LANWAUGH GARMENT FACTORY LTD v. SINELY KNITTING GARMENT FACTORY LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The unrepresented defendant is absent to-day. There was no response to the callings of its corporate name at the commencement of this trial. I am satisfied that notice of the hearing was duly served on the defendant limited company. Miss Wong, counsel of the plaintiff, commenced to prove case against the defendant. On the evidence, I find liability as established. However, the question of quantum has caused much concern.

2. It is the settled practice of The Director of Trade in Hong Kong to reallocate to an owner the same quantity of his formerly held quotas, if no less than 95% had been spent in the preceding year. The consequence will be that a quantity equivalent to any unutilized amount in excess of 5% would be deducted by The Director of Trade from his allocation in the ensuing year. That would result in a permanent loss of quota quantity to the full extent of such previous year's unspent quotas. That trade rule focuses on 95% and 5% of the owner's entitlement.

3. In 1985, the plaintiff held quotas for 82,171 pieces in Category 4 for export to Benelux. The plaintiff and the defendant entered into a transaction whereby for good consideration proved in this case, the defendant agreed, under a Letter of Guarantee duly signed by or on behalf of the defendant on or about the 23rd August 1985, in these terms :

4. The defendant had failed to utilize quotas for 7,647 pieces, representing more than 5% of the 1,000 dozen i.e. 12,000 pieces temporarily transferred to the defendant. That is more than 5%, in fact 63.725% of the 12,000 pieces so transferred on a temporary basis. The plaintiff's quotas for the year ending 1985 were for 82,171 pieces, 5% of which would be 4,108.55 pieces. The defendant's unutilized quotas for 7,647 pieces exceeded its own temporarily transferred quantity and the total quantity then held in the name of the plaintiff.

5. The plaintiff also temporarily transferred to one Yee Tung, another 1985 transferee, a quantity of quotas of which 1,200 pieces were left unutilized. Yee Tung has paid the plaintiff for its 1,200 pieces shortfall at a price prevalent in the course of a re-aquisition in the open market.

6. Miss Wong, counsel for the plaintiff, was prepared to allow 1,200 pieces deducted from the plaintiff's total claim of 9,444 pieces which was said to be a permanent loss sustained by the plaintiff in the 1986 reallocation by The Director of Trade. Therefore, the plaintiff's net claim against the defendant is for the balance of 8, 244 pieces which represents the difference between 9,444 pieces unallotted in 1986 and the 1,200 pieces settled by Yee Tung. Of the claimed 8,244 pieces, the defendant's own shortfall accounted for only 7,647 pieces.

7. A serious attempt to resolve authoritatively the true ambit of liability and the precise limit of quantum should not be made in the absence of the defendant and without whatever assistance that may come from its legal advisers.

8. On liability, I am prepared to find in favour of the plaintiff. I would award no more than 7,647 pieces by way of quantified loss. 7, 647 pieces were a loss directly caused by the defendant.  Even if the provisions in the Letter of Guarantee were to be, as they are in this case, construed most benevolently, in no way could a claim beyond 7, 647 pieces be supported.

9. By the said Letter of Guarantee, the defendant's "failure" could not arise unless over 5% of his temporarily transferred quantity of 12,000 pieces or 1, 000 dozens (not, be it noted, the plaintiff's own 1985 quantity of 82,171 pieces) had been left unused. The loss the defendant had agreed to be responsible for must be the loss which was the consequence ("result") of the defendant's "failure". The defendant's failure to perform under the said Letter of Guarantee could not have been envisaged to bring about any more loss than his own shortfall of the 7. 647 pieces.  The relevant provisions in the said Letter of Guarantee would not seem to be fairly susceptible of any wider interpretation.

10. The position may, perhaps, be better illustrated by the two hypotheses I have posed for seeking counsel's assistance. The first hypothesis is : assuming that the plaintiff's 1985 holding had been 1,000,000 pieces with 100,000 pieces temporarily transferred to the defendant and assuming that of the 100,000 pieces so temporarily transferred to the defendant, in the same context governing the contractual relationship between the parties to this action, 50,001 pieces had been left unutilized, then these 50,001 pieces would have stood for much more than 5% of the quantity so temporarily transferred to the defendant but just one piece more than 5% of the total quantity so held by the plaintiff. Let us also assume that from the 900,000 pieces retained by the plaintiff, 899,999 pieces had been unused. Therefore, both the plaintiff and the defendant had infringed the 5% limit imposed by the Director of Trade. Evidently, the defendant had also wrongfully, in breach of contract, left over much more than 5% of its temporarily transferred pieces. Putting counsel's proposition to test : the defendant would unbelievably have become responsible for 950,000 pieces.

11. Miss Wong, counsel for the plaintiff, has not been able to expand satisfactorily on her premise for fixing the defendant with a grossly unfair liability for all the 950,000 pieces, i.e. 50,001 pieces shortfall of the defendant's plus the more substantial 899, 999 pieces shortfall of the plaintiff's.  Counsel seeks to provide justification from the conspicuously disproportionate culpability of the parties. In this hypothesis, Miss Wong is virtually driven to concede that the defendant should not have been called upon to discharge a liability for anything more than its own shortfall of 50,001 pieces.

12. Next, I pass to deal with the second hyphothesis : out of same hypothetical l,000,000 pieces quota, the plaintiff had again temporarily transferred 100,000 pieces for the use of the defendant in 1985, of which 50,001 pieces had been left unutilized. Hence, the defendant had been in breach of the 5% limit laid down by the Director of Trade for the l,000,000 pieces held by the plaintiff in 1985, and also wrongfully left unused more than 5% of its own temporarily transferred quantity contrary to its contractual obligation. Of the 900,000 pieces remaining with the plaintiff, this time only 49,999 pieces had not been spent. That would have been less than 5% of the plaintiff's l,000,000 pieces for 1985, but nevertheless, it was an unutilized substantial quantity. In this second hyphothesis, counsel for the plaintiff rallies in staunch support of her contention that the defendant should have been made responsible for every shortfall from as well the defendant itself as the plaintiff, i.e. in all 100,000 pieces, comprising 50,001 pieces unutilized by the defendant and 49,999 pieces unutilized by the plaintiff.  The explanation proffered by Miss Wong is that the defendant had misconducted itself but not the plaintiff.   The rationale for applying different standards to these two hypotheses is somewhat enigmatic. Naturally, many more like examples may be given.

13. The exaggerated figures in these two hypotheses have hopefully served to demonstrate that unless such an incredible risk of a mammoth loss which could arise in circumstances wholly beyond the defendant's control was clearly contemplated or unless the language of the said Letter of Guarantee clearly exacted such an exorbitant liability from the defendant, damages beyond the actual shortfall of the defendant cannot be said to be proximately recoverable. There is no evidence of the defendant's awareness of any peculiar circumstances of the plaintiff.  Nothing in the said Letter of Guarantee warrants a liberal construction with such far-reaching consequences as advocated by counsel.

14. In my view, any loss beyond the actual shortfall of the defendant totalling 7,647 pieces must be irrecoverable as being too remote. The responsibility for 1,200 pieces readily assumed by Yee Tung and at least acquiesced to by the plaintiff lends colour to the way in which I have endeavoured to read the provisions of the said Letter of Guarantee. Apart from the conceded l,200 pieces already compensated for by Yee Tung, the plaintiff cannot, in my opinion, claim the full balance of 8,244 pieces not reallocated in 1986.

15. I give judgment to the plaintiff in the sum o f $79,656.25, that is to say, 7,647 pieces times the average market price of $125 per dozen. The plaintiff is certainly entitled to interests on that sum from 30th April, 1986 to today at 10% per annum, which is the rate of 1% over an average prime as best as I could now recreate. Costs of these proceedings are to be the plaintiff's costs against the defendant.