ARTSCO PRODUCTION (a firm) v. FAR EAST TRADING CO. (a firm)

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JUDGMENT

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Roberts, C.J. -

1. This is an appeal by the defendant from a judgment of Deputy Judge Saied dated 14th February, this year, in which he ordered that the defendant should pay to the plaintiff, the sum of $42,768.00, with interest at 8% from the date of the writ until the delivery of judgment.

2. There is also across-appeal by the respondent, the plaintiff in the action, who claims that the judge was wrong in not awarding to him a further $4,276.00 under a clause of the main contract between the parties dealing with what is therein described as "loss".

3. In the pleadings, the plaintiff's claim was based on a contract dated 6th March, 1982, by which the defendant agreed to pay to the plaintiff a "service fee" of $2 for each radio set supplied to Reynolds Tobacco Co. (H.K.) Ltd. ("Reynolds") by the Skilful Screen Printing Company Ltd. ("Skilful"). The plaintiff claimed to be entitled to $42,768.00, which amounted to $2 for each of the 21,384 radio sets which he arranged with Skilful should be supplied to Reynolds.

4. In February 1982, the defendant, Mr. Stanley Wong, sole proprietor of the firm was discussing the sale of advertising space in a newspaper with Reynolds. The marketing manager of that company told him that Reynolds were interested in obtaining portable radios, with earphones attached, as part of a promotion compaign for Camel cigarettes. The marketing manager of Reynolds indicated to Mr. Wong that they wanted a Walkaman type of radio and would probably require between 20,000 and 30,000 of them.

5. Mr. Wong then approached Mr. LI Kar-man, sole proprietor of the plaintiff firm, and suggested to him that they should work together, with Mr. Wong trying to find a factory which would manufacture the kind of radio for which Reynolds were looking. Mr. Wong agreed to do this and during February 1982, approached Skilful from which he obtained a number of sample radios with headsets and quotations, which he passed on to Mr. Li.

6. On 6th March, 1982, Mr. Li, on behalf of the plaintiff, prepared two contracts, one between himself and Skilful and the other between himself and the defendant. That contract was headed "HIRE CONTRACT" and it reads as follows -

7. It is not disputed that on 8th March, Reynolds issued three purchase orders to the defendant for the supply of 25,000 radio sets. In the purchase orders, the goods ordered were described as "Model SAFS-107" with "E5" headphones. In due course, 23,064 of these sets were supplied to Reynolds through the defendant. Who was duly paid for them by Reynolds. The defendant made his profit on the transaction by his resale to Reynolds, at a higher price than "that which he himself had to pay, of the radios bought by him from Skilful.

8. The judge identified three main issues as arising in the case before him. First of all, did the hire contract of 6th March between the plaintiff and the defendant refer to model SFS-107 or to model SAFS-107 and was there any difference between the two. Secondly, were the earphone models S-2 and E5 the same. Thirdly, whether it was agreed  that extra charges incurred in the production of the goods were to be borne equally between the parties and whether those charges have been paid by the plaintiff.

9. The judge found, on the first issue, that the hire contract between the parties related to the radio model SAFS-107, which was not different from model SFS-107. This issue arose because the primary argument advanced, both at the trial and before us, by the defendant was that the hire contract entered into between the parties on 6th March required the payment by himself to the plaintiff of $2 per radio set only if a number of conditions were first satisfied.

10. These were, he argued, firstly that the radios supplied should be model SFS-107, as the contract states; secondly, that attached to each radio should be a headphone, model S-2, again as the contract states, and, thirdly, that the contract would only come into effect, according to the remarks column at the bottom of it, when the defendant received a purchase order and letter of credit from Reynolds.

11. He conceded that a purchase order and letter of credit were received by the defendant from Reynolds but, he said, they both referred not to model SFS-107 and headphone S-2, but to model SAFS-107 and headphone model E5. Consequently, he argued, the plaintiff had not satisfied the conditions upon which he was entitled to be paid and this was why he, the defendant, had not paid him any service fee.

12. We have little difficulty in agreeing with the judge's finding that the reference in the contract to model SFS-107 was a mistaken reference to SAFS-107. Examination of the various documents surrounding that contract makes it clear, that all parties understood that what they were dealing with was a model radio SAFS-107. This number appears in the plaintiff's quotation sent to the defendant on 1st March, in the purchase orders issued by Reynolds on 8th March, and in the purchase order sent by the defendant to Skilful on 10th March. The sample supplied to Reynolds by the defendant was SAFS-107.

13. There remains, however, the question of the earphones. Although at an early stage in the negotiations it seems to have been contemplated that a earphone model S-2 would be incorporated in each set, this intention disappeared on 8th March, after it had come to the attention of Reynolds that there was a danger that the copyright of Sony in earphone S-2 might be infringed.

14. Reynolds told Mr. Wong on 8th March that, in consequence, the headphone must be changed. Mr. Wong informed Mr. Li, who asked him to make the necessary arrangements with Skilful for a replacement of S-2 with another model of headphone which was described in all future documents as model E-5.

15. The original arrangements between Skilful and the defendant were set up by the plaintiff. The variation of the headphone model was arranged by the plaintiff after he had been informed that S-2 was not acceptable to Reynolds. He therefore, on the face of it, had performed the services which should have entitled him to be paid under the service agreement of 6th March.

16. As I have said, the defence simply is that, on the narrowest possible interpretation of that agreement, the plaintiff was not entitled to anything.

17. The evidence, in our view, has disclosed a latent ambiguity in the hire contract of 6th March, such as would entitle a judge, to examine the surrounding circumstances in an attempt to discover the true meaning and intent of the contract entered into by the parties.

18. The first paragraph of the hire contract makes assertions which were untrue on 6th March, the date on which it was drawn, in that it asserts that there was a bargain that Reynolds should order 25,000 sets of SFS-107 with headphone model S-2, whereas all parties realized at all times that the contract was for the supply to Reynolds of SAFS-107. This conclusion is further strengthened by the evidence of Miss Chan, the executive secretary of Skilful, who can therefore be said to be an independent witness, to the effect that the correct model number for the radio Walkaman supplied by Skilful was SAFS-107 and that, so far as she was concerned, SFS-107 was exactly the same set by another number.

19. The final paragraph of the hire contract contains provision that the contract should only be valid when a purchase order was received from Reynolds by the defendant. That occurred on 8th March at a time when, as the purchase order itself evinces, it was intended by Reynolds and all parties that the E-5 headphone should be supplied, and not the S-2.

20. In order to ascertain the real intention of the parties, therefore, it is necessary to look at the middle paragraph which sets out what was clearly intended. That is to say, that the plaintiff should be entitled to $2 for each radio set with headphone which was supplied to Reynolds by the defendant, after manufacture by Skilful.

21. There were, as I have said, 23,064 of these sets but the plaintiff's claim was limited to 21,384 the final invoice for 1,680 sets not being, for some reason of which we are unaware, included in it.

22. We are therefore satisfied that the plaintiff did satisfy the terms of the hire contract of 6th March and that he was entitled to be paid the amount which he has claimed for the radio sets which were supplied to Reynolds by the defendant.

23. There is a cross-appeal for $4,276, claimed by the plaintiff under a clause of the service contract which reads as follows -

"By return, Artsco Production (that is to say the plaintiff) will share any lost (sic) caused by this bargain with Far East Trading Company equally."

24. The judge examined the meaning of this paragraph with care. He quoted a law dictionary which described the word "loss" as "a generic and relative term, signifying an act of losing or the thing lost; it is not a word of limited, hard and fast meaning and has been held synonymous with or equivalent to 'damage', 'damages', 'deprivation', 'detriment', 'injury' and 'privation'." He concluded -

"In the context of the contract and the language in which it is expressed in the sentence, I do not construe the extra charges now being claimed as falling within any of these meanings, and clearly they do not relate to the performance of the obligations of the plaintiff."

25. We agree that, in the context of this contract and of its surrounding circumstances, the word 'loss' ought not to be regarded as synonymous with expenses but should be given the more limited meaning which the trial judge attributed to it. It is, in any event, difficult to see how it could be said that an adjustment of the price which the plaintiff had to pay to Skilful for additional expenses incurred in the fulfilment of his contract with Skilful could be said to be a loss caused by the service contract between the plaintiff and the defendant.

26. We dismiss the cross-appeal.

27. The plaintiff should have the costs of the appeal and the defendant the costs of the cross-appeal.