FILLTECH ENTERPRISES LTD. v. SUN RAY TRADING CO.

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

Action No. A5847 of 1996

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J U D G M E N T

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The Plaintiff obtained default judgment against the Defendant for damages to be assessed. The Defendant is also absent at the present hearing.

2. The Plaintiff's merchandiser gave evidence that the Plaintiff entered into contract for supply of garments under six contracts and paid a deposit of 100,000. The Defendant had previous dealings with the Plaintiff and in view of that relation and quantity of garments ordered knew that the garments were intended for resale. The Defendant failed to supply the garments. The Plaintiff in turn was unable to supply the garment to fulfil a sub-sale to Emperor Industries Inc. of Los Angeles. Had the Plaintiff been able to sub-sell, it would have made a profit of US$329,088. The Plaintiff had to compensated Emperor US$192,480 in respect of its breach.

3. In view of the above I am satisfied at the time of the contract the parties foresaw loss of profit on resale and consequential damages in respect of the buyer's failure to meet its obligation under the sub-sale as probable. There was no market from which the Plaintiff could have purchased similar garments to supply to its sub-buyer and the steps taken by the Plaintiff to settle the claim by its sub-buyer were reasonable. By applying the second limb of the rule in Hadley v. Baxendale, (1854) 9 Ex. 341, I assess the damages suffered by the Plaintiff in respect of these six contracts to be $100,000 in respect of the deposit paid, plus US$329,088 in respect of loss of profit.

4. The Plaintiff also claimed US$192,480 in respect of the damages it paid to its sub-buyer. There are conflicting authorities as to whether compensation paid to a sub-buyer is recoverable. In Borries v. Hutchison, (1865) 18 C.B. (N.S.) 445, an action for non-delivery, the buyer's claim for compensation paid to sub-buyer was held unrecoverable. In Grebert-Bornis v. Nugent,(1885) 15 Q.B.D. 85 (C.A.), the Court of Appeal awarded as additional damages the damages the buyer had paid to his sub-buyer in a French court. I prefer the latter approach. If the sub-sale is sufficiently within the contemplation of the parties, it must also be within the contemplation of the parties that should the seller be in breach its buyer will suffer certain consequences over and above the loss of profit, i.e. damages it may have to pay at the suit of its sub-buyer. On the evidence before me, I am satisfied that the amount of compensation of US$192,480 agreed by the Plaintiff with its sub-buyer is not unreasonable.

5. The Defendant also contracted to process 5,268 pieces of garments with fabric supplied by the Plaintiff. The fabric cost $24 per yard. The Defendant also failed to produce the garments. As a result the Plaintiff could not meet its obligation to supply the garments to its own buyer. For similar reason as above, I find the Defendant liable to the Plaintiff for loss of profit and the compensation the Plaintiff had to pay its buyer. The loss of profit is assessed to be the difference between the sale price (US$9.70) and production cost (US$5.90) times the number of pieces of garments (5,268), i.e. US$20,018.40. The compensation paid to the buyer at the rate of US$3.50 per piece, i.e. US$18,4380 is not unreasonable. I also find the Defendant liable to the Plaintiff for the cost of 9032.25 yards of fabric supplied to it at the rate of $24 per yard, i.e. $216,774.

6. I therefore enter judgment for the Plaintiff in the total sum of $316,774 and US$560,024.40.