GOLDEN FABRIC LTD. v. HIGH FASHION GARMENT CO. LTD.

HCSA23/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO.23 OF 2000

(ON APPEAL FROM SCTC NO.5828 OF 2000)

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D E C I S I O N

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1. This is an appeal by the defendant against the award made by the Deputy Adjudicator of the Small Claims Tribunal on 17 July 2000 whereby it was adjudged that the defendant pays the claimant $35,184.65 together with interest and costs. Leave to appeal was granted on 17 January 2001.

Background

2. By a sales contract no.GF99015 dated 7 September 1999 ("the Contract"), the claimant agreed to sell and the defendant agreed to buy 1,000 yards of fabric, of which 500 yards was to be in navy colour with the colour of the remaining 500 yards to be advised. The Contract provides, inter alia, that :

"UNIT PRICE	:	USD4.74/Y CIF HK BY SEA
...
PAYMENT	:	C.O.D. (EXCHANGE RATE @7.75)."

3. On 10 December 1999, 85 yards of navy colour fabric was delivered to the defendant by courier. On 12 December 1999, another 440 yards of navy colour fabric arrived in Hong Kong from Taiwan. The Deputy Adjudicator found as a fact that a Mr Vincent Leung ("Mr Leung") of the claimant had enquired with a Miss Eppice Choi ("Miss Choi") of the defendant as to the need of delivering the fabric to the defendant and he was told that the defendant would take delivery from the storage house. Miss Choi also informed Mr Leung that the cheque for payment was not ready. Eventually on 21 December 1999, Miss Choi informed Mr Leung that the cheque was ready. So on 22 December 1999, Mr Leung went to the defendant, bringing with him the delivery order for obtaining the fabric from the storage house and also an invoice no.GF-082/99 covering the price for the 85 and 440 yards of navy colour fabric and the courier charges for the 85 yards of navy colour fabric. Miss Choi refused to accept the delivery order and to let him have the cheque for payment. Miss Choi insisted that the cheque would only be handed over when the fabric was physically delivered to the defendant. There were arguments between them but no solution was reached.

4. In the meantime, the claimant had also purchased 615 yards of grége or undyed fabric. It was stored in the Taiwan factory awaiting confirmation and instruction for dyeing. The Deputy Adjudicator found as a fact that the parties had agreed that the price for this quantity of fabric would be paid first. An invoice no.GF-083/99 dated 4 December 1999 covering this 615 yards of grége fabric was issued by the defendant.

5. On 23 December 1999, the claimant sent a fax to the defendant. The claimant indicated in it that it would deliver the 440 yards of navy colour fabric in exchange for the cheque for payment, and sought confirmations as to the time and place for effecting delivery. The parties were in disagreement as to whether the claimant had asked in this fax for the cheque to be given in advance or simultaneously with the actual delivery of the goods. The Deputy Adjudicator accepted the evidence of Mr Leung and found that the meaning conveyed by the fax is that the cheque was to be handed over at the same time when the goods were delivered to the defendant.

6. On the same day, the defendant wrote by fax indicating that the Contract was cancelled and the defendant would pay for the 85 yards of navy colour fabric already received. On 24 December 1999, the claimant replied by fax, refusing to accept the cancellation. It also asserted that since the Contract was inseverable, the 85 yards of navy colour fabric had to be returned if the Contract was to be cancelled. The defendant was not in a position to return the 85 yards of navy colour fabric because it had already but cut up.

7. The claimant therefore instituted proceedings in the Small Claims Tribunal, claiming the sum of $35,184.65, which is made up as follows :

(1)	Price for 85 and 440 yards of navy colour fabric($19,285.90) and courier charges for the delivery of the 85 yards of navy colour fabric ($550)	$19,835.90
(2)	Price for 615 yards of grége fabric	$14,298.75
(3)	Storage charges for 440 yards of navy colour fabric	$1,050.00
		$35,184.65

8. The defendant does not dispute liability for the 85 yards of navy colour fabric. As to the rest of the claim, the defendant contends that under the Contract, payment was only to be tendered upon actual delivery of the goods. Accordingly the claimant was in repudiatory breach in insisting on delivery of the delivery order and/or requiring the cheque for payment to be given before the actual delivery of the goods. The defendant further argues that the Contract was for the sale of dyed fabric and not grége fabric. It says that it had given instruction for the grége fabric to be dyed in army green colour with delivery to be made on 5 January 2000, but the claimant had failed to provide the lab-dip sample for the colour of the fabric. The claimant on the other hand asserts that it was the defendant who had failed to confirm the colour sample so that the Contract could not be proceeded with in the meantime. At any rate, the claimant says that the parties had come to agreement that the price for the grége cloth was to be paid first.

The Decision of the Deputy Adjudicator

9. The Deputy Adjudicator found that the Contract does not permit partial acceptance, and that the claimant was ready and able to perform the Contract. She held that the claimant was entitled to enforce the sale of the contracted quantity of fabric in its entirety as one contract.

10. The Deputy Adjudicator further found that after the fabric arrived in Hong Kong and until 21 December 1999, the defendant was not ready to tender payment in that Miss Choi was unable to obtain her boss' signature to the cheque. She also found that the defendant, through Miss Choi, had agreed to bear the storage charges for the 440 yards of navy colour fabric. She considered that she needed not adjudicate on the meaning of the payment term "C.O.D.", though she tended to accept that it did not exclude payment on symbolic delivery of the goods. She found that the defendant was merely using the "C.O.D." term as a pretext for not tendering payment and for not taking delivery.

11. In relation to the grége fabric, the Deputy Adjudicator found that the defendant had agreed to pay for it before it was shipped to Hong Kong. She considered that the defendant had wrongfully repudiated the Contract by refusing to accept the delivery order and to tender the cheque for payment, such that the claimant was discharged from further performance under the Contract.

12. The Deputy Adjudicator concluded that the claim was proved and she awarded the claim in full. She further noted in her written reasons that, after she had delivered orally her reasons for the award, Mr Leung confirmed that the defendant would upon receipt of payment allow the defendant to take delivery of the fabric. She therefore gave consequential directions to the effect that upon payment of the award and subject to clearance of storage charges, the defendant should be allowed to take delivery of the fabric within a reasonable period.

The Appeal

13. The Amended Application for Leave to Appeal contains a number of grounds. At the hearing of the appeal, however, the arguments were principally directed to two matters, namely,

(1) The Deputy Adjudicator's failure to adjudicate on the meaning of the "C.O.D" payment term, and the proper meaning to be attached to the term, and

(2) the amount of the award.

I shall deal with them in turn.

C.O.D. payment term

14. It is common ground that one of the fundamental issues that the Deputy Adjudicator had to adjudicate at the trial is whether the defendant is entitled to reject the delivery order and insist on actual delivery of the fabric before handing over the cheque for payment. The Deputy Adjudicator had also identified this as one of the issues to be tried in her written reasons for decision. It is therefore incumbent upon the Tribunal to determine what is the claimant's duty under the Contract as to delivery of the goods. This in turn necessitates a determination on what the payment term of "C.O.D." connotes. The Deputy Adjudicator therefore ran into error when she held that "it was a question of fact and the credibility of the witness" that she had to adjudicate upon and that she needed not decide on the meaning of "C.O.D.". The Deputy Adjudicator's finding that the defendant was using the "C.O.D." payment term as an excuse for not giving the cheque for payment is insufficient to dispose of the issue. If the defendant is in law entitled to have the goods physically delivered to it, then it is entitled to treat the claimant's failure to effect actual delivery of the fabric as a repudiation, irrespective of whether the defendant was looking for an excuse to exonerate itself from the payment obligation.

15. What then does the term "C.O.D." mean? It is common ground that it is an abbreviation for "cash on delivery". What the parties are in disagreement is whether delivery means actual delivery of goods or whether delivery of the documents to the goods suffices. The Deputy Adjudicator had found as a fact that the parties had not discussed or agreed between themselves as to the precise meaning of the term. It is therefore a question of construction to be placed upon the term.

16. The term "cash on delivery" in its plain and ordinary mean is capable of meaning actual physical delivery as well as symbolic constructive delivery. Mr Wong who appears for the defendant has referred me to Black's Law Dictionary (7th edition), p.250, which gives the meaning of "C.O.D." or "cash on delivery" as "collect on delivery. By consenting to this delivery term, the buyer agrees to pay simultaneously with delivery...". It does not restrict delivery to actual delivery of the physical goods. Mr Wong has not referred to any authority which suggests that under the "C.O.D." term, delivery can only take the form of actual physical delivery.

17. Mr Wong however argues that in the present case, delivery must mean actual delivery. Two matters are relied upon. Firstly, it is pointed out that previously the 85 yards of navy colour fabric was physically delivered by courier to the defendant. Secondly, the claimant, in its fax of 23 December 1999, had agreed to deliver the fabric physically.

18. In his skeleton submissions, Mr Wong observed further that delivery of documents is only applicable to a C.I.F. contract, but the Contract is not a C.I.F. contract. This line of argument was not developed during counsel's oral submissions. Plainly the Contract stipulates that the price is "C.I.F. HK by sea". What was sought to be argued is that the term C.I.F. only governs the calculation of the price but that the payment obligation is solely governed by the term "C.O.D." which must mean cash on actual delivery. I am unable to accept this argument.

19. The essential feature of a C.I.F. contract is that delivery is satisfied by delivery of documents and not by actual delivery of the goods. The seller's duty under a C.I.F. contract is to deliver the customary documents and the buyer cannot refuse the documents and ask for the actual goods : Manbre Saccharine Co. Ltd v. Corn Products Co. Ltd [1919] 1 KB 198, 202. Indeed, it is often said that a contract for the sale of goods C.I.F. is a contract for the sale of documents : Sasson C.I.F. and F.O.B. Contracts (4th edition), pp.29-30. The property in the goods passes by delivery of the documents against which payment is made. The buyer is bound to pay for the price, irrespective of whether the goods has arrived : Comptoit d'Achat et de Vente du Boerenbond Belge S.A. v. Luis de Ridder Limitada (The Sulia) [1949] AC 293, 312. Accordingly, unless there is some other stipulation in the contract, a buyer under a C.I.F. contract is obliged to pay the price against the delivery of documents : see also C. Sharpe & Co. v. Nosawa & Co. [1917] 2 KB 814, per Atkin J at 818-9.

20. In the present case, there is nothing to suggest that the Contract is in truth and in fact not a C.I.F. contract. On the contrary, both the oral and documentary evidence show that the freight was to be borne by the defendant buyer : see for example the claimant's fax dated 3 December 1999. The only question is whether the payment term of "C.O.D." alters the effect of the C.I.F. term as to delivery. Mr Wong submits that the payment term of C.O.D. is incompatible with a C.I.F. term, but he has not referred to any authority to support the proposition. The case of Biddell Brothers v. E. Clemens Horst Company [1911] 1 KB 934 referred to by Mr Wong is dealing with the time for effecting payment under a C.I.F. contract. The judgment of Vaughan Williams LJ at p.943 has to be read in the context of the issue which the English Court of Appeal was called upon to decide. The passage is therefore of no assistance to the defendant.

21. I accept as a starting point that not every contract of sale which is expressed to be C.I.F. is strictly a C.I.F. contract and where the contract terms conflict with the C.I.F. terms, then the express terms prevail and the contract may not be treated as a C.I.F. contract. In this case, the Contract was the first dealing between the parties. The provision for C.O.D. is intended to safeguard their positions. This is the effect of the evidence of Mr Leung and Miss Choi at the trial. Mr Leung in his submissions before this court also acknowledges this when he said that the idea was to effect payment upon arrival of the goods. The objective is to postpone the time of payment until after the goods were shipped to and had arrived in Hong Kong. The evidence of Mr Leung and Miss Choi at the trial does not show the parties had intended or agreed that the risk of the goods would not pass at shipment, but would only pass after the goods had been delivered to Hong Kong and/or to the defendant. Consequently, the payment term of "C.O.D." is not repugnant to a C.I.F. contract : see The Julia, per Lord Porter at p.309. The Contract being a C.I.F. contract, the claimant is only obliged to deliver the documents to the fabric and not the actual delivery of the physical goods.

22. The defendant argues that it is not good delivery for the claimant to hand over a delivery order, which is not a document of title. I accept that in the normal course of events, the documents to be delivered by a seller under a C.I.F. contract involve a bill of lading, an insurance policy and an invoice. However, recent authorities do acknowledge that in modern times, a delivery order suffices. In The Julia at p.309, Lord Porter observed that the strict form of C.I.F. contract may be modified so that a delivery order may be substituted for a bill of lading or a certificate of insurance for a policy. This argument of the defendant is thus unsustainable.

23. The fact that 85 yards of navy colour fabric was physically delivered to the defendant does not afford any support for the argument that the term "C.O.D." only contemplates actual delivery. The evidence shows that this previous delivery was a special arrangement and represented a departure from the parties' contractual obligations. The 85 yards of fabric was delivered to Hong Kong not by sea but by courier. Secondly, although it was physically handed to the defendant, no payment was effected against actual delivery. The delivery of the 85 yards of fabric therefore in no way reflects the parties' intention or agreement that payment was against actual delivery of the fabric.

24. As to the claimant's fax of 23 December 1999, the evidence of Mr Leung, which was accepted by the Deputy Adjudicator, is that the claimant was making a concession in the fax by offering to effect physical delivery of the fabric and in the hope that the differences between the parties can be resolved. The fax cannot be taken as supportive of the argument that delivery must mean actual delivery.

25. For the reasons aforesaid, I hold that the term "C.O.D." does not require actual delivery. The claimant is only bound to delivery the usual documents whereupon the defendant is obliged to tender payment. The Deputy Adjudicator's holding that the defendant was in breach of the Contract by refusing to accept the delivery order and to hand over the cheque is therefore correct, albeit for different reasons.

The amount of the award

26. Having found that the defendant was in breach of the Contract and on accepting the evidence of Mr Leung in relation to the grége fabric in Taiwan, the Deputy Adjudicator went on to conclude that the claimant had proved its claim and make an award as claimed. Mr Wong submits that the Deputy Adjudicator erred in ordering the defendant to pay the full price of the goods without assessing the damages actually suffered by the claimant.

27. In dealing with this ground of appeal, it is helpful to remind oneself of the basis of the claim. So far as the 85 yards of fabric delivered, the cause of action is for the price of the goods sold and delivered. In respect of the 440 yards of fabric shipped to Hong Kong and the grége fabric, the claim must be for damages for breach of contract. The breach consists of the defendant's failure to take delivery by accepting the delivery order. There cannot be a claim for the price of goods sold and delivered in that the delivery order and the 440 yards of fabric remained with the claimant up to the trial. The grége cloth also remained in storage in Taiwan. The claim for the storage charges for the 440 yards of fabric is part of the claim for damages for breach of contract. In claiming for damages for breach of contract, the claimant is under a duty to mitigate its loss by, for instance, reselling the fabric in the market.

28. In awarding the claimant the full price for 440 yards of navy colour fabric and for the grége cloth, the Deputy Adjudicator had given no indication as to the basis for so deciding. It also does not appear that consideration had been given to whether the contract price is an appropriate reflection of the amount of damages suffered by the claimant. The transcript of the trial also shows that no enquiry had been made into the loss and damages actually suffered by the claimant, other than the storage charges which forms part of the claim.

29. In my judgment, the award of the full price of the 440 yards of navy colour fabric and the grége fabric cannot be supported by the evidence before the Tribunal. The failure to look into the question of the claimant's actual loss arising from the defendant's failure or refusal to take delivery and to require the claimant to adduce evidence to prove the extent of its loss further amounts to an error in law in that the Deputy Adjudicator had failed to discharge her duty to investigate into a material aspect of the claim. The award is therefore flawed.

30. Mr Leung, who appears for the claimant at the appeal with leave of the Registrar, High Court, says that the fabric was specifically ordered or prepared for the defendant so that there is little or no prospect of reselling it in the market. If this is substantiated, it may well justify awarding the full price of the fabric as damages. But unless and until cogent evidence has been adduced, the Tribunal is just not in a position to assume that the full contract price represents the loss of the claimant.

31. It also follows that the direction made after the delivery of the award, namely, that the defendant be allowed to take delivery of the undelivered fabric within a reasonable time, cannot be sustained. The direction, taken together with the award, will have the effect of ordering a specific performance of the Contract, a relief which, as the Deputy Adjudicator acknowledged, is outside the jurisdiction of the Small Claims Tribunal. At any rate, that does not accord with the basis of the claim.

32. Accordingly, the part of the award representing the full price of the 440 yards of navy colour fabric and the grége fabric has to be set aside. The claim should also be remitted to the Tribunal for a determination of the loss and damages (other than the storage charges for the 440 yards of navy colour fabric) suffered by the claimant as a result of the defendant's breach of the Contract. Similarly, the direction for delivery of the fabric has also to be set aside.

Conclusion

33. For the reasons aforesaid, the appeal is allowed to the extent indicated. On the question of costs, given that the defendant only succeeds partially at the appeal and that the matter has to be remitted to the Tribunal for further determination, I consider that it is appropriate to make no order as to costs. There will be an order nisi to this effect.

34. The order that I make is as follows :

(1) The appeal is allowed to the extent that part of the award in the sum of $30,462.15 is set aside.

(2) The balance of the award in the sum of $4,772.50 together with interest thereon at judgment rate from the date of the award to the date of payment is affirmed.

(3) The claim is remitted to the Small Claims Tribunal for hearing before the same Deputy Adjudicator or, failing which, before another adjudicator for a determination of the claimant's loss and damages (in addition to the storage charges of $1,050), if any, arising from the defendant's breach of the Contract.

(4) The costs order made below to stand.

(5) There be an order nisi that there be no order as to the costs of this appeal. The order nisi to be made absolute upon the expiration of 14 days after the handing down of this decision.