Long Art Investment Ltd v. Kam Chiu Fei t/a Harbour Fair Garments Manufacturing
Read the full judgment text of HCA 1024/2001 on BabelCite. This High Court CFI judgment was delivered on 9 October 2003.
1. In this action, the Plaintiff Long Art Investment Limited ("Long Art") claims against the Defendant Kam Chiu Fei trading as Harbour Fair Garments Manufacturing ("Kam" and "Harbour Fair" respectively) damages for breach of contract owing to late and non delivery of certain garments. Harbour Fair counterclaims outstanding payments and other wasted expenditure.
Cited by 2 cases · Cites 3 cases
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HCA001024/2001 HCA 1024/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1024 OF 2001 ____________
____________ Coram: Deputy High Court Judge Y L Wong, SC in Court Dates of Hearing: 7-11, 14, 16-18 July & 21 August 2003 Dates of Additional Submissions: 25 & 29 August 2003 Date of Judgment: 9 October 2003 ______________ J U D G M E N T ______________ 1.In this action, the Plaintiff Long Art Investment Limited ("Long Art") claims against the Defendant Kam Chiu Fei trading as Harbour Fair Garments Manufacturing ("Kam" and "Harbour Fair" respectively) damages for breach of contract owing to late and non delivery of certain garments. Harbour Fair counterclaims outstanding payments and other wasted expenditure. Background 2.In or about July 2000, Long Art entered into an agreement with Harbour Fair whereby the latter would supply 8,514 pieces of denim garments under the brand name of "Sypher" to Long Art for export ("the Contract"). 3.The Contract was reached through exchanges of e-mails. It suffices for the present purpose to refer to the following:
4.There is a dispute as to whether the Contract was also evidenced by 9 purchase orders SY010/00 to SY018/00 all dated 25 July 2000 ("the Long Art Purchase Orders"). However, there is no issue that the material terms of the Contract had already been agreed on in the e-mail correspondence. 5.The garments were to be exported to Long Art's overseas customer American Public Company Inc ("APC") in the USA. The parties to the Contract took advantage of the "Outward Processing Arrangement" ("OPA") permitted by the Trade and Industry Department. According to the publication of the Trade and Industry Department, OPA:
6.A prerequisite for participation in the OPA is that the goods concerned must have undergone the principal manufacturing processes ("principal processes") in Hong Kong which are sufficient to qualify them as of Hong Kong origin. 7.The connection between "principal processes" and "Hong Kong origin" is further spelt out in the standard conditions of export licence applied for by Long Art:
8.Under the OPA, the Hong Kong manufacturer engaged by the exporter to perform the "principal processes" had to submit to the Trade and Industry Department a "Production Notification" ("PN"). The PN contained particulars of the processes to be carried out, at what place and during what period such processes would be carried out. Obviously, this was to ensure the garments produced truly had Hong Kong as the "Country of Origin". 9.Under the Contract, Long Art was responsible for supplying fabrics and accessories for the garment production. It was also responsible for engaging other contractors to do the embroidery and studding processes. At all material times, the persons handling the Contract on Long Art's side were, inter alia, its senior merchandiser Chang Kam Lung also known as Charles Chang ("Charles") and its production manager Wan Ping Hung also known as Joe Wan ("Joe"). 10.Starting from early August 2000, Long Art delivered the necessary fabrics and accessories to the factory belonging to Hung Kiu Wear Industry (Hui Zhou) Limited in the Mainland ("Hung Kiu"), which was the factory undertaking the manufacturing processes other than the principal processes. 11.Shortly after the delivery of the fabrics to Hung Kiu, it was discovered that they suffered from certain yarn slubs problems (i.e. lumps caused by knots of threads). After discussion, and by an e-mail dated 28 August 2000 to Long Art, Raymond of Harbour Fair suggested the delivery date be extended to 8 October 2000, as opposed to 25 September 2000 previously indicated by Long Art. He also sought confirmation of a surcharge of HK$8,000.00 for the defective fabrics, which was duly confirmed by Long Art. 12.There was further delay caused by Long Art's late supply of care labels. As a result, the delivery date was further postponed to 10 October 2000. 13.By a letter dated 28 September 2000 to, inter alia, Kam and Wu Tat Ching ("Wu") who was the production manager of Hung Kiu, Joe of Long Art noted that the delivery date for all the garments had been postponed to 10 October 2000, stated that garments sent after 5 October 2000 would have to be sent by air to Long Art's detriment, and warned that any further delay might result in the cancellation of the order by their overseas customer. This letter was initialed by Wu. 14.By a letter dated 13 October 2000, Long Art referred to Harbour Fair's failure to meet the extended delivery date of 10 October 2000, and to the request by its customer to deliver goods by air if the garments could not be delivered by early October. It also mentioned that Harbour Fair had not completed the PNs for the delivery of the garments. 15.As regards the PNs, I should mention that back on or about 15 September 2000 Harbour Fair sought and Long Art provided the "PO numbers" of the Long Art Purchase Orders apparently for Harbour Fair to prepare the PNs. In early October 2000, Harbour Fair filed a number of PNs with the Trade and Industry Department which referred to the PO numbers of the Long Art Purchase Orders. 16.By a number of documents called "purchase contract amendments" dated 13 October 2000, Long Art purported to cancel most of the orders placed by the Long Art Purchase Orders due to late shipment. 17.On or about 18 October 2000, Harbour Fair faxed to Long Art information of one Wai Lung Garment Factory ("Wai Lung"). Wai Lung was subsequently engaged to provide the PNs in place of Harbour Fair. There is a dispute as to whether it was Long Art itself or Harbour Fair who procured Wai Lung to provide the PNs. In the export licences issued on 20 and 21 October 2000, Long Art as the exporter declared, inter alia, that Wai Lung was the manufacturer of the subject garments. 18.Since late September 2000, Long Art had been pleading with Harbour Fair repeatedly to confirm the delivery date, stressing the importance of such confirmation vis-à-vis its overseas customer. There was no written reply by e-mail or otherwise. 19.On or about 6 November 2000, 494 pieces of garments were delivered to Long Art. There is no dispute that Long Art had not paid for the 494 pieces. However, no contemporaneous invoice had been issued by Harbour Fair or Wai Lung in respect of this delivery. The relevant invoice produced was one issued by Wai Lung dated 25 November 2000. 20.Long Art sent numerous letters chasing Harbour Fair for the delivery of the balance but there was still no response from Harbour Fair. A meeting was held on 13 November 2000. Eventually Long Art engaged Messrs Ko & Co. to help pursue the matter. By a letter dated 13 November 2000, Messrs Ko & Co. imposed a deadline of 5:00 p.m. of 14 November 2000 for Harbour Fair to deliver the balance of the garments. 21.On either 14 or 15 November 2000, only 1,974 pieces of garments were delivered. These 1,974 pieces were paid for by Long Art by a cheque dated 15 November 2000 for the sum of HK$72,656.00 payable to Wai Lung. There were two invoices issued by Wai Lung in respect of the 1,974 pieces delivered. They were both dated 15 November 2000 and signed by Ku Yuk Nga also known as Monica Ku ("Monica") of Harbour Fair. 22.Long Art delivered the 494 and 1,974 pieces (totalling 2,468 pieces) by air to APC and incurred total air freight charges in the sum of HK$137,231.00. 23.Other than these 2,468 pieces, Long Art alleged that the remaining 6,046 pieces of garments were never delivered to Long Art at all. There was never any tender of delivery. Thus, Harbour Fair was in repudiatory breach of the Contract, which was accepted by Long Art commencing proceedings on 6 March 2001. 24.By this Action, Long Art claims the following items:
25.Harbour Fair raises a number of defences. Before amendment of its Defence and Counterclaim, the only substantive defence was that it was merely acting as an agent for Hung Kiu in this transaction and did not assume personal contractual liability. Other defences subsequently raised included breach of the Contract by Long Art by late delivery of materials and late completion of embroidery and studding work. Further, it counterclaims damages comprising wasted costs and loss of profits. The Issues 26.A case of this nature is inevitably loaded with details and conflicting oral testimonies. Leaving aside the more peripheral matters, the main issues in this Action are these:
The witnesses 27.The first witness called by Long Art was Charles. I find him a truthful witness who tried his best to give a full account of his recollection of events. He was confident, meticulous and careful in giving evidence. For example, his answers as to whom he met and what happened at meetings were consistent despite vigorous cross-examination. 28.Joe was the second witness. Although he was not as careful as Charles and at times appeared confused and uncertain when confronted with certain documentary evidence, I find him a truthful witness on the whole. 29.For Harbour Fair, the only witness called was Monica, who held the post of Assistant Director. Kam chose not to give evidence although he had filed two witness statements. I am not at all impressed by Monica's credibility as a witness. She is a clever lady who was aware of the difficulties in the defence case and came prepared. However, she was too zealous to plug the holes and many of her explanations are plainly incredible. She was evasive when cornered, and was quick to pass the blame on "her colleagues" when things did not appear consistent with the defence case. Insofar as there are conflicts in the oral testimonies, I prefer those given by Long Art's witnesses. The Agency 30.Harbour Fair argued that to the knowledge of Long Art, Harbour Fair was only an agent or liaison representative of Hung Kiu in Hong Kong. On this basis, Harbour Fair did not incur personal liability on the Contract. 31.On the evidence before me, I am satisfied that Harbour Fair did contract with Long Art as principal as opposed to agent for Hung Kiu. 32.First, Charles and Joe of Long Art both said they had never been told that Harbour Fair was only contracting as agent for Hung Kiu. I accept Joe's evidence that Kam told him Hung Kiu was Kam's own factory. Kam and Raymond did not give evidence to support the claim on agency. Monica did not deal with Long Art directly at the time when the Contract was entered into. 33.Second, in none of the correspondence including in particular the e-mails constituting the Contract was there any express or implied suggestion that Harbour Fair was just acting as agent for Hung Kiu. Instead, the name cards of Kam and Raymond were so designed as to give the impression that Hung Kiu was a Mainland company belonging to or was operated by Harbour Fair. 34.Third, the nature of the Contract including in particular that the obligation to procure the "Hong Kong country of origin" for the garments pointed strongly to Harbour Fair, a Hong Kong company, being a party to the Contract as principal. I shall elaborate on this point in connection with the role of Wai Lung below. 35.Fourth, Harbour Fair has failed to satisfy me that the so-called "Authorization Letter" dated 1 August 1997 was a genuine document. Monica's evidence on this document only made it more suspicious. The document did not serve any practical purpose at all. Monica also admitted the company undertaking the functions of transporting fabrics and accessories as well as clearing customs (as mentioned in the said Authorization Letter) should be Harbour Fair Trading Company, which was another sole proprietorship of Kam. Although Hung Kiu appeared to a be a joint venture company with a Mainland entity, there can be little doubt that Kam, as its Chairman and Manager, was very much in control of Hung Kiu. Should there be a genuine agency agreement in place since 1997, Harbour Fair should have no difficulty in producing documents evidencing the payment of agency commission, which Monica said Hung Kiu had to and did pay Harbour Fair. None was produced. 36.Fifth, if indeed Hung Kiu and not Harbour Fair were the contracting party, it is difficult to understand why Hung Kiu did not join in as a defendant to counterclaim against Long Art for damages in breach of contract. 37.Sixth, even if, contrary to my finding, Harbour Fair did act as an agent for Hung Kiu, there is no direct evidence to substantiate Harbour Fair's allegation that Long Art knew about it. 38.Seventh, and in any event, even if Harbour Fair did to the knowledge of Long Art describe itself as agent for Hung Kiu, it does not pe se follow that Harbour Fair assumed no personal contractual liability. As Lord Scarman said in Yeung Kai Yung v. Hong Kong and Shanghai Banking Corp [1981] AC 787, at p. 795C-D:
39.Far from showing that its personal liability had been negatived, Harbour Fair had clearly conducted itself in a way affirming its personal liability on the Contract. This can be illustrated by reference to the terms of the Contract and the procurement of Wai Lung as dealt with below. Procurement of Wai Lung 40.Wai Lung was the local manufacturer who eventually filed the PNs with the Trade and Industry Department to enable Long Art to export the garments to APC. 41.According to Monica, Harbour Fair rejected the Long Art Purchase Orders as they contained unacceptable terms. Thereafter, Long Art proceeded to engage another local manufacturer, namely, Wai Lung, to carry out the principal processes in Hong Kong. She said the principal processes were indeed performed by Wai Lung, who separately reached an agreement with Hung Kiu. It is however noteworthy that Wai Lung did not join in as a defendant to pursue any counter-claim against Long Art for loss of profit. 42.According to Charles, in about mid October 2000, Harbour Fair informed Long Art that it had difficulty in applying for the PNs and hence requested Long Art to use Wai Lung to apply for the PNs. Wai Lung was introduced by Harbour Fair. Charles said under these circumstances, Long Art had no realistic choice other than to comply with Harbour Fair's request. 43.On the undisputed documentary evidence before me, I have no doubt that it was Harbour Fair, not Long Art, who first procured Wai Lung to participate in this deal. It was Harbour Fair who faxed over to Long Art the name and details of Wai Lung on or about 18 October 2000. All the production and packing details were sent to Harbour Fair, not to Wai Lung. Long Art had never corresponded directly with Wai Lung. Furthermore, it is clear that Wai Lung was at Harbour Fair's disposal. Monica gave evidence that Harbour Fair could direct Wai Lung whether or not to release the garments to Long Art. It was also Monica who signed the two invoices of Wai Lung dated 15 November 2000 for the delivery of the 1,974 pieces. In this connection, I find Monica's story about meeting Charles on 15 November 2000 at the lift lobby where Charles demanded her to sign the Wai Lung invoices most bizarre. It was plainly made up by her to explain why her signatures so appeared. 44.In my view, it was after Harbour Fair encountered a problem with filing the PNs with the Trade and Industry Department for whatever reason that it decided to procure Wai Lung to file the PNs. I have no doubt that Harbour Fair procured Wai Lung to file the PNs in order to discharge its own express obligation under the Contract with Long Art.
The Illegality 45.When Long Art applied for the export licences, Long Art acceded to Harbour Fair's request to let Wai Lung file the PNs, and declared in the export licences that Wai Lung was the local manufacturer. This declaration is untrue as the local manufacturer was in fact Habour Fair. 46.In the course of his closing submissions, Mr Andy Hung, Counsel for Harbour Fair, contended that by making such a false declaration, Long Art had committed an offence under sections 6D and 36 of the Import and Export Ordinance Cap. 60. By reason of this illegality, the Contract was unenforceable and Long Art could not recover the damages claimed. 47.Section 6D of Cap. 60 provides:
48.Section 36 of the same Ordinance provides:
49.This argument on illegality was not pleaded at all. Nor did Mr Hung apply to amend the Amended Defence and Counterclaim to properly plead the point. However, Mr Hung relied on Chitty on Contracts, 28th edition, para. 17-196:
50.As regards counsel's duty, Mr Hung also referred me to the case of Mercantile Credit Co. Ltd v. Hamblin [1964] 1 WLR 423. There the defence of illegality, namely the subject agreement might contravene the Hire Purchase and Credit Sales (Agreements) Order 1960, was not pleaded but was raised at a late stage. Counsel frankly stated to the court that it had not occurred to him until then. John Stephenson J held that it was counsel's duty, however embarrassing, to prevent the court from enforcing illegal transactions. 51.Although I agree the Court should take cognizance of illegality even though it had not been pleaded, I find it unsatisfactory that the defence of illegality was not properly raised at an earlier stage of this trial. I do not think this point was triggered off only by the Closing submission of Long Art's counsel, which was filed and served prior to the hearing of oral closing submissions. Section 6D of the Import and Export Ordinance Cap. 60 was included in the Defendant's List of Authorities submitted to the court before commencement of the trial. Further, the penalty for making false declaration in the application for export licence was also touched on in the cross-examination of Charles. However, without illegality being raised as an issue, the questions appeared to be directed at the credibility of the witness. In my view, this illegality defence ought to have been raised much earlier by way of an application to amend the pleadings. 52.Be that as it may, Mr William Wong, Counsel for Long Art, did not take any pleading point but went on to make objections and submissions on other grounds. Both Mr Hung and Mr Wong filed further written submissions on the construction of sections 6D and 36 on 25 September 2003 and 29 August 2003 respectively. 53.For the following reasons, I reject Mr Hung's contention based on illegality of the Contract. 54.First, as regards section 6D, I agree with Mr Wong that section 6D is irrelevant as the offence therein is exporting restricted goods without any export licence at all, which is not applicable to the present case where the relevant export licences were never revoked or cancelled by the authorities. Accordingly, whether the offence under section 6D is one of strict liability (relying on AG of Hong Kong v Tse Hung Lit [1986] 1 AC 876, at 885) is immaterial. 55.Second, as regards section 36, the burden of proof is on Harbour Fair to satisfy me that such an offence had in fact been committed by Long Art. The illegality point was not in issue when the witnesses of Long Art were examined. Neither Charles nor Joe was properly examined as to whether they "knew" or "had any reason to believe" that the statement or information in the export licence declaration was false or misleading. In these circumstances, I do not think all the relevant facts are before me so that it is fair or safe to draw any inference or come to any finding on such a serious allegation as to whether a criminal offence had been committed under section 36. 56.Third, even if I were wrong and Long Art did in fact commit an offence under section 36, such an illegality could not have the effect of rendering the Contract unenforceable as submitted by Mr Hung. Long Art is suing Harbour Fair for breach of the Contract entered into back in July 2000. In pursuing this action, Long Art does not have to rely on or make reference to the export licence or the arrangement involving Wai Lung at all. 57.In Pye Ltd v BG Transport Service Ltd [1966] 2 Lloyd's Rep 300, the plaintiffs claimed on a contract of carriage for the loss of their goods which were stolen in Stepney. The plaintiffs had agreed with their buyers, one Lapman Co. Ltd, that the goods, which were to be shipped to Persia, would be invoiced at less than the true price in order to deceive the Persian customs authorities. The carrier raised the defence of illegality but failed. At p. 309, Browne J said:
58.Furthermore, the making of false declaration in the export licence occurred in the performance of the Contract, not at the formation of the Contract. The enforceability of the Contract could be impeached only where performance of the obligations thereunder was intended to involve or would "necessarily" involve the doing of an act which is unlawful under the laws of Hong Kong. Here, at the time when the Contract was entered into in July 2000, and at all times up to mid October 2000, it was always intended that Harbour Fair would be, and would be declared in the export licence as, the local manufacturer carrying out the principal processes. It was never the object of the Contract or the intention of the parties to engage Wai Lung to file the PNs at the outset. It was never part of the Contract to commit an offence under the Import and Export Ordinance Cap. 60. 59.As Browne-Wilkinson J said in Coral Leisure Group Ltd v Barnett [1981] ICR 503, at 509:
Non-delivery of the balance 6,046 pieces 60.In its Defence and by Monica's witness statement, Harbour Fair alleged that by about 20 November 2000, the remaining garments under the Contract had been completed and delivered to Wai Lung. They were ready for onward delivery to Long Art but Long Art refused to pay the price to Wai Lung or Hung Kiu, as a result of which Wai Lung refused to allow Long Art to take delivery of the goods. 61.By reference to a number of export manifests, Monica gave evidence that all the garments in question (totalling 8,514 pieces) had already arrived in Hong Kong between 5 and 12 November 2000. (This is contrary to what she said in her witness statement where she said the balance of the garments were delivered in batches on or about 4, 15 and 20 November 2000). However, because Long Art refused to pay for the garments by a 30-day post-dated cheque, the said goods were not delivered to Long Art. 62.In her witness statement, Monica said that on or about 20 November 2000, Long Art attempted to take delivery of the remaining garments from Wai Lung but they did not pay Wai Lung by a 30-day post-dated cheque for the price of the remaining garments. The request for delivery was made again to Monica on the same day and on 25 November 2000 but since Long Art was refusing to deliver a post-dated cheque, the delivery was refused. 63.In the closing submissions, Mr Hung put forward a further suggestion: Long Art was adopting a wait and see attitude, reserving its position whether to rescind the Contract by reference to the deadline of 14 November 2000, depending on APC's decision whether to accept late shipment. 64.For the reasons given below, I find that the balance of the garments, namely, the 6,046 pieces, were never delivered. I reject Harbour Fair's contention that all the garments (not just the 1,974 pieces) were already delivered to Hong Kong by 12 November 2000 or even 20 November 2000. 65.First, Monica's story that the garments were not delivered to Long Art because Long Art refused to give Wai Lung or Harbour Fair a 30-day post-dated cheque is wholly incredible.
66.Second, any suggestion that Harbour Fair or Wai Lung refused to deliver the balance of the garments by reason of Long Art's earlier failure to pay for the 494 pieces delivered back on or 4 or 6 November 2000 is totally unbelievable. Long Art had paid for the 1,974 pieces by a cheque for immediate payment; there was no reason why it should withhold payment of the 494 pieces thereby causing Harbour Fair to refuse delivery of the balance of the goods. The evidence shows that by a letter dated 13 November 2000 to Harbour Fair, Long Art requested Harbour Fair to submit the invoice to arrange payment. However, no invoice was sent immediately. The relevant invoice adduced in evidence was one dated 25 November 2000. 67.Third, if indeed it was because of such unreasonable behaviour of Long Art that the deal turned sour, it is inexplicable why there would be no trace of any e-mail or letter coming from Harbour Fair to chase Long Art to take delivery and to effect payment. This contention did not feature in the first version of the Defence at all. 68.Fourth, I am not satisfied that the garments featured in the export manifests were the subject matter of the Contract. There were numerous discrepancies. The subject matters of the export manifests were all 100% cotton denim male shirts. However, of the 8,514 pieces under the Contract, almost 85% were made of 50% cotton and 50% polyester; and they comprised shirts, vests and jackets. Further, the total number covered by the export manifests did not match the number of outstanding garments under the Contract. 69.Fifth, if indeed the export manifests documented the delivery of the balance of the garments, Harbour Fair could not have given so many different versions of the dates of their delivery: 4, 15 and 20 November 2000 (Monica's statement) and 5 to 27 November 2000 (Monica's chronology). 70.Sixth, Harbour Fair's counterclaim for storage costs of the fabrics is so dubious that it casts further doubt as to the alleged delivery of the garments to Hong Kong. Harbour Fair produced a tenancy agreement in respect of a unit in Kowloon with rental of HK$9,000.00 as opposed to HK$12,400.00 counterclaimed by Harbour Fair. The period claimed was from November 2000 to November 2001 (per closing submissions as opposed to Re-Amended Defence and Counterclaim). However, the claim was wholly contradicted by Monica's evidence. She said the garments were initially stored by Wai Lung who returned them only in about Chinese New Year of 2001, when Harbour Fair returned them to Hung Kiu in the Mainland. 71.I find that by 14 or 15 November 2000, as Charles said, the best that Harbour Fair could have done was to deliver 1,974 pieces and nothing more. 72.Mr Hung referred me to Long Art's letter dated 13 November 2000 to APC, which stated Long Art intended to fly 1,974 pieces and ship 3,560 pieces to APC, and invited me to draw the inference that at least another 3,560 pieces were to the knowledge of Long Art available on 13 November 2000. However, in the letter to APC, Long Art did not say the 3,560 pieces were immediately available. Instead, it asked for an extended shipment date to 18 December 2000. Furthermore, 3,560 is the figure referred to in the letter of 8 November 2000 (Annex B), being the sum which Long Art requested Harbour Fair to deliver by 10 November 2000. This figure bears no connection with any figures in the export manifests which Mr Hung invited me to consider. Furthermore, what Long Art said to APC with a view to salvage an order should be considered in its own context. In view of the other circumstances mentioned above, I am unable to agree with Mr Hung on this point. 73.That Harbour Fair and Hung Kiu had encountered problems in manpower can be seen from the contemporaneous documents. According to the progress report dated 16 October 2000, Hung Kiu was unable to arrange sufficient manpower to perform Long Art's order. According to another progress report dated 23 October 2000, the work of the factory was suspended. These contemporaneous records were not challenged. Nor did Monica try to explain the lack of manpower and suspension of work. 74.Such documentary evidence corroborates the oral testimonies given by Long Art's witnesses, which I accept. According to Joe, in October 2000, Long Art's quality controller reported that the Mainland factory had not put in sufficient manpower to produce the Long Art's order. Similarly, Charles also said Long Art's inspectors discovered that the production progress in Hung Kiu's factory was very slow, with only a few workers involved, resulting in the lapse of delivery date as required by Long Art. 75.In this connection, whether the fabrics for Style J001, which made up the bulk of Long Art's order, had been sufficiently cut was made a specific issue at the trial.
76.On balance, I think Joe's evidence is to be preferred and I find that Hung Kiu had not cut sufficient pieces of J001 to meet Long Art's Contract by mid October 2000 and the 732 supplemental cut pieces were to partially make up for the shortfall. Late delivery by Harbour Fair 77.I have already found that so far as the delivery of the balance of the garments was concerned, this is case of "never" rather than "late". Thus it is not material whether Long Art accepted the repudiation in mid November 2000 after the expiry of the deadline for delivery or in March 2000 when the writ of issued. 78.However, the issue of late delivery is still relevant because of Long Art's claim for air freight in respect of the 2,468 pieces of garments which Harbour Fair did deliver before mid November 2000. Furthermore, if my finding on non-delivery of the balance were wrong, and Harbour Fair was merely late, then whether Long Art could and did rescind the Contract upon Harbour Fair's failure to meet the deadline on 14 November 2000 would be a material question. 79.The argument, which Mr Hung placed heavy emphasis on in the course of his closing submission, is that irrespective of the rights and wrongs between the parties, Long Art was not entitled to rescind the Contract for late delivery. As the Contract was not rescinded, Long Art cannot claim damages, as it seeks to do, on the basis of rescission. At the most, Long Art can only sue for damages for breach of contract. 80.According to Mr Hung, the reasons why Long Art could not rescind the Contract are these:
81.For the reasons set out below, I find that the delivery of the 2,468 pieces was indeed late resulting in Long Art having to pay unnecessary airfreight charges, and that the imposition of the 14 November 2000 deadline was a reasonable notice.
82.I turn now to Mr Hung's alternative argument, namely, that by taking delivery of only 1,974 pieces and insisting on the delivery of the balance after the deadline of 5:00 p.m. on 14 November 2000, Long Art had affirmed the Contract. For the reasons below, I do not think this argument can assist Harbour Fair.
83.By reference to APC's letter to Long Art dated 14 November 2000 but faxed in on 15 November 2000, Mr Hung submitted that it was upon APC asking Long Art to "forget about shipment by sea of the 3,560 pieces" that Long Art decided not to press for delivery. Had APC accepted the shipment by sea of the 3,560 pieces, Long Art would have continued with the Contract. Mr Hung further suggested the reason why Long Art only took delivery of 1,974 pieces and not "the rest" (which Harbour Fair alleged were also available) was because APC had in its letter indicated they would only take the 1,974 pieces by air and not the 3,560 pieces by sea. 84.This important allegation was raised for the first time only in Mr Hung's closing submissions. It was not pleaded or put to the witnesses of Long Art in cross-examination. It is not fair or proper that the court is now invited to make a finding on this issue without the benefit of any explanation from Long Art's witnesses which I think should have been elicited if the allegation had been raised. 85.However, even assuming all relevant evidence were before me, I am unable to accept Mr Hung's submission. In the letter of APC dated 15 November 2000, what APC told Long Art about the balance of the lot (i.e. apart from the 1,974 pieces) was not that they were no longer needed. Instead, APC said the balance could not be sent by sea but "must come by air to arrive" New York on 16 November 2000. Furthermore, if indeed "the rest" (i.e. other than 1,974 pieces) were available for delivery on 14 November 2000, it is inconceivable that Long Art would not have taken them and sent as many of them as possible by air together with the 1,974 pieces. 86.In these circumstances, Long Art's claim for damages for late delivery of the 2,468 pieces and for non-delivery of the 6,046 pieces is not in any way undermined. Implied term contended by Long Art 87.Long Art alleged that it was an implied term of the Contract that Harbour Fair as manufacturer and seller was to provide Long Art as buyer with duly completed application forms for the purpose of obtaining valid export licences from the Trade and Industry Department in order to export the garments from Hong Kong. 88.As explained above, in the context of the OPA, the stipulation that Harbour Fair was responsible for the Hong Kong Certificate of Origin was intended to mean that Harbour Fair had to provide the PNs which was a prerequisite for Long Art to obtain the necessary export licence. I do not think Long Art needs to rely on an implied term to establish that obligation; it was in my view already expressly stated in the e-mails, albeit in an abbreviated form. Implied terms contended by Harbour Fair 89.In the Re-Amended Defence and Counterclaim, Harbour Fair raised a number of implied terms. Mr Hung did not pursue those implied terms which specified fixed number of days in relation to the time for delivery. He further expressly abandoned any reliance on "trade practices" on which Harbour Fair had called no evidence. Hence any implication of terms was on the basis of business efficacy. 90.The alleged implied terms were these:
91.Before implying any term, in particular terms relating to time, it is trite law that the following conditions need be satisfied: (1) It must be reasonable and equitable; (2) It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that it goes without saying; (4) it must be capable of clear expression; and (5) It must not contradict any express terms of the contract. (see B P Refinery (Westernport) Pty Ltd v President, Councilors and Ratepayers of Shire of Hastings [1978] AJLR 20, at 26, cited with approval by the CFA in Kensland Realty Ltd v Whale View Investment Ltd and Another (2001) 4 HKCFAR 381 at 392). 92.Words like "in good time" and "of good quality" are admittedly ambiguous. However, if they mean "in reasonable time" and "of reasonable quality", I am satisfied that terms (1) and (2) can be implied. 93.However, implied terms (3) and (4) were couched in such loose language and capable of giving rise to such varied meanings that I do not believe the strict necessity test can be satisfied. In North Sea Energy Holdings NV v PTT [1997] 2 Lloyd's Rep 418, Thomas J said at p. 430:
94.As to implied term (5), I have no hesitation in rejecting it as an implied term as the involvement of Wai Lung was not envisaged at all at the time when the Contract was entered into. Breach of contract by Long Art 95.Harbour Fair alleged that Long Art was itself in breach of the implied terms of the Contract and delayed the manufacturing process in the following ways:
Defective fabrics 96.Based on the contemporaneous correspondence (in particular, the e-mail from Raymond dated 30 August 2000), the fabrics problem was not a serious one and Harbour Fair was content to resolve it by adding a surcharge of only HK$8,000.00. Further, even with the fabrics problem, Raymond believed the delivery date need only be postponed to 8 October 2000. 97.There is no evidence to show that Raymond was wrong in his assessment and the fabrics problem turned out to be far more serious. In fact, as mentioned, Wu had initialed the letter dated 28 September 2000 which referred to the extended date of delivery of all garments at 10 October 2000. 98.There was no complaint whatsoever about the fabrics problem made by Harbour Fair or Hung Kiu by e-mail or letter at all. Instead, Harbour Fair was content to send a debit note of HK$8,000.00 on 28 September 2000 as "charge for our worker separate cutting piece" and nothing more. In the various progress reports produced, there was no mention of defective fabrics or that defective fabrics had caused suspension or delay of work. 99.In the light of such documentary evidence, I have no hesitation in accepting the evidence of Long Art's witnesses that the fabrics problem was settled by the payment of HK$8,000.00 and that it only led to an extension of the delivery date to early October 2000. I accept their evidence that the slubs problems only affected a small percentage of the fabrics delivered and could be repaired by workers. 100.Monica's suggestion that the fabrics delivered by Long Art were all sub-standard is plainly inconsistent with the contemporaneous documents and Harbour Fair's very conduct at the material time. It also demonstrates the length she was prepared to go in tailoring her evidence to suit the defence argument. 101.Monica also attempted to make a story out of the 200 additional yards of fabrics delivered by Long Art. I accept Joe's evidence that these additional fabrics were delivered out of caution in case some of the defective fabrics could not be remedied manually. I also accept Mr Wong's submission that the fact that only 200 yards were delivered for this purpose goes to show the problem could not have been a serious one. 102.Notwithstanding these breaches, Harbour Fair still alleged they managed to complete and deliver the balance of the garments between 5 and 12 November 2000. 103.For these reasons, I reject the defence suggestion that the late delivery of the 2,468 pieces and the non-delivery of the balance was caused by the fabrics problem discovered in early August 2000. Care Labels 104.It is significant to note that it has never been pleaded or mentioned in Monica's witness statement that Long Art's delay in delivering care labels had resulted in Harbour Fair's failure to deliver the garments on schedule. This argument cropped up for the first time when Monica gave evidence in chief. 105.According to Monica, the late delivery of care labels had held up the production and although it was possible to sew the care labels onto the main labels at a later time, it was inefficient to do so to the detriment of the workers' earnings. 106.I have examined the shirts and jackets exhibited at this trial, although it might not be the most convenient way to do it, I am not convinced that the care labels could not have been sewn onto the main labels at a subsequent stage of the manufacturing process. I further accept Joe's evidence that he had told Ah Yiu of Harbour Fair that the care labels could be subsequently sewn onto the main label. 107.There is no dispute that the care labels were all delivered on or about 22 September 2000 albeit later than planned. Even if the care labels were indeed delivered late and caused some delay in the production, this could be remedied within a short time. Studding Work 108.Monica accepted that only about 600 pieces of garments required studding work and thus delay in the completion of studding work should not hold up the production of the bulk of the garments. 109.The contractor for studding work was one Shenzhen Mao Ling Embroidery Fashion House ("Mao Ling"). According to Mao Ling's records, only about 200 pieces were outstanding as at 3 October 2000, and only 70 pieces were outstanding as at 11 October 2000. 110.Sometimes studding work was found to be defective and garments were sent back to Mao Ling for re-studding. There were records between Mao Ling and Hung Kiu showing that as at late October and early November there were still some garments requiring re-studding work. However, the number involved was at the most 131 pieces. Such a small number of shortfall could not possibly contribute to the late delivery of the 2,468 pieces and the non-delivery of the 6,046 pieces. Embroidery Work 111.As to embroidery work, the documentary evidence shows and Monica accepted that the majority of the embroidered garments had been delivered on 8 September 2000 and that the last delivery (of just 68 pieces) were delivered on 14 October 2000. 112.Further, the majority of the embroidery work would be done on the component parts, and work on other parts could proceed simultaneously. Hence any delay on embroidery work need not result in any suspension of work. 113.Thus, I do not think any delay in the completion of the embroidery work could have materially contributed to the late delivery of the 2,468 pieces and the non-delivery of the 6,046 pieces. 114.It is worth repeating that had any defective studding or embroidery work been the cause of the delay, it is inconceivable that there would have been no correspondence between Harbour Fair, Hung Kiu and Long Art covering the same. Further, it is Monica's assertion that, despite the alleged delay in the completion of the studding and embroidery work, all the garments required by the Contract were delivered to Hong Kong by 12 November 2000. Accessories and re-packing instructions, etc 115.Mr Hung in his closing submissions said by 30 September 2000 Long Art was still revising the packing instructions and there were still accessories being delivered well into October 2000. 116.However, it is not disputed the bulk of accessories had in fact been delivered by the end of September 2000. Those delivered in October 2000 were confined to two items (shank buttons and pocket lining) and were of very small quantities. There is no evidence showing that the late delivery of 2,468 pieces and the non-delivery of the remaining were caused by the late delivery of these small quantities of accessories. 117.The effect of any instruction to re-pack the garments had been exaggerated. I cannot see how re-packing could have held up the delivery in any significant way. The instructions to re-pack in November 2000 apparently was part of the expedient measure of delivery by instalments necessitated by Harbour Fair's delay. I cannot see how Harbour Fair could have used it as a ground of complaint against Long Art. In any event, according to Charles, the re-packing work would take just one to two days. 118.There was never any complaint by Harbour Fair that the production or delivery was held up by reason of the late delivery of accessories or instructions to re-pack garments. Monica's evidence about difficulty in packaging was exaggerated and unreliable. Her allegation that there were still accessories being delivered on as late as 24 November 2000 was absolutely empty and subsequently withdrawn. Quantum 119.For the reasons given above, Long Art has made out it case and none of the defences raised by Harbour Fair avails. In the premises, the Counterclaim is dismissed. I now turn to the quantum of Long Art's claim. 120.Of Long Art's three heads of claim, the air freight charges are clearly documented and beyond dispute. HK$28,093.30 was in respect of the 494 pieces and HK$109,137.70 in respect of the 1,974 pieces. 121.As to the cost of materials, Mr Hung said Long Art has not produced any evidence that the suppliers of the fabrics and accessories were actually paid. I do not think Long Art has to produce such evidence in order to succeed. First, there is no reason for me to doubt that any of such materials had not been paid. Second, even if any of these materials had not been paid, the liability to pay them would be sufficient to buttress Long Art's claim in this regard. 122.As to the claim for US$72,552.00 as a penalty imposed by APC for Long Art's inability to deliver the garments in accordance with the order, the sum of US$72,552.00 was calculated on the basis that the APC order was for full sets of garments, i.e. matching shirts/jackets and trousers, less the quantity delivered. The deduction of this sum was borne out in the inter-company reconciliation accounts and a payment advice dated 2 January 2001. 123.From the correspondence, Harbour Fair was clearly aware they were manufacturing only parts of the APC order, and Long Art had engaged other manufacturers to produce the matching trousers. 124.Mr Hung cast doubt on this claim by arguing that Long Art's shareholders were somehow related to the APC and by attacking the documentation. However, for Mr Hung to succeed in this argument, he would have to prove a conspiracy between APC and Long Art to fabricate the claim, which he had expressly refrained from so doing. In my view, none of the allegations raised by Mr Hung in this regard can affect the recovery of this sum. 125.Lastly, in his closing submission, Mr Wong made a concession that if judgment was entered in favour of Long Art, it was prepared to give credit for the sum of HK$22,735.00 in respect of the 494 pieces of garments which were delivered and unpaid. Conclusion 126.Accordingly, judgment is entered in favour of Long Art as follows:
127.The Counterclaim is dismissed. I make a cost order nisi that Harbour Fair pays Long Art's costs of the action to be taxed if not agreed. 128.Last but not least, it only remains for me to thank counsel for their assistance.
Representation: Mr William Wong, instructed by Messrs Ko & Co., for the Plaintiff Mr Andy Hung, instructed by Messrs Chan & Tsu, for the Defendant | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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