ANTWERP DIAMOND BANK N.V. v. BRINK’S, INCORPORATED AND OTHERS

CACV 282/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 282 OF 2012

(ON APPEAL FROM HCCL NO. 14 OF 2010)

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J U D G M E N T

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Hon Lam VP:

1. I agree with the judgment of Hon Barma JA and the orders he proposes.

Hon Lunn VP:

2. For the reasons articulated in the judgment of Barma JA I agree that the appeal is to be allowed and with the consequential orders he proposes.

Hon Barma JA:

3. This was an appeal against the judgment of Deputy High Court Judge Lok dated 4 December 2012 by which he dismissed the claims of the plaintiff bank against the 3^rd defendant, Brink’s Hong Kong Limited, for damages for conversion (by misdelivery) of a cargo of diamonds, on the ground that the plaintiff did not have the requisite title to sue to enable it to maintain a claim in conversion.

4. The factual background to the claim can be summarised as follows:-

  (1)  The plaintiff provided banking facilities in India to an Indian company called Rupam Impex, whose business was the supply of diamonds. Such facilties were evidenced by a Working Capital Consortium Agreement dated 23 October 2006, and a Joint Deed of Hypothecation of the same date.

  (2)  Pursuant to the first of these agreements, the plaintiff made finance available to enable Rupam Impex to acquire diamonds and other raw materials for the manufacture of finished diamonds for export.

  (3)  With the plaintiff’s consent, Rupam Impex sold three batches of diamonds (“the Diamonds”) to a Mr Piyush Kala, trading as Beauty Diam, in Hong Kong.  The payment terms were documents against acceptance 120 days after sight – i.e. the plaintiff (through its Hong Kong agent) would present drafts of 120 days’ tenor drawn by Rupam Impex on Beauty Diam to Beauty Diam for acceptance, and that Beauty Diam would only be entitled to take delivery of the goods after having accepted the drafts drawn on it.

  (4)  The Diamonds were shipped to Hong Kong by air.  Rupam Impex engaged an Indian freight forwarder called N. Jamnadas to make arrangements for the shipment.  The shipments were effected under three House Air Waybills issued by N. Jamnadas, respectively dated 28 July, 6 November and 12 November 2008.  The House Air Waybills recorded Rupam Impex as the shipper, the Bank of East Asia (“BEA”) (the plaintiff’s agent and receiving bank in Hong Kong) as the consignee and Beauty Diam as the notify party.

  (5)  The House Air Waybills were given by N. Jamnadas to Rupam Impex, who in turn handed them over to the plaintiff.  The plaintiff sent them on to BEA, but has since received them back, and remains in possession of them.

  (6)  According to the House Air Waybills, the relevant Brink’s Global Services affiliated company (in this case, the 3^rd defendant) was the contracting party in respect of the contract for carriage of the goods covered by the House Air Waybills (see clauses I.1 and I.3 on the reverse of the House Air Waybills).

  (7)  The diamonds were actually carried from India to Hong Kong by Jet Airways, under Master Air Waybills issued by Jet Airways showing N. Jamnadas as the shipper and the 3^rd defendant as the consignee.  However, nothing turns on this, as this is the normal way in which Master Air Waybills are issued where multiple cargos are consolidated by freight forwarders.

  (8)  When the Diamonds arrived in Hong Kong, they were collected from Jet Airways by the 3^rd defendant, who subsequently released them to Beauty Diam without having first obtained the consent of the plaintiff or BEA, and without Beauty Diam having accepted the drafts drawn on it.  As a result, Beauty Diam was able to obtain of the Diamonds without paying for them, resulting in the plaintiff losing such security as it had over the Diamonds.

5. In the court below, the plaintiff sued the 3^rd defendant for conversion, claiming that:-

  (1)  it was the pledgee of the Diamonds, and as such had the necessary proprietary, or at least possessory, interest in them to entitle it to bring the claim; and alternatively

  (2)  it was entitled to sue for misdelivery under the Warsaw Convention or Amended Warsaw Convention (relying in particular on Article 13 thereof).

6. The Judge rejected both of these arguments:-

  (1)  In relation to the argument that the plaintiff was the pledgee of the Diamonds, the Judge concluded that in order to constitute the plaintiff a pledgee (or to perfect the pledge), it would be necessary for the Diamonds to have been delivered to the plaintiff (or for possession of the Diamonds to be transferred to the plaintiff), but that because the House Air Waybills (although naming the plaintiff’s agent as consignee) were not negotiable documents of title – either as a matter of law or as the result of custom (none having been proved), the delivery of the House Air Waybills by Rupam Impex to the plaintiff did not amount to constructive delivery to the plaintiff of the Diamonds (see paragraphs 23 to 38 of the judgment below).

  (2)  In relation to the claim based on the Warsaw Convention or Amended Warsaw Convention, the Judge held that this claim was not open to the plaintiff since it had not been pleaded.  He also expressed doubt as to whether or not either Convention was applicable in this case, as the misdelivery took place after the completion of the carriage by air, and hence was not within the scope of either Convention (see paragraphs 39 to 50 of the judgment below).

7. Before us, Mr Sussex SC (who did not appear for the plaintiff below), accepted that there could in this case be no claim under the Warsaw or Amended Warsaw Conventions, as the misdelivery had clearly taken place outside the aerodrome, so that the Conventions had ceased to be applicable by the time of the misdelivery.  However, he submitted that the Judge was in error in concluding that the plaintiff was not the pledgee of the Diamonds, contending that the present case was indistinguishable from the decision of the Privy Council in Kum v Wah Tat Bank Ltd [1971] 1 Lloyd’s Rep 439, in which it was held that the delivery of goods to a carrier, consigned to a bank, amounted to a constructive delivery of the goods to the bank, so as to perfect a pledge over the goods which it earlier had been agreed should be given to the bank.  He also submitted, as a fall back position, that even if it were held that the plaintiff’s pledge had not been completed, Rupam Impex had, by naming the plaintiff’s agent BEA as consignee on the House Air Waybills, parted with the immediate right of possession of the Diamonds in favour of the plaintiff, thus conferring upon the plaintiff a possessory title sufficient to sustain a claim for conversion.  Finally, he suggested that as the Warsaw and Amended Warsaw Conventions had the force of law in Hong Kong, the right of the consignee under Article 13(1) to have the cargo delivered to him also gave the bank (through its agent, BEA) the necessary possessory title to mount a claim in conversion, and that this being a matter of law, it was not strictly necessary to plead it.

8. In my view, Mr Sussex is correct in his contention that the plaintiff had become the pledgee of the Diamonds, and as such, was entitled to bring its conversion claim against the 3^rd defendant.

9. Articles II.1 and II.5 of the Working Capital Consortium Agreement provide, so far as material, as follows:-

“1. The Borrower agrees that the said Facilities together with interest, compound interest, additional interest, liquidated damages, costs, charges, expenses and other moneys payable in respect thereof will be secured in favour of the said Banks by a first charge by way of hypothecation and/or pledge of the Borrower’s Current Assets, namely, Stock of Raw Materials, Semi Finished and Finished Goods, Stores and Spares … Bill Receivable and Book Debts and all other movables of the Borrower …”

“5. In respect of the said Facilities granted to the Borrower against pledge of goods, movables and all other assets all such goods, movables and other assets shall be placed in the possession of the said Banks under their control and in such manner that such possession and control may be apparent and indisputable …”

10. In my view, these provisions clearly amount to an agreement on the part of Rupam Impex to pledge to the plaintiff its finished goods (in this case the Diamonds), although the pledge would not be complete until such time as the Diamonds were placed in the possession (actually or constructively) of the plaintiff.

11. It further seems to me that by delivering the Diamonds to N. Jamnadas for carriage to Hong Kong, under House Air Waybills that identified the plaintiff’s agent, BEA, as the consignee, Rupam Impex were directing N. Jamnadas to deliver the Diamonds to BEA, so as to constructively deliver them to the plaintiff.  That an arrangement by which the owner of goods delivers them to a carrier consigned to a bank to whom the owner has agreed to pledge the goods amounts to a constructive delivery to the bank so as to perfect the pledge is established by the decision of the Privy Council in the Kum case.

12. There, Lord Devlin, having observed that in a contract of sale, delivery would prima facie occur on shipment, went on to consider whether the position should be any different under a contract of pledge, and expressed the view that where the contract was silent as to the mode by which delivery was to be accomplished, it was difficult to see why the same presumption should not apply, going on to say that the circumstances of the case in fact strongly supported the applicability of the presumption.  Lord Devlin suggested that there were three possible occasions for delivery to a pledgee, these being on shipment, by attornment during the voyage, or by physically delivering the goods to the pledgee at the destination, and explained that of the three, the most sensible, particularly where money had already been advanced, was on shipment, since that would provide the bank with the security for which it had stipulated at the earliest point in time.  By contrast, attornment during the voyage would be unnecessarily complicated, as it would involve a transfer of possession during the voyage, which would require fresh instructions to be given to the carrier, which the carrier would have to accept.  Delivery by way of physical delivery at the destination made little sense, since in the normal case, where the buyer honoured his payment obligations, the bank itself would never take delivery of the goods, with the result that the contract of pledge would, in normal circumstances, never be completed, and would leave the bank with no security in the event that the customer obtained the goods without first paying for them (see Lord Devlin’s speech at p.448 of the report).

13. The factual situation here is not materially different.  Here, too, the plaintiff had advanced funds to the shipper (Rupam Impex), and would have been concerned to obtain the security of a pledge at the earliest opportunity.  There is therefore no reason to treat the delivery by Rupam Impex of the Diamonds to N. Jamnadas, consigned as they were to BEA, as other than a delivery to them as a bailee for the plaintiff.

14. Unfortunately, the Judge seems to have led himself into error by focussing on the question of whether the House Air Waybill constituted a negotiable document of title, and concluding that it did not.  It would seem that he understood the effect of the Kum case to be that the pledge there was completed by the delivery to the bank of the mate’s receipts which constituted the shipping documents in that case, on the basis that those documents were, by a custom which had been established on the evidence in that case, negotiable documents of title.  This was indeed the basis on which the Malaysian Court of Appeal had found in favour of the bank in that case.  But the Privy Council had in fact held that the custom contended for could not be established in the face of the fact that the mate’s receipts were clearly marked “non-negotiable”.  The delivery of the mate’s receipts to the bank therefore did not equate to delivery to it of the goods.  However, notwithstanding that the Privy Council held that the mate’s receipts were not negotiable documents of title, it had no difficulty in concluding that delivery to the carrier of goods consigned to the bank amounted to a delivery to the bank so as to complete the pledge.  That this (and not the delivery of the mate’s receipts) was the basis of the Privy Council’s decision is clear from Lord Devlin’s statement (at p. 446 of the judgment), after dealing with the question of whether or not the mate’s receipts were, by custom, negotiable documents of title, that having disposed of that contention against the bank, the Privy Council would turn to the basis on which the case was actually decided, which I have summarised above.

15. Mr Sheppard, appearing for the 3^rd defendant (as he had below), did not, I think have any answer to this argument, and was not, with respect, able to suggest any relevant point of distinction between the situation in the Kum case and the situation here.

16. He sought, in his oral submissions, to suggest that there was some doubt as to whether or not the plaintiff had actually made any advances to Rupam Impex.  This, however, does not seem to have been a point that was raised below, and in any event no respondent’s notice having been filed seeking to uphold the judgment on this ground (which was not relied upon by the Judge), it is not a point which is open to be taken now.

17. Mr Sheppard further sought to make reference to documents entitled “Exchange Control Declarations” in which both BEA and Beauty Diam appeared to be described as consignees.  However, quite apart from the fact that this too, was not a matter raised by way of respondent’s notice, it does not seem to me that this document can assist the 3^rd defendant, when it does not appear to have anything to do with the carriage of the goods and was neither issued by or on behalf of, nor it seems made available to, the 3^rd defendant.

18. Finally, Mr Sheppard complained that the plaintiff’s claim was not pleaded sufficiently clearly below.  However, it seems to me that while the Statement of Claim might have been somewhat better structured, the plaintiff’s security interest in the Diamonds appears to be sufficiently referenced at paragraph 10, and the Judge, and no doubt the parties, would seem to have been well aware that one of the main bases of the plaintiff’s claim was that it had been constituted a pledgee of the goods and, as such, had the necessary possessory title to maintain its claim for conversion.

19. For the foregoing reasons, I am satisfied that the plaintiff has established that it had become the pledgee of the Diamonds, so as to be able to claim damages for conversion as against the 3^rd defendant for its misdelivery of the Diamonds to Beauty Diam, and that the Judge was in error in reaching the contrary conclusion.  As to the amount of damages, there does not appear to have been any real dispute but that the value of the Diamonds was, as stated in the Statement of Claim, US$852,339 (the first shipment being worth US$248,500.50, the second shipment being worth US$409,076 and the third shipment being worth US$194,762.50) and that this represents the measure of the plaintiff’s loss.

20. In the light of this conclusion, it is not strictly necessary to consider the alternative bases on which Mr Sussex contended that the plaintiff, even if not a pledgee, nonetheless had title to sue in conversion, and I prefer not to express any concluded view on those further arguments.

21. I would therefore allow the appeal, set aside the judgment below, and substitute therefor orders that the 3^rd defendant to pay to the plaintiff the amount of US$852,339 as damages for conversion, together with interest at the commercial rate on the value of each of the three shipments from the date of misdelivery.  So far as costs are concerned, I would make an order nisi that the 3^rd defendant is to pay the plaintiff’s costs both here and below with certificate for two counsel in respect of the hearing in this court.