YUNG Zeng Industrial Co.(HK) Ltd. v. Zhong Shan Native Produce and Animal By-Products Co. Ltd. and (Hong Kong Force Ltd.)

1994, No.A12328

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. The plaintiff company sues the defendant company for breach of contract. The defendant denies any breach but says that if one is proved it is entitled to an indemnity from the Third Party.

The background

2. All three parties are in the business of trading in aromatic oils. In 1994 the defendant told the plaintiff it could be in a position to sell the plaintiff a quantity of peppermint oil in which the Plaintiff was interested.

The first offer

3. On 30 September 1994, the defendant faxed the plaintiff,

"We are pleased to offer...peppermint oil (price and quantity)...above offer remains valid till 4 October 1994...."

I will term this fax "The first offer".

4. There is a conflict of evidence about what Mr Michael YU of the plaintiff said on the telephone in response to this fax. Mr YU claims he telephoned accepting the offer unreservedly and asked for a faxed contract as confirmation. Mr ZHANG of the defendant says Mr YU telephoned to say he was interested and asked for a faxed contract for consideration.

The second offer

5. Be that as it may, the next day, 1 October, the defendant faxed a signed form of contract to the plaintiff which I will call "the second offer". This document is set out fully in the Bundles. Details of the price and the quantity were the same as the first offer.

6. The portion relevant to the present case appears under the heading "Remark" and reads,

"Kindly sign and return one original of the sales contract to us immediately upon the receipt hereof."

There are provisions for signatures of buyer and seller at the end and the defendant signed its space as "seller" before faxing it. The space intended for the plaintiff as "buyer" was left lank.

7. Again there is a conflict of evidence what the two men said in subsequent telephone conversations. Mr ZHANG says he asked Mr YU to fax back the second offer, duly signed. He then went to China about 7 October, to try to locate the oil. He started negotiations to buy it from the Third Party.

Mr YU maintains that Mr ZHANG assured him in telephone calls from China that all was well, the oil would be soon forthcoming, in effect that the contract was confirmed.

8. Mr ZHANG says he gave no such oral telephone assurances. On the contrary there was a problem with locating suitable quality oil. He regarded any legal obligation on his part as over by 7 October because Mr YU had not returned the second offer signed. However he would continue to see what he could do to revive a deal either with the plaintiff or failing that, with anybody else.

9. Correspondence produced from the defendant to the Third Party shows that there was indeed a problem with securing suitable quality oil. Mr ZHANG's evidence generally accords with this correspondence. On the other hand, if the plaintiff's version is correct, it would mean the defendant was deliberately painting a picture of false optimism to the plaintiff for some reason of its own.

10. I do not overlook that the defendant was also corresponding with the Third Party in terms varying between the pleading and the threatening in an effort to get the Third Party to supply. That correspondence was not available to the plaintiff at that time and the defendant had no reason to suppose it would be. That correspondence I regard as a hopeful attempt by the defendant to revive a deal and not an admission by the defendant that it had a binding obligation to the plaintiff.

The dispute

11. In the result the Third Party could not supply the defendant, the defendant accordingly could not supply the Plaintiff and the proposed deal fell through. The plaintiff purchased oil from an alternative supplier and says it lost heavily on a sub-contract by having to do so. That loss is the basis of its claim in breach of contract from the defendant.

12. It is not disputed that the plaintiff did not return the faxed signed contract, the second offer, to the defendant until 27 October, i.e. 23 days after the stipulated date in the first offer and certainly not "immediately" as requested in the second offer. To this the plaintiff says it in fact signed the second offer much earlier, about 3 or 4 October in fact, but Mr YU simply kept it and did nothing to communicate that document until the 27th. Mr YU said there was no point in faxing it; a fax when received is always only a copy and there was no "original" available to him to despatch anyway. His reasoning, he says, was that the expression "Sign and return one original" was impossible of compliance because he had no "original".

The solicitors' alleged admission of 18 November

13. It is necessary to refer to some pre-trial correspondence between the parties. On 10 November the plaintiff's solicitors wrote the first letter of demand to the defendant company. On 18 November the defendant's solicitors replied on their client's behalf, denying liability and stating inter alia, "... save that it is admitted that our client entered into a contract with your client..."

14. On 19 December, the defendant's solicitors wrote withdrawing that admission and they said they had considered the matter more fully and were now asserting what has emerged in the pleadings, that is that there was no valid acceptance of the offer and thus no binding contract. The plaintiff now points to this "about-face" and suggests that the plaintiff's advisers -- I'm sorry, the defendant's advisers ... in effect admitted the existence of a contract in an open letter and ought not to be allowed to withdraw that admission.

15. I cannot agree with this submission. Any legal adviser is entitled to modify or even reverse his client's approach if upon later and more mature consideration he thinks that appropriate. Indeed it is his duty to do so. Of course, if a legal representative makes an admission of fact on his client's behalf he may find a difficulty. But this was not an admission of fact, it was a conclusion of law based upon given facts.

16. On 18 November, the defendant's solicitors gave a preliminary, prompt and "first-blush" response, then they gave the situation more consideration and thought they saw their client had an alternative defence on the facts. It was perfectly proper, indeed their duty, to raise this then and there and this is what they did. They never led their client into a self-contradiction on the facts, they merely raised a different defence in law. No adverse inference can be drawn from that.

The true construction of the "Remark"

17. These words, "...sign and return original...immediately", must be considered in the light of the circumstances and modern commercial reality. The latter includes the fax machine. I suspect this contract form was drafted before that device became commonplace.

18. The circumstances include the fluctuating market, the urgency and the fact that the offerer elected to use the fax, implying that he adopted that means of communication.

19. To my mind all this can only mean that the word "original" becomes superfluous in the context. Nobody expected original pieces of paper to be delivered or mailed in the post. But the remaining words "sign and return immediately" retain their importance and emphasis. They exclude oral acceptance; they seek communication of prompt written acceptance.

20. This the plaintiff did not do. He did not communicate his written acceptance of the defendant's offer until 27 October. This did not comply with the condition; by this time the offer had lapsed. Only if the plaintiff can establish a waiver of the stipulation, that an oral acceptance, of the offer was still acceptable can it succeed.

Credibility. Was there oral acceptance?

21. The price and availability of peppermint oil on the international market fluctuates rapidly. An international form of US commodity brokers publishes a weekly market report as a guide to prices. In fact the price fluctuates daily. Mr ZHANG said that no rational businessman would commit himself to a contract involving well over $1 million unless he had something in writing.

22. From 30 September to 27 October, although he himself had despatched two offers in writing, he had nothing in writing from the plaintiff. The plaintiff had responded with oral expressions of interest. The two men were not close friends, certainly they were acquaintances from the past, but they had never done business together before. Mr ZHANG said there was no question in these circumstances of a mere oral contract. He said that unless and until the plaintiff communicated a written acceptance he regarded him plaintiff's wishes.

23. Urgency had been the key-note with both of defendant's offers. The first offer had said "valid to 4 October", the second offer had said "sign and return immediately". Nothing was signed and returned in response until 27 October, the best part of a month later. The shipment itself had been stipulated as "October".

24. By 27 October it seemed clear that things were falling apart. Then Mr YU for the first time sent the signed second offer, and also on that day a letter threatening to sue the defendant. I consider the signed second offer was sent to lend weight to that threat, not for mere reference, as Mr YU suggests. Whenever it may have been signed, that was the first time it was communicated to Mr ZHANG.

25. I am sceptical of Mr YU's claim that he signed the second offer immediately but kept it on his file for his own reassurance. In any event, if he did that unilaterally and secretly so to speak, that was no written communication of it to the defendant, and it was ineffective. I am of the view that the second offer remained at all times merely an offer not a confirmation of acceptance of the first offer as Mr YU would have it.

26. In the areas of conflict in the oral evidence I thought Mr ZHANG the more believable witness of the two men, and I accept his evidence where it conflicts.

27. On the facts, I am not satisfied that Mr YU ever orally and unreservedly accepted the offer, nor am I satisfied that Mr ZHANG ever said or implied from his conduct that an oral acceptance was sufficient.

The result

28. The plaintiff's claim against the defendant fails. It is unnecessary to consider the Third Party claim.

(Discussion re Third Party claim)

COURT: So then the result would seem to be that on the plaintiff's claim against the defendant, there will be costs to the defendant against the plaintiff to be taxed if not agreed. As to the defendant's claim against the Third Party, the defendant's claim against the Third Party is adjourned to a date to be fixed.

I/we certify that to the best of our ability and skill, the foregoing is a true transcript of the audio recording of the above proceedings

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B.PIRIE

Date: 12 July, 1997.