CALM OCEAN SHIPPING S.A. v. WIN GOAL TRADING LTD AND OTHERS

HCAJ 118/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 118 OF 2015

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D E C I S I O N

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1.  There are 2 applications before the court for an order that:

A. Med-Asia Shipping BV (“Med-Asia”) be granted leave to intervene;

B. The defendants do surrender the bills of ladings to the plaintiff, and there be discharge and sale of the cargo on board the plaintiff’s vessel.

THE FACTS

2.  The facts are largely undisputed and are taken from the helpful summary of Mr Chain, counsel for the defendants.

3.  The plaintiff is the owner of SOPHIA Z (“the vessel”).

4.  The intervener, Med-Asia, chartered the vessel from the plaintiff under a time charter contained in a fixture note dated 9 July 2015 with a LAYCAN for 16^th/22^nd July 2015.

5.  The vessel was sub-chartered to another company under a voyage charter dated 26^th June 2015 (vessel to be nominated). Med-Asia believes that the sub-charterers are connected to the defendants.

6.  Under a sales contract dated 4^th May 2015, Win Goal (D1) agreed to sell steel billets to Acieries De L-Ouest Sarl (“ADO”), a company based in Algeria.

7.  D1 as shipper entered into a contract of carriage with the plaintiff as carrier for the steel billets to be shipped from Longkou, PRC, to Djendjen, Algeria. Specifically:-

(a) The contract of carriage was contained in a bill of lading (no. LD00102) with the consignee being to the order of BADR, an Algerian bank (“the BADR B/L”). All parties accept that the BADR B/L was mistakenly dated 24^th July 2014, rather than 24^th July 2015.

(b) There was an earlier draft bill of lading with the same B/L number and similar description of goods, which listed D2 as shipper and D1 as consignee (“the Win Goal B/L”). As clarified in the affirmation of Mr. Schloemer (for Med-Asia) and that of Mr Pang (for the defendants), the Win Goal B/L was a draft that was never formally issued and was superseded by the BADR B/L.

(c) The plaintiff’s confusion as to the Win Goal B/L was caused by Med-Asia having emailed a copy of the Win Goal B/L to the plaintiff without subsequently clarifying to the plaintiff that the Win Goal B/L was a draft that had been superseded by the formally issued BADR B/L.

8.  The steel billets (“the cargo”) were duly loaded onto the vessel on or around 24^th July 2015 at Longkou, PRC. The vessel left Longkou and arrived at Djendjen, Algeria, on 11^th September 2015.

9.  Med-Asia issued the letter of indemnity (“the LOI”) to the plaintiff and demanded discharge of the cargo without production of the bill of lading.

10.  ADO used what all parties regarded as a false excuse of the cargo being radioactive to reject the cargo and prevent it from being discharged and unloaded from the vessel at Djendjen, Algeria.

11.  The plaintiff is thus caught in a difficult situation.  ADO has “abandoned” the cargo.  The plaintiff cannot enter Algeria. It has been unable to get discharge/delivery instructions from Med-Asia or the defendants.  Because of draft limits imposed by the vessel’s next intended destination port (Ravenna, Italy), the vessel cannot continue its journey until the cargo is discharged. The vessel is now anchored at Malta on the instructions of Med Asia.  It has been used as a floating warehouse contrary to the plaintiff’s wishes.  Hire continues to accrue at US$7,500 per day.

12.  Without possession of the original BADR B/L or a court order, it would be difficult for the plaintiff to sell the cargo to third parties in non common law jurisdictions relying on contractual self-help rights alone or common law rights: The Bao Yue [2015] EWHC 2288 (Comm) §75, Males J.  The plaintiff wishes to take whatever steps it can to avoid future claims from the defendants, the Ravenna receivers (or others asserting claims through them), both of which might entail arrest in an inconvenient or unpredictable jurisdiction.  It seeks this injunction to enable it to dispose of the cargo.

A.  Application to intervene

13.  Order 15, rule 6(2)(b) provides that the court may order the following persons to be added as a party, namely (i) any person whose presence before the court is necessary to ensure that all matters in dispute may be effectually and completely determined; or (ii) any person between whom and any party there may exist a question arising out of or relating to any relief claimed which the court considers would be just and convenient to determine as between him and the parties to the cause or matter.

14.  There is no opposition to the intervention of Med-Asia, who is stuck between the plaintiff and the defendants.  This matter clearly has an impact on Med-Asia’s legal and commercial interests with the existing parties.  I therefore granted leave at the hearing to Med-Asia to intervene.

B.  The injunction application

15.  The plaintiff relies on the ‘self-help’ rights (including carrying beyond the intended port of delivery and a right of sale) under the following clauses of the BADR B/L:

“[8] …The goods shall be supplied and taken delivery of by the Owner of the goods as fast as the vessel can take and discharge them, without interruption, by day and if required by Carrier also by night, sundays and holidays included, notwithstanding any custom of the port to the contrary and the Owner of the goods shall be liable for losses or damages including demurrage incurred in default thereof. (underline added)

Discharge may commence without previous notice. If the goods are not taken delivery of by the Receiver from alongside the vessel without delay, or if the Receiver refuses to take delivery of the goods, or in case there are unclaimed goods, the Carrier shall be at liberty to land such goods on shore or any other proper places at the sole risk and expense of the Merchant and the Carrier’s responsibility of delivery of cargo shall be deemed to have been fulfilled.

…

If the goods are unclaimed during a reasonable time, or wherever the goods will become deteriorated decayed or worthless, the Carrier may, at his discretion, and subject to his lien, and without any responsibility attached to him, sell, abandon or otherwise dispose of such goods solely at the risk and expense of the Merchant. (underline added)

[13]… If necessary, the Carrier shall be at liberty to carry the goods to their port of destination by other vessels… and to carry the goods or part of them beyond their port of destination, and to tranship, lighter, land and store the goods on shore or afloat and reship and forward the same at the Carrier’s expenses but at the Merchant’s risk.”

“Receiver” has not been defined in the BADR B/L.

“Merchant” has been defined as including the shipper, the receiver, the consignor, the consignee, the holder of the bill of lading and the owner of the goods.

16.  The plaintiff seeks a mandatory injunction against the defendants requiring them to surrender the bills of lading to the plaintiff, give fresh instructions for disposal, or sale of the cargo under Order 29, rule 4 of the Rules of the High Court.  A draft order was submitted.

17.  With regard to §§2-4 of the draft order, it is the defendants’ position that there are no Win Goal B/L to deliver up in view of the confirmation of position by Med-Asia and the defendants set out in paragraph 7(b) above.  The plaintiff, rightly, does not press further.  I need not make any order in this regard but the preamble to any order that this court may make should spell out clearly that confirmation to bind the parties before the court.

18.  Under §5 of the draft order, the plaintiff asks that D1 either provide fresh instructions for the delivery and discharge of the Cargo from the vessel at a safe Mediterranean port; or (b) surrender to the plaintiff a full set of the originals of the BADR B/L for cancellation.

19.  Under §6 of the draft order, if D1 fails to comply, the plaintiff asks that it be at liberty to discharge the cargo at any safe Mediterranean port, sell the cargo and, after deducting the charges, pay the proceeds into court.  

20.  Med-Asia supports the plaintiff’s application.

21.  The defendants oppose §§5 and 6 of the draft order.  Their position is that by virtue of D1’s valid presentation of documents (including the BADR B/L) under a letter of credit (“the LC”) for payment, the property rights have unequivocally passed to ADO, with the issuing bank or nominating bank having possessory rights as pledgee.  It is thus impossible for D1 to give instructions on how to deal with the cargo.  In short, the plaintiff has sued the wrong entity.  The defendants do not assert rights over the cargo and would have no objection over disposal of the cargo provided there is no mention of the defendants in the order. 

22.  The plaintiff disagrees.  It contends that since presentation of the documents under the LC has been rejected, the BADR B/L is held to the order of D1.  Moreover, the defendants may transfer rights under the bill of lading but not the liabilities.

23.  The issues before the court are:

(1) Whether or not the defendants still have ownership rights over the cargo;

(2) Whether the BADR B/L is held to the order of D1; and

(3) Whether D1 has liabilities that cannot be transferred.

Legal principles for grant of injunction

24.  The injunction sought is in the nature of a mandatory injunction.  The court will not grant one unless it feels a high degree of assurance that at the trial of the action, it will be shown that the injunction was rightly granted. This means the applicant's case on the merits has to be made out to a higher standard of proof than in the case of prohibitory injunction.  The court will take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong. Sight must not be lost of this fundamental principle.  Two common guidelines are the consideration of the merits of the plaintiffs' claim and the balance of convenience.  Where it is shown, as an exception to this general approach, that the case is one in which the withholding of on interlocutory mandatory injunction would in fact carry a greater risk of injustice than granting it even though the court does not feel the "high degree of assurance" as aforesaid, it would be right to grant an interlocutory mandatory injunction.  SeeMusic Advance Ltd v Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041, §12, Ma J (as he then was).

25.  The Courts have been willing to grant orders enforcing obligations under bills of lading and other shipping-related instruments by mandatory injunction where justice demands it, eg:

(a) Restraining shipowners from sailing a vessel anywhere other than such place as charterers might direct: The Houda[1994] 2 Lloyd’s Rep 541;

(b) Ordering shipowners to complete a voyage by entering a port and discharge a cargo to prevent deterioration and much greater loss on both sides: LPG Shipping Ltd v Worldwide Panama Shipping Inc [1997] EWCA (Civ) 2747;

(c) Ordering delivery up to shipowner of a B/L by receivers who had wrongfully refused to take delivery, as the shipowner had a legitimate need to have the B/L for further handling of the cargo: The Bao Yue.

26.  Where a defendant is within the jurisdiction of the court there is power to make an order in relation to acts outside Hong Kong.  Whether or not the power is exercised is a matter for discretion: Jackson, Enforcement of Maritime Claims §25.8.

(1) Whether D1 has ownership rights over the cargo

27.  D1 was the seller and ADO the buyer.  The bill of lading is a title document so that whoever is in possession of it can assert ownership and it is that person who can give instructions as to disposal of the cargo.  The question is who has that right to assert the ownership in this case.

28.  ADO as buyer has caused BADR to issue the LC in favour of D1 for the amount of US$11,190,800 with Deutsche Bank (China) Co Ltd (“Deutsche Bank”) as nominating bank.

29.  D1 has deployed the LC by presenting documents (including the BADR B/L) to Deutsche Bank for payment on Tuesday 11 August 2015.  It appears that Deutsche Bank forwarded those documents to BADR on Thursday 13 August 2015.

30.  The LC is specifically stated to be subject to ICC Uniform Customs and Practice for Documentary Credits 600 (“UCP 600”).   The material articles are as follows:

(a) Under article 14(b), the nominating bank [in this case the Deutsche Bank] and issuing bank [BADR] shall each have five banking days following the day of presentation to determine if a presentation is complying.

(b) Under article 16(c), should the nominating bank and issuing bank choose not to honour or negotiate the LC on grounds of non-compliance of the presented documents, they must give a notice to that effect to the presenter.

(c) Under article 16(d) (corresponding with article 14(b)), the notice of refusal to honour must be given by the close of the fifth banking day following the day of presentation.

(d) Under article 16(f), if an issuing bank or confirming bank fails to act in accordance with article 16, it shall be precluded from claiming that the documents do not constitute a complying presentation.

See also: §§5.41 to 5.44 of Jack on Documentary Credits (4^th ed.)

31.  Applying these provisions, if BADR as issuing bank or Deutsche Bank as nominating bank had wanted to refuse to honour the LC on the ground of non-compliance with the presented documents, they had to do so respectively by close of business on Thursday 20 August 2015 or Tuesday 18 August 2015.

32.  Neither bank gave notice of refusal within 5 banking days.  They were thus precluded from refusing to honour on the ground of non-compliance.  Article 16(f) is mandatory in terms.

33.  It was only on 14 September 2015 that Deutsche Bank passed on a message from BADR to HSBC (acting for D1) stating that the certificate did not specify affirmatively the absence of any trace of radioactivity as required and so BADR considered that the documents did not conform and the payment would not be effected until the applicant’s (ie HSBC/D1’s) agreement.  That was over a month after Deutsche Bank and BADR had first received the documents. 

34.  Thereafter, HSBC had repeatedly made clear by swift messages to BADR and Deutsche Bank that they were precluded from refusing to honour the LC (see exhibit PHL-5).  Despite HSBC’s clear stance, no payment has been made by BADR to D1 to date.

35.  As contended by Mr Chain, the net effect is that D1 had given up the documents (including the BADR B/L) as security in exchange for Deutsche Bank/BADR’s promise to pay.  The presented documents were taken to have been accepted by the bank.  As a result, the property in the cargo which has previously been retained by the seller D1 has passed to the buyer ADO. 

36.  The following authorities explain the relationship between D1, Deutsche Bank, BADR and ADO.

37.  As held in Sale Continuation Ltd v Austin Taylor & Co Ltd [1968] 2 QB 849 at 861 D-E per Paull J:-

“…the seller parts with his ownership in the documents as soon as he sends the documents to the bank. His right is to be paid the draft. The ownership of the goods passes to the buyer but the bank has the possessory title of a pledgee as against the buyer. He has that title until the buyer puts the bank in funds in respect of the draft and discharges his liability for interest payable in respect of the draft. If the pledger does not do so the bank has the usual right of a pledgee to see as if he were the owner.”

38.  In Jack on Documentary Credits (4^th ed.), §11.4, it is so stated,

“11.3 A pledge may be described as the transfer of the possession of goods by way of security whereby the ownership of the goods remains in the pledgor and the pledgee obtains a right to possession only. He has a ‘special interest’ in the goods, which includes the right to sell. The goods must be transferred to the possession of the pledgee and actual possession is normally required. One of the exceptions to actual possession is the case where a bill of lading is transferred with the intention of pledging the goods to which the bill is title. Then the pledge is effective on the transfer of the bill alone. …

11.4 … it is clear that in the classic situation where the bank receives bills of lading made out to the order of the shipper and blank indorsed it becomes a pledgee of them. This is the case for a negotiating bank as much as for an issuing or confirming bank. The position is that, when the documents are accepted by the bank as conforming to the credit, the property in the goods which has previously been retained by the seller will pass to the buyer, the intention being that the seller no longer looks to the documents for his security (or the goods) but looks to the promise of the bank. (underline added)

… [having referred to Sale Continuation Ltd v Austin Taylor & Co Ltd]

Where the bills of lading are drawn to the order of the bank or are indorsed to the order of the bank, the bank will obtain a pledge in the same way as where the bills are drawn to order and blank indorsed.  Where they are drawn in favour of the buyer or other consignee, the bank, it is suggested, still obtains its pledge (for by setting up the credit the buyer has consented to the bank doing so).  But unless the bank can obtain the indorsement of the bills to itself, its power of sale will be ineffective because the bills themselves will not evidence any right on the part of the bank to the goods.  In order to enforce its rights, the bank would probably have to bring an action for delivery of the cargo against both the named consignee or indorsee and the carrier.”

39.  The above principles apply equally to a negotiating bank as much as an issuing bank: The Stone Gemini [1999] 2 Lloyd’s Rep 255 at 263-265, §§39-40 per Tamberlin J.

40.  The legal effects are that:

(a) Deutsche Bank as nominating bank has incurred an obligation to honour the LC, with a corresponding right to be reimbursed by BADR.  Deutsche Bank holds the documents (including the BADR B/L as title document to the cargo) as pledgee until it is paid by BADR. 

(b) BADR as issuing bank has incurred an obligation to pay Deutsche Bank, with a corresponding right to be paid by ADO. If the documents have been passed to BADR by Deutsche Bank, BADR holds them as security by way of pledge until it is paid by ADO.

(c) Legal ownership of the goods had passed to ADO, subject to the pledgees’ rights.

41.  Even if the buyer legitimately rejects the goods, the property in the goods would not revert to the seller: Jack on Documentary Credits.

“11.5 Passage of property is ultimately determined by the objectively construed intentions of the parties. There will often be an inference that the seller intends to retain title in the goods until payment, an inference which is not displaced merely because payment is to be by letter of credit. On acceptance of the documents against payment by the bank, property passes to the buyer, but, so long as the bank retains the bills of lading, subject to the bank’s pledge interest. If the buyer refuses to take up the documents on the ground that they do not comply with the credit, either himself or by declining to authorise the issuing bank to take them up from the errant confirming bank, then he cannot retain the property in the goods. Where a buyer rejects goods because they are found on arrival not to conform to the contract, the property in the goods – which has been described as vesting in the buyer conditionally – revests in the seller. But that would be inappropriate here. For the seller has been paid, or has his right to be paid, by the bank and has no further interest in the goods.It is therefore tentatively suggested that the property should find a resting place with the bank, perhaps by way of a type of subrogation, so that although the bank may not always have a complete documentary title it will become the owner of the goods.” (emphasis added)

42.  In the present case, ADO’s was even not entitled to reject the cargo as the reason for rejecting (radioactivity) was false.

43.  There is clearly a good arguable defence that D1 has no ownership over the cargo, which will afford a complete defence to the application.

(2) Whether the BADR B/L is held to the order of D1

44.  Under section 2(2)(b) of the Bills of Lading and Analogous Shipping Documents Ordinance, Cap 440, the holder of a bill of lading is, amongst others, “a person with possession of the bill as a result of the completion, by delivery of the bill, of any endorsement of the bill or, in the case of a bearer bill, of any other transfer of the bill”.

45.  Possession of a bill of lading cannot be forced on a person.  The person receiving it has to receive it into his possession and accept the delivery before he becomes the holder: The Aegean Sea [1998] 2 Ll Rep 39, at 59, per Thomas J; The Erin Schulte [2015] 2 Ll Rep 97, §28.

46.  A shipper who has not transferred a bill of lading not only has a right to take delivery upon tender of the bill of lading but a duty to do so: The Bao Yue §51. 

47.  The following passages in Aikens on Bills of Lading (2006 ed) explains the legal position in fuller details:

“The holder of a bill of lading – the concept of possession

8.38 A holder of a bill of lading is under [sections 2(1) and 2(2) of Cap 440] ‘a person with possession of the bill’ in certain specified circumstances. ‘Possession’ in the strict sense is narrower than the right to possession. ‘Holder’ will thus, on the natural meaning of the wording of the section, be limited to a person with actual custody of the bill himself, or through an agent who holds as such and has no independent right. Where a bill is indorsed and posted to the transferee, the latter will not have possession of it until he receives it. However, in The Giovanna Rix J was inclined to the view that the indorsee was in possession of the bills from the time the indorser had handed them to couriers for despatch. The time at which a person becomes holder is unlikely to affect the basic question of entitlement to sue, although it may be relevant to the question as to whether the holder is a lawful holder.

…

Obtaining possession

8.40  Under [section 2(2)(b) of Cap 440] although the holder has to have possession of the bill as a result of the completion, by delivery of the bill, of an indorsement, there is no requirement for the delivery to be to the indorsee.  The standard means of X becoming a holder is by way of endorsement of the bill of lading to X and delivery of it to X.  However, endorsement of a bill of lading to X and delivery to X will not necessarily be sufficient to constitute X the ‘holder’ of the bill of lading for the purposes of [section 2(2)(b)].  Thus in The Aegean Sea a bill of lading was endorsed and delivered to a party in error, when the intention was to endorse it to the party’s subsidiary who had bought the cargo from the endorser.  Thomas J held that mere physical receipt was not enough: the recipient has to receive it into his possession and ‘accept’ the delivery before he becomes the holder.  Thus, it would appear that both the transferor and transferee need to have the requisite intention that the person to whom indorsement of the bill of lading is made and delivery given is to be the ‘holder’ of the bill.  It is not entirely clear what is sufficient to constitute ‘acceptance’.  If there is acceptance, but on the basis of a mistake of fact or law induced by fraud or misrepresentation (other than on the part of the transferee who would otherwise not be a ‘lawful’ holder: see the provision at the end of [section 2(2)(b) which refers to a person becoming a holder of the bill in good faith] this would, it is suggested, vitiate any such acceptance.  In our view it is clear that possession of the bill is a necessary but not sufficient condition for being a ‘holder’ of the bill.”

48.  Regarding disposal of documents, the bank must state how it will dispose of the documents.  Notice of refusal is irreverisble: Jack: Documentary Credits states as follows:

“5.68 The notice must also state how the bank has or will dispose of the documents. There are four options: (a) the bank is holding the documents pending further instructions from the presenter [in this case, D1]; or (b) it is holding the documents until it receives a waiver from the applicant [ADO] and agrees to accept it or receives further instructions from the presenter prior to agreeing to accept a waiver; or (c) it is returning the documents; or (d) it is acting in accordance with instructions previously received from the presenter.

5.69 The options referred to at (a) and (c) above require no further comment. An issuing bank will wish to select option (b) where it has sought a waiver from the applicant but wishes to preserve its right to refuse the documents if a waiver is not forthcoming by the close of the fifth banking day. … (underline added)

5.70 A notice which makes the beneficiary’s disposal of the documents conditional on any matter other than the acceptance of a waiver is invalid.

Refusal irreversible

5.76  Once a notice of refusal has been given to a presenter [D1] of documents, it can only be withdrawn with the agreement of the presenter.  For the documents are then at his disposal and he has the right to them.  If the market has risen then he may wish to sell the goods elsewhere and may not be prepared to agree to a withdrawal.  If the bank has given a notice in the form of Article 16.c.iii(b) (i.e. that it is holding the documents until it accepts a waiver) then, provided no further instructions have been received from the presenter, it may release the documents to the applicant [ADO].”

49.  The plaintiff is not a party to the LC.  Mr Alder submits that the LC is a matter between D1 and BADR/ADO which does not concern this application.  The mere fact that the BADR B/L reached ADO through the LC/banking system is not enough to transfer the BADR B/L.  Possession cannot be forced on someone.  Since the presentation under the LC has been refused, be it on right or wrong grounds, the BADR B/L ought to have been returned to D1 or held to its order: UCP600 Article 16c(iii)(a) to (d).  D1 can, on a without prejudice basis, retrieve the BADR B/L from BADR/Deutsche Bank for surrender to the plaintiff, so Mr Alder submits.

50.  Mr Chain does not dispute all the legal principles but does not agree to the preceding paragraph.  I agree with him that those principles hardly assist the plaintiff.  In all those authorities, there was no acceptance of the presentation of documents and issue of the rejection notice by the bank was within 5 banking days prescribed by UCP 600. Notice of refusal being irreversible is only true when the refusal is within time.

51.  If the opening or confirming bank (BADR/Deutsche Bank) fails to pay against presentation of conforming documents under a letter of credit payable at sight, the beneficiary (D1 here) may sue in debt to recover the value of the credit, provided he is willing and able to transfer the documents to the bank against payment: The Erin Schulte, at §51; Jack: Documentary Credits, §5.87. 

52.  The BADR B/L is already with Deutsche Bank/BADR but, apparently, ADO, BADR and Deutsche Bank do not want it.  Time is of the essence in international trade involving letters of credit but they were out of time in giving the notice of rejection and thus precluded from rejection.  To ask D1 to retrieve the BADR B/L on a without prejudice basis is tantamount to asking D1 to give up a certainty (the bank’s promise to pay under the LC), in exchange for uncertainty (being treated as having waived its rights under the LC and resort to sale of the cargo to get back the price) to help out the plaintiff.  This will cause serious injustice to D1, who is as much a victim as the plaintiff.

53.  The Bao Yue is distinguishable from the present case and does not assist the plaintiff.  This is because the bill of lading there did not mention a consignee or notify party other than the shipper.  There was also no transfer of bill of lading and hence divesting of ownership as in the present case. 

54.  On this issue, I find that it is hardly arguable that the BADR B/L is held to the order of D1. 

(3) Whether D1 has liabilities that cannot be transferred

55.  Mr Alder submits that although rights can be passed on under a bill of lading, liabilities cannot.  He relies on the Bills of Lading and Analogous Shipping Documents Ordinance, Cap 440:

“4(1) Subject to this section, a person who –

(a) becomes the lawful holder of a bill of lading;

(b) becomes (without being an original party to the contract of carriage) the person to whom delivery of goods to which a sea waybill relates is to be made by the carrier in accordance with that contract; or

(c) becomes the person to whom delivery of goods to which a ship’s delivery order relates is to be made in accordance with the undertaking contained in the order,

shall (by virtue of becoming the holder of the bill or, as the case may be, the person to whom delivery is to be made) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract. (underline added)

5(1) Where section 4(1) operates in relation to any document to which this Ordinance applies and the person in whom rights are vested by virtue of that subsection –

(a) takes or demands delivery from the carrier of any of the goods to which the document relates;

(b) makes a claim under the contract of carriage against the carrier in respect of any of those goods; or

(c) is a person who, at a time before those rights were vested in him, took or demanded delivery from the carrier of any of those goods,

that person shall (by virtue of taking or demanding delivery or making the claim or, in a case falling within paragraph (c), of having the rights vested in him) become subject to the same liabilities under that contract as if he had been a party to that contract.” (underline added)

56.  In Aikens on Bills of Lading (2006 ed), it is said that:

“8.86 The treatment of liabilities under [s.5(1) of Cap 440] differs from the treatment of rights under [s.4(1)] in 2 important respects. First, the circumstances in which the transferee acquires liabilities are more restricted than those in which he acquires rights. Secondly, whereas rights are transferred to the transferee, liabilities remain with the original party to the contract of carriage even if they are also vested in the transferee of the bill.”

57.  Mr Alder submits that by virtue of these sections, D1 as shipper can transfer rights but not liabilities.  BADR is the person under s.4(1).  If it takes further steps under s.5(1), it will be subject to the same liabilities under the contract of carriage as if it were a party to that contract.  

58.  With respect I cannot see what “liabilities” D1 has.  Clause 8 of the BADR B/L (paragraph 15 above) talks about “risk and expenses” if the plaintiff lands the cargo on shore, or exercises its lien and disposes of the cargo.  D1 may arguably be the “merchant” as defined in the BADR B/L, and it may not escape liability by virtue of s.5(1) of Cap 440.  However, this application is not concerned with liabilities like storage or demurrage charges.  Clause 8 does not revive the lost ownership of D1.

59.  Clause 13 of the BADR B/L (paragraph 15 above) does not assist the plaintiff either.  It only talks about risk but not expenses to D1 if the plaintiff carries the cargo in a certain manner.

60.  Neither clause 8 or 13 confers or retains a right in D1 to give the instructions sought in terms of §5 of the draft order. Nor do they create “liabilities” for D1 to specifically perform, as contended for by the plaintiff.

Draft §6 – liberty to discharge and sell

61.  The application is made under Order 29 rule 4.  The court has jurisdiction to order a sale of property “which is the subject matter of the cause or matter or as to which any question arises therein and which is of a perishable nature or likely to deteriorate if kept or which for any other good reason it is desirable to sell forthwith.”  Taxfield Shipping Ltd v Asiana Marine Inc, HCCT 15/2006, 7 March 2006, DHCJ L Chan (as he then was).

62.  In Taxfield Shipping, the plaintiff intended to commence arbitration proceedings in Hong Kong and would include a claim for a declaration that the defendants had abandoned the cargo, that the plaintiff could exercise a lien over the cargo and a claim for demurrage.  All relevant entities have been made parties, including the shipper (also seller), consignee and notifying party (buyer) and process had been served on them. Therefore, although the cargo of cement was on board a ship at a port in Nigeria, the court granted an interim order for sale. 

63.  The present case is distinguishable from Taxfield Shipping. The consignee (BADR) and the party to be notified (ADO), both named in the BADR B/L, have not been made parties.  Similarly, the present case is distinguishable from The Bao Yue where the only parties on the bill of lading were the shipper and contractual carrier, with no mention of a consignee or notify party.  The bill of lading was still with the shipper.

64.  I have queried, at the beginning of this hearing, whether the owner and pledgee should be made parties but the plaintiff insists on proceeding with the hearing.  The plaintiff cannot enter Algeria and it does not want to sue ADO.  It fears that exercise of self-help rights under the BADR B/L may not be recognized or enforced in unfamiliar jurisdictions around the Mediterranean. Its intention is to avoid claims and likely arrest by third parties should it proceed of its own accord to an alternate port.  

65.  These are understandable sentiments.  However, it is unjust to take away an owner/pledgee’s right over the cargo without affording them an opportunity of being heard just because it may be difficult for the plaintiff to exercise its rights in unfamiliar jurisdictions.  The plaintiff’s undertaking to give notice to BADR and ADO after an injunction is granted does not reverse what is unjust.

66.  Therefore, however much I find it desirable to break an impasse, there being no prejudice to the defendants, and the cargo is perishable as being exposed to the risk of rusting, I decline to grant the order sought under §6 of the draft order.

CONCLUSION

67.  D1 has a good arguable defence that it does not have the BADR B/L in its possession and does not have ownership over the cargo.  The court cannot be satisfied to a high degree of assurance that the plaintiff will be able to establish its rights against D1 at the trial. The owner and pledgee of the cargo are not parties to this action.  It is unjust to grant the injunction behind their backs and I decline to do so.

COSTS

68.  Costs should follow the event and be to the defendants.  Counsel have drawn my attention to the correspondence between 25 September through October 2015.  The issues of the Win Goal B/L have been discussed which turns out to be otiose.  In the telephone conversation on 23 October 2015 (day after service of the writ), the defendants have already made their position clear to the plaintiff.  The affirmation that the defendants filed verified their position.  Mr Chain’s submission makes the legal position clear.  Any “lateness” in putting forward the defence could not undermine the validity of the defence. 

69.  I therefore order as follows:

(1) There be an order nisi that costs of the application for intervention be in the cause of the action;

(2) The plaintiff’s application for an injunction is dismissed;

(3) There be an order nisi that costs shall be to the defendants payable by the plaintiff and the intervener to be summarily assessed on 18 November 2015 on the papers without attendance; and

(4) The defendants do file and serve their costs statement by 9 November 2015.  The plaintiff and the intervener do file and serve their grounds in opposition by 16 November 2015.

70.  I thank counsel for their thorough preparation and helpful assistance.