SCHENKER INTERNATIONAL (H.K.) LTD v. NATURAL DAIRY (NZ) HOLDINGS LTD

HCA 1755/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1755 OF 2011

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J U D G M E N T

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Introduction

1.  The plaintiff is a member of the Schenker Group, which has its headquarters in Germany.  The Schenker Group is engaged in international freight forwarding and logistics.  It has offices around the world, including in Hong Kong, China and New Zealand.  The plaintiff is responsible for the group's operations in Hong Kong.  Schenker (NZ) Limited ("Schenker NZ") is responsible for operations in New Zealand.

2.  The defendant is a Hong Kong listed company.

3.  Between April and August 2011, the plaintiff arranged and provided or arranged to provide services for a number of goods shipments, namely:

(1) 34 shipments by sea from Tauranga, New Zealand to Fuzhou, China;

(2) 27 shipments by air from Auckland, New Zealand to Fuzhou, China;

(3) 2 shipments by sea from China to Tauranga, New Zealand;

(4) 1 booked shipment by sea from Shanghai, China to Tauranga, New Zealand, which was cancelled;

(5) 1 shipment by air from Shanghai, China to Auckland, New Zealand.

4.  Sixty-five invoices were raised in respect of these shipments.  Thirty-five invoices have been paid.  Two of the invoices, issued to a company called Super Worth International Limited ("Super Worth"), for the shipments by sea from China to New Zealand, were not pursued at trial.  Of the remaining twenty-eight invoices, the plaintiff alleges that two were partly paid and twenty-six were unpaid.  The total claimed by the plaintiff is $4,360,948.38.  (The amount claimed by the Writ, $4,427,336.38, includes the two Super Worth invoices.)

5.  In its Re-Amended Statement of Claim, the plaintiff alleged that it provided its services pursuant to an agreement reached and/or confirmed between the plaintiff and the defendant in about March or April 2011.  Insofar as the agreement was made orally, the plaintiff relied on various meetings between, inter alia, Helen Leung for the plaintiff and Walter Shum (Chief Marketing Officer) and Cherry Lam (Marketing Executive) for the defendant held at the defendant's office in Hong Kong in or about February to April 2011.  The plaintiff alleges that the agreement is evidenced in writing and referred to various correspondence exchanged between the parties from November 2010 to September 2011 and the plaintiff's quotations and invoices, house air waybills and house bills of lading and payment by or for the defendant.  The plaintiff also alleged that its standard Trading Conditions formed part of the agreement.

6.  Alternatively, the plaintiff alleged that its services to which a particular invoice relates were the subject of a separate contract between the plaintiff and the defendant.  The plaintiff also claimed that it is entitled to recover, by way of quantum meruit and/or pursuant to s7 of the Supply of Services (Implied Terms) Ordinance, reasonable remuneration for its services, which reasonable remuneration is represented by the outstanding invoices.

7.  The plaintiff alleges that, in breach of the contract or the separate contracts, the defendant has failed to pay the remaining twenty-eight invoices.

8.  The defendant denied there was any agreement between it and the plaintiff.  The defendant's pleaded case is as follows:

(1)  By a supply agreement ("the Supply Agreement") between the defendant's subsidiary, Natural Dairy (Jiang Xi) Company Limited ("NY(JX)"), a company incorporated in China, and UBNZ Funds Management Limited ("UBNZ"), a company incorporated in New Zealand carrying on the business of manufacturing and trading in dairy products, NY(JX) bought dairy products from UBNZ for shipment from New Zealand to China on CIF (cost, insurance and freight) terms.

(2)  Pursuant to the Supply Agreement, UBNZ would arrange and pay for, inter alia,

(a)   cost of ocean freight shipping for UBNZ's acquisition of packing material from China to New Zealand; and

(b)   cost of ocean freight shipping of dairy products from New Zealand to China.

(3)  In order to perform the terms of the Supply Agreement and to render delivery services regarding matters arising from the Supply Agreement, UBNZ engaged the plaintiff to arrange for consignments to be shipped and UBNZ paid the plaintiff through various other companies.

(4)  NY(JX) was liable to pay certain other costs and appointed Nation Resources Limited, a company incorporated in Hong Kong to pay the plaintiff such charges.

9.  Of the sixty-five invoices, the defendant alleged that UBNZ was liable for thirty-two invoices and NY(JX) was liable for the rest.  Also, that the invoices for which UBNZ was liable were for ocean freight and those for which NY(JX) was liable were for airfreight. 

10.  The defendant also alleged that, of the twenty-eight unpaid invoices, NY(JX) was liable for nine airfreight invoices (in respect of which the plaintiff claims HK$1,583,653.42) and that NY(JX) has paid those nine invoices by cheques issued by Nation Resources Limited, save for an outstanding balance of HK$16,477.76, which sum the defendant alleges NY(JX) has tendered to the plaintiff but the plaintiff refused to accept payment.  As for the remainder of the outstanding invoices, which are for ocean freight, the defendant alleges that UBNZ is liable for payment.

11.  During cross-examination, the defendant's witness, Mr Yung Wai Tak Abraham William ("Mr Yung"), said that the defendant, and not NY(JX), was liable for airfreight but said that all the invoices had been paid.

12.  The defendant denies that it had notice of the plaintiff's trading conditions.

13.  The defendant admits that the plaintiff provided the services to which the invoices relate and does not take issue with the actual amounts shown on the invoices. Mr Yung said in oral evidence that the defendant does not dispute the amount claimed.

14.  At the conclusion of the evidence, the issues were:

(1)  regarding ocean freight, whether the contract was or the separate contracts were between the plaintiff and the defendant or between the plaintiff and UBNZ;

(2)  regarding airfreight, whether the defendant has paid the invoices; and

(3)  whether the plaintiff's trading conditions were within the actual or reasonable contemplation of the parties and/or whether the plaintiff failed to fairly and reasonably draw the defendant's attention to their terms.

The contracting parties - ocean freight

15.  The plaintiff's evidence of a verbal agreement comes from Mr Henry Schmidl, formerly employed by the plaintiff in the position of Director - Sales & Key Account Management Hong Kong and South China.  Mr Schmidl's evidence of the verbal agreement is hearsay as he recounts what he was told by former employees of the plaintiff.

16.  Mr Schmidl stated that he was told by the plaintiff's Helen Leung, Amy Ting and Isabel Siu that Ms Leung met with the defendant's representatives on about 2 December 2010, 21 February 2011 and 29 March 2011 to discuss the defendant's shipment matters and the engagement of the plaintiff by the defendant.  The first two meetings were with the defendant's Cherry Lam and the third meeting was with the defendant's Walter Shum.

17.  Mr Schmidl stated that he was advised by Ms Leung, Ms Ting and Ms Siu that, at the third meeting, Mr Shum confirmed the general engagement of the plaintiff for the shipment of the defendant's cargo.  Mr Shum also said that New Zealand local charges would be borne by the production plant and the defendant would be responsible for payment of freight and other charges.

18.  The plaintiff did not call Ms Leung, Ms Ting or Ms Siu.

19.  The defendant called one witness, Mr Yung Wai Tak Abraham William but he said nothing in his evidence about the three meetings referred to by Mr Schmidl.

20.  Mr Yung referred to a meeting in late July 2011, which he attended and which was attended by Ms Leung, Ms Siu and Mr Oliver Bohm for the plaintiff, at which he says that Ms May Wang, representing UBNZ and Superworth, admitted that UBNZ and Super Worth were liable for ocean freight under the terms of the Supply Agreement.

21.  I turn now to review documentary evidence passing between the parties.

22.  By email to the plaintiff, dated 22 November 2010, the defendant's Ms Cherry Lam, using the email address "[email protected]", asked for a quotation and other shipping details.  In the email, Ms Lam stated that payment would be settled in Hong Kong.  She did not mention either UBNZ or NY(JX), only giving a New Zealand address for the production plant.  She asked for the quotation to include "EXW" (Ex Works).

23.  According to the Incoterms rules, "Ex Works" means that the seller delivers when it places goods at the disposal of the buyer at the seller's premises or at another named place.  The seller does not need to load the goods onto any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.  Hence, by the definition, the buyer would be responsible for all transportation and other costs.  In cross-examination, Mr Yung agreed with that definition.

24.  On the same day, 22 November 2010, the plaintiff's Ms Yammie Chan acknowledged receipt of Ms Lam's email, advising that the plaintiff's Ms Helen Leung would take care of the enquiry.  In the body of the same email, Ms Chan included a note to Ms Leung which stated: "Customer is located in Wanchai."

25.  At the bottom of Ms Chan's email was the following remark:

"All services and transactions are subject to the Trading Conditions of the Company. Detailed information is available at [the plaintiff's website] or upon request."

26.  Over the next several weeks emails were exchanged between Ms Lam and Ms Leung concerning terms and conditions.  All of the plaintiff's emails contained the remark noted in paragraph 25 above.  The subject of the emails between Ms Leung and Ms Lam was stated as "shipping line enquiry <Natural Dairy>".

27.  In certain emails, Ms Lam gave the address of the production plant in New Zealand as "20 Maleme St, Greerton, Tauranga 3142, New Zealand" and the name of the production plant as "New Zealand Dairy Processing Limited".  In an email, dated 3 December 2010, she confirmed that payment would be settled in Hong Kong.  In an email, dated 28 December 2010, Ms Lam advised that the consignee's name was "Nation Yield Diary (Xiamen) Trading Co. Ltd.".  In her emails, Ms Lam used the plurals "we" and "us" but never referred to any other party as the party requesting a quotation and did not mention UBNZ's name or NY(JX)'s name.  On all of her emails, Ms Lam's email address was "[email protected]".

28.  On 27 January 2011, the plaintiff's Ms Christine Lee sent Ms Lam a quotation by email.  The quotation was addressed to "Natural Dairy", the subject being "Ocean Import ex New Zealand to Xiamen".  The terms were stated to be "EXW - 20 Maleme St, Greerton, Tauranga 3142, New Zealand".  The quotation contained the remarks noted in paragraph 25 above.

29.  There was a delay in shipping.  On 1 March 2011, Ms Leung wrote to Ms Lam in an email:

"As per our yesterday conversation, our NZ colleague informed that the lady from NZ Dairy's parent company asking what the hold up is for the cargo. Also she is asking for our NZ colleague about the quote, however due to your incoterm is under exwork, we supposed to quote the rate to HKG directly. Kindly please help to check in your side and please keep us posted for the update about shipment status.

Here is the lady's contact detail. Thanks.

Malia Po'uhila

UBNZ Assets Holdings Limited"

30.  By this email, Ms Leung was referring to an enquiry, apparently from the parent company, about the quotation and advising that the plaintiff understood that the quotation would be provided to Hong Kong.

31.  On the same day, the defendant's Mr Walter Shum replied:

"I am in New Zealand and I already (sic) had a meeting with Malia.

It should be something misunderstanding, I have explained to her about the matter.

Sorry for the trouble."

32.  Mr Shum did not correct the plaintiff's understanding but, rather, advised that the misunderstanding was on the part of the parent company.

33.  Three days later, by email, dated 4 March 2011, with the subject "Updated information for shipment from NZ <Natural Dairy>", Ms Lam asked Ms Leung:

"Please send us a quotation of ocean freight rate (from NZ to Xiamen & Fuzhou)."

34.  By email, dated 9 March 2011, Ms Leung sent Ms Lam and Mr Shum a quotation addressed to "Natural Dairy", with the subject being "Ocean Import ex New Zealand to Hong Kong" and with terms "EXW - 20 Maleme St, Greerton, Tauranga 3142, New Zealand".  The quotation contained the remarks noted in para 24 above.

35.  There was no complaint by the defendant or anybody on its behalf that either quotation was addressed to "Natural Dairy".

36.  In a further email, dated 17 March 2011, Ms Leung advised Mr Shum:

"Due to your shipment is under exwork, Schenker will debit all the relevant charge for this shipment to Natural Dairy in Hong Kong."

Mr Shum did not correct this.

37.  On 21 March 2011, Ms Leung sent Mr Shum three more quotations, all addressed to "Natural Dairy" and all containing the remark noted in paragraph 25 above.  Mr Shum did not correct the addressee.

38.  From 1 April 2011, the term referred to in correspondence between the parties was changed to FOB Tauranga, for on that date Ms Leung wrote to Mr Shum:

"Regarding to the ocean shipment from Tauranga to Xiamen... As confirmed by you that the trucking/storage and detention charge will bill to shipper and your side, Natural Dairy in Hong Kong will pay for the ocean freight rate."

39.  Mr Shum neither objected to nor corrected the email.

40.  Mr Yung agreed in cross-examination that the type of arrangement referred to in the email was on FOB terms.

41.  Under an FOB arrangement:

(1)  the seller pays the local transportation costs from factory to port, storage and customs charges etc; and

(2)  the buyer would be responsible for ocean freight charges.

42.  The email of 1 April accords with Mr Schmidl's evidence that, at a meeting on 29 March 2011, Mr Shum instructed that the defendant would be responsible for the payment of freight and other charges.

43.  The plaintiff's case is that the evidence, in particular the emails and invoices, clearly show that the defendant was the party to the carriage contracts.

44.  As noted above, the defendant called only Mr Yung as a witness.  In his witness statement, Mr Yung said that, pursuant to the Supply Agreement between UBNZ and NY(JX), UBNZ would arrange and pay for the cost of ocean freight from New Zealand to a port in China designated by NY(JX) and NY(JX) would be liable to pay the cost of airfreight from New Zealand to China.  He denied that there was any contract between the plaintiff and the defendant and asserted that UBNZ engaged the plaintiff to arrange for consignments of products to be shipped by both air and sea, for which UBNZ would pay the plaintiff through, among others, Super Worth.

45.  Mr Yung stated that payments of invoices by NY(JX), through whichever entity it may be, including the defendant, were for the purpose of facilitating payments by UBNZ to the plaintiff and that NY(JX)'s obligation to make such payments was solely under the Supply Agreement and not under any contract with the plaintiff.  In his oral evidence, Mr Yung said that it was a matter of arrangement amongst the defendant, NY(JX) and UBNZ as to which entity would pay and that the quotations and invoices were received by the defendant and then passed to Ms May Wang, who Mr Yung said controlled UBNZ.  Mr Yung also said that he believed Ms Lam and Mr Shum had informed the plaintiff that, for shipments from New Zealand to China, the invoices would be passed to Ms Wang for her to arrange for other companies to pay.  When it was put to him that the plaintiff had no knowledge of this arrangement he said: "I have no idea".

46.  As I understood his evidence, Mr Yung was saying that any arrangement of freight by the defendant with the plaintiff and any acceptance of invoices by the defendant and payment was on behalf of UBNZ.

47.  The defendant's case is that the plaintiff's case is untenable for the following reasons:

(1)  The plaintiff did not identify a written and signed agreement.  On the other hand, the plaintiff is a well-established company and Schenker NZ entered into a written agreement.  It is unrealistic and impossible to accept that the plaintiff would not reduce the agreement to writing.  The plaintiff's failure to procure a signed agreement raises a very real and unresolved doubt.

(2)  No email or contemporaneous document refers to a contract, either explicitly or implicitly.

(3)  The plaintiff failed to prove its case because it did not call the staff who were present at the meetings.

(4)  By emails in late May and early June 2011, the plaintiff's staff were asking for or confirming the identity of the entity responsible for payment.  These emails support the case that no contract had been made in March or April 2011 and, more likely, the parties were only negotiating in March or April 2011.

48.  The defendant also relies on an email, dated 25 June 2011, sent by Mr Yung to Ms Ting, Ms Siu and Ms Leung stating:

"With immediate effect, National Dairy (NZ) Holdings Ltd will not use for agreements, billings or payments, it will use (sic) by the group as an investment holding company only. Therefore, for all future billings, shipping documents ([bills of lading] and air waybill etc.), please use 'Nation Yield Ltd.', which is a wholly owned subsidiary of National Dairy (NZ) Holdings Ltd. There will be no change in our operations nor your interest will be affected..."

49.  In re-examination, Mr Yung said that what he meant to convey was that in the past a lot of invoices were in the defendant's name and that he was explaining that this had been a mistake.  He characterized this email as "an official answer" because throughout it was possible that there was some misunderstanding on the plaintiff's side.

50.  I do not accept Mr Yung's explanation of the meaning of his email, dated 25 June 2011.  The email begins with the phrase "With immediate effect"; such a phrase would not be used to introduce an email intended to correct past misunderstandings.  I find that the phrase "With immediate effect" indicates that the email was an acknowledgement that, up to that point in time, the defendant had been liable for the freight charges and that it was an attempt to change the counterparty to the agreement to Nation Yield Ltd.

51.  Mr Shum was an evasive witness who was unwilling to concede or agree to even the clearest meaning of a piece of correspondence, seeking to put his own interpretation favourable to the defendant's case.  Also, when contradictions between the defendant's pleaded case and his witness statement on the one hand and his oral evidence on the other hand, concerning which party was liable to pay airfreight charges, NY(JX) or the defendant, were put to him, he attempted to explain them by saying that his witness statement was unclear and that when he made the statement he was concerned only with the plaintiff's claim for ocean freight charges and was not dealing with airfreight charges.  He also, for the first time, told the court that there was a second agreement regarding airfreight, which agreement has never been produced.  I need not set out further examples of Mr Yung's unreliability.

52.  Although the plaintiff did not call Ms Leung, Ms Ting or Ms Siu, I do not consider that to be fatal to the plaintiff's case.  Mr Schmidl's account of what he was told about the meeting on 29 March 2011 is corroborated by the email, dated 1 April 2011.

53.  I find that an express, verbal agreement was concluded on 29 March 2011 between the plaintiff and the defendant.  Prior to that meeting, the plaintiff had provided the defendant with its quotations for ocean freight.  At the meeting, Mr Shum confirmed the plaintiff's engagement for shipment of the defendant's cargo and said that the defendant would be responsible for the payment of freight charges.

54.  Moreover, evidence of the agreement is found in the numerous emails, quotations and invoices.  Ms Lam was using the defendant's email address.  The subject of correspondence was "shipping line enquiry <Natural Dairy>".  There was never a mention of UBNZ.  There was a reference to debiting "Natural Dairy" in Hong Kong.  Ms Leung confirmed in the email, dated 1 April 2011, that "Natural Dairy" in Hong Kong would pay for the ocean freight.  Quotations were addressed to the defendant.  Later emails also provide evidence of an agreement.

55.  On 9 May 2011, the plaintiff's Ms Amy Ting wrote to Ms Lam:

"Please confirm the Origin Trucking Fee to be paid by NZ Dairy/HK or not asap."

Ms Lam responded on the same day:

"... it is ok for schenker to issue us the invoice. However, we have to clarify internally for whether it should be our NZ office to pay for the detention charge."

Ms Lam did not advise that the invoice should be issued to UBNZ or any other party.

56.  Later that day, Ms Ting wrote to Mr Yung:

"... the Origin Trucking Fee should be borne by the supplier."

With that email she enclosed two invoices for ocean freight, both addressed to "Natural Dairy (NZ) Holdings Limited".  Mr Yung did not complain.

57.  Thereafter, invoices were issued to the defendant without complaint or objection from the defendant.  At no time did the defendant advise that the invoices should be issued to UBNZ or another party, which is to be contrasted with the position concerning the Super Worth invoices as follows. 

58.  By email, dated 11 April 2011, regarding an ocean shipment from Shanghai to Tauranga, New Zealand, Ms Leung asked Mr Shum and Ms Lam to confirm that the defendant would settle the payment in Hong Kong.  On the same day, Mr Shum replied stating that the freight would be paid in Hong Kong. Subsequently, and on the same day, Ms Leung sent Mr Shum a quotation for ocean freight from Shanghai to Tauranga addressed to the defendant.  In an immediate email reply, Mr Shum corrected Ms Leung, advising that the billing party should be "Super Worth International Limited".

59.  On a later occasion, 19 May 2011, Ms Leung asked Mr Shum by email for the details of the party which would pay ocean freight from Shanghai to New Zealand. On 20 May 2011, Mr Shum replied asking Ms Leung to "please bill" Super Worth.  Mr Yung received copies of these emails.

60.  The significance of these exchanges is that, whereas for ocean freight from China to New Zealand, Mr Shum corrected or advised of the billing party, at no time did anyone from the defendant correct quotations or invoices sent to the defendant with regard to ocean freight from New Zealand to China.  These exchanges lead to the inference that, if the defendant should not have been the contracting party, the defendant's representatives would have said so.

61.  The plaintiff also relies on a change to the shipping term between the defendant and UBNZ from CIF to Ex Works and then to FOB, such that:

(1)  The defendant was responsible for ocean freight charges;

(2)  The supplier had to pay for the local charges in New Zealand, ie, local transportation costs from factory to port, storage and customs charges etc.

62.  By a production agreement, dated 9 June 2010, made between UBNZ and NY(JX), UBNZ agreed to produce UHT processed dairy products for NY(JX).  Clause 3.1 of the production agreement provided that the cost, insurance and freight (CIF) of each packet of the product shall be NZD0.7.

63.  On 20 July 2010, UBNZ and NY(JX) entered into a supplemental agreement under which the price term was stated to be "CIF China main port".  On 13 October 2010, UBNZ and NY(JX) entered into another supplemental agreement under which the price term remained as "CIF China main port".

64.  The three agreements taken together were referred to in the defendant's Defence as the Supply Agreement.

65.  In the email, dated 22 November 2010, referred to in paragraph 25 above, Ms Lam asked for a quotation to include "EXW", which means Ex Works.  As noted in paragraph 38 above, in the email, dated 1 April 2011, the referred term was changed to FOB.  Subsequent emails indicate that the shipping term was FOB, for example, on 16 May 2011, in an email to the plaintiff, copied to Mr Shum and Mr Yung, Ms Lam wrote:

"Please note that the Incoterm being used is confirmed. It is FOB Tauranga. Please issue your invoice accordingly."

Later, on 16 May 2011, the plaintiff's Mr Eric Wan sent an email to Mr Yung and Ms Lam:

"Here is attached the quotation of shipment ex. Tauranga to Mawei, Fuzhou under FOB terms via COSCO."

The quotation, for ocean freight, was addressed to "Natural Dairy".

66.  Mr Yung denied that the shipping term in the supply agreement was changed to Ex Works and then to FOB.  The defendant relied on the shipping term, CIF, to support its case that it was not liable to pay for ocean freight, which was always UBNZ's responsibility.  In his witness statement, Mr Yung stated that CIF:

"... means all costs, insurance and freight were included in the price and hence, all the same shall be borne by UBNZ as the seller/supplier. Therefore, among others, UBNZ shall bear all the freight costs involved in the shipment of the Products from New Zealand to Mainland China."

67.  I find that the references to the terms "EXW", "Ex Works" and "FOB" in emails are clear indications that the term had changed.  This change supports the plaintiff's case that the defendant was liable for freight charges.

68.  I consider that, objectively, the parties evinced in their exchanges an intention to conclude a contract.  From the emails exchanged and the quotations and invoices issued to the defendant without complaint, a reasonable man, versed in business, would have understood from the exchanges between the plaintiff and the defendant that the defendant was the counterparty and responsible for the freight charges claimed.  This objective approach was applied in Maple Leaf Macro Volatility Master Fund & anor v Rouvroy & anor [2009] 1 Lloyd's LR 475.

69.  The defendant's counsel submitted that requests contained in emails from the plaintiff's representatives to the defendant after 1 April 2011 for confirmation as to the entity which should be billed indicated that the parties were still negotiating and that there was not a concluded agreement.  I do not find that to be the case because these emails concern airfreight, not ocean freight.

70.  In conclusion, the evidence, emails and invoices referred to above show that the defendant was a party to carriage contracts.  The shipping term of the supply agreements between the defendant and UBNZ was varied from CIF to Ex Works and then FOB, under which terms the defendant was responsible for ocean freight.  The email, dated 1 April 2011, confirming that the defendant was responsible for ocean freight but not local New Zealand charges puts that matter beyond doubt.

Separate contracts

71.  As I have found that an express agreement was made, the question of separate contracts does not arise but, if it had arisen, I would find that each instance of carriage services performed by the plaintiff was pursuant to a contract.  The plaintiff sent quotations to the defendant and no one else.  The defendant requested services and the plaintiff provided those services.  I find there to have been offer and acceptance.  These constituted contracts or agreements between the parties and the defendant was liable to pay freight charges.

Trading conditions

72.  The principles regarding the meaning of notice of trading conditions is summarized in Chitty on Contracts Vol 1, 32^nd ed, para 13-013. If a person knew that writing or printing referred to conditions, he is bound. If the party tendering the document did what was reasonably sufficient to give the other party notice of the conditions and if the other party knew that there was writing or printing on the document, but did not know it contained conditions, the conditions will become the terms of the contract between them.

73.  Mr Yung agreed that shipping companies and freight forwarders normally have their own terms and conditions but he did not agree that he knew that the plaintiff's quotations and emails referred to its standard terms and conditions, saying that normally for such terms one would need to go to the website or ask for a copy.

74.  There were scores of quotations and emails referring to the plaintiff's standard terms and conditions, many of which were received by Mr Yung.  When shown copies of quotations and emails referring to the plaintiff's terms and conditions in cross-examination, Mr Yung said that normally nobody would ask for a copy and that, because each email referred to the terms and conditions, people would think it superfluous.  Mr Yung is an Associate Member of the Chartered Institute of Transport, he holds a Master of Business Administration and has thirty years experience in business management and administration; his answers were disingenuous.

75.  I do not believe that Mr Yung was not aware of the notice of terms and conditions stated on the quotations and emails; he was trying to avoid the defendant's liability by saying, in effect, no one would bother to read them. The statement on the quotations and emails is sufficiently clear to have drawn attention to the terms and conditions and that they were something that should be read.

76.  Quotations and emails referring to the terms and conditions had been sent to the defendant before the meeting on 29 March 2011.  The terms and conditions had been brought to the defendant's notice before the contract was made.

77.  I find that the plaintiff's standard terms and conditions were conditions of the contract between the plaintiff and the defendant.

78.  The particular terms upon which the plaintiff relies make the defendant liable for freight charges even if it was only acting as an agent.  Clauses 1.3 and 7.1 of the trading conditions provide that the "Customer" is jointly and severally liable with the Owner of the goods to pay for freight charges, even if the Customer is acting as the agent.  The term "Customer" means any person at whose request or on whose behalf the plaintiff provides a service.

79.  The defendant's counsel referred me to AEG (UK) Ltd v Logic Resource Ltd [1996] CLC 265 in support of a submission that it was incumbent on the party relying upon a trading condition to fairly and reasonably bring notice of the condition to the counter-party, if the condition is onerous and unusual.  Counsel submitted that the term making all agents liable for freight charges is onerous and unusual.  That the term is onerous was not pleaded but, in any event, I do not agree.  I cannot see how such a term is onerous.

80.  The context of AEG (UK) Ltd v Logic Resource Ltd is very different from the present case, as illustrated by Hirst LJ's finding that the subject term was onerous:

"Here the statutory conditions and warranties are excluded and the option to return the defective goods for repair is imposed by the sellers in condition 7.4, confronting the buyers, in effect, with Hobson's choice, and leaving them with no other recourse in a situation where ex hypothesi the sellers are in breach of contract through the delivery of defective goods. In that context, to impose on the buyers the obligation to pay the costs of returning the goods is extremely onerous..."

81.  Indeed, in Australian Tallow & Agri-Commodities Pty Ltd v Malaysia International Shipping Corporation [2001] NSWCA 16, the New South Wales Court of Appeal recognized such terms, holding that:

(1)  Prima facie, at common law, where a party contracts as an agent for a principal, the contract is that of the principal and the agent may neither sue nor be sued.

(2)  But this general principle is subject to important exceptions, one of which is that the parties can provide, by their express contract, that the agent shall be liable, either concurrently with or to the exclusion of the principal.

82.  I find that the trading conditions form part of the contract between the parties and provide that the defendant is liable for freight charges.

Airfreight

83.  In his witness statement, Mr Yung denied that the defendant was responsible for paying airfreight charges.  However, for the first time, during cross-examination he admitted the defendant was liable for airfreight charges but he stated that most of the claimed airfreight charges had been settled by a cheque in the sum of HK$1,300,000.

84.  Mr Yung's admission was not surprising in light of a number of documents which clearly indicated that the defendant would be responsible for paying airfreight charges, of which I need refer to only one, a letter signed by Mr Yung on behalf of the defendant to the plaintiff, dated 2 June 2011:

"Regarding our all (sic) Airfreight shipments ex Auckland to Fuzhou, which are under FOB terms, and offshore payable at HKG

We hereby confirm that the Freightage are borne by our Company:

Natural Dairy (NZ) Holdings Limited

Suite 6701-02, 67/F, Central Plaza, No. 18 Harbour Road, Wanchai, Hong Kong

Please issue your invoices to us as above directly."

85.  Notwithstanding this letter and other documents, as I have noted, Mr Yung denied in his witness statement that the defendant was liable for airfreight charges.  In its Re-Amended Defence, the defendant pleaded, and by reference to invoices, that NY(JX) was liable to pay airfreight charges for products from New Zealand to Mainland China.  Moreover, in his witness statement, Mr Yung referred to the invoices concerning airfreight charges stating that they "shall be paid" by NY(JX).

86.  During cross-examination, Mr Yung explained that, as most of the airfreight charges had been paid, his mind was not focused on those charges when he prepared his witness statement.  He also mentioned, for the first time, a second freight agreement which concerned airfreight pursuant to which the defendant was liable for airfreight charges.  He said that, because NY(JX) was a subsidiary of the defendant, he treated them as the same entity. 

87.  I do not accept Mr Yung' explanation.  It was Mr Yung who signed the letter, dated 2 June 2011, acknowledging the defendant's liability.  Mr Yung unambiguously stated in his witness statement that NY(JX) was liable for airfreight charges.  He repeated in his statement that there was no agreement between the plaintiff and the defendant and that the agreement was between the plaintiff and UBNZ.  I find that Mr Yung changed his evidence in light of the documentary evidence, particularly the letter he signed.

88.  Turning to the HK$1,300,000 cheque.  There is no mention of this cheque in the Re-Amended Defence or Mr Yung's witness statement.  That airfreight charges had been settled by this cheque was not put to Mr Schmidl.

89.  A number of documents show that the HK$1,300,000 was used to settle ocean freight charges and not airfreight charges, of which I need refer to only three.

90.  By email, dated 24 August 2011, Ms Lam instructed Ms Ting to apply the cheque towards payment of a number of invoices for airfreight charges.  By email, dated 2 September 2011, Ms Ting advised Ms Lam that the HK$1,300,000 and a further sum of HK$555,045.80 had been used to settle a number of invoices for airfreight charges and the files closed.  However, by email, dated 5 September 2011, Ms Lam advised Ms Ting:

"The payments for HKD1,300,000.00 and HKD555,045.80 were supposed to offset the invoices you listed below. However, since you mentioned last Friday when you visited our office that the payment to settle the invoices for ocean shipments dated in May are most urgent. Hence, we would want these two payments to settle the most urgent invoices. Kindly understand!"

91.  There is no direct evidence that the plaintiff reversed the payment of airfreight charges referred to by Ms Ting in her email, dated 2 September 2011, and applied the HK$1,300,000 to payment of outstanding May invoices for ocean freight charges.  However, Annex 1 to the Statement of Claim, which was verified by the plaintiff's Mr Henry Schmidl in his witness statement and by the Statement of Truth, shows the May ocean freight invoices as having been paid and the airfreight charges outstanding, which indicates that the plaintiff applied the HK$1,300,000 to settle the most urgent ocean freight invoices as requested.

92.  In any event, the total outstanding debt would remain the same because, if the HK$1,300,000 had been used to pay the airfreight charges, then the May ocean freight invoices would be unpaid.  The plaintiff received eight cheques, including the cheque for $1,300,000, which it applied to payment of its invoices.  The total amount of all invoices is $9,050,371.93 (after deducting the Super Worth invoices) and the total amount outstanding remains $4,360,948.38 (after deducting the Super Worth invoices).

93.  I find that the airfreight charges have not been paid and that the defendant is liable for payment.

Conclusion

94.  I give judgment for the plaintiff in the sum of HK$4,360,948.38 together with interest at the rate of 2% per month pursuant to clause 10.8 of the trading conditions from the date of the plaintiff's demand letter, 6 September 2011.

95.  I make an order nisi the defendant to pay the plaintiff's costs of this action to be taxed if not agreed.

96.  I give judgment for the plaintiff in the sum of HK$4,360,948.38 together with simple interest on that sum at the rate of 2% per month, which rate is pursuant to clause 10.8 of the trading conditions, from the date of the plaintiff's demand letter, 6 September 2011, until the date of this judgment and thereafter interest at the statutory rate of interest until satisfaction.

HCA 1755/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1755 OF 2011

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JUDGMENT

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1.  This is the defendant’s appeal and the plaintiff’s cross-appeal from an order dated 20 August 2013 made by Master Levy (“the August order”) granting the defendant relief from an unless order conditional on payment into court of the full amount claimed by the plaintiff, such payment in to be made in four instalments. At the conclusion of the hearing, judgment was reserved which I now give.

Background facts

2.  The plaintiff commenced this action against the defendant in October 2011 suing for outstanding freight and related charges of approximately $4.4 million in respect of 67 invoices issued from May to September 2011.

3.  There is no written contract between the parties.  In its amended statement of claim dated 13 March 2013, the plaintiff alleges that the contract was made orally at various meetings held between February and April 2011, evidenced by or to be inferred from correspondence spanning a period of 11 months from November 2010 to September 2011, quotations and invoices and payments by or for the defendant and/or was to be inferred or implied from previous dealings.

4.  The defendant’s defence is that it was not the contracting party.  The meetings were attended not only by the defendant but also by Ms May Wang of UBNZ the defendant’s supplier.  The defence is that the contract was made between the plaintiff and UBNZ, with the defendant only being responsible for “extra charges”.

5.  After the close pleadings, the action was stayed for about  7½ months pending mediation.  That process failed on 8 February 2013.

6.  Pursuant to an order made prior to the stay, the parties were to file and serve their respective lists of documents within 28 days of the termination of the mediation, i.e. by 8 March 2013.  By the same order, the plaintiff was given leave to apply to amend its statement of claim within 21 days of the termination of the mediation which it did on 1 March 2013.

7.  Following the failed mediation, in early March, several days before the deadline for lists to be exchanged, the parties were engaged in settlement discussions.  In view of those discussions, the parties agreed to apply for a 14 day adjournment by consent, with the new deadline being 22 March 2013.

8.  While the plaintiff produced its list on 22 March 2013, the defendant applied by summons on that day for a 14 day extension.  The plaintiff’s response was a summons for an unless order returnable on the same day as the defendant’s application.

9.  On 2 April 2013 Master Levy ordered that “unless” the defendant filed and served its list on or before 16 April 2013, the plaintiff shall be at liberty to apply for judgment against the defendants together with interest and costs (“the April order”).  The plaintiff’s application for an unless order was allowed to be withdrawn.

10.  On the following day the defendant terminated the engagement of its former solicitors who however were not able to come off the record until 17 April 2013, the day after the deadline for the defendant to lodge its list.  As a result, the defendant whose director had endeavoured to prepare a list (“the 1^st list”) was unable to file it although a copy was delivered to the plaintiff’s solicitors before the deadline.  On  17 April 2013, a document with identical contents except for an amended back sheet (“the 2^nd list”) was received by the plaintiff’s solicitors.  It is accepted that the 1^st and 2^nd lists were deficient and non-compliant.

11.  The plaintiff lost no time in taking out a judgment summons which it did on 29 April 2013.

12.  The defendant engaged its present solicitors on 3 May 2013.  Their request to the plaintiff for time (30 days) to review the documents and to prepare the list was refused.  I pause here to observe that but for unnecessary forensic posturing and aggressiveness, matters might well have taken a different turn. 

13.  The defendant’s solicitors then prepared a list (“the 3^rd list”) that was exhibited (as exhibit YWTAW-1) to the affirmation of   Abraham Yung filed on 9 May 2013, the day after they filed their notice to act.  The 3^rd list was not formally filed as the defendant’s list until 21 August 2013.

14.  Initially, the defendant had opposed the judgment summons by filing Mr Yung’s affirmation only.  On 18 July 2013, out of an abundance of caution, the defendant took out a relief summons.  That summons and the plaintiff’s judgment summons were heard together on  31 July and 20 August 2013, culminating in the August order.

The appeal and cross appeal

15.  Being a rehearing de novo, in deciding the appropriate order to make on the judgment summons and the relief summons, the court has first to consider the nature and effect of the April order which gave rise to the summonses.

16.  At the hearings in July and August, the master appeared to have proceeded on the basis that the April order was an unless order, noting that the defendant was 2½ months late in applying for relief from sanction.  But that would be correct only if the April order were a conventional unless order, namely, the type of order described in paragraph 2 of Practice Direction 16.5, triggering 0.2, r.4.

The April order

17.  Its terms are unusual.  Although the expression “unless” forms part of the order, on analysis, the April order was not an “unless” order as it is normally understood.

18.  In pertinent part, Practice Direction 16.5 reads:

“2. The common form of peremptory order known as an ‘unless’ order should prescribe the period within which an act is to be done, failing which the ordered consequences will follow.

…

3. The other form of peremptory order in common use does not carry within its wording the sanction for disobedience …

An order of this nature is only preliminary to an ‘unless’ order and on disobedience a supplementary order in ‘unless’ form, setting out the sanction, should be obtained.  Until then the earlier order cannot be enforced.”>

19.  So when a party fails to perform what has been ordered by a conventional unless order within the time prescribed, the sanction specified in the order automatically takes effect unless within 14 days of the failure the party in default applies and obtains relief from the court: see  Daimler AG v Leiduck [2012] 3 HKLRD 119 at §47; O. 2, r. 4.

20.  The so-called sanction in the April order did not have automatic effect.  Nothing would happen unless and until the party not in default makes a further court application and obtains a further order.  The sanction or punishment for non-compliance was thus not automatic.

21.  Mr Wright, counsel for the plaintiff, submitted that it is not open to the defendant now to question the correctness of the April order since there was never an appeal from it.  That may be so but the court is not precluded on this appeal from considering the nature of the April order.  To describe it as a peremptory order takes matters no further.

22.  In my view, when, even at face value, the April order is not a conventional unless order, it would be incumbent on the court to take into account its true effect and, if necessary, all relevant facts that led to the making of the April order.

23.  Its effect does put into question the premise underlying the cross appeal which is that the plaintiff must be entitled to enter judgment for non-compliance with the April order once it makes the application required. But was the application to be a mere formality? Suffice it to say that had that been the intended effect, there would have been no reason for a conventional unless order not to have been made in the first place.  The fact that the master allowed the plaintiff’s summons for an unless order to be withdrawn reinforces the view that the order made was not a conventional unless order.

24.  In my view, it would be wrong to approach the judgment summons on the basis that, prima facie, the plaintiff was entitled to enter judgment.  To do so would be to give the April order an effect that could not have been intended.  Otherwise there would have been no reason for the master to have eschewed a conventional unless order.  

Material events

25.  That conclusion renders relevant the material events that led to the making of the April order.  Critically, the time summons culminating in the April order was the defendant’s first request.  There had been no prior breach.

26.  In that regard, Mr Wright’s submission that the April order had been preceded by two instances of failure on the part of the defendant to file and serve its list is a little disingenuous since prior to the time summons there had been no breach on the part of the defendant, the extension to 22 March 2013 was by consent of the parties as earlier explained.

27.  Non-compliance with the consent order of 8 March 2013 was the first occasion the defendant had breached an order of the court and, of itself, would not have warranted a conventional unless order because there had been no history of failure to comply with court orders.

The plaintiff’s case

28.  The judgment summons is supported by two affirmations of Henry Schmidl.  The first complains about the failure of the defendant to comply with the April order and the fact that the 1^st list received by the plaintiff’s solicitors before the deadline had been prepared by a director of the defendant without first obtaining the leave of the court.  The complaints were technical in nature.

29.  Apart from giving a chronological account of the action, the gravamen of Mr Schmidl’s 2^nd affirmation filed on 24 May 2013, is that all three of the defendant’s lists bore a striking resemblance to the plaintiff’s list and were improper and/or grossly insufficient and illusory.  The plaintiff’s list had itemised correspondence passing between the parties consisting of some 381 letters as well as numerous commercial documents such as bills of lading, quotations, packing lists, invoices, manifests etc altogether running to 29 pages.  It was said that the defendant’s lists were organized and described in the same manner as the plaintiff’s list.  In short, the complaint was that there had been extensive, if not wholesale, copying of the plaintiff’s list rendering the defendant’s lists illusory.

30.  As regards the 3^rd list, it is accepted that what appears under the heading “(D) Other Documents” comprising 7 items or categories of documents was not copied from the plaintiff’s list. 

31.  There is evidence that on 2 July 2013 the plaintiff requested production of the 7^th item described as “bundle of brief notes of meetings/telephone conferences” in the 3^rd list and that it had not been produced as at 25 July 2013.  That evidence is to be found in the affirmation of Cheung Wan Kam filed on the plaintiff’s behalf in reply to the affirmation of the defendant’s company secretary of 17 July 2013 in support of the relief summons.  Mr Wright complained that those documents had still not been produced.

32.  In his written submissions and orally at the hearing, Mr Wright took a number of new points.  First, he criticized the absence in the 3^rd list of any written or e-mail communications between the defendant (or its subsidiaries) and UBNZ.  It was said that if the defence advanced had any validity, the defendant would have in its possession “extensive communications” forwarding the plaintiff’s invoices to UBNZ and discussing which should be classified as “freight charges” and which as “extra charges”.

33.  Next Mr Wright criticised the defendant’s failure to disclose documents unfavourable to its defence but plainly in its possession, custody and power.  The documents referred to included, inter alia, two affidavits, one said to have been made by the defendant’s chief marketing officer, a Mr Shum and the other by a director of NZ Dairy, said to be the defendant’s associated company.

34.  It was strenuously urged upon this court that those matters demonstrate that the defendant was deliberately acting in breach of its discovery obligations and they were circumstances from which continuing non-compliance could be inferred.

35.  The difficulty with the new points made is that they were not made in the plaintiff’s affirmations.  As a result, the defendant has not had the opportunity to respond to them.  While Mr Chan attempted to proffer oral explanations at the hearing regarding the two specific instances mentioned (i.e. absence of written communications between the defendant and UBNZ and the failure to disclose the affidavits), the court simply cannot begin to go into the merits or otherwise of the new complaints, absent any proper evidentiary basis.  Accordingly, they must be disregarded for present purposes.

36.  Extensive copying of the plaintiff’s list was a major complaint.  On that issue, what the defendant had done is not what ought to have been done under the rules.  It is probable that given the circumstances in which it found itself, having dispensed with the services of its solicitors without first securing a replacement firm and the fact that there was a vast amount of common documents (i.e. inter partes correspondence and commercial documents passing between the parties), the plaintiff decided to take a ‘shortcut’.  It was a layman’s attempt to meet the deadline only to find that the 1^st list could not be filed because the former solicitors were still on the record.  In any event, the 1^st list was non-compliant.

37.  The defendant’s unorthodox conduct which has been a source of intense irritation to the plaintiff cannot be condoned.  In so far as what was copied comprised common documents, no real prejudice could have been caused.

Paragraph 2 of the August order

38.  Paragraph 2 of the August order reads:

“The Defendant be relieved from the sanction imposed by the Order of Master Levy herein dated 2 April 2013 for failure to file and serve its List of Documents by 4:00 pm on 16 April 2013 on the condition that the Defendant do make a payment into Court in the sum of HK$4,427,336 which sum shall be paid by 4 instalments as follows: …”

39.  It is apparent from those terms that the master’s order was premised on the basis that there was an automatic sanction for breach of the April order.  The condition imposed was the price the defendant had to pay for relief.  But as the premise upon which the order was based was false, the appropriateness of the condition must be called into question.

40.  Order 2, rule 3 (1) empowers the court to order a party to pay a sum of money into court where that party has, without good reason, failed to comply with a court order.

41.  Here the defendant did fail to comply with the April order under which it was required to file its list by 16 April 2013.  Disregarding the 1^st and 2^nd lists accepted to be non-compliant, the 3^rd list was provided to the plaintiff (although not formally filed) on 9 May 2013.  Even if the 3^rd list were also to be disregarded because no list had been filed as required by the rules, that failure would constitute a breach of the    April order and a second breach of court orders by the defendant.

42.  In deciding the appropriate order to make, those are the only facts to which regard is to be had.  No question of any relief from sanction under a conventional unless order arises because the April order did not give rise to any such sanction.

43.  The condition (of payment in) imposed is the type of condition associated with summary judgment applications and normally imposed where, for example, there is a good ground in the evidence for believing that the defence set up is a sham defence.  Quite apart from the fact that the application in question is not one for summary judgment, the present case is not about a sham defence.  Whether the defence (that the contracting party was not the defendant but its supplier UBNZ) will ultimately succeed is a matter for trial but there is nothing in the papers that would warrant a conclusion that the defence advanced is a sham defence.

44.  Where there is no proper basis for regarding a defence as a sham defence, it is evident that the imposition of a condition requiring full payment in of the amount claimed (in the present case a sum in excess of $4.4 million) would have serious consequences for the defendant.  Apart from affecting its cash flow, the condition could seriously hamper or even stifle the ability of the defendant to defend the claim.

45.  In exercising its discretionary powers, it has to be borne in mind that the primary objective is to secure a just resolution of the dispute in accordance with the substantive rights of the parties.  In my view, the condition imposed would not have furthered that objective.

46.  Mr Chan, counsel for the defendant, submitted that the condition imposed serves merely to punish and, as such, is not a proper reason for the exercise of the power.  He referred to the decision of Buckley J in Mealey Horgan plc v Horgan, (1999) The Times, 6 July 1999 for guidance as to the circumstances that would warrant its exercise.  That case concerned a breach of an order to file the defendant’s witness statement by a certain date.  The claimant had submitted that the court should be tough to ensure compliance with the new rules (i.e. the CPR) and that failure to adhere to them should be penalised.  But Buckley J considered that:

“a payment into court might be appropriate if a party had behaved worse than the defendants had in this case; that is, where there was a history of repeated breaches of timetables, court orders or something in the conduct of the party that gave rise to the suspicion that it was not bona fide and the court thought the other side should have protection.”

47.  On the facts, the defendant’s default (being 2 weeks late in serving its witness statement but which was served 6 weeks before trial) had not prejudiced the trial and had not significantly prejudiced the claimant.  In those circumstances the court considered that there could be no reason to require payment into court other than as pure punishment and Buckley J did not read the rules as encouraging the courts to punish this type of default.

48.  I respectfully agree with the approach of Buckley J.  That is consistent with the approach of Millett J in Logicrose Ltd v Southend Football Club Ltd, The Times, 5 March 1988, a decision of the pre-CPR era, where it was held that deliberate disobedience of a peremptory order, while a contempt, should not deprive a litigant of his right to a fair trial unless that conduct was deserving of punishment because that failure had rendered it impossible to conduct a fair trial.

49.  The concept of proportionality is a relevant consideration in circumstances where the court is minded to sanction a party for breach or non-compliance with the rules and court orders.  The sanction has to be commensurate with the gravity of the ‘crime’.  In Husband’s of Marchwood v Drummond Ltd [1975] 1 WLR 603, Russell LJ considered (at 606 G-H) that a condition requiring the defendants to pay the balance of the claim into court or be barred from defending the action because they had failed to comply with the discovery order to be “something which is quite inappropriate, in the sense that it is a punishment which does not fit the crime.”

50.  Proportionality of the sanction is a weighty factor in the weighing exercise to be undertaken on a fresh exercise the discretion: see per Fok JA in Daimler AG at §§ 57 et seq.

51.  The condition imposed on the defendant to pay into court the amount claimed prior to trial is draconian.  On the facts of this case, it is wholly out of proportion to the breaches that have occurred.  The order made was plainly wrong and unsustainable.

Conclusion

52.  The proceedings are at an early stage and no milestone has yet been reached.  Clearly, the objective must be to progress the action.  To that end proper discovery must go forward.  At the time the August order was made, the defendant had not yet filed its list.  Clearly it would have been appropriate for a conventional unless order to have been made at that stage having regard to the prior breaches but that is now water under the bridge since the defendant’s list was filed the day after the August order pursuant to paragraph 4 of that order.  If the plaintiff were to take the view that specific documents have been omitted, there are avenues it could pursue if so advised.

53.  In exercising the discretion afresh, I have no hesitation in setting aside the condition requiring payment into court.  But it is also important that the plaintiff’s request for production of documents identified in the 3^rd list be met.  I am troubled by the fact that four months have elapsed since a request was made for the production of item 7 under the “Other Documents” category.  In those circumstances, I consider it appropriate to order that those documents be produced within 14 days from the date of this judgment.  In all other respects, the April order is to take effect.

54.  There is to be an order nisi of costs in favour of the defendant with certificate for counsel.

Mr Colin Wright & Mr George Hui, instructed by Daniel Lam & Co, for the plaintiff/respondent

Mr KC Chan, instructed by YC Lee, Pang, Kwok & Ip, for the defendant/appellant