ARDENT MANUFACTURING LTD. AND ANOTHER v. YUE HING ENTERPRISES CO.

1990 No. A6744

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The plaintiff's claim against the defendant is set out in the Particulars for paragraph 11 of the Amended Statement of Claim, full details of which appear at p.55 of the pleadings bundle.

2. The business of the defendant was, inter alia, in the area of quotas or export licences. The plaintiff approached the defendant and, in the latter part of 1990, caused to be purchased from the defendant a quota for exportation of goods to America. The quota is dated 9th August 1990. Goods manufactured by the plaintiff in China were trans-shipped to America via Hong Kong. The goods shipped by the plaintiff to America under the quota of 9th August arrived but were later seized by the U.S. Customs on the ground that the quota under which the goods were shipped was an invalid one.

3. Before the seizure by the U. S. Customs, the plaintiff's counterpart in America had notice of a Circular Letter from an enterprise called "Sea-Land Service Inc.". In the letter, the quota purchased by the plaintiff from the defendant was reported as invalid in these terms:

"MISSING PRC VISAS Reference to my letter in June regarding 100 PRE blank textile export licences stolen, it was recently reported that there were more missing and reported invalid PRC Visas. The numbers are OCN 374618 - OCN 374650 and OCN 379401 OCN 379450. These visas were already declared invalid by the PRC Government and will not be accepted by the U.S. Customs."

These Visas, reference to which was made in this Circular Letter of Sea-Land dated 20th August 1990, included the visa under consideration, OCN 379403.

4. Upon discovery of the information in this Circular Letter of Sea-Land, the plaintiff's counterpart immediately communicated with the plaintiff in Hong Kong. The U.S. Customs were accordingly alertea. Thereupon, the plaintiff consulted the defendant and, through its U.S. buyer, various sources in America including the Chinese Embassy, attorney and customs broker specialized in negotiations with the U.S. Customs.

5. It is claimed by Mr Raymond Wong of the plaintiff that in about August 1990, Mr Cheung of the defendant paid him a visit at his Hong Kong offices, in which Mr Cheung allegedly enquired of him as to whether the goods, shipped under the quota in question had cleared the U.S. Customs and whether there was time for that quota to be replaced. At that juncture, Mr Raymond Wong informed Mr Cheung that the goods, together with the said quota, had left Hong Kong on their way to America.

6. Coming back to the information given in the Circular Letter of Sea-Land and the approaches made to the U.S. Customs by the plaintiff's American buyer through their attorney and customs broker, Glad and Ferguson and Carmichael International Service Ltd., all their efforts failed to produce any result.

7. The plaintiff's U.S. buyer also liaised with the Chinese Embassy in Washington D.C. and spoke with one Mr Lee Tien. As advised by Mr Lee Tien, it would be open to the plaintiff's American buyer to offer to replace or substitute what was so determined to be an invalid visa by a good visa. The plaintiff's American buyer informed the plaintiff in Hong Kong accordingly. Immediately, visas in store with the plaintiff were despatched to America with a view to replacing or substituting the visa under consideration. After submission of the replacement visas, a decision was taken by the U.S. Customs that the goods would still not be admitted into America. It was said that there had been reached between PRC and America, an agreement whereby goods once shipped to America under an invalid licence could not be reconsidered for entry on any replacement visas. The goods were subsequently, on the decision of the plaintiff, reshipped back to China for minimising loss, and the goods are still being unsold to-day.

8. Mr Raymond Wong of the plaintiff has given his estimate as to the market value of the goods, which is included in the Particulars given under paragraph 11 of the plaintiff's Amended Statement of Claim. These are, in totality, the main events.

9. Other matters arose in the course of this unsuccessful shipment by the plaintiff of its goods to America. I shall refer to them later in my judgment.

10. The contention of the defendant is that the licence in question was not, in fact, an invalid one. The defendant consulted the Section Head of the Quangdong Textiles Import and Export Corporation (Group), a Mr Tang in Guangzhou, and he had obtained in the month of last December two letters from that Institution which was allegedly responsible for the issuance of all the quotas of the same nature as the one in this case. The letters, one qualifying the other, state that no quotas issued in 1990 for the specific category in these proceedings had been stolen.

11. Mr Cheung of the defendant had, in the course of these proceedings, also contacted a Mr Chan of Quangdong Province Silk Product Co. in New York and a Mr Cheung of the Ministry of Foreign Economic Relations of Trade (Guangdong). The confirmation he allegedly received from these two gentlemen was that there had never been any such agreement between PRC and America for the exclusion of replacement visas for the purposes of redeeming an invalid one for admitting goods into U.S.A. It is the defendant's case, therefore, that he has had it confirmed orally from Mr Tang and in writing by the two letters dated 3rd and the 26th December 1991 from the issuing authority in Guangdong that the visa in issue was not an invalid licence in the sense that no visas that had been issued in 1990 for the category in question had ever been lost in theft.

12. But the communication with the said Mr Tang of the issuing authority in Guangdong as well as the two letters from that authority were not forthcoming until more than 15 months after the visa problem. Mr Cheung of the defendant seemed to be fairly well connected, and if indeed his connections are not recently fostered connections - if his goodwill is not newly found goodwill, it would be strange that Mr Cheung of the defendant had not been more active in the past.

13. We have also the evidence from Mr Raymond Wong, which Mr Cheung of the defendant denies, to the effect that Mr Cheung approached the plaintiff some time in August 1990 with a view to substituting the visa he sold. By reference to his travel document, Mr Cheung testified that he was away from Hong Kong between 24th July to 4th August in 1990. Possibly, if he had taken a ferry instead of train, he would have arrived back in Hong Kong only on the 5th. He approached the plaintiff, somewhere near the end of September but only after a complaint had been lodged, for more particulars. I do not find the actual date of Mr Cheung's visit a matter of any great moment. Mr Wong must have been preoccupied in his other affairs, and if, indeed, he could be forgiven for an erroneous recollection of a date some time in the past, assuming it is incorrect, that would not, by itself, render what would appear to be direct implicating evidence against Mr Cheung less reliable.

14. Both sides had adduced hearsay evidence in support of the alleged validity or invalidity of the quota in issue. Both counsel had invited me to prefer hearsay evidence adduced on behalf of his respective client. Hearsay evidence suffers from, of course, the want of cross-examination. As for the letters and the oral confirmation from a Mr Tang of the Guangdong Textiles Import and Export Corporation (Group), they were obtained after the dispute had arisen and for the specific purpose of substantiating a crucial issue in it. They did not come about without fear of prejudice or motive. On the other hand, the hearsay evidence adduced by the plaintiff comprised documents that were disseminated before or at least not after the visa problem, unsolicited as well as from parties who were less involved.

15. The plaintiff was faced with an emergency. Its purchased quota was declared invalid on the ground that it was amongst the licences stolen and disavowed by PRC as having any validity. Apparently, the U.S. Customs acted, inter alia, on the information provided by Sea-Land's Circular Letter. In any case, the U.S. Customs gave precisely the same reason for rejecting the said visa under which goods were shipped by the plaintiff to America. The plaintiff, together with his American buyer, Mr Hung, were both diligently engaged in attempts to secure the release of the goods for the sub-buyer "Merry-Go-Round" who, by contract, stipulated for the arrival of the goods at their own warehouse by 10th October 1990.

16. The many efforts made by the plaintiff and its American buyer involved making enquiries, negotiating with the U.S. Customs by attorney and customs broker, seeking information from the Chinese Embassy through one Mr Lee Tien, liaising with the defendant and demanding, in particular, the refund of the visa price to the plaintiff.

17. In stark contrast, the defendant was less than enthusiastic. No steps, such as the approaches the defendant had recently made, were taken by its Mr Cheung at the time.

18. Mr Cheung had been inactive until some 15 months after the dispute when he allegedly managed to obtain an oral confirmation from a Mr Tang and the two letters from the issuing authority. It is worthy of note that in addition to the inexact language in the letter of 3rd December 1991, both letters, including the later qualifying one, only bear a circular chop which purports to be the chop of the Guangdong Provincial Textile Import and Export Corporation (Group) Knitwears and Cotton Manufactured Goods Company. It is a long name but that was said to be a new description adopted by the issuing authority. The later qualifying Chinese letter dated 26th December 1991 is a little more precise. It would be fair to describe the effect of the two letters as indeed seeking to confirm tine assertion that in 1990 for the category in question, there had been no visas theft.

19. Apart from Mr Cheung's recent interest in procuring the viva voce confirmation of Mr Tang and the writing of these two Chinese letters by his establishment, he also found it helpful and managed to communicate with a Mr Chan in New York of Guangdong Province Silk Product Company and a gentleman by the name of Mr Cheung of the Mnistry of Foreign and Economic Relations of Trade in Guangdong. These two gentlemen allegedly confirmed the absence of that international agreement or accord between PRC and America. If the matter had been as simplistic as it is now sought to be made out to be, it is, to say the least, incredible why such information could not have been successfully obtained and provided to the plaintiff at the time when the U.S. Customs complained of the invalidity of the visa as a stolen one.

20. The defendant's references made to personalities never went beyond surnames. The quota broker called by the defendant, Mr Nicky Lo, was visibly reluctant in disclosing a full name. The quota in question was said to have been acquired from one Mr Ting, I believe, who was supposed to be based in Waizhou but kept an office or meeting place in Guangzhou. It is all very unsatisfactory. For these reasons, I prefer the hearsay evidence from the plaintiff.

21. The mode of presentation of the defendant's case through witnesses called is suspect. Whilst Mr Nicky Lo did not contradict the defendant's alleged agreement to postpone the payment cheque for the visa in question until goods had cleared customs, Mr Nicky Lo was not otherwise sharing the same understanding with Mr Cheung of the defendant. Mr Cheung produced no documentary proof for his bare assertion that there was alleged agreement to postpone payment. He testified that the payment cheque was never dishonoured, presumably on account of this alleged agreement. Without elaboration or explanation, Mr Nicky Lo confirmed in evidence that this cheque was presented for payment not only once but on three occasions. On every occasion of presentment, the payment cheque was dishonoured. Not only was the payment cheque so presented, and more than once, Mr Nicky Lo also confirmed that they even demanded by two letters dated 26th August and 11th September, both in 1990, the return of the original licence. Despite the absence of any contradiction coming from Mr Nicky Lo as regards Mr Cheung's alleged agreement to postpone payment, the.evidence of Mr Cheung and Mr Nicky Lo was certainly not entirely complimentary or consistent.

22. It would appear from the letter of the U.S. Customs, the complaint was that the visa in question had been stolen in blank form from its source. It was argued on behalf of the plaintiff that the two letters from the issuing authority in Guangzhou in its newly acquired title dated 3rd December and 12th December respectively had not categorically excluded theft or possible theft of blank forms. Mr Smith's analysis is tempting but it is somewhat speculative. It is also an over-refined interpretation of those two Chinese letters. I am not prepared to read, at the invitation of Mr Smith, these two letters in the way he so suggested.

23. On behalf of the defendant, it was queried whether, since in an earlier shipment under another stolen licence dated 17th July 1990, No OCN 379402, goods shipped to America were allowed entry, the plaintiff's goods under quota No.OCN 379403 were not in fact rejected for other non-compliances. Mr Smith drew my attention to the fact that those goods were in a different shipment and at an earlier date. Counsel suggested that those goods were admitted either at the time when the U.S. Customs had not been put on the alert for the Circular Letter of Sea-Land or were admitted in an incautious exercise.

24. As for the possibility of these goods under the visa in question being rejected by the U.S. Customs for other causes, counsel for the defendant was at pains to direct my attention to the discrepancy in the category number. Mr Raymond Wong of the plaintiff explained that there could have been no room for error as the serial number (with an obvious mistake here in the switching of two digits) would have to be correctly matched with the description of the goods.

25. Mr Chan for the defendant further sought to make capital of the information volunteered in a letter of the plaintiff dated, I believe, 6th September 1990, which was intended to be used by its American buyer for submission to the U.S. Customs. In that letter, the plaintiff furnished the whole history of export, including matters such as the country of origin and the mode and place of packaging. Mr Chan for the defendant contended that those disclosures must have been an attempt on the part of the plaintiff to ease official anxieties on category number, country of origin and/or the actual place of packaging. It might, so counsel suggested, have been a case of an incorrect category number for identification, unsatisfactory proof of country origin and/or suspected re-packaging outside China. For all these reasons, counsel of the defendant invited this Court to infer a rejection of these goods for some other causes than invalidity of the said visa. Such invitation from Mr Chan is grounded on speculation. No other reasons for rejection were given by the U.S. Customs than invalidity of the quota as a result of theft. There were other goods, so I was reminded by Mr smith, of the same category shipped on the same vessel, but cleared by the U.S. Customs under good visas. It is quite impossible for me to draw that inference as I was invited to by Mr Chan for the defendant.

26. The witnesses called by the plaintiff, Mr Raymond Wong and Mr Hung struck me as straightforward witnesses who gave their evidence in the witness stand unhesitatingly. They were prepared to cooperate fully in matters of details as far as their memory could take them. Their evidence stands out in sharp contrast with that given by Mr Cheung whose evidence has left many questions unanswered. Mr Cheung left me with the impression that his sources of information or full identities of personalities were either deliberately withheld or at least that he was reluctant in providing better details.

27. As for damages, I have no hesitation in preferring the evidence given by Mr Raymond Wong and Mr Hung to that given by Mr Cheung. Mr Nicky Lo's evidence is of peripheral importance and insofar as his evidence is in conflict with the evidence of Mr Cheung, that casts more suspicion and doubt generally on the recently acquired information tendered by Mr Cheung.

28. As I have said, particulars of damages are shown in the Particulars pleaded to the allegation set out in paragraph 11 of the Amended Statement of Claim. The items except for one have been proved to be well documented and supported. Little dispute was raised on those items with the exception of item (e). I find item (a) to item (d) inclusive in the Particulars to paragraph 11 of the Amended Statement of Claim proved and I find that those expenses were in fact incurred by the plaintiff as particularised in this paragraph.

29. As for item (e), it is a claim for the value of replacement visas. The invalid visa in question has been included in the previous items. It was contended on behalf of the plaintiff that extra costs and expenses incurred in a reasonable attempt to mitigate, though ultimately reaping no actual benefit, should be an item for award. Mr Smith further stressed that the visa was one for the year 1990. The year for the said visa itself was given in the letter at page 187 and an invoice at page 205 of the trial bundle. It is indeed a 1990 visa. But there has been no suggestion throughout this trial that this visa, expired at the end of 1990, could not be returned for valid future visas. In fact, re-issuance of visas was mentioned by Mr Raymond Wong who was categoric that the replacement visas were not invalid at the time of their submission as suggested by counsel for the defendant, but that if they were sought to be cancelled for new visas, the original replacement visas must be returned to the Chinese issuing authority. The replacement visas are still being help by the U.S. Customs. If the replacement visas were not worth the paper they are written on, there would be little purpose for them to be so withheld. The reason for the retention is not known, but it is not suggested that the visas had been forfeited or otherwise confiscated. Mr Raymond Wong never once suggested that the 1990 visas are useless. Despite the endeavours of Mr Smith during this trial and in his final submission, I am unable to allow the claim in item (e). That item has not been proved by the plaintiff to have been irretrievably lost or as having no value to the plaintiff. Items (a) to (d) inclusive, I am told, would come to US$192,349.99.

30. There were two aspects of law raised by Mr Chan on behalf of the defendant: First, causation, but it was not repeated in counsel's final address. The argument was run as follows: The U.S. Customs was erroneous in rejecting the goods in question and therefore they were the real culprit for the return of the goods to China and must be responsible for their wrongful act. It would not be equitable to call upon the defendant to pay damages for a wrong committed by the U. S. Customs. But there is no evidence that the U.S. Customs were erroneous and far be it for the plaintiff to involve itself in litigation for testing their decision. The contention was founded on surmise. It was further contended by counsel for the defendant that either at the inception or in the course of the plaintiff's attempt to mitigate, the original visa or the replacement visas was/were rejected by reason of other oversights or non-compliances or errors on the part of the plaintiff. I have dealt with the category number, country of origin and place of packaging. There is no evidence to substantiate any of these highly speculative issues advanced in counsel's submissions. If indeed the U.S. Customs had committed an error in the course of the plaintiff's attempt to substitute the invalid visa by replacement visas, that would have been an obstacle in its mitigation and the plaintiff could not be said to have taken no reasonable step to mitigate.

31. At the conclusion of this case, counsel restricted his legal submission to what I would describe as "contemplation". It was submitted that the replacement visas, but for the speculative reasons for rejection advanced by counsel, should have been admitted by the U.S. Customs. Hence, it was within the contemplation of the parties to this action that a situation involving any invalid visa could be remedied by replacement visas. A subsequent change of policy under the agreement between PRC and America should not have burdened the defendant with contractual liability not envisaged at the time when the contract was made. It was submitted that such policy change was clearly beyond their contemplation. Counsel submitted that the defendant's liability should, at the worst, be restricted to the costs of, presumably also incidental to, the replacement visas and the attempt to obtain waiver from the Chinese Ambassy in relation to the category number as well as costs of the second submission. Counsel sought to derive support from the chop of the U.S. Customs on the visa, which carries the printed notation "New Visa Required". Therefore, counsel contended that the policy change must have been made after the formation of the contract between the plaintiff and the defendant.

32. No evidence was adduced to show that the parties ever contemplated that an invalid visa could be put right by the provision of replacement visas. There was no evidence given that the party envisaged such a limitation of responsibility as suggested by Mr Chan for the defendant in his final submissions. There was no evidence that the visa in question, if invalid for any reason, was then even known to be replaceable. Otherwise Mr Lee Tien would not have been consulted. There was, in fact, very scanty evidence as to what was in the mind of the parties at the time when the contract was made. On the face of the documents, as fortified by the evidence given on behalf of the plaintiff, clearly it was an outright sale of a visa with no pre-conditions for the shipment of the designated goods to America by the plaintiff. If the visa should be found to be invalid as in this case, the defendant obviously must shoulder the entire responsibility.

33. I prefer, as I said, the version of the facts as presented to this court jointly by Mr Raymond Wong and Mr Hung. I find the claim of the plaintiff against the defendant proved. There is to be judgment against the defendant in the sum of US$192,345.19 with interest as claimed pursuant to the Supreme Court Ordinance in Prayer (3). The costs of these proceedings must be borne by the defendant in favour of the plaintiff and I so order.

(Submissions on costs)

34. The plaintiff applies for interests on items (a) to (d) from the date of the writ to the date of judgment at the prevailing judgment rate. The application is strenuously resisted by Mr Chan on behalf of the defendant. It is in evidence that only item (a) has been paid and the other items have been left outstanding. There is no evidence that the plaintiff would be responsible for or obliged to pay any interests on these other outstanding items. Prayer (3) is not wholly specific. In the circumstances, only item (a) has been shown to be deserving of earning any interest from the date of the writ to the date of judgment and I so order.

My order is:

(1) Judgment for the plaintiff against the defendant for US$192,349.19 with costs.

(2) Interest on US$129,066 in item (a) at judgment rate prevailing from the date of writ to judgment.