KELAWIT INTERNATIONAL LTD v. SUN MUI HONG TRADING CO LTD

1988, No. A7789

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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    The dispute between the parties arose out of a contract for the sale of high ammonia latex made on the 27th June 1988. The Plaintiff was the seller of the goods and the Defendant was the buyer under the contract. The contract was in the form of a letter signed on behalf of both parties. The contract price was US$441,324.00 and payment was to be made by letter of credit to be taken out by 7th July 1988. The goods were to be shipped in August and September 1988. The Defendant defaulted on the contract by not taking up a Letter of Credit by the due date and the Plaintiff subsequently resold the goods to another purchaser at a lower price. The Plaintiff took out this action against the Defendant to claim the difference in the original contract price and lower resale price received for the goods.

    The writ was issued on 5th December 1988 and the Defendant filed an Acknowledgement of Service on 14th December 1988 indicating an intention to defend the action. As no defence had been filed or served the Plaintiff entered interlocutory judgment on 28th January 1989 for damages to be assessed and costs to be taxed. The Defendant applied by summons heard by Master Woolley on 24th April 1989 to set the interlocutory judgment aside and for leave to file a defence. This application was dismissed as was an appeal from this decision heard by Hon. Godfrey J. on 5th May 1989. The assessment of damages fixed for bearing on 15th April 1989 was adjourned until after the hearing of the above appeal and was refixed for hearing on 27th June 1989. As the 2 hours allocated for the assessment were insufficient the hearing was adjourned part-heard until 5th September 1989. The parties had consented to the adjourned assessment of damages being heard in the legal vacation. The Plaintiff filed the usual Hearsay Notice to produce 17 documents as evidence at the assessment of damages and no counter-notice was filed by the Defendant.

    At the assessment on 27th June last Counsel for the Plaintiff produced a Bundle of Pleadings and a Bundle of 20 Documents which were admitted as evidence under the Hearsay Notice and with the consent of Counsel for the Defendant. The first witness called by the Plaintiff was Mr. Sbek Kong Lai from the Plaintiff Company's head office in Malaysia. His evidence relevant to this assessment is as follows:

    1. That the Plaintiff company in Hong Kong was part of the Kelawit group of companies with its Head Office in Malaysia.

    2. That the high ammonia latex for the contract with the Defendant was to be supplied by Head Office in Malaysia on a back to back contract dated 27th June 1988 with a rubber plantation company in Thailand at an F.O.B. price of US$2,230 so that the expected profit was only US$30 per metic ton as the unit price to the Defendant under the contract was US$2,300.

    3. Latex supplied from Southern Thailand is shipped through Penang in Malaysia. Under the rules of the Malaysian Rubber Exchange the purchaser of latex must either take delivery and ship the goods on the agreed date or pay compensation to the plantation supplier of up to as much as US$300 per metric ton. So that it was not possible for the back to back contract with the supplier to be cancelled by the Plaintiff's company in Malaysia.

    4. On 7th July 1988 Head Office was informed by Mr. Alan Ong of the Plaintiff Company in Hong Kong that the Defendant had not complied with the condition to issue a Letter of Credit for the purchase price of the goods by that date. Mr. Ong was asked to take tip the matter with the Defendant in the bore that the contract would still be honoured. When Mr. Ong advised that he had been unsuccessful in getting the Defendant to comply with the terms of the contract Mr. Lai instructed him about mid to late July 1988 to try and resell the latex on the Hong Kong market. In early August Mr. Ono reported to Mr. Lai that he had contacted a few companies in Hong Kong but had been unable to sell the latex there.

    5 .Mr. Lai undertook some time during first half of August 1985 to try to resell the contract latex in Malaysia or Singapore and contacted buyers there and also in Europe to this end. During August and September 1988 prospective purchasers were not prepared to buy because of the worldwide falling market price for latex since July 1988. Mr. Lai finally succeeded in selling the latex to a Singapore company, Spices and Produce Pte, Ltd., under 2 separate contracts. The first contract dated 13th September 1988 was for 95.94 metric tons of latex at a resale price, of US$1,925 P.M.T. (Page 3 of the Rundle of Documents). The second contract dated 4th October 1988 was for a similar quantity of latex at a unit resale price of US$1,650 P.M.T. (Page 13 of Bundle, of Documents). Mr. Lai confirmed that the resale prices for the latex in these 2 contracts was a fair market price for latex on these respective dates which indicated the failing market price. Mr. Lai confirmed that the latex was delivered under the terms of the resale contracts and copies of the bills of lading, invoices and receipts were exhibited in the Plaintiff's Bundle of Documents. Mr. Lai confirmed that these resale contracts with Spices and Produce were true commercial transactions. Despite efforts to do so, it was not possible to resell the latex to be supplied to Defendant at any earlier dates than in the resale contracts referred to.

    The only other witness called by the Plaintiff was Mr. Alan Ong, manager of the Plaintiff Company in Hong Kong. The relevant evidence of this witness was as follows:

    1. Mr. Ong confirmed making the contract for the sale of latex with the Defendant-Company. He confirmed that the Plaintiff had only' commenced business in Hong Kong in June 1988 and this was only its second contract for the supply of latex. However, both witnesses confirmed that the Kelawit companies in Malaysia and Singapore had been operating for 9 and 7 years respectively prior to 1988.

    2. The Defendant did not open a Letter of Credit for the contract price by the due date of 7th July 1988 to comply with the terms of the contract. Mr. Ong made inquiries from Mr. Peter Lo of the Defendant Company regarding the Letter of Credit and was told that the Defendant was unable or unwilling to open the Letter of Credit because of the falling price for latex. After Defendant indicated it did not wish to proceed with this contract Mr. Ong was instructed by PW1 at the head office in Malaysia to enforce the contract and to resell the contract latex on the open market. Mr. Ong was unable to sell this cargo of 'latex in Hong Kong as the buyers here had a "wait and see" attitude because of the falling world price for latex. Mr. Ong referred to PW1-Mr. Lai when he had no success in resale of the contract latex and sought assistance for possible buyers in Malaysia and Singapore. This witness referred to the resale contracts in the Plaintiff's Bundle of Documents and gave evidence that he advised the Defendant by telex of the contract latex being resold. Mr. Ong also sent invoices to the Defendant claiming payment of the differences between the original contract price and the resale prices of the latex. Copies of the said telexes and invoices were referred to in the Plaintiff's Bundle of Documents.

    3. Mr. Ong confirmed the subsequent resale of the latex, the subject of the original contract, to Spices and Produce Pte Ltd., which had paid the contract price for the latex, namely US$1,925 P.M.T. and US$1,650, to the Plaintiff. He also confirmed that the Defendant had not repaid the sum claimed by the Plaintiff on the invoices for the price difference between the contract and resale prices.

    4. In cross-examination Mr. Ong denied that the price for latex only dropped on the world market after 10th July 1988. Mr. Ong admitted that the Plaintiff was not trying to resell the contract latex until after 10th July 1988 as it was hoping to persuade the Defendant to proceed with the contract even though the Letter of Credit had not been taken out by 7th July 1988 as required under the terms of the contract. These unsuccessful discussions with Mr. Peter Lo of the Defendant lasted a week or so following which the Plaintiff sought instructions from its Head Office in Malaysia before attempting to resell the contract latex in Hong Kong during the later part of July 1988 at prices, between US$2,100 P.M.T. and US$2,000 P.M.T. Subsequently in early August 1988 Head Office assistance was sought to resell the latex on the falling market.

    5. This witness confirmed that the contract latex never actually arrived in Hong Kong as the shipment dates under the original contract only required delivery of half the quantity of latex in August 1988 and the other half in September 1988.

    Counsel for the Defendant advised that no witnesses would be called or any other evidence adduced by the Defendant. In his submission Defendant's Counsel, Mr. P. Ng, stressed that the Plaintiff had a duty to mitigate the damages arising out of the breach of contract from the relevant date of breach, namely, the 7th July 1988, when the Defendant failed to take out the Letter of Credit. Defendant's Counsel claims that the Plaintiff both in Hong Kong and through its subsidiaries in Malaysia and Singapore should have been seeking alternative buyers for the latex from the aforesaid date of breach, rather than some weeks later. Mr. P. Ng pointed out that the prospects for resale of the latex must have been greater by the longer established associate Kelawit companies in Malaysia and Singapore than by the Plaintiff in Hong Kong which had only been in business since June 1988. It was submitted on behalf of the Defendant that the damages arising from Defendant's breach of this contract should at least be reduced by some extent to reflect the Plaintiff's failure to act promptly to mitigate its loss. Counsel for the Defendant did not cite any authorities or law in support of his submission.

    Counsel for the Plaintiff in his submission relied on two bases to claim as damages from the Defendant the full difference between the original contract price and the resale prices for the latex. Firstly, the Plaintiff relied on the provision in the contract under "Other's Condition" where it is stated that "Seller has the right to enforce the contract subject to final confirmation of the new purchase price". In support of this contention Plaintiff's Counsel, Mr. E. Shum, relies on the interpretation of this provision by Hon. Godfrey J. on an appeal in his action to set aside the default judgment entered. Therein on page 7 of the appeal judgment in referring to the full text of "Others Condition" in the contract between the parties the Hon. Godfrey J. says:

"What the parties have done, as it seems to me, is to spell out the effect of failure to issue the letter of credit timeously. If the purchaser failed, as it did, to issue a letter of credit on 7th July 1988, then the seller was to be at liberty, to resell the goods and to claim from the buyer the difference between the contract price and the price at which the goods had been resold in the market."

It is the Plaintiff's submission that as there was an express provision in the terms of the contract as to resale of the goods the prima facie rule as to resale at the market price does not apply here.

    Secondly, it was contended by Mr. Shum for the Plaintiff that as there were insufficient available purchasers in the falling market to sell all the contract goods, that the market price rule does not apply and damages cannot be assessed on this basis. The Plaintiff relies on the evidence of its 2 witnesses that a buyer for the goods could not be found as the market was flooded with latex at that time. Mr. Shum contends that the Plaintiff is entitled to fall back on the general principle of claiming its direct loss in the absence of an available market. In this regard Mr. S hum submits that the direct loss suffered by the Plaintiff was the difference between the contract price and the resale price.

    On the question whether the Plaintiff has mitigated its direct loss Mr. Shum contends that for the following reasons everything reasonable had been done to resell the goods:

    1. Negotiations took place between the parties after Letter of Credit was not taken out by 7th June 1988 during which the Defendant was urged to remedy its default under the contract.

    2. Both witnesses for the Plaintiff gave evidence that the price of latex was dropping at the time after Defendant's breach and that there were no potential purchasers willing to buy at prices near the contract price.

    3. There was no evidence that even if the Plaintiff had been able to find alternative buyers earlier than he did, that he would have been able to resell the goods at a higher price.

    Contrary to the submission of Counsel for the Plaintiff the master is satisfied that there was a market price for latex over the relevant Period but that that price was falling. The real issues in assessing damages in this case are, firstly, to decide upon the date at which the market price should be fixed so that the difference from the contract price can be calculated, and secondly, whether the contractual provision as to the seller's right to enforce the contract by confirmation of the new purchase (resale) price overrides the common law and statutory remedies.

    Counsel for the Defendant maintains that the relevant date to fix the market price is the date of neglect or refusal to pay the contract price, that is, the 7th July, 1988, when the letter of credit was not taken out. However, S.52(3) of the sale of Goods Ordinance clearly provides that the market price should be fixed at the time when the goods ought to have been accepted. It is only if no time for acceptance of the goods is provided in the contract that the market price is fixed at the time of the neglect or refusal to accept. In this case the time of neglect or refusal to accept the goods preceded the date for acceptance of the goods but this does not affect the prima facie rule. The contract between the parties provided for shipment of half the quantity of latex in August 1988 and the other half in September 1988. It follows that the time for acceptance of the goods by the Defendant as buyer was August 1988 as to half the quantity and September 1988 as to the balance.

    The prima facie rule that the seller is entitled to sit back on a falling market and await the time fixed for acceptance must be qualified by a duty to mitigate his loss from the date that the buyer's repudiation has been accepted. On the evidence adduced in this case the Plaintiff accented the Defendant's repudiation of the contract within a week or so of the date provided for the letter of credit to be taken out, that is, from about 14th July 1988. On the one hand, there is no duty on the Plaintiff as seller to mitigate its loss between the date of the breach by the Defendant as buyer and the date that that breach was accepted by the Plaintiff. On the other hand, even though the Defendant's repudiation of the contract was subsequently accented by the Plaintiff so that there is then and there a breach of contract, the damages are still prima facie calculated at the time fixed for acceptance. However, this prima facie rule must be modified by the Plaintiff's duty as seller to mitigate his loss and the onus on the Defendant as buyer to prove that the seller has failed in this duty.

    There has been no evidence adduced by the Defendant at this assessment that the Plaintiff, in the interim between the acceptance of the repudiation and either the time fixed for acceptance or the actual date upon which the goods were resold, could have resold the latex in the market at a price higher than at the time fixed for acceptance or the date of resale. In fact, the Plaintiff resold half of the latex on the 13th September 1988 and the balance on the 4th October 1988 which was soon after the time fixed for acceptance in August and September 1988. On the evidence adduced, the Plaintiff has established that it took all reasonable and proper steps to mitigate its loss from the date that the Defendant's repudiation of the contract was accepted about the middle of July 1988 to the time fixed for acceptance of the goods. As the date for the resale of half the quantity of latex was 13th September 1988 the resale price of US$1,925 P.M.T. will be accepted as the market Price for the 50% of the latex fixed for shipment and acceptance in September 1988. Furthermore, even though the other half of the latex was only resold on 4th October 1988 at a price of US$1,650 P.M.T. which would have been appreciably less than the market price for latex in August 1988, as the time fixed for acceptance of the first half of the quantity of goods, the Plaintiff can rely on the contractual provision to claim the difference the contract price and the price at which the goods were resold in the market.

    On this basis the Plaintiff's damages are assessed as follows:

As the parties have agreed upon an interest rate ?4% per annum there will be interest on US$35,977.50 at that rate from 17th September 1988 to the date of this judgment and interest at the same rate on the sum of US$62,361 from 5th October 1988 to the date of this judgment.

    The costs on this assessment of damages to the Plaintiff with a certificate for Counsel to be taxed if not agreed.