LAM WAI t/a TIN WAI COMPUTER EMBROIDERY FTY v. SHUN SENG HOP YICK KNITTING FACTORY LTD

DCCJ 1891/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1891 OF 2007

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BETWEEN

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JUDGMENT

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A   Introduction

1.  The plaintiff is a sole proprietor carrying on the business of sewing embroidery, beads, tinsels and the like onto garments (“Decorative Works”).

2.  The defendant is a garment manufacturer having its registered office and business address at B3 6^th Floor & B1-B4 10^th Floor, Luen Ming Hing Factory Building, 36 Mok Cheong Street, To Kwa Wan, Kowloon, Hong Kong.  The manufacturing process is either undertaken by its own production facilities, or as in the present case, partly subcontracted to third parties such as the plaintiff.

3.  In addition to being one of the directors of the defendant, Mr Au Piu Chor (“Mr Au”) was at the material time also a director of a number of other companies carrying on the same line of business including but not limited to Harbour Time Enterprises Limited (港時企業有限公司) (“Harbour Time”), Million Grand (Hong Kong) Limited (百晉(香港)有限公司) (“Million Grand”), Full Stitch Limited and Sun Great Knitters Limited (順翹針織有限公司) (“Sun Great”) (collectively “the Other Companies”).

4.  The Other Companies have business addresses slightly different from that of the defendant, but common to all is Unit B3 6^th Floor in Luen Ming Hing Factory Building.  By way of example, the business address of Sun Great is B1-B4 2^nd Floor & B3 6^th Floor Luen Ming Hing Factory Building.  The Other Companies and the defendant also share the same telephone number (ie. 27120141).  According to Mr Au, the shareholding structures of the Other Companies are different from that of the defendant, but they employ common staff and share the same manufacturing facilities in the PRC, namely 永順升毛織廠有限公司 (“the Factory”).

5.  Since 2003, the defendant had subcontracted part of the garment production process to the plaintiff, in that the defendant would provide semi-finished garments (more often than not in their bare or un-accessorized state) for the plaintiff to carry out specified Decorative Works.  After completion, the plaintiff would then return the garments to the defendant for further processing and/or shipment to the end buyers.

6.  In these proceedings, the plaintiff seeks to recover from the defendant $518,557.54, being the value of the Decorative Works carried out at the defendant’s instructions as particularized in 36 invoices issued by the plaintiff to the defendant between 18 July and 28 October 2005.

7.  Although the defendant in its pleading challenged the quantum of the 36 unpaid invoices, this was not pursued by Mr Lee (appearing for the defendant) at trial.  Instead, he focused on two lines of defence, one having been positively raised in the Defence and Counterclaim and the other somewhat cryptically embedded in a general denial.

8.  The former is a set-off (and counterclaim) for defective Decorative Works covered by 4 Manufacturing Notices (as defined below) numbered M05-7219, M05-8050, M05-8051 and M05-8052 (collectively “the 4 Orders”).  This counterclaim is disputed by the plaintiff both as to liability and quantum.  The corresponding 4 invoices of the 4 Orders (being part of the 36 unpaid invoices) amount to [$39,487.50 + $247,350 + $94,000 + $19,650 =] $400,487.50, representing about 77% of the plaintiff’s claim.

9.  The latter is what was coined at trial as the “Identity Defence”.  It was said that of the plaintiff’s 36 unpaid invoices, the defendant should only be responsible for 11 of them (in the aggregate sum of $59,815.70) since the relevant instructions for the Decorative Works covered by the other 25 invoices were given by the Other Companies, not the defendant. 

10.  From the foregoing narrative, 2 main issues therefore arise for my determination:

(1)   who were the contracting parties for the Decorative Works set out in 25 of the 36 unpaid invoices?

(2)   whether the plaintiff is liable for the counterclaim, and if so, to what extent?

11.  I propose to first deal with the Identity Defence and then proceed to deal with the defendant’s counterclaim.

B   The modus operandi of the dealings between the parties

12.  At the trial, the plaintiff and Mr Au gave evidence.

13.  According to the plaintiff, the practice of the parties at the material time was as follows:

(1)   The process of engaging the plaintiff to carry out Decorative Works would usually originate by an inquiry from staff employed by the defendant or the Factory.  The plaintiff would then provide a written or oral quotation.

(2)   If the plaintiff’s quotation were accepted, it would be provided with a manufacturing notice (製造通知單) (“Manufacturing Notice) showing the required specifications.  As will be seen below, the Manufacturing Notices relevant to these proceedings were issued not only by the defendant, but also by the Other Companies.

(3)   Thereafter, the Factory would often, but not invariably, issue a goods dispatch order (發貨單) (“Goods Dispatch Order”) to the plaintiff, the purpose of which was to notify the plaintiff to collect the garments from the Factory for the carrying out of the required Decorative Works.

(4)   After the completion of the Decorative Works, the plaintiff would deliver the garments back to the Factory, accompanied by a delivery note (送貨單) (“Delivery Note”) addressed to the Factory.

(5)   The plaintiff would then issue an invoice to the defendant for the completed Decorative Works.

14.  The general tenor of the modus operandi set out above was not a matter of any serious dispute between the parties.  There were, however, a number of details relevant to the determination of the Identity Defence.

15.  There were 4 written quotations adduced into evidence, respectively dated 31 January, 23 February, 18 April and 29 May 2005.

16.  The first quotation was issued by the plaintiff to a company called CFL.  The plaintiff explained that he had previous dealings with CFL and he was already engaged by CFL to produce samples at an earlier stage for the relevant batch of garments. The unit prices stated therein for the Decorative Works were already accepted by CFL and the quotation was forwarded to the defendant for reference and its purpose of pricing its quotation to CFL, since CFL was to engage the defendant for the overall production of the relevant garments (which the Decorative Works formed part of the process).  As Mr Lee accepted, CFL did in fact place the relevant orders with the defendant and the defendant did engage the plaintiff to carry out the relevant Decorative Works.  I also note that the unit prices stated in the quotation were in fact prices charged by the plaintiff in the relevant invoices (dated 15 September 2005 and numbered A 2371 and 2374).

17.  The second and third quotations were issued to the defendant regarding the production of garments covered by Manufacturing Notices numbered M05-7129, M05-8050, M05-8051 and M05-8052 (ie. the 4 Orders).  As accepted by Mr Lee, despite this being the case, the Manufacturing Notices for the 4 Orders were issued not only by the defendant, but also Sun Great and Million Grand.

18.  The fourth quotation was issued by the plaintiff to the Factory but the corresponding Manufacturing Notice was issued by Harbour Time.

19.  Irrespective of whether a Manufacturing Notice was issued by the defendant or the Other Companies, the relevant Goods Dispatch Order (if issued) was issued by the Factory to the plaintiff and the Delivery Note by the plaintiff to the Factory.

20.  Perhaps more importantly, irrespective of whether a Manufacturing Notice was issued by the defendant or the Other Companies, Mr Au accepted that the plaintiff would invariably issue the relevant invoice to the defendant, and prior to the disputes forming the subject matter of these proceedings, the defendant would settle the relevant invoices.

C   The Identity Defence

21.  Mr Lee pointed out that no written contract was made between the plaintiff and the defendant, and reminded me that in considering whether a binding contract was concluded between the plaintiff and the defendant, the burden of proof falls on the party asserting the existence of such contract(s), citing Shanghai Tongi Science & Technology Industrial Co. Ltd v Casil Clearing Ltd [2004] 2 HKLRD 548 at 560E-564I and Etacol (Hong Kong) Ltd & Ors v Sinomast Ltd. & Ors (No.2) [2007] 2 HKC 73 at 80A-82H.

22.  The following principles may be derived from the Shanghai Tongi case (per Ribeiro PJ at paragraphs 36 to 46):

(1)   It is clear that a legally binding contract may be inferred from the conduct of the parties.  In deciding whether a contract should be implied, the court adopts as its starting-point what has generally been called “an objective test”.

(2)   The burden of establishing such a contract is on the person asserting its existence.  The conduct relied on must be unequivocally referable to the contract sought to be inferred.  Put another way, it is fatal to the implication of a contract if the parties would or might have acted exactly as they did in the absence of a contract.

(3)   Where the conduct in question satisfies the objective test the law generally excludes as irrelevant evidence of a party’s actual intentions regarding the contract to be implied.

(4)   However, the general exclusion of evidence of subjective intent in determining whether the parties have impliedly created a contract by conduct is subject to one qualification.  That qualification is this: If the offeree knows that the offeror does not intend the terms of the offer to be those that the natural meaning of the words would suggest, he cannot, by purporting to accept the offer, bind the offeror to a contract. 

(5)   Therefore the task of ascertaining whether the parties have reached agreement as to the terms of a contract can involve quite a complex amalgam of the objective and the subjective and involve the application of a principle that bears close comparison with the doctrine of estoppel.

23.  Paragraph 3 of the Amended Statement of Claim pleads as follows:

“By way of various purchase orders or instructions or orders placed by the Defendant with the Plaintiff since in or about 2003, the Plaintiff has been producing sewing work… for the Defendant.”

24.  Paragraph 3 of the Defence and Counterclaim admits the matters averred at paragraph 3 of the Amended Statement of Claim, but clarifies the source or origin of the defendant’s instructions or orders.  It pleads as follows:

“Save that since about 2003, the Defendant placed [Manufacturing Notices] with the Plaintiff whereby engaging the Plaintiff to carrying [sic] out manual embroidering work to semi-finished garment products... paragraph 3 is admitted.”

25.  Consistent with the pleaded position, Mr Lee submitted that the company issuing the relevant Manufacturing Notice should be regarded as the party entering into a binding contract with the plaintiff.  Since the defendant (indisputably) only issued Manufacturing Notices for 11 of the 36 unpaid invoices, Mr Lee submitted the plaintiff has, quite simply, sued the wrong party in relation to the 25 invoices whose corresponding Manufacturing Notices were issued by the Other Companies. Subsidiary to this main argument, Mr Lee further pointed out that it did not escape the plaintiff’s attention that the Manufacturing Notices were not issued by the defendant, and there was no demand by the plaintiff for any form of guarantee from the defendant.

26.  The position taken by Mr Lee amounts to an invitation to ascribe to the Manufacturing Notices a significance which, for all intents and purposes, “trumps” all other conduct of the parties.  For all the reasons stated below, I am not persuaded by Mr Lee’s submissions.

27.  As set out in Section B above, the Manufacturing Notices were only part of the documentation generated in the ordering process involving the plaintiff.  The Manufacturing Notices, as rightly observed by Miss Ling (appearing for the plaintiff), were not addressed to the plaintiff but appear to be a document created by the defendant (or the Other Companies) for the purpose of setting out all the specifications of the garment in question, which specifications might or might not concern the plaintiff.  By way of example, Mr Au under cross-examination accepted that the Manufacturing Notice numbered M05-07129 contained 8 items of specifications under the “Remark” section (備註) of which only 3 (or perhaps 4) concerned the plaintiff.

28.  In fact, it is clear from the matters set out in Section B above that the documentation generated (sequentially the quotations, the Manufacturing Notices, the Goods Dispatch Orders and the Delivery Notes) was inconclusive as to who were the contracting parties.

29.  What is clear, however, is that the previous course of the parties’ dealings, arising from the fact that invoices were invariably issued to and settled by the defendant, paints a rather clear picture that the relevant contracts were in the past concluded between the plaintiff and the defendant.

30.  Although Mr Lee pointed out that there was no precise evidence as to the frequency of those occasions (prior to the disputes herein) where the defendant settled the plaintiff’s invoices despite the Manufacturing Notices having been issued by the Other Companies, this observation, whilst forensically astute, is nevertheless unconvincing.  There is simply no material to suggest that the course of dealings (pre and post dispute) has changed and was materially different.

31.  I also think there is force in Miss Ling’s submission that the defendant and the Other Companies were quite lackadaisical in their dealings with other parties in terms of contractual identities.  There is documentary evidence to show that contracts offered to one of the Other Companies were accepted by a different related company.  Moreover, where disputes have arisen (whether with the plaintiff or other parties), the defendant would assume the role of negotiating with the counter-party and, importantly, accept the financial consequences (see further Section D below).

32.  As stated at the outset, the Identity Defence is not expressly pleaded.  In fact, the Counterclaim clearly avers that agreements now disavowed by the defendant were concluded by the defendant and that the defendant (not the Other Companies) is entitled to recover loss and damage arising from the now disavowed agreements.

33.  Mr Lee explained that the defendant’s counterclaims on defective goods involving the Other Companies is “pursued conditional upon the Identity Defence would fail.” I have no hesitation in rejecting this explanation.  It seems to me that the obvious course was for the relevant Other Companies to apply to be joined in these proceedings so that the case now pursued by Mr Lee could have been properly pleaded.

34.  Moreover, there was no contemporaneous complaint by the defendant that the plaintiff had issued the invoices to the wrong party.  On 13 March 2006, the plaintiff sent to the defendant a statement listing out the 36 unpaid invoices.  In its reply dated 22 March 2006, the defendant only raised the issues now pursued in the Counterclaim (on defective workmanship); no mention was made of the Identity Defence.

35.  For all the above reasons, the Identity Defence fails.  I find that the contracts as evidenced, in part, by the 36 unpaid invoices were contracts entered into between the plaintiff and the defendant.

36.  Having thus found, it is unnecessary for me to deal with Miss Ling’s arguments on whether there should be a lifting of the corporate veil.  This issue only arises if the relevant contracts were found to be contracts entered into between the plaintiff and the Other Companies but considerations are then given as to whether there exists any circumstances warranting visiting liability upon the defendant.

D   The Counterclaim

37.  As stated above, the subject matter of the Counterclaim is the 4 Orders.  The 4 Orders involve 2 batches of goods.  M05-07129 comprises of 2,073 pieces of v-neck pullover (“the V-Neck Order”).  M05-8050 to M05-8052 comprise of long sleeve cardigans (collectively “the Cardigan Orders”).

(i)   The Documentary Evidence

38.  I first set out the documentary evidence pertinent to the Counterclaim.  The bulk of the following chronology is taken from the agreed tables provided by Mr Lee and Miss Ling after the trial:

(1)   On 23 February 2005, the plaintiff provided to the defendant a quotation for Decorative Works for the Cardigan Orders at a piece rate of $57.

(2)   On 14 April 2005, the plaintiff provided to defendant a quotation for Decorative Works for the V-Neck Order at a piece rate of $28.

(3)   On 3 May 2005, M05-8050, M-058051 and M05-8052 were issued by Sun Great (the first 2 of the 3 Manufacturing Notices) and the defendant.  One of the specifications stated therein was “手繡”, ie. Hand Embroidery.

(4)   On 11 May 2005, M05-7129 was issued by Million Grand in respect of the V-Neck Order in which the customer was stated to be Elrada Industries Limited.  One of the specifications stated therein was “Hand Embroidery”.

(5)   On 3 June 2005, Sun Great entered into 7 contracts with Elrada Industries Limited (“Elrada”) in respect of the Cardigan Orders to be delivered on or before 23 August 2005 (“the 1^st Elarada Contracts”).

(6)   From 28 June 2005 onwards, the Factory started to deliver semi-finished products in respect of the V-Neck Order to the plaintiff.

(7)   On 19 July 2005, the 7 contracts with Elrada in respect of the Cardigan Orders were revised. The revisions were accepted by Sun Great and the delivery date was extended to 20 September 2005 (“the 2^nd Elrada Contracts”).

(8)   On 1 August 2005, the plaintiff issued an invoice in respect of the V-Neck Order to the defendant.

(9)   From 11 August 2005 onwards, the Factory started to deliver semi-finished products in respect of the Cardigan Orders to the plaintiff to carry out Decorative Works.

(10)   On 12 September 2005, the plaintiff issued 3 invoices in respect of the Cardigan Orders to the defendant.  The unit price was reduced from $57 stated in the relevant quotation to $50 as a result of agreement between the parties.

(11)   By email dated 14 September 2005, Elrada wrote to the defendant in respect of the Cardigan Orders in the following terms:

“Buyer is now discussing with their top management to see if they can help to take the above units with MACHINE embroidery outline recreate label, but they would need a discount of US$5.00/pc…

Kindly discuss with Mr Au and advise his thoughts by return today so we can work with buyer and come up with a final decision by tomorrow.”

(12)   By email dated 15 September 2005, Elrada wrote to the defendant in the following terms:

“After back and forth negotiation with buyer, they finally agreed to accept a discount of 4.00/pc o Fob for all the above.

Kindly confirm by return and they will issue the revised p.os to reflect the price change.”

(13)   By email dated 15 September 2005, the defendant wrote to Elrada as follows:

“As per Mr Au advice to us, he accepted and thanks with your buyer, to discount of USD4.00/pc on FOB… Anyway, we waiting for your revised p.o. thanks again.”

(14)   On 22 September 2005, the 2^nd Elrada Contracts were further revised.  The further revised contracts were sent to Sun Great but agreed to by another company called Sun Great International Limited.  The material revisions were a reduction of the FOB unit price of US$4 across the board and a further extension of the delivery date to 27 September 2009 (“the 3^rd Elrada Contracts”).  Another material revision was that all the goods under the 3^rd Elrada Contracts were to be shipped by air, as opposed to the 2^nd Elrada Contracts requiring the bulk to be shipped by sea.

(15)   On 27 September 2005, Sun Great issued an invoice in respect of the Cardigan Orders.  The unit prices stated therein reflected the US$4 reduction.  The invoice covered a total of 6,437 pieces.  As such, the reduction amounted to [US$4 x 6,437 x 7.8 =] $200,834.40 (“the US$4 Reduction Claim”).

(16)   Between 24 October and 22 November 2005, a number of debit memos were issued by the end buyer of the Cardigan Orders to the defendant (not Sun Great) relating to defective units and inspection costs (“the RTV Debit Memos”).

(17)   On 26 October 2005, Unique Logistics International (H.K.) Ltd (“Unique”) issued an invoice to Sun Great for airfreight charges in the sum of HK$4,467.57 (“the Airfreight Claim”).

(18)   On 12 January 2006, the defendant prepared a table setting out the RTV Debit Memos and the Airfreight Claim.  The total amount, excluding the Airfreight Claim, came to US$9,708.41 (“the RVT Debit Memo Claim”)

(19)   On 18 January 2006, 5 debit memos were issued to the plaintiff in relation to the 4 Orders (“the 5 Debit Memos”).

(20)   On 18 February 2006, the plaintiff wrote to Mr Au and others complaining about the 5 Debit Memos.  This letter records the previous agreement between the parties to reduce the unit price charged by the plaintiff from $57 to $50 in respect of the Cardigan Orders.

(21)   On 13 March 2006, the plaintiff sent to the defendant a statement setting out the 36 unpaid invoices.

(22)   On 22 March 2006, the defendant wrote to the plaintiff stating, inter alia, as follows:

(a)   the plaintiff was in breach of his obligations, in that the required embroidery works were machine sewn instead of hand sewn and that no sufficient sequins were sewn;

(b)   24,000 man-hours were spent by the defendant to rectify the problems caused by the plaintiff;

(c)   the plaintiff unilaterally changed the requirement from hand sewn embroidery to machine sewn embroidery;

(d)   the plaintiff had agreed to the US$4 reduction.

39.  At this junction, I digress to point out that the above chronology supports the observation I made at paragraph 31 above in relation to the defendant and the Other Companies being lackadaisical in their dealings with third parties in terms of contractual identities.

(ii)   The parties’ respective cases

40.  Arising from the foregoing chronology, it is the defendant’s pleaded case that the plaintiff was in breach of his obligations in that only machine embroidery work but not manual embroidery work was carried out.  In addition, the Decorative Works carried out by the plaintiff were also defective in that no sufficient sequins were sewn and the stitch density was poor.

41.  In defence, it is the plaintiff’s case that the change from manual embroidery work to machine embroidery work was agreed by the parties at a meeting on 3 September 2005 with Mr Au at the Factory (“the 3/9/05 Meeting”).  In fact, it is the plaintiff’s evidence that prior to the 3/9/05 Meeting, all the embroidery work was hand-sewn. Following the agreement reached at the 3/9/05 Meeting, not only were works subsequently machine-sewn, the hand-sewn works previously carried out were completely undone and redid by the plaintiff at no extra costs.  Further, whilst the plaintiff accepted that there were other defects, such defects had been rectified by the plaintiff as no extra costs.

(iii)   The Counterclaim in relation to the V-Neck Order

42.  The counterclaim in relation to the V-Neck Order can be disposed of shortly.  At paragraph 12 of Mr Au’s statement, he stated that 20 pieces were problematic.  It was said that a sum of $5,740 was expended by the defendant to rectify the problems. 

43.  At paragraph 24 of the plaintiff’s statement, he said that the 20 odd pieces of problematic garment were rectified at no extra costs.

44.  When cross-examined by Miss Ling, Mr Au accepted that 20 odd pieces were in fact rectified by the plaintiff at no extra costs but proceeded to suggest that the problematic garments exceeded 20 odd pieces.  No further particular was given by Mr Au.

45.  It is fair to say that this counterclaim was not pursued by Mr Lee with any degree of enthusiasm.  Mr Lee further accepted that there are no primary documents to support the defendant’s alleged loss and damage.

46.  I have no hesitation in dismissing this counterclaim.

(iv)   The counterclaim in relation to the Cardigan Orders

47.  From the documentary evidence set out above, I have no doubt that the US$4 reduction was a result of the embroidery works having been machine-sewn rather than hand-sewn. As accepted by Miss Ling in her final submissions, the question is whether an agreement was reached at the 3/9/05 Meeting to change the requirement from hand-sewn to machine-sewn.  I also note that whilst Miss Ling characterized the US$4 reduction as a commercial decision on the part of the defendant, she did not challenge the reasonableness of the reduction.

48.  I do not accept the plaintiff’s evidence in relation to the 3/9/05 Meeting.  As pointed out by Mr Lee, as at 3 September 2005, Decorative Works were already carried out to 2,262 pieces of cardigans.  The complete rework of such quantities, adopting the plaintiff’s own unit price, amounts of $113,100.  When cross-examined by Mr Lee, the plaintiff accepted that he had previously offered to make a compensation of $100,000 to the defendant.  I agree with Mr Lee that the evidence given by the plaintiff is inherently improbable.

49.  I also find that the plaintiff was in breach of its obligations in that no sufficient sequins were sewn and the stitch density was poor.  These problems are evidenced by (1) the wage records signed by workers at the Factory confirming that “返釘珠” was carried out, (2) the RSV Debit Notes in which garments were returned because of, inter alia, loose thread tension, dropped stitching/missing yarn.

50.  As stated earlier, in its letter dated 22 March 2006, the defendant pointed out the various problems to the plaintiff.  When shown this letter by Mr Lee during cross-examination, the plaintiff admitted that the problems existed but were rectified by the plaintiff.  I do not accept the plaintiff’s evidence that the problems were in fact rectified. 

51.  Miss Ling submitted that if substantial man-hours were in fact expended by the defendant to rectify the problems (as set out in the wage records), it is inexplicable that cardigans were in fact returned by the end buyer (resulting in the RSV Debit Notes).  I am not sure whether the two are necessarily inconsistent, since on Miss Ling’s own calculations, only 212 pieces were returned by the end buyer, equating to about 3.3% of the quantities invoiced by the defendant (or more accurately Sun Great).

52.  Therefore I find that, on the balance of probabilities, the plaintiff was in breach of his obligations in relation to the Cardigan Orders.

E   Quantum

53.  The defendant’s pleaded case counterclaims the following heads of damages: (1) compensation paid to the end buyer, (2) costs for remedial works and (3) the Airfreight Claim. The quantum pursued by the defendant was clarified in Mr Lee’s closing submissions.

(i)   Compensation paid to end buyers

54.  Mr Lee pursued two alternative cases.  The primary case is the US$4 Reduction Claim quantified at $200,834.  As stated earlier in the chronology this is supported by primary documents.  In the alternative, Mr Lee pursues the figure of $294,661.80.  The alternative figure is contained in the 5 Debit Memos. 

55.  The difference between the two is that the latter figure includes compensation paid for two follow-up orders from the end buyer.  Mr Lee accepted that the difference is not supported by any primary documents.  To that extent, it is a bare allegation derived from a self-serving document.  I will only allow the sum of $200,834.

56.  As I understand it, Mr Lee did not pursue the RVT Debit Memo Claim.  In any event, the RVT Debit Memo Claim, in the sum of US$9,708.41, does not account for the difference between Mr Lee’s primary and alternative cases.

(ii)   Costs for remedial works

57.  The sum claimed is $202,352 and comprises of labour costs in the sum of $172,800 and the rest for extra materials and incidental steps taken.

58.  There are no supporting documents for the claim for extra materials and incidental steps taken.  They are not allowed.

59.  In relation to the sum claimed for labour costs, the wage records show that the workers expended time on 5 items: rechecking (返查), dismantling (拆衫), matching (配衫), redoing sequins (翻釘珠), and matching inner lining (配裡布). 

60.  Mr Au explained that all 5 items were occasioned by the plaintiff’s breach.  Whilst I am prepared to accept that rechecking, dismantling, matching and redoing sequins were occasioned by the plaintiff’s breach, I agree with Miss Ling’s submission that matching inner lining was not.  The explanation given by Mr Au was “配裡布是裁剪短咗返拆返配” and it is difficult to envisage how this could have related to any of the works carried out by the plaintiff.

61.  As stated by Master Rimsky Yuen (as he then was) in ICI Swire Paints Ltd v Techi Motor Engineering & Trading Co, HCA 7251 of 1995, 29 January 2003 at paragraph 17:

“A party claiming damages has to prove, on the balance of probabilities, both the fact of damage and the amount. If the fact of damage is shown but no evidence is given as to its amount so that it is virtually impossible to assess damages, this will generally permit only an award of nominal damages. On the other hand, where it is clear that some substantial loss has been incurred, the fact that an assessment is difficult is no reason for awarding no damages or merely nominal damages.”

62.  The problem in this case is that no evidence was led as to the allocation of the labour costs between the 5 work items.  The Court is not in the position to assess whether matching inner lining represented 10% or 90% of the labour costs.

63.  I think Mr Lee in his closing address recognized the difficulty and he submitted that this counterclaim be adjourned to another hearing for assessment. I am firmly against adopting this suggestion.  In the absence of an order for a split trial (and there is no such order), it is not permissible for the judge to adjourn the assessment of damages as it would give the Plaintiff a second opportunity to adduce evidence on damages (Born Chief Co trading as Beijing Restaurant v George Tsai and another [1996] 2 HKLR 188).

64.  For the above reasons, I disallow the labour costs.

(ii)   The Airfreight Claim

65.  As pointed out by Miss Ling, the invoice issued by Unique does not contain any useful information as to what goods were shipped.  The invoice states that the routing was HKG/BOS (which I understand to be Boston, Massachusetts) but the end buyer is located in New Hampshire.

66.  Perhaps more importantly, the 3^rd Elrada Contracts still stipulated that the cardigans were to be sold on FOB terms.  There is no explanation as to why the defendant (Sun Great) should be responsible for paying airfreight charges.

67.  I disallow the Airfreight Claim.

68.  The quantum of the defendant’s counterclaim is therefore assessed at $200,834, the US$4 Reduction Claim being the only head of damage allowed.

G   Conclusion

69.  Taking into account the conclusions reached on the plaintiff’s claim and the defendant’s counterclaims, the plaintiff is entitled to judgment against the defendant in the sum of [$518,557.54 - $200,834 =] $317,23.54.

70.  As to interest, I make a nisi order that interest is to run at the commercial rate (prime + 1%) from the date of the writ until judgment and thereafter at judgment rate until payment.

71.  As to costs, the plaintiff is the overall net winner.  However, I take into account that a significant portion of time was spent on the defendant’s counterclaim for damages (and thus defence of set-off) in which the defendant succeeded in a not insignificant manner.  I am of the view that the fair and just costs order in the present case should be for the defendant to pay 70% of the plaintiff’s costs of this action including any costs reserved, to be taxed if not agreed with certificate for counsel.

72.  Absent any application to vary within 14 days, the above orders nisi shall become absolute.

73.  I thank both counsel for their assistance.