CTMA LTD v. CHESIL OF HONG KONG LTD AND OTHERS

IN THE COURT OF APPEAL

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J U D G M E N T

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Kempster, J.A. :

1. This is an appeal by defendants from an assessment of damages for breach of contract made by Master O'Donnell on 16th October 1987 following entry of interlocutory judgment in the plaintiffs favour, by consent, on the 26th September preceding.

2. Pursuant to section 3(1) of the Import and Export Ordinance (Cap 60) and in order to implement bilateral trade agreements between Hong Kong and the European Economic Community, the Secretary for Trade had granted the plaintiffs for their use during 1985 a quota for 23,938 pieces of knitwear known as "category 5" textiles; a substantial proportion of such goods permitted to be exported from the Territory to that country. The expectation of an equivalent grant for the following and ensuing years was, in practice, dependent upon the utilisation by the plaintiffs, by themselves or their transferees, of not less than 95 percent of the 1985 quota. However, the maximum proportion of that quota which might safely be transferred to others without prejudice to the future was some 50 percent.

3. By agreement in writing dated 20th August 1985 the plaintiffs temporarily transferred to the defendants the "entitlement to export" 3,000 pieces of the relevant category in consideration of their promise to export at least 2,850 pieces before 31st December 1985. In order to made good the proportion of their quota which the plaintiffs would lose in the event of any default on their part, the defendants also undertook to provide them with permanent quota from elsewhere equivalent to any shortfall by 31st April 1986.

4. It is to be observed that by reason of the interest of a holder of quota in its full utilization his quasi-monopoly position is not as strong vis-a-vis less privileged would-be exporters of the relevant category of goods as might appear at first blush. Towards the end of a year he may be happy to transfer a percentage of his "entitlement to export" without charge or guarantee.

5. The defendants failed either to utilize the quota transferred or any part of it or to effect permanent transfers to the plaintiffs in substitution by the respective dates stipulated. It necessarily fell to the Master, prima facie, to assess, if he could, the cost to the plaintiffs of going into the market on 1st, April 1986 and buying permanent quota for 3,000 pieces of category 5 textiles for export to Ireland during 1986 and subsequently. He could not. It was common ground that there was no available market for quota to be transferred on a permanent basis.

6. The master felt obliged to assess the value of the pieces on a basis derived from the plaintiffs' figures for the two preceding years which demonstrated that, had the extra 3,000 pieces been available, half would have transferred for reward on a temporary basis and half used to facilitate the plaintiffs' own export of textiles. Having evidence that the average prices for temporary quota were HK$30 and HK$35 per piece during 1986 and 1987 respectively, and that, allowing for continuity in the practice outlined, a piece transferred on a permanent basis, which might temporarily be transferred in subsequent years, was worth at least twice as much he assessed the value of a piece permanently transferred at HK$70. He also took into account the fact that the plaintiffs had accepted HK$50 per piece in settlement of a similar claim. Multiplied by 1,500 this gave a figure of HK$105,000. As for the moiety which it was to be anticipated would be used for genuine export the Master assessed what he called a nominal figure of HK$10 per piece to represent a net profit lost; giving a figure of HK$15,000. He had no evidence upon which to base such an award and it must be set aside.

7. While the approach outlined in relation to the 1,500 pieces notionally to he transferred for reward appears, on the other hand, to be sound the Master did not stop there. He applied a factor of 1.5 to allow for future losses in the context of further allocations under the prevailing system. This or the application of some other factor might well have been appropriate in relation to the proportion covering actual exports, had any damage in this regard been proved for any year, but when applied to the proportion notionally transferred on a permanent basis it necessarily involved double counting. Accordingly I would disallow the application of the factor of 1.5 against the sum of HK$105,000. I should add, perhaps, that academically the Master could have awarded the same figure by assessing the value of a piece of quota on the footing that half would be susceptible of temporary transfer and that the other, would have no separate worth; at the. end of. the day giving each of the 3,000 pieces an average value of HK$35. We are not invited.to interfere with the.order as to interest.

8. I would allow the appeal accordingly by substituting for the figure of HK$180,000 the figure of Hk$105,000.

Yang, V.-P. :

9. I agree.

Power, J.A. :

10. I also agree.