LEE LATEX (PTE) LTD v. HANG LUNG BANK LTD AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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1. These proceedings arise out of a contract dated 4th May 1988 for the sale by the Plaintiff to the 2nd Defendant of a quantity of liquid latex for delivery in May 1989, later extended to June 1989. Payment was to be by irrevocable, confirmed Letter of Credit at sight.

2. Pursuant to the contract the Plaintiff duly shipped the latex to Hong Kong on 11th June 1989 and tendered to their bank in Singapore the documents stipulated by the Letter of Credit.

3. As a result of alleged discrepancies in the documents, the 2nd Defendant's bank, the 1st Defendant, refused to make payment under the Letter of Credit, and in spite of the Plaintiff's efforts to have the documents accepted, the 1st Defendant declined to pay, and the 2nd Defendant refused to authorise them to do so.

4. The Plaintiffs accordingly by letter dated 24th July 1989 requested the 2nd Defendant to take delivery of, and make payment for, the goods, but they failed to do so.

5. Repudiation of the contract was accepted by the Plaintiff and the latex was finally sold on 29th November 1989 to another party.

6. These proceedings were commenced on 3rd November 1989 and judgment in default of defence was entered against the 2nd Defendant on 6th December 1989.

7. The principal claim by the Plaintiff consists of the difference between the contract price of US$95,492.28 and the sum recovered on sale of US$35,178.00, being US$60,314.28, and storage charges of the goods in Hong Kong from 26th June 1989 to the date of sale, being HK$117,810.00.

8. The 2nd Defendant disputes these claims on three grounds. The first is that the Plaintiff should have been able to achieve a higher price for the goods, the second that a sale should have been arranged earlier, thereby reducing the length of storage time, and the third that cheaper storage was available and should have been used.

9. The evidence herein was adduced byway of affidavits and documents under the provisions of the Evidence Ordinance, statements pursuant to an order of Master P. Chan dated 8th March 1991, and oral evidence of Mr. Yeo Kiat Hui, a director of the 2nd Defendant.

10. From this it is apparent that it is undisputed that under the contract of 4th May 1988, as varied later, the latex was shipped on 11th June 1989. The 2nd Defendant was advised of the imminent arrival of the goods on 18th June 1989, and they actually arrived on 20th June 1989. Meanwhile the letter of credit and shipping documents had been submitted to the Plaintiff's bank in Singapore for collection and the Plaintiff's account had been credited with the contract sum on 19th June 1989.

11. However, by a telex dated 26th June 1989 the 1st Defendant informed the Plaintiff's bank that there were three, apparently minor, discrepancies which had been referred to the 2nd Defendant, and by a return telex on 28th June 1989 the Plaintiff's bank conveyed the Plaintiff's explanation of the discrepancies and offer to correct the same. By a further telex dated 30th June 1989 the 1st  Defendant indicated that the 2nd Defendant refused to accept the documents. Further telexes followed between the banks, those of the Plaintiff's bank urging the 1st Defendant to have the documents accepted by the 2nd Defendant, but to no avail, and by a letter dated 24th July 1989 the Plaintiff gave the 2nd Defendant until 31st July 1989 to make payment, in default of which they said that they would instruct their legal advisers to commence proceedings. By a telex dated 8th August 1989, the Plaintiff informed the 2nd Defendant that they had instructed their lawyers to commence proceedings.

12. The shipping documents meanwhile were still held by the 1st Defendant bank, the Plaintiff and their bank still hoping they would be accepted, and the 1st Defendant requesting instructions regarding their disposal.

13. This remained the situation until 27th September 1989 when by a telex from their solicitors to the 2nd Defendant, the Plaintiff accepted their repudiation of the contract and indicated that the goods would be sold in mitigation of its claim.

14. This was finally done on 29th November 1989.

15. It is clear in retrospect that the 2nd Defendants had no intention of carrying out their contract with the Plaintiff, the price of latex having fallen substantially since the contract was entered into, and that the discrepancies in the documents, which could easily have been rectified, were seized on by them as delaying tactics and excuse for non-payment.

16. The first question then that falls to be decided in when the Plaintiff accepted the 2nd Defendant's repudiation of the contract and were obliged 'to mitigate their loss.

17. Mr. Lau for the 2nd Defendant has submitted that it must have been clear to the Plaintiff as early as 28th June 1989, or at the latest 7th July 1989, that the 2nd Defendant refused to take delivery, and that the later date, being the date of the buyer's breach of contract, is the date by reference to which the market price of the goods falls to be determined for the purpose of the measure of damages under S.52(3) of the Sale of Goods Ordinance, Cap.26.

18. However, he concedes that there was no time fixed for acceptance of the goods under the contract, and as there was no refusal to take delivery communicated by the 2nd Defendant to the Plaintiff, merely a refusal to accept the documents, communicated through the banks, the situation in this case is one of failure to take delivery giving the Plaintiff the right to accept that as a repudiation of the contract, or to consider the contract as still binding on both parties and continue to urge the 2nd Defendant to take delivery and make payment.

19. This they have done here. Although by the end of June 1989 the 2nd Defendant's reluctance to take delivery was obvious, the Plaintiff continued to press for payment until the end of July, and although they informed the 2nd Defendant by their telex of 7th August 1989 that proceedings were being commenced, by telexes dated 17th August, 2nd September and 15th September 1989, they continued to press the 2nd Defendant to take delivery by forwarding to them the shipping agency's request for disposal instructions and notification of the storage charges.

20. On 27th September 1989 the Plaintiff's solicitors finally communicated to the 2nd Defendant acceptance of their repudiation of the contract, and it is accordingly from that date that I find the Plaintiff's duty to mitigate arises.

21. The Plaintiff's evidence, in the third affidavit of Mr. Huang Thiay Sherng, their general manager, which I accept, is that they took immediate steps to effect a sale of the latex but did not achieve such a sale until 29th November 1989.

22. It is claimed on their behalf that a sale could not be made earlier as there was a falling market and the documents of title were not returned to them until 12th October 1989.

23. From the evidence available to me it is apparent that although there is an active and regular market in latex, it is one which suffers from severe fluctuations in price and availability, resulting in the practice, as in this case, of forward contracts at fixed prices, either by end users who wish to budget for their requirements at certain prices, or by commodity traders who seek to profit by selling on when the price rises, but who stand to lose if the price falls. A seller of a cargo of latex for immediate delivery, who has to make a quick sale to mitigate loss, is at a disadvantage in such a market, and I am satisfied that the time taken by the Plaintiff to effect a sale in this case was not unreasonable.

24. The sale in November was at a price of US$0.55 per kilo, the original price under the contract with the 2nd Defendant being US$1.493, and the Plaintiff's claim is based on the difference between the two prices.

25. The only evidence of prices in contracts for the sale of latex made in October and November 1989 is provided by the Plaintiff in Mr. Huang's second affidavit and shows that these ranged from 58.9 US cents a kilo to a high of 61.1 US cents, and give an average of 60.2 US cents a kilo. From this should be deducted to cost of freight to Hong Kong, the goods being already here and the prices quoted above including freight from Singapore. The evidence shows that this would be about 4 US cents per kilo, giving a final average price of 56.2 US cents a kilo. This price also corresponds to those quoted by Mr. Abdul Rasip Latif, the Head of the Rubber Exchange Division of the Malaysian Rubber Exchange and Licensing Board, in his affidavit evidence, which I also accept.

26. From what I have said above regarding the obvious disadvantages in this market of a "spot" sale under pressure to sell as against forward contracts, I find that the price achieved by the Plaintiff of 55 US cents a kilo to be a reasonable price in the circumstances of this case, and that in selling when they did they have adequately discharged their duty to mitigate their loss. It follows that I find that the Plaintiff is entitled to claim the whole of the balance between the contract price and the sum realised on sale, that balance being US$60,314.28.

27. The next matter to consider in the charges for storage. The sum paid by the Plaintiff was $117,810.00, which included various charges made in respect of the goods, the only one seriously in dispute being the storage itself in the sum of $102,080.00, being $220.00 per day for each of the four containers for 116 days, from 20th June to 20th October 1989, and $25.00 per day each from 20th October to 30th November 1989.

28. The 2nd Defendant's case is that the Plaintiff should have arranged for the containers to be moved to the cheaper outside storage earlier than 20th October. The Plaintiffs say that, not having the documents of title and the consequent right to possession of the goods, they were in no position to order their removal from storage.

29. I consider there is merit in that argument, but only up to the point that the documents were returned to them. That was on 12th October 1989, and there is no reason I am aware of that the containers could not be moved the next day.

30. I accordingly will reduce that part of the sum claimed by the Plaintiff by $5,460.00, being the difference between the sum of $220.00 and $25.00 per container for 7 days.

31. The Plaintiff finally claims the interest charged by their bank in Singapore on the sum paid by the bank under the letter of credit, until it was debited again from the Plaintiff's account. I find that they are entitled to this and award the sum of S$3,843.92 in full.

32. Summary:

33. I also award interest on these sums as calculated by the Plaintiff's solicitors in their Schedule of Damages being respectively totals of US$10,288.12, HK$18,440.73 and S$635.67, and further interest at the judgment rate from 9th May 1991 to the date of payment.

34. There will be an order nisi that the 2nd Defendant will pay the costs of the Plaintiff to be taxed, with a certificate for counsel.