MONEY CONSULTANTS INC v. MERIDIAN APPAREL LTD

DCCJ94/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 94 OF 2012

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JUDGMENT

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1. The plaintiff, trading as Bonici Fashion, is and was at all material times a company incorporated in the United States of America, engaging in the business of manufacturing and international trading of garment. The defendant is and was a company incorporated in Hong Kong, carrying on the business of garment and textile manufacture.

The plaintiff’s case

2. By a proforma invoice dated 13 April 2006 (the “Agreement”), the defendant agreed to sell and the plaintiff agreed to purchase 3,420 pieces of denim long pants (the “Pants”) at a total cost of US$25,137.00.  Prior to the entering into the Agreement, the plaintiff expressly made known to the defendant that the plaintiff intended to re-sell the Pants to a company known as Forever21, Inc (“Forever21”).  By a purchase order dated 24 April 2006 (the “Resale Contract”), the plantiff agreed to resell and Forever21 agreed to purchase the Pants for a price of US$14.25 per piece.

3. The Agreement contained the following express terms:-

“6.1  The plaintiff shall pay the defendant a deposit in the sum of 40% of the total purchase price (the “Deposit”) upon entering into the Agreement; and

6.2  The estimate time for the defendant to deliver the goods to the plantiff is 28 may 2006.”

Pursuant to the Agreement, the plaintiff paid a deposit of US$10,054.80 to the defendant on 18 April 2006.

4. In breach of the Agreement, the defendant failed to deliver the Pants to the plaintiff by 28 May 2006.  Due to the total failure of the consideration of the Agreement, the deposit is therefore payable by the defendant to the plaintiff.  The plaintiff was unable to resale the goods to Forever in accordance with its obligation under the Resale Contract.  Consequently Forever21, cancelled the Resale Contract, and the plaintiff has suffered a loss of profit under the Resale Contract in the sum of US$23,598.00.

The evidence of the plantiff

5. The plaintiff called one witness (Miss Chu Oi, Elieen “Eileen Chu”) to testify for the plaintiff.  She testified that although the plaintiff gave clear instructioins to the defendant to produce the samples, due to different measuring methods between the Factory and Forever21, and the incompetence of the defendant to follow the plaintiff’s instructions, the samples provided by the defendant were not accepted by the plaintiff time and again.  The plaintiff and the defendant had discussions by various emails and telephone conversations in relation to the measuring methods of the Pants during the period from 15 April 2006 to 4 August 2006.  The defendant simply failed to follow the plaintiff’s instructions to prepare a proper sample for the Pants, and in summary, the size of the defendant’s samples had time and again been smaller than the requirement of the plaintiff.

6. Since Fit 5 of the Pants failed to comply with the plaintiff’s requirement, Eileen Chu called Forever21 and asked for an extension of time to deliver the Pants to them.  Forever21 agreed to extend the delivery dated from 30 June 2006 to 17 July 2006, and later from 17 July 2006 to 4 August 2006.  Howver, the defendant again failed to follow the plaintiff’s instructions to produce a proper sample of the Pants.  As a result samples Fit 6, Fit 7 and Fit 8 were provided by the defendant during this period of time.

7. On the other hand, Cindy Chan, production officer of the plaintiff and Tommass Salvatore Sicuro (“Tommass”), designer of the plaintiff, had on 3 May 2006 repeatedly told Stephen Lam, merchandiser of the defendant, that fabrics and accessories could not be purchased pending the approval of the final sample.

8. The issue regarding different measuring methods was finally resolved after the production of sample #7 on 15 July 2006.

9. On 3 August 2006, the defendant continued to send samples #8 to the plaintiff, and Mary Liu notified Tommass by email that the measurement was correct for sample #8.  However, the samples could not be sent to Forever21 anymore as with the deadline for delivery to deliver the Pants to Forever21 fell on 4 August 2012.  As a result , due to different measuring methods between the defendant and Forever21, and due to the incompetence of the defendant to follow the plaintiff’s instructions in preparing the samples for the Pants, a total of 8 samples were provided by the defendant to the plaintiff.

10. On 4 August 2006, she contacted Mary Liu by email, requesting for the refund of the Deposit, but she received no reply from the defendant.

The evidence of the defendant

11. The defendant called two witnesss, namely, Mr Wong Wai Kuen and Miss Liu Siu Wah (“Mary Liu”) to testify. 

The evidence of Mr Wong Wai Kuen

12. It is his evidence that upon confirmation of order, fabric and accessories were required to be purchased. In accordance with the plaintiff’s instructions, the defendant instructed the factory to purchase the accessories on account of the 40% deposit paid.  Take for instance, on 13 April 2006, the defendant received instructions to continue to order accessories such as denim stickers from l-label and instructed the defendant to duplicate buttons, rivets.  The fabric was also purchased around that time.

13. On 1 May 2006, Tommass asked the defendant if the fabric purchased was possible to produce 400 pieces extra of jeans as factory should have purchased 10% extra fabric as safety.  Tommass said the buyer Forever21 requested the extra pieces.  On 1 May 2006, after checking with the factory, the defendant told the plaintiff that the fabric which had already been purchased by the factory was not enough to make the extra pieces since the factory had only purchased 3% extra fabric.  So the plaintiff clearly understood that all materials were to be purchased according to their instruction and were readily available in the factory for assembling pending only for sample approval and size grading.

14. Many samples were made, and yet were rejected.  There are different measuring methods when it comes to measuring a garment especially a piece of jeans.  The measurement will also be different if measured after the jeans is fit by different models.  Despite numerous phone calls and emails to Tommass, Eileen Chu, Christine Yuen of the plaintiff urging for clarification of measuring method from the buyer Forever21, the defendant’s query had never been addressed.  Respective emails with diagrams, photos from Mary Liu of the defendant to the plaintiff showing the urgency of clarification on the method of measurement were made, but the clarification was never given.

15. On 16 July 2006, upon the 1^st notification of cancellation from Tommass, Mary Liu of the defendant immediately informed Christine Yuen of the plaintiff, complaining about the never answered query, the wrong instructions and about the cancellation of the order and asked her to follow up.  He at the same time called Christine Yuen and informed her that if the order was to be cancelled, the factory would not return the deposit.  Christine Yuen said she would look into the matter to see how to have the matter fixed.  With the hope that Christine Yuen would fix the matter, the defendant continued the sampling.  18 July 2006, Mary informed Tommass that the Pants would need 28 days to leave vessel port in China.  All the things were lined up for production pending grading chart and only a few small issues that needed to be followed up.  Tommass said he would advise once he received confirmation from Forever21.

16. 19 July 2006, the 7^th sample which was made according to the plaintiff’s paper pattern.  The plaintiff, after seeing the sample, confirmed that there was no problem.  Yet it was again rejected by Forever21.  Eileen Chu sent over another fit comment instruction from Forever21 requesting the 8^th sample.  The defendant reiterated to the plaintiff that the reason of rejection was that the problem had never been resolved because the defendant had never clarified with Forever21 on the correct way of measurement.

17. 20 July 2006, prior to make the 8^th sample, the defendant asked the plaintiff again to clarify the measurement with Forever21 otherwise the problem would never be solved.  Mary Liu wrote an email to the plaintiff, stating that it was the “face issue” that had stopped the plaintiff from clarifying with Forever21.  Tommass wrote back “make the next sample following comments”, without clarification.  On 4 August 2006, when the 8^th sample was sent to the plaintiff, the plaintiff informed the defendant that the order was cancelled by Forever21.

18. By 4 August 2006, the defendant had already paid US$9,576 to a China factory for production, fabric and accessories.  Francis Wong called and informed Christine Yuen that if the order was cancelled, the factory would forfeit the deposit as normal practice since all fabrics, accessories and even packaging materials had already been purchased and the cancellation was caused by the poor instructions from Forever21 and the plaintiff and the reluctance of the plaintiff to clarify with Forever21.  All previous effort, courier and sampling charges would also be wasted.  Since then, everything was pending waiting for instructions.

19. By 20 August 2006, the defendant received a formal letter from the factory that within 14 days either the production be continued or paid to the factory the balance of material cost being US$8,037 or else the factory would forfeit all the fabrics and accessories that were purchased as instructed on behalf and the fabrics and accessories would be belonged to the factory.  Immediately, Francis Wong immediately called Christine Yuen to talk about the issue and the said letter was immediately faxed to the defendant.

20. Upon the expiration of deadline set by the factory regarding the fabric and accessories, the defendant received no instruction regarding the production, and the matter was assumed to be finalized and the defendant was left to sort out the order itself with the factory.

The evidence of Mary Liu

21. It is her evidence that the email dated 25 April 2006 showed that the plaintiff and Forever21 had different measurement on the same jeans.  The plaintiff was not in par with the measuring method of Forever21.

22. The defendant asked for claraification but on 26 April 2006; it received an answer from Tommass.  He just said “remake sample following the comment from buyer” without any instruction or explanation to the query the defendant raised.

23. As the defendant was instructed to “follow the comment from buyer” only and no explanation to query the defendant raised, the making the 1^st 2^nd 3^rd sample, the defendant used “flat measure method” as stated clearly in the written instruction of Forever21 and were all rejected.  It was only until 26 May 2006, when the 3^rd fit sample was rejected, Forever21 put a remark on the fit comment “PLEASE NOTE THAT THESE SPECS ARE AFTER THE GARMENT WAS FIT”. If the plaintiff had clarified with Forever21 on the measurement earlier, this misunderstanding would not have happened and time would not have been wasted.

24. The email dated 9 June 2006 showed that Tommass and Eileen Chu were different on the measuring method themselves and instructed the defendant differently.  Mary Liu also updated Christine Yuen and complained about the different instructions received from Tommass and Eileen Chu.

25. The email dated 22 June 2006 showed that Tommass admitted they were also confused with the measuring method and would argue with Forever21 about the measurement.  On the same day, Mary Liu once again urged Tommass to clarify with Forever21 the measuring method.

26. On 24 June 2006, without clarification on measuring method, the plaintiff just asked the defendant to re-do another sample according to the paper pattern and the plaintiff instructed the defendant to take out 1/4 inches on the sides.

27. As the plaintiff was reluctant to clarify the method of measurement with Forever21, the defendant thought of a way and asked the plaintiff to ask Forever21 to send over photos of a real person during fit.  On 27 June 2006, the photos were received and all parties then realized that the merchandiser and the model of Forever21 had both changed.  Immediate phone call followed, Tommass told Francis Wong that samples had to start over since Forever21’s merchandiser and model had changed.

28. On 8 July 2006, the defendant was informed by the plaintiff that wrong instructions were given on 24 June 2006. In stead of “taking out 1/4” it should be “taken out 1/8 instead”.  Wrong instruction on paper pattern from plaintiff caused further delay.

29. In the email dated 8 July 2006, Mary Liu stated that the plaintiff should clarify with Forever21 in the very beginning.  The defendant bluntly told the plaintiff that trying not to loose face and trying to escape to clarify with Forever21 would only delay the matter.

30. The 7^th sample made according to the plaintiff’s paper patter was sent on 12 July 2006.  On 15 July 2006, Tommass said the 7^th sample had no problem this time, however, the plaintiff informed the defendant that the order was cancelled by Forever21 due to late delivery.

31. On 16 July 2006, Mary Liu immediately informed Christine Yuen of the plaintiff, complaining about the never answered query, the wrong instructions and about the cancellation of the order.

32. Hoping Christine Yuen would settle the matter the defendant continued to make samples.  On 19 July 2006, the 7^th sample which was made according to the plaintiff’s paper pattern and to which the plaintiff confirmed of no problem.  Yet it was again rejected by Forever21.  Eileen Chu sent over another fit comment instruction from Forever21 requesting the 8^th sample.  The defendant reiterated to the plaintiff that the reason of rejection was that problem had never been solved because the defendant had never clarified with Forever21 on the correct way of measurement.

33. On 20 July 2006, prior to make the 8^th sample, the defendant asked the plaintiff again to clarify the measurement with Forever21, otherwise the problem would never be solved.  The defendant understood the plaintiff did not want to loose face and Mary Liu of the defendant wrote:-

“……understand if you ask buyer now, buyer might feel???? Just have to see how to ask tactically, please use our way…”

The plaintiff however did not make any attempt to seek clarification as requested and as usual tommass wrote back “make the next sample following comments”.  On 4 Augsut 2006, when the 8^th sample was sent to the plaintiff, the plaintiff informed the defendant that the order was indeed cancelled by Forever21.

34. Because the plaintiff was totally unreluctant to clarify with Forever21 and the defendant’s wrong instruction that led to the cancellation, Mary Liu told Tommass, on a last conversation that they had on 4 August 2006, stating that the deposit could not be returned as the factory would forfeit the same.

Analysis of evidence

35. According to the statement of claim, the plaintiff alleges that the defendant failed to deliver the goods to the plaintiff by 28 May 2006.  There is a total failure of consideration of the Agreement on the part of the defendant, and it suffers a loss of profit of resale.  Hence the defendant is liable to return the deposit and to compensate the plaintiff for the loss of profit.  The crucial point of this case upon which the plaintiff founded its claim is that, in breach of the Agreement, the defendant failed to deliver the goods by the deadline, namely, 28 May 2006.

36. One aspect of the defence raised is that :-

“As the samples could not be agreed upon, the goods were unable to be produced. On 15 July 2006, the defendant was being told by the plaintiff that the Agreement had to be cancelled.”

37. Under para 7 of the reply to the defence, the plaintiff’s states:-

“The defendant’s allegation tht the plaintiff has cancelled the Agreement on 15 July 2006 was ungrounded as the defendant had continued to send samples (ie sample #8) to the plaintiff on 3 August 2006……”

This reflects the situation that the Agreement continued to be effective after 28 May 2006.  On this basis the plaintiff’s case must fail.

38. It is the plaintiff’s own evidence that since Fit 5 of the Pants failed to comply with the plaintiff’s requirement, Eileen Chu called Forever21 and asked for an extension of time to deliver the Pants to them.  Forever21 agreed to extend the delivery date from 30 June 2006 to 17 July 2006, and from 17 July 2006 to 4 August 2006.  Hence the defendant was no longer required to deliver the goods by 28 May 2006.  The plaintiff’s claim set out in the statement of claim that due to the defendant’s failure to deliver the goods by 28 may 2006, they suffered a loss of resale profit and that it is entitled to the return of the deposit is unfounded.  This is because the defendant was not required to deliver the goods by 28 May 2006.

39. On the assumption that the deadline was 4 August 2006, this Court will try to analyse the evidence to see if the plaintiff can prove its claim.  According to May Liu there are the defendant made many samples, but were rejected.  There are different measuring methods in measuring a garment.  The measurement will be different if measured after the jeans is fit by different models.  The defendant made numerous phone calls and emails to Tommass, Eileen Chu and Christine Yuen of the plaintiff urging for clarification of measuring method from Forever21 Inc, the defendant’s query was never addressed.

40. The evidence of Eileen is that:-

“20.   The issue regarding different measuring methods was finally resolved after the production of sample #7 on 15 July 2006 under AAE tracking #8602654314.  There is now produced and shown to me marked “EOC-8” a copy of email from Tommass to Mary dated 15 July 2006.

24. At all material times, the defendant was indeed aware of the plaintiff’s deadline to deliver the Pants to Forever 21 fell on 4 August 2006.  The defendant’s reason for continuing to send sample to plaintiff despite the Pants would not be able to delvier by the extended delivery date of Forever21 (ie 4 August 2012) because, at this period of time, Tommass and the defendant had conspired together to steal the sample of the Pants from the plaintiff in order to manufacture the Pants and resold them for a profit……”

But in the same email dated 15 July 2006, Tommass informed the defendant that the order was cancelled by Forever21 due to late delivery.

41. On 19 July 2006, the 7^th sample (confirmed of no problem by the plaintiff) was rejected by Forever21.  Eileen Chu sent over another fit comment from Forever21, requesting for the 8^th sample to be made.  The defendant reiterated to the plaintiff that the reason of rejection was a problem, because the plaintiff had never clarified with Forever21 on the correct way of measurement.  On 20 July 2006, the defendant asked the plaintiff to clarify the measurement with Forvever21, otherwise the problem would never be resolved.  However, the plaintiff did not do so.  On 4 August 2006, when the sample was sent to the plaintiff, the plaintiff informed the defendant that the order was indeed cancelled by Forever21.

42. On 4 August 2006, Eileen sent a email to Mary Liu, stating:-

“The pant is cancelled by our buyer. The original cancel date for this jean is 06/30/06. She gave us an extension until 7/17. Now, she give us additional 3 more weeks to do the sample but nothing is come out right. So, she cancel the order. Therefore, we need you to refund the deposit to us.”

It is not true that the issue regarding different measuring methods was finally resolved often the production of sample #7 on 15 July 2006.  By the time, the order was cancelled the problem still had not been resolved.  The plaintiff confirmed that sample #7 had no problem, but it was rejected by Forever21.  Subsequently Eileen requested the 8^th sample.

43. Prior to making the 8^th sample, the defendant asked the plaintiff to make clarification with Forever21, in order to find out the correct way of measurement.  The responsibility to do so lies on the plaintiff, because Forever21 was its client.  But the plaintiff did not do so.  So clearly the failure to do so led to all these problems.  Hence it is not correct for Eileen Chu to say that the different measuring methods were resolved by 15 July 2006.  

44. During the course of trial, Eileen made a remark in court, namely, the defendant was to make the sample according to the requirements of the plaintiff, and not those from Forever21.  But it is not the case here.  It never told the defendant that it was merely required to satisfy the plaintiff instruction, and not those of Forever21.  The plantiff  stated that finally the issue regarding different measuring methods was finally resolved on 15 July 2006.  This statement reflects that the measuring method of Forever21 had a bearing on approving the samples.  In fact, it must have been the most important bearing, because it is the ultimate buyer.

45. Due to the reasons above-said, I adjudge that the defendant was not in breach of the Agreement, and that there is no basis to support the plaintiff’s claim in these proceedings.  Hence I dismiss all its claim.

Costs

46. I make an order nisi for costs, to be made absolute in 14 days’ time, that the plaintiff do pay costs of this action to the defendant, to be taxed, if not agreed.