XCHRX WIN HANVERKY LTD. v. KEEN POINT INTERNATIONAL LTD.

HCA 17453/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 17453 OF 1999

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J U D G M E N T

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1. This is the Defendant's appeal against the judgment of the Master dated 12 September 2000 whereby final judgment was entered against the Defendant.

2. The Plaintiff brings this action claiming that it was the seller of cloth to the Defendant. The cloth were (1) 180,000 yards of "New Oxford Cloth" at US$2.18 per yard (2) 80,000 yards of "Nylon Honey Comb Cloth" at US$1.42 per yard. The total price was US$506,000. The Plaintiff alleges herein that the Defendant breached the agreement by informing the Plaintiff that the Defendant would not take delivery of the goods after the Plaintiff has instructed its supplier to manufacture the cloth.

3. When the Plaintiff terminated its agreement with its supplier (as a result of the Defendant's alleged breach), the Plaintiff alleges that its supplier has incurred US$74,235. The Plaintiff's supplier demanded the Plaintiff to pay this sum and the Plaintiff eventually made a partial payment of US$34,174.13 to its supplier. The Plaintiff claims against the Defendant in this action the sum of US$74,235 and, further, took out an application under Order 14 Rule l for final judgment in that amount. The learned Master entered final judgment on 12 September 2000 (as stated above) in the sum of US$43,235. I understand from the parties that the judgment sum was arrived at by deducting US$31,000 (the proceeds in the event of a sale of the manufactured cloth to a third party) from US$74,235 (the amount claimed herein).

4. 2 lines of defence are put forward in this appeal (and at the Order 14 hearing before the learned Master). The first line is that no binding agreement has been reached between the parties. The second line is that even if there is no triable defence to the Defendant's liability, there are triable issues as regards quantum.

5. In relation to the first line of defence, in brief, 2 main points are relied upon:

(a) the parties' conduct at the relevant time shows that no binding agreement has been made;

(b) alternatively, any "agreement" reached was uncertain because fundamental terms were missing.

6. As regards point (a) above, it is accepted by the parties that the matter is to be approached objectively. Further, I consider the contemporaneous documents which passed between the Plaintiff and the Defendant to be important to this issue. I also bear in mind that this is an appeal under Order 14 and is therefore not an occasion for conducting a mini-trial.

7. Having examined the contemporaneous documents, I consider the parties' conduct was that they regarded a binding agreement has been reached. As far as the Plaintiff is concerned (rightly or wrongly), it must have thought that it had reached a binding agreement with the Defendant. That must have been the reason why the Plaintiff proceeded to instruct its supplier to commence production of the cloth in question. The Plaintiff would be "right" to do so if the Defendant also intended the arrangement to be binding. It would be "wrong" to do so if (for the purpose of this appeal) there are triable issues as to whether the Defendant also intended the arrangement to be binding.

8. The Defendant argues that the documents from the Plaintiff indicate that the Plaintiff also did not regard the arrangement to be binding: the Plaintiff's faxes respectively dated 4 January 1999 and 5 January 1999 show that the matter was yet to be finalised. The Defendant contends that the use of the words "........ to start production in advance" (underline supplied) in the Plaintiff's fax dated 5 January 1999 to the Defendant means that the Plaintiff also thought that no binding agreement has been reached. When understood in the proper context, these words were used by the Plaintiff only because the date of delivery (and hence the arrangement for production procedure and production period) was not known yet. The lack of an agreed delivery date will be dealt with below. However, I do not consider the words "in advance" or the lack of a delivery date were an indication that the sale was not binding. I reach the same conclusion as regards the Plaintiff's fax dated 4 January 1999 to its supplier.

9. I find that the contemporaneous documents from the Defendant (when considered together with the Plaintiff's documents) show that the Defendant also regarded it has entered into a binding agreement with the Plaintiff.

10. The first 2 documents relating to this are respectively the Defendant's fax to the Plaintiff dated 29 December 1998 and the Plaintiff's fax to the Defendant in response dated 5 January 1999. The Defendant's criticisms of the Plaintiff's said fax have been dealt with above. Further, there was a fax dated 11 February 1999 from the Defendant to the Plaintiff which is important to this issue. The material parts read:

"Re: Starter fall 99' Program
New Oxford & Honey Comb Nylon

We are [sic] regret to inform that due [to] Starter Far East Ltd (Hong Kong Office) will be closed and stop function by latest Feb 28, 99 and then all Starter Far East business would be take-over [sic] by Korea Agent (Boolim Buying Corp).

Under above circumstance, we (Keen Point) may or may not be carry on [sic] the business with Starter due to agent changed [sic], and therefore, please stop any further grey cloth weaving and until our further instruction.

We are sorry for the party like win [Win Hanverky Ltd.] and party in Taiwan, and hoping I can do my best to narrow down the hurt and harm for all parties between us."

11. The important parts of this document are:

(1) "please stop any further grey cloth weaving....... until our further instruction" (underline supplied);

(2) ".......... and hoping I can do my best to narrow down the hurt and harm for all parties [referring to the Plaintiff and its Taiwanese supplier]".

These passages show that the Defendant acknowledged that instructions had already been given to the Plaintiff for weaving work to commence (thus acknowledging that an agreement has been reached) and that weaving work has in fact commenced. The weaving work must have been related to the cloth set out in the Defendant's fax dated 29 December 1998. Further, they show that the Defendant regarded itself to be responsible for any "hurt and harm" of the Plaintiff and its supplier.

12. By reason of the matters aforesaid, I reject the affirmation evidence filed on the Defendant's behalf as being "unbelievable" insofar as it alleges that no binding agreement has been reached between the parties. To avoid any doubt, I have taken into account the Defendant's arguments regarding the "missing" terms (that is the Defendant's point (b) above) in coming to the above conclusions.

13. As regards the Defendant's point (b) above, the Defendant argues that 3 matters were missing:

(1) the time for delivery;

(2) colouring requirements;

(3) other details.

14. As regards (1) above, section 31(2) of the Sale of Goods Ordinance Cap. 26 provides that:

"Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the buyer is bound to send them within a reasonable time,"

Whether the term at (2) above is sufficiently important to render an agreement not binding depends ultimately on the parties' intention (ascertained objectively). I do not find that the parties intended this term to have such an importance in this case. The same conclusion is made as regards "other details".

15. The Defendant complains that the Plaintiff's pleaded case does not support the Order 14 application. I do not agree because the evidence adduced justifies a finding that an agreement in writing was entered into by the parties. The surrounding circumstances (in particular the contemporaneous documents) are nothing more than evidence to enable such a finding to be made. I also do not agree with the Defendant's argument that the Plaintiff's pleading does not permit interlocutory judgment to be entered with damages to be assessed.

16. By reason of the matters stated above, I consider that the learned Master was correct in concluding that there are no triable issues regarding the Defendant's liability. There is also no other reason why there ought otherwise to be a trial of that matter.

17. However, I disagree with the learned Master's decision that final judgment should be entered for US$43,235.00 for the following reasons. In relation to the quantum of damages allegedly suffered, the Plaintiff's case is:

(1) the unit price at which the Plaintiff purchased the cloth from its supplier was said to be US$1.20 per yard. There is however, no contemporaneous document evidencing this;

(2) alternatively, the said unit price of US$1.20 can be regarded as a reasonable sum which the Plaintiff needs to pay to its supplier for the Defendant's breach. Similarly, there is no documentary evidence regarding this;

(3) the fair market price for the sale of the cloth was said to be US$0.50 per yard. There is as yet no actual sale of the manufactured cloth and the only evidence regarding this are the affirmations filed on the Plaintiff's behalf.

18. I should observe that the Plaintiff's affirmations have been shown to be inaccurate over a number of matters. In these circumstances, I consider that the proper order to make is an interlocutory judgment to be entered with damages to be assessed. The Plaintiff contends that the Defendant has not adduced any evidence to refute the Plaintiff's case on quantum. That may be so but is understandable because the Defendant has up to now disputed its liability to pay. The Plaintiff also contends that interim payment of US$34,174.13 ought to be ordered because this sum was actually paid by the Plaintiff to its supplier. However, interim payment in this amount can only properly be made if I am satisfied on the evidence that the Defendant would be liable to pay such sum whatever the outcome of the assessment of damages may be. For the reasons given earlier, I cannot be so satisfied.

19. The appeal is therefore allowed to the extent that interlocutory judgment is entered with damages to be assessed.