VASTCO TEXTILES LTD v. SUPER GLORY CORPORATION LTD

HCA 1678/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1678 OF 2009

____________

BETWEEN

____________

_______________

J U D G M E N T

_______________

This case

1.  This is a dispute between two Hong Kong companies in the garment trade. Unsurprisingly, it is about money.

2.  The plaintiff, ‘Vastco’, was engaged in what has been referred to as the ‘downstream’ textiles basis, whereby fabric for the manufacture of garments was supplied to garment manufacturers.

3.  The defendant, ‘Super Glory’, was on the other side of the commercial equation, engaged in the ‘upstream’ garment business, placing orders with garment manufacturers which used the plaintiff’s fabric in such manufacture, and thereafter selling the finished product to overseas wholesalers.

4.  Vastco claims for payment of garments and fabric samples it says were delivered to the defendant, ‘Super Glory’, or to its agent, the invoices for which remaining unpaid.   The claim is mounted under four distinct heads, the cumulative value of which is in the sum of HK$271,997.96 plus RMB760,039.30, together with interest and costs.

5.  The objective observer might wonder why a claim of this relatively modest dimension should justify the expenditure of seven days in the High Court.  

6.  Perhaps part of the answer lies in the obvious deterioration of the hitherto close working relations between these two companies, which relations had existed since 2003, consequent upon a report made by the defendant in 2008 to the Hong Kong CCB alleging, inter alia, wrongdoing on the part of the plaintiff’s Managing Director, Mr Andre Wong, and some of the defendant’s departing employees, in connection with the activity of a newly-incorporated garment company named ‘Official Trade Fashion Ltd’ which, it is said, was set up with the aim of diverting business away from the defendant.

7.  Be that as it may.  This court is not concerned with these allegations (and expresses no view thereon) but solely with the analytical merit, or otherwise, of the case as now advanced against the defendant, Super Glory by the plaintiff, Vastco. 

8.  To the details of this case I now turn.

The constituent elements of the plaintiff’s claim

9.  The plaintiff’s claim has been broken down in this trial in the following manner:

(i)  the ‘Sample’ Invoices, numbered V108-3683-3714, dated between 21January – 25 January 2008 in the total sum of HK$101,122.00 ;

(ii)  the ‘Team Creative’ invoice, numbered V107-3453, dated 13 June 2007 in the sum of HK$20,915.00;

(iii)  the ‘Siu Cheung’ invoice, numbered V108-3734, dated 25 February 2008, in the sum of RMB142,46325;

(iv)  the ‘Li Dong’ invoices, numbered  V107-3526 to VSHO7/1448, dated between 1-21 November 2007, in the total balance of RMB760,039.30.

10.  In support of its claim, the plaintiff called three witnesses to give viva voce evidence: Andre Wong Kwok Tung, a director of the plaintiff since May 2000, and a man who has been actively involved in the plaintiff’s business;  Kim Tang Yu Fung, who worked as a merchandizer with the plaintiff during the events the subject of the claim, but who no longer is in the plaintiff’s employ; and Tommy Chui Hon Sing, previously a General Manager of the defendant and an erstwhile director, whose relationship with the defendant, in his words, “turned sour” in or around mid-2007.

11.  Ranged against this body of evidence, the defendant relied on the viva voce evidence of four witnesses: Allen Chan Wing Loong, an Executive Director of Super Glory, Christina Chan Suk Chun, Director of Finance and Administration of the defendant, Mindy Wong Yeuk Wai, a Team Manager of the defendant, and Joe Fung Chun To, Production Manager of the defendant.

The individual heads of claim

(1) The ‘Sample’ invoices

12.  The plaintiff’s case in relation to this claim could hardly be more straightforward:  it says that orders for fabric samples were given from Super Glory to Vastco, that these samples indeed were delivered to Super Glory, followed by invoices therefor, and that Super Glory now declines to pay.

13.  Mr D’souza, counsel for the plaintiff, points out that the contemporaneous documents, namely the relevant Packing Lists, all bear on their face the company chop of Super Glory, as acknowledgment of receipt.  He also notes an email trail between Andre Wong and Allen Chan wherein reference is made to these sample charges.

14.  For the defendant, Mr To was, I think, in difficulty with this head of claim, pointing to a letter from the defendant to the plaintiff dated 3 March 2008 wherein the defendant indicated that it had lost a number of samples which were related to those delivered under the sample orders.  Counsel also made it clear during this trial that his client “would not press” this element of the case, and effectively wished to put the plaintiff to proof.

15.  This entire matter, and lack of agreement upon what is no more than an incidental minor issue, appears to stem from bad feeling that has arisen between the plaintiff and the defendant, in the respective persons of Mr Wong and Mr Chan, arising from the emergence of the new (and competing) company named ‘Official Trade’, and with it the departure of two of the defendant’s employees to work with this new entity, of which Mr Wong is also a director; the defendant’s thesis is that these samples were taken by the defecting employees for their own use, and in fact the plaintiff’s letter of 3 March 2008  refers to a report having  been made to the police by the defendant arising from what was viewed as a case of theft.

16.  I decline to become caught up in a skein of accusation and counter-accusation.  Absent a finding of collusion between the plaintiff and the defecting employees – which I am in no position to make on the evidence, and have no view thereon – this head of claim seems to me to be practically undefendable. 

17.  There is no doubt but that the sample fabrics were delivered consequent upon orders from Super Glory employees who clearly had authority, actual or ostensible, so to order, these samples appeared to have been made into sample garments (as Allen Lau accepted in evidence) which thereafter were ‘lost’, and the defendant clearly had asserted ownership thereover – the letter dated 3 March 2008 asserts that “these sample fabrics are [sic] belong to us”. Accordingly the fact that the defendant has not been able to find them and suspects their pilferage by ex-employees seems to me to be nothing to the point when it comes – as it now does – to a claim by the plaintiff against the defendant for the value of goods sold and delivered, in this instance the fabric samples.  It is difficult to see how Super Glory can run the mutually exclusive argument that, on the one hand, it does not accept that it received the sample fabrics, and on the other, that the sample garments made from such fabrics were lost.

18.  Accordingly, I find that on the probabilities the plaintiff has proved its claim in this regard, and thus that the defendant must pay to the plaintiff the claimed amount – the quantum of which is not in dispute – in the sum of HK$101,122.00.

19.  I so order.

(2) The ‘Team Creative’ invoice

20.  I confess to surprise that it has been felt necessary to cross swords on this head of claim, given that the amount is a mere HK$20,915.00.  It strikes me that the cumulative costs of developing and arguing this item of the plaintiff’s claim far outweigh the amount in dispute.

21.  In any event, the origin of this claim lies in the assertion by Mr Andre Wong that Allen Chan orally had promised to pay this specific sum at a meeting at Super Glory’s office in or around April 2007.  It is said that this sum represented the cumulative difference between the price of quoted fabric and the fabric as in fact delivered with reference to an order for garments to be purchased from Super Glory by the end buyer, one Mavi. 

22.  Super Glory had appointed Team Creative as its nominated manufacturer for this particular order, and Team Creative in turn was to purchase the fabric from Vastco; however, the initial on-sale quote to Mavi from Super Glory had quoted the incorrect fabric, the correct fabric had been more expensive, and thus Vastco, which had supplied the correct (and more expensive) fabric to Team Creative, apparently in the belief that Super Glory would pay the price difference, was out of pocket by the sum claimed – which sum, Mr Wong asserted, Mr Chan had promised to make good at the April 2007 meeting.

23.  On 23 April 2007 Kim Tang of the plaintiff had written an email to inform Super Glory that Vastco would bill Super Glory for the price difference, and on 13 June 2007 Vastco issued an invoice for this sum, which Super Glory has declined to pay.

24.  The defendant’s response to this case was that there was a meeting sometime in April 2007, but only between the Mavi representative, Mr Hartley, Andre Wong and Mindy Wong, that Mr Chan had not been present, that Mr Wong had asked Mindy to redress the price difference but that she had not agreed, that it had been Mr Wong who had made an error in the original order and that the relevant fabric had increased in price by HK$2.50 per yard, and that in any event Vastco should be claiming against Team Creative, and not Super Glory.

25.  This is not a matter requiring extensive analysis.  Whatever the intrinsic merits, this specific claim – and the plaintiff’s case which was pursued and put at trial in terms of Andre Wong’s assertion that “Allen Chan brought this voluntarily on himself” – is that payment of this sum was promised by Mr Chan at the meeting in question, and unless the court is satisfied, on a balance of probabilities, that Mr Chan indeed made this promise, then (assuming for present purposes the existence of consideration supporting the promise), the plaintiff does not get home.

26.  Having seen and heard the witnesses, I have decided this on the basis that the plaintiff has not discharged its burden of proving the promise to pay allegedly made to Mr Wong by Mr Chan at this meeting; nor, for that matter (if such be required) do I find that any such promise/undertaking was made by Mr Chan’s assistant Mindy Wong.

27.  In this regard I accept the evidence of Allen Chan that we was not at this particular meeting, and that of  Mindy Wong (who was at the meeting) to the effect that the request indeed was made by Mr Wong, but that she did not accede thereto.

28.  As to the self-serving emails relied on by the plaintiff, and the relevant invoice sent to the defendant, these are inconclusive in my view, and I am driven to evaluate the viva voce evidence on the point – in which regard I have concluded that Mr Wong’s recollection is in error, although I am sure that he wished, and indeed had requested, that the defendant would be responsible for the price differential in terms of this particular Mavi order. However, as indicated, on the balance of probability the plaintiff has not been successful in establishing that the defendant took this obligation upon itself, either through Mr Chan or through Miss Wong.

29.  It follows that this item of claim is dismissed.  I so order.

(3) The ‘Siu Cheung’ invoice

30.  Once again this head of claim involves a nominated manufacturer of Super Glory, in this instance a factory named Siu Cheung Textile Co Ltd.

31.  The plaintiff’s case is that Super Glory had instructed Siu Cheung to produce garments for its client, Mavi, and had instructed Siu Cheung to purchase the fabrics for these garments from Vastco; in due course Vastco had received a Purchase Order from Siu Cheung.

32.  The plaintiff alleges that the fabric was delivered to a Chinese factory, Sui Yip – which I am told was a subcontractor of Siu Cheung – upon the instructions of Super Glory, which had agreed to pay for the fabric; accordingly Vastco had so delivered.

33.  However, upon Vastco sending an invoice for the fabric to Super Glory, the latter declined to pay.

34.  The defendant has a different version of events. 

35.  It says that Vastco delayed on the anticipated delivery of the fabric to Siu Cheung, which as a result could not make the garments by the production deadline, and in turn had subcontracted the job to Sui Yip – hence the instructed fabric delivery to Sui Yip.  Nevertheless, Super Glory asserts that this change did not alter the contractual position, which was two-fold: on the one hand a contract between the plaintiff and Siu Cheung for the fabric, and on the other between Siu Cheung and the defendant for the garments as made.

36.  These garments were shipped by Siu Cheung direct to the defendant’s buyer, Mavi, and Super Glory had made full payment to Siu Cheung for these manufactured garments.  In these circumstances, therefore, the defendant argued, it was to Siu Cheung to which the plaintiff should look for payment for the fabric as supplied, and that the defendant had no obligation, in effect, to pay the twice for the fabric.

37.  In this connection the available documents clearly underpin the case that the defendant had made full payment to Sui Cheung for the garments as made/shipped – the relevant invoice, payment voucher and receipts are produced – and in so far as may be necessary, I find as a fact first, that such payment has been made, and second, that the fabric used in such garments was the fabric delivered to Sui Yip for which the plaintiff says it remains unpaid.

38.  Who, therefore, of the plaintiff and the defendant is to suffer the loss, given that the plaintiff has not been paid and the defendant has paid already, albeit in terms of payment for the manufactured garments?

39.  After reflecting on the evidence, including the relevant email trail, it seems to me that, at bottom, the plaintiff is unable to make out a case – which seems to have been the case ultimately propounded – that there was an oral agreement/arrangement/understanding between the plaintiff and the defendant that it would be responsible to Vastco for the price of the fabric. 

40.  I have borne in mind that the evidence of Kim Tang asserted an oral agreement between himself and Mandy Wong, and that in his viva voce evidence Mr Andre Wong told the court that the agreement was written and in the form of emails, but I am unable to agree with this contention.

41.  As to the email sent by Kim Tang to Mindy Wong, I accept Miss Wong’s evidence that the email had been sent to her because it had been she who had ‘chased’ for delivery of the fabric (which was to be used to make up the defendant’s goods), and that she had asked for a packing list to confirm such delivery. Subsequently the plaintiff had told the defendant that the plaintiff had not received payment for the fabric from Siu Cheung, and therefore that she had helped chase Siu Cheung on behalf of the plaintiff.  What then had happened, she said, was that the particular type of garment had been manufactured by Sui Yip, delivery had been made by Siu Cheung to the defendant’s client, Mavi, and that the defendant had paid Siu Cheung in full, a payment which was on an FOB basis and was inclusive of the fabric as had been supplied by the plaintiff and of sewing costs and transportation.

42.  In relation to the invoice, I also accept Miss Wong’s assertion that she had been surprised to receive it, and that she had told Kim Tang that the invoice should not have been sent to the plaintiff, although she had not objected to trying to give the plaintiff a ‘helping hand’ in chasing Siu Cheung for the money owed by Siu Cheung to the plaintiff for the fabric.  However, Siu Cheung had responded that the invoice sent by the plaintiff to Siu Cheung had contained a different invoice number from the one which had been sent to the defendant, and it seems that the relevant sum now remains unpaid.

43.  Whilst this does not greatly matter in light of my primary finding, I also tend to the view that on the probabilities it had been the defendant/Siu Cheung which had been chasing the plaintiff for late delivery of the fabric ultimately used to make up these garments: Mindy Wong was firm on this, and I believed her. 

44.  The only matter which has given me pause for thought was that the plaintiff in fact had delivered the fabric to Sui Yip absent what I am told is the normal 30% deposit payable on delivery, but at the end of the day I do not consider this fact sufficient to constitute an implied representation that the defendant had agreed to be responsible for payment, nor on the evidence do I find any express representation to have occurred on behalf of Super Glory; thus there is insufficient to alter the conclusion at which I have arrived, bearing in mind all the surrounding circumstances.

45.  At the end of the day, therefore, it is difficult not to be driven to the view that in terms of the ‘Siu Cheung invoice’, the reality is that the plaintiff should have pursued Siu Cheung for the non-payment: Super Glory was not privy to any contract with the plaintiff regarding the Siu Cheung fabric purchase, and the defendant had entered into a separate, albeit corresponding, FOB contract with Siu Cheung.

46.  It strikes me that it would be commercial nonsense, and certainly against the balance of probability, had Super Glory agreed or accepted liability for the Siu Cheung debt – in my experience commercial entities generally are averse to paying twice for the same goods, and it is not disputed that Super Glory had paid Siu Cheung in full for the manufacture of the garments which had utilized the plaintiff’s fabric.

47.  Accordingly, I reject this element of the plaintiff’s claim also.

(4) The ‘Li Dong’ invoices

48.  This is the principal battleground of this case, since the claim thereunder is by far the largest of the four invoices in dispute, the amount claimed being RMB760,039.30.

49.  In this regard a great deal of peripheral evidence (including factory floor plans) has been led in connection with this claim, which necessarily involves the proposition that the mainland factory, Li Dong, was at all times relevant to the invoices the subject of this claim acting qua agent of Super Glory: absent getting home on this fundamental proposition, this element of the case cannot succeed.

50.  Once again the factual matrix involves delivery of fabric, albeit without deposit, by Vastco to the garment manufacturer, Li Dong, which was manufacturing to the defendant’s order, and with Super Glory in turn exporting these garments, as made up, to its overseas buyer pursuant to a separate sale and purchase contract.

51.  The defendant firmly denies that any actual authority was conferred by it – or should be regarded in law as having been so conferred – on Li Dong to contract on its behalf, and asserts that the fabric orders formally were placed with Vastco by Li Dong (which clearly is the case on the evidence).

52.  There is no doubt whatever but that Super Glory and Li Dong work closely together in China, and that Li Dong is one of the defendant’s nominated manufacturers – that much is obvious on the evidence, and cannot be gainsaid. Nor can it be gainsaid that the defendant’s China office and the premises of Li Dong are in close physical proximity in the same building complex, although in itself these matters are unexceptional.

53.  The hard analytical facts remain, however, that in addition to working closely with Li Dong in the manufacture of garments, Super Glory nevertheless maintained its own independent China office, that Li Dong worked for other garment exporters in addition to Super Glory, and that Li Dong and Super Glory are separate and independent corporate entities: there is no common director or shareholder, an aspect of this case to which I attribute considerable significance.

54.  Against this evidential backdrop, it seems to me that the plaintiff faces considerable difficulty in persuading any commercial court that in this instance Li Dong was at all times acting as the defendant’s agent – whether on an express, apparent or implied basis – for these orders, rather than qua independent contractor in its own right, and on the evidence before me I am unable to accept the agency proposition.

55.  There is no evidence of any appointment by the defendant of Li Dong as the defendant’s mainland agent, nor am I able to glean from the evidence anything to support the assertion that Li Dong had apparent or implied authority.  If and in so far as this is said to arise from the evidence of Mr Andre Wong, I am unable to accept it, whilst the evidence of Tommy Chui, Super Glory’s erstwhile employee before the establishment of ‘Official Trade’ as the defendant’s competitor, if anything (and perhaps unintentionally) served to emphasise the proposition that Li Dong and Super Glory in fact were separate entities, that Super Glory had no ownership interest in Li Dong whatsoever, and that the defendant’s China office was separate and distinct from Li Dong.

56.  These aspects apart, I viewed Mr Chui’s evidence with a degree of circumspection – it is clear that he had left the defendant to work with ‘Official Trade’, the new company competing with the defendant whose establishment apparently has been the origin of the bad feeling now existing between the Andre Wong of Vastco and Allen Chan of Super Glory – and in so far as Mr Chui’s evidence otherwise is prayed in aid to support any conclusion of agency on the part of  Li Dong I decline to accept it.

57.  Nor did I think that Andre Wong’s evidence on this point, such as it was, supported any conclusion of an agency/authority the law would be willing to imply; his recollection of an ‘opening ceremony’ (which actually was for Li Dong in 2006) was imprecise and inconclusive, and further I am unable to accept his assertion that Allen Chan represented to him that Li Dong was Super Glory’s agent, although I am prepared to believe that reference frequently was made between the two men to the close working relationship between the defendant and Li Dong.

58.  One piece of evidence that I did particularly consider in this context was the signing by a member of the defendant’s staff of a Purchase Order issued by Li Dong.  However I do not think this gets the defendant home on the authority issue, given the evidence, which I accept, that employees of the defendant were sent to assist Li Dong with the technical aspects when Li Dong was processing Super Glory’s orders, even though Li Dong had its own factory head and production manager.  In this regard the evidence of Mr Joe Fung, which struck me as credible, was that he would only monitor production of orders destined for the defendant, and that for his presence in the Li Dong factory he had access to a desk which was for the use of the defendant’s staff.  It seems to me that evidence of this nature, together with evidence of Super Glory staff on occasion using Li Dong’s email address, tends to reinforce the primary contention that there was very close co-operation between Li Dong and Super Glory, but does not serve to get the defendant over the hurdle of establishing the necessary agency status.

59.  The allegation by the plaintiff that the defendant would settle bills owed by Li Dong to Vastco is perhaps the strongest part of the case in this context, but once again I do not think that it establishes the plaintiff’s case in light of the evidence of Allen Chan and Christina Chan, which I accept, that it never had agreed to pay for all outstanding debts owed by Li Dong to the plaintiff but only had paid in this manner after Li Dong specifically had authorized the defendant to make such payments on its behalf, with the result that Super Glory thus was able to set-off such payments as from trade debts otherwise owed by Li Dong to Super Glory; there was documentary evidence to this effect, and evidence also that when the plaintiff had received payment from the defendant regarding Li Dong’s outstanding to the plaintiff, it would acknowledge receipt with receipts made out to Li Dong and not to the defendant.  For my part I find nothing extraordinary about this sequence of events – it is clear that entities dealing regularly each with the other frequently employ a ‘running account’ system between the two.

60.  I should also make reference to the so-called “killer” email, which Mr D’souza relied upon so heavily in this case, that is, the composite email dated 27 February 2008 from Christina Chan to Andre Wong, wherein Miss Chan interposes answers in an Andre Wong email and resends, and wherein she states: “Miss Lai (China office) will arrange payment asap”, followed by a subsequent email dated 29 February 2008 from Miss Chan to Andre Wong, which reads: “Pl note that our China office do the payment RMB 150,000 today, the balance of the paymnet [sic] will settle by next week” – the end result being, says the plaintiff, the outstanding amount now claimed for the Li Dong invoices.

61.  Miss Christina Chan was heavily cross-examined about these emails, and her evidence, which I am inclined to, and do, accept, about the content of these emails, was that the first email meant that the defendant’s staff in China were to chase Li Dong for the outstanding payment, and the second email was that Li Dong had given her the message that the remainder of the payment would be settled the following week, and that the defendant would only be in the position to effect payment after Li Dong had authorized the defendant to do that; the necessity for the existence of prior authorization to the defendant to make payment, said Miss Chan, was well known to Kim Tang, given the then close working relationship between Vastco, Li Dong and Super Glory – in fact, she said, Mr Tang had visited the defendant’s office almost every day.

62.  This aspect of the case is not susceptible to further elaboration, although it took up a great deal of time at trial.  If I may say so, it is not clear why the plaintiff did not at least move to join Li Dong to the case as, for example, a ‘necessary or proper party’ under Order 11, rule 1(1)(c), which would have provided a procedural safety net if, as now is the case, the court has seen fit to reject the agency argument; the plaintiff’s contract was with Li Dong, and whilst undoubtedly the defendant, as purchaser and on-seller of the garments as made, liaised closely with Li Dong, qua manufacturer, I am afraid that this does not constitute privity of contract. 

63.  Mr D’souza did his best to craft a case out of what was essentially circumstantial evidence in a lengthy skeleton argument containing no less than nine suggested indiciae tending to demonstrate agency; at the end of the day, however, after reflecting on his arguments,  I am unable to agree with his contention that, after piecing  the diverse strands together, there was “overwhelming evidence” that Super Glory represented or permitted Li Dong to act as its agent and thus should be liable to pay Vastco the balance of RMB760,039.30.  At bottom, in light of my findings and the view I formed of the evidence, I considered that there was simply insufficient hard evidence available to him to make out the agency claim upon which his client so fundamentally relied.

64.  Accordingly, for the foregoing reasons the ‘Li Dong’ invoices claim is dismissed also. 

Overrall Result

65.  Whilst I retain a degree of sympathy for the plaintiff, in that the plaintiff clearly felt that in the circumstances the defendant should have been ‘on the hook’ for these various sums, the hard point is that in a commercial court money an order for money is not forthcoming unless the plaintiff is able to demonstrate the ‘analytical case’ – and in this particular instance, in my judgment it did not have that case in terms of three of the claims as propounded.

66.  The end result is that out of the four separate heads of claim the plaintiff has succeeded upon only one, for the ‘Sample invoices’, upon which claim the defendant effectively did no more than put the plaintiff to proof.

Order

67.  Accordingly I make the following order:

         Judgment be entered for the plaintiff against the defendant in the sum of  HK$101,122.00.

         Interest will accrue on such sum at the rate of 1% over Hong Kong prime rate from time to time prevailing from the date of the writ to the date of judgment herein.

68.  As to costs, counsel have told me that there are factors in play which are likely to impact upon any costs order nisi this court otherwise would venture.

69.  In the circumstances, therefore, the court requires the parties to file and exchange brief written submissions as to costs within 14 days after the date of the judgment herein; no reply submissions are necessary, and the court will make an order for costs after considering these written submissions.