SECRETARY FOR JUSTICE v. GOOD YEAR TRANSPORTATION CO. LTD.

HCA 8532/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8532 OF 1999

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J U D G M E N T

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The Contract and the relevant terms thereof

1. In this action, the plaintiff, the Government of HKSAR ("the Government"), claims against the defendant, Good Year Transportation Company Limited, for damages for breach of Contract No. C0310/97 ("the Contract") made between the Government and the defendant on 20 June 1997 whereby the defendant agreed to provide the Government with services for the handling and transportation of government stores ("the Services") on an "as and when required" basis at the rates specified in the Contract for a period of 24 months from 1 July 1997 to 30 June 1999.

2. The Contract was awarded to the defendant after a public tender No. PT/361/96 which was gazetted on 17 January 1997 and closed on 21 February 1997. 6 offers from 5 local companies were received. After evaluation, three contracts for the handling and transportation of government stores were awarded to three tenderers who submitted the lowest offers. The defendant was one of them.

3. Insofar as it is material to quantum, the charges payable by the Government to the defendant for the Services under the Contract depended on

(1) the starting zone and the destination zone of the journey; and

(2) the capacity of the lorry used, i.e. whether it was a 5-DWMT lorry or a 10-DWMT lorry.

4. More particularly, the unit rate per trip under the Contract was:

(1) for trips starting from location(s) on the Hong Kong Island ("Zone T2") to various location(s) in Kowloon ("Zone T3") and the New Territories ("Zone T4") and on the outlying island(s) ("Zone T5") or vice versa:

	T2 to T2	T2 to T3	T2 to T4	T2 to T5
5-DWMT lorry	$1,500	$1,600	$1,700	$3,400
10-DWMT lorry	$3,000	$3,100	$3,200	$6,400

(2) for trips starting from Zone T3 to the various other zones or vice versa:

	T3 to T3	T3 to T4	T3 to T5
5-DWMT lorry	$1,500	$1,600	$3,500
10-DWMT lorry	$3,000	$3,100	$6,500

(3) trips starting from Zone T4 to the various other zones or vice versa:

	T4 to T4	T4 to T5
5-DWMT lorry	$1,500	$3,500
10-DWMT lorry	$3,000	$6,500

For deliveries to the Chek Lap Kok Airport ("the Airport"), there were also additional plus toll charges at the rates of $150 per trip by a 5-DWMT lorry and $300 per trip by a 10-DWMT lorry.

The defendant's breach

5. Between 5 and 11 July 1997, the Government issued to the defendant a total of 16 transportation orders. The defendant completed only 5 of such orders between 7 and 9 July 1997. It ceased to provide the Services after 9 July 1997.

6. Further, it was a term of the Contract (i.e. clause 21 of the Special Conditions) that the defendant would pay to the Government a sum of $297,786 (which was equivalent to 5% of the contract sum) by way of deposit ("the Deposit") within 14 days after 20 June 1997 which was the date of the Government's letter of acceptance of the defendant's tender, i.e. on or before 4 July 1997. The defendant did not pay.

7. By a letter dated 10 July 1997 from the Government to the defendant, the Government gave the defendant time until 15 July 1997 to complete the said 9 outstanding orders and pay the Deposit.

8. Instead of complying with such request, by a letter dated 10 July 1997, the defendant effectively informed the Government that it would not be able to continue performance of the Contract.

9. On 15 July 1997, the Government, as it was entitled to do, terminated the Contract.

Nature of the Government's Loss

10. The Government obviously had to find contractors to replace the defendant to provide the Services. As the Services were required by various departments of the Government from day to day, any disruption in service would impair their operation. Therefore, it was essential to replace the defendant as soon as possible and a re-tender was highly undesirable in view of the time required. Moreover, as the said tender in early 1997 was conducted after an exhaustive market research, it was thought that it was unlikely that a re-tender could bring in more competitive offers. Therefore, it was decided that the Services should be split between Tai Kow Lo Transportation Company Limited ("Tai Kow Lo") and Leung Kow Kee Transportation ("Leung Kow Kee") who submitted the next lowest acceptable tenders back in early 1997 as follows:

11. The second lowest offers for location zones T2-T2, T2-T3, T2-T4, T3-T3, T3-T4 and T4-T4 were submitted by one Wai Man Transportation Co. ("Wai Man"). Wai Man was, however, considered unsuitable and not awarded the replacement contract because this company was then newly identified from a market research conducted in October 1996. It employed only 4 workers and had 2 lorries of 14 MT and 5.5 MT respectively. The defendant had 13 lorries and yet could not manage. In view of its limited number of vehicles and given the workload, it was feared that Wai Man would not have the capacity to fulfill the contractual requirements. In contrast, Tai Kow Lo and Leung Kow Kee had 21 and 22 lorries respectively.

12. I do not think the Government's decision to replace the defendant with Tai Kow Lo and Leung Kow Kee without going through a re-tender can be criticized at all. The replacement contracts made between the Government and Tai Kow Lo and Leung Kow Kee were Contracts No. C0309/97 and C0311/97 respectively.

13. Notwithstanding the relative competitiveness of Tai Kow Lo and Leung Kow Kee's rates, it will be seen that, in most instances, they were still higher that those payable by the Government to the defendant under the Contract:

In addition, for deliveries to the Airport, there were also additional and toll charges at the rates of

(1) $100 per trip by a 5-DWMT lorry and $100 per trip by a 10-DWMT lorry if delivered by Tai Kow Lo;

(2) $350 per trip by a 5-DWMT lorry and $600 per trip by a 10-DWMT lorry if delivered by Leung Kow Kee.

14. That is to say, the differences between the rates charged by the defendant under the Contract and those charged by Tai Kow Lo and Leung Kow Kee under Contracts Nos. C0309/97 and C0311/97 respectively were as follows:

	5-DWMT lorry	10-DWMT lorry
T2-T2	+ $700	-
T2-T3	+ $700	-
T2-T4	+ $1,000	+ $600
T2-T5	+ $3,600	+ $3,600
T3-T3	+ $700	-
T3-T4	+ $900	+ $200
T3-T5	+ $3,500	+ $3,500
T4-T4	+ $1,000	+ $300
T4-T5	+ $3,500	+ $3,500

15. Further, for deliveries to the Airport, the Government

(1) saved additional and toll charges at the rates of $50 per trip by a 5-DWMT lorry and $200 per trip by a 10-DWMT lorry where the delivery was made by Tai Kow Lo, but

(2) had to pay $200 more per trip by a 5-DWMT lorry and $300 more per trip by a 10-DWMT lorry by way of additional and toll charges where the delivery was made by Leung Kow Kee.

Part Judgment

16. On 15 July 1999, final judgment in the sum of $1,233,100 was entered against the defendant in default of Defence. The said sum of $1,233,100 represented damages for the loss suffered by the Government as a result of the defendant's breach of the Contract up to and including 31 December 1998.

17. At the same time, interlocutory judgment was also entered against the defendant with damages for the period from 1 January to 30 June 1999 to be assessed.

The Government's loss from 1 January to 30 June 1999

18. In support of its claim for damages for the period from 1 January to 30 June 1999, the Government produced the Government Supplies Department's transportation orders performed by Tai Kow Lo and Leung Kow Kee under Contracts Nos. C0309/97 and C0311/97 respectively between 1 January and 30 June 1999 and the payment vouchers evidencing the Government's payment for such services.

19. I find that between 1 January and 30 June 1999, as a result of the defendant's breach of the Contract, the Government continued to suffer loss and damage in the form of the higher rates it paid to Tai Kow Lo and Leung Kow Kee under Contracts Nos. C0309/97 and C0311/97 respectively. Such loss added up to the sum of $378,750 which can be summarized as follows:

1 1 delivery by Tai Kow Lo at $50 less per trip

2 9 deliveries by Tai Ko Lo at $200 more per trip

3 3 deliveries by Leung Kow Kee at $200 less per trip

4 4 deliveries by Leung Kow Kee at $300 more per trip

5 1 delivery by Leung Kow Kee at $300 more per trip

20. Accordingly, I order the defendant to pay the Government further damages in the sum of $378,750 with interest thereon at the rate of 1% above the prime lending rate for Hong Kong dollars from 1 April 1999 (i.e. the date in the middle of the period in question) to the date hereof and thereafter at judgment rate until payment.

21. I also make an order nisi that the defendant pay the Government the costs of this action, such costs to be taxed if not agreed.