ANDREWS INDUSTRIAL CORPORATION(a firm) v. TAI FUNG PLASTIC MANUFACTURING CO. LTD.

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JUDGMENT

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Sir Alan Huggins, V.-P.:

1. This appeal relates to the quantum of damages payable in respect of a breach of a contract for the sale of goods.

2. The Defendant is a manufacturer of toys.It sold 1,863 doz. toy motor vehicles to the Plaintiff, an exporter, and the finding that the Defendant knew the goods were for export to a retailer in the United Kingdom is not disputed. It is also not now disputed that the terms of the contract were contained in a document dated 28th April 1984. The goods were inspected by the Plaintiff before shipment and then duly delivered to the retailer in England. Some of the ultimate purchasers were dissatisfied and made claims against the retailer. The retailer in turn made a claim against the Plaintiff. The Plaintiff notified the Defendant of this claim and demanded compensation by a letter dated 15th March 1985. It is immaterial whether evidence that there had been a prior oral demand was believed or disbelieved. The demand not having been met, the Plaintiff instituted the present action.

3. The Particulars of Claim alleged a contract of sale and purchase and specified the document. It did not set out any of the Special Conditions contained in the contract but merely alleged that the goods supplied were unsatisfactory and particularized the defects. At the trial there was evidence of complaints made to the retailer in relation to 277 toys and of payment by the Plaintiff of a claim by the retailers for £5,005 in respect of 2,200 toys at the rate of £2.275 per toy. Only 8 of the toys were sent back to Hong Kong and tested. All of these were found to be defective.

4. His Honour Judge Leong gave judgment for the Plaintiff for the amount of the claim by the retailer. The basis of the judgment was that, under the terms of the Special Conditions, the Defendant was bound, upon being given notice of a claim against the Plaintiff, to pay the amount of that claim within 24 hours. Within 14 days of paying the Plaintiff's claim the Defendant had the right to inform the Plaintiff whether the validity of the claim was disputed and to set in train terms of the Special Conditions under which the Defendant was obliged to put the Plaintiff in funds to contest the consignee's claim. Thus the Plaintiff could have made a claim in respect of which the only evidence necessary would have been evidence of the claim by the retailer and evidence of notice of that claim given to the Defendant. If the Defendant had disputed such claim, the burden would have been on the Defendant to prove payment of the claim. Any dispute as to the defects would have been adjudicated upon in England as between the Plaintiff and the consignee if the Defendant had invoked the relevant terms of the Special Conditions and financed the Plaintiff's costs. That was not how the case had been formulated. The Defendant appealed, and at the end of the first day's hearing before us counsel for the Plaintiff sought leave to amend the Particulars of Claim. No details of the proposed amendment were submitted, but I understood that they would have been to allege the Special Conditions and a failure to comply with those conditions. We refused leave to amend.

5. Although the appeal is still contested, it is clear to me that it must succeed as to the greater part of the claim. The only evidence of defects relates to a small proportion of the toys. A Hearsay Notice was given in respect of 34 documents headed "Merchandise Complaints", each of which was signed by a member of the retailer's staff. No counter notice was served, and it follows that, there was evidence that the 270 toys to which the documents related were properly proved to have been defective. There was then the evidence of the eight toys returned to Hong Kong for examination, but it is not clear whether they were some of those covered by the Merchandise Complaints. However, it has been conceded that 285 toys were defective. There is no evidence that the others were defective.

6. Prima facie, therefore, the Plaintiff was entitled to damages in respect of the 285 toys admitted to have been defective. It is urged that the Defendant took no point on the pleadings in the court below. With respect, it was not necessary that any point should be taken expressly in argument: the points in issue were delineated by the pleadings. What was in effect sought to be argued before us was that the Particulars of Claim were treated by the parties as having been amended and as alleging not merely the Special Conditions in the contract but also compliance with those conditions by the Plaintiff. It was when we indicated that we thought the Plaintiff should be held to its Particulars of Claim as drafted that Miss Lau asked for leave to amend. It is always unsatisfactory when a party puts forward a case which has not been expressly pleaded, both because there may be uncertainty as to what are the new limits of his case and because, as a result, his opponent may inadvertently fail to adduce evidence on some aspect of the case which did not arise on the original pleading. It is clear from the judge's notes that the substantive arguments of the Defendant in the court below related to the alleged failure of the Plaintiff strictly to prove that the goods were defective. That argument would have been irrelevant if the claim was based upon Special Conditions (3), (4) and (5) of the contract. I do not accept that the Particulars of Claim were treated by everyone as having been amended. Indeed, on the application for leave to amend before us it was objected by Miss Sze that the Defendant would have wished to lead other evidence if the Special Conditions had been relied upon.

7. It is then submitted that there was no evidence that the defects were due to the fault of the Defendant. Great reliance is placed upon the inspection by the Plaintiff prior to shipment. As to that the judge attached considerable weight to Special Condition (7) in the contract, which provided:

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An inspection of the goods by the buyers before shipment does not in any way free sellers from any responsibility for which they may be liable under this Contract."

The fact of inspection was evidence which, it was said, tended to suggest that any defect might have arisen after shipment and be due to circumstances beyond the Defendant's control. However, the judge had before him the eight toys which had been tested in Hong Kong and also the Merchandise Complaints in respect of 277 toys, and he relied heavily upon these as evidence of the existence of the defects. It is reasonable to assume that he accepted them as strong evidence of the nature of the defects and that he thought such defects were more indicative of fault in design or workmanship than of damage in transit, otherwise he would not have given judgment against the Defendart. It is true that he placed considerable reliance upon the adverse inference he drew from the fact that the Defendant offered to replace a large number of the toys complained of after inspecting one which it admitted to be defective.  It is possible that he attached undue weight to this offer, even in the absence of any attempt by the Defendant to explain it on the ground of business expediency. Nevertheless I am in no doubt that the judge would have come to the same conclusion even if no offer had been made.

8. The Defendant's second line of attack was directed at an alleged failure by the Plaintiff to mitigate its damage. The retailer apparently destroyed the goods to which the Merchandise Complaints related, whereas the Defendant contended that the goods retained a value as damaged goods and should have been sent back to Hong Kong for repair. The judge did not believe the evidence adduced by the Defendant, on whom lay the onus of proof, and held that the Plaintiff had done all that could reasonably be done to mitigate its loss. It is submitted that this conclusion was mere speculation by the judge. In my view he was entitled on the available evidence to come to the decision he did on this point.

9. In the event I would allow the appeal and enter judgment for the Plaintiff in the sum of £648.38 (i.e. 285 x £2.275) or the equivalent in Hong Kong currency with interest as ordered by the judge. Subject to argument, I would not disturb the order for costs made in the court below but would allow the Defendant the costs of the appeal.

Fuad, J. A.:

10. I agree and have nothing to add.

Clough, J. A

11. I agree.

16th December 1986