LUXOR INTERNATIONAL TRAVEL ITEMS INC. v. TSUI HING FAT trading as KAR LAI INDUSTRIAL COMPANY

1989, No.A3048

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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[A contract which is made by an agent on behalf of his principal does not have expressly to state that it has been so made and on proof that the agent was in fact his agent the principal is at liberty to claim the benefit of the contract]

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J U D G M E N T

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1. In this action the plaintiff is a company incorporated in Canada called Luxor International Travel Items Inc., or Luxor International Inc. for short. I shall refer to the plaintiff as "Luxor". The defendant is one Tsui Hing Fat, trading as Kar Lai Industrial Company. I shall refer to the defendant as "Kar Lai".

2. Luxor deals in travel items and cosmetic goods, including toilet bags. Some of these are got up in the form of hang-up organizers and others in the form of cosmetic bags. Kar Lai is a manufacturer of such items.

3. Also involved in the case are two other parties to whom I must refer. The first is another Canadian company, called Avon Canada Inc., which is a substantial concern, and a customer of Luxor for these toilet bags. I shall refer to this party as "Avon". The second is a sole trader, one Simon Huen, who carries on business under the style of Prosperous Company with the assistance of his two brothers. I shall refer to this party as "Prosperous".

4. The story starts with a prospective order to be placed by Avon with Luxor for a very substantial quantity of these toilet bags. Avon set out its detailed requirements in a form of purchase order addressed to Luxor dated 20th May 1988. The purchase order set out the various colours in which the toilet bags were to be made up and specified also, in the case of the hang-up organizer, that it should contain a matching soap-dish and toothbrush-holder. Mr Isidore Socaransky of Luxor needed to find somebody to make the goods to satisfy Avon's order. He turned to Prosperous, which he had used previously. Prosperous introduced him to Kar Lai. Mr Socaransky discovered that he had seen Kar Lai's work before. He had been impressed with its quality and was happy to do business with Kar Lai. Negotiations took place, concerned particularly with the method of payment for the goods which Kar Lai were to manufacture if the order was placed with it. Various difficulties arose into which I need not go; but I must indicate that Kar Lai was unable itself to supply the soap-dishes and toothbrush-holders and arrangements had to be made for Prosperous to supply these to Kar Lai.

5. Ultimately, the negotiations were successful. The way in which the transaction was structured was, as I find, this. Luxor was to procure the issue of a letter of credit in favour of Kar Lai in respect of the toilet bags, and was to procure a letter of credit in favour of Prosperous in respect of the soap-dishes and toothbrush-holders. If the terms of the letter of credit in favour of Kar Lai were acceptable to kar Lai, then details of the goods to be manufactured in accordance with Avon's requirements would be supplied to Kar Lai. It would then manufacture the goods accordingly.

6. In the event, the two letters of credit were issued in each case to the satisfaction of the beneficiary and the details to which I have referred were incorporated in two purchase orders issued by Prosperous Company to Kar Lai. The letter of credit in favour of Kar Lai was issued by BNP (Canada) number 094481 and dated 27th May 1988. The letter of credit in favour of Prosperous was issued by BNP (Canada) number 094601 and dated 1st June 1988. The purchase orders given by Prosperous to Kar Lai were dated 6th June 1988. They provided that payment to Kar Lai was to be made by "Direct L/C No. 094481 by our customer from Banque Nationale de Paris (Canada) Montreal and against the Inspection Certificate issued by us". The purchase orders signed by Prosperous made it clear, not only in the words to which I have just referred, but also elsewhere, that the orders were placed by Prosperous on behalf of a customer of Prosperous. For example, in term No.9 on the first page of each of the purchase orders, I find this provision: "9. All goods which seller shipped to our customers [emphasis added] through us must be fully Responsible for any claims made by our customers [emphasis added]. Buyer have no responsibility to take any claims on behalf of seller". And in "Remarks" made in relation to the goods I find (in the first "Remark") this: "... The seller, Prosperous Company and Prosperous Company customer [emphasis added] shall keep at least 6 sets of signed samples for each colour for future reference". The shipping marks provided for in the purchase orders refer to Luxor and identify Luxor as the customer.

7. On these facts, Luxor contends that the contract contained in or evidenced by the purchase orders signed by Prosperous was made by Prosperous as Luxor's agent. Kar Lai does not accept this. It points to the fact that the contract is not expressed to be made by Prosperous on behalf of Luxor, and says that therefore Luxor was not a party to the contract. Luxor replies to that that the contract was, nevertheless, made by Prosperous as Luxor's agent and the fact that that is not expressly so stated is neither here nor there.

8. The law on the subject is perfectly plain. A contract which is made by an agent on behalf of his principal does not have expressly to state that it has been so made. Unless the contract stipulates that the agent is entering into the contract for himself only, his principal is at liberty to claim the benefit of the contract entered into by his agent so long as he can prove that the agent was in fact his agent. I am satisfied that in this case the contract made by Prosperous with Kar Lai was made by Prosperous as agent for Luxor; and so the defence fails so far as this point is concerned.

9. The next point in the case arises because Avon was dissatisfied with the quality of a large proportion of the goods ultimately shipped to it in Canada pursuant to its purchase order. I need not set out in detail the defects which Avon claims to have found in the goods. It is sufficient to say that in some cases hangers which were supposed to have been supplied for the hang-up organisers were noted to be missing; as to the bags themselves there were variations in colour; some of the items were soiled; some of the stitching was bad; some of the fabric was spotted or striped; and other matters of that sort.

10. The goods had been inspected by Prosperous (as the letter of credit in favour of Kar Lai required). The defence says that, given that inspection (and that, as the evidence was, it was a thorough one) Luxor has no cause for complaint. But I do not understand this defence. If the goods were defective, then Kar Lai must be liable for those defects if they were of a substantial nature. I have therefore to decide, first, whether there were defects; and, secondly, if so, if they were of a substantial nature.

11. Avon, as I have said, complained about these defects as to a large number of items. It also complained of a substantial stort shipment. The defence does not go so far to say that Avon made all that up but suggests that there is no proof of Avon were not simply mistaken. I find that Avon is much more likely to have made its complaints because it had genuine complaints to make than because it was labouring under some mistake. Accordingly, I do find that the goods were defective, and that the defects were substantial. I also find that there was a substantial short shipment. That being so, there seems to me to be no alternative but to hold Kar Lai liable in damages to Luxor, and I shall so hold. The damages will have to be assessed by the master. I shall simply order that judgment be entered for the plaintiff for damages to be assessed. Luxor will have the costs of the action down to today. Any further costs incurred on the assessment will be costs in the assessment.