Wong Shu Ho t/a Sun Sun Trading Company v. Texxon & Co. (A Firm)

CACV010380/1983

IN THE HIGH COURT

BETWEEN

Coram:  Roberts, C.J.

Date of Judgment:  November 25th-29th, 1985, December 3rd-6th, 9th-13th and 16th-18th, 1985 & January 20th, 1986.

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JUDGMENT

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Preliminary

1. This action deals with a series of disputes between Miss Esther Leung, a parther in Sun Sun Trading Co. ("Sun Sun") the plaintiff, and Mr. Kuan Tak, a partner in Texxon and Company ("Texxon") the defendant, who were at one time both personal friends and frequent  business associates.

2. The hearing lasted seventeen days, although the case was listed for five. Apart from the fact that the action involved what were effectively five separate claims, this serious overrun can be attributed mainly to a lack of documentary evidence.

3. In general, documentary evidence is more satisfactory than oral testimony, which is likely to be unreliable two or three years after the event. In this case, however, the plaintiff was not able to support much of her evidence by proper documents, many of them, she asserts, having disappeared when she moved her office late in 1983, so that thorough questioning of her, and of the other witnesses was to be expected.

4. In larger and better managed textile businesses, it is to be expected that all major transactions will be supported by documents, such as stock books, receipts, ledgers, records and correspondence. Neither party to this action, especially the plaintiff, produced the full range of documents which ought to have been available. Such experience as I have had of the operation of small Hong Kong business suggests that this is not uncommon, and that little care is taken to preserve documents relating to past transactions.

5. Both parties also made little effort to record in writing oral variations which they said had been agreed, or changes to the method of fulfilment of contracts. A failure to do so inevitably throws doubt, if disputes later arise, on the terms of what was agreed orally. Unwise though this may be, I accept that it is a common occurrence in Hong Kong business.

6. I also make allowance, when considering the absence of written evidence, for the fact that Miss Leung was inexperienced in this sort of business in 1982, that Mr. Kuan had known her father, that she trusted him and that the parties were on good terms. In such circumstances, it seems to me to be much less surprising that there should be less recorded in writing than might otherwise have been expected.

7. The defendant was, in my opinion, justified in complaining about the manner in which the plaintiff's case was pleaded, since the Statement of Claim and Reply and Defence to Counterclaim were extensively amended as late as 1st November, 1985.

8. I was invited to find that this threw some doubt on the bona fides of the plaintiff's case. I was, however, unwilling to do this, since at various times two solicitors and three counsel represented the plaintiff. When this happens, significant changes in pleading may well be a reflection of different views taken by several legal advisers as to the way in which the case should be presented, rather than the result of changed instructions which might throw suspicion on the bona fides of a party's case.

9. Miss Leung I found to be a woman of some self-confidence, who managed to maintain her composure well under very long cross-examination. Generally I believe that she was telling the truth as she remembered it, though in some matters I think her recollection was at fault since she had little in the way of documents to assist her.

10. The main witness for the defendant, Mr. Kuan, was somewhat long-winded and inclined to wander from the point. He is, however, an elderly man and I attribute his discursiveness to a difficulty in concentrating his attention rather than to any wish to evade a question.

11. I think that he, also, was not untruthful, since he made many admissions against his own interest, but that his memory was much less reliable than that of Miss Leung. Generally, where their evidence conflicts, I prefer that of Miss Leung for these reasons.

12. It was urged upon me that, in a commercial centre like Hong Kong, it is important that parties should be able to rely upon written agreements and that courts should be wary of supposed oral variations of them.

13. As a general proposition, I accept this; but it must not be allowed to prevent the court from reaching a proper conclusion as to the intent of the parties, where the evidence establishes that a written contract was varied by a later oral agreement, as was alleged to have happened in relation to the contracts which are the subject of this action.

14. Miss Leung is in effective control of the plaintiff company, though it is nominally owned by her mother. Since 1982, she has operated the firm of Sun Sun Trading Company as a buyer and seller of textiles and garments.

15. Her usual practice was to obtain orders for garments, usually from the U.S.A., purchase cloth suitable for that purpose from a Hong Kong seller, arrange for it to be manufactured into garments in China and forward the latter to her customer in the U.S.A. On a number of occasions she ordered the cloth from Texxon, which in turn arranged for its manufacture in Taiwan.

16. I am satisfied that, in the case of all the contracts in issue, Texxon was well aware of the purpose for which the cloth was required by Sun Sun, i.e. for the manufacture of garments for resale for profit by Sun Sun. It also knew that a breach of its undertaking as to description or quality would inevitably affect the plaintiff's level of profits.

17. Therefore, in law, the buyer (Sun Sun) is entitled to recover damages for loss of profits caused by the seller's breach, provided of course that the loss is properly established as having occurred.

18. The plaintiff claims damages for breach of five contracts, between itself and Texxon, for the purchase by the plaintiff from the defendant of cloth which was to be made into garments. The contracts, though not presented in the pleadings in chronological order, are described therein as Contracts A, B, C, D and E and I shall continue so to refer to them in this judgment.

CONTRACT A

Plaintiff's case

19. It is not in dispute that -

20. Miss Leung testified that 39,000 yards were delivered to her in Hong Kong about 15th June, 1982, at a godown used by Sun Sun. On 16th June, she inspected this cloth and discovered that it was very different from the sample, which she had been shown by Mr. Kuan before she had placed her order and which had been the cloth which she had expected to be delivered under Contract A.

21. According to Miss Leung, the cloth which was delivered was obviously much thinner, on visual examination, than the sample. She had retained the sample and produced it in evidence (P.1). Although she was unable to provide a piece of the cloth which was delivered, the defendant was able to do so, putting in evidence pieces (D. l) of the shipping samples received by Texxon from the manufacturer of the cloth, the Chung Shing Textile Co. Ltd. of Taiwan.

22. There can be no doubt, and it is not disputed, that the plaintiff's sample (P.1) and the defendant's shipping sample (D.1) are markedly different in texture and thickness.

23. Miss Leung said that, after examining the cloth, she telephoned Mr. Kuan and informed him that the cloth delivered did not match the sample, at which Mr. Kuan asked her to send him a piece of the delivered cloth for inspection, which she did. Later the same day, he phoned her and said "Yes, it is a little bad, please ask your customer if he will accept it."

24. About two days' after the cloth arrived, Miss Leung took a piece of it to Mr. Nichols Ng, Manager of Casual Imports Corporation ("Casual") which had ordered the garments which she intended were to be manufactured with the cloth supplied by the defendant under Contract A.

25. According to Mr. Ng, he had been shown a sample of the cloth which Miss Leung could supply, before he signed a contract with her on behalf of Casual on 15th April, 1982. However, the cloth which she showed him about 16th June was thinner than the earlier sample and the finishing was not good enough, so he rejected it.

26. On 22nd June, Casual wrote to Miss Leung cancelling the contract between them on the ground that the "fabric, dyeing, finishing" were not acceptable and "the weight is too light so the fabric is completely rejected". Casual then said that she must replace the second lot of piecegoods or cancel the whole order.

27. Miss Leung thereupon got in touch with Texxon to inform it that her customer had refused to accept the cloth, but was told that she must speak to Mr. Kuan personally about it. However, he was at that time out of Hong Kong and she was only able to discuss the matter with him a few days' later when, by chance, she met him in the Oriental Hotel in Guangzhou, where a conversation took place between them.

28. She told him that the cloth was defective, and that her customer had cancelled the order and asked him what he thought should be done about it. According to her, Mr. Kuan said "There's nothing to be done about it since the lot of cloth has arrived. See what you can do about it. After all, I'll be responsible for all losses that you may suffer."

29. Mr. Kuan also suggested to her that she should bring the cloth into China, while efforts were made to sell it, rather than keep it in Hong Kong where godown charges were high. She followed his suggestion and brought the cloth into China towards the end of June 1982.

30. According to Miss Leung, no customs duties are payable on cloth imported into China for processing, provided that it is processed and re-exported within three years. Accordingly, in September 1985, after the expiration of such a period, the cloth was confiscated by the Chinese customs authorities.

31. She admitted that she made no attempt to sell the cloth during the past two years though she had done so in the first year but without success.

32. In cross-examination the attention of Miss Leung was drawn to Condition 14, which was printed on the back of the printed contract form which she signed with the defendant on all five contracts. This condition provides that "the buyer shall be deemed to have approved of all goods as to which he makes no claim in writing within one week after date of arrival and no claim can be entertained after goods have been removed from the place of delivery."

33. Miss Leung said that she had not known of the presence of this condition in the contract as she paid no attention to the back of the paper. She only became aware of it when her legal adviser mentioned it to her and she only read it while she was giving evidence.

Defence case

34. Mr. Kuan is a partner in Texxon, with a long experience of the textile business. His firm does not manufacture, but buys and sells woven cloth and yarn.

35. For some years, he has bought a considerable quantity of cloth or yarn from Taiwan, where he has an office staffed by his own employees. The usual practice was for one of those employees to visit the Taiwan factory making goods to his order, and to send shipping samples to Texxon's Hong Kong office, which would pass them on to the customer in Hong Kong. If the customer was satisfied with the samples, the shipment would be effected. The usual procedure seems to have been varied in the case of Contract A, since the shipping samples appear to have arrived at about the same time as the bulk shipment.

36. Mr. Kuan identified three small pieces of cloth (D.1) as the shipping samples supplied to him by Chung Shing, the Taiwan manufacturer, in accordance with Contract A. He said that these samples accorded with the specification described in Contract A.

37. He admitted that Miss Leung had informed a member of his staff that the "green cloth" was not satisfactory as the finish was no good and there were burls on the cloth. He told his staff that there was bound to be some fluff on the surface of the cloth and that they should inform Sun Sun that the cloth was good and could be used.

38. He assumed that a member of his staff had spoken to Sun Sun because he heard no more about Sun Sun's complaints about the cloth until the issue of a writ in August 1983. If Sun Sun had rejected the goods, or sought a refund of the price, he would have informed the manufacturer and asked for replacement.  If there had been a serious complaint, his staff would have told him.

39. He has never received anything in writing, or by telex, from the plaintiff, asking for compensation or notifying him of the rejection of the goods. Apart from the original verbal complaint, there was no communication between the plaintiff and any of his staff, so far as he knew. If there had been such a complaint, the cloth could have been inspected by a representative of the Taiwan manufacturer, who kept an . office in Hong Kong.

40. In October 1985, when he went to Changsha, in Hunan, he was told by LAW Si Fu, A manager of China National textiles, that a consignment of cloth, which had been brought into China in 1982, had been confiscated because it had not been made into garments, the condition on which its import into China had been permitted. He believed that the confiscated cloth was that which he had supplied, as LAW Si Fu gave him samples of the confiscated cloth, which he had tested and which were the same as the three shipping samples (D.1).

41. In all Texxon contracts; Mr. Kuan said, there was a detailed specification of the cloth to be supplied, which would include the yarn count, the number of weft and warp threads and the width as well as a general description of the type of cloth (e.g. 65% polyester/35% cotton twill).

42. Mr. Kuan conceded that Miss Leung might have been shown various samples during the negotiations which preceded Contract A, but strongly denied that P.1 was clipped to Contract A, as Miss Leung claimed. In a sale by sample, although the contract would have contained a detailed specification of the cloth, a piece of the cloth itself would have been cut, stamped and glued both to the copy of the contract kept by Texxon and to the one retained by the customer, Sun Sun. He was sure that that practice was not followed in Contract A.

43. However, Mr. Kuan, conceded in cross-examination that it was possible, though he could not be sure, that P.1 might have been shown to Miss Leung, and that it could have been attached to the contract and sent over to her. He said that someone else in Texxon dealt with such details and that it would have been normal for a sample to be shown to a buyer.

44. He could not remember if he had ever admitted to Miss Leung that his cloth was "a little bit bad". Nor could he remember telling her in Guangzhou in June 1982 that he would be responsible for any losses which she would suffer. He definitely did not suggest to her that she should send the cloth to China, something he would not do because he knew that cloth could not be imported into China without the proper permit.

45. Mr. Nichols Ng (P.W.2), manager of an import export company called Casual Imports, gave evidence that he had had many dealings with Sun Sun, and that he had signed a contract dated 15th April, 1982, for the supply by Sun Sun to Casual of 2,030 dozen garments at a price of US$84,445, for delivery before June 1982 (later altered to July).

46. The garments were to be made of cloth which was 65% polyester and 35% cotton. Probably about a week before the contract was signed, on 15th April, Miss Leung showed him a piece of cloth, which he identified as P.1, as a sample of the cloth from which the garments were to be made. He would not have signed the contract unless he had been shown a piece of cloth before he did so.

47. Later, Miss Leung brought to Casual's office a sample of the bulk which had arrived in Hong Kong. This he rejected because it was thinner than the sample which Miss Leung had shown him before the contract was signed and the finish was not good enough; also there were dots and burls in the cloth, due to a flaw in the manufacturing process.

48. After discussion with Miss Leung, Mr. Ng told her that the time was too short to replace the cloth. The contract was later cancelled by Casual Imports by a letter dated 22nd June, 1982. No claim was made by Casual against Sun Sun because there were a number of dealings in progress between them and Casual wished to remain on good terms with Sun Sun.

49. Miss Chan Yim Lai (D.W.4), a laboratory technician, analysed pieces taken from the three shipping samples (D.1) and supplied to her by Texxon. Her analysis showed that the samples varied to some degree with the specifications set out in Contract A but were within the accepted variation permitted by trade custom. She was not asked to carry out any analysis of the sample P.1

50. At the conclusion of her evidence, counsel for the plaintiff stated that he did not contend, in the light of her evidence, that the samples in D.1 did not meet the specifications in Contract A.

Findings

51. At the close of the evidence, it seemed to me that it was no longer in serious dispute that -

52. The main remaining Issue is whether Contract A was a sale by sample, or by description.

53. Miss Leung says that she regarded it as a contract by sample, that P.l was attached to the contract, that she had paid no attention to the description, and that the bulk did not correspond with the sample.

54. Mr. Kuan asserts that it was a contract by description, that no sample was attached to it and that the bulk complied with the description. Perhaps, he added, Miss Leung might have been sent P.1 as a feel sample, but not as a contract sample.

55. There was no evidence before me as to how much a detailed specification of sample P.1 would have differed from that of cloth D.1. However, since the difference in thickness in the two cloths was so obvious, I suppose that there would have been a sufficient difference in specification for this also to be obvious to someone who was experienced in such matters.

56. In determining which version of events is correct, I attach great weight to the evidence of Mr. Ng, whom I find to be a careful, reliable and independent witness. I accept his evidence that he was shown a sample of cloth like P.1 by Miss Leung about a week before Casual signed the contract on 15th April and that he expected the garments ordered by Casual to be made of cloth of that kind.

57. Miss Leung's evidence was that she was shown a sample like P.1 by Mr. Kuan before she signed the original Contract A, but did not take it away with her. When she signed Contract A on 6th May, she had not shown anything to her buyer, but she then detached P.1 from Contract A and showed it to Mr. Ng, who approved it.

58. As to the sequence of events, I prefer the evidence of Mr. Ng that he was shown a sample like P. l before he signed the Casual Contract on 15th April, since it would surely be odd for a buyer not to look at a sample of the cloth to be used in such a large contract before signing it. It follows that P.1 could not have been attached to Contract A on 6th May, and must have come into Miss Leung's hands at an earlier date.

59. In my judgment, what happened was that, during the negotiations for the original Contract A, Miss Leung was furnished with P,1 as a sample of cloth to be supplied by Texxon. This she showed to Mr. Ng, before the latter signed the Casual contract on 15th April. And that Miss Leung signed Contract A, in the belief that the cloth to be supplied would be the same as P.1, without reading the description contained in Contract A, when she did so.

60. I accept Mr. Kuan's evidence, however, that no sample was attached to either the original Contract A or to Contract A itself. I do not think that a firm of Texxon's experience would have so badly misdescribed the cloth, if it had been attached to the contract, even though Mr. Kuan himself reads little English. Nor can I imagine how Texxon could have derived any advantage by supplying the thinner cloth which was delivered, as opposed to the thicker cloth which Miss Leung says she ordered, on the basis of the sample.

61. I can only guess, since there is no direct evidence on the matter, that there was a mistake in Texxon's office and that the cloth which Miss Leung had ordered was misdescribed in the written contract.

62. I conclude, therefore, that both parties believed that cloth of the type of P.1 was wanted and that Texxon represented that the bulk would accord with that sample. Although P.1 was misdescribed in the contract, the cloth which was in fact delivered did not accord with what they thought was intended to be supplied. It was therefore a sale by sample with which Texxon failed to comply.

Condition 14

63. Although the cloth was not acceptable to Miss Leung, or to her customer, Casual, she made only a verbal complaint. She never confirmed it in writing; nor did she take any steps to refuse delivery or to formally reject the consignment. She gave, as her reason for not taking such action, Mr. Kuan's undertaking to indemnify her against any losses.

64. If the plaintiff is to succeed on this claim, she must grapple with the difficulty of Condition 14 which

65. It is not disputed by Miss Leung that she made no claim in writing within one week of delivery. She argues that Contract A was varied in this respect by the oral undertaking given by Mr. Kuan in Guangzhou towards the end of June.

66. She also commented that she had not realized the presence of Condition 14 in the Contract until her legal adviser mentioned it to her. Her failure to read the contract, understandable though this is for someone who does not speak or read English well, nevertheless cannot relieve her of her obligations under a document which she has signed.

67. I believe Miss Leung's evidence that she met Mr. Kuan in Guangzhou in June and that a conversation took place between them about the unsatisfactory nature of the shipment under Contract A. Mr. Kuan's own passport showed that he was in China from 19th-24th June which lends some support to her assertion.

68. I accept her story that Mr. Kuan asked her to do what she could about it and promised that he would "be responsible for all losses that you may suffer". Had she not received some such undertaking, I cannot imagine that she would not have taken further action to pursue her complaint against the plaintiff for supplying cloth which was so clearly at variance with what she had ordered.

69. As his profit on the contract was limited to a 3% commission, Mr. Kuan was rash in making such a promise. Nevertheless, I find that he did so, and for the best of motives; because he had known her father; because he had done business with her before; and because he was well disposed towards her.

70. The defence was raised that, even if there were such an oral variation, there was no consideration. Miss Leung, however, commented that although she had already paid for the consignment and accepted delivery (at least in the sense that it had been delivered to her and not formally rejected by her) she promised that in return for Mr. Kuan's offer, she would lodge no immediate claim and would try to find another buyer.

71. I accept that this amounts to sufficient consideration for the promise which I find Mr. Kuan made to her to compensate her for her losses and that Condition 14 was varied in that respect.

Damages (Contract A)

72. The plaintiff claims damages for breach of Contract A under three headings-

73. In relation to the claim for loss of profits, I accept -

74. In examination-in-chief Miss Leung based her claim to a profit of US$12,106 on a sale price to Casual of US$84,445; this would be about 15% profit on the sale price.

75. In cross-examination, however, in relation to her claim for loss of profits under Contract B, Miss Leung admitted, after having itemized various expenses which she had incurred, that her net profit, after deducting all expenses, would only be 5% to 7% of the price at which she had intended to sell the manufactured garments. She agreed that the same figure should apply to Contract A.

76. In re-examination, Miss Leung adopted another approach, saying that the net profit would be 25% of the sale price, less expenses, though the net result was that 6% was the correct figure for loss of profit. I accept that the correct figure for loss of profit is 6% of US$84,445, which amounts to US$5,067 (to the nearest dollar); and that this is a loss which directly resulted from the breach by Texxon of Contract A.

77. So far as the accessories are concerned, Miss Leung agreed that the figure claimed was only an estimate of the cost of accessories purchased for the Casual contracts, since they were part of larger orders intended for use in other garment making contracts as well. She was not able to produce any written evidence of this expenditure.

78. I do not consider that I could properly award anything to the plaintiff for the cost of these accessories, since there is no evidence whatsoever to support Miss Leung's assertion of their cost.

79. Miss Leung gave evidence that the Contract A cloth was shipped to China, at Mr. Kuan's suggestion at the end of June, both because storage charges there were low and so that they could be made into garments if a buyer could be found. Mr. Kuan, although he did not admit that he suggested this course should be taken, conceded that he later received information in China which confirmed her story that the cloth was sent into China, and was later confiscated by the Chinese, as were the accessories, since the conditions under which they had been allowed into China had been breached.

80. But Miss Leung has not adduced any evidence of the cost of sending the goods to China. There was a bare assertion by her that it cost HK$4,800 to send them. She produced no receipts, bank statements, ledger entries or other documentary proof to support this figure. So, although I accept that she did send some cloth to China, she has not satisfied me as to what this cost.

81. In respect of Contract A, therefore, I award to the plaintiff US$5,067 for loss of profits. It may well be that, if she had been able to produce proper records of her business, that she could have substantiated the other claims under this head, but she failed to do so.

CONTRACT B

General

82. The original Contract B was entered on 9th August, 1982 for the supply by Texxon to Sun Sun of 118,980 yards of cotton twill. This was cancelled and replaced by the substantive Contract B, dated 2nd September, 1982 for the supply of 95,185 yards, to be shipped in three lots. The first, of 29,552 yards, was for shipment on or about 20th September, 1982; the second, of 57,393 yards, was to be shipped on or about 30th September, 1982; the third, of 8,240 yards, was to be shipped on or about 10th October, 1982. Payment was to be by 100% irrevocable and confirmed Letter of Credit (L/C) in favour of San Her Textile Co. Ltd. of Taiwan, the manufacturer of the cloth.

83. It is not in dispute that the actual amounts delivered were 29,477 yards, shipped on 20th September, and 15,959.5 yards, shipped on 30th November, a total of 45,436.5 yards. This left an undelivered balance of 49,748.5 yards, in respect of which the plaintiff claimed US$39,560 as loss of profits caused by the cancellation of orders by the plaintiff's customers.

84. The defence, as pleaded, was that Contract B provided for payment by 100% irrevocable and confirmed L/C and that the plaintiff had failed to open such a L/C at all. So the defendant, in mitigation of the damages, delivered the quantity of cloth for which the plaintiff did open L/Cs.

85. It was not disputed that L/Cs were opened, on 15th September for 29,552 yards, and on 30th November for 15,448.5 yards, a total of 45,000.5 yards, which corresponds closely with the amount of the two shipments which were delivered to Sun Sun.

Plaintiff's case

86. Miss Leung's version of what went wrong with Contract B is that, although the contract itself provided that payment should be by "100% irrevocable and confirmed Letter of Credit at sight", there was nevertheless a collateral agreement between her and Mr. Kuan that Texxon would let Sun Sun know about ten days before the shipment date, how much was ready and that Sun Sun would thereupon open a L/C for the quantity of goods to be delivered.

87. Therefore, she opened a L/C on 15th September, having been told that the defendant could supply this amount, which he did (less 75 yards). When on 18th and 19th September, she asked about the next shipment, which was due about 30th September, she was told that the defendant would "let her know".

88. She continued thereafter to press for further shipments but received no notification that anything was ready until late November, when she opened a L/C on 30th November for 15,448 yards, which was shipped on the same day (plus 511.5 yards). Although she continued to press for further deliveries, none came and Mr. Kuan asked her to accept late shipment.

89. She thereupon spoke to Casual, the customer for which garments were to be made with the cloth ordered by Sun Sun under Contract B.

90. However, Casual refused to wait any longer and about 30th November, according to Mr. Ng of Casual, he had to cancel about 14 orders with Sun Sun, because of the late delivery of the cloth required. He identified the invoices which related to the various cancelled orders.

91. I am satisfied that Casual did cancel these orders, that they were to have been fulfilled by using cloth supplied to Sun Sun under Contract B, and that the cause of these cancellations and of the consequent loss  of profits to Sun Sun, was the late and short delivery of cloth by Texxon under Contract B.

92. It is significant, in my view, that Casual started to cancel contracts with the plaintiff about 30th November, the date of the second shipment. I find that up to that date, Sun Sun had continued to press for the cloth to be delivered and was still under contract to supply garments to Casual which would have absorbed the full quantity of cloth ordered.

Defence

93. Texxon does not dispute that there was a short delivery under Contract B of the amcunts claimed by the plaintiff. Its defence is that the contract was not completed because of the failure of the plaintiff to open a L/C as required by Contract B. According to Mr. Kuan, he begged Sun Sun to open the necessary L/C but Miss Leung refused. He is supported by Mr. Lee Man, an employee of Texxon, who said that he had chased Sun Sun to open a L/C many times in October and November.

Findings

94. The main question to be determined is who was waiting for whom? Was Sun Sun waiting for notification that a shipment was ready; or was Texxon waiting for a L/C to be opened before authorizing the shipment of more cloth?

95. On this issue, I prefer the version told by Miss Leung, both because I find her testimony more reliable and because I think her story is the more likely to be correct. Although the contract provided for a 100% L/C to be opened, the defendant undoubtedly waived this requirement, since it delivered 29,552 yards in accordances with a L/C opened on 15th September.

96. I am satisfied that this shipment supports Miss Leung's version of events and that it was agreed between her and Mr. Kuan as a collateral oral variation of Contract B that she would open the necessary L/C on being told that a quantity of cloth was ready for shipment, as she did again on 30th November. Nor do I see any reason to doubt that, had she been informed that further shipments were ready, Miss Leung would have opened the necessary extra L/Cs.

97. I therefore find that the defendant was in breach of Contract B, which had been varied by the oral agreement reached by the parties that L/Cs should be issued only when shipments were ready, this having the effect of ousting the effect of Condition 14.

98. The breach was the failure of Texxon to deliver the quantity of cloth contracted for, in spite of constant reminders from Sun Sun. I feel sympathy for Texxon, which was at the mercy of the Taiwan manufacturers but, nonetheless, as between the parties, Texxon must be held responsible for the late deliveries, which resulted in cancellations by Sun Sun's customers of 14 contracts.

Damages

99. The total value of the 14 contracts cancelled by Casual was US$158,240. In the Statement of Claim, the plaintiff sought 25% of this as its loss of profit - i.e. US$39,560.

100. Miss Leung's evidence, however, did not support such a figure. She conceded that 5% to 7% would be a correct estimate of the net profit to be expected to accrue to Sun Sun, after deduction of all expenses. Taking the midpoint of 6%, Sun Sun's loss of profits would have been 6% of $158,240 or US$9,494 (to the nearest dollar) and I award this sum under this head.

CONTRACT C

General

101. This contract, dated 1st September, 1982, was for the sale and purchase of 21,030 yards of coloured chintz, to be shipped on or about 15th September, 1982. A L/C for 23,160 yards was opened on 14th September; this amount was shipped on 20th September, and delivered on 28th September. No complaint was made by the plaintiff as to the late delivery of this consignment.

102. However, when it was examined by Miss Leung, she found that the silver chintz, of which 4,470 yards was due and had been supplied under Contract B, lacked lustre and was unacceptable. She therefore asked Mr. Kuan to replace or re-process the cloth, which he agreed to do within a week to ten days.

103. A consignment replacing the silver chintz (4,480 yards) was despatched by air from Taiwan on 27th October. Miss Leung accepted the whole amount as of proper quality.

Plaintiff's case

104. However, Miss Leung averred that the delay meant that she was not able to complete the garments to be made from the silver chintz in time. Therefore, she was obliged to send that part of the order which she was fulfilling with Contract C silver chintz by sea to Seattle and then by air to New York, thus saving 14 days of the time needed to send the cloth all the way to New York by sea.

105. She therefore claimed HK$4,812, which was said to be the amount of airfreight charges incurred as a result of the delay caused by the replacement of the silver chintz. A debit note for this amount was produced, purporting to specify sea and air charges HK-Seattle-New York, though Miss Leung said it related only to air charges from Seattle to New York. Since the goods were f.o.b. Hong Kong, no sea freight would have been payable by the U.S.A. customer and the note for sea charges was sent to Casual.

Defence

106. Mr. Kuan does not dispute that Miss Leung complained to him that the silver chintz was not satisfactory, that he accepted her criticism of it and that he asked the manufacturer to replace it as soon as possible. He agreed that Sun Sun had asked for the goods to be replaced by airfreight as it required them quickly and that it was not sent by air until 27th October, arriving a month after the original shipment.

Findings

107. There are a number of unsatisfactory features of this claim -

108. For these reasons, I am not satisfied that the plaintiff has established either -

109. The claim under Contract C therefore fails.

CONTRACT D

General

110. This contract, which was entered on 4th September, 1982 provided for the delivery of 28,730 lbs. of interlock (the body of a shirt) pieces and 5,310 lbs. of collars and sleeves, which were to be attached to the interlock by the plaintiff's garment makers.

111. Contract D required the goods to be shipped in September 1982. They duly arrived on time, having been manufactured for the defendant by Wu Whei, a Taiwan company.

Plaintiff's case

112. When the goods arrived in Hong Kong and were inspected by Sun Sun, it was found that the colour of the interlock did not match the collars and cuffs. Miss Leung phoned Mr. Kuan and arranged to show him the interlock and collars. When she did so, Mr. Kuan asked her to see if her customer would accept them.

113. When Miss Leung showed samples of the delivered interlock and collar and cuffs to Mr. Ng of Casual, for which they were to be made into shirts, Mr. Ng rejected seven colours out of the twelve which had been delivered.

114. When Miss Leung informed Mr. Kuan of this, he arranged for the manufacturer to replace the unsatisfactory colours. When they arrived, she took them to Mr. Ng, who rejected them again, saying they were worse.

115. When she reported this to Mr. Kuan, he commented that that was the most he could do, adding "You try to match the colours and if there is eventually any loss I will be responsible". She therefore asked Mr. Ng if Casual's customers would accept the goods at a lesser price. Mr. Ng ascertained that some of them were prepared to do this, and reductions amounting to US$12,443 were made in the prices which Casual's customers were prepared to pay, such reductions being reflected in the amounts payable to Sun Sun by Casual.

116. Mr. Ng supported Miss Leung's evidence that the colours of the collars and cuffs did not match the shirts when these were delivered by Sun Sun. At his request, some of the collars and cuffs were remade, but the replacements when they arrived were also found to be unsatisfactory for the same reason.

117. However, as his customers were in a hurry for the shirts, Mr. Ng sent them samples of the completed garments, some of which had matching collars and cuffs and some of which did not, leaving it to each customer to decide if he wanted them or not. All those who received non-matching garments demanded a reduction in price. These requests were sent on to Sun Sun. He identified three telexes as having been sent by him to Sun Sun seeking reductions in price. He could not say what deductions were in fact made, as he did not have the documents available.

Defence

118. Mr. Kuan conceded that Miss Leung had complained that, collars and cuffs did not match the interlock. As a result of this, some of the colours were replaced, though he did not know which or the quantity involved. He firmly denied that he had ever undertaken to make good any losses suffered by Sun Sun.

119. Mr. Chiou Fong Zeng of Wu Whei, the manufacturers, testified that, so far as he could remember, there had been no replacement of cuffs at the request of Texxon, though he thought that faulty colours had been identified by him before shipment and replaced.

120. Most of his evidence seems to have been a complaint that Sun Sun owed money to Wu Whei, because Sun Sun had refused to accept delivery of part of the amount ordered by Texxon from Wu Whei. Such a claim even if sustainable, is not in issue in this action.

121. So far as Mr. Chiou's evidence was directed to deliveries connected with Contract D, I do not rely on it, so far as it disagrees with that of Miss Leung. He admitted to have very little recollection of what happened, save insofar as the limited documentary evidence reminded him.

Finding

122. There is thus no dispute between Miss Leung and Mr. Kuan that badly matched shirts and collars were supplied. The defendant relies on Condition 14, since no written complaint was put forward within 7 days. Again, Miss Leung points to an oral promise by Mr. Kuan to make good any losses and argues that this amounted to an oral variation of the contract so as to exclude the operation of Condition 14. On this, I accept her evidence.

123. I am satisfied that it was as a result of the failure of the collars and cuffs to match the interlock that the plaintiff was obliged to accept reductions in price on some of the shirts made from Contract D cloth.

Damages

124. The evidence of damages, apart from the oral testimony of Miss Leung, lies in the telex messages sent by Mr. Ng to Miss Leung and dated 8th and 11th November and 14th December, 1982.

125. These telexes set out various reductions sought by customers of Casual. They do not support the full amount claimed by Sun Sun (US$12,443.60) but only the following Items-

126. I accept Miss Leung's evidence that these amounts were deducted from the price payable to her by Casual, even though she has been unable to produce any documentary evidence of what was paid to her under Contract D, or indeed under any of the other contracts in dispute.

127. I do not, however, accept her evidence that the deduction of $3,006 claimed on P024 was later increased to $6,012, without any written evidence to counteract the telex claiming the smaller deduction. Nor was there documentary evidence to support the claim that 4 dollars " a dozen were taken off a consignment of 611 dozen ladies' T-shirts, an inflated version of the reduction of US$3 per dozen on 228 dozen ladies' T-shirts mentioned in one of the telexes.

CONTRACT E

General

128. This contract, although dated 9th June, 1982, and so the second in sequence has been referred to throughout as Contract E.

129. Under it, the plaintiff agreed to buy 200,000 yards of dyed cloth from the defendant, to be delivered in four lots of 50,000 yards by the end of July, 15th August, 30th August and 15th September, 1982. By a later variation, the first lot was to be divided into two shipments, 30,000 yards to be delivered by 20th July and 30,000 yards by the end of July, 1982, followed by two deliveries of 50,000 yards on 15th and 30th August and by the balance by 15th September.

130. 34,741 yards were shipped on 20th July, 29,867.5 yards on 30th July, 18,108 yards on 20th September and 32,034.5 yards on 30th November, a total of 114,751 yards, leaving an undelivered balance of 85,249 yards.

Plaintiff's case

131. Miss Leung described how she opened a L/C in favour of San Her Textile Co. on 21st June for 66,708 yards, the amount which the defendant said he would deliver. Though he shipped only 64,608.5 yards (2,100 yards short) by the end of July, no issue was taken as to this, the amount delivered being close to the amount of 65,000 yards required. The defendant promised to deliver the second and third lots when the cloth was available.

132. On 10th September, the defendant told her that 20,000 yards were ready, so she opened a L/C for that amount on 15th September and 18,108 yards were shipped on 20th September. On 30th September, she opened a further L/C for 32,460 yards, the amount which the defendant said was ready for shipment.

133. She kept pressing him for the remainder of the amount due under the contract. However, the defendant made excuses, nothing more was delivered and she finally ordered replacement cloth from Korea towards the end of November.

134. The Korean suppliers, the Tongkook Corporation, supplied 57,565 yards of cotton twill. She supported this purchase by the production of a copy of her contract with Tongkook for this amount, which was less than the 70,000 which she said in evidence had been supplied.

135. Miss Leung said that although the contract provided for a 1007 irrevocable L/C to be opened before 20th June, 1482, it had been agreed verbally on the signing of the contract that L/Cs would be opened for partial shipments and would cover such quantity as Texxon told her was ready for shipment.

136. The defendant did not ask her to open any L/C between 15th September and 30th November. During this period she kept pressing for the 60,000 yards which she then required. Eventually she was offered only 32,000 yards, so agreed to take it.

Defence

137. Mr. Kuan alleges, on the other hand, that he was pressing her hard to open a L/C. He denied that there had been any agreement that she need not open any L/C until Texxon had informed her of how much was ready for shipment.

138. He said that the proper system was for the buyer to send instructions to the seller, who would receive colour samples from the manufacturer. When these were supplied and approved by the buyer, the latter should open a L/C so that dyeing could begin.

139. Notwithstanding the absence of colour instructions, Mr. Kuan asked the manufacturer to go ahead with weaving and dyeing when colour instructions were received from the plaintiff, giving his personal guarantee to the manufacturer, as no L/C had yet been issued.

140. There was a considerable amount of evidence given, in an attempt to show that the manufacturer still had in stock, after the last shipment, a substantial yardage of dyed cloth which Sun Sun was obliged to take but which had not been sent because Sun Sun had failed to open a L/C to cover it.

Finding

141. I accept Miss Leung's evidence, however, that the contract was varied as she says, so as to provide that L/Cs should be opened only when she was notified that shipments were ready, and that she did not receive any notification in relation to Contract E after the shipment of 30th November, 1982. I think that the plaintiff, in view of the failure of Texxon to notify Miss Leung of the readiness of the balance of cloth due under Contract E, was entitled to look for an alternative source of supply.

142. Sun Sun had agreed to purchase 200,000 yards of dyed cloth at US$1.44 per yard, the cloth being 58"/60" wide. However, the Korean replacement cloth was 44" wide, and cost US$1.22 per yard. If the Taiwan cloth supplied to Sun Sun under Contract E had been 44" wide, it would have cost US$1.056. So the replacement cloth cost Sun Sun US$0.164 more per yard than the Contract E cloth.

143. On the basis of the Tongkook sales note produced by Miss Leung in evidence, the extra expense to Sun Sun was $57,565 x US$0.164, a total of US$9,440.66 (say US$9,441)

Damages

144. The only evidence which relates to the plaintiff's claim for the extra cost involved in the purchase of replacement cloth from Korea, other than the oral evidence , of Miss Leung, is a Sales Note from the Tongkook Corporation dated 30th November, 1982.

145. Miss Leung's testimony was ambivalent. The Statement of Claim was based on an additional replacement cost of US$11,381.22, which would represent, at US$0.164 per yard, a quantity of 69,398 yards. In evidence, she admitted that this was what she had asked for, but that Tongkook shipped a little over 64,000 yards. However, the Sales Note supports only an amount of 57,565 yards.

146. The Sales Note itself. was produced during the trial, without prior notice, not having been disclosed in the plaintiff's affidavit of documents sworn before trial. This factor requires that its authenticity and weight be approached with some caution.

147. Although described as a Sales Note, the document is a signed agreement between the plaintiff and Tongkook for the supply of 57,565 yards of cloth, to be shipped in two lots on 21st and 31st December, 1982.

148. The cloth which was to be supplied is described in the Sales Note as '65% polyester, 35% Combed Cotton Blended Plain Dyed Twill CD20's x CD20's/108 x 58 44"'. There is no evidence, other than Miss Leung's assertion, that such cloth was suitable as a replacement for the undelivered cloth under Contract E, though the specification of the Tongkook cloth appears to differ markedly from the Contract E specification.

149. The plaintiff is faced with substantial evidentiary difficulties. There is no documentary evidence to support Miss Leung's claim that the Tongkook contract was intended to provide cloth to fulfil Sun Sun's Contract E commitments.

150. There is no evidence, oral or written, that Sun Sun paid for the Tongkook cloth, that the cloth arrived in Hong Kong, as to when it arrived, and as to the uses which it was put.

151. Miss Leung's explanation of her inability to prove this aspect of her claim properly was, as I understood it, that she had moved her office in November 1983, and that supporting documents had gone astray. I do not find that this is a satisfactory explanation. The writ was issued in August 1983, so that she must have known of the importance of presenting documents relating to her claim before her office was moved.

152. Nor do I see why she could not have called evidence by someone from Tongkook, secured copies of documents from them or at least explained why this was not possible.

153. I am not prepared to find that the plaintiff has `established her claim to US$9,441 on the basis of a contract which is unsupported by any evidence that it was ever carried into effect. For these reasons, the claim for damages under Contract E fails.

COUNTERCLAIM

154. This is founded upon the alleged failure of the plaintiff to open the necessary L/Cs in respect of the balance of 49,749 yards under Contract Band 85,249 yards under Contract E. This, it was argued, deprived Texxon of the commission which it would have earned on the delivery of those amounts.

155. It follows from my findings on these two contracts (B and E), namely that the effective cause of the breakdown of both was the failure of the defendant to notify the plaintiff that further quantities of cloth were ready for shipment, that the defendant's counterclaim must fail.

Summary

156. I therefore award to the plaintiff the following amounts -

157. Interest should be added at the rate of 10%, per annum on this sum from the date of issue of the writ (15th August, 1983) until judgment (20th January, 1986).

Representation:

Mr. Ronald Tang with Mr. Chu Tak (Yung, Yu, Yuen & Co.) for PlaintiffMr.

Mr. C. Mumford, Q.C. (Rowland Sum & Co.) for Defendant.