Sure Woollen Yarns Co Ltd v. Global Apparel Group Ltd

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 13107 OF 2001

Coram: H H Judge Carlson  In Chambers

Date of Hearing: 24 January 2002

Date of Judgment: 29 January 2002

J U D G M E N T

1.This is an Order 14 summons by which the plaintiffs seek judgment against the defendants in the sum of $169,318, which is the amount allegedly owing to them under an invoice SW76623REVPG, dated 1 January 2001 for the supply of dyed cotton yarn.

2.There is also a claim for damages to be assessed for breach of contract, but Mr Lee for the plaintiffs has indicated that if they were to succeed on the invoice they are prepared to abandon what, in effect, is an alternative claim.

3.The matter comes about in this way.  The plaintiffs are producers of, inter alia, cotton yarn and the defendants are garment manufacturers with factories both here and in Guangdong. 

4.On 24 October 2000, the defendants placed an order for dyed cotton yarn with the plaintiffs by means of a purchaser order No. JC1024A, which is at page 45 of the bundle.  This purchase order is specific as to the type of yarn, 2/21s, 55 per cent ramie, 45 per cent cotton, the colour, together with the colour code, the quantity and the unit price.  The remarks at the foot of the purchase order are in these terms:

“Panel samples have to be approved before all the above are to be delivered.  All the goods to be delivered to Dongguan Wai Ming Knitting Factory please.”

5.A substantial proportion of this order was manufactured and delivered to the defendants.  The real issue here is whether what was ordered complied with the contract description.  The defendants allege that what came arrived before the sample had been approved and was inferior in quality and the colour was “slightly different from the defendants’ requirements”. 

6.Before I attend to the detail of the evidence, it is helpful to briefly refer to the test which needs to be applied in Order 14 proceedings.  Only brief reference needs to be made because the law in such matters is well known. 

7.“When the judge is satisfied not only that there is no defence, but no fairly arguable point to be argued on  behalf of the defendant, it is his duty to give judgment for the plaintiff;”

per Jessel MR in Anglo Italian Bank v Wells [1878] 38 LT 197 at 201.  [The defendant] must show that there are triable issues.  He has to satisfy the court that he has a real or bona fide defence per Ackner LJ (as he then was) in Banque de Paris et de Pays-Bas (Suisse) SA v Costa de Naray [1984] 1 Lloyds Reports 21 at 23.  If he makes an allegation it must be credible or believable in the light of the evidence placed before the court.  Nevertheless, on the other hand it should be remembered that in the words of Lord Lindley MR in Codd v Delap [1905] 92 LT 510 at 511:

“Unless it is obvious that the defence put forward by the defendant is frivolous and practically moonshine, Order 14 ought not to be applied.”

8.Similar sentiments were expressed by Bingham LJ, as he then was, in Crown House Engineering v Amec Projects Limited [1990] 6 Const. LJ 141 at 154, where he said:

“Order 14 is for clear cases, that is cases in which there is no serious material factual dispute and if a legal issue then no more than a crisp legal question as well decided summarily as otherwise.  The procedure is entirely inappropriate where the plaintiff’s entitlement to recover any sum is the subject of any serious dispute, whether or law or fact.” 

(See generally Hong Kong Civil Procedure 2002, paragraphs 14/4/8 and 14/4/9 pages 153 and 154).”

9.These principles now need to be applied to the facts of this case.  The plaintiffs’ main evidence comes from the 1st affirmation of Mr Duncan Lee, which starts at page 28.  Following the placing of the purchase order, the plaintiffs arranged for its related company, Full Million Dyeing Limited, to process the yarn, which it did, and a substantial part of it was delivered to the defendants in Hong Kong. 

10.It is convenient at this early stage of the narrative to turn to the account given by the defendants’ director, Mr Chung Kwok-pan, which starts at page 32.  He says that initially small samples of dyed yarn, which accorded with the composition set out in the purchase order at page 45, were supplied by the plaintiffs to the defendants in order that they might be tested by them. 

11.At their factory in Hong Kong the defendants knitted part of a garment out of the sample to see whether it complied with their requirements as to colour and quality.  Mr Chung says that the quality was inferior and the sample was rejected.  Unfortunately, he has chosen not to provide any particulars as to the respects in which the quality was sub-standard. 

12.Following rejection of the sample, Mr Chung says that the plaintiffs promised to send better quality yarn and on the strength of that promise the bulk purchase order at page 45 was placed by them.  He draws particular attention to the remarks at the foot of the purchase order to which I have already referred, as to approval of panel samples before the bulk order is delivered.  He says that having already rejected the earlier sample, the defendants expected further samples for approval before the order was to be delivered.  This further sample was not accepted and as result a letter, CMW1, (page 64), was sent by the defendants to the plaintiffs cancelling the order.  At paragraph 6, (page 33), Mr Chung affirms that these samples were knitted out into panels and it was also found that;

“these samples were inferior in quality and colour.”

“The defendant is very sure that no customers would buy the garments produced from those yarns.”

From paragraph 7 onwards, Mr Chung also raises some further issues which do not call for further consideration here.

13.The plaintiffs’ response to this is to be found in Mr Duncan Lee’s supplemental affirmation which is at page 36.  Mr Lee, at paragraph 3, refers to the first sample which was produced for the defendants’ approval, which samples were charged for and paid by the defendants’ related company.  Mr Lee relates how Miss Chan Kuk-man, senior merchandiser of the defendants, placed that order for yarn identical to the first sample.  This was done on the telephone and Miss Chan gave all the specifications.  This order, over the telephone, was then followed up by the purchase order at page 45.  Mr Lee says that Miss Chan never spoke of a further sample before bulk production could be approved.  Mr Lee is silent as to whether Miss Chan said anything about the initial sample being sub-standard. 

14.What is clear from Mr Lee’s supplemental affirmation at paragraph 5, (page 37), is that Miss Chan had then called for more colour samples to be produced for inspection.  These samples were paid for and this evidence is exhibited to Mr Lee’s affirmation. 

15.The crucial paragraph is paragraph 7.  Mr Lee says that in view of the proximity of the delivery date, which was 4 November 2000, the plaintiffs on several occasions enquired of the defendants whether they should deliver the processed yarn to the defendants’ factory on the mainland.  On each occasion the defendants replied that they would need to get instructions from their customer, but that no substantive reply was forthcoming until what Mr Lee describes as “a unilateral and wrongful repudiation and cancellation” was forthcoming in mid-December 2000.  He also says that the letter of cancellation dated 8 November 2000, (page 63), was never received by the plaintiffs. 

16.On 19 December, part of the bulk order set out in the purchase order at page 45 was delivered under cover of two delivery notes, pages 47 and 48.  These delivery notes bear the defendants’ company’s chop or stamp.  A point has arisen as to the authenticity of the stamp but even assuming that it is authentic, it cannot of itself advance the plaintiff’s case.  These were substantial quantities of yarn and the company stamp cannot have the effect of acceptance of the contents of the order as being in accordance with the contract as evidenced by the purchase order. 

17.I would have thought that it cannot even amount to acceptance that the quantities are as they purport to be in the delivery notes until, that is, the defendants have had a reasonable opportunity to check these substantial quantities.

18.For the purposes of this Order 14 summons, the real issue is whether there has been a requirement, of contractual force, that the second sample should be approved before the bulk order was delivered; and whether what was delivered complies with the quantity and colours in the purchase order.

19.This first requirement appears on the face of the purchase order, I have already referred to it, and Mr Lee has drawn attention to a number of telephone calls as to whether delivery should be made to the defendants’ factory on the mainland.  Mr W.S. Lee, who appears for the plaintiffs, submits that a burden lies on the defendants to show a credible defence.  In my judgment they have.  Colour and quality was of paramount importance so far as the defendants were concerned, hence the production of samples.  Mr Chung says the first sample failed to pass muster and when the second sample was produced, it also failed.  Mr W.S. Lee is correct when he says that these allegations, although of prime importance, are lacking in particularity and there is no reason why such details should not have been forthcoming. 

20.Nevertheless, there is a clear requirement that samples should be approved before the bulk could be delivered and in my judgment there is the clearest triable issue as to whether the plaintiffs have in fact “jumped the gun” and effected production and part delivery of the order before receiving approval that the second sample was in order, particularly where there is evidence from Mr Chung that the first sample failed to measure up, and Mr Lee has not dealt with this at all in his evidence. 

21.There is also the further issue of fact as to whether the samples of the subsequent bulk order that was delivered comply with the purchase order as to quality and colour.  These matters can only be resolved in a conventional trial when the evidence will be tested by examination and cross-examination in the usual way, and where perhaps expert evidence may need to be deployed by both parties.

22.The defendants must, therefore, have unconditional leave to defend. 

COURT:  And I would have thought Mr Chan, the appropriate order would be an order of costs in the cause.

(Discussion re costs)

Costs Order:  Costs in the cause

Present:

Mr Lee Wai-sang of W K To & Co., for the Plaintiff

Mr S C Chan of S C Chan & Co., for the Defendant

Present:

Mr Lee Wai-sang of W K To & Co., for the Plaintiff

Mr S C Chan of S C Chan & Co., for the Defendant