PLASSEN LIMITED v. TAI KA HUNG HUAT LIMITED

1994, No.A13002

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an assessment on interlocutory judgment under Order 14 RSC of the damages arising from the defendant's breach of its contract to purchase a quantity of 20,000 motorcycles from the plaintiff, a Taiwanese company.

2. The contract, which is governed by Hong Kong law, was repudiated by the plaintiff on the defendant's failure timeously to open a letter of credit for the first of 11 instalments of the motorcycles available for delivery and numbering 1,120. The damages claimed include loss of profit on the 20,000 motorcycles, plus container and storage rental, transportation charges, and loading and unloading charges for the first instalment of 1,120. These latter items are said to be either paid or payable by the plaintiff's own supplier, San Yang Industry Co. Ltd., which is holding the plaintiff responsible for reimbursement.

3. Mr. Kwok for the defendant raised a point in preliminary argument which requires decision before I turn to the quantum of damages. Clauses 7.3 and 7.4 of the purchase contract between the parties read (in translation) like this:

"7.3	According to the number of motorcycles ordered as agreed by both parties, Party A (the buyer) shall issue L/C to party B (the seller) within the time limit and Party B guarantees the supply of the goods in the exact number to Party A. Except for force majeure, Party B shall compensate Party A for the insufficient number at US$10.00 for each set and Party B could not raise any objection."
"7.4	According to the number of motorcycles ordered as agreed by both parties, Party A guarantees to purchase from Party B by 28th February 1995 not less than 20,000 sets of motorcycles. Except for force majeure, Party A shall compensate Party B for the number not purchased at US$10.00 for each set and Party A could not raise any objection."

4. These are obviously liquidated damages clauses, and counsel take no issue on this point. Mr. Kwok however contends that clause 7.4 limits the defendant's liability in the circumstances of this case to the sum of US$10.00 for every unit which it failed to purchase. Mr. Kwok also relies on the mutuality of Clauses 7.3 and 7.4 in their effect on the respective parties considered together.

5. Mr. Wong for the plaintiff agrees that clause 7.4 is a liquidated damages clause, but argues that its wording confines its effect to the case of the defendant ordering less than the stipulated 20,000. It does not mean, he says, that every breach will attract only the sum mentioned in compensation, and in particular it does not cover a breach by way of failing to issue a letter of credit by the agreed date. Mr. Wong cited Aktieselskabet Redier v. Arcos Ltd. [1927] 1 KB 352 to illustrate that liability to pay a fixed rate on demurrage did not limit the liability of charterers to the sum so ascertained; they were also liable in damages for deadfreight on breach of the charterparty.

6. I find this case distinguishable in three ways. Firstly, liability for demurrage and liability for deadfreight can exist independently of each other, whereas liability limited by clause 7.4 and liability for damages at large are mutually exclusive. Secondly, the mutuality between clauses 7.3 and 7.4 is lacking in the case cited; it is significant here that both parties have similar restrictions on their liability. Thirdly, the sum named for demurrage in Reidar was specifically appropriated to that head of liability and the court found that it was not intended as liquidated damages for breach of the obligation to load a full cargo.

7. By contrast, here we have a liquidated damages clause which is not in its wording specifically directed to any one form of breach. Mr. Wong says that it is restricted to short ordering and does not cover delay in opening the L/C. However I find it difficult to confine the effect of the clause to that narrower interpretation. In the context of clause 7.4, I find no distinction in principle whether the defendant later reduces the order to perhaps 10,000, or whether he fails to open a letter of credit and defaults on the entire 20,000. Both amount to a breach of contract in failing to take up the contracted amount. I can find nothing in the wording of clause 7.4 to limit liability in the one case to US$10.00 per unit, whilst leaving the plaintiff at large as to damages in the other.

8. It is well settled that a liquidated damages clause may provide for payment of a sum below the likely estimated loss, and such is the case here. The only issue is whether or not the effect of the clause should be confined to loss arising from any particular type of event to which it may refer. I find clause 7.4 to cover the present circumstances, and I am reinforced in this decision by the terms of clause 7.3 in similarly limiting the liability of the plaintiff.

9. As this is an assessment on interlocutory judgment, rather than a trial, I am confined by the terms of the judgment and am at large to construe the contract only insofar as it has not been subsumed in the judgment itself. To the extent that the argument on clause 7.4 could have been raised at the O.14 hearing as an alternative to a complete denial, I must therefore consider if the failure to do so has taken that issue beyond the remit of this assessment. Put another way, have the terms of the judgment already decided the clause 7.4 issue by directing that this assessment cover damages at large, rather than as confined by clause 7.4. This is not a matter on which I have heard argument, but it should nonetheless be addressed.

10. The terms of the judgment ordered that damages - "be assessed in respect of 20,000 sets of the goods......". In the statement of claim, the plaintiff particularised its loss as including loss of profits without restriction. In the prayer it sought unliquidated damages for breach of contract, as indeed it did in the O.14 summons. The affidavits at the hearing of the summons disputed matters relating to the specifications of the motorcycles. Clause 7.4 is not mentioned, and there is no indication that it had any bearing on either the arguments of the parties or the terms of the judgment.

11. If the clause 7.4 issue had been decided at the O.14 hearing, then the matter would be beyond argument. That was not the case, and I cannot exclude the defendant from taking a point which was raised by neither party and found no expression in the order of the court. Moreover, the order for interlocutory judgment relates to liability and clause 7.4 relates to quantum, which is the business of this assessment.

12. Applying clause 7.4 of the purchase contract to the defendant's liability I therefore award the plaintiff the sum of US$(20,000 x 10.00) = US$200,000.00 for the defendant's breach in relation to the contracted quantity of 20,000 motorcycles.

13. The plaintiff is also claiming consequential loss arising from the defendant's delay in opening the letter of credit when the 1,120 motorcycles in the first instalment were awaiting shipment. These items are particularised in Taiwanese currency in the statement of claim as rental charges for containers, storage charges for containers, transportation costs of the containers, packing charges, and charges for unloading the containers. If proved to flow from the defendant's default on the first instalment, these items may be claimed in addition to the fixed rate compensation under clause 7.4.

14. Mr. Kwok submits that the plaintiff has failed to prove these items as a necessary consequence of the defendant's breach of contract, and I turn to the plaintiff's evidence in that regard. Mr. Chan Jen Chi is the plaintiff's sales manager and negotiated the agreement with the defendant. He said that on the defendant's failure to open the L/C, the manufacturer, San Yang Industry Co. Ltd., claimed these various charges from the plaintiff.

15. Mr. Jeffrey T.H. Lee, the Assistant Manager of San Yang, testified that he handled his company's business in relation to the 1,120 units ordered as the first instalment of the contract between the parties. He referred to the papers at pages 40-49 of the documents bundle and said that rental charges, storage charges, and inland transportation costs were all paid by San Yang to the various companies indicated on the respective invoices and that San Yang was claiming reimbursement from the plaintiff. Mr. Lee said that page 42 of the bundle reflected the rental charges for the containers, page 43 the container storage charges, and page 44 the packing charges for the containers. This last item he said San Yang was obliged to pay, but had not yet done so and had claimed the amount from the plaintiff. I note that the invoiced amounts on these documents reflect the particularised items in the statement of claim.

16. Mr. Ng Kwok Shek gave evidence as a director of the transportation company employed by San Yang. He said that his company transported 24 containers for San Yang at a cost of NT$5,800.00 per journey, and that he made two journeys per container - from San Yang to the warehouse and back to San Yang. He referred to the invoices at pages 51-62 of the documents bundle in support of his evidence.

17. Mr. David Chuang testified as the sales manager of Tomax Consolidators Ltd., a freight forwarder. He referred to page 29 of the documents as his company's invoice to San Yang reflecting freight charges upto 30th June 1994. He said the updated invoice appeared at page 47, and I note that this a duplicate of the document referred to by Mr. Lee of San Yang as reflecting container rental charges. Mr. Chuang also referred to page 49 as reflecting container storage charges in the warehouse, as opposed to rental charges for the containers. I note that this document is a duplicate of that referred to by Mr. Lee at page 43 in the same context. Mr. Chuang said that he had checked both the documents at pages 29 and 49 and vouched for their accuracy.

18. Miss Marolyn Chan is the sales representative of the overseas marketing department of San Yang. She referred to page 31 of the bundle, which she said (in original at page 28) was in her own handwriting and reflected the breakdown of charges which she had sent to the plaintiff. She also referred to page 33, which she said (in original at page 30) represented calculations for unloading charges checked and verified by her as accurate.

19. I find this documentary and oral evidence of the plaintiff's losses convincing, and I am satisfied that they arose from the contractual default of the defendant. I note that the figures given by Mr. Ng Kwok Shek for transportation charges amount to NT$5,800.00 per container x 24 containers x 2 trips. This gives a total somewhat less than the amount particularised in the statement of claim. This discrepancy is however resolved on noting from Miss Chan's calculations on page 31 of the documents bundle that 5% tax is to be added. This brings Mr. Ng's figures precisely to those claimed under this head. All other figures adduced in evidence match the respective particularised items.

20. I therefore award the following amounts for consequential loss:

Rental charges for containers Storage charges for containers Container transportation costs Packing charges Container unloading charges	NT$1,336,457.00 NT$ 510,751.00 NT$ 292,320.00 NT$2,081,085.00 NT$ 548,171.00
Total:	NT$4,768,784.00

21. In the event that my finding on the limiting effect of clause 7.4 be overturned on appeal, I should now assess the claim for loss of profits on the basis that the plaintiff is at large for whatever loss it can prove under that head.

22. This aspect of the claim is divided into two parts; loss of profit on the first instalment of 1,120 units, and similar loss on the remaining 18,880 units. Mr. Chan Chen Ji gave evidence that the CIF price per unit to the defendant was US$1,015.00; this is the price appearing in the purchase contract between the parties at page 8 (translation) of the documents bundle. He also testified that the plaintiff had mitigated its loss by selling the 1,120 units to Wah Tak Holdings Ltd. at a price of US$990.00 per unit CIF; this contract appears at page 66 of the bundle. I am satisfied that the difference between these two selling prices represents the plaintiff's loss of profit, and were it not for my finding on clause 7.4, I would have awarded the plaintiff on this account the sum of US$(1,015.00 - 990.00) x 1,120 = US$28,000.00.

23. The balance of the plaintiff's claim for loss of profits concerns the 18,880 units intended to be shipped in the remaining ten instalments of the purchase order. Mr. Lee of San Yang has testified that the CIF price of the motorcycles, both at the time of the breach in March 1994 and today, was US$880.00 per unit. On this basis, the plaintiff claims as its loss of profit the difference between that price and the price contracted to the defendant, namely US$(1,015.00 - 880.00) x 18,880 = US$2,548,800.00.

24. Speaking of mitigation, Mr. Chan Chen Ji said that the plaintiff had sought help from other customers and thereby managed to sell the first instalment of 1,120 motorcycles. He said however that they did not want to buy the balance of 18,880 units. There was no more on mitigation; no evidence of efforts to find a substitute buyer; no direct evidence of the likely market price of the motorcycles in either Hong Kong or Taiwan.

25. I find this insufficient mitigation to support the amount claimed by the plaintiff as loss of profits under this head. It is axiomatic that the plaintiff must take all reasonable steps to minimise its loss; it cannot simply do nothing and rely on obtaining full compensation from the defendant. I would not therefore award the amount claimed by the plaintiff as loss of profit on the 18,880 units.

26. The plaintiff has however suffered a loss of its bargain and would be entitled to compensation from the defendant if this could be quantified on the probabilities. I am unable to speculate, but I do infer from the plaintiff's substitute deal in mitigation of its loss on the first instalment of 1,120 units that the probable market price of the motorcycles at the material time was US$990.00 per unit. On this basis, the plaintiff's loss of profit on the balance of 18,880.00 units would be US$(1,015.00 - 990.00) x 18,880 = US$472,000.00. Were it not for my finding on clause 7.4 I would award this amount in addition to the US$28,000.00 awarded for loss of profit on the first instalment of 1,120 units. The total award for loss of profit in that event would have been US$500,000.00.

27. The actual award as previously calculated will however be US$200,000.00, applying clause 7.4, plus NT$4,768,784.00 consequential loss. Interest will run on these amounts from writ to payment at the judgment rate. Costs will be to the plaintiff with a certificate for counsel.