KENCO. (HONG KONG) LIMITED v. PARAMOUNT GARMENTS LIMITED

1985, No. A2564

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an unfortunate dispute, which has soured the relationship between two companies which had been dealing together for some time prior to it. Both are concerned in the garment trade. The plaintiff, Kenco. (Hong Kong) Limited is in the export/import business, and the form that the pattern of trading took was this. The plaintiff had a customer in Canada, in Montreal, by the name of Santana Jeans Ltd. Santana wanted garments, jeans, blouses etc. made up in Hong Kong, and would place orders for such garments with the plaintiff. The plaintiff would then go into the market to look for manufacturers suitable to satisfy Santana's orders. For this purpose, on many occasions as I understand it, they had used the defendants Paramount Garments Limited.

2. Come the summer of 1984 Santana placed with the plaintiffs an order inter alia for a quantity of ladies blouses of a style SS501 in 3 particular colours. Following that a contract was entered into for those blouses, and 2 other types of blouses, between the plaintiff and the defendant dated 1st September 1984. Problems arose over this particular type, SS501, associated with the dyeing, so the SS501 blouses were taken out of the original contract and formed the subject matter of the contract of their own likewise dated the 1st September. I am minded to think that I should have said misdated 1st September, because I do not think the document was in fact signed till some considerable time later. This provided for the manufacture in rather different terms. In particular the dyeing charges were to be born by the plaintiffs, and the dyeing was to be done at their expense, with the defendant making the arrangement for it, in that the defendant arranged for the garments to go to and from the dyer. The original delivery date which had been the 30th November was extended till January. The contract is in these terms: "shipment January 15th 1985 ex Hong Kong by fast boat". But that time ran out. It is apparent that the plaintiffs were pressing Santana for an extension of time, and is reasonable to infer that they were asking Santana to extend the time to the 20th January which was the date to which by the middle of January both the plaintiffs and defendants apparently were working. By working to the date of 20th January, I mean this. The goods had to be shipped by fast boat on or before that date. This meant in fact that they had to be ready for delivery to the pier, delivery to the shippers, at least not later than the day before i.e. January 19th.

3. It is in those circumstances, that I came to the events of the 17th January. The first thing that happened was that at 9:36 that morning the plaintiffs received a telex from Santana in these terms: "tracing amendment". That was a somewhat Olympic reference to the fact that they were still endeavouring to trace a telex which covered the extension of the letter of credit which had already been opened. The letter of credit at that stage covered this contract but only up to the 15th January and not beyond. Coming back. to the telex, it was: "tracing amendment but must ship by 30th January or cannot meet buyer's cancellation". In simpler English what Santana seem to be saying was: "Yes, you can have until 20th January but that is a final extension of time". The plaintiffs told the defendants of that, drafted a revised contract which is at page 7 of the bundle before me which was taken round by Mr Wu to Miss Poon that day and signed. That contract, which is the ultimate revised. version of the contract, provides for "shipment January 20, 1985 ex Hong Kong by fast boat".

4. As far as subsequent events are concerned, which give rise to the first crucial question of fact on liability, certain things are common ground. First the contract was extended in that way on the 17th. On that date the defendants were asserting an ability to meet the revised date of the 20th i.e. effect delivery to a wharf or pier by the 19th. I pass over the 18th for the moment because it is the events of 18th which give rise to, what seems to me to be the crucial question of fact. There were at that time two ships in the American President's Line, (APL) which were about to sail. The President Madison was due to leave Hong Kong on the 20th. If the goods had been shipped on that they would have been precise compliance with Santana's final extension and the parties' amended contract.

5. The second ship was the President Mckinley which was initially due to leave on the 21st and in fact sailed on the 22nd. On Saturday the 19th, (having passed over the 18th) it is common ground that were then handed by Mr Wu to Miss Poon shipping documents relating to the President Mckinley. Those shipping documents required the goods to be delivered to the pier by 5 o'clock (p.m. ) on the 21st. The goods were so delivered; the ship sailed on the 22nd; and all the shipping documents showed loading and sailing on that date. So on their face these goods were not shipped from Hong Kong until 22nd January. That produced an obvious non-conformity between the requirements of the letter of credit and the reality.

6. That is what happened. How did it come about? As I say the crucial question of fact arises in relation to the 18th. The plaintiffs assert this was because of the defendants' inability to complete these goods on time, and to deliver them any earlier than the 21st, which resulted in their being shipped late in the Mckinley. Whereas the defendants in answer said: "No, no, there was no problem about delivery at all on the Thursday. It was the plaintiffs who simply extended the delivery date by two days and with that delivery date we complied".

7. Putting the matter in slightly more detail. The plaintiffs through Mr Wu says that, on the morning of the 18th he went dovm to the plaintiffs' premises, and saw the state of manufacture, and came to the conclusion there was then no chance whatever of taking up the space on the booking that he had then made on the President Madison. There was no way in which those goods could be made ready for shipment by the 19th. It was then that there started, he says, the discussion between him and Miss Poon about what he called "the crisis" the fact that there was then bound to be a late delivery. There was then bound to be non-conformity between the shipping documents and the requirements of the letter of credit which meant the bank was not going to pay up unless the customer said 'yes'. Secondly the customer was going to have the opportunity of saying 'no' and would be free to do so if he wishes. By customer I mean Santana. The consequences of that were, he says, discussed first upon the 18th, and one of the solutions which he then said was discussed was the giving of what he called a letter of guarantee, to which I will come back in a moment. That was his account.

8. Miss Poon, on the other hand, says he never came anywhere near her that day at all, and that they had no problem at that stage about meeting a 19th delivery date. But on the afternoon of the Thursday, for reasons which he never explained, Mr Wu simply gave them instructions to load on the 21st and, in fact, simple provided two extra days to them, which she said she was pleased to be offered but they were not necessary. They did not really worry her very much because a day or two here and there did not normally matter when you were dealing with delivery dates of garments which were not perishable.

9. One can hardly have a more headlong collision of fact than that. It was carried through consequentially into the Saturday morning when Mr Wu says in producing the shipping documents to Miss Poon, he went over the crisis position again, spelt out that this was now inevitably going to be late, and said that decision whether or not shipment was going to be made was hers. It was for her to decide whether she was going to take the risk of shipping late and face the consequences of non-acceptance by Santana if Santana chose not to accept. I think it is properly fair to say that both parties at that stage estimated the risk of non-acceptance in these circumstances as being slight.

10. That is the conflict of fact that I have to resolve. No judge coming to a question like that some 18 months after the event as I have to, can do better than to look at the contemporary circumstances and any contemporary documents. The first of the near contemporary documents is a letter of the 12th February which is to be found at page 19 of the principal bundle. What happened after shipment was this. The contract provided for payment 7 to 10 days later. The defendants duly applied for payment and were met by the objection from the plaintiffs that the plaintiffs had not then received any money from the bank. The plaintiffs themselves wanted to obtain money from the bank, and in order to do that had to provide the bank with what I would describe as a form of indemnity but which is apparently known in the trade as a letter of guarantee. It is dated the 5th February. It is signed by the plaintiffs' Kenco. It is addressed to the Toronto Dominian Bank, Hong Kong, and in effect says, in consideration of negotiating the documents notwithstanding their non-conformity that the plaintiffs indemnify the bank. In other words, if in fact the paying bank in Montreal says "no" to the documents, and the customers says "no" to the documents, then all the entries have to be reversed and Kenco has to repay the bank. That is the practical consequence of it. In other words, it is really conditional payment.

11. Then when Miss Poon again approached Mr Wu for payment on behalf of the defendant, she was met with the explanation. I can only get money from the bank under what Mr Wu called the letter of guarantee i.e. this document, I want the same document from you. It would seem, although this emerged right at the end of the case, that some sort of the sample document which follows the lines of a typical type of bank indemnity was provided by the plaintiffs to defendants to indicate the sort of document Mr Wu was asking for. The result of that was that a young lady in the defendants office typed out a document in these terms which Miss Poon signed. The documents says this: "Re: Style SS501 shipped quantity 1831 pieces. We hereby certify that our product style SS501 1831 pieces shipped by President Mckinley to Montreal, Canada, on 21st January 1985 had been inspected by your good Company and found the following discrepancy : late shipment for 2 days. Due to the above discrepancy we agree to assume for any claims in the event of non-acceptance from your customer".

12. There are two points to which I cannot see any answer in relation to that document. The first thing was that when Mr Wu first asked for the document and said he had to give the similar document to the bank , he was asked why. He said: "by reason of late shipment". When that explanation was given to Miss Poon she said she did not argue with it or advance any argument against it. I do really find that surprising on the account that she was given me, because on the account that she gave there was no question of late shipment at all. She was voluntarily given two addition. days without even asking. They were thrust down her throat. This, I do find remarkable, as a first point.

13. Secondly, this letter really means one thing and one thing only: that there was found to be a discrepancy i.e. late shipment for two days as a matter of fact. And "due to the above discrepancy" i.e. on those facts "we agree to assume for any claims in the event of non-acceptance from your customers". That document was certainly drafted by Cora. She handed it to Miss Poon who read it for herself. No translation from English into Chinese was apparently necessary. Miss Poon now says, Well, the document was meant to go no further than to cover a situation if a mistake had been made. I think her phraseology was "if we were really late". I am sorry, but I simply cannot so read the document. Nor does it seem to me that any body could so read this document. It does not say anything of the sort. The document says “we were two days late, therefore we assume any claims". That letter seems to me very substantially to support the plaintiffs' account about what happened on the 18th and 19th and to be quite inconsistent with the defendants' account. If fits the plaintiffs' account which was this is your decision. This now late. You have put us in this position. You must say whether you are going to ship or not. If you are going to ship you must only expect payment against a letter of guarantee like this.

14. The matter does not end there because sadly the goods were in fact rejected by Santana and the question then across was to what was to be done. There were three letters written as a result. The first was a letter by the plaintiffs to the defendants, for the attention of Miss Poon, dated the 28th of February, telling her about the rejection and giving the reasons and giving photostat copies of the relevant telexes. Miss Poon was apparently then on holiday and she returned to duty on the 5th March. The second letter, which was sent by registered mail, was on the 6th March. That purports to record that Miss Poon had instructed Mr Wu to (1) to insure the goods that were then in Canada and (2) to arrange for their shipment back to Hong Kong 'as you need the goods to resell'.

15. That again was a letter which was read by Miss Poon. It is very difficult for any tribunal which knows only one language to try and assess another person's ability to understand English as a second language. Miss Poon has been in this business for seven years and it was made clear to me that in this export type market, the vast bulk of the external letters, and certainly the contracts and so on, are written in English. Internal documentation within the company may well be in Chinese. I can only conclude that having done this for seven years Miss Poon does have quite a considerable knowledge of the English language in the context of the garment industry. I emphasise that. But even I am wrong about that, there is no way in which the court hereafter, I think, can start assuming that when the business is conducted in the English language, and perfectly clear letters are written in that language, that the people who are conducting the business in that way do not understand it.

16. Certainly this letter is abundantly clear and suggests that the defendants had accepted responsibility for the costs, first of all for the goods themselves, (and that really followed from the letter of guarantee) and secondly with the transport of the goods back. Having received that letter Miss Poon got on the telephone, and further telephone conversations took place between her and Mr Wu, perhaps more significantly between her and Mr Wu's co-director, Mr Enoch Wong. She told me in the witness box she was saying: "No. if we made a mistake, the defendants were responsible for all these expenses" She objected to certain things. Conversely she said that if there was a mistake the defendants were responsible for other things.

17. What the last letter of 9th March says is: "We had through discussions made today between your Lisa Poon and our Enoch Wong and finalized the settlement as follows: "You have mutually agreed to pay us the following: A. The total amount of the goods value of HK$59,074.58. B. Half of the sea freight expenses of two voyages, i.e. H.K. - Montreal - H. K. (Not I add in parenthesis the whole, as in the previous letter). C. Relative insurance charges covered for the return goods (the amount will be the same as the debit note charged by the insurance company produced)". Miss Poon says that she agreed to do this if she made mistake. So that all the agreements purported to be recorded in this correspondence should have been the subject to the qualification: "if we made a mistake (which is not admitted)". And so that the same point precisely arises on these letters as arises on the letter of guarantee. They were not admitting a mistake and saying we will do so and so; it was conditional upon some admission of a mistake. Again I simply cannot accept that. It makes no sense whatever in the circumstances at all. I believe that on the telephone between herself and Enoch Wong, Miss Poon recognized that it was really consequential upon the letter of guarantee that she had signed, that she had to have the goods back and repay the purchase price, in exactly the same way as the plaintiffs had to repay the bank. The best she could do was to split the fare with the plaintiffs, the freight charges and cover the insurances charges. That was the deal that she made. It may well have been a very sensible deal indeed.

18. It was at that point that her elder brother returned. He clearly did not take that view, and that deal was very quickly repudiated by him. But it was upon that basis that the goods were in fact brought back by the plaintiffs from Canada to Hong Kong and stored in a godown where they still are. When the plaintiffs then sought recovery of the monies due under that compromise agreement, they did not get it. The writ was then issued and by way of damages for breach of contract in the writ the plaintiffs now claim (1) the sums covered by the letter and (2) the full freight charges both ways, not half, and (3) also a loss of profit figure which was very largely the dyeing cost in another way which they had expressly agreed not to charge for by the earlier letter.

19. One of the more difficult question to my mind in this case is whether that compromise having, and I am satisfied, been made, and having been initially broken by the defendants, the plaintiffs can now go back and say, we not bound by any such agreement, we have not limited ourselves in any way at all and we now want our full damages. It is not a matter which was considered at any length in argument. The point was not taken by either counsel until I put it to them both as the point was worrying me. The point is still worrying me and I am not at all sure what the strict analysis of these matters is. But my own feeling is this. Having brought the goods back on the particular basis set out in that letter, I do not think it is right that either party should be allowed to depart from that basis.

20. Therefore I think, first, that on liability I accept the plaintiffs' account, and accept that these goods were two days late because they were not available for shipment by the 19th; that this was expressly accepted by the defendants at the time. They were acknowledging the fact that they were late, and acknowledging the fact at the time and later in writing in the so-called letter of guarantee that there had been no absolute acceptance of the goods by the plaintiffs. The whole thing was conditional upon the ultimate acceptance by the plaintiffs' customer. When that customer eventually rejected them, an agreement was then reached between the parties governing the costs of the return of those goods which was made before the journey started and they were then brought back upon the basis of this agreement. I believe that that also binds the parties.

21. In those circumstances the plaintiff is entitled to recover judgment for a sum made up in this way:

On my judgment, these are the defendants' goods, and they are now free to realise them.

22. There must also be the payment of interest on that total sum for the value of the goods and the freight charges, as from I think it is probably fair to say the date of the writ in this case, i.e. the 24th April, at 2% over the ordinary prime rate. That is the compensation which the plaintiffs receive for the defendants' repudiation of this agreement, not the right to reintroduce the charges they had abandoned.

23. I will leave the parties to sort this out. The hour is late. If you can agree with the arithmetic tonight or tomorrow morning, I will make the order accordingly.

24. There must be judgment for that sum, interest upon that basis and an order for costs in the plaintiff's favour.