LAND & MARINE WORKS LTD v. CREATA (HK) LTD

cacv 314/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 314 of 2004

(on appeal from HCA NO. 14824 of 1999)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This was an appeal from a judgment of A Cheung J given on 6 September 2004.  The action before the judge arose out of a contract for the manufacture and sale of Mickey Mouse heads which were to be supplied to McDonald’s restaurants in Europe.  The plaintiff claimed the balance of the amounts due to it under the contract and the defendant raised a counterclaim in respect of the additional costs which it bore as a result of “helping factories” being engaged to manufacture some of the heads which were to be manufactured under the original contract.  The judge, in effect, held in favour of both parties and set off the amount due to the defendant from the plaintiff’s claim ultimately awarding the plaintiff US$1,155.09.  Against that award the plaintiff appealed on the basis that nothing should have been allowed in respect of the defendant’s counterclaim.  At the conclusion of the hearing of this appeal, this appeal was dismissed with reasons to be given in writing.

Background

2.  The plaintiff is a manufacturer and contracted to supply 5,218,250 Mickey Mouse heads which the defendant was to supply McDonald’s European restaurants.  The judge found that the contractual date for delivery of the heads by the plaintiff was 8 March 1999.  Time was clearly of the essence in relation to this contract as the defendant had to supply the completed products to McDonald’s.  Again as the judge found, the plaintiff had admitted in a letter dated 20 January 1999 that it was not capable of completing the whole project by that date.  It requested that there should be an extension of time.  This was not acceptable to the defendant as it would have put it in breach of its own contractual obligations.  The parties then, very sensibly, discussed amongst themselves how the situation should be handled and they agreed that “helping factories” should be engaged to carry out the production which the plaintiff could not complete.  The judge’s findings of fact are set out in paragraph 44 of his judgment where he said:

“Based on what I have already found in relation to the Plaintiff’s delay in producing the goods, I have no difficulty in finding, on the evidence before me, that the retaining of the helping factories by the Defendant was done with the full knowledge and agreement of the Plaintiff as part of the rescue schedule; furthermore, it was also a reasonable step taken by the Defendant in mitigation of its loss in the light of the Plaintiff’s wrongful breach in producing the goods late.”

3.  The judge went on to say that he did not consider it made any difference as to whether the “helping factories” had been engaged by the plaintiff, as pleaded in the counterclaim, or had been engaged by the defendant.  That, as the judge said, was really neither here nor there.  As the judge found the parties had agreed on a course of action which was rendered necessary because the defendant could not comply with the contractual date for the delivery and the defendant had incurred expenses in mitigating any loss that would occur because of the plaintiff’s breach of contract.

4.  In my view the judge was amply justified in approaching the matter in this way.  The parties adopted a sensible and practical solution to a problem which had arisen in the course of carrying out the contract.  If that sensible approach had been continued, it would seem that this litigation would have been unnecessary.

Hon Le Pichon JA:

5.  I agree.

Hon Burrell J:

6.  I agree.