Hop Fung Garments Ltd v. Kawa Textiles (Hong Kong) Ltd

HCA002430/1976

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION NO. 2430 OF 1976

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

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

Coram: McMullin, J.

Date of Judgment: 19th August, 1977.

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

JUDGMENT

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

1. The dispute in this case involves the quality of certain goods sold by the plaintiff to the defendant under two separate contracts. These contracts are part of a series of six similar contracts entered into between the parties in the year 1976. They involved the manufacture of two different kinds of garment. These were described in the contracts, and in the evidence, as "Parka coats" and "Nato jackets". As these names imply they were intended to be tough weather-proof jackets, for outdoor wear, of the kind frequently referred to nowadays as anoraks and it would appear that the two kinds of jacket differ from each other only in matters of small stylistic detail. Both were to be manufactured from stout somewhat coarse fabric and both were fitted with an acrylic fur inner lining which was fastened to the outer jacket or shell by studs and could be totally detached therefrom.

2. The defendant company had a customer in Germany, a firm called Globe, from which it had received a number of orders for the supply of these garments. It was to fulfil these orders that the defendant had entered into the series of contracts with the plaintiff to which I have referred. By written contract between the defendant and Globe dated 14th of April 1976 (Document 1 on the agreed bundle) the defendant undertook to supply 2,000 Parka coats and 2,000 Nato jackets to the German firm. There were corresponding contracts between the defendant company and the plaintiff to fulfil these orders. As to the Nato jackets covered by the contract with Globe, we are not directly concerned, in the present case, to consider the corresponding contract between the plaintiff and the defendant. One of the two disputed contracts between the plaintiff and the defendant does however refer to the order for 2,000 Parka coats appearing upon the face of Document 1. The terms of this contract, dated April 20th 1976, appear in Document 5 upon the agreed bundle. The terms of the second disputed contract, dated 3rd of June 1976, which relates to an order for 2,300 Nato jackets, are set out in Document 7 upon the agreed bundle. The terms of the corresponding arrangement between Globe and the defendant company are set out in Document 6. It was provided in all these contracts that the goods supplied were to conform with the stated measurements and other descriptions and with samples supplied by the plaintiff company. The date for delivery of the Nato jackets was originally the 15th of September 1976 but this was altered by agreement of the parties (see Document 8) to the 15th of August. Eventually all the garments under the two disputed contracts were delivered for shipment upon the 18th of August 1976. These contracts between the plaintiff and the defendant were stated to be upon C.M.T. terms by which it was intended that the plaintiff company would cut, make and trim the garments out of material supplied to them by the defendant company. It is common ground that although these garments were made and supplied by the plaintiff and delivered aboard ship under F.O.B. terms the plaintiff has in fact never been paid for them and the plaintiff claims in each case the sum stated as the contract price. Although it was not noticed in the course of the trial this total is incorrectly stated in the particulars of the writ as $127,921.60. That is said to be product of $83,260.00 and $49,038.60. The total of those sums is in fact $132,298.60 and not $127,921.60 which is claimed by the writ. But in any event the sum of $83,260.00 is incorrect. The sum claimed in paragraph 1 of the statement of claim is $81,167.50 and the correct total of the two contract prices therefore is $130,206.10. It might be added that this mistake was occasioned by a factor in the case which was never adequately explained. The contract price is in each case said to have been altered from an original agreed price which was considerably larger. In the case of the Parka coats the original price appears to have been $125,000. This was ostensibly agreed upon the 15th of April but changed upon the 20th of April in an identical document to $81,167.50. The price originally agreed for the Nato jackets was changed from $83,260.00 to $49,038.60. It is evidently this figure of $83,260.00 which was mistakenly put down as the figure claimed under the other contract which, as we have seen was in fact $81,167.50.

3. The plaintiff's case is simply that all these garments were produced in accordance with the contract specifications and that they were up to sample; they were delivered in accordance with the contract on board ship and the defendant company must pay for them. The plaintiff company admits that it knew at the time of the manufacture of these garments that the defendant company was purchasing them for the purpose of re-sale.

4. The defendant company's case is that although it admits to taking actual delivery of these garments this was done, as to the Nato jackets, under protest to the plaintiff as to the inferior quality of the workmanship and upon the plaintiff agreeing to stand over any consequential loss; as to the Parka coats merely to mitigate loss after effectual repudiation. The defendant claims to set off against the contract price of the garments a very large sum by way of damages for loss of profits deriving principally from its having been forced to sell these garments to its disgruntled overseas customer at very greatly reduced prices.

5. The background circumstances leading to the making of these contracts, as described above, and the terms of the contracts themselves are not in dispute but the parties are in wellnigh total disagreement as to what occurred following upon the commencement of the manufacture of the articles comprised under the disputed contracts. The evidence for the plaintiff was principally that of Mr. FUNG Chak-kuen the director of the plaintiff factory and of his manager Mr. LAM Man-sai. The defendant's case rested principally upon the evidence of Mr. Walter Dorawa who is a director of the defendant company and who told the court that he had been authorised by the company to give this evidence on its behalf. Mr. Lam and Mr. Fong are in substantial agreement as to the sequence of events. Before I turn to consider the discrepant accounts given by the opposed parties it may be noted that although the defendant claims that all these contracts in fact were going smoothly there is clear evidence that that was not altogether true. It has been noted that the Globe contract which appears as Document 1 comprises not only the 2,000 Parka coats which figure in one of the two disputed contracts but also 2,000 Nato jackets which were to be delivered upon the same day as those Parka coats. These 2,000 Nato jackets are not part of the dispute in the present case. They are covered by a separate contract between the plaintiff and the defendant, the terms of which appear in Document 5 on the bundle. The first of the two disputed contracts, i.e. the contract for Parka coats which is covered by Document 4, was entered into on the same date. April 20th 1976. It would appear that the Nato jackets covered by Documents 1 and 5 had been completed by July the 6th. As to those goods Mr. Fong admitted that there had been a query as to their quality and he agreed that the undertaking or guarantee which appears as Document 10 upon the bundle was drawn up and signed by him as a result of this dispute. He agreed that some of the garments in that order had not been up to contract specifications. He added however that he had in fact been paid in full for that consignment. Document 10 is in English and he professed not to understand its full implications but it is plain that it contains an undertaking by him to be responsible for any claim which might arise as a result of bad workmanship and wrong measurements and which might later be made by the defendant's buyer. The goods under that contract had been completed before work commenced upon the Nato jackets or the Parka coats the subject of the two presently disputed contracts. I do not know whether any claim has arisen out of this letter of acknowledgement in respect of those earlier completed garments which had not yet arrived in Germany at the time of commencement of manufacture of the disputed Nato jackets and Parka coats. So far as the present claim is concerned that earlier contract is of significance only in relation to the reaction of the German consignee upon the delivery in Germany of the Nato jackets under one of the disputed contracts.

6. Mr. Fong's account of the matter was as follows. After the signing of the Parka coat contract (April 20th 1976) and the signing of the Nato jacket contract (3rd of June 1976) work upon these orders did not commence until the later part of July 1976. Although the stated delivery date for the Parka coats was the 15th of July the delay was explained by the fact that when the material for those garments was delivered to the plaintiff by the defendant a question arose as to the quality of its colour. After inspection by the defendant it was rejected and returned to the suppliers a company known as Kai Chung. Kai Chung supplied new material (or else the same material after remedial work had been carried out upon it - it was never made clear which was the case) and this was in due course inspected by the plaintiff who again objected to the quality of the colour. All of this according to Mr. Fong took place some time before the 10th of June. Thereafter the defendant retained the Parka coat material until in the later part of July it was told to go ahead with the Parka coats using that material. The first delivery of material to carry out the work under both of these contracts was some time at the end of May and the re-delivery by Kai Chung of the Parka coat material after rejection of the first lot was on the 7th of June. So far as the Nato jacket material was concerned there was never any query concerning the quality of that and although it was delivered prior to the delivery of the Parka coat material the work upon the Nato jackets nevertheless did not commence until close to the end of July. This delay concerning the Nato jackets was never explained but it must be remembered that other goods of the same kind were in process of manufacture at the time and the stated date for delivery of the Nato jackets under the disputed contract was the 15th of September. Mr. Fong gave evidence that it would require about 12 working days to complete the Nato jackets and the Parka coats. According to Mr. Fong, Mr. Dorawa and his manager had from time to time been visiting the premises to inspect the other work which was in process there. As for the two presently disputed contracts Mr. Fong said that Mr. Lau and Mr. Dorawa came to inspect these goods on three occasions. At a later point in his evidence he said that Mr. Dorawa had turned up on only one of those occasions and later still in cross-examination he said he did not know whether Mr. Dorawa had been there on all three occasions. He maintained throughout however that Mr. Dorawa had been present on the final occasion that is the 18th of August. He agreed with Mr. Lam that he had not himself been physically present on any of the earlier occasions and it may be that this discrepancy was due to the fact that he would only see Mr. Dorawa and Mr. Lau when they came to his office after inspection and since they had inspected other lots of goods on earlier occasions his recollection of this matter may not be entirely satisfactory. He said that the two representatives of the defendant company always identified the particular lot of goods to which they were referring when they came to inspect and he implied that upon the earlier two occasions there had been no complaint as to quality of either the Parka coats or the Nato jackets involved in the two disputed contracts. He agreed that on the 28th of July he had signed another letter of guarantee (Document 11) this time stating that both the Nato jackets and the Parka coats under the disputed contracts would be shipped by the 14th of August on a designated ship, the S.S. Korama, which was due to come to Hong Kong from Japan. Later, since it transpired that that ship was not coming to Hong Kong at all the best that could be done was to make arrangements to ship the goods aboard S.S. Benavon which was due to leave Hong Kong on the 19th of August. Mr. Fong said that on the 18th of August Mr. Dorawa and Mr. Lau came finally to inspect the goods that were there. By this time both the Nato jackets and the Parka coats had been completed. He said that after inspection of the Nato jackets they were cleared as fit to be shipped by the representatives of the defendant company but that Mr. Dorawa, through Mr. Lau, conveyed the fact that there was a problem about the Parka coats. The shipping orders relating to the Nato jackets were handed over to the plaintiff by the defendant and those jackets were delivered to the S.S. Benavon in the morning. In the afternoon Mr. Dorawa turned up with a German couple who were identified as the German buyers of the goods and, according to Mr. Fong, the buyers having inspected some of the Parka coats pronounced them fit to be shipped and the shipping documents were then delivered to the defendants and the goods delivered to the ship. That, so far as he was concerned, was the end of the matter; he denied that inferior goods had been delivered and his position was that he had done everything which the contracts demanded of him and that the defendant company must pay.

7. Mr. Lam agreed in most particulars with the evidence given by his superior. He, however, was positive that both Mr. Dorawa and Mr. Lau had inspected the Nato jackets and Parka coats on three occasions: the 3rd of August, the 9th of August and the 18th of August. He said that they would specify, when they came, which particular contract garments they wished to see. On the earlier two occasions they inspected both the Nato jackets, which were mostly completed, and such of the Parka coat material as had been cut out and was ready for assembling. By the 9th of August all the Nato jackets had been completed and on that date a number of the Parka coats had also been made up. They checked for size and quality and colour and made no complaints of any of these garments. Unlike Mr. Fong and Mr. Dorawa, however, he said that upon the third occasion, the 18th of August, there was no inspection of the Nato jackets at all. These according to him had been cleared and all that happened was that the shipping documents relating to them were given to him and the goods were delivered to the S.S. Benavon that morning. He was then told that there was a problem concerning the letter of credit relating to the Parka coats. He was asked to hold up delivery to the ship of those garments until the afternoon when the German Buyers would come. In the afternoon the German buyers did come, inspected the goods, pronounced them fit and the documents for shipment were handed over and the goods were delivered to the ship. He explained the signing of Document 11 (the guarantee for shipment on the 14th of August) by saying that he was told by Lau and Dorawa that the letter of credit would expire on the 15th of August and that shipment must therefore be on the 14th.

8. Mr. Dorawa's account of the matter was very different. He did not deny that he had inspected some of the garments covered by the earlier contract and maintained indeed that the letter of guarantee (Document 10) had been signed by the defendant and the plaintiff because of deficiencies in that earlier order. He maintained however that the deficiencies complained of on that occasion included bad workmanship inasmuch as the sewing was of deficient quality. The note itself (Document 10) makes no such complaint. The complaint therein contained relates solely to the variation in the garments examined from measurements specified in the contracts. Mr. Dorawa categorically denied that he had ever gone on the 3rd or 4th of August nor yet on the 9th or 10th of August to inspect any of the goods covered by the disputed contracts. He maintained that the subsidiary arrangement set out in the letter of the 28th of July (Document 11) had resulted from delay on the part of the defendant in getting the two disputed orders under way. He said that when he went on the 18th of August in the morning with Mr. Lau to inspect the goods they inspected the Nato jackets and found them to be subject to the same deficiencies as had occasioned the making of the agreement (Document 10) in relation to the earlier contract. He said that he pointed these deficiencies out to Mr. Lam and said that the goods might be shipped but subject to the same conditions as had been agreed on the former occasion and he said that Mr. Lam did not demur to this suggestion. They then turned their attention to the Parka coats. After some inspection he pointed out to Mr. Lam that there were unevennesses in the colour of the outer fabric that the stitching was bad and that the sleeves of the inner lining in the case of one of the jackets which he tried on was too long and projected below the outer sleeves. He said that this defect was enough in itself to have occasioned the repudiation of the goods. He said that as a result of this inspection he formed the opinion that the goods were not up to the contract standards and he suggested to Mr. Lam that they could come to an accommodation by the plaintiff company agreeing to pay for the material supplied to it by the defendant for the Parka coats and retaining the coats to be disposed as it saw fit. Mr. Lam, he said shrugged his shoulders, smiled, and simply said that there was no money to do this. This offer having been rejected he was then in a quandary as to what he should do next. He then got in touch with the German buyer, Mr. Schamong, who was at that time in Hong Kong with his wife. He explained to him that the Parka coats were not, in his view, of the quality required by the contract between himself and Globe and he suggested to Mr. Schamong that he should nevertheless take these garments at a much reduced figure to dispose of them as "seconds" i.e. second quality goods. They met at the Peninsula Hotel and discussed this proposition. Eventually Mr. Schamong agreed that he would take the goods as "seconds" while the defendant would undertake to supply him with first quality Parka coats to be delivered within the original contract period which would require that they should be sent by air freight to Germany. The original contract for Parka coats had specified transportation by sea but the need for this new arrangement according to the defendant was because the season for such garments in Germany was a short one and they would not find a market if they were delivered there later than the end of September. He told the court that the Parka coat section of the contract with Globe set forth in Document 1 was in fact fulfilled by the delivery to Germany of 2,000 good quality Parka coats manufactured by another manufactured within the stipulated period. In fact however only part of those garments needed to be shipped by air and the rest were sent by sea. Mr. Dorawa went on to say that after this agreement had been arrived at he went with both the Schamongs in the afternoon of the 18th of August to look at the Parka coats at the plaintiff's premises. By that time the Nato jackets had been despatched to the ship. Mr. Dorawa described what he then saw as "rubbish" and although he does not recall what was said by the Schamongs, the substance of his evidence was that they were in agreement with his opinion. He said that notwithstanding the evident dissatisfaction of their customer and their customer's buyer Mr. Lam through Mr. Lau asked him nevertheless to accept these goods. According to him his answer was a categorical refusal to accept delivery of the goods. He added that he told Mr. Lau to explain the situation to Mr. Lam with whom he could not communicate directly since the latter did not speak English. Whatever explanation may have thus been given to Mr. Lam it did not include any account of the new arrangement which had been entered into between the defendant and the representatives of Globe for Mr. Dorawa plainly stated that these negotiations had not been revealed to the defendant on the afternoon of the 18th. Notwithstanding what Mr. Dorawa evidently regarded as a repudiation of the goods the shipping documents were nevertheless given over thereafter to the defendant and the goods were delivered to the ship and sent to Germany. Mr. Lau did not give evidence in the case nor did either of the Schamongs nor any other representative of the defendant's consignee. The faults which occasioned this strong action and which Mr. Dorawa says he perceived and pointed out to Mr. Lam both in the morning and in the afternoon of the 18th were: (a) bad stitch work with loose thread ends apparent in many places; (b) the inner lining of acrylic fur - the material for which was supplied by the plaintiffs not by the defendants - appeared to be too long in the sleeves which projected beyond the outer jacket sleeves in the case of one of the Parka coats which Mr. Dorawa tried on; (c) there were variations in the shade of the green material used and this according to the defendant must have been due to using portions of cloth from different rolls of the material, which had been delivered, in the making of individual coats. He did not deny that there had been a question as to the colour of the Parka coat material earlier in the course of these contractual relations. As to that he said that there had been an inspection of the Parka coat and Nato jacket material about the 4th or 5th of June. The Nato jacket material was acceptable but the Parka coat material was the wrong shade of green. The Kai Chung firm took back the material and returned other material 7 or 8 days later and this was inspected about the 10th of June. It proved satisfactory when tested against the original sample. On the 15th of June he said that instructions were given to start on the Parka coats. He said that the reason for the making out and signing of the note of the 28th of July was because between the 15th of June and that date the plaintiff had delayed and was attending to other business of the factory and postponing the defendant's orders to that other work.

9. The remainder of the defendant's case consisted principally of an exchange of telexes and letters between Globe and the defendant and the plaintiff. The purport of this evidence was to show that the German buyers had indeed been disappointed in their goods and that by arrangement between Globe and the defendant company the latter recovered only about one third of the combined contract price of the Nato jackets and the Parka coats from its consignee.

10. There was a final matter upon which the parties were at odds. Mr. Lam and Mr. Fong both said that they had been told by Mr. Lau that they would be paid in about one week's time after the despatch of the goods on the 18th of August. Mr. Fong described how he had demanded payment on the telephone and had gone to the defendant's premises several times and had been fobbed off by a woman secretary there who said she had no information as to when Mr. Lau and Mr. Dorawa would return. On the 3rd of September he went again to the defendant company premises and was told by Mrs. Lau whom he met there that Mr. Dorawa and her husband had gone to Germany together. According to Mr. Dorawa there had been no promise to pay and there was no attempt to avoid proper payment. He said that payment had been withheld on the understanding that the goods had been shipped subject to the complaints which have been described. He had then gone on business, firstly, to Singapore and then returned to Hong Kong on the 30th of August. Then he and Mr. Lau had gone off to Germany where he remained until the 18th of September. While he was in Germany he saw Mr. Schamong. The latter told him that the earlier shipment of Nato jackets (Documents 5 and 10) were unacceptable. Mrs. Lau contacted Mr. Lau in Germany informing him of the angry demands for payment which had been by then made by the plaintiff and this was followed up by a telex message (Document 111) telling Mrs. Lau to inform the plaintiff of the rejection of the earlier lot of Nato jackets by the consignees. They were also to be informed that under the circumstances payment could not be made and Mrs. Lau was instructed also to tell the plaintiff that the matter was in the hands of the defendant's solicitors. At the time he left Germany and returned to Hong Kong on the 18th of September the Parka coats and Nato jackets under the presently disputed contracts had not yet arrived in Germany. A telex message (Document 31) was received dated 23rd of September from the consignees informing the defendant that the Parka coats and Nato jackets under the disputed contracts had arrived. This message describes in lively terms the dismay with which the consignees professed to have greeted the quality of the garments shipped to them and would appear to suggest total repuqiation thereof. However, a further telex message of the following day, 24th of September, states that it may be possible to dispose of these garments to customers and proposes the acceptance of them subject to certain drastic reductions in the contract price for each garment. What was proposed was a further discount on the price of the Parka coats (already discounted by the earlier agreement between Mr. Dorawa and Mr. Schamong in Hong Kong) bringing the selling price of each of the Parka coat to Globe down to 5 Deutschmarks from the 12 Deutschmarks agreed in Hong Kong. The original or contract price of these garments was 36.85 Deutschmarks. What is proposed in the same telex for the Nato jackets is a reduction of 6 Deutschmarks in the price to Globe of each jacket the original, or contract, price being 23.40 Deutschmarks. Eventually according to Mr. Dorawa they agreed upon a figure of 12 Deutschmarks for the Parka coats and a reduction in the price of the Nato jackets of 5 Deutschmarks per jacket. I do not propose to examine this documentary evidence in detail. Although the plaintiff remains suspicious of the relations between Globe and the defendant and it was suggested both to Mr. and Mrs. Dorawa in the course of the evidence that some of these telex messages and entries in the books of the defendant may have been prepared for the purposes of this action. I am satisfied that Mr. Dorawa has succeeded in showing that his German clients did refuse to accept the goods on the terms of the original contract between them and did dispose of them ostensibly as "seconds". I am prepared also to accept that the defendant company did receive for these goods delivered in Germany payment to the extent only of the reduced unit price per garment set out above and that so far as the figures are concerned the alleged amount of loss of profits is as set out in paragraphs 7(a) and 13(a) of the defence.

11. There remain, then, to be considered, the two questions which Mr. Bunting for the defendant has posed as being the questions primarily at issue in the case. These are, firstly, were these goods affected by deficiencies in workmanship attributable to the plaintiff to such a degree that they did not fulfil the requirements of the contracts? Secondly, did the defendant company's loss of profits result from such defects? At this point the court finds itself confronted with a considerable difficulty. Both of these disputed contracts included an important term which was phrased as follows: "The goods must be identical to sample in all respects ..." This provision is echoed in the special conditions which appear on the reverse of the contract form in each case and which appears as Condition 1 in the following terms:

I understand that samples of each garment were in fact produced for scrutiny by the defendant company and were passed by Mr. Dorawa yet none of these samples has been produced at the trial. The court has thus been left without evidence of a kind which might have been of the very greatest assistance in a case where the claim of inferior workmanship necessarily depends upon comparison, in matters of detail, between goods which the buyer recognizes to be of good standard quality and those which he reckons to be of inferior quality. What it comes to therefore is that the defendant company relies solely upon the evidence of Mr. Dorawa backed up by the written complaints of his clients as showing that the goods were not up to the "usual standard quality". But quite apart from the want of the original samples before the court there is the additional difficulty that the only garments produced for scrutiny in court are five Parka coats which are said to be part of the consignment which was repudiated upon arrival in Germany and which consignment was examined by an independent expert in that country, these five garments being returned to the defendant's solicitors after that examination. The defendant sought to introduce in evidence certain reports by the German expert concerning both the Nato jackets and the Parka coats but for reasons which I gave in a ruling in the course of the trial these reports were not admitted in evidence under the Hearsay Rules. The only independent expert testimony therefore which I had in relation to the quality of the disputed garments was that of Mr. Raymond C.K. Kwong an employee of a firm known as Lab Test Hong Kong Ltd. He had not examined, in bulk, the disputed garments and his evidence was confined to the five Parka coats which had been returned from Germany. Mr. Van Buuren did indeed suggest that I should not have regard to those garments at all since in his submission it had not been securely established that they were part of the consignment in dispute. This he said was because there had been an earlier consignment of Parka coats and he said that it was possible that these had come from such a consignment. In all the circumstances I do not regard that is a realistic possibility and I am happy to accept that these coats were out of the consignment covered by one of the disputed contracts in this case. A great part of Mr. Kwong's evidence was directed to refuting the suggestion by the plaintiff that one of the major defects observed in the garments examined, i.e. the extending beyond the outer sleeve of the inner acrylic fur lining, had been due to malicious interference and stretching on the part of agents or servants of the defendant company. I can only say that I have not given any credence to that suggestion which does not seem to me to be supported by the evidence. Mr. Kwong's report which was put in as an exhibit for the defendant, and which appears as Documents 102, 103 and 104, lists the complaints which he was supposed to investigate as five in number. These were in effect substantially the complaints made at various points in his evidence by Mr. Dorawa concerning the Parka coats and the Nato jackets although the first of them, as I understand it, related only to the Parka coats. They were as follows : (1) Inside lining longer than shell fabric in sleeves; (2) Colour in body fabric inconsistent; (3) Size measurements not in accordance with contracts; (4) Poor seaming and trimming; (5) Excessively folded and creased. It is noteworthy that this independent report finds only two of these particulars established as substantial defects in relation to the five coats. These two particulars concern the variation between the contract measurements and those observed in the five coats examined and the failure of the inner jacket to match its outer shell in accordance with the requirements of the contract. The second only of these defects is regarded by the examiner as being in his words "a critical defect". His report puts the total effect of his impressions after the examination of the five coats in the following words :

"According to the above measurements, the linings were more or less same in length then in some case longer than the outer shells. Thus, in actual wearing, when the lining material was tensioned by the human arm, it would come out through the sleeve opening. And this would severely damage the appearance of the garment and was considered to be a critical defect.

In actual measurement only four of the ten sleeves belonging to the five jackets were found to be longer than the corresponding outer shell sleeve, and only in one coat did the projection amount to one centimeter the remainder being fractions of a centimeter. Of more significance to my mind was the general testimony of this same witness where he said, in answer to questions put to him by Mr. Bunting, that he had examined garments of this kind made by other manufacturers and had on occasions seen such garments without any such defects. He then went on to say that normally such garments would show defects, major or minor, and that it was very seldom that a manufacturer would make such Parka coats without defects. He concluded by giving his general opinion of the coats in words which I have recorded in the following way :

12. It can be said therefore that it has been established by the defendant that there were certain defects in some of the Parka coats which were observed upon examination after they had arrived in Germany. The whole weight of the defence case rests upon these five jackets and their proved defects coupled with Mr. Dorawa's evidence that the Parka coats and Nato jackets which he examined were all of roughly the same deficient quality and coupled further with the undoubted fact that the buyer's consignees in Germany did repudiate all these garments and that repudiation was accepted by the defendant company. It seems to me that the case as regards the Parka coats stands upon a different footing from the case as it relates to the Nato jackets for several reasons. Firstly on the evidence of Mr. Dorawa, there appears to have been what amounts to a repudiation by the defendant of the Parka coats on the morning of the 18th of August coupled with permission to the plaintiff to ship them solely, it is said for the purpose of mitigating loss. No such repudiation occurred in the case of the Nato jackets although, according to Mr. Dorawa, they were shipped subject to a promise to defray the cost of any loss that might occur as a result of inferior quality. Secondly, there are no Nato jackets before the court to enable the court to form an impression of the truth of the complaints concerning them. Thirdly, so far as colour deficiency complaints are concerned it is common ground that there was a colour defect of some kind attributable to the suppliers, Kai Chung, in respect of the Parka coat material and no such difficulty arose in relation to the Nato jacket material. Colour differences in certain parts of the Parka coats, which Mr. Raymond Kwong purported to identify somewhat tentatively, are altogether too slight to be very obvious to the uninstructed layman's eye and indeed Mr. Kwong's report makes it clear that this was a very minor matter. Insofar as such variation does exist it is likely to have been the result of the supply, withdrawal and re-supply of the material after complaint rather than because materials from different rolls were used as the defendant suggests. Fourthly, it is noteworthy that even the German buyer must have regarded the Nato jackets as being nearer to the norm than were the Parka coats since, at its most extreme, his demand in respect of the Parka coats was that the original unit price of 36.85 Deutschmarks should be reduced to 5 Deutschmarks per piece i.e. about one/seventh of the original contract price, whereas, in relation to the Nato jackets, the most he demanded was that the unit price of 23.40 Deutschmarks should be reduced by 6 Deutschmarks and eventually he settled for a reduction of 5 Deutschmarks bringing the unit price down to 18.40 Deutschmarks.

13. Taking the two contracts separately and dealing with the Parka coats first it would be difficult to say upon the evidence before me, particularly in view of the evidence of the Lab Test expert, that the quality of these coats has been demonstrated to be so much below the usual market quality for such garments that repudiation was justified. That is even assuming that these five garments adequately represent the general condition of the Parka coats delivered under the contract. In the absence of evidence of a close and critical examination of a reasonable proportion of the rejected garments setting forth in detail the several deficiencies and their percentage occurrence, or something of the kind, I do not think I can rely upon the general expressions of dismay and disgust expressed in the several telexes and other letters on which the defendant relies and in which an equal, and equally general, critical onslaught is made upon both the Nato jackets and the Parka coats. It may be that in fact a high proportion of the Parka coats were similar in appearance and workmanship to those displayed in court it may be that, in the market for such garments, they would not be regarded as being of the first quality. I have however no evidence before me from other manufacturers of such garments or from any other independent source to indicate a serious market disability at the prices sought and the Lab Test experts testimony is rather against such a conclusion. Being quite without the assistance of the original samples for comparison purposes and faced with the general opinion of the Lab Test expert which I have quoted above, I find it not possible to say that any loss of profit which the defendant company had suffered has been due to the plaintiff's failure to supply goods of marketable quality; I cannot say that the evidence has shown that the bulk of the goods supplied were significantly below the usual market standards for goods of that description.

14. There is a further consideration conducing to the same opinion. I accept the defendant's evidence that a query did arise on the 18th of August as to the Parka coats and that that is the reason why the German buyer was asked in the afternoon to inspect them. I cannot, in this particular, accept the evidence of Mr. Lam that no objection was made to the quality of the Parka coats and that the only query concerned some problem with the letter of credit. On the other hand I am far from sure that what actually transpired was what Mr. Dorawa described. I do not suggest that he was telling anything which was positively untrue but it must be remembered that his conversation with Mr. Lam and Mr. Fong was not direct but was conducted through the medium of interpretation. He admitted that he did not tell the defendant the details of his new arrangement with the German buyer concerning the Parka coats and when the shipping documents were handed over to Mr. Lam to send the goods to the container terminal there may well have been some degree of confusion as to what precisely each party imagined the situation then to be. Judging by Mr. Fong's endeavour shortly thereafter to obtain payment culminating in an angry incident in the office of the defendant company, in the absence of Mr. Dorawa and Mr. Lau, when a girl secretary endeavoured to eject him as a trespasser it seems unlikely that he had accepted the fact that the German buyer had repudiated the garments or was even aware that that had occurred. Had Mr. Fong realised that his goods were being rejected one would have expected that he would have sought to implement the provisions of Clause 4 in the contract by telling the defendant to dispute with his buyer the contention that the garments were below standard. Certainly it has been the plaintiff's contention from the very outset that they were not sub-standard and it is a remarkable fact that after the plaintiff failed to get payment and was informed by letter on the 12th October that the reason for withholding payment was the poor workmanship expended upon the garments Mr. Fong repeatedly endeavoured to get particulars of what the alleged deficiencies in the workmanship were. The plaintiff required this information in order to have an independent survey of the goods carried out at the port of destination. It was not until the 23rd of December, in answer to a letter of 12th of that month, that particulars of the complaints were given. To this should be added the fact that despite further and other repeated requests to be permitted to examine the five returned and allegedly inferior Parka coats no facilities were given to the plaintiff to do so until some three weeks before the trial of this action. By that date all the goods had been sold allegedly as "seconds" and the plaintiff company had never been given an opportunity of challenging the consignee's contentions as to any of the garments in the manner specifically provided by the contracts. This dereliction of contractual obligations on the part of the defendant is especially clear in the case of the Nato jackets which, as I find, were accepted by the defendant and only rejected later by the consignee. But even as regards the Parka coats the defendant's failure to apprise the plaintiff of the new deal between Globe and the defendant and the terms on which delivery was being accepted by the consignee amounts to a failure to observe the contractual provisions covering breakdown. Notwithstanding an ostensible repudiation by the defendant the acceptance of delivery without such disclosure can only have disarmed the plaintiff's fear of total rejection and induced a state of affairs which was at best ambiguous so that once again a direct challenge to the consignees on their opinion as to the quality of the goods was obviated. The prolonged silence which followed, in the face of the plaintiff's persistent demand to be given details of the alleged defects, and the disposal of the goods by sale without reference to the plaintiff meant that equally in the case of the Parka coats the plaintiff company was given no adequate opportunity of contesting the consignee's opinion as the contract entitled it to do. Not only were details of the defects not given but in addition no information was given to the plaintiff, despite requests therefor, as to the precise location of the goods in Germany. The actual dates of disposal of the goods have not been established but it is clear from the letter of Globe to the defendant company (Document 61) that all of the goods had been sold earlier than the 23rd of November. Yet even after that date the plaintiff was still asking for particulars of the defects (Document 66) and receiving nothing better than an assurance that instructions were being taken on the matter (Document 67). It was not until the 2nd of December (Document 73) that the plaintiff was finally apprised of the sale of the goods on receiving a copy of the defence in the action. While, therefore, I am not prepared to hold that the defendant and the consignees approved the Parka coats on the 18th of August as the plaintiff maintains I am satisfied, on balance, that the repudiation of the contract was not notified to the plaintiff until, after angry requests for payment, Messrs. Baker and McKenzie the defendant's solicitors informed the plaintiff of the fact by a letter of the 8th of September (Document 28 written "without prejudice" but introduced at the trial by consent). Thereafter the plaintiff made it clear that it was not agreeing to the rejection of the goods by the consignees and that the claim of inferior quality was disputed. It is clear therefore that there was no mandate from the sellers to the buyers to cause the consignees to dispose of the goods at the best available price in accordance with the provisions of Clause 4 of the contract. On the other hand the plaintiff was never invited to exercise the other option provided by that Clause viz.: to cause the buyers to dispute the rejection of the goods by the consignees. It may be very unlikely that the plaintiff would have been willing then and there to put up the funds necessary to cover the defendant as the Clause provides but if the pattern of the contract arrangement had been clearly adhered to the plaintiff would at least have known where it stood prior to shipment of the coats and could then and there have challenged the consignee's opinion by offering an independent survey of the goods on the spot. As it transpired the plaintiff company was never given that opportunity. On the morning of the 18th of August the plaintiff was told that the Parka contract was repudiated; in the afternoon the goods were accepted but without explanation as to why they were accepted; there was then a demand for payment followed by an allegation that the goods had been rejected for inferior quality and a further long delay in supplying details of defects; these were supplied only after the goods had been disposed of. All of this, to my mind, strongly reinforces the view that the defendant has failed to show that these goods were legitimately rejected by the defendant or its consignee as being below "usual standard quality" for goods of that description.

15. The case for the plaintiff in relation to the Nato jackets obviously stands upon a stronger footing. Although Mr. Dorawa said that after the 28th of July when the letter guaranteeing delivery upon the 14th of August was drafted and signed by both parties he had not returned to examine the jackets in process of manufacture until the 18th, this is not only contradicted by the testimony of Mr. Lam and Mr. Fong but is also in flat contradiction to the further and better particulars given by the defendant company itself in which it is specifically stated that preliminary, intermediate and final examinations of the garments (i.e. the Nato jackets) took place on three occasions during the three weeks prior to shipment on the 19th of August. It is said in the same document (the further and better particulars as amended) that such examinations were carried out by Mr. LAU Fat-chung and by Mr. Walter Dorawa. That appears to me fully to support the story given by Mr. Lam as to those inspections and their result. I therefore do not accept Mr. Dorawa's evidence that on the 18th of August he inspected the Nato jackets in the morning and found them deficient in several respects, principally loose threads and bad colour and that he prevailed upon the defendant to agree to accept any loss that might result therefrom. It is significant that on the former occasion when an agreement of that sort had been entered into in respect of a prior shipment (Document 5 which refers to one of the contracts not now in dispute) the undertaking by the plaintiff was embodied in a formal document (Document 10). One would imagine that had a similar difficulty arisen on the later occasion he would have been specially careful to see that his interests were safeguarded in the same way. I realize that Mr. Fong said that the Nato jackets were inspected on the morning of the 18th and that this is in conflict with the evidence of Mr. Lam. That contradiction I take to be due to the fact that it was Mr. Lam who personally carried out the inspection of goods in the morning and that the results of this were reported to Mr. Fong who remained in his office while that was going on. On balance therefore I find that the Nato jackets were accepted without demur upon the 18th. They are said to have proved to be deficient upon arrival in Germany. The deficiencies have not been established to my satisfaction. But even if such deficiencies had been established it appears to me that the defendant, by accepting these garments - the Nato jackets - without further question was implicitly acknowledging that they were in conformity with the contract specifications and up to standard quality and he could not now claim for any alleged loss of profit which might have arisen as a result of repudiation by his consignee. For these reasons the counterclaim must be dismissed with costs. The plaintiff's claim in sum of $130,206.10 is allowed with costs.

Representation:

van Burren (Raymond Tang & Co.) for Plaintiff.

M. Bunting (Baker & Mckenzie) for Defendant.