Richard Hoyer Ltd v. J and R Sparkle Trading Co Ltd

HCA005383/1985

1985, No. A5383

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Hon. Macdougall, J. in Court

Date of Hearing: 4 - 8, 11 - 12 May, 1987, 19 - 23, 26 - 30 October, 1987, 2 - 4 November 1987

Date of Delivery of Judgment: 18 November 1987

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JUDGMENT

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1. This is an action for breach of contract in which the plaintiff company claims damages against the defendant company in respect of an alleged repudiation of a contract in which the plaintiff had been appointed by the defendant as the exclusive distributor of certain of its trademarked clothing in West Germany, Switzerland and France.

2. The plaintiff company was formed by Mr. Richard Hoyer for the purpose of engaging in the business of organising the export of locally manufactured garments and their distribution in Europe. In late 1984 Mr. Hoyer became interested in clothing that was manufactured under the trademark names "Sparkle", "Bossini", "Gorani" and "Young Sparkle".

3. As the defendant was the registered owner of these trademarks, Mr. Hoyer contacted an executive of the defendant and arranged a meeting to discuss business possibilities. The meeting was held at the defendant's office on 6th December 1984 and was attended by Mr. Hoyer and a business associate and a Mr. Lai, who introduced himself as the general manager of the defendant's export department.

4. The outcome of the meeting was that the defendant agreed to develop a line of clothing for the West German market under the brand name "Sparkle" and that research and production of a collection of prototype samples of men's sportswear would be arranged for sale in the spring/summer season of 1986. It was agreed that Mr. Hoyer would select from a prototype collection those styles that he wanted in his final collection. Since the preparation for garment selection begins approximately one year before the goods are sold on the market, the parties were aiming for the buying season of spring/summer of 1985.

5. It was agreed that the products should be promoted at Europe's most pretigious men's garment fair in Cologne at the end of August 1985. After wholesalers had placed their orders, the sportswear would be produced in bulk and delivered in Germany.

6. Mr. Hoyer told Mr. Lai that as soon as a written contract had been drawn up giving him the exclusive distributorship for clothing products under the brand names already mentioned he would travel to Europe to visit potential distributors.

7. On the following day, Mr. Hoyer received a letter dated 7th December from Mr. Lai confirming their discussion. It stated that a sister company J & R Sparkle International Ltd would arrange for the production of men's sportswear, and set out a timetable for the production of both prototype and travellers samples and the placing of bulk orders for the spring/summer and autumn/winter seasons. In the same letter Mr. Lai also enquired about the possibility of Mr. Hoyer marketing the defendant's goods in Austria, Belgium and Switzerland. At the same time Mr. Lai sent nineteen samples for Mr. Hoyer to show to the potential customers.

8. On 7th February 1985 a written contract was formally executed granting the plaintiff company the exclusive distributorship of the various trademarked products in west Germany, Switzerland and France and any other countries that might subsequently be agreed between the parties for a period of two years commencing on 1st February 1985 and continuing thereafter from year to year until determined by either party by giving seven month's written notice.

9. The contract also provides that in the event of the defendant and any of its subsidiaries ceasing to carry on business as manufacturers of the trademarked products it may at any time terminate the contract by giving seven month's notice in writing to the plaintiff. This is a curious provision since although the defendant has a number of sister companies, J & R Sparkle Holdings Ltd, J & R Sparkle International Ltd and J & R Sparkle shops Ltd, it does not have any subsidiaries, nor is it a manufacturing company. Indeed, its managing director, Mr. long, insisted during the course of his testimony that it is merely a trading company and that all garments manufactured under the defendant's brand names are produced by independent manufacturers from orders submitted by the defendant.

10. For each year during which the contract remained in force the Plaintiff was obliged to place Purchase orders to a minimum value of $100,000 calculated on the defendant's full list Price. This value was, however, subject to variation by the written agreement of the parties. It was also a term of the contract that the defendant would sell the garments to the plaintiff in accordance with the prices stated in the defendant's price list. These Prices could not be altered by the defendant without the agreement of the plaintiff. In referring to the plaintiff as "the distributors" the contract expressly provided that that expression included the Permitted assigns of the Plaintiff.

11. It is plain that the defendant, whose annual turnover hitherto had been 90% from the sale of its products in Hong Kong and 10% from exports to south east Asia, was most enthusiastic about the prospect of expanding its business into the massive European market. Not only is that apparent from Mr. Lai's query about markets in Austria, Belgium and Switzerland in his letter of 7th December but it emerges from a letter of 25th January 1985 from Mr. Lai to the defendant's solicitors in which he stated that in order "to inspire Mr. Hoyer's confidence in building these major markets (West Germany, Switzerland and range) for us" the defendant would like to accept a proposal by Mr. Hoyer that various amendments be made to the draft contract.

12. Mr. Hoyer testified that he devoted considerable energy, time and expense in making arrangements in Europe for the distribution of products under the defendant's trademark names. His attempt to break into the highly competitive garment trade at a time when the rate of exchange between the Hong Kong dollar and the various European currencies was most unfavourable, met with some initial set backs and disappointments, but Mr. Hoyer finally managed to attract the interest of a Mr. Baldia of Alpha Textil and a Mr. Regerbis of Regro GMBH, moth of which companies are located in West Germany. In May 1985 Mr. Baldia and Mr. Regerbis arrived in Hong Kong and attended a number of meetings at the defendant's office with Mr, Hoyer. The defendant was represented at these meetings by Mr. Lai and its designer Mr. Lung.

13. Mr. Regerbis discussed the sketches and promotional material with Mr. Lung and told him which styles were currently particularly fashionable in Germany, which material was in great demand and which was not saleable. Various other matters including colours also came under discussion. All parties were clearly most enthusiastic about the proposed venture and, according to Mr. Regerbis, as it was absolutely necessary to have the sample collection ready by mid June in order to secure the placing of orders between August and mid October for delivery of the garments between January and March 1986, it was firmly agreed that the sample collection would be ready for him to view in Hong Kong on 20th June 1985 so that he could select the styles he required. This date was particularly important because Mr. Lai had informed Mr. Regerbis that the defendant needed four weeks to produce the salemen's samples from the prototype samples that would be finally selected by Mr. Regerbis on his return to Hong Kong.

14. Mr. Regerbis calculated that on a 40% price mark up for the five seasons that would span the minimum period for which the contract between the plaintiff and the defendant would operate, beginning spring/summer of 1986 and ending spring summer of 1988, his "absolute minimum" turnover from the sale of the trademarked products would be $3,213,900, $5,785,020, $9,064,792, $11,288,962 and $11,288,962 respectively. These figures were based on the prices given to him by Mr. Lai of the current collection. The exact prices would not be available until Mr. Regerbis returned to Hong Kong on 20th of the following month. It is therefore highly unlikely that there would have been any significant difference between his estimated prices and the actual prices. He informed Mr. Lai that unless the estimated turnover figures were met the venture would not be feasible for either party. In response Mr. Lai assured him that the defendant would be able to supply the quantities of goods to produce these turnovers.

15. Both Mr. Baldia and Mr. Regerbis were impressed with the quality and style of the defendant's samples which in their view compared favourably with competitive brands such as "Matinique" and "Moustache" which were also manufactured in Hong Kong but were sold throughout Europe at higher prices than the defendant's products.

16. On 20th May Mr. Lai prepared a typed summary of the discussions at the meetings. Under the heading "Important Dates" the summary discloses that by June 10th a telex would be sent to Mr. Regerbis confirming that the prototype samples for the spring/summer collection for 1986 would be ready for viewing on 20th June, that on the same date a decision would be made concerning fabrics and that seven sets of salemen's samples would be ordered and prices discussed, that an application would be made by 5th July for an export licence for the entire collection and that between 10th and 15th of July the samples would be despatched by air to Stuttgart via a forwarder nominated by Mr. Regerbis.

17. On his return to Germany Mr. Regerbis made a reservation for a display stand at the Cologne fair, began building up the organisational structure for distribution and arranged for the engagement of salesmen. At the same time he sought to register the trademark "Sparkle" with the Patents Registry in Germany. He was advised that this was not possible but that it could be registered as a design. When this was done a formal written contract was to be executed between Mr. Hoyer on the one hand and Mr. Regerbis and Mr. Baldia on the other.

18. On 3rd June Mr. Baldia telexed Mr. Hoyer and informed him that the name "Sparkle" could be made the subject of a registered design and that the defendant had no objection to the form by which registration of the name was achieved. He accordingly requested Mr. Hoyer to have the contract prepared as soon as possible.

19. Mr. Hoyer telexed a reply to Mr. Baldia that he had requested his solicitors to proceed with the design registration and that a written contract reflecting the terms of their oral agreement would be available within ten days. Although under German law an oral contract is binding, the parties wanted the terms of the agreement that they had already entered into orally to be reduced into writing for evidentiary purposes. Mr. Hoyer also advised Mr. Baldia that everything was proceeding according to the schedule set at the May meetings.

20. There was uncontested evidence that Mr. Hoyer had made an appointment with Mr. Lai to attend at the defendant's office after lunch on 7th June to approve a brandless selection of apparel that was to be sent to a company called Lenox in Switzerland. Mr. Hoyer testified that these goods did not relate to the subject matter of the contract with which this action is concerned but pertained to an entirely different contract that he had negotiated with Lenox, and that both that contract and another one that he had concluded with a Swiss company named Smarty had come into existence as a consequence of Mr. Lai having requested Mr. Hoyer to help him to boost his export figures by selling brandless garments in Europe as well as the trademarked goods that were the subject of the contract of 7th February.

21. Late that morning, however, Mr. Lai telephoned Mr. Hoyer and told him that Mr. Wong, the managing director of the defendant, would like to have lunch with both of them at the New World Hotel coffee shop. At the luncheon Mr. Lai opened the discussion and told Mr. Hoyer that he had been dismissed that morning. Mr. Wong then explained that the reason for the dismissal was that the defendant's board of directors had decided to concentrate on local retail business and would not export Sparkle products any longer. Mr. Wong then proposed that Mr. Hoyer use the Sparkle brand on payment of royalty.

22. Mr. Hoyer explained that this proposal was totally unacceptable because the name "Sparkle" was of no use unless he had the defendant's organisation and design team behind him. There was no advantage to him to pay a royalty for the use of the name "Sparkle" because he could create a new brand himself without the necessity of paying any royalty. Mr. Wong then proposed that the contract should operate for one season only instead of the previously agreed minimum of five seasons. Mr. Hoyer complained that this was also unacceptable because his distributor was heavily committed on the basis of a mimimum of five seasons. As no agreement could be reached, Mr. Hoyer requested Mr. Wong to confirm what he had said in writing. The discussion then came to an end and Mr. Hoyer returned to his office. Several hours later the defendant sent a telex under Mr. Wong's name to Mr. Hoyer informing him that Mr. Lai had resigned from the defendant and that all future contacts and correspondence should be directed to a Mr. Arthur Cheung. The transmission time stated on the telex was 1808 hours.

23. To Mr. Hoyer this was not only an outright contradiction of what had been said at the meeting but had an extirely false ring because, although he and Mr. Lai had enjoyed a very good working relationship and on occasion had gone out together socially, Mr. Lai had never intimated to him that he was considering resigning from his position with the defendant. Indeed, Mr. Lai had mentioned to Mr. Hoyer that he intended to attend his son's wedding in Canada. There was no suggestion, however, that this meant that he intended to resign.

24. On the following day Mr. Hoyer made a written record of what had been said at the meeting and sent a telex to Mr. Wong in which he stated that he assumed that the board of directors must have made their decision to change the policy of the company without knowledge of the existence of the contract executed on its behalf by Mr. Lai. He urged the defendant to reconsider its stance and to send him a written confirmation by 12th June that it intended to honour the contract otherwise he would be forced to take legal action.

25. An hour later Mr. Hoyer received a telex from Mr. Cheung stating that there had been a complete misunderstanding as there had been no intention on the part of the defendant to revoke the contract. The telex assured Mr. Hoyer that the change in personnel in charge of the project would not affect the defendant's support for Mr. Hoyer and requested him to meet Mr. Cheung during the following week so that they could discuss the matter.

26. Mr. Hoyer was emphatic that it was impossible for him to have misunderstood what had been said at the meeting. The discussion had lasted for an hour and what was said had been very clear. Moreover, since he had directed his telex to Mr. Wong, who was not only the managing director of the defendant, but the very man who had told him of the defendant's change of policy, he looked for assurance from him personally that the defendant intended to perform its obligations under the contract. Mr. Hoyer was not prepared to accept any assurance from a complete stranger who had not been present at the coffee shop meeting and had therefore not heard what had been said. As far as he was concerned the circumstances were such that his telex to Mr. Wong required an answer from Mr. Wong.

27. It is plain from Mr. Hoyer's testimony that had Mr. Wong replied to the telex and informed Mr. Hoyer that the defendant was prepared to withdraw from the position it had taken up at the meeting and would now continue to carry out the contract with the plaintiff, the position would have been very different, but an assertion from a complete stranger that Mr. Hoyer had misunderstood what had been clearly stated in unmistakable terms at the meeting caused him to conclude that the defendant was untrustworthy.

28. Mr. Wong's account of the matter was that on the morning of 7th June Mr. Lai had suddenly informed him that he was resigning from the company and had handed him three letters of resignation, one of which related to his position as an employee and the other two to his post as a director. These letters were produced in evidence.

29. According to Mr. Wong, Mr. Lai had previously mentioned the subject of resignation on several occasions but that he thought that he was joking and asked him to stay on with the company. On this occasion, however, he decided to accept the resignation and made no attempt to persuade him to remain.

30. Having handed in his resignation, Mr. Lai suggested that since Mr. Wong had not formally met Mr. Hoyer he would like to introduce the two men so that they "could contact each other" and Mr. Wong would be able "to complete all the matters relating to the contract with Mr. Hoyer". Originally it had been intended that both Mr. Wong and Mr. Cheung, who had been appointed that morning by Mr. Wong to take over Mr. Lai's duties, would meet Mr. Hoyer for the proposed introduction and discussion, but that, as Mr. Cheung was busy, Mr. Wong decided to proceed without Mr. Cheung being present.

31. According to Mr. Wong, Mr. Lai announced to Mr. Hoyer at the beginning of the meeting that he had resigned, and that on hearing this Mr. Hoyer was most unhappy. Mr. Lai then mentioned Arthur Cheung and carried on a long conversation with Mr. Hoyer of which Mr. Wong could only understand the gist. Basically Mr. Lai informed Mr. Hoyer that he had resigned because of his sons's coming wedding in Canada and that Mr. Cheung would take over and everything would run smoothly. Mr. Wong maintained that, apart from saying "Hello" and uttering words such as "yes" and "no", he remained silent during the meeting and that Mr. Lai and Mr. Hoyer did all the talking.

32. After he returned to his office Mr. Wong said he instructed Mr. Cheung to send a telex in Mr. Wong's name to Mr. Hoyer informing him that Mr. Lai had resigned and that he should direct all future contacts and correspondence to Mr. Cheung. Mr. Wong also telexed all his other clients and notified them of Mr. Lai's departure from the company. Apparently he did not instruct Mr. Cheung to send these telexes notwithstanding that some of them were directed to other export customers of the defendant.

33. Mr. Cheung, whose memory of many more important matters was hazy, supported Mr. Wong on this detail and testified that he recalls that it was he, not Mr. Wong, who sent the telex to Mr. Hoyer.

34. According to Mr. Wong, he was so surprised at the contents of Mr. Hoyer's telex of the following day, that he dictated an answer in Chinese to Mr. Cheung and instructed him to translate it into English and send it to Mr. Hoyer. Although the routine telex of the previous evening, allegedly sent by Mr. Cheung to Mr. Hoyer, had gone out in Mr. Wong's name, this very crucial reply to Mr. Hoyer's telex was sent out in Mr. Cheung's name.

35. Mr. Wong further testified that, notwithstanding that Mr. Hoyer neither responded to this telex nor attempted to contact Mr. Cheung with a view to holding the meeting suggested by him, the defendant continued to carry out its duties under the contract and that on 10th June Mr. Cheung telexed Mr. Hoyer both to inform him that the export licences for samples to be consigned to Lenox in Switzerland had now been obtained and to seek his advice on shipping instructions.

36. Mr. Hoyer replied by telex that he had already agreed over the telephone the previous day that the defendant would air freight the collection immediately at its own expense and inform Mr. Hoyer of the air way-bill as soon as possible. He also requested the defendant to send him a telex of confirmation after the goods had been despatched and to give him information about the samples that were to be sent to Smarty. At the end of the telex Mr. Hoyer requested the defendant to inform him as soon as possible of the inspection date for the Sparkle collection for West Germany.

37. Mr. Hoyer explained to the court that, although his confidence in the defendant's trustworthiness had been seriously undermined by the events of the previous few days, he had been clinging to the slender hope that it would reverse its decision not to carry on with the export of Sparkle brand garments to Europe and would produce the samples for the deadline of 20th June when Mr. Regerbis was due to make his selections from them.

38. When he received no reply to his query as to this inspection date he again telexed the defendant on 14th June complaining that he was still awaiting its reply concerning the Sparkle brand collection. Although the defendant replied that very day to another matter raised in Mr. Hoyer's telex it failed to respond to his query about the Sparkle sample collection.

39. Four days later on 18th June the defendant informed Mr. Hoyer by telex that the Lenox shipment had been air freighted and that he would be advised about the air way-bill later. Again there was no response to Mr. Hoyer's query concerning the Sparkle collection.

40. Despite the fact that further telex exchanges took place between the defendant and Mr. Hoyer concerning a shipment of samples that the defendant had wrongly despatched to Lenox instead of Smarty, the defendant continued to fail to answer Mr. Hoyer's requests to be notified about the date for inspecting the Sparkle prototype samples.

41. Finally Mr. Hoyer's patience was exhausted and on 12th July his solicitors wrote a letter of demand to the defendant claiming damages on the ground that it had repudiated the contract.

42. Although Mr. Cheung is no longer employed by the defendant and is running his own business, it emerged from his own testimony that while he was still working for the defendant he had collated all the defendant's documentary evidence for presentation to the defendant's solicitors for the purpose of trial and had assumed the responsibility of discussing the case with them.

43. Mr. Cheung gave me the distinct impression that he was anxious to avoid committing himself to positive answers. He frequently gave vague or irrelevant replies to very clear questions. Although he supported Mr. Wong by testifying that he had understood that Mr. Lai had volunteered his resignation and that the defendant had intended to carry out its contractual obligations to the plaintiff, he seemed to be very unsure of himself and his memory of events was hazy.

44. The remaining witness for the defendant was a Mr. Kung of the merchandising and export department. He testified that Mr. Lai had given him batches of sketches to deliver to manufacturers for the making of prototype samples. He knew that these were connected with Mr. Hoyer but did not know the identity of the clients to whom the goods would ultimately be despatched.

45. He recalled that he received the samples from the manufacturers in three batches, the first on 10th, the second on 20th and the last, apart from one or two samples, before the end of June. Mr. Kung said that two batches were sent to Switzerland and that a third batch to be sent to West Germany had been retained by the defendant. According to Mr. Kung his understanding was that Mr. Cheung would contact Mr. Hoyer about this batch of samples.

46. Mr. Kung said that he did not know the reason why Mr. Lai had left the defendant and since his position was not at management level he appeared to be unable to shed any light on the policy of the defendant other than to say that he was unaware of Mr. Lai having been concerned in any transactions involving brandless goods.

47. Although the testimony of the various witnesses occupied many hearing days, I do not propose to analyse all of the peripheral matters that touched upon their credibility. As between Mr. Hoyer and Mr. Wong I have no hesitation in accepting the testimony of the former. He impressed me as a completely truthful and reliable witness. Unfortunately I am unable to say the same for Mr. Wong. I found Mr. Cheung to be an evasive and unreliable witness and in so far as his testimony was inconsistent with that of Mr. Hoyer I rejected it. He gave me the impression of being a witness who had previously committed himself to a particular version of the matter and was now reluctantly obliged to adhere to it in court. Even accepting Mr. Kung's testimony at face value it is plain that all but one or two of the samples had been available for inspection before the end of June. I had the feeling, however, that he as not being entirely truthful, particularly in regard to his evidence that one or two samples were not available until July.

48. There were other factors that pointed in favour of  Mr. Hoyer. Mr. Lai's sudden break with the defendant is more consistent with a forced resignation than a voluntary one. Had he intended to resign of his own volition it is far more likely that he would have given some notice, albeit short notice, rather than leave defendant in disarray by suddenly announcing his resignation in the morning and departing after lunch never to return except to collect his personal belongings some time later. I am satisfied that Mr. Lai's resignation was connected with the defendant's decision to extricate itself from its contract with the plaintiff and that his genuinely intended trip to Canada to attend his son's wedding was used as a convenient reason for the resignation.

49. I am not in the least surprised that the defendant was able to produce resignation documents signed by Mr. Lai. There can be no doubt that he had not been guilty of misconduct such as would justify his dismissal. Where an employer seeks to relieve itself of an unwanted employee it is the usual and civilised practice to allow him to put in his resignation. These documents do not cause me to entertain any doubt as to Mr. Hoyer's veracity or reliability.

50. There does not appear to be any cogent reason why Mr. Wong and Mr. Lai should have held a meeting in the coffee shop with Mr. Hoyer. On Mr. Wong's own account of the matter he personally did not converse with Mr. Hoyer at the meeting. Moreover, it was not his intention to deal directly with Mr. Hoyer in future contacts between the plaintiff and the defendant concerning the contract. If Mr. Lai had really expressed his concern about ensuring a smooth transition after his departure and Mr. Wong had considered that to be a sufficient reason to warrant this sudden meeting it is very surprising that Mr. Cheung did not attend. After all, he was the person with whom Mr. Hoyer would be working in close contact during the currency of the contract. If he had really made a previous engagement, it could either have been deferred or the meeting with Mr. Hoyer arranged to fit in with Mr. Cheung's commitments. According to one of his letters of resignation Mr. Lai did not intend to leave Hong Kong until July. If so, there appears to be no reason why the meeting could not have been arranged at a mutually convenient time within a day or so after the 7th June.

51. In the light of Mr. Hoyer's unchallenged evidence that he had an appointment to visit Mr. Lai at the defendant's office on the afternoon of 7th June in connexion with samples to be sent to Lenox, there seems to be no reason why the announcement of Mr. Lai's resignation and the introduction of Mr. Wong to Mr. Hoyer could not have waited until then rather than calling a special luncheon meeting for that purpose a matter of a few hours earlier. Indeed, had Mr. Lai voluntarily resigned on the morning of the 7th June I think that it highly unlikely that he would not have formed the intention to do so several days earlier. There would then have been ample time before he resigned for him to have done all that was allegedly necessary to be done at the coffee shop meeting. Mr. Cheung's alleged concern on the morning of 7th June that Mr. Wong would be able to take over his role in carrying out the contract strikes me as being somewhat inconsistent with the behaviour of a man who, on Mr. Wong's account of the matter, had been so inconsiderate as to not even give the barest notice of his resignation. The circumstances of the meeting are far more consistent with Mr. Hoyer's testimony that Mr. Lai had been dismissed that morning than with the version that he had suddenly announced his voluntary resignation.

52. The defendant sought to establish that the telex that was sent to Mr. Hoyer at 1806 hours that afternoon under Mr. Wong's name advising Mr. Hoyer that Mr. Lai had resigned and that all future correspondence and contacts should be directed to Mr. Cheung, supported Mr. Wong's testimony that Mr. Lai had resigned voluntarily. However, according to Mr. Wong and Mr. Cheung, they both knew that the purpose of the coffee shop meeting was to announce these matters to Mr. Hoyer. There would therefore have been no point in sending a telex to inform Mr. Hoyer of a matter which they both knew he had already been told about at a meeting specifically called for that very purpose. In my view the wording of the telex is just as consistent with Mr. Lai having been asked to resign as with Mr. Wong's evidence that the resignation was voluntary. Indeed I have come to the conclusion that it is likely that, in view of Mr. Lai's precipitate departure, Mr. Wong's secretary sent telexes to all customers who might have been affected and that as Mr. Hoyer was one of these he received a telex as a matter of routine.

53. Mr. Wong was at pains to emphasise that his English was very poor. I suspect that the reason for this was to explain why he had not personally contacted Mr. Hoyer after he had received his telex of 8th June. It was apparent during the course of cross-examination, when on occasion he spontaneously began to reply to quite complicated questions without the benefit of translation, that his English was better than he sought to have the court believe. I am satisfied that, as Mr. Hoyer claimed, Mr. long played a significant part in the conversation at the coffee shop.

54. It is not disputed that on 14th February 1985 Laws Fashion Knitters Ltd acquired a 51% share in the defendant company and that Mr. Raymond Law had become the chairman of the defendant's board of directors. Moreover, the members of the Law family own all the issued share capital in Laws Apparel LDA, a company which they established in Portugal in December 1985 with a view to taking advantage of the possibilities of expansion into both the European Economic Community and the United States markets. It is apparent that they anticipated that exports from Portugal to those countries would not be subject to any restraint. The plaintiff suggests that this is probably the reason why the defendant had abruptly announced to Mr. Hoyer that its board of directors had decided to cease doing export business. Certainly, if Law's intended to enter into the European market through its company in Portugal, the existence of a contract giving the plaintiff the exclusive distributorship in major countries in Europe of goods under trademark names owned by the defendant could prove to be inconvenient.

55. However, whether or not this is the reason for the defendant wanting to extricate itself from the contract it had entered into with the plaintiff, I entirely accept Mr. Hoyer's testimony as to what was said at the coffee shop meeting and that the defendant had no intention from that day onward of complying with its obligations under the contract.

56. During the course of cross-examination Mr. Cheung, in an attempt to convey the impression that Mr. Lai's abrupt departure from the defendant was not unnatural, made the unguarded comment that even from the first day that he had joined the defendant in May 1985 he sensed that there may be some changes at the senior management level of the company. This suggests that policy changes were in the wind even then.

57. I am satisfied that the defendant had hoped that, with the announcement that Mr. Lai was leaving its employment, Mr. Hoyer would meekly accept its purported decision to discontinue its export business, particularly as the success of the venture necessarily involved the wholehearted and continued cooperation and expertise of the defendant. The defendant would have been fully aware that Mr. Hoyer realised that if it wanted to destroy the viability of the entire project it needed to do no more than produce sketches that were unsuitable for the European market or create other technical difficulties. The defendant knew it held the whip hand and expected Mr. Hoyer to appreciate the reality of the situation and surrender tamely.

58. When, however, contrary to expectations, Mr. Hoyer decided to take a resolute line and the defendant received his telex threatening legal action unless it fulfilled the contract, it realised that the best solution to the problem was to engage in a war of attrition with him by pretending to be willing to perform its duties under the contract on the one hand and by resorting to deliberate delaying tactics in the production of the prototype samples on the other.

59. Having announced that it intended to honour the contract, the defendant honed that the plaintiff, no longer having a clear cut case against it and being faced with the project that no garments or no suitable garments would be ready for the spring/summer season of 1986, would in frustration abandon the venture and turn to another company for its needs. The defendant no doubt thought that as the contract did not stipulate a specific time framework for the production of the samples, it would be able to create delays with impunity.

60. The defendant was content to perform the contracts to supply goods to Lenox and Smarty as these were merely once and for all contracts and did not involve it in a long term commitment such as that with the plaintiff. I am satisfied that the defendant also used these contracts to make it appear that it was honouring its contract with the plaintiff. Indeed, Mr. Wong and Mr. Cheung sought to persuade the court that these were not separate contracts but formed part of the contract with which these proceedings are concerned.

61. Mr. Hoyer testified that since Lenox and Smarty required brandless goods for incorporation into their own brand name collections, the orders from both those companies involved brandless garments. The defendant, however, asserted that Lenox and Smarty had ordered branded goods. Evidence disclosed that a batch of samples that should have been despatched to one of these companies had been wrongly sent by the defendant to the other and that it had been subsequently returned to the defendant. Unfortunately these samples were not produced for examination in court.

62. There was, however, a telex of 8th May to Mr. Hoyer from his wife, who was operating his office in Switzerland, which stated that Lenox intended to purchase one style from the defendant and that it was "going into their own collect-style". It is also very plain from the evidence that the defendant knew that Mr. Baldia and Mr. Regerbis were the persons with whom Mr. Hoyer was dealing in connexion with the distribution of garments under the contract in this action. Furthermore, a telex of 8th June from Mr. Hoyer to Mr. Wong stated that the meeting that had been scheduled for 7th June had been arranged for the purpose of approving "a neutral brandless collection for a Swiss customer". The defendant made no reply to this assertion. Had it been ignorant of the existence of such a batch of goods it seems strange that it did not reply and query the existence of unbranded goods.

63. If the defendant never trades in brandless goods, as it now strenuously claims, it is not unreasonable to assume that it would have been puzzled by this reference to a neutral brandless collection and have sought to clarify the matter with Mr. Hoyer. When taxed on this matter in cross-examination both Mr. Wong and Mr. Cheung gave the surprising answer that they did not know what brandless goods meant. Mr. Wong also lamely claimed that due to inexperience he did not ask Mr. Hoyer to explain to him what goods that passage referred to.

64. A telex of 14th June from Mr. Cheung to Mr. Hoyer advised that samples were ready for air freighting pending Mr Hoyer's confirmation of the remittance costs. Since it is clear that the defendant knew that Mr. Regerbis would be coming to Hong Kong to make his selection from the prototype samples manufactured in pursuance of the contract of 7th February, this telex could not possibly relate to those samples. Indeed the telex indicates that the defendant knew that the samples it was sending out by air freight had no connexion with the contract of 7th February and that they related to a different contract. I am satisfied that the Lenox and Smarty orders were used as red herrings by the defendant to shore up its false claim that it had been carrying out the contract of 7th February.

65. Although the contract itself is silent as to the deadlines for the preparation of the samples and the bulk production of the garments, the letter from Mr. Lai dated 7th December 1984 clearly shows that the defendant was fully aware of the timetable that had to be observed in order to give business efficacy to the then proposed contract. This is reinforced by the reference in the defendant's summary of the discussion with Mr. Regerbis on 20th May to the relevant important dates.

66. Moreover clause 11(b) of the contract specifically provides that the defendant shall upon the request of the plaintiff provide It with samples of the trademarked products at the cost of the defendant.

67. The sketches from which the prototype samples were to be produced for inspection by Mr. Regerbis on 20th June had already been despatched to the manufacturers before Mr. Lai had left the defendant and, once the manufacturing process had begun, the defendant was committed to taking delivery of the samples. I am perfectly satisfied that the defendant knew full well when the samples would be available and deliberately failed to pass that information to Mr. Hoyer, and that after it had actually received the samples from the manufacturers failed to inform him of that fact. By so doing, the defendant hoped to delay Mr. Regerbis' arrival in Hong Kong for as long as possible so that Mr. Hoyer would be forced to abandon any attempt to assemble a collection for the spring/summer season of 1986. In the event of any dispute the defendant would plead that the delay had been caused by matters beyond its control or had been due to some fault on Mr. Hoyer's part.

68. The defendant's conduct through the actions of Mr. Wong at the coffee shop meeting and its subsequent failure, first, to respond to his telexes for information as to the inspection date and, secondly, to disclose that it had received the samples, clearly establish that the defendant had no intention of performing its duties under the contract and had repudiated it. I have no hesitation in resolving the question of liability in favour of the plaintiff and in dismissing the defendant's counterclaim against the plaintiff for damages for having allegedly repudiated the contract. In this connexion I think I should observe that the defendant has pleaded that, by reason of the allegations contained in paragraph 20 of the statement of claim, the plaintiff had clearly exhibited its intention of repudiating the contract. As the allegation in paragraph 20 is that the defendant, by failing to deliver any samples of the trademarked clothing, had confirmed its intention to be no longer bound by the contract and had repudiated it, I have the greatest difficulty in understanding from the defendant's pleading how the plaintiff could possibly be said to have repudiated the contract.

69. It emerges very clearly from the evidence of Mr. Metzger and Mr. Regerbis, both of whom had had extensive experience in the garment industry, that they were very favourably impressed with the Sparkle products. They both struck me as being very knowledgeable, reliable and truthful witnesses and their evidence was essentially unchallenged.

70. Mr. Regerbis and Mr. Baldia had gone to considerable efforts to set up the organisation for the marketing of the garments to be manufactured under the contract. Mr. Regerbis had given very clear instructions to Mr. Lai and the designer Mr. Lung as to his specific requirements for the prototype samples. All the evidence indicates, and I have no doubt, that the defendant was fully capable of arranging for the production of these samples to the complete satisfaction of Mr. Regerbis and that essentially all that remained to be done before the process of manufacture of the salemen's samples began was for Mr. Regerbis to make a final selection of 20 or so samples from the total number of prototype samples that he, Mr. Lai and Mr. Lung had already agreed would be prepared.

71. Despite a vague and totally unconvincing suggestion that presumably Mr. Regerbis would make last minute demands for alterations and perhaps require fresh prototype samples, and that as a consequence there might be some delay in the final production of the garments, I am quite satisfied that had the samples been made available for Mr. Regerbis to make his final selection there would have been no delay. Had the defendant so wished production would then have proceeded in time for the spring/summer season of 1986.

72. Mr. Regerbis explained how he had estimated the projected sales figures for the first five seasons. According to him he had adopted a very conservative basis for his calculations and expected to achieve even greater sales than those reflected in his assessment. These figures were not disputed. The defendant contended, however, that the plaintiff's damages must be assessed on a maximum turnover of $100,000 per annum. The basis for this contention appears to be that clause 5 of the contract provides that the plaintiff would place with the defendant orders for the purchase of the trademarked products to a minimum value of $100,000 for each year during which the contract remained in force.

73. I am unable to follow the logic of this argument. Although the amount of $100,000 is stated to be a minimum amount, the parties undoubtedly hoped and expected that the orders would greatly exceed it. Moreover, the defendant knew of the tremendous potential of the European market and that it was much greater than that of South East Asia. Indeed, half of the defendant's total exports went to Singapore and these alone produced a turnover of $2,000,000 per annum.

74. Three of the minimum of five seasons with which the contract is concerned have now passed and the orders for the present autumn/winter season would have already been placed had the contract not been repudiated. This leaves only one season before the defendant would have been entitled to terminate the contract.

75. I have already referred to the yearly turnover figures that Mr. Regerbsi calculated would be the "absolute minimum" return from the sale of garments in question. The total figure is $40,641,636 and the undisputed evidence is that the return to Mr. Hoyer would be 6% of this sum. It is plain to me on the evidence that it would have been well within the contemplation of the defendant that sales such as those estimated by Mr. Regerbis were attainable and that the loss that Mr. Hoyer would suffer as a consequence of repudiation of the contract would reasonably be in the vicinity of 6% of Mr. Regerbis' figures.

76. Lord Reid observed in Koufos v. C. Czarnikow Ltd ⁽¹⁾, as paraphrased in McGregor on Damages 14th edition at page 188, that the plaintiff may recover as damages for a breach of contract a loss "of a kind which the defendant, when he made the contract, ought to have realised was not unlikely to result from the breach .... the word 'not unlikely' .... denoting a degree of probability considerably less than an even chance but nevertheless not very unusual and easily foreseeable".

77. It seems to me that this test has been entriely fulfilled in this case. I am not satisfied, however, by any cogent evidence that subsequent events have revealed that sales for the past three seasons would have exceeded those in Mr. Regerbis' conservative estimates.

78. I therefore give judgment for the plaintiff in the sum or $2,438,498 with costs.

(1)    [1967] 1 AC 350

Representation:

Mr. J. Hingorani instructed by M/S Munro & Claypole for plaintiff.

Mr. H. L. Wong instructed by M/S Richard Bryson & Co. for defendant.