Tinchant S a v. Tak Wo Metal Industries Ltd and Another
Read the full judgment text of HCA 578/2001 on BabelCite. This High Court CFI judgment was delivered on 25 September 2003.
1. The Plaintiff in this action is a Belgium trader. It was the purchaser of 146,000 units of travel shaving sets under a Purchase Order dated 8 March 2000. The Plaintiff alleged that the Defendants were the sellers. The order was signed by a Vincent Lam on 3 April 2000 as manager of "Tak Sung Group" ["TSG"]. The purchase price as finally agreed on 3 April 2000 was US$2.15 per unit, hence the total was US$313,900.
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HCA000578/2001 HCA 578/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 578 OF 2001 ____________
____________ Coram: Hon Lam J in Court Dates of Hearing: 3-4 April 2003 and 16 September 2003 Date of Judgment: 25 September 2003 _______________ J U D G M E N T _______________ 1.The Plaintiff in this action is a Belgium trader. It was the purchaser of 146,000 units of travel shaving sets under a Purchase Order dated 8 March 2000. The Plaintiff alleged that the Defendants were the sellers. The order was signed by a Vincent Lam on 3 April 2000 as manager of "Tak Sung Group" ["TSG"]. The purchase price as finally agreed on 3 April 2000 was US$2.15 per unit, hence the total was US$313,900. 2.Under the Purchase Order, the delivery term was FOB Hong Kong with delivery schedule as follows,
3.The order also provided for a maximum optional quantity of 102,000 pieces. Payment was by Letter of Credit. The set consisted of several items, one of which was a metal box required under the contract to be copper, nickel and chrome plated. The contract specified the plating requirements as follows,
The contract also provided for random testing of samples by a laboratory. Production samples had to be submitted for approval. Emphasis was placed on the thickness of the plating,
4.There was another clause in the contract dealing with testing of plating,
5.In the course of the production, the Plaintiff monitored the situation closely and found that the production samples furnished did not meet the plating requirements. In particular, the chrome thickness was deficient by a large margin. Laboratory tests had been conducted and the seller attempted to use new plating factories in order to meet the standards set out in the contract. 6.The correspondence between the parties showed that the seller has seriously under estimated the plating costs in meeting the contractual requirements. There were negotiations at the end of July 2000. As a result, the Plaintiff agreed to increase the unit price to US$2.232. They also agreed to share the additional plating costs. The unit price (including the plating cost) payable by the Plaintiff became US$3.292. The quantity, including optional quantity, was agreed to be 202,470 pieces. This was evidenced by a breakdown set out in a fax dated 28 July 2000. Mr Henri Tinchant signed on the document to signify the Plaintiff's agreement and faxed it back to the seller. Shipment dates were also extended with the first shipment of 40,494 pieces to be shipped by 1 September 2000. The Plaintiff also agreed to reduce the thickness for chrome plating to 0.1 to 0.2 μm. 7.However, the laboratory test reports produced by the Hong Kong Productivity Council dated 31 July 2000 showed that one new factory engaged by the seller could not even meet the reduced standard whilst some samples from the other one were also sub-standard. 8.The Plaintiff was willing to go ahead with one of the factory (Tin Lung) and asked for new testing report from the other factory (Mei Kin) in a fax dated 8 August 2000. Later, Mei Kin also came up with some satisfactory samples and reports were sent to the Plaintiff by a fax of 11 August 2000. 9.On 18 August 2000, the seller faxed to the Plaintiff informing the latter that Mei Kin and Tin Lung would ask for price increases and deposits to be paid upfront. Finding that unreasonable, the Plaintiff responded in a fax dated 20 August 2000 as follows,
The Plaintiff also warned the seller at the end of that fax,
10.The Plaintiff also engaged a Hong Kong consultant called Wong's Plating Consultants Company to visit the various factories and check on their production capacities. The report of that consultant was faxed to the Plaintiff on 21 August 2000 and it was not that favourable. 11.In a fax of 21 August 2000, the seller maintained the request for increase in plating costs and deposits. By another fax of 21 August (wrongly dated 11 August 2000) in reply to the Plaintiff's fax of 20 August, the seller said as follows,
The seller then reiterated that the plating factories would not start production without receiving the deposit. It went on to say,
The seller asked the Plaintiff to share the increase in plating costs and payment of the deposits. Then, it said in the fax,
12.Attached to that fax was a recalculation by the seller as to the cost of the goods for the Plaintiff. The figure worked out to be US$3.7687 per unit. 13.On 24 August 2000, the Plaintiff replied by fax,
14.The Plaintiff then looked for another supplier and on 23 November 2000 entered into a new purchase order with Kwan Lick Metal Factory Limited for 200,500 sets of the same goods at the unit price of US$3.60 plus a tooling cost of US$10,000. 15.In this action, the Plaintiff sued the Defendants for damages for breach of contract. Although the Defendants had been separately represented by two firms of solicitors, by the time of trial neither Defendant appeared, whether by lawyers or otherwise. The solicitors for the 2nd Defendant had obtained leave to cease to act in February 2003 whilst the solicitors for the 1st Defendant had obtained such leave in March 2003. In addition, the 1st Defendant was subject to voluntary liquidation. On 12 March 2003, the liquidator consented to the dismissal of the Counterclaim with costs and order to that effect was made by Chu J. The liquidator had indicated that the 1st Defendant had no asset and he would not play any part at the trial. The trial bundles sent to the last known address of the 2nd Defendant had been returned to the solicitors for the Plaintiff. 16.The trial started on 3 April 2003. On 4 April 2003, it was adjourned part-heard because the Plaintiff wished to put in additional evidence which had not been served on the Defendants and further amend its Statement of Claim. Directions were given for service of these documents. The trial was resumed on 16 September 2003. 17.Although the Defendants did not appear at the trial, the Plaintiff still has to prove its case. On the question of liability, as shown in the pleadings, the 1st Defendant admitted that it was the seller whilst the 2nd Defendant denied. The 1st Defendant pleaded that the fax of 21 August 2000 were merely suggestions and the 1st Defendant intended to honour the contract. Certain matters were alluded to but no evidence had been adduced by the 1st Defendant at the trial to substantiate the same. 18.Regarding liability, this court needs to address the following issues,
The identity of the seller(s) 19.In the previous section, I eschewed reference to the 1st or 2nd Defendants as the seller(s). In the purchase order, TSG's chop was stamped at the space provided for the signature of the supplier. TSG was not an entity but was a mere trade name. The name card of Vincent Lam borne the corporate name of Tak Sung Holdings Inc. with the following subsidiaries,
Only one set of office addresses and contact numbers were set out in the name card without distinguishing those as addresses and numbers of which particular company. 20.The 1st Defendant is a Hong Kong company whilst the 2nd Defendant is a BVI company. The 2nd Defendant did not give discovery as to its directors and shareholders. 21.At the trial, the Plaintiff produced as exhibit P-1 the business registration records of the 1st Defendant. It shows that the 1st Defendant had traded under the name of TSG since 1 May 1995. The address of the 1st Defendant in P-1 is the same address of the 2nd Defendant as appeared in the correspondence. 22.In the correspondence between the Plaintiff and the seller(s), the seller(s) responded on some occasions in the name of TSG whilst on other occasions in the name of the 2nd Defendant. By way of examples (and they are by no means exhaustive), the following correspondence indicated clearly the active involvement of the 2nd Defendant in the contract throughout the transaction and in my view, they point overwhelmingly to the conclusion that the 2nd Defendant was at least one of the sellers,
23.The tooling costs in the sum of US$5,000 was remitted by the Plaintiff to the 2nd Defendant's bank account on 9 March 2000. The letter of credit for payment of the goods were also issued in favour of the 2nd Defendant. 24.Mr Henri Tinchant gave evidence before me as to how the Plaintiff came to know the Defendants and under what circumstances the contract was made. He also recited what happened afterwards. I find him to be an honest witness and I accept his evidence set out below. 25.According to Mr Tinchant, the Plaintiff learnt of the Defendants through trade publications and exhibitions. It had never done business with the Defendants before. After the Plaintiff got inquiry from its German customer Tchibo Frisch Roset Kaffee GMBH ["Tchibo"], it sent quotation request to various suppliers including Tak Sung Holdings Inc. In response, TSG faxed a quotation to the Plaintiff on 10 January 2000. As to the identity of TSG, Mr Tinchant said this in his evidence,
26.According to Mr Tinchant, the Plaintiff believed the 2nd Defendant to be trading under the name of TSG and that's the reason why funds and letter of credit were remitted and opened in favour of the 2nd Defendant. Mr Tinchant said the Defendants had never told the Plaintiff that the 2nd Defendant was only the 1st Defendant's agent for the receipt of funds. In the light of the correspondence between the parties (as highlighted in Paragraph 22 above), in my judgment the 2nd Defendant's case to that effect plainly has no merits. It flies in the face of the proforma invoices issued by the 2nd Defendant. Those invoices also supported the Plaintiff's case that the 2nd Defendant adopted TSG as its trade name. 27.It is a question of fact as to who was/were the seller(s) under the contract. On the evidence before me, both the 1st and 2nd Defendants had used the trade name TSG. The evidence pointed strongly to the conclusion that the 2nd Defendant was a party to the contract. The question is whether the 1st Defendant was also a joint party since the contract was concluded in the name of TSG. 28.It is indeed unusual for two companies entered into a contract for sale of goods as co-sellers. But it is not legally impossible. Such a case has been pleaded by the Plaintiff in the Statement of Claim. On the pleadings, the 1st Defendant admitted to be a party to the contract (see Paragraph 4(a) of the Amended Defence). For this reason, the Plaintiff did not adduce much evidence as to the involvement of the 1st Defendant in the contract. It is not open to the 1st Defendant to resile from such admission even if this court were to conclude that the 2nd Defendant was also a party to the contract. 29.The Defendants chose not to attend the trial and adduce no evidence before this court as to the common intention of the parties when Vincent Lam signed the purchase order in the name of TSG and why the letter head of TSG appeared in the proforma invoices. Neither do I have any evidence as to why the 2nd Defendant played so active a role in the transaction if it was not a party to the contract. Nor do I have any evidence as to the arrangement between the 1st and 2nd Defendants bearing in mind that they both apparently traded under the name TSG. These are matters solely within the knowledge of the Defendants and the absence of evidence in those aspects is an indication of the lack of merits of the case of the 2nd Defendant that it was not a party to the contract. On all the material before me, I find that both the 1st and 2nd Defendants were sellers under the contract with the Plaintiff. Did the Defendants repudiate the contract? 30.The evidence clearly shows that the Defendants failed to meet the contractual requirements as to the plating of the goods. Given the provisions in the purchase order as to the plating requirements and its testing, the Plaintiff obviously attached great significance to the same. I am satisfied that those requirements were conditions in the contract, the non-fulfillment of which would entitle the Plaintiff to reject the goods. 31.We have not reached such a stage. The production of the goods was not completed due to the Defendants' failure to comply with the financial requests of the plating factories. In my judgment, the fax of 21 August 2000 from the Defendants was a clear statement from them that they would not be able to carry out their obligations under the contract unless the Plaintiff shared the increase in plating costs and payment of deposit. It has to be borne in mind that under the contract, such increase and deposit are the sole responsibility of the Defendants. This was precisely the point made by the Plaintiff in the fax of 20 August 2000 and the Defendants did not demur in the fax of 21 August 2000. 32.Viewed in that light, and bear in mind the developments since the making of the contract including the accommodation the Plaintiff already granted to the Defendants in terms of price and delivery schedule adjustments, I cannot accept the argument that the fax of 21 August 2000 was a mere suggestion. As it was said in that fax, the matter was quite critical by that stage. In my judgment, the Defendants were telling the Plaintiff that that proposal was their bottom line and if the Plaintiff did not comply with their requests, the contract could not be fulfilled. 33.The applicable legal principles can be found in Paras. 25-017 and 25-020 of Chitty on Contracts, 28th Edition,
34.On the facts of the present case, the Defendants had clearly declared unambiguously that they were unable to perform the contract unless the Plaintiff agreed to their requests which were unjustifiable under the contract. It is a clear case of renunciation. The Plaintiff was therefore entitled to accept the anticipatory breach in the fax of 24 August 2000. 35.The Defendants are therefore liable to the Plaintiff for breach of contract. Quantum 36.In the Re-Amended Schedule of Loss and Damage annexed to the Re-re-re-amended Statement of Claim, the Plaintiff claimed the following heads of damages,
37.I shall first deal with item (b). I have set out the history of the matter above and eventually the Plaintiff got the goods from Kwan Lick. The Plaintiff calculated the damages under this head by reference to the contract price of US$2.23. However, as stated, there was an agreement in the end of July to revise the price to US$3.292 as evidenced by a document at p. 248 of Bundle 3 of the Trial Bundles. That document was signed and approved by Mr Tinchant. In fact, Mr Sakhrani formulated the Plaintiff's claim under the same head in Paragraph 16(f) of his Opening Submissions by reference to that document. 38.Mr Sakhrani did not advance any argument to justify the reference to US$2.23 for calculation of damages. US$3.292 being a variation of the price agreed upon between the parties, I hold that this should be adopted for calculation instead of the figure of US$2.23. 39.There is another error in the Re-Amended Schedule of Loss and Damage. In the calculation of the price of the goods supplied by Kwan Lick, the quantity was 200,532 whereas under the contract with the Defendants, the quantity was 202,470. In my judgment, calculation of the quantum should be based on the quantity of goods actually obtained by the Plaintiff, hence the quantity supplied by Kwan Lick should be adopted. 40.With these adjustments, the correct quantum under this head should be,
41.I now turn to the compensation paid by the Plaintiff to Tchibo. The relevant legal principles can be found in Benjamin's Sale of Goods 5th Edn., Paras. 17-027 to 17-035. To start with, the Plaintiff has to show that it was within the Defendants' actual or imputed knowledge that the Plaintiff was buying for resale. If that is established, it should be within the reasonable contemplation of the Defendants that upon the latter's repudiation of the contract, the Plaintiff would be exposed to liability to pay compensation to its sub-buyer. Then the Plaintiff has to show that the compensation it actually paid to Tchibo was reasonable in quantum (c.f. Benjamin's Sale of Goods 5th Edn., Para. 17-074). 42.There is ample evidence before me to show that the Defendants were well aware of the fact that the Plaintiff ordered the goods for resale. In a fax dated 25 February 2000, the Plaintiff informed the Defendants that they had received confirmation from the Plaintiff's customer of the order for the goods. By another fax dated 10 March 2000 to the Defendants, the Plaintiff referred to the plating requests of its customer. As said, the contract was signed by the Defendants on 3 April 2000. Since there had been agreed variation at the end of July 2000, the knowledge of the Defendants up to that moment should be relevant. In faxes dated 20 June and 11 and 14 July 2000 respectively from the Plaintiff to the Defendants, reference was made to Tchibo's specifications, samples being sent to Tchibo and Tchibo's standard for plating. The Defendants' fax of 19 July 2000 also referred to Tchibo's thickness requirement. 43.Having regard to the circumstances under which the Defendants repudiated the contract and time taken by the Defendants between the contract and the actual repudiation, I hold that it must be within the reasonable contemplation of the Defendants that the Plaintiff would be at risk of being sued by its own sub-buyer in failing to deliver the goods. 44.The original contract between the Plaintiff and Tchibo dated 2 March 2000 had a delivery schedule starting from 27 September to 18 October 2000. Production samples in accordance with the contract had to be delivered by 21 June 2000. There was a stipulation under Clause 10.1 for a contractual penalty of DM 1.07 per unit regarding late or defective delivery. For 200,532 units, the contractual penalty is therefore DM 214,569.24. 45.On 13 September 2000, Tchibo wrote to the Plaintiff demanded compensation in the sum of DM 500,000. It was alleged in that letter that Tchibo's claim could amount to DM 1,888,159 plus advertising costs. No particulars were given as to that figure in the letter. There did not appear to be any negotiation between the Plaintiff and Tchibo regarding the demand for DM 500,000. Mr Tinchant gave evidence that the Plaintiff was very pleased with the offer and he was of the view that Tchibo's claim could be much more substantial than that. 46.A letter dated 15 April 2003 from Tchibo was produced to verify the claim of Tchibo. In that letter, a figure of DM 1,907,230.50 was given instead of the figure of DM 1,888,159 in the letter of 13 September 2000. That was based on a "planned sale price" of Tchibo in the sum of DM 19.95 per unit. The whole calculation was made on the basis that the sale was cancelled altogether and Tchibo therefore lost all the profit it expected to derive from that transaction. As the evidence shows, the Plaintiff had obtained the goods from Kwan Lick and Tchibo was the sub-purchaser of the same, albeit that the price was set at DM 5.4 instead of US$2.67. Whilst it may be true that the goods could not be placed onto the market at a time as originally planned, I have no material before me to justify the conclusion that Tchibo thereby lost all benefit under its contract with the Plaintiff. In fact, this would be contrary to the basis upon which the other two heads of claims were advanced by the Plaintiff. In respect of those claims, the Plaintiff's case is that the second transaction was a substitute for the first one. In any event, I have no evidence to support this "planned sale price" of Tchibo. There is also no explanation before me as to why Tchibo's claim was not limited by the contractual penalty provision. 47.Consequently, I am not satisfied that Tchibo could successfully claim against the Plaintiff the sums as alleged in its letters of 13 September 2000 and 15 April 2003. In the absence of proper justification for the figures claimed by Tchibo, and in the absence of evidence as to serious negotiation between the Plaintiff and Tchibo as to the quantum of compensation, I am not satisfied that DM 500,000 was a reasonable settlement when prima facie the contractual penalty set the damages for late delivery at DM 214,569.24. 48.On the other hand, it is clear to me that Tchibo must be entitled to claim a sum of DM 214,569.24 by reference to the contractual penalty. I will therefore award this sum to the Plaintiff as reasonable compensation payable to Tchibo. 49.The last head of damages is exchange rate loss. As mentioned, Tchibo changed the currency for the contract price in the second contract. By reason of that change, although the Plaintiff took the precaution of hedging its exchange rate in September 2000 at US$ 1 to DM 2.28, according to the evidence of Mr Tinchant, the Plaintiff still suffered a loss of DM 0.26 per US$1. 50.Based on the evidence of Mr Tinchant, I accept that it was within the contemplation of the Defendants that the Plaintiff was dealing with a German sub-buyer. As every trader engaged in international trade would appreciate (and the evidence shows that the Defendants were quite active in selling its products internationally), currency exchange fluctuation is an inherent risk in every cross border transaction. It must therefore be within the reasonable contemplation of the Defendants that the Plaintiff might suffer loss in that regard in case of breach of contract by the Defendants. 51.Given the circumstances, I find that the Plaintiff was acting reasonably in agreeing to the change of the price to DM 5.4 in its contract with Tchibo. It must also be reasonable for the Plaintiff to hedge its exchange rate in September 2000 as soon as they knew of the change. I therefore agree that this is also a head of damages recoverable by the Plaintiff from the Defendants. The quantum, in accordance with the evidence of Mr Tinchant, was DM 190,297.97 (DM 0.26 x US$731,915.20). 52.To sum up, the quantum of damages I will award to the Plaintiff are,
53.Mr Sakhrani informed the court that since DM is no longer in circulation, the Plaintiff would ask for all damages to be awarded in US$ and it would agree to a conversion rate of DM 2.28 for US$1. The total award is therefore US$71,763.86 + (DM 214,569.24 + DM 190,297.97) / DM 2.28 = US$249,337.20. 54.Judgment shall therefore be entered in favour of the Plaintiff against both Defendants in the sum of US$249,337.20. As to costs, the Plaintiffs should have the costs of the action except that for the hearing on 16 September 2003. That hearing was necessitated by the Plaintiff not having all its evidence on quantum before the court at the trial in April and the Plaintiff shall have to bear its own costs. I make a costs order nisi accordingly.
Representation: Mr Sanjay Sakhrani, instructed by Messrs Stephenson Harwood & Lo, for the Plaintiff 1st Defendant, Tak Wo Metal Industries Ltd (trading as Tak Sung Group), in person, absent 2nd Defendant, Tak Sung Industries Ltd (trading as Tak Sung Group), in person, absent Mr Chan Kam Man, Liquidators of the 1st Defendant in Creditor's Voluntary Liquidation, absent Remarks: |