CALIMPEX INTERNATIONAL CO. v. ENZ INFORMATION SYSTEMS LTD.

IN THE COURT OF APPEAL

1993, No 96
(Civil)

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J U D G M E N T

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Mortimer, J.A.:

1. This is an appeal from a judgment of Sears J. of 23rd April 1993 in which he dismissed the plaintiff's claim for a breach of contract.

2. The contract alleged by the plaintiff was an unusual one. The history is briefly recounted thus. Mr Nemeth designed a walkman. He had a German buyer. He wanted someone to manufacture the walkmans. He represented the plaintiff. He approached the defendant who was represented by Mr Cheung. Negotiations began between them and it is clear that what they were negotiating towards, or on the plaintiff's case what they agreed, was that the defendant would manufacture walkmans - 500,000 of them. That they would supply those walkmans month by month, 100,000 at a time, to a German company - the buyer - Sedlatschek. The defendant would charge the German company US$4 per unit and there was to be a commission paid to the plaintiff represented by the difference between $4 and $3.65. The meeting which began this matter took place on 24th January. Thereafter, there were certain meetings and negotiations between the parties, that is, between Mr Nemeth and Mr Cheung. At the end of the day the plaintiff claimed that there was a concluded agreement. In fact, on 13th February Mr Cheung was sacked by his employer, the defendant, who soon after, told the plaintiff that the walkmans were not going to be manufactured and could not be manufactured for the price they had quoted.

3. The question for the judge was whether or not there was a concluded and binding contract between the parties. If there was then there was a breach of that contract and the plaintiff was entitied to damages. If there was no concluded contract by the time the defendant withdrew then the case failed. The judge found as he said at the end of his judgment:

"Whatever the position, the plaintiffs have not satisfied me, the burden being on them, that there ever was any concluded agreement between them and the defendant that the defendant would pay them commission equivalent to the difference in price between $3.65 and $4.00."

4. Mr Reyes for the plaintiff/appellant submits that the judge was wrong. He puts it in this way. He says that looking at the whole of the evidence that the proof of conduct of the parties is referable only to a concluded contract between them. The terms are certain and therefore the judge ought to have held that there was a breach of that contract. Put in another way, he relies upon the correspondence, the documents and the conduct to the parties, to show that the parties had come to an agreement.

5. I will shortly consider the basis upon which he says that the judge ought to have so found. There was a meeting on 24th January between the parties. There was a discussion and there followed a quotation from the defendant which was intended to go to the plaintiff although it had the wrong addressee. That set out the price of $3.65, a number of other details, and a minimum order of 600,000 units. It also asked for an irrevocable letter of credit. That was 25th January.

6. On 8th February the defendant sent a Mr Schneiders of the plaintiff - who was not called to give evidence - a manufacturing confirmation requesting signature and return by fax copy to indicate acceptance. It indicates that the walkmans were to be manufactured and supplied to the plaintiff for US$3.65 FOB Hong Kong. Neither party suggested for one moment that was to be the basis of any agreement. But that is relied upon by the plaintiff as one of the documents which is evidence of an agreement.

7. There was a dispute whether Mr Nemeth for the plaintiff had signed and returned it. The judge found he had not. No copy of a signed version of this document was produced in evidence. That he had returned the signed copy was challenged by the defendant in evidence but not in cross-examination. The plaintiff challenges the judge's finding. In the result it perhaps matters not, but I would find it very difficult to find grounds upon which that finding of the judge, who heard and saw the witnesses, could be overturned.

8. The story continues. On 9th February, a further fax was received by the defendant from the plaintiff naming its German customer, enclosing a copy of a letter of credit which had been amended in favour of the defendant and setting out the terms of what would appear to be an agreement. The defendant was invited to supply a further manufacturing confirmation to the German company, Sedlatschek. That was done shortly after the receipt of the copy of the letter of credit. It was not sent to Germany, however, but was sent to the plaintiff. Again, that set out the unit price, now US$4 C&F Hamburg and ends Please send and return by fax copy to indicate your acceptance."

9. Thereafter, on 9th or 10th February, the defendant was informed that an irrevocable letter of credit had been issued by the Dresdner Bank and was available. It was an amended copy originally in favour of the defendant. That document set out a number of matters which were discussed in evidence, because it did not entirely accord with what the parties had either agreed or been discussing about the deal.

10. Mr Reyes says that his case is made out when these documents are considered with the evidence given by Mr Nemeth and Mr Cheung, who was called by the plaintiff although he was representing the defendant at the time. The judge took an extremely adverse view of Mr Cheung, a matter to which I will return briefly in a few moments.

11. But so far as these documents are concerned, the question is: Was the judge wrong in failing to find that those documents evidenced an agreement reached between the parties? In other words was there proved an offer and an acceptance which established a concluded contract, so that the judge, on a balance of probability, ought to have found that the parties were bound. For my part, in spite of Mr Reyes' detailed and attractive submissions, I cannot find in the evidence any basis upon which the judge's decision on that point ought to be reversed, or upon which there ought to be a further trial. The letter of credit highlights the difficulty in which Mr Reyes is placed. He relies upon the fact that the letter of credit was irrevocable to indicate that behind it there must have been a contract between the plaintiff and the defendant. Although the judge found that the letter of credit was relevant to proof of a contract, this document came from the German buyer not the alleged contracting party.

12. It is not suggested either that the German buyer, or anyone on its behalf, signed and returned the manufacturing confirmation to indicate acceptance. Indeed, Mr Reyes realistically accepts that these documents are not written contracts. At most they are documents which coupled with the conduct of the parties are evidence of a contract.

13. That is not the end of the story, because during the trial, Mr Cheung and Mr Nemeth gave evidence of a further meeting on 13th February at which a number of matters, they said, were raised, contrary to or by way of further discussion or agreement on, the contents of the letter of credit.

14. The judge found that there was no meeting on 13th February. He found that on clear evidence from a number of witnesses who testified that Mr Cheung was in the defendant's offices, being sacked by his employer Mr Liu at the time when he said he was at the meeting. There was no basis upon which the finding that there was no meeting on 13th February could be challenged and Mr Reyes does not seek to do so. But the judge left open the question whether there had been a meeting on the 12th or a telephone conversation between these two parties immediately before the row took place at which he was sacked.

15. It appears from the transcript that Mr Reyes submitted below that in the alternative there was a concluded agreement on the 13th. He does not put it that way before this Court. Realistically so. The way he puts it is that the meeting of the 13th was a fine tuning of the agreement which had already been made.

16. In these circumstances it is perhaps not necessary to further consider what may or may not have taken place. There is a note, a copy of which is before this Court, in Mr Cheung's hand. It purports to be a record of the meeting on the 13th. The judge roundly rejected that as a contemporaneous record having seen the witness. It is enough to say that whatever happened at the time does not establish an agreement. It would be relevant only if an agreement had already been concluded. Dealing with the matter thus far, there are no grounds that I can see upon which the judge's decision ought to be doubted or reversed.

17. Mr Reyes takes the matter a little further. He challenges the judge's findings on Mr Cheung's conduct and the conduct of the plaintiff's solicitors. Briefly, the background is this. Mr Cheung, having been sacked by the defendant, is brought into these proceedings as third party. A claim is made that if the defendant is bound by a contract made by him, the defendant should recover from Mr Cheung for his conduct in making such an agreement.

18. When the third party proceedings were begun, Mr Cheung's case was that no concluded agreement had been made. Later the plaintiff's solicitors asked Mr Cheung to go and see them. After he had seen them he changed his account and amended his pleadings. His evidence was that he did not pay for the amendment. That situation is not this Court's concern, but the judge took a very serious view of what had happened. He regarded the whole circumstances surrounding Mr Nemeth's dealings with Mr Cheung as being very suspicious. He thought Mr Cheung may have been guilty of misconduct before he was fired by his employer. So, it is submitted, the judge misled himself because although he said in his judgment that this was at most suspicious and he could not reach any concluded view his language indicated that he was very adverse to Mr Cheung. For my part, it is clear, there were grounds upon which he could properly reject the evidence of Mr Cheung and he did so. I do not think the way in which the judge expressed himself throws any doubt upon the validity of his decision.

19. The main issue was whether there was a concluded contract between the parties. For my part, having considered the evidence and the documents I am satisfied that the judge's decision is unassailable. I would dismiss this appeal.

Nazareth, J.A.:

20. I agree and would only add this. Mr Reyes has questioned a number of specific elements of the judgment. A judgment which I observe the judge only delivered immediately after the hearing. Notwithstanding Mr Reyes' careful and eloquent submissions, I also am not persuaded that they had the effect of undermining the essential validity of the judge's conclusion that the plaintiff had not satisfied him, the burden being on it, that there was a concluded agreement between it and the defendant. I would also dismiss the appeal.

Godfrey, J.A.:

21. I also agree. The central question in this case is a familiar one. It is whether the negotiations between the parties did or did not culminate in the conclusion of a binding contract. The contract which the plaintiffs say was concluded in this case was made, they say, by conduct. They point to the negotiations between the parties, to the manufacturing confirmations to which my Lord, Mr Justice Mortimer, J.A., has referred, and to the procurement by the German buyers (not, to be noted, parties to the contract between the plaintiffs and the defendant) of an irrevocable Letter of Credit.

22. Now, where an offer or an acceptance or both are alleged to have been made by conduct, the terms of the agreement are obviously more difficult to ascertain than where the agreement is negotiated and concluded by express words; indeed, as is pointed out in Chitty on Contracts, 26th Edition, Vol. 1 at para. 55:

"The difficulty may be so great as to force the court to conclude that no agreement was reached at all."

In the end, the case for the plaintiffs here came down to this: that the court should look at the documents as a whole and the conduct of the parties and see therefrom whether the parties have come to an agreement on everything that was material. This is the broad brush approach adopted by the Court of Appeal in Gibson v. Manchester CC [1978]1 WLR 520 (see especially per Lord Denning MR at p.523) but rejected by House of Lords in the same case [1979]1 WLR 294. In my judgment it is still necessary to analyse cases of this commonplace sort by reference to the familiar concepts of offer and acceptance.

23. The plaintiffs' case, when analysed, leaves one entirely at sea. Where, when and how was the alleged contract made? How can one identify the offer and the acceptance which constituted it? I find it impossible to resolve these questions. The judge came to the conclusion, approaching the matter, I think, in the same way, that there was no concluded contract here. The judge may have formed a more unfavourable view of the conduct of the plaintiffs and of Mr Cheung than the circumstances warranted. But it make no difference. His finding that there was no concluded contract is one to which, on the evidence, he was perfectly entitled to come, and this court would not be justified in disturbing it.

24. For these reasons, I, too, would dismiss this appeal.