Kishingchawd Dingonal Ramchandani t/a Raneyko Enterprises v. Nylex Plastics Ltd

IN THE SUPREME COURT OF HONG KONG

APPELLATE JURISDICTION

CIVIL APPEAL NO. 33 OF 1971

(On appeal from Original Jurisdiction Action No.518 of 1970)

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Coram: Full Court (Blair-Kerr, S.P.J., Huggins and Leonard, JJ.)

Date: 30 March 1972

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JUDGMENT

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Blair-Kerr, S.P.J.:

1.  The respondents (plaintiffs) contracted to sell sandals to the appellant (defendant) who in turn sub-contracted to sell those sandals to purchasers in Somalia.  There were a number of contracts between the respondents and the appellant on the one hand, and between the appellant and his Somalian customers on the other.   Each of the contracts between the appellant and the sub-purchasers in Somalia contained a condition, or exception, in the following terms:–

“Suppliers are not responsible for non-execution, if exportation is prohibited by the Government or any other reasons which are beyond our control.”

2.  The respondents were well aware that the sandals had been sold by the appellant. Indeed, they were responsible for putting the sandals on board the various ships destined for Somalia.  As regards one of those shipments, it appears that the sandals were placed on the deck of the ship and it was found that the relevant marine insurance policy did not cover the conveyance of sandals placed on the deck of a ship.  At any rate, a dispute arose; and the appellant stopped payment in respect of that particular shipment of sandals.  The respondents countered by refusing to deliver sandals which they had contracted to deliver under later contracts.  The learned judge found that the respondents were in breach of these later contracts.  He said:–

“It was in the minds of the (respondents) that they were entitled to refuse to deliver the goods under the second series of contracts because they had not been paid for the goods under the first series of contracts. This cannot be so. The contracts were not expressed to be dependent on each other. Each one stood on its own; and the breach of one contract, if breach there were, cannot operate to relieve liability under another contract.”

3.  In the court below, the respondents’ claim against the appellant succeeded and judgment was given in their favour.  But there was a counterclaim by the appellant for various sums.  On this appeal we are only concerned with one of those sums.  It appears that in Somalia there was some sort of arbitration award followed by an agreement whereby the appellant undertook to pay his Somalian customers damages in respect of his breach of contract; and it is common ground that he has paid the sum awarded, or agreed, as the case may be.

4.  Before the judge in the court below, the respondents argued thus:–

“The appellant was under no obligation to pay his Somalian sub-purchasers in respect of the later contracts. The respondents were in breach of contract with him; he could have invoked condition 2 of his contracts with his Somalian sub-purchasers and said: ‘I am unable to execute my contracts with you for a reason beyond my control.’ In paying his sub-purchasers, he was only concerned to maintain good business relations with them; but his good relations with them could not possibly have been affected if he had invoked condition 2.”

5.  The learned judge accepted this submission and dismissed the appellant’s counterclaim, so far as it concerned this particular sum.  He said:–

“If the (appellant) relied on the clause in the contracts ...... his sub-purchasers would have had no redress in an action brought against (him) for breach of contract for non-delivery of the sandals since that non-delivery was caused by something beyond the control of (the appellant).”

This is an appeal against the learned judge’s decision on that point.

6.  The judge found that the sum in question was an ex gratia payment by the appellant; and the first ground of appeal is that he was wrong in so holding because if there was a binding arbitration award the payment could not have been ex gratia. 

7.  In the appeal papers, there is a copy of an agreement between the appellant and his sub-purchasers which reads in part:–

“As per the arbitration and decision taken by the Secretary, Somalia Chamber of Commerce .......... Mr. of (the appellant) and Mr. of (the sub-purchasers) agree to the following:–

1. That (the appellant) will pay the compensation of £        ................ towards the loss of profit sustained ..........”

But the appeal papers do not include a copy of the arbitration proceedings, if such took place, nor a copy of the arbitration award.  Nor do we have a copy of the evidence recorded in the court below.  On the appeal, counsel were not agreed as to the evidence; and it is impossible for this court to say what is implied by the opening words of the agreement viz. “as per arbitration and decision taken by the Secretary, Somalia Chamber of Commerce”.  Therefore we are unable to say whether or not there exists a binding arbitration award; and we are forced to decide this appeal by considering the other two grounds.

8.  The second ground of appeal is that the judge did not construe condition 2 correctly and that the appellant could not, in law, have refused to pay damages to his sub-purchasers.

9.  Mr. Martin Lee, for the appellant, argued thus :

If, instead of the word “prohibited” the word “prevented” had been used in the condition, the appellant would have found it more difficult to argue against the view taken by the judge; but the word used in the condition is “prohibited”; the “other reasons” in the contemplation of the parties must have been “reasons” which prohibited the exportation, such as a court order prohibiting exportation because of some infringement of patent rights; but simply because the respondents defaulted under their contracts with the appellant so that the appellant was unable to fulfil his contract with his sub-purchasers was not a “reason” covered by the condition.

10.  Mr. Ching for the respondents argued, inter alia:–

Exportation could not be prohibited by a “reason”; although the condition does specify one set of circumstances viz. exportation being prohibited by Government, the “other reasons” are not confined to reasons which are ejusdem generis; the expression “other reasons” does not refer back to prohibition of exportation but to non-execution of the contract.

11.  The respondents would, in effect, read the condition thus :

“Suppliers are not responsible for non-execution, if exportation is prohibited by the Government or [if there are] any other reasons [for non-execution] which are beyond our control.”

The appellant, on the other hand, would have us read the condition thus :

“Suppliers are not responsible for non-execution if exportation is prohibited by the Government or [if exportation is prohibited for] any other reasons which are beyond our control.”

12.  Does the phrase “other reasons beyond our control” refer back to exportation or to non-execution of the contract?  The former is the narrow interpretation.  The latter is the broad interpretation.  The former comprises situations in which exportation is, for any reason, prohibited but, so it is argued, it would not comprise the situation in which the appellant found himself by reason of the fact that the respondents were in breach of contract.  The latter interpretation would, of course, cover such a situation because if the appellant could show that, for any reason beyond his control, he could not fulfil his contract (non-execution), he would not be liable under the contracts with his sub-purchasers.

13.  The primary meaning of the word “prohibit”, as given in the Shorter Oxford Dictionary, is:–

“1. To forbid (an action or thing) by or as by a command or statute; to interdict.”

The other two meanings given in the dictionary read as follows:–

“2. To prevent, hinder or debar (an action or thing) by physical means.”

“3. To forbid or prevent (a person) from doing something.”

14.  It is said that because the word “prohibit” may mean “prevent”, we should assume that the parties intended that it should also have that meaning; that exportation was prevented by the respondents’ failure to deliver; that this was the reason for the non-execution of the contract; and that because the respondents’ failure to deliver was something beyond the control of the appellant, he would not have been held liable to his sub-purchasers.

15.  It would appear that in certain circumstances “prohibit” may mean “prevent”; but “prohibit” is not listed in the dictionary as an alternative meaning for the word “prevent”. Clearly the two words are not synonymous; and I would have thought that there were strong reasons for thinking that the parties to this contract intended the word “prohibit” to have its primary meaning viz. “to forbid ..... by or as by a command or statute.”  I agree, of course, that exportation could not be prohibited “by ..... a reason.”  But exportation could be prohibited by Government or “for ..... a reason.”  The language used by the parties is very loose, and it is very difficult to apply the ordinary rules of interpretation to a provision of this kind.  The most that can be expected of a court is that it should endeavour to ascertain the intention of the parties by doing as little violence as possible to the language which they have chosen to use.  The trouble is that one is forced to do about the same amount of violence to the language of the provision irrespective of whether we say the respondents’ or the appellant’s reading of it is the correct one.

16.  In my view, little is to be gained by looking at condition 2 under a microscope, so to speak, in order to ascertain the intentions of the appellant and his Somalian sub-purchasers.  In a situation of this kind, I do not see how we can do other than take a broad common-sense view.  When A and B enter into a contract whereby A agrees to sell and B agrees to purchase a specific quantity of goods, I should have thought that B would be entitled to assume that A had got goods of that type to sell and that A would be entitled to assume that B had got money to pay for them.  Therefore, should we take an entirely different view of this contract because of condition 2 and say: Oh no; the appellant was merely saying (and his Somalian sub-purchasers understood him to say): “I hope that I shall have sandals which I can deliver to you, in which case you shall pay for them; but if, for any reason whatsoever, I do not have sandals to deliver, or I am otherwise prevented from delivering them, the whole deal is off.  It is a case of: heads I win, tails you lose.”

17.  There is no reason why a businessman in Hong Kong and another in Somalia should not contract on such an extraordinary basis.  But if they did, I think that they would have expressed themselves in very much clearer language than that of condition 2.

18.  In this case, it is not necessary to decide what situations are covered by the words “any other reasons beyond our control”.  What I find impossible to believe is that they were intended by the parties to this contract to cover the situation in which the appellant found himself namely that he was unable to deliver because the persons with whom he had contracted had let him down following his refusal to pay for some sandals delivered under a previous contract which had been shipped in contravention of the provisions of the relative marine insurance policy.  For myself, I would have thought that the appellant would have been held legally liable to his sub-purchasers if they had sued him for breach of contract.

19.  On the third ground of appeal, I do not find the decisions in James Finlay & Co. Ltd. v. N.V. Kwik Hoo Tong^([1]) and Banco de Portugal v. Waterlow & Sons Ltd.^([2]) of much assistance.  But, if I had come to the conclusion that condition 2 did, and was intended to, cover the situation in which the appellant found himself so that he was not liable to his sub-purchasers under his contract with them, I would have found it very difficult to accept his argument that nevertheless he was justified in paying damages to them in order to maintain good business relations.  On this aspect of the appeal I agree with the view expressed by Mr. Justice Huggins.

20.  I would decide this appeal on ground 2, that is to say the respondents knew that the appellant purchased the sandals for resale; a direct and natural result of their breach was that the appellant was unable to deliver to his sub-purchasers; in an action by the sub-purchasers, the appellant would have been held liable to them in damages for breach of contract.  It is agreed that the sum paid to the sub-purchasers by way of damages was not unreasonable; he now seeks to recover part of those damages from the respondents.  In my view, this aspect of his counterclaim was well-founded. 

21.  For these reasons, I would allow the appeal.

Martin Lee (Johnson, Stokes & Master) for Appellant.

Charles Ching (Mak & Co.) for Respondent.

([1]) (1929) 1 K.B. 400.

([2]) (1932) A.C. 452.