MADISON INTERNATIONAL LTD v. FONG TING BOR t/a HUNG FAT TRADING CO.

HCA13786/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.13786 OF 1997

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J U D G M E N T

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INTRODUCTION

1. The plaintiff is an import and export company. Since about late 1995, the plaintiff engaged the defendant to provide services for the purpose of transporting goods from Hong Kong to various destinations in mainland China. This action concerns 16 shipments of plastic materials ("the Goods") which were said to have been handled by the defendant during the period from April to September 1996. There were 18 containers in the 16 shipments, there being one container per shipment, save in one case where there were three. It is not disputed that the Goods were never delivered and were lost. The plaintiff sues the defendant for damages for breach of contracts or breach of duty as bailee of the Goods.

THE ISSUES

2. When counsel for the plaintiff opened the case, he said that there was only one issue between the parties, viz. the scope of the defendant's responsibility under the contracts. There is no dispute over the fact that the defendant was responsible for collecting the containers from a terminal in Hong Kong and arranging for them to be loaded onto vessels bound for mainland China. The plaintiff's case is that the defendant was responsible for the ultimate delivery of the Goods at designated destinations in China where the Goods would be collected by the plaintiff's staff. This, says the plaintiff, would include obtaining any necessary import licence and clearing customs in the mainland.

3. The case that the plaintiff pleaded is more complicated than that. The plaintiff pleaded that the defendant agreed, warranted and undertook to be responsible for freight, transportation and insurance charges, that he would obtain all necessary import and export licences, customs clearance papers etc., that he would strictly observe and follow all PRC and Hong Kong laws and would indemnify the plaintiff against all loss and damages. It is further alleged that that those terms were agreed orally or alternatively were implied in order to give business efficacy to the contracts.

4. On the pleadings, the plaintiff alleged that the defendant was in breach of the contracts in failing to complete and submit to the Chinese Customs Authorities all the necessary forms, papers and documents that were required for the lawful import of the Goods in China, or in failing to submit correct and accurate information about the Goods to the customs authority, or in failing to observe the laws and regulations in force in China governing the importation of the Goods.

5. The plaintiff further alleged that the defendant was negligent and in breach of its duty of care to the plaintiff in the handling of the Goods in its capacity as a freight forwarding agent and bailee of the Goods.

6. The defendant's plea is that it was an express term of the contracts that :

(1) the defendant would arrange for the collection of containers from the carrier, the necessary clearance of goods and the return of the containers to the carrier;

(2) the defendant would arrange for the goods to be loaded onto a vessel for onward transportation to destinations in China;

(3) the defendant would notify the plaintiff when the goods have been loaded onto the vessel and thereupon the defendant's services would be completed; and

(4) the plaintiff would pay the defendant on completion of the services upon presentation of invoices.

In short, the defendant admits that its responsibility included arranging for the goods to be loaded onto a vessel bound for the specified destinations, but that his responsibility would cease upon making the appropriate arrangements for shipping space.

7. The defendant raises a counterclaim for money outstanding from the plaintiff to the defendant on a running account. In the event, the parties were able to agree a figure of $75,600 as being due from the plaintiff to the defendant in respect of past transactions. The parties were also able to agree the amount of damages at $1,064,701.46 (less the amount of counterclaim) in the event I find in the plaintiff's favour on liability.

8. Another issue surfaced during the course of the evidence, namely, whether the defendant was the contracting party in respect of all the 16 shipments. The defendant only admitted to being a party to 13 shipments (15 containers) and denied that he was responsible for the rest.

9. I turn to the evidence.

THE PLAINTIFF'S EVIDENCE

10. The plaintiff has only two persons in its Hong Kong office. These are Mr Lau King Keung ("Mr Lau"), a director and major shareholder of the plaintiff, and his secretary Miss Chan Tsz Hung ("Miss Chan"). Both were called to give evidence. Mr Lau was the one who discussed the terms of engagement with the defendant. He said that the defendant told him that the services he provided was to deliver the goods from the container terminal in Kwai Chung all the way to the plaintiff's designated staff in China. He said that the defendant told him that he had a way of getting approval for sending the goods to China. His evidence is that at the very beginning, the defendant asked the plaintiff to divide the transportation fee into two parts : one part was to be paid in Hong Kong and the other in China. I shall refer to the first part as "the Hong Kong cost" and the second part as "the mainland cost". The Hong Kong cost is around $3,600 for each container. This would cover the cost of carrying the container from the container terminal to a local pier, the cost of unloading the goods from the container, and loading them on to a vessel bound for the specified destination in the mainland. The mainland cost would cover the cost of transportation from a local pier to the designated place in the mainland and all custom duties, up to the time when the goods were collected by the plaintiff's staff in the mainland. This amount depends on where the Goods were to be delivered, the route they took and the circumstances. Generally, it was somewhere around RMB9,000 per container and this was paid in RMB in cash upon collection of the goods in mainland China. Mr Lau said that this sum would be paid to "the ship's representative", whom he believed to be the defendant's agent. The defendant would notify the plaintiff the amount of the mainland cost.

11. Miss Chan gave evidence of her role in the dealing with the defendant. She said that when there was an order for the defendant, she would call the defendant to inform him of it, and that the defendant would usually instruct a company called Po Wai Transportation Company ("Po Wai") to sign a receipt for the release order. She said that after the release order was taken away and after the goods were unloaded and taken from the ship, the defendant would call her and tell her the estimated time of arrival of the vessel and would ask her who would be the one to pick up the goods when the goods arrive in the mainland.

12. A number of documents were generated for each shipment. The plaintiff would obtain a bill of lading from its overseas supplier, which the plaintiff would use to exchange for a release order from the shipping company. The release order would be handed to Po Wai's staff for collection of the goods at the container terminal. Po Wai would issue a receipt to the defendant which the defendant passed on to the plaintiff. Po Wai's staff would get the goods to be weighed and obtain a weighing ticket. This was also handed to the defendant and later passed to the plaintiff. The goods would be weighed again when they were collected in the mainland. The plaintiff's staff in the mainland would obtain the ticket. At some stage, the defendant would issue an invoice for the Hong Kong cost. It is relevant to note that the mainland destinations and the names of the relevant vessels were written on the invoices. For the 16 shipments in question, the plaintiff has produced the release orders and the drayage receipts issued by Po Wai. The defendant has not issued any invoice in respect of the 16 shipments.

13. Mr Lau and Miss Chan testified that there were previous occasions when the plaintiff discovered that there were shortages of goods delivered by the defendant, and that on those occasions, the defendant agreed to pay compensation to the plaintiff. One set of debit notes produced by the plaintiff shows that the defendant was asked to compensate the plaintiff for the shortage on the basis of the RMB unit price of the goods. Another debit note (Exhibit P1) produced by Miss Chan shows that the defendant was asked to pay compensation on the basis of the cost of the goods. This debit note sets out in detail the cost of transportation which includes both the Hong Kong cost and the mainland cost. Miss Chan's evidence is that the defendant agreed to pay the compensation for these shortages either by set-off or by procuring a third party cheque made payable to the plaintiff. The cheque was drawn by a person called Yiu Yuen-mo ("Yiu").

14. In three of the drayage receipts, the name of the "payer" was written as "Hung Yuen". Mr Lau said he initially thought that Hung Yuen and Hung Fat were the same company, but was only told some time in 1997 by the defendant's son that Hung Yuen was a different company.

THE DEFENDANT'S EVIDENCE

15. The defendant and his son gave evidence before me. The defendant said that his business consisted of receiving orders from companies such as the plaintiff. He denied responsibility for three of the shipments, maintaining that these were handled by Hung Yuen. Hung Yuen was a trade name adopted by Yiu who was carrying on a similar business as that carried on by the defendant. The defendant's son assisted both the defendant and Yiu. According to the defendant's son, Yiu had not registered his business with the Business Registry and he had, with the consent of the defendant, used Hung Fat's stationery for Hung Yuen.

16. The defendant does not dispute that he provided services in respect of 13 shipments, totalling 15 containers but claims that his responsibilities ceased after the goods have been loaded onto vessels bound for China. He also accepts that the 15 containers were not delivered to the plaintiff's staff in China. According to the information he had, those containers had been confiscated, and all attempts by him to assist the plaintiff in retrieving them had been in vain.

17. The defendant's evidence was that he was introduced to the plaintiff by a person named Chow. Chow had some containers which he was carrying on a vessel to China and knew that the plaintiff also had two containers which it wanted to be transported to China. According to the defendant, Mr Lau implored Chow to allow the plaintiff's containers to be carried on Chow's vessel and it was Chow who suggested to the defendant that he could perform the Hong Kong leg of the transportation and charge the plaintiff $3,600 per container. I should note that the defendant's counsel did not put this evidence to Mr Lau in cross-examination. Nor did the plaintiff's counsel challenge the defendant on this.

18. The defendant also gave evidence that some time around March or April 1996, Mr Lau called him and wanted him to transport some materials for him. He told Mr Lau that the rule was strict, the situation was chaotic and people were arrested for importing foreign rubbish. He said that after he explained the situation to Mr Lau, Mr Lau asked him to try his best to think of a way. He said he did not agree to receive the plaintiff's order at that time because he did not have any ship, and had to wait for ship space available, when the bosses in mainland China have their ships here. He said that after a period of time, Wong Ting Chung ("Wong") of Dongguan sent a ship to Hong Kong. Wong had four containers of goods and the ship could accommodate 10 odd containers. Wong phoned him and asked if any one wanted to use the ship space. Then he phoned Mr Lau and told him that Wong had a ship available. Mr Lau agreed to let the plaintiff use the space. He said that he told Mr Lau that it was a sort of gamble these days and Mr Lau agreed. Again, this evidence was not put to Mr Lau in cross-examination by counsel for the defendant. All that counsel for the plaintiff put to this witness on this point was that Mr Lau told him to be careful and wait for the appropriate time and make sure it was safe before shipping to China. This the defendant denied.

19. The defendant's evidence as to the course of dealings was that he would sub-contract the drayage work i.e. the transportation of the container from the container terminal to the pier in Kwun Tong to Po Wai. At the Kwun Tong pier, the goods were unloaded from the containers and put on board vessels bound for mainland China. He said that the $3,600 that he charged the plaintiff included the cost for hiring Po Wai's services, the weight fee, the hiring of coolies and forklift truck, expenses paid for the berthing of the China cargo vessel and for the crew on the vessel. On his evidence, he was the person who would make arrangements with the persons in charge of the vessels to carry the plaintiff's goods to designated destinations in China, and he would inform either Mr Lau or Miss Chan the estimated time of arrival of the vessels and the amount of expenses the plaintiff would have to pay the persons in charge of the vessels. The defendant referred to persons such as Chow and Wong as "bosses" and explained that they were persons who had goods to carry from Hong Kong to China themselves but had space on the vessels available to carry the plaintiff's goods. He claimed that his responsibility for the goods ceased when the plaintiff's cargo was loaded on board the vessels. He said that he only earned about $200 to $300 per container from the Hong Kong cost, and that he did not receive any part of the mainland cost.

20. The defendant denied that he had ever agreed to compensate the plaintiff for short shipment. He claimed he had not seen the debit notes produced by the plaintiff.

FINDINGS OF FACT

Nature of relationship

21. Having considered the testimony of the four witnesses and the documentary evidence, I am satisfied that the plaintiff engaged the defendant some time since late 1995 to provide the services of a forwarding agent to arrange for the plaintiff's goods to be carried from Hong Kong to various destinations in China. However, the defendant was not the carrier of the goods for the whole of the voyage.

22. I do not accept the defendant's case that his responsibility was limited to delivering the containers on board of a vessel bound for the mainland. Such contention does not sit well with his admission that he would pay for the berthing charges of the vessel bound for the mainland. It is also inconsistent with his son's evidence. When the latter was asked whether his father's business was any different from the business that Yiu was carrying on, he responded that the defendant would deal only with Zhuhai, Dongguan and Shunde while Yiu would deal particularly with Shantou. He was asked by the defendant's own counsel :

"Q: Why couldn't Hung Fat receive orders destined for Shantou?

He answered: 'Because we didn't have any people on the other side to receive goods or to declare customs.'"

This evidence suggests that the defendant had contacts in China, at least in Zhuhai, Dongguan and Shunde to handle the goods and declare customs.

23. The fact that I do not find the defendant's responsibility to be confined to make arrangement for vessel space does not conclude the matter. It is still necessary to consider what precisely are the defendant's responsibilities, and whether he has acted in breach of his duties. I turn to consider what are the terms of the agreements between the parties.

Terms of agreements

24. Terms of agreement can either be expressly agreed between the parties or ascertained by reference to a course of dealing adopted between them or from trade custom (Chitty on Contracts, 28th Ed. paras.12-011, 12-012; Scrutton on Charterparties and Bills of Lading 20th Ed. p.56). The plaintiff also pleaded that the terms are to be implied by reason of business efficacy.

25. As to what the parties expressly agreed, I am not satisfied on the evidence that the defendant agreed to be responsible for paying insurance charges or that the defendant agreed to indemnify the plaintiff in respect of its loss and damage arising from non-compliance with the terms of the contracts; or that the defendant expressly contracted to comply with local and PRC laws.

26. I do, however, accept the plaintiff's evidence that the defendant stated to the plaintiff at the commencement of the relationship that he had a way of getting approval for sending the goods to China. I find that under the agreement between the parties the defendant was responsible for causing arrangements to be made for customs clearance in the mainland.

27. The course of dealings between the plaintiff and the defendant was that the defendant would make all the arrangements as forwarder for the plaintiff's goods to be transported from the container terminal in Hong Kong to the designated port in China where the goods were to be collected by the plaintiff's staff in China. This included arrangements for transportation of the containers from the container terminal to the local pier in Hong Kong, arranging for the goods to be unloaded from the container, obtaining space on board of vessels bound for various destinations in mainland China, the stowage of the goods on board such vessels and causing the necessary arrangements to be made to obtain customs clearance for the goods.

28. I find that the plaintiff was aware that the defendant would engage contractors such as Po Wai to undertake the physical transportation of the goods within Hong Kong, and that the plaintiff was also aware that the defendant was not the owner or charterer of the vessels taking the goods from Hong Kong to China, but that he would make arrangements with either ship owners or charterers to transport the goods from Hong Kong to China.

29. Although I find that the defendant's responsibilities did extend beyond the arrangement for vessel space, I should note that there was certainly a difference in the arrangements between what I shall call the Hong Kong part of the transportation and the mainland part. As a matter of the parties' course of dealings, if not also by express agreement, the defendant was the carrier and bailee of the goods whilst they were still in Hong Kong, with the responsibility of paying the disbursements for that part of the voyage. His role for the mainland part was, however, limited to causing necessary arrangements to be made for the goods to arrive safety at the destination. He was not the carrier of the goods for the mainland part of the voyage. In this connection, I should mention that even if I accept that Mr Lau may have genuinely believed that the ship's representative was the defendant's agent, I do not think that any such belief can be justified. There is certainly no evidence to indicate that the ship's representative was an agent of the defendant. There is also no evidence that the defendant received any payment or share out of the mainland cost and I am inclined to the view that he probably did not.

30. To the extent that the plaintiff has failed to establish the terms alleged in the pleading were agreed as express terms or by reference to the parties' course of dealings, the plaintiff has failed to persuade me that these terms ought to be implied by reason of business efficacy or prove any trade custom.

31. I accept the defendant's evidence that some time in 1996 and before the Goods were confiscated, the defendant did warn the plaintiff of the risk of confiscation and that Mr Lau realised that risk existed and was prepared to take it. The question that was put by the plaintiff's counsel to the defendant on this matter itself suggests that the plaintiff was aware that the risk existed and he exhorted the defendant to take extra care.

32. The plaintiff had, on previous occasions, issued debit notes to the defendant to recover damages for short shipments. In one case, the plaintiff debited the defendant in the running account that the plaintiff kept. I accept the defendant's evidence that he did not keep his own record of how much the plaintiff owed him and am inclined to the view that he might not even have been aware that his account with the plaintiff had been debited for such charges. In the other instance, the damages for short shipment were paid by Yiu. In the event, I am not prepared to find that the defendant has previously agreed to pay compensation for short shipment, or to draw the inference against him that he recognised a legal obligation to be answerable for short shipment.

33. On the question of whether the defendant was a party to all the 16 shipments, I find that at the material time, the plaintiff was not aware of the relationship between Hung Yuen and the defendant and that the plaintiff intended to give all the orders for the 16 shipments to the defendant. The defendant was, on the other hand, aware that his son was using the defendant's stationery for jobs which were taken over by Yiu.

Breach

34. On the evidence, I find that the Goods were in fact confiscated by certain authority in the mainland. But there is no evidence as to what was the reason for such confiscation. In particular, there is no evidence before me as to whether such confiscation was the result of anything that the defendant did or failed to do.

CONCLUSIONS BASED ON FINDINGS

35. On the findings I have made, I would hold that the plaintiff was a party to each of the orders in respect of the 16 shipments. It is clear from the evidence that the defendant permitted Hung Yuen to use his own stationery and I accept Mr Lau's evidence that at the material time he was unaware of the difference between Hung Fat and Hung Yuen. I find that the plaintiff intended to give all the 16 orders to the defendant and the defendant allowed the plaintiff to believe that Hung Yuen was just another name employed by the defendant. Accordingly, I find that the defendant should in law be treated as the contracting party in respect of all the orders for the 16 shipments. I should mention that at an early stage in the proceedings, counsel for the defendant indicated that he was not going to take the point concerning Hung Yuen. He later sought to resile from this concession, and had I reached a different conclusion, it would be necessary to consider whether it would in the circumstances be fair to permit him to do so.

36. I would, however, hold that the plaintiff has failed to prove any breach of the agreements. My finding that the defendant agreed to act as forwarder for the plaintiff to arrange for the carriage of the plaintiff's goods from the container terminal in Hong Kong to designated locations in the mainland does not by itself lead to the conclusion that the defendant is liable in law for the loss of the Goods. There is no "automatic" liability for misadventures which occur to the goods while they are in the hands of the owners or charterers of the vessel. The duties of a forwarding agent depend in each case on the terms of his contract with the shipper. Before the plaintiff is entitled to put the loss on the head of the defendant, the plaintiff has to prove that the defendant was in breach of a legal obligation. (See Palmer on Bailment, 2nd Ed. (1991) p.1353 and Scrutton on Charterparties and Bills of Lading, 20th Ed. (1996) p.56). In my judgment, the defendant's obligation was to make appropriate arrangement for the transportation of the Goods as forwarder. He was not an insurer of losses. In respect of the 16 shipments, the defendant did not undertake any obligation to take out insurance, nor had he agreed to indemnify the plaintiff for loss of the Goods. I find that the defendant's relevant obligation was to cause arrangements to be made for obtaining necessary customs clearance. I have also found that the defendant had in fact warned the plaintiff of the risk of confiscation, and that the plaintiff was prepared to take the risk. There is no evidence of any agreement, or even discussion, that the risk of confiscation should be passed to the defendant. There is no evidence before me as to why the Goods were confiscated. The burden is on the plaintiff to prove that the defendant committed an act or omission in the discharge of his duties and that such act or omission resulted in the loss complained of. The plaintiff pleaded particulars of breach as :

(1) failure in completing and submitting to the Chinese Customs Authorities all the necessary forms, papers and documents that were required for lawful import of the Goods into China;

(2) alternatively, failure to submit correct and accurate information about the Goods to the Chinese Customs Authority; and

(3) further or alternatively, failure to observe and comply with such law, by-laws and regulations as were in force for the time being in China governing the import of goods.

The plaintiff has not adduced a scintilla of evidence to support any of these particulars. The fact that the Goods were confiscated does not ipso facto prove that the defendant neglected his duties. In my judgment, the plaintiff has failed to prove that the defendant committed any act or omission in the discharge of his duties. Nor had the plaintiff proved that any act or omission on the part of the defendant led to the confiscation of the Goods. Accordingly, I find that the plaintiff has failed in its claim on breach of contract.

37. An alternative way in which the plaintiff has framed its case is on bailment. In my judgment, this does not avail the plaintiff either. The defendant would only be liable as bailee whilst the Goods are in his possession (see Scrutton on Charterparties and Bill of Lading, p.56). He did not have possession of the Goods once these were passed to the ships bound for China. He was not a bailee, and did not owe the obligations of a bailee to the plaintiff.

38. For the reasons I have attempted to state, the plaintiff's action is dismissed. The defendant's counterclaim succeeds and there will be judgment for the defendant against the plaintiff in the agreed sum of $75,600, with interest at the rate of prime plus 1% from the date of the counterclaim until judgment.

39. I make an order nisi that the plaintiff shall pay the defendant's costs, to be taxed if not agreed.