Yokview Co Ltd v. Hang Cheong Textiles Co Ltd
Read the full judgment text of DCCJ 5538/2003 on BabelCite. This District Court judgment was delivered on 17 March 2006.
1. The plaintiff was a manufacturer of ladies’ handbags. It had signed a contract with a British buyer for a quantity of ladies’ handbags. The defendant was a supplier of textile fabrics. The plaintiff also informed the defendant that if the defendant could not perform the terms of the agreement, the plaintiff would have to compensate its buyer in turn. Both parties recognized that there could be a range of acceptable variance in colour and quality. Before supplying the bulk, the defendant
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DCCJ 5538/ 2003 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 5538 OF 2003 ____________________ BETWEEN
_________________________________________ REASONS FOR DECISION _________________________________________ Coram : Deputy District Judge E. Yip in Court Date of Hearing : 21-24 February 2006 Date of Judgment : 17 March 2006 The plaintiff’s claim 1.The plaintiff was a manufacturer of ladies’ handbags. It had signed a contract with a British buyer for a quantity of ladies’ handbags. The defendant was a supplier of textile fabrics. The plaintiff also informed the defendant that if the defendant could not perform the terms of the agreement, the plaintiff would have to compensate its buyer in turn. Both parties recognized that there could be a range of acceptable variance in colour and quality. Before supplying the bulk, the defendant had to provide the plaintiff with a sample cur from the bulk for re-approval. On these bases, the plaintiff and the defendant entered into an agreement for the defendant to supply to the former a quantity of black tapestry satin corresponding to the plaintiff’s sample in terms of colour and quality. Time was of the essence. The defendant failed to deliver an appropriate sample in time or at all. The plaintiff had to engage another supplier and another factory to perform its contract with the British buyer. The plaintiff claims loss and damage. The defendant’s defence 2.In the course of the trial, the defendant concedes in writing (Ref – 1) that the Counterclaim ought to be dismissed. 3.In answer to the Statement of Claim, the defendant alleges that it was the defendant’s own sample on a subsequent date that was the governing sample. The defendant provided subsequent samples for re-approval. They corresponded to the governing sample but were somehow unreasonably rejected by the plaintiff. Unfortunately, the defendant could not provide the remainder of such samples as the bulk was sold shortly after the plaintiff’s rejection. However, these exhibits as the samples allegedly supplied by the defendant were not those actually supplied by the defendant. Further or the alternative, conformity with the plaintiff’s requirements was a condition precedent/subsequent to the agreement. Such non-conformity discharged both parties from performance of the agreement. The defendant had to refund the deposit but would not be liable for any loss and damage caused to the plaintiff. The issues to be determined 4.The defendant accepts that if the samples (now exhibited by the plaintiff allegedly provided by the defendant for re-approval) had been provided, they would not have corresponded to the governing sample. Presently this Court has to determine:
The plaintiff’s evidence 5.The plaintiff’s side has 3 witnesses:
6.PW1 Ho was the plaintiff’s materials buyer. He had to source and buy fabrics and materials for the plaintiff. He had so worked for the plaintiff for 11 years. 7.PW2 Fong was the director and boss of the plaintiff. He took part in its daily operation and management. He made all the business decisions in all matters relating to the present case. 8.On 22 July 2003, first by email [B2] and then, on 1 August 2003, confirmed on paper [B7 – 16], the plaintiff’s major customer, Primark Stores Limited (“Primark”), in U.K., placed an order with the plaintiff for 12,560 handbags in black tapestry satin and 12,560 handbags in red tapestry satin. It was a repeat order of the same handbags shipped over several months ago. The plaintiff had to dispatch the goods on or before 31 August 2003, time being of the essence. We can focus on the black tapestry satin, the subject-matter of the present case. The plaintiff had to look for a supplier of 1,700 yards of the black tapestry satin because the previous supplier had ceased to manufacture it. There had been no business dealings between the plaintiff and the defendant beforehand. 9.The plaintiff had a large factory in PRC. It had a tight production schedule pre-arranged for one month ahead. The manufacturing process for this order was scheduled for 3 –5 days in late August 2003. 10.On 15 August 2003, PW1 Ho went to the defendant’s shop. DW1 Ms Lim Sin Kuan (“DW1 Lim”) was there. He showed her his swatch of black tapestry satin (“the 15 August 2003 Sample”: Exh. P1). They would make contact if the defendant was able to supply it. 11.On 18 August 2003, after some telephone exchanges between PW1 Ho and DW1 Lim, the latter took a sample (“the 18 August 2003 Sample”: Exh. P2) to the plaintiff’s office at around 12 noon. Primark’s purchasing officer, a Ms. Vanessa Shepherd (“Shepherd”) from U.K happened to be present, too. She was to stay in Hong Kong for a few days on business. Shepherd inspected the sample. She was satisfied that this sample was within the acceptable range of colour and quality of the 15 August 2003 Sample. DW1 Lim prescribed HK$12.50/yard and delivery in about 8 days. The plaintiff would have to prepare a purchase order in writing and pay a deposit of 30% of the total price, i.e., HK$6,375.00 (being HK$12.50 x 1,700 x 30%). After DW1 left, PW2 Fong decided to purchase from the defendant. He instructed PW1 Ho to enter into an agreement with the defendant. 12.Shortly afterwards, PW1 Ho phoned DW1 Lim. They made the oral agreement (“the Oral Agreement”) as follows:
13.DW1 Lim said she understood the terms, including term (3) above. At around 2 p.m., PW1 Ho faxed over the plaintiff’s purchase order [“the Purchase Order”: B18] to the defendant. 14.On 19 August 2003, PW1 Ho brought the original of the Purchase Order, the plaintiff’s cheque for HK$6,375.00, and a swatch of the 15 August 2003 Sample respectively to DW1 Lim at the defendant’s shop. He saw DW2 Chau Cheong Lung (“DW2 Chau”) there. 15.On 22 August 2003, the defendant sent a sample (“the 22 August 2003 Sample”: Exhs. P3 and P4) to the plaintiff’s office for re-approval. PW1 found the colour too light and the texture different. The sample was not within the acceptable range of the 15 August 2003 Sample. PW2 Fong called in Shepherd, who was still in Hong Kong, to look at it. She had the same view. PW2 Fong instructed PW1 Ho to reject the sample. Over the phone, PW1 Ho informed DW1 Lim Ho of the rejection and the reason. He urged her to make haste for another sample to be re-approved, otherwise the defendant would be liable for loss and damage suffered by the plaintiff as a result. PW2 Fong also phoned DW2 Chau for the same purpose. 16.On 22 August 2003, the defendant sent another sample (“the 25 August 2003 Sample”: Exh. P5 and P6) to the plaintiff’s office for re-approval. The same problem existed as before. The sample was again not within the acceptable range of colour and quality of the 15 August 2003 Sample. PW2 Fong called in Shepherd, who was still in Hong Kong, to look at it. She had the same view. Over the phone, PW1 Ho informed DW1 Lim Ho of the rejection and the reason. 17.On 26 August 2003, the plaintiff issued a letter, in Chinese, to the defendant [B21] in complaint of the failure to supply goods in time or at all, seeking to hold the defendant liable for all loss and damage suffered by the plaintiff as a result. The defendant did not respond. 18.On 2 September 2003, the plaintiff instructed solicitors to issue a letter, in English, to the defendant on the same premise but with more details. The defendant did not respond. 19.After extensive enquiries, the plaintiff managed to obtain from Rong Xing Piece Goods (“Rong Xing”), in PRC, the same satin at HK$23.00/yard. The satin was to be delivered on 2 September 2003. It was the best and timeliest deal. The extra satin cost was (HK$23.00 – HK$12.50 =) HK$10.50/yard. The total extra satin cost was (HK$10.50 x 1,700 =) HK$17,850.00. The plaintiff held the defendant liable for this sum, together with the deposit of HK$6,375.00 paid to the defendant. 20.The plaintiff’s factory was fully occupied with other pre-arranged tasks and had no means to take up this task in September 2003. Its cost per dozen would have been HK$20.00/dozen. After extensive enquiries, the plaintiff managed to engage He Fa Leather Handbags Factory (“He Fa”), in PRC, to take up this task. It was the best and timeliest deal. The extra manufacturing cost was (HK$46.00 – HK$20.00 = ) HK$26.00/dozen. The total extra manufacturing cost was (HK$26.00 x 12,560/12 =) HK$27,213.33. The plaintiff held the defendant liable for this sum. 21.The plaintiff originally claims another sum of US$3,000.00 allegedly paid to Primark upon Primark’s request as a condition for not canceling the order due to the plaintiff’s lateness. In the course of the trial, the plaintiff abandons this head of claim. The defendant’s evidence 22.The defendant calls 2 witnesses:
23.They were man and wife. DW2 Chau was the real boss and majority shareholder. As the company consisted only of them and another person, DW1 Lim had to do anything not done by the others. She mostly stayed in the shop. 24.The defendant does not accept that the plaintiff’s 15, 18, 22, and 25 August 2003 Samples respectively were those presented by the defendant to the plaintiff. The defendant is not in a position to produce to this Court the samples actually submitted by the defendantto the plaintiff for re-approval because the bulk had been resold soon after the plaintiff’s repudiation of the Oral Agreement. 25.On 15 August 2003, an unknown young man, who claimed to be the plaintiff’s salesman, came to the defendant’s shop. He was looking for existing stock of something like the swatch of black tapestry satin in his hand. DW2 Chau, who was present, gave him a colour board (Exh. D1) with 8 tapestry satin samples, each in a different colour, including black. The colour board was identified as no. “8068” at the left top. Exh. D1 had the words “existing stock” at the middle top. 26.On 22 August 2003, PW1 Ho phoned DW1 Lim. He asked her to take a sample of the no. 8068 black tapestry satin to the plaintiff’s office. There she showed them a sample (“the defendant’s 18 August 2003 Sample”). PW2 Fong and she negotiated the terms. She had the authority to enter into an agreement with the plaintiff on that occasion. The terms of the oral agreement was as follows:
27.She had not agreed to compensate the plaintiff for loss or claims form the plaintiff’s customers due to delay in delivery, shortage, or outside the acceptable range of colour and quality of the prescribed sample. 28.DW2 Chau did not respond to the Chinese letter because he did not have previous experience in such disputes. He did not respond to the English letter because he did not read English. 29.The defendant’s 22 and 25 August 2003 Samples, cut from the same bulk, were unreasonably rejected by the plaintiff. The defendant soon resold the bulk to another company. When the defendant got its lawyers to respond to the Statement of Claim in late September 2003, not a single swatch of the defendant’s 22 and 25 August 2003 Samples had remained available. Hence the defendant has no such exhibits to submit as evidence. This Court’s findings 30.I have considered all evidence and counsel’s submissions.
31.The plaintiff’s counsel refers [in para. 3(b) of Closing Submissions] to DW1 Lim’s oral evidence that the defendant had told PW2 Fong that the defendant would be using existing stock to fulfill the oral agreement. However, she stated [in para. 9 of her Statement] that the bulk would be produced after the plaintiff had issued the Purchase Order and paid the 30% deposit. Her versions as to the source of the bulk are contradictory. I find such oral evidence incredible. Besides, her oral evidence is that there would be a variance in colour so that the bulk would be 90% the same as the sample. It is difficult to reconcile the variance with her case of the sample being cut from the bulk. I find such oral evidence incredible. 32.The plaintiff’s counsel refers [in para. 3(c) of Closing Submissions] to DW1 Lim’s oral evidence as to the source of the bulk. She swayed between a Hangzhou supplier and a Guangzhou supplier from time to time. Her final answer was the latter. However, she says she told PW2 Fong that she could not promise to deliver up in time because the Hangzhou factory had frequent power cuts. I find her making up things as she goes along. 33.The plaintiff’s counsel refers [in para. 3(f) of Closing Submissions] to DW1 Lim’s oral evidence that on 18 August 2003 PW1 Ho took an active role in the discussions with her in the plaintiff’s office. However, her Statement did not mention him in the discussion at all. When cross-examined on the discrepancy, she replies that she actually forgot whether he had participated in the discussions. She explains that she forgot his words because PW2 Fong was the boss. I find her making up things as she goes along. 34.I do not find her a credible witness. Except for her understanding that her 18 August 2003 Sample (Exh. P2) governed, I reject her evidence on all facts in issue.
35.The plaintiff’s counsel refers [in para. 4(b) of Closing Submissions] to DW2 Chau’s oral evidence that Exh. D1 was one of the many sample cards freely and abundantly available to walk-in customers at all times. There would have been no reason for the defendant to fail to produce it until almost 2 years after the Writ, and its availability was never disclosed in any of his witness statements. I agree with this submission. I find such evidence incredible. 36.The plaintiff counsel refers [in para. 4(d) of Closing Submissions] to DW2 Chau’s oral evidence that he could not find any part of the defendant’s 22 and 25 August 2003 Samples as exhibits for this case because the bulk had been resold and delivered to a buyer in early September 2003. However, he stated [in his 3rd Affirmation] that he had to look for a buyer until the bulk was sold on 19 October 2003. I find such oral evidence incredible. 37.The plaintiff counsel refers [in para. 4(d) of Closing Submissions] to DW2 Chau’s oral evidence that there was a great demand in the market for the bulk, so the bulk was resold very soon after the rejection. However, he also says that only a very low price of $2.5/yard could be fetched. These are contradictory versions. 38.The plaintiff counsel refers [in para. 4(e) of Closing Submissions] to DW2 Chau’s oral evidence that there was an oral agreement between PW2 Fong and him that the plaintiff had to pay the balance of the purchase price before delivery of the bulk. This contradicts the defendant’s own invoice where it stated “C.O.D.” I find such evidence incredible. 39.The plaintiff counsel refers [in para. 4(g) of Closing Submissions] to DW2 Chau’s oral evidence that he does not know what “C.O.D.” means in the defendant’s own invoice until the present moment. This has been the standard wording. He has been in the business for 17 years. I find such oral evidence incredible. 40.The plaintiff counsel submits [in para. 4(h) of Closing Submissions] that nowhere in DW2 Chau’s statements or affirmations was mentioned any oral agreement reached between DW1 Lim and PW2 Fong. As DW1 Lim had to report all business transactions to DW2 Chau, it shows that the defendant’s case of such an oral agreement is a recent fabrication. I agree with this submission. 41.I do not find him a credible witness. Except for his understanding that the 18 August 2003 Sample (Exh. P2) governed, I reject his evidence on all facts in issue.
42.The defendant’s counsel submits [in para. 5 of Closing Submissions] that there was no reason why the plaintiff and the defendant could not reach any agreement in the plaintiff’s office. All the important terms such as price and delivery time had already been reached. I do not agree with this submission. If the defendant’s case, that DW1 Lim could not commit herself to any definite delivery date, or compliance otherwise than 90% of the colour of the sample, were to be accepted, the plaintiff would need more time for consideration. Leaving aside the defendant’s case, I still regard it prudent for the plaintiff not to rush to a decision on the spot. The plaintiff then took an hour or so for consideration. I find this reasonable and credible. 43.I find PW1 Ho and PW2 Fong credible and reliable witnesses. There is no challenge to PW3 Cheng’s evidence and I find him a credible and reliable witness. However, PW3 Cheng’s evidence has little or no assistance to the plaintiff’s case as shall be explained hereinafter. The terms of the Oral Agreement
44.On 23 February 2003, the third day at trial, the defendant introduced a new line of defence, namely a condition precedent/subsequent agreed by the parties that if a sample supplied by the defendant should fail to obtain the plaintiff’s re-approval, the agreement would no longer be binding upon both parties. The defendant would return the deposit to the plaintiff. The parties would not be obliged to perform any terms of the agreement [para. 6A and 12B of the Re-re-amended Defence]. 45.The plaintiff’s counsel submits [in II(B) of the Closing Submissions] that no statements or oral evidence of any witnesses have mentioned the existence of such a condition. There is nothing to support this allegation. Instead, the parties had an immediate and binding contractual obligation to perform all terms of the agreement on 18 August 2003 forthwith. I agree with this submission.
46.The defendant’s counsel submits [in para. 7, and 9 of Closing Submissions] that the plaintiff pleaded only the 15 August 2003 Sample as the governing standard. This Court should dismiss the plaintiff’s case upon a finding that the 18 August 2003 Sample was the governing standard. The plaintiff’s counsel submits [in II(A) of the Closing Submissions] that the Court is entitled to decide in favour of a party on the basis of a scenario which, although different from the one pleaded and advanced by it, is one pleaded [para. 5, 6, 6A, 7, and 12A of the Re-re-amended Defence] and advanced by the other party, provided that the Court does so in fair manner [Poon Hau Kei v Hsin Chong Construction Company Limited [2004] 2 HKLRD 442]. The Court is entitled to find that the 18 August 2003 Sample that governed instead of the 15 August 2003 Sample. There will be no prejudice to the defendant. I find that it was the 18 August 2003 Sample that governed.
47.The plaintiff argues for an implied term of a tolerance limit based on the 15 August 2003 particularized as follows:
48.For a term to be implied into a contract, the following conditions must be satisfied [Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381, 391 – 392, 401 adopting Lord Simon of Glaisdale’s view in BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20, at p. 26]:
49.I do not think that such a specific tolerance limit should be implied into the oral agreement. According to PW3 Cheng, different customers might look to different standards. It was the first-ever transaction between the plaintiff and the defendant. There was no basis for the defendant to be imputed with such a specific tolerance limit. My interpretation of the Purchase Order was that the bulk should at least correspond to the 18 August 2003 Sample. This would no doubt suit both parties’ interest. I do not regard PW1 Ho as seriously insisting on the 15 August 2003 Sample because Shepherd had expressly approved of the 18 August 2003 Sample. 50.Except that it was the 18 August 2003 Sample that governed (instead of the 15 August 2003 Sample), I find an oral agreement between the parties on the terms as described by PW1 Ho in his evidence. Whether the defendant was in breach of the Oral Agreement
51.The defendant’s counsel submits [in para. 31 and 32 of the Closing Submissions] that the plaintiff has the motive or interest to misrepresent to this Court that such exhibits (Exhs. P3 – P6) were those supplied by the defendant when in fact they were not. I do not find this submission helpful because it can equally be reciprocated to suggest that the defendant has the motive or interest to misrepresent otherwise to suit the defendant’s own case. 52.PW1 Ho and PW2 Fong say that Exhs. P3 – P6 were kept in a file where, absent vandalism or sabotage, no one else than themselves could have any contact with. There is no suggestion or evidence of vandalism or sabotage having taken place. I accept their evidence that these exhibits were truthfully and correctly marked and dated upon being received and handled. There is no break in the chain of evidence. I am satisfied that these exhibits are those provided by the defendant for the plaintiff’s re-approval on 22 and 25 August 2003 respectively.
53.As time was of the essence and none of the samples provided by the defendant corresponded to the 18 August 2003 Sample in time or at all, the defendant was in breach of the Oral Agreement. The plaintiff wrote to the defendant to accept the repudiation. The plaintiff’s measure of damages 54. The plaintiff claims [para. 9 of Re-amended Statement of Claim]:
55.On the third day of trial, the plaintiff abandons the last item of claim. It remains for this Court to determine the first two items.
56.The difference in the purchase prices concerns the first limb in Hadley v Baxendale (1854) 9 Ex. 341. The innocent party may recover damages as may fairly and reasonably be considered as arising naturally from the breach of contract. 57.The defendant’s counsel submits [in para. 37 of the Closing Submissions] that the defendant has provided invoices for 15 July 2003 [B1] and 10 August 2003 [B17] respectively showing the price was RMB￥8.5/yard instead of $23/yard. In the Oral Agreement, the plaintiff had to pay $12.50/yard. PW1 Ho’s expectation as at mid-August 2003 was $13.50/yard maximum and prices in Hong Kong are generally higher than in PRC. Counsel submits that the rise to HK$23/yard in a short time is incredible or unreasonable. I have to bear 2 factors in mind. First, there was a time lapse of 15 days from the date of the last invoice [B17] to the search conducted by the plaintiff. There is no evidence as to whether or how the market fluctuated in the meantime. The defendant’s counsel seems to be giving evidence that the market ought to be less volatile than the plaintiff has suggested. Second, not all tapestry satin had the same quality and colour. The 22 and the 25 August 2003 Samples [Exhs. P3 – P6], which the defendant accepts did not correspond to the governing sample,were cases in point. I find what the plaintiff had done was reasonable in mitigation of loss under this head. I allow the full sum of HK$17,850.00.
58.The difference in the purchase prices concerns the second limb in Hadley v Baxendale (1854) 9 Ex. 341. The innocent party may recover damages as the parties should reasonably have contemplated would flow from the breach as having a substantial degree of probability. 59.The plaintiff had a large factory in PRC. If the bulk had matched the pre-arranged schedule of the factory, it would have taken only 3 – 5 days to complete the manufacturing. Because of the delay, the 3 – 5 day slot was wasted. The pre-arranged schedule would not permit any lateness in arrival of the bulk. I wonder whether the plaintiff’s factory would have to be shut down for 3 – 5 days as a result. I wonder whether other tasks could swop schedules with this urgent task. The plaintiff should not have engaged if it had some other easier and less-costly options. There is scanty, if any at all, evidence that the plaintiff had thoroughly considered swopping schedules to make way for this urgent task before signing up He Fa. I do not find that the loss and damage from this head arose from the defendant’s breach. The Conclusion 60.I order the defendant to pay to the plaintiff the sums of $6,375.00 [as conceded by the defendant] and $17,850.00respectively, a total of $24,225.00 with interest at judgment rate from the date the Writ of Summons was filed. There is no apparent reason why costs should not follow the event. The plaintiff should have its costs. However, I am aware of the quantum that the plaintiff now recovers. It should have been a Small Claims Tribunal case. I see no reason to award costs at the District Court scale. I make this cost order nisi. It shall become absolute after 14 days from today. Dated this 17 March 2006
Mr. Lawrence W. Y. Lam, of Messrs Vincent T. K. Cheung, Yap & Co. for Plaintiff Mr. Lee Siu Ho, instructed by Messrs Chung & Kwan for Defendant |