FORCHANCE TEXTILE CO. LTD. v. SAME RICH LTD. t/a HONG KONG TEXTILE CO.

HCA 10011/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. A10011 OF 1996

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J U D G M E N T

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1. This action arises from the performance of a contract for the sale and purchase of a quantity of cotton corduroy.

2. On 10th December 1993 the parties entered into a contract in writing whereby the Plaintiff was to sell and the Defendant was to buy 200,000 yards of cotton corduroy at a total price of $1.3 million (at $6.50 per yard) with payment to be by a 30 days Letter of Credit. Delivery was stipulated to be as to 100,000 yards forthwith and 100,000 yards between January 1994 to the end of February 1994.

3. It is not in dispute that the Plaintiff delivered and the Defendant accepted 99,446.5 yards between 22nd January and 15th March 1994 as follows :-

1st batch	22nd January 1994	18,822.5 yards
	26th January 1994	21,044 yards
2nd batch	28th January 1994	20,300 yards
	4th February 1994	21,000 yards
3rd batch	15th March 1994	18,280 yards

4. It is also not in dispute that the Defendant has paid for the first batch of 39,866.5 yards in the sum of HK$259,132.25, but not for the second and third batches totalling HK$387,543.00 delivered between 28th January to 15th March 1994.

5. It is the Plaintiff's case that it was at all times ready, willing and able to deliver the whole of the contract goods within the time set out in the contract but that it was prevented from doing so by the Defendant's failure to allow the same to be delivered or to make payment for the same.

6. It is the Defendant's case that it was at all times ready, willing and able to accept delivery of the goods and pay for the same within the time set out in the contract but that it was prevented from doing so by the Plaintiff's inability and/or failure to deliver the same despite the repeated requests of the Defendant.

7. It is the Defendant's case that the goods were required for onward sale to a third party and that, in view of the Plaintiff's failure to meet the terms of the contract, the Defendant had to purchase alternative goods at a higher price in order to meet its commitment to the third party. The Defendant counterclaims the sum of HK$584,413.75 being the cost of those goods.

8. It is not in dispute that the Defendant should pay to the Plaintiff the sum of HK$387,543.00 for the second and third batches of goods sold and delivered.

9. The only issue in contention is therefore whether the Defendant is entitled to set off its counterclaim of $584,413.75 against the agreed sum of $387,543.00 due to the Plaintiff.

10. There is no dispute that only half the contract goods were delivered by the Plaintiff. The issue is therefore which of the parties was responsible for that situation.

11. The goods delivered under the contract came by several deliveries which have been referred to by the parties as batches. The Plaintiff says that the goods were brought from its premises in Wai Chow by lorry and that only about 20,000 yards could be delivered by each lorryload. This apparently accounted for each batch being divided into lots for delivery.

12. The First Batch consisting of 39,866.5 yards at a contract price of $259,132.25 was delivered in two lots on 22nd and 26th January 1994. Payment under the L/C was eventually made on 21st March 1994. It is not in dispute that on 19th January the Plaintiff sought instructions from the Defendant as to delivery and quantity required which instructions were given by the Defendant on 20th January.

13. It is the Plaintiff's case that it was prevented from delivering 100,000 yards forthwith as provided by the contract because the Defendant failed to accept any goods earlier than the First Batch despite Mr. Chan's attempts to deliver earlier. It was Mr. Chan's evidence that he had ample stock to meet the time limits set in the contract and that he was anxious to complete the transaction and receive payment.

14. It is the Defendant's case that the Plaintiff had informed the Defendant that it did not have stock to meet its commitments under the contract, and that the delay in delivery and completion of the deal were due to the Plaintiff's inability to uphold its side of the contract.

15. The Second Batch consisting of 41,300 yards at a contract price of $268,723.00 was delivered in two lots on 28th January and 4th February. At the Defendant's direction, the Plaintiff delivered the two lots to Chung Bao, the Defendant's dyeing factory. On each occasion, Chung Bao refused to accept delivery and the goods had to be temporarily stored in a warehouse at the Defendant's expense. On 24th February the Plaintiff conveyed the two lots from the warehouse to Chung Bao.

16. The Plaintiff's case is that the Defendant had agreed to change the terms of the L/C from payment within 30 days to payment on sight. The Defendant's case is that the matter had been raised but had not been agreed.

17. On 9th February the Plaintiff was refused payment for the Second Batch on the grounds that the 30 days term had not been met. The only reasonable inference to draw from that is that the Defendant had refused to accept the discrepancies from the original L/C terms. The Plaintiff made three unsuccessful attempts to receive payment, namely on 21st February, 9th and 30th March.

18. It should be noted that by comparison on 15th March the Defendant accepted the discrepancies in respect of payment for the First Batch, resulting in the Plaintiff receiving payment on 21st March.

19. The L/C expired on 7th March 1994.

20. On 14th March the Defendant sought a further delivery of 20,000 yards - the Third Batch. The Plaintiff was wary, having regard to its lack of success in securing payment for the Second Batch. It is the Plaintiff's case that it agreed to deliver the Third Batch in reliance upon the promise of Mr. Chow of the Defendant that if the Third Batch was delivered, payment for the Second Batch would be arranged and the Third Batch would be paid by Cash on Delivery.

21. It is not in dispute that the Plaintiff did deliver the Third Batch of 18,280 yards at a cost of $118,820.00 on 15th March 1994. It is also not in dispute that payment has never been made for the Second and Third Batches despite further demands by the Plaintiff.

22. It is the Defendant's case that it declined to make payment because the Plaintiff refused to deliver the balance of goods under the contract.

23. It is not in dispute that shortly after the contract was entered into the price of cotton corduroy rose substantially. The Defendant seeks to put this forward as a possible reason for the Plaintiff's failure to comply with the contract. The Plaintiff denies the suggestion and says that its only concern was to deliver the contract goods and receive full payment as soon as possible. The Plaintiff insists that at all material times it had sufficient stock to meet its contractual obligations and that it was the delay on the Defendant's part that prevented the goods being delivered within the contractual time limits.

24. On 14th April 1994 (following an oral demand the previous month) the Plaintiff wrote to the Defendant demanding payment of all outstanding amounts by 18th April. The Defendant responded by promising to pay all outstanding amounts if the Plaintiff would deliver the balance of the contract goods before 20th April.

25. On 16th April the Plaintiff wrote again demanding payment. On 20th April the Defendant replied through its solicitors accusing the Plaintiff of having repudiated the contract and accepting the repudiation.

26. Subsequently the Plaintiff wrote again on 26th April 1994 demanding payment of all amounts due for the goods delivered. This was followed on 13th May by the Plaintiff's solicitors demanding payment and accusing the Defendant of breach of contract.

27. The contract required that 100,000 yards should be delivered forthwith - as at the contract date of 10th December 1993. The Plaintiff maintains that it had stock in hand (BD 57). It is not in dispute that the 100,000 yards was delivered in five lots between 22nd January and 15th March 1994. It is also not in dispute that the parties intended delivery to be in accordance with such instructions as the Defendant would give from time to time rather than by any one-off delivery.

28. Mr. Chow of the Defendant gave evidence that he did not consider either party to be late in complying with the contract at the time when he first contacted Mr. Chan of the Plaintiff about delivery in late December 1993.

29. Two of the five deliveries (28th January and 4th February) that made up the 100,000 yards had to be stored temporarily in a warehouse because the Defendant's dyeing factory was unable to accept delivery. The Defendant's agreement to meet the warehouse storage charges is a clear indication that the Defendant did not hold the Plaintiff responsible for those lots not having been delivered "forthwith" at the contract date. Indeed, although by its fax of 21st February (BD 60) the Defendant explained that Chung Bao was unable to accept any deliveries over the lunar new year break of 28th January - 21st February, the Defendant sought only 40,000 yards by the order in that fax, rather than the whole amount.

30. I take into account also that, first, the Plaintiff had stock (BD 18-21) to meet its contractual obligations for the second 100,000 yards, and secondly, that the Plaintiff demonstrated its anxiety to comply with the contract by delivering the Second Batch without having received payment for the First Batch, and by delivering the Third Batch without either payment for the Second Batch or any security for payment having regard to the expiry of the L/C a week earlier.

31. Payment for the Second Batch was hindered by a discrepancy in payment terms from those provided by the L/C. The Plaintiff says that the amended terms were agreed to by the Defendant which promised to so notify its bankers. The Defendant says that the matter was being considered by its Mr. Lau but that no decision had been made. I find this difficult to accept having regard to the Defendant's acceptance of the discrepancy in terms for the First Batch. No real explanation has been offered by the Defendant for its failure to accept the discrepancy for the Second Batch.

32. I bear in mind also the evidence of Mr. Chow for the Defendant that the contractual responsibilities of buyer and seller are unequal - namely that a buyer is entitled to take delivery at time or times of its choice without regard to the seller, whilst a seller must deliver when required to do so by the buyer.

33. In all the circumstances I find that such delay as occurred in the delivery of the first 100,000 yards was as a result of the Defendant's deliberate course of action and specific instructions to the Plaintiff, and that the Plaintiff was in no way responsible for the same. I reject the allegation that the Plaintiff had told the Defendant that it was unable to deliver as required or that it had no stock available.

34. I turn now to the Counterclaim of the Defendant. It is the Defendant's case that it required the contract goods for onward sale to a company named Perdana between January to April 1994. The Defendant says that the goods to be supplied by the Plaintiff were intended to be dyed by Chung Bao before delivery to Perdana and that it had made specific arrangements with Chung Bao for that purpose.

35. When the Plaintiff wrote to the Defendant on 14th April 1994 demanding payment for the Second and Third Batches, Mr. Lau of the Defendant replied on the same date. In the course of that communication, he complained about the second 100,000 yards being outstanding and warned that if the Plaintiff failed to deliver this by 20th April the Defendant would purchase such goods elsewhere and claim the difference from the Plaintiff. In neither the Defendant's letter of 14th April nor its solicitor's letter of 20th April was there any assertion that goods had been purchased at a higher price or that the Plaintiff was responsible for the actual delivery schedule and/or that it has claimed to be unable to obtain stock. There was also no claim of set-off.

36. It is not in dispute that between 21st February (when the Defendant directed that the Second Batch of 40,000 yards should be delivered) and 14th March (when the Defendant sought the Third Batch of 20,000 yards) there was no request by the Defendant for any goods from the Plaintiff.

37. This scenario must be viewed in the context of the Defendant's case that it had purchased the goods for Perdana from other sources between 17th March - 13th April in anticipation that the Plaintiff would not be complying with the terms of the contract in the future.

38. The Defendant has produced a number of invoices and receipts evidencing transactions between itself and various sellers between December 1993 and April 1994. The Defendant says that these transactions, the subject of the Counterclaim, were goods for Perdana which it was forced to purchase because of the Plaintiff's failure to comply with the contract.

39. The Defendant's contractual duty to Perdana and the terms of that contract are clearly important steps in the causal link between the Counterclaim and the Defendant's purchase of goods elsewhere. Neither Mr. Lau nor Mr. Chow of the Defendant were able to explain satisfactorily why no written contract between the Defendant and Perdana was produced. Nor could they explain why the written contract between the Defendant and Chung Bao to meet the Perdana order was not produced.

40. Whilst I accept that the Defendant may well have had transactions with sellers other than the Plaintiff for cotton corduroy, I am not satisfied that a proper causal link between the Counterclaim and the other transactions has been established. Nor am I satisfied that the other transactions arose out of or were necessitated by the actions of the Plaintiff.

41. In all the circumstances, I am not satisfied that the Counterclaim has been proved, and it must therefore fail.

42. There will be judgment for the Plaintiff in the sum of $387,543.00 as claimed with interest at the judgment rate. The Counterclaim is dismissed.

43. There will be costs to the Plaintiff on the claim and counterclaim.