XCHRX AGENDA TEXTIL GMBH v. Y.K. (HONG KONG) LTD. and Another

1995, No. A9648

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. Mr Erhard Dragar, in an affirmation dated 21 September 1995, says that, on or about 24 February 1995, the plaintiff and the first defendant entered into an oral contract for the supply by the first defendant of 8400 silk garments to be shipped from Shanghai to Hong Kong and onward to the plaintiff in Germany. He says this was confirmed by a production order 8950002 dated 24 February 1995. The goods were paid for by payment of the sum of US$62,575.71 on 12 June 1995.

2. On the basis of this affirmation, the plaintiff applied for, and obtained on 21 September 1995, an interlocutory injunction prohibiting the second defendant from dealing with, or disposing of, the garments. The plaintiff also claims an order for delivery up of the garments.

3. The plaintiff's statement of claim proceeds on the basis that the first defendant continues to refuse to deliver the goods, and it relies on the contract as if it were still subsisting.

4. Miss Yue Wai King, the manager of the first defendant, says in an affirmation dated 10 October 1995 that there were other deals with the plaintiff in respect of which the plaintiff had not paid the price for the goods. She says that the first defendant "intended to settle with the plaintiff once and for all the question of all outstanding purchase price before delivery of the garments to the plaintiff. Hence, even after the garments under orders no 8950001 and 8950002 arrived in Hong Kong in July this year, I insisted to negotiate with the plaintiff a complete settlement of all outstanding price before delivery. Eventually, the plaintiff agreed to pay for the two orders as long as the Chinese suppliers delivered the garments to the forwarders' warehouse in Shanghai for shipment to Hong Kong prior to 30 June 1995. . . . Jet-Speed was responsible for carrying the garments under order 8950002 by air from Shanghai to Hong Kong. The Chinese suppliers delivered the garments . . . to Jet-Speed on 29 June . . . Shortly afterwards Mr Rai [the plaintiff's agent] paid . . . US$64,360 to me in Hong Kong. . . . After the garments arrived in Hong Kong, I continued to negotiate . . . over the question of the outstanding price due to the first defendant. Until that question has been resolved, I had to ask Jet-Speed . . . to keep the garments in their godowns. As far as Jet-Speed was concerned, under the air waybill in question . . . the 8400 garments under order no. 8950002 was consigned by the Chinese suppliers to the first defendant, Hence, it was the first defendant which retained the right of disposal in relation to them and was fully entitled to ask Jet-Speed to keep the 8400 garments in its godown for the time being." Mr Bohl of the plaintiff came to Hong Kong. There were discussions on 21 July 1995. There was "a big row". "Mr Bohl alleged that the size measurement of the garments under order 8950002 was not correct and said he wanted to cancel the order." On the same day, the first defendant wrote to Mr Bohl regarding his queries about the measurements. At the same time, the first plaintiff wrote to the second defendant saying that order 8950002 was "confirmed cancelled". On 24 July 1995, the first defendant wrote to the plaintiff saying that order 8950002 was "acknowledge treated cancelled", and saying that they would hold the plaintiff liable for any loss.

5. This affirmation by the first defendant has not been answered in substance by the plaintiff.

6. It does indeed appear that the plaintiff "cancelled the order". It appears from the documents annexed to Mr Dragar's affirmation that the plaintiff wrote to the second defendant on 24 July 1995 saying "Please be informed that above mentioned order [8950002] is cancelled, because holding the goods by [the first defendant] in Hongkong unnecessarily", asking that the second defendant should collect the price and transport costs before handing the goods to the first defendant, and concluding "We declare herewith the ownership of goods with us!". On 2 August 1995, the plaintiff wrote to the second defendant again re-asserting ownership of the goods, and saying "If [the first defendant] wants to pick up the shipment, they should pay the amount of US$62.575,71 to us before". As I say these documents were annexed to Mr Dragar's affirmation, but he made no attempt to explain why the plaintiff felt it was able to claim delivery of the garments when it had "cancelled the order".

7. These garments were made to order, but they were not in any way unique, with special value to the plaintiff. There is no evidence that another manufacturer could not have made similar garments if requested to do so. The plaintiff obtained the ex parte order on the basis of its alleged ownership of the garments. If it has no ownership, it should not have obtained the order, and it cannot succeed before me; damages would be an adequate remedy. There is a dispute as to whether ownership passed to the plaintiff. The first defendant claims that ownership rests with it. On the face of it, it does appear that the first defendant deliberately ordered that the garments be consigned to it so that it could retain control over them until the plaintiff paid for the other orders in dispute. In that way, it retained the right of disposal, and did not appropriate the goods to the contract unconditionally. On the other hand, the plaintiff says it is the owner, because it must have been the intention of the parties that ownership would pass when payment was made, or because the garments have been unconditionally appropriated to the contract. This is a matter to be decided on the intention of the parties, and cannot be determined at this stage. The garments being what they are; apparently ordinary clothing made to order, the balance of convenience does not require that there should be an interim injunction pending trial.

8. In any event, it is quite clear that the plaintiff rejected the garments. There can be no other way of construing the plaintiff's action in "cancelling" the order. The plaintiff cannot "cancel" the order and, at the same time, say that it was entitled to delivery of goods owned by it under the contract. In fact, the plaintiff's letters referred to above do not claim delivery; they claim that the garments should not be delivered to the first defendant until it repaid the price and costs. The first defendant accepted that "cancellation". So, if it were so that the ownership of the garments had passed to the plaintiff, that ownership reverted to the first defendant when the plaintiff unequivocally indicated that it "cancelled" the order, and the first defendant accepted this. What the plaintiff was seeking to do was to cancel the contract, but retain what it believed was its ownership over the garments as security for the price paid. This the plaintiff cannot do. This was what the purchaser attempted to do in JL Lyons and Co. Ltd. v May and Baker Ltd. [1923] 1 KB 685. In that case, Shearman, J said - "It has been contended that a buyer who has rejected goods which he has paid for, and who has not been repaid the money which he has paid, has a right to retain possession of the goods until he has received his money back. . . I however cannot find that there is any foundation for such a right at common law. There is certainly no such right under the Sale of Goods Act . . .".

9. It follows that the injunction must be discharged.

10. There must be some question as to whether the defendants are entitled to damages under the terms of the interlocutory injunction. I am particularly concerned about the fact that, apparently, the attention of the ex parte judge was not drawn to the letters by the plaintiff cancelling the order. I give to the defendants leave to apply for relief under this provision.

11. The second defendant took no part in the hearing before me, being content to abide by any order of the court, and concerned only to protect its lien. On the basis of my order, it seems to me, the second defendant is at liberty to deliver the goods to the first defendant. Before doing so, it would seem that it is entitled to require payment of what is due to it under the lien. If the first defendant pays this, what it pays may be a claim in the main action, or may be, partly at least, damages recoverable under the undertaking given when the interlocutory injunction was granted. The parties may apply for further directions in this regard if they consider it necessary to do so.

12. As to the costs, it seems to me that the defendants are entitled to the costs involved in this application against the plaintiff, and I make an order nisi accordingly.