Case Document

100%Judiciary

HCA 2440/2016

[2020] HKCFI 2845

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2440 OF 2016

________________________

BETWEEN

	ZHANGJIAGANG BOYA TRADING CO., LTD	Plaintiff
	and
	ASD (HK) LIMITED (trading as CHEUNG WING GARMENTS COMPANY)	Defendant

________________________

Before:

Hon K Yeung J in Court

Dates of Hearing:	6-9, 12-13 August and 3 September 2019
Date of Judgment:	11 November 2020

________________________

J U D G M E N T

________________________

A. Introduction

1.This is the trial of a sale of goods action. The plaintiff (“P”) was the seller. The defendant (“D”) was the buyer. The goods involved were shirts (short and long sleeves) and trousers (collectively the “Garments”).

2.P is suing for:

(a)  the outstanding prices of two batches of the Garments (the “Outstanding Prices”):

(i)  one of those 2 batches was ordered by D for on-sale to a customer in Brazil called Soueid Industria Textile LTDA (“Soueid” or the “Brazilian Customer”, the “Brazilian Goods” and “Brazilian Orders”);

(ii)  the other was ordered by D for on-sale to another customer in Peru called Samitex SA (“Samitex” or the “Peruvian Customer”, the “Peruvian Goods” and “Peruvian Orders”[1]);

(iii)  There is no dispute that the goods ordered have been delivered. In the course of the trial, and despite certain non-admissions in D’s Defence, Mr McLeish (counsel for D) confirmed that the quantum of the Outstanding Prices would no longer be in dispute. They are US$77,940.63 for the Brazilian Orders and US$36,765.30 for the Peruvian Orders;

(b)  certain alleged tax loss (the “Tax Refund Loss”):

(i)  it relates to certain refundable tax which P had allegedly paid when exporting those Garments to fulfill D’s orders;

(ii)  P says it cannot claim refund of those tax as a result of the failure on the part of D to pay the Outstanding Prices;

(iii)  the alleged Tax Refund Loss is in the sum of US$21,967.54[2];

(iv)  Mr McLeish has stressed that despite the fact that amount of the Outstanding Prices is no longer in dispute, the Tax Refund Loss is, both in respect of quantum and causation, and P is put to strict proof thereof.

3.D’s defence is that the bulk of the Brazilian Goods and certain goods ordered and delivered under an order (referred to by D as the “Earlier Peruvian Purchase Order”, which term I will adopt) said by D to be connected with, though not, the Peruvian Orders were of defective quality (the “Sleeve Length Defect” in relation to the Brazilian Orders, and the “Composition Defect” in relation to the Earlier Peruvian Purchase Order). D seeks a set-off and/or counterclaim of the damage it has allegedly suffered. For the Brazilian Orders, the pleaded loss is US$37,803.7. For the Earlier Peruvian Purchase Order, the pleaded loss is US$210,134 plus further loss to be assessed, though Mr McLeish (counsel for D) has in his Opening clarified that that sum is now down to US$80,370[3].

4.Another unrelated batch of garments (checkered shirts, dress shirts and corduroy trousers) was also involved. They were ordered by D for sale to its local customers called Everbest Garment Company Limited (“Everbest” or “HK Customer”, the “HK Goods” and “HK Orders”). This batch does not form part of P’s claim, as they have been paid for, but, together with the Brazilian and Peruvian Goods, form the subject matters of D’s set-off and counterclaim. D claims that their deliveries by P were late (the “HK Orders Late Delivery”), that the corduroy trousers were otherwise of defective quality (the “Corduroy Trousers Defects”), and that it has suffered loss and damage as a result (stated to be HK$435,859.7 in Mr McLeish’s Opening).

5.The total amount of the claim by P is therefore US$136,673.47, and that of the set-off / counterclaim by D US$118,173 plus HK$435,859.7.

6.The main issues before me are (1) whether the Brazilian Goods suffered from the Sleeve Length Defect, (2) whether the Earlier Peruvian Purchase Order suffered from the Composition Defect; (3) whether the HK Goods were delivered late, and (4) whether the corduroy trousers delivered under the HK Orders suffered from the Corduroy Trousers Defects. If they were not, P is entitled to be paid the Outstanding Prices and D’s set-off and counterclaim dismissed. I need also consider whether D’s non-payment of the Outstanding Prices has caused P to suffer the Tax Refund Loss, and if so, the quantum. If the Garments were defective and/or delivered late as alleged, I will have to determine the damage which D has suffered so as to determine the set-off and counterclaim.

B. Preliminary matters

7.I have to attend to a number of preliminary matters first. I take them in turn.

B.1. The admissibility of inspection or test reports

8.As the quality of the Garments is in issue, D seeks to adduce and rely on a number of inspection and test reports[4]. Two witnesses (amongst others) were involved: Mr Lai Fai Kim (“Lai”) and Mr Leung Yiu Sing (“Leung”). No expert direction has however been obtained.

9.The Pre-trial Review of this action was held on 8 May 2019 before Marlene Ng J. According to the orders and directions given by Her Ladyship (the “PTR Orders”), two issues have specifically been reserved for the determination of the trial judge:

(a) the issues as to the admissibility of those inspection and test reports, and the need for expert directions in relation thereto (§3); and

(b) the issue as to whether Leung and Lai are factual or expert witness, and if the latter, whether expert directions are required (§4).

10.I have heard submissions from Ms Chong (counsel for P) and Mr McLeish:

(a)  In respect of those reports which authors were not going to be called, Mr McLeish submitted that he would only seek to adduce and rely on them as hearsay factual evidence of the facts stated therein, leaving the issues of weight and probative value for submissions later. Ms Chong raised no objection to their admissibility on that basis;

(b)  In so far as the status of Leung and Lai is concerned, Mr Leung’s intended evidence would cease to have any relevance, as he could no longer be located and hence would not be called. I ordered that his witness statement be expunged;

(c)  As to Lai, Mr McLeish proposed to call him as a factual witness to give evidence on the inspection he undertook, and did not propose to adduce any opinion evidence from him.

(d)  I am content to admit those reports and approach Lai’s evidence on the above bases.

B.2. Alleged loss of custom in respect of the Peruvian Customer

11.I have mentioned this above. Originally, alleged loss of custom in respect of the Peruvian Customer to be assessed had been pleaded. At §6(a) of the PTR Orders, D was granted liberty within 28 days to take out an application in that regard.

12.Mr McLeish has stated in his opening that that head of alleged loss would no longer be pursued. I need not be concerned with that any further.

B.3. Negotiation and Settlement with the HK Customer

13.At §6(b) of the PTR Orders, D was granted liberty within 28 days to take out an application relating to the status of the negotiation between it and the HK Customer. That has been done, in the form of an application for leave to amend the Voluntary Further and Better Particulars provided by D (“D’s F&B”). Ms Chong raised no objection to the same. I grant the leave sought. I also granted D an extension of time so as to enable it to comply with §6(b) of the PTR Orders. The related Deed of Settlement of 26 July 2019 (the “Deed of Settlement”) has also been added to the hearing bundle[5].

B.4. The parties

14.P is a garment supplier and trader based in the Mainland.

15.D is a Hong Kong based supplier of garments to Hong Kong and overseas customers. Its director has at all material time been Mr Anil Dayaram (“Dayaram”).

C. Parties’ pleaded cases

C.1. P’s claim

16.P’s Re-Re-amended Statement of Claim is dated 7 August 2019 (“RRASOC”)[6]. The claim is straightforward:

(a)  By 4 purchase orders sent on 22 October 2013, D placed with P orders for men’s shirts for on-sale to Brazil (ie the Brazilian Orders). The total purchase amount was US$103,218.35; (§2)

(b)  P paid a deposit of US$25,000. Net of certain expenses and together with certain shipment fees, the balance payable was US$77,940.63; (§3)

(c)  “Before delivery, [P] and [D] had reached a consensus on the quality and quantity of all goods under the [Brazilian Orders] and the difference between the actual goods and the descriptions in the purchase orders.” (§4)

(d)  The Brazilian Goods were delivered on about 22 October 2013, and D invoiced; (§5)

(e)  By 6 purchase orders sent on 27 January 2014, D placed with P orders for men’s shirts for on-sale to Peru (ie the Peruvian Orders). The total purchase amount was US$48,267.30; (§6)

(f)  “Before delivery, [P] and [D] had reached a consensus on the quality and quantity of all the goods under the [Peruvian Orders] and the difference between the actual goods and the descriptions in the purchase orders. Pursuant to the consensus, [P] should sell and deliver the [Peruvian Goods] to [D] in January 2014.”(§7)

(g)  The Peruvian Goods were delivered on about 27 January 2014, and D was invoiced the sum of US$36,765.30 (net of the deposit paid in the sum of US$11,502); (§8)

(h)  D has refused to pay the balance; (§9)

(i)  P has suffered also the Tax Refund Loss in the sum of US$21,967.54. (§10)

C.2. D’s Defence and Counterclaim

17.D’s Defence and Counterclaim was dated 25 September 2014 (“D&C”). As said, and despite certain matters pleaded therein suggesting otherwise, deliveries of the Garments and the quantum of the Outstanding Prices are no longer in dispute[7].

18.In respect of the Brazilian Orders, D’s case in summary is that:

(a)  they were sales by sample; (§5)

(b)  a number of implied terms applied (§5), that the shirts sold thereunder should:

(i)  correspond with the samples in quality;

(ii)  be free from any defects, rendering them unmerchantable, which would not be apparent on reasonable examination of the samples; and

(iii)  be of merchantable quality;

(c)  but that the bulk of the long sleeve shirts delivered did not correspond to the sample or were otherwise in breach of the implied terms, in that “the lengths of the sleeves on the long sleeve shirts were made materially shorter than the samples provided by [D] (‘the Sleeve Length Defect’)”; (§10)

(d)  due to the Sleeve Length Defect, and despite mitigation, the Brazilian Customer did not pay the price agreed in full. The difference was US$37,803.70, which D seeks a set-off or to counterclaim.

19.In respect of the Earlier Peruvian Purchase Order[8], D’s case in summary is that:

(a)  “[t]he contract for sale arising from the Earlier Peruvian Purchase Orders was a sale by description”; (§18)

(b)  2 implied terms applied (§18), that the shirts sold thereunder:

(i)  should correspond with the description; and

(ii)  would be of merchantable quality;

(c)  the Earlier Peruvian Purchase Order stipulated “that the composition of the shirts were to be 60% cotton and 40% polyester”; (§26)[9]

(d)  the bulk of the long sleeve shirts delivered did not correspond to the description in that the composition of the shirts was in fact over 90% polyester (ie the Composition Defect); (§26)

(e)  D has paid P in full in respect of the Earlier Peruvian Purchase Order;

(f)  D has as a result, and despite mitigation, suffered loss, in the sum of, as stated by Mr McLeish in his opening, US$80,370, which D seeks a set-off or to counterclaim;

(g)  Subsequent to the deliveries of the Earlier Peruvian Purchase Order, the Peruvian Customer placed with D further orders. To fulfill those order, D placed further orders with P (ie those Peruvian Orders P is suing on, which D calls the “Subsequent Peruvian Purchase Orders” so as to distinguish them from the Earlier Peruvian Purchase Order).

20.In respect of the HK Orders:

(a)  It is, as described by Mr McLeish in his written closing[10], a “free-standing counterclaim”;

(b)  There were 11 purchase orders: 3 (CP13020036 to CP13020038) for checkered shirts, 5 (CP13020044 to CP13020048) for dress shirts, and 3 (CP13020041 to CP13020043) for corduroy trousers;

(c)  D pleaded that “[i]t was an express term within each of the sales contracts arising from the 11 [HK Orders] that the specified delivery times for when the goods would arrive in Hong Kong are of the essence” (§37), that they were delivered late (§40) (ie the HK Orders Late Delivery), and that the corduroy trousers were not of merchantable quality in that they suffered from a number of defects (ie the Corduroy Trousers Defects): colour stains, colour shade variation, open seams, uneven pocket lengths, wrong size label, front pleats in wrong direction, and insecure stitches on belt loops (§41);

(d)  In reasonable mitigation of its loss, D negotiated and agreed with Everbest for Everbest to take delivery of the goods concerned on a “consignment basis” such that Everbest would only have to pay for the various garments (at a discounted price to be agreed) if Everbest managed to sell them, subject to a further right of Everbest to return any unsold items to D (§43);

(e)  Upon final settlement (in the form of the Deed of Settlement), the final amount payable by Everbest to D has been agreed to be HK$152,223.75;

(f)  D therefore counterclaims loss of profit in terms of the difference between the price originally payable by Everbest (HK$588,083.45) and the settlement amount (HK$152,223.75),namely HK$435,859.70.

C.3. P’s Reply and Defence to Counterclaim and the Further and Better Particulars provided

21.P’s Reply and Defence to Counterclaim was dated 14 November 2014, and was subsequently amended on 25 May 2017[11] (“AR&DC”). It has to be read together with the Further and Better Particulars thereof P filed on 15 July 2015 in answer to D’s requests (“F&B/R&DC”).

22.P’s case in reply may be summarized as follows:

(a)  P pleaded that “the only person who gave directions to [P] on behalf of [D] was one Mr. Chu Hon Mo Cary (Mr Chu) who held out to be [D’s] merchandiser solely responsible for dealing with [P]” (§3(i));

(b)  In respect of the Brazilian Orders, P admitted in the AR&DC “that the length of the sleeves of the long-sleeves shirts were specifically cut shorter than those of the initial prototype” (§10), but that “the sleeves were cut shorter on Mr. Chu’s stage-by-stage directions on drawing, cutting and sewing; and had got his state-by-stage approvals” (§10(i)), and that “the final products were thoroughly inspected with special reference to sleeves lengths and were accepted” (§10(ii));

(c)  Further and Better Particulars of §10(i) in respect of the alleged “state-by-stage directions and approvals given by Mr. Chu” were sought — their contents, given when, to whom, and whether in writing (if so identify the documents) or orally (if so whether evidenced in writing). In answer, P pleaded (Answer 4(b) of the F&B/R&DC):

“ 4(b) (i) Based on Mr Chu’s directions and approvals the length of the sleeves of the long sleeves were cut shorter than those of the initial prototype. The new prototype was modified accordingly and the size table in accordance with the modification was issued by [D].

…

(vi)  [P] further points out that its full compliance with Mr Chu’s directions and his approvals of the final products are further supported by the subsequent email exchanges between Ms Zhang of [P] and Ling Leung of [D] between 12 Oct and 7 Nov 2013. Those emails were about [D’s] arrangement of cargo for delivery of the goods from [P’s] factory where copies of which were also cc to Mr Chu.”

(d)  In respect of the Earlier Peruvian Purchase Order, P pleaded as follows:

“ 20.1 The long sleeve shirts sold by [P] to [D] under all Peruvian Purchase Orders fully corresponded with the descriptions which were revised, varied and further elaborated by [D] through its merchandiser Mr. Chu and if, which is denied, there was any difference between the actual shirts and the descriptions, such differences were in compliance with Mr. Chu’s directions and approvals at various stages of manufacturing such that the final products passed Mr. Chu’s thorough inspection and examination before [D] eventually agreed to buy them.

…

26.3. Despite the description of the shirts under some Peruvian Purchase Orders stipulated that the composite of fabric to be used in making the shirt was to be 60% cotton and 40% polyester[12], Mr. Chu, when he was shown various fabric samples which were commonly regarded as 60% cotton and 40% polyester, declined to accept any and insisted [P] to use the fabric he chose elsewhere.

26.4. The fabric which Mr. Chu chose had a better wrinkle property, more smooth and less sticky than the samples shown by [P]. Ms. Zhang on behalf of [P] raised with Mr. Chu that the material he chose was commonly called 10% cotton and 90% polyester. Mr. Chu’s reply was that it was not what Mainland people called it that mattered but what the culture of the destination port that mattered. He insisted on using the material he chose.

26.5.  [P] had no choice but to comply with Mr. Chu’s direction and used the material specified by Mr. Chu for production. [D] knew full well its own modification to the description of material to be used and is not entitled to make use of it to evade its clearest liability to pay [P].”

(e)  Further and Better Particulars of §§26.3, 26.4 and 26.5 were sought in respect of the “alleged directions from Mr. Chu as to his choice of 10% cotton and 90% polyester material” — again when given, to whom, and whether in writing (if so identify the documents) or orally (if so whether evidenced in writing). In answer (at Answer 9(a)(i) of F&B/R&DC), P adopted materially one of his earlier answers (ie 8(a)) which pleaded that:

“ 8(a) (i) The agreement was made when Mr. Chu Ho Man Cary of [D] gave his oral confirmation of the order shortly before the shipment of the goods.

…

(iv) The acceptance by the Defendant of the goods, in terms of both the quality and quantity, are evidenced by [D’s] shipping records and the corresponding written approval from Mr. Chu.

(v) Please refer to paragraphs 17-20 of the affidavit prepared by Mr. Chu.”[13]

P replied further, at Answer 9(a)(v), that:

“ [P] further points out that its full compliance with Mr Chu’s directions and his approvals of the final products are further supported by the subsequent email exchanges between Ms Zhang of [P] and Ling Leung of [D] between 17 Jan and 25 Feb 2014. Those emails were about [D’s] arrangement for containers and delivery of the goods from [P’s] factory where copies of which were also cc to Mr Chu.”

(f)  In respect of the HK Orders, P in summary pleaded that:

(i)  there was no HK Orders Late Delivery on the part of P, and that the production commenced late because D (through Chu) failed to finalize its decision on the materials and design of the final products. In any event, the delayed deliveries were the result of agreement with Chu[14];

(ii)  in respect of the Corduroy Trousers Defects, they were recent fabrication (§36 of the AR&DC”):

“ [D], despite the lapse of a whole year, was still unable to specify how many items and which style of the goods had which type of the alleged defects. The allegations in Paragraph 41 [of the D&C] bear every hallmark of a recent fabrication and are denied. [D] had acknowledged that when the goods changed hand, they were in good condition.”

D. The Issues on liability

23.The main issues on liability may be identified and refined as follows:

(a)  In respect of the Brazilian Orders, there is no dispute that the bulk deviated from the samples or prototypes. The issue is whether the deviation (the Sleeve Length Defect) was the result of specific directions given by Chu on behalf of D and otherwise approved by him;

(b)  In respect of the Earlier Peruvian Purchase Order, there is no dispute that the fabric used was different from what had been stipulated. The issue is again whether the change (the Composition Defect) was the result of Chu’s choice to match the requirements set by D’s Peruvian Customer; and

(c)  In respect of the HK Orders, whether the goods order suffered from the HK Orders Late Delivery, and whether the trousers had the Corduroy Trousers Defects.

E. Onus of Proof

24.D accepts that the Garments ordered under the Brazilian Orders and the Subsequent Peruvian Purchase Orders had been ordered and delivered. It also accepts that the full purchase price has not been settled. It seeks to establish the Sleeve Length Defect and the Composition Defect as set-off and/or counterclaim. The onus of proving those is on D.

25.The HK Orders are not part of the claim. They are raised by D in its counterclaim. The onus of proving the HK Orders Late Delivery and the Corduroy Trousers Defects is also on D.

F. Witnesses

26.P has called 2:

(a) Madam Zhang Huixin (“Zhang”), a director and the legal representative (法人代表) of P, whose only witness statement is dated 30 August 2017[15] (“Zhang/WS”); and

(b) Mr Chu Ho Man Cary (“Chu”), the merchandiser of D at the material time. He has given 2 witness statements, filed on 10 October 2017[16] and 21 February 2018[17] (“Chu/WS1” and “Chu/WS2” respectively).

27.D has called 3:

(a)  Dayaram, who has given 2 witness statements (dated 9 October 2017 and 15 June 2018 (“Dayaram/WS1” and “Dayaram/WS2” respectively);

(b)  Mr Li Tat-Sing (“Li”), a director and shareholder of the HK Customer. His only statement is dated 9 October 2017[18] (“Li/WS”); and

(c)  Lai, who was a Supervisor in Hong Kong Inspection Company Limited (“HKIC”), a subsidiary of Hong Kong Standards and Testing Centre (“STC”) whose only statement is dated 10 October 2017 (“Lai/WS”).

F.1. Credibility

28.I remind myself when considering a witness’ credibility the importance of considering the inherent likelihood or unlikelihood of the witness’ evidence, the consistency of the witness’ evidence with undisputed or indisputable evidence, with contemporaneous conduct and documents, and the internal consistency of the witness’ evidence. I need to consider the totality of the evidence. I warn myself against attaching undue weight on demeanour, though demeanour is obviously relevant when considering credibility.

F.2. Assessment of Reliability and Credibility

F.2.A. Zhang and Chu

29.For the following reasons, I do not find the evidence given by Zhang and Chu to be reliable.

30.In respect of the Brazilian Orders:

(a)  Absence of relevant contemporaneous records:

(i)  Chu said at Chu/WS1 §16 that:

“ Based on my directions and approvals, the length of the sleeves of the long sleeve shirts was cut shorter than those of the initial prototype. The shortening of the sleeves was required by the customer who told me that the sleeves were too long. Upon the customer’s request, the sleeves were cut one size short. I related the change to [P], followed up the order to the provision of the group samples which were approved by the customer. I followed the order further up to the end of production. The final products were inspected by me. They fully matched with the group samples on all aspects including sleeve lengths.” (Emphasis added)

(ii)  No record or written correspondence of or in relation to the alleged “customer’s request” has been produced;

(iii)  Zhang said at §§54 to 56 of Zhang/WS that:

“ 54. …During the production process, Mr. Chu clearly told me to cut the sleeve one size (not 1 cm) shorter. Based on Mr Chu’s directions and approvals, the length of the sleeves of the long sleeve shirts was cut shorter than those of the initial prototype. Thereupon the prototype was modified accordingly and the size table in accordance with the modification was issued by the Defendant.

55. Mr. Chu approved the amendments to the drawing and cutting of larger sizes together with the new drawing for the smallest size. Thereafter, Mr. Chu followed up the whole production to end product. Mr Chu had thoroughly inspected and subsequently accepted the final products that corresponded to his special request as to the length of the sleeve. The quality of the goods is highly merchandisable and has passed the standard at each stage of Mr Chu’s inspections.

56.  Mr Chu’s directions and his approvals of the final products are further supported by the subsequent email exchanges between me and one Ms. Ling Leung of the Defendant between 12 October 2013 and 7 November 2013 (Item 28 of the Plaintiff’s List of Documents). Those emails were about the Defendant’s arrangement of cargo for delivery of the goods from the Plaintiff’s factory, copies of which were also copied to Mr Chu.”

(iv)  The emails mentioned at §56 of Zhang/WS[19], as Zhang herself said in that same paragraph, were about D’s arrangements of cargo for delivery, customs clearance, etc. They contained no express mention of any directions from Chu on cutting short the sleeves. Zhang also accepted this during cross-examination;

(v)  Apart from those emails (which are silent on the alleged directions from Chu), Zhang could not point to any other documents or records which show that Chu had given D the alleged directions;

(vi)  Zhang said in cross-examination that Chu told her to cut the sleeve one size shorter personally face-to-face. She claimed that she was the designated person to receive such requests from all customers to avoid mistake. But she was a director of P. She was not the master at the factory who actually performed the works. She could not produce any contemporaneous records showing how she passed on the alleged instructions she said she had received from Chu to the factory;

(vii)  When cross-examined on the meaning of cutting the sleeve one size shorter, she on more than one occasions said that she did not know, and that she only did it at Chu’s request. She further at one stage during cross-examination said that the change was to shorten the sleeves by 1 inch, but later retracted it;

(viii)  The net result is that:

(1)  no written communications from the Brazilian Customer making the alleged request have been produced;

(2)  no written records of Chu having communicated any directions to D on cutting short the sleeves have been produced; and

(3)  no written records of Zhang having passed on any directions from Chu to P’s factory have been produced;

(ix)  If the Brazilian Customer had in fact made the request, Chu had in fact passed it on to Zhang, and Zhang had in fact passed it on to the factory, I find it inherently most improbable that there are no contemporaneous documents recording any of those matters;

(b)  Inconsistency as to whether there was any “request” from the Brazilian Customer:

(i)  Related to the observations I have made above is whether the Brazilian Customer had in fact given the alleged request;

(ii)  As I have set out above, Chu’s evidence at §16 of Chu/WS1 is that “[upon] the customer’s request, the sleeves were cut one size short. I related the change to [P], followed up the order to the provision of the group samples which were approved by the customer”;

(iii)  In the course of cross-examination, Chu gave a different version. He said that there was in fact no express agreement with the Brazilian Customer for the sleeves to be cut one size shorter. It was based upon the alleged confirmation of approved samples and shipment samples that Chu formed the understanding that the sleeves were to be cut short by one size;

(iv)  The version Chu provided during cross-examination, apart from being different from the version he gave in his witness statement, suffers from the same problem as I have observed above. No contemporaneous records have been referred to showing approval of samples by the Brazilian Customer which deviated from the original samples;

(c)  P’s case is inconsistent with the complaint from the Brazilian Customer:

(i)  According to P’s case[20], the Brazilian Goods were delivered on 22 October 2013;

(ii)  According to Dayaram, the 2^ndshipment of the Brazilian Goods was shipped to the Brazilian Customer on 24 October 2013[21];

(iii)  On 13 November 2013, Chu received an email from the Brazilian Customer[22] complaining about the Sleeve Length Defect (the “13/11/13 Email”);

(iv)  In the 13/11/13 Email, the Brazilian Customer complained that “the size of the original shirts are smaller, especially the sleeves, than of the approved prototype”;

(v)  The Brazilian Customer pointed out that not only had it not asked the sleeves to be shortened, it had in fact previously asked the sleeves to be made longer. It pointed to an “adjustment file” which it sent to D “as soon as the prototypes were reviewed in 21/3/2013”;

(vi)  The “adjustment file” was attached to the 13/11/13 Email[23]. It indeed shows that written instructions had been given for sleeves to be increased by 1 cm;

(vii)  In the course of cross-examination, Chu was referred to the 13/11/13 Email. He was asked the following question, which he answered “yes”:

“ Q. Isn’t that clear and plain that the customer did not agree to shorten the sleeves by one size. In fact, the customer asked you to increase the sleeves by 1 cm — clear and plain, is it not Mr Chu?

Q. Yes or no?

A. Yes.”

(viii)  At §11 of Chu/WS2, Chu claimed that

“ I recall that there were more emails by Dayaram rebutting the Brazilian client’s complaint and setting out details of pre-shipment communication between myself and the Brazilian client regarding cutting the sleeves short, however, such emails are not produced by [D] in its List of Documents”;

(ix)  In that regard, I agree with Mr McLeish’s submission[24] that the way such an allegation is pursued should be by way of an interlocutory application for specific discovery, which P has elected not to make.

31.In respect of the Earlier Peruvian Purchase Order:

(a)  The mistaken basis of Zhang’s and Chu’s evidence in Zhang/WS and Chu/WS1:

(i)  In Zhang/WS, Zhang gave evidence on the basis that D’s case was that the Composition Defect related to the Peruvian Goods delivered under the Subsequent Peruvian Purchase Orders. She then claimed[25] that it was Chu who decided not to follow the original description but to use a different material to meet the culture of the designation port. She further claimed that Chu chose the other fabric because it was less vulnerable to be wrinkled, smoother and less sticky;

(ii)  That basis is wrong. It has never been D’s case that the fabric of the goods supplied under the Subsequent Peruvian Purchase Orders did not conform to the agreed descriptions. D’s case is that the Composition Defect concerned only the Earlier Peruvian Purchase Order;

(iii)  As I have noted above, there is a mistake at §26 of D’s D&C. The composition of the fabric stipulated in the Earlier Peruvian Purchase Order has been mistakenly pleaded as being 60% cotton and 40% polyester. The stipulated composition was in fact 60% polyester and 40% cotton. I note further that the stipulated composition of the fabrics in 4 of the 6 Subsequent Peruvian Purchase Orders was 60% cotton and 40% polyester[26]. However, the Earlier Peruvian Purchase Order and those 4 Subsequent Peruvian Purchase Orders were otherwise very different both in terms of the quantity of garments ordered and the dates when they were placed. I do not find that the mistake at §26 of the D&C would have misled Zhang;

(iv)  Zhang adopted Zhang/WS as her evidence in chief. It was not until cross-examination when each of the Subsequent Peruvian Purchase Orders was put to her that she accepted that there had in fact been no change of fabrics in so far as the garments delivered under the Subsequent Peruvian Purchase Orders were concerned;

(v)  Chu made the same mistake in Chu/WS1[27]. His evidence was given on the same mistaken basis as Zhang did in Zhang/WS;

(vi)  In Chu/WS2, Chu claimed to have refreshed his memory from certain documents. He corrected the basis he mistakenly adopted in Chu/WS1. But he maintained therein that the garments delivered under the Subsequent Peruvian Purchase Orders was subject to the same Composition Defect[28], which allegation was clearly incorrect;

(vii)  Under cross-examination, he gave yet another version, to the effect that by the term “Earlier Peruvian Purchase Order” in Chu/WS2, he actually did not mean the Earlier Peruvian Purchase Order referred to by D, but another purchase order even earlier than the Earlier Peruvian Purchase Order, and that by the term “Subsequent Peruvian Purchase Orders” in Chu/WS2, he actually meant the “Earlier Peruvian Purchase Order” referred to by D;

(viii)  That version he gave under cross-examination is itself inconsistent with §19 of Chu/WS2, which, with reference to the bill of lading of 4 September 2013[29], suggests that by the term “Earlier Peruvian Purchase Order” in Chu/WS2, he actually meant the Earlier Peruvian Purchase Order referred to by D;

(b)  The change in Zhang’s evidence as to why the composition of the fabric had changed:

(i)  I have summarized Zhang’s evidence above. Her evidence in Zhang/WS was that it was Chu who decided not to follow the original description but to use a different material to meet the culture of the designation port;

(ii)  Chu gave a similar version at §19 of Chu/WS2 that:

“ … After comparing the price and quality, the Peruvian client eventually chose a fabric which was cheaper but with a less wrinkled and silk-line contexture. After the approval, production was commenced with such approved fabric and shipment were eventually made to Peru on 4^th September 2013”;

(iii)  Zhang gave a different explanation during cross-examination for the change in fabric. Her evidence, as summarized by Ms Chong herself [30], was that:

“ ZHANG gave evidence that for the Earlier Peruvian Purchase Order [D/602], [D] required to have fabric with 60% polyester and 40% cotton at a unit price of US$3.45. ZHANG told CHU that [sic] could not be done as the price was too low for such fabric composition. CHU then asked for other fabric samples and eventually chose fabric with 90% polyester and 10% cotton. The production was based on the fabric chosen by CHU.”

(c)  Absence of records:

(i)  Similar to the Brazilian Orders, there is no record showing any request for change from the Peruvian Customer or it having consented to the use of the different fabric;

(ii)  The absence of records is inherently improbable. That is particularly so in the light of Zhang’s following evidence given during cross-examination. She accepted that generally, if there was any change in the purchase order which would lead to a change in price, the change should be reflected in a subsequent purchase order. She accepted that a change in fabric would lead to a change in price. Yet, in the present case, there was no record of any revised purchase order recording the change;

(iii)  Under cross-examination, she claimed in respect of the Earlier Peruvian Purchase Order that she had in fact orally asked Chu for a new order after the change in fabric. However, she has made no reference to this alleged oral request in Zhang/WS;

(d)  Inherent improbability of the Peruvian Customer requesting for a cheaper fabric without seeking a downward adjustment to the price:

(i)  It is common ground that the price for fabric with higher polyester contents of 90% plus was much lower than that of 60% polyester/40% cotton;

(ii)  I find it inherent improbable that the Peruvian Customer would have opted for a fabric of lower price without at least attempting to request for a corresponding adjustment in the unit price of the Garments;

(e)  Inconsistent with the complaint of the Peruvian Customer:

P’s case, and Chu’s evidence, that the change in the composition of the fabric used had been consented to by the Peruvian Customer was inconsistent with the complaints which the Peruvian Customer made to D upon delivery of the goods under the Earlier Peruvian Purchase Order[31].

32.In respect of the HK Orders:

(a)  Zhang claimed in Zhang/WS that:

“ … There were extensive revision on the prototype samples and that it was not until early October 2013 that [D] could agree on the final sample …”

(b)  Chu claimed similarly in Chu/WS1 that:

“ 30. As to the [HK Orders] raised by [D] in its counterclaim, I must say that it was another fabrication by [D]. There was no delay at all on the part of [P].

31. The orders involved the use of over 100 types of raw materials. By 25^th September 2013, I still had not finished selecting all materials nor had I decided how to match those materials.

32.  It was not until 2^ndOctober 2013 that I finally finalize on the material and design of the final product. As such, the goods could not have arrived Hong Kong respectively before 15^th, 25^th and 29^thSeptember 2013 …”

(c)  However, in the course of cross-examination, when taken to the contemporaneous emails exchanges relating to one or more of the HK Orders between P, Chu for D, and the freight forwarder[32], Chu accepted that the checkered shirts and dress shirts[33] produced under the HK Orders were in fact between 29 August and 14 October 2013 detained at the Mainland Customs;

(d)  At §9 of Li/WS, Li said that:

“ In late August 2013, [Chu] orally informed me that the Chinese Customs had detained the checked shirts and the dress shirts in the [HK Orders] because some of the information submitted by [P] in its customs’ declaration was incorrect.”

In the course of cross-examination, when that paragraph was put to him, Chu agreed with its contents;

(e)  In so far as the Corduroy Trousers Defects are concerned, Chu claimed in Chu/WS1[34] that:

“ As to the allegation of defects in the quality, the sales of the goods took place after my thorough inspection of the final products. I was fully satisfied with the quality of the goods …”

(f)  However, in the course of cross-examination, Chu accepted that shortly after delivery of the Corduroy Trousers, Li told him that Everbest’s customers rejected all of them because of defects. Li said[35] that Chu even showed him a piece of paper[36] prepared by P which explained the difference on the quantity of the goods supplied. In Chu/WS2, Chu described that as a lie. But upon cross-examination, he claimed that he had seen a similar piece of paper but did not know whether it was the same one, and could not remember whether he had shown that to Li. When it was put further to him that around that time, he told Li that P delivered the goods with knowledge of the defects (colour stains, colour share variation, open seams, uneven pocket lengths, wrong size label, front pleats in the wrong direction, and insecure stitches on belt loops), he accepted that he saw that some of the trousers had those defects, though he did not know about the quantity;

(g)  The state of affairs Chu accepted in the course of cross-examination is very different from what he had described in his witness statements.

33.When considering the Chu’s evidence, in addition to the above matters, I bear in mind also the following matters which bear upon his impartiality:

(a)  It is D’s case that Chu had in the course of his employment engaged in misconduct and wrongdoings detrimental to the interest of D. In particular, Chu is alleged to have “moonlighted” and diverted business from D;

(b)  Various emails have been produced showing indeed that Chu, while under the employ of D, engaged in certain transactions otherwise than acting as a representative of D;

(c)  Chu himself did not dispute the existence of those transactions. He claimed that:

“ … when I was with [D], all the business referrals I made was with the consent of [D].”[37]

“ … Whenever there were business deals which [D] could not handle due to its own constraints, Dayaram would encourage me to refer to other traders so that [D] could earn commissions from the referrals or foster goodwill with fellow traders.”[38]

(d)  However, in the course of cross-examination, and as submitted by Mr McLeish[39], Chu admitted that D did not actually earn any commission from the deals concerned;

(e)  Chu had also unsuccessfully sued D in the Labour Tribunal for one month’s unpaid wages which D set-off against Chu’s failure to pay one month’s wages in lieu of notice when he resigned with immediate effect;

(f)  The above adversely affect Chu’s impartiality as a witness, which I take into account.

F.2.B. Dayaram, Li and Lai

34.Dayaram’s evidence is consistent with contemporaneous documents. It is also consistent internally, and suffers from no inherent improbability.

35.Ms Chong criticized Dayaram’s evidence on the basis of what she submitted to be unreasonable discount or refund given to the Brazilian and Peruvian Customers. Given the loss which his customers said they had suffered, I do not find the discounted or refunded amount unreasonable.

36.It was suggested to Dayaram that if the Brazilian Goods were really defective, they should have been returned to Hong Kong (rather than giving the Brazilian Customer large discount and agreeing to them being sold on a consignment basis). Dayaram explained, which I accept, that seeking the goods returned to Hong Kong was not a practical solution given the costs and duties involved.

37.Ms Chong submitted that Dayaram originally in the 13/11/13 Email[40] refuted the Brazilian Customer’s claim. But as explained by Dayaram, he initially did so relying on the information provided to him by Chu.

38.Ms Chong also criticized Dayaram for the time taken to negotiate with his customers. Whilst time had indeed been taken for such negotiations, given the need to inspect the goods concerned, I do not find Dayaram’s credibility and reliability to have been adversely affected thereby.

39.In respect of the HK Orders, it was put to Dayaram that there had been no delay, that any delay was caused by D’s delay in paying 20% deposit for production and by Chu’s delay in finalizing the production instructions, that the reason why Everbest wanted to return some goods was its inability to make payment, and that the HK Goods were not defective. All those allegations were denied by Dayaram.

40.All in all, I find Dayaram to be a credible and reliable witness.

41.Li’s evidence is consistent with contemporaneous documents, inherently probable, and is internally consistent. His demeanour when giving evidence is also convincing. I accept that he is an honest witness.

42.Lai was called to give a factual account of his inspection of some of the Corduroy Trousers on 29 September 2017 at Everbest. He also produced the inspection report[41]. He is not called as an expert but as a factual witness. His evidence is consistent with the documents, self-consistent, and inherently probable. I accept that he is a credible and reliable witness.

G. Findings on liability

43.I have made my findings on reliability and credibility above. I accept the evidence given by Dayaram, Li and Lai. In so far as there is any difference between their evidence and the evidence given by Zhang and Chu, I prefer their evidence to that of Zhang and Chu.

G.1. The Brazilian Orders

44.There are some confusions as to what the details of the Brazilian Orders were. Mr McLeish submitted[42] that P has misidentified them in the RRASOC.

45.The exact details may not be material. There are no disputes between the parties that the Brazilian Goods have been delivered by P, full purchase price has not been effected, and that the Outstanding Price is US$77,940.63. Whilst that may be so, I state that I accept Dayaram’s evidence in this regard. The 5 purchase orders[43] which formed the Brazilian Orders were:

PO Number Issue Date PO Amount

(1) CP13020003 (REV2) 23-5-2013 US$ 44,328.00

(2) CP13020004 (REV) 13-3-2013 US$ 38,700.00

(3) CP13020005 (REV2) 13-3-2013 US$ 33,660.00

(4) CP13020006 (REV2) 13-3-2013 US$ 33,920.00

(5) CP13020007 (REV) 25-2-2013 US$ 29,120.00

Total: US$ 179,728.00

46.On the face of the Brazilian Orders, the destination of the goods was described as being Brazil. There can be no dispute that P knew that the Garments were for on-sale to Brazil.

47.I accept D’s case and Dayaram’s evidence[44] that the Brazilian Orders were sales by sample. I accept that the pleaded implied terms applied.

48.The Brazilian Goods were shipped to the Brazilian Customer on 24 September 2013[45] and 24 October 2013[46].

49.By the 13/11/13 Email[47], the Brazilian Customer complained that the Brazilian Goods suffered from the Sleeve Length Defect. Among others, the Brazilian Customer said that:

“ …the size of the original shirts are smaller, especially the sleeves, than of the approved prototype.

Also see that, in the attachment, you can find the adjustment file I sent as soon as the prototypes were reviewed in 21/03/2013. I didn’t request, under any circumstance, for the sleeves to be shorten. In fact, I asked for them to be 1 cm longer.

…

To those involved, I would like to know how are you going to solve this issue and repair the financial damages we are facing. Unfortunately, we are already dealing with a large amount of returns due to this error.”

50.The “adjustment file” was attached to the 13/11/13 Email[48]. It indeed shows that written instructions had been given for sleeves to be increased by 1.0 cm.

51.P’s case itself is that the sleeves of all shirts had been cut one size smaller. There is hence no need for me to consider in details the contents of the inspection reports in this regard. I reject P’s evidence that they were cut short upon the requests and directions given by Chu. I have explained above why I do not accept Zhang and Chu as reliable in this regard. I find that the Brazilian Customer had not given Chu any such directions. Nor had it consented to any such change by the approval of any samples. It had in fact asked for the sleeves to be made longer.

52.Chu’s further evidence and assertions at eg §16 of Chu/WS1 (that “I followed the order further up to the end of production”, that “[the] final products were inspected by me”, and that they “fully matched with the group samples on all aspects including sleeve lengths”) are all premised upon the Brazilian Customer having approved the change and Chu having given to P the corresponding directions to alter. In my view, and given my findings immediately above, they are also unreliable, which I reject. I find specifically that Chu’s evidence that he had inspected and approved the final products unreliable. I reject Zhang’s similar evidence at §§54 and 55 of Zhang/WS.

53.I find that D has in relation to the Brazilian Orders established the Sleeve Length Defect.

54.Given the Sleeve Length Defect and my other findings explained above, I find that P has, in respect of the Brazilian Orders, been in breach of the pleaded implied terms.

55.I will come back to P’s Tax Refund Loss after I have considered the quantum of D’s set-off and counterclaim.

G.2. The Earlier Peruvian Purchase Order and Subsequent Peruvian Purchase Orders

56.The Earlier Peruvian Purchase Order[49] was dated 27 May 2013. It was placed by D upon P for 50,100 “Men’s 60% polyester 40% cotton woven yarn dyed shirt, long sleeve” at the total price of US$172,845.

57.On the face of the Earlier Peruvian Purchase Order, the destination was Peru. There can be no dispute that P knew that the Garments were for on-sale to Peru.

58.I accept that the Earlier Peruvian Purchase Order, in so far as the fabric was concerned, was sale by description. I accept that the pleaded implied terms applied.

59.By an invoice dated 30 August 2013[50], P invoiced D for the 51,320 shirts ordered under the Earlier Peruvian Purchase Order. The total amount of US$177,309.3 has been fully paid by D.

60.D on-sold the shirts ordered under the Earlier Peruvian Purchase Order to the Peruvian Customer. The invoice was dated 22 August 2013 for 51,320 shirts at the total price of US$189,884. The shirts were shipped on 4 September 2013.

61.In September 2013, the Peruvian Customer placed further orders with D for the purchase of shirts. To meet those orders, D placed the Subsequent Peruvian Purchase Orders upon P.

62.Again, there are some confusions as to the details of those purchase orders which formed the Subsequent Peruvian Purchase Orders. Mr McLeish again submitted[51] that P has misidentified them. The exact details again may not be material, as there is no dispute between the parties that all the goods have been delivered, and the amount of the Outstanding Price is US$36,765.30. I state in any event that I accept D’s case that the relevant purchase orders are:

PO Number Issue Date PO Amount

(1) CP13020056 30-9-2013 US$ 6,720

(2) CP13020057 30-9-2013 US$ 4,140

(3) CP13020058 30-9-2013 US$ 16,110

(4) CP13020059 (REV) 17-1-2014 US$ 3,360

(5) CP13020060 30-9-2013 US$ 6,060

(6) CP13020061 30-9-2013 US$ 14,400

Total: US$ 50,790

63.Upon deliveries of the goods under the Earlier Peruvian Purchase Order, the Peruvian Customer complained about the Composition Defect. I refer in particular to its email of 19 December 2013[52].

64.I find that D has in relation to the Earlier Peruvian Purchase Order established the Composition Defect. P’s case itself is that a different and cheaper fabric (with polyester contents of 90% plus as opposed to 60% polyester/40% cotton) had been used. I reject P’s case that the Peruvian Customer had requested or otherwise consented to or approved the change. I have explained above why I do not accept Zhang and Chu as reliable in this regard.

65.In the course of cross-examination, Chu accepted that there was in fact no express agreement with the Peruvian Customer for fabric of different composition to be used. Nor had it requested the cheaper fabric to be used. It was based upon the confirmation of approved samples and shipment samples made by P and Chu with the cheaper fabric which Chu formed the understanding that the different and cheaper fabric could be used. There is no evidence suggesting that Chu had informed the Peruvian Customer of the change. The complaints it subsequently made suggest that Chu had not. I do not find that the Peruvian Customer had in the circumstances consented to the change.

66.Chu’s further evidence and assertion at eg §25 of Chu/WS1 that “[the] final products under the Peruvian orders fully corresponded to the alternation requested and confirmed by me” are premised upon the Peruvian Customer having approved the change of fabric. In my view, and in the light of my findings immediately above, they are also unreliable, which I reject. I find specifically that Chu’s evidence that he had approved the final products unreliable. I reject Zhang’s similar evidence at §§63 and 64 of Zhang/WS.

67.Given the Composition Defect and my other findings explained above, I find that P has, in respect of the Earlier Peruvian Purchase Order, been in breach of the pleaded implied terms.

68.In so far as it is necessary, both in respect of the Brazilian Orders and the Earlier Peruvian Purchase Order, I would accept Dayaram’s evidence on the scope of Chu’s authority. I accept in particular his evidence at §36 of Dayaram/WS1, that:

“ I can confirm that, at all time while [Chu] was employed by [D], I was his immediate and only superior. I gave no such instructions to [Chu], and there certainly was no reason whatsoever for me to do so. I would only give instructions to alter sleeve lengths or fabric compositions if [D’s] customers requested it. There were no such requests in relation to the orders concerned. I am the directing and controlling mind of the business of [D], including the Garment Trading Business. All email correspondence with [D] should have been copied to me. I am not aware of any email asking [P] to reduce the sleeve lengths or change fabric compositions in respect of the orders concerned. Either [Chu] is not telling the truth when he says he gave directions to [P] to reduce sleeve lengths and change fabric compositions or he did so without my, and therefore, without [Ds’] authority.”

69.Specifically in respect of the Earlier Peruvian Purchase Order, I note again that the composition of the fabric actually used deviated materially from that which was specified. That change rendered all the documentation (including documents submitted by P to the Mainland Customs) in that regard false. Given the effect of the change, I would also if necessary accept Mr McLeish’s submissions[53] that there is no evidence that Chu had apparent authority to agree upon the use of a fabric which composition differed from that stated on all the documentation.

70.I will come back to P’s Tax Refund Loss after I have considered the quantum of D’s set-off and counterclaim.

G.3. THE HK ORDERS

71.In around July and August 2013, Everbest received orders from Aeon for various checkered shirts, dress shirts and corduroy trousers.

72.To fulfill those orders, Everbest placed a number of orders with D. In turn, D placed the HK Orders with P. Details of the HK Orders[54] are as follows:

PO Numbers Description Issue Date PO Amount

(1) CP13020036 Checkered Shirts 5 August 2013 US$ 4,687.50

(2) CP13020037 (REV) Checkered Shirts 5 August 2013 US$ 5,062.50

(3) CP13020038 (Rev) Checkered Shirts 5 August 2013 US$ 2,722.50

(4) CP13020041 Corduroy Trousers 6 August 2013 US$ 21,120.00

(5) CP13020042 Corduroy Trousers 6 August 2013 US$ 12,196.50

(6) CP13020043 Corduroy Trousers 6 August 2013 US$ 15,137.50

(7) CP13020044 Dress Shirts 21 August 2013 US$ 1,320.00

(8) CP13020045 Dress Shirts 21 August 2013 US$ 1,320.00

(9) CP13020046 Dress Shirts 21 August 2013 US$ 1,296.00

(10) CP13020047 Dress Shirts 21 August 2013 US$ 618.00

(11) CP13020048 Dress Shirts 21 August 2013 US$ 504.00

Total: US$ 65,984.50

73.D has paid P for the HK Goods.

74.The HK Goods were on-sold by D to Everbest at the total price of HK$588,003.45[55], as follows:

Inv Number Description Issue Date Inv Amount

(1) CW13020036(R1) Checkered Shirts 9 Dec 2013 HK$ 52,877.00

(2) CW13020037(R1) Checkered Shirts 9 Dec 2013 HK$ 53,068.90

(3) CW13020038(R1) Checkered Shirts 9 Dec 2013 HK$ 23,093.55

(4) CW13020041 Corduroy Trousers 10 Oct 2013 HK$ 176,800.00

(5) CW13020042 Corduroy Trousers 10 Oct 2013 HK$ 96,080.00

(6) CW13020043 Corduroy Trousers 10 Oct 2013 HK$ 142,080.00

(7) CW13020044(R1) Dress Shirts 9 Dec 2013 HK$ 11,400.00

(8) CW13020045(R1) Dress Shirts 9 Dec 2013 HK$ 11,400.00

(9) CW13020046(R1) Dress Shirts 9 Dec 2013 HK$ 11,400.00

(10) CW13020047(R1) Dress Shirts 9 Dec 2013 HK$ 5,472.00

(11) CW13020048(R1) Dress Shirts 9 Dec 2013 HK$ 4,332.00

Total: HK$588,003.45

75.Amongst them are 5,188 pairs of corduroy trousers of 3 different styles.

76.The “Expected Ship Date” was set out on each of the HK Orders. I set out below those “Expected Ship Dates” and the dates when the HK Goods were, according to the evidence, actually delivered to Everbest:

PO Numbers Expected Ship Dates Date of Delivery

(1) CP13020036 “Before 15^th Sept, arrive H.K.” 18 Oct 2013

(2) CP13020037 (REV) “Before 15^th Sept, arrive H.K.” 18 Oct 2013

(3) CP13020038 (Rev) “Before 15^th Sept, arrive H.K.” 18 Oct 2013

(4) CP13020041 “Before 25^th Sept, arrive H.K.” 12 Oct 2013

(5) CP13020042 “Before 25^th Sept, arrive H.K.” 12 Oct 2013

(6) CP13020043 “Before 25^th Sept, arrive H.K.” 12 Oct 2013

(7) CP13020044 “Before 29^th Sept, arrive H.K.” 18 Oct 2013

(8) CP13020045 “Before 29^th Sept, arrive H.K.” 18 Oct 2013

(9) CP13020046 “Before 29^th Sept, arrive H.K.” 18 Oct 2013

(10) CP13020047 “Before 29^th Sept, arrive H.K.” 18 Oct 2013

(11) CP13020048 “Before 29^th Sept, arrive H.K.” 18 Oct 2013

77.The goods under each of the HK Orders were delivered late, in the sense that they were delivered later than the stipulated “Expected Ship Date”.

78.I reject Chu’s and Zhang’s evidence that the delay was caused by Chu’s revision of the prototypes or delay in otherwise finalizing the materials and designs. In so far as 8 of the HK Orders which related to the checkered and dress shirts were concerned, the goods had been held up in the Mainland Customs from 29 August 2013 because some of the information submitted by P in its customs’ declaration was incorrect. As I have mentioned above, in the course of cross-examination when §9 of Li/WS was put to him, Chu agreed with its contents.

79.I do not however accept D’s case that the stipulated time for delivery of the Garments under the HK Orders was of the essence. As submitted by Ms Chong[56], which I accept, there is no contractual documents to the effect that time was of the essence. The shipment dates were only “Expected Ship Dates”. D was not entitled to reject the deliveries from P despite the delay. In any event, deliveries had in fact been accepted despite the delay, both in respect of the shirts and the corduroy trousers.

80.In respect of 3 of the HK Orders relating to corduroy trousers were concerned, I accept Li’s evidence at §§16 and 17 of Li/WS that:

“ 16. Within 1 or 2 days after redelivery to Aeon, I was contact [sic] by Aeon’s warehouse again and was told that the bulk of the corduroy trousers delivered had defects including, but not limited to, the following (‘the Defects’):

a.  Colour stains;

b.  Colour shade variation between front and back panels of the trousers;

c.  Open seams;

d.  Uneven pocket lengths;

e.  Wrong size label;

f.  Front pleats in the wrong direction; and

g.  Insecure stitches on belt loops.

17.  After discovering the [Corduroy Trousers Defects], Aeon immediately rejected the corduroy trousers. Apart from Aeon, the corduroy trousers initially were designated to put for sales in other department stores as Citistore, Sincere, Apita and UNY. Due to the [Corduroy Trousers Defects], these department stores all rejected the goods. I also immediately contacted [Chu] and informed him of the same. [Chu] then explained to me that, there was delay in the production process and therefore [P] had to press on to produce the corduroy trousers to meet the shipment dates although [P] was well aware that there were quality issues …”

81.I accept also Li’s evidence[57] that he had, on behalf of Everbest, agreed with Mr Chu that:

(a)  Everbest would sell the delivered goods “on consignment” basis, ie it had to pay D only for those it was able to sell;

(b)  Everbest would pay D for the number of items it was able to sell at a discounted price;

(c)  the final amount payable by Everbest to D would be agreed at a later date; and

(d)  Everbest could return any unsold items to D.

82.Despite my acceptance of Li’s evidence above, I am not satisfied that the evidence adduced is sufficient to establish the nature and extent of the Corduroy Trousers Defects. The reasons are as follows:

(a)  what Li has described at §16 of Li/WS is hearsay;

(b)  At §43 of Dayaram/WS1, Dayaram has said that:

“ … I was shown the samples of the corduroy trousers and learned that the bulk of the corduroy trousers delivered by [P] to [D] under the [HK Orders] CP13020041, CP13020042, and CP13020043 suffered from various defects, including, but not limited to, the [Corduroy Trousers Defects] …”

His evidence there however lacks particulars. In particulars, what and the number of samples that were shown to him have not been specified;

(c)  D relies on the SGS report of 22 August 2014[58]:

(i)  the Inspector (stated to be Wicky Wong) maker of that report has not been called;

(ii)  the stated number of “Inspection Qty. (Presented Qty. for insp.)” was only 311 when the total number of  corduroy trousers delivered to Everbest was 5,188 pairs;

(iii)  While the “Inspection Qty. (Presented Qty. for insp.)” was 311, the stated “Sample size” was only 50 in total (22, 2 and 26 respectively for each of the 3 styles);

(iv)  I have no evidence informing me how the samples inspected were selected, whether they were representative of the bulks, or the sufficiency of the sample sizes;

(v)  I refer to the discussions at section B.1. above. The SGS report is at best factual hearsay. Any expression of purported expert opinions therein as to whether any defects detected were “major” or on “Style, Material & Colour Conformity” etc are beyond the purpose for which the report is adduced;

(vi)  I place little weight on that SGS report;

(d)  D relies further on the STC Test Report of 4 October 2017[59]:

(i)  Lai conducted the inspection. He has in Lai/WS confirmed that the report accurately and truthfully reports what he has found in the inspection;

(ii)  The inspection was conducted on 29 September 2017, nearly 4 years after the corduroy trousers were delivered;

(iii)  I have concern as to whether the lapse of time had anything to do with the defects allegedly found;

(iv)  Only 333 pairs of corduroy trousers were inspected, representing only 6.4% of those delivered;

(v)  I have no evidence informing me whether the size of the population was sufficient;

(vi)  More importantly, I am not satisfied that those 333 pairs inspected were representative of the bulk;

(vii)  As confirmed by Li, those 333 pairs were those that could not be sold after the “consignment sale”. I have serious concern as to whether the plum might have got sold, and the duff got left behind;

(viii)  I am not therefore satisfied that the 333 pairs were representative of the bulk delivered;

(ix)  Further, as I have explained in section B.1 above, Lai was only called as a factual witness. Any expression of expert opinion in the report as to whether any alleged defects were “Critical”, “Major”, “Minor” or “Good quality” is outwith the purpose for which Lai was called;

(x)  I again attach little weight on the STC Test Report.

(e)  Mr McLeish submitted[60] that Evervest’s own customers for the corduroy trousers rejected them because of the Corduroy Trousers Defects, and that Li himself took the view that Everbest was entitled to reject and return all the goods concerned. That might have been so. But Li’s and the views of his customers might not be right. The Corduroy Trousers Defects would still have to be proved by admissible and probative evidence;

(f)  During cross-examination, Chu said that he had seen some of those Corduroy Trousers Defects, but he did not know of the quantity;

(g)  I have considered §§19 and 20 of Li/WS, wherein Li said that Chu had originally told him that P would be willing to take back all the goods and compensate Everbest, but that P later refused to do so. I have also considered the related emails[61]. But D’s counterclaim in respect of the corduroy trousers is on the basis of the existence of the Corduroy Trousers Defects. It is not agreement-based. The fact that P had at one stage agreed to take back the goods is no evidence as to the extent and nature of the Corduroy Trousers Defects;

(h)  For the reasons set out above, I am not satisfied on the evidence before me that the Corduroy Trousers Defects have been proved.

H. The quantum of the claim, the set-off and the counterclaim

H.1. The Brazilian Orders

83.There is no dispute that the Outstanding Price is US$77,940.63.

84.I have found the Sleeve Length Defect established, and that P has been in breach.

85.I accept Dayaram’s evidence at §§18 and 19 of Dayaram/WS1 that:

“ 18. In an attempt to mitigate its loss, [D] persuaded the Brazilian Customer to take delivery of the shirts with a US$20,000 discount, on a consignment basis such that the Brazilian Customer would only have to pay for those long-sleeved shirts it actually managed to sell. The Brazilian Customer originally asked for a discount of US$27,000, which I negotiated down to US$20,000 orally.

19. At the end of the day, the Brazilian Customer paid US$148,736.40 to [D] for the goods delivered pursuant to the Brazilian Purchase Orders, resulting in a loss to [D] of US$37,803.60, as can be seen from the account ledger of [D].”

86.I am satisfied that that account ledger[62] accurately reflected the loss D believed it had suffered.

87.The issue remains whether that amount of US$37,803.60 is recoverable from P.

88.Ms Chong submitted that it is not. She submitted[63] that:

“ In the case of breach of warranty of quality, such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty (s.55(3), Sale of Goods Ordinance, Cap.26, Benjamin’s Sale of Goods, 10^th ed., §17-051-054 - #6, P’s LOA). It is submitted that all the alleged loss of US$37,803.7 … in the Brazilian Purchase Order and US$189,884 … in the Peruvian Purchase Order resulting from quality defects were artificially created and self-generated …”

89.In that regard, I accept Mr McLeish’s submissions[64], relying on §§17-044 and 17-067 of Benjamin’s Sale of Goods, 10^thed, §§25-027 to 25-030 and 25-055 of McGregor on Damages, 12^th ed, and Euro-Asia Oil SA v Credit Suisse AG & Ors [2018] EWCA Civ 1720, per Lord Justice Simon at §§71 and 72, that since the goods supplied by P were, to P’s knowledge[65], specific goods ordered for on-selling to its customers, where there was no market in which replacement goods could be bought, D is entitled to claim loss of profit in respect of its claims for breach of warranty of quality, failure of the goods to correspond to description and late delivery.

90.Despite Ms Chong’s submissions to the contrary made in the course of her oral closing submissions, I am satisfied that the specific nature of the goods has been adequately pleaded in the D&C (and in particular §4 thereof).

91.I am satisfied with the reasonableness of the mitigating steps taken by D.

92.The loss D suffered as a result of the Sleeve Length Defect arose from the Brazilian Orders which P is suing on. D is entitled to raise the same by way of set-off as a defence.

93.I am satisfied that D is entitled to set off against the sum of US$77,940.63 its loss of US$37,803.60. To that extent, P’s claim is defeated.

H.2. The Earlier Peruvian Purchase Order and Subsequent Peruvian Purchase Orders

94.There is no dispute that the Outstanding Prices in respect of the Subsequent Peruvian Purchase Orders is US$36,765.30.

95.I have found the Composition Defect established, and that P has been in breach.

96.It is D’s case that:

(a)  because of the Composition Defect, the Peruvian Customer (1) cancelled 2 further orders from P, resulting in a loss of profit of US$20,250, and (2) demanded a refund of the price of US$189,884 it had paid for the goods delivered under the Earlier Peruvian Purchase Order;

(b)  in reasonable mitigation of its losses, D agreed with the Peruvian Customer a US$1.2 discount per piece of the shirts concerned, giving rise to a credit due to the Peruvian Customer of US$60,120, which sum D has paid;

(c)  total loss which D has suffered as a result is US$80,370.

97.Three issues have arisen:

(a)  whether D has established those losses;

(b)  whether those losses are recoverable from P; and

(c)  if yes to both, whether D is entitled to rely on the defence of set-off to extinguish the entirety of P’s claim under the Subsequent Peruvian Purchase Orders (leaving the balance for counterclaim), or whether D is only entitled to counterclaim for its loss.

H.2.a Whether D has established those losses

98.In respect of the loss of profit in the sum of US$20,250, I accept Dayaram’s evidence[66] that:

“ As a result of its experience with the Composition Defect, the Peruvian Customer cancelled two further orders for long-sleeve shirts with [D], CS13020069 and CS13020070. The profit margin that [D] would have earned from these two cancelled orders would have been US$20,250, as can be seen from the pro forma invoices issued by [D] to the Peruvian Customer, and the purchase orders between [D] and [P], which show [D]’s profit margin of US$20,250. These profits were lost when the Peruvian Customer cancelled the orders.”

99.In respect of the credit in the amount of US$60,120 given to the Peruvian Customer:

(a)  according to Dayaram[67], in about November 2016, during a meeting between him and Ms Jessica Tejada of the Peruvian Customer (“Tejada”) at the office of D, he orally acknowledged and recognized that D was under an obligation to refund to Samitex. Then during a meeting at a café while attending a trade fair in Guangzhou, he agreed with Tejada that D would give Samitex a discount of US$1.2 per piece for the Earlier Peruvian Purchase Order. However, Samitex indicated that it had lost confidence in D and was reluctant to do any business with D in the future. Dayaram said that he therefore also agreed with Samitex that Samitex had the option of requesting D to pay the sum under the credit note to its agent in Hong Kong. Dayaram said that pursuant to this agreement, on 19 May 2017, D issued to Samitex a credit note in the amount of US$60,120[68] (the “Credit Note”). According to Dayaram[69], Samitex subsequently requested D to pay the sum under the credit note to its agent in Manila. He produced a Customer Advice of Outward Remittance (the “Credit Note Remittance Advice”) showing the remittance of a sum of US$60,120 to a company called Shining Star Apparel Mfg Co on 5 June 2018[70];

(b)  Ms Chong in the course of her cross-examination challenged Dayaram’s evidence in relation to the agreement with Samitex, the issue of the Credit Note and the payment thereof. Specifically, Ms Chong suggested to Dayaram that if D had issued the Credit Note at all, it had nothing to do with any discount or refund given in relation to the Peruvian Goods;

(c)  For the following reasons, I accept Dayaram’s evidence that an agreement had been reached between Samitex and D giving a discount of US$1.2 per piece to Samitex, that the Credit Note had been issued pursuant to that agreement, and that the agreed sum of US$60,120 had been paid;

(d)  The first point that should be noted in this regard is that authenticity of all documents in the trial bundles has been deemed admitted. No notice under Order 27, rule 4 has been issued by P in respect of any disclosed documents;

(e)  The Credit Note on its face made reference to the Sales Confirmation No. of (ie CS13030030). Its own reference number was CNCS13030030. Both numbers are referable to the number of the Earlier Peruvian Purchase Order;

(f)  The sum of US$60,120, Dayaram explained in his evidence, was reached by US$1.2 (the discount agreed to be given per piece) multiplied by 50,100 (the quantity of goods agreed to be ordered under the Earlier Peruvian Purchase Order);

(g)  A credit note for the same amount (though the exact reference or confirmation number was not mentioned) was mentioned in certain subsequent exchange of emails between Dayaram and Tejada. In one of those emails, Dayaram said that “…we are waiting your details of where to send the TT for the credit note for our claim of US$60,120 for the Shirts to finish this matter”;

(h)  The Credit Note Remittance Advice bears, under the sub-heading of “Details of Payment”, the entry of “CREDIT NOTE REF NO CNCS13030030”, which was the reference number of the Credit Note;

(i)  All the above support in my view the conclusion that the Credit Note indeed was issued pursuant to the agreement that Dayaram said he had reached with Tejada.

H.2.b. Whether the loss recoverable

100.Relying on inter alia §17-034 of Benjamin and §25-107 of McGregor, Mr McLeish submitted[71] that loss of repeat orders is recoverable.

101.In my view, at the time when the Earlier Peruvian Purchase Order was placed, it was within the reasonable contemplation of the parties that the Composition Defect might lead to the Peruvian Customer withdrawing repeat orders from D.

102.I allow the loss of repeat orders in the sum of US$20,250.

103.In respect of the discount of US$1.2 per piece and the Credit Note, I have explained why I accept Dayaram’s evidence in those regards. I am also satisfied with the reasonableness of the mitigation undertaken.

104.I also allow the loss in the sum of US$60,120.

H.2.c. Whether set off or counterclaim

105.D relies on the defence of equitable set-off.

106.I have considered Karpex (HK) Ltd v Yasmine Printing (China) Ltd [2008] 1 HKLRD 199, where Cheung JA, with reference to BICC Plc v Burndy Corp & Another [1985] 1 All ER 417 at pp 424-425, explained that equitable set-off:

“ … arose in cases in which a court of equity would have regarded the cross-claims as entitling the defendant to be protected in one way or another against the plaintiff’s claims; these were particularly cases where the cross-claim was related to the subject matter of the claim and there were factors which would have rendered it unjust in the eyes of equity that the claim should be enforced without regard to the cross-claim.”

107.I have also considered Hung Fung Enterprises Holdings Ltd v The Agricultural Bank of China, unrep, HCA 16459/1998, 10 July 2009, where Fung J at §§23-25 cited and applied the following authorities that:

“ 23. In Bank of Boston Connecticut v European Grain and Shipping Co Ltd [1989] 1 AC 1056, 1102, Lord Brandon stated:

‘ … the criterion which Lord Hobhouse applied (in Government of New Foundland v New Foundland Railway Co (1888) 13 App Cas 199 (PC)) … in deciding whether the government’s cross-claim for unliquidated damages could be set-off against the company’s claim was not that the cross-claim ‘impeached the title of the legal demand’ as in Rawson v Samuel … but rather it was a cross-claim flowing out of and inseparably connected with the dealings and transactions which also give rise to the claim.’

24. In Bim Kemi AB v Blackburn Chemical Ltd [2001] 2 Lloyds’ LR 93; [2001] EWCA Civ 457, Potter LJ said at p. 98 (col. 2):

‘ Equity recognized a right to set off a cross-claim for unliquidated damages where the claim and cross-claim were so closely connected that it would be unfair not to allow a set-off.’

25. His Lordship referred to the Bank of Boston case and said at p. 100 (col. 2):

‘ … the Court has been content for the outcome to be governed by the notion of fairness involved in the proposition that it must be ‘manifestly unjust’ to allow one to be enforced without regard to the other. For myself, I consider that Lord Brandon’s formulation [in the Bank of Boston case] to be preferred because on the one hand it emphasizes that the degree of closeness required is that of an ‘inseparable connection’, while on the other it makes clear that it is not necessary that the cross-claim should arise out of the same contract; all that is required is that it should flow from the dealings and transactions which give rise to the subject of the claim.’ ”

108.I have considered the natures of the Earlier Peruvian Purchase Order and the Subsequent Peruvian Purchase Orders. They were independent orders. The issue dates were different, which were separated by some 4 months. The quantities of the shirts were different. The stated compositions of the fabrics were different. Apart from the identity of the Peruvian Customer, there was no material nexus between the Earlier and Subsequent Peruvian Purchase Orders. Nor was there any “inseparable connection” between the two sets of orders. I see no injustice in allowing P’s claim under the Subsequent Peruvian Purchase Orders to be enforced without regard to the cross-claim under the Earlier Peruvian Purchase Order.

109.In the circumstances, I rule that D is not entitled to set up its loss under the Earlier Peruvian Purchase Order by way of equitable set-off as a defence to P’s claim under the Subsequent Peruvian Purchase Orders. I rule on the other hand that D’s counterclaim for its total loss of US$80,370 under the Earlier Peruvian Purchase Order is successful.

H.3. THE HK ORDERS

110.D and Everbest have entered into the Deed of Settlement.

111.As I have recorded above, upon D and Everbest entering into the Deed of Settlement, D has amended D’s F&B. The material particulars are §2(ii)[72], that:

“ Following negotiation, [D] and [Everbest] have in early October 2017 and/or June 2019 agreed on the following and, insofar as is applicable, provided for the same in [the Deed of Settlement]:

a. subject to the 5% discount as stated in the invoices and a further reduction of HK$22,021.20, being the amount deducted by Aeon (from its agreed price with the [Everbest] for the checked shirts supplied to it), HK$7,904.50, being the price for the returned goods, and HK$5,250, being the price for the substandard goods, the [Everbest] will pay for the checked shirts in full, in the total sum of HK$93,863.75;

…

c. [Everbest] will count the numbers of the dress shirts that were not sold in order to ascertain the exact numbers of the dress shirts that it managed to sell and make payment for the same. That exercise was completed on or around 26 July 2019. [Everbest] found that only 8 pieces had been sold as a result of which a sum of around HK$360 only is payable to [D] in respect of these goods;

d. [Everbest] will pay a sum of HK$58,000 in full and final settlement of the corduroy trousers.”

112.I have concluded that on the evidence before me, I am not satisfied that the nature and extent of the Corduroy Trousers Defects have been sufficiently established. I dismiss D’s counterclaim in respect of the corduroy trousers and disallow the part of D’s alleged loss in that regard.

113.In respect of those of the HK Orders relating to the checkered shirts and dress shirts, while I have ruled that time is not of the essence, D remains entitled to claim P for damages.

114.I am satisfied with the reasonableness of P having entered into the Deed of Settlement with Everbest in mitigation of its loss.

115.According to the relevant invoices[73], D sold the checkered shirts and dress shirts to Everbest at the total price of HK$173,043.45.

116.As a result of P’s breaches, and upon the Deed of Settlement, D was only paid HK$93,863.75 and HK$360[74].

117.I am going to add back to the sum of HK$93,863.75 the sum of HK$5,250[75]. That latter sum, according to D’s F&B, related to certain allegedly substandard checkered shirts, which allegation does not form part of D’s Counterclaim. The resultant amount is HK$99,113.75.

118.Assessing the damages the best this Court can according to the evidence before me, I assess the damages at HK$173,043.45 - HK$99,113.75 - HK$360 = HK$73,569.70.

119.To the extent of HK$73,569.70, I allow D’s counterclaim in respect of the HK Orders.

H.4. The results

120.The results of the above (save the Tax Refund Loss) which I will return to) are that:

(a)  in respect of the Brazilian Orders:

(i)  I allow D’s defence by way of set-off the sum of US$37,803.60. To that extent, that part of P’s claim is defeated;

(ii)  I allow P’s claim in the sum of US$77,940.63 - US$37,803.60 = US$40,137.03;

(b)  In respect of the Earlier Peruvian Purchase Order and Subsequent Peruvian Purchase Orders:

(i)  I allow P’s claim in the sum of US$36,765.30;

(ii)  I allow D’s counterclaim in the sum of US$80,370;

(c)  In respect of the HK Orders, I allow D’s counterclaim to the extent of HK$73.569.70.

I. The Tax Refund Loss

121.I have summarized the basis of P’s claim in this regard. To consider the same, I need to consider whether D’s refusal to pay P the Outstanding Prices (or any part thereof) was justified. I have done it above. I can now return to P’s claim for the Tax Refund Loss.

122.In respect of the Tax Refund Loss, Zhang said this in Zhang/WS[76] that:

“ 48. To encourage exports, the PRC Government refunds the 17% value added tax to factories owners. With the purchase orders …, the commercial invoices …, the export manifests …, the accounting staff of the [P] would prepare vouchers to claim refund of the 17% tax. The vouchers together with proof of overseas remittance when the goods have been paid, would then be submitted to the tax bureau of the PRC Government for refund of the tax.

49. In the present case, [P] had never paid by [D] for the outstanding invoice amounts under the [Brazilian Orders] and [Peruvian Orders]. Without the overseas remittance record, [P] was unable to claim the tax refund.

50. Details of the loss of tax refund in the [Brazilian Orders] are as follows:

Export Manifest # Tax Voucher # Loss of Tax in RMB ¥ Loss of Tax converted in US$ **

12 14 ¥33,084.35 US$5,337.91

12 15 ¥28,902.29 US$4,663.16

12 16 ¥17,693.08 US$2,854.64

12 17 ¥16,277.86 US$2,626.31

Total: ¥95,957.58 US$15,482.02

# Item No. in Plaintiff’s List of Documents
** Using the following currency exchange rage: US$ 1 = RMB ¥ 6.198 as of April 2014, the time when the writ filed.

51. Details of the loss of tax refund in the [Peruvian Orders] are as follows:

Export Manifest # Tax Voucher # Loss of Tax in RMB ¥ Loss of Tax converted in US$ **

19 21 ¥40,197.30 US$6,485.52

Total: ¥40,197.30 US$6,485.52

# Item No.in Plaintiff’s List of Documents
** Using the following currency exchange rage: US$ 1 = RMB ¥ 6.198 as of April 2014, the time when the writ filed.

52. The total loss of tax refund should be US$21,967.54. The above should be the correct calculation. I made a mistake in my calculation in item 30 of the Plaintiff’s List of Documents.”

123.When giving evidence in chief, Zhang confirmed that the relevant value added tax had been paid by P, but as the Outstanding Prices had not been paid, P could not claim back the refund. She further explained that there was a time limit of 12 months (counting from the dates of the relevant export applications) for P to claim back the refund, and as that time limit had lapsed, P was no longer entitled to seek any refund even if D were to pay up now.

124.The evidence was not challenged by Mr McLeish during cross-examination. I accept her evidence in this regard despite my findings on her reliability.

125.D puts P to strict proof of the Tax Refund Loss (and see Mr McLeish’s written closing at §106). Subject to what I say below, I am satisfied that P has.

126.Mr McLeish submits[77] that insofar as the effective cause of the Tax Refund Loss being P’s own wrong in breaching the contracts concerned due to the Sleeve Length Defect and the Composition Defect, it is not recoverable from D because of D’s entitled to set-off its own losses against the unpaid sum. I agree.

127.In so far as the Brazilian Orders is concerned:

(a)  I allow D’s defence by way of set-off the sum of US$37,803.60. To that extent, the part of P’s claim is defeated;

(b)  I allow P’s claim in the sum of US$77,940.63 - US$37,803.60 = US$40,137.03;

(c)  P’s claim has been reduced by 48.5%;

(d)  I therefore allow only 51.5% of P’s Tax Refund Loss in respect of the Brazilian Orders;

(e)  I therefore allow P’s claim in this regard to the extent of US$7,973.24 (ie US$15,482.02 x 51.5%);

(f)  To the above extent, I accept Mr McLeish’s submissions at §108 of his written closing.

128.In so far as the Subsequent Peruvian Purchase Orders is concerned:

(a)  At §108 of his written closing, Mr McLeish submits that:

“ In the case of the Subsequent Peruvian Purchase Orders, D’s set-off extinguishes the relevant part of the Tax Refund Claim (if proved) in the sum of US$6,485.52 entirely since D’s losses resulting from the Composition Defect (US$80,370) exceed the unpaid price with respect to the Subsequent Peruvian Purchase Orders (US$36,765.30)”;

(b)  That submission is made on the basis of this Court allowing D’s attempted set-off in relation to the Earlier Peruvian Purchase Order;

(c)  I have ruled that D, though successful in its counterclaim in respect of the Earlier Peruvian Purchase Order, is not entitled to set up the same by way of equitable set-off as a defence. I have therefore allowed P’s claim in its totality;

(d)  That being the case, and despite the fact that the quantum of D’s counterclaim (in the allowed sum of US$80,370) is larger than P’s claim (in the allowed sum of US$36,765.30), D’s non-payment of that sum was in my view causative of this part of P’s Tax Refund Loss;

(e)  I therefore allow this part of P’s Tax Refund Loss in the sum of US$6,485.52.

J. Overall disposition

129.This is not a straightforward case despite the relevantly small amount in dispute. Having considered all the matters carefully, and for the reasons set out above, I hold that:

(a)  In respect of the Brazilian Orders:

(i)  I allow D’s defence by way of set-off the sum of US$37,803.60. To that extent, the part of P’s claim is defeated;

(ii)  I allow P’s claim in the sum of US$77,940.63 - US$37,803.60 = US$40,137.03;

(iii)  I allow P’s claim for Tax Refund Loss to the extent of US$7,973.24;

(b)  In respect of the Earlier Peruvian Purchase Order and Subsequent Peruvian Purchase Orders:

(i)  I allow P’s claim in the sum of US$36,765.30;

(ii)  I allow P’s claim for Tax Refund Loss in the sum of US$6,485.52;

(iii)  I allow D’s counterclaim in the sum of US$80,370;

(c)  In respect of the HK Orders, I allow D’s counterclaim to the extent of HK$73,569.70.

130.The net results are that:

(a) P is successful in the total amount of US$91,361.09 (ie US$40,137.03 + US$7,973.24 + US$36,765.30 + US$6,485.52); and

(b) D is successful in the total sum of US$80,370 plus HK$73,569.70.

K. Interest

131.Given the different awards and the currencies involved, I make an interest order nisi that:

(a) the judgment sums in favor of P shall carry interest at commercial rate of prime plus 1% from the date of the service of the Writ until the date of the Judgment herein, and thereafter until payment at judgment rate; and

(b) the judgment sums in favor of D shall similarly carry interest at commercial rate of prime plus 1% from the date of the service of the defence and counterclaim to the Judgment herein, and thereafter until payment at judgment rate.

Any application for variation shall be made in the same way as I will direct in relation to the costs order nisi below.

L. Costs

132.On the question of costs, if I were to approach the same on the basis that the Brazilian Orders, the Earlier Peruvian Purchase Order, the Subsequent Peruvian Purchase Orders and the HK Orders were separate orders, the considerations would be as follows:

(a)  In respect of the Brazilian Orders, D, whilst successful in its defence, is not able to extinguish P’s claim in its totality. Notionally, P may have 50% of the costs of the action in respect of the Brazilian Orders save in so far as they are increased by the related set-off, and D may have the costs of and incidental to its related set-off;

(b)  In respect of the Earlier Peruvian Purchase Order and Subsequent Peruvian Purchase Orders, notionally P may have the costs of the action in respect of the Subsequent Peruvian Purchase Orders save in so far as they are increased by the related counterclaim, and D may have the costs of and incidental to its counterclaim in relation to the Earlier Peruvian Purchase Order; and

(c)  In respect of the HK Orders, D is the successful party, and may be entitled to the costs of the related counterclaim;

(d)  Each parties’ costs for their successful claim / set-off / counterclaim will be set-off against each other.

133.Bearing in mind the above, I have formed the provisional view that justice may best be achieved by ordering that overall, in respect of all the claims, set-off and counterclaims, there be no order as to costs. That may also avert a complicated and potentially costly set of taxation proceedings. I therefore make the costs order nisi that in respect of the entire action (but without prejudice to any costs order that have previously been made), there be no order as to costs. Any party who seek variation of the same may file submissions within 21 days hereof, submissions in response within 14 days of receipt, and submissions in reply within 7 days thereafter. Unless otherwise directed, any variation of the costs order nisi may be dealt with on the papers.

	(Keith Yeung)
	Judge of the Court of First Instance High Court

Ms Sezen KY Chong, instructed by K P Lam & Co, for the Plaintiff

Mr Robin McLeish, instructed by Haldanes, for the Defendant

[1] Which D calls the Subsequent Peruvian Purchase Orders, as I will explain.

[2] Pleaded in the Amended Statement of Claim as US$14,805.41, but with my leave granted on the first morning of the trial (and with no objection from Mr McLeish) amended to the present amount.

[3] In respect of the Peruvian Orders, the alleged loss originally pleaded in D’s Defence and Counterclaim was US$210,134 plus loss of future custom to be assessed. In the Opening of Mr McLeish, counsel for D, he stated that (1) the alleged loss of future custom is no longer pursued; and (2) as a result of certain alleged mitigation undertaken, the updated set-off/counterclaim is reduced to US$80,370.

[4] [D/574-583], [D/654], [D/655], [D/656-658], [D/734-735], [F/1006-1018] and [F/1048-1058].

[5] [F/1058-1 — 1058-5].

[6] Re-amended pursuant to leave I granted on the first morning of the trial to amend the amount of the alleged Tax Refund Loss — see footnote 3 above.

[7] See §§6 and 11 of Mr McLeish’s written closing.

[8] [D/602-603].

[9] That is in fact not correct. The composition of the fabric specified in the Earlier Peruvian Purchase Order was actually 60% polyester and 40% cotton.

[10] §19.

[11] To delete the Counterclaim to Counterclaim originally pleaded therein.

[12] That appears also to be a mistake. The composition of the fabric specified in the Earlier Peruvian Purchase Order was actually 60% polyester and 40% cotton. But the same error was made by D at §26 of its D&C.

[13] [A/78-5 to 78-6].

[14] §35 of the AR&DC.

[15] [B/Tab 6].

[16] [B/Tab 7].

[17] [B/Tab 12].

[18] [B/Tab 9].

[19] Together with translation at [B/248-265].

[20] At §2 of the RRASOC.

[21] §12(ii) of Dayaram/WS1.

[22] [B/266-289].

[23] [B/285].

[24] At §57 of his written closing.