ALKEMAL TRADE ORGANISATION LTD. v. SURAJ COTTON MILLS LTD.

HCA7759/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO. HCA7759 OF 2000

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ASSESSMENT OF DAMAGES

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Introduction

1. This is an assessment of damages following the entry of interlocutory judgment against the Defendant in favour of the plaintiff on 24 March 2001.

2. The Defendant was absent today, a matter which surprises no one as it had filed no notice of intention to defend from the commencement of these proceedings.

The Evidence

3. On 12 January 2000, Alkemal Trade Organisation Limited, the Plaintiff, entered into a contract with Suraj Cotton Mills Limited, a company in Pakistan, for the supply by the Defendant to the Plaintiff of 165,700 yards of 100 per cent cotton grey cloth at the price of US$67,014. The Plaintiff contracted for the supply of these materials from the Defendant in order to satisfy its own contractual obligations to its customer, Perfecta in China.

4. The evidence plainly establishes that the Defendant was aware at all times, more particularly at the time of contract with the Plaintiff, that the Plaintiff had placed the order for these goods for the purpose of resale to China. This is a matter which is of relevance when considering the Plaintiff's claim for loss of profits. It was a term of the contract between the Plaintiff and the Defendant that the goods to be supplied would have to meet the American "4-Point" quality requirement.

5. Pursuant to its contractual obligation, the Plaintiff made arrangements for the opening of an irrevocable Letter of Credit in favour of the Defendant.

6. Charges in relation to the opening of the LC were incurred as were telex charges, as explained by the Managing Director of the Plaintiff, Mr Kalam who gave evidence in these proceedings. In testifying, he briefly elaborated upon his witness statement which he adopted as his evidence. I wholly accept the matters and facts stated in his witness statement as being true and correct. There was no evidence to contradict his testimony, as was expected.

7. In purported performance of the contract, the Defendant shipped the goods to the Plaintiff on or about 4 February 2000. The goods arrived in Hong Kong around 16 February 2000. Steps were then taken by the Plaintiff to arrange for the reshipment of the goods to its customer, Perfecta, in China.

8. When the goods arrived at their destination, Perfecta discovered that the goods were faulty in as much as a substantial portion of the fabrics was of substandard quality, certainly not as specified in the contract. The fabrics did not meet the American 4-Point standard, a stipulation of the contract between the parties before me.

9. Facsimile communication then followed between the Plaintiff and the Defendant on this matter. This resulted eventually in the Defendant requesting that the goods be examined by SGS to ascertain whether or not the fabrics had failed to meet the contractual requirement. The Plaintiff accordingly obliged and has incurred expenses in that regard. That represents another head of claim in this case. It transpired from the tests conducted that the goods were in fact inferior.

10. The Plaintiff attempted to seek redress from the Defendant, but from that point onwards it was impossible to contact the Defendant.

11. As the Plaintiff is contractually bound to mitigate its loss, it took steps to seek an alternative buyer for the goods. In April 2000, such a buyer was found and the goods were sold for HK$462,972.

12. That the Defendant has failed to carry out its contractual obligations cannot be disputed, default judgment having been entered.

The Plaintiff's Claims

13. These are four in number. They are:-

a) Loss of profits.

b) Charges incurred in respect of the opening of the irrevocable Letter of Credit and telex charges.

c) Loss sustained in reselling the goods at a lower price in mitigation.

d) The inspection charges paid to SGS.

14. I have no difficulty in acceding to the Plaintiff's claim in all these respects. As for the loss of profit, the bank and telex charges, these were clearly consequences that must have been within the contemplation of the parties at the time of contract as flowing from a breach of the contractual relationship undertaken by the Plaintiff and the Defendant. They are clearly recoverable.

15. It being the obligation of the Plaintiff to mitigate its loss, the evidence also demonstrated that the Plaintiff had acted reasonably and expeditiously in looking for an alternative buyer for these faulty products. In that regard it was successful, but by selling at a lower price it had sustained an additional loss of HK$60,000. That it can be recovered cannot be gainsaid.

16. As for the SGS inspection charges of $5,330.80, this head of claim is equally competent and should be paid in full. The charges were incurred specifically at the behest of the Defendant and it represented costs that the Plaintiff would have in any event to incur in order to demonstrate that the contractual quality requirement had not been complied with.

17. The Plaintiff sets out at page 15 of the statement of Mr Kalam the computation for the damages sustained in this case. I have checked the figures against the evidence and they are correct and fully supported on the documentation supplied.

18. In summary, I award damages to the Plaintiff against the Defendant as follows:-

a)	Loss of Profits	-	HK$65,043.00
b)	Letter of Credit and Telex Charges	-	2,099.00
c)	Loss sustained in reselling the fabrics at a lower price in mitigation	-	HK$60,000.00
d)	SGS inspection charges	-	HK$5,330.80
Total, HK$132,472.

This is the quantum I assess to be the total loss sustained by the Plaintiff following the breach of contract by the Defendant.

19. There shall be interest at judgment rate on the adjudged sum from the date of issue of the writ until full payment.

20. The Plaintiff shall also have its costs of this assessment on a party and party basis against the Defendant, taxed if not agreed.

21. There will be certificate for counsel.