PACIFIC HARVEST TRADING LTD v. REALIFE CO LTD

DCCJ 6418/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.6418 OF 2004

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Date  of Hearing: 3 - 4 August 2006 & 16 August 2006

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JUDGMENT

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Background

1. The Plaintiff is a company carrying on business in providing dyeing services. It operates a factory situate in mainland China.  The Defendant is a seller and exporter of dyed yarns.

2. At the material times, the Defendant placed an order to the Plaintiff for dyeing of 90,643 LBS of cotton yarn.  The cotton yarns were to be sold by the Defendant to one Tien-Hu Knitters Limited (“Tien-Hu”) for manufacturing of garments.  Tien-Hu was a designated manufacturer of a famous U.S. brand “POLO”.

3. The Plaintiff claims against the Defendant for alleged outstanding fees in the amount of HK$495,746.86. 

4. The Defendant alleges that the delivery was late and there was colour-shading problem occurred to the dyed yarns.  As a result, a sum of HK$860,000.00 had been deducted by Tien-Hu from the purchase price.  Besides, the Plaintiff failed to pay for the price of some additional yarns as agreed and had exceeded the allowable wastage in dyeing the yarns.  The Defendant seeks to set off the Plaintiff’s claim by and counterclaim for the damages.  The total amount claimed is HK$991,532.02.

Defendant’s case

5. It is convenient to outline the Defendant’s case first in this judgment in that the burden is on the Defendant to prove its allegations of breach on the part of the Plaintiff.

6. By a facsimile transmission dated 3^rd August 2004 (“the Purchase Order”), the Plaintiff agreed to sell and the Defendant agreed to purchase 90,643 LBS of dyed yarns.  It was stipulated on the Purchase Order that the yarns shall be delivered before 10/09/2004.  At the request of the Plaintiff, the delivery date was first changed to 15/09/2004 and finally to 22/09/2004.  However, as at 22/09/2004, the Plaintiff had only delivered in total 67,429.30 LBS of dyed yarns.

7. It was also stipulated on the Purchase Order that there shall not be any colour-shading problem.  During the course of dyeing, colour-shading problems occurred to the yarns and the Plaintiff had to re-dye a large amount of yarns.  In a letter dated 24^th September 2004, the Plaintiff acknowledged the colour-shading problems for 3 lots of dyed yarns and agreed to be liable for all the costs arising from the problems. 

8. As a result of the late delivery and colour-shading problems, Tien Hu sought to deduct its loss from the purchase price to the Defendant.  After negotiations, Tien Hu agreed to reduce the claim of its loss from HK$926,462.34 to HK$860,000 and such sum had in fact been deducted by Tien-Hu in the end.

9. According to Mr. Wu and Miss Kwok of the Defendant, which was also agreed by Miss Leung of the Plaintiff, they had visited the Plaintiff’s factory in China in July 2004 before they placed the order to the Plaintiff.  It is the Defendant’s case that they had made clear to the Plaintiff that the yarns were for sale to Tien Hu for manufacture of final products supplying to “POLO”.  Parties understood that there was a deadline to meet and the standard of colour approval was high. 

10. Mr. Wu and Miss Kwok gave evidence that the agreed allowable wastage was 7%.  As the final wastage was 3,270.52 LBS in excess of the allowable wastage, the Plaintiff is liable to compensate the loss.  Apart from the above wastage, the Plaintiff ordered additional 2,000 LBS of yarns in 2 equal batches from the Defendant and agreed to pay for HK$30,800.00 each.  The Plaintiff had only paid for the first batch leaving the second batch unpaid.

Plaintiff’s case

11. The Plaintiff’s case is that there was no agreement of a deadline for delivery.  Should there be any delay in delivery the delay was caused by the Defendant’s failure to approve the “barrel samples” within reasonable time. 

12. Further, the Plaintiff was not informed that the yarns were for resale for profits and therefore the damages suffered by the Defendant, if any, were not within the contemplation of the parties.

13. The allowable wastage was 8% instead of 7%.

Discussions

14. I am of the view that the evidence of the Defendant’s witnesses is to be preferred in that it is more accord with commonsense and consistent to contemporaneous documents.

15. The suggestion that it was not within parties’ contemplation that the yarns were for the purpose of resale for profit is untenable.  The yarns are materials for manufacture of garments.  It was known to the Plaintiff that the Defendant was cotton yarns supplier rather than garment supplier.  It was mentioned several times in the Purchase Order about a customer of the Defendant.  Parties started negotiating the subject contract at least since July 2004 and it would be very unlikely that the Defendant would deliberately not mentioning the end buyers to the Plaintiff given the fact that colour samples had to be approved by Tien-Hu and POLO.

16. It would also be contrary to commonsense to suggest that there was no deadline agreed by parties whereas a deadline had to be met by the Defendant to deliver the dyed yarns to Tien-Hu.  As can be seen from the Purchase Order, there were blanks left out for the Plaintiff to fill in the necessary time needed for dyeing and delivering the yarns which had been filled in by the Plaintiff.  This indicates that delivery time had all along been a concern of parties.

17. The letters from the Defendant to the Plaintiff dated 18/09/2004 and 22/09/2004 also proved that delay had been an issue between parties at that time.  Both letters mentioned the extended deadline of 22/09/2004. The letters even stated that the Defendant would hold the Plaintiff liable for air-freight costs incurred as a result of the delay.  The Plaintiff did not dispute the deadline in its reply to those letters.

18. As regards the allowable wastage, the fact that an extra quantity of 6.979% of yarns was sent to the Plaintiff at the outset points to an agreement of 7% allowable wastage. The letter dated 22/09/2004 from the Defendant to the Plaintiff also suggested that the allowable wastage was 7%.

19. When Miss Leung was cross-examined about the allowable wastage, she said in her evidence that there was no agreement on the allowable wastage, which was contrary to her witness statement saying that the agreement was 8%.

20.  In relation to the outstanding purchase price of the additional 1,000 LBS of yarns, a letter dated 04/10/2004 was sent by the Defendant to the Plaintiff acknowledging the Plaintiff’s request to delay payment due to its financial problem.  The Plaintiff received this letter but chose not to reply to it.  Mr. Hon, counsel for the Plaintiff, had fairly conceded that there was insufficient evidence from the Plaintiff to defend the Defendant’s claim on this sum.

21. Apart from the above analysis, Miss Leung did not impress me as a credible witness.  She had not been straight-forward in answering questions and her evidence often contradicted her witness statement and the Plaintiff’s pleaded case.

22. For all inconsistencies between the evidence of the Plaintiff’s witness and the Defendant’s witnesses, I find the Defendant’s version the true version.

23. It is suggested that the delay was caused by the delay of the Defendant in approving the barrel sample.  For this issue I accept the evidence of Mr. Wu that there had not been undue delay on the Defendant’s part and I am satisfied that the delay of delivery was caused solely by the Plaintiff. 

Damages

24. Mr. Hon submitted that the Defendant had not provided sufficient evidence to prove its loss.  With respect, the Defendant had adduced the relevant documents including the freight invoices and correspondences to prove its loss.  The amount claimed by the Defendant (HK$860,000.00) is in fact a discounted sum after bargain with Tien-Hu and I accept the evidence of Mr.Wu that he had tried his best to lower the amount of loss and I am of the view that it is a reasonable sum in the circumstances.

Conclusion

25. In the circumstances, the Plaintiff’s claim be dismissed.  Judgment be entered in favour of the Defendant for the sum of HK$495,785.16 (HK$ 991,532.02 – HK$495,746.86) and interest thereon at judgment rate from the date of writ until payment.

26. I make an order nisi that costs of the original action and counterclaim be to the Defendant to be taxed if not agreed.  This order nisi will become absolute after 14 days from handing down of this judgment.