Blantyre Chalk Makers Ltd v Malawi Book Service (Civil Cause 1374 of 1994) [1995] MWHCCiv 8 (28 November 1995)

,~• I~· llo,l tl-'1 ~ ~ -- ~ - ~---- - ~ - -~ l-- ~.:.·< __ ,,.. J... . .... f· .- ~--- - -, .·, ,, ... :-;; :;.;.-(~/f,W;'i~,F~"'?'"-:'yt1~~~,,,..--.,.--~ .. i.r , IN THE HIGH COURT OF MALAWI PRINCIPAL REGISTRY CIVIL CAUSE NO.1374 OF 1994 BETWEEN i BLAN'l'YIU:: CHALK MAKEHS L'l'lJ . . . . . . . . . . . . . . . . . PL,AINTJ.f'F / MALAWI BOOK SEHVICE . . . . . . . . . . . . . . . . . . . . . . . UEFENUAN'l' AND CORAM: H.l-<. Mzikamancta, Senior Deputy Hegistrar Mr Chisanga for the plaintiff Mr Chisambiro for the defenciant RULING On 30th November, 1994 the Hon Justice Chimasula Phiri substituted an interlocutory judgement for default ' judgement that was final and ordered tha damages be assessed by the Registrar. This is an assessment of damages. The evidence of Jvir lJaniel Mkandawirc is that he is e n gaged in the manufacture of chalk and the style of his · business is Blantyre Cha.lkrnakers (Pvt) Ltd. lie buys gypsum from S o u th Africa which when mixed with water is rnoulded in to chalk. In 1989 each of the four chalk mouldiny 111ac:hines would produce 600 pieces of chalk at any one time. This process would be repeated 3 5 U mes a day. The c:halk would be packed in boxes each containing lUO pieces. ~IGH COURT J LIBRARY _J -·- ·• 1~~~; _,..,. ,-.· .' {' ··', . ;.! .. , ,, ·,1~~ 1 •,~~1 .. . ,,~ :,,;,).. ;,.;~ ~;.,~: ~ ;J,~~:i~--.. -~ .. :.~ ',( .q·ft:·. ;~ ' \:t~ ,. ? ;ft.;~ '. r?,· - . J:-,_~ On 18th February_, 1~91 thb Malawj Book Services ordered 60,000 boxes ~~~~;i.·~1 '·:~riaJ:k~>::9n ·;.·Local Purchas e Order No. 12812 at K7. 2 5 a box. (IL,• On ·9th Aug\:ist ;, , .19 91 the Ma law.i Book Service Ordered on Local Purchas~ No·. 13 360 lb,000 boxes at K7.25 a box. (See EXPl and EXP2 resµect{ .vely\ l\ The tJla.intiff ordered 80 ,000 empty boxes from Pack.aging 1 Indu ktr ies at 1U.7t eac:h (E XP3). He i i i also ordered material~ fro~\ SoutKAfrica . . j,,,J Th e following_ deli ve~ies 1vere made: '' lnvo.ice Number (Juc:i11Lity in boxes 1028 1030 1032 1034 103b 1038 1040 1045 f l· L; ,, lk 1; 1,,. ~ ~ 1;: \' 4,900 3 I ) L 5 5,600 2,975 l,8UU l,UtiU 1,720 2,430 1,333 1,925 7,7UU 3,675 3,325 7,525 ·' -: . These were deliveries on Order EXPl. under wh .ich he had to supply 60,0-00 boxes of chalk. There was a balance of 9,257 boxes to be supplied to meet the order. On 5th August, 1992 the Malawi Book Services by letter EXP4 cancelled the orders EXP1,EXP2 as well as another o rder No. . ·\1' 13351. The cancellation meant that the plaint.iff could not sell . ,j .._ l - 3 - 89,257 boxes of chalk to the Malawj l3ook Service previously agreed upon. The pr ice per box w.as orig.inally at K6. 50 but through EXP7 and EXP8 Lhe price was adjusr_ect to K 7. 2 5 . The plaintiffs claim is for loss of prof _its as a result of the cancellation of the orders. The cost of one bag bf chalk ~owder in South Africa was 40 rands 85 cents in 1991 at the exchange rate of Kl.048 to a rand (EXP 10). Transport cost was K710-40 and Hans Frat.ch were the clearing a gen ts. He transported 21 tons from dohannesburg to Malawi at K21,441. 'l'he cost of was K22,47U.17. 'l'otal landed costs for gysum plus transport was k37,388.57 plus 10% custom duty. This translated to K41,127.43. That was the cost of raw materials. The lables on the chalk were at 3t each. tach ton of chalk powder would produce 1,750 boxes. A box would cost 66t to produce. This includes labour. When he sold to Malawi Book Service he made a profit of K6.59. The profit on the cancelled order of 89,257 boxes was K588,203-63 (EXP 13). It was impossible for the plaintiff to seJl chalk to any school as all school materials were to be sold or supp.l.ied to scl1ools colleges and other Educational Institution solely by the Malawi Book Service by virtue of the law. EXP5 a letter from the defendant actvjsing him to get ready to buy all the material which would reyuired to be used to meet the defendant's demand. He borrowed money from the National Bank as a result of this letter. The Malawi Book Service were his sole buyers. He had to ac4uj re f i i(e move moulding machines from Taiwani. lle borrowed more money from Indefund. Wh~n the orders were cancelled he was unable to pay his suppliers in Sou th Afr .i ca. Nor was he ab.le to nt(~e t his obligation.:;, with the National Ban k and Indefund. The factory stopped operating and he made his emµloyees redundant. He had to sell ilis house in Soche East, his large plot in Chjgumula and the company pick-up. Indefund took the bui lcti ng back. He owed Indefund K540,000 (EXP14). He nearly became bankrupt. He got - - confused and he had a bad road accident because his head could not function properly. u During cross-examination PWl said that he did not include indicate for use of oil in clearing the machine because the cost i.s minor. Each bag of 40 Kg chalk powder produces 70 boxes of chalk. The machine produces 600 pieces of chalk in every eleven minutes. He used to sell ~very Ji ttle c:ha.l.k to Government Printer. At one time the A_rmy bought some boxes of chalk for the Army Secondary School. It was not in big volume. At one time he sold to Community . Services. Once or twic:e he sold Chalk to the United Nations. EXPS is the µrojectec..l reyuirement by the defendant of 210,000 boxes of cha.1 k. When he got the Lor.al Purchase Orders he ordered 21 tons of chalk powder. Then he had another 10 tons in stock while a further 21 tons was on its way ,._1'° I " to avoid solidification of the iJOWder due to heat. Cost of labour per box is 46t, cost of chalk alone and labour is Kl-12. Transport expenses were not .i ncludecJ in EXPlJ as the defendant collected the chalk. Other purchases would buy in very small quantities. He ordered four addit.ionaJ mac:hines from Taiwan within the school session. UWl Edward Ben Thombozi was in 1991 a Trade Manager for the defendant. He wrote EXPS a forecast of the defendant's requirements of that school session. It was for 210,00U boxes of chalk. Two orders follo~ed EXPS for 60,0UO boxes and 80,000 boxes intended for three te,rrns. During 1st Term 80,000 boxes would be required 70,000 bo~~s for 2nd term and 60,000 boxes for 3rd term. He sent the order but did not think he sent an order for the 3rd term. The orders were canceJ. lect,,.. ~hil e he was on leave. During cross-examination he said that his duties as Trade Manager included buying clearing and aistributing acquired mater iaJ.s to school._ EXP4 was writ ten by Manager Mr Harold Mvula while DWl,,-was on leave. l I the Assistant trade He signed EXPl l ( and EXP2. At the ,time the defendant had monopoly over all school items and noone woul.d supµly to schools educational materials except the defendant. 'l'liey bought the chalk at K7.25 per box of 100 pieces and this was sold at KlU.50 µer box. It was in 1993 that the monopoly was lost. DW2 Rodrick H~gnod Chingota financial controller of the defendant stated that the defendant month bought chalk from the plaintiff. There were delays in deliveries and the plaintiff used to demand payment before the laµse of 30 days which was the due date period. On two occassions advance payments of Kl0,000 each was made at the request of the plc1intiff. Management decided to cancel the orders because of internd·(er1t deliveries. He was surprised to hear that the plaintiff were Jn 1994 claiming loss of profits. He had a feeling that they continued to buy after the cancellation. In Mid, 1992. Ministry of Education said they would no longer purchase educational materials from the defendant. To establish loss of profits there should be fell details of units of production per day, per week per month and per year. He would want to see sales per day, week, month and year. There is need to know direct material~ direct labour and direct expenses required to have the item produced. Then add overhead expenses administration expenses and selling and dis tr i bu ti on expenses. All these are costs of sales. These when substracted from total sales we arrive at profit. Quotations and proforma invoices cannot be used to calculate profits EXPl0 and EXP13 can be used. Cost of labour should be Kl.119 and not 46t. There is need for time sheets. Audited accounts are the unquestioned way of working out loss of profits . . , DW3 Frank Ezekiel Kapazira said for the 1st two terms .the defendant's requirements were 140,000 boxes of chalk but by the end of the second term only 50,743 boxes of chalk had been - 6 - d elivered. In August, 1992 Ministry of Euuc:ation said that they would buy through tender. The orders to the plajntjffs were c ancelled. 'I'here are no substant.iatjng fjgu ce s for the clajm. Audited accounts would be unquestjoned basis for calculating loss of profits. Alternatively jnformatio n on quantities prod uced and total sales on the one hand and cost of sale on the 'I'he orders were canc e lled because j t was felt not other hand. to be proper i~ r~ .... ~lie'!f''de'fend,rnt . to give orders for periods of time and particularly that in August, 1992 there was j ndef i ni te change of policy. The unsatisfactory performance of the plaintiff affected sales adversely. To arrive at loss of profits direct overheads should be taken into account. Invoices are useful. ,/ There are written subml sslons. They are useful and I will take them into account 1n this ruling. 1 have duly reminded myself that the j ssue before me is to assess damage~ the issue of liabiljty having been settled already. There was a total order of 140,000 boxes of chalk. There had been delivery of 50,743 boxes when the defendants cancelled the order. That cancellation meant that a totd] of 89,257 boxes of chalk which should have been delivered to the defendan ts would not be delivered. The question is whether the plainti ff should be entitled to loss bf profits on his having been stopped from deli vcr j ng 89,257 boxes. 'I'here ls an argument advanced by the defendant that the plaintiff had an alternative market and so he may not be entitled to loss of profits on the 89,257 boxes not delivered. An examination of the market so referred to is that the said markets were very small and could not absorb the boxes of chalk as ordered by the defendant. l t is a conceded fact that throughout the subsistence of the orders the defendants had a monopoly over sales of school materials including chalk. I do not think that whatever market may be sajd to have been available to the plaintiff was very small indeed and could only absorb a tiny fraction of the order, an almost insignificant quantity. · Virtually the plaintiff had no where had concelled the orders. r Ch1.sambiro quote of the Sale of Goods Ac~ and argued that should the court decide that the breached contract assessment of damages be based on 89,257 unsupplied boxes then the totaJ rneasure of damages would t I be 89,257 boxes of chalk multiplied by the defference between the market price of Kl0.25 and the contract price of K7.25 being K2.25. This gives K200.828.25. In the first µlace the difference between KlU.25 and K7.25 .is not 1<2.25 out K3.00. This the.~ must work out to K267,771. UO. The provision relied upon provides that: "~vhere there is an available market for the goods in question, the measure of damages s ha 11 pr ima facie be ascertained by the differenc:e between the contract price and the market or current pr ice at the time or ti.mes when thE:1 goods ought to have been ac:cepte:1d or if no time was fixed for acceptance, then· at the time of the refusal to accept." This provision clearly relat_es to situations where there is a market for the products and not ,ju.sf- f a semblance of a market which c:an not absorb the product. Secondly the measure is prima f acie and this gives room for departure from that measure if there are good reasons for doing so. In my view th at provision is not applicable in the circumstances obtaining in this case. 'l'hc next point l must consider 1s whether the plaintiff should only be entitled to damages for 9,257 boxes not delivered on the oruer of 60,UOO boxes or for 89,257 boxes not delivered. The evidence shows that when the orders were given the plaintiff inuned.iutely ordered the necessarYv raw materials from South Africa. lie had every j us ti f ica tion order a lot of raw materials A because he had been informed that the defendants target number of boxes of chalk was 210,000. There was every justification --·--- ------- .._, , ... , .... .. . ,, . - l ,Wj1 "tf for the µla.intiff to or<. Jcr tcridJs which were to enable him meet th rge orders ·' he . cceiveJ. front the plaintiff in order to i rn s them so t.ha may make further ordct:"s. J:n my view .laint.iff ., curn11dt111ent to supply 140,U0 uoxes of chalk. He' had only supµljed 50,743 OOXC'S wh<~ll the orders were cancelled. 'l'he defendant must therc,fore be liable for the whole 89,257 l. Jo;~l /msupµlicd and not just Y, 257 boxes In the mended stat:c~mcnt of claim if; has bPen pleaded that dcmages should be yi ven for Joss of r.hancc. Thj s has tH!en said to be an alternative cJairn to .loss of tJrofit.s. In my view this 1s a µroper case in which damages should be awarded for loss of profjts. It has not lleen e.laooratcct as to what exactly is lleing claimed by way of loss of chance. 1 t was i ntroclur.ed in the belated amcndwent at Lhc close of t.he defence case. l t ap_!Jears to be a mere after thought an<..i i t has not been clarifif.~d. l ciisregard the claim for Joss of chance. '.'.~ I .t~~ ~ Having gone this far to consider how much to award. l t is 1n evidence that the cost of chalk dust is lZ41,l27.41 tons. This 111ean t each t . Oll cost Kl,958.44. . Each ton dust produced. 1,750 boxes. Th.is must therefore mean that each box Kl.12 in tcn11s of dust and not 46t as bejng the cost of k dust and labour. ln my view this analysis js the correct. one. Th(~ cost of a box is l 7t JJlus 10% surtax. is 19t. The total and to the near_·est tambala it .is also Lhe c , f lables which was put at Jt. box is 22t. 1 agree w.i th the defence that a number of costs have been .left out. The r.ost of water as well as lubirr:ants. In general the cost. of overheads had not been inr.luded. The list of cx_!Jenditures to be included in order to arrive at the actual expenditure to produce one box of chalk was '>1 -i not exhaust, Such that even the c:ost of Kl . .14 <Jocs not reflect the .rue cost: of prod '. Lhe cllaJk. I also agree that wit. h aud.i tc-ccount.s calculc I easier although I do not propo. prof j ts wouJ d have b e en much hat it is the only way, .in the ._,., ~~- - - • ,1- .. -f.,'f\ circu111stan ··,. this case ~ circumstancl~s. .. -,·~k :fr, pr~sent case to arrj ve at a profit. In dee i de what is reasonable given all the 1 think that a co~t of K2. SO for µroducing a b o x of chalk is more K4 . 7S. This1 means thi'lt there 1vould be a prof it of orks out to be K423,970. 75. s a \7 c 1 aim ''{, f .. • ' i1 t . . t on the damages. I J o not have ;o~ to suf) iort ' the award of any inLer<~ s L and what . 1, . We are de .i l i n g I H~ re w i th loss of p r of j t. s o Id y • l\ g a i n I do not damages awarcJ shouJd . be. I abour the point on conseyuenti.al not pleaded. [n the resul t then I pJus costs. of Novelilber, 1995 at . 7 manda SENIOR Dfa ' ' 'i /_