JUNGLE HOLDINGS LTD v. LEGEND APPAREL LTD

DCCJ 1854/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1854 OF 2004

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JUDGMENT

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1.  In this action the Plaintiff sued under a partnership or joint venture agreement between the Plaintiff and the Defendant dated 7^th January 2002 (“the Agreement”) for its share of the profit which it stated to be US$46,794.61.   The Plaintiff also claimed damages for breach of paragraph 4 of the Agreement which stated that “shareholders and directors of the Plaintiff and the Defendant agreed not to work solely and not to enter into any partnership with any other party to work with the same brand ‘JESSICA’”.

2.  It was the Plaintiff’s case that the Defendant has in breach of paragraph 4 of the Agreement, without the Plaintiff’s knowledge continued to take contracts to manufacture “Jessica” products for Toppy and has made a profit from it.   

3.  It was pleaded in the Defence that the Defendant is not liable, because the “JESSICA” brand was in fact owned by Toppy Trading (H.K.) Ltd and not Toppy Trading Limited.  The Agreement referred to Toppy Trading Limited as the company that held the “JESSICA” brand.   Further the Defendant denied that the content of the Sales Control Form which was relied on by the Plaintiff to claim the amount of profit, was correct.  The Defendant pleaded in its Defence that during the period from September 2002 to October 2002, the actual amount of shipments made was HK$1,366,251.60.  Sheet 2 annexed to the Defence listed the details of invoices showing the total shipment.  The total cost of manufacturing was pleaded to amount to HK$1,417,843.68.  Sheet 3 annexed to the Defence disclosed the breakdown of cost.  This disclosed a lost of HK$51,592.08.  The Defence pleaded that pursuant to the joint venture agreement, each party should bear a lost of HK$25,796.04.  They denied breach of paragraph 4 of the Agreement.  The Defendant denied paragraphs 2, 3, 4 & 5 of the Statement of Claim.  

The Issues

The 1^st Issue

From the construction of paragraphs 1, 3 and 4 of the Agreement, is the Defendant bound by the Agreement when “JESSICA” brand was owned by Toppy Trading (H.K.) Limited and not Toppy Trading Limited?  

5.  Paragraph 1 of the Agreement stated,

“A mutual agreement was made between Jungle Holdings Limited and Legend Apparel Limited that we will joint as a partnership in order to work with the brand ‘JESSICA’ of Toppy Trading Limited on the 7^th of Jan. 2002.”

6.  This paragraph stated that an agreement was made between the Plaintiff and the Defendant which would be a partnership to work with the brand “Jessica” of Toppy Trading Limited.    It stated that the purpose of the partnership of the two companies was to work with the brand “JESSICA”.  This paragraph referred to ““JESSICA” of Toppy Trading Limited”.  The reference to Toppy Trading Limited was to describe further “JESSICA” brand by reference to the company Toppy Trading Limited.

7.  Paragraph 3 stated,   

“Legend Apparel limited will be announced as a joint-venture factory of Jungle Holdings Limited and will handle all productions and invoicing for “JESSICA”.  Jungle Holdings Limited will be responsible for all developments including sourcing of fabric, sampling, etc.  Legend Apparel Limited will be responsible for all productions, transportations, documentations (including the VAT invoicing), etc. Both development cost and production cost will be included in the total cost of manufacturing and should be opened to both parties.”

8.  This paragraph described the respective roles of the Defendant and the Plaintiff, and these roles whether it be production, invoicing, development, sourcing of fabric, sampling, transportation, documentation all related to “JESSICA” brand.               

9.  Paragraph 4 state,

“Shareholders and directors of these two companies agreed not to work solely and not to enter into any partnership with any other party to work with the same brand “JESSICA”.”

10.  This paragraph again, related to working with the brand “JESSICA”.  It seems clear that these paragraphs of the Agreement focus on working with the brand “JESSICA”.  The description that the brand “JESSICA” “of Toppy Trading Limited” was to help identify the brand “JESSICA”.  I therefore find that from the construction of the Agreement itself, it appears that the intention of the parties was to work with the brand “JESSICA”.  The reference to Toppy Trading Limited was to help identify the brand “JESSICA”.  The primary focus was to work, to produce garments of the brand “JESSICA”.  They were to trade with the company that held the brand “JESSICA”.  If it were the case that the identity of the holder of the brand was the primary focus of the Agreement, then this Agreement would be frustrated by the disclosure that the brand “JESSICA” was found to be held by Toppy Trading (H.K.) Limited and not Toppy Trading Limited.    Para 12-072 of Chitty of Contracts at page 742 states,

“Parties’ intention.  It is not open to the court to revise the words used by the parties, or to put upon them a meaning other than that which they ordinarily bear, in order to bring them into line with what the court may think the parties really intended or ought to have intended.  But if, from the document itself and the admissible background, the intention of the parties can reasonably be discerned, then the court will give effect to that intention even though this involves departing from or qualifying particular words used. So the court will be prepared to restrict, transpose, modify, supply or reject words or terms in the document, provided the intention of the parties is plain in spite of the words.  The duty of the court in this respect was summed up by Kelly C.B. in Gwyn v Neath Canal Co.: “The result of all the authorities is, that when a court of law can clearly collect from the language within the four corners of a deed, or instrument in writing, the real intentions of the parties, they are bound to give effect to it by supplying anything necessarily to be inferred from the terms used, and by rejecting as superfluous whatever is repugnant to the intention so discerned.” Some examples of these expedients are discussed in the paragraphs which follow.”

11.  There is now no dispute that the correct name of the holder of the brand “JESSICA” is Toppy Trading (H.K.) Limited.  To make commercial sense of the Agreement the company name Toppy Trading Limited stated in the Agreement has to be read as Toppy Trading (H.K.) Limited which was and is the company that held and now holds the brand “JESSICA”.  Otherwise the Agreement would not make any commercial sense.  

12.  The evidence of the Plaintiff’s witness Mr. Cabirol stated that he thought at the time when the contract was concluded that Toppy Trading Company Limited was the company that held the brand “JESSICA”.    Mr. Lau Koon Chung Hermes the Defendant’s witness stated that when the Agreement was drafted his intention was to do the business of Toppy Trading Limited together with Jungle Holdings Limited to do the business of the brand ‘JESSICA”.   He stated that at the time the Agreement was drafted, they did not take into consideration as to which Toppy company held the brand “JESSICA”.   At that time what they considered was how to produce garments of this brand name of “JESSICA” to its top quality.   Before signing the Agreement the brand name “JESSICA” was unknown to the Defendant.  The Defendant learnt about the brand name through the Plaintiff.   That was why they had to do the business as a joint venture.   At that time Toppy Trading (H.K.) Limited would not do business with a trading company.   The Plaintiff was a trading company.   Mr. Lau stated that the Defendant had factories so the Plaintiff relied on the Defendant to do business.  I refer to this cross-examination of Mr. Lau by the Plaintiff’s Solicitor,

Q.	I put it to you that you knew that Toppy Trading Limited meant Toppy Trading (H.K.) Limited.
A.	At that time I did not take this into consideration nor did I specifically consider that point.   My stance now is Toppy Trading Limited is different from Toppy Trading (H.K.) Limited.   The Agreement only binds business with Toppy Trading Limited.  The business I do with Toppy Trading (H.K.) Limited is not restricted by this Agreement.

13.  Further he stated that at that time he did not know which company owned the brand “JESSICA”.   He came to know about the brand “JESSICA” through Mr. Cabirol who told him that “JESSICA” was owned by Toppy Trading Limited.   At that time he had been making garments for “Colour 18” a brand of the same company.   He thought “Colour 18” belonged to the same company, namely Toppy Trading Limited.  

14.  From the aforesaid, it is clear that the Defendant intended to work with the brand “JESSICA” and he was of the understanding that “JESSICA” was a brand of Toppy Trading Limited.   It was upon his discovery in the course of this trial that “JESSICA” was owned by Toppy Trading (H.K.) Limited that he started to amend the Defence that he was not bound by the Agreement and he was free to trade with Toppy Trading (H.K.) Limited solely on his own related to the brand “JESSICA”.   In these proceedings he was an opportunist making use of a mistake in the Agreement.  He was totally unabashed in making use of the mistake of the Plaintiff and himself at the time the Agreement was drafted that “JESSICA” brand was owned by Toppy Trading Limited.  

15.  It is therefore clear that both parties made a mistake when they thought that “JESSICA” was owned by Toppy Trading Limited.   They intended to trade with the owner of the brand “JESSICA” whoever that should be.   

16.  I therefore find that Toppy Trading Limited in the Agreement should be read as Toppy Trading (H.K.) Limited.   The Defendant is bound by all the terms of the agreement when trading or working with “JESSICA” brand.

The 2^nd Issue

Whether the Sales Control Form prepared by the Plaintiff is sufficient basis to ground the Plaintiff’s claim?

17.  The Plaintiff’s witness Mr. Jean-Luc Yves Cabirol stated that “JESSICA” orders placed by Toppy Trading (H.K.) Limited concerned 2 groups of garments, namely Toppy (Winter) collection and Toppy (Holiday) collection.  Orders for these 2 collections had been confirmed, as Toppy only placed their orders with the Plaintiff and the Defendant after it had received firm orders from its own customers from all over the world.

18.  In relation to the Sales Control Form he stated that it was prepared by the Plaintiff’s merchandise manager and Mr. Cabirol himself.   The figures were supplied by Mr. Lau.  The format of the Sales Control Form was from the Plaintiff company.  They use it to keep a record of cost, turnover and profit. The accuracy of this form is important to the Plaintiff company as they use this form to run it’s business, forecast its profit and control its cash flow.  The form is provided to its banks to enable them to assess the Plaintiff’s financial position. The figures were imput into the Plaintiff’s computers but the data came from DW1 Mr. Lau.   The styles were approved by Toppy after final production samples were submitted.   After receiving orders from various country directors of Toppy Trading (H.K.) Limited, purchase orders were placed by Toppy Trading (H.K.) Limited on the Defendant.   The Plaintiff’s merchandise manager received details of the purchase orders from Mr. Lau.   DW1, Mr. Lau quoted the prices of the various styles.   On the Sales Control Form, the heading “PUR USD” shows the full cost for the garment including transportation as calculated by Mr. Lau.  The Plaintiff gave all information obtained from the manufacture of the production samples such as yardage of fabric per piece, cost of accessories, and cost of fabric to the Defendant.  The relevant expenses in the development stage were taken into account in calculating the cost.   The column heading “Sell USD” shows the price agreed between Toppy and Mr. Lau.   The column headed “COST USD” shows the total quantity multiplied by unit purchase price and is an automatic calculation by the computer.   The column headed “PROFIT USD” is the profit of the Plaintiff.   It is the difference between the turnover and the cost.  That column has taken into account the cost of the manufacture and 50% profit of the Defendant.  

19.  Mr. Cabirol stated that for a high brand name normal profit is 30% of turnover.  US$46,734.61 is half of 30% of the sum of US$317,747.45.  The Defendant did not give the Plaintiff the information in the other columns in the Sales Control Form, headed INVOICE DATE, NO., AMOUNT USD, ACTUAL PROFIT, COMM REC’D, DUE DATE.   Mr. Cabirol telephoned DW1, Mr. Lau for these but he did not give these data.   Mr. Cabirol met Mr. Lau several times.   Mr. Lau refused to give these figures to him.  In relation to the products made by the subcontractor Peter Daniel the Plaintiff got the figures from Peter Daniel himself.   He had repeatedly chased Mr. Lau for these figures and wrote him a fax letter dated 13 May 2003 demanding his share of the profit.   However the Defendant did not reply.

20.  The Defendant’s case related to the profit and loss of the orders of Toppy Trading (H.K.) Limited from September to October 2002 was that there was cancellation of orders which were marked cancelled in their Sheet 1.  The Sheet 1 is essentially the same as the Sales Control Form but contains the marking of “Cancel” related to some orders.  They state that the actual value and quantity of shipments or deliveries to Toppy was that stated in Sheet 2 annexed to their Amended Defence and is at page 11 of BD A (hereinafter referred to as “Sheet 2”).   The actual amount of turnover was HK$1,366,251.60.   The cost of manufacturing at $1,417,843.68 is shown in Sheet 3 attached to their Amended Defence and found at page 13 of BD A (hereinafter referred to as “Sheet 3”).  They alleged a loss of HK$51,592.08 in their Amended Defence so that the Plaintiff’s share of loss should be HK$25,795.04.     

21.  In the course of the proceedings they submitted documents at pages 122 to 123 of the BD.  These are statements of expenses with additional items to those in Sheet 3.  These additional expenses not covered in the Amended Defence are found in the items next to “Other Expenses”, which include expenses for “Business trip with the Toppy QC to Jiaxing” at the total price of RMB6,500 and an item next to “Operation Expenses” which state the salary of their merchandiser for 8 months at $20,000 per month in the sum of $160,000.   However, there are no supporting documents related to these additional expenses found on page 123.   These additional expenses increase the loss of the joint venture by approximately $166,500 increasing the Plaintiff’s share of loss by HK$83,250.    

22.  From the evidence of Mr. Cabirol, which is not disputed, the data entered into the Sales Control Form was data that was derived at the stage when Purchase Orders were placed by Toppy Trading (H.K.) Limited on the Defendant.   The figures under the column “PUR USD” show the price of development of the relevant production sample including transportation cost.    These were just projections from the cost of development samples plus transportation cost and were not actual figures of the cost of production per piece of the goods shipped.  From the details in the purchase orders listed in the Sales Control Form they derived the sale price per piece and quantity sold to work out the “TURNOVER USD”.     From that, and from the sale price in the purchase orders they derive their figures in “PROFIT USD”.     They are handicapped in that they do not have the actual data derived from the manufacturing process.   The data in the “PROFIT USD” column in the Sales Control Form are mere projections of profit made at the stage when the Purchase Orders were placed.  The columns related to ‘INVOICE’, ‘AMOUNT USD”, “ACTUAL PROFIT”, and ‘REC’D USD” are left blank, and no such data is stated.  There is no data of actual profit earned in the manufacturing process through to shipment and payment by the customer.   This has to be recognized in considering whether the Sales Control Form contain evidence of actual profit.  In my view, the Sales Control Form does not establish the actual profit stated therein for the reasons aforesaid.  Its usefulness as evidence to establish actual profit is very limited.   On its own, the Sales Control Form adduced by the Plaintiff is not sufficient to establish the amount of the Plaintiff’s share of profit claimed in this Action.   The onus is on the Plaintiff to establish the actual amount of the profit.

The 3^rd Issue

What was the total value of the Purchase Orders from the owner of “JESSICA” brand during the period from September 2002 to October 2002? 

23.  It seems clear that the Defendant does not dispute the data from the Purchase Orders and other data in the Sales Control Form of the Plaintiff.  Their case is that there were further cancellation of orders apart from cancellations in the Vintage Lock Denim and Stretch Stone Wash Denim group of styles.  The Plaintiff admitted the cancellation of these orders Vintage Lock Denim and Stretch Stone Wash Denim.  The Defendant’s case is that, of the Holiday group of garments, purchase orders for styles, 225392, 225106, 225197, 225190, 225195, 225194, 224305 and 224325 were cancelled.  At one point under cross-examination Mr. Lau stated there were no purchase orders issued in respect of these 6 cancelled orders.  He stated that they were cancelled before the purchase orders were issued.  Mr. Lau further stated that the Herringbone Flocking Stretch Denim in styles 224305 and 224325 were also cancelled.  The Plaintiff did not admit these cancellations.  Mr. Cabirol stated that Mr. Lau had not informed him of these cancellations.  He stated that if he had known of these cancellations he would have entered them as cancelled in the Sales Control Form.  His company relied on the accuracy of the Sales Control Form for financial projections.  Mr. Lau stated that he informed Mr. Cabirol of these cancellations orally.

24.  I accept the evidence of Mr. Cabirol that he had not been informed of these cancellations and do not accept the evidence of Mr. Lau on this point.   Mr. Lau seemed to have made up his evidence on this in the course of the evidence.

25.  Mr. Lau stated that there were three purchase orders at pages 49, 50 and 59 of the BD issued to the Defendant which were not included in the Sales Control Form.   Other than these and the cancellations, he stated that there was one further discrepancy between the purchase orders issued to the Defendant and the Sales Control Form and that is that the prices in the Sales Control Form were expressed in U.S. Dollars whereas the prices in the purchase orders were expressed in H.K. Dollars.  Apart from the aforesaid there were no discrepancies between the Sales Control Form and the purchase orders.    However, the Defendant’s case was that the cancelled orders had to be taken into account in computing profit and loss and his case was that the quantity invoiced is substantially less than the quantity in the purchase orders.  As referred to earlier he also adduced pages 122 and 123 as a statement of actual expenses of manufacturing.  These exceeded the expenses forecast in the Sales Control Form.  

26.  The Defendant could advance no documentary evidence that Toppy Trading (H.K.) Limited had cancelled the orders as alleged by them.   I had accepted the evidence of Mr. Cabirol that the Defendant had not informed the Plaintiff about the cancellation of the Herringbone Flocking Stretch Denim nor the Holiday Collection apart from N/P Moss PU Coat.  

27.  Mr. Lau in his defence stated that the Plaintiff took the orders from Toppy Trading (H.K.) Limited without reference to the Defendant or its capability to perform the orders.   This is denied by Mr. Cabirol who stated that Mr. Lau was fully informed and took part in discussions and meeting with Mr. Christopher Lai, the head of the design department of Toppy Trading (H.K.) Limited.  Later it was Mr. Lau of the Defendant who got in touch with the merchandizing department of Toppy Trading (H.K.) Limited and dealt with them related to the purchase orders.  Mr. Cabirol stated that he was not aware that the Defendant did not have a factory.  The Defendant had never invited him to visit the Defendant’s factory.   In fact, the Defendant was invited into the joint venture because it was thought the Defendant had a factory that could manufacture “JESSICA” brand.  He stated that he had in fact attempted to introduce subcontractors to the Defendant such as P. Daniel and Z. Material who could help him to deal with the production of the styles the Defendant had difficulty with.  The Defendant refused to take on Z. Material as a subcontractor and preferred one they had used before.  Mr. Cabirol stated that Mr. Lau, had never informed him that the Defendant had the difficulties he now alleged.   If Mr. Lau had informed him of these difficulties he would have helped him out.    

28.  Mr. Lau stated that he had difficulty in manufacturing the Herringbone Flocking Stretch Denim because the herringbone print had stains on the material after wash.   Because of that Toppy refused to take these.  The material purchased for manufacturing this is in his factory.   He did not produce any supporting evidence of this fact.  

29.  Mr. Lau stated that the Holiday Collection apart from N/P Moss PU Coat styles were cancelled by Toppy Trading (H.K.) Limited after its staff visited the Defendant’s factory and found that the Defendant did not have the capacity or capability to do these orders.   However, Mr. Lau gave evidence that the Defendant did not have a factory.  Any factory visited by staff of Toppy Trading (H.K.) Limited would be a factory of its subcontractor.   If the Defendant had chosen a subcontractor that could not do the orders placed by Toppy Trading (H.K.) Limited, it is the Defendant’s fault due to the Defendant’s error of judgment.  It is the Plaintiff’s case and there is no evidence contradicting this that the Defendant had failed to inform the Plaintiff or seek the Plaintiff’s help for the choice of subcontractors.   The spirit of openness and co-operation envisaged under paragraph 2 of the Agreement was not followed by the Defendant.  

Credibility of Mr. Lau, Director of the Defendant

30.  One very important ground advanced by the Plaintiff for disputing the documentary and other evidence adduced by the Defendant in support of its contention of short-deliveries and expenses was that the Defendant had not discovered these to the Plaintiff until the action had been commenced.   The Agreement clearly stated in paragraph 2 that “Both development cost and production cost will be included in the total cost of manufacturing and should be opened to both parties”.   Mr. Lau had clearly admitted that the words “should be opened to both parties”, meant that both parties should be clearly advised of production and manufacturing cost and all documents related thereto should be given to each other.   However, the Defendant had failed to disclose to the Plaintiff vital information and documents related to the deliveries to Toppy Trading (H.K.) Limited such as invoices sent to Toppy Trading (H.K.) Limited, packing lists accompanying such invoices, all documentation related to expenses of manufacture of “JESSICA” garments and accessories, issue of VAT documents etc. until specific discovery was applied for against them by the Plaintiff in these proceedings on 20 December 2004 wherein the Plaintiff sought the following documents:-

“	1.	all correspondence between the Defendant and Toppy Trading Limited regarding the cancellation of some of the JESSICA ORDERS by the said Toppy Trading Limited as alleged by the Defendant;
	2.	all invoices issued by the Defendant to Toppy Trading Limited regarding the JESSICA orders covering the periods from January 2002 up to the present times;
	3.	all delivery notes of the finished garments (JESSICA orders) issued by the Defendant to Toppy Trading Limited covering the period from January 2002 up to the present times;
	4.	acknowledgement of receipt of the delivery of the finished garments (JESSICA orders) issued by Toppy Trading Limited to the Defendant covering the period from January 2002 up to the present times;
	5.	record of payment including but not limited to cheque payments of all the JESSICA orders by Toppy Trading Limited to the Defendant; and
	6.	audit report(s) showing all the inventories regarding the JESSICA order covering the period from January 2002 up to the present times; and
	7.	accounting report of all JESSICA orders covering the period from January 2002 up to the present times.”

31.  The Defendant on pretext that the Defendant was trading with Toppy Trading (HK.) limited failed to provide the audited report (s) requested in 6. above.   They also stated that they did not retain a copy of each of the packing list submitted to Toppy with each Invoice.   However they have failed to act in the utmost good faith to disclose documents related to the Defendant’s manufacture of products of the “JESSICA” brand as agreed.   They failed to do so even before they became aware of the fact that “JESSICA” brand was held by Toppy Trading (H.K.) Limited and not held by Toppy Trading Limited.  

32.  The Defendant’s line of defence that the transaction in relation to the “JESSICA” brand was not with Toppy Trading Limited, therefore the Defendant was not liable to account to the Plaintiff, as I had stated was merely an opportunistic defence.   They all along did not know that the holder of the “JESSICA” brand was not Toppy Trading Limited until the action was commenced.   They traded with Toppy Trading (H.K.) Limited in pursuance of the Agreement with the Plaintiff.   Upon it coming to their notice that the holder of “JESSICA”    brand was Toppy Trading (H.K.) Limited, and the Agreement referred to Toppy Trading Limited, they denied they were subject to the terms of the Agreement.   In my view, in view of the aforesaid the Defendant’s integrity as a company is in doubt.   The integrity, honesty and credibility of the Defendant’s witness Mr. Lau who took this stance is in doubt.    

33.  Mr. Lau stated in paragraph 9 of his witness statement that “Toppy ceased all orders with the Defendant after then”.   By then, he meant after the order placed in respect of the Holiday collection.   The Holiday collection orders of the ‘JESSICA’ brand was placed by Toppy Trading (H.K.) Limited.  The Defendant received these purchase orders pursuant to the Agreement.  Mr. Lau well knew that Toppy Trading (H.K.) Limited was the target customer under the Agreement all along.  When Mr. Lau said this he was not truthful.   It was by chance the Plaintiff discovered that Toppy Trading (H.K.) Limited continued to place orders in respect of “JESSICA” on the Defendant when by mistake Toppy Trading (H.K.) Limited faxed to the Plaintiff a message to the Defendant to collect hangtags related to 6 “JESSICA” styles no. 244802, 244813, 244822, 245503, 245505 and 245595.   Under cross-examination Mr. Lau admitted that he received 6 orders related to “JESSICA” after the Holiday collection orders referred to in the Sales Control Form were placed.  That admission was made when the Defendant was confronted with the evidence of the letters from Toppy Trading (H.K.) Limited at pages 269 and 270 of the BD faxed to the Plaintiff by mistake, and also the hangtags exhibited by the Plaintiff.   Again as Mr. Lau stated that he only came to be aware that “JESSICA” brand was not owned by Toppy Trading Limited after commencement of the action, the Defendant had blatantly breached paragraph 4 of the Agreement before he came upon the pretext of a defence that he was trading only with Toppy Trading (H.K.) Limited in relation to these orders and not Toppy Trading Limited.        

34.  It can therefore be seen that the Defendant had been hiding his trading related to the “JESSICA” brand after October 2002 from the Plaintiff even before the commencement of this action.   If the Defendant had been hiding this information from the Plaintiff, in breach of paragraph 4 of the Agreement, there is no basis for coming to the conclusion that the Defendant was wholly honest or credible in its evidence in these proceedings.  

35.  From the aforesaid, it could be seen that the dealings of the Defendant and its Director Mr. Lau was not of the standard of integrity and honesty as should have been displayed between partners of a joint venture.  However, the Plaintiff has no evidence related to the development process of production of the garments ordered that the orders placed were processed without mishap or cancellation.  They are not able to assert in evidence that there were no cancellations save that they would be informed if there were cancellations.    The Plaintiff is wholly handicapped in that he has no actual evidence related to what happened after the purchase orders were placed.  Despite being mindful of the lack of integrity of the Defendant when assessing evidence in relation to this issue, I come to the conclusion that there is a likelihood that the evidence related to the cancellations are true.  On that basis, I accept the Defendant’s evidence of the cancellation of the orders.  Having done so, the total value of the orders according to the Defendant as stated in the purchase orders discovered by them is set out by the Plaintiff’s Solicitor in a schedule which is stated hereunder:

“Purchase orders from Toppy Trading (Hong Kong) Ltd. to Legend Apparel Ltd.

Order No.	Description	Date	Amount (HK$)
224121A	Boot-cut pants w/emb	22/04/2002	140,007.00
224121B	Boot-cut pants w/emb	22/04/2002	4,520.00
224101A	Zip jacket	22/04/2002	116,480.00
224101B	Zip jacket	22/04/2002	1,820.00
224122A	Pants w/belt	22/04/2002	139,392.00
224122B	Pants w/belt	22/04/2002	47,520.00
224111A	Skirt	22/04/2002	66,688.00
224111B	Skirt	22/04/2002	33,280.00
224130A	Basic jeans ww/tab	22/04/2002	42,525.00
224128A	Jeans w/belt	22/04/2002	10,800.00
224128B	Jeans w/belt	15/05/2002	14,400.00
224191A	Jeans w/belt	15/05/2002	3,600.00
224191B	Jeans w/belt	15/05/2002	14,400.00
224193A	Basic jeans	15/05/2002	3,570.00
224185A	Flocking jeans	15/08/2002	104,404.30
224185B	Flocking jeans	15/08/2002	37,026.50
224920A	Jeans w/trim	27/04/2002	37,054.00
224920B	Jeans w/trim	27/04/2002	7,640.00
224911A	Panel Skirt	24/04/2002	70,596.00
224911B	Panel Skirt	24/04/2002	8,880.00
224912A	Skirt w/frings	24/04/2002	24,500.00
224921A	Boot-cut Pangs	24/04/2002	114,636.00
224901A	Jacket w/frings	24/04/2002	177,800.00
224900A	Jacket (no frings)	24/04/2002	41,580.00
224910A	Panel Skirt w/frings	24/04/2002	28,800.00
224325A	Pants	22/04/2002	43,155.00
224325B	Pants	22/04/2002	16,800.00
224305A	2-Button Short Jkt	22/04/2002	56,270.00
224305B	2-Button Short Jkt	22/04/2002	17,000.00
224185A	Flocking Jeans	22/04/2002	112,009.00
224185B	Flocking Jeans	22/04/2002	40,400.00
224129A	Jeans w/print + bead	22/04/2002	108,455.00
225192A	Long coat	20/08/2002	181,425.00
225192B	Long coat	20/08/2002	47,200.00
225105A	Jacket w/fur trim	20/08/2002	81,720.00
225193A	Hi-neck Zip Vest	20/08/2002	54,060.00
Total			2,050,412.80 ===========	"

36.  The total value of such is $2,050, 412.80.  

The 4^th Issue

What was the value of the goods shipped and invoiced to the owner of “JESSICA” BRAND?

37.  The Defendant’s case is that there is a short shipment of the quantity in the purchase orders for various reasons.  The reasons advanced related to fabric width being less than stipulated, shrinkage of fabric purchased after the fabric was washed, or because the customer would not accept one colour that is why they purchased less.  

38.  The details of the shortage of quantity invoiced from the quantity ordered is stated hereunder:-

39.  The Plaintiff disputed the evidence of the Defendant related to this.   Reasons advanced were:-

(1)	Through cross-examination of Mr. Lau, DW1, it became clear that the invoices that were discovered by the Defendant pursuant to the order for discovery were not the photocopies of the invoices sent by the Defendant to Toppy.   Mr. Lau stated that they were computer generated copies of the ones sent to the Defendant.   The reason why he did not discover photocopies of invoices sent to the Defendant was because at the time the invoices had packing list attached to the invoices.   The information thereon was confusing so they printed out a copy of invoices from the computer and did not make photocopies of the invoices together with the packing lists attached.  He understood that from the packing list it is possible to see the exact number of pieces sent to the Defendant.  For this reason the Plaintiff’s Solicitor submitted that these invoices have little probative value.
(2)	Mr. Cabirol in his witness statement had the following queries related to the group of orders stated hereunder:-
	(i)	Stretch Fine Cord
		Order for this group of item was 5,609 pieces as shown in the Sales Control Form.  As shown in Sheet 2, only 3,645 pieces was invoiced.  In Sheet 3, he yard of fabric purchased to make this group of item was 8,059.00 which corresponded to 5,609 pieces of this group of item.  However, only 5,052 yards of the same were washed to produce this item.  The Defendant did not provide evidence to show the whereabouts of 3,007 yards of the said fabric.  Mr. Lau stated that unused material was still kept in storage.  This information was not discovered to the Plaintiff despite the Defendant’s responsibility of openness as required under paragraph 2 of the Agreement.
	(ii)	Cross-Rain Denim and Rain Denim
		Order for this group of styles was 1,870 pieces as shown in the Sales Control Form.  As shown in Sheet 2, only 387 pieces were invoiced, yet the fabric bought to make this group of item was 2,738 yards as shown in Sheet 3 which corresponded to 1,870 pieces of this group of styles.  Similarly there was no documentary evidence adduced by the Defendant to show the whereabouts of the extra yards of fabric which had been left unused.
	(iii)	Flocking Denim
		Order for this group of styles was 1,509 pieces as shown in the Sales Control Form.  As shown in Sheet 2, only 1092 pieces were invoiced, yet the fabric bought to make this group of item was 2,015 yards as shown in Sheet 3.  The Defendant did not inform the Plaintiff the whereabouts of the undelivered or cancelled orders.  No mention of these was made until the trial despite the requirement of openness in paragraph 2 of the Agreement.
	(iv)	Herringbone Flocking St. Denim
		There was no invoicing for this group of styles at all but charges in the sum of HK$45,690.00 had been incurred.  The Defendant did not account why payment of the material was made or no attempt is made to claim against the supplier when he discovered that the material was defective and could not be used and the orders were cancelled by Toppy Trading (H.K.) Limited.  This information related to the material was only given in the trial.
(3)	Mr. Lau gave evidence related to the invoice at page 124 of the BD that Hang Hing Fashion Company was his subcontractor.   The items of work done as stated there were done by them as subcontractor for the Defendant.   There were items of work related to the washing of completed garments.   In relation to Style 224128, 298 pieces of garments were washed.   However, only 128 pieces of these were accounted for in invoices discovered by the Defendant at pages 92 and 93 of the BD.   When cross-examined on where the balance of the pieces were  Mr. Lau could not really account for them save to say that there was a problem.
(4)	In the same invoice of Hang Hing Fashion Company, the Defendant paid for 523 pieces of garments in Style 224130 to be washed.   Yet he only shipped out 104 pieces of these.   When cross-examined he stated that the customer concerned did not take as much because of the quality.   Yet there was no letter from the customer to show that.
(5)	In the same invoice of Hang Hing Fashion Company, the Defendant paid for 881 pieces of Style 224191 and 224193.   Yet he only discovered invoices to show 160 pieces were shipped at pages 94, 95,and 96.   When asked where the extra garments were, Mr. Lau stated that they were in the factory.

40.  There is sufficient basis for coming to the conclusion that the Defendant had not been entirely open with the Plaintiff in the manufacturing of “JESSICA” brand products as required.   His credibility in his evidence related to the items of goods shipped to Toppy Trading (H.K.) Limited is not reliable.   It was not clear whether the invoices discovered by the Defendant in relation to these orders were all the invoices or whether there were other invoices not discovered by the Defendant.   

41.  There is no reliable evidence of the exact quantity of “JESSICA” garments shipped related to the Purchase Orders placed by Toppy Trading (H.K.) Limited discovered by the Defendant in this case.    His evidence of the actual quantity shipped to Toppy Trading (H.K.) Limited is not reliable.  There is a possibility of some element of truth in what Mr. Lau said but I do not find it as being wholly truthful.  I do not rely nor accept the Mr. Lau’s evidence.  The Plaintiff has no actual evidence related to this.  The Plaintiff’s Solicitor asked me to come to a finding that the shortage of garments shipped could not be less than 5% of the quantity ordered.  I am not able to hazard such a guess.  I find that there is no evidence related to this.

The 5^th Issue

What was the manufacturing costs required to produce the garments?

42.  The Defendant adduced a lot of invoices in support of the manufacturing costs which he had listed in Sheet 3 attached to his Amended Defence.   Through cross-examination of Mr. Lau the Plaintiff’s Solicitor submitted that there was no evidence of payment of many of these invoices.   She submitted that most of these do not have any clear reference to the Toppy Style numbers.   She submitted that it was not clear whether these were actually the expenses for the purchase orders in this case.  There was no certainty that even if they were, whether they were expenses for a larger quantity of goods shipped and invoiced.    To some extent I accept the submission of the Plaintiff’s Solicitor.  I am of the view that the Defendant’s evidence of the manufacturing cost for the garments shipped was not wholly reliable.  I could not rely on the Defendant’s evidence as true, or accurate.  I reject the Defendant’s evidence on this.

The 6^th Issue

What was the profit/loss in the garments produced and delivered in the period from September 2002 to October 2002?

43.  In view of the unreliability of the figures provided by the Defendant, I am not able to come to the finding as regards the actual quantity of the goods shipped and invoiced to Toppy Trading (H.K.) Limited nor the actual manufacturing costs of such.  I do not accept the Defendant’s evidence of the loss in the manufacturing of the purchase orders.  Mr. Cabirol gave evidence that the anticipated profit is that stated in the Sales Control Form.   Yet the Sales Control Form does not contain the data for actual goods shipped and delivered and invoiced and actual manufacturing expenses.   The costing and expenses projected by Mr. Cabirol, with the help of Mr. Lau in the Sales Control Form were based on the figures in the development samples.  The development of samples was focussed on developing sample garments.  These were necessarily small in number.  In the process of developing large quantities, mishaps or unforeseen circumstances can happen.  These could affect the quantity shipped, cause cancellation of orders, increase the projected manufacturing costs.  However Mr. Lau’s evidence on these was rejected by me for reasons stated.  There was no actual evidence accepted by me on value of goods invoiced and manufacturing costs to enable me to arrive at a calculation of actual profit or loss.

44.  I am not able to project a percentage of profit on the purchase orders discovered by the Defendant as suggested by the Plaintiff’s Solicitor.  There was no firm basis for me to make such a projection.  I therefore do not do so.

The 7^th Issue

Is the Plaintiff entitled to the profit of U.S.$46,794.61?

45.  In my view the Plaintiff has not established that there is a profit of U.S,$46,794.61 in the joint venture business working on “JESSICA” brand.  

The 8^th Issue

Whether there was a breach of paragraph 4 of the Agreement.   If so what damages is the Plaintiff entitled to?

46.  Mr. Lau admitted that the Defendant traded with Toppy Trading (H.K.) Limited apart from the purchase orders which were discovered by him after October 2002.   Mr. Lau admitted that he had 5 orders not yet discovered by him.  The value of such purchase orders were in the sum of H.K.$300,000.00 and he stated that he made a profit of about $30,000.00.   He stated that these were pig suede leather and down product.  In the leather and down orders in the Sales Control Form and in Sheet 2 and Sheet 3 there was profit in relation to these orders.  

47.  Mr. Lau’s evidence is not reliable.  Hence I could not accept his evidence of the profit earned from the admitted value of the purchase orders.   However, I do not have any other evidence related to profit margin apart from other evidence adduced by him of the pig suede leather and down group of styles.  From perusal of his admitted evidence in Sheets 1, 2 and 3, I find the profit margin on these orders admitted by the Defendant.  From Sheets 1, 2, 3 it could be seen that the value of the quantity of pieces delivered to Toppy Trading (H.K.) Limited in the pig suede leather and down group of orders was in the total sum of HK$465,172.00.   After deducting the expenses for these in Sheet 3 in the sum of HK$356,693.00 the profit is HK$108,479.00.   Profit margin was about 23.32%.  There were some costs for accessories disclosed in Sheet 3.   The total cost of such amounts to HK$158,001.53.  It is not clear how much of the value of accessories is attributable to the pig suede leather and down styles yet the total percentage of cost of accessories over the total value of goods shipped of all styles come to 11.56%.  After deducting 11.56% from 23.32% profit margin, the profit margin from the pig suede leather and down group of styles is 11.5%.   

48.  I find that the Defendant has made a profit of at least in the sum of HK$34,500.00     Half of this goes to the Plaintiff.   I find that the Plaintiff is entitled to the sum of HK$17,250.00 to be paid by the Defendant.

49.  In respect of the Counterclaim of the Defendant it has to be dismissed as the Defendant has failed to establish the loss alleged as the evidence of the Defendant is not reliable.    

50.  I give Judgement for the Plaintiff against the Defendant in the sum of HK$17,250.00 together with interest at judgment rate from date of Writ to date of judgment and thereafter at judgment rate until payment.   Counterclaim be dismissed.   I grant an order nisi for costs of the claim and counterclaim to be paid by the Defendant to the Plaintiff to be taxed if not agreed on an indemnity basis.  In view of the manner in which the Defendant withheld information from the Plaintiff which he was obliged to deliver and failed to make full discovery in these proceedings, and the way the Defence was conducted, I find that the Defendant should pay costs to the Plaintiff on an indemnity basis.  This is despite the small quantum recovered by the Plaintiff against the Defendant.