MAYER & CIE AG v. RAINBOW FUR LTD AND ANOTHER

HCA 648/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 648 OF 2012

__________________________

ASSESSMENT OF DAMAGES

__________________________

1. The 1^st Defendant and the 2^nd Defendant are companies incorporated in Hong Kong and they are in the fur and leather garments trading business. 

2. The Plaintiff is a company incorporated in Switzerland and it commenced this action for recovery of two sums from the 1^st Defendant and the 2^nd Defendant respectively together with interest or alternatively damages to be assessed.  Costs arising from the handling of certain goods forwarded by the 1^st Defendant and the 2^nd Defendant to the Plaintiff was also claimed by the Plaintiff in the Amended Statement of Claim.  At the hearing, Mr Ip confirms that the Plaintiff will no longer pursue its claim under this head.

3. According to the Plaintiff, in July 2003 the 1^st Defendant and the 2^nd Defendant entered into an oral agreement with the Plaintiff for the Plaintiff to help finance their operation.  Pursuant to such oral agreement, invoices for the purchase of the fur and leather garments by the 1^st Defendant and the 2^nd Defendant would be issued to the 1^st Defendant and the 2^nd Defendant in Hong Kong in the name of the Plaintiff, whereupon the 1^st Defendant and the 2^nd Defendant would contact the Plaintiff for settlement.  The Plaintiff would then issue invoices indicating the sums paid to the third party companies together with interest at 17.5% per annum to the 1^st Defendant and the 2^nd Defendant respectively for payment. 

4. It is the Plaintiff’s case that default in payment of the invoices issued by the Plaintiff in pursuance of the oral agreement began to occur in about September 2010.  The Plaintiff stopped financing the 1^st Defendant and the 2^nd Defendant in or around August 2011.

5. In the Amended Statement of Claim, the Plaintiff claims against the 1^st Defendant for the outstanding amount under ten invoices issued by the Plaintiff between 8 September 2010 and 5 August 2011, particulars of which are set out below:

Date	Plaintiff’s Invoice No.	Amount (USD)
08.09.2010	44364	214,890.00
11.10.2010	44430	29,653.95
28.10.2010	44451	172,477.50
17.02.2011	44579	178,023.75
22.03.2011	44682	169,769.63
26.04.2011	44753	68,403.75
20.05.2011	44788	222,208.88
20.06.2011	44821	471,704.29
19.07.2011	44853	236,030.30
05.08.2011	44866	438,257.08
	Total amount outstanding:	2,201,419.13

6. Against the 2^nd Defendant, the Plaintiff claims the outstanding amount under five invoices issued by the Plaintiff between 11 October 2010 and 12 May 2011, after giving credit for a partial payment made by the 2^nd Defendant in respect of one of the invoices.  Particulars of these invoices are set out below:

Date	Plaintiff’s Invoice No.	Amount (USD)
11.10.2010	44429	206,062.00
14.12.2010	44497	68,521.75
18.01.2011	44553	328,760.60
19.04.2011	44747	26,110.88
12.05.2011	44774	133,167.53
	Total amount outstanding:	762,622.76

After giving credit to the aforesaid partial payment made by the 2^nd Defendant in respect of one of the invoices in the sum of US$109,586.87, the amount that remains outstanding from the 2^nd Defendant is the sum of US$635,035.89.

7. In all the invoices issued by the Plaintiff to the 1^st Defendant and the 2^nd Defendant, the date of repayment is stipulated.  In respect of invoice 44866 issued to the 1^st Defendant, the invoiced amount was to be repaid by three instalments in 150 days, 180 days and 210 days from the date of the invoice.  In the case of all the other invoices issued to the 1^st Defendant and all the invoices issued to the 2^nd Defendant, repayment was to be made in 180 days from the date of the respective invoices.

8. In the original Statement of Claim, only 5 out of the ten invoices listed in paragraph 5 above and only 1 out of the five invoices listed in paragraph 6 above were pleaded.  In their Defence filed on 19 June 2012, the 1^st Defendant and the 2^nd Defendant admitted their indebtedness of the total sums claimed by the Plaintiff under the original Statement of Claim, but they pleaded that the cause of action had been compromised by agreement between the parties.  The 1^st Defendant and the 2^nd Defendant have not amended their pleadings in response to the amendments made to the Statement of Claim.

9. Summary judgment against the 1^st Defendant and the 2^nd Defendant was entered under Order 14 rule 3 on 10 December 2012.  The hearing before me relates to the assessment of damages to be paid by the 1^st Defendant and the 2^nd Defendant.  The 1^st Defendant and the 2^nd Defendant did not attend the hearing and they have also not filed any evidence.  Mr Stefan Christian Schmierer was the only witness called by the Plaintiff to give oral testimony.  Pursuant to the order of Master J Wong dated 9 September 2013, the valuation report of Mr Bernard Chung, the expert appointed by the Plaintiff, was adduced without calling oral evidence.

10. In purported settlement of the outstanding amounts owed by them, the 1^st Defendant and the 2^nd Defendant forwarded to the Plaintiff in or around June 2012 fur and leather garments that are, according to the 1^st Defendant and the 2^nd Defendant, the goods covered by the invoices of the Plaintiff.  The Plaintiff agrees to deduct the value of such goods in mitigation of the loss that it now claims.

11. The Plaintiff had, through its legal representatives, indicated that it would hire a third party expert to evaluate the goods and claim the costs for such evaluation from the 1^st Defendant and the 2^nd Defendant. In response, the 1^st Defendant and the 2^nd Defendant, in a letter from their solicitors dated 15 June 2012, stated that parties were to retain their own experts and that both experts were to attend the office of the Plaintiff for inspection of the goods for evaluation purposes.  There is no eventual appointment of expert by any of the two Defendants and the only expert report on the valuation of the goods before me is that prepared by Mr Bernard Chung.

12. Mr Chung is an employee of M2 Group Limited.  He has disclosed in his report that M2 Group Limited is related to the Plaintiff, in that Marco Fur (Asia) Ltd, the majority shareholder of M2 Group Limited, is owned by Mr Victor Leenders as majority shareholder and the Plaintiff as minority shareholder, with Mr Leenders being a director of M2 Group Limited.  Despite this relationship, Mr Chung indicated he did not believe that his impartiality and his duty to the court had been compromised during his inspection of the apparels.  He has also explained the difficulties in seeking experts in the field and also the reluctance of such experts to provide assistance to the court. 

13. Mr Chung has referred to his 40 years’ experience in the trading of fur, leather and textile garment.  He was assisted by two colleagues, having respectively 30 and 9 years experience, who reported to Mr Chung directly. According to his witness statement, Mr Chung and his colleagues inspected the goods piece by piece and they tabulated their findings in an excel spreadsheet, with pictures taken of each model of the inspected apparels.  Mr Chung has expressed his opinion about the difficulty in reselling the goods because of the following factors:

(a) The goods were fur and mostly in garment forms, with some being fur trimmings and some little pieces of fur;

(b) The quality of the fur was of a poor grade and condition – the goods were aged and the skin leather was hard and the fur colour was dull and some were heavily oxidized;

(c) Some of the garments were not completed or semi-finished and some had one sleeve, the top collar and/or the lining missing or had similar deficiencies;

(d) The goods were neither labeled nor tagged which, if present, could have shown the style or model number, colour name or number and the name of the fur or material together with other descriptions;

(e) The garments were almost all of single style, size and colour and mostly came in single sets.

14. In the opinion of Mr Chung, the fair total market value for the 31 cartons of goods in the name of the 1^st Defendant was US$99,965 while that for the 39 cartons of goods in the name of the 2^nd Defendant was US$145,709.

15. There has been no challenge from the 1^st Defendant or the 2^nd Defendant to the opinion of Mr Chung, whether in relation to his background, the relationship between M2 Group Limited and the Plaintiff, the approach employed in the assessment or the eventual evaluation arrived at.  Mr Chung has a lot of experience in the fur and leather garment industry and he has declared that the entire process of inspection and assessment of the market value of the goods was carried out by him in an independent and professional manner without any interference from any other person.  The methodology adopted by him in carrying out the assessment has been clearly set out and the conditions of the goods in which Mr Chung found them have been explained.  I therefore accept the opinion of Mr Chung on the estimated market value of the goods forwarded to the Plaintiff by the 1^st Defendant and the 2^nd Defendant.

16. Mr Schmierer gave evidence that some of the goods had since been sold by the Plaintiff after the evaluation of the goods had been carried out.  There were four batches of sale, all to a buyer in USA.  The sale price for each batch is US$48,237.75, US$5,589.02, US$4,480.51 and US$17,337.85.  Lists of the items sold in each batch have been provided and based on the model numbers assigned to the goods, the sale proceeds attributable to the goods of the 1^st Defendant and the 2^nd Defendant respectively have been worked out.  They are set out in the following table.

(US$)	Amount attributable to goods of 1st Defendant (US$)	Amount attributable to goods of 2nd Defendant (US$)
First batch of sales 48,237.75	24,150.10	24,087.65
Second batch of sales 5,589.02	3,491.47	2,097.55
Third batch of sales 4,480.51	2,750.01	1,730.50
Fourth batch of sales 17,337.85	8,259.80	9,078.05
Total	38,651.38	36,993.75

17. On the basis of the first spreadsheet that was drawn up by Mr Chung, the Plaintiff has prepared another excel spreadsheet to highlight the details of the garments resold.  With the input of such additional information, the estimated market value of the goods unsold and still remaining in the possession of the Plaintiff has been worked out.  In respect of the goods covered by the invoices issued to the 1^st Defendant, the estimated market value of the goods that remain unsold is US$70,294.00 while that of the goods covered by the invoices issued to the 2^nd Defendant that remain unsold is US$115,174.00.

18. The Plaintiff puts forward the following formula for the computation of the damages payable to the Plaintiff:

D = A – B – C

Where

D:   damages payable to the Plaintiff by each Defendant

A:   outstanding debts owed by each Defendant to the Plaintiff

B:   proceeds received by the Plaintiff for the goods sold that are attributable to each Defendant

C:   estimated market value of the unsold goods still in possession of the Plaintiff

19. I agree and accept that damages computed according to this formula represent the amount that should be awarded to the Plaintiff.  Details of the calculation are set out in the table below: -

		1st Defendant (US$)	2nd Defendant (US$)
A	Outstanding debts owed to the Plaintiff	2,201,419.13	653,035.89
B	Proceeds received by the Plaintiff for goods sold	38,651.38	36,993.75
C	Estimated market value of the unsold goods	70,294.00	115,174.00
D	Damages payable to the Plaintiff	2,092,473.75	500,868.14

20. One small matter that has to be brought up is the fact that the bank statement showing the amount paid by the Plaintiff for the goods supplied under Plaintiff’s Invoice No. 44429 that was issued to the 2^nd Defendant records a figure that is US$0.10 less.  Mr Schmierer did not give an account as to how this discrepancy arose but he confirmed the Plaintiff’s readiness to waive the claim to US$0.10.

21. I therefore award US$2,092,473.75 as damages payable by the 1^st Defendant to the Plaintiff and US$500,868.04 as damages payable by the 2^nd Defendant to the Plaintiff.

22. The Plaintiff claims pre-judgment interest at the rate of 8% per annum. I see no justification for awarding such rate of interest.  There is no agreement between the parties that the contractual rate of 17.5% per annum or any particular rate of interest is to apply after default.  As against the 1^st Defendant and the 2^nd Defendant, I would award interest on the respective sums of US$2,092,473.75 and US$500,868.04 to the Plaintiff at 4% per annum from the respective dates of 31 January 2012 and 7 November 2011, being 180 days from the date of the last of the unsettled invoices issued to the 1^st Defendant and the 2^nd Defendant respectively, to date of judgment and thereafter at judgment rate until full payment.

23. Costs of the assessment, including all costs reserved, shall be paid by the 1^st Defendant and the 2^nd Defendant to the Plaintiff, to be taxed if not agreed, with certificate for counsel.