HSIN TEXTILES (HK) LTD v. SUPERKING TEXTILE LTD

DCCJ6531/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6531 OF 2003

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Dates of Trial  :  10^th, 11^th and 18^th June 2004

JUDGMENT

1. The plaintiff bought and the defendant sold cloth.  Three types of cloth were involved namely poplin, white denim and indigo denim.  It is not in dispute that the quantities and prices are as set out in the Amended Statement of Claim.  In brief the plaintiff claims damages for breach of the agreement between the parties, which it says provided for a delivery schedule for different consignments of cloth.  That schedule required delivery of poplin by 28 January 2003, indigo denim by 10 February 2003 and white denim by 14 February 2003.  But the defendant did not adhere to the schedule. Further, the indigo denim did not correspond in quality with the plaintiff’s approved sample.  As a result the plaintiff was unable to manufacture its garments and supply them to its customer in one complete shipment. It therefore lost profit and has been rendered liable to pay compensation to its customer.  It now claims damages as itemised in the Amended Statement of Claim amounting to $532,118.42 for breach of the agreement, and a declaration that it is entitled to recover from the defendant such damages as it may be held liable to pay, or may reasonably pay to its customer for default in delivery caused by the defendant’s breach.

2. The defendant denies liability.  It says that the delivery schedule on which the plaintiff relies was never accepted.  There were two contracts, one for poplin, and one for white and indigo denim.  The payment terms in both were for “L/C at sight”.  No letter of credit was delivered in respect of the poplin; the plaintiff asked for 30 days’ credit and because of time constraints the defendant accepted that.  It shipped a quantity of poplin to the plaintiff by sea on January 2003 and invoiced the plaintiff for $367,264.00 for it.  The plaintiff issued a cheque post-dated to 12 March 2003 in settlement.  This the plaintiff accepted but said that the denim must be paid for by letter of credit or cash on delivery.

3. On 10 March 2003 the plaintiff informed the defendant that the cheque could not be cashed because of insufficient funds.  After negotiations it issued in replacement of that cheque, a cheque for $150,000.00 dated 13 March 2003 and a cheque for $215,700 dated 25 March 2003.  The first cheque was honoured; the second was not, and the defendant sued on it.

4. The defendant pleads that it delivered part of the indigo denim on 15 February and another part on 17 February 2003, by air.  This was done on the understanding that the plaintiff would pay for the air freight.  The prices of the two shipments were respectively $59,392.50 and $89,535.00 and the extra transportation costs amounted to $51,336.07.  The defendant denies that the indigo denim did not correspond with the sample approved by the plaintiff before delivery, and avers that the defects, if any were caused by the plaintiff’s or its agent’s treatment of the fabric. 

5. The defendant says that the plaintiff approved the sample of white denim on 4 March 2003.  On 11 March it notified the plaintiff that the white denim would only be delivered C.O.D.  It invoiced the defendant for $48,385.20.  The plaintiff issued a cheque in payment, which the defendant refused to accept, insisting on cash on delivery; and because the plaintiff had not paid the balance payments in respect of the goods delivered, it withheld further delivery.

6. The defendant accordingly counterclaims for $201,827.07 being the price of the two lots of indigo denim delivered, but not paid for, i.e. $59,392.50 and $89,535.00 plus the extra transportation costs amounting to $51,336.07 and the balance of $1,564.00 in respect of the poplin.

7. By way of reply the plaintiff denies liability for the extra transportation costs and says that there was short delivery of the first lot of indigo denim.  Otherwise the defendant’s averments are denied.

8. Evidence for the plaintiff came from its assistant sales manager, Ms Shum Kit Ching, Jane, and from the defendant from its merchandisers Ms Wai Mai Lam, Sanna and Ms Chiu Pik Kwan, Irene, known as Idy.  The parties communicated by telephone and by e-mail.  In the e-mails also appear, on the plaintiff’s side, the names of Alice, Terence, Ellic, Emil Cheung and Koala who is identified as Ms Sin Yun Chan.  For convenience, I will use the English given names of the witnesses and other persons referred to and unless otherwise specified written communications referred to should be taken as e-mails.

9. The plaintiff received an import purchase order no. A33718 dated 14 October 2002 from one QVC, Inc. in the USA for a series of matched sets of poplin shirts and denim trousers.  The order specified that the garments not be shipped before 25 February 2003 or after 11 March 2003.  On 29 December 2002 Koala wrote to Sanna to place the plaintiff’s order for 14,040 yards of printed and embroidered poplin in colours of bleached denim, white and seafoam, and 13,070 yards of printed denim in colours of indigo and white.  The prices were specified.  Delivery was stated to be on or before 18 January 2003 at the factory in Vietnam and payment was to be by L/C at sight.

10. In brief, Jane Shum’s evidence was as follows.  The plaintiff sent the defendant a Booking Note dated 9 January 2003 which constitutes the agreement between the parties for the purchase and sale of the fabric at a price of $518,970.00.  It was a term of the agreement that payment was to be made 45 days after delivery.  The fabric was to be sent to the plaintiff’s factory in Vietnam and the garments which the plaintiff made were to be completed and sold on to its customer by March 2003.  Delivery is stated to be on or before 25 January 2003.  According to Jane, this document, which is signed for the plaintiff only, but not the defendant, is the only contract document.  Two other contracts which Sanna says were sent to the plaintiff on 8 January, and which I will deal with further below, were never received; Jane had never seen the documents before the trial and Koala had told her that no documents had been received. 

11. On 24 January 2003 Emil of the plaintiff wrote to Idy and Sanna of the defendant.  His e-mail is in the following terms:

As per our meeting today, noted the denim fabrics can’t be delivered before the CN, as the garment delivery is 3/14 ex Vietnam, so we can’t afford the late fabric delivery, pls rush for the following schedule, so we can work with Vietnam factory to see how they can rush the garment for us, thanks.

Print eyelet poplin:

–All ship before the CNY, i.e. ETD 2/28 ex Shanghai, provided that the blue combo can be approved by next Monday latest. (It is not in dispute that the date was a misprint and should be “1/28”)

Print Denim:

Indigo Denim:

Must start printing on 2/5 and deliver to HK from 2/8

Must catch the ETD 2/10 vessel in HK to Ho Chi Minh.

b) White denim:

Must be shipped ex Shanghai on 2/14 by boat (to Ho Chi Minh directly).

12. According to Jane, the defendant’s people agreed to this schedule.  In cross-examination she said that this agreement was reached at a meeting on 22 or 23 January.  She was not at that meeting, nor at the meeting referred to in Emil’s e-mail.

13. On 27 January Idy told the plaintiff that the defendant could not deliver the poplin on 28 January and begged the plaintiff to accept it on 31 January and to give the plaintiff a cheque for $365,700.00 post-dated to 12 March 2003 for partial settlement, notwithstanding that the whole lot had not been delivered, so that she could discharge her duty to her boss.  Under cross-examination, Jane could not identify the member if the plaintiff’s staff with whom Idy had this conversation; she said that she was told about it later, in a meeting.

14. In any event, on the same day the plaintiff sent the defendant an e-mail reminding it of the tight schedule and saying that any penalty imposed by the ultimate buyer would be passed on to the defendant.  Under cross-examination, however Jane accepted that this e-mail actually referred to another order for fabric, under the QVC reference number A37804.

15. Jane Shum went on to say that since the plaintiff was concerned about the schedule, a meeting was held on 30 January between Idy, Emil and Jane; and at that meeting Idy agreed on behalf of the defendant that the defendant would pay air freight charges from China to Vietnam in case the defendant failed to meet the delivery schedule.

16. In any event, the defendant delivered the poplin on 31 January. In fact the defendant invoiced the plaintiff for $367,264.00 for 15,968 yards of poplin on 27 January 2003.

17. Then, according to Jane the defendant failed to deliver the indigo denim on 10 February.  On that date Alice of the plaintiff wrote to Sanna asking when the plaintiff could expect to receive it.  On 15 February the defendant delivered 2,959 yards of  indigo denim, and on 17 February it delivered another 5,969 yards; the total was 7,928 yards, i.e. 872 yards short of the order of 9,800 yards.  In fact these shipments were made by air freight.  However, in cross-examination Jane had to retract the evidence of short shipment; it appears that she had got the figures from Koala but the actual packing lists showed that the first consignment consisted of 3,959.5 yards; so there was no shortage at all.

18. Then, said Jane Shum, the defendant failed to deliver the white denim on 14 February.  On 18 February the plaintiff sent an e-mail reminding the defendant that any penalty from the customer would be passed on to the defendant.  In fact this appears to be an e-mail from Koala to Sanna and Idy saying that the white denim strike-off (the net used for printing the pattern) had been rejected and confirming that it was agreed that the 4^th round strike-off would be submitted on 21 February.  She went on to say that it seemed that the garment delivery (in the middle of March) would be delayed due to late fabric and that any penalties from the buyer would be passed on.

19. The defendant failed to deliver the white denim despite reminders.  However on 5 March, Idy told Koala that the white denim would be delivered on 10 March.  Meanwhile, also on 5 March the plaintiff complained of short delivery of the poplin.  On 10 March there was no delivery. Idy and Sanna met Emil, who expressed concern over poor quality of the indigo denim and late delivery of the white; but it does not appear that Jane was at this meeting.

20. Then on 11 March there was another meeting attended by Idy and Sanna for the defendant and Emil and Jane for the plaintiff.  The plaintiff said that payment of the post-dated cheque for $365,700.00 would be withheld because of the defendant’s failure to deliver the white denim.  Also, it was discovered that there were defects in the indigo denim; the colours of the floral pattern were not as per sample and there were black spots on the cloth.  The defendant returned the cheque voluntarily because it could not confirm when the white denim would be delivered.

21. On 12 March, the plaintiff told the defendant that the white denim would be delivered on 17 March.  So the plaintiff drew a cheque for $150,000 dated 18 March for $150,000, and a cheque for $215,700 dated 25 March in favour of the plaintiff on condition that partial payment would be effected if the defendant delivered the white denim on 17 March.  However on 15 March the defendant unilaterally imposed a condition that the white denim would only be delivered against a cashier order, instead of 45 days’ credit.

22. In fact on 12 March Sanna and Idy wrote to Mr Anthony Yip, who according to Jane is the “boss” of the plaintiff referring to a conversation on 11 March in which he requested to postpone payment because of financial problems and asking him, after consultation with their own “boss” for payment of $182,850.00 by 13 March and a further $182,850.00 by a cheque dated 18 March.

23. This was followed by a fax message in Chinese from the defendant to Mr Yip of the plaintiff, unsigned but chopped, and setting out the defendant’s position; this is the communication of the unilateral condition spoken to by Jane Shum.  In brief the message was that payment should have been by letter of credit, in terms of the plaintiff’s original e-mail on 29 December 2002.  The plaintiff had complained of financial difficulties which did not permit it to issue the letter of credit and had proposed payment for the poplin by a cheque post-dated 30 days.  The defendant felt it had no choice but to accept, because the fabric had been manufactured; but when the cheque for $365,700.00 was collected it was found to be post-dated 45 days instead.  On 10 March Sanna had been told that the plaintiff could not meet this cheque until 18 March.  She and Idy had met Mr Yip who had confirmed this.  They had gone to their own “boss”, Mr. Wong, who had agreed to accept two instalments of $182,850.00 on 12 and 18 March; but the cheques delivered were for $150,000.00 and the other for $215,700.00.  Mr Yip was reminded not to delay payment of the latter.  The message went on to set out the amount which the defendant claimed was outstanding for goods delivered in February, to state that the white denim was ready completed, and to ask that the plaintiff prepare a bank draft for $48,385.20 for it, plus a cheque for the outstanding costs, on receipt of which the goods would be delivered immediately.

24. Jane Shum went on to say that the cheque for $150,000.00 was honoured on 18 March.  On 19 March the plaintiff gave notice to the defendant that unless the white denim was delivered that day the defendant would be liable for damages as a result of the cancellation of the order by QVC.  In fact this is an e-mail from Terence of the plaintiff to Sanna, replying to the fax message of 15 March and setting out the plaintiff’s position.  Thereafter the defendant replied, and informed the plaintiff that the white denim was available in the China office but “again refused to deliver the white denim to the plaintiff.”.

25. In fact in the e-mail of 19 March, Sanna replied that her boss was not in the office and that she would reply later but that, in the meantime, the white denim was finished and available in the China office (which is in fact in Shenzhen).  The plaintiff was asked to sent its quality controller to inspect before shipment.  There is no refusal to deliver, though it appears from subsequent e-mails that the plaintiff took the position that it had no duty to check the goods before delivery.

26. Ms Shum went on to say that the plaintiff had no alternative but to send a cheque post dated to 7 May, on 22 March to the defendant in the hope that the defendant would deliver.  The plaintiff had funds in the account to meet the cheque; it was not in financial difficulty.  But the defendant did not deliver by 24 March and so the cheque was countermanded.  In fact Jane is not telling the whole story; Terence sent an e-mail to say that he had sent the cheque, but the plaintiff’s staff refused to accept it, and that the plaintiff needed the white denim by 24 March at the latest. Sanna replied that the cheque was not acceptable but that one post-dated to 14 days after shipment would be acceptable.  Also a guarantee letter was sought in respect of the other outstanding costs, including the air freight of the indigo denim.

27. Jane Shum says that the defendant has never delivered the white denim, therefore the plaintiff was unable to make up one set of garments, and is entitled to reject unused poplin which should have been used for that set.  As a result of short delivery and poor quality of the indigo denim the plaintiff was only able to manufacture a lesser quantity of the garments ordered.  Further the buyer rejected a number of them.  Accordingly the defendant is liable in damages which are set out in her witness statement. 

28. Jane Shum also referred to a number of inspection reports by one Intertek Testing Services, of inspection of the finished garments.  These were less than satisfactory; it was rather difficult to understand exactly what was referred to.  Some of them appeared to say that the fabric was not acceptable even thought a smaller number of defects was found than the number stated to be allowed.  It also appeared that some documents relating to the products of another mill, Contempo, had been inserted into the bundle of inspection reports.  In any event, it was apparently on the basis of these that garments were rejected.

29. Jane Shum also produced samples of the cloth and the garments in court, in particular to demonstrate the defects in the cloth, of which the plaintiff complains. In brief, she says that the defects, i.e. the wrong colour in the centre of the floral patterns, and black spots going right through the denim, with symmetrical spacing with regard to the patterns, are defects which must have been caused in the manufacture of the cloth.  They would not show up until the indigo denim, as manufactured, was washed to its blue and pale-blue colours by the Vietnam factory.  She rejected suggestions that they must have been caused by the washing or other manufacturing process carried out after delivery.  Unfortunately, there was no expert evidence on this point.  However it became apparent that before delivery, samples of the made-up indigo denim were delivered.  The Vietnam factory would sew these together and wash them and then send them to the plaintiff’s customer for approval.  Once approval was given the plaintiff or its agent would tell the defendant to go ahead and deliver.  There was no other inspection of the denim on or before delivery.  Once delivered there would be shrinkage testing; then adjustment of the drawings on the basis of the shrinkage test results; then the fabric would be cut and the piece lined up and swen; and then they would be washed to produce the “stone-washed” effect required by the customer, and according to the shades the customer had approved.

30. I turn to the evidence for the defendant.  This came from Sanna Wai and Idy Chiu.  Ms Wai said that on about 27 December 2002 someone from the plaintiff showed her some samples and she quoted a price.  The plaintiff then sent Koala’s e-mail of 29 December, in effect placing the order, for delivery on 18 January and with payment by L/C at sight.  At this stage, Sanna did not know about the plaintiff’s own import purchase order with its customer, nor that the plaintiff had any deadline; she was just told the matter was urgent.

31. She then received some poplin and indigo denim samples, which were the same as she had seen before; and she was told that they were for colour standard only.  She got some samples prepared by her factory and sent them to the plaintiff and then on 8 January 2003 she had a meeting with Jane Shum.  Jane approved the poplin, and changed the specification of the denim as regards the twill.  Sanna then said that the plaintiff would ship the poplin on or about 30 January and the indigo denim on or about 15 February.  No date could be agreed for the white denim since the sample was not yet approved.  Jane raised no objection to the delivery dates.

32. Sanna then prepared, and sent off to the plaintiff, the two contracts dated 8 January, for the poplin and the indigo denim.  The prices quoted were CIF Vietnam.  The payment term was “L/C at sight”.  “Shipment or delivery” of the poplin was given as on or about 30 January and of the indigo denim as on or about 15 February.  Each contract contained the following:

“Other Clauses:       5% more or less in Quantity and Amount to be accepted

No alteration to be made without seller’s written confirmation

Any complaint should be notified within 7 days from date of delivery

We will not accept any claim after the goods having been changed or cut

Final delivery subjected to the date of Lab Dip or quality approval.

Remarks:                  Please sign with chop and return to us by fax within 3 days.

Otherwise we will assume this contract to be accepted by buyer.”

These are of course the contracts which Jane Shum says, although she has no personal knowledge of it, that the plaintiff never received.  In any event, they were not signed and returned, if they were received.

33. Ms Wai says that she sent an e-mail to the plaintiff on 24 January giving shipping dated on 31 January and 14 February for the poplin and the denim and noting that no shipment date could be given for the white denim because it was not yet approved.  On the same day Sanna had a meeting with Emil Cheung of the plaintiff.  Emil told her – and this was the first she knew of it – that the plaintiff had to ship the finished garments by 14 March.  He asked to have shipment from the defendant as soon as possible.  She said that the defendant would try to accommodate the plaintiff but could not promise.  She asked about the letter of credit and Emil said that the plaintiff was arranging it.

34. The next day she found Emil’s e-mail of 24 January, the contents of which I have noted above.  She found the schedules that Emil was requesting were unworkable.  She telephoned him and told him so; and he asked her to deliver as soon as possible.  In oral evidence she said that no agreement for a new delivery schedule was reached at this meeting; they mainly discussed the existing delivery dates.  Under cross-examination she maintained that Emil was asking the defendant to push for the delivery dates he wanted, but that no agreement to meet those dates was ever reached.

35. She went on to say that on 27 January, Idy telephoned Emil to chase for the details of the letter of credit.  But Emil told Idy that the plaintiff had no quota for opening a letter of credit and offered a postdated cheque, which could be exchanged for a letter of credit after the New Year.  Idy discussed this with Sanna and both reported to the supervisor, Mr Wong.  It was decided to accept a cheque post-dated no more than 30 days.  In Sanna’s presence Idy telephoned Emil and told him this.  After this Sanna prepared the invoice, but mis-typed the date when payment was due, as 18 instead of 28 February.

36. Sanna Wai went on, in her statement, to describe what happened when Idy met someone at the plaintiff’s office on 27 January and received the cheque for $365,700.00.  I will deal with this below, as part of Idy’s evidence.

37. Ms Wai said that she was passed the plaintiff’s Booking Note on 29, 30 or 31 January; in any event before the Chinese New Year.  She had never seen it before that.  She saw that the delivery date stated had expired and that the plaintiff had changed the payment term to 45 days’ credit.  She crossed out the delivery date and put in those which according to her were agreed; and she crossed out the new payment term and substituted the original.  She wrote at the top the note:

                        “To: Koala, Pls refer to our contract on 8/1/03”

      and then she sent back the Booking Note, with her alterations on it. 

38. So far as the air freight charges are concerned it is Sanna’s evidence that Idy told her that the plaintiff had agreed to pay them.  On 14 February Idy telephoned Terence about the freight schedules and charges.  Sanna went ahead and organised them, and issued a debit note for $51,336.07 for the air freight less the shipping charges which the defendant would otherwise have paid.

39. On 5 March Sanna told Idy to tell Koala that the defendant would be ready to deliver the white denim on 10 March by air, if the plaintiff would pay for the air freight.  Koala agreed to this, and Idy reminded her to prepared the letter of credit or payment by cash on delivery.  But on 10 March Idy and Sanna met Emil at the plaintiff’s office, and he told them that the cheque for $365,700.00 could not be cashed because of insufficient funds.  Sanna asked for a letter of credit or cash for the white denim and told Emil that the defendant could not take any further risk of non-payment.  But by the close of business that day, no payment was made; so Sanna told her forwarder to withhold delivery.

40. On 11 March Sanna and Idy had a meeting with Anthony Yip of the plaintiff.  After negotiations the cheque was returned to the defendant.  This was followed by the e-mail in which they passed on their supervisor’s agreement to accept  two cheques for $182,850.00; but in fact what the defendant got was one cheque for $150,000.00 and one for $215,700.00.  The first of these was cashed.  On 17 March Sanna spoke to Jane and told her that the white denim was ready for delivery on payment.  On 19 March she wrote to the plaintiff and asked it to send its quality controller to check the white denim and take delivery.  Then on 22 March the plaintiff issued a cheque for $48,385.20 for the white denim.  But it was post-dated to 7 May and this was not accepted.

41. Sanna went on to deal with the other cheque, that for $215,700.00.  According to her it was dishonoured on 27 March.  Subsequently the defendant sued on it and obtained a summary judgment which the plaintifff satisfied in July 2003.

42. Sanna in her witness statement, which she adopted, dealt at some length with the Intertek reports.  In oral evidence she pointed out that the black marks on the denim went through the fabric, whereas the black printing did not and drew the conclusion that the marks must have come in the washing process.  In cross-examination she said that she was not a technician.  In fact there was no expert evidence and none of the witnesses on either side was a technician.  Ultimately I think it is necessary to treat what any of them says about the reports, or how the defects in the fabric came into being, with the greatest circumspection.

43. Sanna was cross-examined at length particularly on the terms of the e-mail dated 28 February, from Idy/Sanna to Emil/Terence/Jane.  In brief the e-mail says that the defendant was given a short time to produce the printed denim, and although it was not the defendant’s problem it air-freighted the denim to Vietnam at its account and at the plaintiff’s request.  The same problem is to be suffered again with the white denim; and the defendant asks the plaintiff to persuade its customer to extend the delivery time “or share the cost of fabric air shipment with us in case we need to air the white printed denim fabric to your factory”.  There is also reference to the matter of letter of credit and payment by cheque, which is generally consistent with the defence evidence.  But what is said about air freight was relied on by the plaintiff as indicating that the defendant had agreed to bear the cost of the air-freight of the denim rather than to pay it as a disbursement to be recovered.  Sanna maintained that  this was not the case, that the plaintiff had agreed to pay it, and that in effect she was reminding the plaintiff of how the defendant had helped it and trying to handle the matter.

44. Generally Sanna Wai maintained her evidence under cross-examination.  One point which came out, in response to questions about the plaintiff’s approval of goods, was that before any goods were shipped, by air or otherwise, the plaintiff would be given a bulk sample of five yards of each type of fabric and 8-10 inches from the head end of the bolt.

45. Ms Chiu Pik Kwan, Irene, known as Idy, gave evidence (by adoption of her witness statement) that on 27 January 2003 she had telephoned Emil of the plaintiff to chase for the details of the letter of credit.  But he had told her that the plaintiff had no quota for a letter of credit and asked the defendant to accept a post-dated cheque which could be exchanged for a letter of credit after the Lunar New Year.  Because of the imminent delivery deadline the defendant agreed to accept a cheque post-dated for 30 days.  She went to collect the cheque but found that it was post-dated for 45 days.  She objected, but was told that the plaintiff had cash flow problems and wanted the defendant to accommodate it in the interests of having a long-term business relationship.  Since all the poplin was ready to ship the defendant accepted the cheque.  But Idy maintained to the plaintiff’s representative that the denim had to be paid for by letter of credit or cash on delivery.

46. Idy said that she had met Emil Cheung and Jane Shum on 30 January 2003 to discuss shipping schedules.  They spoke of the plaintiff’s tight schedules for delivering garments and asked for air delivery of the denim, to be paid for by the plaintiff. Idy had agreed to this on the plaintiff’s behalf.  Then on 14 February she had told the plaintiff’s employee Terence of the air freight charges and he had accepted them.  On 5 March Idy had told Koala that the defendant would be ready to deliver the white denim on 10 March, by air, if the plaintiff would pay the air freight.  Koala agreed. Idy reminded her to prepare the letter of credit.  She said that she attended the meetings on 10 and 11 March along with Sanna.  She gave similar evidence to Sanna of what was said at those meetings.

47. Idy also gave oral evidence to expand on some of the points in her statement.  Under cross-examination she generally maintained her evidence.

48. Before turning to the facts I note that the plaintiff’s witness Jane Shum was not in the front line for most of the transactions.  Koala was.  While Jane no longer works for the plaintiff, and this is said to make her independent, Koala is still working there.  The fact that she has not given evidence does not inspire confidence.  The same of course applies to various other persons named in the e-mails as having been participants in important meetings such as Emil and Terence. For instance, Terence was at the meeting at which Idy is said to have begged the plaintiff to accept and pay for partial delivery and Jane was not.  Jane also had to make various retractions under cross-examination, perhaps the most significant being that relating to the short delivery.  As I have indicated above, there never was any short delivery; there was a misprint on a document but other document show the true facts.

49. It is argued, and I accept that Sanna and Idy showed a degree of evasiveness under cross-examination.  However as always in deciding the facts, especially where there are unsatisfactory witnesses on both sides it is necessary to look more closely at the documents and the inherent probabilities of the case than at the demeanour of the witnesses.

50. I turn first to the question of whether, in the beginning, the parties had agreed credit terms or payment by letter of credit.  In the beginning the plaintiff proposed the latter and wanted delivery by 18 January 2003.  Then we have the defendant’s two contracts dated 8 January 2003 providing for the poplin to be delivered about on about 30 January and the denim about 15 February because, according to Sanna, the defendant could not deliver the denim before the Chinese New Year.  Sanna says that these were sent to Koala.  According to Jane she never saw them before they were shown to her in court.  She cannot say whether or not Koala received them.

51. The plaintiff relies on its booking note dated 9 January 2003 which provides for delivery of all the goods on or about 25 January and 45 days’ credit; but Sanna says that she never saw it until about the end of the month.  Her copy, which she says was sent back to Koala with the handwritten amendments referring to the contracts is produced; but Jane can only say that Koala never told her of receiving it.

52. It is unfortunate that these documents were not signed by both parties.  Frankly, they are their own worst enemies for not getting their agreements properly recorded and signed, and relying on e-mails and telephone calls; the first being invariably open to question as to what they mean and the second to inexact recollection.  In any event, it seems to me more probable than not that what both parties originally had in mind was a letter of credit.  I prefer the evidence of Sanna on this matter.  Further, the letter of credit was proposed by the plaintiff in the first place.

53. The next matter is the main plank of the plaintiff’s case which is the delivery schedule set out in Emil’s e-mail of 24 January, and which the plaintiff says the defendant agreed but then breached, causing delay which in turn caused the plaintiff to be unable to delivery its finished garments on time.  Sanna says that the schedule which applied was that set out in her e-mail of the same date, sent before the meeting referred to by Emil.

54. It is necessary to look at these communications in more detail. 24 January was a Friday.  On the poplin, Sanna wrote that samples would be sent for approval “tomorrow” and the goods would be ready to ship on a vessel sailing on 31 January.

55. Emil wrote that the poplin had to be shipped on 28 January (the following Tuesday) “provided that the blue combo can be approved next Monday latest”.  Sanna’s position in evidence was that the defendant simply could not meet the schedule the plaintiff wanted and it seems to me that that must be right on this point.  It seems impracticable to expect the defendant to have the goods ready to ship on the Tuesday after the plaintiff approved samples on the Monday, at any rate by comparison with approving them on the Saturday, and shipping them on the following Friday.

56. As to the indigo denim, Sanna wrote that it would be shipped on 14 February “due to  Chinese new year holiday” and with reference to the white denim noted that the factories would not open till 8 February.  Emil wrote that printing should start on 5 February, for delivery to Hong Kong on 8 February so as to ship on a vessel leaving on 10 February.  How the defendant was supposed to do this if the factories did not open until 8 February is not explained.

57. It is suggested that Sanna, who agreed that she would normally e-mail on important matters rather than rely on telephone calls, cannot be telling the truth because, once she received Emil’s e-mail, she only spoke to him on the telephone and did not e-mail him back.  Looking at the terms of the e-mails, however, it is obvious that Sanna could not have agreed to what Emil wrote; what he wanted simply could not be done given the time available.

58. It is also argued that the defendant accepted the terms  by shipping the poplin on 31 January.  This cannot be right, because this was the date arranged by the defendant in the first place.

59. Sanna’s evidence agrees with the inherent probabilities of the matter.  There is no evidence from Emil. Jane’s evidence about the meeting was unclear.  In cross-examination she said that the meeting was before 24 January and in any event she did not attend.  I prefer the evidence given for the plaintiff and find that the defendant did not agree to the terms set out in Emil’s e-mail.  The delivery schedule to be followed was that proposed by Sanna.  Since the poplin was shipped on 31 January and the indigo denim was in fact delivered (by air) on 15 February the delay relied on by the plaintiff is not proved.  I will deal with the question of who pays for the air freight, when I come to consider the defendant’s counterclaim.

60. I have already dealt with the averments of short delivery.  Jane Shum had to retract her evidence of this on seeing the packing lists, which show that the full amount was delivered.

61. As to non-delivery of the white denim the question is whether the defendant failed to deliver, or withheld delivery because the plaintiff did not pay.  It appears that there never was any concrete delivery schedule for the white denim.  Sanna’s e-mail of 25 January suggests delivery about 17 February, depending on when the samples could be approved.  Various e-mails followed and in fact they were approved on 4 March, as appears from Jane’e e-mail of that date.  There is further no dispute that the white denim was ready to be air-freighted from Shanghai on 10 March.  This in turn depends on whether as Jane says, the parties agreed that the cheque for $365,700.00 would be exchanged for two cheques for lesser amounts payable on 18 and 25 March, which would be met if the white denim was delivered on 17 March; or whether as Sanna and Idy say, the defendant allowed the plaintiff, which had cash flow difficulties to exchange this cheque for two others of equal amount, payable on 13 and 18 March but the plaintiff did not comply with this in issuing the two cheques which it did and therefore the defendant demanded a bank draft for the whole balance before delivery.

62. The relevant documents are the e-mail from Sanna and Idy dated 12 March, referring to the plaintiff’s request to postpone payment for a week because of financial problems and asking for two cheques of $182,850.00 payable on 13 and 18 March.  This is followed by the defendant’s fax of 15 March setting out the defendant’s position regarding the payments generally and demanding settlement of all outstanding invoices.  Granted that these documents emanate from the defendant and not the plaintiff, they are contemporaneous and the e-mail refers to the meeting on 12 March.  There is also the fact that the plaintiff’s allowed its cheque for $150,000.00 to be met on 18 March which it would hardly have done, if payment had been conditional on delivery of the white denim on 17 March.  Further the defendant sued on the second cheque and apparently obtained a summary judgment.  Looking at the evidence against the background of the documents I am satisfied that the defendant, having in the interest of doing the business given the plaintiff some indulgence to pay by the cheque for $365,700.00 rather than the letter of credit originally agreed, and then having further agreed to accept two cheques in lieu, found that it was not getting what was offered and therefore, not surprisingly, set its face against further indulgence and insisted on payment.  This was not an unilateral change as the plaintiff says; rather it was going back to the original agreement.

63. The plaintiff’s next averment is that the indigo denim did not correspond in quality with the agreed sample.  There are various problems with this.  The material, once shipped by the defendant, had to go through a washing process before it was cut and made up into garments.  As I have indicated, Jane Shum had to agree that before shipment the plaintiff would get samples of the actual cloth.  There was no complaint of poor quality at that stage. In fact the two contracts on which the defendant relies, and which, as I see it, the plaintiff probably received, provide for complaints to be made and that the defendant will not accept any claim “after the goods having been changed or cut”.  There is no evidence of defects in the cloth in its original state. 

64. Although the plaintiff relies on four inspection reports on the finished garments by Intertek Testing Services, the maker of these has not been called.  Although Jane Shum sought to explain the reports, it is difficult to see whether the rejections, where stated, were because of defective workmanship, which is not the responsibility of the defendant, or defective material.  There is no evidence from the end buyer as to why the goods were in fact rejected, whether on the ground that there was something wrong with the cloth (the plaintiff by amendment says that there were black spots on it, caused by the printing process) or for some other reason. Further Jane Shum’s explanations appeared to be rather inconsistent as indeed did the reports themselves; in some cases it was difficult to see why the maker had rejected the garment concerned because the defects found were within the stated number of defects allowable.

65. Black spots appear on some of the actual garments exhibited, regularly spaced with regard to the flower patterns printed on the cloth.  Jane Shum said that the black spots must have been caused by the defendant’s printing process, because they came through the cloth and were visible on the other side.  Sanna Wai said that they could not precisely because the black printing in the flower patterns does not come thought to the other side of the cloth.  Neither of these ladies is an expert and I do not see how I can rely on opinion evidence from either.  I am left in the position of having defects in garments which had been subjected to other processes after the cloth had been delivered and which could therefore have been caused by those other processes.  So whether the cloth as delivered conformed to the samples or not, I am not in a position to find.

66. It follows that the grounds for the plaintiff’s claims are not made out.  I do not need to go into the quantum but would say that most of it is assertion and is not backed by proper documentary evidence. 

67. I turn to the counterclaim.  Basically this is for the balance unpaid in respect of the poplin, the price of the indigo denim, and the air freight charges for sending the latter to Vietnam.  I have no doubt that the plaintiff has had the poplin and the indigo denim and must pay for it.  The remaining question relates to the air freight and what was agreed as to which party should pay for it.  Of course it is for the defendant to satisfy me on the balance of probabilities of the agreement on which it relies.

68. The major difficulty which the defendant faces is to overcome the terms of the e-mail from Idy/Sanna dated 28 February 2003.  The relevant parts are:

“Although we do not think it is our problem but we aired the fabric to your Vietnam factory at our a/c already as yr requestment”

and, relating to the white denim,

“Pls kindly understand that we are not creating any trouble to you, but we hope you can understand that we have done our best to co-operate with yr end and pls kindly help us to persuade yr customer to extend the gmt delivery or to share the cost of fabric air shipment with us in case we need to air the white printed denim to your factory”

69. Sanna and Idy were cross-examined on this, and I accept that they seemed rather evasive but the tenor of their assertions was that what the defendant was really doing, in relation to the white denim, was asking the plaintiff to get its customer to put back the delivery date.  Incidentally I accept that the defendant did not know what that date was until about 24 January.

70. It is rather difficult to be clear that the e-mail of 28 February shows that the defendant had agreed to pay the air freight.  Payment “at our account as your requestment” can be interpreted either way.  The reference to a possible future payment of air freight to be shared with the customer suggests that the defendant will pay the money; but whether this is to be payment as a disbursement to be recovered is not clear.  Another document is Koala’s e-mail dated 14 February which refers to “air shipment (prepaid)”.  The air waybill refers to the freight being prepaid; this means pre-payment to the shipper.  So this does not help either.  It casts no light on who will ultimately pay.

71. What is more definite, however, is the defendant’s debit dated 18 February 2003 for the air freight charges.  Jane claimed not to have seen it which is a little strange given her e-mail of 15 April 2003 in which she said that she had received it by hand that day, and that the plaintiff would not pay it.  However this document was not put to her.  There is no evidence and it has not been suggested that the debit note was made up in April and pre-dated so I must take it that it was not.  Clearly whatever construction can be placed on the e-mail of 28 February, the defendant had already, ten days before, sought to get the air freight charges out of the plaintiff.

72. It is argued that it is unlikely that the defendant would have agreed to put up the money for the freight charges in the situation where the plaintiff had breached its agreement to pay by letter of credit had not yet paid for the poplin and indeed had broken its promise to pay by a 30 day post-dated cheque, sending instead one post-dated for 45 days.  I see the force of this; but Idy under cross-examination explained that she thought the plaintiff was a big company and would keep its promise.  At that stage the defendant was still trying to accommodate the plaintiff.  No doubt the defendant was imprudent in so doing but that was still the situation in the middle of February 2003.  It seems more likely that the defendant would do that, than that it would, in the circumstances where, on my finding, it was not at fault in causing delay, agree to bear the cost of air freight.

73. I am therefore satisfied that it is more probable than not that the plaintiff agreed to pay the air freight.

74. In conclusion, then, the plaintiff’s claims are dismissed with costs to the defendant, to be taxed if not agreed.  The defendant will have judgment on its counterclaim for $201,827.07 with interest thereon at prime rate plus 1% from 22 April 2003 to the date of judgment and thereafter at the judgment rate until payment, and costs to be taxed if not agreed.  Since the judgment is to be handed down the costs orders are nisi.