Konwall Construction & Engineering Co Ltd v. Strong Progress Ltd

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1871 OF 2010

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J U D G M E N T

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A. THE CLAIM

1.By this action, the Plaintiff as buyer sues the Defendant as seller damages for non-delivery of steel bars under a contract.

B. THE FACTS

2.Most of the facts are not in dispute.  The main issues of the case relate to the interpretation of the contract concerned, and the existence or otherwise of certain alleged implied terms.  I set out the undisputed facts as follows. I will at the same time highlight some of those facts that are in dispute.  They are confined to certain specific factual issues relevant to the “factual matrix” against which the contract should be construed.  I will consider those disputed facts separately in latter parts of this judgment.

3.The Plaintiff is a Hong Kong company carrying on, inter alia, a building contracting business.  The Plaintiff avers that it also carries on trading business. This, however, is disputed by the Defendant.

4.The Defendant is a Hong Kong company which carries on business of trading steel bars. 

5.In Hong Kong, as from April 1996, the Construction Standard CS2:1955 (“CS2”) on carbon steel bars for the reinforcement of concrete is adopted by the Buildings Department as an acceptable standard for compliance with the requirements in the Building (Construction) Regulations.  The Standard incorporates the full product standard for such steel bars and the requirements for classification and certification of reinforcement by Quality Assured Stockists (“QA Stockists”) and the requirements for the testing of reinforcement by the end purchasers.  According to paragraphs 9, 10 and 11 of the Foreword of CS2:-

“9. All reinforcement used in Hong Kong must be manufactured strictly in accordance with BS 4449:1988. However, once the reinforcement is shipped into Hong Kong it is envisaged that most will be handled through a QA Stockist where classification and certification will be carried out. Reinforcement produced by Quality Assured Manufacturers and handled by a QA Stockist will be classified either Class 1, fully lot traceable, or Class2, not lot traceable, and reinforcement produced by non Quality Assured manufacturers or not handled by a QA Stockist will be classified Class 3. All reinforcement will then be delivered to site and depending on the reinforcement classification, Class 1, Class or Class 3, a series of purchasers tests will be carried out.

10. All reinforcement shipped to Hong Kong or manufactured locally and not handled through a QA Stockist will be classified Class 3 irrespective of whether it is quality assured material or not. It will be subject to purchasers tests for Class reinforcement carried out when the reinforcement is delivered to site.

11.     A series of purchasers tests is required to be carried out on all reinforcement delivered to site before it is used in the construction work.  The frequency of testing will depend on the classification of the reinforcement; less frequent testing for Class 1 reinforcement where much is known about the manufacture and testing history; and increasing frequency of testing for Class 2 and Class 3 reinforcement where less is known about the quality of the reinforcement.”

6.There is no dispute between the parties that CS2 was applicable to the steel bars relevant to this case.

7.The Plaintiff was at all material times not a QA Stockist under CS2. The Defendant was.

8.The origin of the present disputes between the parties can be traced back to their disputes in respect of an earlier agreement entered into in February 2005 (namely Sales Contract No.SP-05006S (“the 2005 Contract”)) whereby the Plaintiff agreed to purchase from the Defendant 8,000 M/T of steel bars of various sizes to be delivered between 2 February 2005 and 31 January 2007.  That agreement came about in the following way:-

a.  By a letter of 1 February 2005, the Plaintiff confirmed acceptance of the Defendant’s quotation for the steel bars concerned.  That letter was captioned inter alia “Basement Excavation & Foundation Works for Proposed Commercial / Residential Development at 35 Clear Water Bay Road, Kowloon or Other Sites”.   The quotation was similarly captioned;

b.  In its letter dated 16th February 2005 (under cover of which the 2005 Contract was returned to the Defendant), the Plaintiff  stated that the 2005 Contract was “still subject to conditions listed in our  letter…of 01/02/2005”.  That letter was similarly captioned;

c.  The 2005 Contract provided, inter alia, that: -

“Transportation Charge for steel bars to 35 Clear Water Bay Road Project …

…

Project :  Basement Excavation & Foundation Works for Proposed Commercial / Residential Development at 35 Clear Water Bay Road, Kowloon or Other Sites.”

9.By a letter of 20 September 2006, the Plaintiff wrote to the Defendant and sought some amendments to the 2005 Contract.  The Plaintiff said:-

“…we write to request for extension of [the 2005 Contract] on a monthly basis until we know when the temporary suspension of the works for 35 Clear Water Bay Road will be lifted, which will only be upon instruction from our client or his representatives. Therefore, at this stage we would like to request for an extension of the captioned contract to 28 February 2007.

The above request for extension of captioned contract validity is made in conjunction with our request to amend the project description of the captioned contract to include only 35 Clear Water Bay Road.  This is because the ‘other sites’, namely Kong Sin Wan Tsuen and Former Marine Police Headquarters, which were intended to be included under captioned contract, have no further requirements on deformed bar (because the whole project or the works requiring deformed bar were completed).  For your information, our allocation of contract quantity for captioned contract was: 650 toms for Kong Sin Wan Tsuen project; 34 tons for Former Marine Police Headquarters project and the remaining quantity of around 7,400 tons for 35 Clear Water Bay Road project”

10.In reply, the Defendant by letter of 5 November 2006 agreed to extend the validity of the 2005 Contract.  That letter also contained the following paragraph:-

“PS: ‘Other Sites’ meaning various site [sic]. Therefore under the [2005 Contract] we pleasure to look [sic.] you would arbitrary utilize surplus quantity to any job [sic] and the goods is [sic.] always ready in our stock for you to take order [sic] at any time”.

11.Disputes subsequently developed over the performance of the 2005 Contract.  Those disputes led to HCA 1707 of 2007 (“the 2007 Action”) in which the Plaintiff sued the Defendant for alleged breach of that contact.

12.The pleadings filed in the 2007 Action are relevant to the present proceedings:-

a.   The Writ (issued on 9th August 2007) and Statement of Claim (filed on 1st September 2007, amended 5th June 2008 and re-amended 25th February 2009) show that the Plaintiff claimed damages for non-delivery of 6,020.571 M/T of steel bars.  The sum claimed was the difference between the market price and the contract price of those steel bars; 

b.   The Defence filed on behalf of the Defendant disputed inter alia the market price of steel bars averred by the Plaintiff and claimed that the Plaintiff had failed to mitigate its loss by not accepting an offer by the Defendant to supply steel bars at the then current market price less 4-5%.  At paragraph 6 of the Defence, it was further pleaded that the Plaintiff’s alleged loss or damage:

“being the alleged difference between the market price and the contract price on resale by the Plaintiff of the steel bars beyond its requirement is of such a type of loss or damage that at the time the Contract was made, it [sic.] was not within the parties’ reasonable contemplation as a not unlikely result of the alleged repudiation. In the premises, the alleged loss or damage would in any event be too remote and irrecoverable”;

c.     At paragraph 10 of its Reply dated 16th October 2007 (Amended 14th March 2009), the Plaintiff pleaded as follows:-

“10. Paragraph 6 is denied. Further the Plaintiff avers that:-

(a) the Plaintiff was at liberty to use the steel bars supplied or to be supplied by the Defendant under the Contract and/or as varied by the July Order Delivery Agreement in whatever manner it saw fit including but not limited to resale of the same;

(b) in the premises, it was within the parties’ reasonable contemplation that the Plaintiff’s loss and damage could include but is not limited to the difference between the market price and the contract price on resale by the Plaintiff of the steel bars;

(c) by reason of the Defendant’s wrongful failure to delivery steel bars, the Plaintiff suffered loss and damage and/or loss of opportunity to resell the steel bars at a profit to a third party namely Globe Star Steel Co., Ltd.;

(d) When it became apparent that the Defendant wrongfully refused to deliver the steel bars, the Plaintiff did not accept Globe Star Steel Co., Ltd’s offer to purchase the steel bars and thereby suffered loss of profit.

(e) Further or alternatively, by reason of the matters aforesaid, the Plaintiff took reasonable steps to mitigate its loss and damage.”

13.In 2010 the Plaintiff and the Defendant entered into a settlement agreement in respect of the 2007 Action.  The terms of the settlement agreement were contained in the schedule (“the Schedule”) of a Consent Summons dated 11^th January 2010.  Paragraph 1 of the Schedule stipulated that “The Defendant shall supply to the Plaintiff a total quantity of 4,000 MT of steel bars by instalments on or before 31^st December 2010 for use in reinforced concrete on the terms and conditions set out in the sales contract no.SP-09068S dated 15^th December 2009 endorsed under a letter from the Plaintiff to the Defendant dated 23^rd December 2009 (ref: MOC-09-188) and attached hereto”.  I will refer to Sales Contract no.SP-09068S as “the Sales Contract”.

14.The Sales Contract contained, amongst others, the following express terms:

“Delivery        :   Goods to be collected by the buyer from the seller’s warehouse in New Territories (Yick Yuen) and the contract period from January 1, 2010 to December 31, 2010.  And the seller undertakes to supply by partial delivery the quantity of steel required by the buyer who shall notify the seller by fax 24 hours in advance notice. (“the Delivery clause”)

Delivery:   …(“Delivery Charges clause”)

Charges

Total Quantity: Total quantity 4,000.00 M/T allowed 0% more or less.

Project: Under various projects in Hong Kong. (“the Project clause”)

Remarks: 1) Any single delivery is equal to or over 1,000mt, the buyer shall give the seller one month notice prior to delivery.  The last delivery shall not be later than December 31, 2010. (“Remark 1” or “Single Delivery Clause”)

…

6) Size Y50mm x 12m Subject to one month’s notice and a maximum of 500 M/T”

15.The express terms of the Sales Contract were arrived at after some negotiations between the parties.  Both parties have adduced evidence on some details of those pre-contractual negotiations.  Earlier draft terms of the Sales Contract have been produced.  Witnesses were called during the trial to speak about them.  I will not at this stage set out the relevant evidence in any detail, as its admissibility is in dispute.  The consensus between Ms. Cruden and Mr. Maurellet, counsel respectively for the Plaintiff and the Defendant, was that the relevant evidence was adduced on a de bene esse basis, and that I would rule on the issue of admissibility at the end.  I allowed that course to be adopted.  I will come back to that issue of admissibility.

16.The Defendant does not dispute the validity of the Sales Contract.

17.During the period between April 2010 and August 2010, the Plaintiff pursuant to the Sales Contract ordered in total 89.996 M/T steel bars from the Defendant (“the Fulfilled Orders”).  Particulars of those orders were as follows:-

Date of Delivery Order	Quantity ordered (M/T)	Date required
27/04/2010	40.942	29/04/2010
26/05/2010	20.008	28/05/2010
15/06/2010	16.011	18/06/2010
12/08/2010	13.035	14/08/2010
Total	89.996

18.The Plaintiff avers that the Defendant had only delivered 89.374 M/T of the Fulfilled Orders.  The Defendant says 90.008 M/T had been delivered.  That however is not the dispute in this action.  The dispute relates to 8 further delivery orders (“the Subject Orders”) for a total of 3,909.927 M/T steel bars placed by the Plaintiff upon the Defendant in November and December 2010.   They were placed within a week.  Particulars of the Subject Orders were as follows:-

Date of Delivery Order	Quantity ordered (M/T)	Date required
25/11/2010	499.990	30/11/2010
26/11/2010	500.006	02/12/2010
26/11/2010	499.987	06/12/2010
30/11/2010	600.000	16/12/2010
30/11/2010	500.000	20/12/2010
30/11/2010	400.035	23/12/2010
01/12/2010	537.960	10/12/2010
01/12/2010	371.949	13/12/2010
Total	3909.927

19.Dispute over the Sales Contract first surfaced on about 25 November 2010.  According to Mr. Richard Deng, a Director of the Defendant, the Plaintiff suddenly and without any prior notice placed a delivery order on 25 November 2010 for 499.99 M/T of steel bars to be delivered on 30 November 2010.  He had in that regard a telephone conversation with Mr. Nelson Kwok, a Project Manager of the Plaintiff.  The contents of that conversation were recorded by the Plaintiff in its letter dated 26 November 2010 to the Defendant. In gist, Mr. Deng claimed that the Plaintiff’s delivery order of 25 November 2010 was too late, and that the Defendant could not confirm until 29 November 2010 whether the ordered steel would be ready for delivery on the required date.  Mr. Deng further required the Plaintiff to supply the Defendant with the name of the project in which the required steel bars were to be used and a breakdown of sizes.  In reply, Mr. Kwok said that the Plaintiff’s orders were in accordance with the terms of the Sales Contract and that a breakdown had been provided.  He further said that the Plaintiff had no obligation to state the name of the site in which the steel bars were to be used.

20.On 29 November 2010, the Defendant wrote to the Plaintiff and said that “According to [the Sales Contract], the steel materials should be supplied to your current projects in Hong Kong.  And as usual we also need to specify the project name and address in the stockist certificate.”  The Defendant further said that “you are required to provide the above information before we arrange the delivery.”  That letter was signed by Mr. Richard Deng.

21.What the Defendant said in that letter were disputed by the Plaintiff. In his letter of the same date in reply, Mr. Nelson Kwok said that there was no condition in the Sales Contract requiring that the steels bars should be used only for the Plaintiff’s current projects.  He said unless the Defendant could state clearly the contractual basis of the request for the information, the Plaintiff would not provide the requested information to the Defendant.  He further said that “[as] for the Stockist Certificate, we confirm you do not need to specify the Job Name on the said Certificate as you had previously done.”

22.In reply, the Defendant in its letter of 1 December 2010 reiterated that it only undertook to supply the steel bars to the Plaintiff’s projects in Hong Kong.  They again asked for the Plaintiff’s project details, and said that unless the details were provided, they would not supply the steel bars.  That letter was signed by Mr. Terrence Fung, the then Chairman of the Defendant.

23.The Plaintiff replied on the same day, denying again what the Defendant had said in its earlier letter.  It was further said that “…it now appears to us that you intend to breach our Sales Contract.  We respectfully remind you that we will hold you liable for any loss arisen [sic] from your breach.”

24.In its reply on 2 December 2010, the Defendant said that “We reiterate that we undertake to supply the steel bar to your projects in Hong Kong only, as clearly stated in the [Sales Contract].  For those delivery orders you placed recently without specified project names, we only confirm your intention of delivery order and those orders are ALL incomplete delivery orders.  Unless such details are provided, we would not supply the steel bar to you.”

25.On 8 December 2010, the Plaintiff wrote again to the Defendant, but this time through its solicitors (Messrs. Wong & Fok (“W&F”)).  What had been said by the Plaintiff in its previous letters were reiterated.  Deliveries of the steel bars ordered under the Subject Orders were again demanded.  Two points raised in that letter should however be specifically noted:-

a.   in that letter, the Plaintiff’s solicitors referred to an “offer” made by the Defendant as to how the disputes between the parties might be settled (“the Settlement Offer”).  Mr. Eric Kwok, Managing Director of the Plaintiff also spoke about it during evidence.  Mr. Maurellet submitted that that was a without prejudice offer and should not be disclosed.  I will return to the admissibility of this evidence later;

b.   the Plaintiff’s solicitors mentioned some previous occasions when the Defendant had delivered steel bars to the Plaintiff without the type of information on the projects which the Defendant had of late been requesting from the Plaintiff.  In context, the Plaintiff’s solicitors were referring to the Fulfilled Orders.  It was then said that the absence of such information had not prevented the Defendant from providing the necessary Stockist Certificates under those orders.

26.The Defendant through its solicitors (Messrs. Ho & Ip (“H&I”)) replied on 13 December 2010.  The Defendant’s position was reiterated.  In particular, it was said that “in accordance with the terms and conditions of the Sales Contract, the steel bars to be supplied by our client are intended to be used ‘under various projects in Hong Kong’.  Given the fact that at all material times your client is in the business of contracting, rather than trading of steel bars, this expression in the Sales Contract was clearly meant to refer to various projects in Hong Kong undertaken by your client”.  It was further said that apart from for the purpose of issuing stockist certificates, the information requested was required to enable the Defendant to ascertain whether it was obliged to supply the steel bars as ordered.  In respect of the Fulfilled Orders, the following were said, that “our client appreciates for your client’s assistance in drawing our client’s attention to such omission.  Your client is requested to return those certificates to our client together with the name(s) and address(es) of the project(s) in which the steel bars in question had been used so that our client may re-issue appropriate stockist certificates to your client.”   They also objected to the disclosure by W&F of the Settlement Offer in its previous letter.

27.W&F replied on 14 December 2010.  H&I’s interpretation of the term ‘under various projects in Hong Kong’ was denied.  The Plaintiff’s business was said to cover contracting and trading.  In respect of the stockist certificates issued in respect of the Fulfilled Orders, W&F said that the Defendant at all times was fully aware of the absence of project particulars thereon, and that their absence was not the result of any omission.  It was maintained that the Defendant had no justification in demanding particulars on the projects prior to delivery.  However, W&F then on “an entirely without prejudice basis” proceeded to provide to the Defendant the project name, which was “37-47 Nam On Street / 311-331 Shau Kei Wan Road, Hong Kong”.  The Defendant was then required to confirm by 15 December 2010 whether it would make the deliveries.  In respect of the Settlement Offer, W&F commented that the offer had never been expressed to be made on any without prejudice basis.

28.H&I replied on 15 December 2010.   Arguments were put forward in reply to those raised by earlier by W&F.  Additional information on the projects was also sought.  In particular, having referred to the project information provided by W&F in its earlier letter, H&I said:-

“…To enable our client to ascertain whether it is obliged to deliver the steel bars as ordered, you are required to provide the following additional information:

1. The name of the project and the nature of the works involved in the project.

2. Whether your client is the contractor carrying out the works in the project.

3.   Whether all the steel bars ordered are going to be used in the same project.”

H&I further repeated their objections to the disclosure of the Settlement Offer.

29.W&F replied on 16 December 2010.  I will not repeat all the arguments raised therein by them on the Plaintiff’s behalf.   It is noteworthy however that the Plaintiff refused to provide any of the additional project information requested.  It was said that “[our] client regrets to note that despite its provision of the project name/address to your client on a without prejudice basis, your client has continuously refused to deliver the steel bars ordered by our client by purported seeking additional information”.  The refusal on the part of the Defendant to deliver was commented to be unjustified, and an ultimatum was given that unless the Defendant confirmed by 5:00 pm on 17 December 2010 that it would deliver the steel bars, the Plaintiff would accept the Defendant’s repudiation of the Sales Contract.

30.Ultimately, the Sales Contract was terminated by W&F’s letter of 20 December 2010 whereby the Plaintiff claimed to accept the Defendant’s alleged repudiation.  Prior to such termination, the Defendant had only delivered a total of 35.984 M/T under the Subject Orders.

31.According to the Single Joint Expert Report of Mr. Cheung Tat Tong filed for the purpose of these proceedings, the net average market prices in November and December 2010 of the type of steel bars ordered under the Subject Orders were HK$5,778.5 per M/T and HK$5,875.5 per M/T respectively.  That represented a substantial rise from the contract prices set out in the Sales Contract, which were, depending upon the type of steel bars, between HK$3,500 per M/T and HK$3,900 per M/T.

C.      THE PLAINTIFF’S CASE

32.As observed above, the validity of the Sales Contract is not in dispute.  The Subject Orders have indeed been placed. On the face of those orders, they were validly placed.  Deliveries have been refused. 

33.Section 53(1) of the Sales of Goods Ordinance (which Ms. Cruden relies upon) stipulates that:-

“Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery”

D. THE DEFENCE

34.The Defendant does not dispute the validity of the Sales Contract.  It also accepts that it has only delivered 35.984 M/T of the Subject Orders.   It avers that it was not liable to deliver the balance.  The crux of its defence turns upon the interpretation of the Sales Contract and the existence or otherwise of certain alleged implied terms.  Its case is this, that:

a.   upon a proper construction of the Sales Contract:

i. the Defendant was only obliged to supply steel bars to the Plaintiff for use in reinforced concrete under various projects undertaken by the Plaintiff in Hong Kong; and

ii. the phrase “Any single delivery equal to or over 1,000 mt” under Remark 1 was meant to refer to the delivery of steel bars to a single project with a total quantity equal to or in excess of 1,000 M/T such that with one month notice prior to delivery the Defendant would have sufficient time to procure the necessary stock required to be supplied for any particular project;

b.   to give business efficacy to the Sales Contract and/or so as to reflect the obvious common intention of the parties, the Sales Contract contained an implied term that in giving advance notice to the Defendant, the Plaintiff must identify the project in Hong Kong for which the steel bars were to be used (“the Implied Notification Term”);

c.    it was also an implied condition of the Sales Contract, which was implied by law and/or so as to give business efficacy to the Sales Contract and/or to reflect the obvious common intention of the parties, that the Defendant’s undertaking under the Delivery clause “shall not apply where it would be manifestly unreasonable for the Plaintiff to require delivery on a mere 24 hours advance notice by the Defendant of the quantity of steel specified in the advance notice given by the Plaintiff” (“the Implied Delivery Term”);

d.   without the Implied Notification Term and Implied Delivery Term, the terms of Remark (1) would be devoid of meaning and effect, “as the Plaintiff could always circumvent the same in the event of its failure to give the requisite one-month notice under Remark (1), by apportioning a ‘single delivery equal to or over 1,000 mt’ into two or several deliveries of less than 1,000 MT each and then giving merely two or several 24 hours’ notices under the Delivery Clause”;

35.Upon the basis of its case as summarised above, the Defendant avers that prior to 25 November 2010, the Plaintiff had only ordered a small quantity of steel bars.  Then, on and after 25 November 2010, and within a week, the Plaintiff placed the Subject Orders.  Apart from the address of the project, which the Plaintiff provided on 14 December 2010 on a without prejudice basis, the Plaintiff had failed to provide to the Defendant the  additional information as requested so as to enable the Defendant to determine whether the Defendant would be obliged to supply the steel bars ordered.  In the circumstances, the Plaintiff was in breach of the Implied Notification Term.  On the other hand, if the steel bars were all to be used in the project at the address provided by the Plaintiff on 14 December 2010, the Plaintiff would have been in breach of the Sales Contract in failing to give one month notice to the Defendant prior to delivery.  Further, it is averred that in breach of the Implied Delivery Term, the Plaintiff’s notices requiring delivery of the Subject Steel Bars were manifestly unreasonable, such that the Defendant was not obliged to comply with the same.

E.  THE ISSUES

36.The main issues are as follows:-

a. whether upon a proper construction of the Sales Contract, and in particular the Project Clause, the Defendant was only obliged to supply steel bars to the Plaintiff for use in reinforced concrete under various projects undertaken by the Plaintiff in Hong Kong (“Interpretation of the Project Clause”);

b. whether upon a proper construction of the Sales Contract, the words “Any single delivery equal to or over 1,000 mt” under Remark 1 was meant to refer to the delivery of steel bars to a single project with a total quantity equal to or in excess of 1,000 M/T such that with one month notice prior to delivery the Defendant would have sufficient time to procure the necessary stock required to be supplied for any particular project (“Interpretation of the Single Delivery Clause”);

c. whether the Sales Contract contained the Implied Delivery Clause; and

d. whether the Sales Contract contained the Implied Notification Term.

F. ADMISSIBILITY OF CERTAIN EVIDENCE

37.I consider first of all the Admissibility of the evidence on (1) the pre-contractual negotiations leading to the conclusion of the Sales Contract, and (2) the Settlement Offer.

F.1.   Admissibility of evidence on pre-contractual negotiations

38.I refer first of all to Prenn v. Simmonds [1971] 1 WLR 1381, where Lord Wilberforce, having referred to the prolonged negotiations between the parties and their exchanges of draft clauses, observed at p.1384G-1385A and p.1385H that:-

“The reason for not admitting evidence of these exchanges is not a technical one or even mainly one of convenience, (though the attempt to admit it did greatly prolong the case and add to its expense). It is simply that such evidence is unhelpful. By the nature of things, where negotiations are difficult, the parties' positions, with each passing letter, are changing and until the final agreement, though converging, still divergent. It is only the final document which records a consensus. If the previous documents use different expressions, how does construction of those expressions, itself a doubtful process, help on the construction of the contractual words? If the same expressions are used, nothing is gained by looking back: indeed, something may be lost since the relevant surrounding circumstances may be different. And at this stage there is no consensus of the parties to appeal to.”

“In my opinion, then, evidence of negotiations, or of the parties' intentions, and a fortiori of Dr. Simmonds' intentions, ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the “genesis” and objectively the “aim” of the transaction.”

39.In Investors Compensation Scheme Ltd. v West Bromwich Building Society [1998] 1 WLR 896 at 912H-913F Lord Hoffmann summarized the relevant principles as follows:

“…as a result of the speeches of Lord Wilberforce in Prenn v. Simmonds [1971] 1 W.L.R. 1381 , 1384–1386 and Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen [1976] 1 W.L.R. 989 ,…[t] he result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of “legal” interpretation has been discarded. The principles may be summarised as follows.

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the “matrix of fact,” but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749 .

(5) The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191 , 201: “if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.”

40.Lord Hoffmann made similar observations in Jumbo King Ltd. v Faithful Properties Ltd. (1999) 2 HKCFAR 279 at 296 D-I, that:

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended. In ordinary life people often express themselves infelicitously without leaving any doubt about what they meant. Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other. The court is not privy to the negotiation of the agreement ― evidence of such negotiations is inadmissible ― and has no way of knowing whether a clause which appears to have an onerous effect was a quid pro quo for some other concession. Or one of the parties may simply have made a bad bargain. The only escape from the language is an action for rectification, in which the previous negotiations can be examined. But the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.”

41.In my view, the law is quite clear.  For the purpose of interpreting an agreement, the law excludes from the admissible background, or the matrix of facts, the previous negotiations of the parties and their declarations of subjective intent.  Evidence of such negotiations is inadmissible.

42.I accordingly rule that all evidence in relation to the pre-contractual negotiations between the parties leading to the conclusion of the Sales Contract is inadmissible.  Such pre-contractual negotiations do not form part of the factual matrix against which I construe the terms of the Sales Contract.

F.2.   Admissibility of evidence on the Settlement Offer

43.H&I on behalf of the Defendant objected to the disclosure of the Settlement Offer.  I have summarised the objections expressed in the correspondence.  On behalf of the Plaintiff, W&F had not sought to deny that the Settlement Offer was made by the Defendant with the aim of achieving a settlement.  What they said in their letter of 14 December 2010 was that “the communication regarding your client’s offer had never been expressed to be made on without prejudice basis.” 

44.I refer also to paragraph 15 of Mr. Fung’s witness statement, where he, having referred to the Settlement Offer, said that “that offer was made as a genuine attempt to settle the dispute arisen at that time between the parties…Although I did not expressly use the words ‘without prejudice’ in communicating the offer to Mr. Kwok, I believe it was well understood by him that the offer was made as a genuine attempt to try to settle the dispute between the parties and if the offer was not accepted by Konwall, it should not be disclosed and used against Strong Progress.”

45.Any discussion between the parties for the purpose of resolving the dispute between them are not admissible, even if the words “without prejudice” or their equivalent are not expressly used: Hong Kong Civil Procedure 2013, Volume 1 paragraph 24/5/41, and Chocoladefabriken Lindt & Sprungli AG v. Nestle Co Ltd [1978] R.P.C. 287 cited therein.  I rule that all evidence in relation to the Settlement Offer is inadmissible.

G.     WITNESSES

46.The Plaintiff has called two, they being Kwok Yu Won Eric and Kwok Tai Yuen Nelson, respectively its Managing Director and project manager.

47.The Defendant also has called two, being Richard Deng Rong Hui and Fung Tak Lee, who were respectively a Director and the Chairman of the Defendant.

48.A joint expert, namely Mr. Cheung Tat Tong has also been called.  His evidence is relevant to the market price of the steel bars concerned and the quantum of the Plaintiff’s claim.

49.As I have commented above, and as put by Mr. Maurellet when opening, the bulk of the dispute concerns the application of legal principles rather than dispute of facts.  While the witnesses have been cross-examined, the areas subject to cross-examination are confined to specific factual matters relevant to, but not determinative of, the main issues, which are the interpretation of the Sales Contract and the existence or otherwise of the alleged implied terms.  After all, as has been explained by Lord Hoffmann in Investors Compensation Scheme Ltd. v West Bromwich Building Society, declarations of subjective intent by the witnesses/parties, like pre-contractual negotiations, are inadmissible for the purpose of discovering what a reasonable person would have understand the parties to mean. 

50.For the above reasons, I will consider the evidence and state my findings primarily on an issue-by-issue basis when I consider below the relevant “matrix of facts” against which the Sales Contract should be interpreted and construed.

H.     THE LAW

51.There is little dispute between the parts on the application legal principles.  I summarize them as follows.

52.In respect of the law relevant to interpretation of contracts, I repeat the parts of the judgments from Investors Compensation Scheme Ltd. v West Bromwich Building Society and Jumbo King which I have cited above.  In particular, I repeat Lord Hoffmann’s observations in Investors Compensation (at 912H), that

“Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”

53.In Marble Holding Limited v. Yatin Development Limited, (2008) 11 HKCFAR 222, Mortimer NPJ observed at paragraph 20 of the judgment that:-

“ If the words used are free of ambiguity and devoid of commercial absurdity their natural and ordinary meaning will apply unless the relevant surrounding circumstances demonstrate otherwise. Of course, parties often fail to express themselves well or clearly in which case the surrounding circumstances are of particular value.”

His Lordship further observed at paragraph 22 that post agreement conduct and statements of the parties are not generally relevant.

54.In respect of the law relevant to the implication of contractual terms, I have considered the following matters and authorities.

55.When an instrument does not expressly provide for what is to happen when some events occur, the first question is whether any term in that regard should be implied at all.  As observed by Lord Hoffmann in Attorney General of Belize v. Belize Telecom Ltd [2009] 1 WLR 1988 at paragraph 17:-

“The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.”

56.There are however occasions when the court may accede to a party’s request to imply a term from the wording of a particular contract.  The relevant principles are explained in Chitty on Contracts, 31^st Edition, Volume 1, paragraph 13-004 (which the learned authors called the “Traditional principles”):-

“The court will not make a contract for the parties but will be prepared to imply a term if there arises from the language of the contract itself, and the circumstances under which it is entered into, an inference that the parties must have intended the stipulation in question. Traditionally, an implication of this nature may be made in two situations: first, where it is necessary to give business efficacy to the contract, and secondly, where the term implied represents the obvious, but unexpressed intention of the parties.”

57.That was the approach adopted by the Court of Final Appeal in Twinkle Step Investment Ltd v Smart International Industrial Ltd (1999) 2 HKCFAR 255.  In that case, Ching PJ., having referred to Liverpool City Council v. Irwin [1977] AC 239, held (at 261I to 262A) that terms will be implied if it is necessary, in the business sense, to give efficacy to the contract.    Reasonableness is however not a ground for doing so.  In the same case, Bokhary PJ observed (at page 263D-E) that the question is whether the term contended for is one which the court must imply in order to establish what the contract is, the parties themselves not having fully stated the terms of their contract.

58.At paragraph 13-005 of Chitty, the learned authors explain what is called a “Broader Approach”, that:-

“More recently, however, a much broader approach to the implication of terms was adopted by the Judicial Committee of the Privy Council in Att-Gen of Belize v Belize Telecom Ltd. Lord Hoffmann stated that:

‘… in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such provision would spell out in express words what the instrument read against the relevant background, would reasonably be understood to mean’

and that the list of requirements set out in previous cases for the implication of a term:

‘… is best regarded not as a series of independent tests which must each be surmounted, but rather a collection of different ways in which judge have tried to express the central idea that the proposed implied term must spell out what the contract actually meant, or in which they have explained why they did not think that it did so.’”

Lord Hoffmann’s statement has subsequently been endorsed by the Court of Appeal and applied or referred to in a number of cases at first instance.  As a result, the principles that traditionally govern the implication (or non-implication) of terms and which are set out in the paragraphs which follow should now no longer be regarded as “tests” to be applied to determine whether or not a term should be implied but rather as guidelines to assist the court to answer the single question: Is that what the instrument, read as a whole against the relevant back-ground, would reasonably be understood to mean?”

59.However, I do not understand Lord Hoffmann as meaning that the traditional approach should be abandoned altogether.  That is quite obvious from what His Lordship has said at paragraph 17 of Belize (op. cit.).  I refer also to Chitty (paragraph 13-005), where the learned authors also comment that “…it is clear that Lord Hoffmann did not intend in his broader approach to herald any fundamental change of attitude so as to enable terms to be more easily implied”.

60.In any event, if the approach propounded by Lord Hoffmann does represent a new approach different from that adopted by the Court of Final Appeal in Twinkle Step, I regard myself as being bound by Twinkle Step.

61.However, as I will explain below, I have reached the same decision whether I adopt the so-called “traditional principles” or the “broader approach”.

62.Miss Cruden has also referred me to a number of passages in Chitty relevant to those situations where, it is said, terms should not be implied:-

“Where term not implied. A term ought not to be implied unless it is in all the circumstances equitable and reasonable. But this does not mean that a term will be implied merely because in all the circumstances it would be reasonable to do so or because it would improve the contract or make its carrying out more convenient: [t]he touchstone is always necessity and not merely reasonableness.” The term to be implied must also be capable of being formulated with sufficient clarity and precision. But it may be that lack of precision in the criterion to be embodied in the term is not fatal to any implication…” (paragraph 13-010)

“A term will not be implied if it would be inconsistent with the express wording of the contract.” (paragraph 13-010)

“Express terms prevail. A custom or usage can only be incorporated into a contract if there is nothing in the express or necessarily implied terms of the contract to prevent such inclusion, and it can only be incorporated if it is not inconsistent with the tenor of the contract as a whole.” (paragraph 13-024)

I.   THE FIRST ISSUE - THE INTERPRETATION OF THE PROJECT CLAUSE

I.1     Factual Findings

63.In her closing submissions, Ms Cruden approached the interpretation issues in a way as guided by the observations made by Lord Hoffmann in Jumbo King Ltd, namely “having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve.”  She submitted that all those regards support the Plaintiff’s case.  The non-controversial facts I have set out above cover the factual matrix she sought to rely upon (except those pre-contractual negotiations which I have held to be inadmissible).  Her position in respect of the 2005 Contract is this, that whilst it is not necessary to construe the same conclusive, it does form part of the factual matrix. 

64.In his Closing Submissions, Mr. Maurellet set out his arguments on the First Issue as follows:-

“that on a correct interpretation of the Sales Contract, the Defendant was only obliged to supply steel bars to the Plaintiff for use in reinforced concrete “under various projects undertaken by the Plaintiff [in Hong Kong]”, and the Plaintiff has failed to show that the loss, if any, it has alleged suffered arose from its inability to make such use of the non-delivered steel bars. The projects of the Plaintiff would have to be ongoing projects or foreseeable projects in the near future which details are known, given the non-durable nature of steel bars, and given the need for the Plaintiff to ensure that there has been no resale of the steel bars supplied”.

65.Mr. Maurellet invited me to make a number of findings said to be relevant to this issue.  I will consider them in the following paragraphs (except those relating to the parties’ pre-contractual negotiations, which I have held to be inadmissible).  I find it convenient to consider at the same time also the factual issues said to be relevant to the Second and Third Issues.  When considering the evidence, I will primarily consider the question of inherent plausibility or probability.  I will also consider the consistency of the evidence.  Having stated my findings, I will then come back to discuss their significance and implications during the Discussion Sections of this Judgment.

66.The business the Defendant held itself out to be in:-

a.   Mr. Maurellet invited me to find that “At all material times, the Defendant held itself out as a supplier of steel bars for contractors’ construction projects, and not a supplier of steel bars to other suppliers of steel bars for resale”;

b.   I so find.  That is consistent with the evidence given by Mr. Deng.

67.The business the Plaintiff held itself out to be in:-

a.   Mr. Maurellet invited me to find that “At all material times, the Plaintiff did not hold itself out as a trader of steel bars, nor did it engage in the trading of steel bars generally at best beyond the limited sale of steel bars to its sub-contractors for use in Plaintiff’s own projects where the price of the steel bars would be set off against the sums due to the sub-contractors by the Plaintiff at the end of each construction project”;

b.   Mr. Eric Kwok accepted during cross-examination that trading in steel was not the Plaintiff’s main business. He however disagreed with the suggestion that that was not the Plaintiff’s business at all.  He said that the Plaintiff could choose to trade steel.  What the Plaintiff would do with any surplus steel would be dependent upon the quantity of the surplus.  If the surplus was large, the Plaintiff could store them in its go-down or it could choose to sell them to other stockists.  The Plaintiff might not have done that before, but that was because the Plaintiff had never had large surplus before;

c.    I accept Mr. Kwok’s evidence.  The explanations he gave were inherently probable.  I see no reason why the Plaintiff would have ruled itself out completely from the business of reselling steel;

d.   In so far as the Defendant’s knowledge in this regard, I accept Ms Cruden’s submissions, basing upon the pleadings in the 2007 Action, that the Defendant knew that the Plaintiff had maintained that it could use the steel as it saw fit, including for resale.  Those pleadings were put to Mr. Fung and Mr. Deng during cross-examination.  They confirmed knowledge of the same.  In particular, Mr. Fung accepted that as a result of the pleadings, the Defendant knew that one of the Plaintiff’s complaints in the 2007 Action was that it had lost the opportunity to resell the steel bars concerned;

e.    I find therefore that whilst trading steel was not the Plaintiff’s main business, it could do so if it chose to, and the possibility of the Plaintiff trading steel was within the Defendant’s knowledge.

68.The durability of steel bars:-

a.   In this regard, Mr. Maurellet invited me to find that “The steel bars supplied under the Sales Contract generally are not durable and cannot be kept for very long, such that they would have to be used for ongoing or reasonably imminent projects”;

b.   I find the evidence on the general durability (or non-durability) of steel bars to be of very limited value for the purpose of construing the Sale Contract.  There are too much uncertainties, including the conditions of storage, the extent of any rust, how rusty should a steel bar be before it would be regarded as unusable, etc;

c.    I have nonetheless considered the evidence;

d.   At paragraph 11 of his statement of 10 April 2012, Mr. Deng said this:-

“I should point out that unfixed steel bars can be kept in good conditions for only 3 to 6 months (depending on the weather or the storage conditions). Beyond this period, unfixed steel bars would rust and would not be usable other than as scrap metal.” (Emphasis added)

e.    That was disputed by the Plaintiff.  In his statement, Mr. Nelson Kwok said that whilst steel bars are not durable in nature, it is not uncommon to keep them for future consumption after say 2-3 years.  In particular, he produced some documents showing that some of the steels that the Defendant had previously supplied to the Plaintiff were at least 9 or 12 months old;

f.     Upon cross-examination, Mr. Deng said that the way the matter was expressed in his statement concerned was not clear, and that the words “would rust” should mean “may rust”;

g.   Further, when put to him that under appropriate storage conditions, steel bars could be kept for 2 to 3 years, he said that it was possible but rather difficult;

h.   I note also Mr. Nelson Kwok’s evidence during cross-examination that the Plaintiff’s steel bars could be stored for one year with no problem;

i.     I do not accept Mr. Deng’s evidence that steel bars “would rust” after 6 months.  I find that according to the evidence, it is at least possible for steel bars to be stored for a much longer period, to the extent of 1 to 3 years.

69.The QA Stockist system under CS2:-

a.   Mr. Maurellet invited me to find that “At all material times, the Plaintiff was not a QA Stockist under the Construction Standard CS2:1995, and could only resell steel bars as class 3 steel bars, as defined under the CS2 specifications, if it attempted to sell to third parties”;

b.   This is not controversial, and I so find;

c.    Mr. Maurellet further invited me to find that “Class 3 steel bars were worth much less on the market than class 2 steel bars, and/or it was not commercially viable for the Plaintiff to resell its steel bars to third parties”;

d.   I am not prepared to make such a sweeping and vague finding.  According to CS2, the practical difference between using different Classes of steel bars under CS2 is the frequency of purchasers tests required to be conducted.  Whether Class 3 steel bars are worth “much less” than Class 2 bars will be dependent  upon the costs of such extra purchasers tests required;

e.    Mr. Nelson Kwok was cross-examined on this issue.  He was asked about the extra costs of testing 3,900 tons of the subject steel bars if they were Class 3 instead of Class 2.  He said that the costs would not have been significant.  He said that each test would only be about HK$40.  The costs differences would have been about HK$20,000, and that was inclusive of the manpower involved;

f.     Mr. Deng of the Defendant was also asked in chief about the same subject.  He gave some explanations on the matter.  But he prefaced his answers by saying that he could not remember the exact amount involved;

g.   Further, whether it was commercially viable for the Plaintiff to resell its steel bars to third parties would be dependent upon the difference between the purchase price and the re-sell price.  If the Plaintiff were able to purchase its steel bars at a low price, it could have been commercially viable for it to resell even after the additional costs for extra purchasers tests had been factored in.

70.The 2005 Contract:-

a.   Mr. Maurellet invited me to make two findings relevant to the 2005 Contract, namely:-

i.     “In the 2005 Contract, the Defendant and the Plaintiff intended there be a user restriction that the steel bars supplied would only be for the use of the Plaintiff for the Plaintiff’s own projects”;

ii.   “The 2005 Contract was intended to be in the same terms as that of the Contract, besides the change in the quantity of steel bars supplied under the Contract and other deliberate changes”;

b.   I consider first of all whether there was any user restriction intended;

c.    The first thing I note is that there was no express user restriction on the face of the 2005 Contract.  Further, the project descriptions in the quotation, the letter of 1 February 2005 from the Plaintiff confirming acceptance of the quotation, and the contract itself all included the words “other sites” (see paragraph 8 above);

d.   Mr. Maurellet was in fact inviting me to construe the word “sites” as it appears in the term “other sites” as meaning “sites at which the Plaintiff undertook work”;

e.    But textually, all the documents said “other sites”, but not “other sites at which the Plaintiff undertook work”;

f.     Mr. Maurellet referred me to the letter of 20 September 2006 from the Plaintiff wherein the Plaintiff, submitted Mr. Maurellet, made 2 requests: firstly, to extend the contract period of the contract; and secondly, to amend the project description of the contract to include only 35 Clear Bay Road.   Mr. Eric Kwok explained in evidence that the Plaintiff was making a concession in exchange for the requested extension of time.  He rejected the suggestion that the 2005 Contract contained the user restriction as suggested;

g.   In its reply of 5 November 2005, the Defendant said:-

“PS: ‘Other Sites’ meaning various site [sic]. Therefore under the [2005 Contract] we pleasure to look [sic.] you would arbitrary utilize surplus quantity to any job [sic] and the goods is [sic.] always ready in our stock for you to take order [sic] at any time”.

That letter was signed by Mr. Deng on behalf of the Defendant.  The wording of that letter, and in particular the clause “arbitrary utilize surplus quantity to any job” is entirely inconsistent with the existence of the alleged user restriction.  In evidence, Mr. Deng claimed that the meaning of the phrase quoted above really referred to the Plaintiff using the steel for any of the Plaintiff’s own projects.  I do not accept that explanation.   That was not what he wrote in the letter.  I find it inherently implausible that a person in Mr. Deng’s position would have chosen to use those written words (and in particular the word “arbitrary”) in that letter if the 2005 Contract had indeed contained the user restriction alleged.   That was particularly so when that letter was not a causal one, but was subsequently signed in confirmation by both the Plaintiff and Defendant to formally vary the terms of the 2005 Contract;

h.   Mr. Maurellet submitted that if the term “other Sites” in the 2005 Contract simply meant “any site”, the “project clause” in the 2005 Contract would simply be superfluous.  But as Mr. Maurellet pointed out, the quoted price in the quotation was offered to be “fixed to project completion”, and that the delivery charges were also set with reference to the Clear Water Bay Project.  The “project clause” had some purpose.  Just that its purpose was not to impose the user restriction as claimed;

i.     In respect of this issue, I accept the evidence of Mr. Eric Kwok and reject that of Mr. Deng.  I reject the submissions that the 2005 Contract contained any user restriction as contended for;

j.     I also rejected the submission that “The 2005 Contract was intended to be in the same terms as that of the Contract, besides the change in the quantity of steel bars supplied under the Contract and other deliberate changes”.  That submission begs the question as to what changes were deliberate and what were not.  I accept Ms Cruden’s submissions in this regard that there were many significant and material differences between the 2005 Contract and the Sales Contract, and that they were entered into for wholly different purposes.  In any event, upon my finding that the 2005 Contract contained no user restriction, the significance of this related submission fades away.

71.The parties’ good business sense:-

a.   Mr. Maurellet invited me to find that “the Plaintiff was free to purchase whatever quantity of steel which it estimate would be needed for its projects, and the Defendant will apply vigorous commercial sense when there are unexpected situations affecting the Plaintiff’s actual demand for steel for its construction projects”;

b.   This submission was triggered by some questions I asked in the course of the proceedings reflecting my concern that the Plaintiff might, according to the Defendant’s case, find itself under some circumstances to be in the position in which it could not place order for the balance of the steel bars ordered (as it no longer had any ongoing projects requiring those steels) but had to nonetheless pay the Defendant for them;

c.    I am prepared to make the finding urged upon me on the basis of the evidence given by Mr Deng.

72.The price of the steel bars at the time when the Sales Contract was made:-

a.   Mr. Maurellet invited me to find that “the Plaintiff was aware that the price for steel bars under the Sales Contract was substantively lower than the market price for steel at the time when the Sale Contract was made”;

b.   I am not satisfied that there was enough evidence upon which I can so find.  The state of knowledge of Mr. Eric Kwok and Mr. Nelson Kwok was not sufficiently canvassed in the course of the evidence.  Further, as submitted by Ms. Cruden, the price of steel bars fluctuated, and neither parties knew what the market would have been during the subsequent contractual period.

73.The use of the steel bars under the Subject Orders:-

a.   Mr. Maurellet invited me to find that “No credible evidence (i.e not self serving) was produced that the steel bars under the Subject Orders were in fact for use on the Plaintiff’s own construction projects or indeed any projects”;

b.   I find the subsequent use of the steels to be of very limited relevance when it comes to the interpretation of the Project Clause.  In any event, I have considered Mr. Nelson Kwok’s evidence in this regard, which was that at the time when the Subject Orders were placed, the Plaintiff had an active project which required 1200 tons of steels.  As the Defendant did not accept the Subject Orders, the Plaintiff used about 400 tons of its reserve steels.  The balance was ordered from other sources.  I accept his evidence, and I so find.

74.At the time the Disputed Orders were made, D had adequate steel bars in its warehouse to satisfy the Subject Orders:-

This is supported by the evidence of Mr. Deng given during cross-examination, and I so find.

75.There are physical limits to the amount of steel that can be removed from D’s warehouse and be made ready for delivery or collection:-

a.   That accords with common sense and the evidence.  Mr. Eric Kwok agreed that it would be impossible to get all 4000 M/T of steel bars in one day.  According to Mr. Deng’s statement, it is possible for the Plaintiff to take delivery of 1000 M/T within a day (though it would take 7 hours of non-stop work).  Beyond the above, things become less clear.  There are two aspects to this issue.  The first aspect is how many M/T of steel bars the Defendant could make ready for collection at its warehouse per day.  Mr. Deng explained that the Defendant had two cranes to lift steel bars from its warehouse to the loading area.  There might also be other customers using the loading area.  The second aspect is how many M/T of steel bars the Plaintiff could collect at the Defendant’s warehouse per day.  As explained by Mr. Nelson Kwok, that would be dependent upon variables like number of trucks and cranes employed, traffic conditions etc;

b.   I accept the above evidence.

76. The Defendant was interested in setting limits to the quantities of steel that P could obtain on credit:-

a.   During re-examination, Mr. Deng gave evidence that another reason behind the need to give one month’s notice before the delivery of 1000M/T of steel bars to a single project or at least a reasonable amount of time relative to the quantity ordered, was that the Defendant was interested in securing payment for steel bars previously ordered before delivery was made for another substantial quantity of steel bars. This was due to previous litigation between the parties, as a result of which the Defendant was interested to give as little credit to the Plaintiff for steel ordered under the Sales Contract;

b.   Ms Cruden in her Closing Submissions objected to both the evidence and the related arguments on the basis that the relevant facts have not been pleaded;

c.    I agreed with Ms Cruden.  The relevant matter was raised for the first time during the re-examination of Mr. Deng.  The Plaintiff has been afforded no chance to deal with either in pleadings or evidence.  I cannot speculate what evidence the Plaintiff would have adduced to deal with the issue had it had the chance to do so;

d.   I as a result ignore the relevant evidence.

I.2     The First Issue - Discussion

77.I start with the textual background of the Sales Contract.

78.The Project Clause said “Under various projects in Hong Kong”.  On the face of the Project Clause, there was no express limitation of the type contended for by the Defendant.

79.Nor did the Sale Contract as a whole contained any express limitation of the type contended for by the Defendant.

80.Further, and textually, what was “undertaken by the Plaintiff” intended to mean according to the Defendant’s case? Should that be confined to projects in which the Plaintiff actually carried out the construction works?  Or did that include projects in which the steel bars were used by one of the Plaintiff’s sub-contractors?  And how about the case of sub-sub-contractors? 

81.It is also important to note that the interpretation contended for by the Defendant is not just that “various projects” means “various projects undertaken by the Plaintiff.”   It is more detailed than that.  According to Mr. Maurellet, the projects of the Plaintiff “would have to be ongoing projects or foreseeable projects in the near future which details are known”.  What is “foreseeable projects” supposed to mean?  And “near future”?  Or does it mean that so long as “details are known”, the projects could be included?  None of these appears on the face of the Sale Contract, and none has been defined. 

82.Mr. Maurellet submitted that the use of the word “various” as opposed to “any” in the Project Clause supports his contention.  I accept Ms. Cruden’s submissions in this regard.  We are for the purpose of contractual interpretation concerned with what a reasonable person, but not a pedantic lawyer, would have understood the words to mean.  Reading the Project Clause in its entirety (but not the words “various projects” in isolation), the meaning of “Under various projects in Hong Kong” and “Under any projects in Hong Kong” hardly has any difference.

83.Mr. Maurellet then submitted that the Plaintiff’s interpretation would seem to deprive the word “projects” of any purpose, and would render the Project Clause superfluous as a governing criterion.  But the words “in Hong Kong” imposed a territorial restriction.  Even without the limitation proposed by the Defendant, the Project Clause as a whole still was not superfluous.

84.Mr. Maurellet relied upon the word “projects”, which he submitted was more consistent with “consumption” than “resale”.  He further submitted that if the parties had intended that the Plaintiff were allowed to resell the subject steel bars, it is difficult to see why either the Defendant or the Plaintiff could have cared at all about whether the subsequent purchaser had or had not any “project” in hand.  These hardly assist the Defendant’s case.  Upon resale, the steel bars would still in all probabilities be consumed in some projects by someone.  It hardly supports the Defendant’s contention that the steel bars had to be used “under various projects undertaken by the Plaintiff”.    

85.I next consider the factual matrix and the factual and legal background against which the Sale Contract was concluded, and the practical objects which it was intended to achieve.

86.The factual matrix I take into account comprises the facts I have recited in Section B and have found in Section I.1. above.   

87.At all material times, the Defendant held itself out as a supplier of steel bars for contractors’ construction projects, and not a supplier of steel bars to other suppliers of steel bars for resale.  Whilst that is true, it does not mean that the Defendant would necessarily be affected by or concerned about any resale by its customers.  Commercial reality suggests that any resale price by the Defendant’s customers would in the normally course of events be higher than the price at which the Defendant sells the same steel, and it is mostly likely that any third party intending to buy would go to the Defendant direct. Permitting resale may not be a problem.  Further, as Ms Cruden submitted, once the Plaintiff had become the owner of any steel bars, it would be entitled to do whatever it saw fit with its property. 

88.In so far as the business of the Plaintiff is concerned, it did not hold itself out as a trader of steel bars.  However, it does not mean that it had ruled itself out from the business of reselling.  That was particularly so in respect of surplus steel bars.

89.Here, the case of Defendant runs into some difficulties.  Was there any distinction, in so far as the user restriction argued to be imposed by the Project Clause was concerned, between resale of surplus steels and resale simpliciter?  If so, where was that distinction drawn in the Sales Contract?  How was that supposed to be regulated?  These are unanswered queries the Defendant’s proposed interpretation faces.

90.Whilst the Plaintiff has not been a registered QA Stockist, it does not mean that it cannot sell steel bars.  I have explained the QA Stockist system above.

91.In so far as the durability of steel bars are concerned, the evidence suggests that they that they could be stored for certain time, to the extent of 1 to 3 years.  The evidence does not support the Defendant’s proposition that steel bars “would have to be used for ongoing or reasonably imminent projects”.  The Defendant’s case also begs the question as to what “reasonably imminent” means.

92.In respect of the 2005 Contract, I have made my findings above.  I do not accept that that contract contained any user restriction. 

93.The parties developed disputes in respect of the 2005 Contract.  As a result of the pleadings filed in the resulting action, the Defendant became aware that one of the Plaintiff’s complaints in the 2007 Action was that it had lost the opportunity to resell the steel bars concerned.

94.The Sales Contract was entered into to settle the 2007 Action.  It was not a casual document.  I attach some weight to this particular background fact.  As observed by Lord Hoffman in ICS “we do not easily accept that people have made linguistic mistakes, particularly in formal documents” and in Jumbo King “in serious utterances such as legal documents, in which people are supposed to have chosen their words with care, one does not readily accept that they have used the wrong words”.

95.The resulting settlement agreement in the form of the Sales Contract did not contain any express user restriction contended for by the Defendant.  Nor did it seek to define or set out the meaning of the words “undertaken by the Plaintiff”, not to mention further details like the meaning of “ongoing projects or foreseeable projects in the near future which details are known”.

96.The Sales Contract, as submitted by Ms. Cruden, was not a usual business contract between the parties.  It was entered into to settle the 2007 Action.  The 4000 M/T ordered there was not a genuine pre-estimate of the Plaintiff’s needs during the contractual period. The usual business good sense of the parties is hardly relevant.

97.As to the subsequent actual use of the steel bars order under the Subject Orders, I have made my observations above.  In any event, I find such subsequent conduct to be of limited relevance when it comes to the question of interpretation.

98.In all the circumstance, I find the Defendant’s contention to be inconsistent with the words used in the Sales Contract as a whole, and in particular that of the Project Clause.  It is also not supported by the factual matrix.  I find that a reasonable person would not have understood the parties as meaning to impose the user restriction the Defendant is contending for.

99.Further, given the indefinite meaning of terms like “undertaken by the Plaintiff”, “ongoing projects” and “foreseeable projects in the near future”, I find the proposed interpretation too vague as to have been meant by the parties.

100.I reject the Defendant’s defence in this regard.

J.   THE SECOND ISSUE – INTERPRETATION OF THE SINGLE DELIVER CLAUSE

101.In respect of the Second Issue, Mr. Maurellet argued that “on a proper construction of the Sales Contract, the words “any single delivery equal to or over 1,000 M/T” plainly referred to “the delivery of steel bars to a single project with a total quantity equal to or in excess of 1,000 m/t such that with one month notice prior to delivery the Defendant would have sufficient time to procure the necessary stock of the steel bars required to be supplied for any particular project”, and failure to give such advance notice meant that D's obligation to deliver simply did not arise prior to the Plaintiff’s repudiation of the Contract”.   That is also the pleaded case of the Defendant.

102.According to Mr. Maurellet, the term “single delivery” should be interpreted as meaning: -

“…Delivery of steel bars to a single project with a total quantity equal to or in excess of 1,000 M/T”,

and that Remark 1should actually have read: -

“A single delivery is delivery (or deliveries) to a single project. If a single delivery requires a total quantity equal to or over 1,000M/T, the buyer shall give the seller one month notice prior to the first delivery under the said project. The last delivery shall not be later than December 31, 2010.”

J.1.    The Second Issue – Factual Findings

103.I have in Section I.1 above dealt with the factual issues which Mr. Maurellet submitted to be relevant to this issue.

J.2.    The Second Issue - Discussion

104.I again start with the textual background of the Sales Contract.

105.Remark 1 provided that “Any single delivery is equal to or over 1,000mt, the buyer shall give the seller one month notice prior to delivery.”  It did not expressly say what the Defendant now argues it should have read.

106.In particular, the Defendant’s proposed interpretation seeks to adopt the quantity of steel bars which a project required as a criterion to decide what “a single delivery” was. On the face of Remark 1, there is no reference to such a criterion.  Nor is there such a reference in any part of the Sales Contract.

107.The Plaintiff’s case is simply that “the words “Any single delivery equal to or over 1,000 mt” were meant to refer to any single delivery equal to or over 1,000 mt at a time”. 

108.Mr. Maurellet argued that on the Plaintiff’s interpretation, Remark 1 is required to be redrafted by deleting the word “Any” and by added the underlined words as follows:

“Any A single delivery is a delivery requiring a quantity equal to or over 1,000M/T, and in the case of a single delivery the buyer shall give the seller one month notice prior to delivery. The last delivery shall not be later than December 31, 2010.”

109.I do not agree.  The Plaintiff’s version in my view does not require any redrafting of Remark 1.

110.On the other hand, my view is that it is the version proposed by the Defendant which requires extensive redrafting by adding to Remark 1 words which were not there.

111.In particular, Mr. Maurellet contented that the scheme contemplated by the Defendant was that: -

a.   If it was the Plaintiff’s estimate that a project would require a total quantity of steel bars equal to or exceeding 1,000 M/T, the Plaintiff would be required to give notice one month prior to the first delivery under that project pursuant to the Single Delivery Clause;

b.   Following the one-month notice, the Plaintiff might require the 1,000 M/T to be delivered in parcels by a number of deliveries over a course of time.  Each such delivery was then a “partial delivery” under the Delivery Clause which required only 24-hour advance notice

112.The alleged scheme was not simple in its operation.  There was no such scheme on the face of the Sales Contract.

113.I next consider the factual matrix.

114.I repeat my consideration of the factual matrix in the context of the First Issue.  I have rejected the Defendant’s contention that “under various projects undertaken by the Plaintiff”.  That conclusion is also relevant to the consideration of the Second Issue here.   I have found that the Plaintiff was at liberty to resell the steel bars.  That being the case, the Plaintiff might not be able to make any estimate as to how much steel its purchaser(s) would need in its (their) project(s).  The scheme which, according to Mr. Maurellet’s arguments, was contemplated by the Defendant would not work.  At least it might not.

115.Further, I agree with Ms Cruden’s submissions highlighting the background fact that the Sales Contract was entered into in settlement of the 2007 Action.  The agreed quantity of 4,000 M/T was a compromise.  It was not a pre-estimate of the Plaintiff’s actual or anticipated need for steel bars during the contract period.  The scheme argued by Mr. Maurellet to have been contemplated by the Defendant is inconsistent with this important background fact.

116.Mr. Maurellet argued that the Defendant’s construction was “necessary due to physical limitation for delivery”.  I have made my observations in this regard.  There were too many variables for me to make any meaningful findings as to how much steel bars which the Plaintiff could remove per day.  But in my view, the important point here is this, that the Defendant’s delivery obligation was simply to have the steel bars available as its warehouse.  I refer to the Delivery Clause, which stipulated that “Goods to be collected by the buyer from the seller’s warehouse in New Territories”.  The Plaintiff was obliged to arrange collection, and the Sales Contract did not contain any terms limiting the period of time the Plaintiff was allowed to take delivery.

117.The evidence suggests that the Defendant had sufficient steel bars in the Defendant’s warehouse to satisfy the Subject Orders.  This evidence is inconsistent with the Defendant’s pleaded case that “any single delivery equal to or over 1,000 M/T” plainly referred to “the delivery of steel bars to a single project with a total quantity equal to or in excess of 1,000 m/t such that with one month notice prior to delivery the Defendant would have sufficient time to procure the necessary stock of the steel bars required to be supplied for any particular project”.

118.Mr. Maurellet further submitted that the Plaintiff’s version of interpretation would lead to absurdities, as the Plaintiff could easily circumvent the notice requirement by splitting up large orders.

119.In my view, the alleged absurdities have been exaggerated.  The Defendant had enough stock in its warehouse to satisfy the Subject Orders.  The Defendant did not require much time to procure supplies.  Its obligations under the contract were merely to make the steel bars available ready for collection.  The Plaintiff would have to collect them.  There was no need to collect everything within one day.  The bottom line is that the wording of the Sales Contract, and the threshold quantity of 1,000 M/T were all chosen by the parties.  I do not see any sufficient basis to re-write them.

120.In all the circumstances, I find the Defendant’s contention to be inconsistent with the words used in the Sales Contract as a whole, and in particular those of Remark 1.  It is also not supported by the factual matrix. Having interpreted the Sales Contract according to the applicable legal principles as discussed above, I reject the Defendant’s case in respect of the Second Issue.

K.   THE THIRD ISSUE – WHETHER THE SALES CONTRACT CONTAINED THE IMPLIED DELIVERY CLAUSE

121.In respect of the Third Issue, Mr. Maurellet submitted that “there is an implied term that the clause in the Contract under the heading “Delivery” which states that “… And the Defendant undertakes to supply by partial delivery the quantity of steel required by Plaintiff who shall notify the seller by fax 24 hours in advance notice” should be subject to the requirement of reasonableness, in that delivery would not be made by the Defendant, if “it would be manifestly unreasonable for [the Plaintiff] to require delivery within 24 hours by [Defendant] of the quantity of steel so specified”

122.This issue is closely linked to the Second Issue.  They were in fact dealt with together in Mr. Maurellet’s Closing Submissions.

123.I repeat Sections I and J above, in particular paragraphs 118 and 119 above.  I see no manifest unreasonableness involved. 

124.I agree with Ms Cruden’s submissions that, for the following two main reasons, the Implied Delivery Clause should not be implied into the Sales Contract:-

a.   it was contrary to the express terms agreed by the parties; and

b.   the Defendant’s own evidence is that it had the balance of the steel bars available and could have delivered the steel bars if it had been satisfied with the project particulars supplied by the Plaintiff.  There was nothing unreasonable, much less “manifestly unreasonable” about the terms or operation of the Sales Contract which warrants the implication of the Implied Delivery Clause.

125.Mr. Maurellet referred me to Treitel’s Law of Contract, 13th ed, pages 59-60 (discussing those cases “in which matters are to be resolved by the decision of one party”, but clear words are required to achieve that result) and Paragon Finance Ltd v Nash [2002] 1 WLR 685 at paragraph 36 (power which is conferred is limited by an implied term that it must not be exercised “dishonestly, for an improper purpose, capriciously or arbitrarily” where “such an implied term is necessary in order to give effect to the reasonable expectations of the parties”).  Mr. Maurellet sought to draw an analogy with those cases.  I do not find that analogy useful.  In my view, the wording of the Sales Contract is clear.  Further, as submitted by Ms Cruden, there is no issue of the Sales Contract having conferred upon the Plaintiff a power which might be used “dishonestly, for an improper purpose, capriciously or arbitrarily”.

126.In my view, the Implied Delivery Clause was not necessary to give business efficacy to the Sales Contract.  That was also not what the Sales Contract, read as a whole against the relevant background, would reasonably be understood to mean.

127.Hence, whether under the approach adopted by the Court of Final Appeal in Twinkle Step, or under the so-called “broader approach” adopted in Belize, I refuse to imply the Implied Delivery Clause from the language of the Sales Contract.

L.      THE FOURTH ISSUE – WHETHER THE SALES CONTRACT CONTAINED THE IMPLIED NOTIFICATION CLAUSE

128.In respect of this issue, Mr. Maurellet’s main contention was this, that “it was an implied term of the Sales Contract that in giving advance notice to the Defendant for the supply of steel bars, the Plaintiff must identify the project in Hong Kong for which the steel bars are to be used”.

129.Mr. Maurellet made to me a number of submissions in support of his main contention.  I am not going to deal with all of them.  I form the view that his main contention fails at the threshold, in the sense that there is no basis for Mr. Maurellet’s primary submission that “it was the Plaintiff and the Defendant’s common understanding that a project/job/site name for construction projects the steel bars would be used had to be supplied to D for each delivery of steel bars taken by the Plaintiff.”

130.Mr. Maurellet’s contention presupposes that at the time when the Plaintiff placed an order for delivery, details of the name and location of the project/job/site name and location at which the steel bars would be used were known.

131.That pre-supposition is linked to the submissions Mr. Maurellet made in respect of the First Issue, namely, “The projects of the Plaintiff P would have to be ongoing projects or foreseeable projects in the near future which details are known, given the non-durable nature of steel bars, and given the need for the Plaintiff to ensure that there has been no resale of the steel bars supplied”.

132.I have rejected that submission. I have given my reasons why.  I have also commented upon the vague natures of the terms concerned.  I will not repeat them.

133.That pre-supposition is also inconsistent with the important background fact that the Sales Contract was entered into in settlement of the 2007 Action, that the agreed quantity of 4,000 M/T was a compromise, and that it was not a pre-estimate of the Plaintiff’s actual or anticipated need for steel bars during the contract period.

134.Mr. Maurellet sought to rely upon the obligation on the part of the Defendant to issue stockist certificates. The scope of the Defendant’s duties to issue stockist certificates was canvassed during the course of the hearing (in the context of Ms Cruden’s application to admit the 3^rd Supplemental Witness Statement of Mr. Nelson Kwok).  I refer to paragraph 4.1.4 of CS2 concerning stockist certificates for Class 2 reinforcement (which the Defendant was primarily concerned with).  That paragraph provides that:-

“If the reinforcement is classified as Class 2 reinforcement, a certificate shall be issued by the QA Stockist. This stall state:-

(a) The QA Stockist’s name and address.

(b) The date of dispatch;

(c) The customer’s order number or other reference.

(d) Product description and quantity supplied.

(e) The QA Stockist’s and manufacturer’s ISO certification number and the approval number issued by the certifying authority.

(f) Cast number, batch number or lot number.

(g) Certificate serial number and date.

(h) Manufacturer’s certificate reference number.

(i)   Classification of reinforcement i.e. Class 2 in accordance with this Standard.”

Particulars of the project/job/site at which the steel bars are intended to used are not amongst those particulars required by that paragraph to be stated.

135.Further, some of the steel bars ordered under the Fulfilled Orders had been ordered and supplied without particulars of the project/job/site at which they were intended to be use.  The Defendant claimed that that was the result of its omission.  But the evidence is inconsistent with at least the suggestion that the Plaintiff had the understanding that particulars of the project/job/site at which they were intended to be use had to be supplied when placing orders.   That also suggests that the Sales Contract was still operable without the Implied Notification Clause.

136.It is true that the Project Clause said “Under various projects in Hong Kong”.  However, that does not mean that the details of the projects would necessarily be known at the time when the orders were placed.  The territorial limit sought to govern the use of the steel bars, which was an act subsequent to the act of ordering.  There might be consequences if the steel bars ordered and delivered under the Sales Contract were subsequently found not to have been used in projects in Hong Kong.  The parties have not canvassed what those consequences might have been, and I will not speculate.  I however find force in Ms Cruden’s submission that even if the Plaintiff were obliged to provide project particulars and that the Defendant had not been satisfied with those provided, that still would not have excused the Defendant from delivering, as the Plaintiff’s failure would not have been fundamental breach, as it would not have gone to the root or essence of the Sales Contract.

137.I do not find that the Implied Notification Term is necessary to give business efficacy to the Sales Contract.  I find the contrary, because as at the stage of placing an order, the Plaintiff might not have the particulars which would have been required for the fulfillment of the Implied Notification Term.

138.Further, in the light of the full facts as explained above, I am not satisfied that the Implied Notification Term spells out what the Sales Contract read against the relevant background would reasonably be understood to mean.

139.I reject also the Defendant’s case in respect of the Fourth Issue.

140.That being my conclusion, I do not find it necessary to deal with the issue raised by the Plaintiff that the Defendant has waived and/or is estopped from relying on the alleged implied terms.

M.     CONCLUSION ON LIABILITY   

141.By reason of the above, I find that the Defendant had no legal basis to refuse delivery of the Subject Orders. I reject all the defence on liability raised by the Defendant.

N.      QUANTUM

N.1.   The Plaintiff’s case on quantum

142.On the applicable principles, Ms Cruden has referred me to Section 53 of the Sales of Goods Ordinance.  She submitted that on the facts of this case, Section 53(3) applies. There is an available market for the steel bars concerned.  The measure of damages is therefore prima facie to be ascertained by the difference between the contract price and the market price or current price of the steel bars at the time when the steel ought to have been delivered.  Both Counsel have  also referred me to various passages from Benjamin’s Sale of Goods, 8^th Edition (“Benjamin”) (I note that section 51(3) of the Sales of Goods Act which is the same as s.53(3) of the Sales of Goods Ordinance):- 

“ Damages where there is an available market. Section 51(3) spells out the normal application of the rule in s.51(2) to the situation where there is ‘an available market’ for the goods. The normal measure of damages when the seller fails to deliver the goods is the difference between: (a) the market price of the relevant goods at the time fixed for delivery and at the place fixed for delivery; and (b) the contract price…One of the grounds for this measure of damages is the rules of mitigation…since s.51(3) assumes that the reasonable buyer should have gone into the market, immediately following the seller’s breach of contract, and bought substitute goods. With the amount of money designated by s.51(3), the buyer should therefore be in the same financial position as he would have been in if the seller had performed his contractual obligation to deliver.” Benjamin p.1035-1036 §17-004

“ Acceptance of the seller’s anticipatory repudiation. Where the buyer … treats the repudiation as an immediate breach of contract, the relevant date for taking the market price is, prima facie, and subject to the rules on mitigation, the due date for delivery - not the date of repudiation nor the date of the buyer’s acceptance of the repudiation” Benjaminp 1044 §17-014

“ The rules on mitigation. However, the duty to mitigate is imposed on the buyer as soon as he accepts the seller’s anticipatory repudiation, and this ‘duty’ may override the prima facie rule … the buyer’s damages will be assessed on the basis that, following his acceptance of repudiation, he should have taken reasonable steps to reduce his loss, e.g. by buying substitute goods in the market. The onus of proof is on the contract-breaker (the seller) to show that the buyer ought reasonably to have bought substitute goods at a time earlier than the date fixed for delivery under the contract; if the seller fails to produce evidence to show that the buyer should have repurchased in the market, the buyer’s damages should be calculated with reference to the market price at the due date for delivery…” Benjaminp 1044-1045 §17-015

“ Seller’s anticipatory repudiation not accepted. If the buyer chooses the second alternative and does not accept the seller’s anticipatory repudiation, the repudiation is treated as a ‘nullity’ and the contract continues to bind both parties: the buyer will then await the date fixed for delivery, and the seller will commit a breach of contract only if he then fails to deliver.

…

The ‘duty’ on the buyer to mitigate his loss by taking reasonable steps arises only upon the seller’s breach: thus, in the case of an unaccepted anticipatory repudiation by immediately when the breach actually occurs, but not earlier, and his damages are assessed with reference to the market price at the date of the breach. The buyer’s damages for non-delivery at the due date cannot be reduced because the market price was lower at the date of the repudiation (or at any date between the repudiation and the due date for delivery). When the market price is likely to rise, the buyer may refuse to accept the seller’s repudiation, and wait until the due date while the market price rises. During the interval, the buyer may at any time decided to accept the seller’s repudiation (provided it has not been retracted by the seller), whereupon his “duty” to mitigate will arise so that his damages will be assessed by reference to the market price at the date when he ought reasonably to have bought substitute goods.” Benjamin p.1046 §17-016

“ The relevant prices. …The relevant market price will, however, depend on who is claiming damages: when the buyer is claiming under s.51(3), the relevant price is the buying price at which the buyer could obtain equivalent goods.” Benjamin p.1046-1047 §17-017

“ Relevant evidence of the market price. Where normal proof of the market price at the date of the seller’s breach is not available, other evidence may be relied upon, e.g. the price at which a sub-buyer had agreed to take the goods from the buyer,” Benjamin p.1047 §17-018

“Substitute goods bought later at less than market price. If the buyer does not buy substitute goods in the market immediately following the seller’s failure to deliver, his damages should be assessed by reference to the market price at that date despite the fact that the buyer later bought substitute goods at a lower price.” Benjamin p.1048 §17-020

“ Offers by the seller to mitigate his breach. The rules of mitigation do not oblige the buyer to accept from the seller goods which do not conform with the contractual standard and which he is therefore entitled to reject.

…

However, the buyer’s damages may be calculated on the basis that he should have accepted a reasonable offer by the seller to mitigate his breach by supplying goods which are in fact up to the contractual standard, but are to be delivered on different terms so far as the timing and method of payment are concerned.” Benjamin p.1053 §17-026

“ Relevance of sub-contracts. Where a market price at the date of the seller’s breach is ascertainable, a higher or lower price at which the buyer has resold the goods to a sub-buyer is generally irrelevant to the assessment of damages for the seller’s failure to deliver: the damages are to be calculated on the basis of the market price of similar goods at the date (and place) of the failure to deliver.” Benjamin p.1054-1055 §17-028

143.In respect of quantum the Plaintiff relies upon the Single Joint Expert Report dated 21^st November 2011 of Mr Cheung Tat Tong.  According to his expert opinion and calculations, the loss and damage suffered by the Plaintiff was assessed at HK$9,091,162.21.

N.2.  The Defendant’s case on quantum

144.On the question of quantum, the Defendant has raised a number of points.  Mr. Maurellet has in his Closing Submissions helpfully crystalized them into three issues.  I will deal with those points one by one.

N.2.1  Whether the losses claimed too remote

145.The Defendant’s case in this regard is this, that the losses claimed are too remote, as the Plaintiff could only have used any steel bars supplied for its own building projects and not for resale purposes, so that it is not appropriate to claim losses based on the difference between the contractual price and the market price for steel bars.

146.Mr. Maurellet has cited to me Hadley v Baxendale (1854)  Ex 341 at 354, where Alderson B held that: -

“Where to parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either as arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.”

147.Hadley v Baxendale is not controversial.

148.It is however important to note that the Defendant’s case under this head is predicated upon a finding in its favour in respect of the interpretation of the Project Clause and Remark 1. This is clear from paragraph 140 of Mr. Maurellet’s Closing Submission, where he said that:-

“140.1 Based on D's interpretation of the Single Delivery Clause and Delivery Clause, P was expected to make estimates of quantities with reference to specific projects.

140.2 Based on D's interpretation of the Project Clause, the subject steel bars can only be used for self-use, and P was not allowed to re-sell the same.”

149.As explained above, I have ruled against the Defendant in respect of the interpretation of the Project Clause and Remark 1.

150.On this question of remoteness, I accept Ms Cruden’s submission that s.53 of the Sale of Goods Ordinance applies. 

151.In any event, I repeat the evidence in respect of the pleadings filed in the 2007 Action, and the consequential knowledge by the Defendant of their contents.  In particular, Mr. Fung accepted that as a result of the pleadings, the Defendant knew that one of the Plaintiff’s complaints in the 2007 Action was that it had lost the opportunity to resell the steel bar concerned.  I do not accept Mr. Maurellet’s submissions made orally in elaboration of his written Closing Submissions that as the issue of possible resale had only been pleaded once, the possibility of resale remains too remote.  As I have found above, the fact that the Plaintiff was not a QA Stockist did not preclude it from reselling steel bars.  This, coupled with the pleadings in the 2007 Action, render the possibility of resale by the Plaintiff within the reasonable contemplation of the parties in the Hadley and Baxendale sense.

152.I do not accept the Defendant’s case based upon alleged remoteness.

N.2.2   Whether the Plaintiff has failed to mitigate its loss

153.It is the Defendant case in this regard that any loss suffered by the Plaintiff was caused by the Plaintiff’s own failure to mitigate its losses.  As far as the law is concerned, Mr. Maurellet referred me to paragraphs 17-014 and 17-015 of Benjamin (which I have reproduced above).  In so far as the facts are concerned, Mr. Maurellet relied upon the Settlement Offer.

154.I do not accept the Defendant’s case in this regard, for the following reasons:-

a. I refer to my earlier ruling on the inadmissibility of all evidence relating to the Settlement Offer.  The Defendant’s position has always been that the Settlement Offer was a “without prejudice offer” and so inadmissible.  The Defendant is not entitled to refer to the same;

b. In any event, the Plaintiff only accepted the Defendant’s repudiation on 20 December 2010.  According to the passages cited from Benjamin, the Plaintiff’s duty to mitigate did not arise until then.  But by that stage, the Settlement Offer had been rejected;

c. There is no evidence suggesting that the Settlement Offer had been renewed after the Plaintiff’s acceptance of the Defendant’s repudiation;

d. The Defendant has failed to discharge the onus on it to prove failure on the part of the Plaintiff to mitigate.

N.2.3   Calculation of the market price

155.Mr. Maurellet’s urges me to look at the figures relied on by the Plaintiff with circumspection.  He isolated from the Joint Expert Report certain comparables.  He suggested that some of those comparables might form a better basis for my assessment of the loss and damage.  I do not favour that approach.  The Joint Expert has considered all the comparables before he formed his conclusions.  He has the expertise.  The Court does not.  That is the whole point of seeking his assistance.  I have considered his report.  I adopt the figures that he has reached.

O.  Conclusions

156.By reason of the above, I find and hold that the Defendant is liable to the Plaintiff for the sum of HK$9,091,162.21.  I give judgment to the Plaintiff to that effect.

157.Applying the normal rule of costs follow event, there is an order nisi that the Defendant pays the costs of the Plaintiff (for avoidance of doubt, inclusive of the costs of and occasioned by the application for the admission of the 3^rd Supplemental Witness Statement of Mr. Nelson Kwok) to be taxed if not agreed.

158.The Plaintiff also claims interest pursuant to sections 48 and 49 of the High Court Ordinance.  I make an order nisi that the Defendant shall pay interest on the sum of HK$9,091,162.21 from the date of the Writ to date of judgment at the rate of HSBC prime plus 1%, and thereafter at judgment rate.

159.I thank counsel for their most able assistance.

Ms Liza Jane Cruden, instructed by Wong & Fok, for the plaintiff

Mr Jose Antonio Maurellet, instructed by Ho & Ip, for the defendant