Winner Co (HK) Ltd v. Arthur a. Seidman & Co
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IN THE SUPREME COURT OF HONG KONG APPELLATE JURISDICTION CIVIL APPEAL NO. 10 OF 1971 (On Appeal from O.J. Action No. 1340 of 1968) ________________________
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________________________ JUDGMENT ________________________ Li J: 1. This is an appeal from a decision of Pickering J. giving judgment in favour of the Plaintiffs, the present Respondents, against the Defendants, the present Appellants, for the sum of $191,656.10 being the total loss of profit and loss on the resale of goods sold by the Appellants to the Respondents together with interest at the rate of 9% per annum on the sum of US$9,773.79 (HK$59,229.17) being the difference between the landed costs of the goods (including duty but excluding charges and commission) and the gross proceeds of sale from the 16/9/68 till judgment. It would be convenient to refer to the respective parties as Plaintiffs and Defendants. 2. The facts giving rise to the proceedings are as follows: 3. The Plaintiffs are dealers and wholesalers of cotton cloth in New York, U.S.A. for resale to processing and converting houses. They have a buying agent in Hong Kong which is a limited company by the name of Universal Enterprise, Ltd. The Defendants are a limited company in Hong Kong. They and their associates in Singapore manufacture cloth for export. There have been numerous business transactions between the Plaintiffs and Defendants. The Plaintiffs have been buying cloth from the Defendants for resale in the U.S.A. since 1960. But the subject matter of these proceedings relate to one of those transactions only. 4. On the 29/4/66 the Defendants wrote to Mr. Seidman, the principal partner of the Plaintiffs in these terms:–
To this letter the Plaintiffs replied on the 4/5/66 as follows:–
5. The sample must have reached the Plaintiffs on or about the 4/5/66 because on that same day Mr. Seidman cabled the Defendants saying:–
6. Letters of credit were then opened in favour of the Defendants and osnaburg cloth in 297 bales totalling 346,327 yds were shipped by the Defendants from Singapore to Charleston to the order of the Plaintiffs in three shipments dated the 21/5/66, the 10/6/66 and the 15/8/66 respectively per s.s. Hong Kong Dolegate (128 bales) s.s. Hoegh Cairn (159 bales) and s.s. Johannes Maersk (10 bales). The Plaintiffs paid for all these goods by letters of credit in the total sum of US$57,143.95 and the shipments reached Charleston in due course. 7. In the meanwhile, on receipt of the sample sent to him by the Defendants in May 1966 Mr. Seidman showed it to Rose Textile Corporation of New York and signed a contract to sell to the latter the whole of these shipments of cloth at US20 cents per yard F.O.B. Charleston, South Carolina. The contract was dated the 8/5/66. In his evidence Mr. Seidman said:–
It was a sale by sample. The first shipment arrived at Charleston in July 1966. They were released to Rose Textile Corporation who took delivery through their processor. Later the contract was rescinded by Rose Textile Corporation. The Plaintiffs allege that the contract was rescinded because the cloth delivered by the Defendants did not correspond with the sample which the Defendants sent them, the same sample he showed to Rose Textile Corporation. 8. At that time the market was strong and Mr. Seidman thought that he would have no difficulty in disposing of the rejected cloth. In evidence he said:–
On the 26/8/66 he sold 1 bale totalling 1186 yards @ US22½ cents to Louis Hornick, a curtain goods converter. On the 30/11/66 he sold 3 bales totalling 3404 yards @ US22 cents to Caravelle Textile Co., a converter of curtain, drapery fabrics. On the 7/12/66 he sold 3,452 yards of the cloth @ US22½ cents to Rose Textile Corporation. All these were trial purchases but there was no “follow up”. However, Mr. Seidman was not then unduly worried. When asked whether he was worried about the cloth he said:–
Then Mr. Seidman left New York early in December 1966. He met Mr. C.K. Show of the Defendants on the 24/12/66 in Hong Kong and he complained to the latter about the poor quality of the goods. Mr. Chow asked Mr. Seidman to sell it and offered to share half the loss. Mr. Seidman cabled on the 29/12/66 to New York to effect a sale without success. Then told of this Mr. Chow assured Mr. Seidman that he would pay half the loss. In July 1967 Mr. Chow went to New York. There was a meeting with Mr. Seidman. When the question of osnaburg was raised Mr. Chow again assured Mr. Seidman that when the osnaburg was sold he (Mr. Chow) would pay half the loss. When Mr. Seidman expressed his worry about his operating capital being tied up Mr. Chow was evasive. There was another trial sale of one bale of the cloth on the 8/8/67 to Raynor Textiles, a converter of drapery goods and other types in Montreal, Canada @ US22 cents. Again there was no follow up. In May 1968 an offer was made to sell all the cloth (as seconds as are) to Dartmouth Finishing Corporation @ 17½ cents per yard. Two bales of cloth were sent to them as samples. Again the attempt failed. Eventually the remainder of the cloth totalling 337,113 yds was sold to a firm called A & E Weeden in September 1968 @ US15 cents. Consequently the Plaintiffs suffer not only a loss of profit but also a loss on re-sale. 9. The Plaintiffs claim damages for breach of contract on the ground that the cloth shipped to them was of inferior quality and not of a quality equal to the sample submitted to them by the Defendants; and that it was not saleable to converters being not reasonably fit for the purpose of conversion into garments, draperies and bedspreads by the Plaintiffs’ customers. The particulars are set up in the statement of claim as follows:–
By their Statement of Defence the Defendants admit that the sale was one by sample but deny that the cloth so shipped did not correspond with the sample submitted to the Plaintiffs. The Defendants deny that the Plaintiffs suffered any loss. 10. At the trial in the court below Mr. Seidman produced a piece of cloth (Exh. P.1) which, he claimed, was part of the sample he received from the Defendants on or about 4th May 1966. He also produced a bale of 10 pieces of cloth which, he said, was taken from the bulk in Charleston, Exh. P.2. This bale was chosen at random as being representative of the cloth shipped by the Defendants in fulfilment of the contract concluded in May 1966. It is sufficient to say that when Exh. P.1 and 4 pieces of cloth in Exh. P.2. were examined and compared in Court it was found that Exh. P.2. was of inferior quality. The expert witness, Mr. Woolfenden, called by the Defendants said that Exh. P.2. was not up to the standard of the sample. Indeed he stated that in his view a superior yarn had been used for the manufacture of the sample, Exh. P.1. 11. The main issue before the trial judge was whether Exh. P.1. was in fact a portion of the sample sent by the Defendants to the Plaintiffs. On this the learned trial judge said:–
and
Mr. Seidman was positive that the sample he produced in Court was a portion of the sample sent to him by the Defendants in May 1966. 12. On the other hand the Defendants produced 4 pieces of cloth which, they alleged, were the counterparts of the sample which they sent to the Plaintiffs. On this issue the learned trial judge arrived at the following conclusion:–
and he further said in his judgment:–
13. The grounds of appeal as stated in the notice of motion are as follows:–
14. These may be separately considered conveniently under three main groups. 15. The first complaint is that in accepting Exh. P.1 as “the sample” sent by the Defendants to the Plaintiffs the learned trial judge erred in placing too heavy a reliance on the demeanour of Arthur A. Seidman and failed to direct himself that the onus of proof was on the Plaintiffs. The second complaint is that there was no evidence to show that the cloth was unsaleable and that the learned trial judge admitted inadmissible evidence as to the sub-purchaser’s reasons for not buying the said cloth. The third complaint is that he erroneously awarded the sum of US$12,588.73 being interests on the interest on the full price from the date of the breach of contract to the date of resale and the sum of US$9,773.79 being interests on the loss of profit on resale. 16. With reference to the first complaint Mr. Litton for the Defendants contended that the learned trial judge, relied entirely on the bare assertion of the Plaintiffs’ witness Arthur Seidman; he further contended that the judge misdirected himself on the burden of proof in that he failed to direct himself that it was for the Plaintiffs to prove affirmatively that Exh. P.1 was part of the sample relating to the contract in question and that certain passages in his judgment appeared to read as if the judge was under the impression that there was some sort of burden upon the defendants to prove a system for the preservation of counter-samples which guaranteed immunity from confusion. Mr. Litton further contended that on the evidence, taken as a whole, the Plaintiffs’ system of keeping samples was as imperfect as the Defendants’ system; and being so, the learned trial judge should have found in favour of the Defendants. In my view counsel’s last point begs the question. If a trial judge finds that he is not satisfied as to where the truth lies and therefore is left in doubt he should dismiss the Plaintiffs’ claim on the ground that he has not discharged the burden of proving his case. In Ho Hau Yee v. Yu Ming alias But Yuk Yee([1]) Rigby J., as he then was, said:–
17. In the present case the learned trial judge heard evidence from both parties, observed the demeanour of all the witnesses and came to the conclusion that he believed the Plaintiffs’ witness as a witness of the truth. In the course of his judgment the learned judge said:–
Another passage in his judgment reads as follows:–
18. One thing is certain. Mr. Seidman was able to say positively that Exh. P.1 was the sample which he received from the Defendants for the contract and that he endorsed it in May 1966. None of the Defendants’ witnesses could say what sample was dispatched by the Defendants to the Plaintiffs. They relied on Mr. Chow’s secretary who was not called to give evidence. Furthermore, there was no evidence that the Defendants sent any other samples of osnaburg to the Plaintiffs in May 1966. 19. The general principle of course is that the burden of proof lies upon the Plaintiffs in that he who alleges must prove. A Plaintiff must establish a prima facie case. If a Defendant also adduces evidence, however, such evidence is considered in relation to all the other evidence in the case; and in this case, in my view, there is nothing in the judgment which supports the view that the learned judge did not apply the proper principles to the evaluation of the evidence. He accepted Mr. Seidman’s evidence. He came to his conclusion on the balance of probabilities. He did not misdirect himself on the burden of proof. 20. The Defendants’ second complaint is that there was no evidence, or no sufficient evidence, to establish that the cloth was unsaleable and that the learned trial judge admitted inadmissible evidence with regard to the Plaintiffs’ sub-purchasers’ reasons, for not buying the said cloth in bulk. Our attention is drawn to certain passages of the judgment. The first passage reads:–
The second passage reads:–
Mr. Litton contended that there was no evidence to support the reason why the sub-purchasers returned the goods or did not follow up with a further contract for the purchase of the bulk other than hearsay evidence; that there was no evidence to show that the Plaintiffs could not have sold the bulk at a lower profit in 1966; that the difference in quality between Exh. P.1 and Exh. P.2 which was only marginal; and therefore that accordingly the question of unsaleability depended entirely on the learned judge’s assumption in Mr. Seidman’s infallability that he (Mr. Seidman) was unable to resell because of the poor quality of the bulk. 21. Taking the learned judge’s observation viz:–
out of the context may give an apparent impression that he was acting on inadmissible evidence. However, in the course of his judgment the learned judge found that the osnaburg shipped by the Defendants did not correspond with the sample (Exh. P.1) which they sent to the Plaintiffs. There was evidence that the Plaintiffs’ customers were converters who purchased the osnaburg for processing (dyeing and printing) into draperies and bed spreads. The first sub-purchaser rejected the goods after a trial of the cloth from the first shipment in July 1966. After that there were no less than four trial sales but none of them was followed up by a purchase in bulk. Indeed the sub-purchasers who first rejected the goods in July 1966 at the price of 20 cents per yard took delivery of a small quantity of the same at 22½ cents per yard for trial; but they did not follow it up with a bulk purchase. 22. There was no evidence that any of the customers rejected the goods because of the price. Nor was there evidence that the cause of rejections was that the market was so saturated with offers of osnaburg for sale. If it had been the position, Rose Textiles would never be willing to pay 22½ cents per yard for a small quantity instead of paying 20 cents per yard for the bulk. Nor can it be said that the difference in quality between the sample Exh. P.1 and the bulk as represented in Exh. P.2 is marginal. Mr. Woolfenden, an expert called by the Defendant said that “the bulk was not up to the standard of the sample in that a different yarn had been used” and that “the yarn used in the sample is a better yarn than the yarn used in the two lengths (Exh. P.2A and P.2D)” 23. Section 17 of the Sales of Goods Ordinance provides:–
In my view the defendants were in breach of a condition of their contract with the Plaintiffs. 24. Section 55(1) of the Sales of Goods Ordinance provides:–
25. The Plaintiffs were compelled to treat the breach of condition as breach of warranty because they had sold forward to Rose Textiles who actually took delivery of the cloth at Charleston. 26. There was evidence that the Plaintiffs were wholesalers and dealers of cotton cloth of standing in America and that Mr. Seidman has had fifty years experience in this trade. Mr. Seidman described the cloth as follows:–
There was evidence that no less than four customers had not followed up with a contract to buy the bulk after a trial. Having regard to the aforesaid evidence the learned judge was justified in coming to the conclusion that the osnaburg was unsaleable because of its inferior quality rendering it unsuitable for the use of the Plaintiffs’ customers. To do otherwise will be turning one’s face from a simple process of deduction. Whether the goods were referred to as “Singapore trash” would be of little significance. 27. Then there is the question whether the Plaintiffs could have disposed of the osnaburg at a smaller profit. Mr. Litton contended that there was no evidence of the state of the market in America and whether the Plaintiffs could have sold the osnaburg in 1966 at a reasonable price. As to that the Plaintiffs were in a very difficult position. The Plaintiffs’ duty was to mitigate their damages. Their duty was to make all reasonable endeavours to sell at a reasonable price. 28. In my view there was no evidence of the state of the market in America. Such evidence is to be found in Mr. Seidman’s testimony – both in chief and in cross-examination. After he gave evidence of the four trial sales, without any follow up he was asked whether he was worried about the goods and he said:–
Later in cross-examination he said speaking of the market in August 1966:–
Of the market in 1967 he said that although he could not obtain top prices for some items his business was not affected. Eventually he came to his final sale in September 1968. He said that he could not sell the osnaburg in any other way except as “seconds” to A & E Wedeen. 29. It is quite clear from this evidence that the American market was fairly buoyant in 1966-1968. Mr. Seidman was not unduly worried even though four successive trial sales had not been followed with any substantial transaction. Prices could be maintained at a reasonably high level. He had samples taken from the bulk and was attempting to sell the osnaburg by sample hoping that the sub-purchasers were willing to accept a lower standard of the goods. In other words as from August 1966 he had been trying to sell the goods “as are”. There was no evidence that those who purchased the goods at small quantities declined further purchase because of the high price. They did not follow up because the osnaburg were not suitable for their purpose. 30. The learned trial judge also found as a fact that in December 1966 when Mr. Seidman complained of the osnaburg, Mr. C.K. Chow urged him to sell it and offered to pay half of the Plaintiffs’ loss. In view of this there was no reason why the Plaintiffs should hold on to the osnaburg and tie up their own capital for two years in speculation. 31. Having regard to the total lack of any other evidence concerning the state of the American market and of any evidence that the Plaintiffs could have disposed of the osnaburg at a reasonable price I am of the opinion that the learned trial judge was justified in coming to the conclusion that the osnaburg could not be sold until September 1968. The fact that they managed to dispose of the bulk at 15 cents in 1968 does not mean that they could have disposed of it at the same price in 1966 or 1967. They had to find a buyer who had a use for their cloth. 32. Finally there remains the quantum of damages awarded to the Plaintiffs. Mr. Litton did not dispute the amount claimed by way of loss of profit. However, as regards the loss on resale he contended that it was wrong to include as damages the sum of US$12,593.73 representing interests on the landed costs of the goods plus duty from the date of breach to the date of resale in September 1968. Mr. Litton contended that the Plaintiffs should have rejected the goods in 1966 and sued for the purchase price with interest; but that they were not entitled to hold the goods for two years and claim interest on the purchase price plus the expenses of keeping and insuring the goods. Mr. Litton also contended that the award of 9% interest on US$9,773.79 the difference between the landed costs of the osnaburg and their eventual proceeds on resale from September 1968 to the date of judgment was wrong. To do so meant asking the Defendants to give an indemnity even if there was a breach of warranty. Further he contends that to include the US$12,593.73 in the award amounts to awarding interest to the damage before the right to damage has accrued. He argues that if the Plaintiffs had purchased the osnaburg with their own money then the award of the US$12,593.73 would be an award of notional interest on their own money. He invites this court to put a limit to the extent that a Plaintiff, even if successful in his action, may recover damages for his actual loss only. 33. Mr. Zimmern, on the other hand, contended that as from 1934 the courts in England have been given a discretion to award interest on damages on breach of contract. He invited our attention to the case of Riches v. Westminster Bank Ltd.([2]) where it was held that where the court awarded damages such damages never lost their nature in substance as interest. This clearly establishes that the court has a discretion to award interests on damages. In his judgment Lord Wright gave a clear explanation of the law in England relating to the Court’s power to award interest on money due and he said:–
Mr. Zimmern contended that in the present case if the goods were rejected the Plaintiffs could have claimed for the purchase price with interest. Where the Plaintiffs chose to rely on breach of warranty the Plaintiffs should be allowed interest on the tied up capital. The Plaintiffs had to pay interest to the bank which was a loss flowing naturally from the breach of contract on the part of the Defendants. Whether the capital was Bank money or Plaintiffs’ own the Plaintiffs were deprived of the opportunity to make use of it. 34. In the case of A.B. Kemp Ltd. and Others v. Tolland (Trading as James Tolland & Co.([3]) where it was found that the Defendants were liable under the Sale of Goods Act for the purchase price of goods delivered Devlin J., as he then was, said:–
and later
In Jefford v. Gee([4]) Lord Denning having reviewed the authorities as to the basis on which interest should be awarded in personal injury cases said:–
35. Our law on a judge’s discretion to award interest is the same as that in England. Section 30A(1) provides:–
In the present case had there been no breach of warranty the Plaintiffs would have made a clean profit on resale in 1966. As it was the Plaintiffs were obliged to sell the osnaburg at a loss. The difference between the landed costs of the osnaburg in 1966 and the proceeds on resale paid on the 16th September 1968 was US$9,773.79. As from the 16th September 1968 a right to recover this sum accrued to the Plaintiffs who had been kept out of the said sum. It is appreciated that in the case of A.B. Kemp v. Tolland(3) the sum claimed represented proceeds of sales of goods delivered. But the award of interest was made on the basis of simple commercial practice that the money ought to have been paid sometime ago. This principle was applied in personal injury cases in Jefford v. Gee.(4) I am of the opinion that the same principle applies to the present case where the Plaintiffs who have been kept out of the use of money which should have received sometime ago. 36. Section 55(2) of the Sale of Goods Ordinance provides:–
As a result of the breach in the present case the Plaintiffs took two years to dispose of the goods finally. In the meanwhile he had to pay for the storage, insurance of the goods and bank interests for the tied up capital. It is common commercial practice in these days that traders make use of banking facilities. It has been proved that the Plaintiffs were out of pocket in the sum of US$12,593.73 for banking interest, US$710.94 for insurance and US$1,705.69 for storage in this transaction. Such sums were part of his loss directly and naturally resulting in the ordinary course of events. Thus it made no difference whether the Plaintiffs made use of their own money or banking facilities. In the former case he lost the use of his capital money for 2 years. In the latter he had to pay the banks for the use of the bank’s money. In the course of his address Mr. Litton conceded that if the evidence established that the Plaintiffs could not have sold the osnaburg until 1968 then such sums would be payable. For the reasons given on the question of saleability of the osnaburg I agree with the learned trial judge who concluded that the Plaintiffs could not sell the osnaburg until 1968. It was proper for him to allow the inclusion of the aforesaid sums as part of the damages recoverable. 37. In view of the aforesaid circumstances I am of the opinion that the learned trial judge is right and accordingly the appeal is dismissed with costs.
([1]) 1962 H.K.L.R. 682 at page 693 ([2]) 1947 1 ALL E.R. 471 ([3]) 1956 2 Lloyds Reports 681 ([4]) 1970 2 W.L.R. 702 (3) 1956 2 Lloyds Reports 681 (4) 1970 2 W.L.R. 702 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||