P & M INDUSTRIAL CO. LTD. v. WINNER BOB (H.K.) CO. LTD.

HCA 1178/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1178 OF 1998

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JUDGMENT

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1. This action arises out of a sale of goods contract made between the plaintiff as buyer and the defendant as seller. The plaintiff claims against the defendant for damages for breach of contract occasioned by late delivery of goods and non-conformity with samples. The defendant denies liability, relying on waiver and estoppel by conduct. The defendant further counterclaims against the plaintiff for damages for wrongful refusal to accept goods and claims a set off on the counterclaim.

2. The Writ herein was issued on 28 January 1998. The parties were legally represented throughout the proceedings until late 1999, when the defendant's solicitors applied, and were granted leave, to cease acting for the defendant. At the trial, the defendant was represented by its director, Mr. Lin Tzu Poa, leave having been granted by a master under Order 5 rule 6, Rules of High Court.

The Facts

3. Much of the salient facts are not in issue.

4. The plaintiff is a manufacturer and supplier of cosmetic bags, handbags and pencil bags. The defendant is a supplier of fabric and accessories for making bags, with its parent company based in Taiwan.

5. By a purchase order no. 1375-80 dated 13 October 1997 ("P.O.1375-80"), the plaintiff ordered from the defendant certain quantities of satin nylon with PVC backing ("the Fabric"). The Fabric was to be in 6 different colours, 2 of which were described as "580U light green" and "496U light pink". P.O.1175-80 was accepted by the defendant and the parties signed the relevant contract on 3 November 1997 ("the 1st contract").

6. By another purchase order no. 1382 dated 3 November 1997 ("P.O.1382"), the plaintiff ordered from the defendant further quantities of the Fabric in the 2 colours described as "580U light green" and "496U light pink". A deposit of 15% of the purchase price was paid by the plaintiff to the defendant on 4 November 1997. The relevant contract, which forms the subject matter of this action, was signed by the parties on 11 November 1997 ("the suit contract").

7. The Fabric sold under P.O.1175-80 and P.O.1182 was required by the plaintiff to fulfil a contract of sale made between the plaintiff and one Victoria Secret Bath of U.S.A. ("VSB") and dated 25 November 1997 ("the resale contract"). Under the resale contract, the plaintiff contracted to manufacture and sell to VBS certain quantities of cosmetic and pencil bags in green and pink colours. The shipment date was stipulated to be 20 January 1998. It was an express term of the resale contract that in the event of late delivery by the plaintiff, VSB was entitled to claim from the plaintiff a discount at the rate of 1% of the purchase price for each day of delay. The resale contract further provided that the plaintiff should bear the difference between the air freight and sea freight if the goods were shipped after 20 January 1998.

8. Both P.O.1175-80 and P.O.1182 made reference to the term in the resale contract, namely, that the buyer would charge 1% discount for each day of delay if goods could not be shipped on time.

9. Under the suit contract, the shipment date is 5 December 1997. Payment of the balance of the purchase price is by 30 days post-dated cheque and the price is on c.i.f. Hong Kong basis.

10. On 6 November 1997, 2 directors of the plaintiff, Mr Philip Wong and Mr Chester Wong, went to Taiwan. There they went with Mr Lin Tzu Poa of the defendant to a factory to check and confirm the colours for the Fabric. The plaintiff's case is that this visit is in respect of the Fabric under both the 1st contract and the suit contract. The defendant's case, however, is that the visit is unrelated to the suit contract. The approved colour samples were later delivered to the plaintiff on 10 and 11 November 1997. They are exhibits P1A and P1B.

11. It is not disputed that the Fabric contracted for under the 1st contract was delivered late. There was however no problem with regard to the colours. The Fabric contracted for under the suit contract was also not delivered on 5 December 1997 as stipulated. They were delivered on about 16 December 1997 instead. Prior to that, the defendant had caused the shipment samples, the commercial invoices and bill of lading to be delivered to the plaintiff. The plaintiff had also issued a cheque for the balance of the purchase price post-dated to 15 January 1997 and delivered it to the defendant. There was dispute as to the date on which the cheque was delivered to the defendant, a matter that I shall return to deal with later.

12. It is the plaintiff's case that the colours of the Fabric so delivered on about 16 December 1997 did not conform to the approved colour samples. Upon receiving the plaintiff's complaint, the defendant requested the plaintiff to check with its buyer whether the colours were acceptable. The plaintiff later advised the defendant that its customer did not accept the colour variation and requested the defendant to re-dye the Fabric.

13. By a letter dated 20 December 1997, the plaintiff through its solicitors threatened to stop payment of 8 cheques and to commence legal action against the defendant unless the defendant arranged for a replacement of the Fabric delivered under the suit contract by 22 December 1997.

14. On 23 December 1997, the plaintiff faxed a letter to the defendant, asking it to confirm within that day whether the Taiwan factory could re-dye the Fabric and return it to Hong Kong by 10 January 1998. The plaintiff further stated in the fax that the bill of lading would be returned to the defendant in due course. There was no reply by the defendant on that day. On the following day, the plaintiff returned to the defendant the bill of lading.

15. On 24 December 1997, the plaintiff contracted with one Ming Hing Tai Company Ltd for the purchase of certain quantities of satin nylon in green and pink colours as per samples supplied. The satin nylon was to replace the goods, which the defendant ought to have supplied under the suit contract. On 27 December 1997, Philip Wong and Chester Wong of the plaintiff went to Shanghai to verify and approve the colours of the satin nylon to be sold by Ming Hing Tai. The plaintiff had also arranged for PVC layer to be supplied and pasted to the satin nylon by a factory in Dongguan, Mainland.

16. It is also the plaintiff's case that in order to meet the shipment date under the resale contract, the plaintiff had kept the workers responsible for manufacturing the products in the Mainland factory to await for the arrival of the replacement goods from Ming Hing Tai. In the ordinary course of events, these workers would have returned to their homes in other provinces for the Chinese New Year. As it was near the New Year, there was no other order, hence work for the worker during the waiting period. The wages paid to these workers to keep them in the factory was therefore wasted.

17. On 30 December 1997, the defendant's solicitors replied to the plaintiff's solicitors that the Taiwan factory could re-dye the fabric and return it to Hong Kong by 10 January 1998. The plaintiff through its solicitors replied on 31 December 1997 that, in order to mitigate its loss, it had already ordered replacement goods from another supplier. On 2 January 1998, the defendant refunded to the plaintiff the 15% deposit and also returned the cheque for payment of the balance of the purchase price. The Fabric supplied by the defendant under the suit contract was subsequently returned to Taiwan and resold.

18. The goods contracted for under the resale contract were eventually shipped on 19 February 1998, 30 days later than the contractual shipment date. Consequent upon negotiations between the plaintiff and VSB, it was agreed that the plaintiff would bear the full air freight and in return VSB would not claim any discount on the price of the goods.

The Pleadings

19. In the Amended Statement of Claim, the plaintiff pleaded that there was late delivery under the suit. The plaintiff further pleaded that the defendant was in breach of an implied condition that the colours of the Fabric supplied should conform with those of the samples. The plaintiff therefore claimed against the defendant damages representing :

(1) Expenses for travelling to Shanghai to approve the colours of the satin nylon purchased from Ming Hing Tai ;

(2) Wasted wages of the workers of the Mainland factory ;

(3) The air freight for shipping the goods under the resale contract to VSB.

20. In the Amended Defence and Counterclaim, the defendant did not deny that there was late delivery under the suit contract. The defendant, however, pleaded that the plaintiff had by conduct waived its right to claim, and was estopped from claiming, against the defendant for late delivery. The conduct relied upon by the defendant was the facts that the plaintiff, knowing that shipment was late, nevertheless issued and gave to the defendant the cheque for the balance of the price.

21. As to the claim for breach of implied condition, the defendant admitted that there was such an implied condition, but denied being in breach of it. It averred that the Fabric supplied did conform to the shipment samples. The defendant further claimed that the plaintiff had by conduct accepted the Fabric and was estopped from claiming against the defendant. The conduct relied upon by the defendant is the fact that the plaintiff had raised no complaint after receipt of the shipment samples and also the issue of the cheque for the balance of the price.

22. The defendant averred that the plaintiff had wrongfully repudiated the suit contract by returning the bill of lading, which repudiation it accepted. The defendant therefore counterclaimed against the plaintiff for the costs and expenses incurred in shipping the Fabric from Taiwan to Hong Kong and thereafter back to Taiwan upon the plaintiff's refusal to accept it.

23. In the Reply and Defence to Counterclaim, the plaintiff denied the pleas of waiver and estoppel. It pleaded that the defendant had admitted in writing that the colours of the fabric supplied did not conform to those of the samples.

24. At the commencement of the trial, the plaintiff applied to amend the Reply and Defence to Counterclaim. Part of the amendments was consequential upon the amendments to the Defence and Counterclaim. Another part related to the date on which the defendant's agent came to the plaintiff's office to collect the cheque for the payment of the balance of the purchase price. The plaintiff applied to amend the date from "on or about 15 December 1997" to "on or about 11 December 1997". This amendment was objected by the defendant. After hearing arguments, I disallowed this part of the proposed amendment while allowing the other consequential amendments. Principally, I considered that there was no compelling and convincing reason for making this very late amendment. The date was in any event pleaded as an approximation.

Issues

25. The issues to be determined in this trial are :

(1) What are the relevant samples for the suit contract, whether it should be the samples approved during the Taiwan visit or it should be the shipment samples ;

(2) If the relevant samples are those approved during the visit to Taiwan, whether the colours of the Fabric supplied by the defendant conform with those of the approved samples ;

(3) Whether the plaintiff had by its conduct waived its right to claim against the defendant for late delivery and is thereby estopped from so claiming in this action ;

(4) If the fabric supplied under the suit contract indeed did not conform with the approved samples, whether the plaintiff is by its conduct estopped from claiming against the defendant for the same ;

(5) If the plaintiff is entitled to claim against the defendant for late delivery and/or breach of implied condition of conformity with samples, what are the loss and damages recoverable against the defendant ;

(6) Alternatively, if the defendant is entitled to claim against the plaintiff for wrongful repudiation of contract, what are the loss and damages to be recovered from the plaintiff.

The Evidence

26. For the plaintiff, 4 witnesses were called. Apart from Philip Wong and Chester Wong, one Miss Wong Kwai Mui and an expert also gave evidence. For the defendant, only Mr. Lin Tzu Pao gave evidence. The defendants' expert report, though filed late and without leave, was admitted with the plaintiff's consent.

27. The main disputes on the facts evolve around what are the relevant samples for the suit contract and also the time for the giving of the cheque in payment of the balance of the price.

28. Miss Wong, who was responsible for liaising with the defendant with respect to the 1st contract and the suit contract, testified that P.O.1182 and the suit contract came about as a result of subsequent order from VSB to increase the quantity of goods to be supplied by the plaintiff. She explained that the codes "508U" and "496U", as appearing in the purchase orders and contracts, are 2 colour codes specified in the international pantone book. These pantone codes, however, are only for references. This is because the colours in the pantone book are printed on paper, such that there are bound to be variations when the colours came to be applied to fabric. Accordingly, it is important and necessary for the parties to approve what is termed "lap-dip" samples, namely, samples of satin nylon with PVC backing dyed to the approved colours. Once the lab-dip samples are approved and confirmed, it will not be necessary to refer to the pantone codes. It is Miss Wong's evidence that exhibits P1A and P1B are the approved and confirmed lap-dip samples for both the 1st contract and the suit contract.

29. Miss Wong also testified that on about 11 December 1997, she received through the fax machine copies of the commercial invoice and the bill of lading for the suit contract. She then prepared the post-dated cheque for payment of the balance of the purchase price. She recalled that it was on that day that the defendant sent someone to collect the cheque.

30. On the following day, she received the shipment samples for the suit contract. She was very upset upon seeing that the shipment samples were less than the quantity she had stipulated and there was writing on the samples, such that they could not be used to manufacture sample bags for the inspection and approval by VSB. Her dissatisfaction was clearly expressed in a fax she sent to Mr. Lin of the defendant on the same day. Thereafter, she discovered that the colours of the shipment samples were different from those of the lap-dip samples. She then telephoned Mr. Lin and raise complaints about this. At the suggestion of Mr. Lin, Miss Wong sent strips of the shipment samples (exhibit P2) to VSB for approval. VSB did not accept the colour variation whereupon the plaintiff requested the defendant to re-dye the Fabric that arrived on about 16 December 1997.

31. Miss Wong referred to a fax dated 16 December 1997 from Mr. Lin of the defendant. In it, Mr. Lin stated : "Since the materials are from different assignments and manufactured under different conditions, there might be some colour difference. The factory has replied that if the colour is not suitable for usage, they can only accept your return of goods but will not re-dye them because the present time is the peak season."

32. Messrs. Philip and Chester Wong gave evidence on the trip they made to Taiwan on 6 November 1997. There they went with Mr Lin to the factory where they compared the pantone colours specified by the plaintiff's customer with the colours of the dyed satin nylon with PVC backing. Upon the colours of the dyed satin nylon being approved, strips were cut out to form the lap-dip colour samples. It was the common understanding that the bulk to be supplied under both the 1st contract and the suit contract were to conform to the approved lap-dip samples. They also mentioned about the trip to Shanghai on 27 and 28 December 1997 for verifying and approving the colours of the satin nylon to be supplied by Ming Hing Tai. They said that the trip needed not be made if the Fabric supplied under the suit contract had conformed to the approved colour samples.

33. As for Mr. Lin Tzu Pao, apart from adopting his 2 witness statements, he had also read out a further statement and adopted it as part of his evidence. According to him, P.O.1175-80 and P.O.1182 were issued on different dates. The specifications of the thickness of the PVC backing of the satin nylon under the 2 purchase orders were also different. He said that since the purchase orders and contracts all made reference to pantone codes, the colours of the fabric delivered under the suit contract need only conform to the pantone colours. Further, in determining whether there was colour variation, it should be adjudged by "naked eyes" or in other words, upon visual inspection .

34. It is Mr. Lin's evidence that the cheque for the balance of the price was issued and handed to the defendant's agent on 15 December 1997, after the shipment samples were delivered. The plaintiff should by then have noticed any colour variations. As the plaintiff did not make any complaint in the fax dated 12 December 1997 and went on to issue the cheque for the balance of the price, the plaintiff must have been satisfied with the colours as appeared on the shipment samples. Mr. Lin was adamant that the cheque was not handed to the defendant on about 11 December 1997 as said by Miss Wong. He suggested that the plaintiff only raised complaints about the colours when its customer was not satisfied with the colours.

35. Mr. Lin pointed out that the plaintiff had stopped payment of cheques issued for other transactions shortly after the dispute under the suit contract broke out. As a result, the defendant had no confidence in the plaintiff and doubted its credit worthiness. Hence, the defendant was reluctant to arrange for the fabric to be re-dyed and was prepared to call off the deal. It was only on legal advice that the defendant agreed to re-dye the Fabric and to have it re-delivered to Hong Kong by 10 January 1998. He stressed that there was in fact no problem with the colours of the Fabric.

36. Mr. Lin also queried the reason for the plaintiff's late delivery under the resale contract. He stated that as the replacement fabric was delivered by 10 January 1998 as requested by the plaintiff, the plaintiff should be able to meet the shipment date under the resale contract.

37. The 3 witnesses of fact of the plaintiff appeared to me as straightforward persons, who had tried to give evidence from the best of their memory. Mr. Lin, on the other hand, is a much more sophisticated, clever and articulated businessman. There were clearly times when he shifted his evidence in order to suit the convenience of the defendant's case.

38. On the point about whether the Fabric to be sold under the suit contract should conform to the approved lap-dip colour samples or the pantone colour codes, I find the evidence given by the plaintiff's witnesses more convincing and logical. There is no point in undertaking the trip to Taiwan if the colours are required only to be in conformity with the pantone colours. It cannot be the parties' intention that the Fabric sold under the 1st contract was to conform with the lap-dip samples whereas the fabric sold under the suit contract was to follow the pantone colours. In the first place, it was not disputed that, because of the difference in the materials, there is bound to be variance between, and it is difficult to compare, colours printed in the pantone book and the colours appearing on satin nylon. For this reason, a visit to the factory to verify and approve the colours of the dye had become necessary. The same rationale would apply to the suit contract. There is therefore no reason why the Fabric sold under the suit contract would only be required to conform to pantone colours and not approved samples. At any rate, this point about conformity with pantone colours was never pleaded nor raised by the defendant until the trial. Secondly, when the trip to Taiwan was made, both P.O.1175-80 and P.O.1182 had been issued. It is therefore only natural that the samples approved on that occasion should apply to and govern both purchase orders, hence the 1st contract and the suit contract. The defendant does not dispute the plaintiff's case that P.O.1182 came about as a result of further order placed by VSB and is therefore a follow up order of P.O.1175-80.

39. The defendant had pleaded, and Mr. Lin had pointed out, that the Fabric supplied under the suit contract did conform to the shipment samples. That, in my view, is irrelevant to the issue of whether the defendant had been in breach of the implied condition as to conformity with samples. The samples for the purpose of this implied term must be the approved colour samples, and not the shipment samples.

40. As to when the cheque for the balance of price was given to the defendant, I am of the view that Miss Wong's memory had failed her and she was mistaken when she said it was on 11 December. Given that it was a 30 days' post-dated cheque and was dated 15 January 1998, it is unlikely that the cheque was issued and collected on 11 December. It would have been more logical for it to be issued on about 15 December 1997 as originally pleaded by the plaintiff. This is particularly so having regard to the fact that the commercial invoice was faxed to the plaintiff on 10 December and on it, the defendant had requested for the cheque to be post-dated to 11 January 1997 (which should be 1998), so that if the plaintiff acted promptly and accordingly, the cheque should have been post-dated to 11 January. There is in fact no explanation offered for the cheque being dated 15 January.

Expert Evidence

41. The plaintiff had called Mr Spencer Yeung as its expert witness. Mr Yeung is the manager of the textile laboratory of SGS Hong Kong Ltd, which offers specialized laboratory services on consumer products. The defendant did not challenge the expertise of Mr Yeung. I am satisfied that Mr Yeung possesses the necessary expertise and knowledge to give expert evidence on the colours of the Fabric in question. I also accept his evidence in its entirety.

42. Mr Yeung had conducted a comparison of the colours of the shipment samples and those of the approved lap-dip samples by means of the CMC system, which is a computer colour matching system for testing colour variations. He concluded that the colour differences between the shipment samples and the approved lap-dip samples are much greater than the recommended tolerance level, both for tests conducted under the "D65 daylight lamp" and the "F11 white fluorescent lamp".

43. Mr Yeung had been extensively cross-examined by Mr Lin. He was shown the defendant's expert report, which was prepared by one Mr Winson Lam, a technical manager of Mr Yeung's company. He explained that the difference in the actual grading between the 2 reports is due to the fact that Mr Lam was comparing 2 pieces of fabric with 2 pieces of pantone colour cards. He observed that because of the difference in the materials, there might be inaccuracies in such a comparison.

44. Mr Yeung disagreed with Mr Lin's suggestion that buyers and sellers in the trade would judge the colour by "naked eyes". He said that this might be the case for the general consumers, but in the case of traders, especially international traders, they would either resort to the "dark box" method or the 2 known computer systems, of which the CMC system is the more popular one. Mr Yeung, however, agreed that the colours of dyed cloth may be affected by high temperature.

45. As previously mentioned, the defendant's expert report was admitted by consent. The report was a comparison of the shipment samples and the pantone colour cards, also by means of the CMC system. According to the result stated therein, the colour differences between the shipment samples and the pantone colours are graded at 1.4 and 3, which also exceed the recommended tolerance level of "1".

Conformity with Samples

46. On the basis of Mr Yeung's evidence, there is no doubt that the Fabric supplied by the defendant under the suit contract does not conform to the approved lap-dip samples. The colour differences are beyond the commercially accepted tolerance level. Even if the comparison is made with the pantone colour cards instead of the lap-dip samples, the colour differences are still beyond the accepted level.

47. Mr Lin's contention that the colours should be adjudged by "naked eyes" or by visual comparison cannot stand in the light of Mr Yeung's evidence. At any rate, there is no evidence that this is the practice adopted in the textile trade. I should also point out that, even on a visual comparison of the shipment samples and the approved samples, there are perceivable differences in the shades and tone of the colours involved.

48. Although Mr Lin insisted that there was no problem with the colours of the Fabric to be sold under the suit contract, he had never asserted so in his communications with the plaintiff. On the contrary, he had in the fax message of 16 December 1997, the relevant part of which had been set out in the early part of this judgment, accepted that the colours of the Fabric differ from those of the approved samples. Under cross-examination, he explained that although he had reservations about the plaintiff's complaint, he felt he was obliged, as a middle man, to explain to the plaintiff in terms of what he had stated in the fax. I find this hard to accept. Being an alert and competent businessman, if indeed he was not convinced that there were colour differences, he would have refuted the plaintiff's allegation right away. It was even more odd for him to have indicated in the fax that the goods could be returned.

49. The fact is, in an earlier fax of 3 December 1997, Mr Lin had written : "I went to the factory and discovered that the quality has defects, so it would be re-dyed". In his testimony in court, Mr Lin said that he was referring to the Fabric having been contaminated. When asked what was done to rectify the problem, he replied he could not be sure whether there was in fact any problem as he had no personal knowledge of it. He said that it was possible that there was in fact no problem, but that the factory only used this as an excuse for the late delivery. I find this part of Mr Lin's evidence wholly unconvincing. The effect of his evidence is that all the fax messages he sent to the plaintiff do not mean what they say. In my view, he was trying to escape the inevitable conclusion that these fax messages are clear indications that there were problems with the colours of the Fabric. This is also a clear example of how he shifted his evidence to suit the convenience of his case.

50. Furthermore, if indeed there was no problem with the colours of Fabric, it is difficult to understand why the defendant would eventually agree to re-dye and return the Fabric by 10 January 1998. Mr Lin explained that the defendant reluctantly agree to re-dye the Fabric solely as a result of legal advice received. The defendant's solicitors had also stated that this was on a "no admission as to liability" basis. Notwithstanding all these, the fact remains if the colours were in conformity with the approved samples, then there was nothing further that the defendant or its factory could do. There is no way the Fabric can be "re-dyed" to the right colour when it is already in the right colour. There is simply no room for concession, compromise or gesture of goodwill.

51. In my judgment, all the evidence points to one conclusion, namely, the colours of the Fabric delivered under the suit contract differ from those of the approved samples, and Mr Lin was aware of this.

52. Mr Lin attempted to explain away the colour difference by suggesting that the satin nylon had been treated under high temperature during the process of pasting on the PVC backing. This, he said, might have affected the colours of the satin nylon. As Mr Yeung, the expert, said, this is possible. But this is irrelevant and cannot exonerate the defendant. This is because the lap-dip samples were made of satin nylon with PVC backing. The colours approved were the colours appearing on the satin nylon after the PVC backing was pasted on under high temperature. In recognition of this, Mr Lin stated that the specification of the PVC backing for the suit contract was thicker than that of the 1st contract so that higher temperature had to be applied for pasting on the PYC backing,. Although the specifications of the PVC backing under the 1st contract and suit contract were differently described as "0.8 mm" and "0.85-0.9 mm", there was in fact no practical difference. This is because under P.O.1175-80, the specification was 0.85 mm and under P.O.1182, it was 0.85-0.9 mm. The parties had allowed a margin of 0.05 mm. Taking this allowable margin into account, the specifications under the contracts are effectively the same. In his supplemental witness statement, Mr Lin mentioned that the Fabric under the 1st contract and that under the suit contract were manufactured by 2 different factories. Consequently, it was inevitable that the colours of the 2 lots of Fabric would be different. I have reservations as to the reliability of this proposition. But assuming that it was correct, it would not have exonerated the defendant. As a supplier, it is incumbent upon the defendant to ensure that the same factory was engaged and, where different factories were used, to ensure that the colours of both lots of Fabric conformed to the approved samples. Mr Lin stated that it was at the plaintiff's request that a different factory was engaged. The plaintiff so requested because it was not satisfied with the progress of the first factory. Even so, it will be the duty of the defendant, as supplier, to advise the plaintiff that a change in the choice of the factory may have an effect on the colours of the Fabric produced. It would appear from Mr Lin's evidence that he had not alerted the plaintiff to this. This omission is particularly relevant when considering that P.O.1182 is a follow up order of P.O.1175-80 and also the obvious fact that the plaintiff was very concerned about the colours of the Fabric.

53. This point about 2 different factories being used is, however, immaterial for it is also Mr Lin's evidence that even with the same factory, the colours of the Fabric might not be the same if the specifications of the PVC backing differ. I have, for the reasons stated above, found the point about specifications of PVC backing of no significance in this action.

54. In the premises, it is obvious that the defendant was in breach of the implied condition in that the Fabric delivered under the suit contract did not conform to the approved samples.

Waiver and Estoppel

(1) Late Delivery

55. In approaching this issue of waiver and estoppel, a distinction has to be drawn between waiver of a right to rejection and waiver that has the effect of excusing the breach in its entirety. In the normal course of events, where a buyer has allowed the delivery date to pass and has, by words or conduct, led the seller to believe that he will accept delivery at a time later than originally stipulated, he will be regarded as having waived his right to insist on delivery on the contracted date and will not be entitled to reject the goods on the ground that they were not delivered within the contract time : Benjamin's Sale of Goods (5th edition) para. 8-07. Clear and unequivocal words or act has to be shown if a seller is contending that the buyer has, not only waived the right to reject, but also waived any right to damages. The burden of proof is on the seller.

56. In this case, whether the plaintiff issued the cheque for the balance of the price on 11 December 1997, as contended by the plaintiff, or about 15 December 1997, as I have found on the evidence, the fact is the cheque was issued at a time when the parties knew well that the shipment date had passed. The plaintiff has in several fax messages pointed this out to the defendant and urged delivery to be made as soon as possible. It will appear that the parties' target then was to meet the delivery date under the resale contract rather than insisting on strict compliance with the delivery date under the suit contract. The conduct of the plaintiff, including the issue of the cheque, no doubt amounts to a waiver in the sense that it had affirmed the contract despite there was late delivery. The plaintiff could not therefore reject on the ground of late delivery. I will not, however, go further and hold that the plaintiff's conduct amounts to a waiver of its right to claim damages arising out of the delay in delivery. Throughout the transaction, the defendant was well aware that the plaintiff would have to pay damages to VSB in the event of late shipment and the relevant term in the resale contract had been set out in the 2 purchase orders. There has to be clear words and indication from the plaintiff before it can be said that the plaintiff had foregone its right to look to the defendant for damages in the event of late delivery.

57. This point on waiver and estoppel is, however, of little significance in the context of late delivery. This is because had the Fabric delivered conformed to the colours of the lap-dip samples, it is probable that the plaintiff would be able to meet the shipment date in the resale contract and it would not then be necessary to pay damages to VSB or bear the air freight. To say the least, it is not contended by the plaintiff or shown by the evidence to the contrary.

(2) Non-conformity with samples

58. Similar to the situation of late delivery, it is also important in the context of non-conformity to samples to distinguish the 2 ways in which a buyer may waive his rights. In this case, the defendant's defence is that the plaintiff had waived all its rights arising from the non-conformity in colours : see paragraph 13 of the Amended Defence and Counterclaim. The defendant's case is that not only had the plaintiff lost its right of rejection, but it was also precluded from seeking damages from the defendant. In so contending, the defendant relies on the fact that the cheque for the balance of the price was issued after the plaintiff had received the shipment samples. This plea of waiver and estoppel is, however, bound to fail for the following reasons.

59. Firstly, section 17(2)(b) of the Sale of Goods Ordinance, cap. 26 provides that in every contract for the sale by sample, there is an implied condition that the buyer shall have a reasonable opportunity of comparing the bulk with the sample. Section 37(2)(b) of the same Ordinance further provides that a buyer in a sale by sample is not regarded as having accepted the goods delivered to him until he has a reasonable opportunity of examining the goods for the purpose of comparing the bulk with the sample. The Fabric in the present case only arrived on 16 December 1997, after the cheque was issued and handed to the defendant. The cheque was therefore given before the plaintiff had an opportunity to examine the bulk of the Fabric.

60. Secondly, as the suit contract is a c.i.f. contract, the plaintiff is obliged to make payment against documents and is not entitled to refuse to pay until it has examined the Fabric shipped for the purpose of comparing it with the samples : Benjamin, supra, (5th edition) para. 19-067. This is because a buyer in a c.i.f. contract has both a right to reject the documents and a right to reject the goods, and these rights are separate and distinct in law : Kwei Tek Chao v. British Traders and Shippers Ld [1954] 2 Q.B. 459. Accordingly, even if the plaintiff has cause to suspect that the Fabric is defective or does not conform to samples, he must nevertheless pay against the documents. Its right as a c.i.f. buyer is either in damages or in rejection after the goods are delivered : Benjamin, supra, paras. 19-068, 19-142 to 19-145. The giving of the cheque therefore cannot amount to a waiver of its rights in relation to defects of the goods and the plaintiff is not estopped from either rejecting the Fabric upon arrival in Hong Kong or claiming damages arising from the defect in the colours.

61. Thirdly, quite apart from the legal position, it is clear from the evidence that Miss Wong of the plaintiff had raised complaint on or before 15 December 1997, when, according to Mr Lin, the cheque was delivered. This is because the defendant had by the fax message dated 16 December 1997, reference to which had already been made, advised that the Taiwan factory would not re-dye the Fabric, but would accept the return of it. And Mr Lin had also agreed in cross-examination that it would take 1 to 2 days for him to liaise with the factory. It follows that the plaintiff through Miss Wong must have complained about the colours of the Fabric on or before 15 December 1997.

62. It should also be noted that the defendant did not raise any objection when the plaintiff returned the bill of lading on 24 December 1997, which must be a clear indication of the plaintiff's rejection of the Fabric. On the contrary, as shown by the fax of 16 December 1997, the defendant was quite prepared and had, in fact, offered for the fabric to be returned.

Loss and Damages of the Plaintiff

63. The plaintiff's act of returning the bill of lading amounts to a rejection of the Fabric, and the suit contract was thereby brought to an end. The subsequent discussions between the parties in relation to re-dying the Fabric cannot revive the suit contract, and can only be regarded as attempts to settle the dispute between the parties. Since the attempts did not result in any agreement between the parties, the plaintiff is entitled to rely on the breaches of the suit contract and seek damages from the defendant.

(1) Expenses for the trip to Shanghai

64. It is beyond doubt on the facts of this case that the defendant knew full well that the Fabric was to be manufactured into bags for meeting the orders of the plaintiff's customer. It is also within the defendant's knowledge that, if, for whatever cause, the shipment to the plaintiff's customer was delayed, the plaintiff had to compensate its customer and would thereby suffer loss. Therefore, if it can be shown that the defendant's failure to supply goods that conform to the samples, then the defendant will be answerable to the plaintiff for its direct and reasonable loss arising from the resale contract and occasioned by such breach.

65. In my view, it must be within the reasonable contemplation of the defendant that the plaintiff would have to look to alternative supplier for replacement goods if the defendant could not fulfil its contractual obligation. It is also within the defendant's reasonable contemplation that the plaintiff would have to approve the colours of the replacement goods, just as it had done so in relation to the 1st and suit contracts. The expenses incurred by Mr Philip Wong and Mr Chester Wong for travelling to Shanghai to approve the colours of the satin nylon purchased from Ming Hing Tai are therefore a natural and direct consequence of the defendant's breach. The plaintiff claims HK$8,800 under this head, but the evidence adduced at the trial (exhibits P4 and P5) shows that the expenses consist of the following :

(a) Air fare for Philip and Chester Wong	HK$5,800
(b) Airport tax for departing Hong Kong	200
(c) Hotel expenses		RMB381.40
(d) Airport tax for departing Shanghai		180
	___________________________
Total	HK$6,000 + RMB561.40

The plaintiff therefore can only recover from the defendant the sums of HK$6,000 and RMB561.40.

(2) Wages of the factory workers

66. The same consideration also applies to the wages of the workers of the Mainland factory. By special arrangement, these workers were kept in the factory to await the arrival of the replacement goods from Ming Hing Tai so as to manufacture the bags under the resale contract. In the normal course of event, they would have taken home leave during the New Year. Before the replacement goods arrived, there was no other work for them to do. The wages paid to them in order to keep them at the factory on stand by is therefore a direct and natural consequence of the defendant's breach. The defendant is therefore liable to the defendant for the amount of the wages, being RMB 71,288.

(3) Air freight for shipping goods to VSB

67. There is no doubt that loss flowing under the resale contract is a direct and foreseeable loss arising from the defendant's breach. Had VSB stood by its rights under the resale contract, it would have been entitled to compensation represented by 1% of the price of the resale contract for each of the 30 days of delay, being HK$202,644 (i.e. HK$675,480 x 1% x 30 days), together with the difference between the sea freight and the air freight. The plaintiff's agreement to compromise with VSB by bearing all the air freight, which is HK$147,278.04, instead of paying the said compensation plus the difference between the sea freight and air freight is therefore a reasonable one. The plaintiff is thus entitled to look to the defendant for indemnity in respect of the air freight paid.

68. In this respect, the defendant had queried the reason for the plaintiff's inability to meet the shipment date under the resale contract. It was argued by Mr Lin that as the replacement goods were ready by 10 January 1998, which was the deadline set by the plaintiff when requesting the defendant to arrange for the Fabric to be re-dyed by the Taiwan factory, there was no reason why the plaintiff could not meet the shipment date of 20 January 1998 under the resale contract. The fallacy of this argument lies in the fact that it was assumed that the 10 days between 10 and 20 January 1998 would be sufficient to manufacture the goods contracted for under the resale contract. The assumption, however, has no basis. The fact that the plaintiff had requested the defendant to confirm whether the Taiwan factory could re-dye and re-deliver the Fabric to Hong Kong by 10 January 1998 cannot give rise to an inference that the plaintiff would be able to arrange for the goods under the resale contract to be manufactured and shipped by 20 January 1998. This request of the plaintiff is no more than an attempt to mitigate the loss.

69. In short, I am satisfied that the plaintiff is entitled to claim against the defendant the 3 heads of loss mentioned above, being the total sums of HK$153,278.04 and RMB71,849.40 (i.e. HK$6,000 + HK$147,278.04 and RMB561.40 + RMB71,288). There should be judgment for the plaintiff for these amounts with costs..

The Defendant's Counterclaim

70. It follows from my finding that the plaintiff was entitled to reject the Fabric delivered by the defendant, that the defendant fails in its assertion that the plaintiff had wrongfully repudiated the suit contract by returning the bill of lading. The Counterclaim therefore has no basis and must be dismissed with costs.

Conclusion

71. For the reasons stated above, there will be judgment for the plaintiff on the claim in the amounts of HK$153,278.04 and RMB71,849.40 or its equivalent in Hong Kong currency, together with interest thereon at judgment rate from the date of the judgment to the date of full payment. The defendant's counterclaim is dismissed. There is no reason why the general rule of costs follow event should not apply. I therefore also make an order nisi that the defendant pays the plaintiff the costs of the whole action, to be taxed if not agreed. The order nisi to be made absolute after 14 days from the handing down of this judgment.