CHEONG YUK FAI AND ANOTHER t/a C&W PROSPERITY KNITTING GARMENT FACTORY v. CHINA INTERNATIONAL FREIGHT FORWARDERS (HK) CO LTD

English Translation ---英譯本

CACV 463/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO.  463 OF 2002

(ON APPEAL FROM DCCJ 5252 OF 2001)

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JUDGMENT

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Hon Cheung JA:

1.  The facts of this case and the legal principles are set out in detail in the judgment of Yuen J.A.

2.  I agree with the judgment of Yuen J.A.  I need to point out that Bingham LJ in The Captain Gregos [1990] 1 Lloyd’s Rep. 310 had clearly defined the ambit of the application of the Hague-Visby Rules :

‘The definition in art. I(e) does, I accept, assign a temporal term to the ‘carriage of goods’ under the rules, supporting an argument that the rules do not apply to events occurring before loading or after discharge.  (See also art. VII). I read art. II as defining the scope of the operations to which the responsibilities, rights and immunities in the rules apply... .’

3.  Accordingly when Bingham LJ discussed the example of misdelivery in the travaux preparatories he would not have regarded it as something that would happen beyond the defined ambit.

Hon Yuen JA:

4.  This is an appeal from a judgment of S.M. Sham, Dep. D.J. dismissing the Plaintiffs’ claim and giving costs of the action to the Defendant.

5.  Leave to appeal was refused by the trial judge but was granted by Cheung JA on 18 December 2002.

6.  This appeal first came before the court on 30 March 2004 but had to be adjourned for further legal submissions to be provided.

Background

7.  There were a number of factual disputes between the parties, but by reason of the approach that the trial judge took as set out in para. 24 below, those disputes were left undetermined. 

8.  The background of this action is summarized below.  The Plaintiffs are garment manufacturers.  They allege that they entered into a contract to sell certain goods to Goldentex, a Taiwanese company (although the contract appears to have been made, not by the Plaintiffs, but by a company by the name of C&W Prosperity Knitting Garment Factory Ltd) . 

9.  The goods comprised 158 cartons of garments ("the Goods") which were to be sent to Moscow. 

10.  The Plaintiffs allege that Goldentex notified them to use the services of the Defendant for the delivery of the Goods.  The Plaintiffs thereupon delivered the Goods to a company called Busy Peace Shipping Agent Ltd., allegedly the Defendant’s agent, for which they received a Shipping Order.

11.  On 19 October 1995, upon the Plaintiffs paying CFS and document fees to the Defendant, the Goods were loaded onto the “Ming Star” and a Bill of Lading No. 950111MOSCIF ("the Bill of Lading") was given to them. 

The Bill of Lading

12.  This Bill of Lading was signed by China Int’l Freight Forwarders Co Ltd., a Taiwanese company, as carrier (“the Carrier”).  The Defendant says that the Plaintiffs knew that it issued the Bill of Lading only as agent of the Carrier and that it never had possession, custody or control of the Goods. 

13.  The Bill of Lading was issued in Hong Kong and dated 19 October 1995. 

- It named the Plaintiffs as shipper, and a company called Bronze Lion, with an address in Moscow, as consignee. 

- It stated Hamburg as "port of discharge" and Moscow as "place of delivery".         

- It did not expressly state an agreed time limit for delivery.

Carriage of Goods

14.  It appears to be common ground that the Goods were duly shipped on board the “Ming Star”, discharged from the ship at Hamburg and then carried by land to Moscow. 

Events after arrival of Goods in Moscow

15.  It was at this juncture that complications began.  The sale by the Plaintiffs was on “D/P” (Documents against Payment) terms and the Plaintiffs had sent the Bill of Lading to their bank for collection of funds.  However in November 1995, the Bill of Lading was sent back to the Plaintiffs as the bank did not receive payment. 

16.  The Plaintiffs took steps to locate the Goods.  Their inquiries as to the whereabouts of the Goods brought inconsistent responses initially.  They allege that at one stage they were told that the Goods had actually been collected by Bronze Star.  Inquiries made by the Plaintiffs’ solicitors to the Carrier were met by a letter dated 18 February 1996 in which the Carrier alleged that it could not release the Goods to Bronze Lion because “shipper Latlink International Ltd has not presented full set of original China International B/L issued at Hong Kong to us”. 

17.  Apparently a company by the name of Latlink International Ltd (“Latlink”) had, together with the Carrier itself, been named as the shippers under another Bill of Lading No. 950109MOSSV issued by the Carrier in Taipei.  The copy of this Bill of Lading available to the court was unsigned and was for the carriage of 214 cartons of goods, but it bore the same date, same ship name, same consignee name and same container number as the Bill of Lading for the Plaintiffs’ Goods.

18.  So it may (or may not) have been the case that Latlink’s goods had been collected by Bronze Star, and this may (or may not) have been the reason why the Plaintiffs had first been told that Bronze Star had collected their Goods.

19.  In any event, by March 1996, the Carrier had informed the Plaintiffs that their Goods had not been collected and were being stored by the carrier in a warehouse in Moscow (possibly under clause 15 of the Bill of Lading).  The Carrier asked the Plaintiffs to either take delivery of the Goods in Moscow by presenting the Bill of Lading or to pay freight for the return of the Goods.

20.  The Plaintiffs did not do so, possibly because, by reason of the previous confusion, they wished to have the Goods inspected first in Moscow.  However, proposals for the appointment of surveyors and for the Plaintiffs to travel to Moscow for inspection of the Goods fell through.  This is an area of dispute between the parties. 

21.  The Defendant’s case was that eventually at the end of 1996, as a result of high storage charges, the Goods were sold at an auction but the proceeds were not sufficient to pay storage charges.  According to the trial judgment, this was made known to the Plaintiff in May 1997.

Proceedings

22.  In 2001, the Plaintiffs issued proceedings in the District Court against the Defendant for delivery of the Goods or their value, alternatively damages for conversion.  The claim underwent a number of amendments, and further and better particulars of the claim were sought and supplied, but the pleadings still left much to be desired. 

23.  The action was heard by Sham Dep DJ in May 2002.  By this time, the Plaintiffs were no longer legally represented.  Oral and documentary evidence was adduced by both parties. 

Judgment in the District Court

24.  However, in his judgment dated 15 May 2002, the trial judge did not make any determinations on the disputed facts.  He held that the Plaintiffs’ claim was in any event time-barred by (a) the Hague-Visby Rules as applied under clause 8 of the Bill of Lading, and/or by (b) clause 21 of the Bill of Lading.

Defence (a) - Time Bar under Hague-Visby Rules

25.  The Hague-Visby Rules were incorporated by clause 8 of the Bill of Lading which provided:

“8.  PARAMOUNT CLAUSE

The Hague Rules contained in the international Conventions for the unification of certain rules relating to Bill of Lading dated Brussels 25^th August 1924 or in those countries where they are already in force the Hague-Visby rules contained in the protocol of Brussels dated February 23^rd 1968 as enacted in the country of Shipment, shall apply to all carriage of goods by sea and where no mandatory international or national law applies to the carriage by inland waterways also and such provision shall apply to all goods whether carried on deck or under deck” (emphasis added).  

26.  The relevant Hague-Visby Rules, as applied to Hong Kong under the Carriage of Goods by Sea Ordinance cap. 462, provide:

Article I 

Under Article I, the following words have the following meaning:

(b) "contract of carriage" applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea ..." (emphasis added)

(d) “carriage of goods” covers the period from the time when the goods are loaded on to the time they are discharged from the ship” (emphasis added).  

Article II

- ... “under every contract of carriage of goods by sea, the carrier, in relation to the loading, handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the responsibilities and liabilities, and entitled to the rights and immunities hereinafter set forth” (emphasis added).

Article III

6. Unless notice of loss or damage and the general nature of such loss and damage be given in writing to the carrier or his agent at the port of discharge before or at the time of removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, or, if the loss or damage be not apparent, within three days, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading

...

... 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).

Defence (b) - Time Bar under Bill of Lading  

27.  Clause 21 of the Bill of Lading provided:

“21.      TIME BAR

The Freight Forwarder shall be discharged of all liability under the rules of these Conditions unless suit is brought within nine months after

(i)	the delivery of the goods or
(ii)	the date when the goods should have been delivered or
(iii)	the date when in accordance with Clause 20 failure to deliver the goods would in the absence of evidence to the contrary give to the party entitled to receive delivery the right to treat the goods as lost”.

28.  In paragraphs 13-14 of his judgment, the trial judge found that on the basis of Clause 21 of the Bill of Lading, the action was time-barred when the Plaintiffs failed to institute proceedings within 9 months after the date of delivery of the goods or the date when the goods should have been delivered.  He also found that on the basis of Article III(6) of the Hague-Visby Rules, the action was time-barred after 1 year.

Appeal

29.  The Plaintiffs appealed.  A number of grounds have been advanced, but this court is not in a position to deal with those grounds which are dependent on findings of fact, none having been made by the trial judge.  Accordingly we can only deal with the reasons given by the trial judge for his dismissal of the action, i.e. that the action has been time-barred by

(a)      the Hague-Visby Rules and

(b)     Clause 21 of the Bill of Lading.

Defence (a) - Hague-Visby Rules

30.  In my view, the Hague-Visby Rules did not apply to the present claim, because where a contract of carriage involves both sea and inland transport, the Hague-Visby Rules apply only to that part of the contract of carriage that related to sea transport, as shown clearly in the passages in the Articles underlined in paragraph 26 of this judgment.

31.  In the present case, it was common ground that the Goods had already been discharged from the "Ming Star" at Hamburg and had arrived via inland transport at Moscow before disputes as to their custody began.  Accordingly, in my view, it is clear that the Hague-Visby Rules (including the time bar thereunder) did not apply.  

Pyrene v Scindia

32.  That the Hague-Visby Rules apply only to the “sea transport” part of a contract of carriage was clearly established in the landmark case of  Pyrene Co Ltd v Scindia Steam Navigation Co Ltd [1954] 2 QB 402.  In that case,  Devlin J explained that the Hague Rules do not attach to a period of time as such; they attach to a contract.  Or, where a single contract covers both sea and inland transport， they may attach to part of a contract.  In that situation, the only part of the contract that falls within the Hague Rules is that which "relates to the carriage of goods by sea"(at pp.415-6). 

33.  Accordingly the relevant question to ask is: did the loss or damage to the goods occur during an operation that was part of their carriage by sea?  In the present case, as the Goods had gone via inland transport to Moscow before disputes as to their custody began, the answer must, in my view, be clearly “No”.

34.  Although Pyrene v Scindia was decided on the Hague Rules, not the Hague-Visby Rules, the rationale of Devlin J’s judgment still holds good because the Articles of the Hague Rules on which he based his decision have not been amended.

35.  Counsel for the Defendant submitted that the Hague-Visby Rules covered wrong delivery of goods, and since wrong delivery could only (or would normally) occur after discharge from the ship, the Hague-Visby Rules applied beyond the contract of carriage by sea.  He sought to derive assistance from the judgment of the English Court of Appeal in Compania Portorafti Commerciale S.A. v Ultramar Panama Inc. and others (The“Captain Gregos”) [1990] 1 Lloyd’s Rep. 310.

36.  In my view, the Hague-Visby Rules could cover wrong delivery of goods, but the relevant question is still: did the wrong delivery occur during an operation that related to the carriage by sea?

The “Captain Gregos”

37.  In that case, the contract was for the carriage of crude oil on board a ship.  At discharge, there was short delivery of the oil.  The cargo-owners alleged that the carrier had misappropriated part of the oil to bunker the ship, and/or had transhipped it during the voyage, and/or had deliberately omitted to discharge part of the oil at the port of discharge.

38.  The trial judge, Hirst J, held ([1989] 2 Lloyd’s Rep. 63, at p.69) that the Hague-Visby Rules did not apply because the cargo-owners were alleging misdelivery, and he considered that delivery (which imported concepts of possessory or proprietary rights) was alien to Article II, which defined the intended scope of the Hague-Visby Rules.

39.  On appeal, the English Court of Appeal held that the cargo-owners’ complaint should not have been characterized as one of misdelivery (at p.315) but simply as one of the carrier’s failure to keep and care for the goods during the voyage.  Therefore the Hague-Visby Rules clearly applied.

40.  In the course of his judgment however, Bingham L.J.  considered the question whether wrong delivery could be covered by the Hague-Visby Rules.  He considered the submission made by counsel for the carrier who had referred the court to the travaux preparatoires which led to the amendment of Article III(6) of the Hague-Visby Rules.  The object of the amendment (as defined by the chairman of the relevant subcommittee) was

“to give the text a bearing as wide as possible, so as to embody within the scope of application of the one year period, even the claims grounded on the delivery of the goods to a person not entitled to them, i.e. even in the case of  what we call a wrong delivery” (at p.313). 

41.  Bingham LJ agreed that the travaux preparatoires tended to demonstrate a legislative intention to apply the time limit to cases of wrong delivery (at p.314).  Of course wrong delivery could take place during the voyage, e.g. by transhipping or by the carrier’s use during the voyage, as were the alleged facts in The Captain Gregos.  But even if Bingham LJ is to be taken as having endorsed the view that the travaux preparatoires were concentrating on the problem of  delivery to a party who did not present the bills (at p.316), that would still be in the context of delivery by the sea carrier.

42.  As a matter of completeness, I would add that Counsel for the Defendant referred us to the passages from The "New York Star" quoted in The "Captain Gregos".  A perusal of "The New York Star" [1980] 2 Lloyd’s Rep. 317 shows that the Hague-Visby Rules did not apply and were consequently not argued in that case, which was decided on the particular provisions of the bill of lading (which included a clause that the carrier’s responsibility as a carrier terminated as soon as the goods leave the ship’s tackle, as well as another clause in which the carrier recognized that it continued to have some responsibility as bailee of the goods after discharge - see p.324).  In view of those particular provisions in that bill of lading, I do not think that the passages from The "New York Star" are of general assistance in consideration of the Hague-Visby Rules.  

Wily v Hecny

43.  Counsel for the Defendant also relied on Liu JA’s judgment in Wily Products Co Ltd v Hecny Shipping Ltd [1995] 3 HKC 47, where goods covered by combined bills of lading for carriage of goods by sea and land were lost after discharge from the ship but before delivery to the land carrier. 

44.  In that case, the freight forwarder’s argument was based on a distinction between the Hague-Visby Rules and the Hague Rules. 

45.  The majority of this court (Litton VP and Patrick Chan J) considered the argument to be irrelevant because in any event, the goods were declared in “cartons” on the bills of lading, and it was conceded that if the relevant shipping unit was “cartons”, then no limitation could help the defendant, whether the Hague Rules applied or the Hague-Visby Rules applied.

46.  Liu JA held however that the Hague-Visby Rules applied.  He referred to The Zhi Jiang Kou [1991] 1 Lloyds Rep 493, a decision of the Court of Appeal of New South Wales.  In that case, Kirby, P. held (at 516):

“Contrary to the opinion of Mr Justice Hirst in The Captain Gregos, art. II of the Hague Rules does not in my opinion establish a category limited to events arising from loading to discharge, strictly so confined.  It also includes custody and care, loading and handling as well as the carriage and discharge of the goods.  ‘Custody and care’ are apt to cover events after the discharge and until delivery of the goods.  Any other construction would artificially narrow the operation of the Hague Rules”.

(The other two judges in the Court of Appeal of New South Wales considered the arguments about the scope of Article III(6) to be irrelevant because they held that clauses 6 and 10 of the bill of lading in that case were special provisions dealing with time-bars for claims after discharge and up to delivery, which prevailed over the Hague Rules , see p.498).

47.  Liu JA held:

“The inter-relationship between arts I(e) [now Article I(d)] and II is succinctly summed up by Devlin J (as he then was) in Pyrene Co Ltd  v Scindia Steam Navigation Co Ltd [1954] 2 QB 402 at 411.  The learned judge said: ‘The operation of the Rules is determined by the limits of contract of carriage by sea and not by any limits of time’.

It is reasonably clear that for our purposes, art I(e) would not materially affect art. II.  In other words, despite art I(e), the period of ‘carriage of goods’ by sea envisaged in art II should not be strictly construed, limiting it to ‘events arising from loading to discharge’.  Article II would therefore extend the period beyond discharge.  In the situation the parties faced, art II is quite capable of standing on its own.  The sea carriage did not therefore terminate after discharge and the Hague-Visby Rules still applied at the time of loss before the goods were handed over to the land carrier” (emphasis added).  

Computronics v PIFF

48.  Liu JA’s view was not accepted by another division of this court (Nazareth VP, Godfrey and Ching JJA) in Computronics International (a firm) v PIFF Shipping Ltd [1997] 2 HKC 53, at pp.62-3.  However, that was an interlocutory appeal involving an application to strike out for want of prosecution and the issue was not fully examined.

49.  It is not necessary for this court to consider whether the view expressed in Computronics was justified or not.  It would not be prudent for this court to do so in this appeal, even by way of obiter dictum, because one of the parties is not legally represented and this court has not had the benefit of full argument for both sides.  Besides, it is not necessary to express a view on the correctness of Liu JA’s judgment because even assuming it is adopted, the rationale of his judgment was that the contract of carriage by sea had not terminated (at p.52H-I) because the goods were lost at the port of discharge before they were handed over to the land carrier (at p.49).  Nowhere in Liu JA’s judgment did he suggest that the Hague-Visby Rules applied beyond carriage by sea.

50.  In the present appeal, the Goods were far removed from that situation.  The Goods had been discharged from the "Ming Star" at Hamburg and had arrived via inland transport at Moscow before disputes as to their custody began.  On no stretch of the imagination could the Goods be said to be still within the scope of a contract of carriage by sea. 

Hague-Visby Rules do not apply to misdelivery inland

51.  In my view, Article III(6) could not possibly extend to wrong delivery after inland carriage.  Apart from the express wording of the Articles referring to the contract of carriage by sea, it would make no sense for Article III(6) to require the cargo-owner to notify the carrier of loss or damage “at the port of discharge” (as in this case, Hamburg) if the goods were found to be lost or damaged at the place of delivery (as in this case, Moscow), which may be (and in this case, was) a long distance inland from the port of discharge.

52.  In the circumstances, I take the view that the trial judge erred when he held that the Hague-Visby Rules (and consequently the time bar thereunder) applied in the present case. 

Defence (b) - Clause 21

53.  Coming then to the second reason given by the trial judge for dismissing the Plaintiffs’ claim, Clause 21 of the Bill of Lading provided that the Carrier shall be discharged of all liability unless suit is brought within nine months after

“	(i)	the delivery of the goods or
	(ii)	the date when the goods should have been delivered or
	(iii)	the date when in accordance with Clause 20 failure to deliver the goods would in the absence of evidence to the contrary give to the party entitled to receive delivery the right to treat the goods as lost”.

54.  This clause must be read with clause 20 which provided:

"20.      NON DELIVERY

Failure to effect delivery within 90 days after the expiry of a time limit agreed expressed in A.CT Bill of Lading or where no time limit is agreed and so expressed, failure to effect delivery within 90 days after the time it would be reasonable to allow for diligent completion of the combined transport operation shall in the absence of evidence to the contrary, give to the party entitled to receive delivery the right to treat the goods as lost".

55.  Clause 21 is obviously intended to cover three different scenarios. Clause 21(i) covers the scenario where actual delivery has taken place.  So if the goods so delivered are damaged, proceedings have to be brought within 9 months after delivery.  That is not this case. 

56.  Clause 21(ii) covers the scenario where "goods should have been delivered" but (by implication) were not delivered to the person entitled to them.  Counsel for the Defendant submitted that this sub-clause applies in the present case because the Goods had arrived in Moscow by the end of November 1995 and that should be taken to be "the date when the goods should have been delivered".  I do not agree.  That would be reading the sub-clause as if it read "the date when the goods arrived at the place of delivery".  However that might, or might not, be the time when they "should have been" delivered, because it depends on whether delivery was actually sought and whether conditions for delivery, e.g. presentation of the Bill of Lading, were complied with.  If they were not, then the date when the goods arrived at the place for delivery could not be "the date when the goods should have been delivered".  (For the converse of the situation, where the Freight Forwarder can require the goods to be collected, see clause 15 of the Bill of Lading which provides for storage of the goods and the cesser of its liability). 

57.  I have considered whether the words "the date when the goods should have been delivered" were intended to apply to a contract where a time limit has been expressly agreed, but that would be covered by the first part of clause 20, and in that situation clause 21(iii) gives an additional 90 days  before the 9-month limit starts to run.

58.  In my view, "the date when the goods should have been delivered" means exactly what it says - the date when the goods should have been, but were not, delivered to the person entitled to them upon his making a claim for them with the relevant documents.  That might, or might not, have been in November 1995, because of the initial confusion as to what had happened to the Goods (even as late as February 1996, the Plaintiffs were being given confusing information by the Defendant about Latlink).  In the absence of relevant findings of fact by the trial judge as to what was done by the parties (and their explanations why they did or did not do certain acts), I do not think that this court can now determine that the relevant time limit commenced in November 1995 simply because that was when the Goods arrived in Moscow.

59.  Clause 21(iii) covers the scenario in clause 20, which itself deals with two different situations:

(a) where a time limit for delivery has been expressly agreed in the bill of lading, and

(b) where no time limit has been expressly agreed. 

60.  In (a), upon the expiry of the expressly agreed time limit, plus 90 days, the party entitled to delivery would, in the absence of evidence to the contrary, have the right to treat the goods as lost.

In (b), upon the expiry of a reasonable time to allow for diligent completion of the combined transport operation, plus 90 days, the party entitled to delivery would, in the absence of evidence to the contrary, have the right to treat the goods as lost.

61.  There was no expressly agreed time limit for delivery in the present case, so situation (a) does not apply.

62.  Whether situation (b) applies depends first, on a finding of what was the reasonable time that should have been allowed for diligent completion of the combined transport operation from Hong Kong to Moscow.  More importantly, there is the question whether clause 21 applied at all in view of the (disputed) evidence that the Plaintiffs (by virtue of the return of the Bill of Lading to them, the party entitled to receive the Goods) had chosen not to assert the right to treat the goods as lost, but having located the goods, asserted the right to recover them but on conditions which were disputed by the Defendant. Unfortunately, there were no findings of fact by the trial judge whether the conditions were justified or not.

Order

63.  In the circumstances, I take the view that this court has no option but to remit the case to the District Court for re-trial.   I would order that the appeal be allowed, the trial judge’s order be set aside and the case be remitted to the District Court for trial before another judge. 

64.  Having heard the parties’ submissions on costs, I take the view that the usual order that the costs follow the event should apply.  Since the Plaintiffs have succeeded in overturning the trial judge’s order, I would order that their costs of the appeal be borne by the Defendant, to be taxed if not agreed.  As for the costs of the original trial, I would order that the costs be in the cause of the re-trial.

Hon. Chung J:

65.  I agree with Yuen JA's judgment and the reasons she has given for it.