XCHRX CHINA NATIONAL ARTS AND CRAFTS IMPORT & EXPORT CORPORATION ZHEJIANG BRANCH AND ANOTHER v. SEALAND SERVICE INC. AND OTHERS

HCCL90/1990

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.90 OF 1990

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J U D G M E N T

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THE APPLICATION

1. This is the plaintiffs' application, pursuant to a summons dated 10 May 1999, for summary judgment in the amount claimed in the Points of Claim, that is, US$51,624.85, together with interest and costs.

THE FACTUAL BACKGROUND

2. It must be some sort of record in the common law world for a commercial court to be dealing with an application for summary judgment well over a decade after the events giving rise to the claim in question, which so far as the 1st defendant is concerned relates to a contract of carriage between the 1st plaintiff and the 1st defendant, as evidenced by Bill of Lading CT319 issued at Shanghai on 30 June 1989, wherein the 1st defendant agreed to carry from Shanghai to Pittsburgh, via Hong Kong, a consignment of 584 cartons of poplin ski gloves. The 1st plaintiff is named as shipper on the bill of lading and as the result of endorsement thereon the 2nd plaintiff became entitled to the rights of the 1st plaintiff under the contract of carriage.

3. The material facts can be shortly stated. The goods in question were shipped to Shanghai on the vessel "Dong An" on 13 June 1989, the "Dong An" thereafter apparently arriving in Hong Kong on or about 16 July 1989. The goods were delivered into the custody of the 2nd defendant, stuffed into two sealed Sealand containers, and on or around 22 July 1989 were shipped to Takoma, USA and thereafter transported by rail to Pittsburgh. However, and there appears to be no dispute about this, when the containers were opened and unstuffed in Pittsburgh, the goods were found to be damaged with water stains on the cartons and mildew on the gloves. As a consequence, the plaintiffs began this action for loss and damage, the claim being valued, pursuant to the particulars given in the Amended Points of Claim, in the sum of US$51,624.85. Broadly speaking the elements of the claim fall into two categories : first, the cost of reconditioning and repacking the goods by a company known as Unsmoke Services Inc. of Pennsylvania amounting to the sum of US$45,773.61, with the balance of slightly less than US$6,000 representing consequential expenses.

4. In terms of the head action, these proceedings have remained 'live' solely against the 1st defendant, that is Sealand Service Inc., the 3rd defendant not having been served, and the action having been discontinued against the 2nd defendant on 31 March 1999. I understand that the third party proceedings by the 1st defendant against the 2nd defendant remain in being.

5. This case last came before this court in October 1999 upon a disputed amendment application. The proposed amendment to the Defence to which specific objection was taken by the plaintiffs involved the withdrawal of an admission made in paragraph 1 of the original Defence wherein the 1st defendant, Sealand, had formally admitted that it was the contracting carrier under Bill of Lading CT319. In the event, the court refused this amendment application pursuant to its judgment dated 20 October 1999, and Mr Coleman, who appeared then as today for the plaintiffs, has suggested that the genesis of that amendment application was solely to ward off the present application for summary judgment.

THE ISSUE OF LIABILITY

6. Mr Coleman's case on liability is straightforward. He says that the plaintiffs sued the 1st defendant on a contract contained in or evidenced by a bill of lading. Pursuant to that bill, Sealand acknowledged that the goods were received in apparent good order and condition. It was, in commercial parlance, "a clean bill". The details of the shipment and transshipment are admitted by Sealand. There is no dispute, says Mr Coleman, that the goods on arrival were found to be damaged, and it is trite law that merely putting a plaintiff to proof does not entitle the defendant to leave to defend. In any event, there can be no doubt that the goods arrived damaged, not least because the 1st defendant's own surveyor said so.

7. Now comes Mr Coleman's bull point, at least for the purposes of this application : whenever and however precisely the damage occurred in the period between shipment and delivery does not matter so far as his client is concerned, given that the bill of lading was a clean on board through bill. Whilst the 1st defendant may have rights of recourse against third parties, such as, for example, against the entity responsible for stuffing what had been break bulk cargo into containers during transshipment in Hong Kong, that is the 2nd defendant, Hoi Kong Container Services Company Limited ("Hoi Kong"), such rights did not and do not constitute a defence to this claim.

8. He further submitted that the 1st defendant had confirmed in solicitors' correspondence that it would not be calling any witness of fact so that, for the purposes of this application, the court had but to refer to the documents presently before it, an evidential situation that would not change and, in so far as his client was concerned, would not improve.

9. It is common ground between counsel that the effect of the clean through bill - specifically admitted at paragraph 1 of the Defence - has the effect of shifting the burden onto the 1st defendant to rebut what is otherwise regarded as prima facie evidence of the position as at the date of shipment. And in this regard, Mr Coleman submitted, so far as the 1st defendant is concerned, the cupboard was bare. In short, he said, there was "not a shred" of evidence filed on behalf of the defendant to discharge the burden created by virtue of the issuance of the clean bill to demonstrate that the damage had occurred prior to shipment in Shanghai. Indeed, although it was not any of his client's concern (and any descent into this particular arena had been solely in the context of the plaintiffs' proposed case against the 2nd defendant), Mr Coleman suggested that the overwhelming probability was that the well-documented heavy rainfall in Hong Kong on 18 July 1989, which took place at the time when the break bulk cargo was in the course of being restuffed into the two Sealand containers by the 2nd defendant, was the obvious candidate for the origin of the wet damage which had clearly been suffered.

10. On behalf of the 1st defendant, Mr Smith mounted a spirited rearguard defence. His case was that the goods had not been wet damaged at any stage in the course of the carriage. To the contrary. Damage, he said, had occurred prior to shipment.

11. Mr Smith based his argument upon an extrapolation from a document entitled an 'Exception List' which had been prepared by the 2nd defendant herein, Hoi Kong, on 21 July 1989 at the time of the transshipment, which List on its face indicates that 20 cartons of gloves had been noted in this record as "Cover Torn and Repasted. Cont's in Full". If what had happened was that these cartons had been rain damaged on the wharf, as the plaintiffs had suggested, it was remarkable, Mr Smith submitted, that only 20 cartons had been singled out for attention by Hoi Kong, so that, given the apparent good condition of the containers in which these goods had been carried to Pittsburgh, it was a reasonable hypothesis that the damage had occurred prior to initial loading at Shanghai on the "Dong An", and not subsequently.

12. I do not find this argument persuasive, eloquently though it was advanced. I have no idea of the circumstances of the preparation of the Exception List in question (and I very much doubt that anyone else has either) and I agree with Mr Coleman that there is not one piece of hard evidence proffered by the defendants that the wet damage in fact occurred prior to shipment at Shanghai on 30 June. The hypothesis which Mr Smith offers is simply not enough to warrant sending this case to trial. Indeed, given that his case is that the wet damage not only occurred prior to 21 July (the date of the Exception List), but prior to 30 June (the date of shipment), it is in any event not easy to understand how the absence of any reference in that Exception List to wet damage in fact assists his argument, nor for that matter how it can serve to qualify the receipt of the goods in apparent good order and condition at the time of the issuance of the clean bill of lading in Shanghai. It seems to me that extrapolated reliance (which is all that it can be) upon the Exception List is itself arguably based upon an internally false hypothesis.

13. I further note in passing that the proposition involving preshipment damage in Shanghai is not reflected in the case put forward by the 1st defendant against Hoi Kong in the Third Party proceedings, paragraph 6 of the Third Party Points of Claim against Hoi Kong making reference, inter alia, to Hoi Kong, via the offices of their subcontractors, causing or permitting :-

"... the goods to be commingled with other goods that they become heavily wetted thereby causing the goods themselves to become wet damaged."

14. For present purposes, I refrain from saying what in my view is the overwhelming probability as to the cause of the wet damage in question. I do not have to go that far for the purposes of this application, and I bear in mind the extant third party proceedings. Suffice to say, if it be thought appropriate, the 1st defendant can be left to its remedies, if any, against the 2nd third party, Hoi Kong.

15. After considering all the evidence, and after having taken into account the arguments of counsel, I have concluded, in the words of Order 14, rule 3, that the plaintiffs have not satisfied the court 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" of this claim.

THE ISSUE OF QUANTUM

16. As to quantum, Mr Coleman submits that this aspect is equally clear-cut. The costs of restoration of the ski gloves, by Unsmoke, are well documented, and there is ample evidence as to what was done in terms of restoration not only to the 584 cartons the subject of this claim, but also to the further 918 cartons, also destined for the same buyer, which were separately shipped on board the vessel "Long Jiang" in three APL containers. The authenticity of the documents is not disputed, said Mr Coleman, nor is the fact that upon devanning the goods were found to be wet damaged.

17. Mr Smith's submission in terms of quantum was essentially that in this claim the defendants were being "lumbered with" and asked to pay for loss and damage which should probably be borne by another carrier, that is, by owners of the "Long Jiang". On the plaintiffs' own expert report prepared by Toplis & Harding, the possibility of sea water damage was canvassed (as opposed to freshwater damage only which appeared to be suggested by the Luard Report prepared on behalf of the defence) and Mr Smith objected to the method of "straight line" apportionment to the claim, so that the total repair cost of US$117,670 was divided by the total of 1,502 cartons (584 + 918), to obtain the per carton cost of restoration, that figure then being multiplied by the number of APL cartons and the 584 cartons carried in the Sealand containers to produce the respectively claimed figures of US$71,908.14 (for APL) and US$45,761.86 (for Sealand).

18. The man-hour element in the total Unsmoke bill amounted to US$78,855 out of a total of US$117,669.96 and, commented Mr Smith, it was "a matter of commonsense" that seawater damage cost more to rectify than freshwater damage. Accordingly, if the court was against him on liability, this was a proper case for judgment on liability with an order that damages be assessed. At that assessment, the relevant experts could be asked this particular question as to the freshwater/seawater damage dichotomy, and the court could then decide that issue. In this connection, Mr Smith came close to suggesting - if I have understood him correctly - that there was a different benchmark at play in terms of liability and quantum in Order 14 applications. In terms of quantum, he said, the plaintiffs had the burden of establishing that "straight line" assessment was clearly appropriate not only for the goods carried in respect of this particular claim, but also in terms of those which were not carried. In other words, it was for the plaintiffs to show that an assessment was not required, and in this case, absent any such assessment, there could well be a danger of unfairness to his client.

19. For his part, Mr Coleman - rightly in my view - strongly disputed that in terms of liability and quantum there was any difference in the applicable test - and submitted that in Order 14 applications the burden was on the defendant, in applications for judgment for a specific sum, to show by evidence a triable issue or issues. The plaintiffs had put their case up on quantum, and it was not open to Mr Smith to hypothesize, from the Bar, about what was or was not "commonsense" or that it "stood to reason" that greater effort/expenditure would be required for seawater as opposed to freshwater damage. The people who had done the work all those years ago had spoken as to the cost of the work, and had apportioned it between the bigger and smaller batches of cartons, and Mr Smith had not succeeded, said Mr Coleman, in invalidating that approach.

20. After some reflection, I agree. In my view, this case has been characterised under both liability and quantum heads by nothing more than the inventive surmise of counsel, absent any evidential basis laid therefor. In the quantum context, it would have been the simplest of tasks to file expert evidence along the lines of the freshwater/seawater distinction that Mr Smith has argued, and yet this has been chosen not to be done, quite possibly for good reason.

21. The court can only act upon the evidence before it. Leave to defend is not granted, as Mr Coleman submitted (quoting Megarry J), by means of "surmise and Micawberism". In the circumstances of this case, I think that that is not an inappropriate description. The protracted history of the case does not make happy reading, nor is it a testament to the efficiency of the court system. How such a small claim (in modern terms at least) can have been permitted to be the subject of a decade of attention by solicitors on each side, and can have justified two hotly opposed applications attended by counsel on each occasion is (or should be) a matter of concern. In my view, this case should now be brought to a halt absent any further expenditure.

ORDER

22. The plaintiffs are to have judgment against the 1st defendant in the head action in the sum claimed, namely, US$51,624.85.

23. I will hear the parties as to interest and costs.

[Submissions from counsel]

24. I have now had the benefit of submissions from counsel upon both interest and costs.

25. As to interest, I confess I have had some qualms about the justification of ordering interest to run from the date of the writ, which in this case is 10 August 1990. There are, of course, two relevant arguments. From the plaintiffs' point of view, as Mr Coleman says, the court should not encourage what are ultimately held to be unmeritorious defendants from hanging onto the monies claimed absent the award of interest; equally, says Mr Smith, the other side of that particular coin is that the court should not encourage dilatory proceedings. After some hesitation, I have decided that there is really insufficient information put before me on this point to warrant departure from the usual rule, unusual though this case is.

26. My Order on interest, therefore, is that the plaintiffs are to have interest on the judgment sum at the rate of 8% p.a. from the date of the issuance of the writ, namely, 10 August 1990, to the date of judgment herein, namely, 6 April 2000, and thereafter, interest on the principal sum at the judgment rate from time to time prevailing until payment.

27. Turning now to costs, Mr Coleman not only asks for the costs of this action against the 1st defendant, he also asks for what he characterises as a 'Sanderson Order' which, in his lexicon at least, potentially involves payment by the 1st defendant of the costs of the plaintiffs' pursuit of the 2nd defendant (which latter action, it will be recalled, was discontinued on 31 March 1999).

28. Mr Smith, in response, says that this is not a Sanderson Order properly so-called anyway, but that if this aspect of costs is going to be seriously pursued, it cannot be pursued today, given the amount of background work which would necessarily have to be done by both parties. At the same time he puts a marker down on the basis that any application for this type of order is not patent on the face of the summons with which he is presently dealing, and it should not be thought, if this application were to persist with on a date to be fixed, that he would do otherwise, if successfully opposing such application, but ask for the costs of that application. That seems to me to be a perfectly justifiable approach, and indeed I do not think Mr Coleman has any quarrel with it.

29. Accordingly, for present purposes, in my view the fairest course to adopt is this. The plaintiffs have asked for and have obtained judgment. That application has been opposed. This head action is now at an end, subject, of course, to any appeal. Clearly, a costs order in normal course should follow, namely that the costs of this action are to be paid by the 1st defendant to the plaintiffs (such order to include the costs of this application), such costs to be taxed if not agreed. In the event that Mr Coleman wishes, on instructions, to pursue what for shorthand purposes I will persist in calling a Sanderson Order, there will be liberty to apply to make that application at a date and time to be fixed in consultation with counsels' diaries.

30. The foregoing appears to be all that can usefully be achieved today. I thank both counsel for their assistance.