Chan Yuk Leung t/a Tung Wah Shing Weaving Factory v. Lo's Mee Kwong Garment Factory Ltd

DCCJ000577/1970

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

CIVIL JURISDICTION

ACTION NO.577 OF 1970

-----------------

-----------------

Coram: N.B. Hooper, D.J. in Court.

Date of Judgment: 18 July 1970

-----------------

JUDGMENT

-----------------

1. The plaintiff in this action carries on business as weavers of cloths trading under the name of Tung Wah Shing Weaving Factory. The defendant company Lo's Mee Kwong Garment Factory Ltd. is a manufacturer and exporter of garments.

2. It would appear from the evidence of Mr. Lo Man Bun (D.W.1) that roundabout the middle of October in 1967 he entered into negotiations with a company in Britain Messrs. Interglobal Trading Co. Ltd. for the defendant Company to manufacture and export to them 400 doz. Madras checked shirts. As a result of this he ordered from the plaintiff (through Mr. Lo Toe Ming (D.W.2) 10,000 yards of cloth.

3. This transaction forms the basis of the first contract Ex.D1 dated 28th October 1967.

4. However because of additional orders from Messrs. Interglobal a further 3,090 yards was added to this contract and the delivery dates were changed. The price for the cloth in respect of this contract was $1.42 per yard. Although the plaintiff does not admit these amendments to the first contract, the fact that the Letter of Credit opened up on 25th January 1968 for the sum of $18,587.80 was in respect of the goods to be supplied under the first contract cannot be doubted since it is the exact price of 13,090 yards at $1.42 per yard the contractual unit price on the first contract and the plaintiff accepted the payment on 15th March 1968. Furthermore the fact that the plaintiff agreed is confirmed by D.W.2 the plaintiff's agent at that time.

5. So far as the first contract is concerned therefore there can be no doubt that the plaintiff has been paid in full.

6. Because of two further orders from Interglobal roundabout the end of December 1967 the defendant company placed two further orders with the plaintiff for 6,600 yards and 9,400 yards the subject of the two contracts Exh.D2 and D3. However these two contracts were only signed on 11th February, 1968.

7. Several days after signing these two contracts the defendant were forced to cancel the third contract because an order for 250 dozen shirts by Interglobal had been cancelled. This led to 2,650 yards being added to the 2nd contract, Exh.D2. The variation of the second contract is admitted by the plaintiff and his endorsement appears on the face of the contract to this effect. He also admits cancellation of the third contract.

8. So far as this second contract is concerned therefore the plaintiff was obliged to deliver to the defendant company 9,250 yards. The delivery date is shown on the contract as middle of March, 1968.

9. The dates of deliveries under the first contract as amended and endorsed on the contract was 4,890 yards at beginning of January; 3,000 yards mid-February; 5,200 yards Mid-March. The date of delivery under second contract was Mid-March 1968.

10. It is common ground that the following deliveries were made: 8,206 yards on 6th March, 1968; 6,257 1/2 yards on 13th March, 1968; total 14,463 1/2 yards. After delivery of the second lot the defendant company acknowledged to its bankers due delivery and the plaintiff drew $18,587.80, i.e. the full amount of the Letter of Credit in respect of the first contract. However, as the first contract was for only 13,090 yards and the defendant company had received 14,463 1/2 yards, this meant that at that time the defendant company was in receipt of 1,373 1/2 yards for which they had paid nothing. This is common ground.

11. After payment on the first contract the defendant company claims that several days later complaints came from the workmen in the defendant company's manufacturing department to the effect that the cloth was rotten and tore easily.

12. Mr. Lo Man Bun (D.W.1) of defendant company telephoned Lo Toe Ming (D.W.2) the plaintiff's agent rightaway asking what should be done and a meeting was arranged.

13. On 25th March, 1968 Lo Toe Ming and the plaintiff came to defendant company and saw Mr. Lo Man Bun.

14. At this meeting the plaintiff readily agreed that the cloth was of poor quality and explained the reason why. He requested the defendant company to help by shipping the goods and said that he would accept responsibility and told Mr. Lo Man Bun that the defendant company could retain $4,000 as security. He intimated that he would guarantee that the quality of the third lot would not be the same as the first and second.

15. At the time Lo Man Bun had no intention of accepting the third lot (which it appears was almost ready because there was a delivery on 26th March 1968 i.e. the next day) but in view of plaintiff's promise he agreed to do what the plaintiff requested. That this meeting took place is denied by the plaintiff and there is no record of the agreement.

16. On 26th March 1968 it is common ground that the plaintiff delivered 7452 yards which, together with the 1,373 1/2 yards brought forward from first contract made a total of 8,825 1/2 yards, delivered to defendant company for which they had not paid.

17. It cannot be doubted that on 27th March 1968 (see Exh.D6) a Letter of Credit was opened for sum of $12,870 being the price of 9,000 yards at $1.43 per yard the contractual unit price in respect of the second contract.

(The yardage contracted to be delivered under the second contract was 9,250 but Lo Man Bun says he opened Letter of Credit for lesser amount because the cloth was defective reserving compensation.)

18. It cannot be doubted that on 2nd April 1968 the defendant company in a letter to the bank confirmed the receipt of 6,000 yards (although at that time they had received 8,825 1/2 yards) thereby consenting to the release to the plaintiff of $8,580 as payment on the second contract.

19. The Defence say that the fact that the plaintiff accepted payment for a lesser amount is strong evidence to support the evidence of the meeting on 25th October when the plaintiff was supposed to have agreed to the retention of $4,000 as security.

20. They point out that of the 8,825 1/2 yards delivered, only 6,000 had been paid for and that the balance of 2,825 1/2 yards unpaid for represents in terms of money approximately the amount of $4,000 agreed to be kept as security.

21. It is to be noted that the price of 2,825 1/2 yards at $1.43 per yard (the contractual unit price on second contract) is $4,040.46.

22. It is to be noted also that the plaintiff has claimed the price of 2,825 yards (i.e. half a yard less) as the first item in his claim, but he pleaded and testified in Court in support of his pleading that delivery of this was on 23rd March, 1968. No mention is made of this delivery by the defendant company and in fact it would appear to be the only delivery upon which both parties disagree.

23. It is to be appreciated that if the plaintiff's version is correct this amount of 2,825 yards which is unpaid for has been (but for half a yard) duplicated.

24. The plaintiff has agreed with the deliveries referred to by the defendants in respect of second contract, i.e. 7,452 yards on 26th March, 1968.

25. He has agreed the deliveries on the first contract, which leaves an amount of 1,373 1/2 unpaid for making a total of 8,825 1/2 yards. He has agreed having been paid only for 6,000 yards, leaving 2,825 1/2 unpaid for, but in addition to all this, he claims that there was another delivery of 2,825 on 23rd March, 1968.

26. It is indeed remarkable that if his claim is for the payment for the delivery on 23rd March 1968 he has made no claim in respect of 2,825 1/2 yards still unpaid for and referred to above.

27. The defence say that despite the fact he was only paid for 6,000 yards in respect of the second contract the plaintiff raised no objction. (evidence of Lo Man Bun).

28. The first lot of shirts was sent off to Interglobal on 6th or 7th April.

29. In the middle of April the defendant company being short of material for 100 doz. shirts ordered a further 1,000 yards. The reason for this is that as the cloth was defective there was a certain wastage in manufacture and there was still 424 1/2 yards anyway as yet undelivered on second contract.

30. D.W.2 confirms that the plaintiff agreed to supply additional yardage for delivery by the middle of May.

31. It is common ground that the next delivery did not take place until 15th July 1968 when 1,622 yards was delivered.

32. Meanwhile, at the beginning of June, Interglobal had cancelled the order for 100 doz. shirts. The defendant company (Mr. Lo Man Bun) immediately notified Lo Toe Ming who said that the cloth was being manufactured and asked the defendant company to negotiate with the buyer not to cancel the order (p.94) (D.W.2).

33. At the time of delivery the defendant company had not received confirmation from Interglobal about restoration of the order and the defendant company maintains that it therefore withheld payment.

34. The order for 100 doz. shirts was not restored and the defendant company thereby lost a profit of $1,000.

35. At the beginning of August 1968, with regard to the goods which had been sent off on 6th or 7th April, the defendant company received letters dated 30th and 31st July, Exhs.D16 and D17 from Interglobal giving information about complaints in respect of the goods and saying that they were faulty.

36. The defendant's Mr. Lo Man Bun immediately rang up Lo Toe Ming and, as a result of this, on a Sunday in August, there was a meeting at which the plaintiff and his agent Mr. Lo Toe Ming, were present also Mr. Lo Man Bun of the defendant company and a Mr. Yu employed by the defendant company.

37. All four persons have given evidence and, with the exception of the plaintiff who claims no such meeting took place, they all corroborate each other in regard to the fact of the meeting and the conversation that ensued.

38. With the exception of the plaintiff, they all confirmed that after these two letters had been read and explained to the plaintiff, he said the claim, if these goods were returned, would be too great. Further that he reminded the defendants of the money retained by them and asked them to negotiate with their buyer and if the claim came to more than the sum retained the deficit could be deducted from the new business. It is to be remembered that at that time no payment had been made in respect of the last delivery of 1,622 yards and no Letter of Credit had been opened.

39. Although the plaintiff denies this meeting took place it is confirmed by not only his agent Lo Toe Ming (D.W.2) but also by Yu. None of these witnesses was shaken in cross-examination and Yu in fact was hardly asked any questions at all in cross-examination.

40. There then followed protracted negotiations between the defendant company and its buyer Interglobal and eventually almost a year later having disposed of the goods Interglobal asked for compensation of £1,500 from the defendant company.

41. Mr. Lo Man Bun of defendant company rang up Mr. Lo Toe Ming (who had by this time ceased to represent the plaintiff) but who passed a message on to the plaintiff and at the beginning of July 1969 the plaintiff attended at the defendant company's factory.

42. On this occasion Lo Toe Ming did not attend, the only three present being the plaintiff, Lo Man Bun of defendant company and again the employee YU.

43. On this occasion the plaintiff turned about face and denied his promise. The defendant company wrote letter Exh.D8 but received no reply and then Ex.D9, which brought a reply Ex.D10. It appears that as late as 17th July 1969, although the plaintiff had not been paid for deliveries made over a year beforehand, he was still prepared to consider some settlement after receipt of a surveyer's report as evidenced by the Letter dated 17th July 1969 Ex.D10 from Edmund Cheung & Young (Plaintiff's solicitors) to defendant company.

44. That briefly is the sequence of events as described by the defendant's witness Lo Man Bun and as subsequently confirmed by Lo Toe Ming (D.W.2) and, so far as the meetings between the plaintiff and defendant's Lo Man Bun on a Sunday in August 1968 and later at beginning of July 1969 was concerned, by Mr. Yu (D.W.3).

45. I don't propose to set out in detail the plaintiff's account of the events and circumstances forming the background of this transaction because I don't believe him.

46. As between the plaintiff and Lo Man Bun for the defendant company I would believe the latter for the following reasons.

However I think the reasons already put forward are sufficient.

47. I am satisfied that the events as set out earlier in the judgment as stated by D.W.1 have been proved on a balance of probabilities. Indeed I would put it even higher than that.

48. In view of the fact that the defendant company accepted all the cloth delivered under both contracts, the Defence concede that the plaintiff is entitled to the contract price. They are prepared therefore to admit the plaintiff's entitlement to the price for 2825 1/2 yards, i.e. $4,040.46 and 1622 yards, i.e. $2,319.46 total 4447 1/2 yards i.e. $6,359.92.

49. However they have pleaded set off and counterclaim and claim since the damages exceed this amount judgment should be entered for them for the balance.

50. It is common ground that the defendant company made known to the plaintiff that the cloth ordered was required for the manufacture of shirts for the export market and for sale in the United Kingdom and that the defendant relied upon the skill and judgment of the plaintiff to supply cloth which should be reasonably fit for this purpose.

51. It is clear therefore that by reason of S.16(a) of the Sales of Goods Ordinance Cap.26 there was an implied condition that the cloth should be reasonably fit for that purpose.

52. The plaintiff, whilst admitting this, relied on condition 4 of the contract which provided.

"The sellers do not warrant or guarantee the exact shade or colour discription dimensions, packing, weight or quality of the goods and shall be under no liability for compensation allowance or otherwise, if the goods are not of the exact shade or colour, description, dimension, packing, weight or quality stipulated for."

53. Mr. Sakhrani has submitted that when a person relies on an exemption clause the maxim contra prerentem applies and that this condition 4 must therefore be strictly construed. I agree that the proper construction is that the seller does not warrant or guarantee EXACT shades, descriptions, dimensions etc. and this does not except the condition implied into the contract by the Sale of Goods Ordinance.

54. As Messrs. Cheshire & Fifoot have pointed out at p.147 of the 7th Edition of their "Law of Contract."

"A term in a contract designed to exclude the statutory implications will be construed by the Courts with jealous care, and the words used by the seller will be given their precise value and no more."

55. I agree also with Mr. Sakhrani that by virtue of the plaintiff's promises on 25th March 1968, there was a waiver of condition (6). There was a similar waiver of condition (8) of the contract, and, since at that time no tests had been made at the factory of the sellers, there was also a waiver of condition (5).

56. As the defendant company did not repudiate these contracts it must treat the breach of the implied condition as a breach of warrantee and claim damages.

57. However the fact that the breach of condition is to be treated as a breach of warrantee does not effect the status of the undertaking which is not effected by condition 4 of the contract. See Wallis, Son & Wells v. Pratt & Haynes (1911) A.C.394

58. I will deal with the question of the measure of damages later. Clearly however the defendant is entitled to damages on that head of his claim where he claims damages for breach of the implied condition.

59. The defendant also claims damages for late delivery.

60. It has been stated by Mr. Sakhrani that the plaintiff admitted in his reply that time was of the essence in these contracts, but that is not the case. Although in paragraph 2 of his reply the plaintiff admits paragraph 5 of the defendant's Defence he pleads at the end of para. 2.

"However the delivery of 21,915 1/2 yards of cloth was neither wrongful or in breach of contract and time if implied was not expressly of the essence."

Whatever this may be taken as meaning it would not appear to be an admission.

61. Certainly during the hearing of this case it became apparent also that the plaintiff did not regard time of the essence. I am not impressed with the defendant's contention that time was of the essence. Although it was obviously important to the defendant that the cloth should be supplied in good time to enable them to get their shipment off to U.K. in good time, they certainly didn't insist strictly on the terms for delivery. Neither as Mr. Smart has pointed out were the stipulations as to time of delivery very precise. The defendant company accepted deliveries on the 1st contract well after the date for the delivery marked on the contract by the defendant Mr. Lo Man Bun. (2 months later in respect of the 1st lot). The defendant company in fact accepted all deliveries from the plaintiff and not one delivery was anywhere near the contract date, except the last delivery under the 1st contract. Even though the plaintiff lost the profit he would have made on the cancelled order. I don't think, having regard to the circumstances of the dealings between the parties and the terms of their contract and the fact that the defendant accepted very late deliveries before, and that no notice was given to the plaintiff insisting on strict compliance, that the defendant company is entitled to damages for an alleged breach of the second contract in respect of time. The last delivery was also 2 months late. (i.e. no later than the delivery of the first lot on the first contract). I hold therefore that the defendant cannot recover under para. 21(b) of his Counterclaim.

62. The defendant company has dropped its claim under para.21(c) of its Counterclaim.

63. There remains for me to decide the measure of damages to which the defendant is entitled under 21(a) for breach of the implied condition.

64. I have been referred in this connection to anauthority from the English Court of Appeal. Biggin & Co. Ltd. and Permanite Ltd. (1951) 2 All E.R. 191.

65. I don't propose to set out the facts of that case which are set out in detail in the report. It was held:

"Although the amount paid by the plaintiffs in settlement of the claim of the Dutch government was not conclusive of the extent of the defendant's liability to the plaintiffs and although it was the upper limit of that liability, if, having regard to the facts and on the evidence, the amount was reasonable, it should be taken as the measure of damages; on the facts and evidence, including the fact that the settlement had been made on legal advice, the settlement was reasonable; and, therefore, the defendants were liable to the plaintiff in £43,000 and costs."

66. In the present case the defendant company settled its liability to the U.K. buyers by paying the equivalent of $14,642.00.

67. This settlement was reached on the advice of learned Counsel and the defendants now claim that this amount should be taken as the measure of their damages on the abovementioned authority.

68. There is however a notable feature in the present case which places it on a slightly different footing than the above-mentioned case. Whilst in both cases the buyer of the goods bought them in a defective state from one party and sold them to the third party whose claim he eventually settled, in the present case the goods were substantially changed by the buyer and converted into another product altogether. The process of conversion was one in which a considerable amount of skill would have to be used.

69. The question arises whether any of the defects in the shirts could be attributed to anything less than the proper amount of skill being shown by the defendant company. Furthermore, while, in the above-mentioned case, the defects in the material supplied to the third party only became apparent after the buyer had delivered the goods to the third party, in the present case the buyer knew about the defects before supplying them.

70. With regard to the first point there can be little doubt in the mind of anyone who has seen the cloth presented before the Court that the cloth supplied by the plaintiff was of very poor quality in that it tore very easily and could not be expected to last more than one wash.

71. Furthermore, there can be little doubt also that it was the defect in the cloth which led to the defect in the finished shirts and that a considerable amount of skill would have had to be used by the defendant company to convert such poor material into a finished product.

72. It should be appreciated that Interglobal's claim related only to the goods shipped to them. The implied condition relates to all the cloth sold by the plaintiff to the defendant company and not just that actually manufactured into shirts and shipped to Interglobal. The defendant company is entitled to sue for damages for breach of the implied condition in respect of all the cloth sold to it by the plaintiff, including the last delivery which is at present lying in the defendant company's factory untouched and also including all that cloth which was wasted during the course of the manufacture of the shirts.

73. If therefore Interglobal's claim were to be regarded as having it's basis, not in any defect or negligence in shirt manufacture, but entirely in the defectiveness of the cloth, it does not represent the whole of the damages, the defendant company is entitled to claim from the plaintiff.

74. That Interglobal's claim was based entirely upon the defects in the cloth, out of which the shirt was made, seems abundantly clear in the letter of 31st July 1968 Exh.D17 and the letter of 27th August 1969 Exh.D11(b) together with its enclosure, Exh.D11(c).

75. In the circumstances there can be little doubt that the whole of Interglobal's claim on the defendant company can be attributed to the poor quality of the cloth supplied by the plaintiff, and that, unless there is any other reason for rejecting it, it could, following the authority quoted, be taken as the measure of damages suffered by the defendant company.

76. The second question to be considered is whether the defendant company's knowledge of the defect in the cloth before shipping it to Interglobal should preclude him from recovering that amount fully or partially from the plaintiff. Mr. Smart has submitted that, even if the plaintiff is to be held liable, since the defendant company agreed to ship shoddy goods to Interglobal, they should not be able to recover more than 50% of Interglobal's claim.

77. As I have already pointed out, Interglobal's claim was based upon the poor quality of the cloth and whilst the shirts were supplied by the defendant company, the cloth was supplied by the plaintiff.

78. Furthermore Interglobal's claim is only being used in the present case as a basis for measuring the damages suffered by the defendant company because of the plaintiff's breach of contract.

79. The plaintiff knew that the cloth was for the purpose of manufacture and export to the U.K. of shirts and impliedly agreed that the cloth would be reasonably fit for such purpose. I cannot imagine a more accurate way for the defendant company to find a yardstick to determine his damages, then by giving effect to the purpose for which he purchased the cloth, and thereby finding out his losses. Though few would be prepared to risk their reputation in this way.

80. The defendant company seems content in this case to limit its counterclaim to the amount of the sum paid as a result of legal advice in settlement of Interglobal's claim, even though as I have pointed out that only relates to the cloth actually shipped to U.K. as shirts. It seems to me having regard to all the facts and evidence that this amount is a very fair figure to represent the damages the defendant company is entitled to recover from the plaintiff and I will therefore take it as the measure of damages.

81. I would give judgment for the defendant company in the sum of $8,282.00 and costs.

Representation:

Mr. John N. Smart (John N. Smart & Co.) for plaintiff.

Messrs. A. Zimmern & A.H. Sakhrani (instructed by P.C. Woo & Co.) for defendant.