RED CHAMBER CO v. LAU SIU MAN t/a PROFESSIONAL CRAGO DELIVER SERVICES CO

DCCJ 2790/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2790 OF 2009

____________

BETWEEN

____________

________________________

JUDGMENT

________________________

1.  This is a trial of an action in which the Plaintiff claims damages in the sum of US$110,385.07 in relation to the Defendant’s alleged wrongful appropriation of the cargo shipped from the United States to Hong Kong in July 2007. The causes of action relied upon by the Plaintiff in this action are conversion, breach of duty as bailee and wrongful interference with goods.

Background

2.  There is not much dispute about the facts of the present case.

3.  The Plaintiff is a company incorporated in the United States which carries on the business in the import and export of frozen seafood.  At all material time, the Defendant offered cargo delivery services in Hong Kong.

4.  In or about November 2006, Shantou Red Garden Food Processing Co Ltd. (“Red Garden”) sold 2,000 cartons of frozen shrimp with a gross weight of 19,900.21 kilograms (“the Cargo”) to International Gourmet Fisheries Inc. (“IGF”), which was an operating arm of the Plaintiff, in the sum of US$107,200.

5.  Red Garden is a company incorporated in the Mainland, and it is a long-term business partner of the Plaintiff and has been supplying frozen seafood for the Plaintiff and its affiliates.

6.  IGF is an operating arm of the Plaintiff.  It is owned by a common shareholder of the Plaintiff and shares the same business address with the Plaintiff.  IGF has confirmed in writing that it had arranged for the Cargo to be purchased from Red Garden and agreed to pay for it as agent of the Plaintiff, and that it had no interest whatsoever in the Cargo.

7.  The Cargo was shipped to the United States in or about January 2007.  Under the arrangement, the title of the Cargo passed to the Plaintiff upon shipment at Xiamen in the Mainland.  Subsequently, the Food and Drug Administration of the United States Government (“the FDA”) refused the entry of the Cargo to the United States, which led to the situation where the Plaintiff had to ship the Cargo back to Red Garden in the Mainland for the refund of the purchase money.

8.  In order to avoid the undesirable consequences that might cause to Red Garden by the decision of the FDA, the Plaintiff and Red Garden agreed for the Cargo to be shipped back to the Mainland through Hong Kong.  Red Garden therefore nominated an agent in Hong Kong to receive the Cargo on its behalf, namely one Birch Tech Development Ltd. (“Birth Tech”). Accordingly, an invoice dated 1 July 2007 was issued by the Plaintiff to Birth Tech in respect of the Cargo in the sum of US$110,385.07.

9.  By a bill of lading dated 4 July 2007 (“the Bill of Lading”), Orient Overseas Container Line Limited (“OOCL”) agreed as ocean carrier to handle and carry the Cargo from Long Beach in the United States to Hong Kong.

10.  It is the Plaintiff’s case that both the consignee and the notify party in the Bill of Lading were inadvertently stated to be the Defendant, whereas the proper party should have been Birch Tech.  The reason for the mistake was that there was a prior transaction between the Plaintiff and a different supplier, in which the Defendant was nominated as the local agent and the name of the Defendant was supplied to OOCL for that particular shipment.  The parties therefore mistakenly believed that the Defendant was also the local agent for the shipment of the Cargo.

11.  On or about 24 July 2007, the Defendant approached OOCL for the release of the Cargo without the knowledge of the Plaintiff.  The Defendant obtained the Cargo without the production of the original Bill of Lading on the basis of an indemnity issued to OOCL.

12.  According to the Plaintiff, OOCL had only issued a copy of the Bill of Lading to the Plaintiff’s custom agent when it received the Cargo for shipment in the United States.  The purpose of issuing a copy was that the shipper could verify the information in the copy before the issuance of the original Bill of Lading.  The Plaintiff did not spot the mistake in respect of the identity of the consignee and notify party when it received the copy Bill of Lading in early July 2007, and it simply passed the copy to Red Garden to verify the information contained in the same.  By a fax dated 26 July 2007, Red Garden informed the Plaintiff about the mistake.  The Plaintiff then approached OOCL with a view to amend the Bill of Lading, but OOCL refused on the basis that the Cargo had already been released to the Defendant.

13.  Red Garden then tried to contact the Defendant to trace the whereabouts of the Cargo.  The initial efforts failed.  It was only in September 2007 that the Defendant informed Red Garden that he had handed over the Cargo to one Mr. Hui.  By reason of the loss of the Cargo, the Plaintiff could not claim for the refund of the purchase price from Red Garden.

14.  In the original Defence, the Defendant claimed that it had received instruction from one Mr. Chan, and not Mr. Hui, to collect the Cargo in Hong Kong.  Mr. Chan asked the Defendant to pass the Cargo to one “Ah Keung”.  Sometime in July 2007, OOCL informed the Defendant about the arrival of the Cargo in Hong Kong.  The Defendant did not possess the original or copy Bill of Lading, but the staff of OOCL informed the Defendant that he could collect the Cargo because the shipper had agreed by telex for its release. Nevertheless, the Defendant had to sign an indemnity before obtaining delivery of the Cargo.  The Defendant then informed Ah Keung to collect the Cargo, and the Defendant signed an indemnity in favour of OOCL.  As it was Ah Keung who collected the Cargo, the Defendant had never taken physical possession of the same. The Defendant also maintained that he had never known a person known as Mr. Hui.  This was also the evidence of the Defendant on oath as contained in his affirmation filed in opposition to the Plaintiff’s earlier application for summary judgment.

15.  Subsequently, the Defendant drastically departed from its original pleaded case.  According to the amended pleading and oral testimony of the Defendant’s witnesses at the trial, the Defendant did not know a person known as Mr. Chan, and it was one Mr. Hui who had numerous previous dealings with the Defendant and had instructed the Defendant to collect the Cargo in Hong Kong.

Issues between the parties

16.  According to the pleading and the affirmation filed by the Defendant to oppose the O. 14 application, it seems that the Defendant was disputing liability on the following grounds:

(i)   the Plaintiff did not have the immediate right of possession of the Cargo which entitled it to claim for the loss of the Cargo against the Defendant;

(ii)   there was no mistake on the part of the Plaintiff in informing OOCL that the Defendant was the consignee and notify party under the Bill of Lading;

(iii)   the Plaintiff had consented to the release of the Cargo to the Defendant without the production of the original Bill of Lading; and

(iv)   the Defendant was only an agent playing a passive role of a conduit of passing the documentation without taking physical possession of the Cargo, he acted innocently and with reasonable care in the circumstances and so the Defendant should not be held liable for the loss of the Cargo.

17.  After listening to the evidence at the trial, Mr. Chang, counsel for the Defendant, confirms that the Defendant will not be relying on the first two grounds of defence as mentioned above.  He also agrees that, in the case that the court rules against the Defendant on the third and the fourth grounds of defence, the Plaintiff’s claim should succeed.  Further, in the case that liability is established, the Defendant is not disputing the quantum of the Plaintiff’s claim in the sum of US$110,385.07 as pleaded in the Amended Statement of Claim.

18.  I will therefore deal with the third and the fourth grounds of defence in turn.

Consent for the release of the Cargo

19.  The Defendant obtained the Cargo without producing the Bill of Lading.  However, if the Plaintiff had given consent for the release of the Cargo, both parties accept that the Defendant can escape liability under such circumstances.  Hence, the court has to make a factual finding in this regard.

20.  Mr. Andro Chen of the Plaintiff (“Mr. Chen”) was responsible for arranging the shipment of the Cargo to Hong Kong.  According to his oral testimony, if OOCL had to obtain the consent of the Plaintiff in releasing the Cargo to someone without the production of the Bill of Lading, such request would have to go through him.  Mr. Chen maintains that no such consent had been given by the Plaintiff in the present case.

21.  On the other hand, according to the Defendant Mr. Lau Siu Man, he was notified by OOCL sometime in July 2007 about the arrival of the Cargo in Hong Kong.  At that time, OOCL informed him that there were outstanding charges amounting to about $30,087.08, and OOCL was still waiting for the consent of the shipper in releasing the Cargo.  On or about 23 July 2007, the Defendant received confirmation from the OOCL’s staff that they would then be prepared to release the Cargo to the Defendant.  The Defendant then paid the outstanding charges and signed the letter of indemnity for the release of the Cargo.  The Defendant then obtained the Import FCL Release Order from OOCL, and the Defendant handed the document to the said Ah Keung to obtain delivery of the Cargo.

22.  The Defendant has not summoned anyone from OOCL to testify at the trial.  Nevertheless, Mr. Chang asks the court to draw the inference that such consent had in fact been given by the Plaintiff.  Firstly, if OOCL had not obtained the consent of the Plaintiff, it would have no defence to the Plaintiff’s claim for the loss of the Cargo, and yet the Plaintiff made no such claim against OOCL.  Secondly, the Plaintiff was a valuable customer of OOCL.  It did not make commercial sense to OOCL to take the risk of releasing the Cargo to the Defendant unless with the consent of the Plaintiff.  There was also no reason for OOCL to tell the Defendant on the first notification that the Cargo was not ready for collection pending telex-release from the Plaintiff, and had the Cargo held up and stored at the warehouse and charged a fee of $25,724.08 in the process.  Thirdly, the Plaintiff had all along been acting irresponsibly.  After the Cargo had arrived in Hong Kong on or about 18 July 2007, the Plaintiff did nothing in chasing OOCL for the original Bill of Lading.  It simply left the Cargo idle in Hong Kong waiting to be collected, incurring unnecessary warehouse expenses in the process.  In all likelihood, Mr. Chang submits that OOCL must have sought the Plaintiff’s consent to release the Cargo in the absence of the original Bill of Lading so as to stop the incurrence of the warehouse expenses.

23.  Having considered the submissions of Mr. Chang, I still prefer to accept the direct and first-hand evidence of Mr. Chen that the Plaintiff had not given consent for the release of the Cargo.  The communication about the giving of consent was allegedly made between the Plaintiff and OOCL.  The Plaintiff has arranged the relevant staff, Mr. Chen, to testify in court, but the Defendant has not summoned any person from OOCL to testify to rebut the evidence of Mr. Chen.  Without the opportunity of cross-examining the relevant staff of OOCL, the court has no way to test the creditability of the Defendant’s case.  As there is no reason for the court to doubt the credibility of Mr. Chen’s evidence, I find that the Plaintiff had not given consent to OOCL for the release of the Cargo.

24.  Further, if consent had indeed been given, OOCL, for its own protection, should have kept some documents about the giving of the consent by the Plaintiff.  After these proceedings were commenced, the Defendant specifically requested OOCL to conduct a search for the documents evidencing such consent by the Plaintiff.  The reply from OOCL was that their search did not disclose any such documents.    Hence, it supports the Plaintiff’s case that no such consent had been given for the release of the Cargo.

25.  There might be a lot of reasons as to why OOCL released the Cargo to the Defendant without the production of the original Bill of Lading.  OOCL might have done so under the mistaken belief that consent had been given which was not actually the case.  There might also be a lot of reasons as to why the Plaintiff had not made a legal claim against OOCL, and it is simply unsafe for the court to make any speculation or to draw any adverse inference against the Plaintiff because of the absence of legal proceedings. I therefore find, as a matter of fact, that the Plaintiff had not given consent to OOCL or any party to release the Cargo to the Defendant.

26.  Further, although the Plaintiff did not spot the mistake in the Bill of Lading and did not take the initiative to chase Red Garden for the verification of the information contained in the said document, this should not have prejudiced the Plaintiff’s right as the owner of the Cargo to insist the Defendant to produce the Bill of Lading before obtaining delivery of the Cargo.  Hence, the Defendant’s third ground of defence should fail.

The role of a conduit

27.  Mr. Chang further submits that the Defendant was only an agent playing a passive role of a conduit of passing the documentation without taking physical possession of the Cargo.  Its role was like that of a broker as mentioned by Kelly CB in the case of Fowler v Hollins (1872) LR 7 QB 616 at pp. 640-642, and so the Defendant should not be liable for the conversion of the Cargo.  Further, the Defendant was only an involuntary bailee.  According to Mr. Chang, an involuntary bailee who hands over the goods to someone other than the true owner would not be liable if he can show that he acted innocently and with reasonable care in the circumstances, even if the person to whom he parted with the goods was not the bailor at all but an impostor.  It is also unfair to compel a custodian to manifest a degree of care to which he would not have bound himself by agreement, and which would have been no greater if he had voluntarily accepted the goods.  The duty of care imposed on an involuntary bailee should always be a clement one, in which the court should be ready to find mitigating factors.

28.  According to the Defendant’s case, the Defendant was named as the notify party and the consignee of the Cargo in the Bill of Lading.  OOCL informed the Defendant that the Plaintiff had already consented to the release of the Cargo by telex-release, and it was not unusual for OOCL to release goods to consignees without the production of the original bills of lading under such circumstances.  Hence, Mr. Chang submits that the Defendant should not be liable for the loss of the Cargo.

29.  I also reject these arguments.  The Defendant was bound by the so-called “presentation rule”, which requires a consignee to produce the bill of lading to obtain delivery of the goods from the carrier.  This rule is important in the context of international trade.  As the seller and the buyer of the goods are in two different countries, the seller has to make sure that he has received the purchase price of the goods, in most cases by receiving the letter of credit, before releasing the goods to the buyer.  That is one of purposes of the bill of lading.  The carrier issues the bill of lading to the seller or the shipper when it receives the goods.  After the seller obtains the purchase price of the goods, the seller would send the bill of lading to the buyer or the consignee who can then obtain delivery of the goods from the carrier.  This arrangement can safeguard the interest of the seller or the shipper of the goods, and it is also why bill of lading is treated as a document of title (see also the Carewins case as mentioned below at paras. 16-20).

30.  In Carewins Development(China) Ltd. v Bright Fortune Shipping Ltd. [2009] 3 HKLRD 409, it has been held by the Court of Final Appeal that the presentation rule applies to a straight bill, which is a document of title, even if it contains no attestation clause. It is also implicit in the parties’ incorporation of an attestation clause into a straight bill, as in what happened in that particular case, that the presentation rule applies.  Hence, a carrier of goods shipped under a straight bill is potentially liable for breach of contract or in conversion if it releases those goods without the production of the original bill of lading. Although the Court of Final Appeal was dealing with the presentation rule in the context of a claim between the shipper and the carrier in the Carewins case, there is no reason why the same rule is not applicable in a claim by the shipper against the consignee.  Further, it is common ground that the Bill of Lading in the present case contained an attestation clause as mentioned above.

31.  According to the facts here, it is clear that the Defendant was not an involuntary bailee.  The Cargo was not forced upon the Defendant.  Quite on the contrary, the Defendant provided cargo delivery services to his customers for reward, and so he had to exercise a certain degree of care in respect of the handling of the Cargo.  Obviously, the Defendant owed a duty of care to the shipper of the Cargo.  If the Defendant obtained delivery of the Cargo without the production of the Bill of Lading and he then handed the Cargo to someone else, the shipper might suffer loss as a result.  It might be the case that the buyer had not paid for the purchase price of the goods and so the right of the seller or shipper was prejudiced.  In such circumstances, in order to exercise care in handling the Cargo, the Defendant should have waited for the Bill of Lading before obtaining delivery of the Cargo.  At least, the Defendant should have obtained a written consent from the Plaintiff before passing the Cargo to Mr. Hui or Mr. Chan.

32.  More importantly, one of the causes of action relied upon by the Plaintiff is wrongful interference with goods.  For such kind of claim, if it can be proved that the defendant’s conduct was inconsistent with the rights of the owner or other person entitled to possession, the defendant would be liable for such tort even if the defendant was not a bailee or had not acted negligently.  In Bills of Lading by Aikens & Ors., the learned authors said the following about the tort of wrongful interference with goods:

“9.83 The essence of the tort is, as its names implies, wrongful interference by the defendant, usually in the form of the appropriation of or dealing with, property in which the claimant has an interest. In the Kuwait Airways case, Lord Nicholls said:

‘Conversion of goods can occur in so many different circumstances that framing a precise definition of universal application is well nigh impossible. In general, the basic features of the tort are threefold. First, the defendant’s conduct was inconsistent with the rights of the owner (or other person entitled to possession). Second, the conduct was deliberate, not accidental. Third, the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods. The contrast is with lesser acts of interference. If these cause damage they may give rise to claims for trespass or in negligence, but they do not constitute conversion.’

9.84 The same act or omission may give rise to claims in negligence, breach of duty as bailee and wrongful interference with goods, all of which overlap.  An advantage of a claim framed in wrongful interference with goods is that, unlike claims in bailment or negligence, it may in some circumstances be made against a party who is not a bailee and who has not acted negligently (or fraudulently).  However, the most frequent situations in which wrongful interference with goods is relevant (for present purposes) are when the carrier either delivers cargo to the wrong party, or steals it himself.”

33.  From the above passages, it is clear that whether the Defendant was a bailee or whether he had acted negligently is not a prerequisite to a claim for wrongful interference with goods.  As a cargo delivery service provider who obtained the Cargo from the carrier, the Defendant had to observe the presentation rule.  By dealing with the Cargo without observing such rule, the Defendant’s conduct was certainly inconsistent with the rights of the owner or other person entitled to possession of the Cargo, and he therefore put himself at risk for any loss that might cause to the owner or such other person resulting from his conduct. Hence, the Defendant’s last ground of defence also fails.

34.  By reason of the aforesaid, I do not find that there is any defence to the Plaintiff’s claim.   I therefore grant judgment in favour of the Plaintiff in the sum of US$110,385.07.  The Plaintiff is also entitled to interest on the said sum at the rate of 1% over the prime rate of the Hong Kong Banking Corporation from 28 March 2008 to the date hereof and thereafter at judgment rate.  I also make an order nisi that:

(i)   the costs of the action be to the Plaintiff with certificate for counsel; and

(ii)   there be legal aid taxation in respect of the Defendant’s costs.

The order nisi shall be made absolute 14 days after the date of the handing down of this Judgment.

35.  Finally, I must express my deep concern about the two completely different versions of events given by the Defendant about the handling of the Cargo.  In the Defendant’s affirmation filed in opposition to the O. 14 application, the Defendant claimed that it had received instruction from one Mr. Chan to collect the Cargo in Hong Kong, and he maintained that he had never known a person known as Mr. Hui.  However, according to his oral testimony at the trial, the Defendant drastically departs from his previous evidence on oath.  He now says that he did not know a person known as Mr. Chan, and it was one Mr. Hui who had numerous previous dealings with the Defendant and had instructed the Defendant to collect the Cargo in Hong Kong.

36.  The facts of the present case were most dubious.  It is clear that it was a mistake on the part of the Plaintiff in naming the Defendant as the consignee and notify party in the Bill of Lading. In such circumstances, it is very difficult to explain how one Mr. Hui or Mr. Chan was able to exploit the Plaintiff’s mistake and instructed the Defendant to collect the Cargo.  Regrettably, the court may not be able to know the whole truth.  By giving two completely different versions about the identity of the person who gave instruction for the collection of the Cargo, it seems that the Defendant was trying very hard to protect the identity of such person so that the Plaintiff would not be able to trace the whereabouts of the Cargo. Although the identity of such person may not affect the final result of the case, it is arguable that the Defendant had committed an act of perjury.

37.  I have also considered whether I should refer this case for criminal investigation.  However, as it is very difficult to tell when the Defendant was telling the truth and which of the Defendant’s version was the correct one, the investigation may not result in a successful criminal prosecution against the Defendant.  In order not to waste further precious resources in this regard, I finally decide not to refer this case for criminal investigation.