WINKO CO. v. WING TAI GARMENT INTERNATIONAL LTD.

1995, No. A12686

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. The Plaintiff (P), by Amended Writ of Summons filed on 29.3.96 sued Defendant (D) for the price of goods sold and delivered. P. a manufacturer and seller of garments entered into various contracts to supply garments to D., a garment seller and exporter.

were completed satisfactorily but had not been paid for. In respect of

which involved a total of 2,800 garments, D. alleged the goods were defective and not of suitable quality for sale as coordinated suits. D. contended that the P. was always aware that D. purchased the goods for re-sale as fully coordinated suits.

2. D. withheld payments under all contracts by way of set-off for loss and damage allegedly suffered and counter-claimed for a sum greater than P's claim for loss of profits; loss of revenue on re-sale; freight and inspection costs; claims by sub-purchasers etc.

3. The 3 disputed contracts were signed on 15.6.95 for 700 pieces each of 2 blazer styles and 1 skirt style. The original shipping date was 28.7.95 but this was changed by agreement to 14.8.95 because of late delivery to P. of the necessary fabric. On 9.8.95 D. sent its garment examiner, or examiners (whether one or two was disputed), to P's factory in China. The skirts were wholly completed in respect of Contract TO265/95 on 3.8.95. Of the 1,400 blazers 80% of the total number of garments had been pressed and 70% had been packed by this date.

4. The goods were not accepted by the examiners as various faults were found in respect of TO263/95 and TO264/95 the 2 blazer styles. P. was told to correct the defects and deliver the goods to H.K. for shipping. The D. did not arrange a second and final inspection. The D's case was that there was no time to do so - that was disputed by P's witnesses who said that as the corrections were neither serious nor time-consuming there was ample time for a second inspection before the goods went to H.K. for shipping.

5. The goods were not inspected and P. delivered them to the shipper as arranged for shipment to Japan where they were to be received by I.F.A. for distribution to retailers.

6. On 7.9.95 the D. received a verbal complaint about the goods. This complaint was not reported to P. immediately and P.W.1 said he heard of it only when he went to D's office to seek payment for earlier invoices.

7. On 11.9.95, I.F.A., returned 102 pcs of the goods to demonstrate the alleged defects. No survey report was done at that stage. Nor were any details of the claim or a survey report, supplied to P. - despite P's letter of 29.9.95 requesting the same. P.W.1 saw the returned goods and kept 2 items. In evidence he said he understood that those pieces returned comprised all the allegedly defective goods.

8. On 6.10.95 I.F.A. sent a fax to D. advising rejection of the goods. However it was only in April 1996, 8 months later, that a survey report was done. On 13.11.95 P. had written a letter demanding payment and when D. did not comply this action was started on 7.2.96.

9. There was no inspection of the goods on their arrival in Japan and D. adduced no evidence as to when, where, how and to whom the goods were distributed after their arrival. Although D. contended that the goods had been distributed to a department store chain, Jusco, there were no documents produced to establish that Jusco was the end-user.

10. The D's employees, who negotiated the contract, were not available to give evidence; the D's garment examiners were not called and the only documents which purported to establish D's losses, were those supplied by what turned out to be their subsidiary company in Japan, I.F.A.

11. It is a noteworthy feature of this action that only in the last stage of the trial was it revealed, in cross-examination of D's only witness, that I.F.A., the company D. dealt with in Japan was not, as had been implied throughout, an independent sub-buyer but a subsidiary company of D. with which it shared 2 directors. Only when D.W.1 was shown a Japanese company search in cross-examination did this connection come to light.

12. There was no explanation of this omission, nor why this information was not revealed much earlier during the discovery exercise. While the two companies are distinct legal entities their close ties called into question the independence of the "evidence" put forward by D. to support its claim. It also caused the court to ask why, given that close connection, there was a paucity of documentary evidence to establish the alleged defects and consequential losses.

13. No documents refer to Jusco, the alleged retailer, except for a fax (B32A) from I.F.A. reporting on an alleged discussion; a fax (B40) from I.F.A. referring to the "final figure of Jusco returned goods"; a fax (B43) referring to return of goods and details of a claim (B53) made by I.F.A. for Jusco and details (B56) of amounts claimed. None of this information is supported by any documents detailing the contracts with I.F.A. and Jusco or any complaint or claims by Jusco, although copies of such should have been in I.F.A.'s custody and available to D.

14. No details of the reasons for Jusco's alleged rejection are supplied. No reason was advanced for the delay in obtaining a survey report except that "negotiations", were taking place with Jusco. No adequate explanation of why the skirts and vests which were not considered defective could not be sold in Japan to mitigate alleged losses. The failure to obtain a survey report as soon as the retailer began to talk of rejecting the goods is particularly surprising - prudent business practice would alert I.F.A. to protect its interests by doing so.

were to be sold as fully coordinated sets and that the goods were not suitable for such sale.

15. The quality of the D's evidence was poor. None of the employees who had negotiated the relevant contracts was available to give evidence. The garment inspectors who had done the inspection prior to shipment were not called. D.W.1, although a director of D., had had no contact with the P., or P's representatives until after the goods were shipped and the alleged complaint made. D.W.1 did his best to flesh out D's documents but was unable to do more than to speculate about took place in respect of the contract and the circumstances of the inspection.

Were Garments to be sold as fully co-ordinated suits?

16. D. claimed P. had been told, or should have known, that the 3 garments to be made up in two colours were to be sold as a 4 piece set or coordinated out-fit - the 4th piece being a vest which was made and shipped by another firm unconnected with P.

17. D's case throughout was that the P. knew from the time the contracts were signed that the goods were to be sold as fully coordinated suits. No evidence was called by the D. to substantiate this point - it was suggested that the P. should have known that because the material supplied was of a single type (albeit 2 different colours); from the numbers and style of the goods; because the same shipping mark was applied to the garments and because the contracts were all signed at the same time.

18. Evidence that militates against the implied term's existing is as follows:

1. None of the 3 contracts mentions co-ordination or suggests that the goods are to be sold as sets. I noted that an earlier, unrelated contract entered into by P. and D. actually uses the words "sets" to show that the 2 garments the subject of that contract are linked. (Exh. P.2)

2. The contracts do not refer to the fourth piece of the alleged set - the vests. Although the D. maintained, almost to the end of the trial, that the P. knew that the sets were to be sold with the vests made by another manufacturer the evidence of D.W.1 made it clear that P. had not been told and could not have known about the vests. Accordingly the D. dropped this part of its counter-claim.

3. The number of the 3 items were at variance if they were to be sold together; logically a greater number of skirts would be required. Alleged sales figures of Jusco revealed in answer to a request for Further and Better Particulars, do not support D's case that the goods were to be sold as fully coordinated suits. 49 and 32 pieces of the 2 blazer styles and 45 of the skirts were said to have been sold.

4. P.W.1 and P.W.2 denied in evidence that there had been any mention that the items were to be sold as D. alleged. Their evidence was not rebutted by any of D's evidence.

5. The similarity of the 2 blazer styles made it unlikely that the goods would be sold as a set. Further the blazer styles would not easily incorporate a vest underneath. The items could be worn as matched or mixed and matched outfits but that did not establish they were intended to be sold as coordinated sets, or that P. must have been aware of or deduced that intention.

6. No contract documents from I.F.A. or Jusco were produced to establish that these garments were to be sold as suits.

19. D. submitted that as P. could choose which cloth to use for which contract, that indicated co-ordinated sets were intended; in reality such a choice by D. would militate against the idea of co-ordinated sets, which would demand parity of numbers and colours for the 4 pieces.

20. Further it was not disputed that D. knew there was a short delivery of material. D. made no attempt to supplement it to ensure the numbers of pieces made were equal and matched the contract numbers, which would be necessary if the garments were to be sold as co-ordinated sets.

21. That one type of fabric in 2 colours was used and that buttons were similar indicated at the most that the items could be coordinated, if a customer so wished. It does not prove as D. suggested that P. must have known the goods were to be sold as co-ordinated sets.

22. The whole of the D's case on this aspect was destroyed by its own witness, D.W.1, who when asked how P. would have known the garments were to be sold as fully co-ordinated suits stated "I believe Winko did not know at the time of making the goods but should have known at the time the goods were returned." It would follow that the earliest that P. could have learned of this intention was after 7.9.95, the date D. allegedly received the complaint.

23. For all these reasons I am satisfied that P. did not know of the D's intention, if any, that these goods should be sold as fully coordinated outfits and that no such term was implicit in the contract.

Were the Garments Defective?

1. The allegation of defective garments was not sustained satisfactorily by the D. There was no good reason why a second inspection could not have been done if D. was seriously worried about the nature and number of defects. D., having seen the existing defects, was happy for P. to correct them without demanding further checks. There is no evidence to suggest the goods were seriously defective, or indeed defective at all, when shipped.

2. No check was done on arrival in Japan despite D's subsidiary company receiving the goods and despite alleged concerns that the high standard of Japanese garment inspections be met.

3. There is no evidence to support D's claim that Jusco was the recipient except for hearsay comments wholly unsupported, from I.F.A. to D. No documents establish dates of receipt and distribution in Japan; areas of distribution; methods of storage and carriage; nor do any documents substantiate contracts, complaints, prices or damages claims by Jusco.

4. No early inspection report was obtained by I.F.A. to verify alleged complaints by the retailer, an elementary requirement given, as alleged, Jusco's insistence on rejecting the goods.

5. No inspection was done for 8 months. There was no information about how and where the goods were stored, or in whose custody they were for the 8 months prior to the inspection. Only a small proportion of the total number of pieces were inspected.

6. The payment by D. made, allegedly, to meet Jusco's claim was a telegraphic transfer to I.F.A., D's subsidiary on figures supplied by I.F.A. but not supported by any documents.

24. I am satisfied having considered the evidence that the P. has established its case against D. in respect of all the unpaid invoices. The D. has not led any cogent evidence that the goods relating to Invoices 1058, 1059 and 1056 were generally defective and I am satisfied that P. was never told and cannot be expected to have deduced from circumstantial detail, that the items contracted for were to be sold as co-ordinated sets.

25. Accordingly I enter judgment for the P. and dismiss the D's couter-claim.

26. There will be an order nisi for costs in favour of the P.