KRYSTAL ARTFIELD INTERNATIONAL LTD v. WANCORD GARMENT FACTORY LTD

DCCJ6372/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6372 OF 2003

(Transferred from the Small Claims Tribunal pursuant to the Order

of Mr. Adjudicator Pang Ka-Kwong of 3^rd November 2003)

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JUDGMENT

1. The Plaintiff is a company incorporated in Hong Kong in the business of trading of cloths and fabrics. 

2. The Defendant is incorporated in Hong Kong in the business of garment manufacturing. 

3. The Plaintiff claimed against the Defendant for the balance outstanding of $78,993.97 under two contracts entered in November 2002, namely, the first contract nos. KO-655/2002 and the second contract no. KO-656/2002 (hereinafter referred to as the “1^st contract” and “2^nd contract”) for the supply of fabrics to the Defendant. 

4. It is the Defendant’s pleaded case that the Plaintiff had agreed to reduce the contract sum by 25% and 10% on the 1^st and 2^nd contracts respectively.  The Defendant further counterclaimed for damages due to the Plaintiff’s failure to deliver the goods on time.  The Defendant claimed that it had suffered loss due to short shipment, weight loss on the fabrics and additional quota costs due to the delay and shortage of fabrics delivered. 

5. The Plaintiff and the Defendant entered into the two contracts in November 2002.  The two contracts were evidenced partly in writing in two documents, i.e. the order confirmations and pro-forma invoices for the supply of two different types of fabric.  The Plaintiff duly delivered the bulk fabrics ordered under the 2^nd contract to the Defendant on 22 December 2002 while those under the 1^st contract were delivered on 27 December 2002.

6. It is not disputed that the Defendant was introduced to the Plaintiff through one of the Defendant’s customers - Fornari - an Italian company.  The Plaintiff and Fornari had a good business relationship for 10 years prior to the Defendant’s contract with Fornari for garment supply.  As a trader of fabrics pursuant to orders placed by its customers, the Plaintiff’s role involved placing the Defendant’s orders with a manufacturer for the production and arrangement of the fabrics’ delivery to the Defendant.

The Plaintiff’s Case  

7. The Plaintiff called Miss Chan Lai Yi Rowina to give evidence on its behalf.  It was Miss Chan’s evidence that in or about early October 2002, the Defendant contacted the Plaintiff and informed the Plaintiff it was introduced by Fornari to approach the Plaintiff for the supply of fabrics according to samples.  Miss Chan was told that the two samples had come from Fornari in Italy.  The Plaintiff then approached a manufacturer in China, Changzhou Qingfeng Textile Printing and Dyeing Company Limited for the production of samples based on the Fornari samples.  On 23October 2002, the Plaintiff delivered two samples to the Defendant namely items I012 and T056.  It was on this basis and upon the Defendant’s acceptance of the samples delivered that the Defendant formally placed the two said orders with the Plaintiff on 4 November 2002.  Order confirmation No. KO-655/2002 was for 12,000 yards of 100% cotton printed Ribstop woven fabric (item No. I012) for HK$237,120 (the 1^st contract) and KO-656/2002 was for 13,600 yards of 100% cotton printed Bedford cord woven fabric (item no. T056) for HK$223,448 (the 2^nd contract), both documents were dated 5 November 2002.

8.  It is the Plaintiff’s case that the quantity of the respective orders was only estimates, as the quantity of the 2 orders would be finalized upon the completion of production with a variation of +/- 5%.  It is further the Plaintiff’s case that under the said contracts, payment would be made in the following manner:

(a)	30% of the respective contract price as deposit to be payable upon production;
(b)	70% of the contract price to be payable before the shipment of the fabrics.

9. It is the Plaintiff’s case that the Defendant is bound by the terms and conditions of the 2 contracts set out on the back page of the order confirmation documents which included the following:-

“	Clause 1	the time of shipment described on the face of this Contract is understood to be only approximate, and the Buyers shall make no claim for the late shipment (or late delivery) provided the delay does not exceed thirty days.
	Clause 10	All shades, colours and designs size dimensions, and weight are guaranteed approximately only, and the Sellers do not take any responsibility with regard to slight deviations.
	Clause 12	Deviations to the extent of 10% are to be allowed to the Sellers in respect of contracted quantities.
	Clause 13	The Buyers approve of all goods provided they make no written claims within one week after arrival of the same.  No claims will be entertained by the Sellers after the goods has been removed from the place of delivery or/and exported by the Seller, or cut or through any process.”

10. It is not disputed that the Defendant paid to the Plaintiff a cheque dated 6 November 2002 for the sum of HK$138,170.40 being the deposit of 30% on the price of the 1^st and 2^nd contract. 

11. It was Miss Chan’s evidence that the Plaintiff was prepared to instruct the factory to commence production as soon as the 1^st and 2^nd contracts were entered into.  The Defendant, however, requested the Plaintiff not to do so and on 18 November 2002 and 14 December 2002 asked the Plaintiff to submit further fabric and printed samples.  According to Miss Chan with the support of the exhibits produced by her (pages 116 to 131 of the bundle), samples for fabrics ordered under the 1^st and 2^nd contracts were delivered to the Defendant by the Plaintiff on 23 October 2002.

12.  On 18 November, strike-off of the I012 100% cotton printed Ribstop and T056 100% cotton printed Bedford cord were delivered to the Defendant by the Plaintiff together with a third sample of the T056 100% cotton printed Bedford cord lab-dip.  Further samples of the same I012 fabric lab-dip were sent for approval to the Defendant.  On 9 December 2002, the same fabric I012 after-wash and pre-wash samples were sent to the Defendant by the Plaintiff.  On 14 December 2002, the Plaintiff again delivered to the Defendant salesman samples of the fabric I012 and fabric T056.  On 16 December 2002, the Plaintiff delivered to Fornari’s Hong Kong office samples of Bedford cord ground colour and Bedford cord print colour for approval. 

13. It is the evidence of Miss Chan that as early as 7 October 2002 she had informed Mr. Walter Chan of the Defendant that the work schedule for the 2 purchase orders was estimated as follows:-

Works	Lead time	Estimated ready date
Strike-off	2 weeks	18th October
Weaving	2 weeks	23rd October to 6th November
Printing	2 weeks	20th November
Coating & Finishing	5 days	25th November
Shipment sample		26th November

14. The work schedule was set out in the e-mail message exhibited on page 87 of the bundle.  The e-mail also stated the following:

“	Total lead time is 47 days from now.  If you confirm us the strike-off & order qty on 23 Oct, ex-mill date would be around 28 Nov.  If you can confirm the order earlier (before strike-off confirmed), mill can start weaving first and can save at least 1 week’s time.  Please advise if acceptable or not.
	2.	Re: Payment method
	The payment method of this order is by L/C at sight and B/L consigned to bank.  This is our company policy, hope you can kindly accept.”

15. Upon completion of the production in December 2002 the quantity of the fabric was then confirmed to be 11,982.70 yards and 13,227.9 yards respectively under the 1^st and 2^nd contracts with the respective prices adjusted to $236,778.15 under the 1^st contract and $217,334.40 under the 2^nd contract.

16. According to Miss Chan, the delay was caused by repeated requests for samples of fabrics.  The question of shrinkages after washing was known to Miss Karen Wong of the Fornari office in Hong Kong.  Miss Chan produced a number of electronic mail messages that showed Miss Karen Wong had knowledge of the situation throughout.  There is an e-mail message from Miss Karen Wong (at page 134 of the bundle) to the Defendant Mr. Chan informing him that the colours of fabric I012 printed fabric strike-off are ‘all okay’.  This message was copied to Miss Chan of the Plaintiff.  A further matter raised in Miss Karen Wong’s e-mail was the fabric weight after printing.  She suggested shrinking the fabric further to improve the weight with heavier print.  This e-mail message is dated 10 December 2002; it was forwarded by the Defendant’s Mr. Chan to the Plaintiff. 

17. It was Miss Chan’s evidence that before the parties entered into the 1^st and 2^nd contracts; the parties had never discussed the weight of the fabrics or the garments.  Neither did the Defendant at any time stipulate the weight of the fabrics before the date of the contracts.  Miss Chan claimed that she had informed Mr. Chan and Miss Karen Wong that the mill could only improve by 6-7 gm/sqm in an e-mail of the same date on 10 December 2002.  It is further Miss Chan’s evidence that Miss Karen Wong of Fornari accepted and approved the lab-dip colours of I012 in early December 2002 and on 17 December 2002 Miss Wong of Fornari accepted the colours of the fabric samples of T056. 

18. It is Miss Chan’s evidence that on 17 December 2002, Mr. Chan called her up requesting for a variation of the payment terms of the 1^st and 2^nd contracts.  He wanted to pay the balance of 70% of the contract price after shipment; this was rejected by Miss Chan.  He called her up again later that day informing her that the Defendant wished to cancel the 1^st and 2^nd contracts and requested for the return of the 30% deposit paid.  The Plaintiff instructed the mill to suspend production immediately.

19. Upon further negotiations between Miss Chan and Mr. Walter Chan of the Defendant, the parties eventually reached an agreement on the payment of the balance of the contract price of the 2 contracts.  The agreement reached was as follows:-

(1)	The balance of the 1st contract price: 45% payable before shipment, the remaining 25% to be payable within 3 weeks after the delivery of fabrics; and
(2)	The balance of the 2nd contract price: 60% payable before shipment and the remaining 10% to be payable within 3 weeks after the delivery of the fabrics.

20. The said agreement was supported by an e-mail from Miss Chan to Mr. Walter Chan dated 18 December 2002 (on page 147 of the bundle).  Subsequently, on 20 December 2002, the Plaintiff issued the first invoice for payment of the 2^nd contract of the fabric no. T056.  On 24^th December, the Plaintiff issued to the Defendant the second invoice regarding the 1^st contract KO-655/2002 fabric no. I012 (see pages 149 and 150 of the bundle).  These invoices were issued upon completion of the products under the 2 contracts.

21.  It is not disputed that the Plaintiff received from the Defendant a cheque in the sum of HK$128,566.56 as payment for the 2^nd contract; and on 24 December 2002, a second cheque in the sum of HK$108,381.62 for settlement of the 1^st contract.  Upon receipt of the 2 cheques, the Plaintiff delivered the fabrics ordered under the two contracts on 27 December 2002 and on 21 December 2002 respectively.  On 27 December 2002, the Plaintiff discovered the actual quantity in respect of the 1^st contract delivered to the Defendant’s designated garment factory was 130.5 yards short.  It immediately issued a revised invoice on 27 December 2002 reflecting an outstanding balance of the sum of HK$57,260.53.  So far as the 2^nd contract is concerned, on 21 January 2003, the Plaintiff issued an invoice in the sum of HK$21,733.44 being the 10% outstanding amount under the 2^nd contract.

22.  It is the Plaintiff’s case that the Defendant complained about the shrinkage rate of the fabrics to be over 10% on or about 2 January 2003; the Defendant, however, failed to provide any evidence in support of the alleged shrinkage rate.  The Plaintiff took the fabrics item nos. I012 and T056 for “washing and tumble dry” in order to test the shrinkage rate immediately upon receiving the complaint from Mr. Chan.  The result was: for no. I012, the shrinkage was 5.6%; for item no. T056 the shrinkage was 1.4%.

23. An investigation by the Plaintiff from Fornari was conducted by Miss Chan.  She was informed by Miss Karen Wong of Fornari that Fornari did not complain to the Defendant regarding the shrinkage problem or the shortages in quantity of the product.  She received confirmation from Fornari that Fornari had made no claim in relation to the aforesaid matter.  It is therefore the Plaintiff’s case that the Defendant’s defence has no merits.    

The Defendant’s Case

24. Mr. Walter Chan gave evidence on behalf of the Defendant.  He confirmed the various requests for sample from the Plaintiff regarding the weaving, the colours and the weight of the fabrics.  He claimed that upon production of samples by the Plaintiff, he found the colours, weight and quality were all different from the original samples supplied by the Defendant’s customer Fornari.  These samples were forwarded to Fornari on 25 October 2002.  Mr. Chan then informed Miss Chan by e-mail that the colours, printing, fabric weight and quality before and after wash should correspond with the samples from Fornari.  He further agreed that on 5 November 2002, he received from the Plaintiff two order confirmations, namely contract no. KO-655/2002 for fabric no. I012 and contracts no. KO-656/2002 for fabric no. T056.  Under the said 2 contracts, the date of delivery was to be on or before 5 December 2002, and the shrinkage rate +/- 3%. 

25. Various requests for further samples followed.  Because the fabric samples failed to meet the requirements of the Defendant’s customer, the Plaintiff agreed to produce a sample to the standard required by the Defendant during a telephone conversation between Mr. Chan and Miss Chan on 18 November 2002.  Upon the supply of further sample on 19 November 2002 on the lab-dip colours of fabric No. T056, on 22 November 2002, Fornari accepted the samples supplied. 

26.  The Defendant sent an e-mail message to the Plaintiff on 25 November 2002 raising a number of problems found on the samples of T056, they were:

1.	shrinkage rate too high and is not acceptable, the standard being 3%;
2.	the print too thin when compare to the original sample;
3.	the effect of the bleached fabric differed from the original sample;
4.	the colour of the fabric after wash differed from the original sample.

The Defendant therefore requested the Plaintiff to adjust the fabrics in accordance with the original samples.  Subsequently, further samples were produced and sent to Defendant by the Plaintiff on 26 November and 9 December 2002.

27. It is the evidence of Mr. Chan that on 10 December upon receiving an e-mail concerning Fornari’s acceptance of the third sample of fabric no. I012, the Defendant requested the Plaintiff to increase the weight of the fabric.  He claimed that he had a telephone conversation with his customer Fornari and was informed that Fornari was not happy with the fabric weight and warned the Defendant that it was reserving its right for a claim against the Defendant.  He in turn immediately informed the Plaintiff of the customer’s complaint and the Plaintiff accepted the responsibility and agreed to pay the compensation arising out of claims from Fornari.  

28. According to Mr. Chan, throughout this period he had repeatedly asked the Plaintiff for a delivery date.  At the same time, upon receipt of shipment sample he found the Plaintiff had failed to comply with the requests of improvement on shrinkage and fabric weight for both fabrics.

29. Mr. Chan admitted that on 17 December 2002, he was informed by the Plaintiff that delivery of shipment of T056 would take place on 20 December 2002.  Mr. Chan claimed that they had agreed on 17^th December that so far as fabric no. T056 was concerned; the Plaintiff would reduce the price by 10% as a preliminary compensation due to the delay of delivery and the poor quality of the fabric.  So far as fabric no. I012 was concerned, he was informed on 21 December 2002 that delivery of the fabric would be made on 24 December 2002 and on the same day, the parties reached an agreement for a reduction of 25% to compensate the Defendant’s loss.  

30. The Defendant therefore claimed that it is not liable to the Plaintiff for the payment of the balance of 25% under the 2^nd contract and 10% to the contract price under the 1^st contract. 

31. The Defendant counterclaimed for loss and damages arising out of the late delivery of the goods by the Plaintiff.  These included the following:

1.	airfreight charges;
2.	overpayment due to fabric shrinkages;
3.	short shipment by the Plaintiff; and
4.	quota costs due to delay and delivery etc.;

32. It is unfortunate that the Defendant failed to adduce any evidence as to the particulars of these loss and damages other than claiming the loss of a ‘temporary’ figure of $360,095.86.  

33. The Defendant called as its second witness a Miss Brenda L.Y. Cheung, the Assistant General Manager of Intertek Testing Services (hereinafter referred to as “Intertek”).  Miss Cheung gave evidence on the test result conducted by Intertek on 26 May 2003 for the no. I012 fabric (see page 371 to 373 of the bundle).  The test conducted by Intertek was a ‘wash and dry’ test.  It is apparent from the test result that the piece of fabric no. I012 was washed at 60℃.  The result after one wash and dry was as follows:-

WARP	-5.7%
WEFT	-0.6%

34. It was concluded by Intertek based on the test result that the fabric failed the dimensional stability to washing test.  However, it is Miss Cheung’s evidence that the shrinkage rate of the fabric would be reduced if the temperature at the time of washing were lowered to 40℃ or 30℃.  The passing criteria are usually subject to the mutual agreement between the buyer and the seller although the general passing criteria for the test of dimensional stability to washing is 3 - 4% maximum.  As Intertek was not told what were the parties’ agreed criteria for the temperature of the ‘wash and dry’ test, Intertek washed the fabric at 60℃.

Findings

35. I found Miss Cheung to be an expert in the field of testing fabrics.  According to Miss Cheung, fabrics are usually tested by Intertek for the purpose of the ‘care instructions’ label on garments.  Miss Cheung had given evidence on three different occasions in the courts as an expert previous to this case and her evidence had been accepted on those occasions.  I found her qualifications and experience to be satisfactory and her expertise established. 

36. It is noteworthy that according to Miss Cheung, whether a sample passed the test or not, depended on the mutual agreement of the test criteria between the buyer and the seller.  Unfortunately, the said two contracts failed to stipulate the temperature for the ‘wash and dry’ test.  In the present case, Miss Karen Wong’s instruction to the Defendant was that the fabrics should shrink further in order to increase the weight.  Under those circumstances, it is reasonable that no stipulated temperature for the ‘wash and dry’ test would be agreed. 

37.  According to Miss Cheung, the higher the temperature the fabric was washed in, the more the fabric would shrink.  As the said contracts failed to provide for the temperature of the wash for the shrinkage test and as there were no further test conducted on the fabric samples at a lower temperature than 60ºC, it is impossible for the Court to conclude if the Plaintiff’s fabrics were capable of passing the shrinkage test or not.   

38. From the evidence of the e-mail messages exchanged between the Plaintiff and the Defendant and the Fornari Hong Kong office, Fornari did not complain about the colours or the shrinkages of the fabric.  Miss Karen Wong in her e-mail of 10 December to Mr. Chan copied to Miss Chan requested Mr. Chan to improve the weight of the fabrics by shrinking the fabrics further in order to get a heavier weight.  Miss Wong also said in that same e-mail that the colours of fabric no. I012 were ‘all okay’.  Miss Chan on the same day replied that she could improve the weight by shrinkages of a further 6-7 gm per square metre only.  There was no evidence that Fornari was unhappy about the shrinkage rate.

39. I cannot find in the evidence adduced that Fornari had at any time complained about the delay in shipment.  It is not disputed that the Defendant entered into a written contract with Fornari on 10 January 2003, 2 to 3 weeks after the Defendant took delivery of the fabrics ordered under the two contracts on 21 December and 27 December 2002.  Clearly, the Defendant could have asked Fornari for a later date of delivery to accommodate the production date of the garments since Fornari’s Miss Karen Wong knew that the delay in production was due to the repeated requests for pre-production samples of the fabrics. 

40.  Furthermore, the Defendant also knew from the 7 October 2002 e-mail from Miss Chan the lead-time and estimated date of delivery from the strike off and shipment sample date stated therein.  The final delivery date of the fabrics could easily be calculated from that schedule.  Mr. Chan, therefore, should have negotiated a later date of delivery of the finished garments to Fornari in Italy knowing full well that the original date of delivery from the Plaintiff no longer applied due to the repeated requests for samples and delay in production compounded by the stoppage of production during the negotiations over the contract price at the time of production.  Mr. Chan had, in fact, at one stage terminated the two orders during the negotiations. 

41.  The record showed that the delay in delivery was 15 and 19 days not exceeding the 30 days stipulated under Clause 1 of the terms and conditions of the two contracts.  Clause 12 of the contract also allowed a deviation of 10% in the quantity of the production.  Clause 10 further provided for deviations of colours, size, dimension and weight.  Clause 13 stipulated that written claims should be made within one week of delivery of goods otherwise the buyer would be deemed to have approved the goods.  Therefore, the Plaintiff was clearly working within the contract terms.

42. Even if conditions and terms on the back of the order confirmation documents are ignored and the Plaintiff had therefore failed to comply with the original contract date of delivery term and shrinkages term, the Defendant accepted delivery of the fabrics and there was no evidence of Fornari objecting to the delay in delivery and defects in the fabrics of the garments.

43. I find Miss Chan to be an honest witness.  Her evidence was supported by the e-mail messages exhibited in the hearing bundle.  I find Mr. Chan to be an unreliable witness.  His evidence at the hearing under cross-examination was inconsistent.  His evidence as to the reduction of 10% and 25% under the two contracts is not supported by the e-mail messages exchanged between him and Miss Chan (see page 145 of the hearing bundle).

44.  I am satisfied that Miss Chan’s evidence is reliable and trustworthy, that the so-called 10% and 25% were not discounts at all but delay of payments to 3 weeks after delivery of the goods.  It is illogical for the Plaintiff to agree to compensate the Defendant for the delay in delivery before ascertaining the full extent of the claim.  Furthermore, the Plaintiff had been in constant communication with Fornari throughout this period and Fornari did not complain to the Plaintiff about any delay of delivery.

45. As the Defendant has failed to quantify and supply any particulars as to the loss and damages suffered in the counterclaim, it is impossible for the Court to assess the damages it allegedly sustained.  According to the evidence adduced by the Plaintiff, which included enquiries with Fornari in Hong Kong concerning Fornari’s claim for damages from the Defendant, the Defendant was not required to compensate Fornari for any delay in delivery.  It follows that the Defendant suffered no loss or damage due to delay of delivery.  Even if it did, it could have been avoided if the Defendant could have negotiated with Fornari in Italy for a later date of delivery of the finished garments.  Mr. Chan in his own evidence admitted it was not Fornari who requested him to pay the airfreight charges, he had offered to pay those charges because Fornari was a first time customer and he admitted that Fornari was a big first-time customer of the Defendant.  It was clearly a voluntary gesture from the Defendant and therefore the Plaintiff should not be liable for any voluntarily contributions by the Defendant to Fornari.

46. For the aforesaid reasons, I find the Defendant’s defence and counterclaim to be completely devoid of merits.  I dismiss the Defence and Counterclaim and give judgment to the Plaintiff in the sum of HK$78,993.97 with interests at half judgment rate from the date of writ to the date of judgment and thereafter at full judgment rate.

47. Cost nisi - The Defendant shall pay the Plaintiff’s costs to be taxed if not agreed with certificate of Counsel.