LONGPLAN INTERNATIONAL LTD. v. BLOOMING UNION CO. LTD.

HCA 539 of 1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 539 OF 1997

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J U D G M E N T

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1. This is an action wherein the Plaintiff claims damages against the Defendant in respect of a contract made in August 1996 for sale of men's jackets. The claim of the Plaintiff falls under head of damages for breach for loss of profit and for fabrics that had been ordered by the Plaintiff pursuant to the contract.

2. The Defendant alleges that there was no contract or alternatively if there was a contract, the Plaintiff was in breach and that the Defendant was entitled to damages in the form of air freight charges which the Defendant had to pay pursuant to an alternative order placed with an alternative seller Cosmos. There was an alternative claim by the Plaintiff for quantum merit.

The facts of the case are somewhat complicated. I will try to be as brief as I can in describing the events leading to the dispute.

3. The Plaintiff company is a trading company that has a factory in China. Mr. Ng is in charge of the sales. The boss of the Plaintiff company is Mr. Raymond Tang. The Defendant company is a small company where the husband and wife, namely Paul Chau and Kate Chan ran the company together. Those four persons gave evidence before me.

4. What happened was that the French Vestra Group showed an interest in buying some six different styles of men's jacket and they used DYYB, a French agency company for that purpose. That French agency company ("the French agent") turned to the Defendant and the Defendant went to the Plaintiff. The reason why the Defendant went to the Plaintiff was because Paul Ng and Paul Chau used to be colleagues in the same garment company previously.

5. There was an early discussion in June 1996 between the Plaintiff and the Defendant in relation to these goods. Original samples were given to the Plaintiff for quotation. There was some complication in July when the French agent was showing some reluctance for the Defendant to do any business or place any order with the Plaintiff but eventually, the matter was resolved and the Plaintiff was able to give a Quotation to the Defendant based on the original samples given to the Plaintiff by the Defendant in June 1996.

6. The Quotation can be found at C1 and is dated the 3rd August. It refers to the six styles. It refers to delivery in end of December 1996 to early January 1997 and refers to payment terms by Irrevocable Letter of Credit. There was apparently following that quotation, conversation between Mr. Ng and Mr. Paul Chau whereby it was said that the colour dip would be sent about in mid August and colour size assortment would be advised about mid September and with delivery to be mid to the end of January. So that was the quotation, at that stage, a contract had not yet been confirmed.

7. The case of the Plaintiff is a simple one namely that after much happening, on 22nd August there was a conversation between Mr. Ng and Kate Chan whereby Kate Chan accepted the quotation and told Mr. Ng that everything was to go ahead and that the order was firm. The Defendant denied this.

8. The next event was at the end of August, the Defendant by fax of 31st August 1996 which can be found at C8, gave the quantities for the goods under the order to the Plaintiff. It could be seen in that document that it included under item 2B some goods under the name Cifraline and the significance of this would become clear later because it is common ground that the Cifraline firm order was cancelled subsequently by agreement.

9. But prior to the 31st August fax there was the June original samples being returned on 23rd August by the Plaintiff to the Defendant. The reason for this return was because the French agent wanted to show them to customers. I think it is also common ground that from 23rd August until 10th September, the Plaintiff was totally without any original samples.

10. On 10th September, six original samples were given by the Defendant to the Plaintiff. There is a dispute before the court as to whether the September original samples given to the Plaintiff were the same ones as the June samples that were given to the Plaintiff and based on which namely the June samples the Plaintiff gave the 3rd August Quotation. The Plaintiff said that in fact they found out subsequently that they were different samples and that these September original samples were far more demanding and contained complicated inter-linings in these samples. The Defendant denied this.

11. The significance of giving the original samples to the Plaintiff on 10th September is so that the Plaintiff could make counter-samples. The giving of counter-samples is a real issue in this case. The making of counter-samples seems to be reasonably common in the garment trade. Counter-samples however were made not necessarily from the exact fabrics of the goods and not necessarily of the identical colour required by the goods but they were made to enable them to be shown to the buyer the type of fittings, measurements, workmanship that the seller could do in respect of the final delivery goods. In this case, there is no dispute that the Plaintiff was to produce counter-samples. The dispute was as to the timing of and the significance of the production of the counter-samples.

12. What happened in this case was that after the Plaintiff was given the September original samples on 10th September, the Plaintiff said they were told to produce counter-samples. The case of the Defendant was in fact the Plaintiff was told to produce the counter-samples much earlier right back in June and certainly also on 21st August 1996.

13. The counter-sample, however, was only one aspect of the case. The other aspect was the Letter of Credit required under the order. By a fax dated 19th September which is to be found at C13, the Plaintiff informed the Defendant that as the quantities had been confirmed, it had booked the fabric with suppliers and that although the Plaintiff had been promised the colour/size of assortment by 12th September, those were still outstanding and the Plaintiff was therefore pushing for that.

14. Five days later, at document C19, the Plaintiff was pushing for the L/C to be opened by the Defendant, having referred earlier in the fax to the fact that it had ordered fabric for this particular order. The Plaintiff was pushing for the L/C to be opened before 5th October.

15. There was on 2nd October a change of price and that is recorded at C28 whereby the price was adjusted downwards from the original order because the buyer wanted to take care of the shipment themselves so instead of CIF, it was FOB. It is also significant in that fax that the first paragraph refers to the buyers wanting to drop the Cifraline order which, of course, pre- supposed that there was a firm order, otherwise there would be no necessity for dropping.

16. The pushing by the Plaintiff for the Letter of Credit resulted in a meeting on 8th October attended by amongst others Mr. Ng, Kate Chan and Tony who was a colleague of Mr. Ng who seemed to be somehow involved on the production side, especially in relation to the original samples.

17. At the meeting, there was the promise made by Tony that the counter-samples would be given to the Defendant by 15th October. There was also the promise by Kate Chan at the meeting that the Letter of Credit would be given 2 or 3 days after the meeting, that is to say some time around the 10th or 11th October.

18. The long delay by the Defendant to open Letter of Credit was because the French agent had been slow in opening Letter of Credit to the Defendant although there was a firm order by the French agent with the Defendant. The Defendant could not open its own Letter of Credit until it had received a letter of credit from the French agent which took place I believe sometime around the 7th or 8th October and that is to be seen at document D93.

19. By a fax on 11th October, the Defendant faxed to the Plaintiff an application for a Letter of Credit to be opened in favour of the Plaintiff pursuant to the order. In fact, that application was never pursued by the Defendant because no Letter of Credit was ever issued by the Defendant in favour of the Plaintiff. The Plaintiff never had the benefit of a Letter of Credit from the Defendant.

20. There was then a meeting on 15th October between Mr. Ng and Mr. Paul Chau. What led to the meeting was that the Defendant requested the return of the six original samples given by the Defendant to the Plaintiff in September. Two versions were given as to the reasons for the return. Mr. Ng said he did so because he was asked to do so by Paul Chau, whereas Paul Chau's evidence was that Mr. Ng was complaining that the technical side of producing the counter-samples was so difficult as the requirements of the Defendant for the complex interlining based on and with the paper cuttings was such that the Plaintiff was unable to control the production for such counter-samples or the eventual production goods. That according to Mr. Chau is why Mr. Ng wanted to return the six original samples given in September.

21. The original samples that were given back on 15th October contained in them the inter-linings and stickers. At the trial, there was produced one of the original samples with the stickers and they have some significance because the stickers referred to the fact that the interlining being much more complicated than in the original June samples based on which quotation was given and suggested an alternative production method to the making of the counter-sample by dispensing with inter-lining and replaced them with mid ironing of the seams.

22. The return of the original samples on 15th October however did not lead the Plaintiff, according to the documents, to lose interest in the order. This is, of course, understandable because the Plaintiff had already committed itself to fabrics ordered from the fabric suppliers. By fax of the 18th October at C33, the Plaintiff said (and Plaintiff of course was still under the impression that the contract was on) that it had informed the fabrics supplier to dye the fabrics and was being pushed by the suppliers to open L/C. The Plaintiff in that fax was therefore pushing for the Defendant to open the L/C to the Plaintiff. Also in that fax it said: "can we get together with you early next week on the counter-samples" and asking further about approving the Lab Dip for the Taffeta.

23. There was then a fax of the 22nd October from the French agent to the Defendant whereby apart from saying they were disappointed about the long delay in waiting for the counter-samples, they asked for all original and counter samples and all paper patterns to be returned by Raymond to the Defendant. The next day on 23rd October (this fax of the 22nd having been passed on by the Defendant to the Plaintiff) the Plaintiff pursuant to the Defendant's request, returned the paper-patterns to Defendant, having already on 15th October returned the original samples given in September.

24. What then happened was that the Plaintiff wrote directly to the French agent because the Plaintiff at that stage had been told by Mr. Paul Chau that the French agent wanted to move the order somewhere else and the Defendant therefore was going elsewhere for the goods. The tone of that fax on 23rd October, C35 suggested that the principal concern of the Plaintiff at that stage was the loss it would be facing in relation to the fabrics it had already ordered. The Plaintiff was asking for the French agent to help.

25. The subsequent correspondence such as can be seen at C41 suggests that it was not the Plaintiff which was unwilling to carry on with the order because of technical difficulties with the interlining or with the production of counter-samples but it was the Defendant which decided to cancel the order. The second paragraph of C41 is significant because it refers to the words "These Orders were only confirmed to work with us as late as 22nd August" which was a contemporaneous reference by the Plaintiff to the firm order placed by Kate Chan with Mr. Ng on 22nd August. There were subsequent correspondence between the parties. On the 25th October the Defendant placed the new order with Cosmos.

26. The principal issue that called for decision was the contention which was strongly advanced by the Defendant that there was no contract. The case of the Defendant that there was no contract was put in two ways. They said first because there was an express term by reason of what was said on 21st August by Mr. Paul Chau to Mr. Ng that the production of the counter-samples and approval of the counter-samples was a must before any order can be confirmed and that no counter-samples, no contract and no firm order. The other way of the Defendant putting their case on no contract or contract subject to a condition precedent is that there was a trade practice or customs to that effect, namely the approval of counter-samples is always a precondition to the coming into existence of a firm contract for garments.

27. As much on the decision of this first important issue would turn on the credibility of witnesses, I should now first give my assessment of the different witnesses.

28. Mr. Raymond Ng was the first and primary witness of the Plaintiff. He was not a young man, obviously not a well educated man. His delivery was short but I have no doubt having observed him for something like 2 days in my court and in the witness stand that he is a truthful, reliable and totally honest witness. He sometimes in fact is too ready to agree to suggestions put by counsel which are not in his favour. He is that kind of a truthful witness. I accept his evidence on all the major points.

29. The second witness Mr. Raymond Cheng is the boss of Mr. Ng. Mr. Raymond gave much shorter evidence. He is a businessman and a good businessman no doubt and I find his evidence to be coherent, sensible and very logical. He impressed me as someone telling the truth. I will also accept him as a witness whose evidence I can rely on.

30. The Defendant's principal witness is Paul Chau. He is younger than Mr. Ng, possibly much better educated and a shrew businessman. He was very bright and quick but he is not a witness of truth. He struck me as someone who was willing to say anything if it was to his benefit. He was also quick in adjusting his evidence to any particular situation. A prime example of this is when he was trying to justify the evidence that he had given earlier, at the initial stage about the cancellation of the Cifraline order and he then came up with all kinds of evidence including a provisional order to try to cover up the slip that he had made. I have no confidence at all that what he told me was the truth. I have no confidence that he was telling the truth on any thing unless it was powerfully supported by credible documents. Most of what he said was not supported by documents and he repeatedly dismissed documents as being meaningless when he was confronted with difficult situations. So I reject his evidence and whenever there is any conflict between his evidence and that of the Plaintiff's witnesses, I prefer the evidence of the Plaintiff's witnesses.

31. Kate Chan is a little bit different. She is less slick than her husband. She is a business woman of considerable ability no doubt but I do not regard her evidence as being substantially truthful, especially when she denied the confirmation of the order on the 22nd August. I prefer the evidence of Mr. Ng to that by Kate Chan. With this assessment of the credibility of the witnesses laid as a foundation, I can now proceed to consider the issues in this case.

32. The principal issue about the existence of the contract, in my mind, can be easily decided in favour of the Plaintiff on the credibility of witnesses assisted by the contemporaneous documents. So far as the existence of the trade customs is concerned, I reject that. I reject it because I reject the oral evidence of the Defendant witnesses. There is no independent third party evidence and the documents do not support it. So far as the allegations of the expressed conversation on 21st August between Mr. Chau and Mr. Ng is concerned. I find the version of the Defendant is not credible and I reject it.

I find as a fact that the contract was made.

33. The issue then left is whether the terms of the contract are such as to cause the court to come to the view that the Defendant was in breach or the Plaintiff was in breach. The first question is the significance of the counter-samples. The case of Mr. So for the Defendant is that giving of the counter-samples was so important to the contract that it was an implied term that if they were not produced, then it would amount to a repudiation of the contract by the seller. The trouble with this assertion is that it overlooked the fact that the contract was a contract of sale by samples, so that there was already an absolute standard (the original samples) by which the acceptability of the goods was going to be determined. The Defendant wants to engraft on top of the standard of original samples the alleged requirement, by way of implied term, of the production of counter-samples. That implication of course had to arise at the time when the contract was made on 22nd August and not by reference to subsequent events. By any of the known standards or tests whereby the court can imply terms into a contract, I am unable to find the existence of the implied term contended by Mr. So. A further difficulty for Mr. So on this repudiation by the Plaintiff by reason of failure to produce counter-samples is the matter of timing. Counter-samples whatever their desirability can only be said to be so late in the production as to amount to repudiation by the Plaintiff if by the lateness, it would make the sellers unable totally to meet the delivery dates promised in the contract. We are talking about the Plaintiff not having produced counter-samples on 15th October. The delivery is some 3 months away. There are good reasons for the Plaintiff not producing or not giving on 15th October the counter-samples (obtaining fabrics difficulty, problems about the interlinings with the intention by the Plaintiff to seek the approval of the Defendant to alter the method). So I do hold that in the circumstances of this case, there had been no repudiation by the Plaintiff by reason of their not giving to the Defendant on 15th October the counter-samples, even though it might have promised to them on 8th October. The case of the Defendant for damages by reason of repudiation of the Plaintiff is rejected.

34. There is, however, an alternative case of the Defendant on repudiation and that is the Plaintiff had thrown up its hands with the contract, either on 15th August or 23rd August by reason of its returning the September original samples and the paper cuttings to the Defendant. And also Mr. Ng alleged to have said to Paul Chau that it was too difficult for the Plaintiff to carry on this contract and Ng was alleged to have thrown his hands in. I do not accept a single word of what Mr. Paul Chau told this court. In my view, and this view is powerfully supported by documents (which Paul Chau tried to get around) it was the Plaintiff who wanted to have the contract go ahead. The Defendant was now trying to find excuses for the termination. The counterclaim of the Defendant for damages arising out of the Plaintiff's repudiation must be rejected.

35. I now turn to the case of the Plaintiff for damages. The case of the Plaintiff for damages can be summarised in two ways: (1) there was the non-opening of the L/C; and (2) there was the deliberate repudiation by going elsewhere with the order or by cancelling the order. I think both are very straightforward. So far as the non-opening the L/C is concerned, I think it is clear to me that the opening of L/C is the essential requirement of the order. The Defendant as buyers was obliged to do it as soon as possible and despite the Plaintiff chasing the Defendant for months and months, the Defendant had not done it. In my view, there was repudiation by the Defendant.

36. So far the other head of claim for damages by reason of repudiation is concerned, the evidence shows clearly that it was the Defendant which did not want to go ahead with the order. The Defendant cancelled the order, went somewhere else for the goods which took place soon afterwards. In fact, although there was no direct evidence to this effect, I suspect some time before the 15th October, the Defendant and the French agent had already started the process of looking for another supplier for the goods. That was the reason why on 15th October it wanted the original samples back from the Plaintiff.

37. I therefore conclude that the Plaintiff has established its case on liability and is entitled to damages. As for the calculation of the damages, it seems to me that the Amended Statement of Claim has correctly identified the various heads. There is no dispute on quantum of loss under the loss of profit heading in the sum of US$30,990.65 pleaded in paragraph 17A of the Amended Statement of Claim. Nor is there any dispute as the quantum pleaded in paragraph 17C, that is the quantum of loss or compensation paid to the Red House fabric supplier for ordering the goods and then cancelling the fabrics order: the amount of claim there is HK$99,821.85.

38. So far as the claim under heading 17B of the Amended Statement of Claim is concerned, this is in relation to the other fabric suppliers. As the evidence on this is that the goods had not been paid for and had not been shipped, it seems to me that in the circumstances, the proper order is for a declaration that the Plaintiff is entitled to be indemnified by the Defendant for all its losses and damages suffered by the Plaintiff arising out of the placing of that fabric orders under paragraph 17B of the Amended Statement of Claim.

39. So far as the alternative plea of quantum merit is concerned, having regard to my conclusion that the Plaintiff is entitled to damages for breach of contract, it is unnecessary for me to make any finding on it and I do not propose to do so.

40. I, therefore, conclude that this action by the Plaintiff succeeds and there shall be judgment in favour of the Plaintiff in the amounts and in the manner as I said indicated earlier. The Counterclaim is dismissed. The Plaintiff is to be given the costs of the Action including that of the Counterclaim.