XCHRX RENA GABRIEL HONG KONG LIMITED v. TAPMEN LIMITED

1993, No. A7861

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

_________________

_________________

J U D G M E N T

_________________

1. The Plaintiff's claim arises out of an agreement alleged to have been concluded in April 1993, pursuant to which the Plaintiff would manufacture and supply to the Defendant garments from fabric which was to be supplied by the Defendant. The Plaintiff claims that the Defendant entered into a contract with Chun Jin Textile Company Limited (Chun Jin) for the manufacture and supply by Chun Jin of the necessary fabric. At the request of the Defendant, the Plaintiff opened a letter of credit in favour of Chun Jin for US$46,360.30. Chun Jin supplied fabric which was materially defective but, nonetheless, negotiated the letter of credit and obtained payment. The Plaintiff has been unable to obtain repayment for what it maintains was a wrongful negotiation of the L/C. The Plaintiff therefore seeks indemnification from the Defendant for its loss. Subsequently. on about 22nd July 1993, the Plaintiff asserts that the Defendant repudiated the agreement between the parties. The Plaintiff claims damages for such repudiation.

2. The Plaintiff applied for summary judgment pursuant to O. 14. On 8th December 1993, a Master ordered judgment to be entered for the Plaintiff for the sum claimed by way of indemnity, but gave the Defendant unconditional leave to defend the claim for damages. The Defendant appealed against the decision of the Master giving judgment against it. The Plaintiff cross-appealed against the order giving unconditional leave to defend and seeks an order that judgment should be given for damages to be assessed. Of these appeals, I am now seised.

3. The primary issue between the parties is where responsibility for supply of the fabric lay. The Plaintiff, of course, asserts that responsibility lay with the Defendant and that in making payment to Chun Jin by way of letter of credit it was acting as the Defendant's agent. As agent it is entitled, and this is not in dispute, to an indemnity. The Defendant conversely asserts that the Plaintiff was responsible for sourcing and supplying the fabric, and that in making arrangements for Chun Jin to supply that fabric it was acting as agent for the Plaintiff. There is no one contractual document between the parties and certainly no document which expressly states which party is responsible for supplying the fabric. There are conflicting affidavits. For the Plaintiff, Mr. Stuart, the Plaintiff's solicitor, deposing upon the basis of information and documents provided by the vice-president of the Plaintiff, contends that the Defendant's responsibility for supplying the fabric is to be deduced from the contemporaneous documents. For the Defendant the general manager, Miss Johnston, deposes from her personal knowledge. It is her evidence that the Plaintiff was responsible for supplying the fabric because the contract was on an FOBQ basis, a type of contract which in this particular trade means that the price to be paid by the Defendant to the Plaintiff included the cost of the fabric. She says that the Plaintiff had difficulties in obtaining the fabric required and, after discussion with officers of the Plaintiff, agreed to help the Plaintiff by using the Defendant's own contacts to obtain the fabric.

4. Notwithstanding the crucial facts which are in dispute on affidavit, Mr. Whitehead, for the Plaintiff, contended that the question of whether or not there is a triable issue can be resolved against the Defendant because of the conduct of the Defendant and the contemporary documents, in accordance with the principles clarified in Bhagwandas Kewaleram Murjani and Others v. Bank of India [1990] 1 H.K.L.R. 586. Mr. Whitehead relied upon a number of matters which, because of the view I have taken, I shall not canvass in too much detail. The principle ones seem to be these. First, the general tenor of the correspondence passing between the parties. As to that, I can only say that it is not inconsistent with the Plaintiff being agent for the Defendant in relation to the purchase of the fabric.

5. Second, the contract dated 23rd April for the purchase of the fabric, which was expressed to be between Chun Jin's Hong Kong agent and the Defendant. The copy exhibited is signed by Chun Jin's agent only. Notwithstanding the absence of the Defendant's signature, that document constituted powerful evidence in favour of the Plaintiff. A copy was sent by the Defendant to the Plaintiff and expressed to be "for your reference".

6. Third, when the problems with the fabric emerged, the Defendant advised the Plaintiff that because of the problems the Defendant's customer had decided to cancel completely. The Plaintiff immediately sent the Defendant a number of debit notes including one for the fabric cost. No protest was ever made by the Defendant at being debited with such cost.

7. Fourth, on 7th August the Defendant through Miss Johnston wrote to Chun Jin's Hong Kong agent in strong terms about the fabric, pointing out that its three manufacturers including the Plaintiff had rejected the fabric because of its defects, and because there was no way in which it could be cut. Miss Johnston stated three times that the fabric was "100% defective" or "100% useless". She said that Chun Jin would have to be responsible for the cost of lining and accessories which had been debited the Defendant by the manufacturers, and expressed shock that Chun Jin had drawn upon the L/C, knowing the fabric to have been defective.

8. Fifth, the conduct of the Defendant has been dishonest. Miss Johnston, in her affidavit, has confessed that she exaggerated in saying that the fabric was "100% defective". Nonetheless, Miss Johnston, it is complained, continues to make equally sweeping and unsupported statements in her affidavit, such as "Chun Jin knew that the Plaintiff was the buyer, and not the Defendant". Another aspect of the Defendant's alleged dishonesty is that in reply to a carefully detailed letter before action from the Plaintiff's solicitors, the Defendant's solicitors replied that "we deny the existence on any contract of the manufacture and supply of garments between our clients" (sic). Such a contract, however, is now admitted and the dispute is over the terms and breach thereof. For the Defendant, Miss Cruden explained that this was simply a "knee jerk" reaction to the letter before action, occasioned by a misunderstanding that the contract was with the Defendant's Canadian principal rather than the Defendant itself. I have to say that I attach no importance to this particular ground of complaint.

9. Under attack is the credibility of Miss Johnston. Unlike any officer of the Plaintiff, she has deposed at some length and in some detail as to the background to the agreement and what occurred thereafter. She has candidly confessed that she exaggerated in describing the fabric as "100% defective". I note, however, that in using that expression she was no more than repeating an expression used by the Plaintiff in its fax dated 5th August to Chun Jin, in which the Plaintiff's vice-president expressed "shock and horror" at Chun Jin's "indecency and audacity" at withdrawing the total amount of the L/C when the fabric was known to be "100% defective", fabric which "we have ordered". The Plaintiff went on to accuse Chun Jin of dishonesty and fraud. Apart from putting in context Miss Johnston's letter to Chun Jin's agent two days later, I am bound to say that this communication is more suggestive of the Plaintiff being the principal rather than the agent in relation to the fabric.

10. As far as the contract for the purchase of the fabric is concerned, Miss Johnston deposed that the Defendant's name was put in the contract by mistake because the Defendant had been responsible for making the arrangement. She pointed out that it had not been signed by the Defendant.

11. It is then to be noted that Chun Jin's commercial invoice and the other commercial documents required for the L/C were all made out in the name of the Plaintiff. There was no mention of the Defendant, not even as a notify party.

12. Finally, as I have already indicated, it is the Defendant's contention through Miss Johnston that an "FOBQ" contract generally requires the manufacturer to supply the fabric. This has not expressly been denied by the Plaintiff. I accept, as Mr. Whitehead contended, that there is no hard and fast rule about an FOB contract which has a degree of flexibility. It does seem to me, however, that this is a matter which I cannot simply dismiss.

13. In all the circumstances, I am persuaded that the Defendant has shown a triable issue in relation to the supply of the fabric. I allow the Defendant's appeal. The Master's order for judgment to be entered in favour of the Plaintiff is set aside. I do not think that this is a case to which any conditions should be attached. I give the Defendant unconditional leave to defend in relation to the claim for an indemnity.

14. In the circumstances, the Plaintiff's cross appeal necessarily fails and is dismissed.

15. I make an order nisi that the Defendant should have the cost of these appeals in any event.