Welltus Ltd v. Fornton Knitting Co Ltd

HCA 349/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 349 OF 2007

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Before: Deputy High Court Judge Carlson in Court

Dates of Hearing: 21,22,24, 27-29 September, 15, 18-21 October,

15-16 November, 2010

Receipt of Written Closing Submissions:  10, 20 and 31 December, 2010

Date of Judgment:  16 November, 2011

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J U D G M E N T

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Introduction

1.This is an action by which the Plaintiff, which trades in yarn, is suing the Defendant, a knitwear manufacturer, for the price of a number of deliveries of yarn ordered by the Defendant.  The value of these orders amounts to $817,134.18 which is the total of 13 invoices presented to the Defendant which it refuses to pay.  The Plaintiff is also suing the Defendant in respect of a request made to it by the Defendant to rewind and carry out “soft treatment” to 4,659.64 lbs of yarn that it has supplied the Defendant with to the Defendant’s order.  The cost of this additional work is set out in a debit note No. 02368/07 is $32,710.70.  Finally, the Plaintiff claims $268,444.80 as a result of the Defendant having informed it that it was refusing to accept delivery of 4,780 lbs of yarn which the Plaintiff had obtained for it and dyed in colours requested by the Defendant.  The total amount of the claim is therefore $1,118,289.68 together with a claim for interest.

2.The case has been defended by the Defendant on the basis that the yarn that the Plaintiff supplied to it, a mix of linen and bamboo, was wholly unsuitable and grossly defective.  All attempts to use it to make up the ladies tops that it had been earmarked for ended in disaster.  As the knitting process was embarked on the yarn would burst.  It was in effect unknittable.  It was simply not possible for the Defendant to use it.  As a result it had to resort to purchasing yarn from another source to make up the substantial order of ladies tops that it had been contracted to supply to an important and well-known US brand.  As a result, it has mounted a very substantial counterclaim for its losses and as a set-off to the Plaintiff’s claim.

3.The counterclaim as it appears in the amended defence and counterclaim will need to be analysed in some detail presently. Suffice it for the purposes of this introduction, to set out here the heads of counterclaim.  These have been broken down into five heads which, with their respective sub-heads, amounts to 15 distinct items of claim.

4.The first head relates to the yarn itself which breaks down to three sub-headings.  Firstly, the cost of wastage of unworkable yarn due to bursting which amounts to $153,990.72.  Secondly, the cost of subjecting the yarn to a soft treatment process in the hope of preventing further bursting in respect of five of the colours that had been ordered.  This amounted to $58,924.25, and a further sum of $23,222.16 for further wastage. Thirdly, the cost of what became unusable moistened yarn and/or rewound yarn, all of which had been done with a view to improving quality and thereby avoid bursting the cost of which was $245,515.85.

5.The next head relates to knitting and comprises six sub-heads.  It is sufficient to relate here that this claim takes in additional knitting costs, mending of burst panels of yarn, wasted production costs and additional labour costs.  The total under this head is $336,452.70.

6.The third head relates to the air freight cost of sending garments to the US.  This is an additional cost.  Originally, the finished garments would have gone by sea but for the production delays caused by the supply of defective unworkable yarn which meant that the Defendant could only meet delivery deadlines by resorting to more expensive air freight.  This amounted to $146,626.35.

7.The fourth head refers to non-delivery of 4,368.48 lbs of yarn and this is a claim for $18,850.26 which is the difference between the contract price between the parties and the additional costs to the Defendant in having to purchase suitable yarn from another supplier.

8.Finally, the fifth head is for loss of profit of $33,852.  This is based on the fact that because of the Plaintiff’s inability to deliver to it suitable yarn in sufficient quantities, it was unable to deliver to its client all that it had contracted to deliver and this amounts to its loss of profit on what it was unable to deliver.

9.The total of these amounts is $1,017,434.29.

The Course of the Transactions

10.I now need to relate in some detail how the dispute has arisen and how it developed.  The time frame is from February 2006 when Mr Wayson Choy, who I will refer to as Wayson as it seems counsel have decided to call most of the witnesses by their given names, the Plaintiff’s principal demonstrated the yarn, a mix of 60% linen and 40% bamboo, to Rita [Law] the Defendant’s merchandising manager, and ends in March 2007 when the Defendant filed its defence and counterclaim and proceeded to purchase replacement yarn from a company called Best Pack.

11.In the course of this period of 13 months this sorry saga proceeded on its erratic course with deliveries of yarn by the Plaintiff which produced burst panels of knitwear, attempts to improve the yarn by a process of softening and re-winding which apparently failed and culminating in the Defendant rejecting the outstanding yarn and going elsewhere for replacements to fulfil the order for its US customer.

12.At the core of the Plaintiff’s case is the plea that this was a sale by sample.  The Defendant is a substantial knitwear manufacturer and supplier.  It ought to know and does know what yarn is suitable for any particular production run that it wishes to embark on.  It has the knowledge and expertise as to what yarn is best suited for the garment or garments that it wishes to make for its customers.  It will look at the yarn on offer to it, the properties of the particular yarn, and decide which is best to order for the line of garment that it is going to manufacture.  This is precisely what happened in this case.  The Plaintiff is, after all, only a trader in yarn.  It has contacts with a number of yarn manufacturers and as in this case Wayson on its behalf demonstrated this particular yarn at an exhibition to Rita the Defendant’s merchandising manager.  She knew what she was looking for.  She was interested in finding yarn that could be made up to fulfil the order for its US client that it wished to purchase for its two types of ladies tops using a different knitting style for each of the two tops.

13.What Wayson’s evidence comes to is that he showed Rita this particular yarn which she was interested in purchasing. Largely this is what her job is.  There is a point to be made about this particular mix of linen and bamboo which is that bamboo is not an easy yarn to knit and Wayson says that he had drawn this to Rita’s attention.  In the event she exercised her own expertise and judgment in such matters and decided to proceed with this particular yarn.

14.After the demonstration at the exhibition Rita requested that she be sent a swatch or a part-cone of the yarn “W163791/14 NM Linen 60 Bamboo”.  After the initial samples were sent to the Defendant, Rita asked Wayson for 15 lbs and a further 20 lbs of “salesman” sample.  This was on 8 June 2006.  On the same day, the Defendant sent a formal purchase order No. S6DT0478 ordering 185 lbs of the yarn in seven different colours [B7/872].  Pursuant to this purchase order the Plaintiff delivered 32 lbs on 22 June 2006, a further 55 lbs on 5 July and 98 lbs on 7 July.

15.On 2 August Rita requested Risa, of the Plaintiff, to arrange delivery of 5 lbs of each of the required colours “with hand feel and torque improvement” [B4/485].  Pursuant to this request deliveries were made on 23 August [10 lbs Cocoon and New Sand B6/T724-(2)], T725-(3)] by courier.  On 26 August, the defendant confirmed receipt and Venus, a member of its staff, told Risa (of the Plaintiff) that the Defendant would proceed to knit the sample to see if there had been improvement for torque [B6/722].

16.On 3 October 2006, Rita emailed Wayson to say that the Defendant was going to place two yarn orders but remarked that she needed “yarn with soft hand feel” and “no torque would be allowed” and that Wayson should try and get “yarn in more evenness (sic)” [B4/486].

17.On 3 October, Wayson went to the Defendant’s offices to discuss yarn quality with Rita.

18.Wayson says Rita recognised that given the nature of this particular yarn there would be at least 30% wastage on production.  At this meeting Wayson says that he also told Rita about the risks involved in knitting this type of linen/bamboo yarn with a 12-needle one ply knitting set up and warned her of the risk of bursting in trying to knit these ladies tops with the knitting patterns that were required.  Rita’s response to this was that these risks had already been taken into account in the 30% wastage that she assumed would occur.

19.On 9 October 2006, the Defendant issued a Purchase Order No. B6DT072 (Bundle 4/500) which was revised and re-issued on 26 October.  This was to the value of $74,556 for a total of 10,355 pounds of Cocoon and Sabbia colours.  On the same day, the Defendant issued another Purchase Order No. B6DT0793 [B4/492].  This was to the value of $54,900 for a total of 7,625 pounds of Autumn Sky, Black, New Sand and Red Colours.  In turn the Plaintiff placed its order with its supplier on the mainland.  [See B4/493-Purchase Order WT-3499]

20.In the meantime, Wayson obtained a laboratory report from Intertek [B/5693, 694, 695 and B/4496].  This was to ensure that the colours conformed with the order placed by the Defendant.  Suffice it to say that Rita confirmed the acceptability of the colours for Cocoon, Black, Autumn Sky and New Sand [B4/497] and for Cocoon and Sabbia [B5/697].

21.On 23 October, the Defendant issued a further Purchase Order No. B6DT0793-1 [B4/499].  This was for Black, New Sand and Red.  The value was for $1,454.40 in respect of 202 pounds. 

22.On 1 November 2006, the Plaintiff made deliveries in respect of four colours; New Sand, Cocoon, Black and Autumn Sky and invoiced the defendant for $7,180.91 [B6/728-729].

23.As to the first concerns regarding bursting, Wayson sent an email to Rita on 9 November 2006 [B4/503] to say that having investigated the matter, the strength of the yarn was strong and without large neps (or nodules) which might cause bursting.  In order to deal with this problem he was going to have produced a 25 pound sample which would be heavily waxed so as to make it easier for the yarn to pass through the knitting needles.  He suggested that the main cause of the problem might be that the knitting needles had been set too fast.

24.In the latter part of November 2006, some problems in timely delivery were being encountered.  Wayson was saying that this was due to the Defendant holding up colour approval but that he would do his best to get delivery arranged on time [B4/506].

25.On 7 December 2006, the Plaintiff delivered 198.4 pounds of the ordered yarn in Black.  By now real problems were beginning to emerge.  For his part Wayson was unhappy with the fact that the Defendant was delaying in accepting delivery because of, amongst other problems, colour matching and for its part the Defendant was displeased with what it was being sent.  An example of this to be found in an email exchange on 12 December 2006 between Wayson and Rita.  Although their written English is not absolutely clear the mutual dissatisfaction is plain.  Wayson wrote at 9:50 a.m.:

“Please refer the presented dye lot of color ‘Sabbia’ ̍n try to inform the comment asap. We have wasted a week time already, please try to comment or approve the dye lot for working with cone up factory asap. Fyi. Dyeing and winding factory is booming and hard to bargain the space, please concern the production time.”

At 9:53 a.m. Rita responded:

“Due to the color is not good ₊flaring both me and my client in HK office hv no choice and need to sent to USA for reviewing. Pls wait, as my yesterday mail mentioned, dye lot color red silk is no good and rejected again, pls reviewing and adv yr think. Ths!”

26.The latter half of December 2006 was to see great strains placed on the parties’ relationship. Although problems with colour matching were not entirely resolved, it was the bursting of the yarn when being knitted that well and truly put paid to the delivery schedules and finally led to the Defendant refusing to accept further deliveries.

27.It seems to me that the high point for the Defendant in terms of its concerns about the suitability of this yarn came on 27 December 2006 when there was a meeting at the premises of Wing Luen which was a knitting factory regularly used by the Defendant to produce garments for it.  Wing Luen’s principal is Mr Chow King Ming who has given evidence.  His company’s dealings with the Defendant go back to 2002 or 2003.  In October 2006, Wing Luen had received orders from the Defendant to produce ladies tops for it using the yarn in this action.  His company had to produce a ladies top in style B, as it has been referred to in the evidence.  It comprised a scoop-neck knitted Pointelle in Cocoon and Sabbia which he says, in less technical jargon, means beige and camel colour.  He was told that the garments were to be produced with a computer-controlled knitting machine.

28.There was some delay in receiving the yarn from the Defendant because of problems in approving the dye lot samples.  By December production yarn started arriving and his company could start producing the garments.  It started to knit up the Cocoon which burst and “made it impossible to produce a saleable product”.  He contacted the Defendant and was told that it was having the same problems at its Dongguan knitting plant.  He was urged to try and find a solution to this problem.  I accept Mr Chow’s evidence that he is an experienced knitter of these types of garment.  He says that his staff tried various “mechanical and chemical processes to lubricate and soften” the texture of the yarn.  They also investigated the knitting specifications of the computer-controlled knitting machines and adjusted settings to compensate for any inherent defects in yarn itself.

29.Such was Mr Chow’s professional approach to this that he attended the premises of Win Win Industrial Company Limited, who had supplied his knitting machines, for its advice.  Their Mr Lee suggested a knitting test on Win Win’s own machines using the Cocoon yarn.  Regrettably the results were the same.  The yarn burst.  Mr Lee told him that the yarn was “too problematic to work with”.

30.And so, on 23 December, seemingly faced with an intractable problem, Mr Chow sent an email to Rita to tell her that “serious inherent quality defects” had been discovered in respect of the yarn that she had sent him.  He says that having tried to produce a sample from a small quality of the yarn sent to him he observed that what had been knitted was “riddled with bursts”.  He says that the cause was the presence of impurities, there was irregularities in the thickness of the yarn, oversized neps and short yarn fibres.  He had tried to rectify the situation by slicing and waxing the yarn but to no avail.  He could not prevent bursting which made the yarn practically unworkable.

31.On 27 December 2006, Wayson and a colleague of his went to Wing Luen’s premises together with Angel and Yuki from the Defendant. They went there to see what was causing the bursting.  Mr Chow demonstrated to them just how serious the bursting problem was by showing them a piece of a Sabbia knit run after the yarn had been given soft treatment.  Mr Chow says that it must have been obvious to all those present that the bursting had been caused by defects in the production of the yarn itself which made it unsuitable.

32.Mr Chow says that Wayson also visited his premises after 27 December on another two or three occasions and asked him to see if he could rectify the problems.  Wayson also told Mr Chow that he had sent some of the yarn to another knitting factory and that it too had experienced the same problem with bursting.

33.Mr Chow also says that he was asked by the Defendant to carry on and try to produce the garments as per the order sent to him so that the Defendant could fulfil its order to its US client.  In the circumstances, he tried to further rectify the problem by yet more lubrication, waxing and moistening notwithstanding which the bursting continued.  As to the Cocoon yarn he says that this was “marginally workable” although the wastage was greater than expected or normal and the finished garments had holes which required a lot of mending by hand.  As to the Sabbia yarn, this was a complete failure despite adjustment to the speed and tension of the knitting machines. In view of this he confirms that the Defendant was obliged to purchase more yarn from another source to complete its orders.

34.Notwithstanding the gravity of the shortcomings of the yarn after Mr Chow’s tests, the parties continued to deal with each other with a view to saving the situation if at all possible.  For its part the Defendant was anxious to get the yarn knitted and have the manufactured tops shipped to the US in time.

35.On 29 December 2006, Rita told Wayson by email that 90% of further deliveries of yarn were bursting and asked “how fast we could get the new good yarn or if any solution can be provided” [B4/552]. These pressing issues aside the deliveries continued to come from the Plaintiff and be taken in by the Defendant.

36.On 5 January 2007, Wayson sent an email to Angel at the Defendant to caution her about the use of a 12-needle knitting process for this type of linen/bamboo yarn which he says he told her about before the Defendant had placed its order.  He also asked for payment for yarn already delivered and the cost of additional soft treatments, before the final delivery of yarn was made [B4/581].  On the same day, Angel replied saying that the Defendant had changed from 12 to 9 and needles but without any improvement [B4/582].

37.By now the parties were beginning to get “testy” with each other.  Wayson was anxious about receiving payment and the Defendant was refusing to release payment to him until it received a firm delivery date for still outstanding yarn [B5/561].  On 10 January 2007, Miss Molly Lin, the principal of the Defendant, requested a meeting with Wayson to discuss the on-going issues [B5/602].  There was a meeting on 13 January by which time the Defendant was right up against the limit of its delivery schedule with its US client, whilst still embroiled in serious disputes with the Plaintiff about the quality of the yarn, re-testing of the yarn, softening treatment and who would be responsible for the cost of such remedial treatment.  On 13 January 2007, Angel emailed Wayson [B5/613] to say that the remedial work would have to be borne by the Plaintiff and refused to accept any further delivery of yarn.  Two days before this the Defendant had sent purchase orders to Best Pack another yarn supplier, to replace the Plaintiff’s yarn so that it could fulfil its contracts with its US customer [B8/1029, 1037, 1042].

38.In the meantime, the Plaintiff was carrying out further investigations as to why the yarn was bursting.  Further experiments were carried out as to why there should be bursting but without any satisfactory outcome.  The final breakdown in the relationship came in the last week of January 2007.  On 29 January, Miss Molly Lin emailed Wayson to say that the Defendant was going to drop its order for the Sabbia colour [B5/653].  On the same day, Wayson replied to say that no cancellations would be accepted unless there was evidence of the yarn not corresponding with the samples and reminded her that $590,231.21 was outstanding [B5/653].  On 31 January he sent a reminder about payment and asked what was to be done about yarn that was awaiting delivery in Shanghai [B5/656].  Miss Lin replied that she would pay for “shippable” quantities but needed more time [B5/657].

39.All of this discourse came to nothing.  On 2 February, Wayson sent an email which included a denial of responsibility for the yarn quality [B5/660].  Molly Lin replied the next day stating that “we will of course honour whatever that could be shippable and have to discuss also how to settle on all the claims being raised due to yarn quality problem [B6/739].

40.On 16 February 2007 the Plaintiff, having lost patience, filed its statement of claim and by mid and late March 2007, Best Pack delivered to the Defendant two lots of replacement yarn which enabled it to substantially fulfil its order.

Test Reports on the Yarn

41.Given the core issue of the dispute which centres on the quality of the yarn supplied by the Plaintiff to the Defendant, it is helpful and necessary to consider the test results carried out on some of the yarn and to look beyond those results to the expert evidence given by Dr Lo for the Plaintiff and Dr Au on behalf of the Defendant who have commented on those results.

42.The Intertek Laboratory test is dated 9 January 2007 and commissioned by the Defendant [B6/745-750].  The expert’s reports are in Bundle 3.

43.Both Dr Lo and Dr Au have great expertise in this subject both on a practical and academic level.

44.What I am about to set out is a summary of their conclusions having considered all of their evidence.  This summary, provided in the interest of brevity, is no substitute for a consideration of the whole of this evidence which I have had regard to.

45.Dr Lo has put in two reports to which he has spoken in his oral evidence.  His first report is dated 11 February 2008 [B3/402].  As to the part which consists of his comments on the defence and counterclaim [B/406], these are entirely within my remit and I propose to ignore his comments. At para.5 [B3/406] he turns to the Intertek report.  This report, amongst other matters, relates to yarn breakage which has shown up as bursting of the panels during the knitting process.  He explains that yarn breakages is directly related to yarn strength, which in turn is related to the evenness of the yarn “such that thin places in the yarn are usually weaker and when the yarn subjects to stress the thin place will break first”.  Having considered the test report on the yarn he concluded that even the sample with the lowest tenacity was still strong enough to knit under normal conditions.  Turning to the uniformity of the yarn, he considered that all of the tested samples were similar and “practically the same with a maximum of 15.1% and a minimum of 14%”.  He said that “With the inherent irregularity of yarn spun from natural fibres, the deviation in the tenacity of the yarn among the sample can be considered to be very similar”. His conclusions [B3/407] were that “When the samples tested were similar in tenacity it can be concluded that the tenacities of the yarns for sampling before purchasing the main bulk would be the same as the yarns in the main bulk for knitting.  Although the yarn may still not be strong enough for some very different knitting conditions, the yarn for sampling should have revealed any difficulties that may occur.”  [Emphasis added]

46.On 15 December 2008, Dr Au, on the Defendant’s behalf, produced his report.  This report is more comprehensive than Dr Lo’s but Dr Lo, as I will refer to in a moment, prepared a further report which stood in reply to this one by Dr Au.

47.Dr Au’s report is at B3/439-481.  He said that his instruction, with a view to assisting the court in understanding the results of the Intertek report, was to evaluate that report and to put into context the implications of the report.  The second aspect of his instruction was that he would evaluate the quality of a total of six samples of bulk yarn on cones as purchased by the Defendant from the Plaintiff.

48.Having explained the test results done by Intertek on the samples and bulk provided to the laboratory, he came to his conclusions at B3/446.  He said that, “On comparing the test data of the sample yarns and the bulk yarns delivered, it is obvious that the bulk yarns are of inferior quality compared to the sample yarns”.  He broke this down as follows:

(a)  The tenacity of the yarns is within knittable strength property;

(b)  The yarn count has a higher valuation.  For example, one of the samples “B”, was 7.56% thinner than the nominal count of the purchase specification.

(c)  The evenness values of the bulk yarns are higher than the sample yarns.  This is also found in the evenness indices in the number of thin places, thick places and neps.  All had higher values compared to the sample yarns. 

What little (c) means therefore is that in these respects the bulk yarns compared to the sample yarns show a greater degree of unevenness with more thick and thin places and a greater number of neps.  His conclusion, based on these findings, is that the bulk yarns were of inferior quality to the sample yarns, which if accepted by me would be a most significant finding.

49.Helpfully, Dr Au also gave consideration to the appropriateness of the knitting machine gauge used by the Defendant to produce the garments.  He explained that it is important to use an appropriate yarn count, (the yarn fineness) that fits with the gauge of the knitting machine.  This can be calculated by application of a mathematical formula which he has done and concluded that the suitable knitting machine gauge is 12, which is what the Defendant used [see B3/447].

50.He then embarked on an evaluation of the qualitative properties of the bulk yarn samples, starting at B3/448, which is the most important part of his report.  In relation to the test results he says that the bulk yarn sample show higher and varied tenacity property values. Although these values are within the acceptable range of common knitting yarns, the differentials found in the tests imply that, “proper quality control during the spinning (yarn production) process is doubtful”.

51.On breaking elongation properties he found that the property was 2.99% which is “much below the normal breakage threshold recommended for the knitting process”.

52.On evenness this measured far too many thin places, thick places and neps when compared to commonly use knitting yarns.  He says this means that “the yarn quality is poor”.

53.His conclusion at B3/453-454 bears repetition here:

“The samples of the 60% LINEN & 40% BAMBOO blended’ bulk yarns’ submitted for testing are of acceptable strength but too rigid in property. The major problem or reasons for the failure of the yarns in the knitting process lies in their low value of ‘elongation at break’ properties.

To put it simply, yarn is subjected to extension forces during the knitting process. When yarns of low extension property are stretched beyond their limit, they will break and result in holes and subsequent damages to the knitted fabric.

The low elongation property of the ‘bulk yarn’ samples also indicates that the ‘bulk yarn’ are not machine workable for the knitting of transfer patterns, such as ‘Style A’, and also difficult to obtain good quality fabrics for ‘Style B’ production, even though it is of the plain knit structure and therefore subject to even less stress and variations in tension during the knitting process.

Other drawbacks discovered in the ‘bulk yarn’ samples include a high degree of unevenness and non-conformity to the yarn count specified in the purchase orders.  In other words, the ‘bulk yarn’ is not demonstrably suitable for knitting on12-gauge knitting machines, and the delivered ‘bulk yarns’ are of poor quality and unsuitable for use on knitting machines to produce the Style ‘A’ and Style ‘B’ knitted garments.”

54.I now turn to Dr Lo’s second report dated 26 May 2009 which stands in answer to Dr Au’s report [B3/414-416].  In this report he observed that the sample yarns and the bulk yarns had similar tenacity.  If anything, the bulk would be better for knitting.  He says that the yarns “were generally of good strength for knitting”.

55.In respect of breaking elongation properties he submits that it was wrong of Dr Au to use cotton as the standard for knittability. A linen/bamboo  mix such as in this case and cotton are simply not comparable.

56.He sets out his conclusions very succinctly.  They are the following:

“1. The core issue is that the yarn tends to break during knitting.

2. The most important yarn parameter relating to yarn breakage during knitting is tenacity.

3. The yarn tenacity is of a reasonable level for knitting.

4.   The tenacities for sample yarn and bulk yarn are very similar.”

Conclusions on the Cause of the Bursting

57.There can be no doubt on the evidence that the yarn supplied by the Plaintiff was simply not up to the job.  The results, with very small exceptions, were disastrous, no buyer of yarn which is to be made up into garments of this type, jersey knit or the more elaborate pointelle knit would find this yarn suitable or acceptable. 

58.Of the two experts, I prefer Dr Au’s evidence. He appears to have studied the issues of quality, reasons for bursting, knittability and comparisons between sample and bulk in a much more considered and comprehensive way.

59.I find as a fact, based on his analysis, that the bulk yarn was in fact inferior to the sample which explains why the sample yarn appears not to have provided any sense of the impending disaster once the bulk arrived.  In this regard, I reject Dr Lo’s conclusion that any problem should have been picked up by the knitter when the samples were being tested. That may well have been so if sample and bulk were of equal quality which in my judgment was plainly not the case  as Dr Au has found in the course of his investigations. 

60.Whilst the experts have provided their opinions and findings based on analysis of the yarn as it was found to be constituted by Intertek, which in my judgment is crucial to my finding that it was unsuitable, I am equally impressed by Mr Chow’s evidence who had to live with the product and try to knit out these ladies tops.  I found him to be a careful and entirely straightforward witness.  Notwithstanding his commercial connections with the defendant, which places a lot of orders with him, I am completely satisfied that he has given truthful and accurate evidence as to what occurred when he attempted to knit the yarn supplied to him.  I have already set out the effect of his evidence at paras.27 to 34 above.  His evidence that the yarn was “riddled with bursts”, “too problematic to work with” and that he could not prevent bursting which made the yarn “practically unworkable” amply demonstrates just how bad this yarn was.

61.Without being legalistic at this stage, in terms of the relevant provisions of the Sale of Goods Ordinance to which I will turn in a moment, my conclusion is that this yarn was simply sub-standard and not fit for the purpose of knitting, at all events, these ladies tops let alone anything else.

62.The Plaintiff’s case, in part, is that the knitting machines were set too fast and that the gauge settings were not appropriate.  All of these points have been addressed by Mr Chow and by the Defendant’s other attempts to get the yarn to work.  The simple fact is that Wayson had been supplied with poor quality yarn by his mainland supplier which he then sold on to the Defendant.  Every attempt to improve its quality had failed.  Re-winding and waxing to make it slide through the knitting process failed to prevent bursting.

63.In coming to this conclusion I have not ignored the evidence of Mr Wong Wai Kit, who was called to give evidence on the Plaintiff’s behalf.  He is the manager of a knitting factory and has been engaged in this industry since 1987.  As such he is well-qualified to speak about these matters.  He carried out tests of his own.  He found that bursting occurred when he tried to knit the yarn.  Of this type of yarn, a linen and bamboo mix, he says that it tends to be “less tenacious” and the speed of the knitting machine will need to be reduced.

64.He was given a CD of the design patterns of the two ladies tops.  He says that apart from bursting, the particular patterns caused what was being knitted to “twist”.

65.He says that the “uneven patterns” for these ladies tops have caused the knitted pieces to twist.  As to bursting, his evidence is that the density of the yarns are too low for the design of the tops that were to be knitted from this yarn.  He goes on to say that the uneven distribution of the yarns has caused “uneven distribution of tensions” to be exerted on the yarn making some yarns more vulnerable than others.  It is this that has resulted in bursting.

66.That conclusion by Mr Wong cannot survive the critical analysis of Dr Au who has, in my judgment, provided the answer as to why this yarn burst during the knitting process [paras.57-59 supra].

The Legal Position

67.Against the finding that sample and bulk did not correspond, as found by Dr Au and, that as a result the bulk was largely unknittable, I now need to determine where that finding leads to in terms of the pleaded issues.  The Plaintiff’s main point is that this was a sale by sample.  Once the sample was accepted then the Defendant must be left to its own devices.  There is the other issue as to whether it was a sale by specification and further, whether Wayson had warned Rita that this linen/bamboo mix was likely to be so problematic to knit that she ought to be on her guard about whether she should really be purchasing yarn of this type to manufacture these ladies tops.  As to this latter point there is also the allegation that Rita, being the representative of an experienced and substantial manufacturer of such garments, could be assumed to have exercised her own skill and judgment which she did by allegedly saying that she had taken all of this into account and accepted that there would be considerable wastage of yarn during the knitting process.

68.Ultimately, the answer to this problem is that what Wayson had delivered in bulk, as opposed to what had been delivered in sample form, was wholly unsuitable and fatally defective.  For this I rely on Dr Au’s expert evidence as I do on Mr Chow’s empirical results when he came to knit the bulk yarn.

69.Once it has been established, which to my complete satisfaction it has, that the bulk did not match the quality of the sample it matters not if this was a sale by sample.  Any answer that the seller/plaintiff might have had to the defence and counterclaim based on a sale by sample is, in these circumstances, completely eliminated from the case.

70.Where the bulk is inferior to the sample, the fact that the sample may have been suitable is irrelevant. 

71.Whether this was a sale by specification also matters not, given the appalling quality of what was delivered.  What was specified and what was delivered simply did not coincide.

72.Insofar as it may be necessary to resolve this, I also reject the evidence of Wayson that he had warned Rita that this yarn was problematic due to its make-up and probably unsuitable for what Rita required. I prefer Rita’s evidence that Wayson had made no such statement.

73.The only conclusion that I am able to arrive at on the evidence is that all the bulk yarn delivered was unmerchantable and unfit for its purpose.  Given its very high propensity to burst during the knitting process it was “unknittable”.  As a result, the Defendant was completely justified in its decision to refuse to accept further deliveries and to turn elsewhere, in this case to Best Pack, to purchase replacement yarn in order to make up the rest of its order.

The Result on the Claim

74.Accordingly, the claim by the Plaintiff must be dismissed in its entirety.  There will therefore be judgment to the Defendant on the claim.  This is one of those cases where the Plaintiff, if it considers this a sensible course to take, must look to its supplier of the yarn for financial redress. 

The Counterclaim

75.As a result of the sale of defective yarn by the Plaintiff, the Defendant has suffered losses for which it must now be compensated.

76.The evidence in support of the counterclaim in its most up-to-date form comes from second supplemental witness statement of Rita (25 May 2010) [BS/298-312] and Exhibit D14 which in diagram form shows how the amounts are arrived at and where they come from.  In respect of these matters she has been closely cross-examined, on the Plaintiff’s behalf, by Mr Man.  The Exhibit is particularly useful because it represents in the greatest possible detail the source of the claimed amounts as they appear in the Bundles with their page references and the precise amount claimed.

77.As it appears in Rita’s second supplemental witness statement, the counterclaim is set out at paras. 8(ii) to 8(vii) in the amended defence and counterclaim.  Each pleaded and calculated head of claim is supported by the relevant documents which appear as attachments to the pleading.  These are, in turn, reproduced in Exhibit D14 with their related pagination in the trial Bundles.

78.As to these amounts, the evidence is in and it would be pointless to merely rehearse it here all over again.  If this matter needs to be considered in another court that exercise can, if necessary be gone through by a consideration of these materials.

79.The case was opened by Miss Wong, for the Defendant, on the basis of five heads of claim which, with their respective sub-heads, comprise 15 distinct items of claim.  These I have provided a summary of at paras.4 to 9 above which total $1,017,434.29.

80.Now that I have heard the evidence in support of these heads of claim, coming as it does from Rita in the form that I have described, I am in no doubt as to the legal basis for these heads of claim in the sense that they flow directly from the Plaintiff’s failure to deliver to the Defendant yarn of the quality contracted for.  Each head of claim has been abundantly proved on the evidence that has been presented through the documents on the defendant’s behalf and as analysed by Rita in her second supplemental statement and her oral evidence part of which is diagrammatically

81.Insofar as some of the heads of claim, which Miss Wong has marked with an asterisk in her written opening, represent a reasonable attempt by the Plaintiff to mitigate its loss, I uphold such steps as reasonable which is why I have been prepared to award the amounts counterclaimed in full.

82.What I decline to award as an added amount is a “handling charge”, which is based on the amount of extra time taken by Rita in preparing and presenting the case through the considerable effort put in by her in putting together her second supplemental statement and Exhibit D14 which, I accept, must have been very hard and time-consuming work and which I have found, as I have already said, very helpful.  This “handling charge” is not a proper head of damage.  It forms a part of the preparation of the case.  What I can say is that some consideration might be given to this effort by the taxing master when deciding on the appropriate quantum of taxed costs to be awarded to the Defendant. Had this presentational work been done for the Defendant by its solicitors, these costs would almost certainly be allowed as part of the costs of preparing for the trial.  As I say it may well be that the Master will feel able to reflect this feature when taxing the Defendant’s costs.

Final Outcome

83.The claim will stand dismissed with judgment and costs to the Defendant on the claim.  The counterclaim has been proved in the sum of $1,017,434.29 and so there will be judgment in that amount on the counterclaim with costs to the Defendant.  The costs will be taxed on a party and party basis.  These orders for costs will be orders nisi.  The Defendant will also be awarded interest on the amount damages on the counterclaim at 1% above HSBC best lending rate from the date of the amended defence and counterclaim until judgment and thereafter, at the judgment rate until payment.   This will also be an order nisi.  Finally, I wish to acknowledge the very considerable effort put in by counsel on both sides and also the regrettable delay on my part in producing this judgment.

Man Hon Chiu, instructed by Messrs M L Tam & Co., for the Plaintiff

Abigail Wong, instructed by Messrs Tung, Ng, Tse & Heung, for the Defendant