Evyap Sabun Malaysia Sdn Bhd v B.G. Oleochemicals S.L. (W-02(ADM)(W)-2211-12/2023)

pre-judgment interest at the rate of 5% per annum on all sums awarded from 26.07.2022, being the date of loss until 20.12.2023, being the date of judgment;

post-judgment interest at the rate of 5% per annum on all sums awarded from 20.12.2023 until full payment; and;

costs in the sum of RM80,000.00. Background facts [3] The Respondent (the Plaintiff) is a Spanish distributor of chemical products. It purchased three batches of Lauric Acid from the Appellant (the Defendant), a Malaysian manufacturer, under three separate sale contracts entered into in early 2022. [4] The orders under the said sale contracts were delivered in three separate shipments. Each shipment took place at a different time, on different carriers and in different containers (collectively, "the Cargoes"). [5] The goods were sold on CIF (Cost, Insurance and Freight) terms and were required to be "GMP+ Certified and FSA Assured" for use in the animal feed industry. The Cargoes were shipped in four containers in three vessels, namely San Lorenzo, Xin Hui Zhou and Hansa Europe. [6] Upon arrival in Barcelona between June and July 2022, the Respondent claimed to have discovered that the Cargoes were wet, melting and infested with insects. [7] The Respondent rejected the shipments and subsequently sold the entire 96 metric tons to Fertilia Gestio SL at EUR1,125 per metric ton, for a total of EUR108,000.00. [8] The Respondent then commenced proceedings against the Appellant for breach of contract and negligence, claiming, among others, the difference between the purchase price and the resale price, together with additional related expenses. [9] The LHJ allowed the Respondent's claim and awarded the sum of EUR177,357.30. In arriving at that decision, the LHJ made, among others, the following findings. [10] First, the LHJ found that the Appellant, as manufacturer and seller in an FCL (Full Container Load) shipment, owed a common law duty to prepare properly the Cargoes so that they could endure the sea voyage. [11] Secondly, the LHJ found that the Appellant owed a duty, as manufacturer and seller, to ensure that the Cargoes produced, packed and delivered to the Respondent would arrive in a condition suitable for the Respondent's intended purpose, namely for use in the feed market. This duty included the adoption of a proper method of shipment so as to prevent contamination or deterioration during transit. [12] Thirdly, the LHJ held that, based on the testimony of PW1, the photographs contained in Part B of the Bundle of Documents, the SGS Report and the letter dated 27.03.2023 from WK Webster & Co Ltd, the Respondent had discharged its evidential burden in establishing the condition of the Cargoes upon arrival. In the circumstances, the LHJ held that there was no necessity for an independent surveyor's detailed report, contrary to the Appellant's contention. [13] Fourthly, the LHJ found that although the Respondent had agreed to the Appellant's suggestion that an independent surveyor be appointed and that the Cargoes be repackaged, the Appellant was not prepared to bear the cost thereof. The LHJ therefore held that the Appellant could not insist on such measures. [14] Fifthly, in the absence of any evidence from the Appellant suggesting that the damage to the Cargoes could have arisen from some other source, the LHJ found that the Respondent had discharged its burden on a balance of probabilities in showing that the Appellant had failed properly to perform its duty as seller and manufacturer in preparing, packing and shipping the Cargoes. [15] In this regard, the LHJ accepted the Respondent's contention that the Appellant had failed:

to ensure that the wooden pallets used, were newly heat-treated pallets;

to place desiccants in three out of the four containers to prevent moisture; and

to ensure that all reasonable and necessary precautionary measures had been taken in the preparation, packaging and delivery of the Cargoes. [16] The LHJ further held that the Respondent had satisfactorily proved that the Appellant had not adequately prepared, packed, loaded and shipped the Cargoes onto pallets into the empty containers at the Appellant's warehouse. [17] The LHJ also found that the Respondent had satisfied the preconditions under section 16(1)(a) of the Sale of Goods Act 1957, and that the Respondent had made known to the Appellant that the Cargoes were required for the feed industry. [18] The LHJ further found that, but for the infestation of the Cargoes, the Respondent could have sold the Cargoes much earlier. [19] However, according to the LHJ, the Respondent could only take steps to sell the Cargoes after the inspection on 29.06.2022. [20] The LHJ also accepted that further time was required to decontaminate and repackage the Cargoes. [21] As a result, the LHJ found that the Respondent was only able to sell the Cargoes to Fertilia on 26.07.2022, by which time the market price of Lauric Acid had deteriorated. The Appellant's Position [22] The Appellant submitted that the core issue for determination in this appeal was whether the Appellant should be held liable for the losses allegedly suffered by the Respondent where, according to the Appellant, there was no sufficient evidence showing:

that the goods were in fact damaged by reason of melting, wetness and infestation upon arrival at the Respondent's warehouse in Barcelona, such that they were no longer of merchantable quality and/or reasonably fit for purpose; and

that the Respondent suffered loss by reason of any such change in the condition of the goods. [23] The Appellant further submitted that, if this Court were to find that the LHJ had erred in making those findings, then the issues relating to the Sale of Goods Act 1957 and duty of care would become immaterial. [24] In other words, the Appellant's position was that if the Respondent failed to prove that the goods were damaged in the sense alleged, and that loss was thereby suffered, that would be the end of the matter. The Respondent's Position [25] The Respondent submitted that there was no basis for the present appeal, as the appeal was directed primarily against findings of fact made by the LHJ. [26] The Respondent further submitted that the LHJ was correct in concluding that the Cargoes were not fit for purpose, based on, among others, the following matters:

the presence of melting, wetness and insects in the Cargoes when all the batches arrived at the Respondent's premises in Spain;

the fact that the Cargoes were described in the sale contracts as "LAURIC ACID 99% (25KG) BEAD P GMP+ FSA Assured", and therefore had to be free from insects, condensation and melting and, most importantly, safe for animal consumption and suitable for the feed industry;

the evidence of the Respondent's witness, Jordi Gavarro Puig (PW1), who testified that when all three batches of the Cargoes were opened at the Respondent's warehouse, melting, wetness and insect infestation were observed, and that the goods were damaged to the extent that they were no longer merchantable or fit for purpose;

the fact that PW1's evidence was corroborated by photographs included in the agreed bundle of documents;

the fact that PW1's evidence was further corroborated by the testimony of the Appellant's surveyor (DW6), who witnessed the unloading of the fourth container and confirmed that insects were found in the container and in the packages during inspection;

the letter from WK Webster & Co Ltd dated 27.03.2023 which stated that the Cargoes were damaged;

the SGS Report, commissioned by the Appellant, which included photographs showing insects in the Cargoes and recorded the following observations: "During the discharge operations we observed the following: - High condensation and damp signs - Alive insects inside of container and in the pallets - Bag's envelope in wet condition"; and

the fact that the Cargoes had to be repackaged before they could be sold. The Issues in the Appeal [27] After considering the submissions of the parties, we are of the view that the appeal raises the following principal issues:

whether the evidence justified the finding of the LHJ that the Appellant had failed to properly prepare, pack and ship the Cargoes;

whether the evidence justified the further finding of the LHJ that the Cargoes were no longer of merchantable quality and/or reasonably fit for purpose; and

whether the quantum of damages awarded by the LHJ was properly proved and correctly assessed. Whether the Appellant Failed to Properly Prepare, Pack and Ship the Cargoes [28] We shall first deal with the findings of the LHJ in relation to the Appellant's preparation, packing and shipment of the Cargoes. [29] On the evidence, it is our view that the LHJ was entitled to find that the Respondent had discharged its burden on a balance of probabilities in showing that there were deficiencies in the Appellant's preparation, packing and shipment of the Cargoes. [30] The evidence supporting that finding may be seen, among others, in the following:

the failure to ensure that the wooden pallets used, were newly heat-treated pallets;

the failure to place desiccants in three out of the four containers in order to prevent moisture; and

the fact that, although the Cargoes were shipped on three different vessels, infestation was found in all the shipments. [31] In our judgment, those matters provided sufficient evidence for the LHJ to conclude that the Appellant had failed to take reasonable and necessary precautions in the preparation and shipment of the Cargoes. [32] However, that does not conclude the matter. A finding that there were deficiencies in preparation and shipment did not, without more, in our view establish that the Cargoes had thereby ceased to be of merchantable quality or reasonably fit for the purpose for which they were purchased. Whether the Cargoes Were No Longer of Merchantable Quality or Reasonably Fit for Purpose [33] We now turn to the second issue, namely whether the LHJ was correct in finding that the Cargoes were no longer of merchantable quality and/or reasonably fit for purpose. [34] It is to be observed that at paragraph (100) of the Grounds of Judgment, after considering the evidence, the LHJ stated as follows: "It is clear that Lauric Acid of 'GMP+ FSA Assured' in the Sales Contract is mutually understood and should be interpreted to mean Lauric Acid of feed safety quality. Hence, the Defendant's failure to provide the Cargoes that are of feed safety quality, which are free from insects, moisture, and melting, is itself a breach of the express term of the Sales Contract." [35] With respect, we are unable to agree that the evidence before the Court justified the further conclusion that the Cargoes had ceased to be of merchantable quality or reasonably fit for purpose. [36] While there was evidence of moisture, condensation and insect presence, there was, in our view, insufficient evidence to establish that the Cargoes was of unmerchatable quality and not fit for the purpose. [37] On the contrary, we are of the view that the evidence showed that the Cargoes were subsequently repackaged and sold on the same quantity and, materially, on the same commercial description. This materially undermined the Respondent's case that the goods were wholly unmerchantable or no longer fit for the contractual purpose. [38] In particular, the Appellant contended that there was no evidence that the Cargoes were no longer of the contractual description and quality of Lauric Acid GMP+ Certified and FSA Assured, or that there was any shortfall in quantity, or that the Cargoes were not reasonably fit for the animal feed market. We find merit in that contention. [39] The subsequent conduct of the Respondent is significant. The Respondent did not dispose of the goods as waste or sell them in a wholly different market. Instead, the goods were repackaged and sold to Fertilia. [40] Apart from the above reasons, we have also considered that, in the present case, there was clear evidence from which it may be concluded that the sale to Fertilia was not, in truth, a salvage sale. In particular, the goods were described in the Fertilia documents as "GMP+ Certified Assured" and were sold to what appeared to have been a purchaser in the feed market, Fertilia being described as a non-durable goods wholesale merchant. Further, the quantity sold to Fertilia corresponded with the quantity of the Cargoes originally purchased from the Appellant. [41] These matters, when taken together, in our view are inconsistent with the proposition that the Cargoes had ceased to be of merchantable quality or had become suitable only for disposal at salvage value. [42] These facts, in our view, also lend further credence to the Appellant's contention that the Cargoes remained of merchantable quality and reasonably fit for the contractual purpose of the goods sold as "GMP+ Certified Assured". This goes directly to the determination of the second issue in this appeal. [43] In the circumstances, whilst the evidence might justify a finding that the Cargoes arrived in less than ideal condition and required remedial steps, we are not satisfied that the Respondent had proved on a balance of probabilities that the Cargoes were no longer of merchantable quality or reasonably fit for purpose in the sense found by the LHJ. Whether the Sale to Fertilia Was a Salvage Sale [44] We turn next to the issue of the sale to Fertilia, which is also is also important for both the determination of the question whether the Cargoes were unmerchantable and on whether there was a proper assessment of the loss suffered by the Respondent. [45] In awarding damages to the Respondent, the LHJ took the view, based on the testimony of PW1, that the sale to Fertilia was a salvage sale and that, but for the infestation in the Cargoes, the Plaintiff could have sold the Cargoes much earlier. [46] The LHJ further held that the Respondent could only take steps to sell the Cargoes after the inspection on 29.06.2022, and that further time was required to decontaminate and repackage the Cargoes. [47] As a result, the LHJ found that the Respondent only managed to sell the Cargoes to Fertilia on 26.07.2022, by which time the market price for Lauric Acid had fallen. [48] With respect, we are unable to agree with the LHJ that the evidence established that this was a salvage sale. [49] In our view, there was evidence at trial, as pointed out by the Appellant, suggesting that the sale was not a salvage sale, but rather a sale at the prevailing market price. [50] In particular, we find that the Appellant's argument on this issue was supported by the Global Price Palm Oil Index relied upon by the Appellant, which showed a dramatic decline in prices between February-March 2022 and July 2022. [51] In the circumstances, there is merit in the Appellant's contention that, by the time the sale to Fertilia was concluded in July 2022, the palm oil price had fallen quite drastically, as shown in the graph at pages 25 to 27 of CCB Volume 5. It followed that the price obtained for the Cargoes, namely EUR1,125 per metric ton, was substantially lower than the price paid by the Respondent at the time of purchase in or around February to March 2022. [52] In our judgment, the mere fact that the Cargoes were sold in July 2022 at a lower price did not, without more, establish that they were sold at salvage value. Rather, the evidence suggests that they were sold at the market price prevailing at the time of sale. [53] This conclusion is reinforced by the fact that the goods were sold under the description "GMP+ Certified Assured", to what appeared to have been a feed market purchaser, and in the same quantity as had been purchased from the Appellant. Those matters in our view are inconsistent with a salvage sale as contended by the Respondent.The Proper Measure of Damages. [54] As regard the alleged the loss that the Respondent was complaining, it was submitted that the loss was actually a market loss. In relation to this contention the Appellant took the position that the law is well settled that in the case of loss for damaged goods (as the Respondent alleged here), the correct measure of damages (whether for a claim in contract or tort) is the amount by which the market value of the goods has been diminished by the damage, i.e., it is the sound arrived value of the goods less the actual value of the goods. [55] In Exportadora Valle de Colina SA (t/a Exportadora Santa Elena) & Ors v A.P. Moller-Maersk A/S (t/a Maersk Line) [2010] EWHC 3224 (Comm), the Court stated that the correct measure of damages in a damaged cargo case is the difference between the sound arrived value of the goods and their actual arrived value, namely the sale price actually achieved, together with any expense incurred in achieving that sale price which would not have been incurred but for the breach. It was held as follows: [187] In relation to the assessment of loss and damage suffered as a consequence of the arrival of the consignments of grapes in a damaged condition, Santa Elena did not put forward its claim on the basis of the loss suffered as a consequence of it and its selling agents such as H&H having been deprived of the marketing strategy they would have employed if the grapes had arrived as they should with the expected shelf life, of holding back some grapes for sale to the supermarkets later in the season. It was suggested on behalf of Santa Elena that a claim on that basis might have been greater, so that the basis of claim actually advanced was "favourable" to Maersk. It may be correct for a larger sum but it would inevitably have run into difficulties over issues of foreseeability and remoteness. [188] Accordingly, the correct measure of damages is indeed the one adopted by Santa Elena, namely the difference between the sound arrived value of the consignments of grapes and their actual arrived value, that is the sale price actually achieved. together with any expenses incurred in achieving that sale price which would not have been incurred but for the breach. (emphasis added) [56] Applying the principle above, in order for the Court to properly assess the loss and damage suffered as a consequence of the Cargoes having arrived in a damaged condition, even if such damage were proved, we are of the view that the Respondent was required to adduce evidence of the sound arrived value of the Cargoes at the material time. [57] In the present case, no expert evidence was adduced as to the price which the Cargoes would have commanded in June 2022 had they arrived in sound condition. [58] Given the volatility of the CPO market, as demonstrated by the price charts, this was, in our view, a significant evidential gap which the Respondent failed to address in support of its contention that the sale to Fertilia was truly a salvage sale and that the loss should be measured against the original contract price. [59] From the Grounds of Judgment, the LHJ appears to have accepted the contract price, namely EUR257,520.00, together with additional costs, as representing the sound arrived value. [60] With respect, we do not think that this approach was correct. [61] The contract price was agreed in February to March 2022, when CPO prices were at or near their peak. By June 2022, when the goods arrived, CPO prices had already begun to decline. [62] As the evidence shows, the price of the Cargoes had fallen substantially by then. It follows that the sound arrived value in June 2022 would likely have been lower than the February-March contract price, even assuming that the goods had arrived in perfect condition. [63] In the absence of proof of sound arrived value, it was, in our judgment, erroneous for the LHJ to assess the Respondent's damages on the basis of the contract price agreed several months prior to the arrival and eventual sale of the Cargoes. Conclusion [64] For the reasons set out above, we are of the view that the LHJ was entitled to find that there were deficiencies in the Appellant's preparation, packing and shipment of the Cargoes. [65] However, we are unable to agree with the LHJ's further finding that the Respondent had proved that the Cargoes were no longer of merchantable quality and/or reasonably fit for purpose. [66] The evidence, viewed as a whole, showed that the Cargoes were repackaged and sold in the feed market, under the description "GMP+ Certified Assured", to what appeared to have been a feed market purchaser, and in the same quantity as had been purchased from the Appellant. Those facts materially undermine the conclusion that the goods had become wholly unmerchantable or unfit for their contractual purpose. [67] We are also of the view that the LHJ erred in treating the sale to Fertilia as a salvage sale and in assessing damages by reference to the original contract price, in the absence of proper evidence of the sound arrived value of the Cargoes at the material time. [68] In the circumstances, the award of damages in the sum of EUR177,357.30 cannot be sustained. [69] Accordingly, the appeal is allowed, and the orders of the High Court are set aside and costs of this appeal is given to the Appellant in the sum of RM120,000 subject to allocatur. Dated: April 2026 (ISMAIL BIN BRAHIM) JUDGE COURT OF APPEAL, MALAYSIA Counsel for the Appellant : 1. Jeremy M Joseph

Caleb Goh

Vinodhini Samuel [Messrs Joseph & Partners] Counsel for the Respondent:

Philip Teoh

Evelyn Ng Can Fei

Lim Teng Li [Messrs Azmi & Associates]