Tex Services Ltd v Shibani Knitting Co Ltd

Written commercial contracts must be construed in the context of the instrument as a whole and in the light of relevant background circumstances. Where a single order is defined as being undertaken on a CMT basis, followed by words specifying additional operations, those operations may form part of the CMT definition. The stated CMT price will then cover the whole defined work. A construction that leaves a party exposed to undefined costs, without machinery for their quantification or payment, is unlikely where the agreement otherwise carefully regulates price and payment. Unsupported comparisons with supposed standard prices and later correspondence of uncertain significance may carry little weight and cannot displace the natural meaning of the contract.

Shibani, a company in receivership, agreed to produce cashmere pullovers after Tex purchased the yarn and became principal seller to John Lewis. The letter dated 11 June 2007 described production on a CMT basis, knit and make-up only, plus accessories sourcing and machine washable, and set a fixed CMT price. Shibani later invoiced Tex separately for washing and mending. The trial judge held Tex liable. On 18 September 2014, the Court of Civil Appeal dismissed Tex’s appeal, treating washing, labelling and packing as outside CMT. The central issue before the Board was whether the fixed price covered those additional operations.

Appeal allowed. Lord Mance delivered the judgment of the Board. The judgments below were set aside and Shibani’s claims under the contract dated 11 June 2007 were dismissed.

1. Contract construction. The paragraphs of a written contract must be read in the context of the letter as a whole and in the light of relevant background and other factual circumstances. The natural meaning of the language remains the starting point.
2. Meaning of CMT. Paragraph 2 defined the work constituting the single order. Since the literal expansion of CMT made no sense for knitted cashmere pullovers, knit and make-up only was definitional. The more natural reading was that accessories sourcing and machine washable were also part of the definition. Paragraph 4 therefore fixed one CMT price covering all the operations specified in paragraph 2.
3. Commercial scheme. Tex’s construction made the letter a complete contract regulating the work, price, delivery and payment. Shibani’s construction would create undefined exposure to additional costs without provisions governing their amount or payment. The product was to be finished for export and sale, which involved operations such as sourcing labels and packaging. The contractual scheme and commercial certainty therefore supported Tex’s interpretation.
4. Surrounding circumstances. The supposed standard CMT price of Rs210 had no sound evidential foundation and could not be extrapolated from materially different orders. The email of 30 January 2008 involved participants who were not called as witnesses and did not reliably establish any contractual admission or agreement. The later letter of 7 February 2008 and Mr Maigrot’s evidence pointed against the inference drawn by the trial judge.
5. Delayed judgment. The Board applied the principle in Goose v Wilson Sandiford & Co [1998] TLR 85 that substantial delay weakens the trial judge’s usual advantage on disputed facts and requires special scrutiny of challenged findings. The appeal could nevertheless be determined from the material before the Board without remission.
6. Constitutional observations. The Board further observed that delays in delivering judgment breach the constitutional right to a fair hearing within a reasonable time, including determination within a reasonable time, under section 10(8) of the Constitution. It noted that recording facilities, referred to in Chaton M R v Kurreemun A R [2008] MR 240, cannot fully restore the advantages of analysing evidence while the case remains fresh. These observations were unnecessary to the disposition.

• Privy Council: Appeal allowed. The judgments below were set aside and Shibani’s claims relating to the 11 June 2007 contract were dismissed.
• Court of Civil Appeal of Mauritius: On 18 September 2014, Tex’s appeal was dismissed and the trial judge’s decision was upheld.
• Supreme Court of Mauritius: P Lam Shang Leen J held Tex liable for the washing and mending invoices dated 5 October 2007, following the trial in January and February 2010.