ON YOUR MART CO LTD v. COSWAY (HK) LTD

HCA 1060/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1060 OF 2012

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JUDGMENT
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1.  In this action the plaintiff, On Your Mart Co Limited, claims against the defendant, Cosway (HK) Limited, for damages for breach of contract in the amount of $9,902,908.22. The defendant denies both liability and quantum.

BACKGROUND FACT

2.  The following background fact is not in dispute.

3.  The plaintiff is a wholly owned subsidiary of OYM Logistics Company Limited (“OYM”).  Both companies provide cross‑border courier services to their clients and were represented by their managing director, Mr Edmon Fung (“Edmon”), in all dealings with the defendant. 

4.  The defendant carries on the business of consumer marketing, direct selling and retailing of products.  It is a subsidiary of Cosway, Malaysia (“Cosway”).  In October 2006, the defendant began to operate an online shopping website through which overseas customers including those in the Mainland China can place orders with the defendant.  Mr Mannix Li (“Mannix”), the general manager of the defendant, was the person dealing with OYM and the plaintiff.

5.  In the beginning of 2007, Edmon came to know Mannix and after certain negotiations between them, on 28 March 2007, an “Agreement between Cosway (HK) Limited (467660) and OYM Logistics Co. Ltd.” with appendices 1 to 6 (“Agreement”) was signed by Edmon on behalf of OYM and by Mannix on behalf of the defendant.

6.  Under the Agreement:

(1) OYM was the appointed courier company of the defendant responsible for delivering parcels from Hong Kong to China (clauses 1.2).

(2) OYM was entitled to charge the defendant in accordance with the weight of each parcel (or docket) delivered.  The charges for “Normal Orders with Multiple Products” (“Multiple Products”) were set out in appendix 4 while the charges for “Single Order with Single Product” (“Single Product”) were set out in appendix 5 (clause 2.1.1).

(3) The charges were stated to be “inclusive of the Hong Kong Documentation Fee, Custom Declaration Dee and Tax and any Registration Fee which may [sic] charge for the Parcels deliver [sic] from Hong Kong to China” (clause 2.1.3). 

(4) The Agreement was for a period of one year commencing from 31 March 2007 and would be renewed automatically for one year unless terminated by either party upon giving 60 days’ notice (clause 8.1).

(5) Either party had the right to terminate the Agreement with or without reasons by giving at least 60 days’ prior notice in writing to the other party without prejudice to the party’s right to claim against the other party for any antecedent breach (clause 9.1).

(6) Clause 10 provided as follows:

“10.1 This Agreement upon execution shall not have any amendments, modifications or additions to it, in any respect except by the mutual consent of both parties herein.

10.2   Any such amendments, modifications and additions to the Agreement shall be separately executed by the parties and shall be supplemented in the form of Schedules to this Agreement.  These Schedules containing the said amendments, modifications and additions thereto, shall be constituted as part and parcel of this Agreement.”

7.  On 31 August 2008, Edmon on behalf of the plaintiff and Mannix on behalf of the defendant signed two documents entitled “Agreement #467660 (Supplement to appendix 4)” (“Supplement 4”) and “Agreement #467660 (Supplement to appendix 5)” (“Supplement 5”) (together “Supplements”).  Under the Supplements, the delivery charges for Multiple Products and Single Product were increased.  In each of the Supplements, the following matters were stated:

(1) the new prices would become effective from 1 September 2008 (note 3);

(2) “With effect from 1 September 2008, the minimum number per month is 5,000 dockets” (note4); and

(3) the plaintiff’s name and bank account number under payment information.   

8.  Also on 31 August 2008, a written agreement dated 1 September 2008 was entered into between the plaintiff and the defendant whereby the defendant appointed the plaintiff to provide warehousing and delivery services in Hong Kong on a non‑exclusive basis (“Warehousing Agreement”).  The Warehousing Agreement was also signed by Edmon on behalf of the plaintiff and by Mannix on behalf of the defendant.

9.  At the bottom of each page of the Supplements and the Warehousing Agreement the same reference “Ref: COS/AGM/1001/0809” was printed.

10.  On 2 June 2009, Edmon and Mannix on behalf of the plaintiff and the defendant respectively signed two price lists which were stated to be “new offer to be effective from 1^st May 2009” (together “2009 Price Lists”) as follows:

(1) A price list for “6,000 parcels (Multiple‑products)” or less below, which set out the new reduced charges for Multiple Products of different weights (and the original charges for the same weights for comparison purpose).  In the same list, except the charges for “3*Hexagon” model “89481*3”, which were reduced for all zones, the charges for the other products remained the same as those stated in Supplement 5.

(2) A price list for more than “6,000 parcels (Multiple‑products)”, which set out the further reduced charges for Multiple Products of different weights (and the original charges for the same weights for comparison purpose).  In the same list, the charges for all the Single Product were also reduced (as compared to the charges stated in Supplement 5).

11.  In the 2009 Price Lists, the “original” prices listed for Multiple Products and Single Product were those prices stated in the Supplement 4 and 5 respectively. 

12.  By a “Termination Notice” dated 6 January 2010 signed by Mannix on behalf of the defendant and addressed to OYM and the plaintiff, the defendant gave notice for terminating the “Courier Service Agreement No. 467660 dated 28^th March, 2007 and all related contractual appendix supplements, effective from today’s date” (“Termination Notice”). 

13.  By a letter dated 9 February 2010, the plaintiff through its solicitors, Henry Wan & Yeung (“HWY”), referred to the Termination Notice and stated that according to clause 9 of the “Courier Service Agreement No. 467660”, the parties should give at least 60 days’ notice in writing to terminate the Agreement and, as such, the plaintiff accepted the Termination Notice with effect from 7 March 2010.  In the same letter, HWY stated that the plaintiff required the defendant to honour the terms of the Agreement and “hope to receive the minimum 1,000 [sic] dockets of delivery notes per month”.

14.  In response, by a letter dated 11 February 2010, Yuen & Partners (“YP”) on behalf of the defendant stated that the defendant had “never agreed to any minimum order as alleged” and that any claim for any loss or damages arising from “the alleged failure to fulfil minimum order will be strenuously defended with costs against [the plaintiff]”.   

15.  Thereafter, the plaintiff issued the following four invoices to the defendant on the basis that the defendant had not placed the “Minimum (5000 parcels)” with the plaintiff (collectively “the four invoices”):

Date	Invoice No.	Description	Amount
28/2/2010	OYM-INV-9348	Single Product: Average cost per parcel $123.1 (from Dec 2008 to Oct 2009) x 5,000 parcels (parcels “run short” in February 2010)	$615,500.00
28/2/2010	OYM-INV-9349	Multiple Products: Average cost per parcel $76.47 (from Dec 2008 to Sep 2009) x 5,000 parcels (parcels “run short” in February 2010)	$382,350.00
6/3/2010	OYM-INV-9350	Single Product: Average cost per parcel $123.1 (from Dec 2008 to Oct 2009) x 967.7 parcels (parcels “run short” from 1 to 6 March 2010)	$119,129.03
6/3/2010	OYM-INV-9351	Multiple  Products: Average cost per parcel $76.47 (from Dec 2008 to Sep 2009) x 967.7 parcels (parcels “run short” from 1 to 6 March 2010)	$74,003.23

16.  By a letter dated 12 March 2010, YP on behalf of the defendant denied liability on the four invoices and reiterated that the defendant would defend any claim arising from the alleged failure to fulfil minimum order.

17.  In another letter dated 25 March 2010 HWY, on behalf of the plaintiff, demanded the defendant to pay $9,953,537.86, being the shortfall between the 5,000 dockets per month for Multiple Products and Single Product and the actual number of parcels delivered for the period from December 2008 to 6 March 2010.  In response, YP in their letter dated 1 April 2010 denied liability to the claim.   

18.  Further correspondence were exchanged between HWY and YP up to 27 October 2011 with both parties essentially repeating the same points stated in their earlier letters. 

19.  It is clear from the correspondence that the only agreement referred to by the parties was the “Courier Service Agreement No. 467660 with Cosway (HK) Limited” and both parties proceeded on the basis that such Agreement was binding on them.  The only dispute between them was whether the plaintiff was entitled to claim the shortfall in the number of parcels delivered by the plaintiff.  This is clear from YP’s letter dated 3 July 2010 where they stated as follows:

“In reply to your query on the purpose of execution of the 2 supplements, we draw your attention to the fact that the range of charges set out in supplements to appendix 4 and appendix 5 were increased. Our client did not further agree to a binding commitment on minimum number at higher charges.” (emphasis added)

20.  On 19 June 2012 the plaintiff commenced the present action against the defendant claiming damages in the amount of $9,902,908.22 being the loss allegedly suffered as a result of the defendant’s breach of the Agreement.

ISSUES

21.  The plaintiff’s case, as pleaded in the Statement of Claim (“SOC”), may be summarised as follows:

(1) Pursuant to clause 10.2 of the Agreement, the plaintiff and the defendant entered into the Supplements, “confirming that the job of [OYM] under the [Agreement] will be handled by the plaintiff with effect from 1^st September, 2008” (§18 of the SOC).

(2) Under the Supplements, the defendant “guaranteed that the minimum number of dockets to be assigned to the Plaintiff for cross‑border courier services is 5,000 dockets per month” whereupon the plaintiff agreed to charge more favourable prices for the delivery of parcels which were much lower than inflation rate and the market price at the time (§19 of the SOC).

(3) To accommodate the expected increase in the volume of parcels to be assigned by the defendant, the plaintiff expanded its workforce and facilities including purchasing additional forklifts, electronic scale, truck, etc (§20 of the SOC).

(4) Upon discovering the number of dockets delivered was lower than the 5,000 dockets per month, the plaintiff complained about the shortfall and reminded the defendant that it should comply with the terms of the Supplements (§§21 and 22 of the SOC).

(5) Wrongfully and in breach of the Agreement, from 1 September 2008 to 6 March 2010, the defendant failed to assign 5,000 dockets of Single Product and 5,000 dockets of Multiple Products per month to the plaintiff despite its repeated demands (§23 of the SOC).

(6) The Termination Notice was issued by the defendant in breach of clause 8.1 of the Agreement, which required the defendant to give 60 days’ written notice for terminating the Agreement.

(7) By reason of the defendant’s breach of the Agreement, the plaintiff has suffered loss and damage in the amount of $9,902,908.22, alternatively damages to be assessed (§§28 and 29 of the SOC, prayers (1)‑(2)).

22.  The defence, as pleaded by the defendant in its Amended Defence and Counterclaim (“Defence”), may be summarised as follows:

(1) The Supplements were not executed by OYM nor formed part of the Agreement and, therefore, did not have the effect of substituting the plaintiff as a party to the Agreement in place of OYM (§14 of the Defence).

(2) The Supplements were not supported by consideration and, therefore, were not binding on the defendant (§15 of the Defence).

(3) Upon proper construction of the Supplements, the defendant only committed to provide the plaintiff with 5,000 dockets per month covering bothSingle Product and Multiple Products (§16 of the Defence).

(4) Alternatively, clause 4 of the Supplements should be rectified by adding the words “(inclusive of both single-product parcels and multiple-product parcels)” after the words “the minimum number per month is 5,000 dockets” as it was the common intention of the parties that the agreed 5,000 dockets should be inclusive of both Single Product and Multiple Products but the same was not reflected in clause 4 of the Supplements by an oversight common to the parties (§17 of the Defence).

(5) Further or alternatively, the obligations under clause 4 of the Supplements were varied by the 2009 Price Lists with effect from 1 May 2009 or that such obligations were waived by the plaintiff with effect from 1 May 2009 or 2 June 2009 and the plaintiff is estopped from holding the defendant liable for such obligation (§18 of the Defence).

(6) The defendant denies liability and the amount claimed by the plaintiff (§25 of the Defence).

(7) The defendant counterclaims an order for rectification of clause 4 of the Supplements (§29 of the Defence).

23.  At trial, Mr Anson Wong SC (appearing with Mr Martin Kok), counsel for the defendant, informs the court that the defendant will not pursue the defence based on alleged lack of consideration.  Accordingly, the issues requiring determination by the court are as follows:

(1) Whether the Supplements signed by the plaintiff and the defendant constituted a valid and binding agreement between them.

(2) If there was a valid and binding agreement between the plaintiff and the defendant, whether the terms stated in the Agreement were incorporated into or formed part of such agreement. 

(3) Whether on the proper construction of clause 4 in each of the Supplements, the defendant had a contractual obligation to provide the plaintiff with 5,000 dockets per month for both the Single Product and the Multiple Products or 5,000 dockets per month for each of the Single Product and Multiple Products. 

(4) Whether clause 4 in each of the Supplements should be rectified on the basis that its wordings did not reflect the common intention of the plaintiff and the defendant.

(5) Whether the defendant’s obligation under clause 4 of the Supplements were superseded by the 2009 Price Lists.

(6) Whether the plaintiff is estopped from holding the defendant liable under clause 4 of the Supplements by reason of the parties’ common or shared assumption in relation to the 2009 Price Lists.   

(7) If the defendant is liable to the plaintiff, whether the plaintiff is entitled to claim loss and damages in the amount of $9,902,908.22. 

24.  I consider these issues in turn.

DISCUSSION

(1) Whether there was a binding agreement between the plaintiff and defendant

25.  Mr Wong submits that on the plaintiff’s case, the Supplements constituted an amendment or variation to the Agreement made in accordance with clause 10.2.  As OYM never provided its written consent to the amendment, the Supplements could not amount to valid variation of the Agreement.  This accords with the principle that where a contract provided that the variation must be made in a certain way, no effective or binding variation could be made unless such variation complied with the requirement stipulated in the contract (MSAS Global Logistics v Power Packaging [2003] EWHC 1393 (Ch), §49, per Davis J; Natamon Protpakorn v Citibank NA, HCA 190/2005, 23 November 2005, per DHCJ Muttrie, at §§37‑43).

26.  Clause 10.1 and 10.2 of the Agreement provide as follows:

“10.1 This Agreement upon execution shall not have any amendments, modifications or additions to it, in any respect except by the mutual consent in writing of both parties herein.

10.2 Any such amendments, modifications and additions to the Agreement shall be separately executed by the parties and shall be supplemented in the form of Schedules to this Agreement. These Schedules containing the said amendments, modifications and additions thereto, shall be constituted as part and parcel of the this Agreement.” (emphasis added)

27.  Mr Wong submits that as the Supplements failed to comply with the requirement for variation of the Agreement, the plaintiff’s claim “cannot get off the ground”.  Although Mr Peter KT Chung, counsel for the plaintiff, suggests in his opening submissions that there was an oral agreement between OYM and the defendant to effect the variation and that the requirement of clause 10.2 has been waived, neither case has been pleaded by the plaintiff.

28.  Mr Wong submits that the court should not allow the plaintiff to run an unpleaded case based on the alleged oral agreement and waiver (Sinoearn International Ltd v Hyundai‑CCECC Joint Venture (2013) 16 HKCFAR 632 at §§27‑34, per Riberio PJ; Lee Yip Ling-che v Foo Pui-hok and anor [1965] HKDCLR 100, per TL Yang DJ (as he then was), at §§102‑103).  I agree.   

29.  However, I do not think that the validity of the plaintiff’s claim depends on whether OYM has provided its written consent to the Supplements.  Nor do I think the defendant’s contention that there was no binding agreement between the plaintiff and the defendant is right. 

30.  Unlike MSAS Global Logistics and Natamon Protpakorn, the plaintiff is not seeking to vary certain terms in the Agreement, which could not be done in any event as it was not a party to that Agreement.  The plaintiff’s claim is based on the Supplements duly signed by the representatives of the plaintiff and the defendant (see §19 of the SOC) which, in turn, referred to the terms of the Agreement as forming part of their terms (see §18 of the SOC).  The issues between the plaintiff and the defendant are whether the Supplements constituted a binding agreement between the plaintiff and the defendant and, if so, whether the terms of the Agreement formed part of that agreement. 

31.  There is an attempt on the part of Ms Sook Sook Liang (“Ms Liang”), the general manager of Cosway, to avoid the Supplements by alleging that Mannix had no authority to enter into the Supplements without the approval of Cosway, and that as the person in charge of the online business in Cosway, she was not aware of the existence of the Supplements until after the commencement of this action and she never gave approval to Mannix to enter into such Supplements.  The allegations must be rejected as:

(1) They were not pleaded in the Defence.

(2) They are contradicted by the evidence of Mannix, who repeatedly confirms and emphasises in his oral evidence that he only signed the Supplements after they had been reviewed and approved by Ms Liang.

(3) They are also contradicted by Ms Liang’s witness statement, where she described (at §§5, 6 and 8) the Supplements and the “objective factual background” allegedly known to the parties before they signed them.

32.  Indeed, all the evidence before the court shows that since 1 September 2008, the plaintiff and the defendant had been proceeding on the basis that the Supplements were binding on them.  For example:

(1) In her witness statement, Ms Liang said that after encountering some problems in the deliveries handled by OYM in around June 2008, the defendant tried the “new channel proposed by Edmon”[1] and signed the Supplements with the plaintiff.  According to Ms Liang, before signing the Supplements, it was known to the parties that the “clear objective and common intent of the parties” was that the words “with effect from 1 September 2008, the minimum number per month is 5,000 dockets” in clause 4 of the Supplements mean that the defendant should place a minimum of 5,000 dockets, inclusive of both Single Product and Multiple Products each month.   

(3) Under cross‑examination, Mannix confirms that he knew that under the Supplements, the name of the service provider was changed from OYM to the plaintiff and that after this change, the defendant continued to use the service of the plaintiff.   

(4) In the 2009 Price Lists, which are admittedly binding on the plaintiff and the defendant, the “original” prices of the Single Product and the Multiple Products were those stated in the Supplements.

33.  There is no proper basis to impugn the validity of the Supplements and I hold that the Supplements constituted a binding agreement between the plaintiff and the defendant. 

(2) Whether the terms of the Agreement formed part of the agreement between the plaintiff and the defendant

34.  The next issue is whether the terms under the Agreement were incorporated into or otherwise formed part of the terms of the Supplements. 

35.  In each of the Supplements, there was an express reference to the Agreement, which was described as “Agreement #467660”.  In my view, the reference to the Agreement suggests that both the plaintiff and the defendant understood and agreed that the Agreement and the terms therein should form part of the terms of the Supplements. 

36.  The fact that the plaintiff and the defendant understood and agreed that the terms under the Agreement should form part of the terms of the Supplements is reinforced by the fact that in the Termination Notice addressed to OYM and the plaintiff, the defendant described the agreement it sought to terminate as the “Courier Service Agreement No. 467660 dated 28^th March, 2007 and all related contractual appendix supplements, effective from today’s date”.  The same goes to the correspondence exchanged between the parties up to October 2011. 

(3) Construction of clause 4

37.  Clause 4 of each of the Supplements provides as follows:

“由2008年9月1日起，每月最低运貨量為5000票。

With effect from 1 September 2008, the minimum number per month is 5,000 dockets.”

38.  The plaintiff contends that the meaning of 5,000 dockets per month in each of Supplement 4 and Supplement 5 is clear, it imposed an obligation on the defendant to provide 5,000 dockets per month for each of the Single Product and Multiple Products to the plaintiff for delivery.  The defendant on the other hand contends that properly construed, clause 4 in the Supplements only imposed an obligation on the defendant to provide 5,000 dockets per month of both Single Product and Multiple to the plaintiff.

39.  The principles governing the construction of a commercial contract are helpfully summarised in Mr Wong’s closing submissions and are not in dispute.

40.  In Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279, Lord Hoffmann NPJ set out the principle (at 296) as follows:

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended.” (emphasis added)

41.  Similarly, in Bank of Credit and Commerce International SA v Ali & Ors [2002] 1 AC 251, Lord Bingham said at §8:

“I consider first the proper construction of this release. In construing this provision, as any other contractual provision, the object of the court is to give effect to what the contracting parties intended. To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties. To ascertain the parties’ intentions the court does not of course inquire into the parties’ subjective states of mind but makes an objective judgment based on the materials already identified.” (emphasis added)

42.  In construing a commercial contract, the court is entitled to take into account the matrix of fact, meaning the objective surrounding circumstances, known to both parties, in which the agreement was made (River Trade Co Ltd v Secretary for Justice (2005) 8 HKCFAR 95 §§34‑35, per Riberio PJ).   

43.  Recently in Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351 at §15, Ma CJ stated that the surer guide to interpretation is context:

“We have been referred to the very well-known statement of principle regarding the construction of contracts contained in the speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society, to which can be added the judgment also of Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd. What emerges from these cases – is the overall importance of context when construing contractual terms. The statements of principle in Investors Compensation Scheme and in Jumbo King refer time and again to the relevant background against which the relevant contract and contractual terms must be viewed. It is in my view not particularly helpful in most cases to refer to the ‘ordinary and natural meaning’ of words because, as very often experience tells us, there can be much debate over exactly what is the ordinary or natural meaning of words. The surer guide to interpretation is context….” (emphasis added)

44.  It is not permissible to take into account subsequent conduct of the parties as an aid in construing the contract.  As stated by Cheung J (as he then was) in Yuen Ching Yuen v Union Insurance Society of Hong Kong Ltd [1998] 1 HKLRD 650 at 657H‑J:

“The decisions of Schuler v Wickman [1974] AC 235 and James Miller v Whitworth Street Estates [1970] AC 572 clearly showed that it is not permissible to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that a contract meant one thing the day it was signed, but by reason of subsequent events meant something different a month or a year later, per Lord Reid in James Miller v Whitworth Street Estates [1970] AC 572 at page 603.”

45.  Mr Chung submits that where an agreement is complete and clear on certain terms, the subjective intention of one party is irrelevant, as “a document will not be given the meaning for which one party, say ‘A’ contends merely because the other party knew or suspected, at the time, that that was what A was hoping to achieve.  There must be some other reason to construe the document in that way” (Zoan v Rouamba [2000] 1 WLR 1509 (CA), at 1523B per Chadwick LJ). 

46.  Further, Mr Chung relies on the principles expounded by the Supreme Court in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, which have been conveniently summarised in the headnote thus:

“… the ultimate aim of interpreting a provision in a contract, especially a commercial contract, was to determine what the parties meant by the language used, and that involved ascertaining what a reasonable person would have understood the parties to have meant; that the relevant reasonable person for that purpose was one who had all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract; that where the parties had used unambiguous language the court had to apply it, but was not necessary to conclude that unless the most natural meaning of the words produced a result so extreme as to suggest that it was unintended, the court had to give effect to that meaning; that the court had to have regard to all the relevant surrounding circumstances and if there were two possible constructions the court was entitled to prefer the construction which was consistent with business common sense and to reject the other; that it was not necessary to conclude that a particular construction would have an absurd or irrational result before having regard to the commercial purpose of the agreement…” (emphasis added)

47.  Mr Wong submits that although the same clause 4 was inserted into each of the Supplements, it should not be construed as duplicating the defendant’s obligation to provide the minimum number of dockets under the Supplements.  This is because, says Mr Wong, when the term “5000 dockets” was used in the Supplements, it did not expressly say that it only referred to one type of parcels. 

48.  Mr Wong further submits that the following factual matrix and the commercial objects clearly favour the interpretation that the term “5000 dockets” was intended to mean 5,000 dockets in aggregate without distinguishing between Multiple Products and Single Product.

49.  First, the contemporaneous emails exchanged between Mannix and Edmon on 28 August 2008, wherein Edmon proposed that the defendant should commit to providing no less than 10,000 dockets per month but Mannix replied on the same day that the defendant would only commit to 5,000 to 8,000 dockets each month by reason that the volume of the orders was declining.  Edmon in reply stated that “Reduce the number of parcels to 8000 is O.K. for us”.  Mr Wong submits that these emails show that the parties knew that the defendant would not agree or be in a position to provide 10,000 dockets in aggregate per month, and that both the plaintiff and the defendant had no intention to distinguish between Multiple Products and Single Product.

50.  Under cross‑examination, Edmon asserts that after he had agreed to accept 8,000 dockets per month with Mannix, when he submitted the quantity to the plaintiffs’ “channels” (being the counterparties dealing with customs clearance), such quantity was not accepted by the “channels”.  Mr Wong submits that this evidence is incredible, as there is no reference to any “channels” in any of Edmon’s witness statements. 

51.  Secondly, it was contrary to commercial sense for the parties to have agreed to set a minimum of 5,000 dockets per month for each of Multiple Products and Single Product as there was simply not enough customer orders for the defendant to satisfy 10,000 dockets per month.  In this regard, Mr Wong relies on the table in Edmon’s supplemental witness where he summarised the invoices for the 16 months prior to the Supplements, which show that the defendant had never met the threshold of 5,000 dockets for each of Multiple Products and Single Product in any month, and only in one month had the defendant provided more than 10,000 dockets in aggregate.

52.  Thirdly, it was “commercially implausible” that the parties would have agreed to a minimum of 5,000 dockets per month for each of the Multiple Products and Single Product as the defendant did not have any means to ensure that the number of Single Product and Multiple Products parcels would be roughly the same.  As stated by Ms Liang in her witness statement (and accepted by Edmon during cross‑examination), a Single Product parcel involves heavier good and each parcel would contain only one item whereas for Multiple Products, more than one item would be put into a parcel (up to 6.2kgs).  For the defendant’s retail business, the customers would purchase the products through its internet portal, and the defendant would pack and arrange the orders for delivery.  As such, it was impossible for the defendant to determine in advance the proportion of Multiple Products and Single Product which required delivery by the plaintiff.  The invoices summary for the 16 months prior to the Supplements showed that the number of dockets for Multiple Products and Single Product fluctuated from month to month. Mr Wong submits that this factual background militates against the construction that the requirement of 5,000 dockets per month under clause 4 of the Supplements applies to each of Multiple Products and Single Product.

53.  Fourthly, the objective commercial purpose of the Supplements was to ensure that the defendant would ask the plaintiff to arrange delivery of a minimum number of dockets. It is not suggested that there was any commercial reason to distinguish between Multiple Products and Single Product for this purpose.  From the perspective of the defendant, it had no control over the proportion of Multiple Products and Single Product parcels.  Mr Wong submits that against such commercial object and factual matrix, the proper interpretation must be that any reference to docket numbers must be in aggregate.

54.  In my view, the meaning of clause 4 in the Supplements is clear. It requires the defendant to provide a minimum quantity of 5,000 dockets per month for the Multiple Products (under Supplement 4) and Single Product (under Supplement 5).  This is reinforced by the fact that the parties chose to put the same clause 4 in both Supplements, which dealt with different types of parcels with different charges. 

55.  On the other hand, the defendant’s construction of clause 4 requires the court to read into the clause words to the effect that the minimum quantity of 5,000 dockets per month under each of the Supplements is the aggregate quantity for both Multiple Products and Single Product.  I do not think the defendant’s construction is right and I reject it.

56.  Even if, contrary to my conclusion, there is ambiguity in the meaning of clause 4 such that there are two possible constructions as contended by Mr Wong, in my view, a reasonable person in the circumstances would have understood the parties to have intended clause 4 in each of the Supplements as imposing a minimum requirement of 5,000 dockets per month for each of the Multiple Products and Single Product, for the reasons set out below.

57.  I do not think the contemporaneous emails relied on by Mr Wong supports his contention that the parties must have intended the minimum requirement of 5,000 dockets per month should apply to both the Multiple Products and Single Product.  It is clear from the emails that during their negotiation, Edmon insisted that the total quantity of parcels to be provided by the defendant must be 8,000 dockets per month, which was accepted by Mannix.  The defendant has not offered any explanation as to why Edmon would accept a much lower total quantity of 5,000 dockets in aggregate subsequently. 

58.  By contrast, Edmon explains, under cross-examination, that although he had at one stage agreed with Mannix that the minimum requirement of parcels would be 8,000 dockets per month, this was subsequently rejected by the plaintiff’s “channels”, and as a result, he had to insist on a minimum requirement of 10,000 dockets per month in total.  Although it is correct that Edmon never mentions his discussion with the plaintiff’s “channels” and how he subsequently requested Mannix to agree on the aggregate quantity of 10,000 dockets, I do not think his evidence should be rejected, as there is no dispute that the plaintiff did in fact require these “channels” to handle the import of all the parcels into Mainland China including handling all customs and taxation matters associated with such import. I also accept Edmon’s evidence that if the minimum total quantity were 5,000 dockets per month, he would not have signed the Supplements with the defendant as the parcels provided by the defendant prior to the Supplements had already reached about 7,000 to 8,000 dockets per month in total.

59.  I do not accept the defendant’s suggestion that it was contrary to commercial sense for the parties to have agreed to set a minimum quantity of 5,000 dockets per month for each of the Multiple Products and Single Product on the basis that there was not enough customer orders to satisfy such requirement.  There is no dispute that the plaintiff was only one of the delivery companies used by the defendant for delivering its products at the time.  It was perfectly possible, and certainly within the defendant’s control, to arrange the requisite quantity of the Multiple Products and Single Product to the plaintiff for delivery. 

60.  Nor do I accept the defendant’s contention that it was “commercially implausible” that the parties would have agreed to a minimum of 5,000 dockets per month for each of the Multiple Products and Single Product on the basis that it did not have any means to ensure that the quantity of each type of products would be roughly the same.  As Mr Wong accepts, the classification of the parcels was left to the defendant, which could decide whether to classify the products ordered by its customers as Multiple Products or Single Product.  It was open to the defendant to monitor the quantity of Multiple Products and Single Product already provided to the plaintiff for delivery and, if necessary, arrange the requisite quantity for each of the Multiple Products and Single Product for the plaintiff to deliver.

(4) Rectification of clause 4

61.  Mr Wong submits that rectification is an equitable relief which may be awarded to rectify a written document where the relevant parties had been under a mutual or common mistake such that the written document does not correctly reflect or accord with what the parties had objectively agreed that it should contain (Kowloon Development Finance Ltd v Pendex Industries Ltd (2013) 16 HKCFAR, per Lord Hoffmann NPJ at §§19, 22‑23).  Mr Wong further submits that in the present case, the parties had objectively agreed that the defendant would be obliged to provide a minimum quantity of 5,000 dockets per month to the plaintiff for both the Single Product and Multiple Products. 

62.  For the reasons set out in §§54‑60 above, I do not accept the defendant’s contention that the wordings in clause 4 did not reflect the common intention of the plaintiff and the defendant or that clause 4 did not accurately reflect what the parties had objectively agreed.  Accordingly, I do not think the defendant has made out its case for rectification of clause 4.

63.  In light of this conclusion, it is not necessary to consider Mr Wong’s submission that the conduct of the parties subsequent to the signing of the Supplements “clearly establishes that the parties’ common intention was that the [defendant] was only to provide 5,000 dockets parcels in aggregate”.  Nevertheless, for completeness sake, I will explain why I consider the defendant’s contention to be without merit. 

64.  Mr Wong submits that for the purpose of determining whether rectification should be granted, evidence of subsequent conduct to the contract is admissible (Kowloon Development Finance Ltd [2012] 5 HKLRD 11 (CA) §34, per Lam J (as he then was)).  This is not controversial.  However, I do not agree with Mr Wong’s submission that the court should look at the subsequent conduct of the parties to determine whether the parties had the common intention that the 5,000 dockets per month should apply to both Multiple Products and Single Product.  Such approach is tantamount to requiring the court to take into account the subsequent conduct of the parties as an aid in construing the Supplements, which is not permissible (Yuen Ching Yuen, at 657H‑J). 

(5) Whether the Supplements were superseded by the 2009 Price Lists

65.  The defendant’s case, as pleaded in §18(1)‑(3) of the Defence, is that the “clear contractual effect” of the 2009 Price Lists “completed superseded” the defendant’s obligation under clause 4 of the Supplements such that with effect from 1 May 2009, the defendant would no longer be under any obligation to provide 5,000 dockets per month (whether in aggregate or in respect of Multiple Products and Single Product separately) to the plaintiff for delivery.  However, in his closing submissions, Mr Wong submits that as the 2009 Price Lists were silent about the defendant’s obligation to provide any minimum quantity of parcels to the plaintiff and have put in place a mechanism for encouraging the defendant to provide more parcels to the plaintiff for delivery, they “had replaced or superseded the Two Supplements in their entirety (including Clause 4)”[2].  I do not think that Mr Wong can depart from the defendant’s pleaded case by suggesting belatedly that the 2009 Price Lists superseded the entire Supplements, instead of the obligation under clause 4. 

66.  In its Amended Reply and Defence to Counterclaim (“Reply”), the plaintiff denies that the Supplements were superseded by the 2009 Price Lists.  Under cross‑examination, Edmon denies that the 2009 Price Lists were intended to replace the Supplements, but accepts that by signing these Price Lists, the plaintiff has agreed to reduce the delivery charges for the Multiple Products and Single Product.  He accepts that the 2009 Price Lists put in place a new mechanism to encourage the defendant to give more parcels to the plaintiff to deliver, in that if the defendant provided more than 6,000 dockets of Multiple Products to the plaintiff for delivery, the reduced charges for both Multiple Products and Single Product under that List would apply.  Edmon emphasises that the 2009 Price Lists only dealt with delivery charges but did not deal with other terms such as claims and minimum quantity of parcels. 

67.  Although the plaintiff pleaded (at §§11‑14 of the Reply) that the 2009 Price Lists “were new offer” given by the plaintiff for an intended promotion involving Multiple Products of less than 2.2 kgs and were not used to replace the Supplements, under cross‑examination, Edmon frankly admits that the price lists referred to in those paragraphs concerned with other promotions and had nothing to do with the plaintiff’s claim in this action.  Thus, the only issue is whether the 2009 Price Lists which the parties agreed to take effect from 1 May 2009 had the effect of superseding the defendant’s obligation under clause 4 of the Supplements. 

68.  In my view, the effect of the 2009 Price Lists was to vary the delivery charges for the Multiple Products and Single Product, but had no effect on the defendant’s obligation under clause 4 for the following reasons:

(1) As Edmon says in his evidence, during their negotiations, only the delivery charges were dealt with by the parties, no other term under the Supplements was mentioned or agreed by the parties.  His evidence is consistent with the contemporaneous documents including the emails exchanged between the parties during negotiations and the earlier drafts of the new price lists and I accept it. 

(2) There was nothing on the face of the 2009 Price Lists to suggest that the parties have considered, let alone agreed, that the monthly minimum requirement under clause 4 of the Supplements should be varied or superseded as the defendant suggests.

(3) Indeed, in the Termination Notice issued by Mannix on behalf of the defendant, the defendant itself described the Agreement it sought to terminate as the “Courier Service Agreement No. 467660 dated 28^th March, 2007 and all related contractual appendix supplements”[3].  Had the parties intended that the Supplements should be superseded by the 2009 Price Lists as the defendant now contends, the defendant would not have referred to the “supplements” when it sought to terminate the Termination Notice.

(6) Estoppel

69.  The defendant contends (at §18(4)‑(6) of the Defence) that even if the 2009 Price Lists did not supersede the Supplements, “it was the common assumption of the parties and/or it was the plaintiff’s express or implied representation that” from 1 May 2009 or 2 June 2009 onwards, the plaintiff would not hold the defendant liable for the contractual obligation to provide no less than 5,000 dockets per month.  In reliance on this common assumption and/or representation, the defendant acted in its detriment by continuing to deal with the plaintiff on the basis that it would not be held liable to the contractual obligation and not taking any immediate step to end the commercial relationship with the plaintiff. 

70.  Although Mr Wong does not formally abandon the defendant’s case on estoppel by representation, it is clear from his opening and closing submissions that the defendant’s case on estoppel is based only on estoppel by convention. 

71.  The elements for an estoppel by convention to arise have been analysed by Ribeiro PJ in Unruh v Seeberger (2007) 10 HKCFAR 31 at §§133 to 150 and may be summarised as follows:

(1) The parties enter into some transaction or legal relationship on the basis of an assumption that was shared by or common to them both.  The common assumption can be an assumed state of facts or law but its content must be sufficiently certain to enable the court to give effect to it, and must be communicated between the parties and acted upon.

(2) An attempt by one party to depart from the common assumption which departure would be unjust because of the part taken by him in occasioning its adoption by the other party.

(3) The other party would suffer detriment arising out of his having entered into the relevant transaction on the basis of the common assumption if the opposite party were afterwards allowed to set up rights inconsistent with the assumption.  For this purpose, the transaction is to be understood in the broad sense of the parties engaging in acts or omissions affecting their mutual legal relationship.

72.  Mr Wong submits that detriment would be suffered by the mere fact that the plaintiff had departed from the shared assumption, as “there is an element of injustice inherent within the concept of the shared assumption” (Wilken and Ghaly, The Law of Waiver, Variation and Estoppel, 3^rd edn, §10.12).  Moreover, where a party seeks to rely on an estoppel by convention, evidence of statements and conduct subsequent to the contract may be admissible and relevant (McMeel, The Construction of Contracts, 2^nd edn, §18.02).  This is not in dispute. 

73.  On the fact, Mr Wong submits that the following matters demonstrate the existence of a shared or common assumption between the parties that the plaintiff would not hold the defendant liable to provide any minimum quantity of parcels to the plaintiff for delivery:

(1) The 2009 price Lists contained no provision stating that the defendant was under any obligation to delivery any minimum quantity of parcels per month.

(2) The 2009 price Lists envisaged that the defendant could deliver “any number of parcels below 6,000 without any minimum cap for delivery per month.

(3) In the draft agreement between the plaintiff and the defendant (with the date 1 September 2009 written on it) (“the Draft 2009 Agreement”), which was prepared by the defendant and with Edmon’s handwritten comments marked thereon, there were price lists for Multiple Products and Single Product in appendices 4 and 5 respectively.  In these appendices, there was no requirement for the defendant to provide any minimum quantity of parcels to the plaintiff for delivery.  Nor did Edmon write any words to suggest that such requirement should be included in the Draft 2009 Agreement.

74.  In my view, the defendant’s case on estoppel by convention must fail, as none of the matters relies on by the defendant shows that the parties entered into the 2009 Price Lists (which is the relevant transaction the defendant relies on to found its case on estoppel) on the basis of the alleged shared or common assumption. To the contrary, the evidence summarised in §68(1)‑(2) above shows that when the parties were negotiating on the revised charges, they did not turn their mind to considering whether the requirement of clause 4 should be varied or superseded.

(7) Quantum of damages

75.  In light of the above findings, I hold that the defendant was bound by the Supplements (the terms of which included those under the Agreement), which required the defendant to (1) provide a minimum quantity of 5,000 dockets per month for each of the Multiple Products and Single Product to the plaintiff for delivery during the subsistence of the Supplements, and (2) give 60 days’ prior written notice to terminate the Supplements. 

76.  There is no dispute that the defendant did not provide the minimum quantity of Multiple Products and Single Product to the plaintiff for delivery or give the requisite 60 days’ notice when seeking to terminate the Supplements.  It follows that the plaintiff is entitled to claim any loss it has suffered as a result of the defendant’s breach, including the loss suffered during the 60 days’ period from 6 January 2010 to 7 March 2010. 

77.  The plaintiff’s case, as pleaded in §28 of the SOC (and confirmed by Edmon in §30 of his witness statement), is that at it has suffered loss and damage in the amount of $9,902,908.22, which is made up of:

(1) the shortfall between the 5,000 dockets per month and the actual quantity of Multiple Products provided by the defendant to the plaintiff for delivery from December 2008 to 7 March 2010 (being 54,235 dockets) multiplied by the “average value per docket” at $123.10; and

(2) the shortfall between the 5,000 dockets per month and the actual quantity of Single Product provided by the defendant to the plaintiff for delivery from December 2008 to 7 March 2010 (being 42,172 dockets) multiplied by the “average value per docket” at $76.51.

78.  There is no dispute on the shortfall in the quantity of Multiple Products and Single Product which the defendant was obliged to and but did not provide to the plaintiff for delivery.  The only issue is whether the plaintiff is entitled to claim its loss on the basis of the “average value per docket” for Multiple Products and Single Product.

79.  Under cross‑examination, Edmon admits that the “average value per docket” for Multiple Products was arrived at by taking the total amount charged by the plaintiff during the period from December 2008 to 7 March 2010 and dividing it by the total number of dockets delivered.  The same applies to the “average value per docket” for Single Product.  He also admits that in respect of each delivery made, the plaintiff had to incur various variable costs including transportation cost, cost for providing customer services, “Hong Kong Documentation Fee”, “Custom Declaration Fee and Tax” and “Registration Fee”, and that such costs would only be incurred when the plaintiff made the actual delivery. 

80.  It is clear from Edmon’s evidence that the “average value per docket” used by the plaintiff represents the average charge invoiced by the plaintiff for the parcel delivered and that such value included the variable costs incurred by the plaintiff in delivering such parcel.  In effect, the plaintiff is seeking to claim a loss of revenue or loss of “expected income” as Edmon describes it in his evidence.

81.  No evidence is adduced by the plaintiff on the amount of the costs incurred in delivering the products to the defendant in the past, whether variable or otherwise.  Nor is there any evidence to suggest what costs the plaintiff has avoided as a result of the defendant’s breach.

82.  There is a further problem in the plaintiff using the “average value per docket” to calculate its loss as such average value has not taken into account the fact that the parties had agreed to reduce the delivery charges in accordance with the charges set out in the 2009 Price Lists with effect from 1 May 2009.

83.  Mr Wong submits that loss of revenue or “expected income” is not a head of damage known to the law.  He submits that the general principle for assessing the pecuniary loss for breach of contract is represented by:

(1) the value to the claimant of the benefit it should have received (minus the value of any benefits gained as a result of the breach) minus the cost it has avoided as a result of the breach (ie difference in value minus cost avoided); or

(2) the costs required to put the claimant into as good a position as if it had received the benefit minus the cost it has avoided as a result of the breach (ie cost of cure minus cost avoided) (Burrows, Remedies for Torts and Breach of Contract, 3^rd edn, pp 211‑212).  

84.  Mr Wong further submits that where the plaintiff’s claim is for damages for breach of contract, such an assessment of damages would require one to look not only sums payable by the other party under “the contract, but also the plaintiff’s own costs and expenses” (Sinoearn International Ltd [2012] 1 HKLRD 823 (CA), at 67).  Where evidence is lacking on all other aspects required to be examined for a proper assessment of damages due to the plaintiff, only nominal damages for breach of contract would be awarded (Born Chief Co (t/a Beijing Restaurant) v Tsai George & Anor [1996] 2 HKC 282 at 287I‑288C, 290D‑H, 292D‑G; Sinoearn, §70; McGregor on Damages, 19^th edn, §§12‑004 to 12‑005). 

85.  No submission is made by Mr Chung on the issue of quantum.

86.  I agree with Mr Wong’s submissions.  For the reasons explained in §§79-84 above, I hold that the plaintiff has failed to adduce sufficient evidence to prove damages in the amount claimed.  Accordingly, I would order the defendant to pay to the plaintiff the sum of $100 by way of nominal damages. 

87.  As the plaintiff succeeds on all the issues concerning liability, I would make a costs order nisi that the costs of the action be paid by the defendant to the plaintiff, to be taxed if not agreed.