SOURCE SMART ASIA LTD v. NEW ELEGANT GARMENT LTD

   HCA 847/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.847 OF 2007

BETWEEN

_______________

JUDGMENT

_______________

1.  The plaintiff Source Smart Asia Limited (“SSA”) is a company incorporated in Hong Kong carrying on the business of, inter alia, the export of garments.

2.  The defendant New Elegant Garment Limited (“NE”)is a company incorporated in Hong Kong carrying on the business of, interalia, manufacturing and selling garments.

3.  By a contract contained in purchase order number 5718 dated 13 February 2006 (“the contract”) from SSA to NE, which was signed by the parties, SSA purchased a total quantity of 44,058 pieces of women’s woven tank tops style no. M5152 (“the goods”) from NE at the price of US$3.95 a piece.

4.  There is no dispute that the goods were to be supplied to the well known retailer J C Penney Corporation Inc (“JCP”) in the USA.

5.  Assoluto Inc (“Assoluto”), an American corporation, was the importer of the goods into the USA. Ugo Capasso (“Capasso”) is and was at all material times the owner of Assoluto.

6.  By a Trading Partner Agreement dated 23 January 2002 Assoluto agreed to sell and JCP agreed to buy garments from Assoluto from time to time. At all material times, Assoluto sold and JCP bought garments which Assoluto imported into the USA.

7.  There is a dispute between the parties as to whether NE knew at the time of the contract that the goods were to be imported by Assoluto into the USA for onward sale and delivery to JCP.

8.  It was a specific condition of the contract that YKK zippers were to be used for the production of the garments. This must mean that genuine YKK zippers were to be used.

9.  The goods were specifically required by JCP for the Fall 2006 Season in the USA as is set out in the contract.

10.  On or about 19 May 2006 NE delivered the goods by shipping 44,856 pieces of the goods from Shanghai to Assoluto in the USA. It is accepted that there was an overshipment of 798 pieces as the contract quantity was 44,058 pieces.

11.  Prior to the shipment of the goods the sum of US$87,026.40 had been paid by SSA to NE being 50% of the total price of the contracted quantity of the goods.

12.  The goods arrived in the USA on or about 2 June 2006.

13.  Wrongfully and in breach of contract, counterfeit YKK zippers were used in the production of the goods. As a result the goods were seized by US Customs after their inspection of the goods on arrival in the USA.

14.  There is no dispute that NE had ordered the goods to be manufactured by a factory in the Mainland operated by Jiangsu Guotai International Group Textile Import and Export Co Ltd (“Guotai”). There is also no dispute that counterfeit zippers were used in the production of the goods. There is, however, a dispute as to whether it was SSA or NE that had nominated Guotai to be the manufacturer.

15.  Assoluto were unable to deliver the goods to JCP in time for the Fall 2006 Season as the goods were seized by US Customs. JCP claimed damages for non-delivery of the goods from Assoluto.

16.  Assoluto engaged lawyers in the USA to try and get the goods released from US Customs. Eventually US Customs agreed to the release of the goods upon payment of a fine and on the condition that the counterfeit YKK logo would be obliterated from the zippers by grinding the same off. This was complied with and the goods were released by US Customs in or about late January 2007. It is accepted that expenses have been incurred for the release of the goods from US Customs.

17.  Capasso negotiated with JCP the amount of its loss due to the non-delivery of the goods. By letter dated 5 July 2006 from Assoluto to JCP it was confirmed that Assoluto had agreed to compensate JCP in the sum of US$100,000 for its lost profit in respect of the goods, style M5152, by way of cost concession.

18.  By 4 cheques Assoluto paid JCP the total sum of US$100,000 that it had agreed with JCP as its compensation for loss of profits for the non-delivery of the goods.

19.  Assoluto refused to pay SSA the agreed commission of 10% in the total sum of US$17,405.28 in respect of which SSA had sent an invoice to Assoluto dated 19 May 2006. By a credit note dated 30 June 2006 issued by SSA to Assoluto, SSA credited the same amount to Assoluto thereby cancelling the 10% commission that SSA would have earned from Assoluto in respect of the contract.

20.  SSA also paid Assoluto its loss of profits.

21.  In this action SSA claims damages against NE as pleaded and particularized at paragraph 9 of the re-amended statement of claim as follows:

“   PARTICULARS OF LOSS
Description		Amount (US$)
1.	Agreed Compensation to Assoluto Inc.’s customer, namely, JC Penny for its loss of business in year 2006	100,000.00
2.	Compensation to Assoluto Inc. for its loss of profit  (7.35 - 3.5) X 44,064 pieces	152,243.49
3.	Loss of profit of the Plaintiff at the rate of 10% on sale price	17,402.91
4.	Part of price paid to the Defendant	87,026.40
5.	Storage and towing charges from June to December 2006	18,665.10
6.	US Custom Fine	3,409.00
7.	Labours charges for Grinding counterfeit YKK logos from zippers	29,156.40
8.	Legal costs in USA to deal with US Custom	11,146.58
LESS		419,049.88
9.	Contract price of the said Goods	174,052.80
10.	Outstanding under Invoice No. M5305 due from Plaintiff to the Defendant	44,880.00
11.	Outstanding under PO No. LB M5509W/M5510W and samples charges due from Plaintiff to the Defendant	38,039.88
12.	Payment made by the Defendant on 22th August 2006	10,000.00
	Balance	$152,077.20  ”

22.  NE accepts that it is liable to pay SSA for items 5 to 8 under the particulars of loss in the total sum of US$62,377.08. However, it denies that it is liable to SSA for items 1,2 and 3 under the particulars of loss.

23.  Item 1 is the compensation paid by Assoluto to JCP in the sum of US$100,000 for its loss for the non-delivery of the goods and which sum has been paid by SSA to Assoluto (“item 1”).

24.  Item 2 is the compensation paid by SSA to Assoluto for its loss of profit in the sum of US$152,243.49. The sum of US$152,243.49 should be reduced as the contract quantity was 44,058 pieces instead of 44,064 pieces as set out under the particulars of loss. The sum claimed under item 2 should therefore be US$152,220.42 (“item 2”) as follows :

US$7.35 - US$3.50 x 44,058 pieces	US$169,623.33
Less
commission of 10% which was not paid to SSA	US$17,402.91
	US$152,220.42

25.  Item 3 is the sum of US$17,402.91 being the loss of commission of 10% which SSA would have earned had NE performed its obligations under the contract (“item 3”).

26.  NE also counterclaims the sum of US$117,569.20 as follows:

items 10, 11 and 12 totalling	US$92,919.88
balance of the unpaid contract price	US$87,026.40
	US$179,946.28
less
items 5 to 8	US$62,377.08
	US$117,569.20

27.  The only items in dispute are items 1, 2 and 3 and whether SSA is entitled to claim them.

The main issues

28.  The issues were agreed prior to trial and before the re-amendments to the statement of claim made at trial. It seems to me that after the amendments made to the pleadings at trial the main issues are

(1)  Whether the contract was entered into by SSA as agent for JCP as the disclosed principal?

(2)  If the answer to (1) is yes, then whether the involvement of Assoluto is irrelevant to the quantum of damages so that NE would only be answerable for the loss of JCP but to no one else’s loss?

(3)  If the answer to (1) is no, then whether the fact that SSA supplied the goods to Assoluto as its agent which in turn sold the goods to JCP were within the contemplation of SSA and NE when they entered into the contract such that the losses suffered by SSA and Assoluto as caused by NE’s breach of contract were not too remote?

(4)  If the answer to (3) is yes, what effect if any, would the actual knowledge by SSA and NE when entering into the contract that JCP was the ultimate buyer of the goods have on the question of damages?

(5)  (a)  If the answers to issues (1) and (2) are yes, and JCP was the direct buyer as a disclosed principal, whether item 1 being JCP’s alleged loss of US$100,000 can be claimed by SSA in this action and was proved?  In particular, whether the subsequent sale of US$3.50 per piece should be taken into account in calculating JCP’s alleged loss?

(b) If JCP was not a direct buyer but a customer of Assoluto and the answer to issue (3) is yes then:

(i)  whether SSA is entitled to claim item 1 being the alleged US$100,000 paid by Assoluto to JCP, which allegedly was subsequently reimbursed by SSA to Assoluto, as being a reasonable settlement for JCP’s loss?  In particular, whether the subsequent sale of the goods to JCP at US$3.50 per piece should be taken into account in calculating JCP’s alleged loss?

(ii)  what effect, if any, the answer to issue (4) would have on this head of claim;

(c)  If JCP were not a direct buyer and the goods were supplied to Assoluto by SSA as its agent and the answer to issue (3) is yes then

(i)  whether SSA is entitled to claim item 2 being the alleged compensation of US$152,220.42 made by SSA to Assoluto for Assoluto’s loss of profit assuming that SSA was contractually obliged to compensate?

(ii)  What effect if any, the answer to issue (4) would have on this head of claim;

(d) If JCP were not a direct buyer and the goods were supplied to Assoluto by SSA as its agent and the answer to issue (3) is yes, what effect if any, the answer to issue (4) would have on SSA’s entitlement to claim item 3 being commission arising from the supply of the goods to Assoluto?

(6)  whether the actual quantum of damages under the disputed heads has been proved?

The witnesses

29.  I heard evidence from Capasso, Lily Leung Mei Chun (“Lily Leung”) the general manager of SSA and Hamway Fong Hoi Ming (“Fong”) the managing director and shareholder of NE.

30.  I found Lily Leung to be an honest, truthful and reliable witnesses whose evidence I accept.

31.  Save for a part of Capasso’s evidence which I did not believe and did not accept as mentioned below at paragraph 68, I found Capasso to be telling the truth in the rest of his evidence which I accept as being truthful and reliable.

32.  In my view Fong was not an honest, truthful or reliable witness.

33.  Save for admissions made by Fong, I have no hesitation in preferring the evidence of Lily Leung and Capasso to that of Fong.

Remoteness of damage

34.  In relation to the question of the remoteness of damage it is important to bear in mind what Lord Reid said in Koufos v. C. Czarnikow Ltd (The Heron II) [1969] 1 AC 350. At page 382 Lord Reid said :

“ So, the question for decision is whether a plaintiff can recover as damages for breach of contract a loss of a kind which the defendant, when he made the contract, ought to have realised was not unlikely to result from a breach of contract causing delay in delivery.  I use the words “not unlikely” as denoting a degree of probability considerably less than an even chance but nevertheless not very unusual and easily foreseeable.”

35.  And at page 385 he said :

“ The crucial question is whether on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.”

36.  As stated at paragraph 16.043 Benjamin’s Sale of Goods 7^th Edn, it is irrelevant that the potential contract-breaker could not contemplate, at the time the contract was made, the occurrence of the particular breach he would later commit. The test of remoteness assumes contemplation of the actual breach and looks at the consequences of the breach. The party who has suffered damage does not have to show that the contract-breaker ought to have contemplated, as being not unlikely, the precise detail of the damage or the precise manner of it happening. It is enough if he should have contemplated that damage of that kind is not unlikely. If the parties ought to have contemplated that damage of that kind is not unlikely they need not have contemplated the extent of that loss.

37.  It is necessary to consider whether the loss claimed under items 1, 2 and 3 were losses of a kind which NE, when it made the contract, ought to have realised was not unlikely to result from a breach of contract resulting in the non-delivery of the goods to JCP.

38.  If they were, then the next question to consider is whether NE is liable to SSA for the loss under items 1, 2 and 3.

The Evidence and Findings

39.  SSA was incorporated in January 2005. 50% of the shares in SSA were held by Henry Choi Wing Kong (“Choi”) and the other 50% was owned beneficially by Capasso personally.

40.  Lily Leung said that she resigned from her previous job in March 2005 giving three months’ notice and that she started her employment as general manager of SSA in about June 2005. When she was interviewed by Capasso for the post of general manager of SSA she was shown exhibit P1 which was a proposal by Fong to Capasso to set up a sourcing company. I believe Lily Leung and accept her evidence.

41.  SSA’s pleaded case prior to the re-amendments to the statement of claim made at trial was that SSA had purchased the goods from NE for re- sale to its customer in the USA namely, Assoluto (paragraph 7 of the amended statement of claim).

42.  In view of the Buying Agency Agreement (“the agency agreement”) entered into between Assoluto and SSA dated 1 June 2005 whereby SSA was appointed to act as the exclusive buying agent for Assoluto in connection with Assoluto’s purchases of wearing apparel and accessories in the Far East and the evidence of Capasso at trial that the purchase order that Assoluto had placed with SSA also dated 13 February 2006 was pursuant to the agency agreement, which I accept, SSA applied for and was granted leave to re-amend the statement of claim.

43.  Although NE relied on its pleaded case that the contract was entered into by SSA as agent for JCP, it was clear that by the re-amendments to the statement of claim the plaintiff was no longer pursuing its earlier pleaded case that the goods were purchased by SSA and sold to Assoluto as its customer.

44.  I find that the contract was made by SSA as purchaser and NE as seller after SSA had received the purchase order that Assoluto had placed with it also dated 13 February 2006 which was placed pursuant to the agency agreement.

45.  I also find that Assoluto was at all material times the seller of the goods to JCP under the Trading Partner Agreement that it had made with JCP on 23 January 2002.

46.  It is clear on the undisputed evidence that Fong of NE had previously dealt with Assoluto prior to the contract. It is clear that prior to the contract and from about 2003 onwards NE had been selling and supplying goods manufactured in the Mainland to Assoluto for onward sale to JCP which Fong well knew. I so find.

47.  It is also clear on the evidence, and I so find, that prior to the setting up of SSA to source the supply of goods to Assoluto under the agency agreement, Fong had been in negotiations with Capasso to set up a joint venture company in Hong Kong to be a sourcing company to supply goods to Assoluto. This is not disputed.

48.  The detailed proposals made to Capasso in 2004 are contained in exhibit P1 which was prepared by Fong and his then partner Barry Wong.

49.  In the supplementary proposal, exhibit P2, Fong and Barry Wong had made proposals in 2005 to Capasso and Choi for Fong and Barry Wong to be a part of SSA which was to source goods for Assoluto. I would observe that it was proposed that Fong would be the managing director of SSA. The detailed proposals are set out in exhibit P2.

50.  Although at times in his evidence Fong denied that he knew that the goods were to be supplied to Assoluto, I do not believe him as to this. In cross-examination Fong admitted that on 13 February 2006 he knew that the relationship between Assoluto and SSA was one of principal and agent. I reject the evidence of Fong in his witness statement that he could only guess but did not know that the form of co-operation between Assoluto and SSA was some form of merger, take-over or some profit sharing arrangement between them taking the form of partnership or principal/agent. This was untrue. He well knew that at the time of the contract that the relationship between Assoluto and SSA was one of principal and agent.

51.  The undisputed evidence is that before the contract was entered into there were negotiations between SSA and NE for a few months. There were also technical specifications provided before the contract was entered into which Lily Leung referred to as the “tech pack” and which showed that the goods were to be supplied to Assoluto. Fong would have known from those negotiations and the “tech pack” that Assoluto was to be the importer of the goods which were destined for JCP. The contract stated that the goods were to be shipped to an address in the USA which Fong knew to be the address of Assoluto. The payment of 50% of the contract price was paid for by a letter of credit issued by Assoluto. And NE issued an invoice dated 18 May 2006 to Assoluto in relation to the goods under the contract.

52.  I find that Fong well knew that SSA was the sourcing company set up to supply goods to Assoluto and that SSA was the buying agent for Assoluto when SSA entered into the contract with NE.

53.  It is undisputed that the agency agreement was never supplied to Fong or NE so the detailed terms of the agreement were not known to Fong. However, Fong and NE knew that SSA was the buying agent of Assoluto who bought and imported goods for onward sale. There can be no doubt that the goods purchased under the contract were intended for JCP as Fong admitted. Fong also admitted that he knew that JCP was using the ANA label for the goods which label was required under the contract.

54.  As to issue (1), it is unrealistic to suggest, on the evidence and the admissions made by Fong, that the contract was entered into by SSA as agent on behalf of JCP as the disclosed principal. The answer to issue (1) is no. There is no merit in this suggestion. I find that Fong well knew that the goods were to be shipped to Assoluto at the time of the contract and that they were to be onsold to JCP in time for the Fall 2006 Season.

55.  Issue (2) does not arise.

56.  There is no dispute that wrongfully and in breach of contract counterfeit YKK zippers were used in the production of the goods that were shipped. As a result of this, the goods were seized by US Customs and Assoluto was unable to deliver the goods to JCP for the Fall 2006 Season.

57.  Fong admitted in evidence that he knew that if NE were in breach of the contract SSA would suffer loss. He also knew that JCP would suffer loss and that there would be a claim for compensation from NE.

58.  As to issues (3) and (4), it seems to me that with the knowledge by both SSA and NE that the goods were intended for resale to JCP by Assoluto it was within the reasonable contemplation of the parties at the time of the contract that if Assoluto were unable to deliver the goods to JCP due to a breach of contract on the part of NE damages would have to be paid to JCP for its loss and that both Assoluto and SSA would suffer loss and damage. I so find.

59.  The answer to issue (3) is yes.

60.  As to issue (4), the actual knowledge by SSA and NE that JCP was the ultimate buyer has, in my view, no effect on the quantum of damages.

61.  Issue 5(a) does not arise.

62.  As to Issue 5(b), Mr Chiu, for NE, submitted that the loss to JCP in the sum of US$100,000 has not been proved and that it was not a reasonable settlement for JCP’s loss. I disagree.

63.  The evidence of Capasso, which I accept, shows clearly that JCP agreed to accept US$100,000 as compensation which it described as cost concession for the non-delivery of the goods for the Fall 2006 Season. In the letter of confirmation dated 5 July 2006 from Assoluto to JCP which served to confirm the cost concession in the sum of US$100,000 it was envisaged that the said sum was to be paid by three cheques in the amounts set out therein. However, on the evidence of Capasso, which I accept, the payment to JCP by Assoluto of the US$100,000 was in fact made by four cheques copies of which were in evidence. These are the cheques from Assoluto to JCP as follows:

(i)  for US$40,000 by cheque dated 26 March 2007;

(ii)  for US$20,000 by cheque dated 23 April 2007;

(iii)  for US$20,000 by cheque dated 14 May 2007;

(iv)  for US$20,000 by cheque dated 21 May 2007.

64.  I am satisfied that JCP has received the total sum of US$100,000 from Assoluto by presenting the four cheques for payment and that JCP has been paid the total sum of US$100,000 as compensation for the non-delivery of the goods.

65.  Although there was an agreement to accept US$100,000 from Assoluto in July 2006 as confirmed by Assoluto’s letter to JCP dated 5 July 2006, it is clear from the evidence of Capasso, which I accept, that due to his cash flow problems he only paid that sum to JCP by the four cheques in 2007 which cheques were accepted by JCP in settlement of its claim for compensation for non-delivery of the goods.

66.  I would observe that even though he had reached agreement with JCP in July 2006 to compensate JCP in the sum of US$100,000, Capasso sent an email to Lily Leung on 21 August 2006 stating that he had offered US$50,000 to JCP but that JCP was requesting US$230,000 and that he was still waiting for its reply. He explained in evidence that as he still had some concern about the shipment he put forward the figure of US$230,000 to SSA as a figure that JCP had been requesting.

67.  And in a later email sent on 12 September 2006 to Lily Leung, Capasso said that

“ Regarding the cost concession to JC Penney, I agreed with them to ½ of the amount from their request (from 236K to 118K)……………….For your information I issued a check in the amount of 59K dated 9/6 for the first instalment.”

68.  As Capasso said in evidence, he had never agreed with JCP to compensate them US$118,000 and he had not issued a cheque for US$59,000 as a first instalment. He explained that he wanted to protect himself from other charges that may arise from this shipment and that he had made an incorrect statement to Lily Leung about having issued a cheque to JCP for US$59,000 as a first instalment so as to push them to settle. He also said that it was part of the negotiating tactics that he had used. I do not believe this part of his evidence and I do not accept his explanation. It seems to me that when he wrote the emails that I have referred to, he was trying to get as much as he could without revealing at that stage that JCP had already agreed to accept US$100,000.

69.  However, I am satisfied, as borne out by the four cheques in evidence and Assoluto’s confirmation letter to JCP dated 5 July 2006, that JCP did agree to accept US$100,000 as compensation for the non-delivery of the goods and that payment of that sum was made to JCP by the four cheques issued and cashed by JCP in 2007. I believe this part of Capasso’s evidence.

70.  The non-delivery of the goods to JCP was, as Fong admitted in evidence, due to the problem of shipping the goods which had counterfeit YKK zippers.

71.  I would observe that in respect of an earlier transaction when NE had sold goods JCP style M4689 to Assoluto by the purchase order no. 9292 dated 22 February 2005, NE did provide compensation for JCP’s loss due to NE’s breach of contract. This is evidenced by the email from Assoluto to Lily Leung sent on 22 September 2005 which confirms an agreement by NE to contribute US$30,000 for compensation to JCP.

72.  In his email to Lily Leung sent on 27 November 2006 Fong made it clear that as regards the claim by JCP for its loss, there was still missing “the JCP paper for this issue”. He proposed to settle that claim by accepting liability for US$50,000 with payment by instalments.

73.  In evidence Fong said that all he wanted from JCP was proof of its claim so that he could ask Guotai to compensate him. He said in evidence that he had agreed to pay US$50,000 for JCP’s loss on condition that he could be shown JCP’s claim.

74.  And in his email to Lily Leung sent on 9 January 2007 Fong said that for the US$50,000 claim of JCP he had to have “proper JCP claims paper” so that they could pass it onto lawyers to claim against Guotai. Fong said in evidence that when he was asking for “JCP claims paper” in the email he was asking in effect for a letter from JCP on its letterhead.

75.  In his evidence contained in his witness statement Fong said that NE had started an action in the Mainland against Guotai for using the counterfeit YKK zippers on the goods and that the Mainland court required documents of losses sustained by JCP to be submitted in support. This evidence was untrue as NE has not even up to the time of Fong giving evidence at trial started an action against Guotai in the Mainland.

76.  It was also NE’s case that Guotai was a factory that had been nominated by SSA to manufacture the goods. However, Lily Leung was adamant that it was NE and not SSA that had selected Guotai as the factory to produce the goods. On this issue of fact, I find that it was NE that had selected Guotai as the factory to produce the goods. When giving evidence Fong admitted that he had picked Guotai as the factory to manufacture the goods.

77.  Mr. Cheung, for SSA, submitted that NE knew that counterfeit zippers had been used by Guotai in the production of the goods. He relied on the email sent on 11 October 2006 from Fong to Lily Leung where he forwarded an email he had earlier sent to Guotai stating

“ In a telephone call, Mr. Gok had mentioned to our Mr. Lee (Alex) that the customer’s approval for the last color was so late.  That there was insufficient time to order YKK zipper and fake YKK zipper had to be used instead.  However, (he) had not mentioned the fake YKK zipper would be used in the 2 colors already approved.  In these circumstances, our company did not want your company to make delivery by air, our Mr. Lee could only show no disapproval.  However, (it) did not represent that our company agreed that you were allowed to use the fake YKK zipper for bulk goods.  Is it fair and reasonable for your company to compel our company to take the responsibility?  Our company would not compromise and step back!”

78.  Mr. Cheung submitted that what was contained in the above email showed that NE knew that counterfeit YKK zippers had been used in the finished products. This was denied by Fong in evidence.

79.  I would observe that Alex Lee of NE has not given evidence nor has he provided a witness statement. In my view the forwarded email does not conclusively show that NE had the knowledge at the time of shipment that fake YKK zippers had been used for the finished products. However, in my view, it does show that NE did have the knowledge that counterfeit YKK zippers had been used in the samples sent for approval for one of the colours.

80.  However, it matters not whether NE knew that counterfeit zippers had been used in the production of the goods. NE was obliged under the contract to deliver the goods with genuine YKK zippers.

81.  It is important to bear in mind that due to the breach of contract on the part of NE in supplying the goods with counterfeit YKK zippers the goods were seized by US Customs. As a result Assoluto were unable to deliver the goods to JCP resulting in loss to JCP for non-delivery of the goods. That loss was compromised in the sum of US$100,000 which, as I have found, was paid by Assoluto. I accept Capasso’s evidence that JCP’s loss would have been much more than US$100,000. JCP would have sold the goods at US$16.50 a piece. Thus, as Capasso said and as I accept, JCP’s loss would have been quantified at US$403,130.70 (US$16.50 – $7.35 x 44,058 pieces). In the circumstances, the payment of US$100,000 to JCP was, in my view, a reasonable amount that Assoluto agreed to pay JCP.

82.  As the goods had been seized by US Customs in June 2006 it was obviously in everyone’s interest to have the goods released and resold at a reasonable price to cut everyone’s loss. This was recognized by Assoluto, SSA, NE as well as by Guotai in the contemporaneous emails. It is clear that Assoluto, SSA and Fong with the involvement of Guotai were trying to resolve the matter.

83.  According to Capasso, he negotiated to sell the goods to JCP on the assumption that they would in due course be released by US Customs. He said that JCP confirmed that they would buy at US$3.50 per piece and they would reconfirm only when the goods were with Assoluto. They would not accept the goods before April 2007 presumably, for the Spring 2007 Season. I believe him and accept his evidence.

84.  The resale to JCP was for the goods without genuine YKK zippers and for a different and later season than under the contract. I accept that for a later season and without the genuine YKK zippers the goods would be of less value than the original contract price of US$7.35 sold to JCP. The price agreed for the supply of the goods without the genuine YKK zippers and for delivery for the later season was US$$3.50 per piece. Although it appears that an agreement with JCP had been reached earlier, Capasso said that he did not consider that he had a deal with JCP until the goods were at his warehouse which was in about late January 2007. The purchase order from JCP was dated 2 February 2007 only after the goods had been received by Assoluto after their release from US Customs. I believe him and accept his evidence.

85.  Fong accepted in evidence that the resale price of the goods without the genuine YKK zipper at US$3.50 per piece was a reasonable price.

86.  Capasso said that he had received offers from a jobber for the goods without the YKK zipper at between US$1.50 and US$2 a piece. I believe him.

87.  I am satisfied that US$3.50 as the resale price to JCP was a reasonable price.

88.  It is clear that Fong and Guotai were hoping that Assoluto could dispose of the goods in the USA to minimize their loss. As far as Fong and Guotai were concerned, the ownership of the goods were with Guotai as payment in full had not been made for the goods. However, the goods had been seized by US Customs and Fong and Guotai stood to lose all the goods.

89.  Fong said in evidence that he knew that after the goods had been seized by US Customs and as a result of discussions and communications he had with Assoluto and SSA, the goods could not be sent back to the Mainland as it would have been too costly to do so in view of duties to be paid to ship them back to the Mainland.

90.  By an email from Fong to Lily Leung sent on 27 September 2006 he referred to an email in Chinese that he had received from James Gok of Guotai. Guotai said that it preferred that Assoluto should take the goods from US Customs after grinding of the YKK logo from the zippers. Fong said in his email to Lily Leung that both he and James Gok felt that rather than shipping the goods back to the Mainland they should be sold in the USA and they requested Assoluto and SSA to sell the goods in the USA to help them. In my view, that is precisely what Assoluto and SSA did by reselling the goods to JCP at US$3.50 per piece which, as Fong accepted in evidence, and as I have found, was a reasonable price.

91.  Mr Chiu also submitted that the resale of the goods to JCP at the price of US$3.50 should be taken into account in calculating JCP’s loss. I disagree. It is important to bear in mind that the resale to JCP was a new contract by Assoluto to sell the goods without genuine YKK zippers and for a later season to a buyer who could have been anyone else. However, a reasonable price that was obtained was from JCP at US$3.50.

92.  It is also important to bear in mind that JCP had already suffered its loss due to the non-delivery of the goods and US$100,000 was the compensation that was agreed to be paid to JCP for the non-delivery which, as I have found, was a reasonable settlement.

93.  As regards issue 5(b), I find that SSA has reimbursed Assoluto for item 1, the loss of US$100,000 paid to JCP. I find that the subsequent sale to JCP at US$3.50 per piece should not be taken into account in calculating JCP’s loss. There is also no merit in Mr Chiu’s submission that the retail price at which JCP sold the goods should be taken into account in calculating JCP’s loss.

94.  It was also submitted by Mr Chiu that as there was a principal and agent relationship between Assoluto and SSA, SSA was not liable to pay Assoluto for items 1 and 2. Item 2 was the loss of profit of Assoluto because of the non-delivery of the goods due to the breach by NE in supplying the goods with counterfeit YKK zippers. It is plain, and I so find, that Assoluto has lost its profit due to the non-delivery of the goods to JCP.

95.  I am satisfied that Assoluto has lost the said sum of US$152,220.42 as its loss of profit. I find that this has been paid by SSA to Assoluto.

96.  By the re-amendments made to the statement of claim at trial SSA’s case as pleaded at paragraphs 8A to 8C was that SSA had reimbursed Assoluto for the loss under items 1 and 2 as a result of the breaches of the agency agreement as particularised.

97.  It makes no difference that the agency agreement was never supplied to NE. SSA was the party who entered into the contract with NE. In my view it was also within the reasonable contemplation of the parties at the time of the contract that if there were fault on the part of SSA in the performance of the contract SSA would be liable to Assoluto for its loss and damage. I so find.

98.  I reject Mr Chiu’s submission that there was no fault on the part of SSA.

99.  By clause 12 of the agency agreement SSA agreed that it may be liable to Assoluto for consequential and compensatory damages as well as loss of profits for failure to perform its obligations e.g. the failure to properly inspect merchandise.

100.  There is no doubt that counterfeit YKK zippers were used in the production of the goods that were shipped. Counterfeit YKK zippers were also used in the samples of colours of zippers provided to SSA in March 2006. The fact that counterfeit YKK zippers were used escaped the attention of SSA. SSA’s duties included proper inspection of the samples before submitting them for approval and of the goods before shipment. SSA failed to discover that counterfeit YKK zippers had been used in the samples and the goods shipped.

101.  Lily Leung said in evidence, which I accept, that in breach of its duty SSA failed to check the samples properly as it had failed to discover that counterfeit YKK zippers had been used. SSA had also failed to discover that counterfeit YKK zippers had been used in the goods shipped when inspecting the goods before shipment as it had failed to check the same properly. Lily Leung said in evidence that subsequently she learnt how to differentiate between genuine YKK zippers and counterfeit ones and that it was very easy to tell the difference. She learnt from an ordinary zipper supplier that it was easy to differentiate between the genuine and the counterfeit YKK zippers by looking at the pattern of the zipper cloth and the stopper of the zipper. I believe her and accept her evidence.

102.  It was submitted by Mr Chiu that the quality controller of JCP had also failed to detect that counterfeit zippers had been used and that there was no fault on the part of SSA. I disagree.

103.  Although the quality controller of JCP failed to detect the counterfeit YKK zippers, there is no evidence as to how extensive the inspection was. US Customs seemed to have no difficulty in discovering that counterfeit YKK zippers had been used when seizing the goods.

104.  I also accept Lily Leung’s evidence that Assoluto did hold SSA to be responsible for the loss under items 1 and 2.

105.  Capasso said that Assoluto did not pay the 10% commission to SSA for the goods shipped under the contract as SSA had failed to perform its obligations. I believe him and accept his evidence.

106.  In the email sent by Capasso on 30 June 2006 Capasso made it plain to Lily Leung that

“ This is a terrible financial and image lost for Assoluto.  We cannot accept this kind of production.  It’s totally SSA and their suppliers (NE) responsibility to perform the order as been requested……”

107.  It is clear that Assoluto was blaming both SSA and NE for the goods shipped under the contract with the counterfeit YKK zippers resulting in the seizure by US Customs.

108.  I find that SSA was at fault in failing to carry out reasonable efforts to obtain quality production on behalf of Assoluto as it failed to discover that counterfeit YKK zippers had been used in the production of the goods. On the evidence of Lily Leung, which I accept, this was easily ascertainable as she had subsequently found out. SSA had also failed to deliver the goods to Assoluto due to the seizure of the same by US Customs.

109.  I find that SSA was liable to compensate Assoluto as SSA had failed in its duties to Assoluto as it had failed to properly inspect the samples and the goods before shipment. I am satisfied that there was fault on the part of SSA so as to render SSA liable to Assoluto under the agency agreement for items 1 and 2.

110.  Fong also admitted in evidence that he knew that SSA was going to earn a commission from Assoluto in respect of the transaction under the contract. He accepted that he was aware that the commission would be more or less in the range of 5% to 10%.

111.  Even in his proposal to Capasso contained in exhibit P2 it was proposed that the chargeable commission would be 10% for SSA in the proposals made to Capasso by Fong.

112.  I am satisfied that it was reasonable for SSA to earn 10% of the contract price as its commission for the supply of the goods under the contract to Assoluto for onward sale to JCP. Due to the breach of contract by NE SSA has suffered the loss which in my judgment SSA is entitled to recover from NE.

113.  As regards issues 5(b), (c) and (d) I find that SSA is entitled to claim the sums under items 1, 2 and 3 against NE.

114.  As to issue (6), I am satisfied that the actual quantum of damages has been proved to my satisfaction.

Conclusion

115.  SSA is entitled to judgment in the sum of US$152,054.10 made up as follows :

	US$
item 1	100,000.00
item 2	152,220.42
item 3	17,402.91
items 5 - 8	62,377.08
	332,000.41
Lessitems 10 - 12	92,919.88
Balance of actual price for the goods	87,026.40
	152,054.13

116.  I give judgment to SSA against NE in the sum of US$152,054.13 with interest on the said sum from issue of the writ on 27 April 2007 to judgment at 1% above the best lending rate of HSBC and thereafter at judgment rate until payment. The counterclaim is dismissed.

117.  I also make an order nisi that NE should pay SSA its costs of the action and the counterclaim such costs to be taxed if not agreed.