DAVID FRIEDMAN v. SIEGER LTD

DCCJ3670/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3670 OF 2012

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JUDGMENT

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Introduction and background

1.  This action arose out of a series of contracts for kitchen fitting out works and the supply and installation of electrical appliances by the defendant at the plaintiff’s intended residence in Macau.

2.  The plaintiff was at all material times the majority shareholder and chairman of Soaring Hawk Trade Corp (“Soaring Hawk”), a company incorporated in the British Virgin Islands and the purchaser of two adjoining units in Tower 2 of a development in Macau known as Villa De Mer (the “Property”).  The Property was intended to serve as the plaintiff’s residence.  However, at the time the Property was purchased in April 2011, the development was still under construction, and according to the plaintiff, there was no definitive date for completion of the development and issue of the occupation permit.  Although the plaintiff was given to understand that the occupation permit would be issued by early 2012, this did not occur due to apparent delays in the progress of the construction works.  Eventually, Soaring Hawk sold the Property and the plaintiff leased another property as his residence in or around August 2012.

3.  In September 2011, the plaintiff engaged Virtue Holdings Limited (“VHL”), a company specialising in interior design, to design and fit out the interior of the Property.  The persons handling the project on behalf of VHL were one CJ Corman (“Mr Corman”) and one Heather Clarke (“Ms Clarke”).  VHL was responsible for the overall conceptual design and coordination of the project and assisted the plaintiff to appoint and supervise specialist contractors for certain aspects of the project, including the kitchen fitting out works.

4.  In October 2011, VHL approached the defendant to carry out the kitchen fitting out works for the Property.  Negotiations then ensued between Ms Clarke and Mr Corman on behalf of the plaintiff and Mr Tommy Cheung, the defendant’s sales manager, from October 2011 to January 2012.  In the course of such negotiations, the defendant provided detailed technical drawings of the intended kitchen layout and design to VHL, who then passed the same to the plaintiff for discussion and comments.  Although the plaintiff never met with Mr Tommy Cheung or Mr Yeung Tak Ming (“Mr Yeung”), Mr Tommy Cheung’s boss and the owner of the defendant, there is no dispute that the plaintiff participated actively in the negotiations and made numerous changes to the drawings, which were then communicated to the defendant through VHL.  Further, the plaintiff proposed amendments to the defendant’s usual trading terms and conditions, which were largely accepted by the defendant.  One particular clause that was specifically amended by the plaintiff was Clause 4.1, which will be examined further below.

5.  On 19 January 2012, the plaintiff and the defendant signed a series of 5 separate written contracts, which collectively formed the agreement for the supply and installation of bespoke kitchen cabinets and countertops, electrical appliances and related accessories at the Property (the “Agreements”).  The written contracts consisted of:-

(1) Contract No S20111022B, which contained the general terms and conditions that, it is common ground, applied to all of the contracts between the parties (the “Terms and Conditions”);

(2) Contract Nos S20111022B C1 (R3) and S20111022B C3 (R2), which contained the specifications and unit prices for the fitting out of the main kitchen area and the open bar area respectively, including supply and installation of the cabinetry, countertops and related components and accessories (the “Fitting Out Contracts”); and   

(3) Contract Nos. S20111022B C2 (R2) and S20111022B C4 (R1), which set out the specified electrical appliances to be supplied and installed in the main kitchen area and the open bar area respectively (the “Appliances Contracts”).

6.  It should also be mentioned here that each of the contracts made specific reference to the latest versions of the technical drawings provided by the defendant.  In the case of the contracts for the main kitchen area, the drawings were designated “R9” (meaning revision number 9), and in the case of the contracts relating to the open bar area, these were designated “R8” (meaning similarly revision number 8).

7.  For the purposes of this action, the Terms and Conditions are relevant:-

“Terms & Conditions

After our customers (hereaftercall [sic] Client) paid the deposit, which base on our both agreemental [sic] contract sum, ours company is (hereaftercall [sic] SIEGER) going to order for production and then starting kitchen cabinet installation and one year maintenance.

…

2) Notice of Deposit Payment

2.1) Deposit payment(s) – Cabinetry & Appliances were 50% of total amount that should be paid on confirmation.

2.2) Final payment(s) for Cabinetry are 30% of total amount that should be paid on completion of the installation with the remaining 20% to be paid at the end of the Testing and Commission Period as described in 2.3.1. Final Payments for the Appliances will be the remaining 50% payable 7 days before delivery…

…

3.4) The cabinet design shall be equal to the finish and style of the attached photo and as designed and confirmed by Virtue Holdings Ltd.

…

4.1) All Cabinets and Appliances supplied by Sieger will be ready for delivery within 3 weeks after reconfirmation of site measurement. Delivery will be scheduled to occur on the date as set forth in the “Notice to Proceed” delivered to Sieger by the Client and in addition, Sieger will coordinate with the General Contractor to ensure proper Delivery timing.

4.2)      When all Cabinetry and 3^rd Party Appliances have been delivered to Site location, Sieger’s Construction time will begin with the Coordination of the General Contractor and will not exceed a time period of 3 weeks…”

8.  The total contract price was to be HK$1,797,315 (the “Contract Price”).  On 19 January 2012, the day the Agreements were signed, the defendant issued invoices to the plaintiff which provided that the “Deposit Payment” was “To be paid on confirmation”.  The plaintiff paid the 50% deposit of HK$898,658 by telegraphic transfer (the “Deposit”) on the same day.

9.  After the signing of the Agreements and the lunar year holidays, the defendant proceeded to order a number of the appliances specified in the Appliances Contracts from suppliers including, in particular, a number of Siemens brand appliances from BSH Home Appliances Limited (“BSH”), the authorised dealer for Siemens electrical appliances.  At the same time, further minor revisions were made to the technical drawings at the request of the plaintiff, through VHL.  On 18 March 2012, the defendant issued the latest version of the technical drawings, which were labelled “R13” and “FACTORY-ORDER”, signifying that these were the drawings to be submitted to the factory for manufacture of the kitchen cabinetry, countertops and other pre-fabricated components under the Fitting Out Contracts.

10.  On the basis of the specifications in the Fitting Out Contracts and “R13” of the technical drawings, the defendant approached Dongguan Glame Furniture Co. Ltd (“Glame”), a kitchen cabinetry and countertop factory in Dongguan, China.  On 3 April 2012, Glame issued under its letterhead a quotation to the defendant with 12 individually priced items totalling RMB 626,057, which was confirmed and chopped by the defendant (the “Glame Contract”).  The Glame Contract expressly provided (in Chinese) that “This purchase order may not be cancelled once confirmed”.

11.  On 30 June 2012, BSH delivered to the defendant’s warehouse 4 Siemens brand appliances, namely, an electric built-in oven, a built-in microwave oven with grill, a built-in dishwasher and an electric cooktop (the “Delivered Appliances”), which were amongst those to be supplied under the Appliances Contracts.  The total price payable by the defendant to BSH for the Delivered Appliances was HK$45,990.

12.  As at the middle of June 2012, the plaintiff seemed to have envisaged that the Property would be completed by the end of the month and that VHL and the defendant would thereafter be able to commence the fitting out works.  However, this apparently did not occur, and sometime in July 2012, Mr Corman orally informed Mr Tommy Cheung that the plaintiff was terminating the Agreements and demanding the return of the Deposit.  There were several conversations in which this matter was discussed between Mr Corman and Mr Tommy Cheung.  There is a dispute between the parties as to the content and outcome of such conversations: in particular, if the plaintiff’s unilateral termination was in breach of the Agreements, whether such termination was accepted by Mr Tommy Cheung on behalf of the defendant at the time.  I will come back to this issue later.  It is common ground, however, that no agreement was reached as to the return of the Deposit, whether in whole or in part.

13.  On 15 August 2012, the plaintiff’s solicitors issued a letter before action stating that the plaintiff had terminated the Agreements in July 2012 and demanding the return of the Deposit.  Correspondence between the parties then ensued, with the defendant urging the plaintiff to perform the Agreements and offering to install the kitchen cabinets and appliances at another location of the plaintiff’s choosing.  However, the plaintiff rejected the offer and no agreement could be reached.

14.  The plaintiff commenced the present Action on 17 October 2012, claiming for the return of the Deposit in full, together with interest and costs.  The defendant denies liability to repay the Deposit and counterclaims for the sum of HK$363,719 in damages, being the loss alleged to have been suffered above and beyond the Deposit as a result of the plaintiff’s wrongful termination of the Agreements.

Was the plaintiff entitled to terminate the Agreements?

15.  The crux of the plaintiff’s case, as pleaded in paragraph 5 of the Statement of Claim, was that the following terms should be implied into the Agreements, namely, that (1) either party may terminate the Agreements by giving reasonable notice; and (2) upon termination of the Agreements, the defendant would make repayment of the entire sum of any deposit paid by the plaintiff to the defendant pursuant to the Agreements.  As no particulars were given as to the basis upon which such terms were to be implied, I raised the matter with Mr Albert Cheung, counsel for the plaintiff (but whose name did not appear on the pleadings), during his opening.  Mr Cheung confirmed that the implied terms arose from the mutual unexpressed intention of the parties, having regard to all of the surrounding circumstances and the knowledge of the parties at the time the Agreements were entered into.

16.  This knowledge, as pleaded in paragraph 4 of the Amended Statement of Claim, was that (1) “SHTC was the prospective purchaser of the Property”; (2) “the defendant knew or ought to have known that the Property had not been completed and may not be completed in the foreseeable future”; and (3) “the defendant knew or ought to have known that the government of Macau … had not issued an occupation permit for the Property and may not issue an occupation permit for the Property in the foreseeable future” (I shall refer to this as the “implied terms argument”).

17.  In the course of the trial, Mr Cheung clarified that (2) above should be understood to mean that “the defendant knew or ought to have known that the Property had not been completed and that there was no fixed completion date” and that (3) above should be understood to mean that “the defendant knew or ought to have known that the government of Macau … had not issued an occupation permit for the Property and that there was no fixed date for the occupation permit to be issued.”  Mrs Angel Mak Daley, counsel for the defendant, did not raise any objections to these clarifications, and the court therefore proceeded on that basis.

18.  A different, but related, argument by Mr Cheung was that, properly construed, the Agreements were conditional upon measurements being reconfirmed onsite and a “Notice to Proceed” being issued under Clause 4.1, or at any rate, the defendant was not to commence performance of the Agreements until the occurrence of such events (I shall refer to this as the construction argument).

19.  Mr Cheung referred me to the recent decision of Zervos J in Pfeiffer GmbH v Cheung Hay Kit t/a Sun Wai Construction (unreported) HCA 1369/2011, 24 October 2013, where the learned Judge observed at paragraph 59:-

“The principles by which contractual documents should be construed have changed. The literal interpretation of contractual documents has given way to a contextual and commercial common sense interpretation with the aim of determining what the parties meant by the language used. This is ascertained by what a reasonable person would have understood the parties to have meant. A reasonable person is someone having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”

The Judge then cited passages from the well known speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Society [1998] 1 WLR 896 at 912 to 913 and the more recent judgments of the English Court of Appeal in Skanska Rashleigh Weatherfoil Ltd v Somerfield Shares Ltd [2006] EWCA Civ 1732 at paragraphs 21 and 22, and in Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429 at paragraphs 16 to 22.

20.  Mrs Daley does not dispute these principles, which are of course now firmly established.  The principles concerning the implication of terms into a contract are also uncontroversial.  The court will be prepared to imply a term if it represents the obvious, but unexpressed intention of the parties.  In Chitty on Contracts, 31^st Ed, Vol 1, the authors summarise the position as follows:-

“Obvious inference from agreement – A term which has not been expressed may also be implied if it was so obviously a stipulation in the agreement that the parties must have intended it to form part of their contract.

‘Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making their bargain, an officious bystander were to suggest some provision for it in the agreement, they would testily suppress him with a common, ‘oh, of course’.

A term will not, however, thus be implied unless the court is satisfied that both parties would, as reasonable men, have agreed to it had it been suggested to them. The knowledge or ignorance of each party of the matter to be implied, or of the facts on which the implication is based, is therefore a relevant factor.”

21.  Having regard to these principles, notwithstanding Mr Cheung’s submissions, I am unable to accede to either the construction argument or the implied terms argument.

22.  I shall deal with the construction argument first.

23.  Although not perfectly drafted, the meaning of the first paragraph of the Terms and Conditions is beyond doubt: after the payment of the deposit, the defendant would be placing orders for production.  I have no hesitation to find that this is what any reasonable person, having knowledge of the relevant background, including the matters pleaded in paragraph 4 of the Amended Statement of Claim, would understand the paragraph to mean.  Nor is there anything to suggest that something must have gone wrong with the language or that the clause does not make commercial sense.  To the contrary, as explained by Mr Tommy Cheung, whose evidence in this regard was not seriously challenged and which I accept, the prices of building materials fluctuate.  As the Agreements were fixed price contracts (as opposed to say, costs plus or prime costs contracts), it would make sense for the defendant to place its orders with the factory for the kitchen cabinetry, countertops and other prefabricated components within a relatively short period of time after the Agreements in order to protect the defendant’s costs of performing the Fitting Out Contracts.  Further, the Appliances Contracts provided for the supply and installation of appliances of specific makes and models.  It was therefore necessary for the defendant to place its orders with suppliers in order to secure their availability and to avoid any risk of delay or breach of contract in the event that the specified appliances were no longer available or out of stock.

24.  Further, Clause 4.1, which is heavily relied upon by Mr Cheung, does not assist his case.  The clause provided, firstly, that the cabinets and appliances would be ready for delivery within 3 weeks after reconfirmation of site measurements, and secondly, that delivery would be scheduled to occur on the date as set forth in the “Notice to Proceed”.  There was no date provided in the Agreements as to when the reconfirmation of site measurements would occur.  Mr Cheung argues that such measurements cannot be made until after the issue of the occupation permit for the building.  That may be so.  However, there is nothing in the clause to suggest that no orders were to be placed or other preparatory work carried out before such measurements were made.  Detailed technical drawings of the cabinetry and countertops, based upon the building plans obtained by the plaintiff from the developer, were annexed to the Agreements.  As Mr Tommy Cheung explained in his evidence and which I accept, any discrepancies between the building plans and the actual site dimensions were unlikely to be substantial, and adjustments could have been made, including the use of “fillers”, during the installation process to compensate for such discrepancies.  It was also unlikely that the appliances specified in the Appliances Contracts could not be accommodated due to differences in the actual dimensions of the site.

25.  Under Clause 4.1, the defendant was required to have the prefabricated components and appliances ready for delivery onto the site in Macau within 3 weeks of reconfirmation of site measurement.  Further, the plaintiff was entitled to issue a Notice to Proceed requiring delivery immediately or shortly after the expiry of this 3-week period, and the defendant would be in breach of contract if it failed to do so.  Unless the Agreements expressly constrained the defendant from doing so, there is no reason why it should not be entitled to carry out any preparatory works prior to the reconfirmation of site measurements or the issue of the Notice to Proceed.  On any reading of Clause 4.1 (or any of the other terms in the Agreements), there was no such constraint, and indeed any such constraint would be wholly inconsistent with the first paragraph of the Terms and Conditions.  Still less can Clause 4.1 be read to make the Agreements conditional upon the reconfirmation of site measurements.

26.  Similarly, the implied terms argument must also fail.  Even if one were to accept that the matters pleaded in paragraph 4 of the Statement of Claim, as clarified by Mr Cheung, were known to the parties at the time of the Agreements, I am unable to see how or why the terms contended by the plaintiff were to be implied into the Agreements.  The mere fact that the Property had not been completed and that there was no fixed date for completion or the issue of the occupation permit did not and could not, in my judgment, give rise to an implied term that the plaintiff could unilaterally terminate the Agreements and require the return of the Deposit in full.  If that was in fact the intention of the parties, that should have been reflected in the express terms of the Agreements, which were the subject of negotiation between the parties prior to signing.  On the other hand, the proposed implied terms are plainly inconsistent with the first paragraph of the Terms and Conditions.  Further, such implied terms would render, in my view, the Deposit devoid of meaning or purpose.

27.  In the light of the above, it is strictly unnecessary for me to make a finding as to whether the defendant was told by VHL that the development in which the Property was situated was still under construction and that the occupation permit had not yet been issued.  However, it does strike me as inherently unlikely that, in the course of negotiations over some 3 months (from October 2011 to January 2012) and which gave rise to numerous revisions to the technical drawings and amendments to the plaintiff’s standard trading terms, that Ms Clarke or Mr Corman would not have mentioned such matters to Mr Tommy Cheung or Mr Yeung.  There is no conceivable reason why VHL would have withheld from the defendant this information, which was plainly relevant as to the overall timeline of project.  It was also the plaintiff’s evidence, which I accept, that it was clear to him from his communications with Ms Clarke and Mr Corman that the defendant was informed of such matters.

28.  I would therefore have found that the defendant was more likely than not to have been informed that the development was still under construction when the parties entered into the Agreements.  In coming to this conclusion, I am cognisant of the fact that neither Ms Clarke nor Mr Corman has been called to give evidence in these proceedings, and that the plaintiff’s knowledge in this regard was derived only from his communications with Ms Clarke and Mr Corman.

29.  However, as I have held above, the fact that the defendant was aware of such matters does not support the plaintiff’s implied terms argument or the construction argument.  In the light of this conclusion, the plaintiff’s unilateral termination of the Agreements, communicated to the defendant through VHL, indisputably amounted to an anticipatory breach (or perhaps more accurately, a renunciation) of the Agreements.

30.  As mentioned above, however, there is a dispute as to when such a breach was accepted by the defendant.  The plaintiff contends that the breach was accepted by Mr Tommy Cheung orally during his telephone discussions with Mr Corman in July 2012, whereas the defendant contends, at least in its pleadings, that acceptance only took place by a written notice of acceptance from the defendant’s solicitors on 22 September 2012.  Mr Cheung argues that the timing of the acceptance, and thus the date of termination of the Agreements, is relevant to the issue of quantum, as it is the plaintiff’s case that the defendant had failed to make immediate efforts in July 2012 to mitigate its losses arising from the termination of the Agreements.

31.  It is well established that an innocent party, faced with an anticipatory breach of the contract, is entitled to take one of two courses.  He may “accept” the breach, treat it as discharging him from further performance, and sue for damages forthwith, or he may wait until the time for performance arrives and then sue.  If the innocent party does accept the breach, he is forthwith subject to the rules of mitigation and must take reasonable steps to minimise his loss.  Where a seller should have mitigated by reselling, the relevant market price is that existing at the date he ought reasonably to have resold (see eg Melachrino v Nickoll and Knight [1920] 1 KB 693, 697 and 699).

32.  In cross-examination, Mr Tommy Cheung said he did not remember precisely the contents of his telephone conversations with Mr Corman in July 2012.  He accepted, however, that he did agree to the termination of the Agreements, although no consensus was reached as to how much, if any, of the Deposit would be returned to the plaintiff.  Although in correspondence with the plaintiff’s solicitors in September 2012, the defendant offered “… to accommodate [the plaintiff] by performing the contract at a new address to be specified by [the defendant]”, it is well established that once a repudiatory breach is accepted by the innocent party, the acceptance cannot be withdrawn.  If the parties thereafter resume performance of the contact, their rights are governed by a new contract, even if the terms remain the same (see eg Aegnoussiotis Shipping Corp of Monrovia v A/S Kristian Jebsens Rederi of Bergen [1977] 1 Lloyd’s Rep 268, 276).

33.  I would hold, therefore, that the Agreements came to an end sometime in July 2012.  For the reasons I shall explain below, however, I do think that the difference of two months as to the date of termination makes any real difference to the quantum of damages in this case.

The Deposit

34.  Before dealing with quantum, it is necessary to say a few words about the nature of the Deposit.  In the Agreements themselves (in particular, the Terms and Conditions), there is no express provision governing the Deposit in the event that the Agreements are not performed.  It has long been established, however, that where a sum of money paid over is called a “deposit”, in the absence of any provisions to the contrary, it will be taken to be security for the completion of the contract by the payer and will be forfeited to the other party if the payer fails to perform his side of the contract.

35.  In its Amended Defence and Counterclaim, the defendant did not claim for the forfeiture of the Deposit, and merely treated the Deposit as part payment that was to be deducted from defendant’s counterclaim for damages.  In its Reply and Defence to Counterclaim, however, the plaintiff pleaded that even if it were to fail on its implied terms argument, the “forfeiture of the Deposit is unenforceable” as the amount of the Deposit, being 50% of the contract price, could not be reasonable compensation for the defendant’s anticipated loss (if any), and would amount to a penalty.

36.  At the beginning of the trial, I raised this issue with Mr Cheung and Mrs Daley.  After some deliberation, both counsel agreed to proceed on the basis that the Deposit was merely a part payment of the contract price.  The Deposit would therefore be set off against the amount of actual loss suffered by the defendant in the event that I were to find against the plaintiff on liability.  Of course, if I were to find that the amount of actual loss was less than the Deposit, then the plaintiff would be entitled to the return of the remainder of the Deposit.

Quantum

37.  The burden of proving damages from the plaintiff’s breach of the Agreements falls squarely upon the defendant.  In paragraph (viii) of its Counterclaim, the defendant pleaded its particulars of loss and damage as set out in the Appendix to this Judgment.

38.  It can be seen from the Appendix that the method adopted by the defendant in measuring damages was to take (1) the total amount said to have incurred in performing the Agreements up to the date of termination (items 1 to 4), and then (2) adding to that figure a “loss of profit … expected to be made” (items 5 and 6).  The claim for loss of profit is divided into the Fitting Out Contacts and the Appliances Contracts, and for each of these contracts, a figure is claimed that is said to be “based on the contact value”.

Fitting out contracts

39.  The Fitting Out Contracts are analogous to building contracts, and the commentary in McGregor on Damages 18^th Edition at §26-022 on how damages may be ascertained in respect of such contracts is useful:-

“General principles would put the normal measure at the contract price less the cost to the builder of executing or completing the work. In calculating the builder’s costs the indirect as well as the direct costs must be included, especially overheads…

Two other measures, alternative to this basic measure, may be suggested. They are (1) the net profit which the builder could have made on the whole contract plus his expenditure in part performance; and (2) for the work done, such proportion of the contract price as the cost of work done bears to the total cost of the whole contract, plus, for the work remaining, the profit that would have been made upon it. If there is adequate proof of the cost to the builder of completing the unfinished part of the work and also if the entire contract can be done at a profit to the builder, all three formulae, i.e. the basic measure and the two alternatives, yield the same result …”

40.  It is clear from items 1 and 5 of the Appendix that the defendant claims not upon the normal or basic measure of damages but the “first alternative measure” in McGregor above: the defendant claims HK$574,853 as its expenditure in part performance of the Fitting Out Contracts, and the additional sum of “about” HK$439,200 for loss of profit. I shall examine each of these claims in turn.

HK$574,853 paid to Glame

41.  As mentioned above, on or around 3 April 2012, the defendant entered into the Glame Contract for the manufacture and supply of the kitchen cabinetry, countertops and other components and accessories for installation by the defendant under the Fitting Out Contracts.  The defendant paid a deposit of RMB 313,028 (being 50% of the contract price) to Glame and was issued with a receipt on 13 April 2012.

42.  As a result of the plaintiff’s indication that he would not be proceeding with the Agreements in July 2012, the plaintiff did not pay the remaining 50% of the contract price under the Glame Contract.  By an email dated 25 October 2012 from Glame to the defendant, Glame complained that it had made a number of oral demands for payment of the balance but had received no response.  Further, if the balance was not paid by 31 October 2012, Glame threatened to “cease production of all [of the defendant’s] orders, and may take legal action to maintain [its] lawful rights and interests.”  As Mr Tommy Cheung explained in his evidence, the defendant had a good working relationship with Glame for the past 4 to 5 years, and had a number of other orders pending with Glame.

43.  By an email dated 26 October 2012 to Glame, the defendant explained that “the client suddenly cancelled the order and even took legal action to recover the paid deposit” and that it would be “extremely hard for [them]” to pay the entire balance.  The defendant therefore proposed to pay the sum of RMB 150,000 by 9 November 2012 and that it be released from paying the remaining balance of RMB 163,029, in return for which Glame could dispose of the products ordered as compensation.  By an email dated 31 October 2012, Glame accepted the defendant’s proposal.  The defendant then paid the sum of RMB 150,000 as promised, and Glame issued a receipt for that amount on 7 November 2012.

44.  The defendant therefore claims the sum of HK$574,853, being the approximate Hong Kong dollar equivalent of the sums of RMB  313,028 and RMB 150,000 it had paid to Glame.

45.  The plaintiff does not seriously challenge that the defendant, in part performance of the Fitting Out Contracts, had incurred such a sum.  I have already addressed the plaintiff’s complaint that the defendant should not have proceeded to place the order with Glame until the plaintiff’s confirmation above.  The plaintiff further contends, however, that having placed the order, the defendant failed to mitigate its losses.  He argues, firstly, that the defendant should have taken delivery of the items in the Glame Contract notwithstanding the termination of the Agreements, and then should have attempted to sell them, either as a whole or piecemeal, to its other customers; and secondly, that the defendant had unduly delayed until October 2012 to negotiate with Glame when the Agreements had already been terminated in July of that year.

46.  I am not persuaded by either argument.

47.  It is well established that in mitigating its loss, an innocent party is not required to do anything other than in the ordinary course of business, nor is he required to take any unnecessary risks.  The standard is not a high one, since the defaulting party is the wrongdoer (see eg Chitty on Contracts (31st edition), Vol 1 at §26-080).

48.  In my judgment, the defendant acted sensibly in negotiating with Glame not to take delivery under the Glame Contract, and the settlement reached was a reasonable one.  It is important to bear in mind that the kitchen cabinetry, countertops and other components and accessories were all made to measure specifically for the project and in accordance with the technical drawings in the Fitting Out Contracts.  As Mr Tommy Cheung explained in his evidence and is evident from the three dimensional computer renderings of the finished kitchen, the kitchen was large compared to the most kitchens in Hong Kong.  Further, the materials, finishing and workmanship required under the Agreements (and correspondingly, the Glame Contract) were all of a high specification, and some of the materials and components were imported from abroad. Even if some of the components might have been usable in other projects, alterations would almost undoubtedly have to be made to the dimensions of the cabinetry and countertops, which would entail further costs.  In any event, it is by no means clear whether any willing customers could be found.  In the end, I do not think that it is realistic to expect the defendant to take delivery of the items in the Glame Contract in the hope that it would be able to sell them, whether as a whole or piecemeal, to other customers.  This is especially so given that a settlement was reached with Glame whereby a reasonable discount was given to the defendant from the full contract price.

49.  Although it is correct that, as mentioned above, the defendant was under a duty to mitigate its losses upon the termination of the Agreements in July 2012, I do not think that it would have made any material difference to the settlement reached had the defendant approached Glame a couple of months earlier.  The Glame Contract was entered into on 3 April 2012, some three months prior to the termination of the Agreements, and was specifically stated to be uncancellable.  In any event, the defendant should be allowed a reasonable time to consider what would be the best way to proceed in the light of the unexpected and unjustifiable termination of the Agreements by the defendant.

50.  In the circumstances, I do not accept that the defendant had failed to mitigate its losses in this regard, and I hold that the defendant is entitled to recover the full sum of HK$574,853.

Estimated loss of profit

51.  The immediate difficulty with the defendant’s claim for loss of profit, as was pointed out to Mrs Daley early in the trial, is that there are no particulars in the pleadings as to how the figures for loss of profit were derived.  The Appendix was simply reproduced in Mr Yeung’s witness statement again without elucidation.  In its Reply and Defence to Counterclaim, the plaintiff denied the claim for loss and damages and stated that, inter alia, “the figures pleaded by the defendant do not add up to the total contract price of the Agreements despite claiming for damages for both costs and raw materials and loss of profit.”

52.  In submissions, Mrs Daley indicated that the figures for loss of profit were simply the defendant’s estimates based upon a percentage of the prices in the Agreements, a position confirmed by Mr Yeung on cross-examination.  However, even if such a broad-brushed approach can be adopted, which I doubt in the circumstances of the present case, there is simply no evidence to support the estimates other than Mr Yeung’s bare assertion.  I regret that I am unable to accept the defendant’s claims for loss of profit as pleaded.

53.  That said, however, where there is cogent evidence before the court upon which damages can readily and properly be ascertained, I indicated to the parties that the court would consider such evidence.  However, in doing so, I bear firmly in mind the potential for unfairness to the plaintiff, as he might not have had a full opportunity to investigate or challenge such evidence (whether by discovery or adducing evidence in response) given that the relevance of such evidence might not have been fully apparent from the defendant’s pleaded case.

54.  In respect of the kitchen cabinets, countertops and related components and accessories, the Fitting Out Contracts set out prices for the supply and installation of the various components of the kitchen and open bar area.  The difficulty with ascertaining the defendant’s loss of profit is that there is no evidence in the witness statements at all as to the costs, whether direct or indirect, required by the defendant to complete the fitting out work.  In the witness box, Mr Tommy Cheung gave his estimates as to the costs of shipping the pre-fabricated components from Glame to Macau, costs of insurance, costs of employing workers in Macau to perform the installation works and other related costs and expenses.  These figures are, not surprisingly, challenged by Mr Cheung.  Mr Cheung also suggested that there would likely have been further costs, such as employing a licenced contractor or foreman in Macau.  None of these matters was pleaded or to be found in the witness statements, nor has discovery been made in respect of such matters.  The court is plainly unable to form a proper view of such costs, and it would not be fair to the plaintiff to attempt to do so.

55.  For these reasons, the defendant’s claim for loss of profits under the Fitting Out Contracts must be disallowed.

The appliances contracts (Items 2 and 6)

56.  The Appliances Contracts are in essence contracts for the sale of goods.  The normal measure of damages in respect of such contracts is well established: 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 at the time or times when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the neglect or refusal to accept (see Section 52(3) of the Sale of Goods Ordinance (Cap 26)).

57.  However, as can be seen from the Appendix, this is not the manner which the defendant has claimed its loss.  Similar to its claim under the Fitting Out Contracts, the defendant divided its claims into two parts: first, the cost it had incurred in purchasing the appliances that had been delivered by the time the Agreements were terminated, and second, the estimated profit for the appliances in the Appliances Contract based on the contract price.

Delivered appliances

58.  The defendant claims the cost of the Delivered Appliances purchased from BSH at a total cost HK$45,990, which was incurred in part performance of the Appliances Contracts.  There is no serious dispute that the defendant ordered the Delivered Appliances, which were delivered to the defendant’s warehouse on or around 30 June 2012.  As at the beginning of trial, the Delivered Appliances remained stored in the defendant’s warehouse in unused condition, although Mr Yeung told the court that some of the packaging materials were removed upon delivery.

59.  The difficulty with formulating a claim in this manner is that it takes no account of the value of the Delivered Appliances still in the possession of the defendant.  Where the normal measure of damages is adopted, the seller is expected either to sell the goods in the market, where such a market is available, or if he chooses to retain the goods for his own use, he must give credit for the value of such goods.  He cannot on the one hand retain the goods, and on the other claim for their value, unless he can demonstrate that the goods are of no value or there is no available market for them.

60.  In the Amended Defence and Counterclaim, the defendant does not attribute any market value to the Delivered Goods, nor does it plead that there is no available market for them.  There is no mention in any of the defendant’s witness statements of any attempts by the defendant to resell the Delivered Appliances or to return them to BSH.

61.  In his oral evidence, Mr Tommy Cheung accepted that these were popular appliances, which was why it was necessary for the defendant to order them in advance to ensure that they would be in stock.  He further said that that he had asked a salesperson at BSH whether the appliances could be returned, and was told that they could not, as the packing materials had been removed.  He did not remember, however, when he had asked BSH.  He also accepted that he never made any attempts to sell them. Mr Yeung, on the other hand, said in his oral evidence that he had asked the defendant’s salespersons to try to sell the appliances, but said he did not know whether any attempts were made by such salespersons.

62.  Having considered the evidence, I find that the defendant made no or no serious attempt, for one reason or another, either to return the Delivered Appliances to BSH or to resell them to their own customers or other third parties.  I believe that if reasonable efforts had been made, it is more likely than not that the defendant should have been able to return them to BSH or to resell them.  In respect of the first option, I bear in mind that the defendant has had a longstanding relationship with BSH and is one of its major customers, and further, that the Delivered Appliances were only delivered to the defendant shortly prior to the termination of the Agreements.  Mr Cheung has framed the argument as a failure to mitigate on the part of the defendant.  Another, perhaps better, way of describing the situation is that the defendant has not been able to show that there was no available market for the Delivered Appliances in July 2012 or even in October 2012.

63.  I should mention here that after the parties had closed their respective cases, the defendant sought to adduce evidence that the appliances had just been sold at a substantial discount (some 16 months after the termination of the Agreements).  No formal application was made.  Mr Cheung objected to the new evidence, and submitted that in any event, the circumstances of the purported sale were wholly unknown.  I agreed and disallowed the evidence to be filed, which would in any event, have been of little probative value. 

64.  For each of the Delivered Appliances, Mr Cheung did not contend that its market value should have been higher than the defendant’s purchase price.  In his Closing Submissions, Mr Cheung accepted that the measure of loss for these appliances should be the contract price in the Appliances Contract less the price paid by the defendant.  Given the fact that the Delivered Appliances were delivered to the defendant only a few weeks before the termination of the Agreements and that the prices of consumer goods of this nature are unlikely to fluctuate substantially over such a short period of time, I believe that such a concession is reasonable.

65.  The total price under the Appliances Contracts, excluding delivery to Macau and installation, for the Delivered Appliances was HK$62,415 (taking into account the 5% discount provided in the contracts).  The loss of profit, therefore, would be HK$16,425 (HK$62,415 less HK$45,990).

Other appliances

66.  The Appliances Contracts specified a total of 11 electrical appliances.  In addition to the 4 Delivered Appliances, the defendant also placed orders for one Siemens refrigerator, one Siemens freezer and two Fisher & Paykel cool drawers.  The defendant made no claim for the cost of these appliances, as it had apparently not taken delivery of them when the Agreements were terminated and no cost was incurred.

67.  However, for each of these appliances, the defendant should nonetheless be entitled, on the normal measure, to damages in the amount of the difference between its market price and the contract price in the Appliances Contracts.  In his closing submissions, Mr Cheung accepted that the measure of loss should be the contract price in the Appliances Contracts less the price payable by the defendant under the invoices produced.  The total prices of these 4 items in the Appliances Contracts, excluding delivery to Macau and installation and taking into account the 5% discount, was HK$96,140, whereas the defendant’s cost would have been HK$69,440.  The defendant’s recoverable loss is therefore HK$26,700 (HK$96,140 – HK$69,440).

68.  The Appliances Contracts also provided for the supply and installation of a UNICO brand wok and burner range and exhaust hood, this time including installation and delivery to Macau, at HK$104,500 (taking into account the 5% discount provided).  The defendant obtained a quotation from a company known as Kitchen Concepts (HK) Ltd on 7 December 2011 for these appliances at the price of HK$78,500.  Mr Cheung did not seriously challenge the quotation or contend that the price in the quotation would have been materially different in July 2012.  However, he appeared to submit that the defendant should only be entitled to claim for appliances actually ordered.  I do not see why, in principle, the defendant should not be entitled to claim the loss for the UNICO appliances, as the defendant has been deprived of a profit from the sale of the UNICO appliances to the plaintiff under the Appliances Contracts.  In the circumstances, the defendant should be entitled to claim the loss of HK$26,000 (HK$104,500 – HK$78,500) for the UNICO appliances.

69.  As for the remaining electrical appliances in the Appliances Contracts, the defendant has not adduced any evidence as to the market value of such appliances or the defendant’s expected costs to purchase them for sale to the plaintiff.  In the circumstances, no adequate claim is made for such losses (if any).

Consultation and design fees

70.  The defendant claims under this head the sum of HK$107,470, being the sum paid by the defendant to a design and engineering company known as S&D (Interior) Ltd (“S&D”)pursuant to a contract entered into between the defendant and S&D for producing the technical drawings and three dimensional computer renderings of the kitchen.  Mr Tommy Cheung explained in his evidence that normally such design drawings and renderings would be produced in-house by the defendant, but given the size and complexity of this project, the defendant decided to outsource them to a specialist firm.

71.  Mr Cheung objects to such a claim on the grounds that, firstly, the design fees were not one of the items in the Agreements chargeable to the plaintiff, and secondly, that the costs were incurred for the most part prior to the Agreements being entered into, and were therefore pre-contractual expenditure incurred irrespective of whether the Agreements were eventually entered into.

72.  The defendant’s claim for damages is based upon the loss of profit, that is, on the premise that the Agreements had been fully performed.  An alternative basis of claim is for wasted expenditure, as was the case in Anglia Television Ltd v Reed [1972] 1 QB 60, a case relied upon by Mrs Daley in support of her argument for damages under this head.  As Lord Denning MR explained at pp 63-64 of that case, however, a claimant must elect to claim either for loss of profit or for his wasted expenditure and cannot claim both. In the present case, the defendant has clearly elected to claim for the former.

73.  Further, there is nothing in the Agreements providing, whether expressly or impliedly, that the design fees were to be borne by the plaintiff.  Such fees were part of the defendant’s own costs in performing the Agreements, which were to be covered by the profits (if any) earned by the defendant under the Agreements.  As mentioned above, what it would have cost the defendant to perform the Agreements cannot be recovered on the basis that it would be compensated if the Agreements were properly performed.  This must be the case irrespective of whether the fees were incurred prior to or after the Agreements were entered into.  I therefore disallow the claim under this head.

Staff commission

74.  This is a claim for commission in the amount of HK$17,973 that was payable by the defendant to Mr Tommy Cheung as reward for obtaining the plaintiff’s business.  Again, the commission is part of the defendant’s own costs in performing the Agreements, and similar to the design fees, cannot be recovered.  Indeed, Mrs Daley fairly conceded in her submissions that such a sum was not claimable.

Conclusion and costs

75.  For the reasons above, the defendant is entitled to damages in the sum of HK$643,978 (HK$574,853 + HK$16,425 + HK$26,700 + HK$26,000) as a result of the plaintiff’s wrongful termination of the Agreements.  As mentioned above, such sum is to be set off from the Deposit of HK$898,658.  Therefore, the plaintiff is entitled to the return of the balance of the Deposit in the sum of HK$254,680 (HK$898,658 – HK$643,978), and I give judgment accordingly.

76.  As to the award of pre-judgment interest, the court has a wide discretion under Section 49 of the District Court Ordinance (Cap 336), the fundamental premise being to compensate a party for the loss of use of funds.  Having regard to the circumstances of this case including, in particular, that the plaintiff’s recovery of HK$280,680 is to some extent due to the inadequate formulation of the defendant’s claim for loss of profit, I would decline to award any interest on that sum.

77.  Since I have found in favour of the defendant on liability, ie it was the plaintiff that wrongfully terminated the Agreements, costs should follow the event.  However, I should take into consideration the fact that the defendant has not been wholly successful in its claim for damages and its claim for loss of profits was inadequately formulated.  Taking matters in the round, I consider that a fair costs order would be that the defendant shall have 75% of the costs of the Action (with certificate for counsel for the trial), to be taxed if not agreed, and I make an order nisi to that effect.

Particulars of Damage/Loss