Pofo Shoes & Bags Co Ltd v. Lam Ting Kay t/a Fitwell Footwear Co
Read the full judgment text of HCA 456/1981 on BabelCite. This High Court CFI judgment.
1. During 1979 the plaintiff company, which is beneficially owned by its four directors Mr. and Mrs. Kwan and Mrs. Koran's parents, commenced businesses manufacturers of shoes and bags. None of the shareholders and directors had experience of shoe manufacture or, it would seem, of business but I am told that Mr. Leung, then the production manager, had experience in the shoe manufacturing field.
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HCA000456/1981
IN THE SUPREME COURT OF HONG KONG HIGH COURT _______ BETWEEN
_______ Coram: Hon. Kempster, J. Date: 2nd July, 1983 __________ JUDGMENT __________ 1. During 1979 the plaintiff company, which is beneficially owned by its four directors Mr. and Mrs. Kwan and Mrs. Koran's parents, commenced businesses manufacturers of shoes and bags. None of the shareholders and directors had experience of shoe manufacture or, it would seem, of business but I am told that Mr. Leung, then the production manager, had experience in the shoe manufacturing field. 2. Between the 30th August and 23rd November of that year the defendant, who carries on business under the encouraging style of Fitwell Footwear Co., placed seven orders with the plaintiffs for the manufacture of ladies sandals. These orders they duly accepted. Each was in similar terms and provided for shipment f.o.b. Hong Kong and for payment in Hong Kong dollars with dates for delivery and appropriate provisions for documentation, packaging and marking of the cases. The contracts were subject to printed conditions. Condition 2 read:-
3. Specific provision on the orders altered that term to "payment: 5 days upon receipt of mate's receipt."
4. It was known to the plaintiffs that the goods were to be re –sold to Oriental Footwear (Imports) Ltd. in England and, despite the terms of Condition 5 and that the contracts were f.o.b. Hong Kong, it appears that the defendant paid for carriage of the goods from the plaintiffs' factory to the ship's rail. The plaintiffs thereafter made and have been paid for a number of deliveries pursuant to these agreements. 5. I find as a matter of law that pursuant to Condition 12 the defendant was entitled to cancel the contracts or one or more of them without compensation once corresponding orders from his own buyers, in this case Oriental, had been cancelled. Independently and subject to waiver the defendant could decline to accept goods tendered after the days specified for shipment; time being of the essence. 6. Due to their inexperience the plaintiffs' first production run was found unmerchantable but the defendant agreed td a second run which necessarily involved late delivery under the seven orders. He thereby waived the time provisions of the contracts and, in my view, never again made time of the essence. I should mention at this juncture that by independent transactions the plaintiffs bought many of the materials required for the manufacture of the sandals from the defendant and, further, that representatives of Oriental visited their premises from time to time. But what was said by any representative of Oriental to the plaintiffs is only relevant to the matters in issue in these pro-ceedings if said as agent for or on behalf of the defendant and I find on the evidence that, nothing was said by any representative of Oriental on a visit to the plaintiffs' premises in that capacity. 7. Thus the matter stood as at the 1st May 1980 on which date the defendant received a telex from Oriental the last paragraph of which read:-
8. It is well-known that ladies sandals constitute a fashion item and are only seasonally saleable. Oriental were entitled to cancel their related contracts with the defendant as he was in breach of his obligations as to time of delivery thereunder. The defendant told Mrs. Kwan of the plaintiffs about this telex and that, unless Oriental could be dissuaded, its terms would necessarily involve the cancellation by him of the subsisting contracts between the plaintiffs and himself. I do not find that the defendant in fact cancelled those contracts at that time. 9. On the 5th May 1980 the defendant, trying to save his contracts on the one hand with Oriental and on the other with the plaintiffs, telexed Oriental in these terms:-
10. On the 6th May, according to the defendant's evidence, after Mrs. Kwan had phoned Oriental in his presence he and she agreed that goods shipped by the 10th May would be accepted by him and paid for whatever might in due course be agreed as to the balance. In fact further goods comprised in the seven orders and manufactured by the plaintiffs were shipped on the 12th May although that was prima facie two days later than had been agreed. The defendant had been made aware on the 8th that they were ready and he accepted and in due course paid for them. In turn he sold them on to Oriental. 11. On the 8th May 1980 the plaintiffs sent a telex directly to Oriental stating that outstanding orders could be completed earlier than the end of June and reminding Oriental that the plaintiffs had given a particular order subsequently placed with them through the defendant a degree of priority which had involved delay to the completion of the seven orders. The telex concluded:-
12. Oriental replied to Kay Lam as asked on the following day. They referred to certain specific orders as between the defendant and themselves and said:-
13. The defendant says he phoned Oriental after receipt of that telex which was confirmed by a letter from Oriental of even date and Oriental agreed with the defendant to accept and pay for the goods which had been shipped by the plaintiffs on the 12th May. 14. Mrs. Kwan told me that on the 9th May the defendant agreed to ship all goods which the plaintiffs should deliver to him up to the end of that month and made no mention of shipment on a consignment basis. So I have to determine whether I accent Mrs. Kwan's evidence that on the day when this telex was received the defendant agreed to accept deliveries up to the end of the month on the footing they were made pursuant to the seven original contracts or that of the defendant that he would only accept goods shipped prior to the 10th May. 15. While I am not entitled to use anything subsequently said or done in attempting to construe the original seven contracts and have not done so I am entitled to take into account what was done at all stages as a basis for inferring what, if any, cancellations, variations or novations of such contracts or fresh contracts were subsequently agreed. Ferguson v Damson & Partners(l); Mears v. Safecar Security Ltd.(2) 16. As to the witnesses, only two gave evidence that was really germane to the issues in this action namely Mrs. Kwan and the defendant. None, including those two, were particularly sharp in their recollection or in their apparent understanding of commercial transactions and considerations. I therefore have to rely heavily on the contemporaneous documents incoming to conclusions on the balance of probabilities. In so doing I accept the defendant's evidence that, following the telex of the 9th May 1980 and having cleared the situation with Oriental, he told Mrs. Kwan the contents of that telex and that he would accept the plaintiffs' goods delivered before the end of that month on a consignment basis. Having regard to the terms of that telex this was, afterall, only to be expected. That conversation was, in my view, effective both to terminate the original contracts pursuant to Condition 12 and to constitute a fresh offer to the plaintiffs in relation to the goods still outstanding. 17. On the 14th May 1980 the defendant wrote to Mrs. Kwan of the plaintiffs a letter purporting to confirm the oral agreement of which he gave evidence. It roads:-
18. Mrs. Kwan, as I have already indicated, denies that any such agreement had been concluded between the parties but after consultation between the directors the plaintiffs, most unwisely if their version of the matter be correct, did not demur to the terms of the defendant's letter. On the contrary they dispatched the outstanding balance of goods under the seven orders on the 23rd and the 30th May respectively. However, on the 22nd May according to Mrs. Kwan, as the plaintiffs confirmed much later by letter dated the 10th September, she had telephoned the defendant and after discussing their respective financial difficulties agreed with him payment terms inconsistent with delivery on a consignment basis as recorded on invoices 137/80 and 139/80. The defendant received these invoices and read then and, in turn most unwisely, did not demur until he put his case on record by letter of the 23rd September. As to the payment terms appearing on these invoices the defendant said that at the plaintiffs' factory on the 12th May Mrs. Kwan had accepted his offer to take any further goods delivered before the end of May on a consignment basis and into the bargain had asked him for a loan to the plaintiffs amounting to one third of the invoice value of the goods shipped. She had also asked him whether he would pay freight charges on the plaintiffs' behalf. He went on to say that he refused the request for loans but agreed to pay freight on the suggested basis as he wanted to appear as shipper in the hope, it would seem, of earning some profit even on consignment transactions. Again I find the defendant's version the more probable. His agreement to pay freight for the plaintiffs would be consistent with the goods being invoiced to him on fob. terms, as they were, and further the plaintiffs showed so little reliance on the special payment terms that they shipped the goods comprised in invoice 139/80 albeit the $28,159.20 purportedly due in respect of invoice 137/80 had not been paid. 19. The following day, according to the defendant, he telephoned Oriental to say that the plaintiffs had agreed to ship on a consignment basis. That would be on the 13th May. 20. Perhaps I should say at this juncture that the meaning of the term "consignment basis" does not appear fully to have been worked out as between the two or possibly three parties involved. But in general terms the defendant was to ship the plaintiffs' goods to Oriental on the understanding that nothing was to be paid to the plaintiffs unless and until Oriental had effected sales; been paid and paid him. The costs of freight and other ancillary costs were to be incurred by the defendant for and on account of the plaintiffs and the defendant was to recoup these costs on behalf of the plaintiffs and then, perhaps, to take a profit himself from the proceeds of any sales by Oriental. 21. As will appear the agreement as between the defendant and Oriental is more obscure and I make no finding in relation to its terms. There is call for me to do so. 22. I now return to the chronological sequence of events. 23. On the 26th June 1980, after having had considerable difficulties with a cheque drawn by the defendant in their favour which had repeatedly been dishonoured, the plaintiffs asked Oriental by telex for ?3,000 being roughly the equivalent of $28,159.20. Mrs. Kwan said that Paul Yu of Oriental had agreed to lend this sum to the defendant so that he, in turn, could lend it to the plaintiffs. Again I find myself quite unable to make any finding. I can only say that the payment terms in the two invoices 137/80 and 139/80 are in a sense consistent with some such agreement. This is a peripheral issue relevant only to credit. 24. On the 27th June 1980 the plaintiffs sent a further telex to Oriental still referring to the defendant's indebtedness to them and pursuing their request for a payment of ?,000. The third paragraph of that telex suggest that the two May invoices were to be paid by the end of June and mid-July respectively. The defendant and meanwhile invoiced the goods comprised in these invoices to Oriental at pries showing him a profit after deducting freight and interest charges and had submitted bills of exchange for those prices to Oriental one of which Oriental had accepted. Prima facie he was selling to Oriental although I have found that it was on a consignment basis that the goods had been delivered to him by the plaintiffs. 25. On the 2nd July 1980 the plaintiffs sent a further telex addressed to Mr. Paul Yu of Oriental and to the defendant then in London. The 4th paragraph read:-
26. Mrs. Kwan told me that this paragraph referred to the goods comprised in invoice 137/80. If so it can only refer to the sum of $28,159.20 yet again. I do not find that these telexes help me save to indicate that negotiations had been and were proceeding on a tripartite basic inconsistent with the implementation of the original seven contracts of sale as between the plaintiffs and the defendant whether or not those original contracts had been varied in relation to dates of delivery. 27. On the 13th August 1930 the plaintiffs wrote to the defendant stating that payment for the two May invoices was outstanding, and:-
28. On the 3rd September 1980 the defendant wrote to the plaintiffs saying that Oriental proposed to return all the goods that had been shipped under the two May invoices and asking for the plaintiffs' comments; saying that if they agreed to the return of those goods he would expect them to pay the sums that he had expended on freight and other charges on the plaintiffs' behalf. 29. On the 10th September 1980 the plaintiffs wrote again emphasising the special payment terms which they said:-
They were indicating, in my view, that if they took the goods back it would only be in order to mitigate any claim for damages they might in due course make against the defendant. 30. On the 23rd September 1980 the defendant wrote back to the plaintiffs saying:-
and then they denied any agreement as to the special payment terms to language that it is not necessary for me to reproduce in this judgment. And the defendant refers again to his letter of 11th May 1980. 31. At this stage both parties had set out their respective cases. No witness has been called on behalf of Oriental. According to Mrs. Kwan, and I accept, on the 17th October 1980 a meeting took place at the Sheraton hotel in Hong Kong attended by the directors of the plaintiffs and the defendant. The plaintiffs asked the defendant for payment under the two May invoices and the defendant said he had, no money and would not have any in the foreseeable future. The plaintiffs then asked if he would consign the goods to them so that they could find a buyer for him. According to Mrs. Kwan he agreed. Subject to the words "for him" this is consistent with the proposals which I have just mentioned for the return of the unsold goods which had been despatched to London on a consignment basis. 32. On 5th November 1980 the plaintiffs wrote again to the defendant asking for the return of the goods and the documents. I think this was done so that the plaintiffs, having possession of the documents, could attempt to sell goods physically located in London. It was acknowledged on 6th November 1980. 33. On the 18th December 1980 the plaintiffs wrote to the defendant a letter, again referring to the two May invoices, in these terms:-
Mrs. Kwan told me in fact they did not have a client and this letter was written on a hypothetical basis but the words "anyway, we have already informed our client to include these extra charges on the selling price", is a sentence wholly inconsistent with the goods shipped in May having been shipped pursuant to the terms of the original seven agreements whether or not there had been a variation as to the delivery time. 34. The parties reached an impasse on the 31st January 1981. The solicitors on behalf of the plaintiffs wrote the conventional letter before action. 35. On the basis of the findings I have already made I turn to the pleadings. 36. By the Statement of Claim indorsed on the write issued on the 21st January 1981, as amplified and explained by paragraph 3 of the Re-Amended Reply, the plaintiffs claimed HK$162,825.04; being the balance of the price of goods sold and delivered pursuant to the original seven contracts and comprising the particular goods described in invoices 137/80 and 139/80. Judgment was signed in default but by consent set aside. It is, therefore, for the plaintiffs to establish that those goods were delivered pursuant to the terms of the original seven contracts again whether or not varied as to dates of delivery. Taking into account what was done at all stages, and there are many matters to which I have not referred being in my view irrelevant or outside the parameters of the pleadings, I find that the plaintiffs have failed to discharge this burden. 37. I need not turn to the counterclaim since it is abandoned. 38. In the premises there will be judgment for the defendant on the claim and for the plaintiffs on the counterclaim.
(1) (1976) 1 W.L.R. 1213 at p 1229 (2) (1982) 2 All E.R. 865 at p 878 Representation: Miss Selina Lau (Raymond Tang & Co.) for plaintiffs Mr. Benjamin Chain (Peter Kimpton Wong & Co.) for defendant |