Richway (International) Buttons Manufactory Ltd. v. Finix (Hong Kong) Co. Ltd.

DCCJ5546/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5546 OF 2001

__________________

J U D G M E N T

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1. The plaintiff claims against the defendant for the price of goods sold and delivered. It is not disputed that the plaintiff sold "Hasp and Slider" (I will hereinafter call it "the goods") to the defendant. From September 1999 to September 2000, a total of 12 purchase orders were sent by the defendant to the plaintiff. Three of these purchase orders were cancelled. The rest have been performed. The defendant has failed to pay for the purchase order Nos. RW15, 16, 17, 18 and 21 of 2000 in the total sum of HK$552,586.30.

2. The defendant does not dispute that the goods for the said purchase orders had in fact been delivered and received by them. However, they dispute the price. While it is agreed that the sum claimed in the statement of claim is the price stated on the purchase order, the defendant says they are entitled to a 3 per cent discount on payment. Hence, the total purchase price should first of all be reduced by 3 per cent.

3. Further, the defendant counterclaims against the plaintiff for damages they suffered arising from the delay in delivering the goods under purchase orders RW16, 17 and 18 (I call them "the purchase orders in issue"). As the goods are ordered by the defendant for use in the manufacturing of garment for resale to overseas buyer, Gymboree, the defendant claims that they suffered loss. It is not disputed that the plaintiff knew at the material time that the goods were to be used for the manufacturing of garment for resale to the overseas buyer. The loss claimed by the defendants are under three main heads:

(a)	Additional freight charge for delivering the goods by air in order to comply with the contract terms.
(b)	Overtime charge paid to the subcontractor to manufacture the garment urgently.
(c)	Loss of business.

4. The plaintiff must be entitled to recover the price as claimed subject to the issue of the 3 per cent and the issue of the set-off on the counterclaim. So the issue before me is whether the defendant is entitled to a 3 per cent discount, and/or that they could prove their counterclaims. The first matter before me is whether there is delay in the delivery of the goods under the purchase orders in dispute. I shall read the terms of the purchase orders in dispute. RW16 of 2000 has the following terms which are material:

* Please fax the packing list to our office before delivery;

* Shipment: 14 July 2000;

* Payment: EOM 60 days, 3 per cent when the payment.

5. RW17 has the same terms except that the shipment is on 21 July 2000. RW18 also has the same terms except the shipment date is 10 July 2000. All the goods were to be delivered to the defendant in Hong Kong. The actual delivery dates of the goods appear on paragraphs 8, 9 and 10 of the defence and counterclaim, and these delivery dates are admitted by the plaintiff. The goods had not been delivered on or before the shipment dates on the purchase orders in dispute.

6. It is the evidence of PW1 that the shipment date is not of the essence of the contract. It is for reference only. They could deliver on this date or later. It is not meant to be the deadline.

7. Whether it is of the essence is not my concern. Even if a time is stipulated and it is not of the essence, it does not mean that the plaintiff may deliver at any time. It only goes as far as to say that the defendant would not be entitled to accept the breach as a fundamental repudiation and treat the contract as coming to an end. Since the defendant has accepted the goods, no issue of repudiation arises. All that concern me is whether the plaintiff is late in the delivery.

8. DW1 said prior to placing any order with the plaintiff, he had a discussion with PW1. In fact, he said that there is an agreement. It was orally agreed that the plaintiff would supply good quality buttons to the defendant at reliable timing.

9. It is sufficient for me to say that I cannot understand the purpose of putting down the date if it is not meant to be followed. It is especially so for a commercial contract. I found that the plaintiff is contractually bound to deliver the goods on or before the shipment date.

10. I also note that the purchase orders in issue have not been signed by the plaintiff and the defendant. It is not really argued that this is not the contract, or otherwise the plaintiff could not begin to claim the price. Surely they could not accept part of the contract only without having the prior consent of the defendant. By the conduct of the parties, they must have accepted the terms of the purchase orders in dispute as the terms of their contract of sale.

11. But the issue of what is the delivery date does not end with the written terms of the purchase orders in issue. I have to consider other evidence as well. On 1 August 2000, the defendant issued a fax to the plaintiff (bundle C-29) setting out the undelivered goods under the purchase orders in dispute. The letter stated:

"請於2000年8月5日前交齊以上數量，如未能及時交貨而引致客人取消頂單，空運費用及有賠償均由貴司負責，約總值USD$600,000。"

12. It is the evidence of DW1 that before the fax, he had had telephone conversation with PW1 and said that they would claim the plaintiff for loss and damages in any event. He asked PW1 when they could deliver the goods and the date 5 August is suggested by PW1. DW1 said he had no choice.

13. PW1 said in his evidence that he had a telephone conversation with DW1. He knew that they were late in delivery. He asked for a final date and DW1 said 5 August.

14. It is trite law that the buyers of goods may waive the time stipulated for delivery. Benjamin on Sales of Goods at paragraph 8-027 reads:

"Where the buyer voluntarily accedes to a request by the seller that delivery of the goods be postponed, he may be held to have waived his right to insist that the goods delivered within the time fixed by the contract of sale. Such a waiver may be by words or conduct and no consideration for the waiver need be proved to have moved from the seller. The buyer may likewise be estopped from asserting his right if, by words or conduct, he has led the seller to believe that he will accept delivery at a later time than that stipulated in the contract. But the seller must prove a clear and unequivocal representation to that effect, and also that he has altered his position in reliance on the representation, or at least acted or omitted to act in reliance on it so that it would be inequitable in all the circumstances for the buyer to go back on the represent."

15. Clearly the fax delivered a message. If we look at the above Chinese passage again, it is obvious that the defendant is giving a notice to the plaintiff. I found that it is a clear representation to the plaintiff that the delivery date of the balance of the goods is extended to 5 August 2000 and they would claim damages against the plaintiff if they failed to deliver the goods by then. There is no reservation for the right to claim loss arising from the failure to deliver the goods as per the shipment date on the purchase orders in issue. It is a waiver of the defendant's right to ask for shipment as per the shipment dates on the purchase orders in issue.

16. The fax is issued on behalf of the defendant and, as admitted by DW1, read by him before it was issued. The defendant must be bound by the terms therein. I do not believe his evidence that he told PW1 that he would claim damages against the plaintiff in any event.

17. Further, on 1 August 2000, the defendant had again issued another fax to the plaintiff (C-30). They instructed the plaintiff to deliver about 4,500 dozens of the goods to the defendant in Hong Kong before 5 August. The balance of about 8,000 dozens of the goods were to be delivered to the defendant's factory in Nanjiang before 10 August 2000. Reading this letter with C-29, it is obvious that the defendant revised the delivery date and the place of delivering the goods. As I mention hereinafter, the plaintiff had in fact acted upon this unequivocal representation of the defendant.

18. Pausing here, part of the goods delivered on 18 July was also late. But there seems to be no complaint from the defendant about the late delivery of this lot of goods. But more important, the defendant has not adduced evidence to prove any damage resulting from the delay of this part of the delivery. There would not be any award therefore.

19. The main complaint is still in respect of the delay in delivery for the rest of the goods covered by their letter (C-29).

20. It is the evidence of PW1 that they did not agree to send the goods to Nanjiang and inform DW1 accordingly. He was then instructed to send the goods to Guangzhou, which they did on 5 August 2000. This was not disputed. And for the balance of the goods to be delivered to Hong Kong, PW1 said he had the goods arrive in Hong Kong by 3 August 2000. He also informed one Shirley Chau of the defendant and asked her for the location of delivery. But it was not until 14 August 20002 when the defendant, by a fax, instructed the plaintiff on the place of delivery. The fax appears at C-39. They then delivered the goods around that time.

21. DW1 said he requested the plaintiff to send the goods either to Hong Kong or Nanjiang. PW1 replied and said he cannot send it to Nanjiang. DW1 then asked PW1 to send the goods to Guangzhou. But the defendant could only send part and the balance was only delivered on 14 August 2000. The plaintiff is late and is in breach of the revised agreement. But his evidence is in conflict with the defendant's document, C-30. The defendant separated the goods into two lots, one lot for Nanjiang, one lot for Hong Kong. If we read C-33, which is the instruction by the defendant to the plaintiff, it clearly instructed the plaintiff that "請將往南京恆豐之貨品送廣州如下地址". There is no instruction on the goods to be delivered in Hong Kong.

22. The defendant chose not to call Shirley Chau to give evidence. And I note on the letter of the defendant to the plaintiff at C-39, Shirley Chau used the terminology of "現存貴司之葫蘆日字扣". It seems to tally with the evidence of PW1 that the goods had arrived in Hong Kong. But more important, there is no accusation of delay or any reservation of damages in this letter. If the plaintiff was late in delivering the remaining of the goods, I would be surprised that they did not record the complaint.

23. I found that DW1's evidence is not reliable.

24. On the balance, I accepted the evidence of PW1 that he had delivered the goods for Nanjiang factory to Guangzhou as instructed by the defendant, and on time, and the balance of the goods is ready for delivery in Hong Kong by 3 August. He had informed Shirley Chau and he was only waiting for the instruction of Shirley Chau for the delivery. Hence, while the plaintiff delivered these goods beyond 5 August, that was not in breach of the contract.

25. In summary, I conclude that the defendant is not entitled to its counterclaim and the plaintiff is therefore entitled to judgment for the price.

26. On the issue of the 3 per cent discount, the plaintiff said there is a 3 per cent discount if it was paid within a reasonable time after the due day. DW1 said it was payable in any event. It does not make any sense if it is a discount in any event. The relevant clause in the purchase order reads, "3 per cent when the payment". Grammatically, it is an incomplete sentence. I believe it should be "3 per cent upon payment" or "3 per cent when you pay". But the defendant never paid. So the full amount is still outstanding. And I reminded myself that this clause is the drafting of the defendant. If there is any ambiguity, I should interpret in favour of the plaintiff.

27. I found that the 3 per cent discount does not apply in the event that the defendant did not pay the price. If they had by any act or letter seek to set off the price from their counterclaim, it might be argued that there is a "payment". It is conceded by the defendant that there is no such letter or act. In conclusion, the defendant is not entitled to the discount.

28. It is not strictly necessary but, for completeness, I would also deal with the claims for damages. I shall proceed as if the plaintiff is liable to pay the damages and has been late in the delivery of the goods. The cardinal principle of assessment of damages is to put the defendant in the same position as if the breach has not occurred. And all damages must be foreseeable and caused by the breach.

29. The first item of damages is for overtime payment to the subcontractor in Nanjiang. It is the defendant's case that the manufacture of garment had been held up because the goods were not available. When the goods arrived and in order to hit the deadline for shipment to overseas buyer, the subcontractor had to engage workers to work overtime. As a result, they charged the defendant an additional sum of $1.50 per piece of garment.

30. When the subcontractor claims a compensation of a fixed rate of $1.50 per garment, the burden rests on the defendant to prove that this is a genuine estimate of the overtime charges. Without the actual overtime record and when the effect of the delay in shipment by the delay in delivering the goods is unclear and unexplained, how am I able to assess the loss?

31. Further, there is no evidence of payment of this compensation except for a bare assertion of DW1. I was very surprised that there is no record of this payment.

32. The defendant has only one witness, DW1, who is the managing director of the defendant. He has little knowledge of the working procedure of the subcontractor. He agreed with the plaintiff counsel that the goods were to be used at the final stage of manufacturing of the garment. DW1 also agreed with the plaintiff counsel that the goods sent to the defendant on 14 August was not used for the goods to be shipped overseas. Hence, the subcontractor should get all that was necessary on or about 5 August. He could not explain how the delay of sending the goods caused the overtime.

33. This issue is also related to the next item of claim, the air freight charges. The defendant also claimed for air freight charges. The defendant's case is they had a deadline at 21 September 2000. The buyers refused to extend the deadline and request them to ship by air to hit the deadline. As such, they have to pay additional charges.

34. What has not been explained is that counting from 5 August, there is more than one month for the process of manufacture. Why is it that it could not be completed even with overtime workers? It is the evidence of DW1 that in the normal process it would take 30 to 40 days to complete the working procedure.

35. Further, what has not been explained is when the deadline is on 21 September, the goods have not been shipped by air until 6 October. If there is a time limit to hit, why wait for another two weeks before the goods were sent by air?

36. DW1, on cross-examination, tried to explain that the air cargo is very busy in September and October, but he is speaking from his experience and he is not answering the actual reason why the cargo has not been shipped. As suggested by the plaintiff counsel, the delay could be due to other reasons. The burden is on the defendant to show that this is a loss occasioned from the delay of providing the goods on time. Given all these loose points on the defence witness, I am bound to find that the defendant failed to prove that the damages arising from the so-called overtime charges and air freight charges are a result of the delay in sending or delivering the goods to the defendant.

37. The last head of the claim is for the loss of a very substantial customer, Gymboree. It is the evidence of DW1 that after this incident, they lost this customer in 2001. They also produced a letter of complaint from the buying agent for Gymboree, C & D.

38. It is not obvious from the document in front of me that the final determination of business relationship is due to the delay in delivering the goods under the purchase orders in dispute. As suggested by the plaintiff counsel, there is no evidence that Gymboree maintain its business or continue to buy goods from Asian sources. I was not told if Gymboree buy from another company in Hong Kong or China. The defendant simply has no evidence that this loss is caused or related to the plaintiff's claims, and the quantum is not proved. DW1 only shows the business volume of Gymboree. He also claimed that they made a 20 per cent gross profit from the trade volume. It is conceded by the defendant that I should only award net profit and there is no evidence of what is the net profit of the defendant. It is sufficient for me to say that there is not sufficient evidence for not even an assessment, but to show that they did suffer any damage.

39. So, in conclusion, I rule against the defendant both on their allegation of a breach by the plaintiff in the delivery time, I rule against them on the 3 per cent, and I also rule against them that they have suffer any damages that could be said to be caused by the delay caused by the plaintiff. As such, I give judgment to the plaintiff for the sum of HK$552,586.80 together with interest thereon at judgment rate of 8.125 per annum from the date of writ until today and thereafter at judgment rate until payment.

40. Unless there is any submission on the question of costs, I am minded to grant costs to follow the event.

(Discussion re costs)

41. In that case I will also award costs in favour of the plaintiff with certificate for counsel.

42. The counterclaim is dismissed.