ZHAOQING KIDSTAR FOODS LTD v. UTILITY INDUSTRIAL LTD

HCA 136/2017

[2018] HKCFI 2668

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 136 OF 2017

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JUDGMENT

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Introduction

1.  This is the plaintiff’s action for assessment of damages (non-delivery of goods) against the defendant upon a Final and Interlocutory Judgment dated 22 June 2017 (“Judgment”).

2.  Although the defendant has filed an Acknowledgment of Service of the Writ of Summons, no defence has been served by the defendant.  By the Judgment, the defendant was adjudged to pay the plaintiff (i) the liquidated sum of US$164,044.80 (being the amount paid by the plaintiff to the defendant for goods which were not delivered); (ii) damages to be assessed (in respect of the price difference for sourcing goods from a substitute supplier); and (iii) costs to be taxed.

3.  Since then, directions have been given for discovery and exchange of witness statements for the assessment of damages under the Judgment (i.e. item (ii) in paragraph 2 above).  The defendant was absent from these directions hearings, and was eventually debarred from adducing documentary evidence and witness evidence as a result of non-compliance with an “unless order” of the court.

4.  The defendant was absent from the hearing for assessment of damages on 8 November 2018.  Mr Danny Chan, Counsel for the plaintiff, confirmed with the court that all the relevant papers had been served on the defendant[1]. Accordingly, I was satisfied that the defendant had been given the requisite notice of the assessment hearing and the court should proceed with the hearing notwithstanding the defendant’s absence.

Background

5.  The plaintiff is a limited company incorporated in the People’s Republic of China (“PRC”), whilst the defendant is a limited company incorporated in Hong Kong.

6.  On 17 March 2016, the plaintiff entered into three sales contracts with the defendant for the supply of Korean Refined White Sugar of TS Brand (“TS Sugar”) to Sanrong Port in the PRC, namely (i) Contract No. 077/16 for 403.2 metric tons of TS Sugar at US$533 per metric ton for April to June 2016 shipment; (ii) Contract No. 077A/16 for 288 metric tons of TS Sugar at US$532 per metric ton for July to September 2016 shipment; and (iii) Contract No. 077B/16 (“Subject Contract”) for 672 metric tons of TS Sugar at US$534 per metric ton for October to December 2016 shipment. 

7.  The parties duly performed the first two contracts.  Insofar as the third contract (i.e. the Subject Contract) is concerned, the parties agreed that the defendant should arrange for delivery of TS Sugar to Sanrong Port in the following manner: (i) 307.2 metric ton by 17 October 2016; (ii) 307.2 metric ton by 21 October 2016; and (iii) 57.6 metric ton by 25 October 2016.  On 19 September 2016, in pursuance of the Subject Contract, the plaintiff caused a payment of US$164,044.80 to be made to the defendant for the supply of the first batch of 307.2 metric ton of TS Sugar scheduled to be delivered on 17 October 2016.

8.  The Plaintiff’s case is that, on 30 September 2016, in wrongful and anticipatory breach of the Subject Contract, the defendant notified the plaintiff that since the market price of TS Sugar had risen, it would not deliver TS Sugar to the plaintiff under the Subject Contract.  The plaintiff accepted the defendant’s repudiation and urgently sourced and ordered TS Sugar from another supplier to meet its production demands.

9.  On 18 January 2017, the plaintiff commenced the present proceedings seeking, inter alia, refund of the sum of US$164,044.80 and damages for breach of the Subject Contract in the sum of US$74,592 or such sum as the court may award.  As mentioned above, by reason of the defendant’s default in serving a defence, the Judgment was made in favour of the Plaintiff against the Defendant, giving final judgment for the refund of the sum of US$164,044.80 and interlocutory judgment for assessment of the plaintiff’s claim for damages for breach of contract.

The plaintiff’s case and evidence on assessment

10.  In support of this assessment, the plaintiff has adduced documentary evidence and called Ms Cheng Jinchan (“Ms Cheng”), an employee of the Plaintiff, to testify before the court.

11.  In a nutshell, the plaintiff’s case is that, as a result of the defendant’s anticipatory breach, it had no choice but to urgently locate substitute source of TS Sugar.  On 3 October 2016, the plaintiff entered into a new sales contract (“New Contract”) with Jetwise Trading Limited (“JTL”) for the supply of 691.2 metric ton of TS Sugar at the higher price of US$645 per metric ton.  As such, the plaintiff suffered financial loss and damage in the sum of US$74,592, being the difference in price of TS Sugar under the New Contract and the Subject Contract (US$645 – US$534). For the purpose of assessment, the plaintiff has fairly confined its claim to the price difference in respect of 672 metric tons of TS Sugar, being the contracted quantity to be supplied under the Subject Contract, without taking into account the supply of an additional 19.2 metric tons of TS Sugar under the New Contract.

12.  Ms Cheng signed a witness statement in the present action.  During the hearing, she adopted her signed witness statement as her evidence.  She had also answered further questions posed to her by the plaintiff’s counsel and the court.  So far as it is relevant, the plaintiff’s evidence may be summarised as follows:-

(a)   In the last week of September 2016, the plaintiff was unable to contact the defendant through telephone, email or Wechat.  It was not until 30 September 2016 that the plaintiff could get in touch with the defendant through the plaintiff’s agent or associate, The Plasticsam Limited (“Plasticsam”), whereupon the defendant indicated that it would not perform the Subject Contract.

(b)   To meet urgent production demands, the plaintiff had to quickly make an order with another company who can (i) ship TS Sugar to the plaintiff within 2016 and (ii) ship TS Sugar to the port of Sanrong, since the plaintiff had dedicated just enough shipping quotas in that particular port.

(c)   The only company the plaintiff could find was JTL, although in her oral evidence Ms Cheng suggested that the plaintiff had approached three suppliers including JTL and the price offered by JTL was the lowest.

(d)   The price quoted by JTL via WeChat was US$650 per metric ton on 30 September 2016.  JTL also explained via WeChat that the rise in price of TS Sugar was due to reduction in production in the PRC and Brazil; the price of US raw sugar had surged to over US$0.23 from US$0.17 at the beginning of 2016; and the estimated local demand for TS Sugar would increase from late November to December 2016.

(e)   The price ultimately accepted by JTL was US$645 per metric ton, and the plaintiff considered that it was the best deal the plaintiff could have secured at the time.

(f)   On 3 October 2016, the plaintiff entered into the New Contract with JTL for the supply of 691.2 metric tons of TS Sugar at US$645 per metric ton to Sanrong Port;

(g)   The plaintiff duly paid for all three batches of TS Sugar under the New Contract on 24 October, 7 November and 14 November 2016[2], and the TS Sugar from JTL arrived at Sanrong Port on 31 October, 14 November and 23 November 2016 respectively.

13.  I should also mention that the plaintiff adduced documentary evidence of various historic index on sugar price between 2016 and 2017.  Mr Danny Chan, for the plaintiff, clarified that it is not necessary for the plaintiff to rely on those documents, which were however disclosed in response to previous queries made by the court during directions hearings.  He further explained that, other than showing the trend, the historic index is of limited assistance since the price could vary depending on the place to be sourced and the destination port, and there would also be price differentials along the chain of supply by various traders in the market.

Relevant principles

14.  The starting point for assessing damages for breach of contract is set out in the often quoted statement of Parke B in Robinson v Harman (1848) 1 Exch 850 at 855 that:

“The rule of common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”

15.  More specifically, in the context of sale of goods, section 53 of the Sale of Goods Ordinance (Cap. 26) (“SOGO”) provides that the remedies of buyer for damages for non-delivery are as follows:

“(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract.

(3) Where there is an available market for the goods in question, the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered, or, if no time was fixed for delivery, then at the time of the neglect or refusal to deliver.”

16.  The above measure of damages should be considered in conjunction with the plaintiff’s duty to mitigate.  It is convenient to refer to the speech of Viscount Haldane LC in British Westinghouse Electronic & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 at 689 where his Lordship stated that:

“The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps.”

17.  In this regard, I accept Mr Chan’s submission that the prima facie measure of damages provided for in section 53(3) of SOGO should be considered hand in hand with the rules of mitigation in which a buyer must, following his acceptance of the repudiation, take reasonable steps to reduce his loss, e.g. by buying substitute goods in the market (See Chitty on Contracts – Hong Kong Specific Contracts, 5^th ed (2016), para 20-568). 

18.  Further, if the buyer reasonably attempts to mitigate by buying substitute goods in the market, he is entitled to have his damages assessed by reference to the market price at the date of the repurchase, even if the market price is higher than at the time of the due date for delivery (See Melachrino v Nickoll & Knight [1920] 1 KB 693 at 697, 699). 

19.  To the extent that the buyer incurs incidental expenses in buying substitute goods, such as extra expenses in transport or handling, these are recoverable as part of the buyer’s damages, in addition to the normal measure of damages for non-delivery (See Benjamin’s Sale of Goods, 10^th ed (2017), para 17-037).

Discussion

20.  I have considered the witness statement of Ms Cheng and heard her oral evidence given in court.  Her evidence is by and large consistent with contemporaneous documents available before the court. Nevertheless, as mentioned above, there is an apparent inconsistency in her evidence in that she said in her witness statement that the only company the plaintiff could find as substitute supplier was JTL, whereas she gave oral evidence that the plaintiff had approached three suppliers although the quote given by JTL was the lowest.  Having considered the evidence, I take the view that this is not material (let alone fatal) in that:

(a)   Ms Cheng did mention in her statement that the substitute company had to be able to (i) ship TS Sugar within 2016 and (ii) ship TS Sugar to the port of Sanrong.  The apparent inconsistency may be reconciled if, among the three companies giving a quote, only JTL was able to meet these two conditions.

(b)   Ms Cheng gave oral evidence that the only relationship between the plaintiff and JTL was a business one, i.e. JTL was among the suppliers of the plaintiff.  There is no apparent reason nor evidence to suggest that the plaintiff preferred JTL to other suppliers for reasons other than normal commercial considerations such as pricing.

(c)   Although the quote given by JTL was higher than the contractual price under the Subject Contract, the price increase was consistent with the trend of price increase of sugar as shown in the various historic index of sugar produced by the plaintiff.  In particular, two of such historic index show that the price of sugar was around (and indeed above) US$0.23 in October 2016.  These tend to demonstrate that the price quoted by JTL via WeChat messages was in line with the market price at the time.

(d)   Since there is no apparent reason or evidence to suggest that the price quote given by JTL was higher than the market price at the time, it is immaterial whether the plaintiff could in fact only find one substitute supplier or had obtained price quotation from three suppliers.

21.  Having considered the above and the contents of Ms Cheng’s witness statement, I find Ms Cheng to be an honest and truthful witness.  I am prepared to accept the evidence given by Ms Cheng on behalf of the plaintiff.

22.  In the circumstances of the present case, the plaintiff had entered into the Subject Contract with the defendant in March 2016, with delivery of TS Sugar in three batches scheduled in October 2016. However, it was not until 30 September 2016 that the defendant indicated to the plaintiff that it would not perform and deliver TS Sugar under the Subject Contract.  As a result, the plaintiff was left with a very narrow window of time to seek an alternative supplier.  In these circumstances, I am satisfied on the evidence that the plaintiff had already taken reasonable steps to mitigate its loss by finding alternative supply of TS Sugar in the market and eventually entering into the New Contract with JTL on 3 October 2016. 

23.  So far as the price increase is concerned, one must not lose sight of the lapse of time of more than six months since the date of the Subject Contract up to the anticipatory breach of the same by the defendant on 30 September 2016.  There is contemporaneous evidence, including the WeChat messages with JTL, which explains the price increase due to reduction of supply of sugar in the PRC and Brazil.  This is also backed up to some extent by the trend revealed in the historic index of sugar produced by the plaintiff.  I also take note of the fact that the plaintiff managed to persuade JTL to enter into the new contract at the price of US$645 per metric ton, which was slightly lower than the quote of US$650 per metric ton initially given by JTL.  All in all, I am also satisfied that the price of US$645 per metric ton is in line with the market price at the time of the repurchase on 3 October 2016.

24.  In the circumstances, this court accepts the plaintiff’s case on assessment of damages.  In the premises, damages will be assessed at US$74,592 or the Hong Kong dollar equivalent at the time of payment.

Disposition

25.  There shall be judgment in favour of the plaintiff in the sum of US$74,592 or the Hong Kong dollar equivalent at the time of payment.  For the avoidance of doubt, such amount is separate and additional to the sum of US$164,044.80 already ordered under the Judgment.

26.  I further order the defendant to pay the plaintiff interest:

(a)   on the sum of US$164,044.80 at commercial rate of prime plus 1% from the date of the Writ of Summons herein, i.e. 18 January 2017 until the date of the Judgment, i.e. 22 June 2017 and thereafter at judgment rate until payment;

(b)   on the sum of US$74,592 at commercial rate of prime plus 1% from the date of the Writ of Summons herein, i.e. 18 January 2017 until the date of this judgment, and thereafter at judgment rate until payment.

27.  There shall be an order nisi that costs of the assessment of damages be to the plaintiff to be taxed if not agreed, with certificate for counsel.  The order nisi shall become absolute within 14 days from the day of handing down of this judgment, in the absence of any application to vary the same.

28.  It remains for me to thank Mr Chan for the assistance he rendered to the court.