SANNIES GARMENT WORKS LTD v. MAST INDUSTRIES (FAR EAST) LTD

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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The Proceedings

1. The plaintiff commenced an action against the defendant on 27 January 1996 claiming the sum of US$80,757.48, interest and costs. The action was based on a contract of sale of garments evidenced by a production order numbered 17045312. The plaintiff obtained summary judgment on this claim on 10 June 1996. The defendant appealed, but the appeal was withdrawn on the basis of a stay of execution of the judgment until determination of a counterclaim by the defendant.

2. I have some doubt whether this summary judgment was properly obtained. In an affirmation in support of the application by the plaintiff, Ms Daphne Ho, who also gave evidence before me, said that the defendant was purporting to withhold payment on the ground that the amount due under production order 17045312 would be set off against what was due to the defendant by the plaintiff under another production order 17045293. That was a half-truth. What Ms Ho omitted to say was that the plaintiff, through an employee Ben, had, in fact, agreed, in essence, that payment under production order 17045312 would be held back until settlement of the matter under production order 17045293. In evidence before me, Ms Ho confirmed that this agreement had been made. She said that it had been made without her knowledge, that she saw it as unreasonable, that she did not know why Ben agreed to it and that she decided not to honour it. She also said that Ben was not authorised to make this agreement. A document written by the defendant setting out this agreement is attached to Ms Ho's affirmation, but it not described properly. In these circumstances, I do not know how Ms Ho felt able to say in her affirmation that the defendant had no defence; not that there was no defence accepted by her, but that there was no defence at all. The defendant did have a defence, and Ms Ho knew this. On the other hand, it has to be said that the defendant's defence, which was dated 18 March 1996, did not raise this point. It essentially put the plaintiff to proof. I do not understand why it did not make the point it now makes. Mr Vaughan suggested that perhaps this judgment should be set aside. I do not think I can do this. There is no application before me to this end, and the defendant is partly to blame for failing to raise the defence and filing evidence in support of it.

3. The defendant has made a counterclaim and there are voluminous pleadings relating to this counterclaim and a counterclaim on the counterclaim. After winnowing the wheat from the chaff, and hearing the evidence, it has become clear that the issues in this case are more straightforward than the pleadings would suggest. At the same time, the trial of this matter has been made more difficult by lack of proper preparation and investigation. I hasten to say that this is probably not the fault of counsel. The matter was on the running list. I completed another 3 day trial before lunch on the first day, so the parties must have had less than 24 hours notice of the trial commencing.

4. There are two claims by the defendant under the counterclaim based on two separate contracts. One is under production order 17044746 and the other is under production order 17045293.

Production Order 17044746

5. Under production order 17044746, the defendant rejected the goods supplied by the plaintiff. Ms Ho eventually admitted that the plaintiff accepted this rejection. The parties are now agreed on this. They are also in agreement that a new substituted agreement was entered into. What is in dispute here is the terms of that agreement.

6. The defendant alleges that what was agreed was that the defendant would try to sell the garments on the Plaintiff's behalf, but this attempt failed. The plaintiff then asked for the cost of shipping the garments back to Hong Kong. This information was supplied to the plaintiff. The plaintiff then asked for the garments to be shipped back. The defendant wants to be paid the cost of this, but it also wants to be paid all of its loss on the basis that the plaintiff was obliged to indemnify it as principal to agent.

7. The plaintiff's case is that the terms of this new agreement were, according to Ms Ho, that Monica Ng of the defendant "orally assured me that sale price ... would be about US$7.50 per piece and that the new price ... to be paid by the defendant would be calculated on that basis .... I therefore accepted her proposal and decided to sell ... to the defendant at US$7.50 per piece pursuant to the ... agreement."

8. It is convenient to deal with the plaintiff's version first.

9. Quite apart from the other unsatisfactory features of Ms Ho's evidence with which I will deal later, the words used by Ms Ho are very odd for describing her understanding of the terms of a firm agreement. Ms Ho does not say that Ms Ng agreed to a price of US$7.50. She says Ms Ng "assured" her that the price "would be about US$7.50". This is not the language of agreement. It is the language consistent with the documents issued by the defendant indicating that it would, on the plaintiff's behalf attempt to sell the garments.

10. The plaintiff's version of this agreement as pleaded is somewhat different. There the plaintiff says Ms Ng "orally assured Ho that the sale price ... to the defendant's other buyers would be about US$7.50." (My emphasis.) This is not consistent with an agreement that the defendant would purchase at this price, but is consistent with the plaintiff's version. This theme is repeated when the plaintiff pleads that "the defendant has failed to sell ... to its buyers at a price of US$7.50 per piece."

11. The evidence is that revised production orders were issued by the defendant when agreements were amended. Ms Ho says that she did not ask for one to reflect the new agreement in this case because she trusted Ms Ng. In fact, she says she did receive a revised production order on 28 November 1996, only a few days after she says that Ms Ng agreed to purchase the goods at US$7.50 per piece. This revised order indicated that the order in respect of garments that she says the defendant agreed to buy for US$7.50 per piece had been cancelled. When she received this revised order she says she did ask Ms Ng for a revised order to reflect the agreement to purchase at US$7.50 per piece, but Ms Ng did not give her one. When asked why she had not mentioned this before, in her statement or in her evidence, she said she had "forgot it".

12. After this, Ms Ho says, Ms Ng told her that the defendant could not sell at the price of US$7.50, and could only pay a price of US$5.50. Ms Ho did not accept this, but she made no protest in writing as one would expect. On Ms Ho's version, she had a firm deal with the defendant, not that the defendant would sell at US$7.50, but would buy at that price, and the defendant was reneging on that. Ms Ho should have been indignant enough to make a vigorous objection in writing.

13. Ms Ho says, in January 1996, Ms Ng could pay only US$3 per piece since prices fell sharply after Christmas.

14. Ms Ho admits receiving a message dated 22 January 1996 from the defendant in which the plaintiff is told that the bid for the garments was US$3 per piece and asked if the plaintiff wanted the defendant to proceed. In spite of now not trusting Ms Ng, Ms Ho did not protest about this in writing, pointing out that the defendant had agreed to pay US$7.50 per piece. In fact, there are no contemporaneous documents at all that support Ms Ho's version that the defendant agreed to pay US$7.50 per piece.

15. Ms Ho did not agree to accepting US$3 per piece. Ms Ho asked the defendant to return the goods. The defendant asked for storage fees "which had never been mentioned before the shipment". The goods were returned in February 1996. It is on this basis that the plaintiff makes the counterclaim on counterclaim of the difference between US$7.50 per piece and the present value. Again, Ms Ho did nothing about protesting about this high-handed treatment in writing as one would have expected.

16. There is also Ms Ho's inability to explain why it is that, if the plaintiff thought that it had a genuine and valid claim on the basis of the agreement that the defendant would purchase the garments at US$7.50 each, the plaintiff did not include this claim in its writ and statement of claim.

17. As for the defendant's version, the defendant did not call Monica Ng to give evidence. I do not know why. Perhaps she was not available at the short notice available. Without any direct evidence to the contrary from Ms Ng, it should not have been difficult for the plaintiff to establish its version of the new agreement. But I find that it has failed to do so because the evidence of Ms Ho is not credible for the reasons I have given. Ms Ho was a most unimpressive witness. I find I cannot rely on what she says.

18. On the other hand, the fact that the plaintiff is unable to establish its case does not mean that thereby the defendant has established its version of the agreement. The defendant could have done this by calling Ms Ng. It has not done so, but the defendant did serve a notice under section 47 of the Evidence Ordinance (Cap. 8) and Order 38, rule 22(2) of the Rules relating to certain documents. There was no counter-notice. The effect of this is that statements in these documents are "admissible as evidence of any fact stated [in the documents] of which direct evidence oral evidence by [the maker] would be admissible.".

19. Amongst the documents produced that comply with the Rules there are-

20. I should explain that the phrase "sell off" is a description of an agreement under which the defendant agrees to attempt to sell rejected garments on behalf of the plaintiff.

21. It seems to me that direct oral evidence from Ms Ng and Ms Tang of the facts stated in these documents, especially in the absence of any document or acceptable evidence from the plaintiff contesting those facts, would have established the defendant's case, and that, by reason of section 47 of Chapter 8, those facts are established by the uncontested documents.

22. The amount claimed by the defendant in this respect is-

23. The claim is less than that established by the evidence. I cannot grant more than is claimed.

24. Accordingly, I give judgment in favour of the defendant against the plaintiff in the sum of US$9,061.60. It follows from what I have said already that I find that the plaintiff has not established its claim for the difference between US$7.50 and the present value, and this claim is dismissed.

Production Order 17045293

25. As was the case under production order 17044746, the dispute here is concerned with an agreement entered into by the parties subsequent to the original agreement. The parties are concur that the original agreement was superseded by this subsequent agreement.

26. The defendant's claim under production order 17045293 is based on an agreement by the plaintiff dated 5 December 1995 that it would reimburse the defendant for all storage costs and other loss incurred resulting from late delivery of the garments concerned. By fax dated 11 January 1996, the defendant informed the plaintiff that the eventual customer had refused to accept the goods, and asked the plaintiff whether the goods should be returned to it or sold in the US. The defendant recites the agreement under which it paid the price under this production order and withheld payment under order 17045312.

27. The agreement of 5 December 1995 signed by Ms Ho for the plaintiff says-

28. This letter is probably a standard form designed for the situation when it appears to the parties that a future "x-factory" date would not be met. Indeed, Ms Ho says it was "a pro-forma letter". In this case, the "x-factory date" of 30 November 1995 had already been missed so the terms of the letter were not entirely appropriate. Nevertheless, the intent of the parties was clear; that, if the "ultimate customer" decided to cancel the order, the plaintiff would reimburse the defendant for all its loss. But it must be implied into the agreement that the reason for the cancellation by the customer was the delay. Clearly, if the customer decided to cancel the order for some other reason, this was not within the contemplation of the parties as a basis on which the plaintiff would be liable.

29. The garments were delivered by the plaintiff on 6 December 1995. On 10 January 1996, the defendant made payment to the plaintiff, but this was on the basis that payment in respect of another order would be withheld. It was not until 11 January 1996, the defendant informed the plaintiff that the ultimate customer had decided not to take the garments. This rejection by the ultimate customer was conveyed to the defendant's office in the US. The plaintiff failed to give instructions for the disposal of the goods so the defendant sold the goods. The best price obtainable was US$4.25 per piece.

30. The evidence of the plaintiff on this matter was again from Ms Ho. Again her evidence was not satisfactory. She wriggled somewhat, but conceded that the agreement of 5 December 1995 governed the rights of the parties.

31. But again the unsatisfactory nature of the plaintiff's case cannot supply the evidence that the defendant needs to establish its case.

32. The evidence from the defendant admissible under the Evidence Ordinance (Cap. 8), not contested by counter-notice and not contradicted by any document or acceptable evidence from the plaintiff, is-

33. This evidence, in my judgment, is the only acceptable evidence on what happened. If Ms Ng had given this evidence orally, it would have established that the cancellation by the customer was due to the delay. Consequently, the documents establish the same facts. And I find that the cancellation by the customer and the defendant was not unduly delayed. One would expect that the plaintiff and defendant, in entering into their agreement, would have contemplated that there would be some delay to enable the market to be tested. That was why the garments were shipped to the ultimate customer rather than simply asking the customer if it would accept the goods.

34. Accordingly, I find the plaintiff liable on this claim.

35. The defendant's particulars of damages under this head is-

36. The plaintiff does not specifically plead a denial to these particulars but there is a general traverse.

37. There is no evidence of the price on the sub-sale or the storage fees. There is evidence of bids for the garments and that the bid of US$4.25 accepted by the defendant was the best of these. The evidence does establish that the plaintiff well knew that the garments were ordered for sub-sale to the defendant's customer. It was within the contemplation of the parties that, if the defendant was unable to complete the sub-sale by reason of the plaintiff's delay in delivery, the defendant would suffer a loss of profit. But the defendant has not attempted to establish the amount of this loss of profit. Accordingly, the damages proved by the defendant are the price of US$62,786.67 paid to the plaintiff, less US$20,893.60 obtained on sale, giving an amount of US$41,893.07. There will be judgment for the defendant against the plaintiff in this sum of US$41,893.07.

Set-off

38. The plaintiff has judgment against the defendant in the sum of US$80,757.48, interest and costs. The defendant now has judgment against the plaintiff in the sums of US$9,061.60 and US$41,893.07. Set-off will operate and the defendant must pay the balance due after taking into account costs and interest.

The Costs

39. There seems to me to be no obvious reason why costs should not follow the event. I make an order nisi that the plaintiff pay the costs of the counterclaim and the counterclaim on the counterclaim.