TAI HING COTTON MILL LTD. v. GLENCORE GRAIN ROTTERDAM BV. and Another

IN THE COURT OF APPEAL

1995, No. 44
(Civil)

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J U D G M E N T

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Godfrey, J.A. :

1. This appeal arises out of a dispute over a contract for the sale of cotton dated 4 October 1994. The seller, the 1st defendant in the action, is Glencore Grain Rotterdam BV. The buyer, the plaintiff in the action, is Tai Hing Cotton Mill Ltd. (The 2nd defendant in the action, Sunrise Resources Ltd, is the seller's agent.) The contract quantity was 2,204,600 lbs or 1,000 tons. The quality was prescribed in the contract as follows:

"Central Asian Raw Cotton 1993/94 Crop, Type Gorb Staple 1.1/32 inch."

2. The contract was made on the standard terms of the International Shipment Contract From No. 1 of the Liverpool Cotton Association. It contains a provision as to quality, differences and arbitration, the material part of which reads as follows:

"Liverpool Cotton Association official differences shall apply unless otherwise stated. There shall be no allowance to Seller but, should the cotton not be equal to the quality sold, it shall be taken with an allowance mutually agreed or settled by arbitration in Liverpool." [emphasis added]

3. In the instant case, the delivery of the cotton was made by two shipments, one of 300 tons as to which no dispute arises and one of 700 tons which has given rise to the present dispute.

4. On 27 January 1995, the buyer, anxious to get the cotton, sent a facsimile message to the sellers' agent, referring to the contract and stating the following:

"Re Contract No. 498947 of CIS raw cotton 700 m/tons ex 'Ivan Zagubanski' Please let us have full shipping details as above shipment vessel ETA Hongkong on 8/2/1995. During we have telephone to the shipping co. of World Marine Mr. Mok which we request shipping co. allowed Tai Hing release delivery order under shipping bank guarantee. But up to yesterday we have not received any shipping details from your, and you kwon (sic) that this shipment is along side barge and we need few days for arrange shipping documents. During Chinese New Years on 31/1/95 - 2/2/95. And the shipping co. will pass the message to the ship owner for approval accept bank guarantee for few days. Therefore, please immediately inform to you shipper of Glencord let us have shipping details. Otherwise, we cannot in time for release D/O for pick up the cotton, than all demurrage & any additional charges for shippers account."

5. The buyer got no satisfactory response.

6. After the contract was made, the price of raw cotton went up very quickly. It went up by as much as 50% due to bad harvest conditions in India, Pakistan and China. Supply of raw cotton in the market became very tight. Cotton yarn manufacturers experienced great difficulties in securing supplies of raw cotton.

7. It was anticipated that the shipment of the 700 tons of cotton would arrive in Hong Kong on or about 11 February 1995. Of course the relevant documents ought to have been in the hand of the buyer by the time of arrival of the shipment. They were not.

8. One can see from a letter of 7 February 1995 written by the buyer's solicitors to the seller's agent what was happening. The letter of 7 February 1995 read as follows:

"We act for Tai Hing Cotton Mill Limited.

We are instructed that you are the Agent acting for Glencore Grain Rotterdam BV. who has contracted to sell 1,000 tons of Central Asian Raw Cotton 93/94 Crop to our client.

Our client notes that 700 tons cottons out of the said 1,000 tons cottons have been loaded on a vessel called 'Ivan Zagubanskiy' which will arrive at Hong Kong on 11th February 1995.

However, up to the date hereof, no original documents has been received by our client for taking delivery of the said 700 tons cotton through the proper and usual channels. Worse still, your Mr. Urs Riederer informed Mr. Clement C.J. Chan of our client yesterday evening that the original documents are now in your possession and that you would take delivery instead of our clients.

In the circumstances, we are instructed to write to you, which we hereby do, that unless you will deliver to us on our client's behalf by noon on 8th February 1995 all the original documents enabling our client to take delivery of the said 700 tons cotton from the container yard, appropriate legal action, including injunction relief, will be taken against you without further notice."

9. On 8 February 1995, the seller replied as follows:

"First and foremost we wish to state very clearly that it is our very firm intention to fulfill our contractual commitment by delivering approx 700T of raw cotton out of vessel 'Ivan Zagubanskiy'. Never at any time have we had any intentions to the contrary. If we have ever in any way given substance to such notion, than same was done unintentionally and we hereby offer our apologies for any inconveniance (sic) that may have been caused thereby.

The obstacle is a mere physical one. The above vessel has been loaded without segregation as to qualities, whereby actual qualities themselves could not have been accurately established at time of loading due to circumstances beyond our control.

Above vessel will be discharged into our warehouse space, whereafter buyers are invited for joint classing of goods so as to establish how much of contract-type is available. Should total quantity outstanding not be available in contract-type, both parties to undertake to come to an agreement in respect of deviance in qualities and corresponding prices, whereafter necessary arrangements can be made for delivery.

The original shipping documents are presently in our possession. We respectfully submit that the mechanics of payment and delivery would best be executed by C.A.D. payment against invoice and delivery order, although if buyers wish to use the letter of credit this can also be accomodated (sic) after same has been amended.

Once again we wish to stress that there has never been any doubt in our minds that the subject contract would be fulfilled, and we are confident that this matter will be settled quickly and without too much difficulties. We have entered into this contract on the recommendation of our agents, Messrs. Sunrise."

10. The course here proposed by the seller was not one it was entitled to insist on and any such insistence would plainly constitute a breach of contract, or threatened breach of contract, by the seller.

11. The position now is that the goods are about to arrive. It is conceded that the goods are ascertained goods. However, the seller says that these goods are, or may be, of a superior quality to that provided for by the contract. We therefore have a highly unusual case in which the seller is suggesting that, because the goods are of such superior quality, it has a right to inspect the goods and delay their delivery before it comes under a legal obligation to hand over the documents. This suggestion is completely unfounded.

12. In an action by a buyer for specific performance of a contract for sale of ascertained goods the buyer has a right to apply to the court, at any time, for an order for specific performance: see section 54 of the Sale of Goods Ordinance, Cap. 26. What in fact happened here was that, on 10 February 1995, the buyer applied to Sears, J., applying ex parte for (inter alia) an order, the effect of which was to compel the seller to hand over the relevant documents to the buyer so that it could obtain delivery of the goods. The buyer appeared before the judge armed with a writ in draft form claiming against the seller an order for specific performance of the contract and, further or in the alternative, damages, and also other relief.

13. Sears, J. was persuaded to make the order for which the buyer had asked, on a number of undertakings, including an undertaking in the following terms:

"to take delivery of the cotton and to store the same in a safe place until after the determination of a summons to be taken out or until further order and to effect appropriate all risk insurance cover on all costs etc. an order that the 1st and/or 2nd defendants do deliver to the plaintiff and his bankers all the documents to enable the plaintiff upon payment of the same to obtain delivery of the said 3,284 bales of raw cotton."

14. The judge in making that mandatory order went, I think, to the very limit of the jurisdiction of the court to grant mandatory orders when it is just and convenient to do so. But this court will not review the exercise of a judge's discretion in such a matter as this unless the judge has erred in principle or his decision was plainly wrong.

15. In the present case, the seller went as soon as it could before a judge inter partes, to endeavour to have the mandatory order of Sears, J. set aside. On 11 February 1995, Ryan, J. refused the seller that relief, on the ground, as I understand it, that the whole matter could best be ventilated in a further inter partes hearing due to take place on 17 February 1995. He therefore declined to interfere.

16. The seller now comes to this court. Nothing we say about this case, and nothing we do in the order which I propose this court should make, should be taken as establishing any sort of precedent. This is a highly unusual case. It is a case in which the seller appears to have no defence whatever to the buyer's claim. If we set aside the order of Sears, J. as the seller urges us to do, on the basis that this court does not normally grant mandatory injunctions in cases of this type, we shall frustrate the contractual intentions of the parties and give the seller an opportunity which it does not seem to me it deserves to hold up the delivery to the buyer, in these difficult market conditions, of this cargo of cotton simply on the ground that the seller wants to have a closer look at it to see what sort of quality it is. But these are ascertained goods and the contract provides no remedy for sellers who provide goods of a better quality than that which they contracted to sell.

17. For these reasons, I am satisfied that it would not be right for us to set aside the order made by Sears, J.

18. The buyer is prepared to offer an undertaking to this court to retain the goods as provided in the undertaking given to Sears, J. for a period of 14 days from today, and during that period to give an opportunity to the seller to inspect the goods and take whatever steps it may be advised to take before the expiry of the period of 14 days. If the seller does decide to make an application for interlocutory relief within that period to the court of first instance, that court will deal with that application in the ordinary way. If the seller decides, after consideration, not to take any such step within that period of 14 days, then at the end of that 14 days the buyers will be free to deal with the goods as they like.

19. For all these reasons, I would dismiss this appeal subject to this court being offered an undertaking varying the terms of the undertaking given to Sears, J. in the manner which I have just endeavoured to indicate. There is nothing further I wish to add.

Mortimer, J.A. :

20. I entirely agree. I would also dismiss this appeal on the same terms although I would emphasise that this is a very unusual case.

21. Sears J made an ex parte order the effect of which was to grant specific performance of this contract. That was on 10th February 1995. The following day, an application to vary by the sellers was dismissed by Ryan J. So the order remains. The order is very unusual. But it is one which is within the jurisdiction of the court to make and in appropriate cases on the wide discretion of the judge it can be made.

22. Here, it is important to recognise that the contract is for the delivery of the documents in an international contract for sale of cotton on the usual documentary credit terms. It is the sellers' wish to avoid that contract, at least temporarily, on the grounds that perhaps the specific goods which they have designated to the contract are of a higher quality than that contracted for. To the contractual obligation, the sellers raise no defence. They therefore raise no defence to the buyers' claim that they are entitled to the bill of lading under the contract. They simply want to postpone the time when the buyers are to be given the bill of lading so that they may have the right to inspect the goods before the documents are handed over, with appropriate restraints on the alienation of those goods in the meantime. The judges who have heard these two applications concluded that this was an appropriate case in which to make the order that the documents should be delivered. The absence of any defence must have been well in mind.

23. For my part also I am not prepared to say, nor am I able to see any grounds upon which this Court can say, that either judge was plainly wrong. I would, however, also protect the sellers in the manner suggested by Godfrey J.A. so that they will have an opportunity to make any application to the court to protect any legal right which they may contend they have over the next 14 days. This is all, of course, subject to the buyers being prepared to give an appropriate undertaking. I would on that basis also dismiss this appeal.

Nazareth, V.-P. :

24. I agree with Godfrey and Mortimer, JJ.A. This was an unusual order in its mandatory effect. But there was jurisdiction to make it; that is not in dispute. I do not find myself able to say that the exercise of jurisdiction on the part of either judge proceeded upon an error of law or principle, or that it was a conclusion which no judge properly directing himself could have reached. I agree therefore that the appeal must be dismissed.

25. What the sellers really seek here, if I understood Mr Graham rightly, is an opportunity to inspect the cotton to ascertain its quality. That is provided for in the undertaking in para. 7 of the buyer's undertaking in the order. That undertaking has several days to run. But I agree with my Lords that it should be extended in the way they have indicated. Upon that basis, I concur in the dismissal of the appeal upon the undertaking mentioned.