XCHRX PRECIEUX GARMENT FACTORY LTD. v. THE RALPH LAUREN WOMENSWEAR CO. L.P.

1996 HCA No. 11705

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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Introduction

1. On 19th January, Master Cannon gave the Plaintiff summary judgment against the Defendant under Ord. 14. The Defendant now appeals. It claims to have a complete defence to the Plaintiff's claim, and it contends that it should be given unconditional leave to defend the action.

The Plaintiff's claim

2. The Plaintiff is a manufacturer of garments. Towards the end of 1995 and in the early part of 1996, it received a number of orders from the Defendant, one of the companies in the Ralph Lauren Group of Companies, which markets garments under the distinctive "Polo" label. The orders were for ladies' blouses to be made from cloth supplied by the Defendant. The blouses were delivered to the Defendant, but the Defendant has not paid for them. The Plaintiff claims the price of the blouses, which amounts to US$74,526.40.

3. The Defendant's defence is that it was a term of its orders that the blouses had to be made in Hong Kong. In breach of that term, it is said that the blouses were not made in Hong Kong. The Plaintiff accepts that the orders were subject to such a term. It asserts, though, that the term was complied with in that the blouses were made in Hong Kong, but that even if they were not, the breach was waived by the Defendant's acceptance of the blouses. Master Cannon must have agreed with one or other of those arguments, because she gave the Plaintiff judgment for the sum of US$74,526.40 plus interest.

4. The Plaintiff's other claim is more unusual. It contends that, because the Defendant alleged that the blouses had not been made in Hong Kong, other customers of the Plaintiff decided not to give the Plaintiff orders to make garments for them. The nature of the Plaintiff's cause of action is not spelt out in the Amended Statement of Claim, but the Plaintiff claims by way of damages the profits which it would have made had its customers given it the orders which could have been expected from them. Master Cannon thought that there was no defence to this claim either, because she gave the Plaintiff judgment for "loss and profits to be assessed".

Waiver

5. Section 13(3) of the Sale of Goods Ordinance (Cap. 26) ("the Ordinance") provides:

"Where a contract of sale is not severable, and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfiled by the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect."

The Plaintiff's primary case as skilfully developed by Mr. Lee Tung Ming is that the Defendant should be treated as having lost the right to reject the blouses, and therefore having lost the right to refuse to pay the price. The facts on which the Plaintiff relies are that by early May 1996, the Defendant was aware of the facts which gave rise to the suspicion on its part that the blouses had not been made in Hong Kong. Despite that, the Defendant gave the Plaintiff instructions for the blouses to be delivered, and at no time since delivery has the Defendant ever informed the Plaintiff that they were rejecting the blouses. For its part, the Defendant accepts that it did not attempt to return the blouses to the Plaintiff, but a buyer is not obliged to return to the seller goods which it has rejected (see section 38 of the Ordinance). In any event, since the blouses were made from cloth supplied by the Defendant, it was not appropriate for the Defendant to return the blouses to the Plaintiff even if they were being rejected.

6. It is important not to overlook the words with which section 13(3) ends: "... unless there is a term of the contract, express or implied, to that effect". The Defendant's case is that the purchase orders were subject to the Defendant's standard terms and conditions which were sent to the Plaintiff on 6th October 1995, i.e. a few weeks before the first of the purchase orders to which the Plaintiff's claim relates. Cl. 8 provides:

"Any acceptance or deemed acceptance by the purchaser of goods hereunder shall not affect purchaser's right to terminate the purchase order on a breach by seller."

In my view, it is at the very least arguable that by that provision it was agreed that the Defendant's acceptance of the blouses should not prevent the Defendant from subsequently rejecting the blouses and refusing to pay the price for them. In those circumstances, it is necessary to consider the Plaintiff's alternative case that it had not been in breach of the purchase orders at all.

The place of manufacture

7. The Defendant's case that the blouses were made outside Hong Kong is based on the inference to be drawn from what the Defendant's quality control inspectors saw on various visits which they made to the Plaintiff's factory in Hong Kong during the time when the blouses are supposed to have been made. Virtually no production was seen on those occasions, and it is said that there were hardly any workers in the factory. The inference is that the blouses must have been made outside the factory, and if they were, they are likely to have been made outside Hong Kong. On the other hand, the Plaintiff has produced its own internal records, and if they are anything to go by, they show that at least some work was done on the blouses in its factory. The issue is whether it is possible that at the trial of the action (a) it will be found that the blouses were not made in the Plaintiff's factory, and (b) if so, whether an inference can be drawn that the blouses were not made in Hong Kong. The only real way to test (a) is to look carefully at the documents on which the parties respectively rely.

8. Having carried out that exercise, I do not think that it can be doubted that the blouses were indeed made in the Plaintiff's factory in Hong Kong. Each of the orders received from the Defendant was assigned a manufacturing order number, and for each order a manufacturing schedule was compiled, setting out the individual tasks which had to be done to make each blouse for that order. In addition, a document was prepared for each order setting out the order in which each task had to be carried out, and assigning a number for each task. The documents which show that that was done in the Plaintiff's factory are the wages calculation table for each worker. That table shows, by reference to the manufacturing order number, what orders and tasks each worker was working on and the number of garments he or she did a particular task for. An examination of those tables show that most of the work which was required to be done to make each of the blouses to which the Defendant's purchase orders related was done by the Plaintiff's workers, and therefore in the Plaintiff's factory.

9. That was the Plaintiff's factory in Hong Kong rather than one in China. The evidence which confirms that is the punch cards for each employee, copies of which the Plaintiff has also produced. Not only are those punch cards in English as well as Chinese (which suggests that they are for use in a factory in Hong Kong rather than China), but the wages which the punch cards show as being payable to the employees are wages at a level to be expected in Hong Kong, and are very much higher than the wages payable to comparable workers in China.

10. I have not overlooked the contents of the reports made by the Defendant's quality control inspectors. It may be that, on the dates and at the times when they visited the Plaintiff's factory, production was not taking place, and fewer workers were in the factory than might be expected. But those reports do not undermine the overwhelming probative weight to be attached to the Plaintiff's own internal documents. I regard the possibility that the Plaintiff's internal documents have been deliberately brought into existence to create a wholly false picture of production as a fanciful one, and I do not think that there is any real possibility of the court coming to that conclusion at trial. If those documents are genuine, the place of manufacture of the blouses can only have been Hong Kong.

11. That is the answer to a point made by Mr. Jeffrey Lane for the Plaintiff. He submits that it would be premature to say now that there was no triable issue as to the place of manufacture of the blouses, because he is confident that the administration of interrogatories, the discovery of documents and the examination of the Plaintiff's employees at trial will reveal that there is indeed a triable issue on the topic. However, I repeat: if the Plaintiff's internal documents are genuine (and there is absolutely no reason to suppose that they are not), the blouses must have been made in Hong Kong.

12. I should add that it is not disputed that certificates that the blouses originated in Hong Kong were issued in respect of all the blouses by the Federation of Hong Kong Industries, a body delegated by the Department of Trade to issue such certificates, and on the strength of those certificates, export licences were granted by the Director-General of Trade for the export of the blouses to the U.S. There is no evidence before me of the steps which the Federation takes to verify the information which is provided to it, but I can take judicial notice, I think, that some steps are taken to verify the information it receives, because otherwise the certificate is no more than a valueless piece of paper.

13. I therefore conclude that there is no triable issue as to whether the blouses were made in Hong Kong, and that Master Cannon was entirely correct to give the Plaintiff judgment for the price of the blouses plus interest. I should add that the Defendant should be as satisfied with this finding as the Plaintiff. It has never had any complaint about the quality of the blouses. Its only concern was that the place of manufacture may have been a bar to their importation into the U.S. Now that there has been a considered judgment from a court of competent jurisdiction in Hong Kong, confirming the view of the executive authorities (i.e. the Federation of Hong Kong Industries and the Director-General of Trade) that the blouses were made in Hong Kong, I do not suppose that the U.S. Customs will have any problem in also treating the blouses as having been made in Hong Kong.

The claim for damages

14. Both the parties and the master seem to have thought that the claim for damages was part and parcel of the cause of action for breach of contract. When properly analysed, it can, I think, be seen to be nothing of the kind. It is a cause of action based on the Defendant's allegation that the blouses were not made in Hong Kong. The only cause of action which such an allegation could found is a cause of action in defamation - libel if the Defendant is alleged to have made the allegation in writing, slander if it is alleged to have made the allegation orally. It may be that such a cause of action is imperfectly pleaded. For example, the Amended Statement of Claim does not identify to whom the allegation was made. But it cannot seriously be denied, I think, that the claim which is made is one which can only be characterised as a claim in defamation.

15. The point is that, while the action includes such a claim, Ord. 14 does not apply to the action. That is because Ord. 14 r. 1(2) provides, so far as is material:

"... this rule applies to every action begun by writ other than ... an action which includes a claim by the plaintiff for libel, slander, malicious prosecution, false imprisonment or seduction."

I appreciate that Ord. 14 r. 1(1) permits an application for summary judgment to be made in respect of part of a claim, but that does not operate to defeat the express words of Ord. 14 r. 1(2). The justification for Ord. 14 r. 1(2) is that the five causes of action referred to are the causes of action for which section 33A of the High Court Ordinance (Cap. 4) permits trial by jury, and it was not thought appropriate for Ord. 14 to apply to any part of an action for which trial by jury is available.

16. When these considerations were put to Mr. Lee, he took instructions. Having done so, he withdrew, pursuant to Ord. 21 r. 2(1), that part of the Plaintiff's claim which had been added by way of amendment to the Statement of Claim and which related to the claim in defamation. All that remained was the claim for the price. In those circumstances, the appeal must be allowed to the extent only of setting aside that part of Master Cannon's order in which she gave the Plaintiff judgment for "loss and profits to be assessed". Apart from that, though, this appeal must be dismissed.