WONG HO WAI YING t/a EAGLE INDUSTRIAL CO v. YEUNG SHUI CHEUNG t/a CHEUNG LEE TRADING CO

1986, No. 128
 (Civil)

IN THE COURT OF APPEAL

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Dates of hearing : 11th and 12th February 1987

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JUDGMENT

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Power, J. delivered the judgment of the court

1.     Wong Ho Wai Ying trading as Eagle Industrial Company, the plaintiff/appellant, sued Yeung Shui Cheung trading as Cheung Lee Trading Company, the defendant/respondent, for damages for breach of a contract under which the appellant was required to deliver at the order the respondent 30,000 air humidity adjusting units to its customer the China National Aero-Technology-Import and Export Corporation (the customer). The respondent counterclaimed alleging that it was the appellant who was in breach of the contract and asking for a declaration that the appellant indemnify the respondent with regard to any damages arising from the breach which it might become liable to pay to its customer.

2.    The pleadings in this matter raised a number of involved issues of both fact and law. Many of the facts pleaded were, however, not supported in any way by the evidence presented at the trial.  We do not consider it necessary, given the issue which finally presented itself for the resolution of this court, to canvass all of the matters pleaded and all of the facts placed before the trial judge and will therefore touch upon the pleadings and the facts only in so far as it is necessary to the understanding of our decision.

3.    The appellant pleaded that he and the respondent had on the 19th of December 1984 signed a document in Chinese dated the 15th of that month which purported to show that the appellant had agreed to sell 30,000 sets of model E1-883 humidity adjusting machine units in Semi Knocked Downstate at a price of US$26.70 per unit C & F Guangzhou.  He pleaded that this document was a sham which was signed for tee purpose of enabling the defendant to show it to his customers in China and that it was agreed that the real sale and purchase agreement would be recorded in English.  It was the plaintiff's' case that this English agreement which is dated 19th December 1984 governs the relations between the parties.  This document provided that 15,000 of the sets should be delivered before the 31st January 1985 and that partial shipments were allowed and that the final 15,000 should be delivered by, depending upon which version is being looked at, “15th February 1985 or 5th March 1985, or "15th February 1985 or 28th February 1985".  The evidence in this regard was confused. This is, however, an issue which it is not necessary for us to canvass. Suffice to say that it seems reasonably clear that the respondent signed and was bound by the document which bore the words “15th February or 28th February”. The "Conditions of Sales” on the back of this document provided, in clause 5, that:

“If the buyer makes default in payment or in taking of delivery or commit a breach of any clause hereof, the seller shall have the right to terminate this contract so far as it is unfulfilled without prejudice to the seller's right to recover all sums owing to them in respect of deliveries already made …...”

It is also provided in paragraph 3 that times of shipment or delivery were "approximate only".

4.     Payment in the case of each shipment was to be by letter of credit against presentation of documents which had to include, inter alia, a bill of lading endorsed by the respondent. The customer caused a bill of lading to be issued on 24th December 1984 in favour of respondent who transferred it to the appellant on 2nd January 1985.

5.    There was no dispute that on the 28th and 31st January 1985, the appellant delivered 1,000 and 3,000 sets of goods respectively and that payment therefor was made under the letter of credit. On the 9th February 1985 the appellant delivered a further 1,600 units which, in the outcome, was the last delivery made under the contract. The respondent refused to endorse the bill of lading relating thereto alleging that there had been a complaint from the customer as to the condition of the units. The appellant was unable to obtain payment. The appellant pleaded that this was a breach of clause 5, by reason of which he was entitled to terminate the contract and that he did so by telex dated the 19th February 1985.

6.     The respondent pleaded that the agreement between the parties was contained in the Chinese purchase agreement dated the 15th and signed on the 19th December 1984. It was pleaded that Mr. Wong Wai Chuen, the appellant’s representative, had told Mr. Jody Yeung, the respondent's representative, that the Chinese contract was to be reduced into English by the appellant and that the only difference between the contents of the English and that of the Chinese contract was as to the provision of the letter of credit and to the insertion of the words “or 28th February 1985” with reference to the final date of delivery. The respondent pleaded that, relying upon this representation, he signed the English contract. It was pleaded that it was orally agreed that the last date of shipment would be either the 28th February or the 5th of March 1985 only if the respondent’s customer consented thereto. The respondent pleaded that the appellant was stopped from relying on the terms and conditions of the English contract in so far as they differed from the Chinese contract and that the appellant had terminated the contract without cause. The respondent counterclaimed for damaged for, inter alia, late delivery and non-delivery, and for a declaration in the terms set out above.

7.     The evidence for the respondent came, principally, from Mr. Jody Yeung and for the appellant from Mr. Wong Wai-chuen.

8.     The judge accepted the evidence of Mr. Jody Yeung and absolutely rejected the evidence of Mr. Wong Wai-chuen. There was, however, no evidence from Mr. Yeung that any representation bed been made as to the nature of the English contract. In the outcome the judge was satisfied that “the subsequent agreement in English formed part of the original contract and must be read together with the Chinese document. In so far as any variances are concerned, the terms in the subsequent document must be taken to have substituted or varied the terms in the previous document by consent of the parties." He went on to hold, despite paragraph 3 of the Conditions of sales in the English agreement that time was of the essence of the contract and that the appellant was bound by the original shipment dates of the 31st January and the 15th February. He was satisfied that the acceptance of the 1,600 unite on 9th February amounted to a waiver of the date of delivery for the first 15,000 units, i.e. the 31st January 1985, but was satisfied there was no waiver for the 2nd date of delivery. He was satisfied that there was no breach-by the respondent of his undertaking to pay for the goods by reason of his failure to endorse the bill of lading and held that the respondent was “justify to withold endorsement to obtain payment pending enquiries and further information”.

9.     He entered judgment in the appellant's favour for the price of the 1,600 sets for which no payment had been made and in the respondent’s favour for loss of profit as claimed and for the declaration sought.

10.    It is argued in this appeal that the judge wrongly admitted oral evidence contradicting the English agreement of 19th December 1984; wrongly held that the failure of the respondent to endorse documents to enable the appelant to obtain payment for the 1,600 sets did not constitute a breach of contract by the respondent; and wrongly held that the appel1ant was not entitled to terminate the contract of sale by their telex dated the 19th February 1985. In this regard the judge said:

“The purported termination by the p1aintiff on the 19th February was unreasonable and merely a pretext and excuse to get out of a hopeless situation and I hold that the plaintiff was not entitled so to do. “

11.    The judge appears to be here indicating that the termination failed not because the telex would not have been adequate, as worded, to terminate the contract but because there had been no breach by the respondent.

12.     It is not necessary for us to determine whether the contract was an oral contract evidenced both-by the Chinese agreement and the English agreement or, .as was found by the trial judge, was a written contract contained in the Chinese agreement as varied by the English agreement. Whichever be the case, we are satisfied that the Conditions of Sales attached to the English contract bound the parties and that the judge was wrong-given paragraph 3 of the English contract to hold that time was of the essence of the contract.

13.     He was also wrong to hold that the oral evidence of Mr. Jody Yeung could be relied on to on to establish that the 15th February was the date for final shipment. We consider that the words in the contract that was signed by both parties and which provided that the material date was “at 15/2/85 or 28/2/85” are clears cannot be added to or varied by extrinsic evidence and had the effect of fixing the last date of shipment as the 28th February 1985. In the outcome, however, neither of the above matters is of real significance.

14.     We are satisfied further that the judge was wrong in holding that the refusal by the respondent to endorse the bill of lading was not a breach of contract. In the final analysis the only real issue in the appeal was whether the telex of 19th February 1985 constituted a valid termination of the contract. If it did then the respondent was not entitled to the damages awarded and the appellant would have been entitled, had he proved it, to his loss of profit. If it did not then the judge was right but for the wrong reasons, to award the damages he did to the respondent.

15.     We are satisfied that the failure to endorse the bill of lading did constitute a default in payment and, by virtue of paragraph 5, gave the appellant the right to terminate the contract. It was argued by the appellant that this failure not only give him the right to determine but also that it was itself a repudiation of the contract by the respondent. We have no doubt that the failure to endorse was not, in the circumstances, a repudiation.

          We set out this crucial telex in full:

“Re: Shipment of 1 x 40’ container covering 1,600 sets EI-883 air humidity adjusting machine per MV 'Yuet Kong 1013' V.85GF013 sailing on/about 9/2/85 from Hong Kong to Guangzhou under B/L No. HK/KC-48 drawn under letter of transfer No. 027 out of L/C No. LC40846754 of Bank of China. We would like to inform you that we are unable to present our banking documents for negotiation for the said shipment as a result of your reluctant to endorse the captioned B/L, though which had been present to you several times by our staff. Under such circumstances, we are forced to cease our continue delivery to you from 11/2/85 after this matter will be settled by you. Therefore, we would like you to proceed to our banker, Hong Kong Industrial N Commercial Bank Ltd., Central Office, for your authorised signature endorsement and settle the entire bill immediately. Moreover, we would like to inform you that we may be inevitable but to take legal actions or to revert claims against you which may be arised due to your such delay."

16.     Mr. Chan, for the appellant, submits the telex constitutes a notice that the appellant is bringing the contract to an end. A notice bringing a contract to an end in circumstances such as this must, for obvious reasons, be given in clear terms. The other party cannot be left wondering whether or not he will continue to receive deliveries, whether he has to inform his purchasers that deliveries from the contemplated source have ceased, whether he should make immediate arrangements to find another supplier or should resign himself to an inevitable action for damages by his customer. Does this telex state in sufficiently clear terms that the contract is at an end?  We have no doubt that it does not.  An ordinary person rending this telex would probably understand it to mean that as regards the shipment of 1,600 sets immediate payment was demanded that pending payment deliveries under the contract were suspended and that, if payment was not made,. the appellant would take such action as advised. He certainly would not understand it to mean that the appellant had elected to bring the contract to an end and would never make any further deliveries. While it is true that the appellant had a right to bring the contract to an end he had no right to “suspend” it as he was purporting to do. We are satisfied that the contract remained on foot after the 19th February and that the appellant was in breach thereof by reason of his failure to complete delivery as agreed. The respondent was entitled to the damages awarded to him by the learned judge and the appeal on that issue must fail.

17.     The appellant also appeals against the grant by the judge of a declaration “that the appellant do indemnify the defendant in respect of all costs and expenses which the defendant may incur and damage to which the defendant may be liable to which his customer in China arising out of the breach of the contract on the part of the plaintiff complaint of.” Mr. Chan argues that the declaration should not have been made and alternatively that if the respondent was entitled to a declaration then it should not have been in this form which indemnifies him with respect to costs and expenses arising out of "complaints” from the customers in China. Mr. Eddis, for the respondent, does not seek to support the declaration in its pr8sent form. He asks for a declaration that the respondent is entitled to an indemnity limited to costs and expenses which the respondent may reasonably incur and damages to which the respondent may reasonably be held liable to apy to his customer in China arising out of the non-delivery of the remaining 24,400 units.  Having considered Trans Trust S.P.R.L. v. Danubian Trading Co. Ltd.⁽¹⁾  we are satisfied that a declaration should not have been made in the present case and that the proper order would have been a direction granting liberty to apply with respect to any damages that may be awarded to a third party against the respondent flowing from the failure of the appellant to deliver the units. The respondent had contended at the trial that the units which were delivered were not in proper condition. The judge held that there was no evidence to establish this allegation and the damage referred to in the above direction must be limited to that arising from the failure to deliver the outstanding 24,400 units.

18.     We therefore allow the appeal, but only to the extent that we quash the declaration and order that there shall be reserved for further consideration any damages arising from the respondent 's liability to its own purchaser caused by the appellant's failure to make the deliveries agreed between the appellant and the respondent whether at the times provided or at all with liberty to apply for directions accordingly.

Representation:

Mr. Edward Chan & Mr. K.L. Lui (M/s Sit Fung Kwong & Shum) for the Appellant

Mr. F. Eddis Q.C. & Mr. Shane Cunningham (M/s Frederick Fung & Co.) for Respondent

(1) (1952) 2 Q.B. 297