UNISON KNITWEAR LTD. v. RICH EASY LTD.

CACV 558/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 558 OF 2001

(ON APPEAL FROM HCA NO. 20964 OF 1998)

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REASONS FOR JUDGMENT

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Hon Le Pichon JA:

1. This is an appeal from the judgment dated 2 February 2001 of Deputy High Court Judge S Kwan (as she then was) ordering the defendant to pay the plaintiff the sum of US$78,660 or its Hong Kong dollar equivalent at the time of payment together with interest. The appeal was dismissed with reasons in writing to be handed down later.

2. The action was brought by the plaintiff for the price of goods sold and delivered to the defendant. The goods in question consisted of 1,140 dozen of men's 100% cotton knitted pique polo shirt manufactured by the plaintiff in late 1997. The plaintiff is a company established and operating in Bangladesh where the goods were manufactured. The defendant is a company incorporated in Hong Kong. The only issue before the judge was whether there was an agreement between the parties for the sale and purchase of the goods.

3. The plaintiff's case was very simple. It relied on an oral agreement entered into by Mr Ho Chi Cheung on behalf of the plaintiff and one Miss Angela Lin on behalf of the defendant at the plaintiff's factory in Bangladesh in late August 1997. The plaintiff had not had any prior dealings with the defendant. Miss Lin was brought to the plaintiff's factory by a Mr Maurice Ma of Brilliant Chances (Overseas) Limited ("BC Overseas") and introduced to Mr Ho. BC Overseas was a supplier of fabrics and accessories with whom the plaintiff had had previous dealings. In fact, the plaintiff would place orders for the necessary fabrics and accessories with BC Overseas in respect of contracts from customers introduced by BC Overseas. Mr Ho's evidence was that the defendant acting through Miss Lin placed an order with the plaintiff orally to manufacture about 2,000 dozen of the shirts at the price of US$69 per dozen FOB. Delivery was to be made in December 1997, the delivery date to be 90 days of the receipt of a letter of credit in favour of the plaintiff.

4. The defendant denied that it had entered into any agreement with the plaintiff. Its pleaded case was that in order to fill purchase orders placed by Champion with Fashion Overseas Bureau Limited ("FOB") an associated company of the defendant and for which it was appointed agent in Hong Kong, the defendant as sub-agent for Champion entered into an agreement with Brilliant Chances Bangladesh Limited ("BC Bangladesh") relating to the purchase of 4,000 dozen of the polo shirts from BC Bangladesh at US$69 per dozen. At the trial, a placement memorandum (considered below) was produced by one of the defendant's witnesses. This led the defendant's counsel to reformulate the defendant's case which was that the contract for the goods which formed the subject matter of the action was between BC Bangladesh, alternatively BC Overseas as vendor and the defendant as agent for Champion, alternatively for Statco Champion. In other words, the defendant's case was that it had contracted with either BC Bangladesh or BC Overseas but not the plaintiff.

5. The plaintiff's case rested entirely on the evidence of its two witnesses who were Mr Ho its director and Madam Leung, the wife of Mr Ho, who was the managing director. Its claim in the present action related to only part of the order viz. 1,140 dozen which had to be airfreighted rather than shipped by sea because of colour discrepancies in the fabric supplied by BC Overseas. They had caused a halt to production with consequential delays pending resolution of the colour problem. The plaintiff had received payment for the earlier shipment by sea.

6. The defendant also called two witnesses: Mr Terence Au Hoi Fung who was a director and in charge of all the departments in the defendant except for merchandising and quality control and Mr Ricky Chan Yik On who was the second in command in the quality control and assurance department. Surprisingly, Miss Lin was not called to give evidence. This plainly called for comment and the deputy judge expressed herself thus:

"Miss Lin is clearly the most important person on the defendant's side involved in this transaction by virtue of the position she occupied and the duties she undertook. She was involved from the very beginning when the defendant received the purchase order detail sheets from FOB regarding the purchase orders placed by Champion with FOB. She signed the placement memorandum in August 1997 relied on by the defendant and she visited Bangladesh in the summer of 1997 for the purpose of fulfilling the purchase orders of Champion. She had conducted negotiations with BC Overseas. She signed the inspection certificates in respect of the goods made by the plaintiff. She was not called to give evidence for the defendant. According to Mr Au, who was responsible for handling this litigation, Miss Lin is always busy looking after the defendant's business and it might not be convenient for her to come to court to testify. She has expressed a preference that Mr Au should take care of the case. I do not accept these as adequate or convincing reasons, bearing in mind that this case was put on the fixture list. I find that it was a deliberate decision of the defendant that Miss Lin was not to be called as a witness."

7. The deputy judge noted that no one from the merchandising department of the defendant responsible for negotiating contracts, obtaining orders and liaising with suppliers and manufactures on purchase orders was called to testify. That department would have dealt with the letter of guarantee countersigned by BC Overseas upon which the defendant had relied heavily. The deputy judge also found that it was a deliberate decision on the part of the defendant not to call anyone from the merchandising department to give evidence.

8. At the trial, the defendant relied on a number of documents to prove that the contract was with BC Bangladesh or BC Overseas but not the plaintiff. Most of the documents were allowed into evidence pursuant to Ord. 38 r. 29(1), the exception being the placement memorandum which was produced by one of the defendant's witnesses and was not admitted as hearsay evidence. Documents admitted into evidence pursuant to Ord. 38 r. 29(1) (which applied to the present action because the amendments introduced by the Evidence (Amendment) Ordinance 1999 (No. 2 of 1999) did not apply where proceedings (such as the present) were commenced before 1 June 1999,) are not admitted as to the truth of their contents. The fact that the defendant was unable to furnish any reason as to why the maker of those documents could not or should not be called was, understandably, a matter that affected the weight to be attached to them. The deputy judge painstakingly reviewed each of them but came to the conclusion that looking at them in the round and on a cumulative basis, they were insufficient to undermine the credibility of the plaintiff's witnesses.

This appeal

9. The issue in this appeal is whether the deputy judge was right in reaching her conclusion. It was submitted that those documents were contemporaneous documents and, cumulatively, they contradicted the evidence of Mr Ho, thus destroying the plaintiff's case. The documents relied on fall into the following categories:

(a) Correspondence relating to the letter of credit

10. On 28 August 1997, BC Overseas sent a fax to FOB "RE: L/C FOR CHAMPION H1048". The message read:

"TO SAVE TIME, PLS OPEN L/C DIRECTLY TO FLWG FTYS N LET US HV THE APPLICATION COPY BEFORE SUMBIT TO BANK"

Details of the two factories and their respective bankers were then given. The first factory was that of the plaintiff's. On 5 September 1997, the defendant opened an irrevocable letter of credit in favour of the plaintiff in accordance with the terms set out in the 28 August letter. The letter of credit was negotiable only at the Citibank in Hong Kong. On 19 September 1997, BC Overseas sent a written request to FOB regarding the letter of credit issued to the plaintiff and requested an amendment to remove the restriction on the negotiation of the letter of credit to enable the plaintiff to open a back to back letter of credit in favour of BC Overseas for the fabrics and accessories. On 22 December 1997, there was a second amendment to the letter of credit, extending the expiry date from 24 December 1997 to 18 January 1998. There is a letter from the defendant to BC Bangladesh dated 23 December 1997 countersigned by BC Overseas for BC Bangladesh that the amendment to the letter of credit by the defendant was done per BC Bangladesh's verbal request.

11. In short, the defendant's submission was that the letters of 28 August, 19 September and 23 December showed that BC Overseas or BC Bangladesh was the contracting party, there being no logical explanation for those instructions to have been given unless BC Overseas or BC Bangladesh was entitled to payment.

12. As a preliminary matter, it is questionable whether what BC Overseas sought to do in those letters was properly characterised as the giving of 'instructions'. They could equally be read as 'requests'. Moreover, the letters relied on while consistent with the defendant's case were not necessarily inconsistent with the plaintiff's case so as to establish that the contracting party was not the plaintiff. Rhetorically, had BC Overseas been the true contracting party, so that one Hong Kong company (BC Overseas) was contracting with another Hong Kong company (the defendant), why would BC Overseas have allowed the letter of credit to be opened in favour of the plaintiff a Bangladesh company? It makes no commercial sense and this was a commercial transaction.

13. BC Overseas' involvement is perfectly explicable: it was intimately involved in the transaction and stood to benefit from it in the form of an order from the plaintiff to supply the fabrics and accessories required to fill the orders placed by the defendant. That BC Overseas should have been interested in the terms of the letter of credit issued to the plaintiff is evident from the reason stated in the letter of 19 September itself: it wanted to secure payment through a back to back letter of credit which was not possible without the first amendment. The second amendment is also explicable in view of the delay in production caused by colour discrepancies which was BC Overseas' responsibility. Without the amendment, the plaintiff could not receive payment and this would have had a chain effect on BC Overseas.

(b) Inspection reports

14. Altogether, there were eight inspection reports before the court. The first two were signed by Madam Leung as "factory representer". The signature of the factory representer on the third of the reports was indecipherable. The person who signed the remaining five inspection reports as factory representer was one Simon Chan of BC Overseas. The defendant's submission was that there was no reason for an employee of BC Overseas to have signed the inspection reports unless it was the manufacturer since the reports related to matters of workmanship and not only matters concerning fabrics and accessories.

15. In the court below, Madam Leung gave evidence to the effect that the client had complained that the colours were not matching and she, therefore, contacted Mr Ma who referred her to Simon Chan who was an employee of BC Overseas then present in Bangladesh. Madam Leung asked him to resolve the problem with the client since if a claim were to be lodged against the plaintiff, the plaintiff would in turn claim against BC Overseas. Madam Leung's evidence as to the complaints about the difference between the colour of the collar and the body of the shirt and the colour of the buttons are reflected in the inspection reports signed by Simon Chan. Each of the inspection reports signed by him contained some complaint relating to colour. The deputy judge accepted Madam Leung's evidence that Simon Cheung visited the factory on six occasions during the course of production and worked with the defendant's quality controller to resolve the problems that arose. In those circumstances, it was hardly surprising that the comments were not confined to problems attributable only to colour problems. The deputy judge was plainly right in rejecting the significance which the defendant sought to attach to the fact that these reports had been signed by an employee of BC Overseas.

16. Simon Chan also appeared to have signed a "measurement chart" which had nothing to do with colour problems. But given Madam Leung's evidence summarised on page 20 of the judgment, and Simon Chan's role in resolving the problems with the defendant's quality controller, little significance is to be attached to his signing the measurement chart.

(c) The guarantee

17. On 10 January 1998, in return for the release of the goods, BC Overseas countersigned a letter addressed to it by the defendant, agreeing to accept responsibility for the cost of goods and all costs and charges not limited to shipment costs in the event of rejection by the buyer. A significant part of the deficiencies listed in the letter related to the dye and colour of the fabrics as well as the accessories. The goods which were covered by this letter of guarantee had been shipped by air on 31 December 1997. The shipment was late and it would appear because colour problems had caused a halt to production. The suggestion was that there was no reason for BC Overseas to have given such a guarantee unless it was the manufacturer.

18. The deputy judge refused to accept this letter of guarantee at face value and, in my view, rightly so. The letter was the responsibility of the merchandising department, yet no one from that department was called to explain why it was addressed to BC Overseas. The witnesses actually called by the defendant had nothing to do with the issuance of the letter. Moreover, there was also Madam Leung's evidence which the judge accepted to the effect that the plaintiff would hold BC Overseas responsible in the event of the customer making a claim against the plaintiff because of colour discrepancies. This fact coupled with the reason why the goods had to be airfreighted is, at the very least, a possible explanation for a guarantee to have been furnished by BC Overseas.

(d) Placement memorandum

19. No less than three versions of the placement memorandum are in the hearing bundle. Each was issued by the defendant. BC Bangladesh was stated to be the manufacturers and Statco Champion as the overseas principal/consignee. Miss Lin signed each of them on behalf of the defendant. The first version (at page 434 of the bundle) bore the chop of BC Overseas but no signature was apparent on the copy in the hearing bundle. The other two versions also bore the chop of BC Overseas with a signature but the person signing it has not been identified. In any event, it was never signed by BC Bangladesh to whom the placement memorandum was addressed.

20. Unlike the other documents considered above, the placement memorandum was not even admitted into evidence under Ord. 38 r. 29(1). It was produced by the defendant's witness Mr Au when he gave evidence. Not being the maker of the documents, he was not in any position to give evidence about it. That being the case, the judge cannot be criticised for refusing to reject the plaintiff's evidence of the oral agreement on the basis of the placement memorandum.

Conclusion

21. In my judgment, there is no merit in this appeal. The documents relied on whilst consistent with the defendant's case do not remotely prove it since they are explicable even on the plaintiff's case. It might have been different had the defendant elected to call crucial witnesses such as Miss Lin who played a pivotal role in the transaction and the person in charge from the defendant's merchandising department. It was a tactical decision taken by the defendant and it must bear the consequences.

Hon Sakhrani J:

22. I agree.

Hon Rogers VP:

23. I agree.