WAI SHING BROTHERS GARMENT MANUFACTORY LTD v. LINNA TEXTILES MANUFACTURING LTD

CACV 282/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 282 OF 2002

(ON APPEAL FROM DCCJ 6837/2001)

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J U D G M E N T

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Hon Woo JA:

Introduction

1. This is an appeal by the defendant against the judgment of Deputy Judge Anthony Chow in the District Court handed down on 26 February 2002. Leave to appeal was granted by Rogers VP and Yuen JA on 26 June 2002.

The parties' claims and the judgment

2. The plaintiff's claim against the defendant was for the balance of the price of goods sold to the defendant under four contracts. The total price of the goods delivered amounted to US$149,637.00. The plaintiff took into account a sum of US$76,075.39 (alleged as a part payment) already paid by the defendant and a deduction of US$7,894.23 being airfreight incurred by the defendant and claimed the balance of US$65,667.38. The airfreight was incurred because in respect of all the four contracts, the plaintiff admitted that the shipments of the goods took place later than the contractual delivery dates.

3. In the defendant's defence and counterclaim, the defendant alleged that in consideration of its agreeing to forgo its claim against the plaintiff for breach of the contracts by reason of the late shipments, the plaintiff had agreed to accept the sum of US$76,075.39 in full and final settlement of the contract sums. The defendant alleged that it had suffered damages to the extent of US$81,043.46, and raised that sum as a set off and counterclaim.

4. The judge identified three issues for his determination at the trial, namely,

(1) whether there was a full and final settlement between the parties;

(2) whether the plaintiff was in breach of the contracts while it had only admitted in its pleadings that there were late shipments of all of the goods under the four contracts; and

(3) whether the defendant had suffered any loss and damage as alleged or at all.

5. The judge found that there was no settlement agreement. He found that the plaintiff was in breach of the contracts in the late shipments. He found that the defendant had paid US$7,849.23 as airfreight. He also found that the defendant had incurred US$11,250.00 for extra quota certificates required because of the late shipments. Other than those items, the judge came to the conclusion that the defendant had not proved to his satisfaction that the it had incurred additional airfreight amounting to US$15,788.46, or additional quota fees of US$24 and US$708.02, or that the it had suffered any loss by way of compensation paid to its sub-buyer, American Basics Company LLC ("ABC"), or that its alleged loss of profits at 5% of the total contract price was connected with the plaintiff's breach.

The appeal

6. The grounds of appeal raised by the defendant are directed at the judge's finding that there was no settlement agreement, and at his findings regarding the various items of damages referred to above, save and except that there is no challenge to the judge's finding that the defendant's alleged loss of profits of 5% had no connection with the plaintiff's breach.

7. Mr Lau, for the defendant in this appeal, acknowledges that the grounds of appeal aim at challenging the judge's findings of fact. He relies on Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co [1998] 3 HKC 153 and submits, and I consider correctly, that the principle applicable for the Court of Appeal's interference with a finding of fact is when it is satisfied that

(a) the finding ran counter to documentary or other incontrovertible evidence which the judge must have overlooked; or

(b) the finding could only have been based on a misapprehension of the facts; or

(c) there was some faulty process of reasoning in the judgment.

The finding of no settlement agreement

8. This is the main defence raised by the defendant. If the defendant had succeeded in its allegation that there was a settlement agreement in that the plaintiff had agreed to accept the sum of US$76,075.39 paid by the defendant on 7 July 1999 in full and final settlement of the contract sums, that would have been the end of the case. It would not be necessary to deal with the defendant's alleged loss and damage which formed its set-off and counterclaim. What the judge said relating to this issue is set out below.

"[21] The settlement agreement was never reduced into writing. Accordingly, the existence of the settlement agreement must be proved by the testimonies of Ms. Yiu [the plaintiff's witness] and Ms. Lam [the defendant's witness]. The testimony of Ms. Hui [another defendant's witness] was completely useless on this issue, as she admitted that she had no personal knowledge of the settlement agreement between the parties.

[22] In her testimony, Ms. Lam stated that on the evening of 6/7/1999, when Ms. Yiu agreed to the terms of settlement, the settlement sum had not yet been calculated. However, this contradicted with her witness statement. Paragraph (12) of Ms. Lam's witness statement stated:

"... Thereafter, on 6 July 1999, I agreed with Ms. Yiu over the telephone that the Plaintiff would accept a lump sum payment of US$76,075.39 from the Defendant in full and final settlement of the purchase price of the said goods..." (Emphasis added)

[23] Furthermore, Ms. Lam also testified that she had to ask Ms. Hui to make the calculation for the settlement sum. Ms. Hui however, testified that it was Ms. Lam who gave her the payment figures.

[24] Additionally, once Ms. Lam knew that Ms. Yiu had left with the US$76,075.39 cheque without signing the acknowledgement of settlement, she could have easily prevented Ms. Yiu from cashing the cheque by countermining (sic) the same. Ms. Lam's explanation was that she had called Ms. Yiu to protest, but had accepted Ms. Yiu's assurance that the Plaintiff would not commence any claim against the Defendant. I found this explanation difficult to accept. The whole idea of asking Ms. Yiu to sign an acknowledgement was the fact that there was very little trust left between the parties. Ms. Lam had testified that after Ms. Yiu wrote to ABC directly to enquire if it had made nay claims on the Defendant due to the late shipments, whatever trust between the parties had been lost. Under the circumstance, it was difficult to accept that Ms Lam would accept Ms Yiu's assurance in place of a signed written acknowledgment.

[25] Finally, Ms. Yiu had insisted from the beginning of this dispute that the Defendant had not suffered loss and damages to the extent claimed by the Defendant. It was always the Plaintiff's position that the Defendant must provide the Plaintiff with documentary proof of any loss or damages. Under these circumstances, it was simply illogical for Ms. Yiu to have suddenly capitulated to the Defendant's position and accepted the sum of US$76,075.39 as settlement without any proof from the Defendant.

[26] Accordingly, I found that there was no settlement agreement reached by the parties."

9. One can note that there are only two references to Ms Hui's evidence in the part of the judgment cited above. Indeed, nowhere else in the judgment was the evidence of Ms Hui mentioned.

10. There are two errors made by the judge in paragraph 21 of his judgment, namely, that the settlement agreement was never reduced into writing and that the testimony of Ms Hui was completely useless on the issue whether there was a settlement agreement.

11. There were two documents which together recorded the settlement agreement between the parties. The first one was a fax dated 6 July 1999 ("the fax") and the other was a receipt issued by the plaintiff dated 7 July 1999 ("the receipt"). It is to be noted that the plaintiff had never challenged the authenticity of the fax, although its case was that it had never received it. Ms Hui testified that the fax (which was mainly in Chinese) was written by her and faxed to the plaintiff on 6 July 1999. The receipt was one issued by the plaintiff to the defendant acknowledging the receipt of the cheque for US$76,075.39. According to the evidence of Ms Hui, the receipt was left by Ms Yiu of the plaintiff after she collected the cheque for US$76,075.39 at the defendant's office on 7 July 1999. There was also a document dated 7 July 1999 prepared by the defendant intended to be signed by Ms Yiu upon her collection of the cheque ("the acknowledgment"). Ms Hui had asked Ms Yiu to sign the acknowledgement before handing the cheque over to Ms Yiu. Ms Yiu asked to be given the cheque first before she would sign the acknowledgement, but after Ms Hui had handed over the cheque to her, Ms Hui had to answer a telephone call and when she returned, Ms Yiu had gone with the cheque and left the receipt.

12. The cheque was No. 816 dated 7 July 1999 drawn on the Citibank. The translation of the fax read:

"To: Wai Shing Brothers (May Yiu)

From: Account Department

Under agreement by both parties, we knew that your company had accepted the amount claimed by the customer. Please come up to our company tomorrow to collect the following cheque: USA US dollar cheque No. 816 for USD$76,075.39. We hereby state the following for your information, upon receipt of this cheque, the payment for all goods would be settled, and neither parties should claim against each other."

13. The receipt was in the following terms:

WE RECEIPT FROM LINNA TEXTILES MANUFACTURING LTD.

**TOTAL U.S. DOLLARS SEVENTY SIX THOUSAND SEVENTY FIVE & CENTS THIRTY NINE ONLY.**

CHEQUE NO. 816

USD 76,075.39"

WAI SHING BROTHERS GARMENT MANUFACTURING LTD.

(chop)

14. The acknowledgement that was intended to be signed by the plaintiff but which was not signed was in the following terms:

"Date: 7/7/99

Received USA US dollar cheque No. 816 for USD76,075.39. The payment for all goods between our company, Wai Shing Brothers Garment Manufacturing Ltd and Linna Textiles Manufacturing Ltd have been settled. No other sums outstanding."

15. While the parties agreed that the acknowledgment was not signed by Ms Yiu of the plaintiff when she collected the cheque, there was a great divergence of evidence on the other two documents. In her witness statement and in her testimony, Ms Yiu denied that the plaintiff had ever received the fax. On the other hand, in the witness statements and testimonies of both Ms Lam and Ms Hui, it was stated that the fax was sent to the plaintiff through facsimile on 6 July 1999. As to the receipt, Ms Yiu did not deal with that in her witness statement. In testimony, she said that when she received the cheque in the defendant's office on 7 July 1999, she faxed the cheque to the plaintiff's company, and the receipt was issued by the plaintiff on 7 July 1999 but it was not left by her at the defendant's office when she collected the cheque. However, Ms Lam's witness statement said the following:

"12. ... on the 6th July 1999, I agreed with Ms. Yiu over the telephone that the Plaintiff would accept a lump sum payment of US$76,075.39 from the Defendant in full and final settlement of the purchase price of the said goods. Whereupon, a fax was sent to the Plaintiff by the Defendant on the same day confirming the said agreement and requesting the Plaintiff to attend the Defendant's office to collect the settlement sum on the next day.

13. ... I had instructed Ms. Hui Lai Ying, the Defendant's accountant to prepare a receipt [ie, the acknowledgement] of the said cheque for the Plaintiff to sign.

14. I was informed by Ms. Hui that Ms. Yiu went to the Defendant's office on the 7th July 1999 and was attended by her. Ms Yiu took the said cheque from her but failed to sign the receipt prepared by us. Instead the left a receipt issued by the Plaintiff for the sum of US$76,075.39. I was also informed by Ms. Hui and verily believe that at the time Ms. Yiu did not say why she refused to sign the receipt prepared by us or that it was because there was no agreement for settlement. Furthermore, apart from our receipt no other document was shown to Ms. Yiu at the time. The said sum of US$76,075.39 was paid to the Plaintiff pursuant to the said agreement in full and final settlement."

16. Ms Hui's statement was the most relevant, so was her testimony on this matter. Her statement stated:

"6. ... a fax was sent to the Plaintiff by the Defendant on the 6th July 1999 confirming the said agreement and requesting the Plaintiff to attend the Defendant's office to collect the said sum on the next day.

7. ... I prepared a receipt of the said cheque for the Plaintiff to sign on the instructions of Ms. Lam.

8. Ms. Yiu came to the Defendant's office on the 7th July 1999 and was attended by me as Ms. Lam was in a meeting. Following Ms. Lam's instructions I gave the said cheque to Ms. Yiu and asked her to sign the receipt [ie, the acknowledgement] I prepared. She took the cheque and instead of signing the receipt left a receipt issued by the Plaintiff and left. ... "

17. In her testimony, Ms Yiu said that a girl (Ms Hui) of the defendant showed her the cheque and a document (which she did not know if it was the acknowledgement) and asked her to sign the document. She took the cheque but refused to sign the acknowledgement. It is pertinent to look at Ms Yiu's testimony when she was cross-examined by counsel for the defendant:

"Q: You - after you left, she - did she [Ms Hui] go inside before your left or after you left?

A: I said I would not sign and then she went inside. Then I asked her for a fax machine - to let me use a fax machine, I ask if I could use a fax machine so that I could fax the cheque to my company. She said Okay, that is a girl said okay. I faxed it to my company, then I left with the cheque. ...

Q: Could you tell us why you had to fax it?

A: I would like someone to check the words and figures on the cheque for me.

Q: Can you read?

A: It would not be a problem if I faxed it.

Q: What?

A: Would it be a problem if I faxed it?

Q: No, just now I ask you whether you could read. Now please look at p. 21, here is the cheque, the cheque handed to you. Can you read this cheque, can you read?

A: I can.

Q: You can. If you can read, why did you have to fax it to someone to read it for you?

A: It wouldn't be a problem if I faxed it back.

Q: I want to ask you why you had to fax it back, you could read.

Court: Madam Yiu, let me remind you once again. Please listen carefully to the question of counsel and answer the counsel's question directly. The counsel's question was why did you fax it back, and not whether it would be a problem if you faxed. You answer that 'it would not be a problem if I faxed it back.' You don't answer the counsel's question directly.

A: I faxed it to my company for my colleagues to check whether the words and figures on this cheque were the same, and it was written 'New York' at the bottom.

Q: After you faxed it, you took the fax and left?

A: Yes." (Emphasis added)

18. Then counsel cross-examined Ms Yiu on the receipt.

"Q: This receipt was dated 7 July 1999. Firstly, who asked you to issue this receipt?

A: A receipt had to be issued upon receiving a cheque.

Q: You gave this receipt on the very date, 7 July, to the Defendant's company?

A: It was issued on that day. I can't remember on which date it was given, but it was issued on that day, I received ...

Q: It was issued and given on that day. You took it with you to the Defendant's company, didn't you?

A: No.

Q: How did you give this receipt to the Defendant's company?

A: Whether I asked someone to mail it there, to deliver it there or to mail it there, I can't remember this very clearly.

Q: What? Think carefully. Did you mail it or ask someone to deliver it there?

A: I ask someone to deliver it there.

Q: When did you ask someone to deliver it there?

A: I can't remember the exact date.

Q: What?

A: I can't remember clearly the exact date.

Q: Was it on the valid date, 7 July?

A: Probably - I can't remember.

Q: If you've forgotten, how did you know you ask someone to deliver it?

A: We have staff to deliver the receipt.

Q: Who request you to deliver the receipt there? Did anybody request you to deliver the receipt there?

A: I did not. But I had to bring along receipt when receiving cheque. I had receipt.

Q: So receiving cheque(s) goes along with receipt?

A: Yes.

Q: In fact, you brought along the receipt in your pocket when you went to collect the cheque?

A: I faxed it back to my company.

Q: What?

A: I faxed the cheque back to my company.

Q: Faxed the cheque back to your company?

A: Yes.

Q: I am asking you whether you brought along the receipt - when you went to collect this cheque on 7 July?

A: No.

Q: No?

A: No.

Q: When you were there, did you know the amount of money given to you, which was $76,075.39, according to your statement?

A: Yes.

Q: Why was that sum in this amount? Why this amount was paid?

A: Before that, there was a piece of - this figure, when I went there, after I had collected it I faxed it back to my company. After I faxed it back to my company, they would know how much the cheque was.

Q: No. Now my question is - you said - according to your testimony, you didn't know how much money he/she would give you before you went up?

A: Right.

Q: It wasn't discussed before?

A: No.

Q: Right? When you arrived there, she might have already made out the cheque, right?

A: She made out the cheque for me.

Q: It had already been made out?

A: Yes." (Emphasis added)

19. I have highlighted parts of the evidence of Ms Yiu that were not so coherent and tended to support the defendant's case that the receipt was brought along by her to the defendant's office on 7 July 1999. She also seemed to prevaricate.

20. Ms Hui also dealt with these important documents in her testimony:

"Q: This is a fax message, the date was 6th of July, year 1999, who wrote that, do you know?

A: I wrote that.

Q: When did you write that?

A: On 6th of July 1999.

Q: After you wrote that, did you fax it to the Plaintiff Company Wai Shing Brothers?

A: Yes.

Q: Who asked you to write this fax message and faxed it to them?

A: It was my boss Miss Lam.

...

[Counsel showed the acknowledgment to Ms Hui]

Q: Do you recognize this document or not?

A: Yes.

Q: Who wrote this document?

A: It was also written by me.

Q: Who asked you to write that?

A: Also Miss Lam.

...

Q: I want to ask you - Miss Hui, on 7th of July 1999, Miss Yiu came to your company's office, after she collected a cheque did she fax the cheque - fax it from your office?

A: No.

Q: I want you to look at page 22 [ie, the receipt], have you ever seen this document?

A: Yes.

Q: Was this the document which you mentioned in paragraph eight and which was left by this Miss Yiu on 7th of July 1999, after she came and collected the cheque?

A: Yes."

21. It can been seen that therefore Ms Yiu's evidence was in direct conflict with the statements and evidence of both Ms Lam and Ms Hui of the defendant. Ms To, for the plaintiff, argues that it was correct for the judge to place no weight on Ms Hui's evidence because regarding the existence or otherwise of the settlement agreement, Ms Hui was not a party to the agreement and her evidence is hearsay. This is certainly true when one considers that the settlement agreement was allegedly made between Ms Lam and Ms Yiu, but as far as the circumstances surrounding the payment of the cheque to the plaintiff are concerned, Ms Hui's evidence regarding the fax and the receipt is not hearsay. The fax contained the terms of the settlement agreement and the particulars of the cheque to be collected. The receipt also contained the same particulars of the cheque, and if it had been brought along by Ms Yiu to the defendant's office on 7 July 1999 and left there after she had collected the cheque, it would confirm that the fax recording the settlement agreement had previously been received by the plaintiff.

22. However, throughout the judgment, the judge did not make any finding as to whether the fax had been sent by the defendant or received by the plaintiff. Nor did he make any finding whether the receipt had been brought along by Ms Yiu to the defendant's office on 7 July 1999 or whether she left it there after she had collected the cheque. The judge had not resolved the divergence between Ms Yiu's evidence and that of the defendant's witnesses on these important matters. It is to be noted that while the judge had the advantage of observing the witnesses at first hand when they gave evidence before him, he did not rely on their demeanour in making any finding of fact relevant to the issue whether the parties had reached a settlement agreement. In the circumstances, in the absence of any finding whether the fax had been received by the plaintiff on 6 July 1999 and whether the receipt had been left by Ms Yiu at the defendant's office on 7 July 1999 when she collected the cheque, I am left in serious doubt whether the judge would similarly reject Ms Lam's evidence regarding the existence of the settlement agreement between the parties. Had the fax been received by the plaintiff prior to Ms Yiu's collection of the cheque at the defendant's office on 7 July 1999, in the absence of any protest by Ms Yiu that the cheque was not for full and final settlement of the price of the goods (and there was no evidence of any such protest), more likely than not, the settlement agreement existed and its terms were those set out in the fax. The date when the receipt was given or sent to the defendant was most relevant in that without the fax having first been received by the plaintiff on 6 July 1999, it would have been impossible for the plaintiff to have prepared the receipt to contain the particulars of the cheque to be collected by Ms Yiu from the defendant on 7 July 1999 and for her to bring along the receipt on that occasion.

23. In all the circumstances of this case, I am of the view that the judge plainly erred in failing to make findings as to the fax and the receipt and as regards what happened at the defendant's office on 7 July 1999 when Ms Yiu collected the cheque. However, I cannot properly say that the judge must have made these necessary findings in favour of the defendant. But for the fact that the defendant's defence was not only based on the settlement agreement but it had also raised an independent set off and counterclaim regarding the damages it claimed to be entitled by reason of the late shipments (see paragraph 3 above), I would have remitted this matter for a retrial before another judge of the District Court, so as to resolve this issue whether there was a settlement agreement between the parties.

The set off and counterclaim

24. In respect of the defendant's claim to damages as a set off and counterclaim, I consider that the defendant is entitled to succeed. In my view, judgment should be entered for the defendant on the counterclaim for the sum of $79,982.02. The reasons are as follows.

25. The judge commenced his judgment by stating, in paragraph 2, that shipments of the garments under the contracts were delayed and that part of the garments had to be shipped by air instead of by sea. In paragraph 32, he found that there had been no agreement on flexible delivery, as had been alleged by the plaintiff. Having so held, he then went on to hold that the plaintiff had been in breach of contract for the simple reason that it had failed to comply with the contractual shipment dates. In paragraph 35, the judge recorded the fact that there was no dispute that, due to the plaintiff's breach, garments under contracts 431, 432 and 456 had had to be shipped by air instead of by sea to New York. The judge accepted the plaintiff's evidence that airway bills dated 6/2/1999, 9/2/1999, 15/2/1999 and 11/3/1999 clearly stated that those goods had been shipped "freight collect", which meant that the buyer in New York had paid the airfreight charges: see paragraph 36.

26. Although the judge recorded, accurately, that the defendant was not the party named as paying the airfreight charges, in my view it stretches credulity beyond acceptable limits to suppose that an overseas buyer would be content to pay airfreight charges when goods were late through no fault of its own. Given the amount of those airfreight charges in comparison to the cost of the goods, the notion that a buyer would quietly pay the airfreight charges and not seek reimbursement is unrealistic, to put it at the least. Unfortunately, this approach seems to have coloured the judge's approach to the rest of the case.

27. The defendant had given evidence that it had received an email from its buyer that set out how the buyer would be reimbursed. That read as follows:

"As agreed, we will reduce the prices for the following P.O.'s to compensate us for our loss.

P.O.	QTY.	Original Price	Reduced Price
703	2,500	$15.50	$11.50
704	2,500	$15.50	$11.50
701	4,000	$15.50	$11.50
829	2,500	$15.50	$11.50
830	2,500	$15.50	$11.50
702	1,000	$19.25	$15.25
699	1,000	$19.25	$15.25
700	1,000	$19.25	$15.25 "

28. In paragraph 37 of the judgment, the judge appears to have accepted the evidence of Ms Lam, of the defendant, that the buyer had arranged to pay the defendant for the goods by way letter of credit and that it wanted to avoid the expense of arranging a new Letter of Credit. Hence the arrangement of allowing for the buyer's claim for delay and the airfreight charges by reducing the price of future orders.

29. Unfortunately the judge rejected the defendant's evidence on grounds that are patently erroneous. He clearly misunderstood the defendant's evidence and he made a serious miscalculation. Having done that, he appeared to have required "evidence" without identifying the evidence to which he was referring.

30. In paragraph 41, the judge said:

"Ms. Lam explained that the Defendant and ABC had renegotiated the prices because the manufacturer could not complete some trimmings in accordance with ABC's requirements."

31. But that is not what Ms Lam had said. The transcript at pages 172-3 reads as follows:

"Q: On page 74 you can see clearly 699, 700 and 701, yes those documents, we take a look ---- take a look first, yes, 701 first: 701, $15.5 per dozen, right?

A: Yes

Q: At the time when you issued the invoice, you issued for $15.25 per dozen, and not $11.5 per dozen.

A: I have talked about this before, for that order we had re-negotiated with the customer in the middle of the contracts between the order was changed. There changes in the fabric, the lace and other aspects, for several orders we had to bargain with them again.

Q: That is to say originally it should be $15.5, discounted to $11.5 to cover the compensation?

A: Yes

Q: But later the parties discussed again, and add money to that order?

A: Money was added because we had paid more money. It was raised by the factory, it is a question of the quality of the lace, we had prepared a sample for approval by the client, the client's designer did not approve it, they asked us to do it again, finally we found a more expensive lace, so we asked more money from them

Q: Then I ask you, 701 order, after the parties re-negotiated, how much was it?

A: Added ---- added (to) $15.25

Q: No, you don't understand my meaning. Originally $11.5 should be paid to settle the amount

A: Yes

Q: But now it is not $11.5, things like lace, and those other things, at how much money did the contract end up?

A: Ended up at the present invoice price.

Q: Good, look at the following page, 703,704

A: It's the same case.

Court: You are talking about page 24, right?

Miss To: Yes, Yes, Yes

Q: According to your evidence, deductions were made in these orders, after deductions should be $11.5, but now $15.5 was used again for collection of money, what you are saying is that both sides had discussed again in the middle, 4 dollars was added back into the price right?

A: Yes"

32. Obviously, the statement attributed to Ms Lam by the judge did not make sense. His misunderstanding of her evidence explains his rejection of it. Ms Lam's evidence does make sense and the judge misunderstood it. The judge then went on to say:

"Even if Ms. Lam's statement was true, which is not my finding, it is incumbent upon the Defendant to show evidence of the renegotiation and to prove that the original compensation to ABC had remained unchanged."

33. This highlights the judge's misunderstanding of the evidence. It was not a case of the original compensation remaining unchanged. It was a matter of a renegotiation of the contracts because of changed specifications.

34. The other element in the judge's rejection of Ms Lam's evidence came in paragraph 43 where he said:

"Additionally, Ms. Lam testified that she had agreed to compensate ABC the sum of US$68,000.00; however, the total value of the discounts stated in Mr. Kaufman's email was only US$34,984.25 add to that the airfreight charges paid by ABC, the total is only US$58,635.36. There was a difference of US$9,364.64 unaccounted for."

35. It is not clear how the judge arrived at the figure of US$34,984.25. A calculation of the figures in the email quoted above works out at exactly $68,000.00. Hence this last reason for dismissing the defendant's evidence was, again, flawed.

36. The invoices relating to P.O. 829 and 830 were omitted by mistake at the trial but have been admitted on appeal on the application of the defendant. The plaintiff's counsel, Ms To did not seek to challenge their authenticity, nor was it suggested that they should be treated otherwise than as genuine. In these circumstances, the defendant must be treated as having compensated its buyer in the sum of US$68,000. In those circumstances, the defendant is entitled to that sum in addition to the amount of US$11,250.00 to which the judge held it was entitled.

37. Whilst accepting that the defendant had paid the sum of US$11,250.00 for the extra quota certificate, the judge rejected the defendant's claim for US$24.00 in respect of the other quota fees and US$708.02 in respect of document charges, handling fees and C.F.S. charges. He did so on the basis that "the defendant had provided no evidence to substantiate these parts of its counterclaim". Again, the judge seems to have fallen into error. The sum of US$708.02 is the equivalent of HK$5,472.98. There was an invoice as to that latter amount, which was not challenged by the plaintiff. Ms Lam also gave evidence to support it. Likewise the amount of US$24.00 is referred to at the foot of a fax dated 23 June 1999 from the defendant to the plaintiff, along with the figure of HK$5,472.98. Again there was no ground for rejecting Ms Lam's evidence that went to support the claim in this amount. The defendant is entitled to these amounts as well.

Conclusion

38. Thus, the total amount to which the defendant is entitled in its counterclaim comes to US$79,982.02, consisting of the said sums of US$11,250, US$24, US$708.02 and the compensation of US$68,000 paid to the buyer in the United States.

39. On that basis the amount to which the defendant is entitled on the counterclaim exceeds the plaintiff's claim by $14,314.64, ie, the said sum of $79,982.02 less the plaintiff's claim of $65,667.38. I, therefore, consider that the judgment below should be set aside and that judgment for US$14,314.64 should be entered in favour of the defendant, with interest at judgment rate from the date of 26 February 2002 when the judge handed down judgment until payment. I would make an order nisi for costs in favour of the defendant both here and below, save that there be no order as to costs of the application to adduce the evidence referred to in paragraph 36 above.

Hon Rogers VP:

40. I agree.

Hon Le Pichon JA:

41. I agree.