You are acting as counsel for HIGH QUALITY CLOTHES (HQC), an English chain of retail stores selling men’s clothing in the high to middle level of price and quality. Their market is aimed at the professional man who needs to portray a modern and sophisticated image for both formal and casual wear. Their buyers are constantly watching fashion trends and they are therefore sourcing suppliers that can meet their target market. One supplier has been with them for a long time and has always been reliable insofar as the execution of their transaction and the quality of their merchandise are concerned. This supplier is a Chinese company called MEN’S SUITS MANUFACTURING COMPANY (MSM). HQC has been purchasing men’s clothing from MSM on a regular basis for the last 10 years.
The facts of the dispute are as follows:
On 5 May 2013, HQC sent an order for 5000 woollen men’s suits and 8000 cotton-blend shirts. The order specified model numbers and sizes and said that the order was placed on the usual terms and conditions that had prevailed in the previous contracts between them and MSM. The suits were ordered for the 2013/14 winter season.
MSM replied on 10 May 2013 by letter which included a conformation form. The conformation form verified the quantity, model numbers and shipping date no later than 15 June 2013 (to ensure timely arrival in London for the winter season), all of which conformed to the order placed by HQC. The price of £130 per unit CIF Southampton (Incoterms 2010) for the suits and £20 per unit for the shirts conformed to the price list issued by MSM on the 1st of May 2013. On all previous occasions the parties have contracted on the basis of a choice-of-law clause indicating the United Nations Convention on Contracts for the International Sale of Goods (CISG) as the governing law of the contract.
The container arrived in Southampton on 20 August 2013 and after some delay at customs arrived at the warehouse of HQC on 31 August 2013. The goods were due to go on display in all stores nationwide by 1 October 2013. When the container was opened in Cape Town, on 2 September 2013, HQC’s manager found 5000 suits manufactured from a wool-blend fabric. He immediately faxed the manager of MSM to enquire about the situation and was informed by return of fax that they were unable to deliver 5000 woollen suits for the agreed unit price of £130 per unit due to a general shortage of wool internationally, causing the price of such suits to raise remarkably. The total amount due for the suits still amounts to £650 000, which is the same price that was agreed upon. HQC replied by pointing out that MSM should have informed them sooner of the situation since they are now without winter stock in respect of pure wool men’s suits. They also informed MSM that their clientele expect them to stock only the best and most natural materials and that they will lose valuable customers if they cannot provide in the demand.
On 7 September 2013, HQC’s manager faxed MSM again informing them that, in order to supply them with pure wool men’s suits for the winter season which was fast approaching, they had to contact an English supplier. HQC ordered men’s suits for £140 per unit. Because of this, they have now suffered a loss of £50 000, for which they hold MSM accountable.
By the end of October 2013, HQC received a number of complaints from customers from all over the country. Their complaints all stated that the colour of the shirts supplied by MSM faded after the first wash. On 2 December 2013, HQC informed MSM that they were forced to withdraw this particular line of shirts from their stores due to customer complaints. They demanded a new consignment of shirts made of colour fast dye to be shipped immediately. HQC apologised and explained that the shirts were not supplied by their regular supplier, due to a strike at their plant, but they were sourced from a Thai supplier whom they have not used before. They also pointed out that the same model of shirts, received from the same supplier, were distributed to buyers in other markets and no complaints were received. They tested a couple of shirts for colour fastness before they were containerised and the test was passed without exception. The only explanation, to their mind, could be that the customers were not applying the washing instructions. They refused to replace the consignment of shirts.
After further exchange of correspondence, it became apparent that MSM would not consider reversing their decision. They submitted that the goods were in good condition on shipment and that the risk has passed to HQC when the container was delivered to the shipping yard in Shanghai. Whatever happened to the goods during their voyage to Southampton was none of their concern. On 24 February 2014 HQC’s managing director sent a fax to the managing director of MSM in which he expressed his disappointment with the way in which MSM had handled the situation and indicated that he was not prepared to continue their business relationship any longer. He indicated that he was returning the consignment of suits and shirts to MSM and that they would be billing them with the costs of the transport between Southampton and Shanghai as well as the costs of transporting the merchandise from the different retail stores to the central warehouse in Southampton, totalling the amount of £10 000. Furthermore they claimed the amount of £50 000 in damages referred to above.
MSM replied on 20 March 2014 demanding:
(a) the outstanding amount on consignment received, calculated as follows:
5000 suits @ £130 per unit = £650 000 plus 8000 shirts @ £20 per unit = £160 000 = £810 000 in total failing which they would proceed with legal action.
HQC refused to pay any of these amounts and repeated its arguments as presented in correspondence addressed to MSM. On 13 June 2014, HQC received a letter from a firm of solicitors representing MSM in which they claim £970 000 from them. The letter furthermore pointed out that their client’s standard contract form provided that “in case a particular line or model is out of stock or unavailable at the time of consignment, MSM will be entitled to ship an alternative of equal value and quality and will not be liable for any claims in respect to non-conformity.”
HSQ has tried to negotiate with MSM’s attorneys, but to no avail. They have now approached you for legal advice. They were not aware of the abovementioned clause in MSM’s standard contract form. They have done business with them for 10 years and until now the relationship was without any problems. All merchandise was delivered promptly and in accordance with their order. There was therefore, until now, no need to be concerned about such a clause. They also cannot recall that any of the previous contracts contained such a stipulation, but concede that they stopped reading the terms of the contracts after the first few years of the business relationship. They managed to find a copy of a contract between them and MSM concluded and performed during 2010. The standard terms of both parties of this particular contract did not contain any exclusion of liability clauses.
You are required to study the facts and then advise your client as to their legal position. Also advise them on any arguments or defences that MSM might come up with and which could affect HQC’s legal position. Your advice should refer to relevant provisions of the CISG as well as to scholarly opinion and case law where applicable.