XCHRX TRANS-MEDICA PHARMA-HANDELSGESELLSCHAFT MBH v. HUANG SU HUA and Others

1995, No. CL191

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

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JUDGMENT

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The Plaintiff's Case

1. The plaintiff says that it entered into two contracts with the third defendant. The first and second defendants carry on business under the name of the third defendant. The first contract, it is said, was entered into on 3 May 1995. Under this contract the plaintiff agreed to buy and the defendants agreed to sell 500 kilograms of a substance called Naproxen base USP22 at a price of US$99.50 a kilogram CIF sea Hamburg for shipment in June or July 1995. There was, it is alleged, a second contract entered into on 4 May 1995. This was a similar contract for the same quantity of the same substance at the same price with the same shipment terms in July or August 1995. The plaintiff says the defendants failed to deliver, and the plaintiff set a deadline of 12 September 1995 by which the defendants should notify the plaintiff of delivery dates. The defendants failed to do so, as a result of which the plaintiff suffered loss and damage.

2. The plaintiff now applies for final judgment under Order 14 to be entered against the defendants in the sum of US$25,500, or for damages to be assessed.

The Defence

3. In answer to this, the second defendant, the managing partner of the third defendant, on behalf of all defendants, says that he dealt with the matters concerned. He produces the written exchanges between the parties, and between the defendants and Otto Brandes Gmbh (the broker). Mr Huang says that the course of dealing with the broker was that there would be negotiations between them, and the broker would then fax "a confirmation of the booking setting out the terms required". The third defendant would then decide whether or not to confirm the sale. In the case of these contracts, the third defendant decided not to confirm them. He says that "No contracts would come into existence unless I on behalf of the 3rd defendant confirmed in writing the terms contained in them."

4. All the exchanges between those concerned were in writing. It is against the background of these contemporary documents that I have to decide whether or not the defendant has advanced an arguable defence. I should say that the documents I mention were produced by the defendants, so there is no doubt that they were received by them. All the documents were sent by facsimile transmission, so there was no significant delay.

5. There are two contracts alleged by the plaintiff. I will deal with the evidence relating to each of them separately.

The First Contract

6. In relation to the first contract, the documents are as follow. The first document is one dated 2 May 1995 by the third defendant to the broker. That says - "We are pleased to offer today's price Naproxen USD99.50/kg CIF C2 sea." On the same day, the broker responded, saying - "Pls book 500 kg Naproxen base USPXXII fresh 1 batch USD99,50/kg CIF sea C2 Hamburg". On the 3 May 1995, the broker wrote twice asking the third defendant to - "reconfirm our order Naproxen". On the same day, the third defendant replied, saying - "Re: Naproxen 500kg batch fresh, commercial batch, USD99.50/kg CIF C2 sea shipment; June/July". There can be no doubt that this message was doing what the broker asked - to "reconfirm" - because, in the same message, the third defendant says, in relation to another query - "No prompt. Need to work out shipment". The broker replies to this asking - "Is it a firm confirmation?" The broker writes again on the same day, 3 May 1995, asking for a sample of the Naproxen, but then, again on the same day, says that the broker has received a firm offer for the Naproxen "valid for our decision 4.5.95 09:00 hrs". The broker writes again the same day saying that "We confirm having booked today" the Naproxen in accordance with the terms already mentioned. This document says - "The supplier will indicate the manufacturer's name 4.5.95." This document also reveals the buyer's name and address. There follows what is obviously a broker's note dated 3 May 1995 setting out the terms of the contract, and, again, the notation "The supplier will indicate the manufacturer's name 4.5.95". The note also mentions the commission. With this, Mr Huang says, was sent three copies of the commission note. The first one says - "Please confirm booking by returning the enclosed statement duly signed by yourselves and remit the amount to our account . . .". There are two copies of this, without the annotation mentioned, but bearing, in its place, the words "We confirm the corresponding booking", and indications of where the signature and date should be written.

7. On 3 May 1995, the plaintiff wrote to the third defendant, saying - "We confirm having purchased from you at the following conditions", setting out the terms and, again, the note - "The supplier will indicate the manufacturer's name 4.5.95".

8. On 4 May 1995, the third defendant responded, referring to the broker's note number for the order and giving the name of the manufacturer.

9. On 19 May 1995, the broker writes, referring to the broker's notes for both lots of Naproxen, saying that the plaintiff "requires copies of formal contracts issued from yourself - just to complete the file."

10. Thereafter, from 4 July 1995 to 28 July 1995, the broker writes to the third defendant 7 times and the plaintiff writes three times inquiring about delivery of the first batch of Naproxen.

11. The third defendant responds only on 29 July 1995 saying - "We are tracing the supplier for the shipping detail and will revert as soon as we can."

12. Nothing more is heard from the third defendant in spite of about ten queries from the broker and two from the plaintiff itself. The third defendant is also warned about possible legal action. The last fax was sent by the broker on 17 September 1995. The plaintiff issued its writ on 7 October 1995.

Assessment of Evidence relating to the First Contract

13. On the face of it, the evidence indicates that there was a concluded deal on the first batch of Naproxen. Perhaps the easiest way of looking at this is to say that the broker's note and the plaintiff's letter of 3 May 1995 constituted a firm offer to buy on the terms stated. It was for the third defendant to accept or reject this. By its fax of 4 May 1995, in which it refers to the broker's note number, the third defendant complied with one of the terms of the offer; that is, to supply the name of the manufacturer. This can be taken only to be an acceptance of the offer, this concluding the contract. The evidence of the conduct of the third defendant thereafter, particularly the fax of 29 July 1995 saying that the third defendant was tracing the supplier for shipping detail, is consistent only with the fact that the third defendant recognised that it was bound to deliver.

14. In his affirmation, Mr Huang makes no attempt whatsoever to explain why, in the face of a barrage of faxes that make it quite clear that the broker and the plaintiff believed that the third defendant was bound to supply the Naproxen, he did not at any stage point out that the third defendant was not so bound. In my view, in the circumstances of this case, this can be only because Mr Huang knew that the third defendant was bound. It is inconceivable that a businessman, in this situation, who believed that the faxes he was receiving contained statements that were totally incorrect, would ignore them, and not say that there was no contract and that the third defendant was not bound to deliver.

15. In relation to the fax in which he supplies the name of the manufacturer in compliance with the terms of the broker's note and the purchase letter from the plaintiff, he says - ". . . I employed [the broker's] booking number . . . but did so for no other reason than convenience and did not thereby intend to, or as fact, acknowledge that this contract had come into existence or had been confirmed by me.". This explains nothing at all. What was the point in referring to the broker's note and giving the manufacturer's name if he did not mean thereby to indicate that he was complying with the contract? He does not say.

16. Regarding his fax of 29 July 1995, in which he says the third defendant "is tracing the supplier for the shipping detail" and does not say - "What are you talking about? Why are you chasing us? We have no contract? We are not bound to deliver anything.", he explains that, because the broker was an important customer, he "wanted to give the impression that the 3rd Defendant was trying to help trace a 500 kgs shipment." He says that it would have been better if he had not sent the fax at all. He is right. He is right because it provides a window into his thinking at that time, and that thinking was not -"Why are these people bothering me? I have no obligation to deliver Naproxen to them" but "I have to explain why I have not shipped the Naproxen."

17. Mr Allman-Brown submits that there can be no contract if the third defendant did not confirm the bookings in writing as required by the broker's commission notes, and subsequent silence cannot make a contract out of no contract. I do not accept that the third defendant could enter into the contracts only by signing and returning the commission notes. No formalities were required here. If the evidence establishes that the third defendant did indeed enter into the contract, that is the end of the matter, and the fact that the third defendant did not enter into them in the way invited by the broker is neither here nor there. Of course, Mr Allman-Brown is right to say that a contract cannot be imposed on the third defendant by reason of the third defendant's silence, but, if there are negotiations towards a contract, as here, and the evidence indicates that a contract was concluded at the time, the subsequent conduct of a party to the negotiations can provide evidence that the party regarded himself as bound and provide further evidence that the contract was concluded. That is the case here. The conduct of Mr Huang can give rise to no other conclusion than that he regarded the third defendant as bound to perform the first contract as alleged by the plaintiff, and that, therefore, the contract was concluded as so alleged. Mr Huang's evidence relating to his conduct, in so far as he attempts to explain it at all, is totally incredible, and I reject it as such.

18. It follows, in my view, that the defendants have not put up any arguable defence to this contract, and the plaintiff is entitled to final judgment.

The Second Contract

19. The evidence as to the second contract is somewhat different.

20. On 4 May 1995, the broker wrote saying it had a firm offer valid for a decision that day for another 500 kilograms of the Naproxen at a price of US$99.50 a kilogram, and, in another fax - "naproxen - any chance to get in total 1000 kg?" In relation to this order, there follows much the same messages from the broker and the plaintiff; the broker confirming having booked the order, asking for reconfirmation from the third defendant, and sending a broker's note; the plaintiff writing confirming "having purchased from you" the additional 500 kilograms of Naproxen, and asking for a copy of their letter to be signed. The broker also asked for a representative sample.

21. The only response to this by the third defendant was on 8 May 1995, when the third defendant wrote to the broker saying that they are trying to get a sample, and "Re: Naproxen further quantity 500 kg best price we can offer USD102.-/kg CIF C2 sea shipment: end Aug/Sept 1995 Payment: D/P sight 1st presentation".

22. There is nothing in the evidence that indicates that the plaintiff accepted this offer. Indeed, it claims that a contract was concluded at a price of US$99.50 a kilogram.

23. The only other evidence is the third defendant's silence, although it must be said that the faxes from the broker and the plaintiff concentrated on chasing the third defendant in relation to the first contract, with only passing reference to the second batch. In this context, Mr Allman-Brown is right to say that a contract cannot be imposed by silence. Even if one could argue that, potentially, one could, the question is: At what price? The plaintiff wanted to buy at US$99.50; the seller wanted to sell at US$102 a kilogram. The evidence does not establish any agreement on this essential element.

24. On this contract, I cannot find that the defendants do not have an arguable case, and they are entitled to unconditional leave to defend.

Quantum

25. As to quantum, it is clear to me on the evidence that Naproxen is a product that has a fluctuating market value. On 2 May 1995, its market value was about US$99.50 a kilogram. By 8 May 1995, a matter of a few days, it seems that it had moved to US$102 a kilogram. I am concerned with its market value around the middle of September 1995. The evidence adduced by the plaintiff says that the market value in Hong Kong on 27 July 1995 was US$126 a kilogram and in Hamburg on 20 August 1995 was US$126 a kilogram. Mr Huang says that the market price on 10 October 1995 was US$110 a kilogram. I do not think this is sufficient evidence on which to find the market value of a product of this nature in the middle of September 1995. According, the judgment for the plaintiff on the first contract is to be for damages to be assessed.

Costs

26. It seems to be that the plaintiff is entitled to its costs of action and this application in relation to the first contract. In relation to the second contract, it seems to me that the costs of this application should be in the cause. I make an order nisi accordingly. There will be a certificate for counsel.