GRACE RESOURCE SERVICE LTD. v. HUNG HING PLASTIC FACTORY LTD.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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1. The Plaintiff is a trading company whose business includes selling hardware items and toys. In 1988 the Plaintiff designed 2 types of binoculars and began to advertise them for sale. Moulds for the marufacture of the binoculars were made for the Plaintiff and in December, 1988, the Plaintiff entered into a written contract with the Defendant to manufacture one of the 2 types of Binculars and later in about March, 1989, the Plaintiff entered into an oral contract with the Defendant to manufacture the second type. The moulds for manufacturing both types of binoculars were handed over to the Defendant. The Defendant did manufacture quantities of both types of binoculars, but the Plaintiff only accepted part of then and rejected the rest due to dissatistaction with their quality.

2. The Plaintiff had orders for both types of binoculars and decided to get another factory to take over their manufacture. By a letter dated 24th June, 1989, the Plaintiff asked the Defendant to return the moulds. The moulds were not returned and, after a number of reminders, the Defendant wrote to the Plaintiff on 1st July demanding payment for the work done on the binoculars and saying the moulds would be returned when payment was made.

3. The Plaintiff then put the matter into the hands of its solicitors, who wrote to the Defendant demanding immediate return of the moulds. The Defendant's solicitors replied to the effect that the moulds would be returned on payment of the sums the Defendant claimed to be owed by the Plaintiff.

4. By this time, the Plaintiff's need for the moulds was urgent due to orders for the 2 types of binoculars remaining unfulfilled and on 29th July the Writ in this action was issued claiming an order for delivery up of the moulds and damages for their detention. On 1st August, an Order was made by consent that the 2 sets of moulds should be delivered to the Plaintiff on 7th August, and on 22nd September an Order was made by consent that Judgment be entered for the Plaintiff for damages to be assessed for detention of the moulds.

5. The assessment was heard on 16th February, 1990, when it was adjourned part-heard to 8th May and completed on that date. The Plaintiff claimed damages in respect of the loss of profit in respect of 4 orders for binoculars where no delivery at all had been possible and a 5th order where partial delivery had been made. The Plaintiff called 3 witnesses, 2 of whom were representatives of 2 of the customers involved in the orders, and the 3rd who was the merchardiser of the Plaintiff. Eviderce about the other 2 orders was in the form of a hearsay notice, the 2 custorers concerned being overseas. No evidence was called on behalf of the Defendant.

6. After amendment during the course of the assessment hearing, the particulars of damages claimed by the Plaintiff can be summarised as follows, all the orders being in respect of the same type of binoculars:-

7. The existence of those orders and the profit calculation was not disputed and I find that the loss of profit is established, the question being whether the loss was attributable to the Defendant's detention of the moulds.

8. The Plaintiff's case rests mainly upon the evidence of PW 3, the Plaintiff's merchandiser. In my opinion he was an impressive and truthful witness and I believed the evidence he gave.

9. The main argument in this assessment has turned upon the fact that when the moulds were returned to the Plaintiff they were found to need repairs before they could be used for production of binoculars. There is no allegation in the Statement of Claim that the Defendant was responsible for any damage to the moulds. It was the Defendant's argument that the evidence showed that, even if the Defendant had returned the moulds immediately upon receiving the Plaintiff's written demand of 24th June, the orders would still have been lost due to the delay caused in repairing the moulds, and that the loss of profit experienced by the Plaintiff was not the result of the delay in returning the moulds. It was conceded by PW3 that "immediate" return of the moulds in response to the 24th June demand would in fact have been inevitably delayed by about 7 days, as the moulds had to be retrieved by the Defendant from the factory in China where production of binoculars had taken place.

10. The Plaintiff's case about how the orders were lost was as follows:-

Kawanaka Co.

11. The Binoculars should have been delivered in April, but Kawanaka, a Japanese company, would have been willing to accept delivery in August. However, when the Plaintiff still could not give a definite delivery date to Kawanaka on 1st August, Kawanaka cancelled the order. It was submitted by Mr. Chan that since the Plaintiff had received from the Defendant on 29th July, the same day as the writ was issued, a letter assuring the Plaintiff that the moulds would be returned within 7 days, the Plaintiff may have been able to persuade Kawanaka that a firm delivery date would now be fixed which would have persuaded Kawanaka not to cancel. I agree with Mr. Li's submission on this point, that the Plaintiff could not give Kawanaka a firm delivery date until the moulds were actually returned, by which time the Kavanaka contract had been cancelled.

Present Tine

12. Present Tine is a company Eased in Holland. Present Time cancelled its order on 26th June. PW3 said this was because the Plaintiff still could not give a definite delivery date due to not knowing when the moulds would be returned. This cancellation was only 2 days after the Plaintiff's written demand for the return of the moulds and in my view the cancellation was not due to the Defendant's delay in returning the moulds. There will be no award of damages in respect of the Present Time contract.

Idra Electronics

13. The representative of Idra Electronics gave evidence, which I accept, that their contract with the Plaintiff was cancelled on 26th September because the Plaintiff kept postponing the delivery date, but that Idra would have accepted delivering up to the middle of September, beyond which time their own customer would not wait.

Audio Electronics

14. There were 2 contracts with the company, both for 1080 binoculars, and the company accepted delivery of 360 pieces. The representative of Audio Electronics gave evidence, which I accept, that Aduio would have accepted delivery up till the time when its own customers cancelled their orders, which was in mid September, when Audio in turn cancelled its order with the Plaintiff.

Delay caused by repairs to the moulds

15. The moulds were returned to the Plaintiff on 7th August. It was PW3's evidence that the repairs were completed by about 29th September, and that this 53 day period was despite him urging upon the mould repairer the urgency of the job. PW3 said that once the moulds were repaired and production started it was about 1 month before the first order was delivered, the quantity being "a couple of thousand". Mr. Chan sought to persuade me that even if the moulds had been returned 7 days after the written demand of 24th June, the chronology of what in fact happened after the return of the moulds on 7th August demonstrated that all the orders would still have been lost. I reject this argument because I accept PW3's evidence that the situation if the moulds had been returned at the end of June would have been entirely different. PW3 said that he had made a prior arrangement with a mould repairer who had scheduled his work to commence repairs on the moulds, and that the moulds would have been ready within 1 month after that. I accept PW3's evidence that the production capacity of the factory making the binoculars was 20,000 - 30,000 per month.

16. On the evidence which I accepted the Idra Electronics and Audio Electronics orders could easily have been met if the moulds had been returned, as they should have been, at the end of June, and I award the damages claimed in respect of those orders. Similarly, if the moulds had been returned at the end of June, by the time of the conversation with Kawanaka on 1st August in which the order was cancelled because the Plaintiff could still not give a firm delivery date, the Plaintiff would have been able to give such a date because production would have already started. I find that it is more likely than not that Kawanaka would in those circumstances have let their order stand, and I award the damages claimed in respect of the Kawanaka order.

17. I therefore award damages in the sum of US$10,018 and interest on this sum at the prevailing judgment rates from the date of the writ to the date of this assessment.