FOUNTAIN SET LIMITED v. NEW WAY DEVELOPMENT COMPANY LIMITED

1994, No. A10225

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. The Plaintiff sues for $611,964 as the price for fabric which it says it had sold to the Defendant. The Defendant denies that it bought that fabric. Whether or not it had is the first issue.

2. It arises in this way. A company by the name of Parden Garment Co. Ltd ("Parden") had agreed to manufacture shirts for a company named Innova Limited ("Innova"); and Parden was going to use fabric supplied by the Plaintiff. However, Parden went out of business; and Innova wanted to find a replacement manufacturer. The replacement found was the Defendant. That was arranged in the course of two tripartite conversations on the 15th and the 17th of June 1994 between representatives of Innova, the Plaintiff and the Defendant.

3. Under that arrangement, the Defendant was to use the fabric made by the Plaintiff originally for Parden. A problem was the Plaintiff's wish for payment by a letter of credit arranged by the Defendant coupled with the Defendant's inability or unwillingness to arrange one.

4. As to what then happened, this is what the Plaintiff pleads (in Paragraph 5 of the Re-Amended Statement of Claim):

"In order to guarantee payment by the Defendant to the Plaintiff, Mr. Terence Cheung of Innova suggested to use part of the purchase price payable by Innova to the Defendant for manufacturing the shirts, to pay the Plaintiff first and allowing the Defendant with a deducted balance at a later stage. Such suggestion was agreed by all parties in the said telephone conversation as the method of payment by the Defendant to the Plaintiff for the said fabrics."

5. However, the Defendant pleads (in Paragraph 8 of the Amended Defence) that the agreement was that:

"...Innova Limited shall be responsible for the supply of cloth so that when the cloth was supplied by the Plaintiff Innova shall pay for the said cloth directly to the Plaintiff and the same shall be deducted from the price of the garments payable to the Defendant."

6. Having seen and heard the witnesses for the Plaintiff and the Defendant, my impression is that the parties were at cross purposes in regard to who was buying the fabric in that the Plaintiff believed that it was the Defendant who was the buyer, while the Defendant believed that it was Innova who was the buyer.

7. Of course, the test is an objective one: would a reasonable person witnessing what had been said and done think that there was a contract of sale between the Plaintiff and the Defendant? On the view which I take of the evidence, I am driven to answer that question on a broad view of the circumstances. The matters of detail are, I find, unreliable guides to an answer.

8. In relation to those matters of detail, I propose to do no more than say this about three of them. First, there is the agreed document at page 4 of the Plaintiff's Bundle, namely the document dated 17th June 1994 hand-written by the Defendant's Mr Timmy Leung for the attention of the Plaintiff's Mr Paul Leung setting out the description, weight, colour, date for delivery, price and quantity of the fabric and the place to which the same was to be delivered. In my view, this document is, in all the circumstances, of far less importance than the broad view of the circumstances to which I will come in a moment.

9. Secondly, there is the agreed document at page 5 of the Plaintiff's bundle, namely a fax dated 17th June 1994 from Innova to the Plaintiff. This document was not copied to the Defendant and does not shed any light on any consensus to which it was party.

10. Thirdly, there is Exhibit P. 4 which has the appearance of an agreement dated 17th June 1994 for the sale of fabric by the Plaintiff to the Defendant. It is the Plaintiff's case that it accompanied the fabric when the same was delivered and that the Defendant faxed it back signed. The Defendant denies having ever received the document and disputes that the signature was that of any servant or agent of its. On the whole of the evidence, which I have consider with care and do not propose to recite, I am not satisfied that the document was ever signed or faxed back by the Defendant.

11. I come back now to the broad circumstances. The most significant feature of those circumstances is that physically it was Innova who was to make payment to the Plaintiff. It was not a matter of Innova paying the Defendant the full price of the shirts enabling the Defendant to use part of such money to pay the Plaintiff for the fabric. Instead, it was a matter of Innova: (a) paying the Defendant the price of the shirts less the price of the fabric; and (b) paying the Plaintiff the price of the fabric.

12. In my view, that is more consistent with a sale of the fabric by the Plaintiff to Innova than with a sale of the same by the Plaintiff to the Defendant. The fact that delivery was to a printing factory named by the Defendant does not alter that since it was understood by all concerned that the Defendant was to work the fabric into shirts for Innova. The Defendant would name the factory whether or not it was the buyer.

13. To say (as the Plaintiff pleads in Paragraph 5 of the Re-Amended Statement of Claim) that Innova's act of paying the Plaintiff first was "to guarantee payment by the Defendant to the Plaintiff" is self-contradictory. Once Innova has paid the Plaintiff, there can be no question of the Defendant doing so. So there can be no question of any guarantee in the legal sense, because in that sense it would connote payment by Innova in the event of default by the Defendant. But since Innova was going to pay, there could be no question of payment by the Defendant and therefore no possibility of default by it. Nor, taking "guarantee" in the loose sense sometimes used by lay persons, can there be any question of payment by Innova to guarantee (i.e. ensure) that the Plaintiff is paid by the Defendant. It would merely guarantee (i.e. ensure) that the Plaintiff would be paid - by Innova.

14. On this first and fundamental issue, the Plaintiff fails. It cannot recover the price from the Defendant because, quite simply, there was no sale to the Defendant.

15. That is sufficient to dispose of this case in favour of the Defendant. In the normal way, I would nevertheless go on to deal with the other issues raised in the case, but I do not propose to do that because I do not know whether the Plaintiff may even now bring a claim against Innova, who is not before the Court and who has not been heard. I must avoid saying anything which could prejudice the fair trial of any such claim and any defence made to it.

16. In the result, I dismiss the Plaintiff's claim with an order nisi for costs to the Defendant.