DAVINA INDUSTRIAL CO. LTD. v. ICD GROUP (HONG KONG) LTD.

IN THE COURT OF APPEAL

1996, No. 93
(Civil)

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J U D G M E N T

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Mayo, J.A.:

1. This is an appeal from the decision of Sears, J to dismiss the appellant's appeal from the judgment entered by Master Jennings on 15 March 1996 pursuant to Order 14.

2. The parties entered into a contract whereby the appellant agreed to supply to the respondent 510 metric tons (±5%) of prime high density polyethylene film (Holstalen GM 9255F) at the price of US$665.00 per metric ton to be shipped during the months of July and August 1994. These goods which were of a specific nature were to be obtained from a supplier in South Africa Hoechst Co. The appellant only delivered 170 metric tons and the respondent is claiming damages for breach of the contract.

3. It would appear that the reason for the failure of the appellant to supply all of the goods was that a fire had occurred at the factory in South Africa of Hoechst's supplier of one of the ingredients and they were unable to effect the necessary deliveries.

4. This fire occurred on 8 March 1994 which was some months before the contract was entered into.

5. The amended paragraph 4 of the statement of claim contains particulars of the contract relied upon by the respondent.

6. There is a dispute concerning the terms of the contract between the parties.

7. In paragraphs 4 and 5 of the re-amended Defence the appellant contends that the contract was subject to an express term or condition in these terms:

"Seller shall not be responsible for delay in shipment or non-delivery of a part or all of the goods arising from Acts of God, wars, revolutions, civil commotions, strikes, lockouts, failure of suppliers to deliver raw materials, fire, floods, droughts, earthquakes, storms, accidents, breakdowns of machinery, detentions, police or health regulations, government instructions, negligence of carrier, railroad embargo, or from any other cause whatsoever beyond Seller's control when delay results from such cause, buyer is nevertheless to accept later shipments and/or delivery, and in event of non-shipment or non-delivery this contract shall be void to the extent of quantity not shipped or not delivered."

8. Sears, J. in his decision deals with this issue in this way:

" There is a dispute as to whether or not an exclusion clause which is said to be on the contract does form part and parcel of the contract, because the back of the document was not faxed apparently, but the signature is one which is above the recital that it is subject to terms and conditions. It is argued in the skeleton submissions of Mr Lin that it did not form part and parcel of the contract. I, however, would not have entered judgment on that basis. The buyer is bound by his signature appearing just below words which indicate there are terms and conditions and in my judgment, the terms and conditions which were subsequently shown to the defendant and signed by him by authority of a chop are not the imposition of new conditions, but confirmation of those originally contracted to."

9. The respondent has filed a notice pursuant to Order 59 Rule 4 which seeks to take issue on this finding. It is contended that the judge was wrong to hold that the exemption clause had any application to the contract as a binding contract was in existence prior to the attempt to introduce these additional terms.

10. Mr Edward Chan, Q.C. who represented the respondent before us fortified this argument by referring to the fact that the respondent opened letters of credit pursuant to the terms of the faxes exchanged on 22 June 1994. He further submitted that his clients were not bound by the terms and conditions referred to in the fax of 24 June 1994 as these terms and conditions had not been made available to the respondent at the time his client's signature was affixed to the document.

11. I do not think that this is an issue which is so clear that it can be resolved on an Order 14 application.

12. The final paragraph of the respondent's fax of 22 June reads:

"Please kindly send us contract Thanks."

13. Mr Edward Chan submitted that all this meant was that the contract would be prepared in a formal manner and that it would simply incorporate the terms which had been agreed by the parties in the said exchange of faxes.

14. This however overlooks the fact that the words appearing above the signature on 24 June fax contain a statement to the effect that the terms and conditions printed on the reverse side are incorporated as part of the contract.

15. Mr Chan argued that as it was common ground that no copy of the conditions had been made available to the respondent they could not be bound by them. He placed reliance upon the ticket cases going back into the last century.

16. The law is not simple and beyond argument on this point. The circumstances of every case will differ. It is certainly possible that after all the factual issues in the present case have been fully ventilated as they would be at a trial that the court may conclude that the contract was subject to the terms and conditions.

17. The next issue which has to be determined is whether it is clear that the exemption clause operates in the circumstances of this case.

18. Mr Chan and Mr Faulkner for the appellants agreed that the law in this connection was satisfactorily encapsulated in paragraph 14.124 of Vol. I of 27th Edition of Chitty on 'Contracts'.

"Burden of proof. It is for a party relying upon a force majeure clause to prove the facts bringing the case within the clause. He must therefore prove the occurrence of one of the events referred to in the clause and that he has been prevented, hindered or delayed (as the case may be) from performing the contract by reason of that event. He must further prove:

(i) that his non-performance was due to circumstances beyond his control; and

(ii) that there were no reasonable steps that he could have taken to avoid or mitigate the event or its consequences.

However, in Trade and Transport Inc. v. Iino Kaiun Kaisha Ltd. where the clause in question referred to 'unavoidable hindrances,' Kerr, J. stated that a party would be debarred from relying upon such a clause if the existence of facts which show that the clause was bound to operate should reasonably have been known to that party prior to the conclusion of the contract, and would have been expected by the other refused; and, if an embargo is not absolute, but subject to certain exceptions, a seller may be obliged to show that he has no goods of the contract description available to him within the 'loopholes' to which the embargo is subject."

19. The relevant condition has already been referred to in this judgment.

20. It is evident from the available material that the appellant did enter into a contract with Hoechst for the supply of the material referred to in the contract.

21. It was not entirely a 'back to back' contract as the contract with Hoechst contained a delivery clause in these terms:

"Ex South Africa July/August 1994 subject to undisturbed production of the manufacture and shipping possibility."

22. There was no similar provision contained in the contract between the parties to this case.

23. It was however agreed by both counsel that the first limb of the requirement in Chitty had been met namely that the non-performance of the contract had arisen as a result of circumstances which were beyond the control of the appellant.

24. The question which had to be resolved was whether it was clear from the material which was before Sears J that the appellant had taken all reasonable steps to avoid or mitigate the event.

25. Mr Faulkner submitted that it was clear from Mr Zigal's affidavit of 22 April 1996 that it had not been possible for the appellant to obtain an alternative source of supply. He placed reliance on paragraph 4 of the affidavit.

"I have been in the commodities trading business for over 20 years and I am familiar with the supply of commodities including HDPE. It will be seen from 'CKK-2' that the product was HDPE film grade natural grade GM9255F ex Hoechst. The origin was stated to be South Africa. This means that alternative supplies by other manufacturers would not have fulfilled the Defendant's contractual obligations. Grade GM9255F is a specific grade referable only to Hoechst's products. No alternative source of supply of this particular product was available in the market at the time. I verily believe that the Plaintiff sought to acquire supplies of this particular grade of HDPE from the Defendant because firstly Hoechst was not able to supply the Plaintiff's full needs and secondly no alternative supplies were available in the market at the time."

26. Mr Chan submitted that the appellant had not discharged this burden. If reliance was to be attached to the formal contract rather than the exchange of faxes it was not the case that the goods had to be supplied by Hoechst. All that was required was that the goods should conform to the specifications stipulated albeit that these were Hoechst's stipulations.

27. He contended that it could reasonably be inferred from what Mr Zigal said in these paragraphs that the appellants had confined their efforts to obtaining substitute goods to getting them from Hoechst. There was no evidence that they had attempted to obtain the goods from any other source. This meant that the second limb of the Chitty requirements had not been met.

28. I do not think that it is necessarily the case that such an inference can be drawn from this paragraph. The words at the end of para 4 would seem to indicate that some efforts may have been made to obtain an alternative supply from other sources. Mr Chan argued that the reference to 'at the time' clearly referred to the time when the contract was entered into rather than the time when it would have been appropriate for the appellant to have been attempting to mitigate the situation which had arisen. I do not think that this is necessarily the case. It is the type of situation which should properly be the subject matter of cross-examination which could be undertaken at a trial of these issues.

29. Over and above this I do not think that it has been established beyond argument that goods of the type referred to in the contract could have emanated from a source other than Hoechst. This would appear to call for expert evidence and is by no means self evident from the material which was before Sears, J.

30. For all of these reasons I do not think that it can be said that there are no triable issues in this case. In my view this appeal should succeed.

Godfrey, J.A.:

31. I am of the same opinion.

32. As it seems to me, there are several issues which ought to be tried here.

33. The first issue is whether the "force majeure" clause (as I would prefer to call it) was ever incorporated in the contract between the parties. As to this, it seems to me at least arguable that, where as here contracting parties sign a contract, after rather than before commencing to deal with each other, their contractual rights will be held to be governed by the contract which they have signed, even in respect of dealings which took place between them before the signing of the contract. Further, it seems to me to be at least arguable that where the signed contract refers to "terms and conditions printed on the reverse side" of the contract, the signatories must be taken to have assented to those terms and conditions even though the particular copy of the print which they signed did not itself contain these terms and conditions on the reverse. It is sufficient to bind a signatory to such terms and conditions that he knew that the writing which he signed was intended to contain them : see Chitty on Contracts, 27th ed. (1994) para.12-011.

34. The next issue is whether the contract here was for the sale of Hoechst goods only. It seems to me at least arguable that it was. If that is so, the next issue is whether the sellers were prevented from fulfilling their contract by a cause beyond their control (the burden of proof on this issue lies with them). As to this issue, the sellers have shown that the goods could not be obtained directly from Hoechst but it is said for the buyers that the sellers have not shown that the goods could not have been obtained otherwise than directly from Hoechst. I am of the firm opinion that the buyers should not be shut out at this stage of this action from attempting to do so.

35. For these reasons I, too, would allow this appeal.

Litton, V.-P.:

36. This matter comes to us on an order for summary judgment under Order 14 of the Rules of the Supreme Court, Cap 4. The facts have not been ascertained. My conclusion on the material before the court is as follows:

(1) Arguably, the printed terms formed part of the contract.

(2) Arguably, the seller has brought itself within the exemption from liability by virtue of the words in the printed conditions as follows:

"Seller shall not be responsible for delay in shipment or non-delivery of a part or all of the goods arising from ... any other cause whatsoever beyond seller's control ...."

The burden of showing that the cause of failure was beyond the seller's control lies, of course, upon the seller. Paragraph 4 of Mr Zigal's affidavit of 22 April 1996, although not crystal clear, has raised in my judgment a sufficient factual issue to be tried, as to whether at the relevant time alternative supplies of the contract goods were available.

37. The result is that the appeal succeeds. Sears, J's judgment of 26 April 1996 and the Master's order dated 4 December 1995 must be discharged and we should now hear counsel as to what consequential orders we should make for the further conduct of the action and also on the question of costs.

Costs

38. The orders for costs that this court makes are as follows:

(i) That the appellant should have the costs of the appeal to this court which would of course include any costs incurred pursuant to the motion for leave to put in the respondent's notice and consequential thereto.

(ii) As regards the costs of the proceedings before Sears J and of the proceedings before the Master, our order is that those costs should be costs in the course of action.

39. We also give unconditional leave to the defendant to defend the action.