The Chius Manufacturing Co Ltd v. Lee Yip Kun and Others

HCA000278/1974

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO.278 OF 1974

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Coram : Li, J.

Date of Judgment : 29th October, 1975 at 2.30 p.m.

A. Zimmern, Q.C., and P. Fung (Chan & Ho) for Plaintiff

A. Zimmern, Q.C., and P. Fung (Chan & Ho) for Plaintiff

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JUDGMENT

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1. Between the 17th of August 1972 and the 10th of May 1973 the plaintiff agreed to purchase by order of some twenty contracts as set out in the Statement of Claim, a total of 17,640 dozen pairs of gloves from one Sang Lick Gloves Factory of which the 1st and 2nd defendants were then partners. The 3rd defendant is a limited company.

2. It is alleged that the 1st and the 2nd defendants being partners of a Sang Lick Gloves Factory agreed to sell and deliver the said gloves in accordance with the terms specified in the said twenty contracts and that the 3rd defendant, the limited company, was incorporated to take over the business of the said partnership.

3. The plaintiff company's case is that despite repeated requests and demands the defendant managed to deliver only 400 dozen pairs of the said gloves in November 1973 but failed to deliver the balance of the plaintiff's order. For this reason the plaintiff claim $250, 781 being a difference between the contract price and the market price in January 1974 in which month the plaintiff made their final demand for delivery before the writ was issued.

4. The defendantst case is that all the said contracts were in fact conditional contracts subject to terms that the plaintiff must first give a price as to the number of the gloves required, the delivery date within a stipulated time specified in the contract. It is also a term of the contracts according to the defendants, that the price of the said gloves was to be determined at the time of delivery and that if the plaintiff company failed to give the aforesaid advice within the stipulated time the contracts would then terminate and would have no effect. The plaintiff company at no time, as contended by the defendant, gave the requisite advice except in October 1973 when they asked for 400 dozen pairs of gloves, and the defendants are therefore not liable for breach of contract. Alternatively, it is contended that there is no basis to compute the payment of damages on the basis of the market price in January 1974. Damages should be calculated on the date of the breach of contract. Further, it is denied that the 3rd defendant was the transferee of the partnership business. To this the plaintiff replied that the time for delivery was extended by mutual arrangement up to January 1974 at the defendants' requests.

5. In the course of the hearing the defendants abandoned the denial that the 3rd defendant is the transferee of the partnership business. It is conceded that if it is found that the 1st and the 2nd defendants are liable for breach of contract, the 3rd defendant would be equally liable. On the other hand, the plaintiff waived their claim on the difference between the contract price and market price in January 1974 in consideration of the defence agreeing that the market price for the balance of the undelivered gloves to be $463,830 in September, $508,830 in October, and $523,830 in November 1973. Thus if I should find the defendants liable at all, then if the damages is to be quantified in the month of September the damage to the plaintiff would be $110,000; if it is to be quantified in the month of October the damages should be $155,000, and if the damages were to be quantified in November 1973 the damages would be $170,000. This, to a great measure, has simplified the issue in the action before me. It all comes down to these questions: the first is whether the contracts are conditional contracts; whether the plaintiff failed to take delivery or ask for delivery of the gloves so ordered; and, thirdly, if the answer to the second question is in the affirmative, namely, that the plaintiff did ask for delivery of the gloves, then in what month did the final breach of contract occur.

6. Having heard the parties and considered their evidence I have no doubt in my mind that the twenty contracts the subject matter of this action are valid contracts and not, as alleged in the defence, conditional contracts. Every single contract exhibited in documents A1 to A9 and B1 to B11 have every characteristic of a completed contract signed by both parties with all the terms clearly written out. Indeed, learned counsel for the defence does not take this point at all.

7. The witness for the defendants, Mr. Wong, who is the business manager of the partnership and the managing director of the later incorporated company, the 3rd defendant, admits that he regarded that he was under a duty to deliver the goods as set out in those contracts if the plaintiff should require him to do so and that any price increase would be subject to the plaintiff's consent after delivery. Thus, the gist of the defence really is that the defendants' failure to deliver the goods was caused by the failure to ask for delivery on the part of the plaintiff.

8. So far I have disposed of the first issue. I now proceed to consider whether the plaintiff was the party responsible for the non-delivery of the goods. It is common ground that the plaintiff is an exporting company purchasing gloves from the defendants' partnership for re-sale to overseas purchasers. The business transaction between the parties started in 1968 with a gradula increase in volume. By 1972 the plaintiff purchases became fairly substantial and represented approximately 40 to 50 per cent of the defendants' total volume of sales. There were also on many occasions in the past, that the plaintiff's own overseas buyers failed to complete the transaction with the plaintiff and the plaintiff would allow the order - that is the plaintiff's order with the defendants - to lapse without notifying the defendants.

9. After the delivery date of any contract expired for some time, Mr. Wong of the defendants would contact Mr. Chiu, the managing director of the plaintiff, either by telephone or in person to ask if Mr. Chiu would still want the delivery of the goods. This was done in respect of each and every contract although sometimes Mr. Wong would bring the contract with him in bulk - several contracts - and ask him one by one. If Mr. Chiu did not want it he would indicate that he did not want it and such contract would be allowed to lapse in time.

10. The system worked fairly satisfactorily until 1972, when there was a sharp increase - especially by the end of 1973 - a sharp increase in prices of raw materials and consequently in gloves. Thus the market became a seller's market.

11. Mr. Chiu of the plaintiff company says that for each of the twenty contracts in the action he had an overseas buyer. Some pressed him for delivery and he in turn pressed the defendants for delivery without success. As a result, he had to buy from other sources to honour his obligations to his overseas purchasers after a long delay. Some of these overseas buyers felt so disgusted for the non-performance of the contract that they never returned to the plaintiff. However, he frankly admits that some overseas buyers did fail to complete their transaction with him (the plaintiff). However, as he found that at the time in 1972,1973, there was a rising market he never cancelled his contracts with the defendant - at least he never cancelled those twenty contracts. In early 1972 he and his staff had been pressing the defendant for delivery practically everyday and continued to do so - less frequently though - up to November 1973. That was the time when he instructed his solicitor to make a formal demand for delivery on the defendant.

12. Mr. Wong for the defendant says that the defendant honoured every single contract and honoured their obligations up to May 1973 and indeed June 1973 whenever the plaintiff required the defendant to deliver the goods. After May 1973 there was no further requests for delivery. The production rate of the defendant factory was such that it could have fulfilled the obligation in any one contract placed by the plaintiff in one or two days' time if there had been any demand for delivery. However, there was no request since May 1973 because the plaintiff, in one day, wanted Mr. Wong to cut off supply to another customer, namely, The City Trading Co. Ltd. Mr. Wong refused and for this reason the plaintiff switched to another supplier by the name of Sun Luen which was started by Mr. Wong's brother-in-law sometime in March 1973. Hence the plaintiff made no request for delivery at all. Mr. Wong said that he received the solicitor's letter in November 1973. As a result, he contacted Mr. Chiu of the plaintiff and Mr. Chiu told him that the contracts had been cancelled and he did not require the goods any more.

13. These and other evidence have been called and I have considered the evidence as a whole. They show that up to May 1973 the plaintiff must have been pressing for delivery. No witness says anything contrary to that effect. It also shows that the delivery normally were delayed up to five to six months behind time. Thus in the exhibits H, J, K, L, M and N produced by Mr. Wong all these deliveries were between 3 to 5 months after the date of the contract or the contracted date of delivery. It is further strengthened by the contract in Exhibit Bll. One of the terms in this exhibit, which is the last of the twenty contracts sued upon, which is dated the 20th of May, is this: "To fulfil all previous pending contracts before this one could be executed. Please note." Thus there were delivery both in May 1973 as well as in June 1973. All those were in purported performance of the previous contracts.

14. In view of all this I cannot believe that Mr. Chiu of the plaintiff company would cut his nose to spite the face just because Mr. Wong of the defendant refused to cut off supplying The City Trading Co. Ltd. In a rising market and in a seller's market it is difficult to imagine that the plaintiff for such trivial reasons would not be asking for delivery. After all, the purpose of any business is for profits and in a market like this there is all the profits to be made. I do not find it strange that there is no written demand or formal demand until in November 1973 on the part of the plaintiff. The delivery, as I have said, had been behind scheduled time for four or five months quite normally and there have been extensions after extension.

15. On the balance of the evidence I accept the plaintiff's version that they had not cancelled the twenty contracts and that they did ask for delivery from the defendants. If the plaintiff failed to make any shipment or give any shipping date, that was due to the failure on the part of the defendant to have the goods ready for shipment. I also find it difficult to accept that after receiving the letter in November 1973 the defendant was satisfied by a verbal arrangement with Mr. Chiu to say that the contracts have been cancelled without obtaining any formal written evidence to absolve him entirely from the liabilities; even to the plaintiff's solicitor's letter written in January 1974, there was no reply for twelve days. The defendants' solicitors mailed the reply to the effect that they were taking instructions from their clients.

16. Indeed, Mr. Tang, learned counsel for the defendants, conceded that once I find that there is a breach of contract, it would be difficult to argue that the plaintiff is not entitled to damages. However, he says that it is the duty of the plaintiff, or rather it is for the plaintiff to mitigate damages. If I find that the breach of contract occurred sometime in the month of June, July or August then I would have to consider that the increase in prices were not that substantial and damages should be nominal.

17. Having regard to the whole evidence I find, as I have said so before, that the failure on the part of delivery was entirely due to the defendants' failure to have the goods ready for delivery and that the defendants must be liable for breach of contract.

18. Then I proceed to determine in which month I should quantify the damages and in which month I should consider there was a final breach of contract. It is argued that, first of all, if there was any breach of contract at all it would be abundantly clear that the defendant failed to deliver both in June or July or at the latest August, and that even so there had been agreed price increases of up to $2 per dozen paid by the plaintiff for the gloves and I should take all these into consideration. Having taken these into consideration I should then award no more than nominal damages. However, I am unable to accede to this contention. The contracts in May-on the 10th of May - in Exhibit Bll made it quite clear that the delivery date would be sometime in September and that before the execution of the contract in Bll the previous contract should be cleared first. But it seems that it is a habit and a practice between the parties that the delivery from the defendant is three or four months or up to five months behind time. Once I have accepted the plaintiff's evidence that they have been pressing for delivery and that they had been tolerant enough to allow a delay of up to such a long time, it is not surprising that they did not assert their right until up to the month of November when the solicitor's letter was written. There was a failure on the part of the defendant to comply with their obligations then. It is obvious that the final breach occurred in November.

19. For these reasons I would enter judgment for the plaintiff against all the defendants in the sum of - an agreed sum, in that sense as to quantify the damages of $170,000 with costs.

Representation:

A. Zimmern, Q.C., and P. Fung (Chan & Ho) for Plaintiff

R. Tang (W.K. Poon) for all Defendants