AMOI ELECTRONICS CO LTD v. KIN CHEUNG TRANSPORTATION (HONG KONG) CO LTD

DCCJ 3993 of 2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3993 OF 2008

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REASONS FOR JUDGMENT

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1.  This is an application by the Plaintiff under O.14 of the Rules of the District Court which was heard on 1 February 2010.  At the end of the hearing, I gave Judgement for the Plaintiff and indicated that I would give my reasons later, which I now do.

Introduction

2.  The Plaintiff was the owner and consignee of a consignment of goods (“the Cargo”) which was to be delivered by the Defendant from Hong Kong to the Plaintiff’s premises in Xiamen in Mainland China.  The Cargo consisted of 270 cartons of various electronic components.  On 18 October 2007 the Defendant commenced the carriage of the Cargo from Hong Kong to Mainland China.  Sometime on 19 October 2007, the Cargo was offloaded from the Defendant’s truck on to another truck of a carrier in Mainland China (“the PRC Carrier”) who was responsible for the onward journey to Xiamen.  The Cargo reached the Plaintiff’s premises on 22 October 2007.

3.  I should add that the Defendant received instructions to deliver the Cargo not from the Plaintiff directly but from another company called 上海台驊貨運代理有限公司 (“Xiamen Forwarder”) with whom the Defendant had signed an agreement in Chinese dated 10 May 2006 and entitled “貨物運輸合同” (“the Chinese Contract”), whereby the Defendant agreed to deliver goods as instructed by Xiamen Forwarder from Hong Kong to the Plaintiff’s premises in Xiamen, on a regular basis.

4.  Going back to the events in question, after the Cargo arrived on 22 October 2007, the Plaintiff notified Xiamen Forwarder by email on 24 October 2007 that there was a short delivery in that one carton of goods was missing (“the Goods”), which email was then forwarded to the Defendant.  The Plaintiff had previously taken out an insurance policy (“the Insurance Policy”) in respect of the Cargo with an insurer (“the Insurer”), who indemnified the Plaintiff for its loss.  On 11 September 2008, the Insurer issued the Writ in the name of the Plaintiff claiming for damages against the Defendant for the loss suffered as a result of the short delivery.

5.  Subsequently the Statement of Claim, Defence and Reply were filed by the parties.  On 21 October 2009, the Plaintiff took out the present summons under O.14 for summary judgment against the Defendant.

Issues

6.  A number of issues and defences were raised in the Defence but at the hearing of this O.14 application, Mr Chow, counsel for the Defendant, confirmed that he was putting forward only 2 arguments, namely:

(a) That the Insurer had no right to sue the Defendant on the ground that the Insurance Policy taken out by the Plaintiff was for the benefit of both the Plaintiff (as bailor) and the Defendant (as bailee); and

(b) That since the alleged short delivery was only reported 2 days after the Cargo had reached the Plaintiff’s premises, there was a triable issue of fact as to whether the Goods were lost in the course of delivery or after the Cargo had been delivered to the Plaintiff’s premises.

7.  There is no dispute between the parties as to the amount of damages, being the invoiced value of the Goods, i.e. US$24,499.80.  Mr Chow for the Defendant also accepts that the Defendant was the bailee of the Cargo.

The Subrogated Insurer 

8.  Mr Chow relied on Palmer on Bailment (2^nd ed), pp.364-374 and two cases cited therein to develop his argument.  His starting point was that a bailee has an insurable interest in the subject matter of the bailment.  Therefore, where the bailor insures the goods, the bailee may qualify as a co-insured of the bailor.  In that event, the insurer is not entitled to sue the bailee, as “an insurer cannot sue one co-insured in the name of another.”  See Palmer at pp.366-367 and Petrofina (UK) Ltd v Magnaload Ltd [1984] 1 QB 127 cited therein.

9.  However, the editors of Palmer, at p.368, also make it clear that “the crucial question remains whether the bailor and the bailee are co-insureds under the insurance, and this will characteristically require the nomination of the bailee as a participant in the cover …”  In the present case, only the Plaintiff was named as the insured party under the Insurance Policy, and not the Defendant.

10.  Palmer goes on to state, at p.368, that in certain circumstances an insurer in subrogation of a bailor’s rights may still be prevented from suing a bailee who has not been named expressly as a co-insured, citing Mark Rowlands Ltd v Berni Inns Ltd [1985] 3 All ER 473.  In that case, the landlords and the tenants had agreed under the lease that the landlords should obtain insurance cover against risks in respect of the entire premises (only part of which were leased to the tenant), with the tenants making regular contributions towards the insurance premium.  The insurance policy however did not name the tenants as one of the insured parties.  The premises were destroyed by a fire caused by the negligence of the tenants.  Having indemnified the landlords of their loss, the insurers sought to recover damages from the tenants.  The Court of Appeal in England upheld the finding of the court below that although the tenants were not co-insured with the landlords under the policy, the landlords were to be regarded as having insured the entire premises for the joint benefit of themselves and of the tenants, as it must have been the mutual intention of both parties that the insurance should enure for the benefit of the tenants as well.  The Court of Appeal went on to hold, “Provided that a person with a limited interest has an insurable interest in the subject matter of the insurance, … , there is no principle of law which precludes him from asserting that an insurance effected by another person was intended to enure for his benefit to the extent of his interest in the subject matter, whether the insurable interest of the person effecting the insurance be on the whole of the subject matter or only to the extent of a limited interest in it.”

11.  Relying on the dicta quoted above, Mr Chow for the Defendant advanced the proposition in his Skeleton Argument that it is a general legal principle that an insurance policy, though taken out by the bailor, enures for the benefit of both the bailor and the bailee, and the insurer is precluded from exercising his right of subrogation against the bailee.

12. This “general legal principle”, if it existed, and even if it were made subject to the parties’ contrary intention, would not accord with commercial reality where parties are free to come to an agreement over the allocation of risks and the incidence of liabilities, which inevitably has an influence on the parties’ decision whether to obtain insurance cover and as to who should benefit from the insurance. 

13.  Nor is this proposition supported by the authorities cited.  In Petrofina(above), the subcontractors were expressly named as co-insured in a policy effected by the main contractors in respect of the whole of the contract works, and the fact that the subcontractors only had a limited interest in part of the contract works did not prevent them from having an insurable interest in the subject matter of the insurance.  In Mark Rowlands (above), there was ample evidence to support the conclusion that the parties had agreed that the landlords were to effect an insurance policy and that the insurance should enure to the benefit of the tenants.  Nowhere in these authorities can one find support for the general proposition that whenever a party (such as a bailor) takes out an insurance policy, that insurance cover would, without more, enure to the benefit of another party (such as a bailee) having an insurable interest in the subject matter of the insurance.

14.  In any event, the real issue in Mark Rowlands, as pointed out by Kerr LJ in his judgment (above at 481f), was whether the terms of the lease, properly construed, precluded the landlords themselves from recovering damages in negligence from the tenants.  He held, at 484h, that the intention of the parties must have been that in the event of damage by fire, whether due to accident or negligence, the landlords’ loss was to be recouped from the insurance moneys and that in that event, they were to have no further claim against the tenants for damages in negligence.  As the landlords themselves had no right to sue the tenants in the circumstances which had arisen, the subrogated insurers, whose rights could be no greater than the landlords’, could not sue the tenants either.  See also Palmer at p.372: “Further, it must be shown that the terms of the bailment, or of some binding collateral transaction, clearly exonerates the bailee from liability at the behest of the bailor in the events that occurred.  The burden of proving this exemption presumably lies with the bailee …”

15.  Mr Chow argued in his oral submissions that the court should find, on the basis of the evidence filed, that there was a triable issue as to whether or not the Defendant was intended to benefit from the insurance cover effected by the Plaintiff.  He relied, inter alia, on the fact that the Plaintiff purchased the Cargo on CFR terms (cost and freight) so that insurance was not included in the contract price and it was up to the Plaintiff to take out insurance.  He also referred me to various clauses in the Chinese Contract, including Clauses 5, 7, 9.2.2, 10.1.3, 10.2.2 and 10.2.4, the last of which provided that the Defendant would not be liable if the short delivery or loss or damage was caused by the default of the consignee.  He pointed out that the insurance cover under Clause III of the Insurance Policy was warehouse-to-warehouse from Hong Kong to Xiamen which was co-terminous with the Defendant’s carriage of the Cargo, and that under Clause IV the insured party was under a duty to take delivery of the insured goods in good time upon their arrival at the destination.

16.  Mr Tsui of the Plaintiff’s solicitors, on the other hand, submitted that the insurance policy was clearly not intended to benefit the Defendant.  He relied on Clause IV.1 of the Insurance Policy whereby the insured party was obliged, should the carrier or bailee be responsible for any short delivery or damage, to lodge a claim with such responsible parties in writing.  He also refers to Clauses 5, 6, 9.2.2, 10.2.2 of the Chinese Contract whereby the Defendant agreed to bear responsibility for any short delivery, loss or damage to the goods to be delivered by the Defendant.

17.  There was on the evidence clearly no mutual intention between the Plaintiff and the Defendant or anyone on its behalf that any insurance taken out by the Plaintiff should benefit the Defendant.  On the contrary, both the Chinese Contract and the Insurance Policy, far from exonerating the Defendant from liability, clearly envisaged that the Defendant as carrier or bailee of the goods was to be liable for any loss and damage sustained in the course of delivery.  For these reasons, I find that the evidence did not raise any triable issue as to whether or not the insurance cover was intended to benefit the Defendant.  The Plaintiff is clearly entitled to sue the Defendant in the circumstances of the present case, and so is the subrogated Insurer.

Whether the Goods were Lost in the Course of Delivery

18.  Mr Chow’s second argument was that since the Cargo arrived at the Plaintiff’s premises on 22 October 2007 but the Plaintiff did not report the alleged short delivery until 24 October 2007, there must be a triable issue as to whether the Goods were lost in transit, or after delivery.

19.  In this regard, Mr Tsui for the Plaintiff relied on (1) the admission made by the Defendant in the Defence filed on 1 April 2009 at paragraph 3(12); (2) a statement made by the Defendant on 25 October 2007; and (3) a statement made by the Defendant on 26 October 2007.

20.  The email correspondence from 24 to 26 October 2007 exchanged among the Plaintiff, Xiamen Forwarder and the Defendant showed that at 9.10 a.m. on 24 October 2007, the Plaintiff informed Xiamen Forwarder that the Goods were missing.  Xiamen Forwarder then notified the Defendant.  In due course, the Plaintiff requested a confirmation of the short delivery from the Defendant, for the purpose of the Plaintiff’s insurance claim, whereupon the Defendant made a statement on 25 October 2007 (“the 1^st Declaration”), confirming that it had received the Cargo for delivery to the Plaintiff, that the Cargo went through customs, and that after the Cargo reached the Plaintiff’s premises, the Goods were found missing after the Plaintiff took stock of the Cargo.  Afterwards, Xiamen Forwarder requested the Defendant to include in its statement a confirmation that the Goods were lost in the course of the Defendant’s delivery.  The Defendant then made another statement, on 26 October 2007 (“the 2^nd Declaration”), in terms almost identical to the 1^st Declaration, save that at the end of it was an additional statement that the Defendant believed that the Goods were lost during customs inspection.  The additional statement, taken at face value, could amount to an admission that the Goods were lost during the course of delivery.

21.  Mr Chan Chi Kin of the Defendant, in Paragraph 17 of his affirmation in opposition to the O.14 application, explained that he made the 2^nd Declaration on behalf of the Defendant because in order to keep Xiamen Forwarder’s business, he tried to accommodate the request.  As the Goods were lost while they were out of the immediate control of the Defendant, he could only make the statement that it was believed that the Goods were lost during customs inspection.

22.  Mr Chow for the Defendant urged me, in the light of Mr Chan Chi Kin’s explanation, not to put much weight on the 2^nd Declaration.  He also submitted that given the time gap between the arrival of the Cargo at the Plaintiff’s premises and the first report of the loss of the Goods, there was a triable issue as to whether the Goods were in fact lost during the course of delivery.

23.  Mr Chow relied on Clause 7 of the Chinese Contract, which provided: “報關後開往夏新海滄工廠由夏新人員領取及當場驗收。” He submitted that the Plaintiff should have checked the quantity of the Cargo upon its arrival and complained about the shortage there and then.  In this regard, I note that neither party has explained in the affidavit evidence what happened when the Cargo arrived at the Plaintiff’s premises, and what time of the day the Cargo arrived.  What is clear is that there is no evidence of the Plaintiff having signed or acknowledged receipt of the full quantity of the Cargo.  Mr Tsui for the Plaintiff also pointed out that despite Clause 7, the Chinese Contract did not go on to stipulate what legal consequence was to follow from the parties’ failure to have the goods inspected upon arrival.  In the circumstances, as neither party insisted on an immediate inspection or tally of the Cargo, I am of the view that the Plaintiff was entitled to a reasonable opportunity to examine the Cargo and the quantity thereof after arrival, and that the Plaintiff’s report of the shortage at 9.10 p.m. on 24 October 2007 was made within a reasonable time.

24.  Against the Plaintiff’s evidence that the Goods were missing from the Cargo, there is, on the other hand, no evidence from the Defendant that it did deliver the full quantity to the Plaintiff.  Indeed nowhere in the Defendant’s Defence or in Mr Chan Chi Kin’s affirmation is there any positive assertion (let alone other supporting evidence) that the full quantity was in fact delivered to the Plaintiff.  It should also be noted that the Cargo was offloaded from the Defendant’s own truck on to the PRC Carrier’s truck.  While Mr Chan Chi Kin was able in his affirmation to detail the part of the journey for which the Defendant itself undertook, including the quantity of the Cargo, there was a striking lack of evidence from him or from the PRC Carrier in respect of the second part of the carriage, undertaken by the PRC Carrier, up to the arrival of the Cargo at the Plaintiff’s premises.  No evidence has been adduced from the PRC Carrier that the full quantity was delivered to the Plaintiff.

25.  I would also add that throughout the email correspondence from 24 to 26 October 2007, i.e. immediately after the report of short delivery, there was no suggestion from the Defendant that the full quantity had in fact been delivered to the Plaintiff.  Nor did the Defendant query whether the Goods might have been lost while they were in the possession of the Plaintiff.  Furthermore, while Paragraph 7 of Mr Chan’s affirmation seeks to provide an explanation why he was prepared to make the 2^nd Declaration on 26 October 2007 which effectively admitted that the Goods were lost in the course of delivery, he has never provided an explanation for a similar admission in Paragraph 3(12) of the Defence, by which time it must have been clear to the Defendant that the Plaintiff was claiming damages for the short delivery.  In conclusion, there is, on the state of the evidence adduced, no triable issue as to whether the Goods were lost in the course of delivery.

Onus of Proof

26.  Where goods have been lost or damaged in the course of delivery, the burden is on the bailee to show that the loss or damage was not caused by any failure on his part to take reasonable care.  He is also answerable to the bailor for acts or omissions on the part of a sub-bailee including an independent contractor to whom he has entrusted responsibility for the goods: Samsung Electronics Ltd v J & C Cargo Services Co Ltd [2008] 2 HKLRD 243.  As I mentioned above, there is no evidence adduced on behalf of the Defendant covering the part of the delivery or journey undertaken by the PRC Carrier.  The Defendant has failed to discharge the onus of proof.

Sanctioned Offer

27.  Having heard the parties’ submissions, I gave my ruling that I would give judgment to the Plaintiff in the sum of US24,499.80, with interest thereon at US Dollar prime rate plus 1% from the date of the writ to the date of judgment.  At that point, Mr Tsui for the Plaintiff handed up a copy of a “sanctioned offer” dated 22 October 2009, made pursuant to O.22 Rule 2 of the Rules of the District Court, that the Plaintiff would accept a sum of $150,000 (inclusive of interest) in full and final settlement of the action.  Since the Defendant has been held liable for more than the Plaintiff’s offer, Mr Tsui asked for interest on the judgment sum at 10% above the judgment rate, costs on an indemnity basis, from 20 November 2009 onwards, i.e. after the expiry of the period for acceptance of the offer without leave, and interest on those costs at 10% above judgment rate.  Mr Tsui relied, as examples, on Tsoi Hak Kong Herbert v Kok Wai Chun (HCA 4/2006, 9 June 2009, Chung J) and Garden Company Limited v Smart Year Limited (HCA 640/2009, 2 October 2009, Chu J).

28.  Mr Chow accepted that the offer was a sanctioned offer within the meaning of O.22.  He submitted that the offer was made relatively late, as the O.14 application was due to be heard in early February 2010, and the Plaintiff’s offer made a very small discount from the amount actually claimed.  He also said that the Defendant company was a small family-size business, earning very little for the transaction in question, while being exposed to a disproportionately large claim.

29.  I understood the Defendant company’s predicament, but unfortunately it had to take the consequences of having been beaten by a sanctioned offer which it had declined to accept.  The types of order being asked for by Mr Tsui had to be made unless the court considered it unjust to do so.  The offer in this case was made well before the hearing date, giving ample time to the Defendant to consider it properly.  The offer also included a discount of over 20%, a not insignificant amount.  In the circumstances, and in the exercise of my discretion, I ordered interest on the damages at USD prime rate plus 1% from the date of the writ to 19 November 2009, and interest at judgment rate plus 2% from 20 November 2009 until judgment, and thereafter at judgment rate.  I also ordered costs from 20 November 2009 to be paid by the Defendant on the indemnity basis, and interest on those costs at 2% above judgment rate.