KYE SYSTEMS (HONG KONG) CORPORATION LTD. v. WILMINK EXPRESS LTD.

IN THE COURT OF APPEAL

1996, No. 207

(Civil)

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J U D G M E N T

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Mayo JA giving the judgment of the Court:

1. This is an appeal from the decision of Cheung J when he upheld the decision of a Master who granted the respondent unconditional leave to defend this action.

2. The claim being made by the appellant is a relatively simple one. They entered into a contract with the respondent to transport goods from Dongguan China to Hong Kong for their onward shipment to the USA.

3. The respondent caused the 2nd defendant in the litigation to transport the goods to Hong Kong. When the goods arrived in Hong Kong in a container they were left in a car park unattended and were stolen.

4. In the appellant'sstatement of claim, a claim is made against the respondent (1st defendant) and the 2nd defendant on the basis that they were both jointly and severally liable to the appellant (plaintiff) for the loss they had suffered.

5. They applied to the Master for summary judgment under Order 14 against both defendants.

6. According to an affirmation made by Mr Alvan Liu, the solicitor representing the appellant at the Order 14 Nearing, the solicitor representing the 2nd defendant informed the Master that he had no instructions to oppose the application being made against his clients.

7. On hearing this the Master entered judgment against the 2nd defendant with damages to be assessed and proceeded to hear the appellant's application against the respondent.

8. Mr Liu states in his affirmation that the question of his client making an election as to which party would be proceeded against never arose at the hearing. He goes on to say that his firm never took any steps to draw up a court order to formalise the order which had been made by the Master for judgment to enter against the 2nd defendant. The appellant had the carriage of that order.

9. The respondent's solicitors had, without the knowledge or consent of the appellant, proceeded to draw up the court order which was the order upon which Cheung J adjudicated when he heard the appeal. The order was sealed by the court without any reference being made to the appellant.

10. Ms Teresa Cheng for the respondent objected to the admissibility of this affirmation. After hearing the parties we agreed to consider the contents of the affirmation on a de bene esse basis. For reasons which will become apparent later in this judgment, it was not necessary for us to make a final determination on this issue.

11. The first ground of appeal is that Cheung J erred in finding from the appellant's pleadings that the liabilities of the defendants were several rather than joint. Ms Cheng submitted that although para 18 of the statement of claim states that the claim is being made against both defendants jointly and severally, it is necessary to analyse the situation in some detail.

12. Understandably in the circumstances when Master Jennings heard the Order 14 application and entered judgment against the 2nd defendant, he did not indicate the basis upon which the 2nd defendant was found liable.

13. Ms Cheng argued that there were two alternative ways such a finding could have been made.

14. The 2nd defendant could have been found liable as a principal. Para 6 of the statement of claim reads as follows:

"6. By a drayage receipt dated 19 December 1995 (the "Drayage Receipt") issued by the 2nd Defendant, alternatively by the 2nd Defendant on behalf of the 1st Defendant, the 1st or 2nd Defendant acknowledged collection of the Goods from the company in Dongguan for export carriage. The Plaintiff relies on the Drayage Receipt for its full term and effect."

15. If the 2nd defendant issued the Drayage Receipt as a principal and not as agent for the appellant they could have been held to be severally liable.

16. It is worth noting that both the appellant and the 2nd defendant filed Defences separately to the claims being made against them. They both denied that the 2nd defendant was acting as an agent for the appellant when the Drayage Receipt was issued.

17. However that is not conclusive of the issue. Ms Cheng contended that if it was indeed the case that a relationship of principal and agent subsisted at that time then clearly on the facts outlined, the question as to whether the appellant made an election in applying for judgment against the 2nd defendant arises.

18. This is the subject matter of the 2nd Kround of appeal which reads as follows.

"Cheung J erred in finding that the judgment against D2 constituted an election precluding the appellant from proceeding against the respondent."

19. In his judgment Cheung J dealt with this matter in this way.

"Several liability

The Plaintiff pleaded that the Defendants were jointly and severally liable. From the pleadings it appeared that the liabilities of the Defendants were several rather than joint. The 2nd Defendant was, first of all, sued as an agent of the 1st Defendant. Its liability must be several in nature. It was also sued on the Drayage Receipt. If so, it must be sued as a principal to contract with the Plaintiff. If the Defendants' liability was several, the judgment against the 2nd Defendant must constitute an election which precluded the Plaintiff to proceed against the 1st Defendant.

Earl of Halsbury L.C. in Morel Brothers & Co. Ltd. v. Earl of Westmoreland [1904] AC 11 held that:

'My Lords, the plaintiffs might have sued either the agent or the principal ... The result was that the plaintiffs got judgment against the agent. They cannot get judgment against the principal also. It is an alternative remedy; it cannot be made available against the two.'

In the Court of Appeal [1903]1 K.B. 64, Collins M.R. stated that:

'In such a case, if it is sought to render the agent liable, it must be by treating the agent as a principal, to the exclusion of the liability of the real principal. If it is sought to render the real principal liable, then the agent must be treated as such and not as principal. The plaintiffs cannot recover against both. It they choose to take judgment against the wife, they cannot consistently with that have judgment for the same amount against the husband.'

The English case is followed in the Hong Kong Court of Appeal in Bonus Garment Co. (a firm) v. Karl Rieker Gmbh & Co. NG & Anor. [1995] 3 HKC 721:

The principle applies if the 2nd Defendant was sued as an agent of 1st Defendant. Likewise, if the 2nd Defendant was sued on the Drayage Receipt, then it must be sued as a principal and having entered judgment against it, the Plaintiff cannot turn around and sue the 1st Defendant as the principal."

20. The third and final ground of appeal is that Cheung J erred in failing to deal with the issues raised by the appellant as to the admission and as to ownership of the goods.

21. It is at this stage that it is necessary to consider the submissions of Mr Hingorani for the appellant.

22. He argued that in the circumstances outlined earlier in this judgment, his client could not be said to have made an election which bound them to the judgment against the 2nd defendant and precluded them from proceeding against the respondent.

23. Before it is necessary to resolve this question, consideration has to be given to whether looking at the claim as a whole it can be argued that a joint claim was not being made against these defendants.

24. Mr Hingorani drew our attention to para 3-8 of the statement of claim.

"3. By a dock receipt (on the 1st Defendant's standard form) issued by the Plaintiff to the 1st Defendant on or about 14th December 1995 (the "Dock Receipt"), the 1st Defendant entered into an agreement with the Plaintiff to collect 1,000 cartons of 8,700kg (40,000 pieces) of computer accessories ("the Goods") from a company in Dongguan, People's Republic of China ("PRC") in good order and condition for the carriage thereof to a shipping company in Kwai Chung, Hong Kong and then onward to the United States of America ("USA"). The Plaintiff relies on the Dock Receipt for its full terms and effect.

4. Further to and as part of the said agreement, it was specifically agreed between one Mr. Paul Lam of the Plaintiff and one Ms. Sandy Wong of the 1st Defendant on behalf of their respective companies over the telephone during the period from 14th December to 19th December 1995, that the 1st Defendant was responsible to collect and transport the Goods from Dongguan to a designated place in Hong Kong.

5. On or about 19th December 1995, the 1st Defendant retained and instructed the 2nd Defendant to haul and transport the Goods in a container from Dongguan to the designated place in Kwai Chung, Hong Kong.

6. By a drayage receipt dated 19 December 1995 (the "Drayage Receipt") issued by the 2nd Defendant, alternatively by the 2nd Defendant on behalf of the 1st Defendant, the 1st or 2nd Defendant acknowledged collection of the Goods from the company in Dongguan for export carriage. The Plaintiff relies on the Drayage Receipt for its full term and effect.

7. The Plaintiff was at all material times the owner of the Goods and was entitled to immediate possession thereof.

8. In the premises, the 1st and/or 2nd Defendants were carriers/bailees for reward of the Goods to deliver the same to the designated place in Hong Kong and then onward to the USA in the like good order and condition as when collected."

25. What is evident from these paragraphs is that the appellant was contending that they had entered into a contract of carriage with the respondent to transport the goods in question from China to Hong Kong and for them then to be transported to the United States, the respondent being "responsible to collect and transport the Goods from Dongguan to a designated place in Hong Kong".

26. The respondent had then made arrangements whereby they "retained and instructed the 2nd defendant" to collect the goods from China and transport them to Hong Kong where they would be delivered to the respondent who would arrange for the shipment to the United States. A receipt (the "Drayage Receipt") was issued, so it was alternatively alleged, "by the 2nd Defendant on behalf of the respondent".

27. Essential points to be noted were that on the case being pleaded by the appellant there was a bailment of the goods. The bailor was the appellant and the bailee the respondent. It was not a material issue that the bailment was a constructive bailment.

28. On this case, the respondent sub-bailed the goods to the 2nd Defendant.

29. Paragraphs 1538 and 1539 of Vol 2 of the 4th Edition of Halsbury's Laws of England set out in some detail the legal consequences flowing from the relationship of bailment being established.

30. Most important for the facts of this case, it is incumbent upon a bailee to account to the bailor for the goods in question and prove that he has exercised due care and diligence. The respondent has failed to do this.

31. It can also be said that the very fact that the respondent sub-bailed the goods to the 2nd defendant was consistent with their exercising the functions of a bailee.

32. It is now necessary to consider how this pleaded case was dealt with by the respondent.

33. The respondent denied there was any contract for reward requiring them to transport the goods from China to Hong Kong. They claimed that they were simply making arrangements for the goods to be transported directly by the 2nd defendant, on a gratuitous basis and without any legal liability.

34. This claim flies in the face of the available evidence. There is undisputed affidavit evidence which refers to the fact that there have been numerous previous transactions of a virtually identical nature between the parties and that the appellant paid substantial sums of money to the respondent for the services they performed in transporting goods from China to Hong Kong. The appellant submitted before us that it was not a "bona fide" defence. We are satisfied that the respondent's defence that there was no contract of bailment between themselves and the appellant is unbelievable.

35. We are also of the view that the facts of this case are readily distinguishable from those of Morel Brothers & Co. Ltd. v. Earl of Westmoreland [1904] AC 11 and Bonus Garment Co. v. Karl Rieker Gmbh & Co. and Anor. [1995] 3 HKC 721. In the present case on the above analysis different causes of action can readily be identified.

36. This brings us to Ground 3. As a consequence of Cheung J dealing with the matter in the way he did he did not deal with the very strong case made out by the appellant as to why they were entitled to have judgment entered in their favour.

37. For the reasons given we are satisfied that the respondent's defence to the appellant's claim is not bona fide. The appeal must be allowed. The appellant is entitled to summary judgment and damages must be assessed and we so order. We also make an order nisi that the appellant be entitled to its costs here and below.