Jean Machine Ltd v. Profit Ascent Ltd t/a Wai Keung Laundry & Dyeing Factory
Read the full judgment text of DCCJ 5112/2002 on BabelCite. This District Court judgment.
1. The Plaintiff (“ P ”) was a garment manufacturing and exporting company. The Defendant (“ D ”) was a garment laundry factory specialising in dyeing, enzyme washing and bleaching/dyeing.
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DCCJ5112/2002 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 5112 OF 2002 ____________ BETWEEN
____________ Before: Her Honour District Judge Marlene Ng in Court Dates of Hearing: 14th, 15th, 16th and 19th July, 2004 Date of Handing Down Judgment: 16th November, 2004 _______________ JUDGMENT _______________ Introduction 1.The Plaintiff (“P”) was a garment manufacturing and exporting company. The Defendant (“D”) was a garment laundry factory specialising in dyeing, enzyme washing and bleaching/dyeing. 2.Save as set out below, the following facts are not disputed :
3.P claimed 1st and 2nd Batches were in breach of Implied Condition in that the colour appearance on different parts of Jeans was different from those of Salesman and Production Samples. D refused to re-washGoods or release to P the balance quantity of Jeans under Order (“Balance Goods”) resulting in Pelle’s cancellation of Pelle’s Orders and Goods becoming worthless. 4.D claimed P accepted delivery of 1st Batch without objection but refused to accept 2nd Batch without inspection or giving any reason. D informed P in/about early July 2002 that OW had been completed and Balance Goodswere ready for delivery. D requested P to settle all previous outstanding invoices upon such delivery. However, P refused/failed to accept delivery of Balance Goodsor settle D’s previous outstanding invoices by alleging (which D denied) that Goods did not conform to sample. 5.Mr Lui, counsel for P, and Mr Choy, counsel for D, agreed that P was liable to D under the counterclaim for HK$27,685.00 being OW charges under Order and HK$17,065.43 being payment due under D’s outstanding invoices, totalling HK$44,750.43. Should P succeed in its claim, it was also agreed that P could recover loss of profits of HK$161,990.13 after set-off against the sum of HK$44,750.43. 6.P called Pang, Leung and W Lai as witnesses as to fact and Mr Lo Ka-tat (“Lo”), chief executive officer of Textile Manufacturing Technology Testing Centre Limited (“TMT”), as its expert witness. D did not challenge Lo’s expert capacity.D called Lai as witness but did not adduce any expert evidence. 7.At the trial, 4 Jeans (parts of which were cut by TMT for testing and annexure to its expert reports) were produced as follows :
P’s case (1) Backstaining and fading 8.The present complaint was about backstaining of Goods by D, which according to Lo referred to leaching of indigo dye from denim during the washing process and staining Jeans through chemical reaction. 9.The bluish colour of the inner pocket lining and waistband of exhibit P2 (1st Batch) compared with corresponding whitish parts of exhibit P1 (Production Sample) evidenced backstaining obvious even to a person not in the garment trade. The embroidery threads at the back pockets and brand logo on the front left leg of exhibits P4 and P5 displayed a blue colour twice deeper than that of the silver-white or very light blue colour seen in exhibit P1. Exhibit P5 also displayed blue stain on the side seam sewing threads which appeared yellowish in exhibit P1. In short, all parts of exhibit P1 which were not blue were stained blue in exhibits P2, P4 and P5. 10.The degree of backstaining varied with different materials.Here, the polyester sewing/embroidery threads were less absorbent of backstain indigo dye than cloth/cotton. Although the cotton content of the embroidery threads of sample B (Production Sample) and sample C (1st Batch) reported in 1st Report (see below) was2.2% and 3.3% respectively, such 1% minor difference would not cause the severe indigo dye backstainingseen in this case. 11.As there would be slight fading on 1st washing of Jeans, the care instructions of Jeans advised washing separately. The fibre analysis of the denim from samples B and C reported in 1st Report was both 100% cotton. Although different rolls of denim cloth might be slightly different, nowadays denim fabric (even of different grading) would not haveserious fading even under laboratory testing condition. It was definitely D’s washing process that caused the severe indigo dye backstaining in this case. (2) Re-washing 12.The purpose of re-washing (ie normal washing with strong detergent) was towash away or alleviate the indigo dye backstain so as to render Jeans close to if not reaching the approved standard. D, a large washing factory, should have experience and technical knowledge in remedying backstains and re-washing. P had previously asked washing factories to re-wash jeans with definite improvement noted after the exercise. (3) Salesman Samples 13.Although Pang and Leung had seen Salesman Samples (which should be kept at P’s Factory), Pang was unsure whether they could still be found. The Salesman Samples held by Yue Tai had been disposed of as Pelle’s Orders were cancelled. (4) Orders placed by Pelle with P 14.P would not start manufacturing Jeans until receipt of Pelle’s main order although it might have received smaller orders from Pelle’s overseas distributors. Pelle’s Orders in fact spanned from March to May 2002.Whilst P only received handwritten revisions of quantity breakdown in mid-May 2002, P had already purchased denim for Goods before the quantity breakdown for Pelle’s Orders was finalised.P did not delay progressing Pelle’s Orders. 15.Transportation to Pelle would take about 1 month (21 and 7 days respectively for shipment to the United States and customs clearance). W Lai confirmed Goods could be shipped within July 2002 but the sooner the better in order to meet the summer season marketing timeline. (5) Order 16.Although Order did not specify the delivery date, it was reasonable to expect D to carry out OW and deliver Goods7-10 days after receipt of Jeans from P. Pang was unsure about the delivery date under Pelle’s Orders but knew that Order was not urgent. It is the industry and P’s/D’s usual practice that the washing factory (ie D) would deliver the washed jeans to the manufacturer (ie P). (6) Production Samples 17.Leung checked Production Samples against Salesman Samples and found them to be the same or closely similar. P sent 2 Production Samples to Yue Taifor approval, 2 to Pelle and kept the remaining 2. Yue Tai approved Production Samples after comparison with Salesman Samples by affixing stickers withcompany stamp and signature/comments by its staff. Yue Tai returned 1 approved Production Sample to P and sent part of the other to Pelle. Pelle endorsed Yue Tai’s views. Leung informed Han that Production Samples met with P’s approval.But by 2003, P only had 1 approved Production Sample to hand (exhibit P1 and sample B in 1st Report (see below)). 18.Leung said the general overall washing effect of Production Samples was the same (see exhibit P1) as they were washed in 1 tank, and even if they were washed in different tanks, there was only 1 standard washing formula. It would have been unacceptable to have different washing effects from washings in different tanks. (7) 1st and 2nd Batches 19.Chan informed Pang 1st Batch did not conform to Samples due to indigo dye backstaining. Pang instructed Leungto (which she did) telephone Han to ask D to collect 1st Batch for re-washing. D’s Factory did not do so. 20.On 2nd July 2002, Chan discovered 2nd Batch had the same visually obvious backstaining problemas for 1st Batch. Pang believed P’s Factory, as was its usual practice, would have made a random check of, say, 10or so Jeans (ie 5-10%) from 2nd Batch. When the aforesaid problem was discovered, P’s Factory did not allow 2nd Batch to be unloaded as it would be a waste of effort to unload and re-load for return to D’s Factory. P’s Factory might have forgotten to send 1st Batch back to D at the same time. 21.None of P’s staff attended D’s Factory to inspect 2nd Batch. After P’s rejection of 2nd Batch, Pang (not Leung) followed up with D, and Leung was not informed of discussions with Yue Tai. But on 3rd July 2002, Pang instructed Leung to send a fax to D setting out thelaundry problem and requesting re-washing, which she did on the same day. The fax said inter alia as follows : “工號 : 9287/2單要翻洗水，此單要星期四交齊廸新。如趕不到貨期要飛機。翻洗資料 : 1)底色太藍，2)加色[overdye vintage effect]不能王，3)繡花線及衭身線太[淤]及太藍。” (“1st Fax”). 22.Leung checked the fax number of D’s Factory and successfully faxed 1st Fax to D’s Factory as evidenced by the small red circular answerback sign made by the fax machine on 1st Fax. She telephoned to tell D’s Factory to collect 1st Fax and showed Pang 1st Fax after it was sent. Pang explained that the warning of shipment by air in 1st Fax was a pressure tactic and P would not necessarily require D to bear airfreight charges if D was late for a day or so. 23.When faced with a backstaining problem, the washing factory would normally be prepared to re-wash garments. However, D subsequently maintained re-washing could not be done for Goods. P did not arrange to send Goods to another washing factory for re-washing as no other factory would accept such job given that Goods were already defective. 24.Apart from samples C, D and E given to TMT for testing and Jeans that were misplaced/lost, 1st Batch were stored at P’s Factory. (8) Lai’s visit to Yue Tai 25.Yue Tai was not aware of any washing problem until Lai went to Yue Tai’s office on 3rd July 2002 with Yue Tai Jeans and asked W Lai whether she would accept their quality for shipment. After examination against ¼ pair of Production Sample in her possession, W Lai did not accept their washing effect (being the same as exhibits P4 and P5) as not conformingtothe approved Production Sample. The embroidered parts were different and in darker blue colour. She told Lai there were problems and she had to discuss with P. 26.This was the 1st time D contacted Yue Tai. Yue Tai normally dealt with P and was not involved in disputes between P and its sub-contractors. However, Yue Tai was concerned with both the delivery schedule and the quality of Goods to ensure they match that of the approved Production Samples. (9) 2nd Fax 27.W Lai informed P she refused to accept Yue Tai Jeans and asked whether it was possible to re-wash or adopt other measures. P replied to her on the same day that D said re-washing could not be done. Bearing in mind (a) the completion of OW for bulk production,(b) D’s refusal to rectify the laundry problem, (c) the disparity between Yue Tai Jeans and Production Samples and (d) Pelle’s need for Goods, W Lai suggested that P give LG for shipment of Goods so as to preserve Pelle’s right to claim in respect of the indigo dye backstaining problem. 28.LG concerned the laundry aspect only. P naturally and reasonably required corresponding LG from D as D’s washings caused the originating laundry/backstaining problem. It would have been useless for P to give LG in favour of the buyer if D refused to do so since P would under such circumstances become liable to the buyer for D’s default without indemnity from D. 29.Pang signed and sent 2nd Fax to D on 8th July 2002. Although Leung was named as 1 of the senders (probably because she had liaised with D over certain production matters), she had not seen 2nd Fax. 2nd Fax was copied to Yue Tai and W Lai believed she had seen 2nd Fax. 30.At the time of 2nd Fax, on the premise that Pelle still required Goods and if D failed to deliver Balance Goods by the specified time, P said it would re-manufacture Goods and claim for all related expenses, including airfreight. It would take about 3 weeks to 1 month (ie about 20 odd days) to re-manufacture Goods and carry out OW (which period could be shortened if the production was urgent). 31.D did not reply to 2nd Fax but refused to re-wash Goods or give LG. D retained Balance Goods and P would not accept Balance Goodsor give LG without D’s LG. P informed Yue Tai on or about 9th July 2002. 32.Pang and W Lai confirmed that Yue Tai’s work included pre-final inspection of goods before shipment. W Lai had a long discussion with Pelleon the shipment statusof Goods and the laundry problem. Pelle asked Yue Tai to conduct pre-final inspection. P was unable to procure Goods for inspection at P’s Factory or its Hong Kong office and told Yue Tai Goods were with D. As Yue Tai only dealt with P and would not attend another factory for inspection, Pang did not attempt to liaise with D to allow Yue Tai to attend D’s Factory to carry out inspection. Ultimately Yue Tai was unable to trace the whereabouts of Goods for inspection,which together with P’s refusal to sign LG to ship Goods led to Pelle’s eventual cancellation of Pelle’s Orders on 17th July 2002. P was informed accordingly. However, P’s inability to meet Yue Tai’s demands was due to D’s refusal to compromise, so Pelle’s cancellation of Pelle’s Orders was in essence due to D’s refusal to re-wash or give LG. 33.Pang’s witness statement made no mention that P was to give LG orYue Tai was to conduct pre-final inspection of Goods. Rather in 2nd Fax P asked D for LG. Pang said P would agree if D were prepared to give LG directly to Pelle. He believed (although he did not know for sure) Yue Tai would also agree to such approach if Pelle required Goods and Yue Tai wanted to resolve the matter. 34.Pelledid not make any claim against P for loss of profits. This was P’s first error in their dealings with Pelle. Pelle was prepared to accommodate and absorb the loss. (10) TMT 35.P’s Factory sent 5-6 Jeans drawn from 1st Batch (which Leung had seen) to P’s Hong Kong office and 1 pair was selected for testing by TMT. Later, on the advice of P’s solicitors, 2 more Jeans were selected from 1st Batch and sent to TMT for testing. (11) Outstanding invoices 36.P’s Leung had no recollection and denied Lai telephoned her (a) in mid-June and in/about end of June 2002 to request P to settle May Invoicesas soon as possible and (b) on/about 1st or 2nd July 2002 chasing for settlement of all outstanding invoices. Leung did not deal with invoices. Had D’s Lai repeatedly telephoned her over such a short period, she would have some recollection and would have asked him to contact P’s accounts department. By end of June 2002, Leung had no further communications with Lai. 37.D would normally send a statement of account/invoices to P for each month’s washings 30 days after the end of that month, sometimes even after the 30 days’ credit period. When Lai allegedly chased Leung for May Invoices and D’s invoices to P for June 2002 (“June Invoices”), they were in fact not yet due. Pang said P’s records showed P regularly settled D’s invoices 4-5 days after the 30 days’ credit period. As a result of the present dispute, P did not pay May and June Invoices after expiry of the credit periods. D’s case (1) Outstandinginvoices 38.In about mid-June 2002 and in/about end of June 2002, D’s Lai telephoned P’s Leung to remind P to settle all May Invoices as soon as possible. In the latter call, Lai warned that if May Invoices were not settled within the following 7 days, D would not grant any further credit to P and all future orders placed by P with D would be on cash on delivery basis.On/about 1st July 2002, Lai telephoned Leung again requesting her to settle all outstanding invoices at the time when P took delivery of BalanceGoods. Leung said she would discuss with P’s management. (2) Production Samples 39.D’s Lai said in his witness statement that on 24th June 2002, P’s Mrs Pang and Leung approved Production Samples in Lai’s presence. He clarified in viva voce evidence that he just showed Pang and Leung Production Samples, some/all of which he knew had to be presented to Yue Tai for approval.P retained someapproved Production Samples for record. 40.The presentation and colour of each Production Sample would not be the same because (a) the “whiskers” were handcrafted (手擦) and (b) the washed denim came from different rolls of fabric giving rise to difference in the ground colour.Production Samples represented an acceptable range of washing effectfor bulk production although they did not come from bulk fabric. Lai/D were not concerned with pocket linings or accessories. 41.Lai was unable to identify whether exhibit P1 was a Production Sample. He did not know how chemicals in Jeans reacted over time or how P handled Production Samples over the years, but agreed OW seenin exhibit P1 was similar to that of Production Samples. D had returned 2 Production Samples held by them to P. Lai did not know what became of the other 4 P retained. (3) 1st Batch 42.Production Samples were not returned with 1st Batch as they were still required for use as the standard for bulk production. P’s Factory should have a portion of a Production Sample as the standard for accepting delivery. P raised no objection or complaint about 1st Batch. Lai was unable to identify exhibit P2 because he had not seen 1st Batch. (4) 2nd Batch 43.P’s Factory rejected 2nd Batch without inspection and giving any reason. Lai did not believe it was because 2nd Batch’s OW did not conform to Salesman/Production Samples. D did not receive 1st Fax but he did not know for certain whether Siu received 1st Fax (though he believed not).Lai did not speak with Leung on 1st Fax butbetween 2nd and 4th July 2002 he made enquiries on P’s rejection of 2nd Batch with Han who told him that P complained of washing without mentioning any specific problem or reference to 1st Fax. Lai later said Han told him the complaint was the ground colour was too blue. Lai asked Han to send some Jeans for him to bring to Yue Tai, but he later said it was Siu’s idea to send Jeans to Yue Tai. 44.Lai said he did not seek clarification from P on what “too blue” meant. He did not remember whether he spoke with P by telephone between 2nd and 4th July 2002. But he also said when P refused to accept 2nd Batch, he telephoned Leung to ascertain the problem and was told that the colour was incorrect. Lai said D was careful about the washing process as any defect was difficult to remedy after washing was done. Balance Goods were washed in the same manner as for 1st Batch which had no problem. 45.Lai found P’s conduct strange. Prejected 2nd Batch and yet there were many faxes (Lai later said the faxes were instead telephone calls from P’s Factory to D’s Factory) at that time chasing for delivery of Goods and threatening airfreight charges etc. (5) Lai’s visit to Yue Tai 46.D’s Factory selected Yue Tai Jeans from Balance Goods (2nd Batch had not been returned to D’s Factory yet) and sent them to Lai.Yue Tai Jeans represented a range of washing effect of the bulk production. For fear that P would use the excuse that OW for 2nd Batch did not conform toSalesman/Production Samples as the reason for rejecting 2nd Batch, D sent Yue Tai Jeansand a Production Sample to Yue Tai on/about 4th July 2002.There was some colour difference in the embroidery threads even amongst Yue Tai Jeans, which were either darker or lighter than the colour of the embroidery threads of Production Sample(middle of the range). 47.There was a subjective element in colour matching but if the buyer represented by Yue Tai accepted Yue TaiJeans, Goods could be shipped. Lai asked W Lai whether she would accept Yue Tai Jeans as being within the acceptable range of vintage washing effect under the original specifications orwhether, if they were outside suchacceptable range, she would be prepared to enlarge the range by accepting 1further sample from Yue Tai Jeans(ie close to but looser than the original standard). 48.Lai explained that as each pair of Yue Tai Jeans represented about 200-300 Jeans from the same roll of denim and as different rolls of denim might be slightly different, approval of 1 further sample meant approval of 200-300 more Jeans. For an order of, say, 1,000 Jeans, D could just ship 800-900 Jeans under normal sorting to fulfill the order and then use more aggressive special treatment (not re-washing) on the balance to make them close to if not exactly match the acceptable sample. Lai could not remember whether there were any identification markings on Yue Tai Jeans although there might be D’s hangtags describing the washing process and style. 49.Timing was very tight then with talk on delivery to be made on the following day and warning of air shipment. Lai left Yue Tai Jeans with W Lai, who asked him to speak with P. P did not reply to Lai but W Lai on the same day informed Siu by telephone that (a)Yue Tai Jeans had no problem and conformed toSalesman Samples (kept by Yue Tai) and (b) P and/or its buyer would accept delivery of Goods upon D signing LG. There was no mention of any washing problem. 50.Siu told Lai about the request for LG but did not saywho was to sign LG. Lai surmised P as manufacturer and contracting party would give LG as LG from D would be ineffective. Lai later became aware that P asked D to give LG so he stated in his witness statement that W Lai asked for LG from D. 51.The buyer would always refer to Salesman Samples in deciding whether to accept delivery. But Production Samples still represented part of the acceptable range of washing effect. Lai said that as Salesman and Production Samples were closely similar, so when Siu said Yue Tai Jeans conformed to Salesman Samples, it was implicit that they conformed to Salesman and Production Samples. Yet Lai also said Yue Tai Jeans would be acceptable if they matched either Salesman or Production Samples. 52.On the same day, Lai informed Leung by telephone that Yue Tai confirmed that (a) OW carried out by D for Yue Tai Jeans did conform to samples and (b) OW was completed and Balance Goods were ready for delivery to P. Lai also requested Leung to settle all previous outstanding invoices at the same time when P took delivery of Balance Goods (including 2nd Batch). Lai did not mention LG because Siu already told him D would not give LG. But Leung asked about LG and Lai replied D would not give LG, whereupon Leung said she would tell Pang. P refused and/or failed to accept delivery of Balance Goodsand to settle D’s outstanding invoices. 53.D never gave any LG, which could cover many things other than the washing effect. As D’s profit was only about 10% of OW price and there was a credit period of 25 days from the issuance of the month-end statement of account (so D would be paid some 50-60 days after washing), it would be unreasonable for D to become potentially liable under LG for substantial sums (consumer sale value of some jeans labels could be as high as HK$1,000.00 per pair). 54.In any event P accepted 1st Batch without objection, so it was unreasonable for P to ask for LG, which was probably related to matters other than the washing effect. Yet, apart from the laundry-related complaint, Lai was unaware of any other design problem between P and Yue Tai. (6) 2nd Fax 55.Lai became sure that P asked D to give LG when he received 2nd Fax on 8th or 9th July 2002.He did not reply to 2nd Fax as it was up to Siu to do so. Lai was no longer involved after 2nd Fax although he knew his colleagues subsequently telephoned P to chase for payment of the outstanding invoices. (7) Lai’s inspection of bulk production 56.Generally there would be slight difference in fading of the ground colour and staining of the embroidery threads of Jeans even if they were washed in the same tank. Normally, 550 lbs or 80 Jeans could be washed in 1 tank, but D only washed 40 Jeans in 1 tank for Order as they had quite a lot of accessories. 57.Lai inspected 50-60 Jeans from different tank washings of the bulk production Goods (“Lai Jeans”) but he could not remember when he did so. He did not tell D’s solicitors or his colleagues of such inspection although some colleagues would have seen him bring Lai Jeans out for inspection. Lai did not find any problem in respect of the ground colour, the vintage effect and handcrafted “whiskers”, which were the key elements of OW. Lai Jeans conformed to Salesman Samples and the ground colour vintage swatch (a record of the washing formula showingcolour samples before and after washing) on which Salesman Samples were based.The vintage swatch was not produced in these proceedings. 58.On the whole, the overall effect of bulk production Goods was quite similar and not much different from exhibit P4.The problem Lai noticed with Lai Jeans was the colour difference of the embroidery threads after washing. The embroidery threads in Lai Jeans sometimes exhibited lighter and sometimes darker blue embroidery, but generally not as blue as found in exhibit P2. The blue colour of Lai Jeans would not be any darker (and some were lighter) than embroidery found in exhibits P4 and P5. 59.This was strange as D only used 1 washing formula. Lai later knew from 1st Report (see below) that the embroidery threads used for bulk production were different from those used for Production Samples, which caused the colour difference. But Lai only told D’s solicitors there was nothing wrong with Goods without giving such explanation because they would not understand embroidery and sewing threads and D was after all only selling the washing effect. 60.Lai disagreed the above colour difference was caused by backstaining. The degree of backstaining was determined by the fabric although it could be minimised by reducing the number of garments to be washed in 1 tank and by use of anti-backstaining agent, both of which D had done. Lai denied any knowledge about the backstained condition of the inner pocket lining and waistband (with Pelle logo) in exhibit P4 because he did not know their condition before washing. 61.Lai said he inspected the bulk production Goods again the day before he gave evidence. But he did not bring any sample to court because he thought they could not be produced in evidence. Lai believed P only used the excuse that Goods did not conform to Salesman Samples for not settling D’s outstanding invoices. Expert evidence (1) Expert reports 62.Lo’s curriculum vitae showed that from February 2001 to January 2004 he was associate director of the Clothing Industry Training Authority responsible for inter alia development of garment fit technology, apparel washing, dyeing, printing and finishing technology and textile testing and quality control exercises. Lo was familiar with washing procedures/methods for jeans. 63.The test report dated 15th September 2003 (“1st Report”) of Dr Simon Mak (“Mak”), TMT’s former laboratory director, recorded test results on (a) colour matching on appearance and (b) fibre analysis. For (a),the colour in 11 corresponding parts of samples B and C was significantly different so that sample C’s appearance was rated unsatisfactory and unacceptable. For (b), the fibre composition of the denim fabric of both samples was the same (both 100% cotton) and that of the white stitches of the embroidery on the back pockets were similar with a minor difference of 1% cotton content between the 2 samples. 64.Mak’s 2nd test report dated 19th November 2003 (“2nd Report”) investigated colour matching in appearance of samples B, D and E. The colour appearance of different parts of samples D and E was significantly different from those of sample B and was rated unsatisfactory and unacceptable. 65.The findings in 1st and 2nd Reports did not apply to bulk as TMT did not carry out any sampling. 66.Mak left TMT and Hong Kong on 1st February 2003 whereupon Lo became TMT’s chief operating officer. He re-examined all 4 samples in a standard darkroom and assessed the colour difference against a grey scale. Mak had annexed cut swatches from samples B and C to 1st Report as sealed samples. Lo checked and confirmed the sealed samples matched the colour/effect of the cut portions in exhibits P1 and P2. Lo agreed with the analysis and conclusions in 1st and 2nd Reports, which he adopted as his own. (2) Colour matching 67.2nd Report referred to the grey scale of 1-5 for colour matching ranging from no colour change (grade 1) to very severe colour change (grade 5). Lo confirmed that such scale was also adopted for 1st Report. The grey scale measured colour difference between 2 samples placed together in a grey environment (ie no colour component). Lo agreed that there was certain subjectivity in the assessment. 68.Another way to check colour difference was to use light refraction to determine the colour. However, Lo considered assessment by grey scale most appropriate for this case as the colour difference was obvious and the samples were unsuited to assessment by objective precision equipment. 69.Lo looked at the overall effect of the samples to consider colour matching on appearance. There was obvious and serious colour difference in respect of (a) brand embroidery on the left side, (b) embroidery under front right pocket and (c) embroidery on back pockets (white and red stitches) which was visible to the naked eye under ordinary circumstances and lighting. 70.Lo confirmed his professional assessment with the grey scale in a darkroom of a grading of “3-4” for colour difference of denim samples of samples B and C in 1st Report. He would give a grading of 4 if the assessment was made outside a darkroom. Such colour difference was caused by the washing, dyeing and desizing processes. 71.Apart from the embroidery and denim, there was backstaining of other parts of Jeansas seen in samples C, D and E, including pocket lining and labels. (3) Fibre analysis 72.Lo confirmed Mak had carried out chemical testing fibre analysis of cut strands of embroidery threads from the back pockets of samples B and C. Lo did not carry out any chemical testing but used the microscope to observe their composition. He concluded they were substantially polyester. (4) Backstaining 73.Lo agreed there would be a degree of fading from the washing process and different denim cloth would have different degrees of fading. But the denim fabric of samples B and C was the same (ie 100% cotton), so any degree of fading should be the same or the difference should be minimal. 74.Different materials had different susceptibility to backstaining and the more cotton in the material, the easier it was to backstain. Lo did not carry out any chemical analysis, so he was unable to confirm the 1% difference (ie between 3.3% and 2.2%) in the cotton content of the embroidery threads of samples B and C although he was prepared to adopt Mak’s findings. Although there was arithmetically about 50% more cotton in the embroidery stitches on the back pockets in sample Cthan those of sample B, it did not equate to 50% more backstaining. Under normal circumstances, the cotton content was too small to have any impact on or make any difference to the degree of backstaining. 75.It was the laundry process that caused the colour difference and the problem was backstaining and not overdyeing (ie a purposive addition of dye to the material to achieve a certain fast colour). Backstaining could be minimised by washing fewer jeans in 1 tank or using anti-backstaining agent. Lo believed sample B was the result of being washed with fewer Jeans in 1 wash tank. The appearance of the other samples did not suggest that protective steps had been taken. It was not uncommon to find such colour difference when production samples were washed in small numbers but bulk production jeans were washed in larger numbers in 1 wash tank. Although some parts of samples C, D and E reached the commercially acceptable standard of 3-4, Lo still regarded such samples unacceptable because the overall effect was unacceptable. (5) Re-washing 76.Re-washing was a complicated procedure requiring a lot of effort. The problem backstainedareas had to be sprayed with a chemical (which would not affect other dyed parts of Jeans) and then washed in the usual way to achieve a better colour matching grade. This exercise would take a shorter time than carrying out OW. Issues 77.Both counsel agree that this case turns on findings of fact. The main issues are as follows :
Analysis of the evidence 78.I am generally impressed with the evidence of P’s witnesses and find them to be reliable and honest. Lo’s expert capacity is not challenged and I have no hesitation in accepting his evidence. On the other hand, I do not have a favourable view of Lai whom I consider was trying to explain away what he must have known was essentially D’s breach and he ran into difficulties whilst doing so. Implied Condition 79.There are a number of sub-issues :
(1) Standard 80.It is agreed that Goods should conform to Salesman Samples butno Salesman Sample was produced at trial. As acknowledged by Mr Choy, this became less of an issue than originally thought asboth parties’ evidence revealed that Salesman and Production Samples were substantially alike. But Mr Choy still contended that any failure to comply with Production Samples (which D denied) did not mean Goods failed to comply with Salesman Samples. 81.I make the following findings of fact on the balance of probabilities :
82.It would have been commercially meaningless to produce Production Samples if they were not to match Salesman Samples, the original standard by which Jeans were marketed in the United States. 83.I reject Lai’s contention that each Salesman and/or Production Sample was so uniquely different that they represented a variable range of acceptable washing quality/standard and therefore compliance with any one of them would be sufficient. Whilst not all Salesman and Production Samples were exactly the same (eg handcrafted “whiskers” would be unique), I do not acceptthere was difference in the overall image, vintage look and ground colour. Even if I am wrong, I find on balance that Salesman and Production Samples did not display a variable degree of backstaining. 84.I have found that D’s Factory, P, P’s Factory, Yue Tai and Pelle all retained some or part of Production Samples for performing their various functions, eg production or inspection for acceptance on delivery. If Production Samples were of a variable range in colour afterwashing or as to the degree of backstaining, these parties would be applying different colour standards. This contradicts the commercial purpose of having Salesman and Production Samples and the business need for certainty to give efficacy to Implied Condition. 85.I reject the possibility raised by Lai thatProduction Samples had difference in colour because they were washed in different wash tanks. After all, there were only 1 washing formula and 6 Production Samples. If different tank washings produced different washing effects, given Lai’s assertion that each tank would hold 40 bulk production Jeans per washing, on D’s case the colour difference in Goods would increase multi-fold given the necessary number of tank washings for Goods. It would have led to an impossible and baffling situation for P and D to determine the applicable standard and whether there was conformity. 86.I also reject Lai’s argument that Production Samples were different because the washed denim from different rolls of fabric gave rise to difference in the ground colour. Lai said and I accept that 1 roll of denim fabric made 200-300 Jeans. But there is no evidence that Production Samples came from separate rolls of denim fabric. Even if they did, the fibre analysis in 1st Report showed the denim composition of samples B and C (ie Production Sample and bulk production) was the same at 100% cotton. (2) Breach 87.1st Batch : Chan/P’s Factory viewed 1st Batch. P’s Leung/Pang and Lo respectively saw 5-6 Jeans and 3 Jeans from 1st Batch. I accept Pang’s evidence that P’s Factory complained 1st Batch did not conform to Standard due to backstaining and that Leung telephoned Han to ask D to collect 1st Batch for re-washing. Exhibits P2, P4 and P5 drawn from 1st Batch displayed visually obvious overall blue staining, especially over the embroiderey, which I consider to be material deviation from Production Samples as represented by exhibit P1. This observation was supported by the evidence of P’s witnesses. 88.2nd Batch : I accept Pang’s evidence that Chan did a random check of 10 or so Jeans and found the same unacceptable backstaining problem as in 1st Batch.I reject Lai’s claim that P’s Factory rejected 2nd Batch without inspection or giving any reason. There is no evidence of any problem with Jeans other than the laundry problem. Pang and W Lai confirmed that P was bound under Pelle’s Orders to deliver Goods in July 2002. If 2nd Batch were in order (and Pang confirmed the only remaining steps before delivery to Pelle were just ironing and packaging), there is no plausible reason why P’s Factory would reject 2nd Batch and open itself to claims by Pelle for non-shipment. 89.The above finding is supported by the contemporaneous 1st Fax sent by P’s Leung to D’s Factory on the following day. Although Lai denied receipt of 1st Fax, his evidence suggests D’s Factory had in fact received 1st Fax. When Lai made enquiries with Han between 2nd and 4th July 2002, Han told him it was a washing problem. At one stage Lai said Han told him the ground colour was too blue (a complaint set out in 1st Fax sent to D’s Factory). Lai also made a faux pas by mentioning P’s faxes chasing for delivery and threatening airfreight charges etc (ie matters set out in 1st Fax) during that period. But even if he were referring to telephone discussions between P’s and D’s Factories, the probability is that D’s Factory received 1st Fax which led to telephone discussions on such topics with P’s Factory. 90.If 2nd Batch were in order, it is also interesting to note that there is no indication of immediate and indignant complaint by D to P. Even on D’s case, Lai (on Siu’s instructions) brought Yue Tai Jeans to request W Lai to inter alia approve 1 further sample to extend the range of quality for acceptance of delivery of Goods. This was suggestive even on D’s case of a suspicion that 2nd Batch/bulk production might be outside the acceptable range. 91.I do not find any conflict, as Lai claimed, between P rejecting 2nd Batch and P chasing Goods. Clearly, P still wanted Goods that were re-washed and with the backstaining problem alleviated if not totally rectified. Just because P had to satisfy Pelle’s Orders did not mean it was required to accept defective Goods. 92.Yue Tai Jeans : W Lai inspected 6 Yue Tai Jeans. I accept W Lai’s evidence (and she had compared all Yue Tai Jeanswith Production Sample) that (a) Yue Tai Jeans all displayed the same indigo dye backstaining problem as evidenced in exhibits P4 and P5, (b) they did not conform to Production Samples (and therefore Standard), particularly in relation to backstaining of the embroidered parts and (b) she told P about this and asked K Leung whether any remedial steps could be taken. Even Lai said W Lai did not give him a direct answer but asked him to speak with P. As W Lai said, had Yue Tai Jeans been in order, such reticence would have been unlikely. 93.I reject Lai’s evidence that W Lai told Siu that Yue Tai Jeans were in order but the buyer required LG from D before accepting delivery. I find this commercially unreasonable and improbable. As there is no evidence of any other complaint, if the laundry of Yue Tai Jeans were in order, there is no reason for the buyer/Yue Tai to insist on LG. Lai surmised in his evidence it might be due to miscommunications between P and Yue Tai on other non-washing matters. I reject these unsupported bare assertions. Consequently, I also do not accept Lai’s evidence that he telephoned to inform Leung on 4th July 2002 that Yue Tai Jeans conformed to samples. I accept Leung’s evidence that she was no longer involved at that stage because Pang was following up on this matter. 94.I do not accept Lai’s evidence that Yue Tai Jeans constituted a variable range of vintage washing effect. Even if they did, eg in respect of handcrafted “whiskers”, Yue Tai Jeans consistently displayed more serious indigo dye backstaining (which was W Lai’s complaint). Even on D’s case, Lai accepted that darker blue colour than Production Samples was found in some Yue Tai Jeans. 95.I reject Lai’s claim that acceptance of even 1 pair of Yue Tai Jeans would make a difference because it would be representative of acceptance of 200-300 Jeans from the same roll of denim fabric. P delivered Jeans not denim fabric to D for OW. There is no evidence that D had any idea which 200-300 Jeans of Goods came from the same roll of fabric as any Yue Tai Jeans (Lai could not recall any relevant identification markings). 96.I find that D sent Yue Tai Jeans for W Lai’s approval because D knew (a) Goods did not conform to Salesman and/or Production Samples and (b) P had complained of 1st Batch and rejected 2nd Batch for such reason. D had no contractual relationship with Pelle/Yue Tai but it approached Yue Tai because it hoped for the final buyer’s indulgence to extend acceptance to the condition as shown by Yue Tai Jeans. 97.Lai Jeans : Lai said he inspected at least 50-60 Lai Jeans from Balance Goods. Mr Lui criticised Lai’s veracity in respect of Lai’s claimed inspection of Lai Jeans. Lai tried to emphasise there was no problem with the ground colour, the vintage effect and the handcrafted “whiskers” which were the key elements of OW. However, even on D’s case, Lai was not bold enough to deny backstaining and he accepted colour difference in the embroidered parts of Goods though insisting that Lai Jeans were not more blue in colour than exhibits P2, P4 and P5. I also note that Lai accepted such colour variation in Lai Jeans which were drawn from Balance Goods although he said Han told him there was no problem with Goods. Further, Lai said D would raise with P and give comments if the overall washing effect was unsatisfactory or had problems, yet this colour variation that he observed was not raised with P at all. 98.I find on balance that D knew there was a backstaining problem but had been reticent about it. Further, I find that Lai Jeans had more serious colour difference than Lai was prepared to let the court believe. If it were otherwise, it would have been easy to display samples of Lai Jeans or other Jeans from Goods, or at the very least refer to such fact in D’s answer to P’s complaint. 99.Summary : In the circumstances, I conclude that all Jeans inspected exhibited indigo blue backstaining problem that was more serious than shown in Salesman and/or Production Samples and they therefore did not conform to such samples and Standard. (3) Causation of backstaining 100.Both parties and Lo accepted that there would be a degree of fading on 1st washing of Jeans. Here the problem is not with the overdye effect (ie the vintage look or the “whiskers” or even the ground colour) but with backstaining and the degree of backstaining. A comparison of exhibit P1 with exhibits P2, P4 and P5 readily illustrates the obvious backstaining colour difference with the latter exhibits displaying a distinctly deeper blue colour, particularly over the front and back embroidered parts, ie the eye-catching parts of the garment. I also accept Lo’s opinion on the overall effect on colour matching by grey scale that (a) samples C, D and E from 1st Batch failed to meet the commercial standard (ie grading of “3-4”), (b) they were unsatisfactory and unacceptable as compared with sample B (Production Sample) and (c) such method was a proper one to measure colour difference. 101.I accept Lo’s opinion that it was D’s washing process that caused the indigo dye backstaining and the unacceptable colour difference and that the likely cause was washing Jeans in large numbers in 1 tank. I note there was no similar problem on washing the smaller quantity Production Samples but the problem only arose with the larger quantity bulk production. I reject Lai’s evidence that D had taken all precautions during the laundry process by using anti-backstaining agent and reducing the number of Jeans in each wash tank. Lai was stationed in Hong Kong and only travelled to D’s Factory every now and then. He did not inspect 1st and 2nd Batches before delivery and he only inspected Lai Jeans after the dispute arose. Lai did not identify the source of the aforesaid hearsay information and I find such evidence unreliable. 102.D suggested the backstaining was caused by (a) Goods made up from different rolls of denim fabric and (b) the higher cotton content in the embroidery threads used for bulk production. Both parties accepted that different materials have varying capacity to absorb backstain indigo dye and the more cotton in the material the greater the capacity for staining. 103.Undoubtedly Goods would be made up from different rolls of denim fabric. Although Mak did the fibre analysis, I see no reason to doubt his conclusion (which Lo adopted) that samples B and C were both 100% cotton. There is no evidence to the contrary and the purchase order for the denim fabric dated 2nd May 2002 specified “cotton mixed warp denim”. I accept Lo’s expert evidence that in such circumstances, one would expect the degree of fading to be the same. Yet samples B and C displayed distinct colour difference that was unsatisfactory and unacceptable, therefore indicating that fabric composition was not the cause of the backstaining problem. 104.I also accept Lo’s opinion that the minor 1% difference in cotton content between the embroidery threads of samples B and C when the total cotton content was only about 2.2%-3.3% would have no impact on the degree of backstaining. I reject Lai’s opinion otherwise. Lai is a salesman and no evidence has been led as to his experience or expertise to speak to such issue. 105.Mr Choy submitted it was open to the court to consider whether the fibre composition of other parts of Jeans (for which fibre analysis was not done) were consistent with that of sample B and if there were substantial variation, it would have an impact on indigo dye backstaining. There is no evidence to support such assertion and I find it unsafe to proceed with such speculation. (4) Are the inspected Jeans representative of Goods? 106.Mr Choy argued that since (a) apart from the inspected Jeans referred above, P did not examine the rest of Goods and (b) Yue Tai Jeans and Balance Jeans were not professionally examined, there was insufficient evidence for the court to inferGoods all had the same backstaining problem. 107.I do not think this is a fair view of the evidence. Chan had looked at and determined the whole 1st Batch had to be re-washed (as supported by 1st Fax). Representative samples from 1st Batch were sent to P’s Hong Kong office, including exhibits P2, P4 and P5, and seen by Leung and Pang. I accept that the 10 or so Jeans Chan saw from 2nd Batch were randomly taken and therefore representative of 2nd Batch. More importantly, even on D’s case, Yue Tai Jeans were selected from Balance Jeans to represent the quality of Goods for the purpose of seeking Yue Tai’s approval for delivery and shipment. Lai inspected 50-60 Lai Jeans drawn across the board from different washings of Balance Jeans. 108.The preponderance of the evidence is that the inspected Jeans were generally representative of the bulk production and they displayed colour difference on washing that did not conform to Production Samples (see exhibit P1) and which in turn did not conform to Salesman Samples. I am satisfied on balance that D breached Implied Condition in relation to Goods as a result of its laundry process. Causation of loss and damages 109.I find on balance that P’s loss and damages were primarily caused by D’s breach of Implied Condition in respect of Goods and this was compounded by D’s refusal to re-wash Goods and to give LG. Mr Choy however submitted that the real reason for Pelle’s cancellation of Pelle’s Orders was P’s failure to issue LG, to re-manufacture Goods and to arrange for Yue Tai’s pre-final inspection of Goods. (1) Re-washing 110.Both Pang and Lo confirmed re-washing would alleviate if not totally cure the backstaining problem and could lead to a better colour matching grade. I accept Lo’s explanation of the re-washing procedure. P had past experience of the benefits of re-washing. Lai said in his evidence that for a 1,000 item order, it was permissible to fulfill the order by shipping 80-90% quantity and address the remaining 10% with backstaining problems by an aggressive special treatment. Lai was vague about such treatment and denied it was re-washing. However, it appears that the purpose and results of re-washing and the special treatment are the same. In light of Lo’s opinion on the remedial action for backstaining, I find that Lai must have been referring to re-washing and D knew that re-washing if done appropriately would have beneficial effect on the offending Jeans. 111.But there was no response to P’s request for re-washing in 1st Fax and upon rejection of 2nd Batch, and D later confirmed that re-washing could not be done. I accept Pang’s evidence that no other washing factory would be prepared to take up re-washing of Goods which were already defective due to backstaining. 112.Mr Choy submitted that the chain of causation was broken because P failed to collect Balance Goods for re-washing despite P’s suggestion that re-washing would help. In my view, it is not a viable mitigating step given the practical difficulty of having no washing factory willing to take up such job. (2) Re-manufacture Goods 113.Mr Choy argued that (a) 2nd Fax suggested that if Balance Goods with LG were not delivered by the specified deadline, P would re-manufacture Goods and claim for the relevant costs against D, (b) such re-manufacturing process including OW would take about 20 odd days which period could be shortened if production was urgent and (c) had P re-manufactured Goods, P could have satisfied Pelle’s Orders. 114.Although the re-manufacturing process took about 20 odd days, that did not take into account the need to acquire denim cloth before cutting and manufacturing could take place. I note that denim cloth for Goods were ordered as early as 2nd May 2002 for delivery in May 2002. Given that 2nd Fax was dated 8th July 2002, even if the re-manufacturing process could be shortened (although there is no evidence the period for which it could be shortened), there is simply no evidence that new Goods would be ready before the end of July 2002 (ie the deadline for shipment to Pelle). (3) LG and pre-final inspection of Goods 115.There are 2 preliminary matters. First, as Mr Choy conceded, there is no evidence of any complaint other than the backstaining problem although Lai vaguely alluded to some miscommunications between Yue Tai and P (which I have rejected). Secondly, this complaint is essentially a complaint of failure to mitigate loss. Generally a claimant is not under any obligation to do anything other than in the ordinary course of business and the standard is not a high one since the defendant is the wrongdoer (Chitty on Contracts 29th ed, Vol.1, para.26-095 at pp.1480-1481). 116.I have no hesitation in concluding that all parties knew LG was only referable to the laundry problem. This is apparent from the verbal discussions and from the caption of 2nd Fax. I find Lai’s suggestion that LG could open D to other heads of claim for astronomical sums disingenuous. 117.Although Pang, W Lai and Lai all in their witness statements referred to Yue Tai’s initial request to D to give LG, all resiled from such position when they gave evidence. W Lai said she would look to P as contracting party to give to LG. Pang said if P were to give LG, it would look to D for a supporting LG. Lai said Siu did not say who were to give LG and it was only later that he knew for certain from 2nd Fax that P asked D for LG. 118.Having considered all the evidence, I accept on balance that Yue Tai requested LG from P. P and not D was the contracting party to Pelle’s Orders and Yue Tai’s stance all along was that it would not be embroiled in disputes between P and D save that it was interested to see Goods shipped on time to meet Pelle’s Orders and to protect Pelle’s interests in relation to the quality of Goods. However, I also find that all parties knew that D would ultimately be required to give LG for the laundry problem because it was D’s breach of Implied Condition that led to P not being able to deliver to Pelle quality Goods that conformed to Standard. Therefore, it is not material whether D was to give LG directly to Pelle/Yue Tai or to P as back to back support for P’s LG. 119.There is no dispute that D refused to give LG. The question is whether P failed to mitigate loss by failing to collect Goods from D and give LG to Pelle for delivery of Goods under Peller’s Orders even though D refused to give LG. Pang said and I agree that had P given LG under such circumstances (and, as I have found, Goods were in breach of Implied Condition), P would open itself to a real possibility of claim by Pelle on an additional cause of action based on LG without any indemnity from D, the author of the laundry problem. It is unreasonable and injurious to P’s commercial reputation for P alone to give LG for shipment of defective Goods to Pelle in the absence of LG from D. 120.Although P did fail to give LG to Pelle, this cannot be severed from the true underlying cause of such failure, ie D’s refusal to give LG and D’s breach of Implied Condition in respect of Goods. Indeed, W Lai on Pelle’s behalf acknowledged in her e-mail to K Leung of 23rd July 2003 that the cancellation of Pelle’s Orders was partly based on the laundry problem and partly on D’s refusal to compromise to give LG. 121.As regards the complaint that P’s loss was caused by its failure to arrange for Yue Tai’s pre-final inspection either by collecting Balance Goods for such inspection at P’s premises or liaising with D to allow such inspection at D’s premises, Mr Choy’s argument was premised on the possibility that had pre-final inspection taken place, Goods might have satisfied Yue Tai which would then authorise shipment. The short answer to this is that such premise cannot stand in light of my finding that Goods were in breach of Implied Condition and W Lai rejected Yue Tai Jeans. Any failure as aforesaid would not have affected the chain of causation, particularly in light of D’s refusal to give any LG. Delay 122.As P already ordered denim fabric for Pelle’s Orders even before the quantity breakdown was finalised in mid-May 2002, there is no delay by P to progress production. In any event, there is no question that had Goods been in order, P could have shipped Goods within July 2002. Outstanding invoices 123.For the avoidance of doubt, I reject D’s claim that P failed to settle May Invoices in/about June 2000, which I find were not yet due at that time. Even on Lai’s evidence that each month’s invoices would be due 25 days after the end of that month, there is no basis (as he claimed) for telephoning Leung to chase for payment of May Invoices in mid-June 2002. I further accept Leung’s evidence that Lai never telephoned her to chase for payment of outstanding invoices. Lai must have known from their dealings that Leung was only concerned with production and not financial matters. Conclusion 124.In the circumstances, both P and D are successful in their respective claim and counterclaim. I grant judgment in D’s favour in respect of the counterclaim in the sum of HK$44,750.43. I also grant judgment in P’s favour in the sum of HK$206,740.56. Interest is to run on both judgment sums at 8% pa from the date of the writ of summons to the date of judgment and thereafter at judgment rate until payment. Ultimately P should be entitled to payment of HK$161,990.13 plus interest after set-off. 125.There is no reason why P should not have costs of the action (including all costs reserved) and D costs of the counterclaim (including all costs reserved), to be taxed if not agreed with certificate for counsel. I make a costs order nisi to that effect. Although D is successful in its counterclaim, very little time was taken up at the trial in respect of the counterclaim and to assist the taxing master, I do not consider it appropriate to apportion any trial time for the counterclaim.
Mr Simon Lui instructed by Messrs Fairbairn Catley Low & Kong for the Plaintiff. Mr Edwin Choy instructed by Messrs George Tung, Jimmy Ng & Valent Tse for the Defendant. |