Central of Mind Creation Ltd v. Sunrich Traders Ltd

DCCJ 5005/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5005 OF 2003

__________

BETWEEN

__________

Coram : Her Honour Judge H.C. Wong in Court

Dates of Hearing : 14^th , 15^th and 18^th April 2005

Date of Handing Down Judgment :  31^st August 2005

JUDGMENT

1.This is an action between the Plaintiff seller on the one part and the Defendant purchaser on the other part under an agreement to supply 44,000 pieces of bedsheet at a unit price of US$1.50 for a total sum of US$66,000.00.  The Plaintiff relied on a purchase contract No. PC/03/S03482 dated 29 April 2003 signed by the Plaintiff and the Defendant.  The original order was for 30,000 pieces of bedsheet at US$1.50 each, it was subsequently amended and revised to 44,000 pieces (hereinafter referred to as “the goods”).  Except for the change in quantity there were no further changes to the other terms under the purchase order No. PC/03/S03482 (hereinafter referred to as “the said contract”). 

The Plaintiff’s Case

2.Under the said contract, the goods 1) would be dispatched in two 20 feet containers; 2) would be subject to  approval sample before production; 3) must have “Made in China” on each piece to be put in polybag with the description ‘333’ in Arabic. 

3.On the copy of the contract signed and returned to the Defendant at page 54 of the bundle, the Plaintiff endorsed the following on the 6^th May 2003:-

“	PLEASE SENT 20% DEPOSIT TO OUR COMPANY HK ACCOUNT:- BY T/T
	COMPANY NAME : CENTRAL OF MIND CREATION LTD.
	BANK NAME : STANDARD CHARTERED BANK
	ACCOUNT NO. : 320-2-049012-0 USD
	THE BALANCE PAYMENT GIVING BY BANK DRAFT.”

4.It is the Plaintiff’s case that the goods were ready for delivery in early July 2003 and that the same were being stored in the Plaintiff’s rented godown in Shenzhen.  On 13 July 2003, the Plaintiff sent to the Defendant an invoice No. INV/0001/03 for the settlement of the price of the goods.  The Plaintiff claimed that after two inspections of the goods at the Plaintiff’s godown in Shenzhen by a representative of the Defendant on 15 and 22 July 2003, the Defendant through the Defendant’s Mr. William D’Costa approved and accepted the quality of the goods on 24 July 2003.

5.It is the Plaintiff’s case that in breach of the terms of the agreement, the Defendant had failed to confirm the date and place for delivery of the goods and it further failed to pay any deposit to the Plaintiff pursuant to the agreement.

6.On 31 July 2003, the Defendant’s Mr. William D’Costa orally confirmed at a telephone conversation with the Plaintiff’s Miss Irene Lam that the Defendant would not accept delivery of the goods and that the agreement would be terminated immediately.

7.The Plaintiff claimed that it had tried to resell the goods but was unable to sell the goods to other customers and it claimed that the goods have no resalable value.  The goods remained in a godown in mainland China.  The Plaintiff therefore claimed against the Defendant for the price of the goods at US$66,000.00 and damages be assessed in the alternative.

The Defendant’s case

8.The Defendant alleged that prior to the signing of the purchase contract, the Defendant sent to the Plaintiff a bedsheet sample from its overseas buyer in Jeddah.  The Defendant had informed the Plaintiff that its overseas buyer required the goods produced to correspond with the customer sample and that the goods must meet with the approval of the Defendant and its customer.  The Defendant had emphasized to the Plaintiff that should its customer not approve the sample produced by the Plaintiff, the Defendant would not be obligated to purchase the goods.  The Defendant claimed that it is an express term of the said contract under clause 2 that the contract is subject to a condition precedent requiring approval of sample before production. 

9.The Defendant claimed that the Plaintiff had failed to provide the Defendant with a sample or samples, which corresponded with the customer sample; consequently, the Defendant is not obliged to purchase the goods notwithstanding the said contract.  The Defendant agreed that on 15 and 22 July 2003, the Defendant’s representative did obtain samples produced by the Plaintiff at the Defendant’s request but the samples failed to correspond with the customer sample and they were rejected by the Defendant and its customer.  Further, the Defendant claimed that the Plaintiff agreed to produce the sample and send it to the Defendant and its customer for approval within a reasonable time before the date of delivery.  It was further a term of the said contract that the sample shall correspond with the customer sample before production, and the sample produced by the Plaintiff for the Defendant’s customer should meet with the approval of the Defendant and its customer.  The Defendant alleged that the Plaintiff had failed to supply the sample to the Defendant before production and it further failed to produce and send samples to the Defendant that met with the approval of the Defendant and its customer before delivery.

10.The Defendant therefore claimed that the Plaintiff having failed to comply with the terms and conditions of the agreement, was in wrongful breach of the said conditions, therefore, the Defendant was entitled to rescind the said agreement on 31^st July 2003.

The Issues

11.The issues in this case are as follows:-

(i)	Whether the agreement was subject to a condition precedent that the goods to be produced should correspond with the customer sample and meet with the approval of the Defendant and its customer in Jeddah.
(ii)	Whether the agreement was subject to the Plaintiff producing the sample for the Defendant’s approval within a reasonable time before the date of delivery. And that the sample for approval shall correspond with the customer sample before production.
(iii)	Whether the sample produced by the Plaintiff sent to the Defendant shall meet with the approval of the Defendant and its customer in Jeddah.
(iv)	If the answer to the above is yes, whether the Plaintiff had committed a breach of the alleged term.

Findings

12.It is the evidence of the Plaintiff’s Miss Irene Lam (PW1) that she was introduced to Mr. D’Costa of the Defendant in mid April 2003 by a former colleague Mr. Riaz.  On 15 April 2003, she received an email from Mr. D’Costa who asked her if the Plaintiff could supply bedsheets with a weight of 540 grams at US$1.50 per piece C&F Jeddah.  The email was attached with a photograph of the bedsheet in a polybag marked ‘333’ and the brand name ‘Jin Cao’.  The aforesaid email can be found on page 52 of the bundle.  After some negotiations, the Plaintiff accepted the Defendant’s order and the purchase contract No. PC/03/S03482 dated 29 April 2003 was duly signed by the parties (see page 54 of the bundle).  On this document, under ‘article no.’ it specified ‘333 BS’ and under ‘the description of goods’ it specified ‘80” x 90” 560 grams (G.W.) bedsheet brand 333 4 colours each piece in polybag 100 pcs. assorted colours and export bale’.  Then 4 conditions followed:-

“	1.	Total 2 x 20’ container.
	2.	Require approval samples before production.
	3.	Each pc must have “Made in China”.
	4.	Polybag must mention 333 in Arabic.”

13.A few days later, the parties agreed to increase the quantity of the goods from 30,000 to 32,000 pieces.  Subsequently, a further revision was made and a total quantity of 44,000 pieces was ordered at the price of US$66,000.

14.It is not disputed that on 4 May 2003 the parties corresponded by email on the form of the brand name in Chinese to be printed on the polybag.  It is also not disputed that the brand name of the original sample supplied by the Defendant’s customer could not be used on the goods ordered because the original brand name “Jin Cao” was a registered brand.  Upon being asked to choose from a number of names to replace the original name on the sample bag, Mr. D’Costa replied on 5 May 2003 and chose the name “Jin Coa”.

15.It is the Plaintiff’s case that on 23 May 2003; Miss Lam delivered a sample to Mr D’Costa at his office for the Defendant’s approval.  That on 26 May 2003, she received an email message from Mr. D’Costa confirming the Defendant’s approval of the sample and advised the Plaintiff to proceed with the production of the goods.  The message that Mr. D’Costa sent to Miss Lam can be found on page 59 of the bundle and it reads:-

“	WE RECEIVED YOUR QUALITY APPROVAL SAMPLE W/O DYED (PRINT & COLOR). BUYER SAYS QUALITY IS OK BUT HE SAYS IT LOOKS VERY SMOOTH LIKE RAYON FINISH SO WHEN MAKE DYED AND COLORED IT WILL BE MORE THICK AND HARD FINISHED LIKE COTTON. SO BUYER SAYS YOU PROCEED AND IMM SEND ONE ACTUAL SAMPLE FROM PRODUCTION.
	POLYBAG: PLS NOTE WE REQUIRE SAME AS WE EMAIL YOU WITH ARABIC “333”
	PKG: EACH PC. IN PTD. POLYBAG THEN 5 PCS. ASSORTED COLOR IN KHAKI PAPER BUNDLE (PINK – 2 PC, GREEN – 1 PC, BLUE – 1 PC, YELLOW – 1 PC.)
	THEN SUITABLE QTY IN BALE.
	THANKS/RGDS
	WILLIAM.D.”

16.It is Miss Lam’s evidence that she did not meet with Mr. D’Costa on 29 April as alleged.  She claimed that she only saw a picture of a sample of the bedsheet enclosed in the email of 15 April 2003 from the Defendant.  She further said the floral designed in the sample was a flower basket design.  It is her evidence that Mr. D’Costa orally requested over the telephone that the Plaintiff should provide the sample of the goods for the Defendant’s approval.  However, Miss Lam informed Mr. D’Costa that the Plaintiff had no available sample which corresponded exactly with the picture design, and that the Plaintiff would provide a sample of the same composition i.e. 20% polyester and 20% cotton for the Defendant’s approval.  As a result, a sample of the bedsheet composing of 80% polyester and 20% cotton with a different picture design was submitted to the Defendant in late April 2003.  Mr. D’Costa confirmed a few days later that he was happy with the sample submitted by the Plaintiff, he further suggested he would supply a sample containing the picture design and a piece of cloth for production to the Plaintiff. 

17.On 5 May 2003, Miss Lam visited the Defendant’s office and collected the sample bedsheet and a piece of cloth from the Defendant.  She also on the same occasion collected from the Defendant the original purchase contract No. PC/03/S03482.  The Plaintiff subsequently signed and returned to the Defendant by fax the said purchase contract on 6 May 2003 with the endorsement that the Plaintiff required a 20% deposit of the purchase price.  Later, Miss Lam asked Mr. D’Costa about the 20% deposit, she was told that he would discuss it with his superior.  When asked if the Plaintiff should proceed with the production of the goods immediately, Mr. D’Costa requested the Plaintiff to present a sample bedsheet without dye for the Defendant’s final approval before proceeding with production.  It is Miss Lam’s evidence that under such circumstances the sample bedsheet without dye was sent to Mr. D’Costa on 23 May 2003. 

18.On 26 May 2003, she received from Mr. D’Costa an email message confirming the Defendants’ client’s approval of the submitted sample.  According to Miss Lam, it was at this stage production began and she took one piece of the final product of the goods to Mr. D’Costa on 21 June 2003 requesting the date of delivery to be named.  However, she was not able to reach Mr. D’Costa on the phone.

19.On 23 June 2003, Miss Lam was told by Mr. D’Costa that the goods would be sold to another customer in South America and that further order would be placed for the original customer in Jeddah.  The Defendant failed to inform the Plaintiff the delivery date after 23 June 2003 in spite of repeated requests and inform the Plaintiff the shipment date and destination for the goods.

20.The Plaintiff admitted there were two inspections conducted by the Defendant’s representative on 15 and 22 July 2003 and shipment samples were handed over.  Subsequently, the Plaintiff was informed by the Defendant that the shipment samples failed to correspond with the sample from the Defendant’s Jeddah customer and the Defendant rejected the goods.

21.It was Mr. D’Costa’s evidence that he had never approved the “sample of the goods”.  On 26 May 2003, only a piece of bedsheet in white colour without dye was supplied.  He therefore denied that it could be considered as a “sample of the goods”.  He further claimed that by the email message dated 26 May 2003 (page 59 of the bundle), he had requested the Plaintiff to send one actual sample for approval immediately from production and this request did not constitute any confirmation of approval of the ‘sample of the goods’.  Mr. D’Costa further denied that he had informed Miss Lam he would be selling the bedsheet produced or to be produced by the Plaintiff to any customer other than the Jeddah customer on 23 June 2003.  He confirmed that the customer in Jeddah wanted to buy two more containers of bedsheet provided the Plaintiff could produce bedsheets that corresponded with the customer’s sample with the same quality and printing.  However, the second order never came to fruition.  Mr. D’Costa exhibited email messages received from his customer in Jeddah and those he received from Miss Lam. On page 100 of the hearing bundle is an email from his customer Mr. Patel of Ksanea dated 8 June 2003 to Mr. D’Costa, it said:-

“

2.

RE: 333 B.SHEETS ALSO TYR TO RUSH SAMPLES AS SOON AS POSSIBLE AS DUE TO OUR DELAY BUYER HAVE BOOKED ADDITIONAL 2X20’WITH OTHER SPLR TOO AS YOU KNOW THIS IS REGULAR ITEM AND ONCE QUALITY SAME AS WE SENT WE WIL GET REGULAR BSNS FROM ANOTHER BUYER TOO.”

22.Mr. D’Costa produced an email from Miss Lam dated 23 June 2003 (page 102 of the bundle) the message is not easily understood due to Miss Lam’s unconventional use of English:-

“	Dear William,
	Regarding the bedsheet is question as follows:-
	1.)	We are confirm the order for C&F JEDDAH USD1.50/PC (include size: 80”x90”, G.W.: 560G/pc, the fabric: 80%/20% TC) same to our giving to you the sample. But you is confirm to us make 80/20 TC is ok.
	2.)	You give me fabric cutting for 60%/40% TC.  But you only give me make the same hand feeling.
	3.)	Regarding print…… we are confirm to you make what print. And you confirm to me make same the 333 a hand-basket print. We are giving to you the sample print is hand-basket.
	Before you need make the goods fabric on 60%/40% TC same for you fabric. We are offer to you on C&F JEDDAH USD1.50/pc. We are make the goods all same for you giving me fabric. Please note.
	Tomorrow, we are take you give me fabric & our sample to you checking.
	Thanks & Best Regards,
	Irene
	CMC Ltd.”

23.An email of the same date, 23 June 2003 (page 103 of the bundle), from Mr. Patel at Ksanea was received by the Defendant:-

“	ATT:MR. WILLIAM
	1.	333 B.SHEETS: WE RECEIVED YOUR SAMPLE BUT BUYER REJECTED AS HE WANTS EXACTLY SAME AS PER HIS SAMPLE MEANS FLOWER DESIGN, COLORS, WHITENESS ETC. SO HE REJECTED SO PLS BETTER CANCEL THIS ORDER AS WE CAN NOT MEET BUYER REQUIREMENTS.
		IF FTY CAN DO SAME THEN NO PROBLEM BUT WE THINK IT IS NOT POSSIBLE TO MAKE SAME FLOWER. PLS REPLY.”

24.On 26 June 2003 Mr. D’Costa received an email from Miss Lam:

“	Dear William,
	Regarding the bedsheet…….. for the 40/60 TC, Weight : 560g, the best price C&F Jedden USD1.52/pc. We will giving the fabric cutting to you confirm. But we will need you offer to us the printing fabric. We will make same to you need printing. The shipment date for 20 Aug. 2003 (2x20’). Please note.
	Waiting for your reply. Please act urgently.
	Best Regards,
	Irene
	CMC Ltd.

25.On 27 June 2003 Miss Lam send a further email message to Mr. D’Costa as follows:

“	Dear William,
	Regarding the bedsheet….in the first place ship on the 2x20’ first order shipment on next week. The other order 2x20’ container 40/60 TC, Weight : 560g, the best our boss confirm offer to you as follows:-
	C&F JEDDEN USD1.50/pc (But need 20% deposit, balance 80% by C.O.D.)
	All make the same for you today giving print.
	Packing : Each pc. in ptd. polybag, then 5pcs. assorted color in khaki paper bundle, 500pcs in export bale.
	2x20’ container qty.: 44,00pcs.
	Delivery on or before : 20 Aug. 2003
	The next week we can sent to you the fabric.  Please note.
	Waiting for your reply.
	Best Regards,
	Irene
	CMC Ltd.”

26.The Defendant’s Mr. D’Costa received an email from the Defendant’s customer Ksanea’s Mr. Patel and at paragraph 3, Mr. Patel said:

“	3.	333 B. SHEETS PLS INFM WHEN SENDING APPROVAL SAMPLE AS SAME QLTY AND DESIGN AS PER OUR SAMPLE.
	B. RGDS/PATEL”

27.The aforesaid email messages exchanged between the Plaintiff and the Defendant together with the email from the Defendant’s customer in Jeddah, Ksanea, showed that the Jeddah customer have requested throughout approval sample before shipment of the 333 bedsheet that correspond with the customer’s sample.  Miss Lam appeared to understand this requirement in her emails to Mr. D’Costa, but insisted she had complied with the requirement.

28.At the same time, the Plaintiff’s Miss Lam requested the Defendant to carry out an inspection of the goods already placed in a godown in Shenzhan.  In her email message to Mr. Johnny Lee copied to Mr. D’Costa on 5 July 2003 (page 108 of bundle) she said:

“	Dear Johnny,
	We will giving you for your purchase contract no. PC/03/S03482 the goods inspection address as follows:-
	深圳市盈富打包廠
	地址：深圳市文錦渡北斗路深防包庫50號庫
	The goods already on godown.  Please booking 1x40’hq urgent & you will going to inspection.  Please give notice of us.  Thanks.
	Waiting for your reply.  Please act urgent.
	Best Regards,
	Irene,
	CMC Ltd.”

Inspection of the goods eventually took place on 15 and 22 July 2003 by Mr. Johnny Lee, a staff of Mr. D’Costa. 

29.It is the Defendant’s case that Mr. D’Costa had been requesting for samples before approval for shipment.  It is Mr. D’Costa’s evidence that upon the samples being despatched to the Defendant’s customer in Jeddah, the Jeddah customer duly rejected the samples as not complying with the customer sample supplied to the Plaintiff.

30.The Plaintiff, however, denied that the Defendant had rejected the sample; on the contrary, it claimed the Defendant had accepted the sample.  That was why Miss Lam repeatedly asked the Defendant for arrangements for delivery of goods on 25, 26 and 29 July 2003.  It was Miss Lam’s evidence that Mr. D’Costa was not available on those days and she had been chasing after him for arrangement of delivery of the goods while the goods were waiting in the godown in Shenzhen.  She recorded the telephone conversations with Mr. D’Costa and his staff at the Defendant’s office. 

31.I find upon examining the transcript of the telephone conversations recorded by Miss Lam that they did not show if the Defendant had accepted or rejected the goods.  It is unfortunate that an important conversation Miss Lam claimed she had with Mr. D’Costa during this period was not recorded.

32.On 30 July 2003, Miss Lam sent an email message to Mr. D’Costa and Mr. Johnny Lee demanding the Defendant to take delivery of the goods before 1^st August 2003.  It is not disputed that on 31 July 2003 the Defendant terminated the agreement.  On 4 August 2003, the Plaintiff accepted the Defendant’s repudiation of the agreement by a letter of the same date.  The Defendant relied on an email from its customer Ksanea dated 22 July 2003 which stated the following:

“	2.	333 B.SHEETS:TDY WE RECEIVED SECOND PARCEL AND SHOWN BUYER HE DOES NOT WANT THIS QUALITY.
	B.RGDS/PATEL”

33.On the other hand, the Plaintiff claimed that Mr. D’Costa had told Miss Lam over the telephone on 24 July 2003 that there was no problem with the sample of the goods.  The Plaintiff relied on a Chinese letter sent by email from Miss Lam and Mr. Kang Kin Fai of the Plaintiff addressed to Mr. D’Costa and Mr. Johnny Lee (page 118 of the bundle) where the Plaintiff set out the events of inspection by the Defendant in Shenzhen and telephone conversations between Mr. D’Costa and Miss Lam between 24 July 2003 and 29 July 2003. 

The Law

Conditions precedent

34.I have been referred to a passage in Chitty on Contracts 29^th edition, volume 1, Chapter 2 Conditional Agreement at page 193 paragraph 2-143 and 2-145:-

35.The author of Chitty on Contracts has this to say in chapter 12 paragraph 12-028 at page 720 :-

“Conditions precedent.  The liability of one or both of the contracting parties may become effective only if certain facts are ascertained to exist or upon the occurrence or non-occurrence of some further event.  In such a case the contract is said to be subject to a condition precedent.  The failure of a condition precedent may have one of a number of effects.  It may, in the first place, suspend the rights and obligations of both parties, as, for instance, where the parties enter into an agreement on the express understanding that it is not to become binding on either of them unless the condition is fulfilled.  Secondly, one party may assume an immediate unilateral binding obligation, subject to a condition.  From this he cannot withdraw; but no bilateral contract, binding on both parties, comes into existence until the condition is fulfilled.  Thirdly, the parties may enter into an immediate binding contract, but subject to a condition, which suspends all or some of the obligations of one or both parties pending fulfilment of the condition.”

36.It is the Defendant’s defence after the final amendment to the defence at the trial that it is a condition precedent to the said contract under clause 2 that approval sample before production was required.  Such being a condition precedent to the agreement, if it was not fulfilled, the Defendant would not be liable to take delivery and pay for the goods. 

37.It is the Plaintiff’s case that under the construction of commercial document the term was not a condition precedent.  Mr. Li, counsel for the Plaintiff, submitted that the law is simply that the whole contract should be considered, and the ordinary meaning of the words should be adopted (Chitty on Contracts 29^th edition Volume 1 page 79 paragraph 12-041 to 12-063).  Mr. Li further submitted that the Defendant’s contention that by virtue of Clause 2 there was no binding contract unless and until the sample was approved by the Defendant is unsustainable for the sample had been approved before production i.e. the sample without print given by Miss Lam to Mr. D’Costa on 23 May 2003.  The Plaintiff relied on Mr. D’Costa’s email to Miss Lam dated 26 May 2003 (on page 98 of the bundle) as evidence in support.  In this email, he informed her that:

“We received your quality approval sample w/o dyed (print & color).  Buyer says quality is OK but he says it looks very smooth like rayon finish so when make dyed and colored it will be more thick and hard finished like cotton.  So buyer says you proceed and IMM send one actual sample from production.”

38.It is the Plaintiff’s case that this email message had given the Plaintiff the go-ahead, accordingly sample approval had been obtained under clause 2 of the said contract.  Mr. Li submitted that there was nothing in the contract to suggest that the term “approval sample” should be read differently from its ordinary meaning.  It can only mean the sample approved by the Defendant before production and it cannot mean sample approved also by the Defendant’s customer. 

39.It is not disputed that whether the sample has been approved by the Defendant under the contract is a matter of law and fact.  I took into consideration the evidence of Miss Lam on behalf of the Plaintiff and Mr. D’Costa on behalf of the Defendant, the exhibits and the documentary evidence including email exchanges between the parties and those from the Defendant’s customer in Jeddah.  I find that from the very beginning, based on Mr. D’Costa’s first email on 15 April 2003 (page 52 of the bundle) to the Plaintiff’s Miss Lam, the Defendant’s intentions were clear.  Mr. D’Costa had enclosed a photograph of a sample of the bedsheet required for his Jeddah customer in this email.  The picture showed a plastic bag containing a bedsheet, printed on the plastic bag was the number ‘333’ and the brand ‘Jin Cao’.  The same email also mentioned the price per piece, the weight of 540 grams and the quantity of goods required, that the goods would be shipped in 2 containers of 20 feet each etc.  The next document (on page 54)  exhibited was the purchase contract dated 29 April 2003; it set out all the terms of the contract including the description of the goods.  Further email communications on pages 56 and 57 of the bundle showed Miss Lam informing the Defendant that the brand name on the polybag ‘Jin Cao’ had been registered in China.  She requested Mr. D’Costa to urgently choose another name.  It is apparent from these email exchanges and the purchase contract that not only did the customer required approval sample before production, the customer required each piece to have the mark “Made in China” and each polybag to show ‘333’ in Arabic and in addition, the name that appeared on each polybag to be identical to the sample photograph that came with the email of 15 April 2003.

40.Further emails referred to earlier indicate that the Defendant required the Plaintiff to supply bedsheets with strict conditions of compliance to the sample supplied.  It was Miss Lam’s evidence that on 5 May 2003 she had personally visited the Defendant’s office and collected a bedsheet sample (the customer’s sample) and a piece of cloth from the Defendant’s office.  She also on that same occasion collected the original purchase contract on which the Plaintiff signed upon receipt.  Miss Lam in her supplemental witness statement paragraph 7 admitted that she was requested by Mr. D’Costa to supply a sample of the goods for the Defendant’s approval at an early stage, sometime in April 2003.  She was not able to supply a sample bearing exactly the floral design requested by the Defendant.  She was only able to supply a sample of bedsheet with the composition of 80% polyester and 20% cotton with a different floral design in late April 2003 to the Defendant.  This was before the Plaintiff signed the purchase contract and before she received from the Defendant the customer’s sample at the Defendant’s office on 5 May 2003.  On 23 May 2003, Miss Lam supplied to the Defendant a sample of bedsheet without dye, without print or colour.  Miss Lam admitted in Court that she was not able to supply a bedsheet with the floral pattern and colour requested by the Defendant because she did not have sufficient time to make a sample with prints.  But in paragraph 10 of her witness statement (at page 40), she claimed she was asked by the Defendant to produce a bedsheet without dye for the Defendant’s final approval.  This was denied by the Defendant.  Miss Lam’s evidence was clearly inconsistent.

41.From the emails exchanged between the Defendant and its Jeddah customer in May 2003, it is obvious that the customer required shipment of the bedsheets as soon as possible.  When the Plaintiff finally delivered to the Defendant on 21 June 2003 a production sample, it was rejected by the buyer on 23 June 2003.  The reason was evident from the email from the Defendant’s customer Ksanea to the Defendant (on page 103 of the bundle).  The Plaintiff claimed that the Defendant conducted a number of inspections on the 15 and 22 July 2003.  There were also emails exchanged between the Defendant and its customer in Jeddah during this period showing clear evidence that the Defendant’s customer in Jeddah required the bedsheet to follow the sample provided by the Jeddah customer exactly, suggesting an exact replica of the sample in floral design, colours, textures including the descriptions on the polybag.  It is quite clear what the Jeddah customer wanted was not what the Plaintiff was able to produce.  It is Mr. D’Costa’s evidence that he had informed Miss Lam of the same and that the Defendant’s Jeddah customer had rejected the sample sent to Jeddah on 21 June 2003 and if the production sample and the sample from the Shenzhen godown were the same, the Jeddah customer would reject the goods.  There is no reason for Mr. D’Costa to conceal this information from the Plaintiff.

42.I am satisfied based on the evidence of Mr. D’Costa that the Defendant’s intention under the contract was always made known to the Plaintiff.  It is a term of the contract that the goods must comply with the sample produced by the Defendant’s customer exactly down to the smallest detail.  It required the logo on the bag and the brand name on the bag to accord with the sample supplied.  That was why when the Plaintiff requested the Defendant and its customer to choose another name, the Defendant’s customer rejected the two names suggested by the Plaintiff and chose one that was similar to the registered brand name on the customer sample, ‘Jin Coa’ to replace ‘Jin Cao’.  Although the description of floral pattern was not mentioned in the purchase contract, clause 2 of the said contract stated clearly that it required “approval samples before production”.  On the 26 May 2003 email from Mr. D’Costa to Miss Lam, he had specified that “so buyer says you proceed and IMM send one actual sample from production”.  This request was clearly due to the urgent requirement of the Jeddah customer and that the Plaintiff had failed to produce a sample with the exact floral design and colour requested by the customer before production commenced.  The Plaintiff had the option of refusing this request if it was not able to comply with it.

43.Based on the evidence before me, I find there was a condition precedent for approval samples and the Plaintiff had failed to comply with the requirements laid down by the Defendant.  The Defendant’s email to the Plaintiff dated 26 May 2003 (on page 98 of the bundle) stated that although the Plaintiff was asked to proceed with production, the Plaintiff should immediately send a sample from production to the Defendant’s customer for its approval.  This instruction was as clear as daylight.  The Plaintiff chose to ignore the Defendant’s request to send a production sample to the Defendant immediately after production began for approval.  Up to that time the Plaintiff had supplied only a plain white sample and not a sample with the floral print, dye and colour to the Defendant for its approval although the Plaintiff well knew the Defendant’s customer required full compliance of the customer’s sample. 

44.I have not been told the full reason why the Plaintiff was not able to supply a sample from production to the Defendant until 21 June 2003, by which time full production of the goods had completed.  Miss Lam in her evidence in court admitted that the Plaintiff trusted the Defendant and therefore had not insisted on the Defendant’s payment of 20% deposit before production.  Under those circumstances, it would be foolish for the Plaintiff to go into full production without first confirming that the Defendant would accept the floral design and colours of the final product.  Further, the Plaintiff claimed it did not have time to produce a colour sample with floral design after it received the customer sample on 5 May 2003 and sent a sample without dye and print on 23 May 2003 after 18 days, yet the factory managed to complete full production of the goods between 26 May 2003 and 21 June 2003, within a matter of 26 days.

45.There were a large number of discrepancies and consistencies between Miss Lam’s witness statement and her evidence in Court.  Mr. D’Costa’s evidence, on the other hand, was consistent with the email messages and documents produced.  Consequently, on a balance of probability, his evidence was more reliable.

46.I accept the submission of Mr. Lui, Counsel for the Defendant, that the Court should look at the evidence objectively and the factual background known to the parties at or before the day of the contract.  I am assisted by Mr. Lui’s reference to Kim Lewison Q.C.’s ‘The Interpretation of Contract’ page 31 at para. 2.06:

“In addition to the words of the instrument, and the particular facts proved by evidence admitted in aid of construction, the court may also be assisted by a consideration of the commercial purpose of the contract, and in considering that purpose may rely upon its own experience of contracts of a similar character to that under examination.”

and at p.81, para. 3.11 :

“	In construing any written agreement the court is entitled to look at evidence of the objective factual background known to the parties at or before the date of the contract, including evidence of the “genesis” and objectively the “aim” of the transaction. However, this does not entitle the court to look at evidence of the parties’ subject intentions.
	It has always been the case that the court must construe a written agreement (even under seal) in the light of the circumstances surrounding its making. In Shore v Wilson, Erskine J. said:
	“	….. in all cases, even where the words are in themselves plain and intelligible, and even where they have a strict legal meaning, it is always allowable, in order to enable the Court to apply the instrument to its proper object, to receive evidence of the circumstances by which the testator or founder was surrounded at the date of the execution of the instrument in question, not for the purpose of giving effect to any intention of the writer not expressed in the deed, but for the purpose of ascertaining what was the intention evidenced by the expression used; to ascertain what the party has said; not to give effect to any intention he has failed to express.”

47.In the case of Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen [1976] 1 WLR 989， Lord Wilberforce said:

“No contracts are made in a vacuum: there is always a setting in which they have to be placed.  The nature of what is legitimate to have regard to is usually described as ‘the surrounding circumstances’ but this phrase is imprecise; it can be illustrated but hardly defined.  In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”

He continued:

“….what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were.”

at page 193 paragraph 7.02 of Lewison, the author has this to say under “Construing The Document As A Whole”:-

“In order to arrive at the true interpretation of a document, a clause must not be considered in isolation, but must be considered in the context of the whole of the document.”

48.In the present case, it is clear to me taking into consideration the email exchanges of the parties both before and after the execution of the purchase order No. PC/03/S03482 and the background information from the Defendant’s customer in Jeddah, the requirement of the Defendant that the Plaintiff should supply bedsheets that accord exactly with the sample was made clear to the Plaintiff.  I find the Plaintiff had failed to comply with the terms of the agreement because the Plaintiff failed to supply a sample to the approval of the Defendant before production and even after production started, it failed to deliver a production sample immediately as requested.  It was clear to the Plaintiff when it was informed on 23 June 2003 that the Defendant’s customer had rejected the sample sent on 21 June 2003 and would reject the goods if they were the same as the 21 June 2003 sample.  The Plaintiff was clearly not able to supply what the Defendant’s customer had asked for. 

49.For the aforesaid reasons, I am satisfied the Plaintiff had failed to fulfil the condition laid down under the said contract and was therefore in breach of the agreement, the Defendant is entitled to repudiate the contract.  The Plaintiff’s claim therefore must fail.  The Plaintiff’s claim is dismissed.

Costs

50.Costs nisi – Costs to the follow the event.  As the Defendant amended its defence on the first day of the trial, I order that the Plaintiff do pay ¾ of the Defendant’s cost to be taxed if not agreed with Certificate for Counsel.