Using Printing Co (A Firm) and Another v. Novelty Master Plasttc Factory (A Firm) and Others

HCA003915/1978

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Action No. 3915 of 1978

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(Consolidated with H.C.A. 642/79)

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Action No. 642 of 1979

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(Consolidated with H.C.A. 3915/78)

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Coram: Mr. Commissioner LIU, Q.C. in Court

Date of Judgment: 17th March, 1980.

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JUDGMENT

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1. The plaintiff's claim against the defendant is for the price of goods sold and delivered in the form of paper boxes comprising four assembling parts. There has been an action in the District Court which was transferred to the High Court. Ultimately, all these proceedings have been consolidated. The plaintiff will hereafter be called "Using", the defendant "Novelty" and the third party "Massy".

2. As between Novelty and Massy, for ease of reference the following issues have been agreed for determination: (1) Whether the defendant failed to deliver further goods on the 17th July 1978; (2) Whether the alleged failure of the defendant to deliver further goods on the 17th July 1978 was or brought about a breach of contract; (3) Whether the third party's action in withholding the balance for the payment of the 864 dozens shipped on "Taronga" was or brought about a breach of contract, and finally (4) Whether the contract for printing was a contract entered into by the defendant with the plaintiff or by or on behalf of the third party with the plaintiff. It was further agreed between Novelty and Massy for all appropriate relief to be granted in either damages or indemnity on the finding of these issues.

3. The facts are far from being involved, and with able assistance of counsel, I find myself in a position to deliver judgment extempore. According to Mr. Mak of Massy, on or about the 10th May, 1978, he sought a quotation from Using and was accordingly quoted a unit price of 34 cents per box equivalent to $4.08 per dozen. To Mr. Chan of Using, the quotation was obtained by Massy probably for comparing price. Mr. Chan of Using explained to the Court that at about 4 p.m. on the 19th May 1978, one Mr. Sung and Mr. Raymond Chan of Novelty visited his factory premises. He described to the Court how a bargain was finally struck after terms had been ironed out. Among the terms recounted by Mr. Chan of Using. one was for delivery of some 87,500 boxes slightly in excess of 7,200 dozens in three lots allegedly before the end of May, before the 15th of June and before the 30th of June respectively.

4. Much criticism has been levelled at the slight discrepancy pleaded in paragraph 1 of Using's Statement of Claim. It is there alleged that the first of the three lots was to be delivered, not before the end of May, but on the 30th of May. This is only an insignificant departure from the viva voce evidence of Mr. Chan of Using. Another term, according to Mr. Chan of Using. was the payment of the paper boxes, which was allegedly to be made by six instalments between the 15th June to the 20th July. Here, the divergence of Mr. Chan's testimony from that averred in paragraph 1 of Using's Statement of Claim seems to be slightly more material. The payment for the paper boxes is pleaded as having to be made commencing from the 15th June with the last instalment on the 30th of June. The paper boxes manufacturer, Using, had never demanded payment from Novelty in writing until the 18th July 1978 (Document 15 in Bundle A), but reference should also be made to the allegation of Using that Mr. Chan orally demanded payment shortly after the 17th June and had a conversation with Mr. Chan of Novelty who was said to disclaim then any responsibility for the paper boxes.

5. Delivery was in fact made by Using to Novelty on the 27th May in substantial quantities of the four constituent parts of the paper boxes. Another 5,000 tops were dispatched on the 22nd June, and on the 10th July Novelty sought 8,500 pieces inter-partitions and a further 12,000 pieces tops. 8,500 pieces were taken spot delivery of by Novelty on the 10th July, and it was mutually understood that 12,000 tops were delivered but allegedly together with the balance of the order. Novelty accepted the 12,000 tops but rejected the rest with the explanations that the remainder was not yet required and that Novelty had no sufficient space for storage. On the 18th July, 1978, by document 15 in Bundle A Using demanded payment as well as acceptance of the balance, the quantities of which are listed out therein.

6. It was thus claimed by Mr. Chan of Using that on the 19th May Mr. Chan of Novelty and himself discussed the terms of the order ultimately placed with Using by Novelty for the supply of the paper boxes in question. Mr. Chan of Using conceded that Mr. Sung was present, but he maintained that he was quite unaware of his capacity on that visit. Then according to both Mr. Chan of Novelty and Mr. Sung who was in the service of Massy at the material time, the visit was brief and there was no discussion between the two Chans.

7. Mr. Chan of Using further related to the Court that he commenced preparation only after the alleged conclusion of the contract for sale on the 19th May. He also advanced the proposition that there was no necessity for the supply of proof print for examination and approval. He suggested that quality of goods would be duly confirmed on delivery. On his evidence, it was plainly impossible for Using to hold any of these paper boxes or their four constituent parts in store in the afternoon on the 19th of May, but the first glaring contradiction appears in paragraph 4 of lis Reply, the precise contents of which I need not read. Suffice it for me to say that reference has been made there to a quantity of top pieces in existence on the 19th. May. Mr. Chan of Using, was quick in his explanation. He elaborated in cross-examination that it was a misdescription for reasons unknown to himself but contrary to his instructions. In fact, so ran his evidence, they were paper faces. In re-examination a further explanation were sought to be added to his earlier implausible answer. He told the Court that they were in fact boxes of a different size, about two-thirds smaller, manufactured for toy cars.

8. Another important facet that must not be lost sight of is that despite the allegations from Mr. Chan of Using, there is no written contract between Using and Novelty for what may be described as a fairly substantial order of paper boxes between what has been admitted as two total strangers on an alleged introduction of Mr. Mak of Massy.

9. The case of Using may be neatly summarized as follows:- On the afternoon of the 19th May, 1978, he had quite a comprehensive discussion with Mr. Chan of Novelty, in which 7,200 dozens of paper boxes of unusual specifications and in four components were ordered from Using by Novelty at the price of $4.08 per dozen on the basis of 34 cents per unit.

10. The version of Mr. Chan of Novelty was that he was approached by Mr. Sung, an employee of Massy, and that on information given by Mr. Sung, he met Mr. Mak of Massy in the morning of the 19th May. Among the subjects under discussion, he was explicitly briefed by Mr. Mak that price of the get-up in the form of paper boxes was to be deducted from the price appearing on the signed written contract. Novelty was merely to supply brush, comb and mirror sets which are hereinafter called "brush sets". Mr. Chan of Novelty told the Court that he was given six or seven paper boxes by Mr. Mak and invited to produce a dozen advance samples in six or seven days and that Mr. Sung was instructed to take him to some factory premises for the remainder of the paper boxes together with what has been described as "paper face" for the doll marked in this Court as "P2(1)". Together with Sung, he went to the premises which he later knew as the factory of Using. The encounter was brief. Conversation was limited. There was certainly no negotiation for paper boxes; nor was any agreement reached in respect of paper boxes which he understood, from begining to end, to be supplied by Massy and for which Novelty was not to be responsible. Mr. Mak of Massy had informed him that from time to time, whenever necessary for the production of the brush sets, sufficient number of paper boxes would be delivered on the instructions of Massy.

11. Mr. Chan of Novelty told the Court that on the 27th May, prior to the delivery Using had contacted him by telephone and informed him of the coming delivery. The same procedure was repeated for the 22nd Jund delivery. He admitted that he requested for further supply on the 10th July. He emphasized that from start to finish, the quantity delivered was not pre-fixed and that he had never been requested to make any payment until the relationship between Massy and Novelty became dated the 18th July 1978 from Using (Document 15 in Bundle A).

12. Mr. Chan of Novelty recounted sight of a large quantity of parts of paper boxes mostly unstapled near the entrance of the factory premises in the location of the lift on his visit. On that visit, the colour of certain paper faces was discovered by Mr. Sung to be incorrect. There was a telephone conversation by Mr. Sung taking instructions from Mr. Mak who in turn instructed Mr. Chan of Using to rectify the defect.

13. There are discrepancies between the evidence of Mr. Sung and that of Mr. Chan of Novelty, one of which is: Mr. Sung explained that since all the paper faces were in a colour unacceptable, none of the paper faces was taken away by Mr. Chan of Novelty on that particular visit. In my assessment of the witnesses for and on behalf of the Novelty, needless for me to say that I have taken into consideration all the criticisms raised by Mr. Pang and Mr. de Souza on behalf of the adversaries.

14. It would not be out of place here to make a comment or two on Mr. Sung as a witness. No suggestion of any improper incentive was put to him. It is now conceded that he was at the material time in the service of Massy, although in his cross-examination, he was once asked as to whether he had any commission on the alleged contract between Massy and Using for the printing of the boxes. In response, Mr. Sung explained that he was not really pressing for it as he knew not if Mr. Mak would include him in that particular contract for commission, to which, though, he was strictly entitled. He maintained that he assisted Mr. Mak more as a friend than on commission prospect.

15. I turn next to deal with the evidence of Mr. Mak of Massy. Contract, Exhibit T1, from the overseas buyer has been produced, and it is dated the 6th March 1978. However, we were not given sight of any correspondence or other documents, if any, during the period of negotiation. Mr. Sung was adamant that Mr. Mak of Massy had informed him before 1978 that the two contracts had been confirmed, one for toy cars and the other for brush sets. Mr. Sung explained that his recollection was aided by the fact that On Fat had been approached and signed a contract for manufacturing the goods before Chinese New Year which was sometimes in January 1978. At the end of April, as a result of certain information from Mr. Sung, Mr. Mak caused other manufacturers to be approached, and he put the date as the 10th May when Mr. Sung secured the defendant. However, Mr. Sung told the Court that he approached the defendant on the 6th May as On Fat had been discovered in April or early May to be irresponsible and unsatisfactory in more ways than one. Mr. Sung corroborated the evidence of Mr. Chan of Novelty that on the instructions of Mr. Mak, he duly conveyed all the messages to the defendant:- he requested Novelty to take over the manufacture of the brush sets from the existing manufacturer On Fat, he assured Novelty that most of the boxes even, doll dresses, were ready, and he asked for the quotation of a price exclusive of the cost for the paper boxes which were said to be in the region of $4 per dozen, as he had earlier been so briefed by Mr. Mak.

16. Mr. Sung also confirmed his disclosure to Mr. Chan of Novelty that delivery time was "rather long" with the possibility of an extension. In fact, Mr. Sung understood delivery to be in June, up to end of July, possibly with an extension to the beginning of August.

17. As for the delivery date, Mr. Mak of Massy alleged that a deadline was agreed to fall on the end of June with interim deliveries on the 8th June, 15th June, 22nd June and 29th June respectively. But according to Mr. Chan of Novelty, Mr. Mak indicated that delivery was from June to July and he was only given "a round-about date". Mr. Sung recalled Mr. Mak as having assured Novelty on this occasion that there was no problem for the delivery date to go up to the end of July, beginning of August. Mr. Chan of Novelty further added that he was not informed of any specific shipment date which, Mr. Mak then stated, would be given to him subsequently. Mr. Chan of Novelty claimed also to have been told by Mr. Mak that goods were to be shipped in five or six shipments with the largest quantity specified in the written contract of 2,736 dozens to be split up at the discretion of Novelty.

18. Another term agreed was the term of payment which, according to Mr. Mak of Massy, would be 7 to 10 days after sailing of the vessel despite a contrary provision in the contract for payment to be against a clean dock receipt. Mr. Chan of Novelty and Mr. Sung both maintained that there was no attempt to qualify the written payment term. However, it transpired that this term had little bearing.

19. The price written in the contract was $28.50 per dozen which Mr. Mak claimed to be inclusive of the price for paper boxes. A contrary version was given by Mr. Sung and Mr. Chan of Novelty. According to Mr. Chan of Novelty as corroborated by Mr. Sung, he requested the price to be amended to reflect nett payment for the brush sets to himself, but Mr. Mak explained that the price typed into the written contract must remain intact for Massy's accounting purposes and that all invoices from Novelty were to be likewise billed on the mutual understanding that $4.08 per dozen would be deducted by way of cost for the paper boxes.

20. Mr. Mak also claimed to have contacted Mr. Chan of Using by telephone at this meeting and enquired of the previously quoted price for the paper boxes. Mr. Chan of Using was allegedly introduced over the telephone to Mr. Chan of Novelty who was, so said Mr. Mak, to be coming over immediately for direct negotiation. Such telephone conversation was denied by Mr. Chan of Novelty. It was not corroborated by Mr. Sung, and even Mr. Chan of Using made no mention of this alleged telephone introduction.

21. The subject-matter of moulds was also canvassed. Whilst Mr. Chan of Novelty told the Court that a loan of $18,000 was promised, Mr. Mak denied such assertion. $8,000 was paid on the 30th May by Massy to Novelty. Mr. Mak maintained that it was a payment in advance, but, according to Mr. Chan of Novelty, it was part of the $18,000 loan promised for financing the purchase of the moulds with Mr. Mak confirming another $10,000 to come. Mr. Chan of Novelty expected the moulds to be in the region of $20,000, but eventually he managed to acquire them for $18,000.

22. This is just as good a place as any to digress and return to delivery date. Shipment samples were duly delivered thereafter by Novelty but were approved by Massy's overseas buyer only by the 30th of June, on which date Novelty was notified. Mr. Chan of Novelty further explained that the first mould for manufacturing the mirror rim was ready on the 24th or 25th May and that only by about the 18th June all the moulds had been ready for mass production. In the meantime, Mr. Mak alleged, by mid June he was told by Mr. Sung of some production problem with Novelty on the aspect of glueing of the mirror. Thereupon, he visited Tai Po and discovered that the glueing of the mirrors was done elsewhere. Mr. Sung was not cross-examined on this allegation, and Mr. Chan of Novelty disclosed that a gentleman by the name of Yuen Wai Fong in Tai Po dealt exclusively with the doll dresses and that the glueing of mirrors was at all times finished in the factory of Novelty. The next phase in this case came on the 20th June. Mr. Mak informed Novelty that a ship "Talisman" was sailing on the 25th June and that goods had to be delivered for shipment by the 23rd. Shipping documents were on the 21st of June given by Massy to Novelty for 864 dozens. According to Mr. Chan of Novelty, Mr. Mak assured him that it would be perfectly in order if the goods were to be delivered even as late as the 25th. Goods were delivered on the 25th. The complaint of Mr. Mak was that it was too late for "Talisman" and the goods were subsequently shipped on board "Taronga". This alleged late delivery seems to have no real significance, as the goods were accepted and shipped and Massy never refuted its liability.

23. As for payment, Mr. Mak claimed that as the dock receipt was only handed to Massy on the 3rd July, he only managed to present the documents for negotiation through the bank on the 10th July. A bank's date chop appearing on Exhibit D3 was referred to. According to Mr. Chan of Novelty and Mr. Sung, the dock receipt was handed over to Massy on the 26th June. Thus, initially there was some dispute between the parties as to when payment ought to be effected, but be that as it may, again nothing really turns on it. After some pressure exerted on Massy for payment on the 1st or 2nd of July, according to Mr. Chan of Novelty, Mr. Mak allegedly pleaded with Novelty to at least keep some workers on Massy's order and assured Novelty that the first lot would be paid before any second shipment. Mr. Chan of Novelty warned Mr. Mak categorically that there was no guarantee what quantity would then be available. On the 11th or 12th of July, the second Shipping Order, which is at pages 16 to 23 in Bundle A, was given by Massy to Novelty. It is of interest to note from the Credit Advice, Exhibit T6, that Massy obtained overseas payment more than sufficient to meet Novelty's invoice as early as the 12th July 1978. Upon receipt of the second Shipping Order, so ran Mr. Chan's evidence, he contacted Mr. Mak by telephone and demanded payment and some sort of an explanation, and thereupon Mr. Mak implored him to make preparation for the second shipment and invited him to visit his office on the 15th or 16th July for payment of the first shipment.

24. 15th July came, and Mr. Chan of Novelty saw Mr. Mak. It is common ground that two cheques were given, one was for $5,000 cash and another for $10,000 post-dated to the 18th of July. Mr. Chan of Novelty was greatly disappointed, and Mr. Sung was summoned. Mr. Sung told the Court that the atmosphere was noticeably hostile upon his arrival. As a result of discussion, Novelty finally accepted the cheques. Mr. Chan of Novelty claimed that Mr. Mak, being aware of the partially suspended production, was reminded by him that no shipment even of available goods would be effected before the post-dated cheque was paid. Mr. Chan of Novelty had previously warned Mr. Mak that he could give no guarantee as to how much goods would be ready for the second shipment.

25. Whilst the total price for the 864 dozens were at least $21,098.88, being Novelty's invoice for $24,624.00 (page 8 in Bundle A) less price for the paper boxes for the same quantity at $4.08 per dozen equivalent to $3,525.12, Mr. Mak explained that Novelty was not paid in full as there was certain CSF charges in the sum of several hundred dollars by way of expenses for transferring goods into containers. He also explained that the post-dated cheque was given not because of financial difficulty but as a means for ensuring Novelty's shipment of the second lot on the 17th July via "Zim Montreal".

26. In fact, Mr. Yip Wah, the inspector of Massy continued inspecting goods and was content with the progress up to the very last, and he was scheduled to have a joint inspection on the 18th July with Mr. Raymond Lee of the Overseas buyer. From his attitude and action on the 17th and 18th July Mr. Yip Wah seemed to be quite unaware that Massy was not to continue dealing with Novelty. Little did he realize that it must have been on the 17th July that Massy countermanded payment on the $10,000 post-dated cheque. The reason for the countermand, according to Mr. Mak, was Novelty's failure to ship the goods via "Zim Montreal". This assertion of Mr. Mak's does not appear to be wholly consistent with the conduct of his own inspector.

27. Early in the morning on the 18th July, being consistent with his attitude, Mr. Chan of Novelty caused to be marked good hopefully the post-dated cheque of even date. By 10 o'clock, he became aware that the post-dated cheque then due was dishonoured. There upon, in understandable frustration, he instructed all workmen to switch on to the manufacture of some other orders. The finished goods and partially finished goods for Massy were all put aside. Upon the arrival of Yip Wah, the inspector of Massy, Mr. Chan of Novelty appeared unpleasant and abruptly told Mr. Yip to liaise with Mr. Mak. Mr. Yip was instructed by Mr. Mak to leave the premises. I should mention in passing that Massy was, at one time, even prepared to accept goods from Novelty up to the 22nd of July. By the 18th July, Novelty had manufactured some 800 dozens. There was absolutely no justification for countermanding the cheque presumably on the 17th July 1978. At the same time, Using dispatched a letter of demand to Novelty (Document 15 in Bundle A).

28. This is a case to be decided, in the main, on credibility. I have taken into consideration not just one but every aspect of the evidence. I prefer and accept the evidence of Mr. Chan Yiu Wing of Novelty and that of Mr. Sung. Nothing much really turns on the disputes on the agreed terms for the manufacture of the brush sets. The parties conducted themselves without irreversible antagonism until after shipment of the 864 dozens. Massy's offer of a post-dated cheque was uncalled for. Furthermore, there was truly no real good cause for Massy's failure to pay the contract price for the first shipment in full. However, even the lesser payment, in part by a post-dated cheque, was finally accepted, though grudgingly, but on conditions. In the end, with his inspector still visiting Novelty's factory in ignorance of any intention not to ship a lesser quantity or to sever tie with the defendant, Massy countermanded payment of the $10,000 post-dated cheque. In fact, the inspector seemed perfectly satisfied with Novelty's progress, and a joint inspection was scheduled for the following day. The first shipment of 864 dozens was allegedly two days late and yet was accepted. By this time, only $5,000 out of at least $21,098.88, being less than one quarter of the price for these 864 dozens shipped, had been paid. I also accept Mr. Chan's evidence that the $8,000 was part of the promised loan of $18,000 for financing the purchase of the moulds. The situation must have been extremely aggravating to Novelty. Massy was, I find, in breach. It would seem that the countermand on the 17th July and the despatch of allegedly the entire balance on the same day as backed by a letter of demand on the 18th were all part of a concerted effort to put pressure to bear on Novelty.

29. As between Mr. Chan of Using and Mr. Chan of Novelty, I also prefer and accept the evidence of Mr. Chan of Novelty which is of course also well corroborated by the evidence of Mr. Sung. The denial of the presence of a large quantity of paper box components on the 19th May was unconvincing, and Mr. Chan Shing's veracity was certainly not enhanced by his shifting explanations. The alleged creation of contractual relationship for the supply of a quantity such as 7,200 dozens paper boxes between two total strangers without one single syllable being spelt out in writing is remarkably unrealistic. The variations in the payment dates averred in the Statement of Claim and in evidence do not present Using in their best colour. Save for some alleged oral demands for payment made after the last delivery on the 17th July, there had not been even an invoice sent for the price of no less than four deliveries until Using's letter of the 18th July. I find that Mr. Sung, well briefed by Mr. Mak, conveyed all the material information to Mr. Chan of Novelty and that the meeting in the morning on the 19th May between Mr. Chan of Novelty and Mr. Mak was as testified to by Mr. Chan of Novelty in Court. I further find that what transpired in the factory of Using was as described by Mr. Chan of Novelty. In conclusion, I find that there was no contract for the manufacture and supply of boxes between Using and Novelty as alleged or at all. It is quite unnecessary for me to make any further finding of fact, but on the evidence Massy was, on the balance of probabilities, the buyer of the paper boxes.

30. I turn next to consider quantum of damages. All in all, Novelty has been paid $13,000, $5,000 by a cash cheque and $8,000 in loan. That leaves a sum of $8,098.88 due and owing by Massy to Novelty. I also accept the evidence of Mr. Chan of Novelty that the profit that he would have made was at least $4.00 per dozen. There were 5,536 dozens outstanding, and therefore Noveltv stands to lose, as he would have made, a profit of at least $22,144. I also accept his explanation as to Novelty's loss on the semi-finished plastic materials in the sum of $3,000. As for another two hundred dozens manufactured brush sets, at one time Mr. Chan of Novelty told the Court that they were worth $24.00 in the open market, but that he had not been able to dispose of them. However, his evidence on this 200 dozens is vague. On the balance of probabilities I find market value of this 200 dozens as being $24 per dozen and he has had the benefit of the paper boxes from Massy. Therefore, Novelty stands to lose not more than 42 cents per dozen making it $84. In conclusion, the total is $33,326.88. I have also noted that Mr. Chan of Novelty is prepared to be relieved of approximately 800 dozen paper boxes now in his possession.

31. In the circumstances, it remains for me to order (1) the Plaintiff's claims be dismissed with costs, (2) judgment for the defendant in the sum of $33,326.88 against the third party, (3) the third party's counterclaim in the third party proceedings be dismissed with costs to the defendant against the third party on the agreed issues inclusive of those in the third party's counterclaim and consolidated action.

Representation:

Mr. K.K. Pang instructed by Louis Kong & Co. for Plaintiff.

Mr. Westley Wong instructed by Tsang & Chau for Defendant.

Mr. de Souza instructed by Foo & Li for Third Party.