WAN CHUNG YIN MARTIN AND ANOTHER v. GUO HUI LOGISTICS & EXPRESS SERVICES LTD

DCCJ1645/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1645 OF 2004

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Judgment

1. The plaintiff is a partnership trading in machines and electronic components. The defendant is a carrier which provides inter alia services of express delivery between Hong Kong and the Mainland.

2. On 23 December 2003 the plaintiff entered into an agreement with the defendant to deliver 12 drilling spindles packed in three separate packages with a total weight of $55.5 kilograms to a consignee in Shenzhen. The cost of carriage was agreed at $50 per kilogram, i.e. $2,750.00. The consignment never reached the consignee. It was, according to the defendant, seized by the Chinese Customs Authority, and was never returned by that Authority.

3. Now the plaintiff claims against the defendant for damages for breach of contract in failing to carry the cargo to the consignee or alternatively for negligence in handling the cargo which has been lost. Particulars of negligence are not pleaded but the plaintiff relies on res ipsa loquitur. The sum claimed is the cost of the spindles i.e. $157,888.77.

4. The defendant denies breach of contract and negligence. It further pleads that by a collateral agreement signed between the parties in about November 2003 the plaintiff agreed to provide such cargo delivery information as was necessary for PRC Customs clearance purposes. The plaintiff did not provide that information, in particular the value of the cargo. The defendant says that the detention of the cargo by the PRC customs was caused by the plaintiff’s breach of the collateral agreement or by its own negligence. The defendant further pleads that by the terms of the original agreement the defendant’s liability is limited to twice the carriage fees charged and by a monthly carriage fee agreement signed in about November 2003 it was agreed that any loss occasioned by delivery of cargo should be compensated in accordance with that agreement.

5. By way of reply the plaintiff denies breach of the collateral agreement and further avers that the loss of cargo came about by reason of the misconduct of the defendant or its servants and therefore the defendant cannot rely on the limitation of liability pleaded.

6. It is not in dispute that the parties commenced dealings in about July 2003. Mr Lee Yeung, a part time salesman of the defendant gave the plaintiff the defendant’s brochure. Later Mr Wan, the active partner of the plaintiff, contacted Mr Lee and placed an order. Overall the plaintiff placed over twenty orders for delivery, between the first order and the order which is the subject of these proceedings and in every case but this one the goods were delivered without any problem.

7. In the beginning the orders were placed using an informal order form which bore to give a guarantee of delivery to Dongguan or Shenzhen within 8-12 hours. Later photocopies of a printed form were used, and then that printed form was supplied to the plaintiff in pads; the forms in the pads were consecutively numbered. The printed form came in five counterparts and a set of “consignment terms” was printed on the back of the fifth counterpart. An example of the printed form in its counterparts is Exhibit P1, bearing the printed number G 367611. The conditions printed on the back bear to be “made in January 2001 – permanently effective” but later still another set of forms was printed, the face being exactly the same but the terms being somewhat different and bearing to have been “made in December 2003 – permanently effective.”

8. Both sets of printed forms are in English and Chinese though not all the Chinese characters are translated. Both sets carry on the front of the first counterpart the following words in English block capitals:

NON-NEGOTIABLE CONSIGNMENT NOTE SUBJECT TO STANDARD CONDITIONS OF CARRIAGE SHOWN ON REVERSE SIDE. THE CARRIER SPECIFICALLY LIMITS ITS LIABILITY TO A MAXIMUM OF US$100.00 PER CONSIGNMENT FOR ANY CHARGE.

9. The terms on the back of Exhibit P1 contain the following clause, which does not appear in the later set of terms:

Our company would only handle the goods of your esteemed company the declared value of which is to be subject to the limit set out as according to the requisite requirements and law of the authorities concerned.

10. There is however no indication of what that limit might be, whether in these terms or in any other documents.

11. Among the terms there is an exemption of liability clause and also a clause relating to compensation which contains the following:

Under all circumstances, the amount of damages by our company would be the double amount of the delivery fees of your esteemed company’s affected goods. For commercial document (personal letter not included) would not exceed RMB 50 for each bill; for parcel it would be limited to RMB 800 for each bill.

12. The December 2003 terms contain a similar clause but the currency is changed to Hong Kong dollars.

13. It is also not in dispute that in November 2003 the parties entered into a further written agreement for delivery fees to be settled on a monthly basis. In connection with this agreement the plaintiff made a written “declaration by client who gives instruction of delivery and settles the delivery charges on monthly basis.” Both documents were signed and chopped by Mr Wan on behalf of the plaintiff and chopped on behalf of the defendant. It is not necessary to reproduce the terms of the declaration in full but the effect of the first paragraph is inter alia that all goods must comply with the requirements of the customs authority; the client must declare all the information of the goods needed for delivery; and if there is any false declaration or the information declared is insufficient, as a result of which the goods are detained by the customs the client must take up all responsibility and bear all losses in litigation.

14. The agreement for delivery fees to be settled on a monthly basis contains a clause to this effect:

All claims for damage as a result of fault caused by our staff during the delivery process are to be dealt with in accordance with the “conditions of delivery (method of compensation)” in our company’s bill of consignment.

15. It is not clear whether the conditions referred to are the January 2001 terms or the December 2003 terms printed on the back of the consignment note. Mr Wan says that when he signed the agreement he had a pad of consignment notes but he did not pay much attention to the terms on the back. In fact, because the number of the consignment note in this case, No. G367604 is but a few digits away from the number on Exhibit P1, which is G367611, it seems most probable, although Mr Wan did not keep his counterpart of the former, that the terms on it were the January 2001 terms and that the terms which the parties had in contemplation when they entered into the monthly payment agreement were those terms.

16. How the parties actually dealt with the consignments is again not in dispute. In every case Mr Wan of the plaintiff would fill in the consignment note. He would include in it the number of packages and the weight. But he would not include the value of the goods, though there is a box on the form for this information.

17. According to Mr Wan, when he filled in the form he would fax it to the defendant, and telephone its staff to confirm if they had received the order. Then they would send someone to collect the goods and the order form. They would tell him the price of the delivery job on the telephone; generally they would give him a quote as to the category; after collecting the goods back to their office and opening them, if they found any query or problems they would telephone him to clarify the situation. After clarification, if there was need to calculate according to another category they would confirm the price with him again.

18. In fact the defendant did not insist that the value of the goods be filled in on the form. Its procedure was to collect the goods, open and re-pack them, as described by its witness, Mr Tsui. According to him the purpose was to ascertain whether there were any forbidden goods inside and to ascertain the value of the goods should clients fail or be unwilling to provide the information relating to the value of the goods. If the goods were not forbidden the defendant’s staff would make a valuation according to their experience.

19. It is the evidence of Mr Wan that no one ever told him that there was any limit on the value of the goods to be carried or the value to be declared. However, it is the evidence of the defendant’s witnesses that the there was such a limit, and Mr Wan was told of it. The assistant manager of the defendant’s sales department, Mr Cheung says that the defendant’s business was to carry documents, goods expressly exempted from duty, or goods with a value below RMB5,000.00. While there is nothing in any of the defendant’s documents, such as brochures, to inform potential customers of this limit, it is the evidence of Mr Lee that he specifically told Mr Wan when he first introduced the defendant’s services to him of this limit of RMB5,000.00.

20. With regard to the spindles in this case, Mr Wan called Mr Lee to come to his office, where he showed him a single spindle, something like those concerned here, and got a quotation of $40 per kilogram for the freight. He says that he called Mr Lee to the office because the goods were more valuable than normal; but he does not say that he ever told Mr Lee what the value was. This was some time around the beginning of December 2003. Later he filled in Consignment Note No. G367604 and sent it to the defendant. He was apparently told to pack his spindles in three boxes to keep the weights of the individual boxes down. The boxes were collected on 23 December and inspected by the defendant’s Customs Affairs Department, and someone telephoned him and said that the charge would be $120 per kilogram. He protested that Mr Lee had quoted him $40; and later Mr Lee telephoned Mr Wan and a price of $50 per kilogram was agreed. There is some dispute as to whether Mr Wan was told a specific delivery date or that the goods would be delivered within a certain number of days, but this is not important. In any event, the goods were never delivered.

21. Mr Wan then received a circular letter dated 19 January 2004 from the defendant, to the effect that the Chinese Customs Authority had taken severe steps to combat smuggling and that this had caused delay in delivery of goods. The letter went on to assure the addressee that he would be promptly informed for making arrangements for delivery once information became available. On 21 January Mr Wan wrote to the defendant demanding that delivery be made by 30 January or that the goods be returned.

22. There was then a meeting between Mr Wan and Mr Cheung of the defendant in early February 2004. By this time Mr Cheung had been told by the defendant’s staff in Shenzhen that the plaintiff’s goods had been seized because they were worth more than the RMB5,000.00 limit. According to Mr Cheung, he confronted Mr Wan as to why he had not told the defendant the true value of the spindles; but even then Mr Wan did not tell him what that value was. Only when he brought the defendant’s limitation of liability to Mr Wan’s notice was he told that the goods were worth more than $10,000.00.

23. According to Mr. Lee, when he telephoned Mr Wan and arranged the final price of $50 per kilogram, he asked Mr Wan what the goods were worth, but Mr Wan did not tell him; he merely said that they were worth very little; and it was on this basis that the price per kilogram was agreed. Mr Wan maintains however that he was never asked, in this instance or on any other occasion when he used the defendant’s services, to give the value of the goods. He had in fact sent valuable goods before; he identified one consignment as being worth over $30,000.00 but he said that everything had gone smoothly; he had never been asked for a value; and had never been told that there was any limit on the value which could be sent.

24. The plaintiff sought to cast doubt on the defendant’s evidence that the goods had been seized by the Chinese Customs. It is true that no document from that authority has been produced. Nor is there any direct evidence of it. However Mr Cheung says that defendant’s staff in Shenzhen provided the information in March 2004 that the goods had been seized and the reason for the seizure was that the value was in excess of RMB 5,000.00. There is obviously some support for the evidence of Customs intervention in the shape of the letter dated 19 January 2004 from the defendant to the plaintiff. It is obviously a circular letter sent out to customers generally, in that it is typewritten with only the recipient’s name, name of the contact person, fax number and details of the shipment written in by hand. It is intended to advise the customers of detention of goods which may be released later. Goods once detained may be seized. There is no evidence to contradict this explanation of what has become of the goods and nothing to support the suggestion that the defendant has simply lost track of them. I have no doubt that the explanation is true and that the Chinese Customs Authority has seized the goods.

25. I also have no doubt that the defendant was subject to various restrictions including one which was that it could not carry through the Chinese Customs goods worth more than RMB5,000.00 per shipment. Again there is nothing to contradict this evidence and no reason to disbelieve it.

26. I turn to the question of whether or not Mr Wan was told of this limit. He says that he was not; Mr Lee says that he was. For what it is worth, I found Mr Lee’s evidence, particularly of having asked what the value really was, when there was discussion of what the charges should be, to ring true. I found Mr Wan’s evidence less so. He seemed to me evasive under cross-examination.

27. A more reliable indicator of the truth and accuracy of evidence is of course the background against which it is given, and the inherent probabilities to which that gives rise. Here an important part of the background is the defendant’s own method of operation. It did not insist that its customers gave the true value of the goods which they wanted the defendant to ship, even though it would obviously be necessary to declare a value for customs clearance. Instead, it had a Customs Affairs Department whose duty was to put a value on the goods; and the goods would then be declared to the Chinese Customs Authority on the basis of that value. Obviously the declared value would have to be within the limit of RMB5,000.00.

28. It is true that there was no document emanating from the defendant to its customers stating that there was a limit of RMB5,000.00 or indeed any other limit of value. But there was a term, written on the back of the consignment note which stated that the declared value of the goods was subject to the limit set by the authorities concerned.

29. It would obviously be to the defendant’s advantage on the one hand to make no written statement of the limit, for to do so would drive away business but on the other to tell the customer orally of the limit. Thus the way would be left open for the customer to give no value, so that the defendant would estimate one for him which was within the limit. Either way the customer could not complain if by reason of the declaration of an undervalue for duty purposes, the goods were seized.

30. As for Mr Wan, if he was not told of the limit, it is difficult to see why he would never have put the value of the goods he shipped in the box on the face of the defendant’s consignment note; why conceal the value? He admits that he knew that there was an element of duty in what he paid per kilogram for the shipping charges. For the shipment in this case of goods worth over $150,000.00, the shipping charges were  $2,750.00 or 1.83% of the value. Anyone would have to be naïve in the extreme to think that he could really send goods through a customs border and, if duty is payable at all on the category of goods sent, that it might be less than 1.83% of value. Governments are much more rapacious than that when it comes to fixing duties.

31. On this question I believe Mr Lee and I do not believe Mr Wan. I have no doubt that Mr Wan knew perfectly well that there was a limit of value of RMB5,000.00 and that he stated no value in the hope of getting his goods through the Chinese Customs without paying proper duty on them.

32. What was going on here was, to my mind, a tacit conspiracy to evade customs duty. The defendant did not insist on knowing what the value of the goods was, but put its own notional value on them. It would be open to a customer in the circumstances to send goods of any value and rely on the defendant’s valuation. The defendant must have known that some customers at least would consign goods which were worth more than RMB5,000.00 even if they knew of the limit; because many ordinary people will seek to evade customs duty if they think they can get away with it. So it took a risk that, if its valuation was inaccurate, the goods would be seized. Equally, however, the plaintiff in consigning goods worth more than RMB$5,000.00, in the knowledge that that limit existed, also took the same risk.

33. As I understand the plaintiff’s arguments they are that the defendant accepted the goods as a bailee. It had a duty to ensure that the goods were delivered within a reasonable time; but they were never delivered. So it is liable for the value of the goods. It cannot escape liability by relying on the seizure as a novus actus interveniens by a third party, because such seizure was foreseeable. Further the defendant’s non-insistence on disclosure of value amounted to negligence or wilful misconduct and would vitiate any exemption clause; though it is also argued that the exemption clauses do not apply.

34. The defendant has not pleaded and does not argue that the contract is void for illegality. However a contract between a consignor and a carrier in Hong Kong to carry goods into the PRC and declare a fictitious value on them to the Chinese Customs Authority would, to my mind, be an illegal contract. In fact a fictitious value was declared and that is why the goods were seized. To find a breach of contract it would be necessary to find that the parties had agreed that the defendant would ensure that there would be no seizure either by declaring the true value and itself paying duty on it, which would be impossible, or succeeding in evading duty, which would be illegal. So I do not see how the seizure could be regarded as having come about because of breach of contract on the part of the defendant.

35. The same of course applies to negligence. The plaintiff could not complain that the defendant negligently allowed the goods to be seized. There could be no duty on a carrier to take reasonable care to get its customer’s goods through a customs border at an undervalue, i.e. to evade duty on behalf of the consignor.

36. I do not, therefore, see how the plaintiff’s claim could succeed there. It is not therefore necessary to go into the questions of the collateral agreement or the exemption clauses.

37. The result is that the plaintiff’s claim is and must be dismissed.

38. As to costs, these normally follow the event. A successful defendant must have his costs unless there is evidence that the defendant brought about the litigation, or has done something connected with the institution of the conduct or the suit calculated to occasion unnecessary litigation and expense, or has done some wrongful act in the course of the transaction of which the plaintiff complains. See Ho Shu Kwong v Chiang Chun Yuan [2002] 3 HKLRD 419, cited in Hong Kong Civil Procedure 2004 at 62/3/3.  

39. I have no doubt that by its mode of dealing the defendant laid itself open to claims of this nature. It was after all doing something illegal, or at the very least taking a risk of doing something illegal, by estimating the value of the goods it shipped. To an extent it brought the litigation on itself. Certainly it did a wrongful act in the course of the transaction. So indeed did the plaintiff. The whole agreement was, as I have indicated, if not directly illegal, at least a tacit conspiracy to allow for illegality. It therefore seems to me right that the defendant should not have its costs but that each party should bear its own costs. The result will be that there will be no order as to costs.