GUANGZHOU WEI JUN ECONOMIC DEVELOPMENT CO. v. PAK CHONG YEUNG JOHNNY (白滄洋) t/a WING LUNG CONTAINER TRANSPORTATION CO.

HCA14149/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 14149 OF 1997

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JUDGMENT ON ASSESSMENT OF DAMAGES

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Background

1. The Plaintiff was and is a corporation incorporated under the laws of the People's Republic of China and deals in electrical appliances. The Defendant was at the material time carrying on the business as carrier and/or transportation agent. In or about April 1995, the Plaintiff purchased 400 sets of air conditioners (which consist of 400 sets of component RAS-5HQE5 and 400 sets of component RP-5HQ5) from Hitachi Asia (Hong Kong) Ltd. through the Plaintiff's import agent Shanghai Industrial Import Export Corporation Pudong Company ("Shanghai Industrial") at the price of US$786,000.00.

2. Pursuant to an oral agreement made between the Plaintiff and the Defendant, the Defendant took delivery of the said air conditioners by two lots in June and July in Hong Kong from a shipping company on behalf of the Plaintiff for the purpose of transportation. The Plaintiff found both the Defendant and the said air conditioners missing so a report was made to the police. The police located the Defendant and recovered a number of air conditioners ("the recovered goods"). The Defendant was subsequently prosecuted for the offence of theft and was acquitted after trial.

3. The Plaintiff sued the Defendant for the return of the said air conditioners and/or damages for conversion. On 10th July 1998, Master Chung (as he then was) ordered the Defendant to deliver to the Plaintiff the air conditioners and for damages to be assessed. On the same day, Master Chung also made an order in HCA No. HCMP462/1998, an Interpleader action taken out by the Secretary for Justice to determine the ownership of the recovered goods as between the Plaintiff and the Defendant, that the Secretary for Justice to deliver the recovered goods to the Plaintiff. The Defendant was absent during those proceedings.

The evidence

4. Mr. Ho Wai Hung (PW1), a director of the Plaintiff, was the only witness called by the Plaintiff. His witness statement (pages 107 to 110 of the Plaintiff's Bundle of Documents) was adopted by him as evidence-in-chief. He also adduced various documents such as agreements, invoices, Letters of Credits, Bills of Lading etc. to support his claim.

5. PW1's case was that the value of the said air conditioners at the time of the conversion was US$786,000. The unit price of RAS-5HQE5 and RP-5HQ5 was US$1,235 and US$730 respectively (see exhibit P.4), making a total of US$1,965.00 per set. PW1 referred to an agreement (exhibit P.12) between the Plaintiff and one Shanghai Po Hua Air Conditioning Facility Company ("Shanghai Po Hua") and said that the Plaintiff had agreed to sell the said air conditioners at a price of 8% over the total value after declaring all taxes in Shatow, Guangdong, China. PW1 calculated the estimated profit to be US$95,577.60 on the basis that the import tax and capital tax would have been 35% and 17% respectively of the value. He advanced the following formula ofr his calculation:

8% x (US$786,000 + 35% of US$786,000 + 17% of US$786,000) = US$95,577.60.

6. As to the recovered goods returned to the Plaintiff under Master Chung's order, the Plaintiff sold them to one Victory Up Development Ltd. ("Victory") in December 1998 at US$109,780 (see exhibits P. 6 & P7).

7. Further, as the Defendant took away the containers belonging to Nikko Development Ltd. ("Nikko"). Nikko sued the Plaintiff's transportation agent Deya Development Ltd. ("Deya") for the loss. Deya paid HK$125,802.10 (the value of one container) to Nikko (see exhibit P.10). Deya later settled with Nikko with an additional sum of HK$650,000 (see exhibit P.11). The Plaintiff had reimbursed Deya the total sum of HK$775,802.10.

Findings of fact

8. I find PW1 an honest and reliable witness. In the absence of any evidence to the contrary, I accept his evidence save for the following: PW1 claimed that the agreement with Shanghai Po Hua was that the Plaintiff would sell the said air conditioners at a price of 8% over the total value after declaring all taxes in Shatow, Guangdong, China. However, when one reads the relevant agreement dated 8th April 1995 (exhibit P.12), it can be seen that the Plaintiff agreed to "procure" Shanghai Industrial to "issue Letters of Credit within time" and that Shanghai Po Hua would pay the Plaintiff "after 30 days from issuance of Letter of Credit all amount of cargo price.....". It was further agreed that the Plaintiff would be paid "administrative fee of 8 % on the value declared at Swatow customs", and that the Plaintiff would have to pay "all other miscellaneous fees". Though the relevant Letter of Credit to be issued by Shanghai Industrial was not adduced in evidence, an irresistible inference to be drawn on the evidence before me is that the Plaintiff agreed to sell the said air conditioners to Shanghai Po Hua at the same price it has paid Hitachi, with the profit being the said administrative fee minus expenses (represented by the miscellaneous fees). The fact is that the Plaintiff had not agreed to sell to Shanghai Po Hua at an increased price. However, I do not find that PW1 had lied to me. I am satisfied that so far as PW1 is concerned, the profit margin created by the administrative fees minus expenses is the same as an increased price.

The assessment

9. I am grateful to Mr. Chan for his assistance and the well-prepared written submission for my consideration.

1. Loss of value of the goods

10. As the defendant was ordered to deliver up the said air conditioners which he has failed to do, the Plaintiff is entitled to have the value of the air conditioners wrongly converted by the Defendant as damages. The normal measure of damages of conversion is the market value of the goods converted (see McGregor on Damages, 15th ed. Para.1298). The learned author of McGregor suggested (at para.1308) that "...... the soundest approach is to start off with the value at the time of the conversion as the prima facie measure....increases or decreases in the value between wrong and judgment must then be considered".

11. On the evidence before me, which I have accepted, the value of the said air conditioners was US$786,000 in terms of the purchase price paid to Hitachi. There is also evidence before me that the Plaintiff had entered into an agreement dated 8th April 1995 to sell the said air conditioners to Shanghai Po Hua at the same price with the Plaintiff charging an administrative fees at the rate of 8% of US$786,000 minus expenses. As the Defendant taken delivery of the said air conditioners by two lots in June and July 1995, the conversion was committed sometime in June and/or July 1995. Should the value at the time of conversion be inclusive of the administrative fee minus expenses? As Mr. Chan based his argument on the value at the time of conversion being US$786,000, there is no submission on this point before me. In any event, I do find it difficult to include the administrative fee, which is in essence a commission, as the value of the said conditioners.

12. Another complication in this matter concerns the sale price of the recovered goods, which comprised of 61 sets of RAS-5HQE5 and 102 sets of RP-5HQ5 (see exhibit P.7), to Victory at US$109,780. When one reads the relevant invoice (exhibit P.6), the unit price of RAS-5HQE5 and RP-5HQ5 was US$880 and US$550 respectively. There was an apparent decrease in the price. Can I take it to be a decrease in the market value between "the wrong and judgment"? There is no evidence before me as to what the condition of the recovered goods was; whether there was a ready market for such air conditioners; the manner of sale, etc. I also have to bear in mind that the recovered air conditioners were already over three years old by the time they were sold in December 1998. In the absence of evidence indicated, I am unable to find that such a decreased price was the market value to be adopted. I therefore find that the value of the said air conditioners at the time of conversion was US$786,000.

13. Although the Plaintiff was able to obtain US$109,780 from the sale of the recovered goods, as there is no evidence regarding the manner of sale, the Plaintiff has not demonstrated that such a price was a reasonable mitigation of the loss. I therefore do not agree with Mr. Chan's submission that I should simply deduct the amount of US$109,780 from US$786,000 to arrive at the loss of value. Instead, I approach the matter from a different angle: the Defendant has converted 400 sets of RAS-5HQE5 and RP-5HQ5 air conditioners in June and/or July 1995. As a result of the recovery of 61 sets of RAS-5HQE5 and 102 sets of RP-5HQ5, the Defendant has in fact converted 339 sets of RAS-5HQE5 and 298 sets of RP-5HQ5. In the absence of evidence that the Plaintiff has used reasonable effort to mitigate its loss when it sold the recovered goods at the reduced price in December 1998, the loss of value of the converted air conditioners is therefore US$636,205 (US$ 1235 x (400 - 61) + US$730 x (400 - 102).

2. Loss of Profits / Consequential Loss

14. PW1 has calculated the estimated profit to be US$95,577.60. Mr. Chan submitted that the Plaintiff is entitled to recover such a loss as the Defendant has converted the said air conditioners for his own use as opposed to a bailee who had negligently allowed the goods to be lost. He relied on the case of Strand Electric Co v Brisford Entertainment and Hillesden Securities v Ryjack (cited in McGregor, Para.1358).

15. Alternatively, Mr. Chan relied on the authorities of Ewbank v Nutting (1849) 7 C. B. 797, and Acatos v Burns (1878) 3 Ex. D. 282 (both cited in McGregor, paras.1106) and submitted that as the Defendant was the carrier who has converted the goods in transit, the Court can assess the damages as "the value of the goods to the owner which was the sale price at the time and place of the delivery".

16. I will first deal with the cases concerning carriers. In Ewbank v Nutting, where goods were converted during transit and sold at very low prices, the jury was directed to give as damages the cost price of the goods together with the expenses of transportation. The learned author in McGregor (at para. 1106) submitted that though the court in that case "did not specifically look to the market value at the time and place of due delivery...... the trend of the judgments suggests that the market value at the due delivery would have been acceptable as a measure". The learned author further cited the case of Acatos v Burns (at para. 1106), which also involved conversion by sale during transit, in which Brett L.J. stated that the "true measure" was "the value of the goods to the owner".

17. There is no evidence to show what the transportation cost of the said air conditioners was when they were converted during transit. The approach of "cost price" plus "transportation cost" has no application here. Further, as I have already found that the administrative fee minus expenses could not be added on to the value, applying "the value of the goods to the owner" approach would have made no difference as the "value of the goods to the owner" is the same as the value I have already adopted.

18. I will now deal with the other authorities relied by Mr. Chan on the loss of profits point. Both the cases of Strand Electric Co v Brisford Entertainment and Hillesden Securities v Ryjack concerned profit-earning chattel which the Plaintiff would have hired out but for the conversion or detinue committed by the Defendant, who had made use of the chattel. The Plaintiff here is not in the business of hiring out air conditioners for profit, so there is no question of the Plaintiff suffering from the loss of profits resulting from the loss of use. However, I do find the view of the learned author in McGregor (at Para.1359) useful here. The learned author referred to the dicta of Romer L. J. in Re Simms [1934] Ch.1, 29 (C.A.) and suggests that "....the plaintiff's loss of profits on contracts made with third parties has tended to form too remote an item of damage. That such a loss may be recoverable is recognised, but it has been allowed only where it could have been anticipated by the Defendant".

19. Could the Defendant have anticipated the Plaintiff's loss of profits or is that too remote? There is no direct evidence before me as to how much (if any) the Defendant was made aware of the nature of the Plaintiff's business generally or, in particular, regarding the transportation of the said air conditioners. The loss of profits is represented by the loss of the administrative fee minus expenses. If the test is could the Defendant have anticipated that the Plaintiff would suffer loss as a result of failing to get the administrative fee minus expenses, the answer has to be "no". However, I do not think that I should adopt such a narrow test. The test should be, in my view, could the Defendant have anticipated that the Plaintiff would suffer loss of profits. The Defendant was a carrier contracted to transport the said air conditioners. The quantities of the consignment (400 sets in two containers) would have made it rather difficult, if not impossible, for the Defendant to have anticipated that the air conditioners were for the Plaintiff's own use. It is therefore within the Defendant's reasonable anticipation that the Plaintiff would have made a profit when the said air conditioners were delivered to their ultimate destination. Where the profit to be made is extremely lucrative, it may then be argued that wrongdoer could not have anticipated such a huge profit (as in the case of The Arpad [1934] P. 189 (CA)). In the present case, the profit to be made (US$95,577.60) in comparison with the value (US$786,000) could not be described as extraordinary. I will allow damages for loss of profit at US$95,577.60.

3. Compensation to Nikko

20. As a direct consequence of the Defendant taking away the containers belonging to Nikko, Nikko claimed against the Plaintiff's transportation agent Deya for the loss. The Plaintiff has reimbursed Deya for the amounts it paid to Nikko. The Defendant must have foreseen that the owner of the containers would look for compensation due to the loss. I find that the Plaintiff is entitled to claim the same from the Defendant. The Defendant is liable to pay to the Plaintiff the sum of HK$775,802.10.

Interest

21. As the time of conversion was in June and/or July 1995 and the second delivery was on 6th July 1995, I will award interest on special damages from 6th July 1995 to date of judgment at half the judgment rate and thereafter at judgment rate until full payment.

Costs

22. There is no reason why costs should not follow the event. There will be a nisi order that costs of the assessment be to the Plaintiff, to be taxed if not agreed. Such order to be made absolute should no application be made to vary within 14 days.