EURAMIN S.A. v. SHANGXIANG MINMETALS LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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The Background and the Issues

1. The plaintiff and the defendant are both traders in metals. On 4 May 1994, the plaintiff says, the parties entered into a written agreement in terms of which the plaintiff agreed to buy and the defendant agreed to sell 100 metric tonnes of antimony metal, with "tolerance" stated to be "10% - /0% +". The origin of the antimony was stated to be China, the shipment dates "by latest June 15, 1994 from China or latest June 20 from Hong Kong" and the price "US$2,220.-/MT of material CIF Rotterdam". The defendant's version of the agreement does not, at the end of the day, differ greatly from this. The defendant says that the "tolerance" was at its option; that is, that it could deliver, within the terms of the contract, 90 tonnes. The plaintiff accepts this. The defendant also says that the contract was made on the "common assumption that the goods would be, from factory in Hunan". The plaintiff does not accept this.

2. On the question of liability, the pleadings raised issues of force majeure, frustration, compromise, waiver and estoppel, but, in closing, Mr Hung was able to argue only the matter of frustration. Some issues fell away because the defendant could not rely on its only witness, whose evidence was not credible. As one might expect from Mr Hung, he did not, wisely and properly, seek to argue that I should accept the evidence of this witness.

The Source of the Antimony

3. The plea of frustration is based on problems caused in production and transportation due to floods in China. The defendant's allegation that the common assumption was that the goods would be from a factory in Hunan is based on an exchange of correspondence in connection with the letter of credit before the contract was finalised. The plaintiff wanted the credit payable 95% at sight, but the defendant wanted an inspection in China to be final as to quality and quantity and the credit payable 100% payable at sight. In a fax dated 4 May 1994, the defendant said the reason for its wish was that "The antimony is produced by well established Hunan factory and the quality will be counted-inspected by [the inspector] who is not a rubber-chop surveyor...". The plaintiff agreed to provide a letter of credit payable 100% at sight. The defendant's contract form sent to the plaintiff subsequently made no mention of the source of the antimony.

4. I reject the contention that the contract required that the antimony should come from some unnamed factory in Hunan. This was not an express term of the contract, and there is absolutely no reason why such a term should be implied. No doubt, the parties contemplated that the antimony would come from China, but there is no basis for asserting that it was a term of the contract that it could come from any particular source in that country.

5. I also reject Mr Hung's contention that, if the defendant was unable to obtain the antimony from a source in China, it was not obliged to seek to obtain the antimony elsewhere, and was discharged from liability under the contract. One may test this by considering what the position would have been if the defendant had obtained the antimony of a quality in accordance with the contract from a warehouse in Hong Kong and had delivered this timeously to the plaintiff. Would the plaintiff have any legitimate complaint? Would the plaintiff be able to say - "Well, this is perfectly good antimony, but, because you did not get it from a source in China, I am not obliged to accept it."? I think not. Of course, the plaintiff might be able to claim damages, if it could prove any, but, in my view, it could not rescind the contract.

The Evidence on Frustration

6. Not being able to rely on the evidence of its only witness, the defendant must depend on the contemporaneous documents to establish its plea of frustration.

7. The first sign of trouble appears from a fax by the defendant to the plaintiff dated 20 May 1994 in which the defendant said "The cargo is being arranged for inland transportation. However, the railway system in China is not good and we have to do a lot of communication and correspondence. Will advise you once the factory schedule available.". In this fax, the defendant said that it might be able to offer another 60 to 100 tonnes at a price of US$2,800 per tonne in July/ August.

8. On 2 June 1994, the plaintiff asked when shipment would take place. The defendant replied on 6 June 1994 saying, "we are checking on the schedule. We were informed from other source that the cargo might not be able to produce in time for the shipment.".

9. On 13 June 1994, the plaintiff inquired again about shipment. On 20 June 1994, the defendant said that

"we are very sorry to inform you that until today we have not received any message or advice on the delivery... we are informed that the factories (both Hunan and Guizhou) have been experiencing maintenance problems and the production is interrupted. The factories therefore cannot have the cargoes for deliveries and so the supplier cannot perform at the moment.".

10. On 21 June 1994, the defendant faxed the plaintiff saying

"We have been trying our utmost effort to push the Chinese supplier to deliver the cargo since the time of our commitment. However, the factory allocated the cargo to others without notifying our supplier and then we have tried to get alternative cargoes for replacement but in vain. The situation gradually becomes worse and now it is hardly to find 'concrete' stocks despite of the offers being circulated in the market. In the meantime, we are trying to find at lease 1-2 FCL [full container loads] in July for you in the conditions that you agree to close the file without further shipment in this contract. Or we would like to suggest you wait until the situation changes."

11. On 23 June 1994, the plaintiff refused this offer, but offered to take 40 tonnes by 30 June and 60 tonnes in July.

12. On 24 June 1994, the defendant wrote raising the matter of the floods for the first time. "Nevertheless,

" the defendant said, "we still try to get 1-2 containers by all means for July shipment in the conditions that you agree to terminate the contract ...".

13. On the same day, the plaintiff wrote saying that it would accept 2 FCLs and accept cancellation of the balance. It asked the defendant for proof of force majeure.

14. On 11 July 1994, the defendant wrote proposing that 1 FCL be shipped July/mid-August at the contract price in settlement, but no proof or documents of force majeure would be provided.

15. On the same day, this offer was rejected by the plaintiff.

16. On 13 July 1994, the defendant wrote saying "Today is the critical moment for you to decide to take cargo or we have to let the cargo owner sell to some other parties.".

17. On 15 July 1994, the plaintiff wrote to the defendant accepting the defendant's repudiation of the contract.

18. On 18 July 1994, the plaintiff wrote suggesting that the defendant deliver the 15 tonnes to cut down the plaintiff's losses. The plaintiff wrote again on 19 July 1994, saying that it would accept the 15 tonnes in reduction of its claim. But, by its fax of 21 July 1994, the defendant maintained its position that the 15 tonnes must be accepted in settlement. The plaintiff refused to accept this, and made this quite clear to the defendant. Nevertheless, the defendant shipped the 15 tonnes.

19. The next significant document is a fax by the plaintiff to the defendant on 4 August 1994 asking about delivery of the balance of 85 tonnes. There was no response to this, and the plaintiff faxed the letter again on 26 August 1994. There was still no response, so the plaintiff told the defendant, by fax dated 31 August 1994, that the plaintiff would proceed to buy in against the balance of 85 tonnes. The plaintiff told the defendant that the best that it could do was US$5,400 a tonne in warehouse Rotterdam, and asked the defendant if it could do better. On 5 September 1994, the plaintiff wrote to the defendant again, saying that failing a reply by 7 September 1994, they would buy in. Contact was re-established with the defendant, and, on 6 September 1994, the plaintiff wrote making another proposal. The defendant replied on 7 September 1994 saying that it would try to find another container, with the parties sharing the losses. The plaintiff responded on the same day, rejecting the proposals and saying that legal action would be taken.

20. There is evidence from journals and other contemporaneous documents that China did experience flooding in June and July 1994, and this caused difficulties in production and transportation.

Finding on Frustration

21. This is not such a case as that relied upon by Mr Hung - Howell v Coupland 1876 (1) QBD 258 - in which the contract was for the sale of a particular crop of potatoes grown on specified land.

22. The classic test for frustration is that "There must be ... such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for." per Lord Radcliffe; David Contractors v Fareham UDC [1956] AC 696, at 729.

23. Although the defendant was in breach of the contract earlier, the plaintiff did not bring the contract to an end until 15 July 1994. The contract, therefore, continued until that date, and the defendant is entitled to rely on any circumstance arising immediately before that date discharging it from performance.

24. The question is, then, whether or not the defendant has established that there is no antimony available immediately before 15 July 1994. It is, of course, of no relevance that the defendant might have found it difficult to obtain the antimony at a reasonable price.

25. In my judgment, by no stretch of the imagination can it be said that delivery of antimony of precisely the kind contracted for, but from a source other than China, would be "a different thing" from that contracted for.

26. In my view, it is clear that antimony was available on the market immediately prior to 15 July 1994. The price was rising that but the commodity was there, and, if the defendant had bid the market price, or over the market price, it could have obtained a supply to satisfy its contract with the plaintiff.

27. Even if one were to say that the defendant was obliged only to look in China for a source, it is clear that the defendant could obtain some antimony there, and I am not satisfied that it has shown that it could not obtain 90 tonnes, if it had been prepared to pay the right price.

28. In the result, I hold that the defendant has not satisfied me that the contract was frustrated. That being the only defence now argued by the defendant, I hold that the defendant is liable to the plaintiff for damages on the contract.

The Damages

29. It is agreed by counsel that the loss of profit to the plaintiff should be calculated at US$100 a tonne. The only issue here is whether this loss should be calculated on 85 tonnes or 75 tonnes. The argument for the defendant is that the defendant was obliged to deliver only 90 tonnes, because it had the option of delivering 10% less than the 100 tonnes. Mr Coleman argues that this option would apply only if the defendant had delivered 90 tonnes. I do not accept this. The measure of damages is to be based on the seller's minimum legal obligation. Accordingly, I hold that the damages to which the plaintiff is entitled here is US$7,500 (75 x US$100).

The Indemnity

30. The plaintiff also claims an indemnity in respect of a claim brought against it by a purchaser from it of the goods. This sub-purchaser is a company in Brussels called Trademet. The particulars given by the plaintiff are that the market price was US$5,400, less the contract price with the defendant of US$2,350, giving a shortfall of US$3,050, multiplied by 85 tonnes, giving a total of US$259,250.

31. Mr Hung accepts that it was within the contemplation of the parties that the plaintiff would sell the antimony for a profit.

32. The first point taken by Mr Hung is that I should not be satisfied that the plaintiff has established that it had a binding contract with Trademet.

33. I am satisfied that the plaintiff had a binding contract with Trademet for the sale of the same antimony ("100 mt nett about") that it purchased from the defendant. The contemporaneous documents support this, and I accept the evidence of the plaintiff's witnesses that this was so.

34. The plaintiff has not paid Trademet. Mr Hung says it is suspicious that Trademet has waited so long without pursuing the plaintiff for what is said to be due to it. Mr Hung cross-examined the plaintiff's witness regarding this matter. The evidence was that Trademet was prepared to wait for payment until the outcome of the proceedings against the defendant, but there was no question of not having to pay. Mr Yves Dahan, a joint managing director of the plaintiff, said - "We owe and have to pay... I am an honourable trader - we have a commitment" .. The witness denied that Trademet was not serious in seeking to recover damages. He said that Trademet's attitude was that it was prepared not to put the plaintiff in a serious financial position until matter settled. Trademet was playing along with the plaintiff, but the plaintiff recognised an obligation to pay Trademet.

35. I accept this evidence and do not accept that this is improbable. Accordingly, I accept that the plaintiff has a genuine liability to Trademet and intends to pay. It may be that Trademet will accept what the plaintiff is able to recover from the defendant, but there is nothing wrong with this.

36. Mr Hung also argued that the plaintiff's liability to Trademet was uncertain because the plaintiff's contract with Trademet contained a force majeure clause, and it could invoke this against Trademet. Mr Dahan said that the plaintiff had not gone that far to consider raising possibility of force majeure with Trademet.

37. This clause reads as follows-

          "In case of contingency, such as strikes, lockouts, accidents or other bona fide causes beyond the control of either party, preventing seller from delivering and buyer from receiving the material, as contracted, this contract shall be suspended during the time that such contingency does in fact exist. Should such contingency exist for more than 30 days (thirty), the party not claiming contingency may cancel this contract. Contingency must be declared by one party to the other immediately after occurrence."

38. In my view, the plaintiff is not able to raise the force majeure against Trademet. There was no cause that prevented the plaintiff from delivering the antimony to Trademet. It could have bought the antimony on the market. It could not raise against Trademet the fact that the plaintiff's supplier had not delivered to it

39. Mr Hung's next point is that, in any event, it is not appropriate to grant an indemnity in this case. He relied on the case of Trans Trust S.P.R.L. v Danubian Trading Co Ltd [1952] 2 QB 297. In that case, Somervell LJ noted that the buyer not in a position to call evidence to quantify the damages, and Denning LJ commented that the liability to third party not yet been assessed. This case was followed in Deeny v Gooda Walker Ltd [1995] 1 WLR 1206 in which the potential third party liability was uncertain. In these situations, the cases say, the court should not grant an indemnity but defer dealing with the relevant head of damage until the liability is ascertained.

40. In the case before me, the plaintiff has presented its case as to its liability to Trademet, and the defendant has had the opportunity of dealing with it. The plaintiff's liability to Trademet is as clear as it will ever be. There is no point in deferring dealing with this head of damage; I do not think there is any other evidence as to this liability that would help in assessing it.

41. Mr Hung's final point is that the prudent buyer would have bought in immediately after the contract was terminated on 15 July 1994, when the market price was US$4,700, or even earlier, instead of waiting until 7 September 1994, when the price was US$5,350.

42. The evidence is that Trademet wrote to the plaintiff on 19 July 1994 saying that it insisted on timely delivery failing which it would "cover in against you on the spot market" and debit the plaintiff with the price difference. On 22 July 1994, the plaintiff explained its difficulties to Trademet. On 1 September 1994, Trademet wrote, referring to the plaintiff's fax of 22 July and various telephone conversation, and said if the plaintiff did not deliver the balance of 85 tons during the first half of September 1994 "at the very latest" they would debit the plaintiff for the difference between the contract price and the market price of US$5,400 a tonne in warehouse Rotterdam. On 7 September 1994, Trademet wrote to the plaintiff saying it "had covered in against you 85 tons at USDollars 5,400/mt". On 15 September 1994, Trademet sent to the plaintiff a debit note in the sum of US$259,250.

43. I agree with Mr Hung that the plaintiff should have bought in to supply Trademet as soon as reasonably possible after it accepted the defendant's repudiation on 15 July 1994. This, in my view, is what a reasonable person would have done. Between 15 and 18 July 1994, the market price for antimony was in the region of US$4,700 a tonne. I have already held that the plaintiff was not entitled to receive more than an additional 75 tonnes from the defendant. Accordingly, the extent of the plaintiff's damages on its contract with Trademet that is attributable to the defendant's breach of contract is-

          (US$4,700 - US$2,350)=US$2,350 x 75=US$176,250.

44. Accordingly, I grant an indemnity in favour of the plaintiff in the sum of US$176,250. This sum should be paid by the defendant to the plaintiff on satisfactory proof that it has been paid to Trademet.

Interest

45. I have not heard any argument on the matter of interest. In the absence of agreement, I will hear the parties on this.

The Costs

46. I know of no factor that would militate against costs following the event. Accordingly, I make an order nisi that the defendant pay the plaintiff's costs.