Smith & Associates Far East Ltd v Britestone Pte Ltd

• Jurisdiction: Singapore
• Judge: Tan Lee Meng J
• Judgment Date: 22 December 2006
• Neutral Citation: [2006] SGHC 238
• Docket Number: Suit No 108 of 2005 (Registrar's Appeal No 304 of 2006)
• Date: 22 December 2006
• Year: 2006
• Published date: 26 December 2006
• Plaintiff Counsel: Sham Chee Keat (Ramdas & Wong)
• Citation: [2006] SGHC 238
• Defendant Counsel: Terence Tay / Jeffrey Lim (Wong & Leow LLC)
• Court: High Court (Singapore)
• Subject Matter: Plaintiff purchasing electrical components from defendant and re-selling them to third-party,Components causing third party to suffer damage,Whether defendant liable to pay plaintiff amount paid under settlement with third party on ground of defendant's breach of implied condition of contract with plaintiff even though defendant not participating in negotiation of such settlement sum,Whether sub-sale may be taken into account when computing damages arising directly and naturally from breach of contract,Breach of contract,Commercial Transactions,Plaintiff held responsible for damages and settling third party's claim,Sale of goods,Damages for breach of contract,Section 54 Sale of Goods Act (Cap 393, 1999 Rev Ed)

22 December 2006

Tan Lee Meng J

1 The appellant, Britestone Pte Ltd (“Britestone”), appealed against the order of the Assistant Registrar, Ms Dorcas Quek, requiring it to pay damages amounting to US$302,184.00 to the respondent, Smith & Associates Far East, Ltd, the Hong Kong Asian headquarters of an American company, NF Smith & Associates LP (collectively referred to as “Smith”), for supplying the latter with counterfeit capacitors. I dismissed the appeal and now give the reasons for my decision.

Background

2 Smith distributes electronic components, semiconductors and computer products. Britestone, a Singapore company, which is also in the electronic components business, sources goods from traders, distributors and manufacturers and supplies them to its clients.

3 On 11 August 2003, Smith purchased 52,000 units of “AVX” capacitors bearing the part number “TPSC336K016R0300” from Britestone. Smith re-sold the capacitors to Celestica Thailand Ltd (“CTL”), a subsidiary of Celestica International Inc. After receiving the capacitors, CTL installed them onto printed circuit boards for its customer, EMC Corporation (“EMC”), in Cork in Ireland and in Franklin in the United States.

4 In September 2003, it was discovered that the capacitors supplied by Britestone to Smith were counterfeit goods. As a result, the counterfeit capacitors had to be removed from the printed circuit boards and replaced with genuine products. EMC submitted a claim to CTL for US$444,690.00 for solving the problems arising from the installation of the counterfeit capacitors in the printed circuit boards supplied to them in Ireland and the United States. CTL held Smith responsible for the amount claimed by EMC. Smith and CTL had several rounds of negotiation over a period of nine months and it was finally agreed on 1 July 2004 that Smith would pay CTL the sum of US$300,000.00 in full and final settlement (the “settlement”) of CTL’s claims against Smith.

5 In 2005, Smith commenced the present proceedings against Britestone. It alleged that Britestone breached an implied condition of the contract that the capacitors would conform with the description “AVX” and the stated part number. Smith claimed the settlement sum of US$300,000.00 that it paid to CTL as well as another US$2,184.00 for loss of profit, or alternatively, damages to be assessed.

6 It was common ground that the implied condition that the capacitors conform to their description had been breached. On 20 March 2006, both parties agreed to a consent judgment, under which Britestone accepted liability for breach of the contract. The assessment of damages was left to the Registrar.

7 During the assessment of damages by the Assistant Registrar, Smith called four witnesses, including its General Counsel, Mr Matthew Henry Hartzell (“Mr Hartzell”), its managing director, Mr John Bernhardt Prymmer III (“Mr Prymmer”), the senior manager of Celestica Electronics (S) Pte Ltd, Mr Ng Lup Wai, and the Global Programme Manager of Celestica International Inc, Ms Kimberly Aube (“Kimberly”). Britestone called two witnesses, namely its managing director, Mr Park Hee Woong (“Mr Park”) and its sales manager, Ms Tan Mee Yee (“Ms Tan”). Britestone was given leave to call two expert witnesses to give evidence but they did not appear at the hearing before the Assistant Registrar.

8 After hearing the evidence for three days, the Assistant Registrar ruled that Smith was entitled to damages totalling US$302,184.00. Britestone appealed against her decision.

The Appeal

9 At the hearing of the appeal, Britestone pointed out that apart from accepting liability for breach of contract, it also accepted liability for the US$2,184.00 that Smith had claimed as its loss of profits. Britestone’s appeal was thus only concerned with whether it was liable to pay Smith the US$300,000.00 that the latter paid under the settlement with CTL.

10 The loss suffered by Smith with respect to the settlement concerns a sub-sale to CTL. The normal rule is that sub-sales are not taken into account when computing damages arising directly and naturally from a breach of contract. However, they may be relevant in the context of s 54 of the Sale of Goods Act (Cap 393, 1999 Rev Ed), which provides as follows:

Nothing in this Act affects the right of the buyer or the seller to recover interest or special damages in any case where by law interest or special damages may be recoverable ….

11 Section 54 of the Sale of Goods Act leaves room for the application of the second branch of the rule in Hadley v Baxendale (1854) 9 Exch 341, which was summed up by Alderson B in that case as follows at pp 355-356:

[I]f the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated.

12 It is pertinent to note that in Monarch Steamship Co Ltd v A/B Karlshamns Oljefabriker [1949] AC 196 at 224, Lord Wright observed that reasonable businessmen “must be taken to understand the ordinary practices and exigencies of the other’s trade or business” and that need not generally be the subject of special discussion or communication. In the present case, Smith and Britestone had traded with each other for a long time and Britestone’s sales manager, Ms Tan, accepted during cross-examination that when Smith ordered the capacitors, it was stated that the capacitors were for its customers.

13 Although there was a chain of contracts in the present case, this does not affect Smith’s claim. Admittedly, in Dexters Ltd v Hill Crest Oil Co (Bradford) Ltd [1926] 1 KB 348, Bankes, Warrington and Scrutton LJJ expressed the view, obiter, that where there is a chain of contracts, all the contracts in question must be the same if recoverable damages are to be passed along the chain. However, in Biggin & Co Ltd v Permanite Ltd & Ors [1951] 1 KB 422, (“Biggin”), Devlin J, while accepting that material variations in contracts down the line could lead to claims for damages not contemplated by the original seller, added as follows at 433-434:

If the variation to a description is such that it is impossible to say whether the injury that ultimately results would have flowed from the breach of the original warranty, the parties must as reasonable men be presumed to have put the liability for the injury outside their contemplation as a measure of compensation. If this is, as I believe, the nature of the principle, it must be applied very differently according to whether the injury for which the defendant is being asked to pay is a market loss or physical damage. In the former case…, any variation that is more than a matter of words is likely to be fatal because there is no way of telling its effect on the market value. In the latter case the nature of the physical damage will show whether the variation was material or not.

14...