MAINTEK COMPUTER (SUZHOU) CO LTD AND OTHERS v. BLUE ANCHOR LINE AND OTHERS

HCAJ 106/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY JURISDICTION ACTION NO 106 OF 2008

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BETWEEN

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D E C I S I O N

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Introduction

1.  This is the hearing of the Plaintiffs’ summons dated 5 August 2011 seeking summary judgment against the 1^st, 2^nd, 4^th 6^th and 7^th Defendants (collectively, the “BAL Defendants”) pursuant to Order 14 rule 1 of the Rules of the High Court.

The background

2.  The 1^st to 4^th Plaintiffs were consignors and/or consignees of the 11 containers mentioned hereunder.  The 5^th Plaintiff was their cargo underwriter making a subrogated claim against the Defendants.  On 9 August 2007, the Plaintiffs consigned 11 containers of Sony goods to the 2^nd Defendant, operating as Blue Anchor Line, for carriage by combined transport from Shanghai to Tilburg via Rotterdam.  For convenience, one of the containers containing Sony playstations is hereinafter referred to as “Container X”.  The terms of the contract of carriage are set out on the back of the Express Cargo Bill of Lading (the contract of carriage and the Express Cargo Bill of Lading are collectively referred to as “ECB”).  In the ECB, the Plaintiffs were referred to as “Merchant”, and the 1^st and/or the 2^nd Defendants were referred to as “Carriers”.

3.  The 1^st and 2^nd Defendants are the contractual carriers under the ECB.  They are the same entity; the name of the 1^st Defendant, “Blue Anchor Line”, being their trade name.  The 4^th, 6^th and 7^th Defendants were affiliated companies of the 2^nd Defendant.  The 4^th Defendant was the 2^nd Defendant’s agent in Rotterdam responsible for clearing customs, safekeeping and warehousing of the containers there and arranging their onward transportation to Tilburg.  It was also responsible for obtaining the requisite customs clearance document, known as “the Sagitta”, which authorised the release of the cargo from the bonded area.

4.  The 2^nd Defendant sub‑contracted the sea carriage of the containers from Shanghai to Rotterdam to the 5^th Defendant (“Hapag‑Lloyd”).  Upon their arrival in Rotterdam on 3 September 2007, the containers were stored at the 8^th Defendant’s (“ECT”) container terminal pending customs clearance.  Such storage with ECT was effected by Hapag‑Lloyd pursuant to a pre‑existing terminal contract between Hapag‑Lloyd, among other carriers, and ECT.

5.  The 4^th Defendant cleared the containers through customs upon their arrival in Rotterdam, obtained the Sagitta document, and arranged for their carriage to Tilburg by barge through inland waterways.  As a result, the containers, including Container X, became registered in ECT’s barge system and stored in ECT’s bonded warehouse.

6.  On 5 September 2007, the 10^th Defendant’s truck driver arrived at ECT’s terminal in Rotterdam, presented a copy of the Sagitta document, and asked for Container X to be released to him for onward carriage by truck.  Previously the 10^th Defendant had been given the copy of the Sagitta document and instructed to collect Container X by an unknown fraudster.  The ECT’s employee who handled the request was a trainee named Jimmy Timus (“Jimmy”).  He discovered that Container X was registered for delivery via ECT’s barge system and not trucking system.  At that stage, the internal procedures required him to verify with other responsible colleagues whether Container X had in fact been re‑routed from the barge to the trucking system. Despite that, without carrying out any checks, he re‑routed Container X to the trucking system himself and issued the driver the data card needed to obtain release of Container X from the terminal.  The driver delivered Container X to the fraudster who then disappeared with the Sony playstations.

7.  The 4^th Defendant discovered the theft on 6 September 2007.  Having been informed of the theft, the 2^nd Plaintiff issued a notice dated 7 September 2007 holding the 4^th Defendant “responsible for all costs and events occurring”.  The remaining 10 of the 11 containers were delivered to Tilburg on 8 September 2007.

8.  On 10 July 2008, the Plaintiffs issued a Writ claiming the value of the lost goods from the 1^st to 5^th Defendants.  The 6^th to 11^th Defendants were joined as parties to the action on 4 September 2008.

9.  On 19 November 2009, judgment was entered against ECT in default of notice to defend.  Its application to set aside that interlocutory judgment was dismissed by Reyes J on 25 February 2010 (“First Judgment”). On 1 March 2010, Reyes J gave judgment on quantum awarding the Plaintiffs damages in the amount of €950,071.20 plus interest and costs (“Second Judgment”).  ECT paid the judgment sum on 9 March 2010 but appealed against both judgments.  The appeals were set down for hearing on 7 September 2010.  In the meantime, the parties negotiated and settled the appeal in the sum of €800,000, representing a principal sum of €616,000 and a contribution of €184,000 in interest and costs.  The surplus of the amount paid to the Plaintiffs was returned to ECT.  The appeal was dismissed by consent.  The Plaintiffs now seek to recover the balance of their claims from the BAL Defendants in the sum of €428,000, equivalent to the surplus returned to ECT.

Some legal principles applicable to an application for summary judgment

10.  The following are well settled legal principles applicable to an application for summary judgment under Order 14.

11.  First, the plaintiff has to show that his case comes within the Order and has satisfied the preliminary requirements for proceeding under the Order.  One of the requirements is that the application must be supported by an affidavit verifying the facts on which the claim or the part of the claim to which the application relates is based and stating that in the deponent’s belief there is no defence to that claim or part or no defence except as to the amount of any damages claimed.  Once that hurdle is passed, the burden, as it were, is shifted to the defendant to satisfy the court why judgment should not be given against him.

12.  Second, the defendant may show cause against the plaintiff’s application by raising technical objections, for example, that the case is not within the Order or that the preliminary requirements are not satisfied.  He may also show cause on the merits, for example, that he has a good defence to the claim, that a difficult point of law is involved, or a dispute as to the facts which ought to be tried, or a real dispute as to the amount due which requires the taking of an account to determine, or any other circumstances showing reasonable grounds of a bona fide defence.

13.  Third, Order 14 is for clear cases, ie cases in which there is no serious material factual dispute and, if there is a legal issue, then no more than a crisp legal question as well decided summarily as otherwise.  The procedure is entirely inappropriate where the plaintiff’s entitlement to recover any sum is the subject of serious dispute whether of law or fact: Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225 at 228E.

14.  Fourth, unless it is obvious that the defence put forward by the defendant is frivolous and practically moonshine, summary judgment ought not to be applied: Man Earn Ltd v Wing Ting Fong at 228E.

15.  Fifth, when hearing an Order 14 application, the court must not embark on a mini trial on affidavits: Mass International Ltd v Hillis Industries Ltd & Another [1996] 1 HKC 434 at 439; Paul Y Management Ltd v Eternal Unity Development Ltd [2008] HKEC 1359 at paragraph 19 and Hong Kong Civil Procedure 2013, Vol 1 at paragraph 14/4/9.

16.  Sixth, in an Order 14 application the issue is not whether the defendant’s assertions are to be believed, but whether those assertions are believable: Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 at 158G.

17.  Seventh, if the court has suspicions concerning the plaintiff’s case, the correct course is to give the defendant unconditional leave to defend so that all matters can be ventilated at trial: Billion Silver Development v All Wide Investments Ltd [2000] 2 HKC 262 at 266E.

The parties’ case

18.  In paragraph 10 of the Amended Statement of Claim (“ASOC”), the Plaintiffs pleaded that 1^st and/or 2^nd and/or 4^th and/or 6^th and/or 7^th Defendants were under a duty as bailees and/or sub‑bailees and/or constructive bailees and/or carriers for reward and/or actual carriers for reward and/or under the terms of the ECB and/or pursuant to the provisions of the Maritime Code of the People’s Republic of China which was incorporated into the ECB under a duty to take good care of the containers for their entire shipment period from Shanghai to Tilburg and to deliver them to Tilburg.  In paragraph 12(l), they pleaded the reckless conduct of Jimmy and ECT in re‑routing Container X from barge system to trucking system and that Jimmy and ECT were at all times acting as servants and/or agents of the Plaintiffs.

19.  The BAL Defendants denied most of the assertions pleaded in the ASOC.  However, they admitted that the 1^st and 2^nd Defendants are one and the same entity and were the carriers under the ECB; that the 4^th Defendant was the 2^nd Defendant’s agent in Rotterdam responsible for obtaining the Sagitta document and performing the functions allegedly performed by the 6^th and 7^th Defendants.  They admitted paragraph 12(l) of the ASOC; that Container X was stolen and the Plaintiffs suffered loss.

20.  The BAL Defendants pleaded three defences.    In paragraph 3 of their Defence, they pleaded that the Plaintiffs’ claims were time barred under Clause 3 of the ECB.  In paragraph 29, they pleaded that pursuant to Clause 17(B)I (2)(k) of the ECB they were relieved of liability for loss or damage resulting from any cause or event which they could not avoid and the consequences whereof they could not prevent by the exercise of reasonable diligence.  In paragraph 33, they pleaded that under Clause 18 of the ECB their liability was limited to US$2 per kilogram of gross weight of goods lost.  In addition, Mr Wright, counsel for the BAL Defendants, raises another three defences, namely that the court has no jurisdiction to hear the application, that the Plaintiffs were not entitled to double recovery and that the Plaintiffs failed to mitigate their loss.

21.  It was alleged in the ASOC that the 6^th Defendant was responsible for obtaining the Sagitta document and the 7^th Defendant was responsible for arranging the carriage of the containers from Rotterdam to Tilburg.  This assertion was denied by the BAL Defendants.  They specifically pleaded in paragraph 10 of the Defence that the 4^th Defendant was responsible for obtaining the Sagitta document and in paragraph 11 that the role alleged to have been performed by the 6^th and 7^th Defendants in the ASOC were performed by the 4^th Defendant.  Though not so raised by counsel for both parties, in the light of these pleas, I can immediately see that the 6^th and 7^th Defendants have a good defence to the Plaintiffs’ claim and are entitled to unconditional leave to defend.  Whether they had any role to play leading to their liability for the loss of Container X is a factual dispute which could only be resolved at trial.  The application is hence dismissed against the 6^th and 7^th Defendants.

Objection on jurisdiction ground

22.  Mr Wright raises the technical objection that the Plaintiffs’ affidavit in support of the application did not comply with Order 14 rule 2(1) in that the deponent, Mr Yin, did not state that in his belief there was no defence to the Plaintiffs’ claim.  He submits that the requirement is mandatory and as a result of non‑compliance with the rule, this court has no jurisdiction to hear the application for summary judgment.

23.  Mr Alder, counsel for the Plaintiffs, promptly produces a second affidavit of Mr Yin containing that magic phrase of “no defence” and seeks leave for it to be filed and served on the BAL Defendants.  However, Mr Wright raises another objection that the deponent could not properly swear such an affidavit.  He refers to paragraph 35 of Mr Yin’s first affidavit in which he deposed as follows:

“I verily believe the 1^st and/or 2^nd and/or 4^th and/or 6^th and/or 7^th Defendants are liable for the losses as set out in the Amended Statement of Claim and costs …”

He argues that it is wholly unclear from this scatter gun approach which of the Plaintiffs is alleged to be entitled to judgment against which of the BAL Defendants.  Hence, he maintains his objection that the Plaintiffs have failed to satisfy the requirement of Order 14 rule 2(1) and this court has no jurisdiction to determine the application.

24.  I dismiss such argument as pedantic.  From the ASOC, it is clear that the Plaintiffs together are seeking judgment against all of the BAL Defendants.  Insofar as the Plaintiffs are concerned, they pleaded in paragraph 2 of the ASOC that at the material times, they were the owners Container X and/or were the persons entitled to sue in respect of the container and/or were the endorsees and/or holders of the ECB to whom property in Container X passed upon or by reason of such endorsement and/or the lawful holders/or were contractual parties to the ECB. These assertions were not admitted by the BAL Defendants in paragraph 5 of their Defence, but no specific defence was pleaded.  They only put the Plaintiffs to prove their title to sue.  In any of these capacities the Plaintiffs were entitled to sue.  Though not so pleaded by the parties, the 5^th Plaintiff’s status as the subrogate claimant is incontrovertible.  That fact is also relied on by Mr Wright in his submission.  Thus, the Plaintiffs’ capacity to sue is beyond dispute.

25.  With the 6^th and 7^th Defendants out of the way, insofar as the remaining three of the five BAL Defendants are concerned, it was admitted in paragraph 4 of the Defence that the 1^st and 2^nd Defendants were the same entity and contractual carriers under the ECB and in paragraph 7 that the 4^th Defendant was the contractual carriers’ agent in Rotterdam responsible for obtaining the Sagitta document and for the safekeeping and warehousing of Container X.  It was denied that the 4^th Defendant had any direct obligation to the Plaintiffs and/or absolute responsibility for safekeeping the cargo.  In paragraph 12 of the ASOC, the Plaintiffs pleaded that “the damage was caused by the recklessness and/or negligence of the Defendants and/or their servants and/or agents …”.  In paragraph 19 of their Defence, the BAL Defendants denied paragraph 12 of the ASOC but admitted, among other things, sub‑paragraph (l) which reads:

“The change of status from barge release to truck release should have been checked by Jimmy with LCG and internally, according to the 8^th Defendant’s own procedures, to verify that the collection order had been changed. Jimmy, however, re‑routed the container without making any enquiries and in doing so acted recklessly with knowledge that loss could arise from his actions, Jimmy and the 8^th Defendant at all times were acting as servants and/or agents of the 1^st and 2^nd and/or 4^th and/or 6^th and 7^th Defendants.” (emphasis added)

“Jimmy” was the trainee Jimmy Timus mentioned in paragraph 6 above and “LCG” was a transportation company. By this admission, all the BAL Defendants admitted that Jimmy was reckless and that both Jimmy and ECT were their servants and/or agents. In paragraph 20 of their Defence, the BAL Defendants admitted that the Plaintiffs suffered loss and damage equal to the invoice value of Container X, namely €950,071.20. Thus, in effect, the remaining BAL Defendants admitted that all or some of them were vicariously liable for the damage caused by the reckless conduct of ECT and Jimmy who were their servants and/or agents. If a particular one among them wishes to rely on the “and/or argument”, if I may be excused for using that shorthand expression, it is up to that particular defendant to identify itself, plead, raise an arguable defence and condescend upon particulars. Except asserting that they exercised due diligence, they did not condescend upon particulars. This does not amount to a credible defence. This conclusion is sufficient for the purpose of disposing of this defence.

26.  I can find no substance in this “and/or argument”. I consider the second affidavit of Mr Yin would cure the defect.  Its admission would cause no prejudice to the BAL Defendants.  I therefore grant leave for it to be filed and served with abridgement of time.  I also dismiss Mr Wright’s argument that the two affidavits of Mr Yin do not meet the requirement of Order 14 rule 2(1).  No other technical grounds having been raised, I find that this court has jurisdiction to determine the Plaintiffs’ application for summary judgment.

Cause of action extinguished defence

27.  There is no dispute that as result of the First Judgment and Second Judgment, ECT paid the full amount of damages claimed in the amount of €1,056,810.87 including interest and costs to the Plaintiffs’ solicitors on 9 March 2010; and then filed a notice of appeal two days later.  After that the parties entered into a series of negotiation and reached agreement to settle the appeal.  On 24 August 2010, they obtained an order by consent from Rogers JA to dismiss the appeal upon the Plaintiffs refunding all sums held by their solicitors over and above the sum of €800,000 to ECT.  The net result was that the Plaintiffs’ claim against ECT was settled in the amount of €616,479 with a contribution of €183,521 as interest and costs.  The Plaintiffs now seek to recover the balance of their loss in the amount of €440,331 against the BAL Defendants.

28.  Mr Wright argues that as judgment for the full amount of damages claimed have been obtained against ECT and paid to the Plaintiffs in full satisfaction of the judgment including interest and costs, the Plaintiffs’ claim is extinguished against all Defendants, including the BAL Defendants.  He emphasizes on the significance that the payment was made before ECT filed its notice of appeal.  He quotes Jameson v Central Electricity Generating Board [2000] 1 AC 455 at 471H‑472B and Tse Ngan Heung v Rit‑-Carlton Ltd CACV 312 of 2006 (17 July 2007) per Le Pichon JA as authority in support of his proposition.  He further submits that the cause of action thus extinguished did not revive as a result of the Plaintiffs voluntarily refunding part of the judgment sum to ECT and in so doing the Plaintiffs were effectively giving away their own property.  He relies on Tang Man Sit v Capacious Investments Ltd [1996] AC 514 (PC) at 522 per Lord Nicholls as the authority for the proposition that a plaintiff cannot recover in the aggregate from one or more defendants an amount in excess of his loss and that once a plaintiff has fully recouped his loss he cannot pursue any other remedy.  He criticises the decision to settle as incomprehensible.  He submits that this defence raises a triable issue whether the full judgment sum had been paid in full satisfaction of the Plaintiffs’ claims.  In my view, there are no disputes of facts here.  The only question raised by this defence is whether it was reasonable so to settle.

29.  Mr Alder submits that once judgment is given, the judgment debtor is at liberty to pay the judgment sum to stop interest from accruing and then appeal.  I agree.  Interest at judgment rate is higher than the returns from most of the investment products available in the financial market.  Alternatively, from the point of view of a judgment debtor intending to appeal, payment of the judgment sum to prevent interest at judgment rate from accruing is a good insurance against the risk of an unsuccessful appeal.  It would be worth even to borrow to pay the judgment sum.  This is particularly so if the prospect of success of appeal is dim and the judgment creditor is good for the money paid pending appeal.  The Plaintiffs are in a strong financial position to repay if ECT succeeds on appeal.  The 11 containers speak for themselves.  The payment by ECT before filing its notice to appeal was but a neutral event and attracts no significance which Mr Wright seeks to emphasise.  On the facts, ECT’s payment under protest of an appeal was but provisional satisfaction pending appeal and negotiation.

30.  In his affidavit filed on behalf of the Plaintiffs, Mr Horton explained the basis of the settlement.  Based on the Hague‑Visby Rules, the Plaintiffs considered 8^th Defendant’s offer reasonable and attractive.  Though fully confident of their chance of success, bearing in mind the uncertainty of litigation and the costs of two appeals which will not be fully recovered from ECT, the Plaintiffs made a practical management decision to settle by forgoing about one third of the damages in exchange for a dismissal of the appeals and then to pursue against the BAL Defendants for the balance of their loss. The explanations tendered by Mr Horton are credible and full of common sense.  Even if the Plaintiffs were to wholly succeed on both appeals and awarded costs, bearing in mind the disparity between actual costs and taxed costs, the Plaintiffs would probably be better off settling than contesting and running the risk of uncertainty in litigation.  This is not a case of a plaintiff, having obtained full satisfaction, makes a gift of his fruit of litigation and then seeks double recovery.

31.  The reasonableness of the decision to settle has to be assessed as at the time when the decision was made.  In my view, having regard to all the circumstances, it was reasonable to have settled the appeal. As result of the settlement, the Plaintiffs avoided the costs and uncertainty of an appeal and preserved the two judgments of Reyes J.  The net effect was that though the Plaintiffs obtained judgment against ECT in the full amount of €950,071.20 plus interest and costs, they only recovered €616,000.  It was no different from the case of a settlement for a lesser sum without litigation or settlement before trial.  The court cannot blinker itself to the reality of the situation just because ECT had once paid the full judgment sum to the Plaintiffs’ solicitors.  The payment of the judgment sum by ECT before filing its notice of appeal and its partial refund have no significance in light of the circumstances as explained by Mr Alder and the Plaintiffs.  The Plaintiffs were not making a gift of their fruit of litigation to ECT and then seek double recovery against the BAL Defendants.  The Plaintiffs are undoubtedly entitled to recover the balance of their claims from the other co‑defendants.  There are no triable issues, whether of fact or of law, raised by this defence.  There is no evidence to contradict the reasonableness of the Plaintiffs’ decision to settle.  Were this issue to proceed to trial, the same evidence and arguments would be presented and the outcome would be just the same.

32.  I do not find it necessary to refer to the authorities quoted by Mr Wright.  The legal principles established by those authorities are not in dispute.  But those principles do not apply to the factual situation in the present case as the Plaintiffs are not seeking double recovery.

Failure to mitigate loss defence

33.  Mr Wright renews his attack on the settlement by arguing that in voluntarily giving up a significant proportion of the amount they had received in satisfaction of the judgment, the Plaintiffs failed to mitigate their loss.  He argues that on the facts of the present case it would have been reasonable for the Plaintiffs to defend any appeal brought by the 8^th  Defendant rather than commencing the present litigation against a different group of co‑defendants. He argues that in considering the offer to settle attractive in terms of the Hague‑Visby Rules the Plaintiffs seemed to have erroneously formed the view that ECT has a meritorious argument on appeal by relying on the Hague‑Visby Rules.  He submits that that opinion was wrong as a matter of Hong Kong law in the light of The “Ming Star” [2005] 4 HKLRD 544 and Mau Wing Industrial Ltd v Ensign Freight Pte Ltd [2009] 5 HKLRD 240 and hence the decision to settle the appeal was unreasonable. He argues that the Plaintiffs have not disclosed the full circumstances surrounding the voluntary refund of part of the judgment sum to ECT.  Hence, he submits that the question whether the Plaintiffs failed to take reasonable steps to mitigate their loss is clearly a matter for trial which cannot be determined summarily.

34.  It is a well settled principle that a victim is under a duty to mitigate his loss and may not recover such of his loss which he could reasonably have mitigated.  But that does not mean in all circumstances, he should, for the benefit of some other co‑defendants, pursue litigation against a particular co‑defendant against whom he had obtained judgment to the bitter end without regard to the expenditure in terms of time and costs.  It is all a matter of balancing.  He has to balance the chance of success, the costs involved, the means of the various co‑defendants in satisfying judgment and the relative ease with which he could recover from the various co‑defendants.  I have mentioned the Plaintiffs’ consideration on the question of their chance of success and costs.  Mr Horton also explained that weighing all those issues, the Plaintiffs considered the offer on the basis of the Hague‑Visby Rule very reasonable and attractive.  By that I think he meant the limitation under the rules as some kind of code which participants in the cargo freight business observe as the limit of reasonableness in the amount of the compensation to be paid in the event of a claim.  That was why he said he thought the BAL Defendants should not be complaining.  Thus, what was in the Plaintiffs’ mind was that it was reasonable to recover the limit under the rules from one co‑defendant and the balance from the other co‑defendants.  Obviously, the Plaintiffs thought if insisted to recover beyond that limit which ECT considered reasonable and the norm, ECT would proceed with the appeal to try its luck.  By no reading of Mr Horton’s affidavit may it be suggested that the Plaintiffs thought the Hague‑Visby Rules applicable to their claim or present a threat to their chance of success or that those considerations formed the basis of the settlement.  Thus, the Plaintiffs’ decision to settle was out of the consideration for the chance of success, the legal costs particularly those which would not be recoverable, and the limit of ECT’s willingness to compromise.  It may well be that as between the BAL Defendants and ECT, the latter was more to blame.  That is a matter to be resolved among the Defendants.  It is not for the Plaintiffs to do justice among those parties. On balance, from point of view of the Plaintiffs, I consider the decision to settle the appeal reasonable.

35.  Mr Wright argues that the issue of reasonableness cannot be determined in the absence of evidence of the full circumstances, particularly of what happened during the negotiation.  Those factual issues are therefore matters for trial and this is not a case for summary judgment.  I disagree.  Mr Wright could offer no good reason to doubt the genuineness of the settlement.  He could offer no evidence to challenge the reasonableness of the settlement.  He cannot raise any factual issue in dispute.  He is just surmising.  To entertain his groundless surmise would be to allow a debt‑dodger’s charter to prevail, as warned by Bokhary JA, as he then was, in Re Safe Rich Industries Ltd [1994] HKLY 183.

The time bar defence

36.  The BAL Defendants rely on the time bar under Clause 3 of the ECB. This defence had been considered and rejected by Reyes J as against ECT in the First Judgment.  But Mr Wright argues that in the proceeding before Reyes J, ECT conceded that Container X had not been delivered and that proceeding was an application to set aside a default judgment in which the applicant, ie ECT, was required to meet a higher threshold of establishing a defence with a real prospect of success than the BAL Defendants’ in resisting an application for summary judgment.  Mr Wright is clearly wrong about the pleading because the BAL Defendants pleaded in paragraph 18 of their Defence that Container X was not delivered to the Plaintiffs.  For what his argument is worth, I consider this defence afresh.  This defence is run on the basis that there was delivery, but delivered short and that the Plaintiffs’ claims are time barred from the date of the short delivery under both limbs of Clause 3 of the ECB.  In order to advance his argument that this was a case of short‑delivery, Mr Wright focused on interpretation of the word “Goods” in Clause 3 instead of the complete phrase “the delivery of the Goods” or “the date when the Goods should have been delivered” which, in my view, were the triggers of the time bar.  Clause 3 of the ECB provided:

“The Carrier shall be discharged of all liability under this Document unless suit is brought within nine months after

(i) the delivery of the Goods or,

(ii) the date when the Goods should have been delivered

unless international Conventions or statutory regulations compulsorily applicable in the individual case are stipulating a longer term of prescription.”

37.  As the word “Goods” in Clause 3 was not defined in the ECB, Mr Wright relies on the particulars stated under “Description of Goods” on the front page of the ECB which described the Goods as “11 containers”.  Next, he refers to paragraph 11 of the ASOC in which the Plaintiffs pleaded that the “Defendants failed to deliver part of the Cargo”.  Based on the pleading, he argues that the other part of the Cargo was delivered, ie the other 10 containers and hence the word “Goods” was clearly intended to refer to the contents of the 11 containers.  He submits that as the contents of 10 of the 11 containers were unquestionably delivered, the plaintiffs’ claim is a claim for short delivery. And as the 10 containers were delivered to the plaintiffs in Tilburg on 8 September 2007, if not in Rotterdam on 6 September 2007, Mr Wright argues that pursuant to Clause 3(1) of the ECB the plaintiffs’ claims were time barred nine months after 6 or 8 September 2007.

38.  Even if the word “Cargo” in the ASOC has the same meaning as the word “Goods” in Clause 3 and the word “Goods” means all the goods contracted to be shipped or any part of it, it does not help the BAL Defendants.  If the BAL Defendants contracted to deliver a quantity of empty containers or a number of containers containing homogenous goods, eg a quantity of rice or chemicals, Mr Wright may rightly argue that delivery short of the contracted number of containers or the weight of rice or chemical contracted to be delivered is short‑delivery.  Here, the contents of the containers were different.  The 11 containers were shipped under different shipments.  Three of the containers, including Container X, were to be customs‑cleared separately.  Though the 11 containers were covered by one ECB, they were to be delivered separately.  Container X was simply not delivered.  This was not a case of short‑delivery, but non‑delivery or mis‑delivery.  The time bar in Clause 3(1) does not apply.

39.  That apart, Mr Wright misses the essence of Clause 3.  The effect of that clause turns on the meaning of the phrase “delivery of the Goods” or “the date when the Goods should have been delivered” rather than on the word “Goods” alone.  These two phrases, as I have indicated earlier, were the triggers of the time bar in this clause.  This clause along with the other terms of the ECB must be construed as a whole.  Mr Wright has plainly fallen into error by construing the word “Goods” in isolation.  As Reyes J rightly held, and which I whole-heartedly agree, the word “delivery” must mean delivery in accordance with the terms of the ECB to avoid the absurd result where the BAL Defendants could just deliver the goods to a stranger and claim that time for suit began to run from the date of such wrongful delivery.  I should add that delivery of a single container will also lead to the same absurd result.  In his earlier judgment in Starlight Exports Ltd & Anor v CTO (HK) Ltd, HCCL 55/2004, Reyes J adopted a similar construction following Yuen JA in Cheong Yuk Fai v China International Freight Forwarders (HK) Co Ltd [2005] 4 HKLRD 544 at §58.  I think this construction could not be faulted.  As Container X was stolen and never delivered to the plaintiffs, the first limb of Clause 3 has no application.

40.  This was a case of non‑delivery and not short‑delivery. Mr Alder helpfully refers me to the House of Lords decision in Beck & Co v Szymanowski & Co [1924] AC 43 at 50, in which Lord Shaw held:

“ Payment of damages for short delivery is refused by the sellers, because, particularly, of cl 5 of the printed conditions incorporated into the contract.  I note the terms of that clause again only that I may indicate the exact words which, in my humble opinion, make the clause inapplicable as a bar to the present claim. The clause applies to “the goods delivered”, saying that they shall be deemed to be in all respects according to the contract.

   But one may stop there; for the damages are claimed not in respect of the goods delivered but in respect of goods which were not delivered.  And when fourteen days are given for notice of any “matter or thing of reason whereof they may allege that the goods are not in accordance with the contract” the expression “the goods” can only mean “the goods delivered,” to which alone the clause applies.”

Thus “goods delivered” simply means goods physically delivered and not goods short‑delivered or never delivered.  Mr Wright’s attempt to rely on delivery of 10 containers to re‑characterise the case as one of short‑delivery does not assist the BAL Defendants since Clause 3(1) simply does not apply to those goods in Container X which were never delivered.

41.  In my view, the structure of Clause 3 is very simple.  The first limb applies to goods contracted to be shipped, whether in its entirety or part it, which were delivered.  The second limb applies to goods which should have been delivered but were not delivered.  Claims in respect of goods which were delivered but damaged in transit falls under the first limb.  Claims in respect of goods which were lost in transit and never delivered falls under the second limb.  It is a fallacy to argue that goods lost in transit and never arrived for delivery are goods delivered short.

42.  Most fatally, Mr Wright is wrong in asserting that the BAL Defendants did not concede that Container X had not been delivered.  That is wrong.  In paragraph 18 of the defence, the BAL Defendants pleaded:

“ It is admitted that the Stolen Cargo was not delivered to the Plaintiffs.”

It is therefore not even permissible for Mr Wright to run his short‑delivery argument as it amounts to a departure from the defence.

43.  In the alternative, Mr Wright seeks to rely on the second limb of Clause 3.  He argues that the date when the contents of Container X should have been delivered was 8 September 2007, which was the date when delivery took place in respect of the contents of the other 10 containers that were shipped together with Container X pursuant to the ECB.  In the further alternative, he argues that the date should be 12 September 2007 because the customs procedures in Rotterdam required the containers to be removed from the terminal at the latest eight days after the issue of the Sagitta document and after allowing for a day of barge transit.  With respect, he is construing the phrase “should have been delivered” out of its context as a contract of carriage.  In such a contract, delivery has a technical meaning and involves questions such as whether delivery was actually sought and whether conditions for delivery were complied with.  This will become clear from the judgment of Yuen JA in Cheong Yuk Fai v. China International Freight Forwarders (HK) Co Ltd [2005] 4 HKLRD 544, which I now turn to.

44.  Cheong Yuk Fai was a case of carriage of goods which contained a similar time bar provision under clause 21. That clause released the freight forwarder from all liability under the contract of carriage unless suit was brought within nine months after (i) the delivery of the goods or (ii) the date when the goods should have been delivered or (iii) the date when the party entitled to receive delivery would be given the right to treat the goods as lost.  The sellers contracted to sell a quantity of garments and pursuant to the buyer’s request, handed the garments to the defendant freight forwarders for delivery to Moscow via Hamburg.  The seller was given a bill of lading by the forwarders.  But when the seller presented the bill to the bank, it could not collect payment.  It turned out that after the garments arrived at Hamburg, they were transported to Moscow where they were stored and then sold by auction to pay the high storage charges.  Yuen JA said in paragraphs 55 to 58:

“55.     Clause 21 is obviously intended to cover three different scenarios.  Clause 21(i) covers the scenario where actual delivery has taken place.  So if the goods so delivered are damaged, proceedings have to be brought within nine months after delivery.  That is not this case.

56.       Clause 21(ii) covers the scenario where "goods should have been delivered" but (by implication) were not delivered to the person entitled to them.  Counsel for the defendant submitted that this sub‑clause applies in the present case because the Goods had arrived in Moscow by the end of November 1995 and that should be taken to be "the date when the goods should have been delivered".  I do not agree.  That would be reading the sub‑clause as if it read "the date when the goods arrived at the place of delivery". However that might, or might not, be the time when they "should have been" delivered, because it depends on whether delivery was actually sought and whether conditions for delivery, eg presentation of the Bill of Lading, were complied with.  If they were not, then the date when the goods arrived at the place for delivery could not be "the date when the goods should have been delivered".  (For the converse of the situation, where the freight forwarder can require the goods to be collected, see cl. 15 of the Bill of Lading which provides for storage of the goods and the cesser of its liability).  (Emphasis added)

57.       I have considered whether the words "the date when the goods should have been delivered" were intended to apply to a contract where a time limit has been expressly agreed, but that would be covered by the first part of cl. 20, and in that situation cl. 21(iii) gives an additional 90 days before the nine‑month limit starts to run.

58.       In my view, "the date when the goods should have been delivered" means exactly what it says - the date when the goods should have been, but were not, delivered to the person entitled to them upon his making a claim for them with the relevant documents.  That might, or might not, have been in November 1995, because of the initial confusion as to what had happened to the Goods (even as late as February 1996, the Plaintiffs were being given confusing information by the defendant about Latlink).  In the absence of relevant findings of fact by the trial judge as to what was done by the parties (and their explanations why they did or did not do certain acts), I do not think that this court can now determine that the relevant time limit commenced in November 1995 simply because that was when the Goods arrived in Moscow.”

Paragraph 56 and 58 are particularly pertinent.

45.  The facts of Cheong Yuk Fai is indistinguishable from the facts of the present case, though the garments in Cheong Yuk Fai actually arrived at the destination, whereas Container X in the present case never did.  But, in both cases, the goods were lost.  The approach of Mr Wright is to treat the date of delivery of the other containers shipped together with Container X as the date when Container X should have been delivered.  This approach in construing the phrase could be understood from a layman’s point of view, but is inappropriate in the context of construing a contract for carriage because, as pointed out by Yuen JA, delivery depends on whether delivery was actually sought and whether conditions for delivery, eg presentation of the bill of lading were complied with.  If they were not, then the date when some other goods shipped at the same time arrived at the place for delivery without more could not be “the date when the goods should have been delivered”: see paragraph 56 of the judgment of Yuen JA quoted above.

46.  Next, Mr Wright’s postulated date of 12 September 2007 also fails for the same reason.  In postulating that date, he ignored the distinct possibility that the Sagitta document in question was improperly procured for the purpose of the theft.  More importantly, the Rotterdam regulations relied upon by Mr Wright merely required removal of the goods from the bonded warehouse eight days after issue of the Sagitta document.  That was not delivery and there was nothing to preclude storage of the 11 containers in Tilburg on the plaintiffs’ instruction pending delivery.

47.  Thus, in dismissing ECT’s argument in the earlier proceeding, Reyes J, after quoting Cheong Yuk Fai said at paragraph 26 to 28 of the First Judgment:

“26. By analogy with the way in which “delivery” is used in limb (i), the word “delivered” in limb (ii) must have the sense of “when the Goods should have been delivered in accordance with the terms of the ECB”. See Cheong Yuk Fai v. China International Freight Forwarders (HK) Co Ltd [2005] 4 HKLRD 544 (at para 58 per Yuen JA). That means on the facts of the present case that limb (ii) refers either to a reasonable time:-

(a) after the Plaintiffs demand that Transpac [ie 2^nd Defendant] (or its agent) deliver Container X and its contents to the Plaintiffs in Tilburg; or,

(b) after Transpac (or its agent) notifies the Plaintiffs that Container X and its contents are at the Plaintiffs’ disposal and available for collection in Tilburg.

27. Neither eventuality materialised.  Container X never reached Tilburg.  Transpac (or its agent) never notified the Plaintiffs that Container X had reached Tilburg and never called upon the Plaintiffs to take delivery of Container X in Tilburg.  The Plaintiffs, on the other hand, never demanded that Transpac (or its agent) deliver up Container X to the Plaintiffs in Tilburg.

28. It follows that, on the facts, limb (ii) is as inapposite as limb (i).  The 9 month limit was never triggered.  On its true construction, clause 3 affords no defence for ECT [ie 8^th defendant].”

Reyes J’s approach in construing the second limb of Clause 3 accords with the authority.  I fully agree with his conclusion that on the facts of the present case the nine month limit was never triggered.  Hence, the BAL Defendants cannot rely on either limbs of Clause 3.

48.  Then, Mr Wright resorts to the notice dated 7 September 2007 issued by the 2^nd Plaintiff to the 4^th Defendant holding it responsible for all costs and events occurring.  The 2^nd Plaintiff wrote:

“ According to the terms of our insurance policy and in the name of Sony Computer Entertainment Europe Ltd (SCEE), 30 Golden Square, London W1R6LU, United Kingdom, we hereby hold you responsible for all costs and events occurring.”

Mr Wright argues that if the date on which Container X should have been delivered had not yet arrived, the 2^nd Plaintiff would have no basis for complaint that the goods had not been delivered.  Therefore, Container X should have been delivered before 7 September 2007, say 6 September 2007, and the notice was clearly a demand by the Plaintiffs to deliver Container X and its contents.  I am quite unable to read all these assertions into that notice.  At the time of issue of the notice, the other 10 containers had not even reached Tilburg.  Had there been no theft, Container X could not have reached Tilburg on 6 September 2007.  Even on Mr Wright’s logic, Container X could not have been delivered on or before 7 September 2007.  It was obviously the case that having been informed of the theft, the 2^nd Plaintiff felt it prudent to write to reserve their right by reminding the BAL Defendants of their potential liability for all costs and events occurring.  That was all that notice was about.  The notice could not be construed to mean the Plaintiffs thought Container X had arrived at Tilburg on 6 September 2007, still less that it should have arrived and been delivered on that day. Even if the Plaintiffs had mistakenly thought it had, it would be of no consequence because there was no evidence from the BAL Defendants that delivery had been sought and conditions for delivery had been complied with.  On the fact, there was no demand, implied or express, in the notice to deliver Container X or its content.

49.  Lastly, on this defence, Mr Wright argues that there can be no question that the Plaintiffs were fully aware of the contractual time limit imposed by Clause 3 because by its fax dated 20 May 2008, the Plaintiffs’ recovery agent, Messrs WE Cox referred to the time limit expiring on 3 June 2008.  In reply, the 4^th Defendant’s insurer wrote:

“As requested, for and on behalf Policyholder Kuehne + Nagel NV, we now waive the objection of the time bar up to 12.07.2008.”

Hence, Mr Wright argues that the time bar was only waived as against the 4^th Defendant but not as against the other Defendants, but that the 4^th Defendant, not being a party to the ECB could not possibly be contractually liable for the Plaintiffs’ loss. In view of the construction of Clause 3, this argument is misconceived.  The time bar does not apply.

Exclusion from liability defence

50.  The BAL Defendants rely on Clauses 17(B)I(2)(k) and 23.1 of the ECB to exclude them from liability for loss and damage to the Plaintiffs’ goods and as part of that defence they argue that they have discharged their duty of exercising reasonable diligence by entrusting the containers to Hapag‑Lloyd, a reputable carrier, who then entrusted them to ECT, an apparently reputable container terminal.  The way this defence was argued suggests that there are two limbs under this defence.  First, the BAL Defendants contend that their obligation was merely to exercise due diligence in selection of Hapag‑Lloyd, which they had.  Second, the theft of Container X occurred under circumstances which they could not avoid and the consequences whereof they could not prevent by the exercise of reasonable diligence on their part.

51.  The issues raised by the first limb of this defence are what were the duty and standard of care owed by the BAL Defendants to the Plaintiffs.  Mr Wright submits that the standard of care required was merely to exercise reasonable diligence in selecting an ocean carrier.  His argument is based on the fact that the BAL Defendants were non vessel owning carriers and hence it was not contemplated by the parties that the BAL Defendants would carry the containers from Shanghai to Tilburg without utilizing the services of other contractors in the performance of the ECB.  I have no dispute with this proposition as this was expressly so provided in Clause 17(C).  Mr Wright then argues that in the absence of express contractual provisions as to the standard of care required of the BAL Defendants, their obligation was merely to exercise due diligence in selection of a carrier which would be the ordinary term which would be implied into a contract for services by the Supply of Services (Implied Terms) Ordinance.  I agree that the duty of reasonable diligence may be readily implied into the ECB.  But the duty of reasonable diligence may not be the only obligation owed by the BAL Defendants under the ECB.  To find out what the implied obligations under the ECB were, one must look at what the ECB provides and to draw inference from those express provisions as to what the implied duty and standard of care were and not to draw inference from vacuo as what Mr Wright does.

52.  For this purpose, Clauses 2.1, 17(B)I and 23.1 are relevant.  These clauses provide as follows:

“2.1 By the issue of this Express Cargo Bill the Carrier undertakes to perform or to procure the performance of the entire transport from the place at which the Goods are taken in charge (place of acceptance) to the place designated for delivery in this Express Cargo Bill and assumes liability as set out in these conditions.”

“17(B)I(1) The Carrier shall be liable for loss or damage to the Goods occurring between the time when the Carrier received the Goods into its charge and the time of delivery.

(2) The Carrier shall, however, be relieved of liability for any loss or damage if such loss or damage arose or result from:

(a) the wrongful act or neglect of the Consignor or the Consignee;

(b) compliance with the instructions of the person entitled to give them;

(c) the lack of, or defective condition of packing in the case of Goods which, by their nature, are liable to wastage or to be damaged when not packed or when not properly packed;

(d) handling, loading, stowage or unloading of the Goods by the Consignor, the Consignee or any person acting on behalf of the Consignor or the Consignee;

(e) inherent vice of the Goods;

(f) insufficiency or inadequacy of marks or numbers on the Goods, coverings, or unit loads;

(g) strikes or lockouts or stoppage or restraint of labour from whatever cause whether partial or general;

(h) an act, neglect or default in the navigation of a ship occurring during carriage by water;

(i) fire occurring during carriage by water, unless the fire was caused by the actual fault or privity of the Carrier or the water carrier or by lack of exercise of due diligence to make the vessel seaworthy, properly to man, equip and supply the vessel or to make her fit and safe for the reception, carriage and preservation of the Goods;

(j) a nuclear incident, if the operator of a nuclear installation or a person acting for him is liable for this damage under an applicable International Convention or Nation Law governing liability in respect of nuclear energy;

(k) any other cause or event which the Carrier could not avoid and the consequences whereof it could not prevent by the exercise of reasonable diligence.

(4) The burden of proving that the loss or damage was due to one or more of the causes, or events, specified in paragraph 2 shall rest upon the Carrier. When the Carrier establishes that in the circumstances of the case, the loss or damage could be attributed to one or more of the causes, or events, specified in paragraph 2, it shall be presumed that it was so caused. The Claimant shall, however, be entitled to prove that the loss or damage was not, in fact, caused either wholly or partly by one or more of these causes or events. …

23.1     The defences and limits of liability provided for in this Document shall apply in any action against the Carrier for loss of or damage to the Goods, whether such action is founded in contract or in tort.”

53.  The 1^st and 2^nd Defendants were carriers under the ECB.  Clause 2.1 provided that by issuing the ECB, they undertook to perform the contract of transporting the containers from Shanghai to Tilburg and assumed liability as set out in the conditions in the ECB.  The primary condition is to be found in clause 17(B)I(1) which is subject to exceptions provided in Clause 17(B)I(2).

54.  Clause 17(B)I(2) excludes the BAL Defendants from liability for loss or damage to the cargo arising or resulting from certain circumstances.  Except for item (k), all the exceptions were related to neglect or acts of the consignor or consignee; the inherent qualities of the goods; defective condition of the package; labour strikes and lockouts; fire during carriage unless caused by fault or privity of the carrier; neglect in the navigation of a ship, which must necessarily mean a ship other than the one carrying the cargo; and nuclear incident if the operator is liable under international covenant or national law.  It should be noted that even in the exception of fire during carriage, such fire is not excepted if caused by fault or privity of the carrier.  Item (k) excludes the BAL Defendants from liability for loss and damage to the Plaintiffs’ goods under circumstances which they could not avoid and the consequences whereof they could not prevent by the exercise of reasonable diligence on their part.  These exceptions are not related to the acts or omissions of the BAL Defendants but matters which they were not privy to or outside their control.  Mr Wright argues that Clause 17(B)I(2) is just a codification of all the duties which the BAL Defendants were subject to under the ECB.  I am quite unable to read that clause as a codification of the duties of the BAL Defendants as the clause is basically an exclusion clause.  Reading the ECB as whole, the intention of the parties as reflected by clause 17(B)I is that the BAL Defendants assume an almost strict liability for loss or damage of the goods while under their care between the time when they received the goods into their charge and the time of delivery.  While it is accepted that being non vessel owning carriers, it was contemplated that the BAL Defendants would not actually transport the containers themselves and may subcontract the performance to another carrier, they were under a non‑delegable duty to ensure that the immediate and subsequent subcontractors to whom they subcontracted the performance of the ECB were reputable and competent contractors who would adopt proper procedures to ensure the due and proper delivery of the containers with the cargo owners’ instructions.  The 1^st and 2^nd Defendants subcontracted the sea carriage of the containers to Hapag‑Lloyd, a reputable vessel owning carrier, who then warehoused the containers with ECT.  The BAL Defendants were therefore under a very heavy duty to ensure ECT’s cargo terminal would adopt and carry out sound and proper procedures for the safekeeping and delivery of the containers to authorised personnel only and in accordance with the cargo owners’ instructions.  This duty calls for a very high standard of care and was not discharged by merely exercising reasonable diligence in selecting a carrier.

55.  Mr Wright argues that the BAL Defendants had exercised reasonable diligence in ensuring that the containers were entrusted to a reputable ocean carrier.  Then, having selected a reputable ocean carrier, namely Hapag‑Lloyd, they were entitled to entrust Hapag‑Lloyd with the task of selecting an appropriate container terminal in Rotterdam, namely ECT.  He asks the court to take judicial notice of the fact that Hapag‑Lloyd is a reputable and big ocean carrier.  He says that ECT had internal procedures which should have prevented the loss of Container X and there was no evidence to suggest that anyone inside or outside ECT could possibly have known that the particular employee might on this occasion chose not to follow the internal procedures. Mr Alder’s reply is that these are bare assertions which are insufficient for Order 14 purposes where the onus lies on the BAL Defendants to show cause by way of evidence condescending upon particulars: see Hong Kong Civil Procedure 2013 paragraph 14/4/1 to 14/4/4.  This defence fails for failing to condescend upon particulars.  However, in his untiring effort to argue, Mr Wright submits that when examining whether the Plaintiffs had shown an arguable case, the court should look at whether the Plaintiffs had evidence of failure on the part of the BAL Defendants to exercise reasonable diligence.  Hence, as it was Hapag‑Lloyd which selected ECT’s terminal, absence pleading that the BAL Defendants were in negligent breach of duty in selecting Hapag‑Lloyd, the Plaintiffs’ claims cannot even get off the ground.

56.  With respect to Mr Wright, his approach is again flawed.  That is not the proper approach to resist an Order 14 application.  An Order 14 application is not the occasion to test the adequacy of the plaintiff’s case beyond the preliminary requirements under rule 2. There are three preliminary requirements.  First, the defendant must have given notice of intention to defend.  Second, the statement of claim must have been served on the defendant.  Third, the affidavit in support of the application must comply with the requirements of rule 2, ie supported by an affidavit verifying the facts on which the claim is based and stating that in the deponent’s belief there is no defence to that claim.  If the plaintiff has satisfied the preliminary requirements for proceeding under the Order, the burden is shifted to the defendant to show cause or a good defence.  The focus is not on testing if the plaintiff has shown an arguable case, but on whether the defendant can show a good defence.  The three requirements were satisfied. If the BAL Defendants wished to advance the defence that they had exercised reasonable diligence in selecting Hapag‑Lloyd as the ocean carrier, it is for them to condescend on particulars rather than for the Plaintiffs to show an arguable case that the BAL Defendants were negligent in selecting Hapag‑Lloyd.  It is the BAL Defendants who have to get off the ground with their defence.  It never was the Plaintiffs’ pleaded case that the BAL Defendants failed to exercise reasonable diligence in selecting Hapag‑Lloyd.  The argument is raised only to negative the bald assertions raised by Mr Wright.

57.  Not only did the BAL Defendants fail to condescend on particulars, Mr Alder argues that incontrovertible facts show a total failure on the part of the BAL Defendants to ensure Hapag-Lloyd and ECT would adopt and carry out sound and proper procedures for the safekeeping and delivery of the containers in accordance with the instructions of the cargo owners.  On the fact, the 4^th Defendant was responsible for obtaining the Sagitta document.  There was a long standing working relationship between the 4^th Defendant and ECT in passing instructions from numerous consignees, including the 2^nd Plaintiff, to ECT regarding customs clearance of cargo.  The 4^th Defendant would procure the Sagitta document and send it to ECT allowing them to release the cargo to any contractor attending the terminal with a transportation order and a copy of the Sagitta document.  According to the Groenondijk Report prepared in the investigation of the theft of Container X which had been produced by ECT in the hearing before Reyes J, between 100 to 400 cargo shipments at the terminal were re‑routed from the barge system to the trucking system on a daily basis.  The report also stated that since the theft was discovered, the procedure regarding containers with high valuable goods has changed and security steps have been built in.  Similar findings were reported in another report prepared by Interlloyd Averij BV on the instructions of the Plaintiffs’ insurers.  That report also stated that following the theft the 4^th Defendant and Hapag‑Lloyd established the procedure that containers can only be released if the haulier provides a delivery note issued by the 4^th Defendant.

58.  There can be no dispute that re‑routing was a frequent occurrence at ECT’s terminal.  Probably, most of the re‑routing were for convenience and do not necessarily result in loss of the cargo.  What caused the loss in this case was the cargo handling system which allowed cargo to be released against a copy of the Sagitta document which is not a title document and the ease with which a single trainee could effect an unauthorised re‑routing.  Through its long term dealing with ECT, these facts must have been notoriously known to the 4^th Defendant.  If not, the 4^th Defendant must be negligent.  The risk of loss of cargo handled by such a system must be appreciated by the 4^th Defendant and through it by the 1^st and 2^nd Defendants.  Such procedures can at best be described as “lax” if not downright reckless given the potential risks involved.  Yet, with full knowledge of the risk, the BAL Defendants did nothing to require Hapag‑Lloyd or ECT to improve the security measures relating to safekeeping and delivery of the cargo until after the theft had occurred. Such measure could be as simple and inexpensive as requiring the haulier to provide a delivery note issued by the 4^th Defendant, which has been implemented since the theft.  This is strong prima facie evidence of the BAL Defendants’ negligence in selecting Hapag‑Lloyd and breach of duty in ensuring the safekeeping and proper delivery of the cargo.  As I have said, it is not necessary for the Plaintiffs to prove or plead the BAL Defendants’ negligence in their selection of the carrier, but for the BAL Defendants to show a credible defence that they have exercised reasonable diligence in their selection of the carrier and safekeeping and delivery of the cargo.  Not only that they have failed to plead with particulars, the surrounding circumstances show that there is no substance in their asserted defence.

59.  I now turn to the defence based on Clause 17(B)I(2)(k).  The defence raises the question of construction of this clause.  Mr Wright argues, quoting Photo Production v Securicor [1980] AC 827, that in construing an exclusion or limitation clause the court is not entitled to create ambiguity where none fairly exists on a proper reading of the clause and this is so even if the exclusion deprives the contract of an underlying liability which is central to the performance of the contract.  Thus, he argues that Clause 17(B)I(2)(k) would exclude the BAL Defendants from liability if they had exercised reasonable diligence in entrusting the containers to a reputable ocean carrier, such as Hapag‑Lloyd.

60.  The principle in Photo Production v Securicor cannot be doubted, but one must not lose sight of the much broader general principle of construction as stated by Lord Hoffmann inJumbo King Ltd v Faithful Properties Ltd & Ors [1999] 4 HKC 707.  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.  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.  The overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean.  Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.  The contract must be construed as a whole to ascertain the meaning of each clause.  Another principle of construction which one must bear in mind is that the contract of carriage is to be construed contra proferentem: Carewins Development (China) Ltd v Bright Fortune Shipping Ltd (2009) 12 HKCFAR 175.  Any doubt about the construction is to be resolved in the Plaintiffs’ favour.

61.  Before construing Clause 17(B)I(2)(k), it must be remembered that the under Clauses 2.1 and 17(B)I(1), the BAL Defendants assumed an almost strict liability in respect of loss and damage to the cargo under their care.  What was excepted under this clause was loss and damage arising from “any other causes or events which the Carrier could not avoid and the consequences whereof it could not prevent by exercise of reasonable diligence”.  The first phrase “any other causes or events which the Carrier could not avoid” clearly refers to circumstances which have nothing to do with negligence or breach of duty of care or conduct of the Carrier.  It seems to me that this phrase only concerns situations arising from external causes akin to frustration or force majeure.  In the second phrase which followed, the words “the consequences whereof” must mean the consequences of the causes or events mentioned in the first phrase.  The word “negligence” was not used.  Negligence and failure to exercise reasonable diligence are not synonymous, though the terms may overlap under certain factual circumstances.  This second phrase is joined to the first phrase by the word “and”.  Reading it conjunctively, I think the second phrase merely stresses that the relevant event must be truly unavoidable or unforeseeable.  Reading Item (k) as part of Clause 17(B) and reading the ECB as a whole, I think in view of the almost strict liability assumed under Clause 2.1 and 17(B)I(1), Clause 17(B)I(2)(k) could not have been intended to cover entirely preventable acts of persons for whom the BAL Defendants are expressly contractually responsible.  In my view, it only excludes the BAL Defendants from liability for loss and damage arising from external events akin to frustration or force majeure.  This is the meaning which this clause gives to an objective reader with knowledge of the surrounding factual matrix reading the ECB as a whole.  In the First Judgment, Reyes J reached the same construction in respect of this clause.  This clause does not exclude the BAL Defendants from liability for loss and damage which they could with reasonable diligence avoid or prevent.

62.  Mr Wright argues that there was no suggestion in the Plaintiffs’ evidence that the BAL Defendants were personally responsible for the loss of Container X and the entirety of the Plaintiffs’ case is based on the factual foundation that Container X was lost as a result of the reckless conduct of Jimmy which could only be attributed to the acts and omissions of ECT.  The theft of Container X was therefore an event which the BAL Defendants could not avoid and no exercise of reasonable diligence on their part could have prevented the consequences.  He therefore submits that the liability of the BAL Defendants is excluded by Clause 17(B)I(2)(k).  As the theft was not an event akin to force majeure, this defence is not available to the BAL Defendants.  In the First Judgment, ECT’s reliance on this defence was similarly rejected by Reyes J.

63.  In my view, the duty of the BAL Defendants extended beyond merely exercising reasonable diligence in the selection of a carrier but to ensure Hapag‑Lloyd and ECT would adopt and carry out sound and proper procedures for the safekeeping and delivery of the containers in accordance with the instructions of the cargo owner; and they were in breach of that duty.  The defence under Clause 17(B)I(2)(k) is not available as the theft of Container X was not an event akin to frustration or force majeure.

Limitation of liability defence

64.  The BAL Defendants contend that their liability is limited to US$2 per kilogram gross weight of the stolen goods under clause 18.3 of the ECB.  The compensation to which the Plaintiffs would be confined under this clause is US$24,392 or €18,863.30 which is 1.9% of the invoice value of the goods.  The Plaintiffs’ contention is that the limitation under Clause 18.3 does not apply where the loss and damage was occasioned by the BAL Defendants’ negligence.  This dispute falls to be decided on the true construction of the ECB, particularly, Clauses 18.3, 18.4 and 23.2.

65.  Clause 18 and 23.2 provide as follows:

“18.1 When the Carrier is liable for compensation in respect of loss or damage to the Goods, such compensation shall be calculated by reference to the invoice value of the Goods plus freight charges and insurance if paid.

18.2 If there be no invoice value of the Goods, the compensation shall be calculated by reference to the value of such Goods at the place and time they are delivered to the Merchant in accordance with the contract or should have been so delivered. The value of the Goods shall be fixed according to the commodity exchange price or current market price, by reference to the normal value of Goods of the same kind and quality.

18.3 If in case of Combined Transport it can contrary to 17(B) II above not be proved where the loss or damage occurred compensation shall not exceed US$2., ‑ per kilogram of gross weight of the goods lost or damage unless a higher compensation is provided by applicable compulsory law.

If it can be proved where the loss or damage occurred and if no compulsory law applies, compensation shall not exceed US$2., ‑ per kilogram of gross weight of the goods lost or damaged.

18.4 Higher compensation may be claimed only when, with the consent of the Carrier the value of the Goods declared by the Merchant has been stated in this Bill of Lading and the ad valorem freight rate is paid to the Carrier. In that case the amount of the declared value shall be substituted for the limits laid down in this clause. Any partial loss or damage shall be adjusted pro rata on the basis of such declared value.

18.5     The Carrier shall not, in any case, be liable for an amount greater than the actual loss to the person entitled to make the claim.”

“23.2 The Carrier shall not be entitled to the benefit of limitation of liability provided for in clause 18.3, if it is proved that the loss or damage resulted from an act or omission of the Carrier itself, done with intent to cause damage or recklessly and with knowledge that damage would probably result”.

66.  In his Second Judgment on quantum, Reyes J found in favour of the Plaintiffs against ECT.  His reasons were as follows. It is unclear whether the words “loss or damage” in Clause 18.3 only refer to loss or damage occasioned through no fault of the carrier or also extend to those occasioned through the carrier’s negligence, recklessness or deliberate fault.  Given the principle of reading a contract contra proferentem, much clearer words, such as “whatever” or “howsoever arising” etc would need to be inserted into the clause to cover loss and damage caused by the carrier’s negligence.  He considered Clause 23.2 as merely emphasising that Clause 18.3 does not cover the extremely serious situation where the carrier has been deliberate or reckless.  He did not read Clause 23.2 as implying that negligence by the carrier is covered by the limitation in Clause 18.3.  Clearly all these dicta were obiter.  The ratio decidendi was that ECT was disentitled by Clause 23.2 from relying on the limit under Clause 18.3 by reason of its reckless conduct or that of its employee.

67.  Mr Alders relies heavily on Reyes J’s construction of the two clauses in the Second Judgment.  He relies on the contra proferentum rule of construction and emphasizes on the absence of express reference to mis‑delivery or clear language such as “whatsoever” or “howsoever arising” in Clause 18.3.  He argues, quoting Emjay Enterprises Pte Ltd v Skylift Consolidator (Pte) Ltd [2006] SGHC 28 per Phang J at §27, that Clause 18.3 is total exclusion of liability in disguise and falls to be construed to the exacting standard to which exclusion clauses are subject.  He also argues, quoting MacDonald, Exemption Clauses and Unfair Terms, 2^nd Ed p 50 to p 62, that given the absence in Clause 18.3 of express reference to negligence or conversion or synonyms thereof, the clause is not to be taken to extend to liability for negligence.

68.  On the other hand, Mr Wright argues that the approach of the courts to limitation provision is different from the approach to provisions which purport to exclude liability absolutely.  He refers to the following dictum of Lord Wilberforce in Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964 at 966G‑H:

“Clauses of limitation are not regarded by the courts with the same hostility as clauses of exclusion: this is because they must be related to other contractual terms, in particular to the risks to which the defending party may be exposed, the remuneration which he receives, and possibly also the opportunity of the other party to insure.”

69.  Lord Fraser of Tullybelton was of the same opinion.  He said at 970C‑F:

“There are later authorities which lay down very strict principles to be applied when considering the effect of clauses of exclusion or of indemnity: … In my opinion these principles are not applicable in their full rigour when considering the effect of clauses merely limiting liability. Such clauses will of course be read contra proferentem and must be clearly expressed, but there is no reason why they should be judged by the specially exacting standards which are applied to exclusion and indemnity clauses. The reason for imposing such standards on these clauses is the inherent improbability that the other party to a contract including such a clause intended to release the proferens from a liability that would otherwise fall upon him. But there is no such high degree of improbability that he would agree to a limitation of the liability of the proferens, especially when, as explained in condition 4(i) of the present contract, the potential losses that might be caused by the negligence of the proferens or its servants are so great in proportion to the sums that can reasonably be charged for the services contracted for.”

70.  Exclusion or exemption clauses are different in nature from limitation clauses.  The effect of the former is to exclude a contractor from the consequences of his conduct, be it deliberate, reckless, negligent, inadvertent or faultless.  Such a clause is contrary to the general principle that a person is responsible and liable for the loss caused by his acts or omissions or breach of his contractual obligations.  It is simply absurd where someone pays for the skill of another to perform certain services, that other will not be liable for the damage caused by his failure or negligence in performing those services.  Exclusion clauses are often the result of unequal bargaining power, which is the imbalance which the strict principles developed by the courts were designed to redress.  Limitation clauses, on the other hand, are different in nature.  They do not exclude liability, but only limit the extent of the liability.  They are largely creations arising out of cost and risk considerations.  For example, an operator of a laundry business only charges a small fee for laundering clothes, but runs the risks of having to pay compensation for loss and damage to the clothes of his customers as a result of his negligence, inadvertence or causes for which he is not to blame.  Some clothing could be very expensive.  Under such circumstances, compensation would be way out of line with the relatively small fee he charges.  Such risk is also out of proportion with his anticipated profit.  Without somehow limiting the extent of his liability or unrealistically increasing his fees, the risk inherent in the business may make the business not worth operating and the services may not be available to the public.  In more sophisticated businesses, eg the jewelry business, the limitation clause is sometimes fortified by insurance. A client presenting an expensive jewel for mounting may be informed of a limitation clause and advised to insure for damage or loss during the course of the work.  This example demonstrates the purpose of exclusion and limitation clauses is to allocate the burden of insurance: see Photo Production v Securicor [1980] AC 827.  Limitation clause spread the risk of loss between the contracting parties, while keeping the cost of the services low.  They are the result of commercial reality.  That is why they are regarded with less hostility by the courts.  Genuine limitation clauses will be given effect to by the courts.  I agree with the approach in Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd.

71.  With this distinction in mind, I turn to construe the Clauses 18 and 23.2.  I accept that even if Clause 18 is a genuine limitation clause it must be construed contra proferentum and be subject to the same strict rule of construction.  I note the absence of words such as “whatever” and “howsoever arising” in the second paragraph in Clause 18.3, and indeed throughout the entire clause.  I also agree that Clause 18.3 should be read together with Clause 23.2.  When read together with Clause 23.2, such absence supports the inference that the limitation does not apply to loss or damage caused by negligence, recklessness and deliberate conduct of the carrier as was held by Reyes J in the Second Judgment.  Clause 23.2 avoids or annuls the limitation in Clause 18.3 if the loss or damage resulted from acts or omissions of the carrier itself committed under two different mental states: (1) with intent to cause damage or (2) recklessly and with knowledge that damage would probably result.  Reyes J thought that was not a situation of expressio unius exclusion alterius and that Clause 23.2 merely emphasizes two most serious situations where the carrier has been reckless, but in fact covers all situations of loss or damage caused by negligence, recklessness and deliberate conduct of the carrier.

72.  Though Clause 18.4 was quoted in the Second Judgment, no argument was actually advanced by counsel on behalf of ECT.  That was understandable as the Plaintiffs had not paid the higher ad valorem freight rate and Clause 18.4 has no application.  However, the presence of this sub‑clause in the ECB is not without significance and should not be overlooked in construing Clause 18.3 or Clause 18 as whole.  The ECB must be construed as a whole together with all the relevant clauses in the light of the factual matrix.

73.  The compensation regime in the present case is that the consignor has two options.  He may opt to pay the ordinary or lower freight rate and be bound by the limitation clause in Clause 18.3 limiting his compensation to US$2 per kilogram of gross weight of goods lost or damaged.  Alternatively, he may opt to declare the value of his goods, pay a higher freight at ad valorem rate and have the comfort of being paid the full value of his goods under Clause 18.4 in case of loss or damage, whatever the cause.  This second option is in effect a freight plus insurance option.

74.  With this overall view of the regime in mind, I look at Clause 23.2 again from the point of view of the construction urged upon me by Mr Alder. This clause was carefully worded to dis‑entitle the carrier from the benefit of the limitation under two situations.  These two situations were also very narrowly defined.  They are acts or omissions of the carrier itself committed with two specific states of mind: (1) intent to cause damage; and (2) recklessly and with knowledge that damage would probably result.  Given such express and clear wording, it would, in my view, be very difficult to enlarge the mental state of the carrier beyond these two expressed states of mind to one where such specific intent is totally missing as in case of negligence.  To do so would require adding to the clause words referring to negligence which are not there or deleting all reference to the two mental states which is there. This is tantamount to re‑writing the entire clause and not construing it.  And when that is done, what purpose would be left to Clause 18.4?  The limit under Clause 18.3 would not apply to loss or damage howsoever arising as result of the carrier’s conduct, whether deliberate, reckless or negligent. What do consignors pay the higher ad valorem freight rate for?  Clause 18.4 would be rendered redundant.

75.  The wordings in Clause 23.2 cannot be clearer.  It annuls the limit under Clause 18.3 if the loss or damage is caused by the carrier’s conduct committed under either of the two mental states and no more.  It would be unnecessary, and indeed superfluous, to add a phrase expressly excluding negligent conduct.  Clause 18.3 is also very clear.  The limit applies across the board to all loss and damage, even without words such as “whatsoever” or “howsoever arising”.  It is only expressly excluded by the terms of Clause 23.2. When the drafting style is thus understood, I think these two clauses cannot be clearer.  There is no room for the use of words such as “whatsoever” or “howsoever arising”.  No inference could be drawn for their absence.

76.  In my view, Clause 23.2 only has the effect of avoiding or annulling the limit under Clause 18.3 for loss or damage caused by deliberate or reckless conduct of the carrier, but not negligent conduct.  Loss or damage caused by any other acts or omission of the carrier, including negligent conduct, shall be subject to the limit under Clause 18.3 if the consignor opts to pay the ordinary freight rate or subject to the declared value if the consignor opts to pay the ad valorem freight rate.  This is a very simple regime which could be readily understood.  This compensation regime is precisely the kind of situation where the maxim, expressio unius exclusion alterius applies, otherwise Clause 18.4 would be rendered wholly redundant and consignors would be paying the higher freight rate for nothing.  Clause 18 is a genuine limitation clause which the court will give effect to.

77.  When viewed as a limitation clause, the above construction of Clause 23.2 along with Clauses 18.2 and 18.3 results in a compensation regime which is absolutely reasonable.  A consignor might ship some very valuable goods, say gold bars instead of playstations.  He opts to pay the regular freight, which covers the cost of the freight and usual profit for the carrier.  He gets an assurance that the carrier will not do any deliberate or reckless act to cause him loss or damages.  The carrier gets his usual business profit for the carriage.  He is under a duty to exercise due diligence.  In view of the relatively low freight charge, it would be unreasonable to require him to fully indemnify the consignor of the loss of his cargo, even if occasioned by carrier’s own negligence.  By agreement, the parties agree to limit the carrier’s liability under Clause 18.3.  On the other hand, the consignor may opt to declare the value of his cargo and pay the higher ad valorem freight rate and be ensured of full compensation for all causes of loss and damage.  Alternatively, he may, as what the Plaintiffs did in this case, opt to pay the ordinary freight rate and insure his cargo with a third party insurer.  But, it would be Wednesbury unreasonable, if unknown to the carrier that the cargo contained very valuable goods and for the very low freight rate that it received, the carrier is required to fully indemnify the consignor for loss, even if caused by its negligence.  Just imagine in the present case, were the cargo consisted of gold bars of equal weight instead of playstations, the carrier would be asked to pay compensation of US$625 million for a negligible freight rate.  Had the true value of the cargo been declared, the carrier may require the consignor to pay the ad valorem freight rate and step up its security measures, or insist on the limit of its liability or refuse to take the carriage altogether.

78.  The present claims are in fact subrogated claims by the Plaintiffs’ cargo underwriters, ie the 5^th Plaintiff.  I think the 1^st to 4^th Plaintiffs appreciated the true meaning and consequence of all these clauses.  Obviously, they knew they were not fully covered by the compensation under Clause 18.3 even if such loss and damage were caused by the negligence of the BAL Defendants.  That was why they took out insurance with the 5^th Plaintiff.  They chose not to declare the value of the containers and avoid paying the ad valorem freight rate, presumably because the terms of the insurance were more preferable.

79.  To adopt the construction urged upon me by Mr Alder would be extending Clause 23.2 by not only reading into it words which are not there but to remove words which are there and to render Clause 18.4 redundant.  It would have the bizarre result of reversing the parties’ clearly expressed commercial intention and would frustrate the clearly intended commercial purpose of allocating the burden of insurance to the Plaintiffs.  I adopt the construction in paragraph 76.

80.  I do not think the construction that I adopt is in anyway inconsistent with Reyes J’s Second Judgment.  This is because Reyes J made a finding that the loss was caused by ECT’s deliberate or reckless conduct.  Clause 23.2 clearly applies.  Whatever the learned judge said about extension of that clause to cover the carrier’s negligence conduct was obiter. That aspect of the construction was not even argued.  The significance of Clause 18.4 was not considered.  I do not feel uncomfortable to differ from those obiter dicta.

81.  The BAL Defendants are entitled to the partial defence of limitation of liability and are bound to succeed.

Conclusion

82.  I have dismissed all the defences raised on behalf of the BAL Defendants, except the partial defence of limitation of liability, which in my view is bound to succeed.  On the basis of the limit under Clause 18.3, the Plaintiffs are entitled to judgment in the sum of US$24,392 or €18,863.30.  In their summons, the Plaintiffs claim the sum of €428,000.  Mr Alder submits that if I find that this defence available to the BAL Defendants, I should enter judgment for the Plaintiffs for damages to be assessed.  I disagree. There are no factual disputes outstanding.  The legal issues have been fully argued.  It would be contrary to the underlying objective of Order 1A and a waste of time and costs to have the matter adjourned for assessment of damages when all the legal arguments will have to be repeated and the result will inevitably be the same.  Having reached the conclusion that the BAL Defendants have no defence on liability and having so construed the ECB, it is only appropriate that judgment be entered for quantum as well.

83.  Accordingly, I enter judgment for the 1^st to 5^th Plaintiffs against the 1^st, 2^nd and 4^th Defendants in the sum of €18,863.30 with interest at judgment rate from 7 January 2011 and with an order nisi that the 1^st, 2^nd and 4^th Defendants shall pay the Plaintiffs’ costs of the action to be taxed at the District Court scale, if not agreed.  The application for summary judgment against the 6^th and 7^th Defendants is dismissed with an order nisi that there be no order as to costs.