Yoshida Japanese Food Ltd v. Cheong Kee Special Food Product Ltd

DCCJ 3287/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3287 OF 2006

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BETWEEN

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Coram  :  His Honour Judge Chow

Dates of hearing  :  16^th, 17^th and 20^th June, 2008

Date of handing down Judgment  :  25^th August, 2008

JUDGMENT

1.The Plaintiff runs a business in trading food products, whereas the Defendant operates a business in the manufacture and sale of food products.  On or about 26.5.2006 the Plaintiff and the Defendant entered into an agreement (the Agreement) whereby the Defendant was to deliver a certain amount of food to T & T Supermarket Inc. (“T & T”), the Plaintiff’s buyer in Canada.  The Agreement was subsequently cancelled.  The Defendant says that it was cancelled by mutual consent, but the Plaintiff alleges that it was cancelled by the Defendant unilaterally, and claims against the Defendant for $138,208, being damages for loss of profit of its resale, the particulars of which are as follows:-

The Plaintiff’s evidence

2.It is the evidence of Mr. Lee Wah Kit (“Lee”), a director of the Plaintiff, that on or about 8^th June 2006, Mr. So Kin Kan (“So”), the sales and marketing manager of the Defendant went to the office of Lee for a meeting.  During the meeting, So said to Lee that some time ago he came to know that the Defendant had been placed in the Import Alert List, and he worried that there would be difficulties for the Defendant’s goods to pass the Canadian Food Inspection Agency (“CFIA”) checks.  Lee let So talk to Kwok Hon Wai (“Kwok”), a part-time sales executive of the Plaintiff, through the phone.  Kwok made a number of proposals to So, but So rejected all of them.  At last Kwok asked So if there was any way by which the Defendant could fulfill the Agreement with the Plaintiff.  So answered in the negative.

3.On 9^th June, 2006, the Plaintiff sent a letter to the Defendant, asking the Defendant if it could deliver the goods as scheduled.  On 10^th June, 2006, the Defendant replied that it would cancel the order placed by the Plaintiff.

The evidence of the Defendant

4.The evidence of So is that on 7^th June, 2006, So attended the office of Lee to discuss the matter relating to the Defendant having been named in the import alert list in the website of the CFIA.  He feared that the products ordered by the Plaintiff might be inspected by CFIA.  At the meeting he told Lee that the Defendant had been put on the CFIA import alert list; there was a significant chance that any products of the Defendant shipped into Canada in the future would be inspected by the CFIA.  He advised Lee that the risk of shipping the products would be high and it is not worth to do it.  Lee agreed that the risks is high and agreed that the purchase should be cancelled.

5.Subsequently a female staff of the Plaintiff advised that she had just confirmed a booking with the shipping company on that day (7^th June 2006) to ship the products from Hong Kong to Canada.  She asked if it was possible to cancel the booking.  So replied in the affirmative, but a small penalty might have to be paid.  He said to Lee that the Defendant was willing to bear the penalty.  Lee said that that was acceptable and instructed the female staff to cancel the booking with the shipping company.  Then Lee said that he had to inform Kwok of the situation.  He talked to Kwok through the phone, and he asked So to explain the situation to Kwok.  Then So talked to Kwok.  After this telephone conversation So advised Lee that Kwok seemed to want to take the risk in shipping the products to Canada.  In response, Lee said that he believed it was too dangerous to do so.  As a result Lee and So agreed that the order should be cancelled and the Defendant would pay the penalty imposed by the shipping company as compensation.

6.On or about 9^th June, 2006, the Plaintiff sent him a fax which contained an enquiry as to whether the Defendant could deliver the products on 14^th June, 2006.  On 10^th June, 2006 he sent a fax to the Plaintiff in which he stated that the Defendant had to cancel the Agreement.  But the contents of this fax did not truly reflect what had happened, because it was the decision of Lee not to carry on with the Agreement.  He worded the fax in accordance with the request of Lee.  The above two faxes had been prepared at the request of Lee, who said that he wanted to have something on record to be shown to the buyer in Canada.

Analysis of evidence

7.The Defendant argues that the last date on which the Plaintiff could cancel the booking was on 4^th June 2006.  Lee cancelled the ship booking on that day because he decided to cancel the Agreement.  Lee explained that he could get another booking on time to deliver the goods if the Defendant changed its mind.  He decided to cancel the booking out of prudence as So appeared to be reluctant to deliver the goods.  I accept his explanation.

8.Whilst giving evidence So said that Lee just asked for something in writing so that he could explain the situation to his buyer in Canada, and that Lee did not ask him to word the reply.  In that situation what So put down in the Defendant’s fax to the Plaintiff does not reflect what truly happened in the meeting.  So said that he believed that it might be helpful to the Plaintiff if the fax was worded to the effect that the Agreement was cancelled by the Defendant unilaterally.  There is no reason for So to have worded the fax in the way he did.  I do not accept his explanation.  The contents of this fax reflect what actually took place.

9.The Plaintiff served its writ on the Defendant on 6^th July, 2006.  In its Defence filed on 17.8.2006, the Defendant did not aver that there was such a mutual agreement to cancel the Agreement.  It only pleaded such a defence in its amended defence filed on 9^th March 2007.

10.I find that the witnesses of the Plaintiff are truthful witnesses.  I accept their evidence.  I do not accept the evidence of So. I am not satisfied that he is a credible witness.  I do not find that the alleged mutual agreement to cancel the Agreement existed.  I adjudge that the Defendant was in breach of the Agreement unilaterally.

Was there an available market for substitute goods?

11.The next issue I have to consider is whether there was an available market for the Plaintiff to buy similar goods to mitigate its loss after the breach of Agreement by the Defendant.

12.The Plaintiff alleges that a term of the Agreement between the Plaintiff and T & T is that the goods to be supplied had to be provided by the Defendant, and there was no available market for the Plaintiff to obtain the Defendant’s products after the Defendant had failed to deliver.  The Defendant argues that the T & T Contract consisted of T & T’s purchase order dated 9^th May, 2006 and the Plaintiff’s pro-forma invoice to T & T dated 12^th May 2006.  But there is no mention in these 2 documents that the goods must be from the Defendant or must be the Defendant’s brand.

13.The Plaintiff submits that the term that the goods supplied had to be in the Defendant’s brand was contained in the email dated 25.4.2006.  The Defendant argues that this email, which was sent nearly 3 weeks prior to T & T’s purchase order, was only part of the pre-contractual negotiations between the Plaintiff and T & T.  It does not form part of the final contract between the plaintiff and T & T.  The 25.4.2006 email (from the Plaintiff to T & T) reads:-

“Pursuant to our tel-conversation with you last week, I am so glad that I have an opportunity to provide the quotation of our company products Cheong Kee Brand Fish Ball to you.  The following products list and price are stated as below:

Product Name	Packing
Size	Price          $
1.      ………….
2.      ………….
3.      ………….
4.      ………….
5.      ………….”

14.On 28.4.2006 T & T replied to this fax, saying,

“Thanks for your mail, I will prepared my order soon, I need to impute your information to my company.  By the way I just let you know, if the products are not pass by the CFIA I will return all the products to you.”

(Underlines provided)

It is very clear from this email that T & T required the products to pass the CFIA, otherwise it would return all the products to the Plaintiff.  This clearly shows that T & T would only accept the products on the condition that they do pass the CFIA (tests).  This must be a term of the contract.  But this term was neither written on the 9.5.2006 purchase order nor on the 12.5.2006 pro-forma.

15.In the 25.4.2006 email, the Plaintiff provided a quotation of Cheong Kee Brand Fish Ball to T & T.  In the 28.4.2006 email T & T said that it would prepare its order, upon the information set out in the Plaintiff’s 25.4.2006 email.  I am satisfied that the terms of the Agreement were not merely embodied in the 2 written documents as suggested by the Plaintiff.  I find that it was a term of the contract between the Plaintiff and T & T that the goods had to be supplied by the Defendant.  The issue of mitigation does not arise as the Plaintiff could only obtain the products from the Defendant, and not from the market.

16.The Defendant makes the following submission:-

‘In any event, even if the Court were to find that the Plaintiff and T & T agreed to supply only goods from the Defendant and no other supplier, it is necessary for the Plaintiff to show that:

“… the seller (i.e. the Defendant) should have contemplated, at the time the original contract was made, both that the buyer (i.e. the Plaintiff) was, or was probably, buying for resale, and that the buyer could perform his obligations under a contract of resale (i.e. the T & T Contract) only by delivering the same goods…”

See e.g. Benjamin’s Sale of Goods 7^th Edition, par 17-029’

17.Para. 17-029 of Benjamin’s Sale of Goods reads:-

“Loss on resale where there is an available market.  The buyer may have contracted to sell to his sub-buyer the very same goods as he bought from the seller, or he may have fixed the same delivery date in the contract of resale as in the original contract.  In these two situations, when the seller fails to deliver on the due date, the buyer cannot, despite the presence of an available market, avoid loss under the contract of resale: but the buyer can recover damages for that loss only where the seller should have contemplated, at the time the original contract was made, both that the buyer was, or was probably, buying for resale, and that the buyer could perform his obligations under a contract of resale only by delivering the same goods. ………… The mere fact that sub-sales may be within the reasonable contemplation of the parties at the time the contract is made does not oust the market price rule. Normally, when the seller knows that the buyer is a trader buying for the purposes of resale, the seller will be able to contemplate that, if he fails to deliver, the buyer will be able to buy substitute goods in the market in order to fulfil his contracts of resale.”

18.The rules referred to in para. 17-019 only apply in situations where there is an available market.  In the present case, there is no available market in which the Plaintiff could buy substitute goods, because the goods could only come from the Defendant and nowhere else.  The rules in para. 17-019 are not applicable in the present case.

19.Even if there is an available market, there would not be sufficient time for the Plaintiff to obtain substitute goods to be delivered to T & T on time. The latest day for the Plaintiff to supply the goods to T & T was 30.6.2006 under the letter of credit.  According to the Plaintiff, the whole process of looking for substitutes would take about 6 weeks.  The Defendant’s case is that 16 days would be sufficient.  In the present case, the first contact with the Defendant took place in the meeting held in late March 2006.  It was on 26.5.2006 that the Plaintiff issued a purchase order to the Defendant.

20.The Plaintiff’s case that 6 weeks would be required for the purpose of looking for goods is reasonable.  If the Plaintiff started looking for substitute goods on 10.6.2006, it would not have sufficient time to supply the goods to T & T by 30.6.2006.

21.Due to the matters afore-said, I enter judgment in favour of the Plaintiff in the sum of $138,208 (to be paid within 14 days from today) with interest thereon, at judgment rate, commencing from 7.5.2006 until satisfaction.

Costs

22.I make an order nisi, to be made absolute in 14 days’ time, that the Defendant is to pay costs of this action to the Plaintiff, to be taxed, if not agreed, with certificate for Counsel.

The Plaintiff  : represented by Mr. Damian Wong, instructed by Messrs. Chan, Tang & Kwok, Solicitors.

The Defendant  : represented by Mr. Douglas Lam, instructed by Messrs. Richards Butter, Solicitors.