Chinachem Investment Co Ltd and Another v. Henry Chue

HCA002497/1980

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

AND BETWEEN

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Coram: The Hon. Mr. Justice Hunter.

Date: 19th July, 1983.

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JUDGMENT

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1. On 10th December 1982 I gave judgment on the issues of liability in this case, and for the defendants on their counterclaim. I have now to assess the defendants damages. Here three contentions issues arose namely:-

As to (1)

2. The defendants' final damages computation is set out in the purple amendment to paragraph 30 of the Further Re-amended Defence and Counterclaim. The defendants' method of computation was not seriously challenged. What was disputed was the overall result and particularly:-

(a)     The defendants produced an analysis of what was said to be actual expenditure on site at Shatin. It appears on page 9 of D6. The figures fall into two groups, the time dependent and the directly proportional. In the time dependent group fall the principal items of direct labour costs, vehicle and loader hire, and site overheads which are another example of labour costs. From his Shatin experience Mr. Chue claimed to be able to derive a realistic monthly cost. This he multiplied by 18 to represent the 18 months he contended that the job ought to have taken. He then divided the product by 250,000 to give a derived cost per cube.

3. The validity of this approach depended upon two things, namely the reliability of:-

(1)    The 18 months calculation is based upon what is said to be a realistic estimate of the crusher's production capacity. There is no clear evidence that this rate was achieved by the defendants at any other site. It is not claimed at Coffee Bay. It was claimed for limited periods at a MTR site but none of the documentation which would approve or disprove this has survived. It is in no way supported by any of the events at Shatin itself. The agreed contractual period was two years. A substantial onus therefore lies upon the defendants to prove that they would have beaten this pre-contract estimate by any substantial margin. In my judgment this the defendants have failed to do and the damages here must be calculated upon the contractual two year figure.

(2)    This problem is created by the gaps in the defendants' documentation. They have only been able to produce and have produced their surviving ledger sheets. These give an incomplete record of the company's affairs. No accounts or balance sheets and particularly no audited accounts or balance sheets have been produced at all It is therefore impossible to check whether the entries in the Shatin ledger sheets were complete and whether Shatin expenditure had been properly appropriated to that project. At the last minute and after the closure of the defendants' case, the plaintiffs obtained and proffered figures obtained by Mr. McGrah from the present manager of a Government quarry. But it soon became apparent that these figures were not only very late and wholly second-hand, but that they amounted to an attempt to compare chalk with cheese. They were really of no help at all and I have to assess the defendants' figures on their own merits as best I can.

4. On this basis it seems to me that the Shatin documentation is sufficiently complete to enable me to derive the following monthly cost figures namely:-

Taking a production of 250,000 cube over the 24 month period, these figures produced costs per cube of $1.52 : $3.26 : $0.82 respectively for these items. These total $5.6.

5. The other figures in paragraph 30 are said to be directly proportional. I have been troubled most by that for repair and maintenance which itself contains a large estimated content. But I have really nothing solid to set against or to substitute for Mr. Chue's estimation. After some hesitation therefore I accept these figures. They total 2.62. This gives a total production cost per cube of 8.22.

6. If one re-does the calculation substituting the figure of 8.22 for the defendants', figure of 6.37 ore reaches a production profit of 6.78 multiplied by a balance of 231,750 cube. This produces a figure of $1,571,265.

(b)    The reasonableness of the defendants' depreciation figure was not seriously disputed: what was in issue was the sufficiency of the dismantling and setting up charges. Upon dismantling the bulk of the machinery was taken direct from Shatin to Coffee Bay. For this reason the transport charges were attributed in the defendants' ledgers to the setting up of Coffee Bay and not to dismantling of Shatin. In my judgment these two contracts have to be considered and costed separately. The transport charges on removal are a proper deduction from the Shatin Contract. It would seem from Ledger 105(02) that they came to about $11,100.

7. A total of $436,492.05 is attributed to setting up costs in the defendants' relevant ledger. But the problem here is that during the relevant period there were substantial further payments out of the defendants' bank account which do not appear in any of surviving ledgers. Insofar as these were items of expenditure, they could well have related to Shatin since this was then the defendants' sole source of business. If these details were fully known would it appear that some ought properly to be regarded as setting up charges? This question cannot now be accurately answered. I think the best I can do is to allow a margin here. I shall deduct a total of $620,000 in respect of setting-up dismantling and depreciation.

8. It follows that I assess the profit which the defendants were likely to have obtained on the outstanding belance of this contract from their crushing fee of $15 at $1,571,265 minus $620,000 namely $951,265.

As to (2)

9. Certain figures here are agreed. First at the initial hearing, a reasonable price for aggregate fines at the relevant time was agreed at $57 a cube. Secondly from this (or any other starting sum) there falls to be deducted first, the defendants' $15 crushing fee, and secondly the Government's $15 royalty. Thirdly it was agreed at the hearing that the sum of $200,000 should be deducted from the total calculated profit as the estimated cost of complying with other Government requirements namely possibly a weigh-bridge and the salary of a checker.

10. The plaintiffs' first contention here was that the full quantity of 150,000 cube would not have been sold. But the evidence here was all one way, and was to the effect that a buoyant market existed at the relevant time for aggregate fines in Hong Kong generally and in Shatin in particular. Further the plaintiffs chose to reveal nothing about their own demand for aggregate fines at this time. This must have been substantial bearing in mind that the joint venture enabled them to acquire such fines for other sites at very much less than $57 a cube. There is in my judgment no substance in this point.

11. Secondly the plaintiffs sought to argue that this quantity could only have been sold at a discount. The suggestion was that any building contractor buying from a site crusher would demand a discount of 15% from the then ruling price. Such ruling price was not specified, but I was asked to apply the 15% to the above agreed figure. This figure was in fact agreed as the starting point for an assessment of damages on claim or counterclaim as the case might be. On 31st January last I rejected the plaintiffs' application for leave to amend this figure in their pleading for the reasons I then gave. I can see no difference between the present argument and an application to substitute $48 for $57 in the pleading, and to resile from the earlier agreement to the like extent. In my judgment this point is not open to the plaintiffs.

12. Thirdly it is said that I should make some deduction for contingencies for the inevitable element of risk in such a transaction. I think it is realistic here to make a modest deduction.

13. At $13.50 a cube, the defendants' profit on 150,000 cube would have been $2,025,000. A deduction to $1,850,000 suffices I think to reflect the defendants' half share of $200,000 above referred to, and a modest allowance for contingencies. I accordingly assess the defendants' loss of profit on the joint venture at $1,850,000.

As to (3)

14. The machinery in question was removed direct from Shatin to Coffee Bay to enable the defendants to undertake a crushing contract there. The plaintiffs argued that this Coffee Bay Contract went in mitigation of the defendants' loss. This would only be the case if the defendants could not have performed both contracts because they did not have the capacity to operate at two sites. On the evidence before me, which I accept, this was not the case. The defendants were short of jobs: they were never short of equipment. They had idle equipment in their own hands and access to other equipment in the hands of or through Chung Hing Motors and Chung Hing Construction CO. Ltd. In short the defendants could have handled both contracts.

15. Further the fact that the defendants were able to move this equipment from site to site, and not from site to store and then onto site again seems to me to be pure commercial chance. The same situation could equally have arisen at the termination of the Shatin Contract on proper completion. So long as each contract is costed independently in the manner I have suggested, it does not seem to me that the existence of the-second has any bearing upon a damages calculation for the first

16. In these circumstances I assess the defendants' damages at $951,265 plus $1,850,000 i.e. in the total sum of 2,801,265.

Representation:

Mr. William Waung (F. Zimmern & Co.) for Plaintiffs.

Mr. Kenneth Kwok (Wilkinson & Grist) for Defendants.