

63.

On 15 July 2010, the Defendant replied:

Dear Richard,
K

For SA3.2, we do not want to make the problem so complicated,

and do not want to discuss who should take the responsibility.

We will pay the masking cost for revised IC, But we need you
promise that you will use out the finished 10K SA/double:time
IC for future 1.12 orders, and send us a letter of guarantee.
Please confirm.

M
N
O
P
Q
R

M
N

For 1.7 & 1.10, we are sorry, as really our team are under very
big pressure, and we are afraid if will make mistake again as
many information are not clear even shipment is coming. Please
move the order to other vendor and we will concentrate on 1.12
and 3.2. We think that may be good for both of us.

Steven

For SA3.2, we have stopped prepare material for production, our

delivery time is depend on the delivery of revised IC, we need
10 days at least for production, please contact and confirm with
Joy for IC directly.

Thanks with best regards.

Q
R
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21

P. 837.

A
B
C

64.

The Defendant has in this email agreed to pay the masking

cost for the new IC but subject to the Plaintiffs guarantee to use up the
mistaken IC for 1.12 before using the Plaintiffs stock.

F
G

someone else.
65.

Again, the

Defendant asked the Plaintiff to move the orders for 1.7 and 1.10 to
E

D
E

Mr Rund replied22 informing the Defendant that the technical

details of the new IC for SA3.2 has been confirmed with Joy. He also told

F
G

the Defendant that he has no time to find another manufacturer for 1.7 and
H
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1.10. By another email 23, Mr Rund indicated his intention to use up the
existing stock of IC for 1.12 before using the mistaken ones.
66.

In reply, the Defendant insisted on having the Plaintiffs

guarantee to use up the mistaken IC first before paying the masking cost
for the new IC. Meanwhile, the Defendant asked the Plaintiff to withhold
payment of deposits for the 1.7 and 1.10 orders.

M
N
O
P
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J
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L
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67.

On 18 July 2010, Mr Rund informed the Defendant that he has

paid the 30% deposits for the 1.7 and 1.10 orders. In the email, Mr Rund
reminded the Defendant the parties obligations under the MA.
68.

On 19 July 2010, the Defendant acknowledged the payment

by email and gave a delivery time of 15 October 2010.

They also

requested that the 70% balance be paid before delivery as the economic

P
Q
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situation is not good now, many of their suppliers request cash before
S

delivery.

T
22

23

P. 839.
P. 839.

A
B
C

69.

and Mr Rund duly provided the same.

70.

Meanwhile, the Defendant asked for packing details for 1.12

On 20 July 2010, the Defendant informed 24 the Plaintiff that

they are further checking the delivery time for 1.7 and 1.10 and asked the

B
C
D
E

Plaintiff to confirm paying the 70% balance before delivery.

F
G

71.

Mr Rund replied25 the next day that the change of payment

term is not acceptable and reminded the Defendant they have a written
H

contract.

72.
J

On 21 July 2010, the Defendant sent 2 emails to the Plaintiff

J

as follows:

Dear Richard,
As our proforma invoice indicated, we already requested that
70% balance should be paid before shipment. In fact, as we told
you, the economic situation is not good now, many of suppliers
request cash before delivery, they also change the payment term
with us, we have pressure and we have no way, please noted.

L
M
N

From July.14 we told you, for 1.7 and 1.0, We feel there are so
many problem happened in 1.12 and SA3.2 orders. Our people
are under very big pressure. And we suggested you to move the
order to other vendor. On July.15, we sent email to you and ask
you hold on the payment for 1.7 and 1.10 deposit, we really
afraid we will make mistake again.

O
P

We have not start for 1.7 and 1.10 production, we will return you
the deposit, please advise your bank information.

Thanks and regards.

K
L
M
N
O
P
Q
R

Steven
S

T
24

25

P. 848.
P. 848.

Dear Richard,
For 1.12 delivery, as Susan talked with you in recently email, and
she prepared an excel form that show 1.12 order details to you,
the delivery time we always say is July 30.2010.

C
D

We have to tell you two questions now we have:

E

1. LCD delay, Today Baosheng told us the LCD will be

delivered at End of July, not as original plan July.23, please
noted.

2. As you confirmed with Susan for the plastic case imprint at

last meeting at July.8 and July. 9, then we requested NS to make
plastic sample for each logo, the samples was not ok first time
and we requested them make again, but their progress seems a
little slow, till now, we have not received OK samples for your
approval, please noted.

G
H
I

Now we estimate the 1.12 delivery time will be around

Aug.10.2010, please noted.

For 1.12 carton packing quantity, I ask susan to sort out for each
customer and prepare a excel document to you for your final
confirmation.

Thanks with regards.

E
F
G
H
I
J
K
L

Steven
M
N

73.

In the first email, the Defendant drew to Mr Runds attention

that the payment term printed on the proforma invoice for 1.7 and 1.10 is
O
P

to pay the 70% balance before delivery. The Defendant reiterated its
reluctance to receive the order for 1.7 and 1.10 and indicated that they are

O
P

to return the deposits to the Plaintiff.

Q
R

74.

Regarding the second email, the Defendant informed the

Plaintiff of the probable delay of delivery for 1.12 and SA3.2. NS was
S
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the outsourced supplier of plastic casings.

10 August 2010 was given for 1.12.

A new delivery date of

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A
B
C

75.

On 28 July 2010, Mr Rund replied to the emails, stressed

again that his customers are desperately in need of the 1.7 and 1.10 timers.

B
C

In reply to the second email, Mr Rund said that Boasheng is a vendor for
the Defendant to manage and the shipment of 1.12 is required to leave in
E
F

the end of July.

76.

Dear Richard,
For 1.7 & 1.10, as we sent email to you on July 21, we told you
our situation and thoughts, but we do not receive your reply, we
thought you may cancel the order for 1.7 & 1.10, we have not
started for anything, please noted.

H
I

For 1.12, LCD will deliver to us at July 31, as our production

schedule, the production will be finished at Aug 10 2010, now
we only worry about the plastic parts, NS will send us samples
tomorrow, we will take photos to you for approval once we got
them. And NS told us, every Monday, Wednesday, Friday, their
factory run out of power, please noted.

J
K
L

For SA3.2, we will confirm with Joy asap.

Thanks with best regards.

Steven

N
O
P
Q

On 29 July 2010, the Defendant wrote26:

77.

For 1.12, due to the late delivery of the LCDs the Defendant

gave a new delivery date of 10 August 2010, as oppose to the original date
of 30 July 2010. Besides, there is also a possible delay on the production
of the plastic casings.

F
G
H
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N
O
P
Q

Having received this email from the Defendant, Mr Rund sent

4 emails27 to the Defendant in a single day, all in bold letters, asking the

S
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26

78.
S

27

P. 854.
P. 855 to 856.

A
B
C

Defendant to confirm whether they will produce 1.7 and 1.10 and to
confirm the shipment date of SA3.2.
79.

On 30 July 2010, the Defendant asked28 Mr Rund to confirm

whether he will accept paying 70% balance before delivery and delivery

B
C
D
E

date on 20 October 2010 for 1.7 and 1.10. Meanwhile, the Defendant also
F

asked for inspection instructions for 1.1229.

80.
H
I

In reply30, Mr Rund reminded the Defendant the terms in the

MA and expressed that the delivery date of 1.7 and 1.10 should be
29 August 2010. Obviously, Mr Rund has counted 70 days from the date

H
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of the purchase orders to work out the delivery date.

J
K
L
M
N

81.

On 2 August 2010, the Defendant sent 3 emails31 to the

Plaintiff concerning 1.12, SA3.2 and 1.7 (and 1.10) respectively.

82.

In relation to 1.12, the Defendant confirmed that the goods

shall be available for inspection on 10 August 2010. In the mean time, the
Defendant asked for shipping instructions from the Plaintiff.

O
P
Q
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L
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83.

Regarding SA3.2, the Defendant complained that Joy (Fully)

requested them to pay not only for the masking cost now, but also for the
balance of the price of the mistaken IC, together with 30% deposits for the
price of the new IC. The Defendant said this would be unfair to them.

S
T

P
Q
R
S

28

P. 856.
P. 857.
30
P. 857.
31
P. 859 to 860.
29

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A
B
C

84.

For 1.7 and 1.10, the Defendant explained again they need

cash to pay for the materials and therefore they need to change the

B
C

payment term. The Defendant also said that the Plaintiffs products are
complicated and the instructions given are not clear. They do not want
E

similar mistakes on the SA3.2 LCD to happen again and do not want to

D
E

process too many models of the Plaintiff at the same time. As regard the
F
G

delivery date, the Defendant reiterates that the purchase orders of the
Plaintiff do not bear any company chop and therefore the delivery date

F
G

should not be 29 August 2010. In the end, the Defendant insisted on the
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payment of 70% balance before delivery and 20 October 2010 as the

delivery date.
85.

In reply32, Mr Rund said Fully is the Defendants vendor and

the Defendant is obligated to pay for the IC as required.

86.

On 4 August 2010, the Defendant confirmed33 the delivery

date of SA3.2 as 25 September 2010.

87.

On 6 August 2010, the Defendant informed the Plaintiff that

the inspection for 1.12 has to be postponed to 16 August 2010 due to the
delay on the part of NS for production of the plastic parts.
88.

On 9 August 2010, the Defendant advised 34 again that the

soonest date of delivery for SA3.2 is 25 September 2010 and asked the

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Plaintiff for acceptance. The Defendant stated that they will not start
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32

P. 861.
33
P. 862.
34
P. 867.

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A
B
C

production without the Plaintiffs acceptance of the new delivery date.

The Defendant also indicated that they are looking for another IC supplier.

B
C

In relation thereto, Mr Rund replied35:

Delivery of 25 Sept is unacceptably late but you offer no

acceptable alternative for FTL and its customers.

Delivery of 1.12 is delayed again. This is unacceptable.

Goods must now be sent by airfreight. What do you believe is

SHTs obligation to compensate FTL for late delivery?

IC SHT has not sent correspondence from Joys company, as

required.

89.

SHT does not have the right to source this component from any
other source.

I
J

And in another email:

SA3.2 delivery. Delivery is needlessly late, and without

justification. Delivery date was confirmed 3 days ago. FTL has
no choice in this matter. SHT received and accepted FTLs
deposit, confirmed delivery and has repeatedly failed to ship on
time.

L
M
N

K
L
M

90.

On 11 August 2010, the Defendant wrote36 to the Plaintiff,

saying that the Plaintiff has confirmed the delivery date of 25 September
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2010 for SA3.2. In reply to this, Mr Rund asked 37 the Defendant to

confirm they have ordered the IC from Fully.
91.

On 12 August 201038, the Defendant confirmed again

inspection on 1.12 can be made on 16 August but part of the orders (P10017) is not included.

O
P
Q
R

In reply, Mr Rund asked why P10-017 is not

included and mentioned about 4,000 pieces of 1.12 must be shipped by air.

35

P. 867.
P. 869.
37
P. 871.
38
P. 870.
36

A
B
C

92.

On 16 August 201039, the Defendant expressed that as the

contract is on FOB basis, they will not be responsible for any airfreight

B
C

charges.
D
E

93.

On 23 August 2010, a meeting was held between the parties at

the Defendants premises to discuss the way forward. After the meeting,
F

Mr Rund wrote40:
--------------------------------------Location: SHT/Hui Cui office.

In attendance:
Richard Rund
Steven Zhang

H
I

SA3.2 SHT confirms it has not ordered IC necessary to

complete order of SA3.2 even though SHT confirmed to FTL
this component has been ordered., originally scheduled for
shipment on 17 July and delayed several times. SHT ceased
production and will not honor purchase orders received from
FTL and confirmed by SHT.

J
K

1.12 SHT refuses to allow for shipment of goods already

made and for which shipping instructions were requested.
Goods on Packing List were not complete, as advised.

L
M

Order given 18 May 2010. Shipment confirmed for 17 July

2010. Deposit for plastic parts not given to Ngai Shing until
end-July. SHT cannot produce receipt for deposit.

SHT refuses to ship goods as contracted and refuses to honor

terms and conditions of the Manufacturing Agreement entered
into with FTL.

O
P
Q

FTL requested solution to continuing problems with delivery.

SHT only replied that FTL should accept another delay in
shipment.

SHT refused to pay airfreight necessary due to delay of

shipment.

S
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94.
39

P. 872.
40
P. 627.
41
P. 627.

And the Defendant wrote41:

F
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Re: Meeting on 23 August 2010

SA3.2 You did not confirmed as we requested at August 18,

order delay is due to IC factorys mistake.

Payment: As per our proforma invoice dated on May-18-2010,

#100518-105, you paid deposit to us, the balance should be paid
before shipment.

Steven

Yesterday we inform you, you can go to our factory for

inspection. We have sent you inspection procedure in Chinese
two weeks ago, and we promised you we will translate into
English when you come for inspection, yesterday afternoon, we
already sent you English version.

Dear Richard,

1.12 We did not refuse shipment. We have informed you to

come for goods inspection, we asked you when you will come
for inspection, but you did not reply us.

95.

On 5 September 2010, Mr Rund sent an email 42 to the

Defendant giving notice to the Defendant to cancel all the purchase orders.

E
F
G
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DISCUSSION
N
O
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Series 1.12
96.

As can be seen from the notes prepared by Mr Rund after the

23 August meeting, the Plaintiff accused the Defendant of refusing to

O
P

allow shipment. On the other hand, the Defendant said they did not refuse
Q

shipment and it was the Plaintiff who refused to go for inspections.

R
S

97.

At that point of time, the Defendant has no complaint against

the Plaintiff for giving late instructions on packing details.

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S
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42

PP. 874-875.

A
B
C

98.

As per the purchase order, the original scheduled delivery date

is 17 July 2010. By consent, the delivery date has been postponed to

B
C

30 July 2010. The delivery date was further postponed due to the delay on
the part of NS in supplying the plastic parts. The date of inspection on
E
F
G

16 August 2010 was subsequently confirmed.

99.

It is the Defendants case that the Plaintiff is obliged to

conduct inspection before shipment as agreed orally in a meeting. In

D
E
F
G

Mr Zhangs evidence43, he said Mr Rund sent him emails on 20 August

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N
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2010 and 28 August 2010 requesting that the 1.12 timers be shipped
immediately but without indicating when the inspection would take place.
100.

However, there is nowhere in the MA obliging the Plaintiff to

conduct inspection before shipment.

There is no mention of such an

obligation, allegedly agreed orally, anywhere in the email correspondences

between the parties.

Similar to the Defendants allegation of an oral

agreement as to payment terms, I am unable to accept that there was an

oral agreement between the parties that the Plaintiff must conduct an
inspection of the goods before shipment. The Defendant has no right to
insist on an inspection by the Plaintiff before shipment.
101.

I note that the on the proforma invoices sent by the Defendant

to the Plaintiff the payment terms stated was consistent with the Defedants
alleged terms. However, in consideration of the parties conduct and the

H
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N
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email correspondences, I view that the terms stated therein do not reflect
S

the intention of the parties and shall have no effect whatsoever. Nowhere

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43

Paragraph 19 of witness statement.

A
B
C

in the parties correspondences had the Defendant ever drawn to the

attention of Mr Rund these terms.
102.

In the evidence of Ms Yang44, Mr Rund has confirmed all the

revised packing details of 1.12 on 11 August 2010. Any delay of shipment

B
C
D
E

thereafter cannot be attributable to the alleged late provision of packing

F

information on the part of the Plaintiff.

103.
H
I

As I found under paragraph 36 above in this judgment, the

payment term under the MA has not been changed by any subsequent
agreement. The Defendant has no right to demand the Plaintiff payment of

H
I

the 70% balance of purchase price before shipment.

J
K

104.

I find the Defendant in breach of contract by refusing to

deliver the 1.12 timers as requested by the Plaintiff.

L

SA3.2

105.

In the email of the Defendant after the 23 August meeting, the

Defendant accused the Plaintiff of not confirming the new delivery date of
O

25 September 2010. The Defendant also blamed Fully for the delay.

106.
Q
R

In my view, the Defendant should bear the responsibility of

the mistake made by the LCD supplier to have produced a 6-digit, rather
than a 4-digit LCD. As can be seen from the email correspondences

Q
R

between the parties, it has been all along their understandings.

S

44

Paragraph 24 to 25 of witness statement.

A
B
C

107.

Mr Zhang in his evidence said that there was an inherent

defect in the IC that rendered the re-design of the IC necessary in any

event.

F
G

wrong LCDs. This is evidenced by email correspondences.

108.

However, the re-design or redevelopment of the IC was a

suggestion from the Defendant as a solution to the problem created by the

E

I find that the redevelopment of a new IC was resulted from

the wrong production of the LCDs. Owing to their reluctance to pay for

D
E
F
G

the costs requested by Fully, the Defendant has delayed in confirming the
H
I
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K
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M
N
O
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order for the redevelopment of the new IC that caused the delay in the
production of SA3.2.
109.

As evidenced by the emails correspondences and skype

communications between the Plaintiff and Fully and as what was stated in
Mr Runds notes on the 23 August meeting, the Defendant has never
confirmed the order for the new IC with Fully. Even if the Plaintiff
accepted the 25 September 2010 as the delivery date, the Defendant could
not realistically finish production in time.
110.

The Defendant was in breach of contract and liable to the

Plaintiff for damages.

H
I
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K
L
M
N
O
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1.7 and 1.10 (PO 10-013, 014 and 016)

111.

The main issue for consideration regarding these purchase

orders is whether any contract between the parties has ever been

concluded. If there is no contract concluded, the Defendant shall not be in

T
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breach in not producing 1.7 and 1.10. As I mentioned above, the MA

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A
B
C

governs the general terms of the parties contracts, it does not oblige the
Defendant to accept every purchase orders placed by the Plaintiff.
112.

The purchase orders of 1.7 and 1.10 were issued on 20 June

2010. Although the orders do not bear the Plaintiffs company chop, the

B
C
D
E

Plaintiff has made it sufficiently clear that it is not required as the orders
F
G

were made by Mr Rund himself. In any event, Mr Rund had indicated that
he will affix the company chop later. The purchase orders shall not be

F
G

invalidated by the fact that they do not bear a company chop.

H
I

113.

At the time the Defendant received the purchase orders,

Mr Rund had already indicated agreement to the Defendants proposed

J
K
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M
N
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P
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delivery date, and told the Defendant to go ahead with production. There
was no mention of any alteration on specific terms and therefore the
general terms under the MA shall be applicable.
114.

As mentioned under paragraph 55 hereinabove, the Defendant

had on 9 July 2010 acknowledged receipt of the purchase orders,

apparently after the Plaintiffs complaint on the Defendants unreasonable
insistence on a company chop.
115.

However, the invoice for the orders was attached to the email

and what is material is that the payment terms on the invoices are different
from the general terms under the MA. But what is equally important to

J
K
L
M
N
O
P
Q
R

note is that the Defendant did not mention these terms in the email itself,
S

similar to the situation for the invoices of 1.12 and SA3.2.

A
B
C

116.

In my view, at that point of time contracts had been concluded

in respect of the purchase orders for 1.7 and 1.10. Similar to my finding

B
C

on the effect of the payment terms stated on the invoices for 1.12 and
SA3.2, they do not represent the intentions of the parties and shall be
E
F
G

ignored.
117.

D
E

As the contracts have been concluded the Defendant cannot go

back and seek to alter or impose other terms. The delivery date shall be, at

F
G

the latest, 70 days after payment of 30% deposits and the balance shall be
H
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J
K
L

paid within 30 days after delivery, pursuant to the payment terms under the
MA.
118.

H
I

The clear indication on the part of the Defendant to return the

deposits to the Plaintiff was a repudiatory breach of the contracts and the
Plaintiff had accepted it by its email on 3 September 2010.

J
K
L

Detained goods

119.

There is no unpaid purchase price owed by the Plaintiff to the

Defendant and there can be no lien on the goods exercisable by the

Defendant. The Defendant has been in conversion or wrongful detention

P
Q

of the Plaintiffs IC components by refusing to return the same upon the

Plaintiffs request.

P
Q
R

DAMAGES
S

120.
T
U

With my findings above, the Defendant is liable to pay

damages to the Plaintiff for breach of contract and conversion of the

Plaintiffs goods.

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A
B
C

121.

respect of the subject 5 purchase orders.

122.

The Defendant is to repay all deposits paid by the Plaintiff in

B
C

The Defendant has all along been aware of the fact that the

goods ordered were for resale to other distributors in the U.S. for profits.

D
E

It is within the real contemplation of the Defendant that its breach will lead
F

to loss of profits in respect of the 5 purchase orders placed by the Plaintiff.

123.
H
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K
L
M
N
O
P
Q

There is however insufficient information in the Plaintiffs

evidence regarding the assessment of the loss of profits of the purchase

orders to enable me to assess this head of damages.
124.

The Plaintiff also mentioned about the damage to his business

following the Defendants breach of contract. I am not convinced that the

fall of the Plaintiffs business was a direct result of the Defendants breach
and in any event, this is too remote for the Defendant to be liable for
compensation.
125.

J
K
L
M

I accept Mr Runds evidence that the IC components worth

much more in 2010 than the present days as electronic components tend to
become outdated rapidly with time. In the circumstances it would be
unfair to the Plaintiff if the Defendant is required only to return the IC
components.

N
O
P
Q
R

126.

H
I

R
S

45

Mr Rund has compiled a valuation list for the goods and

I accept it as the value of the goods at the relevant time. The total value of
the goods amount to HK$2,009,882.
45

PP. 681-682.

S
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COUNTERCLAIM

127.

In view of my above findings, the counterclaims shall be

dismissed.
E

D
E

ORDER

128.
G
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The Defendant is to refund to the Plaintiff all the deposits in

the sum of US$25,918.50 or its Hong Kong Dollar equivalent at the

exchange rate as at today and interest therein.
129.

The Defendant is to pay to the Plaintiff HK$2,009,882 as

damages for conversion of the Plaintiffs goods and interest therein.

130.

Interest of the above sums be calculated at 4 % per annum

from the date of the writ of summons until judgment and thereafter at 8 %

G
H
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per annum until payment.

M
N

131.

An order nisi that costs of these proceedings be to the Plaintiff

to be tax if not agreed.

O

(S T Poon)
Deputy High Court Judge
Court of First Instance

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U

The Plaintiff appeared in person

The Defendant appeared in person

Q
R
S
T
U