BEE KAY AND CO. (H.K.) LIMITED v. WOMBAT LINES INC. AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION No. 10790 of 1982

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BETWEEN

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JUDGMENT

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1. This is an action by the Plaintiffs, shippers, against the Defendants, carriers, of two consignments of plastic frame irrors which were the subject of two Bills of Lading. The consignment was from Hong Kong to Lagos and, so far as this case is concerned we have dealt with the carriers' agents in Lagos, Ashaye Far East. The 2nd Defendants in the action are in the process of being wound up and so the action against them has been stayed leaving the action against the 1st Defendants only. The two Bills of Lading are dated the 7th August, 1981 and are endorsed "Delivery to the order of the Plaintiffs". They are to be found, (copies) in the bundle of documents at pages 13 and 17. The goods, had been sold to K. Ajiboye Trading Co. in Lagos, described on the Bill of Lading under the box headed "Notify". The goods arrived in Lagos in about October 1981 and were then held by the Defendant's' agents. The Plaintiff drew Bills of Exchange for payment. Ajiboye Trading Co. failed to retire those bills.

2. The Plaintiff company is run, so far as the evidence in the case is concerned, by the two brothers, Khemani; Bhagwan and Indru. Indru was resident in Lagos; Bhagwan in Hong Kong. On material matters concerned in this case, they consulted together. Indru dealt with Mr. Ajiboye of Ajiboye Trading Co. who provided for him two debit advices in respect of the payment. Both of these proved to have been forged. When that became known, Indru tried to trace Mr. Ajiboye. After some difficulty he did so. I accept that after the history of these forged documents, relationships between them were somewhat strained. However, the goods were in Lagos held by the Defendants' agents. The Plaintiff wanted paying for them. Ajiboye wanted the goods and he was indicating that he had a buyer if he could obtain them. The result was that Ajiboye made an arrangement with the Defendants' agent that the goods would be released on a Banker's Indemnity. The Defendants' agent would only release on a Banker's Indemnity if the Plaintiff would also agree to that course. There is a conflict in the evidence as to what part Indru Khemani took in pursuading the Defendants' agent to release the goods on a Banker's Indemnity. It is clear that the Defendants' agent telexed Hong Kong to obtain agreement to the release from the company here. By a telex (which is the only one before the court in evidence, on page 77 of the bundle) it is clear that on the 25th May, 1982, Bee Kay agreed to the goods being released against a Bank Indemnity.

3. In Lagos, Ashaye Far East (the agents,) were dealing with Indru and Indru gave them a letter to the same effect. The letter marked "for the attention of Mr. Walter Ng,"who gave evidence, reads:

"In relation to these goods, we authorize you to release the above consignment to Messrs. Ajiboye Trading Co. on Bank Indemnity, provided the same is in order and properly authorized by the Societe Generale Bank of Nigeria, Broad Street, Lagos."

4. Ajiboye had obtained a blank indemnity form from Ashaye Far East. It was a standard form and that form was returned to Ashaye completed. Ashaye, the Defendants' agent, did not release the goods at once. The evidence indicates, and I accept it, that forged documents are not an unknown feature of commercial life in Lagos. They wanted to check on the authenticity of the documents. Also the releasing of goods on a Bank Indemnity in Lagos is not an unusual practice. I accept that there is difficulty from time to time in Bills of Lading being available as immediately as in other parts of the world. The reasons for this do not matter. It may relate to the post. It may relate to the banks. I do not know.

5. When Ashaye had in their hands both the completed Bank Indemnity form(page 79 of the bundle) and the letter from Indru Khemani (page 78) Mr. Walter Ng put on the letter on the top left hand corner, "Dapo, please check and sign it." Having done that, the documents went back to Mr. Odubote who gave evidence. He was also an employee of Ashaye. According to Mr. Odubote, he took the indemnity form to the bank at Broad Street; the branch of the Societe Generale Bank of Nigeria, specified in the letter. At the bank he was present (so he said) when a bank employee checked the signatures on the document against specimens. According to his evidence, he also tried to look at the specimen signatures to make a similar check. He was not able to do so because he was prevented by the tank employee. The bank employee, according to Mr. Odubote, pronounced the signatures genuine and with that comforting knowledge he returned to Ashaye. Mr. Odubote's evidence about taking the document to the bank for checking is challenged by the Plaintiff.

6. In due course, the goods were released to Mr. Ajiboye. They were released by Ashaye on the strength of the Bank Indemnity and the letter. The goods having been released, the Plaintiffs were never paid. The Bills of Lading, which were by that time at the Societe Generale Bank of Nigeria, Broad Street, Lagos, were not retrieved on the basis of the indemnity or otherwise.

7. The Plaintiffs had been paid on the strength of the documents by the bank and, in due course, there being no other way, the Plaintiffs recovered the Bills of Lading from the bank by repaying them the moneys they had received from them, together with interest.

8. The Plaintiffs sue on the basis that, as holders of the Bills of Lading and as persons always entitled to the possession of them, the Defendants failed to deliver the goods to their order and, in further breach of contract, they released the goods to Ajiboye without obtaining a Bank Indemnity in respect of them. They also put their claim in conversion and negligence. Their claim is that the original Bill of Lading which required the goods to be delivered to their order was varied by an agreement, evidenced by telexes and the letter. The agreement was that the goods should be released against a Bank Indemnity and the Defendants are in breach of their contractual obligation by releasing them without a Bank Indemnity because the Bank Indemnity was forged.

9. The Defendants contend first that the Plaintiffs have failed to prove that the Bank Indemnity was forged, and that therefore the case fails in limine. If they have so failed to prove, there can be no doubt that the case fails.

10. Further, the Defendants contend that if the document is forged, the Plaintiffs' claim fails because the Defendants released the goods at the request of the Plaintiff. There is no doubt that if the Defendants released goods without releasing them under the authority of the Bill of Lading and on the Bill of Lading, they do so at their peril. But, they rely upon the letter and the telexes as a simple request to release. They submit that it is of no effect that in agreeing or requesting the release, the Plaintiffs appear to put on that agreement or request conditions that the goods should only be released against the Bank Indemnity.

11. The argument goes thus; that if a party requests a carrier to release goods without the Bill of Lading, and the carrier thereby comes under liability to someone who is the holder of the Bill of Lading, then at common law the requesting party indemnifies the carrier against any such liability or consequential loss. The defendants rely upon the expression of that common law principle in Strathlorne Steamship Company Limited v. Andrew Weir and Co. 1934 Commercial Cases 50 at page 168 and, in particular, the citation in the Judgement of Lord Hanworth MR. of the principle in an 1839 case, Toplis v. Crane :-

"We think that this evidence brings the case before us within the principle laid down in Betts v. Gibbins (4), that when an act has been done by the plaintiff under the express directions of the defendant which occasions an injury to the rights of third persons, yet if such an act is not apparently illegal in itself but is done honestly and bona fide in compliance with the defendant's directions, he shall be bound to indemnify the plaintiff against the consequences thereof."

Applying that to the Bill of Lading and relying upon the Strathlorne case, the Defendant submits that here the Plaintiff is the requesting party, that the goods have been released upon the Plaintiff's request and that, as in these circumstances the Plaintiff is liable to indemnify the Defendant against any loss, the Plaintiff cannot recover.

12. Further, the Defendant submits that the apparent condition in the telexes and the letter of the 26th May that the goods should only be released on Bank indemnity is of no legal effect, because there is no consideration in respect of that matter moving from the Plaintiff to the Defendant. Therefore if it is an agreement, it is an agreement without legal effect.

13. Further, the submission is that as the release of goods without the Bill of Lading is such an onerous obligation to undertake the Defendants should not be found to have so agreed without clear and express terms and without clear evidence. They submit that there are not clear terms here nor is there clear evidence.

14. Also, the Defendants submit that the Plaintiffs cannot recover because, if this is a binding agreement otherwise, the Defendants here are in. the position of insurers or sureties, and there is an obligation upon the Plaintiffs to make full disclosure as in contracts of insurance or surety. They submit that the Plaintiffs have failed to make full disclosure because they did not tell Ashaye Far East that Ajiboye had previously produced the two forged debit advices.

15. They submit further that it is not necessary for them to . show that they would have acted any differently if they had known. If this is a contract which requires the utmost good faith they say it fails at the, outset because of the Plaintiff's failure to disclose the earlier forgeries to them.

16. Finally, the Defendants say that if all their submissions so far are wrong, all the Defendants agreed to in the telexes and the letter was to use their best endeavours to ensure that the Bank Indemnity provided was in order and properly authorized by that branch of the bank; that on Mr. Odubote's evidence the best endeavours were used; therefore they are not in reach of the contract.

17. I turn to my findings.

18. On a balance of probability, I am satisfied that the purported Bank Indemnity (copy of which is on page 79 of the bundle) was forged. I rely upon the contents of the two letters in the bundle at page 100 and 105. I bear in mind the Defendants' submissions that they offer in those letters to investigate the matter further', and that there is no evidence of any further investigation, but I am satisfied on the whole of the evidence including those letters that the document is forged. Apart from the' letters, the bank was holding the Bills of Lading at the time of the purported indemnity, and in those circumstances, no such indemnity would have been issued by them. They indicate that in the letter.

19. Further, on the evidence no arrangements were ever made to pay the Bills and retrieve the indemnity. There is evidence from Mr. Bhagwan Khemani that he now holds the Bills of Lading and has not been able to obtain payment from the bank. Finally, although this matter is not at the front of my reasoning, the Defendants have not sought to enforce any indemnity against the bank. I am satisfied this is forged.

20. Further, I reject Mr. Odubote's evidence that he took the document to the bank in order to have the signatures verified or authorized. I am satisfied he received some instructions from Walter Ng, the director or manager of Ashaye, to check the documents whatever that may mean. But I am equally satisfied. that he did no such thing. His evidence as to what happened at the bank is not credible. If he went to the bank to verify that document, the bank would not simply have compared the signatures. The bank must have records and the bank would have ascertained whether such an indemnity had ever been issued. Further, if Ashaye were seeking to protect themselves properly in respect of a Bank Indemnity, they would simply have gone to this branch, show the Bank Indemnity and asked whether they would honour it. If the answer was yes, they would have asked for a note or letter to that effect. The evidence of Mr. Odubote in the circumstances is not evidence that I can accept or understand.

21. Further, in so far as it is of any importance, I am satisfied that the situation in Lagos at the time was such that the Defendants' agent was well aware of the risk that forged documents might be produced.

22. I turn now to a consideration of the evidence whether Indru Khemani and Mr. Ajiboye were present together when the Bank Indemnity was produced. There is some conflict whether Mr. Ajiboye and Mr. Indru Khemani visited in relation to the release of these goods together or separately, and as to how often they were together and separately at the agents. There is some difficulty in assessing this evidence because of the time that has passed. Memories are undoubtedly dim. However, I am satisfied from the terms of the letter Mr. Indru wrote and signed on the 26th May that he was not present with Mr. Ajiboye when the forged document was produced to the agents. If he had been, the letter would not have been written in those terms. On that matter I accept Mr. Indru Khemani's evidence.

23. I also accept that the blank form for a Bank Indemnity was obtained by Mr. Ajiboye from Ashaye Far East Ltd. and taken away by him for completion.

24. Now on this evidence, I turn to the legal issues in the case. There is no dispute that the original contracts in the Bills of Lading were to deliver to the Plaintiff's order. The Bills of Lading, by the time of these matters in May 1982, were with the bank. The Bills of Lading are endorsed - (one can see an example on page 18 of the bundle) -"deliver to the order of the Societe Generale Bank Nigeria Ltd.," as authorized by the Plaintiffs.

25. At this time the bank was acting as the Plaintiff's agent in respect of the Bills of Lading. The Defendants' duty was to release the goods under the contract on the bills of Lading to the order of the bank. If they did otherwise they did so at their peril. It was in these circumstances that they were prepared to release on a Bank Indemnity from Ajiboye, but only if the Plaintiffs also agreed. The basis upon which they sought the Plaintiff's agreement was that they were the most likely party holding or entitled to the possession of the Bills of Lading. Of course, the Defendants did not know at that time precisely who was entitled to the possession of the Bills of Lading. I bear that in mind. They sought the agreement of the Plaintiff by telex to Hong Kong and also of Mr. Indru Khemani, on behalf of the Plaintiffs, in Lagos. The effect of the telexes and the letter is the same. I am satisfied that by means of the telexes and the letter, the Plaintiffs and the Defendants agreed that the goods should be released on a Banker's Indemnity. In making that agreement both parties were seeking to protect themselves, but the questions are what did they agree and was their agreement binding?

26. I am satisfied that an agreement was made, the telex and the letters are evidence of this. I am satisfied that that agreement is binding between them. The Plaintiffs agreed to absolve the Defendants from their obligation to deliver on the Bill of Lading which was partly for the protection of the Plaintiffs as well as for the Defendants. The Plaintiffs,having agreed to absolve the Defendants from that part of their obligation, did so on the condition that the Defendants released the goods against a Bank Indemnity.

27. I am satisfied that the Defendants acted upon the terms of the telexes and the letter, and that those terms were binding. The terms are in normal language. The meaning of the words is ordinary and clear. There is nothing to add to the agreement. The meaning is that the Defendants may release without the Bill of Lading provided that they release against a Bank Indemnity.

28. Are the Defendants in breach of that obligation? The answer is, yes, they are. They released and there was no Bank Indemnity of any kind. The contentions of the Defendants that the words are meaning-less and without legal effect, I reject.

29. Further, the contended for indemnity which arises under the principles in Strathlorne Steamship Company and Andrew Weir, is either contractual or quasi-contractual. That has not been in issue in the case. It is accepted by both counsel; in my judgement correctly. Now if the indemnity arising at common law upon a request to release is contractual or quasi-contractual, it follows that it is open to the parties to agree express terms about such indemnity. The terms here are express and clear.

30. However, in my judgement the circumstances under which such an indemnity arises are not fulfilled. If the indemnity arises when an act is done under express instructions, which are not illegal and are done honestly and bona fide in compliance with them, such directions were not followed by the Defendants' agents in this case. They did not obtain a Bank Indemnity. They obtained a worthless piece of paper.

31. I turn to the question whether this was a contract of insurance or surety. The answer is clear. This is not anything of the kind. The Defendants rely upon a passage in the evidence of Mr. Indru Khemani in which he indicated that he was hoping to get the best of both worlds. He said as a result of the letter either he would be protected because there would be a valid Bank Indemnity from Mr. Ajiboye or, if the agents did not obtain a Bank Indemnity, then they would be liable to him on breach of contract. That circumstance does not in any way make this a contract of insurance or anything like it. It is a perfectly normal agreement.

32. So far as the Defendants say that they are not to be found to have undertaken such a burdensome contract, I reject that submission as well. This is not a burdensome contract. All they are asked to do under the agreement is to ensure that the Bank Indemnity is what it says it is. That, in the circumstances existing in Lagos, was a perfectly easy thing to do. As I have said, all that was necessary before the goods were released was for the so-called Bank Indemnity, to be taken to the branch at Broad Street, Lagos, specified in the letter and for the bank to be asked whether they would honour the indemnity. The answer from the bank would be either yes or no. So far as the Defendants' submissions in that regard are concerned, I reject them.

33. In those circumstances, the Defendants' submissions that the contract only requires their best endeavours do not arise. On the assumption that I am wrong and this contract is to be construed as a contract simply to use their best endeavours, then on the facts they remain in breach. Having found that Mr. Ajiboye did not go to the bank as he says, then they certainly did not use their best endeavours. What is more, even if he did go to the bank to ask somebody to compare the signatures and if he then walked away satisfied, that in my judgment would not be using his best endeavours to ensure that the Bank Indemnity was valid. Best endeavours would be to ask the simple question, will you honour this document?" Even on the evidence given that was not done.

34. There are other matters raised in the defence which have not been pursued by Mr. Smith; rightly in for those matters are not seriously arguable.

35. In these circumstances, I am satisfied that the Plaintiffs' case succeeds and they are entitled to damages.

(Discussion with Counsel)

36. The damages are the sum set out on page 63A and the additional sum on page 68 which include interest to the bank up to the dates of those two letters respectively. So you are entitled to US$21,296.49 and interest, at the judgment rate on that sum from the 30th March 1982 to date, and additionally US$25,701.62 together with interest at the judgment rate from the 24th April 1982 to date.

37. I should make it clear that for the sake of convenience the Plaintiffs have asked that the interest awarded on the damages should be at the judgment rate although it is not always appropriate.

38. It follows, that the judgment rate will apply hereafter without any order from me.

39. There will be judgment in those two sums with interest at the judgment rate calculated from time to time according to the rate at the time.