PROSPERITY CLOTHING COMPANY LIMITED v. CHEN KWEN SHEN alias CHAN KWAN SUM t/a WORLDWIDE IMPEX COMPANY

1988 No.A3557

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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1. The plaintiff claims damages for replacement costs of its lost quota entitlement. Four hundred dozens of the relevant Category of quota were transferred to defendant on a temporary basis in October 1987. The defendant guaranteed that he would utilise at least 95% of the quota by the end of that year. He failed to do so and the Department of Trade permanently reduced the plaintiffs quota entitlement from 1988 by the corresponding 400 dozens in the same Category .

2. To compensate, on 2nd. May, 1988 the plaintiff purchased the same amount of quota in the same Category from a third party at a cost of $1,000.00 per dozen; a total cost of $400,000.00, being the amount of this claim.

3. None of this is disputed, save for the replacement cost of the quota, which defendant contends to be far above the market price at the figure of $1,000.00 per dozen. Interlocutory judgment was accordingly entered by consent on 29th July, 1988 and the plaintiff was put to proof as to quantum.

4. The defendant was hitherto legally "represented, but filed a notice to act in person two days prior hearing and duly appeared in that capacity. His position was explained in detail and he seemed to understand.

5. With commendable but unnecessary care the plaintiff proved its purchase from Glorious Year Ltd. of 400 dozens of the relevant quota at $1,000.00 per dozen. It then called Mr. William Yung, manager of a quota broking company, to establish that the purchase price accorded with the market price at the time.

6. Mr. Yung produced as Exhibit P.3 a quotation requested by the plaintiff company in regard to the price of a permanent transfer of 400 dozens of the relevant quota. The quotation was for $1,080.00 per dozen and is dated 14th March, 1988. The date of plaintiff's purchase of the replacement quotas is 2nd May, 1988.

7. The defendant questioned Mr. Yung on the legality of buying and selling quotas, suggesting that the Department of Trade does not allow this exercise. Mr. Yung disagreed, and I must in turn agree with him that purchase and sale of quotas is legal.

8. The defendant did not cross-examine Mr. Yung on the market price of the quotas. He did however put one relevant question to the previous witness, the managing director of Glorious Year Ltd., which sold the replacement quotas to the plaintiff. To the defendant's suggestion that the sale price was too high, this witness replied that it was cheaper than the market price.

9. After Mr. Yung's evidence the plaintiff closed its case and the defendant gave his evidence. He did so in good English and seemed well acquainted with his subject.

10. The defendant testified that the price in early April 1988 for permanent transfer of the quotas in question was about $720.00 a dozen. He added that the price around 26th May, 1988 was about $630.00 a dozen. From this he concluded that the quota price was declining and that there was no justification for a purchase price of $1,000.00 a dozen.

11. In cross-examination, the defendant said the quota market was sluggish in 1988. He said the temporary quota market was around $130.00 and declining early this year, but was usually in the region of $280,00 -  $350.00. The permanent quota market price he said was usually about 3 times that of the temporary price. I assume he used these figures by reference to dozens, had been the point of reference in discussing price throughout the hearing. He declined to call witnesses.

12. The plaintiff has called one independent witness to say the market price on 14th March, 1988 was slightly higher than the price which it paid on 2nd May, 1988. I am not persuaded from this evidence that the plaintiff has made every effort to minimise its loss. In cross-examining the defendant, plaintiff’s counsel put it to him that the quota market "fluctuates wildly". In a market which the plaintiff believes subject to wild fluctuation, does quotation7 weeks prior to the purchase date reflect the market level at that later date? Can it be said to do so any market,the nature and volatility of which is not explained to the Court?

13. I must answer at least the first question in the negative. Seven weeks in advance is too long a time for the evidence of Mr. Yung to substantiate the conformity of plaintiff's purchase price market. Furthermore, Mr. Yung did no more, than produce his company's quotation; as a broker he was also well placed to comment on the price at the time of purchase, but this was not asked of him. The evidence of the managing director of the selling company is not of course independent, as he has an interest in establishing that the sale price was reasonable.

14. That apart however, I find it improbable that the plaintiff would have paid, an excessive purchase price. It. would have, no reason to do so, uncertain as he would be of recovering its losses. The plaintiff may have taken less than due care to minimise its loss, but the market price would not have been greatly below what was paid. The defendant himself said that the market was sluggish and I have no hesitation in accepting Mr. Yung's evidence of the market price on 14th March.

15. The evidence of the defendant was imprecise and lacked conviction. He was evidently honest in his beliefs, but I am left uncertain as to how well-founded they were. Without more, I cannot accept his figures, although I do accept his unchallenged evidence that the market was declining. This evidence is substantiated in small measure by the fall between the quotation date and the date of plaintiff's purchase.

16. Evaluating these factors, I find that the market price for the quotas at the time of sale would not have been below $850.00 a dozen. Applying that figure I award the plaintiff damages in the sum of $340,000.00. Interest is awarded at 1% over prime rate from writ to judgment and the defendant will pay plaintiff's costs with a certificate for counsel.