WIAK FAR EAST LTD v. MIN HWA PLASTIC MANUFACTURERS LTD

DCCJ14155/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 14155 OF 2001

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J U D G M E N T

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1. The present case arose out of a sale of goods contract. By a contract as evidenced by an Order No. 33904 dated 29 August 2000 ("the Order") placed by the Plaintiff with the Defendant ("the contract"), the Defendant contracted to sell to the Plaintiff 36,960 sets of "Jumbo Chalk 15 pieces" ("the Goods") at a price of HK$129,360 FOB Hong Kong. The Order provided that each set of the Goods would be packed in a plastic bucket with German Banderole, 12 pieces per inner box and 24 pieces per export carton.

2. It is the Plaintiff's case, which is not disputed, that the Defendant knew or ought to have known that the Plaintiff purchased the Goods for resale at a profit in Germany.

3. Prior to the shipment of the Goods to Germany, the Goods were inspected by the agent appointed by the Plaintiff, namely the Professional Quality Control Systems Limited ("Pro QC") in Shenzhen on 22 February 2001, no material defect was found during the inspection.

4. The Defendant therefore proceeded to ship the Goods to the Plaintiff's supplier in Germany known as Pol Impex Import/Export GmbHL ("Pol Impex"). After arrival of the Goods, some cartons were found to be wet with spots of moisture. In these cartons with visible damage of moisture, inner cartons were found to be humid and damp. The plastic buckets were wet with drops of water present under the cover, and the chalks inside the buckets were also wet. For those cartons which showed no visible damage of moisture, the outer and inner cartons were humid and damp. The plastic buckets were dry with drops of water under the cover, and the chalks inside the buckets were also wet. By reason of the aforesaid, the Plaintiff brought the present action against the Defendant for damages for breach of contract.

5. The main issue in the present case is to ascertain the cause for the presence of moisture in the chalks. As I see it, there are a number of possible causes for such defect. Firstly, due to faulty production, there was considerable moisture in the chalks prior to shipment which, for some unknown reasons, could not be detected when Pro QC inspected the Goods. Secondly, the moisture was condensation water formed when the ship carrying the Goods passed through different climate zones to Germany. Thirdly, the Goods were contaminated with water, whether it was rainwater, seawater or any other water, during transportation process. It was also possible that the German buyer damaged the Goods accidentally. It is common ground that in order for the Plaintiff to succeed in the claim, it must be able to prove that the first cause above was the more likely cause for the presence of moisture in the chalks.

6. After the Plaintiff had closed its case, the Defendant decided not to call any witnesses to testify in the trial. After listening to the evidence of the present case, I am of the view that the Plaintiff has failed to discharge the burden of proving that the Goods were defective before shipment.

7. It is common ground that Pro QC had conducted a detailed inspection of the Goods prior to shipment. According to the Plaintiff's expert, Mr Kloos, whom I accept to be an honest and reliable witness, if the chalks were defective and contained considerable moisture before shipment, Pro QC should have been able to detect such defect according to the test that they had conducted as stated in the inspection report. Wet chalk would write differently, and if it breaks, the texture would be different. As the Goods passed through the inspection without any serious complaint, it was unlikely that the Goods were defective before shipment.

8. In an attempt to rescue the Plaintiff's case, Mr Wong for the Plaintiff makes two submissions. Firstly, the number of samples, which were about 32 in total, picked out for inspection by Pro QC was small, and so the inspection result was not conclusive. Secondly, as the buckets were covered with lids and plastic wrapping, the water contamination must have been rather serious in order for water to get inside the buckets. However, as there was no visual damage to some of the cartons, the chance of having serious water contamination in transit was very small, if not non-existent.

9. In respect of the first submission, the Plaintiff expert, Mr Kloos, agrees that the inspection conducted by Pro QC was a detailed one. The inspection report submitted also indicates that the inspection was conducted in a professional manner, with the sample size also chosen professionally. In such case, it would be very difficult for the Plaintiff to argue that the inspection was not adequate for the purpose. On the other hand, according to the letters from Pol Impex, all the Goods were apparently defective when they arrived in Germany. Under such circumstances, all the facts tend to suggest that the defects in the Goods were caused by factors which occurred after shipment.

10. For the second submission, there is evidence that the Goods were subject to water contamination during transit. There was visual water damage to some cartons, the quantity of which, unfortunately, is unknown. The degree of water contamination was quite serious as the inner packaging, including the buckets, were all wet when the Goods arrived in Germany. Mr Kloos agrees that it was possible for water to seep into the buckets during shipment, thereby contaminating the chalks. With such observation, water contamination during transit was certainly a likely possibility.

11. However, Mr Wong argues if water contamination was so serious, why were some of the cartons appeared to be dry and yet the chalks inside the buckets were wet? I agree that there is a doubt here. However, I do not know how many cartons were apparently dry when the Goods arrived in Germany. It was certainly possible that some of the cartons, after subjecting to serious water contamination, were dry because of subsequent exposure to sun or other light source. Indeed, the outer and inner cartons were found to be humid and damp even in such kind of cases. Unfortunately, the Plaintiff has not adduced any evidence to show how the Goods were transported to Germany, or any expert evidence as to the likely chance of having water contamination during transit. Without such information, and there is clear evidence that some of the cartons had been subject to serious water contamination during transit, I am of the view that damage during shipment may be a likely cause for the presence of moisture in the chalks. Indeed, it was the initial view of the Plaintiff and Pol Impex, as their first reaction was to bring an insurance claim for damage to the Goods during transit. It was equally possible that the supplier or the transportation company in Germany might have accidentally damaged the Goods.

12. As there were a number of possible causes for the presence of moisture in the chalks, it is the duty on the part of the Plaintiff to show that faulty production was the more likely cause for the defects. After listening to the evidence of the present case, I simply cannot ignore other likely possibilities. I cannot say that faulty production was the more likely cause for the defects, and so the Plaintiff's claim should therefore fail.

13. In my judgment, there are a lot of things that could have been done by the Plaintiff in substantiating its claim. Firstly, it could have asked the representative of Pro QC to testify as to the details of the inspection. Secondly, according to the inspection report prepared by Pro QC, Pro QC had kept 3 pre-shipment samples as reference. Where are those samples now? Thirdly, the Plaintiff should perhaps have asked the German supplier, Pol Impex, to give a statement to confirm the actual number of buckets that were defective. In a letter dated 27 August 2001 from Pol Impex to the Plaintiff, Pol Impex seemed to suggest that all the Goods were defective. However, according to the report prepared by the German surveyor, at least 150 cartons of the Goods were free from defect. So which was correct? Honestly, even the Plaintiff does not know the answer. This certainly has a great impact on the issue of quantum. Finally, the Plaintiff could have adduced more expert evidence or test result to disprove that the defects were caused by water contamination during transit. Unfortunately, the Plaintiff has done none of these and as a result, there are a lot of missing holes in the Plaintiff's case. With all these unanswered questions in my mind, the Plaintiff has simply failed to discharge the burden of proof.

14. In support of the Plaintiff's case, Mr Wong for the Plaintiff seeks to rely on an alleged acknowledgement made by the then sales representative of the Defendant, Mr Tommy Lo, that the Goods were actually defective before shipment. Upon clarification, the Plaintiff is not relying on such acknowledgement as a formal admission which is binding on the Defendant, but rather it seeks to rely on it as a piece of hearsay evidence the content of which is true. As such, it is for the court to decide how much weight to be attached to such evidence.

15. In my judgment, the court should not attach any weight to such acknowledgement. Firstly, it is clear that Mr Lo had no opportunity of examining the alleged defective Goods after shipment. In such case, how did he know that faulty production was the cause for the defects? Secondly, it is the Plaintiff's case that the defects were latent which could not have been detected during inspection. In such case, how could Mr Lo possibly have known that the chalks were wet before shipment? Thirdly, Mr Lo was only a sales representative and there was no evidence that he was an expert in the production of chalk. In such case, any acknowledgement made by him as to the cause of the defects is quite meaningless.

16. It is clear from the evidence that Mr Lo made such acknowledgement after seeing the report by the German surveyor. In my judgment, Mr Lo, without the qualification to challenge the report, might just have made the acknowledgement upon the Plaintiff's invitation. It is equally possible that Mr Lo, in order not to upset his customer, just offered to replace the Goods without indulging on the issue of legal responsibility. In any event, in the absence of any information to show how Mr Lo could have known the cause of the defects in the chalks, I am of the view that the court should attach minimal weight to such piece of evidence.

17. After the Plaintiff had closed its case in the trial, the Defendant chose not to call any witnesses to testify on behalf of the defence case. Facing with such circumstances, the Plaintiff applied to reopen its case and sought to call the managing director of the Defendant, Mr Tsang Yiu-sang, to testify. In order to rescue the Plaintiff's case on the issue of acknowledgement, the Plaintiff wants to ask Mr Tsang to provide information on the alleged acknowledgement letters dated 27 June 2001 and 3 July 2001 respectively, and perhaps to ascertain from him whether any staff of the Defendant had had the opportunity of inspecting the Goods or ascertaining the cause of defects with the supplier. These are certainly something which have not been covered in Mr Tsang's own witness statement, and even the Plaintiff cannot possibly say whether Mr Tsang's evidence would be useful to its case. In my view, if the Plaintiff wants the Defendant to supply any information to help it to substantiate its case, the Plaintiff should have applied for further and better particulars, discovery or interrogatories before the trial. If the Plaintiff wants to elicit the help of the Defendant in improving its case after it has formally closed its case in the trial, I think that it is simply too late. I therefore refuse the Plaintiff's application to reopen its case.

18. There is also a side issue as to whether such acknowledgement was made in the course of a without-prejudice negotiation. In my judgment, there is nothing in the evidence to suggest that the parties intended the negotiation to be a without-prejudice one, and so I accept that the court is entitled to consider the acknowledgement as a piece of evidence. However, in view of the analysis above, such ruling becomes academic.

19. Based on the aforesaid, I am not satisfied, on the balance of probabilities, that faulty production was the more likely cause of the defects found in the Goods. As the Plaintiff has failed to discharge the burden of proof, I dismiss the Plaintiff's claim.