WALTER KUNG SHUI KAY TRADING AS WALCO TRADING COMPANY v. DIRECT MARKET ITALIA S.R.L.

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REASONS FOR JUDGMENT

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Sir Alan Huggins, V.-P.:

1. The Plaintiff (the Appellant before us) brought an action against two defendants in relation to goods sold by the Plaintiff to the 1st Defendant (the Respondent before us). There was a counterclaim by the 1st Defendant and it is against the judgment of Mr. Justice Jackson-Lipkin on the counterclaim that the appeal has eventually been fought.

2. The goods in question were digital quartz watches and they were for delivery in Italy. The parties had been doing business for some time before the particular contracts pleaded were entered into. During that time some of the watches delivered had been unsatisfactory, were returned to the Plaintiff and were repaired or replaced. The pleaded contracts were for delivery of watches intended for resale by the 1st Defendant during the Christmas season in 1981. Some of the goods ordered could not be supplied on the specified dates and, after exchanges between the parties, the 1st Defendant cancelled the relevant orders. In respect of these goods it has been argued that there was a mutual abandonment by each party of its rights under the contracts. Whilst I accepted that there could be an enforceable agreement of that kind, I was not persuaded that the judge was wrong on the evidence to find and to hold that the 1st Defendant never agreed to forego its right to damages for non-delivery. He took the view that when Mr. Bartholomey, who was regarded by those concerned for all practical purposes as the 1st Defendant, said "That is an end of the matter" he was merely recognizing that the Plaintiff could not perform its part of the bargains. It is material that the Plaintiff was already in breach. The abandonment inevitably meant that the goods would not be delivered and that the 1st Defendant was discharged from its obligation to pay the price, but it would need clear evidence that the 1st Defendant was wiping the slate clean. Not only was there no such evidence but, on the other hand, there was evidence that the 1st Defendant was continuing to complain of claims' being received from its customers and of the damage it was likely to sustain from the Plaintiff's breaches of contract.

3. There were only two matters upon which we required to hear argument from Mr. Mills-Owens on behalf of the 1st Defendant. The first of these was whether the 1st Defendant had discharged the burden of establishing that the goods which were delivered were defective, as it alleged. This, of course, was a question of fact and the Appellant was faced with an adverse finding by the judge. That adverse finding was supported by the judge's assessment of the witnesses and Mr. Ching at the outset acknowledged the difficulty he was in in attacking the conclusions of the trial judge on such matters. It is enough to say that before we could have interferred we would have had to be satisfied that the judge's finding was plainly wrong. That is so well settled that I did not think it required citation of three decisions of the House of Lords to persuade us. What Mr. Ching had hoped to do was to persuade us that the judge had failed to appreciate some of the weaknesses in the evidence of Mr. Bartholomey and that the evidence was not such as to justify the final conclusion which the judge reached.

4. Mr. Bartholomey said that the bulk of the watches delivered consisted of defective watches. Some of them were put into store and some forwarded to retailers. He received many complaints from retailers, who sent back many watches. Of the watches so returned it was probable that some had been sold to individual customers and a few might have been damaged by those customers. In some instances he was able to cannibalize defective watches and produce sound watches, but the rest he put together and he returned 849 to the Plaintiff. He also sent back some which had been stored. Of these last there were 1236 or 1237]. During the trial another 602 watches which had been returned by customers were brought back to Hong Kong. A large number of watches was produced in court and all were found by the judge to be defective. That finding was not seriously challenged. Mr. Bartholomey testified that the watches in court did not include the 1236 or 1237 which had been returned from store. That was very much in issue at the trial but the judge found in favour of the 1st Defendant upon it and, again, I did not think we could say he was wrong. What was strenuously argued was that, even if one accepted Mr. Bartholomey's evidence, it had not been sufficiently established that the defects found in the watches which were sent back to Hong Kong existed at the time the watches were delivered to the 1st Defendant in Italy: as the watches were neither professionally surveyed nor even subjected to an inspection by the 1st Defendant's staff upon receipt, there was a real possibility that they were damaged subsequently. To that Mr. Mills-Owens replied that it was beyond belief that of the watches returned otherwise than directly from the 1st Defendant's own store but found to be defective more than a handful had been damaged after the 1st Defendant took delivery. He pointed to the evidence of complaints received from various retailers and to the fact that the most common defect found was one which was consistent with a fault in design. On the balance of probabilities the defects found were not attributable to misuse by end consumers who had then, in large numbers, falsely alleged that the resulting damage had existed at the time of purchase by them. When one looked at the probabilities in this way I thought Mr. Mill s-Owens was right. Equally, having regard to the whole history of the dealing between the parties I thought it was reasonable for the judge to conclude that the "missing 1236 watches" were in substantially the same condition as those which had been passed on to the 1st Defendant's customers. It was true that there was no clear evidence that every single one of those so passed on was defective, but so many had been found defective that the judge was entitled to conclude that there was a basic flaw in the design which would affect all the watches delivered to the 1st Defendant.

5. The second matter upon which we heard Mr. Mills-Owens related to the "rebate" or "commission" which the judge found to be payable to the 1st Defendant. The Plaintiff did not deny that he agreed to pay commission but contended that the amount was due to Mr. Bartholomey personally and not to the 1st Defendant. I have already alluded to the fact that everyone involved treated Mr. Bartholomey as though he and the 1st Defendant were the same person - whereas in truth he was only a 75% shareholder in, and "procuratore" (or a person akin to a managing director) of, the 1st Defendant. To that extent Mr. Bartholomey was testifying to his own disadvantage when he said that the commission was payable to the 1st Defendant. In the court below much was made of the contention that money so payable would really be a "price reduction" rather than a "commission" and of the fact that when such commission had been paid it was paid by cheque drawn in favour of Mr. Bartholomey personally, but the judge was more impressed by the fact that some of the money paid had been used to. open up a quality control inspection department of the 1st Defendant in Hong Kong and that credit notes in respect thereof were addressed to the company. Obviously, the circumstantial evidence was conflicting, just as there was conflicting evidence as to whether the 1st Defendant's books contained any reference to the commission. Although the judge generally preferred the evidence of Mr. Bartholomey where it conflicted with that of Mr. Zorzo, he was satisfied that the commission was not payable to Mr. Bartholomey personally.  Mr. Ching advanced a number of reasons for suggesting that Mr. Bartholomey was not a witness upon whose evidence judgment in the 1st Defendnnt's favour could safely be found and why the judge was wrong to regard him as credible. I do not think it is necessary to refer to them in detail. Some of them were good "jury" points but they were not, either individually or together, of such significance that we would have been justified in saying that the trial judge was wrong in his conclusion. I was satisfied that the judge appreciated the possible criticisms which could be made of Mr. Bartholomey's evidence and also that the burden of proof laid on the 1st Defendant.

McMullin, V.-P.:

6. I agree and I do not wish to add anything to what My Lord the Vice-President has said.

Barker, J.A.:

7. I agree entirely.

27th July 1984