XCHRX RAF FORWARDING (H.K.) LTD. v. WONG ANGELA t/a JMT CO.

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS. 5533 OF 1998 AND 2446 OF 1998

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HCA5533/98

(by counterclaim)

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(Consolidated by Order Made by Master Poon on 23rd June 1998)

Reasons Handed Down : 22 December 1998

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R E A S O N S

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1. This is an appeal by the Defendant in A2446 of 1998 ("the Appellant") against the order of Master Lok granting the Plaintiff, RAF Forwarding (H.K.) Limited, summary judgment in respect of its claim for airfreight in the sum of $569,344.10 together with interest. In respect of the claim for freight, the Appellant had issued a cheque in the sum of $326,342.60 which was dishonoured upon presentation. Notice of dishonour was given to JMT Company ("JMT") by letter dated 16 December 1997. The Master stayed execution of the judgment as regards the balance, namely, the amount of the claim less the amount of the dishonoured cheque.

2. The appeal was dismissed. The reasons appear below.

The issues

3. The main issues that arise in this appeal are :

(i) whether the common law rule in relation to the carriage of goods by sea that a defendant will not be allowed to set up a defence or counterclaim in an action for freight applies to airfreight;

(ii) if the rule is held to be inapplicable, then, whether triable issues exist such as to warrant an order that the Appellant be given leave (conditional or unconditional) to defend.

Common law rule as to freight

4. The common law rule was restated by the House of Lords in Aries Tanker Corporation v. Total Transport Ltd. [1977] 1 WLR 185, 189G-H as follows :

" That a claim in respect of cargo cannot be asserted by way of deduction from the freight, is a long established rule in English law. It dates at least from Sheels v. Davies (1814) 4 Camp.119: it received authoritative approval in 1864 from an eminent court in Dakin v. Oxley, 15 C.B.N.S. 646 and again from the same court in Meyer v. Dresser (1864) 16 C.B.N.S.646 where the rule was called 'settled law'. As a rule it has never been judicially doubted or questioned or criticised; it has received the approval of authoritative text books...."

Lord Wilberforce went on to observe (at 190H-191A) that :

"...there is a decisive reason here why this House should not alter the rule approved in The Brede [1974] Q.B.233 by reversing it. That is that the parties in this case have, I think beyond doubt, contracted upon the basis and against the background that the established rule is against deduction. Such a case as this, in fact, marks out very decisively the possible limits of judicial intervention: for it would be undesirable in this, or in any other case where the same question arose, for the courts to declare that a rule, clearly shown to exist, and shown to be the basis of the contract before the court, ought to be replaced by a different rule which would have to operate on the contract in question. However convinced the courts might be of the latter's merits, to substitute it could be no part of a judicial process. This is all the less so since the parties themselves, if they dislike the rule, can perfectly well provide otherwise in their contract."

5. This well established rule that a carrier's claim for freight is to be paid in full on delivery of the cargo and cannot be subject to any deduction or abatement by way of a set-off counterclaiming against the carrier in respect of the cargo, whether the counterclaim be for loss or damage to the cargo or for delay in delivery, is not confined to contracts of carriage by sea. In R.H. & D. International Ltd. v. I.A.S. Animal Air Services Ltd. [1984] 2 All ER 203, Neill J held that it extends to claims for freight for the carriage of goods by road.

6. Counsel for the Appellant does not dispute that this rule applies to carriage of goods by sea and by road, but submitted that there is no authority that it applies where carriage is by airfreight. But that was exactly the issue that arose in Emery Air Freight Corpn. v. Equus Tricots Ltd. [1989] 2 HKLR 554. After referring to the common law rule as restated in Aries Tanker Corporation and applied to contracts of carriage by road in R.H. & D. International Ltd., Godfrey J (as he then was) held :

"There should be no stay of execution against an admitted claim for air freight. The defendant had contracted out of his right of set off. The common law rule in relation to the carriage of goods by sea that a claim in respect of cargo cannot be asserted by way of deduction from a claim for freight (see Aries Tanker Corpn. v. Total Transport Ltd. [1971] 1 All ER 398) which also applies to contracts of carriage by road (see R.H. & D. International Ltd. v. IAS Animal Air Services Ltd. [1984] 2 All ER 203) was equally applicable to air freight. Gilbert-Ash (Northern) Ltd. v. Modern Engineering (Bristol) Ltd. [1973] 3 All ER 195 considered and distinguished."

Whilst that decision is not binding on this court, I agree with the reasoning set out in the passage cited. I do not see that the fact that time was of the essence of the carriage contract is of itself sufficient reason why the common law rule should not apply to carriage by air which appeared to be the Appellant's case.

7. Counsel for the Appellant also sought to draw a distinction between breaches that were repudiatory in character and submitted that the common law rule did not apply where the other party has effectively repudiated the contract. The House of Lords in Colonial Bank (Now Bank of Boston Connecticut) v. European Grain & Shipping Ltd. (The "Dominique") [1989] 1 Ll LR 431 has expressly rejected the validity of such a distinction. It held that a repudiatory breach was no more capable of giving rise to a defence of equitable set-off than was a non-repudiatory breach.

8. In my judgment, the common law rule for freight also applies to a contract of freight by air. That is the basis upon which the parties contracted and the Respondent's entitlement to freight is not subject to any claim by way of set-off or counterclaim by the Appellant.

9. In view of the answer to the first issue which is that the common law rule extended to airfreight, the second issue does not arise. Nevertheless, I will deal with the second issue if I were held to be wrong on the first point.

Whether leave to defend should be granted

10. The facts

11. In November 1997, the Appellant and the Respondent entered into an agreement for the carriage of goods from Hong Kong to Toronto. Shipper's Instructions were issued by the Appellant and the first lot of goods were delivered to the Respondent on 10 November 1997. The first lot of goods arrived in New York on 12 November and was then taken by road to Toronto, arriving on 22 November 1997. Two days later, on 24 November, the second lot of goods was delivered to the Respondent. It appears to be common ground that a discussion took place on 24 November between the Appellant and Mr Ling of the Respondent concerning invoices issued by the Respondent in respect of the carriage of the first lot of goods aggregating $326,342 which remained unpaid as at that date. A cheque post-dated to 1 December was issued on 24 November for the freight charges in respect of the first lot of goods. On 24 November, the Appellant delivered the second lot of goods to the Respondent. This arrived in Chicago on 29 November and was then taken by road to Toronto, arriving on 8 December. The cheque was presented on 8 December and dishonoured. The Respondent issued demand letters on 16 December and 20 January, but met with no response. On 18 February 1998, it commenced its action in respect of freight charges against the Appellant. On 8 April 1998, the Appellant commenced its action against the Respondent for, inter alia, breach of the agreement. The Appellant's case is that the Respondent breached the agreement by not delivering the goods from Hong Kong to Toronto by air in time and as a result of the delay, the Appellant's customers either asked for a discount in the price or rejected the goods. By order dated 23 June 1998, the two actions were consolidated with the Appellant's action being the lead action.

12. The dishonoured cheque

13. I will first deal with the question of the dishonoured cheque. Counsel for the Appellant sought to contend that the writ in A2446 of 1998 is not an action upon a dishonoured cheque and that the Respondent was not relying on a dishonoured cheque per se. Rather, the claim being advanced was one for freight charges.

14. I do not agree. The Statement of Claim, fairly read, encompasses within it a claim on the dishonoured cheque. Since the total freight claimed exceeded the amount of the dishonoured cheque, certain parts of the pleading therefore relate to that part of the claim that is not covered by the dishonoured cheque. All the ingredients necessary for an action on a dishonoured cheque is to be found in the pleading and whilst the relief could have been pleaded in the alternative to make this absolutely clear, the Statement of Claim is not defective. In my judgment, there is plainly no defence as regards the sum of $326,342.60 which is the amount of the dishonoured cheque.

15. The balance of the freight claim

16. Has the Appellant raised triable issues as would entitle her to leave to defend in relation to the freight claim less the amount of the dishonoured cheque?

17. The Appellant's case is that it was not bound by the standard terms and conditions of the agreement, that there was a warranty by the Respondent as to the delivery time which was to be within three or four days of receiving the goods, that consequently there was a failure of consideration and because of the breach which amounts to a repudiatory breach, the Appellant is under no obligation to make payment for the freight charges.

18. It is evident from the chronology of events that if there had been any warranty as alleged, the Respondent were already in breach in respect of the delivery of the first lot of goods. That apparently did not deter them from delivering the second lot of goods to the Appellant two days later. It is alleged that the second lot was delivered against fresh warranties. Even if this were the case, it would have been evident well before 1 December, which was the date of the post-dated cheque, that the Respondent had again breached the alleged warranties given. Yet, the Appellant took no steps to countermand the cheque which was only presented on 8 December when it was returned marked "refer to drawer". This of course means that there were insufficient funds in the Appellant's account, which is something wholly different from the Appellant refusing to pay by countermanding the cheque because of the Respondent's alleged breach.

19. It is to be noted that the Appellant has not exhibited any documentary evidence to substantiate the loss alleged to have been suffered by reason of the delay in delivery. Having regard to all these matters, if, contrary to what I have held, the common law rule as to the carriage of goods does not apply to airfreight, the Appellant's case is nevertheless extremely weak and would certainly not warrant the grant of unconditional leave to defend. In respect of the amount of the dishonoured cheque, there is simply no defence. Leave, if granted at all, would be limited to the balance of the sum claimed in respect of freight all of which should be paid into court.

20. Stay of execution

21. The Master had granted a stay of execution in respect of the claim other than for the amount of the dishonoured cheque. Whilst Emery Air Freight Corpn. (supra) is authority for the proposition that a stay should not be granted where the common law rule applies, this point does not fall for consideration since there is no appeal by the Respondent against this order.

22. The appeal is dismissed with costs.