Ken Cheen Trading Co v. Hong Kong Shen Nan Trading Co Ltd
Read the full judgment text of HCA 3596/1987 on BabelCite. This High Court CFI judgment was delivered on 22 November 1988.
1. The plaintiff's action is for loss and damages resulting from the repudiatory breach of a sales contract the defendant which basically was due to the defendant's alleged non-acceptance of the two letters of credit which the plaintiff opened. This is stated in paras. 3 and 4 of the re-amended statement of claim in the following terms :
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HCA003596/1987 1987, No. A3596 IN THE HIGH COURT OF JUSTICE HONG KONG ------------- BETWEEN
------------------------ Coram: Deputy High Court Judge Saied in Court Dates of hearing: 9 - 11 November and 14 November 1988 Date of judgment: 22 November 1988 ------------------- JUDGMENT ------------------- 1. The plaintiff's action is for loss and damages resulting from the repudiatory breach of a sales contract the defendant which basically was due to the defendant's alleged non-acceptance of the two letters of credit which the plaintiff opened. This is stated in paras. 3 and 4 of the re-amended statement of claim in the following terms :
2. The defendant admits the sales contract between the parties and that the mode of payment for the goods, which were to be shipped on or before the 5th May, 1987, was by the issue of letter of credit in favour of the defendant. However, the defendant maintains that before the signing of the said sales contract, the defendant had "repeatedly made known to the plaintiff that they had obtained their supply of the goods by entering into a sales and purchase agreement in respect of the said goods with an Italian supplier and that they would have to open a back-to-back letter of credit in favour of the Italian supplier upon the plaintiff's issuing the letter of credit to the defendants" - para. 2 of the defence. The defendant avers that the plaintiff's two letters of credit, namely, Nos. K-01-E-11169B and K-01-E-11170B were "unacceptable to the defendant's banker who advised the defendant to return the same to the plaintiff's banker for necessary amendments" and the allegation that the defendant's requests for such amendments were unreasonable and beyond the scope of the contract is specifically denied. Para. 4 of the defence reads :
3. Two issues were left for consideration of the Court : (1) who is in breach of the contract, and (2) if the defendant was in breach, the quantum of damages. 4. It is not disputed that before entering into the sales contract with the defendant, the plaintiff had entered into two sales contracts with the Kwong Kwai Development Co. Ltd. in China : the first on the 8th December, 1986 for the sale of 800 metric tons of Italian yellow-white surface tin plate @US$550.00; the second on 21st March, 1987 for the sale of 1000 metric tons of the same product @US$560.00, the shipment for the first consignment was stated as "before the end of May 1987"; the second consignment was to be shipped "before the 23rd May, 1987". The description of the goods in both those contracts, which are in Chinese, was stated in exactly similar terms as follows:
5. The sales contract No. SN/HX-87106 between the parties is dated the 2nd April, 1987. PW1, who is the proprietress of the plaintiff business said that she signed this contract on the same date and thought that the defendant signed it on the 10th April. However, the goods that the defendant undertook to sell are described therein as follows :
6. Shipment was to be before 5th May, 1987, subject to a grace period of 14 days from the 5th May: the port of destination Wangpo, China. Payment was to be by irrevocable letter of credit at sight to be issued by the plaintiff within 3 days after signing the contract, payable against presentation of the following shipping documents to the defendant's advising bank :
7. It is not disputed that on the 13th April 1987 the plaintiff opened two irrevocable letters of credit in favour of the defendant bearing the serial numbers as aforesaid and payable against presentation of the documents detailed therein at sight : the first for 1000 metric tons, the other for 800 metric tons. The main body of p.1 of both have certain words in Chinese, the translation of which was agreed. For the sake of clarity I will re-produce that part, omitting only the quantity, in its original form, stating the agreed translation underneath the various Chinese words :
8. The date on which the sales contract was signed was disputed. DW1, who is the manager of the defendant and was in charge of the performance of this contract, while admitting that the plaintiff signed and returned it to him on the 2nd April, said in cross-examination that the managing director had signed it earlier either on the 30th March or the 1st April. Considering the fact that this contract obliged the plaintiff to open the documentary credit within three days of the contract and the fact that her two letters of credit are in fact dated the 13th April, the probability clearly is that the defendant signed this contract on the 10th as the plaintiff maintained. DW1 gave me the impression of a person experienced in this field and tried to emphasise the obligations of the defendant to comply with the terms of the contract throughout his evidence. For a man so meticulous in his dealings, I find it hard to believe that any lapse on the part of the plaintiff in the opening of the letter of credit would have gone un-noticed by him. It is for this reason also that his evidence under cross-examination that he asked PW1, after the contract had been signed, when he would get the letters of credit and was told in about a week is just as improbable. Moreover, as far as I am aware, this was not put to PW1. 9. The plaintiff said that she was informed by her bank, the Chiyu Banking Corp. Ltd., that the two letters of credit were collected by the defendant the same afternoon, i.e. 13th April. In cross-examination she admitted that she was away from Hong Kong between the 13th and about the 21st April 1987, explaining that as no question was raised about the letters of credit by 5 p.m. that afternoon she left for her business trip to China. 10. On her return she saw the cable, Ex. P1, from the defendant. DW1 explained that he had told the plaintiff that the sales contract between the parties herein was in accordance with the one the plaintiff had made with its Italian supplier, Odyssey International (Trading) Ltd., Ex. D2, and as such he would have to open a back-to-back letter of credit with the suppliers. He said that he handed her a draft letter of credit - Ex. Dl. - the terms of which had previously been settled with the supplier, and asked PW1 to open her letter of credit along similar lines to which she had agreed. This was denied by the plaintiff. DW1 maintained that he told her of the consequences if her letter of credit did not conform with Ex. Dl in that the defendant would then be unable to open a back-to-back letter of credit with the supplier. Upon receipt of the two letters of credit, DW1 said that he noticed that they were not in accordance with their draft letter of credit in the following respects : (1) the specification was stated in Chinese; (2) the specification stated 'A Grade' instead of 'Prime Quality'; (3) the technical data which he had set down was not the same, in that the plaintiff had stated it instead as 'Tin Coating 0.35 lb. Hygiene Standard'; (4) the letter of credit omitted the item 'Temper : T3' which was included in the contract specification; (5) the letters of credit stated the time limit for presenting the documents within 8 days after the date of shipment, whereas he required 21 days; and lastly (6) there was no term in the letters of credit concerning acceptance of third party documents. He immediately discussed the plaintiff's letters of credit with the supplier who advised him that they were not workable and were as such unacceptable, which the supplier later confirmed in their cable, Ex. D4. This is dated 16th April and reads :
11. DW1 said that he tried to contact the plaintiff but was told she was away in China. Later, he sent a cable to the plaintiff. It is Ex. P1 and is dated the 21st April :
It is signed by DW1. 12. The plaintiff said that on her return to Hong Kong she learnt from her staff of the message left by DW1 that he was seeking certain amendments to the letters of credit by the 30th April. She denied specifically that she had been told during the discussion preceding the signing of the contract that the defendant was to use her letter of credit to open a back-to-back credit with his Italian supplier or that DW1 had given her any draft letter of credit at the time of signing the contract. 13. On this issue, I note the evidence of DW1 that at the time the defendant entered into its contract with Odyssey, which was on the 12th March, they had agreed upon a draft letter of credit in the form of Ex. D1, and were given a copy of it that same day. Later he said under cross examination that he had such a draft letter of credit as early as 1986 when he first started dealing in tin plate. Nevertheless, it is abundantly clear from the cable sent by Odyssey that a draft letter of credit was given to DW1 during the meeting which was confirmed later in the cable. Explaining this, DW1 said that the letter of credit mentioned in that cable referred to other matters in the letter of credit such as the expiry date, the time of shipment and where it was payable. In view of the very clear and unambiguous term of the cable, I find this explanation totally unacceptable. However, DW1 maintained that the draft letter of credit was handed to the plaintiff during their first meeting when they were discussiong the contract towards the end of March when the managing director Mr HUI Ho was also present. It is to be pointed out that Mr Hui Ho did not testify and I should stress that subsequently when PW1 and DW1 met face to face on the 27th April, to which I shall come presently, DW1 admitted that he had shown the plaintiff a different letter of credit as a draft. The plaintiff said that that was the only draft that she ever saw, and never was she given anything like Ex. D1. It is obvious and I so find that if the draft letter of credit in the form of Ex. D1 was in fact handed to the plaintiff towards the end of March, there would be no obvious need for DW1 to bring in yet another draft to help out the plaintiff. The evidence of PW1 certainly sounds more probable to me. 14. With regard to the other dispute in their evidence which refers to whether DW1 ever told the plaintiff that her letter of credit was to be used by the defendant as a master document for opening a back-to-back letter of credit in favour of the Italian supplier, which the plaintiff denied, I need only refer to the fact hat the description of goods in the two Chinese contracts and the two letters of credit which the plaintiff issued to the defendant contained the same description and specification. It must be borne in mind that the same could not be said of the specification set out in the sales contract between the parties which was apparently different. Yet the plaintiff, while admitting that her letters of credit issued to the defendant were back-to-back with those issued by her Chinese buyers, employing the same specification as set out in the two Chinese contracts, said when asked :
The three aspects referred to here being : as to the A Grade, health standard and the Tin Plating or coating weight. She answered :
15. If it be accepted that this reflected her understanding of the specification which appears in her two letters of credit, it must follow in my opinion that it indicated also her appreciation of the fact that the description and specification she had to set out in those documents had to conform with that which was spelt out in her contract with the defendant. She admitted that she had been told of the defendant's contract with the Italian suppliers of the defendant, and I find it probable that, given the fact that the plaintiff herself was making use of the back-to-back system, she knew at the time of signing the sales contract with the defendant that the latter was to use her letter of credit as the master document for issuing their letter of credit to the Italian supplier. I accept Mr Cheung's comment that it looks incredible for DW1 to tell her that the defendant had no cash flow problems and did not have to wait to cash her letter of credit to pay the suppliers as was stated by the plaintiff. 16. Upon being told of the message left by DW1 during her absence from Hong Kong, the plaintiff said that she tried to contact DW1 repeatedly on the telephone and failing to get him, sent a telex to the defendant on 24th April at No. 75561 in reply to its cable, supra. She learnt the same afternoon when she telephoned the office of DW1 that they had not received it and that their correct telex number was 75661. On the 27th April, she sent another telex, in similar terms to the first one, to the defendant. This reads :
17. And later the same afternoon the plaintiff went over to the office of DW1, and asked him why he had not responded. He is alleged to have told her that her letters of credit were unworkable unless they were amended wholly. She said that DW1 showed her an amended copy which amounted to a complete amendment of her letters of credit. Under cross-examination she said that what she was shown by DW1 was a copy of a letter of credit issued by a Chinese company which he wanted her to adopt. He mentioned the alternative that her Chinese buyers dealt with the defendant direct and gave them their own letter of credit. This annoyed the plaintiff and she left the office telling DW1, "You had better consider all these matters." When she telephoned DW1 the following day, 28th April, he only asked her to wait. Two days later, on the 30th April, she learnt from her bank that they had received a letter from Ka Wah Bank to the effect that the letters of credit were unworkable, and she saw the letter later. It is on the letter head of the defendant, dated 30th April, addressed to the Manager ,Bill Department of Chiyu Banking Corporation Ltd. and the signatory's signature verified by the Ka wah Bank Ltd. with the date chop of 29th April, 1987 on it; and reads :
18. DW1 maintained that during one of his telephone conversations after the plaintiff's return to Hong Kong, he had pointed out to her that time was running out and that he could only wait until the 30th April. He said that during the meeting on the 27th April, he pointed out to the plaintiff that if she amended the few points he had raised, he could immediately open a back-to-back letter of credit leaving the other matters to be settled later. He said that extension of the presentation day by 16 days would have been beyond the date of shipment, 5th May; and the expiry date of the letters of credit was the 2nd June, 1987. He said he would have persuaded his buyer to amend the expiry date later. And as by the 30th April he had not received the amended letters of credit he instructed his bank to return the documents to the issuing bank on the basis that they were unworkable. 19. Under cross-examination DW1 said that at the meeting on the 27th, he required the plaintiff to make only four amendments, mentioned in his points 2 to 5 and he mentioned the deadline of 30th April again. He denied handing her a draft letter of credit, not Ex. Dl, and said it was untrue that he mentioned the alternative that she spoke about. Yet a little later, he said that "out of good heart" he showed her a copy of a letter of credit which his other Chinese buyer had issued for similar goods as a reference only. 20. As I said earlier if DW1 had given the plaintiff a document similar to Ex. D1 towards the end of March, there was no obvious need for him at the meeting of the 27th April to produce yet another copy of a letter of credit. He said it was for reference, but the question surely is why should he deny it in the first place. This could not be attributed to any confusion in his memory since he was able to recall its details clearly. The plaintiff's version of why he produced this document supplies the reason. His manifest prevarication on this issue must go against him in my opinion. I find that in producing that document, he wanted the plaintiff to amend her letters of credit wholly beyond the four points to which he had narrowed down his complaints a little earlier, mentioning also the alternative to her if she did not comply. 21. With regard to the letter from the plaintiff's bank dated the 30th April, DW1 admitted it was a mistake on his part in mentioning in it the plaintiff's failure to amend in accordance with a draft letter of credit but not her failure to amend by the deadline. One curious aspect of this letter apparent on the face of it is that, whereas it is dated the 30th April, the verification of the writer's signature by the bank bears the datechop of the 29th April. He explained that he took it to his bank on the 29th April, but he himself sent it out to the plaintiff's bank on the 1st May, whereas his bank returned the two letters of credit to the plaintiff's bank with a copy of his letter within the first 10 days of May. 22. The plaintiff said that when she spoke to DW1 on the 28th April, he asked her to wait and she was still waiting on the 30th for his reply. And it was on the 30th that she was informed by her bank about the receipt of DW1's letter. This is totally contrary to the evidence of DW1 and considering that he had committed the defendants on the 29th, that is, two days before the deadline set by him expired, to returning the letters of credit, I find that this is sufficient evidence in itself to support the plaintiff on this issue, that is, on the 28h April she was asked by DW1 to wait for his reply. 23. It is trite law as Mr Cheung submitted that the contractual term that payment should be effected by the furnishing of a documentary credit puts the buyer under an obligation to have a documentary credit opened in favour of the seller and that this obligation is usually a condition precedent to the seller's duty to deliver the goods. It is also indisputable that the 'perfect tender' rule governing the tender of goods under a contract of sale applies with equal force to the tender of a letter of credit, so that the description of goods stated in the letter of credit must correspond to the description of the goods stated in the contract of sale. 24. Mr Cheung submitted that at no time did the plaintiff furnish a valid letter of credit, because:
25. In making these submissions in support of what he described as the first line of defence, Mr Cheung said that his submission was not dependent upon any findings of fact as in his view whatever dispute there may be in evidence it was not relevant to his arguments. 26. It is trite to say however that construction of written instruments is a question of mixed law and fact, and the way in which descriptive words are to be understood is a matter of interpretation of the contract subject to the normal objective principles governing that topic. 27. Quite clearly some technical terms are used in the description of the goods in the contract of sale about the meaning of which the parties are at complete variance, the plaintiff holding to the view that the description in her letters of credit identified the same goods as were described in the contract of sale; for example, while agreeing to the suggestion that the description of the goods in her letters of credit was different from the contract, the plaintiff maintained that "in fact they referred to the same goods, although described differently". With regard to the term "yellow coating", she said that in Chinese it is described as "yellow and white tin plate", and likewise the term "A Grade" in Chinese meant "Prime Quality". She said that the health standard 021-033243 in her letters of credit appeared in the sales contract under the item "specification" as according to JIS G3303/1975. 28. DW1 said that the commodity described in the contract as "Prime Quality" was not the same as A Grade, there being great difference between the two. He did not explain what that great difference was. The reference in the item "Tin Coating Weight" to JIS G3303/1975 was to the Japanese Industrial Standard Specification C3303, Ex. D3. He explained that consequent upon the discovery by the Chinese Authorities of some problems concerning tin coating between January- March, 1987, the specification of 0.35 lb. per square meter which was then in use, was agreed by the manufacturer, the supplier and his company to be changed, along with the other two terms. While pointing out that strictly speaking he was a commercial man and did not have to deal so much with the technical side, he agreed that for the same type of tin plate the term “hardness” was amended to "temper", but he could not say the same about the change to yellow/bright face. In the end he said that that he obtained the information from his supplier and they came to an agreement over the terms to be used in the specification column. 29. It is clear that DW1 was understandably unable to explain the extent and effect of those changes. What is clear however is that both parties to this litigation were conversant in varying degrees with the Japanese Industrial Standard (JIS) Specification G3303. Under the classification heading, para 2(2) of Ex. D3 states :
Note(2) thereto explains that "bright-finish electrolytic tinplate has bright surface and is applied with the flow-melting process after electrolytic tin coating.” 30. The values of nominal coating weight and the minimum average coating for various types of tinplate are set out in Table 3, which specifies 16.8 and 15.7 gr. per sq.meter respectively for No. 75. And in Table 4 which is headed "Rockwell Hardness T scale (Aiming Value)" is mentioned Temper designation T-3. 31. With the foregoing in mind I turn now to compare the description and specification of the goods set out in the contract of sale and the credit opened by the plaintiff. For the sake of convenience, this may be illustrated by the following comparative table :
32. If the plaintiff's evidence concerning the meaning in Chinese of "Yellow Coating" and "A Grade", which was unchallenged, be applied then it would appear that there is virtually no difference in the description of the commodity, nor in the item "Yellow Coating" quoting the same reference number which, according to the evidence of both the plaintiff and DW1, seems to have some bearing on the quality of food cans that were to be manufactured. I see no problem with the item "Temper" which relies on the same standard T-3. 33. Thus the only apparent difference relates to the tin coating weight. The issue is whether this discrepancy affects the description of the goods. It is evident from the JIS Specification Standard that there are different coating weight values listed in Table 3, referring to the total weight of tin coating on both surfaces of the base-steel sheet of 1m2 [see the Remark below the Table]. I am of the opinion that these different weight values must necessarily affect the description as well as the quality of the tin plate in that its appearance may remain constant, the weight of tin coating will not. I accept Mr Cheung's submission that the mention of 0.35 1b. weight of tin coating in the letters of credit did not conform to the description agreed upon in the contract which rendered the plaintiff's documentary credit defective. 34. So, the plaintiff had failed to discharge its obligation of complying with the condition precedent to the seller's duty to deliver the goods, that is, in furnishing the defendant with the type of credit that had been agreed upon in the contract of sale. Instead of exercising its legal rights, the defendant asked the plaintiff to remedy the letters of credit and extended the period of time for furnishing the credit until the 30th April. Learned counsel for the defendant is of the opinion that this conduct of the defendant which was “out of good heart" did not relieve the plaintiff of her initial obligation. Learned counsel for the plaintiff submitted that because the defendant had led the plaintiff to believe on the 28th April when he asked her to wait that he would not insist on the stipulation of time, she was not under any duty to effect any changes in her letters of credit by the 30th April. She relies on Charles Rickards Ltd. v. Oppenhaim, (1950) 1 K.B. 616, 623 where Denning L.J. said :
35. Having accepted the plaintiff's version of the events that occurred at the meeting of the 27th April it is obvious that nothing had been settled between the parties and DW1 asked her to wait for his reply when she telephoned him the following day. Her position was not, as was urged by learned counsel for the defendant, that she could not possibly have amended her credit to the defendant without asking her Chinese buyers to make corresponding amendments in theirs; it simply was that DW1 having first set the deadline of the 30th April had then asked her to wait for his reply without in any way specifying what that waiting period was to be. Then without giving her any reasonable notice DW1 proceeded to seek to enforce the deadline originally set by him of the 30th April. In my opinion, he could not restore himself to his full legal rights without giving reasonable notice to the other side. 36. In the circumstances, the plaintiff was entitled under the law to accept the defendant's repudiation of the contract which she did by taking out the writ. 37. Mr Cheung's other submissions on what he described as the fall back position concerned issues of fact and the dispute in evidence. I have already dealt with the facts and need not repeat my findings all over again. 38. On the issue of damages, learned counsel for the defendant submitted that there was no evidence to prove the extent of the loss which the plaintiff had suffered. The plaintiff's claim is for loss of profits. DW1 admitted that he knew that the plaintiff intended to sell the tin plate to a buyer in China and he understood also that she would make a profit. With this knowledge and in repudiating the contract the defendant clearly was content to take the risk. Due to that breach the plaintiff was denied the profit she would have made on her deal with the Chinese buyer and is clearly entitled to damages. If I may cite para. 763, McGregor On Damages, 15th Edn., at page 497 :
39. There is no evidence to show that the defendant knew of the details of the on-sale, but it has not been suggested that a profit of US$37,000.00 was out of the ordinary compared with the contract price of US$963,000.00. Since the defendant did not know of the details of the plaintiff's contract with her buyer, I think that there ought to be some reduction in her damages, which I assess at US$30,000.00. 40. The other item claimed is the expenses she incurred by way of bank charges and commission in opening the credit. She is clearly entitled to the full amount claimed which is HK$10,409.17. 41. There will be judgment for the plaintiff in US$30,000.00 plus HK$10,409.17, with costs.
Representation: Miss Jean Wong instructed by C.W. Leung & Co. for the Plaintiff Mr Andrew K.N. Cheung instructed by Chan & Kong for the Defendant | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||