Industrial Gifts Ltd v. William Choi and Others

HCA001193/1968

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 1193 OF 1968

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Coram: Pickering J.

Date of Judgment: 29 November 1969

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JUDGMENT

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1. This case concerns a device incorporating a black plastic cylinder into which a battery is fitted and kept in place by means of a plastic cap screwed on to the bottom of the cylinder. At its foot the cylinder is lined with a circular piece of metal and imprisoned between the metal and the inside of the plastic cylinder is the bottom end of a piece of wire which protrudes from the side of the plastic cylinder halfway up its length. At the side of the cylinder and covering the protruding wire is a clip similar to the clip found on a fountain pen. At the top of the cylinder there is a white plastic cube one inch-square containing a bulb. On each of the sides of the cube the word "Guinness" is printed diagonally in red and on the top of the cube the words "For Me" are similarly printed in black.

2. The device was described by a witness from Arthur Guinness Son & Company (Park Royal) Limited of London as an advertising gimmick for use in bars in England the intention being that when a customer had consumed a glass of Guinness he could clip the device to the side of his empty glass whereupon the metal strip would make a contact causing the bulb in the plastic cube to light up and after a few seconds to begin to flash in and out thereby indicating to the barman that another Guinness was required. Perhaps "gimmick" is an apt description for the device.

3. The plaintiff limited company has its registered office in England whilst the defendants carry on business in Hong Kong. By a contract in writing dated 13th September 1969 sent by the plaintiffs to the defendants and a document described as a "Confirmation of Sales" dated 20th September 1969 sent by the defendants to the plaintiffs, the defendants agreed to sell to the plaintiffs 100,000 of these devices known as "Guinness bar lights" for £3,629 3s. 4d. The sale was a sale by sample and it was known to the defendants that the plaintiffs intended to resell the goods. When the bar lights arrived in London they were inspected by the Industrial Officer of Holloway Sanatorium and subsequently by a firm of surveyors, Cargo Superintendents (London) Limited.

4. The plaintiffs alleged that the goods did not correspond with the sample in numerous particulars as, for example, that the batteries did not fit properly that the wire contacts were rusty or distorted, that some of the plastic cylinders were distorted so that the batteries could not be inserted, that the thread of a large number of base caps was crossed or stripped, that the printing on many of the lights was defective and generally that the goods were not reasonably fit for the purpose for which they were required.

5. The plaintiffs informed Messrs. Guinness that they were unable to perform any part of their contract for the resale of these goods to Messrs. Guinness and gave notice to the defendants that they rejected the goods. They now claim from the defendants $123,664.13 being the equivalent in Hong Kong dollars of the sum of £8,437 10s. made up as to the purchase price paid to the defendants (including an adjustment made due to the devaluation of the pound sterling), loss of profit on the resale to Messrs. Guinness, purchase tax paid in London upon the goods, interest, and bank, cable and forwarding agents' charges.

6. The defendants claim that the bulk of goods corresponded with the sample and that the goods were free from any defect rendering them unmerchantable which would not have been apparent on reasonable examination of the sample.

7. Following a Letter of Request the witnesses for the plaintiffs gave their evidence in London before an examiner. The defendants were not represented at this examination with the result that there was no cross-examination of any of the plaintiffs' witnesses. However there is upon the file a consent order to the effect that it be recorded that the defendants refuse to admit, for the purposes of the action, the truth of the statements in the certificate of inspection issued by Cargo Superintendents (London) Limited or the contents of a letter of the 1st February 1969 from Group Number 52, Hospital Management Committee, Southwest Metropolitan Region, both referring to alleged defects in the goods. Upon counsel for the defendants seeking to adduce evidence at the trial it was contended for the plaintiffs that it was not open to the defendants to adduce evidence in contradiction of that given in London relating to the alleged defects in the goods, for the reason that no cross-examination having taken place the defendants must be deemed to admit the facts alleged in evidence on behalf of the plaintiffs. Neither counsel could refer me to any definite authority for holding that in the absence of cross-examination of witnesses giving evidence de bene esse evidence could or could not be adduced in contradiction. The evidence given orally in London however was very largely in confirmation of the contents of the two documents to which I have referred above as not being admitted by the defendants. It appeared to me that despite their neglect to obtain representation at the examination in London, the defendants had, by obtaining the consent order I have mentioned, taken some steps to safeguard themselves against being deemed to admit the allegations of defects in the goods and accordingly I permitted evidence to be adduced on behalf of the defendants.

8. I will deal first however with the evidence given in London on behalf of the plaintiffs. This came from a Mr. Findon who is a Director of the plaintiff company, from Mr. Hampson, the Industrial Officer of Holloway Sanatorium where the goods were delivered for opening and insertion of the batteries within the plastic cases, from Mr. Tibble, an Inspector of the survey firm, Cargo Superintendents (London) Limited, and from Mr. Moore, the print manager of Messrs. Guinness.

9. Mr. Findon testified that following the receipt of a letter from Mr. Hampson of the Sanatorium where he inspected at least 12 dozen of the devices taking them from unopened cartons and found that contact wires were rusty, batteries oval in shape, and the lettering frequently blurred. Mr. Hampson inspected about 20% of the total number of cartons finding that the bulk of the devices were too small to accept the batteries, that base-caps were cross-threaded and damaged, contact wires rusty and batteries oval. Approximately 92% of some 1,600 devices examined by Mr. Hampson were said by him to be faulty. Mr. Tibble, having testified as to the "very excellent" packing of the consignment said he examined about 5% of the contents of those cartons which had not previously been opened and found rusty or missing wires, bent plastic bodies, burred threads on the base-caps and smudged printing. He added that the majority of the devices which would light up, went out again very quickly. Mr. Moore of Messrs Guinness gave evidence that even if the devices could have been put into correct order it would have then been too late for Messrs. Guinness who required them in connection with a particular advertising campaign which would have spent itself by the time repairs could have been effected. By that time the devices would have been useless to Messrs. Guinness and nobody else could use them because the word "Guinness" and a Guinness slogan appeared upon them.

10. Between February and August 1969 the condition of this consignment was the subject of correspondence between the plaintiffs and the defendants. On the 6th of February the plaintiffs wrote that they would reship the entire consignment to Hong Kong at the defendants' cost to which letter the defendants replied on the 9th February agreeing to accept the goods back and to make a "reasonable allowance" but with no admission of faulty manufacture. On the 14th of February the defendants wrote saying that they could not entertain the plaintiffs' claim but repeating their offer of 9th February and asking the plaintiffs to offer Messrs. Guinness a reasonable allowance in respect of the goods considered to be faulty. On the 8th of March the defendants offered to replace any faulty batteries returned to Hong Kong. On the 29th of April the defendants wrote offering to accept there turn of the whole consignment for rectification and to pay the ocean freight thereon. On the 3rd of August the plaintiffs' solicitors wrote to the defendants' solicitors in Hong Kong stating that the plaintiffs wished to know whether any steps could be taken to mitigate the damages they claimed. The letter asked whether the defendants had any use for the goods and if so whether they would be prepared to accept redelivery without prejudice to their position in the case and with a view to giving the plaintiffs credit for any value in the goods which the defendants could realise. The letter further inquired whether in the event of the defendants having no use for the goods they would be prepared to agree to the plaintiffs' destroying them so as to be able to reclaim purchase tax of $1331 1s. 6d. paid by the plaintiffs in England. To this letter the defendants' solicitors replied that as the goods had been sold by the defendants to the plaintiffs, the plaintiffs were at liberty to do whatever they wished with the goods. The particular importance of this enquiry as to the possibility of mitigating damages and of the reply to it, will emerge.

11. The case for the defendants was that the goods corresponded with the sample and that in any event the plaintiffs had failed to take reasonable steps to mitigate their damages.

12. Mr. Choi Kin of the defendants' firm said that he personally inspected about 200 of the devices at the factory where they were made and that generally he was satisfied at the end of the inspection that all the goods were all right. Apart from 4 or 5 contact wires which were not sited correctly and 4 or 5 Which were a little rusty he found nothing wrong with the selection which he inspected. This witness at first said that he could find no fault in any of the batteries returned from London but later agreed that some were flattened or oval. Of approximately 36 devices returned from England he claimed that only three were actually defective but admitted that all needed a little adjustment of the wire contact.

13. Mr. Wong Hing Lap, an inspector for the defendants' company, said that he made a thorough inspection of about 10,000 of the devices - a figure which I find difficult to accept because on the basis of a seven hour inspection it entailed inspection of one device every 2 1/2 seconds, a rate which I should have thought unattainable and certainly unsustainable. Of the "10,000", the witness found only 52 of the lights defective and these were repaired in his presence. At the time of the inspection by both Mr. Choi and Mr. Wong about 80% of the total of 100,000 lights ordered had been manufactured.

14. The weight which I attach to the evidence of these two witnesses must inevitably be lessened by the complete failure to cross-examine the plaintiff company's witnesses in London: but even if I were to give the fullest weight to their evidence and to the evidence of Mr. Lam Hang, the manager of the factory in which the devices were made, to the effect that it was impossible to produce distorted plastic bodies on the moulds used, the evidence of these three gentlemen could not withstand the impact of that given by Mr. Hampson and Mr. Tibble, two disinterested witnesses, and that of Mr. Findon whose reaction to the consignment was to tell Messrs. Guinness that the plaintiffs could not fulfil their contract with that company and to accept without equivocation the considerable loss of profit which this step involved.

15. I accept the evidence of the plaintiff company's witnesses in regard to the condition of these goods. I find that the bulk did not correspond with the sample and that the inspection made in Hong Kong by Mr. Wong and Mr. Choi was a much more casual affair than their evidence suggests. Indeed the attitude of the defendants to the claim has been somewhat negative throughout as evidenced by their failure to arrange for representation at the examination of the plaintiffs' witnesses in London and their subsequent failure, upon receiving the plaintiffs' very serious complaints about the order, to initiate any independent survey of the goods on their own behalf.

16. The defendants' attitude was equally negative when they were asked by the plaintiffs whether in order to mitigate damages, they, the defendants, could find any use for the goods. They did not reply in terms to this question but merely said that they had sold the goods to the plaintiffs who could do what they wished with them. In the light of this negative attitude it is somewhat surprising to find the defendants now producing a witness in Hong Kong who says that he is a partner in certain bars in Wanchai and that if there were any means of removing the existing printing on the cubes and substituting the name of one of his bars, he would be prepared to buy 10 gross of the devices at 30% each. This evidence was introduced in support of the suggestion that the plaintiffs had failed to mitigate their damages. There is no evidence before me that it is technically possible to alter the printing in the manner suggested or, if that be possible, of the cost of so doing. Moreover 10 gross is less than 1.5% of the consignment and the defendants, who are on the spot in Hong Kong but who failed to give the plaintiffs any assistance whatever in disposing of these faulty goods in Hong Kong, can hardly expect the plaintiffs, situated in London, to be aware of the possibility of hawking these inferior products in penny numbers around the bars of Wanchai. The plaintiffs invited the assistance of the defendants in mitigating damages and that assistance was not forthcoming. Thereupon the plaintiffs had the goods destroyed in the presence of a Customs Officer in order to mitigate damages by reclaiming the purchase tax paid. It has been suggested further that there was a failure to mitigate in that the plaintiffs did not approach Messrs. Guinness and ask them to accept a proportion of the goods. In this connection a figure of 30% was put forward this being the quantity which Mr. Hampson had reported in his initial letter to the plaintiffs as capable of functioning "after repeated checking of each one." Mr. Hampson however subsequently testified that 92% of the 1,600 which he inspected were faulty in one way or another. The mere fact that 30% would eventually function in the sense that they would light up, does not mean that that percentage was free of all faults. The goods were required by a very well-known firm in a specified quantity for a particular campaign and it was in no way incumbent upon the plaintiffs to press the acceptance of a substantially smaller quantity of sub-standard products (See James Finlay & Co. Ltd. v. Kwik Hoo Tong Handel Maatschappij⁽¹⁾. There is no substance in the averment that the plaintiffs have failed to mitigate their damage.

17. Despite the destruction of the goods in the presence of a customs officer, the purchase tax paid by the plaintiffs in England has not in fact yet been repaid. The explanation is contained in a letter from the Customs and Excise authorities addressed to the plaintiffs and dated 6th December 1968 which reads as follows :-

18. As has been related, there was no written consent of the defendants to the destruction of the goods nor have they credited the plaintiffs with, or repaid to them, the purchase price.

19. In the result there must be judgment for the plaintiff company in the amount claimed with costs. Mr. Lee for the defendants has suggested that the plaintiffs are not entitled to recover the sum of £221-7-0 which was the extra cost of the goods occasioned to the plaintiffs as a result of the devaluation of the pound, because this head of damage was not foreseeable at the date of the contract for sale. That argument fails for the reason that this loss to the plaintiffs results directly and naturally from the defendant's breach of contract. The additional sum was paid by the plaintiffs to the defendants at the latter's request and the plaintiffs have not recovered it from Messrs. Guinness or from any body else.

20. By consent the plaintiffs undertake to refund to the defendants (provided this judgment shall have been satisfied) the amount of any purchase tax paid in respect of these goods which shall be refunded by H.M. Customs and Excise Authorities to the plaintiffs.

Representation:

Judgment read out

Charles Ching (Peter Mo & Co.) for plaintiffs.

Martin Lee (Kho & Lo) for Defendants.

(1) (1929) 1 K.B. 400