NANTONG ANGANG GARMENTS CO LTD v. HELLMANN INTERNATIONAL FORWARDERS LTD

CACV 106/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 106 OF 2011

(ON APPEAL FROM HCCL NO. 117 OF 1994)

_____________

_______________

JUDGMENT

_______________

Hon Tang VP (giving the judgment of the Court):

1. Hellmann International Forwarders Ltd ("Hellmann"), the Defendant, are international air carriers. The Plaintiff, Nantong Angang Garments Co Ltd ("Nantong") were the consignors of 903 cartons of garments ("the garments"). Hellmann issued 2 sets of house airway bills ("HAWBs") for carriage of the garments to the United States of America.

2. However, unbeknown to the Plaintiff, the Defendant acting at the request of the 1^st and/or 2^nd Third Parties, caused the garments to be air-freighted to Hong Kong and issued 2 parallel sets of HAWBs ("the Silking HAWBs") for the purpose.  The garments were subsequently released to the Third Parties in Hong Kong.

3. In 1994 the Plaintiff sued the Defendant in this action.  Hellmann defended the claim and at the same commenced third party proceedings against the Third Parties.  The Defendant's claim against the Third Parties was based on a letter of indemnity which reads:

"In refer to your letter dated March 01, 94.  Contents is clearly noted.

As an agent act for Lerner, we were instructed that the ... shipment [of 903 cartons] should be routed via HKG and not direct fly to Columbus.

Due to the above said route changed.  We hereby confirm to you that we will undertake and agree to bear full responsibilities/ liabilities whatsoever directly or indirectly arising from or relating to the said route change."

4. On 20 November 2002 the Plaintiff obtained judgment in the sum of US$370,000 inclusive of costs and interest in favour of the Plaintiff against the Defendant by consent.  For reasons which we have explained in our reasons for judgment dated 10 May 2012, the Third Party proceedings eventually came to re-trial before Reyes J in May 2011.  Reyes J found in favour of Hellmann against the Third Parties.  At trial quantum was in issue, but the Third Parties only succeeded to the extent that they were ordered to pay the Defendant the sum of US$369,700 instead of US$370,000 because only 902 cartons had arrived in Hong Kong, 1 carton was missing and was never delivered under the Silking HAWBs.

5. The Third Parties' appeal to us was dismissed by us on 27 April 2012.

6. This is the 2^nd Third Party's application for leave to appeal to the Court of Final Appeal on the basis that they are entitled to appeal as of right, because the judgment against them was in respect of a liquidated claim in excess of HK$1,000,000.

7. In Richfine Development Ltd v. Hugh Rupert Rivington CACV 257/2008 (unreported, dated 22 June 2009) this Court (differently constituted) said:

"7.  The plaintiff’s claim was a claim for breach of contract and an unliquidated claim.  As Sir John Donaldson MR said in Edmunds v Lloyd Italico S.p.A. (C.A.) [1986] 1 WLR 492 at 493:

  'One might well think that a sum due under an insurance policy constituted a debt. On this assumption, the plaintiff’s solicitors were entitled to appropriate the drafts to the principal sums due, since otherwise they would have been deemed to have been appropriated to the payment of interest, the balance only being appropriated to the payment of the principal amounts: see Chitty on Contracts, 25th ed. (1983), para 1424. However, as a matter of law, a claim under a contract of insurance is a claim for damages for breach of contract: Luckie v. Bushby (1853) 13 C.B. 864, 879, per Jervis C.J., and Chandris v. Argo Insurance Co. Ltd. [1963] 2 Lloyd’s Rep. 65.'

8.  Thus,

'… Claims for losses under an indemnity insurance policy are generally unliquidated claims and hence would not be eligible for independent set-off. This is so even if there is a total loss. …' See English and International Set-off by Philip Wood at para. 2-108."

8. Richfine's application to the Court of Final Appeal for leave to appeal in FAMV 41/2009 (unreported, dated 21 September 2009) was dismissed.  Bokhary PJ, for the Appeal Committee, said:

"Clearly the claim is unliquidated. …"

9. Further support can be found in what Lord Goff of Chieveley said in Firma C-Trade SA v Newcastle Protection and Indemnity Association and Ors [1991] 2 AC 1 at page 35:

"… I accept that, at common law, a contract of indemnity gives rise to an action for unliquidated damages, arising from the failure of the indemnifier to prevent the indemnified person from suffering damage, for example, by having to pay a third party. I also accept that, at common law, the cause of action does not (unless the contract provides otherwise) arise until the indemnified person can show actual loss: see Collinge v. Heywood (1839) 9 Ad. & E. 633. This is, as I understand it, because a promise of indemnity is simply a promise to hold the indemnified person harmless against a specified loss or expense. On this basis, no debt can arise before the loss is suffered or the expense incurred; however, once the loss is suffered or the expense incurred, the indemnifier is in breach of contract for having failed to hold the indemnified person harmless against the relevant loss or expense …"

10. Mr Sussex, SC (for the 2^nd Third Party) relied on the following passages in English and International Set-Off by Philip R Wood,

" 2-112  Guarantees and indemnities  Claims under guarantees and indemnities may be liquidated or unliquidated.

The result of the cases seems to be that, if the guarantor guarantees a liquidated sum payable by the principal debtor, the guarantor's liability is liquidated, but not if the guarantee is of an unliquidated amount.  Thus if the guarantee is for a specified liquidated sum, such as a loan plus interest and the creditor demands payment of the loan plus a stated amount of interest, this is liquidated.  But if the guarantee is one of indemnity against loss, e.g. for breach of contract by the principal debtor, then this is generally an unliquidated claim.  Some of the distinctions in the old cases on the Statutes of Set-off are highly technical and may merit reconsideration.

2-113  A claim for indemnity is generally unliquidated.

In Attwooll v. Attwooll (1853) 2 E. & B. 23, the plaintiff sold his shares in a ship to the defendant and agreed to indemnify the plaintiff against debts in respect of the vessel.  The plaintiff had to pay a debt of £10, and claimed the amount of his penal indemnity bond -- £100.  The defendant claimed that the plaintiff owed him a liquidated sum on bills of exchange and for moneys lent.  Held: no set-off.  The bond was to indemnify generally and not merely to indemnify against liquidated demands.  Accordingly the indemnity was an unliquidated claim.  See also Crawford v. Stirling (1802) 4 Sep. 207.

2-114  But even an indemnity claim may be liquidated if it is for a fixed sum.

In Hutchinson v. Sidney (1854) 10 Ex. Ch. 438, the plaintiff requested the defendant to become director of a company and agreed: 'to guarantee, indemnify and save you harmless from and against losses, costs, charges, damages and expenses which you may bear, incur, sustain, or be put to by reason thereof or on account of your acting as such director.'  The defendant incurred travelling expenses as a director.  The plaintiff sued the defendant on bills of exchange and the defendant sought to set off his claim for the travelling expenses payable by the plaintiff under the guarantee.  Held: the claim for expenses was liquidated and available for set-off.  Pollock C.B. said that the contract was to indemnify the defendant for his travelling expenses by repayment.  In other words, the court treated the claim as liquidated.  An obviously sensible result."

11. In Hutchinson v Sidney, the judgment of the court given by Pollock CB (with the concurrence of Alderson B and Platt B) was brief.  He said:

"At the trial, I doubted whether this agreement was not a mere undertaking to indemnify, upon which the defendant ought to bring a special action for the breach of that contract; but I am satisfied, that, under the terms of it, the defendant might maintain an action for money paid and is therefore entitled to set off his claim."

12. With respect, we agree with the comment in English and International Set-Off that the result in Hutchinson v Sidney is obviously sensible and that:

"… Some of the distinctions in the old cases on the Statutes of Set-off are highly technical and may merit reconsideration."

13. In any event, there is nothing in the letter of indemnity which distinguishes it from the ordinary run of cases on insurance and indemnity, such that that a claim under the letter of indemnity is a claim for an unliquidated sum.

14. That being the case, we refuse leave to appeal with costs.