Alan Chan Creations Ltd. v. Smith & Smith Co. Ltd.
Read the full judgment text of HCA 6418/1995 on BabelCite. This High Court CFI judgment was delivered on 28 June 1999.
1. On 25th October 1994, the Plaintiff entered into a contract with the Defendant, whereby the Defendant agreed to produce and supply to the Plaintiff 10,080 mugs to which 17 designs created or supplied by the Plaintiff were to be applied.
|
HCA006418/1995 HCA6418/95 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION 6418 of 1995 ____________
____________ Coram: The Hon. Mr. Recorder Tang SC in Court Dates of Hearing: 15-17 & 21 June 1999 Date of handing down Judgment: 28 June 1999 ______________ J U D G M E N T ______________ 1. On 25th October 1994, the Plaintiff entered into a contract with the Defendant, whereby the Defendant agreed to produce and supply to the Plaintiff 10,080 mugs to which 17 designs created or supplied by the Plaintiff were to be applied. 2. The contract is evidenced by a purchase order dated 25th October 1994. The following terms are relevant:-
3. On 16th December 1994, the Plaintiff rejected a delivery of 1,080 mugs by the Defendant. Following a delivery of further samples on 20th December 1994, which the Plaintiff regarded as unsatisfactory, the contract was terminated by the Plaintiff on 9th March 1995. 4. There is no disagreement over how the contract came about. Mr. Alan Chan is a well known designer. He is also the Creative Director of the Plaintiff, Alan Chan Creations Limited. He met Mr. Gregory Smith of the Defendant at a Unicef function. Mr. Chan together with other designers had created designs for some table wares. Those table wares were produced by the Defendant and Mr. Chan was impressed by their quality. 5. Mr. Smith supplied some promotional materials to Mr. Chan following the meeting. They show e.g. that the Defendant's customers included, Coca-Cola, Philip Morris and others of international renown and that they could produce porcelain, stoneware, ceramic materials of any shape and design with decal painting or hand painting as desired. 6. There is a detailed description of the decalling process in Mr. Smith's supplemental witness statement. It is a complicated, delicate and time consuming process. It is the process by which the Plaintiff's designs are transferred to the mugs. In the words of Mr. Smith
7. The 17 designs are either black and white or gold (one colour) only. 8. Now, the order referred to "approved samples". 9. According to Mr. Chan, in May 1994, he showed Mr. Smith Ex.P1, a mug with shoes printed on it and told Mr. Smith that he was looking for the same quality. Mr. Smith said he could see what the Plaintiff was looking for. It is to be noted that Exh.P1 is thin body as well as thin edge. 10. According to Mr. Chan, prior to 7th September 1994, the Defendant had given the Plaintiff, Ex.P1A, a blank mug, for feel and quality of its glaze and although that was not 100% of what he wanted, it was almost so. Mr. Smith denied giving Mr. Chan Exh.P1A. However, as I understand Mr. Smith's evidence, he accepted that it was sensible for a blank mug to be produced for size before producing the decals to apply to the mugs. On balance, I am of the view that the Defendant would have supplied a plain mug to the Plaintiff even before printed mugs were ready and that Exh.P1A was supplied by the Defendant. I note that the body of the Exh.P1A is thicker than Exh.P1, however, the edge of Exh.P1A is slightly flared and slightly thinner than its body. 11. There is a Contact Report dated 26th August 1993 where the first paragraph states
12. Paragraph 10 states:
13. Then came a Contact Report dated 7th September 1994. This is an important document. I set out below the detailed comments on samples supplied by the Defendant.
14. This Contact Report also contained the following bullet points
15. Mr. Alan Chan has produced 13 mugs which according to him were supplied by the Defendant to the Plaintiff in August and September 1994 (prior to 7th September). They have been produced as Exh.P2 to P14. I note that although the thickness of the body of these exhibits are not uniform, they follow Exh.P1A quite closely in that in most of them, one could detect a slightly flared edge. 16. Now, Mr. Smith does not accept that they were all supplied by the Defendant prior to 7th September 1994. He accepts that Exh.P3, 6, 7, 9 and 14 were supplied prior to 7th September. According to him they have thick edges. The rest P2, 4, 5, 8, 10, 11, 12 and 13, according to Mr. Smith could only have been supplied after 10th December but on or before 20th December 1994 because according to him they have thinner edges. I will return to this matter later because this requires a careful consideration of Mr. Smith's evidence. 17. The Contact Report of 7th September 1994 shows that the samples which had been supplied were the subject of detailed comments. According to Mr. Alan Chan, subject to those comments, he was satisfied with the quality of those samples. The Contact Report was supplied to Mr. Smith by the Plaintiff on 14th September 1994. 18. I should also mention that there is a dispute between the parties over whether between 7th September 1994 and 2nd December 1994, further samples were supplied. Mr. Smith said they were. Mr. Alan Chan said not. Nothing substantial turns on this, because according to Mr. Smith the new samples which were supplied in November 1994, were the same as Exh.P2 to P14, but with the defects described in the Contact Report of 7th September 1994 removed. In other words, the November samples should be better than the samples referred to in the Contact Report of 7th September 1994. Thus, the Plaintiff should have no incentive to withhold disclosure of the November samples. Some of the documents, e.g. the Defendant's fax of 18th November 1994 and the Plaintiff's fax of 21st November 1994 support the existence of some samples in November. I do not believe I need come to any firm conclusion on this. However, I am inclined to the view that probably some samples were supplied on or about 29th November 1994. I shall proceed on that basis. 19. On 15th September 1994, an order was placed by Capital Asia Trading Co. Ltd. ("CAT") to buy a total of 7,560 mugs in 15 designs at a unit price of HK$25 FOB HK. Delivery was to be 15th November 1994 and delivery port, Hong Kong. I think this sale to CAT was the first shipment referred to in one of the bullet points in the 7th September 1994 Contact Report. 20. There is an earlier unsigned purchase order dated 11th October 1994. This contained the same details as the order dated 25th October 1994 with one exception. In this earlier document, the delivery time was stated to be "on or before November 30, 1994". 21. At about the same time as the order of 25th October 1994, there is a fax from CAT dated 26th October 1994 but chopped received 25th October 1994 which provides:
22. A 40% deposit (HK$60,480) was paid by the Plaintiff to the Defendant. By a cheque dated 16th November 1994 (HK$75,600). CAT also paid a deposit to the Plaintiff. 23. There is a fax dated 18th November 1994 from one Deseree Cheung of the Defendant, where it is said
24. In this fax, there are references to "4C series". 25. 4C stands for 4 colours. Apart from the mugs, the subject of this action, which are either black and white or gold, the parties were involved with a project whereby mugs with 4 colours were to be produced by the Defendant for the Plaintiff; for example, there was an order for 4 colour samples for which $10,000 was paid by the Plaintiff to the Defendant (Job No.A033). There is also a fax from the Defendant dated 19th October 1994 stating that
26. I refer to the 4C series, because they are referred to in some of the documents. 27. On 21st November 1994, an internal memo, which was copied to Deseree Cheung, after dealing with the 4 colour mug, it states,
28. It is not clear whether any samples were supplied on 29th November but as I have said I will proceed on the basis that they were, and that these samples were improvements on the samples discussed in the 7th September 1994 Contact Report. 29. On 25th November 1994, the Plaintiff placed an order for 20,000 pieces of cup boxes at a unit price of 70 cents. 30. There was a meeting on 2nd December 1994 between Deseree Cheung of the Defendant and members of Alan Chan Creation, including Alan Chan. The Minutes of this meeting dated 6th December 1994, and copied to the Defendant, is important. It is set out in full below:
Orders was placed on December 5 for ACC's clients, quantity 108 pcs per style:
31. According to Mr. Alan Chan, what was agreed at this meeting was that although the Plaintiff was not satisfied with the mugs because they had thick edge and thick body, instead of the thinner edge, that is to say, an edge which is thinner than the body, he was prepared to accept 1,080 mugs which would have the thick edge and thick body, if their customer, CAT, would accept it. Mr. Chan's evidence is that eventually CAT agreed to accept 1,080 mugs with thick edge and that was communicated to the Defendant on or about 5th December 1994. Perhaps because Mr. Chan was spread too thin because he was involved with too many aspects of the Plaintiff's business, he was at times vague. But I do not agree with Mr. Wright who appears for the Defendant that he was evasive. In my view, he gave his evidence frankly and as well as he could remember the events. However, where his recollection differs from the documents, I prefer to rely on the documents. 32. On 2nd December 1994, but obviously after the meeting referred to above, there was a fax from Ann Hsu (Mr. Chan's personal assistant) to Deseree Cheung. This is relied on by Mr. Smith to show that the Plaintiff wanted thick body and thin edge mugs for the 16th December delivery. 33. There is also a fax dated 5th December 1994 from Ann Hsu to Deseree Cheung which states
34. It seems that the same 10 designs (with some changes in the design number) referred to in the 2nd December 1994 Minutes were set out. It concluded by saying
35. According to Mr. Smith, the deadline of December 16 was meaningless. According to him, on December 2, 1994, the Plaintiff opted for a mug with a thick body but a thinner edge. He relies on Ann Hsu's fax of that date. 36. According to Mr. Smith, this fax of 2nd December 1994, read together with the Minutes of December 2 meeting, made it quite clear that even in respect of the 1,080 mugs referred to in the 2nd December 1994 Minutes, (108 pcs per style, 10 styles), the Plaintiff was asking for mugs with thick body and thin edge and not thick edge and thick body. 37. I do not believe that is right. 38. As I read the 2nd December 1994 fax, it is quite clear that in respect of the thin edge mugs, the Plaintiff was asking the Defendant to supply them with a sample and also whether the Defendant could supply 4 samples on each style for delivery on December 20. That being the case, when in the fax of 5th December 1994, they said
it is clear that this delivery could not be of thin edge mugs. 39. Indeed, a sample of a thin edge mug (Exh.D9) was delivered to the Plaintiff on 9th December and approved by them on 10th December. 4 samples on each style were delivered to the Plaintiff on 20th December. 40. I believe when the 2nd December 1994 fax says "we now opt for the 2nd choice" that was a reference to the balance of CAT's order i.e. after the delivery of 1,080 mugs on 16th December 1994. 41. Ann Hsu was not called as a witness. Indeed, each party called only one witness. This is unsatisfactory because some of their evidence is hearsay and some incomplete. However, this is a small claim. I can understand why the parties wanted to save costs. Costs consideration apart, I would have expected both parties to have called substantially more witnesses. 42. Also as I read the 2nd December Minutes, unless CAT were to accept mug with thick edges and thick bodies, no delivery could be made in December at all. Delivery between 13th and 17th December could only be of mugs with thick edge and body. 43. The 2nd December 1994 Minutes states:
44. This when read with the provisions that:
shows quite clearly that it was not contemplated that if CAT were to opt for thinner edge mug there would be any delivery between 15th and 17th December. 45. The 2nd sentence under the heading "Solution""
also supports this view. 46. I am unable to accept Mr. Smith's evidence in this respect. I think he is wrong when he said the Plaintiff had chosen thinner edge mugs for the December 16th delivery. 47. Now this is important because Mr. Smith's case is that because the thinner edge sample (Exh.D9) was only approved on 10th December 1994, there was insufficient time for the Defendant to produce mugs of the requisite quality. 48. Mr. Wright has argued that the 25th October Order should be read as subject to an implied term that the Defendant would be allowed at least 45 days from the approval of the pro-production sample to produce the mugs for delivery. 49. I do not accept that. This is inconsistent with e.g. the fax dated 21st November 1994 which was copied to the Defendant referred to above. Nor is this consistent with the Minutes dated 2nd December 1994. 50. The above references are consistent with my view that the mugs which "will be ready as early as the 15th and no later than 17th" were to be produced of mugs with thick edges. 51. On 9th December 1994, Ann Hsu faxed Miss Deseree Cheung and asked
52. And it went on to say:
53. This fax is relevant in 2 respects. 54. First, the part italicized by me, indicated that mugs were then in the course of production. Hence, this was inconsistent with Mr. Smith's case that until the thinner edge sample is approved (and which was not approved until 10th December 1994) production could not begin. Mr. Smith says that it is just a matter of language. Unfortunately, writers of the various documents which I have to consider did not always write with clarity and precision. Thus, the matter is not as clear as it might be. However, I do not believe Ann Hsu was referring to mugs to be produced after approval of Exh.D9. I believe she was referring to mugs then in the course of production. 55. The other aspect arises from Mr. Smith's suggestion that the real reason why the Plaintiff terminated the order was because the Plaintiff or CAT wanted to sell the mugs in China. Hence "port of discharge in China". 56. However, under Chinese regulations, the Defendant could not lawfully produce for domestic sale. 57. Mr. Wright has suggested that the real reason why the Plaintiff terminated the contract was because the mugs could not be sold in China and not because of their quality. 58. It is said that CAT wanted to sell the mugs in China. But, even so, there is no reason why the Plaintiff should refuse to accept the Defendant's products. After all, the Plaintiff had a contract with CAT and had received a substantial deposit and stood to make a substantial profit. I do not accept that was the reason for rejection. 59. This is an appropriate time for me to return to the question of whether Exh.P2 to P14 were supplied by the Defendant to the Plaintiff. 60. It will be recalled that according to Mr. Smith, Exh.P2, 4, 5, 8, 10, 11, 12 and 13 were not produced until after 10th December, because they were of the thin edge type. In my view, more likely than not, Exh.P2 to P14 were all delivered by the Defendant to the Plaintiff prior to 7th September 1994. Mr. smith claims that Exh.P2, 4, 5, 8, 10, 11, 12 and 13 were produced after 10th December 1994 because they have thinner edges as compared with Exh.P3, 6, 7, 9 and 14. I do not believe Mr. Smith is correct:
61. I have considerable doubt about the reliability of Mr. Smith as a witness. I believe he was too anxious to support his case that the poor quality of the mugs delivered on 16th December was due to a late requirement by Mr. Chan of thin edge mugs. As the exhibits P2 to P14 show, the edges of the mugs were of varying thickness. I believe they were never meant to be thick edged. Rather, they were supposed to be like Exh.P1 or Exh.P1A. However, probably due to bad quality control, the Defendant was unable to produce the thin edge type or at least unable to do so consistently. 62. I return now to the events following the 2nd December meeting. 63. There is a fax from the Defendant dated December 13, 1994 which is important. This reads
64. The 13th December fax elicited a strongly worded reply dated 14th December 1994:
65. According to para.29 and 30 of Mr. Smith's statement:
66. I cannot believe, having observed Mr. Smith in the Witness Box, that if he only had 5 working days from 10th December to produce the 1,080 mugs, he would have taken the Plaintiff's rebuke so meekly. 67. Or that if the Plaintiff had agreed to tolerate a lower quality or been warned about that, he would have failed to remind the Plaintiff. The reply of 14th December 1994 which insisted that "the quality must up to the standard we have specified" is inconsistent with para.27 of Mr. Smith's statement and Mr. Smith's oral evidence that the Plaintiff had been told not to expect the same quality because of the short time available for production. I do not believe the Defendant would have failed to reply and make this point. 68. I do not believe that Mr. Smith only had 5 days to produce the 1,080 pieces which were delivered on 16th December 1994. 69. Indeed, in para.14 of Mr. Smith's supplemental statement he said
70. Mr. Smith said that was a mistake, the Defendant did not have 11 days. I believe the Defendant indeed had 11 days because they were told on 5th December that CAT would accept the thick edge mugs and the Defendant had from 5th December to 16th December to complete the initial shipment. On the evidence it seems 11 days would have been sufficient time for the Defendant to produce the 1,080 mugs, especially if they already had most, if not all, of the plain mugs ready. 71. I note that the size of the mugs was approved as early as 7th September 1994. There is no reason why after the Defendant had received the deposit they should not have started production of the plain mugs. My reading of the 2nd December 1994 Minutes is that mugs (with thick edge) could be delivered between 15th and 17th December. That is probably because the Defendant had already begun production of at least some of the plain mugs. 72. Mr. Smith left for the Christmas holidays prior to 16th December. 73. There was an aborted delivery of 1,080 mugs on 16th December 1994. According to the Plaintiff, the delivery was rejected principally because they were sub-standard. I will deal with this in greater detail later. 74. The Defendant's case is that, they were nevertheless of merchantable quality. Also that, if they were sub-standard, that is because effectively they only had 5 production days to produce them. Five days because the Defendant was only told in the afternoon of 10th December, a Saturday, that the thinner edge sample Ex.D9 was approved. Sunday was a holiday. So the Defendant only had 12th to 16th inclusive to produce the 1,080 mugs which were delivered on 16th December. 75. Mr. Smith said the short time for production was bound to affect quality. He said the Plaintiff was warned of that, and it was willing to take the risk. 76. Now in para.27 of Mr. Smith's witness statement, which stood as his evidence in chief, he said
77. Indeed, in his oral evidence, Mr. Smith said he was surprised that the 1,080 mugs came out as well as they did. He said
78. I cannot believe that astute businessmen like Mr. Smith and Mr. Chan would have been prepared to accept a state of affairs where the product to be delivered were expected to be trash. I cannot believe Mr. Smith would have knowingly entered into an engagement to produce (or Mr. Chan to accept) 1,080 mugs in the expectation that they would be trash. They might have turned out to be trash because of poor quality control. But I cannot believe it was expected. 79. Mr. Smith returned to Hong Kong in mid January. 80. There was a meeting on January 18, 1995, between Mr. Smith and Mr. Alan Chan and others. According to Mr. Smith, the meeting took place on 17th January. According to Mr. Chan 18th January. Nothing really turns on that though if the meeting did indeed take place on 17th January then it is possible that the cancellation letter dated 18th January 1995 and referred to below was produced subsequent to the meeting. 81. There is a Contact Report dated 18th January 1995. 82. Now, Mr. Smith regarded the content of this Contact Report to be self-serving. He also made the reasonable point that this document was not supplied to the Defendant until discovery. 83. However, it is clear that the meeting of 18th January 1995 was not a success. According to him, after he returned to his office, he rang and spoke to Mr. Chan with a view to salvaging the contract. 84. It is Mr. Smith's case that he was given a copy of a pre-drafted settlement letter dated 18th January 1994 at the meeting. Mr. Chan's evidence on this is unsatisfactory. In his witness statement, he said
85. That is inconsistent with the Contact Report of 18th January 1994 which says
86. I am inclined to the view that the letter was produced at the meeting. 87. However, I do not agree with Mr. Wright that this discrepancy shows that Mr. Chan is dishonest. On the contrary, although Mr. Chan was at times vague , because he had difficulty in recalling an event, my impression of him is that he is an honest witness. 88. It is worth noting that although the meeting on 18th January 1995 went badly, and despite the "settlement letter" of 18th January 1994, Mr. Smith did not write and put the record straight. That is to say, putting on record that either that the quality of the mugs "delivered" on 16th and 20th December was satisfactory, or if the quality of the delivery on 16th December and 20th December 1994 was unsatisfactory, that was because of the short production time and that the short production time was the Plaintiff's fault because they wanted a new sample (D9) which was not approved until 10th December 1994. Or that the Plaintiff had been told to expect difficulty with quality if they insisted on delivery on 16th December 1994. 89. I regret to say on this aspect of the matter, I find Mr. Smith unconvincing. He is an intelligent and articulate person. I have no doubt that he can hold his own in any company. I do not believe he would have kept quiet, if his evidence on this aspect of the case is true. Indeed, after the Plaintiff had threatened to sue, the Defendant wrote a long letter (16th March 1995) in which many of the points relied on now were then made. 90. Mr. Smith's evidence on 18th January 1995 meeting is that the Plaintiff was complaining mainly about the location for the delivery of the 16th December 1994 and that the mugs could not be sold in China. 91. I have no doubt that the Plaintiff did complain about the location chosen by the Defendant for the 16th December. I do not believe there was any complaint about not being able to sell the mugs in China. It may be that there was no need to talk at length about the quality because the Defendant could not and, therefore did not, dispute that the quality was unacceptable. 92. I also believe that despite Mr. Smith's defence of his products in Court, he was professional enough to realise, at the meeting on 18th January 1995, that they were indefensible. The following also supports my view that there was unlikely to have been any real argument over the quality of the mugs which were rejected.
94. On 15th February 1995, the Plaintiff wrote to the Defendant to remind the Defendant
95. There is a fax dated 17th February 1995 addressed to Mr. Smith/Ms. Deseree Cheung, it says:
96. The cancellation letter was faxed to the Defendant with this fax. Then there is a letter dated 28th February 1995 from the Plaintiff to the Defendant. It reads:
97. It is worth noting that there was no reply to either the fax of 17th February 1995 or the so-called ultimatum. 98. Paragraph 41 of Mr. Smith's witness statement is relevant. It reads:-
99. I do not believe Mr. Smith would have behaved in this way, if the problem was not of the Defendant's making. If the poor quality was the responsibility of the Plaintiff (because it was responsible for the short production time), or that the mugs delivered were not sub-standard, it is inconceivable that the Defendant would not have written to put the record straight. 100. Mr. Yeung, who appears for the Plaintiff, has also made the point that it was not possible for the 1,080 pieces to have been produced within 5 working days, given Mr. Smith's evidence of the minimum time which it would have taken to produce master moulds, production moulds, a total of 3 firings and decalling prior to the final firing. I must say I found Mr. Smith's evidence that it was possible unconvincing and strained. Under cross examination, Mr. Smith said as at 12th December, the Defendant only had a master mould and 3 production moulds. Realising that in that case the Defendant could not have produced 1,080 mugs by 16th December, he returned, after a weekend and allegedly after making inquiry with the factory, to say that the Defendant had on 12th December, 6 master moulds and 9 production moulds ready. These were supposedly made even before D9 was approved by the Plaintiff. 101. I must say I find his evidence unconvincing. Of course, this could only be true if I accept Mr. smith's evidence that the 1,080 mugs ready on 16th December were produced after D9 was approved. I do not accept that at all. 102. I am clearly of the view the 1,080 mugs which were rejected on 16th December were rejected because of their poor quality. And the poor quality was not because the Defendant only had 5 production days to produce them. 103. I must now explain why in my view the 1,080 mugs were sub-standard and that the Plaintiff was entitled to reject them. 104. There is a Mug QC Report dated 17th December 1994 which contains a description of the faults found in the samples taken by the Plaintiff of the 1,080 mugs. I accept this report as reliable. Those faults, of course, are of varying importance. Overall, I have no doubt that the Plaintiff was entitled to accept delivery. 105. Mr. Chan has also given evidence about some of these samples. 106. Briefly Mr. Chan's criticisms of the mugs, which I accept, are that:
So far as the criticisms are concerned, they are obvious to any person (with the possible exception of Exh.P2A). 107. As for the other exhibits which were put to Mr. Chan in cross-examination. Exh.P3A has a crack inside the mug which is 1.2 c.m. long. This is a fatal fault. Mr. Smith agrees with that assessment. 108. 10 of such samples, Exh.P2A, P3A, P4A, P5A, P6A, P7A, P8A, P9A, P10A, P11A, have been produced. Mr. Smith had gone through each one of them. On the whole, he said they were merchantable. Of the criticism by the Plaintiff, that the colours were not rich enough, he said the customers would not know the difference. Literally he is right. Customers would have no idea what the mugs should look like if they were produced according to Mr. Chan's design. But that is not the point. 109. I am here concerned with relatively expensive designer mugs. If they were bought, it is because they are considered more attractive than an ordinary mug. I agree with Mr. Yeung the words of Mustill L.J. in Rogers v Parish (Scarborough) Limited [1987] Q.B.935 are apposite. Lord Justice Mustill said
110. Here, we are concerned with "designer" mugs to be sold in expensive stores. Applying such approach I have no doubt that the mugs are not merchantable. 111. I have no hesitation in saying that comparison between P2 - P11 with P2A - P11A show that they are clearly sub-standard. In the case of P2A, P5A, P7A, P9A and P11A there are substantial colour variation from the samples. I can understand why prior to the termination of the contract the Defendant had never asserted that there was nothing wrong with quality. That would be plainly untenable. That is 5 designs out of the 10 delivered on 16th December. I have no doubt that the Plaintiff was entitled to reject the 1,080 mugs on 16th December 1994. 112. The samples delivered on 20th December 1994 especially exhibits P5B, 7B, 9B, 11B and 12B, produced are even worse. They must cast serious doubt on the Defendant's professionalism. 113. I accept that the Plaintiff by 20th December 1994 could reasonably have come to the view that it was not possible to continue the contract with the Defendant. Mr. Smith said Mr. Chan is a perfectionist. If the connotation is that Mr. Chan is unreasonable, I do not agree. Mr. Alan Chan is a well known designer. Articles bearing his name are sold in expensive stores and gift shops. I think he acted reasonably in cancelling his contract with CAT and refunded the deposit paid. I think it is reasonable that he should refuse to even attempt to deliver the 1,080 mugs to CAT. To have done so would have harmed his reputation. The contract, however, was not terminated until after the ultimatum of 28th February 1995. But I do not believe it makes any difference. Mr. Wright says that this affects Mr. Chan's credibility. I do not think so. 114. Now, Mr. Smith has recently bought 13 mugs (Exh.D11 - 23) from Seibu. These are mugs carrying Mr. Alan Chan's name. Mr. Smith says these mugs compare well with exhibits with the suffix B and C. 115. I do not agree. I do not wish to prolong this Judgment further. Nor do I think it profitable to consider at any length the comments on Exh.D11 - 23. For example, it is said that the decalling has been made easy because of the blank space permitted at the handles. Mr. Chan said his contract with the suppliers of Exh.D11 - 23 permitted the blank space. However, the Defendant agreed to produce the mugs without the blank space. The overlapping of the decals were unsightly in the Defendant's mugs, e.g. Exh.P2A. P4A. That was a good reason, for rejecting the mugs on 16th December 1994, though not by any means the only or the most important. 116. Mr. Smith also said in D11 - D23, the decals did not cover the entire outside of the mug i.e. from top to bottom. Mr. Chan explained that by saying the other suppliers had not agreed to do so. All in all, I find the comparison unhelpful. Some of Mr. Smith's criticism of D11 - D23 may have some merit e.g. the crack in Exh.D17. However, for all we know D17 might have been the worst of the entire lot delivered to Mr. Chan. 117. But here, the samples I have seen of the 16th and 20th December deliveries were representatives of the bulk. There is certainly no evidence that they were not. 118. Mr. Wright has argued that even if the delivery on 16th December 1994 were rightly rejected, but that was only the first instalment. Now s.33 of the Sale of Goods Ordinance provides that
119. Mr. Yeung has referred me to a decision of Bigham J. in Millar's Karri & Jarrah Company v Weddel Turner & Co. (1908) 100 LT128 where he said
120. I am of the opinion that the following circumstances justify the Plaintiff in terminating the entire contract:
(2) and (3) alone, in my opinion, would be sufficient to justify the Plaintiff terminating the contract. 121. I turn to consider the question of damages. 122. There is no real dispute over them. The Plaintiff is entitled to a refund of the deposit of $60,480, $2,100 for the 3,000 boxes as well as the loss of profit on their sale to CAT of $75,600. It is clear that the Defendant was aware that the mugs were purchased for resale. Those figures being the only amounts claimed by the Plaintiff, I hold that the Plaintiff is entitled to Judgment in the sum of $138,180. The amount should carry interest at 2% over the best lending rate from time to time, from 9th March 1995 (the date of demand) until Judgment. Thereafter interest at the Judgment rate. 123. The Defendant's counterclaim, which is predicated on the Plaintiff and not the Defendant being in breach of contract, must fail since the Plaintiff's claim has succeeded. It is therefore dismissed. 124. I order accordingly. 125. I also make an Order Nisi that the Plaintiff should have the costs of its claim and the counterclaim.
Representation: Mr. Dominic Yeung inst'd by Kwan & Kwan for Plaintiff Mr. John Wright inst'd by Horvath & Giles for Defendant |