XCHRX SHENZHEN SHEKOU GOLDEN HARBOUR ENTERPRISE CO LTD and Another v. FAR VIEW HOLDINGS LTD.

1996, No. A10939

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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J U D G M E N T

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The Background

1. By agreement dated 4 April 1996 between the plaintiffs and the defendant, the defendant agreed to transport 14,400 compressors from Hong Kong to Anhui. The fee payable to the defendant was RMB1.224 million. The defendant was responsible for payment of all expenses, including transportation charges and custom duties. The plaintiff alleges that the defendant, in breach of the contract and the law, failed to pay the custom duties, and thus caused the compressors to be detained by the customs authorities in Nanjing. The plaintiff claims loss and damages from the defendant In its defence, the defendant says that the agreement was subsequently amended at the request of the plaintiffs under which the compressors were to be delivered to Nanjing. The defendant denies that it failed to pay the customs duties and caused the compressors to be detained. In its counterclaim, the defendant says that it was to be entitled to receive payment of RMB1.224 million when the goods were loaded on the rail and upon production of the relevant transportation receipts. The defendant says it duly delivered the compressors to Nanjing and delivered the receipts to the plaintiff on 18 April 1996. It says that it duly performed the terms of the agreement. On 28 April 1996, the defendant says, the plaintiff acknowledged receipt of the compressors. The defendant claims payment of the fee of RMB1.224 million.

2. In relation to the defendant's allegation that it duly performed the terms of the agreement, the plaintiff asked if the defendant had paid all the required fees. The defendant said that it had. On 21 November 1996, the plaintiff asked the defendant to specify the nature and exact fees paid, and asked for all documents and receipts in support of the payment. The defendant has not answered this request.

3. In its reply and defence to counterclaim, the plaintiffs agree that they instructed the defendants to deliver the compressors to Nanjing Dai Hsiang Freeze-Controller Kitchen Ware Facilities Company at No. 31 Jian Ning Road, Nanjing. Clause 6 of the agreement, in translation, says the defendant "is entitled to receive [the fee] . . . upon production of the railway transportation receipt. . . The obligation of [the defendant] is ended at this stage". There are some additional words added by hand at the end of this clause. These read, in translation, "(i.e. after the goods is loaded onto the train and the railway transport receipt has been sent to [the plaintiffs]" The plaintiffs say these additional words were added without the knowledge or consent of the plaintiffs. The plaintiffs go on to say that the defendant smuggled the compressors to Nanjing, and made an incorrect customs declaration, saying that the compressors were parts for air conditioners and the price was understated as US$8,400. The 14,400 compressors were detained and 11,200 were sold for a price of RMB2,508,800, which was forfeited as a penalty. The remaining compressors - 3,200 - were released to the plaintiffs. The plaintiffs say "delivery should include all relevant receipts and subject to the Defendant's actual payment to all lawful customs duties".

4. The defendant applied for summary judgment on its counterclaim. The Master refused this, and gave unconditional leave to defend. The defendant now appeals against this decision.

The Defendant's Case

5. I have already recited parts of the agreement of 4 April 1996. The agreement also say that the defendant "is responsible as an agent for the import of the [compressors] and is also responsible for declaring customs, paying the customs duty and delivering the goods [to the address specified]". It goes on to say that the defendant "is responsible for all expenses for delivering the goods from Hong Kong to the destination in the People's Republic of China (including Hong Kong transport & miscellaneous expenses, customs, the transportation and miscellaneous expenses for the railway and short distance within the territories of People's Republic of China)." The defendant says, on 17 April 1996, it loaded the compressors on the rail in Shan Tau. It gave the transport receipts to the plaintiffs on 18 April 1996. On 20 April 1996, the first plaintiff wrote to the defendant admitting the debt of RMB1.224 million. The defendant delivered the goods to Nanjing and Mr Chan of the first plaintiff acknowledged receipt of the compressors on 28 April 1996. The plaintiffs returned to the defendant a bank draft and cheque given to them as security.

6. The defendant says that it engaged a company called Shantao Special Economic Zone Technological Equipment Company to transport the goods from Hong Kong into China and thereafter by rail to Nanjing. The compressors were properly transported through the Shantao Customs Department. "After making full declaration through, and paying all customs and other related charges to, the Shantao Customs Department, the goods were released and thereafter loaded on a train to Nanjing". The defendant produces a certificate issued by the Shantao Customs Department and a certificate issued by the railway company certifying the loading on board its train of the goods.

7. The railway company receipt is dated 20 February 1997 and says that, on 17 April 1996, Shan Tau Tai Chik Goods Transport Company delivered 14,400 compressors, the consignee being Nanjing Da Heng Freeze-Controller Kitchen Ware Facilities Company, and the station issued a collection permit, which is a bill of lading.

8. The certificate from the Shantao Customs Department is dated 15 January 1997. It refers to the 14,400 compressors "declared and imported by the Shantao Special Economic Zone Technological Equipment Company on 10th day of April 1996, all the procedures for custom declaration have been completed and that the due duties and related charges have been settled".

9. The receipt by the first plaintiff is dated 28 April 1996. It says "This is to acknowledge receipt from Far View Holdings Co. Ltd. Fourteen Thousand Four Hundred Units of FN66Q Compressor Machines. (Goods collected at Nanjing Station)."

10. The transportation receipts speak of three loads of 66 pieces of compressor machines (being 198 pieces in all), the consignor being Shan Tau Tai Chik Goods Transport Company and the consignee being Nanjing Da Heng Freeze-Controller Kitchen Ware Facilities Company.

11. A Customs Detention Ticket apparently dated May 1996 says, pursuant to Customs Law, the Customs Department has detained 198 boxes containing Matsuhita refrigerator compressors FN66Q14G. The first plaintiff's name is given as the "party concerned" and the place of detention is given as "No. 31 Jian Ning Road".

12. The penalty notice is dated 19 September 1996 and the party concerned is said to be "Chaotang City Yue Rong Industrial Co. Ltd.". No one seems to know this company. The notice recites -

"Main Facts of Illegal Act:

On April 16, 1996, the party concerned handled procedures for customs transit from Raoping to Chaoyang by way of general trading at the Raoping Customs. The description of goods as declared was accessories for air-conditioners, the declared quantity was one batch, and the declared price was US$8400. From April 24 to 27, the party concerned shipped the said declared goods to Nanjing and stored the same at Nanjing Da Heng Refrigeration Equipment Company. Upon open-case inspection, we found that the goods imported and declared by the party concerned were actually 11200 units of Matsushita refrigerator compressors model no. FN66Q14G.Such act of the party concerned already constituted smuggling.

Pursuant to [certain laws], it is hereby decided that the 11200 units of Matsushita refrigerator compressors of model no. FN66Q14G imported through smuggling by the party concerned shall be confiscated"

13. The receipt for sale of confiscated items is dated 7 January 1997and refers to 11200 compressors.

14. There is another undated document purportedly issued by the Nanjing Customs Department that says "We hereby certify that a total of 14400 units of refrigerator compressors handled in this Customs are sold to Guangzhou City Ying Li Enterprise Co. Ltd. by auction".

The Plaintiffs' Case

15. Ms Pansy Leung, the plaintiffs' solicitor, made an affirmation on behalf of the plaintiffs on 4 February 1997. She says that this business operation was entrusted by the plaintiffs to China Merchants International Travel Services Limited. The admission of the debt and the acknowledgement of receipt were given before the plaintiffs knew that the compressors had been detained by the Nanjing Customs Department. On 22 July 1996 and 9 September 1996, the plaintiffs wrote to the defendant complaining about this. The defendant did not reply. In a later affirmation, Ms Leung says that she was "given to understand" by the first plaintiff "that the reason why only 11,200 units of compressors had been confiscated is because their sale proceeds from auction was sufficient to cover the penalty imposed by the Nanjing Customs Department and so the rest of the 3,200 units were all released to the Plaintiffs."

The Legal Position

16. A carrier is entitled to payment for the carriage upon delivery, and, in the usual case, a claim for such payment is not defeated by any claim to set-off based on loss, damage or delay. In this case, the contract says that the defendant is entitled to payment "upon production of the railway transportation receipt . . . The obligation of [the defendant] is ended at this stage". The disputed words I have mentioned above make no difference to the effect of the undisputed words.

17. By way of defence, the plaintiffs say that the defendant is not entitled to payment because it did not perform its obligations under the contract. It did not, it is alleged, properly declare the goods for customs purposes and it did not properly pay the customs dues. The plaintiffs also say that delivery should include all relevant receipts, and, I assume, that delivery means delivery after proper clearance through customs and payment of proper custom dues.

18. Mr Shum relies on two English cases decided during the Napoleonic Wars. In Muller v Gernon (1811) 3 Taunt 394, Mansfield CJ said "Freight was the reward which the law entitled a Plaintiff to recover for bringing goods lawfully into the country upon a legal voyage, but the voyage here was clearly illegal, therefore he could recover nothing, and there must be a nonsuit". In Blanck v Solly (1817) 8 Taunt 89, the court followed Muller.

19. These cases, of course, concern the illegality of the importation of goods into the country in which the courts were sitting. They do not say that, where the carriage is unlawful according to the law of some other jurisdiction, the freight charge is not recoverable. Nevertheless, they do establish that the point being made by Mr Shum is arguable. The contract here clearly contemplated that the defendant would import the compressors into that other part of the People's Republic of China lawfully. The defendant was expected to declare the goods properly and pay the customs duties lawfully due. It seems to me that it is plainly arguable that, in law, a carrier should not be able to recover freight where, contrary to the intention of the contract, he has smuggled the goods into the place of destination. It might well be arguable that delivery of goods with the burden of unpaid customs duties, with the consequent seizure of those goods by the customs authorities, is not delivery as contemplated by the contract at all, and, therefore, freight charges are not payable. This is not, in my view, the sort of point that should be decided under summary jurisdiction.

20. But, Mr Cheung argues, the plaintiffs' evidence that the goods were smuggled is not credible. It is undoubtedly true that the evidence adduced by the plaintiffs is not entirely satisfactory. There are obvious flaws in that evidence. On the other hand, the defendant's case that it did not smuggle the compressors is also not beyond criticism. The document from the Shantau Customs Department is not a contemporaneous document. It is, in fact, hearsay evidence from some unknown person, not on oath or affirmation, of what happened some nine months earlier. The defendant has produced no document issued to its agent at the time customs was said to have been cleared at Shantau to show that the proper declarations were made and the duties duly paid. And this is in spite of the fact that the plaintiffs have been asking the defendant since November last year to produce such documentation. Not only is there no proper documentation, but the defendant has not adduced any direct evidence at all of what happened at the Shantau Customs; what was declared and what was paid.

21. The truth of this matter, I believe, is that neither the plaintiffs nor the defendant know what happened in this affair. Neither of them had any direct dealings with the goods once they had left Hong Kong, and they are both relying on what their agents are telling them.

22. In these circumstances, it seems to me, the matter should be left for trial. The plaintiffs have put up a case that is fit for trial. I believe that it has legal arguments and a factual case that may, at the end of the day, prevail.

The Result

23. The plaintiffs have advanced a credible defence. The appeal is dismissed.

The Costs

24. The matter of costs has not been argued. It seems to me, however, that costs should be in the cause, and I make an order nisi accordingly.