Toprise Fashions Ltd v Nik Nak Clothing Co Ltd & Ors

In this application the claimant, Toprise Fashions Ltd, applies for summary judgment on its claim for US$765,385.32 or, alternatively, pursuant respectively to CPR 25.7 and 24.6, for an interim payment to it or into court as a condition for leave to the defendants to defend.

The claimant is a manufacturer and exporter of knitwear and other garments in the Far East. The first and second defendants, Nik Nak Clothing Co Ltd and Nik Nak (1) Ltd, are garment wholesalers based in the United Kingdom. They are owned and controlled by the third defendant, Mr Anjum Ahmed. The second defendant is currently gazetted to be struck off the register.

The claimant dealt with and sold garments to the Nik Nak entities between February 2006 and October 2007. Payment in full, amounting to approximately €500,000, was made for orders placed before 24 December 2006. The dispute arose thereafter. It concerns non-payment of a number of invoices for goods issued on and since 24 December 2006, and allegations of faults with goods delivered by the claimant, often directly to Nik Nak’s customers.

Proceedings and particulars of claim were issued on 12 September 2008. A defence and counterclaim was filed on 14 November 2008, and a reply and defence to the counterclaim on 13 February 2009. The application now before the court was filed on 8 April 2009 supported by evidence from Ms Isa Mui, a director of the claimant. The third defendant filed a statement in opposition to the application on 20 May, and Ms Mui filed a second statement on 27 May.

The claim is made in respect of sums the claimant alleges are due under nine invoices for goods delivered in January and February 2007. Seven of these invoices were issued to the second defendant in respect of garments supplied. The other two invoices (TR-01011/07 and TR-07011/07 totalling US$4,791) were issued to the first defendant in respect of samples provided by the claimant.

The relevant invoices are set out in a table at paragraph 3 of the particulars of claim as follows:

Of the garment invoices, four (TR-1206/06, TR-0103/07, TR-0105/07 and TR-0109/07) were issued by the claimant between 24 December 2006 and 25 January 2007 in respect of goods destined for Ya Ya Clothing of Amsterdam (“the Ya Ya invoices”). The total sum invoiced was US$427,363. The other three invoices were issued between 9 January and 2 February 2007 in respect of goods which were for Wiener International (“the Wiener invoices”). Part payment was made in respect of TR-0104/07 and it is alleged that US$333,229 remains unpaid on these invoices.

The primary claim and this application is made on these invoices. The claimant has also claimed against the first and third defendants alleging that they entered into a restructuring agreement on or about 30 July 2007 under which they undertook to clear the first and second defendants’ liabilities to the claimant by instalments. The third defendant has alleged that one of the two letters (that dated 30 July 2007) relied on by the claimant in support of this claim is a forgery and has raised questions about the second, unsigned, letter (dated 5 February 2008). In the light of this and possibly also of the approach of the court to obtaining summary judgment where fraud is alleged (see [16(vii)] below) the claimant does not now seek summary judgment in relation to this claim. I should add that, in reaching my conclusions, I have not had regard to any document which was challenged by the defendants.

In respect of the claim against the first defendant in respect of the two sample invoices, it is stated (defence paragraph 5) that the invoices “concern samples provided by the claimant as part of its marketing efforts and not goods purchased or ordered by the first defendant” and (defence paragraph 6) that “the first defendant received samples from the claimant, which, in accordance with trade practice and usage, are not chargeable”.

In respect of the Ya Ya invoices issued to the second defendant, the defence (see paragraph 8) is that “the first and/or second defendant acted as agent for Ya Ya (which was a named and disclosed principal) because the first and/or second defendant could obtain letters of credit which Ya Ya could not and, in return, the first and/or second defendant received a 30%-40% uplift from Ya Ya”. It is also pleaded (paragraph 10) that invoices TR-1206/06, TR-0103/07 and TR-0105/07 “were raised by the claimant against the second defendant in respect of goods ordered by Ya Ya as principal with the second defendant acting as agent”. The defendants have not pleaded in respect of invoice TR-0109/07. Mr Latimer submitted that this invoice had been missed out in the heading before paragraph 10 of the defence and counterclaim, that its absence from the side heading was not an admission, and that the matter could be dealt with by amendment. Since paragraph 10 refers to “the 3 above mentioned invoices”, and there are four other references to “3 invoices” or “3 above mentioned invoices” in paragraphs 10-14, the problem does not appear to be one of mistakenly leaving an invoice out of a heading. However, I accept this matter could be dealt with by amendment and, for present purposes, I proceed on the basis that the defence pleaded in paragraph 10 is pleaded in respect of all four Ya Ya invoices.

Paragraphs 11-13 plead in the alternative that, if the second defendant was the principal or is otherwise liable to the claimant on these invoices, the goods were delivered in “mixed orders” in breach of an implied term that “mixed orders of goods would not be delivered”. Paragraph 12 states in parentheses that “a mixed order consists of not just one type of goods but of several types of goods or orders consigned together which must then be separated out by the consignee and repacked for onward sale”. The defence also pleads the implied terms under sections 13 and 14 of the Sale of Goods Act 1979; viz. that the goods including their packaging would correspond with description and would be of satisfactory quality and/or fit for purpose.

Paragraph 13 states:-

“in breach of the implied term set out above, the claimants supplied the goods which are the subject matter of the three invoices mentioned above in mixed orders. For the avoidance of doubt supply of a mixed order is a breach of the term that the goods including their packaging would correspond with the description and the packaging was not of satisfactory quality or fit for purpose in that it was misleading and wrong in a material respect”.

In paragraph 14 it is stated that by reason of these matters “the second defendant has suffered loss and damage, namely, that the second defendant’s customer, Ya Ya, has refused to pay for the goods that were the subject matter of the three above mentioned invoices. Consequently the second defendant has lost sales to the value of the three above mentioned invoices plus the uplift of 30%-40%”. The second defendant claims to be entitled to set off the sum of its loss in diminution or extinction of the claim and (defence paragraphs 30-31) counterclaims in respect of these breaches.

With regard to the remaining invoices the defendants also plead that the goods were delivered in mixed parcels in breach of an implied term that “mixed orders of the goods would not be delivered”: (defence paragraphs 15-17). Additionally, they plead that the contracts contained express terms that the goods would be delivered by specified delivery dates which were not met: defence paragraphs 16 and 18.

Paragraphs 20 and 21 of the defence concern a practice described in the pleading as “submarineing”. The pleader states:

“the representation made by Ivan Tse at the initial meeting with the third defendant [in or about February 2006] was wrong in that goods were manufactured in China and shipped via Singapore with changes having been made to invoices, bills of lading and GSP certificates. This practice is known as transhipment or submarining. In these circumstances the claimant is put to strict proof, including all necessary documentary proof that goods supplied in relation to each invoice sued upon were delivered lawfully; insofar as the claimant is not able to prove the same then the relevant defendant is entitled to rely upon the defence of illegality or alternatively to rescind the contract and lawfully avoid payment of the price.”

Mr Drake, on behalf of the claimant and Mr Latimer, on behalf of the defendants, agreed that the principles to be applied in deciding whether or not to give summary judgment have been helpfully summarised in the judgment of Lewison J in Federal Republic of Nigeria v Santolina Investment Corp. [2007] EWHC 437 (CH). Lewison J stated (at [4]):

“i)

The court must consider whether the defendant has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 2 All ER 91;

ii)

A "realistic" defence is one that carries some degree of conviction. This means a defence that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8];

Mr Ahmed states that he was first introduced to the claimant in or about July/August 2006 by Ruud Tilroe and Marco Draijer, the representatives of Ya Ya clothing. He states (paragraph 8) that they introduced him to Ivan Tse and they discussed what their businesses did and how they could potentially work together. They went to Mr Tse’s office in Hong Kong and he, on behalf of Nik Nak, and Messrs Tilroe and Draijer, on behalf of Ya Ya, inspected a range of knitwear samples. He states (paragraph 9) that at that initial meeting Messrs Tilroe and Draijer wished to place orders on behalf of Ya Ya for garments with Toprise. Mr Ahmed deals with the Ya Ya orders in paragraphs 10 and 11 of his statement. He says:

“10.

Ya Ya were a customer of both Nik Nak and Nik Nak (1). On the basis of the samples shown by Toprise to Ya Ya, orders were placed with Toprise by Nik Nak on behalf of Ya Ya who would negotiate the price for the goods themselves. They would then add on to the order price, an agreed sum to be paid to Nik Nak/Nik Nak (1) which was usually between 30% and 40% of the cost, to cover clearance, freight and any duties involved in delivering the goods. The orders would be handwritten on behalf of Ya Ya by Ruud Tilroe and copies would be given to us and to Toprise. Ya Ya did not have the funds or liquidity to place large orders with Toprise. Toprise therefore used Nik Nak and Nik Nak (1) to open letters of credit on behalf of Ya Ya, with Nik Nak acting as Ya Ya’s agent, with Ya Ya being the principal purchaser of the garments from Toprise. In turn, Nik Nak and Nik Nak (1) would invoice Ya Ya for the goods on arrival, providing Ya Ya with approximately 60-90 days credit for payment. Nik Nak and Nik Nak (1) dealt with the merchandising for all orders… and would liaise with both Ya Ya and Toprise as part of the process. Nik Nak and Nik Nak (1) never saw or inspected the consignment of goods manufactured for Ya Ya as these were sent directly to them by their shipping agent.”

“11.

The value of the transactions involving Nik Nak, Nik Nak (1), Ya Ya and Toprise were in the region of 2.5 million pounds. There were a large number of orders which were placed during approximately four visits by me and Ya Ya to Toprise. Initially, the arrangement worked satisfactorily.”

Ms Mui’s second statement states (paragraph 7) the initial meeting between Toprise and Nik Nak did not take place in July 2006. It took place in February 2006, as stated in paragraph 7 of the defence and counterclaim. She also says Messrs Tilroe and Draijer were there “as a customer of Nik Nak and not as Toprise’s customer, acting through Nik Nak”.

Mr Ahmed’s statement deals with problems with goods supplied by Toprise in relation to orders appertaining to Ya Ya in paragraphs 13-16. In relation to the invoices raised on and after 24 December 2006, Mr Ahmed states (in paragraph 17) “we encountered problems with the goods supplied pursuant to the subsequent invoices raised which are the subject matter of these proceedings”. He states that the problems related to the following matters: “the consignment of goods delivered to our shipping agents comprised assortments of different goods” (paragraph 18.1), the goods delivered did not correspond with the description specified by Ya Ya as to nature, quantity and style (paragraph 18.2), and when Nik Nak invoiced Ya Ya for the goods they refused to pay on the basis that the orders were mixed (paragraph 18.4). Paragraph 18.4 states “we could not get paid by Ya Ya for any of the goods we ordered and had been paid for on its behalf”.

Mr Ahmed states in relation to invoice numbers he identifies as 1206, 0103, 0105, and SP07 that they “encountered the same problems with all of these invoices. The goods delivered all comprised mixed cartons and consequently, Ya Ya refused to pay us”. Paragraphs 21 and 22 state that despite attempts to exert pressure on Ya Ya to pay they were unwilling to do so, that the stock in question all contained Ya Ya labels making it impossible to sell elsewhere and the majority of the stock remained with Maersk Logistics in Rotterdam. It would appear that the first three of these are TR-1206/06, TR-0103/07 and TR-0105/07. It is not clear what “SP07” refers to.

With regard to the invoices for samples, Mr Ahmed states (paragraph 27) that “it is trade practice that no customer or potential customer pays for sample garments and at no time did we agree contractually to pay for such garments”. He states that he suspects that the reason for including these invoices is to bring the first defendant into the action in order to exert commercial pressure upon it and the invoices were not raised until 10 July 2007 and not, in his belief delivered to Nik Nak until approximately the end of August 2007, substantially later than the claim for the other invoices.

As far as the claims for the invoices which Mr Ahmed says were in respect of goods ordered for Wiener International (paragraph 23) he states of invoice TR-0104/07 (see paragraphs 24 and 25) that:

“24.

Weiner ordered these goods from ourselves which were meant to be delivered in good time in readiness for sale in January. However, they failed to arrive on time and were not delivered until February 2007 which meant that we had missed the season.”

“25.

We eventually persuaded Wiener to take delivery of the goods… however, on delivery Wiener contacted us to indicate that they were returning the goods as they were not able to sell them. The goods also comprised mixed orders that did not accord with the orders placed. Wiener wrote to us on 3 July 2007 setting out what the problems were, having returned them in or about the 1^st or 2^nd week of July. They also raised debit notes against us for €250,000 in respect of problems that they had encountered with their customers.”

Mr Ahmed states that they attempted to sell the goods to other companies but they were rejected because of their quality and it transpired that the goods did not correspond to the orders.

Mr Latimer relied on the absence of any evidence from Ivan Tse who Mr Ahmed states was at the crucial meetings or from anyone from Ya Ya for the submission that this case requires a fuller investigation of the facts than is possible or permissible on summary judgment.

I first consider Nik Nak’s allegation that the goods sold were not made in Bangladesh but had been made in China and shipped to Singapore, a practice which Nik Nak has described as “submarineing”. There is no suggestion that changes have been made to invoices, bills of lading or certificates of origin. All that Nik Nak has done is to put the claimant to strict proof that the goods did originate in Bangladesh. No positive case is thus being run. The evidence of Ms Mui and the documents, including the bills of lading and invoices make it clear that the goods were manufactured in Bangladesh. The allegation in paragraphs 20-21 of the defence and counterclaim in effect alleges false misrepresentation on the part of the claimant. There is no evidence in support of this plea of fraud. The allegation is not properly pleaded and the way it is pleaded provides no reason for refusing the claimant’s application for summary judgment.

Mr Ahmed’s evidence is that Nik Nak contracted as the agent of Ya Ya because Ya Ya did not have the financial ability to place large orders and support them by letters of credit. Mr Latimer submits that Mr Ahmed gives a cogent explanation as to the financial reasons for there being an agency relationship and that the contemporary documents are consistent or at the very least not inconsistent with his evidence.

Mr Latimer, however, accepts that the documents Ms Mui has placed before the court provide no positive support for this. The documents show that the purchase orders were made by Nik Nak in its own name; they were in fact made by the first defendant Nik Nak Clothing Co Ltd. See for example the purchase orders that resulted in invoices TR-1206/06 and TR-0103/07, all either dated 12 September 2006 or have no date. The invoices submitted by the claimant were all issued to Nik Nak (1) Ltd.

It is also clear from the documents that Nik Nak itself issued its own invoices to Ya Ya and described Ya Ya as its “customer”. In respect of orders placed before 24 December 2006 it is common ground that Nik Nak paid the claimant in full. Moreover, an examination of the relevant purchase orders shows that there was no difference in the documentation used by Nik Nak when placing orders for goods which were destined for Ya Ya (which Mr Ahmed says were ordered as agent) and goods ordered by Nik Nak itself for onward sale to other customers where it is not said Nik Nak acted as an agent. Finally in respect of the Ya Ya invoices, Mr Ahmed’s response to Mr Tse’s email of 2 March 2007 was not that Nik Nak was not liable because it dealt with the claimant as Ya Ya’s agent but that it “would settle this as soon as possible”, and on 23 May 2007 Mr Addis, Nik Nak (1)’s finance controller, sent the claimant a proposal for settling the account which included sums outstanding on the four Ya Ya invoices as well as other invoices.

Mr Latimer submitted that summary judgment cannot properly be given. He relies on the fact that the contemporaneous documents before the court are either consistent or at least not inconsistent with Mr Ahmed’s evidence. He also relies on the fact that Mr Ahmed’s evidence has not been rebutted by any direct evidence on behalf of the claimant from those at the initial meeting in February 2006, that is Mr Tse and the Ya Ya representatives.

I have, however, concluded that although there is no evidence before me from Mr Tse or someone from Ya Ya, the second defendant does not have a realistic prospect of success in respect of the agency argument. This is one of those cases in which the overall weight of the contemporaneous documents makes it clear that there is no real substance in the factual assertions made by Mr Ahmed. It was not suggested that there would be any additional evidence on behalf of the defendant available at trial. Moreover, although primarily of relevance to the defendants’ claim that the goods were delivered in breach of an implied term, Mr Ahmed’s statements in paragraphs 18.4 and 21 and 22 that Ya Ya refused to pay and did not pay for the goods in the Ya Ya invoices are directly contradicted by a letter from Ya Ya to the claimant dated 5 November 2007. That refers to orders placed through Nik Nak (1) and states that Ya Ya “confirm that we have paid Nik Nak (1) Ltd for all these orders at full price”. It is also contradicted by Bank statements the claimant has obtained from Ya Ya which, when married up to the purchase orders and invoices, show that Ya Ya paid Nik Nak (1)’s invoice number 337 dated 22 January 2007 for €245,114.94 in two instalments; €145,114.94 on 2 April 2007, and €100,000 on 10 April.

Mr Drake submitted that there was no room for implying a term prohibiting “mixed goods” or “mixed orders”. He submitted there is no basis to conclude that such a term would spell out in express terms what the contract read as a whole would reasonably be understood to mean: (see Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10). He also submitted the term to be implied is expressly contradicted by the express terms in the contract. In support of the latter submission he relied on the fact that the purchase orders and the invoices provide that the articles of clothing were to be shipped in as sorted colours and sizes and because a number of the purchase orders stated that “UNASSORTED CARTON ARE NOT ALLOWED”. It will be seen that I do not consider that this in fact provides an answer to the defence which relates not just to colours and sizes but (see [11] above) to orders that are not “just one type of goods but several types of goods… consigned together”. It is seen from the description of the goods in the purchase orders that they are identified by a specific code number and description. For example purchase order 14260 dated 12 September 2006 states under description “S-3188 ladies deep v neck long slv pullover dress/tunic with ribbed bottom same as sample 6953 jersey/12GG”. Below that there are set out the numbers of items in each of three colours and a variety of sizes. This purchase order refers to goods which are one of the three items invoiced in TR-0103/07.

The allegation of the breach of the implied term is vague and unparticularised saying only (defence paragraph 13) that the claimant “supplied goods… in mixed orders”. But Mr Ahmed states (paragraphs 18.1 and 20 of his statement) that “the consignment of goods delivered to our shipping agents comprised assortments of different goods”. For this reason, despite the unparticularised nature of the pleaded allegation of breach, I do not consider that the prospects of the defendant establishing an implied term as to types of goods (as opposed to sizes and colours) are only fanciful. However, the documentary evidence to which I have referred showing that Ya Ya accepted the goods as in order and that it paid Nik Nak’s invoices in full directly contradicts Mr Ahmed’s evidence. For that reason the allegations of breach of an implied term and the counterclaim in respect of the Ya Ya invoices do not, in my judgment, raise a “realistic” prospect of success. Accordingly the application for summary judgment is granted in respect of the Ya Ya invoices which, as I have stated, total US$427,363.

Mr Latimer submits that the claimant has not set out the legal basis for its claim in the particulars of claim. He argues that the email dated 5 October 2006 and the chain of earlier emails does not support the finding that there was a contract to pay for samples. He submits that the agreement was only in relation to the particular samples for over 100 pieces of garment and that it was made because a particularly large quantity of samples had been requested. He also submitted that there is no evidential link between Mr Ahmed’s agreement evidenced in the email dated 5 October 2006 and the samples dealt with in invoice numbers TR-01011/07 (issued on 25 January 2007) and TR-07011/07 (issued on 10 July 2007).

In considering whether the defendant has a realistic prospect of success on this point I have taken into account its refusal to answer the claimant’s requests for further and better particulars of a custom that samples are not chargeable. The request was made on 24 November 2008. On 14 January 2009 the defendant’s solicitors, Billy Hughes and Co, stated that they “do not deem it necessary or appropriate to respond to [the claimant’s solicitor’s] letter in the detail required. We consider that you are seeking to extract information from our client which are matters of evidence and which will be dealt with on disclosure and exchange of witness statements in due course.” The claimant’s solicitor made a further request for details of the alleged trade practice in a letter dated 22 May 2009. There has been no reply to this.

The email dated 5 October 2006 stated that Nik Nak “will pay for samples”. That email was part of an exchange about 100 garments sent as samples. The invoices in this case relate to over 600 samples. To the extent that the defendants’ case is that the earlier agreement was to pay for “a particularly large quantity of samples”, the evidence is that in respect of a large number of samples there would be payment. These invoices related to over 600 samples. In these circumstances and in the absence of any particulars or evidence of trade custom, I have concluded that summary judgment should be given on the sample invoices, which total US$4,791.

I have great doubts about the defendants’ case on late delivery. There is no indication in any of the documents that the whole order covered by invoice TR-0104/07 was to be delivered by 15 January 2007. The purchase orders give a shipping date of “20/12/2006 by sea”. The invoice itself states “ETA ROTTERDAM: FEB 05/07” and the bill of exchange issued by Nik Nak in respect of this invoice is not dated until 27 and 31 January 2007. The position is similar on the remaining invoices. I have, however, concluded that I should refuse the application in respect of these invoices because of the defence that the goods were delivered in mixed parcels in breach of an implied term. I have explained (see [30]-[31]) why I do not consider that the statement “UNASSORTED CARTON ARE NOT ALLOWED” is, in the context of this contract, inconsistent with an implied term as to types of goods as opposed to colours and sizes. In respect of these invoices there is evidence in the form of a letter from Wiener International to Nik Nak that Wiener had “found many different garments mixed in the boxes, which were not ordered”. This letter also states that Weiner is passing a charge of €250,000 to Nik Nak. That sum was stated to represent penalties Wiener received from its customers for the incorrect packing of garments and goods Nik Nak sent them. Mr Ahmed’s evidence is that Nik Nak passed this letter to the claimant under cover of a letter dated 5 October 2007 which also addressed other complaints which are not relevant to this application or these proceedings. Ms Mui states in her second witness statement that she had never seen the letter from Wiener. These are not matters that can be resolved in an application for summary judgment.

For these reasons, the claimant’s application is granted in respect of the Ya Ya and sample invoices, but refused in respect of the Wiener invoices.