SEAPOWER RESOURCES COLD STORAGE & WAREHOUSING LTD v. SHIU PONG ICE (CUBE ICE & ICE CARVING) LTD

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.11500 OF 1998

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JUDGMENT

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1. This is an appeal by the Plaintiff from the refusal by the Master to order summary judgment against the Defendant. The claim of the Plaintiff for the summary judgment arose out of a contract between the Plaintiff as seller and supplier of ice to the Defendant as a buyer and retailer of ice.

2. There are three relevant agreements. The first is an agreement made on 19th December 1996 which I will call "the 1997 agreement". This 1997 agreement was supplemented by another written agreement dated 30th April 1997. This I will call "the 1997 supplementary agreement". Then there was a further agreement made in December 1997 which I will call "the 1998 agreement".

3. In essence what the 1997 agreement provided was that the Plaintiff would supply to the Defendant and the Defendant agreed to take 144,000 bars of ice at $48 each. There was also the provision of a bank guarantee of $1 million. Under Clause 7 of this agreement, there was supposed to be a monthly statement from the Plaintiff to the Defendant with payment 45 days after the statement. The 1997 supplementary agreement altered the 1997 agreement in a substantial way. What it did was firstly to increase the total amount (guaranteed quantity) from 144,000 to a total of just under 200,000 to be divided into two parts. The first part is what had been called the normal guarantee quantity of 120,000 at $48 and that is the reduction of normal guarantee sale from the original figure of 144,000. The second part is that there would be what we call globally the promotional quantity of 78,000 at $30 per bar. There is a special provision in relation to particular customers at stated prices under the promotional umbrella. Clause 6 of this supplementary agreement is also of interest. It provides that there would be a monthly settlement in the amount of the average guarantee figures for the normal guarantee sale and for the promotional sale, namely in the monthly average figure of 10,045 bars for the normal guarantee sale and of 6,500 bars for the promotional sales. It then proceeded to say that the final account will be made at the end of the year and the total sale of ice bars for the whole year would be accounted for.

4. In the 1998 agreement, the changes made were more ambitious and the total year's figure went up with other variations. However, what is of particular interest to this case is Clause 7 which is to this effect and I set this out in full.

"Due to the weather which is beyond human control, in respect of ice bars untaken by party B under the sole agency (Contract No. SPC/07/04) Agreement (the quantity shall be made up to 3/12/1997. Party A shall confirm in writing the untaken quantity) which has been paid pursuant to the said Agreement. Party A agrees that party B may during the year 1998 take those shortfall by instalment after 85% of the minimum purchase quota under the new agreement for 1998 (i.e. 171564 bars) has been performed. But the shortfall shall not be counted as the monthly or daily guarantee sale in 1998. (The time and volume of each instalment to be taken shall be agreed by both parties.)"

5. Now, this particular provision in the 1998 agreement is to be contrasted with the similar provision in Clause 7 of the 1997 supplementary agreement which reads:

"If the supply or sale as stated in this Agreement cannot be reached by Party A and Party B due to factor in the market beyond human control and is agreed by both parties. Party A and Party B may settle the promotional sale and other sale (i.e. the supply or sale of 78,000 bars for the whole year) at 80% thereof. (No change for the guarantee sale for the whole year.)"

6. These are the contractual provisions. What happened on the ground in relation to these agreements is that every month the Plaintiff received orders from the Defendant and payment was made every time by the Defendant for the full quantity of each delivery. The payment was in arrears and sometime it was made a few months after delivery. This went on for the whole year. There was no payment pursuant to Clause 6 and the total quantity under the 1997 supplementary agreement was not taken. There was however total performance of the 1998 agreement.

7. Sometime in first part of 1998, demand was made by the Plaintiff for the Defendant to pay the shortfall. There was a meeting in May 1998 when the Defendant asked the Plaintiff to honour an oral agreement made at the time of the making of the 1997 supplementary agreement whereby the obligation of the Defendant was to make payment of 80% of the total guaranteed quantities but the Plaintiff would be obliged to give delivery of 100% of the guaranteed quantities. The parties could not agree and proceedings were issued.

8. At the hearing, there are really only two issues. Issue 1 relates to the claim by the Plaintiff for what the Plaintiff alleged to be in respect of goods delivered but as yet not fully paid. The second issue relates to what one can call price for the shortfall quantities. I will consider each issue in turn.

9. In relation to the first issue, it seems to me reasonably clear that at least it is arguable that the Defendant had paid in full for all the ice delivered. This can be seen from a number of documents. Firstly, it can be seen from the Defendant's own documents. It can also be seen from the fact that the Plaintiff had throughout the period never chased the Defendant for the difference. Thirdly it can be seen from the Plaintiff's first letter before action where it was alleging shortfall, not alleging that it had not been paid in full for the ice already delivered. I think that the circumstances in this case clearly indicate that at the least it is arguable that $500,000 odd under Issue 1 should not be the subject of a summary judgment.

10. I now turn to the much more controversial question of Issue 2. Issue 2 really depends on two questions. First, the incredibility of the oral agreement and secondly on the matter of parol evidence rule. I would deal first with the question of incredibility.

11. The case of Mr. Tsang for the Plaintiff is that the oral agreement as stated in para, 10 of Mr. Shiu's Affidavit is incredible and not capable of belief. He said it is incredible because if you analyse the figures, the Plaintiff would end up with less money, instead of the sum of $6.9m it will receive under the original 1997 agreement, under the oral agreement the Plaintiff could receive only $6.5m, that is if the force majeur situation kicks in when the Plaintiff would be obliged to give 100% of the quantity but only receive 80% of the price. At this stage of the proceedings, in my view it is impossible for the court to say that this is incredible for this very commercial transaction between the parties. On one hand, the Plaintiff has a large production capacity. On the other hand the Defendant being exclusive agent wanting to expand the market was concerned as to its ability to absorb the loss in case of over-expansion when there is a force majeur situation like terrible weather (cold weather in summer months) landing the Defendant in the position where it would be in a very difficult financial position.

12. The oral agreement is of course different from Clause 7 of the 1997 supplementary agreement as set out in para. 9 of Shiu's Affidavit. Of course, it has different features from the written document and to some extent it is less advantageous to the Plaintiff. But the advantage to the Plaintiff however for the whole agreement including the oral agreement is that the Plaintiff expands its market, sells more and perhaps has a larger share of the market. I cannot say that the position of the Defendant on the oral agreement is incredible.

13. The question then is can the oral agreement which is not incredible be shut out by any rule of law. Parol evidence rule is well-known to us and in Chitty on Contract there are discussions of various ways of looking at it. One is by looking at it as to the oral agreement being only part of the contract and that the written document does not contain the whole contract. The other way of looking it is by way of a collateral agreement. In the paragraph we had looked at several times in the course of the argument, para. 12-088 of Chitty on Contract at p.604-605, there is the well-known case of City of Westminster Properties v. Mudd referred to. The simple question on this appeal is whether the point is arguable that the oral argument can be relied on by the Defendant. I cannot say that it is unarguable or that it is an argument which is bound to fail.

14. I think, in these circumstances, those two questions must be decided in favour of the Defendant. I, therefore, see every justification for unconditional leave being given to the Defendant. In the course of argument, a number of other points were also mentioned. But I think they are really of peripheral interests in the circumstances and do not detract in any way or take away the value of my finding on the main questions under Issue 2.

15. In the circumstances, unconditional leave must be given to the Defendant and the appeal must be dismissed with costs to the Defendant.