LI AND FUNG (TRADING) LIMITED v. WING HING (TANGS) FABRICS MANUFACTURING COMPANY LIMITED

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HEADNOTE

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Margin clause ("buyer agrees to accept 5% more or less the contracted quantity")

Held :   

                Buyer who failed to take delivery was not entitled to rely upon such a clause to limit his liability to 95% of the contracted quantity, the total quantity being proffered. (following para. 625 Benjamin's Sale of Goods 2nd Ed.; Hasell v. Bagot Shakes and Lewis (1911) 13 CLR 374, and Edward Wong & Co. v. Polytex Cotton Goods Traders Ltd. 1984 No, 2260 her Barnett Deputy Judge, unreported).

No, A3561 of 1985

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is a retrial of the Defendant's counterclaim against the Plaintiff. The Defendant is a manufacturer of fabric and the Plaintiff a fabric purchasing agent for overseas buyers. By a telex dated 26th July 1984 the Plaintiff ordered 300,000 yards of ramie cotton cloth as agent for an American buyer, Santa Cruz Imports Inc. ("Santa Cruz"). This was followed by a written sales contract dated 9 October 1984 for 300,000 yards at the rate of US$2.29 per yard. On the 10th November 1984 the Defendant issued an invoice No. 1370 for just over HK$1 million as a deposit of 20% of the total contract price. This invoice, it is agreed, shows the correct quantity of 299,325 yards. The Defendant later issued a cheque to the Plaintiff in repayment of part of that deposit, upon payment being received from the Plaintiff's principals, Santa Cruz. That cheque was dishonoured and the Plaintiff claimed for the balance due upon it. The Defendant counterclaimed for damages comprising the loss of the profit it would have made on approximately 33,000 yards, of which, it said the Plaintiff failed to take delivery in breach of the contract. The Plaintiff denied that and in its reply and defence to the counterclaim said it had taken delivery of 340,000 odd yards or in the alternative 295,980.35 yards. Deputy Judge Downey, before whom the matter came, on 21 May 1986 gave judgment for the Plaintiff on the claim and dismissed the counterclaim. The Plaintiff appealed to the Court of Appeal which allowed the appeal and ordered a retrial of the counterclaim.

2. It is a tribute to the analysis painstakingly made by Deputy Judge Downey of the obviously      confusing and obscure documents upon which the action was presented to him, that the Plaintiff has since amended its reply and defence to the counterclaim to rely substantially upon that analysis. The Defendant for its part, at the commencement of the retrial amended its counterclaim to allege that the Plaintiff took delivery of only 194,423 yards, and not 267,369.5 yards as it originally conceded. The parties have also been able to narrow down the documentary evidence upon which they now rely. They have presented a schedule listing the invoices and relevant deliveries that they agree have been made under the subject contract. These produce agreed total deliveries of 194,432 yards under the subject contract. Furthermore by means of the schedule and the amendments to the Plaintiff's pleadings it is accepted that the dispute now centres upon 9 invoice which the Plaintiff says establish full delivery under the subject contract. But the Defendant says these include a number of duplications arising out of revised or replaced invoices and even some which have nothing to do with the subject contract.

3. Those invoices will therefore have to be considered in some detail, but before I come to them there are some general matters that ought to be mentioned. The grey ramie cotton cloth to which the subject contract related, had before delivery to be finished and dyed in a variety of patterns and colours selected by the Plaintiff. It is not disputed that there were numerous partial deliveries under the subject contract. In addition there were other contracts between the Plaintiff and Defendant and indeed at least one other contract in which Santa Cruz was shown as the party on whose account deliveries were made. The total yardage under the subject contract was drawn upon by the Plaintiff by means of Fabric Order Commitments ("F.O.C. s") which specified the particular yardages of particular patterns and colours wanted. The F.O C. and pattern numbers were allocated by the Plaintiff. Whether pattern numbers were changed after F.O.C.s were issued is disputed. Invoices were issued after delivery and payment under the subject contract effected under two letters of credit issued pursuant to the subject contract. Both the Plaintiff and Defendant seek to rely upon the agreed bundle of documents. In addition the Defendant called its Managing Director Mr. Tang to explain and supplement the documentary evidence. The Plaintiff, as it is entitled to do, chose to rely solely upon the documentary evidence and upon what it regarded as concessions and weaknesses in Mr. Tang's evidence, and did not adduce evidence.

4. Mr. Tang was cross-examined at some length and in some detail by Mr. Sceats for the Plaintiff. He did not strike me as a particularly impressive witness. Nor was he personally concerned with all the matters in dispute and in regard to some could not therefore speak from personal knowledge. But for all that in general he was not shaken in his evidence and no reason emerged nor was his demeanour such as would warrant general rejection of his evidence. There were, of course, some possibilities that he was not able to exclude. Nonetheless in general I thought him a credible witness.

5. I should add that both sides relied upon F.O.C. and pattern numbers, colours, and quantities to establish that invoices were or were not duplicated and did or did not relate to the subject contract.

6. Finally of general relevance is the fact that on 31 December 1984, the Plaintiff telexed the Defendant saying "buyer cannot use the following yardage, need your assistance to try best to reduce quantity. If not, please deliver to a public godown assigned to us"; then followed a list of quantities by reference to various F.O.C.s, patterns and colours totalling no less than 93,350 yards.

7. I proceed then to consider the disputed invoices, and begin with No. 1377 issued by the Plaintiff to the Defendant on 17 December 1984 for 13,336.5 yards of pattern 705 which it is agreed were delivered under the subject contract, and for 10,000 yards of pattern 704 which are disputed, all at the price of US$2.29 i.e. the price in the subject contract. The invoice price should have been 20% lower to reflect the deposit of 20% that had already been paid by the Plaintiff. Mr. Tang says that deduction of the deposit was overlooked in the first couple of invoices and that to adjust matters an additional deduction from the price was made in some subsequent invoices resulting in an invoice price of US$1.34 (as opposed to US$1.84 i.e. $2.29 less 20%). Notwithstanding that, the price of US$2.29 indicates that the 10,000 yards were delivered under the subject contract. The Defendant's case, of course, was that the 10,000 yards did not relate to the subject contract, but strangely enough Mr. Tang in giving evidence stated in examination-in-chief that the 10,000 yards did relate to the subject contract. In the light of the subsequent evidence it may be that that answer was a mistake. Yet Mr. Tang was not questioned about his answer or asked for his reasons, in contrast to many of his other answers for which supportive reasons were elicited. In the result Mr. Tang's statement remained unchallenged and unquestioned. In my finding therefore the 10,000 yards disputed under invoice No. 1377 must be attributed to the subject contract.

8. I will deal next with invoices Nos. 1390C, 1390D and 1390E, which the Defendant claims were superseded by invoice 1393 and that accordingly the 14,859.5 yards they relate to are duplicated and do not avail the Plaintiff. The F.O.C. numbers pattern numbers and total yardage in the three invoices are identical to those in invoice No. 1393, with one exception. Notwithstanding that exception it would be too much of a coincidence in my view for all of the other many details to tally exactly. As to the exception, Mr. Tang testified that it might have been the result of some yardage being returned to the Defendants for refinishing; the dates of the invoices are not inconsistent with such a view. But Mr. Sceats submits that Mr. Tang's evidence was that invoices were only superseded when there was a major error, whereas the exception or discrepancy in the invoices concerned was minor. Regrettably that was not put to Mr. Tang in reference to invoice No. 1393. Mr. Sceats also suggested that there might be some other explanations for the issuing of invoice No. 1393. However that may be, I am satisfied that there is an overwhelming probability that invoice No. 1393 was a replacement for invoices 1390C, 1390D and 1390E. Accordingly I find that the 14,859.5 yards the latter refer to were not delivered under the subject contract.

9. Proceeding to invoice No. 1418R, this referred to Santa Cruz and to 13,898 yards of white pattern 708 at the rate of US$1.54 per yard which suggests that the delivery was under the subject contract. But it also refers to F.O.C. s 2105-2108 which it is agreed, and which in any case the evidences establishes, relate to a later contract. Mr. Tang in evidence thought that his staff might have made a mistake in referring to the price of US$1.54 which points to the subject contract. That sort of evidence falls far short of creating a probability that the Plaintiff did not take delivery, and of rebutting the clear implication in the invoice that the 13,898 yards was delivered under the subject contract. In my judgment the Defendant has failed to discharge the onus of establishing that such delivery was not made.

10. Moving then on to invoices Nos. 1425, 1426 and 1427, all three refer to Santa Cruz, and F.O.C. s 2105-2108. Invoice 1425 was for 6,901.5 yards of coral pattern 705 and 12,037 yards of coral pattern 707 at US$1.54 per yard. Invoice 1426 was for 7,424 yards of coral 705 and 4265 yards of coral pattern 707 also at US$1.54; and 295 yards of white pattern 708 at US$1.99 per yard. Invoice 1427 was for 13,590.35 yards of coral pattern 705 and 16,302 yards of coral pattern 707 at US$1.71 per yard. The Defendant's case as testified to by Mr. Tang is that invoice 1427 superseded invoices 1425 and 1426 because the price of US$1.54 was wrong on the latter; that invoices 1425 and 1426 were never paid; that the discrepancies between the total quantity of pattern 705 in the first two invoices and invoice 1427 was caused by the Plaintiff's rejection of the relevant yardage; that the 295 yards of pattern 708 does not appear in invoice 1427 because they were rejected by the Plaintiff and to this day are stored in the Defendant's godown; that the odd additional US$0.071 per yard in the invoice 1427 price reflects the cost of packing and godown storage arising from the Plaintiff's instructions upon this their last delivery taken by the Plaintiff; finally that in any case F.O.C. s 1205-1208 relate to a Canadian contract and not to the subject contract.

11. In rebuttal Mr. Sceats submits first that there was no need for the former two invoices to be replaced; but if Mr. Tang is to be believed, and I have already found that he was a credible witness, the new price of US$1.171, and the rejection of the pattern 708 and of some pattern 705 yardage had to be shown and would certainly seem to justify a new invoice. Second Mr. Sceats submits that the references to F.O.C. s 2105-2108 are meaningless and not explained and he has demonstrated that they are inconsistent with some of the pattern numbers specified in relation to them (indeed that the Defendant's procedures and practices are not very consistent). Mr. Tang's explanation was that the Plaintiff on numerous occasions varied the pattern numbers and that this would account for some of the inconsistencies. But he was not able to explain the singular price of US$1.99 in invoice 1426, other than to say his staff made out the invoice.

12. I do not think the inconsistencies demonstrated by Mr. Sceats, including coincidences with other invoice totals actually establish a probability that invoice 1427 did not supersede the other two invoices, nor do I think that they destroy the clear if marginal probability that I do think the Defendant's evidence establishes, i.e. that invoice 1427 did supersede invoices 1425 and 1426. Those possibilities were not all put to Mr. Tang. Furthermore that probability as indeed others that favoured the Defendant should in the ordinary way easily have been reversible by commercial records and other evidence that the Plaintiff, in the absence of any explanation, ought to have had. Accordingly I find on the evidence before me that the former two invoices were superseded by the latter and accordingly that the quantities that they relate to do not avail the Plaintiff.

13. It is also the Defendant's case that invoice 1427, as indeed invoices 1425 and 1426, do not relate to the subject contract, but relate to a later contract for supply to a Canadian purchaser. The Plaintiff's case is that its American principal, Santa Cruz, wished to reduce the contract quantity and that accordingly the Plaintiff arranged with the Defendant for part of the subject contract quantity to be delivered to an associated Canadian buyer. On the evidence Santa Cruz was clearly connected with that Canadian delivery, for it is shown on the invoices. However in my finding the evidence equally clearly shows that the Canadian deliveries which related to F.O.C. s 2105 to 2108 were made under a subsequent contract and for the different price of US$2.10. Mr. Tang stoutly denied that the Defendant had agreed to the arrangements suggested. He added that he would in any event not have agreed if for no other reason than the additional accounting complications that would result particularly in regard to deposit credits and the Canadian deliveries being C.O.D. On the evidence I reject the suggestion that the Canadian deliveries under F.O.C. s 2105-2108 were deliveries under the subject contract and merely diverted to the Canadian buyer.

14. It was also suggested on the Plaintiff's behalf that the references in the three invoices to F.O.C. s 2105 to 2108 were erroneous and meaningless. On the evidence I reject that suggestion also.

15. In my finding invoices 1425 and 1426 were superseded by invoice 1427 and all three invoices related to F.O.C. s 2105-2108 which were delivered to the Canadian buyer under a new contract and not under the subject contract.

16. Finally I return to invoice No. 1390B (revised). This was dated 14 January 1985 and referred to Santa Cruz and F.O.C. 2127, and was for 1785 yards of coral pattern 704 at US$2.30 per yard. The Plaintiff's case, as in relation to invoices 1425-1427, is that Santa Cruz wished to reduce the contract quantity and that it likewise had arranged for this delivery too, to go to the Canadian buyer. It was not disputed that the delivery resulted from one of the Plaintiff's telexes dated 28 November 1984 couched in the following terms:

"Santa Cruz sumr yarn dye please note following quantity for Canada F.O.C. 2127 pattern 704 colour 62 coral quantity 1,700 yards delivery 12/15 will issue contract as soon as possible. ”

17. A subsequent telex from the Plaintiff stated that the Canadian deliveries were to be C.O.D. The references to contract to be issued as soon as possible and to "C.O.D. " suggest that this was a new contract which had nothing to do with the subject contract. Furthermore, as I have already pointed cut, Mr. Tang denied that the Canadian deliveries had anything to do with the subject contract or that he would have agreed to an arrangement of that sort.

18. On the other hand, unlike the immediately preceding telex of the same day relating to F.O.C. s 1205 to 1208, no price was mentioned in the telex quoted. The price invoiced was $1.30 per yard, i.e. an accepted subject contract price. Moreover the invoice referred to Santa Cruz. Both factors suggest the delivery was attributable to the subject contract. And Mr. Tang did not give any convincing grounds for his belief that the delivery was not so attributable.

19. In the result I do not think any clear probability emerges from the evidence either way and in my judgment the Defendant has failed to discharge the onus upon it to prove that this delivery was not taken up by the Plaintiff.

20. To sum up, in my finding in addition to the 194,423 yards which is agreed were delivered, only 10,000 yards under invoice 1377, 13,898 yards under invoice 1418R, and 1785 yards under invoice 1390B can be regarded as having been delivered under the subject contract, making a total of 220,106 yards.

21. I next have to consider what was the amount of the shortfall. In this regard the sales contract of 9 October 1984 contained the following prominently stamped endorsement upon it "Buyer agrees to accept 5% more or less the contracted quantity". The invoice of 10 November 1984 contained within its typed body the following “5% (Five percent) more or less the contracted quantity are acceptable by buyer". In several other purchase contracts made at the end of October 1984 between the Plaintiff and Defendant similar provisions were contained in the followings terms "5% more or less in total quantities and amount is acceptable”.

22. For the Plaintiff it is said that the effect of the terms in the sales contract of 9 October 1984 and in the invoice of 10 November 1984 is that it was entitled to elect to accept only 95% of 299,325 yards i.e. 284,358.75 yards. Mr. Sceats submits that that is the proper construction of the words in question, and that moreover Mr. Tang agreed that that was the proper construction. However he merely added the latter for good measure and does not suggest that Mr. Tang's view would prevail over the proper construction of the words. It must clearly be right that Mr. Tang's views cannot prevail over the meaning of the written text. I must say that at first sight the words in question, and there does not seem to me to be any significant difference in the three versions, appear to suggest that the seller may tender 5/ more or less than the 299,325 yards and that the buyer would have to accept that limited shortfall or excess.

23. The Defendant rejects the construction urged by the Plaintiff. Mr. Chung refers me to paragraph 625 of the second edition of Benjamin's Sale of Goods:

"        Words of approximation. The most common way for the parties to derogate from the provisions of section 30 by special agreement is to state the quantity of goods to be delivered as an approximate quantity, leaving a margin for excess in or deficiency of the specified quantity by using such words as 'about or 'more or less'. By such a stipulation, the seller gains a certain moderate and reasonable latitude as to the quantity of goods which he is contractually bound to deliver; but the buyer will nevertheless be entitled to invoke the provisions of subsections (1) and (2) of section 30 if that reasonable latitude is exceeded. It would also seem that such a stipulation will only protect the seller where the deficiency or excess arises in an honest attempt to perform the contract, and cannot be relied upon by him to reduce his liability where he refuses to perform. The parties may also stipulate certain limits within which the seller is entitled to deliver more or less than a specified quantity, e.g. '200 tons, 5 per cent more or less' or determine the quantity to be delivered by reference to a maximum or minimum quantity e.g. 'not less than 100 packs'; but he must then not deliver a quantity outside those limits. "

24. Section 32 of the Sale of Goods Ordinance (Cap. 26) which deals with delivery of the wrong quantity, is in material respects identical to section 30 of the United Kingdom Sale of Goods Act. Theauthority cited for the passage underlined is The Australian case of Hasell v. Bagot Shakes and Lewis Ltd. (1911) 13 CLR 374 at 380. In that case the contract was for the purchase of "5,000 tons of Japanese superphosphates 10% more or less”. The Defendant failed to deliver. On the question of whether in replacement the Plaintiff was right in purchasing 5,000 tons or whether he should have purchased 4,500, Griffith C. J. at pp379, 380 said:

"        The form of contract 'ten per cent more or less' seems unusual, but the same or similar terms are found in Doyle's contract of 8th February, and also in a previous contract made by respondents with him on 25th May 1909. They would appear therefore to be not uncommon in the trade. The words 'more or less' are ordinarily used with reference to specific goods which are the subject of a contract of sale, and not with reference to unascertained goods to be acquired by a vendor and supplied to the purchaser, and they are generally understood to cover small and accidental discrepancies in weight or quantity. But their meaning may vary with the subject matter or context. The subject matter of the contract. now in question was a large quantity of mineral to be procured in, and shipped from, a foreign country, where it might or might not be practicable to procure and provide for the shipment of the exact quantity of 5,000 tons within the prescribed period, except perhaps at a great and unreasonable expense. Moreover, the weight of the mineral on arrival might be increased or diminished according to its condition as to moisture, and some of it might be rejected by the Inspector of Fertilizers.

 

    I am disposed to think that the words in question were inserted from this point of view, with the intention that the purchaser should not be entitled to make any claim in respect of a deficiency of 500 tons, or to refuse to accept an excess of 500 tons beyond the stipulated 5,000, if the deficiency or excess arose in an honest attempt to perform the contract. But I am not prepared to hold that they can be invoked by a vendor who, instead of attempting to perform his contract, refuses to do so simpliciter. "

With respect I think Griffith C. J. was right. I see that in a recent unreported decision (1984 No. 2260 Edward Wong & Co. Ltd. v. Polytex Cotton Goods Traders Ltd.) Deputy Judge Barnett applied the principle in Hasell and refused to allow the supplier to rely upon a margin clause where he had failed to deliver the contracted quantity although he had sufficient in stock. In the present case the Defendant was able and willing to supply the full quantity of 299,325 yards. The evidence indicates that it was the Plaintiff who was attempting to reduce the quantity delivered. Having failed to take delivery of a very substantial quantity vastly in excess of the margin, I do not see that the Plaintiff as purchaser can now seek to rely upon that margin clause. That clause in my view was designed to protect the seller from consequences that might otherwise follow involuntary short or excess delivery of a minor nature. I consider therefore that damages must be assessed on the contracted quantity stipulated i.e. 299,325 yards, and not upon that to which it might have been reduced in circumstances that, in my view, do not arise here. Accordingly I find that the shortfall is 79,219 yards.

25. The Defendant in its counterclaim, claimed damages for loss of profit at the rate of HK$7 a yard. Miss WONG Choi-wah, the Executive Secretary of the Defendant Company gave convincing evidence supported by documents that the difference between the costs of manufacture and procurement, and the contract price was HK$7.24. However she did not appear to have adequately reflected the administration overheads in that calculation and was in that respect challenged by Mr. Sceats. Although she would not concede the point, she said that if overheads were to be included at the most they would result in a sum in the region of a couple of 10 cents. Mr. Chung was very properly prepared to settle for the HK$7.00 originally claimed and I accordingly find that the loss of profit was HK$7.00 a yard. There will accordingly be judgment for the Defendant in the sum of HK$554,533. I Will hear counsel on interest and costs.