Novo Steel (HK) Ltd v. Peako Engineering Co Ltd

HCCL 14/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 14 OF 2012

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BETWEEN

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Before: Hon Bharwaney J in Court (Open to public)

Dates of Hearing: 17 & 24 October 2013

Dates of Final Written Submissions: 31 October 2013, 7 & 8 November 2013

Date of Judgment: 7 November 2014

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J U D G M E N T

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1.This is an assessment of damages in a sale of goods case. By a sales contract No. NSS404 dated 27 June 2011, the defendant had agreed to purchase from the plaintiff 3,500MT (+/-3%) of BS4449/1988 Grade 460 and/or HKCS2:1995 high tensile deformed[1] steel bars of various sizes (“the Steel Bars”) to be delivered between 1 August 2011 and 31 October 2012.

2.Various deliveries were made under the sales contract. The last delivery that the defendant had accepted was the delivery of 300.789MT of the Steel Bars on 4 October 2012, in respect of which the defendant was liable to pay the plaintiff the sum of HK$1,755,472.51, being the price and the delivery charges for this quantity of the Steel Bars.  Payment was only made on 30 November 2012.  After taking into account the grace period allowed under the sales contract, the defendant was some 26 days late in making payment.

3.On 11 October 2012, the defendant, by letter of that date, informed the plaintiff that it would not able to accept any further delivery of the Steel Bars under the sales contract.  The plaintiff accepted the defendant’s repudiation of the sales contract on 16 October 2012, and on 16 November 2012 commenced proceedings by the issue of the Writ in this action to claim, inter alia, damages for non acceptance of 2,084.50MT of the Steel Bars.

4.On 18 February 2013, I entered Interlocutory Judgment by Consent in these proceedings as follows:

1.   Interlocutory judgment be entered for the plaintiff against the defendant that the defendant do pay the plaintiff damages to be assessed pursuant to Section 52(3) of the Sale of Goods Ordinance by reference to the market price(s) on or about 31 October 2012, together with interest at such rate and for such period as the court shall deem fit;

2. Interlocutory judgment be entered for the plaintiff against the defendant that the defendant do pay the plaintiff interest on HK$1,755,472.51, at such rate and for such period as the court shall deem fit.

5.The latter claim can be disposed of quite quickly. Both parties are agreed that the proper rate of interest is 1% above HSBC prime for the period in question.  I am not impressed by the defendant’s submission that interest should be awarded from the date of issue of the Writ.   I award the plaintiff interest on HK$1,755,472.51 for 26 days (from 4 November to 29 November 2012) at the rate of 1% above HSBC prime over this period.

6.Section 52(3) of the Sale of Goods Ordinance states:

“52. Damages for non-acceptance

(1) Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for non-acceptance.

(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach of contract.

(3) Where there is an available market for the goods in question, the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the neglect or refusal to accept.”

7.In assessing damages in this case,  I note that the rationale of this statutory provision is to provide a straightforward and readily applicable measure of damages which enables the innocent party to be put into the same financial position as it would have been, had the contract been performed. 

8.The statutory measure does not depend upon any action actually taken by the innocent party after the breach of contract, nor does it take into account subsequent market movements. As Toulson J. explained in Dampskibsselskabet “Norden” A/S v Andre & Cie SA [2003] 1 Lloyd’s Rep. 287 at §§41-42[2] :  

“… where a contract is discharged by reason of one party’s breach, and that party’s unperformed obligation is of a kind for which there exists an available market in which the innocent party could obtain a substitute contract … the innocent party’s loss will ordinarily be measured by the extent to which his financial position would be worse under the substitute contract than under the original contract … The availability of a substitute market enables a market valuation to be made of what the innocent party has lost, and a line thereby to be drawn under the transaction. Whether the innocent party thereafter enters into a substitute contract is a separate matter. He has, in effect, a second choice whether to enter the market … The option to stay out of the market arises from the breach, but it does not follow that there is a causal nexus between the breach and a decision by the innocent party to stay out of the market so as to make the guilty party responsible for that decision and its consequences. The guilty party is not liable to the innocent party for the effect of market changes occurring after the innocent party has had a free choice whether to re-enter the market, nor is the innocent party required to give credit to the guilty party for any subsequent market movement in favour of the innocent party.”

9.The doctrine of mitigation underpins the rationale for the statutory rule which assumes that, with the payment to the innocent party of the difference between the contract price and the market price at the time when the goods ought to have been accepted, the seller could, by selling in the market at that current market price, put himself into the same financial position he would have been in had the contract been performed.

10.There was no dispute between the parties that the contract price for 2,084.50MT of the Steel Bars (applying the average price of HK$5,850/MT) was HK$12,194,325.

11.There was also no dispute between the parties that there was an available market for the Steel Bars in the sense that there were available buyers, in the geographical sense, to absorb the relevant goods; nor was there a dispute that the relevant price was the price at which the Steel Bars could be sold on the market on or about 31 October 2012.

12.The dispute centred on the different contentions in respect of the market price for the Steel Bars on 31 October 2012, the plaintiff contending that the market price ranged between HK$4,150 to HK$4,450/MT for the four sizes of the Steel Bars, which produced an average market price of HK$4,300/MT; whereas the defendant contended that the market price was either HK$5,637.50/MT, being the average wholesale price of rebars of the contract specifications in October and November 2012 published by the Census and Statistics Department of the Hong Kong Government “Census and Statistics”); or HK$5,277.50/MT, being the market price as assessed by the defendant’s expert, which he did based on his consideration of sale contracts and quotations of various dates between September to November 2012.        

13.One factor that is relevant to determine the market price is the market relationship between the innocent party and the hypothetical buyer: whether the relevant relationship, or level of trade, is that between the innocent party as wholesaler and the hypothetical buyer as retailer, or that between the innocent party as retailer and the hypothetical buyer as end user, as the market price may vary according to the particular relationship or level of trade.  The difference between the parties on the market price has arisen, in part, from their different points of view on the relevant market relationship or level of trade in this case.  The plaintiff has contended that the relevant level of trade is the trade between stockists, for the reason that end users cannot absorb such a substantial quantity of rebars within a short period of time, the defendant having repudiated liability only 20 days before the last day to accept delivery of 2,084.50MT of the Steel Bars.  The defendant, on the other hand, has contended that the relevant level of trade is that between stockists and end users, for the reason that the sales contract in question was between the plaintiff, as stockist, and the defendant, as end user.  

14.The resolution of this dispute requires a determination of the relevant level of trade and what was the available market, at that level, in the temporal sense.  I will return to these issues after my review of the evidence that was adduced before me.

15.Although the defendant’s expert, Mr Dugald Finlayson[3], declined to comment on this part of the first report of the plaintiff’s expert witness, there was no particular challenge to the general account of the Hong Kong market for rebars that was given by Mr Lo Siu Ki in this report, which I accept and which I replicate as follows:

“Deformed steel bars

11. The commodity involved in this case, deformed steel bars, is colloquially known as rebars. Used together with cement, it is the primary material for building houses, bridges and roads. Of all steel products, deformed steel bars are regarded as a basic commodity and of all steel products used by the construction industry, they are the most fundamental material. Almost every country or region can produce deformed steel bars, and the quality and production costs for different regions and manufacturers are more or less the same. Despite the dominance of commercial and service industries in Hong Kong’s economies and that most of her manufacturing industries have been relocated northward, there remains one deformed steel bar manufacturer in Hong Kong – Shiu Wing Steel Limited[4].

12. The deformed steel bars used in Hong Kong are of the high tensile type, the production standard being BS4449/1998, Grade 460 and HKCS2:1995. For use in Hong Kong constructions, deformed steel bars conforming to the above standards upon testing would be regarded as qualified product for use and generally there would be no designation for a particular steel mill’s product to be used. Therefore, almost all countries and regions around the world have supplied deformed steel bars to Hong Kong, e.g. Brazil, Venezuela, South Africa, Germany, Romania, Russia, Australia, Japan, South Korea, China, and Turkey etc. Due to factors such as economic development of various regions, high crude oil prices and expensive shipping fees, supply of deformed steel bars from more remote regions to the Hong Kong market has become less. In recent years, China, Taiwan and South Korea are Hong Kong’s major suppliers.

Operations of the Hong Kong market for deformed steel bars

13. It is estimated that Hong Kong consumes 900,000 to 1,200,000 MT of deformed steel bars every year. That is, a monthly consumption of 80,000 to 100,000 MT. Except [that] Shiu Wing Steel Limited produces a portion thereof, the remaining over 80% is imported from all over the world …

14. The participants involved in the actual sale process of deformed steel bars used in Hong Kong constructions can be divided into the following levels:-

(a) Manufacturers, i.e. steel mills;

(b) Agents for steel mills or importers;

(c) Stockists;

(d) Construction companies or engineering contractors.

15.    Under usual circumstances, a lower level buyer (e.g. level (d)) would buy from an upper level seller (i.e. level (c)) according to their needs.  This upper level seller (e.g. level (c)) after receiving orders would then buy from a further upper level (i.e. level (b)), i.e. (a) sells to (b), (b) sells to (c), (c) sells to (d).”

16.Mr Ma Yiu Ming, the manager of the plaintiff, gave evidence before me.  He explained that the plaintiff was engaged in the business of supplying steel products, including rebars.  I did not find his evidence to be particularly helpful on the issues I have to resolve in this case save for his evidence that he had instructed the plaintiff’s solicitors to ask the defendant to identify any buyers who might be willing to pay HK$5,200/MT for the Steel Bars, which the defendant had asserted in correspondence to be the prevailing market price.  He confirmed that no response was received from the defendant to this request.

17.The next witness to give evidence was Mr Eric Lee Foo Keung, who was the director of the plaintiff.  He explained that, in September 2012, the plaintiff was in the process of winding down its business and the sales contract with the defendant was then the plaintiff’s only outstanding contract which had not been fully performed.  When the defendant refused to accept delivery of the balance quantity under that contract, he assisted in finding bidders to take up this quantity of the Steel Bars.  Bids were received from 3 parties, including Glory Success Steel Co. Ltd. (“Glory Success”) and Sincere Steel Co. Ltd.  Eventually, the plaintiff sold the Steel Bars to Link Wide International (Hong Kong) Limited (“Link Wide”), who had produced the highest bid at $4,200/MT.  He explained that he had approached other stockists to make a bid for the Steel Bars, instead of approaching end users, for the reason that it was very uncommon for stockists to approach end-users to ask them to purchase a specified substantial quantity of rebars.  This was because end users would be unlikely to be in a position to take delivery of such a large quantity at one time.  It was the practice of end users to enter into contracts for the delivery of rebars over a prolonged delivery period in order to control the quantity being delivered to their construction sites, at any one time, to meet the current demands of their construction projects.  On the other hand, there was always a spot market for the sale and purchase of rebars between stockists.  A stockist might have a temporary shortage of rebars and would need to purchase them from other stockists on the spot market in order to fulfil his contractual obligations.  Although the stockists were competitors, all the major players were willing to help out on any occasion when a stockist found himself with a shortage of stock.

18.He stated under cross-examination that if this quantity of the Steel Bars had been separated into different batches for sale, then it would have been more difficult to sell them than by way of a sale of the entire quantity in one lot to a stockist.  He also explained that an end user, such as a construction company, would not be able to take 2,000 metric tons over a period of one month, as they would not be able to use such a large quantity over a short span of time; nor would they have space to store such a large quantity of rebars.

19.Mr Lee was shown a quotation from Great Success Steel Company Limited, his business partner and a stockist, to Concentric Construction Limited dated 22 October 2012, in respect of 260 metric tons of high tensile deformed steel bars, of the same contract specifications as the defendant’s contract with the plaintiff, at prices ranging from $4,600 to $5,100/MT and Mr Lee agreed that the plaintiff would have been able to obtain those prices from an end user, but only if the delivery of the Steel Bars was spread over a period of 6 months from October 2012 to March 2013 as set out in that quotation.

20.Mr Lee was shown another quotation dated 15 October 2012 from Shiu Wing Trading Company Limited (“Shiu Wing”), one of the biggest stockistsin the business, to Penta-Ocean Construction Company Limited (“Penta-Ocean”), for a very substantial quantity of 37,414 metric tons of high tensile deformed steel bars, of the same specifications as the sales contract with the defendant, with prices ranging from $5,100 to $5,400/MT and with the delivery period of 6 months. Mr Lee explained that this was a quotation for a tender and that quotations for tender were generally at a higher price than the market price, as suppliers were conservative when they quoted for tenders. 

21.He was also shown another quotation dated 16 October 2012 from Mitsui & Co (HK) Limited (“Mitsui”) to Penta-Ocean, for the same substantial quantity of rebars of various sizes, to be delivered within 6 months, at prices ranging from $5,200 to $5,500/MT.  The stated price for each specific size of the rebars was $100 higher than the quotation received from Shiu Wing.  Mr Lee explained that this was because Mitsui obtained all its stock from Shiu Wing, which was well-known in the trade, and that the increased price reflected its own profit margin for the transaction. 

22.I do not accept the criticism made by the defendant of his evidence.  I find Mr Lee to be a truthful and convincing witness and I accept his evidence.  He frankly admitted that he did not know the source of the information used by Census and Statistics to compile their monthly indexes of average wholesale prices of selected building materials, including high tensile deformed steel bars, of various sizes ranging from 10 mm to 40 mm.  He said that the information could have come from stockists as well as from the Construction Industry Association.  So far as the plaintiff was concerned, it would provide current transaction prices to Census and Statistics when requested to do so.  He also pointed out that contractors would use these average price indices to make claims from government based on the increased prices, that was shown on these statistics, of materials utilised on government projects.          

23.Mr Lee also gave evidence that the outstanding quantity of the Steel Bars included a substantial quantity of Steel Bars of a diameter of 20 mm, which made it particularly difficult to sell the entire lot to end users.  To support his evidence, he relied on the order confirmation between the plaintiff and Link Wide dated 22 October 2012 showing that the quantity of 20 mm rebars was 869.563 metric tons (being about 40% of the total quantity sold to Link Wide), as opposed to the quantity of rebars of other sizes, which ranged from 14 metric tons to 354 metric tons.  It was suggested that the problem caused by the excessive quantities of 20mm rebars was not caused by the defendant who had received previous deliveries of rebars containing only small quantities of 20mm rebars.  I disagree.  Having repudiated liability, the defendant cannot complain that the plaintiff appropriated a larger proportion of 20mm steel bars to make up the total quantity of rebars that the defendant had failed to accept.

24.Mr Chan Kam Wah, the contracts manager of the defendant, gave evidence to explain that the defendant had purchased the Steel Bars for the construction of reinforced concrete box culverts at the north apron area of the Kai Tai Airport development, under its contract with the Civil Engineering and Development Department (“CEDD”) of the Hong Kong Government.  To the defendant’s surprise, the engineer under the contract instructed the defendant, by way of a variation order dated 2 December 2011, that the construction of the box culverts was to be omitted from the works.  Given that variation order, the total quantity of Steel Bars required for the completion of the works was substantially reduced by over 2,000 metric tons.

25.This explanation, which I accept, explains the breach of the sales contract but does not excuse it.  No doubt the defendant will pursue its own remedies under its contract with CEDD. 

26.With the view to challenging the loss allegedly suffered by the plaintiff from the defendant’s breach of the sales contract, Mr Chan obtained two quotations from Penta-Ocean for the supply of rebars of the same contract specifications.  Penta-Ocean is a reputable main contractor in Hong Kong, undertaking numerous large scale construction projects in the public domain.  The two quotations were from Shiu Wing and Mitsui, which I have referred to above.  Mr Chan also referred to another quotation issued to the defendant dated 9 November 2012, for 1,363MT of rebars, of the same contract specifications and of various sizes and prices, which produced an average unit price of all sizes of $5,350/MT.  The period of delivery under this quotation was one year from 1 December 2012 to 30 November 2013.  The last quotation referred to by Mr Chan was one dated 30 November 2012, issued to the defendant for the supply of 443MT of rebars, of the same contract specifications and of various sizes and prices, which produced an average unit price of all sizes of $5,270/MT.  The period of delivery under this quotation was also for one year from 1 January 2013 to 31 December 2013.  Mr Chan said that the average selling prices of the rebars of different sizes from these four quotations came to about $5,300 per metric ton, which was similar to the Census and Statistics’ average prices of rebars, of the contract specifications, during the months of October and November 2012. 

27.Mr Chan conceded, quite fairly, that the quotations he had referred to had been given in respect of the supply of rebars over a period of time in the future and that, strictly speaking, the prices stated therein did not truly reflect the market price of the rebars on or about 31 October 2013.  However, he challenged the plaintiff’s use of its contract price with Link Wide as establishing the market price at the relevant time.  The average price of $4,200/MT for all sizes of rebars was contrary to market prices, for the reason that the price of rebars of 10 mm diameter and 40 mm diameter was greater than the price of rebars of 12 mm to 30 mm diameter steel bars.  Selling the whole lot in one go would result in a price which was less than market price.  Further, whilst the contract price of $4,200/MT for the Steer Bars might be a market price between two suppliers, it was not a market price between a supplier and end user.

28.Under cross-examination, Mr Chan gave evidence that 3 to 4 months could elapse between the time the quotation had been obtained from the supplier, and the award of the construction contract for large size projects, and that suppliers would not over-inflatetheir price so as not to disadvantage the contractor’s tender.

29.I accept the evidence of Mr Chan on this point but I do not think his evidence conflicts with the evidence of Mr Lee. Given the passage of time between the issue of the quotation and a successful tender, suppliers would be inclined to quote on the basis that the sales contract would not be executed for many months and they would try to factor in anticipated price increases during that period.  On the other hand, they would try not to over-inflatetheir quoted price in order not to disadvantage the contractor’s tender.    

30.Mr Chan also frankly conceded that he did not know of any contractors who would have been able to take such a large quantity of rebars at the end of October 2012.  The defendant had considered taking the balance stock of the Steel Bars for its future contracts but decided against doing so, as the market price for the rebars was cheaper than the contract price at that time, and because the defendant would have needed to arrange finance to purchase such a large quantity of rebars[5].  I suspect a further reason was that the defendant preferred to seek an indemnity from CEDD against the plaintiff’s claims herein than to take up such a large quantity of rebars on its own account.  Mr Chan also stated that, if the cost of the rebars was substantially below market price, a contractor might be able to purchase a large quantity in one go, provided it had sufficient storage space, and provided, further, that cash flow was not a factor affecting its operations.

31.I accept the evidence of Mr Chan, which reflected the broad agreement between the parties regarding the market for rebars in Hong Kong at that time.  

32.The market price of a particular commodity at a particular time and place is a question of fact.  The best evidence of such price is evidence of actual market transactions.  Experts can assist the court by giving an account of the market in question; identifying published records of prices, and explaining the basis of their compilation; identifying actual transactions that reflect the prevailing market price, and explaining, where necessary and only if they can do so, the impact on price, if any, of contractual terms that differ from the sales contract that is the subject of the litigation.   Expert opinion that ventures beyond these parameters may not be of much assistance to the court.

33.The plaintiff’s expert, Mr Lo, stated in his first report that he had been working in the steel trading business since 1986 and that, to date, he had 28 years of experience.  In 1986, he was employed by Strong Progress Co., Limited (“Strong Progress”), a subsidiary of the China Resources Group.  Between 1992 and 2001, he was employed by Long & Wide Development Limited (“L&W”).   These two companies were stockists specialising in international steel trading business and the Hong Kong market.  During this period, he enjoyed extensive exposure to the international trading business of all types of steel products and to the business operation of Hong Kong stockists.  Since 2002, he had been developing his own steel trading business. He stated that he had sufficient experience in steel products to offer an opinion on the market prices of the rebars involved in this case.  No challenge was made of his ability to assist the court as an expert witness on the market price of the Steel Bars.

34.However Mr Lo also declared that Mr Lee, the director of the plaintiff, had worked together with him as colleagues, between 1987 and 2001, at Strong Progress and L&W, and that his company, Glory Success, still has business dealings with Mr Lee’s companies. Indeed, on 22 October 2012, Glory Success had made a bid for the Steel Bars.  Until he was asked to be an expert witness in this case, he did not know that the Steel Bars were related to this action.  Further, until he had received and reviewed the documents relating to this action, he did not know that two contracts for which his company had acted as agent (i.e. the sales contracts between Prosperity Steel (HK) Ltd and Globe Star Steel Co Ltd (“Globe Star”) dated 10 September 2012 and 22 September 2012) had been disclosed as documents which were relevant to this action. Notwithstanding the aforesaid, Mr Lo declared that his independence and impartiality was not affected by these matters.  He further declared that neither he nor his company had any interest in the outcome of this action; that he had read the Code of Conduct for Expert Witnesses set out in Appendix D of Order 38 of the Rules of the High Court and agreed to be bound by it; that he understood his duty to the court and had complied with and would continue to comply with the said duty. 

35.Under cross-examination, he agreed that he was a friend of Mr Lee for more than 20 years, and that he had had dealings with the companies of Mr Lee.  He said his company was the Hong Kong agent for Shanghai Prosperity Steel Company Limited and would try to find potential buyers of rebars for them.  He continued to have a connection with one of the companies of Mr Lee.  However, he denied that his business connection would affect his evidence in this case.  He agreed that he would continue to have future business relations with Mr Lee after the case was completed, but he denied that he had given evidence in favour of the plaintiff in order to improve his prospects for future business and he also denied the suggestion that he was not an independent expert.

36.It was submitted on behalf of the defendant that the question was not whether Mr Lo was in fact biased towards the plaintiff, but whether an objective, fair-minded and informed observer would consider that there was a real possibility of bias.  Further, it was submitted that his evidence would not be seen to be independent and given in compliance with his overriding duty to the court.  For these reasons, it was submitted that he was not an impartial expert and that his evidence ought not to be relied on by the court.         

37.In Armchair Passenger Transport Ltd v Helical Barr plc, Nelson J. usefully summarised the principles relating to this issue[6] as follows:

“The following principles emerge from [the] authorities:

(i) It is always desirable that an expert should have no actual or apparent interest in the outcome of the proceedings.

(ii) The existence of such an interest, whether as an employee of one of the parties or otherwise, does not automatically render the evidence of the proposed expert inadmissible.  It is the nature and extent of the interest or connection that matters, not the mere fact of the interest or connection.

(iii) Where the expert has an interest of one kind or another in the outcome of the case[7], the question of whether he should be permitted to give evidence should be determined as soon as possible in the course of case management[8].

(iv) The decision as to whether an expert should be permitted to give evidence in such circumstances is a matter of fact and degree.  The test of apparent bias is not relevant to the question of whether or not an expert witness should be permitted to give evidence[9].

(v) The questions which have to be determined are whether (i) the person has relevant expertise; and (ii) he or she is aware of their primary duty to the court if they give expert evidence and willing and able despite the interest or connection with the litigation or party thereto, to carry out that duty.

(vi) The judge will have to weigh the alternative choices openly if the expert’s evidence is excluded, having regard to the overriding objectives of the CPR[10].

(vii) If the expert has an interest which is not sufficient to preclude him from giving evidence the interest may nevertheless affect the weight of his evidence.”

38.The focus of the court is on the expert’s understanding of his overriding duty to the court and the witness’s qualification to be an expert,[11] rather than whether or not his interest with one party or the other shows a real risk of bias.  Notwithstanding the statement of principle of Lord Phillips MR[12] that the issue should be determined as soon as possible in the course of case management, the general practice, thus far, has been to admit expert evidence at the interim stage, and to deal with the issue of bias at the conclusion of the trial after the court has assessed that evidence.  For that reason, I would not fault the defendant for not raising the issue earlier.  Nevertheless, I would endorse the statement that the issue should be identified, as soon as it arises, in the course of case management.  That is not to suggest that the case managing judge would be able to decide the issue without hearing the evidence concerned.  In such cases, he is likely to remit the matter to the trial judge to determine.  However, where the issue can be determined at the case management stage, the party whose expert has been disallowed may still have an opportunity to find another expert to replace him, which opportunity would not be available if the matter was left to be determined at trial.

39.Where the court would be heavily dependent upon the expert evidence, the court would be expected to be satisfied to a high standard that the expert evidence was reliable.  Take the example of a case where the court receives expert evidence from a micro-biologist who gives evidence of facts that the court cannot perceive, and contrast that with another case, such as the present one, where the primary facts, in this case, the sales contracts concluded and quotations issued at the relevant time, can be seen and assessed by the court.  In the latter case, the court is better able to test the assertions of the expert against the primary facts which it can perceive for itself.

40.The court must also be alive to the fact that the smaller the circle of activity the greater would be the likelihood that the parties active in that particular field are known to each other.  If mere acquaintance and past dealing were sufficient to disqualify an expert from giving evidence then one might be faced with the unhappy situation of the parties being unable to adduce any relevant expert evidence from that field.

41.I have carefully considered the evidence of Mr Lo, as well as the grounds upon which his independence is being challenged.  I am satisfied that Mr Lo has relevant expertise to assist me in this case as an expert witness offering his opinion on the price of rebars in the Hong Kong market at the relevant time; that he is aware of his overriding duty to the court to give independent and impartial evidence; and, despite the connection he has with the plaintiff and with Mr Lee, which he has fully disclosed and frankly admitted to the court, that he is able to discharge that overriding duty, uninfluenced by those connections.  I am impressed by his decision to use the sale contracts of his own company, Glory Success, to assess market price instead of using contracts from Globe Star, one of Mr Lee’s companies, which had been supplied to him for the purpose of expressing his opinion on market price. 

42.Two features that affect the price of the rebars are the level of trade at which the transaction of sale takes place, and whether delivery is to be effected in one lot, at or soon after the date of the contract, or whether it is to be effected in different lots spread over a period of 6 months to a year, or even longer.

43.Evidence of actual transactions and quotations during the months of September, October and November 2012 was adduced and summarised in a table produced by Mr Finlayson, which appeared as Appendix D in his report, and which is annexed to my judgment.  My annexure incorporates certain agreed amendments and corrections to Appendix D which were affected during the course of trial by way of correction of certain typographical errors in respect of names, prices and delivery periods.  With these corrections, the annexure accurately sets out the relevant particulars that can to be found in the contracts and quotations concerned which appear in the core bundle.

44.There was little controversy regarding market conditions in Hong Kong.  Construction companies and engineering contractors who were end users of the rebars, such as the defendant, would purchase them from stockists such as the plaintiff.   The stockists obtained their goods from importers or from agents for steel manufacturing mills.  The agents and importers, in turn, obtained the rebars from the manufacturers.  The prices, at which transactions take place, differ according to the level of trade.  The transaction between manufacturers and importers (referred to as level A/B) would be at one price; a transaction between importers and stockists (referred to as level B/C) would be another price, and the transaction between stockists and end users (referred to as level C/D) would be at yet another price.

45.Although Mr Finlayson did not comment on prices of trades between levels A/B and B/C on the ground that they were not relevant to the present case, there can be no controversy about Mr Lo’s evidence that the level A/B price was determined by the manufacturers’ price for the rebars, and the cost of sea freight and insurance to Hong Kong, while the price at level B/C would also include the agent’s commission or the importer’s profit for the transaction.  However Mr Finlayson did agree with the statement of how the sale price at level C/D was determined, set out in §26(c) of Mr Lo’s first expert report, and he also agreed that the price would include the cost incurred by the stockist to acquire the goods, including the cost of future goods to be ordered in order to perform the contract between the stockist and the end user which would cover a lengthy period of delivery.   Accordingly, the price at which the stockist sells to the end-user would depend on the current price of the rebars as well as the assessment by the stockist of future price trends.

46.I accept the evidence of Mr Lo that stockists in general do not, and cannot purchase in one go and warehouse all the rebars required to be supplied under all their contracts at hand, and that stockists usually only maintain a reasonable quantity of inventory to meet current demands and have at hand purchase contracts with importers and agents of steel mills to supply rebars for future deliveries to end users.  Mr Lo explained, and I accept his explanation, that end users would contract to purchase rebars to be delivered over a lengthy period of time, to meet their on-going requirements of long term projects and that an end user may, on occasion, purchase rebars for immediate delivery to cover a shortfall in the stock available to him for his immediate needs.  I also accept Mr Lo’s evidence that stockists may also need to enter into transactions with other stockists on the spot market to cover a shortfall in their inventory, which might occur for a number of reasons, such as a delay in delivery to them by importers, or errors in stock flow estimate.  This level of trade differs from other levels of trade in that it is a trade between stockists for goods on the spot market for immediate delivery.

47.Mr Finlayson appears to use the phrases “immediate delivery” and “delivery instantly” interchangeably.  Although he has defined “future goods” to mean “goods not traded and delivered instantly”, I prefer the expression “immediate delivery” which, in the context of the contracts and quotations that had been adduced, means delivery at or shortly after the time a sales contract was concluded.  The experts do not appear to disagree on the meaning of “immediate delivery”, and they are also in agreement that the price of future goods, i.e. goods which are not delivered immediately but over a period of time, does not fully reflect the market price of goods traded and delivered immediately.  They also agree that the C/D price is determined by many considerations, including, but not limited to, the stockists’ prediction of future price fluctuations.   That must follow from the fact that contracts for future goods, to be delivered to end users over a substantial period of time spanning a year or more, cannot be fulfilled by deliveries from stock in hand but from purchases from importers of goods to be delivered in future. 

48.I have accepted the evidence of Mr Lo that, although there may be occasions when end users purchase rebars for immediate delivery, the majority of the transactions at the C/D level would be for future goods to be delivered over a period of time ranging from 6 months or a year, or even more.  It is convenient to introduce at this point Mr Finlayson’s primary case based on the “Average Wholesale Prices of Selected Building Materials” of October 2012 and November 2012 published by Census and Statistics. It is not disputed that price data are collected every month via a Monthly Building Materials Wholesale Price Survey administered by Census and Statistics.  This is a voluntary statistical survey governed by Part IIIA of the Census and Statistics Ordinance, Cap. 316.  Price data are currently collected from a panel of firms engaging in wholesale business of the selected building materials through field visits and telephone interviews by field officers and administrative returns every month. The average wholesale prices are then compiled by taking the weighted average of the prices of the selected materials collected.

49.It appears from Appendix B and C of Mr Finlayson’s report that the price of “steel reinforcement: high tensile steel bars, 10 mm to 40 mm”, was $5,712/MT in October 2012 and $5,563/MT in November 2012.  Mr Finlayson said that this price level was consistent with the price of $5,600/MT shown on the quotation dated 24 October 2012 (item 11 of the Annex), for immediate delivery of 20 metric tons of 40mm dia x 12m rebars.  He opined that it was fair and reasonable to adopt the average wholesale prices published by Census and Statistics to determine the market price of the Steel Bars on or about 31 October 2012. As the date of 31 October 2012 was in the middle of October 2012 and November 2012, he would take the average price of $5,637.50/MT ($5,712/MT + $5,563/MT divided by 2) as the market price of the Steel Bars on or about 31 October 2012.

50.A certain amount of time was spent in the course of the evidence on how this survey was answered by stockists.  Mr Lo suggested, based on his past experience of some 20 or more years ago, of being instructed by his superior to report the highest transaction prices of that month.  Neither party had access to the data collected by Census and Statistics, based on which these prices were compiled, which is kept confidential.  Had this matter been one of critical importance, evidence could have been adduced from Census and Statistics regarding the nature of the data they collected, the source of that data, and their methodology in producing these wholesale price statistics.  However, it was not necessary to do so. Althoughthe source of the data was unclear, whether this was from importers, stockists or end users, and whether it was for goods for immediate delivery or for future goods, the term “wholesale prices” suggests that the source of the information was from stockists, who entered into contracts with end users for the supply of rebars.  Taking the defendant’s case as its highest, and assuming that the published information was in respect of spot transactions as well as for future goods, given the nature of the trade, it is likely that the majority of the transactions reported to Census and Statistics from which the weighted averages were obtained were transactions in respect of future goods.

51.It must follow from the finding I have made that any purchases by end users of rebars for immediate delivery are likely to be for small quantities.  This is supported by items 6 and item 11 of the annexure in respect of the delivery of 50 metric tons prompt ex stock and 20 metric tons within 5 days.  Although these documents were quotations, as opposed to concluded contracts, and, therefore, not ascogent evidence as concluded contracts, nevertheless, they constitute some evidence of the market price current at that time.  In this regard, I accept the evidence of Mr Finlayson that the price stipulated in the concluded contract is unlikely to differ greatly from that set out in an earlier quotation.  It is, however, clear that these quotations constituted cogentevidence of the amounts purchased by end users for immediate delivery.  These quantities are much smaller than the quantities ordered for delivery over a lengthy period of time.  As the wholesale prices of Census and Statistics are compiled by taking the weighted average of the prices collected, those wholesale average prices must be more reflective of the price of contracts for future goods rather than for immediate delivery.

52.Further, a comparison between those statistics and actual contracts and quotations for future goods, show a substantial variance in price.  The variance in the price of the concluded contracts and quotations and the Census and Statistics’ average wholesale prices can be seen by comparing the average price of the sales contract in question of $5,850/MT, and the average wholesale price in June 2011 of $6,482/MT, a difference of about 10.8%.  A difference of about 7.5% is also shown between the October 2012 wholesale average price of $5,712/MT and the average price of $5,292.5/MT, shown on items 6 to 11 of the annexure.   Mr Lo also pointed out that there was a difference of 7.6% between the market price of $5,277.50/MT on or about 31 October 2012, as assessed by Mr Finlayson in paragraph 3.29.5 of his report, and the average wholesale price in October 2012 of $5,712/MT; and a difference of 6.4% between the assessed market price of $5,277.50/MT and the average October/November wholesale price of $5,637/MT. 

53.It is for these reasons that I conclude that I am unable to accept Mr Finlayson’s primary case.  In my judgment, prices for contracts for the sale of goods, to be delivered over a substantial period of time of 6 months to a year or more, cannot reflect the market price of the Steel Bars, on or around 31 October 2012.  As Mr Finlayson correctly stated, his reading and understanding of the question posed to the experts, to ascertain the market price of the Steel Bars, meant a price at which the Steel Bars could be traded and delivered immediately on or about 31 October 2012.   This accords with Mr Lo’s approach, who was instructed to assume that the relevant market price was that at which an active seller could have sold the Steel Bars on the spot market on or around 31 October 2012.    

54.However, although the experts were agreed on the meaning of available market in the temporal sense, the defendant latched onto the concession made by Mr Lo that, theoretically speaking, a stockist could absorb the quantity of the unaccepted Steel Bars within a period of six months, in support of the submission that the available market included a market where the Steel Bars could be sold and delivered within a period of 6 months.  Counsel for the defendant cited the judgment of Webster J in Shearson Lehman v Maclaine Watson (No. 2) [1990] 3 All ER 723 in support of this submission:

“The last decision cited is Garnac Grain Co Inc v H M F Faure & Fairclough Ltd and Bunge Corp [1967] 2 All ER 353, [1968] AC 1130. In that case a seller failed to deliver 15,000 tons of lard at a price of $193 per ton. The trial judge had assessed the damages at £254,464 being the difference between the contract price and the market price on 4 February 1964, which he took at $242.50 per ton of the goods in question, Lord Pearson, in a speech with which the other members of their Lordships’ House all agreed, said ([1967] 2, All ER 353 at 359, [1968] AC 1130 at 1138):

‘… it was contended that no assessment could properly be made on the basis of the difference between the contract price and the market price on Feb. 4, 1964 (or any other date that might be material), because there was then no market in the United Kingdom’ for fifteen thousand tons, of lard for immediate delivery, and the evidence did not reveal any other basis for assessing damages. There was evidence that at all material times (towards the end-of January and early in February, 1964), one could not buy that quantity for immediate delivery in the United Kingdom. There was, however, evidence that one could buy smaller quantities -- up to two thousand tons at a time – in the U.S.A. for delivery to ports for shipment to the United Kingdom; and there was a market price, given by one witness as 242.50 dollars and by another witness as 243.60 dollars per ton, for such purchase on Feb. 4, 1964. If one wished to buy fifteen thousand tons at those prices one would have to do so over a period. According to one witness, if one were able to buy fifteen thousand tons of lard at one time, one would have to pay a higher price. There was thus some evidence on which MEGAW, J., could find that there was a market price and that it was 242.50 dollars per ton on Feb. 4. No argument to the effect that there was no market price proved was presented at the trial of the action. No such point was included in the “respondents’ notice” given by Garnac to the Court of Appeal. It may have been raised in the Court of Appeal, but it is not mentioned in the judgments. In these circumstances I do not think that the finding of fact of MEGAW, J., on this point can be successfully challenged.’

That case concerned, in substance if not in form, the application of s 51(3), which prescribes the measure of damages for non-delivery where: there is an available market for the goods in question: Although the point in issue in this case appears not to have been argued, the decision of the trial judge that the appropriate market price was $242.50 per ton appears to support, and is certainly consistent with, the following propositions.

First, where a seller defaults, and where the market price exceeds the contract price, in assessing the buyer’s recoverable damages a court may take into account, as evidence relevant to the market or current price on the date of the default, the price at which a buyer could obtain the goods over a period of days rather than the price that he would have to pay if required to make an immediate purchase, and, second, the court may, or possibly should adopt the price which would produce the lower of two alternative awards. [my emphasis]”

I do not agree with this submission.  A “period of days” cannot be stretched into a period of 6 months.  An available market is one which is immediately accessible or accessible within a reasonable period of time from the claimant’s point of view.  The defendant repudiated the contract and refused to accept delivery of the balance Steel Bars about 20 days before the last date fixed for delivery.  If the defendant had repudiated the contract six months before the last date fixed for delivery, then the defendant would have a good point to make that the available market was one where the goods could be sold for delivery over a period of 6 months.

55.There was no dispute that the sales contract was between the plaintiff as stockist and the defendant as end user. On that basis, Mr Finlayson offered his opinion that the available market was the same market in which the sales contract between the plaintiff and the defendant was formed. In the same vein and in support of his submission that the relevant market in this case was that between a stockist and an end user, counsel for the defendant cited the judgment of Devlin J in Heskell v Continental Express Ltd. [1950] 1 All ER 1033 where he held that the relevant market in his case was the market where the plaintiff and the defendant were involved, and concluded that he was concerned with the market price between an exporter in the UK and an importer in Iran.   I do not accept the opinion of Mr Finlayson on an issue which is more a question of law than of fact and I do not accept counsel’s submission.  I find that there was no readily available market between stockists and end users for the immediate delivery of 2,084.5 MT of rebars of the contract specifications but that there was a reasonable alternative available market between different stockists where the Steel Bars could be sold for immediate delivery.  

56.What was the market price of the Steel Bars in this alternative market?    For that, I turn to the annexure and the experts’ evidence on its contents.   By way of preamble, I should state that both experts are agreed that executed contracts have greater value in ascertaining market price than quotations; and that the price of future goods do not fully reflect the market price of goods sold for immediate delivery. Both experts are also agreed that Items 1 to 4, in respect of transactions between exporters and importers, do not reveal the market price that is relevant to our case.  The experts have also agreed that certain adjustments have to be made to items 5 to 13 to deduct delivery charges, if included, and to derive prices for the several sizes that have not stated in items 6 and 11. The adjusted prices have been usefully included in Annex B to the plaintiff’s closing submissions.

57.Mr Finlayson has set out his views on the contracts and quotations shown in the annexure in §§3.13 to 3.29.5 of his report and Mr Lo has set out his views on the same in §§29.1 to 29.7 and §42 of his supplemental report.  Annex A to the plaintiff’s closing submissions sets out a useful summary of those views.  Consistent with the findings, I have made above, I agree with Mr Finlayson that the contracts and quotations providing for future delivery for periods in excess of 6 months ought to be excluded from this exercise.  As the experts have agreed, the longer the delivery period, the less reflective those contracts and quotations would be of the the market price of rebars sold for immediate delivery.

58.However, I do not agree with Mr Finlayson’s approach in taking the median value as opposed to taking the mean, or mathematical average, which was Mr Lo’s approach.  Where tools are available to achieve greater accuracy, a simplistic, but less accurate, approach cannot be justified.  

59.I, therefore, take the average prices contained in the table in  §29.4 of Mr Lo’s supplemental report and re-calculate, by omitting from that table items 12 and 13, a new average price as follows:

	10mm	12mm	16-32mm	40mm	Average
Item 6	4,900	4,700	4,600	4,800	4,750
Item 7	5,400	5,300	5,100	5,400	5,300
Item 8*	5,410	5,310	5,110	5,310	5,285
Item 10	4,900	4,700	4,600	4,800	4,750
Item 11*	5,510	5,410	5,210	5,510	5,410
Average					5,099

*Delivery charge of HK$90/MT has been deducted.

60.Item 6, 7, 8, 10 and 11 set out in the table above are all quotations, not concluded contracts.  I accept Mr Lo’s evidence that a discount ought to be applied to these quotations to reflect his experience and observation over the years that buyers would usually bargain down the price that had been quoted to them.  More importantly, I accept Mr Lo’s evidence, based on his 28 years experience in the trade, that a discount ought to be applied to the average market prices of rebars to be delivered over a period of time, in order to obtain a market price for the sale of a substantial quantities of rebars for immediate delivery.  Mr Chan had conceded that unless there was sufficient financial incentive, end-users would not accept immediate delivery of a substantial quantity of rebars.  He said, by way of example, that if he had been the decision maker he would have bought such a stock lot in one go if the price had been around or below $4,500/MT.  Based on this evidence, and the opinion of Mr Lo which I accept, I assess the market price at the end of October 2012 by applying a discount of 10% to the average market price, recalculated in the table above in the sum of $5,099, to produce a figure of $4,589.10.  The discount I have applied is to reflect both the bargaining factor and the discount to attract a buyer, in the form of a stockist or an end user, to take immediate delivery of more than 2,000MT of rebars.

61.In my judgment, there was an available market for the sale and immediate delivery of more than 2,000MT of rebars, only if a discount of at least 10% was applied to the market price, at the end of October 2012, for the sale of such a quantity of rebars to be delivered over a period of 6 mmonths.

62.I would apply this discount to the average market price recalculated in the table above notwithstanding that 2 of the quotations, on which the calculation was based, were given in respect of rebars for immediate delivery.  The very small quantities covered by these 2 quotations detract from the value of these 2 quotations in assessing the market price of a substantial quantity of rebars for immediate delivery. 

63.Based on the above, I assess damages payable to the plaintiff in the sum calculated as follows:

HK$12,194,325 – (HK$4,589.10 x 2,084.5 = HK$9,565,978.95) = HK$2,628,346.05

64.I enter final judgment in favour of the plaintiff against the defendant in the amount of HK$2,628,346.05.  I also award interest on that sum from 4 November 2012 up to the date hereof at the rate of 1% above HSBC prime over this period. 

65.I also make a cost order nisi that the defendant pay the cost of the assessment of damages to be taxed if not agreed.

Mr Benny Lo, instructed by Reed Smith Richards Butler, for the plaintiff

Mr Ivan Cheung, instructed by Wong & Lawyers, for the defendant

ANNEX