Benchmarking (China) Ltd v. Poly Pacific Enterprises Ltd and Another

DCCJ1337/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1337 OF 2002

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BETWEEN

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Coram : Deputy District Judge W. K. Kwok in Court.

Dates of Hearing : 12^th, 13^th, 17^th, 18^th & 25^th May 2005.

Date of Handing Down Judgment : 25^th November 2005.

JUDGMENT

1.The Plaintiff was at the material times a company limited dealing in the business of re-cycling scrap plastic materials in Hong Kong and other countries.  Its director Mr. Lau Hin Kwan, Robert (PW1) also operated in the People’s Republic of China (“PRC”), with Mr. Lau Yun Ho (PW3) who was another director of the Plaintiff and other persons, a recycling plastic factory called Dongguan Tong Mei Plastics Limited in Zhong Tong Town, Dongguan City, PRC.

2.The 1^st Defendant was set up in Hong Kong in January 2000 by its director the 2^nd Defendant, and was at the material times carrying on the business of sale and purchase of re-cycling scrap plastic materials. 

3.The 2^nd Defendant had more than 10 years of experience in the trade of scrap plastic materials, including 7 years in Canada where she purchased discarded or unwanted compact discs and resold them at a profit to plastic recycling companies.  After she had moved back to Hong Kong, she set up the 1^st Defendant and carried on the same business as she used to do in Canada.

4.This trial concerns only the Plaintiff and the 1^st Defendant.  An order by consent was made on 26^th August 2002 whereby the Plaintiff wholly discontinued its claim against the 2^nd Defendant, although she had given evidence at the trial.  Since there is only one defendant on trial, I shall refer to the 1^st Defendant in this judgment as “the Defendant” and the 2^nd Defendant as “DW1”.

5.It is common ground that in October 2001, the Plaintiff had placed two purchase orders with the Defendant for purchasing scrap plastic materials that were to be used for recycling purposes.  I use the general term “scrap plastic materials” here because there is an issue as to what exactly the Defendant had agreed to sell. 

6.The Plaintiff’s case is basically that the scrap plastic materials supplied by the Defendant did not correspond with the contractual descriptions, and that it was therefore entitled to reject the goods and recover from the Defendant its loss and damage, the exact items of which will require further elaboration in due course. 

7.The Defendant denies there was such a breach, and denies its liability for any of the Plaintiff’s claims. 

8.In addition to the factual dispute, Mr. Edward Chan, solicitor for the Defendant, has in his closing submission taken a pleading point that, according to Mr. Chan, dooms the Plaintiff’s claim to failure.

9.The following issues fall for determination: -

(1)	What was the subject matter of the 1st purchase order?
(2)	Did the goods supplied by the Defendant under the 1st purchase order correspond with the contractual descriptions?
(3)	What was the subject matter of the 2nd purchase order?
(4)	Did the goods supplied by the Defendant under the 2nd purchase order correspond with the contractual description?
(5)	Had the Plaintiff accepted or rejected the goods?
(6)	What was the basis of the Plaintiff’s claim – has it been pleaded in the Amended Statement of Claim?
(7)	Is the Plaintiff entitled to recover the various sums alleged against the Defendant?

Subject matter of the 1^st Purchase Order

10.It is common ground in the evidence that the Plaintiff and the Defendant had no business dealing with one another before the transactions that lead to the present proceedings, and that the Plaintiff placed the 1^st purchase order for scrap plastic materials with the Defendant after PW1 and DW1 had reached an oral agreement on 15^th October 2001.  The evidence shows that in the business negotiation initiated by DW1, PW1 had never been shown the scrap plastic materials to be sold, and DW1 had likewise never seen the goods herself.  Hence, this is a clear case where the contract of sale entered into by the parties was a contract of sale by description.

11.On the basis of the oral testimony given by PW1 and by DW1, and the documentary evidence including the Defendant’s Sales Confirmation SC No. P001 dated 15^th October 2001 (“the Defendant’s Sales Confirmation”) as amended by PW1, the Plaintiff’s Purchase Order – BM00354 also dated 15^th October 2001 (“the Plaintiff’s Purchase Order”) and the invoices issued by the Defendant to the Plaintiff, it was clear that the Plaintiff and the Defendant had agreed under the 1^st purchase order whereby the Plaintiff would buy and the Defendant would sell a stock of 100 metric tonnes of scrap plastic materials in 4 containers, and that the scrap plastic materials agreed to be sold were “PC CD UNCUT WHOLE DISK WITH JEWEL CASE – GPPS CLEAR CASE”. 

12.As far as the meaning of this contractual description is concerned, it is common ground that “PC CD” stands for polycarbonate compact disc.  “GPPS” is the acronym for general-purpose polystyrene.  The words “WITH JEWEL CASE – GPPS CLEAR CASE” refer to the ordinary transparent plastic cases that came with compact discs. “JEWEL CASE” has the same meaning as “GPPS CASE”, and “CLEAR CASE” is also a pleonastic term because GPPS is clear, transparent and colorless.

13.For the term ‘UNCUT WHOLE DISK”, the parties agreed that “UNCUT” meant the compact discs had not been saw-cut.  In the Statement of Claim, it was alleged that some of the compact discs sold by the Defendant had in fact been cut.  It created an impression that the Plaintiff was alleging that the Defendant was in breach because some of the goods were not uncut compact discs.  However, it is right to say at this juncture that nothing turns on this point because it is clear from the evidence that if the compact discs were cut, it would just be more beneficial to the Plaintiff.  The Plaintiff intended to ship the purchased goods into PRC for recycling purpose.  Since the compact discs were usually records of songs or other copyright works, the Plaintiff had to saw-cut and hence damaged them so that they could no longer be playable as compact discs before importing them into PRC in order to comply with the relevant customs and excise requirements.  The Plaintiff did not complain that some of the discs were cut.  In fact, PW1 testified that if the discs were cut, he would be prepared to pay a higher price because the Plaintiff would be spared from doing the work itself.

14.However, as far as the term “WHOLE DISK” was concerned, the parties differed on its meaning.  PW1 testified that “whole disk” here simply meant a whole compact disc in a jewel case that had not been cut.  On the other hand, DW1 stated that “whole disk” meant the whole disc on sale in the market, i.e. it included not only the compact disc for playing but also the paper or even books with lyrics printed on it, together with the GPPS case and the outermost transparent sheet wrapping.  Her evidence was that “whole disk” meant the whole compact disc together with its case and paper contents, so long as they were put together for sale in the market.  She said this interpretation was just common sense because in her 10 odd years experience in the recycling trade, she had never seen a whole disc without paper.  In response, the Plaintiff’s case was that “whole disk” simply meant that the disc was one whole disc that had not been cut, and that paper other than at a certain tolerated quantity should not be included in the goods to be supplied by the Defendant.

15.I have considered carefully the evidence from both sides.  I prefer the interpretation given by the Plaintiff. 

16.Firstly, I agree with the submission of Mr. Wong, Counsel for the Plaintiff, that when construing a term in a contract, words should be given their ordinary and natural meaning that is generally understood, and the courts should assume that the parties have used language in the way that reasonable people ordinarily do: Chitty on Contract, 29^th Edition, Volume 1, paragraph 12-051.  In considering this term “uncut whole disk”, the word “whole”, coming after the word “uncut” and preceding the word “disk”, referred clearly to the physical condition of the disc itself, i.e. it is a whole disc that has not been cut.  There was no room to import the notion that paper was included to make a disc one whole disc.  Paper was paper.  A disc was a disc.  The existence of one did not depend on the existence of the other.  If DW1’s interpretation were correct, did it mean that if the Defendant supplied a polycarbonate compact disc in a jewel or GPPS clear case, the Defendant would be in breach of the contract because there was no paper inside?  That would be absurd and clearly in contradiction with the express contractual description of the goods.  After all, the contract of sale between the parties was for sale of scrap plastic materials and not scrap paper, and the contract price was to be calculated according to the weight of the scrap plastic materials.  If the Defendant’s interpretation were correct, she would be at liberty to include any quantity of paper into the plastic material and charge the Plaintiff at US$300 per metric tonne for the paper content, so long as those paper were included in the discs on sale in the market, even though the Plaintiff did not want the paper and might even be required to spend further money to remove them.  In my judgment, it was plainly not in accordance with the contractual intention of the parties.  In my view, the term “whole disk” referred just to the physical condition of the compact disc. It was used in the contract solely for the benefit of the Defendant because the Defendant would not be required to saw-cut the compact discs before delivery to the Plaintiff for transporting elsewhere for recycling purpose.  In any event, the term “uncut whole disk” would not permit the Defendant to supply compact discs in paper cases, books or metal cases because that was in clear contradiction with the term that the discs should come “with jewel case – GPPS clear case”.

17.Secondly, the interpretation given by DW1 in Court never appeared in her written witness statement, although it is clear from the pleadings and witness statements disclosed before trial that the Plaintiff is alleging that there were too much paper contents in the goods subsequently delivered by the Defendant. 

18.Thirdly, DW1 appeared to be the only person who interpreted the term “uncut whole disk” in the way she did, i.e. the word “whole” referred to the paper contents coming with the discs.  No such evidence was forthcoming from any other witnesses who had substantial experience in this trade of scrap plastic materials for recycling.

19.PW1 testified that he had 9 years experience in this trade.  He certainly did not provide the same interpretation as DW1.  He agreed that it was normal to have a piece of paper inside the plastic case containing the compact disc, indicating the name of the disc or bearing the photograph of the singer, and that it was possible to have further paper like those with song names on it.  He said that according to the trade practice of plastic recycle business, it was permissible to have one to three promotion papers existing in between of the PC CD and the GPPS clear case”, but he maintained that the goods to be supplied by the Defendant had to be compact discs in jewel case or GPPS clear case.

20.Mr. Chan Ho Yin (PW2) who was the manager of Hoi Kee Plastic Material Factory (“Hoi Kee”), a re-cycle handling factory for scrap plastic materials in Sheung Shui, stated that he had a total of 15 years’ experience in the recycling business and in the trade of scrap materials in Hong Kong.  He testified that he had found many of the goods supplied by the Defendant were either “small size PC CD with paper packing case” or “normal size PC CD with printed paper packing case”, and concluded that they did not answer the contractual descriptions.

21.PW3, who was the Plaintiff’s other director and a partner with PW1 and other persons in operating Dongguan Tong Mei Plastics Limited in PRC, had worked in the scrap plastic material industry since 1984.  He testified that it was not unusual for normal PC CD with GPPS clear cases to be accompanied with chorus or advertising inserts, but case covers made of paper instead of plastic were clearly not in compliance with the contractual specification.  He said that the regular paper content was about 12 to 15% of the weight of the scrap plastic material.

22.Mr. Leung Tat Fei (PW5) who was the person-in-charge of Chang Lee Company (“Chang Lee”) had 9 years of experience in selling and marketing plastic scrap materials in Hong Kong.  It was common ground in the evidence that the goods purchased by the Defendant to fulfill the Plaintiff’s 1^st purchase order in fact originated from Chang Lee.  Chang Lee sold the goods to Best idea Holdings Ltd. (“Best Idea”) who in turn sold them to the Defendant.  In the Invoice issued by Chang Lee to Best Idea (page 203 of the Bundle) for exactly the same goods in question, the goods were described as “日本PCCD廠 PC/CD-PS連盒有紙”.  There was a clear and explicit reference to the fact that the PC CD would come in box and with paper.  In addition, the Invoice also specified that “如有木卡板再除皮，紙皮盒不另除皮”, meaning that “wooden pallet will be discarded if found but not for paper cases”.  PW5 specifically testified that goods might come with or without paper and boxes, and hence there had to be clear specification in the contract, and hence he had pointed out there were paper in the goods that he sold to Best Idea.  PW5 testified that while paper would be taken away from the packing in some countries in Europe before exportation, leaving behind only the GPPS hard case and compact discs, there were other countries like Japan that did not take away the paper or the packing in order to save labour costs.

23.DW1 of course had also testified and she had more than 10 years’ experience in the trade.  However, I find that she is a witness that I cannot rely upon, for reasons that I shall explain in due course, either in general or on this point.  As mentioned before, the goods supplied to the Plaintiff under the 1^st purchase order originated from Chang Lee who sold to Best Idea.  In the related Proforma Invoice dated 16^th October 2001 issued by Best Idea to the Defendant (page 199 of the Bundle), the goods were described by Best Idea as “PC CD with PS boxes and paper”.  In other words, not only Chang Lee but also Best Idea had made specific reference in the invoice to the presence of paper in the goods.  However, under cross-examination, DW1 insisted that these descriptions had exactly the same meaning as “PC CD uncut whole disk with jewel case – GPPS clear case”.  She said “PS box” meant “GPPS jewel case”, and “paper” meant “whole box”.  I do not find her evidence credible.  On the contrary, it appears to me that she was just twisting meaning of words to suit her convenience.  She was trying hard to import the element of paper into the contractual descriptions when it was plainly not there.  Her evidence was contradicted by her fellow experienced traders who did not use the terminology or ascribe meaning to words in the way she did, but all of them made clear and specific reference to the presence of paper in the goods, instead of leaving it to be implied from the term “whole disk”.  

24.Lastly, the matter must be put beyond doubt by the fact that PW1 had insisted to add in the words “with jewel case – GPPS clear case” onto the description of the product to be sold in the Defendant’s Sales Confirmation, and further sent in the Plaintiff’s Purchase Order with the remark “above cargo contains no other contamination”.  In the context of recycling scrap plastic materials, scrap paper could only be contaminants that had no commercial value, as various witnesses had said, and must therefore be excluded under the terms of the contract, and hence it left no room for the term “whole disk” to carry the implied meaning as contended by DW1.  I reject DW1’s evidence in this respect. 

25.I accept the evidence given by the Plaintiff’s witnesses on the contractual descriptions of the goods under the Plaintiff’s 1^st purchase order.  I find, on balance of probabilities, that the Defendant had to sell and supply 100 metric tonnes of scrap plastic materials in 4 containers that would consist of polycarbonate compact discs that came with jewel case or GPPS clear case.  Polycarbonate compact discs in paper cases, metal cases or paper packing would not answer the contractual descriptions, not to mention other materials like books and videotapes.  If it were the Defendant’s contention that it was entitled to include paper into the goods to be supplied, the paper could only be that small quantity of printed paper that would normally be found inside the jewel case or GPPS clear case containing a regular compact disc, and its weight could not be more than 15% of the total weight of the scrap plastic materials.  Such allowance was given not because of the contractual descriptions of the goods but in accordance with the general practice of the trade.

26.Two further points need to be mentioned concerning the subject matter of the 1^st purchase order. 

27.Firstly, it was clearly stated in both the Defendant’s Sales Confirmation and the Plaintiff’s Purchase Order that the goods to be supplied should be “in box on pallets”. According to PW1, if boxes were stacked up on pallets, they could be lifted up and down easily to facilitate transportation of goods from one place to another.  It was not disputed in the evidence that the goods eventually supplied by the Defendant were in boxes but not on pallets.  However, nothing turns on this point as the Plaintiff did not reject the goods or make any claim on this ground. 

28.Secondly, although it was clearly stated in the Defendant’s Sales Confirmation and the Plaintiff’s Purchase Order that 4 containers of goods were to be sold and purchased, it is common ground that the Defendant had eventually supplied only 3 containers to the Plaintiff under the 1^st purchase order.  In fact, as late as on 19^th October 2001, the Defendant still issued to the Plaintiff Invoice No. B0181 dated that day (page 201 of the Bundle) and gave full particulars of the 4 containers to be supplied, including the container numbers and the quantity of scrap plastic materials in each container.  On 22^nd October 2001, the Defendant sent to the Plaintiff Invoice No. B0181(revise) still dated 19^th October 2001 (page 202 of the Bundle) which contained the same particulars as Invoice No. B0181 except that the particulars of the fourth container were omitted.  Neither party has made any claim on the ground of either non-delivery or failure to take delivery.  However, as to why only three containers were purchased or supplied, it is relevant to the question of credibility of witnesses, which I shall come back at a later stage. 

Did the goods supplied by the Defendant under the 1st purchase order correspond with the contractual descriptions?

29.PW1 paid for the 3 containers by cheque for the sum of $183,855 (page 212 of the Bundle) on 22^nd October 2001 and DW1 gave him three delivery orders for the 3 containers under the Plaintiff’s 1^st purchase order.  On or about 22^nd October 2001, the Plaintiff instructed PW2 to arrange the necessary workers for saw-cutting the 3 containers to be delivered under the 1^st purchase order. PW1 handed over the relevant delivery orders to PW2, and PW2 arranged for First Come Ltd. to take delivery of the containers. 

30.It is not disputed that the first two containers marked as TTNU9935863 (“the 1^st container”) and WHLU5130733 (“the 2^nd container”) arrived at the factory premises of Hoi Kee in Sheung Shui on 23^rd October 2001, while the last container marked as WHLU5037770 (“the 3^rd container”) was delivered to Hoi Kee on 26^th October 2001.

31.The Plaintiff seeks to prove that the goods supplied by the Defendant did not correspond with the contractual descriptions, and that complaints had been raised with the Defendant immediately upon discovery of the defects by (a) oral testimony of witnesses, (b) photographs, (c) expert evidence, (d) contemporaneous correspondences between the parties, and (e) the quantity of plastic and paper eventually sorted out and sold by PW3 in PRC in December 2001.

32.Both PW1 and PW2 testified that they had personally seen that the goods supplied by the Defendant in the 1^st, 2^nd and 3^rd containers did not answer to the contractual descriptions. 

33.According to PW2, after the 1^st and 2^nd containers had arrived at Hoi Kee on 23^rd October 2001, when his workers started unloading boxes of PC CDs near the door of the containers and carried out the saw-cutting simultaneously, he found that the goods supplied by the Defendant were not “PC CD uncut whole disk with jewel case – GPPS clear case”, but they came in different varieties instead.  He saw that there were many small size compact discs in paper or metal cases.  There were videotapes as well.  PW2 stopped the saw-cutting process and reported to PW1.  PW1 testified that he immediately notified DW1 of the problem, and DW1 sent DW2 to inspect the goods and follow up.  According to both PW1 and PW2, in the afternoon of 23^rd October 2001, DW2 attended Hoi Kee in Sheung Shui.  Although at that point of time only goods near the container doors had been taken out for examination, and PW1 estimated the quantity of goods taken out so far was about two tonnes, they (i.e. PW1, PW2 and DW2) saw that only about 10% of the goods were PC CD with jewel cases or GPPS clear cases, while many of the remaining goods were in fact PC CD with paper cases, small PC CD with paper cases, books with CD, PC CD with steel or iron covers, PC CD with other kind of packing, and videotapes.  They also noticed that there was a weight shortage.  According to both PW1 and PW2, DW2 verbally admitted the defects in their presence, and acknowledged that there was a weight shortage.

34.PW2 testified that the goods in the 1^st and 2^nd containers were checked in detail after 23^rd October 2001 pursuant to the instruction given or request made by DW2 in Hoi Kee on 23^rd October 2001 after DW2 had noticed the defects in the goods.  PW1 also testified that he had told DW1 of the findings of the inspection on 23^rd, and DW1 told him that she would be responsible if the workers of Hoi Kee found the goods inside the containers were also defective.  PW2 testified that the checking was completed on 26^th October 2001, and he found that many of the goods in the 1^st and 2^nd containers were either “small size PC CD with paper packing”, or “normal size PC CD with printed paper packing case”. 

35.The 3^rd container arrived at Hoi Kee on 26^th October 2001.  PW2 said he also found the 3^rd container had the same defects as in the earlier two containers.  He saw that there were many “small size PC CD with paper packing case”.  He notified PW1 of the defect, and PW1 in turn notified DW1 of the problem. 

36.Both PW1 and PW2 testified that DW2 attended Hoi Kee again on 27^th October 2001 to inspect the 3^rd container.  They checked the goods in the presence of DW2 who confirmed that the 3^rd container had the same defects as in the 1^st and 2^nd containers.

37.It is common ground in the evidence that the 3^rd container was subsequently returned to the Defendant, but the 1^st and 2^nd containers were shipped to PRC. It is not necessary at this point of time to state what had happened that led to this state of affairs, and I shall deal with it later.  It suffices to say at this point that the 1^st and 2^nd containers were delivered to Dongguan, PRC on 3^rd November 2001.  The 1^st container was then stored in the Plaintiff’s factory Dongguan Tong Mei Plastics Limited in Zhong Tong Town, Dongguan City, while the 2^nd container was stored in their workshop in Dongguan Correctional Centre. 

38.It is common ground in the evidence that DW2 had inspected the 1^st and 2^nd containers in their respective storage places in Dongguan in the presence of PW1 and PW3 on 4^th November 2001.

39.PW3 testified that while there were “PC CD discs with GPPS clear case”, many of the goods contained in the 1^st and 2^nd containers were “PC CD with GPPS clear cases packed with paper packing material”, “PC CD discs with paper cases wrapping plastic tray (with paper stuck on tray)”, “small PC CD with paper cases of plastic tray (with paper stuck on tray)”, and “cassette tapes, videotapes, heavy weight paper box packing for PC CD discs”. 

40.PW3 further testified that a weight testing had been carried out during the inspection on 4^th November 2001.  He said DW2 randomly took two boxes of PC CD discs as samples, and the weight of plastic and paper contents in each box was recorded.  One of the boxes contained “PC CD disc with tray and paper back material (but the paper stuck with glue)”.  Its total weight was 10.6 kg, consisting of 4.7 kg of plastic and 5.9 kg of paper.  Hence, the paper content was 55.66% of the total weight.  The other sample was a box of “small size CD disc stuck with tray and then the paper stuck on tray”.  Its total weight was 8 kg, consisting of 4.4 kg of plastic and 3.6 kg of paper.  The paper content was 45% of the total weight.  According to PW3, DW2 admitted to him and PW1 that the weight of paper was extremely high, and agreed to resolve the matter.

41.PW5 sold 4 containers of scrap plastic materials including the 1^st, 2^nd and 3^rd containers to Mr. Captson Lau of Best Idea who sold them to the Defendant.  PW5 described the goods in his invoice to Best Idea as “日本PCCD廠 PC/CD-PS連盒有紙”, indicating that he was selling PC CD with boxes and paper.  He said that he had not seen the goods before sale, but if the number of small CDs were large, he would pay compensation to Best Idea according to the trade practice.  He said that Best Idea returned the 3^rd container to him by the end of October 2001, and that he had paid $6,191 to Best Idea as compensation because there were videotapes, cassette tapes, or CD in metal cases in the goods.

42.As far as evidence by photographs was concerned, the Plaintiff had produced three sets of photographs showing the conditions of the goods in the 1^st and 2^nd containers.

43.The first set, consisting of 12 photographs in 4 pages and marked as Exhibit P1, was taken on the same day when DW2 first went to Hoi Kee to inspect the 1^st and 2^nd containers.  PW1 and PW2 testified that this event took place on 23^rd October 2001 and the photographs also bore on the face of them the date of that day.  DW2 however said that the date should be 24^th October 2001.  PW1 testified that the photographs did show the conditions of the goods at the time of the visit.

44.The second set consisted of 9 photographs in 3 pages and was marked as Exhibit P2.  According to the evidence of PW3, the first three photographs in the first page were taken on 3^rd November 2001 when the 1^st and the 2^nd containers arrived at Dongguan.  The remaining 6 photographs were taken on 4^th November 2001 in the presence of DW2 when he went to Dongguan together with PW1.  PW1 and PW3 testified that the photographs showed the condition of the goods at that time.

45.The third set of photograph was attached to the Inspection Report (Exhibit P5) prepared by Mr. Vincent Yang Ming Hung (PW4).  He was a senior inspector in the employ of SGS Hong Kong Ltd. (“SGS”).   He took the photographs to show the goods in the 1^st and 2^nd containers on 17^th November 2001 when he inspected them in Dongguan. 

46.The Plaintiff seeks to put forward PW4 as an expert to prove that the goods in the 1^st and 2^nd containers were defective, but Mr. Chan, solicitor for the Defendant, does not accept PW4 to be an expert witness.

47.PW4 testified that he inspected the goods in the 1^st and 2^nd containers in their respective storage places to determine whether the goods inspected conformed to the Plaintiff’s requirements.  Before the inspection, he was informed that what the Plaintiff wanted was “PC CD uncut whole disk with jewel case – GPPS clear case” and he was given a sample for comparison.  He selected 200 cartons of goods in each storage location for inspection as agreed between the Plaintiff and SGS.

48.In respect of the 1^st container, PW4 found that there were a total of 2,376 cartons and 4 carton pallets.  Among them he randomly selected 200 cartons for visual appearance check.  He found that only 39 of them conformed to the Plaintiff’s requirements (i.e. 27 cartons of “normal size CD with printed paper and GPPS clear case” and 12 cartons of “PC CD uncut whole disk with jewel case – GPPS clear case”), while the remaining 161 cartons did not (i.e. 36 cartons of “normal size CD with GPPS clear case and then into paper packing material”, 113 cartons of “small size CD with GPPS tray and the paper packing material but the paper stuck on tray cannot move”, one carton of “book with CD”, one carton of “CD with paper and photo book”, 2 cartons of “CD with metal box”, 3 cartons of “CD with paper packing material”, and 5 cartons of “cassette tape”). 

49.In respect of the 2^nd container, PW4 found that there were a total of 2,762 cartons and 37 bags.  Again, he randomly selected 200 cartons among them for visual appearance check.  He found that 46 of them conformed to the Plaintiff’s requirements (i.e. 45 cartons of “normal size CD with printed paper and GPPS clear case” and one carton of “PC CD uncut whole disk with jewel case – GPPS clear case”), and the remaining 154 cartons did not (i.e. 115 cartons of “small size CD with GPPS tray and the paper packing material but the paper stuck on tray cannot move”, 21 cartons of “normal size CD with GPPS clear case and then into paper packing material”, 4 cartons of cassette tape, one box of videotape, 4 cartons of “normal size CD packed in paper box with 6 metal badges”, two cartons of “normal size CD packed in paper box with cassette tape”, and 7 boxes of “CD with paper packing material”).

50.As far as contemporaneous documents were concerned, the Plaintiff relied upon its various letters to the Defendant and the reply letters from the Defendant.  The first document in which the Plaintiff recorded its complaint was its letter dated 28^th October 2001 (pages 225 and 226 of the Bundle), in which PW1 set out the events up to that date, including the two visits paid by DW2 to Hoi Kee on 23^rd and 27^th October 2001, as well as the defects of the goods in the 1^st, 2^nd and 3^rd container.  Another document of importance was the Plaintiff’s letter dated 5^th November 2001 (page 235 of the Bundle) in which PW1 recorded his visit with DW2 to Dongguan on 4^th November 2001 to inspect the 1^st and 2^nd containers, the findings as well as the weight test carried out in the presence of DW2 as referred to in paragraph 40 above.  PW1 specifically say that 50% of the goods were defective because amongst them, paper accounted for 50% of the weight. 

51.The last piece of evidence on the defective quality of the 1^st and 2^nd containers came from PW3 who had eventually sorted out the plastic materials from the paper contents in the 1^st and the 2^nd containers for sale.  He recorded his findings in a document dated 20^th December 2001 (page 252 of the Bundle).  He found that the materials inside the two containers had a total weight of 52.36 metre tonnes.  Amongst them, 32.177 tonnes were plastic materials whereas the remaining 20.183 tonnes were paper and other materials.  In other words, about 62% of the goods delivered in the 1^st and 2^nd containers were plastic and the remaining 38% were not.  Amongst the plastic materials, PW3 also subdivide them into three different categories, including 14.480 metric tonnes of “GPPS clear materials”, 9.653 metric tonnes of “PC CD electro-plating materials”, and 8.040 tonnes of “HIP and other materials”.

52.The Defendant denies that the goods supplied to the Plaintiff did not answer to the contractual descriptions.  Its stance was fully reflected in its Amended Defence as well as in the witness statements and oral testimony of DW1 and DW2.

53.As the evidence showed, DW1 could not give direct evidence on the condition of the goods since she had not personally inspected them, and she only relied upon reports given to her by DW2.

54.Both DW1 and DW2 testified that DW2 did not inspect the 1^st and 2^nd container on 23^rd October, but on 24^th October 2001.  Both said that the inspection was done in accordance with the Defendant’s practice to inspect the goods delivered to clients.  Both maintained that prior to this visit, they heard no complaint of defective goods from the Plaintiff. 

55.During the visit on 24^th October 2001, according to DW2, when he arrived at Hoi Kee with PW1, he noticed that the 1^st and 2^nd containers had already been opened.  He found nothing wrong on visual inspection of the goods.  He denied that there were many PC CD without GPPS clear cases, small size CDs, or CD in metal cases or paper cases.  He saw some discs had been cut, but PW1 told him that this was not a problem since he had to cut them anyway before the recycling began.  He said PW1 told him that there was basically no problem, and that the goods could be accepted.  DW2 said that he had inspected very little (about 10%) of the goods, and that he saw goods from other companies were placed inside Hoi Kee.

56.DW1 reinforced DW2’s evidence by saying that after the inspection, PW1 phoned her on 24^th October 2001, telling her that the goods were basically acceptable, and went on to place the 2^nd purchase order for the 4^th and 5^th containers at the total price of $105,290.  It was the defence case that PW1 would not have placed the 2^nd purchase order if he had not been satisfied with the goods delivered under the 1^st purchase order.  DW1 produced an Invoice No. B1084 dated 24^th October 2001 (page 131 of the Bundle) and the Plaintiff’s cheque dated 26^th October 2001 (pages 133 of the Bundle) to prove this transaction.

57.DW1 testified that it was only on 27^th October 2001 after her bank had notified her that the Plaintiff’s cheque for payment of the 2^nd purchaser order was dishonoured and when she asked PW1 for an explanation that PW1 started complaining that the goods delivered in the 1^st, 2^nd and 3^rd containers were defective.  DW2 also maintained that prior to 27^th October 2001, he heard of no complaint from the Plaintiff.

58.DW1 testified under cross-examination that she did ask PW1 over the phone on 27^th October 2001 about the alleged defects of the goods in the 1^st and 2^nd containers.  She said PW1 only told her that some of the goods were not GPPS clear case, but he did not give a clear answer.  According to DW1, she told PW1 that if there were a problem, PW1 should invite her to inspect the goods again, but PW1 answered that all the goods had been processed in the factory and they had been saw-cut.

59.DW1 further testified that she had agreed with PW1 that the 4^th and 5^th container should be returned to the Defendant, pending investigation of the Plaintiff’s claim, and she sent DW2 to visit Hoi Kee again on 27^th October 2001.

60.The defence did not dispute that the 3^rd container arrived at Hoi Kee on 26^th October 2001.  DW1 testified that DW2 had not inspected the 3^rd container on 27^th October 2001 because the Plaintiff did not give him consent to inspect the goods.  DW1 said she later agreed to accept the return of the 3^rd container because she did not want to argue.

61.DW2 testified that the sole purpose of the visit to Hoi Kee on 27^th October 2001 was to see if 4^th and 5^th containers had arrived, and it had nothing to do with the 3^rd container.  He denied that he had inspected the 3^rd container on that day, and that since there was no inspection, he denied that the 3^rd container was of defective quality.  He also denied that he had inspected the 4^th and 5^th containers on that day because PW2 refused him to do that.  He did eventually inspect the 4^th and 5^th containers after they had been sold subsequently to a new buyer who raised no complaint, and DW2 said he found no problem.

62.DW1 agreed that she sent DW2 to Dongguan to inspect the 1^st and 2^nd containers on 4^th November 2001 after the Plaintiff had invited her or someone from the Defendant to do so.  DW2 insisted that he went to Dongguan just as a responsible supplier to examine the goods so as to understand the nature of its client’s complaint, although the Defendant felt that there was no problem with the goods.

63.According to DW2, upon arrival in Dongguan, he saw a lot of compact discs in heaps in the Plaintiff’s factory.  He said a lot of goods that he saw were not the Defendant’s because, first, many of the discs had not been saw-cut but they had to be 100% saw-cut before they could be sent back to PRC; second, there were big boxes but the Defendant’s goods were placed in small boxes; and thirdly, there were a large amount of similar goods in the factory.  He agreed that he had stayed for about 2 hours in Tong Mei and about half an hour in Dongguan Correctional Centre, but he had not inspected any goods because he could not differentiated what goods belonged to the Defendant, and for that reason, he could not tell whether the Defendant’s goods were defective.

64.DW2 further denied there was a weight test on 4^th November 2001 as testified by PW3.  He said that as far as the photographs shown in Exhibit P2 were concerned, other than the one photograph showing him, the others were not taken in his presence.

65.Both DW1 and DW2 said there were negotiation between parties, and agreed that a meeting was held on 5^th December 2001 in which PW1, DW2, representatives from Best Idea and Chang Lee were present.  Both maintained that the meeting failed to resolve anything.

66.DW1 said she did not accept the goods were in any way defective but she kept an open mind regarding the Plaintiff’s complaints during the ensuing negotiation.  She maintained that the presence of paper in the compact discs should not be regarded as contamination according to their trade practice because paper and glue were expected.  She said that the Plaintiff had already accepted and processed the 1^st and 2^nd containers, and hence she agreed to take back the 3^rd, and refunded the purchase price to the Plaintiff.  DW1 maintained that if the Plaintiff had taken the view that the goods were defective, the Plaintiff should have returned the containers since the defects would have been apparent upon visual inspection, but the Plaintiff had processed them.  To show that there was no problem with the goods, DW1 testified that she had resold all three containers returned by the Plaintiff at prices higher than that paid or to be paid by the Plaintiff.  In her witness statement, she produced in Annexure 8 (page 156 of the Bundle) an invoice to substantiate her point.

67.It is readily apparent that there are head-on conflicts in the evidence given by the Plaintiff’s witnesses and that by the Defendant’s.  The conflicts can only be resolved by the view I take on the credibility of the witnesses and reliability of their evidence.  I shall analyze the evidence adduced by the Defendant first.

68.First, in my view, DW1 is not a credible witness.  She relied upon Annexure 8 to her witness statement to prove that she could sell the three containers returned by the Plaintiff at a higher price to show that there was no problem with the goods.  However, Annexure 8 completely discredits her evidence.  It is common ground in the evidence that the Plaintiff had returned to the Defendant the 3^rd, 4^th and 5^th container.  But the invoice exhibited in Annexure 8 was not for the sale of any of these three containers.  Annexure 8 was the Defendant’s Invoice No. 0183 dated 22^nd October 2001 for the sale of PC CDs in the container that bore the number “WHLU5055736”.  This container was in fact the fourth container stated in the Defendant’s Invoice No. B0181 but was omitted subsequently in the Defendant’s Invoice No. B0181(revise).  Besides, a sale on 22^nd October 2001 would have preceded the return of any of the 3^rd, 4^th and 5^th containers by the Plaintiff.  Hence, Invoice B0183 does not support DW1’s evidence that she could sell the containers returned by the Plaintiff at a higher price, and she produced no other invoices to substantiate her claim.  In my view, in so far as DW1’s attempt to use Invoice No. 0183 to prove that the goods returned by the Plaintiff was not defective, she has failed miserably and she was clearly lying on this point.

69.Second, in my view, it is just implausible and inherently improbable for both DW1 and DW2 to say that PW1 had not raised any complaint about the quality of the goods before 27^th October 2001.  It was common ground that photographs (Exhibit P1) were taken during DW2’s first visit to Hoi Kee, be it on the 23^rd (Plaintiff’s version) or on 24^th (Defendant’s version).  It was apparent from the photographs themselves that focus was directed completely on goods that were clearly not “PC CD uncut whole disk with jewel cases or GPPS clear cases”.  They included compact discs in paper packing or metal cases.  Books were clearly seen as well.  When PW1 had deliberately taken or caused to be taken photographs of those goods that did not correspond with the contractual descriptions, and with DW2 having gone all the way into Sheung Shui to look at the condition of the goods, it was just illogical and nonsensical that PW1 would not have at the time of that visit complained to DW2 of the alleged defective quality of the goods, especially it was common ground in the evidence that PW1 had insisted upon adding into the Defendant’s Sales Confirmation the term that the PC CDs had to come “with jewel case - GPPS clear case”, and that he had specifically demanded that there should be no other contaminant in the goods. 

70.It follows that the evidence given by DW1 that PW1 told her over the phone on 24^th October 2001 that the goods in the 1^st and 2^nd containers were basically acceptable, and that it was only on 27^th October 2001 that PW1 alleged for the first time that these goods were defective were inherently improbable and incredible.

71.Third, in none of the contemporaneous letters sent by the Defendant to the Plaintiff had the Defendant ever refuted the Plaintiff’s allegation that the goods were defective. I have mentioned the Plaintiff’s two letters dated 28^th October and 5^th November 2001 that contained allegations not only that the goods were defective but also that DW2 had personally inspected and noticed the defects.  There was no immediate response from the Defendant. It was only about a month later when DW1 first put in a response in the Defendant’s letter dated 26^th November 2001 (page 145 of the Bundle).  However, she had not traversed any of the allegations raised in these two letters.  It is significant to note that at the time when DW1 wrote this letter, she had already had a “comprehensive understanding of the two containers of goods”, as she had so stated in the Defendant’s letter dated 24^th November 2001 (page 146 of the Bundle) when she declined the Plaintiff’s invitation to send the Defendant’s own expert or surveyor to inspect the goods in the 1^st and 2^nd containers.  With her “comprehensive understanding” of the condition of the goods, if any of the allegations raised by the Plaintiff in the said two letters were incorrect, one would expect her to traverse those allegations specifically one by one, but she had done nothing of that kind.  She did not even put on record that DW2 visited Hoi Kee on 24^th October 2001 instead of 23^rd as alleged by the Plaintiff.  Not only had DW1 failed to deal with the specific points, she did not even put up a general denial, but just asserted the obvious by saying that the Defendant was “not liable for other claims for the portion of good quality material”, and sought to pass on its possible liability to its suppliers in respect of the Plaintiff’s “asserted portion of quality claim”.

72.In my view, there was one matter standing out conspicuously by its absence in all the correspondences written by DW1 on behalf of the Defendant.  It was that DW1 had never asserted positively that the goods delivered to the Plaintiff were not defective and that they corresponded with the contractual descriptions of the goods sold, including the special meanings (like it was reasonable to expect paper and glue to come with the discs) ascribed by DW1 to these descriptions as what she had testified in Court.  There had never been a clear and explicit denial by the Defendant despite repeated claims made by the Plaintiff in writing that the goods were defective.

73.In addition, another document that is damaging to the Defendant’s case that the goods were not defective was the Defendant’s own letter dated 6^th December 2001 (pages 141 and 142 of the Bundle).  In that letter, the Defendant sought to place on record its version of the agreement or understanding reached between various parties during the meeting on 5^th December 2001 to “minimize the loss” of the Plaintiff.  If the goods in the 1^st and 2^nd containers were not defective, what would be the “loss” of the Plaintiff, and why was it that the participants of the meeting had to take action to minimize its losses?

74.Fourth, DW1 is an evasive witness.  DW1 was extremely guarded and not forthcoming in her evidence.  There were a number of instances and I mention a few.  When she was asked whether some of the photographs showed or did not show GPPS clear case, more often than not she said she was not sure.  This kind of answers was something that I do not expect to come from an experienced scrap plastic materials trader like her.  When she was asked if she was the first one to approach PW1 for business, she denied twice before she finally agreed under ongoing cross-examination.  When it was further put to her that when she first introduced herself to PW1, she had told him that she had experience in Canada in the business of scrap plastic materials, she denied initially and admitted only after further cross-examination.  This might to be a peripheral matter, but the importance lies in the fact that PW1 had testified in evidence that DW1 had told him that the goods to be supplied were from Canada, and PW1 understood that the scrap plastic materials from Canada would have little unwanted contents like paper.  DW1 denied she had said so.  It appears to me that DW1 was trying her best to distance herself from anything that might link with Canada.

75.Another incident that cast light on DW1’s credibility was her evidence on why only three containers were sold to the Plaintiff instead of the original 4 under the Plaintiff’s 1^st purchase order.  DW1 stated that when the 4 containers of goods arrived on 22^nd October 2001, PW1 told her that the Plaintiff was unable to pay for them by cash and could not afford the fourth container, so she decided to sell the fourth container to another buyer.  On the other hand, PW1 testified that the Defendant unilaterally withdrew the fourth container from the sale without his prior consent, and that the Defendant was doing so dishonestly because, from the Defendant’s Invoice No. B0183 issued to Chong Fat Trading Co. but faxed to the Plaintiff by mistake, he knew that the Defendant was selling the fourth container at a higher price, and earned an extra sum of US$30 per metric tonne.  PW1 said he questioned DW1 at once and PW1 apologized and excused that her colleague had made a mistake.  Having considered the evidence, I prefer the evidence of PW1 and reject that of DW1.  If the Plaintiff could not afford the fourth container, there was simply no reason why it would order it in the first place, and it was even more absurd for it to order another two containers of scrap plastic material just two days later on 24^th October 2001.  Besides, as mentioned in paragraph 68, DW1 had tried to use the sale of this fourth container to support her claim that the goods were not defective since she could sell the containers returned by the Plaintiff at a higher price.  Hence, on the one hand, she said she sold the fourth container because the Plaintiff could not afford it, but on the other hand, she said she sold it because the Plaintiff returned it on the wrongful pretext that the goods were defective.  The later version was obviously untrue, but it also shows that DW1 has been self-contradictory.  It appears to me that DW1 would say whatever that suits her purpose and is not a witness of truth.

76.Fifth, as far as DW2 is concerned, he also did not impress me as a witness of truth.  His evidence that the Plaintiff had no complaint about the quality of the goods in the 1^st and 2^nd containers during his first visit to Hoi Kee in Sheung Shui simply did not fit the factual matrix.  His evidence that he did not see many PC CD without GPPS clear cases, small size CDs, or CD in metal cases or paper cases was flatly contradicted by the photographs (Exhibit P1). 

77.Part of DW2’s evidence was contradicted by contemporaneous documents.  For instance, his evidence that his first visit to Hoi Kee was on 24^th October 2001 was contradicted not only by the date shown on the face of the photographs (Exhibit P1), but also by the Plaintiff’s letter dated 28^th October 2001 when PW1 put on record the events up till that point of time.  DW2’s evidence that he had not seen the weight test on 4^th November 2001 in Dongguan was contradicted by the Plaintiff’s letter dated 5^th November 2001.  Even if it were right for Mr. Chan, solicitor for the Defendant, to say that there was no point for anyone to lie about the date of the first visit to Hoi Kee (a point that I do not accept) and it was a mere omission to respond to this allegation, the same excuse could not be applied to the failure of DW2 or anyone on his behalf to give an immediate response to the Plaintiff’s allegation that he was present during the weight test carried out on 4^th November 2001 if what had been alleged were untrue.  It was because the Plaintiff’s letter dated 5^th November 2001 was in effect alleging three matters: (1) the 1^st and 2^nd containers were defective because of the excessive paper contents, (2) the weight test was accurate because it was carried out in the presence of DW2, and (3) the quantum of the Plaintiff’s loss was ascertainable on the basis of those findings.  Despite such damaging allegations, the fact of the matter was DW2 had put up no timely challenge to them, and what was left was only his bare denial at trial.

78.In his evidence, DW2 was trying hard to say that despite his two visits to Hoi Kee and one visit to Dongguan, he had never had an opportunity to ascertain whether the goods supplied to the Plaintiff were defective.  He said he was so hindered because goods had been taken out of the 1^st and 2^nd containers before his arrival at Hoi Kee, and the Plaintiff had probably mixed similar discs from other companies with the goods in the 1^st and 2^nd containers.  I do not believe his evidence.  Whether or not he attended Hoi Kee to inspect the goods as a kind of good customer’s service or in response to the Plaintiff’s complaint, the first thing he would do, and must have done, was of course to identify his own goods.  If for any reason he had been prevented from doing so, it was just natural for him to put such an important matter on record, especially by 27^th October 2001 when he was well aware of the Plaintiff’s allegation that the goods were defective.  There was however no such record.  

79.Regarding the goods he saw in Dongguan, DW2 sought to give three reasons to say he could not identify whether those were in fact the Defendant’s goods in the 1^st and 2^nd containers.  In my view, the three reasons did not help him.  First, it was true that PRC Customs required all scrap compact discs to be saw-cut before they could be imported for recycling purpose, the evidence clearly showed that the discs were not cut one by one, but they were placed inside boxes, and when each box was pushed to a saw blade for cutting, a slit would be cut on the box as well as the discs inside, thereby damaging it.  In this way, if the discs were not properly placed inside the boxes, it was of course possible to have some discs remained uncut.  Second, as to the presence of big boxes, PW3 had clearly explained that he used these big boxes to store the goods that were dropped out at the time when the goods were unloaded from the containers.  Third, since the Plaintiff’s factory was a recycling factory, it was of course likely to have similar goods from other sources, but it was far from proof to say that the Plaintiff had mixed other goods with the Defendant’s.  In my view, there was no evidence at all that the Plaintiff had mixed the Defendant’s goods with others. 

80.It was worth referring to the Defendant’s letter dated 24^th November 2001 again.  Just to recap, this letter was written by DW1 in response to the Plaintiff’s invitation to the Defendant to appoint its own expert or surveyor to inspect the goods.  Instead of saying that it was pointless to do so because the goods in the 1^st and 2^nd containers had been mixed beyond recognition as early as on or before 4^th November 2001, DW1 said that the Defendant had already had a comprehensive understanding of the two containers of goods.  Instead of saying that the goods now in Dongguan might not be the Defendant’s goods, DW1 positively pointed out the difference between the goods when they were in Hong Kong and whilst they were in Dongguan, and what she had written was merely that “the difference between the two inspection is that most of the material being processed (saw-cut) by Mr. Robert Lau.”  In my view, DW1 could not have written this letter unless she had been provided with the information by DW2.  But such information was clearly inconsistent with the evidence given by DW2 in Court.

81.Furthermore, if DW2’s evidence were true that the goods supplied in the 1^st and 2^nd containers were not defective, he could surely produce positive evidence to support his case even if, as he alleged, the Plaintiff had mixed these goods with other goods subsequently.  Such evidence should have come in the form of photographs taken by DW2 at the time when he first visited Hoi Kee and found no problem with the goods.  As it was so testified by PW1, DW2 admitted that he had taken photographs of the goods during this visit and that he had done so to protect the Defendant.  He admitted he realized the importance to keep these photographs as evidence.  However, such photographs were never produced at the trial.  Under cross-examination, DW2 said that there was no point of producing the photographs because PW1 had already approved the goods.  However, this explanation was nonsense because it must be clear to DW2 when the trial began that PW1 had denied he had ever said so.  When he was asked why he had not even disclosed to the Defendant’s lawyer about the existence of these photographs, DW2 put up the excuse that it had been a long time and that his company had moved once and he needed time to search for the photographs.  This explanation lacked a ring of truth.  In any event, Mr. Chan, no doubt upon instructions, did not seek for an adjournment to allow DW2 or anyone of the Defendant to search for the photographs.  In my view, DW2’s failure to produce the photographs cast doubt on his credibility.  If the photographs in his possession could have proved his case, why were they not produced by DW2?  Similar comments can be made in respect of the photographs taken by DW2 during his visit to Dongguan on 4^th November 2001.  If, as he alleged, it had been true that the Plaintiff had mixed the goods in the 1^st and 2^nd containers with other goods, why were these photographs not forthcoming?

82.While still on the issue whether the Defendant’s goods could be properly identified for sake of inspection, I wish to mention one piece of evidence given by DW1.  She said that when PW1 alleged that there were problems with the goods, she told PW1 that he should have asked the Defendant to inspect the goods, but PW1 told her that the goods had been saw-cut.  The insinuation of her evidence was PW1 had told her that it was meaningless to inspect the goods because their form had already been changed.  However, in my view, this piece of evidence lacks credibility because even if the discs in the 1^st and 2^nd containers had been saw-cut, that did not present a problem for proper inspection of the goods because only a slit had been made on the discs, and the Plaintiff’s major complaint was that the PC CDs were not accompanied by jewel cases or GPPS clear cases, but by other unwanted substance like paper and metal. The saw-cutting would not have prevent a proper inspection of the condition of the goods.

83.Going back DW2’s credibility as a witness, there were instances when I find his evidence lacked a ring of truth.  For instance, he said he had not inspected the goods in the 3^rd container on 27^th October 2001 because the purpose of that visit was merely to see if the 4^th and 5^th containers had arrived at Hoi Kee.  Even if that were the purpose of the visit, it did not prevent him from inspecting the goods in the 3^rd container, especially at that time the Plaintiff were complaining that the goods were defective.  It had no ring of truth when DW2 said he returned to Dongguan to inspect the goods not because there were problems over the quality of the goods but just as a kind of good customer service.

84.All in all, I find that DW1 and DW2 are untruthful witnesses and that I can place no reliance on their evidence.  I have no hesitation in rejecting their evidence that the goods supplied by the Defendant in the 1^st, 2^nd and 3^rd Defendant were not defective.

85.As far as the evidence given by the Plaintiff’s witnesses was concerned, in my view, there were clear and unambiguous evidence coming from PW1, PW2 and PW3 who had personally examined the goods in the 1^st, 2^nd and 3^rd containers and were in a position to give direct evidence on the state and condition of the goods when they were delivered by the Defendant.  Their evidence corroborated each other and was supported by photographs and contemporaneous documents. 

86.I have born in mind the criticisms made by Mr. Chan about the credibility of the Plaintiff’s witnesses.  He referred in particular to three matters.  The first one concerned PW1’s evidence that DW1 had told her that the PC CDs would be coming from Canada, and that was one of the consideration he purchased the goods at US$300 per metric tonne.  Mr. Chan said that PW1 was not truthful on this point because he had subsequently placed order for the 4^th and 5^th containers when he clearly knew that the goods would be coming from Japan since when he got the delivery orders for the first three containers, he had already known that the goods would be from Japan since the port of loading had been clearly stated in the delivery orders as Osaka.  I do not find PW1’s credibility has been shaken at all on this point.  PW1 told me clearly that he had no experience in trading in scrap plastic materials from Japan, and had he been told that the goods were not from Canada but from Japan, he would reconsider.  That piece of evidence showed PW1 was not saying that if he were told that the PC CDs were originating from Japan, he would definitely refused to enter into sale contract but he needed to re-consider.  Besides, he had stated clearly in his evidence that it was upon DW1’s assurance and undertaking that the goods in the 4^th and 5^th containers would be PC CD in jewel case or GPPS clear case that he agreed to place that order.  In my view, this was a credible explanation, and I do not find PW1’s evidence on this point inconsistent, contradictory or improbable.  The other two matters referred to by Mr. Chan were PW1’s claim for the cost for saw-cutting the PC CDs in the 3^rd containers (and Mr. Chan submitted that the saw-cutting had never been done), and for importation duty.  I shall deal with these two matters in due course, and it suffices for me to say now I do not find these matters shaken PW1’s credibility.

87.As far as the evidence of PW4 is concerned, I do not accept him as an expert witness.  PW4 clearly had no expertise or experience in dealing with scrap compact discs, and he did not have the expert qualification to determine what kind of PC CDs would or would not be accepted in the trade of scrap plastic materials. 

88.However, I agree with Mr. Wong, counsel for the Plaintiff, that I can accept PW4 as a factual witness who had actually seen, examined and took pictures of the goods in the 1^st and 2^nd containers.  PW4 had obtained information and a sample from the Plaintiff as to what type of goods would conform to the contractual descriptions of “PC CD uncut whole disk – with jewel case – GPPS clear case”, and on that basis, he had inspected the goods and complied his report.  The findings made by PW4 clearly showed that many of the goods he had inspected did not correspond with the contractual descriptions. 

89.It is of course for the Plaintiff to prove that the goods inspected by PW4 were in fact the goods from the 1^st and 2^nd containers.  In my view, there was ample evidence in this regard.  PW2 gave clear and unambiguous evidence that the goods taken out of the 1^st and 2^nd containers for inspection and saw-cutting had all been returned to the respective original containers before they were removed out of Hoi Kee and shipped to Dongguan.  PW3 had also given clear and unambiguous evidence on how the 1^st and 2^nd containers were handled after their arrival in Dongguan.  Both of them had also testified that they had separated the goods in these two containers from other goods whilst they were in their custody.  PW1 also testified that he was able to identify the goods he saw in Dongguan on 4^th November 2001 were the same goods he had seen on 23^rd October 2001 in Hoi Kee as the goods from the 1^st and 2^nd containers.  He said he was able to make the identification because the Plaintiff had never dealt with Japanese scrap plastic materials before, the small boxes containing the goods were the same boxes he saw in Hong Kong, and the Plaintiff had assigned a special area for placing these goods and the Plaintiff did not allow other goods to be mixed with them.  The identity of the goods must be put beyond doubt when DW2 was willing to select randomly from the goods in Dongguan for a weight test to be done on 4^th November 2001.  On the basis of the evidence, I find as a fact, on balance of probabilities, that the goods inspected by PW4 on 17^th November 2001 in Dongguan Tong Mei Plastics Limited and in the Dongguan Correctional Centre were in fact goods from the 1^st and 2^nd containers.

90.Not only was there direct evidence from PW1 to PW4 on the state and condition of the goods, the first seller of the goods, i.e. PW5, had also provided clear and unambiguous evidence that the goods supplied in the 1^st to 3^rd containers contained paper, as it had been so described in the contract of sale between him and his immediate buyer Best Idea, and that he had paid compensation to Best Idea in the sum of $6,191 to Best Idea because there were videotapes, cassette tapes, and CD in metal cases in the goods.  I agree with Mr. Wong that PW5 was an entirely independent witness who had no reason to lie for the Plaintiff.

91.Having considered the evidence carefully, I am satisfied that each of the Plaintiff’s witnesses is truthful and reliable.  I find their evidence accurately reflecting the facts of this case.  On the basis of the evidence given by PW1, PW2 and PW3 on the conditions of the goods, the verbal admissions of DW2 on their defective quality, the result of the weight test carried out in the presence of DW2, the respective quantities of plastic and paper in the 1^st and 2^nd containers ascertained by PW3, the inspection report made by PW4, the evidence of PW5, and the three sets of photographs, I find, on balance of probabilities, that the goods supplied by the Defendant to the Plaintiff in the 1^st, 2^nd and 3^rd containers were in the condition as each of the witnesses had respectively testified to.  I find that the goods in these containers were mixed with articles including paper cases, paper packing, metal cases, videotapes and others that were not “PC CD uncut whole disk – with jewel case – GPPS clear case”.  I find the quantity of these unwanted articles had exceeded the tolerated limit of 15% of the weight of the goods sold.  Hence, I find that the goods so supplied by the Defendant did not correspond with the contractual description, and that the Plaintiff was entitled to reject them.

Subject matter of the Plaintiff’s 2nd Purchase Order

92.It is common ground in the evidence that the Plaintiff had placed its 2^nd purchase order with the Defendant for two more containers of scrap plastic materials on 24^th October 2001, but the evidence differs on the circumstances in which the order was placed.

93.According to PW1, while PW2 was still in the course of sorting out the defects of the 1^st and 2^nd containers, DW1 approached him by phone on 24^th October 2001 and sought his help to buy two more containers of scrap plastic materials because the storage time for them would soon run out.  He said DW1 offered to discount the price to US$275 per metric tonne, and guaranteed that these goods would be 100% compact discs in jewel cases.  She said the problem relating to the first two containers might be on the surface only because only goods at the door of the containers had been inspected, but not the substantial part of them, and she would be responsible for any claims.  PW1 said he accepted DW1’s offer in light of her sincere request and guarantee.

94.On the other hand, DW1 testified that it was PW1 who approached her on 24^th October 2001 and placed this further order after he had told her that the goods in the 1^st and 2^nd containers were found to be basically acceptable after the inspection with DW2 in Hoi Kee that day. 

95.For reasons I have already explained, I find that PW1 had not told DW1 that the goods in the first two containers were basically acceptable.  It follows that I do not accept that the 2^nd purchase order was placed in the circumstances as alleged by DW1.  In addition, I find the evidence of DW1 implausible and inherently improbable.  It is not disputed that DW1 sold the 4^th and 5^th containers at US$275 per metric tonne under the Plaintiff’s 2^nd purchase order.  This was a substantial reduction in the sale price because DW1 was selling at US$300 per metric tonne on 15^th October 2001 to the Plaintiff, and at US$330 to Chong Fat Trading Company on 22^nd October 2001.  I had difficulty in understanding why DW1 would have reduced the price by US$55 per metric tonne within two days, especially when it was PW1 who wanted the goods.  I prefer the evidence of PW1.

96.Pursuant to this oral agreement, the Defendant issued to the Plaintiff another Invoice No. B0184 dated 24^th October 2001 (page 220 of the Bundle).  In this Invoice, the Defendant described the goods to be sold as “PC CD Uncut Whole disk with clear GPPS case”.  The quantity in total was 51 metric tonnes in two (the 4^th and 5^th) containers.  Although the descriptions of the goods were not word for word identical with those in the 1^st Purchase Order because the words “with jewel case” were missing out, I find that the meanings were exactly the same.  Just to recap, jewel case and GPPS clear case had the same meaning.

Did the goods supplied by the Defendant under the 2nd purchase order correspond with the contractual descriptions?

97.According to PW1, after he had placed the 2^nd purchase order, the 3^rd container was delivered to Hoi Kee on 26^th October 2001.  PW2’s workers started unloading and saw-cutting the goods only to find that the goods did not correspond with the contractual description as amongst others there were too many small size PC CD with paper case.  Upon learning from PW2 the condition of the 3^rd container as well as the 1^st and 2^nd ones, PW1 decided not to accept the 4^th and 5^th containers until the Defendant had sorted out problems relating to the goods.  He stopped payment of the cheque for the 2^nd purchase order, and notified DW1 to send a representative to check the goods again.  As have already been recited, DW2 attended Hoi Kee on 27^th October 2001.

98.According to PW2, after DW2 had checked the 3^rd container on 27^th October 2001 in Hoi Kee, DW2 immediately made a call via his mobile phone, and then said he had to leave for personal reason.  PW2 therefore sent DW2 and PW1 away in his car, and he intended to drive them to Sheung Shui Railway Station.  However, at the road junction in front of Hoi Kee, DW2 wanted to leave and did alight from the car.  PW2 drove PW1 away, and when he returned to Hoi Kee, his workers told him that the transportation company had delivered the 4^th and 5^th containers to Hoi Kee whilst he was away, and that DW2 had returned with another man whom DW2 described as his quality inspector, and that they had opened the 4^th and 5^th container for inspection without prior approval.  PW2 said he complained to PW1 of the inappropriate action of DW2.  He also checked the goods in the 4^th and 5^th containers and found that they were in the same defective state and condition as the earlier containers.

99.On the other hand, DW2 denied that he had returned with a man and inspected the 4^th and 5^th containers on 27^th October 2001.  He said that he had only inspected these two containers after they had been resold to another buyer and that he found no problem with the goods.

100.PW1 testified that he had spoken to DW1 and told her that the 4^th and 5^th containers had the same problem as the other containers.  DW1 appeared to be shocked and asked PW1 to return these two containers to a warehouse designated by her. 

101.I have carefully considered the evidence given by the witnesses.  I find DW2’s evidence conflicting.  Under cross-examination, he said that the only purpose of going to Hoi Kee on 27^th October 2001 was not to check the defects in the 3^rd container but to see if the 4^th and 5^th containers had arrived at Hoi Kee.  He said those containers should be returned to the Defendant after the Plaintiff’s cheque for the 2^nd purchase order had bounced.  He said he saw only one of the two (4^th and 5^th) containers arrived at Hoi Kee.  When he was asked if he had checked the goods inside, he said he had not because PW2 refused to allow him to do so.  However, when he was further questioned, he said that since the cheque for these two containers had already bounced, the ownership of the goods remained in the Defendant and hence there was no point to check the goods.  So, did he ask to check the goods or did he not ask to check the goods because there was no point for so doing?  In addition, I have a poor view of DW2 in terms of his credibility and reliability as a witness on various other matters as I have already mentioned. I reject the evidence given by DW2. 

102.In cross-examination of PW1, it was put to him that there was no need for him to inspect the goods in the 4^th and 5^th containers because he had already stopped payment of the cheque.  PW1 denied the suggestion.  He said that while based on the conditions of the 1^st, 2^nd and 3^rd containers he had drawn inference about the condition of the goods in the 4^th and 5^th containers, he needed to have a clear idea of what were actually inside the 4^th and 5^th container and hence a factual basis for stopping the cheque.  I find his answer convincing. 

103.In addition, I cannot find any reason for PW2 to lie.  I note Mr. Chan’s criticism of the evidence given by PW2 on saw-cutting the discs in the 3^rd container.  But, for reasons I shall give later, I do not find the criticism caused me to doubt his credibility.  On the contrary, if the goods in the 4^th and 5^th containers had met the contractual descriptions and could be accepted, I find no reason for PW2 to allege otherwise because the Plaintiff had already engaged him to saw-cut the compact discs in these containers and he would be benefited.  After all, he was not at liberty to say whatever he wanted to say even though there was no basis for him to say so.  It was because after the two containers had been returned to the Defendant, the Defendant, with the goods in hand, was certainly in a position to verify his claim.  I therefore see no reason why he would lie.  I accept his evidence.  I accept that the goods contained in the 4^th and 5^th containers were in a defective state as in the 1^st, 2^nd and 3^rd containers, and that the Plaintiff was entitled not to accept them.

104.For reasons that I have given above, I find that all the goods supplied by the Defendant in the 1^st to 5^th containers failed to correspond with the contractual descriptions as the parties had agreed under the Plaintiff’s 1^st and 2^nd purchase orders, and was in breach of the contract.

Rejection / acceptance of the goods

105.It is common ground that the Plaintiff returned the 4^th and 5^th containers to Sunstar Warehouse Limited on 27^th October 2001 (page 224 of the Bundle), and the 3^rd container to Kao Hsung Pier situated at Yaumatei Government Loading Pier, Kowloon on 30^th October 2001 (page 227 of the Bundle), both of them were agents appointed by the Defendant.  It was also common ground that the goods in the 1^st and 2^nd containers were eventually shipped to Dongguan.  The parties however differ on what had happened that led to this state of affairs.

106.According to PW1, on 27th October 2001, after he had told DW1 that the 4^th and 5^th containers had the same problem as the other containers, DW1 asked him to return these two containers to a warehouse designated by her.  Later on the same day, they spoke again about the problem goods.  PW1 said he wanted to return the 1^st, 2^nd and 3^rd containers to the Defendant.  However, DW1 said she could not deal with so many goods, and she could only accept the return of the 3^rd container.  She asked for PW1’s assistance.  PW1 then suggested that the 1^st and 2^nd containers could be transported to PRC for detailed checking and sorting of the goods so as to know the exact problem first, and they would then try to meet the Defendant’s needs.  PW1 further stated that he had asked DW1 for her guarantee in compensation of the matter, and DW1 agreed that it would be dealt with.  PW1 stressed that it was only upon the undertaking given by DW1 to take full responsibility to compensate the Plaintiff for loss and damage sustained that he agreed to send the 1^st and 2^nd containers to the Plaintiff’s factory in Dongguan for detailed investigation since it was impossible to detect any defects by simply looking at the boxes with the goods inside.

107.On the other hand, DW1 denied she agreed to take back any of the containers because of defects.  She maintained that the PW1 had not asked to return to her the 1^st and 2^nd containers.  She denied that she had spoken with PW1 on how to deal with the 1^st and 2^nd containers.  She said she did not know when the 1^st and 2^nd containers were moved back to Dongguan because the Plaintiff did not inform her.

108.PW1 testified that the 1^st and 2^nd containers were loaded onto a vessel by View Point Shipping Company on 31^st October 2001 for shipment to Dongguan.  The two containers arrived there on 3^rd November 2001.  The goods were then checked and sorted.  He discussed with DW1 or the Defendant about the Plaintiff’s claim but to no avail.  Eventually, on 5^th December 2001, a meeting was held at the Plaintiff’s office.  The persons present included PW1 on behalf of the Plaintiff, DW2 on behalf of the Defendant, Mr. Capston Lau on behalf of Best Idea and PW5 on behalf of Chang Lee.  In the meeting, it was agreed that the Plaintiff should handle and sell all scrap plastic materials in respect of the 1^st and 2^nd containers in order to minimize and mitigate the loss and damage suffered by the Plaintiff.

109.DW1 and DW2 on the other hand testified that no agreement had been reached in this meeting on 5^th December 2001, but the parties had the understanding that if there were really any problem with the goods, “the Defendant and its supplier” would be willing to take responsibility.  DW1 agreed that a decision had been made in this meeting to let the Plaintiff sell the goods in the 1^st and 2^nd containers.  In Re-examination, DW1 sought to explain that it was her understanding even before that day that the Plaintiff had a right to sell the goods.

110.I have considered the evidence very carefully.  I prefer the evidence of PW1 to that of DW1.  In my view, it was just inherently improbable that PW1 and DW1 had not discussed on how to deal with the 1^st and 2^nd containers as alleged by DW1.  It was common ground that they had agreed on 27^th October 2001 that the 3^rd, 4^th and 5^th containers would be returned to the Defendant.  Under these circumstances, there was simply no reason why the parties would not have discussed further about the 1^st and 2^nd containers which were also alleged to be defective by the Plaintiff, and in fact it was because of their alleged defects that prompted the Plaintiff to stop payment of the cheque for the 4^th and 5^th containers.  In addition, DW1’s evidence was not consistent with paragraph 7 of the Plaintiff’s letter dated 28^th October 2001 (pages 225 and 226 of the Bundle) where PW1 had stated, “Yesterday, (I) conversed over the phone with you, and (you) agreed and verbally promised to handle the return of the 4^th container, the 5^th container, and the 3^rd container, and to handle claims relating to the 1^st and 2^nd containers”.  This record showed that PW1 and DW1 had discussed with one another on 27^th October 2001 on how to deal with all 5 containers of goods, and DW1 had never refuted the allegation in this letter in writing.  It was true that PW1 had not recorded in this letter that DW1 had agreed to have the 1^st and 2^nd containers shipped to Dongguan for detailed checking.  However, nothing in this letter was inconsistent with the existence of that agreement.  Besides, when DW1 was being cross-examined, she admitted unambiguously that she had agreed to the Plaintiff’s suggestion to move the goods of the 1^st and 2^nd containers back to Dongguan.  In other words, DW1 had made a clear admission in Court that she had agreed to adopt that course of action.

111.Furthermore, the parties’ subsequent conduct was also consistent with an agreement that the 1^st and 2^nd containers were to be moved back to Dongguan first and the parties would work out their rights and liabilities in due course.  By a fax dated 1^st November 2001 (page 229 of the Bundle), PW1 notified the Defendant that the two containers were being shipped back to the mainland, and stated that the Plaintiff would provide the Defendant with its proper claim after the containers had arrived at the factory.  This fax refuted DW1’s evidence that she had not been informed when the 1^st and 2^nd containers were moved back to Dongguan.  It also pointed to an agreement that the two containers would be checked in the Plaintiff’s PRC factory so that the true extent of the Plaintiff’s losses could be properly ascertained.  In addition, the fact that DW2 attended the Plaintiff’s factory in Dongguan to inspect the goods on 4^th November 2001, and that a meeting had been held on 5^th December 2001 to resolve that the Plaintiff could sell the scrap plastic materials in the two containers were consistent with the existence of the agreement.  If shipping the goods out were just an unilateral decision of the Plaintiff, there was no reason why it would notify the Defendant of the shipment, and it was likewise unreasonable for the Defendant to follow up with the goods after they had left Hong Kong, and absolutely ridiculous for the Defendant to play a part in the decision whether the goods were to be sold.

112.Under cross-examination, DW1 agreed that there were a lot of goods in the 1^st and 2^nd containers, and that a lot of space and manual labour were required to take them out, and that labour was much cheaper in PRC for this kind of work than in Hong Kong.  It was clearly for this benefit that DW1 agreed to PW1’s suggestion to have the goods shipped to Dongguan for checking when she was not in a position to accept the return of these two containers in addition to the 3^rd, 4^th and 5^th containers.

113.As far as the meeting on 5^th December 2001 was concerned, I prefer the version of evidence given by PW1.  In fact, it was not correct for DW1 and DW2 to say that the meeting failed to resolve anything.  In the Defendant’s own letter dated 6^th December 2001 (pages 143 and 144 of the Bundle), DW1 herself had stated that “all related parties agreed Benchmarking to handle and sell two CD PC containers located at Benchmarking factory and Dongguan Correctional Centre respectively”.  DW1 herself had specifically used the word “agreed”, but she said in Court that the parties reached no agreement in this meeting.  In so far as DW1’s claim in her letter dated 6^th December 2001 that the Plaintiff would have to discuss with PW5 over the Plaintiff’s claim, of course there was no agreement as it was promptly refuted by the Plaintiff’s letter dated also 6^th December 2001 (page 140 of the Bundle).  However, the significance of this meeting on 5^th December 2001 was that the Defendant had a say on the ultimate disposal of the goods in the 1^st and 2^nd containers, and it did give the Plaintiff’s its approval to sell them.

114.Having considered the evidence given by all the witnesses, I accept the evidence given by PW1.  I find that the Plaintiff had a right not to accept any of the 5 containers because the goods contained therein did not correspond with the contractual descriptions, and that the Plaintiff had not accepted any of them.  I find as a fact that the Plaintiff had duly rejected and returned the 3^rd, 4^th and 5^th containers to the Defendant.  As far as the 1^st and 2^nd containers were concerned, while they had not been returned to the Defendant, I find as a fact that PW1 had indicated to DW1 that the Plaintiff intended to return the 1^st and 2^nd containers to the Defendant, and that in response, DW1 sought PW1’s help and agreed to PW1’s suggestion to have the goods shipped to Dongguan for detailed checking of the problem goods.  I also find as a fact that it was upon the Defendant’s undertaking and agreement, through PW1, to compensate the Plaintiff for the loss and damage that it had sustained that the goods were so shipped to Dongguan by PW1.  I agree with the submission by Mr. Wong, who cited to me sections 37 and 38 of the Sales of Goods Ordinance, that the Plaintiff had not done anything inconsistent with the ownership of the Defendant in the goods so that it would be taken to have accepted the goods. I find as a fact that the Plaintiff was moving the goods to Dongguan, handling them in its factory there, and selling them ultimately were all done with the consent and approval of the Defendant.  I also find as a fact that the Defendant had agreed and allowed the Plaintiff to sell the scrap plastic material in the 1^st and 2^nd containers for the purpose of mitigating the Plaintiff’s loss and damage.

115.I also add that I did not find saw-cutting the compact discs was an act inconsistent with the ownership of the Defendant.  First, the Plaintiff was entitled to a reasonable opportunity to examine the goods, and it was clear from the evidence that the examination of the goods and saw-cutting were to take place at the same time.  Second, when PW1 complained to DW1 on 23^rd October 2001 that the goods in the 1^st and 2^nd containers did not correspond with the contractual description, only 2 tonnes of the goods which were placed near the door of the container had been examined, and DW1 had undertook on behalf of the Defendant to PW1 to resolve the matter if workers of Hoi Kee found the goods unpacked from the inside of the containers were also defective while they did saw-cutting.  Third, saw-cutting the discs would increase the value of the discs, even if they had to be returned to the Defendant, because scrap discs had to be saw-cut before they could be exported.  As indicated in PW1’s evidence, he was prepared to pay a higher price for cut compact discs because he needed not incur expenses for doing so.

116.Having considered the evidence, I find that the Plaintiff has proved, on balance of probabilities, that it has never accepted any of the 1^st to 5^th containers, and that it had properly rejected them.

The Plaintiff’s pleaded case

117.Mr. Chan submitted that the Plaintiff’s case was doomed to failure because its claim has not been properly pleaded.  He submitted that the Plaintiff’s claim was not a simple claim for breach of contract, but a claim in relation to an agreement dated 6 December 2001.  He submitted that this agreement had not been pleaded, that there was no consideration to the agreement, that consideration had not been pleaded, and that it would be unlikely that there was such an agreement.  Mr. Chan submitted that the only reference to a December 6 agreement in the Amended Statement of Claim was in paragraph 31 where it was alleged,

“At the meeting on 6th December 2001, in the presence of D1’s suppliers namely Mr. Captsun Lau & Mr. Leung Tat Fei; and sided-participants namely, Miss Tracy Lee & Mr. Barry Lee, Mr. Frankie Cheung on behalf of the first and second defendants fully agreed with the Plaintiff to handle and sell all plastic scraps in respect of the 1st and 2nd containers of PC CD first in the Plaintiff’s PRC factory and Dongguan Correction Centre in order to minimize and mitigate the loss and damages suffered by the Plaintiff as pleaded in the paragraphs 26 – 30 hereinabove.”

118.Mr. Chan submitted that the pleading in paragraph 31 was nowhere close to saying that there was an agreement that the Defendant should shoulder all the expenses that the Plaintiff would incur in relation to the goods, and also to shoulder all losses no matter at what price the Plaintiff would sell the goods. 

119.Mr. Chan cited the judgment of Deputy High Court Judge Woolley in Li Tin-sang v. Poon Bun Chak, unreported, HCA9296/2000, and then the judgment of the Court of Appeal in the same case, CACV119/2003, to support his proposition that a claim based on an alleged agreement that had not been properly pleaded because there was no averment to the consideration supporting that agreement was liable to be struck out and dismissed.

120.Mr. Wong’s answer to Mr. Chan’s submission was simply that the Plaintiff’s claim was not based on the 6^th December 2001 agreement.  He submitted that the Plaintiff’s claim was based on the Defendant’s breach of the original breach of contract, which caused the Plaintiff to reject the goods supplied, and that as a result thereof, it was claiming for all damages flowing directly from the Defendant’s breach and for expenses that had been incurred in mitigation of the damage.

121.It is clear to me, from the evidence adduced at trial, there was in fact no agreement reached on 6^th December 2001.  What had been pleaded in paragraph 31 of the Amended statement of Claim was inaccurate because the agreement referred therein was reached on 5^th December 2001 and it was only on 6^th December 2001 that DW1 sought to record the agreement in writing.

122.The mistake in the pleading however, in my view, does not affect the Plaintiff’s claim.  Despite the ingenious argument of Mr. Chan, who frankly admitted that he was taking a technical point, the fact of the matter was it was clear from the Amended Statement of Claim that the Plaintiff was claiming for its loss and damage flowing directly from the Defendant’s breach. 

123.Mr. Chan submitted that the Plaintiff had never averred in the pleadings that it had rejected the goods supplied by the Defendant.  In my view, this point does not assist him.  While it is true that the Plaintiff had not used the word “reject” or “rejection” specifically in the pleadings, the facts averred therein had clearly and unequivocally put forward the Plaintiff’s case that it had rejected all the goods.

124.I have studied the pleadings carefully.  In my view, it had been pleaded clearly, in paragraphs 24 and 25 of the Amended Statement of Claim, that the Plaintiff returned firstly the 4^th and 5^th, and later the 3^rd containers back to the Defendant, and that DW1 had mutually agreed with PW1 that “the 1^st and 2^nd containers would be delivered to the Plaintiff’s PRC factory & Dongguan Correctional Centre … for detailed checking of the problem goods found in the 1^st and 2^nd containers”, and DW1 “also personally undertook to response and bear all the loss and damages would be claimed by the Plaintiff.”  The particulars of loss and damage, as pleaded in paragraph 32 of the Amended Statement of Claim, also clearly showed that the Plaintiff was not claiming against the Defendant for loss of profit, or for loss incurred as a result of acquiring substituted goods, but it was claiming against the Defendant for expenses wasted as a result of the Defendant’s breach of contract, and for expenses that had been incurred by the Plaintiff for the purpose and in the course of mitigation of damage. 

125.In Chitty on Contracts, 29^th Edition, Vol. 1, it has been stated in paragraph 26-063 that: -

“The claimant may claim damages for wasted expenditure which he incurred in reliance on the contract or as the result of the defendant’s breach.”

126.In addition, it has been stated in paragraph 26-105 of the same Volume that: -

“The third rule of mitigation is that the claimant may recover damages for loss or expenses incurred by him in reasonably attempting to mitigate his loss following the defendant’s breach, even when the mitigating steps were unsuccessful or in fact led to greater loss.”

127.In the present case, according to the facts accepted by me, the steps taken in mitigation was not only reasonable in the circumstances but also taken with the agreement of the Defendant.

128.For reasons aforesaid, I reject Mr. Chan’s submission on the pleading point.  With the aforesaid principles in mind, I consider whether each of the Plaintiff’s claims is recoverable.

Is each item of the claims recoverable?

129.The Plaintiff has listed 11 items in the particulars of loss and damage.  At the beginning of the trial, Mr. Wong informed me that the Plaintiff was not claiming at the trial herein item No. 7, i.e. the sum of $3,100 for “SGS Fee” that had been incurred for inspecting the 1^st and 2^nd containers on 17^th November 2001.  He submitted that this claim should fall within the ambit of costs.  It is therefore unnecessary for me to deal with item No. 7 in this judgment.

130.In item No. 1, the Plaintiff was claiming for the sum of $122,648.06 being “all cargo amount”, i.e. sum already paid to the Defendant for the 1^st and 2^nd container, calculated at USD$300 per metric tonne x 52.36 metric tonnes x HK$7.808.  I have found as a fact that the Plaintiff had properly rejected all 5 containers because of the Defendant’s failure to supply goods corresponding with the contractual descriptions.  For this reason, the Plaintiff is entitled to recover from the Defendant the sum it had paid for the purchase of the 1^st and 2^nd containers because there was a total failure of consideration.  I find that the Plaintiff is entitled to recover this sum of $122,648.06 from the Defendant.

131.The Plaintiff was claiming, under item No. 2, the sum of $63,508.00 being “importation duty to Dongguan, PRC” for the 1^st and 2^nd containers.  Mr. Chan submitted that the court had not heard truthful evidence about this item of expenditure because that item involved asking the court to adopt PW1’s definition of import duty.  In evidence, PW1 had said that this term “importation duty” included not only the freight but also the customs duty for bringing the 1^st and 2^nd container into Dongguan, PRC.  Mr. Chan submitted that it was not open to PW1 to claim as a layman he did not understand the term because anyone who put pen into paper would have to bear in mind what that term meant.  He also questioned why there was no official document confirming that import duty had been paid.  He further submitted that the Plaintiff had to incur these expenses in any event, and hence they were not recoverable.

132.PW1 testified in evidence that the amount claimed, i.e. $63,508 was in fact the figure given by the transportation company View Point Shipping Co. Ltd. (page 249 of the Bundle).  He denied that it was misleading to call the expenses “importation duty” because according to the usage of his trade, this term meant the local transportation charges, the transshipment of goods by small boat from Hong Kong to the mainland, PRC importation duty, PRC inland transportation cost, and also the charges involved for an empty container to be transported back to Hong Kong.  PW1 agreed that he was not too clear about the actual amount of the importation duty but he could find out.  He also agreed that he did not have the official importation duty certificate issued by PRC, and he explained it on the ground that the PRC would not issue receipt of this kind to a Hong Kong transportation company transporting goods into the mainland for the Plaintiff. 

133.Having considered the evidence given by all witnesses, I have no doubt that PW1 was telling me the truth.  It is clear from the evidence that when the scrap plastic materials were to be imported into PRC, the direct cost involved of course would be the freight, but payment of importation duty was also a prerequisite.  PW3 testified that that the custom duty and the transportation cost for importing CDs into PRC involved was RMB$1,204 per tonne, and for the transportation cost alone, it was about RMB$300 per metric tonne.  DW1 also agreed that when goods were taken back to PRC for processing, the goods would attract processing charges and customs duty, and she said she understood the rate of custom duty for importing recycling materials into PRC was 10 to 13% of the price of the goods.  It is therefore clear that even if the Plaintiff was just using the term “importation duty” in the Amended Statement of Claim, he was in fact claiming for the expenses for bringing the goods in the 1^st and 2^nd containers back to Dongguan pursuant to the agreement with the Defendant to take the problem goods there for detailed checking, and these expenses included both freight and importation duty.  I find that this item of claim is recoverable because it was for expenses incurred for the purpose of and in the course of mitigation.  The expenses were incurred reasonably and with the agreement of the Defendant.  I do not accept that this item of expenses would have to be incurred by the Plaintiff in any event.  While it was true that the Plaintiff would have spent this sum of money for transporting the goods back to Dongguan for recycling if the goods supplied by the Defendant had answered to the contractual descriptions, the Plaintiff would not be required to spend this sum of money after the Defendant’s breach because it had a right to reject the goods in Hong Kong right away, and it was only at the request and with the agreement of the Defendant to pay compensation to the Plaintiff that the goods were shipped to Dongguan.  I find that the quantum claimed not excessive.  The invoice issued by View Point Shipping Co. Ltd proved it. I find that the Plaintiff had incurred these expenses and is entitled to recover them.

134.Item No. 3 of the Plaintiff’s claim was for the sum of $22,841 being the “handling fee for saw cutting” the 1^st, 2^nd and 3^rd containers.  This sum was in fact made up of 3 components: (1) $9,259 for saw-cutting 21 tonnes of PC CDs in the 1^st container; (2) $5,732 for saw-cutting 13 tonnes of PC CDs in the 2^nd container; and (3) $4,850 for saw0cutting 11 tonnes of PC CDs in the 3^rd container.

135.In the cross-examination of the Plaintiff’s witness and in the evidence of DW2, there was suggestion that the compact discs in the 1^st and 2^nd containers that had been delivered to Dongguan had not been completely saw-cut.  I did not find that to be the case.  I have earlier described the method of saw-cutting and I find that even if not all discs had been saw-cut, it did not mean that the saw-cutting work had not been carried out.

136.Furthermore, I find that the saw-cutting charges were properly incurred.  In the initial inspection of the goods on 23^rd October 2001, PW1 and PW2 found that the goods were problematic, and made that fact known to DW1 and DW2.  The evidence showed, and I accept it to be true, that DW2 had instructed PW2 to check these two containers in detail, and PW2 had agreed to provide him with the result on 26^th October 2001.  DW1 had also told PW1 to keep on checking.  It must be remembered that Hoi Kee was not engaged to inspect the goods, but it was clear from the evidence that when they saw-cut the goods, they were in a position to inspect the goods, and it was normal and reasonable to have the two processes done at the same time.  In other words, even after the initial discovery of the defects in the goods of the 1^st and 2^nd container, it was proper for Hoi Kee, upon the Plaintiff’s instruction, to continue with the saw-cutting.  In any event, before the goods in the 1^st and 2^nd containers could be shipped back to Dongguan, they had to be saw-cut.  I find that the charges had been properly incurred and recoverable.

137.As far as the cost for saw-cutting the 3^rd container was concerned, Mr. Chan submitted that the Plaintiff was totally dishonest.  He submitted that it was totally impossible that the goods in the 3^rd container had in fact been cut.  He referred to the fact that the invoice issued by Hoi Kee (page 247 of the Bundle) for the charges for cutting the 3^rd container was dated 26^th October 2001, but on that day, the 3^rd container had just arrived at Hoi Kee and work had not yet been done.  He referred to the discrepancies in evidence between PW1 and PW2 as to when the saw-cutting of the goods in the 3^rd container was carried out.  Mr. Chan referred to PW1’s evidence that the 3^rd container was saw-cut on 27^th October 2001, but when he noticed from the invoice that the date for this item of work was stated to be 26^th October 2001, he changed his evidence.  Mr. Chan also referred to the evidence of PW2 who said that the saw-cutting started on 26^th October 2001.  He also referred to the discrepancy in evidence in that PW1 had said that on 27^th October 2001 he saw that the discs had already been saw-cut, while PW2 said he proceeded after PW1 had told him to proceed with the saw-cutting.  Mr. Chan also questioned why the 3^rd container had to be saw-cut at all when there was already a final confirmation, according to the Plaintiff’s case, on 26^th October 2001 that the 1^st and 2^nd containers were defective.

138.I have studied the evidence of PW1 and PW2 very carefully.  I do not find the discrepancies in evidence, if they were at all, cause me to doubt their evidence.  It is clear from the evidence that the 3^rd container arrived at Hoi Kee on 26^th October 2001.  According to PW2, when the 3^rd container arrived, his workers started to unload and saw-cut the goods and found there were problems.  He notified PW1 of the problem at once, and PW1 told him to stop cutting pending checking by the Defendant’s representative.  He therefore stopped and only resumed cutting until after the inspection by DW2 on the 27^th October 2001.  PW1 had also given similar evidence in this regard.  Under these circumstances, in my view, it was not surprising at all for PW1 to say that he saw discs already been saw-cut on 27^th October 20 (because it was a fact that some discs had in fact been cut during the initial inspection on 26^th October 2001), but what he really meant was only some of the discs had been cut.  In fact, it was also his evidence that the cutting process went on slowly on the 27^th October 2001, meaning that the saw-cutting had not yet been completed when he attended Hoi Kee with DW2 on 27^th October 2001.  In the premises, I do not think there was necessarily a discrepancy in the evidence between the witnesses.

139.As to why PW2 had included the charges for saw-cutting the discs in the 3^rd container into the invoice dated 26^th October 2001, PW2 testified that it was not necessary for him to complete the work first before he could put down the item into the invoice.  He said after his worker had ascertained the quantity of discs in the 3^rd container to be cut, he could write it down onto the invoice as a record, and the date of the invoice was not necessarily the same as the date when he asked for payment. PW1 also explained that the date 26 October was put down because that was “the date on which the CDs were worked on”.  In my view, if PW2 would do the work in any event, and had in fact done the work, I see no problem at all.

140.A to why PW1 instructed PW2 to saw-cut the discs in the 3^rd container even after there was a confirmation that the 1^st and 2^nd containers were defective, I think the reply came from PW1.  He said since there were many discs that could amount to 600,000 to 700,000 pieces in total, it would be impossible to check their condition by just taking a look, and that “the only way to do was for Hoi Kee to do the cutting while making a check all along”.  The Plaintiff had to know whether the goods in the 3^rd container complied with the contractual description.  It was therefore reasonable for it to carry out the inspection together with the saw-cutting at the same time.  In fact, according to PW1’s evidence that I accept, inspecting and saw-cutting the goods at the same time was in fact also the instruction given by DW1 in respect of the 1^st and 2^nd container when she asked PW1 to ascertain the conditions of the goods in the inner part of these two containers.

141.I have given Mr. Chan’s submission careful consideration, but I find that the saw-cutting charges had been reasonably and properly incurred, and the Plaintiff is entitled to recover them.

142.Item No. 4 of the Plaintiff’s claim was for the sum of $3,132 being the charges for the “local transport” from “HIT” to Hoi Kee and then to Yaumatei Government Loading Pier for the 1^st and 2^nd container.  These transportation expenses were incurred for taking delivery of the containers and for sending the containers to the pier for onward shipping to Dongguan before and after the Defendant’s breach respectively.  Part of these expenses was wasted expenditures caused by the Defendant’s breach and the remaining part of the expenses was those sum incurred for the purpose and in the course of mitigation of damage.  I find that the sum had been properly incurred.  The quantum of claim was properly documented (pages 247 and 248 of the Bundle).  I find that they are recoverable by the Plaintiff.

143.Item No. 5 of the Plaintiff’s claim was for the sum of $1,416, being the charges for “local transport” from “HIT” to Hoi Kee and then to Yaumatei Government Loading Pier for the 3^rd container.  Item 6 was for the sum of $1,500 being the charges for “local transport” for return of the 4^th and 5^th container to the Defendant’s appointed agent Sunstar.  These were clearly wasted expenditures and/or expenses incurred in the course of and for the purpose of mitigation.  The sums claimed are properly documented (pages 246, 247 & 248 of the Bundle).  They are recoverable.

144.Items 8 to 10 of the Plaintiff’s claim were for the charges and expenses that the Plaintiff had incurred while handling the goods in the 1^st and 2^nd containers pursuant to the agreement with the Defendant to have the problem goods checked and sorted out in Dongguan.  Item 8 was for the sum of $6,587.23 being warehouse storage fees.  The Plaintiff needed not store these goods but for the fact that the goods were defective and that the parties had agreed to check them in Dongguan.  The evidence was also clear that it was only on 5^th December 2001 that the Defendant had agreed to sell them, and before that period of time, the Plaintiff could have done nothing, or else it would have assumed ownership of the goods.  Hence, the period of storage was also reasonable.  Item 9 was for the sum of $800 being loading fees for the two containers.  Item 10 was for the sum of $13,830.94 being the handling fees for separating all PC CD, paper case, GPPS and others.  Item 11 was for the sum of $2,554.81 being the expenses for removing glue in plastic cases.  All these expenses were incurred as a result of the Defendant’s breach and the Plaintiff had to incur them in order to sell the goods in question. Hence, these were expenses properly incurred in the course and for the purpose of mitigation.  I find all of them properly incurred.  PW3 had given evidence regarding these charges and expenses, and recorded the breakdowns and his calculation in writing (page 251 of the Bundle). There was no counter evidence against the quantum claimed.  I find all them recoverable.

145.The Plaintiff is willing to give credit for the sum of $97,128.30 being the sale proceeds for selling the goods in the 1^st and 2^nd containers after the Defendant had given them the approval on 5^th December 2001.  PW3 gave evidence in relation to the sale.  He provided a detailed breakdown on the sale of various saleable items, i.e. GPPS clear case, PC CD electroplating material, and HIP & other scrap materials.  He gave full details of the weight and unit charge of each kind of material that had been sold (page 252 of the Bundle).  I have no reason to doubt the evidence of PW3.  There was no evidence whatsoever to show that the Plaintiff had sold the goods at under the market value at the time of sale.  It is true that the sum realized was merely $97,128.30, and was much lower than the original purchase at which the Plaintiff purchased the two containers.  However, it is common ground in the evidence that at the time of the sale, because of the effect of the September 11 incident in USA, the price of scrap plastic materials had been dropping substantially.  In the premises, I find that the Plaintiff had sold the scrap at the reasonable market price.

146.Mr. Chan complained that the Plaintiff’s claim exceeded the price of the goods.  He submitted that even if the Plaintiff were to throw the goods into the sea, the amount of damages would be less than the present claim.  On that basis, he submitted that the Plaintiff should not have incurred those expenses and then hold the Defendant liable. 

147.In my view, the short answer to that submission is that, as stated in paragraph 26-105 of Chitty on Contract cited above, the fact that greater loss had been incurred was neither here nor there, if what the Plaintiff had done was reasonable for the purpose of mitigation of damages.  In the present case, I find that not only had the Plaintiff done everything reasonable for the purpose of mitigation of damages, but also that what had been done was in fact with the consent and agreement of the Defendant.  In fact, the evidence showed that the Defendant had only itself to blame.  The evidence showed that the Defendant had been trying hard to shift the responsibility to its supplier Best Idea, or to the supplier of its supplier Chang Lee, and there was considerable delay in the sale of the defective goods.  The evidence showed that if the goods could have been sold in November 2001, the market was not as worse as that when the Plaintiff was eventually allowed by the Defendant to sell the goods.

148.For the above reasons, I find that the Plaintiff succeeds in its claim.  As far as costs is concerned, there is no reason to depart from the normal rule.

Order

149.I make the following orders: -

(1)	Judgment be entered for the Plaintiff against the Defendant for the sum of $141,689.74 with interest thereon at the judgment rate from the date of writ until the date of payment.
(2)	Costs of this action to be paid by the Defendant to the Plaintiff, to be taxed if not agreed, with certificate for counsel.  This is an order nisi which shall become absolute after 14 days from the date of handing down of this judgment unless an application for its variation is made within the said 14 days.

Mr. Colin Wong, instructed by Messrs. Weir & Associates, appears for the Plaintiff.

Mr. Edward Chan of Messrs. Chan, Wong & Lam appears for the Defendant.