CHIAPHUA INDUSTRIES LIMITED v. RINEFAS LIMITED

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. In the first of these two consolidated actions the Plaintiff claims the sum of A$266,667.00 as a refund for certain machines it purchased from Rinefas Limited which it claims were in breach of warranty and returned; it also claims damages resulting from that breach. In the second action it claims an amount of A$310,754.75, which it says the Defendant, a subsidary of Rinefas Limited and the patentee of the invention of the machines in question, agreed to pay to it under a written agreement dated 14th May 1983.

2. The Defendants who entered appearance, put in their defence and made full disclosures, were represented by Baker and McKenzie, but on the eve of the trial withdrew their instructions and were not represented at the trial, which proceeded in their absence. Under Order 35 I dismiss their counterclaims.

3. The implied warranty under the Sale of Goods Ordinance of fitness for the purpose intended applied to the machines i.e. fitness for the purpose of manufacturing parts for axial flux motors. The essential question is whether the machines met the purpose for which they were intended. It is clear to me from the documentary evidence in this case that they did not do so. I am also satisfied that the Plaintiffs did in fact pay the amount they claim i.e. A$266,667, to the Defendants. On breach of that implied warranty, that is breach of the agreement, the Plaintiffs are entitled to that amount by way of damages.

4. The Plaintiffs also claim various amounts they say they expended on procuring the lease of a factory to manufacture the axial flux motors and that on the breach of the agreement by the Defendants, they suffered a substantial loss in relation to the lease. I am satisfied from the documentary evidence, including correspondence from the Defendants, that the Defendant did have notice of the intention of the Plaintiff to procure that lease. The relevant loss was therefore clearly within the comtemplation of both parties. I am satisfied from the documents that the Plaintiff paid the very substantial premium of $8,366,490.00 in respect of that lease and that it subsequently received an ex gratia refund of only $6,328,109.00 on surrendering the lease. I am also satisfied that it paid architect's fees of some $287,500 in connection with the factory;. that it paid a sum of $36,612.15 in relation to site investigation works, and a further sum of $89,040 for hoarding work in respect of this factory. I also find on the evidence that it incurred the further sums in legal fees including stamp duties in connection with the lease of $256,682.75 and with the surrender of the lease of $182,075 .50. I disallow the Plaintiff's claim for $222,388 by way of interest paid to the Industrial Estates Corporation as I am not satisfied the delay in executing the lease, which occasioned the liability to interest, can be laid at the door of the Defendants, notwithstanding some suggestion to that effect in the correspondence between the parties. Totalling all these amounts (other than the sum of $222,388) and deducting the. amount of the ex gratia refund I find that a balance of $2,890,291.40 is due to the Plaintiffs.

5. I proceed to consider the question of interest. There are of course 2 amounts here. First the Australian dollar amount, and I should mention that I refused the application of the Plaintiff to amend its Statement of Claim to claim the amount of Hong Kong dollars which it expended to procure the sum of Australian dollars because it seemed to me that now the Defendants are no longer represented and are not before me, that I should not allow such amendment which would presumably exceed the Australian dollar amount in the claim notified to the Defendants, notwithstanding the considerable sympathy I have for the Plaintiff. Reverting to sum I have awarded in Australian dollars, I have no evidence before me of what rate of interest it would attract or rather what rate of interest the Plaintiff would have had to pay to raise that amount in Australian dollars. In the circumstances in the absence of any evidence I think it entirely reasonable to adopt the approximate rate of interest that would have to have been paid over the same period for Hong Kong dollars and it seems to me from the evidence of local interest rates that that rate would be 12%. I accordingly award interest on the sum of A$266,677 at the rate of 12% from the 16th of March 1981 to today.

6. And as to the amount of $2,890,291 rounded off to omit cents, I award interest at 9% which seems to me to be the average rate of interest over the period in question from the 5th of September 1983 to the date of judgment i.e. today. I adopt the date 5th of September 1983 in pursuance of my acceptance of Counsel's submission that the position crystalised on the ex gratia refund of the $6,328,109.00 in respect of the surrender of the lease.

7. That leaves only the matter of costs. I think these must follow the event and upon that basis the Plaintiff is to have its costs which are to be taxed if not agreed.

8. I proceed then to the other action that was consolidated and this is number 2893. The claim here is a simplier one. It proceeds upon the terms of a written agreement dated 14th May 1983 between the Plaintiffs and the Defendants which is before me in pursuance of Order 27 rule 4, being a document which was in the Plaintiff's list of documents and in respect of which no counter-notice has been served. I accept Counsel's submission that the effect of that document is an undertaking on the part of the Defendant, Card-O-Matic, to pay the amount claimed i.e. A$310,754.75 to the Plaintiff not later than the 31st December 1983. By way of defence, the Defendant has sought to plead another agreement and also an allegation that the machines were returned but in a damaged condition. Now the onus of proving that is clearly upon the Defendant and it has not appeared to discharge that burden nor has it in fact discharged that burden. The result is that having found that the letter of understanding clearly discloses the undertaking by way of agreement to pay the amount in question, it must follow that the Plaintiff is entitled to judgment for that amount. I accordingly give judgment to the Plaintiff for the amount of A$310,754.75 The Plaintiff also claims interest, which I think it should have. In the ordinary way it should have received payment not later than 31st December 1983 and for the reasons I have already given in relation to the first action I think that the same rate of interest should apply. Accordingly I award interest on that sum of A$310,754. 75 at a rate of 9% from the 1st of January 1984. There is no reason why costs should not follow the event and the Plaintiff is to have its costs.