EDWARD WONG & COMPANY LTD. v. POLYTEX COTTON GOODS TRADERS LIMITED

1984 No. 2260

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

__________

JUDGMENT

__________

1. By contract in writing dated 1st July 1983 (the first contract), the Plaintiff agreed to purchase from the Defendant 200,000 yards of Cotton Grey Canvas Cloth at $5.35 per yard. 40,000 yards of cloth were due for delivery on 15th July, and 160,000 yards in August and September. By October 1983 the Defendant had delivered 169,920 yards of cloth but failed or refused to deliver the balance. By a further written contract dated 3rd August 1983 (the second contract), the Plaintiff agreed to purchase from the Defendant 110,000 yards of Ramie Cotton Grey Cloth at $5.90 per yard. Delivery at the latest was to be in December 1983. The Defendant failed or refused to deliver this cloth. Accordingly, the Plaintiff now seeks damages for breach of the two contracts.

2. As to the first contract, the Plaintiff's case is that, after the bulk of the cloth had been delivered by early October, repeated phone calls were made to the Defendant demanding delivery of the balance. As delivery could not be obtained, the Plaintiff, through its manageress, Miss Szeto (who gave evidence as PW1), wrote to the Defendant on 9th December 1983 demanding delivery within 7 days. By telex dated 14th December, the Defendant replied saying, inter alia, "said contract has been already overdue", suggesting thereby that the Plaintiff was at fault. By telex the following day, the Plaintiff repeated that it was in urgent need of the fabric and stated "your people keep telling us that you have not received the fabric from China". There followed an attempt to arrange a meeting which came to nothing, and so, on 16th January 1984, the Plaintiff's solicitors wrote to the Defendant requiring delivery of the balance of 30,000 yards of cloth within 7 days (the odd 80 yards has been waived).

3. By letter dated 23rd January, the Defendant's solicitors advised the Plaintiff's solicitors that 20,000 yards of goods were ready for collection upon immediate payment. without any further contact between the parties, by letter dated 30th January, the Defendant's solicitors advised the Plaintiff's solicitors that the Plaintiff had repudiated the contract and that the repudiation was accepted. Although by letter dated 21st February, the Plaintiff's solicitors advised the Defendant's solicitors that the Plaintiff would take delivery of the 20,000 yards of cloth, this was rejected by the Defendant's solicitors as the Plaintiff's repudiation of the contract had already been accepted.

As to the second contract, one of the terms was

 

"Delivery: on or about September, October 1983. (Delivery may be extended to latest December 1983) Partial delivery allowed. "

4. The Plaintiff, having been unable to obtain any indication of when any goods might be delivered, wrote to the Defendant on 9th September 1983, asking for a firm delivery schedule, and advising that it was committed to deliver fabric to customers in October and November. There was no response to this letter. However, a representative of the Plaintiff, a Mr. Herman Wong (of whom more later), went to the Autumn Fair in Canton in October where he met representatives of the Defendant who sought a price increase in accordance with condition 3 of the contract because of an increase in price by the Defendant's suppliers in China. Such an increase was not agreed, and the Defendant was further pressed to deliver the cloth.

5. By letter dated 1st December 1983, the Plaintiff, by Miss Szeto, asked the Defendant for a confirmed delivery schedule for the cloth. The Defendant responded by telex dated 20th December saying that, because the manufacturer in China had suffered from a loss in exchange rate, the price would have to be amended to $8.26. By telex the following day, the Plaintiff asked for evidence justifying the increase as a basis for negotiation. By telex dated 23rd December, the Defendant refused to produce any documents, saying that the Plaintiff should "certainly know the affair" of the manufacturer, and pointing out that Herman Wong had been present at a meeting with the manufacturer in Canton. However, the Defendant indicated it had received part of the goods and asked the Plaintiff to inspect and arrange for delivery.

6. The Plaintiff inspected the goods which were available but found them unacceptable, because they were not of the standard length. By telex dated 29th December, however, the Plaintiff agreed to accept 4,800 yards of 47 inch width cloth, but required the balance of 105,200 yards to be of standard length. By telex dated 30th December, the Defendant advised the Plaintiff that, by agreement reached with Herman Wong, the second contract would be fulfilled by the delivery of some 4,674 yards of 47 inch width cloth and 3,546 yards of 38 inch width cloth (the 2 lots). The balance of 101,780 yards would be delivered when agreement as to an increase in price had been reached.

7. The Plaintiff did not, however, accept the terms contained in this telex. It accepted the goods in order to fulfil urgent orders from customers, but by telex dated 4th January 1984, stated that it would issue a new purchasing order for the 2 lots, so that the original contract would remain unchanged at 110,000 yards. A new purchase order dated 6th January was issued for the 2 lots which had been delivered. The invoice, which had been issued by the Defendant for these goods, was with the consent of the Defendant amended to record the number of the new purchase order rather than the number of the second contract. Payment was made on 11th January.

8. In the absence of any reaction from the Defendant, the Plaintiff's solicitors, by their letter of 16th January (to which I have already referred), advised the Defendant that delivery of the whole contracted amount was still outstanding, and required it to be delivered within 7 days. By letter of the same date, the Defendant advised the Plaintiff that it refused to accept any new purchase order as required in the telex of 4th January and "reiterated" that liability under the contract had been fully discharged. The Defendant's solicitors in their letter of 23rd January repeated that the Defendant's liability under the contract had been discharged, but said that the Defendant was prepared to deliver 15,000 yards of goods at the contract price. This offer was withdrawn by their letter of 30th January.

9. As to the first contract, it was the Defendant's case that it had been the one to press the Plaintiff to take delivery, but that the Plaintiff had failed to give any indication of when it would do so. Consequently, its obligations under the contract were discharged by the offer of 20,000 yards of cloth in January, the other 10,000 yards being accounted for by a term of the contract which provided for an amount of 5% more or less to be acceptable. As the Plaintiff made no response to the offer of 20,000 yards of cloth, it thereby repudiated the contract, which repudiation the Defendant accepted.

10. As far as the second contract is concerned, the Defendant's case as pleaded is that, by an oral agreement made between Mr. Liu Wai Yiu of the Defendant and Mr. Herman Wong of the Plaintiff on 30th December 1983, it was agreed that the Plaintiff would buy the 2 lots; and that the contract itself would be cancelled, and both parties be mutually discharged from further performance of their obligations.

11. The case as it emerged, however, from the evidence of Mr. Liu Wai Yiu, a director of the Plaintiff, was somewhat different. He stated that at the meeting at the Autumn Fair, it was agreed between Mr. Herman Wong and himself that the contract should be cancelled. He regarded the Defendant as under no further obligation in respect of this contract. It was a surprise, therefore, to receive the Plaintiff's letter of 1st December, seeking a confirmed delivery schedule. Contact was made with Herman Wong, who indicated that the Plaintiff's clients now wanted goods, the subject of the second contract, and asked for the Defendant's help. There ensued discussions with Wong culminating in an agreement with Wong on 29th December for the delivery of the 2 lots and confirmation that the contract was cancelled. Two delivery orders were issued to the Plaintiff on the morning of 30th December, and the goods were collected from the Defendant's warehouse later that day, at which time the Defendant was supplied with a memorandum from the Plaintiff, signed by Wong, requesting the two delivery orders. The Defendant also sent its telex of 30th December in order to confirm the agreement which had been reached.

12. The Defendant issued an invoice for the 2 lots in which it referred to the second contract number. It had no knowledge of the amendment made by the Plaintiff until the end of January when it was brought to its attention by its solicitors. Enquiries then revealed that a messenger, who had gone to collect the cheque in payment of the invoice at the Plaintiff's office, had been told that he should bring the Defendant's chop in order to correct an error on the invoice before the cheque could be issued. Nor did the Defendant have any knowledge of the Plaintiff's separate purchase order for the 2 lots.

13. The issue of the first contract is more easily resolved. As Mr. Leung for the Plaintiff contends, the time for delivery provided in the contract was waived in the absence of any positive step by either party after the last delivery in early October 1983. Time was raised by the Plaintiff's letter of 9th December, but again, in the absence of any positive follow up, the limit lapsed. The situation crystallized with the exchange of solicitors' letters in January 1984. The Plaintiff's solicitors sought delivery of the balance within 7 days. The Defendant's solicitors made a counter offer of 20,000 yards, but with no stipulation as to time other than immediate payment. The counter offer was withdrawn 7 days later without any further notice.

14. Mr. Leung argues that it was unreasonable of the Defendant to withdraw the offer so quickly; secondly, that the offer was invalid anyway because it was insufficient to meet the Plaintiff's demand and the Defendant's obligation under the contract. As to the latter argument, Mr. Leung contends that, in such circumstances, a supplier may not rely upon a margin clause in a contract but must supply the quantity for which he has contracted. A supplier may only rely upon such a clause when he is genuinely trying to fulfil his obligation. Mr. Leung relied upon Hasell v. Bagot, Shakes & Lewis Ltd and Others. ⁽¹⁾

15. In that case, which was an appeal from the Supreme Court of South Australia, Griffith C. J. said at p.371:-

"The form of contract 'ten per cent, more or less' seems unusual, but the same or similar terms are found in Doyle's contract of 8th February, and also in a previous contract made by respondents with him on 25th May 1909. They would appear therefore to be not uncommon in the trade. The words 'more or less' are ordinarily used with reference to specific goods which are the subject of a contract of sale, and not with reference to unascertained goods to be acquired by a vendor and supplied to the purchaser, and they are generally understood to cover small and accidental discrepancies in weight or quantity. But their meaning may vary with the subject matter or context. The subject matter of the contract now in question was a large quantity of mineral to be procured in, and shipped from, a foreign country, where it might or might not be practicable to procure and provide for the shipment of the exact quantity of 5,000 tons within the prescribed period, except perhaps at a great and unreasonable expense. Moreover, the weight of the mineral on arrival might be increased or diminished according to its condition as to moisture, and some of it might be rejected by the Inspector of Fertilizers.

 

I am disposed to think that the words in question were inserted from this point of view, with the intention that the purchaser should not be entitled to make any claim in respect of a deficiency of 500 tons, or to refuse to accept an excess of 500 tons beyond the stipulated 5,000, if the deficiency or excess arose in an honest attempt to perform the contract. But I am not prepared to hold that they can be invoked by a vendor who, instead of attempting to perform his contract, refuses to do so simpliciter. "

16. Mr. Tse for the Defendant emphasizes the line in that passage "but their meaning may vary with the subject matter or context". He says that the Court must therefore look at all the circumstances of each individual case and points out that the case cited appears in Benjamin's Sale of Goods in a paragraph dealing with Section 30 of the Sale of Goods Act 1979, relating to insufficient delivery whereas the current case is one of instalments.

17. Although the goods, which had been earlier delivered, had comprised six separate deliveries, this contract is not an instalment contract. It is not disputed that some 30,000 yards of cloth were still due for delivery. The Plaintiff was entitled to call for delivery of the whole amount. I am satisfied therefore that unless the Defendant's offer had been expressly accepted by the Plaintiff, it was insufficient to fulfil its obligation under the contract.

18. I am also satisfied that in all the circumstances the principle in Hasell applies to this contract. The Defendant, on its own evidence, had at the time of the offer over 30,000 yards of cloth in stock. There was no reason therefore to offer less than the full balance which had been contracted for.

19. I am further satisfied that in all the circumstances it was unreasonable for the Defendant to have withdrawn its offer after only 7 days, having regard to the amount of time which had already elapsed and the absence of any time limit to the offer. Accordingly, I find the Defendant in breach of the first contract.

20. The Plaintiff purchased 30,000 yards of cloth on or about 19th January 1984 in order to replenish its stocks. The price was $7.50. Miss Szeto said that the company from which the Plaintiff purchased this cloth would have given the best possible price. For the Defendant, Mr. Liu said that the price of cloth on about 23rd January varied between $6.50 and $6.80. In the absence of any independent evidence as to the true market price at this time, I think the proper figure for me to take is $7.00. The original contract price having been $5.35, the Plaintiff is entitled to damages of 30,000 yards x $1.65 = $49,500.00.

21. Mr. Leung faces a more difficult task in respect of the second contract. His problem is that Miss Szeto, the manageress of the Plaintiff's cloth department, and the only witness who gave evidence for the Plaintiff as to the circumstances surrounding the contract, had little first hand knowledge of what took place. Miss Szeto did not negotiate the contract herself. She did not take part in any discussions with the Defendant. These were carried on by Herman Wong. Telephone calls pressing the Defendant to deliver were made by Miss Szeto's assistant, Miss Kwan. Most importantly, the telephone calls in which the Defendant's alleged agreement to the alteration of the invoice was obtained were not made by Miss Szeto, who was only informed that the Defendant agreed.

22. Miss Szeto gave her evidence in a pleasingly frank and straight-forward manner. I have no hesitation in accepting her as an honest witness who is telling the truth. However, her evidence really boils down to no more than that there was a contract; that the goods, the subject of that contract, have not been delivered; and that she wrote a number of letters and sent a number of telexes upon the basis of what she was told by other members of the Plaintiff company. Miss Szeto clearly maintained a somewhat detached position throughout the period of the contract, and more particularly, during late December 1983 when discussion and negotiation over the contract were taking place.

23. It is beyond dispute that Herman Wong was engaged in the discussions and negotiations. Yet according to Miss Szeto, Herman Wong was responsible for sales of cloth and only incidentally would he become involved in pressing for delivery from the Plaintiff's suppliers. Any decisions relating to the variation of contracts would have to be made by a top management team, not by Mr. Wong. It is surprising, therefore, that in relation to what was presumably an important contract for the purchase of cloth, Miss Szeto allowed Mr. Wong rather than herself to conduct negotiations.

24. As Mr. Leung submits, the Defendant's defence is a plea of accord and satisfaction. He rightly contends that it is for the Defendant to prove this. He suggests, however, that neither Mr. Liu, the Defendant's director, who gave evidence, nor Mr. Ng, the messenger, who was involved in the alteration of the invoice, should be believed. He attacks Mr. Liu on two major grounds. First, he contends that Mr. Liu was not a good witness having given his evidence in an evasive and unsatisfactory manner. Secondly, he suggests that Mr. Liu made up the essential core of his case, that is, how the second contract was cancelled, as he went along. He points out that in cross-examination, it was put to Miss Szeto that the parties agreed a variation of price at the Autumn Fair. This, of course, was denied by Miss Szeto, and that denial was subsequently confirmed by Mr. Liu. In his evidence in chief, Mr. Liu said that at the Autumn Fair no agreement was reached as to price, but that Mr. Wong only suggested that the contract should be cancelled. Finally, in cross-examination, Mr. Liu stated categorically that the contract was cancelled at the Fair, and that he regarded the Defendant as discharged from its obligations.

25. If Mr. Liu's evidence about the cancellation of the agreement at the Autumn Fair is correct, says Mr. Leung, why then is there no mention of this in the exchange of telexes in December? Further the telex of 30th December, in which the Defendant emphasized that agreement had been reached for the fulfilment of the contract by the delivery of the 2 lots, makes nonsense of the alleged cancellation of the contract at the Autumn Fair.

26. Mr. Leung also points out that after receipt of the Plaintiff's telex of 4th January, in which the Plaintiff made plain that it regarded the contract as still subsisting, the Defendant did nothing until it wrote to the Plaintiff on 16th January. Mr. Liu was unable to give any convincing explanation for this. However, it seems equally surprising to me that, considering the prodigality with which telexes were sent on the 29th and 30th December, the Plaintiff did not respond to the Defendant's telex of 30th December by return in order to make it plain that no such agreement had been reached.

27. The evidence of Mr. Ng, the Defendant's messenger, was in essence that he was asked by the Plaintiff, upon the second occasion that he called to collect the cheque for payment of the goods, to return with the Defendant's chop in order to correct an error on the invoice. He returned later the same day with the chop which was duly affixed to the amendment of the contract number on the invoice. His evidence was attacked because of his frequent responses of "don't remember" and because of his unsatisfactory explanation of how he received his instructions and the circumstances in which he might take a chop from the Defendant's office. After the period which has elapsed since this incident, I find it hardly surprising that the witness could not remember all the details of this incident. Nor do I attach any significance to his confusion about the practice relating to the Defendant's chops. Mr. Ng was clearly a man of no great intellectual capacity, and as he revealed, in answer to my questions, of little education.

28. As far as Mr. Liu is concerned, I am conscious of the criticisms of his evidence made by Mr. Leung. Nonetheless, it is my view that Mr. Liu gave a remarkably consistent story about the events surrounding the second contract. Mr. Liu's evidence was not shaken in any significant manner by a very lengthy and careful cross-examination. I am unable to reject his evidence.

29. I find, therefore, that it was agreed between Mr. Wong and Mr. Liu on 30th December that the second contract should be fulfilled by the delivery of 2 lots. This is not wholly inconsistent with the evidence that the contract had already been cancelled in October but amounts to a formal confirmation of that position.

30. Mr. Leung sought to argue that, even if I find this to be the case, it still does not amount to accord and satisfaction because the satisfaction, that is the payment by the Plaintiff for the 2 lots, was not pursuant to the accord but rather in respect of its new purchase order and the amended invoice. For that argument to have any prospect of success, it would first be necessary for me to find that the invoice was amended with the agreement of the Defendant. I am unable so to find.

31. The argument must fail, however, because in law the payment by the Plaintiff was not the satisfaction.  Accord is the agreement by which an obligation is discharged. The satisfaction is the consideration which makes that agreement operative. In the present case, it was agreed that the Defendant would be discharged from its obligations to deliver 110,000 yards of cloth under the contract by the delivery of the 2 lots. The subsequent delivery of those 2 lots was the consideration and constituted the satisfaction.

32. Accordingly, the Plaintiff's claim in respect of the second contract must fail.

(1) 1911. 13 C.L.R. 374