TUNG WING STEEL CO LTD v. GEORGE WIMPEY INTERNATIONAL LTD

Head-note

Commercial Law - Contract - Sale of goods - Standing Offer.

                By an agreement in writing, the plaintiff steel supply company agreed to sell reinforcing rods to the defendant civil engineering company at fixed prices for a two year period. The agreement contained a stipulation to the effect that the rods could only be used by the defendant for a particular project known as M. T. R. C. Contract No. 412. There was no provision, express or implied, about quantities; nor was there any provision to the effect that the defendant was obliged to purchase all its requirements of rods for M. T. R. C. Contract No. 412 from the plaintiff. The written agreement provided that delivery was to be "By partial deliveries ex-godown".

                After eighteen months, the plaintiff gave notice it would thenceforth refuse to accept any future orders from the defendant at the fixed prices, despite the fact that the defendant still needed more rods to complete M. T. R. C. Contract No. 412.

Held, the plaintiff was within its rights to refuse to accept future orders as the agreement amounted to no more than a standing offer which could be terminated by the plaintiff at any time in respect of future orders.

H.C.A. No. 3285/84

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. George Wimpey international Limited, ("Wimpey"), is a well-known international civil engineering contractor. In 1982, it was awarded a contract by the Mass Transit Railway Corporation ("MTRC") to build an overhead station and associated external works at Chai Wan for the new island Line. The contract price was H.K.$116 million.That contract was designated "MTRC Contract 412". Under that contract, Wimpey had to begin the work on the 5th July 1982, and complete it by week 26 of 1984, namely the end of June 1984.

2. The Conditions of Contract made detailed provisions for extensions of time in the event of variations, additions, and the like, but also stipulated that any unauthorised delay would render Wimpey liable to liquidated damages at the rate of HK$125,000 per day.

3. For the purpose of performing the works under MTRC Contract No. 412, Wimpey needed substantial quantities of steel reinforcing rods to build concrete structures. As early as April 1982, Wimpey sought preliminary quotations for the supply of steel rods. One company which submitted a quotation then was the Tung Wing Steel Company Ltd, ("Tung Wing"), the Plaintiff in the present proceedings. On the 29th September 1982, Wimpey entered into a written agreement with Tung Wing for the supply of steel. That written agreement will be found at pages 21 and 22 of the Agreed Bundle. I do not propose to set out the whole document. It was on Tung Wing's standard form and bore the description "Sales Contract". It stated "Sold by Tung Wing (hereinafter called "the Sellers") to Wimpey (hereinafter called "the Buyers") the undermentioned goods subject to the terms and conditions as specified hereunder and on back hereof".

4. I do not propose to set out the standard conditions which were on the back of the document as nothing turns on them on the view I take of this case. The only parts of the agreement of relevance for the proceedings before me were the following:-

5. Between September 1982 and 15th December 1983, Tung Wing delivered slightly over 2,000 tons of steel rods to Wimpey pursuant to the written agreement of 29th September 1982. That period witnessed a weakening in Hong Kong's currency. Whereas in September 1982 the Hong Kong Dollar stood at the rate of approximately HK$6.30 = US$1, by September or October 1993 it had gradually deteriorated to a rate of HK$9.00 = US$1.00. In September   or October 1983, the Hong Kong dollar was linked to the US dollar at the rate of approximately HK$7.80 = US$1.00, and that rate has more or less held firm ever since.

6. As Tung Wing had to buy its stocks of steel rods on world markets in United States dollars, Tung Wing inevitably lost heavily on its arrangement to sell to Wimpey at fixed prices in Hong Kong dollars.

7. After supplying slightly over 2,000 tons of rods to Wimpey at the prices fixed by the written agreement of 29th September 1982, Tung Wing wrote to Wimpey on the 15th December 1983 stating, in effect, that it was no longer prepared to sell steel rods at the old prices, but instead, offered for the future to make spot sales to Wimpey at current prices, or otherwise offered to enter into a new agreement with Wimpey to sell the best of the steel which Wimpey needed to complete MTRC Contract 412 at a new fixed price. The letter added that Tung Wing knew that Wimpey still needed about 600 tons of rods to complete the job.

8. By the time Tung Wing sent Wimpey that letter of 15th December 1983, the market price of steel rods was on average some 25% higher than it had been at the time of the written agreement dated 29th September 1982. Wimpey protested at being asked to pay this higher price, its contention being that Tung Wing had agreed to supply all the steel for MTRC Contract no. 412 at the prices fixed in the written agreement dated 29th September 1982, but, nonetheless, Wimpey did enter into a fresh written agreement dated the 20th December 1983 to supply a minimum of 700 tons and a maximum of 750 tons of steel rods at prices approximately 25% higher than in the written agreement of 29th September 1982. The full text of the written sales contract of 20th December 1983 is at pages 35 to 37 of the Agreed Bundle. No useful purpose would be served by going into all the detailed terms and conditions of that contract. Suffice it to say that this time the quantity was specified, namely a minimum of 700 and a maximum of 750 tons; the delivery period was to be between December, 1983 and August 1984, during which time the prices were those fixed by the contract; payment was to be within 45 days of delivery and there was still the term that all the steel was to be used for MTRC Contract 412 only.

9. Between 20th December 1983 and April 1984, Wimpey ordered 747.357 of steel rods from Tung Wing ostensibly under the agreement in writing dated 20th December 1983. If those rods had been bought at the prices fixed by the agreement in writing made on the 29th September 1982, they would have cost HK$325,287.20 less than they did at the prices fixed by the agreement in writing dated 20th December 1983.

10. As I have already indicated, there was a provision for 45 days' credit in the agreement in writing dated 20th December 1983. Wimpey has taken advantage of that 45 day credit period by accepting the 747.357 tons invoiced under the written agreement dated 20th December 1983, but withholding payment of the sum of HK$325,287.20.

11. By the present proceedings, Tung Wing sues Wimpey for this sum of HK$325,287.20.

12. Wimpey has sought to justify the course it has adopted on two grounds. Firstly, Wimpey contends there was no consideration for the agreement in writing dated 20th December 1983. According to Wimpey, the written agreement dated the 29th September 1982 imposed an obligation on Tung Wing to supply all of Wimpey's requirements for MTRC Contract no. 412 at the prices fixed in that agreement. That pre-existing obligation meant that there was no consideration for, a purported subsequent agreement to pay higher prices. That is the principle of Stilk v. Myrick (1809) 2 Camp 317. Secondly, Wimpey contends it is not liable under the written agreement dated 20th December 1983 because it only entered into it as the result of economic duress.

13. I will deal with the absence of consideration point first. If Wimpey is held to its pleadings, it cannot say that the agreement dated the 29th September 1982 was partly in writing and partly oral. Wimpey, by its pleadings, has confined itself to saying that the agreement was soley in writing. If, as pleaded, the agreement between the parties was embodied in the writing dated the 29th September 1982, the Court is faced with the simple task of construing the terms of that written agreement to see whether it really does require Tung Wing to supply all the steel for MTRC Contract 412, as Wimpey contends.

14. Keeping within the four walls of the agreement in writing made between the parties on the 29th September 1982, the Court comes to the unhesitating conclusion that this is a classic example of what is known in law as a standing offer. I set out what Benjamin's Sale of Goods (2nd edition) at paragraph 149 says on this topic:-

"Standing offer. A party may offer to sell such quantities of certain goods as the other party may from time to time order, usually within stated limits. Similarly, a party may offer to buy such quantities as the other may acquire (or produce) and tender from time to time. The " acceptance" of such an offer does not create any binding obligation; but on each occasion when an order is placed or a consignment tendered, the party who has made the offer is bound to sell or buy the quanitity in question. Apart from this, the offer may be withdrawn at any time unless consideration has been given in return for an undertaking to keep it open. The offeree for his part is not bound to place any order or tender any goods unless he has expressly or impliedly promised to do so."

15. The terms of the document imposed no obligation on Wimpey to buy anything. One cannot begin to spell out any obligation on Wimpey to purchase all its requirements for MTRC Contract 412 from Tung Wing. The terms of the document leave Wimpey unhampered to make all its purchases elsewhere, if it is so minded.

16. On the terms of the document dated 29th September 1982, there is no discernible consideration moving from Wimpey for Tung Wing to keep its offer open to supply at the prices specified in the document. The conclusion is irresistible that Tung Wing was wholly within its rights when it refused to make any further sale at the same prices after the 15th December 1983.

17. Although it had never pleaded to this effect, Wimpey argued at the trial that a condition should be implied into the agreement dated 29th September 1982 that the parties had agreed that Tung Wing should sell and Wimpey should buy all the steel bars required for MTRC Contract 412. Mr. Christopher Mumford, Q. C., on behalf of Tung Wing, with characteristic fairness allowed Wimpey to advance that argument, despite the absence of pleadings to support it.

18. On what basis this term was supposed to be implied was never quite made clear. The only conceivable basis for implying such a term, as I see the position, would be on the well-known Moorcock principles ⁽¹⁾. The Moorcock principle is, basically, that a term will be implied if it is necessary, in the business sense to give efficacy to the contract, or if it is something so obvious that it goes without saying. I do not propose to deal with the Moorcock principles at any length since they were not argued before me. Suffice it to say that in my view, it is not necessary to imply a term of the type now under discussion for the purpose of giving business efficacy to the arrangement embodied in the written agreement dated the 29th September 1982. That standing offer worked perfectly well and is an arrangement well-known to the law. Nor do I for one moment think that it goes without saying that the parties must have intended that this was a sale and purchase agreement for all the steel for MTRC Contract 412.

19. Although Counsel for Wimpey talked in terms of implying a condition, I think, on reflection, that what she was really asking me to find was that the parties had expressly agreed that this was to be a sale and purchase agreement for all the steel for MTRC Contract 412. Instead of asking me to imply a term, Counsel for Wimpey was, in effect, asking me to rectify the contract, or perhaps to find a collateral contract between the parties for the sale and purchase of all the steel. That the concepts of rectification and collateral contract were not touched upon will not result in any prejudice to Wimpey, as I propose to deal with this case on its merits, rather than on technicalities.

20. A major problem for Wimpey is that the agreement in writing dated 29th September 1982 gives the appearance of being complete on its face. Generally, where the parties have taken the trouble of reducing an agreement into writing, the law will not permit oral evidence to add to, vary, or contradict the terms of the written agreement. This is known as the parol evidence rule. There are sound, practical reasons for this rule. It serves to prevent the sort of raking over pre-contract negotiations which has consumed so much time in the present case. Frankly, what is the point in parties bothering to have written agreements if one of them is going to be permitted to say at some later stage that really something different had been agreed?  Sometimes, however, the Courts will hold that the parties intended that the contract should be partly oral and partly in writing. This topic is dealt with in Chitty on Contracts (25th edition) at paragraph 816. As stated there, ".......... a heavy burden of proof rests upon the party who alleges that a seemingly complete instrument is incomplete .....".

21. What Wimpey are really contendingin the present case is that the agreement of the 29th September 1982 was partly oral and partly in writing. The oral part, according to Wimpey, is that the parties agreed that Wimpey would buy all its requirements of steel rods for MTRC Contract 412 from Tung Wing. Even if this were a case where, in principle, Wimpey is entitled to sidestep the parol evidence rule, Wimpey, nonetheless, still fails on the facts.

22. Mr. Cheung and Mr. Wong for Tung Wing and Mr. George for Wimpey were the witnesses who purported to describe what happened in the negotiations immediately preceding the signing of the agreement dated 29th September 1982. Mr. Macdougall, who also gave evidence for Wimpey, did not claim to speak from his own direct knowledge of the vital negotiations in the few days immediately prior to 29th September 1982. The relevant evidence will be found on the following pages of my record: 33, 34, 35, 36, 37, 38, 39, 40, 41, 66, 67, 117, 121, 122, 140, 141, 142, 154, 155, 159, 160, 169, 170, 172, 175, 180, 181, 182, 192, 193, 196, 202, 203, 204, 205, 206, 207, 222, 237, 241, 242, 249, 250, 251, 253, 269, 270, 272, 273, 276, 277, 278, 279, 280, 281, 282, 283, 284, 295, 296, 297, 300, 301, 303, 304, 306, 315.

23. According to Mr. George, he made it clear in his discussions with Mr. Wong and Mr. Cheung that Wimpey regarded itself as obliged to take all its requirements of steel rods for MTRC Contract No. 412 from Tung Wing. That was contradicted by Mr. Cheung and Mr. Wong whose evidence was to the effect that Mr. George would not commit Wimpey to purchasing steel from Tung Wing because Wimpey wished to remain free to purchase elsewhere if it turned out that Tung Wing proved itself to be an unreliable supplier.

24. Mr. George did not dispute that, in the course of negotiating, he might have cast doubts on Tung Wing's reliability as a supplier - he simply said he could not remember about this - but he did deny saying that Wimpey wanted to remain free to purchase elsewhere.

25. When I evaluated the evidence of the witnesses at the end of the day, I saw no reason to prefer Mr. George's evidence to the evidence of Mr. Cheung and Mr. Wong on this or any other matter. Thus, Wimpey has failed to prove that it ever agreed to buy all its steel for MTRC Contract No. 412 from Tung Wing.

26. Although Mr. Macdougall's evidence was of marginal relevance only, I should add, for the sake of completeness, that where there was any conflict between his evidence and that of either Mr. Wong or Mr. Cheung, I saw no reason to prefer Mr. Macdougall's evidence.

27. In view of the foregoing, the conclusion I reach is that Wimpey has failed to substantiate its contention that by virtue of the agreement dated the 29th September 1982 it was entitled to purchase all its requirements of steel rods, for MTRC Contract No. 412 at the prices specified in that agreement.

28. Attention can now be turned to Wimpey's alternative plea of economic duress. The Privy Council has recognised in Pao On v. Lau Yiu (1980) Ac 614 at 636 that there can be forms of economic pressure which "amount to a coercion of will which vitiates consent". Mr. George was the representative of Wimpey who made the decision to enter into the impugned contract dated 20th December 1983 for Tung Wing to supply steel at higher prices. At the time Mr. George made that decision, Wimpey was almost into the last six months of its two-year contract with the MTRC. Wimpey faced the consequences of dire penalty lauses if it missed the deadline of the MTRC Contract. Clearly, Wimpey would be in serious trouble if the supply of steel rods ceased to flow for very long after Tung Wing made it clear by its letter of the 15th December 1983 that it was no longer prepared to sell any more rods at the old prices. However, for reasons which I have already elaborated, Tung Wing was wholly within its rights to refuse to sell any more rods as the only arrangement between it and Wimpey was in the nature of a standing offer and there had never been any agreement to supply all of Wimpey's requirements for MTRC Contract No. 412.

29. The evidence made it perfectly clear that Tung Wing operated in a highly competitive market for the supply of steel rods in Hong Kong. Far from enjoying a monopoly, Tung Wing was one of ten or more companies which competed with each other to sell steel rods in Hong Kong. Tung Wing's evidence was uncontradicted on this. Wimpey, whether through Mr. George or anybody else, failed to make the slightest effort to find an alternative source of supply after receiving Tung Wing's letter of the 15th December 1983. True, under Wimpey's contract with MTRC it would have been necessary for MTRC to approve any supplier in lieu of Tung Wing, However, there was no evidence on how long it might have taken MTRC to approve an alternative supplier. It might well be that MTRC could have approved an alternative supplier in as short a period as one day even. If Wimpey had taken the trouble to contact other suppliers, it might well have found that those other suppliers had already received approval from MTRC for other MTRC projects, and in such circumstances it would be contrary to common sense to imagine that there would have been any delay in getting MTRC's approval for Wimpey to purchase from such a supplier. (The evidence on this topic of alternative supplies of steel will be found on the following pages of the record: 44, 75, 76, 79, 85, 121, 128, 131, 132, 204, 205, 256, 257, 258, 259, 287, 288, 307, 308).

30. There is not even a scintilla of evidence to support any suggestion of economic duress. Were this type of case still to be heard by juries, I would not even have left the issue of economic duress to the jury for its consideration, as it does not even begin to arise on the evidence. I think that the notion of duress has crept into this case only as the result of a highly self-serving letter sent by Mr. George on behalf of Wimpey to Tung Wing on the 28th December 1983. Had that letter not used the word "duress" I very much doubt whether the concept of duress would have featured in this case at all. The courts have never been impressed by labels; the courts only look to substance. Despite Wimpey seeking to characterize itself as a victim of duress, the court is unable to detect any.

31. It would be a strange result indeed if the court were to hold that despite the absence of any obligation on Tung Wing's part to go on supplying steel to Wimpey once the standing offer contained in the written agreement of 29th September 1982 had been terminated, Tung Wing was, nonetheless, required to go on supplying at the old prices through the operation of the concept of duress. There is no suggestion that Tung Wing was seeking to charge Wimpey more than the current market rate at the time of the written contract of 20th December 1983. The law would be bizarre indeed, if a seller who was under no obligation to sell to a customer in any event could be, in effect, forced to accept a transaction with that customer at less than the market rate. That is, in effect, what Wimpey is asking the court to do here. I do not propose to say anything further on duress. The point is simply unarguable.

32. Had Wimpey made any headway on the issues of consideration, or duress at this trial, Tung Wing had other strings to its blow. Tung Wing advanced an elaborate argument before me to the effect that even if Tung Wing was required under the written agreement of 29th September 1982 to supply all of Wimpey's steel for MTRC Contract No. 412, Tung Wing genuinely and reasonably believed that it was not obliged to supply more than 2,000 tons, and such genuine and reasonable belief provided good consideration for the written agreement dated 20th December 1983, on the analogy of agreements amounting to a forbearance to sue. Whilst on the view I adopt of the credibility of Tung Wing's witnesses, I accept that Tung Wing genuinely believed that it was not obliged to supply more than 2,000 tons of steel, I regard it as academic to pursue this line of argument any further in view of my finding in Tung Wing's favour on the main consideration issue. Perhaps I should just add here, for the avoidance of any misunderstanding, that although Tung Wing thought it was obliged to deliver up to 2,000 tons of steel under the contract of 29th September 1982, the reality was that it was only obliged to supply amounts actually ordered under this standing offer, and it could terminate the standing offer at any time of its choosing.

33. There was also argument on Tung Wing's behalf that consideration could be found for the agreement of 20th December 1983 in that some of its terms were more favourable than those in the agreement dated 29th September 1982. There was also an argument about estoppel. Those arguments are likewise of academic interest only, and I see no value in elaborating upon them.

34. For the reasons given above, Wimpey has failed to justify withholding the sum of HK$325,287.20 in respect of the price of the steel bars sold to it by Tung Wing. There will accordingly be judgment for Tung Wing in the sum of HK$325,287.20 against Wimpey.

(1)     The Moorcock (1889) 14 PD 64