XCHRX ELIMOR FINANCING CORP v. TRADEPOWER (HOLDINGS) LTD.

HCA4675/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4675 OF 1997

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J U D G M E N T

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1. This is an appeal from the order of Master Chu made on 28th September 1998 whereby she gave judgment to the Plaintiff against the Defendant for damages for breach of contract to be assessed together with interest and costs. The Plaintiff had applied for summary judgment under O. 14 Rules of the High Court, for final judgment against the Defendant in the sum of US$934,463.03, alternatively for interlocutory judgment against the Defendant for damages and interest thereon to be assessed together with costs. By her order, Master Chu gave interlocutory judgment against the Defendant for damages and interest thereon to be assessed.

2. On the evidence, there can be no dispute that under the 1st and 2nd contracts pleaded in the amended Statement of Claim, the Plaintiff agreed to buy and the Defendant agreed to sell quantities of umbrellas and accessories as particularised therein. The 1st contract was in respect of the Epsilon type with different model numbers including TH12 and TH20. The 2nd contract was in respect of the Elysée type with the model number TH20A. The Plaintiff's claim is for damages for breach of contract against the Defendant. The claim for damages is in respect of a short delivery of goods and also for defective goods.

3. I shall deal with the short delivery claim first. The claim for short delivery of goods is set out in para. 10 of the amended Statement of Claim. As a result of the short delivery as pleaded therein, the Plaintiff lost US$3,911.00. The quantities pleaded were based on a quantity account report dated 11th July 1996 which showed the quantity of goods that actually arrived at the warehouse in Russia.

4. It was submitted by counsel for the Defendant that the Defendant's obligation under the contracts was to deliver the goods to the carrier and that its obligation was discharged when the goods were delivered to the carrier. The particular bill of lading, however, has not been produced in evidence but it is unlikely to show the exact quantities of goods carried on board. Of the bills of lading that have been produced in evidence, no quantities of goods have been set out therein; only the numbers of cartons are given. On the clear evidence of the actual quantities that arrived at the warehouse in Russia, there was a short delivery as pleaded. It is for the Defendant to show a triable issue. The Defendant has not suggested nor put forward any evidence to show that the goods were lost during the journey from the Mainland to Moscow. In absence of any such evidence, the proper inference to draw is that there was a short delivery to the carrier. There is, in my judgment, no triable issue shown on the claim for short delivery of the goods.

5. I turn to the claim in respect of defective goods. Under the terms of the contracts, it was agreed that the goods to be shipped thereunder should not contain more than 2% "rejects". It was also an implied term and condition of the contracts that the goods should be of merchantable quality and should be reasonably fit for their purpose, i.e. for use as umbrellas and accessories thereof. If, therefore, there were goods supplied which were "rejects", i.e. defective and liable to be rejected, in excess of 2% of the goods supplied, then the Defendant was in breach of contract. If they were defective in that they were of unmerchantable quality or not reasonably fit for their purpose and if any of those goods exceeded the 2% tolerance level agreed to by the parties, then the Defendant was in breach of contract. In my view, this is clear and no triable issue has been shown on this.

6. The Defendant has also admitted, by the memorandum dated 29th July 1996 signed by Mr. Vassiliadis on behalf of the Defendant in respect of the inspection of boxes opened at the warehouse in Russia, that the level of defective goods under the 1st contract was entirely unacceptable. The quantity of defective goods mentioned there was certainly in excess of 2%.

7. It is plain, on the evidence, that the Defendant in correspondence accepted liability for the supply of defective goods in excess of the 2% tolerance level.

8. By a letter dated 8th August 1996 from Mr. Vassiliadis on behalf of the Defendant to the Plaintiff, the Defendant made it plain that it was trying to arrange for a SGS quality control report in Moscow and for the Defendant to use the same to seek reimbursement from its supplier. By another letter also dated 8th August 1996 from Mr. Vassiliadis on behalf of the Defendant to the Plaintiff, the Defendant accepted that it was fully responsible for having supplied defective goods that had been delivered up to that time. To enable the Defendant to lodge an official claim, no doubt with their supplier in the Mainland, Mr. Vassiliadis also stated that he was trying to arrange with SGS Moscow to conduct an inspection. The purpose of that was to show the rate of defective goods.

9. The inspection report by SGS Vostok Limited dated 4th September 1996 of an inspection conducted on 26th August 1996 commissioned by the Defendant in respect of some of the goods supplied under the 1st contract shows that the umbrellas were examined by the inspector in the presence of Mr. Vassiliadis on behalf of the Defendant. A very high percentage of defective goods was found. This was certainly well in excess of the 2% tolerance level.

10. On 12th August 1996 the Plaintiff wrote to Mr. Vassiliadis and stated, inter alia, that it had been agreed with the Defendant that the final financial overall settlement should be made sometime in October 1996. Mr. Vassiliadis on behalf of the Defendant replied on 13th August 1996 and confirmed in writing that the final count of defective goods would take place in early October 1996 and that the matter would be settled.

11. It is clear on the correspondence that liability for the supply of defective goods in excess of 2% was admitted by the Defendant but that the final overall financial settlement would await the outcome of the final count of defective goods to take place in October 1996.

12. There were 2 further examination reports dated respectively, 11th October 1996 and 21st October 1996. The first one concerned model numbers TH20 and TH12 under the 1st contract and the second one was in respect of model number TH20A under the 2nd contract. Both examinations were carried out with the participation of Mr. Vassiliadis on behalf of the Defendant. These show a high percentage of defective goods rendering the goods unmerchantable and not fit for their purpose. It was on the basis of these reports that the particulars were supplied under paragraph 11 of the amended Statement of Claim. These are substantially in excess of the 2% tolerance level.

13. It is plain on the evidence that certainly much more than 2% of the goods supplied under both contracts were defective rendering them unmerchantable and not fit for their purpose. There is, in my judgment, no triable issue on this.

14. Counsel for the Defendant referred me to para. 4 of the affidavit of Mr. David Sonnenberg of the Defendant sworn on 21st September 1998. He said that in a conversation with Mr. Vassiliadis on 15th August 1996, he was advised that Mr. Vassiliadis considered that he was no longer acting as an agent for the Defendant. He went on to say that the Defendant considered that Mr. Vassiliadis stopped acting as the Defendant's agent after 1st August 1996. This was raised for the first time in Mr. Sonnenberg's affidavit. I must say that this evidence is, in my view, incredible. It is unbelievable in the light of the contemporaneous correspondence from the Defendant and Mr. Vassiliadis on behalf of the Defendant after 1st August 1996. It was also after that date that the Defendant commissioned SGS Vostok Limited to conduct the inspection carried out on 26th August 1996 as set out above where Mr. Vassiliadis was present at the examination on behalf of the Defendant. Mr. Vassiliadis on behalf of the Defendant also participated in the two examinations in October 1996 referred to above. There was also further subsequent correspondence from the Defendant which shows that Mr. Vassiliadis was indeed acting on behalf of the Defendant.

15. I respectfully adopt what Bokhary, J. A. (as he then was) said most helpfully and succinctly in Re Safe Rich Industries Limited, Civil Appeal No. 81 of 1994 in the judgment dated 3rd November 1994 at p.4 as follows:

"The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognised - because failure to recognise it would create a debt - dodgers' charter - that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of background as is either undisputed or beyond reasonable dispute."

16. Counsel for the Defendant submitted that as there is a judgment on the question of liability against the Defendant, the Defendant would be debarred from arguing before the Master on the hearing of the assessment of damages that the number of defective umbrellas were less than the quantities pleaded in the amended Statement of Claim. I cannot accept that submission. It is certainly open to the Defendant at the hearing of the assessment of damages to go into the question of how many defective umbrellas were in fact supplied and how much loss and damage the Plaintiff has suffered. What it cannot do is to say that the defective goods were less than 2% as there is a judgment on liability for breach of contract. The Plaintiff's counsel has also accepted in his submissions that the Defendant is free to show at the hearing of the assessment of damages that the number of defective umbrellas were less than that as pleaded in the amended Statement of Claim. The criticism levelled by counsel for the Defendant at the alleged inconsistencies in the evidence put forward by the Plaintiff so as to suggest that the Plaintiff has exaggerated its claim in damages against Defendant are matters that the Defendant can and should raise at the hearing of the assessment of damages. But that is no reason to prevent the Plaintiff from obtaining judgment on liability for breach of contract which has been clearly established.

17. The White Book 1999 at 14/4/2 states as follows:

"Where, in an action for unliquidated damages, the liability of the defendant is clearly established, whether by the evidence or by admission or by submission, the Court should give judgment for the plaintiff with costs for damages and interest thereon to be assessed."

18. In my judgment, Master Chu adopted the correct approach. The appeal is dismissed with costs to the Plaintiff.