LONG ART INVESTMENT LTD v. KAM CHIU FEI t/a HARBOUR FAIR GARMENTS MANUFACTURING

HCA 1024/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1024 OF 2001

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J U D G M E N T

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1. In this action, the Plaintiff Long Art Investment Limited ("Long Art") claims against the Defendant Kam Chiu Fei trading as Harbour Fair Garments Manufacturing ("Kam" and "Harbour Fair" respectively) damages for breach of contract owing to late and non delivery of certain garments. Harbour Fair counterclaims outstanding payments and other wasted expenditure.

Background

2. In or about July 2000, Long Art entered into an agreement with Harbour Fair whereby the latter would supply 8,514 pieces of denim garments under the brand name of "Sypher" to Long Art for export ("the Contract").

3. The Contract was reached through exchanges of e-mails. It suffices for the present purpose to refer to the following:

(1)	In an e-mail sent by Raymond Kam ("Raymond") of Harbour Fair to Long Art on 29 July 2000, it was stated:
	"Here is the note for final confirmation of style sypher
	jacket - HKD40.00/pc
	vest - HKD30.00/pc
	shirt - HKD29.00/pc
	prices above incl. CM + packing trim + thread + hongkong CO
	(emb. Not included)
	ex-factory Sept 7th, 2000
	Please let us know if you need further information."
(2)	These terms, as well as payment by 30 days post-dated cheque after receipt of shipping documents, were confirmed in subsequent e-mail correspondence.

4. There is a dispute as to whether the Contract was also evidenced by 9 purchase orders SY010/00 to SY018/00 all dated 25 July 2000 ("the Long Art Purchase Orders"). However, there is no issue that the material terms of the Contract had already been agreed on in the e-mail correspondence.

5. The garments were to be exported to Long Art's overseas customer American Public Company Inc ("APC") in the USA. The parties to the Contract took advantage of the "Outward Processing Arrangement" ("OPA") permitted by the Trade and Industry Department. According to the publication of the Trade and Industry Department, OPA:

"enables manufacturers registered with the Trade and Industry Department to subcontract outside Hong Kong the subsidiary or minor finishing processes without affecting the eligibility of such goods for attaining Hong Kong origin status."

6. A prerequisite for participation in the OPA is that the goods concerned must have undergone the principal manufacturing processes ("principal processes") in Hong Kong which are sufficient to qualify them as of Hong Kong origin.

7. The connection between "principal processes" and "Hong Kong origin" is further spelt out in the standard conditions of export licence applied for by Long Art:

"Goods covered by this licence must be of Hong Kong origin. Goods claiming Hong Kong origin must have undergone principal processes in Hong Kong. These are processes which permanently and substantially change the nature, shape, form and utility of the raw materials used, as laid down by the Director-General of Trade and Industry in Certificate of Origin Circulars."

8. Under the OPA, the Hong Kong manufacturer engaged by the exporter to perform the "principal processes" had to submit to the Trade and Industry Department a "Production Notification" ("PN"). The PN contained particulars of the processes to be carried out, at what place and during what period such processes would be carried out. Obviously, this was to ensure the garments produced truly had Hong Kong as the "Country of Origin".

9. Under the Contract, Long Art was responsible for supplying fabrics and accessories for the garment production. It was also responsible for engaging other contractors to do the embroidery and studding processes. At all material times, the persons handling the Contract on Long Art's side were, inter alia, its senior merchandiser Chang Kam Lung also known as Charles Chang ("Charles") and its production manager Wan Ping Hung also known as Joe Wan ("Joe").

10. Starting from early August 2000, Long Art delivered the necessary fabrics and accessories to the factory belonging to Hung Kiu Wear Industry (Hui Zhou) Limited in the Mainland ("Hung Kiu"), which was the factory undertaking the manufacturing processes other than the principal processes.

11. Shortly after the delivery of the fabrics to Hung Kiu, it was discovered that they suffered from certain yarn slubs problems (i.e. lumps caused by knots of threads). After discussion, and by an e-mail dated 28 August 2000 to Long Art, Raymond of Harbour Fair suggested the delivery date be extended to 8 October 2000, as opposed to 25 September 2000 previously indicated by Long Art. He also sought confirmation of a surcharge of HK$8,000.00 for the defective fabrics, which was duly confirmed by Long Art.

12. There was further delay caused by Long Art's late supply of care labels. As a result, the delivery date was further postponed to 10 October 2000.

13. By a letter dated 28 September 2000 to, inter alia, Kam and Wu Tat Ching ("Wu") who was the production manager of Hung Kiu, Joe of Long Art noted that the delivery date for all the garments had been postponed to 10 October 2000, stated that garments sent after 5 October 2000 would have to be sent by air to Long Art's detriment, and warned that any further delay might result in the cancellation of the order by their overseas customer. This letter was initialed by Wu.

14. By a letter dated 13 October 2000, Long Art referred to Harbour Fair's failure to meet the extended delivery date of 10 October 2000, and to the request by its customer to deliver goods by air if the garments could not be delivered by early October. It also mentioned that Harbour Fair had not completed the PNs for the delivery of the garments.

15. As regards the PNs, I should mention that back on or about 15 September 2000 Harbour Fair sought and Long Art provided the "PO numbers" of the Long Art Purchase Orders apparently for Harbour Fair to prepare the PNs. In early October 2000, Harbour Fair filed a number of PNs with the Trade and Industry Department which referred to the PO numbers of the Long Art Purchase Orders.

16. By a number of documents called "purchase contract amendments" dated 13 October 2000, Long Art purported to cancel most of the orders placed by the Long Art Purchase Orders due to late shipment.

17. On or about 18 October 2000, Harbour Fair faxed to Long Art information of one Wai Lung Garment Factory ("Wai Lung"). Wai Lung was subsequently engaged to provide the PNs in place of Harbour Fair. There is a dispute as to whether it was Long Art itself or Harbour Fair who procured Wai Lung to provide the PNs. In the export licences issued on 20 and 21 October 2000, Long Art as the exporter declared, inter alia, that Wai Lung was the manufacturer of the subject garments.

18. Since late September 2000, Long Art had been pleading with Harbour Fair repeatedly to confirm the delivery date, stressing the importance of such confirmation vis-à-vis its overseas customer. There was no written reply by e-mail or otherwise.

19. On or about 6 November 2000, 494 pieces of garments were delivered to Long Art. There is no dispute that Long Art had not paid for the 494 pieces. However, no contemporaneous invoice had been issued by Harbour Fair or Wai Lung in respect of this delivery. The relevant invoice produced was one issued by Wai Lung dated 25 November 2000.

20. Long Art sent numerous letters chasing Harbour Fair for the delivery of the balance but there was still no response from Harbour Fair. A meeting was held on 13 November 2000. Eventually Long Art engaged Messrs Ko & Co. to help pursue the matter. By a letter dated 13 November 2000, Messrs Ko & Co. imposed a deadline of 5:00 p.m. of 14 November 2000 for Harbour Fair to deliver the balance of the garments.

21. On either 14 or 15 November 2000, only 1,974 pieces of garments were delivered. These 1,974 pieces were paid for by Long Art by a cheque dated 15 November 2000 for the sum of HK$72,656.00 payable to Wai Lung. There were two invoices issued by Wai Lung in respect of the 1,974 pieces delivered. They were both dated 15 November 2000 and signed by Ku Yuk Nga also known as Monica Ku ("Monica") of Harbour Fair.

22. Long Art delivered the 494 and 1,974 pieces (totalling 2,468 pieces) by air to APC and incurred total air freight charges in the sum of HK$137,231.00.

23. Other than these 2,468 pieces, Long Art alleged that the remaining 6,046 pieces of garments were never delivered to Long Art at all. There was never any tender of delivery. Thus, Harbour Fair was in repudiatory breach of the Contract, which was accepted by Long Art commencing proceedings on 6 March 2001.

24. By this Action, Long Art claims the following items:

(1)	extra air freight in the sum of HK$137,231.00;
(2)	Costs of materials (including fabrics and other accessories) delivered to Harbour Fair for the manufacture of the 6,046 pieces of garments. The sum claimed is HK$881,162.92 x 6,046/8,514 = HK$625,735.37; and
(3)	a sum of US$72,552.00 being compensation allegedly paid by Long Art to its overseas customer APC for non-delivery of the 6,046 pieces of garments.

25. Harbour Fair raises a number of defences. Before amendment of its Defence and Counterclaim, the only substantive defence was that it was merely acting as an agent for Hung Kiu in this transaction and did not assume personal contractual liability. Other defences subsequently raised included breach of the Contract by Long Art by late delivery of materials and late completion of embroidery and studding work. Further, it counterclaims damages comprising wasted costs and loss of profits.

The Issues

26. A case of this nature is inevitably loaded with details and conflicting oral testimonies. Leaving aside the more peripheral matters, the main issues in this Action are these:

(1)	The Agency
	Whether Harbour Fair was the principal party to the Contract or whether it merely acted as agent for its principal Hung Kiu without incurring any personal liability;
(2)	The Illegality
	Whether Long Art had committed an offence under the Import and Export Ordinance Cap. 60 by making false declaration, and thereby rendering the Contract unenforceable;
(3)	The Non/Late Delivery by Harbour Fair
	Whether Harbour Fair was liable in damages for late delivery of 2,468 pieces, and whether it was also in repudiatory breach of contract by failing to deliver the balance 6,046 pieces, which entitled Long Art to rescind the Contract and sue for damages on that basis;
(4)	The Implied Terms
	Whether certain implied terms alleged by the parties can be established;
(5)	The Breach by Long Art
	Whether Long Art was in breach of contract for failing to deliver materials of requisite quality and/or causing delay in a number of ways; and
(6)	The Quantum of the Claim and the Counterclaim.

The witnesses

27. The first witness called by Long Art was Charles. I find him a truthful witness who tried his best to give a full account of his recollection of events. He was confident, meticulous and careful in giving evidence. For example, his answers as to whom he met and what happened at meetings were consistent despite vigorous cross-examination.

28. Joe was the second witness. Although he was not as careful as Charles and at times appeared confused and uncertain when confronted with certain documentary evidence, I find him a truthful witness on the whole.

29. For Harbour Fair, the only witness called was Monica, who held the post of Assistant Director. Kam chose not to give evidence although he had filed two witness statements. I am not at all impressed by Monica's credibility as a witness. She is a clever lady who was aware of the difficulties in the defence case and came prepared. However, she was too zealous to plug the holes and many of her explanations are plainly incredible. She was evasive when cornered, and was quick to pass the blame on "her colleagues" when things did not appear consistent with the defence case. Insofar as there are conflicts in the oral testimonies, I prefer those given by Long Art's witnesses.

The Agency

30. Harbour Fair argued that to the knowledge of Long Art, Harbour Fair was only an agent or liaison representative of Hung Kiu in Hong Kong. On this basis, Harbour Fair did not incur personal liability on the Contract.

31. On the evidence before me, I am satisfied that Harbour Fair did contract with Long Art as principal as opposed to agent for Hung Kiu.

32. First, Charles and Joe of Long Art both said they had never been told that Harbour Fair was only contracting as agent for Hung Kiu. I accept Joe's evidence that Kam told him Hung Kiu was Kam's own factory. Kam and Raymond did not give evidence to support the claim on agency. Monica did not deal with Long Art directly at the time when the Contract was entered into.

33. Second, in none of the correspondence including in particular the e-mails constituting the Contract was there any express or implied suggestion that Harbour Fair was just acting as agent for Hung Kiu. Instead, the name cards of Kam and Raymond were so designed as to give the impression that Hung Kiu was a Mainland company belonging to or was operated by Harbour Fair.

34. Third, the nature of the Contract including in particular that the obligation to procure the "Hong Kong country of origin" for the garments pointed strongly to Harbour Fair, a Hong Kong company, being a party to the Contract as principal. I shall elaborate on this point in connection with the role of Wai Lung below.

35. Fourth, Harbour Fair has failed to satisfy me that the so-called "Authorization Letter" dated 1 August 1997 was a genuine document. Monica's evidence on this document only made it more suspicious. The document did not serve any practical purpose at all. Monica also admitted the company undertaking the functions of transporting fabrics and accessories as well as clearing customs (as mentioned in the said Authorization Letter) should be Harbour Fair Trading Company, which was another sole proprietorship of Kam. Although Hung Kiu appeared to a be a joint venture company with a Mainland entity, there can be little doubt that Kam, as its Chairman and Manager, was very much in control of Hung Kiu. Should there be a genuine agency agreement in place since 1997, Harbour Fair should have no difficulty in producing documents evidencing the payment of agency commission, which Monica said Hung Kiu had to and did pay Harbour Fair. None was produced.

36. Fifth, if indeed Hung Kiu and not Harbour Fair were the contracting party, it is difficult to understand why Hung Kiu did not join in as a defendant to counterclaim against Long Art for damages in breach of contract.

37. Sixth, even if, contrary to my finding, Harbour Fair did act as an agent for Hung Kiu, there is no direct evidence to substantiate Harbour Fair's allegation that Long Art knew about it.

38. Seventh, and in any event, even if Harbour Fair did to the knowledge of Long Art describe itself as agent for Hung Kiu, it does not pe se follow that Harbour Fair assumed no personal contractual liability. As Lord Scarman said in Yeung Kai Yung v. Hong Kong and Shanghai Banking Corp [1981] AC 787, at p. 795C-D:

"It is not the law that, if a principal is liable, his agent cannot be. The true principle of law is that a person is liable for his engagements (as for his torts) even though he is acting for another, unless he can show that by the law of agency he is to be held to have expressly or impliedly negatived his personal liability."

39. Far from showing that its personal liability had been negatived, Harbour Fair had clearly conducted itself in a way affirming its personal liability on the Contract. This can be illustrated by reference to the terms of the Contract and the procurement of Wai Lung as dealt with below.

Procurement of Wai Lung

40. Wai Lung was the local manufacturer who eventually filed the PNs with the Trade and Industry Department to enable Long Art to export the garments to APC.

41. According to Monica, Harbour Fair rejected the Long Art Purchase Orders as they contained unacceptable terms. Thereafter, Long Art proceeded to engage another local manufacturer, namely, Wai Lung, to carry out the principal processes in Hong Kong. She said the principal processes were indeed performed by Wai Lung, who separately reached an agreement with Hung Kiu. It is however noteworthy that Wai Lung did not join in as a defendant to pursue any counter-claim against Long Art for loss of profit.

42. According to Charles, in about mid October 2000, Harbour Fair informed Long Art that it had difficulty in applying for the PNs and hence requested Long Art to use Wai Lung to apply for the PNs. Wai Lung was introduced by Harbour Fair. Charles said under these circumstances, Long Art had no realistic choice other than to comply with Harbour Fair's request.

43. On the undisputed documentary evidence before me, I have no doubt that it was Harbour Fair, not Long Art, who first procured Wai Lung to participate in this deal. It was Harbour Fair who faxed over to Long Art the name and details of Wai Lung on or about 18 October 2000. All the production and packing details were sent to Harbour Fair, not to Wai Lung. Long Art had never corresponded directly with Wai Lung. Furthermore, it is clear that Wai Lung was at Harbour Fair's disposal. Monica gave evidence that Harbour Fair could direct Wai Lung whether or not to release the garments to Long Art. It was also Monica who signed the two invoices of Wai Lung dated 15 November 2000 for the delivery of the 1,974 pieces. In this connection, I find Monica's story about meeting Charles on 15 November 2000 at the lift lobby where Charles demanded her to sign the Wai Lung invoices most bizarre. It was plainly made up by her to explain why her signatures so appeared.

44. In my view, it was after Harbour Fair encountered a problem with filing the PNs with the Trade and Industry Department for whatever reason that it decided to procure Wai Lung to file the PNs. I have no doubt that Harbour Fair procured Wai Lung to file the PNs in order to discharge its own express obligation under the Contract with Long Art.

(1)	In its Re-Amended Defence and Counterclaim, Harbour Fair admitted that under the Contract, the price included "Hong Kong Country of Origin". However, pursuant to an oral agreement made between Joe of Long Art and Kam in or about early August 2000, the price excluded the supply of Hong Kong Country of Origin.
(2)	There is no evidence adduced on the alleged oral agreement at all. Without the oral agreement, it is the pleaded case of Harbour Fair that it had to supply the "Hong Kong Country of Origin" pursuant to the Contract. Since the obligation was still on Harbour Fair, it had to procure another Hong Kong manufacturer to provide the PNs when it discovered that it could not do so.
(3)	I totally reject Monica's evidence that the reference of "Hong Kong Country of Origin" in the correspondence was meaningless. To supply "Hong Kong Country of Origin" in the context of the OPA must mean that Harbour Fair was responsible for satisfying the Trade and Industry Department that the principal processes were carried out in Hong Kong by submission of the necessary PNs.
(4)	It is a fact that on 11 October 2000 Harbour Fair did itself file three PNs to enable Long Art to secure the export licence. I have no hesitation in rejecting the suggestion by Monica that these PNs were filed as a result of a mistake by their shipping clerk "Ah Shan", who was not called to give evidence. What Monica said in this regard is plainly untrue and demonstrates she was not a credible witness at all. These PNs filed also referred to the numbers of the Long Art Purchase Orders, which fact also militates against Monica's evidence that the purchase orders were rejected right away as the terms were found to be unacceptable.
(5)	Monica agreed that only a local manufacturer could apply for "Hong Kong Country of Origin" and thus discharge the obligation under the Contract. Hung Kiu was not able to do that. Harbour Fair also took it upon itself to procure Wai Lung to file the PNs. All these reinforce the conclusion that Harbour Fair was contracting with Long Art in his own capacity not as an agent.

The Illegality

45. When Long Art applied for the export licences, Long Art acceded to Harbour Fair's request to let Wai Lung file the PNs, and declared in the export licences that Wai Lung was the local manufacturer. This declaration is untrue as the local manufacturer was in fact Habour Fair.

46. In the course of his closing submissions, Mr Andy Hung, Counsel for Harbour Fair, contended that by making such a false declaration, Long Art had committed an offence under sections 6D and 36 of the Import and Export Ordinance Cap. 60. By reason of this illegality, the Contract was unenforceable and Long Art could not recover the damages claimed.

47. Section 6D of Cap. 60 provides:

"	Restriction on export of certain prohibited articles
	(1)	Subject to the Import and Export (General) Regulations (Cap. 60 sub. leg.), no person shall export any article specified in the second column of the Second Schedule to those regulations to the country or place specified opposite thereto in the third column of that Schedule except under and in accordance with an export licence issued under section 3.
	...
	(3)	Any person who contravenes subsection (1) in respect of ... shall be guilty of an offence and shall be liable on conviction to a fine of $500,000 and to imprisonment of 2 years."

48. Section 36 of the same Ordinance provides:

"	(1)	Any person, who, in respect of -
		(a) an application for the issue of a licence;
		(b) an application for the registration under this Ordinance;
		(c) any production notification, declaration, document or article required to be lodged with the Director, an authorized officer or member of the Customs and Excise Service pursuant to the provisions of this Ordinance; or
		(d) any particulars or information provided to the Director, an authorized officer or member of the Customs and Excise Service pursuant to the provisions of this Ordinance
	makes or causes to be made any statement or furnishes or causes to be furnished any information which is false or misleading in a material particular or omits any material particular shall be guilty of an offence and shall be liable on conviction to a fine of $500,000 and to imprisonment of 2 years, unless he satisfies the court or magistrate that he did not know and had no reason to believe the statement or information to be false or misleading or the omission to be material."

49. This argument on illegality was not pleaded at all. Nor did Mr Hung apply to amend the Amended Defence and Counterclaim to properly plead the point. However, Mr Hung relied on Chitty on Contracts, 28th edition, para. 17-196:

"Pleading of illegality. Where a contract is ex facie illegal, the court will not enforce it, whether the illegality is pleaded or not; secondly, where the contract is not ex facie illegal, evidence of extraneous circumstances tending to show that it has an illegal object should not be admitted unless the circumstances relied on are pleaded; thirdly, where unpleaded facts, which, taken by themselves, show an illegal object, have been put in evidence (because, perhaps, no objection was raised or because they were adduced for some other purpose), the court should not act on them unless it is satisfied that the whole of the relevant circumstances are before it; but fourthly, where the court is satisfied that all the relevant facts are before it and it can clearly see from them that the contract had an illegal object, it may not enforce the contract, whether the facts were pleaded or not. It has been said that counsel is not acting improperly in inviting the court to consider the possible, though unpleaded, illegality of a transaction but that on the contrary counsel's duty is to prevent the court from enforcing illegal transactions."

50. As regards counsel's duty, Mr Hung also referred me to the case of Mercantile Credit Co. Ltd v. Hamblin [1964] 1 WLR 423. There the defence of illegality, namely the subject agreement might contravene the Hire Purchase and Credit Sales (Agreements) Order 1960, was not pleaded but was raised at a late stage. Counsel frankly stated to the court that it had not occurred to him until then. John Stephenson J held that it was counsel's duty, however embarrassing, to prevent the court from enforcing illegal transactions.

51. Although I agree the Court should take cognizance of illegality even though it had not been pleaded, I find it unsatisfactory that the defence of illegality was not properly raised at an earlier stage of this trial. I do not think this point was triggered off only by the Closing submission of Long Art's counsel, which was filed and served prior to the hearing of oral closing submissions. Section 6D of the Import and Export Ordinance Cap. 60 was included in the Defendant's List of Authorities submitted to the court before commencement of the trial. Further, the penalty for making false declaration in the application for export licence was also touched on in the cross-examination of Charles. However, without illegality being raised as an issue, the questions appeared to be directed at the credibility of the witness. In my view, this illegality defence ought to have been raised much earlier by way of an application to amend the pleadings.

52. Be that as it may, Mr William Wong, Counsel for Long Art, did not take any pleading point but went on to make objections and submissions on other grounds. Both Mr Hung and Mr Wong filed further written submissions on the construction of sections 6D and 36 on 25 September 2003 and 29 August 2003 respectively.

53. For the following reasons, I reject Mr Hung's contention based on illegality of the Contract.

54. First, as regards section 6D, I agree with Mr Wong that section 6D is irrelevant as the offence therein is exporting restricted goods without any export licence at all, which is not applicable to the present case where the relevant export licences were never revoked or cancelled by the authorities. Accordingly, whether the offence under section 6D is one of strict liability (relying on AG of Hong Kong v Tse Hung Lit [1986] 1 AC 876, at 885) is immaterial.

55. Second, as regards section 36, the burden of proof is on Harbour Fair to satisfy me that such an offence had in fact been committed by Long Art. The illegality point was not in issue when the witnesses of Long Art were examined. Neither Charles nor Joe was properly examined as to whether they "knew" or "had any reason to believe" that the statement or information in the export licence declaration was false or misleading. In these circumstances, I do not think all the relevant facts are before me so that it is fair or safe to draw any inference or come to any finding on such a serious allegation as to whether a criminal offence had been committed under section 36.

56. Third, even if I were wrong and Long Art did in fact commit an offence under section 36, such an illegality could not have the effect of rendering the Contract unenforceable as submitted by Mr Hung. Long Art is suing Harbour Fair for breach of the Contract entered into back in July 2000. In pursuing this action, Long Art does not have to rely on or make reference to the export licence or the arrangement involving Wai Lung at all.

57. In Pye Ltd v BG Transport Service Ltd [1966] 2 Lloyd's Rep 300, the plaintiffs claimed on a contract of carriage for the loss of their goods which were stolen in Stepney. The plaintiffs had agreed with their buyers, one Lapman Co. Ltd, that the goods, which were to be shipped to Persia, would be invoiced at less than the true price in order to deceive the Persian customs authorities. The carrier raised the defence of illegality but failed. At p. 309, Browne J said:

"The Plaintiffs do not have to rely on their contract with Lapman Company Ltd to establish or support their cause of action against the defendants, and it is quite irrelevant for that purpose. The measure of damages is prima facie the market value of the goods at that time of their loss. Even if the plaintiffs had agreed to make a free gift of these goods to Lapman Company Ltd, they could still recover the value of the goods against the defendants."

58. Furthermore, the making of false declaration in the export licence occurred in the performance of the Contract, not at the formation of the Contract. The enforceability of the Contract could be impeached only where performance of the obligations thereunder was intended to involve or would "necessarily" involve the doing of an act which is unlawful under the laws of Hong Kong. Here, at the time when the Contract was entered into in July 2000, and at all times up to mid October 2000, it was always intended that Harbour Fair would be, and would be declared in the export licence as, the local manufacturer carrying out the principal processes. It was never the object of the Contract or the intention of the parties to engage Wai Lung to file the PNs at the outset. It was never part of the Contract to commit an offence under the Import and Export Ordinance Cap. 60.

59. As Browne-Wilkinson J said in Coral Leisure Group Ltd v Barnett [1981] ICR 503, at 509:

"The fact that a party has in the course of performing a contract committed an unlawful or immoral act will not by itself prevent him from further enforcing the contract unless the contract was entered into with the purpose of doing that unlawful or immoral act or the contract itself (as opposed to the mode of ... performance) is prohibited by law."

Non-delivery of the balance 6,046 pieces

60. In its Defence and by Monica's witness statement, Harbour Fair alleged that by about 20 November 2000, the remaining garments under the Contract had been completed and delivered to Wai Lung. They were ready for onward delivery to Long Art but Long Art refused to pay the price to Wai Lung or Hung Kiu, as a result of which Wai Lung refused to allow Long Art to take delivery of the goods.

61. By reference to a number of export manifests, Monica gave evidence that all the garments in question (totalling 8,514 pieces) had already arrived in Hong Kong between 5 and 12 November 2000. (This is contrary to what she said in her witness statement where she said the balance of the garments were delivered in batches on or about 4, 15 and 20 November 2000). However, because Long Art refused to pay for the garments by a 30-day post-dated cheque, the said goods were not delivered to Long Art.

62. In her witness statement, Monica said that on or about 20 November 2000, Long Art attempted to take delivery of the remaining garments from Wai Lung but they did not pay Wai Lung by a 30-day post-dated cheque for the price of the remaining garments. The request for delivery was made again to Monica on the same day and on 25 November 2000 but since Long Art was refusing to deliver a post-dated cheque, the delivery was refused.

63. In the closing submissions, Mr Hung put forward a further suggestion: Long Art was adopting a wait and see attitude, reserving its position whether to rescind the Contract by reference to the deadline of 14 November 2000, depending on APC's decision whether to accept late shipment.

64. For the reasons given below, I find that the balance of the garments, namely, the 6,046 pieces, were never delivered. I reject Harbour Fair's contention that all the garments (not just the 1,974 pieces) were already delivered to Hong Kong by 12 November 2000 or even 20 November 2000.

65. First, Monica's story that the garments were not delivered to Long Art because Long Art refused to give Wai Lung or Harbour Fair a 30-day post-dated cheque is wholly incredible.

(1)	It simply does not make sense that after chasing for the delivery of the garments so desperately for so long, and seeing that all the garments were already delivered to Hong Kong by 12 November 2000 (i.e. still before the deadline of 14 November 2000), Long Art would have obstructed itself from getting release of the goods by refusing to issue a 30-day postdated cheque, as required under the Contract.
(2)	This is rendered even more incredible as on 13 November 2000, in order to obtain the 1,974 pieces of goods for urgent air shipment, Long Art did not insist on its contractual right to pay by 30-day postdated cheque, but had agreed to pay by a cheque for immediate payment, which it did by a cheque dated 15 November 2000 for the sum of HK$72,656.00.

66. Second, any suggestion that Harbour Fair or Wai Lung refused to deliver the balance of the garments by reason of Long Art's earlier failure to pay for the 494 pieces delivered back on or 4 or 6 November 2000 is totally unbelievable. Long Art had paid for the 1,974 pieces by a cheque for immediate payment; there was no reason why it should withhold payment of the 494 pieces thereby causing Harbour Fair to refuse delivery of the balance of the goods. The evidence shows that by a letter dated 13 November 2000 to Harbour Fair, Long Art requested Harbour Fair to submit the invoice to arrange payment. However, no invoice was sent immediately. The relevant invoice adduced in evidence was one dated 25 November 2000.

67. Third, if indeed it was because of such unreasonable behaviour of Long Art that the deal turned sour, it is inexplicable why there would be no trace of any e-mail or letter coming from Harbour Fair to chase Long Art to take delivery and to effect payment. This contention did not feature in the first version of the Defence at all.

68. Fourth, I am not satisfied that the garments featured in the export manifests were the subject matter of the Contract. There were numerous discrepancies. The subject matters of the export manifests were all 100% cotton denim male shirts. However, of the 8,514 pieces under the Contract, almost 85% were made of 50% cotton and 50% polyester; and they comprised shirts, vests and jackets. Further, the total number covered by the export manifests did not match the number of outstanding garments under the Contract.

69. Fifth, if indeed the export manifests documented the delivery of the balance of the garments, Harbour Fair could not have given so many different versions of the dates of their delivery: 4, 15 and 20 November 2000 (Monica's statement) and 5 to 27 November 2000 (Monica's chronology).

70. Sixth, Harbour Fair's counterclaim for storage costs of the fabrics is so dubious that it casts further doubt as to the alleged delivery of the garments to Hong Kong. Harbour Fair produced a tenancy agreement in respect of a unit in Kowloon with rental of HK$9,000.00 as opposed to HK$12,400.00 counterclaimed by Harbour Fair. The period claimed was from November 2000 to November 2001 (per closing submissions as opposed to Re-Amended Defence and Counterclaim). However, the claim was wholly contradicted by Monica's evidence. She said the garments were initially stored by Wai Lung who returned them only in about Chinese New Year of 2001, when Harbour Fair returned them to Hung Kiu in the Mainland.

71. I find that by 14 or 15 November 2000, as Charles said, the best that Harbour Fair could have done was to deliver 1,974 pieces and nothing more.

72. Mr Hung referred me to Long Art's letter dated 13 November 2000 to APC, which stated Long Art intended to fly 1,974 pieces and ship 3,560 pieces to APC, and invited me to draw the inference that at least another 3,560 pieces were to the knowledge of Long Art available on 13 November 2000. However, in the letter to APC, Long Art did not say the 3,560 pieces were immediately available. Instead, it asked for an extended shipment date to 18 December 2000. Furthermore, 3,560 is the figure referred to in the letter of 8 November 2000 (Annex B), being the sum which Long Art requested Harbour Fair to deliver by 10 November 2000. This figure bears no connection with any figures in the export manifests which Mr Hung invited me to consider. Furthermore, what Long Art said to APC with a view to salvage an order should be considered in its own context. In view of the other circumstances mentioned above, I am unable to agree with Mr Hung on this point.

73. That Harbour Fair and Hung Kiu had encountered problems in manpower can be seen from the contemporaneous documents. According to the progress report dated 16 October 2000, Hung Kiu was unable to arrange sufficient manpower to perform Long Art's order. According to another progress report dated 23 October 2000, the work of the factory was suspended. These contemporaneous records were not challenged. Nor did Monica try to explain the lack of manpower and suspension of work.

74. Such documentary evidence corroborates the oral testimonies given by Long Art's witnesses, which I accept. According to Joe, in October 2000, Long Art's quality controller reported that the Mainland factory had not put in sufficient manpower to produce the Long Art's order. Similarly, Charles also said Long Art's inspectors discovered that the production progress in Hung Kiu's factory was very slow, with only a few workers involved, resulting in the lapse of delivery date as required by Long Art.

75. In this connection, whether the fabrics for Style J001, which made up the bulk of Long Art's order, had been sufficiently cut was made a specific issue at the trial.

(1)	Joe said he gathered from the progress reports that by mid October Hung Kiu had only cut 4,950 pieces of J001, which was not sufficient to meet the order of 6,144 pieces of J001 as required under the Contract. He complained to Harbour Fair but was given no explanation.
(2)	On 16 October 2000, the records showed an additional cutting of 732 pieces of J001. There was a dispute as to the nature of these 732 pieces. According to Long Art, this was to partially make up for the difference between 6,144 and 4,950 pieces.
(3)	According to Monica, the cutting of the 732 pieces was a separate and additional order. I agree with Mr Wong that had an additional order been placed, it is inexplicable why it was not recorded in any correspondence or even mentioned in Monica's witness statement. Mr Hung did not pursue this contention in his closing submissions.
(4)	If the 732 pieces were not a new order, it must be within the original Contract quantity, i.e. 6,144 pieces.
(5)	In order to show that more than 4,950 pieces of J001 had been cut by mid October 2000, Mr Hung attempted to juxtapose various figures concerning J001 appearing elsewhere, e.g. 5,592 pieces mentioned in Joe's letter dated 28 September 2000 and various itemized figures under J001 appearing in the progress report dated 16 October 2000. I am unable to accept his submissions in this regard as Joe had not been specifically cross-examined on the figure of 5,592 and the evidence on the figures in the 16 October 2000 report is incomplete.

76. On balance, I think Joe's evidence is to be preferred and I find that Hung Kiu had not cut sufficient pieces of J001 to meet Long Art's Contract by mid October 2000 and the 732 supplemental cut pieces were to partially make up for the shortfall.

Late delivery by Harbour Fair

77. I have already found that so far as the delivery of the balance of the garments was concerned, this is case of "never" rather than "late". Thus it is not material whether Long Art accepted the repudiation in mid November 2000 after the expiry of the deadline for delivery or in March 2000 when the writ of issued.

78. However, the issue of late delivery is still relevant because of Long Art's claim for air freight in respect of the 2,468 pieces of garments which Harbour Fair did deliver before mid November 2000. Furthermore, if my finding on non-delivery of the balance were wrong, and Harbour Fair was merely late, then whether Long Art could and did rescind the Contract upon Harbour Fair's failure to meet the deadline on 14 November 2000 would be a material question.

79. The argument, which Mr Hung placed heavy emphasis on in the course of his closing submission, is that irrespective of the rights and wrongs between the parties, Long Art was not entitled to rescind the Contract for late delivery. As the Contract was not rescinded, Long Art cannot claim damages, as it seeks to do, on the basis of rescission. At the most, Long Art can only sue for damages for breach of contract.

80. According to Mr Hung, the reasons why Long Art could not rescind the Contract are these:

(1)	Without any further delivery date fixed by consent, Long Art could only terminate the Contract on the ground of non-delivery or late delivery by giving reasonable notice to Harbour Fair. No reasonable notice had been given by Long Art. It is trite law that where time is originally not of essence, or where time is originally of the essence but the stipulated time has lapsed, the innocent party can give notice fixing a reasonable time for the performance, thus making time of the essence of the contract: see Charles Rickards Ltd v. Oppenhaim [1950] 1 KB 616, at 623 and Choi Siok Pin & another v. Lui Bing Bing Betty [1994] 3 HKC 675, at 682 F-H.
(2)	Alternatively, Mr Hung argued that by continuing to demand delivery of the balance of goods on 13 November 2000, and by taking further delivery of the 1,974 pieces on 15 November 2000 after the deadline, Long Art had affirmed the Contract.

81. For the reasons set out below, I find that the delivery of the 2,468 pieces was indeed late resulting in Long Art having to pay unnecessary airfreight charges, and that the imposition of the 14 November 2000 deadline was a reasonable notice.

(1)	As chronicled above, there was in fact an agreement reached between the parties that the delivery date had been extended to 10 October 2000. As elaborated below, the fabrics problem was a manageable one which necessitated the payment of a surcharge of HK$8,000.00 and the extension of delivery date to 10 October 2000. I am satisfied that the initials of Wu appearing in each of the two pages of the letter dated 28 September 2000 could only have been for the purpose of expressing consent to the contents of the letter, which included the extension to 10 October 2000. That 10 October 2000 was the agreed extended delivery date was also reflected in the correspondence between Long Art and APC.
(2)	In any event, it is undeniable that since 29 September 2000 Long Art had been pressing Harbour Fair repeatedly to confirm the delivery date. Long Art had stressed the importance of such confirmation vis-à-vis the overseas customer. However, there was no written reply by e-mail or otherwise. I reject Monica's evidence that she had given oral response and the failure to reply in writing was due to preoccupation with production work.
(3)	Harbour Fair had apparently agreed to deliver 500 pieces on 28 October 2000 for Long Art to send by air. However, as was evidenced in a letter dated 28 October 2000 to Kam and Monica, no such delivery took place and Charles complained that the delay by Harbour Fair put Long Art at risk of losing the order by the overseas customer and suffering serious loss. By 31 October 2000, Long Art already threatened legal proceedings if Harbour Fair failed to confirm the shipment date on or before 1 November 2000. This was followed by numerous reminders.
(4)	On 3 November 2000, Charles went to Harbour Fair's office in Hong Kong to confront Kam repeating that Long Art would take legal action if its customer cancelled the order by reason of late delivery. However, this push only resulted in the delivery of 494 pieces on either 4 or 6 November 2000, which Long Art rushed off to APC by air.
(5)	By 8 November 2000, Harbour Fair was still unable to deliver the balance of the order. Long Art wrote on that day demanding delivery on or before 10 November 2000 to be split into three instalments, one of which was to be delivered by Long Art by air on 10 November 2000. That was again wholly ignored and there was completely no response.
(6)	On 11 November 2000, Long Art wrote repeatedly to complain that the failure of Harbour Fair to commit on the delivery date was wholly unacceptable. In another fax dated 11 November 2000, Long Art stated that the export licence would expire on 16 November 2000, and thus all the garments must depart Hong Kong by 13 November 2000.
(7)	A meeting on 13 November 2000 was held. According to Charles, whose evidence I accept, Monica and Ah Yiu told Ada Fung and him that only about 2,000 pieces could be delivered, whereupon they replied Long Art would have to cancel the order if they only manage to deliver the garments later than 14 November 2000.
(8)	By a letter dated 13 November 2000 which was sent in the afternoon of that day, Messrs Ko & Co., solicitors engaged by Long Art, gave Harbour Fair a deadline at 5 p.m. on 14 November 2000 for delivery of the balance of the garments, failing which Long Art would accept the repudiatory breach and would no longer take delivery.
(9)	In view of the numerous demands made in the previous weeks, this notice cannot be taken in isolation as a 24-hour notice.
(10)	Even this letter from Messrs Ko & Co. was not responded to except that on or about 14 November 2000, 1,974 pieces of garments were delivered. Monica said it was only until June 2002 that she discovered this letter. This is totally incredible and I reject her evidence.
(11)	Furthermore, insofar as it is still Harbour Fair's case, based on the evidence of Monica, that the balance of the garments were all completed and ready for delivery on 12 November 2000, it is difficult to see how Harbour Fair can argue it was not given reasonable notice when Long Art insisted on delivery by 14 November 2000.

82. I turn now to Mr Hung's alternative argument, namely, that by taking delivery of only 1,974 pieces and insisting on the delivery of the balance after the deadline of 5:00 p.m. on 14 November 2000, Long Art had affirmed the Contract. For the reasons below, I do not think this argument can assist Harbour Fair.

(1)	According to Charles, after 14 November 2000, Long Art did not take nor demand any further delivery and had left everything to the lawyers.
(2)	By a fax dated 13 November 2000 to Harbour Fair, Ada Fung of Long Art reminded Habour Fair to submit an invoice for the 494 pieces delivered on 4 November 2000 and said "in the mean time we are still waiting you (sic) delivery of balance goods" and "urgently need your reply." However, I cannot find anything inconsistent between what Ada Fung said in this fax and the demand made in the letter of Messrs Ko & Co.
(3)	As regards the date when Long Art took delivery of the 1,974 pieces, it is true that in the Statement of Claim, Long Art pleaded that the 1,974 pieces were delivered on 15 November 2000. Further, the cheque, the invoices and the forwarder's debit note for the 1,974 pieces were all dated 15 November 2000. Thus, prima facie there is support to Mr Hung's contention that Long Art accepted delivery of the 1,974 pieces after the deadline imposed in the solicitors' letter, namely, 5:00 p.m. on 14 November 2000.
(4)	In his oral evidence, Charles had repeatedly said the 1,974 pieces were delivered on 14 November 2000 and he recalled the cheque was given to Harbour Fair on 14 November 2000. Further, it is noteworthy that at one stage it was put to Charles in cross-examination that it was on 14 November 2000 that Charles brought the Wai Lung invoices (both dated 15 November 2000) to Monica for her to sign. Hence the exact date of delivery is by no means clearly established on the evidence.
(5)	More importantly, however, even if the 1,974 pieces were indeed delivered only on 15 November 2000 after the deadline, I do not think by taking delivery thereof, Long Art had unequivocally affirmed the Contract despite Harbour Fair's repudiatory breach. For at the meeting on 13 November 2000 Long Art had already agreed to take delivery of the 1,974 pieces and to pay for them by a cheque for immediate payment as opposed to a 30-day post-dated cheque. It was the failure on Harbour Fair's part to deliver the balance beyond the 1,974 pieces which constituted the repudiatory breach of the Contract.
(6)	According to Monica, on or about 18 November 2000 there were conversations between her and Ada Fung who continued to demand delivery but still refusing to issue the 30-day post-dated cheque. This is denied by Charles and is difficult to believe. Monica's evidence in this regard is confusing and inconsistent with what she stated in the witness statement.

83. By reference to APC's letter to Long Art dated 14 November 2000 but faxed in on 15 November 2000, Mr Hung submitted that it was upon APC asking Long Art to "forget about shipment by sea of the 3,560 pieces" that Long Art decided not to press for delivery. Had APC accepted the shipment by sea of the 3,560 pieces, Long Art would have continued with the Contract. Mr Hung further suggested the reason why Long Art only took delivery of 1,974 pieces and not "the rest" (which Harbour Fair alleged were also available) was because APC had in its letter indicated they would only take the 1,974 pieces by air and not the 3,560 pieces by sea.

84. This important allegation was raised for the first time only in Mr Hung's closing submissions. It was not pleaded or put to the witnesses of Long Art in cross-examination. It is not fair or proper that the court is now invited to make a finding on this issue without the benefit of any explanation from Long Art's witnesses which I think should have been elicited if the allegation had been raised.

85. However, even assuming all relevant evidence were before me, I am unable to accept Mr Hung's submission. In the letter of APC dated 15 November 2000, what APC told Long Art about the balance of the lot (i.e. apart from the 1,974 pieces) was not that they were no longer needed. Instead, APC said the balance could not be sent by sea but "must come by air to arrive" New York on 16 November 2000. Furthermore, if indeed "the rest" (i.e. other than 1,974 pieces) were available for delivery on 14 November 2000, it is inconceivable that Long Art would not have taken them and sent as many of them as possible by air together with the 1,974 pieces.

86. In these circumstances, Long Art's claim for damages for late delivery of the 2,468 pieces and for non-delivery of the 6,046 pieces is not in any way undermined.

Implied term contended by Long Art

87. Long Art alleged that it was an implied term of the Contract that Harbour Fair as manufacturer and seller was to provide Long Art as buyer with duly completed application forms for the purpose of obtaining valid export licences from the Trade and Industry Department in order to export the garments from Hong Kong.

88. As explained above, in the context of the OPA, the stipulation that Harbour Fair was responsible for the Hong Kong Certificate of Origin was intended to mean that Harbour Fair had to provide the PNs which was a prerequisite for Long Art to obtain the necessary export licence. I do not think Long Art needs to rely on an implied term to establish that obligation; it was in my view already expressly stated in the e-mails, albeit in an abbreviated form.

Implied terms contended by Harbour Fair

89. In the Re-Amended Defence and Counterclaim, Harbour Fair raised a number of implied terms. Mr Hung did not pursue those implied terms which specified fixed number of days in relation to the time for delivery. He further expressly abandoned any reliance on "trade practices" on which Harbour Fair had called no evidence. Hence any implication of terms was on the basis of business efficacy.

90. The alleged implied terms were these:

(1)	Long Art shall supply in good time before the shipment date the fabrics, materials, accessories free from defect and/or of good quality as well as production details including the particulars of cutting, sewing, packing and production sheets;
(2)	the raw materials to be supplied by Long Art shall be in good quality for manufacturing;
(3)	Long Art and/or their agents or servants shall not do any acts or allow any omissions to prevent Hung Kiu and/or Harbour Fair from discharging the obligations on the part of Hung Kiu under the Contract;
(4)	Long Art and/or their agents or servants shall cooperate with Hung Kiu and/or Harbour Fair so as to enable them to discharge the obligations on the part of Hung Kiu or Harbour Fair under the Contract;
(5)	Long Art would pay the overall price for OPA processes as well as the principal processes to Wai Lung so that Wai Lung would in turn pay Hung Kiu their price.

91. Before implying any term, in particular terms relating to time, it is trite law that the following conditions need be satisfied: (1) It must be reasonable and equitable; (2) It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that it goes without saying; (4) it must be capable of clear expression; and (5) It must not contradict any express terms of the contract. (see B P Refinery (Westernport) Pty Ltd v President, Councilors and Ratepayers of Shire of Hastings [1978] AJLR 20, at 26, cited with approval by the CFA in Kensland Realty Ltd v Whale View Investment Ltd and Another (2001) 4 HKCFAR 381 at 392).

92. Words like "in good time" and "of good quality" are admittedly ambiguous. However, if they mean "in reasonable time" and "of reasonable quality", I am satisfied that terms (1) and (2) can be implied.

93. However, implied terms (3) and (4) were couched in such loose language and capable of giving rise to such varied meanings that I do not believe the strict necessity test can be satisfied. In North Sea Energy Holdings NV v PTT [1997] 2 Lloyd's Rep 418, Thomas J said at p. 430:

"Although the Court will often readily imply a term that the parties should co-operate to ensure performance of their bargain, it is clear that such a term must satisfy the test for implication and that implication is not inevitable. ... what is made clear in all the cases is that a duty to co-operate will only arise if a term can be implied to that effect. Thus the issue is whether the implied term for which MSH contend satisfies the legal test of strict necessity. In doing so, it is useful to apply the "officious bystander: or the "business efficacy" tests as an aid in this task (see Society of Lloyd's v Clementson [1995] LRLR 307, at p. 330). I must also have in mind the consideration that the law can enforce co-operation only in a limited degree and to the extent that is necessary to make the contract workable: see Mona Oil Equipment and Supply Co. Ltd v Rhodesia Railways Ltd (1949) 83 Ll L Rep 178 at 187)."

94. As to implied term (5), I have no hesitation in rejecting it as an implied term as the involvement of Wai Lung was not envisaged at all at the time when the Contract was entered into.

Breach of contract by Long Art

95. Harbour Fair alleged that Long Art was itself in breach of the implied terms of the Contract and delayed the manufacturing process in the following ways:

(1) by delivering defective fabrics;

(2) by delivering Care Labels late;

(3) by defective studding work;

(4) by defective embroidery work;

(5) by delivering various other accessories, repacking instructions, etc late.

Defective fabrics

96. Based on the contemporaneous correspondence (in particular, the e-mail from Raymond dated 30 August 2000), the fabrics problem was not a serious one and Harbour Fair was content to resolve it by adding a surcharge of only HK$8,000.00. Further, even with the fabrics problem, Raymond believed the delivery date need only be postponed to 8 October 2000.

97. There is no evidence to show that Raymond was wrong in his assessment and the fabrics problem turned out to be far more serious. In fact, as mentioned, Wu had initialed the letter dated 28 September 2000 which referred to the extended date of delivery of all garments at 10 October 2000.

98. There was no complaint whatsoever about the fabrics problem made by Harbour Fair or Hung Kiu by e-mail or letter at all. Instead, Harbour Fair was content to send a debit note of HK$8,000.00 on 28 September 2000 as "charge for our worker separate cutting piece" and nothing more. In the various progress reports produced, there was no mention of defective fabrics or that defective fabrics had caused suspension or delay of work.

99. In the light of such documentary evidence, I have no hesitation in accepting the evidence of Long Art's witnesses that the fabrics problem was settled by the payment of HK$8,000.00 and that it only led to an extension of the delivery date to early October 2000. I accept their evidence that the slubs problems only affected a small percentage of the fabrics delivered and could be repaired by workers.

100. Monica's suggestion that the fabrics delivered by Long Art were all sub-standard is plainly inconsistent with the contemporaneous documents and Harbour Fair's very conduct at the material time. It also demonstrates the length she was prepared to go in tailoring her evidence to suit the defence argument.

101. Monica also attempted to make a story out of the 200 additional yards of fabrics delivered by Long Art. I accept Joe's evidence that these additional fabrics were delivered out of caution in case some of the defective fabrics could not be remedied manually. I also accept Mr Wong's submission that the fact that only 200 yards were delivered for this purpose goes to show the problem could not have been a serious one.

102. Notwithstanding these breaches, Harbour Fair still alleged they managed to complete and deliver the balance of the garments between 5 and 12 November 2000.

103. For these reasons, I reject the defence suggestion that the late delivery of the 2,468 pieces and the non-delivery of the balance was caused by the fabrics problem discovered in early August 2000.

Care Labels

104. It is significant to note that it has never been pleaded or mentioned in Monica's witness statement that Long Art's delay in delivering care labels had resulted in Harbour Fair's failure to deliver the garments on schedule. This argument cropped up for the first time when Monica gave evidence in chief.

105. According to Monica, the late delivery of care labels had held up the production and although it was possible to sew the care labels onto the main labels at a later time, it was inefficient to do so to the detriment of the workers' earnings.

106. I have examined the shirts and jackets exhibited at this trial, although it might not be the most convenient way to do it, I am not convinced that the care labels could not have been sewn onto the main labels at a subsequent stage of the manufacturing process. I further accept Joe's evidence that he had told Ah Yiu of Harbour Fair that the care labels could be subsequently sewn onto the main label.

107. There is no dispute that the care labels were all delivered on or about 22 September 2000 albeit later than planned. Even if the care labels were indeed delivered late and caused some delay in the production, this could be remedied within a short time.

Studding Work

108. Monica accepted that only about 600 pieces of garments required studding work and thus delay in the completion of studding work should not hold up the production of the bulk of the garments.

109. The contractor for studding work was one Shenzhen Mao Ling Embroidery Fashion House ("Mao Ling"). According to Mao Ling's records, only about 200 pieces were outstanding as at 3 October 2000, and only 70 pieces were outstanding as at 11 October 2000.

110. Sometimes studding work was found to be defective and garments were sent back to Mao Ling for re-studding. There were records between Mao Ling and Hung Kiu showing that as at late October and early November there were still some garments requiring re-studding work. However, the number involved was at the most 131 pieces. Such a small number of shortfall could not possibly contribute to the late delivery of the 2,468 pieces and the non-delivery of the 6,046 pieces.

Embroidery Work

111. As to embroidery work, the documentary evidence shows and Monica accepted that the majority of the embroidered garments had been delivered on 8 September 2000 and that the last delivery (of just 68 pieces) were delivered on 14 October 2000.

112. Further, the majority of the embroidery work would be done on the component parts, and work on other parts could proceed simultaneously. Hence any delay on embroidery work need not result in any suspension of work.

113. Thus, I do not think any delay in the completion of the embroidery work could have materially contributed to the late delivery of the 2,468 pieces and the non-delivery of the 6,046 pieces.

114. It is worth repeating that had any defective studding or embroidery work been the cause of the delay, it is inconceivable that there would have been no correspondence between Harbour Fair, Hung Kiu and Long Art covering the same. Further, it is Monica's assertion that, despite the alleged delay in the completion of the studding and embroidery work, all the garments required by the Contract were delivered to Hong Kong by 12 November 2000.

Accessories and re-packing instructions, etc

115. Mr Hung in his closing submissions said by 30 September 2000 Long Art was still revising the packing instructions and there were still accessories being delivered well into October 2000.

116. However, it is not disputed the bulk of accessories had in fact been delivered by the end of September 2000. Those delivered in October 2000 were confined to two items (shank buttons and pocket lining) and were of very small quantities. There is no evidence showing that the late delivery of 2,468 pieces and the non-delivery of the remaining were caused by the late delivery of these small quantities of accessories.

117. The effect of any instruction to re-pack the garments had been exaggerated. I cannot see how re-packing could have held up the delivery in any significant way. The instructions to re-pack in November 2000 apparently was part of the expedient measure of delivery by instalments necessitated by Harbour Fair's delay. I cannot see how Harbour Fair could have used it as a ground of complaint against Long Art. In any event, according to Charles, the re-packing work would take just one to two days.

118. There was never any complaint by Harbour Fair that the production or delivery was held up by reason of the late delivery of accessories or instructions to re-pack garments. Monica's evidence about difficulty in packaging was exaggerated and unreliable. Her allegation that there were still accessories being delivered on as late as 24 November 2000 was absolutely empty and subsequently withdrawn.

Quantum

119. For the reasons given above, Long Art has made out it case and none of the defences raised by Harbour Fair avails. In the premises, the Counterclaim is dismissed. I now turn to the quantum of Long Art's claim.

120. Of Long Art's three heads of claim, the air freight charges are clearly documented and beyond dispute. HK$28,093.30 was in respect of the 494 pieces and HK$109,137.70 in respect of the 1,974 pieces.

121. As to the cost of materials, Mr Hung said Long Art has not produced any evidence that the suppliers of the fabrics and accessories were actually paid. I do not think Long Art has to produce such evidence in order to succeed. First, there is no reason for me to doubt that any of such materials had not been paid. Second, even if any of these materials had not been paid, the liability to pay them would be sufficient to buttress Long Art's claim in this regard.

122. As to the claim for US$72,552.00 as a penalty imposed by APC for Long Art's inability to deliver the garments in accordance with the order, the sum of US$72,552.00 was calculated on the basis that the APC order was for full sets of garments, i.e. matching shirts/jackets and trousers, less the quantity delivered. The deduction of this sum was borne out in the inter-company reconciliation accounts and a payment advice dated 2 January 2001.

123. From the correspondence, Harbour Fair was clearly aware they were manufacturing only parts of the APC order, and Long Art had engaged other manufacturers to produce the matching trousers.

124. Mr Hung cast doubt on this claim by arguing that Long Art's shareholders were somehow related to the APC and by attacking the documentation. However, for Mr Hung to succeed in this argument, he would have to prove a conspiracy between APC and Long Art to fabricate the claim, which he had expressly refrained from so doing. In my view, none of the allegations raised by Mr Hung in this regard can affect the recovery of this sum.

125. Lastly, in his closing submission, Mr Wong made a concession that if judgment was entered in favour of Long Art, it was prepared to give credit for the sum of HK$22,735.00 in respect of the 494 pieces of garments which were delivered and unpaid.

Conclusion

126. Accordingly, judgment is entered in favour of Long Art as follows:

(1)	HK$740,231.37, comprising HK$137,231.00 air freight charges and HK$625,735.37 cost of materials, less the sum of HK$22,735.00 which Long Art agreed to deduct;
(2)	US$72,552.00 being the penalty payment charged by APC; and
(3)	Interests on the two sums at the rate of 1% above prime from the date of writ to the date of this judgment and at judgment rate thereafter until payment.

127. The Counterclaim is dismissed. I make a cost order nisi that Harbour Fair pays Long Art's costs of the action to be taxed if not agreed.

128. Last but not least, it only remains for me to thank counsel for their assistance.