CENTURY PHOTO & AUDIO SUPPLIES LTD. v. HI NODE TRADING PTE. LTD. AND ANOTHER

1989 No. CL-143

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. The plaintiff is making a claim against the 1st defendants, a Singapore company, on a contract entered into in March 1989 whereby the plaintiffs agreed to sell and the 1st defendants agreed to purchase 850 video cassette recorders. This was subsequently modified to a sale of 790 units. The plaintiffs claim against the 2nd defendants, who are freight forwarders, is based on a Bill of Lading which they issued in respect of the said goods.

2. The 1st defendants did not take any part in the proceedings. They did not even file a defence to the statement of claim. At the conclusion of the hearing before me I did, at the request of Mr. Chung, who was representing the plaintiffs, enter judgment against the 1st defendants in the sum which was claimed.

3. There appears to be good reason to suppose that difficulty may be encountered in enforcing any judgment obtained against the 1st defendants. It is accordingly the case that the real contest in this litigation is between the plaintiffs and the 2nd defendants. The hearing of the case lasted 6 days.

4. Put very simply the main problem which arises in this case is that the 2nd defendants issued two sets of Bills of Lading in respect of the same consignment of goods. I will be referring to the evidence which was adduced in this connection. While the 2nd defendants accept that it was a most unwise thing to do to issue two such bills, Mr. Clifford Smith, who was representing them, made a powerful submission to the effect that in the circumstances of the present case, the 2nd defendants were not liable to the plaintiffs for the losses they ad suffered.

5. The contract between the plaintiffs and the lst defendants was evidenced by two faxes from the 1st defendants and an invoice which was issued by the plaintiffs. It will be necessary to consider these documents carefully and this being the case I propose setting out the documents in full.

 

       "FAX TRANSMISSION.

 

To     :  Century Photo	Your Fax No.  :
Attn   :  Mr. Philip Tso	Your Ref No.  :
From :  Anthony LIM	Our Ref No.    :     AL/82/0389(p)
Total No. of pages : -	Date:               :     16 March 89

If you do not receive all pages as indicated,   please telephone 2916644

 

Dear Philip

 

Re: National NV-LI5EN VCR.

 

Following our teleconv. we are pleased to confirm our order as follows:

 

	Quantity	: 850 pieces or 1 x 20'FCL.
	Price	: US$361.00 each FOB HCG.

       

Details for payment and delivery instruction will be provided by tomorrow.

 

Warmest Regards,

Anthony Lim"

 

      "FAX TRANSMISSION

 

To     : Century Photo	Your Fax No. :
Attn   : Mr. Philip Tso	Your Ref No. :
From : Suresh	Our Ref No.   : SLK/121/0389
Total No. of pages :- one Date	20.3.89

If you do not receive all pages as indicated, please telephone 2916644

 

1)     Re: 130 pcs National NV-L15 VCR

        Pls deliver to Amber Air International (H.K.)

 

2)     Re: 850 pcs National NV-L15 VCR

        Pls deliver to Comprehensive International

                         Freight Forwarders Limited

 

Pls send these 2 docs. by D/P through Indian Bank with local delivery order duly signed by the respective freight forwarders.

 

For Hinode Trading Pte Limited

Sgd.

Authorised signature"

 

"Century & Audio Supplies Ltd.

        Pro-forma Invoice No. P008/89 Hong Kong Dated

                                                         20 March 1989

INVOICE of 850 pieces VCR. shipped per S.S… an account and entire risk of Messrs Hinode Trading Pte. Limited 100 Beach Road, #17-09 Shaw Towers, Singapore 0718 drafted negotiated through .....Order/Indent. No. ...  Sales Confirmation No. ... Terms Local Delivery

 

Total US Dollars three hundred and six thousand eight hundred fifty only.

 

Accepted & Confirmed by:

Buyers: Hinode Trading Pte Limited

Sgd.

For and on behalf of

Century Photo & Audio Supplies Ltd.

Sgd.

Authorized Signature "

                    

Mr. Philip Tso who is the Managing Director of the plaintiffs gave evidence concerning the contract. He said that it was the plaintiffs` intention to sell the video cassette recorders to the lst defendants in Singapore. His company would not be responsible for the cost of the freight. He said that he was generally familiar with shipping documentation and it was his understanding that the transaction would be a DP arrangement. By this, he understood that payment would be effected through the Bank and that delivery of the goods would be made against production of the necessary documents.

6. Two or three days before the date for the loading of the goods he received a telephone call from a Mr. Stanley Ko of the 2nd defendants. As it was normally his practice to delegate the work relating to the preparation of shipping documentation to his Assistant, Miss Angela Tang, he referred Mr. Ko to her. Miss Tang was the Senior Manager in charge of Finance.

7. On the 22nd March, Miss Tang came to him and told him that the goods were not to go to Singapore but to go to Rotterdam. He was slightly surprised to hear this but assumed that the 1st defendants must have made some arrangements for the onward sale of the goods in Europe. This being the case, he gave instructions to Miss Tang to obtain a House Bill of Lading based upon the discharge of the goods in Singapore. The buyer in Singapore could in turn get a House Bill of Lading to ship the goons from Singapore to Europe after "the indorsement". The 1st defendants could have paid the price and got the Bill of Lading and tendered it to the 2nd defendants and then got the Bill of Landing shipping the goods to Europe.

8. The 2nd defendants had then made arrangements for a container to be stuffed with the goods and had charged his company ￡910 for the cost of this. He left with Miss Tang the details relating to the documentation.

9. Miss Tang obtained a Bill of Lading from the 2nd defendants and it was passed to the plaintiffs' bankers, the Hong Kong & Shanghai Banking Corporation. The Bill of Lading was in this form.

10. The Bill was in the standard form and had the usual conditions endorsed on the reverse side thereof.

11. The Hong Kong & Shanghai Bank credited their account with the purchase moneys.

12. In early May he was informed that the bank's correspondent bank in Singapore, the Indian Bank, had advised them that the goods had not yet been paid for by the 1st defendants and asked him to take appropriate action. He had written to the 1st defendants for an explanation. The 1st defendants wrote several letters to them giving excuses, and generally protracting the matter.

13. Matters came to a head in June. The bank had insisted upon debiting their account with all moneys which had been credited to them and he endeavoured to take whatever action was possible to protect the company's interests.

14. Amongst other things, Mr. Tso discovered that the 2nd defendants had issued four Bills of Lading in respect of the goods to the 1st defendants naming them as shippers of the goods. The Bills divided the goods into three lots of 200 units and one of 190 units. The Bills were in a similar form as follows.

15. With the assistance of the 2nd defendants he managed to trace the goods. 190 sets had already been delivered to Mr. Motwaui's order but the remaining 600 sets remained in a warehouse in Rotterdam.

16. As a separate operation and entirely without prejudice to existing legal rights, the plaintiffs and the 2nd defendants entered into an Agreement whereby the 600sets were returned to the plaintiffs. This to a large extent mitigated the plaintiffs' losses. There was evidence to the effect that only 599 of the 600 units were returned and I will deal later with this small outstanding problem. The only other matter of significance which should be added was that it was stipulated in the Agreement that both the Singapore and the Rotterdam bills would have to be tendered by the plaintiffs in exchange for the goods. Mr. Chung argued that this was important as it indicated that the 2nd defendants accepted that the Singapore Bill of Lading was a valid and effective document. In my view different considerations have to be borne in mind to find a solution to this problem.

17. Miss Tang also gave evidence for the plaintiffs. Her evidence fitted in quite well with Mr. Tso's. She established contact with Mr. Ko on the 20th March. He advised her that Miss Paully Lau of their company attended to shipping documents on their behalf. She contacted Miss Lau who told her that the goods were going to Rotterdam.

18. She was also told that the 2nd defendants were not prepared to issue an Ocean Bill of Lading. She was surprised by this and sought advice from Mr. Tso as to what she should do. He had requested her to ask for the issuance of a House Bill of Lading. She did not know the significance or reason for this. She denied, however, that she had told Miss Lau that the reason why the plaintiffs were seeking the issuance of a Bill of Lading was simply to facilitate matters with their Bankers.

19. On behalf of the 2nd defendants both Miss Lau and M. Ko gave evidence. So far as the conversations between Miss Tang and Miss Lau are concerned, there was more agreement than disagreement. Indeed the only important disparity in their evidence was whether when Miss Tang insisted upon the issue of the Bill of Lading she had said that the reason it was required was that the Bank was insisting upon it. Having regard to the evidence as a whole, I prefer Miss Lau's version of the evidence. I believe that the justification which was put forward was the insistance of the bank to have a Bill of Lading.

20. On the much more important question of the reason why Miss Lau acceded to Miss Tang's request she was not able to provide much illumination. She said that she had been puzzled my the request in the context of the information she had given Miss Lau to the effect that the goods were being transported to Rotterdam. She thought that it must have been evident to Miss Tang that separate bills would have been issued in respect of the goods. When pressed in cross-examination, she admitted that there had been no specific mention of the Rotterdam bills.

21. She had referred the matter to Mr. Ko. He instructed her to issue a bill to the plaintiffs in accordance with the request which they made by their letter of the 21st March.

        

Attention: Miss Paully Lau

 

Dear Sirs

With reference to shipment to Hinode Trading Pte Ltd, Singapore, we would like to furnish the following information :-

Miss Lau was unable to give any explanation other than Mr. Ko's instructions for issuing to the plaintiffs the Singapore Bill of Lading.

22. The main thrust of Miss Lau's evidence was that the instructions which had been received by the 2nd defendants had emanated from the 1st defendants and at all times her view of the matter was that the goods were being freighted to the 1st defendants in Singapore in accordance with their instructions and that their role, so far as the plaintiffs were concerned, was to simply collect the goods from them.

23. Mr. Ko's evidence was largely in accord with Miss Lau's. He also was under the impression that the 2nd defendants had been acting on the instructions of the 1st defendants. When the matter was first raised, he had sent a fax to the 1st defendants seeking clarification of their instructions.

24. However, at an early stage, in his examination in chief he said that the fax had not accurately reflected what he had intended to convey to the 1st defendants. He had intended to add the word "not" before the word "tell" in the 2nd line and also to add the word "not" before "issue" in the 4th line. Frankly I did not believe this evidence. It did not ring true and Mr. Ko as unable to provide any plausible explanation why he should be telling the 1st defendants that it was not his intention to issue two sets of Bills of Lading in respect of the same goods. I do not though consider this to be a matter of great importance as the message is a garbled one in either version.

25. What is clear though is that Mr. Ko was unable to provide any explanation at all for the direction he gave to Miss Lau to issue the Singapore Bill of Lading. He did, however, acknowledge that it had been a most unwise thing to do.

26. In his final submission Mr. Chung argued that the only reasonable interpretation to be made of Mr. Ko's conduct was to draw an inference that he had had a fraudulent intent in ordering the issuing of the Singapore Bill of Lading. It was inconceivable that any honest person with Mr. Ko's experience would have acted in this manner.

27. After giving the whole matter careful consideration, I have come to the conclusion that this is not the only inference which can validly be drawn. My main reason for this is that the plaintiffs were all along told that the goods were being shipped to Rotterdam. If Mr. Ko had been minded to act fraudulently it is unlikely that this information would have been given. I have also taken cognizance of the 2nd defendants' co-operation in retrieving the major portion of the goods from Europe. Again it is unlikely that such co-operation would have been forthcoming if the original intention had been fraudulent.

28. I have come to the conclusion that Mr. Ko's conduct was essentially very stupid but he was not accentuated by dishonest motives.

29. Mr. Chung mainly based the claim the plaintiffs are making on the bailiment of the goods by he plaintiffs to the 2nd defendants. He has not attempted to argue that there was any contract of carriage between the plaintiffs and the 2nd defendants.

30. I do not think that this was a possibility which was open to him on the facts of the case. I find myself in agreement with Mr. Clifford smith's analysis of the situation. He argued that it was clear from the Fax of 16th March and the subsequent delivery and payment instructions dated the 20th March that this was not a contract for the carriage of goods.

31. The reference to FOB in the Fax of the 16th is certainly not conclusive of the matter. I accept that this terminology in the present context is much more likely to be indicative of the basis upon which the price of the goods is being determined. This interpretation is also consistent with the statement that delivery instructions are to follow. When these instructions were received on  the 20th March, it is clear from paragraph two that delivery is to be to the 2nd defendants. Even if any doubts remain they are resolved by the plaintiffs' invoice of the 20th March which has the words 'Local Delivery' underlined.

32. All of this is important even though the plaintiffs do not place reliance upon there being a contract of carriage between the plaintiffs and the 2nd defendants. I say this because Mr. Chung places heavy reliance upon there having been a bailment of the goods. It is accordingly important to ascertain whether the property in the goods passed from the plaintiffs when the goods were delivered to the 2nd defendants. I have no doubt when considering the documents as a whole that the contract required delivery to the 2nd defendants at its premises in Hong Kong and that when such delivery was effected there could be no question of the 2nd defendants being a bailee of the goods and holding them for the plaintiffs as bailor.

33. Mr. Chung objected that it was not open to the 2nd defendants to maintain such a submission as agency had not been pleaded in the Amended Defence. I do not think that this can be right. What the 2nd defendants are contending is that delivery of the goods under the contract was effected by the delivery to them of the goods. This contention is clearly borne out by the pleadings and I do not see any problems arising from the way the 2nd defendants have pleaded their defence.

34. The claim in the Re-amended Statement of Claim that there has been conversion of the goods is only capable of formulation on similar underlying considerations as those put forward in support of the claim that there was a bailment of the goods. For similar reasons it cannot be sustained.

35. One of the most crucial issues to be determined is the question of the extent of the plaintiffs' knowledge of the Rotterdam bills. I accept on the evidence which was before me that neither Miss Lau nor Mr. Ko ever specifically informed the plaintiffs of the Rotterdam bills. I am, however, satisfied that the plaintiffs were put on inquiry concerning the 1st defendants' purported interest in the goods. I have no doubt that Miss Tang was told initially that the 2nd defendants were not prepared to issue a Bill of Lading to the plaintiffs. She was also told in clear terms that the goods were being shipped to Rotterdam. I do not consider that it was in such circumstances reasonable for Mr. Tso to assume that there would automatically be switched Bills of Lading. I have no doubt that if he had pressed the matter further and sought a reason for the reluctance of the 2nd defendants to issue a Bill of Lading he would have been told about the Rotterdam bills. In this connection, I have already indicated that I accept Miss Lau's evidence that the reason which was put forward by Miss Tang for the requirment of  the Singapore Bill of Lading was that it would facilitate the plaintiffs banking arrangements. On any reasonable assessment of the position I consider that it is only realistic to proceed upon the assumption that Mr. Tso had sufficient information to put him on notice of the existence of the Rotterdam bills and he would have learnt of them if he had made proper inquiries

36. Mr. Chung placed some emphasis on the fact that a Bill of Lading is a document of title. In particular he referred me to the passage appearing in paragraph 494 of vol. 43 of Halsbury 4th Edition:

"494.  Document of title. The bill of  lading is a symbol of the right of property in the goods specified in it. ”Its possession is equivalent to the possession of the goods themselves, and its transfer, being a symbolical delivery of the goods, has by mercantile usage the same effect as an actual delivery in the same circumstances. On a transfer, therefore, of a bill of lading by way of sale, mortgage or pledge, the property in the goods passes either absolutely or otherwise, according to the intention of the parties, to the transferee, provided that the transferor was competent to dispose of them; and the right of the original owner of the goods to stop them in transit is either wholly defeated (where there is an absolute transfer by way of sale) or becomes subject to the mortgage or pledge. However, as a bill of lading is not in the full sense of the word a negotiable instrument, the title of the transferor to the bill of lading and his competency to dispose of the goods specified in it are important  elements to be taken into consideration.

As regards the shipowher, the bill of lading is a document of title, entitling its holder on production to delivery of the goods. Accordingly, a delivery to the holder of the bill of lading, even where he is not in fact entitled to the goods, discharges the shipowner, provided that it is made in good faith without notice of any defect in the holder's title. On the other hand, the shipowher is not discharged, however bona fide his act may be, by delivery to the wrong person without the production of the bill of lading."

37. I do not consider that this passage assists the plaintiffs. It would seem to me that much of this passage is dependent upon the representations contained in a Bill of Lading. That is the rationale of the passage. In this connection Mr. Clifford Smith conceded that if an indorsee or holder in due course of the Bill had given value thereunder they would almost certainly have a valid cause of action against the 2nd defendants.

38. The situation here is very different. As I have stated earlier Mr. Tso knew of the initial reluctace of the 2nd defendants to issue a Bill of Lading to his company and was well aware of the fact that the goods were being shipped to Rotterdam. This was in direct conflict of the terms of the Singapore Bill of Lading which stated that the destination of the goods was Singapore

39. As I see it the problem mainly relates back to the absence of a contract of carriage between the plaintiffs and the 2nd defendants. It underlines the essentially spurious nature of the Singapore Bill of Lading. It comes back to the fact that on any fair interpretation of the contractual documents delivery of the goods was to be made to the 2nd defendants in Hong Kong. There was thus no necessity for there to be any shipment of the goods. In the words of the plaintiffs' own invoice the contract was one for "Local Delivery".

40. This is an important matter. Although the facts are different to those in Heskell v. Continental Express 1950 83 Lloyds Law Reports 438, I consider that the views expressed by Devlin, J. as he then was do have application to the present situation. At p 455:

"The whole truth of this matter is that in the absence of a contract of carriage the bill of lading is a nullity, and it would have been none the less so even if it had been issued at a board meeting of Strick Line Ltd, or passed by a resolution of the company in general meeting."

41. I accept the evidence of Miss Lau and Mr. Ko to the effect that their instructions emanated from the 1st defendants and that at all times they considered that they were making the arrangements at their behest and that the shipping transaction they were concerned with was the shipment of the goods for the 1st defendants from Hong Kong to Rotterdam. They were required to issue Bills of Lading to the 1st defendants and they did so. They only issued a Bill of Lading to the plaintiffs because or their insistence that they should have one. As there was no shipping element to the contract the Singapore Bill of Lading was a nullity to adopt the wording of Devlin, J. The plaintiffs are unable to rely on the Singapore Bill of Lading as being a document of title.

42. The only other substantive head of claim in the statement of claim is the claim based upon there being a conspiracy. I have already given my reasons why I consider there is insufficient evidence to justify me in coming to a conclusion that any employees in the 2nd defendants had acted in a fraudulent manner. Similar consideration would dispose me to come to a conclusion that no conspiracy has been proved. I am, however, mindful of the authority of the Court of Appeal in Wing On Bank v. Wai Mun Estates 1990 1 HKLR 377, and I accept Mr. Clifford Smith's contention that the plaintiffs have failed to demonstrate any predominant purpose by the 2nd defendants to injure the plaintiffs' interests. The claim under this head would also fail for this reason.

43. The final outstanding matter relates to the short shipment of the 600 units which were returned from Europe pursuant to the Agreement which was struck between the plaintiffs and the 2nd defendants. It will be recollected that only 599 units were found when the goods arrived in Hong Kong. I agree with Mr. Clifford Smith that it is clear from the Agreement which was signed by the parties that the 2nd defendants would make the necessary arrangements for the return of the VCRs. They were not the shippers. There is insufficient evidence to enable the court to make any finding as to how this loss occurred. In such circumstances, liability for the loss of the VCR unit cannot be attributed to the 2nd defendants.

44. For the reasons have given in this judgment, I regret that the plaintiffs' claim must be dismissed. I will make an order nisi for costs in favour of the 2nd defendants.