Ho Sze Leung t/a Dragon Knitters Co. v. Harbour Knitting Factory (Sued As a Firm)
Read the full judgment text of HCA 3626/1982 on BabelCite. This High Court CFI judgment.
1. This claim arises out of a sale by the defendants to the plaintiff of two knitting machines. The material facts as I find them, are as follows. Both plaintiff and defendant firms are knitting companies working principally as sub-contractors for garment manufacturers. Their work tends to be seasonal. During most of the high season, which runs approximately from March to September they are working non stop for three shifts a day. Things are much quieter during the remaining months, the low seas
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HCA003626/1982
Claim for specific performance of a contract for the sale of knitting machines. Breach denied by defendants. Held:-
IN THE SUPREME COURT OF HONG KONG HIGH COURT _____ BETWEEN
_____ Coram: The Hon. Mr. Justice Hunter. Dates of Hearing: 9th to 13th, 16th to 20th, 23rd and 24th January 1984. Date of Delivery: 28th February 1984 __________ JUDGMENT __________ 1. This claim arises out of a sale by the defendants to the plaintiff of two knitting machines. The material facts as I find them, are as follows. Both plaintiff and defendant firms are knitting companies working principally as sub-contractors for garment manufacturers. Their work tends to be seasonal. During most of the high season, which runs approximately from March to September they are working non stop for three shifts a day. Things are much quieter during the remaining months, the low season. But the three shift mode of operation continues, to protect the work force, and to maintain the working capacity needed during the high season. During the 1981/1982 low season the defendants decided to try to sell two of the machines in their possession. These were Schaffhouse Flat Knitting Machines Model DJFU/J-5 Gauge machines (the machines). The most significant aspects of this description were; first, the letter "J" which shows that they were of Swiss/Schaffhouse design but manufactured under licence in Japan; secondly, "5 Gauge" meant that the machines had five needles to the inch and were designed for use with the thicker and heavier yarn:what are sometimes called chunky knits. The machines were not the defendants property. They were held under a hire purchase agreement with Wayfoong Credit Limited (Wayfoong) which was not due to expire until April 1983. 2. The defendant firm is a family business. The only partner who gave evidence was Mr. Wong Kwok Hung (Mr. Wong). He emphasised that he was a practical man with little knowledge of, and apparently no control over the firm's finances. Such knowledge and control appears to have lain in his brother Mr. Wong Kwok Wai, Mr. Wong's wife and perhaps his mother. Mr. Wong told me that the defendants wanted to replace the machines with more modern computer controlled machines of the same gauge. The purpose of the sale was to create space for these new machines and monies for use towards the down payment on them. 3. Mr. Wong knew Mr. Ho, the proprietor of the plaintiff firm. Mr. Ho was then Looking for 5 gauge machines. He was being encouraged in this by Mr. Lam Wor, the Managing Director of Mintilex Knitters Limited and Yick Tung Knitting Co. Ltd. Mr. Lam gave evidence on subpoena. He controls a substantial manufacturing business. It was, he said, often more convenient for him to use sub-contractor knitters, and to be relieved of the problems associated with the provision of the necessary plant and Labour. For the year 1982 there was substantial demand for 5 gauge knitwear. There were then as I find only 7 DJFU/J 5 gauge machines in Hong Kong. One of Mr. Lam's usual sub-contractors, Sun Wah, owned four of these machines, but were fully committed. He wanted Mr. Ho to equip himself with 5 gauge machine so as to be able to execute his work. 4. It was in these circumstances, that after comparatively brief negotiations, Mr. Ho and Mr. Wong on 6th February 1982 agreed terms for the sale of the machines from the defendants to the plaintiff. Mr. Ho recorded these terms in Chinese in memorandum signed by Mr. Wong.In translation this reads as follows:-
After this agreement was made it is common ground:-
Both parties blamed the other for this. Each asserts that he was ready and willing to perform his contractual obligation whereas the other was not. 5. Before coming to this crucial issue of fact, I must first deal with a point of construction raised by Mr. Chain for the defendant. He founds upon the phrase "$40,000 cash payable before delivery",and took two points. First he urged me to hold that "before" meant some days before delivery, and in particular sufficient time to enable the defendant, with cash in hand, to settle with Wayfoong. I reject this as it would involve adding a fresh term to the contract. 6. Secondly he argued that "before" means before not "on or before"; that the only way in which Mr. Ho could satisfy this obligation was to tender $40,000 in cash, i.e. bank notes, before delivery; and being a condition precedent no obligation to deliver at all arose until he did so. I cannot accept this either. This is not a contract in writing: It is a memorandum of an oral agreement. It is clear from the parties' own evidence that they were not drawing any fine distinction between "before" and "on or before".The same character, properly translated as before, was also used in relation to delivery in both the original and amended document.Both parties' clear intentions were that the original and final dates for delivery were 16th and 28th February not 15th and 27th. In this context the word "before" was plainly used to record an oral agreement which might, more precisely, have been recorded as "on or before". This in my judgment is the proper meaning of the word "before" wherever it occurs. 7. Secondly there was in my view no intention to displace the prima facie effect of section 30 of the Sale of Goods Ordinance. The question as to who was "ready and willing" to perform his contractual obligations on or about 28th February is a pure question of fact, to the resolution of which the absence of any tender may be quite immaterial. 8. To this issue of fact I now return. Mr. Ho says that he was not only ready and willing to perform, but desperately anxious to take delivery. He agrees that he did not in fact offer Mr. Wong either a cheque or cash because on both delivery dates he found that the machines were in use; that nothing has been done by Mr. Wong to perform his initial delivery obligation, which was to remove the machines from the 20th floor of his building to the ground floor, and which involved the engagement of a contractor with the necessary equipment, and the removal of some windows and part of a wall; and that he was never in fact asked for any money. Mr. Wong simply fobbed him off with excuses and then avoided his telephone calls. 9. In support of this Mr. Ho was able to prove:-
10. By contrast Mr. Wong said that the defendants were ready and willing to deliver on both 16th and 28th February; had through a Mr. Shum arranged for the removal of the windows and had telephoned a haulage contractor; but went no further because despite repeated requests Mr. Ho never produced any money and asserted that he only had $20,000. Accordingly on 1st March Mr. Wong said that he told Mr. Ho on the telephone that the contract was at an end and that his $10,000 deposit was forfeit. Such discussions as took place thereafter between them were with a view to making a fresh contract on cash terms. 11. I am unable to accept this evidence. I prefer Mr. Ho's account to Mr. Wong's wherever they conflict. My reasons for so concluding are:-
12. On any view the contract was remarkably disadvantageous to the defendants. On 16th February, 14 monthly instalments of $8,195 totalling $114,730, were due to Wayfoong under the hire purchase agreement.These would have been covered by the $130,000, the 13 monthly instalments of $10,000, payable by Mr. Ho under the contract.Up till 7th February the defendants did not reveal the existence of this sale to Wayfoong, or of the hire purchase obligation to the plaintiff. If they had continued thus, they stood to gain space and $50,000 to use towards their propose new purchase from this sale. Despite his denials this is what I think that Mr. Wong must have intended to do. But with 'good reason this course was not acceptable to the financial controllers particularly Mr. Wong's brother and his wife. I think they saw the dangers to the defendants if it was followed. On 8th February in answer to a telephonic request, Wayfoong advised the defendants that the redemption figure under the hire purchase agreement, valid to 16th February, was $114,335:Properly to implement their contract with the plaintiff therefore the defendants had to find $65,000 from their own resources; then wait 6 months for its recovery from the plaintiff without interest; and then wait another 7 months before receiving a sum approaching the $60,000, I was told, was later required as a down-payment on a new machine. Mr. Wong had really no idea where this $65,000 was to come from, and his thoughts as to how it might have been raised were naive having regard to the time available. 13. Mr. Wong told me in cross-examination that he quarrelled bitterly with his brother over this transaction. "He just locked up the safe and would not pay a cent from the company's pocket. He was saying that the sale was going to cost the company money. I was foolish.. I could not handle a simple transaction like selling". Although he eventually admitted that he did not consult his brother or wife before making his contract with Mr. Ho, Mr. Wong asserted that it was not the making of the contract, but its failure in March, which angered his brother. This explanation is simply not credible. The successful cancellation spoken of by Mr. Wong could have caused his brother nothing but pleasure. 14. Mr. Wong's evidence left me with the very firm impression that those who controlled the money had told him that he had to extract himself from this unwise contract, because they either could not, or would not, put up the money necessary to redeem the machines from Wayfoong. Their failure to give evidence simply confirmed me in this view. On the evidence that I heard I could not possibly find that the defendants either had available, or were willing use, the $65,000 balance needed to discharge their obligations to Wayfoong. 15. This conclusion is supported by the parties' conduct in April and May. Frustrated by Mr. Wong's evasions, Mr. Ho, in a last attempt to fulfil Mr. Lam's contracts, consulted solicitors. On 13th April they wrote to the defendants seeking specific performance of contract. This letter did concern Mr. Wong. It brought home to him that Mr. Ho could not simply be fobbed off, and was seriously pressing for delivery of the machines on the contract terms. He tried to reconcile this claim with his domestic opposition.His and his wife's solution is to be seen in a document dated 14th May 1982 and addressed by the defendants to Wayfoong. It purported to record an agreement between the plaintiff and the defendants for the sale of these machines on the terms:-
16. There are three interesting features of this document.First the major variation from the original contract was (3).This sale would produce an immediate benefit not detriment to the defendants as the financing obligation was taken on by Wayfoong. This I am sure is what the financial controllers wanted; and what made the deal acceptable to them for the first time.Secondly Mr. Ho's obligation to pay the defendants $40,000 was changed only in timing. This made no sense at all if, as Mr. Wong asserted in evidence, it had been Mr. Ho's declared inability to pay this, which had wrecked the original contract.It was not asserted that any questions were asked by Mr. Wong or Mr. Ho about the availability of this sum at any time after 1st March.Thirdly it was not suggested that these terms were ever agreed by Mr. Ho, or that the document was even shown to him. 17. In the event on 15th May, Mr. Ho accompanied Mr. and Mrs. Wong to Wayfoong, and there submitted an application for a facility of $130,000. He did this because it then seemed the only way to get delivery of the machines.The parties had not started to agree upon what was to happen if the application succeeded.In fact it failed. 18. For these reasons my conclusion upon the question of fact, which is decisive of the issue of liability, is that it was the defendant who repudiated this contract by never being ready or willing to make delivery upon either material date.I therefore turn to he rather more difficult question as to the relief to which the plaintiff is entitled, and first to the facts. 19. In March and April 1982 Mr. Ho investigated the availability in the market of other 5 gauge machines. What emerged in evidence as to this, especially from Mr. Ho Ting Cheung (Mr. Ho T.C.) of Win Win Industrial Co. Ltd. was that one had first to distinguish between Swiss and Japanese made machines. Swiss machines had been used particularly in Europe for some years. At that time a new machine cost over $200,000. Second hand machines were available at perhaps half this, in Europe.But they were usually nine or ten years old, and in very uncertain mechanical condition. Mr. Ho T.C. described such a purchase as "most foolish". His firm were the agents for the Japanese machines in Hong Kong and China. They carried the trade name Tristar to distinguish them from the Swiss machines. They were so much more recent in origin, that Mr. Ho T.C.'s firm did not deal in second hand machines (save exceptionally on a trade-in) and there was no market. Of the five other known 5 gauge machines in Hong Kong, it did not appear that any was available for sale. So the only machine available for purchase in the summer of 1982 was a new Tristar. Being new, such machines were likely to be in better condition than the defendants' machines, which were manufactured in 1980.They were appreciably more costly. The price for one of these, quoted to Mr. Ho on 22nd March 1982 by Eastern Gate Limited, the other large market supplier, was the yen equivalent of $198,750. In contrast Mr. Ho T.C. said that his firm's price range at this time was $150,000/$160,000. 20. The writ in this action, claiming specific performance, is dated the 6th May 1982. After a hitch while the Wayfoong application was made and failed, the plaintiff issued a summons under O.86 r.1. Sensibly in face of the defendant's affirmation in opposition, this summons was not pursued. Then in recognition of the fact that there was no immediate prospect of obtaining delivery of the machine, on 24th September 1982 the plaintiff did two things. First he surrendered the lease of the new factory unit; and secondly he amended the Statement of Claim to add an alternative claim for rescission and damages.On 20th October 1982 after the end of the high season, the defendant offered to sell the machines to the plaintiff for the original contract price payable in cash, and with substantially the same terms as to delivery. But this offer gave no credit for the deposit of $10,000 and required the plaintiff "to withdraw" the action "with no order as to costs". This made the new price substantially more than the old. The plaintiff cannot be criticised for rejecting this offer. He in fact made no other attempt to enter the market or further to investigate it. Twelve months later in the autumn of 1983 production of the 5 gauge Tristar ceased. 21. What production was lost to the plaintiff, and gained by the defendant, from the two machines during 1982 is much more difficult question to answer.Certain things are clear. Fashions change, and during 1982 chunky knitwear was in. There was a substantial volume of work available for 5 gauge machines not least from Mr. Lam's company. In addition to the two orders I have mentioned the plaintiff received a third order from the same company and a fourth from another company. The plaintiff, of course, failed to fulfil any of these orders.Mr. Lam was very unhappy about this and at the difficulties in which the plaintiff put him.He has not placed an order with the plaintiff's since, and in the witness box reserved his right to sue. I desire to record that I have not taken this contingency into account, and adjourn this aspect for further consideration should it ever arise. Mr. Ho made it clear that his purpose in buying was to cash in on this particular rise in the market, if he possibly could. 22. So work was available but the financial consequences are by no means clear. I have four different figures two from the plaintiff and two from the defendant. None is wholly satisfactory or convincing. They were:-
23. In these circumstances the first question is whether the plaintiff is entitled to a decree of specific performance or whether in the words of Sachs L.J. in Evans Marshall & Co. Ltd. v. Bertola (1973) 1 W.L.R. 349 at p.379 the plaintiff should "be confined to his remedy in damages". In support of this claim, Mr. Yu relies upon the absence of any available market for second hand Tristar Machines, and their complete non-availability now. The only way in which the plaintiff can be put in the same position as if the contract had been performed, he submits, is to give him this relief together with compensation for his lost of trading profit for nearly two years under section 54 of the Sales of Goods Ordinance.Alternatively he claimed damages in lieu of specific performance which since Johnson v. Agnew (1980) A.C. 376 he submits fall to be assessed in the same way as common law damages. 24. I agree that there was at no time an available market within the meaning of section 53(3) of the Ordinance. Any common law damages assessment has therefore to be made under section 53(2) and upon the nearest equivalent or best available principle, see Benjamin's Sale of Goods, 2nd edition paragraph 1381. I agree also that this gives rise to difficulty. But this was the sale of two profit making chattels then in regular production for the purpose of their being exploited for profit. It is very far from being a sale of some unique chattel or heirloom which itself has some special intrinsic value, and from the circumstances where it has been the practice of the Court to grant specific relief, see Benjamin paragraph 1450 where the authorities are collected. If damages, however estimated the assessment has to be, are not "adequate" in this case the same could be said in a vast number of cases. Further the grant of specific relief would not avoid one of the most difficult damages aspects which is continuing loss. In my judgment this is the case for damages not specific relief. 25. The next question. is at what date should such damages be assessed. "At what date" in the words of Oliver J. in Radford v. de Froberville (1978) 1 All E.R. 33, 56, "could the plaintiff reasonably have been expected to mitigate the damages by seeking an alternative to performance of the contractual obligation?" Ought the plaintiff to have gone into the market in the autumn of 1982, or was he reasonably entitled to await the trial and see whether specific relief was granted to him. In this respect I think the chancery practice on the sale of land is more favourable to the plaintiff than the common law commercial practice. But the latter principles govern and lead to the conclusion that the remedy is in damages. In all the circumstances I think that the plaintiff ought to have gone into the market in the autumn of 1982, and that it is at this time that the damages fall to be assessed. It was then clear that the plaintiff was not going to get quick delivery of the machines. He had lost the 1982 season and unless he entered the market he would loose the 1983 season as well. I cannot regard it as reasonable for him to do nothing, and still look to the defendant for his lost profit in 1983. 26. How then are these damages to be measured? In the absence of an available market Mr. Chair suggested that 1 adopt exclusively a loss of profit calculation.But he was unable to suggest any rational or acceptable time limit to this and I must reject it. It seems to me that there must be two elements in the assessment namely:-
(1) The starting point here has to be the price of a new 5 gauge Tristar. This was the nearest equivalent within the principle of Hinde v. Liddell (1875) L.R. 10 Q.B. 265. I shall take this as $160,000. Two adjustments are arguable: one down to allow for "new for old": and one up to cover financing or hire purchase charges which the plaintiff might have incurred but which were not payable under the contract. The former is understandable and might appear to have the support of Goff L.J. in Intradex v. Lesieur (1978) 1 L.L.R. 509, 519. But these observations were made in the context of a hypothetical better quality article, which the buyer would the have for re-sale, and which was correspondingly calculated to yield a higher price. These new replacements would have been bought for use and would have yielded no more than the contract machines.They could not be bought at a lesser price in fact, and to allow some estimated reduction is really to create a fictitious market for second hand machines when none in fact existed. Financing charges would be equally estimated and conjectual. I think the only fair solution is to reject both. Under this head I will allow $70,000, i.e. $160,000 - $90,000 per machine, and assess damages at $140,000. (2) On loss of profit I have to assess a figure per machine per day, which I think would realistically have been attainable overall from 1st March 1982 until 31st December 1982, the date by which on my assessment the plaintiff ought reasonably to have taken delivery of two new machines. The period covers 7 months when work would, I think, have been freely available and three potentially poorer months. On the available evidence I think that a fair figure to allow is $250 per machine per day. This produces $7,000 per 28 day month and $7,000 for ten months. The total for two machines is $140,000. 27. Again this I think it is right to make an allowance for the depreciation which would nave been suffered on the machines had they been delivered and operated to produce this result. I do not think that the defendants can object, if, for this purpose, I use their own rate of 5% p.a. as shown on their 1982 accounts. 5% of $180,000 for ten months is $7,500. I shall therefore allow under this head $132,500. 28. I accordingly assess the plaintiff's damages in the total sum of $272,500. The $10,000 deposit retained by the defendant must be added to this, and judgment entered for the plaintiff in the total sum of $282,500.
Representation: Benjamin Yu instructed by M/s Day & Co. for Plaintiff. Benjamin Chain instructed by M/s H.M. So & Co. for Defendant. |