WIAK FAR EAST LTD v. LANA FASHIONWEAR CO LTD

1991 No. A5153

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an appeal from a decision of Master Cannon which she gave on 7th April 1992. She gave summary judgment in favour of the plaintiffs for US$239,191.72 and DM21,537. This she set out in paragraph A of her judgment of the 7th April. In paragraph B she went on to order that damages and interest thereon be assessed. At the opening of this appeal Mr. Huggins, Q.C was good enough to concede that he was not entitled to both of those orders and conceded that paragraph B of the Master's Order had to go.

2. I do not propose to go into this matter in any great detail because the parties have set out their cases in a very helpful form by way of written skeleton arguments and chronology and the affidavits and exhibits are very voluminous. It is important to point out that in coming to the figure of US$239,191.72, the plaintiffs, and thus the Master, have taken into account the full extent of the admitted counterclaim of the defendants which is set out in the pleadings.

3. One has to approach all these cases with an eye on the commercial reality of the situation and, of course, I propose to do that. I am quite satisfied that in the light of all the evidence I have seen that the goods delivered by the defendants were defective and that is why they entered into a compromise agreement on the 28th February 1991 upon which the plaintiffs rest their case, and that is why there is no need for damages and interest to be assessed in relation to the original contract of sale.

4. The agreement dated the 28th February 1991 was entered into between the plaintiffs, the defendants and also a German party called Statz Hosenfabriken who was one of the ultimate consignees of these silk trousers the subject matter of this dispute. This agreement of 28th February provided that "all trousers with defects like serious weaving defects, serious colour shading and shiny look which were returned from final customer to Statz will be sent back to (the defendants)".

5. The second paragraph states that "whenever rejected quantity reached up to a thousand pieces, Statz will send this quantity back to Hong Kong" for the defendants' account. The third paragraph dealt with the credit that the defendants would have to give the plaintiffs. I am quite satisfied that this was a binding agreement, and to be fair to Mr. Bernacchi. Q.C., he does not argue to the contrary. In correspondence, the defendants have acknowledged that they were responsbile for the defective goods and they have done this on many occasions and of course the agreement of the 28th February 1991 is ample recognition of that fact.

6. The defendants have inspected a large number of these defective goods in Germany and having acknowledged these goods to be defective, the plaintiffs' case is that the defective goods were returned pursuant to the compromise agreement. The defendants denial of defects in the Defence is, in my view, just not acceptable in the light of the contemporary documentary evidence. I am also satisfied that the SGS report, which is exhibited and which supports the plaintiff's case is, in fact, solid support for the plaintiff's case. I do not think it necessary for an expert who is reporting on whether goods are defective to inspect each one of them when there are several thousand involved. What happened here was that they chose a sample of a hundred and it appears that every one of those hundred was defective, and this appears to be a common practice in relation to testing goods of this nature.

7. I am also satisfied that SGS were given the relevant approved swatches and that this means that they were comparing the finished defective product with the sample of material agreed by the parties to be used. Mr. Bernacchi has tried very hard to make some points about the way in which this was expressed in the affidavits but I am satisfied that there is nothing in his criticisms.

8. He goes on to say that there is no evidence before the court that the defective trousers had any "serious" defects which was an express condition of the agreement of 28th February. The difficulty about that argument is that a considerable number of goods were returned to the defendants pursuant to this agreement and there is not a shred of evidence from the defendants by way of expert evidence or otherwise to substantiate the allegation Mr. Bernacchi is making on their behalf. It seems to me very obvious from a commercial point of view that these goods would not have been returned had the defects been of a very minor nature and not affecting the re-saleability or the saleability of the trousers. One has to look at this matter from a commercial stand point, and the fact that the defendants themselves have not produced any evidence to show that these defects are minor is, in my judgment, extremely significant. And what I have to bear in mind is that there is, in an Order 14 application, a positive burden upon a defendant to satisfy the court that there is an issue to be tried.

9. As to Mr. Bernacchi's other arguments about the 28th February agreement, he no longer alleges that there has been a failure of consideration. He says, however, that there was an oral term that no goods would be accepted after the end of May 1991. I find that argument wholly untenable and completely implausible. It conflicts, in my judgment, with the express terms of the agreement which, first of all, has no time limit on it and secondly, paragraph 2 says "whenever rejected quantity reached up to a thousand" they will be sent back. It seems difficult to put forward an express oral term that conflicts with the written agreement because to do so would be a breach of the parol evidence rule.

10. I also note, and I think this is significant, bearing in mind again the positive burden upon the defendants in Order 14 proceedings, that this point was raised very late in the day and that is one of the reasons why I find it difficult, in fact impossible, to accept.

11. Mr. Bernacchi's next point is that there is an implied term to the like effect. This argument also has to fail because it would breach the parol evidence-rule, but more importantly it conflicts with the express term which is in paragraph 2 of the agreement prefixed by the word "whenever". Also I am not satisfied that this term is necessarily to be implied nor is it required to give any business efficacy to the agreement. It makes no commercial sense when viewed from the stand point of the plaintiffs. It is also interesting to note that this term did not surface until 11th July 1991 but there was correspondence between April and July when there was no mention of it whatsoever.

12. I do not think I have to deal with Mr. Bernacchi's long stop point which is that there must be some implied term because they cannot return these goods forever. He may well be right about that, but that is not what I am dealing with. I am dealing with goods which were returned not all that long after the events complained of, and one has to take into account the fact that it does sometimes take a little time for these goods to reach their destination, be rejected and then be returned.

13. I do not think we are anywhere near the sort of time scale that Mr. Bernacchi had in mind in relation to that argument. So I am not satisfied that there is any argument here about an express term nor is there any in relation to an implied term. I repeat the fact that there is a positive burden on the defendants to satisfy the court and this the defendants have failed to do. I take into account and rely upon the observations of the Court. of Appeal in the Muriani decision which relates to the Order 14 test.

14. Despite Mr. Bernacchi's valiant attempt to make bricks without straw, I am quite satisfied there is nothing in any of the defendants' points, and that the Master was quite correct to give judgment as per paragraph A of her judgment. Clearly she should not have ordered paragraph B and I, of course, set that part of the judgment aside. It seems to me that the defendants have got nowhere near to satisfying the court that there is an issue to be tried under Order 14, and in those circumstances the judgment against the defendants must stand.

15. I will now hear the parties on costs.