JORDACHE INTERNATIONAL (HK) LTD v. YEUNG CHAU TEXTILES CO LTD AND ANOTHER

1990, No. A7995

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The Plaintiff is suing the Defendants for breach of contract.

2. The contracts in question relate to 5 purchase orders for Ladies' pants and 2 for men's pants

3. The Plaintiff placed the orders on the 1st Defendant . It is their case that they were approached by the 1st Defendant who requested that they be permitted to assign the purchase orders to the 2nd Defendant They agreed to this on the basis that the 1st Defendant would continue to be liable for the 2nd Defendant's performance of the contract.

4. To put matters very shortly the pants were never delivered to the Plaintiff notwithstanding the fact that various extensions of time for the delivery of the pants were agreed.

5. It is the 1st Defendant's case that the Plaintiff agreed to the assignment of the orders unconditionally and that there was no question of their assuming any I responsibility in respect of the contract once the assignments had taken place.

6. The 2nd Defendant assumed an active role in the litigation until a late stage in the proceedings. Indeed in addition to defending the action they also brought a counterclaim which was based upon the alleged failure of the Plaintiff to take delivery of some of the pants.

7. Shortly before the hearing the solicitors representing the 2nd Defendant obtained an order that they should come off the record and thereafter the 2nd Defendant has assumed no further role in the action.

8. No one attended at the hearing and on the application of the Plaintiff I entered judgment against the 2nd Defendant and ordered that damages be assessed. I also dismissed the 2nd Defendant's counterclaim.

9. It would appear to be common ground between the Plaintiff and the 1st Defendant that the critical conversation concerning the arrangements made by the parties was a telephone conversation between Miss Stella Tan of the 1st Defendant of one part and Miss Leung of the Plaintiff of the other part which occurred on the 10th of April 1990

10. It was agreed between the parties that initially the hearing should be confined to, the question of liability and if I found in favour of the Plaintiff an order would be made for damages to be assessed.

11. On this basis the only witness called by the Plaintiff was Miss Leung. This lady is no longer in the employ of the Plaintiff. At the time of the transaction in question she was the merchandising manageress of the Plaintiff.

12. Her position in the hierarchy was that she worked to a Mr. Segal who supervised her work. Her main duties though were to supervise the activities of the heads of 2 Divisions of the company - Miss Lydia Chu and Miss Clara Chiu.

13. Originally the orders in question came through the introduction of Mr. Segal who requested Miss Leung to place the orders for the pants with Miss Stella Tan of the 1st Defendant. Appropriate action was taken to this end and contracts were exchanged in the early part of 1990. The idea was that the pants would be manufactured in China and the 1st Defendant would be responsible for this. Also clearly a relevant consideration was that quotas for the pants should be available as the goods were to be shipped to the United States of America,

14. It was her evidence that on the 10th of April she received a telephone call from Miss Tan. Miss Tan asked her to agree to the 7 orders being placed with the 2nd Defendant. The reason she gave for this request was that the 1st Defendant couldn's the necessary quotas. She also said that the 1st Defendant was unable to produce the goods.

15. She went on to explain that in reality the 1st Defendant and the 2nd Defendant were the same company and that if the transfer was affected the 1st Defendant would remain responsible for the contract.

16. Miss Leung said that she had no knowledge concerning the 2nd Defendant but on the basis that the 1st Defendant would continue to be responsible for the contract she agreed to the letters of credit being made out in the 2nd Defendant's name.

17. Miss Leung was cross-examined at some length by Mr. Wu for the lst Defendant. The cross-examination was conducted against the contemporaneous correspondence and I think it is accurate to state that her version of the conversation which took place was never seriously challenged. Indeed it was strongly my impression that she was an excellent witness and that her evidence was both truthful and reliable.

18. Miss Stella Tan was the principal witness for the 1st Defendant. At the relevant time she was sales manageress for the 1st Defendant. She had obtained the purchase orders from Mr. Segal of the Plaintiff. She had undertaken the necessary leg work and had tied up the contracts for the 1st Defendant.

19. She was fully aware of the fact that the pants in question would be manufactured in China and that it was essential to secure the required quotas to enable them to be shipped to the United States of America

20. She knew that her boss Mr. Ng had gone up to China shortly after the orders had been obtained and that his endeavours to arrange for the production of the pants in China had not been fruitful. Mr. Ng had said that the main problem which was being encountered was the Plaintiff had been known to the factory in China and were persona non grata. This created something of a problem. She had had discussions with Mr. Ng and he had suggested that she should contact Mr. Chai of the 2nd Defendant as he had some quotas available at that time for the relevant categories.

21. She had been told by Mr. Ng that he had an interest in the 2nd Defendant. She realised however that it was necessary for her to secure the agreement of the Plaintiff to assign the orders to the 2nd Defendant.

22. She claimed to have first discussed this matter with Mr. Segal. He had suggested that she hould discuss the details with Miss Leung. She had done so on the 10th of April

23. Needless to say her version of what was said in the course of the telephone conversation was at considerable variance with Miss Leung's evidence.

24. She said that she had advised Miss Leung that the 1st Defendant would be unable to fulfil the orders which had received from the Plaintiff. She referred to both quota and production problems. She had however informed Miss Leung that the 2nd Defendant would be able to perform the contract. She had said that Mr. Ng was also a shareholder in the 2nd Defendant. She denied any suggestion that she had said that for all practical purposes the 1st Defendant and the 2nd Defendant were the same company. She said that Miss Leung had not at any time stipulated that the assignment of the contract to the 2nd Defendant was conditional upon the 1st Defendant remaining responsible for the due performance of the contract until it had been completed.

25. Miss Tan was subjected to able cross-examination by Mr. Shum for the Plaintiff. Like Mr. wu he related his cross-examination to the contemporaneous documentation.

26. It was very apparent to me that Miss Tan was unable to provide any satisfactory answers or explanations to a number of important points put to her by Mr. Shum

27. For example, the explanation given for conducting correspondence ostensibly for the lst Defendant when it was her evidence that she was representing the 2nd Defendant was totally lacking in plausibility. She said that although the 1st Defendant had been absolved from any liability in the matter she had continued to assist the 2nd Defendant as they were unfamiliar with the personnel and the practices adopted by the Plaintiff.

28. She claimed that when she had written letters and faxes on the 1st Defendant's notepaper she had in fact been speaking for the 2nd Defendant. She said that the 2nd Defendant's office was in Tsimshatsui and the 1st Defendant's was at Kwun Tong. It would have been inconvenient for her to obtain notepaper bearing the 2nd Defendant's letterhead.

29. She had on numerous occasions when writing on the 1st Defendant's letterhead referred to "we" doing this that or the other. When referring to "we" she had intended to mean the 2nd Defendant and herself.

30. Mr. Shum directed her attention to one occasion where she had adopted this style when reference was clearly being made to the orders which had been agreed with the lst Defendant. There is no doubt in mv mind that Miss Tan was deliberately fabricating her evidence when she stated that she had been representing the 2nd Defendant when writing these letters and faxes.

31. I agree with Mr. Shum that it is illuminating to read the contemporary correspondence. What is noteworthy is that Miss Tan expresses regrets and apologises for the various shortcomings. Why should she do this if her role is confined to simply being a bridge between the Plaintiff and the 2nd Defendant.

32. There is also the question of the letters which were written by the Plaintiff to the 1st Defendant when it became obvious that the Defendants were in default. In this connection the Plaintiff clearly contended that the fist Defendant had a responsibility to them. If Miss Tan's version of the events was the true one it is rather surprising that the 1st Defendant did not reply to the Plaintiff's complaint and point out that they had been released from any further liability on the 10th of April.

33. There was also the matter of the Plaintiff seeking payment for the belts supplied. Again this correspondence was addressed to the 1st Defendant. It seems unlikely that this debit note would not have been challenged if indeed the contract had been assigned to the 2nd Defendant without any recourse to the 1st Defendant.

34. I regret that I formed a very unfavourable impression of Miss Tan as a witness. Where her evidence is at variance with Miss Leung's I have no hesitation in accepting the latter's evidence as true.

35. The 1st Defendant also called Mr. Ng as a witness. He was unable to assist the 1st Defendant's case very much. He claimed that after his efforts to organise the quotas and production in Peking he had largely passed the matter on to Miss Tan. He had not involved himself in the day to day detail to any significant extent.

36. I regret that I also found him to be an unconvincing and unsatisfactory witness. A good example of the unsatisfactory nature of his evidence was the explanation he gave for the contract between the 1st Defendant and the 2nd Defendant being on the 2nd Defendant's notepaper With the 1st Defendant's addres on it. The Agreement was purportedly made on the 6th of April 1990 when according to his evidence the 2nd Defendant had already removed to Tsimshatsui.

37. He started off by denying that the 2nd Defendant had used the 1st Defendant's office after it had vacated the office suite at Four Seasons Building in Tsimshatsui. When his attention was drawn to the date on the Agreement he said that when the company had first been formed a decision had been made to use the 1st Defendant's offices hence the notepaper bearing the 2nd Defendant's name and the 1st Defendant's address.

38. Mr. Shum then drew his attention to other notepaper with the 2nd Defendant's name on it and the Four Seasons office address in Tsimshatsui. He said that he did not think that this was a matter of any importance to employees of the company. He went on to express the view that the earlier notepaper should not be wasted.

39. This overlooks the obvious fact that the correct data was on the new paper but not on the old paper.

40. The significance of all of this was that I am convinced that Mr. Ng was not giving truthful and frank evidence concerning the relationship between the 1st (Defendant and the 2nd Defendant. I have no doubt that the I connection was much closer than Mr. Ng attempted to represent and it is highly probable that the 1st Defendant simply introduced the 2nd Defendant into the scheme of these transactions in an attempt to draw fire from the 1st Defendant. It is not necessary for me to make a definitive finding on this on account of the case which is being made out on these pleadings between the Plaintiff and the 1st Defendant.

41. I am satisfied that Mr. Ng is not a witness to be believed on any important aspect of this case and I reject his evidence where it is at variance with the Plaintiff's case.

42. This then leaves a situation, where I find that the Plaintiff has proved its pleaded case on liability. There was a series of contracts between the Plaintiff and the 1st Defendant and the 1st Defendant was never released from their contractual commitments.

43. It has also been proved that the 1st Defendant was in breach of the said contracts. I hold that the Plaintiffs have proved their case on liability. I understand that the question of quantum of damages is to be held over. I will hear submissions on what order should be made and on costs.