ELPE INTERNATIONAL (FAR EAST) LTD. v. HEWLETT PACKARD HONG KONG LTD.

H E A D N O T E

Nominal damages - no payment into court - no premium on ritual payments into court - question: who really won?

IN THE COURT OF APPEAL

1993, No. 58
(Civil)

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J U D G M E N T

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Bokhary, J.A.:

1. This is an appeal by the plaintiff from a judgment handed down by Deputy Judge J. Chan on January 28, 1993, whereby he dismissed its claim with costs.

2. The plaintiff's business consisted of or included making samples of watches. It wanted a computer system capable of producing an image with a "sculptured" or "complex" surface: in other words, an image so life-like that a photograph of it could fulfil the role of a three-dimensional sample.

3. By a hire purchase agreement dated May 7, 1987, the plaintiff acquired two sets of a Hewlett Packard computer system, in respect of which the defendant was the local agent, and about which it had made certain statements.

4. According to the plaintiff, those statements by the defendant included one to the effect that the system in question would be invested with sculptured surface producing capability as part of its updating service within six months. The defendant denied that it had said that. But the learned Deputy Judge found that it had. He said: "I find as a fact that the defendant did promise and warrant that sculpture surface feature would be provided to the plaintiff within six months after the purchase of the said systems by the plaintiff". And he continued thus:-

"I am satisfied that the plaintiff did make the purchase in reliance on such promise/warranty. It is not disputed that the defendant did not, and is still not in a position to provide sculpture surface feature to the said system. In the premises, the defendant is in breach of the said promise/warranty. As there is no suggestion that there existed any reasonable grounds for a reasonable belief that sculpture surface could have become available within the promised six months or at all, the defendant is also guilty of negligent misrepresentation in making that promise/warranty."

5. That was the learned Deputy Judge's conclusion on what he identified as the first of three issues before him.

6. His understanding of the other two issues may be taken from this passage in his judgment:-

"By a letter dated 2nd May 1988, the plaintiff lodged a complaint with the Chief Executive Officer to Hewlett Packard in USA. That prompted an immediate reaction within the Hewlett Packard group which led to a settlement agreement with the plaintiff on 11th July 1988. It is the defendant's case that the plaintiff is barred, by virtue of the said settlement agreement, from claiming against the defendant in these proceedings. This is the second issue, of mixed law and fact, to be decided. The third, and last, issue relates to the question of damages."

7. The "settlement agreement" is contained in or evidenced by a letter dated July 11, 1988, from the defendant's managing director, Mr Jack Lee, to the plaintiff's managing director, Mr Alan Sporn. It reads:-

"We are writing to confirm the agreement we reached during our previous Meeting.

1. We shall procure free of charge one Gerber System Technology's product for use by Manufacturing Information Technology Ltd. (MIT).

2. We shall, jointly with MIT, be responsible for selling one of MIT's existing HP9000 series 350 hardware modeling software at a price agreeable to MIT, within 3 months starting May 20, 1988. At the expiry of the 3 months period, if no sale has been consumated, we shall take back the system at MIT's purchase price.

3. We shall send a V.A.R. contract to MIT.

4. We shall provide the most recent HP3000 software update to Wipe, Electcom will them be responsible to take over and update the system accordingly.

5. In consideration of our completion of (1) through (4), you acknowledge that the issues you brought up in your letter of May 2, 1988 to Hewlett-Packard Company had been fully and satisfactorily settled and you hereby agree that you shall not, directly or indirectly through any third party, institute, or threaten to institute any legal proceedings, demands, action whatsoever against Hewlett-Packard Company, any of its subsidiaries or affiliated companies, or their respective officers, employees, or members in respect of any issue contained in the aforesaid May 2, 1988 letter and any matter incidental thereto.

We trust the above are clear and would appreciated if you could signify your understanding and acceptance of the same by signing and returning to us a copy of this letter."

Mr Sporn duly signed a copy of that letter and returned it to the defendant.

8. As far as "MIT" is concerned, this appears to be the position. It was the corporate vehicle for a joint venture between Mr Sporn and a Mr Tang Siu Ming. The learned Deputy Judge said:-

"I am satisfied that though the plaintiff might have provided the funds for the purchase of the said systems (and perhaps also for the joint venture in the form of MIT) and might have been the purchaser of the same in law, it was MIT who was all along intended to be, and was in fact, the user of both sets of the said system. The purpose of the plaintiff in buying the said systems was to lease them to MIT for the implementation of the joint venture of Mr Sporn and Mr Tang. MIT was then to supply such bureau service to the plaintiff in view of the low rental the plaintiff charged it for the said system ($10,000 as compared with $27,000 per month after MIT was sold to a third party)."

9. "V.A.R." is the abbreviation used for "value added retailer".

10. The second issue, as we have seen, was, as the learned Deputy Judge put the question to himself, whether "the plaintiff is barred, by virtue of the said settlement agreement, from claiming against the defendant in these proceedings."

11. After the Statement of Claim had been re-re-re-amended in yellow, the case eventually reached the stage when, as the learned Deputy Judge understood the position:-

"... the only grounds relied upon by the plaintiff at the trial to defeat the effects of the said settlement agreement are the two recently added complaints, i.e. no VAR contract or user's licence for the Gerber System were provided by the defendant."

12. The learned Deputy Judge held that a VAR contract had been sent and that a user's licence had been provided.

13. For the plaintiff, Mr R. Tong QC, who did not appear below, challenges the learned Deputy Judge's finding in regard to the VAR contract but not his finding in regard to the user's licence.

14. The learned Deputy Judge deals with the VAR contract in a single paragraph which runs to three and a half pages. At the end of the day, what it come down to is this. There was no evidence from the defendant, which asserted that a VAR contract had been sent, that one had been sent. And the learned Deputy Judge based his finding that one had been sent on his view that, if none had been sent, there would have been a complaint from the plaintiff over such omission earlier than the one which it eventually made. And Mr R. Tang QC for the defendant, who also did not appear below, was driven to defending that process of reasoning as the only justification, if justification it be, for the finding.

15. Even assuming that there can be cases in which a party who asserts a fact can prove it solely on the opposite party's failure timeously to deny it, I still would not regard the present case as such case. It was put to Mr Sporn in cross-examination that Mr Lee would say in evidence that a VAR contract had been sent. In the result, however, neither Mr Lee nor any other witness said that in evidence.

16. In my judgment, the learned Deputy Judge's finding that a VAR contract had been sent is unsustainable.

17. His finding that the defendant had performed the settlement agreement is, therefore, likewise unsustainable.

18. Not surprisingly, Mr Tang did not offer any argument in support of the learned Deputy Judge's view that, even if the defendant had not performed the settlement agreement, the mere fact that that agreement had been entered into had the result of barring the plaintiff's original cause of action, so that the plaintiff was immediately confined to suing on the settlement agreement. Neither the wording of the settlement agreement nor the way in which the defendant pleaded its effect admits of that approach.

19. What Mr Tang did argue was that the plaintiff is so barred and confined by reason of its having affirmed the settlement agreement after the non-performance thereof of which it complains.

20. That argument was, as Mr Tang's arguments always are, attractively put. But it cannot succeed. Affirmation is a new point which has not been pleaded. The course of the evidence at the trial might have been different if the point had been pleaded and advanced below. So it is not open to the defendant now.

21. As far as liability is concerned, the plaintiff is entitled to succeed; and the learned Deputy Judge's decision against the plaintiff on liability cannot stand.

22. What about damages?

23. Although he found against the plaintiff on liability, the learned Deputy Judge, appropriately, went on to consider the question of damages, which he had identified as the third issue. On that issue, his judgment concludes thus:-

"The plaintiff has not claimed nor pleaded a recission (sic.) of the contract of sale. Nor could the plaintiff now claim it has the right to rescind in view of the lapse of time as well as its entering into the July settlement agreement and the lease agreement with the "new" MIT. Apart from relying on the Mackenzie Patten & Co. case which deals with a different factual situation, I have not been satisfactorily explained why the plaintiff should be entitled to treat the case as if one of total loss (save the rentals received) and recission (sic.). The intention throughout was to lease the said systems to MIT, and subsequently to the "new" MIT, which the plaintiff did. MIT had made no claim against the plaintiff, nor is it a party to these proceedings. Mr Faulkner agrees with me that if a purchaser bought a sports car, with an express request that the top speed it can reach should be 120 mph, with an intention to hire it out. And, though the sports car fails to live up to a warranty to that effect, the purchaser is able to gain normal hires for it by hiring it out without any complaint by its hirers. The damages the purchaser could recover would only be nominal damages as the sports car in fact serves the purpose for which it was purchased though it could not provide the feature warranted. In any event, it can be nowhere near a total refund of the purchase price. I am unable to agree that the plaintiff is entitled to claim a full refund of all hires and other charges paid to the finance company as well as interests thereon as if both of the said systems were a total loss to it. Furthermore, it appears that the plaintiff had settled with the finance company by paying full hire charges for the whole hiring period without taking into account the element of accelerated payment, and without applying "the rule of 78". Neither did the plaintiff pay off the finance company earlier in respect of the returned set of the said system though it had already received full compensation from the plaintiff in 1988."

24. I turn now to the notice of appeal. By that notice, the plaintiff asks for judgment "in such sum as the Court of Appeal may think fit or alternatively nominal damages". Nowhere in the notice does the plaintiff put forward any sum or alternative sums as representing damages which it says should have been awarded in its favour. If there was indeed evidence on which the plaintiff was entitled to substantial damages, one would expect to find such sum or alternative sums set out in the notice of appeal.

25. We have certain facts and figures. But, even assuming that they are accurate as far as they go, it is by no means apparent that they are complete. Nevertheless, if the members of this Court were to sit down and perform the exercise, it is conceivable that we could come up with a substantial sum which it would make sense to award the plaintiff. But if we were to do that, we would be making a case for one of the parties before us against the other party before us. And it would, moreover, be a case which that other party would have had no opportunity properly to meet. That exercise, therefore, is not one upon which we can legitimately embark.

26. One course open to us is to award the plaintiff what it claims in the alternative, namely, nominal damages. On behalf of the defendant, Mr Tang concedes that nominal damages can be for anything up to $100.00. But he submits that the material before us negatives any entitlement in the plaintiff even to only nominal damages. I do not agree. It is true that the plaintiff has not made out a case for substantial damages. But that is not the same thing at all.

27. Neither side has asked for a new trial. It would seem that the plaintiff, while not averse to a new trial on quantum, is not keen on a new trial on liability, which carries the risk to it of the defendant proving that a VAR contract had been sent after all. Also, it would seem that the defendant, while not averse to a new trial on liability, is not keen on a new trial on quantum which carries the risk to it of the plaintiff making out a claim for substantial damages. And looking at things in the round, I cannot in any event say that I am particularly attracted to the idea of a new trial in this already expensive and somewhat stale piece of litigation.

28. It seems to me that we must take this case as we find it. Taking it thus, the appropriate course for us to adopt is, in my judgment, to set aside the learned Deputy Judge's order, enter judgment for the plaintiff for nominal damages in the sum of $100.00, and hear counsel on the question of the costs here and below.

29. I would allow the appeal accordingly.

Power, V.-P.:

30. I am in agreement with all that had fallen from my brother Bokhary. Even given the many facts about which there was no dispute, there were revealed by the evidence overall, including that of Mr Sporn, no satisfactory evidence upon which the loss of the plaintiff could have been properly quantified. I am satisfied that the plaintiff is entitled only to an award of nominal damages.

Nazareth, J.A.:

31. I also agree with my brother Bokhary that the appeal must be allowed and that the order dismissing the plaintiff's claim must be set aside. I have found it a matter of a little more difficulty to decide what should replace it, but given the position that confronts this Court, and for the reasons given by my Lords, I am satisfied that the order proposed by my brother Bokhary is right and just and indeed the only practicable order; and I would concur with it.

[Argument as to costs]

Bokhary, J.A. (giving the decision of the Court on costs):

32. Where nominal damages only are recovered, the proper approach (illustrated by cases like Mr Justice Devlin's decision in Anglo-Cyprian Trade Agencies Ltd v. Paphos Wine Industries Ltd [1951] 1 All ER 873 and the decision of the Court of Appeal in England in Alltrans Express Ltd v. CVA Holdings Ltd [1984] 1 WLR 394) is this. No premium should be put on a nominal and therefore ritual payment into court. So the courts do not proceed on the basis that a party who recovers anything, even if only nominal damages, is prima facie entitled to costs provided he is not confronted by a payment into court of as much or more than what he has recovered. Rather, the courts, looking at the realities, ask themselves the question, "who really won? And the matter then proceeds on the general rule which Lord Justice Nourse stated in these terms as the second of the four principles which he identified in his judgment in Re Elgindata Ltd (No.2) [1993] 1 All ER 232 at p.237f: costs "should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made."

33. Lord Justice Nourse stated the third principle thus (ibid.): "The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs."

34. We think that the learned Deputy Judge's decision to award the defendant only half its costs was based on Lord Justice Nourse's second and third principles: the defendant, although the overall winner, having caused a significant increase in the length and cost of the trial by its unsuccessful denial of negligent misrepresentation.

35. As a matter of reality, it seems to us that the defendant remains the real winner even with an award of nominal damages against it. But the defendant had taken up more time on issues on which it was wrong than the learned Deputy Judge thought, since it was in the wrong on certain matters on which he thought it was in the right. We reduce his award to the defendant of half its costs below to one-third of its costs below.

36. As far as the costs of the appeal are concerned, this is the position. The defendant remains the real winner, because: the litigation was really about money; the plaintiff sought substantial damages; and it has recovered nominal damages only. But once again, Lord Justice Nourse's third principle comes into play. The defendant raised and failed on two issues which between them caused a significant increase in the length and cost of the appeal. Those issues are: whether a VAR contract had been sent; and whether the plaintiff was entitled to even nominal damages.

37. And of course the plaintiff has managed to reduce the learned Deputy Judge's award of costs against it. All things considered, we think that each party should be left to bear its own costs of the appeal; and we leave them to do that.

[Order that the security put up by

the plaintiff for the costs of the

appeal be released]