WIN HANVERKY LTD. v. KEEN POINT INTERNATIONAL LTD.

HCA17453/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 17453 OF 1999

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ASSESSMENT OF DAMAGES

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Introduction

1. It is plain to me that this is a very simple matter. The following facts are clearly incontrovertible. I should start by giving a brief background of this case.

2. The matter first came up before me by way of an Order 14 application on 12 September 2000. Following that hearing, final judgment for a determined sum was ordered in favour of the plaintiff against the defendant. The defendant appealed and the matter was heard by Cheung J on 17 October of the same year when he varied my order and entered interlocutory judgment for the plaintiff with damages to be assessed. The proceedings before me are concerned, therefore, with the assessment of damages so ordered.

3. There was no appeal arising from the decision of Cheung J. Following the hearing, the plaintiff re-re-amended its statement of claim to add an additional head of damages, namely, loss of profits. Subsequently on 7 June 2001 the defence re-amended its defence and attempted to counterclaim against the plaintiff. At the start of the proceedings before me, counsel for the defence indicated, quite rightly, that the counterclaim was really a non-starter and would not be proceeded with.

4. This case involves a contract for the supply of fabric by the plaintiff to the defendant. In particular, the plaintiff has contracted to supply a quantity of cloth with a total value of US$506,000 to the defendant. It cannot be disputed from the evidence and the pleadings and from the way in which the defence was conducted before me, that the defendant was aware at all material times that the plaintiff would have to obtain the ordered cloth from a third party. This the plaintiff did by turning to Golden Peak of Taiwan. The plaintiff placed an order for that quantity of cloth and production began.

5. At some stage the defendant decided to pull the plug from the manufacturing process and requested the plaintiff to stop production. In turn, the plaintiff notified Golden Peak, informing it to cease production. This plainly was a foreseeable consequence of a breach of contract on the part of the defendant.

6. By the time production was ordered to be ceased, some 62,000 yards of New Oxford cloth had been manufactured. In March 1999 the defendant informed the plaintiff that they did not want the cloth. This was clearly a wrongful repudiation of the contract, which repudiation the plaintiff had to accept and did accept.

7. In consequence of the defendant's conduct, Golden Peak demanded payment from the plaintiff in the sum of US$74,235. This represented the amount of damages claimed by Golden Peak's own cloth manufacturers. It is plain from the evidence that when the plaintiff ordered cloth from Golden Peak, Golden Peak, in turn, had to turn to its own suppliers. So there was a chain of manufacture in this case.

8. Recognising that it clearly had a contractual liability to compensate Golden Peak, the plaintiff paid Golden Peak US$37,117.50 as part-payment of its obligation. In turn, the plaintiff turned to the defendant, demanding a sum of US$74,400. Following negotiations between Golden Peak and the plaintiff, it was agreed that the plaintiff would pay Golden Peak US$74,235 in full and final settlement of Golden Peak's claim. This sum remains outstanding as a contractual liability and it represents one of the two heads of claim that the plaintiff seeks redress from the defendant.

9. The evidence revealed that the defendant had contacted the plaintiff, suggesting that any attempt to sell the unwanted cloth should be at a price of not less than US$1 per yard. The plaintiff made attempts as we have heard from Mr Lee, PW2, as well as from his employee, PW1, to contact potential buyers.

10. The fabrics involved in this case were destined for the manufacture of outer garments, i.e. sportswear. The plaintiff turned to its regular customers and could only identify at most two potential buyers who might show interest in these fabrics. Mr Hingorani rightly pointed out that it was only incumbent upon the plaintiff to do what was reasonable in the circumstances to mitigate its loss.

11. The passage, which he was not able to find when he addressed me earlier, has now been identified. It appears at paragraph 213 of McGregor on Damages, 15th Edition. There it states that a claimant cannot be expected to go world-wide to look for buyers. Even in the age of Internet, one could not reasonably have expected the plaintiff to have posted a query on the Net, seeking potential buyers for these unfinished and undyed grey cloth.

12. The defence complained that the plaintiff had not done all that was reasonable in the circumstances to mitigate its loss. That burden rests squarely on the defence on the authorities. What is reasonable must be determined contextually. This was a commercial contract and one would have to look at the commercial reality pertaining to this case. Were there ready buyers for such products as these? The plaintiff, in particular PW2, explained that demand was thin on the ground. Although the defence had requested that the product should not be sold on for less than US$1 per yard, Mr Lee, quite rightly, simply instructed his staff to get the best price, the market price, for these goods. He did not specify a limit below which these cloths should not be sold. There was no interest.

13. The plaintiff turned to Golden Peak for assistance and they were able to identify a buyer willing to take the rejected materials at US$0.50 per yard. The plaintiff did not take up the offer. As Mr Lee had explained, he was not sure in his own mind who owned the property in these goods. He was worried about the consequences that would follow if he took it on himself to sell the cloth at $0.50 a yard if it turned out that the property in the goods had passed to the defendant, or perhaps to somebody else.

14. Mr Lee approached Mr Lau of the defendant, seeking instruction as to what to do about this offer of $0.50 per yard, and there was no answer to that query. Plainly, what the plaintiff had done in the circumstances was reasonable and what might have been expected of a prudent commercial businessman.

15. I think there was a reference to a potential order from Bootlim, the Korean agent for Starter, a supplier of sportswear in the United States. I refer in particular to the conversation that Mr Lee and Mr Lau had and to the e-mail at page 69, dated 14 April 1999, from Bootlim to the defendant and copied to the plaintiff, as well as to the plaintiff's response dated 17 April 1999. It was suggested, as I understood it, by the defendant that the plaintiff really ought to have seriously considered and accepted the offer for a certain quantity of Oxford fabric to be dyed with certain colours specified in the e-mail referred to. The evidence indicated that the plaintiff had considered the suggestion made and had concluded that the commercial risks were far too great to justify entering into contract with Bootlim, particularly at a time when the Hong Kong office of Starter had closed.

16. In order to carry out the suggested contract the plaintiff would have to incur additional expenses. It would have to dye and finish the products to a standard that would satisfy the ultimate buyer of those goods.

17. Mr Lau was cross-examined quite pointedly in regard to the e-mail referred to and he admitted that there were still three colours out of some 25 or 26 colour samples that had not yet been approved. The plaintiff, if it had taken on board this contract, would clearly have run the risk of a possibility that the goods subsequently dyed and finished might be rejected, and that would lead to all sorts of potential liabilities. I do not consider that it would either be fair or reasonable in the circumstances for the plaintiff to have entered into the contract as suggested by the defence.

18. The stance taken by the defence can best be summarised in a number of questions and answers recorded during the testimony of the defence witness. I quote:

"Q. One week after the e-mail of 14 April, Bootlim notified you that Starter Korea had gone bankrupt.

A. Yes.

Q. So there wasn't going to be any order, was there?

A. Right.

Q. Were you seriously suggesting that between 14 April and 20 April, the plaintiff should have contracted with Bootlim on behalf of Starter?

A. Yes."

And then to the penultimate and final questions and answers:

"Q. If it (Bootlim) is representing Starter as agent, Bootlim would be entering the contract on behalf of Starter.

A. Right.

Q. So the plaintiff would have gone to terrible trouble for 9,600 yards only to be followed by the bankruptcy of Starter.

A. Right."

I think these questions and the answers given thereto really say it all.

19. On the evidence before me, it cannot be argued that the plaintiff has not acted properly and reasonably in mitigation of its damages. Any criticism in that regard is completely unfounded.

20. The plaintiff acknowledges that it really ought to have sold the goods at US$0.50 per yard at the time when the offer was available. That was not done for reasons which we have heard and which I fully accept. It stands ready to give credit for the amount that it would have obtained by selling it at that reduced price.

21. The contractual liability of the plaintiff to Golden Peak remains at $74,235. This is plainly recoverable.

22. I turn then to address the issue, quite briefly, of loss of profits. The repudiation of contract had foreseen consequences in this case. The plaintiff was not a manufacturer of cloth. Upon it taking the order from the defendant it turned to its own suppliers in Korea, Golden Peak. The defendant had agreed to pay US$2.18 per yard for the 180,000 yards of New Oxford cloth and US$1.42 per yard for the 80,000 yards of nylon honeycomb. In turn, the plaintiff had contracted to obtain these materials from its Korean supplier at US$2.03 per yard for the New Oxford cloth and US$1.35 per yard for the nylon honeycomb cloth. The difference between those prices represents the loss of profit and they total US$32,600. This sum is recoverable.

23. In total the plaintiff's claim against the defendant stands at:

(1) US$74,235, being its liability to Golden Peak.

(2) Loss of profits: US$32,600.

Subtotal: US$106,835.

Less: US$31,000, representing the amount it would have secured by selling the cloth at US$0.50 per yard.

Net damages: US$75,835.

This is the amount I adjudge that the plaintiff is entitled to turn to the defence for recompense in full and I so order.

24. I shall now ask the parties to assist me on the question of interests and then costs.

(Discussion re interest)

25. There shall be interest on the adjudged sum from 10 November 1999 at judgment rate until full payment.

(Discussion re certificate for counsel and costs)

26. The plaintiff shall have its costs of this assessment on an indemnity basis, taxed if not agreed, against the defendant. Certified fit for counsel.

27. I do not propose to make any order at this juncture in regard to the costs touching on solicitors and their own client. Perhaps that can be resolved between the defendant and his own solicitors if it turns out that improper steps have been taken and incorrect advice has been given. Mr Lau fully followed what was being discussed and he can, in querying the bill that he will receive, come to some arrangement with his own

solicitors for wasted costs.

Representation:

Mr Jeevan Hingorani, instructed by Messrs Deacons, for the Plaintiff

Mr Victor Dawes, instructed by Messrs Simon Siu, Wong, Lam & Chan, for the Defendant

HCA 17453/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 17453 OF 1999

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J U D G M E N T

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1. After a hearing on 17 October 2000, I allowed in part the Defendant's appeal against the Master's final judgment and substituted it with an interlocutory judgment with damages to be assessed.

2. The costs order as drawn up reads:-

"Costs of the Order 14 hearing before Master de Souza be to the Plaintiff, to be taxed if not agreed ...."

3. The Plaintiff now applies to have that costs order amended pursuant to RHC Order 20 rule 11 so that it will read:-

"Costs of the Order 14 summons dated 15 June 2000 (including the costs of the hearing before Master B Kwan on 3 July 2000 and the costs of the hearing before Master de Souza on 12 September 2000, with certificate for counsel)" be to the Plaintiff to be taxed if not agreed.

The Defendant objects to this application on the ground that the relief sought falls outside the ambit of Order 20 rule 11.

4. In determining whether this application does fall outside that rule, an important matter to note is the costs order made by the Master on 12 September 2000. It reads:-

"Costs of this action and this application and the reserved costs on 3 July 2000 be to the Plaintiff, with certificate for counsel."

5. It was not the court's intention, when the costs order of 17 October 2000 was made after the appeal hearing, to deprive the Plaintiff of the benefit of the Master's costs order dated 12 September 2000. With that in mind, the relief sought in this application falls within Order 20 rule 11. Further, the circumstances of the case justify the relief sought.

6. The Defendant also argues that this application has been delayed. It is trite law that lapse of time has nothing to do with an application of this kind: see Hong Kong Civil Procedure 2001, paragraph 20/11/4.

7. By reason of the matters aforesaid, I will make an order in terms of paragraph 1 of the Plaintiff's summons dated 26 March 2001.

HCA 17453/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 17453 OF 1999

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J U D G M E N T

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1. This is the Defendant's appeal against the judgment of the Master dated 12 September 2000 whereby final judgment was entered against the Defendant.

2. The Plaintiff brings this action claiming that it was the seller of cloth to the Defendant. The cloth were (1) 180,000 yards of "New Oxford Cloth" at US$2.18 per yard (2) 80,000 yards of "Nylon Honey Comb Cloth" at US$1.42 per yard. The total price was US$506,000. The Plaintiff alleges herein that the Defendant breached the agreement by informing the Plaintiff that the Defendant would not take delivery of the goods after the Plaintiff has instructed its supplier to manufacture the cloth.

3. When the Plaintiff terminated its agreement with its supplier (as a result of the Defendant's alleged breach), the Plaintiff alleges that its supplier has incurred US$74,235. The Plaintiff's supplier demanded the Plaintiff to pay this sum and the Plaintiff eventually made a partial payment of US$34,174.13 to its supplier. The Plaintiff claims against the Defendant in this action the sum of US$74,235 and, further, took out an application under Order 14 Rule l for final judgment in that amount. The learned Master entered final judgment on 12 September 2000 (as stated above) in the sum of US$43,235. I understand from the parties that the judgment sum was arrived at by deducting US$31,000 (the proceeds in the event of a sale of the manufactured cloth to a third party) from US$74,235 (the amount claimed herein).

4. 2 lines of defence are put forward in this appeal (and at the Order 14 hearing before the learned Master). The first line is that no binding agreement has been reached between the parties. The second line is that even if there is no triable defence to the Defendant's liability, there are triable issues as regards quantum.

5. In relation to the first line of defence, in brief, 2 main points are relied upon:

(a) the parties' conduct at the relevant time shows that no binding agreement has been made;

(b) alternatively, any "agreement" reached was uncertain because fundamental terms were missing.

6. As regards point (a) above, it is accepted by the parties that the matter is to be approached objectively. Further, I consider the contemporaneous documents which passed between the Plaintiff and the Defendant to be important to this issue. I also bear in mind that this is an appeal under Order 14 and is therefore not an occasion for conducting a mini-trial.

7. Having examined the contemporaneous documents, I consider the parties' conduct was that they regarded a binding agreement has been reached. As far as the Plaintiff is concerned (rightly or wrongly), it must have thought that it had reached a binding agreement with the Defendant. That must have been the reason why the Plaintiff proceeded to instruct its supplier to commence production of the cloth in question. The Plaintiff would be "right" to do so if the Defendant also intended the arrangement to be binding. It would be "wrong" to do so if (for the purpose of this appeal) there are triable issues as to whether the Defendant also intended the arrangement to be binding.

8. The Defendant argues that the documents from the Plaintiff indicate that the Plaintiff also did not regard the arrangement to be binding: the Plaintiff's faxes respectively dated 4 January 1999 and 5 January 1999 show that the matter was yet to be finalised. The Defendant contends that the use of the words "........ to start production in advance" (underline supplied) in the Plaintiff's fax dated 5 January 1999 to the Defendant means that the Plaintiff also thought that no binding agreement has been reached. When understood in the proper context, these words were used by the Plaintiff only because the date of delivery (and hence the arrangement for production procedure and production period) was not known yet. The lack of an agreed delivery date will be dealt with below. However, I do not consider the words "in advance" or the lack of a delivery date were an indication that the sale was not binding. I reach the same conclusion as regards the Plaintiff's fax dated 4 January 1999 to its supplier.

9. I find that the contemporaneous documents from the Defendant (when considered together with the Plaintiff's documents) show that the Defendant also regarded it has entered into a binding agreement with the Plaintiff.

10. The first 2 documents relating to this are respectively the Defendant's fax to the Plaintiff dated 29 December 1998 and the Plaintiff's fax to the Defendant in response dated 5 January 1999. The Defendant's criticisms of the Plaintiff's said fax have been dealt with above. Further, there was a fax dated 11 February 1999 from the Defendant to the Plaintiff which is important to this issue. The material parts read:

"Re: Starter fall 99' Program
New Oxford & Honey Comb Nylon

We are [sic] regret to inform that due [to] Starter Far East Ltd (Hong Kong Office) will be closed and stop function by latest Feb 28, 99 and then all Starter Far East business would be take-over [sic] by Korea Agent (Boolim Buying Corp).

Under above circumstance, we (Keen Point) may or may not be carry on [sic] the business with Starter due to agent changed [sic], and therefore, please stop any further grey cloth weaving and until our further instruction.

We are sorry for the party like win [Win Hanverky Ltd.] and party in Taiwan, and hoping I can do my best to narrow down the hurt and harm for all parties between us."

11. The important parts of this document are:

(1) "please stop any further grey cloth weaving....... until our further instruction" (underline supplied);

(2) ".......... and hoping I can do my best to narrow down the hurt and harm for all parties [referring to the Plaintiff and its Taiwanese supplier]".

These passages show that the Defendant acknowledged that instructions had already been given to the Plaintiff for weaving work to commence (thus acknowledging that an agreement has been reached) and that weaving work has in fact commenced. The weaving work must have been related to the cloth set out in the Defendant's fax dated 29 December 1998. Further, they show that the Defendant regarded itself to be responsible for any "hurt and harm" of the Plaintiff and its supplier.

12. By reason of the matters aforesaid, I reject the affirmation evidence filed on the Defendant's behalf as being "unbelievable" insofar as it alleges that no binding agreement has been reached between the parties. To avoid any doubt, I have taken into account the Defendant's arguments regarding the "missing" terms (that is the Defendant's point (b) above) in coming to the above conclusions.

13. As regards the Defendant's point (b) above, the Defendant argues that 3 matters were missing:

(1) the time for delivery;

(2) colouring requirements;

(3) other details.

14. As regards (1) above, section 31(2) of the Sale of Goods Ordinance Cap. 26 provides that:

"Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the buyer is bound to send them within a reasonable time,"

Whether the term at (2) above is sufficiently important to render an agreement not binding depends ultimately on the parties' intention (ascertained objectively). I do not find that the parties intended this term to have such an importance in this case. The same conclusion is made as regards "other details".

15. The Defendant complains that the Plaintiff's pleaded case does not support the Order 14 application. I do not agree because the evidence adduced justifies a finding that an agreement in writing was entered into by the parties. The surrounding circumstances (in particular the contemporaneous documents) are nothing more than evidence to enable such a finding to be made. I also do not agree with the Defendant's argument that the Plaintiff's pleading does not permit interlocutory judgment to be entered with damages to be assessed.

16. By reason of the matters stated above, I consider that the learned Master was correct in concluding that there are no triable issues regarding the Defendant's liability. There is also no other reason why there ought otherwise to be a trial of that matter.

17. However, I disagree with the learned Master's decision that final judgment should be entered for US$43,235.00 for the following reasons. In relation to the quantum of damages allegedly suffered, the Plaintiff's case is:

(1) the unit price at which the Plaintiff purchased the cloth from its supplier was said to be US$1.20 per yard. There is however, no contemporaneous document evidencing this;

(2) alternatively, the said unit price of US$1.20 can be regarded as a reasonable sum which the Plaintiff needs to pay to its supplier for the Defendant's breach. Similarly, there is no documentary evidence regarding this;

(3) the fair market price for the sale of the cloth was said to be US$0.50 per yard. There is as yet no actual sale of the manufactured cloth and the only evidence regarding this are the affirmations filed on the Plaintiff's behalf.

18. I should observe that the Plaintiff's affirmations have been shown to be inaccurate over a number of matters. In these circumstances, I consider that the proper order to make is an interlocutory judgment to be entered with damages to be assessed. The Plaintiff contends that the Defendant has not adduced any evidence to refute the Plaintiff's case on quantum. That may be so but is understandable because the Defendant has up to now disputed its liability to pay. The Plaintiff also contends that interim payment of US$34,174.13 ought to be ordered because this sum was actually paid by the Plaintiff to its supplier. However, interim payment in this amount can only properly be made if I am satisfied on the evidence that the Defendant would be liable to pay such sum whatever the outcome of the assessment of damages may be. For the reasons given earlier, I cannot be so satisfied.

19. The appeal is therefore allowed to the extent that interlocutory judgment is entered with damages to be assessed.