PANACHAND & COMPANY PTE. LTD. v. POON LEE MENG t/a HIAP HENG CO. (a firm)

1985, No. A1527

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This action is concerned with four contracts for the sale of goods. In respect of three of them the Plaintiff claims damages for non-delivery and in respect of the other the Defendant counterclaims for damages in respect of the Plaintiff's breach constituted by its refusal to open a letter of credit.

2. The Plaintiff is a private company incorporated in Singapore. Its managing director at all material times was Mr. Dialip Doshi ("PW1") According to him the Plaintiff trades extensively in coffee and pepper and to a lesser extent in spices other than pepper and has long been actively trading with suppliers in Hong Kong and China.

3. In June 1984 Mr. Poon  ("the Defendant") sent the Plaintiff an unsolicited sample of dry ginger. On 21st June 1984 the Plaintiff decided to purchase 10 metric tons of the ginger to be shipped in July 1984. This transaction has been referred to by both parties as the "trial order". After the parties reached agreement by an exchange of telexes the Defendant sent the Plaintiff his standard Sales Contract form. That document, after reciting the names of the Defendant and the Plaintiff as sellers and buyers respectively, continued: -

"the sellers agree to sell and the buyers agree to purchase the undermentioned goods subject to the terms and conditions specified below and overleaf:"

Typed in "below" were the agreed details regarding quality, quantity, price, date of shipment and method of payment. Printed "overleaf" in stereotype were 19 conditions. Condition 12 which figures prominently in this case, reads as follows: -

"The basis of this contract is that the Sellers shall be able to obtain the goods from the actual suppliers, and if for any reason the suppliers cannot or do not supply the goods, then and in such event the Sellers shall be freed from all responsibility under this contract. "

4. PW1 signed this document and returned it to the Defendant. He said in evidence that there had never been any discussion with the Defendant about "the contract being subject to the availability to the Defendant of the ginger" and that when he signed the form he did not read Clause 12 of the printed conditions. In the event, however, the Defendant was unable to supply the ginger and the parties agreed on 26th July 1984 to cancel the arrangement and forego any rights which either might have had against the other.

5. At some time between 2nd and 7th September 1984, during a family holiday visit to Hong Kong by PW1, the Defendant contacted him and, as a result, they had several discussions. PW1 said that he told the Defendant that the Plaintiff bought for resale to wholesalers and that if the Defendant wanted to do "large business" with the Plaintiff he would have to "service" the Plaintiff with coffee and/or pepper. The Defendant said that he had good connections in Hainan and could supply the Plaintiff with any pepper it required from China. At some stage the Defendant showed PW1 a sample of Hainan white pepper which he said he could supply. Through oral discussions then, and an exchange of telexes after PW1's return to Singapore, the parties reached agreement on the sale and purchase of 50 metric tons of the white pepper at US$2,900 per metric ton c & f Singapore to be shipped in October 1984. According to PW1 there was never any mention by the Defendant that a term such as Clause 12 had to form part of any agreement they reached. He said that, on the contrary, he had made it clear, because he did not want a repetition of the problems he had had with the Defendant over the supply of the ginger, that he could deal with him only if the Defendant was to be responsible as supplier.

6. On 7th September 1984 the Defendant signed and airmailed to the Plaintiff one of his standard Sales Contract forms bearing that date. The "below" portion contained typewritten details of their agreement as to quantity etc. One typewritten detail varied from the agreement. They had already agreed that the method of payment was to be by Letter of Credit but the Defendant added, on the front page of the Sales Contract form, that the LC was to be transferable. The "overleaf" portion of the form contained the 19 printed conditions.

7. It is common ground that PW1 had seen the document by 11th September 1984 because, on that date, he sent the following telex to the Defendant: -

"OPENING LC TODAY AS REQUIRED BY YOU - WE AGREE TRANSFERABLE BUT PLSE NOTE YOU ARE PRINCIPAL TO US BCSE WE ONLY TRUST YOU ..... "

The next day PW1 signed the Defendant's Sales Contract form after deleting "overleaf", initialing and dating the deletion and inserting "As Principals" at the top of the front page. The Plaintiff duly opened the LC and returned the amended Sales Contract form to the Defendant.   The parties called the agreement  in respect of this sale "the first contract".

8. There then followed an exchange of telexes regarding the purchase of a further quantity of 250 metric tons of the same type of white pepper at the same price for shipment in October/November 1984. During the exchanges the Plaintiff asked on 14th September 1984 whether the pepper would be shipped in one lot of 250 metric tons or in smaller lots. The Defendant replied that same day to the effect that he would try to ship in 50 metric ton lots but that, as he propose to ship each lot as he received it, the quantity in each lot would depend upon how shipments were made from Hainan to Hong Kong.

9. On 17th September 1984 the Plaintiff telexed the Defendant confirming an earlier telephone conversation in which agreement had been reached regarding this order and adding that it would open the LC in relation to it upon receipt of the Defendant's "contract". On that same date the Defendant signed and airmailed one of his stereotyped forms bearing that date, with the agreed details as to quantity etc. typed on the front portion of the form and with no alteration to the printed conditions on the back. Again, on receipt of the document, PW1 deleted "overleaf" before signing and returning the document. The Plaintiff duly opened the LC required by the agreement for this sale ("the second contract").

10. The Defendant, in addition to informing the Plaintiff on 17th September 1984 that he was sending the Sales Contract form in connection with the second contract, offered in the same telex to supply the Plaintiff with 30 metric tons of Hainan origin black pepper, in accordance with a sample he was sending, at US$2,050 per metric ton C & f Singapore to be shipped in October 1984. After an exchange of telexes regarding the price the Defendant telexed the Plaintiff on 19th September 1984 accepting the Plaintiff's counter offer of US$1,950 per metric ton, asking for the opening of a Letter of Credit and informing the Plaintiff that the sample had been sent on 18th September 1984.

11. On 20th September 1984 the Defendant signed and sent to the Plaintiff another of his forms bearing that date, with the agreed details typed on the front portion and with no alteration to the printed conditions on the back. On 21st September 1984 the Plaintiff, before receiving that document, telexed the Defendant approving the sample. The parties referred to this Order as “the third contract”.

12. On 21st September 1984 the Plaintiff agreed to sell to a customer in Singapore 300 metric tons of Hainan white pepper at S$6,530 per metric ton with shipment “September/October 1984 from Hong Kong”. This was the pepper ordered from the Defendant under the first and second contracts. Although there was no provision in either of the “white pepper contracts” for any shipment from Hong Kong to Singapore in September, PW1 said that the September shipment term was included in his agreement with his customer for two reasons: one, in order to get a better price from his sub-buyer, and two, to avoid storage and other costs in the event that the Defendant shipped the goods to be supplied under the first contract before October.

13. On 24th September 1984 Plaintiff telexed the Defendant acknowledging receipt of the Sales Contract form and informing the Defendant that the LC in relation to the third contract would be opened on 25th September 1984. PW1 again deleted "overleaf" on the Sales Contract form before signing and returning it to the Defendant. The LC was opened on 26th September 1984.

14. In the meantime, the Plaintiff had on 24th September 1984 agreed to sell that 30 metric tons of black pepper to his Singapore customer at S$4,506 per metric ton with shipment "October/November 84 from Hong Kong".

15. On 5th October 1984 the Defendant telexed the Plaintiff offering to supply 100 metric tons of Cassia. On 24th October 1984 the Plaintiff telexed acceptance of the offer and undertook to open the relevant LC on receipt of the Defendant's "contract". The Defendant signed and sent one of his Sales Contract forms in the usual way. PW1 did not sign this form nor did the Plaintiff open the promised LC in respect of this "fourth contract".

16. PW1 said that he had a two-fold purpose in requesting the Defendant to send his Sales Contract forms in each case before opening the respective LC, even though, in his mind, at the time each request was made, a binding agreement already existed. One purpose was to have a document to submit to the bank when applying for the LC, and the other, to have a document to file as a record of the transaction.

17. On 6th November 1984 the Plaintiff telexed the Defendant informing him that the pepper in the first, second and third contracts had been sold locally and asking him to ship during November 1984.

18. On 22nd November 1984, following many telex exchanges in the interim in which the Plaintiff sought from the Defendant but failed to get any details of shipping schedules in respect of any of the goods to be supplied under those contracts, the Plaintiff telexed the Defendant as follows:-

 

"RE: [1st, 2nd & 3rd contracts] IF WE DO NOT HEAR FM YOU BY THIS WEEK WE HAVE NO CHOICE BUT TO HOLD YOU IN DEFAULT AND SEND YOU OUR DEBIT NOTE FOR LOSSES/EXPENSES FOR IMMEDIATE SETTLEMENT

 

IN VIEW OF YOUR NON-PERFORMANCE WE ALSO HAVE NO CHOICE TO TREAT [the 4th contract] AS CANCELLED BCS WE DO NOT WANT TO INCUR FURTHER EXPENSES AND HAVE NON-SHIPMENT.... "

The Defendant replied asking for an extension of time until the end of December because of difficulty in getting the Hainna supplier to ship. The Plaintiff refused to grant an extension. In evidence PW1 said that he had by then lost all confidence in the Defendant's ability to supply the goods. He had obtained one extension of the shipment date in respect of the white pepper from his own sub-buyer but when he found that the Plaintiff could not meet that deadline through the Defendant's default his sub-buyer refused to grant any further extension. He was unable to obtain the pepper elsewhere and was unable to fulfill his obligations to his sub-buyer.

19. In cross-examination PW1 agreed that when he entered into each of the contracts he had no specific sub-buyer in mind. He bought on the basis of his judgment of  the market that he would be able to re-sell at a profit because of the favorable price at which he had agreed to buy.

20. By its Statement of Claim the Plaintiff alleged that the Defendant wrongfully failed to deliver any of the goods under the first, second and third contracts and claimed damages for loss of profits or, alternatively, wasted expenditure.

21. PW1 was the only witness for the Plaintiff and the Defendant was the only witness for the Defense.

22. The Defendant said in evidence that Clause 12 was part of the printed conditions in his Sales Contract form because it exempted him from liability in the event that he was unable to obtain the goods from his supplier and that he "would absolutely not contract without [that] condition". He said that he had never discussed the Clause at any time with PW1 because he thought it was "not necessary to talk about it". He said he expected to deal with the Plaintiff on the same terms as the contract they both "signed" in June 1984 in respect of the ginger. He did not notice any of the deletions made by PW1 in any of the Sales Contract forms.

23. The Defendant, dealing with the first contract, said that when the Plaintiff telexed on 11th September 1984 agreeing to make the LC transferable he thought that the Plaintiff thereby signified acceptance of the printed conditions on the back of the Sales Contract form. It was in that belief that he then "entered into a contract with China for white pepper". The document to which he was then referred records an agreement dated 12th September 1984 for the sale and purchase of 100 metric tons of white pepper under which a company in Hainan was the seller and someone other than the Defendant was the Hong Kong buyer. The delivery was to be by partial shipments to Hong Kong during October/November 1984. The Defendant said that he had asked that Hong Kong buyer to obtain the pepper from Hainan for him.

24. He was then referred by his counsel to another similar document in his bundle recording an agreement dated 15th September 1984 between the same parties relating to the sate and purchase of the same quantity of white pepper at the same price with the same delivery terms. When his counsel asked him what the purpose of this document was he replied: "To sell the quantity to the Plaintiff". That document was number 16 in his bundle.

25. He was then referred to Document 17 in his bundle. Apart from the fact that Document 16 is headed "Serial No. 12" and Document 17 is headed "Serial No. 15" there is no other difference between their contents. Questioned by his own counsel about Document 17 the Defendant replied that it was entered into to "satisfy the contract" between the Plaintiff and himself.

26. Pertinent parts of the cross-examination of the Defendant were as falloffs :-

 

"Q.    So by 10th September at the latest agreement [sc. as regards the first contract] had been concluded?

 

A.    Yes . . . . .

 

Q.    Do you accept that by the telex [sc. the 'YOU ARE THE PRINCIPAL' telex of 11th September 1984] he would hold you responsible and no one else?

 

A.    Yes, I suppose . . . . .

 

Q.    The second contract, you accept, agreement was concluded by the exchange of telexes, the last of which was on 17th September 1984 in Defendant's bundle Document No. 20?

 

A.    Yes.

 

Q.    The third contract was agreed by the telex dated 19th September 1984 in Defendant's bundle, Document No. 29?

 

A.    Yes.

 

Q.    Before the other side received Defendant's Document No. 31 [sc. Sales Contract form dated 20th September 1984]?

 

A.    Yes . . . . .

 

Q.    On 22nd November 1984 when you learnt that [the Plaintiff was repudiating the fourth contract] did you take any action to fulfill your contract with your supplier?

 

A.    No.

 

Q.    You did nothing at all?

 

A.    Agree.

 

Q.    Your contract with your supplier of cassia fell through because you did not open the LC?

 

A.    Yes, because the Plaintiff did not open the LC for me .....

 

Q.    Did you approach any potential customers?

 

A.    No.

 

Q.    You assumed that there were no potential customers because no one approached you?

 

A.    Correct. "

27. The Defendant's defense was that Clause 12 exonerated him from performance because his supplier had never supplied him with the goods. He counterclaimed for damages arising from the Plaintiff's alleged (and, from the first day of the trial, admitted) breach of the fourth contract.

28. I find that Clause 12 never formed part of any of the 1st to 4th contracts. It is common ground that there was never any discussion between the parties concerning the inclusion of a term or condition such as Clause 12 in connection with the pepper and cassia contracts.

29. I was impressed by PW1 as a witness and I accept his evidence that he would not have agreed to an arrangement under which the Defendant's obligation to supply was to be conditional upon the goods being acquired by the Defendant. The Plaintiff's own arrangements as seller of future goods were not subject to any such condition. I accept the implications of PW1's evidence to the effect that it would have been a serious commercial disadvantage for the Plaintiff to agree to the type of arrangement about which the Defendant alleges they did agree. PW1 gave me the impression that he was a very experienced businessman well aware of the usual obligations undertaken by sellers and buyers in sale of goods transactions. He is therefore unlikely to have been so unbusinesslike as to agree that the Defendant as a soliciting seller selling future goods to the Plaintiff should have the benefit of a conditional obligation to supply whilst he [the Plaintiff] on resale of the same future goods had to undertake an absolute obligation to supply. PW1's conduct, after receiving the Contract of Sale form dated 7th September 1984, in (a) sending the telex of 12th September, (b) deleting the "overleaf" conditions and (c) adding "As Principals" was, I accept and find, inconsistent with his having agreed. to the printed conditions on the back of the Contract of Sale form.

30. I cannot accept the evidence of the Defendant to the effect that he would not have entered into anything other than a conditional contract of sale. If that had been his attitude he would not, on my findings, have been able to reach agreement with the Plaintiff through PW1.

31. I find that the agreements between the parties were arrived at in respect of each of the four contracts by way of oral discussion and exchange of telexes. The evidence of the agreements is to be found in those communications. In each transaction all the essential terms -- the names of the parties, the subject matter, the price, the method of payment, the mode and date of performance -- were in that way agreed and it is there that the evidence of them is to be found. PW1's requests to the Defendant to send his "Contract" were not expressions of a condition but merely requests for the supply of a document setting out the terms on which they had agreed. I accept the evidence of PW1 to the effect that the execution of the document in each case had a twofold purpose: one, to show the bank a compact written record of the terms of their agreement in connection with the application for the appropriate LC; and two, to provide a readily accessible record in their own files of the terms of their agreement. On each occasion when PW1 asked the Defendant to send his "Contract" the agreement was by then complete and could not be affected by any subsequent proposals unless they were agreed upon by both parties as a variation of the agreement already concluded. The subsequent signing of the Defendant's Sales Contract forms was merely an incident in the performance of their contractual obligations and was not meant by them to be the "closing handshake", as it were, signifying he clinching of their agreement.

32. I find that the Defendant was obliged to deliver under each of the four contracts and that as he did not deliver on the due date in respect of the 1st, 2nd and 3rd contracts he is liable for non-delivery. I find that in respect of the 4th contract the Plaintiff is, by admission, in breach.

33. Mr. Kan, on behalf of the Defendant, submitted that since the Plaintiff by its pleadings relied on the written "contracts" to support its claim it could not succeed if I found that the evidence of the contracts was to be found, not in the Sales Contract forms but in oral and telex communications between the parties. I have, of course, found that the evidence of their agreements is to be found in those communications and not in the Sales Contract forms. All that that means, however, is that the Plaintiff wrongly identified the evidence of the agreements in its Statement of Claim. The pleaded terms of the agreements have been proved and those terms are identical with the terms in the written documents which the Plaintiff wrongly identified in the Statement of Claim as evidence of these agreements. The failure to identify the area of the evidence proving the agreements has in no way embarrassed the Defendant in the conduct of his Defunct. I find no merit in this submission.

34. In respect of the 1st, 2nd and 3rd contracts, I accept PW1's evidence and find that there was no available market for the pepper and that the Defendant knew that the Plaintiff bought the goods for resale. I further find that the Plaintiff is entitled to his loss of profit on the resale through the Defendant's failure to deliver the pepper. I accept the Plaintiff's unchallenged evidence that that loss amounted to S$88,620.00. The Plaintiff is entitled to recover that sum. As the claim for wasted expenditure is an alternative to the claim for loss of profit I do not now need to consider it.

35. In respect of the 4th contract, all that needs to be said is that the Defendant (a) offered no proof of loss and (b) gave evidence to the effect that he took no steps to mitigate any loss he may have suffered as a result of the Plaintiff's breach. In the circumstances, he is entitled to receive no more than nominal damages.