Nylex Plastics Ltd v. Kishinchang Dingomal Ramchandani t/a Raneyko Enterprises

HCA000518/1970

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 518 OF 1970

-----------------

-----------------

Coram: Briggs J. in Court

Date of Judgment: 29 June 1971

-----------------

JUDGMENT

-----------------

1. The Plaintiffs are manufacturers of plastic sandals in Hong Kong. The Defendants are a firm engaged in the import-export trade and among other matters export plastic sandals which they purchase from the Plaintiff to Northern Somalia. Goods so exported are shipped to Aden and from there are transhipped to Berbera in Somalia by Dhow.

2. The Plaintiffs' claim is for $47,187.20 being the balance of payment for 5,200 dozen pairs of plastic sandals which they sold to the Defendant. The Defendant admits in effect that this sum has not been paid but counterclaims or seeks to set off three separate sums which they say are owed to them. These are (1) $10,000 being a sum deposited by the Defendants with the Plaintiffs (2) $20,106.80 being a sum the Defendants have paid to their Somalian customers for their own alleged breach of contract and (3) $18,334.24 being loss of profit in consequence of the breach of contract of the Plaintiffs. The total is $48,441.04.

3. At the commencement of the trial I gave judgment to the Plaintiffs for the amount of their claim subject to any sum found to be due from them to the Defendants by way of set off or counterclaim. The Defendants therefore opened their case.

4. On March 19 1969 the parties entered into an agreement. The Defendants' case is that this was a binding contract for the supply of goods. The Plaintiffs' case is that it was no more than an agreement to agree, and is not a legally binding contract at all. It is necessary to examine its terms in some detail. The contract which was made on note paper, which bears the Defendants' heading, reads as follows (I will number the paragraphs for convenience.):-

At the time the contract was signed the Defendants paid a deposit of $10,000 to the Plaintiffs and signed a receipt in the following terms:-

"Hongkong, 19th March, 1969.

This attached sheet forms an integral part of the agency agreement made on 19th March, 1969 between M/S Raneyko Enterprises, Hongkong and M/S Nylex Plastics, Ltd. Hong Kong.

We received from M/S Raneyko Enterprises, Hong Kong, the sum of Hong Kong dollars ten thousand only being deposit against their contracts for a total quantity of 12,000 doz. prs. Plastic sandals to be delivered for partial shipments to Northern Somali, not later than 30th June, 1969. This deposit bears no interest and it will be refunded immediately after the last shipment effected.

5. It is this deposit of $10,000 which is the first sum that the Defendants seek to set off against the claim of the Plaintiffs.

6. The receipt refers to "the agency agreement", which the agreement certainly is not. I can see no creation of the relationship of principal and agent in its terms.

7. By the agreement the Plaintiffs agreed that they would sell "their PVC sandals styles" only to the Defendants so far as North Somalia is concerned. Further, the Defendants agreed "to take up 12000 dozen of sandals "of various styles" "within a stated period of three months.

8. The price of the sandals is not mentioned nor are the styles of the sandals indicated. The agreement in my view is not a binding contract. It is a statement of willingness to trade on certain terms. Those terms are that an exclusive supply of sandals is granted by the Plaintiffs to the Defendants and the Defendants agree to place orders for 12000 dozen within a three-months period which can be extended by mutual consent. The agreement is not an agreement to purchase 12000 dozen sandals. I do not think that the parties intended to create a legal relationship when it was signed, except in one sense. The agreement could mean that the Plaintiffs agree only to sell their sandals to the Defendants who in consideration agrees to place an order for a certain quantity within a certain time. If the Plaintiffs had supplied another firm with Nylex PVC sandals for shipment to Northern Somalia, would the Defendants be able to maintain an action for damages? It might be possible, though paragraph 3 of the agreement can bear more than one meaning. In any event such speculations are outside the ambit of this case. I think the true effect of the agreement is to put down on paper in outline the terms on which the parties were willing to do business.

9. This is borne out by the nature of the document itself. It is drafted in very loose language and indeed paragraph 5 contains an obvious error in English. The receipt clearly refers to "contracts" - the word is in the phural - and in the context, this must mean contracts to be made in the future.

10. The agreement was signed on behalf of the Defendants by Mr. Ramchandani. He was called as a witness and gave his evidence in English. In cross-examination he admitted that he drew the agreement up himself and said it was "an attempt to agree for the first time".

11. Paragraph 6 of the agreement gives an option for a renewal for a further three months. On May 30th the parties appear to have exercised this option for they signed a second agreement in terms identical to the first agreement except for the period of time. On this occasion the time was to expire on 30th September 1969

12. Copies of the eighteen contracts referred to in the Statement of Claim have been exhibited. They are all in a common form. The agreement of May 30 1969 is not referred to. They are contracts for the sale of a specific number of dozens of sandals of a stated type and for a price certain. I will refer to these contracts for the purposes of the judgment as "the first series of contracts". Some of them were made before the renewal of the agreement and some after renewal.

13. The deposit of $10,000 was not returned to the Defendants. Though the Defendants' evidence was that he has placed orders for the 12,000 dozen sandals mentioned in the first agreement and has paid for them. It seems that the deposit was held over as it were against the new agreement.

14. As I have found these two agreements - for the second must be given the same interpretation as the first, - did not create a legal relationship between the parties, it follows that the $10,000 deposit must be taken into account, and that the Defendants are entitled to set this sum off against the Plaintiffs' claim.

15. On July 10 1969 the parties signed a further 16 contracts under which the Defendants agreed to purchase from the Plaintiffs 4000 dozen pairs of sandals. I will call this series of contracts "the second series". It was the duty of the Defendants to nominate the ship on which the goods were to be conveyed. And accordingly the Defendants sent written shipping instructions to the Plaintiffs stating that the goods were to be shipped by the S.S. Kota Jaya which was to sail from Hong Kong in August 29 1969.

16. However for private reasons, the Defendants altered these arrangements. What occurred is in dispute.

17. Mr. Ramchandani for the Defendants said that he told the Plaintiffs not to ship the goods on the S.S. Kota Jaya but to use the next Non Conference ship available. This would be the S.S. Meiwa Maru which was due to sail from Hong Kong on about 19 September 1969. Mr. Ramchandani said that he summoned a Mr. Ho, an outdoor salesman employed in the Plaintiffs' Company and that he, Mr. Ho came to the office of the Defendants on August 21st or 22nd. He told Mr. Ho that he had booked space in the S.S. Meiwa Maru and told him that the goods would not travel in the Kota Jaya. He said that Mr. Ho accepted this.

18. The goods were not shipped on any ship. It is agreed that the Defendants never sent any writton instructions to ship the goods on the Meiwa Maru.

19. The only contemporary reference in writing is an obscure postscript in a letter sent to the Plaintiffs by the Defendants on September 16th. This letter concerned the contracts which form the subject matter of the statement of claim, the first series of contracts. Sums of money were due for payment and the Defendants were objecting to payment since the goods in question had been shipped on deck and not under deck.

20. The Plaintiffs called two witnesses. They agreed that they had received verbal instructions from the Defendants that they would not ship the goods on the Kota Jaya but they strenuously denied that they had been told to ship the goods on the Meiwa Maru or indeed on any other ship.

21. I heard the witnesses and I accept the version of the Defendants Mr. Ramchandani struck me as being a truthful witness. Mr. Chan who was called by the Plaintiffs, said that the goods were not delivered under these contracts because no shipping instructions had been received, but he added that there was a second reason. The Plaintiffs had supplied 4000 dozen sandals previously to the Defendant under the first series of contracts which are the subject matter of the statement of claim. At the relevant time the Defendants owed the Plaintiffs $67,000 odd. On August 30th the Plaintiffs received a letter from the Defendants stating that they would not pay for the goods shipped under those contracts i.e. the first series. They did pay $20,000 on September 2nd 1969 leaving $47,000 odd owing. This was the second reason why the Plaintiffs did not ship the goods. However the Plaintiffs sent no notice to the Defendants cancelling the contracts. Yet I also find it rather strange that the Defendants did not send further shipping instructions in writing. It appears from the correspondence which passed between the parties that the Plaintiffs were at the time not clear whether they had a valid claim under the first series of contracts. In cross-examination Mr. Chan said that the two reasons - the non receipt of shipping instructions and the fact of the dispute as to the other contracts were of equal importance in reaching the decision not to ship the goods. It was in the minds of the Plaintiffs that they were entitled to refuse to deliver the goods under the second series of contracts because they had not been paid for the goods delivered under the first series of contracts. This cannot be so. The contracts were not expressed to be dependant on each other. Each one stood on its own. And the breach of one contract, if breach there were, cannot operate to relieve liability under another contract.

22. As I accept Mr. Ramchandani's version it follows that the Plaintiffs are in breach of the contracts for the goods which were to have been shipped on the Meiwa Maru i.e. the second series of contracts.

23. In their defence and counterclaim the Defendants claim the sum of $18,334.24 for loss of profits. This is based on the view that the agreement of May 30 to which I have referred at length above was a binding contract to supply 12,000 dozen pairs of sandals. The contracts of which I have found the Plaintiffs in breach are only in respect of 4,000 dozen pairs. The defendant's loss of profit on these contracts comes to $9,167.12. And he is entitled to set off that amount against the Plaintiffs' claim.

24. No further contracts were entered into between the parties. It was their intention in May 1969 to purchase and sell a further 4,000 dozen pairs but no contract having been made the Defendants cannot claim anything for loss of profits on this account.

25. We now come to the final sum. The Defendants sold the goods the subject matter of the contracts to a valued customer in Berbera. He informed him that he could expect to receive 12,000 dozen pairs of sandals in all. And he signed contracts with him to receive 8,000 dozen, 4,000 dozen of which the Defendant failed to supply. The Somalian customer claimed for loss of profits from the Defendants consequent upon the non delivery and the matter went to arbitration in Berbera, and a sum equivalent to $20,106.80 was awarded, which, I understand, has been paid. No exception was taken to the amount of this sum as such. In any event the Defendant can only claim half this sum as there were no contracts respecting the third 4,000 dozen pairs of sandals. The amount rendered therefore is $10,053.40.

26. A copy of an agreement made between the Defendants with their Somalian customers was exhibited. That is in terms not dissimilar to the agreements made between the Plaintiffs and Defendants on March 16 and May 30 1969. It is not in my view more than a statement of the terms which are to cover any contract for the sale and purchase of goods to be made in the future. It does not create a legally enforceable contract between the parties but even if it did I do not think that what follows in this judgment would be affected.

27. The Plaintiffs certainly knew that the Defendants were purchasing the sandals for resale in Somalia. Contracts were made between the Defendants and their customers and were exhibited and they each contains the following specific clause:

"Suppliers are not responsible for non execution, if exportation is prohibited by the Government or any other reasons which are beyond our control.

28. Mr. Ching urges that the Defendant in these circumstances was not obliged to pay the customer anything. And that the only reason payment was made was to preserve the amicable commercial relationship of the parties.

29. Mr. Lee seeks to rely upon the case of Finlay v. N.V. Kwik Hoo Tong H.M.⁽¹⁾ This laid down the proposition which was succinctly expressed by Sankey L.J. in another case (The Banco de Portugal v. Waterlow & Sons, Ltd.⁽²⁾):-

"In England, he said "the law is that a person is not obliged to minimize damages on behalf of another who has broken a contract if by doing so he would have injured his commercial reputation by getting a bad name in the trade"

30. In the Finlay case a Dutch firm sold sugar to the Plaintiff. The contract was for the shipment of sugar in 3 monthly instalments, the third being for September. Time was of the essence of the contract. The sugar was loaded not in September but in October yet the Bill of Lading stated that it was loaded on September 30, which was wrong. On receipt of this wrongly dated Bill of Lading the Plaintiff paid the contract price. The market had fallen heavily and so they paid more for the sugar than the market value of the sugar at the time. If the Bill of Lading had been correctly dated the Plaintiff would have rejected the goods and would have retained the price they paid for them.

31. The Plaintiff had subsold part of the sugar but when they tendered the Bill of Lading to their subpurchasers the latter refused to take it on the ground that the sugar was not shipped in September. In the subcontract there was a provision that the subpurchasers were bound to accept the date on the Bill of Lading as conclusive. The Plaintiff therefore could have forced the subpurchaser to take the sugar and if the subpurchasers had refused, the Plaintiff could have sued them to recover the price. This would mean that the Plaintiff was suing to recover the price of goods which he knew was not in accordance with the contract.

32. It was held that the Plaintiff was excused from mitigating the damages by adopting such a course. And that they could recover the whole of their loss from the Defendant.

33. L.J. Greer said at page 415:-

"The respondents would have been perfectly entitled, as a matter of business morals, to hold the sub-purchasers to their bargain and make them pay damages if they did not take the goods. But it is wholly unreasonable to say that that would be the ordinary course of business which they ought to pursue to diminish the damages. People have not to consider what is right in a strict court of conscience; they have to consider the effect of their conduct upon their business relations with other people, and I have little doubt that it would not have suited the respondents' business, nor would it be reasonable as a matter of business to require them, to do what is suggested in order to diminish the damages, if prima facie they are entitled to recover damages from the defendants."

34. In my view the circumstances of the present case are very different. There is no question here of an adverse effect on the business reputation of the Defendants. They are not in a position where they are keeping a man to his contract though it is known he is getting something other than he bargained for.

35. If the Defendants relied on the clause in the contracts which I have set out above their subpurchasers would have had no redress in an action brought against the Defendants for breach of contract for non delivery of the sandals since that non delivery was caused by something beyond the control of the Defendants.

36. It is the duty of a person wronged to mitigate damages. In the circumstance of this case it would not be a reflection on the "business relations of the defendants with other people" to rely on a clause which had been expressly agreed between themselves and their subpurchasers.

37. The Defendants did pay their subpurchasers a sum of money but they did not have to do so. It was an ex gratia payment. Putting the matter another way it may well be asked why should the Plaintiffs be responsible for an ex gratia payment made by the Defendants to their customers: made indeed for excellent business reasons - here an irrelevant consideration in my view.

38. I do not think that the Defendants can set off this sum.

39. There will be judgment for the Plaintiffs for $47,182.20 on their claim and judgment for the Defendants for $19,167.12 on their counterclaim. This means that a balance of $28,015.08 is payable by the Defendants to the Plaintiffs.

40. I will now hear counsel as to costs.

41. Costs of claim to Plaintiffs and costs of counterclaim to Defendants. Interest on the balance to the Plaintiffs at 8% p.a. from 1st Sept., 1969.

Representation:

Charles Ching (Mak & Co.) for Plaintiff

Martin Lee (Johnson, Stokes & Master) for Defendant

Judgment read in Court

(1) 1929 1 K.B. 400