Sure Woollen Yarns Co Ltd v. Global Apparel Group Ltd

DCCJ 13107/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 13107 OF 2001

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BETWEEN

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Coram : Her Honour Judge C.B. Chan in Court

Dates of Trial : 8^th to 11^th, 14^th & 15^th March 2005

Date of handing down Judgment : 21^st June 2005

J U D G M E N T

1.In this claim the Plaintiff claimed against the Defendant for the sum of HK$169,380.00 being the outstanding amount due by the Defendant to the Plaintiff as per an invoice dated 1^st January 2001, as price of goods sold and delivered at the Defendant’s request, the particulars of which were as follows:-

Invoice Date	Invoice No.	Invoice Amount (HK$)
01.01.2001	SW76623 Rev Pg.	169,380.00

2.In the alternative the Plaintiff claimed against the Defendant for damages to be assessed in respect of the Defendant’s breach or repudiation of the contract made between the Plaintiff and the Defendant as evidenced by a purchase order P.O.JC1024A (hereinafter referred to as “the Purchase Order”) in that the Defendant purported to cancel the said contract after it was concluded and thereby evinced its intention not to further comply with the said contract.  It is the Plaintiff’s case that the Defendant has wrongfully and unlawfully repudiated the said contract and as a result thereof the Plaintiff claims damages for its loss arising there from.   

3.The Defendant pleaded two grounds of Defence.  The first ground is that no contract existed between the Plaintiff and the Defendant.

4.The second ground is that the Plaintiff was in breach of the implied conditions on merchantable quality and fitness for purpose under sections 16(2) and 16(3) of the Sale of Goods Ordinance (cap. 26).

The 1^st Ground of Defence

The 2^nd Ground of Defence

7.I set out the issues that are disclosed from the Pleadings below.  

8.In relation to the 1^st Ground of Defence the issues are: -  

(1)	Whether the samples provided before the Purchase Order was approved by the Defendant as regards the quality of the yarn.
(2)	Whether a contract existed between the parties as evidenced by the Purchase Order.
(3)	Whether Production Samples were to be approved for both quality and colour as stated by the Defendant or only for colour as stated by the Plaintiff.
(4)	Whether the Defendant has established that the Production Samples delivered were slightly different in colour from the Lap Dip samples provided earlier by the Plaintiff or were bad in quality.
(5)	If there was a contract whether the Defendant had wrongfully and unlawfully repudiated the contract.
(6)	Whether the bulk of the yarn that had been produced had been delivered to the Defendant pursuant to the Delivery Orders dated 19 Dec. 2000.

9.In relation to the 2^nd Ground of Defence the following issues are disclosed:-

(1)	Whether Sections 16(2) and (3) of the Sale of Goods Ordinance Cap 26 apply to this case.
(2)	If they apply, whether the goods breached the implied conditions on merchantable quality and fitness for purpose under the said sections of the aforesaid Ordinance.

10.The following are facts not in dispute between the parties:-

(a)	Both the Plaintiff and the Defendant were acting in the course of their businesses respectively as seller and buyer of the Goods in the garment field.
(b)	Before the placing of the Purchase Order on the 24 October 2000 the Defendant had purchased 10 lbs of raw yarn of 55% Ramie 45% cotton content and the Defendant had knitted it into panels for the purpose of inspecting its quality.
(c)	On 26 October 2000, the Plaintiff handed Lap Dip samples to the Defendant except for 1 colour, and the Lap Dip for the remaining 1 colour was subsequently given to the Defendant on 6 November 2000.
(d)	On 2 November 2000, the Plaintiff started to submit the Production Samples to the Defendant.
(e)	Between 2 November 2000 and 6 November 2000, the Defendant did not inform the Plaintiff whether the Defendant approved or rejected the Production Samples.  The Defendant stated it was waiting for a reply from its buyer Mega-Link (Asia) Ltd.
(f)	Lap Dip samples are small quantities of yarn dyed with 4 slight variations of colour to enable the customer to pick the correct colour sample for dying.

Credibility of Witnesses

11.In assessing credibility, I had considered the submissions of respective Counsel as well as observed witnesses and considered the content of their evidence.  The Plaintiff called two witnesses to give evidence.   They were Lau Tung Fai and Lee Duncan.  I found that in the main they were credible witnesses in relation to the dealings between the parties.   There may be lapses in memory but despite that I believe that they sought to give truthful evidence.   From observation of demeanor and consideration of the contents of evidence of the Defendant’s witnesses, I found the Defendant’s witnesses not to be credible.  I believe Chan Kuk Man Jenny deliberately lied in several parts of her evidence.   I found her a wholly unreliable witness.   I found Chung Hau to have impressed me to be an unreliable witness.   I also found Chung Kwok Pan not to be credible or reliable.   I found that his evidence is contradictory.   He stated in paragraph 3 of his Supplemental Witness Statement that the Remark in the Purchase Order was included therein because the quality in the pre-order samples provided by the Plaintiff was found to be poor.  That statement is wholly untrue for the same words in the Remark column of the Purchase Order was found in the purchase order (at page 18 of Bundle D of the Bundle of Documents (BD-D)) placed by the Defendant on the Plaintiff before the Purchase Order herein.  There had been no complaint related to quality in the earlier purchase order.   He stated that the Defendant has never given any instructions to the Plaintiff to commence bulk production.  He stated in his witness statement that delivery of Production Samples does not mean and should not be equated to instructions to commence bulk production.  I find that this statement is wholly untrue as shall be clear when this Judgment addresses the function of Production Samples and how they are made.  As he is experienced in this trade this statement is likely to be a deliberate lie.  I believe that he is not credible and his entire evidence is motivated by his desire to deny responsibility of the claim.   I do not find the Defendant’s witness Serge Choukroun to be a reliable witness.   He was called to support the Defendants in the denial of this claim.   Further what he stated purely relates to the contractual relationship between the Defendant and his company of which the Plaintiff is not privy.  

The Issues

1^st Ground of Defence

Whether the samples provided before the Purchase Order was approved by the Defendant as regards the quality of the yarn.

12.I do not accept the evidence of Chan Kuk Man Jenny that she did not accept the sample yarns, which were delivered to the Defendant for the purpose of approval of quality.   She stated that before the Purchase Order was placed, the Plaintiff delivered 10 pounds of yarn to the Defendant.   The Delivery Order at page 1 of BD-D evidences this.   The Defendant factory knitted the 10 pounds of yarn into panel samples.  Subsequently after the Purchase Order was placed the Plaintiff delivered another two lots of 5 pounds of coloured yarn.   She stated that she did not approve the quality of the yarn.   It was because the Plaintiff’s salesman Lau Tung Fai assured her that the quality of the yarn to be supplied by them in the Purchase Order would be better than the quality sample and his persuasions to place the Purchase Order that caused her to place the Purchase Order on the Plaintiff.   

13.Lau Tung Fai stated that Chan Kuk Man, Jenny had approved the quality of the sample yarn sent to her before the Purchase Order was placed.   It was on the basis that the quality of the yarn sample was approved that she placed the Purchase Order.   

14.Apart from the fact that I do not find Chan Kuk Man Jenny to be a credible or reliable witness, I find that her evidence related to this is wholly incredible for the following reasons:-

1.	It seems to me to be unbelievable that she would accept the assurances of Lau Tung Fai that the quality of the yarn for the dyed bulk would be better than the sample supplied.   For, if the quality of the yarn used in the production proved unacceptable after the production is in progress, she would not be able to comply with the Defendant’s contract with Mega-Link unless the contract with Mega-Link was not time sensitive, which is unlikely.  She stated in evidence that she would not lose out because she included the condition precedent in the Remark.   She stated that if the Production Samples were not up to quality, there is no contract.This is not the only point.  She had a contract with Mega-Link to fulfill.  If the Production Sample proved unacceptable as regards quality, she would not be able to find alternative yarn dyed in time to complete her client’s order.Furthermore the quantity of this Purchase Order is large.It seems incredible that any responsible merchandiser would take such a big risk in placing a purchase order for dyed yarn required to complete a customer’s order for knitted garments.
2.	There is no reason for Chan Kuk Man Jenny not to require further samples as to quality from the Plaintiff before placing the Purchase Order rather than take the risk that the dyed yarn to be supplied would be of an improved and acceptable quality.
3.	It has become clear in the course of the trial that there is no objective standard related to what is acceptable quality in yarn. Such being the case, it seems unreasonable for Chan Kuk Man Jenny, whose job is a merchandiser not to ascertain the quality of the improved standard of yarn that was allegedly promised by Lau Tung Fai to be used in the production of the Purchase Order.Without seeing it she would not know whether the standard of yarn to be provided though improved is up to the standard required by her on her customer Mega-Link.
4.	There is no contemporaneous record produced by the Defendant in support of the allegation of Chan Kuk Man Jenny that the quality sample was not approved and the Plaintiff would provide better yarn for testing and for production.  It was only after a lapse of about 1 year that the Defendant made such an allegation for the first time.

15.Having found Chan Kuk Man, Jenny not to be a credible witness and having found her evidence not to be credible for the reasons stated above, I find that the Defendant had approved on the balance of probability that the quality of the yarn in the sample yarn supplied to the Defendant before the Defendant placed the Purchase Order.

Whether a contract existed between the parties as evidenced by the Purchase Order

16.In my view a contract existed between the parties as evidenced by the Purchase Order.    The Defendant’s Counsel in submitting that there was no contract between the parties stated that it was a contract subject to a contingent condition precedent.  In her contention she relied on Chitty on Contract 29^th Edition paragraph 2-143.   However, in my view this contract is one that is immediately binding on both parties but delivery of the dyed yarn is to be made upon approval of the Production Sample.   To understand more about the nature of the contract, understanding of the term Production Sample is required.  

Background

17.There is no dispute that the Plaintiff is a limited company and its principal business is that of providing raw yarn dying service.  The Plaintiff would on instructions and orders of its customers dye raw yarns into colours specified and required by its customers.   The raw yarns would either be provided by its customers or by the Plaintiff upon request of the customers.   The Plaintiff would also sell raw yarns and other materials to its customers when so requested.   There is no dispute that the Purchase Order in this case was for the supply of dyed yarn from raw yarn provided by the Plaintiff, with the dyeing process to be performed by the Plaintiff through its subcontractor Full Million Dyeing Limited (“Full Million”).  The Defendant through its staff Chan Kuk Man Jenny had requested the Plaintiff to sell and provide to the Defendant the raw yarn for the dyeing process.  I have found that the Defendant has approved the quality sample of the yarn to be dyed.   After the Purchase Order, the evidence shows that the Plaintiff supplied Lap Dip samples of the required colours to the Defendant.   10 of the 11 colours had been approved by the 31 October 2000.  The only colour in the Lap Dip sample that was not approved was navy colour, which was approved on 6 November 2000.   The Lap Dip samples consist of a small quantity of yarn in four slight variations of one colour for the Defendant to pick the exact shade of the required colour.   The purpose of Lap Dip samples was to identify the precise and actual colour that the customer of the Plaintiff might require so as to avoid dispute in due course.   Lau Tung Fai stated that it is clear that there can be different variations or degree of depth of a colour even when only one colour is identified.  

Production Sample

18.According to Lau Tung Fai, a Production Sample is obtained by taking a small quantity of the dyed yarn from the dyed bulk of the ordered quantity for the requisite colour.  Lau Tung Fai stated that a Production Sample has to be obtained from the dyed bulk.  He explained from his own experience in the field that the bulk of the entire order has to be dyed at one go for the dyed colour would be different if a quantity of yarn is dyed at different times even with the same dye.  If the Plaintiff dyed the bulk in different lots, there would be a difference in the dyed colour of each of the lots as a result of the dying process.   For the reason aforesaid, a Production Sample has to be taken from the dyed bulk of the colour in question to ensure that the colour of the entire bulk of the dyed yarn would be the same.  Hence it would not serve the intended purpose to dye a small quantity of yarn to obtain the Production Sample as suggested by Defence Counsel.  He stated that as the Lap Dip samples related to colour as well as the quality sample of the raw yarn to be used had been approved before the start of production and all matters relating to the sale and purchase had been agreed, the production and delivery of the Production Samples to the Defendant was for verification that it complied with all former agreed samples. 

Approval of Production Sample

19.Lau Tung Fai stated from experience that should the colour of a Production Sample not be approved because of slight difference from the colour in the Lap Dip sample, the Plaintiff would re-dye the yarn again until the right colour as in the Lap Dip sample is attained.   It is possible to do so without affecting the quality of the yarn.  Chan Kuk Man Jenny had stated at one point in her evidence whilst under cross-examination that she had allowed for time for approval of Production Samples and therefore the delivery date was stated to be “Expected Delivery” and not simply “Delivery”.  

20.I accept the evidence of Lau Tung Fai who stated from his experience as regards how a Production Sample is obtained, and the purpose of a Production Sample.  In my view, Lau Tung Fai’s evidence that the Production Samples has to be taken from the production of the bulk makes sense for the Lap Dip samplesfor colour has already been approved.  There was no necessity to dye another lot of smaller quantity of yarn for approval of colour before dying the bulk.   This would simply be a waste of time and would serve no purpose.   I also accept his evidence from his experience that it is possible to re-dye the bulk so as to adjust any slight discrepancy from the colour in the Lap Dip Sample.  I also accept his evidence in cross-examination that from his experience it would not affect the texture of the yarn.      

Construction of the Purchase Order

21.Related to the construction of the Purchase Order at page 19 of BD-D, it is clearly stated to be a Purchase Order.  It is typed on the headed paper of the Defendant.   It was issued to the Plaintiff by the Defendant and for the attention of Lau Tung Fai of the Plaintiff, from Chan Kuk Man of the Defendant.   There is a description of the type of yarn to be used, the stated colours of the yarn and according to each respective colour there is stated, quantity, unit price, amount.  There is a clear statement of Payment Term, Expected Delivery date.  In short all the details of the Order are stated.  However next to “Remark” are words which has caused the controversy.  They were agreed to be translated as “Production samples have to be approved before all the yarns are to be delivered.  Please send all the goods to Dongguan Wei Ming Knitting Factory”.

Purchase Order – Immediate Contractual Obligations

22.It is clear that the Purchase Order placed contractual obligations on the Plaintiff to produce the stated quantity of dyed yarns in accordance with its stipulated colours in accordance with the terms stated therein.   Should the Plaintiff fail to perform this obligation he would be in breach of his contractual obligation.   Since the Plaintiff had the immediate contractual obligation imposed by the Purchase Order, upon acceptance thereof by it, the Purchase Order is not a contract subject to a condition precedent.   Further as Production Samples are to be taken from the dyed bulk this entailed the execution of the Purchase Order by the Plaintiff.  As I have found that the approval of the Production Sample are a mere verification process that it complied with samples approved, the Defendant had the obligation to proceed to verify the Production Samples.  In my view from the construction of the Purchase Order failure on the Defendant’s part to verify the Production Sample is a breach of the agreement.   I accept the evidence of Lau Tung Fai that the intention of the parties was that, should the Production Samples be found to differ from the Lap Dip samples in colour, the Plaintiff has to rectify the colour of the bulk until it complied with the Lap Dip samples.   If the Plaintiff unreasonably failed to do so, the Plaintiff would be in breach.  In my view the Defendant could not unreasonably refuse to approve the Production Samples unless it can establish that the Production Samples differed in colour from the approved Samples or on the basis of breaches of other agreed terms by the Plaintiff.     

Is Approval of the Production Sample a Contingent Precedent Condition?

23.As the approval of the Production Sample is merely a verification that it complied with approved samples, and the Purchase Order imposed immediate contractual obligations on the parties, I find that the Purchase Order is not a contract subject to a contingent precedent condition.

24.I find that there was a contract evidenced by the Purchase Order in the terms aforesaid.    

Whether the Production Sample was to be approved for both quality and colour as stated by the Defendant or only for colour. 

25.Having found that the Defendant has through Chan Kuk Man Jenny indicated its approval of the quality sample of the yarn which had been ordered by the Defendant and delivered to them, and the Defendant had approved the Lap Dip samples, the Production Sample was to be for verification that the bulk complied with the samples provided as to colour and also as to quality.   The delivery of Production Samples to the Defendant was just a routine and was for the Defendant to monitor the production process in accordance with the agreed samples as to colour and quality.      

Whether the Defendant has established that the Production Samples delivered were slightly different in colour from the Lap Dip samples provided earlier by the Plaintiff or was bad in quality.  

26.The Defendant had supplied no objective test or evidence that the Production Samples supplied by the Plaintiff differed from the colour of the Lap Dip samples approved by the Defendant.   In my view, objective evidence of an expert having conducted tests on this is required.   The Court could not stand as its own expert from perusal of the real samples or state what is the acceptable range of variation in colour if there is such variation.  

27.Chung Hau gave evidence that the quality of the yarn was found by him not to be acceptable and the colours were different from what was required.   I do not find him a credible witness.   Even were he credible, the bare allegation that the colour of the Production Samples was not acceptable is not sufficient.   Further as I found that a sample of the yarn had been approved for quality prior to the Purchase Order, the sale was a sale by sample both as to quality of the yarn and colour pursuant to Lap Dip samples.   The requisite test as to quality was whether the quality of the yarn in the Production Samples differed from the sample yarn approved.  The Defendant adduced an Expert Report at BD-E, upon the Defendant’s instructions to its expert to examine the fabric for “any” defects.   In the Report there is no evidence from the expert of comparison of the quality of the dyed yarn with the approved quality yarn sample.   Apart from this it was also agreed between the parties, that there is no objective test or absolute and inflexible standard on the quality of texture and hair.   Common sense would show that it must normally be commensurate with the contractual description and the price of the yarn.  Hence, the expert’s comments on the quality of the sample yarn on which he conducted the test is not relevant to the issue in this case.   There is no objective expert evidence that the quality of the yarn in the Production Sample differed from the quality of the quality yarn sample.  Further, the Defendant has adduced no objective evidence of an expert based on objective tests on its allegation that the colour of the Production samples supplied differed from the Lap Dip samples supplied.   The Defendant has failed to establish that the Production Samples delivered were slightly different in colour from the Lap Dip samples provided earlier by the Plaintiff or the quality of the yarn in the Production Samples differed from the approved yarn samples.    

If there was a contract whether the Defendant had wrongfully and unlawfully repudiated the contract

28.Lau Tung Fai stated that Chan Kuk Man Jenny had failed to approve the Production Samples after he had supplied 9 of these to her.   He made enquiries of her several times but she did not reply.   He stated in his evidence-in-chief that on the 6 or 7 November 2000 Chan Kuk Man Jenny informed him on the telephone that she did not want the goods.   It was upon his continued questioning as to the reason for it that she stated that her customer had cancelled its order.  Upon cross-examination he stated that Chan Kuk Man Jenny telephoned him on 6 November 2000 to inform him about the cancellation.  I am not surprised owing to the long lapse of time since the occurrence of the event, that his memory of the exact date of this occurrence is not clear.  I am of the view that even when his evidence of the exact date of the occurrence of this under the pressure of cross-examination is not precise, he was not deliberately dishonest.  He did his best to answer the question under cross-examination according to memory.  I accept his evidence that Chan Kuk Man Jenny did not tell him the reason for the cancellation until he pressed her for an explanation.  At that point she merely said her customer cancelled its order.  He only subsequently heard from Lee Duncan, told him that Chan Kuk Man Jenny made complaints to him about the quality of the yarn.  Even in her witness statement she merely stated that she did not find the quality of the yarn acceptable.  As regards particulars, she merely stated that she agreed with the findings of the Expert Report which was prepared 2 years 4 months later after her cancellation of the Purchase Order.   The evidence of Lau Tung Fai on this matter has a ring of truth to it that she did not state the reasons for cancellation until pressed when she stated that her customer cancelled.  

29.As I have found that the Defendant has failed to establish that the Production Samples delivered were slightly different in colour from the Lap Dip samples provided earlier by the Plaintiff or the quality of the yarn in the Production Samples differed from the approved yarn quality samples, the unilateral cancellation of the contract by the Defendant was wrongful and the Defendant had wrongfully and unlawfully repudiated the contract.   

Whether the bulk of the yarn that had been produced had been delivered to the Defendant pursuant to the Delivery Orders dated 19 December 2000

30.As I have found that the Defendant had wrongfully and unlawfully repudiated the contract, the Plaintiff would have been entitled to damages even had the Plaintiff not been found to have delivered to the Defendant the yarns pursuant to the Delivery Orders dated 19 December 2000.  

31.In considering this issue, I note all that the Defendant’s Counsel stated in submission related to the credibility of Lee Duncan and Lau Tung Fai in relation to this issue.  Having considered these, I do not find that they show that either Lee Duncan or Lau Tung Fai was deliberately lying.  It seems to me that the alleged differences if any in what they said is merely the different perspective of two persons speaking of the same event which happened over 4 years ago and their memories in relation to precise details were not that precise.  According to the evidence of Lee Duncan in paragraph 24 of his witness statement, during the period between the wrongful repudiation of the Purchase Order by the Defendant and the issuance of the two Delivery Orders aforesaid, the Plaintiff was in fact negotiating with the Defendant as to the disposal of the dyed yarns but to no avail.  The Defendant had only kept on saying that its end-customer had cancelled the order with them and they did not require the dyed yarns any further.

32.He further stated that the two Delivery Orders were eventually sent to the Defendant.  After further negotiation with the Defendant, the Defendant had also acknowledged receipt of the same and further agreed that all those dyed yarns processed by Full Million under and pursuant to the said Purchase Order should be kept by Full Million on behalf of the Defendant for the time being so that the same could be available whenever the Defendant needed them or wanted to dispose of the same in due course.  In the relevant Delivery Orders, therefore, the Defendant endorsed thereon a sentence containing the words “寄存富東代寄賣”.  Although it is clear from the evidence of Lau Tung Fai that it was Lau Tung Fai himself who wrote these words, in my view the mistaken belief on the part of Lee Duncan in respect of this is a mistake and is not a lack of truthfulness.

33.Lau Tung Fai in his evidence stated that from the date of the cancellation of the Purchase Order by Chan Kuk Man Jenny on about 6 or 7 November 2000 to 19 December 2000, the date of the two Delivery Orders at pages BD-D pages 8 and 9, he had negotiated with Chan Kuk Man Jenny as to what to do with the goods many times.  He pressed her to take the dyed yarns because it was her mistake because she cancelled the order without giving any reason.  It was not a case that she did not approve the yarns.   He disputed that he ever received the e-mail at page 22 of BD – D where the Defendant allegedly stated that their client cancelled the order because the quality of the yarn in the Production Order was poor.  He stated it was neither signed nor was there any evidence of the letter having been faxed to him.  It is clear that this letter allegedly sent by the Defendant to the Plaintiff did not contain justifiable grounds for cancellation of the contract even if sent by the Defendant for there is no allegation that the quality of the yarn was not comparable to the approved yarn quality sample.  After much persuasion by Lau Tung Fai she agreed to the goods being placed on consignment with Full Million for re-sale.   The words “寄存富東代寄賣” were written by him.  He stated that Chan Kuk Man Jenny had asked him to write it.  He did not write it in front of Lee Duncan.  He did not tell Lee Duncan that the phrase was written by Chan Kuk Man Jenny. 

34.Chan Kuk Man Jenny stated that she had refused to receive the Delivery Orders when Lau Tung Fai suggested that the goods be placed on consignment with Full Million.   When he came with the Delivery Orders she asked him to go away.   She could not tell how the chop of the Defendant Company was placed on each of the Delivery Orders.   She stated that after she refused to accept the Delivery Orders she turned to go inside the office.   She stated that the Company chops were left on the reception counter and sometimes those who came to make delivery would just apply the chop on the delivery orders themselves.   She suggested that the Defendant must have done that after she went in the office or other staff in the reception had applied it.  

35.If Chan Kuk Man Jenny had told the Defendant to leave and refused to take the Delivery Orders, it is highly unlikely that other staff would thereafter apply the Defendant’s Company chop to the Delivery Orders.   Her allegation that Lau Tung Fai had applied the chops to the Delivery Orders in the face of her refusal to accept them seems to me to be unlikely.  

36.I had found Chan Kuk Man Jenny not to be a credible witness.  I therefore do not accept her evidence as reliable.   In all probability Chan Kuk Man, Jenny, knowing that the Purchase Order was unreasonably cancelled agreed to the option of having the yarns placed with Full Million on consignment in the face of repeated pressure from Lee Duncan and Lau Tung Fai to receive the goods.  

The 2^nd Ground

Whether Sections 16(2) and (3) of the Sale of Goods Ordinance Cap 26 apply to this case

37.Section 16(2) of the Sale of Goods Ordinance (Cap 26) states,

“Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition –

(b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal; or

(c) if the contract is a contract for sale by sample, as regards defects which would have been apparent on a reasonable examination of the sample.”

38.It is clear that before the contract was made, the Defendant was supplied with a quality yarn sample which I found that the Defendant had approved.   Section 16(2)(b) applies to this case in that the Defendant had examined the sample yarn before the contract was made as regards defects which that examination ought to reveal.   The Defendant’s claim that the Production Samples were not of merchantable quality as regards quality based on S16(2) of the Sale of Goods Ordinance must fail.  

39.As regards the colour of the yarn to be dyed the colours were pursuant to the Lap Dip samples already approved.   Further there is no evidence that the colour in the Production Samples were not commensurate with the colour of the Lap Dip samples.   

40.Section 16(3) of the same Ordinance states,

“Where the seller sells goods in the course of a business and the buyer expressly or by implication, makes known to the seller any particular purposes for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller’s skill or judgment.”

41.In this case, it is clear that the Defendant sought a quality yarn sample from the Plaintiff and relied on its own judgment as regards whether the quality was suitable for the purpose for which they would use it.   Having approved the quality of the yarn sample according to its own judgment the Defendant did not rely on the Plaintiff’s skill or judgment.   In the present case, all that the Plaintiff was aware of in relation to the purpose for the yarn is that the yarn would be knitted into garments.   However the evidence showed that it was not made known to the Plaintiff as to the specific type of garments or the type of market in which the goods would be sold or whether the goods would be high quality goods.  Such being the case even were there no quality sample approved by the Defendant prior to the Purchase Order, which is not the case, it is not reasonable for the Defendant to rely on the seller’s skill or judgment as the Plaintiff was left in the dark related to these important aspects related to the purpose for the dyed yarn.   I am of the view that for the reasons aforesaid, section 16(3) of the Sale of Goods Ordinance does not apply to this case.

Quantum

42.I find that the Plaintiff has established the Plaintiff’s claim on the basis that the goods had been delivered and also for damages on the basis of the Defendant’s wrongful and unlawful repudiation of the contract.  

43.On the basis of the Defendant’s wrongful repudiation of the contract, damages assessed would be in the sum of $169,380 being the amount of loss to the Plaintiff inclusive of the cost of the raw yarn together with the cost of the dying process together with loss of profit.    It is clear that the Plaintiff has minimized all loss by stopping the production process immediately after they were informed that the Defendant cancelled the Purchase Order.   I accept the evidence of the Plaintiff that the dyed yarn could not be sold as there were no ready customers who wanted the dyed yarn according to its dyed colours.  

44.I therefore find the Plaintiff has established the claim.   I give judgment for the Plaintiff in the sum of HK$169,380 together with interest thereon from date of Writ to date of judgment at judgment rate and thereafter until payment at judgment rate.   I grant an order nisi for costs of the action to the Plaintiff to be taxed if not agreed with Certificate for Counsel. 

Representation :

Mr. Vincent Chun instructed by Messrs W.K. To & Co. for the Plaintiff.

Miss Carol S.K. Fung instructed by Messrs S.C. Chan & Co. for the Defendant.