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Seapower Resources were operators of a coolstore and warehouse at Kwai Chung in Hong Kong. Over the period 29 July/1 August 1996, Assure Company contracted with Seapower to store 588 tonnes of recently harvested Chinese garlic. The deal was done over the telephone. and was the first business the parties had done together. The garlic was delivered to Seapower in 26 x 40’ container loads on 2 and 3 August 1996. As each container arrived, the lorry driver was given a tally sheet which recorded the quantity delivered and contained a statement that receipt was subject to the terms of Seapower’s Godown Warrant. This warrant contained terms purporting to exempt or limit Seapower’s liability in the event of damage to the product during storage. The Warrant itself was posted to Assure a few days later. The garlic was stored in the chiller compartment of the warehouse at temperatures in the range 0- +4o Celsius. According to Seapower’s evidence, Assure asked on 3 August that the garlic be stored at a temperature of -2o C. Seapower, finding this an unusual request, asked for it to be put in writing. As no written instruction was received, the storage temperature was not lowered. According to Assure’s evidence, Assure had, from the very first, requested a storage temperature of -2o C, an instruction which they said Seapower had neither queried nor requested be put in writing. Seapower had, Assure alleged, chosen simply to ignore it.
On inspection by a representative of Assure on 20 September, the garlic was found to be sprouting, a condition which reduces its nutritional content and therefore its resale value. Assure requested Seapower to reduce the storage temperature immediately to -2 o C and, two days later, to -4 o C, in an attempt to arrest the sprouting. Seapower complied. It was too late, however, to stop the sprouting. In consequence, Assure was obliged to sell the garlic in various lots at discounted prices over a six-month period. The last consignment left the warehouse in April 1997.
In the meantime, Seapower were claiming storage charges. Assure paid the first invoice but none thereafter; in order to secure the release of the garlic from Seapower’s lien, Assure lodged HKUS$500,000 with their solicitors as stakeholders. In January 1997 Assure took the position that Seapower’s conduct in storing the garlic at the wrong temperature amounted to a repudiation of the storage contract.
In the action, Seapower claimed the balance of storage charges at the contract rate for the period August 1996/April 1997 in the amount of HK$789,413. Assure counterclaimed for damage to the garlic and additional expenses, for a total of US$226,685.
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Having heard the witnesses, the judge found that Assure had indeed instructed Seapower from the first to store the garlic at a temperature of -2o C, and that Seapower had, by storing it for the first month at a higher temperature, breached an essential condition of the contract. This entitled Assure, as the innocent party, to treat the contract as repudiated and itself as discharged from the obligation to perform it further. This Assure had done; Seapower’s claim for the balance of their storage costs failed in consequence.
The judge further found, on the basis of expert evidence introduced by Assure, that storage at the chiller temperatures of 0- +4o C had indeed caused the garlic to sprout; had the garlic been stored at the temperature of -2o C as requested, the sprouting would not have occurred. The judge held that Seapower were accordingly liable for the damage to the garlic.
Seapower’s attempt to rely upon the exculpatory clauses in the Godown Warrant failed, because those terms had not been part of the contract made between the parties. At the time the contract had been negotiated over the phone, no mention had been made of additional terms, nor of terms that would limit Seapower’s liability. Indeed, the existence of the Godown Warrant had not been disclosed. The first notice that Assure had had of the existence of such terms was the reference to them on the receipt given to the delivery drivers. Whilst the court accepted that there was no need for that notice to contain the conditions in order that the parties could be bound by them, it was by that time too late to introduce additional terms, since the contract had already been concluded.
The judge accordingly awarded Assure the damages they claimed, less the balance of four months storage charges, that being the length of time the garlic would likely have been in store in normal circumstances prior to its final disposal.
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