BONUS GARMENT CO. v. KARL RIEKER GMBH & CO. KG & ANOTHER

CACV000003/2001

CACV 3/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 3 OF 2001

(ON APPEAL FROM HCA 5143 OF 1994)

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BETWEEN
BONUS GARMENT COMPANY (a firm) Plaintiff
AND
KARL RIEKER GMBH & CO. KG 1st Defendant
PEH POH CHENG trading as MANDARIN (FAR EAST) COMPANY 2nd Defendant

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Coram: Hon Mayo VP, Cheung JA and Yeung J

Date of Hearing: 6 November 2001

Date of Judgment: 6 November 2001

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J U D G M E N T

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Mayo VP:

1. This is an appeal from a judgment of Deputy High Court Judge Longley when he dismissed the plaintiff’s claim against the 1st defendant.

2. The plaintiff is a manufacturer of garments. Its claim against the 1st defendant is in relation to a contract for the supply of 235,500sets of ladies’ pyjamas. It is the plaintiff’s case that following oral discussions an order confirmation dated 22 March 1993 wassigned by a Mr Dieter Renner as agent on behalf of the 1st defendant. It was also signed by the plaintiff. The contract also relatedto 255,000 sets of children’s pyjamas.

3. It is common ground that all the pyjamas were delivered to the 1st defendant which is a German company based in Bodelshausen in BadenWurttemburg, Germany. The 1st defendant is an importer of garments which are supplied to retailers in Germany. It is further agreedthat the children’s pyjamas were paid for.

4. The ladies’ pyjamas were according to the order confirmation supposed to be delivered by 15 September 1993. They were not ready bythat date and were air-freighted to Germany on a “freight-collect” basis which necessitated the 1st defendant effecting payment ofthe freight.

5. It is the 1st defendant’s contention that it was not a party to the contract comprised in the order confirmation dated 22 March 1993.They say that Mr Renner was not their authorised agent. They were supplied with the pyjamas pursuant to a contract dated 16 March1993 comprising two order letters enclosing fourteen purchase orders which they concluded with the 2nd defendant. The letters weresent by the 2nd defendant to the 1st defendant through Mr Renner on 5 April 1993.

6. It was the 1st defendant’s case that Mr Renner had been the 2nd defendant’s agent and had signed the confirmation order on theirbehalf. Following this the 1st defendant had entered into the contract to purchase the pyjamas with the 2nd defendant.

7. The Judge was satisfied that even if the 1st defendant was unable to establish that Mr Renner was the 2nd defendant’s agent and itappeared that he might be the 1st defendant’s agent it was still necessary for the plaintiff to demonstrate that Mr Renner was actingwithin the 1st defendant’s actual authority.

8. What was at the core of the 1st defendant’s defence was that Mr Renner had been acting dishonestly when he had been conducting thenegotiations. What he had been attempting to do was to negotiate a higher price with the 1st defendant and a lower price with theplaintiff and then pocket the difference.

9. In this connection he had deliberately concealed the order confirmation dated 22 March 1993 from the 1st defendant. He had also falselyrepresented the true terms upon which the plaintiff was prepared to supply the goods. In addition to this he also represented tothe plaintiff that he was contracting as principal.

10. What is apparent from all of this is that it is being contended by the 1st defendant that there were two contracts in existence.The first was a contract between the plaintiff and the 2nd defendant which contained the lower prices and the second was the contractbetween the 1st defendant and the 2nd defendant. It was clear from the case which was being advanced by the plaintiff that it wasin effect attempting to enforce the first contract against the 1st defendant who was not a party to it.

11. It is relevant to add that the plaintiff at an early stage in this protracted litigation obtained a default judgment against the2nd defendant. The 1st defendant went on to contend before the Judge that even if the court were to hold that Mr Renner was theirduly authorised agent they would have defences to the claim being made by the plaintiff.

12. One of the defences they would be running would be that a substantial number of both the children’s and the ladies’ pyjamas wereso defective as not to be of merchantable quality. Considerable expenditure had been incurred by them in rectifying the deficienciesin relation to the goods and the cost of rectifying these defects formed part of a counterclaim they lodged which would be prosecutedin the event of the court holding that contractual relations existed between the parties.

13. The 1st defendant also claimed to have a defence based upon the fact that they paid the purchase price of DM415,436.40 in respectof the ladies’ pyjamas to the 2nd defendant.

14. In addition to this they argued that as there had been no variation of the terms of the order of 22 March 1993, the plaintiff shouldrepay the freight charges of DM1,038,306.41 which they had had to defray on account of the late shipment of the pyjamas. The plaintiffwas estopped from alleging that the variation had been authorised by them by virtue of the plaintiff’s election to obtain the defaultjudgment against the 2nd defendant.

15. However the crucial issue in this litigation is whether the plaintiff is able to establish that Mr Renner was the duly authorisedagent of the 1st defendant when he signed the confirmation order dated 22 March 1993.

16. The Judge held that he was not. It would appear that there were good reasons for his coming to this conclusion.

17. The first and perhaps most important is that there was no evidence that there was any meeting of minds on the exact terms to be embodiedin the contract. The prices agreed by the plaintiff were not the same as the prices agreed by the 1st defendant. The plaintiff agreeda price of DM8.30 per set for the ladies’ pyjamas and DM5.80 per set for the children’s pyjamas. The 1st defendant agreed a priceof DM8.75 per set for the ladies’ pyjamas and DM6.09 for the children’s pyjamas. More significantly Mr Renner informed the 1st defendantthat the plaintiff had agreed to C & F Hamburg terms whereas the 1st defendant required that the goods be CIF Bodelshausen.

18. It is common ground that Bodelshausen is some considerable distance from Hamburg.

19. Even though the price which the plaintiff was willing to accept was lower than the price which the 1st defendant was willing to paythere could be no question of anyone other than the parties attempting to modify its terms by implying that an agent would have authorityto enter into a contract at a lower price than the figures stipulated by the principal. This was particularly the case where therewas a substantial difference in relation to another provision in the contract namely the shipment terms. It was clear that the 1stdefendant would be required to incur additional expenditure in transporting the goods from Hamburg to Bodelshausen and would alsohave to arrange for the insurance of the goods over the whole shipment.

20. So far as the negotiations were concerned the 1st defendant did send a fax back to Mr Renner agreeing the prices. However it wasin these terms:

“We agree the prices but the prices are understood to be CIF Bodelshausen”.

This was not an unconditional acceptance of the prices. It amounted to a counter-offer that the prices would be agreed only on thebasis that they were CIF Bodelshausen. There was no agreement on this counter-offer.

21. It is pertinent to add that when the 1st defendant sent the two order letters in early April 1993 to the 2nd defendant which wereearlier referred to it was stipulated that the higher prices were CIF Bodelshausen.

22. It is relevant to add that the Judge was satisfied that the 1st defendant was unaware of the confirmation order dated 22 March 1993when it was confirmed. He held that Mr Renner deliberately concealed this from the 1st defendant.

23. Over and above this the Judge accepted evidence to the effect that the plaintiff was under the impression that Mr Renner was actingas a principal and indeed had been unaware of the 1st defendant’s existence at the relevant time.

24. The conduct of the parties subsequent to allegedly entering into contractual relations is also relevant in shedding light upon whatthe intentions of the parties had been.

25. The 2nd defendant sent invoices in respect of the goods to the 1st defendant. This was accepted by the Judge and was in conformitywith the two order letters enclosing the 14 purchase orders.

26. What is of particular significance is that two letters of credit were issued by the 1st defendant in favour of the 2nd defendant.These also were consistent with the said order letters and purchase orders.

27. In contrast no letters of credit were issued pursuant to the order confirmation. This was necessarily the case in the light of theJudge’s finding that Mr Renner had concealed the order confirmation from the 1st defendant.

28. The plaintiff endeavoured to argue that as reminders had been sent to the 1st defendant to conclude a contract at the higher pricethey were fully aware of the position and had implicitly authorised Mr Renner to enter into the contract. I do not think that thisis right. It was open to the 1st defendant to ignore the reminders. The fact that later they informed Mr Renner on 2 April 1993 that”the order is fixed now” does not take matters any further. This communication is equally consistent with the 1st defendant’s casethat they had themselves entered into the contractual relationship earlier referred to.

29. A further consequence from all of this was that there could have been no question of the 1st defendant ratifying the order confirmationif, as the Judge found to be the case, they had no knowledge of it at the relevant time.

30. The Judge rejected the submissions made on the plaintiff’s behalf that Mr Renner either had implied authority to bind the 1st defendantor alternatively his acts came within the usual authority of an agent in such a situation. The reasons given by the Judge were entirelyvalid.

31. A contract to deliver goods C & F Hamburg was significantly different from a contract to deliver the goods CIF Bodelshausen.Authority to enter into a contract incorporating the latter terms could not be extended to include the former.

32. Nor could any of the principles laid down in Watteau v Fenwick (1893) 1 QB 346 have application to the present case even assuming that the case was still binding authority.

33. That then leaves the only outstanding issue which was whether the 1st defendant was by its conduct estopped from denying that MrRenner had authority to enter into the contract.

34. After complaints were made concerning the defective quality of the children’s pyjamas the 2nd defendant and the plaintiff visitedGermany for negotiations and two agreements were concluded in an endeavour to resolve the outstanding situation. By one of the agreementsof 21 December 1993 it was agreed that Mrs Hardt of the 1st defendant should visit China in connection with the plaintiff’s productionof the ladies’ pyjamas.

35. The Judge considered that this agreement was unduly equivocal to amount to an estoppel. His reason for coming to this conclusionwas that as the plaintiff was the manufacturer of the pyjamas there was nothing unusual in its being involved in a dispute concerningthe quality of the goods even if the actual contract had been between the 2nd defendant and the 1st defendant.

36. Also the fact that the September agreement referred to “Agentur Renner”, “Agentur Mandarin” and “Heesteller Bonus Garments” (i.e.Manufacturer Bonus Garments) was in no way conclusive in the absence of any specific indication that Mr Renner was acting as an agentfor the 1st defendant.

37. The Judge was fully entitled to find as he did that the 1st defendant was not estopped from asserting that Mr Renner was not itsagent.

38. For these reasons I am of the view that this appeal should be dismissed and the 1st defendant should be entitled to its costs. Aconsequence of this would be that as there was no contractual relationship between the plaintiff and the 1st defendant there couldbe no question of the 1st defendant’s counterclaim being pursued.

Cheung JA:

39. I agree.

Yeung J:

40. I also agree. I will dismiss the appeal for the reasons given by Mayo VP.

Mayo VP:

41. This being the case the appeal is dismissed. Costs will be to the 1st defendant.

42. In conclusion, we would like to thank both counsel for the considerable assistance they have given us.

(Simon Mayo) (Peter Cheung) (Wally Yeung)
Vice-President Justice of Appeal Judge of the Court of First Instance

Representation:

Mr Lawrence Ng, instructed by Messrs David Ravenscroft & Co. for the Plaintiff.

Mr Kenneth Ng, instructed by Messrs Baker & McKenzie, for the 1st Defendant.