UNISON KNITWEAR LTD. v. RICH EASY LTD.

HCA 20964/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.20964 OF 1998

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J U D G M E N T

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1. This is an action by the plaintiff for US$78,660.00 being the price of goods sold and delivered to the defendant. The goods are 1,140 dozen of men's 100% cotton knitted pique polo shirt manufactured by the plaintiff in its factory in Bangladesh in the latter part of 1997. The plaintiff is a company incorporated in Bangladesh. The defendant is a company incorporated in Hong Kong.

2. What is in dispute is whether there was an agreement between the parties for the sale and purchase of the goods. Miss Janine Cheung, who appeared on behalf of the defendant, informed the court when she made her closing submission that the defendant has abandoned the other issue pleaded in the defence, which is whether the defendant had entered into any such agreement with the plaintiff on behalf of a disclosed principal, a company incorporated in the United States known as Champion Products Inc. ("Champion").

The plaintiff's case

3. It is the plaintiff's case that an oral agreement ("the oral agreement") was made between Miss Angela Lin on behalf of the defendant and Mr Ho Chi Cheung on behalf of the plaintiff in the plaintiff's factory in Bangladesh in late August 1997. By the oral agreement, the defendant placed an order with the plaintiff to manufacture about 2,000 dozen of the shirts at the price of US$69.00 per dozen f.o.b. Payment was to be made by letter of credit and delivery would be made in early December 1997, subject to the receipt of the letter of credit in favour of the plaintiff and that the delivery date was to be 90 days after receipt of the letter of credit.

The defendant's case

4. The defendant denies that it had any agreement with the plaintiff for the sale and purchase of 2,004 dozen polo shirts.

5. According to the defendant, Champion had appointed a company incorporated in the United States known as Fashion Overseas Bureau Ltd ("FOB") as its purchasing agent. FOB appointed the defendant, which is an associated company, as its agent in Hong Kong. Hence, the defendant was the sub-agent of Champion. In early 1997, Champion placed purchase orders with FOB for a substantial quantity of polo shirts.

6. To fulfill the purchase orders, and according to the defendant's pleading, an agreement was made between the defendant as agent for Champion and Brilliant Chances Bangladesh Ltd ("BC Bangladesh") whereby Champion was to purchase 4,000 dozen of the polo shirts from BC Bangladesh at US$5.75 per piece or US$ 69.00 per dozen. This agreement was alleged to be evidenced by a placement memorandum of the defendant dated 8 August 1997. However, the contracting parties as reflected in the placement memorandum were somewhat different. Although the manufacturer as stated in that document was BC Bangladesh, the document was not signed by anyone on behalf on that company but was signed by someone on behalf of Brilliant Chances (Overseas) Ltd ("BC Overseas"), which is a Hong Kong company. As for the overseas principal or consignee on whose behalf the defendant was acting, what was stated in the placement memorandum was not Champion but an entity known as Statco Champion with an entirely different address. Hence, it was submitted by Miss Cheung that the defendant's case is that the contract for the supply of the goods in question was made between BC Bangladesh, alternatively BC Overseas as vendor and the defendant as agent for Champion, alternatively for Statco Champion.

7. By a fax dated 28 August 1997 from BC Overseas to FOB, the latter was informed that to save time, the letter of credit for the shirts should be opened directly to two factories which were to manufacture the shirts, one of them being the plaintiff. The name, address and contact details of the plaintiff and its bank were given and it was stated that the quantity of the shirts involved was 2,004 dozen. The purchase order numbers of Champion were also given. It was pursuant to this request by BC Overseas that the defendant caused a letter of credit to be opened in favour of the plaintiff on 5 September 1997.

Matters not in dispute

8. The following transactions were evidenced by contemporaneous documents and they are not in dispute.

9. The defendant applied for an irrevocable letter of credit to be opened in the plaintiff's favour and this was issued by Citibank N.A. Hong Kong on 5 September 1997 in the amount of US$138,276.00 in respect of 2,004 dozen shirts. Shipment was to be made from Bangladesh to the United States by sea no later than 10 December 1997 and the letter of credit was valid until 24 December 1997. The notify party was stated to be Champion. Of the documents required to be presented by the plaintiff was an inspection certificate issued by Miss Lin of the defendant. The style number of the shirts was given in the letter of credit as well as the numbers of 12 purchase orders. These were the numbers of the purchase orders placed by Champion with FOB.

10. On 9 September 1997, the plaintiff was notified by its bank in Bangladesh, the Sonali Bank, of the receipt of the letter of credit.

11. On 9 September 1997, a proforma invoice was issued by BC Overseas to the plaintiff for the price of fabrics and accessories in the sum of US$95,189.80. The fabrics and accessories were required by the plaintiff for manufacturing about 2,000 dozen of the shirts. It was stated on this invoice that payment was by letter of credit.

12. On 2 October 1997, a letter of credit was issued by the Sonali Bank on the plaintiff's application in favour of BC Overseas for the price of the fabrics and accessories in the amount of the proforma invoice. It was stated that the materials should be shipped from Hong Kong to Bangladesh not later than 10 October 1997.

13. The letter of credit opened in the plaintiff's favour was amended for the first time on 24 September 1997 to provide that the credit was available for negotiation in any bank of beneficiary's draft drawn at sight on Citibank Hong Kong. It was amended for the second time on 22 December 1997 and the plaintiff was notified by the Sonali Bank of the amendment on 23 December 1997. The amendment was in these respects. The expiry date of the letter of credit was changed from 24 December 1997 to 18 January 1998. The latest shipment date was changed to 28 December 1997. Of the 2,004 dozen (i.e. 24,048 pieces) of goods, 13,680 pieces were to be shipped by air and 10,368 pieces were to be shipped by sea. The purchase order numbers in respect of the goods to be shipped by the respective methods were stated. Again, these were the numbers of the purchase orders placed by Champion with FOB.

14. On 28 December 1997, the plaintiff shipped the quantity of the goods required to be shipped by sea in accordance with the letter of credit as amended.

15. On 31 December 1997, the plaintiff shipped the quantity of the goods required to be shipped by air. This shipment was late.

16. After shipment was made, the plaintiff issued two commercial invoices to the defendant to comply with the requirements of the letter of credit. The invoice for the goods shipped by air was dated 19 December 1997 and was in the amount of US$78,660.00, which is the claim in this action. The invoice for the goods shipped by sea was dated 23 December 1997 and was in the sum of US$57,045.75. The notify party stated on both invoices was Champion.

17. In January 1998, the plaintiff received from the defendant two inspection certificates dated 6 January 1998 signed by Miss Lin in respect of the goods shipped by sea and by air.

18. In February 1998, the plaintiff received payment for the goods shipped by sea. However, the plaintiff did not receive payment for the goods shipped by air. Hence, this action was brought against the defendant.

The witnesses

19. The plaintiff called two witnesses. They are Mr Ho Chi Cheung and Madam Leung Lai Ching. Mr Ho is a director of the plaintiff and Madam Leung is the managing director. They are husband and wife. Mr Ho has been in the garment manufacturing business for over 20 years. He is responsible for handling finance, letters of credit, shipment of goods and Madam Leung is responsible for production. Madam Leung has been in the garment industry for 35 years. She has no knowledge of English and can only recognize the alphabets and sign her name in English. She is literate in Chinese and she speaks the local dialect in Bangladesh. They have been operating the plaintiff's business for five years.

20. The defendant also called two witnesses. They are Mr Terence Au Hoi Fung and Mr Ricky Chan Yik On. Mr Au is a director and he is in charge of all the departments in the defendant - finance, shipping, personnel, human resources, computer - except for two departments being merchandising and quality control. Miss Lin was and is the head of the merchandising department. Mr Andy Wong was the head of the quality control and assurance department and has since left. His second in command was Mr Chan. Mr Au's professional qualification is in accounting. He joined the defendant in 1994. Prior to that, he had ten years' experience as a finance controller in two garment manufacturing companies.

21. The plaintiff's case rests on the oral agreement which is not contained in or evidenced by any contemporaneous record. Whether its case is proved will depend on whether the evidence of Mr Ho and Madam Leung is accepted. The defendant has adduced a number of documents to cast doubt on the evidence of the plaintiff's witnesses and to support its case that the vendor of the goods in question was BC Bangladesh, alternatively BC Overseas. However, there are a number of odd features about the defendant's evidence which make me wary for the reasons given below. I propose to treat the documentary and verbal evidence of the defendant with caution instead of accepting what the documents would appear to say at face value.

22. Miss Lin is clearly the most important person on the defendant's side involved in this transaction by virtue of the position she occupied and the duties she undertook. She was involved from the very beginning when the defendant received the purchase order detail sheets from FOB regarding the purchase orders placed by Champion with FOB. She signed the placement memorandum in August 1997 relied on by the defendant and she visited Bangladesh in the summer of 1997 for the purpose of fulfilling the purchase orders of Champion. She had conducted negotiations with BC Overseas. She signed the inspection certificates in respect of the goods made by the plaintiff. She was not called to give evidence for the defendant. According to Mr Au, who was responsible for handling this litigation, Miss Lin is always busy looking after the defendant's business and it might not be convenient for her to come to court to testify. She has expressed a preference that Mr Au should take care of the case. I do not accept these as adequate or convincing reasons, bearing in mind that this case was put on the fixture list. I find that it was a deliberate decision of the defendant that Miss Lin was not to be called as a witness.

23. I note also that no one from the merchandising department of the defendant was called to testify. That department was responsible for negotiating contracts, obtaining orders, and liaising with suppliers and manufacturers on purchase orders. Instead, Mr Chan of the quality control and assurance department was called. Those who were responsible for handling this litigation for the defendant could not have failed to appreciate that Mr Chan's evidence could only be of peripheral importance to this case. It is not the pleaded case of the defendant that it is not liable to pay for the goods on account of defective quality. Besides, it was the merchandising department which was responsible for dealing with the letter of guarantee allegedly issued by BC Overseas in respect of the goods shipped by the plaintiff. Mr Au's explanation was that he saw no need to call any one from that department as the documents produced would tell the story. I reject his explanation. I do not accept that Mr Au could have failed to realize the importance of verbal evidence to supplement and explain documentary evidence. I also find that it was a deliberate decision not to call any staff from the merchandising department.

24. Then there are the documents purportedly sent by BC Overseas to the defendant. They are not the subject of a hearsay notice by the defendant. At the outset of the trial and in the course of the trial, Miss Cheung sought leave to adduce these documents as evidence on several occasions notwithstanding the non-compliance with the Rules of the High Court. No reason was given as to why the maker of these documents could not or should not be called. This was opposed by Mr Justin Ko who appeared on behalf of the plaintiff. Miss Cheung informed me that the documents from BC Overseas would not be relied upon as truth of the contents but only as evidence that the documents were made. On that basis and having regard to the fact that these documents had been disclosed by the defendant in its list of documents, I allowed them to be adduced in evidence without calling the maker. I am unable to attach much weight to these documents from BC Overseas having regard to the limited purpose for which they were adduced. I note also that none of the fax messages purported to have come from BC Overseas were signed.

25. Mr Au has given evidence on matters such as the purchase orders placed by Champion with FOB, the negotiation of the alleged contract with BC Bangladesh or BC Overseas, the first and second amendments of the letter of credit issued to the plaintiff, and the letter of guarantee issued to the defendant in respect of the plaintiff's goods. On these various matters, he was either not personally involved or was marginally involved. I do not think I can attach a lot of weight to his evidence on those matters.

26. With the above observations, I turn to consider various aspects of the evidence.

The oral agreement

27. According to Mr Ho's evidence, Miss Lin visited the plaintiff's factory some time between mid August 1997 and before early September 1997. Mr Ho had not met Miss Lin before. Miss Lin was accompanied by Mr Maurice Ma of BC Overseas on that occasion. Mr Ma was known to Mr Ho as BC Overseas was the fabric supplier of the plaintiff. It was the understanding of Mr Ho that if he had a contract to manufacture garments for the customer introduced by Mr Ma, the plaintiff would order fabrics from BC Overseas. Miss Lin told Mr Ho she represented the defendant and she produced her name card which gave her position as "President - Merchandising". An entity called "F.O.B. Group" appeared on the name card, below which were the names of three companies, being the defendant, Silking Development Limited and Rich Easy Development Limited. Miss Lin did not mention anything about the other companies on the name card, nor did she say anything about Champion.

28. At that meeting, Miss Lin did not produce any document to Mr Ho giving information on the size specification and the size ratio or assortment of the garments to be made. She had only brought with her a sample polo shirt and she asked if Mr Ho could make 2,000 dozen shirts at the target price she gave of US$69.00 a dozen. Mr Ho did his calculations. He claimed he was able to work out the estimated cost of manufacturing and the materials required with the sample shirt and the information given by Miss Lin that the garments were for the market in the United States as quota category 338/9 was to be used. He had based his calculations on the variation of sizes for American customers. As for the size ratio, initially he said that he had based his calculations on the usual ratio for American customers which was 1:2:2:1. Later he said he had asked Miss Lin what was the size ratio and she had told him. They discussed the delivery date and it was agreed that it would be in early December 1997, subject to receipt of the letter of credit and delivery was to be 90 days from receipt of the letter of credit. He stated that Miss Lin was in a hurry to catch a plane and no mention was made of the colours required for the shirts or the quantity for each colour. The plaintiff did not send any document to the defendant to confirm the oral agreement or the information provided by Miss Lin regarding the order placed verbally. Mr Ho would just rely on the letter of credit issued by the other party as confirmation and the plaintiff would proceed to manufacture the garments on receipt of the letter of credit. Mr Ho said it was very common in the garment business to accept an order placed orally without an actual written purchase order from the buyer.

29. Mr Ho's only other contact with Miss Lin was in October or November 1998 when he telephoned the defendant to chase for payment. As soon as Miss Lin knew he was calling, she hung up the telephone.

30. As I have mentioned earlier, the defendant had not called Miss Lin to give evidence so there is no direct evidence to rebut what Mr Ho had said regarding the oral evidence allegedly made at his meeting with Miss Lin. The defendant's challenge of this part of the evidence is in these respects.

31. The timing of Miss Lin's visit to Bangladesh was disputed. The defendant's case is that Miss Lin did not visit Bangladesh in August 1997 and she went there in mid July instead. A copy of Miss Lin's BNO passport was produced showing an entry stamp of the immigration authority of Bangladesh of 18 July 1997 and an exit stamp of 19 July 1997. There was no other stamp relating to Bangladesh in the passport. I am unable to place much weight on this. There is no evidence if Miss Lin had any other passport at the time. I cannot accept the hearsay evidence of Mr Au on this or his evidence, which is again hearsay, that Miss Lin had given him a written response that she did not meet Mr Ho when she visited Bangladesh. Mr Au also said there was record kept by the defendant showing that Miss Lin had applied for expenses of her trip to Bangladesh and the dates of the record showed that the trip was in July not August 1997. As the record was not put in evidence, I must disregard his evidence on this. In contrast, the name card of Miss Lin was put in evidence by the plaintiff. There was no explanation from any witness called by the defendant how the plaintiff came to have Miss Lin's name card if there was no meeting between Mr Ho and Miss Lin as alleged.

32. Mr Au gave evidence that although it was within the authority of Miss Lin to enter into oral contracts in most cases, the oral contracts would have to be confirmed in writing such as by a placement memorandum or else it would not be possible to obtain finance for the contract. He also said that if a contract was made with a party in a new country, and Bangladesh was at that time a new country for the defendant, Miss Lin would have to seek approval from the boss in Taiwan directly before she could enter into such an oral agreement. As Miss Lin had not been called to give evidence, there is no evidence if she had or had not sought approval from the Taiwan boss for the oral agreement. Further, as no one from the merchandising department was called, there is no first hand account from that department as to the usual or accepted practice of the defendant when a contract is made orally or whether there could be any departure from the accepted practice.

33. On the basis of the above, I do not think the defendant has succeeded in casting doubt on Mr Ho's evidence regarding the oral contract. I will look at the other matters relied on by the defendant to challenge the plaintiff's evidence in chronological sequence.

The placement memorandum

34. There are a number of aspects about this document which require explanation and no or no satisfactory explanation was provided to the court as the makers of the document, Miss Lin and the person who had signed on behalf on BC Overseas, were not called. I have already mentioned the apparent confusion on the identity of the contracting parties. I am unable to accept Mr Au's evidence when he sought to explain why BC Bangladesh was stated as the manufacturer and Statco Champion as the overseas principal or consignee.

35. I note that the word "Revised" was written by hand on the document. The earlier version of the placement memorandum had not been put in evidence. Further, according to Mr Au's evidence, the defendant had only dealt with BC Overseas in respect of the purchase orders placed by Champion. The placement memorandum was for the purchase of 4,000 dozen of polo shirts. According to the subsequent letters of Champion to FOB in 1998, the total quantity of garments supplied to Champion was 87,825 pieces or 7,318.75 dozen. There is no evidence if the other 3,318.75 dozen of the shirts supplied to Champion were covered by any placement memorandum.

36. In view of the above, I am not persuaded that I ought to reject the plaintiff's evidence of the oral agreement on the basis of this document.

The opening of the letter of credit

37. As for the letter of credit opened by the defendant in the plaintiff's favour, according to Mr Ho, he had mentioned to Miss Lin at their first meeting the name of the plaintiff's bank. He did not know if Miss Lin knew which branch or division of the bank used by the plaintiff that the letter of credit should be sent. He did not think it necessary that a third party should be involved in the opening of the letter of credit.

38. The defendant has produced a fax from BC Overseas dated 28 August 1997 in which BC Overseas requested the defendant to open a letter of credit directly to the plaintiff as I have stated earlier. This unsigned fax was put in evidence for the limited purpose of showing that it was made, as submitted by counsel.

39. It is a very unsatisfactory aspect of this case that no one from BC Overseas was called to testify. The plaintiff's dealings with BC Overseas were limited to the supply of materials and accessories. I do not expect the plaintiff would be able to provide much of an explanation of the documents purported to have come from BC Overseas. It was the defendant that had extensive dealings with BC Overseas in this transaction. The burden is on the defendant to provide adequate, cogent and admissible evidence on any aspect of its dealing with BC Overseas which the defendant regarded as relevant to this case. This the defendant has failed to do.

40. I do not attach significance to Mr Ho's inability to explain why BC Overseas had requested the defendant to open a letter of credit to the plaintiff.

The purchase of fabrics from BC Overseas

41. Mr Ho was cross-examined extensively on this. The objective was to undermine his credibility on his assertion that he was able to order raw materials on the basis of the information allegedly provided by Miss Lin at their meeting. The gist of his evidence is as follows.

42. The plaintiff placed an order with BC Overseas for the purchase of fabrics and accessories in early September 1997. Mr Ho cannot recall if he had received the size specification from the defendant by then. He made his calculation for the fabrics on the basis of a size ratio of 1:2:2:1 and assuming that the sizes were in the range of small to extra large. He had taken into account wastage in manufacturing in ordering the fabrics and accessories. He knew the colour breakdown for the garments before he ordered the fabrics. Miss Lin also knew that the plaintiff was to order fabrics from BC Overseas. The arrangement was that BC Overseas was to produce colour samples of the fabrics for the defendant's approval and the plaintiff would leave it to BC Overseas to obtain the approval of colours for the fabrics from the defendant as it would be more convenient since both the defendant and BC Overseas are Hong Kong companies. Mr Ho had left it to BC Overseas to obtain the approval of the fabric colours from the defendant because the plaintiff had bought fabrics from BC Overseas before and they had built up a relationship of trust. The plaintiff had no contact with the defendant regarding the approval of the colours for the fabric. Mr Ho only had contact with Mr Ma of BC Overseas and sometimes with Mr Ma's staff in Bangladesh, Mr Simon Chan. Once the approval for the fabric colours was given, the defendant would tell BC Overseas the quantity of garments to be manufactured for each colour and from this information the plaintiff was able to calculate the quantity of fabric for each colour to be ordered from BC Overseas. The fabrics were shipped by BC Overseas to the plaintiff in early November 1997.

43. Madam Leung gave evidence that when the fabrics and accessories arrived at the end of October 1997, she also received with the materials a document from BC Overseas listing the colours of the fabrics, the range of sizes and the number of garments for each colour and size. It was then that she knew the range of the sizes was not from small to extra large but was from medium to extra extra large. Additional fabrics of 700 to 800 lbs were used to manufacture the garments which were moved one size up. Nevertheless, it was not necessary to order more fabrics as there was an allowance for wastage when the order for the fabrics was placed.

44. I recognize there were some discrepancies between Mr Ho's evidence and Madam Leung's evidence, as submitted by Miss Cheung. But they were not so serious as to cast doubt on Mr Ho's credibility generally. I accept Mr Ho's evidence that he was able to make a rough calculation whether he could meet the target price quoted by Miss Lin on the basis of the information he was given and that he was able to place an order for the fabrics and accessories on the basis of the existing information and the additional information given to him by BC Overseas subsequently. I also accept Mr Ho's explanation as to why the plaintiff had delegated to BC Overseas the task of seeking approval for the colour of the fabrics and the accessories from the defendant.

The first amendment of the letter of credit

45. Regarding the first amendment to the letter of credit made on 24 September 1997, Mr Ho said it was not made at his request. He had not paid attention to that part of the original letter of credit which would appear to restrict negotiation only at the Citibank Hong Kong when he received the documentary credit. He disagreed with the suggestion that the amendment was made for the plaintiff's convenience to remove or to clarify the restriction on the negotiation of the letter of credit so that the plaintiff could open a back to back letter of credit in favour of BC Overseas for the fabrics. He stated that BC Overseas was already in the process of preparing for the fabrics before they received the plaintiff's letter of credit and that BC Overseas would only withhold shipment of the fabrics until they had a letter of credit from the plaintiff.

46. Mr Au gave evidence on the first amendment. He was not the person dealing with BC Overseas in this matter. It was handled by his subordinate, Mr Allen Law of the shipping department. Mr Law was not called as a witness. The reasons given by Mr Au for amending the letter of credit - that it was to facilitate the negotiation of the letter of credit in Bangladesh and to enable the plaintiff to issue a back to back letter of credit to BC Overseas - could be the real reasons. But I do not think Mr Ho's evidence on this and on other matters should be rejected simply because it was not the plaintiff but BC Overseas that had requested the first amendment. Even if BC Overseas had made such a request, it does not necessarily show that BC Overseas and not the plaintiff was the contracting party. After all, BC Overseas had substantial involvement in the transaction. It had introduced Miss Lin to the plaintiff and had supplied the fabrics and accessories to the plaintiff. It might also have been involved in supplying the balance of the orders placed by Champion with FOB, as Mr Au had claimed. I do not find it strange or improbable that BC Overseas could have requested the first amendment even if it did not have a contract with the defendant for the goods in question. As I have repeatedly emphasized, it is for the defendant to adduce satisfactory and admissible evidence on any aspect of its dealings with BC Overseas that the defendant considered helpful to its case. In the absence of evidence from BC Overseas, I do not think I should attach significance to the evidence on the first amendment or to the unsigned fax purported to have come from BC Overseas dated 19 September 1997 requesting the amendment.

The second amendment of the letter of credit

47. In respect of the second amendment of the letter of credit on 22 December 1997, Mr Ho first knew there was to be a change in the method of shipment in early December 1997. He was in Hong Kong at the time and had talked to Madam Leung on the telephone. He was told by his wife that the quality control personnel of the defendant required part of the goods to be shipped by air because delivery was delayed. The plaintiff did not receive any document from the defendant regarding the change in the method of shipment and the date of delivery before the second amendment of the letter of credit was sent to the plaintiff. Mr Ho only had contact with the freight forwarder, which was appointed by the defendant, regarding the change of shipping instructions. He had no contact with the defendant. He made a booking with the forwarder to ship part of the goods by air on 24 or 25 December 1997, after he had received the second amendment of the letter of credit. The alteration in the method of shipment had cost the plaintiff increased expenses of US$7,000.00.

48. Madam Leung gave evidence that in late November 1997, she was told by Mr Lo Ka Fai Honey, the quality control staff of the defendant assigned to inspect the goods at the plaintiff's factory, that if the goods were ready only on 12 December 1997 as she had expected, the goods would have to be shipped by air. About one or two days later, Mr Lo asked Madam Leung to contact his colleague in Hong Kong called Emma about the matter. Emma was in the merchandising department. Madam Leung spoke to Emma in early December 1997 and asked her to re-consider the decision about shipment by air. She also informed Emma that the letter of credit would have to be amended in that event. Emma said she would discuss the matter with her office. Later on, Emma told Madam Leung that the best she could do for the plaintiff was to require only part of the goods to be shipped by air. She did not tell Madam Leung what was the latest shipment date and Madam Leung only came to know the date when she received the second amendment of the letter of credit. As far as Madam Leung was concerned, there was no third party involved in the discussion regarding the change in the method of shipment and the amendment of the letter of credit.

49. Mr Au gave evidence on this. He was not the person primarily responsible for liaising with the vendor on the second amendment. The matter was handled principally by Emma and Allen Law. Mr Au said the negotiation was conducted with BC Overseas and he produced an unsigned fax from BC Overseas dated 17 December 1997 requesting for an amendment. Even if there was some negotiation with BC Overseas on the amendment, I am unable to regard this as evidence pointing to BC Overseas and not the plaintiff as the contracting party for the reasons I have given earlier. Furthermore, I accept Madam Leung's evidence on this. She has impressed me as a truthful witness giving her evidence in a straightforward manner.

Inspection reports of Mr Lo

50. Eight inspection reports written by Mr Lo were produced by the defendant, two were in-line inspection reports made as production was going on, four were pre-final reports and two were final ones. Mr Lo had since left the defendant's employment. He was sent by Mr Andy Wong, the head of the quality control department, to carry out inspection of the manufactured goods in Bangladesh. He arrived in the plaintiff's factory when production commenced in early November 1997 and was there for a month. He went to the factory almost every day. Madam Leung said Mr Lo had inspected the finished garments as production was going on and he would mention to her the defects he identified so that her workers would rectify them in the course of production. Madam Leung had signed the two in-line inspection reports to acknowledge that the defects were pointed out to her. She had not signed the other inspection reports made by Mr Lo and had no idea who had signed them as the factory's representative, although she said that some of the defects mentioned in the reports not signed by her were pointed out to her by Mr Lo.

51. The significance of these reports, according to the defendant, is two-fold. Firstly, the manufacturer stated in all these reports was "BC (Unison)", meaning that the factory used by BC Bangladesh or BC Overseas was the plaintiff. I do not think I can draw any such significant inference on the basis of the name of the manufacturer written by Mr Lo. Secondly, it was submitted that the contents of these reports revealed substantial involvement of BC Bangladesh or BC Overseas in the transaction and would lend support to the defendant's case that it was one of these entities and not the plaintiff that was the contracting party.

52. I do not find it surprising that BC Bangladesh or BC Overseas was involved in the inspection process. According to Madam Leung, one of the problems Mr Lo had mentioned to her was the non-matching of the colour of the collar with the body of the shirt for one of the dye lots of the black coloured shirts. As a result, Madam Leung contacted Mr Ma of BC Overseas in Hong Kong because the colour of the fabrics was the latter's responsibility. Mr Ma referred her to his staff in Bangladesh, Mr Simon Chan. Hence, she requested a meeting with Simon at the plaintiff's factory and informed him at that meeting that if the customer should claim against the plaintiff because of the problem with the colour, the plaintiff would hold BC Overseas responsible. Simon then went to discuss the problem with Mr Lo directly. She was later told by Mr Lo that the colour discrepancy problem was accepted in Hong Kong. Another problem raised by Mr Lo was the colour of the buttons supplied by BC Overseas and the buttons had to be changed subsequently. That was also the responsibility of BC Overseas. Simon went to the plaintiff's factory on about six occasions when production was going on. Some of these occasions were social visits. Madam Leung had no idea if Simon had dealt with Mr Lo on matters other than the fabrics and the accessories as they were in the workshop and she was working in the office. I accept Madam Leung's evidence on the above matters.

Letter of guarantee

53. Mr Ricky Chan, who was the other witness of the defendant, had written a part of the inspection certificate release confirmation dated 8 January 1998, which was after the plaintiff had shipped the goods. He wrote the part relating to discrepancies in the goods based on the inspection reports of Mr Lo and the garments dispatched by Mr Lo to Hong Kong. This document was sent to the merchandising department for the latter to prepare a letter of guarantee for the manufacturer to sign. In this instance, the letter of guarantee produced in evidence was on the letter head of the defendant and addressed to BC Overseas. According to Mr Ricky Chan, it was signed by Emma for the buyer. The document set out a number of discrepancies and deficiencies found on inspection of the goods shipped by the plaintiff and stated that the addressee agreed to accept full responsibility in the event of rejection of the goods by the buyer or cancellation of the order. It was submitted for the defendant that the letter of guarantee showed that it was BC Overseas that had assumed responsibility and it would lend credence to the defendant's case that the plaintiff was not the contracting party.

54. I am unable to accept the letter of guarantee at its face value. Notwithstanding the apparent importance of it to the defendant's case, no one from the merchandising department, which was responsible for the document, was called to give evidence about it. I do not know why it was addressed to BC Overseas when the manufacturer stated in the placement memorandum was BC Bangladesh, a different entity. Further, there was no indication on that document as to the company or entity on whose behalf some one had signed to confirm that the guarantee was given. In contrast, I note that the rubber stamp of BC Overseas was applied to the placement memorandum dated 8 August 1997, the proforma invoice dated 9 September 1997, and a letter dated 23 December 1997 from Miss Lin to BC Bangladesh relating to another batch of polo shirts in which the latter was asked to sign and return the letter in acknowledgment. In view of the unsatisfactory aspects about the letter of guarantee which have not been properly or adequately explained, I cannot regard this as evidence sufficiently cogent pointing to BC Bangladesh or BC Overseas as the contracting party with the defendant.

Defective goods

55. Evidence was led by the defendant to account for the fact why it had not accepted the discrepancies in the documents submitted by the plaintiff for payment under the letter of credit. In short, it was because Champion had imposed a chargeback on FOB as 5,226 pieces out of a total of 87,825 pieces of the goods shipped were rejected as non-repairable. There is no evidence that the 5,226 pieces came from the quantity of 2,004 dozen or 24,048 pieces shipped by the plaintiff. As I have stated earlier, defective quality of the goods was not raised as a defence in the pleading.

Seeking payment

56. When the plaintiff did not receive payment under the letter of credit, the plaintiff had at first asked the Sonali Bank to chase for payment. In about April 1998, Mr Ho got a copy of a telex of Citibank from the Sonali Bank in which nine discrepancies were given by Citibank for refusing to accept the documents presented by the plaintiff under the letter of credit. However, it was only in August 1998 that the documents were returned by Citibank to the plaintiff. In mid 1998, when Mr Ho was in Hong Kong, he went to the Citibank to make inquiries about the letter of credit. In August or September 1998, he made inquiries with the freight forwarder on the status of the goods and was told that the goods had been delivered. He then wrote to Champion in November 1998 to inquire if it had settled the price and went to the Citibank again to inquire in January 1999. He had only contacted Miss Lin in November 1998 with the view of chasing for payment. He disagreed with the suggestion that he had pursued others before approaching the defendant because the plaintiff did not have a contract with the defendant. He explained that the defendant had accepted the discrepancies for the documents presented in respect of the goods shipped by sea and the plaintiff had received payment under the letter of credit for these goods. As the documents for the goods shipped by air were returned by the bank only in August 1998, he had not thought the defendant would not pay for the goods before that time.

57. I accept Mr Ho's evidence on this. I do not find there was anything peculiar about the plaintiff's ways of seeking payment that would cast doubt on the credibility of Mr Ho.

Conclusion

58. For the above reasons, I have come to the conclusion that the plaintiff has established its case on the balance of probabilities that the oral agreement was made with the defendant. I would like to add that I have looked at the matters relied on by the defendant as casting doubt on the plaintiff's evidence in the round and on a cumulative basis and I am satisfied that the credibility of the plaintiff's witnesses has not been shaken.

Orders

59. There will be judgment for the plaintiff in the sum as claimed being US$78,660.00 or its Hong Kong dollar equivalent at the time of payment. I award interest on this sum at the prevailing judgment rate from 8 December 1998 which was the date of the writ.

60. I order that the amount of HK$200,000.00 paid into court by the plaintiff with accrued interest pursuant to an order dated 13 August 1999 to provide security for costs be paid out to the plaintiff. I make an order nisi that the plaintiff is to have its costs of this action.