Graniteville Trading Ltd. v. Licfond Weaving Factory (A Firm)

HCA001680/1988

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

Case No: 1988 No. A1680

Between

Coram: Deputy High Court Judge Findlay, Q.C.

Date of hearing: 21 March 1990

Date of handing down of judgment: 27 March 1990

Mr Louis K.Y. Chan, instructed by Messrs Poon and Cheung, for the plaintiff.

Mr Wong Lake, proprietor of the defendant, was unrepresented.

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JUDGMENT

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The Facts and Pleadings.

1. The plaintiff entered into two contracts, in July and August 1986, with the defendant in terms of which the defendant was obliged to supply to the plaintiff 300,000 yards of fabric at US$1.09 per yard and 450,000 yards of the fabric at US$1.07 per yard. Of this total of 750,000 yards, the defendant supplied only 100,000 yards on or about 12 January 1987.

2. The plaintiff alleges that this failure to deliver was in breach of the contracts, and it claims damages and a declaration that it is entitled to an indemnity from the defendant against its liability to customers to whom it agreed to supply the fabric.

3. The defendant raises only one substantive point in his defence. He says that, before the signing of the contracts, he agreed with Mr Philip Tse, an agent for the plaintiff, that the letters of credit due under the contracts must be issued within 14 days of the signings. He alleges that he made known to Mr Tse that the defendant would only purchase the USA quota category for the purpose of making delivery of the fabric after receiving the letters of credit.

4. The defendant says that it was a condition precedent to his liability to supply the fabric that the plaintiff would open the letters of credit as agreed, and, despite 'repeated requests', it failed to do so. For this reason, the defendant says, he was entitled to treat the contracts as discharged, and, in or about early December 1986, he told Mr Tse that he chose to rescind the contracts.

5. The defendant admits that he supplied 100,000 yards of fabric on or about 12 January, but says that this was 'delivered ... purely out of business goodwill and on an ex-gratia basis.'.

6. The defendant also counterclaims for HK$325,000 loss of profits by reason of the plaintiff's breach.

The Evidence.

7. Mr Ching Wai Chung and Mr Tse Wong Chui gave evidence on behalf of the plaintiff. They acted as agents for the plaintiff in negotiating the two contracts concerned.

8. Mr Wong said that Mr Ching was also involved in the agreement to the effect that the letters of credit would be supplied within 14 days of the signing of the contracts. Both he and Mr Tse denied this alleged agreement, saying that the usual term that the letters of credit would be supplied 30 days before delivery applied.

9. Mr Ching identified a series of communications between his company and the defendant, from 20 December 1986 to 17 September 1987, in which Mr Ching and Mr Tse pressed Mr Wong to honour his commitments under the contracts. There is nothing at all in the communications from the defendant in which he maintains the case he advanced to me. In fact, on 10 April 1987, Mr Wong sent a telex to the plaintiff in which he mentioned some difficulty in the transfer of a quota to him and said that he was rearranging the quota in order to ship the goods.

10. Mr Wong also gave evidence. He said that the plaintiff did not supply the letters of credit when he says it was agreed the plaintiff would do so. He also explained that the reason why he could not deliver under the contracts was because he had been let down by someone from whom he had agreed to buy a quota before signing the contracts.

Assessment of the Evidence.

11. I accept the evidence of Mr Ching and Mr Tse, and reject Mr Wong's evidence that there was an agreement to supply the letters of credit within 14 days of signing the contracts. I also reject the defendant's case that it rescinded the contracts in December 1986. I do not believe Mr Wong was telling me the truth, and his version is contrary to the written exchanges between the parties and the probabilities. It is not credible that either of the parties would have acted as they did - that is, with the plaintiff demanding performance and the defendant, at times, not responding at all, or, at other times, making promises and rendering partial performance - if it was the plaintiff who was in breach, if the defendant had rescinded the contracts in December 1986 and if, from that time, the defendant felt under no contractual obligation to make delivery. The story that emerges sharply from the written communications is one of the plaintiff seeking to insist upon its rights, and of the defendant recognising those rights, but having difficulties in meeting them.

12. I have no hesitation at all in finding that the plaintiff has proved its case.

Damages and Indemnity.

13. Clearly, the plaintiff is entitled to damages arising out of the defendant's failure to deliver 650,000 yards of fabric.  These damages may include damages and costs for which the plaintiff is liable to customers to whom the plaintiff sold the fabric. It seems that the plaintiff is not able to this stage to know whether it will be liable for such damages, or is unable to quantify them. That is why, I assume, the plaintiff asks for an indemnity in respect of these damages and costs.

14. I am not at all sure that I can award damages to the plaintiff and grant the indemnity, which, in the absence of an agreement to indemnify, is a claim for additional damages in another form. There may be authority for this course, but I do not know of one.

15. I should say here that my uncertainty is due to no fault of Mr Chan. It became clear during the course of the trial that the plaintiff was in financial difficulties, and both I and Mr Chan were anxious to avoid increasing the costs by allowing the trial to go into another day.  For this reason, I told Mr Chan, late in the day, that I did not wish to hear an address from him, so that the trial would not have to resumed the next day.

16. I must confess that I am also confused by the plaintiff's allegations as to the quantum of the loss of profits.  The fabric under the first contract was purchased from the defendant at US$1.09 per yard and resold at US$1.25 per yard, but only US$0.06 per yard for loss of profit is claimed. Under the second contract, the fabric was purchased from the defendant at US$1.07 per yard and resold at US$1.25 per yard, but the loss of profit is assessed at US$0.04 per yard.

17. These loss of profits are, of course, part of the damages suffered by the plaintiff, and I can ignore the difficulty mentioned if I can assess the damages otherwise. The plaintiff does not seek relief solely on the basis of loss of profits; it also claims damages in addition and in the alternative.

18. The evidence of Mr Ching is that, as at the end of April 1987, the market price of the fabric concerned was not less than US$1.85 per yard. Mr Wong does not dispute this. In fact, his evidence is that the market price at that time was probably higher than this.

19. The difference between the selling price and the market price at the time of the agreed delivery, or, if the time for delivery is extended, as it was in this case to about the end of April 1987, the market value at that time, is the ordinary measure of damages. Damages on this basis should, in the ordinary course, cover the plaintiff's liability to its own customers because those customers should have bought in at about that time.

20. Accordingly, I assess the plaintiff's damages at the difference between US$1.09 and US$l.85 (US$0.76) per yard for 200,000 yards and the difference between US$1.07 and US$1.85 (US$0.78) for 450,000 yards, which amounts to a total sum of US$503,000.

21. I grant judgment in favour of the plaintiff against the defendant in the sum of US$503,000, but, in case the plaintiff wishes to argue the matter of the claim for an indemnity, I give leave to the plaintiff to apply accordingly by notice given within 10 days of the handing down of this judgment.  If no such notice is given, this award will become final.

Counterclaim.

22. It follows from my findings that the defendant's counterclaim should be dismissed, and I so order.

Interest.

23. The plaintiff is entitled to interest on the award made from 1 May 1987, and I so order.

Costs.

24. On the face of it, the plaintiff is entitled to its costs on the claim and counterclaim, and I make an order nisi accordingly.

Representation: