Yu Fat Piece Goods Co Ltd v. Peter Mercantile Co Ltd and Another
Read the full judgment text of DCCJ 2798/2002 on BabelCite. This District Court judgment.
1. The Plaintiff (“P”) claims for the purchase price of fabrics sold and delivered. The Defendants (“D1” and “D2”) allege late delivery and defective quality of the fabrics and counterclaim for damages.
Cited by 1 case
|
DCCJ 2798/2002 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 2798 OF 2002 -------------------- BETWEEN
-------------------- Coram: Deputy District Judge S. T. Poon in Court Dates of Hearing: 9th - 11th January 2006 Date of Handing Down Judgment: 18th January 2006 ______________________ J U D G M E N T ______________________ Introduction 1. The Plaintiff (“P”) claims for the purchase price of fabrics sold and delivered. The Defendants (“D1” and “D2”) allege late delivery and defective quality of the fabrics and counterclaim for damages. 2. Major issues to be resolved include, as modified from the opening submission of Mr. Wong, counsel for D1 and D2, the followings: -
3. P has only 1 factual witness Miss Wendy Li (“Li”), the then merchandiser of P responsible for the subject sale. D1 and D2 have 2 factual witnesses, namely Miss Wong Yuk Ching (“Wong”), the general manager of D1, and Mr. Fung So Chai (“Fung”), the washing technician who conducted the washing of the subject fabrics. D1 and D2 also relied on the expert opinion of Mr. Lo Ka Tat (“Lo”) in relation to the quality of the subject fabrics. Background
4.On 10th August 2001, Miss Jovi Chan (“Chan”) of D1 sent by fax a purchase order to the Plaintiff for 17950 yards of Black Ground Twill printed with Gold Foil (“B/G Twill”) and 15850 yards of Ivory Ground Twill printed with Gold Foil (“I/G Twill”). This was the first business dealing between P and D1 or Pantex. 5.The instruction given on the purchase order was to deliver the goods to Pantex via Dah Cheong (大昌), a carrier. An address in Macau of Pantex was printed at the bottom of the page. 6.After receipt of the purchase order, Li drafted a sale contract and caused it to be signed by a director of P and sent it to D1. It was alleged by P that apart from faxing a signed copy to D1, they also sent by courier 2 original copies of the contract to them. The fax copy was sent on 15th August 2001 at around 9:00 pm., D1 was named as the addressee on the contract. The dates of delivery were specified as 15th August 2001 for B/G Twill and 20th August 2001 for I/G Twill. 7.D1 and Pantexdenied having received any original copies of the contract by hand. This is the most significant dispute on facts and it relates to the issue of whether certain exemption clauses allegedly printed at the back of the original form of contract formed part of the contract. It was admitted by P that the said page had not been transmitted to D1 or Pantex by fax. 8.D1 returned the contract by fax in the afternoon of the next day. Pantex signed as the buyer on the fax copy and the name of the addressee on the first page was altered from D1 to Pantex. It can be seen on the original copy of the signed contract (exhibit D-1) printed fax records at the top. There was an email dated 16th August 2001 from Chan to Li acknowledging the receipt of the contract but Chan did not specify whether she referred to the fax copy or the originals. Li replied an email within 2 hours and requested Chan to effect signature on the contract with company chop and return by fax. 9.On or around 15th August 2005, P delivered 5 lots of B/G Twills to Pantex, purchase price of which had been settled. It was however discovered that there was a shortage of quantity ( 短碼 ) within the lot. Upon communications, P admitted the shortage and promised to make it up, and in a letter dated 27th August 2001 by fax to D1, P requested Pantex to commence manufacture immediately to avoid delay. 10.No I/G Twill was delivered on or before 20th August 2001. In the email from Li to Chan as mentioned under paragraph 8 herein, Li requested Chan to specify the shipment date on the letter of credit to be issued as “on or before 25th August 2001”. It was admitted by Li when giving evidence that there was an understanding between parties that the delivery date was to be postponed to 25th August 2001. 11.The delivery of I/G Twill was further delayed. As the time for delivery of Ds’ products to Orit was approaching, Chan kept on pressing Li for delivery. Li indicated to Chan that the delay was due to P’s production problems and asked Pantex to do overtime work when receiving the I/G twill to prevent the final products from having to be sent by air and hence the extra expenses. 12.During the period between 6th September 2001 and 19th September 2001, P delivered on different dates a total of 11644 yards of I/G Twill to D2 (Pantex merged with D2 on 29th August 2001). 13.In or about mid September 2001, D2 finished the first lot of pants and forwarded them to its washing contractor for enzyme washing. It is common ground that washing was a necessary process to make the colours of the original fabrics to attain the effect as required by Orit. 14.The complaint of Ds against P’s fabric rested upon the defective shading of gold foil of the fabrics after washing. It would be necessary to set out here in greater detail the relevant facts in relation thereto. 15.On 21st August 2001, Chan received the swatch card (exhibit D-6) of the colour samples of the B/G and I/G Twill from Orit. It was Wong’s evidence that Orit had made some comments on washing (as against Fung’s evidence that the written comments on the swatch card were his handwritings). On 28th August 2001, Chan returned the samples to Orit for approval after washing. 16.Fung was the one who washed the samples, according to him, the colours required by Orit can be achieved by performing “Enzyme Wash” on the samples. Fung never mentioned anything about “Sand Wash” or “Stone Wash” in his statement. Upon cross-examination, Fung said “Enzyme Wash” includes “Enzyme Wash with sand” and “Enzyme Wash with Stone”. 17.Although it is not pleaded in P’s case, Mr. Lam suggested that the handwritings on exhibit D-6 (Sand Wash and Enzyme Stone Wash) were in fact washing instructions given by Orit rather than written by Fung. Mr. Lam further suggested that Fung had not followed the instructions when washing. 18.After Fung washed the first lot of pants from D2, he discovered that the fabrics had serious colour fading and shading problems. Fung immediately informed Wong of the problems and Wong instructed Chan to convey the same to Li at once. Upon Wong’s request, a fabric technician was sent by P to Ds’ office for a meeting. Knowing the problems, the said technician admitted that P had instructed 2 different fabric factories to produce the fabrics in order to meet the delivery date. He also admitted that he was aware of the existence of certain technical problems in one of the factories. 19.P’s technician visited D2’s washing contractor’s factory for inspection on the next day. Fung performed the whole process of washing in the presence of P’s technician and the same problems were found to have occurred on the pants as before. As it was obvious to P’s technician that the colours of the pants could not meet the requirement of Orit after washing, he requested Fung to perform dyeing on the pants to see if it can achieve the same effect. Fung took instruction from Wong and Wong instructed Fung to reject the request right away because it would be contrary to Orit’s instructions and dyeing may probably not be effective. 20.Wong also indicated to P’s technician that, if P can find any other washing factory that is able to wash the pants to the same effect as required by Orit, D2 would help to arrange the unwashed pants to be sent to it. P’s technician then took away several unwashed pants and thereafter no solution was ever suggested by P to solve the problems. 21.It was Fung’s view that the problems were caused by the mistakes made by the fabric factory when applying glue to stick the gold foil onto the fabrics. Fung stated that he could even feel the problem when he touched the pants, if gold foils drop seriously, it indicates that insufficient glue has been applied; if the fabrics become very hard, it indicates that too much glue has been applied. In addition, Fung stated that it was obvious that the pants were of inconsistent colours even before washing. 22.It was also Fung’s evidence, which had not been challenged in any way, that P’s technician basically agreed that the problem was caused by insufficient or over application of glue on the fabrics. 23.D1 and D2 relied on a test report completed by Dr. Simon Mak which had been adopted by their expert witness Lo. The report concluded that the colour of fabrics from which the tested unwashed pants were manufactured was inconsistent. Since the garments had various shades on some of the same pants, it would increase the difficulty and reduce the successful rate in achieving the similar appearance of the approved sample after garment washing with enzymes. The colour inconsistency on the appearance on the 80 pieces of the unwashed pants was rated unacceptable in the textile and clothing industry. Discussions D1’s capacity 24.In his closing submission, Mr. Lam indicated to the Court that P is not seriously challenging the fact that D1 was not a party to the sale contract. 25.It was upon Orit’s instruction that P supplied the fabrics to Polytex and vice versa. It occurs to me that P had been indifferent as to whether D1 or Pantex was in fact the party to the contract. Pantex signed as the buyer on the contract and P had raised no query on it when noticed. The alteration of the name of the addressee on the contract clearly showed the intention of Pantex rather than D1 to be a party to the contract. D1 was responsible only for the pre-contract negotiation with P and this did not render D1 a party to the contract concluded. 26.I found that D1 was not a party to the contract. Terms of the Contract 27.There are 2 important issues involved under this head :-
28.The following remarks, inter alia, were printed on the purchase order: -
29.It is printed on the front of the contract, inter alia, the following remarks: -
30.At the right hand lower corner of each page of the contract, the following words can be found - “Attention is drawn to the terms and conditions printed overleaf”. However, no copy of the said overleaf was sent by fax to Ds. 31.The following terms are, inter alia, printed at the back of the original contract allegedly sent to the Defendants by courier: -
32.It can be noted that the exemption clauses stipulated on the overleaf are much more extensive than the one printed on the front of the contract. 33.As regard the remarks stipulated on the purchase order, there was nothing on the contract to incorporate the same. The mere reference to the reference number of the purchase order does not make everything on the purchase order a term of the resultant contract. For the present case, a fresh document was drafted by P and signed by Pantex and new terms had been stipulated on it. P chose not to conclude the contract by simply sign on the purchase order. All the above indicate that parties had no intention to incorporate the remarks on the purchase order as terms of the contract. Implied Terms 34.Having ruled that the remarks of the purchase order formed no part of the contract, there would be no express term in the contract relating to the standard of quality of the fabrics. Mr. Wong submitted that Section 16(2) and Section 16(3) of the Sale of Goods Ordinance, Cap.26 (“SOGO”) are applicable. 35.Section 16(2) of SOGO provides as follows:-
36.As submitted by Mr. Wong, the burden is rested upon P to allege and prove facts bringing the case within the exceptions under Sections 16(2)(a), (b) or (c). Benjamin’s Sale of Goods, 6th ed., at 11-053 and 11-054. There is no evidence to suggest the present case falls within any of the 3 exceptions. Although apparently the sale was made with reference to a sample, the evidence is that the sample fabrics supplied by P for Orit’s approval was a satisfactory one. I conclude that a condition that the fabrics supplied under the contract are of merchantable quality is implied to the contract by virtue of this Section. 37.Section 16(3) of SOGO provides as follows: -
38.To disprove the existence of the implied condition of fitness for purpose under the Ordinance, the burden is rested on P to prove that there was no reliance or that Ds’ reliance on the seller’s skill or judgment was unreasonable. Benjamin’s Sale of Goods, 6th ed., at 11-075. 39.P was a supplier designated by Orit, in order to meet Orit’s requirement to the quality of fabrics it would be necessary or at least reasonable for Ds to rely on P’s skill as a fabric supplier. Exemption Clauses 40.There was a dispute as to whether the original copy of the contract had been forwarded to D1. The evidence of Li was that she had instructed a colleague to send the original copy in duplicate by courier on 15th August 2001 after her superior signed the contract. In cross-examination, Li admitted that her superior signed the contract in the afternoon but she waited until around 9:00pm to send the contract by fax, she could offer no explanation for the delay. When asked by Mr. Wong whether she had made any photocopy of the original contract before she passed it to her colleague for dispatch, Li’s initial answer was no, but when being questioned further, she changed her answer. 41.The whole point of faxing a copy to the other side, on top of an original copy being sent on the same day, is the concern of time. It is unreasonable that Li would wait until 9:00pm to fax the contract whilst the original copies were expected to reach D1, according to Li, on the next morning. Moreover, as mentioned in paragraph 8 herein, Chan returned the signed contract by fax in the afternoon of 16th August 2001, should D1 have received the originals in the morning as expected by Li, Pantex would probably have signed on the original copy rather than the fax copy. 42.I conclude that Li was not telling the truth in this respect and I rule that P had not sent any original copy of the contract to D1 or Pantex. 43.Mr. Lam brought my attention to the words printed at the right hand lower corner of each page of the contract that – “Attention is drawn to the terms and conditions printed overleaf”. P admitted that no copy of the overleaf had been sent by fax to D1 and in that case, D1 and Pantex could have no knowledge as to what terms and conditions were printed overleaf the contract. Mr. Wong referred me to a Court of Appeal case in England which is, in my view, directly to the point. (Poseidon v. Davies Turner [1996] 2 Lioyd’s 388) At page 394, Lord Justice Leggatt had this to say:-
44. Those words did not by themselves incorporate any term printed overleaf into the contract. 44. P relied also on the exemption clauses printed on the front of the contract. Mr. Wong submitted that those clauses had not been drawn to the attention of Ds sufficiently to the standard required for “onerous” or “unusual” terms to make them part of the contract. 45.With respect to Mr. Wong, the said clauses were listed out under the head of the word “Remarks” which was printed in bold on the contract. Such terms occupied nearly half of the first page of the contract. I am of the view that no reasonable man would miss out any of the said terms when looking at the contract. All of the terms as set out under paragraph 29 herein were clearly terms of the contract intended by parties. 46.Mr. Wong submitted that the exemption clauses are subject to CECO. However, Under Section 16(1) of CECO, the limits imposed by CECO do not apply to liability arising under an exempted supply contract. An exempted supply contract means, under Section 16(3) a contract: -
47.It was pleaded under the Re-amended Defence and Counterclaim that the contract contained an express term that the goods should be delivered to Pantex. An address in Macau was given as the address of Pantex on the purchase order sent by D1 to P. The present contract clearly falls within the meaning of an exempted supply contract under Section 16(3)(a), (b) and (c)(iv). Therefore, the limits imposed by CECO do not apply to the present exemption clauses. 48.The 2 exemption clauses under the Remarks that are more relevant to the present case are numbers (3) and (4) as referred to under paragraph 29 herein. P is seeking to exempt its liabilities from breaches of the implied terms as regard the defective quality and unfitness for purpose. 49.It is settled law that an exemption clause is to be interpreted in its strictest sense. The burden is rested on P to show that the exemption clauses “extend to the exact contingency or loss which has occurred if it is to protect the party relying on it.” “It is for the party seeking to rely on the exemption clause, on its true construction, covers the obligation or liability which it purports to restrict or exclude.” The court will attribute to the clause a construction which is not inconsistent with the main purpose and intent of the agreement. Chitty on Contracts, 29th ed., at 14-006, 14-007 & 14-018. 50.In addition, Section 57(2) of SOGO provides that, “an express condition or warranty does not negative a condition or warranty implied by this Ordinance unless inconsistent therewith”. 51.The purpose and intent of the agreement was the purchase and supply of fabrics for manufacture of pants to supply to Orit. On the basis of such a purpose, unless it is clearly and expressly stated to the effect that the quality of the fabrics is not guaranteed to be of reasonably acceptable standard to Orit, any exemption clause under the contract shall not be interpreted to cover liabilities to such an extent. In view of the nature of the complaint made by Ds against P’s fabrics, P is seeking to interpret the subject exemption clauses to this extent. 52.Remarks number (3) relates to “slight variation in colour”, remarks number (4) relates to “discrepancy”. A fundamental defect in quality that render the fabrics not merchantable and unfit for purpose can by no means be described as mere “slight variation in colour” or “discrepancy”. Taking into account the legal principles set out in paragraphs 49 and 50 hereinabove, these 2 clauses are far from specific enough to exempt or restrict the liabilities resulting from a breach of the said implied terms. Breach of implied terms 53.The evidence relied on by Ds in proving defective quality of P’s fabrics had not been challenged in any way by P at trial. Although it was not pleaded in its pleadings, it was suggested to Fung that he did not follow the washing instructions given by Orit when he did the washing on the bulk. This suggestion is contrary to Fung’s evidence in Court. 54.I accept that the handwritings on exhibit D-6 might not be Fung’s. Fung had shown a certain degree of hesitation when he said that the handwritings were his, he did not in his statement mention anything about this. Moreover, it was Wong’s evidence that Orit had made some comments on washing on exhibit D-6. 55.However, this does not make Fung a dishonest witness. I am of the view that he had made a genuine mistake due to the lapse of time. Most part of his evidence was unchallenged, whether Fung had written the words on exhibit D-6 was neither here nor there. The evidence of Fung was that he had followed the method written on exhibit D-6 when washing the samples and also the bulk. It was only after he realized the defects of P’s fabrics that he tried to wash the pants by some other methods. 56.One important point to note is that a technician of P was sent to witness Fung washing the pants, if Fung had done anything improper, P’s technician would have pointed out to Wong or Fung or even Li at that time. I am of the view that the defects of P’s fabrics were so obvious that no one could possibly challenge their existence. 57.I accept the evidence of Lo that the quality of P’s fabrics was unacceptable and below merchantable quality. I also rule that P’s fabrics were unfit for the purpose of manufacturing pants for supply to Orit. Late Delivery 58.In Mr. Wong’s final submission, he submitted on the issue of late delivery as to I/G Twill only. Although there is evidence that P was also late in delivery of the B/G Twill to make up the shortage as mentioned under paragraph 9 herein, I take it that the damages Ds are now seeking are all relating to the alleged late delivery of I/G Twill. 59.Mr. Lam suggested that as Ds had not issued the letter of credit in time before the delivery date, P was released from the obligation to adhere to the prescribed time for delivery. This argument seems attractive at first sight, nevertheless, as I have set out under paragraphs 10 and 11 hereinabove, there existed a clear understanding between parties that the delivery date of the I/G Twill was to be altered to 25th August 2001 and it was indeed stated under the letter of credit as such, P was therefore obliged to deliver the I/G Twill not later than 25th August 2001. If the letter of credit was not issued before 25th August 2001, Mr. Lam’s argument might still stand. However, the letter of credit was issued as early as on 21st August 2001. 60.As mentioned under paragraph 11 hereinabove, P gave an explanation that the delay was caused by some production problems. There was no complaint of any delay of issuance of letter of credit and no dispute on late delivery at the time when P was pressed by Ds for delivery. In asking Ds to perform overtime work for production, it reflected that it was within parties’ contemplation that the deadline to deliver the final products to Orit could not be met should P not deliver the fabrics to Ds on time or at least within a reasonable time thereafter. 61.I found that the stipulated delivery date of the I/G Twill had been extended to 25th August 2001 upon P’s request. As mentioned under paragraph 12 herein, the first lot of I/G Twill was delivered as late as on 6th September 2001 and I found that it was unreasonable and unacceptable in view of the tight schedule for manufacture as revealed by the evidence. I found further that P was in breach of contract by late delivery. Damages 62.In view of the above findings, P is liable to damages suffered by D2 consequential upon P’s breaches of contract. 63.There were altogether 4 heads of damages claimed by D2 as follows: -
64.D2’s evidence as to items (c) and (d) was not challenged and I accept it in full. Since the liability of P is now established, I see no reason why these heads of damages shall not be awarded to D2. 65.For item (b), Mr. Lam had properly withdrawn his submission against it when he was referred to a mistaken figure in the agreed bundle which had apparently misled his calculations in relation thereto. Again, I see no reason why this head of damages shall not be awarded. 66.For item (a), it was submitted by Mr. Lam that the unused materials were reusable and hence a reasonable amount has to be deducted. According to the evidence of Wong, the unused materials included zips, buttons, labels, pockets, threads and hangers. Particulars of which had been given in schedule 2 of Wong’s first statement. Out of the items listed under the schedule, I am of the view that items (4), (7), (8) and (10) representing sponges, hangers, threads and zips are reusable and the costs of which shall be deducted. Hence, the amount to be awarded under this head is HK$14,979.18 – HK$10,072.14 = HK$4907.04. 67.The total award in favour of D2 under the counterclaim is HK$364,316.97. It was accepted by Mr. Wong that any such award shall be set off by the purchase price claimed by P in the sum of HK$270,630.00. The amount after set off is therefore HK$364,316.97 – HK$270,630.00 = HK$93,686.97. Judgment 68.As I have found that D1 was not a party to the contract, P’s claims against D1 shall be dismissed. On the same basis, the alternative counterclaim of D1 against P shall be dismissed also. 69.As regard P and D2, since the award under the counterclaim is significantly exceeding the original claim, I order that P’s claims against D2 be dismissed and judgment be entered in favour of D2 against P for the sum of HK$93,686.97 together with interest thereon at judgment rate from the date of the Counterclaim until payment. 70.I make an order nisi that costs of the original action and the counterclaim be to D1 and D2 to be taxed if not agreed. The order nisi is to be made absolute after 14 days.
Mr.Simon Lam instructed by Messrs S. K. Kong & Co. for the Plaintiff. Mr. Anson Wong instructed by Messrs. Tsang, Chan & Woo for Defendant. |
Other judgments that cite this case
Further hearings and rulings under DCCJ 2798/2002