ONFIELD CO., LTD. v. CHICK HUNG FOOK t/a TUNG HING LOONG ENGINEER WORKS

1985, No. A4684

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an action for damages for breach of contract. The issue is one of fact to be decided upon the evidence of two witnesses LAM Kwok-hung, a director of the plaintiff company and CHIK Kin-lung, the manager of the defendant.

2. On the 11th October 1984, the plaintiff entered into a c.i.f. contract with Guangdong Lingnan Industrial Products Import & Export Corporation (hereafter referred to as Lingnan), a Chinese corporation in Guangzhou for the sale of 150 used motorcar engines. The contract price was US$34,500.00, with the delivery date to be before the 20th January 1985. An irrevocable letter of credit was opened by Lingnan in favour of the plaintiff on the 20th November 1984.

3. A few days after Lingnan opened the letter of credit, negotiations were entered into between the plaintiff and the defendant for the sale and purchase of 150 used engines which correspond to these ordered by Lingnan. Mr. Lam gave evidence that he showed the letter of credit issued by Lingnan to Mr. Chik in order to establish that he was not merely asking for a quotation, but had a genuine sale. However, Mr. Chik denied that he saw the letter of credit. During the preliminary discussion, Mr. Lam requested the defendant to provide a certificate of quality from the manufacturers, but this request as they were used goods was naturally declined. However I am satisfied that the defendant agreed to provide a certificate of quality as the seller although the allegation was denied. The parties signed a pro-invoice on the 26th November 1984 which sets out details of the engine units, and the purchase price of HK$169,850.00. In the "remarks" column of the invoice, reference is made to a 10% allowance for quantity and amount, and to a condition that the engines can be started. The terms of the invoice with the exception of those mentioned in the "remarks" column were incorporated into a purchase order that was signed by the parties on the 27th November 1984, together with the delivery date which was to be on or before the 10th January 1985. Both the pro-invoice and purchase order state that the contract was c.i.f. Hong Kong by container.

4. After the contract was signed, the plaintiff applied for a letter of credit in favour of the defendant. A copy of the application was sent to the defendant and according to Mr. Lam, no queries were raised on this document. However, Mr. Chik testified that terms relating to c.i.f., certificate of quality and the delivery date did not correspond to those set out in the purchase order. Accordingly he requested Mr Lam to make amendments to the letter of credit with regard to these details. In particular he objected to the requirement that the plaintiff should have a cargo receipt. He said that the plaintiff agreed to make the amendments, but later resiled from his agreement to do so. Mr. Chik produced an agreement by the defendant with Wing Shun Hong dated the 5th December 1984 for the supply of used engines for a total purchase price of HK$141,075.00.

5. Mr. Lam said that it had been agreed that Mr. Chik would make arrangements to collect the letter of credit from the bank to expedite the transaction and that subsequently he made several telephone calls to enquire when the goods would be delivered. However, it appears that Mr. Chik never collected the letter of credit although this was not known to the plaintiff. When it became clear that the goods would not be delivered on time the plaintiff obtained an extension of time with Lingnan for their delivery date to be extended to the 10th February 1985.

6. After the defendant's failure to make delivery the plaintiff consulted solicitors who wrote to the defendant on the 28th January 1985 in which, proceedings were threatened unless delivery was made within 7 days. The defendant did not reply to this letter. Accordingly the plaintiff cancelled the letter of credit in favour of the defendant on the 14th February 1985. A further letter was written by the plaintiff's solicitors to the defendant on the 11th March 1985 claiming the sum of HK$92,745.00 as damages for breach of the contract. This letter elicited a reply from solicitors instructed by the defendant on the 22nd March 1985 which also acknowledged the letter dated the 28th January 1985. By this letter it was contended that the delivery date of the 31st December 1984 referred to in the letter of credit was incorrect and should be the 10th January 1985, whilst terms as to certificate of quality and a signed receipt by the plaintiff were not terms of the contract. The claim for damages is calculated as follows :-       

7. Resale price US$34,500.00 at HK$7.80 = HK$269,100.00

8. The defendant by way of counterclaim allege that they have suffered a loss of profit between the difference of the purchase and selling price of the 150 units which amounts to HK$28,770.00. No claims have been made by either Lingnan or Wing Shun Hong.

9. Having considered the evidence and after observing the demeanour of the two witnesses, I have no hesitation in accepting the evidence given by Mr. Lam, who I found to be an honest and reliable witness. On the other hand, I found Mr. Chik was not telling the truth on vital matters, and I am unable to place reliance upon his testimony. On several occasions during his evidence he was evasive. Where the evidence conflicts, I accept that given by Mr. Lam.

10. Upon the facts, I am quite satisfied that Mr. Lam showed the letter of credit from Lingnan to Mr. Chik, that Mr. Chik did not dispute the terms set out in the plaintiff's application for the letter of credit, and did not make a request that any of the terms be amended. I accept that the plaintiff kept pressing the defendant to deliver the goods, but the defendant failed to honour the contract. I found the evidence with regard to the alleged agreement between the defendant and Wing Shun Hong to be very dubious to say the least. Mr. Chik seemed to have little knowledge about this company with whom he claimed to have had business dealings for some years. No witness was called by the defendant to support the evidence of this contract. I found the evidence of Mr. Chik that the contract was to be by documents instead of by physical delivery of the goods was raised in a vain attempt to escape his legal obligations and I therefore reject his evidence on this issue. It is significant that no mention was made by the defendant of a counterclaim at the time of the correspondence between the parties' solicitors, but was only put forward after proceedings had been commenced. In his evidence, Mr. Chik made an extraordinary comment that the amount of the counterclaim depended upon the attitude of the plaintiff. There was no merit in this claim which was not seriously pursued. The evidence of the 10% allowance was irrelevant for it was not a term of the letter of credit.

11. The evidence conclusively shows that there was a binding contract between the parties for the delivery of 150 used engines by the defendant, that a letter of credit was issued by the plaintiff in favour of the defendant, that the defendant promised delivery by the middle of December 1984, and that in spite of continued promises, delivery was not made. At no time during this period did the defendant notify the plaintiff that the contract was not going to be fulfilled. Mr. Poll who appeared on behalf of the defendant in an attempt to mitigate damages submitted that when the plaintiff became aware that delivery would not be effected, efforts should have been made to obtain the engines from another source. However there was no evidence to support this argument which must therefore fail.

12. In the event the plaintiff's action succeeds. There will be judgment for the plaintiff for the sum of HK$92,745.00 whilst the counterclaim will be dismissed. The plaintiff is also entitled to interest at the rate of 1% above prime from the date of service of the writ to judgment together with costs.