ALDWICK TEXTILE EXPORTS LTD v. LEAGUER TEXTILES LTD

cacv 329/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 329 of 2004

(on appeal from HCA NO. 4789 of 2002)

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J U D G M E N T

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Hon Rogers VP:

1.  I agree with the judgment of Le Pichon JA.

Hon Le Pichon JA:

2.  This is an appeal from the judgment dated 22 September 2004 of A Cheung J in a sale of goods claim in which he found for the plaintiff buyer, holding the defendant seller in wrongful breach of the 2^nd contract in refusing or failing to make further deliveries as from June 1999.  The trial was limited to liability on the plaintiff’s claim.  There being an undisputed defence of set-off and counterclaim in the sum of $272,000, the question of relief under the action and the counterclaim was adjourned for trial before a master.

The facts

3.  On 24 April 1999, the parties entered into a contract (“the 1^st contract”) for the sale by the defendants to the plaintiff of 100 bales of yarn at HK$6,400 per bale for delivery to Zhuhai.  The 1^st contract contained the following terms:

“Date of Delivery: April, 99 - June, 99

Payment: 45 days after delivery by post dated cheque

…

Validity: End/July, 99”

The last entry was somewhat cryptic but on one reading, it would appear to suggest the 1^st contract would be valid until the end of July 1999, notwithstanding the period specified for delivery.

4.  Four days later, on 28 April 1999, the parties entered into a further contract (“the 2^nd contract”) for the sale and purchase of 200 bales of yarn.  The payment terms were the same as in the 1^st contract but the date of delivery was expressed to be “May, 99 – July, 99”.  The “validity” was expressed to be “End/August, 99”.  In all other respects, the two contracts were identical.  It was apparently common ground that “delivery under the two contracts was by instalments”.  The judge found (at paragraph 22) that “the two sides and the individuals concerned had known each other for a long time and the past relationship had been good”. 

5.  The judge summarised the parties’ performance of the 1^st contract and their partial performance of the 2^nd contract in tables set out in paragraphs 4 and 6 of his judgment which are reproduced below for ease of reference. 

TABLE 1 : 1^st Contract

INVOICE NO.	NO. OF BALES DELIVERED	DATE OF DELIVERY	PAYMENT DUE DATE (pursuant to the 1st Contract)	ACTUAL PAYMENT DATE	METHOD OF ACTUAL PAYMENT MADE
LT112/99	10	27.4.1999	11.6.1999	27.6.1999	Cheque no. 909975
LT125/99	20	29.4.1999	13.6.1999	16.6.1999	Letter of Credit MGK464590
LT168/99	20	4.5.1999	18.6.1999	16.7.1999	Letter of Credit MKG464658
LT189/99	20	9.5.1999	23.6.1999	23.7.1999	Letter of Credit E-31-R-02707
LT226/99	20	14.5.1999	28.6.1999	6.8.1999	Letter of Credit E-31-R-02895
LT275/99	10	24.5.1999	8.7.1999	6.8.1999	Letter of Credit E-31-R-02895

TABLE 2 : 2^nd Contract

INVOICE NO.	NO. OF BALES DELIVERED	DATE OF DELIVERY	PAYMENT DUE DATE (according to the 2nd Contract)	ACTUAL PAYMENT DATE	METHOD BY WHICH ACTUAL PAYMENT MADE
LT442/99	20	21.5.1999	5.7.1999	No payment made	N/A
LT275A/99	8.5	24.5.1999	8.7.1999	6.8.1999	Letter of Credit E-31-R-02895
LT303/99	22.5	31.5.1999	15.7.1999	No payment made	N/A

6.  It is apparent from Table 1 that delivery under the 1^st contract had been effected by the defendant in six instalments, in intervals of 2, 5 and 10 days.  The judge found that no post-dated cheques were ever given by the plaintiff and that all instalment payments were late.

7.  The defendant made no further deliveries after 31 May 1999.  By that date, only 49 of the 200 bales under the 2^nd contract had been delivered by three instalment deliveries.  Only one of these (viz. the second) has been paid for by the plaintiff, albeit a month after payment had fallen due.  No payment has been made in respect of the first and third deliveries.  The plaintiff sued the defendant for damages for non-delivery.  It was alleged that the yarn was purchased to the knowledge of the defendant for the purpose of manufacturing fabric for the plaintiff’s customers and that the defendant’s non-delivery resulted in the plaintiff’s inability to fulfil its contracts with third parties.  The plaintiff sought damages and an indemnity.  The defendant counterclaimed for the outstanding price.  The issue below was whether the plaintiff or the defendant was in breach of the 2^nd contract.

8.  The defendant’s case below was that it was justified in making no further deliveries after 31 May 1999 because, first, the plaintiff was in breach of the express payment term under the 2^nd contract and, second, the plaintiff through its director had told the defendant’s managing director in mid June 1999 that it no longer wanted further deliveries.  The judge found the express payment term to be a condition of the contract.  He also found that the defendant had never chased the plaintiff for post-dated cheques and rejected the defendant’s evidence that it had been told by the plaintiff in June that it no longer wanted further deliveries of the rest of the goods.  He came to the view that “the defendant was estopped from asserting (in the absence of prior warning notice), or has waived, the requirement of post-dated cheques in the 2^nd contract.”  Based on those findings, the judge concluded that the defendant was not entitled to stop delivery after May 1999 and was in wrongful breach of the 2^nd contract by refusing or failing to make further deliveries as from June 1999.  The judge also held that the plaintiff’s refusal to make payment in respect of the two instalments after the credit periods had expired did not amount to repudiation of the contract on the basis that, by that time, the defendant had been in breach of its obligations under the 2^nd contract for over a month.

9.  Despite the judge’s finding of waiver and/or estoppel on the question of post-dated cheques, the judge did not find, and before us, it was not argued that the judge’s finding amounted to a finding that the defendant had waived the condition that payment be made within 45 days of delivery.  So, quite apart from the requirement of providing post-dated cheques which served another purpose, that of providing security during the 45 day credit period, payment within 45 days remained a condition of the contracts unaffected by any waiver or estoppel.  In those circumstances, the plaintiff was plainly in breach of the payment condition as from 11 June 1999 in respect of every instalment delivery.

10.  Whether or not the judge was correct in finding the defendant to be in breach of the 2^nd contract by refusing or failing to make further deliveries after May 1999 would depend on the precise delivery obligations of the 2^nd defendant under the 2^nd contract.  As noted above, in the 2^nd contract, the “Date of Delivery” was stated to be “May, 99 – July, 99”.  It cannot be said on the face of the contract that the defendant was in breach of the 2^nd contract by 7 June since the period for delivery had not expired.  Whilst the judge found the contract to be an instalment contract, he made no finding as to when the instalments were to be delivered and the quantities of each such instalment.  The plaintiff’s pleaded case (at paragraph 6 of the amended statement of claim) was that there was a collateral agreement to the 2^nd contract to the effect that “the defendant would deliver the 200 bales … by instalments of about 10 to 20 bales and that each instalment would be delivered within the 2^nd Period about every 3 to 7 days”.  The same collateral contract was alleged to exist in relation to the 1^st contract.  But it is to be noted that the quantity of goods which formed the subject matter of the 2^nd contract was double that of the 1^st contract.  The defendant denied that there was any collateral agreement in its defence.  Apparently the existence of collateral contracts was put to its witness in cross-examination.  Apart from informing the court that the issue was disputed, counsel for the plaintiff made no reference to the transcript, much of which was evidence given in Chinese and no translation had been provided to this court.  The judge did not resolve the disputed question. 

11.  Mr Shum who appeared for the plaintiff submitted that the defendant was in breach by failing to make any instalment delivery on 7 June 1999.  But the matter is not entirely straightforward.  Even on the plaintiff’s pleaded case, the parties’ respective obligations are far from clear.  It would appear that the defendant had some discretion in the amount of each instalment delivery and the length of the intervals within stated parameters.  However, it is to be noted that the parameters themselves were imprecise, being qualified by the word “about”.  What does it mean?  Would delivery of say 25 bales fall within it?  As to the question of discretion, could the defendant choose to complete its delivery obligation within 30 days of the 2^nd contract by delivering 20 bales every 3 days when the date of delivery specified in the 2^nd contract was a 3 month period spanning May to July 1999?  This is a matter of some importance given that the point of the purchase was allegedly to fulfil third party contracts.  There is also the question whether only the defendant had any discretion within the stated parameters or whether the plaintiff also had a say in the matter since plainly the exercise of the discretion would trigger a corresponding obligation on the part of the plaintiff to make payment. 

12.  As noted above, on the central issue, the defendant’s delivery obligations under the 2^nd contract, the judge made no findings of fact.  In my view, there is no basis for assuming that the judge must have accepted the plaintiff’s pleaded case on instalment deliveries: first, the pattern of delivery under the 1^st contract was different from the pleaded case; second, as explained above, the terms of the alleged collateral contract appear not to be sufficiently precise and leave many questions unanswered.

13.  Further, there are features of the case that may well merit further investigation.  It will have become apparent from the Tables set out in paragraph 5 that most of the payments were effected by letters of credit, none of which appeared to have attracted comment although they formed part of the hearing bundles below.  The first, being MGK 464590, was issued on the date of payment.  That in itself is highly unusual since the plaintiff could as well have issued a cheque to effect payment and not incur the costs of a letter of credit.  At the very least, this state of affairs would suggest that the plaintiff might have been experiencing cash flow difficulties at the time in question.  Another odd feature is that it was provided in the letter of credit that

“documents must reach [HSBC] within 15 days after the date of receipt of the goods but within the validity of [the] credit.  The date of receipt of the goods is to be taken as the delivery date.” 

The goods for which payment was effected by this letter of credit were delivered on 29 April 1999, more than 6 weeks before the letter of credit in question was issued.  Yet payment was effected.  The same observations apply to the letter of credit MKG 464658. 

14.  So far as the letter of credit E-31-R-02895 is concerned, the applicant was not the plaintiff but one Yue Fung Spinner Limited.  That letter of credit contained the following term:

“Cargo receipt dated earlier than L/C issuing date unacceptable,”

Payment was effected on 6 August 1999 but in respect of goods delivered on 14, 19 and 24 May 1999.  These matters cry out for an explanation.

15.  For these reasons, I am unable to uphold the judgment below.  Regrettably, this is a case which has to be remitted for a re-trial.  Having regard to the amount in issue, which is within the jurisdiction of the District Court, that is where it has to be remitted for re-trial.  Nevertheless, it behoves me to urge the parties to use their best endeavours to reach an amicable solution given the costs that have already been incurred and the fact that at least a further two sets of costs (for liability and quantum) have to be incurred before the result is known, let alone any appeal.  The costs are likely to far exceed the amount in issue and continued litigation will only serve to bring the law into disrepute. 

Hon Burrell J:

16.  I agree.

Hon Rogers VP:

17.  There will therefore be an order remitting the matter to the District Court for retrial.  There will be an order nisi that the costs here and below will be made costs in the new trial.