Essabhoy Ebrahim (HK) Ltd v. Tai Fong Dyeing and Weaving Factory Ltd
Read the full judgment text of HCA 1576/1976 on BabelCite. This High Court CFI judgment.
1. By two contracts in writing both dated 18th May 1976 the Plaintiff sold to the Defendant under Contract No. 11/5 2,000 kilos of synthetic coal tar dye - VAT BLUE 1 - indigo minimum purity 92% packing in drums at the price of $305 per kilo, shipment by air from India May/June 1976 for delivery to the Defendant's godown cash on delivery. Under this contract the Defendant paid the Plaintiff a deposit of $122,000. Under Contract No. 11/8, 3 metric tons (3000 kilos) of indigo 60% purity grain as p
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HCA001576/1976
Coram: Zimmern, J. Date of Judgment: 22nd November, 1978. ----------------- JUDGMENT ----------------- 1. By two contracts in writing both dated 18th May 1976 the Plaintiff sold to the Defendant under Contract No. 11/5 2,000 kilos of synthetic coal tar dye - VAT BLUE 1 - indigo minimum purity 92% packing in drums at the price of $305 per kilo, shipment by air from India May/June 1976 for delivery to the Defendant's godown cash on delivery. Under this contract the Defendant paid the Plaintiff a deposit of $122,000. Under Contract No. 11/8, 3 metric tons (3000 kilos) of indigo 60% purity grain as per "I.C.I." No. 59005 or as BASF packing in iron drums at the price of $220,000 per metric ton shipment by air from India May/June/July 1976 at least one metric ton monthly for delivery into ascertained godown of the Defendant's payment by way of local letter of credit. 2. On or about 4th June the Plaintiff under Contract No. 11/8 delivered to the Defendant 1 metric ton said to be indigo 60% purity grain which was accepted by the Defendant and paid for. On or about the 18th June the Plaintiff delivered to the Defendant 425 kilos which was rejected by the Defendant. On or about 29th June the Plaintiff delivered to the Defendant a further thousand kilos which was rejected by the Defendant a further thousand kilos which was rejected by the Defendant and thereafter the Plaintiff delivered no more under Contract No. 11/8. On or about the 18th June 1976 the Plaintiff delivered 200 kilos of synthetic coal tar dye under Contract No. 11/5 to the Defendant which was accepted and paid for less deposit pro tanto. Thereafter the Plaintiff made no further deliveries under this contract. It is the Plaintiff's case that the rejection by the Defendant of the 1425 kilos was wrongful, showing an intention to repudiate Contract No. 11/8 which repudiation was accepted and it claims damages against the Defendant. The Plaintiff further says by reason of the Defendant's repudiation of that contract the Plaintiff was entitled to rescind Contract No. 11/5 relying on one of the conditions of sale printed on the back of the contract. 3. The Defendant says it was entitled to reject the 1425 kilos delivered by the Plaintiff by reasons
4. To decide on the allegations in this case it is necessary to go into the circumstances then prevailing in Hong Kong surrounding these contracts. The Plaintiff a trading company had prior to these contracts in issue sold the Defendant cotton yarn and they were known to one another. Up to about May 1976 the Plaintiff had not sold or traded in indigo dye. The Defendant, a dying and weaving concern, is an end user of indigo dye in particular for the dying of cotton yarn for the weaving of denim. It is clear from the evidence that indigo dyes manufactured in the United Kingdom, West Germany, Japan, China and India were generally sold in Hong Kong by manufacturer's agents or representatives. Under Contract No. 11/8 the parties are agreed that what was called for was indigo 60% purity grain manufactured either by I.C.I. in the United Kingdom or BASF in West Germany. The latter's agent in Hong Kong is the well known company commonly referred to as Jebsen. A chemical engineer of BASF attached to Jebsen gave evidence and told the Court that indigo 60% purity grain is a treated dye soluble in water. If exposed to moist air or sun light for a long period of time it will revert to its original state i.e. a pigment which is not soluble in water. BASF 60% grain for Hong Kong is sold by Jebsen in sealed drums each containing 25 kilos of grain in a polythelene bag. Such drums are almost air-tight though the sealing does not make them more so. The drums can only be opened after breaking the seal and only BASF or its agents can reseal the drums with a special key or device. At material times Jebsen was selling indigo 60% purity grain at a price of $66 per kilo - well below market price. Due to the demand for denim indigo manufacturer's representatives in Hong Kong could not satisfy local requirements. The sales representative of Jebsen told the Court that during the first half of 1976 buyers were constantly ringing up offering very high prices for the goods. Let it be noted that Contract No. 11/8 in issue bears a price tag of $220 per kilo which is over 3 times Jebsen's then selling price. Under such conditions it is not surprising that traders would be searching for supplies outside of Hong Kong. If shipments could be rushed here substantial profits there would be but there was no assurance that these high prices would maintain for long. 5. In April 1976 Mr. Hatim Ebrahim went to India and contacted Idachem Industries (Private) Ltd. of Bombay a manufacturer of Indigo dye in powder or pigment form - the indigo sold under Contract No. 11/5 - but not in grain form. Mr. Ebrahim was informed that stocks of I.C.I. and BASF indigo in grain were available in India and Idachem started buying such stocks. 6. Mr. Ebrahim told the Court that upon return from India he personally negotiated the two contracts with Mr. Law Tin Chai managing director of the Defendant company. He did not divulge his source of supply from India and there was no elaborate discussion about the packing save that it would be in drums. There was no mention about label and seal. He had shown samples of the grain brought back from India. Mr. Law told the Court in chief that he did not negotiate the contracts with Mr. Ebrahim. He negotiated them with the Plaintiff's broker one Wong Chi Wai and its manager a Mr. Luk. He warned Mr. Luk of the danger of false goods and told him he would not accept goods unsealed. I.C.I. or BASF grain in unsealed drums would only fetch 80% to 90% of the market price. Mr. Luk had guaranteed the goods would be good - original goods from manufacturers named. However under cross examination he eventually admitted that he did see Mr. Ebrahim over the two contracts. I far prefer the evidence of Mr. Ebrahim to that of Mr. Law and find as a fact that Mr. Ebrahim had made no representation to Mr. Law in the course of negotiations in respect of the description of the goods under Contract No. 11/8 other than what was incorporated into the contract itself. My assessment of Mr. Law is supported by the laxity in the Defendant's conduct of its own defence. First its statement of Defence refers to packing in "Cartons" and only amended to drums at the trial. Second the pleading refers to sealed drums with "I.C.I." or "BASF" label endorsed on the seal. Though not exhibited the Defendant brought into Court an original BASF drum of 60% grain and leading counsel for the Defendant had to admit that the seal was in fact blank and did not have the label of BASF endorsed thereon. The Defendant's allegation of this representation is unfounded and fails. 7. I turn to the allegations of usage in the trade giving rise to the implied term, set out above. Mr. Bandur, BASF's chemical engineer attached to Jebsen, called by the Defendant, told the Court that BASF's deliveries through Jebsen of 60% grain in Hong Kong are in sealed drums containing 25 kilos of grain wrapped in a polythelene bag. Should the seal be broken in transit or by the Customs and Excise for inspection then such drums would be resealed which only Jebsen could prior to delivery. He further said customers here would not accept drums with broken seal. An end user was called to say that he would not accept any drum with a broken seal. On this evidence the Court is asked to say that by the custom and usage of the trade in Hong Kong there is annexed to a contract in writing for the sale and purchase of BASF 60% grain a term that the packing would be in sealed drums. Farewell L.J. in Devonald v. Rosser & Sons(1) said "A custom to be good must be reasonable certain and notorious". It is of course reasonable that a drum containing goods for export should be somehow securely closed to prevent pilferage or accidental opening and a seal is no more than one of such devices, others taping and locking come readily to mind; I am unable to see how one manufacturer's mode of packing on the evidence adduced could be said to be certain and notorious as regards a trade as a whole. The packing is entirely at the discretion of the manufacturer and for all I know there is nothing to stop any manufacturer from changing its packing anytime it is so minded. I cannot accept the Defendant's contention. Moreover whatever the modus operandi of BASF through Jebsen in Hong Kong the contract in issue was not between the Defendant and Jebsen or BASF. It was between the Defendant and the Plaintiff. The parties are agreed that the 60% grain must be manufactured by I.C.I. or BASF. The Plaintiff says the latter manufacture was delivered and this I shall deal with this later. It was a term of the contract that the goods would be supplied by air from India. The parties must have known that the goods manufactured in the United Kingdom or West Germany were then in India or about to be shipped there. They would be goods destined for the India market and it was because of the demand here that such goods would be imported therefrom. If the Defendant seriously wanted a packing in a certain way it could have stipulated for it in the contract. It only stipulated for packing in iron drums and that is all it is entitled to demand. For the reasons given the Defendant's claims in respect of custom and usage, implied term, fundamental term all fail, and I shall revert to this again. 8. This is a case of sale by description and I find under Contract No. 11/8 the description of the goods to be "Indigo 60% Purity Grain either No. 59005 of I.C.I. Manufacture or of BASF Manufacture packing in iron drums". It now falls on me to determine whether the goods delivered correspond with the description. 9. Mr. Turakhia, a director of Idachem Industries (Pvt.) Ltd. of Bombay came from there to testify. He told the Court he bought the BASF 60% grain in India in its original packing. His company only manufactured Indigo dye in powder form. Indigo Grain was not manufactured in India. His company had sold the BASF grain to the Plaintiff at a price of US$27.75 per kilo and 92% powder at $47.50 per kilo both C.I.F. Hong Kong Air freight. The parties are agreed that the then exchange rate was $4.95 per US$1. He further said he ordered the drums containing the grain to be repainted prior to shipment. I accept his evidence. Save on one point. 10. A senior inspector of the Customs and Excise Office told the Court he was stationed at Kai Tak Airport freight terminal in June 1974. Three consignments of indigo dyes consigned to the Plaintiff arrived from India that month. The dates of arrival were 4th, 18th and 29th. Save for 4 drums on the 18th he had in the presence of the consignee's representative broken the seal of every drum to inspect the cargo. 11. The consignee's representative at the terminal one Jackie Tam told the Court immediately after each customs inspection he closed each drum put the straps back into position with the seal on a wire. He loaded the goods on to a lorry and delivered the goods to the Plaintiff's buyers. He further said he told the buyers that the seals had been broken by customs officers. He told the Court the Defendant accepted 1,000 kilos of the first consignment but rejected the deliveries under the 2nd and 3rd consignments. This is common ground. 12. By paragraph 5 of its defence the Defendant pleaded "Due to an oversight the said one metric ton of indigo dye stuff was accepted by the Defendant's employee although the manufacturer's original seal had been removed. The said one metric ton of indigo dye stuff turned out to be of inferior strength." To substantiate this allegation the Defendant called the man in charge of dying who told the Court that he used the 1,000 kilos because the Defendant was badly in need of indigo dye. He started by telling the Court that he had used it to dye cloth and when reminded he changed to dye yarn. He said the colour was not the same as before so he had to change the proportion to use 1/10th more and the colour was not as bright. Even if I were to accept his evidence, which I do not as I am convinced he had told a cock and bull story, this does not for a moment rebut the Plaintiff's evidence that the goods delivered were BASF 60% grain. 13. For the reasons given I find the goods delivered by the Plaintiff under Contract No. 11/8 corresponded with the description and the Defendant was in breach by its refusal to accept the 2 deliveries thereby entitling the Plaintiff to communicate notice of termination of the contract which it did. As to Contract No. 11/5 the Plaintiff only delivered 200 kilos out of 1,000 kilos and says this contract was terminated by reason of its acceptance of the Defendant's repudiation of Contract No. 11/8 under a common condition 21 of the 2 contracts reading:
All I need say about this condition 21 is that the words "all other outstanding contracts" can only mean contracts for goods of the same description. Contracts No. 11/5 and 11/8 do not cover goods of the same description and by failing to deliver the balance of 800 kilos within contract period the Plaintiff was in breach. The Defendant has counterclaimed damages for this breach but Mr. Ching leading counsel for the Defendant has told the Court he has failed to prove any damage and was not interested in nominal damages so I leave this contract and the claim thereon at rest. 14. I turn now to the damages payable by the Defendant under Contract No. 11/8. Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract and the market or current price at the time or times when the goods ought to have been accepted. In respect of the two deliveries rejected the dates are readily ascertainable. In respect of the balance the Plaintiff having accepted the Defendant's anticipatory breach, subject to any requirement of mitigation, the relevant date remains the date fixed for delivery. I have referred to anticipatory breach because during June and July the parties had corresponded and by a letter dated the 25th June 1976 the Defendant had written to the Plaintiff in part reading
After further exchanges the Plaintiff terminated Contract No. 11/8 on the 10th July. 15. Mr. Ebrahim was in India when the Defendant refused the 2 deliveries and did not return till 4th July. He had heard by end June that the market was dropping. This is in line with the evidence of Jebsen's sales representative who said the market dropped in the 2nd half of the year. This was from memory and he did not have his records with him. Jebsen was still selling at the manufacturer's controlled price of $66 per kilo and maintained this price till September. There is no evidence of this but doubtless other manufacturer's representatives were doing the same. The Plaintiff's buying price was US$27.75 per kilo i.e. $135 per kilo. It had contracts including powder with other end users still executory. Mr. Ebrahim was a worried man. Of the balance of 2,000 kilos under Contract No. 11/8 he succeeded in cancelling 575 kilos with the suppliers. The Plaintiff claims loss of profit on this lot. This comes to $48,875 and I shall deal with this later. 16. The Plaintiff sold the following:-
Mr. Ebrahim said in respect of the first 3 sales he got the prices set out because the purchasers only took the grain conditional upon cancelling executory contracts for powder. The prices were higher than market prices. I am not prepared to accept this contention. The Plaintiff had failed to deliver the balance of 700 kilos of powder to the Defendant. From the evidence of Mr. Turakhia, I conclude that Idachem was having trouble in producing the powder on time. I am prepared to accept that the Plaintiff had sold at their best prices. The last day for delivery under Contract No. 11/8 of 1,000 kilos was 31/7/77. The last two sales were made under invoices dated 9/8/76. All the goods were actually in Hong Kong in June because the Defendant had rejected them. The Plaintiff knew prices were falling. It ought to have mitigated its damages by selling earlier then under invoices dated 9/8/76 and if it had done so it ought to have got $185 per kilo for these goods. The same applies to the 575 kilos cancelled in India and for which a loss of profit is claimed. Mr. Ebrahim was in India at the end of June and knew the market was falling in Hong Kong but the price was as yet not near the Plaintiff's purchasing price. The 575 kilos was spot cargo in India. The contract was at an end on 10th July. The Plaintiff ought to have mitigated its damages by selling the goods in Hong Kong when it would have got the price of $185 per kilo. The damages suffered by the Plaintiff for the Defendant's breach are as follows:
17. In coming to this assessment I am not unmindful of the fact that the Defendant's breaches occurred in mid-June and end June and the first 2 lots were not sold by the Plaintiff until early July. However I do not think that there was much difference, if any, in price between the dates. It was an end user's market and prices may vary between different buyers depending on the urgency of the end user's requirements. I am entitled to draw the inference from the Defendant's conduct in respect of Contract No. 11/8 that these rejections were because of the market and not the description or quality of the goods. Once this is accepted then it would be reasonable to assume that prices in mid and end June would not be higher than the figure I have adopted, otherwise it would not be worth the Defendant's risk of rejection. 18. There will be judgment with costs for the Plaintiff in the sum of $68,875 on its claim and judgment for the Defendant in the sum of $109,800 being the balance of the deposit initially paid. 19. Costs reserved by O'Connor,. J. on the 5th December 1977 to be for the Plaintiff. Representation: Eddis and Faulkner (John Ip & Co.) for Plaintiff Ching, Q.C. and Wally Yeung (H.H. Lau & Co.) for Defendant. (1) [1906] 2 K.B. at 743 |