EVERGREEN YARN LTD v. WONG WAI BIU

DCCJ22693/01

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 22693 OF 2001

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J U D G M E N T

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The dispute

1. The plaintiff is a yarn trader. It sued the defendant for HK$191,185.00 being the price of yarn allegedly sold and delivered by it to the defendant. The defendant raised two lines of defence. The first ground of defence was that the defendant was not the purchaser and not liable, the true purchaser was one Bolou Lien Li Knitting Factory ("the Bolou Factory") situated in Bolou, Dongguan, Guangdong Province. The second ground was that the yarn supplied by the plaintiff was defective. There was also a subsidiary issue within the second issue that an invoice no. 58520 for HK$2,640.00 need not be paid as that was for yarn delivered to replace defective yarn invoiced earlier on. The purchase orders in question were all by fax and they all bore the name of the defendant and one Link Jet Development Ltd. ("Link Jet"). The plaintiff addressed all the invoices to the defendant. I also note that the defendant has not pleaded rejection of goods.

The Evidence

2. Since credibility is in issue, the parties agreed that all witnesses should give evidence verbally instead of adopting their witness statements as evidence in chief. I so ordered.

The plaintiff's case

PW1 Mr. Chan Chin Wai

3. The plaintiff called one witness Mr. Chan Chin Wai ("Chan"). He said he came to know about the defendant's company in December 2000 at the Convention Centre. He received a telephone call from a Miss Anny Chan ("Anny") of the defendant sometime in February 2001 asking him to go to the defendant's office in Hung Hom to discuss business. He went to the defendant's office and got an order for dull rayon ("Order I"). The goods were duly delivered and payment was made in due course by the defendant.

4. In April 2001, Anny called him again and gave him an order by fax of reference no. F7347/01 for 2/48s 100% acrylic ("Order IIa"). After placing the order, she gave him some colour samples telling him to produce colour lap-dips for her approval. This order was revised twice to that as contained in a fax of reference no. F7347/01R2 on 9th May 2001 ("Order IIb"). Of the yarn delivered under this order, there was a batch weighing 1,630 lbs that had to be replaced as the yarn delivered was bright acrylic but the yarn used by the defendant was dull acrylic. Dull acrylic was less shiny.

5. In addition, there were further orders in April 2001. They were by faxes of reference nos. F7379/01 for 2/24s 70% acrylic ("Order III") and F7371/01R for 2/24s 85% acrylic ("Order IV") both dated 6th April 2001 and F7366/01R for 2/28s 100% acrylic ("Order V") dated 16th April 2001. The goods were duly delivered under these orders from April to July. Apart from the need to replace the 1,630 lbs shiny yarn under Order IIb, there was no other complaint from the defendant on any of the yarn delivered by the plaintiff under all the orders.

6. After the orders in April 2001, the defendant placed further orders in June 2001. They were by faxes of reference nos. F8154/01 dated 4th June 2001 ("Order VI") and no. F8336/01 dated 15th June 2001 ("Order VII") both for 2/48s 100% acrylic which was the same type of goods under the first order of fax reference no. F7347/01R2. There was then a fax of reference number F8413/01 dated 19th June, 2001 ("Order VIII") which summarized all the 2/48s 100% acrylic ordered and delivered under Orders IIb, VI and VII and asked for urgent delivery of replacement yarn for a few colours. Regarding this fax, Chan said that before he got this fax, Anny had told him on the phone to make further deliveries of five colours of yarn. He then received this fax with the quantities totaling 480 lbs for the five colours highlighted with arrows. He then delivered 411.5 lbs for these colours as requested. Apart from the figures for the five colours as highlighted, he did not pay any attention to the rest of this document.

7. After making delivering the yarn, he issued invoices to the defendant. The invoices initially were all for cash on delivery. The term of payment was later changed to 45 days credit at Anny's request. He initially said that the change was made after the first order, but when cross-examined, he said that the change was made on about 8th May 2001 when invoice 58213 was issued. The term of payment for this invoice was indeed changed in handwriting from COD to 45 days. The defendant did not dispute the quantities and prices as stated in the invoices.

8. He finished delivery of all orders in July 2001 and asked for payment in August 2001. He was told that Miss Chan of the accounts department was on maternity leave and he should wait until September 2001 before asking for payment. When he returned in September, Miss Chan of the accounts department gave him a list dated 12th September, 2001 (at page 400 of Bundle E) showing all the outstanding invoices for the 2/48s yarn and totaling HK$287,771.00 as due and payable to the plaintiff. The list also showed an excess delivery at 961 lbs worth HK$16,337.00 and the excess would be returned to the plaintiff. The sum payable was thus reduced by this HK$16,337.00 and was at HK$271,434.00. He agreed to this calculation. Miss Chan also told him that payment would be made soon. After receiving the list, he kept on asking Anny for payment, but she told him that her boss was in the Mainland and could not sign any cheque. Anny suggested that payment could be made to the plaintiff in the Mainland and Chan agreed. In due course, the plaintiff received a part payment of RMB￥105,678.23 which was equivalent to HK$100,000.00, but he did not know who was the payer. There was no further payment and the plaintiff caused a demand letter to be sent by their solicitors to the defendant. After this, Anny told Chan that her boss was very angry and would not pay the balance.

9. Regarding a number of letters allegedly exchanged between the defendant and the Bolou Factory, which had allegedly been faxed to the plaintiff, Chan denied of having received anyone of them. There was also a letter allegedly dated 21st November 2001 and sent by the defendant to the plaintiff enclosing a deposit slip for the said part payment and telling the plaintiff to take back the defective yarn. Chan also denied of having received that.

10. In cross-examination, he denied the defendant's suggestion that, save for Order I for dull rayon, all the orders were placed by the defendant on behalf of the Bolou Factory. It was put to him that Anny had told him that there were two types of contracts namely "CMT order" and "all-inclusive order". CMT should mean "cut, make and trim" and is a description of a type of manufacturing contract where the trader or purchaser would supply all the yarn/fabrics and materials needed and the factory would use these materials to manufacture the garments for the trader/purchaser. In this case, the defendant put to Chan that Anny had told him that the plaintiff would be given CMT and all-inclusive orders. For CMT orders, the defendant would pay the plaintiff, but for all-inclusive orders, the plaintiff had to ask the Bolou Factory for payment as the defendant would pay the Factory for all the labour and materials including the yarn required. Chan denied that Anny had said such thing to him. Chan has also said in evidence in chief that he would not deal with factories in the Mainland as it was indirect and difficult to get payment. He said for orders from the Mainland buyers, the plaintiff would use its branch in the Mainland to deal with them.

11. Chan also denied that Anny had ever complained about the quality of the yarn delivered by the plaintiff whether on about 25th May, 2001 or otherwise. He also denied that he had been shown pieces of defective fabrics allegedly knitted from yarn supplied by the plaintiff or having taken away on two occasions in May and September about two cartoon boxes of defective knitted fabric. Apart from the replacement of 1,630 lbs of 2/48s 100% bright acrylic with dull acrylic under Order IIb, he denied that the plaintiff had provided any replacement yarn. He maintained that Orders VI and VII were for further supply of the same 2/48s 100% acrylic ordered in Order IIb as the defendant could have underestimated the yarn required when the first order was placed. Regarding Order VIII, he denied that the quantities under the five colours highlighted in this fax were for replacements of the defective yarn. He insisted that they were the additional supplies requested for by Anny. It was also put to him that for Order IIb for this type of yarn, save the first delivery where some of the yarn was acceptable, all other deliveries were replacements which were also defective, but he denied such suggestion. He maintained that all deliveries were pursuant to the defendant's orders for supply of yarn and not as replacements, hence the plaintiff invoiced the defendant for all of them. He also insisted that the yarn in invoice no. 58520 for HK$2,640.00 was a further supply of 2/28s 100% acrylic and not for replacement.

12. Regarding the excess yarn delivered, he denied that they were for replacing the defective, but explained that they were delivered as they were dyed in excess. He also said that the only time when he was asked to take back excess yarn was in September 2001 when he was given the list of outstanding invoices dated 12th September by Miss Chan of the defendant. The list showed that there was an excess in delivery at 961 lbs at the value of HK$16,337.00 and this sum was deducted from the sum payable.

13. The defendant also put to Chan that he had agreed with the factory that the plaintiff would only be paid HK$100,000 and that was for all the 2/24s yarn and 2/28s yarn and part of the 2/48s yarn that was found to be acceptable. It was further put to him that this sum was arrived at by deducting from the total invoice value (including invoices for replacement and defective yarn) (i) the value of 961 lbs of 2/48 yarn delivered in excess, (ii) the value of 1,474 lbs of 2/48 yarn that had been knitted into fabric pieces which were not up to standard and (iii) HK$146,376.00 worth of defective 2/48 yarn. This calculation was set forth in a document purportedly dated 15th November 2001 (at page 439 of Bundle E). He was also told that there was a first page to E439 which was quite similar to page E400 which set forth all the invoices and their amounts. It was also put to him that after he had agreed to this arrangement under which the plaintiff would only be paid HK$100,000, the Bolou Factory paid the plaintiff on 15th November, 2001 a sum of RMB equivalent to HK$100,000.00. Chan however denied all these or that he had received the said document of 15th November.

14. On the list dated 12th September, 2001, which set out all outstanding invoices and the amount due to the plaintiff at HK$271,434.00, it was put to Chan that there was a second page to this list showing all the deductions for the defective yarn and that net result was that nothing was due or payable to the plaintiff. Chan denied this and insisted that the list was a one-page document showing the outstanding invoices and the sum of HK$271,434 payable by the defendant.

The defendant's case

The defendant's witness statements

15. Though the witnesses did not adopt their witness statements as part of the evidence, it is necessary to refer to the witness statements filed by the defendant. I refer to them because of the major discrepancies between the defendant's case as contained in them and the defendant's case as presented at the trial. The defendant has filed two witness statements. One statement was made by Miss Florence Kwan ("Kwan"), its managing director which detailed the events leading to this litigation. The other statement was by Anny; personal assistant to Miss Kwan and that was a short one which only adopted Kwan's statement.

16. Kwan said in her statement that the defendant had been established for 20 years. She also said that in the garment business, if a garment trader should place an order with a garment manufacturer and the order required the manufacturer to provide the yarn as well, such order is called "all-inclusive order". However, if the trader would pay the yarn supplier for the yarn and the manufacturer would only be required to manufacture the garments, the order is called "CMT order". Regarding the dealings between the plaintiff and the defendant, Anny of the defendant and Chan of the plaintiff had made a standing agreement sometime between early February 2001 and mid-march, 2001 that the defendant would from time to time place all-inclusive orders with the Bolou Factory. The defendant would then on behalf of the Bolou Factory, place orders with the plaintiff for supply of yarn to be delivered to the Factory. For such orders, the defendant would have to get payment from the Factory and not from the defendant. Kwan also said that the Factory would, upon receipt of the yarn, make fabric sample for inspection by the defendant. Upon the defendant's satisfaction with the quality of the sample, the yarn delivered would be deemed to be fit for the purpose of the Factory's sale to the defendant. Kwan also stressed that the defendant required all yarn of one colour to be dyed in one dyeing tank in one dyeing process, otherwise the colour as dyed would be uneven. She also said that Anny had told the defendant that the yarn was to be used for manufacture of high quality garments.

17. Kwan then said that on 12th March 2001, the defendant had exceptionally placed a purchase order with the plaintiff as a CMT order (Order I) to test the quality of the plaintiff's yarn. The yarn was delivered on 16th Mach, 2001 and was satisfactory. Then the defendant on behalf of the Bolou Factory placed Order IIa with the plaintiff. This order was modified and replaced by Order IIb. Anny then on behalf of the Factory placed Orders III and VI on 6th April 2001 and Order V on 16th April 2001 all by fax. These were the same orders that had been referred to by Chan. Pursuant to these orders, the plaintiff delivered the yarn to the Bolou Factory and the Factory test-knitted samples out of these yarn.

18. Kwan went on to say that in due course, all the yarn delivered under Orders III and IV were found to be satisfactory. But the yarn delivered under Orders IIb and V was found to be unsatisfactory as the colour of the sample fabric/garment test-knitted by the Bolou Factory appeared to be uneven and patchy in constitution due to uneven quality of the yarn. Anny repeatedly complained to Chan about these defects from mid-May to mid-June, 2001. She then said that Anny and Chan came to a compromise whereby the plaintiff would replace all the defective and unfit yarn delivered under Order IIb, all invoices issued for these yarn would not be payable and new invoices would be issued by the plaintiff for the replacement yarn. The compromise also covered Order V under which the plaintiff would replace 264 lbs of defective and unfit yarn. Upon the replacement being found acceptable, the invoice for the original lot of Order V, no. 57529 and dated 9th April, 2001 for 2,559 lbs of yarn would be payable. Accordingly, the plaintiff on 15th May 2001 delivered 264 lbs of yarn for replacement under Order V and issued invoice no. 58520. If the invoice no. 57529 for the original lot should be paid, this invoice no. 58520 need not be paid. This compromise and things done pursuant thereto were contained in paragraph 28 of the statement. They have also been pleaded in paragraphs 2(15) and (16) of the Defence.

19. Also pursuant to the compromise, the defendant on behalf of the Bolou Factory placed further orders for replacement yarn by fax. They were Order VI dated 4th June 2001, Order VII dated 15th June 2001 and Order VIII dated 19th June 2001. They were all for 2/48s 100% acrylic which was the same type of goods under Order IIb. The plaintiff effected delivery according to Orders VI, VII and VIII and invoiced the defendant for the same. However, the sample fabric/garments test-knitted by the Bolou Factory from these yarn were also defective for the same reasons aforesaid. Thus the invoices for these yarn need not be paid. On 15th November 2001, the defendant sent the plaintiff a report advising the plaintiff that of the total quantities of 2/48s yarn delivered under Orders IIb, VI, VII and VIII, only 1,416 lbs were acceptable.

20. Kwan further said in paragraph 28 of her statement that in around November 2001, the Bolou Factory effected payment to the plaintiff at RMB￥105,678.23 which was equivalent to HK$100,000.00. Of this sum, HK$43,906.50 was for payment of the yarn delivered under Orders III, IV, V (except the 264 lbs of replacement yarn under invoice 58520). Of the balance of HK$56,093.50, part of it at HK$24,072 was to settle the 1,416 lbs of acceptable yarn delivered under Orders IIb, VI, VII and VIII. The balance of HK$32,021.50 was to settle the yarn which the defendant would find acceptable in due course on the advice of the Bolou Factory. However, the plaintiff, without the consent of the Bolou Factory and the defendant, misappropriated the HK$100,000 as payment for part of the yarn delivered under Order IIb and the 264 lbs of replacement yarn for Order V under invoice 58520. These have also been pleaded in paragraphs 2(19) and (20) of the Defence. Kwan further said that because of the plaintiff's late delivery of unusable yarn, the defendant's exports were also delayed and consequentially suffered loss by way of discount applied on goods sold to his customers.

21. I note that this story about the purpose of the HK$100,000 is very much different from that as put to Chan as referred to above or as presented by the defence witnesses. .

DW 1 Chan Man Yee Anny

22. Anny was a secretary in the employ of the defendant. She was also the personal assistant of Kwan. She said she got hold of Chan's name card in a fashion show organized by the Trade Development Council. She then contacted Chan and asked him to go to her office. At her office, she told Chan that the payment term was either CMT or all-inclusive. She said the first order (Order I) was a test order and it was CMT which meant that the defendant would pay the plaintiff in Hong Kong. But she told Chan that 90% of the orders that she might place from then on would be all-inclusive and he had to get payment from the Bolou Factory in the Mainland.

23. Anny then referred to Order I and said this order was placed by Link Jet and not by the defendant. She also referred to the conditions at the bottom of the fax under "remarks" and said that she had explained the same to Chan. I note that all her fax orders including Order I bear the names of the defendant and Link Jet, but not the name or address of the Bolou Factory. The Orders all contain the same conditions at the bottom. The conditions required that the yarn had to be colour fast and colour should not come off, the yarn gad to satisfy international standard test, dyeing had to be in accordance with approved colour and to be dyed in a big tank, the same colour dyed in more than one tank operation would not be accepted, delivery had to be prompt to Bolou, otherwise, would apply deduction for delay or if the yarn should have problem, the company would have the option of rejecting the goods or to have replacement with proper yarn. There was however no hint whatsoever in these faxes that the purchaser was the Bolou Factory or that the defendant was placing the order on behalf of this factory. There was also no indication that the plaintiff had to seek payment from the Bolou Factory. I also note that payment for Order I was made by the defendant and not by Link Jet.

24. After Order I was performed smoothly, Anny placed further orders with the plaintiff for yarn of 2/24s, 2/28s and 2/48s. She said these orders were placed by Link Jet on behalf of the Bolou Factory. Delivery for these orders started in early May 2001, but the fabric test-knitted from the yarn delivered was unsatisfactory. Chan came to inspect the fabric and promised to replace the defective yarn. However, the replacements were also defective. Chan thus kept on replacing the defective till mid-June.

25. In mid-June, Anny told the Bolou Factory to look for another source of yarn. She also told Chan that his yarn would be rejected and he should take back the yarn. But Chan asked her to request the Factory to try to use as much of the yarn as possible because if the whole lot were rejected, he could not explain it to his boss. However, the Bolou Factory refused to test anymore of Chan's yarn and insisted that Chan should take back his yarn. Anny then telephoned Chan telling him not to deliver anymore yarn to the Factory. She also said that there were a few letters exchanged between her and the Factory and she had faxed them to Chan. She also referred to a fax of 10th July 2001 purportedly from the Factory complaining about quality of the plaintiff's yarn and she said she had also faxed this to Chan. She said by this time, she had already told Chan not to make any more delivery, but the plaintiff continued to make delivery and the Factory also accepted them. The plaintiff also issued invoices for such deliveries. She also referred to Orders VI, VII and VIII as orders for replacement for the defective yarn and not orders for fresh supply of yarn.

26. Anny said that by the time of Order VIII (dated 19th June), the Bolou Factory had already said that the yarn was not right. So she prepared the table of figures as contained in this fax and told Chan to quickly replace the defective yarn.

27. The title of this fax stated "re: 2/48 100% acrylic excessive delivery of yarn and replacement of yarn". There was a table showing various quantities of yarn under a number of headings. The titles for the columns in the table from left to right were: colour number; colour; quantities of yarn ordered; quantities of yarn delivered; yarn delivered in excess; quantities of make up yarn for problematic yarn; and remarks". There were two lines of words at the bottom which read: "We will temporarily withhold the return of the above 663 lbs of yarn which were delivered in excess, will use them as make up yarn for yarn of uneven thickness and uneven colour. Please make up some of the colours. Please make up the quantities as in the table. Quantities of yarn delivered in excess will be deducted from your company's invoices; after delivery of make up yarn, will calculate again on the quantity of yarn that has to be returned or has been used in excess." There were 18 colours of yarn referred to in the table.

28. When PW1 was cross-examined, the defendant by counsel, who was assisted by Kwan sitting next to her, confirmed to the court that by the date of Order VIII, which was 19th June 2001, only the figures in the column stating "quantities of make up yarn for problematic yarn" showed the quantity of yarn that had been discovered to be problematic. The total quantity of problematic yarn at the bottom of this column was 920 lbs which about 7.5%% of the 12,168 lbs of yarn already delivered. The defendant further confirmed that the column for "yarn delivered in excess" should be ignored as it was meaningless.

29. Anny however said in her evidence that the title "quantities of yarn ordered" in the table should not mean what it stated, but should mean "quantities of yarn ordered plus quantities of replacement yarn delivered" because the plaintiff had sent replacement yarn but not taken away the defective yarn. The total quantity at the bottom of this column was 13,070 lbs. She also said that the title "quantities of yarn delivered" should also not mean what it stated, but should mean "the quantities of defective yarn". According to her, the total quantity of defective yarn at the bottom of this column was 12,168 lbs. which was substantially larger than the 920 lbs or 7.5% of 13,070 lbs as confirmed by the defendant in the cross-examination of PW1. Thus, Anny's explanation of the table was different from its prima facie meaning. It was also inconsistent with the defendant's case as confirmed in the course of the cross-examination of Chan.

30. I also note that Orders VI and VII were similar to the earlier orders both in form and content. These two Orders, which Anny said were for replacement of earlier defective deliveries, did not say that they were for such purpose. Instead, they contained the same sort of information as in the earlier orders including the price of goods. If they were for replacement of defective deliveries, one wonders why they did not say so and instead should contain the price of the goods. Furthermore, the plaintiff has also issued invoices for all deliveries under these so-called replacement orders. Thus, these so-called replacement orders prima facie appeared to be orders for fresh supply of yarn. It was not only the defendant that had failed to make the replacement orders to appear as such, the plaintiff also did not treat them as such, the plaintiff issued invoices seeking payment for deliveries made under them. If the deliveries were for replacement, the plaintiff should not have issued any invoice seeking payment for them. There was also evidence showing that the quantities of some colours ordered in Orders VI and VII were larger than the quantities for the same colours that had been delivered by then under Order IIb. It cannot be that the replacement quantities would be larger than the quantities delivered. Though Anny in cross-examination suggested that the Bolou Factory could have given her the wrong instructions on replacement. However, apart from such bare suggestion, there was no other evidence to suggest that there was any such error. The defendant's explanation as to the meaning and purpose of Orders VI and VII was therefore unreasonable and unacceptable.

31. I further note that the prima facie meaning of Order VIII appeared to be a summary of the quantities of 2/48s yarn ordered in Orders IIb, VI and VII, the quantities delivered under these Orders so far, the quantities of yarn delivered in excess of the quantities ordered, the quantities that were defective and the quantities of replacement yarn required.

32. Anny also repeatedly reiterated in her evidence that she had told Chan in mid-June, 2001 in no uncertain terms that the plaintiff should not make any further delivery because the yarn so far delivered was defective. She also said that she had advised the plaintiff that the factory was looking for an alternative yarn supplier. She further said that Chan had earnestly requested her to ask the Bolou Factory to use as much of the yarn already delivered as possible. However, when Chan was cross-examined, it was only put to him that the yarn delivered was defective, he was asked to take it back and that he had earnestly requested Anny to ask the factory to use as much of it as possible. It was never put to him that he had been asked not to make any further delivery since mid-June. This part of the story of Anny telling Chan to stop delivery in mid-June was also not found in affirmations or witness statement of Kwan.

33. Anny then said that at the end of October, her boss went to the Bolou Factory and found that the 2/24s and 2/28s and some 2/48s yarn were acceptable and agreed to pay about HK$100,000 for them. The Factory then agreed to pay the same. However, this was a contradiction of the defendant's case as presented in Kwan's witness statement. In paragraphs 24 to 25 of her statement, Kwan said that the 2/24s yarn under Order III and Order IV were acceptable. She further said that the problem of the 2/28s yarn under Order V was dealt with by a compromise between Anny and Chan and that the plaintiff had pursuant to the compromise duly replaced 264 lbs of such yarn on 15th May, 2001 and invoiced the defendant for the same. The defendant's earlier case was not that Kwan only found the 2/24s and 2/28s yarn acceptable in as late as October.

34. Anny also referred to the calculation in the document at page E439 purportedly dated 15th November, 2001 and said that there was a first page to this document which contained all the invoices and amounts sought by the plaintiff. She also said that the first page was just like that document dated 12th September 2001 at E400. That was mid-November, 2001 and she said she had faxed these two pages to Chan and asked him to take back the yarn, but Chan asked her to request the factory to use as much of the yarn as possible. She also said that for the list of outstanding invoices at E400 dated 12th September, 2001, there was a second page to it. She further said that the second page, which was similar to the document at page E439 dated 15th November 2001, contained all the deductions for the rejected yarn. She said that after giving effect to the deductions set forth on the second page, there was nothing due to the plaintiff on 12th September as the plaintiff had to take back defective yarn of a value of HK$271,434. This sum was exactly the total in all the plaintiff's invoices. That meant as at 12th September, 2001, all the yarn delivered by the plaintiff including all purported replacement was defective. But that was not the prima facie meaning of Order VIII dated 19th June and refaxed on 27th June 2001. That fax prima facie stated that only 920 lbs or 7.5% out of 12,168 lbs of yarn delivered was defective though Anny said the fax should be read in a way to say that there were 12,168 lbs of defective yarn. In any case, this is another contradiction with the defendant's case on the compromise in Kwan's statement. Kwan's statement said that there was no problem with Orders III and IV. For Order V, it was sort out pursuant to a compromise between Anny and Chan and by a delivery on 15th May, 2001 of 264 lbs of replacement yarn pursuant to the compromise. On Kwan's statement, the plaintiff was entitled to be paid for the yarn delivered under Orders III, IV and V. There was thus absolutely no reason why the defendant could have told the plaintiff on about 15th September 2001 that the plaintiff should take back all the yarn and nothing need be paid to it.

35. Anny also referred to an alleged settlement made between the plaintiff and the defendant through one Mr. Lin who claimed to be the finance manager of the plaintiff. Under this alleged settlement, the defendant would pay the plaintiff HK$80,000 as a settlement of this dispute. Chan denied any knowledge about this in cross-examination. The defendant has not pleaded this in the Defence and is not relying on it as a ground of defence. The defendant is also unwilling to pay the plaintiff the HK$80,000 pursuant to the alleged settlement. In the premises, I do not think it useful for me to go into this matter any further.

36. In cross-examination on why did the defendant pay the plaintiff for the yarn in Order I, Anny said that as the invoice was in the name of the defendant, the accounts department therefore used the defendant's cheque instead of Link Jet's cheque to make payment. This was so though the defendant had ceased its business for many years and Link Jet had a lot of business. The accounting people did not make any enquiry to her despite the fact that the invoice was wrongly addressed to the defendant. She also said that she had never read the invoice. Anny's description of the casual manner of the accounting people of the defendant in issuing cheques did not impress me as truthful. If an invoice is wrongly addressed, the simple answer is to ask for a correction. Payment can also be withheld in the meantime. To make payment with a cheque of the wrong party will only compound the error. The receipt for the payment from the recipient will likely to be issued to the same wrong party. All these will create unnecessary rectification works for the accounting and auditing people for the two companies concerned.

37. She confirmed that she wrote the conditions of purchase under "remarks" at the bottom of the orders to the plaintiff. She regarded these conditions as important. That was why she wrote them down. She said she was concerned about the quality of the goods. But she did not write down that it was the Bolou Factory and not the defendant or Ling Jet that had to pay for the goods (save those under Order I). She explained that she had already told Chan that it was the Bolou Factory that should pay for the goods. She confirmed her awareness of the invoices from the plaintiff since mid-June, 2001, but she did not pay attention to their addressees. She admitted that it was the defendant and not Link Jet that had issued to the plaintiff the list of outstanding invoices at page E400 and dated 12th September 2001. She also admitted that the list did not state that the Bolou Factory should pay though she maintained that she had told Chan so. The list in fact had the defendant's name, address, telephone and fax numbers at the top, but nothing about Link Jet or the Bolou Factory.

38. On this list of invoices at page E400, she said that it was prepared by computer. She however could not explain in cross-examination why the defendant could not have produced the second page. On page E439 which was dated 15th November, 2001, she again could not explain why the defendant could not have produced the first page. Incidentally the plaintiff denied that there was such a page.

39. She also admitted that her evidence on the purpose of the HK$100,000 paid to the plaintiff contradicted paragraph 28 of Kwan's statement. Her evidence was that as at 15th November, 2001, the final sum due to the plaintiff had been calculated and there was no question that more yarn would be found to be acceptable later. She maintained that her evidence was correct and Kwan's paragraph 28 was wrong but could not explain why Kwan's statement contained such an error.

DW2 Florence Kwan also known as Kwan Mei Ting

40. She was the executive director of Link Jet. She did not have any direct dealing with Chan of the plaintiff. She said the yarn supplier would be told whether the order was on CMT basis or all-inclusive basis. The different basis would mean a different company to be responsible for the payment. She said that the yarn threads from the plaintiff had problems of uneven thickness and uneven colour. At the end of June, she told the Bolou Factory not to test-knit them anymore and told the plaintiff to take it back. The Bolou Factory found a new yarn supplier in July, 2001. None of the plaintiff's yarn had been used save for test-knitting. In September, she learnt from Anny that the plaintiff's case had not been ended as Chan had been asking them to try to use the plaintiff's yarn and had not taken the yarn back. She then asked the girls to prepare a list of the yarn that had to be returned. She was then given the 2 page list of 12th September with first page at page E400. She said that the second page set out how much had the problem of uneven colour, how much had been knitted into half finished defective products and finished defective products and how much had not been tested. She also said that Anny had told her that she had asked Chan to take back all the yarn. She thus regarded the plaintiff's case as closed.

41. Later in October, Anny again told her that Chan had asked them to try to use the plaintiff's yarn and she said to Anny that it was no use. At the end of October, the Bolou Factory said it had no storage space for the plaintiff's yarn. She then went to the Factory and to see if there was anything she could do to help the plaintiff. She conducted tests on the 2/24s and 2/28s yarn and found them to be acceptable and would use them in future. For the 2/48s yarn, she found that some of them had been knitted into half-finished and finished products. She was surprised and told the Factory that those products had to be paid as she could not allow the design to be leaked out to the plaintiff. She then came back to Hong Kong. About a week later, she received a fax from the Factory containing a breakdown of the problems. She said she had never come across a yarn supplier which had performed so badly. Her girls then simplified the fax from the Factory for her and she accepted two items contained in the simplified table. They were the acceptable defective yarn and the half finished products. She said that she did all these to help the plaintiff as otherwise the Factory would not pay at all. Regarding the document of calculation dated 15th November, she said that there should be a first page to it. She said it was her will that caused the Factory to pay the plaintiff HK$100,000, but the yarn had not been used yet except for the half-finished and finished products. Regarding the invoices, she said sometimes the yarn supplier would address it to the defendant and sometimes address it to Link Jet. The defendant would pay no attention to this as it was just the same. But she agreed that if it should be for the Bolou Factory to pay, it would not be right to address it to the defendant and it should be addressed to the Factory. She also said that some test-fabric showing the defects had been given to Chan and Chan had all along admitted that the yarn was defective.

42. In the course of Kwan's evidence, the defendant produced some further documents said to be for proving that the defendant had purchased replacement yarn from another supplier. They were some payment documents and delivery notes. Kwan explained that the discovery of these documents was late because she had a meeting with the defendant's auditor a few weeks before the trial and only then did she think of the idea of enquiring with the auditor of the Bolou Factory for these documents. The auditors then spent a week to look for them and only gave them to her in the course of the trial. But she did not produce the purchase orders which resulted in these delivery notes and payment documents or the receipts issued for the payments.

43. On the identity of the purchaser for Order I, she said that it was Link Jet and not the defendant. As to why the accounting people should have used the defendant's cheque to pay for the goods under this order, she said it was because the invoice was issued to the defendant though the accounting people knew that the defendant had ceased his operation and had no business.

44. When she was referred to page E400, she said the defendant should have kept a copy of this two page document. However, the defendant was unable to produce it. When she was asked on why the name of the paying party was not written on the orders, she could not provide any answer. For E439, she also said that the document was prepared by computer, but she again could not produce its first page.

45. She was referred to the discrepancy between her evidence and her statement on when she had agreed to pay for Orders III, VI and V. Her statement said that the yarn delivered under Orders III and VI had no problem. The statement also referred to the compromise and said that she had agreed to pay for these Orders sometime in May to June. But her evidence said that she only agreed to pay for these orders in late October after she had been to the Bolou Factory. Her explanation for the discrepancy was that she had misled the drafter of her statement. However, she had confirmed the correctness of the statement at the beginning of her cross-examination. Furthermore, the whole episode of her going to the Factory at the end of October, her examination and testing of the yarn there and her instructions to the Factory on what to accept were all missing from her statement.

46. She was also referred to the purpose of the payment of HK$100,000 as stated in her statement which was also different from what she had said. She explained that paragraph 28 of her statement in fact referred to her state of mind when she was in the Factory at the end of October. She further explained that at that time, she did not have the figures and was not sure about the situation. But paragraph 28 stated clearly that there were 1,416 lbs of acceptable yarn delivered under Orders IIb, VI, VII and VIII and there was a credit balance of HK$32,021.50 to pay for more yarn that might be found to be acceptable later. In any case, what she said in evidence was not what was written in paragraph 28. Furthermore, the content of paragraph 28 was the same as paragraph 2(19) of the Defence. The defendant, in answer to a request for further and better particulars of this paragraph, also confirmed that Anny had told Chan that the defendant would use the credit balance of HK$32,021.50 to pay for the yarn to be found acceptable alter. Kwan was unable to provide any meaningful answer to this challenge.

47. Kwan also argued that Order VI was for replacement of defective yarn though some yarn of a particular colour requested in this Order had not been mentioned in the deliver orders up to the date of this Order. She said that some yarn of that colour had already been delivered though the delivery orders did not say so. This was strange as delivery orders were the evidence of performance of the purchase orders and were the basis of the invoices. They should be accurate, otherwise there could easily be disputes on what has and what has not been delivered.

48. She further said that because of the delay caused by the defective yarn, the defendant had suffered a 30% discount on the price of the garments sold to his customer. But the defendant did not ask for any indemnity from the plaintiff as Kwan thought that the plaintiff had already suffered in not getting paid for the yarn. The defendant had indeed treated the plaintiff very generously despite her opinion that the plaintiff was crooked in delivering her with defective yarn and that she had never come across a yarn supplier which had performed so badly.

Analysis and findings

49. I have already pointed out above some unsatisfactory aspects of the defendant's evidence. On the identity of the purchaser, I do not accept that it was Link Jet which had placed the orders on behalf of the Bolou Factory. If that was the case, the orders would have said so. When business people enter into contracts, they always spell out clearly the party who should pay. Though the defendant has alleged that the Orders for supply of yarn (save Order I) were to be paid by the Factory as the Factory had received all-inclusive orders, none of the all-inclusive orders has been produced. Furthermore, if the Orders were placed by Link Jet for the Factory, the plaintiff would not have consistently issued invoices to the defendant but not to Link Jet or the Factory. This is more so when the defendant has never raised any objection to the plaintiff on the addressee of the invoices. I find that all the Orders including Order I were placed by the defendant in his own right as the purchaser. The defendant is liable for goods delivered under the Orders. I also do not accept that Order I was placed by Link Jet in its own right. If that was the case, the defendant would have returned the invoice and advised the plaintiff to issue a replacement invoice to Link Jet. If Link Jet did not bother to ask for a replacement invoice, it would have at least issued its own cheque and not used a cheque of the defendant for payment of the invoice.

50. On Orders VI and VII, I find that they were not orders for replacement of defective yarn but were orders for fresh deliveries of yarn. I have already given the reason in paragraph 30 above. I also find that Order VIII was a summary of Orders IIb, VI and VII for the reasons set out in paragraphs 27 to 29 and 31 above. There was some 920 lbs of defective yarn that had to be replaced. On this, I also accept the evidence of Chan that not all of the over 10,000 lbs of yarn delivered by the plaintiff was free of problem. But it was not a significant problem and it was dealt with by the defendant's proposal at the bottom of Order VIII as referred to in paragraph 27 above. The content of these Orders bore simple and clear meaning. I refuse to twist them so as to arrive at the meaning contended by the defendant.

51. On the list dated 12th September 2001 at page E400 which contained all the invoices for yarn delivered, it did not appear to have a second page. It already contained an item for deduction of 961 lbs of yarn delivered in excess. If there should be another item or items for deduction for defective yarn, it or they could have been entered on the same page. In any case if there should be deduction on the next page, the bottom of this page should not have said that the sum of HK$271,434.00 was the amount payable after deducting the excess in delivery. It should not have stated that the amount was payable if it were subject to further deduction. If there were deductions to follow, there should be a reference about the next page. The content of this page was comprehensive and did not appear to be the first page of a two page document. I find that this is a document from the defendant admitting to its indebtedness to the plaintiff as shown in the outstanding invoices less excessive delivery and at the net sum of HK$271,434.00. I do not accept the defendant's explanation that it is the first page of a two page document. I come to this finding because of the reasons above.

52. In line with my finding that Orders VI and VII were orders for fresh supplies and not for replacement and the list of 12th September contained an admission that the invoices had to be paid (subject to deduction for excess), I also accept Chan's evidence that the defendant had not made any complaint to him as alleged by Anny or provided him with any alleged test-knit fabric. The 920 lbs of defective yarn as referred to in the fax of reference F8413/01 was not extraordinary and did not create a significant problem. There were also excessive deliveries for some colours and it was only necessary for Anny to request Chan to provide replacement of small quantities for some other colours. Also in line with these findings, I do not accept that Anny had sought replacement after replacement or that Chan had promised to do so save in Order VIII and the telephone conversation between Anny and Chan in connection with it. I also reject Anny's evidence that she had in mid-June asked Chan to stop delivering any more yarn. She in fact placed Order VII on 15th June, 2001. I also note the absence of any surveyor report to show defect. It would not have been difficult to obtain such a report if there were indeed such defect as the defendant has alleged that the yarn is still with the Bolou Factory.

53. On the faxes that Anny had allegedly exchanged with the Bolou Factory, she also alleged that she had faxed them over to Chan. Some of these faxes bore the words "Evergreen Mr. Chan" at the top right corner. These faxes did not contain any statement from Anny to Chan. Chan denied of having received them. I accept Chan's evidence. If Anny should have found the need to make any complaint to Chan, I cannot see why she could not have written to Chan directly with or without enclosing these faxes in her own fax. These faxes were prima facie not addressed to the plaintiff and they could be thrown away by receptionist or messenger of the plaintiff. I do not think Anny would have communicated with Chan in this way. Regarding the fax of 21st November, 2001 allegedly sent by the defendant to the plaintiff enclosing a deposit slip for the HK$100,000 part payment and telling the plaintiff to take back the defective yarn, I accept Chan's evidence that he had not received this. This finding follows my finding that there was only a small quantity of defective yarn and it was not a serious problem as alleged by Anny.

54. If the defendant were right, the plaintiff was really trading in bad faith and in an extraordinary way too. According to the defendant, its yarn was defective and its replacement yarn likewise. It had invoiced not only for the original defective delivery, but also for the defective replacement. So it was seeking payment twice under one order and both for defective goods. The plaintiff was therefore greedy and crooked. Furthermore, it had all along admitted that the yarn was defective. When the yarn was rejected by the Bolou Factory, it begged the defendant to ask the Factory to use as much of it as possible and not to return it. It was therefore asking for a favour from the plaintiff. But after the Factory had at the defendant's instructions kindly paid it HK$100,000, it turned around and denied all complaints of defects. Instead of showing appreciation to the defendant for the help in asking the Factory to try to use as much of the defective yarn as possible, it sued the defendant instead of the Factory. It claimed against the defendant for payments for all invoices whether they were for original deliveries or replacements. But the defendant was not even the purchaser.

55. The defendant however, in stark contrast to the crooked behaviour of the plaintiff, was generous and benevolent to the plaintiff. Despite the fact that almost all the yarn delivered was defective, Kwan still gave the plaintiff a chance to provide replacement. After the Factory had refused to try the defective yarn, the defendant, at the plaintiff's repeated requests, also repeatedly requested the Factory to try out the yarn. The delay caused by the plaintiff's defective yarn resulted in 30% discount on the price payable to the defendant on the garments. The defendant did not make or even intimate to the plaintiff any claim for such loss. When the Factory took the stance that all the yarn was useless and should be returned, Kwan ignored all the plaintiff's previous misconduct and voluntarily went to Bolou. She examined the yarn there to see what could be done to help the plaintiff. She then gave instructions to the Factory on what to accept and that resulted in payment of HK$100,000 to the plaintiff. The defendant was indeed too kind to the plaintiff and the plaintiff too crooked.

56. However, such a story was unlikely. It also did not fit well into the documentary evidence comprising the orders from the defendant and the list of invoices payable dated 12th September. Incidentally, the plaintiff had issued all the invoices to the defendant and not to the Bolou Factory, but the defendant never objected to this even after Anny had purportedly discovered the error in mid-June, 2001.

57. On the whole, I accept the evidence of Chan. He was straightforward and to the point. His evidence was consistent with all the undisputed documents. On the other hand, the evidence of Anny and Kwan was unreliable. What they have said contradicted Kwan's witness statement in a few material aspects. A number of significant points in their evidence had also not been put to Chan in his cross-examination. This gave me the impression that Anny and Kwan were improvising the defendant's case in the course of their evidence. They also had to twist the simple and clear meaning of the words in their own documents so as to make the documents consistent with their case.

58. I also point out that there were a number of minor differences between the parties that can be explained by fading memory of the witnesses because of long lapse of time. Such were matters like whether a sample book had been given by Chan to Anny or whether orders were placed before or after the defendant's approval to the colour of the laboratory dips. I do not think these were matters of such importance or significance that they would have created a significant memory in the minds of the witnesses. They were minor issues.

59. Regarding the documents produced by the defendant during the trial to prove the replacement purchases of yarn, the purchase orders themselves had not been produced. This matter has also not been pleaded and cannot be found in the witness statement or affirmations of Kwan, it was only referred to in the evidence of Anny and Kwan. Even if these were purchases of yarn similar to those from the plaintiff, I cannot say that these were indeed replacement purchases. They could have been additional purchases. I do not think these documents are enough to cause me to change my findings on the quality of the plaintiff's yarn. I also reject the evidence of Anny and Kwan that the Bolou Factory had made these purchases as replacement of the plaintiff's yarn.

60. I also note that there is no issue on delay or any problem caused by the plaintiff dyeing yarn in one colour in more than one dyeing operation. Chan has been cross-examined on these matters under the pretext of credibility. But I have not lost sight of their being red herrings. There have been some suggestions that the defendant wanted yarn of the same colour to be dyed all in one dyeing operation to ensure uniformity of colour. However, despite the remarks in the purchase orders, the defendant has consistently accepted batches of yarn of the same colour and type that were delivered by installments. Installment delivery clearly indicates dyeing of yarn of the same colour on different occasions. The defendant at one time wanted to raise the argument that difference in colour on the same fabric was the result of dyeing for the same colour in more than one dyeing operation, however, Kwan later accepted that dyeing of the same colour in more than one operation would only produce different garments of different colour and not different colours in the same garment or the same yarn. The reason being that a garment would be produced from yarn of one batch of the same colour and not from different batches of different colours.

61. I also mention that counsel for the defendant in her closing submissions identified one of the issues as whether the defendant had or had not accepted the goods. I do not think there was any such issue as it was not pleaded in the Defence. The evidence also did not support such a plea. Anny repeatedly said that after she had told Chan of the rejection, she had, at Chan's requests, asked the Bolou Factory to try to use the yarn. There was thus no rejection. The defendant was thus liable for the price of the goods sold and delivered subject to a counterclaim for damages, if any. In order to get round this difficulty, the defendant has been fighting the case on the basis that the yarn delivered to the extent of the amount claimed was absolutely worthless, thus no price should be paid for them. On my findings, the defendant has failed in this argument.

62. On the amount payable to the plaintiff, I find that there must have been some defective yarn as Chan also conceded that not all the yarn was satisfactory. Some uneven dyeing or uneven thickness was unavoidable. That was why these problems were mentioned at the bottom of Order VIII. There were however 961 lbs of excessive delivery as stated in the fax of 12th September. That should have been enough to cover the defects. I think I am right in dealing with the defective yarn in this way as the defendant's list of invoices payable only sought deduction for this 961 lbs of excessive delivery and not asked for deduction for defective yarn. The defendant should also pay for the yarn requested for in Order VIII which was for replacement of defective yarn. The reason being that the defective yarn would be treated as excessive delivery and nothing need be paid for that. Since I have accepted the evidence of Chan, I also rule in favour of the plaintiff on invoice no. 58520 for HK$2,640.00 and I hold that that was for a further supply of 2/28s 100% acrylic and not a replacement of yarn delivered under Order V.

Conclusion

63. I therefore deduct HK$16,337 for the excessive delivery from the plaintiff's claim of HK$191,185.00 and give judgment to the plaintiff in the sum of HK$174,848.00. I also order that the defendant should pay the plaintiff interest on this sum at the judgment rate from the issue of the writ to the date of payment. I further order the defendant to pay the plaintiff the costs of this action.