HERMANN LOHMANN v. D-INTERTRADE LTD.

HCA13219/1995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.A13219 OF 1995

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J U D G M E N T

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1. This is a dispute about ladies' and gentlemen's cashmere sweaters; more precisely, it is a dispute about the non-delivery of such garments by the Defendant, the Hong Kong seller, to the Plaintiff buyer, a German sole proprietorship based in Hamburg. Although the case is larded with significant amounts of detail, at bottom the broad outlines of the case are clear.

2. In the summer of 1994 the Plaintiff, which owns the German-registered trademark "Barbara Lohmann", and which markets its goods under that name, placed orders with the Defendant for the sale of men's and ladies' cashmere sweaters; the first order was on 18th July 1994 for 355 garments, with delivery for the men's garments at the end of October 1994 and for the ladies' garments at the end of November of that year. In fact, on or about 10th August this order was increased to 1,044 pieces (372 ladies' and 672 men's) at a price of US$60,738, and Letters of Credit were opened by the Plaintiff in respect of these orders on 16th August 1994. Thereafter, an additional order was made in respect of a further 114 garments at a price of US$7,278.70 and in respect of which a third Letter of Credit was opened, and the sequence was completed with the purchase of a further 68 garments by the Plaintiff from the Defendant at a cost of US$3,837.90, although in this instance these garments were actually paid for in advance by telegraphic transfer, as per the Defendant's invoice dated 1st November 1994.

3. In connection with these contracts for the sale of cashmere garments, the Plaintiff also paid to the Defendant the total sum of US$3,678.00 for the cost of the quota necessary for the export of these garments to Germany.

4. For reasons which remain less than clear, even after a three day trial, the unfortunate upshot of this relationship was that the Defendant failed to deliver any of the garments, by the dates as agreed or at all, and this case centres upon the Plaintiff's claim for consequential loss and damage arising from what it alleges to be the Defendant's breach of contract. In fact, the Plaintiff's case is put under several heads : the first, and by far the most significant claim, is for the sum of DM96,770.29, representing its loss of profit on such contracts as it had entered into with certain of its resale customers in Germany. The Plaintiff further claims several smaller sums, namely the recovery of the sum of US$3,837.90, representing the monies paid in advance for the last order of 68 garments, the sum of US$3,678, representing the amounts actually paid by the Defendant to the Plaintiff for the purchase of the relevant quota, and lastly the sum of DM11,094.00, representing wasted advertising costs in Germany for these garments which were anticipated to be delivered towards the end of 1994 for the forthcoming Spring/Summer 1995 season. In round terms, therefore, the Plaintiff's total claim as put forward in this case amounts respectively to DM107,864.29 and US$7,515.90, together with interest and costs.

5. Against this, it is maintained that it is and was not the Defendant which was in breach of contract but the Plaintiff, and on the face of the pleadings at least a Counterclaim is asserted, although until the last day of this trial no effort had been made to particularise the losses so claimed.

6. The case is reasonably documented, albeit I have little doubt that the Defendant's discovery has almost certainly been deficient, and in addition to the available documents I have had the advantage of seeing and hearing the two main protagonists in this dispute, namely Mrs Barbara Lohmann, the wife of Mr Hermann Lohmann, who is formally the Plaintiff in this action, and on the other side Mr Eric Wong Chun Lung, who I am told was a director and manager of the Defendant company at the material times, and who was indisputably in charge of this piece of the Defendant's business. In fact, Mr Wong conducted the case himself, in the absence of legal representation. Although the Defendant had been represented by solicitors at least up until the pleadings and discovery stage, on 25th March 1998 Yeung, J. made an Order permitting the Defendant to be personally represented by Mr Wong. The basis of this application was apparently the financial difficulty faced by the company, and although I have been unable to find on file the affidavit in support of the application, Mr Wong has told me in his evidence that the Defendant company has ceased trading for the past two years in the face of significant debts, and that he has been retained by the Defendant company solely to see this litigation through; he further tells me that he himself now conducts business in terms of a sole proprietorship now operating, I understand, from the same address as that enjoyed by the Defendant.

7. Be that as it may. Apart from the documentation before the Court, in purely witness terms the case turned out to be a confrontation between Mrs Lohmann on the one hand and Mr Wong on the other, and the Court was afforded an opportunity closely to observe both these witnesses. Accordingly, before turning to the issues as they ultimately developed, I should, I think, say something about my impression of each.

8. I found Mrs Barbara Lohmann to be impressive and eminently fair, both in her demeanour and in terms of the content of her evidence. Indeed, I suspect that despite the losses suffered by her husband's business in this transaction, she would not have been inclined to push this case to trial had it not been for Mr Wong's apparent refusal, at a meeting in a Hong Kong hotel in early 1995 and some time after the non-delivery complained of, to return the monies paid in advance by the Plaintiff, a refusal perhaps that was the straw that broke the camel's back. In any event, I have no hesitation in accepting Mrs Lohmann's evidence in all material respects. She has long experience of international trading, albeit not with Hong Kong, with which this was her first experience, and she was clearly still somewhat taken aback that someone with whom she had hoped to establish a satisfactory long-term trading relationship should have behaved in quite the manner she described as displayed by Mr Wong in this transaction.

9. To the contrary. I regret to say that, in my judgment, in his evidence Mr Wong was almost equally as unimpressive, and I say this after pause for due reflection and after factoring in the considerable difficulties encountered in proceeding without legal representation. I do not accept Mr Wong as a witness of truth on the main issues before the Court. I am still not sure as to precisely why in fact this transaction foundered, and why the garments were not delivered, given that Mr Wong maintains that they had been almost completely manufactured by the end of October 1994, and I confess that in looking at the correspondence between the parties, particularly towards the end of the relationship, one wonders, perhaps unjustly, whether the sharp rise in the price of cashmere may possibly have had anything to do with the transaction going off; alternatively, it could well have been other practical problems, such as obtaining the relevant cashmere quota, or difficulties encountered in paying the Chinese supplier, which threw Mr Wong into difficulties, and indeed, in his evidence Mr Wong highlighted both these areas. I gather, also, that this was Mr Wong's first direct transaction with an international buyer, as opposed to dealing via an Hong Kong based agent, and alternatively it may have been sheer inexperience which led to the difficulties which undoubtedly occurred. But I will not speculate. When giving his evidence, Mr Wong displayed a disarmingly disingenuous approach to the facts of this case, and at times, I fear, he was simply disinclined to tell the truth, particularly during cross-examination. Although he maintained a considerable personal knowledge of international trade, I doubt very much that this was indeed the case, nor in my view did he have quite the grasp of the legal issues as perhaps he imagined; certainly, the technique of isolating what he asserted were the Plaintiff's breaches of contract, without apparently paying any attention to the matrix of facts as clearly they had developed, did not serve his cause, and produced in my judgment a series of inconsistencies, distortions and half-truths. In evaluating his evidence, I would add also that I have attempted to set aside the sometimes truculent and aggressive manner that was adopted. In short, therefore, Mr Wong did not impress me as a witness upon whose word I would be happy to rely on the fundamental issues before the Court, and I view his accounts of the sequence of events with considerable reservation.

10. It is against this background that I turn to the actual issues in the case, which were debated in light of a certain amount of indisputable fact, notwithstanding that on the pleadings the Defendant had put the Plaintiff to proof on almost every relevant issue in the case. As to particular indisputable facts, the existence of the agreements to sell a total of 1,226 garments (1,044+114+68), the opening of the Letters of Credit for all but 68 of the garments, the actual payment of the two specific sums of money in advance and the lack of refund thereof, and the failure to deliver on time or at all, were all matters which, it seems to me, could not be gainsaid. Nor did it appear to be in dispute that the Plaintiff was buying for resale, whilst in turn the Plaintiff's damage was not realistically challenged.

11. Indeed, in real terms, the battleground as it developed was solely as to the liability for the Defendant's failure to deliver, Mr Wong maintaining throughout that it was exclusively the Plaintiff's fault and that no blame should be laid at his or the Defendant's door. In this regard I also observe that the pleadings as filed did not reflect the way in which the case was actually put at trial, so that Mr Bell, for the Plaintiff, who conducted his case with, if I may say so, restraint and calm good judgment, was at times disadvantaged by a lack of notice of precisely what was being asserted. On the pleadings as they stood, for example, the only defences that could reasonably be discerned, and presumably the only defences that those drafting the Defence felt minded then to put forward, were points going to the identity of the other contracting party and the assertion of the Plaintiff's failure to pay. As Mr Bell pointed out, had he been forewarned that it would be asserted that his client bore the burden of actually obtaining quota in the market, as opposed to having the responsibility simply to pay for it, or that his client had failed to open the contractually required Letters of Credit, then he would certainly have been entitled to plead by way of Reply, and to prove, consensual contractual variation and/or waiver by conduct and/or estoppel. As it was, none of these matters were ventilated on the pleadings, and so far as he was concerned, he had to roll with the punches, so to speak, as these points emerged during Mr Wong's presentation of his case. However, as Mr Bell recognised, representation in person generally leads to such problems, and it is an unavoidable fact of forensic life that in such cases there is perhaps greater latitude granted by the Court than would otherwise be the case. In the event, I hope that Mr Wong considers that he had a full opportunity to ventilate all his grievances which, in total, amounted in reality to three main points.

12. First, the identity of the Defendant's contracting partner. Mr Wong insisted, for much of the case at least, that he had not contracted with the Plaintiff but with "Barbara Lohmann Company". As I have earlier indicated, Barbara Lohmann is a mark used by the Plaintiff. In my judgment, this contention is hopeless and devoid of merit; indeed it represents the clinging to straws that, in my view, has permeated the Defendant's case. The orders in question were placed by the Plaintiff, the sales confirmation was signed by the Plaintiff (and returned to Mr Wong, although this document was not produced in discovery), the Letters of Credit were applied for and opened by the Plaintiff, and the original consignee (albeit later amended) under all three Letters of Credit was the Plaintiff. In addition, it seems indisputable that the Plaintiff actually remitted funds for the quota and the cost for the 68 garments paid for in advance, and in fact, as Mr Bell pointed out, the Defendant must have told the Chinese manufacturer/export company involved to place the Plaintiff's name on the export licences, because that indeed is where it appears. Further or alternatively, said Mr Bell, any transaction by Barbara Lohmann was clearly on behalf of the Plaintiff, "Barbara Lohmann" simply being an employee of the Plaintiff, in addition to being a registered trade mark.

13. On this issue, in cross-examination Mr Wong ultimately seemed to accept that in reality Hermann Lohmann and Barbara Lohmann were the same entity, and I think that even he must have realised that his assertion at one stage in his evidence that he had thought that Hermann Lohmann was a building was absurd. In any event, this contention as to the identity of the contracting party did not reappear in his final address, and for the avoidance of doubt, I now reject this line of defence, which in my view was risible and manifestly without merit.

14. Mr Wong's other two major points of argument constituted the substance of his final address to the Court, and these related to the provision of the Letters of Credit and to the requirement to obtain the relevant cashmere quota. I take them in turn.

15. Mr Wong initially attacked the Letters of Credit opened by the Plaintiff on two grounds. First, he suggested in cross-examination that they were unacceptable because they stipulated that the airway bill (the Plaintiff having elected to change the mode of carriage from sea to air by reason of the passage of time and the Defendant's delay in delivery) be addressed to the Plaintiff and not to the bank, although Mr Wong later resiled from this point. What he did say, however, was that the contract between the parties required that the Letters of Credit be "confirmed, irrevocable and transferable" and that they were not. They were in fact irrevocable, silent as to whether or not they were confirmed, and by their terms they were not transferable.

16. In my judgment, this line of argument exemplified Mr Wong's general forensic approach, which was to pick over the documentary bones of the case and alight upon what were perceived to be attractive or promising discrepancies, whilst at the same time paying no attention whatsoever to what actually had occurred during the parties' relationship. As Mr Bell pointed out, between the time when the Letters of Credit were issued and the time, in late November/early December 1994, when it became clear to the Plaintiff that the cashmere sweaters were not going to be delivered, it had at no time been suggested by the Defendant that the Letters of Credit were non-compliant, albeit the Defendant had indeed asked for amendments, which in each case had been processed with absolute dispatch by an obviously increasingly worried Plaintiff, who had declined Mr Wong's late request for advance payment by telegraphic transfer. Moreover, it was indisputable, said Mr Bell, that the Defendant had in practice accepted the Letters of Credit as issued, subject to the amendments sought and granted, and the Defendant had never asked between the date of issue (16th August 1994) and the date of expiry as extended (mid December 1994) that the Letters of Credit be amended so as to be rendered transferable. Accordingly, the Defendant had clearly agreed to accept non-transferable Letters of Credit, whatever the original sales confirmation may have said, and the Plaintiff was entitled to maintain, to this late point, that there had been a consensual variation by conduct, or a waiver, or that in the circumstances, the Defendant was now estopped from maintaining this argument.

17. I agree. Whatever problems or difficulties Mr Wong may or may not have had with the Mainland Chinese manufacturer/exporter in terms of opening a back to back Letter of Credit in their favour (which possibly was one of the main reasons behind the actual default) such difficulties are not now to be visited upon the Plaintiff. I find as a fact, if such finding be necessary, that there was acceptance by the Defendant of these Letters of Credit, subject to the amendments as sought and granted, alternatively that there was waiver of the original stipulation, alternatively that the transferable point having never been hitherto raised, save as an analytical afterthought for the purpose of conducting this case, that the Defendant is effectively estopped from taking the point which, had it been pleaded, would no doubt have been met with all of the foregoing responses. As Mr Bell pointed out, in light of the history of this case, if the Defendant had ever asked for transferability, the Plaintiff would almost certainly have complied, but the Plaintiff was led to believe that the Defendant had accepted the non-transferable Letters of Credit in the form in which they were issued.

18. Mr Wong's third main point was as to the burden of providing the cashmere quota for the fulfillment of this contract. Again, this was not raised in the Defence, and was once more categorised by Mr Bell as an afterthought. The point was this. The original Sales Confirmation, dated 5th August 1994, recites at paragraph 11D that all Bank charges outside China and Hong Kong are to be borne by the buyer and that the buyer should be responsible for "import license quota, and other necessary import documentations". Therefore, said Mr Wong, the Plaintiff buyer had not obtained the quota in question, and accordingly was in breach of contract, and he or the Defendant could not be held responsible for what had occurred.

19. It seems to me clear from the correspondence that Mrs Lohmann or her husband had not appreciated the point about quota, certainly in the way in which it was now argued. When it was raised by Mr Wong by fax, in her response she perhaps understandably queried the need to pay for quota at all, since in her experience the cost of quota was almost always included in the seller's price, and it clearly never crossed her mind that as the German buyer the Plaintiff had the responsibility to go out into the market place and actually physically obtain the quota. She had never once come across this, she said, in all her experience.

20. In any event, at least in this instance the question of quota had been raised between the parties in correspondence, albeit somewhat elliptically in one of the Defendant's early faxes, although by a fax of 15th September 1994, Mr Wong wrote to Mrs Lohmann (at paragraph 3 thereof) in the following specific terms :

This payment was of course made by the Plaintiff as requested, as indeed the clear matrix of facts establishes; so that however the original provision in Clause 11D be construed, the Defendant did receive payment for the quota and then, upon his own evidence, agreed to and did succeed in finding the necessary quota, albeit Mr Wong persistently claimed that this action on his part was 'compulsory' by reason of the Defendant's omission.

21. There is no doubt that problems had arisen with cashmere quota (at one stage Mr Wong had suggested to Mrs Lohmann, a suggestion which was roundly and firmly rejected, that the garments be ascribed as "lambs wool" so as to ease the quota difficulties), and Mrs Lohmann also gave evidence as to referring Mr Wong to her experienced freight forwarder in Hong Kong, whom she felt would be able to assist him in finding the relevant quota. But, as I have indicated, the effect of Mr Wong's evidence, albeit less than totally consistent on the point when reviewed in its entirety, is that having received the quota funds, he agreed to and did in fact ultimately obtain the relevant quota, albeit his evidence, I think, finally came down to the assertion that he had "not been able to get any quota in time" and there is indeed a further suggestion from him at the end of his evidence that the quota monies remitted by the Plaintiff were not actually used for the quota, but were given as a down-payment to the Chinese manufacturer.

22. Whatever the true situation, however, it seems to me, once again, that any original requirement as to quota was clearly varied in this case by conduct, alternatively that there was a waiver or an estoppel; Mr Bell submits that even if there was a repudiatory breach on the Plaintiff's part in not supplying quota, the Defendant clearly never accepted any such repudiation, but on the contrary affirmed the contract by continuing to manufacture and by accepting payments for quota and increased orders, and indeed seeking to obtain the quota; which argument, I suppose, represents the other side of the variation/waiver coin.

23. So, once again, on the facts as they have emerged, I do not think this line of argument, never ventilated as such in the relevant correspondence or on the pleadings, assists the Defendant's case, although I remain far from sure how properly to construe Clause 11D. On the evidence, this contract was drafted by Mr Wong, and it is quite clear that the physical obtaining of quota was not a matter which was ever in the Plaintiff's mind, judging from Mrs Lohmann's surprise at having even to pay for the quota, much less supply it. The way this argument in this area has come about is very unsatisfactory, from both points of view, but at the end of the day I am disinclined to construe the contract contra proferentem as Mr Bell suggests. Accordingly, had there been no agreement by Mr Wong to receive the funds and to obtain the quota, as unequivocally occurred, and had the point been taken and been stood upon by the Defendant at the time, with the contract being repudiated on this basis, in my view the Defendant would then have had a solid argument upon the literal contractual provisions, however commercially impractical this may have appeared to this Court. But this is demonstrably not what happened on the ground, so to speak, and after some reflection upon the quota issue, I reject this argument also as enabling the Defendant to avoid liability for its undoubted breach of contract in failing to deliver the goods.

24. The end result of this judgment, therefore, is that I reject the Defendant's defences, both as pleaded and as propounded at trial, and find in favour of the Plaintiff upon the issue of liability.

25. As I have earlier observed, and as Mr Bell submitted, the issue of quantum itself has not been the subject of any real contest in this Court. Effectively the Plaintiff was put to proof, and under all the heads claimed, I am entirely satisfied that Mrs Lohmann has proved the various quantum elements of her case; indeed, I note that in cross-checking the pleaded claim, and in preparing and double-checking the comprehensive Schedule which was produced to the Court to assist in terms of the Plaintiff's loss of profit claim, Mrs Lohmann very fairly reduced this element of her claim by some DM5,000. At the end of the day, therefore, I find the Plaintiff's case has been established.

26. The Defendant's counterclaim is dismissed. It was but faintly pleaded, and adverted to only on the third day of this trial at the end of Mr Wong's evidence, when he put in a handwritten document listing out his three heads of claim, only to immediately withdraw Category 1 thereof, the loss of profit of profit claim. In any event, I have found that the Defendant has no entitlement to any relief, and even were this not to be the case, the remaining Categories 2 or 3 of the counterclaim as proffered are in themselves nebulous and totally unproved by any sort of cogent evidence.

Order

27. The net result of this judgment, therefore, is that there is to be judgment for the Plaintiff in the sums claimed in the amended Statement of Claim, namely, DM107,804.29 and US$7,515.90. Subject to any further argument, there will be interest upon such sums at the rate of 8% from 1st December 1994 to today's date, that is the judgment date, and thereafter such sums will continue to accrue interest at the judgment rate from time to time prevailing until payment.

28. As to costs, I have considered Mr Bell's submissions upon a higher scale of costs being merited in this case should I find for the Plaintiff. I am not with him on this. The Plaintiff is to have its costs of and occasioned by this action upon a party and party basis, such costs to be taxed if not agreed.