HENG SHAN TRADING CO (a firm) v. VALIN ENTERPRISES CO LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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1. This action arises from a written agreement dated 15 March, 1987, for the sale to the Plaintiff by the Defendant of a quantity of plywood to be shipped from Indonesia to Whampoa, China. The Plaintiff claims damages for breach of the agreement.

2. No defence having been served, the Plaintiff obtained Interlocutory Judgment against the Defendant on 11 August, 1989, for damages to be assessed.

3. The Statement of Claim sets out 4 Heads of Damages:-

4. The Plaintiff's case consisted of the evidence of PW1, the Plaintiff's deputy general manager, and documents served by way of a Hearsay Notice. The Defendant called one witness, being 1 of its directors.

5. PW1 told me that in February, 1987, the Shanxi Provincial Foreign Trade Corporation asked his company to obtain a quantity of plywood planks. PW1 then contacted the Defendant and on several occasions discussed the supply of the plywood, after which a written contract, being document P1 in the Plaintiff's bundle of documents, was signed. PW1 said that he told the Defendant's representatives, who he named, what the plywood was required for. After the contract was signed, PW1 returned to his customers and entered into a contract with them, being P5 in the Plaintiff's bundle.

6. Under the contract between the Plaintiff and the Defendant, the delivery date was 20 May, 1987, but PW1 described how this date was twice extended at the Defendant's request until 15 June, whereupon the Defendant defaulted in delivery. PW1 said that he was unable to obtain an alternative supply of plywood, and on 25 June the Plaintiff paid compensation to its customer in the sum of RMB50,000.

Head (a)

7. Mr. Mak put forward a number of arguments as to why the Plaintiff should not receive any damages at all under this Head. He complained that evidence of payment of the RMB50,000 was "flimsy" and raised a doubt whether payment had been made. PW1 told me that the RMB50,000 had been paid at the customer's request to another party, the payment being evidenced by a receipt P.14 in the Plaintiff's bundle. This document refers to "compensation paid by Heng Shan Trading Co.". On the question of payment, I believe the evidence of PW1 and I am satisfied the RMB50,000 was paid as he claimed.

8. Mr. Mak further submitted that the Plaintiff had failed in the duty to mitigate its loss by not repurchasing plywood in an available market. It was PW1's evidence, with his considerable experience in the trade, that when the Defendant defaulted in delivery he had tried "2 or 3" other suppliers in Hong Kong and also made enquiries in Indonesia, with no success in obtaining alternative supplies. The Defendant relied in establishing an "available market" upon 3 contracts for the supply of plywood entered into by the Defendant in March. On the question of "available market", I believe the evidence of PW1. There was no suggestion that the Plaintiff wished to deliberately default in its contract with its customer, and I am satisfied PW1 used his best endeavours to find alternative supplies. I do not consider that the fact that plywood was available to the Defendant in March is any indication of an "available market" to Plaintiff in June.

9. Mr. Mak complained that the Plaintiff should have sought a delay from its customer, to whom delivery could have been made as late as the end of June, and granted further time to the Defendant. It is correct that when Defendant defaulted at the delayed delivery date of 15 June, Plaintiff approached his customer and by 25 June had paid him RMB50,000. However, it was never suggested to PW1 in cross-examination that the Defendant had been able to give a firm delivery date, nor did DW1 give any evidence to the effect that further delay would have enabled the Defendant to make delivery. In my view, once the Defendant defaulted after 2 agreed postponements of delivery, there was no purpose to be achieved by Plaintiff waiting until the end of June before agreeing to compensate his customer.

10. Mr. Mak further submitted that the Plaintiff should have asked for a reference to arbitration as provided for in the Plaintiff's contract with his customer. That contract provided that in default of delivery, the Plaintiff should be "responsible for the Buyer's losses arising therefrom". PW1 explained in detail how his customer's actual losses through loss of expected profits would be over RMB2 million. When PW1 first approached his customer to explain that the Plaintiff could not deliver, he told me the customer at first asked for compensation of RMB100,000, but was persuaded to accept RMB50,000. In view of the terms of the contract, and since the Plaintiff's breach was indisputable, I am at a loss to see what arbitration could have achieved, other than a much larger payout to Plaintiff's customer.

11. I am satisfied that the RMB50,000 was made as described by PW1, and that it was properly paid to avoid greater loss to both the Plaintiff, and in the event to the Defendant. I award damages under Head (a) in the sum of RMB50,000 and, as is conceded must be the case, interest thereon in the agreed sum of RMB7,851 to the date of the writ, with further interest at judgment rate from the date of the writ until payment.

Head (d) - loss of profit

12. The Plaintiff's case is that the appropriate sum of damages under this head is US$25,500, being the difference between the contract price under the contract between the Plaintiff and the Defendant, and the contract price under the contract between Plaintiff and his customer. Mr. Mak argued that the measure of damages should be ascertained under section 53(3) of the Sale of Goods Ordinance, as the difference between the contract price and the market price of plywood at the time of the failure to deliver. As I have indicated earlier, I am satisfied that there was no "available market" at the relevant time, and that therefore section 53(3) is not applicable.

13. I am satisfied that Mr. Fok is correct in submitting that the situation is covered by the leading case of Hall v. Pim Commercial Cases Vol. XXXIII, p. 324. I am satisfied that the Defendant knew that the Plaintiff was buying the playwood for resale to a customer in China, and that the appropriate measure of damages is that submitted by the Plaintiff. I therefore award damages for loss of profit in the sum of US$25,500. There will be interest on that sum at judgment rate from the date of the writ until payment.