Techma International Limited v. Cheung Ah Ping Anita t/a Hao Fu International Co.
Read the full judgment text of HCA 109/1988 on BabelCite. This High Court CFI judgment.
1. By a contract NO. TM/CXI/860901 dated 10th October 1986 and made between the Plaintiff as sellers of the one part and the Defendant as buyers of the other part, the Plaintiff agreed to sell and the Defendant agreed to buy 4,000 metric/tons of "Electric Tin Plate in white and gold lacquered face" at a unit price of US$ 425 per metric ton c. i. f. Whampoa, upon the terms and conditions therein contained. Thus the total contract price was US$ 1,700,000. See document at Page A10 of the Plaintiff'
|
HCA000109/1988 1988, No. A109 IN THE SUPREME COURT OF HONG KONG HIGH COURT ___________ BETWEEN
_____________ Coram: Deputy High Court Judge Mills-Owens, Q.C. in Court Dates of Hearing: 10th-12th May 1989, 15th May 1989 Date of Delivery of Judgment: 17th May 1989 ______________ J U D G M E N T ______________ 1. By a contract NO. TM/CXI/860901 dated 10th October 1986 and made between the Plaintiff as sellers of the one part and the Defendant as buyers of the other part, the Plaintiff agreed to sell and the Defendant agreed to buy 4,000 metric/tons of "Electric Tin Plate in white and gold lacquered face" at a unit price of US$ 425 per metric ton c. i. f. Whampoa, upon the terms and conditions therein contained. Thus the total contract price was US$ 1,700,000. See document at Page A10 of the Plaintiff's Bundle. The contract was signed on behalf of the Plaintiff by Michael Nan (P01) echo was the manager of the Trading Department of the Plaintiff Limited Company and by a Mr. Chang Shun Chee (DW1) described as Manager on behalf of the Defendant. The Defendant Cheung Ah Ping Anita was registered on 24th February 1986 under the Business Registration Regulations as carrying on business as a sole proprietership in the name of "Hao Fu International Co". See document A1 in the Plaintiff's Bundle. The Defendant is the daughter of Mr. Chang Shun Chee and although it is she who is registered as carrying on the business it was quite apparant that her father was the person who in fact ran the Defendant's Business. 2. The contract provided in particular for the goods to be of Italian origin and manufacture, for the time of shipment to be "on or before 30th Nov, 1986" and for the port of destination to be Whampoa.
3. As originally typed this clause had referred to "one week" instead of "(10 working days)" but this amendment was agreed at the time that the contract was signed at the Defendant's offices on 10th October 1986 and accordingly the wards "(10 working days)" were typed on there and then and the amendment was chopped to confirm its authenticity. 4. It is admitted that the Defendant failed to open any L/C in favour of the Plaintiff within the contractually permitted period of 10 working days from 10th October 1986 or indeed at all, despite extensions of time given by the Plaintiff for this purpose. The Plaintiff complains that by reason of the Defendant's failure to open the L/C in its favour, it, the Plaintiff was unable to open any L/C in favour of its Italian supplier De Paoli S. R. L. and that accordingly the contract for the supply of 4,000 M/T of the goods by De Paoli to the Plaintiff fell through. Thus, the Plaintiff has lost its profit on resale of the goods to the Defendant in the amount of US$ 100,000 being the difference between its cost price of 400 per M/T and resale price to the Defendant of US$425 per M/T times 4,000 M/T i.e. US$ 25 x 4,000 M/T = US$ 100,000. Alternatively the Plaintiff claims the sum of US$ 51,000 being the agree figure payable under clause 14 of the contract for the buyer's failure to open the L/C. That sum represents 3% of the total contract sum. i. e. 3% of US$ 1,700,000 = US$ 51,000. 5. By the defence filed on 3rd February 1988, it is contended on behalf of the Defendant that the contract between the Plaintiff and the Defendant for the sale of the 4,00.0.M/T of electric tin plate was made partly orally and partly in writing. The written part was the contract NO. TM/CXI/86091 whose salient terms I have summarised above The oral part of the agreement was pleaded as having been made prior to the signing of the contract "on various occasions between Sept l986 and Oct 1986". It is pleaded in these terms "It was expressly agreed between the parties that it was a condition precedent to any liability on the part of the Defendant, that the Plaintiff would produce to the Defendant a copy of the agreement the Plaintiff made with their supplier in respect of the said goods". 6. Since the Plaintiff did not produce a copy of that agreement to the Defendant; it is contended that the Defendant therefore never became liable to the Plaintiff at all. In the alternative, the Defendant relies upon the same contention as a collateral agreement or as a representation or warranty designed to induce the Defendant into signing the contract. There was a reply which merely put the matters pleaded in the defence in issue. Thus the basic issue between the parties is one of fact, was there an agreement, a representation, warranty or understanding of a contractual nature between them, whereby the Plaintiff was obliged to produce a copy of its own agreement with its Italian supplier in respect of the said goods to the Defendant before the Defendant was to be under any obligation to open any L/C in accordance with the requirements of the written contract. For ease of reference I shall refer to this issue as the "collateral agreement" issue, by which I intend to embrace all the various formulations of the issue as found in the defence. 7. I think that clearly the evidential burden of satisfying the Court that there was such a collateral agreement lies on the Defendant. Prima facie there is a concluded contract in writing between the parties which incorporates no such term. One would expect all of the contractual terms to be spelled out in the written contract, particularly in a case where as here the typed document was amended at the time of signature to reflect the actual agreement between the parties as to the date for opening the L/C. Thus it is necessary to consider carefully the evidence adduced, both documentary and by way of oral testimony to resolve the issue. 8. The Plaintiff called 2 witnesses, the first being Mr. Michael Nan, the manager of its trading department and the second being a Miss Hon Ying Chu. Mr. Plan was taken through the Plaintiff's bundle of documents, Bundle A, in his evidence in chief. He told the Court that by 30th September 1986, he had confirmation from the Italian suppliers De Paoli for the Plaintiff's order for 4;000 M/T of electric tin plate at a price of U S$400 per M/T c. i, f. Whampoa, shipment to be made by 20th November 1986 latest. See documents A2 and A3. Pursuant to this exchange of telexes, a contract was sent to the Plaintiff from Italy by registered mail on the same day and the terms of the contract were also dispatched to the Plaintiff by telex. See document A5. Upon receipt of the contract from italy, Mr. Nan said he signed and returned it with minor amendments. See Exhibit P1. Initally the Plaintiff had a sub-buyer by the name of Sun Yat Chak. However, this company apparently encountered financial difficulties and failed to open any L/C as agreed with he Plaintiff. Accordingly, the Plaintiff contacted the Defendant and on 10th October 1986 entered into the contract the document A10 the subject matter of this dispute. Mr. Nan gave evidence as to the circumstances of signing the contract at the Defendant's office on 10th October and said that it was he who suggested amending the 7 days period to 10 days to give the Defendant more time. He explained the purpose of the "Penalty" clause as being intended to compensate the seller if the buyer should fail to open the L/C within the required period. He said the expression "Penalty" came from the Chinese and its true meaning was as an indemnity. 9. By the terms of the contract, the Defendant's L/C in the Plaintiff's favour was due within 10 days, that is by 20th October 1986. This in fact was the initial deadline imposed by the Italian suppliers. See Document A13. However, Mr. Nan was confident there would be some days grace. He said that at the beginning he did not enquire of the Defendant about the L/C but did so a few days later that is on about 14th October 1986. The response he received from Mr. SC Chang was that it was in process. When the L/C had not been provided within the 10 days permitted, he telephoned Mr. Chang and went to his office to discuss the matter. Mr. Chang's response was to request a few more days, although he did not explain why he needed more time. Mr. Nan agreed to extend the time initially for 3 days, then for 7 more days to 30th October 1986. At some stage, Mr. Chang apparently told him that the application to open the L/C had been lodged by the Defendant with its bank the China & SouthSeas Bank and was being processed. However by the deadline of 30th October 1986, no L/C had yet been opened in favour of the Plaintiff. Mr. Nan said that Mr. Chang telephoned him again and asked for another 7 days. This request is reflected in the exchange of telexes at page A17 and A18 of the Plaintiff's Bundle. The Plaintiff apparently agreed to this final grace period of a further 7 days to 7th November 1986. However, no L/C was opened within in this extended period. Somewhat later in November 1986, Mr. Nan said Mr. Chang offered to open an L/C for 1,000 m/t which he agreed to by the telex of 27th November 1986 at page A20. However even this L/C for only 1,000 m/t was never opened by the Defendant. The plaintiff received no reply to its telexes of 27 the November 1986 and 1st December 1986 and according to Mr. Nan was never given any explanation of why the Defendant had failed to open the requisite, L/C. The matter was put into the hands of the Plaintiff's solicitors who wrote the letter of 12th December 1986 at page A22 but received no reply. The Plaintiff was advised by De Paoli, its Italian suppliers, it had lost the contract because of its failure to open an L/C in their favour. Mr. Nan said that without the Defendant's L/C, they were not able to open their own L/C in favour of De Paoli and consequently had lost their profit on the transaction. 10. Mr. Nan was cross-examined, by the Defendant in person. It was put to him that he had only met Mr SC Chang the Defendant company's manager for the first time on the day the contract was signed namely 10th October. He said he thought he had met Mr. Chang 2 or 3 times prior to this occasion. It was put to him that before the contract was signed, Mr. Chang had asked him for "some information", in particular for the contract he had signed with his Italian supplier and other documents. Mr. Man had no recollection of such a request being made and was of the view that Mr. Chang would not have made such a request since it was a business secret anyway. He was later asked about this again and the evidence I have recorded is as follows:-
Exhibit D1 was a partly illegible document which Mr. Chang later produced in evidence and said he had obtained it not from Mr. Nan but from some unidentified employee of the Plaintiff. Later Mr. Nan was asked again in these terms: -
11. In summary therefore Mr. Nan firmly denied any suggestion that there was any sort of arrangement or agreement or even request for the supply to the Defendant of its contract with its Italian supplier either prior to the entering into of the contract on 10th October or indeed subsequently during the period within which the Defendant was obliged by the terms of the contract to open the L/C in favour of the Plaintiff. Mr. Nan however admitted that the document D1 which was put to him in cross-examination would have emanated from the Plaintiff's company but he himself had not supplied this document and did not know how the circumstances in which it had come into the Defendant's hands . 12. The second and final witness called by the Plaintiff was a Miss Hon Ying Chu. At the time in question, she was a nurse and was not formally employed by either party. She described her role as that of a middle-woman. Effectively she was a kind of broker hoping to get a commission if the transaction between Plaintiff and Defendant was successfully concluded. She was a personal friend of Mr. Wan having known him for some years. She learned that Hao Fu was dealing in electric tin plates and wanting to buy such goods on a long term basis and in large quantities. As she was aware that Mr. Nan's company, the Plaintiff was able to obtain such goods, she mentioned the Defendant's interest to Mr. Nan She also obtained from the Defendant the document Ex . 3 dated 17th September 1986 stating that company's interest in acquiring electric tin plate of European origin. Further she got Me. Chang to agree to pay her a commission of U S$1 per m/t if the transaction went through. As a result of the negotiations which followed, in due course the contract at page A10 was prepared. Miss Hon was present when it was signed in the Defendant's office on 10th October. She said Mr. Chang said he could open the L/C within 7 days but Miss Hon told me Mr. Nan said he would rather give him more time, hence the period was amended to 10 days. 13. She was asked specifically if anything was done before the contract was signed and she said yes She said Mr. Chang was asked where would he open the L/C, and his response was that it would be opened in Hong Kong . She was further asked:
14. She said that some four days after the contract was signed, Mr. Nan enquired of her when the L/C would be opened and through which bank. She telephoned Mr. Chang who told her the opening bank would be the China & Southseas Bank which was backed by the Chinese Government. Apparently Mr. Chang also said "he had to look into the trade information of the Plaintiff". She said she made further enquiries of the Defendant's bank and was "dumbfounded" to hear that they knew nothing about the Defendant asking them to open an L/C. After the 10 day for opening the L/C expired, she said she told Mr. Nan to approach Mr. Chang direct and not to put pressure on her since he was not paying her anything. However she said she was never given any explanation by Mr. Chang as to why the L/C wasn't opened within those 10 days: 15. In cross-examination, she was asked this question:
16. In summary, therefore, Miss Hon said there was no request by Mr. Chang for information with regard to the Plaintiff's Italian supplier either at the time of the signing of the contract or at any other time so far as she was aware. In any event, she was not proferred any explanation as to why the L/C was not opened. 17. The only witness called for the Defendant was Mr. SC Chang its manager. He said that in 1986, the Defendant had received purchase orders for some 20,000 M/T of tin plates from China. They were only able to obtain 6,000 M T, that demand for such goods was strong and the price had gone up. Some of their suppliers had delivered goods of defective quality and some had failed to deliver at all. He said that Miss Hon had been coming to the Defendant's office very often since May 1986 looking for business. She had mentioned in August or September having a friend who had electric tin plates and she mentioned it was the Plaintiff company. She explained that her relationship with the Plaintiff was that of a jobber or runner. Mr. Chang said he asked Miss Hon what kind of goods were available and if there was a contract. He said Miss Hon said yes and he asked for a copy. She called him 2 days later to say that goods were available but that the request for a photocopy of the contract was refused, because the sellers were afraid that if the Defendant knew who the suppliers were they would contact them direct. 18. After negotations between Mr. Nan and Mr. Chang at which Miss Hon was said to have been present, Mr. Chang said Mr. Nan promised to show him the contract with the Italian supplier after a contract had been concluded between the Defendant and the Plaintiff. Mr. Chang said this was agreeable to him and so they agreed to enter into a contract on condition the Plaintiff supplied all the necessary, information. Mr. Chang asserted that Mr. Nan agreed to this requirement. Accordingly the contract was prepared for signature and Mr. Chang found the terms acceptable but he said Mr. Nan insisted on supplying the information about the Italian supplier only after the contract had been signed. Mr. Chang also said that he needed the information because his bank would have to check trade information about both the Plaintiff and its Italian supplier. When asked by the court whether he had any communications from the Defendant's bank spelling out these requirements, he said it was a general or common practice but that he was not a banker. 19. On a number of occasions during his testimony, this witness referred to statements or communications from the Defendant's bank either to the witness or said to have been made to the Plaintiff or its bankers. As none of these statements or communications were in writing, I pointed out on more than one occasion during the course of the Defendant's case that out of court statements made by 3rd parties were not evidence in these proceedings and that it was necessary for evidence to be called from the bank itself or for the relevant bank documents to be produced. I told the Defendant that the court clerk would assist her in dealing with any procedural requirements for getting witnesses to court to testify. In the event, Mr. Chang was the only witness called by the Defendant and no interbank communications of any sort were produced spelling out what if any revere the Defendant banker's requirements with regard to the information or documentation needed for the purpose of opening the L/C in question. 20. I should mention here that a number of bank statements were subsequently put in evidence by the Defendant showing the operation of the Defendant company's bank account with the Nathan Road Branch of the China & Southseas Bank in 1986 as well as its account with the Mongkok branch of the Hang Seng Branch for the same period. These statements were part of Bundle C which was admitted in evidence by agreement without formal proof. However, they cast no light on the collateral agreement issue. The Defendant also sought at the conclusion of her case to put in evidence a further bundle of copy documents relating to purchase of tin plate from other sources. These documents were all in Chinese and their introduction was opposed by counsel for the Plaintiff on the grounds that they were irrelevant to the issues before the court. As the Defendant confirmed that none of these documents dealt with the collateral agreement issue, I ruled them to be inadmissable for the reasons recorded in my notes. To revert to the evidence of Mr. SC Chang, he said that after the contract had been signed, Mr. Nan came to his office some 4 days later to enquire about whether the L/C had been opened. Mr. Chang said his bank had written and was awaiting a reply. Mr. Chang was asked why he had written the telex of 30th October document A18 asking for a grace period of 7 days and he said it was because the Defendant's bank had refused to open the L/C because they had received no reply or information. He concluded his examination in chief by asserting that the Defendant had the ability to open an L/C, but that the Plaintiff was unable to fulfill the requirement of the Defendant's bank. 21. In cross-examination Mr. Chang said that although the Defendant company had only been set up in February 1986 under the name of Hao Fu International Company, nevertheless, he had been in business for 40 years land that business had been done with a number of banks and that because of the Defendant's relationship with its buyers in China that ample funds were available to enable the Defendant to open the L/C in question. He asserted that it was the Plaintiff's failure to provide the required information that was the cause of the Defendant not opening the L/C. He was then asked about the documents. In response to the question of why he didn't have any clause inserted in the contract that the Plaintiff must provide information before the Defendant opened the L/C, his reply was "Being an honest man, it didn't come to my mind to put it as a clause in the contract" and that he did not realize at that time that the Plaintiff Mr. Nan was a hypocrite. 22. In relation to Miss Hon, he agreed he offered to pay her a commission of US$ 1 per M/T if the transaction went through and said this was with Mr. Nan's knowledge and agreement. Accordingly, he accepted that Miss Hon had a financial interest to ensure the transaction went through and indeed he said that Miss Hon was telephoning every day chasing him for the L/C. He on his part asserted that after the contract was signed on 10th October 1986, he telephoned Mr. Nan "several times a day" to ask for the contract with the Italian suppliers. He later said however that despite this volume of telephone calls, he was only able to reach Mr. Man a maximum of twice on the telephone. He also said that at a meeting on 14th October at his office with Mr. Nan and Miss Hon, he insisted on having the contract signed by the Plaintiff with the Italian suppliers otherwise he would not open the L/C. 23. The whole tenor of Mr. Chang's evidence therefore was that he was anxious to have the Plaintiff's contract with its Italian supplier because, so he said, the Defendant's bank couldn't or wouldn't, it wasn't clear which, open the L/C in favour of the Plaintiffs; that it was entirely the Plaintiff's fault for not supplying this document that caused the transaction to fall through, resulting incidentally so the Defendant said in the Defendant company incurring a loss of profits of about HK$ 900,000. 24. If Mr. Chang's explanation is true, the sole reason why this transaction fell through was the Plaintiff's wilful failure to provide sufficient information as to its supplier, the result of the transaction failing being that the Plaintiff itself lost its profit of US$ 100,000 on the resale to the Defendant and the Defendant in turn lost its own profit on resale as I have indicated. 25. If that was in fact the position then I find it incomprehensible that nowhere in any of the contemporaneous communications passing between the parties is it ever anywhere suggested that the Plaintiff was the party at fault in this regard. 26. The extended deadline for opening the L/C expired on 30th October 1986 and the Plaintiff sent the telex at A17 reminding the Defendant of this and saying we have to have the L/C today. "Please urgently advise by telex." The reply at page A18 was in the following terms. p. A18 from the Defendant to the Plaintiff reads:
27. That reply contains no suggestion whatever that in fact the reason for the failure to open the L/C was entirely the fault of the Plaintiff in riot supplying the required information. Mr. Chang was asked in cross-examination:
28. Mr. Chang went on to say "In fact I was very much in need of the tin plates, I didn't want to lose the contracts." If all that was needed for the Defendant to be able to open the L/C was information regarding the Plaintiff's Italian supplier, and the contract with that supplier, which it has been suggested was agreed to be supplied, then it is startling that the Defendant never at any time thought fit to place this fact on record in response to the telexes from the Plaintiff. 29. Indeed there was no reply to the next two telexes from the Plaintiff of 27th November 1986 at A20 and 1st December 1986 at A21, nor to the letter from the Plaintiff's solicitors of 12th December 1986 at A22. When asked about why there was no reply and that the Defendant could easily have responded by telex, Mr. Chang's answer was "I see no sincerity in him. Why should I bother to waste my precious time? I could use my time to do other business." 30. As is apparent from the evidence of the 3 witnesses whose testimony I have summarised above, there is a complete conflict between the account given by Mr. Nan and Miss Hon for the Plaintiff on the one hand and that of Mr. Chang on the other. I have to choose between their evidence as it cannot be reconciled. 31. I have come to a firm view on the evidence as a whole that the testimony of the Plaintiff's witnesses is very much more reliable and is to be preferred to that of Mr. Chang for the Defendant. I was unimpressed by Mr. Chang's evidence. I had the impression he was doing his best to talk the Defendant company out of its responsiblity for the situation in which it found itself of not being able to open the L/C in accordance with its contractual obligations What the real reason was for its inability or unwillingness to open the L/C, I am not able to judge.I am, however, satisfied and find as a fact that there was no collateral agreement, representation or warranty that the Plaintiff must first make available to the Defendant its contract with its Italian supplier as a condition precedent to the Defendant's obligation to open the L/C under the contract of 10th October 1989. 32. Where there is a documentary credit clause in a contract of sale, the buyer is under an obligation to open the Letter of Credit in favour of the seller in accordance with the terms of the contract. In the absence of express contractual provisions, the buyer is under an absolute duty to furnish the L/C within the time allowed and is not excused by factors beyond its control. See Lindsay (E.A.f & Co. Ltd. v. Cook 1953 1 Lloyds Rep. 328 at page 335. 33. In this case, the Defendant buyer failed to procure the opening of the requisite L/C and I find as a fact that as a result the Plaintiff was itself unable to open its own L/C in favour of the Italian supplier De Paoli. The Defendant knew from the terms of its contract with the Plaintiff that the goods were to be supplied from Italy and that the required L/C was to be negotiable in Italy. In my view, it must have been reasonably in the contemplation of the Defendant that if it failed to open the requisite L/C that the Plaintiff in turn might be unable to open its own L/C in favour of De Paoli and thus would lose its profit on resale of the goods to the Defendant. Such loss of profit is not too remote to be recoverable. See Trans-Trust S. P, R. L. v. Danubian Trading Co. Ltd. 1952 2QB 297. The Plaintiff accordingly claims its loss of profit in the amount of US$100,000 being US$ 25 x 4,000 M/T = US$ 100,000. The sums claimed in paragaph 4(b), (c) and (d) of the Statement of Claim were abandoned. 34. However the matter does not end there because of the provisions of Clause 14 of the contract. I have set out the Clause above. Although it is described as a "penalty", in my view, it is clearly not in law a penalty. The label "penalty" is not conclusive. See Dunlop Pneumatic Tyre Co. Ltd v. New Garage & Motor Co. Ltd. 1915 AC 79 at p.86. The 3% sum payable under the clause if the buyer should fail to open the L/C within the stipulated period does not 'strike one as being in any way unconscionable or extravagant by comparsion with the probable loss of profits that may be and in fact was incurred by the seller in consequence of a failure to furnish the L/C. Accordingly, I construe and find Clause 14 to be a liquidated damages clause. The question that then arises is as to whether the Plaintiff is limited by Clause 14 to claiming only 3% of the total value of the goods i. e. US$ 51,000 or is entitled to elect to ignore the contractual provision and sue for unliquidated damages in the sum of US$ 100,000 as its actual loss of profits. 35. The question is dealt with in Mcgregor on damages 15th Ed. at para 445 in the following way: -
Then after referring to various cases the text continues:
It seems to me that the suggestion in the cases of Wallace Turner v. Cole and Talley v. Walsey-Neech that there was a right to elect between liquidated and unliquidated damages turns upon the fact that the liquidated damages clauses in those cases only came into operation if there was a resale and that since the seller could decide whether or not to resale, he could effectively make the liquidated damages provision inapplicable if he chose not to resale In the present case, Clause 14 seems to me to govern the situation fairly and squarely and that it is therefore not open to the Plaintiff to elect to ignore the liquidated damages provision and sue for unliquidated damages in a greater amount. 36. Accordingly, I give judgment for the Plaintiff in the sum of US$ 51,000 together with costs.
Representation: Mr. Albert Tsang instructed by M/s Y.C. Lee Pang for the Plaintiff. Defendant in person. |