XCHRX TAI WAI HON t/a SEASONS TEXTILES CO.v. LYNCWELL VENTURES LTD.

1996, No.A3445

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an appeal by the defendant against the refusal of the Master to set aside default judgment entered by the plaintiff for default of defence.

2. This is a claim arising out of a sale of goods transaction between the plaintiff and the defendant. The defendant had entered into a contract to supply the goods in question to Eurotex, a local company, who in turn had contracted to supply the goods to Clover Leisure (U.K.) Ltd. who ultimately contracted to supply the goods to Taylor Made, another U.K. company. There was no dispute that it was known to the parties that the contracts stipulated delivery of goods by mid February, and this was a requirement throughout the chain of contracts.

3. It was the submission of the defendant that there is a defence on the merits to the plaintiff's claim. Firstly it was alleged that there is a valid claim for payment of the difference between the air-freight charges and the sea-freight charges arising from late delivery of the goods by the plaintiff. Secondly, there is a claim for the value of fabric retained by the plaintiff which ought to have been returned to the defendant.

4. The defence on the difference between the air-freight and the sea-freight charges was based on an allegation that there was an agreement by the plaintiff to pay this difference because of the inability of the plaintiff to deliver the goods by 8 January 1996, which was the contractual date for delivery, leaving the defendant with something like five weeks or so to sew the goods onto garments to be shipped to the U.K. It was not disputed that subsequent to the making of the contract, the defendant requested variation to the design of the goods and that the last and final revision was sent to the plaintiff as late as 30 December 1995, leaving the plaintiff with something like 8 to 9 days for manufacturing the goods prior to delivery as agreed on 8 January 1996.

5. The defendant's case is that notwithstanding this last minute request for revision, the plaintiff never asked for any extension of time for delivery and was contented to abide by the contract to deliver the goods within the 8 to 9 days. And this, the plaintiff was contented to do notwithstanding the repeated reminders by the defendant to the plaintiff that in the event of delay the plaintiff would have to pay the difference between the air-freight charges and the sea-freight charges. It was the defendant's case that the reminder of liability for the additional freight charges was made known to the plaintiff at the commencement of negotiation for the contract round about 12 December 1995. This can be found in paragraph 17 of her affirmation. That was before she made her revisions to the contract design. In paragraph 25 of the same affirmation, she described what happened between the parties after the revision was made to the design of the goods. She said that round about 12 December 1995, there were certain discussions or conversations between the parties relevant to this matter. She said that round about that time, she again reminded the plaintiff of the importance of the delivery date, that the plaintiff must keep to the contractual time and that any late delivery that attracted additional freight charges would be on account of the plaintiff.

6. She said that she advised the plaintiff during the conversation that in order to preserve the U.K. order, it would likely be necessary for her to have the finished garments air-freighted to the U.K. She said she reminded the plaintiff that in such case, the plaintiff would be responsible for such air-freight charges which will be set off against the price of the goods. She said in response Mr Tai asked what the likely cost of such air-freight might be, she said she replied that she expected that it would be in excess of HK$100,000. There she ended her evidence on the alleged conversation. I have enquired with Mr Chan and he confirmed that paragraph 17 and paragraph 25 represented the sum total of the evidence he was relying on to allege the existence of this agreement.

7. The plaintiff's case was that as a result of this revision it was quite clear to the plaintiff that it was impossible to keep to the original agreed date for delivery. There was then this agreement for an extension of time for delivery until 17 February 1996.

8. The case boiled down to this : that is, a person's word against another as to whether there was an agreement to pay the additional freight charges; or whether to the contrary, there was an agreement for extension of time for delivery. The documents were not really helpful on this and by that I mean documents that existed prior to litigation. The test to be applied, is of course, whether the defendant stands a chance of success in the defence alleged. In other words, whether her story is believable by a reasonable tribunal. The test is of course not whether I would or should believe her evidence. After considering all evidence, I find the story proposed by the defendant inherently plausible. That it will be highly unlikely for the plaintiff not to have asked for an extension of time when the fault was with the defendant in making last minute revisions to the design. I find the plaintiff's case highly probable as compared with the defendant's plausible allegations. What the defendant would like the court to believe is this : the plaintiff, who had been submissive in conceding that he must abide by the original time (notwithstanding the last minute alterations and revisions made by the defendant) in that he was agreeable to pay the additional charges when the fault was not with him because he was only left with a very short time - 8 to 9 days - to manufacture the goods, far less than the original estimate under the original terms of the contract. The defendant would like the court to believe that a person behaving in that manner would have suddenly turned into a wholly dishonest crook in disputing his liability for such additional charges.

9. On the contrary, the defendant would have the court believed that :- she, who was accommodating her ultimate customers in making the revisions (because afterall the revisions were required and requested by the ultimate customer, not by the defendant herself); would be in such a strong position vis-a-vis the plaintiff as to demand compliance with original terms for delivery date, not granting any extension of time. More unbelievable, she would like this court to believe that the plaintiff never even attempted to ask for an extension of time. In the circumstances, I find such a story incredible.

10. When one further considers the evidence placed before the court, it becomes more clear that the story of the defendant was full of holes and cannot stand any chance of being believed. The plaintiff was guilty of five weeks' delay on the evidence, notwithstanding that the goods were not shipped by the defendant with a five week delay. There was additional delay before the goods were finally shipped. The goods were not shipped by the defendant until round about middle of April, that is two months after the actual delivery date. According to the original time schedule, the goods ought to have been delivered towards the end of March if all the defendant required was to make up the five weeks' delay caused by the plaintiff. Prima facie, it appears that the ultimate delay was not solely attributed to the plaintiff. It appears on the documents there were arguments between the various contracting parties on the side of the defendant, and by that I mean the customers of the defendant.

11. Strange enough, there is a letter dated 1st January 1996 from Taylor Made, the ultimate customer, agreeing to pay for the difference between air-freight cost and sea-freight cost for the garments in question and that the garments can be shipped separately, sometime in middle of February and early March. If there was such a generous agreement from Taylor Made, then Clover Leisure would not be liable for any such additional freight charges, in which case Eurotex and the defendant could not have been liable for any additional freight charges. The ultimate customer agreed to bear this additional burden.

12. Somehow the relationship between the parties deteriorated after that for reasons which is not immediate apparent to me on the materials. And the reason why I said it is not apparently clear to me is because of the selective disclosure by the defendant of exchange of correspondence between the various relevant parties on the dispute arising from the goods during the material time. I was shown a letter dated 27 August 1996 from Taylor Made which clearly indicated that Taylor Made was not aware of the truth, during the material time, as the letter made complaint about being aware for the first time there were various other parties involved in the sale, and that Taylor Made was aware for the first time as to the reason for the delay. On that basis, it would appear that Taylor Made was not happy about the offer it made previously to be responsible for the difference in air-freight charges. That might be the reason why there is allegedly a present dispute between the parties as to whether Taylor Made could be held to its original promise to pay the difference of air-freight and sea-freight charges.

13. I do not propose to go into the various exchange of correspondence on this. The net result of those correspondence is that there were various issues in dispute between the parties, like who was to pay for the additional inspection cost caused by partial shipments to the tune of three shipments instead of one or two. It is apparent to me that I am seeing probably the peak of the iceberg as regard the true nature of the disputes between Taylor Made, Clover Leisure, Eurotex and the defendant. But it is apparent to me that whatever is the truth between these various parties, that there is a very high probability of a break in the causal link between the liability for the additional freight charges and the alleged delay by the plaintiff in delivering the goods.

14. In conclusion, I am not satisfied at all that the defendant had made out a case for setting aside the default judgment on the ground that it has an arguable defence that stands a chance of success at a trial. For the reasons given, I am not satisfied that the Master had faulted in his refusal to set aside the default judgment and the appeal is dismissed accordingly.

15. The appeal is dismissed with costs. I do not accept that this is a case where indemnity costs should be imposed on the defendant notwithstanding the allegedly improper conduct of the defendant in the conduct of its appeal, and the defence which has actually no merit in it at all. I am quite satisfied that this is a case suitable only for ordinary party to party costs and I so ordered.

16. The form of judgment is to be agreed between the parties.

17. I will also grant liberty to the defendant to apply in respect of the outstanding claim of set off in the sum of $2,680 for the value of fabric retained by the plaintiff. That sum would mean of course that the set off can only be pursued in the Small Claims Tribunal.

(Jerome Chan)

Judge of the High Court