Microsport Gmbh & Co Kg v. Pactland Ltd

DCCJ 2854/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2854 OF 2004

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BETWEEN

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Coram:  Deputy District Judge K.W. Wong in Court

Dates of Hearing:  19^th & 20^th December 2005

Date of Handing Down Judgment: 10^th January 2006

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JUDGMENT

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1.By the present action, the Plaintiff claims against the Defendant for two sums of money, namely,

i)    € 28,026.41, being outstanding purchase price for goods sold and delivered to the Defendant; and

ii)   US$ 21,335.05, being the additional production costs incurred for meeting the additional requirements in respect of the said goods.

Factual Background

2.The Plaintiff is a designer and supplier incorporated in Germany and supplies, inter alia, a product known as “In-line Speedometer”, which is a watch-like equipment for wearing on wrist and used for measuring the mileages that a person has skated. The Defendant is a Hong Kong trading company buying and selling products to various countries, including Germany.

3.On or about 23^rd September 2002, the Plaintiff, acting by its director Mr. Johann Daniel Groos (Mr. Groos”), and the Defendant, acting by its director Mr. Jens Ruff (Mr. Ruff”) concluded an agreement whereby the Plaintiff agreed to sell and the Defendant to buy for on-sale to its customers in Germany a total of 24,832 pieces of In-line Speedometer (“the Goods”) at a unit price of € 19.8, i.e. a total price of €491,673.6.

4.This agreement was evidenced by an e-mail dated 19^th September 2002 from Mr. Groos to Mr. Ruff and two purchase orders both dated 23^rd September 2002 sent to the Plaintiff by the Defendant by electronic means. The express terms of the agreement include, for the purpose of the present proceedings, the followings:

i)    payment by transferred letter of credit;

ii)   Incoterms: FOB

iii)  4 kinds of documents were required: invoice, packing list, Form A and bill of lading; and

iv)  the Plaintiff has to provide the Defendant with four samples before the Goods are put into production.

The above are in fact admitted by the Defendant in pleadings.

5.There is no reference to any requirement that the bracelets for the speedometers be azo-dye free (“ADF”). It is said that fabrics with azo-dye may induce cancer when coming into contact with skin and therefore all products to be imported into Germany should be manufactured with ADF materials. It is noted that the form of purchase order prepared by the Defendant provides a number of other documents, including Azo-Dye Free Certificate in the box under the head “Documents required”. Only the four documents as set out in the preceding paragraph were required as each of them was marked with a cross. The space in each of the purchase orders for marking the ADF Certificate was not so marked.

6.The Goods were manufactured in China by PDI Industrial Ltd (“PDI”) at the Plaintiff’s order. It is not in dispute that prior to production, the Defendant had approved the samples provided by the Plaintiff. These approved samples were not fit with ADF bracelets.

7.It was later apparent that the bracelets for the speedometers required ADF material. Evidence, either in the form of a certificate or confirmation from manufacturer together with a chain of guarantees from the manufacturer to the Plaintiff, then Plaintiff to the Defendant and then down to the end-customer of the Defendant was required. The Plaintiff had by then assembled most of the speedometers and had to remove the non-ADF bracelets and replaced them with ADF ones.

8.Although the Defendant contracted with the Plaintiff in Euro, it resold the Goods to its customer in US Dollars. Money was paid to the Defendant by a letter of credits. A part of the money thereunder was transferred to the Plaintiff by a transferred letter of credits for settlement of the purchase price of the Goods. The currency of the transferred letter of credits could not be changed and had to be in US Dollar. When the letter of credits was transferred in early November 2002, the amount transferred in US Dollar was agreed at the rate of USD 19.45 to € 19.8. It is not in dispute that payment would only be effected after the Goods were shipped. The actual drawdown date under the transferred credits was 5^th February 2003. From end of 2002 to 2003, it was also not in dispute that the US Dollar fell against the Euro. It was apparent that the Defendant had suffered loss in the exchange, which not only eroded into its profit in the transaction but probably caused serious loss to the Defendant. The Defendant’s case is that there was an oral supplementary agreement between the parties whereby the Plaintiff agreed to share the exchange loss equally. According to the Defendant, the Plaintiff had agreed not to exchange half of the money received because it needed US Dollars for payment to suppliers. It only changed the other half into Euros. The Defendant was therefore only liable under the alleged supplementary agreement for exchange loss of half of the money so exchanged, i.e. the exchange loss of one quarter of the total purchase price. Taking into consideration of a further sum of US$18,000 paid to the Plaintiff, it had already paid more than enough of its share to the Plaintiff under this supplementary agreement.

9.The Plaintiff said that even upon receipt of the transferred letter of credits, which was in UD Dollar, the Plaintiff still maintained its position of receiving €19.8 per piece and the Defendant had to top up any shortfall as a result of any depreciation of the US Dollar. There was no supplementary agreement as alleged. With a view to help the Defendant, the Plaintiff said that it accepted in principle in or about February 2003 to shoulder 50% of the actual loss suffered by the Defendant in the particular transaction. This is the Plaintiff’s version of the supplementary agreement. This is in contradistinction to the Defendant’s case of 50% actual foreign exchange loss. In the subsequent exchange of e-mails between Mr. Groos and Mr. Ruff with a view for settlement, the Plaintiff did openly offer to receive a sum of € 21,735.83 for settlement but such amount was rejected. Since there was no disclosure by the Defendant of its calculation details and the parties had not been able to agree on the loss, the Plaintiff considered that it was not under any legal obligation to receive any sum less than the contractual price of € 19.8 per piece. The US Dollars received by the Plaintiff under the letter of credits amounted to € 448,201.51 as at 5^th February 2003, leaving a shortfall of € 43,472.09 (€ 491,673.6 - €448,201.51).

10.The Plaintiff had sought the assistance of the Chambers of Commerce of Germany in Hong Kong. The Defendant later transferred a sum of USD18,000.00 to the Plaintiff, saying that this amount was more than enough to pay off the Defendant’s share under the alleged supplementary agreement. The Plaintiff disagreed. After deducting bank charges, the Plaintiff actually received USD17, 957.87 which was equivalent to € 15,445.68. The outstanding sum was therefore €28,026.41 (€ 43,472.09 - € 15,445.68).

11.The Plaintiff claimed that it had produced the Goods in conformity with the samples supplied. ADF bracelet was an additional requirement which the Defendant had to pay for. The Defendant said that it had already made known to the Plaintiff the Goods was for export to Germany and it was an implied term of contract that the Goods have to comply with the German law. No extra charge would be payable.

12.Almost at the end of the trial, the Defendant raised a further ground of defence to the claim for ADF bracelets charges. Mr. Ruff argued that according to the terms of the transferred letter of credits, one of the documents required to be presented to the bank for payment was a certificate stating the Goods should be in compliance with the laws and regulations of Germany. Since this is a term transferred through the letter of credits which has been accepted by the Plaintiff, they formed part of the contract between the parties. The Plaintiff was therefore obliged to comply with this contractual requirement with no additional charges.

The Pleadings

13.The Defendant had all along been represented until May 2005. In respect of the Plaintiff’s first claim, it was pleaded by the Defendant in its defence filed in August 2004 that the supplementary agreement to share exchange loss was reached in a telephone conversation prior to the transfer of the letter of credits on or about 2^nd November 2002. As regards the Plaintiff’s second claim, the Defendant only pleaded an implied term based on the ground that the Plaintiff, being a manufacturer principally exporting goods to Germany, should have been aware of the German law. No express term by virtue of the transfer letter of credits has ever been raised in pleadings.

14.In respect of the first claim, the Plaintiff pleaded that there was no supplementary agreement in the form as alleged by the Defendant. The Plaintiff further said that the agreement in principle to shoulder the loss of the Defendant in equal share was reached after the conclusion of the sale contract. The Plaintiff raised three alternatives grounds in support of its contention that:

i)    such agreement was not enforceable as an essential term of the agreement, namely, the actual loss was never agreed (paragraph 11 of the Amended Reply);

ii)   even if it was enforceable, the Defendant could not prove its loss because the actual loss of the Defendant had never been disclosed (paragraph 12-13 of the Amended Reply); and

iii)  there was no consideration for such agreement (paragraph 14 of the Amended Reply).

15.In respect of the second claim, the Plaintiff denied having knowledge of ADF goods being standard requirement in Germany (paragraph 15 of the Amended reply). Such ADF could not have been an implied term of the agreement as such requirement was inconsistent with the express terms and/or was expressly excluded (paragraphs 16 to 18 of the Amended Reply). The Plaintiff’s case is that the sale was a sale by samples and non-ADF samples were approved. The Plaintiff pleaded that there were implied terms pursuant to S.17 (2)(a) of the Sale of Goods Ordinance that the Goods would correspond with samples and subsequent variation resulting in a substantial increase in production costs would be for the account of the Defendant or alternatively, the Plaintiff was entitled to payment on a quantum meruit basis (paragraphs 8,9 and 21 to 23 of the Amended Statement of Claim).

The Issues

16.The following are the issues to be determined in the present case:

i)    Is the supplementary agreement in terms alleged by the Defendant or the Plaintiff?

ii)   Is the supplementary agreement enforceable?

iii)  Is the Plaintiff entitled to the costs of replacing the non-ADF bracelets with ADF bracelets?

Evidence

17.Each party called one witness to testify at trial – Mr. Groos for the Plaintiff and Mr. Ruff for the Defendant. They both confirmed and relied on their respective witness statements exchanged prior to trial. They also agreed to admit as evidence all documents (including the English translations of all documents written in German) contained in the trial bundle. These documents are mainly bank documents and copy emails exchanged between the parties on the subject transactions

Terms of the Supplementary Agreement

18.In the witness statement and his evidence given at trial, Mr. Ruff testified to the effect that the supplementary agreement to shoulder the exchange loss was reached some time in November and December 2002 after the transfer of the letter of credits. It was Mr. Ruff’s evidence that the agreement was to share any loss as well as any gain in the foreign exchange. However, this was obviously in contradiction with the Defendant’s pleaded case which said the agreement was reached before 2^nd November 2002, the date when the letter of credits was transferred (paragraphs 6 & 7 of the defence). Furthermore, such evidence was also in conflict with two emails exchanged between Mr. Groos and Mr. Ruff on 3^rd and 4^th November 2002 (pages 201 and 203 of the trial bundle). In the first email, Mr. Groos asserted that he should have “24,832 x 19.8 EUR” in its account and Mr. Ruff replied in his second email by saying that “ I have never denied that you should get EUR 19.8 in the end or what?” So, at least as at 4^th November 2002, there was no supplementary agreement reached as pleaded by the Defendant. At the trial, Mr. Ruff admitted that this was a mistake in the Defendant’s pleaded case.

19.Mr. Ruff relied on an email dated 17^th January 2003 from him to Mr. Groos in support of his alleged version of supplementary agreement. There are in fact two English translations of the same email (page 74 and 221 of the trial bundle) but I do not think their meanings differ. Mr. Ruff relied on what he said in that email (page 74) as follows:

“We have agreed, that the half wouldn’t be in calculation, because you need US$ and still need”.

20.On the face of this statement, it seemed that the Defendant was recording some sort of agreement reached between the parties. However, such statement was not conclusive as it was also not inconsistent with the Plaintiff’s allegation of helping the Defendant out of the difficult situation. Furthermore, one can find that the said email is even more consistent with the Plaintiff’s version of the supplementary agreement because in it, the Defendant also said he was planning to disclose its selling prices and other expenses like bonus to the Plaintiff. If the agreement were unrelated to sharing of profit, it would not have been necessary to disclose selling price and expenses. In this email, Mr. Ruff said:

“Furthermore, you had indicated the option of giving me extended payment terms. In response to that I said that I might perhaps exchange with you the other half of the US$ into Euro then, since I will receive by mid-February. If not I would be very thankful for your help, my break-even point is at 1.035.

…

I will disclose my selling prices and other expenses like bonus.”

21.This part of the email is obviously inconsistent with the Defendant’s version of the supplementary agreement. It seemed to suggest that the Defendant was going to send the Plaintiff Euro and get the US Dollar back, thus shouldering half of the exchange loss of the entire purchase price, and not only one quarter as alleged.

22.Mr. Groos of the Plaintiff replied by an email on the same date (page 219). In the first paragraph of the email, he said this:

“Did I interpret you correctly that you will give me ‘hard” Euro for half of the speedometers 19.8 per piece in fact on 15 February, for the other half we’ll agree on an exchange rate.”

23.This appeared to be the understanding of the Plaintiff of what the Defendant was proposing for what had agreed or going to be agreed. The Plaintiff then went on to set out the calculation in his email. This understanding as set out in the Plaintiff’s email of 17^th January 2003 was neither the same as that asserted by the Defendant nor by the Plaintiff.

24.The Defendant also relied on another email dated 11^th February 2003 from Mr. Groos to Mr. Ruff in support. In this email Mr. Groos replied that he had not changed half of the money into Euros. The Defendant said that it was consistent with the Defendant’s version of the supplementary agreement. However, in the same email Mr. Groos had also insisted on disclosure by the Defendant of his calculation. The matter dragged on. Suffice to say that in an email dated 19^th May 2003, Mr. Ruff and Mr. Groos were engaged in a heated quarrel over, inter alia, the share of loss that each was to shoulder. In this email, Mr. Ruff had this to say:

“I have NEVER left any doubts that I will pay you compensation yet it was never explicit how much that will be exactly? I pay you money from my own pocket, and in order not to leave you worse off I have additionally made a super suggestion. You now portray it as if I do nothing.” 

25.If, as contended by the Defendant that a supplementary agreement in the Defendant’s version had been made between the parties, either before the transfer of the letter of credits as pleaded, or in November/December 2002 as said by Mr. Ruff at trial, or otherwise, one will wonder why the Defendant did not confront the Plaintiff with such agreement to shut him up when chased by the Plaintiff for payment? It will not be difficult for the Defendant to come up with an exact figure based on the Defendant’s version of the agreement. No calculation based on the Defendant’s alleged version can be found in any of the emails exhibited by the parties.

26.The Defendant remained silent on it alleged supplementary agreement even when threatened with litigation by the Plaintiff’s German lawyers by the end of 2003. The version that he asserted then is different from what he is asserting now. In Mr. Ruff’s reply dated 5^th January, presumably 2004 (page 100) to the Plaintiff’s lawyers, he had this to say:

“I reached an agreement with Mr. Gross [sic] that we should both help one another depending on the development of the exchange rate.

I was always interested to reach a settlement by common accord. Unfortunately, we could not agree on the calculation of the amount of the losses. Mr. Groos had not accepted my proposal which I had presented to him.” (my emphasis)

27.The Defendant’s version of the supplementary agreement was also repugnant to any commercial sense. It would mean, if the Defendant’s version were to be accepted, that the Plaintiff, who had not been foolish or done anything wrong in the transaction, ended up shouldering 75% of the exchange loss and the Defendant, only 25%! Although Mr. Ruff had said that the Plaintiff would naturally be benefited if the US Dollar strengthened, I do not find his explanation convincing for the simple reason that not a single email exhibited mentions anything about the strengthening of the greenback or this possibility. In fact when the exchange rate was mentioned in those emails, almost all were raised in a tenor that the dollar dropped.

28.It is noted that in an email dated 12^th May 2003 (page 231 of the trial bundle) from Mr. Groos to Mr. Ruff, Mr. Groos had set out his purported understanding of the calculation of the Defendant’s share of payment after stating that they had in February agreed to share the loss. The calculation is based on equal sharing of exchange rate loss by reference to the letter of credits date and the purchase order date. The figure arrived at was US$24,998.50. However, this understanding of the agreement was not met with favorable response from the Defendant and I do not think this supports the Defendant’s case. I also do not treat it being inconsistent with the Plaintiff’s case. It only shows that the parties may have agreed in principle to share loss with reference to certain parameters but their minds never meet on how such loss is to be quantified.

29.By reason of the above, I reject the contention of Mr. Ruff and his evidence that there was any supplementary agreement in terms as alleged by the Defendant. His evidence is obviously inconsistent with the contemporaneous emails exchanged between the parties.

30.On the other hand, Mr. Groos’s evidence on the Plaintiff’s version of agreement is more consistent with contemporaneous emails. Apart from those discussed in the preceding paragraphs, in at least two emails respectively dated 20^th May and 13^th October 2003 (pages 240 and 246 of the trial bundle), Mr. Groos expressly stated that it agreed to share the Defendant’s loss 50 to 50 and he would keep his words. Mr. Ruff’s letter to the Plaintiff’s German lawyer aforementioned is good evidence in support of the Plaintiff’s contention. It is an admission that there was an agreement in principle to shoulder the loss. On a balance I accept Mr. Groos’s evidence that the Plaintiff had only agreed in principle to shoulder the loss of the Defendant in the transaction (paragraph 22 of his statement), but the parties had not been able to agree on the quantum.

Is the Supplementary Agreement enforceable?

31.It is the Plaintiff’s contention that the Plaintiff’s version of supplementary agreement is not enforceable because it is an incomplete contract as essential term was never agreed, or if enforceable, the Defendant cannot prove its loss because there is no disclosure on the Defendant’s part of his calculation or there is a lack of consideration.

32.My finding of facts is that the supplementary agreement to share the loss of the Defendant was made some time in February 2003, which is after the conclusion of the sale contract concluded in September 2002. Such loss sharing agreement is a freestanding one and is independent of the sale agreement concluded in September 2002. According to the evidence of both parties, nothing was given in return by the Defendant for the Plaintiff’s promise.  The Plaintiff’s said promise is therefore a gratuitous one to help the Defendant out of a difficult situation. No consideration in return has been given by the Defendant. It is trite law that any promise is not binding as a contract in law unless it is supported by some consideration. I accept the Plaintiff’s contention that this supplementary agreement is not one enforceable in law for lack of consideration.

33.Further, it is obvious from the emails exchanged between the parties that they have never been able to agree on the loss. The amount disclosed by the Defendant obviously is not 50% of its loss because the Defendant’s case is that it was liable to exchange loss of only 25% of the entire purchase price. Even in the Defendant’s letter to the Plaintiff’s German lawyer, it admitted that the parties could not be able to agree on the amount.

34.The learned author of Chitty On Contract (29^th edition) statedin paragraph 2-110:

“Parties may reach agreement on essential matters of principle but leave important points unsettled so that their agreement is incomplete. It has, for example, been held that there was no contract where …[examples cited]”

I accept that this is a correct statement of the law. There is no mechanism or formula in the said supplementary agreement on how the “loss” could be worked out. At the end of the day the parties could not agree on the quantum.

35.From a reading of the emails disclosed as evidence, it is quite apparent that both the Plaintiff and the Defendant do not intend, at least initially, to be bound on the exact amount or the way to deal with the loss until they have sight of the profit or loss of the other side. Both parties would like to reserve their position until more can be seen from the other side. Later when the Plaintiff intended to quantify the shares of loss of the respective parties the Defendant still did not want to commit itself, hoping that its loss could be minimized or it could shift as much as possible its exchange loss onto the Plaintiff. The negotiation eventually broke down. The result is that the so-called agreement reached is only an agreement in principle which is so uncertain to be enforceable. It is an incomplete contract as contended by the Plaintiff and is unenforceable.

Costs of ADF Bracelets

36.The evidence of the parties in this respect is not in much dispute. It is common ground that the samples provided to and approved by the Defendant before production were not ADF. It was also common ground that the ADF requirement was not an express term of the contract concluded in September 2002. The parties only became aware of this issue after the end-purchaser of the Defendant raised the matter in or about end of November 2002, as evidenced in the Defendant’s email dated 22^nd November 2002 (page 204 of the trial bundle). In that email, one Jabbie, who was an assistant to Mr. Ruff, said although the end-purchaser had not asked for ADF certificates it might suddenly need some proof later. Mr. Ruff said that Mr. Groos, being a German, should have known this requirement. Mr. Groos said that at the time of the contract he did not know such requirement but after he had been made aware of that he now knew that there was such a requirement in German law. Mr. Groos testified that had the Defendant made known its requirement earlier in the contract, the Plaintiff could have fixed the speedometers with ADF bracelets at no extra costs. The payment now charged was mainly costs of wasted bracelets and labour costs incurred in removing from the speedometers the non-ADF bracelets and fixing them with ADF ones.

37.The Defendant admitted in the pleadings that the subject sale is a sale by sample (paragraph 2 of the Defence). The Plaintiff therefore relied on section 17(2) of the Sales of Goods Ordinance, Cap 26 (“SOGO”). Section 17(2) (a) stipulates that:

“In the case of a contract for sale by sample –

there is an implied condition that the bulk shall correspond with the sample in quality;” 

38.Mr. Bell for the Plaintiff relied on section 17 of the SOGO and submitted that the original sample is an absolute standard. As non-ADF samples had been approved, he asserted that the use of ADF bracelets would be, strictly speaking, inconsistent with this implied term and in breach of the original sale contract. He cited Longplan International Limited v Blooming Union Company Limited unreported, HCA539 of 1997, 29^th October 2005, Waung J at p.12. With the greatest respect, I do not find this argument convincing. I doubt very much whether there is any requirement known as “non-ADF” requirement. The ADF requirement is only an improvement - better or safer dye is used in the treatment of the bracelets fabrics. It is difficult to understand why the use of improved or better material (without altering the outlook and function whatsoever) for producing the same speedometer would be a breach of contract. It offends common sense. 

39.In fact Longplan International Limited v Blooming Union Company Limited is not directly on the issue. In that case the defendant intended to engraft on the top of the original samples produced another requirement to produce counter-samples. The learned judge ruled against it and it is in this context that the learned judge stated that there was already an absolute standard, i.e. the samples, by which the acceptability of the goods was going to be determined.

40.The real issue is whether there is an implied term in the sale contract between the parties that the seller has an obligation to supply the goods in compliance with the laws of the country in which the goods are to be imported, especially when such country is disclosed to the seller.

41.The is no direct authorities cited to me on this point. However I accept Mr. Bell’s submission that the principles in export and import licences in international trade can be borrowed in determining whether there is such implied term as alleged by the Defendant, and if yes, on whom the responsibility rests.

42.In Chitty On Contract (29^th edition), it is stated by the learned author in paragraph 13-013 as follows:

“ In international trade, contracts of sale of goods are frequently the subject of governmental restrictions and a licence may have to be obtained for the import or export of goods from one country to another. The parties will normally provide expressly who is to assume this responsibility, but, in the absence of any express provision, it will be necessary to imply a term as to whether the duty to obtain a licence rests upon the buyer or the seller. Once the incidence of this duty has been determined, the court will then have to consider whether the party placed under the duty impliedly undertook to use his best endeavours to obtain a licence or whether he undertook absolutely that a licence would be obtained. In any event, both parties are under an obligation to co-operate with each other to the extent that is necessary for the obtaining of a licence.”

43.In H.O. Brandt & Co v H.N. Morris & Co. [1917] 2 K.B. 784 , a question arose as to whose duty it was to obtain a licence. The contract concerned is one to sell 60 tons of aniline oil f.o.b. Manchester. Scrutton L.J said at page 798 as follows:

“In this case it becomes necessary to go further and to decide whether in this f.o.b. contract the obligation to obtain a licence, in the case there should after the making of the contract be a prohibition against export, lies upon the sellers or the buyers. In my opinion it lies upon the buyers. The buyers must provide an effective ship, that is to say, a ship which can legally carry the goods. When the buyers have done that the sellers have to put the goods on board the ship. If that is so, the obtaining of a licence to export is the buyers’ concern. It is their concern to have the ship sent out of the country after the goods have been put on board,…              Bringing the goods on to the quay is merely subsidiary to the export which is the gist of the licence. In my view, therefore, in a contract of this kind it is for the buyer to get the licence.”

44.In Mitchell Cotts & Co., Ltd v Hairco Ltd [1943] All E.R. 552, the defendant was the buyer of a quantity of goat hair from the seller plaintiff under a c.i.f. contract. There was no mention in the contract as to who was to obtain an import licence at the port of import. It was held by Scott L.J. at page 555 that

“…but I think the defendants, as buyers, unfortunately for them, were not justified in thinking that they did. It was clearly their duty to obtain a licence; they were the importers and not the plaintiff company. … They did not have the shipping documents at the time of arrival of the ship; it was the buyers, the defendants, who had the documents and who were the importers, and it was their duty, and their duty alone, to obtain the licence.”

45.I consider that H.O. Brandt & Co v H.N. Morris & Co. an authority for the proposition that in an f.o.b. contract (same as the present one), the responsibility of the seller ended when the goods are loaded onto the ship. Mitchell Cotts & Co., Ltd v Hairco Ltd further supports the proposition that it is the importer who is responsible for obtaining the import licence from the importing country. It makes perfect sense because the buyer is the importer and he should be in a better position to know the legal requirements of the particular country to which it intends to sell its goods. The seller may be several parties removed from the importer and it is unreasonable to expect it to know more than the importer, unless the seller gives an express warranty to that effect. So the obligation to comply with legal requirement of an importing country rests on the buyer, i.e. the Defendant, instead of the Plaintiff as argued. There is no allegation that the Plaintiff had provided any express warranty to that effect. Accordingly there is no implied term in the sale contract as contended by the Defendant. In fact, the authorities above show just the opposite of the Defendant’s contention. There is an implied term operates in the other way round. If imposes an obligation on the Defendant who is the importer to comply with the laws of the importing country.

46.It is unreasonable for the Defendant in the present case, i.e. a buyer, to say that the Plaintiff, i.e. the seller, has to comply with the laws of Germany once it has made known to the Plaintiff that the Goods are to be shipped to Germany. The Defendant, being the importer vis-à-vis the Plaintiff, should use its own judgment and skill to decide what standard the Goods has to meet and to specify them expressly in the contract between them. In fact the two purchase orders provide for ADF certificate. It is therefore within the contemplation of the Defendant that ADF may be a requirement of certain countries. The Defendant could have marked it if it required one. It is the Defendant who had excluded such requirement in the contract between the parties. The inclusion of an implied term of ADF bracelets would be inconsistent with the express intention of the Defendant. The contention of the Defendant on the ground of an implied term must fail.

47.I also do not consider the Defendant’s argument of express term substantiated. Firstly, it is not pleaded. Secondly, the letter of credits was only sent to the Plaintiff after the conclusion of the sale contract. Thirdly, the letter of credits was only a document sent to the Plaintiff by the Bank and not the Defendant. At most it could be argued that it is a contract between the bank and the Plaintiff. It cannot be a document of contract between the parties. Fourthly, in the said letter of credits, the bank required:

“1^st Beneficiary certificate stating that all articles shipped under this L/C comply to [sic] the laws and regulations of the countries in which they are intended to be sold. (For countries see related P/O).” 

In fact, in the credits the 1^st beneficiary refers to the Defendant and not the Plaintiff. The obligation to issue a law compliance certificate therefore primarily rests with the Defendant and not the Plaintiff. I cannot see how this obligation of the Defendant can be transferred to the Plaintiff by transfer of this letter of credits.

48.As there is neither an implied nor express term as contended by the Defendant, I am driven to the conclusion that the ADF requirement for the bracelets is an additional requirement. The Defendant has not raised any alternative argument that the service is gratuitous. In fact for a commercial contract, I do not think an argument that the service is gratuitous can easily be accepted by the court unless there is clear and unequivocal evidence. In Chitty On Contract (29^th ed), the learned author said in paragraph 29-071 that:

“If no price for goods sold has been fixed in the contract of sale, the law will imply that a reasonable price is to be paid, … Similarly, in a contract for work to be done, if no scale of remuneration is fixed, the law imposes an obligation to pay a reasonable sum (quantum meruit). The circumstances must clearly show that the work is not to be done gratuitously before the court will, in the absence of an express contract, infer that there was a valid contract with an implied term that a reasonable remuneration would be paid …”

49.The Defendant is therefore required to pay for the additional requirement of ADF bracelets. I accept the evidence of Mr. Groos that the additional costs incurred for fixing the ADF bracelets is US$21,335.05 (paragraph 41 of Mr. Groos statement as supported by PDI’s invoice, pages 61 and 171 of the trial bundle).

Conclusion

50.For the reasons I have stated in the preceding paragraphs, I enter judgment for the Plaintiff against the Defendant for:

(i)    a sum of € 28,026.41 (or the Hong Kong Dollar equivalent at the time of payment) being the outstanding purchase price under the sale contract;

(ii)   a sum of UD$21,335.05 (or the Hong Kong Dollar equivalent at the time of payment) being the additional expenses for production of the ADF bracelets and the labour costs for replacement; and

(iii)  interest on the above two sums at judgment rate from 1^st June 2004 until today and thereafter at the judgment rate until full payment.

51.I also make the following order nisi as to costs, that unless either party applies to be heard on the question of costs within 14 days, the Defendant pays the Plaintiff costs of this Action together with a certificate for counsel.

Mr. Adrain Bell, instructed by M/s Yeung Law & Co. for the Plaintiff.

Mr. Ruff, Defendant’s director appearing for the Defendant, acting in person.