CHEUNG CHUN HOI AND OTHERS v. SELLWAY TRADING LTD

DCCJ 1049/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1049 OF 2005

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JUDGMENT

1.  In 2003, Sellway, the Defendant, supplied fabrics and materials to Wah Sun, the Plaintiff, for the manufacture of garments and garment samples.  Wah Sun now claims for, among other things, the fees and disbursements of manufacturing.  Sellway alleges late delivery and quality problems.  It claims by way of counterclaim damages for loss and damage which, if proved, will extinguish Wah Sun’s claim.

2.  Less than 2 weeks before the trial, Sellway ceased to be legally represented.  It was actually absent from the trial.  Sellway must have had notice of the trial through its then solicitors.  I have no reason to suspect otherwise.  I allowed Wah Sun to proceed.

3.  Of the 2 witnesses for Wah Sun, Wah Sun called only Cherry Cheung, its merchandiser who personally dealt with Sellway in these transactions.

THE CLAIM

4.  In about the end of October to early November 2003, Keith Ma of Sellway contacted Wah Sun and negotiation between the two parties began.  The manufacturing arrangement was understood to be as follows:

(1)  The order was expected to consist of 19 styles of garments to be manufactured.

(2)  Sellway would supply to Wah Sun the fabrics, materials and accessories required for the manufacturing.

(3)  For each style, Sellway would deliver the fabrics and materials with specified designs to Wah Sun’s factory in the Mainland.  Wah Sun would examine the quality and condition of the fabrics and materials.  Any defects and colour differences would be reported for the necessary replacements.

(4)  Wah Sun would produce a sample of each style in accordance with the specific designs for Sellway’s approval.

(5)  Upon approval of the sample, Wah Sun would commence cutting the fabrics into cut-pieces according to Sellway’s designs.  The cut-pieces would then be sewn and manufactured into garments.

(6)  For those cut-pieces that required further processing such as beaded trimming and embroidery before sewing, some would be processed by Wah Sun’s factory while some by another factory designated by Sellway.  In the latter case, Wah Sun would have to send the cut-pieces to such factory.  After such processing, the processed cut-pieces would be sent back to Wah Sun’s factory for manufacturing into garments.

(7)  1 to 2 weeks prior to completion of manufacturing, Wah Sun would inform Sellway.  Upon receipt of Sellway’s information and documents for the shipment, Wah Sun would arrange the delivery of the finished garments to the designated port for shipment.

(8)  After the shipment, Wah Sun would issue invoices for the cost and disbursements of manufacturing the garments for Sellway’s settlement.

(9)  The finished garments were expected to be delivered in 2 batches by 10 January and 10 February 2004 respectively.

5.  Towards the end of December 2003, Sellway confirmed the orders.  Sellway sent 2 purchase orders, Contracts Nos. STL-398 and STL-399, dated 22 December 2003 to Wah Sun for 18 styles of the garments (out of the 19 discussed).  The contract price was US$41,286.46.

6.  In early 2004, Sellway placed an additional order for the manufacturing of 62 pieces of another style of the garments at the unit cost of US$18.57.

7.  By mid-February 2004, Wah Sun delivered the finished garments to Sellway.  The following invoices were issued:

8.  The styles covered by the purchase orders in question were Spring items.  In November 2003, Ma of Sellway placed an additional order for garment samples of various styles for the summer of 2004.  These were made and delivered to Sellway in March and April 2004.

9.  In February 2004, Ma of Sellway requested Wah Sun to purchase some accessories on its behalf because Sellway’s factory did not manage to supply them.  Wah Sun did and sent the same to Sellway’s designated factory in Shenzhen.

10.  For the additional order for garment samples and the disbursements for purchasing materials mentioned above, Wah Sun issued following invoices:

11.  Cheung of Wah Sun gave evidence to the above effect.  The same is supported by the contemporaneous documents and correspondence.  I accept her evidence.  It follows that the amount Wah Sun claims is proved.  Wah Sun is prima facie entitled to judgment in the sums of US$40,621.86 and HK$12,410.60.

THE DEFENCE AND COUNTERCLAIM

12.  The alleged breach on the part of Wah Sun is a matter of Sellway’s counterclaim and is therefore its burden of proof.  Though Sellway is absent and therefore the witness statements filed on its behalf must be disregarded, I was not minded to dismiss such claim without considering the documentary evidence and what Wah Sun had to say that.

Delivery dates

13.  Wah Sun does not dispute that the purchase orders did specify the delivery dates of 10 January and 10 February 2004.  But Cheung explained that these dates were understood to be preliminary.  I take that to mean that they were target dates.

14.  According to her, the actual delivery dates were known to depend on numerous variables in the manufacturing process.  Many of these variables would be beyond her company’s control.  This explains why her company neither signed the purchase orders to confirm the specified delivery dates nor was concerned to request Sellway to amend the dates to any other specific dates.

15.  The issue here is whether there was actual agreement between the parties on the delivery dates which were indeed not confirmed by Wah Sun in writing as requested.  In the circumstances, there should be no concern about whether verbal evidence is admissible in this regard as this is not sought to contradict a confirmed written term.

16.  Cheung added that in any event, the parties had conducted themselves in accordance with the arrangement as mentioned above.  Cheung’s evidence suggested that a number of important variables in the manufacturing process, which were beyond Wah Sun’s control, had caused the postponement of the delivery dates.

Delay

17.  To begin with, Sellway had failed to deliver the fabrics and materials and accessories as per their suggested schedule.  Sellway had also delayed in approving the pre-production samples.  In her statement (at para.13), she listed out the dates when Wah Sun received the materials and accessories and the approval of the pre-production samples for each styles of the garments under these purchase orders.  Cheung also explained (at paras.14-16 of her statement) the discrepancies between the scheduled and the actual delivery dates of the materials and accessories that Sellway had to supply.  Some of the pre-production samples were approved in January 2004 with the last approval on the 13^th of the month.  In court, she explained that manufacturing normally requires about 35 days.

18.  It was stated in the purchase orders that production was to commence only upon Sellway’s approval of the pre-production samples.  Judging from the dates, one would not find it difficult to infer that shipment by the delivery dates as specified in the purchase orders would be unrealistic.  In fact, the correspondence between the parties evidence that the targeted shipment dates had been extended time and time again by agreement.

19.  The other variable in the manufacturing process beyond Wah Sun’s control was the processing of the cut-pieces by Sellway’s designated factory.  The fact was that most of the styles of the garment under the purchase orders involved bead trimming and embroidery.  But the factory designated by Sellway, according to Cheung, was late in returning the processed cut-pieces to Wah Sun and thus holding up its manufacturing.  Moreover, some of the cut-pieces returned were either damaged or unduly processed by that factory.  She particularised such problems in her statement (at para.18).  Some problematic processed cut-pieces had to be returned to that factory for re-processing.

20.  There were shortfalls in the quantities of the finished garments delivered which, according to Cheung, were due to damage to the cut-pieces and shortfall in the processed cut-pieces returned by that factory to Wah Sun.  The correspondence evidence that Wah Sun’s mainland factory had informed Sellway of the same.  Sellway had also failed to account for some finished garments that it had taken away from the bulk that would have been available for the shipments.  She particularised them in her statement too (at para.21).

21.  Other events contributing to the delay, according to Cheung, were Sellway’s delay in providing the correct specifications for various styles and its subsequent variations of the specifications provided.  Examples were the positioning of label and alteration of zipper.  These happened in as late as the end of January and early February 2004.

Quality

22.  Cheung denied that the finished garments had quality problems.  According to her, the garments were delivered and accepted without any complaint.  There was no complaint even when Sellway placed supplemental orders with Wah Sun for various styles of garments in April 2004.

23.  Whilst there had been suggestion by Sellway in the correspondence that its customer was concerned about the delay, Sellway had not really accused Wah Sun or sought to hold it responsible for Sellway’s alleged breach of its agreement with its customer.  Sellway really pointed its accusing finger to Wah Sun for the first time in its solicitors’ letter in reply to the letter of demand from Wah Sun’s solicitors in 2005.

Conclusion

24.  In court, Cheung’s evidence was straightforward and given in a confident manner.  She was able to refer to and to explain the related contemporaneous documents and correspondence, which tally with her evidence.  I accept her evidence.  In the circumstances, it suffices for me to say that the counterclaim should fail.

CONCLUSION AND ORDER

25.  I give judgment for Wah Sun for the sums of US$40,621.86 (or its equivalent amount in Hong Kong dollars) and HK$12,410.60.

26.  This action was commenced in March 2005.  But the proceedings in the action somehow came to a halt on 2 separate occasions, namely, from May 2006 to May 2007 and from June 2007 to June 2008.  When asked, Mr Ng tried to give some explanation which I do not find to be satisfactory.  It is in my view just to exercise my discretion to discount these periods from the calculation of the interest on the judgment sum.  Interest on the above judgment sums should therefore runs at the judgment rate from the date of writ to full payment but excluding these 2 separate periods mentioned above.

27.  The counterclaim is dismissed.

28.  Wah Sun shall have the costs of this action, including any costs reserved.  Costs shall be taxed if not agreed.  I certify the engagement of counsel.