Macchetti Ltd v. Lai Sun Garment Co Ltd

HCA000806/1969

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 806 OF 1969

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Coram: Mr. Commissioner, M. Morley-John

Date of Judgment: 20th January, 1971.

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JUDGMENT

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1. The plaintiffs' claim is for damages for breach of two contracts by the defendants.

2. The original statement of claim was dated the 19th July 1969, this statement of claim was amended after the commencement of the trial and the amended statement of claim was filed on 21st July 1970, and this was re-amended towards the end of the plaintiffs' case and the re-amended statement of claim was filed on 30th July, 1970. The statement of defence and counter-claim was likewise amended and re-amended, and the reply and defence to the counter-claim was amended once. In this judgment where I refer to the pleadings I do so as they appear in their final form.

3. By the first contract dated the 6th June 1968 the defendants purported on that day to purchase from the plaintiffs 1,250 dozen shirts, and by the second contract dated the 14th June 1968 they purported on that day to purchase 750 dozen shirts. However from the wording of the two contracts it is clear that on the respective dates the shirts were not in existence, and throughout the case the parties appear to have treated the two contracts as contracts on behalf of the defendants to purchase shirts from the plaintiffs, such shirts to be manufactured and delivered to the defendants F.O.B. at a future date, it was also a specific condition of each contract that time was to be the essence of each contract and that the shirts the subject of each contract were to be delivered to the defendants at the latest by the 30th June 1968. The plaintiffs also guaranteed to accept full and complete responsibility for any claim from the defendants if the fabric used in the manufacture of the shirts did not agree in the quality as specified in the two contracts. Evidence was adduced, and not disputed, that on the 30th June 1968 the plaintiffs delivered F.O.B. 1,188 dozen shirts, and on the 4th July they also delivered 708 dozen shirts F.O.B. The defendants rejected the shirts and their grounds for the rejection of the shirts, the subject of the first contract were that of short shipment, in that the plaintiffs delivered a quantity of shirts less than they contracted to sell, and also that the shirts were not shipped in the name of the defendants as had been previously agreed upon. The defendants rejected the shirts the subject of the second contract on the same grounds as they rejected those, the subject of the first contract with the additional ground that they were shipped late. The defendants' claim that it is the plaintiffs who therefore are in breach of the contracts, as a result of which, they, the defendants, have suffered loss and damages and have counterclaimed against the plaintiffs.

4. The plaintiffs on the other hand contend that it was orally agreed between themselves and the defendants that the plaintiffs should only deliver to the defendants 1,188 dozen, and 708 dozen shirts, and relying on this alleged oral agreement the plaintiffs plead rescission and novation of the contracts, or in the alternative waiver. They further say that late shipment was caused by the failure on the part of the defendants to specify a ship to which they were required to deliver the shirts the subject of the second contract, as amended, as they pleaded that it was orally agreed between the plaintiffs and the defendants that the shirts should be shipped on a ship to be named by the defendants. However during the trial it was submitted on behalf of the plaintiffs that as a proposition of law, under a F.O.B. clause in a contract, unless the ship or line upon which goods are to be delivered is specified in the contract it is the duty of the buyer to inform the seller of the name of the ship upon which the goods are to be delivered. A proposition of law with which I agree.

5. To my mind the first and most important question to be decided is whether or not the defendants agreed to short shipment as alleged. Dr. G.G. Macchetti the Managing Director of the plaintiff company gave evidence inter alia that after the two contracts had been signed he discovered that there was insufficient material to manufacture the number of shirts as specified in each contract. He stated that he informed the defendants of this fact but that the defendants' attitude was "You make the shirts and make them well and ship them on time" and that the impression that he always had was that if the plaintiffs shipped less than the contracted amount within reason the defendants would not object. He stated that among others he informed Mr. LAM Kiu-ming a director of the defendant company, on more than one occasion, and on one occasion at a meeting at which the surveyor Mr. D.C. Brockbank was present. In answer to questions put in cross-examination Dr. Macchetti stated that the defendants' attitude with regard to the number of shirts to be supplied was "Make good shirts and ship them in time, if there is some tolerable difference within reason that will be alright."

6. Mr. MAN Shiu-tam who was the sales supervisor of the plaintiff company at the relevant time stated that he also mentioned to the defendants that the number of shirts that his company would produce would be somewhat less than the contracted number, and that the defendants said that the number wasn't important so long as the shirts were properly made and delivered on time. He further stated that the defendants told him that as long as the shirts were properly made and delivered in time "If it was a little bit less it doesn't matter." Mr. Man said that he couldn't remember the details of the conversation and he couldn't say what was meant by a little bit less.

7. Although as I have said Dr. Macchetti stated that the surveyor Mr. Brockbank was present when he Dr. Macchetti informed the defendants at a meeting of the shortage of material. I note that nowhere in his evidence did Mr. Brockbank corroborate this fact.

8. Mr. LAM Kiu-ming, a director of the defendant company was quite adamant in his evidence that he had never agreed to short shipment, and that no one from the defendant company had ever in his presence, stated anything to the effect that if the shirts were properly made and delivered on time it would not matter if less than the contracted number of shirts were shipped, or that if there was some tolerable difference it would be alright. He stated that the defendants couldn't agree to less than 3% of the contracted number of shirts being shipped without reference to the company to whom they were selling the shirts, and that no reference had been made to that company. Mr. Lam stated that at no time after the signing of the two contracts did the plaintiff inform him that there was a shortage of material, he stated that in fact the defendants were not aware of the short shipment until they received Mr. Brockbank's survey report on 4th July, and as a result of this knowledge they rejected delivery of the shirts.

9. Documentary evidence, from the agreed bundle of documents produced, also showed quite clearly, that although records of various meetings and conversations were kept in detail and exchanged between the parties nowhere was it recorded that there was any agreement on the part of the defendants to accept short shipment, in fact short shipment was not mentioned in the correspondence between the parties until a date after the defendants had received the surveyor's report, and this again goes to show that the defendants were not aware of any short shipment until they had received the surveyor's report. Further as late as 13th July 1968 in a letter from the plaintiffs' solicitors to the defendants' solicitors in which the former stated that the defendants were not entitled to rescind either of the contracts, still no mention was made of any agreement between the parties that the defendants would accept short shipment. The documents also supported Mr. Lam's evidence that the defendants had never sought the approval of their buyers for short shipment, and they also showed that the plaintiffs had booked shipping space for the full contracted number of shirts.

10. Evidence was adduced regarding commercial tolerance and from that evidence, in particular the evidence of Mr. J.M. Pomerantz, with which I was most impressed, I am satisfied that with regard to the two contracts in question the maximum degree of commercial tolerance allowed would be 3% more or less of the amount of goods contracted to be sold, and I am satisfied from the evidence adduced that short shipment under each contract was in excess of that tolerance.

11. Further in support of the defendants' allegation that they never agreed to short shipment, are two other important matters. Firstly if short shipment had been agreed, especially as alleged in paragraph 4 of the statement of claim a specific amount 1,188 dozen under the first contract and 708 dozen under the second contract, and these amounts were in excess of normal tolerance, in the light of the provision of the Statute of Frauds, it seems strange to me that no attempt was made to amend the contracts.

12. Secondly there is the matter of the two letters of credit, opened in relation to the two contracts, one letter of credit specifies the amount of goods to be delivered as 1,250 dozen shirts, and the other letter of credit specified 750 dozen shirts, and evidence was adduced, which I believe, that payment would not have been made against these letters of credit by the bank concerned, because the amount of goods shipped in each case was less than the contracted amount in excess of 3% tolerance also allowed by banking practice, This being so, if there had been an oral agreement for short shipment of only 1,188 dozen and 708 dozen as pleaded in the statement of claim, or an agreement to short shipment in excess of 3% then as Mr. Liu for the defendants has pointed out surely the two letters of credit would have been amended to enable the plaintiffs to obtain payment for the goods. This was not done neither was any evidence adduced to show that the plaintiffs had ever asked for this to be done, and the defendants say that this is further support for their contention that no such agreement for short shipment as alleged by the plaintiffs ever existed.

13. On the balance of probability I am satisfied that there was no agreement on behalf of the defendants to accept short shipment as alleged by the plaintiffs, I am satisfied further that the plaintiffs did in fact short ship, and that such short shipment was in excess of normal commercial tolerance. This being so I am satisfied that there was no waiver of the terms of the original contracts, and it is clear even from the evidence of the plaintiffs' witnesses that there was no rescission and novation of the contracts.

14. Section 32 of the Sale of Goods Ordinance provides that where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them. As I have said I am satisfied that short shipment was effected by the plaintiffs, the sellers, and I am satisfied that the defendants the buyers were entitled to reject the goods so short shipped as they did, and under the circumstances the plaintiffs case must fail on this ground.

15. Various other issues were raised during the trial of this action, but in the light of what I have already said, I am satisfied that it is unnecessary for me to consider them further.

16. I therefore give judgment for the defendants with costs.

17. As to the defendants' counterclaim as can be seen from the record very little evidence was adduced in support of the counterclaim, and no mention was made of any loss suffered by the defendant company by Mr. LAM Kiu-ming when he gave evidence before me.

18. Under the circumstances I am not satisfied that the defendants suffered the loss pleaded, and their counterclaim is dismissed accordingly.

Representation: