WONG WAI-HO t/a KONG KIU TRADING COMPANY v. MALAYSIA OVERSEAS INVESTMENT CORPORATION SENDIRIAN BERHAD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The plaintiff who is a partner in the firm Kong Kiu Trading Company has been trading in foodstuffs and edible oils in Hong Kong since 1979. Prior to that he had been employed by the Chinese Government in the Foods Department and as a result had established a special relationship with the Chinese authorities. Since setting up business in Hong Kong he had entered into various contracts each year with Chinese provincial companies for the supply of foodstuffs including peanuts.

2. Prior to 15th January 1985 the plaintiff had had several business discussions with a Mr. Tong Lee-bong the manager of the defendant. There is no dispute that Mr. Tong was authorised to enter into a contract with the plaintiff for the purchase of peanuts from China. Ultimately, on 15th January the plaintiff and Mr. Tong both signed a document, which the plaintiff termed a preliminary agreement, for the supply to the defendant of 4,000 tons of peanuts at US$550 per ton.

3. The title to the agreement was "Purchase Confirmation" and the parties were stated to be:-

"Malaysia Overseas Investment Corporation S D N B H D (China Branch)(hereinafter called Party A) Guangtong Province Food and Oil Import and Export Company Shantau Branch Representative (hereinafter called Party B) Kong Kiu Trading Co.)

4. For the sake of convenience, I propose henceforward to refer to the latter company as the Guangtong company. At the foot of the agreement the plaintiff and Mr. Tong both signed and affixed the chops of their respective companies. The following wording also appeared above the plaintiff's signature and chop.

"The seller (Party B) Representative (Kong Kiu Trading Co.) Guangtong Province Food and Oil Import and Export Company"

The following wording appeared above Mr. Tong's signature and the chop of his company.

"The buyer (Party A) Representative Malaysia Overseas Investment S D N. B H D (China Office)"

5. The plaintiff testified that although he was not the authorised representative of the Guangtong company he used the word "representative" in the heading which identified the parties to indicate that the goods that he sold in Hong Kong were supplied by that company, not that he was acting as agent for it.

6. Counsel for the defendant submitted that the manner in which the names of the parties had been set out in the document together with the wording appearing above the signatures clearly indicates that the plaintiff had entered into the agreement as agent for the Guangtong company.

7. Bearing in mind that the agreement had been prepared by laymen, I find myself unable to agree with this submission. It is evident to me that it is the Kong Kiu Trading Co., albeit stated to be the representative of the Guangtong company, that is referred to as "Party B", not the Guangtong company itself. If the latter interpretation for which the defendant contends were correct, I would have expected that Party B would have been described as "Guangtong Province Food and Oil Import and Export Company Shantau Branch (hereinafter called Party B). Representative Kong Kiu Trading Co."

8. I interpret the word "representative" in the wording above the plaintiff's signature to mean the representative of the Kong Kiu Trading Co., not the representative of the Guangtong company. Indeed, the same word "representative" is used in the wording above Mr. Tong's signature in the same context. There can be no suggestion that his company, the defendant, was representing any other company.

9. Although therefore the agreement had not been framed with the degree of precision and lucidity that might have been expected in a contract drawn by a solicitor, I have come to the conclusion that the document is what the plaintiff claims it to be, namely, an agreement between the plaintiff acting as principal and seller on the one hand and the defendant as buyer on the other. The references to the Guangtong company are no more than indications that the plaintiff had business connexions with the Guangtong company from which the peanuts would come.

10. In this light I likewise interpret clause I of the agreement, which reads

"As instructed by Food and Oil Trading Company of the country, Party B agrees to sell 4,000 tons Guangtong peanuts to Party A"

I understand this to mean that the plaintiff was contracting on his own behalf as seller. It is Party B, the plaintiff, who has agreed to sell.

11. The plaintiff testified that this preliminary agreement was replaced later the same day by a formal agreement and that it is in relation to this latter document that he has brought this action. He explained that the formal agreement superseded the initial agreement and contained, at Mr. Tong's request, much more detail than that which had been included in the former.

12. The formal agreement which is expressed to be a "Sales Confirmation" unambiguously states that the plaintiff is "the sellers" and the defendant is "the buyers". I say this because both parties signed and placed their chops above the words "The Sellers" and 'The Buyers" resepctively at the foot of the contract. Moreover, the introductory words to the operative part of the contract are

"The undersigned Sellers and Buyers have agreed to close the following transactions to the terms and conditions stipulated below"

Clause 2 of the agreement provides:-

"2. Mode of payment: Letter of Credit be directly opened by the Buyer. Letter of Credit be opened in favour of Guangtong Province Food and Oil Import and Export Company under the Provincial Contract No. KP85004 (a copy of the Provincial contract is attached herewith)."

When one examines "the Provincial contract" attached to the agreement, it is clear that it is a contract for the sale of peanuts by the Guangtong company to the plaintiff. The defendant must therefore have known, notwithstanding the oblique wording of the first and second agreements, that the plaintiff had contracted with the Guangtong company to purchase peanuts on his own behalf and that these peanuts were being resold by the plaintiff to the defendant. It is true that the quantity of peanuts to which the annexed contract relates is only one half of the quantity stated in the contract signed by the plaintiff and the defendant, but the plaintiff explained that the other half of the peanuts was the subject of another contract of sale between himself as purchaser and the Shantau City Food and Oil Trading Company as vendor. A copy of this contract, although produced at the trial, had not been annexed to the agreement signed by the plaintiff and the defendant but I do not think that this is of any significance.

13. What is important is that the defendant could not have been in any doubt that although the contract which Mr. Tong signed required that payment be made by an irrevocable letter of credit in favour of the Guangtong company, the peanuts supplied by that company were being sold by it to the plaintiff.

14. The plaintiff testified that the contract stipulated that the letter of credit be opened in favour of the Guangtong company because he and Mr. Tong had both wanted payment be effected in this manner in order to save time and expense.

15. The plaintiff agreed that the copy of the attached contract with the Guangtong company had not been dated and signed by the parties at the time when he and Mr. Tong signed the contract with which this action is concerned, but he said that on the following day, when the faired contract with the Guangtong company had been prepared, he handed a copy of it to Mr. Tong. I do not think that this affects the situation. The plaintiff said that he confirmed the contract with the Guangtong company on the following day.  Presumably the plaintiff had felt it prudent to delay the confirmation of this contract until he had received a firm commitment from the defendant to purchase the peanuts.

16. It is clear from the plaintiff's evidence that the negotiations between himself and Mr. Tong had been going on for some time before they signed an agreement. The important factor however, is that if there had been any possibility of misunderstanding by Mr. Tong as to the capacity in which the plaintiff was contracting with him, the annexed contract would have made it abundantly plain to him that the plaintiff had arranged to purchase the peanuts from China on his own behalf and was selling them to the defendant in the capacity of principal, not as agent.

17. Apparently the reason why the letter of credit was to be made out in favour of the Guangtong company instead of two separate letters of credit, one to the Guangtong company for half the peanuts and the other to the Shantau company for the other half, was that the Shantau company is subject to the control of the Guangtong company.

18. The formal agreement also provided that the letter of credit was to be irrevocable and was to reach the plaintiff by 20th January. The plaintiff testified that he visited Mr. Tong at his office in the defendant company on 16th, 17th, 18th and 19th January to urge him to open the letter of credit for him. Ultimately, Mr. Tong and a female member of the defendant company told the plaintiff that because the defendant had failed in its tender in South Korea it would be unable to issue a letter of credit and was unwilling to perform the contract. When the plaintiff pressed Mr. Tong for an explanation Mr. Tong refused to do so and advised him to commence legal proceedings against the defendant.

19. Shortly afterwards the plaintiff received two telegrams from the Guangtong company stating that as the plaintiff had not performed the contract within the stipulated time, it required him to pay compensation to the extent of 5% of the contract price. The plaintiff then instructed his solicitors to write a letter of demand to the defendant. The defendant's solicitors replied that the defendant denied the plaintiff's allegations and considered itself to be under no liability to the plaintiff or to any party in the matter.

20. In its defence the defendant alleged that the plaintiff had entered into the contract with it as agent for the Guangtong company but that on 29th January the suppliers had informed the defendant that the plaintiff had never been appointed agent or representative of the suppliers. The defendant alleged that for this reason it did not regard itself as being bound under the contract. It further contended that there had been no privity of contract between the plaintiff and the defendant and that therefore the plaintiff is not entitled to enforce the contract.

21. During his cross-examination of the plaintiff, counsel or the defendant put to him that he and Mr. Tong had signed two agreements on the same day so that Tong's employer, the defendant, would be under the impression that the deal which had been concluded was that represented by the first agreement, and that their motive for duping the defendant was to conceal from it that they were both sharing a service charge of US$10 per ton which that agreement stated to be payable to the plaintiff. The plaintiff denied this and claimed that the service charge was to be paid to him as profit.

22. The service charge was not referred to in the subsequent agreement. The plaintiff explained that this was so because Mr. Tong had undertaken to pay it to him and had told him that it was not necessary to incorporate that term into the formal agreement, and that since in the first agreement Mr. Tong had already consented to the payment of the service charge, the plaintiff trusted that he would honour this arrangement.

23. I have difficulty in understanding what advantage the plaintiff could have gained by stipulating in the first agreement that a service charge be paid to him but omitting any reference to it in the superseding agreement. If this provision had been incorporated in the second agreement, the position would have been seen to be the same as that provided for in the earlier agreement. If therefore Mr. Tong's employer, the defendant, had seen the second agreement, it would not have seen anything different concerning this provision from that which was contained in the first agreement. If what counsel had put to the plaintiff is correct, it follows that Mr. Tong and the plaintiff must have expected the defendant to be content with the payment of a service charge to the plaintiff as it would have seen the provision relating to it in the agreement allegedly presented to it. That being so, one wonders what possible sinister reason the plaintiff and Mr. Tong would have had in excluding this provision from the formal contract. If as is alleged, the plaintiff and Mr. Tong wished to share the service charge they could have done so without resorting to this device.

24. There was not a shred of evidence offered by the defendant to support this allegation. Indeed the only witness called by the defendant was a man who had previously been employed by it as head of its accounts office. According to him he had left the defendant company because it had been taken over by another Malaysian company. He testified that Mr. Tong had been the defendant 's branch manager for China at the relevant time and that he was aware that Mr. Tong had entered into a contract with the plaintiff for the purchase of peanuts. The witness also told the court that on 29th January someone in the defendant company had telexed a company in China known as the Guangtong Cereals and Oils Branch seeking confirmation of a telephone communication of the same date from the Guangtong company that Kong Kiu Trading Company was not an authorised representative of the Guangtong company. Later the same day the Guangtong company confirmed by telex that Kong Kiu Trading Co. was only one of its clients in Hong Kong.

25. This is not inconsistent with the plaintiff's testimony. What is significant, however, is that the defendant company did not see fit to make this enquiry until 29th January, some 9 days after the irrevocable letter of credit was due. This suggests to me that this was a stratagem to which the defendant resorted, after it had received a letter of demand from the plaintiff dated 26th January, to provide justification for having refused to proceed with the contract. Had this been the real reason for not proceeding with the contract I would have expected that this information would have been sought and obtained from the Guangtong company before 20th January.

26. The only other evidence that the witness gave was that Mr. Tong had been encouraged to resign from his position in the defendant company at the end of January. The witness said that he had been told by the person in overall charge of the defendant company that this action had been taken because of this particular transaction and because of some other deals which Mr. Tong had not been authorised to sign.

27. I do not accept the contention advanced by the defendant's counsel that the plaintiff and Mr. Tong had collaborated to fraudulently represent to the defendant the capacity in which the plaintiff had been acting in signing the second or formal agreement. Counsel contends that because of this fraudulent collusion the defendant had been misled into thinking that it was dealing with a company in China through the agency of the plaintiff when in fact under the second agreement it purported to be contracting with the plaintiff as principal. There is no evidence to support this contention and I do not find anything inherently sinister in the plaintiff's actions to lend colour to it.

28. The plaintiff impressed me as being an honest, even if a somewhat naive, man. I accept his evidence as to his dealings with Mr. Tong and that Tong and the female employee of the defendant had told him that the defendant would not honour the contract because it had failed in its Korean tender. Counsel did not dispute the existence of such a woman or that she had said what the plaintiff claimed she had said. I am satisfied that the latter agreement superseded the first, and that on its proper construction the plaintiff entered into a contract with the defendant as principal. I also find that Mr. Tong, who was indisputably authorised by the defendant to enter into the contract with the plaintiff, well knew from his negotiations with the plaintiff, from the wording of the agreement itself and from the annexed contract between the plaintiff and the Guangtong company, that he was contracting with the plaintiff acting in the role of principal, not as agent for the Guangtong company or anyone else.

29. I do not think on the evidence before me that there is any justification for concluding that the only contract given to or seen by the defendant was the first agreement or that the plaintiff sought to conceal from the defendant the real capacity in which he was involved in the transaction.

30. Moreover, I am satisfied that after the contract had been cancelled by the defendant, the plaintiff reasonably attempted to mitigate loss by negotiating with other prospective purchasers for the sale to them of the peanuts but that he was unable to conclude a sale because the price of peanuts had declined. I accept his evidence that the peanuts developed mould and became unsuitable for human consumption.

31. In his statement of claim the plaintiff has claimed a sum of US$110,000.00 which he alleges he is obliged to pay his suppliers in accordance with a clause contained in the contract annexed to the agreement and which provided that in the event that the plaintiff did not open a letter of credit for the goods by the stipulated time he would be obliged to compensate the Guangtong company by payment of a sum equivalent to 5% the price of the goods. I find that the defendant through Mr. Tong must have been well aware both of this and the fact that the plaintiff was purchasing the peanuts from the Guangtong company in order to fulfil his contract with the defendant. A similar provision exists in the contract which the plaintiff entered into with the Shantau company for the supply of the other half of the quantity of peanuts which eventually were to have been delivered to the defendant under the agreement. I also accept the plaintiff's evidence that Mr. Tong had been told of the consequences to the plaintiff in the event that the defendant did not deliver the letter of credit by the required time.

32. The plaintiff also claims general damages for the breach of contract by the defendant. There is nothing before me to substantiate such a claim. Moreover, it is clear that apart from demands having been made on the plaintiff by the Guangtong and Shantau companies they have taken no legal action against him.

33. During his closing address, counsel for the plaintiff conceded that because the plaintiff had not paid compensation to the two Chinese companies he had not yet suffered any loss in this regard. He also conceded that the statement of claim did not specify any other specific loss. Counsel then sought leave to amend the statement of claim by adding to the wording in the prayer relating to the claim for the sum of US$110,000.00, the words "or alternatively a declaration of indemnity limited to such damages as might be found to be legally due from the plaintiff to any third party as a result of the breach of the defendant."

34. This amendment was strenuously opposed by counsel for the defendant. I then granted him a short adjournment so that he might consider whether he needed a longer adjournment to enable him answer the proposed amendment by calling further evidence should I decide to allow it. Having taken the short adjournment, counsel informed me that he did not require a further adjournment but reiterated that he opposed the proposed amendment.

35. Although the application for leave to make the amendment was made at a very late stage, counsel for the defence was unable to offer me any compelling reason as to why it should not be allowed. He was unable to demonstrate to me that the defendant would be prejudiced if the amendment were allowed. Moreover it was clear that the defendant did not wish to call any evidence to deal with the proposed amended claim.

36. The 1985 edition of the Supreme Court Practice states at page 298:

"The court has jurisdiction to grant any relief that it thinks appropriate to the facts as proved, but if a party seeks to raise a new claim, which he has not adumbrated in his pleading, in the course of the trial, the court should not give relief of that kind without first offering the opposite party, if taken by surprise, the opportunity for an adjournment (Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979]Ch 250;[1979] 1 All E. R. 118). "

37. As I was of the view that the justice of the case required it, I allowed the amendment.

38. I give judgment for the plaintiff and grant a declaration of indemnity limited to such charges as might be found to be legally due from the plaintiff to any third party as a result of the breach of the defendant.

39. I will now hear counsel on the question of costs.