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Prism Technology Ltd v Topwin & Companies Ltd

Judgment Cited authorities 8 Cited in Precedent Map Related
Vincent
Judgment Date30 March 2015
Year2015
Judgement NumberHCA1190/2011
Subject MatterCivil Action
CourtHigh Court (Hong Kong)
HCA1190/2011 PRISM TECHNOLOGY LTD v. TOPWIN & COMPANIES LTD

HCA 1190/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1190 OF 2011

____________

BETWEEN
PRISM TECHNOLOGY LIMITED Plaintiff

and
TOPWIN & COMPANIES LIMITED Defendant
____________

AND

HCA 1930/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1930 OF 2011

____________

BETWEEN
TOPWIN & COMPANIES LIMITED Plaintiff

and
PRISM TECHNOLOGY LIMITED Defendant
____________
Before: Hon Ng J in Court
Dates of Hearing: 13 – 15, 18 – 21 August and 2 September 2014
Date of Judgment: 30 March 2015

___________________

J U D G M E N T
___________________

Introduction

1. This is a dispute involving the sale of headsets for two popular TV games ie Sony’s PS3 and Microsoft’s Xbox from the Defendant (“Topwin”) to the Plaintiff (“Prism”) for onward sale to Prism’s customer viz. Accessories4Technology Ltd (“A4T”).

2. In HCA 1190/2011, Prism claims against Topwin under five purchase orders dated 16 July, 30 August and 3 September 2010 (“POs” or “PS3 POs”) issued by Prism and countersigned by Topwin in respect of 108,250 units of PS3 headsets. The total contract price was over US$1.36 million.

3. Prism’s claims consist of:

(1) late delivery under the POs, as a result of which a large number of headsets had to be shipped out by air, resulting in the incurring of airfreight charges – the claim pleaded is for the sum of US$182,672.22, being the difference between the airfreight charges and the average seafreight charges; and

(2) non-delivery of the remaining 31,574 PS3 headsets resulting in loss of profits in the sum of US$144,321.64. On Prism’s case, owing to the delay in delivery and the failure of Topwin to rectify certain quality problems with the headsets, it canceled the orders for the 31,574 units of PS3 headsets (“Remaining Orders”).

4. Topwin, on the other hand, counterclaims against Prism for the latter’s wrongful failure to approve pre-production samples, give shipping instructions for the Remaining Orders and their wrongful cancellation. It counterclaims for the sum of US$485,514.86 consisting of:

(1) contract price of the Remaining Orders in the sum of US$390,151.16;

(2) cost of wasted raw materials in the sum of US$93,755.70 caused by Prism’s request to modify certain design and function of the Remaining Orders so as to reduce the “Pop” noise of the headsets;

(3) testing fee and packaging costs in the sum of US$1,608.

5. In HCA 1930/2011, Topwin claims against Prism under four sales confirmations dated 20 September 2010 (“SCs” or “Xbox SCs”) issued by Topwin to Prism in respect of 18,008 Xbox headsets and 13,504 Xbox online packs (“collectively “Xbox headsets”) with a contract value of US$248,944.80. These SCs corresponded with Prism’s purchase order dated 9 September 2010 no. PIl0208-1 and three purchase orders dated 15 September 2010 no. PIl0222-1, PIl0223-1 and PIl0224‑1 (“POs” or “Xbox POs”) issued by Prism to Topwin. Topwin claims Prism has wrongfully cancelled all orders for the Xbox headsets on 17 November 2010. It claims:

(1) the full contract price of the Xbox headsets in the sum of US$248,944.80;

(2) alternatively, US$122,126.14 comprising;

(i) loss of profit - US$110,292;

(ii) value of unused raw materials - US$10,072.48;

(iii) costs of research and development - US$1,761.66.

6. In addition, Topwin claims against Prism for US$4,000 and US$6,000, being the outstanding balance of toolings and moulds (“Toolings”) charges for the PS3 headsets and Xbox headsets respectively.

7. Prism’s defence is principally one of denial. It denies there was any concluded agreement on the production of Xbox headsets as neither the Xbox POs nor the Xbox SCs had been accepted, signed or returned by Topwin to Prism and vice versa. On 17 November 2010, Prism’s customer A4T decided to cancel all orders for Xbox headsets when it was evident that Topwin could not make timely delivery. As the Xbox POs had never been accepted by Topwin, Prism was entitled to and did withdraw them.

8. Prism further denies that there was any concluded agreement between the parties on the production of Toolings for Xbox and, in any event, Topwin had failed to produce the Toolings or pre‑production samples which were acceptable to A4T. As far as Toolings for PS3 were concerned, Prism said it had fully settled the charges in the sum of US$38,100.

Commercial Background

9. Both Prism and Topwin are companies incorporated in Hong Kong.

10. At the material time, Prism carried on the business of sourcing and supplying audio and video accessories to foreign importers. A4T was one such importer based in the UK and an important customer of Prism. According to the testimony of Ms Yeung Yuk Wan, Scarlet (“Scarlet”), marketing manager of Prism, A4T accounted for 50% or more of Prism’s business. A4T’s customers were wholesalers and retailers all over Europe.

11. Topwin, on the other hand, carried on the business of manufacturing audio and video accessories. At the material time, its manufacturing facilities were in Mainland China.

12. From about January 2010 onwards, Mr Lui Kam Lim, William (“Mr Lui”), director of Prism, entered into discussion with Ms Ng Bun Lai, Maria (“Ms Ng”), director of Topwin, to explore the possibility of manufacturing PS3 headsets and Xbox headsets for Prism (respectively “PS3 project” and “Xbox project”). Although Mr Lui had known Ms Ng for years prior to 2010, this was the first time the two companies discussed and eventually entered into business relationship with each other.

13. Both PS3 and Xbox projects were initiated and driven by A4T. It is Mr Lui’s evidence that when he and Ms Ng were engaged in discussion in early 2010, he had made it known to Ms Ng that the PS3 headsets were targeted to reach consumers during the peak season of Christmas 2010. On the other hand, Ms Ng initially denied this in her cross examination. After some cross examination, she finally accepted that she was made aware that the PS3 headsets were targeted for Christmas 2010, but she said that it was only after the PS3 POs had been issued.

14. For reasons set out later in this judgment, this court finds Mr Lui a truthful witness and prefers his evidence to that of Ms Ng. Furthermore, Mr Lui’s evidence is corroborated by the contemporaneous emails exchanged between the parties, some of which will be outlined below. His evidence is also corroborated by the shipment dates set out in the PS3 POs which ranged between 16 August and 10 November 2010. If A4T and hence Prism were targeting the peak season of Christmas 2010, there was no reason or logic why Mr Lui would not inform Ms Ng about it in the course of their negotiations. And if Mr Lui were to inform Ms Ng about the target date of Christmas 2010, there was no reason or logic why he did not do so before placing the POs on Topwin, but only afterwards.

15. For PS3 headsets, three different models were involved viz. CP‑PRO (entry-level model), CP-NC1 (“premium”/ mid-range model) and CP‑NC2 (“ultimate”/ high-end model). For Xbox headsets, there were only two models viz. SPC 7111 (headset) and SPC 7112 (online pack). A4T had obtained licences from Sony Computer Entertainment Europe Limited (“Sony”) to sell the PS3 Headsets in question. As the PS3 headsets would bear the Sony logo, prior to mass production, all samples must be approved not just by A4T but also by Sony in order to protect its goodwill. On the other hand, the Xbox headsets would bear A4T’s logo “4Gamers” and their samples required only the approval of A4T.

16. The headsets were not inventions as such – rather they were fashionable gadgets with new and attractive designs. Like all fashion, their demand fluctuated. Since Topwin was required to develop and manufacture the PS3 headsets according to the specifications provided by A4T and to the satisfaction of the Plaintiff, A4T and Sony, the whole process from concept to actual shipment entailed regular and frequent meetings between Topwin and Prism, reviews, testing, modifications and final approval of various prototypes and samples before they could be put into mass production and ready for shipment. In turn, Prism had regular contact with A4T to obtain its and Sony’s comments and approval before the next step of the development could proceed.

17. The samples produced by Topwin in chronological order were as follows.

18. Dummy Samples (Prototypes). These were the very first samples hand-made by Topwin with only the outer shell of the headset without any electronic fittings.

19. Functional Samples. These were hand-made dummy samples with electronic parts inside and thus possessed the functions of the finished products. These functional samples were variously referred to in evidence as “working samples” or “working prototype”.

20. Compliance Test Samples. These were a more advanced form of functioning samples.

21. Off-Tooling Samples. These were another form of functioning samples made from Toolings produced by Topwin in preparation for mass production. These samples were also referred to in evidence as “pre‑production samples”.

22. Golden Samples. These were off-Tooling samples which were ready to be sent to Sony for final approval before mass production. Mass production would commence once these samples were approved by Sony.

23. At every stage of production of the different samples, Prism would receive from A4T and/or Sony comments and feedback which were in turn relayed to Topwin for follow-up action.

PS3 Project

24. After some preliminary discussions, by email dated 1 April 2010 to Topwin, Prism confirmed the design of the headsets and stated that A4T had to...

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