INEX TECHNOLOGIES v. IPI INTERNATIONAL PAPER INDUSTRY LTD

HCA 3514/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3514 OF 2000

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J U D G M E N T

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1.  In this action the Plaintiff claims the price for goods sold and delivered at US$386,434.77.  There is no dispute to this claim.  The Defendant seeks to set off the Plaintiff’s claim with its counterclaim.  The counterclaim is for damages for breach of contract to deliver goods.  In December 1999, the parties negotiated for the sale by the Plaintiff to the Defendant of 6000 metric tons (MT) of paper.

2.  On 28 December 1999, the Plaintiff faxed an export sales contract to the Defendant.  The contract had been signed by the plaintiff.  It contained a schedule of dates for the shipment of the goods and another schedule for the dates for the Defendant to supply the Plaintiff with specifications for the goods ahead of the shipment dates. 

3.  The schedule for shipment provides:

1ST Lot: JAN 09, 2000	For 1000 MT
2ND Lot: JAN 16, 2000	For 1000 MT
3RD Lot: JAN 23, 2000	For 1000 MT
4TH Lot: FEB 15, 2000	For 1500 MT
5TH Lot: FEB 29, 2000	For 1500 MT.

The schedule for the Defendant to supply specifications for these goods provides:

1ST: BY DEC, 28, 1999
2nd: BY JAN, 06, 2000
3rd: BY JAN, 13, 2000
4th: BY JAN 20, 2000
5th: BY JAN 27, 2000

4.  It is the Defendant’s case that Mr Johnny Wong of the Defendant did not find such dates workable. He then telephoned his counterpart Mr Kang, who was the Manager of the Plaintiff’s Guangzhou office.  He told Mr Kang that the schedules were not workable and proposed to put in some flexibility to the dates.  Mr Kang agreed but did not know how to make the dates flexible.  Mr Wong suggested putting in the words “to be adjust by fax”.  Mr Kang agreed.  Mr Wong then wrote these words inside the boxes for the two schedules.  He then faxed this draft back to Mr Kang.  He also asked his staff to type the same words inside the two boxes on another copy.  He then signed that copy and had it faxed back to Mr Kang again.

5.  There was in fact a difference between the two versions of the contract that had been faxed back to Kang.  It was on whether partial delivery was acceptable, but the Plaintiff rightly abandoned this issue at the trial.  It also turned out at the trial that the signed document was faxed to Kang before the unsigned one which had the additional words in handwritten form.  But nothing turns on this.

6.  The Defendant in due course provided the specifications for the 1^st lot of goods on 29 December 1999.  The specifications for the 2^nd lot of goods were provided on a number of occasions between 6 to 18 January 2000.

7.  The Plaintiff also started to deliver the goods on 11 January and completed the delivery of the 1^st lot on 23 January.  However, the Plaintiff only delivered 44.958 MT of the goods in the 2^nd lot and no more.

8.  On 20 January 2000, the Defendant gave the Plaintiff the specifications for the 3^rd, 4^th and 5^th lots of goods, but as I have said, there was no more delivery.

9.  The Plaintiff said that the Defendant had failed to adhere to the schedule for supplying specifications and had thereby breached the contract.  The Defendant however argued that there was no need to adhere to the schedules strictly as the parties had agreed that the dates could be adjusted by fax.  The dispute is thus on whether Kang had agreed that the dates in the schedules could be adjusted by fax and need not be adhered to strictly.  This is the only issue in the counterclaim as other pleaded issues have been rightly abandoned at the start of a trial.

10.  Mr Kang of the Plaintiff said that he had told Mr Wong that this was a special deal at a low price for the purpose of keeping the factory running, hence the schedules had to be strictly observed.  He was aware of the addition of the words “to be adjust by fax” by Mr Wong inside the two boxes for the schedules, but he said he had not agreed to these qualifications and it was merely Mr Wong’s attempt to unilaterally vary the terms. 

11.  It is necessary to consider the faxes exchanged between the parties in order to resolve this dispute.  The first relevant fax was sent by Kang to Wong on 30 January 2000.  Kang said in this fax that he made the contract with the Defendant at a low price just to solve the problem of low sale activity and to keep the paper mill running.  He further said that there was no performance of the contract as per plan.  He therefore asked Wong to provide the specifications for the 2^nd and 3^rd lots by 14 January and for the 4^th and 5^th lots as per original plan. 

12.  In fact before this fax, he had telephoned Wong to chase for the specifications.  Wong admitted that he had received Kang’s phone call on about 10 January chasing for the specifications.  He was then on a business trip in Wuhan and he reminded Kang that there was flexibility on the dates.  Nevertheless he promised Kang that he would check the stock and give him the specifications when he was back to the Defendant’s office in Dongguan, Guangdong.  Wong also admitted that he had received a further telephone call from either Kang or his subordinate Miss Viola Wong on 12 or 13 January again chasing for the specifications.  He replied that he would give the Plaintiff all the specifications under the contract within January and there was no need for them to chase him.  But he was told to be quick, as Kang had been chased by paper mill for the specifications.  It was probably after this phone call that Kang sent Wong the fax on 13 January. 

13.  On 14 January Kang sent Wong a further fax repeating that the contract was a special order at a special price to solve the Plaintiff’s problems and he asked Wong to give the specifications as per the contract.  Paragraph 3 of this fax read: “Moreover, even if you insist to give me your plan, I haven’t given you any reply yet.  So, regarding the delivery time, we must discuss about it.”  This fax also suggested that if it was difficult for the Defendant to give the specifications, the contract could be dropped. 

14.  Wong replied by fax on the same day.  He said he had returned the contract “marked will be adjust by fax” and both sides agreed to that.  He also insisted on fulfilling the contract.  Kang did not reply to this fax. 

15.  The parties apparently had arranged to meet on Saturday, 22 January.  However, Kang on 20 January sent Wong a fax telling him that he could not attend the meeting and the contract would be cancelled with respect to the balance of the goods at 5000 MT. 

16.  Wong replied by fax on the same day and told Kang that the Defendant did not agree to cancel the contract.  Wong also stated that Kang had confirmed on the telephone that he had no objection to Wong’s fax which was sent to Kang on 14 January as referred to above.

17.  Miss Viola Wong responded to this fax also on the same day.  She said the Defendant had failed to give specifications of the 2^nd lot within the time specified in the contract and the paper mill had insisted on cancellation.  Miss Wong suggested that Wong could try to resolve the problem with Kang when they met.  Wong replied to Miss Viola Wong immediately by writing on her fax and faxed it back to her.  Wong reiterated in this fax that the parties had agreed on the day when he signed the contract that the two schedules could be adjusted by fax.  He also disagreed that the contract should be cancelled.

18.  Wong and Kang then met on 25 January.  After the meeting, Wong produced a report setting out their dialogue.  He faxed the report to Kang on 27 January and asked him to comment on it if anything was missing.  He further stated in the fax that if there was no reply from Kang by the end of 28 January, he would assume that Kang agreed with the report totally. 

19.  The relevant part of the dialogue in the report is as follows:

“	J.W.:	I would like to know what reason they insist to cancel this contract.
	Kang:	Mill manager, Mr Cho decided to stop operation for ten days, no capacity to supply and will increase price on March, 2000.  He had complained you not give spec to mill on time as per contract.
	J.W.:	Mr Kang, you represent Hansol (Seoul) office to sign this contract, you knew very well, the detail from the beginning, after negotiation I don’t agreed your specification and delivery schedule that’s why I insist put “to be adjust by Fax” on the schedule column and agreed by you before you go to oversea trip.  At the same time, I also give you 920 MT spec on time.  2nd Lot our Guangzhou gave you spec day by day and gave you all spec of the balance on Jan 20, 2000.  I have nothing wrong, your mill side had no reason to cancel this contract.  Actual I deal with Hansol, not deal with your mill, you cannot make this excuses to cancel C/No. GL029902, and what is Mr Sur’s decision.
	Kang:	Mr Sur has no decision, only let mill manager to make final decision.
	J.W.:	Did Mr Sur knew all details about this deal?
	Kang:	This is my fault, I did not tell him.
	J.W.:	Why?
	Kang:	Actually this deal I did not tell them the buyer is you.  I only told them one new buyer bought this 6000 MT.  The buyer through you to handle this case, also I hold your spec not send to HK and mill side.  Due to mill manager do not agree to get spec day by day.
	J.W.:	Mr Kang, I gave you spec day by day, due to your requests to give spec asap and delivery the cargo shortly, I did it is because to help to move the cargo asap.  Because those cargo had sold.  And need delivery quickly.  Now how can face to our buyers.  We can’t deliver the cargo to them on time.  We must use HI-Q Brand to substitute the volume.  We face a huge lost.  How can you compensate to us.
	Kang:	I have no idea.  Due to mill side insist to cancel the contract.
	J.W.:	Mr Kang, whatever you did is wrong or good to your Company.  You should tell the truth of whole case to you management peoples.  If Hansol signed the contract and don’t fulfil it will distort Hansol’s reputation, in future who would like to sign contract with Hansol.  Also other parties will do the same thing to Hansol.  It will create numerous problems in future, if you insist to cancel the contract, we will take necessary step against to you.
	Kang:	I knew that’s my fault.  I had nothing to say.  Whatever you like, you can do.”

20.  Kang did not reply to this report on or after 28 January.  On 25 January, he sent Wong a fax telling him that the Plaintiff would not proceed with the balance of the contract.

21.  On 3 February, Wong sent a letter to the Plaintiff’s headquarters in Korea seeking a solution and hinting that the Defendant would claim for the loss sustained.  Wong also included in this letter the report of his meeting with Kang on 25 January.  Again there was no response.

22.  On 22 February, Kang sent Wong a fax saying that he had not agreed to “to be adjust by fax” and Wong should not stop payment for goods already delivered under other orders.

23.  On 25 February, the Plaintiff’s solicitor Messrs Lo & Lo wrote the Defendant seeking payment for some other goods and for a small portion of the goods delivered under this contract.  The Defendant paid per the demand.

24.  On 3 March, Lo & Lo wrote the Defendant’s solicitor W K To & Co. and demanded the sum now claimed.  W K To & Co. replied on 8 March and set forth the Defendant’s version of the terms of the contract, the events that had happened subsequent to the making of the contract and Kang’s admission of fault in the meeting of 25 January.  There was again no reply. 

25.  Kang in his evidence said that he had told Wong in early January that he did not accept the flexibility in the schedules and insisted on strict observance.  Regarding the report of the meeting on 25 January, which was faxed to him on 27 January for his comment, he said he was on a business trip at that time and only returned a few days later.  When he was back, the deadline of 28 January for him to reply had already passed.  Furthermore, he said the report was full of errors and he did not bother to reply to it.

26.  I find the evidence of Wong reasonable and accept that Kang had agreed to the insertion of the words “to be adjust by fax” to qualify the schedules.  If there was no agreement for the schedules to be so qualified, it was unlikely that Wong would have made the insertion unilaterally.  If Wong indeed should have done so without Kang’s prior agreement, there was no reason why Kang would not have faxed his objection to Wong either immediately or within a reasonable time thereafter.  There was however no objection whatsoever from Kang.  In fact, the Plaintiff had accepted the specifications sent by the Defendant for the 1^st lot of goods and had commenced delivery on 11 January.  Furthermore, in the faxes commencing from 13 January, Wong had repeated his case clearly that there was flexibility by the addition of words “to be adjust by fax”, but Kang had not responded with any rebuttal of the same clarity.  His failure to comment on the dialogue in Wong’s report on their meeting on 25 January and his lame explanation for the omission are most damning to his case.  If he was not at fault, I cannot see why he would have failed to respond with his side of the story.  Even if he was away when the report was faxed to him, when he returned and saw the report a few days later, it was still not too late for him to reply and give his comment. 

27.  Furthermore, if it was the Defendant which was at fault, I also cannot imagine why the Plaintiff’s headquarters would have failed to reply to Wong’s letter of 3 February.  The Plaintiff’s further failure to reply to the letter from W K To & Co. provides further support to the Defendant’s case.

28.  For the above reasons, I accept Mr Wong’s evidence and reject Mr Kang’s in so far as it is contrary to Mr Wong’s.  I hold that the contract allowed the Defendant flexibility on the dates for giving specifications of goods and the shipment dates.  I further hold that the Defendant had complied with the contract by giving the specifications on the dates mentioned above.  The Defendant therefore succeeds on the counterclaim.

29.  The parties have agreed that the quantum for the counterclaim should be US$715,341.23.  The net sum payable by the Plaintiff to the Defendant, after setting off the claim at US$386,434.77, is US$328,906.46.  I therefore order that the plaintiff do pay the defendant US$328,906.46 or the Hong Kong dollar equivalent at the time of payment.  I also order the Plaintiff to pay the Defendant interest on this sum at 1% above the best lending rate charged by the Hong Kong Bank for Hong Kong dollars loans from 15 April 2000 to today.  This date was at about the middle of the period when the defendant was purchasing substitute goods.  I also make an order nisi that the Plaintiff do pay the Defendant the costs of this action and of the counterclaim and all reservedcosts.