Honet Industries Ltd. v. Inkan Ltd.

IN THE COURT OF APPEAL

1996, No. 59
(Civil)

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This appeal, from the District Court, comes before us pursuant to leave granted by the judge below (Her Honour Judge C.B. Chan) on 14 November 1995. The judge gave judgment in the action for $70,950 (together with interest) in favour of the plaintiff ("Honet") against the defendant ("Inkan"), in an action which arose out of a contract in writing for the sale of goods made on 12 May 1994. Under that contract, Honet was expressed to be the buyer and Inkan was expressed to be the seller of 110,000 yards of cloth at a price of US$214,500. There was a failure to perform this contract, in that the cloth was not delivered to Honet in accordance with its terms. Honet's claim for damages, made of course against Inkan, was decided by the judge in favour of Honet.

The appeal

2. Inkan now appeals. It contends that although expressed to be the seller under the contract it was not in fact the seller at all, but only the seller's agent, and that therefore it assumed no liability under the contract. The seller, says Inkan, was Samyoung Textile Co. Ltd., a Korean company ("Samyoung"); and it is true that Samyoung is referred to in the contract of 12 May 1994 (which is a contract made upon a standard form used by Inkan) in a way consistent with Inkan's contention. Under the contract, payment for the goods is to be made by irrevocable letter of credit in favour of Samyoung; and, under the "Remarks" column of the contract, it is provided (so far as material) as follows :-

"C3% of agent commission invoice value must be deducted from the proceeds of negotiation and remitted direct to Inkan Ltd ....."

The judgment

3. The judge rightly concluded that the question which she had to decide was whether or not Inkan was, nevertheless, liable to Honet under the contract which Inkan had signed (on the face of it, as principal).

4. The judge analysed the matter in this way :-

"..... the Plaintiff was advised right at the start of the relationship between the Plaintiff and the Defendant that the Defendant was a company that acted as agent for Korean suppliers and that Samyoung is one of those suppliers. That in the said contract the goods in question were from the supplier to whom the Defendant acted as agent and the Defendant would earn 3% commission on the contract price."

5. Turning to the issue, the judge said she would have to decide whether Inkan, in this contract, expressly or impliedly negatived its liability. She added :-

"To decide this I have to look to all the surrounding circumstances of this contract as well as the contents of the sales contract itself."

6. I am doubtful about this proposition. This contract was made in writing. The question to be decided depended only on the true construction of the contract; what, on the true construction of the contract, is to be taken as the intention of Inkan in entering into the contract as seller, which is the way in which Inkan did enter into this contract? But, be that as it may, what the judge did, having looked into the surrounding circumstances, was to conclude that Inkan had not negatived the liability which, obviously, appeared on the face of it to flow from its execution of the contract in this way. The judge put the matter thus :-

"The fact that the execution of the Sales contract by the Defendant was unqualified, the description of the Defendant in the body of the Contract as 'the Sellers', the 'Conditions of Sale' at the back of the contract describing the liability of the Sellers, the fact that the principal is foreign, weigh heavily in favour of the assumption of personal liability of the Defendant in this contract despite the fact that it acted as an agent for Samyoung in this sales contract and earned a commission therefore of 3%."

Was the judge right?

7. For my part, I see no reason at all to disturb the judge's conclusion, which was one that was clearly open to her on the facts. But I would go further. I would suggest that in cases of this sort, in which parties seek to adduce evidence as to what they said to each other as an aid to construing the written contract between them, judges should discourage them from doing so. Adducing such evidence takes up much time and leads to the reception of much inadmissible material which serves to obscure rather than to illuminate the issue. Where a contract of this sort is in writing, and the court has to decide whether it was the intention of the parties that the agent should assume personal liability, the determination of such intention (which must be ascertained objectively) involves nothing more nor less than the true construction of the written contract. Parol evidence is not admissible to add to, contradict or vary the terms of a written contract. No doubt, parol evidence may, sometimes, be introduced to amplify the contract, e.g., in order to show that some other party is to be liable as principal, as well as the agent who has signed the contract without qualification. But where agents sign contracts without any qualification, they will always be held to be personally liable, in the absence of intrinsic evidence, i.e., within the contract itself, clearly denoting otherwise: see, e.g., Parker v. Winlow (1857) 7 E. & B. 942. The usual way in which an agent qualifies his signing so as to negative his personal liability is by signing "for and on behalf of" the principal. That of course was not done in this case.

Conclusion

8. For these reasons, I have no doubt that the judge was right, and so I would dismiss this appeal.

Liu, J.A. :

9. I agree that the appeal should be dismissed.

10. The so-called "surrounding circumstances" were allowed to be let in for the attempted construction of the written contract, perhaps also because it was difficult for the District Judge to totally ignore the evidence led to dispute the capacity of the defendant in the prior negotiation and in the visit to Korea. Be that as it may, there was no sufficient evidence to exclude from the appellant personal liability attached to it in contract by the District Judge on account of the powerful factors she set out in her judgment.

11. There is one point to which I wish particularly to lend my support. Unlike the United Kingdom, Hong Kong has evidently less or a less-entrenched foothold overseas, and a foreign principal remains a relevant factor for considering a signatory's personal liability in a written contract.

12. I wholly agree with the conclusion reached by my Lord, Godfrey, JA for the reasons he gives.

Litton, V.-P.:

13. I agree. The contractual arrangements for the supply of the 100,000 yards of cloth are clear upon the face of the contract dated 12 May 1994. The supplier of the cloth was Samyoung of Seoul, Korea in whose favour the letter of credit was to be opened. 3% agent commission was to be deducted from the proceeds of negotiation and remitted direct to Inkan Ltd.'s account with the China State Bank.

14. As between the parties to the contract, Inkan Ltd. was the seller and Honet the buyer. They looked to each other for the discharge of contractual obligations under the contract. Inkan Ltd., the appellant in this court, failed to deliver the first lot of goods and judgment in the sum of HK$70,950 was entered in favour of Honet, the respondent to this appeal. There is no challenge to the judge's finding as regards the quantum of damage sustained.

15. What possible grounds are there to impeach the judge's finding on liability?

16. Much oral evidence was adduced in the court below concerning the relationship between Inkan Ltd. and the Korean supplier Samyoung. I cannot see the basis for allowing such evidence to be led. To call Inkan Ltd. a "commission agent" or a "co-ordinator" says nothing about its legal liabilities under the contract. Inkan was, vis-à-vis Honet, the seller. It was in breach of contract. That is the end of the matter.

17. In my judgment this appeal is without merit and must be dismissed with costs.