WORLDTRANS AIR SEA SERVICE LTD v. NNR GLOBAL LOGISTICS (HK) LTD

DCCJ 4122 / 2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4122 OF 2008

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JUDGMENT

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Introduction

1.  This is a dispute between two freight forwarders. The Plaintiff is a freight forwarder and in their air freight forwarding business, they are an agent of Singapore Airlines (“SQ”). Like the Plaintiff, the Defendant also engages in air freight forwarding business in Hong Kong.

2.  The Plaintiff claims against the Defendant for the sum of HK$745,119.20 being the alleged agreed dead freight charges incurred in relation to cargo forwarded by the Plaintiff for the Defendant on SQ’s flight SQ857 from Hong Kong to Singapore during April to June 2007.

Issues in this case

3.  During the course of the trial, there were disputes between the parties as to whether the Defendant should be allowed to raise issues which have not been specifically pleaded.  I shall deal with the disputes in this judgment. Despite the disputes, the issues to be determined by me can be summarised as follows :

(1) Whether there was an agreement between the Plaintiff and the Defendant in relation to the carriage of goods on an early flight from Hong Kong to Singapore on SQ’s flight SQ857;

(2) If there was an agreement, what were the terms of the agreement;

(3) Whether the agreement, if established, was terminated by an email from the Defendant to the Plaintiff on 30 May 2007; and

(4) Assuming that there was an agreement between the parties and the Defendant had breached its terms, what were the damages suffered by the Plaintiff.

Witnesses in this case

4.  The Plaintiff called three witnesses at trial and they all adopted their witness statements filed herein as evidence in chief and had been cross-examined :

(1) Ng Kwok Fai (“Ng”), the Airfreight Director of the Plaintiff;

(2) Lee Yui Fun Joseph (“Lee”), the Airfreight General Manager of the Plaintiff; and

(3) Choi Wai Chun, (“Choi”) who is a director of the Plaintiff.

5.  Ng, who is also known as Tonie Ng, was the main witness of the Plaintiff in this case. He is the one who allegedly entered into the oral agreement on behalf of the Plaintiff with the former General Manager of the Defendant, William Lam (“Lam”).

6.  Lee had previously been employed by SQ from April 1982 to November 2008 and his last position was Senior Sales Representative. He resigned from SQ in November 2008, then worked briefly for another freight forwarder company as an Air Freight Manager before joining the Plaintiff in March 2009 as Airfreight General Manager.

7.  Choi also worked for SQ from 1989 to 2007 with his last position as Sales Manager. He left SQ in early 2007.  He then worked for another company before joining the Plaintiff in May 2008.

8.  Although Lee and Choi are currently employed by the Plaintiff, they gave evidence in relation to the periods when they were working in SQ.  In other words, they testified on matters from the point of view of SQ.

9.  The Defendant called 2 witnesses namely:

(1) Awane Yasuo (“Awane”), the Managing Director of the Defendant; and

(2) Pang Chong Lun Roger (“Pang”), the Operations Manager of the Defendant.

Both of them adopted their witness statements in this case as evidence in chief and they were cross-examined by the Plaintiff’s counsel.

Whether there was any agreement between the parties

10.  The Plaintiff’s case is that there was an oral agreement made between Ng for the Plaintiff and Lam for the Defendant over lunch at the Hon Po Group of Restaurant in the Hong Kong Scout Centre at No. 8 Austin Road in or about late December 2004. It was agreed that :

(1) the Plaintiff would allot to the Defendant an airfreight carriage capacity for daily flight from Hong Kong to Singapore at a costs;

(2) the Defendant would supply cargo to the Plaintiff to fulfil the agreed capacity; and

(3) in the event that the Defendant failed to fulfil the agreed capacity, the Defendant would still be obliged to pay the Plaintiff freight charges for the unoccupied capacity. The Plaintiff alleged that in the airfreight industry, such charges for the unoccupied capacity are known as “dead freight charges”.

11.  In relation to the agreed capacity and the rates that applied, the Plaintiff relied on various emails between 23 December 2004 and 2 February 2007.  For the period in dispute, the applicable agreed capacity allotted for SQ 857 was 2,200 kilograms at HK$8.80 per kilogram.  The 2,200 kilograms capacity consisted of a pallet space of 1,600 kilograms and a container space of 600 kilograms. 

12.  The Plaintiff claims that between 30 April to 20 June 2007, the Defendant had failed to use up the agreed capacity and by 19 invoices issued to the Defendant, the Plaintiff claimed the amount of the unoccupied capacity based on the agreed rates. Such sum amounted to HK$745,119.20. 

13.  Ng’s evidence was that Lam knew that the Plaintiff had good business relationship with SQ and thus Ng was asked by Lam if it was possible for the Defendant to secure daily airfreight space on SQ857 which was the 10.30am flight from Hong Kong to Singapore. Having made preliminary enquiries with SQ that it was possible to meet the Defendant’s request, Ng and Lam met over lunch in late December 2004 to talk about the details.

14.  At lunch, Lam told Ng that the Defendant had to secure allotment of air freight space on SQ857 to carry the loads of their valued customers, Motorola Group, from Hong Kong to Singapore. Lam said the allotment was required on a daily and continuous basis. Lam’s request was accepted by Ng and it was agreed between the parties that the Plaintiff would allot the minimum capacity of 2,100 kilograms on SQ857 at HK$9.5 per kilograms consisting of one container of at least 500 kilograms of freight and one pallet of at least 1,600 kilograms of freight.

15.  It was also agreed between Lam and Ng that the allotment to be provided by the Plaintiff to the Defendant would be subject to dead freight charges, namely, if the Defendant failed to supply a minimum weight of freight on any particular day, the Defendant would be required to pay the Plaintiff the agreed costs for the unoccupied capacity.

16.  Ng said shortly after the lunch meeting, Lam confirmed that the agreement would take effect on 1 January 2005 and Lam then secured the necessary capacity on SQ 857 from SQ.

17.  According to Ng, since the commencement of the oral agreement on 1 January 2005, the parties had made minor variations as to the rate and minimum capacity requirement. The rate had reduced from HK$9.50 to HK$9 and finally in about February 2007 to HK$8.80. As to the minimum capacity, it was increased from 2,100 kilograms to 2,200 kilograms (reflected in the increase in the minimum weight of freight for a container space from 500 kilograms to 600 kilograms). 

18.  Ng explained that it was very important for the Defendant to secure airfreight space on the early flight SQ 857 so that the cargo of the Defendant’s customer would be delivered to its destination in Singapore on the same day.  SQ 857 was the second cargo- passenger flight of SQ from Hong Kong to Singapore and it was one that would allow a top agent like the Plaintiff to obtain competitive and cheaper rates as compared to SQ’s earliest cargo flight for the same route.  However, the Defendant was not (and had never been) an appointed agent of SQ. As such, the Defendant could not book the cargo directly with SQ.  Also, unlike the Plaintiff who had been a top sales agent of SQ, the Defendant was not able to secure allotment of cargo space on a daily basis on SQ857 and at a competitive rate.  In summary, Ng’s evidence is that there was good commercial reasons for the oral agreement under which the Defendant agreed to pay dead freight charges if they could not fulfil the daily agreed cargo capacity on the valuable flight SQ 857.          

19.  The Plaintiff also relied on the evidence that the Plaintiff had invoiced the Defendant for the dead freight charges on numerous occasions between 2005 to 2007 pursuant to the Agreement and the Defendant had paid such charges.  On the contrary, there was no contemporaneous evidence from the Defendant which denied liability to pay dead freight charges under those invoices.

20.  On the other hand, the Defendant was not able to adduce first hand evidence to dispute the existence of the oral agreement. Both of the Defendant’s witnesses, Awane and Pang, were not privy to the oral agreement. Lam had retired and left the employment of the Defendant on good terms.  Although Awane had visited Lam to obtain a witness statement from him, Lam did not sign any statement.  The Plaintiff had invited me to draw adverse inference from the fact that Lam had left the Defendant on good terms and he refused to sign a witness statement, it is because he agreed with the Plaintiff that the oral agreement existed and thus he refused to say otherwise in this Court.

21.  On the first day of trial, Mr. Pao informed the Court that had the Defendant failed to secure Lam’s attendance at the trial by serving on him a Writ of Subpoena Ad Testificandum (“Subpoena”), the Plaintiff would invite the Court to draw the appropriate adverse inference. Despite the issue of the Subpoena in March 2010, no affidavit was filed by the Defendant to inform the Court if they had successfully served the Subpoena and if not explain the reasons why they had failed to do so.  It was only after the Plaintiff had invited the Court to draw adverse inference on the non attendance of Lam and only on the 3^rd day of the trial that the Defendant filed and served the Affidavit of Frank Niam Lee from Fred Kan & Co, the Defendant’s solicitors, to explain the efforts made in serving the Subpoena.

22.  According to Mr. Lee’s Affidavit, the third and last attempt to serve the Subpoena on Lam was on 13 May 2010.  That gave the Defendant one and a half month to prepare the affidavit to explain the failed attempt to serve the Subpoena. Nevertheless, the Defendant has failed to do so until the 3^rd day of the trial.  Having said that,  I have looked at what was put to me on oath by the Defendant’s solicitor as to the effort in serving the Subpoena on Lam and having considered the evidence of the case, I am not inclined to draw the adverse inference as suggested by the Plaintiff.

23.  The position remained, namely, Ng’s evidence that there was an oral agreement, was not challenged by any first hand evidence.

24.  In the Defendant’s Re-Amended Defence, the Defendant alleged, inter alia, that on 133 days between 1 January 2005 to 31 March 2007, there were numerous dates on which the weight of the cargo sent to Singapore by the Defendant on SQ’s flight was less than the agreed capacity, yet the Plaintiff did not invoice and the Defendant did not pay any dead freight charges.

25.  Much time was spent during the trial on this allegation. After extensive submissions and attempts made by the parties to explain what happened on those 133 days, my findings are set out below :

(1) 26 Items, namely item numbers 18, 37, 39, 47, 49, 50, 52, 55, 57, 60, 64, 66, 67, 69, 70, 77, 78 79 84, 89, 94, 98, 99, 109, 118 and 133 : On those dates, the Defendant had shortfall in the cargo forwarded and the agreed capacity allotted to the Defendant. Under those cases, the Defendant had been invoiced by the Plaintiff for dead freight charges and they had paid for such charges;

(2) 46 Items, namely item numbers 38, 40, 41, 42, 44, 53, 56, 58, 59, 61, 62, 63, 65, 68, 71 to 76, 80 to 83, 85 to 88, 90, 92, 93, 95 to 97 , 100, 101, 104, 112, 113, 116, 117 , 119 to 123 : On those dates, there was no shortfall between the cargo forwarded and the agreed capacity allotted to the Defendant. Under those cases, there was no question of dead freight charges;

(3) 16 items, namely item numbers 1 to 7, 19 to 24, 26, 27 and 111 : the Defendant confirmed during the trial that they longer relied on those items;

(4) 4 items, namely item numbers 32 to 35 : the Defendant did not put these items to the Plaintiff’s witness and I take it that they are not taking issue on them.  I note from the document produced by the Defendant at B/170, it did not appear that on those dates there were any shortfall in the air freight; 

(5) 22 Items, namely item numbers 8 to 17, 106 to 108 and 124 to 132 : Those are the periods during the Chinese New Year holidays when the Plaintiff agreed to accept the Defendant’s cancellation of the air freight. For example, in an email dated 2 February 2005 from Ng to Lam confirming the cancellation for the Chinese New Year holiday, Ng confirmed that no dead freight would be charged to the Defendant’s account.

(6) 7 items, namely item numbers 43, 45, 46, 51, 91, 102 and 105 : there were only a small shortfall from the agreed capacity allotted to the Defendant;

(7) Under item 54, no document showing that there was any shipment or dead freight charges were paid by the Defendant;

(8) For item 110, Mr. Pau informed the Court during the closing submission that there were 3 invoices totaling 3,205 kg were sent on that day and thus there was no shortfall. However, no evidence was produced in support of the submission;

(9)        For items 48, 1,815 kilograms of cargo loaded on one pallet was sent on SQ 857 on 6 June 2005. For item 103, a total of 1,700 kilograms of cargo loaded on one pallet was sent by air freight on SQ857 on 18 November 2005.  For item 115, 1,650 kilograms of cargo loaded on one pallet was sent by air freight on SQ857 on 30 September 2006.  On those days, the Defendant had satisfied the requirement for a pallet of a minimum weight of 1,600 kilograms.  No document was produced to show if cargo was loaded to any container on that day and if so the weight of the cargo. It could be the case where no cargo was shipped, or cargo was shipped but the relevant documents were not produced or there was agreement between the parties varying the requirements; and   

(10) For item 114, 1,535 kilograms of cargo loaded on one pallet was sent by air freight on SQ857 on 26 September 2006 but the Defendant was only charged for the pivot weight of 1,600 kilograms.

26.  The only remaining items are 25, 28 to 31 and 36 which related to transactions between 25 February 2005 to 28 April 2005. The Plaintiff was unable to assist the Court on these transactions For items 25 and 28 to 30, the Defendant sought to rely on the documents to show that on those dates, although there were shortfall in the air freight, no dead freight charges were paid by the Defendant. When those documents were put to Ng, Ng was unable to give any assistance as the documents the Defendant relied on were only disclosed on 25 June 2010, which was the Friday before the trial began on Monday 28 June 2010 and the Plaintiff had no opportunity to find if there are any other relevant documents. Another difficulty that the Plaintiff had was that the relevant documents dated before April 2005 had been put away by the Plaintiff and were not readily available to them.  All these matters should be taken into account in weighing the evidence produced in this case.

27.  In relation to item 36, it appears from the Defendant’s internal record that there was no cargo sent on 28 April 2005 and no dead freight charge was paid by the Defendant. For the last item number 31, similar allegation was put to Ng that there was no air freight sent on 17 April 2005. In response, Ng said that according to the internal document of the Defendant at B/170, he noted that on 15 April 2005, 10,530 kilograms of cargo were forwarded by the Plaintiff for the Defendant. This was well above the daily agreed capacity of 2,100 kilograms. The cargo was shipped on a SQ flight other than SQ857 which suggested that they were able to deliver the cargo to Singapore earlier and thus no cargo was sent on 17 April 2005.

28.  The Plaintiff, through Ng’s 1^st and 2^nd Supplemental witness statements, had provided evidence showing that on about 40 days, the Plaintiff had invoiced and the Defendant had paid dead freight charges.  This included 17 days between April to July 2007, which was the same period during which the 19 invoices issued by the Plaintiff were claimed in this action.  These evidence was not challenged by the Defendant.

29.  It was clear that in many cases where it can be shown by contemporaneous documents, the Defendant had been charged dead freight charges according to the minimum capacity and the rates the parties had agreed.  Although in some cases there appears to be no evidence to suggest that dead freight charges were made, the evidence are not strong enough to negate the clear and unequivocal evidence of the payment of dead freight charges. Furthermore :

(1) It was the Defendant who made the allegation in their Re-amended Defence that there were numerous dates on which the weight of cargo sent to Singapore by the Defendant was less than the agreed capacity under the alleged oral agreement and yet no invoice for dead freight charges was raised by the Plaintiff and at a result no payment was made by the Defendant. The Defendant relied on 133 days or items in support of their allegation;

(2) The burden of proving this allegation must be on the Defendant. However, the position of the Defendant on those 133 items kept changing throughout the trial.  Having spent a lot of time during the trial to go through those items, I found that most of the items did not support the Defendant’s allegations. On the contrary, on 26 out of the 133 days, the documents showed that the Defendant had been invoiced for dead freight charges in accordance with the alleged agreement by the Plaintiff and the Defendant did pay for such charges;  

(3) I accept Ng’s evidence to the effect that the oral agreement was never put in formal written agreement as the parties had been operated on the basis of trust and the agreement had been carried out on a daily basis over a long period of time. I also accept Ng’s evidence that in their industry where players often have to race against time, it is not practical to reduce every variation in writing. Also there ought to be a high degree of flexibility in dealing with the amount of cargo that had to be sent by air freight on a daily basis; and

(4) There is no evidence to suggest that the Defendant had ever objected to the payment of the dead freight charges which happened on many occasions during the business dealings between the parties between 2005 to 2007. For example, in three emails dated 31 March 2006, 15 August 2006 and 2 February 2007 from the Plaintiff to the Defendant, it was specifically stated that the past allotment on the daily flight SQ 857 remained unchanged. Also, the allotment would be based on dead freight as pivot, and the pivot being the minimum weight of 1,600 kilograms for a pallet and 600 kilograms for a container. If there was such a serious objection by the Defendant to the payment of dead freight charges, why was there an absent of any complaint or objection by the Defendant?

30.  Although there are certain dates where it appears that the Defendant did not meet the daily agreed capacity and no dead freight charges were paid by the Defendant, I am satisfied, on a balance of probability, that based on the evidence before me, the parties were conducting their business in accordance with the terms of the oral agreement alleged by the Plaintiff. Furthermore, where the Defendant failed to fulfil the agreed capacity, the Defendant was charged and had paid the Plaintiff freight charges for the unoccupied capacity. 

31.  I also found Ng to be a credible witness having considered his testimony and  observed his demeanour when he was cross-examined by the Defendant’s counsel, Mr. Surman. I accept the evidence of the Plaintiff’s witnesses that SQ 857 was a valuable flight and there was good commercial reason for the Defendant to agree to pay dead freight charges to the Plaintiff in order to secure the cargo space on SQ 857 on a daily and continuous basis. The Defendant had to fulfil the request of their important client, Motorola, to send the “hot shot” items, being electronic components, to Singapore as soon as possible and on a daily basis. SQ 857 was able to meet the needs of the Defendant as the goods sent would be able to clear customs on the same day.  The Defendant’s witness, Awane, also accepted that it was important for the Defendant to secure a fixed daily allotment on SQ 857 to Singapore. 

32.  It is not disputed by the Defendant that imposition of dead freight charges was not uncommon in the air freight industry. I also find, having heard the evidence that there were commercial reasons to impose the dead freight charges on the Defendant, for example, to deter any short shipments or no show by the Defendant which would have affected the Plaintiff’s relationship and records with SQ which would in turn had an impact on their status as SQ’s top agent and their ability to secure space allotment at a preferential rate.

33.  Although I decided not to draw adverse inference against the failure by the Defendant to secure Lam to give evidence at the trial, the fact that Lam did not give evidence and the other witnesses of the Defendant could not testify to the oral agreement, means that Ng’s evidence on the oral agreement remained unchallenged.

34.  During the trial, the Defendant sought to argue that the Plaintiff was merely an agent of SQ and thus challenge the capacity of the Plaintiff in commencing the present proceedings. The matter was argued at great length by Mr. Surman in his closing submission and it was the main submission against the alleged oral agreement.

35.  During the course of the trial, no allegation was made by the Defendant and there was no evidence to suggest that the Plaintiff had ever failed to provide the agreed capacity or allotment on SQ 857 to the Defendant.

36.  Despite the skilful way Mr. Surman sought to put the matter, there is simply no merit in it. First, this does not even form part of the Defendant’s pleaded case. Although the word “agent” was often used to describe the Plaintiff’s relationship with SQ, no attempt was made by the Defendant to amend its pleading to argue this point.

37.  In any event, the evidence does not support an allegation that the Plaintiff was entering into the agreement with the Defendant as SQ’s agent. The Plaintiff was an agent of SQ who can accept air freight business from customers who want to send their goods by air freight from Hong Kong to other places including Singapore.  The Defendant came to seek the help of the Plaintiff to secure daily allocation of cargo space on the valuable flight SQ 857 as they had to meet the demands of an important customer who had daily cargo to send to Singapore within the same day. The Plaintiff, being a top agent of SQ, was in a position to secure that daily allocation for the Defendant at a competitive rate. It was in this context that the oral agreement was entered into which was supported by a long course of dealings between the parties and emails which were relied on by the Plaintiff in this case.

38.  Accordingly, the Defendant’s argument on agency must fail.

39.  During the trial, another submission made by Mr. Surman in defence was that the oral agreement was not binding on the Defendant as Lam had no authority to enter into such agreement on the Defendant’s behalf. 

40.  This is a bad point and can be disposed of quickly.  When asked by the Court, Mr. Surman conceded that this, again, is not an allegation which had been pleaded. It took the Defendant by surprise and it would be unfair and unjust to allow the Defendant to pursue this argument.

41.  Apart from the problem with the pleading, the evidence of this case does not support the Defendant’s contention. In Awane’s evidence, he said as Managing Director of the Defendant, only he had authority to commit the Defendant to a contract under which they would be liable for dead freight charges. However, there is no evidence to suggest that this was made known to the Plaintiff. The evidence showed that there was a long course of dealing between the parties in accordance with the oral agreement and the Defendant did pay dead freight charges on numerous occasions. As far as the Plaintiff was concerned, Lam was at the time the General Manager of the Defendant. To the Plaintiff, he clearly had authority to commit the Defendant to the agreement with the Plaintiff. I therefore find that the Defendant’s argument on lack of authority must also f ail.

42.  In the premises, I find that there was an agreement between the parties as alleged by the Plaintiff.

Terms of the Agreement

43.  I have already set out the terms of Agreement between the parties as alleged by the Plaintiff. During the cross-examination of Ng by Mr. Surman, the Defendant sought to put the case that if there was an agreement between the parties and the agreement refers to the Defendant’s agreement to pay “dead freight as pivot”, what it meant was that the Defendant would be charged dead freight according to the minimum weight of a loading device that had been booked for that day, that is the pivot weight of a pallet (1,600 kilograms) or a container (500 or 600 kilograms).

44.  The Defendant’s case is that the Plaintiff made a daily offer of allotment on SQ 857 to the Defendant and the Defendant had no obligation to make out any specific capacity on a daily basis. Furthermore, the Defendant would only be liable to pay dead freight charges in the event that the Defendant had made a booking for a certain unit loading device and they had failed to make out that booking. 

45.  This submission, like the previous ones, faces the same obstacle, namely, it was never pleaded by the Defendant.  When I asked Mr. Surman where I can find such allegation in their pleadings, the only paragraph he could refer me to is paragraph 8.1 of the Re-Amended Defence which says  :

“The freight bookings were entered into between the Plaintiff and the Defendant on an individual, ad hoc basis, as and when the Defendant needed to use Singapore Airline (rather than other air carriers) to transport its goods to Singapore.”

46.  However, this is different from and fell short of what Mr. Surman had put it during the trial, namely, the Defendant would only be liable to pay dead freight charges in the event that the Defendant had made a booking for a certain unit loading device on SQ 857 and they had failed to make out that booking.  In fact, in paragraph 10 of the Re-amended Defence, the Defendant had specifically denied that there was any agreement to pay dead freight charges as alleged by the Plaintiff. In the next paragraph, the Defendant alleged that it did not make commercial sense for the Defendant to pay dead freight charges and there were numerous occasions on which goods sent was less than the total weight alleged by the Plaintiff as the agreed capacity (the pivot) and yet no dead freight was ever levied or paid. In support, the Defendant relied on what happened on 133 days which I have already dealt with above.

47.  The Defendant’s last minute change in their case was met with serious opposition from the Plaintiff’s counsel, Mr. Pao. His objection can be summarised as follows :

(1) The argument was not pleaded and there was no application by the Defendant to amend their defence to raise the allegation;

(2) The allegation was not even mentioned in the witness statements filed by the Defendant;

(3) Accordingly, the Plaintiff was surprised by the last minute change in the Defendant’s case; 

(4) The new defence, if pleaded, would have required the Plaintiff to make factual investigations and adduce evidence to refute the allegations of the Defendant. For example, evidence might be adduced by the Plaintiff as to the course of dealings between the parties with an analytical focus on the invoices issued by the Plaintiff, and Ng could have given evidence as to whether this was in fact the agreement reached with Lam in 2004; and

(5) As a result, the Plaintiff would be seriously prejudiced if the defence was permitted to be raised by the Defendant. 

48.  I agree that it would be unjust and unfair to the Plaintiff to allow the Defendant to advance this line of argument at this last minute. However, for completeness, I will also deal with the Defendant’s allegation. As I shall explain below, the Defendant’s allegation is not substantiated by the evidence in this case.

49.  My finding that there were commercial justifications on the part of the Defendant and the Plaintiff to enter into the agreement as alleged by the Plaintiff was contrary to the Defendant’s allegation that they would only be liable for dead freight charges if they made a booking.

50.  Furthermore, there was no documentary evidence adduced by the Defendant which showed that booking was made on certain dates and as a result of short shipment, the Defendant agreed to pay dead freight charges. The numerous shipping documents seemed to assume a daily allotment of a minimum weight as alleged by the Plaintiff.

51.  There is also absent any evidence or example where the Defendant made objection to the Plaintiff for charging dead freight charges where the Defendant did not make a booking for a pallet or a container. It is possible that this never happened but there was no evidence adduced by the Defendant to show that in those specific cases, a pallet and a container were booked by the Defendant on a one off basis rather than as part of the agreement as alleged by the Plaintiff.

52.  The contemporaneous correspondence was also against the Defendant’s case. In the first email from Ng to Lam on 23 December 2004, Ng confirmed to Lam that SQ had made available daily space allotment on SQ 857 of a minimum of 500 kilograms on a container and a minimum 1,600 kilograms on a pallet.  The daily space allotment was against the Defendant’s allegation that they are at liberty to make a booking and they would only be liable to pay dead freight charges if they made a booking.

53.  In the next email on 2 February 2005 from Ng to Lam, the Plaintiff accepted the Defendant’s cancellation from 9 to 21 February 2005 on SQ 857 which was during the Chinese New Year holiday. Ng specifically confirmed that on those days, no dead freight charges would be levied on the Defendant’s account.

54.  In the emails referred to in paragraph 29(4) above, the Plaintiff had confirmed to the Defendant that the past daily allotment on SQ857 remained unchanged and the arrangement was based on “dead freight as pivot”. According to Ng, it meant dead freight charges would be levied based on the minimum weight requirements as set out in the emails. 

55.  Even in a letter dated 30 May 2007 signed by Awane on behalf of the Defendant, the Defendant informed the Plaintiff that due to reduction in cargo tonnage, the Defendant had difficulty in fulfilling “the agreed allotment”.  All the above contemporaneous correspondence not only support the existence of an agreement as alleged by the Plaintiff, they were also against the Defendant’s allegation that they were not obliged to pay any dead freight and that they would only be liable if they had made a booking on that day.

56.  Mr. Surman sought to rely on Awane’s evidence to support the allegation that the Defendant would only be liable for dead freight charges if they had made a booking. However, not only that Awane was not privy to the oral agreement made between Ng and Lam, in his witness statement, the first time he became aware of the Plaintiff levying dead freight charges was in May 2007. He also maintained that from 1 January 2005 to May 2007, the Plaintiff had never invoiced the Defendant for dead freight charges despite the fact that there were short shipments on certain days.  Awane’s understanding has proved to be wrong as dead freight charges had been paid by the Defendant on many occasions. Furthermore, Awane’s evidence was against the Defendant’s latest argument.  

57.  Taking into account the evidence in this case, I am satisfied that the Defendant’s allegation that they would only be liable for dead freight charges if they had made a booking for a certain unit loading device but failed to make out that booking, is not sustainable and the terms of the agreement are those alleged by the Plaintiff.

Whether the agreement, if established, was terminated by the Defendant

58.  The Defendant contended that if an agreement can be established, it was terminated by an email from the Defendant to the Plaintiff on 30 May 2007. The email was sent by Lam to Ng and it was in the following terms :

“Dear Tonie,

We regret to inform you that we cannot fulfil the agreed allotment currently due to the market situation was reduced sharply, that causing us much difficult to fulfil the requirements but we have confide in to carry on and increase the shipment volumes in soon after, because of we got some projects on hand just still in negotiation now but our chances of success is very high, therefore, we would like to have your kindly understanding and continuous support. Please find our letter attached for your reference.

Thank you for your kindly attention and sorry again for any inconvenience caused. For any questions of this mail, please feel free to contact us.

Best regards

William Lam”

59.  Attached to the email was a letter from Awane to the Plaintiff which was in similar terms. In particular, the letter also referred to the “agreed allotment”.   

60.  There is no wording of termination in the email or letter from the Defendant and I cannot read the email or letter to be a notice of termination. The Defendant’s allegation that this is a notice of termination is against its underlying case that there was no agreement. If the Defendant or Awane maintained that there was no agreement with the Plaintiff, why did they have to send a notice of termination? If the Defendant can decide when to place an order and they would only be liable to pay dead freight charges if they had made a booking but failed to make out the minimum weight, why did the Defendant have to send any notice of termination ?

61.  The email and letter said that the Defendant is confident that their volume of shipment would increase and they had asked for the Plaintiff’s understanding and support.  As a matter of fact, after 30 May 2007, the Defendant continued to send goods by air freight on SQ 857.  However, as Motorola no longer had to send the “hot shot” items to Singapore on a daily basis, the Defendant had not been able to fulfil the daily minimum capacity.

62.  In view of the Defendant’s poor performance, the Plaintiff sent an email to the Defendant on 30 July 2007 withdrawing the Defendant’s regular allotment on SQ857.  In the same email, the Plaintiff informed the Defendant that despite the termination, they can still request space at any time on an ad hoc basis.  This, again, is inconsistent with the Defendant’s defence that the airfreight carriage had always been arranged on an ad hoc basis. I find that the parties’ dealings and the correspondence produced in this case are consistent with the Plaintiff’s claim in this case.

63.  On this issue, I have no difficulty to find that the email and letter both dated 30 May 2007 from the Defendant to the Plaintiff were not and did not constitute a termination of the agreement between the Plaintiff and the Defendant and the Defendant continued to be liable for dead freight charges for any short shipment based on the minimum capacity agreed between the parties.

What are the damages suffered by the Plaintiff

64.  Mr. Surman sought to argue that upon the breach of the agreement, the amount of damages was unliquidated and an inquiry should be made as to the amount of the damages. Mr. Surman further argued that the Plaintiff had failed to mitigate their losses in that it did not take reasonable steps to use the unoccupied capacity for carrying other clients’ cargo.

65.  Mr. Pao submitted that the expression “dead freight” is normally used to denote the compensation payable by a charterer when it has failed to ship a full cargo. The freight the carrier would have earned if the charterers had fulfilled their contract will in most cases be a fair measure of the damages which he is entitled to recover (see Kish v. Taylor [1912] AC 604, 613-614 per Lord Atkinson).

66.  There is a distinction drawn in the case law between the situation where the contract did not specify what would be the compensation for dead freight and where the contract had fixed the amount of the dead freight. In the former case, the amount of dead freight would have to be assessed. In the other case, the amount fixed would be the compensation.

67.  Mr. Pao said the agreement relied on by the Plaintiff is one where the Defendant had agreed to be liable at an agreed rate for the unoccupied capacity in the event that it failed to make out the agreed minimum allotment of cargo for SQ 857. He relied on the cases of McLean v. Fleming (1871) LR 2 HL Sc. 128 and Gray v. Carr (1871) LR 6 QB 522 to illustrate the distinction drawn between a case where the freight was at a fixed rate with the amount of cargo being ascertained (a case of liquidated damages) and a case where the freight was not specified, in which case the damages has to be assessed (a case of unliquidated damages).

68.  In the present case, both the minimum cargo weight and the rate charged per kilogram had been fixed by the parties’ agreement. The Plaintiff therefore argued that this is a plain case that the dead freight charges were a form of agreed liquidated damages in the event of breach by the Defendant.

69.  Mr. Surman had a different interpretation of the judgment in McLeanv. Fleming. He argued that that case supports his proposition that the starting point in construing dead freight charges is that they are unliquidated compensation for the loss of freight.  Since the Plaintiff would possibly fill up the unused capacity with goods from other clients, the Plaintiff was required to show the actual loss they have suffered, taking into account the steps they could have taken to mitigate their losses.

70.  I have considered the authorities cited by the parties. They do not specify whether dead freight charges are liquidated or unliquidated claims. The answer depends on what have been agreed between the parties to the contract in any particular case. In McLean v. Fleming, Lord Chelmsford said at p.133 that :

“This case can hardly be considered to be one of unliquidated damages, because the master, not having brought home any other goods than those of the Appellants, the proper measure of the shipowner’s claim appears to be the amount of the agreed freight which he would have earned upon the deficient quantity of 210 tons of bones”

71.  And at p. 134, Lord Westbury said that  :

“The result, therefore, is, that in a charterparty giving no specific sum as the amount to be recovered by way of compensation for dead freight, the ship-owner becomes entitled only to a reasonable sum – which is another phrase for unliquidated damages.”

72.  Where the parties to a contract has agreed the minimum agreed capacity that a party has to ship its cargo and the freight rate that the shortfall would be calculated as compensation, the compensation or dead freight would be categorised as liquidated damages.

73.  In the present case, as it can be demonstrated by the contemporaneous emails that I have referred to above, the allotment given to the Defendant on the daily flight SQ 857 was made on the basis of “dead freight as pivot”.  “Pivot” was specified to be 1,600 kilograms for a pallet space and 600 kilograms for a container space. The agreement as evidenced by the emails had also specified the rate per kilogram upon which the charges were to be made.  The dead freight charges were easy to calculate without much argument and this had been imposed and paid by the parties over a period of about two and a half years. Ng has also testified as to the reasons to impose the dead freight charges and I accept that they made good commercial sense.

74.  I therefore find that the dead freight charges agreed by the parties are liquidated damages which can be calculated based on the pivot and the rates agreed by the parties.

75.  Where the parties to a contract agree that, in the event of a breach, the contract-breaker shall pay to the other a specified sum of money, the sum fixed may be classified as liquidated damages and it is enforceable irrespective of the loss actually suffered.  The purpose of the parties in fixing a sum is to facilitate recovery of damages without the difficulty and expense of proving actual damage (see Chitty on Contracts Vol 1, 30^th ed. at para 26-125. 

76.  In McGregor on Damages, 17^th ed. at para 13-015, it is stated that :

“Moreover, it should be appreciated that the concept of a duty to mitigate is entirely foreign to a claim for liquidated damages.”

77.  Having decided that the dead freight charges were liquidated claims, there is no question of mitigation or assessment of damages.  In view of the very short notice that the Plaintiff would have been given about a short shipment and the difficulty and the expenses which may be incurred in proving the loss after requiring the Plaintiff to fill the unoccupied capacity with other cargos, the parties must have intended the dead freight charges to be a liquidated claim. This was also what the parties have carried out in their long course of dealings over the two and a half year period.

Order

78.  I give judgment in favour of the Plaintiff against the Defendant for :

(a) the sum of HK$745,119.20;

(b) interest on the sum of HK$745,119.20 from the date of the issue of the Writ of Summons on 19 September 2008 to the date of judgment at the rate of 8% per annum and thereafter at judgment rate until payment.

79.  I also make an order nisi that the costs of the action be to the Plaintiff, to be taxed if not agreed. Unless an application is made to vary the cost order nisi, it shall become absolute after 14 days from today.