SHRIRO (H.K.) LIMITED v. SONIC AIR FORWARDERS ENTERPRISE LIMITED

1991, No A7812

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. The plaintiff is an importer and wholesaler of Nikon photographic equipments. The defendant is a freight forwarder in cargo handling and delivery. I shall call the plaintiff "Shriro" and the defendant "Sonic". Nikon in Japan sent through a subsidiary of Nishi Nippon Railroad Co. Ltd. (which I shall refer to as "NNR") a consignment of photographic equipments in 139 cartons to Shriro in Hong Kong. These 139 cartons were lost in a robbery.

2. In this case, Shriro had been given by Nikon full particulars in its Shipping Advice. It was in fact the usual arrangement. The Nikon photographic equipments were to be flown to Hong Kong in a container mixed with other goods. This is what is known as a consolidated shipment under a Master Airway Bill. Nikon's consignment to Shriro was covered by its own House Airway Bill. It was common ground that Shriro was, at all material times, owner of the goods in this House Airway Bill. It was also agreed that under contract or in bailment, Sonic owed a duty to Shriro to exercise reasonable care in its handling and delivery of the consignment. After loss, the onus would be on Sonic as a bailee to prove that the loss did not happen in consequence of any neglect on its part to use such care and diligence as a prudent or careful man would exercise in relation to his property. The onus would be on Sonic to rebut any prima facie evidence of negligence furnished by the loss.

3. The relationship between Shriro and Sonic arose in this way: on 22nd April 1991, 139 cartons of the consignment to Shriro loaded on a lorry Registration No.DP3072 were lost in a robbery. The lorry was at the time driven by a servant or agent of Sonic. By a Master Airway Bill issued on 19th April 1991 by NNR as agent for the issuing carrier, a consolidated assignment of cargo, including the 139 cartons subsequently robbed, was shipped by a subsidiary of NNR to Sonic in Hong Kong as consignee. There were 210 cartons in the consolidated cargo consignment. The issuing carrier of the Master Airway Bill was Korean Airlines. On the same day, 19th April 1991, NNR issued as issuing carrier a House Airway Bill with Nikon as shipper and Shriro as consignee for the said 139 cartons. Sonic was engaged by Shriro to collect the consignment and deliver the same to its Aberdeen warehouse. The said 139 cartons were lost in the said robbery after the said lorry Registration No.DP3072 had left the Kai Tak Airport with the said 139 cartons. All 210 cartons in the said consolidated cargo consignment were to be released under the said Master Airway Bill (I shall call it "MAWB") by the Hong Kong Air Cargo Terminals Ltd., i.e. "HACTL" against a Shipment Release Form in favour of Sonic as the scheduled collection agent. By a Bilateral Bulk-Breaking Agency Agreement dated 1st February 1983, Sonic and NNR mutually appointed one another as agent in Hong Kong or Japan to bulk-break the other's shipped consolidated cargo consignments. Bulk-breaking would involve the separation of cargo in a consolidated shipment and sorting out the shipping and other related documents for delivery. Given suitable facilities, bulk-breaking could be undertaken anywhere, even at the airport. For Sonic, it had been done in its AHAFA Cargo Centre premises before dispatch to consignees. All customs clearance, delivery and other incidental charges and duties tax etc. at the destination were to be for the account of the consignee except otherwise noted or instructed. The contention of Sonic was that the obligations and liabilities under the House Airway Bill (I shall call it "HAWB") would end only after bulk-breaking in Sonic's premises at AHAFA Cargo Centre although it might be argued that the MAWB terminated at HACTL.

4. In this case, the 139 cartons had managed to be separated for loading onto the said lorry Registration No.DP3072 at HACTL although relevant documents had yet to be sorted out at Sonic's AHAFA Cargo Centre premises. The said lorry Registration No.DP3072 was to be driven back to Sonic's AHAFA Cargo Centre for so completing bulk-breaking. A traffic accident occurred, which had in fact been planned by criminals, resulting in the said lorry being driven past the entrances of AHAFA Cargo Centre three times before it was ultimately relieved of the said 139 cartons on board.

5. On 22nd April 1991, carrying 139 cartons of Nikon's photographic equipments for Shriro, the said lorry Registration No.DP3072 driven by Mr Lau was followed by a much bigger lorry of 13 tonnes, Registration No.DV2539 driven by Mr Chan. The said lorry Registration No.DP3072 was a mere 5? tonnes vehicle. They both left the HACTL terminal at Kai Tak and were being driven back to the AHAFA Cargo Centre where Sonic occupied offices on the first floor. The AHAFA Cargo Centre is bounded by four streets, the Kai Wah Street, the Wang Kwong Road, the Kai Shun Road and the Kai Shing Street. Wang Kwong Road is 14.8 meters wide and the other three are all one way streets and 10.4 meters in width. There are two entrances to AHAFA Cargo Centre, one in Kai Wah Street and the other one in Kai Shun Road. The entrance in Kai Shun Road could conveniently admit the 13 tonnes lorry but not the one in Kai Wah Street. Having left HACTL terminal, the two lorries eventually reached Kai Wah Street with the 5? tonnes lorry carrying 139 cartons in front. Upon entering Kai Wah Street, they gave way to a blue truck Registration No.DW9741. I shall call them the 5? tonnes lorry, the 13 tonnes lorry and the blue truck respectively. The blue truck was then travelling in front followed by the 5? tonnes lorry driven by Mr Lau and the 13 tonnes lorry driven by Mr Chan. Mr Lau was travelling with a delivery worker call Lau Kong Keung as his assistant. A staff of Sonic, its import assistant, Mr Wong, was a passenger in the 13 tonnes lorry driven by Mr Chan. There was another worker, Mr Chu, in the 13 tonnes lorry. Just before the Kai Wah Street entrance, the blue truck stopped and backed into the off-side front of the 5? tonnes lorry causing damage to its body and mirror. Mr Lau and Mr Chan alighted and inspected the damage which was later jointly assessed by them to be in the region of $500. Mr Lau, driver of the 5? tonnes lorry negotiated with the driver of the blue truck which had by then also alighted. Mr Lau sought compensation, and it was suggested by the driver of the blue truck to have the lorries taken to a less congested area for further discussion with a view to reaching an amicable solution. Mr Wong left the party and went back to make a report to Sonic's office. The three vehicles drove all around AHAFA Cargo Centre to Kai Shing Road and parked for the anticipated further negotiation. The driver of the blue truck felt that $500 was excessive and suggested to go to a nearby garage for a quote. Mr Lau was agreeable and Mr Chan also encouraged Mr Lau to go along as suggested. Mr Chan and his delivery worker Chu Ka Sin then returned to the 13 tonnes lorry and he took it back to AHAFA Cargo Centre through the Kai Shun Road entrance passing again the Kai Wah Street entrance. In the meantime, the blue truck drove away followed by the 5? tonnes lorry driven by Mr Lau with his assistant still on board. On reaching Kai Wah Street, the blue lorry was found to be out of sight. Upon passing the Kai Wah Street entrance, Mr Lau's 5? tonnes lorry was stopped by Mr Wong, who had made a report to Sonic's office, and the manager Mr Sammy Ng. The import assistant Mr Wong had suggested unloading the goods first before chasing after the blue truck for a quote. But it was ultimately decided by all that the 5? tonnes lorry was to go after the blue truck and Mr Ng, the manager, instructed Mr Wong, the import assistant, to travel with the 5? tonnes lorry to keep an eye on the goods. Mr Lau had been conscious of the further or longer exposure of the valuable goods for Shriro, but his attention was really focused on following or locating the blue truck. If he was unable to find it on his way around the corner, he would drive back to the AHAFA Cargo Centre through one or the other entrance. Also he said: "If I could see him at all, I was minded to ask for money than to follow him to a garage." Therefore, Mr Lau was then quite undecided but preferred to be paid than going for a quote. Upon turning right into Wang Kwong Road, the blue truck was seen parking at or near its junction with Kai Shing Road in a lay-by on the opposite left side. The lay-by was a pedestrian access to a housing estate but not accessible to traffic. Upon seeing the blue truck with its driver by its side signalling to Mr Lau to stop behind it, Mr Lau did so. Almost immediately the robbery took place, resulting in the loss of the 5? tonnes lorry and the 139 cartons of Nikon photographic equipments. The 5? tonnes lorry was subsequently retrieved without its load.

6. "Most commercial judges had wished to be able to" so said Lord Wilberforce in Photo Production v. Securicor Ltd. [1980] AC 827 at p.843g-h "decide ... on normal principles of contractual law with minimal citation of authority." This, much to my delight, is such a case, particularly with the general consensus on the action/decision taken by Mr Lau, driver of the 5? tonnes lorry up to the time of the completion of the initial negotiation in Kai Shing Street. It was conceded as reasonable, in the circumstances of this case, for the 5? tonnes lorry to be driven by Mr Lau virtually round the block of AHAFA Cargo Centre stopping in the less congested area in Kai Shing Street. A staged robbery of this kind had never occurred to Sonic or its agents. The orchestrated accident and feigned negotiation in the well planned daylight robbery had aroused no suspicion. Delivery to Shriro was only to be made on the same day, and there was no particular urgency for not taking time to seek a possible amicable settlement. Up to the Kai Shing Street, it was so conceded and with full justification. Mr Lau, the driver of the 5? tonnes lorry could not be criticised for so taking his vehicle to a less congested area in the vicinity. It was accepted on all hands in this case that the slight delay in entering AHAFA Cargo Centre, the short additional travel distance and the stoppage were all not acts of negligence although Mr Lau was somewhat conscious of the valuable consignment on his lorry. Mr Lau was later even reminded by the manager who stopped him just beyond the Kai Wah Street entrance, that his "truck had a lot of valuable goods". Mr Ng instructed Mr Wong to get into the 5? tonnes lorry "so that he could keep an eye on the goods on one hand and on the other hand to accompany Lau Wing Ho to the garage to check out the damage condition of DP3072 and the costs of repair". If, as it was conceded and I so find, it was right for the 5? tonnes lorry to be taken round the block to a more quiet location for discussion, it would be difficult to pin any blame on the driver and manager of Sonic for taking or permitting to be taken the lorry to a nearby garage to obtain a quick quote. But the position would seem to be even more favourable to Sonic. First, because Mr Lau was only minded to drive round the corner looking for the blue truck and if he could not see the blue truck, he would return to the company. Further, even if he managed to catch up with the blue truck, he would prefer to ask for compensation on the spot rather than to go for a quote. Lastly, he was waived down to behind the parked blue truck within the precinct of the AHAFA block, not yet away from the route which would lead him back to one entrance or another of AHAFA Cargo Centre. When the first stop over in Kai Shing Street was accepted and found as blameless, the later stop over in Wang Kwong Road could not possibly, in the same circumstances, attract any blame. The instructions of the manager Mr Ng for the 5? tonnes lorry to go along with the blue truck for a quote had not even begun to cause any loss or damage because first, the 5? tonnes lorry had not yet been decided by Mr Lau to be driven away for obtaining a quote, and secondly, the 5? tonnes lorry had not passed beyond the route for driving back to the AHAFA Cargo Centre. In the circumstances, there was no radical departure of any kind. No deviation against Sonic was, in my view, established. Sonic has disproved any lack of care or negligent in the loss of the 139 cartons in the robbery.

7. Whether or not the Kai Wah Street entrance to AHAFA Cargo Centre was internally obstructed the second time around by vehicles unloading or not, is not crucial or material. Mr Lau, the driver of the 5? tonnes lorry, said that he had his mind on the blue truck after he had initially agreed to follow it for a quote. After he had been stopped by the manager Mr Ng and the import assistant Mr Wong, he assumed a slightly different attitude for wanting to be paid in cash in preference to going for a quote. However, even with divided attention, he noticed, on his second time around the entrance in Kai Wah Street, that there were big trucks stationary inside behind the gates unloading. Although he admitted that he did not have such a clear vision for him to really decide whether or not to enter, he was nevertheless prepared to say that the vehicles inside the entrance in Kai Wah Street were causing obstruction and that he would have been held up if he had attempted to gain entry. In any case, he had passed the entrance and did not expect the vehicles behind him to readily agree to overtake him so as to enable him to reverse. Evidently, he could always have attempted to gain entry from Kai Shun Road, and there would have been no pressing need as to why he should cause more congestion by reversing. I find that on Mr Wong's second time around the Kai Wah Street entrance, it was internally blocked. Needless to say, I have accepted as proved the facts set out earlier in this judgment.

8. Mr Wong had intended to keep Mr Lau's company to a nearby garage along Wang Kwong Road for a quote. Any suggestion of taking the 5?1/2 tonnes lorry away far from AHAFA Cargo Centre or for a protracted period would not be countenanced by Mr Wong.

9. The loss in quantum calculated at Sonic's exchange rate was accepted by Shriro. The plaintiff's claim was not one for market value. The lost goods were readily replaceable and Shriro did not claim any loss of profit. Shriro's claims were therefore the FOB value for the lost goods plus wasted expenses for bringing the goods to Hong Kong. Those expenses were out of pocket expenses for despatching the goods to the Hong Kong market. The real loss to Shriro must be the FOB value plus those expenses, i.e. freight, insurance and customs declaration fee as claimed. Shriro would be entitled to recover these claimed amounts were it to succeed. But on the facts, I find Shriro's claims against Sonic fail.

10. Nothing need be said on what is called the special rule as to the effects of a deviation. In deference to counsel's industry, suffice it for me to remark in passing that at p. 163 of Treitel on the Law of Contract, 5th ed. (1979), it was said that "for the present (the special rule) remains firmly established" but that at p.211 of the 8th ed. (1991), the author now puts "the special rule as to the effects of deviation" on alternative bases thus: "it can be explained either as an application of the rule of construction normally applied to breach of a fundamental term, or as a rule which, on account of its historical and commercial background, must be treated as sui generis". A similar view is expressed in a passage at pp.991 & 992 of Palmer on Bailment 2nd ed. (1991):

"Although the proposition cannot be stated with certainty, it is arguable that the surviving validity and the effect of an exclusion clause in the face of a deviation by the bailee is now purely a matter of construction of the contract at large, as is assuredly the case with contracts other than those of Bailment. Such a construction may cast doubt upon some earlier authorities, which had favoured the peremptory forfeiture of the bailee's contractual protection upon the commission by him of an act of deviation or other 'fundamental breach'."

11. I find it quite unnecessary to provide more than a brief commentary on the question of alleged agency. Sonic was the assignee under the MAWB but not an agent of NNR who was itself an agent of the issuing carrier, Korean Airlines. What was sought to be argued was that Sonic was NNR's agent under the HAWB. It was contended that the HAWB was not to terminate until bulk-breaking at Sonic's AHAFA Cargo Centre premises and that therefore Sonic was NNR's agent for the reforwarding from HACTL to AHAFA Cargo Centre. The 1983 Bilateral Bulk-Breaking Agency Agreement was an internal arrangement made bilaterally between NNR and Sonic for bulk-breaking in Tokyo and Hong Kong, regulating the reciprocal relationship between Sonic and NNR. Shriro had no role to play in it. The HAWB was issued by NNR as the issuing carrier with Shriro as consignee. It clearly did not spontaneously provide any reforwarding beyond the airport at destination without further agreement. Sonic was the servant and agent of Shriro for the collection of its cargo from HACTL. It would be distorting the contractual relationship under the HAWB to bring in Sonic as the land agent of NNR purportedly through their own bilateral agreement for bulk-breaking at the end of air carriage, which was unknown to Shriro. Under the HAWB, even allowing it to be read in conjunction with MAWB, Sonic could not be NNR's air carriage agent. As I said, under the MAWB, NNR was Korean Airlines' agent, agent of the issuing carrier, and Sonic was the consignee. Sonic could not be NNR's air carriage agent there. Under the HAWB, NNR was the issuing carrier and Shriro was the consignee. Shriro engaged Sonic to collect its cargo as at the termination of the air carriage for local delivery. It is inconceivable that an agency in Sonic for NNR could have been spelt out of the provisions of the HAWB. Under Clause (6) of the HAWB, 3 scenarios were given. First, transportation service provided by the issuing carrier and its (air carriage) agents, servants or representatives as well as the carrier performing any other service related to such air carriage was from airport to airport. Sonic was not, in my analysis, an air carriage agent of NNR in the HAWB. It also did not perform any services related to the air carriage, not even in the bulk-breaking, less so in the transportation on land after the end of the air carriage from HACTL to the Aberdeen warehouse of Shriro via AHAFA Cargo Centre. Secondly, by specific agreement, the carrier, its (air carriage) agents, servants, representatives including a carrier performing any other services related to the air carriage could be asked to provide reforwarding beyond the airport at destination. There was, I hold, no such specific agreement under the HAWB. Moreover, no alleged specific agreement was known to Shriro who was the consignee under the HAWB. The obligations and liabilities arising from together with charges for and the manner of performance in these two scenarios were laid down in Clauses (2) and (4). Thirdly, in any other case, the issuing carrier and the last carrier respectively would forward or reforward the cargo solely as agent of the shipper, owner on consignee. Clause (6) of the HAWB would not assist the defendant in its endeavour to embrace the limitation clause in Clause (4) for US$20/kg for lost cargo.

12. Moreover, the terms of the HAWB, or even the MAWB or the Bilateral Bulk-Breaking Agency Agreement, read together or independently, were not intended to protect Sonic. Further, none of the terms in these documents sought to contract for Sonic as NNR's agent. In other word, NNR did not contract on behalf of Sonic as its agent by any of these documents. As a stranger to these documents, Sonic could not claim any benefit of their respective provisions, including the liability limitation in Clause (4) of the HAWB. Sonic plainly failed to satisfy the crucial tests set out by Lord Reid in Midland Silicones v. Scruttons, [1962] AC 446 at p.474.

13. The Court was told that the journey from HACTL to its AHAFA Cargo Centre premises was not charged to the account of Shriro. That unilateral action, unknown to Shriro, would hardly alter the status of Sonic. Naturally, Shriro would not be responsible for the bulk-breaking fee, an item charged under the internal Bilateral Bulk-Breaking Agency Agreement between NNR and Sonic. The contractual relationship would not be made different by the fact that Shriro could not have taken delivery at HACTL or direct from the airlines of its cargo in a consolidated cargo shipment. If there had been facilities for bulk-breaking at Kai Tak or if the consignment had not been a consolidated cargo shipment, it would have been open to Shriro to take over the delivery from Sonic at the airport.

14. Effectually, NNR was to take charge of Shriro's cargo in the consolidated shipment before it landed at Kai Tak and Sonic was retained to handle Shriro's cargo after landing. On the commercial documents, Shriro had not contracted with NNR or with Sonic as its agent after the arrival of its cargo at Kai Tak. The loose understanding of the managing director of Shriro, Mr Poon, as to the agency relationship of Sonic with NNR would not prejudice the true contractual relationship between the two.

15. Shriro's claims against Sonic therefore fail. The remaining outstanding counterclaim standing at $2,503 was admitted. The original counterclaim fell within the jurisdiction of the Small Claims Tribunal. Section 5(2) of the Small Claims Tribunal took the claim under its exclusive jurisdiction and rendered it unactionable in any other court in Hong Kong. That contention was not challenged by Miss Eu. The technicality as raised is almost immoral as the quantum and the remaining balance had throughout been agreed. However, the technical point must succeed. Sonic also sought to set off the amount in the counterclaim against the plaintiff's claims in the action. The counterclaim cannot therefore be said to be otiose. I dismiss as well the action as the counterclaim and make an order nisi for costs against Shriro in its failed action but no order as to costs in the counterclaim.