HAPPY TUNE INDUSTRIES LTD. v. DRAGON BEST GARMENT LTD.

1995 No. A7237

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. This is an action brought by the Plaintiff, Happy Tune Industries Limited against the Defendant, Dragon Best Garment Limited. The Plaintiff's claim against the Defendant for damages suffered by the Plaintiff as a result of certain breaches of the contracts between the Plaintiff and the Defendant. It is common ground that the Plaintiff and the Defendant had entered into 6 contracts and it is a matter in dispute as to whether there was the existence of the 7th contract.

2. In broad terms, the Plaintiff's claim against the Defendant was for delay in the production of the goods and also for defective quality of the goods. There was also a claim by the Plaintiff in respect of materials which were supplied by the Plaintiff and which the Plaintiff contended should have been re-delivered back to the Plaintiff as they were not required for the purpose of the production of the goods.

3. The Defendant counterclaimed against the Plaintiff for the charges which was owed by the Plaintiff to the Defendant in respect of the goods produced by the Defendant under the various contracts and taken delivery of by the Plaintiff. The Plaintiff did not appear today and I am satisfied that when the date of this trial was fixed, the Plaintiff was duly represented by solicitors and the Plaintiff was aware of the date of the hearing. In these circumstances, I decided that the Defendant may proceed with proving his case.

4. The Defendant called 2 witnesses, one Mr. Lee and one Mr. Lau. Both of them were directors of the Defendant company. Mr. Lee gave evidence that it was him who negotiated with one Mr. Lee of the Plaintiff in relation to the CMT charges under each of the contracts. On his evidence on each of the occasion before the contract was entered into, he went to the Plaintiff's office to have a look of the sample of the goods which the Plaintiff wanted the Defendant to manufacture and he then decided on the amount of charges which the Defendant would like to charge for the production of the goods. He then gave the quotation orally to the Plaintiff and upon an agreement having been reached on the charges, the Plaintiff would then make out the written contract and had the same signed by the Defendant.

5. He told me that in this way, Contracts No. 000, 003, 004, 005, 006 and 007 were entered into. Indeed, copies of these contracts were produced by Mr. Lau of the Defendant. He was the signatory on behalf of the Defendant for all these contracts save and except Contract No. 007. For Contract No. 007, for some reason the Defendant has not signed on that document but it was common ground that the Defendant agreed to the terms set out on that document.

6. As I have just mentioned there was also the suggestion by the Plaintiff that the Defendant has also entered into another Contract No. 008. Mr. Lee gave evidence before me and denied that the Defendant has ever agreed to enter into such contract. In the absence of any evidence to the contrary, I accept the evidence of Mr. Lee that there was no such Contract 008 between the Plaintiff and the Defendant.

7. On the evidence before me, I found that the Plaintiff and the Defendant's relationship was a good and harmonious one at the beginning. The Defendant produced the goods under Contract 000 and delivered the same to the Plaintiff on/about 25th April 1995. In accordance with the terms of the contract, the Defendant was entitled to be paid the amount of the charges in the sum of $122,400.00 on/about 30th May 1995, being 35 days from the date of the delivery of the goods.

8. The evidence before me showed that on that day, the Defendant was not paid the amount of the charges. However, it is common ground that 5 days before that on/about 25th May 1995, the Plaintiff paid the Defendant $60,000.00 as part payment of the charges under the first contract. The Defendant's case was that the Defendant had asked the Plaintiff to make full payment but the Plaintiff was unable to do so.

9. On the evidence of Mr. Lau, he met Mr. Lee of the Plaintiff some time in early June whereby he requested the Plaintiff to pay up the balance of the charges due under this first agreement. The Plaintiff's response was that he was unable to pay and he asked for one week extension to pay. After one week, Mr. Lau again met the Plaintiff and asked for payment and again the Plaintiff asked for further time of one week to pay. Before the expiration of this one further week, there was also a meeting between Mr. Lau and Mr. Lee whereby Mr. Lau asked Mr. Lee for the payment again. And on this occasion, Mr. Lau also told the Plaintiff that if the Plaintiff was unable to make cash payment at the time, the Defendant would accept payment by post-dated cheques. The Plaintiff declined to make any payment by post-dated cheque and since that occasion, the relationship between the Plaintiff and the Defendant had turned sour.

10. And I also find from the evidence of Mr. Lau that on this occasion, the Defendant also told the Plaintiff that if the Plaintiff was not willing to pay up the balance of the price under the first contract, the Defendant would cease producing the goods for the Plaintiff. I would observe that in actual fact, the Defendant did not stop production of the goods and what was said by Mr. Lau to Mr. Lee was merely a kind of pressure put on the Plaintiff in order to induce the Plaintiff to make payment.

11. From the evidence of Mr. Lee, I am satisfied that the Defendant had produced goods for the Plaintiff under the five contracts, 000, 003, 004, 005 and 007. There was no production under 006. And the amount of goods produced and delivered under these various contracts are set out in para.44 of the witness statement of Mr. Lee found at bundle A p.107 before me. And I am also satisfied that the goods were delivered to the Plaintiff on the date set out in column 6 of the table found in the said para.44. In consequence of the Plaintiff having accepted delivery of all these goods, the total amount of charges to which the Defendant was entitled to be paid would work out to be $427,584.16. The Plaintiff having made part payment only in the sum of $60,000.00 was liable to pay the Defendant the balance in the amount of $367,584.16. I am satisfied that this amount was due and owing by the Plaintiff to the Defendant.

12. On the pleadings, the Plaintiff alleged that there were various breaches of the contract by the Defendant, in that the Defendant was guilty of late delivery of the goods, some of the goods were of defective quality and that the Defendant was liable under each of the contracts to re-deliver certain unused raw material to the Plaintiff. However, the Plaintiff being absent today, had adduced no evidence of any of such breaches of contract on the part of the Defendant.

13. Accordingly, on the evidence before me the Defendant having manufactured and delivered the goods to the Plaintiff, I found that the amount of $367,584.16 was due and owing by the Plaintiff to the Defendant. I should add in passing that in para.4 of the Amended Defence and Counterclaim, the Defendant pleaded that the various contracts between the Defendant and the Plaintiff was subject to a certain condition agreed upon orally between the Plaintiff and the Defendant. I would find that on the evidence before me that the Defendant has failed to satisfy me that the various contracts was subject to such condition as pleaded in the said para.4. However, in the event that has turned out, there was no evidence from the Plaintiff on the Defendant's breaches of the contract. Thus whether there was such a condition governing the various contracts is immaterial.

14. I should also mention that prima facie from the fact that the goods were delivered later than the schedule dates of delivery stated on the contract, the Defendant was in breach of the contract in making late delivery. However I am satisfied that this breach did not actually affect my decision today as there was no evidence from the Plaintiff as to the amount of damages suffered by the Plaintiff as a result of this late delivery. The Plaintiff having accepted delivery of the goods is, in my view, obliged to pay the amount of the charges subject to the right to deduct the amount of the damages arising out of late delivery.

15. In all the circumstances, I would give judgment in favour of the Defendant. I hold that the Defendant is entitled to the sum of $367,584.16 with interest at the rate of 1% above the prime lending rate from the date of the filing of the original defence and counterclaim which I understand to be 8th March 1996 until payment. I would order that the amount in court together with interest if any be released to the Defendant in part satisfaction of the amount of the judgment and interest. I would also award costs in favour of the Defendant to be paid by the Plaintiff.