Winner Co (HK) Ltd v. Arthur a. Seidman & Co
|
IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO. 10 OF 1971 (On appeal from O.J. Action No. 1340/68) ________________________
________________________
________________________ JUDGMENT ________________________ Huggins, J.: 1. Three main points were taken on the hearing of the appeal. The first was that the learned judge was not justified in finding that the exhibit relied upon by the respondent Plaintiffs as being part of the sample supplied by the Appellants was in fact part of such sample. Mr. Seidman asserted that it was and the learned judge believed him. In so believing him the learned judge must have been satisfied not only that the witness was honest but also that he was reliable. Before we could upset this clear finding we should have to be persuaded of the existence of strong evidence that Mr. Seidman was wrong and I agree that the Appellants have failed to indicate sufficient contrary evidence. It is clear the learned judge appreciated that the burden was on the Respondents to prove that the piece of cloth they relied upon was part of the original sample and the possibility of a mistake in the Respondents’ office must have been present to his mind. It would certainly have strengthened the case for the Respondents if Mr. Seidman had been more precise about the custody of the sample from the moment of its receipt up to the time of its production in court. Failure to produce evidence which would normally be available if a party’s case were true is a factor to be considered, but the judge had to decide the case on such evidence as was placed before him. It was also a factor to be considered that the Appellants had not called evidence which made it impossible for him to believe the Respondents’ evidence. Thus it would have been of great significance if the Appellants had been able to produce convincing evidence that what they alleged to be a piece of cloth from the same batch as the sample supplied to the Respondents was in truth from the same batch, because it was not superior to the goods delivered. By pointing out that the Appellants had not produced such evidence the learned judge did not imply that there was an onus of proof on them. In my view we cannot say that the learned judge was not entitled to make the finding which he did. 2. The next contention on behalf of the Appellants is that the learned judge misdirected himself when considering the question whether the goods were up to sample. Not only did the judge have regard to evidence of comparison of the goods delivered with the sample: he also referred to “the acid test of marketability” of the goods delivered and, in this connection, to the fact that although four of the Respondents’ customers took trial bales from the bulk they did not subsequently place further orders. It must be conceded that the learned judge appears to have placed some reliance on hearsay evidence of the reason why these prospective customers made no further purchases and of the reason why their original sub-purchasers rejected the goods. It must further be conceded that some of the evidence of the initial attempts to sell the goods after their rejection by the Rose Textile Corporation left room for doubt whether the Respondents did not place a reserve price on them. It is asserted in Chitty on Contracts (23rd ed.) 685 (1471):
That is a very wide proposition and I think that marketability must depend on the nature of the “defective” goods: although not marketable under the contract description they may yet be marketable as seconds. Mr. Seidman himself said:
That self-evident truth was followed by the words
Again he said:
A possible implication is that prior to 1968 the Respondents were never prepared to let the goods go for less than 19 cents and one is left asking oneself whether they could not in 1966 have sold the goods at a lower price which would nevertheless have resulted in a loss smaller than the amount of interest and other charges now claimed. However, this aspect of the case was not pursued. Mr. Seidman said that Rose Textiles sent a cable to the effect that they were not interested “at any price” and he also said that he could not sell the goods “other than the way they were sold”. A somewhat obscure answer he gave was
but the impression given is that he indicated he would accept some unspecified lower price than that at which sample bales were being offered. There was certainly no evidence to suggest that other willing purchasers were available prior to the date of the eventual sale to A. & E. Weeden. The questions which have to be answered are whether the admission of inadmissible evidence necessarily invalidates the learned judge’s finding and whether the remainder of the evidence supports the conclusion which he reached. First then, would he have made his finding in the absence of the inadmissible evidence? It is significant that when dealing with the question of marketability the learned judge, although he had referred to the inadmissible evidence at the beginning of his judgment, did not refer to it again: he merely mentioned the fact that the prospective customers who took trial bales did not place further orders, without mentioning the reasons why they placed no further orders. The judge’s view appears to have been that a man of Mr. Seidman’s experience would have sold the goods otherwise than “at a loss in the form of ‘seconds as are’” if it had been possible to do so. I am not sure that long experience was conclusive of his having taken all proper steps to mitigate the Respondents’ damages and, in particular, that they did not unreasonably delay offering the goods as seconds. However, the important thing is that the indications are that the learned judge did not reach his conclusion as to the marketability of the goods in reliance upon the inadmissible evidence. For my part I confess to lingering doubts whether the Respondents did make all proper attempts to sell the goods before the sale on 3rd September, 1968. Nevertheless I would not go so far as to say that there was no evidence upon which the judge could make the finding he did. That being so I have finally decided that we shall not be compelled to order a new trial. 3. The last point relates to the award of interest and this has given me much anxiety. It is conceded that we are being asked to break new ground and I am reluctant to do this in a case which I believe to be founded upon a finding of fact which, although properly supported by evidence, seems to me divorced from reality: the question of interest arose only because of the finding that the goods delivered could not be sold for two years. The nearest precedent cited to us was Cullinane v. British “Rema” Manufacturing Co. Ltd.([1]), which concerned the sale of machinery warranted to maintain a specified output but which, despite three years’ trial, failed to answer to the warranty, and it should be added that that decision has been criticised by academic writers: see, for example, Street on the Principles of the Law of Damages at p.243. 4. The damages fell to be assessed under s.55 of the Sale of Goods Ordinance. The Respondents alleged that the Appellants knew the goods were intended for resale and it was for that reason that the award was made by reference to the loss of profit and not merely to the difference between the value of the goods at the time of delivery and the value they would have had at that time if they had answered to the warranty. The principle underlying an assessment of damages in contract was stated by Lord Atkinson in Wertheim v. Chicoutimi Pulp Co.([2]): 5. “.. it is the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed”. 6. In the present case the learned judge took the actual loss on resale as being the sum of the landed cost, the cost of insurance and storage and interest at 9% per annum on the landed cost up to 15th September 1968 (the day preceding that on which the Respondents were paid by A. & E.Weeden). The rate of 9% was the rate that the Respondents were charged by their bank on loans. The learned judge then awarded interest at 9% per annum on the difference between the landed cost, including duty but excluding charges and commission, and the gross proceeds of sale for the period from 16th September 1968 until judgment. Finally, he stated (and this follows as a matter of course under s.30B of the Supreme Court Ordinance) that the judgment would carry interest at the rate of 8% per annum until payment. 7. It is not disputed that the Respondents lost and are entitled to recover the profit which they would have made through resale to the Rose Textile Corporation but for the breach of warranty. Nor is it disputed that they are entitled to recover the expenses which they necessarily incurred by reason of the breach of warranty. In view of the judge’s finding these expenses included the cost of storing the goods until they were resold, the cost of insurance and the cost of freight on goods returned by the Respondents’ purchasers. The “expenses” cannot, of course, include the purchase price of the warranted goods since “the claim for loss of profits could only be founded upon the footing that the capital expenditure had been incurred” (per Lord Evershed in Cullinane(1)), but the question is whether interest on the contract price must be excluded on the same basis. If it must, then the Respondents would receive the same damages whether resale took place two months after the breach or two years after the breach. The Appellants contend that while the Respondents may be entitled to interest on the amount of the loss on resale they are not entitled to interest on the whole contract price: they say that the damages they have to pay cannot depend upon the vagaries of the market. However, in so far as the vagaries of the market resulted in the Respondents’ being unable to sell the goods for two years it seems to me that even on their own case the damages must depend upon the vagaries of the market. Indeed, in the present case the vagaries of the market have enabled the Respondents to give credit for a substantial balance on a resale which, on the findings, was not possible in 1966. The Respondents say that interest on the contract price is itself part of the loss on resale and they have included it under that head in their Particulars of Claim. If they had not been required, under the terms of the contract of sale, to pay upon delivery (i.e. before they discovered the defects in the goods) they would have suffered all the other damage claimed but not the deprivation of their money. What the Respondents would have received if performance had been rendered as promised was their profit, but they would have received that in 1966. The significance of the delay in resale is two fold. In the first place, as we have seen, they necessarily incurred expense in keeping the goods. In the second place, not only were they in the mean time kept out of their loss of profit but they were also kept out of the capital. Had the goods answered to the warranty the Respondents would have made their profit in 1966 and they would at the same time have recovered the whole of their capital expenditure. It was, therefore, the whole of their capital expenditure which was tied up until the date of resale and not merely that part of it which they were eventually able to recover. If in 1968 the Respondents had been able to sell at a price which was exactly equal to the sub-contract price plus the costs of storage, insurance and freight there would have been no loss of profit at all, but it would still have taken two years for them to make their profit and to recoup themselves in respect of their capital expenditure: until then they would have been deprived of their capital as a direct result of the breach of warranty. Whether one called it “loss on resale” or used some other description, it would still be damage suffered by the Respondents. The test of remoteness of damage was stated thus by Lord Reid in The Heron II([3]): 8. “The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation”. 9. The terms of payment were known to the Appellants and it must have been obvious to them that if there were a breach of warranty the Respondents would have their money tied up until such time (if ever) as they were able to sell the goods. What they did not know was the length of time which would elapse before a sale could be effected and the length of time, therefore, for which interest might be claimed: they did not know that no market would be available but, on the evidence, it would seem to have been a possibility which should have been within their contemplation. 10. It is contended that the judge has awarded interest as though there had been a breach of condition and the Respondents were entitled to reject the goods. That is not strictly correct because if there had been a breach of condition interest would have been payable under s.30A of the Supreme Court Ordinance on the contract price until judgment and such interest would have been compensation for the delays of litigation. Interest on the contract price was claimed in this case not under s.30A but as part of the loss sustained: it is not compensation for the delays of litigation. No interest has been awarded under s.30A on that part of the damages which is interest on the contract price. 11. For these reasons, I agree that the appeal should be dismissed but I emphasise once more that this decision rests upon its special facts. It should not be thought that a buyer who could sell the contract goods but who chooses to keep them in the hope of making an increased profit can treat the seller as an insurer against a fall in the market. Moreover, a buyer who continues to store goods which he finds himself still unable to sell within a reasonable time runs the risk of incurring a loss which he will not be able to recover from the seller. ([1]) 1954 1 Q.B. 292 ([2]) 1911 A.C. 301, 307. (1) 1954 1 Q.B. 292, 302. ([3]) 1967 3 All E.R. 686, 691. | ||||||||||||||