CHEN HENRY AND OTHERS v. WILLIAM E. CONNOR & ASSOCIATES LTD

HCLA 51/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 51 OF 2006

(On appeal from Labour Tribunal Claim No. LBTC 1279 of 2006)

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J U D G M E N T

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Introduction

1.  This is the Defendant’s appeal against the Presiding Officer’s order dated 19 October 2006 awarding the Claimants wages in lieu of notice and severance payments.  The trial was conducted in Chinese in the Labour Tribunal.  But on appeal, counsel for the Appellant, with the consent of counsel for the Respondents, obtained leave to conduct the appeal in English.

2.  The Defendant is a company in Hong Kong carrying on business as a buying agent earning commission by providing comprehensive product development assistance to overseas principals, particularly of garment products.  Its work involved finding manufacturers, monitoring the production process up to delivery of the finished garments to its principals.  Part of the work is to ensure that the country of origin requirements and the applicable government regulations in both the exporting and importing countries for the garments are complied with.

3.  The 2^nd Claimant was the general merchandising manager in charge of a staff of forty-seven in Hong Kong, including the other three Claimants, and twelve in the People’s Republic of China (the “PRC”).  The 3^rd Claimant was the divisional merchandising manager with a staff of six, including the 1^st Claimant who was a senior market representative.  The 4^th Defendant was the divisional quality assurance manager with a staff of fourteen in Hong Kong and twelve in the PRC.

4.  Sears Holdings Corp (“Sears”) and Lands’ End, Inc (“Lands’ End”) are important clients of the Defendant.  They have elaborate standards of business conduct requirements governing their relationship with suppliers.  Failure to comply with such standards will result in termination of the business relationship including suspension of future orders and termination of current orders.  One important requirement is that the supplier shall comply with customs regulations relating to country of origin.  For that purpose, Sears and Lands’ End require four types of inspections and audits to be carried out, including an in-line inspection which is to be carried out when production has just started.  The inspection is a quality assurance measure as well as a means of verification of country of origin conferring process.  It is also a requirement of the Defendant irrespective whether the Defendant’s principals want the inspection or not.  The Defendant requires the country of origin conferring process to be witnessed, photographed and documented and imposes a “zero tolerance standard” towards such in-line inspection verification.  The Claimants alleged that there was no uniformity in practice in the verification of country of origin conferring process and the verification was not strictly enforced.  But there is no need to resolve this conflict in the evidence.

5.  The United States Customs and Border Protection Department has elaborate rules relating to the country of origin requirements and imposes heavy penalties for importing garments in breach of such requirements.  However, the rules permit some of the manufacturing processes to be carried out outside the country of origin provided that the principal process has been undertaken in the country of origin.  In respect of garments with Macau as the country of origin, so long as the principal process has been undertaken in Macau, the semi-finished garments may be shipped to the PRC for further subsidiary processing.  The Macau government has also implemented the processo produtiro no exterior (“PPE”) procedure for the purpose of controlling movement of semi-finished garments between Macau and the PRC.

6.  The incident which led to the Claimants’ dismissal by the Defendant arose out of an order by Sears for supply of 23,912 pieces of garments to the United States with Macau as the country of origin (the “Sears’ Order”).  The garments were to be manufactured by Winner Garments Manufactory (Macao) Ltd (“Winner”), which had factories in both Macau and the PRC.  In early January 2006, the Defendant shipped 20,240 pieces of garments to Sears with a short delivery of 3,672 pieces.  Winner confirmed that the shortage would be shipped by air at their own expense on or before 11 January 2006.  That was accepted by Sears but the garments were never shipped.  Eventually, Sears cancelled the shipment for the replenishment garments.

7.  Following a complaint by Sears for the short delivery, the Defendant’s regional director, Hayden and the deputy managing director, Sim interviewed the 2^nd and 4^th Claimants on 13 January 2006.  The 2^nd and 4^th Claimants explained that the short delivery was due to dirt and oil stains on the garments caused by Winner’s factory.  They confirmed that there was no country of origin issue involved. 

8.  Upon a review of the documents provided by the 4^th Claimant, Sim discovered some irregularities in the verification of country of origin conferring process.  He found an inspection report by Sam Lee, a staff of the 4^th Claimant, of discovering 4,449 pieces of garments in the course of processing by Winner’s factory in the PRC without supporting PPE Form 7.  Sam Lee’s report suggested that the principal process of those 4,449 pieces of garments were not undertaken in Macau.

9.  Hayden and Sim interviewed the 2^nd and 4^th Claimants again on 16 January 2006 about the country of origin issue.  The 4^th Claimant produced a set of PPE Form 7 for the entire lot of 23,912 pieces of garments but the documents described the country of destination was the United Kingdom instead of the United States.  Hayden and Sim also questioned the 4^th Claimant about the lack of in plant in-line inspection.  The 4^th Claimant explained that he suspected the manufacturing process was carried out by a sub-contractor outside Winner’s factory.  Hayden and Sim reprimanded the 2^nd and 4^th Claimants for concealing the country of origin issue.

10.  The Defendant caused another quality assurance team to check the rejected garments and found that they were generally free of dirt and oil stains.  On 18 January 2006, Hayden and Sim interviewed Jordan Tong and Anders Cheng who are respectively the general manager and compliance manager of Winner.  Anders Cheng explained that the 4,449 pieces of garments discovered by Sam Lee related to another similar order by Lands’ End.  But Sim did not accept Anders Cheng’s explanation.

11.  On 24 January 2006, Winner provided the amended PPE Form 7 with the country of destination amended to the United States.  On 26 January 2006, Sim saw Sears’ e-mail to the 3^rd and 4^th Claimants cancelling the shipment for the replenishment garments.  Then, following Sears’ complaint about the handling of the Sears’ Order and about the 1^st and 2^nd Claimants’ mistake in mis-informing Winner about the pocket size and sleeve measurement in respect of another order of Sears for delivery in Japan (the “Japanese Order”) and in failing to effect shipment of the replenishment garments, the Defendant summarily dismissed the four Claimants on 2 February 2006.

The Presiding Officer’s reasons for decision

12.  The Presiding Officer found for the Claimants.  In respect of the Sears’ Order, the Presiding Officer found that the Claimants had no control over the documentation prepared by Winner and that upon discovery of the problem created by the PPE documents had taken appropriate steps to inspect the documents and eventually Winner was able to produce proper documentation.  He considered the steps taken by the Claimants reasonable and practical.  He found that the 1^st and 3^rd Claimants had duly informed their superior, i.e. the 2^nd Claimant, about the 4,449 pieces of garments found in Winner’s factory in the PRC and took orders from him.  Hence, he concluded that the Defendant’s complaint that the Claimants did not report the discovery of the 4,449 pieces of garments to top management was fault finding and unjustified.  He accepted the 2^nd Claimant’s evidence that the Sears’ Order was only one of the many responsibilities of the 2^nd Claimant and it was reasonable for the 2^nd Claimant to delegate the duty of investigating the discovery of the 4,449 pieces of garments in the PRC and taking appropriate follow up action if necessary to the 4^th Claimant who was an experienced colleague.  As for the 4^th Claimant, the Presiding Officer accepted his evidence that the documentation was appropriate.

13.  In respect of the Japanese Order, the Presiding Officer accepted the evidence of the 1^st and 3^rd Claimants that Sears demanded a reduction in price for the reason that the garments made were not in accordance with their measurements.  Hence, he found it was reasonable for them not to arrange for the shipment until conclusion of the price negotiation.  That incident has nothing to do with the 2^nd and the 4^th Claimants.

An overall view of the Defendant’s grounds of appeal

14.  The Defendant advanced one main and five supplemental grounds of appeal.  The thrust of the Defendant’s appeal is that the Claimants were all in serious breach of their duty in permitting the shipment to the Defendant’s client of garments which they knew full well were in breach of the requirements of the client as regards country of origin and of the Defendant’s own requirement of in-line inspection for verification of country of origin conferring process.  The breach was further aggravated by the way they handled the replenishment garments.  In addition, as against the 2^nd and 4^th Claimants, the Defendant alleged that they were in further breach of duty by attempting to conceal from top management the country of origin problem in respect of the garments.  The seriousness of the Claimants’ breach must also be viewed against the background that Sears and Lands’ End are very important clients of the Defendant and that breach of country of origin requirements has serious consequences for the clients and the Defendant.  

15.  Mr Lee, counsel for the Appellant, submitted that there is a glaring lack of finding of fact by the Presiding Officer and that when the Presiding Officer made his decision he has completely missed the significance of the client’s requirement that the country of origin of the garments was to be Macau and of the Defendant’s internal policy of having in-line inspection to verify the country of origin conferring process.  He complained that the Presiding Officer only concentrated on documentation rather than on the Claimants’ breach of duty in complying with the above requirements.  He also complained that the Presiding Officer failed to consider the cumulative effect of the breaches.

16.  I have summarised the Presiding Officer’s finding of fact in paragraphs 12 and 13 above.  In essence, the Presiding Officer found that the PPE documents were correct and proper and that the Claimants had taken proper and effective steps in handling the Sears’ Order.  He did not make any finding of fact which explains why 4,449 pieces of garments were found in the PRC on 21 December 2005 while the PPE Form 7 used in support of the country of origin of the garments in respect of the Sears’ Order show that the semi-finished garments were not shipped to the PRC until 22 December 2005.  I was persuaded by Mr Lee’s submission and granted leave to appeal on point of law.  At the appeal, the question is whether the above finding of the Presiding Officer is one which is not supported by any evidence or one which no reasonable tribunal could have reached on the evidence or one which was based on a disregard or misunderstanding of the evidence.

Some general principles

17.  There are two legal principles which are relevant to this appeal.  Firstly, it is trite law that for summary dismissal under section 9 of the Employment Ordinance, the employer bears the burden of proving that the summary dismissal is justified.  Summary dismissal is a draconian step, which if justified will deprive the employee of all protections provided by the Employment Ordinance.  It is described as a ‘capital punishment’ in Tsang Tak Chi v China Wall Ltd,HCLA 33 of 1998.  Though the standard of proof required is one of a balance of probability, in view of the seriousness of the consequence, the evidence in support must be cogent.

18.  Secondly, the Labour Tribunal is a fact-finding tribunal whose finding of fact is conclusive.  Section 32 of the Labour Tribunal Ordinance only permits appeal on the ground that an award of the tribunal is erroneous in point of law or outside the jurisdiction of the tribunal.  Very often, an appeal from the decision of a fact-finding tribunal is dressed up as a question of law.  In Kwong Mile Services Ltd v Commissioner of Inland Revenue [2004] 3 HKLRD 168, Bokhary PJ set out the approach of the appellate court in such an appeal at paragraph 37:

“37.   In an appeal on law only the appellate court must bear in mind what scope the circumstances provide for reasonable minds to differ as to the conclusion to be drawn from the primary facts found.  If the fact-finding tribunal’s conclusion is a reasonable one, the appellate court cannot disturb that conclusion even if its own preference is for a contrary conclusion.  But if the appellate court regards the contrary conclusion as the true and only reasonable one, the appellate court is duty-bound to substitute the contrary conclusion for the one reached by the fact-finding tribunal.  The correct approach for the appellate court is composed essentially of the foregoing three propositions.  These propositions complement each other, although the understandable tendency is for those attacking the fact-finding tribunal’s conclusion to stress the third one while those defending that conclusion stress the first two.”

Kwong Mile Services Ltd v Commissioner of Inland Revenue was a decision in a tax case against the decision of the Board of Inland Revenue which is a fact-finding tribunal.  I think the principle stated in that case is equally applicable to an appeal against the decision of the Labour Tribunal.  If the Presiding Officer’s conclusion is a reasonable one, I may not intervene even if I would reach a contrary conclusion.  I may only intervene if I consider the contrary conclusion as the true and only reasonable one to reach on the facts.

Breach of duty in failing to observe client’s requirement as regards country of origin of the garment

19.  To substantial a charge of misconduct against the Claimants, the Defendant has to prove that the Claimants failed to discharge their duty in ensuring the 20,240 pieces of garments delivered had complied with Sears’ requirement as regards the country of origin of the garments and the Defendant’s requirement of in-line inspection.  The Defendant’s case against the Claimants is based on Sam Lee’s discovery of 4,449 pieces of finished garments in Winner’s factory in the PRC on 21 December 2005, one or two days before the issue of the PPE Form 7 certifying the shipment of 23,912 pieces of semi-finished garments intended for the Sears’ Order from Macau to the PRC for further processing.  The Defendant’s case is premised on the assumption that the 4,449 pieces of garments found in Winner’s factory in the PRC were intended for delivery under the Sears’ Order and that the Claimants knew that they were not covered by valid PPE documents or were reckless about it.

20.  Mr Lee submits that the Presiding Officer’s undue concentration on documentation and glaring lack of finding of fact show that the Presiding Officers has completely missed the significance of the client’s requirement as regards the country of origin of the garments and the Defendant’s internal policy of having in-line inspection to verify the country of origin conferring process.  The brevity of the Presiding Officer’s reasons for decision is reproachable.  But implicit in his conclusion that the PPE documents were correct must be the finding that the 20,240 pieces of garments shipped were those referred to in the PPE Form 7 whereas the 4,449 pieces of garments discovered were not referable to the Sears’ Order.  Whether this finding is correct boils down to whether the Presiding Officer was satisfied that the Defendant has discharged the burden of proving its assumption that the 4,449 pieces of garments found in Winner’s factory in the PRC were intended for delivery under the Sears’ Order and that the Claimants knew that those garments were not covered by valid PPE documents or were reckless about it.  If the first of these elements is proved, the second one must of necessity be proven.

21.  The evidence relied on by the Defendant was Sam Lee’s finding of 4,449 pieces of garments which he said were in respect of the Sears’ Order.  Sam Lee reported as follows:

“Scheduled inspection details:

COP	Style	QTY
HKWOG-1599	LE37138	23912 pcs

Observation on site, we found the garments are from SEARS’ order as above mentioned.  However, the OPA process in MACAU and inform for C.O.O. inspection since today and our colleague “Ming” just completed the task.

The garment in process of production for total 4,449 pcs in Aegean Green and Clear Blue of those are washed and being press.  We doubt for those garments had been follow the requirement of PPE in MACAU.”

22.  Sam Lee’s report is hardly comprehensible.  But, it is accepted that on 21 December 2005, 4,449 pieces of finished garments of a similar style as that of the Sears’ Order were found in Winner’s factory in the PRC.  Sam Lee was of the opinion that the garments were ordered by Sears and quoted a “COP reference number”.  His evidence was disputed by the Claimants.  However, he was not called to give evidence to explain the basis of his report.

23.  On the other hand, there was evidence even from the Defendant’s case that the 4,449 pieces of garments were not intended for the Sears’ Order.  Anders Cheng explained that the 4,449 pieces of garments discovered by Sam Lee were related to another similar order by Lands’ End.  It is not disputed that at the time, Lands’ End had placed an order for garments of a similar style and colour with Winner.  But Sim rejected that explanation.  He said that the 4,449 pieces of garments discovered by Sam Lee were of ‘S’ sizing and only the Sears’ Order had ‘S’ sizing but not Land’s End’s.  Not only was that assertion not supported by any documentary evidence, such as orders or invoices in respect of the Lands’ Ends’ Order and the Sears’ Order, there was no evidence that the 4,449 pieces of garments were all of ‘S’ sizing.  The size of the garments was not stated in Sam Lee’s report.  On the other hand, the Claimants had expressly challenged the evidence of Sam Lee.  But they were denied the opportunity of cross-examining Sam Lee to challenge the basis of his conclusion that the 4,449 pieces of garments were among those intended for the Sears’ Order.  According to the Claimants’ unchallenged evidence, the Sears’ and Lands’ End’s orders totalled more than 60,000 pieces of garments.  It is difficult to see why Sears ordered garments of ‘S’ sizes but Lands’ End did not.  The Claimants said that Sam Lee only entertained a doubt if the 4,449 pieces of garments he found had missed the PPE procedure and that Sam Lee was not sure.  The use of the word ‘doubt’ by Sam Lee instead of a more affirmative assertion may be semantic, but the Claimants’ argument is not without force in view of the circumstances.

24.  It is common ground that upon being alerted by Sam Lee about the discovery of the 4,449 pieces of garments in the PRC on 21 December 2005, the 4^th Claimant instructed the quality inspector, Wu Wai Ming, to go to Winner’s factory in Macau immediately to conduct an impromptu in-line inspection of the manufacturing process on the same day.  The inspection might not have been very thorough due to the lack of time and manpower.  Wu could only count samples and estimate the number of cut pieces.  Nevertheless, Wu had been shown the PPE documents (which could not have included either of the two sets of PPE Form 7 shown subsequently to the 4^th Claimant), progress records, production records and work sheets and he took photographs.  Wu reported to the 4^th Claimant that he found 23,912 pieces of cut garments referable to the Sears’ Order at various stages of production in Winner’s factory in Macau.  Mr Lee suggested that there was impropriety on the part of the 4^th Claimant for failing to alert Wu of the discovery of the 4,449 pieces of garments in the PRC.  I think the 4^th Claimant’s failure is neither here nor there.  Unless the 4^th Claimant reasonably entertained a suspicion that Wu had colluded with Winner and deliberately lied or unless the 4^th Claimant had reason to believe that Wu would have made as serious a counting error as 20%, there was no reason for the 4^th Claimant not to trust the finding of Wu.  Accordingly, there was no reason why the 4^th Claimant should not be satisfied that the 23,912 pieces of garments intended for the Sears’ Order had met Sears’ requirement as regards country of origin and that his team had discharged the duty of in-line inspection verification of the country of origin conferring process.  There was no reason for the 4^th Claimant to report the whole incident to the top management.

25.  On 28 December 2005, the 4^th Claimant, Wu and Sam Lee conducted another inspection in Winner’s factory in Macau.  By that time, the 23,912 cut pieces had already been shipped to Winner’s factory in the PRC.  But those pieces had been inspected and photographed by Wu on 21 December 2005.  The 4^th Claimant demanded production of the PPE    documents.  Initially, Winner declined because the person in charge was not in the office.  That explanation was rejected by the 4^th Claimant who threatened to report the incident to the Defendant’s top management.  The 4^th Claimant was then shown a set of PPE Form 7, which he subsequently discovered was not referable to the goods ordered by Sears but to a different purchaser for a different kind and quantity of goods.  He immediately informed the 2^nd Claimant.  On the same day, Winner produced the second set of PPE Form 7 showing that 23,912 pieces of semi-finished garments referable to the Sears’ Order were shipped to the PRC for further processing on 22 and 23 December 2005.  There is no dispute that the second set of PPE Form 7 was in respect of the Sears’ Order, save that that documents contained a typographical error that the place of destination of the garments was stated to be the United Kingdom instead of the United States.  That set of PPE Form 7 must be in respect of the 23,912 cut pieces counted by Wu.  The 4^th Claimant was satisfied with the documentation, though he failed to discover the typographical error, but I think the 4^th Claimant’s mistake ought reasonably be excused and did not justify summary dismissal. 

26.  Mr Lee submits that the circumstances surrounding the production of the PPE documents by Winner were very suspicious.  He submits that the Presiding Officer reached the wrong conclusion by failing to make any finding of fact on the circumstances which led to the production of the second set of PPE Form 7, which failure was compounded by the plainly erroneous assumption made by the Presiding Officer that the second set of PPE Form 7 was proper or correct.  He argues that the 4^th Claimant could not be so satisfied and was turning a blind eye to the finding of the 4,449 pieces of garments in the PRC on 21 December 2005.  With respect, I disagree.  There was nothing suspicious surrounding Winner’s production of the two sets of PPE Form 7.  The first set of wrong PPE documents was produced because of the 4^th Claimant’s insistence despite that the person responsible for the documents was not available.  The error about the place of destination on the second set of PPE Form 7 was an obvious typographical error as all other particulars, such as the identity of the purchaser, description of the garments, style and quantity, were all correct.  Though the Presiding Officer did not make any specific finding of fact on the circumstances which led to the production of the second set of PPE Form 7, those circumstances were not in dispute and were not suspicious.

27.  The Presiding Officer was faced with, on the one hand, such tenuous evidence of a suspicion by Sam Lee that the 4,449 pieces of garments he found in Winner’s factory in the PRC were intended for the Sears’ Order and had not complied with PPE procedure but Sam Lee was not available for cross-examination.  That evidence was unsupported by any documentary evidence that Lands’ Ends’ order had no ‘S’ sizing, which evidence must be in the possession, custody or control of the Defendant.  On the other hand, the Presiding Officer was faced with the undisputed evidence that at the time similar garments were in the production line for meeting the earlier Lands’ End’s order and the undisputed evidence that 23,912 cut pieces for the purpose of the Sears’ Order with proper PPE documentation and photographs taken by the Defendant’s own witness were found in Winner’s factory in Macau on the same day.  The 4,449 pieces of garments had already been washed and pressed and were ready for delivery obviously to meet an earlier order, while the entirety of the 23,912 cut pieces referable to the Sears’ Order were still in Macau.  If the two lots of garments were intended for the same order, it was most unlikely that they would exhibit such disparity in the manufacturing process.  Furthermore, the two lots totalled 28,361 pieces which exceeded the quantity delivered by 8,121 pieces.  This is inconsistent with Winner’s inability to deliver the total quantity ordered or to replenish the 3,672 pieces delivered short.  This suggests that the 4,449 pieces of garments were for a separate earlier order and were not intended for or delivered under the Sears’ Order.  The situation would be very much different if Wu had found less than 20,000 cut pieces in Winner’s factory in Macau on 21 December 2005.

28.  On the evidence as I have analysed above, it was open to the Presiding Officer to find that the 4,449 pieces of garments found in Winner’s factory in the PRC were intended for the Lands’ End’s order or were not connected with the Sears’ Order and that the 20,240 pieces of garments delivered were supported by correct PPE documents.  Though the Presiding Officer did not in his reasons for decision describe his mental process with which he reached the conclusion that the PPE documents were correct, his conclusion was reasonably drawn from primary facts not in dispute and was one which was well within the scope for reasonable minds to differ.  Indeed, I consider the Presiding Officer’s conclusion reasonable.  I, for one, would have reached the same conclusion.  Though I am disappointed by the brevity of the Presiding Officer’s reasons for decision, it is nevertheless not fatal to his conclusion.  I do not think there is any ground for me to interfere with the Presiding Officer’s conclusion.

Breach of duty in failing to observe Defendant’s in-line inspection policy

29.  It is common ground that the Defendant had an internal policy of in-line inspection irrespective whether such inspection is so required by its clients.  The Defendant’s evidence is that it entertains zero tolerance whereas the Claimants’ evidence is that there was no consistency in practice. 

30.  The Defendant’s case is that the original shipment date for the garments was 20 December 2005 but by 21 December 2005 no inspection had been carried out.  This is not in dispute.  The Claimants evidence is that they had repeatedly demanded inspection but Winner repeatedly deferred the inspection saying that they were not ready for inspection.  That evidence was not challenged by the Defendant.  If the delay was on the part of Winner, there was nothing the Claimants could do about it.

31.  Even on the Defendant’s own case, as soon as the 4^th Claimant was informed of the discovery of the 4,449 pieces of garments in Winner’s factory in the PRC, he immediately instructed Wu to go to Winner’s factory in Macau to inspect the manufacturing process.  According to Wu, he was then in Macau inspecting another factory.  He received the 4^th Claimant’s urgent instruction to go to Winner’s factory at about 12:30 pm which was four hours before Sam Lee’s report was circulated by e-mail.  That showed the promptness with which the 4^th Claimant reacted to Sam Lee’s discovery.  Wu conducted an impromptu in-line inspection of the manufacturing process on the same day.  He inspected the PPE documents, progress records, production records and work sheets and took photographs.  He counted samples and estimated the number of cut pieces.  He reported to the 4^th Claimant that he found 23,912 pieces of cut garments referable to the Sears’ Order at various stages of production.  The inspection might not have been very thorough due to the lack of time and manpower.  With hindsight, the 4^th Claimant should have sent more staff or made a second more thorough inspection.  But it was not unreasonable for the 4^th Claimant to rely on Wu’s report of his inspection and be satisfied that the principal processing of the 23,912 cut pieces had been carried out in Macau.  The cut pieces were shipped to the PRC for further processing on 22 and 23 December 2005.  Further inspection at Winner’s factory in Macau would be futile for verifying the country of origin conferring process.  Inadequate as the inspection on 21 December 2005 might be, it was as prompt and as practicable as the circumstances permitted.  It was reasonable for the 4^th Claimant to assume that the 20,240 pieces shipped to Sears from the PRC were processed from the 23,912 pieces which had their principal manufacturing process carried out in Macau and verified by Wu.  The Defendant was quite unable to prove its case that the Claimants allowed the 20,240 pieces of garments to be shipped to Sears in breach of in-line inspection policy.

The supplemental grounds of appeal

32.  The Appellant also advanced five supplemental grounds of appeal.  The first ground is a reiteration of the main ground of appeal by emphasising the serious consequences of the Claimants’ breach of duty.  In the second supplemental ground, the Appellant accused the Claimants of failing to report to top management circumstances known to them which indicated the non compliance with country of origin and in-line inspection requirements.  Both of these grounds fall away with the conclusion reached above. 

33.  In the third supplemental ground, the Appellant alleges that the Claimants attempted to ship a replenishment stock of 1,024 pieces of garments knowing full well that they were in breach of Sears’ requirement as regards country of origin and in breach of the Defendant’s policy of in-line inspection for verifying the country of origin conferring process.  Those 1,024 pieces were among the 23,912 cut pieces which had their principal manufacturing process carried out in Macau and which were then shipped to the PRC for further processing.  This ground also falls away with the dismissal of the main ground of appeal. 

34.  The Appellant also alleges the Claimants of mis-management which resulted in Sears cancelling the replenishment shipment.  Having shipped the bulk of 20,240 pieces, the 1^st Claimant informed Sears by e-mail that Winner would ship the replenishment garments on 11 January 2006 by air at their own expense.  That was accepted by Sears provided that the replenishment garments would be shipped no later than that date with a penalty of 5% of the price.  On 10 January 2006, the 1^st Claimant informed Sears that only 1,024 pieces of garments passed quality audit and would be shipped by air.  However, those 1,024 pieces of garments were never shipped.  On 11 January 2006, the 1^st Claimant enquired whether Sears would accept the balance of 2,648 pieces of replenishment garments in March 2006.  On 14 January 2006, Sears replied that they did not want the replenishment garments and told the 1^st Claimant not to ship them.   Sears must be referring to the 2,648 pieces and was understood as such by the 1^st Claimant.  However, the 1^st Claimant never shipped the 1,024 pieces of garments.  On 25 January 2006, the 1^st Claimant advised Sears that the shipment of the 1,024 pieces of garments was withheld because the PPE documents were not ready until 24 January 2006 and enquired if Sears still wanted the shipment.  Sears then cancelled the shipment.  The 1^st Claimant’s evidence is that he was informed of the typographical error on the PPE Form 7 on 17 January 2006 and was instructed by Sim not to ship the 1,024 pieces of garments.  While that explained why he did not ship the garments after 17 January 2006, it could not explain why he did not ship              them before 11 January 2006 as instructed by Sears when the typographical error on the PPE Form 7 was not discovered.  The Presiding Officer did not deal with this issue.  The 1^st Claimant’s evidence is an obvious after thought.  I find the 1^st Claimant’s failure to ship the 1,024 pieces of garments a clear case of negligence.  But that alone does not justify his summary dismissal.  The other Claimants were not vicariously liable for the 1^st Claimant’s breach either.

35.  In the fourth supplemental ground, the Appellant accuses the 2^nd and 4^th Claimants of covering up the country of origin issue during the interview on 13 and 16 January 2006.  As the Defendant has failed to substantiate its main ground of appeal, there was no country of origin issue on 13 and 16 January 2006.  The 4^th Claimant was entitled to rely on the report of Wu and the 2^nd Claimant was entitled to delegate the duty of supervising the in-line inspection to the 4^th Claimant.  The Presiding Officer’s finding in this respect could not be faulted.  

36.  The fifth supplemental ground is based on the cumulative effect of the Claimants’ breach.  This ground must also fall away as the Appellant was unable to prove any breach of duty save a trivial one against the 1^st Claimant in respect of his failure to ship the 1,024 pieces of replenishment garments and another minor act of negligence against the 1^st and 3^rd Claimants as regards the measurements of the pocket and sleeve in respect of the garments under the Japanese Order.  Those trivial breaches together are not sufficient to justify summary dismissal of the 1^st Claimant.

Conclusion

37.  The Defendant’s case against the Claimants is based upon an assumption that the 4,449 pieces of garments of a similar style and colour found in Winner’s factory in the PRC had been wrongfully shipped to the PRC for processing in breach of Sears’ requirement as regards country of origin and in breach of the Defendant’s policy of in-line inspection for verification of country of origin conferring process.  The Defendant has totally ignored the simultaneous finding by its own witness of 23,912 cut pieces of garments which were undergoing processing in Macau.  The Defendant placed undue suspicion on the confusion in the PPE documents caused by Winner.  The Defendant dismissed the Claimants on a ground which it is unable to substantiate.  Accordingly, I uphold the Presiding Officer’s conclusion.  The Defendant’s appeal is therefore dismissed with costs.