BRINK'S HONG KONG LTD v. KBC BANK N.V.

FAMV Nos 45 & 52 of 2015

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NOS 45 & 52 OF 2015 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL
FROM CACV NO 282 OF 2012)

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REASONS FOR DETERMINATION

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Mr Justice Ribeiro PJ:

1. At the hearing, we dismissed this application with costs and now provide our reasons.

The plaintiff’s claim

2. The respondent, who was the plaintiff at the trial (P), was a bank carrying on business in India.  It sued the applicant, a carrier who was the third defendant[1] (D), for conversion of a consignment of diamonds by having misdelivered them on their arrival in Hong Kong.

3. P had financed the purchase of the diamonds by a merchant, Rupam Impex (RI), which had on-sold them to a Hong Kong firm, Beauty Diam (BD), on terms whereby RI agreed to pledge the gems to P which would only release them after 120 day drafts drawn by RI on BD had been accepted and indorsed to P. 

4. The diamonds were delivered to an air forwarder, N Jamnadas (NJ) for shipment to Hong Kong.  NJ issued a House Airway Bill (AWB) naming as consignee the Bank of East Asia (BEA) in Hong Kong, P’s correspondent bank which was to act as its agent to receive the consignment.  BD was named as the notify party.  The AWB was handed to P while NJ transferred the diamonds to D[2] for carriage to Hong Kong (the actual carrier being Jet Airways).  On arrival, D delivered the diamonds to BD without the consent of P or its agent BEA.  BD then failed to accept the draft and P did not receive the diamonds by way of security.  Hence the action by P against D for conversion.

The decisions below

5. At first instance, P’s claim was dismissed on the basis that it lacked locus standi to sue.[3]  The Judge thought it crucial that the AWB was not a document of title and held that a pledge of the diamonds had not been created, so that P did not have the right to immediate possession necessary to found an action for conversion.

6. His Lordship was reversed in the Court of Appeal[4] which held, applying the Privy Council decision in Kum v Wah Tat Bank Ltd,[5] that delivery of the gems to the carrier, consigned to P’s agent in Hong Kong, was a constructive delivery to P of the goods which the parties had agreed should be subject to a pledge, perfecting the pledge and giving P locus to sue for conversion.[6] Damages were assessed at US$852,339, reflecting the value of the diamonds stated on the AWB.

7. Because P had made a sanctioned offer to accept the lower sum of US$850,000, applying Order 22 rule 24, the Court of Appeal[7] ordered D to pay (i) the costs of the trial on an indemnity basis;[8] (ii) interest on the trial costs at half the rate of 4% over prime; and (iii) interest on the damages awarded at 4% over prime.

The application for leave on the merits

8. D sought leave to appeal both in relation to the substantive issues and the costs order. 

9. As to the substantive merits, it formulated two questions said to be of great general or public importance, both of which (with their sub-questions) have as their premise, the proposition that lack of knowledge by the carrier of the pledgee’s interest in the misdelivered goods provides the carrier with a defence to an action for conversion.

10. However, no authority was cited in support of that proposition.  The right to sue for conversion depends on the plaintiff having an immediate right to possession of the converted goods.  A pledge is constituted by delivery, actual or constructive, of the goods to the pledgee who therefore has or is entitled to immediate possession and so has locus to sue for conversion.  The position is conveniently summarised in Chitty on Contracts, Vol II, §33-133 (omitting reference to citations) as follows:

“Until repayment, the pledgee is, by virtue of his possession and his immediate right to possession of the thing pledged, the only person who may sue a stranger for trespass or conversion; where the pledgee is deprived of possession by the tortious act of a stranger, the measure of damages recoverable by the pledgee is the full market value of the thing at the time when and the place where he should have obtained possession. (The tortfeasor cannot take advantage of the pledgee’s liability upon his receiving that value, to account to the pledgor (or another) for any amount exceeding the pledgee’s interest).”

11. In the present case, P and RI entered into a contract of pledge involving a bailment by RI of the diamonds to P as security for repayment of its debt.[9] As the Court of Appeal held, delivery of the diamonds to the carrier for carriage to Hong Kong, naming BEA as consignee amounted to constructive delivery to P, perfecting the pledge.[10]  Accordingly, as pledgee, P was entitled to immediate possession of the gems through its agent BEA.  It was therefore entitled to sue D in conversion and D’s knowledge or ignorance of the pledge arrangement between P and RI was irrelevant.  The purported questions of law are not reasonably arguable.

12. Furthermore, as the Court of Appeal pointed out,[11] the proposition that knowledge is required was never part of D’s case in either of the Courts below.  As the Court held in Flywin Co Ltd v Strong & Associates Ltd,[12] and has frequently re-iterated, a party who seeks to raise a new point on appeal will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken at the trial.

13. The state of D’s knowledge has not been explored.  The bland assertions made in the proposed questions that D lacked knowledge of P’s interest as pledgee cannot simply be accepted.  The fact that the AWB named BEA as the consignee must of itself at least have constituted possible notice of a pledgee’s interest.  Even if the point were arguable, it is not one that can be taken for the first time in the Final Court.

14. One of the proposed questions suggests that an attornment is required to enable P to sue.  When pressed to explain, Mr Andrew Sheppard[13] asserted that an attornment by RI was needed.  The point is misconceived.  As Lord Wright explained, attornment is necessary where a pledge is sought to be created over goods whose possession is not delivered (actually or constructively) to the pledgee, often because they are in a third party’s, and not in the pledgor’s, custody.  His Lordship stated:

“At the common law a pledge could not be created except by a delivery of possession of the thing pledged, either actual or constructive. It involved a bailment. If the pledger had the actual goods in his physical possession, he could effect the pledge by actual delivery; in other cases he could give possession by some symbolic act, such as handing over the key of the store in which they were. If, however, the goods were in the custody of a third person, who held for the bailor so that in law his possession was that of the bailor, the pledge could be effected by a change of the possession of the third party, that is by an order to him from the pledger to hold for the pledgee, the change being perfected by the third party attorning to the pledgee, that is acknowledging that he thereupon held for him; there was thus a change of possession and a constructive delivery: the goods in the hands of the third party became by this process in the possession constructively of the pledgee.”[14]

15. Here, RI, the pledgor, constructively delivered the diamonds to P, the pledgee, by consigning them for air carriage to BEA, P’s agent.  RI did not thereafter have custody of the gems, so that no question of any attornment by RI arises.  Attornment is simply not relevant.

16. Mr Sheppard made various criticisms of the pleadings as a basis for seeking leave on the “or otherwise” basis.  However, it is clear that the parties and the Courts below were in no doubt as to the relevant issues.  As the Court held in Chao Keh Lung v Don Xia,[15] and has often repeated, the grant of leave to appeal on the “or otherwise” ground is an exceptional course.  The pleading point does not approach the threshold for granting such leave.

The application regarding costs

17. Regarding costs, the applicant seeks leave to appeal against the Court of Appeal’s order giving effect to the provisions of Order 22 which attach consequences to an efficacious sanctioned offer.  The principal complaint is that the damages awarded (US$852,339) exceeded the amount of P’s sanctioned offer (US$850,000) by “a miniscule amount”. The application is put in various ways, both as raising important points of law and as meriting leave on the “or otherwise” ground.  There is, however, no basis for interfering with the Court of Appeal’s exercise of discretion.  Their Lordships were not laying down any hard and fast rules but, having considered all relevant aspects of the litigation, they held that it was not unjust for P to rely on the offer it had made.  It was a fact-specific decision that was perfectly justified as a matter of discretion.