PERFORMEN'S EUROPE B.V. v. MIMITAN GARMENTS FACTORY LTD

DCCJ6365/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6365 OF 2005

J U D G M E N T

1.  The Plaintiff claims against the Defendant for loss of profit in the sum of US$55,638.80 suffered due to the Defendant’s failure to deliver products ordered by the Plaintiff from the Defendant under eleven purchase orders sent to the Defendant on 7 June 2004.

2.  The Defendant denies it is liable to the Plaintiff because the Plaintiff had failed to pay a 20% deposit for the goods ordered before production.  The Defendant claimed it was not bound, therefore, to honour the agreement of purchase.

Background and undisputed facts

3.  The Plaintiff’s director Mr Betting and the Defendant’s director Mr Solomon Ho came to know each other in 1980s, when Mr Betting was working for a Dutch company named McGregor Europe purchasing goods through a Hong Kong export trading agent, and the Defendant was a supplier to the export agent in Hong Kong.  Since 1993, the business relationship continued when Mr Betting worked for a Dutch company called Performen’s International B.V. based in Amsterdam, while the Defendant took garment orders placed by the trading firm Kishinchand & Sons (Hong Kong) Limited which supplied goods to Performen’s International B.V.

4.  Performen’s International was a subsidiary of a big Dutch business group named Sicon Group.  During this period, Mr Betting had repeated contacts with Mr Ho of the Defendant through the businesses of Performen’s International.  This relationship continued until Performen’s International ceased trading in garments in 2003.  Mr Betting decided to set up a garment trading business on his own in 2003.  Before the Plaintiff was formally incorporated in the Netherlands, he contacted Mr Solomon Ho of the Defendant with a view to continue the garment trading business in the Netherlands by direct orders of garments from the Defendant. 

5.  In or about late November 2003, Mr Betting had a meeting with Mr Ho in Hong Kong  They discussed Mr Betting’s new business venture which involved placing orders with the Defendant in the months ahead for his Dutch customers in the Netherlands.  It is not disputed that the Plaintiff ordered some garment samples from the Defendant in early November 2003 according to specifications on styles, fabrics, colours and sizes for Mr Betting’s Dutch customers in the hope that they would place their orders with his company. 

6.  In January and February 2004, the Defendant produced the samples ordered by the Plaintiff and despatched them by air to the Plaintiff.  The parties then corresponded by emails on the production of garments and the Plaintiff ordered further samples for future products to be manufactured by the Defendant between the months of March and June 2004.  Meanwhile Mr Betting visited Hong Kong and held meetings with Mr Ho, discussing on changes to the garment samples and productions of garments for the fall season of 2004 in about May 2004. 

7.  The samples made by the Defendant for the Plaintiff were sent to the Plaintiff in January and February 2004.  These samples were paid on or about 16 June 2004 after the Defendant made repeated demands for payment.  On or about 7 June 2004 the Plaintiff emailed eleven normal purchase orders to the Defendant after detailed email exchanges on the production involving fabrics, colours, sizes and styles.  These emails were exchanged between Miss Jensen, the assistant to Mr Betting, and Mr Ho and his staff at the Defendant.  However, the Defendant had failed to produce the garments ordered by the Plaintiff for the fall 2004 season by the deadline date of 25 July 2004 or in the two or three months after that date.

8.  The Defendant’s defence is that the Plaintiff had failed to pay a 20% deposit for the  price of the goods ordered, so the Defendant did not produce the goods for the Plaintiff.  The Plaintiff denied there had ever been any agreement to pay a 20% deposit before production and the Plaintiff claims against the Defendant for breach of contract and for loss and damages suffered and arising out of the Defendant’s breach of contract.

Issues

9.   

(A) whether there was  an agreement between the Plaintiff and the Defendant for the Defendant to produce garments for the Plaintiff to be sent to the Netherlands, and whether there was a condition precedent to pay a 20% deposit for the goods ordered before production.

 (B)  quantum of damages.

(A) Whether there was an agreement between the Plaintiff and the Defendant for the Defendant to produce garments for the Plaintiff and whether there was a condition precedent to pay a 20% deposit before production

10.  The Plaintiff’s evidence is that Mr Betting had met and discussed his taking over the garment trading business of Performen’s International B.V. after Performen’s International ceased trading in the garment business in 2003.  Mr Betting claimed that Mr Ho had agreed to produce garments for his new company in the same manner as with Performen’s International before and the payment terms remained the same as before which was the payment would be settled by telegraphic transfer after shipment.  Mr Betting further claimed that this payment arrangement also applied to sample charges.  He denied there was any discussion as to the requirement for a payment of deposit whatsoever.

11.  Samples were ordered by Mr Betting and they were duly produced by the Defendant.   They were sent to the Plaintiff in January and February 2004 when payment for the samples were settled in June 2004.  Mr Betting claimed that he had discussed with Mr Ho the items and prices of garments and the quantities with Mr Ho in April 2004.  It was only upon the finalisation of the final details on style and materials that the Plaintiff formally placed eleven purchase orders with the Defendant (hereinafter referred to as “the said orders”). 

12.  Miss Diny Jansen, assistant to Mr Betting, had conducted most of the correspondences by email with Mr Ho and the Defendant’s staff during this period.  Under the eleven purchase orders, the shipment date for the goods was stated to be 25 July 2004,  in time for the 2004 fall season.  Mr Betting agreed that the Plaintiff received an email on 24 June 2004 from Mr Ho asking the Plaintiff “to arrange the TT remittance for the 20% deposit as otherwise we cannot proceed booking of the material for your orders.  Please advise immediate position.”

13.  Mr Betting claimed that the request for a 20% deposit was contrary to previous practice and inconsistent with their contract terms.  He then called up Mr Ho to clarify the matter.  During their telephone conversation Mr Betting claimed that he was informed by Mr Ho the Korean fabric supplier, Yong tex, which had supplied fabrics previously to Mr Betting’s previous employers before had requested the Defendant to pay by letters of credit the supply of fabrics for the said orders.  Mr Betting claimed that during the conversation with Mr Ho, Mr Ho had agreed that he would source materials from other suppliers in China that would not require a deposit of payment by letters of credit in advance.  Mr Betting claimed he had reached therefore an agreement with Mr Ho, and thereafter Mr Ho did not refer to the 20% deposit payment any further.

14.  Mr Betting claimed that the Defendant had failed to despatch the garments ordered on 25 July 2004, the deadline.  In mid July up to 27 July 2004, both Mr Betting and Miss Jansen had tried to communicate with the Defendant on the shipment date of the goods ordered, but without success.  Upon Miss Jansen’s enquiry and warning on an email sent to Mr Ho on 29 July 2004 that there would be a big problem if the Plaintiff could not deliver in time, Mr Ho replied by email that the  Defendant would give the Plaintiff the production schedule later that day.  However, he failed to do so that day.

15.  On 3 August 2004, Miss Jansen emailed Mr Ho again asking for the date of delivery of the goods and told him “late delivery will result automatically in cancellation or/and penalties which we cannot afford as you will understand.”  On 9 August 2004, Mr Ho emailed to Mr Betting the following email: “Dear Bob, very sorry to make you and Diny so worried about the production of your existing orders.  We are now starting production of micro in our Dongguan factory due to factory at North China cannot manage to take production in small quantity.  We hope to finish  production by end August and we will send goods by air at our expenses.  Please kindly advise your priority of styles.  For the suede programme, I will come back to you.”

16.  On 1 September 2004 Mr Ho sent to Miss Jansen the following email: “Dear Diny, I am now on the way to the factory and working on delivery of your orders.  We will come back to you later today.  Best regards, Solomon.”  However, the garments ordered were never received by the Plaintiff. 

17.  According to the Defendant’s director Mr Ho, there was no binding agreement between the Plaintiff and the Defendant on the eleven purchase orders.  He claimed that though he had known Mr Betting since the 1980s through his business dealings with Mr Betting’s former employers, McGregor Europe and Performen’s International B.V., he had never done business with Mr Betting or his company directly before 2003.  Prior to 2002, he had been supplying garments to these companies through the trading firm Kishinchand.  He claimed he had the security of payment for the goods guaranteed by the firm Kishinchand.

18.  He admitted that Mr Betting had approached him and requested him in 2002 to supply to Performen’s International directly.  In view of the fact that Performen’s International was a subsidiary of the Sicon Group which is well established, he agreed to supply to Performen’s International directly but decided to increase the profit margin for the Defendant’s protection.  He claimed Mr Betting had approached him in 2003 for a payment of US$0.50 per garment to him on the orders placed by Performen’s International because of the increase in profits.  Mr Ho claimed that he had since then began to doubt the integrity of Mr Betting.  Mr Ho claimed therefore when Mr Betting asked him to be his new company’s supplier, he had asked for a 20% deposit at the time of the placing of orders.  He claimed Mr Betting did not object to the proposal.  However, the deposit was never paid.  As a result, he decided the production will not take place. 

Findings

19.  On the basis of Mr Betting’s and Miss Jansen’s evidence, it is clear that the Plaintiff believed the Defendant was going to produce the garments ordered under the said eleven purchase orders for the Plaintiff.  The emails exchanged between the Plaintiff and the Defendant’s staff also confirmed this belief.  Further evidence that supported the Plaintiff’s case are the emails exchanged between the parties, in particular Mr Ho’s email dated 9 August 2004 where he referred to “the production of your existing orders”.  He told Mr Betting that the Defendant was starting production of micro in its Dongguan factory and he hoped to finish the production by the end of August and will send the goods by air freight at the Defendant’s expense to the Plaintiff.  A further email to Miss Jansen on 1 September 2004 informed her he was working on the delivery of the Plaintiff’s orders.

20.  It is clear from these two emails that Mr Ho was telling the Plaintiff the purchase orders were being produced and will soon reach the Plaintiff.  In none of his emails did Mr Ho demand the payment of the 20% deposit before production.  One would have expected if there was a condition precedent for a deposit payment before production commenced, there would have been repeated demands in that respect.  Unfortunately, other than the 24 June 2004 request, there were no emails exchanged that referred to a 20% deposit payment as a prerequisite before production, or even a simple demand for payment of deposit. 

21.  Mr Ho claimed this was due to the ignorance of his staff.  He also claimed that he seldom replied to emails and his staff would answer them on his behalf.  I find that to be quite incredible.  When some of the most important emails were sent in his name, it would be quite unlikely that his staff would answer these emails or inform the Plaintiff of the production procedure without seeking his consent when these emails were sent in his name. 

22.  The Defendant’s solicitor’s letter dated 11 April 2005 further failed to mention a condition precedent before production whatsoever.  The letter was written in reply to the Plaintiff’s solicitor’s letter dated 8 February 2005 accepting the Defendant’s breach of contract in failing to honour the agreement, i.e. the eleven purchase orders. 

23.  The defence of payment of deposit as a condition precedent was only mentioned for the first time by the Defendant in its solicitor’s letter dated 25 October 2005.  The Plaintiff issued a writ in December 2005.  Based on the documentary evidence, the evidence of Mr Betting and Miss Jansen, it is clear that there were eleven purchase orders placed by the Plaintiff which the Defendant had accepted.  Mr Ho claimed he had mentioned the 20% deposit to Mr Betting when they met in November 2003.  Mr Betting however denied there was any mention of deposit in the conversation.  On the other hand, even if it was mentioned, the Defendant is required to show that the Plaintiff had accepted this to be a condition precedent of the agreement.

24.  The 24 June 2004 email relied on heavily by Mr Ho failed to support the Defendant’s claim because it did not refer to the 20% deposit as a condition precedent to the contract.  It mentioned only the payment to the material supplier.  From the emails exchanged, it seems the Defendant had no difficulties obtaining the fabrics.  Some of the emails exchanged referred to the quantity of the stock or materials placed with the Defendant by the Plaintiff.  If the deposit required was to pay for the materials or fabrics, and if no deposits were paid, I am surprised that the parties would be discussing the fabrics and other materials such as buttons, etc. that were placed at the Defendant’s premises. 

25.  There were also no further demands from the deposit payment from the Defendant in June and July 2004.  Furthermore, there was no deposit requirement for the samples produced by the Defendant in January and February 2004.  If the Defendant had insisted on the condition precedent of deposit payment before production, Mr Ho failed to explain why the Defendant had successfully produced samples for the Plaintiff in January and February 2004.

26.  On the basis of the evidence adduced, I find there was an agreement between the parties for the Defendant to produce the garments ordered by the Plaintiff in respect of the eleven purchase orders.  The Defendant was clearly in breach of the agreement when it failed to manufacture the garments ordered. 

(B) Quantum of damages

27.  I am satisfied the Plaintiff suffered a loss of profit in the sum of US$55,638.80, the profits it would have made from the sale of the garments ordered from the Defendant.  I accept the Plaintiff’s evidence on the orders placed by his Dutch customers and the price relating to each order. 

Interests

28.  Interests on the judgment sum is awarded at half judgment rate from the date of writ to the date of judgment and thereafter at judgment rate until full payment.

Costs

29.  Costs to be borne by the Defendant to the Plaintiff, to be taxed if not agreed, with certificate for counsel.