HOPEFUL MEAT LTD v. WAN WOO FROZEN MEAT LTD

DCCJ 4533/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION No. 4533 OF 2011

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JUDGMENT

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Introduction

1.  Both the plaintiff (“Hopeful Meat”) and the defendant (“Wan Woo”) have carried on business in the trade of frozen meat in Hong Kong for years. Hope Meat had been the supplier of Wan Woo for more than ten years prior to the commencement of these proceedings. It is unfortunate that their very first dispute over their business transactions has to be resolved by way of a lawsuit fought to the bitter end.

2.  The present dispute arose out of 3 sale transactions involving frozen chicken claws (“the Goods”). They were of the same Brazilian brand “Corcovado” imported to Hong Kong. All these 3 sale transactions were evidenced by 3 invoices issued by Hopeful Meat. The first one was numbered A224832 and dated 28 March 2011 (“the First Invoice”) involving 5 cartons of the Goods. The second one was numbered A225180 and dated 31 March 2011 (“the Second Invoice”) involving 800 cartons of the Goods and the last one was numbered A225306 and dated 2 April 2011 (“the Third Invoice”) involving 575 cartons of the Goods.    

3.  Wan Woo refused to take delivery of 79 cartons of the Goods under the Second Invoice and all of the 575 cartons of the Third Invoice on the ground that Wan Woo’s client found out that the Goods supplied under the Second Invoice were smaller than those supplied under the First Invoice. Whilst Hopeful Meat is claiming Wan Woo damages for wrongful rejection of the Goods under the Second and Third Invoices, Wan Woo counterclaims damages for Hopeful Meat’s breach of the sale agreement evidenced by the Second Invoice.

4.  Before I go further into the parties’ case, I should mention that there was an application on the part of Wan Woo to file and serve its Re-Amended Defence and Counterclaim at the outset of the trial. I heard the arguments and in the end I allowed the application with costs to be paid by Wan Woo to Hopeful Meat in any event. For taxation purposes, I make it clear that the application lasted for 10 minutes.

Undisputed Facts

5.  Mr Yuen, counsel for Wan Woo, helpfully provided a chronology of the undisputed facts leading to the present proceedings in his Closing Submission. I would adopt it with some modifications.

6.  On or about 28 March 2011, Mr Chau Wai Yin (“Chau”), sales officer of Hopeful Meat, called Au Yueng (“Au Yeung”), director of Wan Woo and indicated to Au Yeung that “Corcovado” chicken claws had been made available to Hopeful Meat. Chau asked Au Yeung whether he was interested in such goods. That was the first time the parties dealt in such goods.

7.  Au Yeung placed an order evidenced by the First Invoice. On or about 29 March 2011, the Goods supplied thereunder were delivered to Jackpot Company (“Jackpot”), the purchaser of Wan Woo. Au Yeung did not see the Goods himself.

8.  The First Invoice did not specify the unit size of the Goods save that there was a reference to “A4”, which Hopeful Meat says to stand for “unsized goods” meaning the sizes of individual chicken claws vary in the same batch of the Goods. The unit price was stated to be HK$6.2 per pound.

9.  Satisfied with the Goods delivered under the First Invoice, on 31 March 2011, Wan Woo placed another order with Hopeful Meat to supply the Goods to Jackpot in bulk and this order was evidenced by the Second Invoice. In the Second Invoice, again there was no mention about the unit size of the Goods save a reference to “A4”. The unit price was stated to be HK$6.00 per pound.   

10.  Before the delivery of the Goods under the Second Invoice was made, on or about 2 April 2011, Wan Woo placed an order with Hopeful Meat as evidenced by the Third Invoice. Mr Law Lee Kwok (“Law”), Assistant Sales Manager of Hopeful Meat, took the order. The unit price of this order was stated to HK$6.0 per pound and again there was no mention about the unit size of the Goods save a reference to “A4”. There is no dispute that Wan Woo rejected the delivery of all 575 cartons of the Goods under the Third Invoice.

11.  I pause here to add that in each of the 3 invoices, there was an express provision about the applicable free storage period. Once the specified period expired and the purchaser failed to take delivery, a monthly storage charge at the rate of HK$0.3 per pound (net weight) was payable.  

12.  On or about 7 April 2011, Wan Woo took delivery of 120 out of the 800 cartons of the Goods under the Second Invoice. Jackpot was apparently satisfied with such goods.

13.  On the following day, Wan Woo took delivery of 120 and 480 cartons of the Goods under the Second Invoice. Chan Wai (“Chan”) of Jackpot was not happy with the unit size of such goods (“the Rejected Goods”).

14.  On or about 11 April 2011, Wan Woo made a request for returning the Rejected Goods to Hopeful Meat. Hopeful Meat did not agree. Yet, Hopeful Meat subsequently agreed that Wan Woo could try other cartons of the Goods stored in the warehouse .

15.  On or about 19 April 2011, Wan Woo took delivery of one carton of the Goods under the Second Invoice. Jackpot was still unhappy with the size of the Goods and insisted on returning all the 601 cartons of the Goods supplied under the Second Invoice.

16.  On the other hand, Wan Woo refused to take delivery of any of the 575 cartons of the Goods under the Third Invoice.

17.  The stalemate in respect of the Second and Third Invoices continued after the exchange of correspondence between the parties’ legal representatives curiously in the midst of their other business transactions unrelated to these proceedings.

18.  In early June 2011, Wan Woo invited Hopeful Meat to jointly instruct a surveyor to assess the size of the Goods delivered. Hopeful Meat refused. On 15 June 2011, Wan Woo attended a survey conducted by Centralink Surveyors Ltd (“Centralink”) at the premises of Jackpot and both Au Yeung and Chan attended. Centralink compiled a survery report dated 26 June 2011 (“the Report”).

Plaintiff’s Case and Evidence

19.  The case of Hopeful Meat is simple and straightforward. The Goods were supplied by a company known as Sadia in Brazil to its parent company A.M.D. Co Limited (“AMD”). From the sales documents of AMD and Sadia it can be seen that the Goods were supplied on the basis that they were unsized. It is not clear to me whether “A4” was actually meant to stand for unsized as “A5” also included unsized goods.

20.  In any event, Hopeful Meat accepts that these were code specific to Sadia and Wan Woo was not privy to any of these sales documents. Thus, it cannot be said that Wan Woo expressly accepted the Goods to be unsized by virtue of the reference to “A4” in the Invoices.   

21.  All of the witnesses of Hopeful Meat, namely, Chau, Law and Chun Kwok Wing (“Chun”), Assistant Director of Hopeful Meat, categorically denied that the Second and Third Invoices concerned sale by sample, which as explained below, is the principal contention of Wan Woo.

22.  Only Chau and Law handled the relevant sale transactions and dealt with Au Yeung. They were adamant that they did not give any warranty, expressed or otherwise, as to the unit size of individual items of the Goods. The offer to replace the Rejected Goods was made as a gesture of goodwill only and it was made on the condition that the Rejected Goods could be resold to other retailers.

23.  To mitigate the loss arising from the rejection of the Goods under the Second and Third Invoices, Hopeful Meat managed to resell such goods to other retailers. Evidenced by an invoice numbered A309363 dated 13 October 2011, Hopeful Meat sold to one trader in the Guangdong province altogether 654 cartons of the Goods in the total amount of HK$60,822.00. Hopeful Meat duly credited the account of Wan Woo in respect of the proceeds of the said resale and this is evidenced by an invoice/debit note dated 13 October 2011 issued by Hopeful Meat to Wan Woo.

24.  Hopeful Meat then demands Wan Woo to pay the shortfall and the storage fee (from 16 April 2011 to 15 October 2011) in the total sum of HK$111,682.50.

25.  Under the meticulous cross-examination relating to the accounting documents by Mr Yuen, Chun accepted that a further sum of HK$15,674.70 should be deducted from the claim of Hopeful Meat. Mr Cheuk, counsel for Hopeful Meat, also agrees with this deduction.

Defendant’s Case and Evidence

26.  Wan Woo’s case is equally simple and straightforward. Both Au Yeung and Chan testified for Wan Woo. They insist that the second and third orders were sales by sample. The pleaded defence case is that there is an express and/or implied term that the Goods sold thereunder must correspond with those supplied under the First Invoice, namely, about 1,081 pieces in 30kg and/or 15-16 pieces in each pound.

27.  However, the Goods delivered were found to be in a much smaller size, namely, 4,276 pieces in 75kg and/or 25 pieces in each pound.

28.  Wan Woo obtained all these measurements apparently from the Report, which could not have been available at the time of the sale agreements.

29.  Wan Woo further relies on section 17 of the Sales of Goods Ordinance, Cap. 26 (“SOGO”) relating to sale by sample.

30.  Wan Woo denies that “A4” stands for “unsized” in the Invoices and this is really a non-issue. It is noteworthy that Au Yeung frankly accepted that when placing the second and third orders with Hopeful Meat, he did not talk about the unit size of the Goods. He merely referred to such goods as 「嗰D鳳爪」(English translations: those chicken claws)

31.  Wan Woo contends that Hopeful Meat has breached the two sale agreements evidenced by the Second and Third Invoices. Hence, it contends, it was entitled to reject acceptance of those Goods which were undersized supplied under the Second Invoice. As regards the Third Invoice, though Wan Woo has never had the sight of the Goods sold thereunder, Wan Woo contends that there was an anticipatory breach on the part of Hopeful Meat that all of them would be undersized. In the result, Wan Woo accepted the repudiatory breach and rejected the Goods under the Third Invoice altogether.

32.  Wan Woo denies any liability to pay the storage fee as demanded. On the other hand, Wan Woo counterclaims an overpayment of HK$79,028.52 on account of the Rejected Goods under the Second Invoice.

33.  Wan Woo does not make any alternate plea of Hopeful Meat’s failure to mitigate loss in its Defence. Nor was this matter raised with any one of the witnesses of Hopeful Meat at trial.

34.  It is remarkable that Au Yeung accepted that there was no discussion about the unit size of the Goods when he placed the orders with Hopeful Meat. He also agreed that neither Au Yeung nor Law had ever given any warranty as to the unit size of the Goods.

35.  It is also worthy of note that Au Yeung agreed with Mr Cheuk under cross-examination that the unit price of the Goods under the Second and Third Invoices was on the low side when compared to those sourced from Japan. He had never dealt with chicken claws imported from Brazil but he agreed that the unit price of the Goods was still on the low side no matter where they were originated.

36.  Au Yeung also agreed that the storage fee was commonly payable in the trade and in the past Wan Woo had also paid such fees to Hopeful Meat and other suppliers. He further agreed that the storage fees charged by Hopeful Meat were reasonable.

Analysis

37.  All the witness statements appear to me to be honest and forthcoming. This case is, however, not so much about credibility though it involves factual disputes. Obviously, the parties differ in their perception about the second and third orders.

38.  The central issue of these proceedings is whether the Second and Third Invoices evidenced sales by sample as contended by Wan Woo, which is essentially a question of facts.

39.  The definition of “sale by sample” in the SOGO is not helpful and appears to be a tautology. A definition is provided by the learned authors of Benjamin’s Sale of Goods, 8th Edn. §11-074, p.578 which is as follows:

“A sale by sample is a sale whereby the seller expressly or impliedly promises “that the goods sold should answer the description of a small parcel exhibited at the time of the sale.”     

40.  In the same paragraph, the learned authors state that the test as to whether a sale is a sale by sample is an objective one. 

41.  There was no written sale contracts in this action. The sale agreements were concluded orally and the Invoices were mere evidence indicating the conclusion of such agreements.

42.  The defence case of sale by sample is utterly demolished by the clear and unequivocal evidence of Au Yeung to the effect that there was never any discussion about the unit size of the Goods to be supplied to Wan Woo under the Invoices. If the Goods under the First Invoice were meant to be sample and the unit size of such goods was to be characteristics and/or specifications with which the goods of any subsequent sale were to correspond, it is only inexplicable that the parties were silent on the unit size of the Goods throughout.

43.  Au Yeung further accepted that Wan Woo did not have the sight of the Goods sold under the First Invoice, which were delivered to Jackpot for its use. He had no idea of the unit size of such goods. Under those circumstances, he could not have meant that the Goods to be supplied under the Second and Third Invoices should be in the same size of those goods supplied under the First Invoice.

44.  More importantly, in the absence of any discussion of the unit size of the Goods, the parties could not have made an express term that the Goods sold under the First Invoice was samples for the sale relating to the Second and Third Invoices.

45.  Mr Yuen agrees that the only evidence that Wan Woo could rely on for their plea of an express term is that Au Yueng referred to the subject matter of the Second and Third Invoices as “those chicken claws” 「嗰D鳳爪」.

46.  I reject his contention. First, this is not the pleaded case of the defence. Second, the reference of “those chicken claws” cannot be indicative of the requirement that all the qualities of those chicken claws with which the Goods under the subsequent invoices were to be corresponded.

47.  Mr Cheuk submits that the First Invoice evidenced a separate sale transaction and thus the Goods sold thereunder could not be samples. I disagree. There may be circumstances under which a product sold previously in a separate transaction could be made a sample for subsequent sales so long as it is clear to the parties, either by express agreement or implication, which qualities or specifications of the product must be present in the subject matters of the subsequent sales. This is not the case here.

48.  In my judgment, by reason of the foregoing matters, there was no express term in respect of the sale agreements evidenced by the Second and Third Invoices.

49.  Mr Cheuk rightly referred to this court the well-known 5 requirements of an implied term set out by Ribeiro PJ in Kensland Realty Ltd v Whale View Investment Ltd & Anor. (2001) 4 HKCFAR 381 at §59.

50.  The defence case of an implied term is a non-starter and I fail to see how it can satisfy the 5 requirements. In addition to the reasons given above, on balance of probabilities, Hopeful Meat could not have impliedly agreed that they were sales by sample when Hopeful Meat knew that what they got from Sadia were unsized products only. Further, Au Yeung also accepted that the unit price of the Goods was below the market price. It cannot be reasonable and equitable for the implied term to be incorporated to the sale agreements.

51.  Another fatal blow to the defence case is the unreliability of the Report. In the survey, alarmingly, the Goods delivered under the First Invoice were not singled out and they were mixed with all other Goods. This really defeats the purpose of the survery. It follows that it was impossible to discern the exact quality of the Goods sold under the First Invoice. It also follows that they could not, expressly or impliedly, be agreed to be samples (in term of their unit size) for the subsequent sales when the parties could have no idea as to their actual unit size.

Conclusion

52.  Having rejected the defence case, the well-documented case of Hopeful Meat supported by indisputable facts must prevail. I enter judgment in favour of Hopeful Meat against Wan Woo in the sum of HK$96,007.80 (HK$111,682.50-15,674.70) with interest thereon from the date of the judgment. I also dismiss the counterclaim of Wan Woo.

53.  I see no reason why costs should not follow the event and I thus make an order nisi that Wan Woo should pay Hopeful Meat costs of this action. Mr Cheuk has rendered to this court his able assistance. However, in view of the amount at stake and the simple nature of the claim, I decided not to allow certificate for counsel.

54.  Lastly, it remains for me to thank both counsel for their helpful assistance.