XCHRX T-WAY INTERNATIONAL LTD. v. YUE LI (H.K.) DEVELOPMENT LTD.

HCA 16156/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 16156 OF 1999

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REASONS FOR DECISION

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1. This is an appeal against the decision of the Master who gave summary judgment for the Plaintiff on liability for breach of contract and for damages to be assessed.

2. The contract in question was a contract for procuring export quota of category 78 in respect of export from the PRC to the EEC. By a contract in writing dated 30 July 1999 the Defendant agreed with the Plaintiff to procure 6524 KG of category 78 quota for export to the EEC for the textile year of 1999. The Defendant was entitled to charge US$ 3.75 per KG for procuring such quota. On top of that the Defendant was also entitled to charge $300 for every export licence.

3. It would appear that the system in the PRC is that the quota is reflected in the export licence issued under the authority of the Foreign Economic Relations & Trade Commission which would appear to be under the Ministry of Foreign Trade and Economic Co-operation of the People's Republic of China. That commission would issue an export licence which would contain inter alia the name of the exporter in PRC, the name of the consignee of the goods, the place and date of the shipment, the category number of the licence and the quota involved. The document would also contain a description of the goods and the quantum and value of the goods. The export licence contained the following statement by the officer of the issuing authority:

"I, the undersigned, certify that the goods described above have been charged against the quantitative limit established for the year shown in box no.3 in respect of the category shown in box no. 4 by the provisions regulating trade in textile products with the European Community."

4. Thus in the PRC quota were procured by procuring the export licence in respect of the quantity of quota goods.

5. In this case, there was no dispute that in respect of the Plaintiff wanted four export licences to cover the quantity of 6524 KG of goods. The Defendant had provided the Plaintiff with 4313 KG of quota reflected in two export licences. The problem arouse out of the 3rd export licence in respect of 614 KG of quota goods.

6. Plainly for the contract to work, the Plaintiff would have to provide the Defendant with the description of the goods and the quantity to be covered by each export licence. This the company had duly done. Sometime in the first part of August 1999 the Defendant had also provided the Plaintiff with four proforma export licences which set out the details and asked the Plaintiff to confirm the required contents. In relation to the 3rd export licence in question, the description of the goods in the proforma licence was :

"STYLE NO. T-014/MEN'S PANTS
MEN'S 100% NYLON WOVEN TROUSERS
WITH 100% PU BACKING.

LADIES' 100% NYLON WOVEN TROUSERS
WITH 100% PU BACKING

BOY'S 100% NYLON WOVEN TROUSERS
WITH 100% PU BACKING."

The Plaintiff duly confirmed the information contained in this proforma export licence.

7. On 20 August 1999 the Defendant tendered to the Plaintiff the 3rd export licence in which the description of the goods was:

"STYLE NO. T-014
MEN'S 100% NLON WOVEN WITH PU
BACKING
LADIES' 100% NYLON WOVEN WITH PU
BACKING
BOY'S 100% NYLON WOVEN WITH PU
BACKING"

8. The Defendant objected to the export licence tendered because there was an omission of the description of the goods being men's pants, ladies' trousers and boys' trousers. There were some discussions between the parties and there was some dispute between the parties as to what exactly took place in these discussions. However what was not in dispute was that the Defendant agreed to take back this licence to amend to add in the omitted information. On 23 August 1999, the Defendant re-tendered to the Plaintiff the 3rd licence with amendments to the description of the goods to read as follows with the amended part highlighted in bold:

"STYLE NO. T-014/MEN'S PANTS
MEN'S 100% NLON WOVEN WITH PU
BACKING (TROUSERS)
LADIES' 100% NYLON WOVEN WITH PU
BACKING (TROUSERS)
BOY'S 100% NYLON WOVEN WITH PU
BACKING (TROUSERS)"

The amendment was typed into the document and it was apparent that those words were added in because the fonts of the typing were quite different from the original ones. Furthermore there was nothing on the document to authenticate the amendments. Indeed, it was not in dispute that those extra words were simply added in by the Defendant without notifying the issuing authority of the document. It was the Defendant's case that the Defendant contacted its own supplier of the quota and was informed that there was no need to send back the document to the authority for this kind of amendment and that the Defendant could simply add in the words. This was also in accord with the experience of the Defendant on other similar occasions where the Defendant was just told to do some minor and inconsequential amendments. Accordingly the Defendants just amended the export licence in the manner described above.

9. The Plaintiff refused to accept the amended export licence. The Plaintiff felt that the amendment was irregular and would not be acceptable to the import country. Before me the Plaintiff contended that its attitude was wholly justified because quite apart from the fact that the unauthenticated alteration was patent on the face of the document, under the term of the agreement between the parties, it was prevented from contacting the authority in the PRC directly for the purpose of amending the licence or for any other purpose whatsoever. Furthermore the Plaintiff also referred to clause 10 of the agreement whereby it is provided that even if the licence was rejected by the import country on the ground that it was not genuine the Plaintiff would still have to bear all the loss and damages arising therefrom and the Defendant was only obliged to refund the cost of the quota without any interest. Thus the Plaintiff contended that it was entitled to be careful about the licence and to refuse to accept the amended licence.

10. There were disputes between the parties as to what exactly happened when the amended licence was tendered to the Plaintiff although there was no dispute that the Plaintiff refused to accept this document. There was little doubt that the Plaintiff would very much like the Defendant to arrange that the amendment to be authenticated by some form of endorsement by the issuing authority, and the Defendant wanted to convince the Plaintiff that this was not necessary. Beyond this generalisation, the parties were in dispute as to what passed between them, I can come to no conclusion on what took place between the parties. Of course it is not my task in a hearing of this kind to make any finding of fact. However what took place may well have some bearing on whether the parties had acted reasonably in the circumstances, if this issue of reasonableness is at all a proper issue for determination in this application.

11. What is important was that during the contacts between the parties when the amended licence was tendered, the parties also discussed on the 4th export licence. On the part of the Defendant, it was contended that on the same occasion when the amended licence was tendered to the Plaintiff, Tam Pui Chi of the Defendant also informed Miss Choi of the Plaintiff that the 4th export licence was also available for the Plaintiff's collection but Miss Choi of the Plaintiff threatened that if the Defendant could not arrange for the amendments on the 3rd licence to be endorsed by the issuing authority, the Plaintiff would not take delivery of the 4th export licence. The Defendant's contention was that the Plaintiff was not justified in demanding any endorsement by the authority on the 3rd licence and the amendment on that licence was proper and acceptable. Hence the Plaintiff should have accepted the amended licence and had repudiated the contract by insisting on not accepting the 4th licence unless the Defendant had arranged for the endorsement by the authority on the 3rd licence.

12. On the other hand, the Plaintiff contended that it did not repudiate the contract. What happened according to the Plaintiff was that the Defendant had threatened that the Defendant would not deliver the 4th licence unless the Plaintiff would accept the amended 3rd licence in its existing form and that the two licences must be accepted in one go.

13. On the question of the 4th export licence, the Defendant also said that on 26 August 1999 Mr Tam of the Defendant also called the Mr Yuen of the Plaintiff telling him that the 4th export licence was available and that the Plaintiff could collect the licence after paying the price and that the issue on the 3rd export licence could be dealt with at a later stage. However according to the Defendant, Mr Yuen of the Plaintiff did not agree to the suggestion of taking the 4th export licence. He insisted that the Defendant must cause the 3rd licence to be endorsed by the issuing authority and that the Plaintiff would only accept delivery of the endorsed 3rd export licence and the four licences together. The Defendant also said that the Plaintiff's attitude did not change notwithstanding that Mr Tam had explained to Mr Yuen that the amendment to the 3rd licence did not require the endorsement of the issuing authority.

14. On 27 August 1999 the Defendant wrote to the Plaintiff saying that in respect of the export licences for the 614 KG and 1696 KG (i.e. the 3rd and the 4th export licences), the Defendant had made many attempts to deliver the same to the Plaintiff and despite that and despite the numerous negotiations between the parties, the delivery was not successful. In the same letter the Defendant said that they were returning the deposit for these quota to the Plaintiff. However in fact, no cheque was enclosed. I would therefore take that by this letter the Defendant had merely offered to return the deposit. However I am of the view that this letter could amount to a communication on the part of the Defendant that the contract between the parties for the supply of the quota and export licences was terminated.

15. On 28 August 1999, the Plaintiff wrote back. The language of that letter is difficult to understand. However it is fairly clear that the Plaintiff wanted the balance quota and was prepared to allow the Defendant up to 30 September 1999 to supply them.

16. On 3 September 1999 the Defendant returned the deposit in respect of the balance quota.

17. It is not disputed that at the end of the day, there was no delivery or acceptance of the 3rd and 4th export licences. The question is whose fault it was.

18. In the Statement of Claim, the Plaintiff pleaded in paragraph 10 that the Defendant had acted wrongfully and in breach of the contract in failing or refusing "to procure the remaining amount in relation to which another two Export Licences were required to be issued by the PRC authorities despite repeated requests and/or demands made by the Plaintiff". It was also pleaded that in so doing the Defendant had evinced an intention not to be bound by the contract. It was further pleaded in paragraph 11 of the Statement of Claim that the Defendant had repudiated the contract by declaring that it was not procuring the remaining quota and by returning the deposit.

19. The Defendant's case was that in fact the format and wordings of the unamended 3rd licence had been supplied to the Plaintiff on 19 August 1999 and the Plaintiff had raised no objection to it and hence had approved it. Further it was contended that in fact the licence in its unamended form was perfectly acceptable and was also appropriate as a valid export licence for the goods mentioned in the amended licence. Hence in short there was no necessity of effecting any amendment. I agree that there was evidence before me to support that contention. However I do not consider that this would per se be sufficient as a defence to the Plaintiff's claim. This is because even if the Defendant had proved that there was in fact no need to amend the licence, the fact remains that the Defendant did agree to amend the licence and had in fact done so.

20. The question was thus whether by amending the licence in the manner it did, the Defendant had rendered the licence not an acceptable licence for the purpose of the performance of the contract between the parties. On this issue, the Plaintiff contended that it was plain and obvious and was matter of common sense that the licence amended in the manner as it was would not be acceptable. In particular it was said that the licence amended in this manner would not be acceptable to the importing country. There was no evidence to show that in fact the importing country would not accept the amended licence or would have rejected any export licence issued by the PRC authority if the amendments on it was not endorsed with the authentication of the issuing authority. Likewise there was no attempt to obtain any evidence from the PRC authority concerned as to the practice of amendments to export licences. In this respect, since the contract had now been terminated, there could be no objection to the Plaintiff approaching the authority concerned for evidence on the practices of amendments.

21. On the other hand, there was also evidence before me furnished by the Defendant that the material parts of the licence to the importing country were (a) the name of the exporter, (b) the name of the consignee, (c) the place and date of shipment, (d) the category number of the licence and quota year involved; and (e) the quantities of the goods to be shipped under the licence and the value of the goods and the name of the issuing authority. It was said that the exact detailed description of the goods was not material so long as the goods shipped were in fact within the category of quota stated on the export licence. The Defendant further furnished evidence of many other instances of unauthenticated amendments to the export licences which according to the deponent were acceptable to the export authority as well as to the import countries. In all the Defendant sought to argue that the amendment to the 3rd licence in this case was perfectly proper and the Defendant had properly performed its obligation under the contract in tendering this amended licence.

22. In the light of the evidence before me, I am of the view that there was obviously a triable issue on whether the tender of the amended licence in this case was a good performance of the contract. If it was a good performance, then the Plaintiff was not entitled to reject it and further the Plaintiff was not entitled to insist on the requirement of an endorsement by the issuing authority before the Plaintiff would accept the same.

23. I am also of the view that there was also a triable issue on whether it was the Plaintiff or the Defendant who had acted in breach of the contract in relation to the 4th licence. If the Defendant's contention on the Plaintiff's attitude was correct, then by refusing to accept the tender of the 4th licence, the Plaintiff had also evinced an intention not to perform the contract and this would entitle the Defendant to terminate the contract.

24. The Plaintiff invited me to hold that in all the circumstances of this case, the Defendant's contention that the Plaintiff had insisted on not accepting the 4th licence unless it was tendered with the amended 3rd licence duly endorsed by the issuing authority was unbelievable. In this respect the Plaintiff pointed to the evidence before me that there was a sharp increase in the quota prices and there was really no reason for the Plaintiff not to accept delivery of the 4th licence. Hence the Plaintiff asked me to accept their version that it was only the Defendant who refused to deliver the 4th licence unless the Plaintiff agreed to accept the 3rd licence in its amended form without the further endorsement requested by the Plaintiff.

25. I do not think that I can accede to the Plaintiff's invitation. It was not for me to decide on rival contention of facts in an Order 14 application. There may or may not be any special reason as to why the Plaintiff should insist on having either the two licences or none at all. There was no evidence before me to show that the Plaintiff had indeed the goods ready to be shipped which would require the 3rd or the 4th licence. In this regard, I note that there was no evidence to show that the Plaintiff had bought any substituted quota from elsewhere in order to effect shipment of the goods.

26. Thus I am of the view that on the evidence before me, the Defendant had satisfied me that there were triable issues. Accordingly I would allow the appeal. I consider that this matter should go to trial.

27. On the question as to cost the parties were agreed that if I should allow the appeal the cost of the appeal should be born by the Plaintiff and I so order. In relation to the cost of the application before the Master, the Defendant drew my attention to the fact that the application for summary judgment was taken out after the Defendant had filed its Defence and contended that it would be unreasonable for the Plaintiff to say that there was no defence and to apply for summary judgment. It was thus submitted that the proper order should be for the summons to be dismissed with cost. I note that the summons for summary judgment was issue some 3 months after close of pleading and if the Plaintiff had prosecuted the action expeditiously this matter would have come to trial already. In the circumstances, I consider that the appropriate order for me to make is to allow the appeal and set aside the order of the Master. I would also dismiss the summons of 17 March 2000 and order that the cost here and below be to the Defendant in any event.