CHU KIT CHUNG t/a NORTH AMERICAN (HK) TRADING CO v. LEE PANG KEE t/a ALSONIC ELECTRONIC CO

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT KOWLOON

CIVIL JURISDICTION

ACTION NO. 25256 OF 1984

BETWEEN

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JUDGMENT

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1. By a writ issued on the 19th December 1984 the plaintiff seeks to recover (inter alia) damages for non-delivery of 20,000 pieces of certain goods, which she agreed to buy from the defendant under a written agreement dated the 5th October 1984 (Exh. P1). The defendant admits non-delivery of the goods, but contends that the agreement was cancelled or repudiated by reason of the plaintiff's failure to perform a condition as to payment. The plaintiff denies such breach and, in the alternative, contends that the defendant waived the alleged breach by his subsequent conduct. The case raises interesting and somewhat novel questions concerning the construction of an express provision of the agreement, and the nature and extent of the obligations of the parties to a contract of sale, when they have provided for payment to be made by a banker's Letter of Credit.

2. The contract price of the goods was US$22,000. Payment was to be made by an advance deposit of HK$5,000, refundable on cancellation or completion of the contract, and by "100% irrevocable at sight Letter of Credit.." in favour of the defendant. The latter carries on business at 688 Nathan Road, Kowloon. The plaintiff carries on business at or from Choi Yuen Estate, Sheung Shui, and negotiated this contract with the defendant partly through an agent (Wang Shing International Trading Co.) who signed the agreement on behalf of the plaintiff. The agreement contained, inter alia, the following provisions:-

Although there is some degree of ambiguity or contradiction in these express provisions, it is agreed between the parties, and admitted by the pleadings, that the goods were to be delivered on or before the 31st October 1984. The present dispute centres on the proper construction of the provision prefaced by the word "Remarks", and the events which occurred on the 13th October, 1984, and subsequently.

3. I find as a fact, that, when this agreement was negotiated, the defendant knew that the plaintiff was agreeing to purchase the goods for resale, at a profit, to a customer in China. On or about 8th October, 1984, the plaintiff went to China, and entered into an agreement to sell these goods at a price of US$1.40 per piece. (see Exh. P5 and P6). Although there appears to be some difference in the description of the goods in the two agreements, in the sense that Exh. P1 refers to "Model No.: R14-5405", whereas Exh. P5 makes reference to "M38E-4SC Motors", I am satisfied that the plaintiff agreed to sell to her Chinese customer the same goods which she had agreed to buy from the defendant. I also find as a fact that when the plaintiff went to China, she took with her a sample, provided by the defendant, of the goods which she had greed to buy from the defendant, which her Chinese buyer accepted as complying with the description in their agreement.

4. On her return to Hong Kong, the plaintiff took further steps to implement her agreement with the defendant. She applied to the Mongkok Branch of the Hong Kong and Shanghai Banking Corporation ("the Bank") for a Letter of Credit to be issued in favour of the defendant. This branch of the Bank is situated almost directly opposite to the defendant's place of business. At or about 11 a.m. on the 13th October 1984, the plaintiff went to this branch of the Bank to complete her part in "the procedures" for opening the agreed Letter of Credit in favour of the defendant. Having been assured that her application for the Letter of Credit was "approved" or "in order", she crossed Nathan Road to the defendant's office and informed the defendant's secretary, Miss Ho (who, incidentally, did not give evidence before me) of her visit to the Bank.

5. At or about, or shortly before that time I am satisfied that an officer of the Bank (namely Miss Tse Lai Kuen) telephoned Miss Ho and informed her that the application for the Letter of Credit was "in order" or was "approved". On the evidence before me, I am unable to find that the defendant was, through his agent, Miss Ho, then informed that the Letter of Credit was ready for collection on that day. Whether the defendant could have collected the Letter of Credit on that day, which was a Saturday, is doubtful, in view of Miss Tse's evidence that completion of the various procedures would normally take one day. Miss Tse merely processed the initial application form, which was first lodged on the 11th October, 1984. I do not know precisely when the Letter of Credit was actually signed by the Bank's duly authorised officers, but I am satisfied that it was "issued" by the Bank on the 13th October, 1984. The Copy for the Applicant (Exh. P3) and the Copy for Advising Bank (Exh.P4) both give the 13th October, 1984 as the date of issue. Although the defendant did not receive the Letter of Credit, or written notice that it had been issued, until the 15th October 1984, I have no reason to doubt that it was issued on the 13th October 1984. Even if it was, in fact, not issued until the 15th October 1984, I consider that it was still issued within a reasonable time before the date or dates stipulated for delivery of the goods in the contract between the plaintiff and defendant.

6. In the light of these findings, Miss Li submitted that the plaintiff had fulfilled her obligations under the contract. She submitted that it was irrelevant when the Letter of Credit was physically in the possession of the defendant, since it was, for all practical purposes, "available" on the 13th October 1984. Having regard to the physical proximity of the defendant's office to the Bank, the messages conveyed to Miss Ho by the plaintiff and Miss Tse at or about 11 a.m. on the 13th October, and the fact that the plaintiff, the defendant and the defendant's supplier were all located in Hong Kong, it may seem unduly pedantic or absurd to insist upon written notification by the Bank (which, in this case, was performing the dual function of issuing and advising bank) before the plaintiff could be said to have furnished the Letter of Credit. However, I do not consider that these "domestic" features are sufficient to justify departure from the general rule, or usual practice, that a seller is entitled to written confirmation from the advising or correspondent banker that the stipulated Letter of Credit has been opened in his favour. On the evidence before me, I find that such written notification was not received by the seller until the 15th October, 1984.

7. Even if an oral communication can amount to sufficient notification of the opening of a Letter of Credit, in the circumstances of the present case I am not satisfied that the evidence establishes such fact. In my view, Miss Tse merely notified Miss Ho that the plaintiff's application had been "approved" or was "in order". She did not tell her that the Letter of Credit had been signed by authorised officers of the Bank, or otherwise completed. Nor did she indicate that it could be collected from the Bank later that morning or before the Bank closed for business on that day. Even if the Letter of Credit was "available" to the defendant on that day, in the sense that it could have been collected by the defendant, there is absolutely no evidence that the defendant had agreed or undertaken, on that day or at any earlier date, to go to the Bank to receive the Letter of Credit, or notification that it had been issued. It seems to me that it is the duty of the buyer, who agrees to pay his or her seller by means of a Letter of Credit, to ensure that the seller receives clear notice of an absolute guarantee or assurance of payment from that other source, before he is required to perform his duties under the contract. The buyer cannot simply say: "I have made certain arrangements with my banker. If you wish to be satisfied that they comply with our agreed terms, go to my banker."

8. The present case, however, does not turn on the question whether the plaintiff had fulfilled her obligation to notify the defendant of the opening of the credit, by herself or by the Bank, as her agent. Effect must be given to the words inserted in the contract after "Remarks". These words, on their proper construction, in my view, imposed on the plaintiff an obligation to ensure that the Letter of Credit, irrespective of when it was issued, was physically in the hands of the defendant, or in his office, on or before the 13th October 1984. To construe the words as meaning that the defendant was to be merely informed, on or before the 13th October 1984, that the Letter of Credit had been issued, or that the plaintiff's application therefor had been approved by an officer or the Bank whose function was merely to check it before sending it to other sections to complete the customary procedures, would, in my view, be a gross distortion of plain and simple words. I am accordingly satisfied that the plaintiff was in breach of a provision of the contract which entitled the defendant to treat the contract as repudiated and cancelled. The fact that the delay was short (the Letter of Credit was received by the defendant on the 15th October 1984), and may have been due to factors beyond the plaintiff's control, does not, in my view, excuse her from her breach. Cf. Lindsay & Co., Ltd. v. Cook [1953] 1 LL. Rep. 328.

9. Although I am satisfied that the plaintiff told Miss Tse that she was in a hurry to get the Letter of Credit, and that it had to be dated the 13th October 1984, I do not think that the Bank was clearly informed that it had to reach the defendant on or before that date. This provision of the contract was not mentioned in the application form (Exhibit P.4).

10. I turn now to the plaintiff's alternative plea that the defendant waived the breach of this provision of the contract. She testified that, on several occasions after the Letter of Credit had been issued, and collected by the defendant, she pressed for delivery of the goods and was assured by the defendant that there would be no problems. Eventually, she was told that the goods could not be supplied, as the Japanese manufacturer had made a mistake in its specification. The defendant sought to persuade her to accept goods of a different brand or description. She made two trips to China to persuade her Chinese customer to accept substitute goods, without success. On the second trip, she took with her a sample of different goods, and a telex (Exh. P.7), supplied to her by the defendant. The deposit of HK$5,000 was returned to her on the 16th November 1984, after the Letter of Credit had expired.

11. The defendant testified that he never told the plaintiff that he would accept the Letter of Credit, although it was received late. On the contrary, he told her that he could not deliver the goods because it came late. He denied offering her alternative goods, or telling her that the Japanese manufacturer had made a mistake in its specification and denied and all knowledge of the telex (Exh. P.7). He admitted refunding the deposit on the 16th November 1984, but contended that he did so reluctantly and merely, so to speak, to get the plaintiff "off his back".

12. On this aspect of the case, I have no hesitation in preferring the evidence of the plaintiff, and that of Mr. Chan Yuen So, which corroborated part of the plaintiff's account. The plaintiff was not even cross-examined on this aspect of her evidence. The defendant was extremely evasive. I totally disbelieved his denials of offering the plaintiff alternative goods and giving her the telex (Exh. P.7), as well as his assertion that he told her he could not perform the contract because the Letter of Credit reached him too late. This posture, which I find was not adopted until these proceedings were commenced, was, in my view, inconsistent with his admitted actions. I am satisfied that the plaintiff's breach was unequivocally waived by the defendant, by reason of the following features of his conduct after the 13th October 1984, all of which I make the subject of express findings of fact:-

On the basis of these findings, and others which are implicit in my acceptance of the plaintiff's evidence, I conclude that, notwithstanding the plaintiff's breach regarding the Letter of Credit, the defendant, at all material times, led the plaintiff to believe that he regarded the contract as still subsisting, and, on that basis clearly waived the plaintiff's breach. Insofar as the plaintiff must show that she acted upon this belief to her detriment, in order to substantiate her plea of waiver, I consider that she has established this supposed requirement by reason of her two trips to China, with a view to persuading her customer to accept substitute goods, and being deprived of the use of her deposit of HK$5,000 for just over one month after it should have been refunded, if, as the defendant contended, their contract was cancelled by reason of her breach.

13. For the aforesaid reasons, I am satisfied that the plaintiff is entitled to damages for the defendant's non-delivery of the goods in question, and that she has proved her loss of profit amounting to US$6,000, specified in the first prayer of her Particular of Claim. Having regard to the current rate of exchange, at the outset of the trial I queried my jurisdiction to entertain the plaintiff's second and additional prayer for damages". Miss Li, then abandoned this aspect of the plaintiff's claim. But, at the end of the day, she sought the declaration specified in her third prayer, namely that the defendant should indemnify the plaintiff against any damages for which the plaintiff might be held liable to pay, or reasonably pays, to her Chinese customer for failure to deliver the goods under that contract (Exh. P.5 and 6). Assuming that such is a proper form of remedy available to the plaintiff (of Trans Trust S.P.R.L. v Danubian Trading Co. Ltd. [1952] 2QB 297)) in the context of the present disoute, I have doubts as to my jurisdiction to grant it, having regard to the financial limits of my jurisdiction (c f sections 32 and 52 of the District Court Ordinance (cap. 336)). Any damages which the plaintiff might be required to pay to her Chinese customer would, I surmise, be calculated by reference to a contract valued at US$28,000. What she might be required to pay, or offer by means of a reasonable settlement, is pure conjecture. But, together with the sum I award under the first prayer, it could quite easily exceed the limits of my jurisdiction. Accordingly, and with the consent of Miss Li and Mr. Chung, I granted the declaration sought, but limited it to the amount of HK$12,000 on the basis that the award under the first prayer was equivalent to not more than HK$48,000. My award of interest on the sum of US$6,000 does not, in my view, give rise to any question of my limited jurisdiction.