GIANTWIN DEVELOPMENT LTD v. LAU WING ZONE AND ANOTHER

1988, No. A7038

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an action for damages for breach of contract. The contract is a contract made between the defendant and the plaintiff on the terms of a pro forma invoice dated 9th May 1988. Under this contract ("the plaintiff's contract") the defendant agreed to sell to the plaintiff 200 metric tons of centrifuged liquid latex high ammonia 60% dry. The price, FOB Penang, was US$1,320 per metric ton, a total of US$264,000. Delivery, to Shanghai, was to be made in two shipments, the first, of 150 M/T, on or about 12th June 1988, and the second, of 50 M/T, on or about 20th June 1988. Payment was to be made by irrevocable, and transferable, letter of credit, payable at sight, and indicating the acceptability of a third party as shipper. The invoice stated: "Remark : subject to receipt L/C by 15/5/88". (The 15th May 1988 was a Sunday.)

2. The defendant made another contract on 9th May 1988. This was a contract with Quintex Electronics Co. Ltd. ("Quintex"). (The defendant has caused Quintex to be joined as a third party to this action but the defendant has not prosecuted his third party proceedings against Quintex and I say no more about them.)

3. The defendant's contract with Quintex ("the Quintex contract") was a contract for the purchase by the defendant from Quintex of the same quantity of the same goods as were the subject of the plaintiff's contract; but the price was US$930 per M/T FOB Port Klang, a total of USS186,000.

4. The Quintex contract contained the following payment terms : "A 100% at sight Letter of Credit in our favour". It provided for delivery : "Within 60 days upon receipt of L/C". It contained the same shipment schedule as the plaintiff's contract. And it included the following provision: "Remarks: this contract must be signed at May 09, 1988. Herewith, this contract will effect until receipt of L/C on or before May l8, 1988". (The Quintex contract was confirmed by a letter dated 10th May 1988 from the defendant to Quintex.)

5. On 12th May 1988, the plaintiff (for some unknown reason using the name of a company called R.C. Radiant Beauty Products Co. Ltd.) applied to the Sanwa Brank Ltd., Hong Kong Branch, for an irrevocable documentary credit in favour of the defendant as beneficiary for US$264,000; shipment of the goods to be from "Penang Port".

6. On 13th May 1988, the defendant wrote to the plaintiff asking for an amendment to the original contract, and to the letter of credit, so as, in effect, to substitute "FOB Port Klang" for "FOB Penang".

7. On 17th May 1988, the Sanwa Bank issued the Letter of Credit, on the basis of shipment from Port Klang to Shanghai. The letter of credit contained no provision inconsistent with the plaintiff's contract or with the Quintex contract. The expiry date was 10th July 1988. The defendant accepted the letter of credit.

8. On 18th May 1988, the defendant, as the beneficiary named in the letter of credit, asked his bank, Far East Bank, to transfer part of the benefit of the letter of credit, US$186,000, to Quintex; and the Far East Bank did this. Also on 18th May 1988, the defendant asked Quintex to contact the Far East Bank for collection; and the Far East Bank informed Quintex of the transfer made in favour of Quintex.

9. On 21st May 1988, the defendant suggested that, to the original letter of credit issued by the Sanwa Bank, there should be added the following clause: "Original certificate from the surveyor issued by S.G.S. certifying that the goods up to the standard as required in this transaction". (S.G.S. is a surveying company.)

10. On 25th May 1988, the Sanwa Bank, having been asked by the plaintiff to make this amendment, did so.

11. On 29th May 1988, the Far East Bank, at the request of the defendant, transferred the benefit to the amendment to Quintex.

12. On 8th June 1988, the defendant told the plaintiff, by a letter of that date (sent by fax) that he, the defendant, had just been informed by the owner that the goods could not be delivered as scheduled, in June. Delivery could only be made on 25th July 1988. The defendant added: "So our company hope your Company to extend the date of delivery of the L/C to end of July, please forgive. Awaiting your reply". The plaintiff agreed to this extension.

13. All this arose, apparently, because Quintex wanted a variation of the Quintex contract. It was now proposing that the goods should be the subject of one shipment for delivery on or about 25th July 1988 and that payment should be made by a letter of credit naming its own supplier, Dynastplan Corporation Sdn. Bhd. ("Dynastplan"), as beneficiary. Dynastplan was to receive this letter of credit by 24th June 1988. It seems that Quintex may have thought that it was entitled to ask for this variation; I do not know.

14. However that may be, by a letter dated 14th June 1988, the defendant accepted the request made by Quintex.

15. On 21st June 1988, the Sanwa Bank, at the request of the plaintiff, issued a further amendment to the letter of credit, providing as follows: "Latest shipping date and the expiry date extended to 31st July 1988 and 15th August 1988"; and the defendant's bank, Far East Bank, transferred to Dynastplan that part of the benefit of the letter of credit which it had earlier transferred to Quintex.

16. On 25th June 1988, the defendant, by a letter of that date (sent by fax) asked the plaintiff to cause the shipment schedule, referring to 2 lots of 150 M/T and 50 M/T respectively, mentioned in the letter of credit, to be amended so as to provide for shipment of the whole 200 tons in one lot because, the defendant said: "Of the request of our bank".

17. On 28th June 1988, the Sanwa Bank, at the request of the plaintiff, issued a further amendment to the letter of credit providing: "Partial shipments now prohibited. Delete shipment schedule in full".

18. On 20th July 1988, Quintex, by a letter to the defendant of that date, requested the defendant to amend the latest shipment date from 31st July 1988 to 15th August 1988. It asked the defendant to amend the letter of credit and post it to Malaysia immediately. It stated that this was "part of the contract No. QCN-8805-003" (which was the number of the original Quintex contract).

19. On the same day, 20th July 1988, the defendant, by a letter sent by fax on that date (although mistakenly dated 20th August 1988) wrote to the plaintiff in the following terms:

"How are you, concerning the matters of your company's order 200 M/T of Latex, the L/C has just been formally passed to Latex company today because the work of the Bank in Malaysia is slow. Our company had already sent our representive to Malaysia last week, the goods supply etc are ready, but since the Latex company has never really received the L/C, so shipment date, transportation and bills etc are not formally arranged for, until today upon receipt of the L/C by the Malaysia's side. Thus, the Malaysia's side request to amend the date of delivery to 15th August. Please do not mind all these troubles."

20. On 21st July 1988, the plaintiff, by a letter to the defendants (sent by fax) replied in the following terms:

"How are you, we received your Fax of 20th July, relating to the amendment of L/C of 200 M/T of Latex. Follows your Company suggestion, our company had already sent the L/C to the Bank, (copy of Fax is attached for your Company) please proceed as soon as possible and we ask for delivery before 15th August. Do not make delay delivery any more. Thanks."

On the same day, 21st July 1988, the Sanwa Bank, at the request of the plaintiff, issued a further amendment to the letter of credit, providing as follows: "Latest shipment and expiry date extended to 15th August 1988 and 31st August 1988 respectively".

21. On 23rd July 1988, Quintex wrote a letter to the defendant, referring to the letter of credit and to the Ouintex contract, in the following terms:

"We regret to inform you that the date of receipt of above mentioned L/C lately. We have been reminded you opening the L/C to Malaysia before 24 June, 1988. (The letter dated 09 June, 1988 and our ref. No. :ADM-8832) but you have not followed the contract's term and the L/C is lately. Therefore, the shipment date must be change until already received your L/C. The shipment will re-arrange and the shipment date will inform you later. Thank you for your kind attention to this matter."

22. On 25th July 1988, Quintex followed this up with another letter to the defendant in the following terms:

"We regret to inform you that this lot shipment may be delayed or cancelled. While we have noticed you this shipment's L/C lately. At the first stage, the goods are already reserved for you, but, Malaysia's company have no received your L/C until they receive it on 20 July, 1988, so, the goods are shipping out for another buyer. Because the goods can not keep in stock for a longer period. Herein we have tried our best to help you to prepare another lot goods. Meanwhile the market price of Liquid Latex is fluctuated day by day. So that, we cannot hold the goods at your old price. Now, the price rise up to around USD1,500 M/T FOB Malaysia.

Hereinwith, the partner will send back the L/C to you soonest. On the other hand, upon our agreement, you can not contact our partner directly. Because our partner told us that your Company's someone have had called them question about this shipment. We don't know why do you ask them?

Anyway, we apologise for our failing co-operation. We wise we try our best to do the next co-operation.

23. Thank you for your kind attention to this matter." On 5th August 1988, Quintex wrote to the defendant in the following terms:

"We regret to inform you that the Dynastplan Corporation Sdn. Bhd. has not yet received the above mentioned L/C's amendment. We have had been informed you that your Company amended the latest shipment date from 31 July, 1988 to 15 August, 1988 on 20 July, 1988. Due to your L/C and L/C amendment latest, this shipment schedule can not effect on time. Meanwhile this shipment causes by your L/C and L/C amendment latest. The buyer is under the obligation to take all lost and unforeseenable effect.

We try our best to do so and thanks."

The defendant instructed solicitors, Messrs Leonard K.L. Heung & Company. On 25th August 1988, these solicitors wrote to Quintex in the following terms:

"We act for [the defendant].

We are instructed by our client to refer you to a Contract dated 9/5/1988 entered into between you as seller of the one part and our client as buyer of the other part in respect of the purchase by our client of 200 tons of Centrifuged Liquid Latex High Ammonia 60% dry. The deliveries of the goods in question as stipulated in the said Contract were to be effected by two shipments, the last of which was to be on 20th June, 1988. We are given to understand that the delivery of the goods was subsequently at your request postponed to 15th August, 1988. To our client's regret, you have failed and still fail to effect shipment of the goods in question to our client on or before the said 15th August, 1988 despite the postponement as aforesaid and also our client's repeated requests and demands. As the result of your failure to effect shipment of the goods on time, our client has suffered losses and damages.

We are also instructed by our client to inform you that the aforesaid Contract is hereby rescinded by reason of your default as aforesaid and our client is no longer bound by the said Contract and you are hereby held liable for all damages which our client may have suffered."

On 26th August 1988, the defendant sent to the plaintiff a copy of his solicitors' letter to Quintex.

24. The defendant found himself unable to perform his obligations under the plaintiff's contract. The plaintiff had to buy the goods, or most of them, elsewhere. It bought 100 M/T on 6th September 1988 from Intraco Resources Trading Pte. Limited. It had to pay US$1,850 per metric ton. It bought a further 63.96 M/T on 14th September 1988 from the same supplier. It had to pay even more, US$1,890 per M/T. The balance it made up from its own resources and it claims this should be valued at US$1,890 per M/T for the purpose of calculating its damages. Its damages, it says, are the difference between the contract price of the goods under the plaintiff's contract and the price or prices at which the plaintiff had to replace them.

25. This is the story, as it appears from the documentary evidence in the case. If that evidence is accepted there can be no answer to the plaintiff's claim. It is, of course, true that the letter of credit was not issued until 17th May 1988, and that the pro forma invoice dated 9th May 1988 had contained the provision : "Remark: subject to receipt L/C by 15/5/88". However one analyses the nature of this provision, it is a provision contained in a commercial contract and in my judgment the defendant would have been entitled, at any time after 15th May 1985, to call off the plaintiff's contract for want of receipt of the letter of credit by that date. But that is not what the defendant did. Quite the contrary. What he did, at any rate so far as it appears from the documents, was by his conduct repeatedly to affirm the continued existence of the contract, notwithstanding the want of receipt of the letter of credit by 15th May 1988. He requested his bank to transfer the benefit of the letter of credit to his own supplier; and he requested the plaintiff to procure all the amendments to the letters of credit to which I have referred. That course of conduct is consistent, in my judgment, only with a willingness to affirm the continuance of the contract in respect of which the letter of credit was issued.

26. But, says the defendant, this is not at all the whole story. He says that by 19th May 1988 the contract had been discharged or terminated; or, alternatively, rescinded by agreement. The suggestion that by 19th May 1988 the contract had been discharged or terminated does not hold water; the defendant was in my judgment entitled to overlook the failure by the plaintiff in respect of the letter of credit and, having by his conduct done so, he cannot subsequently complain about it. The second suggestion is inherently improbable and contradicts all the documentary evidence. It is supported by the defendant's own oral evidence. He says that, in the course of telephone conversations he had with Mr Tong of the plaintiff between 15th may 1988 and 19th May 1988, he made it clear to Mr Tong that the late delivery of the letter of credit meant that the contract was at an end and that the letter of credit was "useless". He says that Mr Tong accepted this, but pressed the defendant to do his best to obtain the goods, or similar goods, for the plaintiff even if in smaller quantities or at higher prices. The defendant says that his only obligation after 15th May 1988 was to do his best to obtain such goods as he could for the plaintiff. The defendant seems (wrongly) to have assumed that the letter of credit had some independent life of its own, divorced from the contract in relation to which it was issued, and that this is sufficient to explain his dealings with the letter of credit notwithstanding that the underlying contract had come, (so he says), to an end.

27. I did of form an adverse impression of the defendant from his demeanour in the witness box. But I  have to weigh, against his evidence, the evidence of Mr Tong denying any such oral agreement as that on which the defendant relies; and, again, I did not form an adverse impression of Mr Tong, either. When I put into the scales the fact that the documentary evidence is all on the side of the plaintiff, it seems to me that they come down heavily against the defendant. I am not satisfied, on a balance of probabilities, that there was anything said between the parties of sufficiently clear and unequivocal a nature to warrant a finding of fact that they arrived at the oral agreement for rescission of the plaintiff's contract on which the defendant relies. I suspect something may well have been said by the defendant about the difficulties which he was, or might be, placed in as a result of the ?? failure to procure the issue of the letter of credit by 15th May 1988, and about doing his best to obtain the goods just the same. But that is a far cry from a finding of fact that there was an oral agreement between the parties for the rescission of the plaintiff's contract.

28. It follows that the defendant cannot escape liability to the plaintiff. The only remaining question is as to damages. Clearly, the damages suffered by the plaintiff are not too remote; its loss is the ordinary consequence in this sort of case, that is to say, the difference, on a rising market, between the contract price and the price which, as a result of the seller's failure to supply the contract goods, the buyer has to pay to replace them.

29. On the evidence, the plaintiff, strung along by the defendant until at any rate 26th August 1988, continued to expect the plaintiff's contract to be honoured. When all hope failed, it went into the market and did what it could to repair the damage. Its conduct was reasonable. There is no reason why its damages should not be calculated in the manner for which it contends. For these reasons I propose to give judgment for the plaintiff, in accordance with its claim as formulated in the Statement of Claim, for US$110,000 with interest and costs.