Sang Cheong Artistic Wooden Furniture Co (A Firm) v. James Julius Killough Iii Ltd

DCCJ 6965/1971

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT KOWLOON

CIVIL JURISDICTION

ACTION NO. 6965 OF 1971

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BETWEEN

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Coram:  Judge Davies in Court.

Date of ruling: 20 March, 1972

R U L I N G

1. In this proceeding, I am being asked to review and set aside a judgment delivered by me on 2.11.71, in which I found for the plaintiffs in the full amount of the claim – i.e. $3,078.00.

2. The defendants had admitted liability to the plaintiffs in the sum of $978.00, but claimed to be entitled to set-off $2,100.00 against the $3,078.00 claim of the plaintiffs.

3. The circumstances in which the parties came into contract are already set out in the judgment, and it is at this stage necessary only to re-iterate that the terms of their agreement are embodied in the purchase order Ex. P1.

4. The clause in that document which has given rise to the present dispute between the parties is contained in the final paragraph of Ex.P1, and reads:  “It is herewith agreed and signed by both parties, Killough and Hui, that this work will be completed and ready to be picked up by the shipping agents 35 days, thirty five days, after the placement of the order 3 February 1971 that is, the work must be completed by five o’clock on 10 March 1971.  This work must be satisfactorily completed by this date.  Every day late after this, HK$100.00 will be deducted from the total amount due and every day that the work is completed earlier than this HK$100.00 will be added to the total amount due to Mr. Hui, Sang Cheong.”

5. As in my judgment, I will hereinafter for ease of reference call this “the penalty clause”, though this is not intended in any way to indicate that as a matter of law I have necessarily decided that the sum provided for is a penalty as opposed to liquidated damages.

6. This question of whether or not the defendants are entitled to set-off is the only issue in the case.  The sum of $2,100.00 arises from invocation of the penalty clause, it being the case for the defendants that the plaintiffs failed to complete the contract work until 31^st March 1971, i.e. 21 days after the date prescribed in the penalty clause.

7. In my judgment, I did not proceed to determine the question of law as to whether the penalty clause was enforceable or otherwise.

8. This was rendered unnecessary by reason of a finding made earlier, namely that “……. the onus is clearly upon the defendants to prove a breach of the condition in the original contract, and I find that this onus has not been discharged.”

9. The condition to which I was referring is, of course, that the work was to be satisfactorily completed by 10^th March 1971.

10. My view of the evidence before me at the original hearing was that it did not establish a balance of probability that the plaintiffs had failed to meet the completion date.  The whole position appeared so complicated by reason of two additional orders placed by the defendants with the plaintiffs, also in relation to the subject matter of Ex.P1, that I was quite unable to ascertain where one job of work ended and another began.

11. Notwithstanding that, however, I also reached the conclusion that the defendants, by conduct, had implied waived the condition of completion by 10^th March 1971, and for this reason should not be permitted to invoke the penalty clause.

12. At the original hearing, the defendants were not legally represented.

13. At the outset of this review proceeding Mr Winter, for the defendants, made an application to call further evidence which, it is claimed, reveals the facts of the matter in a different light.

14. There was no suggestion that this evidence was not available at the original hearing, but only that Mr. Killough, unrepresented as he then was, did not appreciate the importance of giving and/or calling such evidence.

15. Though I am somewhat doubtful whether this is a good ground for reopening the case on the merits, I decided to hear the additional evidence, which was followed by an address from the solicitor on each side.

16. Mr. Winter has submitted that the additional evidence clearly shows that the plaintiffs were in default of completion of the purchase order Ex. P1 by the 10^th March, and also establishes that Mr. Killough, sole proprietor of the defendant firm did not at any stage waive that completion date or such rights as the penalty clause may have given him.

17. Mr. Bryson for the plaintiffs has urged upon me that the additional evidence has not disclosed any new matter, and the parties are still seen to be in substantially the same position as they were at the end of the original hearing.

18. To my mind, the additional evidence has been valuable in that I do now have Mr. Killough’s case on the progress of the work before me in logical sequence and far less confused than it was at the original hearing.

19. In effect, there are 3 questions to be answered in deciding whether the defendants are entitled to set-off.

20. They are:

1) Did the plaintiffs fail to meet the completion date?  If the answer to this is affirmative,

then   2) Did Mr. Killough waive such failure?

21. If the answer to this is negative,

then  3) Is the penalty clause enforceable?

22. 1).         The defence account of the progress of the work specified is Ex.P1 emerges by reference to certain visits paid by Mr. Killough and/or his employee, to the plaintiff’s workshop.

23. Mr. Killough recorded his own visits in a diary from which he has frequently refreshed his memory during this evidence.  His clerk, Mr. Kwong Kwok Ning has given evidence that he too visited the plaintiff’s workshop, alone, on a number of occasions but he cannot be certain of the dates on which most of these visits were made.

24. It appears that no-one from the defendant firm visited the plaintiffs on the 10^th March itself; the only contact between the parties on that day was by telephone, to which I will refer later.

25. The last visit prior to the 10^th March was on the previous day, 9^th March.

26. According to Mr. Killough, he went to the plaintiff’s premises on that day, accompanied by one of his customers.

27. He has said that as at that visit, the state of progress in the work was such that two more days of reasonably energetic application would have seen it completed.  Some of the work still outstanding at that time was the correction of certain faults which Mr. Killough pointed out to Mr. Hui (sole proprietor of the plaintiff firm) during a visit on 7^th March, two days previously.

28. The evidence is that inter alia, Mr. Killough was dissatisfied with the shelves on the back of the doors of the liquor cabinet.  When he put pressure on them with his hand to test their strength, they gave way, which indicated to him that they would not be strong enough to hold bottles.  Mr. Hui had evidently though that they were only intended to carry glasses.  Indeed, I am not sure why it was intended to house bottles in the back of al liquor cupboard door, but that is of course none of my concern.  On this occasion it seems, a schoolmaster friend of Mr. Killough, Mr. Wong Wang Fai was present and acted as interpreter.  There was evidently considerable friction at this meeting between Messrs. Hui and Killough over the alleged faults, but eventually Mr. Hui agreed to make the alterations.

29. Killough appears to have suspected that Hui was plotting to sell the 2 cabinets to someone else for a higher price than was due under his contract.  Hui has said for his part that he believed Killough was deliberately finding faults where none existed.

30. Next to be considered are the events of the 10^th March itself.

31. Mr. Killough’s evidence is that on the day, Mr. Hui rang him and told him that the 2 cabinets were now completed, but he did not believe this, having on the previous day seen that at least 2 days’ more work was required on them.  He says that he sent his clerk along to the plaintiff’s workshop on that day.  The outcome of that is not clear because the clerk Mr. Hung as not in his evidence specifically referred to such a visit.

32. However, the evidence is that there was a second telephone conversation, at 5.00 p.m. on 10^th March, during which Mr. Hui conceded that the work was not yet quite complete, but agreed to get on with the job.  At the same time, Mr. Killough placed 2 other purchase orders (Ex.P4) , for brass fittings to be attached to the cabinets.

33. The 2 documents are dated 10^th March and 12^th March respectively, but Mr. Killough says that, to the best of his recollection, he gave the instructions verbally to Mr. Hui over the telephone on the 10^th.

34. It is clear from these purchase orders that the brass would be delivered to the plaintiffs on 16^th March for installation. 

35. There had been one previous additional purchase order, dated 4^th March which related to the installation of glass shelves and mirrors in the bar cabinet.

36. One very important aspect of Mr. Killough’s evidence concerning all 3 additional purchase orders is that he intended the work involved in them to be done concurrently with the completion of the work specified in Ex. P1.

37. He has pointed out that the work set out in the additional order of 4^th March (Ex. P2) is merely a repetition of part of the provisions of Ex. P1, and that in Ex. P1 it is stated that the said work must be finished by the completion date (i.e., 10^th March). On this basis it would be perfectly reasonable to expect that the work of fitting the glass shelves and mirrors could be carried out concurrently with the finishing work on both cabinets, with the intention of completion by 10^th March.

38. In regard to the 2 other orders, of 10^th and 12^th March (Exs. P3 and P4 respectively), Mr. Killough was pertinently examined as to why, if he seriously wanted the cabinets to be finished as early as possible, he did not arrange for delivery of the brass-ware earlier than 16^th March.

39. His reply to this was that as at 10^th March, following his visit to the plaintiffs on the previous day, he realized that the work on the cabinets would not now be completed before the 16^th and 17^th March, and therefore that the stage where the brass-work could be fitted would be unlikely to arise before 16^th March.

40. It follows from this that whatever was intended concerning the work in Ex. P2, Mr. Killough did not visualise the work in Exs. P3 and P4 being done concurrently with the other work.

41. He has said in evidence that the installation of the brass should take only 1 day or 2 at the most, and this has not been challenged.  It is clear, however that by not delivering the brass before 16^th,  Mr. Killough had precluded any possibility of total completion before 17^th or to be more reasonable 18^th, and he fully realized that as at the 10^th.

42. Mr. Winter has submitted that the Court should regard completion of Ex. P1 and completion of Exs. P3 and P4 as being entirely separate, and to hold that if Ex. P1 was not complete, the defendants are entitled to set-off at the rate of $100.00 per day thereafter.  Whatever might be the legal mrits of such a suggestion, I doubt whether a business man would think in such terms.  After all, what benefit would it have been to anyone if Ex. P1 had been finished by the 10^th, yet the cabinets not ready for delivery until the brasswork was completed on the 18^th?

43. Mr. Killough has urged that at all times, he kept spurring Mr. Hui to speed up the work.  He says that Mr. Hui was aware of the penalty clause, and he (Killough) and his clerk have said that on divers occasions the penalty clause was mentioned to Hui.  I have to say, however, that I am at the very least somewhat doubtful about this, at any rate in relation to the later stage of the work.  Mr. Killough himself has said, he was very much at the plaintiff’s mercy in that to cancel the contrast would have placed him in great difficulty vis-à-vis his overseas customers.  Hui was evidently a man who was not amenable to any form of pressure, and to my mind, it is intrinsically far more likely that Killough in the later stages used a carrot rather than a big stick to induce Hui to complete the course.  Indeed, as Mr. Killough points out, Ex. P2 is in effect a carrot, providing for separate payment for work already included in Ex. P1.

44. I am perfectly certain that Mr. Hui would not have agreed to continue any of the work after 10^th March if he had understood that Mr. Killough would penalize him at $100.00 per day.

45. As I earlier indicated, the evidence given at the revue hearing has done much to clarify evidence which was previously somewhat confused.

46. Having now considered the evidence on both sides before me, my finding on the first question is that there was a late completion of Ex.P1 by the plaintiffs.  The work in Ex.P1 was due for completion by 10^th March, and I am satisfied that it was not completed by that date.  The extent of the lateness and the issue of waiver are so closely interconnected that I will deal with both in my answer to the next question.

47. 2)  I am aware of Mr. Killough’s evidence that if it had not been apparent to him by 10^th March that there was in any event going to be a late completion of Exh. P1, he would not have placed the additional brassware order.

Be that as it may, even Mr. Killough cannot have his toast buttered on both sides, and by rendering it impossible for the plaintiffs to complete all their work before say, 18^th March, he was in my view impliedly granting the plaintiffs further time in which to complete such work on Ex. P1 as was still outstanding.

48. Actually he did not visit the plaintiffs workshop personally between 9^th and 21^st March, but merely sent his clerk along on occasions.  Just why Mr. Killough left on 11-day interval between visits is not clear, but it is not unreasonable to assume that he was giving the plaintiffs a chance to go on with the work without interruption.

49. For all the reasons which I have mentioned above, it is my view that Mr. Killough by his conduct, impliedly granted the plaintiffs an extension of time for completion of Ex. P1 until a reasonable period after 16^th March, and since he next visited the workshop on 21^st March, this was I believe the date by which he expected completion.  Clearly the plaintiffs, had Mr. Hui been so-minded, could well have completed all the works by that date.

50. Let me, however, attempt to distinguish between extension of time (express or implied, the latter being my finding in the present case) and waiver.

“Waiver” is a word which has in these proceedings been hitherto used loosely.

51. Waiver is an abandonment of one’s rights.  I do not find that the defendants abandoned their rights, but I do positively find that Mr. Killough impliedly extended the completion date for Ex. P1 from 10^th March to 21^st March.  If one wishes to be technical one could describe this as having waived the exercise of rights in respect of the period 10^th – 21^st March, but the better view is to regard it as a simple extension of time.

52. If the plaintiffs had completed by 21^st March, I would unhesitatingly say that no question of liability under the penalty clause could possibly arise against them.

53. Unfortunately however, there is cogent evidence, which I am prepared to accept, that the work provided for in Ex. P1 was still not satisfactorily completed by 21^st March.  Most of the remaining work consisted of alterations required by Mr. Killough earlier than 10^th March – for example the shelf-strengthening I described earlier, discussed by the parties on 7^th March.

54. These items had been written out and taken note of by Mr. Hui’s daughter, but as Killough found that they were not done by 21^st March, he decided to submit a type-written list (produced Ex. P5).

I believe the evidence that those items were not completed satisfactorily until 31^st March, and I do not find in the evidence any satisfactory excuse on the part of the plaintiffs for their failure in this regard.

55. This being so, I have reached the conclusion that the plaintiffs were out of time from 21^st March to 31^st March in connection with the contract Ex. P1 i.e., for a period of 10 days.

56. Next, I must consider whether any question of waiver arises in connection with that 10 days of late completion.

57. Mr. Winter has referred me to the general principles of estoppel, and in particular has submitted that the defendants would only be estopped from relying upon the penalty clause if a) there had been a representation made to the plaintiffs and b) if the plaintiffs had believed it and in consequence noted to their own detriment.  He contends that even if there had been some representation (which is denied), the plaintiffs never acted to their detriment – all they did was to continue working on their contract, which they were any way legally obliged to do.

58. Mr. Bryson relies upon the decision in Charles Richards Ltd. V. Oppenheim 1950 KBD 606.  He argues that the principle applies to the present case, and that the defendants having continued to press for delivery after expiry of the stipulated delivery date instead of cancelling the contract, cannot now set up the penalty clause.

59. Mr. Winter has sought to distinguish the present case from Richards and Oppenheim in that in the latter case, there was apparently no penalty clause.  That meant that there was no provision for continuation after the expiry of the delivery date.  Thus if the manufacturer mentioned as a result of a representation express or implied by the buyer he was acting to his detriment because after the expiry date, he was not obliged to do so – i.e. he could have quitted and awaited the consequences.  In the present case, however, there is express provision for continuance after the due date because the penalty clause makes due provision for it.  Mr. Winter argues that in the circumstances, Ex. P1 creates an obligation on both parties to continue after the due date, their ultimate positions being governed by the penalty clause.

60. I have considered this, and come to the conclusion that the distinction is a valid one.  Where there is provision in a contract for late completion, I do not think that the purchaser by continuing to press for delivery instead of terminating, has thereby waived his rights.  It may well be that he has an option whether to do the one or the other, but it is not necessary for me to decide that; 

61. In the instant case, according to my finding, the plaintiffs’ extended time expired on 21^st March at the latest, and I cannot conclude that Mr. Killough did or said anything after that date which expressly or impliedly can be construed as a waiver.  (In this connection, I have specifically omitted any reference to the issue of the cheque dated April 3^rd for the full sum specified in Ex. P1, because I have found that by that date, the plaintiffs had already been out of time since 21^st March i.e. no less thatn 13 days.  As I mentioned in my original judgment, I am satisfied that this was a gambit by which to obtain unimpeded delivery and not an error on the part of Mr. Killough as he claims.

62. To sum up this far, I find that there was a late completion on the part of the plaintiffs by 10 days, and no waiver by the defendants of such rights if any, as they are entitled to under the penalty clause, which brings me to the final question – the enforceability or otherwise of that clause.

63. 3)  I have been addressed at some length as the question whether the clause provides for a penalty (in which case it would not be enforceable) or for liquidated damages (in which case it would be enforceable).

64. I have given a great deal of consideration to this matter, and with great respect to counsel, have reached the conclusion that the clause is neither a penalty clause nor a provision for liquidated damages.

65. I did not succeed in finding any reference in decided cases, to any provision conferring a price increase for early completion and a price decrease for late completion.

66. It seems to be me, however, that the only logical way of regarding the clause in Ex. P1 is that it renders the whole contract one for an undetermined price, i.e., a price which can only be determined according to the date of completion, and the position of that date in relation to 10^th March.

67. In my view, what the parties have done in Ex. P1 is to fix a norm for the price and completion date, but provided for variation in both, by reference one to the other.

68. I am quite unable to find that a price reduction of $100.00 per day in the event of late completion bears any relation to an estimate of damages likely to be sustained, even on an approximate basis;  for as Mr. Killough has made clear that the measure of the damages he might have to face in his contract with this customer were unascertainable.  Further, if the articles were too late for one shipment, they would have to await the next.  The date of the next shipment is an uncertain matter.  Let us for example assume an interval of 14 days between shipments.  If the completion by the plaintiffs were one day late, there would be a $100.00 reduction in the purchase price, if 13 days late, a $1,300.00 reduction:  yet whatever damages were incurred by the defendants would be the same in both events.  In such circumstances, it would to my way of thinking be a complete misdirection to regard this clause as providing for liquidated damages.

69. Equally, however, I ask myself how one can validly regard as a penalty a provision which, though it does in certain circumstances allow for less than the set price (the norm), yet in the same breath affords the plaintiff the opportunity of greatly enhancing that price.

70. For all these reasons, I would rule that the clause is perfectly valid and fully enforceable.

71. To sum up, I find that the defendants are entitled to rely on the clause, and to set-off $100.00 per day in respect of late completion.  As previously indicated in this judgment, I find the plaintiffs guilty of late completion after 21^st March and until 31^st March 1971.

72. I accordingly review and set aside my judgment of 2.11.71 to the extent that I now find for the plaintiff in the sum of $2,078.00, instead of $3,078.00 as hitherto.

73. In case Counsel may wish to address me on the question of costs, I will reserve any order thereon.

In open Court this 20.3.72.

Mr. Winter:  Refer Halsbury Vol. 30 p. 424.

Payment. No application.

74. Refer page 422 question of costs is in discretion of Court.  Legitimate point on part of defendant that offered plaintiff $978.00.  States so in Defence.  Defendant has now succeeded in reducing plaintiff’s claim.  Blame does not entirely lie with defendant.  Refer:  Levis v. Havorfordwest 1953 3 AER.

75. Submit that as pleaded in Statement of Defence.  Now submit that plaintiff has succeeded only to extent of 1/3 of original claim. 

Mr. Bryson:  Defendant offered $978 in full and final settlement.  Plaintiff justified in rejecting it.  Defendant refused to consider any settlement beyond this.  Would not discuss it.

76. Prepared to agree to 1/3 / 2/3 on review costs.

Ruling on Costs

77. In my view, the costs of the original hearing and the costs of the revue proceeding must be considered separately.

A)  Costs of the original hearing.  Mr Winter submits that in my discretion, I should take into account that the defendants in the Statement of Defence admitted $978.00, had offered this sum to the plaintiffs but that the offer was refused.

78. Technically, payment in and plea of tender is the only thing which would relieve the defendants from liability in respect of these costs.  Mr. Bryson points out that the offer being in full and final settlement, events have proved that the plaintiffs were justified in rejecting it.

79. As far as my discretion is concerned, I consider that I should exercise it by reference to the question whether had it been accepted, the original hearing could have been avoided or at the very least shortened, and the answer to that question is clearly negative.  The issue in the trial was and always has been, the set-off to which the defendant claimed to be entitled and the offer of $978.00 was totally unrelated to the set-off.

80. It is therefore my view that the action of the defendant in offering $978.00 in no way enabled the plaintiff to avoid suing.  The plaintiff has obtained $2,078.00 as a result of that suit, and I rule that he is entitled to his costs on Scale IV as a logical result of the judgment.

B)  Costs of the revue proceeding:  In that proceeding, the defendant has been successful in reducing the sum awarded to the plaintiff, from $3,078.00 to $2,078.00.  He has therefore been successful to the extent of 1/3.

81. In my discretion I therefore order that the costs of the revue proceeding should be shared in those proportions.

82. The costs of both sides are to be taxed on Scale IV. 

83. The defendant must pay 2/3 of their own costs and 2/3 of the plaintiff’s costs.

84. The plaintiffs must pay 1/3 of their own costs and 1/3 of the defendant’s costs.

Mr. Bryson:  Ask for order for payment out.

Court: It is ordered that of the money now in Court as paid in by defendants on 2.10.71 there is to be payment out of $2,078.00 to the plaintiffs, and payment-out of the balance after deduction of expenses of execution (if any), to the defendants.

As previously ruled, costs are to be taxed on Scale IV and are awarded as per my ruling, unless of course they are earlier agreed between the parties.