Russell & Co Ltd v. Po Ngai Garment Manufacturing Co Ltd
Read the full judgment text of HCA 921/1975 on BabelCite. This High Court CFI judgment.
1. The plaintiff company exports, and the defendant company manufactures, garments. Under three contracts in writing of 20th October 1973 the plaintiffs agreed to buy, and the defendants to sell, a total of 12,945 blouses at prices aggregating $138,726.25. The contracts contained the usual size and colour specifications and also a term to the effect that the defendants would be responsible, upon the production of a competent surveyor's report, such production to be proof of its contents and bind
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HCA000921/1975 IN THE SUPREME COURT OF HONG KONG ORIGINAL JURISDICTION ACTION NO. 921 OF 1975 -----------------
----------------- Coram: Pickering, J. Date of Judgment: 25th November, 1975. ----------------- JUDGMENT ----------------- 1. The plaintiff company exports, and the defendant company manufactures, garments. Under three contracts in writing of 20th October 1973 the plaintiffs agreed to buy, and the defendants to sell, a total of 12,945 blouses at prices aggregating $138,726.25. The contracts contained the usual size and colour specifications and also a term to the effect that the defendants would be responsible, upon the production of a competent surveyor's report, such production to be proof of its contents and binding upon the defendants, for all claims arising on account of breach of contract. 2. The goods were duly delivered to the plaintiffs subject to a minor short delivery with which we are not concerned, and were paid for by the plaintiffs. It is common ground that the defendants knew that the blouses were required by the plaintiffs for resale; they were in fact resold to a customer in Australia who eventually rejected them due primarily to alleged inaccurate sizings. 3. On or about 14th June 1974 it was agreed verbally between Mr. C.K. Wong of the defendants and Mr. K.L. Yeung of the plaintiffs that the plaintiffs would return to the defendants approximately 1,065 dozen of the blouses then in Australia and that the defendants would take back these goods paying therefor $90,000 by agreed instalments. It was further agreed that in consideration of that, the plaintiffs would take no legal action in respect of the goods. 4. The terms of this agreement were set out in a letter dated 17th June 1974 from the plaintiffs to the defendants who were requested to sign a copy of the letter and return it to the plaintiffs; and the plaintiffs have pleaded, although this was not borne out by their Mr. Yeung in evidence, that the defendants failed to sign and return the copy letter. The defendants' case is that the copy letter was returned duly signed on their behalf, but with the addition of a time clause specifying that delivery to them of the blouses, then in Australia, would be effected on or before 10th August 1974; and the defendants say that this additional clause had been agreed by the plaintiffs. 5. In fact the blouses arrived back in Hong Kong from Australia only on or about 15th August 1974 when the defendants, who had contracted to resell them to a third party giving delivery on or before 12th August, refused to accept the blouses upon the grounds of late delivery. Since then the plaintiffs have sold 5,260 of the blouses at $5 each, that is for $26,300. The plaintiffs now claim the return of the purchase price paid by them to the defendants under the original three contracts, the profit which the plaintiffs would have made upon the resale of the goods to the customer in Australia had the blouses been of the correct specifications, and various ancillary sums. 6. The primary issue between the parties relates to the letter of 17th June 1974 addressed by the plaintiffs to the defendants and specifically to the issue as to whether or not the defendants returned the copy letter duly signed and, if so, whether that copy bore an additional clause in the form of a time clause which clause was agreed by the plaintiffs. If that issue is decided in favour of the defendants then the plaintiffs' claim must fail and there would then fall to be considered, the defendants' counterclaim for $7,908 being the profit which they say they would have made upon the resale of the blouses had these arrived back from Australia within the time limited by the additional clause added to the letter of 17th June 1974 by the defendants with the agreement of the plaintiffs. 7. The primary issue is one of evidence and credibility and it is necessary to look closely at all the circumstances attending the creation and subsequent treatment of the plaintiffs' letter to the defendants of 16th June 1974 Mr. Yeung, a salesman of the plaintiff company testified as to discussions between himself, a Mr. Pack of the A.P. Trading Company, that is the Australian buyer, and Mr. Wong and Mr. Lam of the defendant company as a result of which it was agreed that the defendants would take back the garments and refund $90,000 to the plaintiff company. It was Mr. Yeung's evidence that following a discussion between himself and Mr. Wong of the defendant company on 14th June 1974 at which those terms were agreed, Mr. Azan, a director of the plaintiff company, telephoned Mr. Wong to confirm the terms and thereafter, on 17th June 1974, wrote to the defendant setting out the agreed terms, this letter being shown by Mr. Azan to Mr. Yeung before it was dispatched in order that Mr. Yeung could confirm that it correctly incorporated what had been agreed between himself and Mr. Wong of the defendants. There was at that time no suggestion of a time limit for the return of the blouses to Hong Kong. 8. The plaintiffs expected the defendants to sign and return a copy of this letter to the defendants and, upon no such copy being received, Mr. Yeung telephoned Mr. Wong to remind him of this whereupon Mr. Wong said that the copy letter could not be signed until after a board meeting of their directors in a few days time. In the course of a subsequent telephone conversation when Mr. Yeung again sought to remind Mr. Wong that the copy letter had not been returned duly signed, Mr. Wong raised the question of the date of arrival of the blouses in Hong Kong. Mr. Yeung's reaction was that he could not give a definite date and that the most he could do was to ask A.P. Trading Company in Australia to send the goods back as soon as possible. He was aware that A.P. Trading Company would have to get customs clearance in Australia before they could return the goods. 9. According to Mr. Yeung the plaintiff company eventually received back the copy letter of the 17th June duly signed on behalf of the defendants and that copy incorporated a final and additional paragraph as follows:
Mr. Yeung says that he did not authorise the insertion of that additional paragraph and was not himself empowered so to do; he had told Mr. Wong that if the latter were to add anything to the copy letter he, Yeung, would have to show the addition to Mr. Azan. This followed Mr. Wong's assertion that a time limit must be incorporated in the letter since the defendants could not be expected to accept the goods back in possibly ten years' time. Discussion ensued between Mr. Yeung and Mr. Wong, the former telling the latter that delivery would require about thirty days plus another few days for customs clearance and cargo handling and, upon Mr. Wong's insistence upon the addition of a time clause, Mr. Yeung said that he could not stop Wong from inserting a time clause but that he, Yeung, would have to show the clause to his employer, meaning Mr. Azan. Mr. Yeung was emphatic that upon the receipt of the copy letter incorporating the additional time clause, he showed it to Mr. Azan. Mr. Azan was equally sure that he had never seen the copy letter and firmly of the impression that no copy had ever been signed and returned by the defendant company whether with or without an additional time clause. Mr. Yeung went on to say that when he showed the letter to Mr. Azan the latter did not ask him to do anything in particular about it. 10. Mr. Yeung gave further evidence of a meeting between Mr. Pack, Mr. Wong and himself at the defendant company's factory when this very letter was discussed and they talked of the possible date of the re-arrival of the blouses in Hong Kong; Mr. Pack said the goods might not arrive at the expected time because of a dock strike in Australia and added that the blouses had already been sent to the airport because of the strike. It was Mr. Yeung's evidence that at that stage, towards the end of July, everybody had seen the copy letter with the time limit of the 10th August inserted in it and that when Mr. Pack said that the goods might not arrive in time, he meant by the 10th August. At that time, the end of July, Mr. Yeung said that neither he nor Mr. Azan had specifically agreed to the insertion of the time limit. When the copy letter arrived incorporating the time clause he went straight to see Mr. Azan and showed the letter to him and Mr. Azan appeared worried about the addition of the time clause; indeed, the witness said, they were both quite worried because they could not be positive that the goods would arrive by 10th August. The witness agreed that they did not become aware of the dock strike in Australia until Mr. Pack came to Hong Kong at the end of July, that the letter arrived on or about 2nd July and that in the ordinary way they would expect the goods back from Australia in about thirty days. Mr. Azan did not give him any instructions regarding the letter and the witness did not know whether Mr. Azan himself had contacted the defendants about it. 11. It was Mr. Azan's evidence that, following the verbal agreement reached on 14th June 1974 between Mr. Yeung of the plaintiff company and Mr. Wong of the defendant company for the re-purchase by the defendants of the blouses, he confirmed the defendants' offer in this regard by telephone with Mr. Wong and at that time there was no suggestion of a time limit. This witness said that no copy of his letter of 17th June to the defendants was ever returned whether with or without a time clause, that Mr. Yeung had asked him if it were possible to give the defendants a date when the goods would arrive back in Hong Kong and he had told Mr. Yeung that it was not possible since the Australian customer had to obtain release of the goods from customs and the return of customs duty before the goods could be re-shipped to Hong Kong. Although Mr. Yeung had said that he, Yeung, had seen the copy letter in the plaintiffs' office with the time clause added, the witness had not seen it. Letters came to him first and the only way in which Mr. Yeung could have seen the letter before him would be if it had not come through the normal channels. I would here add that it was the evidence of a messenger boy employed by the defendant firm that he had very frequently delivered samples to the plaintiff company and that he had on one occasion only delivered a letter; that was in June or July of 1974 and at the beginning of the month; the witness remembered that it was upon his pay day and he was paid upon the second and 16th of each month. The defendants' counter-signature upon the disputed copy letter is dated 2nd July 1974. The significance of this evidence is that the messenger boy said that he handed the letter to Mr. Yeung, so that the letter did not come through what Mr. Azan referred to as the normal channels. 12. When the blouses eventually arrived back in Hong Kong Mr. Azan wrote by registered letter to the defendants informing them of this and asking where delivery was required. This was on 15th August and on 16th the defendants replied adverting to the time clause and said that as the goods had failed to arrive in Hong Kong on or before 10th August 1974 and as the plaintiffs had failed to deliver the goods to them on or before that date, the defendants would not accept the goods. 13. Mr. Azan said that it was possible that Mr. Yeung had received the copy letter signed by the defendants and incorporating a time clause but had not passed it over to him although Mr. Yeung had never admitted to him that that had happened. Mr. Yeung, he added, would have no authority to give a firm date for re-delivery of the blouses to the defendants. 14. Mr. Azan said that when he received the defendant company's letter of 16th August, refusing to take delivery of the blouses on the ground that the time clause had not been complied with, he did not query the existence of any time clause with the defendants but sought legal advice. He did ask Mr. Yeung about the matter and Mr. Yeung told him that he, Yeung, had never agreed to a time clause. This, of course, was diametrically at variance with Mr. Yeung's evidence. The witness said he did not ask Mr. Yeung to check with the defendants upon their sudden and unexpected assertion of the existence of a time clause. 15. Mr. Wong, of the defendant company, testified that when he first received complaints from Mr. Yeung regarding the blouses and a request to accept redelivery thereof, he discussed the matter with his superiors who told him that if he could find a willing buyer for the goods the defendant company would accept redelivery. In the event he found several willing buyers, including the Greenwood Textile Company which firm agreed to buy the blouses at $92 per dozen but stipulated a time limit for delivery, the deadline being 12th August 1974. Mr. Wong further said that in the early morning of 2nd July of that year he agreed over the telephone with Mr. Yeung to the terms set out in the plaintiff company's letter of 17th June but said unequivocally to Mr. Yeung that the latest date for redelivery of the goods in Hong Kong must be 10th August. Upon Mr. Yeung's agreeing, he told Mr. Yeung that he would add a clause to that effect to the copy letter of 17th June which was to be signed by him and returned to the plaintiffs. Having added the clause, he instructed a messenger boy to deliver the letter and gave him specific instruction to hand the letter to Mr. Yeung. It was further Mr. Wong's evidence that during his telephone conversation with Mr. Yeung the latter had told him that if the matter was undertaken seriously redelivery in Hong Kong could take place in about twenty days' time but that allowing some latitude, an estimate of thirty days would be reasonable. In order to give still further latitude whilst still complying with the defendant company's contractual delivery date with Greenwood Textile Company, Mr. Wong settled upon 10th August as the last date for redelivery of the blouses in Hong Kong. Having dispatched the copy letter containing the additional time clause to the defendant company, Mr. Wong later that morning telephoned Mr. Yeung to ask him if he had any comments upon the additional clause and Mr. Yeung said that the matter should rest as it was. On or about 5th August, Mr. Wong said, Yeung telephoned him to say that the goods had been removed from the ship in Melbourne and conveyed to the airport there and that they should arrive in Hong Kong on the next day or at the latest upon the day following. Mr. Yeung said that he himself had ordered delivery by air because there was a dock strike in Australia which he was afraid might delay the shipment and he was anxious to have the goods delivered to Hong Kong before the deadline which Mr. Wong had set himself with his own customers, Greenwoods. 16. On 10th August 1974, Mr. Wong's evidence continued, he telephoned Mr. Yeung pointing out that this was the deadline date but the goods had not arrived, whereupon Mr. Yeung told him that he did not understand the reason for this. On 12th August, which was his deadline date with Greenwoods he telephoned Greenwoods explaining the position and asking them if they would accept the goods after the due delivery date. Greenwoods replied that they would accept if, and only if, the goods arrived on that very date. When, on 16th he received the plaintiff company's letter advising that the blouses had re-arrived in Hong Kong, he wrote declining acceptance on the ground that the contractual date for redelivery had passed. 17. It will be remembered that it was the plaintiffs' case that the copy of their letter of 17th June 1974 had never been signed and returned by the defendants. But the plaintiffs' own witness, Mr. Yeung, was emphatic that it had been returned, that when returned it contained an additional clause in the form of the time limit and that he had brought this matter to the attention of the director, Mr. Azan. Looking at the evidence as a whole, I am in no doubt that the copy letter, incorporating the additional clause, was in fact returned by the defendants to the plaintiffs on 2nd July. I am also of the view that, wide as Mr. Yeung's powers were within the plaintiff company (he had, for example, negotiated the return of the blouses to the defendant company and the amount of refund which that company was to make to the plaintiffs), that authority did not extend to agreeing a time limit for the return of the blouses from Australia. The question then becomes acute as to whether or not Mr. Yeung drew Mr. Azan's attention to the time clause added by the defendants to the copy letter of 17th June 1974. As I read the evidence, it points overwhelmingly to the fact that he did and that Mr. Azan was aware of the time clause, and I so find. It was very significant that when the blouses did arrive in Hong Kong a few days late, the mode of notification to the defendants adopted by the plaintiffs was that of a registered letter. Had the plaintiffs genuinely been unaware of any time limit, what was the necessity for a registered letter? The information contained in the letter was of a very routine nature though not unimportant to either side. But all the negotiations, placing of orders and day to day dealings upon matters of equal importance had always taken place between Mr. Yeung of the plaintiffs and Mr. Wong of the defendants, upon a personal basis. Had there been no time limit, no urgency, it would have been quite sufficient and would have accorded far better with the normal procedures between the two companies for Mr. Yeung to have picked up the telephone and told Mr. Wong that the blouses had arrived. The transmission of this routine piece of information by means of registered letter signed by Mr. Azan himself suggests strongly that he was aware of the time limit, aware that it had been transgressed and that he wished, for some reason or other, to have a record of the delivery of the letter. 18. Again, Mr. Yeung was emphatic that he had shown the time clause to Mr. Azan. His evidence was that when Mr. Wong told him on the telephone that he wished to insert a time clause, he, Mr. Yeung, told Mr. Wong that if such a clause was inserted he must bring it to the attention of his superior. Mr. Wong denied that this was ever said but I find as a fact that it was and, Mr. Yeung, having declared that intention, it is most improbable that he would not carry it out, for this was a very important restriction upon the contractual relations and one which he would be unlikely not to bring to the attention of Mr. Azan. But I need not rest upon probabilities for in his evidence, which I accept, Mr. Yeung was categoric that he had shown the clause to Mr. Azan. 19. Moreover, at the date when the time clause was inserted (2nd July 1974) there appeared to be ample time to secure the redelivery of the blouses in Hong Kong by 10th August so that this insertion was not something about which the plaintiffs were likely to quibble. Again, on the evidence it appears that Mr. Pack of the Australian firm, a customer of the plaintiffs, was aware of the deadline. 20. Added to all these matters is the inherent implausibility of Mr. Azan's conduct upon the defendants' refusal to accept the return of the blouses, if he was genuinely unaware of the existence of any time clause. The stated reason for refusal was that the date for redelivery had passed and if Mr. Azan had been unaware that any date for redelivery existed it would have been most natural for him to have made contact with the defendants and asked them what they were talking about. He did no such thing but went off hot foot to his lawyers who themselves, in their initial letter to the defendants, made no denial of the time clause. 21. Finally there is the improbability of the defendant company tying its resale to Greenwood of these blouses to a fixed date only six weeks away, if they had themselves no assurance as to when the blouses could be expected to make their re-appearance in Hong Kong. 22. The defendants having inserted the time-clause and it having been drawn to Mr. Azan's attention, he made no demur and took no action in regard to the clause. But the subsequent conduct of the plaintiffs in going ahead with the arrangements for the return of the blouses from Australia and especially in going so far as to arrange their offloading from a ship and transfer to an aircraft in Melbourne, was explicable only on the assumption that they approved the additional clause inserted by the defendants. (See Brogden v. Metropolitan Rail Co.(1)). 23. If that be insufficient, the plaintiffs are estopped from denying the existence and effect of the time clause. Mr. Murphy has argued that estoppel could not arise since the defendants had taken no step to their disadvantage as a result of the clause. But they clearly did. It was in reliance upon that clause that they tied themselves to the firm delivery date of 12th August 1974 with their customers, Greenwoods. 24. Having concluded that the copy letter of 17th June 1974 contained a time clause accepted by, but not complied with, by the plaintiffs, what is the effect upon their present claim against the defendants? The copy letter, after setting out the agreement whereby the plaintiffs were to return, 1,065 dozen blouses to the defendants, who were to pay $90,000 therefor, contained the following clause:
25. It is the plaintiff's case that because the defendants eventually declined to accept the returned blouses, this clause is of no effect. The defendants claim however, that because the time clause was not observed by the plaintiffs, they were under no obligation to accept and pay for the blouses but they are still entitled to the benefit of this clause. They rely on accord and satisfaction and Mr. Fung cited the case of Morris v. Baron(2) for the proposition that the three original contracts of sale from the defendants to the plaintiffs had been rescinded by the new agreement evidenced by the copy letter of 17th June 1974. This, it seems to me is the proper construction of the copy letter. By it, that is by this agreement made after breach by the defendants of the original three contracts (if breach there was), the plaintiffs' cause of action under these contracts was, by virtue of their accepting a consideration other than their legal remedy, discharged. They had specifically undertaken that, in consideration of the defendants' agreeing to take back the blouses and pay $90,000 therefor, they would waive any cause of action they might have upon the original three contracts. Thereafter the plaintiffs' cause of action was at an end and it matters not that the defendants did not in fact take back the blouses for they remained willing to do so up to, and two days beyond, the stipulated time for delivery. The breach of the new agreement between the parties was that of the plaintiffs and nobody else but they had waived any rights they might have had under the three original contracts, as from 2nd July 1974, the date upon which they effectively entered into the new arrangement the terms of which were embodied in the copy letter. 26. It follows that the plaintiffs' claim must fail. 27. The defendants have counterclaimed in the sum of $7,980.00 being loss of profit upon the resale to Greenwoods which sale went off due to the plaintiffs' late redelivery, and for a declaration that the plaintiffs are liable to indemnify the defendants for any damages which the latter may have to pay to Greenwoods under their contract of sale with Greenwoods. In fact no claim has so far been made upon the defendants by Greenwoods. But it is equally the case that no claim can be made for Greenwood Textiles Corporation has ceased to exist and its business registration certificate has been cancelled. It is true that a limited company bearing a similar name came into existence at about the same time as that cancellation but there is no evidence before me that that company took over the assets and liabilities of Greenwood Textiles Corporation and specifically, no evidence that it took over the right to make a claim against the defendants in regard to this matter. Thus the only evidence before me is that the firm to which the defendants contracted to resell the redelivered blouses, no longer exists and there is no evidence that any claim to which it might have been entitled was ever transferred to any other firm, company or individual. On the evidence I have, no claim against the defendants upon their contract with Greenwood Textile Corporation is possible and thus there can be no indemnity against the plaintiffs in respect of any such claim. 28. What of the claim for loss of profits upon the defendants' contract with Greenwood Textiles Corporation? The plaintiffs meet this claim with the assertion that it was never possible for the defendants to sell to Greenwoods that which they had contracted to sell. The goods which they contracted to sell were the same goods which the plaintiffs were causing to be returned from Australia and the contract for resale to Greenwoods contained the same size specifications as the three original contracts for sale to the plaintiff. The whole reason, however, the plaintiffs say, for the rejection of the blouses in Australia was that the garments did not correspond with the size specifications. Garments of the sizes specified in the three original contracts simply did not exist so that the defendants could not possibly have resold such garments to Greenwoods. 29. The evidence in regard to faulty sizes came primarily from survey reports made in Australia and sent to Hong Kong. The plaintiffs sought to produce these reports and to produce them as conclusive proof of the accuracy of their contents. For this they rely upon Clause 2 of the original contracts for sale from the defendants to them. Clause 2 reads as follows:-
30. Despite the clear wording of this clause, agreed between hard-headed businessmen, Mr. Fung for the defendants objected to the production of the survey reports and claimed that the maker thereof must be called. Such clauses are not uncommon in commercial contracts in Hong Kong and it seemed to me that there must be authority one way or the other as to the admissibility of the survey reports; accordingly I decline to rule upon that issue until counsel had furnished me with such authority. Some days later counsel informed me that they had been unable to find any authority whatever upon the matter. 31. As it seems to me the point is covered by s.47(1) of the Evidence Ordinance (Cap. 8) which falls within Part IV of that Ordinance, Part IV is relatively new having come into operation less than five years ago and is based upon the United Kingdom Civil Evidence Act of 1968. The sub-section provides:
32. It will be observed that the sub-section operates subject to the remaining part of the section and to rules. There is nothing relevant in the remaining part of the section but the Evidence (Hearsay) Rules made pursuant to s.53(1) of the Ordinance, provide in r.11 that a statement falling within s.47(1) may be permitted in evidence notwithstanding that the notice required to be given to the other side by r.3(1) has not been complied with. 33. In the present case no notice was given but discovery had been made and the defendants cannot suggest that they were in any way taken by surprise. The survey reports were made in implementation of a clause to which they had themselves agreed and in the face of that it is unrealistic for them to call for the attendance of the persons in Australia who made the surveys. I have no hesitation in relying upon the survey reports (which I find to be certified reports by competent surveyors) notwithstanding the fact that no notice under r.3(1) of the Evidence (Hearsay) Rules has been given. The surveys show conclusively that the blouses were defective as to size to such an extent as to render it impossible for the defendants to have sold to Greenwoods what they contracted to sell and that being so the defendants' counterclaim for loss of profits must fall to the ground. 34. In the result the plaintiffs' claim is dismissed with costs to the defendants and the defendants' counterclaim is dismissed with costs to the plaintiff. Representation: Denis Murphy (J.S.M.) for Plaintiff Patrick Fung (Ho & Wong) for Defendant. (1) 1877 2 A.C. 666. (2) (1918) A.C. 1 |