CEP LTD v. 无锡巿佳诚太阳能科技有限公司

HCCL 12/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACT0ION NO 12 OF 2012

(Transferred from High Court Action No. 181 of 2011)

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A. INTRODUCTION

1.  The plaintiff (“CEP”) is and was at all material times a British Virgin Island company with an office in Beijing.  Its business included consultancy and sourcing services as well as trading in photovoltaic components and products.

2.  The defendant (“Jiacheng”) was a PRC manufacturer of photovoltaic components and products.  It is a company in the ReneSola Group of companies, which is listed on the New York Stock Exchange.

3.  The relationship between CEP and Jiacheng began in around February 2010, when CEP prepared an evaluation report for Jiacheng.  By a written contract dated 27 April 2010 (“Sales Contract”), CEP agreed to buy from Jiacheng a total quantity of 7.056 megawatts (“MW”) of multicrystalline solar modules (“Modules”) at a unit price of €1.35/watt, for a total price of €9,525,600.[1]

4.  Mr Gary Cicero (“Mr Cicero”) was a director and the driving force behind CEP in this matter.  He played the leading role in negotiating and performing the Sales Contract on behalf of CEP.

5.  Mr David Zhang (“Mr Zhang”), Jiacheng’s Sales Manager, was the person who mainly dealt with CEP.  Mr Zhang reported to Mr Paul Li Pan Jian (“Mr Li”), Chief Executive Officer of ReneSola America Inc and Chief Operation Officer of ReneSola Limited.

6.  CEP in turn sub‑sold the Modules to its customer in Italy, Sorgenia Solar SRL (“Sorgenia”), a power generation company.  The sub‑sale contract essentially mirrored the Sales Contract, save that the price was different. 

7.  Under the Sales Contract, payment for the Modules was to be by way of irrevocable letter of credit (“L/C”), but the parties disagree as to which form of L/C was acceptable: CEP contends that the use of transferable L/C was permitted under the Sales Contract; Jiacheng claims that a direct L/C to be issued by CEP was required.

8.  On 22 June 2010, CEP and Jiacheng signed a Supplemental Agreement II at Jiacheng’s factory, whereby the unit price of the Modules was varied from €1.35/watt to €1.40/watt.  On the same occasion, a Commission Agreement was signed providing for the payment of a commission of €0.05/watt to CEP if Jiacheng successfully signed a sales contract with Ergy Capital group (“Ergy”), a customer introduced by CEP to Jiacheng.  In the end, no sales contract was concluded between Jiacheng and Ergy.  CEP claims that the Supplement Agreement II was signed under economic duress and is unenforceable, which claim Jiacheng denies.

9.  Eventually Jiacheng did not deliver the Modules to CEP but sold them directly to Sorgenia at a higher price in circumstances which gave rise to this action.  Essentially, CEP claims that Jiacheng was in breach of the Sales Contract by refusing to deliver the Modules on the pretext that transferable L/C was not acceptable; Jiacheng on the other hand claims that CEP was in breach of the Sales Contract by failing to open a compliant L/C in time.

B. ISSUES

10.  Although the parties disagree over many issues, both factual and legal, they are broadly in agreement over the main issues that arise for determination.  The following formulation of the issues is mainly adopted from the Closing Submissions of Mr Christopher Chain, counsel for CEP.

11.  On liability, there are three main issues:

(1) Whether the Sales Contract permitted payment by transferable L/C and whether CEP had validly provided for payment by a valid transferable L/C on 5 July 2010 (“L/C Issue”).

(2) Did the conduct of Mr Zhang give rise to a waiver or estoppel so that Jiacheng could not rely on the transferability of the LC.  This gives rise to questions over Mr Zhang’s authority to act on behalf of Jiacheng (“Waiver/Estoppel Issue”).

(3) Jiacheng also relied on other grounds of non-compliance of the L/C.  These non‑compliance are admitted, but CEP says that there are technicalities and, by the conduct of Mr Zhang, Jiacheng had waived them or is estopped from relying on these grounds to refuse delivery. (“Non-compliance Issue”)

12.  If CEP succeeds on liability, the following issues arise on quantum:

(1) whether the Supplement Agreement II was enforceable so as to affect the calculation of CEP’s damages (“Duress Issue”);

(2) whether clause 14 of the Sales Contract limits the damages payable by Jiacheng and whether CEP is entitled to recover loss of future business from Sorgenia (“Damages Limitation Issue”).

C. THE FACTS AND EVIDENCE IN DETAIL

C.1 Sales Contract

13.  It is pertinent to begin with the Sales Contract, the material terms of which are as follows:

“1. Product and Branding:

As used in this Confirmation, ‘Product’ or ‘Products’ shall mean the solar modules JC220M-24/Bb-a & JC230M-24/Bb-a all made of Multicrystalline solar cells and manufactured by Seller. … The solar modules will be branded ‘RENESOLA’.

2. Quantity:

3,606,400W 230w Multicrystalline Solar Modules

(Type JC230M-24/Bb-a Power tolerance:-/+3%)

3,449,600W 220w Multicrystalline Solar Modules

(Type JC220M-24/Bb-a Power tolerance:-/+3%)

3. Take or Pay Agreement:

This Agreement is a “take-or-pay agreement” such that Buyer is absolutely and irrevocably required to accept and pay for the contracted volume of Product at the prices set forth in Article 5.

…

5. Price Delivery Schedule:

Unit price:

€o 1.35/W for Nominal Output CIF Main sea port of Europe

This price is fixed for the whole contract. And the total amount is EUR9,525,600 …

6. Delivery Schedule:

1. All of the Contracted goods will be delivered to Shanghai port of China in lots before 31^st of July 2010. The first shipment will be effected within 3 weeks after the Seller has received the 5% down payment of total contract value.

2. The Seller keeps the right to modify the schedule a little bit according to the actual production.

7. Payment:

a. The 5% of total contracted value will be paid by T/T within 7 working days after the contract is signed by both seller and buyer. The 95% of each delivery will be paid by the irrevocable documentary Letter of Credit (L/C). The original L/C should be issued latest 20 days prior to partial delivery. All the terms of the L/C should be confirmed in writing by the Seller finally before the Buyer applies to the bank for the issuance of L/C; any delay will affect shipping date accordingly. The L/C is valid 12 months upon the issuance.

…

…

12. Termination

a) Termination by Buyer. Buyer may, at its option, terminate this Agreement prior to the expiration. Term only upon the occurrence of all of the following events: (i) failure by Seller to deliver a material amount of Products properly ordered by Buyer within the time frames specified in this Agreement; or failure by Seller to deliver a material amount of the Products properly ordered by Buyer which meet the Product Specifications, (ii) a failure by Seller to cure such delivery deficiency within one hundred and eighty (180) days of receipt of the notice of failure; and (iii) a Contingency, as further defined in Section 20,[2] has not occurred. If Seller rectifies any such failure of delivery or failure of Product to meet Specification, then Seller’s deficiency of performance shall be deemed cured and Buyer shall not be entitled to terminate this Agreement. Notwithstanding, the rights and obligations set forth under this agreement are fully assigned by the Buyer. Without limiting the generality of the expression, a “material amount” shall be deemed to mean greater than 50% of the Product deliveries in any three month period.

…

c) Termination by Seller. Seller may, at its option, terminate this Agreement in the event of a failure to pay or other material breach by Buyer if that breach is not cured by Buyer within Thirty (30) days after receipt of written notice. In the event of such termination, Seller will have the obligation to ship only the goods corresponding to the amount of payments received from the Buyer.

14. Damages Limitation:

Except as otherwise set forth in this agreement, neither seller nor buyer, or its or their direct or indirect subsidiaries, shall be liable for any loss, damage, or injury resulting from delay in delivery or the products, or for any failure to perform which is due to circumstances beyond its control. In no event shall seller or buyer, or its or their direct or indirect subsidiaries, be liable for any direct damages other than those described in sections 12, 16, or any indirect, incidental, consequential, punitive or special damages, including without limitation lost revenues, lost profits, and lost business opportunities, even if it has been advised of the possibility of such damages. These limitations shall apply notwithstanding any failure of essential purpose of the limited remedy set forth above.

16. Legal Interpretation:

This Agreement shall be executed in two counterparts in the English language.  This Agreement shall be interpreted in accordance with the plain English meaning of its terms.”

14.  By a Supplemental Agreement dated 4 May 2010, the delivery schedule under clause 6 of the Sales Contract was varied, so that shipment dates were changed from May to July 2010 to June to August 2010.  Nothing turns on this Supplemental Agreement.

15.  CEP paid the 5% deposit, in the sum of €476,280, on or about 7 May 2010.

C.2 The sub-sale contract

16.  By an email dated 5 May 2010, Sorgenia confirmed to CEP its intention to buy 6MW of Modules.  Eventually, an agreement was signed on 11 June 2010 whereby Sorgenia agreed to buy all 7.056MW of Modules at the unit rate of €1.48/watt.  The shipment schedule corresponded to the shipment schedule under the Sales Contract as varied by the Supplemental Agreement.  As for payment, Sorgenia was to pay 5% of the contract price as deposit by wire transfer, and 95% of the contract price:

“… by confirmed, irrevocable, transferable L/C at sight, pro quota according to the relevant shipment (1 L/C for each shipment acceptable). L/C should be issued at least 30 days before each shipment date. The buyer should send the draft of L/C to the seller before opening final L/C. The issuing bank shall be recognized first class bank accepted by HSBC.”

17.  It is evident that CEP intended to use the transferable L/C to be issued by Sorgenia to pay for the Modules under the Sales Contract.

C.3 Jiacheng’s attempt to raise the price

18.  The performance of the Sales Contract was far from smooth.  In less than 10 days after signing the Sales Contract, by an email dated 3 June 2010, Mr Zhang informed Mr Jim Xu of CEP (“Mr Xu”, who worked under Mr Cicero on this contract) as follows:

“Dear Jim,

I am sorry to tell you that we will have to raise up [sic] the former price in the contract (No: JC-CEP20100427) from Euro 1.35/w to Euro 1.45/w. This is necessary according to the recent price developments of the raw material and because of the recent decline of the Euro (we are buying our raw materials in RMB and US Dollar, and not in Euro). The current market price of the 220w and 230w poly modules is USD1.85/W CIF. According to the current rate (1 euro=1.22 USD), the actual price is Euro 1.52/w.

The current solar market situation and the Euro currency rate are like the Wallstreet. It is going up and down, and up again. I know that it is hard to understand. But I can assure you that our company does not have any influence on the current situation. In other words we are also ‘victims’ of the current circumstances or macro-economy. I hope that you are willing to understand that we do not have any choice than raising up the former price.

I am asking for your understanding and great support. You first help us with this deal to share a part of burden and we will help you anytime in the near future to get the best possible price for all of your potential orders.

By the way, if you can help us with this deal, we also can consider change the payment terms into L/C 30 Days …

David, Sales Manager”

19.  As stated above, Mr Zhang was the person with whom CEP mainly liaised.  It will be seen that throughout this matter, he was the primary contact of CEP, although Mr Li featured in a number of important aspects.

20.  Mr Cicero on behalf of CEP replied to Mr Zhang by email on the same date, rejecting the suggested price increase:

“Dear David,

This is impossible. We have signed a contract with our client. Please understand this.

But do not worry because we will help you secure more orders for Q4 and Q1. We have our own PV project in Q1 for 20MW and we will make sure this order is for you.

Gary”

21.  As a matter of fact, the first paragraph of the email was not strictly correct.  On 3 June 2010 CEP had not signed the sub‑sale contract with Sorgenia, although the latter had confirmed its intention to purchase 6MW of Modules from CEP on 25 May 2010. What I perceive is that Mr Cicero considered that Sorgenia’s written confirmation of its intention to sign a contract for the purchase of the Modules was, from his perspective, as good as a signed contract.

22.  In any case, Mr Cicero and Mr Zhang made arrangements to meet each other at the Intersolar trade fair in Munich on 11 June 2010.  Mr Li said in evidence that the issue of price was not mentioned in that meeting.  Mr Cicero, on the other hand, said in his witness statement that Mr Li reiterated that Jiacheng would not deliver the Modules to CEP under the agreed price of €1.35/watt in view of the rising market.  Mr Cicero then repeated that it had a signed contract with its customer (the sub‑sale contract with Sorgenia had been signed on that date) and Jiacheng could not back out from it.  According to Mr Cicero, Mr Li did not respond, and Mr Cicero considered that issue closed.

23.  But the price issue was far from closed.  By another email on 14 June 2010, Mr Zhang told Mr Cicero:

“Nice to meet you at our booth during the Intersolar 2010 …

Actually, I can understand well your upset feeling at the moment. I never imagin [sic] this thing can move to such a bad extent. In my eyes, I don't want any sides to take the loss. But if we carry out the contract at the original price, we will suffer from great loss. I also do not want to see you go bankrupt because you are my important custome [sic].

So, I hope you can help us through another order with much higher prices to balance the price of two orders and minimize the loss.

I will try my best to cooperate [with] you to resolve the issue …”

24.  It would therefore appear from this email that the meeting at Intersolar was far from cordial, and the price issue was discussed but not resolved.  Given the repeated raising of the price issue by Mr Zhang, I find Mr Li’s description of the meeting at Intersolar, that no mention was made of the price under the Sales Contract, incredible.  It seems to me that Mr Cicero’s evidence is far more likely to represent the truth, that the two of them did discuss the price issue at that meeting, although no agreement was reached about varying the price, and as stated in Mr Zhang’s email, the atmosphere was rather acrimonious.

25.  Mr Cicero claimed in his witness statement that after the Intersolar meeting, there were other telephone calls from Mr Zhang to him repeating that Jiacheng would not ship the Modules at the agreed price under the Sales Contract.  In the light of all the evidence I am prepared to accept that this was the case.  Indeed, this is another reason why I think the price increase issue was not closed at the Intersolar fair meeting.

26.  It would appear that CEP did try to introduce other customers to Jiacheng.  Although the documentary evidence on this is sparse, it is not disputed that CEP did introduce Energetica Solare SpA (part of the Ergy Group) to Jiacheng.

C.4 Supplemental Agreement II and Commission Agreement

27.  On 22 June 2010, Ms Ana Hernandez (who was Mr Cicero’s wife) and Mr Xu on behalf of CEP met with Mr Li and Mr Zhang at Jiacheng’s factory (“22 June Meeting”).  Mr Cicero was unable to attend the meeting because he was otherwise engaged in Europe. 

28.  It is reasonably clear from the internal emails exchanged between Mr Cicero, Ms Hernandez and Mr Xu prior to the 22 June Meeting that Jiacheng continued to press for a price increase and the purpose of the meeting was to discuss the price issue (amongst other things).  From these internal emails, it would appear that Jiacheng through Mr Zhang had made it clear that it would not be shipping the Modules at the agreed contract price, and suggested that CEP would be paid a commission for orders which Ergy might place with Jiacheng as a “sweetener” to offset some of CEP’s loss resulting from the demanded price increase. 

29.  In an email to Mr Zhang dated 22 June 2010 apparently sent prior to the 22 June Meeting, Mr Cicero made a last attempt to get Mr Zhang’s help to persuade Mr Li to minimise the price increase:

“I know that you are unilaterally increasing the price of our fixed contract price due to the unfavorable exchange rate fluctuation. As you know the PV market very well, its normal practice that we have already negotiated sales contracts with our customers based on the original fixed price that we negotiated with Wuxi Jiacheng/Renesola. Now we have no option but to pay this price increase. Otherwise we would lose credibility with our customers and our business name and reputation would suffer. Our clients would take us to court if we don't follow our contracts that we signed with them. In Europe once a contact is signed its not acceptable practice to make a change.

In any case, I really hope the price increase can be .03 Euro cents. I really do appreciate all your efforts with Paul but I still ask that you help convince him to make this price increase as small as possible. As I mentioned to you in Intersolar, we are not a multinational or large company, rather we are a small company – a family company, and by forcing a price increase on us, really hurts us, We will pay it because really we have no other option. I just hope the price increase can be .03 Euro cents (1.35+.03 = 1.38 Euro).

I hope you can help us and convince Paul. I know Paul is the COO but I am sure he can listen to your suggestion. Especially considering the new clients we are finding and the work we did with getting Renesola bankability by the Italian banks.

thanks David, Gary.

PS.  Also please make sure that Paul takes into consideration all the work we did for the factory audit and work contacting all the banks to help get bankability for Renesola.  We did all this working without charging you, just so we could help you.”

30.  What resulted from the meeting on 22 June 2010 were two agreements.  The first was Supplemental Agreement II, whereby the unit price under the Sales Contract was increased by €0.05/watt to €1.40/watt.  The second agreement was the Commission Agreement, whereby Jiacheng agreed to pay a commission of €0.05/watt to CEP “[If Jiacheng] signed a contract of 8.5MW with Ergy Capital group of companies at Euro1.51/w (the actual contract price should not be less than USD1.85/W …).”

31.  In his witness statement and his oral evidence, Mr Cicero said that CEP was forced to sign these agreements because there was no practical choice.  Even if CEP were in the right, it would still risk ruining its reputation and credibility with its customers if it could not fulfil the sub‑sale contract.  The “commission” was no sweetener because CEP was forced to pay an extra €0.05/watt in return for an uncertain prospect of receiving a €0.05/watt commission which was entirely out of CEP’s control.

32.  Mr Cicero’s evidence in this regard is corroborated by an email from Ms Hernandez after the 20 June Meeting.  In this email she described what had happened:

“Hi Gary and Jim

This is the amendment to the contract they made us signed [sic] today at the factory, i try [sic] my best to explain to paul but finally they forced us to sign or they will never deliver the goods, or delay and delay so we will ook [sic] bad in front of sorgenia, so i was forced to sign for new price from 1.35 to 1.40 as you can see.

We need to deliver next week all the containers or we will have a problem with our customers so I sign and will look for solution later.”

33.  Ms Hernandez gave evidence at the trial and confirmed her evidence that at the 22 June Meeting she was forced to sign the Supplemental Agreement II because Mr Li threatened not to deliver the Modules or would delay shipment so as to cause problems with CEP’s delivery to Sorgenia.  She was not cross-examined on the 22 June Meeting.  Mr James Thomson, counsel for Jiacheng, submitted that it was unnecessary to cross‑examine Ms Hernandez on this issue because she did not give direct evidence on the issue in her witness statement; her evidence only came in the form of Mr Cicero’s witness statement, which she confirmed by her witness statement.  Her evidence was thus hearsay, and Mr Cicero was cross‑examined on the issue.

34.  I do not agree with Mr Thomson.  Although Ms Hernandez did not repeat the evidence concerning the 22 June Meeting in her own witness statement, she did adopt and confirm that part (among others) of Mr Cicero’s witness statement dealing with the Supplement Agreement II, and she confirmed the truthfulness of her witness statement in court.  Given that Mr Cicero was not present at the meeting but Ms Hernandez was, in my judgment, if Jiacheng wished to challenge her version of events it would be incumbent on it to cross-examine her on that point.  This is particularly so when the submission sought to be advanced is that her version of events did not happen as she had claimed.  Such contention implies that she was dishonest in her evidence and fairness requires such an allegation to be put directly to the witness.  I am therefore entitled to proceed on the basis that her evidence on this issue was unchallenged.  However, it does not necessarily follow that I am bound to accept CEP’s case on this issue without question.

35.  On the 22 June Meeting issue, I consider that I must also take into account the contemporaneous email sent by Mr Xu to Mr Cicero after the meeting.  Mr Xu did not mention any threatening or aggressive behaviour on the part of Mr Li or Mr Zhang.  Rather, he described the Supplemental Agreement II and the Commission Agreement as a “compromise”.  The material part of this email is in the following terms:

“Dear Gary,

PLS kindly find below short brief of the meeting with Paul for your reference.

After explanation and discussing, finally Paul agreed the compromise: To crease [sic] only EUR 0.05/W for 7MW order, and the factory will agreed [sic] to pay commission EUR 0.05/W from second order 8.5MWm so that Paul could be easy to explain to the board.

...

As per Paul, the production will be very tight in July, so he prefer to ship more container in June, so maybe they could ship 6 containers… Renesola will give us the exact information after the production meeting tomorrow morning. Then we will inform client to change L/C accordingly.

David will prepare the supplementary contract for 7MW, and also the commission agreement for 8.5MW order.”

36.  It is unclear why Mr Xu told Mr Cicero that the Supplemental Agreement II and the Commission Agreement were to be prepared by Mr Zhang, as Ms Hernandez’s evidence is that the two agreements were signed during the 22 June Meeting.  One possible explanation is that Mr Xu might not have been present throughout the entire meeting, and might have sent this email to Mr Cicero when he left the meeting while Ms Hernandez remained there to sign the documents.  Be that as it may, I must bear in mind the contrast between Mr Xu’s description of the Supplemental Agreement II and the Commission Agreement as a “compromise” and how Ms Hernandez described what had happened at the 22 June Meeting in her email. 

37.  Bearing in mind all the evidence, I am satisfied that Ms Hernandez on behalf of CEP accepted the increase in price of the Modules and the Commission Agreement because she felt that there was no practical alternative to CEP.  I will return to consider whether such pressure from Jiacheng constituted economic duress.

G.5 Factory Visit on 25 June 2010

38.  In the meantime, Sorgenia opened three L/Cs in favour of CEP on 17 and 18 June 2010.  These were irrevocable transferable L/Cs advised through (but not confirmed by) HSBC, which was CEP’s bank.  They were issued roughly in line with the delivery schedule provided for in the sub‑sale contract, ie for shipments in July, August and September.  For convenience I shall refer to the L/Cs by their reference numbers “005”, “006” and “007” respectively.  It is unnecessary to go into the detail terms of these L/Cs at this stage. The L/Cs expressly provided that UCP 600 applied.

39.  Sorgenia informed CEP of the opening of these L/Cs on 21 June 2010, and HSBC advised CEP of their issuance on 22 June 2010.  Hence the reference in Mr Xu’s email of 22 June (see paragraph 35 above) referring to changing the terms of the L/Cs in line with the proposed revised shipping schedules.

40.  By another email dated 22 June 2010, Mr Xu informed Mr Nicolo Romeo (“Mr Romeo”) of Sorgenia (who was head of its purchasing office) that CEP was able to reserve 30 containers of Modules for delivery the following week.  In the email, Mr Xu informed Mr Romeo that the 30 containers became available on short notice because their original buyers did not pay on time.  Request was made that the Modules would be used to fulfil Sorgenia’s order but there was not enough time to print Sorgenia’s brand onto them, so they would be in Renesola brand or in neutral packaging.  Mr Romeo was asked to revise the L/Cs accordingly.

41.  Mr Romeo replied on the same date, saying that he would prefer to start with L/C modification after the visit to the factory and once all supply details had been discussed and agreed.  Mr Cicero, who was copied in all these emails, sent an email to Mr Romeo asking him to make the changes because it would take a few days for the L/Cs to arrive, adding: “Some buyers are losing shipments due to delays in payment.”  However, Sorgenia did not revise the L/Cs on 22 June 2010.

42.  Sorgenia’s representatives Mr Romeo and Mr Giorgio Mingoli (“Mr Mingoli”, who was a technical personnel) arrived in Beijing on 23 June and had a meeting with Mr Cicero and Mr Xu on 24 June 2010.  According to an email from Mr Cicero to Mr Salvatore Cristofori of Sorgenia, Mr Romeo and Mr Mingoli had agreed with Mr Cicero that the L/Cs would be revised so that the 005 L/C would be cancelled, while the 006 L/C would be amended for payment of the 30 containers to be shipped first, and the 007 L/C would be amended for payment of the remaining shipments.  Detailed changes to the L/Cs were set out in the email, which I need not repeat here.

43.  The factory visit took place on 25 June 2010 between Mr Cicero (it is not clear whether Mr Xu attended the meeting but he probably did), Mr Zhang (representing Jiacheng) and Mr Romeo and Mr Mingoli (representing Sorgenia) (“Factory Visit”).  It would appear that Mr Li did not take part in the Factory Visit.  It was a reasonably long meeting during which technical and logistic issues were discussed and agreed, including issues over certification, packaging and labelling of the Modules.  It was also agreed that Jiacheng would ship 30 containers by 20 July 2010.  Mr Cicero and Mr Mingoli in their evidence said that during the meeting, hard copies of the unamended L/Cs were shown to Mr Zhang, and these were used as basis of discussions over necessary amendments due to the changed delivery quantity and schedule.  This is disputed by Jiacheng.  I will need to revisit the Factory Visit in some detail later on in this judgment.

C.6 Amendments to L/C

44.  After the Factory Visit, Mr Cicero informed Mr Romeo by email of the necessary amendments to the L/Cs, stating that “these [30] containers are available to be delivered in the next week or two, providing that the factory can receive the L/C immediately”.  In this email, Sorgenia was asked to amend the 007 L/C for payment of the first 30 containers, with the 006 L/C to be used for payment of later deliveries.  The 005 L/C was cancelled.

45.  Sorgenia amended the 007 L/C on 25 June 2010 for payment of the first batch of 30 containers to be shipped on or before 20 July 2010 (“Amended 007 L/C”).  HSBC, which was nominated as transferring bank, advised CEP of the Amended 007 L/C on the following day without adding its confirmation.  For completeness, the Amended 007 L/C was amended again on 29 June 2010, but the second amendment is immaterial for present purposes.

46.  Meanwhile, Mr Cicero sent an email timed at 12:12am on 26 June 2010 to Mr Li reporting that the Factory Visit was a success, and stated enthusiastically about prospective business with Sorgenia and Ergy.

C.7 Break down of relationship

47.  Between 26 June and early July 2010, CEP and Jiacheng worked towards delivery of the Modules.  For example, on 28 June 2010, Mr Xu reported to Mr Cicero by email that three containers had been loaded into containers on that date, and sought Mr Cicero’s comments on labels on the Modules and packaging.  A total of nine containers were scheduled to be shipped by 9 July 2010.

48.  Also on 28 June 2010, Mr Zhang by email to Mr Xu asked for the L/C draft “for our final conformation [sic] today before it is issued officially”.  It would therefore appear that Jiacheng had not received the Amended 007 L/C, or indeed the terms of the Amended 007 L/C, by that date. Moreover, the use of the word “issued” suggested that Jiacheng was anticipating an L/C to be issued by CEP.

49.  On Friday 2 July 2010, HSBC advised CEP that the Amended 007 L/C had been transferred in favour of “Wuxi Jiacheng Solar Energy”.  By an email to Mr Zhang at 10:02am on Monday, 5 July 2010, Mr Xu attached the confirmation advice from HSBC and asked for the shipment schedule for the balance quantity immediately.  The confirmation advice, however, did not set out all the terms of the Amended 007 L/C.  Mr Zhang acknowledged receipt by an email at 10:30am on the same day, stating that “I will let you know once we have the confirmation from our bank.”  In the same email, Mr Zhang also asked Mr Xu for “some bank name by which our module is bankable.”

50.  On 5 July 2010, Jiacheng shipped nine containers of Modules in Shanghai for shipment to Naples, Italy.  The bills of lading were issued “To Order” with Sorgenia named as the notifying party.

51.  In the meantime, Jiacheng and Ergy (CEP was either involved in the negotiations, or at least informed of their email exchanges) were close to concluding negotiations of the terms of the sale of 8.5MW of Modules.  Draft contracts were exchanged by around 24 June 2010.  However, on 30 June 2010, Mr Zhang informed Ergy that certain proposed modification to the terms were not acceptable to Jiacheng.  Further, on 1 July 2010, Jiacheng revised the price (apparently from €1.51/watt to €1.515/watt, although this is not entirely clear) due to a fall in the exchange rate of the Euro against the USD/RMB. On 3 July 2010, Mr Cicero, who had read the email exchanges between Ergy and Jiacheng, sent an email to Mr Li asking Jiacheng to accept the terms proposed by Ergy.  However, on 4 July 2010, Mr Li informed Mr Cicero that the terms were not acceptable to Jiacheng.  There is no further documentary evidence in respect of Ergy, and I assume that the negotiations broke down on or shortly after 4 July 2010.

52.  By an email at 11:49am on 5 July, Mr Xu forwarded Mr Zhang’s email of 10:30am earlier that day to Mr Cicero and asked Mr Cicero whether they should give the names of banks to Jiacheng.  Mr Cicero replied to Mr Xu, instructing him:

“Do not answer. I told [Mr Zhang] lets see how Renesola helps us first before we help them. everything is a problem.

If they give us the 30 containers and give us a date for the remainder of the 7MW ...”

53.  It would appear from this email that Mr Cicero was apprehensive that troubles were brewing, probably prompted by Mr Li’s refusal to accept the contract with Ergy on 4 July.

54.  Things turned from bad to worse.  By an email timed at 4:39am European time on 6 July 2010 (10:39am Beijing time) to Mr Li, Mr Cicero said this:

“Dear Paul,

Its late at night in the US where I am now, and I just received an emergency call from my collegue [sic], Jim about the LC. I am surprised to hear that you have never received a transferable LC before. We have used many, many transferable LCs and have never had any problem. This LC is IRREVOCABLE LC so I can assure you there is no risk, especially since its from HSBC – who are specialists in trade. Its bank to bank so with the required documents payment is guaranteed.

In any case, since this is the first time we work together, I hope you can accept it for this one transaction and then we can change it for the next time. Honestly, we did not know nor expect this. We also know that you do not accept documents against payment so we always assumed an irrevocable LC would be acceptable. In my 12 years of working with Letters of Credit we have never encountered a factory that did not accept an irrevocable and transferable LC so we could not anticipate this problem.

Please let us know what is the best solution for you. We want to be a long term partner with Renesola and so we are learning a lot how you operate and will avoid any misunderstandings in the future. I think its normal in the beginning when 2 parties start cooperating to learn how each partner works and adapt accordingly.

Thanks Paul,

Regards, Gary Cicero”

55.  Mr Li replied just after 11:00am Beijing time:

“Dear Gary, We have never accepted any transferable L/C so far. I am sorry of [sic] being not able to accept your transferable L/C. We would not sign any contract with payment in transferable L/C. Regards, Paul”

56.  Mr Cicero then responded to Mr Li at 11:14am Beijing time:

“Thanks Paul for your quick reply.

We understand that you do not want a transferable LC so we will change this LC to a direct LC.

We shall change it accordingly.

Thanks, Gary.”

57.  Mr Zhang, who was copied in on the exchange between Mr Li and Mr Cicero, sent an email to Mr Cicero (but not copied to Mr Li), in these terms:

“Dear Gary,

I am very sorry for the worse situation. So the best solution is to issue the direct L/C immediately. You are informed to pay more attention to these points.

1. Try you [sic] best to ask Paul to hold the ownership of 9 containers we shipped yesterday for you. Because Paul seemed to re-sell to other customer this morning when he saw your transferable L/C.

2. You should send us the draft of direct L/C for our confirmation; we will let you know our new delivery schedule, the quantity, the deal [sic] line of shipment we can take. Then you issue the official L/C.

As for another 8.5MW, can you ask the customer [ie Ergy] sign the contract according to our request immediately? I think this contract maybe is helpful to change our tight situation.

David”

58.  Mr Cicero replied to Mr Zhang at around 12:09pm Beijing time:

“Thanks David for all your help and advice.

It seems clear that Paul is selling the modules for a higher price than we are paying and so he will look for any excuse not to ship to us. For me its very frustrating. I thought that with a take or pay contract with a publicly listed company like Renesola, these things would not happen. We were forced to pay a price increase in order to mitigate our losses, but it seems this forced increase is still not enough. Will we be able to get this contract fulfilled?

I really do appreciate any advice you can offer us. I know this is not your own decision but I really do appreciate your help in this difficult situation.

thanks, Gary”

59.  Mr Zhang responded to Mr Cicero in these terms at 01:56pm Beijing time (apparently not copied to Mr Li):

“Thank you for your trust.

In my personal idea, I think your analysis is reasonable. There will be many difficulties for both of us to fulfil this contract smoothly.

Even if you can sign the direct L/C, the delivery schedule should be confirmed with us once again. I am not sure if we can deliver all the modules before the end of August. I believe there will be more troubles for both of us.

If you can increase the price into the current market price (Euro 1.50/w), I think Paul will try to arrange all of the shipment before August. But I think it is absolutely impossible for you.

I am looking forward to your comments on my proposal.

David”

60.  In the end, CEP did not open any direct L/C in favour of Jiacheng. 

61.  At some stage during 6 July 2010, Mr Cicero suggested that Jiacheng and Sorgenia should sign a direct contract for the sale of 7MW of Modules at the price of €1.48/watt, so that CEP would drop out but Sorgenia would be ensured delivery of the nine containers already shipped.  Mr Cicero referred to this in the following email he sent to Mr Zhang on 7 July 2010:

“Dear David,

First of all, thanks once again for all your help. I know all these forced price increases were not your idea but from Paul, so I do not hold you personally responsible. In order to guarantee the delivery of the modules to our client Sorgenia and mitigate any losses we have no choice but to increase the purchase price to Euro 1.48/Wp. Since this is our selling price to our client its best that Sorgenia pay you directly. They are willing to open the LC to you but they need to have a contract first in order to open the LC. Since Paul requires that LC be received within 2-3 days is very very important you send the contract to Sorgenia today with the LC instructions. As per your indication, with the second price increase everything should proceed smoothly.

In order to keep things simple I suggest to have a contract directly with Sorgenia. For the deposit, it may make things easier if Sorgenia just pay to CEP the deposit since Renesola already have my deposit. I suggest a small sentence such as “The deposit of EUR 476,280 has already been paid to Renesola by CEP LTD. Sorgenia Solar shall reimburse this deposit amount directly to CEP within 7 working days of signing this contract

I think this is the simplest way so that you do not need to return to me the deposit. Its easier for Sorgenia to pay me the deposit and I trust them more than I trust Paul. The important thing is to keep everything simple and send the contract today so they can change the LC ASAP.

Please confirm that you agree with the above.

Regards, Gary Cicero”

62.  The copy of the above email in the hearing bundles shows a time of 05:20am European time (11:20am Beijing time) on 7 July 2010.  That time seemed to be out of sequence because the proposal was also mentioned in an email from Mr Romeo to Mr Zhang timed at 09:16pm Beijing time on 6 July 2010, the contents of which suggested that Mr Zhang and Mr Romeo had already discussed it.

63.  In any case, Mr Zhang sent an email to Mr Romeo of Sorgenia at around 10:31pm Beijing time 6 July 2010, copied to Mr Cicero, in the following terms:

“Dear Nicolo,

Thank you for your mail and your positive treatment on the urgent situation.

I would like to give you a brief introduction about the actual situation. We sign the 7.3MW with CEP SOLAR in April this year with the delivery from June to August. Owing to the sharp decline of Euro/USD rate in the past two month, it would be very hard for us to make the delivery at the original contract price. Although CEP had agreed to increase the price after the long time negotiation but the updated price was still much lower than the current price and our costs. In order to fulfil the contract, we have to make the delivery although we have to suffer from some loss. At the last week of June, we send the [sic] our delivery schedule to CEP SOLAR, which is to ship 30 containers before 20^th July. We shipped 9 containers on 5^th July when we received the L/C from CEP SOLAR. Unfortunately, we can not accept the transferable L/C from CEP. Considering the big risk of transfable [sic] L/C, our COO. Dr. Li finally decided to change the delivery schedule or cancel the contract. If we do in this way, that means CEP SOLAR will break the contract with Sorgenia. In order to fulfil the contract. CEP SOLAR has to give up their own profit and ask us to contact you directly for the contract. They wishes [sic] you can receive the delivery on time. I think CEP SOLAR is a really good company. Certainly, it would also be great for both Sorgenia and ReneSola to make cooperation directly. I have to send my thanks to CEP SOLAR. That’s the real situation at the moment.

Let’s come back to how to deal with the current situation.  I think we should sign a new contract which should state the new delivery schedule and the solution of dealing with the old contract with CEP SOLAR.  But I have to check the new delivery schedule with our COO tomorrow.  We will try to ship all the containers before the end of August.  So I will send the contract to you tomorrow.  In order to save time, can you send us the draft L/C to us today, we can confirm the content of L/C firstly except for the latest date of shipment and expiration date.  Tomorrow we can send you the L/C confirmation and contract, you can ask your bank issue the official L/C right away.  For the 9 containers on board, we will keep them for you.  I hope we can receive your L/C before Friday.”

64.  Mr Cicero responded to Mr Zhang’s email by the following email:

“Dear David,

Thank you for your email, I think it’s a good summary however, I think its clear that the real issue is all about price. Euro 1.35Wp was too low, and then even though we were forced to pay the increase to Euro 1.40 Wp it was still not enough. Only when the price for Paul (Euro 1.48 Wp) then and only then the contract will be honored. Its clear the transferable LC is an excuse but anyway, CEP is interested to safeguard the interests of our client Sorgenia Solar and mitigate any losses by a possible default on behalf of Renesola.

Please make sure that you ship the modules as per the requirements of Sorgenia. I hope that Paul will keep his word to accept the Sorgenia Brand for this order (except for the first shipment which is already manufactured). In Munich you mentioned that it was not a problem for OEM and in our meeting at the factory with Nicolo and Giorgio you said that it was not a problem to make them into Sorgenia brand.

Lastly, I suggest since we already paid the deposit that Sorgenia pay us the deposit.

Please send the contract to Sorgenia ASAP.

Thanks, Gary”

65.  There was further development overnight.  In an email from Mr Cicero to Mr Zhang in the early hours of 7 July 2010 European time, Mr Cicero said this:

“Dear David,

It is 4AM in the morning and I just spoke with you.

It seems you are telling me that the EUR 1.48Wp forced price increase is still not enough and that you will only ship these modules with a price of Euro 1.51 Wp because there are clients who are willing to pay this amount. Furthermore, even though the Sorgenia contract is related to the CEP contract you will have many orders and can only ship 2MW in July and the balance between August and September.

Please confirm if my understanding is correct.

Thanks, Gary Cicero”

66.  Eventually, on 9 July 2010 Sorgenia and Jiacheng signed a contract directly for the sale of 7.056 MW of Modules at €1.51/watt.  A further agreement was signed on 13 July 2010 between CEP, Sorgenia and Jiacheng for the refund of the deposit paid by CEP, which Mr Cicero signed on behalf of CEP with the words “under duress”.

67.  On 24 September 2010, Mr Zhang sent an email through his personal email account to Mr Cicero, in these terms:

“Dear Gary,

This is my personal E-mail box. For the sake of security, I will contact you by my mail address thereafter.

I have seen you reply to my mail yesterday. [which is not in the hearing bundles]

I am sorry about the loss of EUR 910,000 by CEP. It would not have been possible for us to have shipped the goods at EUR 1.35/Wp since the market price was much higher. Most of our clients accepted price increases. Even if Sorgenia would have opened the LC directly to Sorgenia on behalf of CEP, the price of EUR 1.35/Wp would be too low for us to accept. I think you did the right thing to have Sorgenia pay 1.51/WP. As you can see we already shipped several MWs at this price and we will try to ship the rest according the contract.

I have pushed Sorgenia to refund you immediately. Hopefully, you will get the payment soon.

In case of any help, please feel free to let me know.

Best regards, David”

68.  It is unnecessary to go into details of subsequent events which are not directly relevant to the issues in this Action, the writ of which was issued on 1 February 2011.

D. WITNESSES

69.  Before I turn to consider the issues for determination, I shall briefly summarise my assessment of the witnesses. The first observation to be made is that the contemporaneous documents, in particular the email exchanges which I have set out in detail, provided the most reliable evidence of the facts and the course of events as they developed.  In my view, each of the witnesses had a tendency to exaggerate to different degrees.  This is understandable, given that they probably felt, perhaps strongly, that the other side was clearly and entirely at fault in the matter.

70.  A good example is Mr Cicero. In my view, he was on the whole a credible witness, whose evidence was largely in line with the contemporaneous documents. But at the same time, I sensed his strong grievance towards Jiacheng, especially against Mr Li.  In my view, this animosity has affected the objectivity of his evidence.  Also, when there is a gap in the documentary record, he has a tendency to assert that there were telephone conversations between him or Mr Xu and Mr Zhang or emails which somehow had slipped from the discovery net.  Thus while I find his evidence generally credible, I must exercise caution in respect of his evidence when there is no contemporaneous documents or other evidence in corroboration.

71.  I find Ms Hernandez a credible witness. She gave evidence in a fair and confident manner. Her evidence was mainly on the 22 June Meeting.  As I have already noted above, she was not cross-examined on that event, and I consider that I am entitled to proceed on the basis that her evidence in that respect was unchallenged.

72.  I also find Mr Mingoli a credible witness. He has no financial interest in the outcome of the action, and gave evidence fairly and to the best of his recollection.  His evidence was mainly on the Factory Visit, which I accept to be truthful and substantially accurate. Nevertheless, his evidence was fuzzy on matters outside his area of responsibility, and he was not able to provide much assistance on what exactly was discussed and agreed during the Factory Visit in so far as the L/Cs were concerned.

73.  I find Mr Li an unreliable witness. He was very guarded in his answers, and gave me the clear and strong impression that he was trying to present a picture that Jiacheng was forced to change the contract terms because of market conditions.  In my view, the evidence shows that the reality was that Mr Li was seeking to exploit the rising market to maximise Jiacheng’s benefits.  Mr Li’s attempt to paint a different picture was disingenuous.  There are many aspects of his evidence which are unsatisfactory and contrary to the objective facts and inherent probabilities.  For present purposes, two examples would suffice.

74.  First, Mr Li purported to suggest that Jiacheng had no or very little contact with CEP before the Sales Contract was signed. This was no doubt to downplay Jiacheng’s knowledge of CEP’s business, and foreseeability of CEP’s loss of profits on re-sale. However, that was inconsistent with the objective evidence, in the form of the evaluation report prepared by CEP dated February 2010. The report was detailed, and contained considerable amount of operational and other information about Jiacheng which were confidential and which CEP could not possibly have known on its own.  Mr Li’s evidence on whether he had authorised the preparation of the report was evasive.  He first said that he could not remember authorising the report, but when pressed he accepted that his approval would have been required, although he evasively said that he could not remember giving such approval and could have given approval if Mr Zhang had told him that some potential customers wanted to visit the factory.  When it was pointed out to him that the report was intended for Jiacheng’s use, and had nothing to do with visits by potential customers, he turned evasive again and claimed that he could not remember.

75.  Secondly, Mr Li testified that he had not discussed the price issue with Mr Cicero at the Intersolar fair, but the emails subsequent to that meeting clearly stated otherwise.  Mr Li further claimed that he had asked Mr Zhang to raise the price issue with buyers including CEP “amiably” and would not force CEP to accept Jiacheng’s “suggestion”.  He claimed that it was up to the buyer whether to accept the request or not, which I find difficult to understand because there would be no reason for a buyer who had a confirmed contract voluntarily to agree to a price increase just because Jiacheng had asked nicely.  Mr Li also said in answer to a question from the bench that if the buyer refused to accept the “suggestion” to increase the price, that would be the end of the matter and Jiacheng would honour the contract.  But that answer was plainly inconsistent with the contemporaneous documents, which showed that Jiacheng continued to press CEP to accept the price increase after CEP had refused in clear terms.  There was no other explanation for the Supplemental Agreement II.

76.  I am therefore unable to accept Mr Li’s evidence in so far as the same is not corroborated by other objective or reliable evidence.

77.  Turning to Mr Zhang, CEP filed a witness statement signed by Mr Zhang in June 2012.  The witness statement is in English, and apparently signed by Mr Zhang when he visited Mr Cicero in Italy after he had resigned from Jiacheng.

78.  On the other hand, Jiacheng filed another witness statement which Mr Zhang signed in July 2013, in which he sought to explain that when he was asked by Mr Cicero to sign the earlier witness statement prepared on behalf of CEP, he did not understand its contents or appreciate its significance.

79.  Mr Zhang did not come to give evidence.  In the circumstances, I am unable to place any weight on either version of his witness statements, both apparently signed by him voluntarily.

80.  For the avoidance of doubt, I also place no weight on the witness statement of Mr Xu, who did not attend the trial.

E. THE L/C ISSUE

81.  The main questions arise under this issue are:

(1) whether CEP was entitled to use a transferable credit for payment of the Modules;

(2) whether the Amended 007 L/C was validly transferred to Jiacheng.

E.1 Transferable L/C

82.  Jiacheng’s primary case is that under clause 7a. of the Sales Contract, CEP must open a direct irrevocable LC in its favour.  CEP’s case is that the use of transferable L/C was permissible under the Sales Contract.

83.  This is essentially a matter of construction of the Sales Contract. Although it is a relatively short point, it is far from easy.

84.  I have earlier set out the material terms of the Sales Contract. For ease of reference, I set out again the material parts of clause 7a:

“… The 95% of each delivery shall be paid by the irrevocable documentary Letter of Credit (L/C). The original L/C should be issued latest 20 days prior to the partial delivery. All the terms of the L/C should be confirmed in writing by the Seller finally before the Buyer applies to the Bank for the issuance of L/C; any delay will affect shipping date accordingly…”

85.  Jiacheng relies on the italicised words.  It is contended that the words are clear and admits of no other meaning: CEP was to apply to the bank to open the required L/C, and a transferable L/C opened by CEP’s buyer is simply not permitted.

86.  On behalf of CEP, Mr Chain strongly argued otherwise.  He submitted that the use of transferable L/C in international sale of goods was well‑established: Jack; Documentary Credits (4^th edn), para.10.1.  In his written opening, Mr Chain contended that “it would be ignoring the well-established use of transferable letter of credit in international trade to interpret the [italicised] words as necessarily disallowing the use of a transferable L/C.”  Further, in his closing submissions, Mr Chain amplified the point by emphasising that Jiacheng knew that CEP was buying the Modules for on‑sale, and the use of transferable L/C in those circumstances was “widely accepted”.  He also submitted that Mr Li knew of the difference between transferable L/C and direct L/C but the Sales Contract did not specify that only direct L/C would be accepted, thus indicating that use of transferable L/C was permissible.

87.  It is axiomatic that a contractual provision must be construed in the context of the contract as a whole and in light of the relevant background in which it was concluded: Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 at 296.  The difficulty in the present case is that the objective background facts do not assist either way.

88.  Although there is little evidence on Jiacheng’s knowledge of CEP’s business, I am satisfied that Jiacheng probably knew or at least would have expected that CEP would sub‑sell the Modules to other parties.  The two sides obviously had some dealings with each other prior to the Sales Contract, as exemplified by the evaluation report that CEP had prepared for Jiacheng in February 2010.  It seems to me rather unlikely that Jiacheng did not know CEP’s background and its business.  Moreover, the Sales Contract was consistent with CEP being a middleman; and there is no suggestion on Jiacheng’s part that it had contracted with CEP on the basis that it was the end-user, and that it would have made a difference to the terms of the Sales Contract. 

89.  Furthermore, I take into account Mr Li’s evidence that he knew of transferable letters of credit and the use of this type of credit in international trade.  Although he claimed in his evidence that Jiacheng had not agreed to accept such form of credit previously, that fact is neither here nor there and does not assist in interpreting what kinds of credit were permissible or not permissible under clause 7a. 

90.  Mr Chain argued that if, as Mr Li claimed, Jiacheng would not have accepted a transferable L/C (or, putting it the other way round: it would only accept a direct L/C), it could have said so expressly in the Sales Contract which, as Mr Chain pointed out, was prepared by Jiacheng.  There is some superficial force in that submission, but ultimately it begs the question whether the words used in clause 7a. were sufficiently clear in excluding the use of transferable credits.

91.  Mr Chain also argued that the words in clause 7a. were consistent with CEP procuring a transferable L/C to be issued by the ultimate buyer, or CEP applying to its own bank to transfer the benefit of the L/C to Jiacheng.  I have difficulty with that argument.  The words in question were “the buyer applies to the bank for the issuance of L/C”.  It would be a stretch of the ordinary meaning of those words to say that they covered those two scenarios.  Additionally, Mr Chain’s contention would require reading the sentence “The original L/C should be issued latest 20 days prior to the partial delivery” to cover both issuance and transfer.  In this connection, one cannot ignore clause 16 of the Sales Contract, the second sentence of which provided that “This Agreement shall be interpreted in accordance with the plain English meaning of its terms.”

92.  Neither side was able to refer me to any academic or judicial authority which assists in resolving this relatively short but very intriguing issue.[3] Article 38 of UCP 600, which is the relevant article applicable to transferable letters of credit, understandably does not throw much light on the construction of the underlying sales contract.

93.  In the end, I think Jiacheng is right.  In my judgment, the express wording of clause 7a. envisaged that the letter of credit would be opened by CEP at least 20 days before delivery and did not include the use of a transferable L/C.  Although once validly transferred (and assuming all other terms are compliant) a transferable credit would make little (if any) difference to the seller, there could be a practical difference when the matter is considered at the time of the contract.  Under Article 38 of UCP 600, the “first beneficiary” does not have a right to transfer a transferable L/C in favour of the “second beneficiary”: the nominated bank has a right to refuse the request outright or impose conditions for doing so: see Article 38.a; Jack, Documentary Credits para.10.4.  This would create potential uncertainty in so far as Jiacheng was concerned.  For example, even if Jiacheng had already agreed with CEP as to the terms of the credit, the nominated bank could refuse to transfer or decide to impose conditions in effecting the transfer, which would be outside CEP’s or Jiacheng’s control.  The imposed conditions might or might not be acceptable to Jiacheng.  Additional time might be required to issue another acceptable credit or negotiate over the acceptability of the conditions.  There was thus potential uncertainty and added commercial risks to Jiacheng, and provided objective reasons why Jiacheng might not want to accept transferable credits.

E.2 Whether the Amended 007 L/C was validly transferred

94.  Mr Thomson contended that the Amended 007 L/C was not validly transferred to Jiacheng.  The argument was largely premised on the state of the evidence before the commencement of trial: the paper trail in relation to the Amended 007 L/C tapered off after Mr Zhang’s email on 5 July 2010 acknowledging receipt of the confirmation from HSBC sent by Mr Xu.

95.  At the trial, Mr Chain was able to produce some further documents obtained from HSBC, including a SWIFT message from Bank of China to HSBC dated 19 July 2010.  The narrative (Field 79) of that SWIFT message stated:

“OUR REFERENCE NO, AS95C10C00919 YOUR TRANSFER …

PLEASE BE INFORMED THAT THE BENEFICIARY HAS REQUESTED TO CANCEL THIS A/M L/C.”

96.  Mr Chain submitted that the “beneficiary” must be referring to Jiacheng.  I am not sure that that was necessarily the case, because on that date CEP sent an application to HSBC to cancel the Amended 007 L/C, and the correspondence produced by Mr Chain shows that the banks were not consistent in their use of terms (for example, HSBC referred to Jiacheng’s bank as the “transferring bank”, when HSBC was the transferring bank).  However, bearing in mind that the advice originated from Jiacheng’s bank, and taking into account the handwritten remarks on the copy “佳誠撤証” (roughly translated as “Jiacheng cancel credit”), I think “beneficiary” probably was referring to Jiacheng.

97.  In any case, it seems reasonably clear from Bank of China’s SWIFT to HSBC that the former did receive the transfer advice from HSBC.  I am therefore satisfied that the transfer was validly effected.

F. THE WAIVER/ESTOPPEL ISSUE

98.  As a fallback, Mr Chain argued that Mr Zhang, on behalf of Jiacheng, by conduct unequivocally represented that Jiacheng would accept a transferable L/C.  In summary, Mr Chain invited me to make the following key findings of fact:

(1) That the Factory Visit was intended to resolve all outstanding matters relating to the Sales Contract.

(2) The Factory Visit was successful in resolving all outstanding issues.  In particular, Mr Chain contended that the amendments to the L/Cs were agreed upon and hardcopies of the unamended LCs were given to Mr Zhang who did not raise any objection.

(3) The conduct of Jiacheng was consistent with it being willing to make delivery under the Sales Contract without objecting to the transferability of the L/C.

99.  CEP’s submissions turn on Mr Zhang’s implied actual or ostensible authority to bind Jiacheng.  CEP relied on Mr Zhang being the “sales manager” of Jiacheng, and the fact that he was the primary contact of Mr Cicero and Mr Xu in relation to their dealings with Jiacheng.  CEP also relied on the absence of any indication by Mr Li or Mr Zhang that transferable L/C was not acceptable, despite Mr Cicero and Mr Romeo discussing in detail the amendments to the L/Cs at the Factory Visit.  It was contended that from CEP’s perspective, both Mr Li and Mr Zhang could make decisions for Jiacheng and that was how CEP, in particular Mr Cicero, proceeded.

100.  I accept that CEP liaised on a day‑to‑day basis with Mr Zhang on matters relating to the Sales Contract.  I also accept that the Factory Visit was arranged in order that all outstanding issues could be resolved, and that at the Factory Visit, Mr Cicero (and Mr Romeo) did show the hardcopies of the (unamended) L/Cs to Mr Zhang and discussed with him the detailed amendments required to be made in the light of the changed delivery schedules. 

101.  However, in my judgment, the evidence does not support CEP’s case that Mr Zhang’s, or Jiacheng’s, conduct amounted to unequivocal representation that Mr Zhang had authority to finally agree on all issues and the use of transferable L/C would be accepted.

102.  In the first place, the evidence shows that Mr Cicero knew that Mr Li was calling the shots on all important issues concerning commercial terms.  Mr Cicero met with Mr Li and Mr Zhang at the Intersolar fair and Mr Cicero’s evidence is that he discussed the price issue with Mr Li. This was no doubt because Mr Cicero knew that Mr Zhang reported to Mr Li and the latter was the person in charge who had ultimately say on important matters.

103.  Secondly, the Supplemental Agreement II was negotiated with Mr Li, and Mr Cicero also knew that the final decision was made with Mr Li at the 22 June Meeting. 

104.  Thirdly, it is also reasonably clear from Mr Zhang’s emails to Mr Cicero and Mr Xu over the price increase issue that Mr Zhang was relaying to Mr Cicero and Mr Xu what he had been instructed (which instructions could only have come from Mr Li).  It is also evident from the email exchanges that I have recited at length earlier on in this judgment that Mr Cicero understood at the time that it was Mr Li who had demanded the upward adjustments of the unit price and Mr Zhang was merely executing Mr Li’s instructions.

105.  Significantly, on the terms of the L/C, there is no contemporaneous documentary evidence showing that prior to 25 June 2010 Jiacheng knew or expected that CEP would be utilising transferable L/Cs for payment of the Modules under the Sales Contract.  Even though I accept that the unamended L/Cs were used to discuss the terms of the L/Cs at the Factory Visit, I am not satisfied that Mr Zhang had agreed to the use of transferable L/C.  The evidence is far from clear as to what had been discussed in so far as L/C terms were concerned:

(1) Mr Cicero said they went through the hard copies of the unamended LCs “line by line”, but did not describe what exactly had been discussed or agreed.  Moreover, as his email to Mr Li on 6 July 2010 at 4:39am (see paragraph 54 above), the question whether transferable L/C would be accepted probably did not cross his mind.  It therefore seems to me much more likely that the focus of the discussion was on the revised description of the documents required under the L/C and delivery schedule, as opposed to the use of transferable L/Cs.

(2) Mr Mingoli’s evidence is even more equivocal in this respect.  He said that his main focus was the technical aspects, such as certification and packaging.  After his part had finished, he stayed on in the meeting but it was Mr Romeo who was responsible for the L/Cs and he did not pay much attention.  Although I accept his evidence that the unamended L/Cs were used to discuss the terms of the L/C, he was not able to describe specifically what had been discussed.  This is understandable given that the Factory Visit took place several years ago and the L/C issue was not his responsibility.  Nevertheless, his evidence does not assist me in resolving the factual issue. 

106.  Nor am I persuaded that it follows from the absence of any immediate objection by Mr Zhang as to the use of transferable L/Cs (assuming it was in fact mentioned or discussed during the Factory Visit) that his conduct was unequivocal.  There is no evidence that Mr Zhang realised the difference between the different types of L/Cs, or any evidence that Mr Li had somehow by representation or conduct indicated to Mr Cicero that Mr Zhang could agree to the L/Cs terms without referring to Mr Li.  Rather, the contemporary emails which I have set out at length suggest that Mr Cicero knew that important decisions came from Mr Li.  Bearing in mind that there is no evidence that prior to 25 June Jiacheng was aware of CEP’s intention to use transferable L/Cs, it is far from clear that CEP can rely on Mr Zhang having authority to agree to the use of transferable L/Cs on behalf of Jiacheng on that occasion.

107.  Moreover, even after the Factory Visit, on 28 June 2010 Mr Zhang did ask for the final terms of the L/C for “final [confirmation] today before it is issued officially”.  This is, in my judgment, strong indication that what had been discussed with Mr Zhang in relation to the terms of the L/Cs were subject to final confirmation as stipulated under clause 7a. of the Sales Contract, and CEP (in particular Mr Cicero) understood that. The email also strongly indicated that Mr Zhang was expecting an L/C to be issued shortly thereafter.

108.  As recounted above, there is no evidence that the Amended 007 L/C was provided to Jiacheng at any time prior to 5 July.  The transfer advice from HSBC was provided to Jiacheng on 5 July, and very shortly thereafter Mr Zhang informed Mr Xu that transferable L/C was not acceptable.  It is significant to note that when Mr Cicero was informed on 5 July that Mr Li would not accept the Amended 007 L/C, his immediate response was not that Mr Zhang had agreed on the use of transferable L/C at the Factory Meeting, but to try to persuade Mr Li to accept the transferable L/C. 

109.  When that attempt failed, Mr Cicero agreed to issue a direct L/C.  It may be said that Mr Cicero was then trying to resolve an immediate and serious problem, and was seeking a commercial solution to the impasse.  But his response nevertheless indicated that he knew that Mr Zhang did not have authority to bind Jiacheng on important terms, and that Mr Li had the final say.

110.  In all the circumstances, I am unable to accept that the conduct of Mr Zhang was unequivocal so as to give rise to any waiver or estoppel against Jiacheng on the use of transferable LC.

111.  I therefore conclude that CEP has failed to substantiate its case that the conduct of Mr Zhang constituted waiver or created any estoppel.

G. OTHER ISSUES

112.  My conclusions on the Transferable L/C Issue and the Waiver/Estoppel Issue are sufficient to dispose of the action in Jiacheng’s favour.  However, in case I am wrong on those issues, I will briefly state my views on the other issues contested between the parties.

G.1 The Non-compliance Issue

113.  Jiacheng relies on three other aspects in which the Amended 007 L/C was non‑compliant:

(1) there was no written confirmation as to terms of the L/C;

(2) the L/Cs did not have a validity date of 12 months from the date of issue; and

(3) the L/Cs were issued later than the latest issue date applicable to the shipment schedule.

114.  In its Reply, CEP admitted these non‑compliance but described them as “technicalities”.  Mr Thomson submitted that such description trivialised the significance of the issue.  I think Mr Chain referred to them as “technicalities” in the sense that these were not raised by Jiacheng at the time and only raised by them by way of defence in this action.  Anyway, nomenclature aside, whether Jiacheng can rely on these admitted non-compliance must be approached objectively in light of the evidence.

115.  The evidence, which I have already recounted in some detail above, shows that the first shipments in July came up earlier than expected because of the sudden availability of a quantity of Modules originally destined for another customer.  The Supplemental Agreement II was signed on 22 June 2010, and the Factory Visit was already planned for 25 June.  There was no protest from Jiacheng before 25 June that CEP had failed to provide the draft L/C terms.  At the Factory Visit, the parties were working towards effecting the shipments from early July (about a week later), again without any indication from Jiacheng that CEP was late with the draft L/C terms. Then on 28 July, Mr Zhang asked for the final L/C terms for final approval.  And on 5 July the only non-compliance mentioned by Jiacheng was that the L/C was a transferable L/C.

116.  In the circumstances, I agree with Mr Chain that Jiacheng cannot now rely on any failure on CEP’s part to comply strictly with these requirements.

G.2 Supplemental Agreement II – The Duress Issue

117.  There can be little doubt that Ms Hernandez felt that she had no choice but to accept the Supplemental Agreement II from a commercial point of view.  I also accept her evidence that Mr Li was rude and arrogant towards her at the 22 June Meeting, and did threaten not to deliver or delay delivery without an adjustment to the price.

118.  However, at the same time, I must bear in mind that the Supplemental Agreement II was not the only change.  There was, at the same time, the Commission Agreement which, if it had worked, would have provided CEP with more “gain” in commission than the “loss” resulting from the price increase, because the total amount of Modules under the Commission Agreement was 8.5MW.  Whilst I can see that from CEP’s point of view, there was no commercial reason to accept the certainty of reduction in profits under the Sales Contract in exchange for the prospects of an uncertain amount of commission, it cannot be said that the Supplemental Agreement II together with the Commission Agreement was necessarily to the detriment of CEP.

119.  I also take into account the contemporaneous emails from Mr Xu immediately after the 22 June Meeting, which described what had been agreed as a compromise.  The email from Mr Cicero to Mr Li was also in relatively cordial terms.

120.  It is unfortunate that the Ergy deal did not come into fruition.  Things might have been completely different had that contract been signed.  But the evidence shows that CEP accepted and proceeded with the Supplemental Agreement II at the time, no doubt in the hope that the Ergy contract would be signed.

121.  Looking at the evidence in the round, I am not satisfied that CEP has established it case on economic duress.  I agree with Mr Thomson that it was more a case of “rough and tumble of the pressures of normal commercial bargaining” than illegitimate pressure: DSND Subsea Ltd v Petroleum Geo-Services AS [2000] BLR 530 at para.131 per Dyson J, applied in Kolmar Group AG v Traxpo Enterprises Pvt Ltd [2010] 2 Lloyd’s Rep 653 at 663 para.92 (Christopher Clarke J).

122.  Thus, if CEP had succeeded in establishing liability, its loss of profit on sub-sale would be assessed on the basis of €0.03/watt for 7.056 MW.

G.3 Construction of clause 14 – The Damages Limitation Issue

123.  Finally, I will briefly address the Damages Limitation Issue.  This turns on the construction of clause 14 of the Sales Contract.

124.  The first point to note is that the opening sentence of clause 14 referred to delay in delivery or failure to perform due to circumstances beyond seller’s control.  But the second sentence starts with the words:

“In no event shall seller or buyer… be liable for any direct damages other than those described in Section 12, 16 or any indirect, incidental, consequential, punitive or special damages … loss revenue, lost profits and lost business opportunities”. (Emphasis added)

125.  In other words, “direct damages” were recoverable under clause 12 (clause 16 does not appear to be relevant to damages), which provided for termination by the buyer in circumstances when Jiacheng failed to deliver goods in accordance with the Sales Contract.  In all other cases, indirect losses, including loss of profits—other than those resulting directly from a breach falling within clause 12—and loss of business opportunities, were excluded.  It seems to me that this is a construction which is commercially workable.

126.  Accordingly, in my judgment, CEP would not be entitled to recover any loss of future profits even if it had succeeded on liability.

127.  If, however, I am wrong on that issue, I would accept CEP’s claim for loss of profits on sales to Sorgenia for 1 year as claimed. That seems to me to be a reasonable assessment, based on evidence of actual sales between Jiacheng and Sorgenia in the following year to which Mr Thomson offered no substantial answer.

H. CONCLUSION

128.  I have every sympathy with CEP.  I agree with Mr Chain, and Mr Cicero, that the reality was that faced with a rising market, Mr Li was trying to find every excuse to increase the price of the Modules under the Sales Contract or get out of it.  The overall history of the case as set out in the earlier parts of this judgment strongly indicates that that was the case.  The email exchanges between Mr Cicero and Mr Zhang on 6 to 7 July 2010, and the email from Mr Zhang on 24 September 2010, put that beyond doubt.

129.  The question I have to decide, however, is whether Jiacheng was entitled to refuse to deliver.  For the reasons I have explained, the Sales Contract did not allow the use of transferable L/C, and CEP’s failure to ensure that a complying L/C was issued provided Jiacheng with the opportunity it was looking for.

130.  I therefore, and not without regret, dismiss the claim. 

131.  I also make a costs order nisi that Jiacheng shall have its costs of the action, to be taxed on the party and party basis if not agreed.  In case either party wishes to vary the costs order nisi, I propose to deal with such application in writing unless the parties wish to ask for different directions.