DAYON WEAVING AND DYEING FACTORY LIMITED v. HANG TAT PIECEGOODS COMPANY LIMITED

IN THE COURT OF APPEAL

________

__________

JUDGMENT

__________

Silke, J.A.:

1. This is an appeal against the judgment entered by Mortimer, J. on 19th November 1985 for the defendant on its counterclaim in the sum of US$26,324 with interest at 13% per annum running from 22nd December 1984.

2. The plaintiff - Dayon Weaving and Dyeing Factory Limited - "Dayon" - issued on 12th December 1984 its writ claiming against the defendant - Hang Tat Piecegoods Company Limited - "Hang Tat" - as drawer of a cheque for US$466,155.05.

3. A Defence and Counterclaim was filed on 22nd December 1984 - it was amended later.

4. Judgment was entered for plaintiff on its claim on 8th July 1985. Directions were given as to the trial of the Counterclaim. This took place on the 13th, 14th, 15th and 18th November 1985.

Facts

5. Asia Knit in Sri Lanka desired to purchase a quantity of fabric in specified colours from Marubeni in Hong Kong and entered into two contracts. Marubeni then contracted to purchase the cloth from Hang Tat. Hang Tat contracted with Dayon to dye the cloth.

6. The first Asia Knit contract with Marubeni was that of the 17th July 1984, for 120,000 yards of cotton dyed calico for shipment September/October 1984. The second, numbered TT3914, was of the 30th July 1984 for 150,000 yards of the same cloth but with an earlier shipment date in August/September 1984. The trial concerned the cloth in the second contract.

7. Swatches were received by Marubeni from Asia Knit which sent them on to Hang Tat which supplied them to Dayon. It was necessary to match them for colour.

8. Hang Tat and Dayon had an oral contract supported by "Notices of Processing Instructions" - the "Notices". They set out, in particular, the instructions in relation to colours, made reference to "test required" and to the proper colour matching of the fabric.

9. The cloth was sent to Dayon which, as is normal trade custom, provided samples of the dyed fabric to Hang Tat which sent them on to Marubeni. From the samples it could be seen whether or not the colours of the fabric matched the swatches.

10. Dayon began its processing and delivery was made of the finished products between 14th September and 15th October. Some of the deliveries went to Hang Tat but the majority went to the packers.

11. The rolls of fabric were required by the contract to be packed as "standard export packing" i.e. poly wrapped and placed in cartons. The rolls sent to the packers were for immediate packing and varied as to 40 and 80 yards.

12. In Sri Lanka part of the delivered fabric was passed on by Asia Knit to a firm called Oriental Garments with which it had a relationship. When the fabric was cut the dyeing was found to be defective. There were shading and variations of colour from one end of a roll to the other and also from side to side. The defective cloth could not be made up into garments and that which was made up was unmarketable.

13. Affected were about 10,000 yards out of the 150,000 yards contract amount.

14. Asia Knit complained to Marubeni which in turn complained to Hang Tat which approached Dayon.

15. A Mr. Cheung of Marubeni went to Sri Lanka and saw cloth there. A director of Asia Knit, Mr. Fernandopulle, came to Hong Kong, bringing with him samples of the cloth. Asia Knit and Marubeni met and Hang Tat was present. A settlement was come to between Marubeni and Asia Knit with Hang Tat responsible for the major part of that settlement. Marubeni was satisfied that the Hang Tat cloth, under contract TT3914, sold to Asia Knit was defective.

16. Hang Tat stopped its cheque to Dayon which then commenced its action and Hang Tat counterclaimed for its loss occasioned by the settlement.

17. Between the present parties: the contract is admitted; it is admitted that the work was to be carried out by Dayon in a workman like manner, with all due care and diligence and that the colours would correspond to those stipulated and without variation or shading; it is admitted that Hang Tat required the dyed materials to sell to its customer and that they were to be manufactured into garments at a profit.

Issues

18. The issues were first: the identity of the defective cloth; second, what form of inspection was carried out in Hong Kong and what form of inspection was required: (this involved a finding as to trade custom): third, was time a matter of concern in relation to the contract; fourth, contractual warranties, if any, contained in the Notices (again involving a finding as to trade custom): fifth, damages and the duty to mitigate.

19. The trial judge found against Dayon on all these issues.

20. Dayon takes issue in its Notice of Appeal with the findings of the trial judge on all the main matters: in addition it seeks to impugn the findings on collateral matters:

21. On the damages issue it argued that the failure of Hang Tat to inspect, and to return faulty cloth, was a breach of its duty to mitigate. It also raised the issuer of estoppel by waiver.

Identity of cloth

22. The first, and fundamental, point is the nexus between the cloth contained in Contract TT3914, dyed by Dayon, and the cloth which eventually made its way to Oriental Garments in Sri Lanka and was found to be defective.

23. Mr. Bernacchi submits that there was no established connection between the cloth contained in both contracts and that sent to Sri Lanka. Further, that the evidence given by Mr. "Marubeni" Cheung of that which he had seen in Colombo was based, in part at least, on inadmissible hearsay. His further identification of the cloth brought to Hong Kong by Mr. Fernandopulle was not sufficient to prove the chain.

24. Mr. "Marubeni" Cheung had, in Colombo, seen defective cloth and garments made with defective cloth the defects caused by the dyeing. The workers were still cutting cloth and attempting to manufacture garments. He saw cartons of cloth, some still unpacked, bearing Hang Tat's name. He saw the items which Mr. Fernandopulle eventually brought to Hong Kong and he identified them at trial.

25. Mr. "Hang Tat" Cheung, an employee of Mr. Wong of Hang Tat, gave a full discription of the cloth and of its colours as contracted for with Dayon. There was a distinct difference between that cloth and the cloth to be dyed under the other contract.

26. In addition to this there were documents produced at trial - invoices and packing lists - which clearly indicated what cloth it was that had been shipped and these, coupled with the evidence of Mr. "Marubeni" Cheung and Mr. "Hang Tat" Cheung, were the evidence of the identity of the cloth which was found to be defective.

27. Mortimer, J. was satisfied - and that was all he had to be - that Mr. "Marubeni" Cheung's identification of the defective cloth seen in Colombo as being that supplied by Hang Tat to Marubeni under the second contract and dyed by Dayon was correct. In addition he found the evidence of Mr. "Hang Tat" Cheung as to the make up of the colours of the particular cloth "impressive".

28. He was fully entitled on the evidence to reach that conclusion.

Inspection of the cloth

29. The inspection issue is somewhat more complicated. There was first: a conflict of evidence between Mr. "Hang Tat" Cheung and Mr. Leung of Dayon as to what had in fact taken place regarding inspection, complicated by a difference between Mr. Wong of Hang Tat and his employee, Mr. "Hang Tat" Cheung, as to the latter's duties.

30. Second there was a direct conflict between Mr. Wong and Mr. Leung as to what was required in a contract such as this by way of inspection either contractually or by trade custom.

31. Dayon prays in aid, by way of resolving this second conflict in its favour, certain wording which appears on the Notices.

32. The amount of cloth involved was substantial: 150,000 yards in some 2,000 rolls. Shipping dates were pressing. This emerges clearly from the evidence. To inspect each and every yard would have been a time consuming exercise. It is true that 5,000 yards, on delivery to Hang Tat, were found defective and were returned to Dayon for redyeing.

33. Mr. Bernacchi submits that the fact that this took place and, treating the words in the Notices as contractual terms, giving them their plain and ordinary meaning, it shows that all the goods were to be inspected by Hang Tat and, if found defective, returned to Dayon for redyeing before shipment. It is only if they were found defect free that shipment would take place.

34. These Notices, appearing at pages 89 and 102 of the bundle, and numbered 3544 and 3564 respectively contained the words (3544 dated 22nd August 1984):

"No colour fading. Head and tail colour. Please match colour correctly. Do the goods according to original sample. For each colour, make a large sample of each roll."

and

35. "Test required".

and 3564 dated 18th September 1984:

"Please help to match the colour samples correctly. As shipment date is drawing near there will be no time for making again.

 

Customer is in Hong Kong, goods will not be shipped if colours are not correct."

36. The trial judge rejected the submission that the wording I have just recited amounted to warranties absolving Dayon from their breach of contractual duty in the supplying of defective cloth. Of them he said:

37. Many of the difficulties Dayon now encounters seem to me to stem from the lack of their own quality controller.  It cannot be right for it to say: We will produce goods: it matters not how defective they are you, the customer, must check them to see that we have complied with our contractual duties. If you do not then any breach by us is absolved.

38. From the generality of the evidence, and in particular from the evidence of Mr. "Hang Tat" Cheung in cross-examination and that of Mr. Wong, as to the wordings of the Notices, I have no doubt that the trial judge came to the right conclusion concerning them.

39. Of inspection generally Mr. Wong, and he had been in the trade for some 16 years and had previous dealings with Dayon, said that samples are inspected. When the rolls are delivered wrapped in "poly bags" and an obvious fault is seen, they would be sent back for redyeing. There is no custom of full inspection. The trial judge thought that to be reasonable and, with respect, so do I.  Dayon accepts that it was never its case that Hang Tat had a duty to inspect every yard. Random inspection, or inspection by sample, would keep the wheels of commerce revolving. Anything else would slow them down so much that business would be impossible. But Hang Tat, says Dayon, was required to carry out random, continuous and, if it is to be effective, frequent inspection of the goods before shipment.

Duty to mitigate

40. The emphasis of Dayon's argument turned on the duty to mitigate. Indeed counsel put it thus:

"We are not absolved completely from damages for the defective work: We do say however that we are not liable for the full amount because of the complete failure by Hang Tat to mitigate."

41. The trial judge resolved the evidential conflicts, to which I have earlier referred, in favour of Hang Tat. The facts were peculiarly within his province. I accept that findings of fact which are really inferences drawn from facts specifically found are more susceptible to an independent opinion being formed by an appellate tribunal (Benmax v. Austin Motor Co. Ltd.). ⁽¹⁾ But, in coming to the conclusion he did, Mortimer, J. gave full consideration to the evidence before him and to the submissions made upon it. Nothing that has been said to us in the course of this appeal persuades me that his conclusions were wrong or were such as to make me reconsider the evidence so as to reach an opinion that differs from his.

42. I accept that there is a duty upon a claimant to mitigate so as to reduce, if that be possible, the amount of the compensation for pecuniary loss which naturally flowed from the breach by the person claimed against. The person in breach should not be exposed to, additional cost by reason of the claimant not doing what he ought to have done as a reasonable man, but such claimant is under no obligation to do anything otherwise than in the ordinary course of business. (British Westing House Electric and Manufacturing Company Limited v. Underground Electric Railways Company of London Limited). ⁽²⁾

43. The trial judge, accepting the evidence of Mr. Wong, as he was entitled to do from a man experienced in his trade, rejected "any custom of the trade which throws upon the owner of the fabric being dyed the responsibility of inspection in order to discover defects before exporting them whether these defects are patent or latent."  In so doing he did not accept the evidence given by Mr. Leung.

44. He thought that the expression "patent or latent" to be misleading and that what was really meant were defects, obvious and easily discoverable such as would absolve Dayon and make Hang Tat solely responsible for the passing on of goods it knew or ought to have known were defective. Damages in those circumstances would become too remote. He was satisfied that the defects here were not easily discoverable and were not obvious. Given the quantity of cloth, the format of its delivery, the places where it was delivered and the nature of the defects, this is a finding difficult to fault and for my part I would not be prepared to hold him wrong. It follows further that there being no duty as urged by Mr. Bernacchi there is nothing to be waived so as to constitute an estoppel - even had there been evidence of Dayon's acting to its detriment.

Damages

45. On the issue of damages, Mortimer, J. considered, as he must, whether the settlement as between Hang Tat and Marubeni was a reasonable one, so as to entitle Hang Tat to recover from Dayon the amount arrived at. He held that it should be diminished by the amount of a claim for breach between Hang Tat and Marubeni which was not claimed by Hang Tat against Dayon and he fully considered the method used and the manner in which the settlement figure was arrived at. He found the settlement to be reasonable. With the assistance of counsel, he worked out that figure in proportion so as to ascertain what loss was directly attributable to Dayon in respect of the loss Hang Tat sustained.

46. The figure of US$26,324 is not seriously disputed and, the judge having found that no duty lay on Hang Tat to do anything to reduce, in the ordinary course of business, the pecuniary loss which naturally flowed from the breach by Dayon - there being no exposure of Dayon to additional cost - that figure remains undisturbed.

47. I would dismiss the appeal.

(1)    [1955] A.C. 370

(2)    [1912] A.C. 673 H.L.