YU FAT PIECE GOODS CO LTD v. PETER MERCANTILE CO LTD AND ANOTHER

HCMP 616/2006

in the high court of the

hong kong special administrative region

court of appeal

mISCELLANEOUS PROCEEDINGS no. 616 of 2006

(on AN INTENDED APPEAL from dccj NO. 2798 of 2002)

______________________

______________________

D E C I S I O N

______________________

Hon Rogers VP:

1.  This was an application for leave to appeal from the judgment of Deputy District Court Judge S. T. Poon given on 18 January 2006.  At the conclusion of the hearing the decision was reserved which I now give.

Background

2.  This was a claim and counterclaim in respect of delivery of goods.  The plaintiff was a supplier of fabric.  Orit Trading Limited (“Orit”) were the buying agents for Gloria Vanderbilt Apparel Corporation (“Gloria Vanderbilt”).  Orit designated the plaintiff as the supplier of fabrics for pants that were to be manufactured by the second defendant for Gloria Vanderbilt.  There was a written contract dated 15 August 2001.  In respect of the customer’s reference it has various reference numbers concluding “(orit-arthur)”.  The subject of the contract was said to be “art no.: 3259-p (gb 1357)”.  Underneath that were the words “printed 90% cotton/2% spandex woven stretch twill”.  Further down it was said: “Finished: ivory grd & sulphur black grd printed with gold foil, soft finished & double preshrunk”.  It was then said: “Pattern: stretch glitter printed denim”.  For the purposes of this application the quantities are irrelevant.

3.  Although the contract was dated 15 August 2001 it stated that the S/black GRD printed with gold foil should be delivered on or before 11 August 2001 whereas the ivory GRD printed with gold foil should be delivered on 20 August 2001.  The judge found as a fact that there was an understanding between the parties that the delivery date was to be postponed to 25 August 2001.

4.  The judge said that it was common ground that washing was a necessary process in the course of manufacture “to make the colours of the original fabrics attain the effect required by Orit”.  The enzyme washing included the use of either sand or stones in the process.  When the second defendant had manufactured some of the jeans and sent them for washing, it found that they came back with defective colouring.  The second defendant immediately contacted the plaintiff.  The judge’s finding as to that was as follows:

“18. After Fung washed the first lot of pants from D2, he discovered that the fabrics had serious colour fading and shading problems.  Fung immediately informed Wong of the problems and Wong instructed Chan to convey the same to Li at once.  Upon Wong’s request, a fabric technician was sent by P to Ds’ office for a meeting.  Knowing the problems, the said technician admitted that P had instructed 2 different fabric factories to produce the fabrics in order to meet the delivery date.  He also admitted that he was aware of the existence of certain technical problems in one of the factories.

19. P’s technician visited D2’s washing contractor’s factory for inspection on the next day.  Fung performed the whole process of washing in the presence of P’s technician and the same problems were found to have occurred on the pants as before.  As it was obvious to P’s technician that the colours of the pants could not meet the requirement of Orit after washing, he requested Fung to perform dyeing on the pants to see if it can achieve the same effect.  Fung took instruction from Wong and Wong instructed Fung to reject the request right away because it would be contrary to Orit’s instructions and dyeing may probably not be effective.

20. Wong also indicated to P’s technician that, if P can find any other washing factory that is able to wash the pants to the same effect as required by Orit, D2 would help to arrange the unwashed pants to be sent to it.  P’s technician then took away several unwashed pants and thereafter no solution was ever suggested by P to solve the problems.

5.  The judge referred to the evidence of the expert witness called by the second defendant.  The witness had adopted the findings of the contemporaneous report which had been prepared namely that the colour of the fabrics from which the tested pants were manufactured was inconsistent.  At paragraph 23 of the judgment the judge said:

“23. D1 and D2 relied on a test report completed by Dr. Simon Mak which had been adopted by their expert witness Lo.  The report concluded that the colour of fabrics from which the tested unwashed pants were manufactured was inconsistent.  Since the garments had various shades on some of the same pants, it would increase the difficulty and reduce the successful rate in achieving the similar appearance of the approved sample after garment washing with enzymes.  The colour inconsistency on the appearance on the 80 pieces of the unwashed pants was rated unacceptable in the textile and clothing industry.”

6.  As the judge recorded in paragraph 53 of the judgment, the evidence relied upon by the defendants proving defective quality of the plaintiff’s fabric was not challenged in any way by the plaintiff at trial.  In view of that, the judge had no difficulty in coming to the conclusion that the quality of the plaintiff’s fabric was unacceptable because it was not fit for the purpose which both parties knew was intended and it was not of merchantable quality.

7.  On this application Mr Lai, who appeared on behalf of the plaintiff, did not challenge the findings of fact by the judge and did not seek to challenge the finding of delay which was a separate cause of complaint by the second defendant in respect of which the judge held in its favour.

8.  The argument put forward on behalf of the plaintiff was said to be a new argument which had not been properly ventilated in the court below namely that it was a term of the contract that “Should any complaint of discrepancy, please notify Seller before goods having changed form.  Otherwise Seller accept no responsibility therein.”  It was said that this was not so much an exemption as a term of the contract and that because the second defendant had cut the fabric and made it into jeans, quite apart from washing it, the second defendant was debarred from making any claim.

9.  That argument is, in my view, unsustainable given the findings of fact by the judge.  The judge had found that the fabric was not fit for the purpose for which it was intended and was not of merchantable quality.  The reason for his so holding was that the specific defects only became apparent during the manufacturing process.  There is no suggestion that the second defendant did know, or could have known, about the defects until the manufacturing process had been undertaken.  In those circumstances, the particular provision relied upon by the plaintiff is irrelevant.  In my view the plaintiff has no chance of success in any appeal and I have no hesitation in refusing leave to appeal.