MEYER ALUMINIUM LTD v. MOSTLY STRONG PRECISION METAL INTERNATIONAL LTD

HCA1716/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1716 OF 2009

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J U D G M E N T

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1.  The core issue in this case is whether or not the parties have entered into binding agreements for the manufacture, sale and purchase of goods under 7 purchase orders.

THE FACTS

2.  The parties had been in business with each other since 2005 until the defendant ceased to take delivery of goods in 2008.  The plaintiff manufactured and sold to the defendant aluminum coils and sheets (“the goods”).  There had been 31 transactions of which 7 form the subject matter of this case. 

3.  Much of the facts are disclosed in uncontested documentary evidence.  The plaintiff has called 2 witnesses. PW1 (Mr Lam) is the Sales Engineer who negotiated with the defendant and handled the 7 transactions in question.  PW2 (Mr Tong) is the manager who attended the conferences with PW1 and the defendant after the defendant ceased to take delivery.  Both witnesses’ evidence is largely supported by contemporaneous records.  They are not shaken in cross-examination and are truthful and reliable. 

4.  The defendant did not call 2 material witnesses — Ms Shek and Ms Fung, they having left employment.  They negotiated with PW1 and directly handled the 7 transactions in question; Ms Shek signed all the POs.  Ms Shek could not be contacted while Ms Fung was unwilling to give a statement.  The only witness, DW1 (Mr Cheung), is honest but I cannot give much weight to his evidence because he was not involved in the transactions except to instruct the 2 ladies to obtain quotations for the price.  Furthermore, his perception of the situation goes against clear documentary evidence.  There will be more analyses of his evidence below. 

5.  The following facts are thus taken largely from the evidence of the plaintiff’s witnesses whose evidence I accept to be true and correct. 

6.  A transaction would start off by oral discussion of the terms between PW1 and Ms Fung or Ms Shek, followed by a quotation from the plaintiff setting out, amongst others, the price, quantity, sizes and delivery date.  (If there was no quotation, the defendant would ask the plaintiff to issue one subsequently.)  The defendant would then send a signed purchase order (“PO”) to the plaintiff.  That would be followed by a signed sales confirmation (“SC”) from the plaintiff.  The 7 sets of POs and SCs in question were not signed by the respective recipient to confirm acceptance.  The plaintiff would usually issue a proforma invoice (“PI”) at the time of the SC asking for payment of deposit, being 30% of the total value of the goods ordered (“the deposit”) before production was to commence.  If the plaintiff had forgotten to do so, the defendant would remind it.  For the first 4 POs, the defendant had paid the deposits. 

7.  PW1 would report the defendant’s order to the plaintiff, who would buy the required quantity of aluminum ingot according to the market price at the time when the defendant placed the order. 

8.  The products were made to the defendant’s required thickness, sizes and type of aluminum coils and sheets unless stock existed from the residual quantity of past orders.  The chance of reselling was very slim because of the unique combination of alloy composition, temper, thickness and width combination of sheets and/or coils to fit the machinery of the defendant. 

9.  The major production process was as follows :

(a)     Melting down of aluminum ingot.  Quantity cannot be changed because aluminum ingot costs had been fixed by the supplier. The composition of the alloy could not be changed. 

(b)     Casting the liquid aluminum into slab form.  Once casting started, the alloy could not be changed. 

(c)      Rolling down the thickness.  Once rolling started, the thickness could not be changed. 

(d)     Slitting the coils down to the ordered width.  Width could not be changed once slitting started. 

(e)      Cutting to the ordered length in case of sheets.  Length could not be changed once cutting started. 

(f)      Annealing/heating to suitable hardness.  Hardness could not be changed once annealing started. 

(g)     Packing the coils in wooden cases. 

The lead time for the whole process was about 4 – 6 weeks. The goods could not be ready within a matter of days unless stock was available. 

10.  In the meantime, the defendant might amend the sizes of the goods.  Such amendments would be in writing by email or a revised PO, with or without a revised SC.  The plaintiff would agree to the amendments if the relevant production process had not yet begun.  Otherwise, no amendment would be allowed and the defendant had to accept the goods produced according to the latest confirmed size.  In addition, the parties would liaise and decide on partial delivery of what quantity and on what dates. 

11.  When the goods were ready for delivery, the plaintiff would notify the defendant.  After obtaining the confirmation from the defendant about the delivery date and amount, the plaintiff would issue a packing list and another PI for the balance of the purchase price (deducting the deposit if applicable).  Upon payment, the goods would be delivered. 

12.  In the present case, the plaintiff agreed to manufacture and sell to the defendant a total of 159,100 kg of goods under 7 sets of POs dated between August 2007 and March 2008.  There were corresponding SCs and PIs.  The plaintiff had produced all the goods required.  The defendant paid the deposit for 4 POs and took partial delivery under only 3.  Details are tabulated below. 

Date	PO No.	PO Quantity (kg)	Amount charged (HK$)	Deposit paid (HK$)	Quantity delivered (kg)	Quantity not taken[1] (kg)	Unused deposit
20.8.07	03012974 (PO1)	11,100	324,895	97,468.50	9,032	2,016	Nil
11.9.07	070911008 (PO2)	1,000	30,430	9,129	Nil	820	9,129
31.1.08	0800243 (PO3)	2,000	56,000	16,800	Nil	2,005	16,800
1.4.08	0800342 (PO4)	32,000	992,000	297,600	20,119	13,482	130,000
13.3.08	0800465 (PO5)	25,000	837,500	Nil	9,980	19,598	Nil
13.3.08	0800466 (PO6)	25,000	837,500	Nil	Nil	27,616	Nil
17.3.08	0800481 (PO7)	63,000	2,110,500	Nil	Nil	73,270	Nil
Total		159,100	$5,188,825		39,131		$155,929

13.  In June 2008, the defendant’s factory in Shenzhen was flooded.  The machinery was damaged and there was no place of storage. Some of the defendant’s customers had cancelled their orders. 

14.  Three conferences took place on 17 September and 3 October 2008 and 12 January 2009 respectively.  In essence the plaintiff proposed to (i) extend the deadline for the defendant to take delivery of 40 tons[2] of the goods per month for 3 months; or (ii) sell the goods as scrap and the defendant should compensate the plaintiff for the price difference and processing cost.  DW1 requested to reduce the price of the goods but the plaintiff refused.  No agreement could be reached over disposal of the goods.  The goods are now stored in the plaintiff’s warehouse in Tai Po. 

THE ISSUES

15.  The plaintiff avers that in the light of the preceding oral discussion and quotation, a contract was formed when a PO was sent to it. The price and quantity could not be changed.  However, the plaintiff would accept subsequent amendments to the sizes provided they were made in good time.  It would also be amenable to changes to delivery dates.  Since about April/May 2008, the defendant had been in breach of each of the 7 contracts in failing to take delivery. 

16.  The defendant avers that the parties were at the stage of negotiation only.  For every PO, except for the unit price, all other terms (including the quantity, sizes, delivery date and deposit) were not important and subject to final confirmation from the defendant from time to time.  The quantity was just to set priority for Ms Shek to chase the supplier for delivery.  Specific orders to the plaintiff would be placed after the defendant had confirmed orders from its own customers.  A contract would be formed when, upon a specific order from the defendant a few days before delivery, the plaintiff issued a PI and packing list and deliver the final confirmed quantity of goods with final confirmed description to the defendant. Since there were no more final specific orders outstanding and unpaid, the defendant was entitled to the return of the balance of deposit.  Under cross-examination, PW1 said it was not possible to name a stage when a binding contract was formed. 

17.  It would thus be necessary to examine :

(a)     The subject matter of the parties’ negotiation;

(b)     whether and when any binding agreement had come into existence in respect of each of the 7 POs; and

(c)      whether the defendant had been in breach in refusing to take delivery. 

In the event liability is established, the formula for deciding the quantum has been agreed. 

THE LAW

18.  In commercial transactions, parties can carry on lengthy negotiations and the court will look at the course of events to decide if and when a contract has come into existence. 

“When parties carry on lengthy negotiations, it may be hard to say exactly when an offer has been made and accepted. As negotiations progress, each party may make concessions or new demands and the parties may in the end disagree as to whether they had ever agreed at all. The court must then look at the whole correspondence and decide whether, on its true construction, the parties had agreed to the same terms. If so, there is a contract even though both parties, or one of them, had reservations not expressed in the correspondence. The court will be particularly anxious to hold that continuing negotiations have resulted in a contract where the performance which was the subject-matter of negotiations has actually been rendered. In one such case a building sub-contact was held to have come into existence (even though agreement had not yet been reached when the contractor began work) as during its progress outstanding matters were resolved by further negotiations. The contract may then be given retrospective effect, so as to cover work done before the final agreement was reached.”

Chitty on Contracts (13 edition), Vol 1, paragraph 2-028.

“Businessmen do not, any more than the courts, find it easy to say precisely when they have reached agreement, and may continue to negotiate after they appear to have agreed to the same terms. The court will then look at the entire course of negotiations to decide whether an apparently unqualified acceptance did in fact conclude the agreement. If it did, the fact that the parties continued negotiations after this point does not affect the existence of the contract between them, unless the continued correspondence can be construed as an agreement to rescind the contract. A fortiori, the binding force of an oral contract is not affected or altered merely by the fact that, after its conclusion, one party sends to the other a document containing terms significantly different from those which had been orally agreed.”

Chitty on Contracts (13 edition), Vol 1, paragraph 2-029.

THE SUBJECT MATTER OF THE NEGOTIATION

19.  There are 5 matters involved in the negotiation :

(a)     The price;

(b)     the quantity;

(c)      the delivery date;

(d)     the sizes; and

(e)      the deposit. 

(a)     The price

20.  It is not in dispute that the unit prices under each PO had been agreed.  The unit price was quoted by the plaintiff to the defendant based on the Meyer Weekly Base Price, which was derived from a 3-month average of the official price of London Metal Exchange plus relevant charges and premum.  Each quotation was thus subject to change on a weekly basis. 

21.  The defendant’s view is that only the price was “locked”. The terms as to quantity, sizes and delivery date were not important.  Owing to the computer system of the defendant, the fields for those 3 terms could not be left blank.  Hence, the staff just randomly inserted figures.  Neither was the deposit important. 

22.  There is no evidence that the plaintiff knew about the situation with the plaintiff’s computer system.  One thus needs to consider the situation objectively against the evidence. 

(b)     The quantity

23.  The quantity was important.  If it was not fixed by contract, how much aluminum ingots should the plaintiff purchase for the defendant at the “locked” price? 

24.  The quantity affected the unit price.  An example was PO7 in which the plaintiff expressly agreed to reduce the unit price when the defendant increased the quantity from 50,000 kg to 63,000 kg. 

25.  The quantity also affected the amount of deposit to be paid.  The deposit was 30% of the price of the total quantity ordered, not that actually delivered.  If the sole concern of the defendant was to “lock” the unit price, its computer should have inserted a smaller or fixed quantity each time so that less deposit had to be paid. 

26.  Moreover, the quantity stated in a PO might differ from that in the quotation.  Clearly the quantity meant something to the person filling out the PO.  It can be seen from the summary of 31 orders that the quantity ordered by the defendant varied from 0.3 kg to 63,000 kg.  Apart from the 7 POs in question, the defendant had always taken the full quantity ordered under the SCs (with differences much less than the 10% tolerance quantity). DW1 could not explain this phenomenon.  He repeatedly testified that ordering goods from the defendant was just like buying paper from a stationery shop. The goods could be readily available and if not, he could get similar goods from another supplier.  He could not explain why Ms Shek and Ms Fung, being purchase clerks whose responsibility was to chase suppliers for delivery according to him, would have the authority to fill in the differing quantities in the POs.  He confirmed, however, that there were 3 sections in his company and the 2 ladies did not have to discuss with him before inserting the quantity. In my view, the irresistible inference is that Ms Fung or Ms Shek, in consultation with someone or some documents (like customer orders) in the defendant did work out the quantity required over a period of time and that quantity was accordingly inserted in the POs.  Because of this forward estimation of the defendant’s demand, there was steady supply from the plaintiff.  That enabled DW1 (who had no idea of the whole process of placing orders with the plaintiff) to obtain the goods as if taking them off the shelf.  No wonder he thought that a contract was formed just a few days ahead of delivery when the PI for the purchase price and packing list were sent to the defendant.  However, as a matter of law, the contract was formed a lot earlier as analyzed below. 

27.  I note that the plaintiff inserted a standard term in the SCs that there should be +/–10% tolerance in quantity. By virtue of the parties’ 31 transactions between 2005-2008, the defendant should have known that this was a standard term.  Accordingly, I would not regard an SC which incorporated all the terms to a PO to be a counter-offer solely because of the addition of this standard term. 

28.  In summary, I agree with plaintiff that apart from the price, the quantity was also fixed and could not be changed once a contract was formed. 

(c)      The delivery date

29.  The delivery date must be important to the defendant. It always wanted the goods as early as possible and wanted the plaintiff to specify a date.  Without knowing the date of delivery, how could the defendant be confident that it could meet the delivery dates of its own customers? 

30.  The delivery date was equally important to the plaintiff. It would check with its own production team for the lead time (usually 4 – 6 weeks) and always proposed in the SC to defer the delivery period to ensure that the deadline could be met.  The deferred period could be from a week up to a month.   PW1 affirms that the defendant could rely on the stated delivery date on the SC to sue the plaintiff for late delivery.  The defendant disputes the lead time. 

31.  In my view, given the special alloy content, varying thickness and the sizes, I accept the plaintiff’s version that the goods were tailor-made for the defendant and a lead time of 4 – 6 weeks was necessary for production. 

32.  I find that the parties were concerned with fixing a time frame for delivery.  Once fixed, the parties would continue to discuss over the actual delivery dates and the partial quantity involved. Those discussions, in my view, were not meant to be counter-offers that would affect the formation of a contract.  They were the result of the defendant’s request and the plaintiff’s accommodation.   In that context, PW1 was correct in saying that the delivery dates could be changed.  The plaintiff would prepare packing lists and PIs for the balance of the purchase price for the defendant to enable it to prepare documentation for customs clearance.  The evidence shows that sometimes the defendant took delivery beyond the period provided for in the SCs and there had never been refusal to take delivery on the ground of the plaintiff’s delay in production. 

(d)     Sizes

33.  To the plaintiff, the sizes affected what price to quote.  However, the plaintiff agreed that the sizes could be changed as it involved cutting down the bigger size into the smaller. 

34.  To the person filling in the PO, the sizes must have meant something as they differed from PO to PO.  Some POs contained more than one set of size.  Both parties regarded subsequent amendments serious enough as to require a signed amended PO from the defendant and revised SC from the plaintiff.   The defendant cannot be heard to say that this term was unimportant.  Again the amendments were new requests and concessions made by the respective party.  DW1’s analogy to buying paper from a stationery shop was entirely inappropriate.  The paper was ready-made but the goods in question were tailor-made.  He clearly did not know the plaintiff’s production process.

35.  I am of the view that the sizes need to be agreed as a matter of principle before a contract could be formed but the sizes could be changed subsequently by agreement provided the relevant production process in paragraph 9(c) to (e) were not yet reached. 

(e)      The deposit

36.  The requirement to pay the deposit and its computation were very established.  It was a significant percentage of the total price.  That it was to be paid before manufacture must have been well known to the defendant.  It needed no express agreement between the parties. When the plaintiff forgot to issue it, the defendant would remind it to. 

37.  DW1’s views on the deposit are full of contradictions and against the weight of documentary evidence.  He insists that the deposit was based on the quantity of goods as stated on the packing list. He maintained this view until he was shown each of the 7 POs and the PI which charged the deposits based on quantity ordered by, not delivered to, the defendant. He also claims that the deposit was not important but only to strengthen the plaintiff’s confidence.  Why would he need to strengthen the plaintiff’s confidence if the goods were readily available from other suppliers?  PW1 spent about 10 min under cross-examination to state his views on the deposit but could not logically explain why 30% was charged, based on what and why pay at an early stage before even knowing whether the needs of his customers might exceed the quantity represented by that 30%.  When cross-examined as to why he had to pay 30%, after a long silence, he said it was “to take delivery”; “in fact it served no purpose”.  His version contradicted his own witness statement which states that “the time when agreement was reached was the time the defendant was committed to or actually paid the deposit of the confirmed quantity, not the issue of the SC or anything else”.  In his supplemental witness statement, he stressed again that “the plaintiff must run the risk if it [started] to prepare or cut the aluminum before the defendant pays the 30% deposit.  No matter what documents were issued by the plaintiff, the only crucial stigma of a confirmed quantity [was] the paid deposit.  The Plaintiff should itself be liable to the goods if the defendant [did] not confirm the quantity in such circumstances.”  This piece of evidence constituted an admission that payment of the deposit could be act bringing a contract into existence.  

38.  The defendant also claims that the words “TO BE ADVISED” on the PI shows that there was no contract.  I disagree and accept the plaintiff’s version that those words related only to the “Marks and Numbers” of the cargo packing of finished goods, which were the plaintiff’s specification for delivery only.  They had no bearing on whether or when a contract was formed. 

39.  I find that the need for payment of a 30% deposit was a standard term.  When the defendant asked for a PI for the deposit it could signify acceptance of the plaintiff’s terms.  The payment of the deposit would put it beyond doubt that a contract was formed. 

WHEN A CONTRACT COULD BE FORMED

40.  In my view, the quotation was an invitation to treat from the plaintiff.  The PO was an offer from the defendant.  The SC would be an acceptance from the plaintiff provided it contained exactly the same terms as the PO.  However, as it were, most often the SC would be a counter-offer proposing a later date of delivery. 

41.  Where there was no further term counter-offered by the defendant, a contract would be formed when the SC was accepted by one of 3 means :

(a)      By the defendant signing the SC — which never happened in this case;

(b)     by conduct, such as proposing and agreeing amendment to only one term leaving others unaltered; or by accepting partial delivery of the goods;

(c)      by asking for a PI for the deposit or, if that never happened, by payment of the deposit. 

I note PW1’s assertion that the defendant had orally agreed to the delivery dates on the SCs but I cannot find supporting evidence.  I am not prepared to find the existence of oral acceptance in this case. 

42.  DW1’s witness statement stated that the defendant intended to order the full quantity in respect of PO1 – 4; the dates confirmed were on or about 17 September, 17 September 2007, 3 March and 1 April 2008 respectively.  What these dates were were unclear but they were all after the PI for deposits were issued.  This piece of information from DW1 constituted an admission that 4 contracts had been constituted pursuant to PO1 – 4, and at the latest, after payment of the deposit. 

43.  With the general view in paragraphs 40 – 42 in mind, I now analyze each of the POs. 

PO1

44.  On 20 August 2007, this PO was issued proposing a delivery date of 30 August.  The words “please reply on the delivery date; urgent” were written on the PO.  On 29 August, the plaintiff issued an SC counter-proposing the delivery date to September 2007.  On 30 August 2007, the plaintiff started production.  On 6 September 2007, the plaintiff agreed to change the size of the goods based on the defendant’s amended PO.  On 12 September 2007, the plaintiff issued PI for the deposit and payment was effected on 19 September 2007. 

45.  I find that a contract was formed (i) on 6 September 2007 when the only proposed amendment regarding the sizes was accepted by the plaintiff; or if I am wrong, (ii) at the latest, on 19 September when the defendant paid the deposit.  Delivery was to be effected in September 2007. 

46.  The defendant had taken full delivery for the 0.7 mm size and a partial delivery for the 0.6 mm size.  It asserts that those were what the plaintiff was able to deliver and the defendant did not insist upon the shortfall.  DW1 also testified that it only needed 9,032 kg.  Therefore the contract was only for 9,032 kg and did not include 2,016 kg.  This assertion was contradicted by the contemporaneous documents. After accepting the partial delivery, Ms Shek informed the plaintiff that there was still a balance of 2,059 kg.  If the defendant did not need the goods, why bother to ask? The plaintiff replied by email, well before the expiry of the delivery period, that 2,016 kg had been completed.  Still, the defendant did not take the full balance in the second partial delivery.  Hence, on 17 October, PW1 reminded Ms Shek that 2,016 kg was still in the plaintiff’s warehouse ready for delivery but this was never taken by the defendant. 

47.  I reject the defendant’s version and find that the defendant was in breach of this contract in failing to take delivery of 2,016 kg of the goods. 

PO2

48.  This PO dated 11 September 2007 asked for same day delivery  The SC issued 2 days later stated a delivery date in around early October 2007 accompanied by a PI for the deposit. The plaintiff started production on 13 September 2007.  The deposit was paid on 19 September 2007.  On 25 September 2007, Ms Shek sent an email asking the plaintiff to confirm the details of the size and chased for a delivery date.  On 27 September, the plaintiff replied stating that the goods were waiting for the annealing process and it would reply on progress in the following week.  (PW1 testified that this process would usually take 4 days.)  On 9 October, PW1 asked Ms Shek to follow up with Ms J. Tong re delivery.  The plaintiff completed 820 kg on 17 October 2007 and asked the defendant to take delivery.  The defendant failed to do so. 

49.  The PO was an offer.  I find that by paying the deposit on 19 September, the defendant had by conduct accepted the counter-offer in the SC.  The delivery date was to be in early October. I also find that the goods were produced.  DW1 testified that it was because the sizes could not be determined after the PI was issued therefore this PO was not pursued.  That, in my view, was the defendant’s own problem. When asked why the deposit was paid, DW1 said that it was an episode in the negotiation. The question is, why would this episode be necessary if the parties remained only in negotiation? 

50.  The plaintiff was ready, willing and able to deliver but the defendant refused to take delivery.  There was no complaint of the plaintiff’s delay.  I find that the defendant was in breach of this contract in failing to take delivery of 820 kg. 

PO3

51.  On 31 January 2008, this PO was issued for only one out of 4 items listed in the quotation; the proposed delivery date was 28 February.  On 1 February 2008, the SC counter-proposed a delivery date of 23 March 2008.  The plaintiff issued a PI for the deposit on the same day.  On DW1’s admission in his witness statement, a contract was formed on about 3 March.  On 5 March 2008, Ms Shek informed PW1 of the deposit payment and requested for earlier shipment.  On 7 March, the plaintiff received payment of the deposit. Production started on 10 March and was completed on 27 March. 

52.  The defendant did not take delivery.  Seven months later, on 22 October 2008 (after the 2^nd conference), Ms Fung asked the plaintiff by phone for delivery.  Due to the long storage of the item, and according to the plaintiff’s policy, the goods had to be inspected.  Ms Fung was informed by the plaintiff that inspection was required.  On 27 October 2008, the plaintiff informed Ms Fung by email that the final weight was revised to 2,005 kg after inspection; that the packing list and PI were ready and the defendant could take delivery.  The defendant informed the plaintiff by fax that the PI was wrong and asked for revision.  The plaintiff asked what was wrong but the defendant refused to communicate further or to take delivery. 

53.  The defendant claims the revised PI stating an amended quantity of 2,005 kg (5 above that stated in the SC) was issued for an unknown reason.  This was against clear documentary evidence referred to in the preceding paragraph.  The error in the PI was probably due to the failure to deduct the deposit.  By October, the defendant was already seriously in breach over 7 POs.  Out of caution, the plaintiff withheld the deposit and asked for cash for PO3 to ensure that the defendant showed sincerity in performing its contractual obligation. 

54.  The plaintiff was ready, willing and able to deliver but the defendant refused to take delivery.  There was no complaint of the plaintiff’s delay.  I find that the defendant was in breach of this contract in failing to take delivery of 2,005 kg. 

PO4

55.  The defendant issued this PO dated 27 February 2008 after negotiating down the price stated in the quotation; the delivery date was proposed as 1 April 2008.  The SC on the following day counter-proposed a delivery date of April – May 2008.  On 10 March 2008, the plaintiff started production.  On 13 March 2008, the defendant requested a change to the sizes by an amended PO with a delivery date of 1 April.  The Plaintiff then sent a revised SC to the defendant maintaining the delivery date in the SC.  On 18 March 2008, Ms Shek asked for the PI for the deposit.  On 19 March 2008, she pointed out that the sizes on the PI should be amended to match the agreed modification.  On 20 March 2008, PW1 asked his colleague Ms J. Tong to follow up with the PI amendment.  On 25 March, the defendant emailed the plaintiff asking whether the plaintiff could deliver before 3 April instead of mid-April.  PW1 replied that the estimated completion would be 13 April by 2 deliveries.  By email on 26 March 2008, the defendant informed the plaintiff that a postdated cheque for the deposit was ready for collection.  On 31 March, the defendant chased for the earliest date for delivery. 

56.  The defendant requested for partial delivery of 4,604 kg on 2 April and the plaintiff sent a PI for cash payment on 1 April.  The defendant paid in full without deducting any deposit.  On 9 April 2008 the defendant informed the plaintiff that it would take 9,451 kg on 11 April.  The plaintiff prepared a PI accordingly, deducting part of the deposit.  On 18 April the defendant requested delivery of another 6,064 kg.  The plaintiff issued a PI on 21 April, deducting the deposit. Payment was made on 13 May.  The defendant has still not taken delivery of the balance of the completed goods. 

57.  Indisputably a contract was concluded when the defendant accepted the terms in the SC by asking for the PI on 18 March without any indication as to amendment to the contract terms.  In any case, a contract would have been formed, at the latest, by 26 March when the defendant notified the plaintiff that the deposit was ready for collection.  The delivery date was to be April – May. 

58.  The defendant’s case is that the plaintiff only delivered 20,119 kg which was confirmed for PO4.  On the other hand, PW1 testified that the defendant knew it could take delivery at any time.  There had been repeated oral reminders by PW1 and Ms J. Tong to the defendant to take delivery as a matter of regular follow-up, not only of PO4 but also other POs.  There was unfortunately no documentary proof of these reminders.  It was also quite inconsistent with the plaintiff’s mode of operation to confirm matters in email.  On the other hand, I have considered that the staff of the plaintiff following up on delivery had resigned in May.  At about this time, there was clear lack of emails on delivery, late issue of revised SC for PO6.  The plaintiff had completed the production between 22 March and 20 April.  There was no reason why it should not ask the defendant to take delivery.  I find that it was probably due to the resignation that the less desirable way of chasing for delivery by phone was used for this contract. 

59.  I find that the plaintiff did give oral reminders to the defendant to take delivery under this contract but the defendant refused to do so in breach of this contract. 

PO5

60.  In March, the price of aluminum rose sharply. The defendant increased its order to 50,000 kg. After sight of the quotation, the defendant split the total quantity ordered into the 5^th and 6^th POs dated 13 March 2008. As the defendant had not decided whether to take more of the 100.6 mm size or 93.5 mm size, Ms Shek wrote on PO5 the words “size may be changed”.  The proposed delivery date was 1 May 2008.  The plaintiff then wrote “Hold Production” on it.  On 15 March, the plaintiff issued an SC counter-proposing a delivery dated of mid-May 2008.  On 18 March, at Ms Shek’s request, the plaintiff sent a PI for the deposit.  This was never settled. 

61.  On 8 April, PW1 asked the defendant for the sizes so as not to affect the delivery date.  By email on the same day, Ms Shek requested to change the size and asked for the earliest delivery date.  PW1 replied on the same date asking Ms J. Tong to check and reminding Ms Shek that she could not “change the size again on this final confirmed”.  The same email asked Ms J. Tong to release the order for production.  On 9 April, Ms J. Tong informed Ms Shek that the plaintiff would accept the request for size change but this would be final and that the plaintiff would not accept further changes; further, the earliest completion date would be in mid-May 2008.  Ms J. Tong also stated that “if you have no more problem, we will start the production.”  Ms Shek then sent PO5 chopped with the word “AMENDMENT”, containing handwritten notes and a signature to the plaintiff confirming the change in size, with the delivery date still being 1 May. 

62.  The plaintiff started production on 10 April.  On 18 April, Ms Shek requested to have the updated quantity and earliest delivery date.  On 29 April Ms J. Tong sent a PI for 9,980 kg (with the remarks “deposit not yet settled”) together with a packing list.  Ms Shek sent an email to PW1 and Ms J. Tong informing them that the defendant would collect the goods on 2 May.  The goods were accepted.  Payment was collected on 23 May. 

63.  Production was completed on 24 April 2008, well within the delivery time frame.  On 9 May 2008, Ms Shek sent an email to PW1 and Ms J. Tong requesting for the packing list for all outstanding finished goods.  There was no evidence of any reply from the plaintiff except PW1’s assertion in his witness statement that Ms J. Tong of the defendant asked the plaintiff to take delivery of 19,598 kg of finished products.  PW1 testified that a packing list was produced for delivery only.  The plaintiff would not prepare a packing list because it would confuse the defendant. 

64.  Although the defendant had asked for a PI, the plaintiff well knew that the size would change.  That was precisely why it was the plaintiff who took the initiative to ask the defendant about any amendment to the size. I find that the contract was only formed on 9 April when the plaintiff accepted the amendment to the size.  The delivery date was to be mid-May. 

65.  The difficulty in the plaintiff’s case was its lack of a reasonable explanation for its inaction despite the defendant’s express request for a PI and packing list for the balance goods.  The plaintiff was unable to prove that the defendant has breached this contract by failing to take delivery.  The claim under this contract fails. 

66.  In case my conclusion is wrong, I will add this for completeness sake.  The total undelivered quantity was 19,598 kg.  Together with the delivered goods, the total quantity produced would be 29,578 kg (i.e. 9,980 + 19,598).  It exceeded the tolerance quantity of 10%.  Accordingly, if the plaintiff had come up to proof, the damages claimable should only be for 17,520 kg (i.e. contract quantity +10% tolerance quantity – 9,980 kg). 

PO6

67.  Paragraph 60 applies equally to this PO save that PO6 proposed a delivery date of 15 May 2008 but the SC counter-proposed mid to end May. 

68.  Paragraph 61 applies equally to this PO save that the amended PO counter-proposed a delivery date of 15 May.  On 18 April Ms Shek asked for the deliverable quantity of the PO and earliest delivery date.  On 21 May, the plaintiff issued belatedly (owing to inadvertence because the staff following it up resigned in May) a revised SC to indicate the change in size; the delivery date was to be mid to end May.  On 24 May, production began on the agreed amended size.  On 26 May production was completed.  Till now, the defendant refused to take delivery or pay for the goods. 

69.  The defendant claims that the plaintiff is now unreasonably claiming the face value for PO6 which was never confirmed partly or fully. 

70.  Although the defendant had asked for a PI, the plaintiff well knew that the size would change.  That was precisely why it was the plaintiff who took the initiative to ask the defendant about any amendment to the size. The revised SC unfortunately came over 1 month after the defendant proposed the changes to size; it even counter-proposed a delivery date to be mid to end May.  By then the proposed delivery date of the defendant had gone by. 

71.  However, the PI for deposit was given at the request of the defendant.  The only matter causing withholding of production was the size.  PO5 and PO6 were mostly dealt with together by the parties in the same time frame and emails (except in relation to the issue of a revised SC).  The defendant knew that production had started, knew that it had given instructions regarding amendment to the size and received the warning from Ms J. Tong that there could be no more change.  On 18 April Ms Shek chased for the deliverable quantity of PO6 and earliest delivery date. The inference is that the delivery date would not really matter provided it was at about the same time as PO5.  The defendant cannot hide behind the late revised SC to say that PO6 was never confirmed.  I find that a contract was formed, latest on 18 April. 

72.  The difficulty in the plaintiff’s case, again, is its inability to prove that the defendant has breached this contract by failing to take delivery.  There was no evidence that the plaintiff notified the defendant that the goods were ready for delivery.  Although there was oral testimony from PW1 that there had been oral reminders, there was no averment in his witness statement to this effect.  I am not satisfied on a balance of probabilities that the defendant had been in breach for refusing to take delivery. The claim under this contract fails. 

73.  In case my conclusion is wrong, I will add this for completeness sake.  The total undelivered quantity was 27,616 kg.  This exceeded the 10% tolerance quantity by 116 kg, which quantity is not recoverable from the defendant. 

PO7

74.  After the plaintiff has given a quotation to the defendant, there was a request from Ms Shek of the defendant to increase the quantity from 50,000 kg to 63,000 kg at the old price.  PW1 orally agreed.  There followed a PO from the defendant.  It was different from all other POs in that the phrase “pending approval” (等待審批) (“the Phrase”) was marked on this PO.  The defendant’s staff also wrote the words “Hold Production”.  The plaintiff, as usual, issued an SC stating the delivery date to be May-June 2008.  The defendant asked for a PI for the deposit, which was given.  No deposit was ever made.  By an email dated 26 March 2008, the defendant confirmed receipt of the PI for deposit but stated that it had not received the plaintiff’s reply as to delivery date.  By a further email on 26 March 2008, the defendant provided the sizes “pending notice” (代通知) for the products.  By yet a further email on 28 April 2008, in response to the plaintiff’s request for confirmation of sizes since manufacturing could not be further delayed, the defendant gave the amended sizes to the plaintiff.  The defendant attached to this email an amendment to PO7 containing the final sizes, with a delivery date of 15 April 2008 and the Phrase was still there.  No revised SC or PI for the deposit was ever issued because of poor follow up after the clerk resigned. 

75.  The suggested delivery date of 15 April 2008 could not be regarded as a counter-proposal from the defendant because that date had long passed.  However, the Court cannot ignore the Phrase.  The literal meaning was that some internal clearance was pending from the defendant who did not yet have the intention to enter into a binding contract with the plaintiff.  The plaintiff has never responded to nor clarified with the defendant the meaning of the Phrase.  Nor had the plaintiff even followed its own procedure of issuing a revised SC or email in response.  The defendant never took delivery or paid the purchase price. 

76.  I find that no contract was formed with regard to PO7. 

Cancellation

77.  Mr Cheung queried why the chop “CANCELLED” was not affixed to the POs as in a past transaction if the defendant had not confirmed the orders. 

78.  In the past transaction that Mr Cheung referred to, the defendant had quickly informed the plaintiff to “hold production”.  The PO was cancelled within 3 days and that was by consent.  In the present case, I find no evidence that either party wanted to cancel any of the POs.   In particular with PO7, they were still negotiating.  I agree with Mr Wong, counsel for the defendant, that the absence of the “CANCELLED” chop could not turn an unaccepted offer into an accepted one. 

The Conferences

79.  The holding of the 3 conferences was not disputed by the defendant.  There were contemporaneous conference notes prepared by PW1 as well, the contents of which I accept to be true.  Where there is conflict between PW1 and DW1’s evidence, I prefer the former’s as being more reliable and consistent with the conference notes.  Suffice to say that the conferences took place under a peaceful manner whereunder both parties were focused on how the products should be handled.  The plaintiff did propose to the defendant to take delivery over a period of 3 months but the defendant did not commit nor take delivery.  The minutes of the 2^nd conference was sent to the defendant and DW1 admitted having seen it sometime before the 3^rd conference. The defendant has never responded to it either orally or in writing, which DW1 claims to be due to negligence.  While I accept that the parties were not lawyers and did not focus their discussion on liability, it is noteworthy that there was no denial from the defendant of there being contracts between the parties.  The caveat, of course, is that if I find there to be no contract, the absence of such denial by the defendant would not create one. 

80.  At these conferences, the plaintiff was adamant that the defendant should perform its part of he contract.  However, it was too late to be treated as demands for delivery with regard to POs 5 and 6 in the sense that it was well past the agreed delivery time frame.  The defendant had also changed its position by then because of the flood. 

OTHER EVIDENCE

81.  There was evidence in relation to the past 24 POs which I have considered.  Suffice to say that they would not change my findings with regard to the 7 POs.

Quantum of Damages

82.  The agreed formula for calculating damages is the sum claimed by the plaintiff less the scrap value of the quantity of goods which the defendant had wrongfully refused to take delivery of under POs 1 – 4, multiplied by a unit price of $14 per kg.   Since there was no proof of breach under PO5 and 6 and no contract formed under PO7, the plaintiff is not entitled to claim for damages. 

COSTS

83.  It is likely that the quantum of damages will be less than $1,000,000.  I am of the view that it was not clearly apparent at the time of commencement of the writ that the plaintiff would only recover a sum within the jurisdiction of the District Court. Accordingly, costs should follow the event and be to the plaintiff on the High Court scale. 

CONCLUSION

84.  I find that contracts had been formed under POs 1 – 6.  The defendant breached POs 1 – 4 in failing to take delivery. The plaintiff is entitled to the contract price under those POs less the scrap value ($14 per kg) of the goods not taken by the defendant.  In respect of POs 5 and 6, the plaintiff fails to prove that the defendant was in breach and so the claims thereunder fail.  No contract was formed in respect of PO7.  I give judgment to the plaintiff accordingly.  The parties shall work out the quantum in accordance with paragraph 82 above and insert it into the draft order. 

85.  I make an order nisi that :

(a)     there be interest at judgment rate from the date of the writ to the date of payment; and

(b)     costs should follow the event and be to the plaintiff at the High Court scale.

86.  I wish to thank counsel for their able assistance.  Their cooperation in narrowing down the issues in dispute is much appreciated. 

OTHER MATTERS

87.  There are a few matters that I wish to draw to solicitors’ attention :

(a)     The statement of truth, if made a separate document, should be dated. 

(b)     Documents that do not help in the disposal of the issues in dispute should not be included into a trial bundle. In this case, documents like list of documents, hearsay notice, documents filed pursuant to PD 31 and the mediator’s report are entirely useless. 

(c)      It is not only the responsibility of the plaintiff’s solicitor to ensure that no unnecessary documents are included but also the defendant’s solicitor to suggest their exclusion when parties try to agree on the index for the trial bundle.  Each party should, save for good cause shown to be the contrary on taxation, bear its own costs for including and considering such unnecessary documents.