JIM PAK KIN t/a JIM’S TAI KWONG PLASTIC FACTORY v. LACONIC FREIGHT INTERNATIONAL LTD

DCCJ 4755/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4755 OF 2005

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JUDGMENT

Introduction

1. This is an action in respect of a dispute arising from two contracts of carriage (“the Contracts of Carriage”) between the Plaintiff as the shipper and the Defendant as carrier of two batches of plastic toys (collectively referred to as “the Goods”) delivered by the Defendant to the Plaintiff’s buyer and the named consignee called Action Toy Inc. (“Action Toy”) in the United States. In connection with the Contracts of Carriage, the Defendant issued two bills of lading respectively numbered LAX2201984, dated 23 August 2002 and numbered LAX2202920, dated 27 November 2002(collectively referred to as “ the Bills”)

2.  The Defendant by summons dated 14 February 2006 applies under O.14A of the Rules of District Court for determination of a number of points of law and for dismissal of the Plaintiff’s claim in the event that this court determines the questions of law in favour of the Defendant.

3.  The questions of law sought to be determined are succinctly set out in the detailed written submissions of Mr. Wright, counsel for the Defendant.   Miss Ng, counsel for the Plaintiff, also agreed that the issues summarized by Mr. Wright embody the questions of law in the summons requiring the determination by this court.  The issues as summarized by Mr. Wright are as follows:

(i) Whether the terms on the reverse side of the Bills were incorporated into the Contracts of Carriage entered between the parties;

(ii) Whether, on the true construction of the Contracts of Carriage, the Defendant was subject to an implied contractual obligation to deliver the Goods only against production of the originals of the Bills.

(iii) Whether the Plaintiff’s claim is, in any event, time-barred not having been commenced within the limitation period.                                                              

The factual Background

4.  The evidence in this application comes from the affirmations filed by the general manager of the Defendant, Mr. Ho Man Hong and the sole proprietor, Mr. Jim Pak Kin, of the Plaintiff.  Common to most of the sea-carriage contracts, the Plaintiff in this case was the seller/exporter of the Goods and the Defendant was a carrier of the Goods for rewards and responsible for the issuance of the Bills. It is not disputed that prior to the Contracts of Carriage, the parties had engaged in similar carriage transactions for at least 10 occasions and the first transaction was in or about November 2001. 

5. It is the Plaintiff’s case that in the previous course of dealings between the parties, the Plaintiff, as shipper of the goods, would place a shipping order with the Defendant by firstly faxing to the latter a copy of shipping order (which was similar to the copies of the shipping orders of the Contracts of Carriage exhibited to the Affirmation of Ho Man Hong affirmed on 15 February 2006).  The shipping orders were in standard form containing essential shipping particulars such as the name of the shipper, the name and address of the consignee, the port of discharge etc.  Printed at the bottom of each of the standard form shipping orders were these words, “All transactions shall be subject to Standard Trading Terms & Conditions, copy of which is available upon request.”

6.  I was not told what kind of Standard Trading Terms and Conditions they were as both parties had filed no evidence on that. However the written provisions appearing at the reverse side of the Bills, according to the Plaintiff, cannot be regarded as express terms of the Contracts of Carriage for the reason that the Plaintiff had at the material time no knowledge of those terms at the back of the Bills.  It is the Plaintiff’s contention that the Plaintiff was only provided with the originals of the Bills which contained the terms at the back only after the Contracts of Carriage were concluded. According to the Plaintiff, the previous contracts of carriage between the parties were concluded in this way: the Plaintiff made a booking with the Defendant for a shipping date for the goods to be shipped to its buyer by issuing a standard form shipping order similar to those mentioned above to the Defendant. The Defendant was then instructed to go to its designated factory to collect and place the goods to be shipped to its overseas buyer on board of the ship.  After the goods had been placed on board and the ship had set sail, the Defendant faxed to the Plaintiff a copy of the invoice for freight charges and a copy of the front page (without the back page containing the written provisions) of a bill of lading issued by the Defendant.  The original of a bill of lading (in triplicate copies) was only provided to the Plaintiff after it had settled the freight charges.  After the Plaintiff’s overseas buyer had made full payment for the goods, the Plaintiff couriered the original of a bill of lading to the buyer to enable it to collect the goods from the Defendant by presenting the original bill.  In the event that the payment was received only when the ship was about to reach the port of discharge, the Plaintiff, in view of the shortage of time, would instead telex the Defendant and instruct it to release the goods without the requirement of the production of the original bill of lading.  Mr. Jim said that this practice was not just the usual practice between the parties, it was in fact a common shipping practice.

7. Given the circumstances of the dealings between the parties, the Plaintiff therefore argues that not only it should not be bound by any terms appearing at the back of the Bills, the Defendant was in fact subject to an implied term arising from the parties’ previous course of dealings, requiring the Defendant to release the goods to a named consignee only upon the production of the original of a bill of lading unless such requirement was expressly waived in the circumstances mentioned in paragraph 6 above. The Plaintiff submits that the Defendant had in fact been all along aware of and agreed to be bound by this practice.  The Defendant’s knowledge of this requirement according to the Plaintiff can clearly be inferred from the similar instances of non-compliance of the said term/requirement in the two previous transactions. In this regard, the Plaintiff exhibited two letters of complaints to Mr. Jim’s affirmation in respect of the said past breaches.  The Plaintiff submits that although no action was required to be taken in respect of these breaches after Action Toy eventually settled the payment, these instances clearly show that the Defendant had knowledge of and was subject to the said implied term requiring the production of the original of the bill of lading by a named consignee.

8. The Plaintiff claims that the Contracts of Carriage in this claim were made in almost identical circumstances as the previous transactions between the parties and likewise the Bills were also issued in the same way as the previous dealings.  Thus, the said implied term regarding the requirement of the presentation of an original of a bill of lading was also the implied term of the Contracts of Carriage.  The Defendant, without the express instruction by the Plaintiff to dispense with the said requirement, was therefore in breach of the said implied term of the Contracts of Carriage when it released the Goods to the latter without the originals of the Bills. As Action Toy had failed to pay the Plaintiff for the price of the Goods, hence, the present claim.

9. The above facts are by and large not in serious dispute.  There is also no dispute that the terms appearing at the reverse side of the Bills were identical to the written terms of the bills of ladings previously issued by the Defendant.  Whilst the Defendant does not seem to dispute that the Plaintiff was only provided with the originals of all the bills of lading (including the Bills) after the Plaintiff had paid for the freight charges, the Defendant contends that the printed words appearing at the bottom right hand corner on the front side of the bills of lading (including the Bills) would arguably amount to the giving of sufficient notice to the Plaintiff of the written provisions at the reverse side because reference was clearly made to these terms. The printed words provide:

“ The above particulars are according to the declaration of the shipper.  The Carrier received the above goods in apparent good order and condition, unless otherwise specified, for carriage to the place as agreed above subject to the terms of this Bill of Lading including those on the back page.  If required by the Carrier, one original of this Bill of Lading must be surrendered duly endorsed in exchange for the goods.  In witness whereof the original Bill of Lading has been signed in the number stated above, one of which being accomplished the other(s) to be void.”

10. The Defendant thus contends that the written terms at the back of the Bills are incorporated into the Contracts of Carriage and is entitled to rely on them, in particular those clauses governing the contractual obligation permitting the Defendant to deliver goods without production of the original of the bill of lading (Clause 3.2 of the Bills) and the time limit for bringing a claim against the Defendant of either within 9 months or 12 months from the relevant dates (Clauses 2.3 and 14 of the Bills).

11. For easy reference, I set out below the relevant provisions:

Article 3.2:

“This Bill of Lading, if consigned to a named consignee, is not negotiable.  The Carrier is entitled to deliver the goods to the named consignee without production of any original of this Bill of Lading.” (The emphasis added)

Article 2.3:

“ Carriage of goods by sea or inland waterway covers the period from the time when the goods are loaded on to the time they are discharged from the vessel.  As far as carriage of goods by sea or inland waterway is concerned, the Carrier’s liability shall be determined by the Hague Rules or any legislation making such Rules or the Hague-Visby Rules compulsorily applicable (such as COGSA)[1] to this Bill of Lading.  The Hague or the Hague-Visby Rules shall prevail in so far as they are inconsistent with any other terms of this Bill of Lading….”

Article 14:

“The Carrier shall be discharged of all liability of the goods or the date the goods should have been delivered or the date of the event giving rise to the claim, which is the earlier.”

12. Mr. Wright submits that in the event that the court were to determine that the Plaintiff were bound by these express provisions, the Defendant would be able to rely on the written provisions of the Bills and by virtue of Article 3.2 of the Bills, the Defendant was permitted to deliver the Goods to Action Toy without the need of the latter producing the originals of the Bills.  The Defendant further argues that the claim is in any event time-barred, as it was not instituted within the time limit of either 9 or 12 months as the case may be from the relevant dates.

13. The above is the crux of the factual evidence in this case.  Mr. Wright submitted that although the questions of law to a certain extent were intertwined with factual issues, the area of factual controversy however was so insignificant that the court should not be precluded from determining the questions of law posed in the summons in accordance with the O.14A procedure.

 O. 14A Procedure

(A)   The Principle

14. Before I deal with the merits of the application, I should as a matter of procedure decide whether this is a suitable case for the O.14A procedure.  Miss Ng’s opposed the application and cited the decision of the Court of Final Appeal in Shell Hong Kong Ltd. v Yeung Wai Kiu Yip Co. Ltd. & Ano.(2003) 6HKCFA 222 in support of her opposition.

15. According to Shell Hong Kong Ltd (op.cit.), the O.14A procedure may only be invoked for a determination of a question of law if the court is satisfied that the two conditions as laid down in O.14A r.1 (1) are met.  The two conditions in O.14A r1. (1) are :

a. such question is suitable without a full trial of the action; and

b. such determination will finally determine (subject only to any possible appeal) the entire cause or matter or any claim or issue therein.

16. Further, this summary procedure is also inappropriate “if the issues of facts are interwoven with the legal issues to be determined.  For obvious reasons, the question of law or construction cannot be dealt with on assumed or hypothetical facts.  And if it is necessary for the court to hear evidence to resolve a factual dispute in order to come to a determination on the question of law or construction of document, it would not be normally be suitable to invoke O.14A.

Hence, if the conditions are satisfied, the court still has discretion under r.1 to decide whether to entertain an application under this Order. He has to decide on the suitability of adopting the procedure in the case in hand before adjudicating on the merits.”(per Chan, PJ.in Shell Hong Kong Ltd (op.cit.)at 230H-I).

(B)   Is the claim suitable for O.14A procedure?

17. With these principles in mind, I will now decide if this is a case suitable for the O.14 procedure before dealing with the merits of the application.  After having carefully reflected on this matter and considered the submissions advanced by both counsel, I take the view that this is not a suitable case for the determination of the questions of law posed by the Defendant in its summons.

(C ) Reasons for declining the determination   

18. First, the disposal of this entire claim will essentially require the court to make a finding on the issue of the binding terms of the Contracts of Carriage, both express and implied.  The law on incorporation of a term into a contract is well settled and it requires no repetition. Matters such as sufficiency of notice of the terms, the existence of a previous course of dealing between the contracting parties, usual trade conditions, intention of parties and business efficacy will be relevant considerations (See Chitty on Contract, 29^th ed., paras 12-009 – 12 –017 and 13-004 –13-005).

19. Whilst the law in this area is relatively straight-forward, it does not necessarily mean that the application of law to the facts will be equally straight-forward.  It is because before the legal principles can be applied to the facts of this case when deciding which term or terms should or should not be incorporated into the Contracts of Carriage, a court would be required to embark on a detailed examination of the factual matrix. In this application, the evidence filed by the parties so far suggests that the question of law regarding the incorporation of terms can only be dealt with on assumed or hypothetical facts.  An obvious difficulty lies in the lack of evidence of terms of the “Standard Trading Terms” referred to in the shipping orders.  A determination of this question of law will require a court to make an assumption of the actual terms of the standard trading terms – whether they are the same terms as the written terms appearing at back of the Bills or whether they may be some other totally different terms adopted by the parties in their previous course of dealings or used in the field of sea carriage.  The Hong Kong Court of Appeal in Shell Hong Kong Ltd.(op.cit) has made it clear that if a court is required to make a determination based on assumed facts, it is not desirable to invoke the O.14A procedure.

20. Further, I am also of the firm view that the questions of law to be determined in this claim are closely intertwined with the issues of facts. Before the court can answer the questions posed in the summons, it would be necessary for the court to hear and analyse evidence on matters such as the circumstances of the past and the subject dealings between the parties, the experience, training and knowledge of the person(s) involved in these dealings, the manner the bills of lading or the Bills were provided to the Plaintiff, the past complaints by the Plaintiff on the Defendant’s alleged failure to deliver goods without the original copies of the bills of lading in the previous similar transactions.  If a determination of the question of law has to be dependent upon the assessment by a court of the oral evidence of such crucial aspect of evidence, then the O.14A application should rarely be entertained.

21. Secondly, by virtue of the Carriage of Goods by Sea Ordinance (Cap.462), there is no dispute that the Hague-Visby Rules (“the Rules”) are compulsorily applied to the Contracts of Carriage.  Thus, in relation to the issue of limitation period, the parties, by virtue of operation of Art. III rule 8 of the Rules, will be bound by the relevant provisions of the Rules regarding the limitation period regardless of whether the express provisions on the limitation period appearing at the back of the Bills are found to be incorporated or not. Art. III rule 8 provides:

“Any clause, covenant, or agreement in a contract of carriage relieving the carrier of the ship from liability for loss or damage to, or in connection with, goods arising from negligence, fault, or failure in the duties and obligations provided in this article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect…”

22. Given the governing effect of the Rules, the Plaintiff does not seek to dispute that it has not instituted the claim within the limitation period of one year under Art. III rule 6 of the Rules, which provides,

“ Subject to paragraph 6bis the carrier and the ship shall in any event be discharged from all liability whatsoever in respect of the goods, unless suit is brought within one year of their delivery or of the date when they should have been delivered.  This period may, however, be extended if the parties so agree after the cause of action has arisen.”(emphasis added)

23. However, Miss Ng argues that by virtue of the said Art. III of rule 6 of the Rules, the time limit was extended by agreement of the parties after the cause of action had arisen. Miss Ng submitted that the course of events set out in Mr. Jim’s affirmation, if accepted by the court, would show that the Defendant had by its conduct agreed to extend the time limit.  The series of events, which allegedly amounts to an agreement to extend time after the Defendant’s alleged mis-delivery, includes the Plaintiff’s letters of complaint to the Defendant, admission by the staff of the Defendant of the wrongful conduct, the persuasion by them to request the Plaintiff to withhold proceedings and their undertaking to obtain payment from Action Toy.  These assertions by the Plaintiff of the existence of an agreement to extend the time limit may or may not at the end of the day be found to be merely a surmise after the trial of this action.  However, it is necessary that oral evidence be adduced before a court is able to properly adjudicate on this contention.

24. Thirdly and more importantly, if I am wrong on the above that the conditions as laid down in O.14A are met, I am of the view that in any event, this is not a case in which I should in the exercise of my residual discretion make a determination under O.14A. The evidence now before the court shows that the bone of contention in this case essentially concerns with the dispute as to whether the Defendant was entitled to deliver the Goods to Action Toy without production of any originals of the Bills.  A literal reading of Clause 3.2 appearing at the revere side of the Bills does seem, ex facie, to have exonerated the Defendant from any wrongdoing as the Bills in question are described to be non-negotiable or “straight” bills ,which permit a carrier to release goods to a named consignee without the requirement of the production of the original of a bill of lading.  Indeed, this argument by the Defendant finds support from Waung, J in the Hong Kong case of The Brij[2001] Lloyd’s LR.431.

25. This issue may have been more straight forward had Stone, J in Carewins Development (China) Limited v Bright Fortune Shipping Limited & Hecny Shipping Limited, (unreported, HCCL 49/2004 & HCCL 50/2004, date of judgment: 27 July 2006) also shared the same view as Waung,J in The Brij(op.cit.) .  The learned Judge, however, after having been extensively taken through by Mr. Wright who also represented the defendant carrier in Carewins Development (op.cit.) of a number of academic legal references including those of Carver on Bill of Lading, 2nd ed., 2004 and Benjamin on Sale of Goods, 5^th ed. as well as legal authorities including The Brij(op. cit) and Voss v APL Co. Ptd. Ltd [2002] 2 Lloyd’s LR 707, the decision of the Singapore Court of Appeal, rejected the defendant’s submissions in relation to the issue of the nature of the carrier’s delivery obligation under a straight bill of lading and agreed with the decision of the Singapore Court of Appeal in Voss (op. cit) that a carrier in such circumstances would be required to deliver the cargo only against presentation of the original of a bill of lading.

26. In light of the two conflicting first instance decisions, the law on this issue regarding the carrier’s obligation to deliver goods against presentation of documents is still in a state of flux.  It would not be appropriate in my view for a court to summarily determine this question of law without hearing evidence on matters such as the prevailing commercial practice in sea carriage, the previous course of dealings, the inferred/imputed intention of the parties and so forth.

27. For the reasons above, after careful consideration of the very forceful submissions of Mr. Wright, I come to the conclusion that a determination of the questions posed in the summons cannot be shown to avoid the necessity of trial.  Having come to this view, I do not see any reason why a trial judge should be fettered by determination of the issues posed in the application and therefore refrain from doing so.

Conclusion

28. In the circumstances, I decline to determine the questions posed in the summons.  Accordingly, I dismiss the Defendant’s application.  There will be a costs order nisi that the Defendant will pay the Plaintiff’s costs of the summons with certificate for counsel, to be taxed if not agreed.

[1] “COGSA”, according to Clause 1 of the Bills “means the Carriage of Goods by Sea Act of the United States of America approved on 16 April 1936.