Kamsing Knitting Factory (A Firm) v. Tai Hing Cotton Mill Limited

HCA003627/1973

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 3627 OF 1973

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Coram: Briggs, C.J.

Date of Judgment: 19th February, 1975.

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JUDGMENT

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1. The plaintiff carries on the business of a knitting factory. The defendant carries on the business of a cotton mill. The plaintiff seeks to recover damages from the defendant in the sum of $844, 158. being the amount that the plaintiff has lost as a result of the repudiation by the defendant of a contract made between the parties.

2. By this contract which is dated March 23rd, 1971 the plaintiff agreed to buy 1,500 bales of cotton yarn - described as '20's/1A' - from the defendant. The price was $1,335 per bale. I will call the contract 'the fifth contract'.

3. The contract is in the English language and contains the following laconic terms (among others):-

4. The contract is a printed form for the sale of yarn to the customers of the defendant and on the back of it bears twenty-two "Conditions of Sale". It is not really in dispute that both parties to the contract ignored these, though the amended defence does make a reference thereto. It is further agreed that neither party to the contract relies on the term referring to payment for the goods. Though it forms part of the contract it was never the intention of either party that payment should be cash payment upon delivery of the goods. It was always agreed that the plaintiff should have a period of time after each delivery in which to pay. The plaintiff says that it was agreed that 50 days would be allowed. The defendant says 45 days. The sales memorandum of the sale which was exhibited by the defendant and which is a document for internal use within the defendant company states the period to be 45 days. However, in practice the plaintiff paid for each delivery with cheques which were post-dated 49-56 days. On one occasion the period was 72 days but for the most part the period was 50-53 days. There is no record that the defendant objected to this method of payment.

5. I was told that the words "cash payment against delivery" were inserted in the contract upon the advice of the defendant's lawyers: that such words were always inserted into the defendant's contract for the sale of yarn, while the invariable practice was to give the purchaser credit. I cannot believe that any lawyer would advise that a client should insert a term in a written contract being fully aware that it does not represent the intentions of the parties who are to be bound by that contract.

6. The plaintiff's case is that the parties treated the term in the written contract as to delivery in a similar manner: that is that it was never intended to bind the parties. The term reads: "Delivery: April 1971 - December 1971". It was not, according to the plaintiff, the intention of the parties that the whole 1,500 bales should be delivered before December 1971, or before the end of the year if the months are to be read inclusively.

7. Both parties are agreed that the plaintiff did not require a fixed number of bales to be delivered each month. The method of business was either the plaintiff phoned their requirements to the defendant or the defendant would ask the plaintiff how many bales they wanted to be delivered during the ensuing month. On some occasions the defendant would telephone the plaintiff and state that they had so many bales ready if the plaintiff wished to take delivery. But the point is that it was the plaintiff who settled the amount of bales. At no time did the defendant deliver without being requested to do so by the plaintiff. Though the contract is dated March 23rd, 1971 the first delivery was not made until July 1971. Though the written contract gives December 1971 as the date for the completion of delivery, deliveries actually continued until May 1973. That is to say, seventeen months after the last date given in the contract.

8. It is quite obvious to me that the parties never intended to be bound by the delivery clause as stated in the written contract. The evidence clearly shows that this was so.

9. A considerable portion of that evidence was devoted to four previous contracts of a similar nature made between the same parties. In each case the contract contained a clause stating that delivery was to be within a certain period. In each case that period was not adhered to. The first and fourth contracts were contracts for the delivery of 20 count cotton yarn; the second and third were for 32 count cotton yarn as was the fifth contract, which is the subject matter of this action.

10. The delivery period under the first contract was expressed to be June-September 1970: deliveries under the contract continued up to and including February 1971. The delivery period under the fourth contract was expressed to be the month of January 1971. No deliveries were made in that month, but deliveries started in February 1971 and continued until October of that year.

11. The delivery period under the second contract was expressed to be June to September 1970: deliveries, however, continued until March 1971. The delivery period under the third contract was the months of January-February 1971. No deliveries were made during that period. Deliveries started in March 1971 and continued until July 1971.

12. As I have already said the deliveries under the fifth contract continued for 17 months after the end of the delivery period stated in the contract, that is for a period nearly double the length of the delivery period stated in the contract.

13. The evidence also shows that new contracts were entered into when deliveries under the previous contract were still outstanding. The first and fourth contracts were contracts for the sale of 20 count yarn. The fourth contract was made in December 1970 for delivery of 50 bales in January 1971. But in December 1970 there were still 30 bales under the first contract undelivered.

14. The second and third contracts were contracts for 32 count yarn. When the third contract was made there still remained some 65 bales undelivered under the second contract. And it is clear that no deliveries were made in January and February under the third contract at all. That is to say, no deliveries were made under that contract during the entire delivery period as stated. However, during that period deliveries were made under the second contract.

15. The position is similar as regards the third and fifth contracts, again, contracts for 32 count yarn. The fifth contract is dated March 23rd, 1971, and delivery was stated to begin in April. But at that date only three bales out of two hundred under the third contract had been supplied. Deliveries under the fifth contract did not commence until July 1971. It would be odd indeed if the plaintiff had stipulated for further quantities to be delivered during a time when so much was still available to them under the third contract.

16. When each delivery reached the factory of the plaintiff it was accompanied by delivery notes made out by the defendant. And a receipt was made out by the defendant in advance. These documents have been exhibited. They clearly show that for the whole period during which deliveries were made under the fifth contract whether these deliveries were made within the delivery period or not, the defendant acted as if they were acting within the contract. For each of the defendant's documents bears the number 3118/71 which is the number of that contract.

17. The evidence for the defendant was that the delivery period stated in each contract was a binding term of that contract. However, if I understand him aright, Mr. Yen, who was the business manager of the defendant company said that the defendant company was willing to allow the contracts to overrun the stated period provided that it was not for too long, that there was not a large amount of yarn still undelivered under the contract and provided that the price had not substantially increased. I took this to mean that the defendant would continue to make deliveries under the contract when it was convenient for them to do so.

18. Be that as it may, I find as a fact that the period of delivery stated in contract 3118 of March 23rd, 1971 was never intended by the parties to be binding on them. The true agreement which can be implied from the conduct of the parties was that the defendant would supply 1,500 bales of yarn at a fixed price for an indefinite period - the plaintiff having the right to call for deliveries. The implication was that if the plaintiff refused to accept or did not call for deliveries within a reasonable time then, of course, it would be open to the defendant to treat the contract as having been broken by the plaintiff provided that the plaintiff had been given an opportunity to accept delivery of the balance of the yarn outstanding within a reasonable time.

19. Deliveries continued for a long time under the contract. The amounts requested by the plaintiff varied from month to month at their convenience. It is common ground that the defendant did not supply the plaintiff with the quantities they requested as from the latter half of 1972 onwards.

20. Mr. Yen, who is a witness whose evidence I regard with great suspicion, said that he had told the plaintiff that the contract was at an end in the middle of 1972. I do not understand how on the evidence the contract can be said to have been cancelled for deliveries continued under it. I do not believe that Mr. Yen 'cancelled' the contract. Mr. Yen said that he told the plaintiff that the defendant would only supply such bales of yarn as were not required by their other customers. These were referred to as 'left-overs'. This is not borne out by the facts. For I was also told that the rate of production of yarn by the defendant was a fixed amount, that they had difficulty as from late 1972 in fulfilling the requirements of the other customers so there would be less left-overs for the plaintiff. The figures show that the amounts delivered to the plaintiff between September 1972 and January 1973, both months being inclusive, far exceeded the amounts delivered in the first part of 1972. I do not accept Mr. Yen's evidence on this point. I accept the evidence of Miss Mui. She said that the defendant promised that though he was unable to supply as much yarn as she wanted at that particular time, namely in the last half of 1972 he, the defendant, would be able to supply the plaintiff all they wanted after Chinese New Year 1973. There was, she said, no suggestion that the defendant considered the contract of March 23rd, 1971 had been cancelled, was at an end or had lapsed. She said that, starting in August 1972 the plaintiff pressed for delivery of further supplies of yarn under the contract and that the defendant did not deliver as much as was required by the plaintiff.

21. The defendant did not treat the contract as having come to an end and they never wrote to the plaintiff cancelling the contract. They continued to supply the plaintiff but as from February 1973, with very small amounts. I am quite sure why this was so. The price of yarn had been increasing since 1970 at a fairly steady rate. And this is reflected in the prices for yarn in the various contracts. However, the price rose very sharply early in 1973. Both Miss Mui and Mr. Yen gave evidence of this most important fact. From that time, of course, the contract was very onerous on the defendant and very advantageous to the plaintiff. The defendant naturally tried to free themselves from the contract and the plaintiff pressed for further deliveries.

22. As I have said, deliveries continued during February to May 1973 but in very small amounts. The plaintiff continually pressed for further deliveries. Their requests were not met. The last delivery was in May 1973. The plaintiff continued to demand delivery and it would seem, became most importunate.

23. There was a meeting between Mr. Mui Chok Chue of the plaintiff and Mr. Chow of the defendant at the Golden Crown Restaurant in late May 1973.

24. What transpired at this meeting is in dispute between the parties. Mr. Mui Chok Chue was emphatic that the expiry of the contract was never referred to. He said Mr. Chow said that the defendant could guarantee delivery of 15 bales per month and mentioned that he had obtained this information from Mr. Yen. Mr. Mui said that was insufficient. Mr. Mui also said he tried to bargain with Mr. Chow. He sought agreement to a new arrangement whereby the defendant would continue deliveries half of which would be paid for at the old contract price and half at the then reigning price of yarn. Mr. Chow did not agree to this. Mr. Mui said the offer of 15 bales was repeated after the meeting in a telephone conversation.

25. Mr. Chow's evidence agreed with that of Mr. Mui but with two significant differences. He denied that he had made any promise that the defendant would deliver at least 15 bales per month. He said that Mr. Yen had told him (Mr. Chow) that the contract was at an end. He passed on this information to Mr. Mui. He added that the defendant was in difficulties and could not satisfy their other customers. The evidence of this witness was very much slanted in favour of the defendant. He struck me as being a creature of Mr. Yen who would say whatever was necessary to bolster up the case for the defendant. Not only did I not believe his evidence as to the manner in which the fifth contract was negotiated, I do not believe his evidence of eavesdropping on the conversations between the plaintiff and Mr. Yen and his feat of memory in detailing to the court of what those conversations consisted.

26. I do not believe that Mr. Mui was told that the contract was at an end until he received a letter stating this on July 31st, 1973.

27. I accept the evidence of Mr. Mui when it conflicts with that of Mr. Chow on this issue. In particular, I do not think that the expiration of the contract was ever referred to at the meeting at the Golden Crown Restaurant.

28. No more yarn was forthcoming from the defendant so the plaintiff placed orders elsewhere. In particular, on May 30th, 1973 the plaintiff purchased one hundred bales of yarn from another company for $2,400 per bale. This company obtains its yarn from mainland China and it was not disputed that yarn bought from China costs a little less than yarn purchased in Hong Kong. It will be remembered that the purchase price for yarn to be supplied under the contract was $1,335 per bale.

29. On July 21st, 1973, the plaintiff wrote to the defendant stating that they were in breach of contract. They did not repudiate the contract but said that they required at least four bales per day from the defendant; they referred to the promise of 15 bales per month given by or passed on to them by Mr. Chow and mentioned that they had had to buy and to buy expensively elsewhere.

30. On 31st July, 1973, the defendant replied that the delivery time under the contract had expired and that since the plaintiff had not taken delivery of all the yarn stipulated for delivery under the contract within the time specified the defendant "treated the contract for cancellation." They then referred to one of the printed conditions on the back of the contract which, as I have already said, were not regarded as being part of the intention of the parties when the contract was entered into.

31. In view of what had occurred since December 1971, the final date given in the contract, this letter can only be described as jejune. It does not suggest that the defendant could supply the balance of the bales due under the contract nor did it require the plaintiff to accept delivery thereof. Indeed, it has been the case of the defendant that they could not or would not supply the plaintiff. The plaintiff complained to the Hong Kong Chinese Textile Mills Assocation. This action was begun shortly afterwards.

32. The defendant's letter of July 31st, 1973 to the plaintiff clearly states that the defendants no longer considered themselves bound by the contract. I have found as a fact that this was the first time the defendant showed an intention not to be further bound by the terms of that contract. The letter is unequivocal. It does not give a reasonable time to the plaintiff to make arrangements for supplies from elsewhere. It must be admitted that the evidence shows that the defendant was increasingly reluctant to make deliveries under the contract during the period February-May 1973, so the plaintiff could not be said to have been taken by surprise by the action of the defendant in July. Indeed, on May 30th, as we have seen, the plaintiff arranged for a supply of yarn from another company.

33. Be that as it may, at the date of the cancellation of the contract by the defendant the plaintiff was entitled to the delivery of 424.20 bales of yarn at the price of $1,335 per bale.

34. The defendant relied on section 6(1) of the Sale of Goods Ordinance. This reads as follows:-

"6. (1) A contract for the sale of any goods of the value of one hundred dollars or upwards shall not be enforceable by action unless the buyer shall accept part of the goods so sold, and actually receive the same, or give something in earnest to bind the contract, or in part payment, or unless some note or memorandum in writing of the contract is made and signed by the party to be charged or his agent in that behalf."

35. The defendant's case is that, given that there was an implied contract to extend the period of delivery which was stated in the contract there was no note of memorandum in writing of that implied contract.

36. I do not think that the defendant can rely on section 6. There was acceptance of, and payment for, part of the goods under the contract. And in addition the delivery receipts, invoices and receipts for payment, for the various deliveries all contain the names of the parties, the sale contract number and the unit price referred to in the contract. In addition, the invoices and receipts are validated by the Chief Accountant to the defendant.

37. These facts are in my view, enough to satisfy the section. It is not necessary that the memorandum should refer to the implied agreement in all its terms. It need not, for example, take the form of a letter from the defendant stating that the date of delivery mentioned in the contract is hereby extended. It is enough if the matter relied upon by the plaintiff clearly point to the existence of an implied contract, as is the case here. That this is settled law was decided in Hartley v. Hymans ⁽¹⁾. In the present case all the essentials of the implied contract are on paper.

38. The claim of the plaintiff is for the difference between the price of the yarn under the contract and the price of yarn in the open market at the date of the cancellation of the contract by the defendant on July 31st, 1973. This was the basis adopted by McCardie, J. in Hartley v. Hymans ⁽¹⁾. The plaintiff chose this figure because they relied on the promises given to them that they would be supplied with further deliveries of yarn under the contract.

39. There was evidence, however, that for a considerable period before the date of cancellation the demands of the plaintiff were not being met. It is noticeable that the plaintiff did make one large purchase of yarn from another company on May 30th, 1973, namely at a time when the defendant, though they had not formally cancelled the contract, had shown their intention of supplying no more yarn to the plaintiff. And there is no doubt that by that time they knew that they would almost certainly not receive any more yarn from the defendant under the contract.

40. The plaintiff purchased the yarn from the Kian Nan Trading Company on May 30th, 1973 at $2,400 per bale. But the plaintiff claims that the price of yarn on July 31st, the date of the cancellation of the contract was $3,325 per bale. It is admitted that the yarn from Kian Nan came from China and was slightly cheaper than Hong Kong produced yarn but I was not supplied with any figures.

41. Mr. Bernacchi, for the plaintiff, urged that the measure of damages accepted by the court in Hartley v. Hymans ⁽¹⁾ was not appropriate to this case. The evidence was that the defendant had failed to meet various demands made by the plaintiff for deliveries of yarn during the last half of 1972, and early in 1973. At that time the price of yarn was lower than it was on July 31st, 1973. It was $2,400 per bale whereas in July it was $3,325 per bale. It is the duty of a plaintiff to mitigate the damages caused to him by the conduct of the defendant. Unfortunately, I have not been told of the dates of the

Representation:

(1) (1920) 3 K.B. 475.