XCHRX He-ro Chemicals Ltd. v. Jeuro Container Transport (HK) Ltd. and Another

Commercial List No. 105 of 1992

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 Plaintiffs claim summary judgment for U$$74,960 against the 1st Defendant arising out of the alleged misdelivery of 102 metric tons of Zinc Oxide which they had agreed to sell to the 2nd Defendant. Judgment has been entered against the 2nd Defendant who has played no part in the present proceedings.

2. By a fax dated 27th March 1992 the Plaintiffs confirmed having agreed to sell to the 2nd Defendant 102 metric tons of Zinc Oxide at the price of U$$735 per metric ton FOB Shenzhen. The agreed payment terms were:

"By DP 60 days from delivery date against Forwarder's Cargo Receipt" (FCR)

3. By a fax dated 29th April 1992 the Plaintiffs faxed the 1st Defendant in the following terms:

"Further to our Telecons on this matter we would like to point out that we will deliver the cargo to you FOB Shenzhen. Upon delivery of the cargo you will issue us the full set of Forwarder's Cargo Receipt (FCR's) which as you said is the document of title and these FCR's must be presented by Velco to receive the cargo or exchange for any bills of lading(s) covering the consignment."

4. The Plaintiffs delivered the goods to the 1st Defendant on or about 6th May 1992 and in return received from them a shipped on board Bill of Lading also headed "Forwarding Agent Certificate of Receipt".

5. The Plaintiffs contend that the term D/P (documents against payment) meant that for the Plaintiff to obtain payment and for the 2nd Defendant to obtain title to the goods, the shipping documents, including the documents of title (the Bill of Lading and the FCR), had to be tendered by the Plaintiff to the 2nd Defendant and accepted.

6. In fact what happened was that the 1st Defendant released the goods and/or the Bill of Lading(s) covering the goods to the 2nd Defendant in return for a guarantee from the 2nd Defendants which clearly they have not honoured.

7. The FCR itself is dated the 6th May 1992 and shows the goods were consigned to the order of the 2nd Defendant.

8. When the Plaintiffs failed to receive the expected payment they took the matter up with the 1st Defendant.

9. On 13th July 1992, Carmen Leung of the Plaintiffs spoke to Mr. Leung of the 1st Defendant. Mr. Leung said that after they received the cargo and issued the FCR, they would have passed all details to the Hamburg Agent who would then issue a full set of Bills of Lading in Hamburg. He emphasised that the procedure should be that the 2nd Defendant would present the full set of cargo receipts to the Hamburg Agents and pay the freight charges in exchange for a full set of Bills of Lading. He said he would check and find out what had happened.

10. On 16th July 1992, the Plaintiffs faxed Mr. Leung urgently asking for more information. They added this:

"When we arranged to deliver this cargo to you and again on 13th July 1992 when we spoke you advised that the full set of Forwarder's Cargo Receipt (FCR) needs to presented by Velco along with payment of freight to your Hamburg office so that Velco can receive the full set of B/L's, without the full set of FCR they cannot get the cargo." (sic)

11. On 21st July the Plaintiffs again phoned the 1st Defendant who had no news.

12. On 23rd July the Plaintiffs faxed the 1st Defendant asking how and when the bills of lading were released and they added:

"(1) How and when was a B/L released - as per our agreement and your practice it should have been done only against full set FCR.

(2) How was cargo released at destination against what document of title?"

13. On 23rd July the Plaintiffs phoned again but the 1st Defendant said that there was no news from their Hamburg office.

14. On 24th July the Plaintiff phoned twice but there was still no news.

15. Then on 28th July 1992 Mr. Rounick of the Plaintiff spoke to Mr. Lignau of the 1st Defendant. Mr. Rounick prepared a handwritten note of the conversation which appears at pages 53 and 54 in the bundle. I propose to set it out in full whilst noting that Mr. Lignau has not sought to contradict the contents of this note. All points raised by Mr. Reyes as to the possible inability of Mr. Lignau to understand English well enough and to understand the true position are rejected as they are not supported by any evidence filed by Mr. Lignau.

16. The note reads as follows:

"I called Lignau of Jeuro (Hamburg Office) at about 4.30 p.m.

He said he released the cargo (B/L's) to Velco with "some kind of guarantee" - he says it should have only been released against FCR, ... "we made mistake" ... "This was a very bad arrangement on our part ..."

We discussed legal action he asked me not to sue Jeuro "but please sue Velco" ... "don't try to hang the hook on us" I explained to him that he has released our cargo to Velco against our agreement with HK Jeuro and without receiving the document of title. He clearly admitted their error in this.

He said Velco told them that they can't receive the FCR in time [before cargo arrives in Roumania]. Therefore Velco asks them to release B/L's without FCR's. I told him this was wrong in our case FCR's were in the bank of Velco in mid-May 1992 - several weeks before cargo arrival. He was very surprised and said it looks like he was lied to by Velco."

17. A letter before action was written on 7th August 1992. The writ was issued on 10th September 1992 and this summons for summary judgment was issued on 8th October 1992.

18. Both Counsel filed very useful and helpful written arguments which set out their respective contention in full.

19. The Plaintiff puts its case in 3 ways, namely conversion, breach of duty/negligence and breach of contract. Any one of these grounds will suffice.

20. Mr. Reyes's central point in opposition was that the FCR expressly made the goods deliverable to the 2nd Defendant's and not the Plaintiffs' order. He submits that because of this and by delivering the goods to the 2nd Defendant even without the production of the FCR as alleged by the Plaintiffs, the 1st Defendant delivered the goods in accordance with the terms of the bailment or contract evidenced by the FCR. He adds that the parol evidence rule would not permit of any extrinsic evidence to vary the terms of the FCR.

21. He emphasized the rules set out in the Sale of Goods Ordinance relating to the passing of title to goods and he said that these could only be resolved after evidence at trial of the parties' intention. Further the details of and inferences to be drawn from faxes and telephone conversations could only be ascertained after trial.

22. In so far as the claim in negligence is concerned, he submitted that the claim was unsustainable on the ground that, absent physical damage to the goods, a claim for their misdelivery would be a claim for pure economic loss and that such would not be recoverable in law.

23. As to Mr. Lignau's alleged admission he says that this is not accepted but as I have said it is not contradicted and I cannot and will not ignore it. For all I know Mr. Lignau may speak fluent English and be as conversant with the law of carriage of goods as is Mr. Reyes. The simple point is that Mr. Lignau did not condescend to file any evidence. In this regard I remind myself there is an obligation on the Defendant in an O.14 summons to make out a positive case.

24. I trust that Mr. Reyes will forgive me for not reciting in full all the ingenious legal arguments which he presented as they are fully set out in his carefully prepared written argument.

25. Finally Mr. Reyes submitted that even if I was against him, I should only order judgment for damages to be assessed because there is no evidence as to the value of the goods at the date of conversion. There is only the invoice value a little time before. I reject this argument as the Defendant has not said a word on quantum and if the market in Zinc Oxide had in fact fallen between the date of the contract and the date of misdelivery, I would expect them to file evidence on this point. The invoice value of the goods is in my judgment as good an indication of value of the goods at the time of misdelivery as a court could reasonably expect.

26. Mr. Ma submitted in his reply that the central core of Mr. Reyes's submission namely that the Plaintiffs had no property to the goods when misdelivered is in no way fatal to the Plaintiffs' claim. This submission he suggested ignored the effect of the fax dated 29th April and of the DP arrangement itself. Mr. Ma submitted that there was no magic in the fact that the FCR was made out to the buyers.

27. Mr. Ma relies on a passage in the 19th Edition of Scrutton on Charterparties and Bills of Lading at p.296 where it is stated:

"The shipowner or master is justified in delivering the goods to the first person who presents to him a bill of lading, making the goods deliverable to him, though that bill of lading is only one of a set, provided that he has no notice of any other claims to the goods, or knowledge of any other circumstances raising a reasonable suspicion that the claimant is not entitled to the goods. If he has any such notice or knowledge, he must deliver at his peril to the rightful owner, or must interplead. He is not entitled to deliver to the consignee named in the bill of lading, without the production of the bill of lading, and does so at his risk if the consignee is not in fact entitled to the goods."

28. He further relies on a passage at para. 20-070 in the 4th Edition of Benjamin's Sale of Goods where the following is stated:

"The presumption in section 19(2) (of the Sale of Goods Act) only applies where the goods are by the bill of lading deliverable to the order of the seller or his agent. One recent dictum suggests that the presumption may be displaced by naming the buyer as consignee. But it is respectfully submitted that, in such a situation, the statutory presumption simply does not arise, and that a seller should not be taken to have given up his right of disposal merely because the bill is made out to the buyer's order. This submission is based on the fact that retention even of such a bill of lading gives the seller considerable control over the goods; for the buyer is not normally entitled to demand delivery of the goods from the carrier without presenting the bill, while the seller is normally entitled to direct the carrier to deliver the goods to a different consignee. It therefore does not follow that property will pass on shipment merely because the bill of lading is made out to buyer's order. As Lord Summer said in a case involving a c.i.f. contract: "in spite of the insertion of the consignee's (i.e. the buyer's) name in the bill of lading, the intention to reserve the jus disponendi to the seller till the documents are taken up is manifested by the way in which the transaction is carried through with regard to the presentation of the documents." It is submitted that where the contract provides for payment against bill of lading the normal inference would be that the seller had reserved a right of disposal until payment in accordance with the contract had been made."

29. Mr. Ma also submitted that the whole of Mr. Reyes's submission ignored the whole purpose behind the DP arrangement. The D/P system is similar to the D/A system, the latter referring to "documents on acceptance". The latter system is referred to in para. 23-002 of Benjamin on Sale of Goods where one finds the following passage.

"A partial solution to both problems is to be found in the D/A (or "documents on acceptance") system. Its basis is the principle of treating documents of title as representing the goods to which they relate; the transfer of a document of title confers on the transferee both the property in and the right to the possession of the goods. The operation of the D/A system is as follows: after shipping the goods, the seller draws on the buyer a bill of exchange (or draft) for the price and attaches it to the document of title (usually a bill of lading), an invoice and, if the contract is on c.i.f. terms, an insurance policy. He then discounts the bill with his bankers. In this manner the seller obtains an amount similar to the price shortly after shipping the goods. The bankers present the bill of exchange to the buyer and release the documents to him against his acceptance. In this way the buyer obtains the documents of title and, through them, the property in the goods upon his accepting a bill of exchange for the price.

But the system has two shortcomings. First, the seller does not obtain an effective security. If the buyer accepts the bill but dishonours it subsequently by non-payment, the bankers will seek recourse against the seller. In point of fact, the buyer's acceptance of a bill of exchange is no more effective as a security than his promise in the contract of sale. Secondly, the D/A system does not always enable the seller to obtain credit or finance. If the buyer's name is not well known in the country of export, the seller may find it difficult to induce his bankers to discount the bill (or to grant him credit against it) before it is accepted by the buyer. Thus the D/A system does not provide a perfect solution to the problems of furnishing security and of raising credit."

30. There is a footnote to this passage which states as follows:

"This problem is less pronounced in the D/P (or "documents on payment") system, which provides for the release of the documents to the buyer against honour by payment of the seller's bill of exchange. But even in this type of arrangement, it may be difficult to discount or negotiate a bill drawn on a relatively unestablished buyer. Moreover, the buyer may not be able to honour a draft before the realisation of the goods."

31. It seems to me on this evidence clear beyond any doubt that the arrangement between the Plaintiff and the 1st Defendant was as set out in the fax dated 29th April 1992 which involved the FCRs being presented by the 1st Defendant to receive the cargo in exchange for any bills of lading covering the consignment. It seems to me quite clear that this fax records an agreement or understanding between the Plaintiff and the 1st Defendant and amounts to a direction that this is what is to happen in this case. Even so it seems to me that there is much force in Mr. Ma's submission that "unless the Plaintiff and the 2nd Defendant intended that the FCR in the present case would be the document which had to be presented in order for the goods to be delivered to the 2nd Defendant (in other words the document that would pass title to the 2nd Defendant) there would seem little point in the DP arrangement. The FCR is the document expressly referred to in the agreement between the Plaintiff and the 2nd Defendant. It is also the only conceivable document of title relevant to the DP arrangements in the present case".

32. The arrangement between the Plaintiff and the 1st Defendant was clear as could be and the 1st Defendant has acted in a manner quite contrary to that arrangement with the result that the goods were delivered to the 2nd Defendant without them having to make payment for it. The 1st Defendants have, in my judgment, frankly admitted their fault in this matter and I can see no possible defence to a claim based upon breach of duty/negligence and/or breach of contract. It seems to me that the 1st Defendant was a bailee of the goods dealt with by the Plaintiffs. There was a duty on their part to take care of the goods. That duty clearly involved the 1st Defendant appreciating that delivery of the goods could only take place against production of the FCR, against which itself payment had to be made. That duty was clearly breached and this was negligent and damage has been suffered. I am not impressed with the argument that the claim in negligence is unsustainable on the grounds that it is a claim for pure economic loss. It seems inconceivable to me that if the 1st Defendants had physically destroyed the goods there would be a claim but if, say, they threw them into the harbour and they were lost there would be no such claim. There was in this case, in any event, the clearest possible agreement between the Plaintiff and the 1st Defendant that delivery of the goods should not take place except upon presentment of the FCR by the 2nd Defendant; and payment by them at that time. The 1st Defendants acted in clear breach of a direct instruction to them.

33. As to Mr. Reyes's point about the parol evidence rule I need say no more than that there are many exceptions to it and I have in fact been referred to paras. 846 and 847 in Volume 1 of 26th Edition of Chitty. In any event, it does not seem to me that the Plaintiffs are prevented from relying upon the express arrangement entered into with the 1st Defendant a week or so prior to the issue of the FCR.

34. Having come to a clear view that the Plaintiffs are entitled to succeed on their claim based on contract and negligence, it is not necessary for me to express concluded view on the claim in conversion. However, in the light of the facts of this case, it seems to me that the 1st Defendants have dealt with these goods in a manner inconsistent with the rights of the Plaintiffs and that misdelivery is a classic case of conversion. This argument is based upon the simple fact that the Plaintiffs were entitled to keep possession of the FCR and thus the goods until the 2nd Defendant had paid. It seems to me entirely clear that the 1st Defendant well knew that delivery could only be affected against the FCR.

35. For all these reasons, I am quite satisfied that the Plaintiffs have established its right to summary judgment for the sum claimed together with interest thereon from 1st July 1992 until the date of judgment at the rate of prime plus 1 and thereafter at the judgment debt rate. I am not satisfied that the Defendant has shown any arguable defence and has not shown the need for the various matters contained in the documents to be dealt with at an oral hearing. I am also satisfied that the way which the 1st Defendants have dealt with this application for 0.14 in so far as the filing of evidence is concerned has been most unsatisfactory. There will also be an order nisi that the 1st Defendant do pay the costs of this action to the Plaintiffs.