Ocean Shores Video Ltd. v. Cheung Wah Sum t/a Video Express

DCCJ014006/1989

Headnote

The Plaintiff supplied video tapes to the Defendant on 30 day credit payment term. The parties subsequently entered into a written contract which required the Defendant to take delivery of a specific quantities of tapes from the Plaintiff each month. The contract contained a clause that payment was to be made in advance of the delivery of the tapes. Before the Defendant signed the contract, the Plaintiff assured him that he would continue to be entitled to the 30 day credit term. But for this credit term, the Defendant would not have entered into the contract. The Plaintiff subsequently cancelled the credit term and demanded cash on delivery of the tapes. The Defendant refused to accept the tapes.

HELD:

1. Following City and Westminister Properties (1934) Ltd. v. Mudd [1959] 1 Ch. 129 and J Evans & Son (Portsmonth) Ltd. v. Andrea Merzario Ltd. [1976] 1 W.L.R. 1098, there was a collateral contract regarding payment by credit which was acted upon by the Defendant to his detriment and from which the Plaintiff could not be allowed to resile by unilaterally cancelling the credit term and substituting a new method of payment by cash.

2. Alternatively, following Trans Trusts S.P. R. L. v. Dannbian Trading Company [1952] 2 Q.B.297, there was a condition precedent on the part of the Plaintiff to give credit to the Defendant before the Defendant was liable to take delivery of the tapes.

IN THE DISTRICT COURT OF HONG KONG
CIVIL JURISDICTION
ACTION NO. 14006 of 1989 & 868 of 1990
Consolidated

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Coram: H.H. Judge P. Cheung in Court

Date of Hearing: 15 May 1992 and 18 May 1992

Date of Judgment: 1 July 1992

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JUDGMENT

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Facts

1. The Plaintiff was and still is a distributor of films on video cassettes and the Defendant was its customer. On 15th May 1989, the parties entered into an agreement which was described as a Licensing Agreement. ('the Agreement') and by which the Plaintiff agreed to supply to the Defendant video cassettes of films on payment of a fee, which was described as licence fee, by the Defendant.

2. Clause 3 of the Agreement provides that "the licence fee is payable in advance of the date of delivery of any of the films."

3. Clause 5 of the Agreement further provides that, "the licensee (i.e. the Defendant) shall take delivery of and shall pay the licence fee for all the films in accordance with the terms of this agreement. In case the licensee shall fail to take delivery of any of the films, the licence fee chargeable in respect thereof shall immediately become due and, shall be recoverable by the licensor (i.e. the Plaintiff) against the licensee as liquidated damages."

4. The Plaintiff claims that the Defendant had failed to take delivery of the films or pay the fees in the sums of $30,800 and $11,500. It is seeking an order compelling the Defendant to take delivery of the films and pay the licensing fees. Alternatively, it is claiming against the Defendant the liquidated damages in the sums of $30,800 and $11,550 respectively.

5. P.W.1 Hsi Shiing Dar ("Mr. Hsi") is a salesman of the Plaintiff. His evidence revealed that the Defendant had been a client of the Plaintiff since 1987. In April 1989, the Plaintiff the issued a circular to the Defendant and its other customers inviting them to enter into agreement with the Plaintiff for the renting of popular films which the Plaintiff would be releasing at an average of 2 - 3 films each month. The Plaintiff offered a package to the customers : either the customer would take a minimum of ten video tapes for each film at HK$385 per tape or seven video tapes for each film at $435 per tape.

6. After this circular was sent, Mr. Hsi called up the Defendant and discussed the circular with him.

7. In May, the Defendant came up to the Plaintiff's office and signed the Agreement in the presence of Mr. Hsi. Before the Agreement was signed, Mr. Hsi  discussed the Agreement very briefly with the Defendant. He informed him how many films would be released each month but there was no discussion on the payment terms. Mr. Hsi was aware that the Defendant had previously been given a 30-day credit period for the payment of the video cassettes obtained from the Plaintiff. He said that he was aware of Clause 3 of the Agreement but he did not refer Clause 3 to the Defendant.

8. Under cross-examination, Mr. Hsi said that he could not recall whether he had talked to the Defendant on the payment arrangement before he asked the Defendant to sign the Agreement. He disagreed that he had said to the Defendant before the signing of the Agreement that the payment term was the usual 30-days credit. He could not recall whether the Defendant had specifically asked him about the effect of Clause 3. He further could not recall whether he had explained to Defendant the effect of Clause 3 was that on receipt of the goods delivered the Defendant was required to send the Plaintiff a cheque post-dated for 30 days.

9. Mr. Hsi said that at the time when the Agreement was signed, the Plaintiff only offered two packages to its customers. In September 1989, the Plaintiff further offered its customers a package of five video tapes for each film. He came to know later that the Plaintiff also offered its customers a package of three video tapes for each film.

10. Mr. Hsi said that the Plaintiff would try its best to release the films to the customers at the same time. He did not know whether Fotomax, one of the Plaintiff's customers, had received films ten days in advance of the other customers.

11. Mr. Hsi agreed that after the Agreement was signed, the Defendant continued to have the 30-day credit period. He did not request the Defendant to provide him with a 30-day post-dated cheque but the Defendant made the payment by 30-day post-dated cheques voluntarily.

12. By a letter dated 19th August 1989 the Plaintiff alleged that the Defendant had sub-licensed or sub-let their video tapes to other customers and the Plaintiff cancelled the 30-day credit terms of the Defendant and replaced it with "cash-on-delivery" term. The Defendant objected to the change of the payment terms and informed Mr. Hsi that if the Plaintiff insisted on cash-on-delivery he would not take further delivery of the tapes. Mr. Hsi agreed that it was upon the Plaintiff's refusal to resume the 30-day credit term that the Defendant expressly indicated that he would not accept further delivery of the tapes.

13. PW2, Mr. Raymond Yim, ('Mr. Yim') is the Sales Manager of the Plaintiff. He said that the Defendant had always had 30-day credit limit. Although the Agreement stipulated payment had to be made in advance, the Plaintiff had to take into consideration commercial convenience and allowed the Defendant the 30-day credit if the Defendant honoured the 30-day credit period. He said that apart from commercial convenience, the Plaintiff did not receive other benefits in allowing the 30-day limit to the Defendant. He said that in a meeting with his subordinates he told them that as long as the customer was punctual in payment during the 30-day credit period the Plaintiff would ignore Clause 3 of the Agreement which would require payment in advance.

14. He said he believed his staff had explained this to the customers.

15. He wrote the letter dated 19th August 1989 to the Defendant because the Defendant had sub-licensed the tapes of the Plaintiff to other customers and did not respond to the Plaintiff's inquiries. He agreed that the Defendant had indicated that he would not resume taking delivery of the tapes if the Plaintiff cancelled the credit terms. He said that unless the Defendant stopped sub-licensing the tapes and gave the Plaintiff a satisfactory explanation, the Plaintiff would not give back the 30 days credit period to the Defendant. He said this was done as a "deterrent effect."

16. Mr. Yim said that in around September 1989, at the request of some smaller video shops, the Plaintiff offered two more      packages to the shops which would allow them to take 5 or 3 copies of each film. He said prior to the Agreement date 15th May 1989, the customers could ask for lesser quantities of the tapes and the Plaintiff would consider the request on an individual basis.

17. He agreed that some of his customers had made enquiries with him whether Fotomax had received tapes in advance of the others. He denied, however, that the inquiries could be treated as complaints. He denied that Fotomax was receiving tapes 10 days in advance of other customers. He said that the name of the Defendant was imprinted on the films supplied to him. The imprint could only be erased by erasing the film as well. Although the tape could be recorded again, it would cause the Plaintiff extra time and expenses because the recording was done on an hourly basis.

18. The Defendant, Mr. Cheung Wah Sum, stated that he became a client of the Plaintiff in late 1987. Originally, the payment term between him and the Plaintiff was cash-on-delivery when he purchased the tapes. Since February 1988, he was granted a 30-day credit limit for the payment of tapes by a salesman of the Plaintiff called Mr. Samuel Yuen. In about April 1989, he received the circular from the Plaintiff and he later made a phone call to Mr. Hsi to discuss the question of tapes and contract. On a day between 20th and 30th of April, he went up to the Plaintiff's office and discussed with Mr. Hsi in detail about the signing of the Agreement. At that time he considered that the quantity of tapes under the Agreement was too large and he asked Mr. Hsi if he could have some lesser quantities. Mr. Hsi, however, said that the tapes were good ones which the other video suppliers could not supply and since he had a 30-day credit limit which would allow him to earn money for a month before he paid the Plaintiff, he should not have any fear in entering the Agreement. He told Mr. Hsi that he had to consider the matter.

19. Sometime on 7th or 8th 1989, Mr. Hsi called and asked him whether he had made up his mind in signing the Agreement. On 10th May 1989, he went up to the Plaintiff's office intending to sign the Agreement. He said his decision to sign the Agreement was based on two reasons. Firstly it concerned the packages offered by the Plaintiff. He said that even for the cheaper package he would have to pay over $10,000 per month, but he decided to take up the larger package because he would be receiving three more tapes from the Plaintiff. He anticipated that since one third of the video shops would not be able to take up the offer of the Plaintiff, the clients of these shops might rent the film from him. He said that if he had known of the packages of 5 and 3 tapes he would take the package of 3 tapes even at $550 per unit. The second reason was the 30-day credit limit which would enable him to finance the purchase. If he was not allowed the 30 days credit term he would not have entered into this Agreement because even if he had money to purchase the first batch of films under the Agreement, he would not be able to purchase the second batch of films without the 30-day credit limit. He intended to use the rental charges received from the renting of tapes from his customers to pay for the fees to the Plaintiff. All along he had a 30-day credit limit with the Plaintiff which was an advantage to his business. His previous purchase from the Plaintiff was not based on any specific quantity and he could always refuse to make a purchase if he did not have sufficient money. By entering into the Agreement with the Plaintiff, he had to make regular payments to the Plaintiff. Without the 30-day credit period he could hardly afford to enter into such an agreement.

20. Before the Agreement was signed, Mr. Hsi explained the terms to him. He also read through the Agreement and noticed Clause 3 which required him to make payment in advance. He asked Mr. Hsi about this Clause and was told that those customers who had not been given credit terms had to make payments in advance, but for those customers like him who had the 30-day credit limit, they had to issue a cheque which was to mature in 30 days' time upon receipt of the films. Mr. Hsi said there had been a number of video shops which had failed to make payment after they had collected the tapes. As this did not contravene the 30-day credit term he proceeded to sign the Agreement. It was, however, not signed that day as it was discovered that he did not have the company seal with him. He left Mr. Hsi with the $1,000 entrance fee and, on 15th May, he went back to the Plaintiff's office and signed the Agreement.

21. He said that before and after the signing of the Agreement he discovered Fotomax was able to receive films 5 to 10 days in advance of the other customers. When he asked Mr. Hsi about it, the reply was that he had no knowledge of such matter.

22. In June or July 1989, the Plaintiff's solicitors wrote to him alleging that he had infringed the Plaintiff's copyright of the films because tapes which had been supplied to him were found in other shops. He informed Mr. Hsi and Mr. Hung of the Plaintiff that he had not supplied the tapes and he promised to investigate the matter.

23. He then received the letter dated 19th August 1989, in which the Plaintiff stated that it would cancel his 30-day credit term. Upon receipt of the letter he rang up Mr. Hsi and told him that he would not accept the tapes if the 30-day credit term was to be cancelled. Mr. Hsi replied that it was his superior's idea to cancel the credit term and he would be sued if he refused to accept the video tapes.

24. Two days later, Mr. Hsi telephoned him and said that his boss, Mr. Hung, would allow him a 15-day credit term. He, however, refused and insisted that if he was not given back the 30-day credit he would not accept the video tapes any more.

25. After the discussion he refused to accept any more tapes delivered by the Plaintiff because under the invoice the payment term was changed to cash-on-delivery basis.

Defence

26. The defence put forward by the Defendant can be summarized as follows :-

1.     There had been misrepresentation by the Plaintiff.

The misrepresentation relied upon is threefold:

a) the Plaintiff represented that there was only two packages of films available to the customers whereas two other packages of smaller quantities were available;

b) the Plaintiff represented that the customers would be receiving the films at the same time but in fact a major client of the Plaintiff, namely Fotomax, received the films five to six days in advance of the Defendant; and

c) the Plaintiff represented that there would be a 30-day credit term under the Agreement which was later cancelled.

2. There was a collateral contract or condition precedent in which the Defendant was granted a 30-day credit period for the payment of the tapes by way of cheques post-dated 30 days.

3. By reason of the representation of the Plaintiff on the 30-day credit period, the Plaintiff was estopped from alleging that the payment term under the Agreement was payment in advance or cash on delivery.

4. Clause 5 of the Agreement was a penalty clause and was not a true pre-estimate of damaged.

Misrepresentation

27. In relation to the misrepresentation on the packages offered by the Plaintiff, the Defendant conceded that the circular alone would not constitute any misrepresentation. There was no evidence that Mr. Hsi had, before the Agreement was signed, represented to the Defendant that the Plaintiff had only 2 packages to offer to their customers. Mr. Lin, Counsel for the Defendant, asked me to infer in the circumstances that such a representation was made. I do not consider that I should make such an inference. Any representation relied upon by the Defendant must be clear and in the absence of direct evidence on this point I do not find that such a representation had been made.

28. In respect of the time of the delivery of the tapes, there was no evidence that any representation concerning the time of delivery of the tapes had ever been made by Mr. Hsi. This line of defence was not pursued by Mr. Lin.

29. The third misrepresentation relied upon by the Defendant is the 30-day credit term. Mr. Lin conceded that there must be a representation as to fact. In the present case, the representation on the 30-day credit term could only be described as a representation to the future intention of the Plaintiff, which was not within the ambit of the Misrepresentation Ordinance and Mr. Lin again did not pursue this line of defence.

Collateral Contract

30. The case really turns on whether there was a collateral contract or condition precedent that the Defendant would have a 30-day credit period by payment of 30-day post-dated cheque upon receipt of the video tapes.

31. The discrepancy in the evidence between the parties was whether there was a discussion between the parties on the payment term before the Agreement was signed. Mr. Hsi said that there was no discussion on the payment term. He denied that before the signing of the Agreement on 15th May 1989, he had informed the Defendant that the payment terms was the usual 30-day credit term. He then said that he could not recall whether the Defendant had specifically asked him about, the effect of Clause 3 and whether he had explained to the Defendant the effect of the clause was that on receipt of the goods delivered the Defendant was to give the Plaintiff a 30-day post-dated cheque.

32. I find the answer given by Mr. Hsi somewhat surprising. Either there was a discussion on the payment term or there was not. Mr. Yim's evidence was that he had informed his staff that the credit period would continue to apply to customers who had been receiving this 30-day credit term and he would expect his staff to inform the customers accordingly. It was somewhat odd that Mr. Hsi should say there was no discussion on the payment term. I would expect him in explaining the Agreement to the Defendant deal with the question of payment as well. After all he was fully aware of the effect of Clause 3 which was different from the usual 30-day credit payment term of the Defendant.

33. I prefer the evidence of the Defendant in this respect. I find him to be a truthful witness. His evidence had not been seriously shaken in cross-examintion. I find before the Defendant signed the Agreement, Mr. Hsi informed him that there would be a 30-day credit term. He was to pay by way of cheque post-dated for 30 days upon receiving the video tapes.

34. I accept the Defendant's evidence that he entered into the Agreement in reliance on this 30-day credit limit. He said that without the 30-day credit period, it would not be possible for him to meet the commitments under the Agreement. His plan was to use the rentals received from his own customers to pay for the tapes. Whereas previously he needed not purchase a specific quantity of tapes if he did not have the money, now he had to fulfil a regular monthly obligation. It was clear that if he was not allowed the 30-day credit period he would not have entered into such an agreement at all.

35. The effect of my finding is that there was a collateral contract acted upon by the Defendant to his detriment and from which the Plaintiff could not be allowed to resile by unilaterally cancelling the credit term and substituting a new method of payment by cash. The authority for this proposition is City and Westminister Properties (1934) Limited v. Mudd [1959] 1 Ch. 129. In this case the tenant of a shop had been using it for residential purposes. When he asked for a renewal of the lease, the landlord's solicitors prepared a draft tenancy agreement which contained a covenant by the tenant "To use the premises as and for showrooms workshops and offices only." The tenant's solicitors informed the landlord's solicitors that the tenant had been sleeping on the premises for sometime. Meanwhile the landlord's agents told the tenant orally that if he signed the lease, the landlord would make no objection to his continuing to reside there. As a result of that the tenant was willing to complete and the tenancy agreement was signed. The tenant continued to reside in the shop. The landlord later sued for forfeiture of the lease on the ground of breach of covenant. Harman J. held that,

"There remains the so-called question of estoppel. This, in my judgment, is a misnomer and the present case does not raise the controversial issue of the Central London Property Trust Ltd. v. High Trees House Ltd. [1947] K.B.130 decision. This is not a case of representation made after contractual relations existed between the parties to the effect that one party to the contract would not rely on his rights. If the defendant's (tenant's) evidence is to be accepted, as I hold it is, it is a case of a promise made to him before the execution of the lease that, if he would execute it in the form put before him, the landlord would not seek to enforce against him personally the covenant about using the property as a shop only. The defendant says that it was in reliance on this promise that he executed the lease and entered on the onerous obligations contained in it. He says, moreover, that but for the promise made he would not have executed the lease, but would have moved to other premises available to him at the time. If these be the facts, there was a clear contract acted upon by the defendant to his detriment and from which the plaintiffs cannot be allowed to resile. The case is truly analogous to In re William Porter & Co. Ltd. [1937] 2 ALL E.R.361 This is a decision of Simonds J., who said : "I come to the final point, the point which has given me difficulty in this case, and it is this." Then he states some of the facts, which were very different from the facts here, but he goes on in this way : "It was an act intended to induce the company to take a certain course of action, to carry on its business, to enter into transactions and to incur obligations which, but for that resolution, it might not have done. It appears to me that there is some direct evidence here, and, in my judgment, I am entitled to apply the rule, stated nowhere better than in the old case of Cairncross v. Lorimer (1860) 3L.T. 130. This was a Scottish appeal to the House of Lords, where Lord Campbell L.C. said, after some observations which are not material to the present case: 'The doctrine will apply which is to be found, I believe, in the laws of all civilized nations, that if a man either by words or by conduct, has intimated that he consents to an act which has been done, and that he will offer no opposition to it, although it could not have been lawfully done without his consent, and he thereby induces others to do that from which they otherwise might have abstained, he cannot question the legality of the act he had so sanctioned, to the prejudice of those who have so given faith to his words, or to the fair inference to be drawn from his conduct (emphasis added)' Also, a little further on: 'I am of opinion that, generally speaking, if a party having an interest to prevent an act being done has full notice of its having been done, and acquiesces in it, so as to induce a reasonable belief that he consents to it, and the position of others is altered by their giving credit to his sincerity, he has no more right to challenge the act, to their prejudice, than he would have had if it had been done by his previous licence.'" In my judgment, the defendant's evidence is to be accepted on this point. No alternative explanation of his change of mind between the beginning and the end of December, 1947, is available, and I think he was a witness of truth. His evidence was uncontradicted, for Jones remembered nothing about it."

36. Another case is J Evans & Son (Portsmouth) Ltd. v. Andrea Merzario Ltd. [1976] 1 WLR 1098, where the Defendants who were forwarding agents had always arranged for the goods of the Plaintiff to be shipped under deck in the transportation from Italy to England. After about 8 years the forwarding agent proposed to change their system to packing and transporting the goods in containers. They gave an oral assurance to the Plaintiff that all the goods in the containers would be carried under deck and in reliance on that oral promise the Plaintiff accepted the change and agreed with the terms but they did not include any written provision about carrying goods in containers under deck. The goods which were packed in a container were not put under deck but instead was stored on deck. During the sea journey the container fell to the sea. Lord Denning held that,

"This Act (i.e. the Misrepresentation Act 1967) does not apply here because we are concerned with an assurance as to the future. But even in respect of promises as to the future, we have a different approach nowadays to collateral contracts. When a person gives a promise or an assurance to another, intending that he should act on it by entering into a contract, and he does act on it by entering into the contract, we hold that it is binding: see Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. [1965] 1 W.L.R. 623. That case was concerned with a representation of fact, but it appears also to promises as to the future. Following this approach, it seems to me plain that Mr. Spano gave an oral promise or assurance that the goods in this new container traffic would be carried under deck. He made the promise in order to induce Mr. Leonard to agree to the goods being carried in containers. On the faith of it, Mr. Leonard accepted the quotations and gave orders for transport. In those circumstances the promise was binding. There was a breach of that promise and the forwarding agents are liable - unless they can rely on the printed conditions".

37. Roskill L.J. held,

"The judge said that all the defendants gave was an assurance : they did not give a guarantee. The real question, as I venture to think, is not whether one calls this an assurance or a guarantee, but whether that which was said amounted to an enforceable contractual promise by the defendants to the plaintiffs that any goods thereafter entrusted by the plaintiffs to the defendants for carriage from Milan to the United Kingdom via Rotterdam and thence by sea to England would be shipped under deck. The matter was apparently argued before the judge on behalf of the plaintiffs on the basis that the defendants' promise (if any) was what the lawyers sometimes call a collateral oral warranty. That phrase is normally only applicable where the original promise was external to the main contract, that main contract being a contract in writing, so that usually parole evidence cannot be given to contradict the terms of the written contract. The basic rule is clearly stated in paragraph 742 of Benjamin's Sale of Goods, 9th ed. (1974) to which I refer but which I will not repeat. But that doctrine, as it seems to me, has little or no application where one is not concerned with a contract in writing (with respect, I cannot accept Mr. Hallgarten's argument that there was here a contract in writing) but with a contract which, as I think, was partly oral, partly in writing, and partly by conduct. In such a case the court does not require to have recourse to lawyer's devices such as collateral oral warranty in order to seek to adduce evidence which would not otherwise be admissible (emphasis added). The Court is entitled to look at and should look at all the evidence from start to finish in order to see what the bargain was that was struck between the parties. That is what we have done in this case and what, with great respect, I think the judge did not do in the course of his judgment."

38. Lord Dennings's conclusion was based on a collateral contract while Roskill L.J. 's decision was that there was a single contract partly written and partly oral. The court of Appeal further held that the Defendant could not rely on the printed conditions of the contract which permitted the Defendant to arrange for the goods to be carried on deck.

39. Mr. Lin further referred me to paragraph 206 of Chitty on Contract 26th Edition which is as follows :-

"There is, fourthly, the apparently paradoxical possibility that the parties may agree to vary a contract even before that contract has been concluded. This may be the position where parties negotiate on the basis of formal documents and one of them represents that the proposed contract will be on terms less favourable to himself than those set out in the documents. If the documents are nevertheless executed without alteration, the representation may then be enforceable as a collateral contract, the consideration for the promise contained in the representation being provided by the representee's execution of the documents and so entering into the principal contract at the request of the representor and in reliance on the representation".

40. I would respectfully adopt these authorities. In the present case it was quite clear that according to the Plaintiff's evidence the Defendant would be entitled to the 30 days credit limit so long as he paid the rentals punctually. There was no dispute that the Defendant had in fact discharged his obligation in this respect and the conclusion I reach is that there was such a collateral contract and the Plaintiff was not allowed to resile from it. Even if the Defendant had infringed the copyright of the Plaintiff, which I do not find the Plaintiff had established in this case, the Plaintiff was only entitled to pursue other remedies against him and not by unilaterally changing the payment term which had been agreed between the parties.

Condition Precedent

41. Another way of looking at the matter is that there was a condition precedent in the contract made between the parties in that the Defendant would only be required to take the tapes if the 30 days credit period was available to him.

42. Mr. Lin referred me to paragraph 796 of Chitty on Contract,

"Conditions precedent. The liability of one or both of the contracting parties may become effective only if certain facts are ascertained to exist or upon the happening of some further event. In such a case the contract is said to be subject to a condition precedent. The failure of a condition precedent may have one of a number of effects. It may, in the first place, suspend the rights and obligations of both parties, as, for instance, where the parties enter into an agreement on the express understanding that it is not to become binding on either of them unless the condition is fulfilled. Secondly, one party may assume an immediate unilateral binding obligation, subject to a condition. From this he cannot withdraw; but no bilateral contract, binding on both parties, comes into existence until the condition is fulfilled. Thirdly, the parties may enter into an immediate binding contract, but subject to a condition, which suspends all or some of the obligations of one or both parties pending fulfillment of the condition. These conditions precedent are, however, contingent and not promissory, and neither party will be liable to the other if the condition is not fulfilled".

43. In the case of Trans Trusts S.P.R.L. v. Danubian Trading Company [1952] 2 Q.B. 297, A bought steel from B to be paid for by "cash against shipping documents from a confirmed credit to be open by" an American company (to whom A had resold) in favour of B. A undertook that the credit would be opened forthwith. Performance by A of his undertaking to procure a letter of credit was regarded as a condition precedent to the liability of B although the order in which their acts were to be done was not expressly laid down in the contract. A knew that B could not get supplies of steel unless the credit was made available. Hence the nature of the contract made it clear that A should perform before B became liable.

44. In the present case the Agreement was already in existence, the condition precedent was the undertaking on the part of the Plaintiff to give the credit period to the Defendant before the Defendant was liable to take delivery of the tapes.

45. The Plaintiff's claim is based on the fact that the Defendant had failed to take delivery of the tapes or pay for them when the Plaintiff demanded the Defendant to pay for the tapes, it was on cash on delivery basis. I find by reason of the existence of the collateral contract and the presence of the condition precedent, the Plaintiff is not entitled to allege that the Defendant had failed to take delivery of tapes or pay for them in accordance with the terms of the Agreement. As a result I find that the Plaintiff is not entitled to succeed in its claim.

46. As I have found against the Plaintiff, it is not necessary for me to go on and deal with the question of estoppel (which, to use the words of Harman J, is a misnomer in the present case) or whether Clause 5 of the Agreement is in the nature of a penalty clause.

47. The Plaintiff's claim is refused with costs to the Defendant. There shall be a certificate for counsel.

Representation:

Mr. Alan Ng inst'd. by M/S Johnson Stokes & Master for Plaintiff.

Mr. Kenny Lin inst'd. by M/S Hobson & Co. for Defendant.