HONSAICO TRADING LTD v. HONG YIAH SENG CO LTD

1989 C.L. No. 116

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

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J U D G M E N T

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Introduction

1. The plaintiff, a Hong Kong company is suingthe defendants for breach of a contract dated the 11th July 1989. Under the contract the plaintiff agreed to sell to the defendant 100,000 M.T. of Vietnamese rice, 35% broken at US$230 per M.T. FOB Ho Chi Minh City.

2. 30,000 M.T. was to be shipped in July 1989, 45,000 M.T. in August and the balance of 25,000 M.T. by the 15th September.

3. The defendant had agreed to supply a similar quantity of rice to the Food Corporation of India and basically the contract between the parties and the contract between the defendant and Food Corporation of India were back to back contracts.

4. It is common ground that the plaintiff delivered to the defendant 47,880 M.T. of rice.

5. As the contract was an FOB contract, it was the responsibility of the defendant to nominate vessels to take delivery of the rice and open letters of credit in accordance with the terms of the contract.

6. On the 17th October 1989 the plaintiff required the defendant to make nominations of further vessels and open letters of credit so as to enable the contract to be fully performed. The defendant declined to do this. According to the issues which are pleaded the defendant claims that the parties mutually agreed to reduce the quantity of rice to be supplied from 100,000 M.T. to 50,000 M.T.

7. The defendant also is counterclaiming against the plaintiff for the losses they have suffered as a consequence of the plaintiff arresting the Meghna shortly after it had been loaded with the plaintiff’s rice. They also seek a Declaration that they should be indemnified against all losses arising from the arrest.

8. In practical terms I think that Mr. Tang who represented the defendant accepted that the counterclaim can only succeed if the plaintiff’s claim is dismissed.

9. I will deal firstly with the issue of liability on the plaintiff’s claim.

Liability

10. The plaintiff’s main witness was Mr. Sach. He is a Vietnamese subject although he grew up in France. He was a Consultative executive for the plaintiffs in July 1989 at the time the contract was signed between the parties. He also undertook ongoing discussions and negotiations with the defendants during the period when the contract was supposed to be performed.

11. It was apparent from his evidence that he has also on occasion given advice and assistance to the Vietnamese Government relating to the rice trade.

12. Prior to the contract being entered into he had had discussions with various Government officials on the subject of reducing problems encountered in exporting rice from Vietnam. One of these was the delay which arose out of congestion at Ho Chi Minh City when vessels were loaded.

13. He had managed to get the authorities to accord a priority to the contract in question and had secured agreement to any 2 ships being allowed to load at the same time as soon as they were ready to load. This was a matter of some importance as only ships capable of being loaded with up to 15,000 M.T. of rice were able to be berthed at Ho Chi Minh City.

14. Also before the contract had been entered into be had satisfied himself that the loading rate referred to in the contract could be adhered to and deliveries of rice effected by the due dates in the contract. This involved shipping 100,000 M.T. of rice in a 60-day period up to the 15th September.

15. He had also been concerned to ensure that sufficient quantities of rice were readily available so that the contractual commitment could be adhered to. With this in mind he had entered into contracts with various suppliers for a total of 165,000 M.T. of rice. This had also taken into account the further contract for the supply of an additional 50,000 M.T. of rice which the defendant had said that they hoped they would be able to secure from the Indian Government.

16. Initially the defendant had indicted that they wished to purchase 120,000 M.T of rice. However, when the contract was completed on the 11th July 1989 the amount had been reduced to 100,000 M.T.

17. Almost immediately after the contract was agreedMr. Sach had started to press the defendant for nominations of ships and for letters of credit to be opened as he realised that the delivery schedule was a tight one if all of the rice was to be delivered on time by the 15th September.

18. It was clear that the question of time was verymuch in the minds of all parties. Mr. Prachai, the gentleman in the defendant company who was dealing with the matter had been required to put up a substantial performance bond by the Indian Government in respect of his back to back sale of the rice and he had attempted to obtain a similar bond from the plaintiff. Mr. Sach had refused to supply this. He did, however, assure Mr.  Prachai that if nominations of ships were made timeously and letters of credit were opened as required, the deliveries would be made on time.

19. Mr. Tang spent a considerable amount of time on this aspect of the matter in his cross-examination of Mr. Sach. He put it to Mr. Sach that shortly after the contract had been entered into he had had a discussion with Mr. Prachai and that it had been agreed that because of the requirement that only one ship could be loaded at a time and the necessity of having 14-day loading periods for each such vessel the total amount of rice to be delivered under the contract had been reduced from 100,000 M.T. to 50,000  M.T. and that Mr. Prachai would obtain the balance from  someone else.

20. Mr. Sach was emphatic in his denial of this suggestion. He claimed that he had made it abundantly clear to Mr. Prachai that 2 ships could be loaded at the same time and it had never been suggested to him that the total amount to be delivered might be reduced.

21. He agreed that during his discussions with Mr.Prachai the possibility of selling a further 50,000 M.T. had been broached but this had been dependent upon the Indian Government agreeing to purchase this further quantity.

22. He claimed his version of events was clearly borne out by the contemporaneous telexes exchanged between the parties.

23. He agreed that there was nothing in the contract to reflect the fact that only 2 ships could load at the  same time but the delivery requirements spelt out for each of the 3 months would sufficiently accommodate the situation.

24. In addition to this when at the end of August it was apparent that the situation was becoming critical, he had succeeded in getting the agreement of the Port Authority to extend the priority to 3 or 4 ships.

25. The delivery requirements had never really been put to the test as a result of the defendant either not making nominations of ships within the required time frame or not opening letters of credit in sufficient time.

26. A considerable amount of time was spent going through the telexes. I must say immediately that the evidence given by Mr. Sach was in all respects consistent with the correspondence and on no occasion did he give evidence which was in conflict with the correspondence.

27. One of the first problems referred to in the telexes was the question as to whether Mr. Prachai hadplaced orders for large quantities of rice with other Vietnamese suppliers. Mr. Sach said that he had heard rumours to this effect and had invited Mr. Prachai to comment on this in a telex sent at the end of July. Following this there had been a telephone conversation when Mr. Prachai had denied the rumours.

28. Shortly after this it had become clear to Mr. Sach that the rumours were well founded as when ships started to arrive at Ho Chi Minh City it was evident that some of them had been nominated for Mr. Paul Ho of Pilkon. This hadbeen a cause of great anxiety to Mr. Sach as he had committed the plaintiff to the supply of 100,000 M.T. of rice and he was fearful that if Mr. Prachai was obtaining rice from another source he might fail to fulfil his contractual requirements with the plaintiff.

29. These fears were accentuated by the fact that the defendant was not nominating ships or opening letters of credit as soon as was necessary to enable deliveries to be made in accordance with the contract.

30. The pattern which emerges from the correspondence is that the plaintiff was repeatedly asking the defendant to make nominations and open letters of credit and these telexes were being ignored or complied with only on a tardybasis.

31. 4 ships had been nominated by the defendant. They were the Bravo George, The Vyatka, The Eastern Breeze and The Meghna. The Bravo George had started loading rice onthe 17th August 1989 and the Meghna completed loading on the 18th October. The total of rice loaded on the 4 ships was 47,880 M.T.

32. During this period the various suppliers of rice had become restive and were making claims on the plaintiff based on the costs and expenses they were incurring as a result of storing large quantities of rice in warehouses and keeping it ready for delivery.

33. Mr. Sach gave evidence concerning the difficulties which were being encountered by the suppliers. There were 2 rice crops in Vietnam. The main one was from November to February and there was a secondary harvest from April to September. Once the rice had been milled it had to be stored in a warehouse. The moisture content had to be kept at 14% and this was a problem in the rainy season. If the rice was stored for too long a period it lost its fresh appearance and its value would be detrimentally affected.

34. Mr. Sach also gave evidence concerning the price of rice. He had given advice to the Vietnamese Government on this subject and in particular had advised on the amount of the minimum export price. From July to September 1989 this price had been $230. Thereafter it had been necessary to reduce it as it was apparent that sales could not be made at that price.

35. The situation had been so bad that by the end of November 1989 the price had been reduced to US$170 per M.T. FOB, Ho Chi Minh City.

36. He had himself been a party to negotiations with the Sri Lanka Government in November and they had refused to accept an offer of 100,000 M.T. of 35% broken rice at US$190. Even when it was reduced to $175 it was not accepted.

37. In cross-examination he was asked by Mr. Tang why in the supporting documents to the application for the Mareva Injunction in October 1989 the plaintiff was basing the loss they anticipated facing on the market price of the rice being US$205 per M.T. Mr. Sach said that at that time he had not realized the extent to which the market had become depressed and he had considered at that time that US$205 represented the market value. It was only as a result of information which became available to him later on that he came to realize how weak the market had been.

38. Generally speaking, I was satisfied that Mr. Sach was an excellent witness. I had no doubt that in allimportant respects he was telling the truth. What was particularly significant about his evidence was the extent to which it was consistent with the contemporaneous documents. Although he was subjected to a searching cross-examination he was never in any sort of difficulty. I accept him to be a truthful and reliable witness.

39. The only witness on liability for the defendant was Mr. Prachai. He is the Managing Director of the defendant and clearly is a man of considerable substance in Thailand. He provided background information concerning how the contract between the parties had been entered into.

40. He had known Mr. Sach for a number of years and­had had business relations with him previously. He had first been given the idea of trading in Vietnamese rice by Mr. Paul Ho who was Chairman of Pilkon Co. He was also the Managing Director of the plaintiff. Initially he had been reluctant to enter into this market due to the difficulty in finding interested purchasers of Vietnamese rice.

41. In July 1989 he had had discussions with the Indian Authorities concerning the sale to them of very large quantities of rice. These discussions had extended to the supply of Vietnamese 35% broken rice.

42. At all times his main concern had been the ability of Vietnames suppliers to fulfil delivery obligations within the tight delivery schedules which had been demanded by the Indian Government. The problem had been accentuated by the said Government’s insistence upon his entering into a personal performance Bond up to the amount of 10% of the value of the contract. This commitment made him potentially liable for up to US$2.5 million. Mr. Sach had declined his invitation to enter into a similar Bond in hisfavour.

43. Shortly after the signing of the contract on the 11th July he had had a discussion with Mr. Sach.

44. Mr. Sach had told him that only 1 ship could be loaded at a time in Ho Chi Minh City and that a 14-day period would have to elapse for the loading of a shipbefore another one could take its place. On the basis that the capacity of each vessel was limited to between 12 and 15,000 tons of rice, it was immediately apparent that it would be impossible to deliver 100,000 M.T. of rice to the Indian Government by the 15th September, the final delivery date contained in the contract between the parties and his contract with the Indians.

45. There had been a discussion on this. He had suggested that a solution to the problem could be found if he obtained 50,000 M.T. from some other source so as to enable him to meet his September deadline and he would attempt to obtain an order for a further 50,000 M.T. from the Indians with less stringent delivery requirements. This proposal had been agreed by Mr. Sach.

46. This being the case, he had reverted to Mr. Paul Ho and had agreed with him for Pilkon to supply him with 50,000 M.T. in time for him to meat his commitments with the Indians.

47. It is difficult to accept this evidence at its face value. I say this on account of the contemporaneous telexes which were being exchanged shortly before the 11th July 1989. In particular it is instructive to have regard to Mr. Sach’s telex of the 8th July which deals with the deliveries which were contemplated. This reads:

“13:45 JUL.08.89
081344 PTS
ACC P
08682994+

82994 HONYISN TH
82994 HONYISN TH

HK 08.7.89

FM MR SACH
TO HONG YIAH SENG CO, ltd.
- ATT MR PRACHAI

RE 35PC 5RKN VN RICE

CFM WE AGREE TO REDUCE QNTY TO 100,000
MTS FOR SHPT PERIOD FRM JUL TO 15/SEP.

AS OUR SALES ARE BASIS FOB, IT IS BUYERS
RESPONSIBILITY TO ARRANGE VSL(S) FOR
LDG: 2 x 15,000 MT IN JULY, 3 x 15,000
MT IN AUG. AND 2 x 15,000 MT FIRST HALF
SEP. WE ARE ALREADY JUL/08 TODAY, TFORE
THE 2 VSLS FOR SHPT JULY MUST BE
ARRANGED IMMY TO AVOID ANY DELAY IN
PERFORMANCE.  PLS ADV

BST RGDS/SACH

82994 HONYISN TH

82994 HONYISN TH
AAD 002.0”

48. It seems to me to be clear that Mr. Prachai’s evidence to the effect that Mr. Sach insisted that only 1 ship could be loaded at a time at Ho Chi Minh City is inconsistent with the contents of this telex and undermines the whole basis of Mr. Prachai’s justification for entering into contractual commitments with Mr. Paul Ho.

49. He was then taken through the correspondence which had been exchanged by the parties. Mr. Prachai maintained his position that throughout all of discussions with Mr. Sach both of them were fully aware of the fact that the contract between them had been varied and that theplaintiff was contractually required to supply only 50,000 M.T. of rice with only a hope that a further 50,000 M.T.would be supplied if Mr. Prachai was able to secure anadditional order from the Indians of this. amount.

50. Mr. Prachai was cross-examined by Mr. Clifford Smith for the plaintiff at some length. In particular the cross-examination was directed towards the contemporaneous correspondence which very clearly indicated that Mr. Sach was labouring under the impression that the contract still related to 100,000 M.T. of rice and not just 50,000 M.T. which is what Mr. Prachai claimed had been agreed by the parties in July.

51. I regret that I was most unimpressed by Mr. Prachai’s attempts to reconcile the contents of the telexes with his version of events. The only explanation he was able to give for not replying to the telexes and stating his position in the matter was that he was fearful of antagonising Mr. Sach. The consequences of so doing could be serious for him having regard to the fact that rice was still being loaded in Ho Chi Minh City and, if the plaintiff stopped such loading he may be in great difficulty with the performance Bond he had given to theIndian Authorities.

52. I do not consider that this explanation can withstand serious scrutiny. If there had indeed been an agreement in July for the amount to be reduced to 50,000 M.T. it is difficult to see how this would antagonise Mr.Sach. When this possibility is weighed against the damaging effect of leaving unanswered telexes which assert claims based upon there being a contractual requirement for the defendant to take delivery of the balance of 50,000 M.T. of rice, it seems highly improbable that Mr. Prachal was telling the truth.

53. Perhaps even more damaging than this was Mr. Prachai’s evidence relating to the telex he sent to the plaintiff on the 6th October 1989. This telex was as follows:

“BKK GA
080285527+
82994 HONYISN TH
OCT 06 89 1248 021074
85527 SHPMA HX

OCT 6’89   OUR REF: VNC-89/128

TO: SHIPMAR INC.
FM: HONG YIAH SENG CO, LTD.

ATTN: MR. SACH

RE YR HONSAICO TLX REF HX 350/89 DD OCT
5’89

WE FEEL SHOCKED BY YR HOSTILE RESPONSE
BY FLLW REASONS:

1)     AS FOR THE ADDITIONAL PERFORMANCE BOND REQUIRED BY FCI, WE NEVER MADE SUCH COMMITMENT WITH FCI. IT IS YOU YOURSELF WHO MADE SUCH COMMITMENTS TO THEM. WE JUST PASSED ON THEIR TLX TO YOU AND HOPE YOU WILL KEEP YOUR PROMISE.

2)     AS YOU MENTIONED IN YR TLX DD 23.8.89, THE PRICE OF VIETNAMESE RICE WAS RISING BY USD3 PER M/T TO USD5 PER MIT. WE DO NOT UNDERSTAND WHY YOU WANT A PERFORMANCE BOND FROM US WITH A VALUE OE 20 PERCENT WHICH IS HIGHLYUNREASONABLE AS WE NEVER COMMITTED TO YOU TO OPEN ANY P. BOND TO YOU. SO YOU SHOULD NOT USE THIS AS AN EXCUSE FOR NOT OPENING YR OWN P. BOND YOU PROMISED TO THEM.

3)     YR PAST PERFORMANCE OF LOADING RICE IN PREVIOUS VESSELS SHOWED THE AVERAGE RATE OF 600 M/T PER DAY WAS VERY DIFFICULT TO ACHIEVE AND NO WAY YOU COULD LOAD SUCH QUANTITY OF 100,000 M/T OF RICE WITHIN SEPTEMBER 15, 1989. BUT FOR SAKE OF OUR PAST LONG TERM RELATIONSHIP, WE TRY TO PRESUADE OUR BUYER TO EXTEND THE SHIPMENT PERIOD TO LOAD THE MAXIMUM QUANTITY WITH YOUR MUTUAL CONSENT. IT TAKES TIME AND EFFORTS, BUT YOU NEVER APPRECIATED OUR EFFORTS ON THE REMAINING QUANTITY OF 50,000 MTS. SO WE AGREE TO CANCEL THE REMAINING 50,000 MTS SO THAT WE DO NOT HAVE TO WASTE OUR TIME TO PERSUADE THEM TO EXTEND SHIPMENTS FOR REMAINING 50,000 MTS.

4)     PLS BEAR IN MIND THAT WE DID THE BUSINESS WITH YOU BECAUSE OF OUR LONG TERM RELATIONSHIP AND OUR AIMS TO HELD YOU, BUT INSTEAD YOU USE YOUR LAWYER TO THREATEN US.  IS THAT THE WAY YOU VIETNAMESE SHOW YOUR GRATITUDE FOR PRIENDSHIP AND MUTUAL COOPERATION?  WE HOPE YOU USE YOUR LAWYER WITH SOMEONE ELSE AND NOT WITH US.

RGDS

82994 HONYISN TH
85527 SHPMA HX
MMMMMM
1254 005.2”

54. Mr. Prachai agreed in his evidence that the purpose of the telex was to give notice of the defendant’s cancellation of the contract. This evidence is incontradiction to the evidence he gave earlier that it had already been mutually agreed between himself and Mr. Sach that the amount should be reduced to 50,000 M.T.

55. It is also significant to note that there is no reference in the telex to the alleged agreement to reduce the amount.

56. If this is not entirely clear the position is put beyond any doubt by the defendant’s telex of the 18th October:

 “…
85527 SHPMA HX
181415 PTS
61356+
61356 DALAT HX
85527 SHPMA HX

ATT MR LAM

RC VD FLWG

CCT 18’89                             OUR REF: VNC-89/129

TO: HONSAICO
CC:  SHIPMAP INC.

FM: HONG YIAH SENG CO., LTD.

PYTLX HX372/89 DD 17-10-89 DUE TO YR
UNABILITY TO LOAD FAST FOR THE INDIAN
BUYER WITHIN SEPT 15. THEY DECIDED
AGAINST THE ADDITIONAL QUANTITY OF
50,000 M/T. SO PLS NOTE ACCORDINGLY.

RGDS
20605 HONYISN TH
85527 SHPMA HX
61356 DALAT HX
AAD 001.3”

57. I find myself forced to a conclusion that there was never any agreement between the parties that thecontract amount should be reduced from 100,000 M.T. to 50,000 M.T. and that Mr. Prachai has fabricated this evidence.

58. Mr. Prachai kept complaining about the slowness of the loading and the difficulties which he encountered on this score, 1 do not think that any of this has much relevance to the issues lying before me for determination. I accept the validity of the submission made by Mr. Clifford Smith that it is obvious from what occurred, namely the tact that deliveries were made and accepted after the 15th September 1989 that there was a mutual agreement between the parties for the 15th September 1989 deadline to be extended so far as the rice loaded on the Meghna was concerned.

59. I have no doubt whatever from all of the evidence before me that the plaintiff has proved that the defendant was in breach of the contract dated the 11th July 1989 by failing to make further nominations of ships and open letters of credit after formally being required to do so by the plaintiff. The date of this failure was the 18th October 1989.

Quantum

60. I think that it is accepted by both parties once liability is established damages would be payable on the basis of s.52(3) of The Sale of Goods Ordinance,Ch. 26. For the purposes of this action this would meanthat damages should be calculated on the difference between the contract price and the market price at the date of the breach. As I have already indicated the date of the breach of the said contract was the 18th October 1989.

61. I do not think that there can be any doubt whatever that on the available evidence there was an abundance of rice available in Ho Chi Minh City for the plaintiff to supply the needs of the defendant. This was never seriously in issue.

62. What is very much in issue is the market price of Vietnamese rice on the 18th October 1989.

63. The plaintiff called Mr. Thomas Slayton as an expert witness. He has many years’ experience in the rice trade and now provides an advisory service to clients. The main basis of his evidence was the Expert Report which was filed as evidence.

64. This outlined in general terms the factors which had a bearing on the price of rice at any given point in time. Mr. Slayton said that as Thailand was the largest exporter of rice in the world it was convenient to assess prices on transactions involving Thai rice.

65. Although historically Vietnam had been a substantial and important exporter of rice they had not been significant exporters in the recent past prior to 1989. In that year they had started exporting large quantities of rice.

66. For a number of reasons purchasers of rice had initially only been prepared to pay lower prices for rice than those obtainable for Thai rice.

67. One important element had been the uncertainty surrounding the ability of Vietnam to meet large orders. In particular port facilities at Ho Chi Minh City were limited and cargoes had to be restricted to about 12,000 M.T. to 15,000 M.T. per cargo as a result of the amount of the draught of vessels being limited. When this was taken in conjunction with an excessive amount of congestion in the port, purchasers were uncertain that large shipments could be undertaken within reasonable time constraints.

68. A further important factor in July 1989 had been the policy of the Vietnam authorities to gain a significant position in the international market. They had been prepared to countenance lower prices so as to gain much needed foreign exchange. At the beginning of July prices for Vietnamese 35% had been traded at a discount of US$78 against Thai rice of a similar quality. This was an unusually large spread and it was a subject of considerable controversy as to the extent to which this spread had reduced over the ensuing months.

69. The situation had also been complicated by twoother considerations. One was the existence of what was described as the minimum export price. The Government stipulated a minimum price which could be fixed for any sale of rice. The purpose of this was to prevent exporters competing among themselves and bringing about a situation where all prices would be lowered. The other complication was brought about by the fact that many sales of rice were partly or in whole barter transactions. In 1989 it was to quite a large extent possible to surmount difficulties which may arise in connection with prices below the minimum export price by inflating the invoices of goods being bartered for the rice. All of this made it rather difficult to ascertain exactly what the market price may be at any particular point of time.

70. Mr. Slayton produced a graph and tables which indicated price trends over the relevant period. On the basis of his opinion it appeared that from sometime towards the end of July 1989 prices started to decline quite sharply and this decline continued until the beginning of November.

71. Mr. Slayton used a number of different sources for determining the price of rice. These included market reports from a London Broker, Jackson Son & Co., and from the London Rice Brokers Association.

72. The main line of attack in Mr. Tang’s cross-examination related to the spread which Mr. Slayton said existed between Thai and Vietnam rice prices. Mr. Tang was able to demonstrate from the material available that the spread became much narrower as time passed. Mr. Slayton accepted that if one considered the position in 1990 and 1991 this was undoubtedly the case and the reason for it was that the market now accepted that Vietnamese exporters were able to meet large Shipments of rice within times stipulated in contracts thus eliminating to a considerable extent the risk factor.

73. Clearly one of the most important determinants of market price was the extent of supply and demand at any particular time. It seemed to be fairly clear from the evidence that in September and October 1989 large quantities of rice were available at Ho Chi Minh City and it seems likely that this fact would have had the effect of deflating the price of Vietnamese rice. This view of the market appears to have been accepted by the London Rice Brokers Association.

74. The London Rice Brokers Association issued a monthly newsletter which contained comments on rice market conditions. Their circulars for the months of August and October 1989 both make reference to sharp falls in the price of rice.  Indeed the price given for Thai 35% broken rice at the end of October was US$215 per M.T. There was also nothing in the October circu1ar to suggest that there had been any narrowing of the differential which existed between Thai and Vietnamese rice.

75. What is clear from the circulars and from JacksonBrokers Reports is that prices are, as one would expect, sensitive to the laws of supply and demand, and that by October there would appear to have been abundant supplies of both Thai and Vietnamese rice. In the light of the contents of the reports it would appear that prices in the rice market were generally weak at the relevant time.

76. Doing the best he could with all the information which was available Mr.Slayton expressed the opinion that Vietnamese 35% broken rice would have been worth US$189 per M.T. on the 20th October 1989.

78. This figure was based on a Thai price of US$220 and a spread between Thai and Vietnamese prices of US$31.

79. One of the main difficulties in determining the market price of Vietnamese rice is the small number of transactions effected at the relevant time.

80. I can accept the logic of using the Thai price as a general indicator of price levels. The problem though is knowing the exact extent of the differential between Thai and Vietnamese prices.

81. Mr. Slayton considered the differentials existing at the end of July and the end of September and attempted to work out the amount of the differential in December 1989 by reference to a contract entered into by a Vietnamese entity and a French organisation on the 15th December 1989.

82. There was a barter element in that contract but the price fixed for the Vietnamese rice of a similar quantity FOB was US$165. This indicated a price differential of US$40-45 on the London Rice Brokers Association’s price at that time.

83. I have no doubt that Mr. Slayton is an experienced expert in this field and that he has done his best to assess the price of Vietnamese rice at the time in question.

84. The expert to give evidence for the defendant was Mr. Rakesh Sodhia who is the Marketing Vice President of G. Premjee, a Bangkok merchant company dealing in the rice trade.

85. Mr. Sodhia has experience in the trade since 1982. His company has had business transactions with the defendant since 1983 and he spoke highly of Mr. Prachai as a trader.

86. Mr. Sodhia did know Mr. Slayton quite well and was a subscriber to the newsletter which he issued. He was also aware of the circulars issued by the London Rice Brokers Association. He accepted that the views of that body merited serious consideration particularly as the opinions which were expressed were detached and apparently impartial.

87. Vietnam had entered into the rice export market in a substantial way in the early part of 1989.

88. Initially there had been a price discount of about US$60-70 per M.T. on account of the uncertainty attaching to this source of supply. It was his evidence that as soon as importers came to know that Vietnam rice was of a satisfactory quality, the price discount had diminished and indeed it was possible that the price may have been at a premium by the latter part of 1989.

89. Mr. Clifford Smith put to him the 3 factors which had been put forward by Mr. Slayton as being the reasonsfor the price spread. These were:

          1. The market’s unfamiliarity with Vietnamese rice;

2. Slow loading of rice at Ho Chi. Minh City coupled with the congestion in the port; and

3. The greater distance for transporting ice to the main floating market for rice, West African countries. Mr. Sodhia agreed with all these factors. It would appear that only the first factor referred to would be likely to change significantly in the time scale of the contract.

90. Mr. Sodhia’s answer to this was that the most important factor in explaining the price differential was the willingness of the Vietnamese Government to sell at a discounted price so as to establish a presence in the world rice market. Once this had been achieved there would be less incentive to discount prices. There may be some validity in this contention.

91. Mr. Sodhia experienced other problems in maintaining his evidence that the spread in the price of Thai and Vietnamese rice had disappeared by October. He accepted that at the beginning of July 1989 the price of Thai rice was US$310 per M.T. and the price of Vietnamese rice was $230 thus giving a spread of US$65-70 per M.T. Mr. Sodhia also accepted that in the middle of December 1989 the price of Thai rice was US$210 per M.T. Afterbeing shown a contract dated the 15th December 1989 where a similar quality of Vietnamese rice had been sold for US$165 per M.T. he accepted that that figure may have reflected the true value of Vietnamese rice at that time. These prices would indicate a spread of US$45 per M.T. in December.

92. Mr. Sodhia was quite unable to give any plausible explanation as to why the spread should have disappeared temporarily in October 1989.

93. It is necessary to consider this evidence in conjunction with the reasons which are said to justify there being a spread in the first place. Logic would seem to indicate that only the Vietnamese Government willingness to obtain a position in the market and the 1st factor referred to by Mr. Slayton was likely to change very much during 1989.

94. I have no doubt that there was a difference in the prices of Thai and Vietnamese rice in October 1989.

95. Mr. Sodhia was taken through the London Rice Brokers Association’s Circulars and the Jackson Reports over the relevant period. He was unable to make any constructive observations on this material. Most of thetime he said that he agreed with the opinions being expressed. Occasionally he said the price seemed on thehigh side.

96. What was significant was that he agreed that with the exception of one transaction he had been involved in of a sale of Vietnamese rice to the Sri Lankan Government in August 1989, he had not himself been a party to any contracts of Vietnamese rice during the relevant period. His only knowledge of prices applicable was what he learnt, from discussions with other parties in the trade.

97. A good illustration of the unsatisfactory nature of this witness’s evidence can be seen from the inconsistencies relating to the different prices referred to in the circulars issued by Jackson Brothers and the evidence he gave in this connection. For example, when he was commenting on Jackson’s 27th July price of US$295 for Thai rice, he said that probably the price was nearer to $290. However, when earlier he had been giving evidence of the price of rice at this time he had expressed the view that the price of Thai rice was between $255 to $260 at that time. There were other examples of serious discrepancies in Mr. Sodhia’s evidence.

98. I regret that I have come to the conclusion that I can attach little credence to Mr. Sodhia’s expert evidence and where his view of prices is at variance with the opinions given by Mr Slayton, I have no hesitation in preferring the latter’s testimony.

99. The only other evidence available was a report from another Broker, Philipp Bros Ltd. dated the 17th October 1989. This made reference to floating cargoes of Vietnamese 35% broken rice where sale offers were being made at US$230 to US$240 per M.T. C & F. Both experts agreed that the freight element would constitute about US$40 of the price which would bring it close to Mr. Slaytons estimated figure of US$189 per M.T.

100. I consider, however, that it is necessary to exercise great caution when reference is made to offers rather than to prevailing contract prices. For this reason, I would not attach a great deal of weight to the information contained in the Philipp Bros Ltd. report.

101. I would make a similar observation concerning various offers which Mr. Prachai obtained in October 1989 which were produced as evidence. It is significant to note that no counter offer was made by Mr. Prachai and there is no means of knowing the extent to which the parties making offers would have been prepared to reduce their prices.

102. I tend to think that the price would have been on the low side at this time on account of the undisputed evidence of there being large quantities of rice available in both Thailand and Vietnam.

103. Having given much thought to all of the evidence available I have come to the conclusion that Mr. Slayton’s expert evidence can not be seriously flawed and I propose accepting that the market price of the rice on the 18th October was US$189 per M.T. It is common ground that the contract price of the rice was US$230 per M.T. The difference therefore between the market price and the contract price was US$41 per M.T.

104. As to the amount of the balance of the rice, I accept the validity of Mr. Tang’s submission that as the contract gave the buyer the option of taking 100,000 M.T. of rice plus or minus 5%, it is only fair to assess damages on the minimum amount the defendant was required to take namely 95,000 M.T. This leaves a balance of 47,120 M.T.

105. The amount of damages payable will be US$41 x 47,120 = US$1,931,920.00. I make an order nisi that costs will be to the plaintiff and I will hear the parties on the amount of interest which should be payable on this sum. In accordance with the observations made earlier in this judgment the defendant’s counterclaim is dismissed.