METALLGESELLSCHAFT (MALAYSIA) SND BHD v. ZHUM HENG DEVELOPMENT LTD.

1989, No. CL-14

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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J U D G M E N T

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1. The Plaintiffs are a Malaysian Company who are suppliers of various commodities including latex products. The Defendants are Hong Kong Company which is a subsidiary of a People's Repuolic of China company.

2. The Plaintiffs are making a claim for breach of contract to supply the Defendants with a large quantity of latex. They claim that the Defendants refusal to open a Letter of Credit under the contract which was concluded constitutes a repudiation of the contractual terms.

3. There were 2 witnesses who gave evidence for the Plaintiffs. They were Mr. Raymond Chin, their Managing Director and Mr. Freddy Lee, the Head Trader in Rubber for the Company.

4. Mr. Chin gave evidence that on either the 17th or 24th of June 1988, he and Mr. Lee attended upon 2 representatives of the Defendants company, Mr. Steve Lai and Mr. Walice Wong who had been introduced to them by Mr. Thomas Chew who is an agent in Kuala Lumpur.

5. Mr. Chew had made a prior appointment for the meeting. The purpose of the meeting was to ascertain whether it would be possible for the Plaintiffs to supply the Defendants with large quantities of latex.

6. Mr. Chin had commenced the meeting by stating that the Plaintiffs were not interested in doing business on Chinese terms. At that time the market in latex was decidedly bullish and he did not wish to consider undertaking business on terms other than the usual conditions adopted which tied in with the arrangements they were able to make with their own suppliers.

7. When it had been established that the Defendants were agreeable to this Mr. Chin had instructed Mr. Lee to take out a contract and a Letter of Credit from amongst those which had recently been concluded and use the documents as models to explain to the Defendants in detail the terms which would be agreeable to the Plaintiffs.

8. The whole process of the meeting had taken between 1 1/2 and 2 hours. At the conclusion of the meeting, Mr. Lai who was the main spokesman for the Defendants had said that they were interested in doing business on those terms.

9. He also claimed to have some knowledge of the latex business. He had raised various points during the discussion but when the situation had been explained to him, he had agreed to go along with the terms suggested.

10. So far as the Plaintiffs were concerned, Mr. Lee was the main spokesman. He had said that the London RTA CIF contract No. 10 would be applicable to the transaction. Some modifications to that format would be necessary as Mr. Lai had proposed that the contract should be on F.O.B. terms. Mr. Lee had said that this was no problem. Arrangements could be made for the shipment to be from one of the 3 main Malaysian ports or from Singapore.

11. One of the other important matters discussed was the Plaintiffs requirement for an irrevocable Letter of Credit to be opened at least one month prior to shipment which would be payable in respect of the whole transaction. All these conditions appeared to be agreeable to the Defendants. Mr. Lai indicated that they were interested in proceeding and that they anticipated placing an order for approximate 2,000 tons of latex. In all important respects Mr. Chin's evidence was corroborated by Mr. Lee. He also said that the meeting in middle or late June had lasted about 1 1/2 to 2 hours. He had gone through the contracts on pages 21 and 23 of the 3rd bundle and the supporting Letter of Credit. The purpose of doing this was to spell out in detail the terms upon which the Plaintiffs would be prepared to do business should the Defendants want to take matters further. While going through these documents Mr. Lee had gained the impression that Mr. Lai had some familiarity with the latex business. He formed this view from the questions which Mr. Lai posed to points which were raised.

12. At the conclusion of the meeting, Mr. Lai and Mr. Wong appeared to be well satisfied and Mr. Lai had said that he anticipated that the Defendants would be ordering 2,000 tons of latex. Mr. Chin had then said that it might be wise to proceed on a rather more conservative basis while the parties were still getting to know each other.

13. The next thing which happened was that Mr. Chew telephoned him on the 26th or 27th of June and asked for some prices. Mr. Lee was able to quote prices for delivery in January to March 1989 period but had difficulty in doing so for September to December 1988 due to the heavy demands there were for latex at that time. However, on the 30th of June he was able to make quotations for this period and he did so. The price he quoted was good until noon the next day.

14. On the 1st of July early in the morning he received a telephone call from Mr. Chew when he was told that Mr. Lai would be telephoning him and placing an order for 12 full containers of latex for October, November and December 1988 at the price of US$2,214 per wet ton. The details of the transaction were to be in accordance with the conversations he had had with Mr. Chew the day before and the conversation which had taken place at the recent meeting of the parties.

15. There were other telephone calls that day concerning the price for latex to be delivered from January to March 1989. After some haggling it was agreed that 6 containers of latex would be delivered in January, February and March 1989 at the price of US$2,209 per wet ton on similar terms to the other shipments.

16. The prices quoted had been F.O.B. prices for Malaysian ports or Singapore. Mr. Lee asked for confirmatory telexes of these orders.

17. Confirmation was then received. It was in the following form:

    "WE HEREBY CONFIRM TO PURCHASE TOTAL 600MT OF M.A. LATEX AT YR PRICE FOB USD 2214/MT. SHIPMENT DATE:

OCT 1988 .... 200 MTS

NOV 1988 .... 200 MTS

DEC 1988 .... 200 MTS

APPRECIATE IF YOU MAY T/X US FOR CONFIRMATION"

"WE HEREBY CONFIRM TO PURCHASE 287.82 MT H.A. LATEX AT PRICE USD2209 FOB MAYLASIA.

SHIPDATE: JAN. 95.94 MTS

FEB. 95.94 MTS

MAR. 95.94 MTS

APPRECIATE YR TLX CONFIRMATION"

18. He then sent back their own confirmation as follows:

"WE CFM HAVING SOLD TO U TDY CENTRIFUGED LATEX 60% DRC H.A. (PACKED IN 205 KG DRUM), FOB MSIAN OCEAN PORT/SPORE TO CHINA AS FOL:

1) TOTAL: 36 CONTAINERS = 575.64 WET TONS

    SHPT: OCT. 1988 - 12 CONTAINERS =

191.88 WET TONS

NOV. 1988 - 12 " =

191.88 WET TONS

DEC. 1988 - 12 " =

191.88 WET TONS

    PRICE: AT USDOL2214 PER WET TON

    CONTRACT: S10495

2) TOTAL: 18 CONTAINERS = 287.82 WET TONS

    SHPT: JAN. 1989 - 6 CONTAINERS =

95.94 WET TONS

FEB. 1989 - 6 " =

95.94 WET TONS

MAR. 1989 - 6 " =

95.94 WET TONS

    PRICE: AT USDOL2209 PER WET TON

    CONTRACT: S10501

PAYMT TERM FOR 1 + 2 ABV:

BY UNRESTRICTED IRREVOCABLE L/C, PAYABLE AT SIGHT, TO BE OPENED IN OUR FAVOUR BY FIRST CLASS BANK IN HONG KONG BY FULL TLX THRU DEUTSCHE BANK, KUALA LUMPUR. IN FULL AMOUNT TO COVER FOR BOTH CONT. S10495 + S10501 ON 1/9/1988.

TK U FOR THE BIZ"

19. No reply was ever received to this telex. Mr. Lee then took steps to cover the transactions in the market.

20. Also on the 1st of July Mr. Chew came in with letters for signature by them agreeing to pay commission to Mr. Chew's company. These letters were at pages 28 and 29 of bundle 3. Prior to the sale of the latex Mr. Chew had requested Mr. Lee to build into the quotation sufficient latitude to enable him to receive US$60 per metric ton. He had provided for this.

21. The next thing that happened was that Mr. Lee prepared contracts for signature by the parties. It took a few days for the copies to be prepared. When they were completed Mr. Lee and one of his colleagues signed the contracts and they were sent over by hand to Mr. Chew for onward transmission to the Defendants for signature and return of copies.

22. Mr. Chew drew his attention to the fact that in error Mr. Lee's secretary had typed January, February and March 1988 instead of 1989. The copy was then retyped with the correct dates and Mr. Chew took them away for signature.

23. As the 1st shipment was to be in October, the Letter of Credit should be opened by the beginning of September. As this time drew close Mr. Lee began to feel slightly anxious as the Defendants had not returned the contracts signed. This anxiety was partly due to the fact that since early August, the price of latex had been falling quite sharply. Mr. Lee pressed Mr. Chew on a number of occasions for the opening of a Letter of Credit.

24. In the early part of September, there was an exchange of telexes between the parties. Mr. Lai sent one seeking confirmation that the Letter of Credit to be opened should be a revolving one for each shipment rather than for the whole amount.

25. Although this was not what had been agreed by the parties, Mr. Lee after consultation with Mr. Chin sent back a telex saying that this would be in order. The reason he gave for agreeing to this departure from the agreement which had been concluded was that by this time the Plaintiffs were in a very difficult position. They were being pressed hard by their suppliers for fulfilment of their contractual obligations. They thought that if the Defendants were under financial pressure it might assist them to have this slight relaxation in the terms of payment.

26. On the 17th of September the Defendants sent a telex in this form:

    "TO: METALLGESELLSCHAFT (MALAYSIA) SDN. BHD

SEPT 17, 1988

RE: YOUR 14TH SEPTEMBER 1988 FAX

1) WE HAVE NEVER CONFIRMED THE PURCHASE OF 287.82 WET TONS FROM YOU. AT ALL TIMES. WE INTEND TO PURCHASE 287.82 METRIC TONS (MTS) OF LATEX.

2) WE HAVE NEVER CONFIRMED THE PURCHASE OF 600.00 WET TONS FROM YOU. AT ALL TIMES. WE INTEND TO PURCHASE 600 METRIC TONS (MTS) OF LATEX.

3) WE HAVE NEVER GRANTED MAKSHU MATCOR (M) SDN BHD ANY AUTHORITY TO CONFIRM PURCHASE ON OUR BEHALF.

4) WE NOTE THAT YOU AGREE WITH US THAT PAYMENT OF PRICE NOW UNDERSTOOD BY THE PARTIES IS BY REVOLVING L/C INSTEAD OF FULL AMOUNT L.C.

PLEASE LET US KNOW WHICH PAYMENT TERM IS CONSIDERED BY YOU AS "OUR CONTRACTUAL TERMS".

RE: YOUR 1/7/88 AND 15/9/88 TELEXES

WE HAVE NOT YET COMPLETED OUR NEGOTIATION WITH YOU ON THE TERMS OF THE SALE AND PURCHASE. IN FACT, WE HAVE NEVER DISCUSSED THE FOLLOWING TERMS IN THE 1ST JULY 1988 TELEX RE SALE OF 287.82 TONS OF LATEX:-

1) THE PRICE WE CONFIRMED IS PER METRIC TON NOT PER WET TON. THERE IS QUITE A BIG DIFFERENCE BETWEEN THE TWO CALCULATION.

2) THE SIZE OF CONTAINERS IS TO BE DECIDED BY US. HENCE YOU CAN'T RESTRICT THE NO. OF CONTAINERS TO 18 OR 36.

3) LOADING PORT IS TO BE SPECIFIED BY US, WHICH MAY NOT BE MALAYSIAN OCEAN PORT/SINGAPORE.

4) THE TYPE OF DRUM TO BE USED NOT SPECIFIED.

5) WE RESERVE THE RIGHT TO DECIDE THE QUANTITY OF LATEX TO BE SHIPPED EACH HONTH, WHICH MAY NOT BE 6 OR 12 CONTAINERS EACH MONTH.

6) EXACT TERMS OF LETTER OF CREDIT NOT YET FINALIZED, BUT CERTAINLY NOT "UNRESTRICTED, IRREVOCABLE LETTER OF CREDIT PAYABLE AT SIGHT, ... FOR FULL AMOUNT TO COVER BOTH CONTRACTS ...".

7) NEVER AGREED THAT 1/9/88 IS THE LAST DAY FOR DELIVERING L/C TO YOU.

8) WE DO NOT KNOW THE EXACT WORDING OF LONDON RTA-CIF CONTRACT NO. 10. WHY ARE CIF CONTRACT TERMS TO BE APPLIED TO A FOB SALE?

9) YOU HAVE NEVER MENTIONED WHICH COUNTRY'S LAW IS TO BE ADOPTED AND WE HAVE NEVER AGREED THAT THE SALE WILL BE SUBJECT TO MALAYSIAN LAW. WHY DO YOU NOW DEMAND US TO ACT IN ACCORDANCE WITH YOUR WISH AS PER YOUR 15TH SEPTEMBER 1988 TELEX?

WE JUST WANT YOU TO TELL US WHEN DID THE PARTIES AGREE UPON THE TERMS AS PER YOUR 1ST JULY 1988 TELEXES?

REGARDS

STEVE LAI

ZHUM HENG DEVELOPMENT LTD.

c.c. MAKSHU MATCOR (M) BHD

MGMSB MA30968"

27. Mr. Lee was definite that contracts had been concluded between the parties on the 1st of July.

28. Neither Mr. Chin nor Mr. Lee were shaken at all in the cross-examination and they both struck me as being truthful and reliable witnesses. I have no hesitation in accepting their testimony in its entirety.

29. Both Mr. Lai and Mr. Wong gave evidence for the Defendants. I regret having to say that they were both thoroughly unconvincing and unsatisfactory witnesses. Neither man had had any relevant previous experience in dealing in commodities and I found it to be quite alarming that these two young men should have been given the responsibilities they were.

30. Mr. Lai gave evidence that the sole purpose of his and Mr. Wong's visit to Malaysia was for them to meet suppliers and check their suitability for providing latex. He would not accept that his brief in any way extended to familiarizing himself with any terms of trade which may need to be considered.

31. He said that he and Mr. Wong had been introduced to four different suppliers in Kuala Lumpur by Mr. Chew, their agent. Notwithstanding the evidence given by them all of fairly detailed discussions concerning trading terms, he denied that any such matters had been discussed.

32. More specifically so far as the Plaintiffs were concerned, he strenuously denied that Mr. Lee had taken them through any other contracts they had concluded with anyone else or gone through a Letter of Credit as stated by Mr. Chin and Mr. Lee, Mr. Lai said that the meeting had simply been an exploratory meeting and had not taken more than 1/2 hour. The upshot of this was that he denied that the meeting had been used for the purpose of discussing what terms of business should be adopted should the parties decide to enter into a contractual relationship. Indeed he said that Mr. Lee had said that a contract would only exist after the parties had signed a document to this effect.

33. Mr. Lai did, however, admit that he did have a number of telephone conversations with Mr. Lee on the 1st of July. He claimed, however, that the purpose of the calls was simply to ascertain prices and whether delivery of the amounts required could be made as they were needed. He also admitted sending the confirmatory telexes I have already referred to earlier. The reason he gave for sending them was because Mr. Lee had asked for them. He also admitted receiving Mr. Lee's recap at bundle 3 document 24. The reason he gave for not taking action on it was that he and Mr. wong were on the 2nd of July proceeding to Taiwan on other business. He said that he had passed the matter to Mr. Wong for further action as he was proceeding on his holiday to the United States shortly after his return from Taiwan.

34. Mr. Lai also was unable to give any convincing or plausible explanation for the action or rather lack of action on the Defendants part in September when it became obvious from the communications being exchanged between the parties that the Plaintiffs were claiming the existence of the two contracts.

35. Mr. Wong was unable to be of much assistance. He also insisted that none of the suppliers had discussed terms of trade in any detail at all and that he had little or no knowledge now or then of the latex business.

36. His evidence was particularly unsatisfactory regarding the manner in which the Defendants dealt with correspondence or communications from 3rd parties. He was unable to give any plausible reason for the Defendants failure to notify the Plaintiffs that in their opinion no contracts were in existence.

37. I am afraid that I am unable to avoid coming to a conclusion that both Mr. Lai and Mr. Wong have deliberately told lies to the court to support their version of events.

38. Besides making this assessment of these men, there have been a number of other matters which have drawn me to this conclusion.

39. If this matter is to be considered in the context of a commercial dispute, it would appear to be highly improbable that experienced men such as Mr. Chin and Mr. Lee would have failed to describe in detail trading terms if potential customers had travelled from Hong Kong to Malaysia for the purpose of obtaining latex. It seems to me to be a sensible and obvious way of discussing the terms which would apply by going through similar types of contract with other customers. The same observations are applicable to the details of the Letter of Credit. I have no doubt whatever that this was the procedure which was adopted at the meeting.

40. The next matter I would refer to is the shifting nature of commodity markets. It is inconceivable to me that experienced men such as Mr. Chin and Mr. Lee would for one moment contemplate allowing a contractual position to remain open while written contracts were drafted, agreed and signed by parties who were abroad. By the time all this was done, the original prices being discussed would in all probability have become obsolete.

41. Perhaps the most important factor bearing upon this case is the contemporaneous documentation. It is transparently clear from the documents that contracts were concluded on the 1st of July. This is manifest from the wording of the telexes which I have already referred to.

42. I have also borne in mind the fax from Mr. Chew to Mr. Lai and Mr. Wong dated the 30th of June which reads as follows:

"Date : June 30 1988

To : Walice Wong/Steve Lai

From : Thomas Chew

1.     Full Ammonia Centrifuged Latex 60% DRC.

Please reply our offer to you before 12.00 noon Malaysia on July 1 1988 as follow :

36 FOB = 575.64 metric tons wet. (12 FOB = 181.88 wet tons monthly for Oct/Nov/Dec 1988 shipment) at US$2,210,000 per wet ton FOB Malaysia port/Singapore.

Packing : To be packed in 205 kg per drum and 1 FOB = 15.99 wet tons.

Payment : By unrestricted irrevocable L/c payable at sight in full amount to cover the whole tonnage to be opened by first class bank Hong Kong by full telex in our favour through deutsche bank Kuala Lumpur, one month prior to shipment."

43. When this is taken in conjunction with the subsequent conduct of the parties an irresistible conclusion has to be drawn that both parties knew perfectly well that contracts had been entered into on the 1st of July. There can also be no doubt whatever that detailed terms and conditions were discussed and agreed by the parties at the meeting which I am satisfied took place on the 24th of June 1988, and as a result of the conduct of the parties, these terms and conditions were made part of the contracts.

44. I regret that the only conclusion I am able to draw from all of the evidence is that when the Defendants realised that the latex market had dropped substantially they simply sought to evade the commitments they had entered into.

45. Very unfortunately due to the limited time available it has not been possible to also canvass the amount of damages which should be payable as a consequence of the Defendants breach of contract. This is a matter which will have to be attended to in due course.

46. In the meantime I have no hesitation whatever in finding that the Plaintiffs have established that the Defendants are liable for the breach of the two contracts.

47. I will hear the parties on costs and on the arrangement which will need to be made in respect of the assessment of damages.