LINFONE CO LTD v. INDUSTRIES POLYTEX LTD

DCCJ 13117/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 13117 OF 2001

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JUDGMENT

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1. The present action relates to 5 contracts ("the Contracts") made between the Plaintiff and the Defendant involving the supply of two kinds of fabrics known as "100% Cotton Bedford Cord Solid Fabric" ("the Cord Fabric") and "97% Cotton 3% Spandex YID Stretch Twill Weave Fabric" ("the Weave Fabric").

2. By various contracts made between the Defendant and one William E. Conner & Associates Ltd. ("WECA") as buying agent on behalf of an United States company known as Susan Bristol Inc. ("SB"), the Defendant agreed to produce and supply various ladies' pants ("the Pants") to SB. The Plaintiff was SB's nominated supplier for the supply of fabrics for the production of the Pants, and hence the Defendant made the Contracts with the Plaintiff for the supply of the fabrics in issue.

3. The Plaintiff delivered the fabrics to the Defendant pursuant to the Contracts, and the Defendant also issued a letter of credit in favour of the Plaintiff for the price of the same. After delivery, the Defendant used some of the fabrics to produce production samples for WECA to approve. As no defect was found in these samples, the Defendant proceeded to use the fabrics for the bulk production of the Pants.

4. After the bulk production, it was found that there was shading problem in the ladies' pants produced from the "teal blue" Cord Fabric. Further, there were great variations in the sizes of the ladies' pants made from the Weave Fabric. After further inspections, WECA rejected the following pants produced by the Defendant:

(i)	2,712 pieces of ladies' pants made from the "teal blue" Cord Fabric ("the Cord Fabric Pants"), which were about 51% of the total production of the pants of that colour; and
(ii)	4,385 pieces of ladies' pants made from the Weave Fabric ("the Weave Fabric Pants"), which were about 44.5% of the total production of the pants of such kind of fabric.

5. It is the Defendant's case that the defects found in the Pants were caused by the sub-standard fabrics supplied by the Plaintiff pursuant to the Contracts, and so it withheld payment for the remaining unpaid price in the sum of $170,782.38. Under such circumstances, the Plaintiff had to bring the present action against the Defendant to recover the said sum of money. In its defence, the Defendant claims that it was entitled to reject the defective fabrics. Further, as SB has refused to pay the price of the defective Cord Fabric Pants and Weave Fabric Pants in the sums of US$26,835.81 and US$44,183.56 respectively, the Defendant seeks to counterclaim the said amounts from the Plaintiff.

The Cord Fabric Pants

6. As I see it, the main dispute between the parties relate to the causes for the defects found in the Pants. In this regard, the parties rely on the evidence of their own employees who gave both factual evidence and expert opinion regarding the causes for the defects. The Plaintiff's witness is one Mr. Ng Kam Hung, who is the production manager of the Plaintiff with over 30 years of experience in the trade of supply of fabrics. The Defendant's witness is one Mr. Li Kwok Shing who is the factory manager of the Defendant's factory in Macau. He also has over 30 years of experience in the textile industry, after obtaining a certificate in weaving and spinning issued by the Hong Kong Industrial and Technical Institute in the mid-1960's. The other witnesses called by the parties cannot assist the court in ascertaining the causes for the defects in the Pants, and so their evidence is relatively less important.

7. The Defendant produced as exhibit one sample of the "teal blue" Cord Fabric Pants which has the alleged colour shading problem (Exhibit D-1), and the experts from both parties agree that the colour in this sample is uneven.

8. In the opinion of Mr. Ng, it is indeed normal to have some slight colour variations in different rolls of fabrics, and so a prudent garment manufacturer would not cause fabrics from different rolls be sewn together. If the Defendant did so, colour shading might appear in the final products.

9. However, according to the sample produced by the Defendant, the colour near the upper part of the Cord Fabric Pant is darker than that in the middle part. As such portion of the pant was made from one single piece of fabric, the colour shading problem could not have been caused by the Defendant in sewing fabrics from different rolls together. Ruling out such possibility, the defect could either be caused by the quality of the fabric itself or by some other factors relating to the production or the storage of the "teal blue" Cord Fabric Pants.

10. In his testimony, Mr. Ng cannot think of any reason that the garment production process could have caused the colour shading problem, however he offers a possible theory relating to the storage of the Cord Fabric Pants. According to him, exposure to strong light can cause the colour in the fabric to appear lighter. Hence, if the Cord Fabric Pants were packed and stored in such a way that certain parts of the pants were exposed to strong light, then it might result in uneven colour appearing in the pants.

11. However, I have great reservation about such theory. It is common ground that a substantial portion of the "teal blue" Cord Fabric Pants, nearly 51% of the total production, were found to have the same colour shading problem. When such pants were stored after production, one would not expect the workers to lay out all the pants on the floor. To minimize storage place, the pants were usually piled up in the warehouse pending delivery, and as such, only a small portion of the pants would have exposed to any light source. In such circumstances, it would be quite inconceivable that 51% of "teal blue" Cord Fabric Pants would have had the same problem. Indeed, Mr. Ng does not seek to dispute that. Further, Mr. Li of the Defendant confirms that there was no strong light source in the place where the Cord Fabric Pants were stored, and so I rule out such possibility.

12. By elimination, the only remaining logical explanation for the defect relates to the quality of the fabric itself. Indeed, the Defendant's evidence in this regard is supported by the result of an objective laboratory test. According to one conducted by Intertek Testing Services, one sample of the Cord Fabric Pants failed in the "colour fastness to crocking" test. Such test was conducted by rubbing a piece of white test cloth against a sample of wet Cord Fabric Pants. If the cloth was seriously stained with colour after rubbing, which was what happened in the present case, the sample was considered as fail. This test shows the "colour fastness" of the fabric, and I am given to understand that such test is one commonly accepted by the trade in determining the quality of the fabric.

13. With the support of such test result, I accept the evidence of Mr. Li that the colour shading problem was caused by fabric itself. As the dye could come off from the pants easily, the colour remaining in the garments then appeared lighter. This is a logical explanation, and I accept it to be the cause for the defects in the "teal blue" Cord Fabric Pants.

14. However, Mr. Ng of the Plaintiff does not agree. According to him, if the "colour fastness" of the fabric is not satisfactory, the whole pant would become lighter in colour after washing. In other words, washing could not have produced the shading effect as shown in the sample. When he was questioned about the basis as to why he said so, he only claimed that he had not come across similar cases before. However, the fact that Mr. Ng had no such experience does not necessary mean that there was no such possibility. Indeed, if the pants lose colour by rubbing, and different parts of the pants are subject to different rubbing effect during the washing process, it is, based on the logical explanation of Mr. Li, likely to produce the shading effect as shown in Exhibit D-1. As I accept that it was the more likely cause for the colour shading problem, I find that the "teal blue" Cord Fabric supplied by the Plaintiff was defective.

15. Indeed, I am more impressed by the evidence of Mr. Li of the Defendant. Although his experience mainly relates to the production of garments and not the supply of fabrics, he did receive formal training in field of textile and spinning. On the other hand, Mr. Ng of the Plaintiff has no such formal training. Further, Mr. Ng has never heard about the "JC Penny Quality Control Guidelines", which is a standard adopted by most of the United States buyers for inspecting the textile products. As a supplier of fabrics for such a long period of time and the United States is a considerable market for the textile products from Hong Kong, I find it odd that Mr. Ng has not heard about such guidelines before. This certainly undermines the creditability of his evidence.

16. In his submission, Mr. Vaughan for the Plaintiff submits that the Defendant has only managed to show that the sample exhibited as "D-1" and some other items in the Inspection Reports had the colour shading problem, and the court does not know the condition and the quality of the other alleged defective Cord Fabric Pants. However, Mr. Li, who was responsible for the production of the Pants, did have the opportunity of examining the alleged defective pants together with the representatives of WECA. After the initial complaint made by the latter, there was a selection process under which the Defendant sorted out the "teal blue" Cord Fabric Pants with less serious shading defects and delivered them to SB. Obviously, it would have been in the interest of the Defendant to ship as many Cord Fabric Pants as possible, and yet SB rejected the remaining 51% of the "teal blue" Cord Fabric Pants. In such circumstances, even if the Defendant does not produce all the other alleged defective Cord Fabric Pants for inspection by this court, I have reason to believe that such pants had similar, if not more serious, colour shading problem as shown in Exhibit D-1.

17. It is common ground that the Defendant ordered the Cord Fabric from the Plaintiff for the production of ladies' pants for SB, and the Plaintiff was at all times aware of such use. Both experts also agree that there was shading problem in the sample produced by the Defendant, and by reason of such defect, SB rejected 51% of the "teal blue" Cord Fabric Pants. As I find that the defect was caused by the fabric itself, the "teal blue" Cord Fabric supplied by the Plaintiff was neither of merchantable quality nor reasonably fit for the purpose of which it was sold, and for this the Plaintiff is liable to pay damages.

The Weave Fabric Pants

18. On the other hand, I think that the Defendant has a more difficult task in respect of the Weave Fabric Pants. Firstly, variations in sizes of the final products could have been caused by a number of factors which were unrelated to the quality of the fabric itself. Secondly, unlike the complaint relating to the Cord Fabric, there is no independent laboratory test result to support the Defendant's case. Needless to say, the burden remains on the Defendant to prove that the defects were caused by the fabric itself.

19. In order to discharge such burden, Mr. Li of the Defendant explained in court the various steps in the production of the Weave Fabric Pants. In short, the workers first cut portions from each lots of fabric to produce some working samples for the end-buyer to approve. During such process, the workers tested the shrinkage rate of the fabric and took that into account in producing the samples. After the samples were approved by the end-buyer, the staffs would input the necessary data and dimensions into the computer, and a computer-aided machine would then cut the fabrics into various parts for the bulk production of the pants. After that, the workers, with the assistance of aids such as needle guides, sewed the parts together for the final products. Although the whole manufacturing process, in particular the sewing part, involved a lot of workers, Mr. Li testifies that there was no room for mistake in the process, and so he believes that the variations in sizes could not have been caused by factors other than the fabric itself.

20. Although I find Mr. Li to be an impressive witness, I still have doubt in my mind after listening to his testimony. Indeed, the whole manufacturing process involved a lot of steps and workers, and any mistakes made in the chain might have resulted in the defects complained. For instance, the workers might have made a wrong calculation and input the wrong data into the computer, or the qualities of the workers were too varied resulting in the difference in sizes of the final products. Mr. Wong for the Defendant tries to argue that the sizes of the final products were so varied that such defects could not have been caused by human factors. However, the Defendant has not produced all the record relating to the sizes of the final products. Without such information, I cannot conclude that the defects were, more likely than not, caused by the fabric itself.

21. There is perhaps another strong reason why I say that the defects were not caused by the fabric itself. According to Mr. Li, the Weave Fabric was delivered to the Defendant in about ten lots. After delivery, the Defendant cut portions from each lot of fabric to make some production samples. No defect was found in these samples. But quite surprisingly, 44% of the Weave Fabric Pants were found to be defective after the bulk production. If the Defendant's case were to be accepted, it was quite a coincidence that the Defendant had not picked out any defective fabric when its workers first produced the production samples. In my judgment, it was too much of a coincidence. If a large portion of the fabric was indeed defective, at least some of the samples produced by the Defendant prior to the bulk production should have had the same problem, and yet none was present at that stage. In such case, the defects were more likely caused by the production process and not by the fabric itself.

22. Based on the aforesaid, the Defendant has failed to prove that the Weave Fabric supplied by the Plaintiff was defective.

Right of rejection and the quantum of the Defendant's counterclaim

23. In the pleadings, there is an issue as to whether the Defendant has lost the right to reject the fabrics. However, even if the Defendant has lost such right, it still entitles to claim for damages if the fabrics were indeed defective. As the Defendant could not dispose of the defective pants, and the Plaintiff does not take issue with mitigation of loss, the quantum of the Defendant's counterclaim would be the same irrespective of whether the Defendant has lost the right of rejection. Hence, this becomes an non-issue. Indeed, as the Defendant has used the fabrics to produce the garments, Mr. Wong for the Defendant is not seriously suggesting that his client still retains the right to reject the fabrics.

24. By reason of the analysis above, the Defendant can claim damages arising from the supply of defective Cord Fabric but not the Weave Fabric. As SB has not paid the Defendant for 2,712 pieces of defective "teal blue" Cord Fabric Pants, the Defendant suffers damages in the sum of US$26,835.81 (HK$209,319.32). As the amount of the counterclaim exceeds that of the claim and the counterclaim provides the Defendant with a defence of set-off, I dismiss the Plaintiff's claim. I also enter judgment for counterclaim in favour of the Defendant in the sum of HK$38,536.94 ($209,319.32-$170,782.38).

25. I also make an order nisi that: (i) the Defendant is entitled to the costs of the Plaintiff's claim, excluding any costs incurred solely to prove that the Weave Fabric was defective; and (ii) there be no order as to costs of the counterclaim. The order nisi is to be made absolute 14 days after the date of the handing down of this judgment.

26. Finally, I must express my gratitude to both counsel for the assistance that they have provided to this court in the course of the trial.