FU XIAN DA (CHINA) CO. LTD v. CHI HUNG STAINLESS STEEL CO. LTD

HCA 2675/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2675 OF 1997

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J U D G M E N T

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Introduction

1. The Plaintiff sued the Defendant for repayment of two loans advanced to the Defendant by two irrevocable letters of credit totalling US$703,835.45 of which US$186,130.12 had been repaid leaving an outstanding balance of US$517,693.33. The Defendant did not dispute liability for the balance of the loan but counterclaimed against the Plaintiff for its breach of contract or for the loss of the Defendant's goods. Shortly before trial, the Plaintiff's solicitors sought and was granted leave to cease to act for the Plaintiff. The Plaintiff defaulted at trial. The Defendant proceeded to prove its counterclaim.

The Defendant's counterclaim

2. At the material times, the Defendant operated a business trading in stainless steel coils while the Plaintiff was in the business of transportation of goods. At the time, there was a quota system in respect of importation of stainless steel into China under which importers had to obtain import licence. Stainless steel imported into China without licence will be confiscated by the Chinese Customs Authority.

3. The Defendant's director, Mr Chow, came to know the Plaintiff's director, Mr Lin in 1984. On about 10 May 1995, the Defendant contracted with the Plaintiff to transport stainless steel for the Defendant to Foshan in China on terms that the Plaintiff would be responsible for the transportation and for the application of import licence and for the loss and damage of the stainless steel entrusted to the Plaintiff for transportation. The Plaintiff issued a post-dated cheque to the Defendant equivalent to the value of the stainless steel to be transported as security for the stainless steel entrusted to its care. When the stainless steel was delivered, the cheque was returned to the Plaintiff. That delivery was successful.

4. In subsequent transactions, the parties simplified their procedures by dispensing with the need for the Plaintiff to furnish a post dated cheque as security for the goods. Instead, the Defendant issued a Letter of Appointment to confirm the oral agreement for the delivery. It was a condition of the Letter of Appointment that the Plaintiff was responsible for any loss or damage of the stainless steel being entrusted to it for transportation. When the Plaintiff's services were required, Mr Chow would contact Mr Lin and agree to the terms of the delivery which would be reduced into writing by the Defendant's shipping clerk in the form of a Letter of Appointment. When the goods reached Hong Kong from its place of origin, the Defendant would deliver the delivery order of the goods, packing lists and Letter of Appointment to the Plaintiff. The Plaintiff would then take possession of the goods and deliver them to China. When the goods were delivered to its destination in China, the Defendant would pay the Plaintiff in accordance with the terms of the Letter of Appointment. The parties have since carried on business on that basis for about 20 transactions.

5. On 29 October 1995, Mr Chow instructed Mr Lin to deliver 42 rolls of stainless steel coils to Foshan. The agreement was evidenced in a Letter of Appointment dated 15 November 1995 which was delivered to the Plaintiff with the delivery order dated 8 November 1995 from Ocean Base Co Ltd. Similarly, on 4 November 1995, Mr Chow instructed Mr Lin to deliver 27 rolls of stainless steel coils to Foshan. The agreement was evidenced in a Letter of Appointment dated 15 November 1995 which was delivered to the Plaintiff together with the delivery order dated 11 November 1995 from Ocean Base Co Ltd. It was an express term in both Letters of Appointment that if the goods were damaged or lost, the Plaintiff shall compensate the Defendant for the value of the goods. The value of the two lots of stainless steel coil was US$779,257.51.

6. As the two lots of stainless steel were not delivered to the Defendant's customer in Foshan, Mr Chow made several inquiries with Mr Lin. In December 1995, Mr Chow was informed by Mr Lin that the goods had been detained by Jiang Men Customs Department of China but assured Mr Chow that he would resolve the problem before 31 December 1995. Mr Lin also agreed that the Plaintiff would waive interest over the outstanding delivery charges due to the Plaintiff from the Defendant. The above agreement was reduced in writing by the Plaintiff in its letter to the Defendant dated 20 December 1995 in response to the Defendant's letter dated 15 December 1995.

The Plaintiff's defence to the counterclaim

7. Apart from a bare denial, the Plaintiff alleged that the Defendant was unable to find a forwarder to deliver the two lots of stainless steel and upon the Defendant's urgent request for assistance, the Plaintiff acted the Defendant's agent to arrange for a third party, namely Wang Ou, to deliver the two lots of stainless steel for the Defendant. Apart from the fact that there is no evidence from the Plaintiff in support of its allegation by reason of its default at the hearing, the allegation is inconsistent with the documents produced by the Defendant. The Letters of Appointment, some of which were acknowledged with the chop of the Plaintiff, show that the Plaintiff contracted as principal and not as agent and agreed to compensate for damage or loss of the goods it undertook to deliver. In its letter dated 20 December 1995, the Plaintiff admitted liability for the loss of the goods and undertook to indemnify the Defendant "in accordance with the agreement". This letter was signed by Mr Lin and impressed with the chop of the Plaintiff. These incontrovertible documents point to the existence of a contract for carriage with the terms that the Plaintiff shall indemnify the Defendant for loss or damage to the goods as alleged by the Defendant. I dismiss the defence as fictitious and not made bona fide.

Conclusion

8. I am satisfied that the Defendant's counterclaim against the Plaintiff in the amount of US$779,257.51 is proved. Upon admission by counsel on behalf of the Defendant, I am satisfied that the Defendant owed the Plaintiff US$517,693.33 as claimed by the Plaintiff. Accordingly, I enter judgment in favour of the Defendant in the amount of US$261,564.18 after setting off the Defendant's counterclaim against the Plaintiff's claim to the extent of US$517,693.33. I also award the Defendant interest on the said sum of US$261,564.18 with effect from 14 March 1997 at judgment rate. The Plaintiff shall pay the Defendant costs of the action.