Arthur a. Seidman & Co (A Firm) v. National Textile Ltd

HCA001341/1968

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

Action No. 1341 of 1968

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Coram: Briggs, J. in Court.

Date of Judgment: 6th April, 1971.

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JUDGMENT

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1. This case arises out of a contract made in Hong Kong on 8th December 1966 between the Plaintiff and the Defendant. The Plaintiff is a partnership based in New York and at the material time was one of the largest of importers of cloth into the U.S. The Defendant Company at the material time were weavers. They operated in Singapore and were a wholly owned subsidiary company of the Winner Company who are a Hong Kong based Company, and a company with whom the Plaintiff had had previous dealings. By the contract in question the Defendant agreed to weave 450,000 yards of grey cotton hopsacking at 19 1/2 cents U.S. per yard F.O.B. Hopsacking is a low grade quality material. The intention of the Plaintiff was to re-sell it to customers in America who would bleach it, dye or print it when it would sell as furnishing material etc. The Defendant was responsible for packing the goods and experting them to Charleston in the U.S. This they did. The Plaintiff made certain sales to customers one of whom rejected the goods. He claims damages alleging that the goods were of inferior quality. And that he was only able to dispose of them at a loss. The Defendant denies this.

2. In 1964 the Plaintiff had purchased 200,000 yards of hopsacking from Winners. It was woven in Hong Kong and the Plaintiff was satisfied with the goods he received.

3. In 1966 the Plaintiff purchased some Osnaburg, a different type of cloth from Winners. This was woven in Singapore by the present Defendant. It was a sale by sample. The Plaintiff was not satisfied with the quality he received. It was not up to sample. Indeed that sale has been the subject matter of another action, an action in which the Plaintiff was successful. I mention this because Mr. Seidman a partner in the Plaintiff firm frequently referred to it in his evidence. The contract for Osnaburg does not concern us in these proceedings.

4. The Plaintiff's agent in Hong Kong is a firm called Universal. In December 1966 despite the fact that the Plaintiff had become aware of the unsatisfactory condition of the Osnaburg, he agreed to purchase hopsacking from the Defendant and the contract which is the subject matter of this case was entered into on December 8th. It was negotiated by Universal and the Defendant. The Plaintiff informed Universal that the quality of the hopsacking must be equal to that which had been made for him by the Winner Company in Hong Kong in 1964.

5. Mr. Seidman, representing the Plaintiff, came to Hong Kong on December 22nd 1966 and he signed the contract on December 31st. At that time he was vociferously complaining of the quality of the Osnaburg cloth which he had already received from the Defendant. His evidence was that he wanted the hopsacking to be of the same quality as the hopsacking which he had received previously from Winner's and which had been woven in Hong Kong in 1964.

6. There appeared to have been a luncheon party on Christmas Eve in Hong Kong. Mr. Seidman, Mr. Chow, Mr. Chuk and Mr. Luk were all there and they gave their recollections of what occurred in evidence. Mr. Seidman represented the Plaintiff, Mr. Chuk represented Universal, Mr. Chow was the Managing Director of the Winner Company and a director of the Defendant, and Mr. Luk represented the Defendant also. A great deal of time was wasted on this part of the case.

7. The luncheon was in 1966 and it is not surprising that the recollection of those taking part varied. However there was a sharp conflict between the evidence of the witnesses on each side.

8. In any event the contract had already been made on December 7th or 8th. Whether the negotiations were conducted between Mr. Chuk of Universal for the Plaintiff and Mr. Luk or Mr. Chow for the Defendant is in dispute. I will accept Mr. Chuk's version of what occurred. He said he passed on to the other side that the hopsacking must be of quality similar to that previously supplied in 1964.

9. I have heard the evidence and I am satisfied that the representatives of the Defendant must have been aware that the Plaintiff wanted hopsacking which was of that quality previously woven in Hong Kong and sold to him by Winner. And undertook to deliver goods of that quality.

10. But here we run up against a difficulty. There has been shown to me no piece of cloth made in Hong Kong of the quality in question. This was not a sale by sample. There was no sample. It was a sale by description. There is no mention in the written contract of any guaranteed quality: nor does the written contract contain any express warranty as to the quality of the goods to be supplied. Mr. Zimmern for the Plaintiff said that Section 16(a) and (b) of the Sale of Goods Ordinance are not relied upon. There was he says this understanding between the parties as to the quality of the cloth to be supplied. I shall refer to this point later in this judgment.

11. Messrs. Winners ran off a length of about 100 yards of hopsacking in Hong Kong in order to arrive at a costing for the contract. This evidence was not challenged. This was shown to Mr. Seidman at the end of December 1966 when he was in Hong Kong but it is not suggested that that length was to be considered a sample of the cloth which was to be produced under the contract. What the plaintiff wanted was cloth similar to that produced in 1964. But that cloth was to be woven by the Defendant and not by the Winner Company; in Singapore and not in Hong Kong.

12. Mr. Seidman in his evidence said that he told Mr. Chow, that he would not sign the contract until he had seen a 100-yard length of the cloth to be sold which must be woven in Singapore. However, he did sign the contract without seeing any such cloth.

13. It was repeatedly sued that the Defendant "guaranteed" that the quality would be as required by the Plaintiff.

14. The word "guaranteed" when used in the sense as it was used in Court in this case and in the documents which were put before me has little meaning. It is an imprecise term. The Plaintiff's witnesses did not go further than to say that what was meant was that the cloth would be up to the standard of that previously woven by Winners in Hong Kong.

15. Mr. Chow and Mr. Luk who gave evidence for the defendant denied that they even gave a guarantee. All this occurred long ago and the defendant was obviously trying to pacify Mr. Seidman who was not pleased with his purchase of Osnaburg. I think the memories of the Defendant's witnesses are faulty here. I accept the evidence of Mr. Seidman though I cannot understand why he did not do what he said he would do i.e. not sign the contract until he had a sample of what he was contracting for in his hand.

16. Mr. Seidman having signed the contract left Hong Kong. He asked for a 100-yard length of the Singapore woven cloth to be sent to him before he left so that he could show it to his customers. However, he did not receive a length until February 9th. Meanwhile he had opened a letter of credit in favour of the defendants on the third of February i.e. before he had received the 100-yard piece. He opened the letter of credit because his agent in Hong Kong, Universal, had wired him on January 30th that there were 80,000 yards of hopsacking ready to be shipped. So the 100-yard piece was part of the cloth made under the contract: not a sample of what was to be made: but part of the contract goods itself.

17. Mr. Seidman told the court that the 100-yard piece he received in New York was of acceptable quality. He sent 30 yards of it to a customer at once. That customer agreed to purchase the whole 450,000 yards, for 25 1/2 cents U.S. which, I understood was a good price. However that customer cancelled the sale and returned the goods, when a first portion of the goods was delivered to him. This customer was, I was told, a very important customer. Mr. Seidman said that he thought that he may have been "too fussy" in rejecting the goods.

18. He made three separate sales to another customer called Seneca Textiles between May 16th and July 10th at 20 3/4 cents U.S. per yard. These total some 70,000 yards. This customer was also dissatisfied according to Mr. Seidman. There was another later sale to a customer of some 25,000 yards in June 1967 for 20 1/2 cents U.S.

19. Eventually the Plaintiff disposed of the rest of the hopsacking which amounted to 346,800 yards at 17 cents U.S. per yard: namely, at a loss.

20. In July 1967 Mr. Chow who was, as I have said, a director of the Defendant met Mr. Seidman in New York. This was at about the time of the sale to Seneca Textiles. Mr. Seidman said that he complained to Mr. Chow about the Osnaburg and wanted him to take the goods back. He also referred to his customer's rejection of the hopsacking in April.

21. I understood Mr. Chow's evidence to be that the contract for hopsacking was not mentioned. Mr. Seidman said he suggested that Mr. Chow should fly down to Charleston where the goods were warchoused to inspect them. Mr. Chow does not remember that suggestion. What both remember is that there was discussion regarding two new contracts between the parties concerning different types of cloth to be woven in Singapore.

22. I will now come to the complaints. And I will say at once that the evidence on this issue, the most important issue in the case, is unsatisfactory. No survey of the cloth was made in America before the bulk of it was sold in November 1968. Mr. Seidman did not himself examine the cloth even after his admittedly important customer had cancelled his contract and other customers had complained, as he said, of the quality. Two bales were shipped back to Hong Kong and during this case one of these was opened. 3 lengths from this bale have been put in evidence. They were numbered C1, C2, and C3. Mr. Seidman examined them, so did Mr. Chow and a Mr. Woolfenden, an expert witness called by the Defendant. I have also examined the exhibits closely.

23. As I have said a 100-yard length of the cloth had been sent to New York to Mr. Seidman by the Defendant. Only 28 1/2 yards of this remains. This was put in evidence as Exhibit B. This exhibit was also examined by all the witnesses and by myself. We all compared C1, 2 and 3 with Exhibit B and it will be remembered Mr. Seidman said in evidence that Exhibit B was of acceptable quality.

24. It is obvious that if Exhibits C1, 2 and 3 are of similar quality to Exhibit B the Plaintiff cannot succeed.

25. In his statement of claim the Plaintiff particularises his complaints thus. He says that the cloth has (1) heavy slubs and (2) missing weft yarns for about half inch on an average every 15 yards or about in each piece of cloth, and (3) one or more double picks in every 5 yards of cloth in each piece. At first, Mr. Seidman called these faults 1, 2 and 3. He went through the three exhibits C1, 2 and 3, marking the various faults as he came across them. However, he later used the expressions "2A" and "3A". This he said was to cover cases where the missing wefts or the extra wefts did not continue right across the width of the material. Mr. Seidman gave me the following figures. In C1 he said there was 145 areas where there were obvious and therefore objectionable slubs, 9 cases of missing wefts and 5 cases of extra wefts or "fillings" as he called this defect. These did not continue from one side of the cloth to the other. In C2 there were 112 objectionable slubs, 13 instances of missing wefts and 12 partial fillings. In C3 there were 73 objectionable slubs, 19 missing wefts, 18 partially missing wefts and 8 partial fillings. Upon examining Exhibit B which is all that remains of the 100 yards Singapore woven piece which was sent to the Plaintiff in New York to show to his intended customers, Mr. Seidman found 29 slubby areas, no missing wefts and 5 partial fillings.

26. Mr. Seidman was extensively cross-examined on this part of the case. I must confess I found his method of inspection slapdash and amateur. He is not an expert weaver though he has been in the cloth trade for many years.

27. Hopsacking is a part-waste product, that is the fabric is woven from a mixture of waste yarn and regular cotton yarn: in the proportion roughly of 40% waste. It is not an expensive cloth, it is a low quality product. In such a cloth you expect to have slubs. Indeed, as the case progressed it became evident that the particulars referred to in the statement of claim had been exaggerated. The objection to the slubs for instance was dropped. And finally Mr. Seidman said that what he really complained about was the missing wefts. I have recorded him as saying "Provided it does not look like a hole there is no problem. Provided nothing is missing". He also said that slubs were not a problem. If he were sold cloth with an unusual number of unsightly slubs he would not make a repeat order.

28. When I examined the cloth I noticed in both Exhibit B and Exhibit C1, 2 and 3, places where at first it looked as if one of the warp threads was missing from a certain length of the cloth. It looked similar to a ladder in a stocking only not so pronounced. On further examination no thread was missing but there was an uneveness in the weaving at those places. No complaint however were made about this.

29. Mr. Litton for the Defendant took Mr. Seidman through nearly all the defects which he had marked in C1, 2 and 3.

30. During this part of the case he modified his evidence considerably. He admitted that he did not expect perfect goods and that there were no areas which showed a half inch width of missing wefts as stated in the Statement of Claim. It must be remembered that when that was drafted Mr. Seidman had not seen the bulk of the cloth including Exhibits C1, 2 and 3. I gathered that the Statement of Claim was based on a report given to him on the cloth he delivered to one of his customers, Seneca Textiles. It would have been must better had the defects of which he complains have been actually seen before the claim was made.

31. During his cross-examination several defects which he had marked as being serious now appeared as less serious. Several of the faults labelled No.2 were now labelled No.2A in C3 for example. And he said that when there was more density in the weft - i.e. fault No.3 - it was not in itself very serious. There was a defect called a double pick which was referred to. This is where two threads of the weft are woven where only one should be. Mr. Seidman said he did not complain of that.

32. Taking the evidence of Mr. Seidman as a whole it would appear that what he really complained about was the missing wefts. These he said would show up when the goods were processed and dyed. And if the fault were carried into the Selvage the cloth might rip when the processing was effected.

33. The Defendant called Mr. Woolfenden who is an expert in textile with an imposing number of qualifications. His whole life has been spent in textile but he has not been concerned with their sale. He was of course an independant witness, called as an expert. He examined C1, 2 and 3 and also marked a number of alleged defects. He was told to look for the faults which I have called No. 1, 2 and 3, 2A and 3A. In C1 he found 34 slubs; 2 complete and 1 partial missing wefts; 6 fillings (which he calls web-bars) and in addition one full double and one partial double pick. In C2 he found 15 slubs; two complete and 1 partial missing wefts; one filling, and three double and one partial double picks. In C3 he found 13 slubs; no missing wefts; one filling and two double and two partial double picks.

34. Mr. Woolfenden therefore only fourd four complete missing wefts in the whole amount of cloth and two partial missing wefts. This compares with Mr. Seidman's original 31 complete missing wefts and 13 partial missing wefts. It is true that Mr. Seidman did not start to use the number 2A for partial missing wefts until he reached the examination of C3, but the discrepancy is remarkable between the two accounts.

35. Mr. Woolfenden also examined Exhibit B. He found 5 slubs, no missing wefts of any kind, 4 fillings and one partial double pick.

36. Mr. Woolfenden said his examination went further than he would expect a buyer to go.

37. His general opinion of the quality of C1, 2 and 3 is that there was not much wrong with it as hopsacking. He could find no places where there were missing weft yarns for 1/2" wide. And there certainly were not one or more double picks in every five yards of cloth.

38. He said that the fabric would shrink when processed and this would have the effect of minimising the effect of a missing weft. It would tend to close the holes of the mispick and if there were only one thread missing it might eliminate it. This would not be so where there were two missing threads together. This is contrary to Mr. Seidman's evidence which was that the fault would become worse.

39. Mr. Woolfenden was taken through those faults complained of by Mr. Seidman one by one. In some cases he totally disagreed with Mr. Seidman's findings and in others he said that the fault was trivial. He said some of them would disappear when the material was processed and that it was possible that many more would also. In many cases what Mr. Seidman took to be a missing weft was not a missing weft. Nothing was missing. All the threads were present but there had been a tightening in the tension of the cloth when weaving and the result was that some of the threads were croweed together giving the appearance of a missing weft.

40. He said that C1, 2 and 3 were low grade cloth and the faults complained of were what one would expect and were unobjectionable.

41. He also said that he did not think that missing wefts of the nature seen would result in the cloth ripping when it was processed because the Selvage is held in clasps when that is done.

42. A suggestion of Mr. Seidman was put to Mr. Woolfenden that the slubs could be removed by burling or taking them out with a needle. He rejected this for as he said if this were done it would leave a hole which would require darning. This would seem to be obvious.

43. As to exhibit B he said that there were less faults than he found in Exhibits C1, 2 and 3 but it was only 28 1/2 yards long. He said there were portions of 28 1/2 yards in C1, 2 and 3 which were similar to Exhibit B. Exhibit B was not good weaving but it is reasonable for this sort of cloth. Based on the number of faults but only using such a basis it is better than C1, 2 and 3.

44. I myself as I have said examined the exhibits B and C1, 2 and 3. I compared Exhibit B with C1, 2 and 3 more than once. There is very little difference between them. Exhibit B is a darker colour but that must be because exhibits C1, 2 and 3 were only unpacked a few days ago while Exhibit B has been much handled. Anyway no point has been taken as to the colour.

45. Mr. Chow who has long experience of weaving examined the exhibits and said that Exhibit B was not in his opinion better than C1, 2 and 3 though there were less faults in it. He agreed with Mr. Woolfenden.

46. Taking into consideration the evidence I have heard and particularly the evidence of my own eyes, I do not think that the Plaintiff has made out his case. He clearly said that the 100 yards piece from which Exhibit B is cut was of acceptable quality. The evidence is that Exhibit B is of very similar quality to C1, 2 and 3.

47. As to section 16(a) of the Sales of Goods Ordinance. Mr. Woolfenden said that Exhibits C1, 2 and 3 were of acceptable quality, namely, were acceptable Hong Kong hopsacking.

48. It is true that the goods were not acceptable to a customer of Mr. Seidman that other customers to whom he made sales were not enthusiastic and that he had difficulty in disposing of the bulk of the cloth eventually selling it at a loss.

49. As I have already indicated, Mr. Seidman said he sold the whole amount of cloth to a single customer who when he received the first delivery cancelled the sale. The price was high, 25 1/2 cents U.S. per yard. There is very little evidence about this unsuccessful sale. Indeed this is so of all the sales made of the cloth. And I would have liked some independent evidence of the state of the market at the relevant time.

50. Mr. Seidman admitted that he suffered for landing himself with too many goods in that year. And that hopsacking of excellent quality which he had bought from another Hong Kong mill had to be sold at a loss during that summer. And in addition there is documentary evidence from the Plaintiff that in the summer of 1967 business of this sort in New York was very bad.

51. It was suggested in argument by Mr. Litton that the Plaintiff could not succeed in this action in any event because the Plaintiff has suffered no loss apart from a possible commission.

52. The Plaintiff is a partnership consisting of Mr. and Mrs. Seidman. It was the partnership which was the contracting party with the Defendants. And at all times the Defendants dealt with that partnership.

53. Mr. Seidman, not the Plaintiff partnership, but Mr. Seidman personally, wholly owned a subsidiary corporation called H.K. Imports Inc. which is not a party to this action.

54. When the documents of title to the goods arrived in New York the Plaintiff endorsed them to H.K. Imports Inc. Thereupon, H.K. Imports Inc. became the owners of the goods the Plaintiff partnership receiving a commission. When the goods were sold they were of course sold by H.K. Imports Inc. not by the Plaintiff partnership. And it is H.K. Imports Inc which would receive any profit or suffer any loss by reason of such sales. This is clearly borne out not only by Mr. Seidman's evidence but also by the documentary exhibits put in by the Plaintiff.

55. In his evidence Mr. Seidman made this very clear. He said that the net proceeds of the various sales in America, i.e. $78,416.61 U.S. were received by H.K. Imports Inc. and that H.K. Imports Inc. ended up, as he put it, with a loss of U.S.$.38,323.26. This together with a sum of U.S.$8,533.17 is what the Plaintiff partnership is claiming in this action. The sum of U.S.$8,533.17 represents loss of profits to H.K. Imports Inc. not of the Plaintiff Authur Seidman and Co.

56. It would not seem that the Plaintiff sold the goods to H.K. Imports Inc. or made a gift of them passing on the warranty of the Defendant given to the Plaintiff under the contract to H.K. Imports Inc. There is no evidence that the Defendant received any notice of an assignment or agreed to a novation of the contract.

57. Further, the corporation H.K. Imports Inc. is not mentioned in the statement of claim. It is not, for example, suggested that the contract was really made by the Plaintiff as agents of that corporation.

58. It may well be that H.K. Imports Inc. had a right of action against the Plaintiff who could call upon the Defendant to make good any loss for which they were found to be liable. But I am not concerned with that here.

59. The Plaintiff partnership did receive a commission. If they suffered any loss it would be the amount of the commission they would have received had the goods been sold at 25 1/2 cents U.S. per yard. This comes, I think, to U.S.$685.39.

60. Mr. Seidman said that the negotiations of H.K. Imports Inc. were financed by a Bank and that the Plaintiff partnership guaranteed that amount. But I do not see that that helps his case for damages for breach of this contract. He also said that he would reimburse H.K. Imports Inc. "with whatever I collect out of this" meaning this action. There is no evidence at all that H.K. Imports Inc. have made a claim on the Plaintiff.

61. I was told that the reason for the existence of H.K. Imports Inc. was for the purposes of avoiding certain taxes in the U.S. Be that as it may I do not see how the Plaintiff partnership can succeed in this case as it has been presented to me.

62. For these two reasons there will be judgment for the Defendant with costs.

Representation:

A. Zimmern (Deacons) for Plaintiffs

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

Judgment read in Court.