The Judicial Committee of the Privy Council Decisions

Privy Council Appeal No. 59 of 1996

 

Bonus Garment Company (a firm) Appellant

v.

(1) Karl Rieker GMBH & Co. KG and

(2) Peh Poh Cheng trading as Mandarin (Far East)

Company Respondents

 

FROM

 

THE COURT OF APPEAL OF HONG KONG

 

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 19th June 1997

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Present at the hearing:-

Lord Browne-Wilkinson

Lord Mustill

Lord Steyn

Lord Hope of Craighead

Lord Hutton

  ·[Delivered by Lord Browne-Wilkinson]

 

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This is an appeal from an order of the Court of Appeal of Hong Kong (Nazareth V.-P. and Bokhary J.A., Liu J.A. dissenting) which set aside an order granting to the appellant, Bonus Garment Company ("Bonus") leave to serve a writ on the first respondent, Karl Rieker GMBH & Co. KG ("Rieker") out of the jurisdiction on the ground that Bonus did not have a good cause of action.

 

1. Bonus manufactures garments in Hong Kong.  Rieker is a German company carrying on business as an importer and wholesaler of garments.  Bonus contracted to sell to Rieker a quantity of garments c&f Hamburg.  The terms of the contract included a term requiring delivery between 1st August 1993 and 15th September 1993.  Peh Poh Cheng is a Hong Kong textile trader who, so Bonus allege, was Rieker's representative in Hong Kong.  Shortly after the contract was made Peh Poh Cheng purported to agree on Rieker's behalf to extend the delivery period.  The goods were delivered to Rieker and, so Bonus allege, accepted by Rieker and sold in the course of its business.  However, the price has never been paid.  In correspondence between the parties, Rieker has put forward a number of defences and cross-claims, in particular that the goods were defective and were delivered late.  Nothing turns in this appeal on the defective nature of the goods.  However, the defence of late delivery is of importance.  The relevant defence is that the goods were delivered outside the period specified in the original contract although within the alleged amended delivery period: Rieker contend that Peh Poh Cheng had no authority to agree any extension of the delivery period.

 

2. The present action was started on 27th May 1994 by Bonus issuing a specially endorsed writ against Rieker and Peh Poh Cheng.  The statement of claim, after alleging the original contract and the variation of the delivery date by Peh Poh Cheng as agent for Rieker, continued:-

"11.In pursuance of the said contract as varied [Bonus] from 8th October 1993 to 8th November 1993 delivered 235,500 sets of the said ladies terry pyjamas to [Rieker] and forwarded airway bills in respect thereof ... [Rieker] in breach of contract has refused or failed and still fails and refuses to pay for the price of the said ladies terry pyjamas.

 

12.Alternatively, if, which is not contended by [Bonus], the refusal or failure of [Rieker] to pay for the price of the said ladies terry pyjamas was on the basis that [Peh Poh Cheng] was not authorised by [Rieker] to make the said variation, [Bonus] says that by reason of the matters set out in paragraphs 9 and 10 above [Peh Poh Cheng] warranted that she was authorised by [Rieker] to make the said variation and [Bonus] entered into the same in reliance on the said warranty.  If [Peh Poh Cheng] was not authorized by [Rieker] to make the said variation for and on its behalf, [Peh Poh Cheng] is in breach of its said warranty of authority.

 

13.By reason of:-

(1)[Rieker's] wrongful refusal or failure to pay for the price of ladies terry pyjamas sold.

3. Alternatively

(2)[Peh Poh Cheng's] breach of warranty of authority.

[Bonus] has been unable to enforce the said contract as varied and has thereby suffered loss and damage.

 

Particulars

..."

 

4. The plaintiff claimed against Rieker the price of the ladies terry pyjamas sold and delivered and "alternatively" as against Peh Poh Cheng damages for breach of warranty of authority.

 

5. Peh Poh Cheng failed to enter notice of intention to defend, and, on 3rd October 1994, Bonus entered judgment in default against her for damages for breach of warranty of authority to be assessed.  Nothing has been recovered from Peh Poh Cheng under that judgment.

 

6. On 10th June 1994 Master Jennings gave leave ex parte to serve the writ on Rieker in Germany.  On 22nd December 1994 Rieker applied under R.S.C. Order 12 Rule 8 for an order setting aside leave to serve the writ in Germany.  The only ground of this application which remains relevant is the allegation by Rieker that Bonus, by signing judgment in default against Peh Poh Cheng, has elected to proceed against her alone and is therefore barred from recovering judgment against Rieker.  The issue on the present appeal is whether this contention is correct.  Leong J. rejected it and affirmed the order giving leave to serve out of the jurisdiction.  The Court of Appeal reversed that decision, holding that Bonus was obliged to elect between taking judgment against the principal on the contract (Rieker) and taking judgment against the agent (Peh Poh Cheng) for breach of warranty of authority.  They held that by entering a default judgment against Peh Poh Cheng Bonus had made its election.  Their decision was founded on the decision of the House of Lords in Morel Brothers & Co. Limited v. Earl of Westmoreland [1904] AC 11.

 

7. The claim against Peh Poh Cheng as agent depends upon the contention that the variation of the delivery date was not authorised by Rieker whereas the claim against Rieker was based on the inconsistent contention that Peh Poh Cheng was duly authorised to make such variation.  The Court of Appeal held that Bonus, having taken judgment against Peh Poh Cheng on the basis of one assumption of fact, could not pursue Rieker on the opposite, inconsistent, assumption of fact.  They regarded the decision in the Morel case as deciding that where a plaintiff makes two alternative claims against two defendants which are dependent upon mutually inconsistent allegations of fact and takes judgment against one of them, he cannot thereafter pursue his claim against the other.

 

8. The appeal came before the Board to determine the question whether the decision in Morel did indeed establish such a wide proposition or was more limited in its scope.  However, in opening the appeal Mr. Sumption Q.C., for Bonus, pointed out that  the  question would not necessarily arise for decision at any stage and that in any event it did not arise at the present stage when the only question was whether leave to serve out of the jurisdiction should be set aside.  Although the statement of claim alleges the claim against Peh Poh Cheng as being alternative to the claim made against Rieker, they were not in fact alternative claims at all.  Bonus allege that the goods were accepted by Rieker.  If, at trial, Bonus establishes that Rieker did in fact accept the goods, the question whether delivery was or was not out of time is irrelevant: Rieker will be liable on the claim for the contract price whether or not the accepted goods were delivered out of time.  If Rieker did in fact accept the goods, the only relevance of late delivery would be to give rise to a cross-claim by Rieker if it could show that it had suffered damage from late delivery.  Therefore, the factual assumption underlying the judgment taken against Peh Poh Cheng (i.e. that she had no authority to vary the delivery date) is not necessarily inconsistent with the facts necessary to entitle Bonus to judgment against Rieker on the ground that Rieker accepted the goods.  Therefore, the basic requirement to bring the Morel principle into play (two claims against two defendants based on mutually inconsistent assumptions of fact) will not necessarily arise at all.  Accordingly, it cannot be right to set aside the service of the writ on Rieker.

 

9. Mr. Eder Q.C., for Rieker, really had no answer to this new point taken by Mr. Sumption which, however belatedly it has been taken, is clearly right.  But both parties urged their Lordships to hear argument on the scope of the Morel principle since, it was said, the point would arise at trial if Bonus failed to establish that Rieker had accepted the goods and might arise in any event on the cross-claim by Rieker for damages for late delivery.

 

10. In an attempt to avoid the waste of substantial costs incurred in bringing this appeal, their Lordships heard argument on the wider point.  But they are not persuaded that it would be right to express any view on it.  The considerable body of evidence filed on other issues in the case does not indicate any probability that Rieker rejected the goods on the grounds of late delivery and therefore this difficult and important point of law is unlikely to arise for decision.  As to Rieker's claim for damages on the cross-claim for late delivery, their Lordships consider that it is not safe to decide the question of law on the hypothetical facts.  The Morel principle if it applies at all may well have a different application where a plaintiff is seeking to rely on inconsistent facts by way of defence to a counterclaim or set off.

For these reasons, their Lordships will humbly advise Her Majesty that the appeal should be allowed and the order of Leong J. restored.  Rieker must pay the costs of Bonus before their Lordships, but in view of the very late stage at which the new point has been taken, the order for costs in the courts below will remain unchanged.

 

© CROWN COPYRIGHT as at the date of judgment.