MAU WING INDUSTRIAL LTD v. ENSIGN FREIGHT PTE LTD AND ANOTHER

HCCL 27/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 27 OF 2008

(Transferred from HCA No. 1229 of 2008)

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BETWEEN

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J U D G M E N T

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This action

1.  The principal question with which the court is concerned in this action is whether the contractual carrier, which is admitted to be liable for breach of contract for delivery of cargo without presentation of an original bill of lading, is entitled to limit its liability by reference to a clause within the terms and conditions on the reverse of the bill of lading containing or evidencing the contract of carriage.

2.  If the answer is ‘yes’, this raises the correlative question of whether the plaintiff can invoke the terms of the Control of Exemption Clauses Ordinance, Cap 71.

The factual background

3.  The facts are in relatively short compass.

4.  The plaintiff, Mau Wing Industrial Ltd (‘Mau Wing’) is an Hong Kong trading company. The 1^st and 2^nd defendants, Ensign Freight Pte Ltd and Ensign Freight Ltd, respectively incorporated in Singapore and Hong Kong, are related companies within the Ensign Group which carry on business as freight forwarders; there is no dispute that carrier under the contract of carriage in question in this case either was the 1^st or the 2^nd defendant. Later in this judgment I shall have to find which of these two entities was the contractual carrier, but for immediate narrative purposes this does not greatly matter.

5.  What happened was this.

6.  By a contract of carriage contained in or evidenced by a bill of lading made out ‘To Order’, the plaintiff engaged the 1^st or 2^nd defendant to carry 3 containers of garments from Singapore to Felixstowe, on the south coast of England.

7.  The goods forming the subject-matter of this claim comprised a total of 2,375 cartons of knitted pullovers shipped in containers numbered CBHU3838262 (350 cartons), CBHU9977060 (1,159 cartons) and TCKU9855116 (1,126 cartons), which had been ordered by the English purchaser, one Karma Clothing Ltd (‘Karma’).

8.  An English company called PFE Express Ltd (‘PFE’) was named as ‘Notify Party’ in the bill of lading, and acted as the defendants’ delivery agent at the port of discharge.

9.  In order to arrange carriage of these goods to England, the plaintiff contacted one RAF International Forwarding Ltd in Hong Kong, and on or about 20 September 2007, the plaintiff appointed RAF International Forwarding (S) Ptd Ltd (hereafter ‘RAF Singapore) as its agent to book the shipment of the goods from Singapore to England. RAF Singapore in turn approached the 1^st defendant setting out details of the shipment and requesting that the 1^st defendant advise the booking confirmation.

10.  Confirmation of the booking was forthcoming on 21 September 2007, and on 24 September 2007 the 1^st defendant sent RAF Singapore a draft bill of lading, at the foot of which the 1^st defendant was identified as ‘Carrier’. RAF Singapore then revised the bill of lading and returned it to the 1^st defendant; later on the same day, 26 September 2007, the 1^st defendant sent the revised bill of lading, with the inclusions and amendments as requested by RAF Singapore, and a debit note for services to be rendered. Thereafter RAF Singapore notified the 1^st defendant that all was in order, and instructed that the shipment should proceed on the basis of the bill of lading as thus amended.

11.  Loading of the goods into the containers was monitored by a representative from RAF Singapore, and pursuant to the bill of lading the 3 containers – one of 20 foot and two of 40 foot – were loaded on board the M.V. “TSING MA BRIDGE” for shipment to England.

12.  Following arrival of the vessel at Felixstowe, the goods were delivered to Karma, the buyer, without production of an original bill of lading, but against a letter of indemnity obtained by the defendants’ agents, PFE, from Karma, the opening paragraphs of which read:

“The above referenced Consignment was shipped to us by Mau Wing (and consigned to us) but the relevant Bill of Lading has not yet arrived.

We hereby request you to deliver such goods to Fashion Fast on Tuesday 16/10/07 without production of the Bill of Lading.

In consideration of your complying with our above request, we hereby agree as follows:

To indemnify you and hold you harmless in respect of any liability, loss or damage of whatsoever nature which you may sustain by reason of delivering the goods to Fashion Fast in accordance with our request.

To pay you on demand the amount of any loss or damage which the Master and/or Agents of the Vessel or any other of your Servants or Agents whatsoever may incur as a result of delivering the goods as aforesaid….”

13.  The evidence indicates that the 3 containers were hauled by road and delivered to the premises of Fashion Fast in Stoke-on-Trent on 16 October 2007 and 17 October 2007.

14.  As the letter of indemnity issued by Karma indicates, there was no question of the goods being delivered against an original Bill of Lading, which throughout remained in the possession, actual or constructive, of the plaintiff. In fact, the Bill of Lading was sent by the plaintiff to the Hang Seng Bank, but ultimately it was returned to the plaintiff, together with other relevant documents, when the bank declined to make payment under the LC which, at Karma’s request, had been opened to make payment for the goods.

15.  On or about 9 November 2007, RAF informed the plaintiff that the goods had been released to, and on the instructions of, Karma on the strength of the Letter of Indemnity dated 12 October 2007.

16.  Karma is now insolvent.

17.  The invoice value of the goods was US$283,093.70. The plaintiff has not been paid the price – hence this claim against the defendants.

The viva voce evidence

18.  Three witnesses gave brief viva voce evidence: for the plaintiff Mr Mok Pui Cheung, the Financial Manager of Mau Wing, and for the defendants, Mr Lee Kam Fai and a Miss Dodo Lai Ying-Yee.

19.  Mr Mok struck me as an obviously truthful witness, and I accepted his evidence. He related how the plaintiff had received an order for goods from Karma in England in May 2007, and, in accordance with its usual practice, the plaintiff had contacted its own forwarder, RAF Hong Kong, for assistance in arranging this shipment; in turn RAF Singapore had approached the 1^st defendant by way of a shipping order dated 20 September 2009. Mr Mok also confirmed the facts surrounding the issue of the bill of lading, and deposed to the invoice value of the goods in question. He recounted the steps that he had taken following receipt of the information that the goods had been released to the buyer in England on the strength of the letter of indemnity issued by Karma, and specifically denied the suggestion as put to him that there was an existing practice whereby Karma was permitted to take delivery of shipments absent production of an original bill of lading.

20.  Mr Lee, a director of the 1^st defendant, gave evidence that Ensign Singapore acted as agent for Ensign Hong Kong; in cross‑examination he said that Ensign Singapore never entered into contracts of carriage qua principal, always acting as agent for the Hong Kong entity. He accepted that all experienced freight forwarders know that goods should be released only upon presentation of an original bill of lading, and he further accepted that he, and indeed the shipper of the goods and holder of the relevant bill of lading, had had no reason to suspect that there was any risk that PFE would release the goods in question without presentation of such an original bill. He said that he personally would not allow goods to be released against a letter of indemnity, and that such would be a “breach of conduct” of a freight forwarder: “it’s not good practice”. His view was that if RAF wanted to send these goods on board the “TSING MA BRIDGE” that they had had to accept the terms on the back of the bill of lading as issued.

21.  I see no reason not to accept Mr Lee’s evidence.

22.  Ms Dodo Lai, who was a late witness and was permitted, upon Mr Sussex’s application, to be called without provision of a witness statement, gave evidence that Ensign Singapore charged PFE an amount exceeding the amount which it was obliged to pay the ocean carrier. She said that the commercial relationship between the Ensign Group and PFE had commenced from the first day of the Ensign Group’s operations in December 1986, and she also gave evidence in relation to the terms upon which PFE dealt with Ensign Singapore and Ensign Hong Kong. There was nothing surprising or unexpected in this evidence, which once again I see no reason not to accept at face value.

23.  In fact, it is fair to say that the evidence of these three witnesses did not add greatly to the sum of knowledge in this case, nor did such evidence provide altered perspective or deviation from the essentially undisputed facts of this case, the resolution of which primarily depends upon decisions of this court upon specific matters of law.

24.  Save for the closing submissions, the expedition and good sense of counsel ensured that the substance of this hearing was concluded in less than one full day.

The issues

(i) Identity of the contractual carrier

25.  Mr Sussex SC, appearing for the defendants, says that the contractual carrier was the 1^st defendant, the Singapore company. He points to the bill of lading, which was signed and chopped by the 1^st defendant “as Carrier”. Thus, although the bill of lading on its printed face identifies the 2^nd defendant as “the Carrier”, and Clause 1 of the terms and conditions on the reverse of the bill defines “Carrier” to mean the 2^nd defendant, he submitted that by expressly signing “as Carrier” the 1^st defendant must be taken to have contracted on the terms of the bill of lading, and that references to “the Carrier” therefore must be taken to be the 1^st defendant.

26.  For his part Mr Wright, who appears for the plaintiff, did not forcefully argue the point, not least since, as he correctly observed, the carrier under the contract of carriage evidenced by the bill of lading must be either the 1^st or the 2^nd defendant; presumably, however, he favoured characterization of the 2^nd defendant as carrier, if only for enforcement purposes.

27.  In the context of this case it remains necessary to decide this point, even if, save for potential judgment enforcement considerations, it is not of great practical significance. Nevertheless after reflecting on all the circumstances of the case, I have concluded that the 1st defendant is to be regarded as the contractual carrier.

28.  Whilst the bill of lading is in what I assume to be the standard Ensign Freight Ltd printed form, with the name of that company, and underneath the legend “as the Carrier”, at its head – and with, as Mr Sussex has pointed out, the definition clause in Clause 1 expressly confirming this status – nevertheless the ineluctable fact is that the bill of lading expressly is signed, and chopped, by Ensign Freight Pte Ltd “as Carrier”, and not “as Agent”, and the factual matrix surrounding the carriage of goods ex Singapore undoubtedly informs the signing of the bill of lading by the Singaporean sister company of the 2^nd defendant. Accordingly, it seems to me that it is difficult in this particular factual matrix not to regard this as essentially a Singaporean contract of carriage, notwithstanding the pre-printed form of the bill; I bear in mind also that this was a document the express terms of which were settled by RAF Singapore before being returned to the 1^st defendant.

(ii) Liability for delivery absent production of original B/L

29.  There can be no serious dispute but that the 1^st defendant (or, if I am wrong in the foregoing classification of the contractual carrier, the 2^nd defendant) is liable for breach of the contract of carriage and conversion of the goods delivered to Karma without production of the original B/L. There is a considerable amount of jurisprudence on this point: see, for example, Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576; The “Sormovskiy 3068” [1994] 2 Ll Rep 266; The “Ines” [1995] 2 Ll Rep 144; Motis Exports Ltd v Dampskibsselskabet AF 1912 [2000] I Ll Rep 211; Centre Optical (Hong Kong) Ltd v Jardine Transport Services Ltd [2001] 2 Ll Rep 678.

30.  Mr Sussex SC does not, of course, demur from this fundamental proposition.

31.  He observes that it was a term of the bill of lading contract that goods would be delivered at Felixstowe against presentation of an original B/L, and accepts that this did not happen, because PFE, which was the entity identified in the B/L as the party to whom application should be made for delivery of the cargo at Felixstowe, actually delivered the cargo without requiring presentation of an original B/L, and instead accepted a Letter of Indemnity from the Notify Party identified on the face of the B/L.

32.  Thus, Mr Sussex continued, it had to be accepted that PFE was the 1^st defendant’s delivery agent, and whilst there is nothing to suggest that either of the defendants expressly authorized PFE to part with the cargo without production of the B/L – in fact, it was clear that the 1^st defendant had not known about this until after the event – nevertheless he accepted that that which PFE had done amounted to a breach of the contract contained in or evidenced by the B/L, and that the 1^st defendant, qua carrier, thus was liable for that breach.

33.  In this analysis Mr Sussex once more must be correct.

34.  He also accepts that Clause 11.1 on the reverse of the bill of lading, which is a contractual exclusion clause, is not competent to exclude liability for that breach; this clause reads, in material part:

“…The Carrier shall not be liable for any damage to, loss, misdirection or misdelivery of goods or any other claims, unless it is proved that such damage, loss, misdirection, misdelivery or any other claims are caused by the negligence of the Carrier, its servants, agents or sub-contractors. In any event, the liability of the Carrier shall not exceed those limits as set out in Clause 11.3.”

35.  Thus, leading counsel concluded, “the only significant question”, given that the carrier was liable for breach of contract by reason of delivery of the goods without production of an original B/L, is whether the carrier is able contractually to limit (as opposed to exclude) its liability?

36.  As Mr Sussex observed, this is the central debate in this case, and it is to this issue to which I now turn.

(iii) Clause 11.3 of the Bill of Lading: the limitation clause

37.  Clause 11.3 of the bill of lading, in material part, is in the terms following:

“For those liability which cannot be exempted or excluded by any other terms in this Bill of Lading, the liability of the Carrier howsoever arising shall in no event exceed a sum of whichever is the lower of:

US$500 per package or unit of; or

US$2 per kilogram of the gross weight of

the goods or any other properties lost, damaged, misdirected, misdelivered or in respect of which a claim is made provided that the Carrier’s liability whatsoever shall in no circumstance exceed a total sum of US$250,000 per event or events arising from a common cause….”

38.  Clause 11.4 embodies a ‘contracting out’ provision of the Clause 11.3 limitation. It reads:

“The Carrier may accept liability in excess of the limits set out in Clause 11.3 provided that (i) the value of the goods has been declared in writing by the shipper and accepted by the Carrier before the goods are received by the Carrier and (ii) the Merchant pay to the Carrier additional charges as decided by the Carrier. Details of the additional charges will be provided upon written request by the shipper. The declared value accepted shall be stated on the front page of this Bill of Lading and shall be the Carrier’s limit of liability and shall replace the limits of Clause 11.3”.

39.  Mr Sussex’s thesis may be shortly stated.

40.  He says that the attitude of the courts toward limitation clauses is not as hostile as their clearly adverse disposition towards exclusion clauses purporting to exclude liability for a cardinal or key obligation – as to which see the seminal judgment in this jurisdiction of Ribeiro PJ in the recent case of Carewins Development (China) Ltd v Bright Fortune Shipping Ltd [2009] 3 HKLRD 409, where on the facts of that case even the words of the breadth of “the Carrier shall be under no liability in any capacity whatsoever for loss of or misdelivery of or damage to the Goods howsoever so caused whether or not through the negligence of the Carrier, his servants or agents or sub contractors…” were held to be insufficient to let the Carrier ‘off the hook’ in a situation wherein the defendant had delivered the goods in question without presentation of the straight bills of lading issued with respect to those goods.

41.  The difference between exclusion clauses on the one hand and limitation clauses on the other, leading counsel maintained, was that the limitation clause was a significantly ‘lesser’ animal, and sought to do no more than to place a cap upon the potential quantum accruing from any liability.

42.  Thus, in Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964, Lord Wilberforce had observed (at 966G-H):

“Clauses of limitation are not regarded by the courts with the same hostility as clauses of exemption: this is because they must be related to other contractual clauses, in particular to the risks to which the defending party may be exposed, the remuneration which he receives, and possibly also the opportunity of the other party to insure…”

43.  In the same case Lord Fraser said much the same thing; regarding limitation clauses his Lordship observed (op cit., at 970D-F):

“Such clauses will of course be read contra proferentem and must be clearly expressed, but there is no reason why they should be judged by the specially exacting standards which are applied to exclusion and indemnity clauses. The reason for imposing such standards on these clauses is the inherent improbability that the other party to a contract including such a clause intended to release the proferens from liabilitythat would otherwise fall upon him. But there is no such high degree of probability that he would agree to a limitation of the liability of the proferens, especially when… the potential losses that might be caused by the negligence of the proferens or its servants are so great in proportion to the sums that can reasonably be charged for the services contracted for. It is enough… that the clause must be clear and unambiguous…”

44.  In the context of this argument Mr Sussex pointed out that a freight forwarder, such as the defendants in this case, have minimal knowledge of the nature of the goods for which they arrange international transport nor – at least in the absence of a declaration of value and/or a request to arrange insurance – any knowledge of their value.

45.  Moreover, a limitation clause is not unreasonable per se: see for example Singer Co (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Lloyd’s Rep 164; Bewise Motors Co Ltd v Hoi Kong Container Services Co Ltd [1997] HKLRD 986 (CA) – upheld on other grounds in the CFA: [1998] 2 HKLRD 645.

46.  Mr Sussex naturally accepted that the effectiveness or otherwise of a clause limiting liability is a question of the construction of that clause in the context of the contract as a whole, and also that the obligation to deliver against an original bill of lading was a cardinal obligation under the contract of carriage; however, he maintained that, unlike the situation in which very clear words are required in order to exclude liability for breach of that obligation, the issue of whether it was inherently improbable that the parties had intended that the carrier should be entitled to limit its liability involved the court in an examination of the factual matrix of any particular case.

47.  He emphasized that freight forwarders arrange carriage on vessels owned and operated by third parties, and that they instruct agents abroad to effect delivery of the goods at their destination, thereby rendering themselves potentially liable for the unauthorized acts of such agents – all for a remuneration which is very small when compared with the value of the goods they arrange to ship, as indeed the present case amply demonstrates.

48.  Moreover, it is customary, he said, for cargoes to be covered by marine insurance; in fact, had such been requested, this easily could have been effected in the present case, and if and in so far as the shipper wished the carrier to be exposed to the full value of the particular cargo, it always was open to that shipper to make a declaration of value as contemplated by Clause 11.4 of the bill of lading, wherein the value as thus declared then replaces the limits of liability contained within Clause 11.3.

49.  It followed from this, Mr Sussex argued, that whilst it was inherently improbable that the parties would agree to exclude liability for delivery of goods absent presentation of an original bill of lading, there was no correspondingly inherent improbability regarding agreement to permit the freight forwarder to limit its liability if such unauthorized delivery were to occur – as in the present instance – and thus the task for the court merely was to determine whether the contractual provisions upon which reliance now is placed were sufficiently clear and unambiguous.

50.  In the present instance, leading counsel pointed out that whilst this freight forwarder contractually was engaging that the third parties, over which it exercised limited control, would perform their part of the services as contracted for without negligence, by the same token considerable reliance was sought to be placed upon the ‘sweep up’ words “In any event, the liability of the Carrier shall not exceed those limits as set out in Clause 11.3” as appearing within Clause 11.1, which words, he said, were required to be read in conjunction with the words in Clause 11.3 that “…the liability of the Carrier howsoever arising shall in no event exceed a sum whichever is the lower of…” the stipulated limits.

51.  These words, he maintained, were clear and unambiguous: reading the bill of lading contract as a whole, it clearly provided that in all cases “howsoever arising” the liability of the Carrier should not exceed the stipulated limits, absent a specific declaration of value by the shipper, and that in the circumstances this was entirely reasonable; indeed, Mr Sussex went so far as to suggest that to construe the contract otherwise would be to indulge in an artificial and strained (and thus impermissible) construction.

52.  He buttressed his argument by noting that in the case of Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd [2004] 2 Lloyd’s Rep 251, Mr Justice Gross had upheld the limitation clause contained in the British International Freight Association Standard Trading Conditions, which by its terms applied to liability “howsoever arising”, and had gone so far as to hold that this applied to a situation of deliberate theft by an employee for which the forwarder in that instance was liable.

53.  For his part, Mr Wright, appearing for the plaintiff, firmly opposed this argument, crisply noting that, at bottom, the defendants’ argument amounted to the surprising proposition that the plaintiff shipper apparently had been minded expressly to agree that the contractual carrier would be entitled to limit its financial liability for breach of its cardinal obligation not to part with the goods so carried save against presentation of an original bill of lading.

54.  That this was such a cardinal obligation, he said, and one which was essential to the proper functioning of international trade, had been stressed by Ribeiro PJ in Carewins, op cit., wherein of the significance of bills of lading his Lordship had observed (at 417):

“They enable the seller and the buyer to deal in the shipping documents as representing the goods which are the subject-matter of the sale. A seller, and if the transaction is financed by a bank, his bankers, will generally wish to be assured that the overseas buyer will pay for the goods before they are released to him. This can be achieved by transferring the bill of lading to the buyer only if and when payment is assured…”

55.  In the course of his submission Mr Wright emphasised the necessity for a contextual construction of Clause 11.3, and suggested that in the prevailing factual matrix – to which it was incumbent to have due regard in any construction exercise – it could not reasonably be considered that the parties had intended that there was to be an exemption or a limitation of liability for breach of a cardinal contractual obligation; in this context he cited the approach of Lord Hoffmann in HIH v Chase Manhattan Bank [2003] 2 Lloyd’s Rep 61, at 65, wherein his Lordship stated:

“The question, as it seems to me, is whether the language used by the parties, construed in the context of the whole instrument and against the admissible background, leads to the conclusion that they must have thought it went without saying that the words, although literally wide enough to cover negligence, did not do so. That in turn depends upon the precise language they have used and how inherently improbable it is in all the circumstances that they would have intended to exclude liability…”

56.  Mr Wright submitted that for these purposes there was no significant difference in principle between the approach adopted in construing exemption clauses and those ‘merely’ imposing a limitation of liability, and he argued that nothing said in Ailsa Craig, op cit., could substantiate the suggestion that the principle of contra proferentem, taken together with the need for clear and unambiguous wording, was somehow dispensed with in a pure ‘limitation’ situation as opposed to an ‘exclusion of liability’ context.

57.  He noted that although the phrase “the liability of the Carrier howsoever arising” might on its face be capable of extending to every form of liability, this language had to be construed to take account of the nature, purpose and also the context of the contract in question, in this regard further citing Lord Hoffmann in BCCI v Ali [2002] 1 AC 251, at 277, paras 63-65; Mr Wright further submitted that contextually Clause 11.3 either alone, or when elided with the words “In any event” within Clause 11.1, was insufficiently clear as a “catch all” provision so as validly to limit the defendants’ liability in this case.

58.  As to the reliance by Mr Sussex on the decision in Frans Maas v Samsung, op cit., this case, Mr Wright said, clearly was distinguishable on its facts, wherein the loss in that case was caused by theft involving employee dishonesty, which, as Gross J had put it (at 276, para 136), “was amongst the commonplace risks which the parties must contemplate when contracting” – a situation which was very far removed from the deliberate misdelivery by the port agent of goods without production of the original bill; indeed, he noted that the defendant’s witness Mr Lee specifically had accepted in cross-examination that any reputable freight forwarder should know that goods ought to be released only against production of an original bill of lading, and that it was reasonable for a freight forwarder to honour that fundamental obligation.

59.  Nor was it of any consequence, Mr Wright said, that the plaintiff could have ‘contracted out’ of the limits under Clause 11.3 by making a Clause 11.4 declaration; a similar fact, he noted, had been present in, for example, Alexander v Railway Executive [1951] 2 KB 882, wherein Devlin J (as he then was) had declined to accord a wide meaning to an exclusion clause exempting a railway company from liability for loss, misdelivery, detention of or damage to property left with the company, the learned judge observing (at 893):

“No principle is more firmly settled than that, when one is construing exceptions to the general liability of a carrier or a bailee, those exceptions are to be construed strictly, so that if a word is capable of bearing two meanings, the narrower meaning should be adopted.”

Decision on the principal issue

60.  Despite the considerable skill with which Mr Sussex invested a difficult argument, wherein he strove persuasively to drive a conceptual wedge between the judicial approach to exclusion clauses properly so‑called and clauses purporting to limit the potential quantum of liability, and the relevance of the ability of the shipper to contract out by making a Clause 11.4 declaration of value, I decline as firmly as I may to accept his suggested construction.

61.  With respect, it would seem nonsensical were a construction of the contractual clauses in question to result in a situation whereby the entirely advertent misdelivery of the goods against, not an original bill of lading but in lieu thereof a letter of indemnity, was to be regarded as an act subject to a contractual limitation of liability clause, the effect of which, in bald terms, would be to limit the liability accruing from this deliberate act of the shipper’s agent (that is, PFE at Felixstowe) to the sum of US$39,875.20 – which, I am told, is the relevant calculation accruing from an application of Clause 11.3 – as against the invoice value of these goods, namely US$283,093.70.

62.  In blunt terms, if the contractual Carrier wished this to be the result, it strikes me that it would have to say so in the bill of lading contract in the most explicit language.

63.  It further is my view that the defendants’ construction of Clause 11.3 would be wholly contrary to the understanding of traders and bankers as to the overarching role of bills of lading in international trade.

64.  If in the circumstances of this case, wherein the letter of indemnity deliberately was accepted absent presentation of an original bill of lading, it was permissible to regard as valid the limitation provision as now invoked against the plaintiff, necessarily this would be to regard that same provision as valid as against any third party bank or other pledgee, with the result that any valid third party indorsee of the bill of lading, and of the shippers’ rights thereunder, would have no prospect of recovery against the profferer of such letter of indemnity if, as precisely was the situation with Karma in the instant case, such profferer turned out to be insolvent.

65.  It is tolerably clear that the taking by PFE of the letter of indemnity in exchange for delivery of the goods as shipped on the “TSING MA BRIDGE” without production of an original bill of lading indicates that it clearly was understood that such act exposed the defendants to the risk of a claim by the holder of the bill of lading; in turn, it must have been contemplated that in so far as the defendants were to be pursued for reimbursement under the contract of carriage, the clear purpose of the letter of indemnity was to ensure that in turn liability could be passed on to Karma, which had provided the ‘indemnity’.

66.  The problem in this case is that Karma ultimately has turned out not to be worth powder and shot. That however is not, and should not be, the concern of the plaintiff shipper.

67.  The plaintiff is perfectly entitled to pursue, and to recover in full against, the contractual carrier, which having – via the act of its agent, PFE – committed an undisputed breach of the contract of carriage contained within and/or evidenced by the bill of lading, paradoxically now seeks to set up a contractual limitation clause within that contract in order to minimize the financial severity resulting from its wholly advertent breach, and further goes so far as to suggest that this clause, when properly construed, necessarily leads to this result.

68.  This is not a contention which appeals to this court, nor is it a conclusion which strikes me as fair or just.

69.  The short point is that, via the act of its agent, the contractual carrier has assumed the risk clearly inherent in accepting the letter of indemnity; as a consequence it has a remedy against PFE and/or Karma, but what in my judgment it cannot achieve, by virtue of a strained construction of Clause 11.3, is to minimize the financial consequence of such act as against the plaintiff shipper.

70.  Were such a curious result to enure, and were the 1^st defendant now to be able to take advantage of the contractual limitation provision as now prayed in aid, the logical (and aberrant) consequence would be that under the terms of Clause 1 the letter of indemnity not only would Karma’s liability under that indemnity be confined to the limitation sum of US$39,875.20 required to be paid by the contractual carrier to the plaintiff shipper, but also that the plaintiff shipper, or any third party indorsee of the bill of lading, thereby would be in the position itself of having to commence proceedings against Karma in an attempt to recover the financial shortfall of US$243,218.50 represented by the differential between the invoice value of the goods and the sum accruing were the limitation clause in the bill upheld [US$283,093.70 minus US$39,875.20].

71.  On the principal issue, therefore, I find in favour of the plaintiff, and hold that the 1^st defendant is liable to the plaintiff in the sum of US$283,093.70.

72.  I so order.

(iv) The Control of Exemption Clauses Ordinance, Cap 71 [‘COECO’]

73.  In light of my view as to the correct resolution of the principal issue, and the consequence flowing therefrom, the necessity to examine the applicability of this statute does not arise; indeed, this solely represented Mr Wright’s ‘fall-back’ position.

74.  This matter was but briefly argued, although in so saying I make no criticism of counsel, and I am disinclined in the circumstances to venture any final conclusion upon that which in due course, in an appropriate case, no doubt will represent an important and significant point.

75.  For present purposes, however, suffice to say that had it been necessary to resolve this case with reference to this argument (which it is not), I should have been inclined to follow the obiter observations in Vastfame v Birkhart [2005] 4 HKC 117, at 131 (para 83) wherein this court sounded to the legal effect of Clauses 2 and 3 of Schedule 1 of COECO, and expressed the view that this statute is of application to pre-loading and post-discharge periods – a view, Mr Wright noted, broadly coinciding with that expressed by Professor Gaskell in Bills of Lading: Law and Contracts, at page 263, paras 8.30-8.31 – and that the clear legislative intent was that the domestic COECO and UCTA regimes would not cut across the international Hague-Visby Rules regime, to the extent that such regime is of compulsory application.

76.  If I am correct in the view that the statute does apply to events post‑discharge – contrary to the submission of Mr Sussex, who argued that the statute does not apply to a commercial contract for the carriage of goods by sea, and that in any event the plaintiff shipper had not been dealing qua ‘consumer’ – then upon the issue of ‘reasonableness’, as to which it is common ground that the defendant bears the burden, I should again have been inclined to hold against Mr Sussex and in favour of the argument of Mr Wright, who submitted that Clause 11.3 did not satisfy the requirement of ‘reasonableness’, not least because this clause was, on the defendants’ case, intended to be a ‘catch all’ provision, and thus should be considered unreasonable on the basis of its potential breadth and for its attempt to limit liability for a deliberate breach of the fundamental obligation on the part of the contractual carrier not to release goods other than against presentation of an original bill of lading.

77.  Correspondingly, Mr Wright asserted, it was unreasonable that the risks inherent in such a deliberate misdelivery thus should be allocated to the shipper, that it was open to the defendants to seek full indemnity from their port agent, PFE – which plainly was the party at fault – and that in any event the defendants had not demonstrated that PFE would be entitled to rely on BIFA [British International Freight Association] terms in order to limit their liability; indeed, there was no agreement to incorporate the BIFA terms into the contract between PFE and the 1^st defendant and, said Mr Wright, any term purporting to exclude or limit liability for PFE’s own deliberate delivery absent production of the original bill of lading would be unreasonable under COECA/UCTA.

78.  Had it been necessary for present purposes, therefore, I should have accepted these submissions and have decided thus; for my own part I am unable to appreciate why the plaintiff, as opposed to the defendants, and in turn PFE, should have to bear the risk of Karma being unable to pay under the letter of indemnity when the purpose of taking out an ‘order’ bill of lading precisely was to avoid any such risk, besides which it clearly was open to the defendants, via PFE, to have eliminated any such risk of insolvency on the part of Karma by requiring the letter of indemnity to be guaranteed by, for example, a third party bank.

79.  I would at this stage, however, venture the comment that in the event that this matter were to go further, and if and in so far as the resolution of this case were to become dependent upon a primary decision upon the applicability of COECO, it might be thought appropriate to deal with the situation by way of remitter in order to enable this court, were it to be held to be wrong upon the principal issue, to write a detailed judgment upon the COECO issue, no doubt after the benefit of additional argument focused solely upon this issue.

Order

80.  As the result of the foregoing, therefore, the Order of this court is in the terms following:

(i) There is to be judgment in favour of the plaintiff against the 1^st defendant in the sum of US$283,093.70;

(ii) There is to be an order nisi that interest is to be paid upon such principal sum as aforesaid at the rate of 1% over US dollar prime rate from time to time prevailing from the date of the writ in this action until the date of judgment herein, and thereafter upon such principal sum at the judgment rate from time to time prevailing until payment;

(iii) There is to be an order nisi that the costs of this action are to be to the plaintiff, such costs to be taxed if not agreed.