YIN KWAI SHIPPING & ENTERPRISES (HONG KONG) LTD. v. E-FULL INDUSTRIAL LTD.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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1. The Plaintiff commenced these proceedings in May 1989 for the refund of deposit, and damages for breach of a contract of sale of goods. Interlocutory judgment was entered on 17th July 1989 for damages to be assessed and costs in default of a notice of intention to defend.

2. The assessment proceeded on 11th October 1989 in the absence of the Defendant when the Plaintiff called a total of 2 witnesses. Leave was granted to the Plaintiff to file a written submission after evidence was concluded. Judgment was reserved pending the written submission. A written submission was subsequently filed on behalf of the Plaintiff.

3. By a contract in writing dated 24th May 1988, the Defendant agreed to sell to the Plaintiff 300 metric tons of latex at a unit price of US$1,420 per metric ton C & F Hong Kong. Delivery was to be made from August 1988 to January 1989 at the rate of 50 tons per month. Pursuant to the Contract, the Plaintiff paid a deposit of HK$27,690 being 5% of the price for the first 50 tons of latex. The Defendant was let down by its own suppliers and was in breach of the Contract. It was made known to the Defendant prior to the making of the Contract that the Plaintiff required the latex in the manufacture of gloves for sale to its American customers.

4. Lam Yiu Hing (P.W.1), the managing director of the Plaintiff, said that at the material time of the breach, there was a shortage in latex. The Plaintiff was successful, after various attempts, to purchase a total of 31.98 metric tons of latex in September 1988 from a local supplier, one Addwealth Industrial Ltd., at a unit price of US$1,900 per metric ton. In November 1988, the Plaintiff managed to purchase a further 63.96 metric tons of latex from another local supplier, one Fair-Trade Enterprises Company, also at a unit price of US$1,900 per metric ton. Upon a failure to obtain the outstanding balance of 204.06 metric tons from local suppliers, the Plaintiff resorted to making approaches to Malaysian suppliers. Such further attempts proved futile. In the event, the American customers cancelled the order around December 1988. Choi Pui Pui (P.W.2), the executive secretary of the Plaintiff, gave evidence in support of the various attempts to obtain alternative supplies from local and Malaysian suppliers, and the difficulties involved in such attempts.

5. The Plaintiff claimed:-

6. I accept the evidence from the Plaintiff's witnesses that at the material time of the said breach, it was generally difficult to obtain supply of latex. I also accept that the price for latex had fluctuated upwards as a result thereof.

7. The Defendant was in breach of the Contract in failing to deliver the latex as agreed or at all. The deposit of HK$27,690.00 must be refunded to the Plaintiff for a total failure of consideration.

8. The Contract called for latex of particular specifications and of Philippines origin. The Plaintiff's witnesses said they were desperate for latex and were prepared to accept latex of any origin. They could only manage to obtain from the said 2 local suppliers latex of Malaysian origin. P.W.1 agreed that latex of Malaysian origin would be of higher quality than those from Philippines, and thus there would be a difference in prices between them. He was, however, unable to tell what the difference would be like. The Plaintiff was in urgent need of the latex to fulfil their contractual obligations. I do not find their action in purchasing latex of a higher quality at a higher price to be unreason able in the prevailing circumstances at the material time. The Plaintiff's only duty is to act reasonably in the light of the difficulties he faced. It was stated by Lord McMillan in the House of Lords in Panco de Portucal v. Waterlow [1932] A. C. 452 at page 506 that:-

"Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticize the steps which had been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures and he will not be held disentitled to recover the costs of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken."

Furthermore, Bacon v. Cooper (Metals) Ltd. [1982] 1 All E.R. 397 is an example where, provided the Plaintiff had acted reasonably, he is entitled to enjoy an "enrichment" resulting from replacing an old machine by a new one which had a longer service life. In the premises, the Plaintiff is entitled to recover the difference in prices as per item (b) of its claim.

9. Surprisingly, evidence on the Plaintiff's claim for loss of profit is acutely scanty. The only evidence from P.W.1 on the issue was that the latex was intended to be used in the manufacture of rubber gloves to be sold to an American buyer in New York, one Anglo Morris International Inc. He said the order was cancelled around December 1988 as the Plaintiff could not deliver the goods. He then confirmed "the matters in the Statement of Claim". The Statement of Claim pleaded the following facts in respect of this issue:-

10. It has been held also that if a defendant makes default in serving a defence, all the allegations in the Statement of Claim are admitted: see Gibb v. Freyberger [1919] W.N. 22 C.A. The facsimile letter dated 16th September 1987 was produced (P3). The letter assured the Plaintiff, inter alia, that the Defendant was taking all possible steps to locate latex for the Shanghai factory to provide the Defendant with gloves for supply to the American buyers.

11. The above is a sum total of all evidence on the issue. The written contract with the American buyer, if any existed, was not produced. There was no evidence as to the quantity of the said order or the price agreed. No written communication re the terms of the agreement, or its cancellation, if existed, was ever produced. There is very little the court knows about this order. The Statement of Claim also failed to throw any better light on the issue. What was pleaded in the Statement of Claim to support this claim were 2 facts: (i) profit of US$0.0124 per rubber glove (probably it meant "per pair" of rubber gloves), and (ii) the 300 metric tons of latex could produce a total of 19,200,000 pieces of rubber gloves (again probably it meant 19,200,000 "pairs" of rubber gloves). There was no allegation that the American order was for 19,200,000 pieces (or pairs) of rubber gloves. There is no reasonable ground to infer that the American order would require the whole of 300 metric tons of latex. In its enquiries made to the Malaysian suppliers, the Plaintiff requested a supply of 700 tons of latex for manufacturing gloves. It would thus appear that latex was required not only for the American order but generally in the Plaintiff's business. There is also no particulars pleaded as to the basis of the alleged profit margin.

12. Unless there is an existing order for 19,200,000 pieces (or pair) of rubber gloves, no claim can be made for loss of profit on them. No claim can be recovered for any notional loss of profit on possible orders. There was not even evidence that there was a market for the rubber gloves at the material time if there were no other existing orders. Such claim would, in those circumstances, be too uncertain to be recoverable. The Plaintiff's claim for loss of profit must be confined to the actual order placed by the said American buyer. The Statement of Claim pleaded the loss not on the basis of an actual order, but on the basis of the total amount of finished products that could be made from the said latex. It is also not clear if the profit margin was based on the agreed price under the said American order or on the market value of the rubber gloves. It is, of course, not for the court to speculate as to what ought to have been the evidence or facts. It is for the Plaintiff to satisfy the court what loss it suffered. Though the Plaintiff has a valid claim for loss of profit resulting from the cancellation of the American order, the court was left in the dark as to what loss it actually suffered thereunder. The Plaintiff's claim under item (c) supra must fail for uncertainty and want of proof.

13. In the premises, damages are assessed at the respective sums of HK$27,690.00 and US$46,051.20. There will be an order nisi for costs of the assessment to the Plaintiff with a certificate for counsel.

14. Dated this 20th day of Febraury 1990.