TIME DEVELOP LTD v. PROFIT WINNING LTD

DCCJ 3859/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3859 OF 2005

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JUDGMENT

1.  Time Develop (the Plaintiff) claims the balance of the cost of fabrics sold and delivered at the request of Profit Winning (the Defendant) in 2004.  Profit Winning disputes liability.

2.  Profit Winning had legal representation until one week prior to the trial.  The trial was conducted in Chinese for the benefit of Mr Tong representing Profit Winning.  However, in view of the pleadings, witness statements as well as most of the documents being in English, parties have no objection to this judgment being written in English.

BACKGROUND

3.  The fabrics (denim) were delivered to Profit Winning at its requests in August and September 2004 pursuant to 2 sale contracts: No. 2004SO093 (Contract 093) and No. 2004SO094 (Contract 094), both dated 31 July 2004.  Invoice was issued to Profit Winning for each delivery.  The invoices had been settled except for 3 of them relating to Contract 094: DV1097ANK, DV1097BNK and DV1157NK.  The total invoiced amount was US$70,128.21.  This is the amount of the claim.

ISSUES

4.  According to the pleading, Profit Winning raised 3 issues in defence:

(1)	The sale contracts of Time Develop were not with Profit Winning but Profit Winning as agent of another company, Sky Ocean Enterprises Limited.
(2)	The fabrics were delivered late.
(3)	The fabrics delivered were not of merchantable quality.

CONTRACTING BUYER

5.  Profit Winning contends that the relevant sales contracts in July 2004 were between Time Develop and Sky Ocean, rather than Profit Winning.

6.  There is no dispute that the 2 sales contracts were first issued and addressed to Sky Ocean as the contracting buyer.  The original Contract 094 was produced in court.  But according to Mr Ma of Time Develop (who gave evidence), Sandy Chan of Profit Winning then confirmed with Time Develop that the contracting buyer on the sales contracts should be changed from Sky Ocean to Profit Winning.  Mr Tong of Profit Winning (who gave evidence) does not really dispute that.  Mr Ma then understood the reason for the change was that Sky Ocean did not have sufficient quota for applying for the letter of credit required to pay for the 2 sales contracts.  In fact, Profit Winning was a corporate director of Sky Ocean.

7.  Copies of these amended sales contracts sent by fax were also produced.  The name of the contracting buyer on the contracts were apparently crossed out and replaced by the name of Profit Winning.  More importantly, the sales contracts were signed by Sandy Chan for and on behalf of Profit Winning under “BUYER”.  Mr Tong agreed that Sandy Chan had the authority to do so on behalf of Profit Winning.  There was no other composite signature of Sky Ocean on the contracts.

8.  Profit Winning referred to the letters of demand from Time Develop for the outstanding cost of the fabrics in March 2005.  There is no dispute that they were at one stage addressed and sent to Sky Ocean.  But Mr Ma of Tower Develop explained that the business operation of his company was stationed in Shanghai while the payment collection operation was stationed here.  The miscommunication between the 2 business stations resulted in the mistaken addressee on these letters of demand.  Upon discovering the mistake, Time Develop did send another 2 letters of demand addressed to Profit Winning in the same month.  The letters were also referred to.  Had these subsequent letters of demand to Profit Winning been considered as incorrect, Profit Winning and Sky Ocean would have pointed that out.  Nothing like that happened.

9.  The evidence of Mr Ma of Time Develop is in line with what appear from the documents and not successfully contradicted by Mr Tong of Profit Winning.  I accept Mr Ma’s evidence.  In court, Mr Tong of Profit Winning admitted that the thought of raising the issue of agency as a defence to the present claim arose only after the commencement of the present action.  That should not have been the case, had the understanding existed as alleged at the time of the contract.

10.  Accordingly the contracting buyer of Time Develop was as a matter of fact Profit Winning.  The defence on the basis that profit Winning was merely agent on behalf of Sky Ocean fails.

LATE DELIVERY

11.  Profit Winning contends that part of the fabrics under the contract 094 was delivered late.

12.  Contract 094 provided that the fabrics should be delivered by instalments from 20 August to 6 September 2004.  Apart from the first lot which was delivered by 20 August, the other lots were delivered late.  Time Develop does not dispute that but provides an explanation.  Mr Ma of Time Develop stated that it was Profit Winning which failed to comply with the contractual requirement of issuing the letter of credit.  This caused the delayed shipment.

13.  Contract 094 stipulated that the payment term was “L/C AT SIGHT”.  Profit Winning agreed to issue the letter of credit to Time Develop on or before 4 August 2004 (condition no.5).  Time Develop had written to Profit Winning to chase for the letter of credit.  Eventually the payment arrangement was varied by agreement so that Profit Winning would issue post-dated cheques in exchange for the bills of lading for collecting deliveries.  Mr Tong of Profit Winning confirmed this variation in court.

14.  Mr Tong argued that judging from the factory inspection reports produced by Time Develop, one could see that the production of the fabrics by the weaving factory engaged by Time Develop was anyway behind the schedule of delivery contained in Contract 094.  These reports recorded the results of inspection a couple of days before each delivery.  Even assuming what Mr Tong suggested was true, the delay in and eventually failure of Profit Winning to open the letter of credit pursuant to the contract, which I accept was the fact, was no doubt an effective and dominant cause of the delayed delivery.

15.  In any event, of the 3 lots of fabrics allegedly delivered late, 2 of them had been paid for, though only in late September and mid to late October 2004.  That would not have been expected, had any issue really been taken regarding late delivery.

16.  I do not find the alleged late delivery to be a real defence to the claim either.

QUALITY

17.  The complaint about quality concerns fabrics delivered under 4 invoices issued by Time Develop: DV1104NK, DV1116NK, DV1152NK and DV1157NK.

18.  To begin with, there was no pleading of the particulars of alleged defect in the quality of the fabrics.  Profit Winning simply appended the inspection reports to the pleading as if they were self-explanatory.  These reports were issued by the agent of Profit Winning’s final customer, a garment manufacturer.  According to Mr Tong, the reports recorded that the fabrics inspected failed the tests.  According to Mr Ma of Time Develop, these inspection reports had never been disclosed to them until the commencement of this action.  Mr Tong disputes that and refers to his company’s e-mail message in late September 2004 in which reference to such inspection reports was allegedly made.

19.  Indeed the e-mail message to Time Develop mentioned the sending of some inspection report in respect of the fabrics delivered.  However the e-mail also referred to the reports as relating to invoices DV1104NK and DV1152NK.  These reports did not relate to the 3 invoices which form the subject matter of the present claim.  Mr Tong of Profit Winning had to admit that in court.  In other words, there is really no documentary evidence to contradict Mr Ma’s evidence that the inspection reports now relied on by Profit Winning, which might relate to the fabrics under invoice DV1157NK, were not disclosed until the commencement of this action.  Mr Tong’s persistent denial of this defies understanding in the absence of actual contrary evidence.  I accept Mr Ma’s evidence in this regard.

20.  I say the inspection reports appended to the pleading might relate to the fabrics under invoice DV1157NK because it is uncertain by simply reading the reports.

21.  There are also the factory inspection reports by the weaving factory in the Mainland engaged by Time Develop.  The reports recorded the rejection percentages for each lot to be delivered respectively.  Notwithstanding the records of rejection percentages, the fabrics were nevertheless released for delivery.  Mr Tong pointed out that both the factory and its customer’s agent adopted the same points system for inspecting defect.  He queried how the fabrics of quality as reflected by the rejection percentage could be released for delivery.  Mr Ma explained that whether the fabrics were acceptable would depend on the range of products they were manufactured into.  There are high end and mid-range products.

22.  There was basic description but no quality specification in the sales contracts.  In the absence of expert evidence, there is so much about these technical matters the court can rely on the parties.  But what does the circumstantial evidence tell?  Some contemporaneous e-mail messages suggested that Profit Winning had sent its staff to the factory to inspect the fabrics.  But it was suggested that the quality problem was not as serious as thought.  3 out of the 4 invoices now subject to the complaint about quality had in fact already been paid for.  This included the lot delivered (under invoice DV1116NK) on 22 September 2004 which had a rejection percentage of 15.8% according to the weaving factory’s inspection.  Out of the 3 invoices, subject matter of the present claim, the only invoice yet to be paid and subject to the allegation of defective quality is DV1157NK.  The question is why Profit Winning would settle payment for all but one of these invoices if all should be subject to complaint about quality.  I am not sure Mr Tong has an answer.  In his closing submission, he sought to explain that it would be too much to deny Time Develop all the payment.  I find it hard to understand.

23.  It should also be borne in mind that the complaint is that the fabrics were not of merchantable quality.  The fact that the fabrics might not fit the purpose specified by Profit Winning’s customer to Profit Winning (of which there is no evidence anyway) does not mean that they were not of merchantable quality.  Profit Winning needs to show that the fabrics do not fit the purposes for which they are commonly bought: see section 2(5) of the Sale of Goods Ordinance, Cap.26.  By merely relying on the inspection reports in the circumstances of this case, Profit Winning simply has not come up to proof of the alleged un-merchantable quality.

24.  Profit Winning contends that the amount claimed should be set off, or effectively extinguished, by the loss suffered by it in amount of US$91,963.90.  Apart from this being Mr Tong’s estimation in his statement, there is no evidence of how this amount came about, even assuming it were to succeed in proving the alleged un-merchantable quality.

25.  Insofar as invoices DV1097NKA and DV1097NKB are concerned, the claim for payment of these 2 invoices is not subject to complaint about quality.  Regarding invoice DV1157NK which is subject to complaint about quality, I am not satisfied that the defective quality to the extent alleged is substantiated by evidence.

ORDER

26.  I give judgment in favour of Time Develop in the sum of US$70,128.21, or its Hong Kong Dollar equivalent, with interest thereon at 1% above HSBC prime rate from the date of writ to today, and thereafter at the judgment rate until full payment.  Profit Winning shall pay Time Develop’s costs of this action, including any costs reserved.  Such costs shall be taxed if not agreed.  For clarity, I certify the engagement of counsel.  This costs order nisi shall become absolute in the absence of appointment to argue costs in 14 days.