SURGETRADE LTD. v. DONG YICK (H.K.) BEADING AND COMPUTER EMBROIDERY FACTORY LTD.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The plaintiff's claim in this action arises out of a contract (the effect of which I shall consider later in this judgment) which it made with the defendant on 14th July 1990 for embroidery and beading work. This work could not be performed as originally contemplated because it proved impossible to find the necessary materials to finish the job in accordance with the contract.

2. The first issue is whether the materials to be provided for the purpose were to be provided by the plaintiff or by the defendant.

3. A second issue arises because the defendant did some work for the plaintiff in connection with this job, although it was never finished, and has a counterclaim for payment for the work done.

                (A third issue arises not in connection with this job but because the defendant did other embroidery and beading work for the plaintiff, either directly or as sub-contractor for other contractors dealing with the plaintiff, and received a number of advances from the plaintiff in respect of such work. The state of the account between the plaintiff and the defendant is in dispute; but the defendant must give credit to the plaintiff for the advances so received, and the plaintiff must give credit to the defendant for the work done by the defendant for or on behalf of the plaintiff and of which the plaintiff has had the benefit. The matter is complicated and I do not have the evidence before me which is needed to decide this issue; accordingly, I shall have to order the taking of an account of all dealings and transactions between the plaintiff and the defendant. I shall order the account to be taken before a Master in Chambers who, if disagreement arises, will go through the items to be brought into the account on each side. The Master will allow those items which ought to be allowed and will disallow those items which ought not to be allowed and will, in due course, certify the balance due on the taking of the account from the plaintiff to the defendant or, as the case may be, from the defendant to the plaintiff.)

4. The facts (as I find them) so far as the contract of 14th July 1990 is concerned are as follows.

5. The plaintiff has a customer in New York called Eminent Sportswear Inc.("Eminent"). Eminent wanted some sweaters made for it and, in June 1990, it sent the plaintiff a sample under the reference 9696B. Its order was dated 2nd July 1990 and was for 1,500 pieces, for delivery by 5th September 1990, at a total price of USD 18,750. A sample for approval was required. The job would require the provision of unfinished sweaters upon which embroidery and beading work would have to be done. The plaintiff decided to use a company called Newcept Textiles Limited ("Newcept") to provide 'the plain knitted sweater and to use the defendant to do the embroidery and beading work; the intention was that the defendant should collect the unfinished sweaters from Newcept, do the embroidery and beading work, and return the garments to Newcept for final finishing. The defendant would need at least 14 days to do the work. The contract was negotiated on the plaintiff's side by one Miss Ho Siu-ha and Mr Lo Chi-ming and, on the defendant's side, by one Mr Lee Po-kan, its managing director.

6. The sample provided by Eminent featured a polyvinyl chloride twisted string. Mr Lee foresaw difficulties in obtaining this string, and expressed his concern about the matter. Miss Ho told me that she did not believe him. However, he turned out to be right.

7. I am not satisfied that Mr Lee procured as he contended the agreement of the plaintiff to a contractually binding arrangement under which the plaintiff was to provide the string for the defendant's use for the purposes of the job. Mr Lee's evidence was that during the negotiations for the contract he had agreed with Miss Ho that the plaintiff would provide the string and debit the costs of it, approximately USD 0.25 per yard, against the defendant. But the written contract eventually made between the parties on 14th July 1990 contains nothing of this; it was not put to Miss Ho when she originally gave evidence; she was recalled (at my suggestion) so that it could be put to her, but she then denied it; and, although it was pleaded (see paragraph 2(c) of the defence) that the defendant's price for the job "was inclusive of the price for the string" nothing was pleaded as to the alleged price for the string of USD 0.25 per yard. In these circumstances, I cannot hold that the defendant procured from the plaintiff any sort of contractually binding commitment for the supply of the string by the plaintiff to the defendant, whether at the price of USD 0.25 or any other price. I have no doubt that the defendant expected (and hoped) that if he could not find the string the plaintiff or Eminent would find it for him. But the law is concerned with contracts, not expectations.

8. On 14th July 1990, the plaintiff and the defendant made the contract in question. It is in a standard form and was quite inappropriate for the real purpose of the parties; but I do not think this matters since the parties are not in issue (save as to the matter of the string) as to the effect of the contract. This was as follows. The defendant was to do the necessary embroidery and beading work, providing the labour and materials. 1,500 pieces were to be completed at a unit price of HKD 38. The unfinished sweaters were to be collected by the defendant from Newcept and the finished garments were to be delivered by the defendant back to Newcept. The shipment date was expressed as 10th August 1990. The contract was not however to be "valid" (which I take to mean, was not to come into effect) until a sample was approved. (As will be seen, I regard this as of crucial importance.) The contract made it clear that the garments were to be supplied to Eminent (and of course Eminent too would have to approve the sample). In the absence of any contractually binding commitment on the part of the plaintiff to supply the string to the defendant and having regard to the defendant's misgivings already expressed about the string, this was, as it seems to me, an improvident contract to make. But there it is.

9. The defendant, being unable to find the necessary string, was unable to provide the required sample. On 25th July 1990 Eminent asked the plaintiff to send it an approval sample within the week; but by then it had become apparent that there was a problem with the string. The material needed could not be found on the Hong Kong market; and on 26th July 1990 the plaintiff informed Eminent that it was having a problem "searching trimmings".

10. In my judgment, the subsequent dealings between Eminent and the plaintiff over this order cast much needed light on the wholly undocumented dealings between the plaintiff and the defendant; and I shall therefore recount the history of the dealings between Eminent and the plaintiff as well as those between the plaintiff and the defendant.

11. The problem which the plaintiff had told Eminent that it had had "searching trimmings" could not be resolved; and on 31st July 1990 the plaintiff so informed Eminent. The plaintiff toad Eminent it would send Eminent an approval sample with "closest similarities" for its approval and asked Eminent to confirm its acceptance of the proposal.

12. On 1st August 1990 the plaintiff told Eminent it would try to send this within the week, otherwise early the next week.

13. On 2nd August 1990 Eminent noted this but told the plaintiff to watch for the delivery as it could not be any later.

14. On 13th August 1990 Eminent asked the plaintiff to advise it of the date of sending the approval sample, as the order was due for a 5th September 1990 delivery which could not be any later.

15. On 14th August 1990 the plaintiff, having obtained an approval sample from the defendant using an alternative trim, sent this sample to Eminent.

16. On 16th August 1990 Eminent expressed dissatisfaction with this sample. It told the plaintiff that all the trims had to match the Eminent sample; it pointed out that there seemed to be a big difference between the trims on the approval sample and the Eminent sample; and Eminent asked the plaintiff to "try to locate".

17. On 20th August 1990 the plaintiff told Eminent that it still had a problem in searching the string and asked Eminent if Eminent could purchase the string in New York and send it for the product. Eminent replied that it did not have any duplicates and did not know what kind of string to get.

18. On 21st August 1990 Eminent told the plaintiff it would try its best upon receipt back of the original to search. But it added that the delivery was for 5th September 1990, which was only 15 days away. Eminent pointed out that, even if it could find the string in New York, by the time it sent it to the plaintiff, the delivery would be already due. Eminent asked the plaintiff to try its best to locate the string in Hong Kong, in order that Eminent might "catch" its delivery, which "could not have any changes".

19. On the same day, 21st August 1990, the plaintiff sent back to Eminent the string from Eminent's original sample and asked Eminent to help search in New York and send for production if possible.

20. On 24th August 1990 Eminent, having received the sample of the string back, told the plaintiff that it would "try all efforts to locate" but asked the plaintiff to search at the plaintiff's end more closely as delivery could not be extended.

21. By 27th August 1990 Newcept had made to the order of the plaintiff almost all the unfinished sweaters and supplied them to the defendant (it so supplied the rest on 30th August 1990).

22. On 28th August 1990 Miss Ho spoke by telephone to her opposite number at Eminent. She was told that an acceptable form of string had been located and could be supplied at a price of USD 0.25 to 0.29 a yard. (I find that this was the first time any such price had been mentioned for this string and that Mr Lee must be in error when he places the first mention of this price at a date preceding the contract of 14th July 1990.) But it transpired there was no available stock of the string. So Eminent put forward another possible answer to the problem, using lurex instead of the original string. But the plaintiff itself eventually found this unacceptable. It offered yet another alternative, using beading supplied by the defendant, in its place. It appears that Eminent accepted this, and the plaintiff told the defendant to get on with the work, although Eminent had not yet approved a final sample. The defendant did get on with the work, finishing the first stage of the embroidery.

23. On 15th September 1990 the defendant submitted a quotation to the plaintiff for the work, including the beading, at a unit price of HKD 48. A higher price was justified, since the new material now proposed to be used would cost more and would involve more work. The quotation was received in the offices of the plaintiff, but nobody with any authority on behalf of the plaintiff to do so accepted the quotation.

24. On 17th September 1990 Eminent confirmed to the plaintiff that it could not accept delivery after 28th September 1990.

25. On the same day, 17th September 1990, the plaintiff told Eminent that delivery by 28th September 1990 was not workable. It suggested early October 1990 delivery, by air.

26. On 18th September 1990, Eminent finally lost patience and indicated to the plaintiff that the order was cancelled; but, on 19th September 1990, Eminent said that if delivery could be made by 5th October 1990, then it might try to ship to its buyer late. It proposed the air freight charges be split 70% to the factory and 30% to Eminent.

27. On 20th September 1990 the plaintiff accepted this.

28. On 22nd September 1990 the defendant again submitted its quotation to the plaintiff, quoting a unit     price of HKD 48. It was not accepted. Instead, on 28th September 1990 the plaintiff informed the defendant that if it could not deliver the finished goods to Newcept by the end of September (an obvious impossibility) Eminent would like to cancel the order. The plaintiff said that all the garments and other costs due to cancellation would be the defendant's responsibility.

29. On 1st October 1990 the plaintiff informed Eminent that the 5th October 1990 delivery date ex Hong Kong could not be met. It said it was waiting for Eminent to confirm its cancellation of the order or to allow until 25th October 1990 for delivery.

30. On 2nd October 1990 Eminent cancelled its order; and the plaintiff confirmed the cancellation.

31. While all this was going on, the plaintiff as we have seen had been encouraging and indeed requesting the defendant to do what it could to fulfil Eminent's order but in an alternative way to that for which the contract provided. The defendant made samples (and preliminary swatches) for approval, using various substitutes for the string adorning the original sample from Eminent. These samples included those it made following Eminent's own suggestions and those it made using beading supplied by the defendant from its own stock. The defendant supplied the materials for the first stage of the embroidery work and finished the garments as far as it could. It finished 200 garments using its own beading and partly finished a further 1217 garments. In my judgment, the defendant is entitled to be paid for the work it did, as I have said, with the encouragement and at the request of the plaintiff.

32. Mr Lee's evidence was that a reasonable price for the work done and materials supplied was HKD48 per piece for the 200 finished garments and HKD28 per piece for the 1217 partly finished garments (as claimed in the defendant's invoice to the plaintiff dated 30th October 1990). The total is HKD43,676. There was no evidence from the plaintiff to counter these figures. I find the defendant entitled to this sum of HKD43,676.

33. It is clear from the history of the matter, and I find, that the contract dated 14th July 1990, which depended on the plaintiff's approval of the sample for which the contract provided, never came into effect. Eminent did not approve the sample for which the contract provided. Nor did the plaintiff. No string could be obtained with which the defendant could make up the sample for which the contract provided. Eminent was prepared to allow the plaintiff to fulfil its order by making up the garments with trim different from that which adorned the original sample; but this would have been more expensive to procure and more complicated to effect. It was not what the defendant had contracted to do. The defendant never came under any contractual obligation to the plaintiff to work up the garments at a unit price of HKD 38 following, not Eminent's original sample, but some more expensive alternative. In the result the plaintiff's claim for damages for breach of contract must be dismissed. I will declare that the plaintiff is liable to the defendant on the defendant's counterclaim in the sum of HKD43,676 for the work done and materials supplied. The order will also contain directions for the taking of an account, as I have said, of all dealings and transactions between the plaintiff and the defendant. When the account is taken, the sum of HKD43,676 will be debited against the plaintiff. The defendant will have the costs of the action and the counterclaim down to the foot of this order. Any subsequent costs must be dealt with after the account is taken, and it is seen whether there is a balance due from the plaintiff to the defendant or from the defendant to the plaintiff.