Wong Ming t/a Ming's Garment Factory v. Hillingdon Enterprises Ltd

HCA001516/1968

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 1516 OF 1968

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Coram: Rigby, S.P.J.

Date of Judgment: 24th September, 1970.

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JUDGMENT

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1. In this action the plaintiff, Wong Ming, trading as Ming's Garment Factory, claims the sum of HK$354,547.90 (being £24,451.11.7d. at HK$14.50 to £1) in respect of goods sold and delivered to the defendant company, Hillingdon Enterprises Limited. The amount claimed is made up of £21,766.9.8d. (or HK$315,614.00) being the f.o.b. value of the goods shipped on board for consignment to the United Kingdom, £2,572.6.4d. (or HK$37,298.62) being the total cost of the freight paid by the plaintiff and £112.15.7d. (or HK$1,635.28) being the cost already paid by the plaintiff for the insurance of such goods.

2. The goods were shipped on the 12th and 17th April, 1968 on three different cargo vessels but under a number of separate and independent contracts. The contract numbers and the dates of making of such contracts, the name of the ships, and the f.o.b. price, plus freight and insurance, are set out in the particulars of the statement of claim and are as follows:-

3. The contracts, although each one is in itself a separate and self-contained contract, formed part of a series of some 77 contracts made between the parties between March 1967 and April 1968, such contracts commencing with the number 1001 and concluding with contract number 1077. The goods sold by the plaintiff, and purchased by the defendant, consisted in all instances of what were known as ladies P.V.C. Leatherette (imitation leather) or Suedette Jackets, both short and long in size. The defendant company, represented by Mr. Nadler, had originally inspected the type, quality, thickness and colour of the materials from which the jackets were to be made and the goods were sold according to the samples shown and approved by Mr. Nadler. Each contract provided that payment was to be made "By Letter of Credit against Clean Bill of Lading". Essential details as to the precise description of the goods, quality, quantity, measurements, price, payment, packing and shipment were fully specified in each separate contract.

4. The defendant company, Hillingdon Enterprises Limited, is a company registered in and carrying on business in Hong Kong; Mr. Gerald Nadler is the virtual owner of that company, the shareholders being admittedly nominees. The defendant company has no more than an accommodation address in the United Kingdom. It is undisputed that the plaintiff knew that the defendant company, in respect of each and every contract, was purchasing goods for re-sale to a company known as Nadler Enterprises Ltd. in the United Kingdom. Mr. Gerald Nadler is also the principal shareholder of Nadler Enterprises Limited. The agreement between the defendant company and Nadler Enterprises Ltd. was that the defendant company purchased the garments from the plaintiff company and re-sold them to Nadler Enterprises Ltd. at a profit of 4 shillings per garment, less the amount of the freight and insurance which the defendant company would itself bear and which would have been included in the Letters of Credit opened by the defendant company in favour of the plaintiff in respect of each consignment shipped. Nadler Enterprises Ltd., upon the arrival and delivery of the garments in London, would then put a silk lining into the jackets and sell them to their customers, all of whom were wholesale dealers in the garment trade. The Letters of Credit were open Letters of Credit opened by Nadler Enterprises Ltd. and transferred by the defendant company to the plaintiff.

5. Fortunately, the original pleadings filed in these proceedings have, to a considerable extent, been simplified and restricted by counsel on both sides. In essence, the defendant admits the receipt of the goods referred to in the particulars of the statement of claim, with the exception of those shipped on board the s.s. "Glenfalloch". As to that consignment, it is sufficient for me to say at once that I am fully satisfied that the goods were shipped to the United Kingdom and that the plaintiff has always been ready and willing to hand them over to the defendants as against payment of the purchase price. They are, at present, warehoused in the United Kingdom.

6. The defence and counterclaim put forward is that in respect of 30 different consignments, shipped under 22 different contracts, a substantial percentage of the garments, when inspected and examined in the United Kingdom, were found to be so seriously defective as to be unmerchantable in that they could no longer be sold as new garments and had to be sold as defective garments to job buyers at substantially reduced prices. Three of the defective shipments so received form part of the goods consigned under contract numbers 1056, 1058 and 1061, included in the particulars given in the plaintiff's statement of claim, but they were received under different shipments. The defendant company, therefore, relies not only on a set-off as against the plaintiff's claim but also seeks to counterclaim on the basis that, it being to the admitted knowledge of the plaintiff that the defendant company were purchasing garments for re-sale to the sub-purchasers, Nadler Enterprises Ltd., and defective consignments of such goods having been received, the sub-purchasers have suffered loss and damage and the defendant company, in anticipation of a claim against them by the sub-purchasers, seek to counterclaim against the plaintiff, by way of indemnity or damages, the quantified amount they themselves expect to be called upon to pay to the sub-purchasers as damages. That amount of damages is based upon the difference between the price which the garments would have realized, if sold in good condition upon the market, and the price which they in fact realized when sold as defective garments and at reduced price to the job buyers.

7. It is convenient to turn at once to the Defence and Counterclaim put forward by the defendant.

8. By letter dated the 11th July, 1968 (Ex. D.1), Mr. Nadler, writing from London and under the letter-head and address of Nadler Enterprises Limited and signing his name as a director of that company, wrote to Ming's Garment Factory complaining of the defective quality and condition of jackets recently received under a consignment relating to style L8155/1626. This would appear to refer to Purchase Contract No. 1060 dated the 12th April, 1968 (p.47 of the agreed bundle of documents). The relevant paragraph of that letter is as follows:-

"We have received a consignment of Style L8155/1626 totalling 2,000 pieces and on opening the boxes have found them to be in a most deplorable condition. This is the first instance of goods coming up in this particular manner. As you will note from the three garments that we have sent to you by Airfreight, the vinyl has adhered to itself. You will observe that in attempting to part the two materials, the surface of the vinyl is removed or torn on one side. This in itself is bad enough but assuming that there are garments which are useable, which at this stage we have not as yet ascertained, there are in addition further complications. These being due to the fact that you have omitted to place a piece of cardboard between the facing and backing buttons and this has created deep impressions which are impossible to remove."

9. Evidence was given during the trial that the normal and accepted method of packing was that the garments, including the sleeves, were folded inside out. In addition, pieces of cardboard were placed between the material to prevent indentations being made on the front facing of the garment by the small backing buttons on the inside of the jacket, being caused by such backing button pressing against the front of the jacket when folded inside out.

10. The plaintiff replied to that letter by a letter dated the 17th July (p.93 of the agreed bundle). The letter reads as follows:-

11. Evidence was given by the plaintiff himself and his Export Manager, Mr. Hau, as to the circumstances in which that letter was written. The plaintiff's knowledge of English is said to be poor and correspondence in English, particularly from foreign firms, is explained to him by Mr. Hau. The plaintiff produced in evidence (Ex. p.5) one of the three jackets which he said he had received from Mr. Nadler by air freight and of which complaint was made. Mr. Nadler, in fact, denied this was one of the jackets which he sent. Mr. Hau said that he wrote that letter dated the 17th July on his own initiative and not on the instructions of the plaintiff. He was under the impression - an erroneous impression if the plaintiff's evidence is to be believed - that the plaintiff had already spoken to United Chemicals, the suppliers of the materials from which the garments were manufactured. He said he had no reason to believe that there was anything defective in the actual manufacture or packing of the garments and he considered that if any fault lay, it was to be attributed to an inherent or latent defect in the materials as supplied by United Chemicals. On the evidence, I am unable to find as a fact whether or not Exhibit P.5 was one of the three samples sent by air by Mr. Nadler to the plaintiff as illustrating the nature of the defects of which the defendant complained. But giving the letter its ordinary and natural meaning, I am satisfied that it was an admission that the defendant's complaint as to the defects found in a number of garments under consignment, after those garments had reached their destination and had been unpacked, was acknowledged to be justified, irrespective as to where the initial responsibility for those defects might lie.

12. Following upon the letter of the 10th July, the defendant sent two cables (p.94 of the bundle and Ex. D.2) dated the 29th July, 1968 and the 6th August, 1968 respectively, complaining that the same defects were apparent in respect of other consignments received. In the first of these cables, the defendant stated, inter alia:-

"......... WE ARE PROCEEDING TO CHECK ALL CONSIGNMENTS IMMEDIATELY. SUGGEST THAT YOU APPOINT INSPECTION SURVEYORS YOUR COST TO ASCERTAIN THE FULL DETAILS OF REJECT GOODS NADLER"

The second cable stated, inter alia:-

".......... HAVE STOPPED ALL L/C UNTIL SITUATION IS RESOLVED, INSTRUCTED SURVEYORS TO PROCEED INSPECTION ALL CONSIGNMENTS YOUR COSTS"

To the cable of the defendant of the 29th July, the plaintiff replied (p.95 of the bundle):-

"YOUR 29TH AUTHORIZE YOU ARRANGE INSPECTION BY SURVEYORS IN LONDON AT YOUR EXPENSEZ E E E OUR EXPENSES STOP DECISION SETTLEMENT REJECTED GOODS WILL BE MADE BETWEEN MINGS AND UNITED CHEMICALS UPON RECEIPT SURVEY REPORT MINGSFACT"

13. The plaintiff's explanation as to the latter part of that cable was that he meant that he would be responsible for the survey expenses but that all other matters revealed by the surveyor would be settled between himself and United Chemicals.

14. To the defendant's cable of the 6th August, the plaintiff replied in the following terms (p.96 of the bundle):-

"YOURS 6TH AGREED ONLY INSPECTION FIVE CONSIGNMENTS OUR CHARGES BUT BALANCE TO BE INSPECTED PROVIDED SAME DEFECTS ARE FOUND HAVE NOTIFIED UNITED CHEMICALS WHO CONSIDER NOT SO SERIOUS AND MAY SEND REPRESENTATIVE TO LONDON TO SETTLE REJECTS IN CASE NECESSITY PLEASE BRING FULL DETAILS RELATING QUANTITY EACH CONTRACT AND SHIPMENT WHEN COMING HERE 11TH FOR DISCUSSION STRONGLY PROTEST UNREASONABLE STOPPAGE OPENING L/C WHICH OUGHT ARRIVE BEFORE SHIPMENT IF NOT OPEN IMMEDIATELY FEAR SUSPEND FUTURE BUSINESS STYLE MD4900 CONSIDERING ACCEPT AFTER YOUR ARRIVAL MINGSFACT"

15. In fact, no surveyor was appointed by the plaintiff to accept the balance of the consignment nor was any representative sent to London either by the plaintiff or United Chemicals to discuss the question of such rejects and reach any form of settlement.

16. In pursuance of his cable of the 6th August, the defendant instructed the firm "Cargo Superintendents (London) Limited" a firm of cargo surveyors, to undertake inspection of the consignments of jackets received from the plaintiff under various contracts. Mr. Webb, a cargo surveyor of some 20 years experience, gave evidence as to the inspections carried out by him - or by his colleague, a Mr. Weston, or by both of them together. Mr. Webb produced 7 certificates (put in evidence collectively as Ex. D.19). These certificates relate to the survey and inspection on different dates between the 7th August and 5th September of shipments of garments under 22 different contracts on eight different cargo ships. The method of checking was that cartons, varying on different occasions from 2 to 21 in number, were selected at random for inspection from the different consignments and then a 100% check was made of the jackets contained in those particular cartons. The defects found allegedly varied as little as 3% in one instance to as much as 98% in another. The defects were of two kinds: (1) indentations on the front of the jackets caused by backing buttons pressing against the material forming the front face of the jacket, thereby leaving a round indentation, and also cuts on the material jacket; in many instances this was due to the fitted piece of cardboard placed over the buttons for protection having become misplaced; and (2) stickiness found on the arms of the garments with the result that when the arms were separated, the material was left either torn or discoloured or both. However, in the course of cross-examination, Mr. Webb admitted that he himself had only surveyed and examined three exhibits, P.19A, 19C and 19G - and, possibly a fourth, P.19D - of the consignments in respect of which the seven certificates were produced; the other consignments having been examined by Mr. Weston.

17. Mr. Weston was not called as a witness. There is, therefore, no admissible evidence before me to support any claim for damages based on the contents of the certificates, Ex. 19B, 19E, 19F and, indeed, 19D, and any claim for damages based upon, and arising out of the contents of those certificates would, in my judgment, have to be dismissed as being insufficiently proved by the evidence given before me.

18. Furthermore, in respect of Exhibit P.19A, Mr. Webb admitted that he had only examined the contents of two out of 135 cartons; in respect of 19C, he had examined 7 out of 125 cartons and in respect of P.19G, 10 out of 100 cartons. He admitted that no attempt had been made to provide an analysis of the defects allegedly found; the surveys did not show what percentage of the alleged defects was due to stickiness and what percentage was due to indentations - and Mr. Webb himself was unable to say.

19. It is the defendant's case that as a result of the survey reports showing varying percentages of the goods found to be defective, he had no alternative but to sell that defective percentage to job buyers at the best price he could get for the goods.

20. A number of jackets were put in evidence as being samples of the defective garments taken from various consignments. It is visibly apparent that the condition of those garments, in considerably varying degrees, show tears in the garments which have apparently been caused by the vinyl surface of the jacket sticking together and being torn or discoloured when separated; also, some garments clearly have the indentations on the front of the jackets of which complaint has been made. I have no doubt that such indentations, which are still both visible and apparently permanent, have been caused by the backing buttons coming into contact with, and remaining pressing against, the front surface of the jacket. I am fully satisfied that that was in fact the condition of the jackets when they were opened and that they were in such a condition that no vendor could hope to sell them as new jackets and they would, of necessity, have to be sold as "rejects" and at a reduced price.

21. It was admitted that it was to the knowledge of the plaintiff that these jackets were purchased by the defendant company for resale to Nadler Enterprises Ltd. The contracts entered into between the defendant company, Hillingdon Enterprises Limited, on the one hand, and Nadler Enterprises Ltd., on the other, was at a sale price of 25s 7d. per garment c.i.f. London. The defendant has put in evidence a letter (Ex. D.12) dated November 6, 1969 from the London solicitors of Nadler Enterprises Ltd. addressed to the defendant's Hong Kong solicitors, Messrs. David Burgin & Company. That letter is in the following terms:

"Dear Sirs,

22. It is admitted that the defective goods were, in fact, sold not by Nadler Enterprises Ltd. but by the defendant company and/or a Mr. Block, a director of an associated company. It is said that the reason for so doing was to save the good name of Nadler Enterprises Ltd.; the defendant company and/or Mr. Block selling for and on behalf of Nadler Enterprises Limited and thereby avoiding what would otherwise have been the necessity of Nadler Enterprises Limited selling blemished and defective goods at reduced prices.

23. So much for the defendant and counterclaim put forward.

24. The plaintiff's case can be very briefly summarized. The plaintiff says that the garments were sold according to sample; Mr. Nadler, or someone acting on his behalf, having himself selected and chosen the type of jacket required, both as to its colour, thickness and design. It is said, therefore, that the goods were shipped according to sample and it is the case for the plaintiff that the goods were in perfect condition when they were packed and shipped. They were packed and shipped in cardboard cartons in accordance with the contract specifications. Originally, they were packed in wooden crates, but wooden crates were later discontinued at the express request of Mr. Nadler himself because such crates were bulky and inconvenient to dispose of when they reached their destination. Two witnesses were called from United Chemicals Industries Limited, the company who had manufactured and supplied to the plaintiffs the P.V.C. leatherette and suedette from which the jackets were made. The effect of their evidence was that the materials which they supplied were such that they could stand up to normal conditions of heat and pressure without the material becoming in any way adversely affected. Materials they produced were subjected to a temperature of 60^o Centigrade (140^oF) - which was the maximum tolerance for human beings - without becoming in any way adversely affected.

25. Turning now to what must, in my view, be the inevitable conclusions to be reached upon the evidence before me. First, I accept the evidence that a certain percentage of the garments were defective when the consignments were opened and inspected. They were defective and unmerchantable for sale as new garments for one of two reasons:-

26. There is no evidence whatsoever before me as to the cause of the stickiness of the material resulting in parts of the jacket adhering together. There is no evidence, for example, that too many jackets were packed too tightly together in too small a carton, thereby causing the stickiness and consequent adhesion. On the contrary, such evidence as there is would appear to show, and to satisfy me, that the garments were packed and crated in accordance with the terms of each contract. It must remain purely a matter of speculation and conjecture as to what caused the jackets to be sticky and for one part of the jacket - and, in particular, the sleeves which were folded inside out - to adhere to another part. Such conditions may, for example, have been caused by abnormal heat or storage conditions during the duration of the voyage itself, or indeed in regard to many of the consignments, during the substantial period of time (in some instances as long as 3 1/2 months) between off loading of the goods after arrival at their destination and their actual unpacking and examination.

27. Mr. Wei, counsel for the defendant, has sought to rely on Section 16 of the Sale of Goods Ordinance, Cap. 26. Founding his argument upon Section 16, he contended that since the plaintiff knew that the goods were for re-sale to Nadler Enterprises Ltd., the defendant relied on the plaintiff's skill or judgment that the goods, when shipped, were of merchantable quality for purposes of re-sale. In my view, that argument is untenable for two reasons: first, because this was not a case in which the purchaser relied on the vendor's skill and judgment on the selection of goods known to be for the purposes of re-sale to a third party. Here, the purchaser had himself selected and chosen the type, texture, thickness and quality of the garments which he required for re-sale. Secondly, there is no evidence whatsoever to show that the garments were not in good condition and of merchantable quality when they were shipped on board. Mr. Wei, still seeking to bring his argument within Section 16, contended that there was an implied warranty that the goods were of merchantable quality not only when placed on board, and not only for the duration of the voyage, but also for a reasonable time thereafter pending sale. I have carefully considered the numerous authorities cited to me by both counsel in the course of their lengthy and most careful and exhaustive arguments, but I have been unable to find any authority which supports the proposition which Mr. Wei now asserts.

28. The case of Mash and Murrell Limited v. Joseph I. Emanuel Limited⁽¹⁾ is, perhaps, of the most assistance to him. I think, however, that that case is clearly distinguishable not only upon the facts but also upon principle. First, it was a case dealing with perishable goods, potatoes. Secondly, the learned judge found as a fact that in purchasing the potatoes for shipment from Cyprus to the United Kingdom, the purchaser was relying on the vendor's skill and judgment that the potatoes would be fit for the purposes for which they were required, namely, re-sale on the English market. Thirdly, the learned judge found as a fact that the potatoes wer "not fit to travel" when they were originally loaded on board at Limassol, Cyprus, before the voyage ever commenced. It is relevant to note here that, on appeal, the judgment of Diplock, J. was reversed on the ground that there was no sufficent ground to justify the inference that the potatoes were not fit to travel; there being evidence before the trial judge that the voyage had been an abnormal one undertaken in hot summer weather and that, on the balance of probabilities, the unsound condition of the potatoes was attributable to their remaining unventilated for 5 days and nights while the ship was in port in Famagusta before departing for Liverpool.

29. In the later case of Cordova Land Co. Ltd. v. Victor Brothers Inc.⁽²⁾, which concerned the sale of a quantity of skins by the vendor in America by way of c.i.f. contract to Hull, Winn, J., (as he then was), in dealing with an argument of counsel, founded on the judgment of Diplock, J., (as he then was), in the Mash and Murrell case⁽¹⁾, that there had been a breach of the contract of sale committed in the United Kingdom so as to confer jurisdiction upon the purchasers, who claimed that the skins were badly damaged, to give notice, under R.S.C. Ord.11 r.1, in America of a writ issued, in England, said, in relation to counsel's argument:-

Lord Diplock, himself, in the case of Teheran-Europe Co. Ltd. v. S.T. Belton (Tractors) Ltd.⁽³⁾, in referring to his observations in the Mash and Murrell case⁽¹⁾ described them as, in his view, "correct in the context of that case where the description of the goods was generic" but "expressed with incautious wideness". I take that to mean that in a c.i.f. contract, when dealing with a consideration under Section 14 of the Sale of Goods Act, that there was an implied warranty that the goods were of merchantable quality, not only when shipped but also for the duration of the voyage and for a reasonable time thereafter, so as to cover their sale and disposal, there may well be a distinction between perishable goods, such as fruit and vegetables, and goods of a more durable nature. Indeed, Winn, J. in the Cordova Land Company case⁽²⁾, went on to say, at p.796,:

"I do not think that that passage in the judgment of Diplock, J. founds 'a good arguable case' that the vendors in the present matter, the present transactions, entered into a warranty to be performed in Hull that the goods on arrival there would there and then be of the contract description and quality"

He continued:-

"It seems to me, whilst obviously this topic will call for some further consideration in some future case, that there is a real distinction between the obligations undertaken by a vendor who ships perishable goods and those undertaken by a vendor who ships goods such as skins, which though plainly vulnerable to some extent to deterioration in transit are not nearly so vulnerable as potatoes;"

30. A case which seems to me much more in point - although here again, it is a case dealing with perishables, namely peaches - is the case of A.B. Kemp Limited and Others v. Tolland (Trading as James Tolland and Company)⁽⁴⁾. There, peaches, apparently in perfect condition when purchased by sample and inspection in London, were found to be rotten and unfit for human consumption when delivered to Northern Ireland 24 hours later for re-sale. Upon the vendors suing for the purchase price, Devlin, J., (as he then was), gave judgment in favour of the vendors holding that the defendants had failed to discharge the onus of showing that the cause of the unusual condition was something that existed in the peaches at the time of sale.

31. In the present case now before me, I think there was evidence upon which I could properly have taken the view that the indentations found on the front of some of the jackets and caused by the backing buttons, was due to the cardboard inserts having slipped and that such slipping, and the consequent indentations as a result thereof, was due to defective packing and that, in that respect, the plaintiff was negligent and to blame. But, unfortunately, there is no evidence before me as to what percentage of the defective garments was attributable to indentations, as distinct from tears caused by adhesion due to stickiness. As regards the garments torn by adhesions and subsequent separation, I feel bound to take the view that the defendant has failed to show that the stickiness and consequent adhesion and tearing was due to any defect in the garments as at the time of packing and shipment.

32. Mr. Mills-Owens, for the plaintiff, has stressed - and I think rightly - that there is a distinction between the material and the make-up of the garments. Here, the defendant has himself chosen not only the make-up but also the material. There is certainly no evidence before me of any defect in the make-up of the garments as at the time of packing and shipment. The contract was an f.o.b. contract; to accede to the defendant's contention that the goods should remain of merchantable quality not only from the time of shipment but also for the duration of the voyage and for a reasonable time thereafter up to the date of sale or re-sale would be, in my view, not only inconsistent with the very basis and principle of f.o.b. contracts but would, in effect, be tantamount to imposing upon the vendor the additional obligation of being an insurer of the purchaser's goods up to the moment of re-sale by him.

33. In the result, I am satisfied that there must be judgment for the plaintiff on his claim and that the defendant's counterclaim must be dismissed.

34. In regard to the goods shipped on board the s.s. "Glenfalloch", as I have earlier stated, I am satisfied that the goods under contract No. 1059 were duly shipped to the order of the defendant and that the plaintiff was at all times ready and willing to hand over a clean bill of lading for the goods upon the defendant opening a letter of credit to cover payment of the goods in accordance with the contract.

35. In the course of the hearing before me, it was admitted that in respect of certain contracts referred to in paragraph 13 of the Statement of Defence and Counterclaim, there had been an overpayment of $4,525.10. There must, accordingly, be judgment for the plaintiff, with costs, for $350,022.80 being judgment for the amount claimed in the Statement of Claim of $354,547.90 less $4,525.10.

36. The Counterclaim is dismissed with costs.

Representation:

Mills-Owens (A. Tsang & Co.) for Plaintiff.

R. Wei (David Burgin & Co.) for Defendant.

(Judgment handed down)

(1) (1961) 1 W.L.R. 862

(2) (1966) 1 W.L.R.793

(3) (1968) 3 W.L.R. 204 @ 216.

(4) (1956) 2 Dloyds List L.R. 681.