Island Dyeing & Printing Co Ltd v. Sun Sun Enterprises (A Firm)

HCA000654/1981

BETWEEN

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Coram: Hon. Liu J.

Date: 29th January 1983

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JUDGMENT

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1. The plaintiff's claim against the defendant is for the return of half of the purchase price paid to the defendant pursuant to a Sales Contract No. S.002/81 dated 7th January 1981 and made between the parties to this action, whereby the plaintiff agreed to buy and the defendant agreed to sell 110 metric tons (550 drums) of caustic soda in solid form of Taiwan origin at $2,200 per metric ton ex godown of Holden Enterprises Limited for a total sum of $242,000. Payment under the said Sales Contract was to be 50% against the handing over of the godown warrant and delivery order with the remaining 50% within 30 days thereafter. I will return to the terms of this Sales Contract. The plaintiff also claims interest on the said sum of $121,000, damages for breach and costs.

2. It is notable that the plaintiff adduced no evidence of special damages, nor has it been pleaded, presumably because of the assertion of its Personnel Manager, Mr. Chan, that the then market price of $2,250 was quite close to the contract price. Counsel in his final address seemed to have abandoned the claim for damages altogether.

3. It was the allegation of the plaintiff that the said Sales Contract was a contract for the sale of goods by description. Consequently, as contended on behalf of the plaintiff, it was an express, alternatively an implied term that the goods should correspond with the description. The plaintiff further called in aid the implied warranties that the goods should be of merchantable quality and that with knowledge of the particular purpose for which the goods were required by the plaintiff i.e. for dyeing and printing in the plaintiff's trade, the goods should be reasonably fit for such purpose as the plaintiff had allegedly relied on the defendant's skill and judgment.

4. The plaintiff claimed that upon taking delivery of the goods on or about 15th January 1981 at the said godown of Holden Enterprises Limited they were found not to correspond with the description, to be of unmerchantable quality and unfit for the purpose for which they were required. Delivery was accordingly rejected. Hence the claim of the plaintiff arose.

5. The defendant denied these allegations. The defendant alleged that the said Sales Contrtact for the said quantity of solid caustic soda of Taiwan origin was partly in writing and partly oral as agreed in the telephone conversations between Mr. Ni of the defendant and Mr. Tsu of the plaintiff shortly before the signing of the said Sales Contract. The defendant maintained that it was explicitly agreed in those telephonic communications that the goods were to be sold as they were, that is to say as old stock stored in open space of Holden's godovrn for over two years in drums which had rusted. Mr. Ni testified that he had drawn all this to the attention of Mr. Tsu and in addition, he expressly warned Mr. Tsu that the defendant would not guarantee the quality of the goods in these circumstances. The defendant denied that they dealt exclusively in chemicals or that they were ever made aware of the precise purpose for which the substance in the said Sales Contract was acquired. Therefore, the defendant maintained that the plaintiff was at no time relying on their skill or judgment which the defendant did not in any case possess or exercise.

6. The plaintiff was also put to proof of its allegation that the goods stored in Holden's godown did not in fact correspond with the description or were of unmerchantable quality or were unfit for the purpose for which they were required even if the plaintiff could justifiably rely on the skill or judgment, if any, of the defendant.

7. The defendant counterclaimed for the balance of the purchase price for wrongful non-acceptance. However, credit was given for two subsequent sales of the goods stored at Holden's godown to one Mr. Tam in March 1981 and July 1982 respectively. The claim by the defendant for godown charges was no longer pursued.

8. Mr. Tsu had passed away, and under the Hearsay Evidence rules, his affirmation and a statement of his taken by a solicitor in the afternoon of the 24th March 1981 were admitted. It is to be immediately noted that Mr. Tsu was unavailable for cross-examination. In addition, the statement taken of him was not read over to Mr. Tsu. Moreover, this statement is not entirely free from obvious errors. By way of illustrations:The sentence "But Mr. Ni maintained that the goods were unmerchantable" is a clear slip. A little further down, another similar mistake appears in the word "experience" which should obviously read "expense". The statement refers to a sale of 100 tons instead of 110 metric tons, and it also fails short of giving the response, if any, of Mr. Ni to Mr. Tsu's proposed reduction from $2,200 to $2,100. Lastly, there seems to be some confusion as to the unit price originally offered. However, Mr. Tsu had it put on record that the day before the signing of the said Sales Contract, Mr. Ni solicited for his company's patronage in respect to a quantity of solid caustic soda of Taiwan origin stored at the Holden's godown. According to Mr. Tsu, it was disclosed in this telephone conversation that the caustic soda had been in Mr. Ni's hand for a year and he had disposed of some to the King's Dyeing Works. Mr. Ni also allegedly mentioned that his caustic soda had a purity of 98%. From the affirmation and statement of Mr. Tsu, it would appear that Mr. Ni offered to sell at the unit price of $2,200 with a remark that he thought the market price was then $2,500 and that Mr. Tsu held the view that the market price was then only $2,300.

9. Mr. Ni testified that he had 622 drums and was told by Holden's godown to remove his caustic soda by mid January 1981. Therefore, in December 1980 he was diligently looking for prospective buyers. He had had the quantity stored at Holden's godown for over two years and the drums were rusted, with those on top more rusted, so must so, in his own words, that on his last inspection, a month or two prior to January 1981,"the steel drums were rusted and had small holes, so rain and moisture could come inside". On his contact with Mr. Tsu of the plaintiff, so Mr. Ni maintained, he specifically told Mr. Tsu that the plaintiff could inspect the goods stored at Holden's godown for at least two years. According to Mr. Ni, Mr. Tsu's reply was that he would check up before coming back to him and Mr. Tsu counter-offered subsequently. Therefore, so claimed Mr. Ni, Mr. Tsu must have caused the goods to be inspected. Mr. Ni seemed to maintain that because of the information fed to Mr. Tsu and because of the low offer which was a much reduced price from the then current market price of $2,600 to $2,700, the goods were virtually sold on the term "As Is and Where Is", and Mr. Ni sought to derive support for his analysis from a special clause said to have been insisted upon by Mr. Tsu that the total price was to be calculated on the actual weight in case of shortage. In substance Mr. Ni argued that the plaintiff was well aware of the possible poor condition of the goods agreed to be purchased, particularly when the plaintiff asked for only 550 drums out of the total quantity of 622 drums available.

10. It was further contended on behalf of the defendant that the observation and inspection made by the plaintiff's staff and the surveyor firm were not comprehensive and unreliable and that consequently the plaintiff had failed to establish that there was an insufficient quantity of merchantable caustic soda for delivery under the contract.

11. As I have said before, Mr. Tsu was not available for cross- examination and his statement taken by a solicitor for the plaintiff is not without imperfections. As far as Mr. Ni is concerned, at least it is reasonably clear that he did not disclose to Mr. Tsu that the drums were perforated with small holes. He was eager to volunteer explanations and he was quick to assume that the plaintiff must have caused the goods to be inspected prior to the signing of the said Sales Contract. It is common ground that the drums were then stacked six levels high in Holden's godown. Thorough normal inspection of the entire lot was and was expected to be impracticable, if not virtually impossible, before actual delivery. The defendant had then 622 drums and the plaintiff by the said Sales Contract agreed to take 550 drums i.e. 72 drums less. In the prevailing circumstances, it would not have been imprudent of Mr. Tsu on behalf of the plaintiff, even without any suspicion of deterioration, to take a lesser quantity of the stock and to have a special clause inserted for possible weight shortage. Thus, such special clause in the said sales contract is no inference that the plaintiff must have found on prior inspection or ought to have anticipated on the information fed that the contents of the drums had or might have been adversely affected.

12. Mr. Ni was not an impressive witness from my observation of him in the witness stand.

13. Despite the evidence of Mr. Ng, the managing director of Holden Enterprises Limited that in most cases inspection was made before acceptance, I prefer the factual situation of Mr. Tsu given or reflected in his affirmation and statement. On the balance of probabilities, I find that Mr. Ni never disclosed to Mr. Tsu that the defendant could not guarantee the quality or weight. The special clause was probably inserted as a matter of precaution. I further find that Mr. Tsu was merely told that the defendant had in his possession a quantity of caustic soda for about a year having sold some to King's Dyeing Works and that whilst Mr. Ni believed the market price to be in the region of $2,500, Mr. Tsu's view was that caustic soda was then available at approximately $2,300. Goods were offered and the contract was signed at $2,200 per metric ton. It would have been improbable for Mr. Tsu of the plaintiff to have agreed to take that quantity of solid caustic soda of Taiwan origin at that price if he had been told by Mr. Ni that the defendant could not guarantee the quality. I also prefer Mr. Tsu's version that he was told that the defendant's caustic soda had a purity of 98%. Together with the tenor of the evidence of the plaintiff staff which I accept, the clear inference from Mr. Tsu's version is that the plaintiff had no inspection or survey prior to the plaintiff taking delivery. I so find that as a fact.

14. Be that as it may, the said Sales Contract, Exhibit D1, as reduced into writing bears every indicium of an actual conclusion of a commercial transaction. It is a legal rebuttable presumption that such a document includes all the agreed terms, and the burden to establish a seemingly complete agreement as being incomplete is, needless to say, heavy. Furthermore, the receipt for the first half payment referred only to the said written Sales Contract, and the two Delivery Orders Nos. 033372 abd 033373 both dated 7th January 1981 gave no indication that there were other oral terms in addition to those in the said written Sales Contract. The alleged oral agreement was not altogether consistent with the written terms. Even if Mr. Ni's evidence were accepted, the circumstances were not such as to persuade me that the said Sales Contract was in fact an incomplete contract signed upon the conclusion of the transaction. Thus, the oral evidence of Mr. Ni, even if accepted, would be inadmissible to add to or vary the terms of the said Sales Contract.

15. I turn to the condition of the contents of the drums. On 15th January 1981, Mr. Ho, the supervisor of the surveyor firm, S.G.S. (Hong Kong) Limited explained to the court that of the drums visible, about 70% were broken and inside the broken drums, wherever it could be seen, the contents were half or one-third full, the substance had become powdery and broken down in small pieces and the colour had changed. He could also see from outside, the middle of the stack. He took photographs, exhibit P2, and sample. He formed the opinion that the quality had changed. He did the best he could on his inspection as the removal of the drums on the skirt or periphery for an in-depth examination was not then possible. On his inspection, a report from his firm was given with the conclusion: "Drums were inspected by us as they lay in stacks. As far as could be seen from the accessible drums, they were badly rusted, mostly oxidized, corroded or broken." We must not overlook the evidence of Mr. Ni himself that the drums were rusted and with small holes. Last but not least, we have the evidence of Mr. Tam, the purchaser in March 1981, which is also significant: He said that the substance was of a lower strength and might be decomposed. Furthermore, he paid only 40% of the market price. His assessment was that the strength of the substance had decreased and the substance was used for cleansing purposes. In addition to the surveyor, the plaintiff had the goods inspected by their Personnel Manager in charge of the Materials Department, a chemical engineer, Mr. Ho, and its Mill Manager, Mr. Makimura. They all formed the opinion that the stock was not acceptable and advised rejection. Both the chemical engineer and the Mill Manager came to the conclusion that the substance had been changed from caustic soda in solid form, semi-transparent in colour like marble into soda ash in the form of white powder. In view of these facts, notwith-standing the absence of the sample, I am virtually driven to the conclusions that the assertion of the plaintiff was accurate, that the substance in Holden's godown on the 15th January 1981 was no longer solid caustic soda and that the lot was not acceptable.

16. It is not entirely without significance to observe that in the written contracts with Mr. Tam in March 1981 and July 1982, the defendant had it specifically described as "old stock goods" in the former and goods sold on a "as is as she is" basis in "rusted/damaged steel drums, inspected and accepted by buyers" in the latter. I do not accept the explanation of Mr. Ni that Mr. Tam was to take damaged drums on top in his July 1982 Sales Contract.

17. It was a sale by description and in my judgment, the defendant was in breach of the express and the implied term that the goods should correspond with the description. The evidence has it that soda ash is a completely different chemical substance from caustic soda. In my judgment, the defendant was in further breach of the implied term in that the substance offered to be taken delivery of on 15th January 1981 was not of merchantable quality. I accept, however, Mr. Ni's evidence that he was not exclusively a dealer in chemicals, that he had no knowledge of the differentiation between caustic soda and soda ash and that although he was aware that the substance was to be used by the plaintiff factory, he had no precise knowledge and was never told as to how such substance contracted to be sold was to be utilized. I need say no more on that aspect.

18. In the circumstances I find the plaintiff's claim against the defendant proved. I give judgment to the plaintiff against the defendant in the sum of $121,000 as claimed but with interest only at 10% per annum from the date of the writ until judgment and from the date of judgment until actual payment. The plaintiff is also entitled to costs against the defendant. Counsel for the defendant made the best of a very weak case. If I were to accept his contention, I would be prepared to find as proved the proposed deduction from the defendant's counterclaim, but in the circumstances, the defendant's counterclaim must accordingly be dismissed also with costs.

Representation:

Mr. S.M. Chan instructed by Messrs. Deacons for the Plaintiff.

Mr. Smith instructed by Messrs. Haldane & Midgley & Co. for the Defendant.