NEW OPTICS MANUFACTURING CO LTD v. LAP SHING (HONG KONG) FREIGHT FORWARDING LTD t/a LAP SHING COMPRESSING PACKING FTY

DCCJ 5193/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5193 OF 2005

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

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

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

J U D G M E N T

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

1.  The Plaintiff, New Optics Manufacturing Company Limited (hereinafter referred to as “New Optics”) claims against the Defendant, Lap Shing (Hong Kong) Freight Forwarder Limited trading as Lap Shing Compressing Packing Factory (“Lap Shing”) for unpaid balance of goods sold in the sum of US$21,844.06.

2.  Lap Shing is a freight forwarder which undertook the forwarding of 141 cartons of optical lenses sold by New Optics to Skyandy Polaroid Nigeria Ltd. (“Skyandy”) in January 2001.

Background

3.  New Optics has been selling optical products to a Nigerian Company Skyandy since 1997.  In or about 1998, Skyandy nominated Lap Shing to be its freight forwarder of all goods purchased from New Optics, the freight charges were paid by Skyandy.  In early 2001, New Optics agreed to sell 141 cartons of optical lenses to Skyandy for US$35,957.38 (“the goods”).  Again, the Skyandy nominated Lap Shing to be the freight forwarder of the goods.

4.  On 9 January 2001, Lap Shing collected the goods from New Optics and duly forwarded the goods by sea to Skyandy in Lagos, Nigeria.

5.  It is not disputed that the goods were packed into a container together with goods from other Hong Kong suppliers bound for Lagos, Nigeria; such an arrangement is known as ‘groupage container shipment’.  The carrier ‘Delmas’ left Hong Kong for Lagos on 18 January 2001 and arrived in Lagos in or around the end of February 2001.

6.  The goods were released to Skyandy in or about March 2001 after freight charges for the goods were received by its agent in Lagos from Skyandy.  New Optics, however, did not receive any payment for the goods except for a part payment in advance.  Subsequently, New Optics negotiated for the payment with Skyandy.  There were allegations from Skyandy that part of the goods were defective and could not be sold in Nigeria.  New Optics denied its goods were defective. 

7.  The Plaintiff’s claim, according to the Statement of Claim, is based on an agreement made between the Plaintiff and the Defendant to forward the goods to its customer Skyandy in Lagos.  The Plaintiff further claimed that Lap Shing had agreed not to release the goods to Skyandy until after the full payment of the goods and/or until the receipt of advice from New Optics.  New Optics further claimed that Lap Shing as a freight forwarder owed a duty of care to New Optics in the carriage or delivery of the goods to take reasonable care and to act in accordance with instructions and directions of New Optics not to release the goods to Skyandy until full payment had been received by New Optics or until advice from New Optics.  That Lap Shing was in breach of contract and failed in its duty by releasing the goods to Skyandy without prior consent of New Optics and to ensure New Optics would be paid in full by Skyandy before the goods were released.

8.  New Optics acknowledged that Skyandy had paid a deposit previously in the sum of US$9,113.32 and further that it had received a payment made through Lap Shing in the sum of US$5,000.  However, the sum of US$21,844.06 remained outstanding.  This is the sum New Optics is claiming against Lap Shing.

9.  Lap Shing’s defence is:-

(1) There was no forwarding agreement between the Plaintiff and the Defendant;

(2) Lap Shing had never agreed not to release the goods to Skyandy until advised by New Optics;

(3) Lap Shing did not owe any duty of care in the carriage of the goods from Hong Kong to Nigeria because the title and possession of the goods together with the risks of carriage had passed to Skyandy upon collection of the goods by Lap Shing in Hong Kong;

(4) New Optics had settled the dispute on payment of the goods with Skyandy before the commencement of this action by accepting from Skyandy the sum of US$4,500.00.

The Issues

10.  (1)   Was there a freight forwarding agreement between the Plaintiff and the Defendant?

(2) Was there an agreement by Lap Shing not to release the goods until advised by New Optics to Skyandy; and, if there was, was the agreement binding on Lap Shing?

(3) Does Lap Shing owe a duty to New Optics as the bailee of the goods?

(4) Is Lap Shing liable if New Optics had settled the payment dispute for the goods with Skyandy?

(1) Was there a freight forwarding agreement between the Plaintiff and the Defendant

11.  It is not disputed that the freight forwarding agreement was entered between Skyandy and the Defendant.  New Optics agreed that Lap Shing had been the nominated freight forwarder of its customer Skyandy since 1998.  It is further not disputed that freight charges throughout the period were paid by Skyandy, the purchaser of the goods.  According to the evidence of Mr. Ken Cheng (“Ken”), Lap Shing’s manager, Lap Shing had since 1998 arranged for the forwarding of goods purchased in Hong Kong by its Nigerian customers including companies such as: Lasitkon, Joelife, Netzjon and Skyandy.  After Skyandy purchased goods in Hong Kong it would instruct Lap Shing to pick up the goods from the supplier.  Lap Shing would then pack the goods and arrange for its carriage by groupage container shipment from Hong Kong to Nigeria.  Upon the arrival of the shipment in Lagos, Lap Shing’s agent in Lagos (which it referred to as the notify party) would collect the freight and handling charges from various customers with goods in the same container.  In turn, Lap Shing would receive its share of the freight charges for the particular cargo in the groupage container shipment. 

12.  According to Ken’s evidence, for each freight delivery, the relevant bill of lading would be passed on to the agent in Lagos who upon receiving the freight charges for all the customers in the same shipment would hand over the bill of lading to the consignee named within 2 or 3 days.  As delivery was by way of groupage container shipment with goods belonging to different Nigerian customers, the consignee named in the bill of lading would be the customer with the largest volume of goods in the particular shipment.  The consignee named would then collect the cargo in the container and the other customers who had goods in the same container shipment would collect their respective goods from the consignee named in the bill of lading.  According to Ken, this practise was and is satisfactory to the Nigerian customers because they all knew each other well and accepted the arrangement.  Lap Shing claimed that the release of goods to various customers in Lagos was not within its control because once freight charges were collected by its agent, the bill of lading would be passed on to the consignee.  The agent in Lagos would compile a payment list of freight charges and send it to Lap Shing.  Lap Shing, on the other hand, would not receive the payment of freight charges until the agent remit the money collected or sent it by courier in US dollars to Lap Shing in Hong Kong. 

13.  Mr. Cheung, Counsel for New Optics, expressed at the hearing that New Optics is no longer claiming the forwarding agreement was entered between New Optics and Lap Shing.  The decision is a correct one because based on the delivery note dated 9 January 2001 and the evidence of Mr. Ha, Lap Shing took delivery of the goods from New Optics not because there was a freight forwarding contract between them but because Lap Shing had received instructions from Skyandy to forward the goods to Lagos.  Clearly, the forwarding contract was between Lap Shing and Skyandy.  There was no contractual relationship between New Optics and Lap Shing. 

(2)   Was there an agreement by Lap Shing not to release the goods to Skyandy until advised by New Optics; and, if there was, was the agreement binding on Lap Shing

14.  Mr. Ha Chuen Pong (“Ha”), a director of New Optics, alleged that since 1998 when its goods began to be forwarded to Skyandy in Lagos through Lap Shing, his practice was to contact Lap Shing for pick-up arrangements and New Optics would always request Lap Shing to collect payment for the goods before release of goods to Skyandy in Lagos or to wait for New Optics’ advice before release of goods in Nigeria.  In early 2001, after Skyandy placed the order for 141 cartons of optical lenses from New Optics, Ha called up Ken to arrange for collection of the goods.  During that conversation, he asked Lap Shing to collect the balance of the payment of goods before releasing the goods to Skyandy.  He claimed that Ken had agreed to collect the balance of payment on New Optics’ behalf and/or not to release the goods until he was instructed to do so by New Optics.  He relied on the delivery note dated 9 January 2001 (page 1 of the documents bundle) for goods ordered under invoice No. E-1223 by Skyandy with the remarks:

“Please don’t release the Goods to “SKYANDY” until our advice.” 

The receipt was acknowledged by the endorsement in Chinese 「車場過櫃」 (car park transferred to container).  It was dated 10 January 2001.

15.  Ha claimed that the only reason he agreed to send the goods to Lap Shing to ship to Lagos was because he understood Lap Shing had a warehouse in Lagos and it would store the goods on New Optics’ behalf upon arrival of the shipment to Lagos.  He claimed that if Lap Shing had not agreed to collect payment for the goods or wait for New Optics’ instructions before releasing the goods, New Optics would have entrusted the goods to another freight forwarder who would accept the said conditions.  It was based on this practice and on such an understanding that New Optics did not actively pursue the collection of the balance of payment for the goods until June 2001 when it discovered it had not received the balance of payment from Skyandy.  Ha then contacted Ken to enquire the whereabouts of the goods and the collection of the balance of payment.  However, he was told by Ken that the goods had already been released to Skyandy. 

16.  Ken, on the other hand, denied he was under any obligation to collect payment for the goods on New Optics’ behalf.  He emphasized that his customer was Skyandy not New Optics.  Furthermore, as the type of freight forwarding engaged was by groupage container shipment where a number of purchasers of goods shared the same container and the one with the largest volume of goods was named the consignee in the bill of lading, upon arrival of the shipment in Lagos, the other purchasers sharing the same container would obtain their own goods from the consignee named.  It is therefore not for Lap Shing to dictate when the consignee named should take delivery of the shipment nor would Lap Shing know when the goods would be released to Skyandy until it was informed by its agent in Lagos.  He further claimed that on 9 January 2001, he did not promise Ha he would obtain payment for the goods for him nor did he agree to withhold the goods until payment.  He claimed further that Lap Shing did not and does not have a warehouse in Lagos.  His agent in Lagos would only store the shipment in a warehouse if the consignee failed to pay the freight charges on time and the consignee would be required to pay the storage charges in such a case.  He explained that it is impossible for him to store any goods of New Optics if New Optics’ customer in Lagos failed to pay for the goods indefinitely because there was no agreement between New Optics as a seller of the goods and Lap Shing as a forwarder to make New Optics liable for the warehouse charges.

17.  According to Ha’s evidence, Lap Shing had in the past, collected payments from Skyandy for New Optics.  On the other hand, Lap Shing’s manager, Ken claimed that the collections were specifically requested by New Optics after the cargo had been released.  Lap Shing had asked its agent in Lagos on those occasions to collect payment for goods sold by New Optics and charged a 2% commission for the service.  With reference to the particular payment made by Skyandy through Lap Shing, Lap Shing was informed by its agent in Nigeria that Skyandy had made a payment of US$5,000 and Lap Shing was asked to forward it to New Optics.  That was why on 1 August 2001, Lap Shing issued a cheque for the sum of HK$38,000, equivalent to US$5,000, to New Optics.  Lap Shing had no idea which shipment of goods the particular payment was for. 

18.  After hearing the evidence of Mr. Ha and Ken and considering the documents exhibited, I cannot find any contractual relationship between New Optics and Lap Shing in respect of the 9 January 2001 shipment.  The freight forwarding contract was made between Skyandy and Lap Shing.  Freight charges were paid by Skyandy to Lap Shing through Lap Shing’s Nigerian agent under the groupage container shipment arrangement.  Lap Shing had no control when the goods in the container would be released to the consignee named in the bill of lading.  Though Lap Shing’s agent in Lagos may have some control over the release of the goods, Lap Shing, as the freight forwarder, had no knowledge of when freight charges would be paid by the consignee and all the other buyers of goods shipped in the same container.  Under such circumstances, Lap Shing or its manager Ken was in no position to promise New Optics that its Lagos agent would not release the goods until advised by New Optics.  Lap Shing was not under a contractual obligation to collect payment for the goods on New Optics’ behalf.  Lap Shing was not an agent of New Optics, neither was Lap Shing in the position to know what was the outstanding balance for the goods ordered by Skyandy.  There was no evidence from Mr. Ha that he had informed Ken what was the outstanding balance during their conversation on 9 January 2001.  There was no evidence that they had any further conversation over this particular cargo subsequent to 9 January 2001 until June 2001.

19.  There was no agency agreement between New Optics and Lap Shing nor was there a contractual relationship between the two supported by consideration.  Therefore, even if New Optics might have requested Lap Shing in some of its previous transactions and Lap Shing might have agreed to pass the request on to its agent in Lagos on such previous occasions and had obtained payments through its Lagos agent for Skyandy, these were done only under specific requests.  Lap Shing did on these special occasions charged a commission of 2%.

(3)  Did Lap Shing owe a duty to New Optics as a bailee of the goods

20.  New Optics’s claim is on the basis that Lap Shing was the bailee of the goods.  It was not specifically pleaded in the Statement of Claim, but it was part of the submissions of Mr. Cheung, Counsel for the Plaintiff.  Such a claim is made under negligence in respect of the loss of the goods.  In this respect, New Optics must show it possessed the legal ownership of the goods or the possessory title at the time of the loss of the goods in order to succeed.  At paragraph 682 of Halsbury’s Laws of England Volume 5(1) 4^th edition page 583 it states:

“To recover damages in tort for negligence in respect of loss of or damage to goods, a claimant must show that he had either the legal ownership of the goods or a possessory title to them at the time of the loss or damage.  Mere equitable property is insufficient unless accompanied by a possessory title.  For this purpose, a possessory title may include a right of possession as well as possession itself.”

21.  It is not disputed that the sale contract between New Optics and Skyandy was a f.o.b. (free on board) contract where Skyandy was responsible for arranging payment for the freight charges of the goods from Hong Kong to Lagos (see Skyandy’s email on the sale contract on p.162 of the bundle).  Under a f.o.b. contract, ownership and risks in the goods would have passed to Skyandy upon collection of the goods from New Optics in Hong Kong.

22.  Paragraph 355.311 at page 411 of Halsbury’s Laws of Hong Kong, Volume 23 (2004 edition) states:

“[355.311] Commercial nature of f.o.b. contracts Where goods are sold f.o.b. (free on board), the duty of the seller is to deliver the goods on board ship at the contractually appointed port at his own expense for carriage to the buyer.  The contract of carriage may be made by the buyer himself or by the seller on the buyer’s behalf, and the buyer is liable for the freight and prima facie all charges subsequent to delivery on board.  If the f.o.b. contract does require the seller to make the contract of carriage or is silent as to who should make it, the seller’s duty is then to give up possession of the goods to the ship upon the terms of a reasonable and ordinary bill of lading or other contract of carriage.”

23.  The Hong Kong Sale of Goods Ordinance Cap. 26 sections 19, 20 and 21 provide:

“Section 19

“(1) Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.

(2) For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties, and the circumstances of the case.”

Section 20

“Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer-

Rule 5.(1) Where there is a contract for the sale of unascertained or future goods by description, and goods of that description, and in a deliverable state, are unconditionally appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer.  Such assent may be express or implied, and may be given either before or after the appropriation is made.

(2) Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract.”

Section 21

“(1) Where there is a contract for the sale of specific goods, or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled.  In such case, notwithstanding the delivery of the goods to the buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled.

(2) Where goods are shipped, and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal.”

24.  Paragraph 18-211 on page 1330 of Benjamin’s Sale of Goods 7^th edition, the learned author commented on the equivalent sections of the Hong Kong Sale of Goods Ordinance sections 20 and 21 in the English Sale of Goods Act 1979 :

“In overseas sales, the passing of property thus depends primarily on the provisions of the contract, the form of the shipping documents, and the way in which the documents have been dealt with.”

Provisions of the contract

25.  According to the evidence of Mr. Ha, the sale and purchase agreement with Skyandy is found in the invoice No. E-1223 (page 253 of bundle C).  There is nothing in this document that provided for the seller reserving the right of disposal of the goods.  Furthermore, according to Mr. Ha’s evidence, in his communication with Skyandy there was no reservation of right of disposal nor were there any evidence that Skyandy had agreed with New Optics that the goods should not be released until New Optics had paid in full.  In any event, the practice between New Optics and Skyandy was that Skyandy’s various orders were settled by a continuous flow of payments. i.e. Skyandy’s surplus payments would be put on account after settling the balance of outstanding payments for previous orders placed. 

The Form of shipping documents

26.  According to the evidence of Ken, the consignee named on the bill of lading would be the customer who had the largest volume of goods in the container shipment on 9 January 2001.  The consignee named was a company called Judeak Ventures Ltd. (page 266 of bundle C).  Clearly, the bill of lading was not issued to New Optics or to the order of New Optics. 

How the bill of lading was dealt with

27.  Upon payment of all freight charges, Lap Shing’s agent in Lagos would release the cargo to Judeak the consignee named who was given the bill of lading for collection of the cargo.  New Optics had no part to play so far as the bill of lading was concerned.

28.  If New Optics was responsible for the freight charges, it may be possible to regard New Optics to have reserved the right of disposal of goods.  However, in the present case, New Optics was not the consignee named on the bill of lading nor was New Optics responsible for the freight charges.  There was nothing in the invoice from New Optics to Skyandy to indicate the seller had reserved the right of disposal of the goods.  Consequently, New Optics could not have retained the legal ownership of the goods or the possessory title to the goods when the goods were released to Lap Shing, by which act, title to the goods had passed to Skyandy.

29.  As a result, Lap Shing did not owe a duty of care to New Optics who had no legal ownership or possessory title to the goods.  It was the bailee for Skyandy not for New Optics.

30.  Mr. Cheung argued that the onus is always on the bailee whether he be a bailee for reward or a gratuitous bailee to prove that the loss of any goods bailed to him was caused by any fault of his or any officer, servant or agent to whom he entrusted the goods for safe keeping, relying on the judgment of the Privy Council in the case of Port Swettenham Authority v. T.W. Wu and Co. (M) SDN. BHD. [1979] AC 580 at page 590A to C.  I do not doubt the binding effect of this case.  However, in that case, the Privy Council was referring to an action where the owner of the goods claimed against the bailee whom the owner entrusted the goods and had paid the bailee a reward for looking after the goods.  In the present case, ownership of the goods had passed when Lap Shing collected the goods from New Optics on 9 January 2001.  Both legal ownership and possession of the goods had therefore passed to Skyandy as the purchaser of the goods.  Lap Shing was the bailee for Skyandy.

31.  Mr. Cheung submitted that title of the property and risks did not pass upon delivery of the goods to Lap Shing because there was no evidence produced on the agreement reached between New Optics and Skyandy.  I cannot agree.  The burden is on New Optics to produce the terms of the agreement if New Optics is relying on a right of ownership by reservation of the right to release the goods to the purchaser.  On the contrary, the evidence produced, such as the invoices and the official receipts, contained no such terms.  Therefore, it must be concluded that no such terms existed between Skyandy and New Optics so far as this order was concerned. 

(4)   Is Lap Shing liable if New Optics had already settled the payment dispute with Skyandy

32.  Lap Shing claimed that New Optics had in fact settled the payment dispute with Skyandy in the sum of US$4,500.00.  Lap Shing produced various emails exchanged between Ken and Skyandy in support of the allegation.  New Optics denied there was any settlement with Skyandy.  Mr. Cheung referred to section 7 of the Civil Liability (Contribution) Ordinance Cap. 377 and submitted that a person who is jointly liable in respect of the debt or damage is not discharged for the liability of the debt or damage even if there was a release or accord with the person liable in respect of it unless the release or accord provided for it.

33.  Lap Shing claimed Skyandy had refused to pay for the goods because the goods were defective and New Optics had negotiated with Skyandy for a settlement of the payment outstanding in its running account with Skyandy.  It is not disputed that New Optics and Skyandy had an ongoing business relationship since 1997 and Skyandy had paid various sums of money on account with New Optics as deposits for the orders placed with it.  Payments made by Skyandy were managed regularly on a replenishment basis.  It is not intended for each payment to be identified in respect of each order placed.  It is the evidence of Mr. Chan Ka Man, the accountant of New Optics, that New Optics had adopted a first-in-first-out principle, meaning that the practice was to apply the payments from Skyandy to settle the longest outstanding invoices and if there was a surplus, New Optics would apply it to more recent invoices.  From the documents produced by the Plaintiff including the invoices and accounts relating to Skyandy, it seemed that this practice of first-in-first-out had not been closely adhered to.  Mr. Ha admitted he had only calculated the accumulative figure on Skyandy’s account with New Optics in the present claim of US$21,844.06.

34.  On the basis of the aforesaid evidence, clearly, New Optics’s claim in these proceedings should be sorted out between New Optics and Skyandy.  Lap Shing is not privy to any of the information on Skyandy’s account with New Optics.  Lap Shing is further, not privy to the terms of settlement between New Optics and Skyandy.  As observed by Skyandy in the emails exchanged with Ken, the sale and purchase contract between New Optics and Skyandy was a matter entirely between the two parties to the contract.  I fail to see how Lap Shing could be made jointly liable for the debt.

Conclusion

35.  I cannot find a contractual relationship between New Optics and Lap Shing.  Lap Shing was the nominated freight forwarding agent for Skyandy with freight charges paid by Skyandy entirely.  It was not an option opened to New Optics to chose which freight forwarder to use because the choice and nomination belonged to Skyandy.

36.  There was no evidence that New Optics had retained possession or the legal title to the goods.  On the basis that the contract was a f.o.b. contract, the possession of the goods together with the risks involved had passed to Skyandy upon delivery to Lap Shing.  Lap Shing was the bailee for Skyandy not New Optics.  Consequently, Lap Shing did not owe New Optics a duty of care when the goods were released to Skyandy by Lap Shing’s agent in Nigeria.

37.  Lap Shing might have in the past under specific requests by New Optics collected payments from Skyandy subsequent to the release of goods, on those occasions, Lap Shing had charged a commission of 2%.  This indicated that on those special occasions there was an agreement to collect payment with consideration for the specific service rendered by Lap Shing.  Other than those specific occasions, there was no evidence produced to show that it was a standing practice for Lap Shing to act as a collecting agent for New Optics in each and every transaction between New Optics and Skyandy.  Furthermore, the evidence showed it would not have been possible for Lap Shing to have collected payment for the goods because Lap Shing was not privy to the state of Skyandy’s account with New Optics unless there was a specific request after New Optics’s accounts department calculated the exact amount and Lap Shing was told of it for collection.  I find there was no obligation or duty under contract or tort on Lap Shing’s part to collect payment for New Optics or to withhold the release of the goods pending instruction from New Optics.  For the aforesaid reasons, I dismiss the Plaintiff’s claim.

Costs

38.  Costs nisi – Costs should follow the event and the Plaintiff shall pay the Defendant’s costs to be taxed if not agreed with certificate for Counsel.