QUALITEX INDUSTRIAL LTD. v. WARDS EXPRESS (HK) LTD.

1993, No.A2510

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. I do not really think I need trouble Mr Tsang, counsel for the plaintiff. If I may say so, the conduct of the proceedings by Mr Lam, counsel for the defendant, who could not have a more insupportable case ought to commend itself to counsel who happen to come into proceedings of like nature. I said I would reduce my extempore judgment into writing, and this I now do.

2. The claim by the plaintiff against the defendant is for return of the goods entrusted by the plaintiff to the defendant as a transportation company. The plaintiff claims that the defendant has failed to return the goods so entrusted to the plaintiff. In the prayer of the Statement of Claim against the defendant, the plaintiff claims against the defendant for the return of the goods or payment of their value in the sum of $119,600. The plaintiff further claims damages for breach of the contract for transportation with the defendant and/or duty on the part of the defendant as bailiee. The claim for damages for conversion is no longer proceeded with, nor, indeed, is the claim for an injunction, the plaintiff being apparently content with the value of the goods. On the same premise i.e. accepting the value of the goods, the declaration for an indemnity against the defendant is, I take it, no longer pursued. But obviously the plaintiff claims interest on the value of the goods as from the date of the writ together with costs.

3. At the beginning of 1993, the plaintiff instructed the defendant to transport some 20,000 pieces of T-shirts from Shenzhen to Hong Kong. The defendant was under instructions to carry the goods to Hong Kong, store the same, and to later re-deliver or forward the goods as per the plaintiff's further instructions. Mr Chan for the plaintiff gave evidence of an oral agreement with Miss Li to that effect. The defendant's former employee, Miss Irene Li, corroborated his evidence, in particular the agreed re-delivery at the request of the plaintiff at a later date. In effect, her evidence amounted to this : she agreed to the terms laid down by Mr Chan, that is to say, the goods so to be transported would later be shipped overseas for resale and the defendant would subsequently be given further delivery instructions after the deposit of the goods into a named warehouse of Messrs Tak Fu Printing and Dying Co. Ltd. Re-delivery from the warehouse on instructions was said to have been categorically agreed.

4. The defendant had a China Section which catered for transportation in and out of China. Mr Lai and Miss Irene Li were staff responsible for the activities in this China Section. Misunderstanding had arisen between Mr Lai and the defendant's management, resulting in the dismissal of Mr Lai on 18 February 1993 subsequent to the oral contract for transportation made between Mr Chan for the plaintiff and Miss Irene Li for the defendant. Miss Irene Li was also dismissed at the same time.

5. Mr Kan, a director of the defendant, came forward to give evidence so did Miss Lee, the then Executive and the present Director of the defendant. It would seem that both Mr Kan and Miss Lee felt aggrieved on account of some matters not canvassed in these proceedings. Certain evidence with reference to a conversation with Mr Lai could not be admitted before me if only for the very fact that Mr Lai was not called as a witness. Admission of such hearsay evidence was not even sought. Mr Kan and Miss Lee, both directors of the defendant, harboured grave suspicion, not only against Mr Lai but against Miss Irene Li and Mr Zhou of Tak Fu warehouse. These personalities had been suspected by the directors of the defendant to have been in league, to put it quite neutrally, to take unfair advantage, again to put it mildly, of the defendant. It was doubted whether Miss Irene Li did so agree with Mr Chan of the plaintiff on the latter of these terms I have just recounted. It was further doubted whether the three, Mr Lai, Mr Zhou and Miss Irene Li had together fabricated the additional term for re-delivery after the transportation of goods by the defendant from Shenzhen to Hong Kong. Complaint was also made by Mr Kan that certain documents including bills of lading in blank had been unlawfully left with the plaintiff. Mr Chan totally denied these allegations. Miss Irene Li and Mr Zhou testified that they acted independently.

6. The relationship between the defendant's management and Mr Lai has been, at least since the date of dismissal, an unhappy one. There are outstanding proceedings between Mr Lai and the defendant. But what cannot be readily understood is why the defendant's management would allow its suspicion to run as wild as it has. Counsel for the defendant suggests that as a disgruntled ex-employee, Miss Irene Li was deliberately going out of her way to lend weight to the alleged additional term of re-delivery of goods taken by thedefendant from Shenzhen to Hong Kong. It is common ground, however, that the defendant did take upon itself to transport and store the goods in question for the plaintiff. What is being disputed is the additional term of re-delivery on the further instructions of the plaintiff at a later date.

7. Quite clearly, Miss Irene Li was dismissed. She told the court that she knew not the reason for her dismissal. Nevertheless, she is indisputably a dismissed ex-employee of the defendant. As to the agreement to forward the goods as per instructions of the plaintiff at a later date, that condition was relied upon by the plaintiff from start to finish. It has been shown to my satisfaction that these goods were deposited in the name of the defendant. How then would it be possible for the plaintiff to obtain re-delivery from the godown without production of the warehouse receipt or the defendant's assistance? Upon learning of the dismissal of Mr Lai and Miss Irene Li, the plaintiff approached the defendant for its co-operation in the sought release of the said goods. It is inconceivable what advantage could be, in the circumstances, gained by fabricating a term to re-deliver at a later date upon instructions. With or without such alleged term, the defendant would still be needed for rendering its assistance to have these goods deposited in its name released. I simply cannot accept that there was any sense for this term to be viciously or falsely supported by Miss Irene Li after her dismissal. Had there been any misdoing in concert, these three parties could easily have caused the goods to be deposited outright in the name of the plaintiff so as to shut the defendant out altogether.

8. I prefer the evidence of Mr Chan and the evidence of Miss Irene Li on the orally agreed term to re-deliver goods at a later date upon further instructions. The defendant's resistence to the plaintiff's claim for return of the goods was motivated almost entirely by suspicion, and counsel sought to discredit Miss Irene Li and also Mr Chan, as well as Mr Zhou. Those attempts could be conveniently disposed of right away. What was said against Miss Irene Li was principally that she ought to have known that the defendant had other warehouses as the defendant's office was next to one warehouse it used. That was not put to Miss Irene Li in her cross-examination. Moreover, Miss Irene Li merely told the court that as far as the China Section was concerned, Tak Fu and, previously, other godowns were resorted to. She had no clear knowledge as to whether different sections in the defendant used other warehouses. Mr Zhou was sought to be discredited on his demand, at one time, for the personal signature or consent of Mr Lai before releasing the goods. Miss Lee, the director of the defendant, told the court that she spoke to Mr Zhou of Tak Fu on one occasion briefly, lasting less than five minutes. The conversation was in Shanghainese, a dialect which Miss Lee, the director of the defendant, was not fluent in but claimed to be able to understand. According to Mr Zhou, that was at the time when very confused information was being provided by the defendant. Allegations were then being made by the defendant about Mr Lai and it was impressed upon Mr Zhou by Mr Kan and Miss Lee of the defendant that release of the goods should not be made without their signatures. In response, at one time and once only, Mr Zhou suggested that for the dispute, it would be more prudent for Mr Lai's signature to be obtained as well. In the words of Mr Zhou, it would be better for all three signatures including Mr Lai's to be given for the release of the goods in question. Peripheral matters were sought to be made capital of as regards Mr Chan of the plaintiff. I do not really think any useful purpose could be served by going into them specifically. Suffice it for me to say that the credibility of all three : Mr Chan, Miss Irene Li and Mr Zhou, has not been affected by the lame attempts made on behalf of the defendant.

9. Transportation from Shenzhen to Hong Kong took place on 8 February 1993. Mr Lai and Miss Irene Li were both dismissed on 18 February 1993. It is not disputed that in the records of the warehouse, the 200 cartons of packages containing some 20,000 pieces of T-shirts have since remained stored with Tak Fu in the name of the defendant company. Tak Fu explained through Mr Zhou that in this case Acknowledgement Receipts in duplicate were issued to the defendant in the form of documents in Bundle A, pp 84 and 86. Mr Zhou elaborated that on the transportation documentation produced by the defendant, Tak Fu applied its chop to serve as an Acknowledgement Receipt. And in this case Acknowledgement Receipts in duplicate were given to the defendant on acceptance of the 200 packages of cartons of 20,000 T-shirts for storage. Mr Zhou further explained that for the loss or non-production of the original Acknowledgement Receipt as it was claimed in this case, Tak Fu would accept instead a letter from the plaintiff together with a letter from the defendant consenting to the release of the goods in their respective capacities of the entity to whom the receipt had been issued, and of one who Mr Zhou described as the "consignee" i.e. the true owner of the goods. The plaintiff had provided Tak Fu with such a letter. There was no question that if such a letter of the plaintiff needed to be further supplemented or complemented, the plaintiff would be all too willing to provide further documentation to the satisfaction of Mr Zhou. The problem lay in the attitude and the inaction on the part of the defendant. My attention has been drawn to no less than four Faxes transmitted to Mr Kan of the defendant, none of which drew a response. Mr Kan explained that he left the matter in the hands of Miss Lee, the then Executive of the defendant and that in any way, he was not imself always in the office. Miss Lee, the present director of the defendant, offered no explanation in the witness stand as to why none of those Faxes was replied to. Such conduct on the part of both directors of the defendant is good enough evidence for inferring that Mr Kan was, as claimed by Mr Chan of the plaintiff, avoiding him at the time. The Faxes I have referred to are dated respectively 5 March 1993, 6 March 1993, 8 March 1993 and 15 March 1993. In addition, the defendant caused to be written, through its then solicitors, to Tak Fu twice, once on 16 March 1993 and again on the 17 March 1993. The substance of both letters was to put Tak Fu on notice that it was the defendant's wish not to have the goods released without their consent and/or permission. Mr Kan of the defendant told the court that those letters were caused to be written for the purpose of preserving the defendant's interests in whatever unknown stored goods with the Tak Fu warehouse. It was, nevertheless, conceded that those letters covered at least five items of storage with Tak Fu all in the name of the defendant, one of which was in relation to the 200 packages or cartons of goods containing the 20,000 pieces of T-shirts in question.

10. As I have said, also not denied is the fact that the defendant caused to be collected from Shenzhen the said quantity of T-shirts from Profit Cargo Service Co. Ltd. and transported to Hong Kong for storage with Tak Fu. I find that Tak Fu issued Acknowledgement Receipts in duplicate in the manner described by Mr Zhou. The defendant does not have, and has not since Mr-Lai's dismissal had, any of these Acknowledgement Receipts. What efforts by which these receipts were said to have been looked for was not satisfactoril or at all explained in the course of these proceedings. There was no evidence of any or any thorough search. Mr Kan of the defendant knew not personally, first of all, whether there were any receipts issued at all and, if there had been, how it came about that they were missing or lost. I have found that receipts in the form as described by Mr Zhou were issued by Tak Fu to the defendant, evidencing storage of the 20,000 pieces of T-shirts in question in the name of the defendant. As a matter of fact, in the letter of 16 and 17 March 1993, the defendant's solicitors also informed Tak Fu that the defendant was aware of the storage of these goods in its name. Mr Kan explained to the court that at the beginning of 1994, he became suspicious as to whether or not the defendant's name was actually on the documents evidencing storage of the goods in question. Mr Kan told the court that he had not had the opportunity of discussing this suspicion of his with his own legal advisers. My finding is not only that Acknowledgement Receipts were duly issued by Tak Fu to the defendant, but that they were issued in the name of the defendant. Moreover, this had always been the understanding of the defendant, as well as that of the plaintiff, and that of Tak Fu warehouse. No action has since been taken on the suspicion allegedly held close to his chest, and Mr Kan himself did not elaborate the cause for his belated suspicion.

11. Throughout, with grave suspicion against Mr Lai, Miss Irene Li and also Mr Zhou of Tak Fu, the defendant was far from being co-operative. From a blank refusal to allow release of the goods at the beginning, they became more receptive to proposals in subsequent negotiations. The defendant even demanded at one time reimbursement of legal costs, which demand was not favourably received by the plaintiff.

12. By a letter dated 29 June 1993, through its present solicitors, the defendant wrote to Tak Fu in, inter alia, these terms :

"In order to put the matter beyond argument we are writing to put on record that as a bailiee having the custody of the goods, you are to take all reasonable steps to see to it that the goods are properly taken care of and disposed of, or returned to its true owner. If you are satisfied that the plaintiff is the owner of the goods, you are to act in accordance with its instruction. If you are in any doubt, you are to take the appropriate steps including taking out the interpleader application."

Evidently, that was not the sort of letter that Tak Fu Warehouse was seeking. Tak Fu would release the goods upon production of the original Acknowledgement Receipt. In case of loss, so it was claimed in this case by the defendant, then as a remedial measure for accommodating its client, Tak Fu would accept the defendant's unconditional letter together with the plaintiff's letter for the release of the goods in storage. The defendant's letter dated 29 June 1993 is certainly not an unconditional consent to releasing the goods by Tak Fu. Even during the course of these proceedings up to this very moment, the defendant has made no offer to provide the plaintiff with a letter acceptable by Tak Fu.

13. The defendant breached the transportation contract and the defendant has wrongfully detained the aforesaid 20,000 pieces of T-shirts. It was submitted on behalf of the defendant that the plaintiff should have gone to the market for replacement goods to satisfy its rospective purchaser, in particular Ecstasy Co. Ltd. However, the contention was abandoned virtually as soon as it was made. Mr Lam, counsel for the defendant, is fully conscious of the authority to the effect that no claimant would be obliged to dig into its pocket once again, for the second time, for cash to buy replacement goods for performing his own contract or securing a benefit in a favourable market.

14. As far as quantum is concerned, it is claimed that the plaintiff lost a profit of $50,400. I attach no importance to the plea that the plaintiff faced a claim from its sub-buyer. That is an allegation made on the pleading. The claim arose in this way : the plaintiff had a written contract for its acceptance from Ecstasy Co. Ltd. dated 10 March 1993 for delivery in Hong Kong of the 20,000 pieces of T-shirts by 16 March 1993. Mr Chan explained to the court that the plaintiff would not sign the contract of Ecstasy Co. Ltd. before it had secured the 20,000 pieces of T-shirts in question. It was certainly a prudent measure to be taken. However, Mr Lam is correct in his submission that the Ecstasy contract had yet to become binding. However, that is at least evidence of an opportunity there in the open. It was a contract ready for acceptance by the plaintiff. It is also evidence that the market value of the goods in around March 1993 was $170,000. The plaintiff could and would have made a profit of $50,400. The plaintiff was deprived by the defendant of the benefit of the open offer of Ecstasy or otherwise an opportunity of re-selling the same goods in the then available market.

15. I am satisfied and I hold that the defendant has sustained loss of profit in the sum of $50,400 which is the difference between the cost price of $119,600 and the then market price as reflected by the offer of Ecstasy Co. Ltd. in the sum of $170,000. In this sum of $50,400, I find that the plaintiff has suffered a loss.

16. The defendant has still made no effort to deliver the goods to the plaintiff. I do not accept that Tak Fu, through Mr Zhou or otherwise, has not been co-operative. It is understandable that Tak Fu found the unreasonable attitude of the defendant irritating, one of the directors of which had himself been in the cargo forwarding business for some 24 years. Mr Zhou recalled the incident with displeasure. Mr Kan of the defendant explained to the court that his activities had focused on air freight, but that could only be a lame excuse. No man in the forwarding business could fail to appreciate that production of the original Acknowledgement Receipt for the goods in question was a necessary step for their release. In the circumstances, the defendant must pay to the plaintiff the value of the goods in the sum of $119,600 together with the proven loss of profit in the sum of $50,400. The prayer for injunction as well as the prayer for the declaration would, by virtue of the award, be redundant. Judgment against the defendant would be in the total sum of $170,000 with interest thereon from the date of the writ to today, date of judgment, and subject to what counsel have to say, at 8% per annum. Again subject to what counsel have to say, since the claims of the plaintiff could hardly be resisted on the matters raised by the defendant, there is no earthly reason why the plaintiff should have been drawn through legal proceedings merely on suspicion, however grave the suspicion was. Counsel of the defendant virtually acknowledged that all would hinge upon the receipt, but the defendant was determined to push these proceedings to the bitter end for a meagre claim of $170,000. Subject to what counsel have to say, I propose to award costs of these proceedings against the defendant on a common fund basis.

(Submission on costs by Mr Lam)

17. I again do not think I need trouble Mr Tsang. For the defendant, Mr Lam submits that of the claims of the plaintiff, at least conversion has now been abandoned. It is not a question of an outright abandonment by the plaintiff. Mr-Tsang intimates that the plaintiff does not wish to proceed with conversion in legal arguments in view of the evidence verifying other concrete claims. It is permissible for Mr Lam to say that the judgment against the defendant is primarily founded on the finding by this court of its failure to do all reasonably required of it for the release the goods to the plaintiff. But the case of the plaintiff is that the defendant failed to re-deliver the goods as instructed, and that is what was advanced in the written statements for the defendant and its correspondence. The matters sought to be further elaborated for the benefit of the court took it no further. Long before the commencement of these proceedings, the defendant had been supplied with Tak Fu's storage records evidencing, inter alia, the eposit of the said goods in its name. Use of the defendant's name as depositor occurred also on other occasions, and such use had never been questioned except for Mr Kan's undisclosed personal doubt early this year. From first to last, none of the assertions could truly be expected to put the defence on its feet. Release of these goods must be authorised by the defendant by production of the original Acknowledgement Receipt or a letter in terms suggested by Tak Fu. The defendant's resistence to the claims of the plaintiff in this action was doomed to failure from the very beginning. The denial of the agreed condition to delivery at a later time on the instructions of the plaintiff is not even consistent with the tenor of the defendant's past communications with the plaintiff and Tak Fu. Moreover whether or not the defendant had agreed to deliver later as per the plaintiff's request, the defendant must at least cause to be released or diverted from itself goods stored in its name. Matters as to credibility were peripheral and insubstantial.

Circumstances are such that it would be unjust for the plaintiff not to have an almost total recompense in matters of costs by the defendant.

18. There is no submission made on the rate of interest. I therefore give judgment for the plaintiff against the defendant in the sum of $170,000 with interest thereon at 8% per annum from the date of the writ to today. The defendant is to pay costs of these proceedings, such costs to be taxed on a common fund basis.