DELTAMAX FREIGHT SERVICE (HK) LTD v. TUNG TAT TRANSPORTATION LTD

HCA2348/2004 & HCA2596/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2348 OF 2004

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BETWEEN

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(Consolidated pursuant to the Order of Mr Registrar C. Chan
dated 3 March 2004)

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J U D G M E N T

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1.  Two actions are tried before me. Deltamax Freight Service (HK) Limited (“Deltamax”) is the plaintiff in HCA2348/2004 (“the 1^st Action) and Tung Tat Transportation Limited (“Tung Tat”) is the Defendant. In HCA2596/2004 (“the 2^nd Action”) the parties’ roles are reversed.

2.  At the material time, Deltamax carried on cargo forwarding business in Hong Kong. Tung Tat carried on goods delivery business in Hong Kong.

3.  Deltamax’s claim in the 1^st Action arose out of the operation of two contracts of carriage. Both are in Chinese. The first one is dated 23/25 September 2002 (in that Deltamax signed on 25 September and Tung Tat signed on 23 September) (“the 1^st Contract”) and the second one is dated 24 September 2003 (“the 2^nd Contract”).

4.  Under both contracts Tung Tat agreed to undertake transportation and delivery of goods for Deltamax.

5.  Deltamax claims that during the duration of the 1^st Contract certain electronic goods under six House Air Waybills No. CAE-085975, TPE-881862, CAE-086097, DLS SHA-000735, DLS SHA-000754 and DLS SHA-000753 (“the 1^st Cargo”) were entrusted to Tung Tat on 24 August 2003 but whilst in the possession of Tung Tat they were stolen (“the 1^st Incident”).

6.  Deltamax further claims that during the duration of the 2^nd Contract certain electronic goods under House Air Waybill No. CAE‑094073 (“the 2^nd Cargo”) were entrusted to Tung Tat on 24 March 2004 but whilst in the possession of Tung Tat they were stolen on 25 March 2004 (“the 2^nd Incident”). Deltamax claims that the loss of the 1^st Cargo and the 2^nd Cargo was due to the negligence and breach of duty of Tung Tat. In the case of both the 1^st Cargo and the 2^nd Cargo Deltamax claims that as a result it had suffered loss and damage in that it was exposed to claims by the shippers or consignees of the two cargoes.

7.  By way of defence, Tung Tat raised the following points (apart from denying negligence) :

(1)  In relation to the 1^st Cargo :

(a)  they were entrusted to Tung Tat pursuant to an oral agreement (“the oral agreement”) between Deltamax and Tung Tat whereby goods could be kept in Tung Tat’s trucks free of charge overnight on a Sunday until the next Monday at Deltamax’s own risk; and

(b)  Deltamax was in breach of a contractual obligation in the 1^st Contract to take out transportation insurance, in consequence whereof Deltamax is liable to indemnify Tung Tat for Tung Tat’s liability incurred as a result of the loss of the 1^st Cargo.

(2)  In relation to the 2^nd Cargo, Deltamax was estopped from claiming against Tung Tat for any loss or damage exceeding US$20 per kg (or its equivalent) by reason of Tung Tat’s reliance on an e-mail allegedly sent by Deltamax to Tung Tat on 17 September 2004.

8.  In the 2^nd Action Tung Tat claimed HK$1,161,980.80 being transportation and storage charges for services provided by Tung Tat to Deltamax under the 1^st and 2^nd Contracts as well as a contract of storage between them dated 26 February 2004. Deltamax’s Defence and Counterclaim in the 2^nd Action raises the same matters it raised in its claim in the 1^st Action.

9.  In the 2^nd Action, Tung Tat also claimed a sum of HK$10,000 being the cost incurred by Tung Tat for the removal of Deltamax’s logo on two of Tung Tat’s trucks. The background to this claim is that under clause 2(1) of the 2^nd Contract, Tung Tat had to provide at least two trucks with Deltamax’s logo and Tung Tat did provide two such trucks with Deltamax’s logo. However, at Deltamax’s request (by solicitors’ letter dated 7 October 2004), Tung Tat removed the logos from its trucks thereby incurring costs of HK$3,500 and HK$6,500 respectively (totalling HK$10,000).

The facts

10.  The background facts of the case are largely uncontroversial and I set them out below (with an indication as to where the various items of disputed facts feature).

11.  Deltamax is a Hong Kong company. However, it is associated with entities in Taiwan and elsewhere bearing the Deltamax name. The precise nature of the association is not entirely clear on the documentary evidence. Neither Mr Chow Chung Yi (“Chow”), Deltamax’s assistant General Manager between 1999 and 2003 nor Madam Yip Wing Lai (“Yip”), Deltamax’s General Manager between 1999 and July 2007 was able to provide any firm or clear assistance on the simple question of the ownership and nature of relationship among the various entities bearing the Deltamax name. However, nothing significant turns on this.

12.  Since some time in 2001, Deltamax has had business dealings with the predecessor of Tung Tat, which was an unincorporated business organization at that time. On 21 June 2002 Tung Tat was incorporated and a written agreement was signed between Tung Tat and Deltamax on 23 and 25 September 2002 (Chow signed for Deltamax on 25 September 2002 and Mr Yu Siu Wing (“Yu”) signed for Tung Tat on 23 September 2002). On Tung Tat’s case (which is disputed by Deltamax) the oral agreement was reached a month before this, on a Sunday during August 2002. I will deal with this below.

13.  On a broad level of generality, the modus operandi of the business between Deltamax and Tung Tat was that air cargo would arrive at the Hong Kong International Airport. Deltamax needed to collect these cargoes for delivery to its customers. For this purpose, Deltamax would engage Tung Tat’s services in sending trucks to the airport to pick up the cargo and then deliver them to Deltamax’s customers. Depending on the requirements of individual shipments, there could be variations in the details of each delivery such as whether the goods would first be taken from the airport to Deltamax’s warehouse, or to Tung Tat’s warehouse, before they were delivered to the ultimate destination or whether they would be taken directly from the airport to the customer, but such minor variants do not detract from the simplicity of the nature of the operations.

14.  When goods arrived in Hong Kong, they would be allowed two days of free storage (not counting the day of arrival and not counting Sundays) at the airport. For example, if certain goods arrived on a Friday, then the first “free storage” day would be Saturday (because Friday, the date of arrival, did not count) and the second “free storage” day would be Monday (because Sunday did not count). The goods had to be taken by midnight of Monday, otherwise storage fees would be charged by the airport.

15.  In terms of the scheme of charging, Tung Tat would charge HK$0.37/kg for taking cargo from the airport and delivering it to Deltamax, and HK$0.18/kg for onward delivery of cargo from Deltamax to Deltamax’s customer. Even if the cargo was collected from the airport and then directly delivered to the customer (in other words, without first going back to Deltamax’s premises), Tung Tat would still charge HK$0.37 + HK$0.18 for each kg of cargo. If Tung Tat collected goods from the airport and took them to Deltamax’s premises and left them there without delivering them to Deltamax’s customers, then Tung Tat would charge HK$0.37/kg. If, say, on the next day Tung Tat’s trucks went to Deltamax’s premises to pick up the cargo (left there the day before) and then deliver them to Deltamax’s customers, Tung Tat would (for this day) charge HK$0.37 + HK$0.18 for each cargo.

16.  By its own terms the 1^st Contract would expire on 31 October 2003. However, by a letter signed by Chow dated 3 July 2003 on behalf of Deltamax, it was recorded (somewhat obliquely but Tung Tat had not disputed this before me) that the parties had orally agreed to terminate the 1^st Contract with effect from 1 September 2003.

17.  After the said letter, but before the stipulated termination date of 1 September 2003, on 24 August 2003 Tung Tat collected some goods for Deltamax from the Hong Kong International Airport. That was a Sunday. Some of the goods (namely the 1^st Cargo) were placed on a truck belonging to Tung Tat (with licence number AC6033) (“Truck AC6033”). Truck AC6033 was left overnight in a carpark at Wah Tat Industrial Centre (“Wah Tat”) (where Tung Tat’s premises were located) to await delivery to the cargo receivers the next day (Monday). Truck AC6033 was driven away from Wah Tat that night by some persons unknown. The goods were stolen and the truck itself was burnt down in Yuen Long. This was the 1^st Incident.

18.  Despite the 1^st Incident and despite the letter of termination dated 3 July 2003, Deltamax entered into a new written agreement with Tung Tat by way of the 2^nd Contract. It was signed by Yip on behalf of Deltamax on 24 September 2003 and by Yu on a date which was not apparent on the face of the document. The reason for this engagement is in dispute and I shall deal with it later below.

19.  On 25 March 2004 (during the period of operation of the 2^nd Contract), while Tung Tat was in the course of delivering cargo for Deltamax, certain goods (the 2^nd Cargo) were left unattended by Tung Tat’s staff as a result of which they were stolen by persons unknown. This was the 2^nd Incident.

20.  By its own terms the validity period of 2^nd Contract was from 1 October 2003 to 30 September 2004. By an e-mail dated 8 September 2004, Yip on behalf of Deltamax notified Tung Tat that Deltamax would stop using Tung Tat for the purpose of taking delivery from the airport but that Deltamax would continue to use Tung Tat for the purpose of effecting local delivery (e.g. delivery from Deltamax’s warehouse to Deltamax’s customers/cargo receivers).

21.  The parties are in dispute as to whether, after this e-mail, Tung Tat had (through Yu) orally informed Deltamax that Tung Tat wished to cease work for Deltamax altogether because of what Tung Tat perceived to be the risk that it was exposed to by reason of lack of an insurance policy covering its potential liability for loss of or damage to the goods. The parties are also in dispute as to whether Mr Kelvin Chik (“Chik”) (who was at the material time the vice general manager of the air freight department of Deltamax) had sent an e-mail dated 17 September 2004 to Tung Tat containing what is said to be a limitation clause relating to Tung Tat’s liability for loss of or damage to goods. The sending and receipt of this e-mail formed the basis of Tung Tat’s estoppel defence in relation to the 2^nd Cargo. I shall come back to this later.

22.  It is accepted by both parties before me that by mutual agreement between the parties the 2^nd Contract was terminated as from 30 September 2004.

The issues and the witnesses

23.  I now come to address the individual issues. The issues are :

(1)  whether Tung Tat can prove the existence of the oral agreement;

(2)  whether Deltamax was in breach of clause 1(4) of the 1^st Contract and the consequences thereof;

(3)  whether Deltamax is estopped from making a claim in respect of the loss of the 2^nd Cargo by reason of the 17 September 2004 e-mail allegedly sent by Chik on behalf of Deltamax; and

(4)  whether Deltamax had to reimburse Tung Tat for the HK$10,000 costs for removing the two logos on Tung Tat’s trucks.

24.  On the pleadings, there is an issue as to whether the loss of the 1^st and 2^nd Cargo was in circumstances beyond the “foreseeability, control and precaution” of Tung Tat. In my judgment, the loss of the 1^st and 2^nd Cargo was due to the negligence of Tung Tat. They were both unattended at the time of loss (the 1^st Cargo being left unattended in a truck in a carpark; the 2^nd Cargo being unattended next to a truck during delivery). Both are extremely hazardous scenarios. In the case of the 1^st Incident I bear in mind Tung Tat’s evidence as to the sort of security measures that were supposedly in place at the carpark. One must be realistic about the utility of such measures in practice. Indeed if an unattended truck in a public carpark (Yu at one time tried to dispute that it was a “public” carpark but in the end I think he accepted that it was a carpark which, though in theory could only be used by owners of units in that building, in practice could be used by anyone who could mutter a floor number to the security guard) was a safe place for storing high-value computer goods then there would be no need for anyone to pay any money to rent storage space in a warehouse. In my judgment, unless Tung Tat is able to establish one of the positive defences it relies on, it is liable to Deltamax for the loss of the cargo, irrespective of whether such liability is framed by reference to the ordinary law of negligence, or to the law relating to a bailee’s duties, or by reference to the express term of clause 2(3) of both contracts, or whether such liability is strict or negligence-based.

The oral agreement

25.  On Tung Tat’s case, this oral agreement was reached on a Sunday in August 2002. It was reached during a meeting in Deltamax’s premises. As to the persons present, on Deltamax’s side there were Chik, Deltamax’s Vice Manager for air freight at the material time and Madam Ng Wai Ling (“Ng”), a clerk of Deltamax whose nick name was “Little K” (小 K). On Tung Tat’s side there were one Mr Fung Chi Moon (“Fung”), a controller and driver in its employment and one Mr Leung Chi Wai (“Leung”), also a driver and controller. It is also alleged that during the meeting, Leung telephoned Yu, a director of Tung Tat, and took instructions from him before reaching the oral agreement.

26.  Of these participants, Chik, Yu and Fung testified before me. Ng had given a witness statement but was not called by Deltamax. The explanation given to me by Yip was that she had left the employment of Deltamax and had married someone in Taiwan (and moved to live there). Despite Yip’s efforts Deltamax was unable to locate her. As far as Leung is concerned, counsel for Tung Tat asserted that he had already passed away. However, there is no evidence before me to this effect and this was not accepted by Deltamax.

27.  While a good deal can be said by both sides about the other side’s failure or omission to call these two participants, on the particular facts of this case I have decided to place little weight on the omission to call them and would not decide the disputed issue of fact by calling in aid the drawing of adverse inferences. As to Ng, I accept Yip’s explanation for not calling her and in any event, both parties have called other participants in the meeting and I would in any event not have drawn adverse inferences from their failure or omission to call all the participants. I prefer to deal with the disputed issue of fact on the basis of inherent probabilities, contemporaneous documentation and (to a lesser extent) the performance and demeanour of such witnesses as were actually called. These are surer guides to assessing and determining disputed issues of primary fact.

28.  According to Tung Tat (through the testimony of Yu and Fung), the oral agreement was reached because on that occasion Tung Tat had collected some goods for Deltamax from the airport and taken them to Deltamax’s premises. The original intention was to store them at Deltamax’s warehouse overnight. However, there was not enough space at Deltamax’s warehouse. Chik and Leung discussed the matter (with Leung making telephone calls to Yu to take instructions). The gist of the discussion was that if the cargo were to be stored at Tung Tat’s warehouse then Yu would want to charge rent. But Chik was not prepared to pay rent. Finally it was agreed (after Leung had taken instructions from Yu) that the cargo would simply be placed inside Tung Tat’s trucks and that Tung Tat would not be responsible if anything were to happen to the cargo. In Yu’s figurative description, he did not want to “孭飛” (shoulder a heavy responsibility). There is no suggestion or evidence that anyone expected the trucks to be guarded by anyone.

29.  It is Tung Tat’s case that after this oral agreement (and up to the time of the 1^st Incident in 2003), Deltamax’s cargo had been left in Tung Tat’s trucks overnight on Sunday evenings for 20 to 30 times and that they were all on this basis of “no responsibility to Tung Tat”. It is Tung Tat’s case that the 1^st Incident was also subject to this oral agreement.

30.  Chik denied this oral agreement in his testimony.

31.  I now proceed to test the respective evidence by reference to inherent credibility and contemporaneous documents. I will comment on the witnesses’ demeanour in passing.

32.  In terms of inherent credibility, there are points that can be made in favour of each side and I cannot confidently say that one case is (or is clearly) inherently more likely or less likely than the other.

33.  On the one hand, it can be said that placing valuable electronic goods inside an unguarded truck overnight in a carpark is something so risky that it is inherently unlikely that Deltamax would have agreed to let Tung Tat do so at Deltamax’s risk.

34.  But the same point can be made for Tung Tat, namely that the conduct was so risky that it is inherently unlikely that it would have done so without securing a promise that it would not be responsible.

35.  When one turns to examine the contemporaneous conduct and documents, they are firmly in Deltamax’s favour.

36.  First, the oral agreement is said to have been made in mid August 2002. The 1^st Contract was, however, not signed until 23 and25 September 2002. This was after the making of the alleged oral agreement. It was worded as a document addressed by Tung Tat to Deltamax and it was in fact prepared by Tung Tat based on a previous contract between Deltamax and Tung Tat’s predecessor which was an unincorporated business. If the evidence about the oral agreement was true, surely the safest way of protecting Tung Tat was to reduce the agreement in writing and incorporate it into the 1^st Contract. However, Tung Tat did not incorporate the oral agreement into the document. No satisfactory explanation was forthcoming from Tung Tat for this omission.

37.  The point was put to Yu in cross-examination and no meaningful answer came out of him. The point was then put to his wife, Madam Lam Wai Shan (“Lam”) who was also a director of Tung Tat. She said that Tung Tat did suggest including a clause setting out the oral agreement but Deltamax said that they had to seek opinion from Taiwan and in the end the clause was not included. I have no hesitation in rejecting this. Not only was this not mentioned anywhere in her witness statement, it was also contrary to business sense—on her own evidence, she prepared the the 1^st Contract (based on a previous contract for the unincorporated Tung Tat business which had been drafted by Deltamax); and if there had been any attempt to ask Deltamax to agree to the inclusion of a clause setting out the oral agreement, one would have expected to see such a suggestion (or even a draft clause) in a draft prepared by Tung Tat. I have seen no such document.

38.  Nor did Tung Tat try to suggest the inclusion of such a term in 2003 (when the 2^nd Contract was being negotiated). By this time the 1^st Incident had already occurred. Tung Tat should have been very alive to the risk. At that time Tung Tat was also well aware of how to suggest contractual clauses to protect itself because it saw fit to put forward two draft agreements which contained different formulations of a clause dealing with the responsibility to take out insurance (see below). But the opportunity was not taken to put forward a clause dealing with the oral agreement. Again Lam was questioned on this. After a very long silence, she answered that she did consider adding such a clause and that Tung Tat had always chased Deltamax to include the oral agreement in written form. Again this was not mentioned in her witness statement. It is inherently unlikely that had she really wanted to suggest such a clause, it was not put in writing. I reject her evidence.

39.  Further, Tung Tat allowed Deltamax to deduct a total of HK$300,000 after the occurrence of the 1^st Incident without making any protest. In fact the deductions were all recorded and acknowledged on Tung Tat’s notepaper (and signed by Deltamax). This conduct was wholly inconsistent with Tung Tat’s case that there was an oral agreement whereby the cargo would be stored in Tung Tat’s trucks at Deltamax’s own risk.

40.  When Yu was cross-examined on this, he said that Tung Tat did not seek any advice at that time and that it did not want to affect the relationship with Deltamax. I reject this explanation. It does not require any advice (legal or otherwise) to realize that if there had been an agreement that goods were to be stored in Tung Tat’s trucks at Deltamax’s own risk, Deltamax was not (or arguably was not) entitled to turn round and blame Tung Tat (and deduct money) after the occurrence of a theft. After all, events such as the 1^st Incident were exactly the sort of things which (had the evidence about the oral agreement been true) the oral agreement was intended to safeguard Tung Tat from.

41.  At this juncture I shall mention briefly the dispute about the reason for Deltamax’s re-engagement of Tung Tat by the 2^nd Contract, even though Deltamax had terminated the 1^st Contract (or recorded a consensual termination) by its letter dated 3 July 2003. According to Tung Tat it was because at that time Deltamax was trying out a new contractor called “Wai Kei” but Deltamax found Wai Kei’s services unsatisfactory and so Tung Tat was re-engaged despite the earlier consensual termination. According to Deltamax the re-engagement came about because after the letter of termination dated 3 July 2003, the 1^st Incident occurred. If Tung Tat had to compensate Deltamax and the 1^st Contract was terminated, that would put Tung Tat in great financial difficulties. Tung Tat therefore approached Deltamax, concluded the 2^nd Contract, and was content for Deltamax to make deductions from fees otherwise payable by Deltamax to Tung Tat.

42.  On balance I prefer the explanation put forward by Deltamax. Tung Tat’s explanation lacks common sense because even if Deltamax was dissatisfied with Wai Kei (which I do not accept), it is unlikely that Deltamax would positively seek to re-engage an entity who has just lost a lot of valuable goods and who has just exposed Deltamax to the likelihood of claims by its customers.

43.  I have not lost sight of the fact that shortly after the 1^st Incident, Yu gave a police statement dated 25 August 2003 in which he alluded to an agreement with Chik. However, Tung Tat’s case of an oral agreement is so contrary to the contemporaneous documents and circumstances that even if there is a prior consistent statement, the credibility of Tung Tat’s case is not salvaged. In any event, a careful examination of the police statement shows that it is not entirely consistent with Tung Tat’s case at trial and hence not truly supportive of its case : first, in the police statement Yu described the agreement as being made by him (我) whereas according to Tung Tat’s case at trial the oral agreement was made by Leung and Fung (with Yu only speaking to Leung on the phone from time to time). More importantly, in Yu’s police statement he said that the reason for the agreement was because Deltamax was on holiday on Sundays and Tung Tat was unable to deliver cargo to Deltamax. But its case at trial was that the oral agreement was made in mid August 2002 because Deltamax’s warehouse was full and it did not want to pay rent for storing the cargo at Tung Tat’s warehouse.

44.  There had been wide ranging cross-examination at trial as to the meaning of various annotations on the instructions sheet supplied by Deltamax to Tung Tat for the latter’s daily operation. In particular, a lot of time has been spent at trial to ascertain the meaning of various terms such as “過”，“送”，“返” and “華達” on these sheets.

45.  That is, at the end of the day, a rather sterile debate. Insofar as such cross-examination is for the purpose of impugning the credibility of a particular witness, unless he can be shortly and incontrovertibly shown to be untruthful by reference to a document, the utility of such cross‑examination “on credit” is very limited. Insofar as it is sought to be demonstrated by such documents that there had been many occasions in the past where Deltamax’s goods had been placed in Tung Tat’s trucks on Sunday evenings, this does not solve the question of whether such arrangements were accompanied by an oral agreement that the risk of such an arrangement was to fall on Deltamax (and it is the existence of such an oral agreement that is the hotly contested issue between the parties). And for the avoidance of doubt I do not think that the documents are capable of even showing that Deltamax’s cargo had been stored at Tung Tat’s unattended trucks on many Sunday evenings in the past.

46.  For what it is worth, and in case the matter goes matter and the point is regarded as relevant, I reject Deltamax’s evidence that a tick in the “華達” box could mean an instruction to Tung Tat either to take the goods to Tung Tat’s premises or the premises of the warehouse called Rich Long warehouse (both of which were situated at Wah Tat Building). Quite apart from the fact that this form of notation would be extremely confusing to the staff of Tung Tat (because upon seeing a tick in the “華達” box they would not know whether to take the goods to Tung Tat’s premises or to the Rich Long warehouse), there is documentary evidence (in the form of an instruction sheet for 12 February 2003) which shows that if cargo was required to be delivered to Rich Long warehouse, a tick would be put in the “送” box and words written to the effect of “交利祥倉” (which was the Chinese name of Rich Long).

47.  This, however, is of limited assistance to Tung Tat because at most it means that sometimes cargo would be directed by Deltamax to be taken by Tung Tat to Tung Tat’s premises at Wah Tat Building. It does not mean that the goods were intended by Deltamax to be stored at Tung Tat’s unattended trucks in the carpark overnight; still less is it probative of the existence of an oral agreement as alleged by Tung Tat.

48.  In the instruction sheet for 24 August 2003, for the House Air Waybills No. CAE-085975, TPE-881862 and CAE-086097, there was simply a tick in the “送” box. The effect of the evidence, and I so find, is that a tick in this box indicated an instruction to deliver goods to a particular customer or location. There was no tick in the “華達” box, and so even on Tung Tat’s case this instruction does not evidence a direction by Deltamax for Tung Tat to take the goods back to its premises at Wah Tat Building.

49.  Another point which came out of the analysis of the contemporaneous documents is that there is evidence that Deltamax was prepared to pay for Tung Tat’s warehouse rental even on Sundays (see e.g. a Tung Tat internal document dated 29 June 2003). I regard this as a point marginally in favour of Deltamax, in that it tends to show that Deltamax was not so “miserly” as to want to save up on storage costs on Sundays and agree to a hazardous mode of storing goods.

50.  Deltamax tried to make the point that economically it was more expensive (i) for Deltamax to instruct Tung Tat to take goods from the airport and take them back to Tung Tat’s premises on Sunday, store them overnight and for Tung Tat to deliver the goods to customers on Monday than (ii) for Deltamax to instruct Tung Tat to take the goods from the airport on Monday and deliver them to customers on the same day. Deltamax also contended that since Deltamax was entitled to free storage at the airport on Sundays, there was no need for Deltamax to instruct Tung Tat to collect the goods from the airport on Sunday (thereby having to find somewhere to store them overnight). Therefore, the argument goes, there is no reason why Deltamax would want to instruct Tung Tat to take goods from the airport and store them somewhere and then deliver the goods on Monday.

51.  There is some force in this. However, Chik accepted in cross-examination that sometimes (depending on customers’ needs) goods did have to be taken from the airport and stored overnight on Sundays (and hence there would be a need to find somewhere to store them on Sunday evenings). Therefore I would not regard Deltamax’s “economic analysis” and its argument based on the “Sunday free storage” as being conclusive arguments against the need for Deltamax to store goods on Sunday nights.

52.  But the fact that sometimes Deltamax may have to find somewhere to store the goods on Sunday nights does not necessarily mean that Deltamax had agreed to store them in Tung Tat’s trucks at Deltamax’s own risk. Nor does it mean that 24 August 2003 was such a night when Deltamax had to find somewhere to store its goods on Sunday. Indeed from the instruction sheet for 24 August 2003 there was nothing to suggest that there was a need to find somewhere to store Deltamax’s goods that Sunday evening.

53.  On the totality of all the evidence (and largely because the contemporaneous documents and Tung Tat’s subsequent conduct was wholly inconsistent with the existence of the alleged oral agreement), I reject Tung Tat’s evidence that there was an oral agreement.

54.  Of course the objective fact is that the 1^st Cargo was indeed stored in Truck AC6033 at the Wah Tat carpark on 24 August 2003. I have rejected Tung Tat’s case (and evidence) as to how that state of affairs had come about. It is not necessary for me to make a positive finding of how (if Tung Tat’s case is rejected) the 1^st Cargo came to be stored in Truck AC6033. The burden of making out a positive defence is on Tung Tat and, having failed in its burden, that is the end of the matter. The state of affairs could have come about in a number of possible ways, and all that matters in this action is that whatever may be the real reason, it was not accompanied by the alleged oral agreement.

55.  Even if there was an oral agreement made in the circumstances alleged by Tung Tat, in my judgment it was made without Deltamax’s authority.

56.  The persons alleged to have made the oral agreement on behalf of Deltamax were Ng and Chik. Ng was a clerk in the air freight department and Chik was the vice manager of the air freight department. I find that neither Chik nor Ng had actual authority to enter into the oral agreement. In terms of entering into binding contractual relationships on behalf of Deltamax, none of them represented Deltamax in signing the 1^st or 2^nd Contracts. Chow signed the 1^st Contract and Yip signed the 2^nd Contract. There is no evidence that at the time of the alleged oral agreement (which, it has to be remembered, was even before the signing of the 1^st Contract). There had not been any acts of “holding out” by Deltamax to the effect that Chik or Ng could bind Deltamax to any contract. Even if Chik, as vice manager of the air freight department, might be regarded as having some limited and implied authority to agree to matters as to the mechanical implementation of instructions, such authority could not possibly extend to the conclusion of an agreement which involved a hazardous mode of operation and which would have a severe impact on the risk profile assumed by Deltamax in its operations.

57.  I therefore hold that Chik and Ng had no actual, implied or apparent authority to bind Deltamax to the alleged oral agreement.

58.  Lastly I should mention an argument raised by Deltamax to the effect that since the 1^st Contract was only entered into in September 2002 and the oral agreement was made in August 2002 (when Deltamax was still dealing with the unincorporated “Tung Tat” entity), the oral agreement was not binding on Tung Tat. In view of my conclusions above it is not necessary for me to deal with this point. However, for the sake of completeness I would indicate my views.

59.  As I said above, Tung Tat was incorporated in June 2002. There is little evidence as to whether, between June 2002 and the signing of the 1^st Contract, any business had been transacted between Tung Tat (the corporate entity) and Deltamax. The wording of the 1^st Contract about the issuance of cheques to the name of Tung Tat (the corporate entity) suggests that transactions with the new corporate entity only began from the 1^st Contract onwards. But even if that were the case, I am of the view that had the oral agreement been proved to have been made, it would—on the facts of this case—have continued to bind, and inured to the benefit of, Tung Tat after the 1^st Contract. The continued request to store goods in Tung Tat’s trucks after the 1^st Contract, coupled with the existence of a pre-existing oral agreement with the unincorporated Tung Tat business as to the shouldering of risks, must in the circumstances amount to an offer by Deltamax that Tung Tat (the corporate entity) that the benefit of the oral agreement was correspondingly extended to Tung Tat (the corporate entity). There was no “entire agreement clause” in the 1^st Contract, and the matter can perfectly well be analyzed as a collateral agreement.

Clause 1(4)

60.  But that is not the end of the matter. Tung Tat contends that under clause 1(4) of the 1^st Contract Deltamax was obliged to take out transportation insurance and its failure to do so had resulted in loss to Tung Tat. In fact Tung Tat seeks dismissal of Deltamax’s claim in respect of the 1^st Incident on the basis of circuity of action.

61.  Clause 1 is headed “甲方責任”. “甲方” was Deltamax.

62.  Clause 1(4) provides : “甲方應為其貨物購買運輸保險”.

63.  The issue turns on the proper interpretation of clause 1(4) and in particular, what sort of insurance “運輸保險” refers to.

64.  It is Tung Tat’s case that clause 1(4) requires Deltamax to take out an insurance policy covering liability which might be incurred by Tung Tat arising out of the transportation process. Had such an insurance policy been taken out, any claims made against Tung Tat arising out of loss of cargo in transit (whether by a cargo owner, or by Deltamax) would have been met by the insurer and Tung Tat need not (even if it were otherwise liable) have met the claim itself. In this regard a clause such as clause 1(4) operated as an allocation of risk as between the parties.

65.  The contract is to be interpreted on an objective basis. This means that the subjective (or internal) understanding of the parties as to the meaning of “transportation insurance” is irrelevant. However, the understanding of the parties about insurance policies is still relevant to this extent. A contract is to be construed against its factual matrix, and factual matrix consists of all facts that are known to or reasonably available to the contracting parties. The types of insurance policies in the market that are known to (or the knowledge of which is reasonably available to) the parties at the time would, therefore, be part of the relevant factual matrix to show what sorts of “insurance policies” are within the contemplation of the parties as falling under the rubric of “transportation insurance”.

66.  Clause 1(4) is part of a clause dealing with obligation on the part of Deltamax. It is therefore prima facie an obligation for the benefit of Tung Tat.

67.  On this basis, it is unlikely that the parties intended clause 1(4) to mean cargo insurance which compensates the cargo owner for the value of any cargo which had been lost or damaged. This is because even if such cargo insurance is taken out and if the goods were lost or damaged, the owner would receive compensation from the insurer who would be entitled to be subrogated to the cargo owners’ claims (if any) against anyone responsible for the loss (including Tung Tat). Viewed in this light, whether there is or is not “cargo insurance” is really not the concern of entities such as Tung Tat. It still has to “face the music”. Counsel was unable to suggest any reason why Tung Tat would be interested in stipulating for such a type of insurance in a clause which was intended for its benefit.

68.  On the other hand, an insurance policy covering Tung Tat’s own liability would be of benefit to Tung Tat and one can readily see the sense of including a requirement for such a type of policy for Tung Tat’s benefit.

69.  Witness testimony on this issue had focused on the awareness of Chow and Yip (Deltamax’s witnesses) of a type of insurance which covers a forwarder’s (such as Tung Tat’s) liability. Chow explained that since Deltamax was not the owner of the goods, it was unable to obtain insurance policy on them. Yip gave evidence to like effect. When asked about whether she was aware of liability insurance for cargo forwarders/carriers, she evaded and dodged the questions. She tried to give the appearance that she was not clear about the types of insurance policies that were available in the market. With respect to these two witnesses I have found their testimony on this point coy, evasive, unconvincing and incredible.

70.  In particular, counsel and the court spent a long time explaining to Yip the types of insurance policies that she was being asked about. I am satisfied that the matter has been explained to her in fair and simple language and there could be no scope for misunderstanding (or “not understanding”) what was being asked of her. I have given due allowance for the fact that Yip came from Taiwan and may not be fully familiar with the court process in Hong Kong (and the way questions and answers were put in cross-examination). I have also borne in mind that Yip testified with the help of an interpreter. I have also given due allowance for the possibility of difference in commercial or insurance practice between Hong Kong and Taiwan. However, even with all the above allowance, Yip’s answers were rambling and evasive. From the way she answered questions in the box she was an extremely intelligent and shrewd commercial operator. Her ignorance in the box was feigned. There is nothing peculiar, or especially “local” (or “Hong Kong”), about the type of liability insurance under discussion. It is a well known creature in the cargo forwarding business and it should be known to a person in Yip’s (or, for that matter, Chow’s) position, whether he or she is from Hong Kong or Taiwan.

71.  During the trial, Tung Tat produced a document entitled “物流責任保險” issued by PICC Property and Casualty Co. Ltd dated 9 July 2008, with a view to showing that liability insurance such as that discussed above existed in Hong Kong. In coming to my conclusion above I have placed no weight on this document. The existence of policies of insurance which protects carriers or forwarders against liability arising out of carriage of goods is too well known to require evidence to “prove” it.

72.  In any event, even if (which I refuse to believe) Yip (and Chow) were genuinely ignorant of the existence of liability insurance which could protect entities such as Tung Tat, this still would not assist Deltamax or affect the interpretation of clause 1(4). Liability insurance is a type of insurance which existed in Hong Kong. Knowledge of such insurance is something which is reasonably available to Deltamax. For the purpose of ascertaining the factual matrix, knowledge which is “reasonably available” to the parties will do.

73.  Chow said that Deltamax had difficulties obtaining such insurance because it was not the owner of the goods. I reject this explanation. Tung Tat had suggested that the true reason why Deltamax had not taken out such insurance was because premium was too high. I do not think it was necessary for me to inquire into, or make findings as to, the real reason why no such insurance had been taken out. The contract requires Deltamax to take out such policy; it has not; therefore it has acted in breach. Deltamax has not raised defences such as frustration and therefore the reason for the absence of such insurance policy is not relevant.

74.  Clauses such as clause 1(4) are not new inventions by the parties in this case. They have attracted textbook and judicial discussions in the past. While each clause depends on its own wording, such clauses are in principle capable of operating to allocate risks in a contract for the carriage or delivery of goods. As Clarke : The Law of Insurance Contracts (5^th ed.) observes at §31-5A1 at p. 991 :

“If one party to a contract undertakes to insure against a particular risk, that undertaking may be seen as an assumption of that risk by that party, with the corollary that the other party is not liable in respect of the loss to be insured.”

75.  Coupar Transport (London) Ltd v Smith’s (Action) Ltd [1959] 1 Lloyd’s Rep 369 is an example of this principle at work. Due to the negligence of the defendant (who were carriers), certain goods were damaged. The plaintiffs were in the business of introducing cargo owners to carriers such as the defendants. Consequential upon the damage to the cargo, the plaintiffs sued the defendants for loss and expenses arising out of damage to the cargo.

76.  The court found that there was a term in the contract between the plaintiffs and the defendants that the plaintiffs would provide insurance cover for the goods (377 col. 2 to 378 col. 1). At 375 col. 2 Winn J said :

“… it is no good to a carrier to have an insurance in respect of goods which he is carrying, or to be told or promised that there is or would be an insurance in respect of the goods which he is to carry, unless it is also implicit that insurance will be one under which the insurers will not, by subrogation or otherwise, claim from him any monies that they may pay out to the owners of the goods.”

At 379 col. 1 Winn J found, on the facts, that :

“It was a term of the contract that either the plaintiffs would insure the equipment for its full value or that the defendants’ liability would be wholly excluded…”

In the end Winn J gave judgment for the defendants because the plaintiffs had been in breach of the obligation to provide insurance cover.  In that case there was in fact a counterclaim similar to that put forward by Tung Tat in this case, but in the end no order was made on the counterclaim.  Counsel for the defendants put it as an alternative to dealing with the defence (380 col. 1).

77.  The facts of that case are very similar to those of the present case. In that case the duty to insure arose by way of an oral agreement. In the present case it arose by an express term. The reasoning is directly applicable.

78.  Two points are raised by Deltamax : first, that clause 2(3) of the 1^st Contract expressly provided that if goods were lost or damaged in transit, Tung Tat should compensate Deltamax; second, that Tung Tat was aware that Deltamax was unable to purchase insurance and Tung Tat had not insisted on Deltamax purchasing such insurance, and hence Tung Tat was precluded or estopped from enforcing the duty to insure.

79.  As to the first point (namely the argument based on clause 2(3)), Tung Tat had (in answer) suggested that it was really a term dealing with the deductible (in the sense that even if insurance was taken out, there would still be a deductible which would not be covered by the policy and it was the amount of this deductible that Tung Tat had to be responsible).

80.  However, I prefer to deal with the matter on the following footing. Clause 2(3) only deals with the situation as between Deltamax and Tung Tat in the event that insurance was provided. In other words, had Deltamax performed its duty of taking out insurance (covering Tung Tat’s liability, whether to cargo owners or to Deltamax), then Deltamax may be able to sue Tung Tat for loss and damage but Tung Tat would then be able to call upon the insurance policy to meet the claim. In name, Tung Tat would still be liable to Deltamax, but Tung Tat need not be out of pocket. This gives effect to both clause 1(4) and clause 2(3).

81.  The existence of clause 2(3) simply means that the matter cannot be approached on the basis (as was done in some of the cases) that a duty to insure negated a duty to compensate. However, it does not mean that the duty to insure cannot give rise to a damages claim against the person who failed to take out insurance. On the facts of the present case, Deltamax had failed to insure. Even if the express terms of clause 2(3) mean that Tung Tat had to compensate Deltamax, Deltamax’s breach of contractual duty to insure had given rise to loss on the part of Tung Tat, namely the payment that it would have to make out of its own pocket to Deltamax. Tung Tat’s counterclaim therefore offsets Deltamax’s claim and Deltamax’s action fails for circuity of action.

82.  Technically Deltamax may argue that even if it had taken out insurance cover for Tung Tat, Tung Tat still had to pay the amount of the deductible to Deltamax out of its own resources (it will be recalled that this is actually Tung Tat’s own understanding and interpretation of clause 2(3)). However, no evidence has been put before me as to the usual amount of deductible or the amount of deductible that would have applied if Deltamax had not breached its duty. Deltamax is the wrongdoer in this regard (since it was in breach of the duty to insure). If it had wanted to maintain a claim for the amount of the deductible it is incumbent upon it to adduce the necessary evidence. It had not done so and therefore Deltamax’s claim in respect of the 1^st Incident was offset in full.

83.  As to the second point (namely the argument that Tung Tat was estopped or precluded from enforcing clause 1(4)), I cannot see on what basis Tung Tat can lose its right to enforce a breach of clause 1(4) simply because it had been informed of Deltamax’s inability to provide an insurance policy and had not insisted. One is here not talking about a right to terminate or rescind a contract due to misrepresentation or breach of condition (in which case if one does not rescind or terminate in good time, arguments such as waiver or affirmation may arise and one may be precluded from terminating the contract). One is here talking about a right to invoke clause 1(4) by way of counterclaim so as to offset Deltamax’s claim. There is no principle barring this claim just because Tung Tat was content to continue the contract without insurance. I hold that Tung Tat has not lost its right to rely on clause 1(4).

84.  Tung Tat therefore succeeds in defeating Deltamax’s claim in respect of the 1^st Incident.

Estoppel

85.  This is a defence which Tung Tat invokes against Deltamax’s claim based on the 2^nd Incident. It is Tung Tat’s only positive defence to that claim : the 2^nd Contract does not contain a clause similar to clause 1(4) in the 1^st Contract (in fact the evidence is that Tung Tat tried to negotiate a provision in the 2^nd Contract dealing with insurance but was unsuccessful in doing so). The alleged oral agreement would not have covered the occurrence of the 2^nd Incident anyway (since the 2^nd Incident did not occur while goods were stored in Tung Tat’s trucks in the carpark at Wah Tat).

86.  The estoppel defence arose in this way : On 8 September 2004 Deltamax sent an e-mail to Tung Tat to inform the latter that with effect from 12 September 2004 Deltamax would cease using Tung Tat to collect goods from the airport even though Deltamax would continue to use Tung Tat for local deliveries (i.e. for the leg after the goods had been taken from the airport). This led to an e-mail from Tung Tat (the copy in the trial bundles is not dated but it must have been sent some time between 8 and 12 September 2004) accepting Deltamax’s early termination of the airport collection engagement. There was then an e-mail from Deltamax to Tung Tat dated 12 September 2004 confirming the termination of Deltamax’s engagement of Tung Tat for airport collection. According to Yu and Lam, in mid September 2003 (and none of them had been particularly specific as to whether this was before, or after, the series of e-mail mentioned earlier), Tung Tat decided that it was too risky to continue the 2^nd Contract without insurance coverage and Yu telephoned Chik to inform him of Tung Tat’s intention to get out of the 2^nd Contract. According to Tung Tat, Chik then sent an e-mail dated 17 September 2004 which stated :

“Except as otherwise provided in carrier’s tariffs or conditions of carriage, in carriage to which the Warsaw Convention does not apply carrier’s liability shall not exceed USD20.00 or the equivalent per kilogram of goods lost, damaged or delayed, unless a higher value is declared by the shipper and a supplementary charge paid.”

It is Tung Tat’s case that in reliance on such an e-mail it abandoned the intention to get out of the 2^nd Contract even though there continued to be no insurance cover.

87.  The estoppel defence is fraught with difficulties and I have no hesitation in rejecting it.

88.  First, for something as important as termination of a contract, it is against business sense for Tung Tat to simply proceed by way of a telephone conversation.

89.  Second, as I said above, neither Yu nor Lam had been specific as to whether the telephone conversation between Yu and Chik was before, or after, the series of e-mails over the period 8 to 12 September 2004, but whichever way it was, the alleged telephone conversation does not fit in with the contemporaneous documents. If the conversation was before Deltamax’s 8 September 2003 e-mail, then it is surprising that Deltamax’s 8 September 2003 e-mail made no reference to it (but proceeded to “sack” Tung Tat from airport collection as if Tung Tat had not, earlier, evinced an intention to “get out” completely). If the conversation was before the undated e-mail from Tung Tat acknowledging the termination (which I referred to above), then it is surprising that Tung Tat’s said undated e-mail made no reference to it but simply acknowledged termination of its airport duties. If the conversation came before Deltamax’s 12 September 2004 e-mail then again it is surprising that Deltamax’s 12 September 2004 e-mail made no reference to it. If the conversation took place after Deltamax’s 12 September 2004 then it is surprising why Tung Tat did not put the point in writing. This is a point in addition to the first point above about lack of writing. The first point above was a general point based on business commercial sense, but the lack of writing is made all the more inexplicable given the fact that between 8 and 12 September 2004, the parties had just been in e-mail exchange about the issue of termination of services.

90.  Third, it is difficult to see why, given that Deltamax had already seen fit to relieve Tung Tat of its airport collection engagement, it should care so much about Tung Tat’s intention to “pull out” that it would send an e-mail purporting to “cap” Tung Tat’s liability. This is particularly so when, as events unfolded, the 2^nd Contract was eventually terminated by mutual consent later in the same month, namely as from 30 September 2004.

91.  Fourth, I have grave doubts as to the authenticity of the e-mail which is said to have been sent by Chik. It bore the date of 17 September 2004. It was sent to an e-mail which was not the usual e-mail account used by Tung Tat to receive e-mails. It was not copied to anyone. Chik was not the person on Deltamax’s side who had been in e-mail communication with Tung Tat about the issue of termination. Chik denied sending it. It came literally out of nowhere. It was not preceded or followed by any oral explanation or discussion as to why it was sent. The text itself did not contain an explanation about the purpose of sending the e-mail. It was entirely in English, which was not in accordance with the language of communication used by the parties (as least so far as I can see on the evidence before me). On Tung Tat’s case, it just arrived in its computer on 17 September 2004 and that was it. Further, as Deltamax pointed out, it was not open to Tung Tat to unilaterally “get out” of the 2^nd Contract like that. Therefore if Deltamax really “treasured” Tung Tat’s services so much (a suggestion that I reject anyway) that it did not want Tung Tat to terminate the 2^nd Contract, it could simply have ignored Yu’s telephone call and continued to give work to Tung Tat. There was no incentive or motivation for Deltamax to impose such a cap. Insofar as it is necessary for me to do so, I reject the suggestion that it was sent by Chik on 17 September 2004 in the circumstances suggested by Yu.

92.  Fifth, even if it were to be assumed that the e-mail was in fact sent by Chik, as I said above it came out of nowhere. I refuse to find that, in the circumstances of this case, this e-mail is capable of being understood by the reader as providing for a “cap” as to Tung Tat’s liability (whether prospectively or retroactively) under the 1^stor 2^nd Contracts. It must be borne in mind that on Tung Tat’s own case this e-mail was not preceded or followed by any explanation. There was no context for it to be read in the way suggested by Tung Tat.

93.  Lastly, I reject the suggestion that Tung Tat’s continuing to perform services to Deltamax pursuant to its pre-existing obligations under the 2^nd Contract could constitute sufficient “detriment” for the purpose of estoppel.

Removal of logo

94.  This can be dealt with shortly. The costs of removal of logos on Tung Tat’s trucks was just part of Tung Tat’s normal operation costs which Tung Tat would have to incur anyway even if Deltamax had not demanded Tung Tat to remove the logos at an earlier point in time. Tung Tat is therefore not entitled to recover the removal costs.

Quantum

95.  Given my conclusion that Deltamax’s claim in respect of the 1^st Incident failed, the only quantum that needs to be considered is loss arising out of the 2^nd Incident. But in case the matter should go further I would make findings in relation to quantum on both the 1^st and 2^nd Incidents.

96.  Tung Tat made some attempts to challenge the quantum of damages claimed by Deltamax, both in cross-examination and closing submissions at §52-55. The queries are technical in the extreme. Many of them have not been put to Deltamax’s witnesses. While counsel was no doubt doing his duty to his client, I find that none of his objections in relation to the 1^st Incident can be sustained and Deltamax has duly proved the quantum of its loss by its evidence at trial. In respect of the 2^nd Incident I find that Deltamax has paid two sums of US$151,322.41 and US$64,486.59 (totalling US$215,809) and this is the quantum of damages I award to Deltamax (Deltamax’s counsel in his closing submissions made reference to some different figures at §89; but having cross checked with the primary documents namely the relevant E Sun Bank transfer documents, I have decided to base my finding on the evidence of actual payment set out above).

97.  At the conclusion of the trial I indicated to counsel that my judgment would deal with questions of principle, and it will be left to the parties’ legal advisors to work out the form of the order and who should be the net receiving party. But to assist the parties (and to recap) :

(1)  Deltamax’s claim in respect of the 1^st Incident is defeated by §(i) of Tung Tat’s counterclaim.  It is therefore dismissed.

(2)  Tung Tat also succeeds in §(ii) of its counterclaim.

(3)  Deltamax succeeds in its claim in respect of the 2^nd Incident.

(4)  Tung Tat’s fees (which it claims in the 2^nd Action) are to be set off against Deltamax’s recovery in respect of the 2^nd Incident.

(5)  Tung Tat’s claim for the removal costs fails.

98.  As to costs, Deltamax has been partially successful in establishing its damages claim in respect of the 2^nd Incident. It was also able to establish its counterclaim in the 2^nd Action to offset Tung Tat’s claim for fees. That said, time has been taken up in exploring the clause 1(4) issue (on which Deltamax lost). Looking at the matter in the round and exercising my discretion as to costs, I make a costs order nisithat Deltamax is to have 70% of its costs of both actions to be taxed if not agreed.