Bright Fashion Ltd v. Corland Industrial Ltd
Read the full judgment text of DCCJ 1035/2007 on BabelCite. This District Court judgment.
1. This is a sale of goods case.
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DCCJ 1035/2007 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 1035 OF 2007 ----------------------
---------------------- Coram: Deputy District Judge J. Ko in Court Dates of Hearing: 6th to 8th, 22nd and 28th May 2008 Date of Handing down of Judgment: 24th June 2008 ---------------------- J U D G M E N T ---------------------- 1.This is a sale of goods case. 2.Both parties are in the garment business. The Plaintiff manufactures and processes garment products through its factory in the Mainland China. The Defendant is engaged in the business of trading and manufacturing of garments. 3.In this action, the Plaintiff is claiming against the Defendant for two sums of money:
4.The Defendant admits the first claim but denies the second one. 5.In relation to the second claim, it is the Plaintiff’s case that the Defendant reserved the Plaintiff’s productivity from April to May 2006 to process the orders from the Defendant’s customer called “Goetz” (“the reservation agreement”). However, the Defendant eventually did not make use of the Plaintiff’s productivity causing the Plaintiff to suffer loss and damage. 6.The Defendant denies there was any enforceable reservation agreement. It contends that it had only tentatively reserved the Plaintiff’s productivity between 15th and 30th May 2006 to process the Goetz orders. Later, the Defendant decided to withdraw such orders from the Plaintiff as the problem of defective goods mentioned below surfaced and the Defendant was worried that the Plaintiff might not be able to meet the requirements in terms of quality. The Defendant proposed to use the reserved period to process orders from other customers but the Plaintiff failed to respond. Hence, the Defendant should not be liable. 7.The Defendant is also counterclaiming in this action for $398,315 being the alleged loss and damage caused by the defective goods supplied by the Plaintiff under BF-06-002. The Defendant contends that the Plaintiff was in breach of section 16 of the Sale of Goods Ordinance for failing to supply goods of merchantable quality. It is also the Defendant’s case that the Plaintiff was in breach of the implied term of the contract of sale that:
8.The Plaintiff denies that the goods supplied under BF-06-002 were defective. In relation to the alleged implied term, the Plaintiff admits the first limb but denies the second one. 9.The main issues in this action are therefore:
10.At the trial, Lee Kin-Wai testified for the Plaintiff. Mr. Lee is a director of Joint Effort Limited which, in turn, is a corporate shareholder of the Plaintiff. The Defendant is relying on the testimony of Yip Kwok-Wah, a senior staff from its materials purchasing department (物料採購部). An agreed bundle of documents was adduced in evidence, and 12 pieces of garments were produced as real exhibits. Was there any enforceable agreement for the reservation of the Plaintiff’s productivity? 11.It is the Plaintiff’s case that there was an enforceable agreement and the Defendant was obliged to use the Plaintiff’s productivity between April and May 2006 to process the Goetz orders. According to Mr. Lee of the Plaintiff, he holds such an understanding because:
12.I do not agree with Mr. Lee’s understanding. Whether the parties intended to enter into a concluded contract is a matter to be looked at objectively: see World Food Fair Ltd v. Hong Kong Development Ltd, [2007] 1 HKLRD 498 at para.35. 13.In my view, this question of whether there was ever an enforceable agreement for the Defendant to use the Plaintiff’s productivity to produce the Goetz order must be viewed against the Plaintiff’s then circumstances. 14.The Plaintiff began its business in 2004. According to Mr. Lee, the Plaintiff did not have stable source of orders in 2005-2006 and its production capability had not been fully utilized. In about Chinese New Year of 2006, the Plaintiff was still looking for production orders to feed its productivity. Given the transaction in relation to orders 37180 and 37181, the Plaintiff proposed further cooperation and the Defendant said it would find some orders for the Plaintiff. This eventually led to the Goetz orders. 15.The Plaintiff was then eager to cultivate a long-term business relationship with the Defendant. This much was accepted by Mr. Lee. That was why the Plaintiff was willing to prepare quotation, make samples, hold production meetings and accept delivery of materials to be used in the Goetz order when the parties had yet to finalize the deal. In my view, all these intervening works were part of the on-going discussion and means to please the Defendant. The Defendant has never asked the Plaintiff not to accept other orders from other customers. 16.The fact remains that the parties did not confirm the price for the Goetz orders. From the evidence available on the previous dealings between the parties, I find that the parties would agree on the price before an agreement was concluded. This happened for the 37073, 37074 and 37075 orders, as well as the 37180 and 37181 orders ([Bundle 105]). 17.For the 37073, 37074 and 37075 orders, the Plaintiff initially quoted the unit prices of ¥6.70, ¥6.70 and ¥7.10, but the Defendant countered ¥6.20, ¥6.20 and ¥6.20 in reply ([Bundle 104]). Eventually, the parties agreed at the unit prices of ¥6.02, ¥6.02 and ¥6.41 for the orders ([Bundle 103]). 18.For the 37180 and 37181 orders, the Plaintiff initially quoted the unit prices of ¥6.20 and ¥6.50, but the Defendant countered ¥5.90 and ¥6.10 in reply ([Bundle 105]). Eventually, the parties agreed at the unit prices of ¥6.02 and ¥6.31 for the orders ([Bundle 92]). 19.In relation to the Goetz orders, the first communication from the Defendant to the Plaintiff dated 27th February 2006 [Bundle 272] stated that:
Although the Plaintiff subsequently provided a written quotation (at least the first 3 pages of it), the same has never been confirmed by the Defendant. Indeed Mr. Lee admits under cross-examination that the price for the Goetz orders had never been agreed and was still subject to upward or downward adjustment. 20.Furthermore, I am not satisfied that there was any consensus on the quantity to be supplied under the Goetz orders. In the Defendant’s first communication dated 27th February 2006, the Defendant said the total quantity was tentatively 15,250 pieces [Bundle 272]. According to the Defendant’s email dated 7th March 2006, the quantity was 29,220 pieces. The Plaintiff said it provided quotation for 48,668 pieces of garments [Bundle 169-172]. In the particulars provided in the Defendant’s emails dated 13th and 17th March 2006, the total quantity mentioned therein was 29,892 [Bundle 273-274]. The minutes of the 2 meetings held in March recorded a discussion on processing 29,892 pieces of garment [Bundle 173, 168 & 174]. In the Plaintiff’s letter dated 26th April 2006, the Plaintiff stated the quantity to be 59,784. So what was the agreement (if any) on the quantity to be supplied by the Plaintiff under the Goetz orders? 21.The Plaintiff’s case of 49,000 pieces (48,668 pieces to be exact) is based on its written quotation at [Bundle 169-172]. The Defendant denies it has received the last page of the Plaintiff’s quotation (i.e. [Bundle 172]). 22.I tend to agree with the Defendant. First, Mr. Lee says the Plaintiff’s quotations were based on the particulars of orders (生產明細單) [Bundle 185-223] supplied by the Defendant. However, nothing in the particulars of orders correspond to the style numbers enumerated in the last page of the quotation [Bundle 172]. Secondly, the first 3 pages of quotations bore the date of 8th March 2006 but the last page was dated 11th March 2006! Thirdly, those style numbers were apparently not mentioned in the production meetings held in March 2006. In those circumstances, I am not satisfied that the parties had reached a consensus on the quantity to be supplied by the Plaintiff under the Goetz orders. 23.An agreement may lack contractual force because it is so vague or uncertain that no definite meaning can be given to it without adding further terms: see Chitty on Contracts, 29th Edition (2004), Volume I, para.2-136. The very fact that the parties have not reached an agreement on vital points such as the price and the quantity to be supplied indicate, in my view, that there was no contract. Mr. Lee’s admission that the price was still open for negotiation excludes any inference that the price should be a reasonable price in accordance with section 10(2) of the Sale of Goods Ordinance: see Benjamin’s Sale of Goods, 17th Edition (2006), para.2-046. 24.Given my finding that there was no enforceable reservation agreement between the parties, the Defendant cannot be held liable under it. In such circumstances, there is no need to consider the Plaintiff’s claim based on the reservation agreement any further. A few words on the counterclaim 25.Before I turn to discuss the issues on the counterclaim, I should observe that the Defendant’s pleaded case in terms of the amount claimed is not entirely consistent with the evidence adduced. 26.In the Amended Defence and Counterclaim, the Defendant pleaded the implied terms (para.3 and 4) and the defectiveness of the goods supplied by the Plaintiff (para.5) and then stated:
27.However, the evidence adduced by the Defendant reveal that out of the alleged loss of $398,315, a sum of $25,116.80 related not to defective goods supplied by the Plaintiff but to the non-return of some materials previously delivered to the Plaintiff destined for the Goetz orders (see para.22-23 of the witness statement of Mr. Yip at [Bundle 50-51]; and the Defendant’s debit notes at [Bundle 340 & 456]). 28.Notwithstanding such evidence, the witnesses were not specifically examined on such claim and both counsel did not make closing submission in that regard. In those circumstances, I shall not entertain this part of the counterclaim for the simple reason that it has never been pleaded. Were there any implied terms in the contract of sale? 29.According to Mr. Yip, it is the Defendant’s practice to insist that “每一間加工廠同樣要負生產問題的全責，包括被告人的損失在內”. The Defendant says the same practice was adopted for the previous orders with the Plaintiff. 30.In relation to orders 37180 and 37181, Mr. Yip specifically mentioned to Mr. To and Mr. Ho of the Plaintiff that:
According to Mr. Yip, Mr. To and Mr. Ho then promised to bear all responsibility (負全責) and guaranteed there would not be any defect in the goods (一定會負責全部貨做妥不會有問題發生). 31.The Plaintiff denies there was such a term in the contract of sale. Although Mr. Lee was not present when Mr. To and Mr. Ho allegedly so promised Mr. Yip, he argues that he would be told about it if there were ever such an important agreement. He observes that the contract price between the parties came to a modest sum of $29,630 only and it defies commercial sense for the Plaintiff to agree to run the disproportionate risk of guaranteeing the Defendant’s transaction with its end-buyer. I agree. 32.I do not see how the circumstances of this case can justify the implication of the alleged term into the contract of sale. Central to the Defendant’s case is 2 alleged promises from the Plaintiff: (i) there would be no defect in the products; and (ii) the Plaintiff would bear all loss including all the Defendant’s loss should any defect be found. However, the Defendant case is not consistent with the evidence.
33.It is common ground between the parties that the Defendant has already accepted the goods in question. The Defendant concedes that the effect of acceptance is that the Defendant is no longer entitled to reject the goods but only to claim for damages. In my view, the Defendant is attempting to get round the law of acceptance by running a case based on the alleged implied term. 34.I therefore find that there was no implied term as contended by the Defendant. Having said that, however, the law implies a term into the contract of sale by means of section 16 of the Sales of Goods Ordinance that the goods supplied should be of merchantable quality. This is not disputed by the Plaintiff. Were the goods supplied defective? 35.Now I come to the most crucial issue in the counterclaim: Were the goods supplied by the Plaintiff for orders 37180 and 37181 defective? 36.The Defendant is relying on the following evidence in contending that the Plaintiff’s goods were defective:
37.The 9 pieces in the 37180 order returned from overseas were subsequently tabled at a meeting held between the parties at the end of March 2006. Mr. Lee accepts that his colleague, Mr. To, agreed at the meeting that the goods were defective. I accept that 9 pieces of garments from order 37180 were defective. 38.The Plaintiff confirmed in paragraph 1 of its letter dated 23rd May 2006 [Bundle 344] that it had received 5 pieces of defective garment. The timing coincided with the return of the garments from the 37181 order. I accept that 5 pieces of garment from order 37181 were defective. 39.The Defendant’s counsel invites me to infer from the following facts that the goods sold by the Defendant’s customer locally were all defective:
He asks rhetorically why the Defendant’s customer did not sell the garments at a profit if they were not defective. I think there is some truth in his submission. I accept that the 1,681 pieces of garment sold in the local market were all defective. 40.It is not clear from the evidence as to which order the said 1,681 pieces of garment belonged. Given the large quantity of garments in the 37181 order returned to Hong Kong and inspected by the Defendant, I accept the Defendant’s counsel’s submission that it is more likely than not that the 1,681 pieces sold belonged to the 37180 order. 41.As to the goods returned to Hong Kong and inspected by the Defendant, I am not satisfied with the accuracy of the inspection done.
42.The inspection was carried out in-house by the Defendant’s own staffs including Mr. Yip. The defects identified in these reports were “筒斜”, “露底筒”, “主嘜斜”, “露嘜頭線”, “車線不好”, “熨痕”, “嘜頭位有筆痕”, “筒位有筆痕”, “車錯花”, “欠收領咀線”, “污漬” and “車花位置高低”. The hit rate is very high with many garments found to have multiple defects. 43.Mr. Yip was invited to look at the real exhibits himself in cross-examination.
44.The impression I get after comparing the real exhibits with the inspection report is that the report has been greatly exaggerated. Mr. Yip says that they adopted the standard of a normal buyer in inspecting the goods. He accepts that much depended on the subjective judgment of the individual inspector. Given the unexplained differences between the inspection result and the pre-delivery inspection result and the discrepancies highlighted above, I do not find the Defendant’s inspection reports generally reliable. In my view, the problem now encountered by the Defendant could have been avoided if the Defendant had engaged an independent quality surveyor to properly inspect the garments in accordance with objective standard. 45.In any event:
Of these exhibits, only Exhibits D1 and D2 are from order 37181. The remaining 9 exhibits are all from the 37180 order. I do not find Exhibit P1 to be defective. 46.I reject Mr. Lee’s testimony that after the pre-delivery inspection the Plaintiff had rechecked all the garments before actual delivery. First, I am not satisfied with his evidence as to the timing of the alleged full-scale inspection. Secondly, some of the defects now found in the real exhibits are quite obvious and, in my view, would not have been missed had there been a full-scale inspection. 47.The burden is on the Defendant to prove that the garments supplied by the Plaintiff were defective. Although I was told that 10 cartons of garments were brought to court, none other than the 12 exhibits were produced at trial and dealt with in evidence. I do not know the condition of the other garments and cannot speculate on it. 48.For the above reasons, I find that:
Was the Plaintiff in breach of the contract of sale? 49.The Plaintiff accepts that section 16 of the Sale of Goods Ordinance applies. The contract of sale was therefore subject to an implied term that the goods supplied should be of merchantable quality. By reason of the above defective goods, the Plaintiff was in breach of the implied term of the contract of sale as to merchantable quality. What was the Defendant’s loss and damage? 50.The Defendant has admittedly lost its right of rejection. I have also rejected the Defendant’s case based on implied term. There is nothing in the evidence to suggest that the Plaintiff had been informed of any linkage between orders 37180, 37181 and 37182 and that the Defendant’s customer would reject all the goods if the goods in one of the 3 orders turned out to be defective. Judging from the emails at [Bundle 323 & 332], I suspect that the Defendant was equally surprised by such development. 51.The usual damages for breach of warranty of quality is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty: see section 55(3) of the Sale of Goods Ordinance. 52.The unit price of the defective goods sold in the local market is a good indication of the value of the defective goods in the 37180 order. I shall adopt €2.75 (i.e. (2.5 + 3)/2) as the value of the defective goods in the 37180 order. This roughly equals HK$33. There is no evidence on the market value of the defective goods in the 37181 order. The defects found in order 37181 and 37180 are similar. Doing the best I can, I shall adopt HK$37 in my calculation (i.e. HK$33 x 9.9/8.8). 53.Hence, the total damages for breach of warranty of quality amounts to $65,354.90 calculated as follows:
54.It is apparent from the emails at [Bundle 320 & 326] that it was the Defendant who halted the selling of the defective goods locally and asked for them to be returned to Hong Kong. I do not think the small quantity of the remaining defective goods (i.e. 18 pieces in the 37180 order and the 7 pieces in the 37181 order) would justify the expenses in returning them from Holland to Hong Kong. I do not think the Plaintiff should bear any of the transportation cost. 55.For the above reasons, the Plaintiff is liable to the Defendant on the counterclaim in the sum of $65,354.90. Conclusion 56.To recapitulate:
57.The Defendant has pleaded set-off. I therefore enter judgment in favour of the Plaintiff against the Defendant in the sum of $65,938, together with interest thereon at the judgment rate from the date of writ until full payment. 58.On costs, I have noted the following features:
I make a costs order nisi that the Defendant do pay the Plaintiff half of the costs of this action to be taxed if not agreed with certificate for counsel. Unless an application is made to vary this order nisi, the order shall become absolute 14 days after this judgment is handed down.
Representation: Mr. Eric Leung, instructed by Messrs. Michael Pang & Co., for the Plaintiff Mr. Lawrence Ngai, instructed by Messrs. William Sin & So, for the Defendant |
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