YEU SHING CONSTRUCTION CO LTD v. PIONEER CONCRETE (HK) LTD

IN THE COURT OF APPEAL

1987, No. 36
(Civil)

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Dates of Hearing: 4th & 5th June 1987

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JUDGMENT

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Silke, V.-P.:

1. This is the judgment of the Court.

2. Yeu Shing Construction Company Limited, the Plaintiff/Appellant is a general contractor concerned with building and construction work - "the builders". Pioneer Concrete (U.K.) Limited, the Defendant/Respondent is a supplier of concrete - "the suppliers".

3. On the 24th January 1985, the parties came together in a document entitled "Quotation Acceptance" - the "Quotation". This was the suppliers' document and stated that they, in response to the request of the builders and on the terms and conditions in the Standard Conditions of Sale, were pleased to submit quotations for supply and delivery of concrete for the builders' consideration. The quantity of the concrete was set out as 90,000 cubic meters. The grade was identified, as was the price per cubic meter. Immediately under those details appeared in typescript "(Subject to tender awarded)". There then appeared a statement to the effect that the quotation was made subject to the Standard Conditions of Sale and, to signify their acceptance of the quotation, the builders were required to sign in the space provided on an attached copy and to return the quotation so signed within the validity period of Clause 2(A) of the Conditions of Sale. There then appeared this statement:

"Upon receipt from you of this Quotation signed as aforesaid this Quotation and the terms and conditions printed overleaf will constitute the contract between us."

The builders signed on the 25th January in accordance with those provisions.

4. On the 30th March 1985, the suppliers withdrew from that which they termed "the arrangement". This was treated as a repudiation by the builders. They informed the suppliers, on the 4th April 1985, that a preliminary estimate of damages was "not less than HK$500,000." On the 9th April 1985 this amount was revised to be "not less than HK$1,400,000". On the 12th April 1985 they told the that they were forced to take legal action to claim damages. On the 22nd April, they informed the suppliers that they had already been awarded the contract, which was referenced as the "Job" in the Quotation.

5. The builders issued their writ on the 25th July 1985. On the 13th August, the supplier filed an acknowledgement of service and indicated upon it that they did not intend to defend. On the 25th September interlocutory judgment was applied for under the provisions of O.13 r.2. It was entered and a copy was served upon the suppliers. Damages were to be assessed.

6. The next step was that on the 13th June 1986 a notice was served upon the suppliers of a change of solicitors representing the builders with an intimation that the builders were going to proceed to assessment unless a further reassessment of damages, details of which were given, amounting to $4,940,761.77 was paid.

7. On the 28th June, the suppliers filed a Summon for hearing before the Master under O.13 r.9, to set aside the default judgment. On the 13th November, Master Perrior refused to set aside. At that time, there was before him a consequential summons to amend the acknowledgment of service to delete the non-intention to defend and replace it with the opposite. That application was also refused.

8. On the 19th November, the suppliers filed a Notice of Appeal and that appeal was heard by Sears J. on the 26th March 1987. The learned judge set aside the judgment and gave certain consequential directions.

9. We have before us the Reasons for Order given some time after his order was made by Sears J. although it appears from the body of another Ruling, which is not for our consideration, that he gave a very short judgment at the time. The parties do not appear to have observed the provisions of O.59 or the alternative requirement of paragraph 3 of the Practice Direction dated 1st June 1983 in that no agreed note of the Judge's Reasons was prepared by counsel for the judge's approval but, as both parties are prepared to proceed upon the later Reasons, nothing now turns upon this.

10. Before Sears J. there was an affidavit, in full and frank terms, from the solicitors representing the suppliers setting out the suggested merits of the application and the history as to why a "no defence" acknowledgment was filed. It is clear that while the suppliers were not prepared to go to the trouble of contesting damages in the region of $1.4 million, they were given cause to concentrate their minds when the 13th June 1986 reassessment was given them. The increase, as explained by a Director of the builders in an affirmation filed on the 21st September 1986, stemmed from a rapid and unexpected increase in the price of concrete and the necessity for the builders to obtain their supplies from other firms in order to complete their own contract.

11. The affidavit of merits to which we have made reference suggested two lines of defence as being open to the suppliers. The first relies on Clause 9(A) of the Standard Conditions of Sale, to which, it was accepted, not sufficient attention was paid at the time of the filing of the acknowledgment of service; the second was a further defence said to be available to the suppliers under Clause 9 (B). It is necessary to consider the full effect of Clause 9, in a moment.

12. At the hearing before Sears J., further argument was advanced by counsel then appearing for the suppliers which went, as the judge put it, “somewhat outside the scope” of the affidavit of merits.

13. The first point was that there was no consideration moving from the builders to support the contract; the second, that this being an unilateral contract, the suppliers were entitled to withdraw from its performance before any act of part performance had occurred; there was none here.

14. The trial judge felt that it was open to doubt whether there was any consideration and that it was clearly arguable as to whether or not the suppliers were entitled to withdraw from performing the contract. He was satisfied that there were arguable points of law and that he should exercise his discretion to set aside the judgment. Although asked by counsel then appearing for the builders to make a decision on them at the hearing, and on affidavit evidence, he felt that it would be wrong to accede to that request.

15. We have been addressed by both Miss Li for the builders and Mr. Bunting for the suppliers - neither of whom appeared below - on the principles applicable in the setting aside of a regular default judgment, which this is. We do not think it necessary to go into those submissions in detail. The line of authority starting with Evans v. Bartlam(1), considered and repeated in Alpine Bulk Transport Co. Inc. v. Saudi Eagle Shipping Co. Ltd.(2) may be, I hope without disrespect to the learned Law Lords in Evans v. Bartlam⁽¹⁾ and Lord Justices in Saudi Eagle Shipping⁽²⁾, encapsulated as being that there must be an arguable case which has merits and which ought to be tried, there being implied in that test, which goes further than the test applicable to O.14 proceedings, a reasonable prospect of success.

16. The remedy is discretionary and it is incumbent upon a judge deciding an O.13 r.9 application to consider the reason why default judgment was entered in the first place, any delay that there may have been in applying to set it aside and prejudice, if any, that might exist. These were matters clearly in the mind of the trial judge here when he came to the exercise of his discretion.

17. It is Miss Li's contention that the trial judge erred in law in the exercise of that discretion and therefore, exercised it wrongly. She contends that here was a valid binding contract. That there was consideration. She based these contentions on the wording of the Quotation and its embodied Standard Conditions of Sale which she submits is the contractual document and is complete in itself.

18. The trial judge based his decision to set aside the default judgment on the contractual issue. He did not, therefore, find it necessary to go on to consider the Clause 9 issue raised in the solicitor's affidavit. In respect of that we are, Mr. Bunting has submitted, dealing with it de novo. Miss Li argues that this being a valid contract, it is not one in which a fundamental breach of condition can absolve the party committing that breach from liability in damages. To permit the breaching party so to act would effectively nullify the contract itself which she says cannot be right.

19. Both counsel accept that there is no rule of law that a clause such as Clause 9(A) cannot be construed to cover a breach of a fundamental term. But Miss Li goes on that such a clause must be construed "contra proferentem" and that for it to exempt the breaching party from liability for consequences of such a breach, it must be so expressed in clear and, unambiguous terms. (Suisse Atlantique S.A. v. N.V. Rotterdamsche(3) and Photo Production Ltd. v. Securicor Transort Ltd.(4))

20. Dealing first with the contractual issue.

21. The Quotation Acceptance document, which came into being because of the builders' contract, referred to as the "Job" in the Quotation, for Lei Tung Estate Phase 2 at Ap Lei Chau, states on its face that it constitutes a contract as between the parties given that certain pre-conditions are fulfilled. They were, as we have already indicated. Clauses of substance of the Standard Conditions of Sale, which are embodied in the contract document, are first Clause 3(A) which reads:

"3(A) This quotation is given subject to these Conditions of Sale which shall override and exclude any other terms stipulated or incorporated or referred to by the Buyers whether by endorsement or by covering letter purporting to modify or exclude any of these Conditions of Sale. These Conditions of Sale shall override and exclude any statements, terms and conditions made in any negotiations leading to the submission of that quotation or previously established by any course of dealing between the Company and Buyer. After acceptance of this quotation all requests for and deliveries of concrete pursuant to the contract shall be deemed to be made subject to these Conditions of Sale." (Emphasis Supplied)

22. Then comes Clause 5 which contains an escalation clause.

23. Clause 9 concerns delivery instructions and those are matters lying directly for our consideration both on the contractual aspect and as to the point with which we are dealing de novo.

24. It reads:

"DELIVERY INSTRUCTIONS

(A)    Forty eight (48) hours notice is required for delivery. Orders placed are accepted subject to prior orders and availability of materials, and all delivery dates are estimates only and the time of delivery shall not be of the essence of the contract.

In no circumstances shall the Company be liable to compensate the Buyer in damages or otherwise for non-delivery or late delivery of the concrete for whatever reason or for any loss consequential or otherwise arising therefrom.

(B)    The Company shall be under no obligation to supply the concrete ordered if its production has been disrupted by virtue of inclement weather, labour disputes, shortage of materials or labour strikes, machine breakdowns, transport delays, riots, Acts of God or other factors which shall have arisen through circumstances beyond the control of the Company.

(C)    Should the Company be prevented from delivering part of the concrete ordered by reason of any of the causes specified in the preceding sub-clause, the Company shall deliver and the Buyer shall take and pay for such part of the concrete as the Company shall be able to deliver in accordance with the contract."

25. The next relevant clause is Clause 15, it reads:

"CANCELLATION OF ORDERS

In the event of orders being placed and then cancelled the Buyer will pay to the Company all cost incurred by the Company up to the time of cancellation and the Company's certificate of these costs shall be conclusive and binding on the Buyer."

26. Clause 16,which we view as being of considerable importance reads:

"CANCELLATION OF CONTRACT

The Buyer may not cancel the contract without the written consent of the Company which if given shall be deemed to be on the express condition that the Buyer shall indemnify the Company against all loss, damage, claims or actions arising out of such cancellation unless otherwise waived in writing by the Company.”

27. There was before the trial judge the affirmation of Mr. Ho Ming Ming, a Director of the builders. In its paragraph 3, Mr. Ho described the normal practice in the construction industry when a construction company requires concrete. He stated that what happened was that the supplier and the buyer would enter into a contract for the supply and delivery of concrete for a named construction project with agreement on the unit prices for the various grades of concrete to be supplied. When the concrete is required the site agent, or someone of similar status, will contact the supplier and make an oral request for delivery of the amount needed. This is normally made one day in advance of the day of the required delivery. Sometimes there are delays in delivery resulting from bad weather or other matters such as those instanced in Clause 9(8). None of this was controverted.

28. We were initially concerned with the notation on the face of the Quotation "(Subject to tender awarded)". Miss Li has explained this as meaning that in order to complete the contract documents for any construction job which the builders had in view, it was necessary to know the cost of concrete and have the certainty of supply. This is a factor known both to the supplier and to the buyer. She contended, in effect, that the notation was not to be interpreted as a condition precedent to the liability of the parties but as a qualification of the contractual promise of the suppliers to supply and of the builders to take the amount of concrete specified in the Quotation in accordance with the Standard Conditions of Sale. We agree. Mr. Bunting has indicated that he takes no point on this and it is not something therefore which need concern us further.

29. Below reliance was placed on the Great Northern Railway Company v. Witham(5). There the Great Northern Railwlay had advertised for tenders for the supply of stores for a period of twelve months. Witham submitted a tender to supply those stores and for the period named. The tender referred to certain fixed prices and the supply of the stores "in such quantities as the company's store-keeper might order from time to time". Witham's tender was accepted. While he completed some orders. Witham failed to deliver to the Railway other orders of the type of stores required. The Railway had to procure those stores from other persons at prices higher than the ones specified in the tender. Witham sought to excuse himself on the basis that the contract was unilateral, the Railway not being bound to give an order. It was argued that there was no consideration for Witham's promise to supply the goods to the Railway or as Keating J. put it at page 18:

“….. in other words, that, inasmuch as there was no obligation on the company to give an order, there was no consideration moving from the company, and therefore no obligation on the defendant to supply the goods.”

30. The judge went on at page 19:

"If before the order was given the defendant had given notice to the company that he would not perform the agreement. it might be that he would have been justified in so doing. But here the company had given the order, and had consequently done something which amounted to a consideration for the defendant's promise. I see no ground for doubting that the verdict for the plaintiffs ought to stand."

31. Brett J. (as he then was) thought that it would be wrong to countenance the notion that a man who tenders for the supply of goods in this way is not bound to deliver them when an order is given He went on:

“I agree that this judgment does not decide the question whether the defendant might have absolved himself from the further performance of the contract by giving notice.”

32. Here, with respect, we are in a different factual situation for the Quotation Acceptance, on its face, constituted a contract. Although the obligations of the parties were qualified by the notation regarding the tender we agree with Miss Li's contention that there clearly is consideration to constitute a bilateral binding contract. There is benefit to the suppliers, the builders having committed themselves to taking the concrete from them, or there is a detriment to the builders in that they are precluded from going to some cheaper source for their concrete; were they to resile from the contract to that extent, then they would be liable in damages.

33. We take the view that overall the Quotation, once accepted, clearly created a binding bilateral contract which contemplated, in the terms of Clause 3 (A), a succession of "requests for and deliveries" of the concrete “pursuant to the contract”. Each delivery was to be the subject of a separate order under Clause 9, but that clause, which was headed “DELIVERY INSTRUCTI0NS” merely governed the terms of the actual successive deliveries by which the suppliers had contracted to supply the stipulated quantity of concrete. This seems commonsense, for a builder in the course of erecting a building would not want his entire concrete requirement dumped upon him all at the same time.

34. In Witham⁽⁵⁾, the terms of the contract required that each placing of an order was to he treated as a separate contract, the consideration being the placing of the order. We are satisfied here that the terms of the contract comprised in'the Accepted Quotation, part':icularly Clauses 3(A) and 16 do not permit a similar construction:

35. Clause 9 purports to be an exclusion clause. If it truly is, then surely the creation of a binding contract must have been in the contemplation of both parties at the time of the signing of the Quotation by the builders. With great respect to the trial judge, we do not think that the validity of this contract, or the suggested lack of consideration, are issues which have merit or are capable of being argued and tried.

36. What is the effect of Clause 9(A)? Can it exclude the suppliers' liability for damages caused by their total renunciation of the contract? The basic issue in our judgment is: does this clause relate to the whole of the contract or simply to the failure of the supplier to deliver a particular order.

37. In construing Clause 9, one must view it in the context of the full document and this includes Clause 15 which clearly contemplates cancellation of an order and Clause 16 which, with equal clarity, deals with cancellation of the whole contract.

38. 9(A) requires a specific period .of notice of the requirement for delivery of an order placed and ensures that time of delivery shall not be the essence of the contract.

39. 9(B) contemplates matters arising which are beyond the control of the company as being disruptive of that delivery on order.

40. 9(C) contemplates a part delivery of an order by the supplier and again gives all the appearance of relating to a single order.

41. If that construction be correct, and we think it is, the provision in Clause 9(A) that:

“In circumstances shall the Company be liable to compensate the Buyer in damages or otherwise for non-delivery or late delivery of the concrete for whatever reason or for any loss consequential or otherwise arising therefrom.”

contemplates the non-delivery or late delivery of individual orders placed. It may be that, if the suppliers persisted in non-delivery of placed orders, the builders could claim in damages but that is not a matter for our contemplation here.

42. Mr. Bunting, in addition to submitting that Clause 9 goes to the root of the whole contract, submitted initially that, if he be wrong, then any damages arising from the suppliers' repudiation of the contract could only be nominal because assessment of damages would have to be on the basis that the suppliers had made known their intention not to comply with orders for delivery and to invoke the Clause 9 exemption. This, he submitted, was a matter for consideration by the judge in the proceeding to set aside the default judgment and is not a matter which should be allowed to go to the Master. We understood him to withdraw that submission later in the hearing of the appeal. However we make it clear that we do not agree it.

43. Here there has been a total renunciation of the contract by the suppliers. True it is a form of "on request" contract but if a supplier declares his unwillingness to supply future orders under that form of contract he will be in breach, see Leeson v. North British Oil and Candle Company(6). If that be so, then there is a total renunciation of an existing contractual duty so that liability in damages arises and Clause 9 does not permit its avoidance, nor does it preclude assessment of damages on a commercial basis. Such damages would be required to be assessed on the footing that, but for the suppliers repudiation, the contract would probably have been fully performed. In that event the suppliers might have invoked Clause 9(A) in relation to specific orders for delivery but, as Miss Li put it in argument, the Master has to accept the likelihood of particular orders not being met with the equal likelihood of such orders being renewed and being fulfilled.

44. We accept that both the issues here are points of law and we accept that we have come to conclusions that differ, with respect, from those reached by the trial judge but we take comfort from the words of Sir John Megaw in Forestal Mimosa Ltd. v. Oriental Credit Ltd.(7) at p. 636 where he said, having considered that which Kerr L.J. said in S.L. Sethia Liners Ltd. v. State Trading Corporation of India Ltd.(8), at p.1401:

"In my view, it would neither be good law nor good sense that, if each member of this court took a clear and confident view that the issue, though in one sense arguable, ought to be decided in favour of the plaintiffs, they should, nevertheless, dismiss the appeal, leaving the issue of law to be argued at the trial of the action, presumably on the basis that the trial judge would not be influenced in any way by any view of this court, with the prospect of the issue, whichever way it might then be decided by the trial judge, coming again before this court, it may be many months hence."

45. Both of us have formed a clear and confident view. We are indebted to the arguments presented to us by Miss Li and by Mr. Bunting - and in that sense the issues are arguable - but we are firmly of the view that this was a binding contract and that Clause 9 does not present the suppliers with a platform for repudiation without liability.

46. The appeal is allowed and the Master's order is restored.

(1)  [1937] A.C. 473

(2)  [1986] 2 L.L.R. 221

(3)  [1967] A.C. 361

(4)  [1980] A.C. 827

(5)  (1873) 9 C.P. 16

(6)  (1874) Ir. R. 8 C.L. 309

(7)  [1986] 1 W.L.R. 631

(8)  [1985] 1 W.L.R. 1398