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HCA000979/1991
1991, No.A979
IN THE SUPREME COURT OF HONG KONG
HIGH COURT
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| BETWEEN |
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MARIA ISABEL DA LUEZ
trading as MILKY TOYS |
Plaintiff |
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AND |
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NTL OCEANIA PTY LIMITED |
Defendant |
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Coram: Hon Mr Justice Cheung in Court
Dates of hearing: 7, 8, 9 and 25 April 1997
Date of handing Down Judgment: 6 May 1997
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J U D G M E N T
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Facts
Agreements between Plaintiff and Defendant
1. The Plaintiff carried on business in Hong Kong. The Defendant ("NTL") was a company in Australia. NTL was interested in selling dried abalone which were caught in Australia and processed in Japan to the Asian market. Mr Alfred Kwok ("Mr Kwok"), the husband of the Plaintiff, had discussions with Mr David Lau ("Mr Lau") of NTL about the sale of the abalone. Samples were supplied by NTL to the Plaintiff on various occasions. The Plaintiff and NTL eventually entered into an agreement. The agreement was in the following terms :
"A G R E E M E N T
THIS AGREEMENT IS MADE ON THE NINETEENTH DAY OF JULY, IN THE YEAR OF NINETEEN NINETY BETWEEN 'NTL OCEANIA PTY. LIMITED' HEREINAFTER REFERRED TO AS 'PARTY A', LOCATED AT LEVEL 23, GROSVENOR PLACE, 225 GEORGE STREET, SYDNEY N.S.W. 2000, AUSTRALIA, REPRESENTED BY MR. SATOSHI MONZEN AND MR. DAVID LAU, AND 'MILKY TOYS' HEREINAFTER REFERRED TO AS 'PARTY B', LOCATED AT UNIT 2, 14TH FLOOR, STAR CENTRE, 443 CASTLE PEAK ROAD, KWAI CHUNG, NEW TERRITORY, HONG KONG REPRESENTED BY MR. ALFRED, C.P. KWOK AND MR. EMMETT, Y.L. LEUNG, WITH THE TERMS AND CONDITIONS STATED HEREINAFTER ON THE SALES AND DISTRIBUTION OF 'DRIED, PRESERVED ABALONE' HEREINAFTER REFERRED TO AS 'THE PRODUCT' SUPPLIED BY 'PARTY A'.
1. 'THE PRODUCT' IS HARVESTED IN THE COASTAL REGION OF AUSTRALIA, AIRFREIGHT TO OMA OF JAPAN FOR DRYING AND PROCESSED UP TO AN ACCEPTABLE QUALITY.
2. 'PARTY A' MUST MONITOR THE PROCESS IN ORDER TO ACHIEVE THE QUALITY TO THE ACCEPTABLE LEVEL DETERMINED BY THE MARKET FEED BACK FOR THAT PRICE RANGE OF ABALONE, AND SPECIFICATION OF THE QUALITY FOR ACCEPTANCE WILL BE DESCRIBED AND CONSENSUS BETWEEN PARTIES A AND B IN DUE COURSE.
3. 'PARTY A' MUST GUARANTEE AN ANNUAL SUPPLY OF NOT LESS THAN 7,000 KILOGRAM OF 'THE PRODUCT', OR A MINIMUM QUANTITY OF 500 KILOGRAM PER MONTH.
4. 'PARTY B' MUST GUARANTEE AN ANNUAL PURCHASE OF NOT LESS THAN 3,600 KILOGRAM OF 'THE PRODUCT' WHEREAS THE MONTHLY CONSUMPTION RATE TO BE DETERMINED QUARTERLY.
5. 'PARTY B' OR HIS CLIENT WILL PLACE LETTER OF CREDIT WITH 60 DAYS CREDIT TO 'PARTY A' BEFORE THE DELIVERY.
6. UPON RECEIPT OF LETTER OF CREDIT, 'PARTY A' SHALL REIMBURSE TO 'PARTY B' A COMMISSION AT A RATE SCHEDULED HEREINAFTER
| ANNUAL CONSUMPTION |
RATE |
BELOW 3,600KGS
3,601KGS TO 5,000KGS
5,001KGS TO 7,000KGS
ABOVE 7,000KGS |
10%
9%
8%
7% |
7. 'PARTY B' WILL ACT ON BEHALF OF 'PARTY A' TO COVER THE FOLLOWING PROCESS :-
IMPORT ARRANGEMENT, GRADING OF 'THE PRODUCT', SORTING 'THE PRODUCT', LOCAL DELIVERY OF 'THE PRODUCT', TEMPORARY STORAGE, INSURANCE OF 'THE PRODUCT' DURING STORAGE
8. 'PARTY A' GRANTED THE EXCLUSIVE RIGHT FOR 'PARTY B' TO DISTRIBUTE 'THE PRODUCT' IN THE SOUTH-EAST ASIA COUNTRIES EXCEPT JAPAN, THAT IS, TAIWAN, HONG KONG, KOREA, CHINA, THAILAND, MALAYSIA, INDONESIA, ETC.
9. THIS AGREEMENT ALSO BOUND TO THE AFFILIATED, RELATED, CONGLOMERATE COMPANY OF 'PARTY A' AND 'PARTY B'.
AS AGREED ON THE TWENTIETH DAY OF JULY, IN THE YEAR OF NINETEEN NINETY BY:-
| 'PARTY A': |
)(SIGNED) |
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| NTL OCEANIA PTY. LIMITED |
) |
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| AS WITNESS: |
)(SIGNED) |
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| 'PARTY B': |
)(SIGNED) |
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| MILKY TOYS |
) |
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| AS WITNESS |
)(SIGNED)" |
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2. On 20th August 1990, the parties further signed another agreement. The terms of which were contained in the letter of the same date which stated that :
"20 AUG 1990
Milky Toys
Unit 2, 14th Fl, Star Centre
443 Castle Peak Road
Kwai Chung, NT.
Hong Kong.
Dear Sir,
Pursuant to our agreement dated 20 July 1990, we would like to refer to paragraph (2) on the specification of the quality for acceptance as follows:
Size of dried abalone: between 20 - 30 pieces per cattie
Quality is as per our samples supplied.
The product should be edible after rehydration and cooked in the manner as per the traditional Chinese method.
Please countersign as your acceptance for our definition.
| NTL OCEANIA Pty Ltd |
Miky Toys |
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| (signed) |
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| David Lau, Project Manager |
(signed)" |
Agreements between Plaintiff and Keep Sing
3. The Plaintiff managed to contact one Mr Lam Yu Shing ("Mr Lam") of the Keep Sing Gem Ltd. ("Keep Sing") which was interested in purchasing the abalone.
4. On 13th July 1990, the Plaintiff and Keep Sing entered into an agreement, the terms of which were as follows :
"A G R E E M E N T
THE AGREEMENT IS MADE ON THE THIRTIETH DAY OF JULY, IN THE YEAR OF NINTEEN NINTY BETWEEN 'MILKY TOYS' HEREINAFTER REFERRED TO AS 'PARTY A', LOCATED AT UNIT 2, 14/F., STAR CENTRE, 443 CASTLE PEAK ROAD, KWAI CHUNG, NEW TERRITORIES, HONG KONG, REPRESENTED BY MR. EMMETT, Y.L.LEUNG, AND 'KEEP SING GEM LIMITED' HEREINAFTER REFERRED TO AS 'PARTY B', LOCATED AT 1105-6 HANG SENG BANK BLDG., 18 CARNARVON ROAD, TSIMSHATSUI, KOWLOON, HONG KONG, REPRESENTED BY MR. LAM YU SHING, WITH THE TERMS AND CONDITIONS STATED HEREINAFTER ON THE SALES AND DISTRIBUTION OF 'DRIED RESERVED ABALONE' HEREINAFTER REFERRED TO AS 'THE PRODUCT' SUPPLIED BY 'PARTY A'.
1. 'THE PRODUCT' IS HARVESTED IN THE COASTAL REGION OF AUSTRALIA, AIRFREIGHT TO OMA OF JAPAN FOR DRYING AND PROCESSED UP TO AN ACCEPTABLE QUALITY.
2. 'PARTY A' MUST MONITOR THE PROCESS IN ORDER TO ACHIEVE THE QUALITY TO THE ACCEPTABLE LEVEL DETERMINED BY THE MARKET FEED BACK FOR THAT PRICE RANGE OF ABALONE, AND SPECIFICATION OF THE QUALITY FOR ACCEPTANCE WILL BE DESCRIBED AND CONSENSUS BETWEEN PARTIES A AND B IN DUE COURSE.
3. 'PARTY A' MUST GUARANTEE AN ANNUAL SUPPLY OF NOT LESS THAN 7,000 KILOGRAM OF 'THE PRODUCT', OR A MINIMUM QUANTITY OF 500 KILOGRAM PER MONTH.
4. 'PARTY B' MUST GUARANTEE AN ANNUAL PURCHASE OF NOT LESS THAN 3,600 KILOGRAM OF 'THE PRODUCT' WHEREAS THE MONTHLY CONSUMPTION RATE TO BE DETERMINED QUARTERLY.
5. 'PARTY B' OR HIS CLIENT WILL PLACE LETTER OF CREDIT WITH 60 DAYS CREDIT TO 'PARTY A' BEFORE THE DELIVERY.
6. 'PARTY A' WILL PROVIDE PACKAGING METHOD AND DESIGN FOR GIFT PACK.
7. 'PARTY A' CAN ALSO PROVIDE PACKAGING PROCESS AT A COST WHICH IS COVERED BY PARTY B.
8. 'PARTY A' GRANTED THE EXCLSUIVE RIGHT FOR 'PARTY B' TO DISTRIBUTE 'THE PRODUCT' IN THE SOUTH-EAST ASIA COUNTRIES EXCEPT JAPAN, THAT IS, TAIWAN, HONG KONG, KOREA, CHINA, THAILAND, MALAYSIA, INDONESIA, ETC.
9. THIS AGREEMENT ALSO BOUND TO THE AFFILIATED, RELATED, CONGLOMERATE COMPANY OF 'PARTY A' AND 'PARTY B'.
AS AGREED ON THE THIRTIETH DAY OF JULY, IN THE YEAR OF NINETEEN NINETY BY:-
| 'PARTY A': |
)(SIGNED) |
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| MILKY TOYS |
) |
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| AS WITNESS: |
)(SIGNED) |
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| 'PARTY B': |
)(SIGNED) |
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| KEEP SING GEM LIMITED |
) |
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| AS WITNESS |
)(SIGNED)" |
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5. Keep Sing issued a Purchase Order ("the Purchase Order") dated 5th September 1990 to the Plaintiff. The terms of the Purchase Order were as follows :
| "DESCRIPTION |
QUANTITY |
UNIT PRICE |
AMOUNT |
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CIF HONG KONG |
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(HK$/KG) |
(HK$) |
| DRY ABALONE |
14,000KGS |
$2,666.00 |
$37,333,380.00 |
| (18-22 PIECE PER CATTIE) |
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| PACKING: |
General export packing. |
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| DELIVERY: |
To be advised. |
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| PAYMENT: |
By irrevocable at sight L/C direct to NTL OCEANIA PTY., LEVEL 23 GROSVENOR PLACE 225 GEORGE STREET, SYDNEY, N.S.W. 2000 AUSTRALIA. |
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| REMARKS: |
1. Delivery Period: within two year, 7,000kgs per year.
2. Cargo must be despatched by air-freight.
3. Certificate of Quality issued by NTL Oceania pty. Is required."
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The delivery and subsequent events
6. The parties had further discussions. Mr Kwok said that NTL agreed to deliver 500 kg which would be delivered in different batches.
7. Keep Sing issued a letter of credit dated 23rd September 1990 in favour of NTL for 240 kg (400 catties) of abalone at HK$2,666.67 per kg C.I.F. Hong Kong. By letter dated 2nd October 1990, NTL informed the Plaintiff that about 200 kg of the abalone would be ready for delivery the following week. The letter further stated that :
"SINCE L/C DOES NOT PERMIT PARTIAL SHIPMENT, WE WILL HAVE PROBLEM, IF WE HAVE TO WAIT FOR THE SECOND BATCH TO BE READY.
ABOUT 50 KG WAS REJECTED IN THE FIRST BATCH. AND AFTER DEDUCTING 50 KG, WE NOW HAVE 200 KG ONLY. SECONDLY, PLS AMEND L/C TO DELETE INSURANCE REQ'D. WILL CALL YOU SOON.
RGDS
DAVID"
8. Apparently, there was management problems in NTL and by a letter dated 3rd October 1990, NTL informed the Plaintiff that :
"Re our conversation, I have meeting with new management today, and it looks 99.9% certain that they will honour our commitment so far as the current production and shipment is concerned, i.e. 500 kg - about 50 kg reject = 450 kg.
Delivery situation is still as per our conversation. Will keep you updated.
As to future regular monthly shipment, it is pretty certain that the new management will not proceed. We will have to find a solution before you advise your client.
Please be patient with me for a few days."
9. NTL eventually managed to deliver 240 kg of the abalone to Hong Kong. They were delivered to the office of Keep Sing. On arrival in Keep Sing, it was discovered that four boxes of the abalone became stale and they stank. By letter dated 1st November 1990, the Plaintiff wrote to NTL stating that :
"Re: Abalone shipment
Mr. Lam and us were upset about the abalones that we've just received. During the process of inspecting abalones, four cartons of abalones were found stale and stink. These four cartons of abalones are totally unacceptable because of inferior qualities. Uptill now, we've have not finished inspection, hopefully we may not find some more inferior abalones. Mr. Lam insisted not to accept discrepancies provided immediate replacement of abalones from your side. Please let us know your further action of replacement so that we can have some more ground to persuade Mr. Lam for your abalone quality acceptance. However, we shall let you know the exact quantities ASAP."
Termination of the agreement
10. By letter dated 7th November 1990, NTL informed the Plaintiff that the agreement was terminated. The letter stated that the abalone business was developed by Mr Monzen, the ex-director of NTL, without the knowledge and authority of the head office in Japan.
11. By letter dated 8th November 1990, the Plaintiff asked NTL to reconsider the position. The reply from NTL came on the following day, 9th November 1990, which stated that :
"Whilst we regret that it was necessary to terminate the proposed arrangement with your company, we were entitled to give the notice which was given terminating the proposed arrangement.
We apologise for any inconvenience caused by our actions. If you have any queries, please do not hesitate to contact us."
The Plaintiff's claim
12. The Plaintiff commenced the present action against NTL seeking :
(1) loss of profit it would otherwise have received if the contract had not been terminated;
(2) commission;
(3) indemnity of damages in respect of Keep Sing's claim against the Plaintiff for its failure to fulfill the contractual obligations.
Was there a binding agreement between the parties?
13. NTL denied that there was a binding agreement between it and the Plaintiff because the parties have not agreed on an important term of the agreement, namely, the price of the goods. NTL argued that the agreement was an agreement to agree. This was reflected in Clause 2 of the agreement dated 20th July 1990 between the Plaintiff and NTL.
14. Mr Houghton, Counsel for the Plaintiff, argued that where the price is not specified in an otherwise binding contract of sale, the Sales of Goods Ordinance ("the Ordinance") (as a codification of the common law) imports a reasonable price to be paid. In the circumstances of the case such a term could be implied if not imported by the Ordinance. In Foley v. Classique Coaches Ltd. [1934] 2 KB 1, the defendant agreed to purchase from the plaintiff petrol "at a price to be agreed by the parties in writing and from time to time". The agreement further provided that "If any dispute or difference shall arise on the subject matter or construction of this agreement the same shall be submitted to arbitration in the usual way in accordance with the provisions of the Arbitration Act, 1889." The Court of Appeal held that a term must be implied in the agreement that the petrol supplied by the plaintiff should be of reasonable quality and sold at a reasonable price, and that if any dispute arose as to what was a reasonable price it was to be determined by arbitration pursuant to clause 8. The Court of Appeal distinguished the earlier decision of May & Butcher v. The King (which was published as a note to the judgment) on its facts. In that case the agreement provided that :
"(1.) The Commission agrees to sell and [the suppliants] agree to purchase the total stock of old tentage ....
....
(3.) The price or prices to be paid, and the date or dates on which payment is to be made by the purchasers to the Commission for such old tentage shall be agreed upon from time to time between the Commission and the purchasers as the quantities of the said old tentage become available for disposal, and are offered to the purchasers by the Commission."
Lord Buckmaster held that :
" What resulted was this: it was impossible to agree the prices, and unless the appellants are in a position to establish either that this failure to agree resulted out of a definite agreement to buy at a reasonable price, or that the price had become subject to arbitration, it is plain on the first two points which have been mentioned that this appeal must fail.
In my opinion there never was a concluded contract between the parties. It has long been a well recognized principle of contract law that an agreement between two parties to enter into an agreement in which some critical part of the contract matter is left undetermined is no contract at all. It is of course perfectly possible for two people to contract that they will sign a document which contains all the relevant terms, but it is not open to them to agree that they will in the future agree upon a matter which is vital to the arrangement between them and has not yet been determined."
15. In Cedar Trading Co. Ltd. v. Transworld Oil Ltd. (The "Gudermes") [1985] 2 Lloyd's Law Reports 623, the defendants argued that the parties have agreed that the plaintiffs would offer the defendants future cargoes of Arab light crude at a price formula which would enable the defendants to earn a profit in the sum of $385,000. Leggatt, J. held that on the evidence the defendants had wholly failed to prove any enforceable settlement agreement; no machinery was provided for the ascertainment of the 'market price' and the notion of a 'price acceptable to the defendants' represented the very stuff of which agreements to agree were made.
16. Mr Alfred Kwok was not able to say specifically when the price of the goods was agreed between the parties. According to the correspondence, Mr Lau of NTL in a letter dated 17th August 1990 with the heading "Re : final confirmation to our going ahead with our next shipment 500 kg dried abalone", informed the Plaintiff that he was coming close to organizing NTL's purchase of dried abalone for shipment next week to Japan. He asked the Plaintiff to "double check with your side that our confidence in your clients honoring his commitment would not be changed". By letter of the same day, the Plaintiff confirmed that the Plaintiff had signed an agreement with Keep Sing.
17. In the agreement between the Plaintiff and NTL it was stated that NTL would provide a minimum of 500 kg of abalone per month. In my view it is clear from the correspondence that the parties have reached an agreement that for the first 500 kg the purchase price would be $2,660. This is clearly reflected in the letter of credit opened by Keep Sing in favour of NTL and in the letter dated 3rd October 1990 from NTL to the Plaintiff. However, beyond this 500 kg, I cannot find that there was any agreement regarding the purchase price of future shipments. The situation is similar toMay and Butcher and The Gudermes. No doubt Keep Sing had issued a Purchase Order in which the price of the abalone was stated at $2,660 but there is no evidence that the Plaintiff had agreed with NTL that the same price was to be used in relation to the whole of the annual supply of not less than 7,000 kg.
Purchase Order
18. The evidence of Mr Alfred Kwok regarding the Purchase Order was not satisfactory. The Purchase Order referred to the size of the dried abalone as between 20 to 30 pieces per catty. Handwritten on the purchase price were the words "verbal commicted (sic) 18 to 22頭". I set out the evidence of Mr Kwok on the Purchase Order :
"A. Whether it was 7,000 or 3,600 kilos, in our agreement whether NTL supplies or we supply to Keep Sing, this is the basic and when we talk about 18 to 22 heads, this was the basic. If there were more heads, they still accept it, because they can choose because the problem was that the price would be higher. The contract was that we agreed to supply and we have to perform the contract.
Q. You are saying that you had to supply all that abalone of that narrow range at that price no matter what. Is that what you are saying? That is what it sounded like to me just now.
A. Concerning this range, between 18 to 22 heads we had an agreement. If the price was high, then they could sell it at a higher price, they would also accept it.
Q. This has got a fixed price in this deal. Are you telling the judge that this purchase order represents a contract you made for you to supply those goods at that price to Keep Sing?
A. No. This is a reference only. A supplier has to place a price. The initial order was heads between 18 to 22. There was a document stating that it was 14 tons over 2 years. Then we had to supply 14 tons. If the price was higher, then they had to do it at a higher price because there was a trade price.
.................
Q. Either this was a binding deal at a binding price for these goods or it wasn't. Explain it to me in simple terms please. Is it a deal as shown here which bound you to supply them or is it not?
A. Yes, the quantity. The quantity of the abalone to be sold to them. But the price fluctuates. In a period of two years of course the price may rise.
Q. This document didn't bind you to supply at this price. If your price went up, you could pass it on.
A. Yes."
Mr Kwok referred to the price being used for reference only and he referred to the question of the fluctuation of price. Although he went on to say that NTL was obliged to deliver the abalone, I am not satisfied from the evidence of Mr Kwok that Keep Sing and the Plaintiff had agreed to supply all future abalone at a specified price. This is so despite the Purchase Order issued by Keep Sing. I am not satisfied that the Purchase Order constituted a binding agreement between the Plaintiff, NTL and Keep Sing for the sale of 14,000 kg of abalone at $2,660. The only agreement was the sale of 500 kg at that price.
Nature of the agreement
19. The next question to be decided is what was the nature of the agreement. The Plaintiff claimed that the agreement with NTL was a contract for the sale and purchase of abalone and also an agency agreement. It should be firstly noted that the Plaintiff did not pursue the claim for loss of profit resulting from the termination of the contract.
20. Mr Kwok in his evidence stated that initially the Plaintiff did not know how to deal with the abalone business financially. Large sums of money were involved and the Plaintiff considered a flexible approach, namely, that part of the business would be for the clients to send the letter of credit directly to NTL and the Plaintiff would receive commission and for the other part the Plaintiff would purchase the abalone.
21. The parties agreed that this evidence regarding Mr Kwok's understanding of the agreement was inadmissible. I have to construe the agreement by reference to the agreement itself. In my view, the agreement between the Plaintiff and NTL was an agency agreement in which the Plaintiff acted as the agent for NTL in the sale of abalone to customers. This is borne out by Clause 6 of the agreement which referred to the calculation of commissions to be paid by NTL to the Plaintiff. Clause 7 further stated that the Plaintiff would act on behalf of NTL in relation to import arrangement, grading of the product, sorting the product, local delivery of the product, temporary storage, insurance of the product during storage. All these would be unnecessary if the Plaintiff were to enter into a sale and purchase agreement with NTL.
Breach by NTL
22. I have no doubt that it was due to the internal management problems of NTL that NTL decided to terminate the agreement with the Plaintiff. The Plaintiff contended that NTL must give a notice of termination of two years duration in order to end the contract. This was to take into account the very substantial quantities of abalone, the sale or distribution throughout Asia and the Purchase Order of Keep Sing in which there was a reference to delivery period within two years of 7,000 kg per year. In Martin-Baker Aircraft Co. Ltd. v. Canadian Flight Equipment Ltd. [1955] 2 QB 556, it was held that the question of what was reasonable notice was to be determined according to the ordinary principles applicable to the implication of terms into a contract and with regard to the facts as existing at the time when the notice was given and not at the time when the contract was made, and that, in the circumstances of the case, 12 months was reasonable notice to be given for the determination of the contracts.
23. Although the Purchase Order of Keep Sing referred to the delivery of 14,000 kg of abalone within two years at 7,000 kg per year, the agreement between the Plaintiff and NTL did not refer to an agreement of two years duration. Bearing in mind my conclusion that it was a binding agreement for NTL to supply 500 kg of abalone which, according to the letter of 5th October 1990 from NTL to the Plaintiff, would be delivered in three shipments, I do not consider that NTL was entitled to terminate this agreement unilaterally. Hence the question of length of notice simply does not arise. NTL was clearly in repudiation of the agreement by refusing to proceed with the agreement and it is clear from the evidence that the Plaintiff had accepted the repudiation by the Plaintiff.
The Commission
24. The Plaintiff was seeking commission of 8% of $2,660/kg x 14,000 kg at $2,985,920. I have already said that the only agreement was for the sale of 500 kg at $2,666. Furthermore the difficulties with this claim is that under the agreement the Plaintiff would only be entitled to commission upon receipt of the letter of credit placed by the customer. The condition for receiving the commission was based on the receipt of the letter of credit. Unless the customer opened the letter of credit, the Plaintiff's entitlement to the commission would not arise.
25. The same applies to the alternative claim for commission based on a quantum meruit basis. The claim was at the rate of 10% of the cost of the abalone supplied or to be supplied pursuant to the terms of the agreement being a minimum of 500 kg per month or 7,000 kg per annum. The Plaintiff's entitlement to the commission was again dependent on the customer opening the letter of credit. Mr Houghton argued that one must not assume that the purchaser would not open the letter of credit and hence this is not a matter that should be taken into account in deciding whether commissions should be awarded to the Plaintiff or not.
26. The entitlement of the Plaintiff depended on the terms of agreement reached with NTL : the entitlement depended not simply on the placing of order by the customer but receipt of letter of credit by NTL. This was a condition precedent to the Plaintiff's entitlement. I am not satisfied that the Plaintiff is entitled to the claim for commission.
27. The Plaintiff had demanded and received from NTL commission in the sum of $64,000 which was based on 10% of the amount of the letter of credit of $640,000.80. Although Mr Kat, Counsel for NTL, argued that Keep Sing had not opened a 60 day letter of credit, there was no cross-claim for the return of the $64,000 commission. The payment of $64,000 is not a live issue between the parties.
Possible claims by Keep Sing
28. By letter dated 14th November 1990, the Plaintiff informed NTL that the Plaintiff was facing very substantial and serious claims from its buyer at a minimum compensation for terminating the contract and non-performance of the abalone quality at around $4-5 million.
29. The writ was issued in February 1991. It was after the issue of the writ that Keep Sing, by a letter dated 17th May 1991, informed the Plaintiff that :
"RE: ABALONE
HAVING A SERIOUS REVIEW OF OUR ABALONE BUSINESS BETWEEN NTL - AUSTRALIA, YOUR COMPANY AND US, WE HEREBY CONFIRMED DEMAND A TOTAL COMPENSATION FROM YOU AT HK$8 MILLIONS BEING IN BREACH OF AGREEMENT BY YOUR COMPANY, IN CAPABLE TO SUPPLY MERCHANTABLE ABALONE SET OUT IN OUR AGREEMENT AND LOST THE OPPORTUNITY OF PROFIT EARNING IN ABLAONES BY OUR COMPANY.
PLEASE CONTACT ME DIRECT TO DISCUSS SUCH ISSUE."
30. By a further letter dated 3rd June 1991, Keep Sing further claimed against the Plaintiff as follows :
"Re: Abalone
Further to our discussion, we would like to submit our claim breakdown as follow:
Committed Supply Quantities per year : 7,000KGS
Year : Two
Selling Price : HK$3,266.00/KG
Purchasing Price : HK$2,666.00/KG
Computation for Lost Earning :
(HK$3,266.00-HK$2,666.00) at 7,000KGS for 2 years
= HK$8,400,000.00
Say Hong Kong Dollars for Lost Earning - Eight Millions and Four Hundred Thousand only."
31. Mr Kwok said that since 1991 the Plaintiff had heard nothing from Keep Sing. In relation to the claim by Keep Sing, no particulars were given as to the sum of $3,266/kg although Mr Kwok said that this was the well known market price of abalone. Despite being joined as a party in this action, Keep Sing had never raised a claim against the Plaintiff for breach of the agreement between the Plaintiff and Keep Sing.
32. I think Mr Kat had raised a valid point that as the breach of the contract occurred in November 1990, when NTL terminated the agreement, the limitation period for bringing claims by Keep Sing against the Plaintiff or NTL had expired. In the circumstances, I am not prepared to grant a declaration that NTL is to indemnify the Plaintiff of possible claims by Keep Sing. Mr Kwok said that after the delivery of the first batch of abalone, Keep Sing had lost confidence with the Plaintiff. The finding I made in this connection is that Keep Sing simply did not wish to pursue further with the purchase of abalone. There is simply no evidence that Keep Sing is genuinely interested in pursuing a claim against the Plaintiff. In any event the only agreement that Keep Sing had was for the purchase of 500 kg of abalone only.
Contribution in the counterclaim proceedings
33. Mr Houghton argued that a claim for contribution by Keep Sing against the Plaintiff in respect of counterclaim by NTL against Keep Sing is not time-barred, and that the Plaintiff should at least be indemnified against any such claim. Mr Houghton argued that the limitation period would not arise until the liability of Keep Sing under the counterclaim is established. This point has not been fully argued. I will not make a declaration that NTL is to indemnify the Plaintiff of its liability to Keep Sing in respect of NTL's counterclaim. This is not one of the relief sought by the Plaintiff in the present action. Paragraph 5C of the Further Further Re-Amended Statement of Claim pleaded that the Plaintiff is subject to a claim for loss of profit by Keep Sing. In paragraph 6A, it is pleaded that "In the event that the Plaintiff is found liable to its sub-buyer Keep Sing and in any event, the Plaintiff claims against the Defendant an indemnity, alternatively a contribution against whatever liability the Plaintiff has incurred or may incur to his sub-buyer Keep Sing in respect of any loss or damage arising from the Defendant's aforesaid repudiation and non-delivery of the said goods including any and/or cost and expenses in connection thereto." The pleaded indemnity claim was of Keep Sing's loss arising from NTL's repudiation and non-delivery of the abalone. It did not extend to Keep Sing's liability to NTL in respect of the non-payment of the purchase price of the abalone.
34. NTL had chosen not to proceed with the counterclaim against Keep Sing in these proceedings. If it wishes to do so in the future then it must give notice to the Plaintiff and her solicitors so as to enable them, if they wish, to intervene in the proceedings in order to safeguard their position.
Nominal damage
35. Although NTL was in breach of the agreement, the Plaintiff was unable to prove substantial loss and damage arising from that breach. In the circumstances, I will award a nominal sum of $500 to the Plaintiff.
Counterclaim by NTL
36. The counterclaim by NTL against the Plaintiff was based on the existence of an enforceable contract for sale of the abalone by NTL to the Plaintiff. This was not pursued by NTL. In any event, the claim was unsustainable because the agreement between NTL and the Plaintiff was an agency agreement and not an agreement for sale.
37. Alternatively, NTL's claim was based on quantum meruit in respect of the delivery of 240 kg of the abalone to Keep Sing at the Plaintiff's request. NTL had negotiated the documents under the letter of credit and had received payment. However, the negotiation was under reserve for discrepancies : see the notice dated 30th October 1990 from NTL's bank to the establishing bank. There were discrepancies in the description of the documents. Keep Sing refused to accept these discrepancies. By letter dated 27th November 1990, NTL's bank required repayment from NTL of HK$640,000 together with accrued interest should the drawing on the sum under the letter of credit remained unresolved. There is no evidence that NTL had since repaid the money to its bank. NTL is now seeking $480,000 being the purchase price of the 240 kg of abalone less the price of those which were rejected.
38. The claim on quantum meruit against the Plaintiff was not fully argued by Mr Kat. I was referred to, inter alia, paragraph 29-125 of Chitty on Contracts, 27 Edition, Volume 1, in which the question of quantum meruit was discussed : the task of the court was to carry out a process of equitable restitution which was not to be limited by reference to the plaintiff's entitlement under the purported contract, primarily because that was irrelevant to a remedy which only arose due to the invalidity of the contract but also by analogy with the position of a valid contract which had been discharged without breach.
39. In this case, I find that there was a valid contract for the supply by NTL to Keep Sing of 500 kg of abalone. Subject to the question of the defective quality of the abalone, NTL has a claim against Keep Sing for the payment of the price of the abalone delivered to Keep Sing. NTL had, however, not pursued in this action the counterclaim against Keep Sing. It was adjourned by agreement between NTL and Keep Sing. Instead, NTL is pursuing the claim against the Plaintiff. This is not a claim based on quantum meruit at all. Even if, for the purpose of argument, a claim based on quantum meruit can be formulated, NTL's claim against the Plaintiff must fail. The Plaintiff was NTL's agent and not an agent of Keep Sing. The editors of Bowstead and Reynolds on Agency stated that :
"6-023 An agent is in general not liable to his principal on contracts made by him between his principal and third parties."
"6-024 This is the general rule: the essence of the notion of agency is that the agent drops out of the transaction. But just as the agent may in some case be liable to, and entitled to sue, the third party, so also he may be liable to his principal, by express or implied agreement or by usage. This may occur, for example, when he is a del credere agent, or where he in some other way agrees to answer to his principal in respect of transactions which he negotiates; where he in some respects deals as principal with a person for whom he is in other respects an agent (e.g. an insurance broker); or where he acts also as agent for the third party and undertakes liability to his first principal as such agent. And of course the entering into of the transaction may be a breach of duty under the principles stated in the previous Articles."
An illustration of this principle can be found in the case of Yeung Kai Yung v. Hong Kong & Shanghai Banking Corporation [1981] AC 787 where it was held that where a person who was invested with a statutory or common law duty of a ministerial character, without any default on his own part, exercised that duty at the request of another thereby injuring the rights of a third party, the law implied a contract that the requester would indemnify the person doing the act in respect of any actionable injury to the third party; that that principle was not limited to cases where the request had been made by a person for his own benefit but applied equally where the request had been made by an agent.
40. In the present case, it has never been pleaded or alleged that the Plaintiff was at the same time acting as an agent for Keep Sing. NTL is therefore not entitled to this claim against the Plaintiff.
Breach of duty by the Plaintiff
41. In the course of the evidence it was suggested that the Plaintiff had failed in its duty as an agent for NTL in returning the defective abalone to NTL. By letter dated 2nd November 1990 NTL informed the Plaintiff that it would replace the inferior abalone with stocks in Japan and asked the Plaintiff to send the rejects to NTL's head office in Japan. The Plaintiff had on 2nd November 1990 commissioned a firm of surveyor to inspect the abalone and it was discovered that four boxes or 60 kg thereof were found to be apparently dry but darker in colour, more or less mildewed and emitting a kind of unpleasant odour. The report stated that the rest of the 12 boxes or 120 kg were apparently sound and accepted in good order.
42. Mr Kwok said that the abalone were rejected by Keep Sing and returned to the office of the Plaintiff. The Plaintiff on 19th November 1990 commissioned another survey and it was discovered that the condition of the abalone in the 12 boxes was that they were apparently dry, darker in colour and more or less mildewed. On 12th December 1990, another survey report was commissioned and the finding was as follows :
"BoxesFound Condition
| 4 |
Colour : Blackish
Abalones with their outer surface covered with a white powder & some pieces found affected by mould. (rejected by the notifying party) |
|
|
| 2 |
Colour : Yellowish
Abalones were found covered with mould or fungus to a varying degree. (rejected by the notifying party) |
|
|
| 3 |
Colour : Yellowish
Abalones with their outer surface covered with a white powder and all pieces found with mould and some affected by live weevils where visible. (rejected by the notifying party) |
|
|
| 7 |
Colour : Yellowish
We were told that 4 boxes out of the 7 boxes had been unpacked and the abalones there is cleaned up and the moisture removed by placing them in a small oven. Inspection of contents showed that the abalones still had a white powder on their surface. (accepted by the notifying party who claimed that the abalones out of these 7 boxes were of a lower quality)" |
43. Mr Kwok's explanation as to why he did not return the four boxes immediately to NTL was that he wished to solve the matter once and for all, and he wished to ensure that the rest of the 12 boxes was of good quality. I accept his explanation. I further accept the finding on the conditions of the abalone as contained in the reports. However, the position is that although the Plaintiff did not immediately return the abalone to NTL, NTL has not lodged a claim based on the breach of duty of the Plaintiff as its agent in returning the goods.
44. In the circumstances I will dismiss the counterclaim against the Plaintiff by NTL.
Conclusion
45. Judgment is given to the Plaintiff for $500. The counterclaim is dismissed. Having considered the respective claims of the parties, the appropriate order for costs nisi in the case is that each party should bear its own cost.
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(P. Cheung) |
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Judge of the High Court |
Representation:
Mr Anthony Houghton, inst'd by M/s Oldham, Li & Nie, for the Plaintiff
Mr Nigel Kat, inst'd by M/s Baker & McKenzie, for Defendant
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