XCHRX CELTON LTD. v. GLORY-ROY INTERNATIONAL LTD. t/a J & W TRADING CO.

HCA 21854/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 21854 OF 1998

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REASONS FOR DECISION

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1. This is an appeal by the Plaintiff against the order of Master Ho setting aside the default judgment and granting leave to the Defendant to defend the action.

2. The Plaintiff purchased a total of 6,350 pieces of jackets of assorted colours from the Defendant which jackets were delivered in July 1998. The jackets were paid for by the Plaintiff by Letters of Credit.

3. It is the Plaintiff's case that of the 3,194 pieces of white jackets delivered to the Plaintiff, 1,335 of them were defective. They were returned to the Plaintiff's customer who subsequently sold them at 100 French Francs per piece below cost thus suffering a loss of 133,500 French Francs. The Plaintiff reimbursed the customer such loss and hence the claim against the Defendant for the sum of $182,659.90, the equivalent of the 133,500 French Francs.

4. The alleged defects in the jackets were two-fold, namely (1) the lining was made of polyamide instead of polyester, contrary to the composition label on the goods and (2) the lining of the white jackets was defective and severe staining from the navy lining onto white shell were observed.

5. Default judgment was allowed to be entered against the Defendant due to inadvertency on the part of the Defendant's solicitor who only filed the Notice of Intention to defend one day after the filing of the application for judgment in default by the Plaintiff.

6. For the purpose of the present appeal, counsel agree that the only issue is whether the Defendant has shown an arguable defence to the Plaintiff's claim.

7. On the allegation that the lining was made of polyamide instead of polyester, I noted in the order confirmations, there was no specification as to the material for the linings of the jackets. They only stated that the linings of the goods should be made of rib-stop.

8. The Defendant's contention, of course, is that the parties had in fact agreed that the linings could be made either of polyamide or polyester. I agree that the labels on the jackets specified that the lining was made of polyester when it was actually made of polyamide. But I am doubtful if such discrepancies rendered the jacket defective or not of merchantable quality. I am particularly doubtful if the discrepancy in the label caused the alleged loss. There was no complaint in respect of what must be similar defects in the other jackets supplied by the Defendant. The initial complaint was confined to the presence of dirty marks or stains arising out contact between the white fabrics and the colour linings.

9. I am not of the view that the wrong label as alleged by the Plaintiff is of any significance insofar as the dispute between the parties is concerned.

10. As for the presence of the colour stain, the Plaintiff relied on the reports, some by a French company and some by the SGS Hong Kong Ltd. The French company examined several white jackets and found what was described as a red or pinkish stain and concluded that the stain come from the blue lining in which the dye is not stabilised. The suggestion was that the lining had slightly lost its colour, probably because of exposure to humidity. The report did not specify at what level of humidity this cross stain would occur and it is therefore not possible to detect from such report as to whether this cross stain would occur in normal circumstances.

11. The contracts between the Plaintiff and the Defendant did not make any provision with regard to the level of humidity that the jackets must not be exposed to. There is no allegation in the Statement of Claim that there should be an implied term on the colour fastness standard that need to be adhered to. It may be considered fanciful but the defect could be the result of mishandling in the course of storage or shipment. They could be the result of factors not within the contemplation of the parties.

12. As for the test carried out by SGS Hong Kong Ltd., I have in the course of counsel's argument pointed out that I have some difficulty in properly understanding the nature of the tests carried out by SGS Hong Kong Ltd. As counsel for the Defendant also pointed out in his written skeleton argument that only three samples had been examined and the source of those three samples was not readily known. I am also of the view that one of the tests is highly questionable when the jackets were washed in 60℃ or 120℃ water which is contrary to the washing instructions.

13. There is also no valid foundation on the calculation of the damages allegedly suffered by the Plaintiff.

14. Even if the Defendant were found to be in breach of the contracts by supplying the defective goods or goods of not merchantable quantity, the Plaintiff, of course, is entitled either to reject or to accept the goods and then claim for damages. If the Plaintiff accepted the defective goods, the damages would be the difference between the contract price and the market price of the defective goods plus the margin of profit and perhaps other ancillary expenses.

15. But in the Statement of Claim the only allegation made by the Plaintiff is that its customer had to sell the jacket at 100 Francs per piece below its cost price. Was that the selling price, a reasonable price, or a market price? They had not been so pleaded. If the Plaintiff's customer chose to sell them at 200 Francs per piece below its cost price, is the Defendant liable for twice the amount as claimed? The answer perhaps is obvious. What is in fact the cost price that was being referred to? Is that the cost price to the Plaintiff or is it the cost price to the Plaintiff's customer although the latter one is more likely?

16. At this stage of the proceeding, I need only to consider whether the Defendant has an arguable defence either on the question of liability or damages. Having heard counsel for the Plaintiff and for the Defendant, I am not persuaded that the Defendant should be shut off on either the issues of liability and quantum of damages. Indeed, there are clearly various issues that need to be dealt with and the proper forum for dealing with those issues will be at the trial.

17. There is no proper basis upon which I can interfere with the discretion exercised by Master Ho in granting leave to the Defendant to defend this action. That being the case, the appeal against his decision must be dismissed and I so order.