Yee Fung Textile Trading Co Ltd v. Chivan International Ltd
Read the full judgment text of HCA 3442/1980 on BabelCite. This High Court CFI judgment.
1. On the 19th day of April 1980 the parties entered into an agreement (Purchase Order No. 033) whereby the defendant agreed to purchase the goods set out below:-
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HCA003442/1980 Sale of goods - Payment by Letter of Credit - Whether opening of Letter of Credit a condition precedent to performance of contract by seller - Strict compliance of Letter of Credit with terms and conditions of contract.
----------------- Coram: Garcia J. in Court Date of Judgment: 4th August 1981 ----------------- JUDGMENT ----------------- 1. On the 19th day of April 1980 the parties entered into an agreement (Purchase Order No. 033) whereby the defendant agreed to purchase the goods set out below:-
The terms and conditions of the sale are as follows :-
A few days before this contract was signed certain negotiations were conducted between a Miss Amy Ho, who is described as the General Manager and Director of the defendant, and Mr. Lo Chee Ming, the Managing Director of the Plaintiff, regarding the contents of the contract and there is evidence to show that the defendant was buying these goods for re-sale to a West German buyer and for eventual export to Poland. Moreover, the West German buyer had visited the plaintiff's factory in the company of a Mr Chung Po Ting, the former manager of Toxica Enterprises Ltd which company represented the West German buyer's interests in Hong Kong, and Miss Ho. Following that visit a contract for the purchase of denim was concluded between the defendant and Toxica Enterprises Ltd. 2. This contract which was signed on 17th April 1980 is of some relevance to the present proceedings and is as follows:
This order is placed for and on behalf of Eastra Gmbh, D-1000 Berlin 30, Budapester Str, 418, West Germany. Art. No. BG-13754 90,000 metres 44/45" width 100% cotton indigo dyed denim piece goods, approximately 13.75 per sq. yd by weight, starched and preshrunk, residual shrinkage not exceeding 3%.
I accept Mr Lo's evidence that he had gone to the defendant's office to sign the Purchase Order No. 033 which he says was prepared by Miss Ho. As no time limit was specified as to when the Letter of Credit would be opened Mr Lo says he had, without objection from Miss Ho, inserted the words in English on the copy kept by the defendant: "L/D before 1/5/80 open by seller Lo Chee Ming". (Exh. D1). In the copy kept by the plaintiff a similar clause appears in Chinese, a translation of which is as follows: "L/C must be opened on 1st May 1980" (Exh. P1). Mr Lo's explanation for this is that this copy was only for his own records and for his own use. 3. Miss Ho did not give any evidence at the trial as she had left the defendant's employ some time in March or April this year, Long after the Defence and Counterclaim was filed on the 25th September 1980, and also long after another Director, Mr Kwok Fu Sum, filed his affirmation on the 12th July 1980 in support of a summons for unconditional leave to defend. In the latter document, the following paragraph appears : "5. I was informed by the said Miss Ho and I do verily believe that she did not promise as a term of the Contract to open the said Letter of Credit before 1st May 1980, i.e. before the delivery or inspection of the goods. It is also untrue that the defendant's copy of the purchase order had the said phrase 'L/C must be opened in 1st May 1980' written on it. A copy of the defendant's copy of the purchase order is exhibited hereto and marked 'KFS-1'. At no time was such agreed to by the defendant as a term of the Contract. However, it is admitted that Miss Ho of the defendant did agree to try to have the Letter of Credit opened by 1st May 1980 to assist the plaintiff". There was no reason why Miss Ho, who presumably was still in the defendant's employ at that time, should not have said so herself instead of giving that information second-hand to Mr Kwok. 4. Having heard Mr Lo's evidence on this matter, and in my view he has given his testimony in a straightforward and honest manner, I am quite satisfied that the clause "L/C before 1/5/80 open by seller" was inserted in the contract immediately after it was signed by the parties and with the consent of Miss Ho on behalf of the defendant. Following the signing of that contract, Mr Lo made several requests to the defendant to have the Letter of Credit opened in the plaintiff's favour but when 1st May 1980 came round there was still no Letter of Credit forthcoming from the defendant. 5th May 1980 was the date when the 1st 50,000 yards of the contract goods were to be delivered, and as there was no response to his oral requests to the defendant for the Letter of Credit to be opened, Mr Lo wrote the following letter to the defendant on 5th May 1980:-
5. Following this letter, further calls were made to Miss Ho by Mr Lo urging the defendant to take delivery of the goods and to open the Letter of Credit but to no avail. Mr Lo did not have sufficient funds to pay his workmen and by the 8th May 1980 he went to see Miss Ho once again to ask her whether the defendant was yet in a position to open a Letter of Credit in the plaintiff's favour as required by the contract but was informed that the defendant was not. He then asked for a $50,000 marginal deposit to pay his workmen as he had already manufactured the first instalment of goods specified in the contract. To that request Miss Ho stated that she did not have that sum of money but could only provide $30,000 and after some discussion she gave him a cheque for $30,000 drawn by the defendant. However in exchange for that cheque, Mr Lo was required to issue a post-dated cheque dated 18th May 1980 for a similar sum so that once the Letter of Credit was opened the same amount could be deducted from the proceeds under the Letter of Credit. 12th May 1980 was the date when Miss Ho had promised Mr Lo that the defendant would open the Letter of Credit. Mr Chan Wan Siu, one of the defendant's Directors, and the person who issued the cheque in question on behalf of the defendant does not state that the amount was a loan made to the plaintiff except that he had been informed that it was a sum required by the plaintiff to pay its workmen. Mr Chan's knowledge of this transaction and of the subject contract is rather limited and in fact the little he knows about this matter had not come to him directly. 6. The plaintiff's post-dated cheque was subsequently dishonoured and a summary of the circumstances surrounding the issue of the cheque for $30,000 by the defendant and the subsequent dishonour of the post-dated cheque for a similar amount is set out in the telex from the plaintiff to the defendant on 7th June 1980 (Exh. P8);
7. The plaintiff stooped payment on the said post-dated cheque because the promise made by Miss Ho on behalf of the defendant to open the Letter of Credit by 12th May 1980 had not been fulfilled. I accept Mr Lo's evidence that the said cheque was a marginal deposit against the issue of the Letter of Credit agreed in the contract and not a loan as contended by the defendant. I also accept Mr. Lo's testimony that up to 8th May 1980 no request had been made by the defendant to take delivery of the goods or of examining or inspecting the said goods. 8. As the Letter of Credit was not opened on 12th May 1980 Mr Lo went to the defendant's office to press for the opening of the said Letter of Credit. He was there assured that that would be done in 1 or 2 days' time. However, on 16th May 1980, the Letter of Credit was still not opened and on that day the plaintiff sent the following telex to the defendant:
9. Up to that date no request was made by the defendant either for inspection or delivery of the goods in question but despite the above quoted telex, the Letter of Credit was not opened until 26th May 1980 (Exh. P4). 10. As soon as notification of the opening of the Letter of Credit was received by the plaintiff, Mr Lo consulted his company's legal advisers and the following telex gives a comprehensive account of the plaintiff's dissatisfaction with that Letter of Credit:-
11. No amendment was made to the Letter of Credit as requested but on 30th or 31st May 1980 a request was made by the defendant to inspect the goods and according to Mr Kwok Fu Sum, he made an appointment with Mr Lo Chee Ming to inspect the goods at the Tai Sang Godown on the 31st May 1980. When he arrived at the godown on the appointed date with Mr Chung of Toxica Enterprises Ltd and Mr Ng Man Cheuk, a supervisor of S.G.S. Ltd, a firm of surveyors, Mr Lo was not there but he came very much later. Evidence has been given by the defendant that Mr Lo did not allow the goods to be inspected. Mr Lo says that it was quite late and the godown was then closing for the day, but it appears to me from the evidence of Mr Lo subsequently, that he would not allow inspection until the Letter of Credit was amended in conformity with the requirements contained in the plaintiff's telex of 27th May 1980 to the defendant. There was no outright denial of inspection but there would not be one until those conditions were fulfilled. 12. Following this, as no results were achieved so far as the amendment of the Letter of Credit was concerned, 2 further telexes were sent on the same day, i.e. and June 1980, by the plaintiff to the defendant (Exh. P6) and these refer firstly, to the amendment required to the Letter of Credit and secondly, to a request that another Letter of Credit be opened for the balance of 70,000 yards of denim under the contract. 13. Again, according to Mr Kwok and Mr Ng and Mr Chung, an appointment was made on 27th May 1980 to inspect the goods at the Tai Sang Godown on 2nd June 1980 but on this occasion Mr Lo did not turn up, no doubt as a result of the failure by the defendant to comply with the plaintiff's requests. 14. In his evidence Mr Kwok says that Mr Lo had informed him that the goods were ready for shipment and then after some discussion Mr Lo had agreed to accept a Letter of Credit covering only 30,000 yards, and that Mr Lo should supply shipment samples for the plaintiff's customer Toxica Enterprises Ltd. He further says that Mr Lo personally delivered the requested sample (about 4 yards) and that these were sent to the Laboratory for examination following which, a Letter of Credit was applied for by the defendant, with Mr Kwok and Mr Chan signing the application on behalf of the defendant. 15. Mr Kwok's explanation for the differences between the specifications in the Letter of Credit and the contract (P1) is that according to his experience where the cloth construction is stated as 72 x 42 7s x 7s the weight is 13 3/4 ozs per square yard and again according to his experience there should be an Inspection Certificate covering textiles when they are manufactured for the export market. 16. Unfortunately, Mr Kwok is not an impressive witness and was in my view evasive and sometimes Patently untruthful, and his assertions are not supported by any person who is experienced in the trade or by the laboratory findings of Mr Ho Ming Lau and Miss Lee Kwai Sang, both of the Hong Kong Standards and Testing Centre. 17. As a result of a failure of the defendant to open the Letter of Credit in accordance with the terms of the contract (Exh. P1), the plaintiff now claims damages for breach of contract amounting to $144,750 being the difference between the contract price and the re-sale price of the goods calculated as follows:
The defendant's defence and counterclaim in essence claims that the plaintiff is in breach of contract in not allowing the defendant to inspect the goods saying that the condition was a condition precedent to acceptance of the said goods and/or payment for the same. The defendant therefore counterclaimed the sum of $36,500 being the loss of profit and resale of the said goods but no evidence has been given as to how this figure has been arrived at. 18. The principal issues in this case are (1) whether the opening of the Letter of Credit provided in the contract is a condition precedent to the performance of all the other seller's duties under the contract, (2) if not, whether the Letter of Credit opened by the defendant in favour of the plaintiff complies with the terms of the contract, (3) if neither, whether inspection of the goods is a condition precedent to the opening of the documentary credit provided by the contract in P1. 19. I think it is clear from the evidence that I accepted that the Contract provided for the Letter of Credit to be opened by 1st May 1980 and it is apparent that because Toxica Enterprises Ltd, acting on behalf of Eastra Gmbh, had not opened a Letter of Credit in favour of the defendant, the full amount of the Letter of Credit provided in the Contract P1 could not be opened by the defendant - this is what I understand from the evidence of Mr Kwok Fu Sum. The affirmative answer given by Mr Chan Wan Siu to the question as to whether the defendant was in a position to open a Letter of Credit for a further 70,000 yards is not supported by any evidence - on the contrary the requests made by the plaintiff to open a further Letter of Credit for the balance of 70,000 yards and indicated in the telexes P5, P6, P7 and P8 had not been complied with. The explanation that the Letter of Credit for only 30,000 yards was opened in order to help the plaintiff "to tide over its financial difficulties" does not seem reasonable since all the goods under the contract had already been manufactured on the date of the delivery of the 2nd instalment as specified in the contract and the delivery dates of both instalments had already passed. 20. In my judgment, the plaintiff was both unwilling and unable to open a further Letter of Credit for the balance of 70,000 yards because it had not had a Letter of Credit opened in its favour by its sub-purchaser Eastra Gmbh, and according to Mr Chung of Toxica Enterprises Ltd the sub-purchaser had not even, up to 2nd June 1980, opened such a Letter of Credit. There are of course no terms of payment in the contract between Toxica Ltd and the defendant. (Exh. D4). 21. I think that the words "Received with thanks" which counsel for the defendant refers to in his written submission could neither be construed as an acceptance of the Letter of Credit for 30,000 yards as being in compliance with the contract nor that the plaintiff was deemed to have acquiesced in what would have amounted to a variation of the contract Exh. P1. 22. The evidence in the telexes in my view denote otherwise - in fact there was no acceptance of the Letter of Credit for 30,000 yards as being in compliance with the contract terms nor was there any waiver with regard to the balance of the 70,000 yards. 23. I think in reason and logic the answer to counsel's noser "Can it be said seriously that 13 3/4 ozs is not equal to 'about 13 1/2 ozs'?" is a definite "Yes". I am indeed indebted to him for the following extract of Lord Atkin's judgment in Arcos Ltd v. E. A. Ronaasen & Son (1933) A.C. 470, which supports this answer:
24. The deviation from "not less than 13 1/2 ozs" to "13 3/4 ozs" in the Letter of Credit was not acceptable to the plaintiff and the addition to the condition in the Letter of Credit "Inspection Certificate issued and signed by authorised person(s) of the applicant whose signature(s) should be agreed with the specimen held in our files", was something which was never discussed between Mr Lo and Miss Ho before the contract was signed. In my view, the appearance of this condition in the Letter of Credit was a surreptitious way of remedying an omission of a term which should have been inserted in the Contract P1 when it was signed so that the terms would be similar to the stipulations in the contract between the defendant and Toxica Enterprises Ltd (Exh. D4). So also does this refer to the weight of 13 3/4 ozs. 25. I consider that the plaintiff was entitled to insist on the Letter of Credit being amended so that the terms coincided with those in the contract, otherwise it would not have been able to draw on the Letter of Credit. In respect of the submission made by counsel on the weights of the cloth in the contract and in the Letter of Credit it has been stated in decided cases that the rule de minimus now curat lex does not apply to documentary credits and it has also been said that "there are indeed quite definite indications that the rule should not be so applied". (per McNair, J. in Monalice (London) Ltd V.E.D. & F. Man (1954) 2 Lloyds Reports at page 526). 26. It cannot therefore be said that the defendant had opened a Letter of Credit so as to comply with the terms of the contract, and until it amended the Letter of Credit P4, and opened an additional Letter of Credit for 70,000 yards the defendant could not be said to have complied with the terms of the contract as regards payment. 27. Whilst in the ordinary course of events delivery of the goods and payment of the price are concurrent conditions (see section 36 of the Sale of Goods Ordinance) so far as there is a provision in the contract relating to the furnishing of a documentary credit is concerned, the buyer is under an obligation to have a documentary credit opened in favour of the seller and that obligation has been stated to be usually a condition precedent to the seller's duty to deliver the goods (see Lord Justice Denning's judgment in Trans Trust SPRL v. Danubian Trading Co. Ltd (1952) 2 Q.B. 297: "...... the stipulation for a credit is a condition which is an essential term of the contract. In these cases the provision of the credit is a condition precedent ...... to the obligation of a seller to deliver the goods. If the buyer fails to provide the credit, the seller can treat himself as discharged from any further performance of the contract and can sue the buyer for damages for not providing the credit." The defendant cannot be said to have provided the credit stipulated in the Contract P1 despite repeated requests to do so (both to amend and to open a further Letter of Credit for 70,000 yards), and I find therefore that the defendant is in breach of the subject contract. 28. I think it follows that inspection of the goods to be provided under the contract is not a condition precedent which entitles the defendant to damages for refusal to allow inspection before a proper and a valid Letter of Credit is furnished to the plaintiff in accordance with the terms of the contract and also in conformity with the terms and specifications set out therein. 29. The plaintiff has sufficiently proved the damages it sustained as a result of the defendant's breach and accordingly there will be judgment for the plaintiff in the sum of $146,771.80 with interest at the rate of 8% per annum. from the date of writ to the date of judgment. There would however be deducted from the said sum, an amount of $30,000 which has been agreed by the plaintiff at the outset of this trial to be repaid to the defendant. There will be costs for the plaintiff on the claim. The defendant's counterclaim is dismissed also with costs. Representation: Mr Patrick Chan (Robert W.H. Wang & Co.) for plaintiff Mr Brian Van Buuren (Wing-Sum Lo & Co.) for defendant |