CEP LTD v. 無錫市佳誠太陽能科技有限公司

CACV 97/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 97 OF 2014

(ON APPEAL FROM HCCL NO. 12 OF 2012)

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J U D G M E N T
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Hon Lam VP:

1.  I have the benefit of reading the judgment of Kwan JA in draft. For the reasons given in her judgment. I agree that there shall be an order in terms of para 76.

Hon Kwan JA:

2.  On 4 April 2014, Recorder Jat, SC handed down judgment in an action for breach of a contract for sale and purchase of multicrystalline modules (“Modules”), after a five-day trial in December 2013.  Notwithstanding that he had found in favour of the plaintiff, CEP Limited (“CEP” or the plaintiff), on most of the factual disputes and found its witnesses credible, he dismissed the plaintiff’s claim “not without regret”.  On 18 June 2014, he gave a second judgment on the applications of both sides to vary the costs order nisi.  He ordered the plaintiff to pay 70% of the defendant’s costs, to reflect the fact that the defendant had unsuccessfully disputed a number of factual issues unreasonably and unnecessarily.  And as the plaintiff had failed to do better than the sanctioned payment made by the defendant in October 2012, the judge ordered the defendant’s costs from 16 November 2012 to be taxed on an indemnity basis, with interest on such costs at half of 5% above judgment rate from 16 November 2012 to judgment and thereafter at judgment rate.

3.  CEP appealed against the judgment.  The defendant, Wuxi Jiacheng Solar Energy Technology Co Ltd (“Jiacheng” or the defendant), filed a respondent’s notice seeking to affirm the judgment on additional grounds.

The background

4.  The background has been set out in some detail in the first 29 pages of the judgment, from §§1 to 68.  I do not propose to give a comprehensive summary of it.  I would only mention such of the salient matters necessary for a proper understanding of the resolution of the arguments before us in this appeal.

5.  Three witnesses were called to give evidence for CEP.  They were its director Gary Cicero (“Mr Cicero”), his wife Ana Hernandez (“Ms Hernandez”) and Giorgio Mingoli (“Mr Mingoli”).  Mr Mingoli was a technical staff of CEP’s customer in Italy, Sorgenia Solar SRL (“Sorgenia”).  Mr Cicero played the leading role.

6.  The staff in Jiacheng who mainly dealt with Mr Cicero in the transaction was a sales manager David Zhang (“Mr Zhang”).  Mr Zhang had resigned by the time of the trial and he was not called to testify by either party.  The only witness called by Jiacheng was its Chief Operating Officer, Paul Li Pan Jian (“Mr Li”), whom the judge found to be an unreliable witness.

7.  The sales contract between the parties (“Sales Contract”) was dated 27 April 2010.  By that contract, Jiacheng agreed to sell to CEP 7.056 megawatts of Modules at the unit price of €1.35/watt.  Payment of the purchase price was to be by way of irrevocable letter of credit.  The dispute between the parties was whether the use of transferable letter of credit was permitted under the terms of the Sales Contract.  CEP contended it was, Jiacheng asserted the opposite.  This would turn on the proper construction of clause 7a.

8.  Shipment dates under the Sales Contract, as varied by a first supplemental agreement dated 4 May 2010, were from June to August 2010.

9.  CEP entered into a sub-sale contract of the Modules with Sorgenia on 11 June 2010.  The sub-sale contract essentially mirrored the Sales Contract, except that the unit price was €1.48/watt.  It was provided in the sub-sale contract that payment was to be by irrevocable and transferable letter of credit.  It was evident that CEP intended to use the letter of credit to be issued by Sorgenia to pay for the Modules under the Sales Contract.

10.  At a meeting of CEP (represented by Ms Hernandez and Jim Xu) and Jiacheng (represented by Mr Li and Mr Zhang) on 22 June 2010, two agreements were made.  By Supplemental Agreement II, the unit price of the Modules under the Sales Contract was increased by €0.05/watt to €1.40/watt.  By the Commission Agreement, Jiacheng agreed to pay a commission of €0.05/watt to CEP if Jiacheng should sign a contract with a customer introduced by CEP, Energetica Solare SpA (“Ergy”), to sell 8.5 megawatts of the Modules to the latter at €1.51/watt.  CEP claimed that Supplemental Agreement II was not enforceable by virtue of economic duress.

11.  Sorgenia opened three letters of credit in favour of CEP.  They were referred to in the judgment as “005 L/C”, “006 L/C” and “007 L/C”.  CEP’s bank, HSBC, advised CEP of their issuance on 22 June 2010.

12.  On 22 June 2010, CEP informed Sorgenia 30 containers of Modules became available on short notice and requested to use them to fulfil Sorgenia’s order.  The letters of credit would need to be amended for payment of the 30 containers to be shipped first.  Sorgenia informed CEP it would start with the modification after the visit to the factory when all the supply details had been discussed and agreed.

13.  The factory visit took place on 25 June 2010 (“Factory Visit”).  CEP was represented by Mr Cicero (and probably by Jim Xu as well), Jiacheng was represented by Mr Zhang, and Sorgenia by the head of its purchasing office Nicolo Romeo (“Mr Romeo”) and Mr Mingoli.  It was a reasonably long meeting during which technical and logistic issues were discussed and agreed.  It was also agreed that Jiacheng would ship 30 containers by 20 July 2010.  The judge found hard copies of the unamended letters of credit were shown to Mr Zhang and they were used as basis of discussions over necessary amendments relating to delivery quantity and schedule.

14.  After the Factory Visit, and on 25 June 2010, Sorgenia amended the 007 L/C for payment of the first 30 containers, with the 006 L/C to be used for payment of later deliveries and the 005 L/C was cancelled.

15.  Between 26 June and early July 2010, CEP and Jiacheng worked towards delivery of the Modules.  On 5 July, Jiacheng shipped nine containers in Shanghai for shipment to Naples, Italy and the bills of lading were issued “To Order” with Sorgenia named as the notifying party.

16.  Jiacheng’s negotiations to sell Modules to Ergy broke down on or after 4 July.  On 5 July, Mr Zhang was sent an email by CEP attaching a confirmation advice from HSBC that the amended 007 L/C had been transferred in favour of Jiacheng.  Mr Zhang acknowledged receipt by an email on the same day, stating that he would let CEP know once he had confirmation from Jiacheng’s bank, which was the Bank of China.  On 6 July, Mr Cicero was informed that Mr Li refused to make delivery under the Sales Contract on the ground that the amended 007 L/C was a transferable letter of credit not a direct letter of credit in its favour.  After an email from Mr Li confirming his position, Mr Cicero responded on 6 July that CEP would change to a direct letter of credit.

17.  In the end, CEP did not open any direct letter of credit in favour of Jiacheng.  After further negotiations, on 9 July 2010 Jiacheng and Sorgenia signed a contract directly for the sale of the Modules under the Sales Contract to Sorgenia at €1.51/watt.

18.  CEP brought this action against Jiacheng claiming damages for repudiatory breach of the Sales Contract.

The judgment

19.  The judge held in favour of Jiacheng on the proper construction of clause 7a of the Sales Contract.  So CEP was obliged to open a direct irrevocable letter of credit in favour of Jiacheng, and the use of transferable letter of credit was not permissible under the Sales Contract.

20.  CEP’s fallback position was that Jiacheng was not entitled to rely on its contractual right due to waiver by election and/or promissory estoppel.  This was rejected by the judge.  He held that the evidence did not support CEP’s case the conduct of Mr Zhang during and after the Factory Visit was such that a clear and unequivocal representation was made that Jiacheng accepted or would not take issue with the use of transferable letter of credit to effect payment under the Sales Contract.  Further, he held that Mr Cicero knew that Mr Zhang did not have authority to bind Jiacheng on important terms and that Mr Li had the final say.

21.  So notwithstanding that the judge had found that when faced with a rising market, Mr Li was trying to find every excuse to increase the price of the Modules under the Sales Contract or to get out of it so as to maximize Jiacheng’s benefits, the judge held that Jiacheng was entitled to refuse to deliver as the contract did not allow the use of transferable letter of credit.

22.  Having found against CEP on liability, it was not strictly necessary for the judge to deal with other contested issues.  Nevertheless, he dealt with these three issues briefly.

23.  Jiacheng relied on other aspects in which the amended 007 L/C was non-compliant, namely, that there was no written confirmation as to the terms of the letter of credit, that the letter of credit did not have a validity date of 12 months from the date of issue, and that the letter of credit was issued later than the latest issue date applicable to the shipment schedule.  The judge accepted CEP’s submission that Jiacheng had waived its right to take issue with non-compliance of these other requirements as they were only raised for the first time in the defence in this action.

24.  CEP contended that Supplemental Agreement II was entered into under economic duress.  It was rejected by the judge that illegitimate pressure was applied.

25.  On his construction of the damages limitation clause in clause 14 of the Sales Contract, the judge held that CEP would not be entitled to recover any damages for loss of future profits even if it had succeeded on liability.

The issues in this appeal

26.  The main point argued by Mr Christopher Chain on behalf of CEP in this appeal is that the judge had drawn incorrect inferences in holding against CEP on the issues of waiver, promissory estoppel and the authority of Mr Zhang.  In addition, he contended that the judge was in error in the interpretation of clause 7a of the Sales Contract and should have held that transferable letter of credit was permissible under the contract.

27.  On the question of quantum of damages, Mr Chain argued the holding that there was no economic duress was wrong in law in that the judge’s inferences and conclusions were not supported by his findings.  Further, he contended that the damages limitation clause in clause 14 should be interpreted to have no effect.

28.  Mr James Thomson for Jiacheng pursued only two matters in the respondent’s notice.  He contended that the judge was wrong to hold that the amended 007 L/C was validly transferred by HSBC to Jiacheng.  Further, the judge was wrong to hold that Jiacheng had waived its entitlement to rely on the other failures of CEP to comply strictly with the terms of clause 7 of the Sales Contract.

Challenging findings based on inferences

29.  The main plank in Mr Chain’s argument is that he is seeking to challenge the judge’s findings of fact based on inferences, and that the judge had accepted CEP’s witnesses as truthful and credible and found Jiacheng’s only witness to be unreliable and unsatisfactory.  He contended that having accepted every primary material fact in CEP’s favour, the judge had ultimately found against CEP because of his conclusions reached by a “purely inferential process”.

30.  Mr Chain cited a recent decision of this court in Ageas Insurance Company (Asia) Limited v Lam Hau Wah Inneo, CACV 65/2014, 9 January 2015, §§29 to 30, in which the court cited in extenso Pang Ketian Sally v Tam Yuk Hung Annie, CACV 147/2013, 25 April 2014, §§26 to 32.  There, a distinction was drawn between challenging a finding of fact based “purely on inferences, or otherwise has nothing to do with the witnesses’ demeanour or the trial judge’s having received the evidence at first hand”, and a finding of fact based on inferences drawn from findings of primary fact, in which the trial judge took into account the credibility and demeanour of the witnesses and inherent probabilities.  The majority of cases come within the latter situation; in that instance, for the appeal court to disturb the finding of fact based on inferences, it must be shown that the finding is “plainly wrong”.  In the former and less common situation, it is not necessary to show that the finding is “plainly wrong”; the appeal court is in as good a position as the trial judge to draw inferences and is willing to form an independent opinion about the proper inference of fact, subject only to the weight which should, as a matter of course, be given to the opinion of the trial judge.

31.  Mr Chain contended that the present case falls within the former and less common situation.  He re-ran his submissions in the court below and invited us to draw the inferences contended for in his closing submissions at trial which were rejected by the judge.

32.  To make good his contention the judge’s conclusions were reached by a “purely inferential process”, first of all Mr Chain drew our attention to the following findings of primary fact in the judgment:

(1) The Factory Visit was arranged in order that all outstanding issues could be resolved (§100).

(2) During the Factory Visit, a reasonably long meeting was held where hard copies of the unamended, transferable letters of credit applied for by Sorgenia were shown to Mr Zhang and detailed amendments required to be made in light of the changed delivery schedules were discussed (§§43, 100).

(3) The letters of credit of Sorgenia were amended immediately after the Factory Visit (§§44 to 45).

(4) Between 26 June and early July 2010, CEP and Jiacheng worked towards delivery of the Modules and nine containers were scheduled to be shipped by 9 July 2010 (§47).

(5) On 5 July 2010, Jiacheng allowed nine containers of Modules to leave its factory for shipment to Naples with the bills of lading issued “To Order” and CEP’s customer Sorgenia named as the notifying party (§50).

(6) As of 5 July 2010, the amended 007 L/C had been validly transferred to Jiacheng, with CEP’s bank, HSBC, being the transferring bank (§97).

(7) When Mr Zhang was sent an email from Jim Xu of CEP on 5 July 2010 attaching a confirmation advice from HSBC confirming that the letter of credit of Sorgenia had been validly transferred to the benefit of Jiacheng, Mr Zhang replied by email stating “I will let you know once we have confirmation from our bank” (§49).

(8) There was a finding that CEP’s witnesses, Mr Cicero, Ms Hernandez and Mr Mingoli were all credible witnesses.  In particular it was noted that Mr Mingoli “has no financial interest in the outcome of the action, and gave evidence fairly and to the best of his recollection” and his evidence mainly on the Factory Visit was accepted to be “truthful and substantially accurate” (§§69 to 72).

33.  Next, Mr Chain submitted that against the above findings of primary fact, the inferences drawn by the judge in §§105 to 106 (that there was no evidence prior to the Factory Visit Jiacheng was aware of CEP’s intention to use transferable letters of credit; no evidence that Mr Zhang realised the difference between the different types of letters of credit; no evidence that Mr Li had somehow indicated to Mr Cicero that Mr Zhang could agree to terms of the letter of credit without referring to Mr Li) were “pure inferences” drawn by the judge without having any reference to witness demeanour or firsthand receipt of evidence.

34.  This is where I think Mr Chain’s contention breaks down.

35.  It is quite clear from the judgment that in drawing the inferences in §§105 to 106, the judge had considered carefully the evidence of Mr Cicero and Mr Mingoli, who were the only witnesses to give evidence on the Factory Visit.  He did not merely have regard to the findings of primary fact as mentioned above.  It is simply not the case that the inferences were drawn without having any reference to witness demeanour or firsthand receipt of evidence.

36.  The judge’s assessment of the evidence of these two witnesses must be viewed against the general view he formed about their testimony.

37.  In the case of Mr Cicero, the judge did not accept everything he said in his evidence, although the judge found him “on the whole a credible witness”.  The judge sensed “his strong grievance towards Jiacheng, especially against Mr Li” and took the view “this animosity has affected the objectivity of his evidence”.  Also, the judge noted when there is a gap in the documentary record, Mr Cicero “has a tendency to assert that there were telephone conversations between him or Mr Xu and Mr Zhang or emails which somehow had slipped from the discovery net”.  The judge considered that he “must exercise caution in respect of [Mr Cicero’s] evidence when there is no contemporaneous documents or other evidence in corroboration” (§69).

38.  As for Mr Mingoli, whilst accepting his evidence on the Factory Visit to be “truthful and substantially accurate”, the judge found his evidence “fuzzy on matters outside his area of responsibility, and he was not able to provide much assistance on what exactly was discussed and agreed during the Factory Visit in so far as the L/Cs were concerned” (§72).

39.  Specifically as regards Mr Cicero’s evidence of the Factory Visit, the judge noted that whilst he had said they went through the hard copies of the unamended letters of credit “line by line”, Mr Cicero “did not describe what exactly had been discussed or agreed”.  The judge took into account Mr Cicero’s email to Mr Li on 6 July 2010, in which Mr Cicero claimed that he did not know or expect Jiacheng would have objection to accepting a transferable letter of credit, thus indicating that the question whether transferable letter of credit would be accepted “probably did not cross his mind”.  The judge took the view it would be “much more likely that the focus of the discussion was on the revised description of the documents required under the L/C and delivery schedule, as opposed to the use of transferable L/Cs” (§105(1)).

40.  Regarding Mr Mingoli’s evidence in this respect, the judge found it “even more equivocal”.  And although he accepted Mr Mingoli’s evidence that the unamended letters of credit were used to discuss the terms of the documentary credit, Mr Mingoli was “not able to describe specifically what had been discussed”.  The judge did not think his evidence assisted the court in resolving the factual issue (§105(2)).

41.  In drawing the inferences in §§105 and 106, the judge had evidently taken into account the demeanour and credibility of the witnesses, and evaluated their oral testimony against documentary evidence.  I do not think this is a situation in which the inferences drawn had nothing to do with the witnesses’ demeanour or credibility, or with the trial judge having received evidence at first hand.  The threshold test that must be satisfied for this court to interfere with the judge’s inferences of fact is that they must be shown to be “plainly wrong”.  If we are not so satisfied, we should defer to the judge’s conclusion even if in doubt as to its correctness.

Whether the actions of Jiacheng amounted to waiver or estoppel of a transferable letter of credit

42.  I turn to consider Mr Chain’s submissions that the judge’s inferences were in error, bearing in mind it is the “plainly wrong” test that must be satisfied.

43.  Mr Chain submitted that the judge’s inferences were drawn without regard to a number of crucial and relevant matters (most of which had featured in his closing submissions at trial):

(1) Prior to the Factory Visit, on 24 June 2010, CEP sent an email to Mr Zhang stating the description of the goods that its client would put in the letter of credit for the 30 containers and asked Mr Zhang to confirm if the description was acceptable.  Mr Chain submitted this suggested that before the Factory Visit Mr Zhang knew of the use of transferable letters of credit, contrary to the finding in §105 of the judgment that there was no contemporaneous documentary evidence showing that prior to 25 June Jiacheng knew or expected CEP would use transferable letters of credit for payment under the Sales Contract.

(2) The Factory Visit was to resolve all outstanding problems.  Mr Chain reasoned that if Mr Zhang saw any problem or uncertainty with the use of transferable letter of credit, it was incumbent on him to raise it in discussion.  And as no such problem was raised at the meeting, the representatives of CEP and Sorgenia walked away from the Factory Visit thinking that all outstanding problems had been successfully resolved.  So Mr Zhang’s conduct during the Factory Visit was not just “the absence of any immediate objection by [him] as to the use of transferable L/Cs” as described in §106 of the judgment, but was a positive representation that there were no outstanding issues on all matters, including the use of the transferable letters of credit of Sorgenia.

(3) The head of purchasing office in Sorgenia, Mr Romeo, attended the Factory Visit, apart from Mr Mingoli who was responsible for technical matters.  Mr Chain submitted it would have been obvious to Mr Zhang that the letter of credit under discussion was a transferable letter of credit applied for by Sorgenia, otherwise there would be no reason for Mr Zhang to have any discussion with Sorgenia about the letters of credit.

(4) The unamended letters of credit of Sorgenia were just documents of two pages, stating expressly that they were transferable.  Mr Cicero said they went through the hard copies of the letters of credit “line by line”.  Mr Zhang had suggested some amendments to the letters of credit.  This would suggest he would have given a more than fleeting glance to the letters of credit.  Furthermore, hard copies of the unamended letters of credit of Sorgenia were left with Mr Zhang after the Factory Visit, so he would be able to review the documents any time if Jiacheng had any problem with a transferable letter of credit.

(5) Between 25 June and early July 2010, extensive work was done by CEP and Jiacheng for shipment of the Modules.  CEP’s inspectors attended Jiacheng’s factory to inspect the goods and oversee the loading of goods.  Mr Chain submitted that all of the preparatory work for shipment after the Factory Visit reinforced the earlier unequivocal communication at the meeting by Mr Zhang that delivery would go ahead and there were no outstanding problems.

(6) In an email of Mr Zhang to Mr Romeo on 6 July 2010, it was mentioned that Jiacheng shipped nine containers on 5 July when it received the letter of credit from CEP, but unfortunately Jiacheng could not accept transferable letter of credit from CEP and Mr Li finally decided to change the delivery schedule or cancel the contract.  There was oral evidence from Mr Li that it was impossible for Mr Zhang to have made a decision to ship the nine containers without telling him, and without a letter of credit approved by him goods could not be delivered.  Mr Chain submitted that all of the above would strongly suggest that Jiacheng was fully aware of and had agreed to a transferable letter of credit being used.

44.  In short, Mr Chain submitted that the above matters which the judge had failed to consider were overwhelmingly in favour of CEP and contrary to the conclusion he ultimately reached.  Taking a holistic approach, the proper inferences that should have been drawn were that Jiacheng’s conduct through Mr Zhang during and subsequent to the Factory Visit amounted to unequivocal representation that it would not take issue with the transferability of the letter of credit.

45.  Speaking of a holistic approach, there is no reason to think that in drawing the inferences he did, the judge had not considered the above matters (which Mr Chain had urged before him by and large) as well as these other matters, some of which were submitted by Mr Thomson:

(1) The judge made a finding there was no contemporaneous documentary evidence showing that prior to 25 June 2010, Jiacheng knew or expected that CEP would be utilising transferable letters of credit to make payment under the Sales Contract.  This is a finding that the judge was entitled to reach.  The only evidence that could possibly point to the contrary raised by Mr Chain was the email from CEP to Mr Zhang dated 24 June 2010.  It cannot be said that the message conveyed there was clear and unambiguous.

(2) That the Factory Visit was arranged to resolve all outstanding issues was immaterial, nor was it material that the representatives of CEP and Sorgenia walked away from the meeting thinking that all outstanding issues had been resolved, if the issue of transferability of the letters of credit was not in any one’s mind.

(3) Having seen and heard the evidence from Mr Cicero and Mr Mingoli on the Factory Visit, the judge came to the view that it was “much more likely that the focus of the discussion was on the revised description of the documents required under the L/C and delivery schedule, as opposed to the use of transferable L/Cs”.  This is a primary factual finding which this court cannot disturb unless satisfied it is plainly wrong.  The judge gave cogent reasons in §105(1) and (2) for this finding.  It has not been shown to be plainly wrong.

(4) There was no evidence that Mr Zhang realised the difference between a transferable letter of credit and a direct letter of credit, as the judge had found.  Even after the Factory Visit, on 28 June 2010, Mr Zhang asked for the final terms of the letter of credit for “final [confirmation] today before it is issued officially”.  The judge regarded this as “strong indication that what had been discussed with Mr Zhang in relation to the terms of the L/Cs were subject to final confirmation as stipulated under clause 7a of the Sales Contract, and CEP (in particular Mr Cicero) understood that” and that the email also “strongly indicated that Mr Zhang was expecting an L/C to be issued shortly thereafter” (§107).  There was no reply from CEP to Jiacheng to this email.

(5) As for Mr Cicero, it would appear from his email to Mr Li on 6 July 2010 that the question whether transferable letters of credit would be accepted probably did not cross his mind (§105(1)).  The judge found it significant that when Mr Cicero was informed on 5 July Mr Li would not accept the amended 007 L/C, his immediate response was not that Mr Zhang had agreed on the use of transferable letters of credit at the Factory Visit, but to try to persuade Mr Li to accept the transferable amended 007 L/C (§108).  And when that attempt failed, Mr Cicero agreed to issue a direct letter of credit (§109).

(6) As regards the nine containers shipped by Jiacheng on 5 July, the bills of lading were issued “To Order” without naming a consignee and with Sorgenia named as the notifying party.  Jiacheng retained title in the goods as the shipper in the form of “order bills” that the goods were consigned to the shipper’s order, designed to permit their transfer by indorsement and delivery if so desired, only when payment from the buyer was assured (Carewins Development (China) Ltd v Bright Fortune Shipping Ltd (2009) 12 HKCFAR 185 at §§19 and 20).  So the mere fact that on 5 July Jiacheng had shipped nine containers of the Modules with its brand name or neutral packaging to Naples did not demonstrate that it had unequivocally represented it would agree to accept the transferable amended 007 L/C.

46.  Quite clearly, the evidence was not just one way or overwhelmingly in favour of CEP, as Mr Chain had argued.  Nor could it be shown that the inferences and conclusion reached by the judge were plainly wrong, namely, that the conduct of Mr Zhang during and after the Factory Visit was not so unequivocal as to give rise to waiver by election or promissory estoppel against Jiacheng on the use of transferable letters of credit.

Waiver or estoppel as regards other requirements of the letter of credit

47.  This is an issue raised in the respondent’s notice.  I think it should be considered here conveniently before I deal with other issues raised by CEP.

48.  Having found against CEP that waiver or estoppel was not made out on the use of transferable letters of credit for the reasons canvassed earlier, the judge found in favour of CEP that waiver or estoppel was established in respect of other requirements that the amended 007 L/C was non-compliant (namely, that there was no written confirmation as to the terms of the letter of credit, it did not have a validity date of 12 months from the date of issue, and it was issued later than the latest issue date applicable to the shipment schedule).  As noted in §114 of the judgment, non-compliance of these matters was admitted in CEP’s Reply.

49.  The judge found in favour of CEP for these reasons: there was no protest from Jiacheng before the Factory Visit that CEP had failed to provide the draft terms of the letters of credit; there was no indication at the Factory Visit that CEP was late with the draft terms; on 28 June Mr Zhang asked for the final terms of the letter of credit for approval; and on 5 July the only non-compliance mentioned by Jiacheng was that the letter of credit was transferable (§115).

50.  The material parts of clause 7a of the Sales Contract provided as follows:

“…The 95% of each delivery shall be paid by the irrevocable documentary Letter of Credit (L/C). The original L/C should be issued latest 20 days prior to the partial delivery. All the terms of the L/C should be confirmed in writing by the Seller finally before the Buyer applies to the Bank for the issuance of L/C; any delay will affect shipping date accordingly. The L/C is valid 12 months upon the issuance.”

51.  As the judge had found, the focus of the Factory Visit was “much more likely that the focus of the discussion was on the revised description of the documents required under the L/C and delivery schedule, as opposed to the use of transferable L/Cs”.  The other requirements in clause 7a (that “all the terms of the L/C should be confirmed in writing by the Seller finally before the Buyer applies to the Bank for the issuance of L/C”, the original letter of credit “should be issued latest 20 days prior to the partial delivery” and the letter of credit “is valid 12 months upon the issuance”) were likewise not discussed at the meeting.  There could not be any waiver or estoppel if it never crossed any one’s mind that these other requirements would also need to be addressed and resolved – there was no awareness of the facts which had given rise to the existence of the strict legal rights such that the representation or conduct could be regarded as clear and unequivocal that strict legal rights would not be relied upon, and no reasonable reliance by the other party to alter its position on the faith of any such conduct or representation.

52.  The reasons given by the judge in §115 have no bearing on the material question if there was unequivocal conduct or representation that these other requirements had been waived.

53.  For the above reasons, I think the judge was in error in holding that waiver or estoppel was established for the other requirements of the letter of credit.  As Mr Chain has submitted (albeit for a different purpose), there is no reason in principle for the judge to conclude that waiver had been established for the technicalities of the letter of credit but not the transferability of the letter of credit.

The authority to make representation for waiver or estoppel

54.  Mr Chain submitted first that the judge had erred in §101 in incorrectly fusing the applicable tests for waiver and estoppel (i.e. unequivocal conduct or representation) and ostensible authority (i.e. whether objectively a reasonable person would think that the agent had authority), and thereby wrongly imposed an additional requirement of unequivocal conduct or representation on the test for ostensible authority.  What the judge said at §101 were as follows:

“However, in my judgment, the evidence does not support CEP’s case that Mr Zhang’s, or Jiacheng’s, conduct amounted to unequivocal representation that Mr Zhang had authority to finally agree on all issues and the use of transferable L/C would be accepted.”

55.  On a proper reading of the judgment, I do not think the judge had “fused” the two tests when he came to consider the evidence whether Mr Zhang had authority to make representation that transferable letters of credit were acceptable to Jiacheng, see §§100, 102, 103, 104, 106, 108 and 109.  He did not introduce an additional test of unequivocal conduct for ostensible authority.

56.  Next, Mr Chain submitted that the judge should have concluded on these findings in the judgment and other indisputable evidence that a reasonable person would have thought Mr Zhang had ostensible authority to make the representation Jiacheng would accept a transferable letter of credit, or at least that both Mr Li and Mr Zhang could make decisions for Jiacheng on the terms of the letters of credit:

(1) Mr Zhang held the title of Sales Manager with Jiacheng (§5).  He was one of ten sales managers who reported directly to Mr Li.  Mr Zhang did not communicate with Mr Li on a day-to-day basis.  After Mr Li gave guidance or instructions to Mr Zhang, it was up to Mr Zhang how to implement those guidance and instructions.

(2) Mr Zhang was the primary point of contact between CEP and Jiacheng (§19).  Mr Li’s contact with CEP was minimal.

(3) The Factory Visit was a reasonably long meeting attended by Mr Zhang on behalf of Jiacheng and it was arranged in order that all outstanding issues could be resolved (§§43, 100).

(4) Mr Li was not copied in the majority of the correspondence between CEP and Jiacheng.

(5) Mr Zhang appeared to have approached banks and new clients on behalf of Jiacheng without reference to Mr Li.

57.  Mr Chain further contended that the judge had found Mr Zhang had the authority to represent that Jiacheng was willing to accept non-compliance with other requirements of the letters of credit to constitute waiver or estoppel in §§113 to 115 of the judgment.  For the reasons discussed earlier, the judge had erred in finding waiver or estoppel regarding these other requirements of the letters of credit.  In any event, it does not appear from §§113 to 115 that the judge had made any express finding as to the authority of Mr Zhang in that respect.  I shall disregard this matter.

58.  Lastly, Mr Chain submitted that the judge did not deal with implied authority, which CEP relied on apart from ostensible authority, as recognised in §99 of the judgment.

59.  The short answer to the above submissions is that the judge had found on the totality of the evidence, as he is entitled to do, that Mr Cicero knew that Mr Zhang did not have authority to bind Jiacheng on important terms (§109), as Mr Cicero knew that Mr Li was calling the shots on all important issues concerning commercial terms and Mr Zhang reported to Mr Li who was in charge and had the ultimate say on important matters (§102), and there was no evidence that Mr Li had somehow by representation or conduct indicated to Mr Cicero that Mr Zhang could agree to the terms of the letter of credit without referring to Mr Li (§106).  Ostensible authority cannot arise where the other party knows that the agent’s authority is limited (Armagas Ltd v Mundogas SA [1986] 1 AC 717 at 777B).  Nor can implied authority arise in the factual situation here, for essentially the same reasons given by the judge regarding ostensible authority.

Interpretation of clause 7a of the Sales Contract

60.  Mr Chain’s fallback position, if he should fail on the arguments of waiver and estoppel, is that Jiacheng was not entitled to insist on a direct letter of credit on the proper construction of the Sales Contract.

61.  The material terms of clause 7a have been set out earlier.  For present purpose, the material words in the relevant provision are italicised: “All the terms of the L/C should be confirmed in writing by the Seller finally before the Buyer applies to the Bank for the issuance of L/C”.

62.  The judge’s reasoning for upholding the construction of Jiacheng was stated in §93:

“In the end, I think Jiacheng is right. In my judgment, the express wording of clause 7a envisaged that the letter of credit would be opened by CEP at least 20 days before delivery and did not include the use of a transferable L/C. Although once validly transferred (and assuming all other terms are compliant) a transferable credit would make little (if any) difference to the seller, there could be a practical difference when the matter is considered at the time of the contract. Under Article 38 of UCP 600, the “first beneficiary” does not have a right to transfer a transferable L/C in favour of the “second beneficiary”: the nominated bank has a right to refuse the request outright or impose conditions for doing so: see Article 38.a; Jack, Documentary Credits para.10.4. This would create potential uncertainty in so far as Jiacheng was concerned. For example, even if Jiacheng had already agreed with CEP as to the terms of the credit, the nominated bank could refuse to transfer or decide to impose conditions in effecting the transfer, which would be outside CEP’s or Jiacheng’s control. The imposed conditions might or might not be acceptable to Jiacheng. Additional time might be required to issue another acceptable credit or negotiate over the acceptability of the conditions. There was thus potential uncertainty and added commercial risks to Jiacheng, and provided objective reasons why Jiacheng might not want to accept transferable credits.”

63.  Mr Chain submitted that the italicised words in clause 7a should be construed to embrace two situations; they could be “issuance of a direct letter of credit” or “issuance of a transferred letter of credit”.  He contended that the judge should have taken into account that “as a matter of practice”, it was possible for CEP to negotiate a valid transfer of a transferable letter of credit to the benefit of Jiacheng without Jiacheng ever knowing that a transferable letter of credit had been used, and once the transferring bank had agreed to transfer the benefit of a transferable letter of credit to Jiacheng, it would have issued a new document containing the terms of the transferred letter of credit as if the transferred credit was a direct letter of credit.  He cited Jack on Documentary Credits (4^th ed) at §10.2 in support of the proposition that the transfer of a letter of credit is “usually executed by the opening of a fresh letter of credit”.  Mr Chain further submitted CEP was not purporting to effect payment by a transferable letter of credit but by a transferred letter of credit, so there should be no additional commercial risk for Jiacheng.

64.  There was no evidence that such matters of practice as submitted by Mr Chain were within the available factual background at the time the Sales Contract was made to form part of the factual matrix for the construction of this agreement.  There was no evidence it was envisaged at the time of the contract that the transferring bank would effect a transfer of the transferable letter of credit by issuing a direct letter of credit to Jiacheng.  The relevant objective background facts had been taken into consideration by the judge when he construed the agreement (§§88, 89).  And even if it should be accepted that a fresh letter of credit would usually be issued by the transferring bank if it should agree to transfer a transferable letter of credit to the second beneficiary without imposing conditions, this does not answer the point made by the judge that “there could be a practical difference when the matter is considered at the time of the contract” and “there was thus potential uncertainty and added commercial risks to Jiacheng”.

65.  I reject Mr Chain’s submission for the above reasons.

66.  As I have rejected all the arguments of CEP on liability, its appeal must fail.  It is not strictly necessary to consider the other issues raised by CEP on quantum and the remaining issue raised by Jiacheng regarding the transfer of amended 007 L/C.  I will deal with them briefly for completeness.

Economic duress

67.  The complaint here is that the judge’s conclusion that CEP did not sign Supplemental Agreement II under economic duress was not supported by these findings in the judgment:

(1) Jiacheng through Mr Zhang had made clear to CEP prior to the meeting on 22 June 2010 that it would not ship the Modules at the agreed price under the Sales Contract of €1.35/watt (§§25, 28).

(2) Jiacheng through Mr Li had threatened during the meeting on 22 June that it would not ship the Modules at the agreed price, or it would delay delivery so as to cause problems with CEP’s delivery to Sorgenia (§§33, 117).

(3) Ms Hernandez on behalf of CEP accepted the increase in price in Supplemental Agreement II because she felt there was no practical alternative to CEP (§37).

(4) Internal emails of CEP between Mr Cicero, Ms Hernandez and Jim Xu before and after 22 June were set out in §§27 to 32.  It was submitted they were consistent with CEP having been forced to sign Supplemental Agreement II.

(5) Jiacheng at all material times was trying to find every excuse to increase the price of the Modules under the Sales Contract or to get out of it, in order to exploit the rising market conditions (§§73, 128).  It was submitted there was bad faith on its part.

68.  The judge considered the relevant cases on economic duress referred to by Mr Chain (DSND Subsea Ltd v Petroleum Geo-Services ASA [2000] BLR 530 at §131 perDyson J, applied in Kolmar Group AG v Traxpo Enterprises Pvt Ltd [2010] 2 Lloyd’s Rep 653 at §92 per Christopher Clarke J).  It was after “looking at the evidence in the round” that the judge came to agree with Mr Thomson that it was more a case of “rough and tumble of the pressures of normal commercial bargaining” than illegitimate pressure (§121).  The judge had mentioned in §§118 to 120 relevant matters that persuaded him a case of economic duress was not established.

69.  I do not think there is sufficient basis to interfere with the judge’s conclusion on this question of mixed fact and law.

Interpretation of clause 14 of the Sales Contract

70.  The material parts of clause 14 read as follows:

“In no eventshall seller or buyer… be liable for any direct damages other than thosedescribed in sections 12, 16 or any indirect, incidental, consequential, punitive or special damages, including without limitation lost revenue, lost profits and lost business opportunities …”.

71.  Clause 12c was “Termination by Seller” and provided for the circumstances that the seller may terminate the agreement at its option (i.e. in the event of failure to pay or other material breach by the buyer, if the breach is not cured within 30 days after receipt of written notice).  It did not “describe” the damages the buyer may be liable for in those circumstances.  There is no dispute that clause 16 did not appear to be relevant to damages.

72.  The judge construed clause 14 to mean that damages resulting directly from a breach falling within clause 12 were recoverable and, in all other cases, indirect losses were excluded.

73.  Mr Chain repeated his submissions before the judge that clause 14 should be construed as having no effect as it was unintelligible and/or the wording was not sufficiently clear to exclude liability for deliberate repudiatory breach.

74.  I do not propose to express a view on the true construction of clause 14, except to say that I have reservations to Mr Chain’s submission that the judge had done violence to the meaning of the words used of which they are naturally susceptible in striving to give meaning to clause 14 instead of interpreting it as having no effect.

If amended 007 L/C was validly transferred to Jiacheng

75.  The judge found against Jiacheng on this for the reasons given in §§96 and 97.  There is no basis to interfere with that finding of fact.

Conclusion and costs

76.  For the above reasons, the appeal of CEP must be dismissed.  There is no reason why costs should not follow the event.  Jiacheng put in a respondent’s notice to raise three issues and pursued only two of them at the hearing.  It succeeded on one and failed on the other.  It does not appear to me the issues on which Jiacheng failed should have a material impact on the costs incurred.  For these reasons, I am not minded to reduce any part of Jiacheng’s costs in this appeal despite two of the matters raised unsuccessfully in the respondent’s notice.  I will make an order nisi that CEP should pay Jiacheng’s costs in this appeal.

Hon McWalters JA:

77.  I agree.