Read the full judgment text of FACV 000013/2003 on BabelCite. This FACV judgment was delivered on 2 April 2004 before Andrew Li CJ, Kemal Bokhary PJ, Patrick Chan PJ, R A V Ribeiro PJ, G P Nazareth NPJ.
Civil law – contract – implied contract by conduct – letter of credit transaction – whether conduct unequivocally referable to a contract of sale – objective test and subjective qualification – restitution – unjust enrichment – total failure of consideration – mistake – appellate procedure – third-party contract and exclusion of restitution. This appeal concerned whether a contract for the sale of beauty treatment equipment should be implied by conduct between the applicant and beneficiary of a letter of credit who had no direct dealings with each other, and whether a restitutionary claim could lie in the alternative. Tongji, a mainland corporation, caused its bank to issue a letter of credit in the sum of US$401,620 in favour of Casil as beneficiary. Tongji and Casil had no prior contact; each dealt separately with Madam Sung, who controlled Shanghai Collina and HK Collina. Tongji acted as the entrusted party under the Foreign Trade Agency System Tentative Provisions to import goods on Shanghai Collina's behalf. Casil negotiated the L/C and received the proceeds of US$401,394.84. The container shipped was found to contain wallpaper paste and other items of insignificant value rather than the contracted beauty equipment, and was used to smuggle cosmetics into the mainland. Tongji released the bill of lading to Madam Sung under a redelivery agreement, but the agreed funds were not remitted and the post-dated cheque provided by Ganzhou was dishonoured. The Court of Final Appeal dismissed the appeal, holding that the conduct of Tongji and Casil in relation to the L/C fell far short of being conduct consistent only with the implication of a contract of sale between them and inconsistent with the absence of such a contract. The mere fact that the L/C required an invoice issued in Casil's name did not unequivocally point to a sale contract between the applicant and beneficiary, particularly given the common practice of naming intermediaries as parties in financing arrangements. The reasonable person in Casil's position would have understood the L/C as a financing arrangement rather than an offer to enter into a sale contract with Tongji. The court further held that Tongji's claim based on implied contract failed because the evidence compelled the inference that Casil never intended to be bound as a party to any underlying sale contract with Tongji and that Casil's state of mind was known to Tongji. The entrustment agreement and the surrounding correspondence demonstrated that Tongji was not the buyer but merely the agent opening the L/C on Shanghai Collina's behalf, and Tongji itself proceeded on that footing in its communications with Casil and Madam Sung in early July 1998. On the restitutionary claim based on total failure of consideration, the court held that the consideration encompassed the entire L/C transaction, including Casil's tender of conforming documents, which was duly performed. There was therefore no total failure of consideration, particularly as the bills of lading were received by Tongji and used by Tongji in its dealings with Madam Sung under the redelivery agreement. The court rejected the argument that the entrustment agreement between Shanghai Collina and Tongji excluded restitutionary relief, holding that the established exclusionary principle in cases of total failure of consideration did not extend to cases where the plaintiff made payment pursuant to a contractual obligation owed to a third party and there was no contract between the payer and the payee. The court left open the academic debate on this extension. The court also rejected Tongji's alternative restitutionary claim based on mistake, holding that the point had not been pleaded or taken at trial or in the Court of Appeal and was therefore not open to Tongji under the principles in Flywin Co Ltd v Strong Associates Ltd. The appeal was unanimously dismissed, with an order nisi that the respondent should have the costs of the appeal, and directions for written representations on costs within 14 days from the date of judgment, with reply representations within 14 days thereafter.
Legal issues: Implied contract by conduct – objective test · Subjective qualification to objective test · Restitution – total failure of consideration · Third-party contract excluding restitution · Restitution based on mistake
Outcome: Appeal dismissed; the claim in contract and the restitutionary claims based on total failure of consideration and on mistake all failed.
Cited by 1 case · Cites 2 cases