United Chemical Industries Co Ltd v. Telemac (HK) Ltd
Read the full judgment text of CACV 54/1972 on BabelCite. This Court of Appeal judgment was delivered on 11 May 1973.
2. A Mr. Donald Parr is Managing Director of Thomas Marshall Investments Ltd. He is also a director of Telemac (U.K.) and a director of Telemac (H.K.). A Mr. Derek Parr is Managing Director of Telemac (U.K.). A Mr. Stephen Lim is a director and Manager of Telemac (H.K.); and he is responsible for the day-to-day running of that company.
Cited by 1 case
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CACV000054/1972 IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) (On appeal from O.J. 1995 of 1972) -----------------
----------------- Coram: Full Court (Blair-Kerr, S.P.J., Huggins and McMullin, JJ.) Date of Judgment: 11th May 1973 ----------------- JUDGMENT ----------------- Blair-Kerr, S.P.J. : The defendants [hereinafter referred to as "Telemac (H.K.)"] are a Hong Kong limited company. Telemac Ltd. [hereinafter referred to as "Telemac (U.K.)"] are a limited company incorporated in the United Kingdom. Telemac (U.K.) and Jardine Matheson & Co. Ltd each owns 50% of the share capital of Telemac (U.K.). Telemac (U.K.) is a wholly owned subsidiary of Thomas Marshall Investments Ltd., a company incorporated in the United Kingdom. 2. A Mr. Donald Parr is Managing Director of Thomas Marshall Investments Ltd. He is also a director of Telemac (U.K.) and a director of Telemac (H.K.). A Mr. Derek Parr is Managing Director of Telemac (U.K.). A Mr. Stephen Lim is a director and Manager of Telemac (H.K.); and he is responsible for the day-to-day running of that company. 3. Telemac (H.K.) manufactures and exports garments of various kinds. One of their biggest customers is Telemac (U.K.), who in turn sell these garments to others in the United Kingdom, including Great Universal Stores Merchandise Corporation Ltd. [hereinafter referred to as "G.U.S."]. G.U.S. is one of the largest mail order organisations in Britain. 4. The plaintiffs, a Hong Kong limited company, deal in what their manager, Mr. Lau Fu-shan, described in evidence as "PVC leather cloth"; and, since 1969, they have been selling material of this sort to Telemac (H.K.). 5. On 12th January 1971, Lim received a letter from Donald Parr together with what Parr described as "patterns of polyurethane" which he had received from one of his associates in Germany. Parr informed Lim that "the garment factory manufacturing the fabric is Fook Cheong." He also said that the material had been supplied by a firm named Li and Fung. Parr requested Lim to look into the matter. 6. Lim recognised the patterns as being similar to the type of PVC fabric which was manufactured by the plaintiffs; and on receipt of Parr's letter, he spoke to Lau and showed him the cuttings. Lau told Lim that the plaintiffs produced this material and he gave Lim some cuttings of what appeared to Lim to be identical material, and Lim sent these cuttings by air to Parr on 22nd January 1971. Lim also purchased 20 yards of the same material. 7. Lau knew that the business of Telemac (H.K.) was the manufacture and export of garments, and there is no doubt that he regarded the 20 yards as a sample. It was referred to as such on the plaintiffs' delivery and debit notes dated 20th January, and the plaintiffs gave Telemac (H.K.) 50% "sampling discount". The material was described on the plaintiffs' delivery note as "Ucileather expanyl PVC wet look grade"; and on their debit note as "expanyl wet look grade white cotton fleecy woven fabrics ... N finish." 8. Telemac (H.K.) had no facilities in Hong Kong for testing the durability of fabrics; and, as the object of any purchase of material from the plaintiffs was the manufacture and export of garments for sale to Telemac (U.K.), in response to a telegram from Telemac (U.K.), Lim sent them 12 ½ yards of the 20-yard sample by air freight. On the accompanying invoice (for the information of the Customs authorities) Telemac (H.K.) described the 12 ½ yards as "sample of no commercial value." In a letter of 3rd February 1971 to Parr, Lim described the cuttings which he was forwarding as "a polyurethane coated PVC fabric." 9. G.U.S. has a laboratory. The person in charge of it is a Mr. A.D. Ferguson whose qualifications include the following:
Before joining G.U.S., he had been associated for 28 years (and had been deputy head for several years) of the Textile Department of the Manchester Chamber of Commerce Testing House. 10. Mr. Ferguson and his colleagues in the G.U.S. laboratory carry out research and development work on new materials, and he examines and reports upon materials offered for purchase by merchant firms. He said in evidence that the object was to obtain an unbiassed assessment of the performance of textile commodities prior to, and during, purchase. 11. PVC is an abbreviation for polyvinyI chloride. From a casual glance at the article on plastics in volumn 18 of the Encyclopaedia Britannica, it is obvious that both this substance and polyurethanes are plastics and that they have been used throughout the world for many purposes for many years. According to the evidence, PVC has been manufactured in Japan since 1960. 12. The process of manufacture of the material (variously described in the documents as "ucileather expanyl PVC wet look grade", "PVC leather cloth", "polyurethane coated PVC fabric" and so on) is a simple one. According to the plaintiffs' chemist, his company purchases the 3 components, namely the cotton backing, the PVC, and the polyurethane. The manufacturers of the PVC and the polyurethane issue instructions as to how these substances should be used. The production department of his company gives him instructions as to what is to be produced - specifying colour, etc. Mr. Chow does the necessary mixing and the mixtures are issued to the production department. 13. The process of coating the PVC on the cotton fabric was described by Mr. Ferguson in these words:-
14. The judge's note of the evidence of the plaintiffs' chemist (Mr. Chow) is rather brief. It reads:
15. It appears that a few years ago the so-called "wet look" on garments made of such plastic materials as PVC became popular. Mr. Ferguson, when asked what he understood by the words "wet look grade", said:
In this connection the record of Donald Parr's evidence reads:-
16. There was no evidence whatsoever to suggest that the process of manufacture by the plaintiffs incorporated any new feature such as could conceivably make the plaintiffs' product distinctive in any way. From the point of view of any garment manufacturer purchasing the plaintiffs' material, what mattered was that it should be reasonably well manufactured; and, in this regard, Mr. Ferguson said:-
17. Tests designed to assess the durability of coated fabrics are of 2 kinds. One is for determination of abrasion resistance - that is to say the degree to which the fabric is liable to scratch. The other is a wear test. The trial judge had before him a document published by the British Standards Institution which describes a method recommended by the Institute for determining abrasion resistance. The apparatus recommended is the W.I.R.A. Martindale Abrasion Machine. In the foreword, there appears these words:
Broadly, in this test the coated fabric is rubbed against the emery paper in a particular way and the number of rubs is recorded. 18. Mr. Ferguson's evidence was that this test is of little value to any prospective purchaser of garments made of coated fabrics. What is required is a test which will involve the fabric being subjected to both rubbing and pulling designed to simulate the stresses and strains to which garments (such as ladies coats and jackets) may be subjected in the course of ordinary wear. To take one of hundreds of examples: The wearer of such a coat may sit down in a bus. The seat of the bus will, in all probability, be covered with plastic material of some sort. The wearer of the garment may move across the seat to make room for another passenger. This would cause the material, of which the coat is made, to be pulled to a considerable extent as well as rubbed against the seat. This is merely one of hundreds of different ways in which garments made of plastic material may not only be rubbed against another plastic surface, but may be subjected to a degree of lateral pull which the purchaser of such a coat might reasonably expect the coat to withstand, being an incident of normal wear and tear. 19. Mr. Ferguson said in evidence that, in order to give reliable results, any wear test must involve two pieces of the fabric in question being made to rub and pull against each other in a manner designed to simulate the stresses and strains of ordinary wear. He said that having tested many different machines he found that the Martindale Machine was the best one, provided, of course, that two pieces of fabric were used - not one piece being made to rub against emery paper. His evidence reads in part:-
20. The intention of Telemac (U.K.) was to sell to G.U.S. any garments which they might eventually purchase from Telemac (H.K.); and so, upon receipt of the 12 ½ yards sample, Telemac (U.K.) submitted part of that sample to G.U.S. for testing, as they had done on previous occasions. Two tests for durability were carried out on the Martindale Machine under the supervision of Mr. Ferguson. On the first test the coated fabric broke after 22,000 rubs. On the second test, it broke after 32,000 rubs. In his report on these tests, Mr. Ferguson said:-
21. Mr. Ferguson said that most of these materials when tested on the Martindale Machine gave figures in excess of 50,000 rubs; and when asked what his view was regarding the results of the tests on the plaintiffs' material (22,000 and 32,000 rubs) he said:-
In other words, if the cost of the Hong Kong material had been as high as the cost of those other comparable materials mentioned by him in his report, he would, presumably, have recommended that it be rejected. 22. On 10th March 1971 Telemac (U.K.) wrote 2 letters to Lim. In one of these letters, they enclosed orders for one department of G.U.S., and in the other there were enclosed orders for another department of G.U.S. It is not known how many orders altogether had been placed by each of these departments; but one of the orders for one department was for 2,250 ladies wet look coats made of "Hongkong polyurethane as per your letter ASI765/71" style 2625, colour mulberry: and one of the orders for the other department was for 3,000 ladies wet look jackets made of "Hongkong polyurethane as per your letter ASI765/71" style 2614 colour navy. [Lim's letter ASI765/71 dated 3rd February 1971 described the material as "a polyurethane coated PVC fabric"]. 23. When Lim received these orders he spoke to Lau and told him that Telemac (H.K.)'s customers had found the 20-yard sample satisfactory except that they wanted a dark backing cloth. He then signed a contract with the plaintiffs for the supply of 10,000 yards of navy and 9,375 yards of mulberry material described in the contract as "Ucileather expanyl wet look grade dyed cotton fleecy woven fabrics backed, embossed N [snake-skin] finish." 24. The plaintiffs made the following deliveries between 9th April and 10th May 1971:-
These deliveries were accepted by Telemac (H.K.) and paid for. 25. Telemac (U.K.)'s orders were confirmed by Telemac (H.K.) on 30th April 1971. One sale note read: "We confirm having sold to you 2,250 pieces ladies wet look leather coat style 2625 shipment June 1971 price per piece £2.92 CIF Liverpool"; and the other sale note read: "We confirm having sold to you 3,000 pieces ladies wet look leather jackets style 2614 shipment June 1971 price per piece 45/6 per piece CIF Liverpool". So, according to these sale notes, the total CIF price of the garments sold by Telemac (H.K.) to Telemac (U.K.) was £13,395. 26. In their letters of 10th March, Telemac (U.K.) requested Lim to send sealing and checking samples for all styles ordered by each of the two G.U.S. departments. As the cloth was delivered by the plaintiffs to Telemac (H.K.), the latter extracted, from the bulk deliveries, a roll at random and they made those sealing samples and forwarded them by air to Telemac (U.K.). There was in evidence a letter of 30th April 1971 from Telemac (H.K.) to Telemac (U.K.) which makes reference to the fact that a considerable number of sealing samples in respect of styles, with which we are not concerned in this action, had been forwarded to Telemac (U.K.) between 15th-26th April, that the sealing samples in respect of style 2614 (navy) had been forwarded on 27th April and that sealing samples in respect of style 2625 (mulberry) would be shipped during the first week in May. In this letter, Telemac (H.K.) said:
27. The navy (style 2614) sealing samples presumably reached Telemac (U.K.) about 1st May. It is not known when the mulberry (style 2625) samples were actually dispatched. But Mr. Ferguson, in evidence, said that the person in charge of one of the G.U.S. departments (a Mr. Charles) brought him one of these sealing samples, and that he (Ferguson) obtained a sealing sample from the person in charge of the other department (a Miss Heeney). He therefore had a sealing sample of style 2614 and a sealing sample of style 2625, both of which had been sent to the United Kingdom by Telemac (H.K.). It also appears that Telemac (U.K.) made a garment out of the original 12 ½ yards and this was handed to Mr. Ferguson together with two further sample lengths of cloth in the mulberry and navy shade. About 18th May 1971, under Mr. Ferguson's personal supervision, all this material was tested on the Martindale Machine, with the most astonishing results. In the case of Mr. Charles' sealing sample, in 2 tests the PVC broke after 6 and 10 rubs respectively. In the case of Miss Heeney's sealing sample, in 2 tests the PVC broke after 90 and 4,000 rubs. In the case of the other mulberry sealing sample, in 2 tests the PVC broke after 100 and 250 rubs. In 2 tests the PVC on the other navy sealing sample broke after 50 and 150 rubs; and, as regards the garment made out of the original 12 ½ yards, in 2 tests the PVC broke after 3,000 and 4,000 rubs. Mr. Ferguson's report on this series of tests is dated 3rd June 1971. 28. In evidence Mr. Ferguson said he had never seen such low figures and he said categorically that in his view the material was quite unsuitable for the manufacture of garments. In his view the tests showed a wide variation in the quality from piece to piece as well as within a piece. 29. Mr. Ferguson also said that the original 12 ½ yards had the snake-skin embossing but that the navy sealing sample had none; and in the case of the mulberry sample part of it had some snake-skin embossing (but not the same as in the case of the original 12 ½ yards) and part of it had none at all. However, Mr. Ferguson said that the results of the durability tests were a much more serious matter than any defects in embossing - as indeed they were. In fact, on the hearing of this appeal, Mr. Zimmern for Telemac (H.K.), said frankly that any defects in embossing should have been obvious to Lim upon receipt of the goods and that the goods should have been rejected on the spot. Mr. Zimmern very properly said that the basis of his whole case was that these durability tests showed that the material was not reasonably fit for the purpose for which it was sold - indeed that there was a complete failure of consideration. 30. Upon receipt of the sealing samples, Derek Parr phoned Lim complaining of the colour and the embossing; and he wrote a letter to the same effect on 18th May. Parr was present at the tests conducted by Ferguson on or about 18th May; and on 21st May at 12.45 hours he cabled Telemac (H.K.) as follows:-
Four hours later (at 16.22 hours) he sent another cable to Telemac (H.K.) as follows:-
31. On 24th May Lim cabled Telemac (U.K.) as follows:
Lim received a cable in reply the same day. It read:
On 26th May Parr did phone Lim; and he also wrote him as follows:-
32. Lim received the reports on the original sample (the 12 ½ yards) and also the report on the navy and mulberry sealing samples and sample lengths. He spoke to Lau. The judge has found that this took place after 29th May. Lau sent a salesman (a Mr. Cheung) to see Lim. Lim told him about the complaints which he had received in cables and telephone calls. Cheung offered to re-emboss the cloth and he also offered to sell the material for Telemac (H.K.) at the latter's own risk, which offer was rejected by Lim. 33. On 31st May 1971 the last instalment of material (2,800 yards) was delivered by the plaintiffs. They refused to pay for it. 34. Donald Parr came to Hong Kong on one of his periodic visits in July 1971, and he and Lim spoke to Lau; but they got no satisfaction from him. Lau's attitude was that he had never had any complaints from other customers and that, despite any tests conducted by G.U.S., his fabrics were up to standard. He did not even ask for a specimen of the bulk to enable him to re-test it. It was an acrimonious interview; and, shortly afterwards, each side consulted their respective solicitors. 35. The usual argumentative correspondence between the solicitors followed in the course of which Telemac (H.K.)'s solicitors proposed that a further test, using the Martindale Machine should be carried out by the Federation of Hong Kong Industries, and the plaintiff's were invited to attend. They declined to do so on the ground that "the method of test and the standard of such test have not been agreed." Telemac (H.K.) insisted that the rubbing movements of the machine should be carried on until the PVC coating broke. The plaintiffs would not agree to that. 36. The plaintiffs' claim (endorsed on the writ) is for the sum of $17,836 being the price of the 2,800 yards sold and delivered to Telemac (H.K.) on 31st May 1971. 37. In their defence, Telemac (H.K.) referred to the contract of 25th March 1971, and pleaded that it was a sale by sample and description. The judge has held that, in law, this was not a sale by sample. There is no cross-appeal; and therefore this aspect of the case need not concern us further. 38. Telemac (H.K.) further pleaded that they rejected the 2,800 yards delivered on 31st May. The trial judge found that Telemac (H.K.) did not reject any of the goods delivered under the contract and that they were entitled only to claim damages if they could prove breach of warranty. No issue as to that finding arises in this appeal. 39. Telemac (H.K.) pleaded further that the plaintiffs knew that the material was required for the purpose of manufacture into garments for sale to buyers in the United Kingdom; and that it was an implied term of the contract that the goods should be reasonably fit for such purpose. 40. The plaintiffs pleaded in Reply that the contract was a sale by description alone; and that the material delivered there under did correspond with such description. In their Reply, as originally filed, the plaintiffs also pleaded, thus:
This was amended either at, or shortly before, the trial so as to read:
41. In another paragraph of the defence and counterclaim, Telemac (H.K.) pleaded that the material delivered was not reasonably fit for the purpose for which it was intended in that it was wholly unsuitable for the manufacture of coats. In their Reply, this was denied by the plaintiffs, although they admitted that they knew that Telemac (H.K.) purchased the material for manufacturing garments for export to the United Kingdom. 42. Telemac (H.K.) denied that they were indebted to the plaintiffs under the contract; and they counterclaimed for $109,239.13 being the price paid for the materials delivered by the plaintiffs between 9th April and 10th May 1971. They also claimed $21,291.66 being the loss of profit which they anticipated they would have made if they had sold the 5,250 coats and jackets to Telemac (U.K.) for £13,395. 43. They went on to plead as follows:-
Para.20 of the defence and counterclaim reads:-
44. Under this head, Telemac (H.K.) claimed $96,228.58 being the equivalent of £6,584 [£4,406 plus £2,178] at HK$14.614=£1. 45. It was Telemac (H.K.)'s case that their profit on the sale of made-up garments to Telemac (U.K.) was 7 ½% of the CIF contract price. As the learned judge said, according to their sale confirmation notes, the total contract price CIF Liverpool was £13,395; and the dollar equivalent of 7 ½% of that amount is $14,681.58 - not $21,291.66 as claimed. 46. The learned judge found as a fact that there had been a breach of warranty on the part of the plaintiffs in that the material supplied was "not reasonably fit for the purpose of garment-making for export which was well known to the plaintiffs." He therefore dismissed the plaintiffs' claim for $17,836, and he gave judgment to Telemac (H.K.) on their counterclaim for $109,239.13 as claimed. He reduced the claim in respect of loss of profit on the sale of made-up garments to Telemac (U.K.) from $21,291.66 to $14,681.58. The learned judge also held that Telemac (H.K.) "would have no answer" to a claim by Telemac (U.K.) for the sum of $96,228.58 and he gave judgment to them for this amount, adding however these words.
47. The 2nd and 3rd grounds of appeal read as follows:-
48. Counsel for the appellant said that the basis of these grounds of appeal was a passage on page 11 of the judgment of the learned judge which reads:-
As I have said, the plaintiffs pleaded that this was a sale by description; and they admitted that they knew the purpose for which the goods were purchased. They amended their Reply so as to deny that there was an implied warranty of fitness. In their pleadings, neither party referred to s.16 of the Sale of Goods Ordinance; but counsel for the plaintiffs submitted that the application of the proviso to s.16(a) arose as soon as Telemac (H.K.) pleaded the implied warranty of fitness, that is to say the question of how the goods came to be ordered was at large in the court below; and that, although it might have been better if the plaintiffs had referred to the proviso to s.16(a) in their Reply, they were not bound to do so. 49. The point made by counsel for Telemac (H.K.) on this 3rd ground of appeal was not only that the pleadings made no reference to the proviso to s.16(a) but the question of the possible application of the proviso was never argued at all before the learned judge; and he submitted that it was not open to the plaintiffs to raise the matter before this Court without leave. 50. For myself, I would prefer that this matter should not be decided on any narrow ground based on any possible defect in pleading or failure on the part of counsel to deal with the question of the proviso to s.16(a) in his closing address. But, of course, these matters must be borne in mind when considering whether it can be said that there is a finding of fact by the judge that the material was sold under a trade name. 51. At this point in his judgment, the question in the mind of the judge was whether there had been a sale by sample - not whether there had been "a contract for the sale of a specified article under its patent or trade name" within the meaning of the proviso to s.16(a). Having regard to the state of the pleadings and the submissions made to him by counsel in their closing addresses, he might well have said:
52. In my view, the learned judge did not find that the material was sold under a trade name within the meaning of the proviso to s.16(a); and the question whether it was, or was not, so sold is at large. 53. Section 16 of the Sale of Goods Ordinance, so far as relevant, reads:-
54. The proviso to s.14(1) [the English equivalent of our s.16(a)], was considered by Farwell L.J. in Bristol Tramways etc. Carriage Co. Ltd. v. Fiat Motors Ltd(1). He said:-
55. The plaintiffs in this case did not label their goods with their full name, although I apprehend that in placing the letters "UCI" before the word "leather" in the description of the goods in the contract, that was their intention. There was no evidence as to what the word "expanyl" in intended to convey. If the plaintiffs' intention was to announce the fact that in their coated fabric an "expanded layer" is included in the coating, that does not help them to establish a trade name for their product. 56. I am clearly of the opinion that the words "Ucileather expanyl wet look grade" cannot possibly be said to be a trade name; and therefore the proviso to s.16(a) has no application. 57. Section 16(a) does apply. Telemac (H.K.) made known to the plaintiffs the particular purpose for which the goods were required - namely the manufacture of ladies coats and jackets for export to the United Kingdom - and the plaintiffs admit that they were aware of this. Clearly, Telemac (H.K.) relied on the plaintiffs' skill. Clearly, the goods are of the description which it is in the course of the plaintiffs' business to supply. They were the manufacturers of the material. There was therefore an implied condition that the goods were reasonably fit for the purpose for which they were purchased. 58. The gravamen of this appeal is contained in grounds 6, 7 and 8, which read:-
59. I have referred to the results of the tests carried out on the Martindale by G.U.S. in England under the supervision of Mr. Ferguson. Certain further tests were carried out in Hong Kong. Towards the end of 1971, the plaintiffs engaged the services of a firm of marine surveyors, Messrs. Younghusband Ltd. It was arranged that they would take samples at random from the bulk in the go down of Telemac (H.K.) for the purpose of being tested on the Japanese machine. Mr. Brockbank, the managing director of Younghusband Ltd., had no technical qualifications as regards textiles or plastic materials; and he employed another firm called Commercial Laboratory to do the actual testing. The tests were all conducted at the plaintiffs' laboratory. The first tests were done on 29th December 1971 and further tests were done on 21st and 22nd January 1972. According to the evidence, specimens of the material were all tested up to 12,000 rubs, at the end of which time none of the specimens showed any sings of damage! 60. When Mr. Ferguson was in Hong Kong in January 1972, he supervised a further test of part of the red garment made in England out of a portion of the 12 ½ yards. The test was done on a Martindale Machine, the property of the Federation of Hong Kong Industries. The PVC coating broke at 20,000 rubs. 61. During the trial of the action in July 1972, the parties agreed to have further tests done in the premises of the Federation of Hong Kong Industries using both the Martindale and Japanese machines. Mr. Ferguson, Mr. Brockbank, and a Mr. Lee (the proprietor of the Commercial Laboratory) were all present during the tests; but the machines were operated by a technician on the staff of the Federation of Hong Kong Industries. 62. For the purpose of these tests, ten specimens of material were chosen at random from the bulk in the godown of Telemac (H.K.). Of this group, 2 were navy (style 2614) and 8 were aubergine, i.e. mulberry (style 2625). Specimen no.5 (a navy specimen) was tested twice. On the first test, the PVC broke after 761 rubs or movements of the machine. But on the second test, the PVC broke after only 8 movements! 63. The figures for the 10 specimens were as follows:-
Two tests were then carried out on the red garment made in England from the original 12 ½ yards; and the PVC broke after 515 and 788 rubs respectively. 64. Tests were then done with the Japanese machine. Specimens 1, 2 and 5 of the above 10 specimens were selected, with the following results:-
That is to say, after 4,000, 2,200 and 2,000 reciprocations the machine was stopped and the material was found to be undamaged - at least the PVC was not torn. 65. The part of the red coat made from the original 12 ½ yards which had broken after 788 rubs on the Martindale was then tested on the Japanese machine. After 2,000 rubs (or reciprocations) the machine was stopped; and it was found that the PVC was not damaged. 66. It is difficult to see how the figures from the tests with the Japanese machine could have assisted the judge. Firstly, the plaintiffs did not produce the manufacturers' specification or any expert evidence as to what the machine was designed to test. Secondly, although we did not see either of the two machines in operation, it would appear from the submissions of counsel for the plaintiffs that his clients considered that it was unfair that the material tested should be pulled in any way. Their view was that the material should not be tested until the PVC coating broke. Their criticism of the Martindale Machine was that it was brutal. Mr. Ferguson, of course, said that he considered that the complicated movements of the Martindale Machine simulated accurately the hazards of real life and that it was an accurate guide to the probable life of the material, and any garments made from it. 67. It seems to me that the judge was correct in placing little or no value on the results of the tests with the Japanese machine. A person's garments do suffer lateral pull in real life. Any test which does not take that fully into consideration is of little value. As Mr. Zimmern for Telemac (H.K.) said, one cannot help wondering when, if ever, the PVC coating on materials tested on the Japanese machine would have broken! 68. It is perfectly true that, as regards the various tests of material forming part of the original 12 ½ yards, the judge had before him some very divergent results. Mr. Ferguson said that, in all probability, one explanation was that, as time passed, the material was deteriorating. 69. However, as counsel for Telemac (H.K.) said, even although we accept the criticism that the Martindale is too severe, upon an examination of the figures in the July 1972 tests, one fact does stand out, namely that with the exception of specimen no.5 upon its first test, the original 12 ½ yards "sample" withstood the Martindale test for better than the majority of the other specimens taken from the bulk. 70. Mr. Ferguson was the only real expert witness. As regards the plaintiffs' witnesses (Messrs. Brockbank, Lee and Lau) clearly the judge did not accept them as experts in any sense of the term. It was argued before us that Mr. Ferguson was partial. That was a matter for the judge; and there is nothing in the record of his evidence to support that submission. 71. In addition to the various tests of the material on the Martindale and Japanese machines, the material was tested manually by Mr. Ferguson during the trial. He covered his finger with the material and drew it across other pieces of material placed on counsel's table, with rather dramatic results. In one case, the PVC broke on the first rub! In other cases, it broke after several rubs. The judge himself, apparently, indulged in this rough and ready test; and no doubt all this had some evidential value. No one would suggest that manual tests of this sort are "scientific"; but, every-one has a rough idea of the stresses and strains to which garments are subjected in the course of ordinary wear and tear; and if the manual, or finger, tests were conducted with that in mind, they were bound to have some evidential value. 72. The material sold by the plaintiffs was utterly defective. The tests showed that the PVC was liable to separate from the backing far too easily (delamination was the word used in evidence), and there were tremendous variations in the durability of the PVC coating itself. These were latent defects which could not be ascertained by inspection; and I entirely agree with the finding of the learned judge that the material sold to Telemac (H.K.) by the plaintiffs was not reasonably fit for the making of garments for export. 73. On the question of damages, the plaintiffs do not question the award of $14,681.58 in respect of loss of profit. But they do appeal against the other two awards of $109,239.13 and $96,228.58. 74. As regards the $109,239.13, the substance of the submission made on behalf of the plaintiffs was this:
75. The plaintiffs called a Mr. Chiu Yu-choi, who said that the garment factory which employed him had purchased PVC from the plaintiffs and that they had no complaints; but he admitted that his firm had been sued by the purchaser of certain garments made from the plaintiffs' material. According to Chiu, his firm "successfully defended" the action. When shown certain of the samples of the material which had been taken from the bulk in Telemac (H.K.)'s godown he said that if he had an order for garments, he would be prepared to purchase material of this sort at $6.40 a yard. There was no evidence that this witness was aware of the evidence which had been given by Ferguson or the results of the tests on the Martindale Machine. It is hardly surprising that the judge found that he could not "accept his evidence as that of a willing, ready and able purchaser as to the value of the material." 76. It is true that Telemac (H.K.) made no effort to sell the cloth. Of course, their attitude was, and is, that it is useless as material for making garments. This action has proved the correctness of their view. But it has been suggested that, even if garment makers would not have purchased the material, others might have done so; and it has been suggested that Telemac (H.K.) should have made every effort to sell the material at any price, no matter how low. 77. With respect, I find myself quite unable to subscribe to this view. As Lord MacMillan said in Banco de Portugal v. Waterloo(2):
78. In all the circumstances, I do not feel disposed to disagree with the learned judge as regards his award of $109,239.13. 79. I had some misgivings as to the propriety of the award of $96,228.58. No claim has yet been made by Telemac (U.K.) on Telemac (H.K.) - at least no proceedings have been instituted; and we do not know what defences might be raised in any action by Telemac (U.K.). However, having read the judgment about to be handed down by my Brother, Mr. Justice Huggins, I am persuaded that we should not interfere with this award. 80. For these reasons, I would dismiss the appeal.
Representation: Mills-Owens (Chan & Ho) for appellants. Zimmern (Deacons) for respondents. (1) [1910] 2 K.B. at pp.839/40 (2) [1932] A.C. 452 at 506. IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO. 54 OF 1972 (On appeal from O.J. 1995 of 1972) -----------------
----------------- Coram: Blair-Kerr, S.P.J., Huggins and McMullin, JJ. Date of Judgment: 11 May 1973 ----------------- JUDGMENT ----------------- Huggins, J.: Although the so-called Statement of Claim was nothing more than a simple endorsement on the writ the Defendant saw fit to plead to it. The Defence and Counterclaim alleged (1) that there was an express term in the contract that the material should have a particular finish and that there was a breach of that term; (2) that there was an express term in the contract that the material should be of an over all thickness of 0.65 -0.75 mm. and that there was a breach of that term; (3) that the sale was by sample and description and that there was a breach of the implied term that the bulk would correspond with the sample; and (4) that there was an implied term that the goods should be reasonably fit for the purpose of manufacture into garments for sale to buyers in the United Kingdom and that there was a breach of that term. 2. The judge held that it was not a sale by sample and that has not been challenged upon the appeal. The major part of the argument has turned upon the fourth of those allegations by the Defendant and counsel for the Defendant said that that was the basis of his whole case. The first question is whether there was any implied warranty or condition of fitness for a particular purpose. This alleged term depended on para.(a) of s.16 of the Sale of Goods Ordinance. The relevant words are:
The Defendant pleaded that there was an implied term and also that the purpose for which the goods were to be used had been made known to the Plaintiff but it was never alleged that the Defendant had indicated to the Plaintiff that the Defendant relied on the Plaintiff's skill or judgment and I think it is questionable whether there was evidence upon which it would have been open to the learned judge to find that the Defendant did rely upon the Plaintiff's skill or judgment. Had the Defendant given full particulars of the facts relied upon as giving rise to the implied term or had the Plaintiff insisted, as it was entitled to do, upon being given such particulars, the real issues would have been clear. No-one seems to have referred to the requirement that the buyer should not only have made known to the seller the particular purpose for which the goods were required but should have done so "so as to show the buyer [relied] on the seller's skill or judgment". However, the Appellant's case on the appeal has been presented not on the basis that the essential foundation for an implied condition was absent but solely on the basis that the judge, having (it is said) rightly decided that the goods were sold under a trade name, the proviso negatived an implied condition that the goods were reasonably fit for a particular purpose. I agree that the proviso does not save the Plaintiff: although I confess that I was until very late in the proceedings under the impression that (as the learned trial judge assumed) "Ucileather" was a trade name for a product manufactured only by the Plaintiff, because the piece of cloth originally sent for identification was so definitely stated to have been made by them, that may well have been wrong - and, of course, the Plaintiff did not plead that the goods were a specified article sold under its patent or other trade name. I say the judge "assumed" the Ucileather was a trade name because no issue had been raised before him either on the pleadings or in argument whether it was a trade name or not. The only point in relation to s.16 which has been taken on the appeal in my view fails and once it is assumed that there was an implied condition I agree with Blair-Kerr, J., for the reasons which he has given, that there was a breach of that term. I do not think any useful purpose would be served by adding to what he has said concerning the tests made of the material. 3. The judge held that this was a sale by description and he found that the material supplied did not comply with the description as to thickness. It has been argued that there was no evidence to support this finding and it seems to be so: counsel for the Respondent has not drawn our attention to any passage other than the two passages in the evidence of Mr. Ferguson which were read by counsel for the Appellant and they do not support the allegation in the Defence and Counterclaim. Accordingly I think the Appellant is right on this point, but in any event the judge did not deal separately with the damage resulting from this alleged breach of the contract and suggested that it might not have led to any damage at all because the durability of the material would have been greater only "if the added thickness were all on the chemical coating". I do not think the unsupported finding of the judge on this point is material. 4. Although some reference was made in the course of the appeal to para. (b) of s.16 of the Sale of Goods Ordinance and one would have expected it to be the main stay of the Defendant's case, the Defence and Counterclaim did not allege an implied condition that the goods should be of merchantable quality - and it follows that the Plaintiff did not rely upon the proviso to that paragraph. 5. As I have said, the Defendant relied upon an allegation that the goods were not embossed in accordance with the contract. It was, indeed, said to be the alleged bad embossing that first led to the testing of the contract material on the Martindale machine. As to this the learned judge said:
Since this has been held not to be a sale by sample, the mere fact that the embossing on parts of the twenty-yard "sample" which had been exhibited also appears hardly noticeable is not conclusive. Mr. Zimmern suggests that that is due to the finished garments' having been ironed. Happily it is not necessary to pursue the matter further: it is conceded that if there was a defect and if it was the only defect proved this would not have justified a finding that the goods were not fit for the purpose for which they were intended. 6. For these reasons I agree that the appeal against the finding of liability must be dismissed. 7. The assessment of damages raised some matters of difficulty. If the observations of Lord MacMillan in Banco de Portugal v. Waterloo 1932 A.C. 452,506 are applicable to the present case there would to less difficulty but, with respect, there seems to me to be a difference between criticising the steps which have been taken to meet an emergency and criticising someone who has made no attempt of any kind to meet an emergency although a reasonable man would have tried to do something. The Defendant made no effort at all to sell the defective cloth. On the other hand there is no evidence accepted by the judge that if it had done so it might have succeeded. Without going so far as to say that it "should have made every effect to sell the material at any price, no matter how low" I think the Defendant ought either to have accepted the offer of the Plaintiff to sell the cloth for it (even if with an express exclusion of any condition or warranty as to quality) or have instituted reasonable enquiries itself for a purchaser, and if there were any credible evidence that it could have mitigated its damage in this way I would have reduced the award of $109,239.13 accordingly. By claiming the full contract price the Defendant, as it seems to me, indicated that it wished to say the goods were valueless. By showing, as the judge found (although he somewhat weakened his finding by providing that the Respondent should return to the Plaintiff the material delivered), that they were valueless for the purpose of making garments I think the Defendant transferred the evidential burden and, in the absence of evidence to the contrary, that the judge was entitled to find that they had no value at all. 8. The Appellant then challenges the second part of the award, a sum of $96,228.58 awarded to the Defendant in respect of a loss said to have been suffered by it in meeting an anticipated claim from its sub-purchaser. It has been suggested that because the sub-purchaser is so closely related to the Defendant the alleged loss is only a book loss and is not recoverable. That cannot be right. Telemac (H.K.) and Telemac (U.K.) are separate legal persons and there is no justification for treating them as if they were not. The real difficulty is that it was possible, if unlikely, that Telemac (U.K.) would never make a claim. It is suggested that we do not know the terms on which Telemac (U.K.) purchased the goods and cannot be sure that a claim would succeed. The learned judge was of opinion that the Defendant would have no answer to a claim by the United Kingdom company and "would be obliged to settle such a claim by payment in full". However, in Biggin & Co., Ltd. v. Permanite Ltd. 1951 2 K.B. 314 to which he referred the claim by the sub-purchaser was not merely a prospective claim: it had been made and had been settled. The Defendant here pleaded that it had "been informed of a claim to be made against it by its buyers in the United Kingdom arising out of the defective material" and went on to claim this as liquidated damages. That seems to me to have been wrong. The difficulty with which it is now faced is that it has chosen to make its claim against the Plaintiff without first, or at the same time, ascertaining that the damage it alleges would be suffered. It is a principle of our law that in respect of any cause of action only one action may be brought and once the damages have been recovered no compensation can be obtained for further damage which may come to light: Fitter v. Veal (1701) 12 Mod. 542 (sub nomine Fetter v. Beale 1 Ld. Ray. 339). The hardship which was apparent in that case could easily have been avoided in this case by ascertaining whether Telemac (U.K.) would make a claim and, if so, by taking steps to ensure that it became party to these proceedings. Compensation may be given for prospective damage reasonably anticipated by including it in the general, unliquidated damages but normally allowance must be made for any uncertainty which may exist that the damage will in the event be incurred. The learned judge said:
The claim of Telemac (U.K.) in turn included the loss it incurred in fulfilling a contract with its own sub-purchaser, but the judge expressly said that the steps it had taken were reasonable. What is contended, however, is that the two sub-contracts differed from the principal contract and that it was for the Defendant to prove conformity between the contracts. Mr. Zimmern submits that the Defendant has proved conformity. The fact that the first sub-contract does not refer to "Ucileather" appears to me of no consequence and no other material difference has been suggested. I do not think there can be any doubet that the garments ordered by Telemac (U.K.) and by GUS were to be made of the material supplied by the Plaintiff or that the loss which is to be claimed from the Defendant is entirely due to the defects in that material. In the result, although at one stage I thought the Appellant might have a good point in relation to this part of the award, I am now satisfied that on his findings the learned judge was entitled to assess the damages as he did. 9. I would therefore dismiss this appeal. 11th May 1973. Representation: |
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