Shanker Exports Ltd v. Hanny Electrical Co Ltd

HCA001272/1976

IN THE HIGH COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 1272 OF 1976

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Coram: Li, J. in Court

Date of Judgment: 30th June, 1977 at 3.30 p.m.

Present: Mr. C.Y. Lee (Hastings & Co.) for Plaintiff, Mr. E.C. Mumford (Samuel Soo & Co.) for Defendant

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JUDGMENT

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1. On the 1st of October, 1975 the plaintiff company contracted to buy 100,000 pieces of cassette tapes in the "Daichi" brand, 50,000 of which were to be shipped on the "City of Edinburg" on the 19th of October and another 50,000 to be sent on the "Tokyo Bay" to England on the 23rd of October. The sale was one by sample which was given by the plaintiff company to the sales representative of the defendant company, Bhatia.

2. The goods were not ready to catch the first shipment, namely on the 19th of October. On the 15th of October, 1975, with the consent of the parties, the contract was amended to the effect that the whole of the 100,000 pieces of cassette tapes would be sent on the ship "Tokyo Bay" on the 23rd of October, 1975. The goods were then shipped to England. But one day before the goods were delivered to the ship, the defendant company's Miss Cheung telephened the employee of the plaintiff company to inspect the goods the following day, that was on the day of the loading. Mr. Fung of the plaintiff company and Bhatia, the sales representative of the defendant company, went to the defendant's premises to inspect the goods at about 7 p.m., on the appointed day staying there for about one hour and inspected three cartons of the goods. They were satisfied that those three cartons contained cassette tapes in the "Daichi" brand and corresponded with the sample. The goods were then shipped to England and arrived in late November or early December with the shipping mark on the cartons "Donnington 2224/75 London". This is evident in exhibit 6. Perhaps I should add that the sample given to the defendant company was in exhibit 2. The above facts are not in dispute and they are common ground to both parties.

3. The plaintiff company allege that when the cartons arrived in England and were opened they found instead of "Daichi" or solely "Daichi" brand cassette tapes, there were other tapes of other brands. Some of them were marked "K.D.V." brand, some "Fliptape" brand with the address of "Fliptape Malory Batteries Australia Pty. Ltd. 3 Chilvers Road, Thornleigh N.S.W. 2120 Australia" and some were "Belsonic" brand, with the mark "Belsonic Senda Industries Ltd. Kobe Japan". As a result the sub-purchaser of the plaintiff company had to reject the goods or claim compensation. Eventually the sub-purchaser of the plaintiff company claimed compensation to the amount of $31,600. After some negotiation there was a settlement. It is this amount that the plaintiff company now claim from the defendant company.

4. The defence is one of general denial. It is pleaded that there was no complaint until March 1976. No admission is made that the sale was made by the plaintiff company to the Donnington Importers and Exporters Limited. Further it is pleaded that the goods had been inspected before shipment.

5. Despite the defence of non admission of the sale between the plaintiff company and Donnington Importers and Exporters Limited, it can scarcely be disputed now. Having heard the evidence I find that the sale did take place. Exhibit 7 is the sales contract between the plaintiff company and the Donnington at the c.i.f. price of $125,000 for the 100,000 cassette tapes.

6. The issue, therefore, is the goods that were found to be defective were sent by the defendant company or alternatively whether the defendant company sent these goods with defective labels, that is labels other than "Daichi" brand. The second issue in this matter is whether the settlement was a reasonable settlement.

7. Having considered the evidence as a whole and having observed and perused the documents, I accept Suresh Mulani's evidence that the goods having arrived in England, 15,000 cassette tapes were sold on the 9th of December, 1975 to the East London Fancy Goods Limited, 50,000 tapes were sold on the 12th of December, 1975 to the Jet Supplies and another 12,000 in different lots were sold on the 12th of January, 1976 to a firm by the name of Goklaneys. These sales were made at the price of 14 1/2 p. each. Further on the balance of probability I have come to the conclusion that the goods so delivered to the Donnington were the goods from Hong Kong and from the shipment marked "Donnin gton 2224/75 London".

8. I also find as a fact that upon arrival in England the goods were delivered in a container to the warehouse that was hired by Donnington Importers and Exporters Limited and deliveries to the various sub-buyers in England, namely, the East London Fancy Goods Limited, Jet Supplies and Goklaneys, were effected from the warehouse to the buyers without Suresh Mulani, the Managing Director of Donnington Importers and Exporters Limited, having seen them beforehand or the contents of the bulk having been examined at all.

9. When the cartons were opened there was a large quantity of the cassette tapes which were not labelled with a brand "Daichi" as substantiated by the evidence of Suresh Mulani. Complaints were received by Donnington before mid December. As a result Suresh Mulani had to investigate and find out what was in fact wrong with the cassette tapes. When he had ascertained the facts, he then informed the plaintiff company on or before the 19th of December, 1975. The plaintiff then passed on the complaint by telephone to the defendant company, to Miss Cheung and one Mr. Wong of the defendant company. The plaintiff company, who throughout acted through Lakhu Mulani, was told that he should get a survey report from London. Pausing here I would observe that this is at variance with the pleadings of the defence because in the defence it was alleged that no complaint was made to the defendant until the middle of March 1976. In fact complaint had been made sometime in December 1975 and the defendant oven went so far as to call for a survey report. However, owing to the slackness, I may say, or complacency on the part of Suresh Mulani, no survey was conducted until the 11th of February, 1976. He gave the explanation that it was over Christmas time and he was anxious to sell what was the balance in the godown or warehouse that had been unsold and he was anxious to make arrangement with the sub-buyers so that they would not reject the goods in total but would rather take some form of discount and sell the goods for him. It is true that only until the middle of March or late in March that the defendant company was furnished with the surveyor's report in exhibit 20.

10. Having regard to the report and Suresh Mulani's evidence, I am satisfied on balance that the goods that were found to have various brands other than "Daichi" brand were the goods sent from Hong Kong from the defendant's company and that there were a large number of other tapes with the brands other than the brand of "Daichi" as ordered by the plaintiff company. In this connection I have taken into consideration that indeed there was nothing to be gained by the defendant company by putting on different labels and I have also taken into consideration the evidence given by Miss Cheung, for the defendant company, that they never manufactured other labels like "Belsonic" or "Fliptape". However, I also have to take into consideration the evidence of Bhatia who was then the broker working for the defendant company, or a sales representative of the defendant company, who said that at the time when he canvassed business from the plaintiff company he had those labels with him and he knew that the defendant did make or manufacture other brands such as "Belsonic" and "Fliptape". I also take into consideration that inasmuch as the defendant company had to meet the deadline, to rush the order. This is a logical inference because they couldn't even fulfil the order to catch the first shipment on the 19th of October, 1975. Even a few days meant a lot to them. I would reject the evidence of Miss Cheung that there was actually no rush. Miss Cheung also gave evidence that she gave the packing orders so that there could not possibly be any mistake. However, giving packing orders is one thing. She did not say that she actually personally supervised the packing. Taking all these into consideration, I find it probable that, without any intention to cheat or without any motive for gain, the defendant company could put in the wrong labels on the tapes. Workers being workers, they could have put in wrong labels that were used before and rushed it in a rushed job. For these reasons I find, on the balance of probability, that the goods sent to England did contain cassette tapes with brands other than the "Daichi" brand. As such it was a breach of contract.

11. I also accept the evidence that Suresh Mulani, having sold the goods at 14 ½ p. each, subsequently had to reduce them to 11 p. each. I also accept that the packages were short in contents. That may or may not be the defendant company's responsibility because one of the cartons at least, had been broken. Taking into consideration of pilferage by wharfingers and seamen, this may not be the defendant company's responsibility. However, Suresh Mulani had to give a reduction in price from 14 ½ p. to 11p. and to dispose of the balance of 21,864 tapes at the price of about 11p. or 10 ½ p. as well. The loss then for the whole lot totalled about 350,000 pennies, equivalent to 350 pounds. Taking the rate of exchange in Hong Kong dollars at roughly about $10 to the pound at the time then prevailing the sub-buyers of the plaintiff company would have lost on capital, profit and expenses a sum total of 35,000 Hong Kong dollars.

12. The next consideration is whether the settlement at $31,600 was a reasonable one. In this respect I have accepted and found as a fact that the Donnington Importers and Exporters Limited had to give a discount from his normal selling price of 14 ½ p. which would be for the whole lot. The hoped-for price in all for the whole consignment of goods would be something like $145,000. He obtained in all $110,000. There was a difference of $35,000.

13. The settlement then was $31,600. I have to consider whether this compromise is a reasonable one. In considering this issue I will take into consideration that the Managing Director of the plaintiff company, Lakhu Mulani, and the Managing Director of Donnington Importers and Exporters Limited are brothers and that they did not definitely come to a settlement until the 27th of June, 1977, just before this case came on trial. However this figure of $31,600 was not raised in the morning of the 27th of June, 1977. As far back as January 1976 Donnington Importers and Exporters Limited had already indicated their claim for the loss and on the 16th of March 1976 they had already indicated their claim for the discount they had to give to their various buyers. This claim was passed on by the plaintiff to the defendant at 25% discount.

14. The letter written by the solicitor for Donnington Importers and Exporters Limited to the plaintiff company, exhibit 12, was passed on by the plaintiff company to the defendant company. By that time they had the surveyor's report, they had the letters of complaint from Donnington's buyers. There was no reply whatsoever by the defendant company. Miss Cheung's explanation was that she suspected the plaintiff company and his associates in London or business contracts in London were playing tricks on the defendant company. I do not think there is any evidence that they were playing tricks on the defendant company. The loss was a genuine one and the figure of 31,600 was short of the sum, that was lost to Donnington Importers and Exporters Limited. As such it appears to me to be reasonable.

15. The normal rule for a breach of contract was that damages would have been the difference between the normal sale price of the ultimate seller, or buyer, as the case may be, and the actual price obtained by the ultimate seller or buyer, because of the defects. This difference would be much more than what is contained in the settlement in this case. I had been asked not to follow the principle as laid down in Biggin & Co. Ltd. v. Permanite Ld. & Others, 1951, 2 King's Bench, 314. I have read this case before and when I re-read it, I find that the position and the principle is very succinctly put by Lord Justice Somervell who said:

"The law, in my opinion, encourages reasonable settlements, particularly where, as here, strict proof would be a very expensive matter. The question, in my opinion, is: what evidence is necessary to establish reas onableness? I think it relevant to prove that the settlement was made under advice legally taken. The client himself could do that, but I do not think that the advisers would normally be relevant or admissible witness. I say 'normally'. It may be that in special cases they might be. The plaintiff must, I think, lead evidence, which can be cross-examined to, as to facts which the witnesses themselves prove and as to what would probably be proved if, as here, the arbitration had proceeded, so that the court can come to a conclusion whether or not the sum paid was reasonable. The defendant may, by cross-examination, as was done here, seek to show - and perhaps successfully show - that it was not reasonable. He may do so, or call evidence which leads to the same conclusion. He might in some cases show that some vital matter had been overlooked."

I respectfully agree with this principle and accept the dictum as a correct guide as to what is a reasonable compromise.

16. In the present case I have accepted that the discount given by Donnington Importers and Exporters Limited to their own buyers was reasonable. It would be indeed a very expensive affair to go to investigate all these various sub-buyers of Donnington Ltd. as to how much they could fetch from the market for these cassette tapes with a different label other than that of the "Daichi" brand.

17. The defence had ample opportunity to cross-examine Suresh Mulani of Donnington. He has stood firm and he has established that the discount that was given to the buyers in England was 3 ½ p. each tape and that he suffered loss on that to the total of something like 350 pounds which he claimed from the plaintiff. What he claimed was not exactly the equivalent of 350 pounds. He was offered a smaller sum to the amount of $31,600 which to me appears to be reasonable. There is no evidence that such a sum was unreasonable. It may well be that they have settled the case between themselves just before hearing. It may be argued that it was a rushed decision. I do not feel that it was a rushed decision because the sum was mentioned as long ago as 16th of March, 1976, More than a year has elapsed and it was only the last moment that they have come to this settlement. For these reasons I find that the plaintiff company has prove his case and judgment in the sum of $31,600 will be given to the plaintiff with costs.

Representation:

Mr. C.Y. Lee (Hastings & Co.) for Plaintiff

Mr. E.C. Mumford (Samuel Soo & Co.) for Defendant