XCHRX TANG PIU HUNG v. YEUNG CHU TANG AND ANOTHER

HCA 11477/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11477 OF 1999

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DECISION

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1. This is the Plaintiff's appeal from the decision of a master on an application for summary judgment. The master granted the Defendants leave to defend conditional upon payment into Court of $56,000.

Plaintiff

2. The Plaintiff is the liquidator of 2 companies, Hop Wing Holdings Ltd ("HWH") and Hop Wing Transportation Co Ltd. ("HWT"). Both companies went into liquidation pursuant to s.228A of the Companies Ordinance. Under s.228A(3)(a), the date of the liquidation is the date on which the statutory declaration referred to in s.228A(1) is delivered to the Companies Registry. In the present case, that was on 13 January 1999 (for both HWH and HWT).

The claims

3. The Plaintiff's claim as liquidator of HWH is for a sum of $197,200 being the invoiced amounts for work done and services rendered by HWH to the Defendants. HWH provided container services, which included providing facilities to store containers, renting out containers and unloading containers. The Defendants were its customers.

4. The Plaintiff's claim as liquidator of HWT is founded on the Defendants' failure to return 2 containers belonging to HWT. According to paragraph 3 of the Statement of Claim, on 30 November 1998 the Defendants agreed to rent the containers "through HWH" at $80 a day until their return to HWT. Paragraph 4 of the Statement of Claim pleads that the Defendants have failed to return the containers to HWT or to pay the rental to HWH (not HWT). The reliefs sought are for the return of the containers and damages (although it is not pleaded whether the damages are to sound in contract, or the tort of conversion or detinue) and rental at $80 a day from 1 December 1998 until return of the containers.

Defendants' case

5. In their Amended Defence, the Defendants admit the work done and services provided and the amounts invoiced by HWH. They also admit paragraph 3 of the Statement of Claim (i.e. their agreement on 30 November 1998 to rent the HWT containers) except for the rate of rental.

6. However, the Defendants seek to set off against their liability to HWH certain sums to which they say they are entitled.

7. First, the Defendants say that on the evening of 15 December 1998, they were informed by the staff of HWH that HWH's landlord would be entering upon HWH's depot the following day to levy execution. The next day the Defendants hurriedly retrieved the containers which they were storing with HWH and had them transported to other depots for storage. The Defendants say that this was unreasonably short notice given by HWH, and that they have suffered losses amounting to $29,240 as a result (the particular items are discussed in detail below).

8. Secondly, the Defendants say that on a few occasions before the winding-up, HWH had, after unloading some containers, failed to comply with the Defendants' instructions to return the containers to the shipping companies which owned them. The Defendants also allege that there had been overcharging by HWH for these containers. The expenses and overcharged sums are said to amount to a total of $105,148.

9. In relation to HWT's 2 containers, the Defendants say that they cannot return them to HWT as the containers have been confiscated by authorities on the Mainland. However the Defendants allege that there had been an agreement for compensation at $10,000 only.

Applicable principles

10. An appeal from a master to a judge is by way of rehearing, save that at the hearing of the appeal, the appellant starts.

11. The principles to be applied in an application for summary judgment are well known. The burden is on the defendant to show that there is an issue or question in dispute which ought to be tried, or that there ought for some other reason to be a trial. However, the defendant only needs to show that there is a fair probability of there being a bona fide defence (Supreme Court Practice 1999, Vol. 1 paragraph 14/4/9)

12. In a case where the defendant sets up a defence of set-off, it would be entitled to unconditional leave to defend up to the amount of the set-off claimed (SCP paragraph 14/4/14).

Allegation of short notice and expenses incurred due to removal

13. I deal first with this allegation. The Defendants' evidence is that late on 15 December 1998, they were informed by a member of staff of HWH that goods at the depot would be seized by HWH's landlord the next day, and they were asked to remove their containers urgently (Yeung Chu Tang, 1st affirmation, paragraph 11).

14. The Defendants hurriedly retrieved their containers the next day, and caused them to be transported to other replacement depots where they were stored.

15. The Defendants' case is that this was unreasonably short notice, because before the containers had been stored at HWH's depot, they had a "guarantee" from a director of HWH that the containers could be stored at its depot "for a long time". The Defendants derive from that an "understanding" that the containers could be stored at the depot until the date of unloading (Yeung, 3rd affirmation, paragraph 6).

16. The items of loss which the Defendants say they have suffered as a result of this "unreasonably short notice" can be summarized as follows :-

(1) Hanging fees and transportation charges between depots ... $15,300

(2) Differential due to the higher hanging fees charged by replacement depots ... $10,200

(3) Differential due to the higher storage charges charged by replacement depots ... $1,120

(4) Extra hanging fees charged by the other depots ... $2,620.

17. In my judgment, this ground of set-off is not arguable. Even if the information from HWH's staff was regarded as notice terminating HWH's storage services, it is not unreasonably short notice.

18. In considering what is reasonable notice, one has to see what is the duration of the contract. There was no fixed period agreed. Indeed it is the Defendants' own evidence that it was impossible to fix a period because shipping schedules were uncertain, and customers gave container service companies (such as HWH) "very short notice" before removing the containers from the depots. The Defendants accept that for this reason, storage was charged on a daily basis (Yeung, 3rd affirmation paragraphs 3-4).

19. This is significant because if one party to an agreement (the customer) needed only to give "very short" notice to terminate it and charges were made on a daily basis, one would expect the other party to the agreement (the depot) to have mutual rights (in the absence of evidence that two notice periods, one for one party and a different one for the other party, had been agreed).

20. The evidence of the Defendants does not show an arguable case that a different notice period for HWH had been agreed. The Defendants' evidence was only that a director of HWH had said that the containers could be stored "for a long time". Even assuming this to be true, this statement is far too vague to support an argument that HWH had disentitled itself from enjoying mutual contractual rights.

21. The Defendants have therefore failed to show an arguable case that HWH was in breach by giving unreasonably short notice for removal of their containers.

22. Further, the losses alleged by the Defendants were not caused by the short notice. It is clear from the nature of the expenses that they are expenses that would have had to be incurred even if HWH had given reasonable notice for the removal of the Defendants' containers from its depot.

23. Although there was evidence from the Defendants that the removal was hurriedly done, there was no evidence that these were charges for say, overtime work or additional labour. There was no evidence that if the Defendants had had more time, they would have been able to find alternative depots that would have charged less than the replacement depots to which the Defendants' containers were actually removed. The differential claimed are the differences between the replacement depots' charges and HWH's depot charges.

24. I find therefore that there is no arguable case of a breach on the ground of unreasonably short notice, and in any event, there is no arguable case that the expenses incurred by the Defendants resulted from such a breach so as to give rise to a set-off.

Losses due to HWH's delay or failure to return containers

25. I come next to the failure of HWH to return unloaded containers. The Defendants' evidence was that it was usual trade practice that after a container is unloaded, the container service company (such as HWH) would return the empty container to its owner, usually the shipping company. This is supported by the invoices exhibited on behalf of the Plaintiff which show charges levied by HWH for returning empty containers. The Defendants' evidence was that the empty container should be returned "forthwith", although depending on when the container had been picked up from the shipping company, there could still be some time left from a 14-21 day rent-free period. Thereafter, the shipping company would charge a daily detention fee (Yeung, 1st affirmation, paragraph 17). This evidence was not disputed by the Plaintiff.

26. The Defendants' claim for a set-off is due to HWH's failure to return promptly :-

(i) 2 containers of Maersk, for which the Defendants had to pay detention fees of $4,320 (excluding a separate sum of $250 which was not pursued at the hearing);

(ii) 1 container of Hanjin, for which the Defendants claim they had to pay detention charges of $6,900, depot charges of $3,230, transportation charges of $900 and fees for release of documents of $2,000. The Defendants also claim that as HWH had failed to return the container, it should not have invoiced them for $600 for returning the container (that being one of the invoices pleaded in the Statement of Claim);

(iii) 1 container of Hyaline, which is apparently still missing. The Defendants claim that they are liable to Hyaline for $82,598 for detention fees and that they have spent $4,000 in negotiations. Again, the Defendants also claim that as HWH had failed to return the container, it should not have invoiced them for $600 for returning the container (that being another of the invoices pleaded in the Statement of Claim).

27. These amounts (totalling $105,148) are, for present purposes, adequately supported by contemporaneous documents, mostly from third parties. There is only a bare denial of liability by the liquidator, who has not adduced any substantive evidence to challenge the Defendants' case on this aspect.

28. However Mr Pirie, counsel for the liquidator, has submitted that a set-off should only be allowed for the period up to the date of liquidation (13 January 1999). For detention and other charges relating to the return of the containers after that date, he says, the Defendants should be left to prove in the liquidation like other unsecured creditors because the contract between HWH and the Defendants terminated upon HWH's liquidation.

29. I am satisfied that the Defendants have at least an arguable case for setting-off the entire amount of damages resulting from HWH's breach of contract because HWH's contractual obligation to return the containers accrued before the winding-up. Mr Surman has referred me to the law as stated in the following cases, which Mr Pirie did not challenge.

30. In Hiley v The Peoples Prudential Assurance Co Ltd (1938) 60 CLR 468, 496-7, Dixon J held that it was enough for set-off that at the commencement of the winding-up (in this case, 13 January 1999), mutual dealings existed which involved rights and obligations, whether absolute or contingent, of such a nature that afterwards, in the events that happened, they matured or developed into pecuniary demands capable of set-off. No more was required than that at the commencement of the winding-up, liabilities should have been contracted by the company and the other party respectively from which cross money claims accrued during the course of the winding-up.

31. In Re Charge Card Services Ltd [1986] 3 All ER 289, Millett J emphasized that what was required for a set-off was only that the contract should have been entered into before the receiving order, of which contract the company assumed liability for breaches.

32. These cases had been followed by Jones J in Re First Bangkok City Finance Ltd [1994] 2 HKC 735.

33. By reason of the above, I am satisfied that the Defendants have at least an arguable case for the set-off of $105,148 because HWH's liability to return the containers had arisen before it went into liquidation.

Loss of HWT's containers

34. Finally I deal with HWT's containers. As noted above, the position with these containers is, as pleaded by the Plaintiff (and admitted in the Amended Defence), that they belonged to HWT but were rented out to the Defendants by HWH, to whom the Defendants had to pay rent.

35. The Defendants' allegation is that they had told HWH in October 1998 that the containers were lost, and that there was "finally" an agreement with "the Plaintiff" that the Defendants would buy these containers for $10,000 and no rental would be charged. The Defendants' case was a defence of compromise on those alleged terms (Yeung, 1st affirmation, paragraph 28).

36. The Defendants have not condescended to particulars as to when the agreement took place (save that it was after October 1998), nor whether the agreement was made with the management of HWH (before it went into liquidation) or with the liquidator.

37. A contemporaneous document points against an agreement with the management before the liquidation. In a letter dated 25 May 1999 from the Defendants to the liquidator (Tang Piu Hung, 1st affirmation, exh "TPH-2"), the Defendants state that they "hope" that the liquidator would permit them to pay $10,000 for the absolute purchase of the 2 containers and would not charge rental for them, and they ask for the liquidator's acceptance of the proposal. The Defendants never asserted any prior agreement with the management.

38. There is no allegation that the liquidator himself had made such an agreement. As the liquidator is a certified public accountant appointed as a liquidator in his professional capacity, it would be unlikely that any such agreement would not have been reduced into writing, whether by way of minutes of a meeting or a letter, since HWH's printed terms state that the compensation for the loss of a 40 ft container was $35,000.

39. The Defendants rely on the letter of demand dated 3 July 1999 from the solicitors instructed by the Plaintiff in his capacity as liquidator of HWH which was for the sum of $207,760. The Defendants say that as the present claim of HWH was for $197,200, the difference of $10,560 must have represented the agreed compensation for the HWT containers.

40. In my view, that is not enough even for a triable issue. It is clear from the caption of the letter and from the 1st paragraph that the letter was being written on behalf of HWH only. No reference to HWT was made anywhere in the letter. As for the amount demanded, there was no break-down, and the Defendants have not adduced any evidence of any previous break-down showing an amount of $10,000 agreed as compensation for HWT's containers.

41. I find therefore that there was no compromise as alleged. As far as relief is concerned, HWT has in the Order 14 summons claimed the return of the containers but not damages. HWH has claimed rental from 1 December 1998 up to the date of return. It has not been submitted by the Defendants' counsel that there is any inconsistency in these reliefs.

Order

42. In the light of the matters set out above, I would set aside the master's order and give judgment to the Plaintiff as liquidator for HWH in the sum of $92,052 (i.e. that the Defendants would have unconditional leave to defend up to the sum of $105,148 being the amount of the set-off) with interest at the commercial rate of prime + 1% from date of writ to date of judgment, and thereafter at judgment rate until date of payment.

43. I would also make an order in terms of paragraphs (b) and (c) of the Order 14 Summons, and I would make an order nisi that the costs follow the event, i.e. that the costs of the appeal be to the Plaintiff. Whilst it is correct that the Defendants have been given unconditional leave to defend as far as the sums set-off are concerned, the Plaintiff has succeeded in getting judgment for $92,052 when under the master's order, he was not given judgment in any amount, and the appeal had been resisted by the Defendants in its entirety.

44. As for the costs below, the master had ordered that the costs of the application be costs in the cause with certificate for counsel. That is an appropriate order where there is judgment for part of the claim and I would therefore not set aside that order.