SANITUS INTERNATIONAL LTD v. TAYOPA TRADING AND CONSTRUCTION CO LTD

1987 No. A3206

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. In this action the Plaintiff claims the sum of $76,351 and interest thereon being the price of goods, namely 603 Italian granite slabs sold and delivered by the Plaintiff to the Defendant which the Defendant has failed to pay for. By the Defence it is contended that the goods supplied were defective, did not correspond with sample and had been rejected wherefor the Defendant did not have to pay the price. By way of Counterclaim the Defendant seeks damages for breach of contract being its loss of profits on the subsale to its Sub-buyers, loss by reason of having to pay compensation to the Sub-buyers and return the Sub-buyers deposit as well as storage charges incurred because the Plaintiff did not take back the defective goods. Thus in essence the issues that fall to be resolved are :

(1)    Did the Defendant accept the goods delivered under the contract and thus render itself liable to pay the price.

(2)    Was there a breach of condition or warranty in respect of the goods entitling the Defendant to damages and if so what damages have been proved.

2. The material terms of the contract between the Plaintiff as Seller and the Defendant as Buyer were as follows :

3. It was dated 23rd February 1987. The goods were described as 603 pieces 325.94 m2 of Italian polished granite size 600x900x20 mm "Model: Pink Porrino (As per sample)". It is accepted that the contract was for sale by sample and that Exhibit P1 is the sample provided by the Plaintiff to the Defendant for the purposes of the contract. The price after allowing for a 50% reduction by way of compensation arising out of a previous transaction came to $76,351.45. The terms provided for the price to be C.I.F. Hong Kong including local delivery within town limits. "Shipment" was to be in early March 1987 and payment was to be "C.O.D." that is cash on delivery. The contract was signed for the Plaintiff Seller by Garfield Yip, its Sales Manager, witness PM4 and by Chow Chun Hing witness DW3 who described himself as the boss of the Defendant.

4. The contract was on the Seller's printed form and was subject to certain conditions set out on the reverse which appear at page B4 of the documents. My attention was directed to Condition 11 which states :

"TOLERANCES: Unless otherwise specified, Sellers are allowed the normal tolerances and deviations customary in the trade but if any doubts exist as to custom then the Buyers shall be bound by the terms in that regard (if any) of the contract of the Sellers with their suppliers. For quantities and weights deviation of 5% more or less is permissible by Sellers."

5. There was no reference to this condition in the pleadings nor was any custom of the trade pleaded. The Plaintiff Sellers did not seek to put before the court the terms of their contract with their Italian Suppliers Adige Marmoresina S.P.A. In my view therefore Condition 11 does not call for any further consideration in these proceedings. No other express condition of the contract was invoked by the parties in their pleadings or otherwise, although Condition 7 does provide that all claims must be made within 2 weeks of arrival of the goods or of sale of goods ex stock, and in particular that any necessary survey of the goods is to be undertaken by Lloyds or other competent and officially recognised examiners or surveyors. I propose now to consider the chronology of events in summary form before dealing specifically with the issues between the parties.

6. Three containers containing 25 wooden crates in total and 5 wooden bundles of "Natural Granite Rosa Porrino Slabs and Tiles" were shipped from Venice aboard the vessel "Zim Trieste" under Ocean Bill of Lading No. 601 dated 16th December 1986; see document C1. As the transit time to Hong Kong was about 1 month these containers would have arrived in about mid January 1987. At some date after their arrival in Hong Kong these goods had found their way to Adige (HK) Ltd's open air storage "godown" in Lad Fau Shan and it was from these goods that the crates and granite slabs in question were in due course delivered to the Defendant Buyers.

7. By telex dated 7th January 1987, document B1, the Plaintiff had offered the Defendant two types of granite for approval namely "Pink Porrino" and "Rosa Bata" Samples were supplied and the Defendant in response by telex dated 18th February 1987 confirmed its intention to purchase 603 pieces of Pink Porrino of dimensions 20x600x900 mm "subject the said goods are matched the samples you submitted previously". The Defendant meanwhile had on 27th January 1987 entered into a contract of subsale with the "Supply Department of Wah Tai Enterprises Third Company" ("Wah Tai") at document D2-6, whereby it had sold a total of 325.134 m² of Italian polished granites to Wah Tai on the terms therein contained. These called for the Defendant to deliver the goods to Shenzhen in mid April 1987. The price was RMB104,325 and a 30% deposit was to be paid within 3 days, with the balance payable immediately after inspection and receipt upon arrival of the goods. It was a specific term of that contract of subsale that "Inspection and receipt according to Sample". The evidence of Mr. Chow Chun Hing was, and I accept, that the sample referred to was the same sample, Exhibit P1, which was the sample for the contract between the Plaintiff and the Defendant. That contract of subsale was entered into on 27th January 1987 and was followed by the contract between the parties as Seller and Buyer respectively dated 23rd February 1987.

8. Although the goods had reached Hong Kong in about mid January 1987 no attempt seems to have been made to arrange for any examination of the bulk either prior to the signing of the contract of 23rd February 1987 or indeed until about the first week of April which was a month after the contractual date for delivery. Mr. Garfield Yip told me, and I accept, that he had made a number of enquiries of the Buyers in March as to when they would take delivery but had received no "solid answer". He then sent the telex of 31st March 1987, document B5, pointing out that no delivery instruction had been given. The response was B6 expressing shock at the earlier telex and indicating the goods would be checked within 3 days.

9. On 7th April 1987, 3 persons attended at Adige's premises at Lau Fau Shan for the purpose of examining the goods. They were Mr. Tang Chi Ho for the Plaintiff Seller, Mr. Chan Hon Keung from the Defendant Buyer and a Mr. Sammy Cheung of Adige. There is an issue as to exactly what took place and who said what. However what is clear is that the Buyer's representative, Chan Hon Keung, wanted to open the crates in which the granite slabs were packed in order to carry out a physical inspection slab by slab and this was not done. The evidence was that on 7th April 1987 the slabs were still packed in the wooden crates which can be seen in the photographs at page C10-C21 although those photographs were actually taken by Tang Chi Ho later on 15th April 1987. Each of the wooden crates held between 47-50 pieces of granite slabs and as can be seen in the photographs they were swathed in transparent plastic sheeting. Mr. Tang Chi Ho's explanation for the failure to conduct a proper physical examination on 7th April 1987 was that there were no tools available to open the crates. Mr. Chan Hon Keung said that in fact he had tools in his car which would have done the job but that Mr. Tang Chi Ho simply refused to permit the crates to be opened. Thus while Mr. Chan for the Buyer could inspect the granite slabs packed as they were in the crates and covered with transparent sheeting he was not able to inspect individual slabs against the sample which he had taken with him for this purpose. Mr. Chan said he had a quarrel with the other 2 persons present because they refused to open the crates and that he used foul language. I find it difficult to accept the explanation that the crates could not be opened because no tools were available. It seems to me far more probable that Mr. Tang Chi Ho, for whatever reason, was unwilling to permit the crates to be opened, particularly so since he admits that this is what happened on the next visit on 15th April 1987. However I also find it surprising that this abortive visit by the Defendant Buyer's representative for the purpose of inspecting the goods was not followed up with any sort of a letter or telex placing on record a complaint that the Buyer had been refused inspection. The events of 7th April 1987 were reported by Chan Hon Keung to his boss Mr. Chow Chun Hing when he returned to the Defendant's office. On the same day that is 7th April 1987 Chow Chun Hing instructed Chow Kwok Leung of the Defendant's Transportation Department to arrange to take delivery of the goods from Adige's premises at Lau Fau Shan and have them transported to the premises of the Sub-buyer Wah Tai in Shenzhen. This involved arranging for 2 lorries to be hired to go to the site to pick up the goods on the morning of 15th April 1987. It also required prior arrangements to be made for customs clearance to be available for the goods at the border on the same day, that is 15th April 1987. I was told that the Chinese Customs Formalities are very strict and that if an appointment is made for customs clearance on a particular day and the goods are not in fact presented on that day then this is regarded as a form of smuggling and penalties are imposed by the Chinese Authorities unless there is very good reason for not showing up with the goods. Notwithstanding this somewhat strict approach the Defendant in conjunction with Wah Tai had arranged for the goods to be cleared at customs on 15th April 1987 even though no examination of the individual granite slabs had yet been carried out and notwithstanding what had happened on 7th April 1987.

10. On 15th April 1987 Mr. Chow Kwok Leung went to the site at Lau Fau Shan to collect the goods with 2 members of the Defendant's staff and the 2 lorries with their drivers which can be seen in photographs C10-C21. One of the lorries was fitted with a mobile crane. Apart from the Defendant's party the other persons present included Mr. Tang Chi Ho for the Plaintiff and Sammy Cheung of Adige. I was told that the parties got there by about 10:00 am and shortly thereafter they started loading crates of granite slabs. It took them about 1½ hours to complete the loading so that by 11:30 am the loading was completed. It took this length of time because Mr. Chow Kwok Leung said that they had to wait while Mr. Tang Chi Ho indicated which crates were to be loaded. Mr Tang initially told me in evidence that on this occasion Chow Kwok Leung had not asked for the crates to be opened to enable him to examine individual slabs. He said in his evidence in chief that it was not correct to say that the Defendant was not given the opportunity to compare the slabs with the sample. However in cross-examination he agreed that Chow Kwok Leung had in fact asked for the crates to be opened for inspection but he said he had explained to Chow that once the crates were opened the slabs would be difficult to remove and load and that there was a risk of them being easily broken during transportation. He told me that Mr. Chow had accepted this explanation and had said words to the effect that it was reasonable for the crates not to be opened. In the event what happened therefore was that only one crate was opened on the morning of 15th April 1987. This was because 27 individual granite slabs were required to make up the number of slabs to 603 when added to the slabs in the unopened crates which were loaded onto the lorries. Of the individual granite slabs in the opened crate, one was rejected by Mr. Chow because it was cracked and the balance of 27 required were loaded onto the lorries. When loading was completed Mr. Tang required Mr. Chow to sign a pre-prepared cargo receipt. In fact Mr. Chow signed 2 copies. The original was signed and returned to Mr. Tang. The copy was signed and kept by Mr. Chow. Copies of these documents are at pages B7 and D11. They are important and I will come back to them later because they form the foundation for the Plaintiff's contention that the Defendant thereby intimated that it accepted the goods thus rendering itself liable for the price. After Mr. Chow had signed the cargo receipts the lorries drove off with the goods, conveyed them to the border; where they presumably cleared customs, and they were then delivered to the premises of Wah Tai at a site known as Sam Woon Building in Shenzhen.

11. Since the terms of payment under the contract called for cash on delivery, Mr. David Wong, the Plaintiff's Financial Accountant; prepared the invoice of 15th April 1987 at C8 and caused this to be dispatched to the Defendant together with a copy of the original cargo receipt signed by Chow Kwok Leung. Payment was not made so Mr. Wong told me, and I accept, that he therefore chased the Defendant company many times seeking payment but without success. Meanwhile Mr. Tang Chi Ho had taken the original cargo receipt signed by Mr. Chow Kwok Leung to the Defendant's Tsim Sha Tsui Offices on 16th April where the Defendant's Company chop had been placed over Mr. Chow's signature as appears from page B7.

12. On the same day, 16th April, the goods were examined at the premises of the Sub-buyer initially by Wah Tai itself and subsequently by a Miss Wong Chun Kit of the Defendant's Shenzhen office. I was told that Miss Wong had prepared a report of her inspection on 16th April 1987. This report was never disclosed on discovery and an application to serve a hearsay notice in respect of it, out of time on the 5th day of the hearing and after the Plaintiff had closed its case, was not pressed. As a result of Miss Wong's findings Mr. Chan Hon Keung of the Defendant says he inspected the goods together with Miss Wong at 9:00 am on the 17th of Apri1. He told me in evidence that the results of his examination were as follows: Of the 600 odd slabs, 450 were found to be acceptable. Of the balance of 150 slabs, 90 odd had cracks, 20 or more were chipped, 10 or more had drill holes, 10 or more had unpolished surfaces and 20 or more had large black spots. He said he did not examine all the slabs because the Buyer found the balance of 450 or so to be alright. Mr. Chan Hon Keung said that he had made a rough note of his own of these findings but had discarded this because Miss Chan had already made her report. He said he went back again to the Shum woon Site on 18th of April together with Mr. C.H. Chow (DW3) for a further examination of the goods. Mr. Chan also told me that he was quite familiar with the manufacturing processes for granite and had experience in handling substantial quantities of granite slabs.

13. On 17th April 1987 the Sub-buyer Wah Tai wrote document D12-13 to the Defendant rejecting the goods. On receipt of this letter C.H. Chow visited the Shum Woon site on 18th of April and he told me in evidence that he inspected the goods slab by slab. He said he counted them and that there were 603 slabs there. His evidence as to the defects found coincided with that of Mr. than Hon Keung. He said there were about 90 slabs with cracks, 20 odd with chips, 10 to 20 with drill holes, 10 odd with unpolished surfaces. The balance had been put aside as not being defective. However he said that Mr. Cheung Wai Lam of Wah Tai scolded him severely and rejected the lot. Mr. C.H. Chow said he then instructed his office to pass this message to the Plaintiff; and to ask the Plaintiff to come to inspect the goods. Clearly the message that there were complaints got through to the Plaintiff but no one from the Plaintiff came to inspect until much later after litigation had commenced.

14. Since apparently doubts had been expressed by Wah Tai as to whether the goods were of Italian origin the Defendant sought and obtained from the Plaintiff a "Certificate of Origin". Mr. James To sent a certificate to the Defendant in draft form under cover of the fax at page D14 on 23rd April 1987 and Mr. Chow Kwok Leung asked his boss Mr. C.H. Chow to peruse it to see if it was alright, see page D15. In the event even though the Original Certificate of origin at C3 and D17 was shown to his Sub-buyer on 26th April 1987 he was still unwilling to accept the goods. Mr. Chow Chun Hing said he accepted Wah Tai's rejection of the goods because he knew that the slabs were to be used for a continuous facade in effect at the entrance to the building under construction and that the defects in effect rendered the goods unsuitable for this purpose. He says he told Chow Kwok Leung to inform the Plaintiff. However Chow Kwok Leung's evidence was that while he had chased James To to go to the site to inspect the goods on several occasions between 17th of April and 23rd of April he did not do so after that date. I am not satisfied that there was any purported rejection of the goods by the Defendant at any time prior to its telex of 1st May 1987, see document B9.

15. This telex was sent in response to the Plaintiff's telex of 24th of April (B8) chasing, for payment for the goods and threatening legal action if payment was not received of 27th April 1987. By its telex of 1st May 1987 (B9) the Defendant alleged that the goods purportedly delivered on 15th April 1987 were totally defective and gave a purported notice of rejection reserving its rights to claim damages. The Plaintiff's response at B10 was to state it was happy to take back all of the materials totalling 603 pieces but that if any were broken or damaged this would be on (sic) the Defendant's expenses. The Plaintiff also required the Defendant to bear all delivery and interest charges. By a further telex of the same day (B11) the Plaintiff agreed to take back the goods prpovided the Defendant delivered them to their godown within 3 days. The terms proposed by the Plaintiffs in their two telexes of 1st May 1987 (B10 and B11) were not acceptable to the Defendant who responded with its own telex at B12 indicating that legal action would be vigorously contested and with a counterclaim for loss and damage. It is unfortunate that the parties took up such entrenched attitudes so readily as it seems to me that if their respective stances had been less rigid and more constructive the defective slabs could possibly have been replaced from stock and this litigation avoided. As it is proceedings commenced shortly thereafter with the writ of summons in this action being issued on 3rd June 1987.

ACCEPTANCE

16. The first question for decision is whether or not the Defendant accepted the goods thereby losing its right later to reject and obliging it to pay the price.

17. Sections 36 and 37 of the Sale of Goods Ordinance are in the following terms:

"36. (1) Where goods are delivered to the buyer, which he has not previously examined, he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract.

(2) Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract.

37. The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or (except where section 36 otherwise provides) when the goods have been delivered to him, and he does any action in relation to them which is inconsistent with the ownership of the seller, or when after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them."

18. Thus under S.37 the Buyer is deemed to have accepted the goods if either :

1. He has intimated to the seller that he has accepted them or

2. Having had a reasonable opportunity of examining the goods, the goods are delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller or

3. When after the lapse of a reasonable time he retains the goods without intimating to his seller he has rejected them.

19. Did the Defendant Buyer intimate to the Plaintiff Seller that it accepted the goods. The Plaintiff relies upon the cargo receipt B7 which was signed by the Defendant's representative Chow Kwok Leung at the site on 15th April 1987 and which stated "received the above mentioned goods in good order and conditions". Mr. Chow says that he did not understand English and that these words were not translated to him, nor did he ask for them to be translated. He says that he asked for the crates to be opened for the inspection of individual slabs but that this was refused and that he therefore indicated he was taking the goods subject to later examination by the Sub-buyer. Unfortunately he did not qualify his signature on the cargo receipt on behalf of the Defendant in any way. For example he did not incorporate any endorsement in Chinese characters to the effect that the goods were only received subject to final examination. Not only did he not qualify the cargo receipt in any way, but he kept one of the originals as the Defendant's copy and passed this on to a Miss Tang in the Defendant's office on his return later that day. In addition, because the original cargo receipt signed by Mr. Chow on that day was not chopped it was arranged for it to be taken to the Defendant's office in Tsim Sha Tsui on the next day by Mr. Tang Chi Ho where the Defendant's Company chop was placed upon it as appears from document B7. Mr. David Wong the Financial Accountant of the Plaintiff also sent a copy of the original cargo receipt signed by Mr. Chow Kwok Leung to the Defendant together with the invoice seeking payment for the goods on 15th April 1987. Since Mr. Chow Kwok Leung was in charge of transportation at the Defendant Company I would have expected him to be very familiar with documents such as cargo receipts, delivery orders etc. It is of course extremely common for such documents to incorporate words to the effect that the goods are received in good order and condition. Mr. Chow says he made a report to his boss Mr. Chow Chun Hing on 16th April 1987 and gave him a full account of what had occurred. Yet there was no communication whatsoever from the Defendant to the Plaintiff to indicate that notwithstanding the words on the cargo receipt under Mr. Chow's signature that in fact the goods had only been conditionally accepted pending examination by the Sub-buyer at its premises.

20. I hold that by the act of Mr. Chow in signing and delivering the cargo receipt to the Plaintiff without qualification and by the Defendants failure thereafter in any way to resile from the terms of that cargo receipt that it thereby intimated its acceptance of the goods within the meaning of the first limb of S.37 of the Sale of Goods Ordinance. Having thus accepted the goods the Defendant was liable to pay the price for them and it is strictly unnecessary for me to consider the other 2 heads of circumstances under S.37 in which the Buyer may be deemed to have accepted the goods. However I am also of the view that the Defendant must be deemed to have accepted the goods under the second limb of S.37 in that it did an act inconsistent with the ownership of the Sellers after having had a reasonable opportunity of examining the goods to ascertain whether they were in conformity with the contract.

21. It seems to me that by transporting the granite slabs from Adige's premises at Lau Fau Shan to Shenzhen in the Peoples Republic of China and there handing them over to the Sub-buyer Wah Tai, that the Defendant was clearly doing an act inconsistent with the Plaintiff's ownership of the goods. However this of itself would not suffice unless there had been a reasonable opportunity in the Defendant of examining the goods, since this limb of S.37 is expressly made subject to S.36 of the Sale of Goods Ordinance. The position on 15th of April was that Mr. Chow Kwok Leung had gone to the Lau Fau Shan site with the express intention of opening the crates and looking at the individual slabs. He had the men and equipment to do so. Even though he could not examine the slabs prior to their being loaded on the lorries, this loading was completed by 11:30 am by which time the crates and loose slabs were in the Defendant's custody. Since the drive to the border from Lau Fau Shan would take less than an hour and since the Custom's Authorities were open until 8:00 pm it seems to me that there was ample time and opportunity for the Defendant to examine the individual slabs as had been Mr. Chow's intention on that day any way. Even if the goods could not have been examined there and then at Adige's site, and there is no evidence this could not have been done once the Defendant had taken delivery, the Defendant had its own premises in the vicinity at Yuen Long as appears from the Defendant's address in the contract at B3. Accordingly in my view the Defendant is also deemed to have accepted the goods under the second limb of S.37. I am also of the view that by not purporting to reject the goods until its telex of 1st May 1987 (B9) the Defendant had retained the goods after a lapse of a reasonable time without intimating its rejection to the Plaintiff Seller and thus is deemed to have accepted the goods under the 3rd limb of S.37 of the Ordinance.

22. I should mention here that Mr. So for the Defendant submits that I should construe the Plaintiff's telexes of 1st of May at B10 and B11 as amounting to an acceptance by the Plaintiff of the Defendant's rejection of the goods by its telex of 1st of Kay at B9. I do not so construe them. In my view they amounted to no more than an indication by the Plaintiff that it was agreeable to a return of the goods on certain terms. Those terms were unacceptable to the Defendant and were never agreed.

23. Clearly if the Defendant Buyer had still been entitled to reject the goods and had done so then, unless otherwise agreed between the parties, it was not bound to return the goods to the Seller but it would have sufficed if it had indicated a refusal to accept them; see S.38 of the Ordinance. However the Defendant no longer had the right to refuse to accept the goods on 1st May 1987 since it is deemed to have accepted them for the reasons I have dealt with above.

24. Thus I find for the Plaintiff on its claim for the price of the goods in the amount of HK$76,35l.45.

COUNTERCLAIM

25. The Defendant's Counterclaim complains that by reason of the defects in the granite slabs pleaded in its defence the Plaintiff failed to deliver granite of the "correct quality" and delivered granite of unmerchantable quality. Thus it says the Plaintiff was in breach of its obligations under the contract of sale and the Defendant was unable to fulfil its contract of subsale and was liable to its Sub-buyer for breach of contract. The Defendant therefore counterclaims for :

1.    Loss of profits on the subsale in the amount of $143,049.18.

2.    The sum of RMB31,297.50 as compensation paid to its Sub-buyer.

3.    Storage charges for the goods from 1st May 1987 at the rate of RMB30 per day.

4.    An unspecified amount of damages for "loss and damage to its goodwill in the trade in the PRC".

26. It seems to me this last heed of claim is untenable and was certainly not established in evidence. I will say no more about it. There was also a claim made for damages in the additional sum of RMB31,297.54 which was the amount of deposit paid by Wah Tai under the SubSale Contract which had to be repaid to Wah Tai after they had rejected the goods.

27. The first question for consideration under the Counterclaim is whether the Plaintiff was in breach of its obligations under the contract of sale. It is agreed that the sale was a sale by sample. That being so S.17(2)(a) and (c) of the Sale of Goods Ordinance provide as follows :

"(2) In the case of a contract for sale by sample-

(a) there is an implied condition that the bulk shall correspond with the sample in quality;

(c) there is an implied condition that the goods shall be free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample."

28. Section 13(3) of the Sale of Goods Ordinance provides :

"(3) Where a contract of sale is not severable, and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect."

29. As I have already held that the Defendant Buyer had accepted the goods prior to rejection by the Sub-buyer, any breach of condition under S.17 can only be treated as a breach of warranty, but if established this would entitle the Defendant Buyer to damages on its Counterclaim. Although the Counterclaim does not in terms complain of a breach of the conditions imported into a sale by sample in S.17(2) of Sale of Goods Ordinance it does incorporate paragraphs 2-17 of the Defence by reference and complains of failure to deliver granite of the "correct quality". Paragraphs 6(a) and (b) and 12(b) of the Defence specifically pleaded that the contract was a sale by sample and that the granite supplied did not correspond with the sample in quality by reason of the defects particularized. These defects were stated to be :

(1) lines of natural crack, both apparent and unapparent,

(2) drill holes at edges/sides,

(3) sides/corners being chipped off,

(4) lack of polishing.

30. Apart from some roughness to the edges of the sample Exhibit P1 it is correct that defects of the nature complained of did not exist in the sample. Thus if such defects existed to any extent more than de minimis in the bulk of the goods supplied then the Plaintiff was in breach of the condition implied by S.17 (2)(a) and also in my view in breach of the condition implied by S.17(2)(c). The next question therefore is did these defects exist in the good supplied by the Plaintiff.

31. I have to say at the outset that the evidence adduced in support of the case that there were such defects was most unsatisfactory. None of the defective slabs either in whole or in part was actually available for inspection by the court. There was no independant survey carried out, notwithstanding Condition 7 of the Contract (B3-4). There was not even any written report summarizing the actual defects found with a breakdown of the number of slabs involved, types of defect etc. On the other hand two sets of photographs were available which I was told showed the defects complained of in a number of the slabs. The first set of photographs at D25-39 showing such defects was taken by Miss Wong Kit Chun, an employee of the Defendant, on 15th May 1987 i.e. one month after delivery had been taken by the Defendant. Miss Wong was not called as a witness by the Defendant but Mr. Chow Kwok Leung was and he said he was present when the photographs were taken and that he personally examined the granite slabs on that occasion. In fact he said the photographs were taken to show the defects to the Plaintiff since the Plaintiff had not come to inspect for itself and was not represented at this inspection. He went through the photogiaphs explaining those which showed cracks, those with drill holes and those with chips. He said that out of the 603 slabs delivered, 153 slabs were not passed by the inspection 15th May 1987. Of these there were cracks in about 90, about 20 were chipped, 10 had drill holes, 20 had large scratch marks and about 10 were unpolished. The examination was done at Lam Tau district of Shum Chun City which was the site to which the goods had been moved at the end of April 1987 after they had been rejected by the Sub-buyer Wah Tai.

32. The other set of photographs at B14-37 was taken at a joint inspection on 23rd June 1988, over a year later and long after litigation had commenced. They were taken by Garfield Yip PW4 at the site of Lam Tau Electricity Supply Co. which is where the goods were then stored Mr. Yip agreed that when the goods were examined in June 1988 there were lines of lateral cracks found in the granite slabs, but said that the number of slabs with cracks was not as many as 90. However he said that they had only examined about 100 slabs and only a few had problems and that as to the rest they did not notice problems from the outside. He later said that if his memory was correct less than 10 of the slabs had cracks some of which were big and some small. He said that by "cracked" he meant that there was a real crack or the veins themselves had cracks. He went on to say that some of the cracks were natural and that strictly speaking after they had been manufactured they should have been rejected. He considered some of the cracks to be only very minor and to have been caused by handling. When asked about drill holes he expressed the view that these problems were there before delivery. Unfortunately again apart from a physical count of the granite slabs done by a solicitor who was present and which came to only 541, no report of the results of this joint inspection seems to have been prepared. None has been produced in evidence. Apart from the inspections and photographs taken on 15th May 1987 and 23rd June 1988 there was of course also the evidence of Mr. Chan Hon Keung and Mr. Chow Chun Hing of the state of the goods when seen by them on 17th and 18th April 1987. Thus to summarise the position, the evidence as to defects in the goods was as follows :

1.    The evidence of Chan Hon Keung and Chow Chun Hing of their personal physical examination of the goods on 17th and 18th April 1987 which I have summarised above.

2.    The fact of the rejection of the whole lot of 603 slabs by Wah Tai the Sub-buyer on 17th of April, see document D12.

3.    The fact that complaints regarding the goods were communicated by Chow Kwok Leung to James To of the Plaintiff within a few days of the delivery on 15th of April together with suggestions that the Plaintiff should send a representative to inspect.

4.    The evidence of Chow Kwok Leung as to his examination on 15th May 1987 and photographs taken on that date.

5.    The evidence of Garfield Yip that when he saw the goods on 23rd June 1988 there were defects in 10 or so of the 100 slabs examined i.e. about 10%

33. Faced with this evidence I am not prepared to takes the view that this is a concocted case on the part of the Defendant and that the defects were de minimis. I find as a fact that there were defects of the nature complained of in the Defence, that is to say cracks, drill holes, chipped sides and corners and lack of polishing; that such defects existed in a significant percentage of the slabs delivered i.e. more than de minimis and that by reason of such defects the Plaintiff was in breach of the conditions implied by S.17(2)(a) and (c) of Sale of Goods Ordinance. I further find that by reason of these defects the Defendant's Sub-buyer Wah Tai was entitled to and did reject the goods on 17th of April by reason whereof the Defendant has lost its profit under that sub-contract. I should add that the genuineness and authenticity of that contract of subsale was not in issue.

34. I should also mention here that one of the issues between the parties was as to whether the sample P1 had on it the label which is pleaded in paragraph 5(b) of the Reply and a copy of which is to be found at C9. The label reads:

"Since stone is a natural product, this sample is only to be considered as indicative. Natural stone is subject to chromatic variations outside any direct control of manufacturing process."

35. Mr. Yip's evidence was that this label would be on the back of all samples supplied by Adige and that he would never allow it to be taken off the sample. Mr. Chow Chun Hing says there was no label on the sample when he saw it or when he showed the sample to Wah Tai. The evidence as to this is inconclusive and not such as to enable me to find that in fact the sample had such a label on it when supplied to the Defendant. However I do not think that anything turns on the point because it is accepted that both the sale and subsale were sales by sample and Exhibit P1 was that sample. The disclaimer in the label extended only to chromatic variations, i.e. variations in colour and did not extend to defects of the nature complained of by the Defendant in its Counterclaim.

36. The Plaintiff clearly knew that the goods were purchased for resale to a Sub-buyer and that they were to be delivered to Shenzhen for this purpose. The Defendant claims the sum of $143,049.18 as its loss of profits on the subsale to Wah Tai. This figure is arrived at by converting RMB104,325 the sale price under the contract of subsale into HK Dollars at the rate of RMB1 to HK$2.10305 giving a figure of $219,400.63. Deducting from this the sum of HK$76,351.45 being the cost price of the goods under the contract of sale between the Plaintiff and the Defendant gives the loss of profit claimed in the sum of $143,049.18. The Counterclaim therefore succeeds in the claim for loss of profits in the sum of $143,049.18.

37. The Defendant is not entitled to recover in addition to this sum any part of the price of the goods that it may have had to repay to Wah Tai. The 30% deposit in the sum of RMB31,297.50 paid by Wah Tai to the Defendant when the Sub-Contract was signed was part payment of the price for the goods. It was refundable to Wah Tai when the goods were rejected by them. The Defendant is not entitled to receive both its loss of profit under the Sub-Contract and the price payable by Wah Tai if the subsale had gone ahead.

38. In so far as the claim to recover the compensation said to have been paid to Wah Tai by the Defendant in the same amount of RMB31,297.50 is concerned, I am not satisfied that the evidence adduced makes out a sufficient case in support of this claim. Mr. Chow Chun Hing said that this sum was paid to Wah Tai in. October 1987 in settlement of Wah Tai's claim against the Defendant. This sum represented 30% of the price of the goods under the Sub-Contract. There was no evidence as to how it was arrived at or what the actual loss of Wah Tai was or how it was calculated. There was no evidence as to the reasonableness of this payment in all the circumstances nor whether the compensation was paid on any advice. Compensation paid to Sub-buyers to settle their claims may be recoverable by the Buyer from the Seller if the Buyer adduces sufficient evidence to show that the settlement was reasonable. See Biggiri v. Permanite 1951 2KB 314. In my view the Defendant has not discharged the onus of proving this part of its Counterclaim.

39. In so far as the Counterclaim for storage charges is concerned this in my view also fails. I have found that the Defendant accepted the goods and was thus liable to pay the price for them. Consequently it was for the Defendant to do as it wished with them and the costs of storing them thereafter must be for the Defendant's own account.

40. In conclusion therefore I find for the Plaintiff on the claim for the price of the goods sold to the Defendant in the sum of $HK76,351.45. I find for the Defendant on the Counterclaim in the sum of $143,049.18. Thus there is a balance due in the Defendant's favour of $66,697.73. The Defendant will also be entitled to interest on this sum at the judgment rate from today but not to any other award of interest. I now have to deal with the question of costs.