Smith & Associates Far East, Ltd v Britestone Pte Ltd

• Jurisdiction: Singapore
• Judge: Dorcas Quek AR
• Judgment Date: 13 October 2006
• Neutral Citation: [2006] SGHC 186
• Published date: 17 October 2006
• Court: High Court (Singapore)
• Plaintiff Counsel: Andy Leck and Terence Tay (Wong & Leow LLC)
• Defendant Counsel: Sham Chee Kiat (Ramdas & Wong)

13 October 2006

AR Dorcas Quek:

The facts

1 The plaintiff (“P”), a company incorporated in Hong Kong, is the Asian headquarters of N.F. Smith & Associates, LP, which is a distributor of electronic components, semiconductors and computer products. The defendant (“D”) is a company incorporated in Singapore. The D also trades in electronic components by sourcing for goods from traders, distributors as well as manufacturers, and supplying them to its customers. On or about 11 August 2003, the P purchased 52,000 units of capacitors of the “AVX” brand and part number “TPSC336K016R0300” from the D at the price of US$9,776. After receiving the goods, the P re-sold the capacitors to its customer, Celestica Thailand Ltd (“CTH”), which is a subsidiary of Celestica Inc. CTH in turn installed these capacitors on printed circuit boards and sent them to its customer – EMC Corporation (“EMC”) at Cork in Ireland and Franklin in the United States of America.

2 According to the P, the capacitors were discovered to be counterfeit capacitors in September 2003. Thereafter, Kimberly Aube, the Global Program Manager of Celestica International Inc (another subsidiary of Celestica Inc), supervised the “purging” of the capacitors. The “purging” process involved replacing the unused capacitors at CTH’s premises, replacing the capacitors installed on printed circuit boards that were still in CTH’s goods warehouse pending delivery to EMC and replacing the capacitors installed on printed circuit boards that had already been delivered to EMC at Cork and Franklin.

3 Based on the P’s evidence, EMC’s cost for purging the goods in Cork and Franklin amounted to US$444,680. A document entitled “EMC Global Summary – Purge Costing”, which was exhibited to Kimberly Aube’s affidavit of evidence-in-chief set out the details of the total costs incurred. EMC claimed its costs of US$444,680 from CTH and CTH then claimed this sum against the P. After several rounds of negotiations between the P and CTH, an agreement was entered on 1 July 2004 for the P to pay US$300,000 as full and final settlement of any claims CTH would have against it. In 2005, the P commenced these current proceedings against the D, alleging that the latter breached an implied condition of the agreement that the capacitors would conform with the description of the “AVX” brand and the particular part number. The P claimed for US$302,183 as damages, comprising US$2,184 for loss of profits and US$300,000 for compensation paid to CTH, or alternatively, for damages to be assessed. On 20 March 2006, the parties entered a consent judgment before VK Rajah J for the issue of liability to be resolved in the P’s favour and damages to be assessed by the Registrar.

4 In the assessment of damages heard before me, the P maintained its claim for the sum of US$302,183. The P called four witnesses – Matthew Henry Hartzell (Vice President and General Counsel of N.F. Smith & Associates, LP), John Bernhardt Prymmer III (managing director of the P), Ng Lup Wai (Senior Manager of Celestica Electronics (S) Pte Ltd) and Kimberly Aube. The D called two witnesses – Park Hee Woong (Managing Director of the D) and Tan Mee Yee (Sales Manager of the D).

The law on damages for breach of contract of sale of goods

Right to claim damages for breach of condition

5 The parties had agreed that an implied condition that the goods conform to their description had been breached. As rightly submitted by the plaintiff’s counsel (“PC”), the buyer, under s 53 of the Sale of Goods Act (Cap 393, 199 Rev Ed) (“the Act”), may treat a breach of condition as a breach of warranty entitling him to claim for damages. That section provides:

Remedy for breach of warranty

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

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

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

Remoteness of damages

6 The general principles in contract law are applicable in determining the appropriate quantum of damages. Damages awarded have to put the P in a position he would have been if the contract had been fulfilled. In this regard, the P has to show that: (a) the damages claimed were caused by the D’s breach; and that (b) the damages are not too remote: Popular Industries Ltd v Eastern Garment Manufacturing Sdn Bhd [1989] 3 MLJ 360.

7 In respect of remoteness of damages, it is trite law that only damages which may reasonably be supposed to have been in the contemplation of both parties may be recovered: Hadley v Baxendale [1854] 9 Ex 341. Two well-known principles have been derived from this general rule. First, any damage which will result from the ordinary course of things is recoverable. This principle is encapsulated in s 53(2) of the Act, which states:

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

8 The second principle is that the defendant is taken to have contemplated abnormal damage arising out of special circumstances outside the ordinary course of things, if he had actual knowledge of the special circumstances. Such damages are known as “special damages” under s 54 of the Act: Bence Graphics International Ltd v Fasson UK Ltd [1988] QB 87.

Measure of damages

(a) The prima facie measure

9 Under s 53(2) of the Act, the prima facie measure of damages resulting in the ordinary course of things is the diminution in value of the goods, i.e. “the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had fulfilled the warranty”. However, this prima facie measure may be departed from in appropriate circumstances: Bence Graphics International Ltd v Fasson UK Ltd.

(b) Loss of profits under a sub-sale

10 One departure from the prima facie measure is to award loss of profits under a sub-sale, if it is within the reasonable contemplation of the parties that the breach was likely to have caused the buyer to lose the profit he hoped for under the sub-sale: Richard Holden Ltd v Bostock & Co Ltd [1902] 17 TLR 317. P.S. Atiyah, in The Sale of Goods (Tenth Edition, 2001) has observed at 553 that sub-sales are normally ignored in claims under s 53(3) of the Act (the first limb of Hadley), and that these are normally treated as special damages under the second limb of Hadley requiring proof of special knowledge of the probability of resale.

11 This view is also reflected in Chitty on Contracts (29^th Edition, 2004) at [43-451]:

Where the seller knew that the buyer intended to resell the goods, and ought reasonably to have contemplated that the breach of his contractual undertaking as to the description or condition of the goods would not be unlikely to cause the buyer to lose the profit he hoped to make under the sub-sale, the buyer may recover damages in respect of such a loss of profits caused by a breach of the seller’s undertaking.

[emphasis added]

(c) Damages paid by buyer to sub-buyer

12 The same analysis applies to recovery of compensation or damages paid to a sub-buyer; it still has to be shown that the sub-sale was within reasonable contemplation of the seller. In addition, it has to be established that it was not improbable that damages would be payable by the buyer to the sub-buyer. Chitty on Contracts at [43-459] sums up the requirements that are distilled from the relevant case law:

…it was within reasonable contemplation of the parties, at the time of making the contract, that: (a) the buyer would, probably would, resell the goods to a sub-buyer; and (b) that the contract of sub-sale would, or probably would, contain the same or a similar contractual undertaking as to the description or condition of the goods; and (c) that it was not unlikely that a breach of the seller’s undertaking would cause the buyer to be in breach of his undertaking to the sub-buyer who would claim damages from the buyer for the loss or damage he suffered.

If loss or injury occurs in these circumstances, the buyer who has paid damage and costs to his sub-buyer for breach of the undertaking in the sub-sale may recover this amount from the seller, together with his own costs in reasonably defending the sub-buyer’s claim, as damages for the seller’s breach of the original contract.

[emphasis added]

(d) Settlement of claim by sub-buyer against buyer

13 In most circumstances, it will be within the parties’ reasonable contemplation that the buyer will face potential suits by his sub-buyer, but is it also within the parties’ contemplation that the buyer will settle the dispute with the sub-buyer? This is the pertinent issue to be resolved in the present case. PC, in this respect, relies on Biggin & Co Ltd v Permanite Ltd & Ors [1951] 2 KB 314 to submit that a reasonable settlement should be recoverable as damages payable by the seller to the buyer. PC also quotes Atiyah’s summary of the Biggin case (at 114) as follows:

And if the buyer reasonably settles a claim made against him by the sub-buyer, the amount paid under such a settlement is prima facie the measure of damages recoverable from the seller, and is in any event the upper limit. But it is open to the seller to contest the amount and to show that the sum paid was excessive, for he is of course not bound by the settlement to which he was not party. Moreover, the buyer still has to show that there was breach of contract by the seller; the settlement is only admissible to show that prima facie level of damages once liability is proved or established.

[emphasis added]

14 The decision in Biggin has been adopted by the Singapore Court of Appeal in Brown Noel Trading...