BODUM A.G. v. RENCO TRADING LTD

HCA 460/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 460 OF 2011

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BETWEEN

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ASSESSMENT OF DAMAGES

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I.  BACKGROUND

1.  The Plaintiff is a Swiss company engaged in the business of manufacturing and selling home appliances under the “Bodum” brand.  The Defendant is a Hong Kong company engaged in the manufacture of household appliances.

2.  The Plaintiff engaged the Defendant to manufacture and supply the following products (collectively, “Products”):

(a)   Chambord Stainless Steel Kettle (10882);

(b)   Chambord Kettle with Electric Base (11076-16);

(c)   Plastic IBIS Water Kettle (5500);

(d)   Stainless Steel IBIS Water Kettle (5500-16);

(e)   Bistro Kettle (11138);

(f)   Milk Frother (10868).

3.  For the purpose of resolving a dispute between them, the Plaintiff and the Defendant entered into a written settlement agreement on 22 December 2010 (“Settlement Agreement”) to confirm the terms under which (a) the Plaintiff would take delivery of the Products manufactured by the Defendant but not delivered (“Undelivered Products”), (b) the Defendant would release the moulds for the Products (“Moulds”) and (c) the Plaintiff would make payment to the Defendant for the Products.

4.  The Settlement Agreement contained inter alia the following terms:

(a)   SGS (a quality testing service) shall at the expense of the Defendant test and inspect the Undelivered Products held by the Defendant together with the Plaintiff’s representatives (clauses 2 to 4).

(b)   SGS shall deliver its full inspection report on the Undelivered Products to the Plaintiff (clause 5).

(c)   If SGS’ inspection report complied with the inspection instructions, the Plaintiff shall transfer 70% of the price as confirmed in the purchase order for each “passed” item of the Undelivered Products (“Down Payment”) to the Defendant’s bank account, and the “passed” quantity of Undelivered Products confirmed by SGS’ inspection report (“Passed Products”) shall be treated as conclusive for such purpose (clause 5).

(d)   The Moulds would be loaded on a vehicle belonging to the Plaintiff or its agent upon the Defendant’s confirmation that it had received the transfer of the total Down Payment in its bank account (clause 5).

(e)   As soon as possible after receipt of the total Down Payment, the Defendant shall release the Passed Products for shipment to the Plaintiff FOB Yantian (according to the purchase order) (clause 7).

(f)   The remaining 30% of the price for the Passed Products shall be transferred to the Defendant 45 days after the shipment on-board date (clause 8).

(g)   Provided the parties complied with the terms of the Settlement Agreement it shall be in full and final settlement of all claims that the parties had against each other in relation to (i) the payment for inter alia the Undelivered Products, (ii) the Plaintiff’s claim for return of the Moulds held by the Defendant, and (iii) all other claims that the Defendant might have against the Plaintiff.  The parties agreed not to pursue claims against each other in relation to these matters provided both parties complied with the terms of the Settlement Agreement.

5.  On 12 and 28 January 2011, the Plaintiff remitted the sums of US$137,489.00, US$138,574.00 and US$227,910.00 to the Defendant’s bank account. Part of each sum, ie US$34,147.00, US$58.00 and US$4,050.00 respectively, was for payment of the Products that had been shipped, and the remaining balance of each sum, ie US$103,342.00, US$138,517.00 and US$223,859.00 (totalling US$465,718.00), was respectively the Down Payment for the Passed Products being 5500 Water Kettle, 11138 Water Kettle and 10864 Milk Frother.

6.  Upon receipt of the Down Payment, the Defendant was obliged under clause 5 of the Settlement Agreement to load the Moulds onto a vehicle owned by the Plaintiff or its agent, and under clause 7 thereof to make arrangements as soon as possible to release the Passed Products for shipment.

7.  Despite repeated requests and demands, the Defendant failed to (a) load the Moulds onto a vehicle owned by the Plaintiff or its agent, (b) release the Passed Products for shipment and/or (c) refund to the Plaintiff the total Down Payment in the sum of US$465,718.00 or any part thereof.

8.  On 21 March 2011, the Plaintiff commenced the present action against the Defendant. The Statement of Claim pleaded the aforesaid material facts, and sought the following reliefs:

(a)   “damages for breach of the Settlement Agreement of US$465,718”;

(b)   return of the Moulds;

(c)   interest;

(d)   costs;

(e)   such other relief as the court would deem fit.

9.  I pause here to note that apart from the prayer of relief specified in paragraph 8(a) above there was no averment in respect of any claim for damages in the body of the Statement of Claim.  This is a matter I will return to below.

10.  On 28 April 2011, the Plaintiff filed an inter partes summons for summary judgment in respect of the pleaded reliefs specified in paragraph 8 above.  On 16 May 2011, Master Lai granted summary judgment in the following terms: “it is this day adjudged that the Defendant do pay the Plaintiff damages to be assessed” (“Judgment”).

11.  It is unclear on the face of the Judgment what order (if any) was made pursuant to the Order 14 application in respect of the relief sought by the Plaintiff for the return of the Moulds.  Upon enquiry with the solicitors for the parties at the assessment of damages on 12 October 2011 before me (“Hearing”), both solicitors assured me the learned master did raise with them the matter of the Moulds at the Order 14 hearing, but they were unable to agree on the result of their dialogue with the bench at such hearing.  Mr Melwani, solicitor for the Plaintiff, submitted that the learned master considered the Plaintiff’s claim for the return of the Moulds should not be pursued, but Mr Ku, solicitor for the Defendant, seemed to think that the Plaintiff intended to seek damages in lieu of the return of the Moulds since the Moulds were in the actual possession of a third party and not with the Defendant.  Mr Ku’s suggestion gave me concern because it would have been impossible to proceed with the assessment of damages in the absence of any plea and/or evidence before me as to any claim for damages in lieu of the return of the Moulds.

12.  In the end, Mr Melwani decided not to pursue any claim for return of the Moulds or for damages in lieu of such relief.  Therefore, at the Hearing, I granted leave for the Plaintiff to withdraw its claim for the return of the Moulds in paragraph (b) of the prayer of relief in the Statement of Claim endorsed on the Amended Writ of Summons re-filed on 23 March 2011.  Such withdrawal shall be without recourse, and the Plaintiff shall not be entitled to issue further legal action against the Defendant for the same relief and/or for any damages in lieu of the return of the Moulds.

II.  PROCEDURAL MATTERS

13.  On 14 June 2011, Master de Souza gave directions for the Plaintiff to file and serve affidavit(s) setting out the damages claimed and for the Defendant to file and serve affidavit(s) setting out its objections thereto.  The learned master further directed that the hearing of the assessment of damages shall be on affidavit evidence only, and there shall be no further discovery other than what was to be set out in the affidavits (and exhibits) referred to above.

14.  On 28 June 2011, the Plaintiff filed the 2^nd affirmation of Leung Wai Man (“Mr Leung”) in compliance with the order of Master de Souza dated 14 June 2011 (“2^nd Affirmation”).  Such affirmation made reference to the contents of the 1^st affirmation of Mr Leung filed on 27 April 2011 (“1^st Affirmation”).  Hence, for the purpose of the Hearing before me, the Plaintiff relied on both the 1^st and 2^nd Affirmations.

15.  The Defendant did not file or serve any affidavit pursuant to the order of Master de Souza dated 14 June 2011.  Indeed, the Defendant failed to do so despite an “unless” order granted on 22 July 2011, and was consequently debarred from adducing any affidavit, witness and documentary evidence at the Hearing.

16.  The Plaintiff did not call Mr Leung to give viva voce evidence or tender him for cross-examination at the Hearing.  However, it is apparent from Order 37 rule 1 of the Rules of the High Court (“RHC”) that viva voce evidence should be taken from witnesses at the assessment of damages.  Eventually, Mr Melwani and Mr Ku agreed to adopt the course specified in Order 38 rule 2 of the RHC, so I ordered by consent that:

(a)   leave be granted for the 1^st Affirmation and paragraphs 1 to 8 of the 2^nd Affirmation to be read at the Hearing;

(b)   leave be granted for paragraphs 9 and 10 of the 2^nd Affirmation to be read at the Hearing on de bene esse basis;

(c)   the deponent of the 1^st and 2^nd Affirmations (ie Mr Leung) shall not be subject to cross-examination and need not attend the assessment of damages for such purpose.

17.  In the Statement of Claim, the Plaintiff averred it had repeatedly demanded the Defendant to refund the total Down Payment in the sum of US$465,718.00, and further pleaded the prayer of relief for “damages for breach of the Settlement Agreement of US$465,718” (see paragraphs 7 and 8(a) above).  Mr Ku in his written submissions and at the Hearing confirmed that the Defendant would not dispute the Plaintiff’s claim for the sum of US$465,718.00 and for interest thereon pursuant to sections 48 and 49 of the High Court Ordinance Cap.4.  Given such concession, it is unnecessary for me to consider in detail the factual and legal basis in support of this head of damages.

18.  However, in paragraphs 9 and 10 of the 2^nd Affirmation, Mr Leung put forward a claim for the “cost of applying for new safety approvals” (“Safety Approval Costs”) quantified in the sum of US$21,693.00.  Such alleged loss and damage were not explicitly pleaded in the Statement of Claim.  In particular, the prayer of relief expressly averred that damages for breach of the Settlement Agreement of “US$465,718” (ie the precise value of the total Down Payment).

19.  As evident from Mr Ku’s written submissions, the Defendant disputed the claim for the Safety Approval Costs (“Expenses Claim”).  Since the Statement of Claim did not explicitly feature such claim, Mr Ku took both a pleading point and a challenge on the merits.  In the circumstances, the contents of paragraphs 9 and 10 of the 2^nd Affirmation (which referred to exhibit “LWM-10”) were read at the Hearing on de bene esse basis.

III.  ISSUES

20.  In my view, the disputed issues are as follows:

(a)   whether the Plaintiff was required to plead all material facts for the Expenses Claim;

(b)   if the Plaintiff was so required, whether it had pleaded all such material facts;

(c)   if the Plaintiff was required but failed to plead all such material facts, whether it was entitled to lead evidence in support of such claim;

(d)   if the Plaintiff was so entitled, whether it had proved its loss and damage in respect of the Expenses Claim.

21.  Although the Defendant did not file any affidavit to adduce countervailing factual evidence, Mr Melwani did not dispute that the Plaintiff being the claimant carried the burden of proving both the fact and quantum of damage.  As explained in McGregor on Damages 18^th ed para.45-001 at pp.1809-1810, even if a defendant fails to deny the allegations of damage or suffers default, the claimant must still prove his loss.

IV.  AFFIRMATION  EVIDENCE

22.  Mr Leung was the general manager of Bodum Hong Kong Limited, which dealt with suppliers in the PRC and other parts of Asia that manufactured Bodum designed and branded household goods for the Bodum group.  He was actively involved in all aspects of the Plaintiff’s relationship with the Defendant in respect of the subject matter of the present action, and was therefore authorised by the Plaintiff to make the 1^st and 2^nd Affirmations.

(a)  Settlement Agreement

23.  Mr Leung confirmed the matters set out in paragraphs 2-5 above.

(b)  Breach

24.  Mr Leung stated that the Defendant failed to release the Moulds and/or arrange for shipment of the Passed Products.  Emails dated 31 January and 1 February 2011 from the Plaintiff to the Defendant exhibited to the 1^st Affirmation noted the Defendant’s suggestion that the Moulds could not be removed because its factory was already closed for the Chinese New Year holidays.

25.  The Plaintiff protested against such explanation, and its solicitors wrote to the Defendant on 24 February 2011 (a) to record that the Defendant failed to cooperate on arranging shipment of the Passed Products, providing a delivery plan and/or confirming the date for the release of the Moulds, and (b) to state that the suggestion in the Defendant’s email of the same date that its sub-contractors “are holding “tools and stock”” failed to excuse non-compliance with obligations under the Settlement Agreement to deliver up the Moulds and to ship the Passed Products (which had been paid for).  The Plaintiff’s solicitors demanded the Defendant to confirm by return that the Moulds and the Passed Products were ready for immediate collection and shipment and to provide a delivery plan.

26.  There was no reply, so on 4 March 2011 the Plaintiff’s solicitors wrote to warn the Defendant that if it did not refund the total Down Payment sum of US$465,718.00 by 8 March 2011, the Plaintiff would commence legal proceedings to recover such sum and the Moulds.

27.  On 5 March 2011, the Defendant’s solicitors replied to say the Moulds and the Passed Products were held by the manufacturer Tech Lane Industries Limited (“Tech Lane”) “on account of substantial amounts allegedly due by [the Defendant]”, and the Defendant was making every effort to procure release of the Moulds and the Passed Products for delivery to the Plaintiff.

28.  Although Mr Leung was of the view that any dispute between the Defendant and Tech Lane had no bearing on the former’s obligations under the Settlement Agreement, he was concerned that the Defendant and Tech Lane might be related companies because:

(a)   until 1 March 2011 both companies shared the same registered office in Fanling, New Territories, and such address was in fact Tech Lane’s business address;

(b)   the directors of both companies all bore the surname “Ko”;

(c)   Ko Kim Ching (“Mr Ko”), 99.99% shareholder of Tech Lane  and father of Ms Annie Ko (who liaised with the Plaintiff and its solicitors by email over the matter of payment/remittances for the Passed Products), used a business card that listed Tech Lane as one of the companies he represented;

(d)   Mr Ko along with his son and daughter represented the Defendant in a meeting with the Plaintiff’s representatives (including Mr Leung) on 22 December 2010 to negotiate and agree the terms of the Settlement Agreement.

Mr Leung pointed out that Mr Ko must have known about the Defendant’s obligations under the Settlement Agreement since he signed such agreement on behalf of the Defendant, but until 5 March 2011 there was no intimation that the Defendant might not be able to perform its obligations under such agreement due to dispute with Tech Lane.

29.  On 10 March 2011, the Plaintiff’s solicitors replied to the letter from the Defendant’s solicitors dated 5 March 2011.  They rejected the Defendant’s purported justification for failure to perform its obligations under the Settlement Agreement, and advised that the Plaintiff would only refrain from commencing legal proceedings if the Defendant provided a genuine concrete proposal for delivery of the Moulds and the Passed Products by 11 March 2011.

30.  On 11 March 2011, the Defendant’s solicitors requested a further 7 days. But the Plaintiff was only prepared to withhold legal proceedings until 14 March 2011.

31.  On 14 March 2011, the Plaintiff’s solicitors wrote to the Defendant’s solicitors to say that the Defendant’s breach of the Settlement Agreement was intolerable since it “put [the Plaintiff] in a position in which they will not be able to satisfy their customers’ orders”, and that the Plaintiff would hold the Defendant liable for all losses caused by such breach “including all penalties and other losses arising out of their customers’ cancellation of orders and wasted promotional and other expenses”.

(c)  Present action

32.  On 21 March 2011, the Plaintiff commenced the present action. The Plaintiff discovered that the Defendant had changed its registered office to an address in Central, Hong Kong on 1 March 2011 after its solicitors’ unsuccessful attempts to serve the writ on the previous registered office in Fanling, New Territories.

(d)  Safety Approval Costs

33.  On 29 and 30 March 2011, the Plaintiff’s solicitors wrote to the Defendant’s solicitors and to the Defendant respectively stating that the Plaintiff expected to suffer significant losses (including lost sales and wasted costs) as a result of the Defendant’s failure to ship the Passed Products.  They explained that the Plaintiff would be conducting a television advertising campaign in Australia in June 2011, which would feature the Milk Frother amongst other Bodum products, and further warned that if the Passed Products were not released and delivered according to the Plaintiff’s instructions, the Plaintiff would lose orders for them and there would be wasted advertising and other costs.  The Plaintiff would therefore hold the Defendant responsible for all wasted costs, lost orders and penalties as a result.

34.  In their letter to the Defendant’s solicitors on 14 April 2011, the Plaintiff’s solicitors noted that numerous demands had been made to the Defendant to either deliver up the Passed Products or refund the total Down Payment.  They further referred to the television advertising campaign in Australia in June 2011 mentioned in their letter of 29 March 2011, and stated that to mitigate loss the Plaintiff had to instruct an alternative supplier to manufacture replacements for the Passed Products.  Given the lapse of time since the inspection of the Passed Products by SGS and the Plaintiff, and the apparent seizure of the Passed Products by a subcontractor which put such products outside the Defendant’s control, the Plaintiff would no longer be prepared to accept the Passed Products (which had to meet rigorous safety standards) even if the Defendant were to deliver up the same.  The Plaintiff’s solicitors stated that the Plaintiff would therefore require refund of the total Down Payment without delay.

35.  Mr Leung explained that pursuant to clause 2 of the Settlement Agreement, the Defendant was required to pay for a full inspection and functional test of the Undelivered Products, which was necessary to comply with various national safety regulations listed in Appendix D to the Settlement Agreement.  Given the Defendant’s breach of the Settlement Agreement, the Plaintiff had to incur and would continue to incur cost of seeking new safety approvals “in respect of replacement goods and to be supplied by an alternative supplier (Lucky Sky (HK) Ltd)”.  Mr Leung particularised the Safety Approval Costs as follows:

Product	Type of test	Amount (US$)
Plastic IBIS 5500	ETL	5,641.00
	GS	5,270.00
Bistro Kettle 11138	ETL	5,400.00
	GS	4,532.00
Milk Frother 10864	EMC and FCC	850.00
	Total	US$21,693.00

V.  DISCUSSION

(a) Material facts have to be pleaded

36.  Order 18 rule 7 of the RHC provides inter alia that every pleading must contain, and contain only, a statement in a summary form of the material facts on which the party pleading relies for his claim, but not the evidence by which those facts are to be proved.  Order 18 rule 9 of the RHC provides inter alia that a party may in any pleading plead any matter which has arisen at any time, whether before or since the issue of the writ.

37.  The pleaded facts must be “material”, ie relevant to the claim. Any fact which the party is entitled to prove at trial is relevant, and therefore material to be pleaded, even though “it may relate only to the quantum of damages or the type of relief claimed” (see Jacob and Goldrein, Pleadings: Principles and Practice (1990) p.47).

38.  “It is essential that a pleading, if it is not to be embarrassing, should state those facts which will put those against whom it is directed on their guard, and tell them what is the case which they will have to meet. …… Each party must plead all the material facts on which he means to rely at the trial; otherwise he is not entitled to give any evidence of them at the trial. No averment must be omitted which is essential to success. ……” (see Hong Kong Civil Procedure 2011 Vol.1 para.18/7/7 at p.372 and see also Jacob and Goldrein, Pleadings: Principles and Practice (1990) p.48).

39.  Ordinarily, the material facts to be pleaded are those which existed at the date of the issue of the writ, but occasionally the rights of the parties may be affected by events or circumstances which happen or take place after the issue of the writ.  Accordingly, either party may in any pleading plead any material matter which has arisen before or since the issue of the writ.  Moreover, Order 18 rule 9 of the RHC is also subject to the general power of amendment of pleadings, so in a proper case a party may by amendment raise matters arising before or since the issue of the writ (see Jacob and Goldrein, Pleadings: Principles and Practice (1990) pp.63-64).

(b) Statement of Claim

40.  I note at the outset that none of the facts and matters set out in the correspondence referred to in paragraphs 33-34 above were expressly pleaded in the Statement of Claim. Indeed, Mr Leung in the 2^nd Affirmation merely deposed to the issuance of such correspondence, but did not verify the facts and matters stated therein. Further, the facts and matters described in paragraph 35 above were also not explicitly pleaded in the Statement of Claim.

41.  In the course of his submissions at the Hearing, Mr Melwani trifled with the possibility of making an oral application for leave to amend the Statement of Claim to expressly plead the Expenses Claim and/or for leave to adduce further affirmation evidence from Mr Leung.  In the end, he preferred to stand on the Plaintiff’s existing pleadings and affirmation evidence, and did not formally make any such application.

(c) Pleading point

42.  Mr Ku submitted that the material facts in respect of the Expenses Claim should be expressly pleaded, and since the Plaintiff failed to so plead, it was not entitled to give any evidence of such claim (ie paragraphs 9 and 10 and exhibit “LWM-10” of the 2^nd Affirmation) at the assessment of damages.  

43.  On the other hand, Mr Melwani submitted that the Expenses Claim was one for general damage as a natural and probable consequence of the Defendant’s breach of the Settlement Agreement, so it could be averred generally without any explicit plea in the Statement of Claim.  Hence, Mr Melwani further submitted, the Plaintiff was entitled to adduce evidence in support of such claim.  He argued that in any event the Defendant was not prejudiced because the Expenses Claim and the supporting evidence had been disclosed by way of the 2^nd Affirmation several months prior to the Hearing.

(d) Need for express plea

44.  The basic test of whether damage is general or special is whether particularity is necessary and useful to warn the defendant of the type of claim and evidence, or of the specific amounts of claim, which he will be confronted at trial (see McGregor on Damages 18^th ed para.44-007 at p.1791).

45.  Special damage is such a loss that the law will not presume to be the consequence of the defendant’s act, but such as depends in part, at least, on the special circumstances of the particular case (see Jacob and Goldrein, Pleadings: Principles and Practice (1990) p.87).  Further, where the precise amount of a particular item of damage has become clear before the trial, either because it has already occurred or so become crystallised or because it can be measured with complete accuracy, this exact loss must be pleaded as special damage (see McGregor on Damages 18^th ed para.44-012 at p.1793).

46.  Special damage must always be explicitly claimed on the pleading with all necessary particulars otherwise the defendant would have no notice that such item of damage would be claimed from him at the trial (see Jacob and Goldrein, Pleadings: Principles and Practice (1990) p.87 and Ratcliffe v Evans [1892] 2 QB 524, 528).  On a strict view, the plaintiff will not be allowed at trial to give evidence of any special damage which is not claimed explicitly in his pleadings (see McGregor on Damages 18^th ed para.44-017 at p.1797).  But even if there is a greater degree of leniency under the modern approach, a claim for special damage will only be allowed to be proved if the existence of such claim is clear from the statement of claim (see McGregor on Damages 18^th ed para.44-018 at p.1797).

47.  As for the degree of particularity of the plea for any special damage, Ratcliffe at pp.532-533 stated that “the character of the acts themselves which produce the damage, and the circumstances under which these acts are done, must regulate the degree of certainty and particularity with which the damage done ought to be stated and proved.  As much certainty and particularity must be insisted on, both in pleading and proof of damage, as is reasonable, having regard to the circumstances and to the nature of the acts themselves by which the damage is done”.

48.  On the other hand, general damage is such as the law will presume to be the natural and probable consequence of the defendant’s act.  It arises by inference of law and may be averred generally (see Jacob and Goldrein, Pleadings: Principles and Practice (1990) p.87).

49.  But whether the damage be general or special, it is not sufficient, where damages are at large, to plead the broad conventional allegation that by reason of the pleaded facts damage has been suffered.  At the Hearing, I referred Mr Melwani and Mr Ku to the case of Perestrello E Companhia Limitada v United Paint Co Ltd [1969] 3 All ER 479.  In that case, the plaintiffs were to manufacture and sell overseas a special product made by the defendants by a secret process with technical assistance and machinery to be supplied by them to the plaintiffs.  The defendants repudiated the agreement. Although a claim for loss of profits was foreshadowed in correspondence, the plaintiffs’ pleadings only claimed special damage for wasted expenditure in a quantified amount “and damages”.  The plaintiffs subsequently applied for leave to amend their pleadings to claim damages for loss of profits which they would have made had the agreements been performed.  The plaintiffs alternatively argued that their existing pleadings were sufficient to embrace the claim for loss of profits because damages recoverable for loss of profits would be general rather than special damages, and the plaintiffs had no obligation to plead general damages beyond the words “and damages” appearing in the statement of claim.

50.  It was held that although the claim for loss of profits was one for unliquidated damages and not for special damage (at p.485), the plaintiffs could not, without amending their pleadings, adduce evidence of the alleged loss of profits.  If a claim was one which could not without justice be sprung on the defendants at the trial, it required to be pleaded so that the nature of that claim was disclosed.  A mere statement that the plaintiffs claimed “damages” was not sufficient to let in evidence of a particular kind of loss which was not a necessary consequence of the wrongful act, and of which the defendants were entitled to fair warning.

51.  At pp.485-486, Lord Donovan said as follows:

“Accordingly, if a plaintiff has suffered damage of a kind which is not the necessary and immediate consequence of the wrongful act, he must warn the defendant in the pleadings that the compensation claimed will extend to this damage, thus showing the defendant the case he has to meet and assisting him in computing a payment into court.

The limits of this requirement are not dictated by any preconceived notions of what is general or special damage but by the circumstances of the particular case. “The question to be decided does not depend on words, but is one of substance” (per Bowen, L.J., in Ratcliffe v. Evans).

The same principle gives rise to a plaintiff’s undoubted obligation to plead and particularise any item of damage which represents out-of-pocket expenses, or loss of earnings, incurred prior to the trial, and which is capable of substantially exact calculation. Such damage is commonly referred to as special damage or special damages but is no more than an example of damage which is “special” in the sense that fairness to the defendant requires that it be pleaded.

The obligation to particularise in this latter case arises not because the nature of the loss is necessarily unusual, but because a plaintiff who has the advantage of being able to base his claim on a precise calculation must give the defendant access to the facts which make calculation possible.” (my emphasis)

52.  I have also referred Mr Melwani and Mr Ku to Hayward & anor v Pullinger & Partners Ltd [1950] 1 All ER 581.  In that case, the plaintiffs claimed damages for wrongful dismissal.  The pleadings alleged the contract and the breach.  They did not “contain any paragraph specifically alleging damage, but in the prayer there is a claim for damages for wrongful dismissal”.  It appeared that the damage in respect of which they sought to recover was the loss of salary and commission which they would have earned during the period of notice to which they claimed to be entitled if it had been given.  It was held that since the damage complained of was special damage, the statement of claim was defective.  Devlin J further held that there was no obligation on the part of the other party to ask for particulars of the special damage, and “the true position is that, unless they are contained in the statement of claim, evidence leading to damage in respect of which damages are claimed cannot technically be relied on at the trial” (at p.582).

53.  In considering the Expenses Claim, I am prepared to assume (as suggested in Mr Melwani’s written submissions) there was no ready or available market for acquiring the specially manufactured Undelivered Products.  In such circumstances, the normal measure of damages for non-delivery under the general rule in section 53 of the Sale of Goods Ordinance Cap.26 is “the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller's breach of contract” (my emphasis).  As explained in McGregor on Damages 18^th ed,

“Contracts are concerned with the mutual rendering of benefits. If one party makes default in performing his side of the contract, then the basic loss to the other party is the market value of the benefit of which he has been deprived through the breach. Put shortly, the claimant is entitled to compensation for the loss of his bargain. This is what may best be called the normal measure of damages in contract.” (para.2-002 at pp.31-32)

“(i) Non-performance. Where the breach of contract consists in a failure to transfer property, the basic loss is the market value of the property, always deducting the contract price if it has not been paid to the person in breach. The prime example of this is in sales of goods ……” (para.2-004 at p.32)

The assessment of the normal measure of damages for non-delivery of goods must be made on the basis of the value of the contract goods at the time and place of the breach which may be ascertained by any relevant evidence.  In the present case, the total Down Payment being loss of the bargain represented such normal measure of damages directly and naturally resulting from breach of the Settlement Agreement.

54.  The Hadley v Baxendale principle has extended damages for breach of contract to cover not just the normal measure of damages that is presumed, ie damages fairly and reasonably considered as arising naturally (ie from the usual course of things) from the breach of contract itself, but also to cover damages such as may reasonably be supposed to have been in contemplation of both parties at the time they made the contract as the probable result of breach of it.  Such consequential pecuniary loss depends on the special circumstances of the particular case and is not a necessary consequence of the breach.  In an appropriate case, it can cover, say, loss of profits, wasted expenditure and expenses that may be incurred by the claimant as a result of the breach (see Chitty on Contracts 13^th ed Vol.1 para.26-078 at p.1645 and Benjamin on Sale of Goods 8^th ed para.17-037 and 17-046 at pp.1062-1063 and 1071-1072).

55.  In my view, even if such loss had been in the reasonable contemplation of the parties as the probable result of breach at the time they made the contract, it has to be pleaded as special damage (see paragraph 45 above and also Hayward in paragraph 52 above), especially if such loss has been incurred, is for a liquidated sum and/or can be measured with precise/exact calculation (see paragraph 45 above).

56.  Turning to the circumstances of the present case, on the above principles I am persuaded that the Expenses Claim should have been explicitly pleaded.  The alleged loss in respect of the Safety Approval Costs as a result of the Defendant’s breach of the Settlement Agreement is particular to such contract and not presumed under the normal measure of damages, and is therefore special damage that ought to be expressly pleaded.  Further, Mr Leung claimed that as a result of the Defendant’s breach of the Settlement Agreement, the Plaintiff “had to incur and continues to incur” the Safety Approval Costs “in respect of replacement goods and to be supplied by an alternative supplier (Lucky Sky (HK) Ltd)”.  So even on the Plaintiff’s own case, the Expenses Claim relates to expenses already incurred (which must have been liquidated/quantified special damage) and/or expenses that continue to be incurred (which damage must be capable of being measured since quotations can obviously be obtained from the quality testing services – see exhibit “LMW-10” of the 2^nd Affirmation).  In such circumstances, I agree with Mr Ku that the Plaintiff should have but failed to expressly plead the Expenses Claim to give warning that such claim would confront the Defendant at the assessment of damages.

57.  But even if I am wrong and the Expenses Claim is one for unliquidated general damage and not special damage, Perestrello E Companhia Limitada explained that a mere plea for “damages” would not be sufficient to enable the Plaintiff to raise a claim for consequential pecuniary loss as a result of breach of contract without amendment of the pleadings to plead the material facts of such claim.  Hence the plaintiff in that case could not claim for loss of profits that had not been specifically pleaded.  Likewise in the present case, the Plaintiff should not be allowed to claim for the Safety Approval Costs without any express plea.

58.  More importantly, the claim as pleaded in the Statement of Claim is inconsistent with the Expenses Claim.  The prayer of relief in the Statement of Claim for “damages for breach of the Settlement Agreement of US$465,718” excludes any other loss and damage over and above the claim for damages equivalent to the total Down Payment.  This is a relevant consideration, especially when the Plaintiff elected to stand on its existing pleadings at the assessment of damages.

59.  Indeed, in Perestrello E Companhia Limitada, the court took into account the inconsistency between the proposed claim and the pleadings in declining to grant leave for amendment of the pleaded claim.  In that case, where the plaintiffs’ pleadings claimed not for their loss of profits arising out of the defendants’ repudiation of a contract but for their expenditure which had been rendered futile by the defendants’ breach, it was held that the claimants were not entitled to give evidence of this unpleaded loss, the court pointing particularly to the fact that, as was admitted, the claim as pleaded was inconsistent with the claim now sought to be advanced (see McGregor on Damages 18^th ed para.44-014 at p.1795).

60.  I therefore conclude that the Plaintiff is not entitled to claim for the Safety Approval Costs, and the evidence received de bene esse shall not be adduced for the assessment of damages.  But in case I am wrong, I turn to discuss the substantive merits of the Expenses Claim.

(e) Substantive merits

61.  In respect of the Safety Approval Costs set out in paragraph 35 above, Mr Melwani at the Hearing abandoned the claim for such costs in respect of Bistro Kettle 11138 in the sums of US$5,400.00 and US$4,532.00. In my view, such claim is rightly abandoned since the supporting quotation and invoice for such claim were respectively dated 9 November and 3 December 2010.  Since the Settlement Agreement has not come into existence at that time, it cannot be said that such loss allegedly evidenced by such quotation and invoice were the result of the Defendant’s breach of the Settlement Agreement.

62.  At the Hearing, Mr Melwani also informed the court that in respect of the Safety Approval Costs for Plastic IBIS 5500 (GS test) in the sum of US$5,270.00, the sum of US$960.00 for “Australia approval (SAA cert)” should be deducted since the national safety regulations listed in Appendix D of the Settlement Agreement covered American and European but not Australian requirements.  In short, the Plaintiff accepted that the need for Australian quality testing and certification was not contemplated by the parties at the time of the Settlement Agreement.

63.  In the circumstances, even on the Plaintiff’s own case, the Expenses Claim was quantified at US$10,801.00 by the time of the Hearing.

64.  On the balance of probabilities, I am not persuaded that the Plaintiff has discharged its burden of proof in establishing loss and damage for incurring Safety Approval Costs in the total sum of US$10,801.00.

65.  As pointed out by Mr Ku, notwithstanding Mr Leung’s bare assertion that there were “replacement goods and to be supplied by an alternative supplier (Lucky Sky (HK) Ltd)”, there is no evidence (whether documentary or otherwise) that the Plaintiff has placed orders for any replacement products with any alternative supplier, and that any such replacement products have been or will be manufactured.

66.  This is of particular concern.  The Plaintiff relies on two invoices in support of the claim for Safety Approval Costs in respect of the alleged replacement products for Plastic IBIS 5500.  The alleged replacement products must have been manufactured and the quality testing service already done on such products (in order to render such invoices), yet there is no evidence of the same.  More importantly, there is no evidence as to when the order was placed for the alleged replacement products in order to ascertain whether it was before or after the Defendant’s breach of the Settlement Agreement.  This is a real issue in light of the matters discussed in paragraph 61 above.

67.  The Plaintiff’s solicitors in their letter dated 14 March 2011 (see paragraph 31 above) suggested that the Defendant’s breach of the Settlement Agreement “put [the Plaintiff] in a position in which they will not be able to satisfy their customers’ orders” and warned of claims for inter alia “losses arising out of their customers’ cancellation of orders”.

68.  The Plaintiff’s solicitors in their further letters dated 29 March and 14 April 2011 (see paragraphs 33-34 above) referred to the television advertising campaign in Australia to be launched in June 2011.  They warned that if the Passed Products were not released the Plaintiff would lose orders for them and there would be wasted advertising and other costs, and further stated that in order to mitigate loss the Plaintiff had to instruct an alternative supplier to manufacture replacements for the Passed Products.

69.  However, the Plaintiff did not place before the court (a) the purchase order for the Products (including the Passed Products) even though the Settlement Agreement referred to such purchase order, (b) the sub-sale agreement for the sub-sale of the Products to its customers, and/or (c) any correspondence with the sub-purchasers confirming their willingness to take up the Passed Products and/or the alleged replacement products instead of cancellations of their orders as alluded to in the letters by the Plaintiff’s solicitors dated 14, 29 and 30 March 2011 (see paragraphs 31 and 33 above).

70.  In the absence of such evidence, query is necessarily raised as to the relevancy of the Australian advertising campaign to be launched in June 2011 to (a) the alleged mitigation of loss by commissioning the manufacture of the alleged replacement products, (b) the Defendant’s breach of the Settlement Agreement and/or (c) the Safety Approval Costs, especially when on 14 March 2011 the Plaintiff’s solicitors already stated in their letter that the Defendant’s breach of the Settlement Agreement “means [the Defendant] have put [the Plaintiff] in a position in which they will not be able to satisfy their customers’ orders”.  Further, as admitted by Mr Melwani, Appendix D of the Settlement Agreement confined the quality testing of the Undelivered Products to that as required under the national safety regulations in America and Europe and not in Australia.  Were the Passed Products intended for the Australian market at all?  No explanation is forthcoming from the Plaintiff in this respect.

71.  Also, there is no evidence before me as to quantity of the Passed Products, the quantity of the alleged replacement products and/or the quantity of the products inspected or to be inspected under the quotations and invoices for the Safety Approval Costs for Plastic IBIS 5500 and Milk Frother 10864.  The Plaintiff has failed to lay down any persuasive basis to justify the claimed value of the Safety Approval Costs as being the result of the Defendant’s breach of the Settlement Agreement.

72.  Without cogent evidence as to the alleged replacement products, the underlying foundation for the Safety Approval Costs in respect of quality testing on such products is suspect.  This is especially so when a mere quotation dated 8 June 2011 and not any invoice is produced in support of the Safety Approval Costs for Milk Frother 10864.  Such quotation was not countersigned by the customer and further provides on its face that it would be valid for only 30 days from the date of issue.  Since such quotation has expired by effluxion of time, query is therefore raised as to whether in fact there were/are/will be any replacement Milk Frother 10864 products at all, and even if there were/are/will be, whether quality testing service was or will be actually required. Again, no explanation is forthcoming from the Plaintiff.

73.  In the quotation and invoices produced by the Plaintiff in support of the Expenses Claim, they were all addressed to Pi Design AG and not to the Plaintiff.  There is no evidence before the court that explains the role of Pi Design AG and why the quality testing services would approach Pi Design AG to seek payment.  This raises an important question as to whether the Plaintiff was, is or will be liable for any Safety Approval Costs.

74.  Further, the invoices produced by the Plaintiff in support of the Expenses Claim in respect of Plastic IBIS 550 were dated 10 March and 14 April 2011.  There is no evidence before me whether such invoices have been paid and if so, who made the payments.  This is of concern because on the face of the invoice dated 14 April 2011 the payment is specified to be due on such date, ie almost half a year before the Hearing.

75.  Mr Melwani argued that even if the court does not find the evidence as to the quantum of damage to be satisfactory, the following principle elucidated from ICI Swire Paints Ltd v Techi Motor Engineering & Trading Co [2003] 3 HKC 432, 438-439 requires the court to grant substantial damages for the Expenses Claim:

“17. A party claiming damages has to prove, on the balance of probabilities, both the fact of damage and the amount. If the fact of damage is shown but no evidence is given as to its amount so that it is virtually impossible to assess damages, this will generally permit only an award of nominal damages. On the other hand, where it is clear that some substantial loss has been incurred, the fact that an assessment is difficult is no reason for awarding no damages or merely nominal damages ……”

This means that the relevant party has to first cross the hurdle of proving the fact of damage, and then if there is real difficulty in assessing the loss, the above principle comes into play.  Such principle does not apply where the fact of damage has not been satisfactorily proved or where the assessment is not difficult but the relevant party merely has not placed the relevant evidence before the court.

76.  In ICI Swire Paints Ltd, the uncertainty in projections for future loss of profits, which were not a mere matter of mathematics but judgment based on past events, interpretation of data and expert views, justified the application of the above principle.  But here, notwithstanding Mr Melwani’s suggestion that the expenses for safety approval of replacement products were within the contemplation of the parties at the time of the Settlement Agreement under the Hadley v Baxendale principle, the above analysis shows that the fact of such damage has not been satisfactorily proved. After all, even if such loss were within the reasonable contemplation of the parties at the time of the Settlement Agreement, whether such loss has been or will be incurred depended on whether as a matter of fact replacement products have been or will be commissioned and manufactured in this particular case so as to require safety approval testing.  Further, even if the fact of damage has been satisfactorily proved, it is not the nature of loss that creates difficulty in the assessment, but rather the failure to place the relevant evidence before the court.  In the circumstances, I am not persuaded that ICI Swire Paints Ltd offers any assistance to the Plaintiff. I further find on the balance of probabilities that the Plaintiff has failed to prove the Expenses Claim.

VI.  CONCLUSION

77.  I therefore grant judgment in favour of the Plaintiff against the Defendant in the sum of US$465,718.00 with interest thereon at the rate of 8% pa from the date of the Writ of Summons to the date of this judgment and thereafter at judgment rate until payment.

78.  Mr Ku did not dispute that costs of the assessment of damages including all costs reserved if any but excluding all costs of and occasioned by the Expenses Claim shall be paid by the Defendant to the Plaintiff to be taxed if not agreed.  I normally would have granted a costs order nisi to such effect. However, Master Lai in the Judgment granted an order for “costs of this action up to the date of this Interlocutory Judgment (including the costs of this Order 14 application and costs previously reserved) to be taxed if not agreed”. Although the learned master granted interlocutory judgment so that the issue of damages remained at large, his order for “costs of this action” necessarily comprised costs on both issues of liability and damages up to the specified date.  In the circumstances, I grant a costs order nisi that the Defendant do pay the Plaintiff costs of the assessment of damages after 16 May 2011 (including all costs reserved if any but excluding all costs of and occasioned by the Expenses Claim) to be taxed if not agreed.

79.  Mr Melwani submitted that such costs shall be paid on an indemnity basis.  He pointed out that the Defendant (a) did not file/serve any opposing affidavit or put up any substantive objection to the Order 14 application, (b) did not file/serve any affidavit for the assessment of damages despite an “unless” order, and (c) evaded payment by claiming that the Passed Products and the Moulds were with Tech Lane which company was apparently associated with the Defendant.  Mr Melwani submitted that the Defendant’s apparently “fictitious excuse” for non-compliance with the Settlement Agreement and its disregard of the court process justified an award of costs on indemnity basis.

80.  However, notwithstanding Mr Melwani’s reference to the Defendant’s pre-litigation conduct and its stance for the Order 14 application, Master Lai only awarded costs on party and party basis.  In any event, I am not persuaded that the conduct of the Defendant (who has not attempted to put up any unmeritorious defences) goes beyond being hostile in the normal litigation sense into the realm of oppression.  I therefore consider that the costs awarded in paragraph 78 above should be payable on party and party basis, and I grant a costs order nisi to such effect.

81.  In respect of costs of and occasioned by the Expenses Claim (including all costs reserved if any), there is no reason why such costs should not follow event.  I therefore grant a costs order nisi that costs of and occasioned by the Expenses Claim (including all costs reserved if any) be paid by the Plaintiff to the Defendant to be taxed if not agreed.  To assist the taxing master, I direct that two-thirds of the time spent at the Hearing be apportioned for the Expenses Claim.