Tianxiang Garment Ltd v. Wm (Far East) Ltd
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HCA 1700/2004 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1700 OF 2004 ----------------------
---------------------- Before: Mr Recorder P Fung, SC in Court Date of Hearing: 1st to 5th, 9th to 12th September 2008 Date of Handing Down Judgment: 15th October 2008 ---------------------- J U D G M E N T ---------------------- The Pleadings 1.This action concerns the sale of garments (to be manufactured) by the Plaintiff to the Defendant. The Plaintiff claims damages for wrongfulrepudiation by the Defendant of the contracts for the sale of the garments. On the other hand, the Defendant alleges that the fault lies with the Plaintiff and counterclaims against the Plaintiff for damages for breach of contract. 2.One of the major problems in this case arises out of the fact that there was no formal agreement in writing signed between the parties and that there were more than one person on the side of the Plaintiff who negotiated and allegedly agreed on certain terms with the representative of the Defendant. 3.Quite early on in the proceedings, I noticed that the alleged agreements on both sides had been unclearly and inadequately pleaded in the Amended Statement of Claim and in the Amended Defence and Amended Counterclaim. I therefore directed the parties to file voluntary particulars of their respective pleadings so that the Court would be able to see exactly how the parties alleged that the agreements relied on by them were arrived at and the exact terms of the same. 4.Unfortunately, the voluntary particulars supplied were still not clear enough. I therefore directed the parties to give further particulars of the agreements alleged by them by reference to a questionnaire drafted by me. It is only after that that I have been able to understand exactly what the parties’ respective cases are regarding the formation of the agreements and the exact terms thereof. The Parties 5.The Plaintiff is a limited company incorporated in Mainland China carrying on the business of, inter alia, garment manufacturing. The Plaintiff operates certain factories in the Mainland, including one in Dong Guan in Guangdong Province. 6.The Plaintiff works in close co-operation with another company incorporated in the Mainland by the name of Tianjin Sunlight Import and Export Trading Co., Ltd. (“Tianjin Sunlight”) which also operates a number of garment factories in the Mainland. 7.The Defendant is a limited company incorporated in Hong Kong. Its business included the sourcing of suppliers of fabric materials and manufacturers of garments for ultimate overseas buyers. One of such overseas buyers was a Rousso Apparel Group, Inc. (“Rousso”) in the United States, which also had an agent in Hong Kong by the name of Grandtek Garment Limited (“Grandtek”). The Basic Facts 8.In about November 2003, Rousso was minded to order certain garments for shipment to the United States. It therefore asked Grandtek to make enquiries with a view to such end. Grandtek contacted a person by the name of Ian Cheung (“Ian”) who was then working for a company called P & P (HK) Co., Ltd. (“P & P”) with a view to finding a supplier of such garments. 9.P & P used to solicit orders for the Plaintiff and other garment manufacturers. In about January 2004, Ian left P & P and either started or joined another company. Ian obtained quotations from the Plaintiff for the garments in question and in turn passed on such quotations to the Defendant who at all material times was acting by its senior merchandiser, a person by the name of Yeung Kai Ming Jeff (“Jeff”). 10.The garments in question consisted of three groups, namely :-
11.There were communications between Ian and Jeff until about 23rd February 2004 when Ian suddenly disappeared. 12.The Sales Manager of the Plaintiff at that time was a person by the name of Liu Yan Hua (“Liu”). He was closely assisted by his daughter Liu Jie Jessie (“Jessie”) who helped him to handle the paper work and email communications with others regarding orders placed with the Plaintiff. Jessie was also in the employ of the Plaintiff. Unfortunately, Liu who had not been in good health even when he was working with the Plaintiff died on 20th May 2006 and hence has not been able to give evidence in the present proceedings. 13.After the disappearance from the scene of Ian, communications and negotiations continued to be carried on between Liu and Jeff. 14.Eventually orders for garments were placed by the Defendant with the Plaintiff and a Letter of Credit (original and as subsequently amended) was arranged by the Defendant to be transferred in favour Tianjin Sunlight (as directed by the Plaintiff) to cover the price of garments ordered in the circumstances enumerated below. 15.Apparently, on 2nd April 2004, a Letter of Credit (“the Master L. C.”) was issued by the HSBC Bank U.S.A. under No. DC MTN 556741 on the application of Rousso in favour of the beneficiary thereunder, Grandtek, to pay for garments to be shipped from the Philippines, Malaysia and Singapore. (There is also mention of “Indonesia” being one of the countries of origin; whether that is a mistake for “Singapore” is not clear.) On the same day, 2nd April 2004, Grandtek transferred under “Transfer No. 2” part of the credit under the Master L. C. in favour of Tianjin Sunlight in the sum of US$299,623.80 to cover the price of garments in the VE Group ordered by the Defendant from the Plaintiff (“the Transferred L. C.”). 16.On 8th April 2004, the Defendant arranged for an amendment to the Transferred L. C. to be issued basically to change the expiry date thereof from 29th May 2004 to 1st July 2004 and to increase the credit amount by the sum of US$802,948.30 to cover further orders for garments in the VE Group, the FC – 109 Group and the DD Group placed by the Defendant with the Plaintiff (“the Amended Transferred L. C.”). 17.The total sums under the Transferred L. C. and the Amended Transferred L. C. came to US$1,102,572.10 (“the L. C. Sum”). 18.Eventually, by a letter dated 19th April 2004 written by the Defendant to the Plaintiff, the former cancelled all orders for the garments placed. 19.Hence, the present action. The Defendant’s Case 20.The only witness for the Defendant was Jeff. I will set out the gist of his evidence and the Defendant’s case in the following paragraphs. 21.In November 2003, after Grandtek had contacted him about Rousso’s proposed orders for garments, he got in touch with Ian then of P & P. 22.In or about mid-January 2004, Ian informed Jeff that he had left P & P to join another company. He also told Jeff that he was part-owner and in charge of a garment manufacturing factory, namely, the Plaintiff. 23.In or about January 2004, Grandtek was about to place orders for garments in the VE Group. He negotiated with Ian about the prices and there was a series of email exchanges between them, with Ian representing the Plaintiff and Jeff representing the Defendant. The last negotiation between them was evidenced by an email sent by Jeff to Ian on 17th February 2004 at 12:39 p.m.. I shall have more to say about this email hereinafter. 24.As from about 27th February 2004, Jeff realised that he had lost contact with Ian. He started to deal with Liu whom he had met prior to that date. There also followed email communications between the staff of the Defendant and Jessie about samples. 25.On 5th March 2004, Jeff sent a fax to Liu to recapitulate the prices of 11 items in the VE Group which he had agreed with Ian on 17th February 2004 as well as the prices of 6 other items in the VE Groups which he had counter-offered to Ian pending the latter’s confirmation. Jeff then followed up his fax by a telephone call to Liu on the same day. 26.During that telephone conversation on 5th March 2004, it was agreed between Jeff and Liu that eventually the Plaintiff would pay back to the Defendant the difference between the face value of the letters of credit to be issued to the Plaintiff and theaggregate prices of the goods under the orders as agreed between them. 27.On 10th March 2004, Jeff sent a further fax to Liu and Jessie asking them to, inter alia, confirm the prices of the garments in the VE Group and also to reply on the prices of certain garments in the DD Group. 28.I shall have more to say about the two faxes dated 5th and 10th March 2004 respectively. 29.On 9th March 2004, it was agreed between Jeff and Liu on the telephone that the price of the garments in the FC – 109 Group would be US$10.30 per piece f.o.b. Philippines. Jeff instructed Jenny Tong of the Defendant to send an email on the same day to Liu and Jessie to confirm the same. 30.On 18th March 2004, there was a telephone conversation between Liu and Jeff in which they agreed on the prices of the garments in the DD Group by reference to the prices quoted by the Plaintiff to the Defendant in a fax also dated 10th March 2004 which was in reply to the fax dated 10th March 2004 from the Defendant asking about the prices of garments in the DD Group referred to in paragraph 27 above. 31.Thus, the prices of the garments in all the 3 Groups : VE, DD and FC – 109, had all been agreed between the Plaintiff and the Defendant by 18th March 2004. The same was inclusive of the quota prices and were not subject to any fluctuation in the quota prices. 32.Subsequently, Jeff visited certain factories and looked at samples of the fabrics. 33.Eventually, the Transferred L. C. and the Amended Transferred L. C. were issued on 2nd and 8th April 2004 respectively when all the styles and their quantities ordered had been made known to the Plaintiff. 34.The total credit under the Transferred L. C. and the Amended Transferred L. C. came to US$1,102,572.10, i.e., the L. C. Sum. The total prices of the goods as agreed between the Plaintiff and the Defendant came to US$1,066,148.74. Hence, under the agreement between the Plaintiff and the Defendant referred to in paragraph 26 above, the Plaintiff should pay the difference in the sum of US$36,423.46 to the Defendant. 35.On 15th April 2004, on the occasion when Jeff visited a factory to look at fabric samples, Liu asked for an increase in price. After Jeff had consulted his boss, such request was denied. 36.On 19th April 2004, the Defendant sent a fax to the Plaintiffcancelling all the orders on the grounds, inter alia, that production was too slow and that the Plaintiff’s factories had a series of problems. 37.The Defendant has suffered various kinds of damages, including having to pay a late penalty charge in the sum of US$117,804.86 to its overseas customer. The Plaintiff’s Case 38.The Plaintiff’s case is relatively simple. It can be summarised as follows : -
Assessment of the Witnesses and the Evidence 39.The first witness for the Plaintiff was Jessie. She said that she closely assisted her father in his work. She knew all the main details about the transaction between the Plaintiff and the Defendant which had no previous dealings before. She said that her father would have told her everything about the negotiations between him and Jeff. 40.She is no longer working for the Plaintiff. She gave her evidence in a spontaneous and straightforward manner. I find her to be an honest and truthful witness. 41.She said that at the material time, quota prices were fluctuating. There was no reason why the Plaintiff as supplier would be willing to bear the risk of quota prices rising because it was not known at the negotiation stage when the orders would ultimately be placed. She said that the ultimate prices would only be confirmed at the time the orders were actually placed, with details of the styles and quantities. 42.Her evidence is confirmed by and large by the evidence of Chan Ho Sang (“Chan”), the general manager of the Plaintiff, who was the superior of both Liu and Jessie. 43.According to Chan, the Plaintiff had to secure Philippine quotas for the purpose of the Defendant’s orders for garments in the VE Group and the DD Group. The FC – 109 Group garments would be shipped under a Macau quota which was even more expensive. The quantity of garments involved, however, was relatively small. The Plaintiff sought introduction of suitable factories from a quota agent by the name of Hang Bo International (H.K.) Limited (“Hang Bo”). On 28th March 2004, he and a colleague by the name of Howard Cheung (“Howard”) together with a Ms. Lau Kit (“Ms. Lau”) of Hang Bo went to the Philippines and managed to secure quotas from a factory by the name of Conquest. They were US$0.30 per piece higher than the basic quota prices of US$1.40 and US$1.50 quoted by the Plaintiff to the Defendant. They returned to Hong Kong on 29th March 2004. The passports of Chan and Howard were produced which confirmed their trip. Liu and Jessie were notified about the increase in quota prices. Liu then negotiated with Jeff and eventually each side agreed to bear half of the increase. He knew about this because he was overseeing the matter as general manager and Liu reported to him what took place. 44.I accept the evidence of Chan. I find him to be a straightforward and honest witness who answered the questions put to him very spontaneously. 45.Ms. Lau had given evidence before Chan and he was present in court when she gave evidence. She said that she did not go to the Philippines on that occasion. If he was not an honest witness, it would have been very easy for him to have tailored his evidence to suit Ms. Lau’s evidence. I put the discrepancy between the evidence of Chan and that of Ms. Lau down to the latter’s fault in recollection. After all, the trip took place almost 4½ years ago and she, being a quota agent, would presumably have to go to the Philippines and other countries to negotiate and secure quotas with many factories on many occasions. 46.The fact that the Transferred L. C. and the Amended Transferred L. C. were issued very shortly after 29th March 2004, namely, on 2nd and 8th April 2004 respectively, certainly supports the Plaintiff’s case that the quota prices were secured at the time when the orders were ready to be firmly placed and that the secured quota prices had to be taken into account in finally agreeing the prices for the garments between the Plaintiff and the Defendant. 47.I now come to deal with the evidence of Jeff. 48.According to Counsel for the Defendant, when he was being asked about inadequate discovery of documents by the Defendant, the Defendant had ceased business in or about 2005, within a fairly short time after the present action had been instituted in July 2004. It transpired that throughout the trial, Jeff and a gentleman by the name of Tony Yau (a former employee of the Defendant) had been sitting together in court and giving instructions to the Defendant’s lawyers. 49.Jeff was cross-examined by Counsel for the Plaintiff about his relationship with Tony Yau and their relationship with the Defendant. Although both of them had left the Defendant’s employment in 2005, Jeff could not give any satisfactory explanation as to why he and Tony Yau seemed to be conducting the Defendant’s case as if they were the actual lay clients. He was extremely evasive. When he was questioned as to whether he knew why Tony Yau was in court all the time, his answer was : “I do not know. May be he wants to know about this case.”. 50.Even Counsel for the Defendant seemed to be struck by the evasiveness of Jeff. He felt obliged to deal with the point in paragraph 84 of his written Closing Submission as follows : -
51.With respect, I do not agree with such submission by Counsel for the Defendant. This part of the cross-examination throws a tremendous amount of light on the question ofcredibility of Jeff. It is preposterous for Jeff to say that he did not know why Tony Yau was in court when he and Tony Yau were present almost all the time and giving instructions to the Defendant’s lawyers, whilst nobody else from the Defendant was present. It is quite clear that Tony Yau and Jeff had not truly left the company of the Defendant as alleged by Jeff. 52.I find Jeff to be an evasive and untruthful witness. I shall now deal with some specific aspects of his evidence. 53.I deal first with the email allegedly sent by Jeff to Ian on 17th February 2004 at 12:39 p.m.. This email is very curious. It does not contain any message from Jeff to Ian and appears to contain only a copy of the earlier email from Jeff to Ian dated 27th January 2004 but with words added in by Jeff on 17th February 2004. 54.In the course of the proceedings, Jeff suddenly disclosed for the first time a copy of another email allegedly sent by Ian to him on 30th January 2004. Counsel for the Defendant stated that, according to his instructions, his instructing solicitors had never been given a copy of the same previously. This email is again very curious. It also does not contain any message from Ian to Jeff. According to Jeff, what Ian did was just to copy Jeff’s original email dated 17th January 2004 and simply put Ian’s suggested prices against the price of each item suggested by Ian. I find it very strange that Ian would have inserted the word “[ian]” against each item for 17 times. I also find the position of the word “[ian]” to be very odd. 55.When asked to produce the originals of the 3 emails dated 27th January 2004, 30th January 2004 and 17th February 2004, Jeff’s reply was that the computer system of the Defendant was attacked by a virus and as a result no email remained on record or could be retrieved. He further explained that no hard-copies of such emails were kept in the files of Defendant because it was the policy of the Defendant not to have hard copies of emails about prices filed lest a competitor or another supplier could see the same. 56.I am very skeptical about the explanation given by Jeff. I find the copies of the 3 emails as produced in evidence very suspicious. Nevertheless, the case of the Plaintiff is that “the unit prices of the VE Group was resolved orally between Jeff and Mr. Liu on 5th March 2004, and evidenced by the letter from Jeff to Liu dated 5th March 2004. ….…..………..” (paragraph 9(i) of the written Closing Submission of Counsel for the Defendant). I therefore turn to examine what happened on 5th March 2004. 57.According to Jeff, on 5th March 2004, he sent a fax to Liu setting out the prices of 17 items in the VE Group. He then telephoned Liu and it was then agreed that the Plaintiff would pay back to the Defendant the difference between the face value of the letters of credit to be issued to the Plaintiff and the aggregate prices of the goods under the orders as agreed between them. (See paragraphs 25 and 26 above.) 58.I do not accept that there was such agreement to pay back the difference as alleged for the following reasons : -
59.Going back to the fax dated 5th March 2004, at the bottom of the page, Jeff wrote the following : -
Jeff’s evidence is that it had already been agreed that the prices listed in that fax were inclusive of the quota prices not subject to fluctuation and that the passage quoted above was a reference to the question whether Singapore or Philippine quotas would be used and to the point that the factory supplying the quotas would have to be inspected for suitability. 60.Again, I do not accept this part of the evidence of Jeff. As can be seen from the Purchase Orders issued by Rousso in February 2004, it is quite clear that it had been decided early on that Philippine quotas would be used. I do not accept the allegation by Jeff that the reason why “Singapore” was not mentioned was that there was not adequate space in the Purchase Order forms. In my judgment, the passage in the fax quoted in paragraph 59 above clearly supports the Plaintiff’s case that the prices quoted were subject to fluctuation in the quota prices. 61.Regarding the allegation referred to in paragraph 30 above, Jeff alleged that whilst he was speaking to Liu on the telephone on 18th March 2004, he agreed the prices with Liu and amended a copy of the fax dated 10th March 2004 from the Plaintiff to the Defendant to record all the finalised prices and that he further faxed a copy of the amended fax to Liu on the same day, i.e., 18th March 2004. Jessie denied that she had seen such amended fax or was aware of such an incident. She said that if such a thing did happen, her father would have let her know because she was helping him to process the orders. I accept the evidence of Jessie and reject the allegations by Jeff. 62.I also do not accept the allegation by Jeff that Liu asked for an increase in price on 15th April 2004. It is obvious that, by that stage, the Plaintiff had been too far committed to allow the orders placed by the Defendant to be jeopardized in any way : materials had been ordered and the quotas had been purchased. On the other hand, the Defendant was in a much better position to hold the Plaintiff toransom : all that had been done was that the Transferred L. C. and the Amended L. C. had been issued. The Plaintiff would not have been able to obtain any payment without the co-operation of the Defendant. 63.Looking at the Defendant’s letter to the Plaintiff dated 19th April 2004 cancelling the orders, it only alleges that the progress of production was very slow, that the Plaintiff’s factory was facing a series of problems (without identifying them) and that the way and concept on the part of the Plaintiff in handling matters did not accord with those of the Defendant. If the Plaintiff did ask for an increase in price on 15th April 2004, it would have been unthinkable for such an assertion together with a protest not to be made in this letter. 64.Furthermore, according to Jeff, on 15th April 2004, at the factory where he inspected the samples and after Liu had requested an increase in price, he called his boss on the telephone and took instructions from him. He then went into a room in the factory and wrote out a sheet of paper. He first set out a list of prices of 17 styles in the VE Group each with 3 different sizes. At the bottom of the page, he wrote the following :-
65.The following are to be noted about that sheet of paper : -
66.When Jeff was questioned as to why he would put down the prices of styles not yet ordered, his answer was that Liu had asked him to cover all prices. 67.Jeff was also asked as to what he meant by the words 「客人」. That point is pertinent to the issue as to whether the orders were placed by the Defendant as middleman for Rousso or for itself for the purpose of re-sale to Rousso. Jeff had alleged that it was the latter. He was adamant that the words「客人」was a reference to the Defendant itself and not to Rousso. 68.I do not accept such evidence of Jeff. His explanation of the use of the words「客人」is clearly untrue. Nobody in his right mind would refer to himself or the company of which he is part as「客人」. That must be a reference to the ultimate buyer for whom the Defendant in fact only acted as agent. 69.Furthermore, if, as alleged by Jeff, he was not satisfied with the quality of the samples on that day (15th April 2004) and the Plaintiff had done such an unacceptable thing as trying to force the Defendant to increase the price, I cannot imagine that the Defendant would on the same occasion inquire whether the Plaintiff would accept another order, one which is as substantial as 85416 pieces. 70.Furthermore, the earliest shipment date under the Transferred L. C. and the Amended Transferred L. C. was 19th May 2004. I do not accept that on 19th April 2004 the Defendant was in a position to honestly say that it was not possible for the Plaintiff to meet the shipping dates. If the Defendant were genuinely in a position to say that on 19th April 2004, it would be highly unlikely for it to have asked the Plaintiff 4 days prior to that, i.e., on 15th April 2004, whether it would take another order for 85416 garments. 71.For all the abovementioned reasons, I reject the evidence of Jeff and accept the evidence of the witnesses for the Plaintiff on all the material issues. 72.I should add that such reasons are not exhaustive but I feel that it is not necessary for me to over-burden this Judgment by referring to all of them. Findings 73.On the balance of probabilities, I make the following findings : -
74.In all the circumstances, I find that the Defendant wrongfully repudiated the agreements between the Plaintiff and the Defendant and is liable to the Plaintiff for damages for breach of contract. 75.I further dismiss the Defendant’s Counterclaim. Damages 76.I now deal with the damages claimed by the Plaintiff. 77.The Plaintiff first claims the sum of RMB79,188.10 for wasted travellingexpenses. The burden is of course on the Plaintiff to prove the same. 78.On the balance of probabilities, one would expect the Plaintiff to have incurred travelling expenses in preparing for the implementation of the orders and also to take care of the aftermath of the cancellation of the orders with a view to mitigating damages, because the factories involved were in various parts of Mainland China. 79.There are however a few matters to be taken into account : -
80.In all the circumstances, I propose to adopt a broad-brush approach and award damages under this head in the sum of RMB15,000-. 81.The next item claimed is the costs of sample preparation in the sum of RMB35,000-. Such costs would be recoverable whether the orders were placed eventually. I allow such sum. 82.The same applies to the cost of materials claimed in the sum of RMB71,875.76. I allow such sum. 83.As for the cost of the quotas, I am satisfied that the Plaintiff is liable to pay Hang Bo for the quotas purchased for the price of US$315,000- under the agreement between them dated 1st April 2004. I accept the evidence of Ms. Liu and Chan that 40% of the same in the sum of RMB1,031,940- was paid by the Plaintiff to Hang Bo by 7th May 2004. 84.On the evidence of Ms. Lau and Chan, Hang Bo is being chased by the seller of the quotas in the Philippines and that Hang Bo is in turn chasing the Plaintiff for the remaining 60% of the price. Nevertheless, the Plaintiff has not paid the same to Hang Bo. On the authority of the case of Trans Trust SPRL V. Danubian Trading Co., Ltd. [1952] 2QB 297, Counsel for the Plaintiff has asked me to reserve this part of the claim. I take the view that this is the appropriate way to deal with the matter. 85.I therefore make an award in favour of the Plaintiff in the sum of RMB1,031,940- and give liberty to the parties to apply for directions regarding the determination of the issue of the liability (if any) on the part of the Defendant to pay the remaining 60% of the quota price to the Plaintiff. I should add that on the authority of the Trans Trust case (page 307), it is not necessary for such determination to be dealt with by myself but by another Judge of the Court of First Instance. 86.I next deal with the claim by the Plaintiff for loss of profit. Jessie and Chan gave evidence to the effect that, if the Plaintiff had not agreed with the Defendant to share the burden of the increase in quota price for the VE Group and the DD Group at the rate of US$0.30 per piece, the Plaintiff would have expected to make a net profit of about 11% or 12% on the contract price. As a result of the agreement to share the burden, the net profit expected was reduced to 8%. 87.I have decided to reduce this figure to 6% just to take into account the possible uncertainties which a manufacturer could face. 88.I therefore award damages for loss of profits in the sum of US$66,154.33 (being 6% of the L. C. Sum). 89.I further award interest on all the aforesaid items of damages at judgment rates in accordance with the Practice Directions given by the Chief Justice from time to time from 22nd July 2004, the date of the issue of the Writ of Summons herein, until the date of Judgment. 90.I also make an order nisi that the Defendant should pay the costs of this action, including the Counterclaim, to the Plaintiff to be taxed on a party and party basis, if not agreed. 91.I further direct that the parties or the Plaintiff (on failure of co-operation by the Defendant) should draw up minutes of order and submit the same for my approval within 7 days from the date of the handing down of this Judgment.
Mr Patrick Chong, instructed by Messrs Wong Fung & Co, for the Plaintiff Mr Simon Chiu, instructed by Messrs Allen Chan & Co, for theDefendant |
Cases cited in this judgment
Further hearings and rulings under HCA 1700/2004