CHINA NATIONAL SILK IMPORT AND EXPORT CORPORATION v. KONG LOK WHARF (A FIRM)

1990, No. CL.-6

IN THE SUPREME COURT OF HONG KONG HIGH COURT

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BETWEEN

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REASONS FOR JUDGMENT

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1. The plaintiff, an importer and exporter, had caused to be shipped from China into Hong Kong a consignment of 330 cases of ladies' nightgowns for onward transhipment to Spain in or about January 1989. When the vessel arrived in Hong Kong on 25th January 1989, the defendant was engaged to handle the discharge of the said goods. The whole consignment of goods were then duly unloaded at a wharf operated by the defendant at the Western District Public Cargo Working Area pending collection by a company called Eastern Worldwide Co. Ltd. ("Eastern"). Unfortunately, despite being advised by the defendant to do so, Eastern was not able to arrange for the collection of the said goods on the same day. Pending collection by Eastern on the following morning, the said goods remained at the defendant's wharf overnight. During the small hours of the morning of 26th January 1989, a theft of 33 cases of the said goods occurred. By these proceedings the plaintiff claims against the defendant for the loss it suffered as a result of the said theft. The plaintiff claims a Belmont of the said goods was created and the defendant is in breach of contract and/or its duty as a bailee in its failure to return the goods to the plaintiff. The defendant denies the existence of any such bailment and contends that its only obligation was to provide coolie service for the discharge of the said goods. The defendant further avers that if any bailment exists, it could only be an involuntary bailment, and the defendant has duly discharged its duty of care towards the plaintiff in respect of the safe custody of the said goods. In the premises, the defendant says it is not responsible for the loss suffered by the plaintiff for the theft of the 33 cases of the said goods.

2. Most of the facts are not in dispute between the parties, and the plaintiff only called 2 brief witnesses at the trial. Despite some initial challenges of the evidence of the plaintiff, the defendant elected not to call any witness nor adduce any documentary evidence. At the end of the trial, judgment was entered in favour of the plaintiff as claimed in the sums of US$11,435 and HK$1,570 for the value of the stolen goods and survey fees respectively with interest and costs. In view of the lack of justification for the plaintiff to have instituted the action in the High Court instead of the District Court, costs were awarded to the plaintiff on the District Court scales. I have indicated that reasons for the judgment will be reduced into writing and be delivered at a subsequent date, this I now do.

3. The defendant operates its business in unloading cargos at the Western District Public Cargo Working Area ("the cargo area"). The cargo area is situated on a piece of crown land and is operated by the Marine Department. Each individual wharf operator would be assigned a designated area in the cargo area for the operation of its business. The designated area of the defendant is located towards the end of the quay at the cargo area. It is rectangular in shape and measured 100 meters by 10 meters. Two simple wooden huts serving as watchman shelters are maintained by the Defendant one at each end of the long narrow strip on the quay. In between the two wooden huts are four cranes for the unloading of cargos from the vessels berthed alongside the quay. And in between the two wooden huts and the four cranes are wooden pallets on which the cargos would be placed pending collection. The defendant also maintains an office near the entrance to the cargo area. A fee is payable by the defendant for the use of the designated area as well as for the maintenance of the wooden huts and office in the cargo area. The cargo area is in fact a 'L' shape quay located at the waterfront opposite Whitty Street in the Western District. On the landside it is enclosed by concrete walls with three iron gates serving as entrance/exit. The opening hours of the cargo area are between 7 a.m. to 9 p.m.

4. A berthing permit has to be obtained from the Marine Department before a vessel is allowed to berth alongside the quay in the cargo area. If the unloaded cargos are not removed during the opening hours of the cargo area, a cargo depositing permit would have to be obtained from the Marine Department before the said cargos are allowed to remain in the cargo area overnight. A fee is payable for the obtaining of the two permits. Though the cargo depositing permit will specify the area of quay space the goods can occupy, the fee is chargeable with reference not to the area occupied but to the weight of the cargos. The cargos are allowed to remain in the cargo area for a period of 24 hours from 9 p.m. each day under each cargo depositing permit.

5. There is no evidence, whether from the plaintiff or from the defendant, of the exact terms of the instructions given to the defendant with respect to the unloading of the said goods. There is also no evidence as to the precise terms of the agreement between the plaintiff and the defendant for the unloading of the said goods. The only piece of evidence before the court of the agreement between the parties is an invoice issued by the defendant dated 25th January 1989 and titled "coolie loading and unloading bill". It billed the plaintiff a total sum of $1,320 for 330 boxes at the unit price of $4 per piece. Despite the uncertainty surrounding the agreement between the parties, it is crystal clear that the defendant had, for reward, took up possession of the said goods for the purpose of unloading them from the vessel. In GilChrist Watt & Sanderson Pty Ltd. v. York Products Pty Ltd. [1990] WLR 1262, it was held that the stevedores were liable to the consignee for the loss of the goods they stacked into a shed on the wharf although there was no contractual relation or attornment between them. The stevedores had by voluntarily taking possession of the consignee's goods assumed an obligation to take due care of them and were liable to the consignee for their failure to do so. Whether or not the obligation could with strict accuracy be described as that of a bail, the obligation was created by the delivery and assumption of possession.

6. I am satisfied that a bailment of the said goods had been created by the voluntary assumption of possession of the said goods by the defendant. There is no question of the bailment being involuntary at this stage. However, there being no evidence as to the terms of the agreement, it is unclear as to when the duty of the defendant as bailee should cease. The defendant submits that it ceases upon full discharge of the said goods onto the wharf. It contends that its only responsibility in the job was to provide coolie service and no more. Therefore, the Defendant says, it should not be held liable for the said goods after they had been placed onto the wharf. The defendant says that this should be so despite the fact that the place upon which the said goods were kept when the theft occurred is within the designated area where he operates his wharf. Because, the defendant says, it has neither exclusive possession nor control over the said designated area.

7. The defendant may or may not have exclusive possession of its designated area, but this is in my view a red herring. The crucial point in issue is not whether the defendant has exclusive possession of its wharf or not. The question is whether the Defendant had possession of the said goods or not. As was held by the Privy Council in the case cited, once there has been an assumption and retention of possession of goods by a bailee the obligation to take care arises. It is immaterial to the continuation.of the duty of care whether the bailee places the goods entrusted in a place where he has exclusive possession and/or control or whether he places the said goods on a public street. I have no doubt at all that after the completion of the unloading of the said goods onto the defendant's wharf, the defendant retained possession of the said goods pending collection by Eastern. The said goods remained in an area under the control of the defendant being the area designated to the defendant for the operation of its wharf. The said goods were covered by the defendant with tarpulins. Watchmen were engaged by the defendant to watch over the designated area. Though the defendant may only be licensee of the government re the designated area, it is beyond doubt that it has control not only over the designated area but also of the said goods by virtue of the facts referred to above. There is nothing before me to support an allegation that the defendant's possession of the said goods should cease after the unloading onto the wharf. Despite its advice to Eastern to collect the said goods on the same day, it had retained possession of the said goods in its wharf overnight pending such collection. The defendant complains that the said goods were thrusted on it and they were forced into looking after it because Eastern had failed to collect them. I find absolutely no merits in the defendant's said contention. The defendant not only applies for berth allocation permits for goods it handles, it also applies for cargo depositing permits in respect of them. The fee the defendant charges in respect of the "coolie works" admittedly also includes the fees paid to the government for the depositing of the said goods overnight at the public cargo working area. From the answers given by the defendant to the interrogatories, it appears that the defendant frequently has cargos placed on its wharf. Cargo depositing permits were applied for at the average of 30 to 35 permits per month. I am convinced that the defendant also provides storage service for goods pending collection by its customers on a frequent basis and as part of its business. In any event, the retention of possession of the said goods by the defendant pending their collection is per se sufficient to give rise to the duty of care. The fact that the situation may have been forced upon the defendant as it alleges will not prevent the continuation of its duty of care. In the premises, I am satisfied that the defendant was under a duty of care as bailee towards the said goods when they were stolen.

8. The defendant alleges that it has done all that is required of it in its discharge of the duty of care towards the said goods. It says it has employed watchmen to watch over the designated area. It says that it was foggy that particular night which made it very difficult for the watchmen to see what was happening. It was, the defendant says, an "act of god". The defendant also says that the bailment was a gratuitous bailment and therefore it should not be liable for the theft. Once a duty of care arises, it is for the bailee to prove that the loss was not due to his failure to exercise the care required by law "see Port Swettenham Authority v. T. W. Wu and Co. (M) SDN BHD. [1979] A.C. 580. Apart from telling me what the shifts of the watchmen were, the defendant has not adduced any evidence as to how the watchmen looked after the said goods. As to what happened during that early morning, the defendant produced two versions of facts. In its answers to the interrogatories, the defendant says that "the watchmen kept walking around the area, kept watching the equipments and the goods closely and kept shining onto the same with torches. WONG Kn discovered at sometime after 3 a.m. on the 26th January 1989 that the canvas was cut open and flapping about in the wind". However, in a letter dated 9th August 1989 from the defendant to the plaintiff's agent, the defendant said "on the night of the 25th January this year, during late hours, pirates sneaked into the discharged goods piling yard at our wharf stealing. goods from the piling yard. When discovered by our watchmen, the pirates immediately fled with the stolen goods in a high speed boat, and we were unable to catch them". Furthermore, the defendant says in its pleadings that the night was very foggy and it was very difficult for the watchmen to see things clearly. That sums up the defendant's evidence and case on this issue. The plaintiff adduced evidence of oral admissions made by a Mr. Ng who was employed as the defendant's tallychief at the material time. Mr. Ng had admitted to PW1, who was the plaintiff's surveyor, that the watchmen had only discovered the theft during his round after the said goods had already been stolen. He also said that there were frequent thefts at the said cargo working area by armed thieves. He said the watchmen usually would stay inside the shelter because they would not be prepared to assume any risk of confrontation with the armed gangs. Mr. Ng also admitted that it was the practice of the defendant to look after goods which had not been collected by customers on the same day of their arrival. The defendant's wharf occupies only a relatively small area and has watchmen posted at the two shelters at each end of the narrow strip of the quay. The goods stolen are of considerable quantity and weight, being 33 cartons each weighing 40 kg. It is believed that the thieves came from the sea and removed the stolen goods by means of vessel or vessels. It is highly unlikely that had the watchmen been on their guard they would have failed to notice the theft of the said goods. They should have been able to notice either the approach of the vessel or vessels or the noise that would have been generated by the operation of removing 33 cartons of heavy goods. No explanation has been offered as to why the watchmen could fail to notice what was going on. or, if they had noticed the theft, why they could not have stopped it. The defendant has not even begin to discharge its onus of proving that it has taken all reasonable care. Further, I accept the record of the weather produced by the plaintiff and hold that it is unlikely that there were fogs at the defendant's wharf at the material time. Even if there were fogs, I fail to see how such could amount to a novus sctus interveniens.

9. Despite the earlier judicial debate on the duty of a gratuitous bailee as opposed to a bailee for reward, it is now generally accepted that the line between the two is a very fine line, difficult to discern and impossible to define (see the speech of Lord Salmon in the Port Swettenham Authority Case at p. 589). It is now generally accepted that the fact that the bailment was not for reward is but one of the factors to be taken into account in ascertaining whether the bailee has discharged his duty of care in the circumstances of the case.

10. Not only has the defendant failed to discharge its onus of proof, in view of the small area of the wharf, the manner the goods had been placed, the proximity of the watchmen to the goods and the nature of the operation required to remove the substantial quantity of heavy goods,. I am satisfied that the said theft could not have occurred without some degree of negligence on the part of the watchmen employed to look after them.

11. As reliance has been placed on the plea of gratuitous bailment, I ought to mention that if I were wrong on the finding of a bailment for reward I would have come to the same conclusion that the defendant has failed to discharge its onus of proof even on that basis. The standard of care has often been described as the care that a man of ordinary prudence would under similar circumstance take of his own goods of the same kind. In view of my finding in respect of the manner the watchmen discharged their duty, the defendant has failed to prove that it has exercised reasonable care as an ordinary prudent man would have towards its own goods. However, I failed to see how a stevedore who offers in its ordinary course of business the service of looking after goods deposited with it can be described as a gratuitous bailee. It must have realised that were it to refuse a customer such a service it would probably lose the customer who would have no difficulty in finding another stevedore who would be happy to render the service. It is interesting to note from the facts of the Port Swettenham Authority Case that the stevedore in that case had a set-up in its operation remarkably similar to that of the defendant.

12. There is no real challenge by the defendant as to the quantum of damages. The plaintiff claims that it is entitled to damages on the basis of the arrived sound market value of the stolen goods. The plaintiff says that a quick way, which has usually been adopted, of calculating the said value is to take the insured value which is usually the C.I.F. or invoice value plus 10 to 20%. The C.I.F. and invoice value of the stolen goods, is U$$10,395. The insured value of the said goods is US$11,435 representing a premium of about 10% on top of the C.I.F. and invoice value. I was given to understand that the insurer had paid the plaintiff the said invoice value and is conducting these proceedings pursuant to its right of subrogation. The plaintiff also claims reimbursement of survey fees in the sum of HK$1,570. In the premises, judgment was entered in favour of the plaintiff in the said sums of US$11,435 and HS$1,570 with interest thereon at the judgment rate from the date of writ until payment and costs.

13. Dated this 3rd day of March 1992.