MARUBENI HONG KONG LTD. AND ANOTHER v. FINSEN TRADING LTD. AND ANOTHER

CACV 248/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 248 OF 1998

(ON APPEAL FROM HCA 1433 OF 1995)

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REASONS FOR JUDGMENT

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Mortimer V-P (giving the reasons of the Court) :

We dismissed the 1st plaintiff's appeal against the decision of Suffiad J of 10 July 1998 when he found for the defendants in the plaintiff's claim for damages for breach of contract. We now give our reasons.

Background

2. The plaintiff inter alia was a supplier of paper products to the defendants. It claims damages for breach of contract, alleging that the defendants failed to accept delivery of, and failed to pay for, goods bought from the plaintiff under seven contracts dated between 8 February and 3 June 1993.

3. Between 8 October 1992 and 21 April 1993, some 26 other similar contracts were performed - that is the goods were accepted by the defendants and paid for. Apart from the last three, the disputed contracts were interspersed chronologically with the completed ones.

4. The case was heard on liability only. The amount claimed is US$450,980.42.

The contracts

5. The disputed contracts in chronological order are as follows:

GP2967	8 February 1993
GP3009	26 February 1993
GP3058	13 April 1993
GP3059	13 April 1993
GP3138	21 May 1993
GP3140	21 May 1993
GP3158	3 June 1993

The system

6. The witness, Dick Lee for the plaintiff, described "the system". He said that for each contract, five copies of the sales note would be produced by the plaintiff. The top two were "originals" with conditions printed on the reverse. The last three were internal office copies without printed conditions - each would be initialled by Mr Sasai, a Director of the plaintiff - and both copies were then sent to the buyers - the defendants. To signify agreement, the defendant would sign and return one copy, retaining the other.

7. Mr Tam, for the defendants, said that when he received the two top copy sales notes, he would check them. If acceptable, he would sign one in the space provided and passed it to Mr Lum. If Mr Lum approved, the duplicate would be sent to the plaintiff by way of acceptance of the offer. If Mr Lum's approval was not given, the 1st plaintiff would be informed by Mr Tam that the offer was not acceptable.

8. Mr Tam also described the defendants' use of chops. He said if the offer was acceptable, the approval would be signified by a rectangular chop bearing the words "for and on behalf of Finsen Trading Limited" beneath which there was a dotted line and the words "authorised signature". Mr Lum would sign it appropriately. Mr Tam gave further evidence that the defendants' small round chop found on some of the documents was never used to denote acceptance of an offer but was used by general staff for acknowledging receipt and the authenticating of documents.

The judge's findings on the evidence

9. In relation to the transactions GP3058, GP3059, GP3138, GP3140 and GP3158, the defendants were able to produce from their custody the two top copies of the sales notes. All were signed by Mr Sasai for the plaintiff but unsigned by the defendants.

10. There was, therefore, no question of concluded agreements on these transactions in accordance with the system described. However, at trial, the plaintiff produced an internal copy of a sales note in each of the five transactions bearing - as was normal practice - the initials of Mr Sasai. But, the office copies for GP3058 and GP3059 also bore the defendants' round chop in the space for the defendants' signature. In each of these transactions the plaintiff sought to establish binding agreements by other evidence.

Transactions GP3140 and GP3158

11. Mr Lee gave evidence that in each of these transactions, an oral agreement had been made between him and Mr Tam for the defendants. The sales notes were simply prepared to confirm the oral contract. In cross-examination, however, Mr Lee conceded that after an order was placed orally, the plaintiff had to confirm prices with its supplier and it was only when confirmed that the sales note was prepared and the two top copies sent to the defendants with a request that the duplicates should be signed and returned as a "signature of acceptance".

12. The judge concluded on this evidence that the sales note was an offer which had not been accepted by the defendants who had kept the two top copies in their possession. The contractual basis contended for by the plaintiff had not been pleaded.

Transaction GP3138

13. The evidence on this transaction was the same as for GP3140 and GP3158 save that the defendants had sent to the plaintiff a written purchase order signed by Mr Lum. The sales note was made out by the plaintiff as a result of this purchase order.

14. However, the sales note did not accord with the purchase order because six items in the purchase order required paper with "long grain" whereas the sales note referred to those six items as paper with "mixed grain".

15. The judge held in these circumstances that the sales note was a counter offer which had never been accepted by the defendants as it had retained both top copies of the sales note and had not signed and returned one of them.

Transactions GP3058 and GP3059

16. Again, in respect of each of these transactions, the defendants produced from their possession both top copies of the sales note. However, the plaintiff in each case produced an internal office copy initialled by Mr Sasai and bearing the defendants' round chop in the place provided for the defendants' signature. Additionally, the plaintiff produced hand-written sheets of paper attached to the internal sales note bearing columns for metric tonnes of various items of paper but without any prices. It was conceded that these sheets of paper had been faxed to the plaintiff by Mr Tam. Mr Lee for the plaintiff said that these were faxed by Mr Tam to place orders and that he had given Mr Tam the prices orally.

17. For the defendants, Mr Tam said that the purpose of the written sheets was to ascertain the availability and the prices of the goods in the amounts stated. It was not a firm order until the prices had been confirmed by the plaintiff from its supplier and the prices were not made known to him.

18. Having considered the whole of the evidence, documentary and oral, the judge preferred Mr Tam's evidence. As to the application of the defendants' round chop to the plaintiff's office copies, there was no evidence save for the suggestion by Mr Lee that sometimes if the defendants had misplaced or lost the original duplicate, the plaintiff would send as a replacement one of the office copies for the defendants' signature. But again, the judge rejected the explanation and accepted Mr Tam's further evidence that if an order was accepted it would bear the triangular chop with a signature.

Transaction GP3009

19. In this transaction there was a hand-written note from the defendants setting out a quantity of goods without prices and the plaintiff, through Mr Dick Lee, contended that there was an oral binding agreement for the goods specified.

20. The plaintiff was able to produce only an internal office copy of the sales note with the defendants' round chop without a signature.

21. The difference between this transaction and the others already dealt with is that the defendants had only one original duplicate of sales note in its possession. This had Mr Sasai's signature for the plaintiff as well as the signature of Mr Tam but without any chop, either round or rectangular.

22. However, Mr Tam gave evidence that in this transaction he approved the sales note and passed it to Mr Lum who did not approve it. He therefore returned the second duplicate to the plaintiff and in re-examination added that the returned copy was marked "cancelled".

23. The judge accepted Mr Tam and rejected the suggestion that the internal office copy of the sales note had been used because the original duplicates had been lost or misplaced. Having regard to the state of the evidence and the burden on the plaintiff to establish a binding agreement on the balance of probabilities, the judge held that the plaintiff had not established its case.

Transaction GP2967

24. This transaction was preceded by a typed sheet from Mr Lum to the plaintiff which corresponds to the goods on the sales note. It has the defendants' letterhead and is marked for the attention of "Mr Dick Lee" and begins with the words: "Dear Sir, We hereby confirm to buy the following goods as below". One original duplicate of the sales note was in the defendants' possession bearing Mr Sasai's signature as well as being properly chopped and signed by Mr Tam. However, Mr Tam gave evidence that having received the sales note and having found it acceptable, he signed it and passed it to Mr Lum for approval. Mr Lum, however, did not approve it, so Mr Tam informed Mr Lee that the sales note was not acceptable.

25. The plaintiff only had an internal office copy of the sales note chopped with the defendants' round chop. Once again, the judge accepted Mr Tam's evidence and found that no acceptance by the defendants of the sales note had been communicated to the plaintiff so that no concluded and binding agreement had been made.

Part performance

26. The plaintiff's final contention below was that the defendants had partly performed transactions GP2967, GP3009, GP3058 and GP3059 which itself established binding agreements between the parties on these transactions and all the goods described in them.

27. The defendants accepted that they had taken some goods when they arrived in Hong Kong but denied that they had had taken these goods pursuant to the transactions. The evidence was that the defendants assisted the plaintiff to look for buyers and when buyers were found, part of their goods were bought by the defendants and on sold. All this was to assist the plaintiff.

28. The judge found some support for this contention because in respect of some of the goods from one of the disputed contracts the plaintiff had accepted and paid overtime warehouse charges without looking to the defendants for them.

29. Having weighed the evidence on both sides, the judge rejected the plaintiff's evidence given by Mr Dick Lee and preferred the defendants' evidence. In consequence he found that the goods taken by the defendants were not taken pursuant to the contracts but outside them.

The plaintiff's case on appeal

30. In its notice of appeal the plaintiff takes four broad points:

(1) That the judge was in error in concluding that there were no binding agreements because he failed properly to take into consideration the previous course of dealing between the parties in the other 26 similar transactions.

(2) That in transactions GP2967 and GP3009 the judge failed to take proper account of the fact that one top copy had been signed and returned to the plaintiff and further, in accepting the evidence of Mr Tam in re-examination that the top copy had been returned and marked "cancelled", the judge wrongly categorised the evidence as "merely elaboration".

(3) That the judge failed to give proper weight to the part performance in the cases where the defendants accepted delivery and paid for the goods and so failed to take into account the terms of agreement in the sales note that acceptance of part delivery would, even in the absence of a previously concluded agreement, have itself rendered the agreement as binding.

(4) That the evidence of witnesses called by the defendants was inherently incredible.

The issues considered

31. These issues in the notice of appeal are in essence an attack upon the judge's assessment of the witnesses and the weight which he saw fit to give to certain parts of the evidence. Mr Nigel Aiken SC (Mr Russell Coleman with him) fully appreciated that if presented in this way, the appeal was bound to fail because there is nothing to demonstrate that the judge failed to take advantage of hearing and seeing the witnesses, and nothing to demonstrate that any finding of fact was unquestionably wrong.

32. For this reason, the main submssion advanced was that the judge ought to have taken into account that in the 26 transactions which had been performed, the so-called "system" was honoured more in its breach than in its fulfilment. His premise was that in each of the disputed cases, binding agreements had been made because of the course of dealing between the parties.

33. The difficulty in accepting this submission is first that the case was not pleaded on this basis and insofar as it was advanced below, it was rejected by the judge. It was rightly rejected, in my judgment, because the premise is unsound. The fact that the goods in each of the 26 transactions were accepted and paid for indicates that a binding agreement came into existence but does not assist as to when or on what basis. In his statement, the judge considered the evidence before him with the greatest care and I cannot detect any flaw in his reasoning upon which his conclusion ought to be disturbed on the basis of the previous course of dealing between the parties.

34. Similarly, when the judge was considering the legal effect of the documents and the oral evidence, the plaintiff no doubt hoped that he would find differently, but it has not been demonstrated that the judge was wrong.

35. The evidence given by Mr Tam of returning an original sales note marked "cancelled" for the first time in re-examination, no doubt caused the plaintiff some difficulty in the presentation of its case and was the subject of trenchant criticism below. However, even if the judge wrongly categorised this evidence as "mere elaboration", it was evidence open to the judge to accept and he accepted it.

36. The point turned almost entirely on questions of fact. Again, the judge considered the evidence with care and came to the conclusion that there was no part performance. In these circumstances the term on the back of the original sales note to the effect that part performance was sufficient to make the whole contract binding did not apply.

37. Quite rightly Mr Aiken did not pursue the last point taken in the notice of appeal which focused upon the judge's assessment of the evidence of the defendants' witnesses. Matters with which this Court will not interfere save in well-known and very limited circumstances.

Conclusion

38. For these reasons, we dismissed this appeal with costs.