WIN HANVERKY TEXTILE LTD. v. BOLDSON INTERNATIONAL LTD.

HCA 11808/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11808 OF 1999

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J U D G M E N T

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1. The plaintiff's claim against the defendant is for damages for breach of contract in failing to take delivery of fabrics that it purchased from the plaintiff. The defence that has been raised is that the defendant acted as agent for garment manufacturers in its dealings with the plaintiff for the purchase of fabrics. The plaintiff's case is that the defendant dealt with the plaintiff as principal and not as agent for the purchase of fabrics.

2. I heard evidence from Lee Wai Kong ("Lee") who was an assistant sales manager of the plaintiff at all material times. I have no hesitation in accepting Lee as a witness of truth. I accept his evidence. The defendant did not appear at the trial and called no evidence.

3. On the evidence of Lee, which I accept, the defendant started purchasing fabrics from the plaintiff in about April 1997. The fabrics purchased were usually shipped to the defendant's associated factory in Dubai in the U.A.E., namely Derby Textile Factory ("Derby"), for the manufacture of garments which were ordered by the defendant's customers. According to the usual business dealings between the plaintiff and the defendant, Gloria Yeung of the defendant would contact Lee after the defendant had received purchase orders from its customers for the manufacture of garments. Gloria Yeung would ask Lee to supply samples of fabrics required by the defendant's customers for her approval. After that, the defendant would place orders with the plaintiff for the purchase of fabrics. The defendant would also ask the plaintiff to issue proforma invoices confirming the major terms of the purchase. At the defendant's request, the proforma invoices would normally be issued to Derby for the manufacture of the garments ordered by the defendant's customers. Payment for the fabrics supplied by the plaintiff would be made by letter of credit. It would usually be opened by Derby on the defendant's behalf. After the plaintiff received the relevant letter of credit it shipped the fabrics ordered by the defendant to Derby for the manufacture of the garments ordered by the defendant's customers.

4. I am satisfied that on the usual business dealings between the plaintiff and the defendant, the contracts for the sale by the plaintiff and the purchase by the defendant of fabrics was made between the plaintiff and the defendant as principals and that the defendant was not acting as agent for the manufacturer of the garments. I am also satisfied that payment to the plaintiff by a letter of credit opened by the manufacturer was done on the defendant's behalf.

5. Also, on the evidence of the Lee, which I accept, in about late July 1998, Gloria Yeung of the defendant informed Lee that she had received an order for the manufacture of about 20,730 kgs of garments placed by Colby International Limited ("Colby") and that the defendant would like the plaintiff to supply fabrics to it by 5 September 1998 for the manufacture of the garments ordered by Colby.

6. On or about 20 August 1998 the defendant issued a purchase order dated 20 August 1998 for the purchase of 8,401 kgs of fabrics namely, 100% cotton 1/32's Brushed Interlock 230 GM of styles PDK-783L and PDK-783LT. Instead of shipping the fabrics to Derby, on this occasion the fabrics were to be shipped to MISR in Egypt. In accordance with the usual business dealings between the plaintiff and the defendant the defendant asked the plaintiff to issue a proforma invoice to MISR for the fabrics at the unit price of US$9.50 per kg instead of US$6.30 per kg. The defendant asked the plaintiff to refund the difference between US$9.50 and US$6.30 per kg to the defendant after the plaintiff had received payment from MISR. Later on, the quantity of fabrics purchased was revised to 8,399 kgs by another purchase order dated 27 August 1998 which superceded the earlier one. On the defendant's instructions, the plaintiff issued a proforma invoice to MISR based on the unit price as instructed by the defendant. This provided for delivery of the fabrics not later than 15 September 1998 with payment by a letter of credit. Although a letter of credit was not opened, on or about 14 September 1998 Gloria Yeung assured Lee that a letter of credit would be opened in the plaintiff's favour and she requested Lee to ship the fabrics to Egypt as soon as practicable so that the garments could be manufactured and delivered to Colby in time.

7. On Lee's evidence, which I accept, the plaintiff shipped the fabrics to MISR in Egypt on or about 14 September 1998. Whilst the goods were at sea on its way to Egypt, the defendant asked the plaintiff to change the consignee and the destination of the shipment from MISR in Egypt to Derby in Dubai so that the consignment would go to Derby in Dubai instead of to MISR in Egypt. According to Lee, Gloria Yeung also told him in a telephone conversation that MISR was in financial difficulty and the defendant would be unable to deliver the garments to Colby in time if MISR were allowed to continue with the manufacture of the garments. Lee also said, and I accept, that no one in the defendant ever informed him that the defendant was acting only as agent for MISR or for Derby.

8. On the evidence, the defendant switched the manufacturer of the garments purchased by Colby from MISR in Egypt to Derby in Dubai and the plaintiff acceded to the change of consignee and destination of the shipment as requested by the defendant. The defendant also undertook to pay all the freight and miscellaneous charges for the change as confirmed by the defendant's fax dated 7 October 1998 to the plaintiff. This, in my view, cogently demonstrates that the contracting party with the plaintiff was the defendant as principal. It was the defendant who was dealing with the plaintiff at all times as principal and it was the defendant who was able to give instructions to the plaintiff to change the shipment from MISR in Egypt to Derby in Dubai. I am satisfied that the defendant was dealing with the plaintiff as principal and not as agent for MISR or Derby or any other manufacturer. I would also observe, as has been submitted by Mr Hingorani, counsel for the plaintiff, that the defendant has not even disclosed any document to show that it acted as agent for either MISR or Derby in the purchase of the fabrics.

9. On the evidence of Lee, which I accept, the fabrics were in fact shipped from Egypt to Derby in Dubai as requested by the defendant. On the defendant's instructions, a proforma invoice was issued to Derby for the fabrics at the unit price of US$6.30 as instructed by the defendant. A letter of credit dated 14 October 1998 was opened by Derby on behalf of the defendant and this was received by the plaintiff. The actual quantity of fabrics actually shipped to Derby was as shown in the invoice dated 16 October 1998 namely, 8,474.25 kgs. The total price based on the unit price of US$6.30 per kg was US$53,387.78. This was the amount of the invoice to be drawn under the letter of credit. However, the plaintiff was unable to draw on the letter of credit because of discrepancies in the documents. For instance, the inspection certificate as required by the letter of credit was never issued and the defendant never supplied the same to the plaintiff. Lee said, and I accept, that Gloria Yeung told him that Colby had cancelled the order for the garments and that the fabrics which arrived in Dubai were useless to them. That being so, I am satisfied that the defendant failed to arrange for the collection of the fabrics on its arrival in Dubai. I am satisfied that the defendant has been in breach of contract and that the plaintiff has not received payment for the fabrics shipped. Despite a number of requests, the defendant refused to arrange for the collection of the fabrics or to arrange for them to be shipped back to Hong Kong. The plaintiff, therefore, arranged for the fabrics to be returned to Hong Kong to avoid the same being impounded by the Dubai authorities.

10. I am satisfied that the plaintiff has suffered loss as a result of the defendant's breach of contract. On the evidence, the fabrics are still kept in storage in Hong Kong. The plaintiff is entitled to the difference between the contract price and the expected resale price of the fabrics. On the evidence of Lee the expected resale price was US$1.42 per kg and the difference between the contract price and the expected resale price of the fabrics is US$41,354.34. This is arrived at by deducting the expected resale price of US$12,033.44 (US$1.42 per kg x 8,474.25 kgs) from the contract price of US$53,387.78 (US$6.30 per kg x 8,474.25 kgs). The plaintiff is also entitled to the costs for storage in Dubai before the shipment back to Hong Kong as well as the freight charges from Dubai to Hong Kong. On the evidence of Tang Yuk Ping, which I accept, I am satisfied that the plaintiff has incurred these expenses and has paid the total sum of HK$61,011.92 which is equivalent to US$7,842.14. The total sum that the plaintiff is entitled to is therefore US$41,354.34 + US$7,842.14 making a total of US$49,196.48. I give judgment to the plaintiff for that sum together with interest on the said sum at 1% above prime rate from 22 June 1999 until judgment and thereafter at judgment rate until payment. Costs of the action to the plaintiff.