KAUFLAND WARENHANDEL GMBH & CO KG v. FISCHER ASIA (HONG KONG) LTD

DCCJ1905/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1905 OF 2011

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Assessment of Damages

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Foreword

1. The defendant is absent.  The plaintiff has effected the service of the Order of Master I. Wong dated 20 January 2012, the plaintiff’s list of documents filed on 10 February 2012, the witness statement of Olaf Vogee filed on 19 March 2012 and the Order of Master I. Wong dated 20 April 2012 on the defendant. By a letter dated 23 April 2012, sent to the defendant’s address for service on record, the registry of the District Court also gave notice to the defendant that the assessment of damages will be tried before court No. 45 on 30 May 2012 at 9.30 am.  In the circumstance, I am satisfied that the assessment of damages should be proceeded with despite the defendant’s absence.

The plaintiff’s case

2. This is a straight forward claim for loss and damages arising from the defendant’s breach of the express and/or implied terms as to merchantable quality and/or fitness for purpose of an agreement for the sale and purchase of goods.

3. Mr. Olaf Vogee (“PW1”) the managing director of the plaintiff’s regional office in Hong Kong gave evidence on behalf of the plaintiff.

4. At all material time:-

(a)  The plaintiff is a company incorporated in Germany, carrying on the business of operating a chain of hyper-markets i.e. superstores in Germany and other parts of Europe.

(b)  The defendant is a company incorporated in Hong Kong, carrying on the business of supplying various household goods.

5. The plaintiff purchases a wide range of goods from different parts of the world for resale at the retail level in the plaintiff’s hyper-markets.

6. Since 2007, the defendant has supplied goods to the plaintiff.

7. At all material time, the defendant was aware that the plaintiff purchased the defendant’s goods for the purpose of resale.

8. By an agreement as evidenced by a purchase order dated 6 August 2010 the defendant, in the course if its business, agreed to sell to the plaintiff 13,560 multi-functional cutters (“the goods”) at the consideration of USD49,358.40, i.e. USD3.64 per piece.

9. The following are the express terms of the said agreement:-

(a)  Test reports/certificate

(i)  The defendant is to provide test reports and certificates within 4 weeks from the date of the purchase order.

(ii)  Test reports and certificates must be issued by an accredited test laboratory with its head office situated in Germany and/or an European Union country.

(iii)  Test reports and certificates must not be older than 12 months.

(b)  Quality

(i)  Products should always be produced in accordance with the European Union standards, laws and regulations.

(ii)  If the Government authority in Germany/Europe prohibits the sale of the shipped merchandise the goods will be returned from stores to the warehouse, in which case the plaintiff has the right to charge the defendant for compensation.

10. Further or in the alternative, it was an implied term of the said agreement that the goods would be of merchantable quality and/or fit for its purpose.

11. Pursuant to the purchase order, the defendant provided the plaintiff with 4 certificates and technical documents.  The defendant subsequently delivered the goods to the plaintiff in Germany.

12. The plaintiff paid the defendant a total of USD49,358.40 for the consideration of the goods.

13. The plaintiff delivered the goods for re-sale to 650 branches of its hyper-markets in Germany.

14. The quality of the goods was extremely bad.  Out of the sales of 3,089 pieces of the goods, 1,367 pieces were returned by customers with various complaints.

15. There was one serious incident involved a customer who bought a piece of the goods from the plaintiff’s hyper-market.  The customer was injured by a chip of blade which was broken off from the multi-functional cutter when the customer was shredding vegetable with it. 

16. As a result of the said accident, the plaintiff inserted advertisements in newspapers and broadcast notice in the radio for a nation-wide recall and arranged for the return of the unsold goods to the warehouse.

17. The plaintiff then conducted its own tests on the goods.  The test result shows that the blades of the goods are brittle and apt to break.  At that time the plaintiff destroyed all unsold goods.

18. The Writ of Summons herein was issued on 20 May 2011.  On 26 October 2011, no defence having been served by the defendant and the plaintiff having abandoned the claim for full indemnity, it is adjudged that the defendant shall pay the plaintiff damages to be assessed and costs.

19. The plaintiff claimed that by reason of the matters above, it has suffered the following loss and damages:-

(a)  Under the plaintiff’s invoice no KLHK-0027-11, the sum of USD95,458 including:-

(i)  Purchase price of the goods of USD49,358;

(ii)  Recall cost of USD18,500; and

(iii)  Logistics cost of USD27,600.

(b)  Under the plaintiff’s invoice no KLHK-0028-11, the agreed sum of USD10,000.

Analysis and findings

20. The first head of damages claimed by the plaintiff, set out in its invoice no KLHK-0027-11 consists of three items:-

(i)  Purchase price of the goods of USD49,358;

(ii)  Recall cost of USD18,500; and

(iii)  Logistics cost of USD27,600.

Purchase price of the goods

21. The purchase price of the goods is evidenced in the purchase orders issued by the plaintiff and the two commercial invoices issued by the defendant.

22. Out of the 13,560 pieces of the goods delivered by the defendant to the plaintiff, 3,089 pieces were sold for €6.99 per piece, of which 1,367 were returned by customers.  The plaintiff has made arrangements for the recall of the goods sold but there is no evidence before the court that any piece was really recalled.  Without such evidence, I am not prepared to accept that the defendant should compensate the plaintiff for the purchase price of the goods already sold to the plaintiff’s customers, which were not returned by the customers.

23. All goods unsold/ returned were destroyed.  I find that the defendant shall compensate the plaintiff for the lost of the purchase price of the unsold goods as well as the returned goods, i.e. the sum of USD49,358 - (USD3.64 X (3,089- 1,367)) = USD43,089.92.

Recall costs and logistics costs

24. It is the plaintiff’s case that the defendant agreed to compensate for the purchase price of the goods, the recall costs and logistics costs as set out in the plaintiff’s invoice no KLHK-0027-11.  After having heard PW1 giving evidence at the trial, I accept that PW1, Ms. Mei Lee, a merchandiser of the plaintiff’s Hong Kong office, and Mr. Patrick Au of the defendant held several negotiations and, during the discussions, probably Mr. Au agreed in principle to compensate the plaintiff’s lose arising from the recall of the goods, but I hold the view that the parties did not reach agreement on the actual amount of compensation to be paid by the defendant to the plaintiff.  In this regard, it is noted that in the invoice no KLHK-0028-11, the amount of the invoice of USD10,000 was described as an agreed sum.  Yet, in the invoice no KLHK-0027-11, no reference to any agreement was mentioned as to the various sums set out in there.

25. As a result of the defendant’s breach, the plaintiff has incurred costs to insert advertisements in newspapers and broadcast notice in the radio for a nation-wide recall.

26. According to PW1’s evidence, the recall costs represent the costs in fact incurred by the plaintiff on insertion of advertisements in about 20-30 newspapers circulating in various regions all-over Germany and radio broadcast. In his experience, the costs for the insertion of an advertisement in the size as seen in the samples in a newspaper in Germany alone are at least HKD5,000 to HKD6,000 per day.

27. I accept that the claim for recall costs of USD18,500 is reasonable.

28. The unsold goods were transported back from the 650 branches to the warehouse to be tested and eventually destroyed.  Had there been no breach by the defendant, such costs would not have been incurred.

29. The logistics costs represent the actual transportation costs incurred by the plaintiff for returning the unsold goods from 650 branches all-over Germany back to the warehouse.

30. PW1 gave evidence that whilst there is regular transportation from the warehouse to the branches, but for the recall the costs for the return journey would not have been incurred.

31. The extent to which expenditure incurred after a breach could be recovered has been discussed in Chitty on Contract (30^th ed) at 20-078:

“Subject to the rules on causation and remoteness and to the test of acting reasonably, the claimant may recover as damages the reasonable costs incurred by him in mitigating the loss caused by the breach or in otherwise dealing with the consequence of the breach.”

32. I am satisfied that the defendant shall compensate the plaintiff for the said sums of USD18,500 and USD27,600.

The sum of USD10,000

33. In addition, the plaintiff claimed the sum of USD10,000 in accordance with a compromise made between the parties for the compensation of the plaintiff’s loss of profits, as set out in the plaintiff’s invoice no KLHK-0028-11.

34. The extent to which a buyer’s loss of profit is recoverable is discussed in Chitty on Contract (30^th ed) at 43-455:-

“Where the seller knew that the buyer intended to resell the goods, and ought reasonably to have contemplated that a breach of his contractual undertaking as to the description or condition of the goods would be not unlikely to cause the buyer to lose the profit he hoped to make under the sub-sale, the buyer may recover damages in respect of such a loss of profits caused by a breach of the seller’s undertaking, provided it was reasonable to think that the seller was assuming responsibility for the loss.”

35. PW1 gave evidence that during a negotiation held between PW1, Ms. Lee and Mr. Au, Mr. Au on behalf of the defendant agreed to compensate the plaintiff’s loss of profit in the sum of USD10,000, on top of the plaintiff’s claim for the purchase price for the goods, the recall costs and the logistics costs.

36. The compromise was evidenced by the plaintiff’s invoice no KLHK-0027-11 which described the invoice amount of USD10,000 as an agreed sum.  The said invoice was sent to Mr. Au on about 28 February 2011.  The defendant did not contest the contents of the said invoice.

37. After having carefully considered, I accept that there was a compromise reached between the parties that the defendant shall compensate the plaintiff the sum of USD10,000, to be added on top of the plaintiff’s claim for purchase price of the goods, the recall costs and the logistics costs.

38. The purchase price of the goods was USD3.64 per piece.  The sale price of the goods was €6.99 per piece.  13,560 pieces of the goods were purchased by the plaintiff for re-sale and up until March 2011 3,089 pieces were sold.  All in all, I find that the plaintiff’s claim for loss of profit in the sum of USD10,000 is reasonable.

39. The defendant shall pay the plaintiff the said sum of USD10,000.

Conclusion

40. The amounts found due to the plaintiff under the interlocutory judgment dated 26 October 2011 are:-

or its Hong Kong dollars equivalent at the time of payment.

41. The defendant shall pay the plaintiff costs of this action, including this hearing, assessed summarily in the sum of HKD37,552, payable forthwith.