TELEPOINT DISTRIBUTION PTE LTD v. DAILY GLORY TELECOMMUNICATIONS TRADING LTD

DCCJ463/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 463 OF 2003

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J U D G M E N T

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Introduction

1. The Plaintiff ("P") is a Singaporean company carrying on the business of sale and purchase of electronic products and handphones. The Defendant ("D") is a limited company in Hong Kong carrying on the business of importing and exporting handphones.

2. P claimed against D for SGD60,000.00 being the balance of the price of handphones sold to D and interest thereon at 1% per month from 30th September 2002 to the date of the writ of summons and thereafter at judgment rate until payment. Mr Chang, counsel for D, informed the court that D does not dispute P's claim (including the claim for interest). However, D raises a counterclaim and a defence of set-off based on the counterclaim.

3. The following matters are undisputed :

(a)	By an agreement made on or about 28th August 2002 ("Agreement"), D agreed to purchase and P agreed to sell 900 units of handphones ("Goods") for the sum of SGD264,300.00. It was agreed that the Goods would be delivered on 28th August 2002.
(b)	Pursuant to the Agreement, D arranged for and did remit by telegraphic transfer the sum of SGD264,300.00 to P on 29th August 2002 in advance of D's receipt of the Goods at D's offices.
(c)	It was an express term of the Agreement that the sale and purchase was "FOB Singapore".

4. D alleged that there was short delivery of 156 units of the Goods ("Lost Goods"), therefore the consideration of SGD60,060.00 being the price of the Lost Goods had wholly failed. D therefore counterclaimed against P for the sum of SGD60,060.00 as money had and received with interest thereon. P denied there was any short delivery.

5. The whole case turns on a very small compass of facts. Other than the Lost Goods, D took delivery and accepted the remaining balance of the Goods. Mr Chang does not dispute that the Goods were in order when P handed them over to the freight forwarder's collecting agent in Singapore on 28th August 2002. Mr Chong, counsel for P, also does not challenge that the Lost Goods were missing when the Goods were received at D's offices/warehouse on 30th August 2002. Clearly, the Lost Goods disappeared in between these two points in time. I am asked to adjudicate on which party the property risk of the disappearance of the Lost Goods should fall. D carried the burden of proof on the balance of probabilities on the core issues of the counterclaim.

Procedural matters

6. P called Mr Poh Chee Tiong ("Poh") and Mr Tan Boon Hong ("Tan") to give evidence. D called Madam Kao Cheng Hsueh Mei Sherry ("Cheng") to give evidence. Both counsel agreed and I granted leave for the witness statements to stand as evidence-in-chief of these witnesses. Both counsel also agreed that D's witnesses, Mr Chan Ka Wing ("Chan") and Mr Wu Sai Ngak ("Wu"), need not be called and their witness statements were tendered as their evidence.

P's case

7. Tan is P's managing director and Poh is P's logistics supervisor. According to Tan's understanding, "FOB Singapore" meant that P as seller was required to :

(a) supply goods in conformity with the Agreement as evidenced by a commercial invoice;

(b) arrange for air carriage at D's expense if it did not give prompt notice to the contrary;

(c) deliver the Goods, on the due date or within the appropriate time period, in the customary manner, into the charge of the air carrier, D's freight forwarder or their agent(s) in Singapore;

(d) obtain, if required, an acknowledgment of receipt from the air carrier, D's freight forwarder or their agent(s) on a delivery note.

On the other hand, D as buyer was required to :

(i) give P proper notice and instructions of the airport of destination for the carriage of the Goods by air from Singapore where there was only one airport;

(ii) bear all costs payable in respect of the Goods from the time when they were delivered in Singapore;

(iii) bear all risks of the Goods from the time they were delivered in Singapore;

(iv) pay for the Goods.

The critical point between P and D's responsibilities was the point when the air carrier, D's freight forwarder or their agent(s) took delivery of the Goods.

8. After the Agreement was concluded, D's chosen freight forwarder said they were unable to ship the Goods to D on time. D's Cheng was informed and Tan nominated another forwarder, Air Sea Consolidator Pte Ltd ("Air Sea"), whose counterpart forwarding agent in Hong Kong was Jetco Freight Limited ("Jetco"). Tan requested D to approve employing Air Sea as their forwarder. Cheng confirmed D's approval provided that the Goods could be shipped to D on time in Hong Kong. In fact, the Goods arrived in Hong Kong at about 9:05 pm on 29th August 2002 and at D's warehouse at about 2:00 pm on 30th August 2002.

9. On 28th August 2002, Poh as instructed went to P's warehouse to arrange for delivery of the Goods particularised in P's delivery order to D's freight forwarder. Together with the warehouse staff, he counted and checked the Goods to make sure that the model numbers, colour and quantity of the Goods indicated on the carton boxes were in exact conformity with the specifications on the delivery order ("Inspection"). He then took over 3 pallets holding 85 boxes of the Goods, which were sealed and shrink-wrapped.

10. A Mr Azmi, who represented himself as agent of Air Sea, arrived at the warehouse. Poh together with Mr Azmi went through the Inspection and in Poh's presence, Mr Azmi checked that all the carton seals were intact to show that they had not been opened. Mr Azmi then signed on P's delivery order and wrote down his name, Singaporean identity card number, vehicle number and date of receipt of the Goods and stamped thereon with a company chop in the name of "Corporate Cargo Exp" as collecting agent for Air Sea in Singapore. Mr Azmi then left the warehouse with the Goods. Tan said the property risk of the Goods was transferred to D ever since. In fact, Air Sea confirmed that Corporate Cargo Express Pte Ltd ("Corporate Cargo") was its authorised transportation company for pick up and delivery of goods on its behalf in Singapore.

11. P contracted at D's expense for the carriage of the Goods and an airway bill dated 28th August 2002 was issued and signed by Air Sea as agent of the carrier, China Airlines ("Carrier"). Although P was named as shipper in the airway bill, it acted as D's agent and was not responsible for the cost of carriage. The airway bill specified "freight collect". Indeed, Jetco issued an invoice dated 30th August 2002 to D and collected freight and other charges from D direct (paid by cheque dated 29th August 2002).

12. In his evidence, Tan said that for overseas shipment of goods, P always dealt with the freight forwarder and not with the carrier directly. Under "FOB Singapore" term, the forwarder's charges in Singapore were borne by the buyer. P did not make any payment to Air Sea in relation to the Goods.

13. Generally, for land haulage from P's warehouse to the freight forwarder/carrier, Tan thought the seller should bear such cost under "FOB Singapore" term although he was not sure. He did not know who should bear such cost if the contract term was "ex-warehouse". However, the buyer should bear the carrier's freight charges under both "FOB Singapore" and "ex-warehouse" terms. In any event, Tan was of the view that P's liability was discharged upon the delivery of the Goods to the freight forwarder in the present case. However, if so instructed by the buyer, P would deliver goods to the carrier instead of the freight forwarder.

14. Tan confirmed that there were previous similar transactions of handphones between P and D with the goods shipped by air and invariably there was a forwarder in Singapore. Sometimes P would deliver the goods to the freight forwarder and sometimes the freight forwarder would collect the goods from P. In the latter situation, if there were no discussion between P and D, D would pay the freight forwarder's charges. However, where D's profit margin was thin, it would negotiate with P whereupon P might agree to pick up the forwarder's charges.

15. D wrote to P by letter dated 5th September 2002 stating that some time after they acknowledged receipt of the Goods from Jetco on 30th August 2002 when Jetco's men had left, they discovered that 13 boxes contained bricks instead of handphones. They suspected that Jetco had committed a criminal offence for which they should be liable and therefore reported to the police. D requested P's assistance to claim compensation from the insurer, which P did out of goodwill. Tan denied that he had ever promised Cheng that P would be responsible for the Lost Goods.

D's case

16. Cheng is D's employee and director. She had been with D for 11 years and was responsible for D's general administration and day-to-day business.

17. On 27th August 2002 Cheng placed an order with P for the Goods. Cheng agreed that the freight forwarder previously named by D to ship the Goods by air was unable to ship the Goods to D on time, so Cheng accepted Tan's nomination of Air Sea. Cheng accepted that D engaged Air Sea to carry the Goods from Singapore to Hong Kong because it was responsible for the transportation and that Jetco was only a counterpart forwarding agent in Hong Kong. Cheng also agreed that D paid the transportation costs through Jetco. Although she knew that D had to pay freight costs, she did not know what charges Jetco's invoice actually comprised as she did not know English and the matter was handled by D's accounts staff.

18. 85 boxes of the alleged Goods were delivered to D's warehouse on 30th August 2002. When Wu, D's warehouse staff, and Chan checked the delivered boxes, they discovered that some were empty and some contained bricks. D made a report to the police. Subsequently, in the presence of the police, it was discovered that 3 boxes were empty, 10 boxes contained bricks and the rest were in order.

19. Cheng said that upon discovery that the Lost Goods were missing, she immediately informed Tan. Tan told her that P would be responsible after confirmation by survey.

20. Cheng complained that D did not appoint Jetco to collect the Goods. After discovery of the missing Lost Goods, D sent a letter dated 5th September 2002 (drafted by Cheng) to P but made no such complaint. Cheng confirmed that at that time D was angry with Jetco whom she knew was responsible for the transportation of the Goods. Cheng was unable to give any explanation for such omission. D did not make any claim against Jetco or third party in respect of the Lost Goods.

21. Cheng said D lodged a claim with its insurer. She did not know the result as D's accounts staff handled the claim.

22. Under cross-examination, Cheng initially denied any knowledge of the meaning of "FOB" or "FOB Singapore". But she confirmed that she was responsible for placing orders with P and that the Agreement was on "FOB" term. However, since D had no one in Singapore, they were not responsible for the transportation of the Goods from Singapore to Hong Kong. Cheng knew that there were past transactions between P and D similar to the Agreement whereby handphones were shipped by air, and carriage of the goods was handled by freight forwarder and carrier. She was not sure who paid the forwarder and carrier's charges but under "FOB Singapore" term, D ought to pay.

Documentary evidence

23. The documents in the trial bundle are agreed as to admissibility and authenticity. Several documents are pertinent to the issues in this case.

24. The Carrier by letter dated 22nd July 2003 ("CA Letter") confirmed that "As received investigation result from our Singapore station, shipment was accepted and build up as good order". The letter went on to say that the outer packing was designed by the manufacturer to protect the particular kind of product shipped to withstand different transportation conditions throughout carriage routing. It was quite common under shipment breakdown procedure to record in the warehouse reference record details noted, eg slight crushing, partial tape loosening or similar details, but there might not necessarily be harm to the inner contents.

25. Hong Kong Air Cargo Terminal Limited ("HACTL") printed at 15:58 hours on 31st August 2002 an Import Cargo Discrepancy Report ("Report"). The Report was endorsed on 30th August 2002 and revealed 14 out of 85 pieces of goods were found with damage to external packing in that the packaging was "crushed, tape loose, seams open" at WS4GX, a designated location in ST1 warehouse restricted area and a cargo handling location within HACTL warehouse area in Hong Kong. HACTL confirmed it was the handling agent for the Carrier who was the actual handler of the air freight of the Goods.

Miscellaneous matters

26. Several miscellaneous issues arose out of Cheng's witness statements and were canvassed in cross-examination. Nothing turned on these points. However, for the avoidance of doubt, I shall briefly mention and deal with them here.

27. Cheng said that D did not consent to Jetco to be the consignee to collect the Goods from the airport, but she had no idea who was named as consignee in the airway bill as she did not handle shipping matters. In fact, D was the consignee named in the airway bill.

28. Cheng complained that the Goods were not packed on pallets. But she admitted in evidence that she did not know how the Goods were packed, and Chan and Wu did not tell her. Cheng did not actually see the Goods or the boxes. In fact, Chan's statement to the police said that the Goods arrived on 2 pallets.

29. Cheng said the arrival of the Goods in Hong Kong was delayed for 1 day. Cheng ordered the Goods on 27th August 2002. D's shipping staff received the airway bill on the following day and D received the Goods on 30th August 2002. Fax correspondence between the parties showed that P informed D that although the Goods were lodged at Singapore airport on 28th August 2002, the Carrier rescheduled the flight. Cheng said that although she complained of the delay to Tan on 29th August 2002, D did not pursue the matter of delay. Tan's evidence was that D made no objection to the rescheduling and in fact paid the price of the Goods and Jetco's invoice.

30. Cheng also complained that D was not notified of the shipment details of the Goods because Tan did not tell her. But she agreed that D's other employees might have such information. Indeed, the shipping staff received the airway bill on 28th August 2002.

The findings

31. It is not disputed that the Goods were intact when they were handed over to Mr Azmi. Mr Chong submitted that P's liability was discharged when the Goods were handed over to Air Sea's collecting agent because Air Sea took possession of the Goods as D's agent. Mr Chang on the other hand accepted that once the Goods reached the custody of the Carrier, irrespective of whether they were loaded on the specific flight for Hong Kong, P had delivered the Goods to D and the property risk of the Goods then passed to D at that point of delivery. The crucial issue, on D's case taken to its highest, is whether D is able to show that the Lost Goods were lost during transit from the time when Mr Azmi collected the Goods to the time they were given into the custody of the Carrier in Singapore ("Disputed Period").

32. Mr Chang submitted that there is no evidence before the court as to the state of the Goods during the Disputed Period although the Report demonstrated there was damage to the external packaging of 14 boxes "when the goods reached Hong Kong International Airport". Mr Chang contended that no weight should be attached to the CA Letter because the statement therein that the Goods were "accepted and build up as good order" was hearsay (since the Carrier's investigation in Singapore was not put before the court) and lacking in particulars. Mr Chang also argued that the wording of the CA Letter suggested greater concern with "apparent" good order and condition rather than with the integrity of the Goods.

33. I accept on the balance of probabilities that the Carrier received the Goods in Singapore in good order and condition. First, there is nothing on the face of the CA Letter or on the evidence to suggest or to infer otherwise. Secondly, it is not disputed that Mr Azmi received the Goods in good order.

34. Thirdly, whilst I have no reason to doubt the veracity of the statements in the Report, all it said was that damage to external packing of the Goods was found at a designated warehouse restricted area at the Hong Kong airport. According to Tan (and it was not challenged), the Goods arrived in Hong Kong at 9:05 pm on 29th August 2002. It appears on the face of the Report that it was created on 30th August 2002 at 02:38 hours. There is no evidence as to what happened during the intervening hours or whether there was the possibility of human access to the Goods. Further, as the Carrier explained in the CA Letter, the breakdown details noted do not necessarily speak of problems with the inner contents of the packaging. There is no evidence that the Lost Goods were already missing when the Report was created. The Goods did not arrive at D's warehouse until the afternoon of 30th August 2002. There is also no evidence as to the state and condition of the Goods and the possibility of human access during the intervening period of close to 12 hours.

35. Further, even if (although I do not so find) the Report evidences the disappearance of the Lost Goods at the time before the Goods arrived in Hong Kong, there is no basis or justification for the court to draw the inference that such disappearance must necessarily have occurred prior to and not after the Goods were handed over to the custody of the Carrier in Singapore.

36. By reason of the above matters, I find that D has not been able to show on the balance of probabilities that the Lost Goods were lost prior to their delivery to the Carrier in Singapore. In the circumstances, although I sympathise with D's plight, I find that the property risk of the Lost Goods falls on D. That is sufficient to dispose of the counterclaim.

37. For completeness, I will deal with other issues raised by Mr Chang. As regards the course of dealings and the contractual arrangements between the parties, Cheng's evidence is unhelpful. She is ignorant of what she termed as accounting or shipping matters, and what she knew she appears to be quite confused. For example, whilst she denied any knowledge of the meaning of "FOB" and "FOB Singapore", she said the Agreement was on "FOB Singapore" term and that meant D has to bear the freight cost. Although Cheng is not dishonest, I find her evidence on these aspects unreliable. Where there is any conflict between her evidence and that of Tan's, I accept the evidence of the latter. Tan is forthright in his evidence and I find him reliable.

38. Although Air Sea is obviously the agent of the Carrier for the issuance of the airway bill as seen from its signature thereon, I am with Mr Chang when he submitted that there is insufficient evidence to suggest that when Air Sea or its agent Corporate Cargo initially received the Goods from P it did so as agent for the Carrier.

39. Mr Chang went further to submit that Air Sea (and hence its agent, Corporate Cargo) was not D's agent for receipt of the Goods in Singapore. In this, he relied on the classic formulation of an FOB contract whereby the seller was obliged to deliver the goods "over the rail", ie on board the carrier, so risk and property in the goods do not pass to the buyer until then. Thus, under the classic FOB contract, the seller was obliged to deliver the goods to the carrier for loading at the seller's own expense. Hence, the "FOB Singapore" term in the Agreement meant that the delivery charges from P's warehouse to the Carrier should be borne by P. If it were otherwise and D was responsible for land haulage costs in Singapore, the parties would have opted for an "ex-warehouse" term. Further, Jetco's invoice to D contained the provision of "Total Collect Chgs (Singapore)" but without any breakdown. In light of the classic formulation of an FOB contract, it would have included the Carrier's freight charges and airport handling charges in Singapore but not Air Sea's charges.

40. It is immediately apparent that Mr Chang's submissions above are premised on the applicability of the classic formulation of an FOB contract to the Agreement. However, a buyer and seller are free to vary the terms of the class formulation, so that the contract becomes a variant. In paras.434-435 of Sassoon, C.I.F and F.O.B. Contracts, 4th ed (1995) at pp.350-352, it is said that "FOB" is the out-growth of the custom and usages of merchants and is designed to serve different interests in different periods :

"To pronounce upon the f.o.b. contract exclusively in the terms of the past and only on the basis of stereotyped notions would have done violence to reality and produced erroneous results. It would have defeated the prime object of the courts which is to give effect to the intention of the parties. And this intention, when unexpressed, would have to be inferred from the entire set of conditions and facts in which the transaction arose. It is to be noted with satisfaction that despite the pressure to uphold orthodox or traditional views which refuse to recognize or allow any variation in the interpretation of the f.o.b. term, English courts have been fully cognizant of the evolution of the term and have effectively acknowledged the realities of the change in circumstances."

41. In the circumstances, I need to ascertain from the surrounding circumstances P and D's intention as to their meaning of "FOB Singapore" in the context of the Agreement. The significant factors include the nature of the transaction, the terms of payment, any established course of dealing between the parties, and the relevant port usages and trade customs (Sassoon (supra) para.537 at p.439).

42. I find on the balance of probabilities that the meaning of "FOB Singapore" in the context of the Agreement is as set out in Tan's evidence in paragraph 7 herein and that delivery of the Goods to Air Sea as D's agent (or more precisely, Air Sea's collecting agent Corporate Cargo) was good and sufficient discharge of P's obligation to deliver the Goods. This is supported by the following :

(a)	It is not disputed that D all along had its own chosen freight forwarder(s). Indeed, this is also suggested in D's letter of 5th September 2002 to P. Had the parties adopted the classic formulation requiring P to effect delivery by handing over the Goods to the Carrier (ie the equivalent of "over the rail"), there would not been any need for D to have any chosen freight forwarder nor would P have to seek D's approval for any subsequent change of freight forwarder. Cheng confirmed that Tan sought D's approval of his nomination of Air Sea as freight forwarder.
(b)	In respect of the subject sale and purchase transaction, P made no payment at all to Air Sea. There is no dispute that Jetco was Air Sea's counterpart forwarder in Hong Kong. Indeed, Cheng said they were associated. Further, it was agreed that P paid freight collect and other charges under Jetco's invoice. Therefore, if Air Sea had any charges for its services as freight forwarder in Singapore (and there should be such charges, according to Tan's evidence on past course of dealings below), I find on balance that they had been borne and paid by D.
(c)	It is common ground that the consistent past course of dealing was for shipment of handphones from Singapore (P) to Hong Kong (D) to be made via freight forwarder and carrier. Tan went further to say that for past transactions with D, P had never delivered goods to the carrier directly. If P delivered the goods to the Singaporean freight forwarder, it bore the cost of such land haulage. If the freight forwarder collected the goods and there was no express discussion, it was understood that D would pay the freight forwarder's charges. At times, P might agree to bear such charges after negotiation and agreement between P and D. On the balance of probabilities, I accept Tan's evidence and find that P and D's course of dealing was for D to be primarily responsible for the Singaporean freight forwarder's charges.
(d)	I therefore find it is P and D's common intention and practice (including the subject transaction for the Goods) that delivery of the goods to the Singaporean freight forwarder or its agent would be good and sufficient delivery of the goods by P to D. For the aforesaid reasons, I also find that D regarded and the parties commonly understood that the Singaporean freight forwarder (irrespective of whether it was nominated by P) was D's agent for the taking of delivery of the goods from P.

Conclusion

43. In the circumstances, I grant judgment to P against D in the sum of SGD60,000.00 together with interest thereon at 1% per month from 30th September 2002 to the date of the writ of summons and thereafter at judgment rate until payment. D's counterclaim is dismissed.

44. There is no reason why costs should not follow event. I therefore make a costs order nisi that D shall pay P the costs of the action and of the counterclaim (with all costs reserved) to be taxed if not agreed together with certificate for counsel.