XCHRX TRAFIGURA BEHEER B.V. AMSTERDAM v. CHINA NAVIGATION CO. LTD. and HARVEST FORTUNE SHIPPING LTD. (Third Party)

HCCL173/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.173 OF 1998

---------------

---------------

__________________

J U D G M E N T

__________________

The Application

1. This is an application by the Defendant, by summons dated 22nd October 1999, for specific discovery pursuant to Order 24 rule 7. The Defendant seeks discovery by affidavit of the policy or policies of insurance covering the cargo forming the subject matter of this action, together with correspondence between the Plaintiff and its insurer in respect of any claim made under the policy or policies.

2. The application is backed by an affidavit of Mr David Coogans sworn on 17th November 1999, and is opposed by an affidavit of Mr Christopher Kidd sworn on 25th November 1999.

The Factual Background

3. This can be stated in relatively short compass. The case itself focuses upon a claim for the alleged misdelivery at Hong Kong of a cargo of copper cathodes carried from Australia to Hong Kong on board the "Explorer" pursuant to Bill of Lading No.PTSV/HKG008 issued by the Defendant on 17th April 1998 at Townsville, Australia.

4. The cargo was discharged in Hong Kong and carried by the Notify Party, Harvest Fortune, to a warehouse in Panyu, Guangzhou. There appears to be no issue that the Plaintiff entered into a contract to sell the cargo to China Minmetals pursuant to a contract dated 8th May, and that after the sale the cargo remained at the buyer's warehouse, subject to a holding certificate confirming that the cargo was being held therein on behalf of the Plaintiff. However, before a letter of credit was opened, the cargo was apparently seized by the Public Security Bureau of the PRC.

5. The Plaintiff's case is that the cargo was misdelivered, without production of the Bill of Lading, by the Defendant to Harvest Fortune or its agent in Hong Kong prior to its carriage to Panyu, and claims against the Defendant for the value of the cargo consequent upon such misdelivery. The Defendant denies liability, arguing that as a matter of causation, the loss arose by reason of the seizure by the PSB and not by reason of the alleged misdelivery, which is itself denied, alternatively that the Plaintiff failed to mitigate its loss in recovering the cargo.

The Pleadings

6. The broad shape of the pleadings is thus : the Amended Points of Claim pleads a contractual misdelivery, alternatively breach of the duty qua bailee, alternatively conversion.

7. The Amended Points of Defence takes issue with the misdelivery allegation, asserting that delivery to Harvest Fortune was in accordance with the intentions of the Plaintiff, and prays in aid the contractual relationship entered into between the Plaintiff and China Minmetals, consisting of four separate contracts dated 7th and 29th April, 8th and 12th May 1998, the effect of which is alleged to constitute an authorisation and/or waiver and/or ratification of the delivery of the cargo absent production of the Bill of Lading. The causation issue is squarely raised (in various forms) in terms of a denial of loss or damage by reason of the alleged misdelivery, alternatively that the loss was caused by the Plaintiff's conduct, alternatively that the loss arose subsequent to discharge and that the Plaintiff is therefore exempted under the terms of the Bill of Lading. Somewhat unusually, it is also averred that the Plaintiff "still has ownership of the cargo and/or has or had the opportunity to sell it and/or to recover possession of it and/or to prevent its loss and/or confiscation".

8. Thereafter there is a claim as to the Plaintiff's failure to mitigate its loss (which turns on various aspects of the Plaintiff's contractual relationship with Minmetals), and in particular there is a plea that the Plaintiff had the opportunity to recover possession of the cargo by payment to Minmetals of a sum of money (but did not), and further that the cargo was seized by the PSB for non-payment of customs duties, liability for the payment of which lay upon the Plaintiff which "was aware or should have been aware" that, upon release of the cargo from bond for transportation, customs duties were payable and that if such were not paid, the cargo would be at risk of seizure by the PSB. Accordingly, failure to mitigate by payment of customs duties looms large in this case, and again it is alleged that the Plaintiff "remains the owner of the cargo and entitled to possession thereof and/or entitled to possession on its release, whether on terms or otherwise by the Public Security Bureau".

9. In response, the Amended Points of Reply joins issue on all the central planks of the Defence, alleging that the cargo was removed from the bonded warehouse by Minmetals and moved to Shanghai, as a result of which action the cargo was taken by the PSB on or about 12th July 1998 by reason of non-payment of customs duties which became payable upon release of the cargo from the bonded warehouse. Issue is squarely taken that causation of loss arose by reason of the Plaintiff's conduct or that the Plaintiff has failed to mitigate its loss, and in specific response to the allegation of failure to mitigate, the Plaintiff provides (at paragraph 7) a nine paragraph response, paragraph 7(6) particularising in seventeen subparagraphs the primary averment that "Despite reasonable efforts to recover the possession of the cargo, the PSB have refused to release the cargo and to all intents and purposes the cargo has been confiscated and/or sold and/or there is no reasonable prospect that the cargo will be released by the PSB".

The Argument

10. In his affidavit in support of the application seeking discovery of :-

(1) the insurance policies taken out by the Plaintiff; and

(2) correspondence between the Plaintiff and its insurers in respect of claims made under those polices,

Mr Coogans put his case squarely on the issue of relevance. The Defendant's contention, he said, was that the cargo had "not in fact been lost by the Plaintiff" but that the Plaintiff has"merely taken inadequate steps to obtain its return". Accordingly, submitted Mr Coogans, the relevance of the insurance policies and claim correspondence between the Plaintiff and its insurers "will deal with the steps taken by the Plaintiff in order to preserve their interest in the cargo", which in turn"goes to the root of the issue as to whether the Plaintiff has mitigated its loss or indeed whether the Plaintiff has suffered any loss at all". Moreover, given that the consequence of non-payment of customs duties lie on the Plaintiff pursuant to Clause 12(3) of the Bill of Lading, disclosure of the CEND insurance [Confiscation, Expropriation, Nationalization and Deprivation] "will provide details of the type of risk it was intended to cover and therefore directly to the Plaintiff's knowledge of those risks".

11. Mr Kidd on behalf of the Plaintiff took strong issue with the application, his fundamental point being that insurance issues were and are normally irrelevant, as indeed was the position in this case, and that in seeking the Plaintiff's correspondence with its insurers, the Defendant was simply "fishing". He submitted that in terms of the issues of causation and reasonableness of conduct/mitigation of loss, the matter had been comprehensively pleaded, so that at trial the Court was either going to be satisfied on the evidence as to the Plaintiff's pleaded assertions, or it was not. It followed therefore, said Mr Kidd, that the discovery of the CIF and CEND policies themselves would take the issue of the Plaintiff's knowledge of risk no further, and indeed there was no reference whatever to the CEND policy in the pleadings, the first occasion on which the point had arisen being in the affidavit leading the application.

12. The claims correspondence also was irrelevant, he asserted, the Defendant here aiming to fish "for evidence that the underwriters have not paid out under the insurance in the hope that such fact and any opinions expressed by the underwriters would colour the Court's view", in particular with regard to the steps taken to mitigate the loss.

13. If he be wrong in this, he further submitted, his client would in any event assert "common interest" privilege over the correspondence in question.

Decision

14. Having now had the opportunity to review in their entirety the pleadings, together with the evidence and skeleton arguments filed, I have decided not to grant this application.

15. So far as discovery of the two insurance policies are concerned, I find it difficult to grasp how the policies or their particular terms can be of assistance, either to the Court or to the Defendant, in the resolution of the issues in this case. Whether the cargo actually has been lost is a question of fact, whilst whether in the circumstances an insurance recovery has been achieved is of no relevance whatever in terms of whether, as a matter of law, there is proved to be a recoverable loss for breach of contract. Nor, in my view, will the policies assist in determining whether the Plaintiff has taken appropriate steps to mitigate its loss, or whether the steps that have been pleaded as being taken will be established on the evidence as justified.

16. I adopt the like approach, in terms of relevance, to the correspondence between the Plaintiff and its insurers. Matters of prejudice aside (to which this Court is resistant), I fail to see what interest there is to the Court, or indeed to the Defendant, in scrutinising third party correspondence even if the introduction of the such correspondence was not otherwise opposed on the grounds of privilege. In light of the pleaded case and upon the evidence led, the Plaintiff may win at trial even though underwriters may (I know not) have declined to pay the claim; equally, the Plaintiff may lose at trial after having effected recovery under the policy. In short, I do not accept that a third party's views on the issue, as reflected in any claims correspondence, can advance the matter one iota, and in my view this applies whether the issue is causation or that of mitigation of loss.

17. In terms of the CEND policy in particular, Mr Kidd specifically accepts that there is no issue that it was both known and appreciated that if goods entered China absent payment of customs duties, that there would be a risk of confiscation, but submits that the issue for decision is whether the Plaintiff could have paid the duty and/or whether this ought to have been done, and that both these matters will be canvassed upon the evidence, both factual and expert. I agree. Whether a claim has or has not been paid under the CEND policy, and for what reason, is in my view nothing to the point. Further, I think the argument is well made that there is no pleading which raises an issue as to the Plaintiff's knowledge in respect of the likely confiscation of the cargo, and that as a consequence the Plaintiff specifically sought to obtain a CEND policy. Nor, for that matter, is there any generally pleaded issue going to the question of the availability or fact of insurance.

18. At the end of the day, therefore, I am against the Defendant on this application, and in the circumstances I do not need to go on to consider the further ground of opposition canvassed by the Plaintiff, namely that of 'common interest' privilege asserted in terms of the claims correspondence between the Plaintiff and its underwriters, it being said that such correspondence will "inevitably comprise" material to enable insurers to submit to their legal advisers in order to enable the latter to provide advice and assistance in terms, for example, of whether to take over the conduct of anticipated litigation relating to this loss. I note that Mr Kidd specifically "reserved the right" to assert such privilege, had the Court otherwise been minded to order discovery of the material sought, and it seems to me that this aspect of the matter would not have been susceptible to decision in the abstract, but in all probability would have required a view by the Court de bene esse of the relevant correspondence prior to ruling on such privilege submissions as were developed. In the event, however, this course has proved unnecessary, since the discovery application has, so to speak, fallen at the first hurdle.

19. My Order on this application, therefore, is as follows :-

(1) The Defendant's application by summons dated 22nd October 1999 is dismissed;

(2) I make a costs order nisi that the costs of the application be to the Plaintiff in any event, to be taxed if not agreed.

20. I thank the parties for their assistance.