WING TRANS LOGISTICS (HK) LTD v. LO SAU CHI

DCCJ 3059 / 2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3059 OF 2007

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JUDGMENT

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1.  The Plaintiff (“Wing Trans”) seeks summary judgment against the Defendant (“Ms Lo”) for the sum of HK$226,038.20 as outstanding air freight and service charges for services rendered.  The outstanding sum is covered by 18 invoices sent to Ms Lo between January and February 2007.

2.  At the material times, Ms Lo carried on a logistics and shipping business, and she had been making use of Wing Trans’ service to ship out and deliver goods for her customers.  Ms Lo accepts that Wing Trans had properly provided the courier and forwarding services under the 18 invoices, and thus the sum is prima facie due and owing.  However she says she is entitled to a set-off of USD22,382.00 (equivalent to HK$181,989.00) as damages suffered by her as result of Wing Trans’ negligence in causing the loss of the goods covered by another invoice unrelated to these 18 invoices. Those goods were supposed to be delivered by Wing Trans to a destination in Panama City some time in December 2006.

3.  It is well established that for a summary judgment application, the burden is on the defendant to show a triable defence which is not practically moonshine and is worthy of belief.   The defendant should also condescend to particulars in support of the defences raised.  See:  Hong Kong Civil Procedure 2008, paras 14/4/3, 14/4/4, 14/4/9.

4.  For the present purpose, given that the prima facie liability to pay and quantum of the claimed sum are not disputed, the real issue before me is whether Ms Lo can establish a triable case of set-off for the said damages.

Ms Lo’s case on the set-off

5.  It is not disputed that:

(1)	Wing Trans was entrusted by Ms to deliver certain goods from Hong Kong by air to a destination in Panama City in early December 2006.
(2)	Ms Lo settled the invoice for this delivery on about 12 December 2006.
(3)	It was however subsequently discovered that the goods were detained in Miami by the authority when they were supposed to be trans-carried.  Eventually, the goods were forfeited and destroyed by the authority apparently on the basis of lack of documentation to show that they were not of pirated origin.

6.  Ms Lo says the owner (ultimate shipper) of the goods has claimed her damages for the production costs of the goods in the sum of US$22,382.00.  She further says that the loss of these goods was caused by the negligence of Wing Trans or by its breach of contract in failing to deliver the goods.  As such, Wing Trans should be liable to her for damages also in the sum of US$22,382.00.

Wing Trans’ submissions

7.  Wing Trans submits that Ms Lo has failed to raise any triable defence since:

(1)	Ms Lo’s counterclaim for damages, even if proved at trial, does not amount to a legally recognized category of set-off.  As such, there is no defence to the summary judgment application.
(2)	Under common law, there is no defence to a claim of air freight even if the goods were lost or damaged.
(3)	In light of the scanty evidence provided by Ms Lo, her case on the counterclaim for damages is frivolous and not worthy of belief. As such, she has failed to show a triable issue for damages.

No recognized defence of set-off

8.  Mr Lee, counsel for Wing Trans, submits that even taking Ms Lo’s case to the highest and assuming that she can eventually prove it at trial, her claim for damages does not constitute any legal or equitable set-off in law.  As such she has no triable defence to the claim and summary judgment should be given.   In support of the submissions, Mr Lee relies on the Court of Appeal decision in Karpex (HK) Limited v. Yasmine Printing (China) Ltd (unrep., CACV 124/2006, Cheung JA and Chu J, 10 July 2006).

9.  In Karpex, the plaintiff claimed against the defendant manufacturer for damages for the defendant’s default in manufacturing certain defective paper boxes.  Other than filing a defence in denying default, the defendant also counterclaimed against the plaintiff for the sum of HK$47,000.00 as the outstanding sum under another invoice for the manufacture of 10,000 paper boxes.  It was accepted that the paper boxes manufactured under this invoice were of good quality and were unrelated to the other products on which the plaintiff mounted its claim for damages. 

10.  The defendant applied for summary judgment for its counterclaim.  The plaintiff relied on the defence of set-off with damages it had claimed against the defendant’s counterclaim.  The defendant’s application was refused at first instance.  The defendant appealed to the Court Appeal.

11.  In reaching the decision to allow the appeal, Cheung JA first summarized the legally recognized categories of set-off as follows at paragraphs 9-10 of the judgment:

“	9.	Set-off is a well recognized defence (Order 18 Rule 17).  It is not the form of pleading, but the true nature of what is pleaded, that determines whether what is pleaded is or is not a set-off:  Hanak v Green [1958] 2 QB 9 at 26.
	10.	It is important to bear in mind the nature of a set-off.  The position is summarized in BICC Plc v Burndy Corp [1985] 1 All ER 417 at 424-425:
		‘	1)	The first is set-off at law, legal set-off as it is sometimes called, of mutual debts under the Statute of Set-off, where the claims on both sides have to be liquidated debts or money demands which can be ascertained with certainty at the time of pleading…
			2)	The second form of set-off arose as explained by Parke B in Mondel v Steel (1841) 8 M & W 858, [1835-42] All ER Rep 511 and was a development of the common law: where an action was brought for an agreed price for a specific chattel sold with a warranty or a work which was to be performed according to a contract, the defendant was allowed to plead by way of a defence in reduction of the claim that the chattel, by reason of non-compliance with the warranty, or the work in consequence of the non-performance of the contract, was diminished in value.
			3)	The third form of set-off, often referred to as equitable set-off, arose in cases in which the court of equity would have regarded the cross-claims as entitling the defendant to be protected in one way or another against the plaintiff’s claims; there were particularly cases where the cross-claim was related to the subject matter of the claim and there were factors which would have rendered it unjust in the eyes of equity that the claim should be enforced without regard to the cross-claim.’
	…”

12.  Cheung JA then went on to hold at paragraphs 12 and 13 that the plaintiff’s claim for damages under a different quotation for the paper boxes could not have amounted to any of the three recognized case set-off against the defendant’s counterclaim, since (a) the two claims were not of mutual debts, (b) there was no question of breach of warranty or performance of the contract for the claimed invoice/quotation, and (c) it could not be said that the defendant’s counterclaimed quotation was so closely connected with the first quotation (for which defective goods were claimed) that it was unjust to enforce the counterclaim of HK$47,000 without regard to the plaintiff’s claim for damages.  They were two separate commercial transactions that took place at different times.

13.  Given that the plaintiff’s claim for damages did not amount to a recognized defence of set-off, His Lordship concluded at paragraph 14 that the proper order on an O 14 application should be for judgment to be entered with costs without a stay pending the determination of the plaintiff’s claim for damages.  The Court of Appeal allowed the defendant’s appeal and granted summary judgment against the plaintiff for the invoiced sum of HK$47,000.00.  

14.  I agree with Mr Lee’s submissions that in light of the analysis and decision in Karpex as set out above, Ms Lo’s claim for damages, even if proved, does not constitute any defence of set-off as recognized by the law.  There is no legal set-off as Ms Lo’s claim is not of a nature of mutual debt with that of Wing Trans’ claim, nor is there a question of breach of warranty in the present case.  It is also not an equitable set-off since the two claims arose from two wholly unrelated and different transactions and invoices.  They are not closely connected and therefore it cannot be said that it would be unjust for Wing Trans to enforce its claim without having regard to Ms Lo’s counterclaim for damages.

15.  In the circumstances, there is no triable defence to Wing Trans’ present claim and summary judgment for the claimed sum should be given without any stay pending the determination of Ms Lo’s counterclaim.  See also:  Hong Kong Civil Procedure 2008, para 14/4/14.

16.  This would have been sufficient to dispose entirely of the matter.  However, given that Mr Lee for Wing Trans has also made submissions on the two basis upon which he says there is no triable defence, for completeness sake, I will deal with them briefly below.

No defence to a claim for air freight even if the goods are lost or damaged

17.  Mr Lee relies on the decision in RAF Forwarding (HK) Ltd v Wong Angela t/a JMT Co [1999] 2 HKC 135 to submit that there is no defence in law to a claim for air freight, even if the goods entrusted to be delivered are lost or damaged.  He says if that is the rule in relation to the goods which are the subject matter of the claim for air freight, a fortiori it applies to a situation where the goods lost are not even related to the transaction under which air freight is claimed.

18.  The relevant part of the judgment Mr Lee relies on is at pp 136I to 137F per Le Pichon J (as she then was) as follows:

“	The common law rule was restated by House of Lords in Aries Tanker Corp v Total Transport Ltd, The Aries [1971] 1 WLR 185 at 189G-H as follows: …
	…
	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 RH & D International Ltd v IAS 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.” (emphasis added)

19.  In my view, the above underlined words of Le Pichon J’s statement of the law makes it at least arguable as to whether the rule submitted by Mr Lee applies to a situation where the goods entrusted for delivery are never delivered at all.  As such, I do not accept Mr Lee’s submissions that given this “rule”, there are no triable defences raised by Ms Lo’s counterclaim for damages for the loss the goods when they were never delivered. 

20.  In the premises, I would not have granted summary judgment based on this ground alone.

Whether there is a triable case of the counterclaim for damages

21.  Given that it is not disputed that the goods were detained and destroyed by the Miami authority before they were delivered to the destination, and given that the goods must be of certain value, I do not think it can seriously be said that there are not triable issues for Ms Lo’s claim for damages against Wing Trans. 

22.  Whether the loss was a result of Wing Trans’s negligence in its performance of the contract of carriage, or whether it was caused by the fault of Ms Lo in failing to provide the necessary documentation as alleged by Wing Trans is clearly a question that should only be explored at trial when the necessary discovery and evidence is complete.

23.  In the circumstances, I also would not have granted summary judgment on this ground alone.

Conclusion

24.  For the reasons set out in paragraphs 8-15 above, I grant summary judgment against Ms Lo for the sum of HK$226,038.20, with interest at 1% above the prime rate as from time to time quoted by the Hong Kong and Shanghai Bank from the date of the Writ to the date of judgment, and thereafter at judgment rate until payment.

25.  I further grant an order nisi that costs of Wing Trans’ action, including the costs of this application, be to Wing Trans to be taxed if not agreed, with certificate for counsel.  This order nisi will be made absolute 14 days from the date of judgment unless, any party applies to vary it before then.