S.P.K. Garment Manufacturing Ltd v. Tsang's Piece-goods Co Ltd

HCA006109/1982

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

Coram: The Hon. Mr. Justice Hunter in Court

Date: 4th November 1983.

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JUDGMENT

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1. The plaintiffs in this matter S.P.K. Garment Manufacturing Limited are, as their name implies, manufacturers of garments - I gather principally for the ladies. In October of 1981 they were in urgent need of a quantity of a particular type of poplin. This was because they had already received, in the course of October, three written confirmation orders from a company called Caravan Fashions Limited for a variety of ladies' garments, and because they also expected to receive similar orders in the immediate future. These expectations were in fact realised because on the 11th November of that year five further confirmations of orders were in fact received. These orders, as I said, all called for a particular type of poplin which is known as 133 x 72 40/40. They wanted some 42,000 yards of this material in varying different colours. They would have preferred to have bought dyed material if they could. They were not, in fact, able to find any material dyed and so in the event bad to contract to buy the material in the grey. This meant two things. First they had to find a dyer  who was prepared to dye to the proper colours; and secondly deliveries had to be arranged at a time when the dyer had the capacity to take that quantity of goods. This all had to be done by December because,  the shipment date ex Hong Kong in the three orders that they had  received was the 10th December. Time was tight: this material was in short supply: and Mr. Siu was unable to find it. Mr. Siu was the trading director of the plaintiff company.

2. In those circumstances Mr. Siu met the defendant company and particular Mr. Tsang Man, its principal. It was not surprising that those two met because Mr. Tsang Man, who I shall refer to as the father, was at that time in the process of seeking to develop a corner in the market for this particular material. The figures differ and it is impossible to know exactly what was happening at any one time. But there is evidence before me to the effect that no less than 350,000 yards of this material were taken in store on behalf of the defendants by a company called King's Dyeing and Weaving Company between the 1st November and the 31st December of that year. Father, himself said that he had in December between a hundred and two hundred thousand yards of the material in stock. But he also said that between December and the following April he did not sell a single yard because no one wanted to buy.

3. I confess I am far from happy that I have heard the full story as to what was happening with this material. What I am satisfied is that the defendants at that time were pulling in all the material they could find. They were prepared to sell, but they were not particularly anxious to sell. I think, at that stage, Mr. Tsang Man's thought was that the market was going to rise further in his favour.

4. In those circumstances, the fattier and Mr. Siu met. After a fairly brief negotiation a contract was entered into dated 30th October for the sale by the defendants to the plaintiffs of a total of 41,769 yards of material at a price of $3.70 a yard. The delivery date in the contract is "on/about November 18th" and payment is said to be "by cash against delivery". The contract also provided for the payment of a 10% margin. There was a special condition on the back, that is special condition (3), which reads as follows: "The deposit paid by the Buyers shall not be refunded if the Buyers fail to make full payment within the time herein specified...." So, by that contract Mr. Siu was hoping to obtain that quantity of goods on/or about the 18th November. He made arrangements he tells me, for the dyers to receive this quantity on the 23rd November. In this way he hoped to fulfil his obligations both existing and anticipated to his buyers in Canada.

5. There is one question of indispute arising out of these negotiations, which is what Mr. Siu said to the defendants about his future use of this material. I am quite satisfied that the defendants were left in no doubt at all that this material was needed for manufacture. I am also satisfied, indeed this is not in issue, that Mr. Siu said this was a matter of urgency; and also that he added that he needed the goods for shipment in December. But he did not say where. He did not say that his customer was in Canada, and he said nothing about his quota intentions or his quota problems.

6. Unhappily the contract started to go wrong almost as soon as it was made. As I have said there was provision for a 10% margin. As a result of that, on the following day, that is the 31st October, Mr. Siu drew a cheque for the appropriate sum but he drew not upon a bank account in the name of the plaintiffs but upon the bank account in the name of an associated company. Now, for reasons which I confess I do not quite understand this was treated by Tsang senior as tantamount to deceit as virtually the hallmark of fraud. He thought that Mr Siu was using a bank account of his buyer (this was one of the phrases he used to me) and he seemed to think that was really quite unforgivable and revealed that Mr. Siu was a crook. Sadly, and as far as I can see without any justification at all, father, from that moment onwards, was convinced that he was dealing with a crook. From being initiially, what I might describe as somewhat "casual" seller, he then became a very reluctant seller indeed and I think was looking for an excuse not to fulfil this contract.

7. The next thing that happened is that on/or about the 10th or 11th November, the plaintiffs drew a cheque for the total outstanding contract price in favour of the defendants, which cheque was signed by a Mr. Lok on behalf of the plaintiffs and dated the 18th November. Now there is a dispute on the evidence as to the circumstances in which this cheque came to be signed and drawn. But in the ultimate analysis it was common ground that there was a telephone call before this event between Mr. Siu on the one hand and Mr. Tsang senior on the other, in which at least a cheque was discussed. It is also common ground that that cheque was tendered by the plaintiffs and accepted by the defendants as conditional payment of the contract price.

8. I say that for these reasons. First there is no doubt whatever that this cheque was tendered by the plaintiffs as conditional payment because what they anticipated happening was this. The contract delivery date was the 18th. That is why the cheque was dated the 18th. The plaintiffs did not want to take delivery before the 18th. They did not expect that the defendant would accept this cheque as cash. They were not inviting him to do so. They were giving him the opportunity to present the cheque to his bankers, have it specially cleared or "marked good", which is the phrase that the defendant himself used in this context; and then being satisfied that the cheque was good, the defendants were then let them have the appropriate delivery order, the authority to pick up the goods from the storage warehouse where the plaintiffs then assumed they were. That was the plaintiffs, position.

9. Now, as far as the defendant is concerned, their position was almost in the ultimate analysis identical. Because although very reluctant, he said to take this cheque at all, the defendants, by Mr. Tsang Man, eventually decided to do so with a view to seeing whether that cheque would be met on the 18th. He was anticipating receiving a cheque dated the 12th November in exchange for a delivery order dated the 16th November, which was going to give him 4 days to clear the cheque. He did not in fact explain that, he said on the telephone. But ultimately he did in fact take this cheque, as he said, to see if the cheque was going to be cashed and met on the 18th November. It was for that reason that it seems to me common ground on the facts that cheque was offered and accepted as conditional payment.

10. The effect of that, in my judgment, is this. First the defendant was under a duty to present that cheque for payment. If he failed to perform that duty he would himself be preventing himself from receiving payment. Secondly, in the context of this case, I believe that his duty was to have that cheque specially cleared, or in his language, he should have invited his bankers to "mark it good" or not. Thirdly if the cheque was then marked good, or shown to be valid on special clearance then the defendant would have been under an obligation to delivery up the delivery order. Fourthly if the cheque was not marked good then it would have been proved that the cheque was worthless. The conditional payment would have shown to be non-payment, and the defendant would then have been entitled, had he been so minded; to have forfeited the deposit under general condition (3). That, in my judgment, was a position when this cheque was received.

11. Now what happened on the 18th November, again is not an issue. First this cheque was never presented for payment. Secondly on the 20th or possibly the 23rd Mr. Tsang Man marked the cheque, he said, with a cross, because he was treating it as worthless. He described it as so much rubbish. Thirdly on that date he treated the contract as an end and forfeited the deposit Fourthly he did not in fact tell the plaintiffs that this is what he had done until sometime early in December, because the first intimation of this was given in a letter from the defendant to the plaintiffs dated the 30th November, but in fact written after the defendants had received a letter likewise dated the 30th November from the plaintiff. In other words, the letter at page 26 was written, after the letter at page 25 was received and actually in answer to it, and a false date was put on the letter at page 26.

12. In those circumstance it seems to me that if you look at that story at that stage, the simple position was that the defendant having refused to present this cheque had himself brought about the situation of non payment. He prevented himself from receiving the money. He then wants to go on to use non payment as a justification for non delivery and a justification to forfeiture of the deposit. Prima facie that is a self-induced situation which he cannot do. The whole of this case then came down to whether the defendant could justify this conduct. Two things really were relied upon for this. First it was sought to be said that the cheque was in fact worthless; and secondly it was sought to be said that the defendant had acted in this way because he had been invited not to cash the cheque.

13. It is a very unfortunate feature of this case, as it seems to me, that neither of these issues was ever raised at any time on any pretrial documents. They were not referred to any contemporary correspondence. They were not referred to in the pleadings and no discovery was sought or given directed to them. This, in my judgment makes the defendant's position on the first of these points really quite hopeless. I suspect that when one is given a cheque by way of conditional payment virtually the only way of showing that that condition is fulfilled or not fulfilled is to present the cheque. But I think that if you do not present the cheque and you might still by extraneous evidence prove that the cheque was totally worthless. You might be able to explain your own behaviour. But this is not the defendant's position in this case. The plaintiff said he had the facilities, and that the money was there. There is no evidence to the contrary; no discovery of the bank account or anything of that nature. There is no material upon which I could possibly conclude that this cheque was in fact worthless. There is nothing in fact to justify the defendant's apparent conclusion that it was.

14. As far as the second matter is concerned, this was founded upon a series of telephone conversations which Mr. Tsang man said he had with a lady who he named as Miss Leung at the plaintiff's office. I think it is sufficient for me to say that Mr. Tsang Man was plainly a very experienced business man. He had been in business, he tells me; for thirty years. But he is also aged 72. There was a time when he was plainly confused in his evidence and he used these words to me; in a voluntary addition to his evidence. What I wrote down was this. "My lord, I am old, I cannot remember things that took place years ago". He then went on to say he was got confused by the various questions and went on "I cannot really remember, I am old." I believe that that is the true position. Speaking generally I find the evidence from the plaintiff's witnesses more convincing and more satisfying than that of the defendant's witnesses. As far as these particular telephone calls, which were said to have taken place on the 17th, 18th and 19th of November, I regret to have to say I simply cannot accept Mr. Tsang Man's account of them. In his own words he described the girl as talking nonsence. She was talking nonsence as far as he was concerned and his conduct in these circumstances seems to me to be totally unconvincing and totally incredible. I do not believe that his conviction that this cheque was worthless, owed anything to anything that he was told on the telephone. Indeed he was not being told that on the telephone. I believe that his personal conviction that this cheque was worthless stemmed from his doubts about the integrity of this plaintiff which he conceived almost from the outset of this contract. I think he had an absolute fixation in this case that he was dealing with a bunch of crooks and that they were bound to give him a cheque that was rubber. It was quite unnecessary to test that conviction by the simple expedient of presenting the cheque.

15. In these circumstances the position seems to me to be this. The defendant took this cheque as conditional payment and then quite deliberately refused or failed to present it. It is quite true that he did not in fact receive anything because he did not present the cheque. But he cannot then use the non-receipt of money brought about by his own conduct as a justification for non delivery.. In these circumstances, in my judgment the defendant was in breach of contract in not presenting the cheque and in not delivering and not offering or tendering any delivery order to the plaintiffs in respect, of the goods that were then admittedly in his possession. I am constrained to the view, which follows from my acceptance of the plaintiff's witnesses, that a lot of excuses were given, in which there was no truth whatever, for this conduct on the defendant's behalf.

16. It is necessary follows in my judgment that the first claim in the pleadings succeeds which is a claim for the recovery, of the forfeited deposit in the sum of $15,454. It equally follows on my findings of fact that claims in paragraphs (c) and (d) of paragraph 9 of the Statement of Claim must fail. In my judgment nothing can be recovered in respect of quota costs unless the buyer brings home to the seller at the time of the contract sufficient facts to show that he is buying for delivery to a quota country in circumstances which plainly show that he is seeking to rely upon certain particular aspects of the quota scheme.

17. That leaves open only the claim in paragraph 9(b) of the Statement of Claim, which is a claim for 50% of air freight charges. That arises in this way. In the face o?the defendant's conduct forfeiting the deposit and declining to deliver the plaintiffs were in great difficulty. They were, committed to their own buyers and had lost their supply. But they recovered with some success from that position, because on the 2nd December they entered into a contract for the purchase of a large quantity of poplin not of the same type but of the similar type with another company, having first persuaded their buyers to accept this particular type of poplin. Under this contract they were able to obtain delivery between the 15th and 20th December. That meant that they were inevitably late in the deliveries shipment that they made to their own buyers, which shipment eventually took place, I understand on about the 15th January. Now their sub-buyers then insisted that the goods were sent by air and required the plaintiffs to pay 50% of those air freight charges in a total sum of just over $23,000. That is the origin of the claim in sub-paragraph (b) of paragraph 9.

18. On analysis I think it goes like this. The plaintiffs were able to mitigate their loss from the defendants refusal to deliver by entering into a fresh contract. Fortunately for the defendant that contract was at the same price and their sub-buyers accepted this other, I am minded to think, inferior material. But anyway the plaintiffs have not sought to claim what might have been the ordinary measure of damages, the different between the contract price and the actual market price at this time. So I was relieved of the very difficult problem of deciding what the market price of the contract material was. There is therefore no claim in respect of difference in value of the material. But what they say is that the time wasted inevitably brought about the loss in fact claimed.

19. The first question here to my mind is whether that loss was in fact suffered or whether it would have been suffered in any event. I am satisfied that this loss was incurred and that it would have been avoided if the original contract had been fulfilled. If the original contract had been fulfilled the delivery period would have been very tight, but I think delivery would have been made very much closer to the due date under the Canadian contract than the 15th January. Conversely I think that they did well to be in a position to ship by the 15th January, having regard to the position in which they found themselves on the 1st December. So that I am satisfied that the damage was in fact suffered.

20. Then the question arises is this damage too remote. Now this is Hong Kong. I am satisfied as I have already said that Mr. Siu mentioned that the goods were needed for manufacture and for shipment. I am satisfied that it either is or ought to be within the reasonable contemplation of an ordinary Hong Kong supplier, supplying goods to a Hong Kong manufacturer, that if those goods are not supplied or are supplied late, the Hong Kong manufacturer may have to resort to the use of air freight in order to get them to his sub-buyer in time. This is, I believe, a recognised head of risk from the Hong Kong supplier to a Hong Kong manufacturer. In those circumstances I do not regard this head of damage as too remote. Putting it the other way round, I think that this is a head of damage, a type of damage, which ought to have been in the reasonable contemplation of the defendants when they entered into this contract.

21. For these reasons which I have sought to express orally so that the parties know where they stand, instead of taking up time by putting the matter perhaps more tidily in writing, I think that there should be judgment in this case for the two claims in paragraphs (a) and (b) of paragraph 9 of the Statement of Claim and on my calculations that comes out at $38,484.54.

Representation:

Mr A. Wong instructed by Messrs. Lo, Wong & Tsui for Plaintiff.

Mr. S.M. Chan instructed by Messrs. Deacons for Defendant.