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Commitments and Contingencies
 12 Months Ended
Sep. 30, 2014
Commitments and Contingencies [Text Block]
19.

Commitments and Contingencies


  (i)

Capital Commitments

As of September 30, 2013 and 2014, the Company had the following contracted capital commitments:

      2013     2014  
 

For construction of buildings

 $ 321,668   $ 4,348,995  
 

For purchases of equipment

   1,174,695     1,073,596  
 

Capital injection to Dalian BAK Power (Note 1) and Dalian BAK Trading

   -     25,400,000  
 

 

 $ 1,496,363   $ 30,822,591  

  (ii)

Guarantees

Prior to the disposal of BAK International (Note 1), in order to secure the supplies of certain raw materials and equipment and upon the request of suppliers, the Company had given guarantees of bank borrowings with a maximum obligation period of from one to three years to certain parties to the maximum extent of $31.0 million (including $4.9 million to a related party) as of September 30, 2013. The Company did not given any guarantees after the foreclosure of BAK International.

The Company assessed the performance risk of the guarantees and the fair value of the obligation arising from the guarantees. Except that a net loss arising from loan guarantee of Shenzhen Langjin Technology Development Company Limited of $5,424 was recognized and included in other income (expense) for the year ended September 30, 2013, no obligations in respect of the guarantees were recognized for the years ended September 30, 2013 and 2014.

  (iii)

Outstanding Discounted Bills and Transferred Bills

Prior to the disposal of BAK International (Note 1), from time to time the Company factored bills receivable to banks and endorsed the bank acceptance bills received to its suppliers, vendors or other parties for settlement of its liabilities to these creditors. At the time of the factoring and transfer, all rights and privileges of holding the receivables are transferred to the banks and the creditors. The Company removes the assets from its books and records a corresponding expense for the amount of the discount.

The Company's outstanding discounted and transferred bills as of September 30, 2013 and 2014 are summarized as follows:

      2013     2014  
  Bank acceptance bills $ 20,307,818   $   -  

  (iv)

Litigation

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. Other than the legal proceeding set forth below, the Company is currently not aware of any such legal proceedings or claims that the Company believe will have an adverse effect on our business, financial condition or operating results:

China BAK Battery, Inc. has been named as a second defendant in the case of Safeco Ins. Co. of Am. v. Hewlett-Packard Co. et al., filed in the Superior Court of the State of California, County of Ventura. It is an action for negligence and strict product liability. The plaintiff (“Safeco”) alleges that a product manufactured by the Company was used in a Hewlett Packard laptop, which malfunctioned and caused fire damage in the home of a consumer (the plaintiff's insured). The total damages sought are $126,978, plus interest and fees. On September 24, 2014, Safeco, Defendant Hewlett Packard and the Company agreed to release all claims against each other arising out of the incident described above. Safeco and Hewlett Packard dismissed their complaints against the Company with prejudice. Pursuant to the settlement agreement, the Company dismissed with prejudice its cross-complaint against Hewlett Packard. Further, pursuant to the settlement agreement, Safeco has agreed to indemnify and defend the Company for any further actions/ claims against the Company relating to this incident.

An individual named Steven R. Ruth filed suit against China BAK Battery, Inc. in United States District Court for the Western District of Texas in 2013 alleging breach of contract. The company did not receive notice of this lawsuit and the plaintiff sought a default judgment, which the court granted in January 2014. Accordingly, the court entered judgment in favor of Mr. Ruth in the amount of $553,773.51 inclusive of costs and attorneys’ fees (the “First Judgment”).

Subsequent to the entry of the First Judgment, Mr. Ruth has made efforts to have the judgment enforced in Canada. On September 19, 2014, Mr. Ruth also filed a second complaint in the United States District Court for the Western District of Texas. On November 12, 2014, a second default judgment was entered against the Company in the amount of $553,773.51 for the First Judgment plus an additional $7,550 in attorneys’ fees. The second judgment is inclusive of the amounts ordered in the First Judgment. BAK International thereafter agreed to indemnify the Company from any expenses, losses and damages that were incurred and will incur to the Company due to the lawsuit filed by Mr. Ruth.