TAI KONG ENTERPRISES CO v. LI HOK SO, JOHN t/a TIN YEN CO AND ANOTHER

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JUDGMENT

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1. By agreement in writing dated 20th November 1984 the plaintiff agreed to buy from the 1st defendant about 1 tonne of Angora rabbit hair, super grade. At the request of the 1st defendant the plaintiff paid the agreed deposit of $100,000.00 to the 2nd defendant by way of cashier order. The goods were to be paid for and delivered before 23rd November. On 23rd November the plaintiff and the 1st defendant fell out. The plaintiff did not pay the balance of the purchase money while the 1st defendant did not deliver the goods. Accordingly the plaintiff now seeks against the 1st defendant damages for breach or repudiation of contract; a declaration that they should be indemnified by the 1st defendant against claims by their customers; and, also against the 2nd defendant, return of the deposit. The 1st defendant counterclaims for a declaration that he may forfeit the deposit; for agreed damages of $100,000.00; alternatively, damages for breach of contract.

2. The plaintiff's case was put by Madam SIU Wai-fong a partner in and Vice-Manageress of the plaintiff company. Siu said that in the middle of November 1984 a broker called Huang offered her about 1 tonne 20 kilogrammes of rabbit hair at a price of US$62.50 per kilogramme. Siu checked with her customer, Saisho (Hong Kong) Co. Ltd. , which agreed to buy the rabbit hair from her, payment to be by way of letter of credit. On 20th November Huang visited the plaintiff's office where he produced a draft contract. After reading the draft and checking the terms by telephone with Madam Li of the 1st defendant, Siu signed the agreement and paid the deposit of $100,000.00 by cashier order to the 2nd defendant.

3. The relevant provisions of the agreement are:

4. On 22nd November Siu contacted Madam Li on the telephone and asked when the goods would be delivered. She was told "tomorrow". On 23rd November Siu spoke to Madam Li at about 10 a.m. concerning delivery of the goods. Siu was asked whether the cashier order was ready and upon confirming this and enquiring whether it should be in the 1st or 2nd defendant's name, was told that it should be done in the same way as last time. She was then told that the "rabbit hair is 1.5 tonnes". She pointed out that she had been told that the weight was about 1 tonne 20 kilogrammes and did not have sufficient money for 1.5 tonnes. Madam Li said that if the plaintiff did not want this amount she was going to forfeit the deposit. Siu then contacted Mr. CHAN Cheung-yam, the Manager of Saisho, who agreed to purchase the extra ½ tonne but that this would be paid for by cheque post-dated 26th November. Siu then confirmed these arrangements with Madam Li and went to her bank to obtain the necessary cashier order, the amount of which was based on a quantity of 1 tonne and an exchange rate of HK$7.8 to U$1.

5. During the afternoon Siu had difficulty in contacting Madam Li but finally succeeded in doing so at 4 p.m. It was arranged that Madam Li should come to the plaintiffs' office. Madam Li said that she wanted cash so Siu telephoned her bark to make arrangements to exchange the cashier order for cash because it was then late in the business day. At 4.45 p.m. Madam Li telephoned to say that she was waiting at the bank. Siu proceeded to the bank and arrived there about 5 p. m. She showed the cashier order and the blank post-dated cheque for the ½ tonne of hair to Madam Li who was unwilling to show Siu the godown warrant for 1.5 tonnes of hair. However, Siu handed the cashier order to Mr. CHOW Sau-thing the Sub-Manager of the Bank of Communications at Mongkok for encashment. As staff began to count cash Madam Li queried the exchange rate of 7.8 saying it should be 7.81. She asked for U.S. dollars to be paid to her. Chow said that the vault for U. S. dollars was closed and U.S. dollars could not be obtained. At this point Madam Li left the bank.

6. On 24th November, together with her husband, Siu went to the defendant's office. She was unable to obtain any reply but upon telephoning from the caretaker's office spoke to a man who called himself Chan who clearly had some knowledge of the plaintiff because he indicated that the deposit had been forfeited. Siu and her husband returned to the defendant's office where she spoke with a man who appeared to be the same man as the man on the telephone but who would not allow her in.

7. After reflecting upon the matter Siu came to the conclusion that she had been cheated by Madam Li and on 27th November made a report to the police. She returned to the police station sometime after 9 p. m. that day to see Madam Li there. It was suggested that the parties should resolve the matter between them. Madam Li said that she was prepared to deliver the goods but that the money should be ready before 11 a. m. the following day and that payment should be for all the goods. Siu did not think she could arrange the money before 11 a. m. and asked for 24 hours. In particular she would need to speak to Chan of Saisho. Madam Li however would not agree to this proposal.

8. On about 1st December Siu spoke to Madam Iii again. Siu said that the plaintiff still wanted the goods and Madam Li agreed but said that there would have to be a new agreement and that the deposit already paid would be forfeit. Siu did not agree to this proposal. A day or two later Siu received a letter dated 1st December from Madam Li in which Madam Li said that the 1st defendant would dispose of the goods.

9. It was then for Siu to find other goods with which to fulfil her contract with Saisho. However, as the claim for a declaration has not been pursued it is no longer necessary to consider the fairly extensive evidence that was given about this.

10. Madam LI Sui-ngor, a manager of the 1st defendant's company and an executive director of the 2nd defendant, gave the principal evidence for the defence. She confirmed the making of the agreement save only that she maintained she had told Siu that the quantity was 1.05 tonnes. She learnt of this quantity from her own vendor LAM Wan-woon from whom she bought the goods at US$51.5 per kilogramme. She paid a deposit of $115,000.00 on 13th November and gave Lam a post-dated cheque for $290,000.00 in further part payment. The cheque was post-dated 30th November. Li said she intended to resell the hair as soon as possible so that the cheque could be met and any adjustments on the purchase price that might be necessary when the goods were finally weighed could be made.

11. On 21st and 22nd November Li tried to contact Siu without success. On 23rd November she spoke to Siu on the telephone. She was told by Siu that Siu needed the money for another transaction and inquired whether the sale could be postponed. Siu said that she was not able to obtain payment under the letter of credit opened by her purchaser because she needed a bill of lading and a health certificate. Li would not agree to this proposal and insisted that they should go to the godown to weigh the goods and ascertain the exact weight. No agreement was reached.

12. At 4 p.m. Li spoke to Siu again on the telephone and repeated her request to weigh the goods. Siu asked her to go to her office for a discussion and again asked that the transaction be postponed. After discussion Li agreed to go to the plaintiff's bank to see whether the cashier order was genuine and, subject to that, to proceed to the godown to weigh the goods.

13. Li arrived at the bank in Mongkok at 4.40 p. m. As Siu had not arrived she telephoned her and asked her to come immediately. Siu arrived at about 4.50 p. m. and explained she had money for only 1 tonne and that the money for the cashier order was borrowed. Li insisted on going to the godown to weigh the goods so that the exact quantity and exact balance of the purchase price should be ascertained. Li pointed out that Siu knew that the goods were in excess of 1 tonne so that the cashier order was insufficient. She also queried the exchange rate which she was told varied between 7.818 and 7.83 that day. Siu however insisted upon the rate of 7.8. Li did not see the blank cheque for the balance that day. She did not ask to be paid in cash.

14. Li left the bank. She said that the transaction had not been completed for three reasons. First, Siu knew very well that the goods weighed over 1 tonne and failed to pay the balance. Second, Siu refused to go and weigh the goods to ascertain the exact weight without which the balance could not be calculated. Third, Siu tried to cheat Li over the exchange rate. Li said that Siu is a very clever woman who acted with careful premeditation. Siu had set up the whole episode at the bank to prove that she had the necessary finance to make the payments and to safeguard her position. Siu was aware that after business hours it would not be possible to exchange the cashier order for cash.

15. Li tried to contact the plaintiff over the next three days but was unable to do so. She maintained that on 24th November she was in her office. She denied that the 1st plaintiff employed anyone by the name of Char at the time.

16. At noon on 27th November Siu phoned Li from the police station. Li said that by not taking the goods the defendant had been landed in a difficult financial position. Siu said in a surprised manner "Are goods not yet sold?". Li thought that Siu hoped the goods had been sold.

17. At 9 p. m. the same day Li went to the police station where she made a statement. The police then asked Siu to come to the police station. When she arrived Li told Siu that she would give her until 11 a. m. on the following day to complete the transaction. Siu objected to this proposal because she had used the money to purchase other goods and because she was not able to cash the letter of credit. Siu said she did not want any goods at the moment and rejected Li's offer. Siu did not ask for 24 hours but clearly stated that she did not want the goods and only asked that the deposit be returned.

18. As it was clear that the plaintiff did not want the goods Li made no further effort to contact Siu. On 1st December Li wrote to the plaintiff saying that she would resell the goods.

19. As Mr. Chu for the defendants pointed out this is not a case where there is room for any misunderstanding or mistake between Siu and Li. Regrettably one of these ladies is not telling the truth. I have the unhappy task of determining which lady this is. I shall first examine the evidence of Siu which, as Mr. Chu ably demonstrated, contains many inconsistencies. First, there is the question of the plaintiff's financial capacity. The cashier order for $387,500.00 was paid into the plaintiff's bank on 24th November. It was paid into a current account from which $221,000 was immediately withdrawn and by 27th November the whole account was overdrawn. Various savings account passbooks which were produced showed insufficient funds to meet payment for the defendant's goods. How then, asked Mr. Chu, can Siu say that she was anxious and willing to complete the transaction at all times when after 23rd November she did not have the money immediately to hand.

20. Next, if Siu was anxious and willing to proceed with the transaction why did she not obtain the cashier order on 21st or 22nd November. In any event the cashier order for $387,500.00 represented the exact balance of 1 tonne at an exchange rate of 7.8. Yet on her own evidence Siu knew the quantity to be approximately 1 tonne 20 kilogrammes. As to the exchange rate, while Siu said in chief that she would have agreed to a rate of 7.83 and made this up by a cash payment, she admitted in cross-examination that she had no cash available on 23rd November.

21. Mr. Chu is also critical of the alleged post-dated cheque for the balance of ½ tonne. This cheque, he says, is an important element in the plaintiff's case yet has not been produced and is stated to have been mislaid.

22. If Mr. Chow the bank manager is to be believed, Siu's account of the episode at the Bank of Communication is clearly a gross exaggeration. It was a careful plan to return the cashier order to the bank so that it could be used for other purposes the following day.

23. Finally there is the question of the defendant's non-existent employee Mr. Chan. Li's evidence is supported by that of her brother the 1st plaintiff and by Miss Ho, an employee of the company that finally purchased the defendant's goods, and who said she only ever spoke to Li or the 1st plaintiff.

24. Apart from these discrepancies emphasized by Mr. Chu, there are a number of others. Under the letter of credit opened by Saisho, a health certificate for the goods was required. Siu was adamant that that it was the defendant's responsibility to produce this. There is, however, no such provision in the contract nor apparently was it ever discussed. Siu also put the date of delivery of the goods to Saisho as January. Chan of Saisho, however, said that delivery was due at the end of November while the letter of credit stipulates no later than 10th December.

25. In her evidence Siu said that the cashier order might have been paid back to the bank in order to earn interest. The documentary evidence clearly shows that it was paid into a current account which was substantially drawn on on 24th November. It is also strange that Siu should have waited for three days after the abortive call at the defendant's office on 24th November before making a report to the police.

26. These are the major criticisms of Siu's evidence. The most important criticism perhaps is that concerning the plaintiff's financial capacity at the material time. This is to overlook, however, the evidence of Chan, the manager of Saisho. His evidence shows that between September 1984 and January 1985 Saisho had substantial dealings in Angora rabbit hair with the plaintiff. Apart from the transaction which is the subject of these proceedings, Saisho opened 5 letters of credit during this period totalling some US$3.8 million involving some 82 tonnes of rabbit hair. It is true that Chan admitted that not all these contracts had been fulfilled. The evidence does show however that the plaintiff had something of a roving commission on behalf of Saisho and very substantial financial backing. Although it has been suggested by the defendants that the plaintiff was perhaps not interested in this transaction as being too small, there seems no reason to doubt that finance could have been obtained if necessary.

27. Chan gave evidence that the purchase of 1 tonne of hair was agreed with one of the Japanese directors of his company who was in Hong Kong at the time. Subsequently Siu advised him that 1 ½ tonnes was available. Because the original agreement had been approved by the Japanese director it was necessary for Chan to refer this back to Japan. It was agreed to take the additional amount, although payment would be arranged by cash rather than letter of credit. The money would be made available to the plaintiffs by way of post-dated cheque for 26th November.

28. Chan's evidence was not specifically challenged and his credibility was not shaken. There is no reason that I can see for Chan to be untruthful. His evidence which I accept substantially supports the plaintiff's ability to meet the necessary payments for the defendant's hair and demonstrates a consistency of approach by Siu over the additional ½ tonne.

29. If Siu has concocted her story in order to avoid completing the transaction with the defendant it must be assumed that she studied under Machiavelli. It is a most elaborate plot but, like so many elaborate plots, difficult to sustain. For example, it is clear from the evidence of Chow that there was no special arrangement with his bank for cashing the cashier order. And the reason why U. S. dollars could not be paid was not because the vault was closed but because no current exchange rate was immediately available. Then, why should Siu invent an employee of the defendants called Chan. It would have been easier by far to have fabricated a conversation with Li or the 1st plaintiff.

30. Again, why should Siu talk about a figure of 1 tonne 20 kilogrammes as the approximate weight of goods under the original agreement when the agreement itself only talks of "about 1 metric tonne". And why should she invent the additional ½ tonne and the problems that must ensue therefrom.

31. On 20th November, upon the signing of the agreement, Siu paid a deposit of $100,000.00 by way of cashier order as security for her performance of the contract. It was a performance to be completed within 2 or 3 days. This hardly suggests a lady of volatile disposition. Again, it is clear from Chan's evidence that he was approached about an additional ½ tonne. It was necessary for him to seek approval for this from Japan. This is entirely consistent with Siu's story of the negotiations at the police station and her need for 24 hours to arrange finance.

32. Li's evidence is no less inconsistent. First, there is the issue of the employee Chan. Apart from denying the existence of such an employee Li said that she was not accompanied to the police station by anyone. Upon being pressed about this in cross-examination, she admitted she was accompanied by a person named Chan. However, she said that this person was a broker who had happened to be in her office showing samples when the police called. He accompanied her to the police station although he was not a man with whom she was acquainted. I find it difficult to believe that Li would have asked a stranger who happened to be named Chan to accompany her to a police station late at night. Equally it is unlikely that a person have little connection with Li would wish to be involved with the police. Li's answers on this issue were evasive and unsatisfactory. Although her evidence about this employee is supported by her brother, the 1st plaintiff, it does not have the same element of support from Miss Ho who simply said that in her dealings with the defendants she spoke only to Li or her brother.

33. In her evidence in chief Li said that on 27th November she offered to give Siu until 11 a. m. the following day to pay for and take delivery of the goods. Siu however rejected this because she had no money and did not want the goods any longer. There was no other negotiation. She denied that Siu asked for 24 hours to pay. However, when pressed in cross-examination she agreed that Siu once asked for an extension till 3 p.m. This was consistent with Li's letter of 1st December which contained the sentence "Your company had proposed to retain until 3 p.m. on 28th November 1984 .... " This can only refer to what took place at the police station and indicates that Siu had made some sort of request for time.

34. At the same time there occurred this passage in cross-examination:

35. Although the question of the health certificate was mentioned by Li more than once, it was never put forward by her as Siu's principal or indeed a major objection to completing the transaction. The burden of Li's allegations was that Siu simply did not have the money.

36. There are inconsistencies between the pleadings and certain documents and Li's evidence. In the Re-Amended Defence and Counterclaim, after referring to the provision in the agreement that "the plaintiffs shall take delivery of the said goods before 23rd November 1984", it is averred that time is of the essence of the contract. Unfortunately, Li conceded that the 23rd November was the last day upon which the agreement could be performed.

37. At the police station Li made a statement. In that statement she referred to the visit to the bank on 23rd November. There is nothing in the statement to suggest a dispute on 23rd November. Li alleges however that the police failed fully to take down what she told them.

38. On 16th January 1985 the defendants' former solicitors wrote to the plaintiffs' solicitors. In this letter it was indicated that on 23rd November the only dispute was about exchange rates.

39. For the plaintiffs, Mr. Ho carried out some calculations in respect of the purchase by the defendants of the goods from Lam. Using the exchange rate of 7.8 which Li said had been agreed he calculated that the sum of $405,000.00 which Li had paid was more consistent with 1 tonne 20 kilogrammes than 1 tonne 50 kilogrammes. It is true of course that Li said in her evidence that this was part payment only and that adjustments would be made when the goods had been weighed upon resale. In my view, however, it would have been more logical and more consistent for Li to have paid a sum conforming with the approximate weight as it was then thought to be rather than a lesser weight. In any event this arrangement with Lam is essentially the same sort of arrangement as Siu proposed for her purchase of the goods. It is difficult to see why Li could not accept a similar arrangement.

40. Finally although Chow did not greatly assist Siu as to the events at the bank on 23rd November, it is clear from his evidence that there was discussion about the exchange rate and that Siu asked to be paid in U.S. dollars. There seems no reason for Siu to have asked for this unless prompted by Li. There is no reason to disbelieve Chow's evidence, particularly as it was not of a wholly helpful nature to the plaintiff.

41. I have then on the one hand what is alleged to be an elaborate plot on the part of Siu. On the other an apparently straight forward tale of a wilting but thwarted seller in the person of Li. Siu's evidence, however, has a measure of independent support from Chan and to a lesser extent chow. There was no such support for Li. Such evidence as the first defendant, her brother, could give was peripheral to the main transaction and of course could not be regarded as independent. Siu gave her evidence in what I regarded as a candid manner. There were many inconsistencies and contradictions but I am satisfied that these are due to muddle rather than a failure to hold together a contrived story. Certainly Siu did not strike me as the clever lady with the ability to fashion an intricate scheme to deprive the first defendant of the fruits of his agreement. Li however was not prepared to concede anything until pushed into corners in cross-examination. She was prepared to say anything that might assist in destroying Siu, so that her explanations for the breach of agreement by Siu ranged from the need for the money for another transaction on 23rd November to problems about the health certificate on 27th November. I was not impressed by her.

42. Taking all these matters into account I am satisfied on the balance of probabilities that the events took place substantially as described by Siu.

43. Accordingly I find that the agreement dated 20th November 1984 for the sale of about 1 tonne of hair to be delivered and paid for before 23rd November was varied, by agreement between the parties, to provide for the sale of 1.5 tonnes of hair on 23rd Novemher. By refusing on 23rd November to accept a cashier order for the balance of 1 tonne of hair and a post-dated cheque for the additional ½ tonne and by refusing to hand over a godown delivery warrant so that the goods might be weighed and delivered to the plaintiff Li on behalf of the 1st defendant was in breach of contract. By her letter dated 1st December and by the subsequent resale of the goods Li repudiated the agreement. The plaintiff is therefore entitled to judgment against the 1st and 2nd defendants for return of the deposit of $100,000.00.

44. By way of damages the plaintiff claims loss of profit on the proposed resale of the goods at US$2.50 per kilogramme. For loss of profits under a sub-sale to be recoverable there must be proof of the seller's actual or imputed knowledge that the buyer definitely intended to resell. Even if a buyer cannot show actual knowledge on the part of the seller of a definite intention to resell it is sufficient if the seller should have known that it was probable that the buyer would resell. In the present case both the plaintiff and the 1st defendant are small trading companies who themselves could have no possible use for a tonne or more of Angora rabbit hair. The companies were involved in the china trade with only one intention, that is to buy goods for resale at a profit. The only possible inference is that the 1st defendant must have known that the plaintiff was acquiring the goods for resale.

45. It must also be shown that the terms of resale were reasonable and usual. As the 1st defendant subsequently resold the goods at US$64.50 per kilogramme, the plaintiff's intended resale at US$65.00 per kilogramme was clearly in line with the prevailing market. I find therefore that the plaintiff is entitled to loss of profit on 1.5 tonnes of hair in the sum of US$3,750.00.

46. The plaintiff also seeks interest on the deposit of $100,000.00. This was not contested. I award interest at 2% above prime rate from 1st December 1984 to the date of judgment.

47. I give judgment therefore for the plaintiff against the 1st and 2nd defendants for the repayment of the deposit of $100,000.00 together with interest thereon at 2% above prime rate from 1st December 1984 until judgment, and judgment against the 1st defendant for damages in the form of loss of profit amounting to US$3,750.00. The plaintiff also to have costs, to be taxed if not otherwise agreed.

48. In view of my findings the defendants' counterclaim is dismissed with costs.