Arthur a. Seidman & Co (A Firm) v. Winner Co (HK) Ltd

HCA001340/1968

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO.1340 OF 1968

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Coram: Pickering J.

Date of Judgment:

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JUDGMENT

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1. The trial of this case occupied a week and during its course several hundreds of yards of a cotton grey cloth known in the textile trade as "Osnaburg" were inspected in Court foot by foot by the managing partner of the plaintiff firm and by an expert witness called on behalf of the defendant Company. Almost all the cloth so examined formed part of the contents of a bale of Osnaburg opened for the first time in Court and which had been chosen at random from a consignment of 300,000 yards which had been shipped by the local defendant Company to the order of the New York plaintiff firm in the U.S.A. The basic purpose of the examination was to compare this randomly-selected portion of the bulk with that of a 44" x 16" piece of Osnaburg which the plaintiffs claim is the remaining portion of the sample submitted to them by the defendant company in connection with the sale of the 300,000 yards. I say "the remaining portion" of the sample because it is the plaintiffs' case that approximately one half of the original sample was cut off by them and handed to a customer of their own to whom the plaintiffs had resold the whole consignment but who subsequently, after attempting to process (that is to dye and print) some five or ten bales from the bulk, rejected the goods as being the same "Singapore trash" which they had previously rejected from another source. Similar rejections from various other customers were experienced by the plaintiffs.

2. In parenthesis I would add that the material was in fact woven in Singapore by an associated Company of the defendant Company.

3. There was evidence as to the course of dealings between the plaintiff firm and the defendant Company both for some years before the entry, in 1966, into the contract which led to the present dispute and during a subsequent period. It is unnecessary to say any more about that evidence than that it revealed an earlier history of mutual trust and amity the plaintiffs having purchased millions of yards of various types of cloth from the defendants without ever previously having submitted any claim against them.

4. The existence of the contract, which was for the sale of 300,000 yards of Cotton Greige Osnaburg 40 x 30, 12s/10s 45" wide at 16 1/2 U.S. cents per yard C.I.F. New York or Charleston from Singapore, is not in dispute; additonally the parties are agreed that the contract was a contract for sale by sample as well as by description; further, the plaintiffs do not complain that the goods delivered do not accord with the description Cotton Greige Osnaburg 40 x 30 (a reference to the number of warps and wefts per square inch) 12s by 10s (the count of the yarn), 45" wide. The gravamen of the plaintiffs complaint is that the bulk Osnaburg delivered was of inferior quality to that of the sample submitted to them. Whilst the defendants' admit that it was an implied condition of the contract that the bulk should correspond with the sample, it is their case that the 44" x 16" piece of cloth (exhibit P.1) produced by the Plaintiffs in Court as the remaining portion of the sample submitted by the Defendants is not in fact a portion of such sample and the managing director of the defendant Company went so far as to suggest that the plaintiffs' claim was fraudulent.

5. On the evidence of that same witness the plaintiff firm is one of the biggest - if not the biggest - importer of cotton grey cloth into the United States of America. I have already referred to the history of mutual trust and amity between the parties in the course of previous dealings in very large quantities of cloth. It is against that background that the suggestion of fraud on the part of the plaintiff firm and with it, the true identity of the piece of cloth, Ex. Pl, falls to be examined.

6. Mr. Arthur A. Seidman, managing partner of the plaintiff firm, said that he received the sample by airmail on May 4th 1966 and that on a date which he placed as being either the 4th, 5th, 6th, 7th or 8th of that month but probably the 4th, the date of receipt, he endorsed upon it in his own handwriting the words

"Received May 4th, 1966 from Winner 45" - 40 x 30 - 12/10 Singapore C.I.F. Charleston 16.5"

and added his signature. He was satisfied with the quality of the sample and considered that on the basis of the weaving, texture, colour, roundness of yarn and lack of "thick and thin" places he could sell the entire consignment immediately at a profit. On May 4th, 1966, he cabled the defendant company accepting their offer. The goods were duly paid for and in due course arrived in the port of Charleston, U.S.A.

7. The witness then took the sample to a New York firm, Rose Textile Corporation, which he described as one of his biggest customers for osnaburg. Rose Textiles bought the whole consignment at 20 cents per yard giving the plaintiffs, who estimated their own landed cost at 18.8 cents per yard, a profit of about 6 per cent. The witness cut the sample and left half of it with Rose Textile Corporation.

8. Subsequently Rose Textiles caused a small number of bales from the bulk to be sent to their processor and as a result of the difficulty experienced in processing the cloth Rose Textiles cancelled their contract with the plaintiffs who thereupon instructed the warehousemen in Charleston to break bulk and send them a 50-yard piece of the osnaburg for cutting into samples in order to sell the goods elsewhere. Later one bale of 1,186 yards was sold to Louis Hornick, a very large curtain goods converter, who did not follow up this trial bale with an order for a bulk quantity. Another sale of three bales to Caravelle Textile Company met with a similar failure to follow through the trial order. In the meantime, Rose Textiles had come to need osnaburg so badly that they placed a further trial order for this same material with the plaintiffs but this order similarly resulted in no further business. All these potential customers said that they were unable to use the product which looked nothing like the osnaburg which the plaintiffs had previously delivered to them from Hong Kong mills. A subsequent sample sale to a firm called Rayner Textiles likewise resulted in no business.

9. During his inspection of the cloth Mr. Seidman referred to some seven or eight different types of defect. I do not propose to elaborate upon the nature of these defects since the defendants' own expert has said that the bulk was "not up to the standard of the sample" the latter not being woven from the same yarn as the bulk but from a superior yarn. Similarly the defendant Company's own managing director expressed doubt as to whether the sample was in fact woven from part waste cotton as, it was agreed and as is common with osnaburg, was the bulk. It follows therefore that if I am satisfied that the sample produced in Court was in fact a piece of the sample provided by the defendant company to the plaintiff firm in connection with this sale of 300,000 yards of osnaburg and that the bulk is substantially inferior to the sample piece, then the plaintiffs must succeed.

10. It was Mr. Seidman's further evidence that on the 24th December, 1966, he was in Hong Kong and had lunch at the Peninsula Hotel with Mr. C.K. Chow, managing director of the defendant company, and some of his associates. Mr. Seidman said that at this lunch (and his memory appears to be vivid since he places his broaching of the matter as taking place "even before we had had a drink") he told Mr. Chow that the latter should not have sold him rejected goods, that he was old enough to handle rejected goods if he knew beforehand that they were rejects; that he told Mr. Chow never to do that to him again, to which Mr. Chow replied that the goods had only previously been rejected because of colour and that he would pay half the plaintiffs' loss if in fact they incurred a loss upon resale. Mr. Seidman's rejoinder was that when he himself made mistakes he stood the loss and that when Mr. Chow made mistakes he ought to do likewise. At another luncheon at the Hong Kong Hilton Hotel on December 29th, 1966, Mr. Seidman says that he again referred to the defective osnaburg and that Mr. Chow suggested that he should cable New York and try to get an offer for the goods in order to ascertain his precise loss and settle the matter. Mr. Seidman did cable New York on that date and on the 31st received a reply to the effect that Rose Textiles were not interested in the goods at any price.

11. Mr. Edward Chok, a director of Universal Enterprises Limited, the agent in Hong Kong for Arthur A. Seidman & Company, the plaintiff firm, said that during the lunch at the Peninsula Hotel he heard Mr. Seidman tell Mr. Chow that the goods from Singapore were very bad and heard Mr. Chow make the proposal that he should share the loss with Mr. Seidman. This witness further said that as they were leaving the luncheon party Mr. Chow told the witness not to worry about the osnaburg and that he would share the loss with Mr. Seidman. Mr. Chok also confirmed that whilst in Hong Kong at the end of 1966 Mr. Seidman had cabled New York asking his office there to get a bid from Rose Textiles for the 300,000 yards of osnaburg and that a reply was received to the effect that Rose Textiles were not interested because of the quality. Diligent search having been made for these cables without result, I allowed secondary evidence of their contents.

12. Mr. Howard David Hoffman, an expert in cotton waste, gave evidence that he also was at the luncheon at the Peninsula Hotel on Christmas Eve, 1966, and that during the meal Mr. Seidman was complaining vigorously about the quality of the osnaburg; he recalls Mr. Chow offering to share the loss with Mr. Seidman and the latter's reply "I pay for my mistakes. You pay for yours."

13. Mr. Chow, although recalling the luncheon party at the Peninsula Hotel, denied specifically that Mr. Seidman reproached him for selling rejected goods to Seidman's firm, denied the alleged offer on his part to pay half any losses incurred by Mr. Seidman and denied Mr. Seidman's alleged remark to the effect that if he made mistakes he paid the losses and that if Mr. Chow made mistakes he should do likewise.

14. Independently of the complaints made in December, 1966, in Hong Kong, Mr. Seidman said that he also raised the matter of the quality of this osnaburg material when Mr. Chow visited him at Mr. Seidman's office in New York in July, 1967, upon which occasion he asked Mr. Chow to come down to Charleston with him on the next day to take a look at the bulk of the goods. This invitation, according to Mr. Seidman, was declined by Mr. Chow on the ground that he had to fly to Zurich on the next day but he repeated his offer to share half the loss. Mr. Chow denies that this conversation ever took place.

15. Whether or not the complaints alleged to have been made at the meetings in Hong Kong in December, 1966, and in New York in July, 1967, be fact or fiction is of course ancillary to the main issue in these proceedings which is whether the bulk of the osnaburg corresponded to the sample supplied, which question in turn raises the issue of whether or not the exhibit produced in Court by the plaintiff firm is in fact the sample supplied to them by the defendant company. The ancillary issue does, however, go to credit and it may be well to state my finding on that issue at this point. Mr. Seidman's recollection of the meetings both in Hong Kong and New York appeared vivid and his account of that at the Peninsula Hotel was corroborated both by Mr. Chok and by Mr. Hoffman, the latter of whom was an entirely independent witness. Mr. Chow's denials rang hollow and I find as a fact that complaint about the quality of the osnaburg was made by Mr. Seidman both at the Peninsula Hotel in Hong Kong on Christmas Eve, 1966, at the Hong Kong Hilton Hotel some days later, and at his own office in New York in July, 1967.

16. Eventually the remainder of the osnaburg material after the sample sales to which I have referred was sold at a loss by the plaintiff firm to Messrs. A. & E. Weeden, that is to say it was sold under the description "seconds as are" at 15 cents per yard. For reasons which do not concern us in this action and which are quite independent of the quality of the material, the plaintiff firm took back some 150,000 yards of this consignment and that quantity is still warehoused in Charleston, U.S.A. and it is from that residue that the bale opened for the first time in Court was chosen at random.

17. The primary issue of fact is whether or not the sample produced by the plaintiff firm in Court was in fact the sample airmailed to them by the defendant company in May, 1964. It was Mr. Seidman's evidence that before taking the sample to Rose Textile Corporation he endorsed it in the manner which I have previously described and signed the endorsement. Both endorsement and signature are upon the length of cloth produced in Court. What is missing from that length is the chop of the defendant company and Mr. Seidman's explanation of this is that whilst he does not remember whether such a chop was on the piece of material or not when he received it, if such was the fact then the chop must have been upon the approximate half length of the piece which he handed to Rose Textiles upon the occasion of their initial purchase, subsequently cancelled, of the whole consignment.

18. Evidence as to this chop was given for the defendant company by Mr. Luk Fook Hong, now the manager of the weaving department of the defendant company and in 1966 assistant manager and personal assistant to Mr. C.K. Chow, the managing director. This witness described a system whereby sample lengths of cloth given to prospective customers each had a card attached bearing a note of the construction of the material, the count and the width; underneath the card a chop would imprint the words "sample for approval" and the witness would sign his name and insert the date beneath that chop. This having been done each sample would be submitted to Mr. C.K. Chow for his approval before dispatch to the prospective customer. No part of the sample was retained by the defendant company but another yard of material of the same structure and count was put aside and kept in a sample cabinet controlled by the witness where typewritten particulars of the count of the material would be pasted on to the appropriate shelf of the cabinet. No details were endorsed upon or stamped on to the counterpart itself and the cabinet contained no indication of the source of the material or of the type of yarn from which it was woven.

19. In connection with this particular transaction the witness said that he had five one-yard lengths in the cabinet which lengths had been mailed to the defendant company from the Singapore associate company which wove the cloth. The witness said that he took one of these five lengths, attached to it a card bearing the description "40 x 30 count 12/10 and 45" which he stapled to the left top corner of the sample, thereafter applying the chop "sample for approval" under which he signed his name and added the date. The remaining four lengths of one-yard each remained in the cabin t until 1968 when, upon receiving a letter from the solicitors representing the plaintiff firm, the witness extracted the four pieces from the cabinet and kept them in his own office in a drawer of his desk where they remained until he gave them to his solicitor two days before the hearing of this action. The witness agreed that it was not his custom to endorse the number of the cloth on the countersample and further that the sample sent to the plaintiffs in New York in May 1966 was probably mailed by Mr. Chow's secretary and said that he himself did not know what went into the envelope addressed to the plaintiff firm in New York. The sample cabinet, according to the witness, was at all times unlocked.

20. The four one-yard sample lengths to which I have referred were produced in Court (Exhibits D2, 3, 7 and 8). Whilst I acquit the Defendant Company's representatives of the suggestion put to them that these were in fact lengths which had been cut from a second bale sent from Charleston U.S.A. and opened in the presence of both parties a few days before the commencement of the hearing, the defendants taking a portion of the contents away for examination, I am not satisfied that Mr. Luk's evidence establishes a complete chain of identification of the sample sent to New York. He did not know what actually went into the envelope mailed to New York and Mr. Chow's secretary was not called. Conversely the reputed retention of the four counterpart samples in an unlocked sample cabinet for two years can hardly be said to guarantee immunity from confusion of samples so as to identify with certainty the four lengths produced in Court as being counterparts of the length sent to New York in May 1966. In saying that I am not overlooking the fact that the defendants claim never to have sold any 45" Osnaburg apart from that the subject of this action.

21. It may fairly be said that equally the Plaintiff firm's method of storage of the half sample which remained after the other half had been given to Rose Textiles, likewise guaranteed no immunity from confusion of samples. Mr. Seidman's evidence was that his firm has some fourteen cabinets for the storage of samples of different types of material including one for Osnaburg and that the remaining half sample was filed under this system until, upon the commencement of these proceedings more than two years ago, he brought the half-sample to Hong Kong upon one of his visits and gave it to his solicitors. There was no evidence as to whether the cabinets were kept locked or as to who had custody of or access to them.

22. Mr. Seidman however was one of the most transparently honest witnesses I have encountered. His account of his business dealings both generally and in relation to this transaction had the convincing ring of truth and he says that the cloth produced in Court was part of the sample sent to him by the defendant company. I accept that statement unreservedly. It is supported by the inherent unlikelihood of a man of his experience in the trade buying unsaleable osnaburg on the basis of a sample which represented accurately the poor quality of the bulk.

23. Once I have found that Exh. P1 is in fact part of the sample sent to New York in May 1966, it is apparent that the plaintiff firm must succeed. From the evidence of the defendant company's own expert the sample was woven from a different and superior yarn to that which was employed for the bulk, the bulk was "not up to the standard of the sample" and the expert did not think it possible that the sample Exh. P1 could have been cut from the bulk. On his evidence the colour of the sample is better than that of the bulk and it was his comment that the longer you looked at the two the more apparent this fact became. It was also the expert's evidence that the better quality, "more regular" yarn used in Exh.P1 resulted in a better appearance in the woven cloth. That the defendant company's managing director, Mr. Chow, also considered the length produced in Court by the plaintiff firm as the sample to be superior to the bulk was evident from his statement that he even doubted if this particular piece had been woven from part-waste cotton as opposed to wholly clean cotton.

24. In this connection it may not be without significance that in his original letter to the plaintiff firm offering this 300,000 yards of Osnaburg, Mr. Chow did not describe the product as "part-waste" Osnaburg though that was its composition and it had been so described in the contract with another New York firm under which contract it had been woven. The New York firm in question rejected the goods which was how the Defendant Company came to have this quantity upon its hands.

25. Nor must the acid test of marketability be overlooked. Four of the plaintiff firm's customers took trial bales from the bulk, one of them twice, for test processing and none of them would buy the bulk or any further part of it. The accumulated expertise of more than fifty years' experience in the textile trade was insufficient to enable Mr. Seidman to sell the goods except at a loss in the form of "seconds as are". Yet he had been completely satisfied with the sample.

26. I find as facts

27. I have already reached the finding on the ancillary issue that complaint was in fact made by Mr. Seidman to Mr. Chow twice in Hong Kong in December, 1966, and once in New York in July, 1967.

28. Turning to the quantum of damages the landed cost of the goods to the plaintiff firm including duty paid, cost of Customs clearance, wharfage and handling and a buying commission to the plaintiff firm's agent in Hong Kong was US$63,828.90. The inclusion of the buying commission was criticized by Mr. Litton for the defendant company on the grounds that the contract had been concluded by letter and cable between the plaintiff firm and the defendant company without the intervention of the plaintiff firm's agents in Hong Kong. I think however that I am entitled to take note of a well-known usage whereby, in order to avoid the impression of going behind an agent's back, principals do in practice pay commission to their agents upon all business originating in the agent's territory even though such business has been concluded without the assistance of the agent. I do not propose to disallow this item of claim.

29. The net proceeds which would have been received by the plaintiff firm had their original sale to Rose Textiles gone through would have been US$67,880.09. This figure is arrived at after allowing, in favour of th defendant company, a sales commission of 2%. The loss of profit is therefore US$4,051.19.

30. The plaintiff firm's total outlay including landed cost, interest on that amount to 15th September 1968 at 9% per annum (the amount charged by the bank), insurance and storage was US$78,842.26 and their net proceeds of the sale to Messrs. Weeden was US$51,267.03 leaving a loss on the resale of US$27,575.23. The total of loss of profit and loss on resale is therefore US$31,626.42 or, at the exchange rate of HK$6.06 to US$1.00, HK$191,656.10. The plaintiffs are entitled to judgment in this amount together with interest at the rate of 9% p.a. on US$9,773.79 (HK$59,229.17) being the difference between the landed cost (including duty but excluding charges and commission) and the gross proceeds of sale, from 16th September 1968 until judgment. The judgment will carry interest at 8% p.a. until the date of payment and the plaintiff firm is entitled to the costs of the action.

Representation:

A. Zimmern (Deacons) for Plaintiffs.

Litton, Q.C. (Johnson Stokes & Master) for Defendant

Judgment read in Court.