LAWERENCE LAU v. EVER MATE INDUSTRIAL LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Delivery of Decision on Assessment: ...(illegible) May 1996

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ASSESSMENT OF DAMAGES

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1. This matter comes before this court pursuant to Sears J's order, dated 7th March, 1995, which provides, inter alia, that this matter be heard by a Master to determine what payments had been made by the defendant under the contract of 28th April, 1992, and what sum, if any, is due and owing to the plaintiff. A notice of appointment was filed on 15 May, 1995.

2. Lists of documents were filed. The plaintiff filed a list on 15 December, 1993, a supplemental list on 28 November, 1994, and a second supplemental list on 19 April, 1995. The defendant filed a list on 12 January, 1994, and a supplemental list on 19 September, 1995. The defendant filed a hearsay notice on 21 February, 1995. The plaintiff filed a counter notice on 13 March, 1995, and its hearsay notice on 21st April, 1995.

3. At the hearing, two witnesses were called for the plaintiff and one for the defence.

4. The plaintiff and the defendant entered into two contracts, the first being TC 92/04-07 dated 28 April, 1992, ("the April contract") and the second being TC 92/07-02 dated 18 July, 1992, ("the July contract").

5. It is the plaintiff's case that payments were made on these two contracts as follows

6. It is the defence case that the payment of 13 October, 1992, was for both contracts and that the payment of 1 November, 1992, was for the July contract.

April Contract

7. The April contract was for Sulzer Ruti weaving machines, with a total contract price of $5,891,621.00. It provided for payment of a 20% deposit, with 65% of the price to be paid before delivery, with the remaining 15% to be paid after delivery. Shipment or delivery was to be before 15th August, 1992.

8. There were certain adjustments to one item, with the balance of $653,668.23 claimed in the Statement of Claim being calculated according to the invoice price of $5,883,768.30 rather than the contract price, a difference of $7,852.70. There is no dispute as to the manner of calculating the balance claimed.

9. Had the payment terms under the April contract been complied with, the following payments would have been made -

10. There is no dispute that the payments of $1.2 million, $1.4 million and $2,407,877.85, totalling $5,007,877.85, were for the April contract, and represents 85% of the contract price under the contract.

11. There is no dispute that delivery of the goods under the April contract was made by the plaintiff and accepted by the defendant. Deliveries took place on 9/8/92 and 17/8/92, with further deliveries of machines and spare parts being made on 15/10/92 and 20/10/92. The balance of 15% would not be payable until after the date of those deliveries. It is the plaintiff's case that only the payment of RMB 200,000 (HK 222,222.22) was received after those delivery dates.

12. It is the defence case that the 15% balance of $883,743.15 was paid from the $1 million paid on 13/10/92. The defendant says it made this payment before delivery voluntarily, although it was required to do so under the terms of the contract. The balance of that $1 million, i.e., $116,256.85, was paid towards the deposit on the July contract.

July Contract

13. The July contract was for Vanatex weaving machines with a total contract price of $4,326,757. It provided for payment of a 20% deposit, 65% of the price to be paid before the delivery, with the remaining 15% of the price to be paid after delivery. It provided that ten sets were to be delivered in early October, 1992, and 10 sets in late October, 1992.

14. If the payment schedule under the July contract had been complied with, payments would have been made as follows -

15. It is not disputed that eleven sets of machines were delivered on 19/12/92. Delivery of the remaining machines was never made, and this contract is the subject matter of High Court Action 9446/93.

16. There is no dispute that the cheque for $860,000 was paid on 15 September, 1992.

17. On the plaintiff's case, the two separate payments of $1 million, one on on 13 October, 1992, and one on 16 December, 1992, was for the 85% to be paid before delivery. 85% of the contract price is $3,677,743.45. So, taking these payments into account, there remained a shortfall in the pre-delivery payment of some $817,743.45.

18. On the defendant's case, the sum of $116,256.85 (the balance remaining of the $1 million paid on 13/10/92) was to be paid towards the 85% payable before delivery. This sum, together with the $222,222.22 paid on 1/11/92, the $1 million paid on 16 December, 1992, and the deposit of $860,000, amounts to $2,198,479.07. 85% of the contract price is $3,677,743.45. So, on the basis of these figures, on 19 December, when the first delivery was made, there would be a shortfall of $1,479,264.38 in the pre-delivery payment.

The pleadings

This case

19. The plaintiff's statement of claim is based on the April 1992 contract and sets out the four payments of 6/5/92, 8/8/92, 13/8/92, and 1/11/92, received, and claims the balance of $653,668.23.

20. The defendant's re-amended defence specifically pleads the payment of the $1 million on 13 October, 1992, as part payment of the purchase price for the April 1992 agreement.

Case No. A 9446/93

21. Evermate's re-amended statement of claim is based on the July 1992 contract, and at paragraph 7 it specifically pleads payment of a deposit of $1,860,000, by two cheques, one for $860,000 on 17 September, 1992, and one for $1 million by cheque number 023022 drawn on Chekiang First Bank Limited, and dated 14 October 1992.

22. Evermate proceeds to aggregate the seven payments under the April and July 1992 contracts, and then deducts the contract price under the April contract ($5,883,768.30) as well as the price of the eleven machines delivered under the July contract ($2,090,000) together with certain expenses, and on that basis reaches claims a balance of $48,331.77 as due to Evermate. Evermate then proceeds to make alternative claims for damages for breach of an implied condition of merchantable quality or for repudiation by Tung Yan.

23. In paragraph 10 of its amended defence, Tung Yan denies that the payments of 6/5/92, 8/8/92,13/8/92 were payable under the July agreement. It also specifically denies that the payment of $222,222.22 on 1/11/92 was for the July contract. Tung Yan does not deny, and therefore accepts, that the payment of $1 million on 13/10/92 was for the July contract.

24. Evermate as plaintiff in A 9446/93 proceeds on the basis that the two contracts are related and aggregates the payments. I do not accept this approach. I am satisfied that the two agreements are separate contracts and should be dealt with in that way. Each agreement is entire and complete in its terms, and stands independently of the other. There is no cross-reference in the contracts and they relate to different brand-name weaving machines, one being Sulzer Ruti Model No. 2001 and the other being Vamatex Model No. 401. In proceedings No. A 9446 of 1993, there are issues of an alleged breach of an implied condition as to merchantable quality and of repudiation relating to the eleven Vamatex 401 machines under the July contract, which will have to be decided by the court.

25. Throughout the two sets of proceedings, Tung Yan remains consistent in its position as to the payments, while Evermate demonstrates a clear inconsistency on the face of the pleadings. In the pleadings in this case, it alleges that the $1 million paid on 13 October 1992 is for the April contract, while in HCA No. 9446/93 it specifically pleads that the $1 million is for the July contract. It is clear that the same cheque is referred to, since it bears the same number, 023022, and is drawn on the Chekiang First Bank. This was confirmed by Madam Sze in cross examination.

26. A further inconsistency emerged in Evermate's case when Madam Sze said in evidence that the payment of $1 million on 13/10/92 was meant to be apportioned between the two contracts, firstly as to the balance due on the April contract, and the remainder as to the sum owing on the July contract.

Assessment of the witnesses

27. This leads to a consideration of the witnesses in the case. Mr. Lawrence Lau gave evidence for the plaintiff. He adopted his witness statement in his oral evidence, and he was cross examined. I found him to be a witness of truth.

28. Miss CHIU shuk yui gave evidence for the plaintiff and was cross examined at length. There was considerable cross examination relating to the omission of the $1 million payment in the fax dated 3 July, 1993. I will return to this point later. She was also cross examined on the fact that in the fax of 26/11/92, she referred to the contract price of $5,891,621 and not the invoice price of $5,883,768.30. Again, she admitted that she had made a clerical error in doing that and that the correct figure should be the invoice price. Miss CHIU said that this was an oversight on her part. Miss CHIU answered questions in an open and direct manner, and I find her to be a credible witness.

29. For the defence, Madam Sze wai-fong gave evidence and was cross examined. She was disinclined to answer questions directly, and would insist on giving lengthy explanations rather than direct answers. Even given the fact that the court may have an unsettling effect on lay witnesses, I am satisfied that she was not a reliable witness. I am satisfied that Madam Sze tailored her evidence to suit the case of the defendant, and that this explains the discrepancies found in the pleadings and the evidence.

Correspondence

30. Much of the evidence revolved around the correspondence between the parties, in particular the fax of 3 July, 1993, which omitted to include the $1 million payment on 13/10/92. It is important to note the chronology of the correspondence between the parties, and the contents of that correspondence.

Receipt dated 13/10/92

Plaintiff to Defendant

States that received from Messrs. Ever Mate Industrial Limited the sum of HK dollars one million only being in payment of part payment for weaving machines. Received and confirmed by Plaintiff 14 October. Received Chekiang First Bank Cheque No. 023022.

Fax dated 21/10/92

Plaintiff to Defendant

The first page sets out details of the first order, showing the payment of $1.2 million, $1.4 million and $2,407,877.85, leaving a balance of $883,743.15.

The second page sets out details of the second order, showing the payment of $860,000 and the payment on 15/10/92 of $1 million, leaving a balance of $1,817,743.45.

Fax dated 28/10/92

Plaintiff to Defendant

Gives instructions for remittance of RMB $200,000 (HK $222,222.22) to the plaintiff as follows - Please remit RMB 200,000 to the following unit: Name of the unit - Lung Hau Starching Handling Department, Bank - Lung Hau Branch, Lung Chun Branch, Account No. - 006-12. It goes on to state that "this amount shall be deducted from the balance of the loan of first order textile machine."

Fax dated 26/11/92

Plaintiff to Defendant

Sets out details of first contract, showing part payment of $5,007,877.85 after crediting the payment of $222,222.22 to this contract, leaving a balance of $661,520.93.

Sets out details of second contract, showing the payment of $1,860,000 and the figure of $649,013.55, being the 15% guarantee payable after delivery, leaving the sum of $1,817,743.45 owing, being the balance of the 85% to be paid before delivery.

Fax dated 3/7/93

Plaintiff to Defendant

Refers to second contract for Vamatex weaving machines, and refers to a payment of $860,000 on 17/9/92, and $1 million on 16/12/92. It states that the defendant has not paid the 65% of the purchase sum of the remaining nine sets of weaving machines according to the contract. It goes on to state that Mr. Ling of the defendant informed the plaintiff that delivery of the remaining nine machines should be postponed, and that delivery has been delayed. It states that if the defendant still requires the nine sets it should pay the 65% of the purchase price according to the contract within seven days.

31. Considerable reliance was placed on this document by the defendant because of the omission of the payment of $1 million on 13/10/92. Miss CHIU said that it was an oversight on her part. Counsel for the plaintiff pointed out that this fax is sandwiched between faxes containing the correct figures and that no adverse inference should be drawn against the Plaintiff. The plaintiff also submitted that, at this date, on the defendant's own case, he would have paid $2,198,479.07, and not $1,860,000, for the July contract, and it would be expected that the defendant would have taken this up with the plaintiff. I will refer to this later in regard to the fax of 14/8/93.

Letter dated 11/8/93

Plaintiff to Defendant

Sets out details of goods delivered under the first contract, and the amounts received in payment, being the $1.2 million, $1.4 million, $2,407,877.85 and $222.222.22, with a demand for payment of the balance owing of $653,668.23.

Letter dated 14/8/93

Defendant to Plaintiff

This acknowledges receipt of fax dated 11/8/93. It goes on to state -

"As we have paid one million eight hundred and sixty thousand dollars for the eleven sets of machines for the second lot of facilities but the facilities cannot work for six months after entering into the factory. In this regard, we have not yet settled (the balance) for the first lot of facilities. We suggest to settle the problems together."

32. The fax of 14/8/93 is significant because it would be expected that the defendant would take issue with the plaintiff on the contents of its fax of 11/8/93, because the $1 million of 13/10/92 is not included in the details of payment on the first contract. In her evidence, Madam Sze explained this by saying that the defendant's accounts were with the accountant and there was no way that the defendant could check the accuracy of the plaintiff's figures. She said that the accounts were returned in late November or December, 1993. On their return, she did not check the accounts and did not take objection to the fax of 11/8/93. Counsel for the plaintiff submitted that the these matters were not referred to in the witness statements and were mentioned for the first time during oral examination, and that the fax of 14/8/93 contains an admission that there is a balance owing under the April contract.

33. In cross examination of Madam Chiu, it was suggested that since the fax of 14/8/93 referred to the payment of $1,860,000 under the July contract, all other payments were intended to be credited to the April contract. Counsel for the plaintiff submitted that if that were so, then by 14/8/93, the April contract would have been paid in full. However, the fax goes on to say - "In this regard, we have not yet settled (the balance) for the first lot of facilities." Further, at that date, on the defence case, the defendant would have paid $2,198,479.07 ($860,000, $116,256.85, $222,222.22, and $1,000,000) for the July contract, and not $1,860,000. Having heard the evidence and the submissions on this point, I accept that the only reasonable inference is that the defendant did not treat the payments of 13/10/92 ($116,256.85) and 1/11/92 ($222,222.22) as payment for the July contract.

34. The defence suggested that the fact that the plaintiff had not responded to the fax of 14/8/93 is evidence of the plaintiff's acceptance of the contents. However, shortly after 14/8/93, the plaintiff instructed its solicitor and demand letters, dated 9/9/93 and 10/9/93, were sent to the defendant. It would not be expected that the plaintiff would continue its correspondence with the defendant in those circumstances.

35. The following points were taken on the sequence of events and correspondence, as well as the contents of the correspondence.

36. The defence noted that the receipt dated 13/10/92 used the words "being in payment of part payment for weaving machines," and that it is open to interpretation whether it was intended for the twenty four sets of machines under the first contract delivered in August or for the twenty machines under the second contract and not yet delivered. Defence counsel submitted that under the contra proferentem rule, any ambiguity in the wording of the receipt should be interpreted against the plaintiff. In support of this argument, counsel for the defence referred to Madam CHIU's admission that as a matter of practice, payment for the machines would only be made if the relevant machines were already sent to the port of Hong Kong, and on 13/10/92, the machines for the second contract were still in Germany and were not delivered to Hong Kong until two months later. I do not accept this argument as valid.

37. In Chitty on Contracts, Volume I, at paragraph 14-009, with regard to the contra proferentem rule, it is said that -

          "This rule of construction embraces two differing, but closely related, principles. First, since the party seeking to rely upon an exemption clause bears the burden of proving that the case falls within it provisions, any doubt or ambiguity will be resolved against him and in favour of the other party. Secondly, as in the case of any other written document, in situations of ambiguity the words of the document are to be construed more strongly against the party who made the document and who now seeks to rely on them."

38. Counsel for the plaintiff argued that the rule only applies where a party wishes to obtain some benefit under the document, and that a receipt is not such a document.

39. Having considered the submissions, I am satisfied that the receipt is not a document susceptible to the rigours of the contra proferentem rule. If I am wrong on this point, and the contra proferentem rule does apply to the receipt, it would be necessary to consider the circumstances surrounding the preparation of the receipt, in particular the chronology of the correspondence, in deciding whether there was any ambiguity. Taken in the context of the subsequent faxes which make it abundantly clear that this $1 million was credited to the July contract, I am satisfied that there is no ambiguity, and that the defendant knew that the $1 million was credited towards the July contract. The pleadings in Action A 9446/93 also show that the defendant knew and accepted that the $1 million was credited to the July contract.

40. When Madam Sze was in the witness box, she proceeded to give evidence about an attendance by Mr. Lau at the defendant's office on 13/10/92, and about a conversation that took place to the effect that, since the issuance of the receipt, the goods under the April contract had been delivered and it was time for payment of the July contract. This was not included in her witness statement, and I refused to admit it. Even if it were admitted into evidence, it would be of little weight since not only has it not been mentioned in her witness statement, it has not been pleaded, it has not been referred to in the affirmations filed in the interlocutory proceedings, and there is no contemporaneous documentary evidence to support the incident. Indeed, this piece of evidence is in conflict with the facts in that further deliveries of machines and spare parts under the April contract were made to the defendant on 15/10/92 and 20/19/92.

41. In the defendant's supplemental bundle of documents, there is the letter of 19 September, 1995, which states that the defendant did not have any knowledge of the documents dated 21/10/92 (transmission number 2478/92), 28/10/92 (transmission number 2457/92), or 26/11/92 (transmission number 2590/92) until copies were received from the former solicitors for the plaintiff.

42. The defence took issue with the fact that the fax dated 21/10/92 carries the number "TYO 2478/92 while the fax dated 28/10/92 carries the number "TYO 2457/92"; clearly, the numerical sequence does not tally with the chronological sequence. The original fax dated 21/10/92 was produced, together with the message confirmation and the entry on the fax activity report. The original fax dated 28/10/92 was produced, together with the message confirmation. The activity report shows an entry for 26/11/92, at 10.03am to the defendant's fax number.

43. Counsel for the defence referred to the irregularity in numbering. He also noted that correction fluid was used on the fax dated 21/10/92. He referred to the late discovery and the fact that the originals were not held at one location, with one being received from the plaintiff, one from the plaintiff's solicitor, and one could not be located. He also referred to the fact that Madam CHIU agreed that she had not consulted the defendant's account with the plaintiff when she prepared these documents, and that in the faxes of 21/10/92 and 26/11/92 reference was made to the contract price of $5,891,621 and not to the invoice price. He also noted that the fax confirmation was stapled to the original fax by someone other than the maker.

44. Counsel for the plaintiff noted that if the defendant did not receive the fax of 28/10/92, it is incredible that the defendant knew how to deposit money into the plaintiff's account since the parties had not had any previous dealings.

45. Having considered the evidence in regard to these fax messages, I am satisfied that there is no evidence of a sufficiently cogent nature before the court to support the defence challenge to these documents. The alleged non-receipt of the fax messages was not referred to in the defence statements and I refused to admit oral evidence of this at the hearing. Given the state of the evidence, I am satisfied that I can properly draw an inference on the balance of probability that the fax messages were received by the defendant, and I so do.

46. I am satisfied on considering the evidence relating to the series of correspondence, that the plaintiff regularly advised the defendant of the position with regard to payments under the two contracts. The defendant could not have been under any misapprehension as to the position throughout the period of the correspondence. The defendant did not take issue with the figures set out in the faxes of 21/10/92 and 26/11/92. The defendant never sought clarification or amendment of the figures, to provide for the apportionment of the $1 million payment of 13/10/92 between the balance owing under the April contract and the remainder due under the July contract. Since the plaintiff's fax of 11/8/93 does not indicate that the plaintiff had credited part of the $1 million payment of 13/10/92 to the balance owing under the April contract, it would be expected that the defendant would take issue with this omission in its fax of 14/8/93, but it did not do so. There is no evidence documentary or otherwise, to support the defendant's contention that the payment of $1 million on 13/10/92 was to be apportioned between the two contracts. The receipt itself does not refer to an apportionment between the contracts and the fax of 11/8/93 itself refers to the fact that the balance for the first lot of facilities was not yet settled.

47. Given the information contained in these faxes, it must have been clear to the defendant that the $1 million was credited to the July contract, and that the fax of 3/7/93 contained an error of omission in this regard.

48. In the submissions the following further matters were addressed.

49. There was a suggestion that because there was a balance owing under the first contract, that the payment of $1 million on 13/10/92 must be presumed to be intended for crediting firstly towards that balance owing under the first contract with the remainder being credited to the second contract. I do not accept this suggestion. As I mentioned earlier, there is not an iota of evidence to support this suggestion.

50. There was a suggestion that since only eleven sets of machines were delivered under the July contract that the contract price is in fact $2,090,000 (11 sets x $190,000 per set), and that this is less than the $2,860,000 paid by the defendant, and that this supports the defence contention that the $1 million of 13/10/92 was for the balance of the April contract. However, in evidence Madam CHIU explained that the remaining nine sets of weaving machines were not delivered because the defendant had requested the plaintiff to postpone the delivery and did not pay the 85% required under the contract. This position is set out in the fax of 3/7/93. I do not accept the defence argument on this point. I am satisfied that the contract was for twenty sets of machinery and the figures were calculated on that basis. The defendant cannot unilaterally change the terms of the contract and then base his argument on figures raised by that unilateral change.

51. Madam Sze gave evidence that there was an agreement whereby payments would be calculated and made according to deliveries. This piece of evidence is inadmissible. It was not included in the defendant's witness statements and it breaches the parol evidence rule. Even if admissible, it would carry little weight because there is no evidence, documentary or otherwise, to support this contention.

52. Having considered the evidence and the detailed submissions of both parties, I make the following determinations pursuant to the Order of Sears J:

53. This decision is handed down under the provisions of Order 42, rule 5B.