WIN HANVERKY LTD. v. KEEN POINT INTERNATIONAL LTD.

HCA17453/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 17453 OF 1999

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ASSESSMENT OF DAMAGES

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Introduction

1. It is plain to me that this is a very simple matter. The following facts are clearly incontrovertible. I should start by giving a brief background of this case.

2. The matter first came up before me by way of an Order 14 application on 12 September 2000. Following that hearing, final judgment for a determined sum was ordered in favour of the plaintiff against the defendant. The defendant appealed and the matter was heard by Cheung J on 17 October of the same year when he varied my order and entered interlocutory judgment for the plaintiff with damages to be assessed. The proceedings before me are concerned, therefore, with the assessment of damages so ordered.

3. There was no appeal arising from the decision of Cheung J. Following the hearing, the plaintiff re-re-amended its statement of claim to add an additional head of damages, namely, loss of profits. Subsequently on 7 June 2001 the defence re-amended its defence and attempted to counterclaim against the plaintiff. At the start of the proceedings before me, counsel for the defence indicated, quite rightly, that the counterclaim was really a non-starter and would not be proceeded with.

4. This case involves a contract for the supply of fabric by the plaintiff to the defendant. In particular, the plaintiff has contracted to supply a quantity of cloth with a total value of US$506,000 to the defendant. It cannot be disputed from the evidence and the pleadings and from the way in which the defence was conducted before me, that the defendant was aware at all material times that the plaintiff would have to obtain the ordered cloth from a third party. This the plaintiff did by turning to Golden Peak of Taiwan. The plaintiff placed an order for that quantity of cloth and production began.

5. At some stage the defendant decided to pull the plug from the manufacturing process and requested the plaintiff to stop production. In turn, the plaintiff notified Golden Peak, informing it to cease production. This plainly was a foreseeable consequence of a breach of contract on the part of the defendant.

6. By the time production was ordered to be ceased, some 62,000 yards of New Oxford cloth had been manufactured. In March 1999 the defendant informed the plaintiff that they did not want the cloth. This was clearly a wrongful repudiation of the contract, which repudiation the plaintiff had to accept and did accept.

7. In consequence of the defendant's conduct, Golden Peak demanded payment from the plaintiff in the sum of US$74,235. This represented the amount of damages claimed by Golden Peak's own cloth manufacturers. It is plain from the evidence that when the plaintiff ordered cloth from Golden Peak, Golden Peak, in turn, had to turn to its own suppliers. So there was a chain of manufacture in this case.

8. Recognising that it clearly had a contractual liability to compensate Golden Peak, the plaintiff paid Golden Peak US$37,117.50 as part-payment of its obligation. In turn, the plaintiff turned to the defendant, demanding a sum of US$74,400. Following negotiations between Golden Peak and the plaintiff, it was agreed that the plaintiff would pay Golden Peak US$74,235 in full and final settlement of Golden Peak's claim. This sum remains outstanding as a contractual liability and it represents one of the two heads of claim that the plaintiff seeks redress from the defendant.

9. The evidence revealed that the defendant had contacted the plaintiff, suggesting that any attempt to sell the unwanted cloth should be at a price of not less than US$1 per yard. The plaintiff made attempts as we have heard from Mr Lee, PW2, as well as from his employee, PW1, to contact potential buyers.

10. The fabrics involved in this case were destined for the manufacture of outer garments, i.e. sportswear. The plaintiff turned to its regular customers and could only identify at most two potential buyers who might show interest in these fabrics. Mr Hingorani rightly pointed out that it was only incumbent upon the plaintiff to do what was reasonable in the circumstances to mitigate its loss.

11. The passage, which he was not able to find when he addressed me earlier, has now been identified. It appears at paragraph 213 of McGregor on Damages, 15th Edition. There it states that a claimant cannot be expected to go world-wide to look for buyers. Even in the age of Internet, one could not reasonably have expected the plaintiff to have posted a query on the Net, seeking potential buyers for these unfinished and undyed grey cloth.

12. The defence complained that the plaintiff had not done all that was reasonable in the circumstances to mitigate its loss. That burden rests squarely on the defence on the authorities. What is reasonable must be determined contextually. This was a commercial contract and one would have to look at the commercial reality pertaining to this case. Were there ready buyers for such products as these? The plaintiff, in particular PW2, explained that demand was thin on the ground. Although the defence had requested that the product should not be sold on for less than US$1 per yard, Mr Lee, quite rightly, simply instructed his staff to get the best price, the market price, for these goods. He did not specify a limit below which these cloths should not be sold. There was no interest.

13. The plaintiff turned to Golden Peak for assistance and they were able to identify a buyer willing to take the rejected materials at US$0.50 per yard. The plaintiff did not take up the offer. As Mr Lee had explained, he was not sure in his own mind who owned the property in these goods. He was worried about the consequences that would follow if he took it on himself to sell the cloth at $0.50 a yard if it turned out that the property in the goods had passed to the defendant, or perhaps to somebody else.

14. Mr Lee approached Mr Lau of the defendant, seeking instruction as to what to do about this offer of $0.50 per yard, and there was no answer to that query. Plainly, what the plaintiff had done in the circumstances was reasonable and what might have been expected of a prudent commercial businessman.

15. I think there was a reference to a potential order from Bootlim, the Korean agent for Starter, a supplier of sportswear in the United States. I refer in particular to the conversation that Mr Lee and Mr Lau had and to the e-mail at page 69, dated 14 April 1999, from Bootlim to the defendant and copied to the plaintiff, as well as to the plaintiff's response dated 17 April 1999. It was suggested, as I understood it, by the defendant that the plaintiff really ought to have seriously considered and accepted the offer for a certain quantity of Oxford fabric to be dyed with certain colours specified in the e-mail referred to. The evidence indicated that the plaintiff had considered the suggestion made and had concluded that the commercial risks were far too great to justify entering into contract with Bootlim, particularly at a time when the Hong Kong office of Starter had closed.

16. In order to carry out the suggested contract the plaintiff would have to incur additional expenses. It would have to dye and finish the products to a standard that would satisfy the ultimate buyer of those goods.

17. Mr Lau was cross-examined quite pointedly in regard to the e-mail referred to and he admitted that there were still three colours out of some 25 or 26 colour samples that had not yet been approved. The plaintiff, if it had taken on board this contract, would clearly have run the risk of a possibility that the goods subsequently dyed and finished might be rejected, and that would lead to all sorts of potential liabilities. I do not consider that it would either be fair or reasonable in the circumstances for the plaintiff to have entered into the contract as suggested by the defence.

18. The stance taken by the defence can best be summarised in a number of questions and answers recorded during the testimony of the defence witness. I quote:

"Q. One week after the e-mail of 14 April, Bootlim notified you that Starter Korea had gone bankrupt.

A. Yes.

Q. So there wasn't going to be any order, was there?

A. Right.

Q. Were you seriously suggesting that between 14 April and 20 April, the plaintiff should have contracted with Bootlim on behalf of Starter?

A. Yes."

And then to the penultimate and final questions and answers:

"Q. If it (Bootlim) is representing Starter as agent, Bootlim would be entering the contract on behalf of Starter.

A. Right.

Q. So the plaintiff would have gone to terrible trouble for 9,600 yards only to be followed by the bankruptcy of Starter.

A. Right."

I think these questions and the answers given thereto really say it all.

19. On the evidence before me, it cannot be argued that the plaintiff has not acted properly and reasonably in mitigation of its damages. Any criticism in that regard is completely unfounded.

20. The plaintiff acknowledges that it really ought to have sold the goods at US$0.50 per yard at the time when the offer was available. That was not done for reasons which we have heard and which I fully accept. It stands ready to give credit for the amount that it would have obtained by selling it at that reduced price.

21. The contractual liability of the plaintiff to Golden Peak remains at $74,235. This is plainly recoverable.

22. I turn then to address the issue, quite briefly, of loss of profits. The repudiation of contract had foreseen consequences in this case. The plaintiff was not a manufacturer of cloth. Upon it taking the order from the defendant it turned to its own suppliers in Korea, Golden Peak. The defendant had agreed to pay US$2.18 per yard for the 180,000 yards of New Oxford cloth and US$1.42 per yard for the 80,000 yards of nylon honeycomb. In turn, the plaintiff had contracted to obtain these materials from its Korean supplier at US$2.03 per yard for the New Oxford cloth and US$1.35 per yard for the nylon honeycomb cloth. The difference between those prices represents the loss of profit and they total US$32,600. This sum is recoverable.

23. In total the plaintiff's claim against the defendant stands at:

(1) US$74,235, being its liability to Golden Peak.

(2) Loss of profits: US$32,600.

Subtotal: US$106,835.

Less: US$31,000, representing the amount it would have secured by selling the cloth at US$0.50 per yard.

Net damages: US$75,835.

This is the amount I adjudge that the plaintiff is entitled to turn to the defence for recompense in full and I so order.

24. I shall now ask the parties to assist me on the question of interests and then costs.

(Discussion re interest)

25. There shall be interest on the adjudged sum from 10 November 1999 at judgment rate until full payment.

(Discussion re certificate for counsel and costs)

26. The plaintiff shall have its costs of this assessment on an indemnity basis, taxed if not agreed, against the defendant. Certified fit for counsel.

27. I do not propose to make any order at this juncture in regard to the costs touching on solicitors and their own client. Perhaps that can be resolved between the defendant and his own solicitors if it turns out that improper steps have been taken and incorrect advice has been given. Mr Lau fully followed what was being discussed and he can, in querying the bill that he will receive, come to some arrangement with his own

solicitors for wasted costs.