SURE WOOLLEN YARNS CO LTD v. GLOBAL APPAREL GROUP LTD

HCMP 2076/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 2076 OF 2005

(ON AN INTENDED APPEAL FROM DCCJ 13107/2001)

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REASONS FOR JUDGMENT

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Hon. Yuen JA:

1.  This is a renewed application by the Defendant for leave to appeal from the judgment of Judge C.B. Chan in the District Court given on 21 June 2005, leave having been refused by the judge and by Cheung JA on 7 October 2005 on a paper application.  At the conclusion of the hearing, we dismissed the application and indicated that we would hand down our reasons in due course.

2.  The Plaintiff’s claim was for $169,380 as the price of goods (dyed yarn) sold pursuant to a Purchase Order issued by the Defendant on 24 October 2000 (“the PO”).

Quality of yarn

3.  It was common ground that before the PO was issued, the Plaintiff had provided 10 lbs of raw yarn to the Defendant for the latter to knit into panel samples so that it could consider the quality of the yarn before buying (para.10(b), Judgment)

4.  The judge found that the Defendant acting through Miss Jenny Chan Kuk-Man was satisfied with the quality of the yarn (paras. 13-15, Judgment).  The PO was then issued.

Choice of colour from “Lap Dip” samples

5.  The PO was for the purchase of yarn of 11 colours.  The sample yarn provided to the Defendant (before the PO was issued) was raw yarn of various unspecified colours.  It was therefore necessary for the Defendant to consider the colours of the dyes to be applied to the yarn that it was acquiring for its particular purposes.  

6.  “Lap Dip” samples are small quantities of yarn dyed in 4 variations of one colour, so that a buyer such as the Defendant can choose the shade of colour it wanted (para. 17, Judgment).  The judge found that the dyeing process did not affect the quality of the yarn (para.20, Judgment).  A PO could therefore be issued even before the Lap Dip samples were provided for the buyer’s consideration.

7.  It was common ground that 2 days after the PO was issued, on 26 October 2000 the Plaintiff provided 10 “Lap Dip” samples to the Defendant with the last “Lap Dip” sample provided on 6 November 2000 (paragraph 10(c), Judgment ).

8.  The judge found that the Defendant through Miss Chan chose 10 Lap Dip samples by 31 October 2000 and the last one was chosen on 6 November 2000 (para. 17, Judgment).

Production samples

9.  The PO contained a Remark.  The original was written in Chinese:

“所有毛必須批出缸辦后才能送貨，所有貨請交東莞偉明織造廠”

The agreed translation was:

“Production samples have to be approved before all the yarns are to be delivered.  Please send all the goods to Dongguan Wei Ming Knitting Factory”.

10.  The approval of production samples was to ensure that the yarn after dyeing was the same shade of colour as the chosen Lap Dip samples.  Variations might occur in the dyeing process, and if there was a variation between the Lap Dip samples and the yarn after dyeing, then the yarn delivered to the buyer would have to be returned to the seller for re-dyeing.  It therefore made sense (to avoid wasting transport charges) for samples of the dyed yarn i.e. the “production samples”, to be sent to the buyer first, for verification and approval before full delivery of the yarn ordered.

11.  It was common ground that production samples were sent to the Defendant for verification and approval commencing 2 November 2000 (para.10(e), Judgment). 

12.  It was also common ground that between 2 November and 6 November 2000, the Defendant did not inform the Plaintiff whether it approved or rejected the production samples.  The Defendant told the Plaintiff that it was waiting for a reply from its own buyer Mega-Link (Asia) Ltd (para.10(e), Judgment).

13.  However on 6-7 November 2000, the Defendant informed the Plaintiff that it did not want the goods.  One reason given at the time was that the Defendant’s own buyer had cancelled the order.  Another reason given was that the quality of the yarn was unsatisfactory. 

Proceedings

14.  The Plaintiff issued proceedings.  A Defence was filed, pleading 2 grounds of defence:

(1)     the contract was “conditional”, the condition being the Remark in the PO referred to above, and as the Defendant did not approve the production samples because they were “slightly different from the samples and ... were bad in quality”, the Defendant alleged that “there is no contract” (para. (2) (b) and (c), Defence);

(2)     the goods delivered were not of merchantable quality in that “the colouring is not right and the panels produced from the goods supplied were bad in quality” (para. (4), Defence).

Judgment     

15.  After a 6-day trial, the judge found in relation to the first defence, that a contract had been created when the PO was issued, as the Remark did not constitute a condition precedent to the existence of the contract (paras. 21-24, Judgment). 

16.  The judge also found in relation to the second defence, that “the sale was a sale by sample both as to quality of the yarn and the colour pursuant to Lap Dip samples” (para. 27, Judgment) and 

- in relation to quality, the Defendant’s expert did not compare the quality of the production samples with the sample approved before the PO was issued.  The expert evidence was therefore irrelevant (para. 27, Judgment);

- in relation to colour, the Defendant had failed to establish by objective expert evidence that the colour of the production samples differed from the Lap Dip samples (para. 27, Judgment).

17.  The judge therefore found that the Defendant had failed to establish its defence.

Application for leave to appeal

18.  On application for leave to appeal, counsel for the Defendant took 4 points which I shall deal with in turn.

19.  First, he submitted that the judge should not have proceeded on the basis that the sale was a sale by sample as that had not been pleaded in the statement of claim. 

20.  I do not agree.  It is well-established (and counsel for the Defendant did not challenge this) that when pleading a claim for the price of goods sold, it is not necessary to plead the type of sale contract.  In any event, the Defendant was not taken by surprise by the Plaintiff’s case that the sale was a sale by sample.  The witness statements made it very clear that that was the Plaintiff’s case and it does not appear from the judgment that any pleading point was taken at trial.

21.  Counsel for the Defendant submitted that it was not open to the Plaintiff to contend that the sale was a sale by sample because the PO made no mention of a sample.  Counsel referred us to 2 cases Meyer v Everth (1814) 4 Camp. 22 and Gardiner v Gray (1815) 4 Camp. 144, for the proposition that where there is a written agreement for the sale of goods which contained no reference to a sample, extrinsic evidence is not admissible to show that the contract was one for sale by sample, even though a sample had been shown in the course of negotiations.

22.  I do not agree that those cases apply.  It was accepted by counsel

for the Defendant that the PO was not a written contract as such , and that the contract in the present case was only one evidenced in writing.  As such, the parol evidence rule as to admissibility of extrinsic evidence does not apply.  In any event, even if there had been a written contract, evidence of usage would have been admissible to show that a sale was a sale by sample, even though the contract did not mention a sample (Chitty on Contracts, 29th ed. Specific Contracts, §43-101).

23.  Second, counsel for the Defendant submitted that the Plaintiff retained the legal and evidential burden of proving that the goods corresponded with sample, and the judge made no finding that the bulk corresponded with the sample.

24.  The simple answer to this point is that that was never in issue between the parties.  The Defendant itself chose only to present the 2 defences I have summarised earlier, (i) no contract and (ii) unmerchantable quality.  It did not raise the alternative case that if the contract was a sale by sample, the bulk did not correspond with the sample.  As I have said, it is well-established that in claims for the price of goods sold, it is for the defendant to raise the defence, if that be the case, that the contract was one for sale by sample and that the bulk did not correspond with the sample.

25.  Third, counsel for the Defendant then sought to attack the judge’s finding of fact that the Defendant had approved the yarn sample before placing the PO.  I have considered the reasons given by the judge in para. 14 of the judgment for preferring the evidence of Lau Tung Fai of the Plaintiff to that of Miss Chan of the Defendant. 

The reasons were based on the evidence before her, and on the evidence it was open to her to make the findings that she did. 

26.  Fourth and finally, counsel for the Defendant submitted that there was no restriction in the Remark clause on the PO, so that the Defendant was free to reject the production samples even if they corresponded with the yarn previously approved both in relation to quality and colour. 

27.  I do not agree.  Provisions in contracts have to be construed in light of the factual matrix.  If the production samples could have been rejected as counsel for the Defendant suggested, there would have been no point in the parties first sending and approving raw yarn samples for quality and then sending and approving Lap Dip samples for colour.

28.  For these reasons, I considered that the intended grounds of appeal were unarguable and I dismissed the application for leave.

Hon. Chu J.:

29.  I agree.