WING TAT HABERDASHERY CO LTD v. ELEGANCE DEVELOPMENT & INDUSTRIAL CO. LTD

HCMP 357/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 357 OF 2011

(ON AN INTENDED APPEAL FROM DCCJ NO. 775 OF 2007)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Fok JA (giving the reasons of the Court):

Introduction

1.  On 16 November 2010, Her Honour Judge H.C. Wong gave judgment on the plaintiff’s claim and defendant’s counterclaim in this action.  The net result of her judgment was that the defendant should pay the plaintiff the sum of HK$78,193.02 with interest.  The Judge made a costs order nisi that the defendant pay the plaintiff’s costs of the claim and the plaintiff pay 50% of the costs of the defendant’s counterclaim.

2.  The defendant applied for leave to appeal and to vary the costs order.  The Judge dismissed these applications on 22 February 2011.

3.  The defendant now applies to this court by summons dated 8 March 2011 for leave to appeal against the judgment below, including the costs order.

4.  At the conclusion of the hearing, we granted leave to appeal, indicating that we would hand down our reasons for doing so at a later stage.  These are our reasons.

The relevant test for leave

5.  Pursuant to section 63A of the District Court Ordinance (Cap. 336), introduced as part of the Civil Justice Reform, leave to appeal shall not be granted unless this court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice that the appeal should be heard.

6.  The test of whether an appeal has a reasonable prospect of success under the new statutory provision is the same test as applied before the amendment to Cap. 336, namely whether the applicant for leave can show that he has an arguable case with reasonable chances of success on appeal (see per Leong JA in Ma Bik Yung v Ko Chuen [2009] 3 HKC 359 at §5).  We agree with the view expressed by Her Honour Judge Marlene Ng in Commissioner of Inland Revenue v Nam Tai Trading Co Ltd [2009] 3 HKC 421 at §10 that the new section 63A of Cap. 336 merely codifies the pre-existing threshold test of a realistic or reasonable prospect of success as applied in cases such as Ma Bik Yung.  A reasonable prospect of success therefore means an appeal with prospects that are more than “fanciful” but which do not need to be shown to be “probable”.

7.  This test corresponds with the relevant leave test in section 14AA(4) of the High Court Ordinance (Cap. 4) for the grant of leave from a decision of the Court of First Instance to this court in interlocutory matters: see SMSE v KL [2009] 4 HKLRD 125 at §17.

The Judgment below

8.  The plaintiff’s claim was for the price of certain colour dyed tapes sold and delivered by it to the defendant.  The defence was that a portion of the colour dyed tapes did not conform to sample.

9.  The Judge rejected the defendant’s argument that it was a contractual term that the colour dyed tapes must pass two particular light tests, namely the cool white fluorescent test and the A light test (Issue (b)).  However, the Judge held that there were colour variances in three of the five colour dyed tapes delivered by the plaintiff to the defendant.  Despite the absence of a loss adjuster’s or survey report, she inferred from the fact that the plaintiff agreed to re-dye the colour dyed tapes of the three colours in which colour variances profound that there were defects in those colour dyed tapes (Issue (a)).

10.  The Judge found that the majority of 83.9% of the tapes could be used and were used in the garments manufactured by the defendant’s customer.  The white and Alamance khaki colour dyed tapes were fully accepted by the defendant’s customer and only some 16.1% of the total, in three colours, had to be replaced.  She found that the plaintiff was persuaded to re-dye the colour dyed tapes to meet the requirements of the defendant’s customer.  However, she also found that the defendant was warned and knew that there would be problems with the re-dyed tapes from colour bleeding and unevenness but that the defendant accepted the re-dyed tapes and sent them to its customer for garment manufacturing.  The judge found that the defendant had not taken any remedial or precautionary steps, upon discovering the defect in the colour dyed tapes, before supplying them to its customer (Issue (c)).

11.  The Judge found the plaintiff and defendant to be equally responsible for the consequences of the supply of the defective colour dyed tapes to the defendant’s customer.  She calculated the plaintiff’s loss and damage on the basis that 83.9% of the tapes were accepted by the defendant so that the defendant should be liable for that proportion of the plaintiff’s claim, namely 83.9% of HK$338,477.74, i.e. HK$283,982.82.  So far as the defendant’s counterclaim was concerned, she held that that claim in the sum of HK$411,579 should be borne by the plaintiff and the defendant equally “because [the defendant] should have detected defects in the bulk goods at an early stage before delivery to [its customer] to avoid further loss” (Issue (d)).

12.  The Judge’s conclusion was that, setting off 50% of the defendant’s counterclaim against the plaintiff’s claim (i.e. HK$205,789.80), the plaintiff was entitled to judgment in the sum of HK$78,193.02.

Do the proposed grounds of appeal satisfy the test for leave?

13.  The defendant’s summons annexes a draft notice of appeal setting out the proposed grounds of appeal.

14.  The order which the defendant seeks by the proposed appeal to substitute for that of the Judge is:

“… AN ORDER that, except the Plaintiff is entitled to its claim against the Defendant, the said Judgment of HH Judge H.C. Wong be set aside and that:-

1. Judgment be entered for the Defendant on the Counterclaim at the sum of HK$411,579.60 or alternatively, at HK$393,711.60 by deducting the labour costs for sewing the dyed tapes to the cotton belt (HK$12,036.00) and the costs for replacing the cotton tapes (HK$5,832.00);

2. Upon setting off of the Plaintiff’s claim adjudged at HK$283,982.82, the Defendant is entitled to a judgment sum of HK$127,596.78 or HK$109,728.78;

3. The Plaintiff do pay the Defendant interest of the said judgment sum;

4. The Plaintiff do pay the Defendant’s costs of this appeal and below, to be taxed if not agreed.”

15.  The thrust of the defendant’s argument on the proposed appeal is that the Judge erred in reducing its counterclaim by 50% on the footing of equal responsibility for the consequences of the re-dyeing exercise.  Even assuming the costs of remedying the consequences of the re-dyeing exercise were to be discounted (whether in whole or in part), the greater part of the counterclaim consisted of the cost of buying replacement colour dyed tapes for the defective tapes supplied by the plaintiff: see §13 of the Re-Amended Defence and Counterclaim (Bundle A, p. 13).

16.  In reducing the defendant’s counterclaim in the manner she did, the Judge prayed in aid a passage from Benjamin’s Sale of Goods [(7^th/8^th Ed.)] at paras. 17-059 to 17-060 which was in these terms:

“The buyer’s actual knowledge of the defect. Where the seller delivers goods which fail to meet the contractual description or standard, the buyer may not immediately discover the defect or the failure of the goods to satisfy the description. As soon as the buyer knows of the defect, he will be unable to recover damages for any further or consequential loss which he ought reasonably to have avoided by taking remedial or precautionary steps. The buyer is not justified in continuing to rely on the seller’s warranty after he knows that the goods are defective in that respect. In Lambert v Lewis, where a buyer bought a trailer coupling, the House of Lords held that the warranty that it was reasonably fit for towing trailers would continue in effect for a reasonable time after delivery, so long as it remained in the same apparent state as that in which it was delivered (apart from normal wear and tear). But as soon as the buyer learned that the handle of the locking mechanism of the coupling was missing, he could no longer rely on the seller’s warranty to excuse him from making his own examination to see if it was still safe to use.

The decision of the House of Lords in Lambert v Lewis, in para. 17-059 above, was based on the buyer’s actual knowledge that part of the locking mechanism of the coupling was missing: this knowledge put him on enquiry so that he should have conducted his own examination of the coupling to see if it was still safe to use it. The decision was thus based partly on the buyer’s actual knowledge, and partly on his imputed knowledge. Although their Lordships did not expressly consider the situation where the buyer ought, as a reasonable person, to have discovered that part of the mechanism was missing (and thus been put on enquiry), it is submitted that the fact that a reasonable buyer would have been put on enquiry should be sufficient to prevent the seller’s contractual liability for loss subsequently arising which could have been reasonably avoided by such a reasonable buyer.”

17.  In our view, the defendant has an arguable case with a reasonable chance of success on appeal that the Judge was wrong to apply the duty to take precautionary steps to reduce the totality of the defendant’s counterclaim, which as we have said above was principally for the cost of replacing the defective colour dyed tapes, by 50%.

18.  In light of our conclusion, it is not necessary or appropriate to say any more at this stage as to the prospects of the proposed appeal.

19.  For these reasons, we granted leave to the defendant to appeal against the Judgment.  The costs of this application will be in the cause of the appeal.