COSMO SEA FREIGHT (H.K.) LTD. v. GOLD KING CONSOLIDATOR LTD.

1992 No. A8254

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. On Tuesday, 11th January 1994, I ordered the defendant to pay the plaintiff $127, 200.00 and the costs of this action, and I said that I would reduce my reasons into writing which I now do.

2. On December 30th 1988, Shamzen Trading Co. Ltd delivered 1,728 cartons of rompers into the custody of the defendant, acting on behalf of the plaintiff, at the defendant's freight premises in Hong Kong. At that time, the goods were in good order and condition. The same event occurred the next day in relation to another 483 cartons. The defendant, who is a freight consolidator, loaded these cartons into two containers and they were duly shipped to New York. The ultimate consignee was Louise Paris Ltd. of New York. When the containers were opened in New York, they were found to be wet, mouldy and musty smelling.

3. Not surprisingly, Louise Paris Ltd. sued the plaintiff in New York and the plaintiff was ordered to pay US$104,000.00 to them. The United States District Court for the Southern District of New York concluded that the goods were in good order when they were received from Shamzen and that the cargo became wet as a result of rain which fell in Hong Kong on December 31st 1988 prior to the stuffing of the containers at the defendant's premises.

4. Also, not surprisingly, the plaintiff took the matter up with the defendant, and in or about October 1990, following a meeting, an agreement was reached, by which the defendant agreed to pay the plaintiff HK$300,000.00 as a contribution to the amount which the plaintiff had been ordered to pay Louise Paris Ltd. It was agreed that the defendant would pay one instalment of $45,000.00 and 35 monthly instalments of $7,100.00 thereafter with a final instalment of $6,500.00. The figures work out as follow :-

First instalment	$45,000.00
35 monthly instalments of $7,100 each	$248,500.00
Last instalment	$6,500.00
	-------------
	$300,000.00

5. It is common ground that pursuant to this agreement the defendant has paid the plaintiff $172,800.00. However, they have failed and/or refused to pay the balance of $127,200.00 and this action has been commenced to recover that sum.

6. Before the case was called on for hearing on 11th January 1993, the defence was simply this. The defendant contended that it was an express or implied term of the agreement to pay the $300,000.00 by instalments that such obligation only existed (1) for so long as there was a business relationship between the plaintiff and defendant and, (2) provided that the amount of such business in the defendant's favour exceeded $7,100.00 each month. It was also alleged that it was an implied term that the defendant would not be liable to pay these instalments once the defendant ceased business with the plaintiff or ceased business altogether. The defendant contends that it ceased business completely in or about April 1992 and thus it stopped payments from that date as it contends it was entitled so to do.

7. The plaintiff called three witnesses - Mr. Chu, Mr. Lau and Mr. Ip. The main witness was Mr. Chu. All three of the gentlemen attended the meeting at which the contribution agreement was concluded. Mr. Chu told me, and I accept, that after the agreement was concluded, Mr. William Lee of the defendant requested the plaintiff to continue doing business with the defendant. Mr. Chu agreed that this was raised and that the plaintiff agreed to it as it was in their interest to ensure that the defendant continued in business so that they would eventually received the full $300,000.00. However, Mr. Chu emphatically denies that this was ever a term of the agreement. He told me that it was a mere request as the defendant well knew.

8. Mr. Lau supported Mr. Chu's version of events. Mr. Ip did not really add anything to the evidence already given.

9. I accepted Mr. Lau and Mr. Chu as honest and reliable witnesses. If they had not been honest, they would not have agreed so readily that Mr. Lee did in fact request the continuation of the commercial relationship.

10. Mr. Lee was the only witness called by the defendant. I accept that he asked Mr. Lau and Mr. Chu to continue to give the defendant business, but I cannot accept for one moment that this was a term of the agreement to pay the $300,000.00. Although I accept that Mr. Lee hoped that he would receive more each month from the plaintiff than the $7,100.00 which he agreed to pay, I am likewise unable to conclude that this was a term of the agreement to pay the $300,000.00. Although no evidence was given as to how much the plaintiff did pay the defendant, it seems common ground that until the defendant stopped business the plaintiff's payments always exceeded the sum of $7,100.00.

11. I cannot accept Mr. Lee's evidence that all he was agreeing to was one cheque in exchange for another cheque provided that the plaintiff 's cheque was in excess of $7,100.00.

12. As to the alleged term that the defendant's obligation to pay ceased if they stopped business, I cannot accept that this was ever said or that it is reasonable to imply such a term. It would have been an extremely silly term to agree as it rendered to the defendant the power to terminate the obligation to pay $7,100.00 per month merely by changing its corporate identity which appears to be what happened in or about April 1992. I do not believe that Mr. Lau or Mr. Chu would ever have agreed such a term nor that it could possibly be right to imply such a term.

13. Having found none of the express terms for which the defendant contends, I am also unable to imply the same or similar terms. Such an implication would not be consistent with the well-known principles upon which courts do imply terms. Such terms as are said to be implied in this case are not required to give the agreement business efficacy - it works perfectly well without them.

14. Before the case was opened, Mr. Miu for the defendant sought and obtained my leave to amend the defence by adding in a new paragraph 14. Although Mr. Lok for the plaintiff opposed this application, he quite sensibly did not require an adjournment.

15. By this new paragraph 14, the defendant sought to argue that the agreement to pay $300,000.00 was void for want of consideration on the grounds that the plaintiff never had a good claim against the defendant nor was there any negligent handling of the goods on the defendant's part.

16. To support this somewhat surprising proposition, the defendant relied upon six particulars, the first three of which seem to me to be the most important and I will, thus, quote them in full.

"(1) The defendant's contract with the plaintiff for the provision of Container Freight Station Services dated 13th January 1988 expressly stated that the area included 6,500 sq. ft. with cover and 5,600 sq. ft. open yard.

(2) The plaintiff therefore knew that any goods delivered to the defendant might be stored in open area.

(3) The plaintiff further knew or ought to have known that the goods stored in open area are exposed to the risk of water damage through heavy rain."

The other three particulars were simply that the plaintiff knew that there was heavy rain on 31st December 1988, that the US Court found that the goods were rain damaged and that the plaintiff was liable to Louise Paris Ltd. not because of proven negligence on the part of the plaintiff or their agents but because it was a Non Vessel Owning Common Carrier and had failed to prove a defence under the Carriage of Goods by Sea Act.

17. Pleaded particular (1) is correct and not in dispute. However, Mr. Chu told me, and I accept, that it never crossed his mind that goods such as these cartons would be stored in the open air. The open yard was for containers and trunks. He also told me, and I accept, that before the Master Agreement was entered into with the defendant he inspected their premises, and was satisfied that there was sufficient covered storage space. Particular (3) is self-evident.

18. It is clear law that the "compromise of a disputed claim which is honestly made, whether legal proceedings have been instituted or not, constitutes valuable consideration, even if the claim ultimately turns out to be unfounded. It is not necessary that the question in dispute should be really doubtful, it is sufficient if the parties in good faith believe it to be so, even if such belief is founded on a misapprehension of a clear rule of law. (Halsbury's Laws of England Vol. 9, para. 321)".

19. However, Mr. Miu relied on the next paragraph from Halsbury which states :

"However, the compromise of a claim will not constitute consideration where the claim is not made in good faith, either because the plaintiff in the action knows that his claim is unfounded, or where there is no sufficient evidence of any intended claim, ..."

20. In my judgment, the defendant gets nowhere near to establishing that this claim was not made in good faith, or that the plaintiff knew that the claim was unfounded, or that there was no sufficient evidence of any intended claim. It is perfectly true that the plaintiff's witnesses did not say expressly to the defendant, "If you do not agree to compensate us we will sue you." However, Mr. Lee must have been under no illusion as to what would have happened if he had not agreed to contribute something to the plaintiff 's loss of US$104,000.00 It is necessary to approach these situations with some degree of commercial reality. It is also true that the defendant could have relied upon the terms of the Master Agreement which limited their liability to $200.00 per package, but it seems to me, although this was not canvassed in evidence, that this point was factored into the agreement to pay $300,000.00 which is a lot less than the $800,000 odd (excluding any costs) which the plaintiff was ordered to pay Louise Paris Ltd.

21. In my judgment, on the evidence of the plaintiffs' witnesses, which I accept, there was ample consideration to support the promise to pay $300,000.00. I am satisfied that the plaintiff and its witnesses thought that they had a claim against the defendant and this was a view honestly and reasonably held.

22. At the end of Mr. Miu's submissions, I asked him whether he was taking any point as to the amount due to the plaintiffs. As at the date of writ in November 1992, there were 8 instalments due of $7,100.00 making $56,800.00, but by the date of the hearing, the whole amount had become due. Mr. Miu elected to make no submissions on this point.

23. Mr. Lok said that I should not merely award judgment for the 8 instalments due at the date of writ because the point had never been pleaded and if he had to deal with it, he would be taken by surprise. Had it been pleaded, he would have considered amending the claim. Also he submitted that as Mr. Miu had elected not to take the point, I should not be too astute to take it for him.

24. The point is technical in the extreme and the disadvantage of taking it is to increase the costs that the defendant will be required to pay. If I give judgment merely for $56,800.00, the plaintiff will be able to issue a writ forthwith for the balance and go by way of Order 14 and will have an unanswerable claim. All this will increase the costs which the defendant will have to pay.

25. I could have invited Mr. Lok to issue a new writ on 12th January for the balance and having dispensed with service, etc., I could have given judgment later that day for the balance. Even that course of action would unnecessarily increase the costs which the defendant would ultimately have to bear.

26. Although no usual default clause was pleaded as an implied term, it might have been possible to argue this on the facts of this case had this particular point been raised by the defendant. Further, it would have been open to the plaintiff to contend that the defendant had evinced an intention not to be bound by the agreement and that in those circumstances, the whole sum became due. None of these became relevant because the matter was neither pleaded nor relied upon by way of submission.

27. It seems to me that it is incumbent upon a defendant to plead those points which he wishes to take and save in exceptional circumstances, such as illegality and certain jurisdictional issues, the court should not take points which the defendant has not sought to raise in its pleading or submission.

28. For those reasons, therefore, I gave judgment to the plaintiff for $127,200.00 together with the costs of this action. I did not order any pre- judgment interest because the matter was not pleaded other than in the prayer whereas it should have been pleaded with particulars in the body of the Statement of Claim.