SHUM YIP-UTC (HONG KONG) CO., LTD. v. MASTER COMPANY (a firm)

CACV26/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 26 OF 1999

(ON APPEAL FROM HCA7560 OF 1990)

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J U D G M E N T

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Rogers, J.A. :

Introduction

1. This is an appeal from a judgment of Chung, J. when he was sitting as a Deputy Judge in September and October of last year. The judgment was handed down on the 3rd December. In that judgment, the Judge dismissed both the claim and the counter-claim which arose out of a contract for the manufacture and sale of jackets.

2. The claim was in fact quite a stale claim. The contract had been made in the summer of 1989 and therefore by the time it came on for hearing last year, it was some 9 years old. This no doubt caused a great deal of difficulty for the learned Judge and he had to piece together as best he could what had happened. The documentation was hardly any clearer than the witnesses' recollections. Nevertheless, the first thing the Judge did was to determine what was the contract between the parties.

3. The dispute between the parties was, in simple terms, as to whether there had been a contract for the manufacture and sale of 400,000 jackets or whether there was a contract for the sale of some 62,000 jackets.

4. The Judge was faced, on the one hand, with what was no more than a rather skimpy hand-written document on the Plaintiff's letterhead which referred to 400,000 jackets at a price of US$50 a dozen. It was an undated and unsigned document. The Judge, in effect, held that that was simply a note of the preliminary discussions which led up to the first order which came on the 19th August. The Judge found that there was a contract between the Plaintiff and the Defendant for the manufacture of 62,160 jackets. They were to be sold at a price of US$50.30 and the other terms which the Judge found were :-

"(a) the Defendant was responsible for supplying most of the accessories and the Plaintiff was responsible for supplying some 7 to 8 items of those items (at the Defendant's costs);

(b) the Defendant was to provide the fabrics for manufacturing the garments;

(c) the Defendant was to supply the garments by mid-December 1989;

(d) a down-payment of $2 million was to be paid to the Defendant."

5. In effect, what the Judge had done was to combine the documents which were dated 19th August, with those dated 22nd August. It is to be noted that the contract quantity and the documents which are dated 22nd August is 62,210 pieces. There is a slight variation there from the original amount in the contract of the 19th August which was 62,160. The other variation had been that whereas the 19th August document provided that the goods were to be supplied by the end of November 1989, the later documents provided that they should be supplied on or before mid-December 1989.

6. Before us today, the Defendant, who is appearing in person, contended two things. The first was that the Judge was wrong to hold that there had not been a contract for 400,000 pieces and secondly, he said that the Judge should have held that there were 2 orders, one on the 19th August and the other on 22nd August. The Defendant, Mr. Pau, went through the documents with us and it was clear that there were a number of documents included in the documents dated 19th August. These first related to the colour of the jackets which were to be made and the quantities in respect of each colour. The second related to the specifications as to the sizes of the jackets and the measurements to be used in the various sizes of the jackets.

7. When consideration is given to the documents which are dated 22nd August, it will be seen that those specified the quantities in relation to the various sizes of the jackets; the quantities which are specified in the documents dated the 22nd August tied in with some of the documents dated the 19th August in relation to the various sizes which we have been shown . Insofar as it has been possible, given the documents with which this Court has been supplied, it seems that examination shows that there is an exact correlation. It has also to be noted that the contract numbers at the top of the two sets of documents are the same, namely SYU-G001.

8. As a result, in my view, it is quite clear that the Judge was correct in holding that there had been one firm contractual order in effect given on 19th August, although it might have been varied as to the quantities by the documents on the 22nd August. The price had clearly varied from the original discussions; it had been increased, as I have said, to US$50.30.

9. Following that, it is clear that the Defendant did order materials to be used in manufacturing the 62,000 odd jackets which were to be supplied. In addition, on the 15 August, the Plaintiff also paid, first of all, a sum of HK$1 m, which the Judge has held was a prepayment in respect of the contract. The Plaintiff also made other payments in RMB and these are dealt with on page 11 of the Judge's judgment. The Judge concludes his findings by saying he rejects the testimony of all witnesses but it is not necessary for the purposes of this judgment to go into the matter.

10. The next relevant date as far as these proceedings are concerned is the 8th December 1989. On that day, the Plaintiff sent the Defendant a fax, hand-written in Chinese. The translation of that reads as follows :-

"We refer to the contract signed between our company and your company on 22 August 1989 in relation to the processing of 62,210 pieces of jacket. Because of the long delays in our ordering of materials and in our clients' confirmatory acceptance of the surface materials, and further because of the recent fluctuations in the export exchange rates in respect of Mainland Shenzhen's products, our company thereby cannot perform its obligations under the said contract, and has no alternative but to cancel the said contract. Your understanding and forgiveness will be very much appreciated. As for the surface materials and accessories which have already been ordered, we shall on a co-operative basis work out jointly with your company a method of resolution."

11. At the trial, the Plaintiff attempted to explain, in the course of the evidence, that the terms of that fax had been dictated by the Defendant but the Judge did not accept the Plaintiff's explanation in that respect. Indeed, the Judge had much difficulty in accepting a great deal of the evidence on both sides in this case. However, he did find that there was a contract as I have already set out. He did accept that the fax had been sent and he rejected the Plaintiff's explanation of the reason for it. It therefore follows that the Plaintiff must have been in breach of contract because this fax or letter can only be read in terms that the Plaintiff was self-admittedly in breach of contract.

12. In those circumstances, the Defendant would only be unable to recover on the counter-claim if he himself was in breach of contract. The question then arises as to whether there has been proof that the Defendant was in breach of contract.

13. Before us, Mr. Wang on behalf of the Plaintiff asserted that the Defendant was in breach of contract because he had not ordered materials in time according to the contract. But the first observation which has to be made in respect of that is that it was not a contractual term as found by the Judge that the materials for manufacturing the goods should be ordered or delivered by any particular time. The contractual term found by the Judge was that the jackets should be delivered by a particular time. The Judge also found that the materials to manufacture the jackets were delivered to the factory in late November and December. Whether that would have been in sufficient time for the jackets to be manufactured is not known but on the basis alleged by the Plaintiff in this Court, it is not possible to say that the Defendant was in default or breach of contract in failing to order the materials. It is true that the Judge disbelieved the Defendant as to ordering the materials but that, in the circumstances, does not seem to me to affect the issue.

14. The Judge, in his judgment, makes no finding that the Defendant was in breach of contract. What he says is that :-

"By reason of the above findings on credibility, I find that neither party had been able to establish that it was the other party who breached the said agreement. If it had been necessary for me to make a finding, I would probably have found that it is possible that both parties had in some ways been responsible and this resulted in the transaction falling through. It is however impossible to find out what was the exact nature of the breaches (if any) and to what extent they caused the transaction to fall through."

15. In those circumstances, it seems to me that the Defendant has established that the Plaintiff was in breach but the Plaintiff for its part has not been able to establish that the Defendant was in breach. In those circumstances, it appears to me that the Defendant is entitled to succeed in his claim.

16. What that success will amount to however is uncertain. This Court is not in a position to make the necessary findings of fact in relation to any loss which has been caused to the Defendant; the facts have not been investigated and the findings have not been made. It is clear, for example, that the Defendant has received a considerable amount of money from the Plaintiff. That would have to be taken into account. It is also clear that the Defendant was able to sell to the proposed ultimate customer of the Plaintiff at least some of the jackets which it had proposed to make for the Plaintiff to sell on.

17. It seems that the Defendant might not have received payment in respect of the goods which have been delivered. That is a matter which will again have to be investigated. The Judge made observations as to whether the failure of the Defendant to recover the sums from the ultimate purchaser was too remote to be taken into account in this case. Again, that is a matter which will have to be considered by whoever conducts the inquiry for damages which, in my view, now becomes inevitable.

18. In my view, in these circumstances, the Defendant is entitled to judgment in respect of his claim but the damages will have to be assessed on an inquiry for damages.

19. There is one further matter to which I would make reference and that is the Defendant claimed that the Judge had taken no account of a document which the Defendant averred the Plaintiff's witness, Mr. Wang, had admitted was a forged document. From a consideration of the Judge's notes of the evidence, it would seem that the position is that this particular document was in the form of what might be generally referred to as a witness statement. It was no doubt prepared by the Plaintiff and sent to the party in the Mainland for it to be adopted by them and indeed appears to have been adopted by them. But Mr. Wang resolutely refused to admit the document was a forgery or was false in any respect. It seems that although the Plaintiff would have wished the particular witness to have given this as evidence, there are no grounds for saying that the document itself was a forgery.

20. In those circumstances, I would therefore allow this appeal and, for my part, propose that there be an inquiry as to damages suffered by the Defendant.

Gall J :

21. I agree with the judgment given by Rogers JA. I have nothing to add and the appeal is to be allowed and enquiry must be made as to the damages suffered by the Defendant.

Mortimer V-P :

22. I also agree that the defendant's appeal should be allowed. On the judge's findings and his rejection of most of the evidence given by both the plaintiff's witnesses and by the defendant, it was not established that the defendant was in breach of the contract. That leaves the document dated December 1989 - actually sent on 8 December 1989 - to which reference has been made. There is no answer to that document and the judge in the circumstances ought to have held that the plaintiff was in breach.

23. I would like to also echo the remarks from Rogers JA as to the difficulty which the judge must have faced in trying this stale action. The events took place in 1989. He was trying the case many years later. It was almost an impossible task. But having made what he could have of the evidence, the result is as we find.

24. I would add for my part just this. In the circumstances it will be necessary for judgment to be given on the counterclaim with an order that the case should go to a judge of the Court of First Instance or a master for the damages to be assessed. One of the matters that will have to be taken into account, is the money that the plaintiff had already received. There is likely to be little difficulty about the $1m.

25. But as to the defendant's record of receipt of RMB334,500, the judge considered that payment and came to the conclusion that he found the evidence, in particular the testimony regarding the nature of those sums to be unsatisfactory. The documents do not support any witness and he rejected the testimony of all witnesses relating to that claim. It is likely in those circumstances that whoever assesses the damages will find it necessary to leave out of account the RMB334,500, but take into account the $1m in one way or another.

26. As to the defendant seeking to mitigate his damage by selling such jackets as were made, it appears that having sold them, he was not paid. The judge, when considering that aspect of the case, which was not relevant on his findings, indicated that had it been necessary for him to make a finding, he would have found the loss - that is the loss as a result of the defendant not being paid by the eventual purchaser - was too remote. I note that issue is still open. We have not expressed any view as to whether the judge's indication is correct or not. The person who assesses the damages will have to consider and decide upon it.

27. In those circumstances the appeal is allowed. There will be judgment on the counterclaim and an order that the case be remitted to the Court of First Instance for the assessment of the loss and damage, if any.

28. The appeal is allowed with costs.