CHAN JUEN v. YU FOOK SHUNG

Contract - sale of goods - limited appellate jurisdiction on appeals from Small Claims Tribunal - whether contractual right to cultivate ginger plants and sell flowers a sale of goods or an interest in land - whether unpaid seller under duty to mitigate where he merely sues for balance of contract debt and does not seek damages for breach of contract - Held: 1. Contract was for sale of goods and not of an interest in land; 2. Unpaid seller under no duty to mitigate where he elects to sue for balance of contract debt and does not seek damages - Sections 28, 29 Small Claims Ordinance, Cap.338; Section 2 Sale of Goods Ordinance, Cap.26.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

Small Claims Tribunal Appeal No.20 of 1986

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JUDGMENT

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1. The respondent is the owner of 5 acres of land at Tung Wan Mei Village, Shek Pik, Lantau Island, which is used for growing ginger flowers. On 3rd June 1986 the respondent entered into an oral agreement with the appellant under which the appellant was entitled to cultivate the land and harvest the ginger flowers for sale during the period from June 1986 until 31st December 1986. Subsequently a dispute developed between the parties over the terms of the agreement which culminated in the respondent on 29th August 1986, commencing a claim in the Small Claims Tribunal against the appellant, for $2100 being the balance alleged to be due under the agreement.

2. After hearing both parties, who gave oral evidence, the learned Adjudicator, Miss C B. Chan, found that under the agreement the appellant had the right to harvest the ginger flowers during the period alleged, subject to paying the respondent the sum of $2500. The Adjudicator further found that the contract price of $2500 was payable as to $1000 on 15th June 1986 and as to $1500 on 15th July 1986. It was undisputed that the appellant only paid $400 of the contract sum on 15th July 1986.

3. In the Small Claims Tribunal there was a dispute between the parties as to the discussions which occurred when that payment was made. According to the respondent the appellant stated that his worker was ill and asked that the rent be reduced to $1500. The respondent stated that he rejected this proposal and told the appellant that he would have to pay the full $2500. The appellant asserted that on payment of the $400 he had terminated the agreement and handed back the land and the flowers to the respondent. The Adjudicator found that at most the appellant had unilaterally endeavoured to terminate the agreement but that his request was rejected by the respondent. On those findings the Adjudicator held that the parties had not varied or terminated the original agreement, which was still subsisting. Accordingly she entered judgment for the respondent for the unpaid balance of $2100.

4. On 4th November 1986 the appellant applied to Mortimer, J., for leave to appeal from the judgment of the Small Claims Tribunal which application was heard on 3rd December 1986. Leave to appeal was granted but limited in these terms:

"Leave to appeal on the question whether the Defendant ought to have been given, any credit for the unexpired term and the crop not harvested consequent upon the termination of the rental agreement ."

Pursuant to that leave the parties, who at all times were unrepresented, appeared before me on 5th January 1987 when the appeal was dismissed. I will now give my reasons for dismissing the appeal.

5. As the parties were unrepresented, I reminded myself that, in accordance with Section 28 of the Small Claims Tribunal Ordinance, Cap. 338, appeals may only be granted after leave and are limited to points of law or lack of jurisdiction. The present appeal was limited to a point of law. Further, Section 29 while allowing this Court to draw any inference of fact, expressly prohibits receiving any further evidence or reversing or varying any determination of fact of the Tribunal. I explained to the unrepresented parties the very narrow limits within which an appeal, allowed from the Small Claims Tribunal, may proceed.

6. After hearing the appellant's submissions I found it unnecessary to call on the respondent. The appellant conceded that under the agreement the respondent was entitled to receive $2500 but had only been paid $400. According to the appellant the respondent had supplied his co-worker Tam Cheung with excessive alcohol causing him to be unfit for work. As a result the appellant was unable to continue to work the land and cut the flowers. Before work ceased the appellant alleged that he and Tam had worked on the land for 40 days and spread 4 bags of fertiliser at a cost of $210 per bag.  If the contract had continued to completion it would, according to the appellant, have produced a profit of $20,000 which he would have shared equally with Tam. The appellant concluded by submitting that, when he left the land in July 1986, the respondent was left in possession of the flowers for the remainder of the contract period.

7. Relating those submissions to the limited grounds of appeal, it would appear that the appellant considered that he should have been given credit for the remaining profit that could have beer obtained from the crop. The same submissions were also open to the interpretation that the appellant considered that the respondent should have taken steps to mitigate his loss by selling or otherwise disposing of the crop to his advantage. The appellant's submissions, as well as the language used in both the Adjudicator's comprehensive judgment and the order of this Court granting leave to appeal, give rise to several legal issues which I will next consider.

8. First, there are references to rent and to unexpired terms which may be misleading, as to the nature of the contract between the parties. I hold that the contract was for the sale of goods and did not create any interest in the respondent's land. The ginger plants were growing on the respondent's land. Under the contract the appellant had the limited right to cultivate, harvest and sell the flowers which grew on the plants. As to produce of the land, the common law distinction is between fructus industriales being produce occuring not spontaneously but by labour and industry and fructus naturales being the spontaneous produce of the land, such as grass. Fructus industriales were always regarded as goods - Cheshire Fifoot & Furmston's 'Law of Contract' (11th Edn) 199; Megarry & Wade's 'The Law of Real Property' (5th Edn) 573.

9. This common law distinction is reflected in our Sale of Goods Ordinance Cap. 26, which is directly and decisively in point. Section 2 defines "goods" as follows:

"'goods' includes all chattels personal other than things in action and money. The term includes emblements, industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale."

I hold that the agreement between the parties evidenced merely a sale of goods and not an interest in land. The normal principles of contract, in relation to the sale of goods, therefore apply to the agreement reached between the parties.

10. The Adjudicator's finding that the appellant was in breach of contract by failing on due date to pay the contract price balance of $2100, based on her very reasonable findings of fact, was impeccable. Where a purchaser is in breach of contract, the unpaid seller often has a variety of remedies particularly where, as here, he remains in possession of at least some of the contract goods. However, as 'Benjamin's Sale of Goods' (2nd Edn.) page 551, points out, the normal remedy of an unpaid seller is to sue the buyer for the price. That is the sole course the respondent elected to follow in relation to this contract. I am unaware of any principle of law which in those circumstances entitles the defaulting purchaser to any of the credits particularised in the order granting leave to appeal. If any credits were given to the appellant he would, as the defaulting party, be compensated by the injured party, who would suffer further loss. This novel ground of appeal is simply without merit.

11. To the extent that the appellant's submissions may have suggested that the respond nt was from July 1986 under a duty to mitigate his loss, I have paused to consider that possibility. The difficulty which faces the appellant is that the respondent did not claim damages for loss, in which case, as a matter of law, a duty on the part of the respondent to mitigate, may well have arisen.  The respondent has limited his claim to the debt due under the contract. In those circumstances the law has been well settled, at least since White and Carter (Councils) Ltd. v. McGregor (1962) AC 413, that the seller is not under a duty to mitigate. Benjamin (supra) at page 660, after referring to that House of Lords judgment, summarises the position thus:

"...the rules as to mitigation do not apply to a claim for a debt due under a contract in return for the plaintiff's performance of his obligation; such a claim is distinct from one for breach of contract."

I recognise that the learned author goes on to qualify the extent of that principle but it is at least wide enough to apply to the present case. I am well satisfied that not only is the appellant not entitled to either of the credits referred to in the order granting leave to appeal but that the respondent was also not under any duty to mitigate. I would also record that there was no evidence before the Adjudicator that the respondent, as a matter of fact, had resold the ginger flowers or otherwise avoided the loss which flowed from the appellant's breach of contract.

12. I confirm that for these reasons the appeal was dismissed.