Holiday Products (HK) Ltd v. Polyproducts Industrial Co (A Firm)
Read the full judgment text of CACV 30/1974 on BabelCite. This Court of Appeal judgment.
2. The action arose out of a contract under which the Plaintiffs agreed to supply to the Defendants plastic bottles for a detergent which the Defendants desired to place on the market. There was a dispute as to the quality of the first consignments of bottles under the contract and the Defendants declined to take further deliveries. They demanded the return of the moulds which they had supplied for the use of the Plaintiffs, but the Plaintiffs refused to return them unless the Defendants paid fo
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CACV000030/1974 IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO. 30 OF 1974 (On appeal from O.J. 1797/72) -----------------
----------------- Coram: Briggs, C.J., Huggins & McMullin, JJ. Date of Judgment: 12th November 1974. ----------------- JUDGMENT ----------------- Huggins, J.: The appeal is against the judgment on the Defendants' counterclaim, whereby it was ordered that the Plaintiffs pay to the Defendants damages in the sum of $22,714.75 and further that they return the moulds claimed by the Defendants or pay $6,000 in lieu. The order then reads "the difference in cost of up to 34,000 bottles if it is beyond 36% each to be proved before the Registrar". There was no order for payment of any difference proved, although the judgment of the learned judge would appear to show that he intended so to order. 2. The action arose out of a contract under which the Plaintiffs agreed to supply to the Defendants plastic bottles for a detergent which the Defendants desired to place on the market. There was a dispute as to the quality of the first consignments of bottles under the contract and the Defendants declined to take further deliveries. They demanded the return of the moulds which they had supplied for the use of the Plaintiffs, but the Plaintiffs refused to return them unless the Defendants paid for all the bottles which they had manufactured. The Plaintiffs sued for the balance of the moneys to which they said they were entitled. The counterclaim was for damages for breach of contract and for wrongful detention of the moulds. 3. The Defendants now complain that the judge limited the damages for detinue to $6,000, which in any event was payable only if the moulds were not returned. The contention is that the claim was unlimited and that the Defendants are entitled to damages in tort for loss of profits. Such damages, it is said, exceed the damages for loss of profits which are recoverable for breach of the contract. All this can be quickly disposed of. The wrongful detention was alleged in para: 13 of the Defence and Counterclaim and the particulars of damage there given made no reference to loss of profits. It is true that in the prayer, which was typed as though it were part of the particulars of damage alleged under para. 13, "damages for detention" were sought in addition to "return of the said moulds or their value in the sum of "$6,000", but even so no mention was made of loss of profits. Damages for loss of profits up to the date of the action were special damages which required to be pleaded specilically: Re Simms 1934 1 Ch. 1. Counsel for the Respondents asserts that he had no idea loss of profits was claimed under para. 13 and it is significant that the learned trial judge appears to have been unaware that loss of profits was claimed otherwise than as an item of damages for breach of contract, and that is no doubt why he emphasised that the Plaintiffs could not recover compensation for loss of profits beyond such profits as were referable to the bottles to be supplied under the contract. Be that as it may, the Defendants are bound by their pleading and they were awarded all that they claimed in respect of the wrongful detention of the moulds. 4. The major part of the appeal relates to the Defendants' contention that they should have been awarded compensation for loss of profits for breach of contract. Counsel for the Respondents resists this contention first on the basis that, having obtained a judgment for damages assessed upon a loss of capital, the Appellants are not entitled to recover compensation for loss of profits in addition. Secondly it is argued that in any event the Appellant had not established a loss of profit. The learned judge thought that both those arguments were sound and made no award in respect of loss of profit. As to the first he said:
He relied upon Cullinane v. British "Rema" Manufacturing Company Limited 1953 2 All E.R. 1157. That was a case where the plaintiffs purchased from the defendants a productive machine whose performance was not equal to that warranted. Lord Evershed, M.R. observed that a claim for loss of profit "could only be founded on the footing that the capital expenditure had been incurred". In the present case the judge first considered whether a loss of profit had been proved and, having held that it had not, went on:
Although this suggests that if a loss of profit had been proved the capital expenses might have been recoverable in addition, I do not think that is what the learned judge intended to convey. Nor do I think it is a material distinction that we are not here concerned with the purchase of a productive machine but only with a container for a product which the Defendants sought to put on the market for sale: even in such a case a loss of profit could only be founded on the footing that the capital expenditure had been incurred. It follows that the Defendants could not recover both in respect of loss of profit and for loss resulting from capital expenditure. Since the judge held that no loss of profit had been proved, one of the alternative bases for the claim disappeared and no difficulty arose. Since the Defendants were not required to make an election, however, I am not sure that they would now be precluded from arguing in this Court that they had established a loss of profit and from claiming damages based on that loss rather than upon the loss resulting from their capital expenditure, but they are not entitled (as they seek) to an award for loss of profit in addition to the judgment which they in fact obtained. 5. As to the appeal against the decision that there was no evidence of a loss of profit the judge said:
Counsel suggests that this rather cryptic sentence shows that the judge was under the impression that in the absence of evidence of existing business there could never be sufficient evidence from which to estimate a loss of profit: an estimate based on evidence of anticipated sales was not justified. This passage is certainly open to that interpretation but, reading the judgment as a whole, I have come to the conclusion that that was not what the learned judge meant: he was saying that he did not believe the evidence of anticipated sales and that in the absence of evidence of past profits he was not satisfied that the Defendants would have made a profit. The evidence which was disbelieved was in two parts: first there was evidence that three wholesalers had agreed to take specific consignments of the Defendants' product and secondly there was evidence of what quantities one of those wholesalers could be expected to be able to sell to his retailers. The judge did not make this distinction and seems to have rejected both parts of the evidence. Counsel for the Appellants submits that his clients had done all that they reasonably could and that the judge was wrong to take such a negative attitude. No goods having been produced the agreements between the Defendants and the wholesalers were necessarily for future goods but the evidence was that firm agreements had been made. There was no such evidence relating to retail sales and the judge obviously doubted whether retailers would buy the goods and whether the public would take them up if the retailers did buy them. All this was based on his own assessment of the degree of gullibility the consumers would show. Whether or not this amounted to his substituting his own opinion for the evidence, he was under no obligation to believe the evidence. However, the vital question was whether the judge believed the evidence of the sales to the wholesalers, because it was from such sales and not from retail sales that the Defendants would make their profit. The judge expressly said that he disbelieved Mr. MacDougald's evidence on this matter, although he appears to have done so more by reason of the absence of documentary evidence in support than by reason of any intrinsic incredibility. Be that as it may, I do not think it is open to us to hold that the judge was not entitled to conclude that a loss of profit had not been proved. 6. The damages of $22,714.75 which the judge awarded were based upon capital expenditure by the Defendants in favour of the Plaintiffs ($9,034) and expenditure on the design of the bottles ($12,000 and $1,680.75). It is now common ground that the figure of $9,034 included a sum of $6,000 paid for the making of the moulds and that that sum was not recoverable. On the other hand, the Defendants contend that they should have been awarded advertising expenses amounting to $36,351 which were claimed by an eleventh hour amendment in the court below. It is submitted that these were promotion costs not taken into account in ascertaining whether there was a loss of profit and that they are recoverable separately. I suspect that this part of the claim was made as a result of dicta found in the judgment of Hallett, J. in FoaminoI Laboratories, Limited v. British Artid Plastics, Limited 1941 2 All E.R. 393. As I understand that case Hallett, J. found that the plaintiffs had incurred advertising expenses and other expenses relating to the promotion of their product. It was argued that in calculating their loss of profit they ought to include a proportion of those expenses as referable to the sales which would have been made if the contract had been duly performed. The learned judge did not think it would be fair to make any deduction at all in favour of the defendants upon this ground because in the normal course, "when the plaintiffs ultimately made up their accounts, [the cost of this advertising] would be spread over the total of their sales, and certainly would not be attributed exclusively, or even mainly, to the original sales". However, it was further argued that the promotion costs were recoverable as a separate item of loss because they were expenses which, had they stopped to think about it, the defendants would have realized would be thrown away entirely, because they were incurred in creating a demand which by reason of the defendants' breach of contract the plaintiffs were unable to meet: in the event a further advertising campaign would have been necessary when the plaintiffs were in a position to supply the goods. The learned judge appreciated that he was in substance allowing the plaintiffs the benefit of these expenses twice over, but he thought that that was not unfair. With respect to him I doubt whether the difficulty of apportioning the expenses between the initial sales and anticipated future sales was sufficient reason for ignoring all the promotional costs in assessing the loss of profit, although it might be possible to ignore them on the principle do minimis non curat lex. In the present case the likelihood of continuing sales was clearly, in the opinion of the learned judge, small. Nearly the whole of those expenses would, therefore, have been deductible from any loss of profit proved, but as no such loss was proved anyway the point is academic. However, I accept that the whole of the promotional costs were, for the same reasons as those stated by Hallett, J., recoverable as a separate item of loss. This means, in effect, that I think the learned judge's finding that the costs of advertising were not "in the contemplation of" the parties was a wrong inference from the evidence. The judge did not say upon what he based his finding and it seems to be implicit that he thought all advertising costs would be too remote, because he has not allowed even part of the claim in respect thereof. That, in my view, cannot be right. I appreciate that there might be a case where the plaintiff incurred, in promoting his product, advertising expenses which were out of all proportion to the sales which he was reasonably entitled to expect. If the learned judge had allowed some advertising expenses but found that this was a case where some of the expenses actually incurred were unreasonable I might have felt bound to accept the latter finding. As it is, I think with Hallett, J. that reasonable advertising expenses ought to have been within the contemplation of the parties if they thought about the matter at all and, in the light of modern business ethics, I am not persuaded that the expenses claimed were unreasonable. 7. On the Respondents' cross-appeal it was argued that the Defendants failed to mitigate their loss by securing the return of the moulds by paying the Plaintiffs' claim, which amounted to only $8,170.08. For my part I think that is an amazing argument. The result of the action demonstrates that the Plaintiffs' claim to that sum of money was totally unjustified. Why should the Defendants be required to meet one unjustified claim by the Plaintiffs in order to mitigate their loss from another unjustified act of the Plaintiffs? The law required them to act reasonably and could not force them to submit to what might possibly be blackmail. 8. In my judgment the award of $22,714.75 should be reduced by the agreed sum of $6,000 and increased by the sum of $36,351, making a final figure of $53,065.75. 9. There is then the submission that the judge was wrong to award the Defendants only 10% of the costs of their counter-claim. It should not be overlooked that the Defendants were awarded their costs on the claim. We do not have any statement by the judge as to his reasons for making the order he did, but counsel for the Respondents suggests it was "because the basis of the counterclaim was totally wrong". That seems to me to put the matter rather high. The Appellants were successful in their claim in detinue to the limit of their claim and they have now obtained a judgment for over $50,000 damages for breach of contract. Accepting that they failed in their claim to loss of profit I think it was unreasonably harsh to deprive them of 90% of their costs of the counterclaim. The difficulty is that we are told that counsel for the Defendants in the court below not only did not oppose such an order but appeared to concede that it was fair. Be that as it may, it is not submitted that the order was a consent order and we should consider ourselves free to do what the justice of the matter demands. Reluctant as I am to interfere with the judge's discretion I would substitute an order that the Defendants recover 50% of their costs in the court below and I would award them 75% of their costs of the appeal. 12th November 1974. Representation: IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO. 30 OF 1974 (ON APPEAL FROM O.J. 1797/72) -----------------
----------------- Coram: Full Court (Briggs, C.J., Huggins & McMullin JJ.) Date of Judgment: ----------------- JUDGMENT ----------------- McMullin J., : The defendant company (the Appellant in the present appeal) is the brain-child of Mr. Charles Macdougald. Before establishing this company he had been employed as head of sales in a company called B.C.I. which itself had been set up ostensibly for the sole purpose of marketing a liquid detergent which was to be called "Outa-sight". None of this product was ever put upon the market and, according to Mr. Macdougald, the whole venture was a fraud in which he and some other luckless salesmen had been innocently involved to their own detriment. However, profiting by this experience and by the insight he had gained into the workings of the detergent market, he formed his company in the belief that the public could be persuaded by legitimate pressures of advance publicity and sales promotion to purchase at $5.80 per bottle a cleansing liquid which was, in chemical composition, virtually indistinquishable from another detergent then being sold by its manufacturers in bottles of comparable size at a price of $1.80 each. 2. Mr. Macdougald made no secret of the fact that the only significant difference between his product and the product of various other manufacturers in the field in Hong Kong lay in the concentration of the fluid. He was satisfied however that this prodigy of marketing could be achieved by the application of sophisticated sales techniques involving, primarily, a softening of public sales resistance by a vigorous promotional compaign prior to the appearance of the product. The principal message of this campaign was to be the announcement of the new product as the first "multi-purpose detergent", a notion which, if accepted by the public, would justify the high price being asked for it. The B.C.I. product, which had never reached the market, had been given a publicity fanfare centred upon the very same theme and numbers of distributors had, it would seem, been prevailed upon not only to pay for the delivery of quantities of that material, which in the end were never delivered, but also to believe that the public would accept it at a price of no less than $12 per bottle. 3. Mr. Macdougald was, of course, at pains to stress that whereas the B.C.I. campaign had been brillicantly successful in promoting the image of its new product the product itself had never been put to the test because of the unscrupulous behaviour of its promotors who had left the Colony with the money collected from the distributors without leaving a product to distribute. He, on the contrary, proposed to employ those same techniques to the honest end of enriching himself and his associates by the actual sale of a product which the public could be persuaded to regard as different from and superior to anything else of the same nature currently available on the market. He would certainly not have agreed with the poet's answer to the question: "What's in a name?" In his view the image was all important. The name of the image was "multi-purpose" and around that image the artfully assembled accidents of perfume, colour, shape of bottle and style of legend were mere superficies designed to fix in the housewife's mind the conviction that she was acquiring at a bargain price a single substitute for many different products. 4. To this end, between August 1971 and January 1972, an intensive advertising and market research campaign was mounted involving the services of two separate agencies viz. : Far East Marketing Limited and Far East Advertising Limited. It was as a result of the enquiries and advice of the former company that the price of the product was fixed at $5.50 per bottle. Meanwhile, in December 1971 the Appellant had entered into the contract with the Respondents (the plaintiff company in the action) out of which the action arose. This was a contract for the supply of plastic bottles to contain the new detergent. At the Appellant's request the Respondents made a set of moulds for for the maunfacture of the bottles. They were also given instructions by the Defendant as to the "logo" or format of the lettering, symbols etc. composing the legend to be printed on each bottle. 5. Between the 21st of December 1971 and the 18th of January 1972 the Respondents, pursuant to the contract, delivered some ten thousand of the bottles to the Appellant. Even before the actual process of distribution to the retailers had commenced many of the bottles were found to be defective in that the liquid appeared to seep through the plastic causing the bottles to sweat and the lettering on the outside to come away upon contact. After distribution commenced many such bottles were returned by retailers. Mr. Macdougald complained at once upon perceiving these defects and various unsatisfactory remedial measures were suggested and tried. Eventually he refused to take delivery of the balance of the bottles and he also demanded the return of the moulds but this was refused and he was thus unable to put his business in the hands of an alternative supplier. It was not until the 22nd of May 1972 that he was able to come by an alternative source of suitable bottles and by that time his various distributors - all of whom had been engaged upon a commission basis, having bought themselves into his "pyramidal" sales organisation - finding themselves without a product to sell had abandoned the venture. By this time Mr. Macdougald's company was in serious financial straits. It had ceased to advertise and, to use his own words: "At this stage the company was only trying to stay alive by putting a product on the market or by putting a product on the shelf. It was placed in the stores without advertising, without promotion and without marketing. In short it was a last ditch effort." This product, the same liquid as had received the advance publicity, although somewhat diluted, was then being sold at $1.50 per bottle. 6. The Respondent-firm sued in the District Court for the price of the undelivered balance of the bottles a sum which, giving credit for moneys paid over by the Appellant under the contract, came well within the jurisdiction of that court. The Appellant pleaded breach of contract and detinue of the moulds and counterclaimed for damages in both contract and tort in sums exceeding, in total, $300,000. The case was transferred for trial to the Supreme Court. 7. The learned trial judge found that the bottles delivered to the Appellant had been defective and that there had been a total failure of consideration on the part of the Respondents. He dismissed the Respondents' claim with costs and that order has not been challenged upon this appeal. He also found that the moulds had been wrongfully detained and ordered their return or alternatively a sum of $6,000 by way of damages in lieu thereof. We understand that the moulds have since been returned to the Appellant. He also made an order which neither of the parties had sought awarding to the Appellant a sum to be calculated by the Registrar on the basis of the difference - if any - between the cost of the bottles ordered by the Appellant from the Respondents and that of the bottles eventually procured by the Appellant from the alternative source. This unsolicited order is the sole matter raised in the Respondents' first notice filed under Order 59 rule 6 paragraph 2. The Appellant does not seek to uphold it and nothing more need be said of it save that it must be set aside. 8. Substantially, the contest upon appeal has been concerned with the award of damages made in favour of the Appellant upon its counterclaim. The appellant had claimed damages as follows:
9. The actual sum awarded to the Appellant under its counterclaim (leaving aside the order, now set aside, for the sum to be assessed by the Registrar) was $22,714.75. That figure is made up as follows:
A very much larger figure had been claimed under this item but the judge disallowed the bulk of that claim as not being expenditure directly connected with the design of the bottles and his finding has not been challenged in this court. 10. What the Appellant asks us to do is to increase the award (a) by giving it damages for loss of profits, which the judge declined to do; and (b) by ordering payment of $36,351 claimed in respect of the services of the advertising and marketing companies. 11. In their second notice filed under Order 59 rule 6(2) on the same date as their first notice, the Respondents sought to support the award on the additional ground that the Appellant ought to have mitigated its loss by paying the Respondents outstanding claims in order to secure the return of the moulds. This point was urged before the trial judge who rejected it. I need only say of this that, in all the circumstances I have no doubt that he was justified in doing so. 12. In the same notice a point is made, in relation to the pleadings, which touches upon one of the central issues in the appeal. This is the question whether, if the Appellant is not entitled to recover everything which it claims in contract, it may nevertheless do so on the footing of its claim in tort or partly on the one footing and partly on the other. What is said, in effect, is that the Appellant's claim for consequential damages should be considered only in relation to the alleged breach of contract pleaded in the counterclaim and that the money aspect of the claim in tort (detinue or negligence) must be restricted to the sum claimed in lieu of the return of the moulds i.e. $6,000. For my part I regard this contention as more formal than substantial. It is true, that, as set out in the Appellant's counter claim, the intention might be said to be least ambiguous. Paragraph 13 relates solely to the matter of the moulds which are said to have been wrongfully detained and it is then said that the Appellant had suffered loss and damage thereby. Immediately after that particulars are given of the damage in these terms: "Value of the moulds $6,000". There follows the prayer to the counterclaim generally in which, under paragraph 13, the return of the moulds, or their value in the sum of $6,000, is sought and in addition damages for their detention. Although it is true that the particulars of loss resulting from the detention of the moulds conspicuously fails to mention consequential damage in addition to the cost of the moulds themselves, yet, in the light of the wording of the prayer, I feel compelled to regard that as an immaterial oversight on the part of the pleader which cannot have left his opponents under the illusion that nothing was being claimed in tort for consequential loss. Although, unlike the consequential loss pleaded and quantified in relation to the paragraph dealing with breach of contract, the loss was not quantified, yet something was clearly being sought by way of damages for the detention over and above the value of the property detained. 13. Mr. Wei, who appeared for the Respondents, told us that it was only when counsel addressed the court at the conclusion of the evidence that he was made aware that the Appellant was claiming in detinue anything more than the return of the moulds or their value in cash. He said that he might have fought the case differently if he had been, from the outset, aware the damages claimed under paragraph 13 were intended to refer to consequential loss. This damage, he said, if it had occurred at all was of the nature of special damages and should have been so pleaded. We were referred to a passage in McGregor on Damages, 13th Edition where that proposition is supported by reference to the decision of the Court of Appeal in Re Simms(1). No doubt it is true that normally a loss of business profits should be specially pleaded as a consequential loss in tort but the reason for the rule is that if not so pleaded the opposite party may be taken by surprise at the trial. Here there were claims in tort and contract and the case was that it was the combined effect of the breach and of the detinue which occasioned the whole of the consequential loss. 14. Although strictly speaking the Defendant should have claimed and particularized consequential loss in paragraph 13 in addition to the $6,000 claimed in lieu of the return of the moulds I am disposed to believe that this oversight is not fatal, since the prayer to the counterclaim asks for damages under paragraph. 13 in addition to those particularized in that paragraph. Although I recognise the force of this formal objection I would prefer to say that insofar as it may have been necessary to plead lost profits as special damages in detinue that, in effect, has been done since the quantified figure of lost profits claimed for breach of contract (i.e. $170,294) in pragraph 11 of the counterclaim is equally applicable - although not stated - to the damages for detinue generally claimed in paragraph 13. This is so since the sole effective cause of all loss to the Appellant was the failure of its venture. The cause of that was the absence of merchantable bottles between the 21st of December 1971 and the 22nd of May 1972 and that in its turn was due to the Respondents' double default: its failure in contract relating to the supply of bottles compounded by its delict in relation to the moulds. If, that is to say, the Appellant had suffered a loss through the Respondents' failure to supply bottles it was the same loss, neither more nor less, which resulted from the Respondents' action in preventing the Appellant from acquiring bottles from another source. 15. If therefore such potential losses are to be regarded as special damages the principle upon which the courts refuse to consider them unless specially pleaded can scarcely be said to apply in the present case. I find it difficult to believe that the Respondents were taken by surprise by the claim for consequential loss resulting from the Respondents' tortious act since they must have been aware that, by detaining the moulds, they had effectively paralysed the Appellant's business for such time as would be required to procure new moulds and furnish them to some other company. The letter, exhibit 10B, written by the Respondents to the Appellant on the 22nd of February 1972 makes it quite clear that the Appellant regarded the return of the moulds as essential to the procurement of bottles from another source and that its whole business depended on securing bottles for its product. Since the moulds were never returned before action the nature and period of continuance of consequential loss following the failure to deliver good bottles can scarcely be otherwise than type and extent of the loss resulting from the refusal to return the moulds. The breach of contract and the subsequent act of detinue are equal and essential contributory factors to the loss specially pleaded in contract. The Respondents should not have been in any doubt either as to the nature or the extent of the consequential loss which was being claimed under paragraph 13. 16. The real substance of the Appellant's case upon this appeal is to be found, as I see it, in the contention that the trial judge had overlooked the fact that there were claims both in tort and contract before him. I am not persuaded to the view advanced by Mr. Eddis in support of either of the other propositions with which the argument was largely concerned and which I will deal with briefly before turning to the first point. 17. The learned trial judge, relying principally upon the decision of the Court of Appeal in England in the case of Cullinane v. British "Rema" Manufacturing Co.(2), held that the defendant was not entitled to recover both the anticipated profits lost through the plaintiff's breach of contract and also the expenses attributable to the capital outlaid upon the venture to the extent that they were rendered futile by the breach. Mr. Eddis attacks this conclusion from two directions. Firstly, he asks us to apply the reasoning of Halle at J. in Foaminol Laboratories v. British Artid Plastics(3), a case which is strikingly similar to the present case in as much as it concerned a contract for the sale of containers which were intended for the marketing of a new product, a cosmetic cream for summer use, the market for that product being lost through the failure of the defendant company to deliver the containers in time for the summer season. Breach of contract was admitted and an award was made in favour of the plaintiff in the sum of $119 15s. 2d. which included sums for loss of profits and for expensed incurred in a special advertising campaign. I confess I do not find the reasons given for that award very clear and moreover the learned judge himself expressed initial doubts about the propriety of the course he eventually adopted. He appears to appreciate that he was in effect giving twice over the expenses for advertising but he thought it proper to do so on the ground that such expenditure was not intended to promote only the initial sales. The real point in issue, and in this I agree with the editorial note to the case, appears to have been whether the claim was one for damages for loss of reputation. In so far as I understand the distinction which Hallett J. drew between initial sales and all subsequent sales I feel it is too arbitrary a rule to be readily applicable in all such cases. In any event, I find it difficult to see how that decision on the present point can stand together with the decision in Cullinane's case which was moreover a decision of the Court of Appeal and I am satisfied that the judge in the present case was right to follow the latter decision. 18. At any rate the point could be of importance only if Li J. had been put to the necessity of deciding whether it was proper for him to give something for loss of profits as well as for expenses or of choosing which to give. Such considerations never arose because he found, in effect, that the Appellant's evidence was insufficient to establish with any degree of certainty what the profits, if any, would have been. Having considered that evidence in detail he said:
19. This finding is itself the ground of the second of the propositions which I think must be rejected viz. : that the evidence as to the saleability of the product should have been accepted. I think it was clearly open to the learned trial judge to find that the estimate of sales was entirely speculative in the sense that it could (as he later put it): "only be described as a fervent hope on the part of Mr. Macdougald". It would, indeed, want a good deal in the way of solid and persuasive evidence to convince any judge that a new name and a sales campaign was likely to persuade any sizeable section of the public to pay three times as much as it was wont to pay for such a common household perquisite as a cleaning liquid. It is true of course that by virtue of his method, which Mr. Macdougald regarded as an honest version of the notorious "pyramid" sales procedure, orders had been solicited and accepted by certain middle-men who were to act as his distributors and, by analogy with his experience with B.C.I., it was in view in view of his success in persuading these distributors to accept the product that he was estimating the prospects for the success of the project at large. If the project was going to be an honest one however and if it was not intended simply to scoop up the moneys contributed by the middle-men, as seems to have happened in the case of the B.C.I. product, his product was eventually going to have to prove itself by its performance on the shelves of retailers. But there is where the evidence most signally failed. I do not mean to say that such a project could never succeed but only that the evidence indicating its prospects of success must be sound. In the present case, apart from the confident opinion of Mr. Macdougald himself, there was only the evidence of Mr. Bell, who was one of Mr. Macdougald's distributors, coupled with the very tepid advocacy of Mr. Riddle the supermarket manager and the only one of the three with any claim to be a detached source of information concerning the prospects of the product at the love of the actual consumer. Mr. Riddle could only say that, because of the intense advertising, he had the impression that the product would sell and that there would be a demand for it when public interest caught on. He had some of the bottles on his shelves for three or four weeks before they were withdrawn by the Respondents and in that time only about one dozen had been sold. It is noteworthy that he did not say that the slow demand was to be attributed to the condition of the bottles. This product, it should be remembered, was later marketed, in a diluted form, at $1.50 per bottle. The market research expert employed by Mr. Macdougald was not called as a witness although it was alleged by Mr. Macdougald that it was as a result of that research that the price was $5.50 was settled upon. In short the evidence on the record is feeble and unconvincing and the learned judge who saw the witnesses' evidence evidently found it so. 20. There is no doubt, however, that Mr. Macdougald's project, whatever its intrinsic merits or its initial prospects of success, was, in the event, totally frustrated by the behaviour of the Respondent firm. In failing to supply adequate bottles and in preventing the acquisition of suitable substitutes the Respondents struck directly at the heart of a scheme which leant so heavily on speed and novelty in the announcing and marketing of the new cleaner to stimulate demand. If Mr. Macdougald had hoped by sheer marketing technique to ignite a prairie fire of enthusiasm for his product then not even his least scrupulous competitor could have hit upon a tactic more exactly calculated to put it out. No doubt that was not the result of calculation but in effect that is what the Respondents' act accomplished. And what failed was precisely the scheme as originally planned. The Appellant company still exists and at the date of the hearing in this action it was still producing and marketing a detergent but it is abundantly clear that the notion of marketing a multi-purpose, high-priced cleaner has been totally eclipsed by these events. Perhaps it will be resurrected perhaps not. For the moment at any rate it has been abandoned. 21. It is in view of this fact that I believe that Mr. Eddis has a point of substance when he says that the trial judge overlooked the double nature of the claim. It was associated with an argument of less merits which perhaps I should deal with. I cannot accept the suggestion that, the claim being in detinue as well as for breach of contract, it is possible for the Defendant to recover damages both for lost profits and capital expenses. Mr. Eddis advanced the argument that damages in detinue are properly to be assessed upon a pore stringent test than applies in case of breach of contract and he referred us to the decision of the Court of Appeal in the English case of Strand Electric and Engineering Co. Ltd. v. Brisford Entertainments Ltd.(4) in which the court allowed the full market rate for hire of certain electrical switchboards, which had been wrongfully detained, for the whole period of their detention without deducting anything for the possibility that they might, for part of that period, not have been on hire had they been in the owner's possession. The court resorted to an analogy between claims based on the market rate for hire of such chattels and cases involving claims for mesne profits. The suggestion, as I understood it, was that while it might be necessary, in considering lost profits under the claim in contract, to deduct certain of the necessary marketing expenses inherent in the carrying on of the trade, yet no such considerations need impede the court in awarding full loss of profits resulting from the tortious acts of the Respondents as distinct from their breach of contract. I cannot say that I find that decision helpful. The issue counsel was then dealing with was whether damages might be awarded both for loss of profits and for capital expenses end nothing in the Strand Electric case or for that matter in any of the other cases referred to in the course of the argument, seems to me to support such an idea. I can see no reason to make a distinction between tort and contract claims so far as the principle in Cullinane's case concerned. Regarded from either standpoint the claim for expenses rendered futile whether by the tort or by the breach of contract should be regarded as alternative to the claim for loss of profits. Again, however, it is necessary to remember that, in any event, the loss of profits claim was dismissed. 22. Turning finally to deal with the award which was made in respect of expenses, or capital outlaid upon the venture, I believe that Mr. Eddis has a valid point when he complains that the distinction between claims in tort and in contract was overlooked. The learned trial judge seems to deal with the matter as a pure question of contract and he found that the "huge expenditure involved in the marketing research as well as the advertising need not be within the contemplation of the plaintiff company". I would not dissent from that view and, were the question to be disposed of solely be reference to the principles relevant in the law of contract, I would regard the finding as unassailable. I do not understand the trial judge to say that such expenses could never, as a matter of law, be within the contemplation of the parties but only that they were not so in the circumstances of the case before him. That seems to me to be well justified as a finding of fact. It is true that he emphasizes the exceptional nature of the expenses involved in the advertizing campaign in reaching his conclusion. If that were the only reason for believing them to be out of contemplation it might be said that he ought in logic to have allowed something upon that head, sealing down the award to such figure as he deemed to be a proper outlay. The true reason, as I see it, for his making no award whatsoever is that, on the circumstances before him, it was not possible to say that the advertisement expenses had been thrown away as a result of the breach of contract. They were thrown away because the Defendant's scheme collapsed and the effective cause of that was not the failure to deliver proper bottles but that failure coupled with the Plaintiffs' refusal to render up the moulds. The collapse which followed upon that refusal was itself the result of the delay in getting the product to the market promptly on the heels of the publicity campaign. It was precisely because he was considering the matter solely as a question of contract and because the contractual situation of the Defendant had been complicated by the supervening tort that it was not possible for the trial judge to say, as Hallett J. felt able to say in the Foaminol case, that the loss of the advertizing expenses was a direct and foreseeable consequence of the failure to supply containers. It is only thereafter that I think, with respect, he went astray. 23. The total failure of the project, depending as it largely did on the success of the publicity campaign, can be attributed equally to the plaintiff company's tortious act as to its failure in contract. It was therefore appropriate to have regard to the basic principle underlying awards of damages in tort. That principle, as I understand it, is best expressed in the traditional maxim "restitutio in integrum which is to say that the victim of a tortious act is not limited to recovering compensation only for such consequences as fall within the second rule in Hadley v. Baxendale(5) but may ask to be restored to the position he enjoyed prior to the wrongful act or, in other words, to recover everything thrown away as a result of that act. What was within the contemplation of the parties is not a relevant consideration when one is considering the consequences of the wrongful detention of a chattel. It has been said by one academic writer that the unlawful detention of goods being a tort of strict liability the defendant is ex hypothesi liable even for unforeseeable damage. (McGregor's "Damages", 13th Edition at page 388). If that proposition is correct it may be that neither of the rules in Hadley v. Baxendale(5) applies in such cases of tort. That question does not now arise. The question at this point is not either: did the parties contemplate that failure to perform would entail loss of such degree as that which actually occurred? or, would any reasonable person understand when entering into a contract that that degree of loss must in the normal course of things follow upon the failure to perform? The question here is, rather, : what expenditure, already incurred at the date of the refusal to return the moulds, must now be regarded as totally lost through that act? Had the trial judge not found that the lost profits were largely illusory he might reasonable have awarded a figure of damage in respect thereof, but then, conformably with the principle in Cullinane's case he would necessarily have had to deduct the promotional costs. He did not so find and in giving the Appellant its expenses he ought, in my view, to have given all the promotional expenses. 24. In my view therefore the Defendant was entitled to recover all the expenses of the advertising campaign and, albeit by a somewhat different road, I am drawn to the same conclusions as my brother Huggins. I would allow the appeal to the extent that the award should be increased to $53,065.75. I am also of the opinion that the Defendant should have half of the costs of the action and three quarters of the costs of the appeal.
Representation: (1) (1934) Ch. 1. (C.A.) (2) (1954) 1 Q.B. 292 (C.A.) (3) (1941) 2 All E.R. 393 (4) (1952) 2 Q.B.D. 246 (5) (1854) 9 Ex. 341 |