TUNG GUAN CO. PTE. LTD. v. JIH DONG ENTERPRISES CO

1988, No. A8278

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J U D G M E N T

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1. This is an action for damages for breach of contract.

2. It is the plaintiff's case as pleaded in paragraph 2 (1) of their amended Statement of Claim that:-

"(1) By an exchange of telexes on 10th June 1988 the Defendant offered to sell and the Plaintiff agreed to buy 3,000 metric tons of soyabean extraction at US$215 per metric ton.

(2) The detailed terms of the agreement between the Plaintiff and the Defendant were set out in Sales Confirmation No. JS-852 ('the SalesConfirmation'), which the Defendant prepared and sent to the Plaintiff on or about 14th June 1988 and which the Plaintiff signed and returned to the Defendant on or about 29th June 1988.

(3)  It was a term of the Sales Confirmation that the Defendant would ship 3,000 metric tons (10% more or less) of soyabean extraction during June or July 1988."

3. In paragraph 3 of their amended Statement of Claim the plaintiff alleges :-

"Wrongfully and in breach of its obligation under the Sales Confirmation, the Defendant failed to ship any soyabean extraction in June or July 1988 and only shipped approximately 1,200 metric tons of soyabean extraction on or about 24th September 1988."

In paragraph 4 they allege :-

"Notwithstanding the Defendant's breach, in October 1988 the' Plaintiff accepted the aforesaid late shipment of approximately 1,200 metric tons as part fulfillment of the Defendant's contractual obligations, but required the Defendant to ship the outstanding balance of 1,800 metric tons immediately and, in any event, by 27th November 1988 at the latest."

In paragraph 5 they allege :-

"Wrongfully and in breach of its contractual obligations to the Plaintiff, the Defendant failed to ship the said 1,800 metric tons of soyabean extraction or any part thereof by 27th November 1988 or by 13th December 1988 at all and thereby repudiated the Sales Confirmation. The Plaintiff accepted the Defendant's repudiation on 13th December 1988 in a telex addressed to the Defendant by the Plaintiff's Hong Kong solicitors, Messrs. Ince & Co."

4. The plaintiff went on to allege that as a result of the matters aforesaid, they had suffered loss and damage and gave particulars thereof.

5. The defendant has filed a lengthy re-amended defence setting out ten pages of pleading. In summary its effect is that the defendant is saying that by reason of the fact that both the plaintiff and defendant are importers of goods from the People's Republic of China they both knew and understood "the usual Chinese soyabean extraction business terms and conditions" to be the conditions incorporated in the standard contracts of China National Cereals, Oils and Foodstuffs Import and Export Corporation, (hereinafter referred to as the "Chinese Company"). They allege that these terms included a Force Majeure Clause. which protects the sellers should they fail to deliver or effect the shipment in time by reason of causes beyond their control. It is further pleaded in paragraph 6 of the Defence that by a written agreement dated 26th April 1988 between the defendant and the Chinese company, the defendant agreed to buy 2,000 metric tons of soyabean extraction of the same type as under the subject Contract at a unit price of US$207.00 per metric ton to be delivered in June or July 1988. Further that by another written agreement dated 27th May 1988 between a company called Dong He Industrial Company Limited and the Chinese Company executed in Beijing the said Dong He Industrial Company Limited agreed to buy 5,000 metric tons of soyabean extraction of the same type as under the subject contract at the unit price of US$207.00 per metric ton also to be delivered in June or July 1988. Further, that the defendant is a shareholder and director of the said Dong He Industrial Company Limited and that by a written agreement dated 3rd June 1988, Dong He Industrial Company Limited agreed to sell to the defendant 1,400 metric tons of the same type of soyabean extraction as under the subject contract at the unit price of US$207.00 per metric ton to be delivered in June or July 1988.

6. It is the defence contention in paragraph 7 of the Defence that at the time when the subject Contract was made the Plaintiff knew of the existence of these two Chinese contracts, and it was the common intention and understanding of the plaintiff and the defendant that the soyabean extraction, the subject matter of the contract, was the same soyabean extraction covered by the two Chinese contracts. In the premises it was an implied term of the contract that the goods under the contract were the goods to be supplied under the two Chinese contracts.

7. In paragraph 8, the defendant pleads that subsequent to the conclusion of the contract, and from about June to December 1988, the Ministry of Foreign Economic Relations and Trade or other government bodies of the People's Republic of China (the Chinese Authorities) withheld the issue of export licence of soyabean extraction and that the said export licence was essential for the export of the soyabean extraction from China and was beyond the control of the defendant.

8. In paragraph 9 of the Defence, it is alleged that there was an agreement between Gan Kong Hwee of the plaintiff on the other part and the defendant and Cheung Keung of the other part on or about 7th July 1988 that due to the failure by the Chinese Authorities to issue export licences which were beyond the control of the defendant, the time of delivery of the goods and the opening of the letter of credit under the contract would be postponed and extended to such time when and in the event that the export licences were issued by the Chinese Authorities. In the circumstances, the contract has been varied. Further or in the alternative, the defendant claims that the plaintiff waived its right to insist on delivery in June and July 1988.

9. In paragraph 10, it is alleged by the defendant that export licences had been secured in respect of 1,500 metric tons of the goods under their two Chinese contracts, but not for the balance of 5,500 metric tons. The plaintiff had been requested to arrange shipment of the 1,500 metric tons, but the plaintiff did not send the letter of credit until 5th September 1988 and when it came, it only covered 1,200 metric tons of the goods As a result, the 1,200 metric tons was only delivered to the plaintiff on or about 24th September 1988 and that the plaintiff was therefore in breach of the agreement as varied on the 7th July 1988.

10. In paragraph 11, it is alleged that despite the plaintiff's waiver and/or breach of the agreement reached on the 7th July 1988, the plaintiff opened a letter of credit No. 761/88 for the balance of 1,800 metric tons of the goods under the contract on or about 15th October 1988 with the latest date of delivery stipulated unilaterally as 27th November 1988.

11. In paragraph 12, it is pleaded that on or about 12th December the defendant was orally informed by the Chinese Company that an agreement had been reached with two other foreign importers to raise the purchase price for soyabean extraction to US$241.00 per metric ton and that export licences would be issued in respect of the balance of the goods under the two Chinese contracts on condition that the said new price was accepted by the defendant.

12. In paragraph, 13 it is alleged by the defendant that he informed the plaintiff of the said proposal of the Chinese Company in a telex of the 12th December 1988 and offered to revise the unit price under the contract to US$249.00 in order to keep the defendant's profit margin. However, the plaintiff's solicitors, by telex dated 13th December 1988, wrongfully and in breach of the contract as varied by the agreement or contrary to the plaintiff's waiver, repudiated the contract by purporting to accept an alleged breach of the defendant for late delivery.

13. In paragraph 14, the defendant alleges that by a letter dated 21st December from the defendant's solicitors to the plaintiff he offered to deliver 1,800 metric tons under the contract at the original price. However, by a fax transmission dated 28th December 1988 from the plaintiff's solicitors to the defendant's solicitors, the plaintiff, wrongfully and in breach of the contract as varied, refused to accept the proposed delivery of 1,800 metric tons.

14. In paragraph 15, the defendant alleges that by reason of the Force Majeure Clause pleaded in      paragraph 4 and the withholding of the said export licences until 15th December 1988 before which time performance under the contract by the defendant became impossible or beyond the control of the defendant, the defendant is not liable to the plaintiff for the non-delivery of the 1,800 metric tons of the goods under the contract.

15. In paragraph 16, in the alternative, the defendant relies upon the variation of the contract and/or the waiver of the contract as enabling him to escape liability for the said non-delivery.

16. In paragraph 17, there is a further alternative, pleading that by reason of the matters pleaded in paragraph 9 the plaintiff is estopped from enforcing or insisting on the original date for delivery in the contract, or alternatively, the unilaterally appointed date of the 27th November. There is a further alternative pleading that the plaintiff failed to give reasonable time to the defendant to deliver the goods after the 15th December.

17. It is alleged in paragraph 18, in the alternative that the plaintiff was wrongfully in breach of the contract by reason of the facts pleaded in paragraph 10 in relation to its failure to take delivery of the 300 metric tons in early September 1988.

18. In paragraph 19, there is a further and alternative pleading to the effect that the plaintiff failed to reasonably mitigate its loss in refusing to purchase 1,800 metric tons offered by the defendant to the plaintiff at the contract price on 21st December 1988 and/or thereafter.

19. In their amended reply, the plaintiff joins issue with the defendant on all the defences raised.

20. In particular, the plaintiff alleges in paragraph 2 of the amended reply :

"(1) It was an express term of the contract evidenced by the exchange of telexes dated 10th June 1988 and the Sales confirmation No. JS-852 that the soyabean extraction was to be shipped 'FOBS Xingang. Loading Terms: C.Q.D.'

(2) By reason of such term and on a true Construction of the contract, the Defendant undertook the risk and expense of obtaining such export licences as may have been necessary for the proper shipment of the soyabean extraction from the People's Republic of China.

(3) In the premises, if which is denied export Licences were withheld from the Defendant as alleged in the Defence, it is denied that such withholding excused the Defendant from complying with its obligation under the contract.

21. In paragraph 3, there is an alternative pleading that even if the Force Majeure clause was incorporated into the contract, the defendant was not entitled to rely upon it for the reasons set out therein.

22. In paragraph 4, there is an alternative pleading that even if the Force Majeure clause was incorporated into the agreement :

"(1) By 12th December 1988 the Defendant was in a position to obtain export licences for soyabean extraction by agreeing to buy the same from CNCOFIEC at a unit price of US$249 per. metric ton.

(2) By a telex dated 12th December 1988 from the Defendant to the Plaintiff, the Defendant evinced an intention not to deliver goods in accordance with the Sales Confirmation by asking that the Plaintiff adjust the contract price to US$249 per metric ton otherwise the agreement would be cancelled automatically.

(3) In the premises, the Defendant repudiated the Sales Confirmation and the Plaintiff was entitled to (and did) accept the Defendant's repudiation and treat the Sales Confirmation as terminated on 13th December 1988."

Was a Force Majeure Clause-incorporated into the contract?

23. It appears from the evidence before me that the negotiations for this contract took place in a telephone conversation on the 9th June 1988. It was as a result of this conversation that the defendant sent a telex to the plaintiff on the 10th June in the following terms :

"RE : SOYABEAN EXTRACTION

AS PER NEGOTIATION ON TELCON YESTERDAY, WE OFFER YOU 3,000 MT PRICE AT USD215.- PER MT FOBSXINGANG (LOADING TERM CQD) PACKING IN GUNNY BAGS SHIFT DURING JUN/JUL 88 SPEC P+O 45PCT MIN (DRY BASIS) PAYMENT 'BY AT SIGHT IRR L/C OTHERS AS USUAL CHINESE EXPORT TERMS PLS REPLY HERE 10:00 A.M. 11TH JUN 88

RGDS

JIHDONG"

24. In less than an hour later, the plaintiff replied by telex to the defendant as follows :

"RE : SOYABEAN EXTRACTN

TKS YR TLX 06-008, DD: 10/6.

V CFM HEREWITH OUR ACCEPTANCE OF YR OFA OF 3,000 MT AT USD215.00 PER MT FOBS XINGANG (LOADG TERM CQD), WITH ALL TERMS N CONDITIONS AS STATED IN YR SAID TLX.

PLS ISSUE YR SALES CONTRACT AS FLWS : -

TUNG GUAM CO PTE LTD

62, CECIL STREET,

HEX B1-00, TPI BUILDING,

SINGAPORE 0104.

TKS/RGDS

GAN KONG HWEE#"

25. It is to be noted that this is addressed specifically to a Mr Cheung Sik Kau, and purports to have been sent by Mr Gan Kong Hwee for the plaintiff.

26. On the 14th June at 09:54 hrs the defendant sent a telex for the attention of Mr Gan Kong Hwee thanking him for his telex of the 10th June and pointing out that the Sales Confirmation (which was No. JS-852) had been airmailed to the plaintiff and requesting the plaintiff to sign and return the same. It also requested the plaintiff to advise the defendant by return telex when they intended to take delivery of the cargo.

27. The Sales Confirmation which is an agreed document contained the terms of the contract set out in the telexes. Under the heading "Terms of Payment" there is a paragraph dealing with the necessity for and terms of an irrevocable letter of credit. It concludes with the following two sentences :-

"This Sales Confirmation is made as per Seller's telex dated 10th June 1988 and Buyer's telex dated 10th June 1988. Each party keeps one original in English the general terms and conditions are in accordance with usual Chinese Soyabean Extraction business terms and conditions and shall be equally binding upon both parties."

28. It appears that on the 17th June there was a conversation between Mr Gan Kong Hwee for the plaintiff and Mr Chow Hok Tung for the defendant which led to the plaintiff sending a telex to the defendant on the 20th June 1988 at 16:48 hrs. This telex refers to their telephone conversation and went on "To enable us arrange LC in your favour, please reconfirm that our purchase of above goods from you is soyabean extraction. Also please advise delivery port in China. Awaiting your prompt reply." Again the telex purports to have been sent by Mr Gan Kong Hwee.

29. This is followed up on the 27th June 1988 by a telex timed 14:06 hrs from the defendant to the plaintiff saying :-

"Sorry for delay to reply your telex as we have not received the China Corp's final confirmation stating that the above cargo are ready for loading. We shall let you know when everything is OK.

Please understand."

30. On the same day, the plaintiff replies in a telex addressed specifically to Mr Chow Hox Tung of the defendant's company thanking the defendant for its telex and saying :-

"We are anxiously awaiting your final confirmation on cargo readiness for loading, upon receipt of which we will immediately open our LC to you.

Please confirm above is in good order."

So much for the contemporary documents.

31. The evidence of Mr Gan Kong Hwee for the plaintiff is before the court in the form of a hearsay statement admitted under the hearsay rules. In it, Mr Gan confirms that the plaintiff entered into a contract with the defendant on the 10th June 1988 when he confirmed to them by telex their offer of 3,000 metric tons at US$215 per metric ton FOB XINGANG for shipment June/July 1988, the contract being later formalized in the Sales Confirmation dated 14th June 1988 on the defendant's standard form of contract. He says :

"As per our understanding the contracted terms of payment was :-

L/C would be by us in their favour and it would be the seller's/shipper's responsibility to perform in accordance with the usual Chinese soyabean extraction general terms and conditions on shipping documentation other than what had already been mentioned in the contract, namely ;-

1) Signed Commercial Invoice in triplicate.

2) Inspection Certificate of weight issued by China Commodity Inspection Bureau or China Commodity Inspection Corpn in Triplicate.

3) Inspection Certificate of Quality issued by China Commodity Inspection Bureau or China Commodity Inspection Corpn in Triplicate.

4)Phytosanitary Certificate in triplicate issued by Animal & Plant Quarantine Service, China.

5)Certificate of Chinese Origin in triplicate.

6) Full set of Clean 'On Board' Ocean Bills of Lading.

7) Insurance covered by buyer but shipper must notify the Tai Ping Insurance Co. Ltd., 62, Cecil Street, #03/04 TPI Building, Singapore 0104 by airmail details of shipment effected. A copy of the shipment advice to the said company must be attached to documents for negotiation.

8) B/L to show specifically both the name of port of discharge and the name of its country.

9) One set of non-negotiable shipping documents must be airmailed to buyer immediately after shipment and a Certificate to this effect must accompany the documents for negotiation etc.

Mr Gan goes on to say :

"As Tung Guan's contract with Jih Dong was for the purchase of Chinese soyabean extraction, I am aware that he said cargo would originate from China and would be delivered from the Port. of Xingang but I am not aware from whom Jih Dong were buying the cargo nor am I aware how much Jih Dong were paying for the cargo nor which party was responsible for obtaining the export licence. All that I was concerned with was that we would establish L/C to sellers and sellers duty was to arrange for the cargo to be delivered on board of vessel nominated by Tung Guan when the vessel arrived at Xingang."

Later he says :

"On 27th June 1988 I telexed Jih Dong asking for final confirmation that the' Cargo was ready for loading so that Tung Guan could immediately open the Letter of Credit to Jih Dong. On the same date, Jih Dong replied that they had not received their suppliers' confirmation that the Cargo was ready for loading and would let us know when the Cargo was ready.

After that, I had various telephone conversations with Mr Cheung Sik Kau chasing for the Cargo but each time, he told me that the Cargo was not ready."

32. It is, therefore, Mr Gan's evidence on behalf of the plaintiff that the plaintiff's understanding of the "Usual Chinese soyabean extraction general terms and conditions" refer to shipping documentation other than what had been mentioned in the contract. Futhermore, it seems clear from the documents that the negotiations on the 9th June had been between Mr Gan for the plaintiff on one side and the defendant himself on behalf of his company which is wholly owned by him on the other side Indeed this is pointed out by Mr Cheung Keung, the son of the defendant, who testifted to this effect. However, he testified that he was present. Mr Cheung Keung said in evidence that the telexes of the 10th June had been sent out by him on his father's instruction. He was asked what he meant by the words "others as usual Chinese export terms" appearing in the telex, and replied "these words mean the usual export term at the back of Chinese Contracts. These terms and conditions were printed out and were usually attached to the Chinese Contracts." When asked the question "Were these Chinese Contracts in the proforma drafted by the Chinese Corporations?", he replied : "Basically these contract'were in about the same terms." He went on to say that his company had, before the 10th June, entered into many contracts with Chinese Corporations using that standard form of contract. He produced the bundle of 10 sales confirmations in which the contracts were in the same form, all of which contain a Force Majeure clause.

33. Miss Cheung Wai, the daughter of the defendant and elder sister of Mr Cheung Keung, testified that she was the person who entered into the two Chinese Contracts on behalf of the defendant. At the time she signed the contracts in Beijing, she knew that Mr Gan Kong Hwee also knew that she was signing contracts to buy such goods. However, she didn't go into any explanation as to how she was aware of the knowledge of Mr Gan on this subject. She also testified that it was Mr Gan of the plaintiff's company who telephoned the defendant's company to negotiate for the purchase of the contract goods. When asked if she knew why he called her company, she replied "Well, he said over the phone that he knew our company had purchased soyabean extraction from Chinese Company and he would like to purchase such goods from us."

34. Here again she is suggesting that Mr Gan had knowledge of the defendant's purchase of soyabean extraction because of what he said. It appears to be common ground that the negotiations were conducted between Mr Gan and Mr Cheung Sik Kau, her father, who hasn't given evidence himself.

35. On the one hand, I have the hearsay statement of one of the negotiators of the contract saying that the understanding of the usual terms, etc. was that they refer to shipping documents, and on the other hand I have got the defendant's son claiming to be present, but not saying how he was able to hear what the plaintiff Mr Gan was saying at the other end of the phone. There is also the evidence of his sister, who doesn't even claim to be present. Her evidence appears in any event to be inconsistent with the terms of Mr Gan's telex of 20th June 1988 in which he wants confirmation that the purchase is of soyabean extraction.

36. A large number of copies of "Standard Chinese Contracts" have been exhibited and it does appear to me that the Force Majeure clause is by no means universal. Furthermore, there was evidence before the court from a Mr Leung Kam Wah, Dominic, the Import and Export Manager of a company called Chi Tai Trading Co. Ltd. who has had five years' experience in the business of agricultural products trading (especially of PRC origin). It is his understanding that such phrases as "General terms and conditions" and "Usual China soyabean extraction business terms and condition" refer only to shipping terms. The loading term is usually on C.Q.D. (Customary Quick Dispatch).

37. Mr Leung was in. fact called as an expert witness. He testified that he had studied in university "about some contract laws" and also about international marketing and held a degree in Business Administration. His company purchased agricultural products from China for export to other countries. Under cross-examination, he conceded that he wouldn't be surprised if somebody signed a contract which included in the general terms and conditions a Force Majeure clause and an Arbitration clause in addition to clauses relating to shipping documents. His explanation was that in contract parties can makeup their own minds as the terms of their contract. He agreed that the meaning of general terms and conditions and usual Chinese terms and conditions turns upon the intentions of the parties. He did not regard himself as an expert as to what are usual Chinese terms. He only spoke from his personal experience. An expert cannot of course give evidence on the construction of a document, but he can testify as to whether there are "usual" terms.

38. Of the two representatives of the parties who negotiated this contract, the court has heard only from Mr Gan. The defendant himself has not been called. The evidence of the defendant's son and daughter as to what the plaintiff agreed. is hearsay. Neither of them have told the court how they came about the knowledge which they claim to have on the matter.

39. The weight to be attached to Mr Gan's hearsay statement is governed by s.51(3) of the Evidence Ordinance. This provides :-

"(3) In estimating the weight, if any, to be attached to a statement admissible in evidence by virtue of s.47, 48, 49 or 50 regard shall be had to all the circumstances from which any inference can reasonably be drawn as to the accuracy or otherwise of the statement and, in particular -

(a) in the case of a statement falling within s.47(1) or 48(1) or (2), to the question whether or not the statement was made contemporaneously with the occurrence or existence of the facts stated, and to the question whether or not the maker of the statement had any incentive to conceal or misrepresent the facts;"

40. In my judgment, weight can be attached to Mr Gan's statement because many of the matters mentioned in his statement are consistent with contemporaneous documents Furthermore, the plaintiff has exhibited a sales confirmation confirming a sale between it and China National Native Produces and Animal By-products Import and Export Corporation in which there is no Force Majeure clause. Also exhibited is a standard sales confirmation of the China National Cereals Oils & Foodstuffs Import & Export Corporation which similarly does not contain any Force Majeure Clause. Indeed, there are a large number of contracts exhibited in the disputed bundle which is no longer disputed where no Force Majeure clause has been included.

41. It is not stated in the sales confirmation that this contract between the plaintiff and the defendant was to be in the same terms and conditions as those between the defendant and the China National Cereals Oils & Foodstuffs Import & Export Corporation. If that had been intended, it could have easily been stated in the contract. Furthermore, there was no evidence to the effect that that Chinese Corporation was the only Chinese corporation dealing in this sort of product.

42. In my judgment the term "Usual Chinese Soyabean Extraction Business Terms and Conditions" is void for uncertainty as are the words in the telex "Usual Chinese Export Terms".

Whether there was a variation of the contract and/or waiver so that time of delivery was postponed to the time when the export licence was made available?

43. This arises from paragraph 9 of the defence. There is no evidence from Mr Gan Kong Kwee specifically denying being at this meeting, which according to paragraph 9 of the defence occurred on or about the 7th July 1988 at which the plaintiff was present and also the defendant together with Cheung Keung. In addition to that part of his hearsay statement set out earlier, where he talks about his telex to defendant on 27th June and his subsequent telephone conversations with Mr Cheung Sik Kau chasing for the cargo, he goes on in paragraph 8 to say that although the contract called for shipment in June/July 1988 the plaintiff was prepared to extend the shipment date for a reasonable length of time. On the 16th August 1988, Mr Cheung of Jih Dong called him and informed him that they proposed to ship 1,500 metric tons out of the contractual quantity of 3,000 metric tons of contract No. JS-852. On the 16th August he sent them a telex rejecting the cancellation of the balance of 1,500 metric tons because he had met two gentlemen from the China National Cereals Oils Corporation of Beijing who informed him that all export licences for Tianjin shipment were approved. Further, at that time the cargo price had increased. On the 29th August 1988, Jih Dong confirmed that 1,200 metric tons of the cargo were ready for shipment in September and the balance could be shipped around October or early November. He therefore opened a Letter of Credit for 1,200 metric tons of the cargo. This was confirmed to Jih Dong on the sane date by telex. The plaintiff had not unilaterally opened the Letter of Credit for 1,200 metric tons instead of the 1,500 metric tons because he was asked by Jih Dong for a Letter of Credit of 1,200 metric tons. He specifically refers to a telex addressed by the defendant to the plaintiff on the 5th September 1988 acknowledging receipt of the copy of the Letter of Credit for 1,200 metri tons and seeking amendments, but making no complaint that the Letter of Credit was not for 1,500 metric tons.

44. No documents have been exhibited in relation "to any sort of communication between the plaintiff and the defendant between the 27th June 1988 and the 16th August 1988. The telex from the plaintiff to the defendant on the 27th June indicated that the plaintiff was anxiously waiting notification of cargo readiness upon receipt of which they would immediately open their Letter of Credit. The copy telex from the plaintiff to the defendant dated 16th August 1988 is in the' following terms:-

"TO: JIH'DONG-CHEUNG SIK KAU

FM: TUNG GUAN SPORE

RE: OUR PURCHASE OF 3,000 M/T SYB MEAL

AGAINST YR CONT JS-8052, DD: 14/6/88

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TKS YR TEL CALL THIS MORNG, INFMG US THT YR TIANJIN SUPPLIER IS ONLY ABLE TO PERFORM PARTIAL QTY OF 1,500 M/T N CANCELL D BAL 1,500 M/T WHICH D REASON IS BECOS THEY DO NOT HV D EXPORT LICENCE. HOWEVER, FM OUR UNDERSTANDG WITH BOTH MR SUN ZHENG YU N MR WANG SHOU HUA OF CHINA NAT CEREALS OILS BEIJING HEAD OFF WHEN THEY WERE HERE ON 5/8/88 ALL EXPORT LICENCES WITH TIANJIN WAS HAS ALREADY APPROVED ACCDGL.

HENCE, V CANNOT ACCEPT D CANCELLATN OF D BAL 1,500 M/T N WUD REQUEST THT FULLY PERFORM YR CONTRACT OF 3,000 M/T SIGNED WITH US WITHOUT FAIL AS Y R AWARE THAT V HV SINCE JUNE 88 SOLD D GOODS TO OUR BUYER TO, FR YR REFERENCE IS CLAIMING US FR NON-PERFORMANCE OF CONTRACT. IN D ABV CIRCUMSTANCE, V SUGGEST THT U IMMDLY GO AFTER/APPROACH YR TIANJIN SUPPLIER FR D GOODS."

45. It went on to express confidence in the defendant's company that it would fulfil its obligations and it also indicated that it would fax the buyer's claim which it would have received through its solicitors for their perusal.

46. The next document exhibited is a copy of a telex dated 29th August from the plaintiff to the defendant confirming having opened a Letter of Credit in respect of this contract for 1,200 metric tons. The L/C No. Is given as 614/88. The shipment expiry date was 26th October 1988 to 16th November 1988.

47. Although there was a considerable amount of correspondence exhibited in relation to the period after that telex, some of which related to discrepancies in the Letter of Credit which should be amended, there was no complaint by the defendant in any of his company's correspondence that the plaintiffs were only taking delivery of 1,200 metric tons. This correspondence finished with a telex from the defendant to plaintiff on the 26th September 1988 informing them of the shipment of the 1,200 metric tons.

48. Although, therefore, the plaintiff has not given any direct evidence relating to the variation agreement his correspondence would seem to be inconsistent with the variation alleged in.paragraph 9 of the defence. It would, however, appear to indicate that there had been a waiver of the delivery terms in the contract at least for the change of the delivery date from June/July to partial deliveries one for 1,200 metric tons in September or October and another for the balance some time later in October or early November.

49. Mr Cheung Keung, the son of the defendant, gave evidence about this meeting in the first half of July. He said that the problem about the export licences was raised by Mr Gan. To his knowledge, his elder sister then made inquiries with the Chinese Corporation and that the answer from them was not definite. They did not say that there certainly would be a problem over that and that is why he stated in his telex that they had not got confirmation from their supplier. He testified that both he and his father were present at the meeting and that Mr Gan told them that he had been appointed by the Singapore Government as the consultant of China trade and that it was more and more difficult to do business with China at that time. He said that he had signed quite a number of contracts with Chinese companies but the goods were unable to be delivered because of the problem over export licences and that he would understand the situation concerning the 3,000 metric tons to be delivered under the contract because the question of export licences would not be in the control of either party. Eventually the plaintiff and the defendant reached a solution about the matter which was that when the defendant received notice from the Chinese company that export licences would be ready, the defendant company would inform the plaintiff as soon as possible to arrange for the opening of the Letter of Credit. He described the meeting as very harmonious when the plaintiff actually gave the defendant gifts.

50. There are, however, no contemporary documents which reflect this meeting or what Mr Cheung says was agreed.

51. He went on to say that to his knowledge in the middle of August the Chinese company informed his elder sister that there was now an export licence for the export of 1,500 metric tons of goods and that this was "related" to Mr Gan in Singapore to ask him to open the Letter of Credit as soon as possible. His father had made a call. To his knowledge when the Chinese company informed the defendant that the export licence was ready for export of 1,500 metric tons it was also suggested that the export of the remaining quantity should be cancelled. He said: "We then related this message to the plaintiff." He denied that the defendant knew that the plaintiff was going to open a Letter of Credit for only 1,200 metric tons. He did not make inquiries because from his experience about F.O.B. business some customers would prefer to have the delivery made by various lots and sometimes would not be able to get room for 1,500 metric tons on the vessel. After the defendant received the Letter of Credit from the plaintiff, he used it as security to open another Letter of Credit to pay the Chinese company. That is why the Letter of Credit that the defendant's company opened with the Chinese company was for only 1,200 metric tons. After that delivery of the 1,200 metric tons in late September 1988, the defendant received the telex from the plaintiff saying it had arranged a vessel to transport the balance: of the goods, namely the 1,800 metric tons. He immediately returned a telex to the plaintiff (this telex has not been exhibited) and he received the telex from the plaintiff indicating that they had opened a Letter of Credit through the bank of Nanyang Commercial Bank Limited head office in respect of this contract for the balance of 1,800 metric tons to be shipped on the 27th November 1988. Before this telex the defendant had never been informed that the plaintiff was going to open a second Letter of Credit and there had never been any agreement between the defendant and the plaintiff that the later shipment date should be 27th November. It would have been impossible to mention the 27th November at the time of the meeting in early July because the defendant did not know at this time when they would have the licence. What had been mentioned was that when the permit was ready they had to inform the plaintiff immediately.

52. When the plaintiff had telexed the defendant on 6th October asking for advice on the cargo readiness for the balance of 1,800 metric tons and informing the defendant that the' plaintiff had tentatively booked "ship's space" on a particular vessel estimated time of arrival at Xingang being 10th to 15th October and asking the defendant to let the plaintiff know promptly to enable the plaintiff to arrange a Letter of Credit, the defendant had replied that as the export licence had not been obtained yet, the plaintiff was requested to "not establish a Letter of Credit and book the shipping space for the balance" until the defendant advised the plaintiff that "everything is O.K.". There had been no communication between the defendant and the plaintiff before the plaintiff unilaterally opened the Letter of Credit on 15th. After he received the plaintiff's telex saying that the Letter of Credit had been opened, he telephoned the plaintiff's Hong Kong office and spoke to a Mr Poon. He asked Mr Poon why the Letter of Credit was opened and was told that Mr Poon would make enquiries from their Singapore company before he gave the reply. However, Mr Cheung did not receive any reply from Mr Poon. He admitted receiving from the plaintiff a telex dated 25th October in the following terns:-

"71721 JIHCO HX

71721 JIHCO HX

ZCZC 25,10,88 HK-88694

TO : JIH DONG-CHEONG SIK KAU

CC : TINUR JAYA HK - GAN KOON TOH

FM : TUNG GUAN SPORE

RE : CON T JS0852, BAL 1,800 MT SYB MEAL

--------------------

V REFER TO YR TLX 6/10/88 N WISH TO ADVISE YR GOODSELF THAT OUR CUSTOMER IS PRESSING US FOR DLVY OF D ABV GOODS

OUR CONTRACT WITH U IS 3,000 M/T FR 6/7 SHPT'N IN VIEW OF OUR CLOSE RELATIONSHIP N EARNEST DESIRE TO FULLY CO-OP WITH U, V HV AGREED TO ACCEPT YR PARTIAL SHPT OF APPROX 1,200 M/T PER SS'' NEWHAIHUNG '' ON 24SEPT THUS LEAVG AN UNSHIPPED BAL OF 1,800 M/T WHICH SUBSEQUENTLY OUR L/C TO U WAS OPEND ON 12/10/88.

OUR BUYER HAS REITERATED TO US THT THEY CANNOT TOLERATE N AR UNAGREEABLE TO ACCEPT FURTHER DELAY. HENCE, V TRUST U WL IMMDLY ADVISE US LOADING PORT TO ENABLE US FIX USL TO LIFT D 1,800 MT CARGO ACCDGLY.

TRUSTG ASV MATTER RECVS YR KIND ATTN N IMMED ACTION N V ANTICIPATE TO HEAR FM U PROMPTLY.

TKS/B RGDS

TIMURCO+

71721 JIHCO HX

TIMURCO RS23322

VVV

TOD 251554"

53. He also admitted receiving a telex from the plaintiff dated 5th November in the following terms:-

"71721 JIHCO HX+

71721 JIHCO HX

ZCZC 5.11.88 HK-88708

TO : JIHCO HX - CHEUNG SIK KAU

FM : TUNG GUAN SPORE

RE : CONT JS-852, BAL 1,800 MT SYB MEAL

--------------

V REFER TO OUR TLX HK-83694. D 25/10 BUT

REGRETTABLY UPTO THIS DAY

V DO NOT APPEAR TO HV D PLEASURE OF HEARING FM U INDEED, V WUD APPRECIATE THT U KDLY GIVE US A FIRM RPLY WITHIN 7 DAYS FROM TDY YR COMMENTS HOW BEST TO SETTLE D ABV MATTER

AWTG YR EARLY FAVOURABLE RPLY

TKS/RGDS

GAN KONG HWEE+

71721 HIJCO HX

TIMURCO RS23322

VVV

TOD 051152."

54. He testified that he did not reply to these telexes because he had already given the plaintiff the reply on 6th October telling them that the export permit could not be obtained yet and no matter how the plaintiff pressed the defendant for delivery of the goods without the export permit, no delivery could be made. To his knowledge his elder sister had been pressing the supplier from China as to when they would be able to have the export permit ready for export.

55. On 12th December his elder sister told him that the Chinese authorities had informed that the export licence would be available for the balance of the goods, however the price would have to be increased by $32 per metric ton. He then sent a telex to the plaintiff in the following terms:-

"121035 PTS

08723322+

TIMURCO RS23322

12-027 12-DEC-88 10:33

RE: BALANCE 1,800MT SYB EXT UNDER S/C JS-852 THE CHINA CORP INFORM US TT THEY INTEND TO ARRANGE SHIPT DURING JAN/FEB, 89 ON CONDITION TT U AGREE TO ADJUST THE UNIT PRICE USD34.- PER MT ON ORIGINAL BASIS (I.E. NEW UNIT PRICE SHOULD READ USD 249.- PER MT FOBS.XINGANG GROSS FOR NET). IF YOU ACCEPT, PLS CONFIRM HERE ON/BEFORE 10:00 A.M. 14 DEC, 88. OTHERWISE, THE CHINA CORP CONSIDER THIS CONTRACT IS CANCELLING AUTOMATICALLY.

RGDS

JIHDONG

71721 JIHCO HX+

TIMURCO RS23322

AAD 001.6."

 His purpose was to tell the buyer that the suggestion was that the price should be adjusted by $34 per metric ton so that the contract could be carried out. He was referring to the contract between the defendant and the Chinese corporation. If the plaintiff rejected the offer then the defendant would have to stick to the original price. He never intended to cancel a contract with the plaintiff by this memo. On 13th December 1988, the defendant received a reply from the plaintiff's solicitors in the following terms :-

"71721 JIHCO HX+

71721 JIHCO HX

65582 INCES HX

TIME: 1440

13/12/1988

TO : JIH DONG ENTERPRISE HK

OREF : AWC

'CONTRACT NO. JS-852 - BALANCE 1800 M/T SYB EXTRACTION'

THIS IS INCE + CO. SOLICITORS. WE ARE INSTRUCTED BY TUNG GUAN CO. PTE. LTD THE BUYERS UNDER THE CAPTIONED CONTRACT. THE SAID CONTRACT PROVIDES FOR SHIPMENT JUNE/JULY 1988. FURTHER, CONTRACT DOES NOT PROVIDE FOR PARTIAL SHIPMENT. HOWEVER, AGREED TO ALLOW PARTIAL SHIP- MENT OF 1200 M/T WHICH WAS SHIPPED IN SEPT AND AGREED TO EXTEND LATEST SHIPMENT OF BALANCE (1800 M/T TO 27/11/88) (SEE OUR CLIENTS L/C DATED 15/10/88).

"DESPITE THE ABOVE, YOU HAVE NOW THREATENED TO CANCEL THE CAPTIONED CONTRACT. IN VIEW OF THE FACT THAT YOU HAVE NOT BEEN ABLE TO SHIP BY THE 27/11 YOU ARE NOW IN BREACH OF THE CONTRACT. BY OUR CALCULATION OUR CLIENTS HAVE SUFFERED LOSS IN THE REGION OF USD117,000 WHICH IS (USD280-USD215) X 1800 M/T. WE BELIEVE THAT THE MARKET PRICE IN OCT/NOV WAS USD280. YOU ARE THEREFORE PUT ON NOTICE THAT UNLESS YOU COMPENSATE OUR CLIENTS WITH THE SAID AMOUNT WITHIN 7 DAYS (I.E. UP TO AND

INCLUDING 19/12) OUR CLIENTS WILL TAKE NECESSARY LEGAL PROCEEDINGS. FURTHER OUR CLIENTS RESERVE THEIR RIGHTS TO VCLAIM FOR INDEMNITY IN RESPECT OF CLAIMS PUT FORWARD BY OUR CLIENT'S BUYERS TOGETHER WITH INTEREST AND COSTS.

REGARDS

A CHAN+

71721 JIHCO HX

TOD 131444."

56. Although that telex alleged that the defendant was in breach of contract, Mr Cheung denied that the defendant had any intention to cancel the contract.

57. On 15th December 1988 Mr Cheung says the defendant received a communication from the China National Cereals Oils and Foodstuffs Import & Export Corporation, Xingang Cereals & Oils Branch addressed not only to the defendant but to the plaintiff and also a third party. This communication is as follows:-

"With regard to part of those soyabean contracts which were entered into between our company and your complany during the 1988 Spring Trade Fair, they cannot be performed due to the withholding of the issue of export licence by the State. After various applications made by our company, part of them have recently been permitted. Having telexed, faxed and negotiated with your company respectively, we shall continue to honour the contracts based on the price of US$241 per metric ton. We thank you for your support and co-operation."

58. Mr Cheung said that the defendant had been surprised by the telex by the plaintiff's solicitors on 13th December and they received this communication from the China National Cereals Oils & Foodstuffs Import & Export Corporation on 15th December. On 20th December they sent a telex to the plaintiff as follows:-

"12-099 20-DEC-88 15:04

ATTN: MR. GAN KONG KWEE

RE: BALANCE 1,800MT SYB EXT

AS PER TEL-CON ON 16/DEC, U PROMISE TO REPLY US ON 17/DEC. BUT V HV NOT RCVD ANY RESPONSE FM U UPTO NOW. KINDLY ADV YR DECISION BY RETURN TLX.

RGDS

JIHDONG

NNNN."

59. In fact no response had come from the plaintiff on 17th December. After waiting for a reply for a few days the defendant went to his solicitor, Messrs C.C. Lee & Co. Mr Cheung confirmed that the letter dated 21st December 1988 was sent out by the defendant's solicitors to the plaintiff in the following terms:-

"    We act for Jih Dong Enterprises company and your telexes of 13th December 1988 and 20th December 1988 have been passed on to us with instructions to reply.

    We are instructed to deny that our client has ever threatened to cancel the above Contract as alleged in your said telexes, nor is our client liable to your client for any loss allegedly suffered by the same.

    We are further instructed to point out that although the L/C was opened on 15th October 1983 in respect of the said goods, yet no shipment advice was ever given by your client to ours. Since the subject Contract is one FOB Xingang, it was your client instead of ours who was in breach of the Contract. Our client hereby expressly reserves whatever rights it may have against your client in regard to such breach.

    Notwithstanding the above breach on your client's part, our client is now prepared to delivery the above goods provided a L/C on such terms and conditions as prescribed by the subject Contract is re-opened and shipment advice reaches our client before the 15th of January 1989. Otherwise, our client shall hold your client absolutely liable for all loss and damage suffered as a result thereof.

    Meanwhile, our client has already incurred extra and undue warehouse charges and bank interest due to the prolong storage of the subject goods, for which our client will also hold your client liable."

60. A letter was received back from the plaintiff's solicitors as follows:-

"    Re your fax 21/12.

    Regarding the third paragraph of your said fax, we would strongly suggest that you take proper instructions before making such allegation. We trust you are aware that it is for your clients to advise our clients, the buyers, of cargo readiness before our clients can nominate vessel. In any event, we would strongly suggest that you refer to telex dated 6/10 from our clients to your clients whereby our clients stated:

'with your execution of 1,200 M/T under above contract, we would appreciate your advice on cargo readiness for balance 1,800 M/T.

'For your information, we have tentatively booked ships' space on 'Kota Berani' ETA Xingang 10-15 October. Kindly therefore let us hear from you promptly to enable us arrange L/C opening to your accordingly.'

    We assume you have seen this telex from your clients to our clients dated the same date:-

'your telex HK-88663 noticed. As the export licence has not been obtained yet please do not establish L/C and booked the shipping space for the balance 1,800 M/T until we advise you everything is OK. Regret for any inconvenience.'

    We would also refer you to the telex from our clients to your clients dated the 25/10 and 5/11 pressing for news of the availability of the contracted cargo.

    We wonder how our clients could have breached the contract when your clients advise our clients not to establish L/C or to book shipping space?

    Regarding the fourth paragraph of your said fax, as your clients are already in breach of the above contract and in view of the fact that latest shipment date has passed, we will treat your fourth paragraph as an offer to settle this matter. In short, we will take instructions from our clients to see if they are minded to accept your clients' offer.

    No doubt you have advised to your clients that it is up to our clients whether or not to accept your clients' offer or to proceed with commencement of proceedings for damages in view of your clients' breach.

We will revert.

Best Regards,

A. Chan/INCES."

61. It appears that the plaintiff's solicitors took instructions from the plaintiff because they sent a fax transmission on 28th December rejecting the offer stated in the 4th paragraph of the defendant's solicitors' letter.

62. Mr Cheung denied in cross-examination that the defendant company could have delivered the balance quantity by paying $241 for the goods from the China companies. He further denied that his company was aware of the position as from 28th October.

63. He was cross-examined about the de fendant's original defence in which he had pleaded:

"on or about 28th October 1988 Cheung Sik Kau and Cheung Wai of the Defendant had a meeting with one Yam Po Sang, a representative of the Chinese Company at Kwangzhou concerning the withholding by the Chinese Authorities of the said export licences. The said Yam Po Sang represented that the said export licences on soyabean extraction would only be issued if the foreign importers including the Defendant and the Plaintiff revise the unit price to US$241 per metric ton an increase of US$24 on the original unit price."

64. It was put to Mr Cheung that that was the defendant's original defence but Mr Cheung claimed to have no knowledge of that. When he was referred to the pleadings he agreed that that was so, but when it was suggested to him that is what actually happened he stuck to his story. He denied the suggestion that the only reason why the defendant was unable to supply the plaintiff with the goods in November was quite simply because he was not prepared to pay any extra cost for onward delivery to the plaintiff.

65. Ms Cheung Wai, the daughter of the defendant, and elder sister of Mr Cheung Keung also testified on behalf of the defendant. She said that she worked for the defendant company from 1982 and her responsibilities were mainly to have contact with the Chinese suppliers for the supply of goods. She confirmed the two Chinese contracts which her company had entered into to buy such products. She testified that when she signed the contract in Peking that at that time she also saw Mr Gan Kong Hwee. He was there to sign contracts also concerning soyabean extraction She testified that he knew that she was also signing contracts to buy such goods. She did not, however, testify to any facts relating to that occasion from which it could be inferred that Mr Gan knew about the Chinese contracts other than that he was in Peking at that time. She later said that when Mr Gan telephoned saying that he wished to purchase goods from the defendant, he said over the phone that "He knew our company had purchased soyabean extraction from Chinese company and he would like to purchase such goods from us. She did not say however, in relation to this call, that she was the person who received the call.

66. She also testified that it was Mr Gan of the plaintiff company who telephoned the defendant company some time after 10th June, a call which she did receive, in which Mr Gan told her that he had heard there was some problem over export permits and asked her if the defendant had the same problem. In fact the defendant company did not know of that problem before that call she said. She then made enquiry from Xingang branch company about this matter but did not get a definite reply. The Chinese company merely said that when the export permit was ready, they would inform the defendant to arrange for the opening of a Letter of Credit to have the goods exported. She took the matter up with them again in the middle of October when she came across a representative of the Chinese corporation in Guangzhou. She asked him to make delivery as soon as possible but that the representative had replied that the problem was not with their company alone. Other companies had the same problems and the matter would have to be resolved together. She testified that he did not give her a definite "resolution" at that time but only suggested that if the defendant could agree on an adjustment in price, "the export licence might be able to be allowed". She herself was not clear on why the export licence had been withheld.

67. She also confirmed that in early December 1988 they telephoned the defendant saying that the matter could be resolved by increasing the price to pay US$34 per metric ton, if the defendant did not agree to have the price increased, then they could consider the contract to be cancelled automatically. She informed her brother about this and he took the matter up with the plaintiff.

68. In cross-examination, she was asked in respect of the meeting with the Chinese representative in October what sort of adjustment of price did he mention, but replied he did not mention. She did ask him but he said he could not decide it and would have to ask the managers of his company. She agreed that the meeting in October could have been on 28th October. When it was suggested to her that at this meeting Yam Po Sang did mention a price of an extra US$34 per metric ton, she denied it. She specifically denied the suggestion the price would be US$241 per metric ton. She claimed that she did not know that that is what had been pleaded in the defendant's original defence in which her name had been specifically mentioned.

69. There is no documentary evidence which refers to the alleged meeting on or about 7th July when Mr Gan was supposed to have come to Hong Kong. Although Mr Cheung had testified about the agreement in July, there is no contemporary document exhibited which refers to that agreement. The communications from the plaintiff suggest that the plaintiff was acting in a way inconsistent with such agreement ever having been made. Furthermore, they suggest that even if the plaintiff was aware that there was a problem with export licences, it did not consider that was a problem which affected the contract of sale. All the documentary evidence is consistent with the evidence of Mr Gan for the plaintiff. It is extremely suspicious that the factual basis of the defendant's defence has changed since the original pleading. Neither of the two witnesses for the defence has. been able to explain why that is so and the defendant himself has not given evidence.

70. Having considered the contemporary documents and the evidence and submissions in this case, I have firmly reached the conclusion that the most probable version is that of the plaintiff, and that the only variation in the agreement was that the 1,200 metric tons could be delivered in September and the balance in October or early November. That being so, the responsibility was on the seller (the defendant) to deliver the balance within a reasonable time and at the latest by early November. In the absence of any information from the defendant it was reasonable for the plaintiff to stipulate a last date for delivery as it did when it sent its Letter of Credit dated 15th October stating the latest shipment date as 27th November and sent the telex of even date stating that shipment date was 27th November 1988 and the expiry date of the letter of credit was 12th December 1988.

Whether the events which happened from September to December 1988 was such that the defendant was excused for not delivering.

71. In view of what I have said above it is my judgment that the defendant was not excused for non-delivery by 27th November. I do not accept that export licences were not available during this period as was stated in the certificate appearing at page 69 of the "disputed bundle". There is an abundance of evidence both documentary and from Mr Leung that exports were taking place throughout this period and there has also been a change of position since the original defence was filed. I may say that even if there had been a Force Majeure clause incorporated into the contract it would not have provided a defence for the defendant because there never was a total embargo Brauer & Co. (Great Britain) Ltd v. James Clark (Brush Materials) Ltd [1952] 2 All ER 497 (C.A.).

Whether the letter of the defendant dated 12th December 1988 was a repudiation of the contract or not.

72. Although Mr Cheung has testified that he never intended by his telex to cancel the contract, the actions of the defendant at this time are extremely suspicious. The defendant's original pleading was that the export licences on soyabean extraction would only be issued if the foreign importers, including the defendant and the plaintiff, revised the unit price to US$241 per metric ton, and increased the US$24 on original unit price. It is also extremely suspicious that the communication from the China National Cereals Oils & Fodstuffs Import & Expor Corporation, Xiangang Cereals & Oils Branch should be dated 15th December, just two days after the solicitors' telex was sent off on 13th December. It seems clear from the telex of the defendant of 12th December 1988 that the plaintiff was given the choice of either confirming the new unit price of US$241 per metric ton F.O.B. Xingang or having the contract cancelled "automatically". The only contract referred in that communcation is the contract SC JS-852, the contract between the defendant and the plaintiff. The fact that the telex refers to the information given by the China corporation and to what the China corporation considered to be the position is neither here nor there. This telex is in line with the original pleading indicating that the defendant considered itself not bound by the contract if the Chinese corporation considered the contract cancelled.

73. In my judgment, the contract came to an end on 13th December when the plaintiff's solicitors pointed out that the defendant had threatened to cancel the contract and had not shipped by 27th November and that they therefore accepted the repudiation of the contract and claimed damages in the region of US$117,000 from the defendant. At this time even the expiry date for the Letter of Credit namely 12th November 1988 had passed.

Is the defendant liable for the 300 metric tons offered by his company in its telex of 16th August 1988.

74. The documentary evidence suggests that the acceptance by the plaintiff of only 1,200 metric tons instead of 1,500 metric tons was by mutual agreement between the parties. It is consistent with the statement of Mr Gan. On the evidence as a whole I consider that Mr Gan's version of what happened is the more likely. It is, therefore, my judgment that the defendant was in breach of contract in failing to deliver the whole of the balance of 1,800 tons.

The quantum of damages

75. The plaintiff is claiming the difference between the market price on 27th November 1988 and the contract price of 1,800 metric tons of soyabean extraction, namely US$117,000.

76. The measure of damages is referred to in section 53(2) and (3) of the Sale of Goods Ordinance Cap.26. Subsections (2) and (3) of the Sale of Goods Ordinance Cap.27 provide:-

"(2)The measure of damages is the estimated loss directly and naturally resulting, in the ordinary cause of events, from the seller's breach of contract.

(3) Where there is an available market for the goods in question, the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered, or, if no time was fixed for delivery, then at the time of the neglect or refusal to deliver."

Section 56 provides:-

"Nothing in this Ordinance shall affect the right of the buyer ... to recover interest or special damages in any case where by law interest or special damages may be recoverable, or to recover money paid where the consideration for the payment of it has failed."

77. Clearly, section^, 53(2) is framed in terms of the first rule in Hadley v. Baxendale, subsection (3) states the normal measure of damages under the first rule, while s.56 brings in the second rule in Hadley v. Baxendale. If, therefore, in addition to the normal measure of damages, there are consequential losses arising from the defendant's breach, the plaintiff may claim these under s.56.

78. There is uncontradicted evidence from the plaintiff to show that the market price of such goods at the end of November beginning of December was US$280 per metric ton. That being the case applying the normal measure of damages in s.53 (3) the damages suffered by the plaintiff was the difference between the contractual price of $215 per metric ton and $230 per metric ton for 1,800 metric tons. This works out at the figure of US$117,000 claimed by the plaintiff in its statement of claim.

Should the plaintiff have mitigated its loss?

79. There is no evidence that the plaintiff went out into the market place and purchased such goods at any increased price. Furthermore, there is no evidence of any profit which the plaintiff lost as a result of consequential losses from the defendant's breach. The only loss proved is the difference between the market price of the goods which the plaintiff should have got and the contract price which the plaintiff would have had to pay.

80. The defendant claims the plaintiff should have mitigated its loss by accepting the offer made by the defendant's solicitors on the 21st December 1988 in the 4th paragraph of their letter which has been referred to above, when they said "... our client is now prepared to deliver the above goods provided a Letter of Credit on such terms and conditions as described by the subject contract is re-opened and shipment advise reaches our client before the 15th January 1989."

81. Mr Shum relies upon such cases as Payzu, Limited v. Saunders [1919] 2 KB 581 and Sotiros Shipping Inc. and Aeco Maritime S.A. v. Sameiet Solholt (The "Solholt") [1983] S Lloyd's Rep. 605, to support his contention that this offer by the defendant should have been accepted in mitigation of damages.

82. Mr Smith, for the plaintiff, distinguishes these cases on the basis that in the case of Payzu, the party in breach was still able to perform the terms of a contract in relation to both the specific goods and the time for delivery. Similarly, he distinguishes "The Solholt" on the basis that in that case the party in breach was able to offer the same vessel which had been the subject matter of the contract even though delivery had not been made by the prescribed date. In the present case, since the goods were unascertained goods, they took their character from the terms and conditions of the contract e.g. the specifications. Equally important as such things as the fat or oil content, the quantity, the ingredients; as part of a description of an international sale, or a sale concerning carriage by sea, is the term of shipment. He refers to Benjamin on Sale of Goods Act, 3rd edition, paragraph 1532, under the heading "Time and Place of Shipment" to the following paragraph:-

"It has been settled ever since the decision of the House of Lords in Bowes v. Shand that stipulations as to the time of shipment form part of the description of the goods, and that breach of such stipulations entitles the buyer to reject. .....If the description of the article tendered is different in any respect it is not the article bargained for and the other party is not bound to take it."

He also relies upon paragraph 1354 to this effect:-

"The doctrine of mitigation does not oblige the buyer to accept from the seller goods which do not conform with the contractual standard and which he is therefore entitled to reject. Thus, where the buyer properly rejects goods on the ground of their defective quality, he is not obliged to accept them when the seller offers them in mitigation of his breach of contract. However, the buyer may be bound to accept a reasonably offer by the seller to mitigate his breach by supplying goods, which are in fact up to the contractual standard, but are to be delivered on different terms so far as the timing and method of payment are concerned."

83. He points out that this is not a case concerning different terms as to the timing and method of payment only, but different terms as to the actual delivery of unascertained goods. He suggests that the goods which the defendant was offering were not the same goods, as in the case of Payzu and The Solholt. Furthermore, he points out the Court of Appeal thought that the judgment in "The Solholt" was a little bit odd but they were not prepared to overturn it on the special facts of the case. He stresses that the burden of proof is on the defendant to show that the plaintiff has failed to mitigate it's loss by acting reasonably. "There is no evidence from the defendant to show how the plaintiff should have conducted itself with reference to its own sub-purchaser." He poses the question as to whether it could be said that the plaintiff acted unreasonably in refusing the defendant's offer. Taking the defendant at his word would be running a risk that the defendant may adopt the same attitude again.

84. Whether the plaintiff acted reasonably in the circumstances is a question of fact for me to determine.

In Payzu v. Saunders, Bankes L.J. said at p.588:-

"There may be cases where as matter of fact it would be unreasonable to expect a plaintiff to consider any offer made in view of the treatment he has received from the defendant."

Later, he said on the facts of that case:-

"In my view each party was ready to accuse the other of conduct unworthy of a high commercial reputation, and there was nothing to justify the appellants in refusing to consider the respondent's offer. I think the learned judge came to a proper conclusion on the facts, and that the appeal must be dismissed."

Scrutton L.J. at p.589 said:-

"In certain cases of personal service it may be unreasonable to expect a plaintiff to consider an offer from the other party who has grossly injured him; but in commercial contracts it is generally reasonable to accept an offer from the party in default. However, it is always a question of fact. About the law there is no difficulty."

85. Having considered the conduct of the defendant in this matter, I consider that the plaintiff would have been taking an unreasonable risk in accepting the offer contained in the solicitor's letter of 21st December. Furthermore, as Mr Smith has pointed out the plaintiff would not be getting the goods it had contracted for.

86. In the circumstances, it is my judgment that the plaintiff acted reasonably in not accepting the offer of the defendant.

87. There will be judgment for the plaintiff in the sum of US$117,000 and costs with interest awarded at the rate of 11% p.a. from the date of issue of the writ.