WING FU TRADING CO. v. SWEIGLE CO. LTD.

1990 No. A2511

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The Plaintiff's claim is for $469,428.00 being goods sold and delivered to the Defendant. The Defence is that the Defendant was the agent for disclosed principals, alternatively the goods delivered by the Plaintiff were not of merchantable quality, not fit for the purpose and did not correspond with description and were rejected by its principals. The Defendant also counterclaims for loss of agency commission and the payment made in respect of the 1st shipment, price of the quota and the freight charges totalling $216,580.38.

There are therefore three main issues namely:-

(i) Whether the Defendant is the agent.

(ii) If the Defendant is the agent, whether it is liable to pay for the goods.

(iii) Whether the goods were defective and the same had been rejected.

Agency

2. Mr. Lo Hing Yan, Raymond and Gabriel Lasry gave evidence on behalf of the Defendant. They said they went to the Plaintiff's company in the middle June 1989. They were met by a Mr. Louie Tam the manager of the Plaintiff and a secretary. Lasry introduced Lo as his agent and gave Tam his name card. There was no dispute that there was such a meeting because at para. 4(b) of the Reply and Defence to counterclaim it was pleaded as follows:-

"4(b) Save for it is admitted that the said Raymond Lo did accompanied a European male to the Plaintiff's office in or about June 1989, para. 8(b) of the Defence is not admitted. The Plaintiff further avers that Mr. Raymond Lo only introduced the said European male as customer of the Defendant."

3. Mr. Lam Tak Keung, Paquet for the Plaintiff said that there was no foreigner attending their office in connection with this transaction. Tam was not called to give evidence. The pleading has not been amended. I cannot accept Lam's evidence on this part. I find on balance that Lasry had informed the Plaintiff that Lo was only his agent when they visited the Plaintiff.

4. Further from the terms and conditions at the back of the Purchase Contracts it was made abundantly clear that the Defendant was merely the agent. The relevant clauses are clauses 3, 4, 5 and 6 which are as follows:

Clause 3 clearly declares that the Seller acknowledges that he is aware that the goods are being bought by overseas buyers for resale (not by Sweigle for resale to overseas buyers);

Clause 4 provides that the overseas buyers may reject the whole or any part of the goods at any time until acceptance of the goods by the overseas buyers;

Clause 5 provides that where the goods are rejected by the overseas buyers, a survey report at the country where the goods may be shall be sufficient evidence of the conformity or non- conformity with the contract;

Clause 6 provides for the eventualities of a series of Contracts between the Seller and Sweigle on behalf of the same overseas buyers.

5. From the contracts they were stipulated that they were for either PRET A Porter Orly Ltee (Orly) or Ann Taylor. The names of the principals were disclosed.

6. I therefore find that in respect of all the purchase contracts the Defendant only acted as agent for disclosed principals.

IS THE AGENT PERSONALLY LIABLE

"Where an agent in making a contract discloses both the existence and the name of a principal on whose behalf he purports to make it, the agent is not, as a general rule, liable on the contract to the other contracting party, whether he had in fact authority to make it or not, but a personal liability may be imposed upon him by the express terms of the contract, by the ordinary course of business, or by usage ..." Halsbury 4th Ed., Vol. 1(2).

7. The Plaintiff argued that the Defendant was the local agent for two foreign principals which had no place of business or asset in Hong Kong. Further the Plaintiff never had any previous dealing with the two foreign principals. These are weighty factors to find that the agent incurred personal liability.

"Where a contract is made by an agent on behalf of a foreign principal there is no presumption that the agent necessarily incurs personal liability and has no authority to establish privity of contract between the principal and the third party. Where the intention of the parties is not clear on the terms of the contract are in dispute, the fact that the principal is a foreigner is a factor to be taken into account in determining whether in the circumstances the contract is enforceable by or against the foreign principal or whether the agent is personally liable." Halsbury's Law of England Vol. 1(2) 4th ed., para. 141.

8. In Teheran-Europe Co. Ltd. v. S.T. Belton (Tractors) Ltd. [1968] 2 QB 545 per Diplock L.J.

".... the fact that the principal is a foreigner is one of the circumstances to be taken into account in determining whether or not the other party to the contract was willing, or led the agent to believe that he was willing, to treat as a party to the contract the agent's principal, and if he was so willing, whether the mutual intention of the other party and the agent was that the agent should be personally entitled to sue and liable to be sued on the contract as well as his principal. But it is only one of many circumstances, and as respects the creation of privity of contract between the other party and the principal its weight may be minimal ....."

9. The principle that a local agent assumes personal liability in respect of contracts made on behalf of foreign principals is now obsolete in view of the rapid development of international trade.

10. In the present case it was the first few transactions the Plaintiff had with the Defendant. So it did not matter one way or another whether the Plaintiff had any previous dealings with the foreign principals. Since these were the first few transactions the Plaintiff had with the Defendant, the Plaintiff had no knowledge whether the Defendant had any assets, it could not affect the decision of the Plaintiff to deal only with the Defendant.

11. No doubt according to the contracts the Plaintiff signed with the Defendant the payment term was by Letter of Credit, but as I had found earlier that they were agency contracts and it is ambiguous whether it was the Defendant who had to open the Letter of Credit. Mr. Lo for the Defendant during cross-examination he was asked and answered the following:-

"Q: You offer security as to payment?

A: No. I asked Lasry to arrange a Letter of Credit for the Plaintiff."

Further Mr. Lasry of Orly in his evidence in chief said that payment terms were by Letter of Credit. That was not done because the factory (the Plaintiff) delayed shipment and they did not know when to open so they decided to T.T. to the Defendant to transfer the amount to the Plaintiff.

12. On the evidence before me it is clear that it was the foreign principal which was responsible for payment.

13. On top of that there was no express provision in the contract that the Defendant was to be personally liable.

14. For those reasons I find on balance that the Defendant had not assumed personal liability.

QUALITY OF THE GOODS

15. The goods contracted for were fine or good quality goods.

16. Both Mr. Lo and Lasry had given evidence that the goods delivered by the Plaintiff were defective. Their evidence were supported by document evidence and the exhibit produced in Court.

The complaints as to defects were:-

1) patches of stains were found in a lot of garments.

2) Some garments were not made according to specifications.

17. Oil stained garments had been produced in Court. The Plaintiff did not dispute that those were its garments. There were numerous spontaneous fax communications between Orly, the Plaintiff and the Defendant concerning the oil stains. The 1st Complaint was made as early as 6th March 1990 immediately after the 1st batch of goods was cleared from customs in Canada. I have no doubt the complaints were genuine. They could not have been fabricated merely for the purpose of the present action.

18. Mr. Chong did some additions and drew my attention to Style No. 6312P in which 414 pieces were shipped to Orly but 439 pieces were rejected and for 6302P 510 pieces were shipped but 567 pieces were rejected.

19. He submitted that I am entitled to draw from that the inference that not all the garments shipped to Orly were from the Plaintiff's factory and that it was the garments which other manufacturers produced were defective and the Defendant tried to lay the blame on the Plaintiff. With respect this is not the case pleaded. There had never been any such allegations in the pleadings. Further this is only a bare allegation which had never been substantiated.

20. In my judgment it is unlikely, from the evidence, that there could be other manufacturers because as Lasry pointed out those garments took a few months to develop the design and the development costs were expensive. No one in his right mind would go to different manufacturers to have the same style designed and developed.

21. Lasry explained in his evidence that the quantities stated in the debit notes of issued by Town and Country for the rejection were part of the quantities set out at DB 235 and not in addition to the quantities set out therein. Apparently it was a mistake in the Answers to the Request for Particulars.

22. As to size of the garments not manufactured in accordance with the specifications, two lots were examined by two surveyors one by Bernard Lo of Mclarens Hong Kong Ltd. and the other by a Mr. Tower from Canada. Mr. Tower was of the opinion that garments he inspected did not correspond with the specifications.

23. From Bernard Lo's report there were measurements which were not in accordance with the specifications.

24. Those variations or deviations from the specifications were not "microscopic deviations" which businessmen would ignore. For some they were 2 inches shorter than the specified length.

25. Lasry stated that by 3rd April 1990 about 50-60% of the goods had been returned. They were all found to be defective. I accept on balance Lasry's evidence because after all he is a merchant and his sold purpose is to sell and make a profit. It would not be to his interest to reject the goods if they were of commercial value and saleable.

26. I find on balance that all the goods, supplied by the Plaintiff to the Defendant's overseas buyers were defective.

27. As 50 to 60% of the goods were defective it meant that the bulk did not either correspond with the sample or that they were not of merchantable quality. In the premises they were entitled to and had rejected the goods.

28. Since I have found that the Defendant was only the agent and the circumstances were such that it had not contracted personal liability, the Defendant is not liable. In any event by reason of the breach of the Plaintiff and the Defendant's principal had rejected the goods, the Plaintiff is not entitled to claim for the price of the goods. For these reasons, the Plaintiff's claim is dismissed.

COUNTERCLAIM

29. The Defendant counterclaims for the loss of commission, China quota charges, claims from Orly for the value of goods under contract Nos. 339,340,331 and 332 totalling $80,817.00, and the air freight charges in respect of goods sent to Ann Taylor in France totalling $216,580.38. Orly had reasonable time to inspect the goods under contract Nos. 339,340,331 and 332, and had paid for the goods. It had been its conduct accepted the goods. It is too late now for it to claim that it had rejected the goods under those contracts. For that reasons, the Defendant cannot claim from the Plaintiff the amount it paid to the Plaintiff.

30. Clause 4 of the sales contracts provided that in the event of rejection of goods either in part or in whole by the overseas buyers or their customers, the seller shall be liable for all loss, damage and expenses incurred by the overseas buyers and/or the company including loss of profit or commission.

31. There is no dispute that the Defendant is entitled to commissions from the Plaintiff and the Defendant's overseas buyers. By reason of the breach, the Defendant had suffered loss in commissions which it would have been entitled to had the transactions been successful. The loss in commission amounted to $46,633.32 which is computed as follows :-

1) Agency commission from Ann Taylor		$6,605.72
2) Agency commission from Orly	469,428
	- 80.817
	388,611
	x 10%
	38,861.1
	- 6.605.72
		$32,255.38
3) Agency commission from Plaintiff		$7,772.22
	Total	$46,633.32

32. The Defendant had also incurred expenses by paying for the China quotas in the amounts of $57,860.00 and $9,500.00, totalling $67,360.00.

33. The Defendant had paid $15,975.00 for the air freight from Hong Kong to France. The expenses incurred by the Defendant and the commissions it would have been entitled to amounted to $129,968.32, particulars of which are as follows :-

1) Loss of commission	$46,633.32
2) China quotas	67,360.00
3) Air freight charges	15,975.00
	-------------
	$129,968.32

34. Accordingly, I find that the Defendant is entitled to counterclaim that amount from the Plaintiff.

35. In the premises, there be judgment for the Defendant in the sum of $129,968.32 by way of counterclaim.

36. There be an order nisi that the Defendant is entitled to the costs of both the claim and the counterclaim.