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 of 1968)

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JUDGMENT

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Blair-Kerr, S.P.J.:

1.  I agree that the appeal should be dismissed.  The evidence of the expert called by the defendant company was that the bulk was not up to the standard of the sample Ex.P1.  He said that a different and better yarn had been used in the manufacture of the sample; and I must say that even to the untutored eyes of the trial judge and the members of this court, it was quite obvious that the sample was a very superior fabric when compared with such of the bulk as was produced in court.

2.  Therefore, it is hardly surprising that, before the trial judge, a vigorous attempt was made to discredit the evidence of Mr. Seidman, the managing partner of the plaintiff company, who said that Ex.P1  was part of the sample which the defendant company had sent to him, on which he had endorsed, in his own handwriting, the words:

“Received May 4th, 1966 from Winner 45”–40 x 30–12/10 Singapore CIF Charleston 16/5.”

The sample arrived by air mail on 4th May 1966; and Mr. Seidman said that he wrote those words on the sample on a day between 4th and 8th of that month, but probably on the 4th.

3.  The trial judge accepted Mr. Seidman’s evidence without reservation.  In his judgment he said:

“Mr. Seidman was one of the most transparently honest witnesses I have encountered.”

4.  The gravamen of Mr. Litton’s main submission to this court on the issue of liability was simply this:

Accepting that Mr. Seidman was a transparently honest witness, he may have been mistaken in alleging that Ex.P1 was part of the sample which he received from the defendant company.  He did not discharge the onus of proving this vital fact.  He did not say that he personally opened the postal packet containing the sample.  He did not say that he kept it in his personal custody at all material times or that he put it in a locked safe so that the possibility of confusion with other samples in his office could be said to be eliminated; and in the circumstances, it was not enough for Mr. Seidman to say simply that Ex.P1 was part of the defendant company’s sample and that he had put an endorsement to that effect upon it either on the day on which it was received in his office or within a few days thereafter.

This is an argument which could have been, and no doubt was, addressed to the trial judge.  It does not seem to me to be one which can prevail before this court.  It cannot be said that the trial judge’s finding is unreasonable in that it is based on no, or insufficient, evidence; and, for myself, I do not propose to lay down rules as to the nature and quality of the evidence necessary for the proof of a fact such as this in the circumstances disclosed in this case.  If it is clear that a finding of fact is unreasonable, this court will not hesitate to intervene.  But no question of that arises in this case.

5.  Mr. Litton submitted that the goods could not be said to be unsaleable because they were eventually sold in 1968 i.e. 2 years after delivery; and that although it may not have been possible to sell them in 1966 at, say, US$ 20 cents, it is difficult to believe that they could not have been sold at, say, US$ 19 cents or US$ 17 cents.

6.  The court did inspect a very small part of the bulk shipment and we were able to compare it with the sample Ex.P1.  I do not think that the plaintiffs’ sub-purchasers were exaggerating when they described the bulk shipment as “Singapore trash”.  It does not surprise me in the slightest that the plaintiffs were unable to find a buyer immediately–at any rate from among their own customers.

7.  Of course, I suppose it is true to say that every article has a value although it may not have a market value at any particular time.  On the evidence, there was no market for the goods in 1966 and 1967.  Mr. Seidman said:

“in each and every case I indicated that I would trade downwards if I can move the lot.”

Of course, as to how far he was prepared to “trade downwards” is not clear; and I must confess that I have had certain misgivings on this aspect of the case.  If the goods were saleable at all, as indeed they were, one might have expected that the plaintiffs would have been able to sell them within a much shorter period than 2 years.  On the other hand, I find it difficult to believe that experienced businessmen would wish to have their capital tied up in the way the plaintiffs’ capital was tied up in this case.

8.  Having considered the whole of the evidence, I am not prepared to disagree with the learned judge’s conclusions. What it amounts to is that the judge has found that the goods were, for a period of 2 years, unsaleable at a reasonable price; and it is on that basis that I now proceed to consider the question of damages.

9.  On this question, reference was made to sub-s. (1) and (2) of s.55 of the Sale of Goods Ordinance.  These subsections read:–

“(1) Where there is a breach of warranty by the seller, or where the buyer elects, or is compelled, to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not, by reason only of such breach of warranty, entitled to reject the goods; but he may –

(a) set up against the seller the breach of warranty in diminution or extinction of the price; or

(b) maintain an action against the seller for damages for the breach of warranty.

(2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty.”

10.  The plaintiffs’ claim is for (1) loss of profit and (2) loss on the resale.  There is no doubt at all as to the correctness of their claim for loss of profit.  They purchased the cloth from the defendants (who were aware that the goods were going to be resold) at US$ 16.5 cents per yard.  The total landed cost, including customs duty and certain other smaller items of expense, amounted to US$63,828.90.  The plaintiffs had contracted to sell the cloth to Rose Textiles Corporation for US$ 20 cents per yard; and the net proceeds which they would have received in the ordinary course of business (less certain commission) would have been US $67,880.09. Therefore, the loss of profit is US $4,051.19.  But for the defendants’ breach of warranty, the plaintiffs would have received this sum from Rose Textiles Corporation in 1966, and they could have put it to commercial use immediately. But they were deprived of the use of that money; and I see no reason why they should not have simple interest thereon from the date of the breach to date of judgment.  Indeed, the defendants do not attempt to argue otherwise.

11.  My note of Mr. Litton’s submission on behalf of the appellants (defendants) in regard to the computation of “loss on resale”, reads:–

“If the goods had been unmerchantable, the plaintiffs would have been entitled to reject them, to repudiate the contract and to demand repayment of the purchase price together with interest thereon until the date of repayment because the plaintiffs would have been entitled to argue that they had been deprived of the use of their money; but the goods were not unmerchantable; the plaintiffs were not entitled to reject the goods; they were not entitled to sue for the purchase price; they accepted the goods which were eventually sold for 15 cents per yard; the plaintiffs’ duty was to mitigate their loss; but a seller should not have to pay interest on the entire purchase price from the date when the cause of action arose to the date when the buyer chooses to sell; that is not a loss directly and naturally resulting in the ordinary course of things from the breach of warranty; such a loss is not foreseeable; although a buyer’s duty is to mitigate his loss, he must act reasonably; and it is a matter of commercial judgment as to when a buyer should sell; a seller’s liability to pay damages should not depend on the fickleness of the market; the law has always said that, in such circumstances, a buyer is only entitled to recover the actual loss he sustains on the resale; the defendants would not have objected if the plaintiffs had claimed interest on the loss sustained on the resale from the date of the breach to the date of the resale, but that is not the basis on which the US$12,593.73 was computed.”

My note of Mr. Zimmern’s submission on this point reads:–

“Failure of the bulk to correspond with the sample in quality is a breach of condition entitling a buyer to reject; the plaintiffs sold forward to Rose Textiles who actually took delivery of the goods upon their arrival in the United States; therefore the plaintiffs never had an opportunity of rejecting the goods; they had no alternative but to maintain an action for breach of warranty; upon Rose Textiles rejecting the goods, the plaintiffs’ duty was to mitigate, and they were unable to sell before 1968 although they did their best to do so; the fact that the plaintiffs were forced to treat the defendants’ breach of condition as a breach of warranty should make no difference; the plaintiffs’ capital was tied up for 2 years through no fault of their own while the defendants had the use of the plaintiffs’ money (the full purchase price of the goods); the fact that the defendants would lose money by having their capital tied up in goods which were, for a period, unsaleable at a reasonable price, is something which was foreseeable by the defendants; therefore, the defendants should be ordered to pay interest on the full purchase price of the goods (not only on the actual loss on resale) between the date of the breach and the date of resale, because that is something which directly and naturally resulted, in the ordinary course of events, from the breach of warranty, in as full a sense as the cost of storing and insuring the goods during that period.”

12.  In calculating the actual “loss on resale” in their statement of claim, the plaintiffs have added to the total landed cost (US$63,828.90), two further items viz. US$710.94 and US$1,708.69 being respectively the cost of storing and the cost of insuring the goods during the two years (1966 to 1968) pending the resale.  The defendants do not object to that.  What they object to is the addition of a further US$12,593.73 which, for the most part, is interest at 9% per annum on the sum of US$62,393.21.  This latter sum is arrived at by adding the US$57,143.95 (cost price of the goods CIF the United States) and US$5,249.26 (the duty paid thereon in the United States).

13.  The actual “loss on resale” – using that phrase in the narrowest sense–might be calculated thus:–

Cost price plus duty	US$	62,393.21
Gross proceeds of sale			52,619.42
Loss:	US$		9,773.79

Of course, if one calculates on the basis of the total landed cost (US$63,828.90) and adds to that figure the US$710.94 for insurance and the US$1,708.69 for storage, the “loss on resale” may be said to be US$13,629.11. Calculated thus:

Total landed cost	US$	63,828.90
Insurance		710.94
Storage		1,708.69
	$	66,248.53
Less: Gross proceeds of sale	$	52,619.42
Loss:	$	13,629.11

When Mr. Litton said that he would not have objected if the plaintiffs had claimed interest on the actual loss on resale for the period from the breach to the date of resale, I presume that he was referring to the US$13,629.11 because, as I say, there was no dispute between the parties in regard to the insurance and storage.  But it is the lower figure (US$62,393.21) which has to be considered when dealing with the defendants’ objection to the inclusion of the US$12,593.73 in calculating the plaintiffs’ total cost.

14.  In my view, the plaintiffs’ argument is perfectly logical.  Their money was tied up for 2 years – in goods which, for that period of 2 years, the judge has found were, in effect, unsaleable at a reasonable price.  The “loss on resale” (US$9,773.79) plus the gross proceeds of resale in 1968 (US$52,619.42) equals US$62,393.21.  In other words, one way of looking at the situation is to regard the loss on resale as part of the plaintiffs’ total capital outlay up to September 1966.  But they did not get their capital outlay back in September 1966.  They had to wait for 2 years before they got it back. In the circumstances, why should the loss of interest on that money (or alternatively the bank interest which they had to pay to borrow an equivalent amount of money to enable them to enter into further commercial transactions) not be regarded as part of their “loss”?  It seems to me that it matters not whether one calls it part of the “loss on resale” or simply “loss”.  We should not allow ourselves to get bogged down by loose terminology.  And if (as the defendants say) there would be no objection to the court awarding interest for the period 1966 – 1968 on the US$9,773.79 or US$13,629.11, as the case may be, being the loss on resale in the narrow sense of that term, logically why should there be any objection to the court awarding interest on what is, in effect, the balance of the plaintiffs’ capital outlay viz. US$52,619.42?

15.  The defendants say that their contention is supported by authority; and that there is no reported case in which the courts have awarded interest as damages in circumstances of this kind.

16.  It is perfectly true, of course, that the common law rule was that, in the absence of express agreement, interest could not be recovered on a debt or damages.  There is a statement in the 3rd Ed. (1868) of Bullen and Leake to the effect that the ground for the refusal of interest in olden times was that it was “generally presumed not to be within the contemplation of the parties.”  Such an attitude is quite understandable in a society such as England prior to the Industrial Revolution; but can it be said that this is a solid basis for refusing interest in circumstances of this kind in Hong Kong today?  In England, during the 18th and 19th centuries, the law moved very haltingly in this regard.  The learned authors of Mayne and McGregor on Damages 12th Ed. say (p.265): –

“The case law upon the recovery of interest is riddled with inconsistency. This stems from the gradual weaning away of the law from the stigma attached by the religion and thought of an earlier day to the taking of usury. Calvinism, tracing out the narrow distinction between interest and usury, provided the first effective means for the removal of this stigma, but the law, slow to follow, moved haltingly between allowance and disallowance of interest.”

17.  The other day I came across a passage in an American text-book on financial mathematics^([1]) which appears to me to put into proper perspective the part which interest on money plays in a modern society organised on the basis of free enterprise.  It reads (p.1):–

“In the present structure of civilisation” [by which, I presume, the learned author means the United States and such other parts of the world as approve of commercial and industrial life being organised on the basis of free enterprise] “interest is of fundamental importance. All the vast financial and credit machinery rests upon the basic concept of paying for borrowed capital. Virtually the entire income of our banks is derived from loans and investments. The stock exchanges with their imposing list of securities dealt in day by day, the mortgage and loan companies, the savings banks, co-operative societies of producers, building and loan associations, insurance companies, investment trusts – all these would vanish if our laws did not recognise and enforce the obligation to pay for the use of borrowed funds. Business without interest is almost inconceivable.”

18.  This is a far cry from the attitude adopted by the common law courts in England.  But it is said that any change must be effected by statute.  With respect, I disagree.  The common law is not static.  Over the years it has developed; and, by and large, it has kept pace with ever-changing social conditions.

19.  In this day and age in countries such as the United States and Hong Kong, how can it be argued that if A has been deprived of the use of his money because of B’s breach of warranty under a contract with A, the latter’s loss is something which could not have been foreseen by B, something which was not within the contemplation of the parties; and that therefore A may not look to B for compensation for his loss because (as Mr. Litton put it) such loss is too remote?

20.  Reference was made to s.30A of the Supreme Court Ordinance, which section is substantially in the same terms as s.3 of the Law Reform (Miscellaneous Proceedings) Act 1934.  It reads in part:–

“(1) ................. the court may in any proceedings brought in the court for the recovery of any debt or damages, order that there shall be included in the sum for which judgment is given interest at such rate as it thinks fit on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of the judgment.

(2) Nothing in subsection (1) shall –

(a) authorise the giving of interest upon interest;”.

21.  The defendants say that this section gives the court a discretion in actions for damages to order that there shall be included in the sum, for which judgment is given, interest; but that the section does not give the court power to make an award of interest by way of damages. Furthermore, there was some suggestion during the hearing of the appeal that the plaintiffs were claiming interest upon interest contrary to sub-s. (2).

22.  There is nothing in s.30A which authorises or prohibits an award of interest by way of damages; but I do not think that this court should be deterred from making such an award if we feel that this is the proper course in the circumstances of this case. In my view, it matters not that there is no precedent in the books which is precisely in point. If this is the first case of this nature, then so be it.

23.  As regards sub-s.(2), this declares that sub-s.(1) does not authorise the giving of “interest upon interest”. In my view, this merely means that the court must not award compound interest. But in any case, even although the US$12,593.73 is interest on the total cost price plus duty (US$62,393.21), the plaintiffs are not claiming interest on the US$12,593.73; and what the defendants seek is an order that this sum be deleted from the statement of claim. The result would then be that the plaintiffs’ “total cost” would not be US$78,842.26. It would be US$66,248.53. Their “loss on resale” would not be US$27,525.23. It would be US$14,981.50; and their “total loss” (i.e. as at 15th September 1968) would not be US$31,626.42. It would be US$19,032.69.

24.  As regards the period 15th September 1968 to date of judgment, the plaintiffs are claiming interest at 9% on the “loss on resale” (US$9,773.79) i.e. on the difference between US$62,393.21 (i.e. the cost price of the goods plus the duty) and US$52,619.42, the gross proceeds of sale. This claim for interest in respect of the period September 1968 to date of judgment is not affected in any way by the presence or absence in the statement of claim of the US$12,593.73.

25.  I can see no objection to the plaintiffs’ claim for damages.

26.  For these reasons, I would dismiss the appeal.

Litton, Q.C. & Caesar Wong (Johnson, Stokes & Master) for Appellant.

Zimmern (Deacons) for Respondent.

([1]) Handbook of Financial Mathematics by Justin H. Moore
Pub. by Prentice Hall Inc, New York, 1930.