PAPER PRODUCTS MARKETING (HONG KONG) LTD v. CLIMAX PAPER CONVERTERS, LTD

DCCJ 4549/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4549 OF 2006

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JUDGMENT

Background

1.  In June 2006, an agreement was made between Paper Products Marketing (Hong Kong) Ltd. ("Paper Products") and Climax Paper Converters Ltd. ("Climax") for Paper Products to sell a quantity of paper to Climax.  It is not in dispute that the goods were sold on CIF terms, to be delivered to Yantian in China. Also not in dispute is the fact that the quantity of the goods was revised from the original quantity of 485 metric tons to 507 metric tons, with a consequential revision of the total price payable, being US $395,460. 

2.  Climax claims that the Agreement is contained in its Purchase Order number 4500030921 dated 17 June 2006 ("Purchase Order"), which specifies a delivery date of 15 September 2006.  Paper Products claims that the Agreement is contained in and evidenced by Climax's Purchase Order, which was confirmed by its own Order dated 21 June 2006 ("Order"), subsequently revised on 27 June 2006, and which specifies  the "estimated time of arrival" of the goods in Yantian to be "early/mid September 2006".  Paper Products further claims that by a shipping schedule dated 26 June 2006, Paper Products had confirmed with Climax that the goods would be shipped on the vessel Josephine Maersk, with an "estimated time of departure " being 12 August 2006, and an "estimated time of arrival" at Yantian on 2 September 2006.  Paper Products claims that it was agreed between the parties that the goods would arrive in Yantian on or about 2 September 2006 for delivery under the Agreement.  On the other hand, Climax  maintains that the delivery date of the goods under the Agreement at all material times remained 15 September 2006.

3.  Paper Products claims that on or about 23 August 2006, Mr. Ronald Chan and Miss Ming Chan on behalf of Climax informed Miss Leona Wong and Miss Sandy Leung of Paper Products that Climax would not take delivery of the goods or to pay for them.  It is claimed that in the course of a telephone call on 29 August 2006, Miss Chan repeated Climax's refusal to accept delivery.  Paper Products maintains that as a result of such intimation of refusal to accept the goods on 23 August and 29 August 2006, Paper Products was entitled to treat Climax's conduct as repudiation of the Agreement, which repudiation Paper Products accepted by a letter dated 29 August 2006 sent to Climax.  To mitigate its loss, Paper Products sold the goods and now claims a sum of US $25,228.30, being the difference between the resale price and the sum payable under the Agreement.

4.  Climax denies that it had at any time informed Paper Products that it would not take delivery of the goods or that it was cancelling the Agreement.  It claims that at the meeting on 23 August 2006, Mr. Chan had only stated that Climax would only accept the goods on the agreed delivery date on 15 September 2006 and only refused to agree to early delivery of the goods before 15 September 2006.  Climax claims that Paper Products had failed to deliver the goods on 15 September 2006, and counterclaims a sum of US $12,675, as the alleged difference between the sum payable under the Agreement and the market price of the goods on 15 September 2006.

Issues

5.  The issues for determination at trial are:

(1)	What was the parties' agreement as to the date for delivery of the goods under the Agreement?
(2)	Was Climax in breach of the Agreement by informing Paper Products that it would not be accepting the goods under the Agreement?
(3)	If the answer to (2) is yes, was Paper Products entitled to treat Climax's breach as repudiation of the Agreement and to accept such repudiation on 29 August 2006?
(4)	If the answer to (3) is yes, what was Paper Products' damage sustained as a result of the breach on the part of Climax ?

6.  In this case, the key issues in dispute between the parties are primarily factual in nature.  In deciding the factual disputes involved, my considerations include: (1) the inherent probability of the parties' assertions; (2) whether the parties' assertions are consistent with their conduct and the contemporaneous documents; and (3) the credibility and demeanor of witnesses.  I do not think that it is necessary to repeat the numerous cases which discussed how these considerations work in resolving factual disputes.  If required, reference can be made to the more recent cases such as Esquire (Electronics) Ltd. v.  The Hong Kong& Shanghai Banking Corporation Ltd., CACV No. 312 of 2005 (12 October 2006) and Profit Boat Development Ltd. v. Craft Projects (Hong Kong) Company Ltd., HCCT 122 of 2000 (31 August 2007). 

Parties' agreement on the date for delivery of the goods

7.  Climax claims that it issued its Purchase Order on 17 June 2006, setting out the specifications, quantities and unit price of the paper to be purchased by Climax under the Agreement, with a delivery date specified in the Purchase Order as being 15 September 2006. The Purchase Order was governed by terms and conditions, including condition 4 which states that the supplier shall punctually supply the goods in accordance with the delivery date specified in the Purchase Order.

8.    Paper Products claims that Climax's Purchase Order was confirmed by Paper Products on the terms set out in Paper Products' own Order form which sets out the delivery instructions, being "estimated time of arrival in Yantian, China early/mid September 2006".  Importantly, Paper Products claims that on 26 June 2006, Paper Products confirmed by fax to Climax the shipping schedule and details of its Order.  The shipping schedule stated that the Order would be shipped on the vessel Josephine Maersk V0614, with an estimated time of departure being 12 August 2006, and an estimated time of arrival in Yantian being 2 September 2006.  Paper Products claims that Climax had never disputed or raised objections to the shipping schedule so advised. 

9.    It is not in dispute between the parties that they had been dealing with each other for a long time - Miss Wong's evidence is that they had dealt with Climax for 20 years.  According to the evidence of Miss Leung of Paper Products, the general mode of operations between Paper Products and Climax took the following form.  Climax would place orders with Paper Products in Climax's Purchase Order form.  Miss Leung explained that the delivery date specified in Climax's Purchase Order would not be confirmed by Paper Products, because the paper has to be manufactured in Australia, and the time schedule for production and shipping space for the goods ordered have to be determined by Australian Paper, the paper manufacturing arm of the group of companies to which Paper Products belongs.  Paper Products therefore awaits instructions from Australian Paper in relation to the shipment dates, and once these are confirmed by Australian Paper, Paper Products would inform Climax of the shipment dates by a shipping schedule.  If Paper Products receives no objection from Climax to the dates set out in the shipping schedule, shipment of the goods would be effected accordingly.  If Climax raises objection to the dates set out in the shipping schedule, Paper Products would approach Australian Paper to see if other arrangements can be made.

10.  Miss Wong, in her evidence, confirmed the above and pointed out that Climax, like any other purchaser, had the right to object to the shipment dates advised by Paper Products, which would accommodate any other delivery date requested by Climax, but in the event that Paper Products could not arrange for shipment of the goods as required by the purchaser, they would have no alternative but to cancel the order.  Miss Wong emphasized in her evidence that the shipping schedule is important, as once agreed, the purchaser would make payment arrangements in accordance with the shipping schedule and in most cases, payment would be by way of documentary letters of credit which would specify the shipment dates as agreed.  Miss Wong therefore explained that it is essential that the purchaser notifies Paper Products as soon as possible if the shipping schedule advised is not acceptable to the purchaser.

11.  Miss Ming Chan, who was the person at Climax dealing with Miss Leung and Miss Wong at the material time in relation to the placing of the orders for the sale and purchase of the goods in question, was not called to give evidence on behalf of Climax.  Climax relies on a record of an internal meeting of Climax which was held on 19 October 2006.  This records the explanation given by Miss Chan of her dealings with Paper Products.  It essentially confirms the evidence of Paper Products in relation to the issue of Purchase Orders by Climax, and the shipping schedule advice from Paper products, the only other point made by Miss Chan being that Climax had never signed the documents issued by Paper Products, nor had Paper Products signed Climax's Purchase Order by way of confirmation.  Miss Chan is  further recorded as having pointed out at the meeting that the estimated date of arrival stipulated in the shipping schedule issued by Paper Products was generally earlier than the delivery date set out in Climax's Purchase Order, but Climax had in the past generally accepted taking delivery of the goods on the earlier date.

12.  According to the evidence adduced on behalf of Paper Products, after the shipping schedule had been faxed to Climax on 26 June 2006, Miss Leung also e-mailed Miss Chan on 26 July 2006 to remind her to open a letter of credit for the order comprised in the Agreement 10 days before shipment, pointing out that the estimated time for departure of the shipment was 12 August 2006 and the estimated time of arrival of the shipment was 2 September 2006.  According to Miss Leung, she had a further telephone conversation with Miss Chan on 2 August 2006 to press for the issuance of the letter of credit.  Miss Chan explained to Miss Leung that Climax had exhausted its credit limit, and could not provide a letter of credit until 7 August 2006, but made no protest about the shipment dates.  It is not in dispute that Climax then requested on 3 August 2006 that the payment method under the Agreement be changed from irrevocable letter of credit to documents against acceptance terms.

13.  According to Paper Products, Miss Wong and Miss Leung then arranged to have lunch with Miss Chan.  Miss Wong explained that Climax had made requests under various of their orders for payment to be made by documents against acceptance, as opposed to the usual manner of payment by irrevocable letters of credit which offered more security to Paper Products, such that she had to understand the reason for the change and to seek some assurance from Miss Chan.  Miss Wong's evidence is that at the lunch meeting on 7 August 2006, she had referred to the shipment arriving on 2 September 2006, and had asked whether payment would be forthcoming.  According to Miss Wong, Miss Chan assured her that Climax required the goods under the Agreement for their customer, and that payment on the shipment would not be a problem.  Upon being so assured, Miss Wong then agreed to the change in payment terms to documents against acceptance.

14.  Mr. Ronald Chan's evidence is that Paper Products had never indicated that it would not accept the delivery date of 15 September 2006 stipulated in Climax's Purchase Order.  He accepted that Paper Products' Order stipulates the estimated time of arrival of the goods in Yantian as being "early/mid September 2006", but his position is that mid September is consistent with 15 September 2006, and the date stipulated in Climax's Purchase Order was the governing date.  In relation to the shipping schedule faxed to Climax, Mr. Chan's position is that Climax had never agreed "in black and white" to the shipping schedule.  He accepted that Climax had never objected to the shipping schedule either.  Importantly, in cross-examination, Mr. Chan accepted that if the shipping schedule should stipulate that the estimated time of arrival was after 15 September 2006, Climax would not keep silent but would object.  He also accepted that Climax had the right to object to a date of arrival of the shipment and delivery of the goods which was either earlier, or later, than 15 September 2006 but that in this case, Climax had not raised any objection.

15.  On the evidence, Climax had clearly been notified that the shipment of goods was estimated to arrive on 2 September 2006, but had never raised any objection.  By requesting an extension of time for the establishment of the letter of credit after being notified of the shipping schedule and upon being pressed by Miss Leung on 26 July 2006 and 2 August 2006;  and later by requesting a change in the manner of payment to documents against acceptance, but without making any objection to the shipping schedule and the time stated as the estimated time of arrival of the goods, Climax had clearly by its conduct accepted 2 September 2006 as the estimated time of arrival of the shipment in Yantian.  Mr. Chan himself accepted that Climax had the right to object to a date earlier or later than 15 September 2006 stipulated in the shipping schedule.  The fact that Climax had not objected or corrected the shipping schedule in writing does not assist Climax's case that Climax should not be bound by the shipping schedule.  It is true that the shipping schedule stipulates 2 September 2006 as the "estimated" time of arrival of the goods.  However, the defence is not that the actual date of arrival of the shipment does not fall within the estimation of 2 September 2006, but that the shipping schedule does not form part of the Agreement at all - which cannot be accepted on the evidence.

16.  Counsel for Climax sought to argue that Paper Products are, by its pleadings, prevented from arguing that the shipping schedule forms part of the Agreement.  I do no accept such argument.  Paragraph 2 (c) of the Reply pleads the shipping schedule and the dates set out therein.  Climax, by its own Further and Better Particulars of the Defence, pleads that Paper Products' acceptance of the Purchase Order is evidenced by Paper Product's shipping schedule and the arrangement of delivery of the goods as advised by the shipping schedule faxed on 26 June 2006.  Both parties, by their pleadings, have relied on the shipping schedule.  In any event, paragraph 3 of the Statement of Claim pleads the contractual date of delivery of the goods to be "early or mid September 2006", as set out in the delivery instructions of Paper Products' Order.  The shipping schedule stipulates the estimated time of arrival of the goods in Yantian as 2 September 2006, which is consistent with the delivery instructions of "estimated time of arrival … early/mid September 2006" as stipulated in the Order.

17.  On the evidence, I am satisfied that the parties had agreed and by their conduct accepted that 2 September 2006 was the estimated date of delivery of the goods sold under the Agreement.

Was Climax in breach of the Agreement by informing Paper Products that it would not be accepting the goods under the Agreement?

18.    According to the evidence of Paper Products, Miss Leung received a telephone call from Miss Ming Chan on 21 August 2006.  Miss Chan informed Miss Leung on the telephone that Climax had to cancel their order.  According to Miss Leung, she asked Miss Chan for the reason, and Miss Chan said that Climax had too much paper in stock, and Mr. Chan had to cancel the order.  A meeting was immediately set up to be held at the office of Climax at about 4 p.m. on 23 August 2006. 

19.  According to Miss Wong, Miss Chan first joined Miss Wong and Miss Leung in the conference room when they attended the meeting on 23 August 2006.  According to Miss Wong, whilst they were waiting for Mr. Ronald Chan and Miss Woo to join them, Miss Chan explained that Climax had lost a printing job from a customer and had to cancel their order with Paper Products as the goods were destined for the cancelled job.  Miss Woo of Climax then joined the meeting, followed by Mr. Chan some time thereafter.  Miss Wong's evidence is that Mr. Chan told them at the meeting that Climax had a lot of existing stock of the goods, and asked Paper Products to assist Climax to sell off its existing stock before Climax could consider taking delivery of the shipment scheduled to arrive on 2 September 2006.  Mr. Chan asked Miss Woo at the meeting how much stock Climax had, and with reference to a document which she had in hand, Miss Woo gave a figure of approximately 3000 metric tons.  According to Miss Wong, Miss Woo and Miss Chan then started arguing about the figure and why Miss Chan had placed the order.  Both Miss Wong and Miss Leung said they were surprised to hear that Climax had 3000 metric tons of the goods in stock.  Miss Wong explained that this represented the entire quantity of the goods which had been supplied by Paper Products to Climax since the beginning of 2006, and meant that Climax had not sold or used any of its stock from Paper Products supplied to Climax before the Agreement.  Miss Wong said that she telephoned her office to verify the amount which Paper Products had sold to Climax.  In response to Mr. Chan, Miss Wong indicated that whereas Paper Products could assist Climax to dispose of its inventory, Paper Products should not be held responsible for Climax's problem or loss.

20.  Mr. Ronald Chan denies that he had informed Paper Products that Climax would be cancelling the order under the Agreement.  According to Mr. Chan, Climax was notified a few days prior to 23 August 2006 that Paper Products intended to deliver the goods before 15 September 2006.  He asked for a meeting to discuss the matter and because he wanted Paper Products to follow the delivery date specified in the Purchase Order.  He denies that he had ever asked Miss Chan to cancel the order.

21.  According to Mr. Chan, Climax had approximately 1800 to 2000 metric tons of the goods at the time of the meeting with Paper Products on 23 August 2006.  He denies that this represented a high inventory, explaining that the goods were paper to be made into paper products, and were in constant use.  He claims that considering the circumstances and the volume of business at the material time, 1800 to 2000 metric tons represented an "acceptable" level of stock.  He denies that the order for paper was placed with Paper Products to carry out orders for goods placed by Climax's customers.  He insisted that orders for paper are not necessarily placed to follow orders for products on jobs received from Climax's customers, as Climax can place orders for stock, particularly if the price of paper is rising in the market.  When asked by counsel for Paper Products as to what the paper forming the subject matter of the Agreement was for, his answer was that it was "for production", adding later that it was for notebooks, but emphasizing that it was paper in constant use, the stock of which was replenished as used, and not necessarily following on any job received from a particular customer.  When asked why 15 September 2006 was specified in the Purchase Order as the delivery date for the goods, Mr. Chan's explanation was that it was to tally with Climax's own storage arrangements.  When cross-examined as to the revision of the quantity of the goods from 485 metric tons to 507 metric tons, and whether this revision was due to specific quantities required to carry out a client's order, Mr. Chan accepted that there was such a possibility, but maintained that part of the order under the Agreement could still be for stock inventory.

22.  Mr. Chan's evidence is that at the meeting on 23 August 2006, Miss Wong and Miss Leung demanded that Climax should accept the goods on a date earlier than 15 September 2006.  He claimed that he had only refused to agree to the early delivery proposed by Miss Wong, "but had not in any way expressed that the Defendant wanted to cancel the Purchase Order".

23.  Miss Wong claims that at no time during the meeting on 23 August 2006 did Mr. Chan or any other employee of Climax say that Climax would take delivery of the goods on 15 September 2006 as stipulated in the Purchase Order.  According to Miss Wong, the date 15 September 2006 was not mentioned at all during the meeting.  Miss Wong's evidence is that if Mr. Chan had indicated at the meeting that Climax would be prepared to take delivery of the goods on 15 September 2006 and to pay for them on that basis, she would have discussed with him how to obtain free storage of the goods up to 15 September 2006.  She explained that there was generally a period of 7 to 10 days free storage of the goods after their arrival.  If Mr. Chan had indicated that they would be taking delivery of the goods on 15 September 2006, that would involve only a few extra days of storage which Paper Products could easily have arranged for Climax, and even if costs had to be paid for this additional period of storage, such costs would not be substantial and in any event would be much less than the parties' damage now sustained.  Miss Wong therefore maintained that Mr. Chan had never indicated at their meeting on 23 August 2006 that Climax would be taking delivery of the goods on 15 September 2006.  Miss Wong claimed that Mr. Chan only emphasized that someone had to be responsible for Climax's high inventory of the goods, and as Miss Wong considered that Paper Products should not be responsible for Climax's own mistakes or internal management, she told Mr. Chan that Paper Products would not be responsible.

24.  Both parties agree that the meeting on 23 August 2006 ended in an unhappy atmosphere.  Miss Wong's evidence is that at the end of the meeting, Mr. Chan agreed to give Paper Products his final answer on 28 August 2006.  On the other hand, Mr. Chan denies that he had ever agreed to respond on 28 August 2006.

25.  Miss Wong claims that she called Mr. Chan a number of times on 28 August 2006 for his decision, but was not able to reach him.  She was only able to speak to Miss Chan, and asked her whether Mr. Chan had decided on what to do about the order.  Miss Chan informed Miss Wong that she had been able to find some buyers to take up the goods, but Mr. Chan was not prepared to take delivery.  According to Miss Wong, Miss Chan called her in the morning of 29 August 2006, and advised Miss Wong that Mr. Chan had decided not to take delivery of the goods.  Miss Wong said Paper Products would have to take legal action, and Miss Chan said that Mr. Chan was prepared for that.  Miss Wong's evidence is that she asked Miss Chan for Climax's formal cancellation of the order comprising the Agreement, but Miss Chan said that Mr. Chan would not do this.  Accordingly, Miss Wong issued a letter on the same day to Climax, for the attention of Mr. Chan, referring to their meeting on 23 August 2006 and Mr. Chan's indication at the meeting that Climax would not be taking delivery of the goods under the Agreement as Climax had surplus stock.  By the letter, Miss Wong on behalf of Paper Products notified Climax that Mr. Chan's conduct at the meeting constituted fundamental breach and repudiation of the Agreement.  Miss Wong gave notice in the letter of Paper Products' acceptance of Climax's repudiation, and further notified Climax that Paper Products would be taking immediate steps to mitigate its loss by reselling the goods on the market, and would look to Climax for compensation.

26.  Climax did not respond to the allegations and claims made in the letter from Paper Products dated 29 August 2006.  Mr. Chan claims that he arranged a meeting to be held on 30 August 2006 on receipt of the letter.  The parties do not dispute that no agreement could be reached at this meeting on 30 August 2006.  Mr. Chan claims he asked Miss Wong how much warehousing fee would be involved for the goods and was told that it could be around HK $1,000,000.  Mr. Chan claims he made it clear at the meeting that the goods should not be sold without his consent.

27.  According to Miss Wong, Mr. Chan proposed at the meeting on 30 August 2006 that Climax may consider taking delivery of the goods in October 2006 if all storage fees in the interim should be borne by Paper Products.  Miss Wong said that storage fees could be up to HK $1,000,000 because Mr. Chan had never indicated that he would be taking delivery of the goods on a certain date.  The parties are in agreement that Mr. Chan asked for another separate order of paper placed with Paper Products to be cancelled, and Miss Wong agreed to this as the goods in question had not been shipped.  This other purchase order was cancelled in writing after the meeting on 30 August 2006.

28.  On the whole, I find Miss Wong to be an honest and impressive witness.  From my observation, she was clear and forthright in her answers, sure of her position and gave clear reasons for her actions in a direct manner.  Miss Leung's evidence corroborates Miss Wong's, and does not add much to Miss Wong's.  The alleged contradictions referred to by counsel for Climax in the evidence given by Miss Wong and that given by Miss Leung are, in my opinion, immaterial and do not detract from their overall evidence which I find to be consistent in the material respects.

29.  As for Miss Ming Woo who was called to give evidence on behalf of Climax in relation to the meeting on 23 August 2006, she was the Assistant Financial Controller and accordingly was not the person who had dealt with Paper Products in relation to the placing of orders, and had no personal knowledge of the Agreement prior to making arrangements for payment.  She said that she had no understanding of the purpose or use of the goods, and was not familiar with the type of paper to which the Agreement related nor the details of the order.  She was not even clear as to the purpose of the meeting on 23 August 2006, and explained that she was involved because her work included making arrangements for payment, and she was asked by Mr. Chan to attend the meeting.  When Miss Woo was cross-examined as to whether she was asked at the meeting about Climax's inventory of the goods as at 23 August 2006, she said she had no impression of this.  Nor did she have any impression as to whether she had mentioned the figure of 3000 metric tons, or had checked the existing stock of the goods.  In answer to questions raised by the court, she accepted that her work as Assistant Financial Controller did not involve her attending meetings with Climax's vendors, and that she would attend such meetings only once a month at the most.  It therefore appears odd that having been asked by Mr. Chan to attend this meeting, which on her evidence was not a common feature, she would have no impression or recollection of the events of the meeting.  Hence, my impression of Miss Wu's evidence is that she was evasive of answers to questions which may put Climax or Mr. Chan in a bad light or which would contradict the defence, and was not forthright in her evidence.

30.  After considering all the evidence, I have to reject Climax’s evidence.  Mr. Chan was evasive in some of the answers he gave and I do not find his evidence in relation to whether Climax had surplus stock to be credible, or convincing.  In my opinion, he was defensive in this respect, which suggests that he was giving answers which he considered to be helpful to Climax's defence as opposed to disclosing the entire truth.  There is no evidence adduced to contradict the evidence from Miss Wong and Miss Leung as to what they were told by Miss Ming Chan on 21 August 2006 and in the conference room on 23 August 2006, that Climax had to cancel the order comprising the Agreement.  Miss Ming Chan was never called.  Although Mr. Chan denied that he had at any time during the meeting on 23 August 2006 mentioned that Climax had surplus stock, Miss Woo's attendance at the meeting is consistent with Paper Products' evidence that Miss Woo was asked by Mr. Chan at the meeting to confirm Climax's inventory of the goods in stock.  From Miss Woo’s evidence, I can find no other reason for her to attend the meeting when she was not involved at all in the placing of the order under the Agreement and had no personal knowledge of the order and dealings with Miss Leung and Miss Wong.

31.  Further, the meeting on 23 August 2006 having ended without any conclusion as to the status of the Agreement or the goods, I find it inherently improbable, as Mr. Chan suggests, that the parties would have concluded the matter without an indication from or promise by Mr. Chan to inform Paper Products of his final position in relation to the order before 28 August 2006 or any other date.  Mr. Chan was also evasive as to whether Miss Wong had contacted him on 28 August 2006.

32.  Mr. Chan's claim that he had never indicated at the meeting on 23 August 2006 that he would not be taking delivery of the goods is also inconsistent with the letter dated 29 August 2006 from Miss Wong to Climax.  The letter states in unequivocal terms that Mr. Chan had indicated at the meeting that Climax would not be taking delivery of the goods as Climax had surplus stock, and that taking delivery would reveal to Climax’s bankers Climax’s lack of internal control of its stock and would thereby affect Climax’s relationship with its bankers.  Paper Products was alleging in the letter that such conduct of Mr. Chan amounted to fundamental breach and repudiation of the Agreement, and further that Paper Products would be selling the goods as a result of such repudiation.  If Mr. Chan had never said at the meeting that he would not be taking delivery of the goods, the letter of 29 August 2006 sets out blatant lies which should have prompted an immediate response and a categorical denial.  There was no such response.

33.  If it was true, as the parties accept, that the market price of paper was rising at the material time in August 2006, and if it was true as Mr. Chan kept insisting that Climax was purchasing paper for stock and such paper was in constant and regular use, it would have been more consistent with Mr. Chan's evidence for him to take delivery of the goods.  Instead, he chose not only to refuse delivery but also sought cancellation of a further order of paper after the meeting on 23 August 2006.  Paper Products' evidence that Mr. Chan had cancelled the order under the Agreement because Climax had too much surplus stock and a customer had cancelled an order for the goods for which the paper was intended seems more inherently probable.

34.  On the evidence, therefore, I find that Climax was in breach of the Agreement by informing Paper Products that it would not be accepting the goods under the Agreement.

Was Paper Products entitled to treat Climax's breach as repudiation and to accept such repudiation on 29 August 2006?

35.  On the evidence, I accept Miss Wong's evidence that after the meeting on 23 August 2006, Miss Ming Chan confirmed to her on 29 August 2006 that Mr. Chan would not take delivery of the goods under the Agreement.  In view of the events at the meeting on 23 August 2006, and Miss Ming Chan's confirmation on 29 August 2006, I find that Climax had shown an intention no longer to be bound by the Agreement. Paper Products was entitled to treat Climax's conduct as repudiation, and to accept such repudiation, which it did by its letter dated 29 August 2006.

36.  The parties sought to rely on the Settlement Instruction which was sent by Climax to CITIC Ka Wah Bank Bank Ltd after the meeting on 23 August 2006, by which Climax gave instructions to the bank in relation to the bill which had been presented on behalf of Paper Products to the bank for payment of the price under the Agreement.  The instruction reads : "We do not accept this collection bill.  Please return document to the drawer."  Climax's evidence is that its intention was to inform the bank that Climax was not accepting the documents presented by Paper Products for payment, as the shipment had arrived before the contractual delivery date of 15 September 2006.  Climax claims that it did not intend the Settlement Instruction to mean that Climax was rejecting the goods under the Agreement.  Miss Woo's evidence is that she had been advised by the bank that this was the appropriate instruction to give.  Climax's evidence is that it was possible for Paper Products to present the documents again later on 15 September 2006 to obtain payment from the bank.  In my judgment, Climax's instruction to its bank relates only to its dealings with the bank.  It is not material to the issue of whether Climax had informed Paper Products that it would accept, or reject, the goods.

What was Paper Products' damage sustained as a result?

37.  Paper Products claims the difference between the contract price under the Agreement (US $780 per metric ton) and the price at which the goods were resold on 31 August 2006 (US $730 per metric ton).  Climax claims that the resale price was unreasonably low as Paper Products should not have given such a huge discount.

38.    According to the evidence of Miss Wong, the goods under the Agreement were cut to Climax's specifications, and the grammage of the paper may not be suitable for an alternative job such that the new buyer may have to sustain loss in trimming.  She also explained that when the goods are sold after dispatch from the factory, buyers normally treat such goods as stock lot and would ask for at least a 10% discount.  Further reduction would be expected if it became known in the market that the goods were the subject matter of a rejected stale. 

39.  Although Climax referred to a quotation from a purchaser which was prepared to buy the goods at HK $6,278 per metric ton, Miss Wong explained that the price quoted was only applicable for a fresh purchase of the goods with liberty to the purchaser to stipulate the specifications required, and not for papers of a defined size and grammage.  I accept that in the circumstances of the resale, the price obtained by Paper Products was reasonable and will allow the sum of US $25,328.30 as claimed, with additional costs of HK $450.

Conclusion

40.  I give judgment in favor of Paper Products for the sum of US $25,328.30, additional costs of HK $450, and interest at judgment rate.  I will also make an order nisi that the costs of the action are to be paid by Climax to Paper Products, with certificate for counsel, to be taxed if not agreed.