SUNITA TRADING CO. v. SUNFIRST INDUSTRIES LTD.

IN THE COURT OF APPEAL

1996, No. 30
(Civil)

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REASONS FOR JUDGMENT

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Nazareth, V.-P. (giving the reasons of the Court) :

1. Having heard Mr Mumford QC for the appellant/defendant, and in person Ms Sunita Daswani, the sole proprietor of the respondent/plaintiff, we allowed the appeal, set aside the judgment below in part and remitted that part to the High Court for re-trial before a different judge. We now give our reasons.

2. The facts are as follows. The plaintiff is a trading "company" and the defendant a manufacturer of toys and the like. By two written contracts, Nos. K8001/94 and K8002/94 the defendant agreed to manufacture and supply to the plaintiff some 850,000 pieces of mini basketballs, baseballs, soccer and tennis balls attached to key chains and suction cups. The total contract price was $225,150. Delivery was to be "on or about the end of May 1994", but this was in successive steps by mutual agreement extended to 6th June 1994. The plaintiff claims that only 76,000 pieces were delivered, and this was done on 9th June 1994. In its Statement of Claim the plaintiff pleaded that the defendant "wrongfully" failed to deliver any more pieces within a reasonable time or at all. It averred that the defendant well knew that the goods were for resale in Mexico during the World Cup 94 in July 1994. It claimed liquidated damages of $225,800 in respect of loss of profit, freight costs and compensation paid to its customers. It also claimed delivery up of the casting moulds used by the defendant in manufacturing the items supplied.

3. The defendant in substance pleaded that it was not paid for the 76,000 pieces delivered on 9th June and that it delivered a further 134,000 pieces on 11th June, but the plaintiff refused to accept them, so that they have had to be warehoused in China at continuing cost. It denies that it knew the goods were for sale in Mexico during the World Cup 94. The defendant counterclaimed the sum of $104,394.50 in respect of the price of the goods, and damages for the warehouse charges for storage of the 134,000 pieces, and loss of profits in respect of the two contracts.

4. Only three witnesses gave evidence, Ms Daswani herself for the plaintiff, and Mr Peter Wong and Mr Andrew Wong for the defendant. The latter two were respectively the person in charge of its operations, and its president and general manager. Their evidence was far from satisfactory, and the issues unclear. Two matters contributed to that. First, the witness statements of the witnesses were treated as their evidence-in-chief. Secondly, the defendant's evidence was not subjected to effective cross-examination.

5. The judge rejected the plaintiff's claim for delivery up to it of the casting moulds and as to that there is no appeal. But as to all other substantial issues, the judge preferred the evidence of Ms Daswani which he accepted. He rejected the defendant's averment that it had delivered 134,000 pieces on 11th June and dismissed the counterclaim for the purchase price and storage charges, but allowed the defendant's claim for $20,005.56 being the purchase price of the 76,000 pieces delivered on 9th June 1994, together with interest.

6. As to the plaintiff's claim, the judge held that time was of the essence of the contract and that the defendant was all along aware of this. He then observed that even if it were accepted that the disputed second delivery of 134,000 pieces claimed by the defendant had been made, that would amount to no more than 25% of the 853,200 pieces contracted for; that depending on the availability of shipping it took about 20 days to ship goods to Mexico. He concluded that the defendant would not be in a position to produce the entire contract quantity of goods in a reasonable time. Apparently using that process of reasoning, in part at any rate, he rejected the defendant's contention that it delivered 134,000 pieces on 11th June 1994. This, it seems, was in the context of his fundamental proposition that time was of the essence.

7. Having regard to the less than precise time of delivery specified in the two contracts ("on or about the end of May"), not to mention questions like whether the plaintiff was entitled to repudiate, the central issue on the pleadings which the judge was called upon to address was whether the 134,000 pieces were delivered. If they were not, then the defendant would not have delivered anything after the 76,000 pieces delivered on 9th June and so would be liable for partial non-delivery. If, however, the defendant did make the second delivery of 134,000 pieces, the plaintiff would have been in repudiatory breach of the contract by refusing to accept delivery. The question of delivery on the evidence, however, was whether the 134,000 pieces were available for collection, delivery f.o.b. being the contractual provision, which the parties agree meant in the circumstances available for collection. Indeed, Mr Mumford concedes that if it were properly found that the 134,000 pieces had not been made available for collection, the plaintiff's claim would succeed. It follows that the judge's finding that the 134,000 pieces had not been delivered did not address the true issue which was whether the defendant had made them available for collection by the plaintiff, though in the light of the pleadings little criticism made attached to the judge. In any event, Mr Mumford submits that the judge's finding that the pieces had not been delivered was flawed fatally in particular in the following respects.

8. The defendant's evidence of delivery came not from the president, Mr Andrew Wong, but from Mr Peter Wong, the person in charge of its operations. Yet, the judge at the very outset of his judgment, put the latter's evidence to one side saying that "Mr Peter Wong agreed that all the dealings were between Mr Andrew Wong and Ms Daswani and his evidence is therefore of little assistance." While the main negotiations and exchanges might have been between Mr Andrew Wong and Ms Daswani, it was Mr Peter Wong who stated that he was responsible for the daily operations of the defendants and that "on the 11th day of June 1994, our company duly delivered 134,000 pieces of goods (the Second Shipment) comprising 100,000 pieces under the first contract and 34,000 pieces under the second contract to the plaintiff but the plaintiff did not accept this shipment." Conceivably, he might not have had personal knowledge of those matters, but that evidence should have been properly addressed. It was not.

9. That is not the only unsatisfactory feature of the judgment. It was never pleaded that time was of the essence; this seems to have been overlooked. Moreover, the basis of rejection of the defendant's witnesses' evidence and acceptance of that of Ms Daswani is not disclosed. Having rejected Ms Daswani's unequivocal evidence that the moulds had to be delivered to the plaintiff, the judge should have indicated how he came to accept the remainder of her evidence in all essential respects, despite such rejection and some other features of her evidence that tended to undermine her credibility.

10. Mr Mumford complains also about the judge's reference to a letter dated 27th September 1994 from the defendant's solicitors to the then solicitors for the plaintiff stating that the second contract never came into existence. The judge commented that this was fundamentally inconsistent with the defendant's pleadings and evidence, and went on to conclude that Mr Andrew Wong's evidence was evasive and unsatisfactory. Mr Mumford submits that the simple explanation was that the defendant's solicitors failed to appreciate that the 76,000 and 134,000 pieces were delivered under both as opposed to only the first contract.

11. It seemed to us that there was substance in these points. They forced us to the conclusion that to the extent they affect the judgment it could not be sustained, though we have considerable sympathy for the judge in view of the features which contributed to the unsatisfactory nature of the evidence. We therefore concluded that the appeal had to be allowed and that the decisions affected had to be remitted to the High Court for a fresh trial before a different judge. That course also has the advantage of accommodating Mr Mumford's attack upon the judge's acceptance that the sum of US$20,000 which the plaintiff had paid to Mexican customers had been paid in respect of the goods under the two contracts.

12. We accordingly allowed the appeal in respect of the judgment in favour of the plaintiff's claim, save as to the delivery of the moulds, and in respect of the defendant's counterclaim, save in respect of the award of HK$20,055.56 with interest to the defendant, and remitted these issues to the High Court to be tried before a different judge.

13. For the benefit particularly of Ms Daswani, who we repeat is not represented, we reiterate that the plaintiff's entire claim will be retried both as to liability and the quantum (but not the claim for delivery of the moulds as to which the judgment will stand); likewise the defendant's counterclaim (other than in respect of the award of $20,055.56 with interest which will also stand). The dismissal of the respective claim and counterclaims of the plaintiff and defendant for declarations and specific performance will also stand unaffected.

14. Having heard submissions thereon, we declined to upset the costs order below which stands, and ordered that there be no order as to the costs of the appeal to this Court. That was because the principal reason which caused the trial to go off the rails was that from the time when the defendant filed its defence , it failed to make it clear that the central issue of fact was not whether the 134,000 pieces had been delivered, but whether they had been made available for collection.

15. Before we leave the matter, we call the parties' attention to the relatively modest amount of the claim (some HK$180,000 after setting off the award on the counterclaim) and to the extent that the costs of the action are likely to match or even exceed that amount. They might therefore think they would be well advised to seriously consider settling the action.