DAEDALUS BLU LTD. v. LESHONS ENTERPRISED LTD.

IN THE COURT OF APPEAL

1995, No. 111

(Civil)

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. In this appeal, we are called on to re-visit a dispute over a contract between buyer and seller for the sale and purchase of goods. At the conclusion of the trial of the action, on 15 March 1995, Mr Justice Mayo (as he then was) resolved the dispute in favour of the buyer. The seller now appeals.

The facts

2. The material facts may for the purposes of this appeal be summarised as follows.

3. The goods the subject of the contract, made between the buyer and the seller in May 1993, were men's padded garments. The price was USD49,508.20. Payment was to be effected by transferable letter of credit. The goods were to be shipped from Hong Kong to the buyer's customer in Italy on or before 15 July 1993.

4. Before the shipment date, and the finalisation of the letter of credit, differences arose between the buyer and the seller, including differences over the quality of the garments which the seller was proposing to ship under the contract, and as to the letter of credit. Negotiations resulted in the buyer agreeing an extension of time for shipment on the footing that the goods would be dispatched to Italy by air instead of by sea, the seller bearing the extra costs to be incurred in doing this. The negotiations dragged on into August 1993; but the contract finally went off because the buyer, having on 10 August 1993 inspected the goods, pronounced them unsatisfactory and refused to go on with the transaction. Accordingly, the goods were never dispatched. The differences between the buyer and seller proved irreconcilable; and the buyer instituted its action, claiming damages for breach of contract against the seller.

The issue

5. The buyer's case at the trial was that, in the circumstances, it was justified in refusing to go on with the transaction, and therefore justified in not providing a letter of credit (appropriately amended) by way of payment for the goods. The seller's case was that the contract went off because of the failure of the buyer to provide such a letter of credit.

The judgment

6. The judge found that the quality of the garments which the seller was proposing to ship did not conform to the contractual requirements and that there was no reasonable prospect of the defects being rectified in time to enable the goods to be shipped on or before 15 August 1993, which the judge described as "the last extended date for shipment". The judge held that since the seller had failed to make available "goods conforming to the contractual terms" (as he put it) the buyer had been entitled to call off the transaction and sue for damages for breach of contract. He awarded the buyer damages of USD15,723.10, representing the difference between the contract price of the goods and the price at which the buyer had re-sold them; and he declared that the buyer was entitled to recover from the seller such damages as were in law due from the seller to the buyer in respect of damages which the buyer might be held liable to pay and/or might reasonably pay in respect of the discharge of its legal liability to its Italian customer in consequence of any breach by the buyer of its contract for the re-sale to its Italian customer of the garments which the seller was to sell to the buyer in so far as any such breach was a result of the breach of the seller's obligation to deliver the goods.

The appeal

7. The seller appeals on four grounds.

8. First, says the seller, the buyer's only pleaded case was that the seller had failed to ship the goods by the extended date, 15 August 1993, mentioned by the judge. Therefore, says the seller, the judge was not entitled, on the pleadings, to hold that the buyer had been entitled to call the transaction off because of its dissatisfaction with the quality of the goods, even if in fact the dissatisfaction was clearly justified. In my judgment, there is nothing in this point. It is true that the buyer's points of claim do not accurately reflect the buyer's real case. They do not refer to the question of the quality of the goods. They complain only of their non-delivery by the due date. But paragraph 8 of the buyer's reply does take the point that the goods were of substandard quality, and particulars of this allegation were sought and given, so the issue was clearly before the judge on the pleadings. The judge, having found that the goods were indeed of substandard quality, was in my judgment entitled to find on the pleadings that the contract went off because the buyer had justifiably called it off; despite the deficiencies of the points of claim, the seller knew as well as the buyer that the buyer had withdrawn from the transaction because it was not prepared to accept the defective goods. That this was the buyer's case at the trial could have come as no surprise to the seller.

9. The seller's second ground of appeal is that the buyer's only cause of action was for breach of contract, i.e., the seller's failing to ship the goods by the due date. Therefore, says the seller, the judge was wrong to hold that the buyer had proved its pleaded case by proving that it had justifiably rejected the goods. This is similarly unsustainable; the judge was in my opinion entirely justified in coming to the conclusion that the buyer was entitled to treat the inability of the seller, demonstrated on 10 August 1993, to deliver goods in accordance with the contract as a renunciation of the contract which the buyer was entitled to accept.

10. The seller's third ground of appeal is based on a reference made by the judge to s.29 of the Sale of Goods Ordinance; but since the judge's conclusion can be supported without the assistance of that section, there is in my judgment no need to consider this ground of appeal further.

11. Finally, says the seller, the decision of the judge that the seller did not produce goods available for shipment was against the weight of the evidence. But the evidence was (and the judge was entitled to and did accept it) that the quality of the goods proposed to be shipped was so defective that the buyer was entitled to call the transaction off. I agree with the judge that you do not produce goods for shipment if you produce goods for shipment of a quality so defective that the buyer is entitled to reject them as goods properly tendered in discharge of the seller's obligations under the contract of sale.

Conclusion

12. Accordingly, I would for my part dismiss this appeal with costs.

Litton VP:

13. I concur, for the reasons which my Lord, Godfrey JA, has just expressed, and I, too, would dismiss the appeal.

Ching JA:

14. I, too, concur with the judgment of Mr Justice Godfrey and I agree that the appeal should be dismissed.