FEMS INTERNATIONAL LIMITED v. WANG CHEONG TRADING COMPANY

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. The Plaintiff in this action is Fems International Limited ("Fems"). The Defendant is Wong Chok-ming ("Mr. Wong"), a dealer in electronic components sued in his trading name of "Wang Cheong Trading Co.".  Before me, Fems was represented by Counsel.  Mr. Wong was unrepresented.

2. Fems claims against Mr. Wong the sum of US$28,750.00. This is said to be the outstanding balance of "the price of goods sold and delivered" by Fems to Mr. Wong. The reality is that no goods were ever "sold and delivered" by Fems to Mr. Wong. The true facts (as I find them) are as follows.

3. Mr. Wong was interested in trading with China. He was friendly with one Yeung Ruey-Ching ("Mr. Yeung").  Mr. Yeung had friends and connections in China.  Mr. Wong agreed to permit Mr. Yeung to negotiate, in the name of Wang Cheong Trading Co., a contract for the sale to Trust Managers' Department, Head Office of the Commercial Service Co. of  Zhuhai Special Economic Zone ("the Chinese buyers") of 5,000 heating/cooling units (then in demand in China) at a unit price of US$27.50, a total price of US$137,500.00. The profit arising from this transaction was to be shared equally between Mr. Wong and Mr. Yeung, but Mr. Yeung was to bear the expenses to be incurred by him in obtaining the contract.

4. Mr. Yeung obtained the contract in the name of Wang Cheong Trading Co. as seller, thus imposing on Mr. Wong the obligation to procure delivery of the goods (which he did not have) to the Chinese buyers. The contract (in the Chinese language) was dated 6th February 1985. The unit price was stated to be US$27.50. The goods were described (I take this, as I do what follows, from the Court translator's version of the contract) in these terms: "Hong Kong Product. Shun Fung Brand Water Cooling Humidifier Cooler warmer (to be accepted according to the sample) seller responsible for quality."  It contained two provisions concerning payment, No.11 (Terms of payment) and 19 (Remarks), which read as follows:

5. The documents mentioned in Clause 12 are the usual commercial documents.

6. The contract did not provide for a letter of Credit for the whole of the purchase price, and Mr. Wong found he would be unable to finance the transaction. There was a serious problem.  Mr. Yeung had laid out money in getting the business. Mr. Wong was at risk of defaulting on his first contract with Chinese buyers and thus of losing all chance of doing business with such buyers in the future. Mr. Yeung and Mr. Wong agreed that they should look for someone else to perform the contract. Mr. Yeung found Fems. Mr. Yeung on behalf of Wang Cheong Trading Co. agreed with Mr. M. D. Veer ("Mr. Veer") of Fems that Fems would take on the contract; the profit would go to Fems but he (Mr. Yeung) would receive US$12,500.00 out of the contract price. (Mr. Wong would get nothing, but this was acceptable to him; as he and Mr. Yeung understood the agreement made with Mr. Veer, and I prefer their evidence to that of Mr. Veer in this connection, Fems was to assume the burden of performing the contract and was accordingly to become entitled to the benefit of the contract to the exclusion of Mr. Wong.)

7. Meanwhile, the Chinese buyers, in accordance with the contract, had opened a Letter of Credit for 70% of the purchase price, US$96,250.00. On the same day the Bank of China so informed Mr. Wong.

8. Mr. Wong instructed his bankers, the Hongkong and Shanghai Banking Corporation ("HKSB") to transfer the Letter of Credit to Fems. However, HKSB returned it to Mr. Wong as non-transferable. In these circumstances, Fems prepared a letter, on the notepaper of Wang Cheong Trading Co. (supplied to Fems for the purpose) referring to the Letter of Credit and reading as follows:

9. This letter was dated 6th March 1985, signed by Mr. Wong, and sent to HKSB. And on 6th March 1985, Tacico Corporation, Taiwan, invoiced Fems for the goods to be shipped under the contract. (The order for these goods, if any, was not put in evidence, and I do not accept Mr. Veer's evidence that this order was placed by Mr. Wong.) The invoice price was US$23.50 per unit, a total price of US$117,500.00. Three days later, on 9th March 1985, Fems invoiced the goods to Wang Cheong Trading Co. The invoice price was US$25.00 per unit, a total price of US$125,000.00. The justification for this invoice offered by Mr. Veer in evidence was that the agreement between himself and Mr. Yeung was not an agreement under which Fems would assume the burden and take the benefit of the contract with the Chinese buyers, but an agreement under which Fems would sell the goods to Wing Cheong Trading Co. at US$25.00 per unit so that Wang Cheong Trading Co. could sell them to the Chinese buyers at the agreed US$27.50 per piece. Mr. Yeung (whose evidence I accept) denied that this was the agreement, and such an agreement would be inconsistent with Mr. Wong's intention (as I find) to abandon all benefit under the contract for the advantage of being discharged from all risk. Fems has failed to satisfy me that the agreement made between Mr. Veer and Mr. Yeung did involve an intermediate sale of the goods from Fems to Wang Cheong Trading Co.  In coming to this conclusion, I have not overlooked a letter dated 14th March 1985, prepared by Fens and written to itself on Wang Cheong Trading Co. notepaper, in the following terms:

"We have bought from you 5,000 pieces of Fan-heater at US$25.00 each for shipment to China. Kindly assist us to prepare the documents and send to Hongkong Bank TST branch on our behalf. We are asking bank to pay you whatever L/C bill proceeds realised now. Further we promise to pay you the balance with interest and make a final settlement within 30 days."

10. Although Mr. Wong signed the paper on which this was written, I am satisfied, on his evidence as well as that of Mr. Yeung, which I accept, that the paper was in blank when he signed. I do not accept that the blank paper was given to Fems to use so as to record an admission by Wang Cheong Trading Co. of a purchase of the goods by Wang Cheong Trading Co. from Fems, nor so as to record a promise by Wang Cheong Trading Co. to pay Fems the balance with interest and make final settlement within 30 days. I am satisfied that, in completing the paper in this way, Fems exceeded any authority conferred on it by Wang Cheong Trading Co.; and I altogether discount this self-serving document prepared and proferred by Fems.

11. Since Fems has failed to satisfy me that there was any sale of the goods from Fems to Wang Cheong Trading Co., its claim must fail. But for the sake of completeness, and in case the matter goes further, I should briefly record my findings as to the course things took.

12. Following the purchase of the goods by Fems from Taiwan, they were shipped by Fems to the Chinese buyers. The Collection Order was prepared by Fems in the name of Wang Cheong Trading Co. and was signed by Mr. Wong. Instructions to release the documents against payment were given by marking "x" in the box A provided for that purpose in respect of bills not under credit. The bill amount was stated as follows: "US$137,500.00 (US$96,250.00 Under L/C And US$41,250.00 Under D/P sight)".

13. The effect was to provide for a release of the documents to the Chinese buyers against payment of a Bill of Exchange for US$41,250.00 drawn on the Chinese buyers.

14. Fems endorsed the Collection Order with a special instruction reading as follows:

"Documents release upon receive [sic] the payment of L/C and D/P. Please pay the full amount of this bill to [Fems]"

15. Mr. Wong has always complained that Fems was not entitled so to endorse the Collection Order but he did not succeed in persuading me that this was so. Nor am I persuaded that it matters.

16. On 30th March 1985 the Chinese buyers issued an inspection Certificate certifying their receipt of the goods and their agreement to pay therefor. But, when called on, the Chinese buyers refused to pay the US$41,250.00.

17. On 18th March 1985 HKSB paid Fems the sum of US$96,250.00 under the Letter of Credit. The contract documents had been sent to the Bank of China. The Bank of China asked HKSB whether or not to forward the contract documents to the Chinese buyers.  HKSB pressed Wang Cheong Trading Co. for instructions.  Fems refused to allow the contract documents to be delivered to the Chinese buyers since, although Fems had been paid US$96,250.00 on the letter of Credit, it had not been paid the balance of the purchase price of the goods. HKSB, having paid under the Letter of Credit, charged Wang Cheong Trading Co. with interest and threatened to claim reimbursement from Wang Cheong Trading Co. of US$96,250.00.

18. Fems refused to accept responsibility for the payment of the interest demanded by HKSB and, acting on its own view as to the agreement reached between Mr. Veer and Mr. Yeung, refused to regard the problem which had arisen as anything to do with Fems. But, in my judgment, this was wrong. Fems had taken over the benefit, and assumed the burden, of the contract with the Chinese buyers. Accordingly, they became responsible to idemnify Wang Cheong Trading Co. in relation to the contract, since, after the burden of the contract had been assumed by Fems, Wang Cheong Trading Co. played a part in the matter only as the nominee of Fems.

19. In these circumstances, Mr. Wong was, in my judgment, entitled to do what he could to resolve the impasse. On 11th June 1985 Mr. Wong authorised the release of the contract documents to the Chinese buyers, notwithstanding that the balance of the purchase price had not been paid. This enabled the Bank of China to pay HKSB the US$96,250.00 and to relieve Wang Cheong Trading Co. against interest from the date of such payment. If Fems had accepted responsibility for the payment of that interest, as in my judgment it should have done, it would not have been right for Mr. Wong to authorise the release of the contract documents. As it was, it seems to me he had no other choice.

20. As matters now stand, the question is: who, as between Fems and Mr. Wong, is to be the loser? The balance of the purchase price of the goods remains unpaid. Since, as I have concluded, under the agreement between Mr. Veer and Mr. Yeung, Fems was to assume the burden of the contract (including all risks attached to its performance), the loser must be Fems. Fems, having assumed the risk, must bear the loss; and this action must be dismissed.