Wan Kwok Fu t/a Man Wo Piece-goods and Man Wo Weaving Co v. Peteran Trading & Agency Co

HCA000131/1980

Coram: Roberts, C.J.

Date of Judgment: 15th December, 1980.

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JUDGMENT

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The Contract

1. The plaintiff, Mr. WAN Kwok Fu, is the sole proprietor of Man Wo Piece-Goods and Man Wo Weaving Co. ("Man Wo") which carries on business at Kwai Chung. Man Wo does not itself manufacture cloth; it buys and sells it, operating as a middleman.

2. In October 1979, Mr. Chou, the managing partner of the defendant firm, Peterman Trading and Agency Company ("Peterman") telephoned Mr. Wan about the supply of corduroy material to be made into jeans by a factory in China and then exported to West Germany.

3. After some discussion, the parties entered an agreement, which was reduced to writing and produced in evidence, for the supply by Man Wo of 22,200 yards of cotton corduroy material. The contract document was signed by both parties.

4. The corduroy was to be supplied in three colours: 7,400 yards of navy; 5,925 yards of brown and 8,875 yards of gold-rust. The unit cost was $7.55 per yard, and the total price $167,610.

5. Delivery of the navy corduroy was to be effected before October 20th, and of the brown and gold-rust before October 26th. Payment was to be "by letter of credit at 15 days' sight".

Main witnesses

6. The principal witness for the plaintiff was Mr. WAN Kwok Fu, the sole proprietor of Man Wo. He impressed me as an honest, rather simple man, who cannot speak or read English and who was unfamiliar with the workings of the letter of credit system.

7. Where his evidence conflicts with that of Mr. Chou, the main witness for Peterman, I Prefer that of Mr. Wan. Mr. Chou is obviously an experienced and skilful businessman, who drives a hard bargain. He does not emerge with much credit from his transactions with Mr. Wan; and his failure to disclose a number of important documents before trial did not add to his credibility.

Letter of Credit

8. Much of the evidence at the trial was concerned with the question of the issue of a letter of credit by Peterman in a Favour of Man Wo.

9. It was a term of the contract that payment would be by letter of credit at 15 days' sight. No date was specified by which the letter of credit should be opened but it must be implied that this would be effected within a reasonable time, which I take to be not later than the date by which the first consignment of navy material had to be delivered.

10. The first delivery of 7,297 yards of navy corduroy was effected on 20th October. The defendant did not apply to the Bank of Communications for the issue of a letter of credit in favour of Man Wo until 23rd October, The bank opened the necessary Letter of Credit on 25th October, but did not post it to Man Wo until 2nd November, in spite of the fact that the covering letter from the Bank was dated 25th October. The letter of credit, which was sent by registered post, was not delivered to the plaintiff until 6th November.

11. By this date, the letter of credit was invalid, since by its terms it had to be negotiated by 3rd November.

12. The plaintiff had attempted, about the end of October, to secure payment under the letter of credit by presenting to his bank, the Sin Hwa Trust Savings and Commercial Bank, a cargo receipt and a copy of the letter of credit, which according to him was furnished to him by Mr. Yeung, an officer of the Bank of Communications.

13. These documents were forwarded to the Sin Hwa Trust Savings and Commercial Bank, which understandably refused to pay on the basis of them. The letter of credit was a copy, whereas the original must be produced, and the cargo receipt for 7,297 yards of navy corduroy was not signed by an authorized representative of Peterman, as required by the letter of credit.

14. In spite of several requests by the plaintiff, no valid cargo receipt or letter of credit was ever provided by the defendant. The plaintiff was thus unprotected by any valid letter of credit from the entering of the contract up to 14th November, when he went to seek the help of the police.

Deliveries

15. The plaintiff delivered 7,297 yards of navy corduroy on 20th October, 1979. An invoice relating to this delivery, dated 20th October, for the sum of $55,092.35, was rendered by the plaintiff to Peterman. The navy corduroy was delivered by the plaintiff to a firm called Chung Hing for packing, in accordance with the agreement.

16. Samples of the cloth delivered were taken for examination. This disclosed that the cloth did not accord fully with the description and was unsatisfactory in other respects. The cloth was sent for re-dyeing by the plaintiff and redelivered to the defendant, who accepted it and despatched it to China to be made into jeans.

17. Towards the end of October, Mr. Chou obtained samples of the brown and gold-rust corduroy, which he sent for examination. The SGS report on these samples, dated 1st November, showed the material to be deficient to some degree.

18. As a result, Mr. Chou sought a reduction in the price. On 8th November, Mr. Wan agreed to accept $1.10 a yard less for the navy and 90¢ a yard less for the brown and gold-rust. The statement of claim was amended to take account of this reduction, with leave, to read $144,770.77 instead of $166,020.72, as earlier claimed. The lower figure is reached by taking the actual deliveries made by the plaintiff (7,297 yards of navy and 14,692.5 yards of brown and gold-rust) and applying the reduced price of $6.45 a yard for the navy and $6.65 a yard for the brown and gold-rust.

19. On 8th November, on the instructions of Peterman, 54 cartons of corduroy material were delivered to the Yat Shing Godown Ltd. At the insistence of Mr. Chou, the cartons were stored there in the name of Peterman.

20. On the same date, Peterman sent to Man Wo a letter setting out what Peterman asserted to be the revised terms of the contract, as agreed between them that day (see below). The letter also stated that Man Wo had deposited the 54 cartons, containing 14,692.5 yards of brown and gold-rust corduroy with the Yat Shing Godown Company Ltd.

21. These cartons have remained in the Godown ever since, with the exception of four, which were removed by Peterman on 3rd April, 1980. Mr. Chou explained that this was done by one of his Partners, without his knowledge; whether or not this was so the removal of these cartons is attributable in law to Peterman.

Repudiation

22. With regard to the second consignment of brown and gold-rust material, the defence was that the contract was repudiated by the plaintiff.

23. There can be little doubt that there were breaches of the original contract on both sides. The plaintiff failed to deliver the brown and gold-rust material by October 26th. Neither the navy nor the brown and gold-rust corduroy were in accordance with specification and both were defective in other ways.

24. On the other hand, the defendant failed to provide valid letters of credit at any stage; nor did he pay the plaintiff anything for the navy corduroy, although he used it for his own purposes.

25. There was thus breaches of contract which might have entitled either of the parties to treat it as at an end before the 8th November.

26. However, I find that, on that date, it was agreed by the parties that the contract should continue, subject to the variations which were then agreed between them. Thus any breaches which may have occurred before that date were waived by both sides.

27. On the same day, 8th November, Peterman wrote a letter to Man Wo which sets out the main terms of the variations agreed. However, there is a dispute as to other matters which were not embodied in that letter and which were said to have conditions of the continuation of the contract.

28. Mr. Wan did not dispute that it was agreed that he should pay to Peterman a sum of about $21,000 by cashier's order, to cover the reduction in price; but he claimed that he agreed to do so only if certain conditions were fulfilled. These were that a valid cargo receipt must be furnished, that an amended letter of credit should be issued by Peterman and that arrangements would be made for the transfer of money owing to him by Peterman to his account.

29. Mr. Chou's version is that it was a condition that Mr. Wan would pay the $21,000 before an amended letter of credit was issued or a cargo receipt would be handed over.

30. As to this, I accept Mr. Wan's version, since I believe his evidence where it conflicts with that of Mr. Chou. I do not believe that he would have agreed to pay over $21,000, by cashier's order, to Mr. Chou assurance that he would provide the necessary documents thereafter. He had delivered the navy blue corduroy nearly three weeks earlier and had received nothing for it; although he had himself been obliged to pay a deposit of $20,000 to his supplier.

31. In any event, whatever may have been agreed as to the order in which money should be paid and documents rendered, effect was given to the amended contract by the plaintiff, by virtue of his delivery of the second consignment to the Godown on 8th November; and by the defendant, by his instruction that the goods be so deposited in the name of Peterman and that they be collected from the godown on his behalf on 14th November.

32. Furthermore, if there was any breach by the plaintiff of the conditions agreed on 8th November, this was waived by the defendant's subsequent conduct, which clearly amounted to an assertion of property in the goods which is consistent only with the continuation of the contract.

Effect of complaint to police by plaintiff

33. The plaintiff knew the firm which was going to process the brown and gold-rust cloth for Peterman. Through them, he learnt on 13th November that Peterman intended to remove the cartons from the Yat Shing Godown, where they had been deposited by the plaintiff, on the following day. It was not disputed that the defendant did so intend. This is further evidence that Peterman regarded the contract as subsisting.

34. The plaintiff, on receiving this information, sought assistance from the police, who informed him, after enquiry, that his dispute with Mr. Chou was not a matter in which they would interfere as it was a civil dispute to be settled between the parties.

35. It was argued that this action by the plaintiff evinced an intention on his part to repudiate the contract. I do not agree. I think this was the conduct of a man who had panicked and was looking for help.

36. This is not surprising, when his situation on 14th November is considered. He had delivered 7,297 yards of corduroy for which he had not been paid. He had accepted a reduction in contract price, for which he had been asked to provide a banker's draft. He had had no valid cargo receipt for the delivery of navy blue corduroy. He had never received any valid letter of credit, as required by the contract. He had delivered a second consignment of 14,692.5 yards of cloth to the godown and had been told that this was to be removed by Peterman.

37. I do not think that he wanted to end the contract. He wanted to try to prevent the goods being removed from the godown before he received such documents as he thought would secure him payment for both consignments.

38. In any event, even if there had been such a repudiation, it was not accepted by the defendant, who elected to treat the contract as subsisting. It was not disputed that the defendant refused to deliver the 54 cartons to the plaintiff when he asked for them, though Mr. Chou sought to explain this on the ground that he needed to retain them in case there was a claim for compensation against Peterman by the German buyer to whom the jeans made from the navy corduroy had been supplied.

39. Furthermore, in April 1980, four cartons were removed by Peterman from the godown, a clear assertion of ownership of the cartons and their contents by Peterman which is compatible only with the acceptance of the defendant that the contract under which the property in the goods in the godown had passed to him was still in effect. The material concerned was thereafter made into jeans which were supplied to the West German firm of Kingsway. This was the same customer of Peterman to which the jeans which were to be made with the corduroy to be supplied by Man Wo under the original contract, were to be sent.

Damages

40. I therefore find that under the contract of 16th October, as varied orally on 8th November, the plaintiff is entitled to be paid $144,770.77, the sum sought under the amended statement of claim.

Counterclaim

41. The defendant claims various expenses as having been incurred, by reason of the plaintiff's breach of contract. This claim must fail, in view of my findings that no such breach occurred or that if it did, it was waived by the defendant.

42. The defendant has claimed that the navy corduroy was found to be 77.02 yards short of the amount of 9,297 yards, which the plaintiff says was delivered. Documentary evidence of this deficiency was produced and I accept it.

43. Mr. Chou also testified that the Chinese manufacturers of the jeans constructed from the corduroy supplied by the plaintiff had informed him that 42 yards of the navy material was spoiled. I accept this also.

44. Thus I find that the defendants are entitled to a deduction in price in respect of 119.02 yards, at $6.65 a yard, the agreed reduced price for navy cloth, or $791.50.

45. The defendant further claims that, by virtue of the repudiation of the contract by the plaintiff, he was obliged to look elsewhere for corduroy material with which to fulfil the remainder of his contract with his German customer.

46. Mr. Chou produced documents which showed that Peterman purchased 8,200 yards of brown and gold rust material from Gin Ching Dyeing and Weaving Factory on 19th November, 1979 at a cost of $8.20 a yard and that most of this material was used to manufacture jeans in fulfilment of Peterman's contract with its West German customer, Kingsway. He claimed that he had not been able to purchase sufficient corduroy of the required kind to fulfil the balance of his order, and that he had been threatened by his West German customer with proceedings in relation to the shortfall. He sought a declaration that the defendant should be entitled to recover such damages as it might be liable to pay to its customers for default in delivery of the remaining jeans.

47. There is no doubt that the material supplied by the plaintiff was not fully in accordance with specification and not satisfactory in some respects. Nevertheless, the defendant, with full knowledge of their defects, accepted them. In so far as they fall short of the standards required by the contract, this was met by the reduction in price agreed on 8th November.

48. It was a matter for the defendant to decide what he should do with the material which, as I have found, he had purchased from the plaintiff. He chose not to use it in fulfilment of his contract with his West German customer, but to purchase other corduroy instead. By doing so, he cannot impose upon the plaintiff any obligation which he may himself incur as a result of that exercise of his choice.

49. It is also of significance that, nearly five months later, part of the second delivery was used by Peterman to make jeans for the same West German supplier. It appears as if this was done at the instance of one of the partners of Peterman, who also was a partner in the West German firm which is the customer for the jeans.

50. Furthermore, there is no evidence that the West German supplier has claimed for any loss suffered as the result of the short supply by the defendant. The counterclaim must fail in this respect also.

51. I therefore award $144,770.77 on the claim and $791.50 on the counterclaim.

52. Interest will run at 13% on both claim and counterclaim, from the dates of service of the writ and of the defence and counterclaim respectively, until payment.

53. Plaintiff to have costs on claim and counterclaim.

Representation:

W. Waung (Gallant Y.T. Ho & Co.) for Plaintiff.

P. Cheung (Ip, Ku & Stoppa) for Defendant.