TIEN CHEUNG HONG TEXTILES LTD. v. ARKAY HEERA SONS (HK) LTD t/a ARDAY HEERA SONS AND OTHERS

1987, No.A3907

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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1. The Plaintiff claims damages for non-delivery of goods under a centract in writing dated 20th February 1987, wherein the Plaintiff agreed to purchase and the Defendant agreed to sell a total of 300,000 yards of "Milkyway" brand Blended Poplin (65% polyester and 35% cotton) at the price of $4.05 per yard C.I.F. Hong Kong to be delivered by the end of March 1987 and upon the terms and conditions therein. contained (P1). Pursuant to P1, the Defendant entered into a contract in writing dated 21st February 1987 to purchase the said goods from the Third Party at the price of $3.85 per yard F.O.B. Shenzhen or $3.88 per yard C.I.F. Hong Kong to be shipped within 20 days from receipt of the letter of credit ('The Second Agreement"). The Third Party failed to deliver the said goods to the Defendant who in turn was not able to supply the same to the Plaintiff. The Plaintiff obtained interlocutory judgment under Order 14 against the Defendant on 10th August 1987 for damages to be assessed. The Defendant's appeal against the interlocutory judgment was dismissed on 26th August 1987. Subsequent to the said interlocutory judgment the Third Party joined its own supplier as the Fourth Party. Directions were given on 1st October 1987 giving leave to the Third Party to appear at the assessment, take such part as the Master shall direct, and be bound by the result of the assessment. There is no application for directions regarding the Fourth Party. The Defendant obtained summary judgment under Order 14 against the Third Party on 16th December 1987 and the said judgment is at present under appeal which is due to be heard on 8th January 1988. The Third Party took part at the hearing of the assessment on the first day on 9th November 1987 but sought and was given leave to be excused from further participation on the second day of hearing on 8th December 1987.

2. The Plaintiff called a total of 3 witnesses i.e. Fung Cheung (P.W.1) a director and major shareholder of the Plaintiff, Tsang Siu Wei (P.W.2) a director of Wei On & Co. Ltd. which is a major supplier of the said goods in Hong Kong, and Lui Po Lam. (P.W.3) a minority shareholder of the Plaintiff and a 50% partner of a firm named Agencia Comercial Luen Fat in Macau ("ACLF"). The Plaintiff's case is that subsequent to the making of P1, the Plaintiff agreed to sell the said goods to ACLF under a contract in writing dated 25th February 1987 at a price of $4.40 per yard B.O.B. Hong Kong to be shipped on or before 5th April 1987 (P3). On 28th February 1987 the Plaintiff caused to be issued a letter of credit for the sum of $1,215,000.00 in favour of the Defendant (P2). Consequential upon the failure by the Defendant to deliver the said goods by end of March 1987, there ensued correspondence between the parties (P4 to P6) ending with a letter dated 13th April 1987 (P7) from the Plaintiff "rescinding" the contract under P1. The Plaintiff then alleged that as a result of the Defendant's failure to deliver the said goods, it entered into negotiation with ACLF to resolve the contract under P3. It was alleged that eventually the Plaintiff arranged to settle the claim of ACLF by an agreement in writing dated 4th May 1987 (P9) under which the Plaintiff agreed to pay ACLF the sum of $120,000.00 (being the loss suffered by ACLF at the rate of $0.40 per yard) on or before 15th July 1987 A remittance receipt dated 26th June 1987 issued by the China South Sea Bank to the Plaintiff evidencing remittance of the said sum to ACLF was produced as P11 (P11A translation). The receipt of the said sum of money was acknowledged by ACLF in a receipt dated 30th June 1987 (P10). The Plaintiff's first claim is therefore for the sum of $225,000.00 made up as follows:-

(a) Loss of profit at the rate of $0.35 per yard ($4.40 - $4.05) for 300,000 yards	$105,000.00
(b) Compensation paid to ACLF	$120,000.00
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	$225,000.00

3. I have duly considered the documentary evidence produced by the Plaintiff and the oral testimony of witnesses called on its behalf, and am unable to be satisfied on a balance of probabilities that the alleged sale between the Plaintiff and ACLF and the said compensation paid by the Plaintiff are genuine transactions at arms length. I do not find P.W. 1 and P. W.2 to be reliable or honest witnesses. I do not accept their evidence that the alleged transactions between the Plaintiff and ACLF were real commercial transactions. I do not accept that P.W. 1 was all the time in the dark as to P.W.2's involvement in ACLF until P.W.2 suddenly decided to disclose this to him sometime after 15th October 1987. I do not accept that P.W.1 had agreed to pay the alleged compensation to ACLF in ignorance of P.W.2's status in that company. I am also not satisfied of P.W.1's explanation as to the Plaintiff's failure to take or attempt to take any advantage of a possible exclusion of liability clause (C1.2) in P3. I find both P.W.1 and P.W.2 to be evasive witnesses. The evidence given by them as to the history and the mode of how business was conducted between the Plaintiff and ACLF are far from being satisfactory. P.W.2's allegations on his passive role and ignorance of ACLF's affairs did not impress me to be a truthful account at all. I have not lost sight of the existence of P11 when I came to the above conclusion. I therefore am not satisfied that the said sum of $120,000.00 or the said loss of profit claimed by the Plaintiff were actual items of loss suffered by it.

4. However, S.53(3) of the Sale of Goods Ordinance, Cap. 26, provided that:-

" (3) Where there is an available market for the goods in question, the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered, or, if no time was fixed for delivery, then at the time of the neglect or refusal to deliver."

The Plaintiff sought to rely on S.53(3) and the evidence of P.W.2 as an alternative to their claim founded on P3.

5. The said goods were contracted to be delivered by the Defendant by the end of March 1987. By a telex dated 9th April 1987 from the Plaintiff (P6) the Defendant was allowed an extension of up to 14th April 1987 to make the delivery. P.W.2 gave evidence that his company, Wei On & Co. Ltd., is the major supplier of the said brand of goods in Hong Kong. The manufacturer of the said goods is in mainland China. He said his company would be asking for a price of $4.80 per yard for the said goods between 13th April 1987 and 1st May 1987. He explained that the price in Hong Kong for the said goods is controlled by the price quoted at the trade fares in Canton. He said the price quoted at the Spring trade fare on 15th April 1987 was C.I.F. US$0.597 per yard. At that price his company would have to sell at $4.80 per yard. Despite the fact that the new price was only announced on 15th April 1987, he said his company was informed of the change prior to that. So the price quoted by his company, though prior to 15th April 1987, would in fact be the new price. However, he said the price quoted in March 1987 for the said goods was between $4.70 to $4.75. He further said that at about the end of March and the first half of April 1987, supply of the said goods from China was short and it was a seller's market. He said the said goods would only be available from stocks at that time. He said his company would not give any discount for bulk purchase in the quantity of 300,000 yards. He said his company had probably sold a few hundred thousand yards of the said goods in April 1987, and was then in a position to supply a quantity of 300,000 yards. However the Plaintiff only purchased 1 piece of the said goods (60 yards) from his company on 1st May 1987 at $4.80 per yard (receipt produced as P8, P8A translation). He was unable to say that the price quoted by him was the authoritative one as he was not familiar with the price structure of other companies. He has been in this trade since 1978 and his company commenced business in this trade in 1949. He could only say that his company would not sell at any price cheaper than the ones he quoted. He said it was difficult to say that the market price was at any definite figure. However, he said the trade used the price quoted by China as a guideline though there would be fluctuations. He said other companies in Hong Kong might still have stocks of such goods in March/April 1987.

6. Purshotam Chandrasen Hiranandani, the only witness called by the Defendant, is a director of the Defendant Company. He said he had been in the trade for 15 years. He said he had made enquiries from other sellers of the said goods in Hong Kong at the time when he was pressed for delivery. He said the prices quoted was $4.30 to $4.35 per yard. However, no seller could in fact supply him with the quantity he needed. He disagreed with the price of $4.80 per yard as alleged by the Plaintiff.

7. I accept the evidence of P.W.2 on the price of the said goods at the relevant period. I accept his evidence that only stocks would be available at that time. However, despite the price of such goods was only $4.75 in March 1987 I am satisfied that at the time of the breach the market would have reacted to the new price quoted by China and would be selling at $4.80 shortly before 15th April 1987. I find the market price of the said goods on 14/15th April 1987 to be $4.80 per yard. I also accept the evidence of P.W.2 that the maximum discount other sellers would give for such a bulk purchase would be 1%. Taking that discount into account the market price for the said 300,000 yards of the said goods at the time for delivery and/or breach would be $4.752 per yard.

8. In the premises the damages to be awarded to the Plaintiff for the Defendant's non-delivery of the said 300,000 yards of the said goods is in the sum of $210,600.00. ($4.752 - $4.05 x 300,000 yards). There will be interest on the said sum of $210,600.00 at the judgment rate from the date of this assessment until payment. I will hear the parties, including the Third Party, on the question of costs.