Pt. Arota Mas Textile Industries v. Loyal Garment Ltd.

HCA001913/1999

HCA 1913/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1913 OF 1999

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Coram: Hon Beeson J in Court

Date of Hearing: 3 July 2000

Date of Judgment: 12 July 2000

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J U D G M E N T

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1. In this action the Plaintiff(P) claims US$101,800.00 from the Defendant(D) as payment for goods supplied to the D by P. The D counterclaims for the sum of US$86,306.79 being packing and banking charges which it says are owed by the P and should be set off against the sum claimed by the P.

FACTS

2. The Plaintiff company is incorporated in Indonesia as a garment manufacturer and exporter. The Defendant is incorporated in Hong Kong as a garment trader. The P would receive orders from the D, which sourced garments for others; a price would be agreed; the P would purchase the raw materials for the garments from the D and manufacture the garments. The finished garments would be shipped to the D's customers by P, according to D's instructions. The P opened Letters of Credit, on a CIF Jakarta basis, for the raw materials.

3. On or about 31 October 1997 the P received a copy of an LC issued by the Hongkong and Shanghai Banking Corporation (HSBC) for the shipment of goods to a value of US$447,466.00. Two partial shipments under that LC, to a value of US$61,550.00 and US$40,250.00 respectively, were shipped by the P to the D's customers. The D was paid by its customers in full for those shipments.

4. On 14 January 1998 the P presented the LC documents to the paying bank, HSBC, through its negotiating bank, Citibank Jakarta. The paying bank refused payment because of discrepancies in the documents, late shipment date and late presentation of documents.

5. The D amended the LC on the same date. When the P re-presented the amended LC, HSBC refused to pay out because the cargo receipt for one of the shipments was missing. Although a second amendment was made to the LC, HSBC continued to refuse payment, because the cargo receipt could not be produced and because it claimed that the amendments could not retrospectively validate the previous negotiations. The bank relied on Article 9d(II) of UCP 500.

6. The P pursues this claim against the D, relying on D's separate and independent liability to pay under its contract with P. (Newman Industries Ltd v. Indo-British Industries Ltd [1956] 2 Lloyd's Rep.219). Although the LC sets out terms of that contract and provides for the method of payment, it is not itself the contract.

7. P argued that the D could have waived the precise requirements under the LC and told the bank to pay, or could have credited the bank with the funds and waived the requirements. The P suggested that this failure to waive indicated that the D was trying to avoid payment. That argument is not supported by the assistance the D gave in obtaining the two amendments to the LC. However as the D was paid by its own customers who, despite minor delays in delivery, had not rejected the goods, it would have been possible for them to waive the requirements in the interests of good commercial relationships. That the D chose not to do so may give some support to the P's claim that the D was experiencing financial difficulties and was therefore prepared to take advantage of the position they found themselves in.

8. The only defence advanced related to a claim of set-off. The D alleged that there was a pre-existing oral agreement between the parties, pertaining to all orders, that the P would pay the charges incurred by the D in packing and shipping to the P the raw materials bought by the P for manufacture. This according to the evidence of DW1, Mr Francis Chan, was a fixed sum of US$0.30 for each piece manufactured. D further claimed that the parties had also orally agreed that P would pay all the banking charges and interest, calculated at 3 % of the total price paid by the P for each order of raw materials.

9. The D had issued a Debit Note, No 107/98, dated 17 February 1998, for payment of these charges totalling US$86,306.79. As purported proof of the P's agreement to and acceptance of, this arrangement, the D relied on the payment by P of similar charges set out in a second Debit Note, No 106/98, of the same date. The P agreed that Debit Note No 106/98 had been settled, but through its witness, Mr Sonny Nugroho, (PW1), made it clear that payment had been made only because the D had financially pressured it to do so. As the P, in Indonesia, needed cash in the midst of the 1997/1998 Asian financial crisis, it paid the amount.

10. The P denied any oral, or indeed any, pre-existing agreement that these charges would be paid by the P and claimed that such an agreement was contrary to commercial sense. That appeared to refer to the CIF nature of the contract and also because the P had had to buy the raw materials from the D at Hong Kong prices. Mr Nugroho said that although, when forced to do so, he settled Debit Note 106/98, he had nevertheless refused to pay on the Debit Note 107/98.

11. He agreed that he had signed as "accepting", a letter dated 30 March 1998, which related to Debit Note 107/98. That letter, on D's letterhead and signed by Dominic Wong for the D, is curiously worded. It refers to Debit Note 107/98 being "pending for further negotiation" and states that the "release of the(disputed) L.C. should be pending until the end of April should there be no claim arising from our (the D's) client". No reference is made to any written or oral agreement about charges. Nor if P, as alleged, had accepted responsibility for such charges, was any reason given as to why such agreement should be waived by D, or need to be re-negotiated. The latter term of the letter suggests that D accepted liability for payment of the goods if their clients made no claim.

12. There was evidence for the P, which was before the court by virtue of section 47 of the Evidence Ordinance, Cap. 8, from Mr Wong Chee Kwok, who had been a director of the D from October 1996 to August 1998. In his witness statement, made pursuant to O. 38 r. 2A, Mr Wong said he had first-hand knowledge of the D's business while he was a director and to his knowledge there had never been any agreement between the P and the D that the D could claim from P the packing, banking and freight delivery charges referred to in the Debit Notes.

13. The D, through its witness Mr Francis Chan, suggested that Mr Wong was working now for the P and submitted that his evidence could not be relied on. It is significant that no cogent evidence was led to substantiate this allegation and I noted that there was no cross-examination of PW1 on this point. I did not accept the suggestion as true and treated Mr Wong's statement as a minor supporting factor in P's case, bearing in mind that his statement was not very detailed and that he had not been available for cross-examination.

14. The D's witness, Mr Chan, had been the Assistant Shipping Manager at the relevant time. He claimed that a written contract, which he had seen but not read, underpinned the agreement embodied in the Debit Notes, but said he could not produce those documents, as they had been lost when the D's production department closed down in mid-1998. No earlier mention was made of these documents.

15. Mr Chan had neither negotiated the contract, nor the alleged agreement to pay packaging and banking charges, but claimed he had been kept informed about those matters by his boss, Francis Hung, throughout. He had prepared the schedules to the Debit Notes based on information given to him by Mr Hung. According to his evidence Mr Hung was still in charge of the D.

16. That being the case it is very surprising that Mr Hung did not give evidence about these matters by affidavit, or at trial, in particular about the alleged oral agreement by which P accepted responsibility for the banking and packaging charges and of which Mr Hung, as the negotiator, might be presumed to have had first hand knowledge.

17. It was submitted on D's behalf that the P, prior to trial, had never alleged being forced to pay Debit Note 106/98, nor had it been pleaded. It was suggested that it was only when the P recalled having signed the letter of 30 March 1998 that the allegations of pressure were made. There was reference by the P to unilateral action by the D in helping itself to the sum claimed in the Debit Note 106/98, but I accept that there was no specific reference to the exerting of financial pressure as such. It did appear however from the evidence given by Mr Nugroho at trial, that as far as he was concerned the unilateral action referred to in the pleadings and the financial pressure he spoke of in his evidence was the same thing.

18. Whether or not they were the same thing was really irrelevant, as the important question for the court to decide was whether the oral agreements claimed by the D had ever been made. Having considered the facts of the case, the supporting documents and the evidence on this matter given by the witnesses at trial, I was satisfied to the requisite standard that the account given by Mr Nugroho for the P was what in fact happened and that there had not been any such agreement.

19. Mr Nugroho was an impressively sincere witness who was very certain of what had occurred, in particular, that the D, which was in financial difficulties, took advantage of the pressures exerted on the P by the Asian financial crisis, to avoid paying the full amount under the contract and produced the Debit Notes supporting its claim of a prior oral agreement to justify the amounts the D retained. Apart from the Debit Notes, which I did not accept as genuinely supporting a prior agreement, there was no cogent evidence which substantiated the D's allegation of the prior oral agreement. There was no evidence therefore to support D's counterclaim.

20. Judgment is entered for the P in the sum of US$101,800.00. The D's counterclaim is dismissed.

21. Interest on the sum of US$101,800.00 sum is awarded at the commercial lending rate from 29 July 1998 to the date of this judgment and thereafter at judgment rate until payment in full.

22. There will be an order nisi for costs of the action in favour of P.

23. Liberty to apply.

Representation:

Joseph Vaughan, instructed by Boase, Cohen & Collins, for the Plaintiff

Douglas Lam, instructed by Pang, Wan & Choi, for the Defendant