TUNG WING STEEL CO LTD v. BRASIMET COMERCIO E INDUSTRIA S.A. AND OTHERS

HEADNOTE

                         In a contract for the sale of goods C and F where payment is to be made pursuant to a Letter of Credit against the presentation of shipping documents it is usually to be assumed that: -

                         So held by the Court of Appeal in upholding, for reasons other than those of the Judge, an order discharging, inter partes, an injunction restraining any disposition of the goods or of the bills of lading which had been granted ex parte.

BETWEEN

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JUDGMENT

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Kempster, JA :

1. This is the judgment of the Court.

2. On 26 February last on an ex parte application and before leave had been given to serve process out of the jurisdiction or a writ been issued Mayo J granted Tung Wing Steel Co Ltd, now the plaintiffs, an injunction restraining the present first defendants, Brasimet Comercio E Industries SA, from taking delivery of some 5 million metric tonnes of steel reinforcement bars shipped on board the my "Dragonland" and from dealing either with such goods or with the bill of lading evidencing their shipment until the hearing of an inter partes application or further order. On 7 March, inter partes, Mayo J, declining to adjourn at the plaintiffs' instance the hearing of an application by the first defendants or to strike out the contents of two affidavits, discharged the ex parte injunction and adjourned the hearing of other matters.

3. In the meanwhile, on 28 February, Master Perrior had given the plaintiffs leave to serve a writ on the first defendants in Brazil. On 2 March Master Jennings had given leave to issue and serve a concurrent writ and a statement of claim upon them. By summons dated 2 March, returnable on the 8th, the plaintiffs had sought the continuance of that injunction and an order for the storage of the goods pending trial. That application, having been overtaken by events, was never heard.

4. On 12 March Mayo J, again declining to adjourn at the plaintiffs' instance the hearing of an application by the first defendants, ordered that Coreck Maritime GMBH, the charterers of the "Dragonland" and now the third defendants, should deliver the steel reinforcement bars to any party presenting an original bill of lading endorsed by the first defendants. He also made an interesting order for costs.

5. Against the two orders of 7 and 12 March respectively the plaintiffs appeal. As regards that of 7 March their notice of appeal seeks an order dismissing the first defendants' summons to discharge or adjourning its hearing to a date to be fixed with consequential directions. By necessary implication any such order would involve the reinstatement of the injunction granted on 26 February. However, Mr. Thomas, on the plaintiffs' behalf, does not sustain the claim for such relief. Presently the plaintiffs seek only a finding that Mayo J erred and, in consequence, a more favourable order as to costs. No more do the plaintiffs now seek an adjournment or an order striking out affidavits.  As regards the order of 12 March the plaintiffs' notice seeks similar relief from this court but, by agreement, that part of their appeal has been stood over.

6. In relation to the order of 7 March it is suggested that the judge exercised his powers unlawfully as the first defendants' summons was heard on less than two clear days' notice, as required by RSC Order 32 rule 3, and that by reason of his order adjourning the application to abridge time it cannot be inferred that he exercised the discretion so to do pursuant to Order 3 rule 5. Be that as it may a failure to comply with the requirements of the Rules of the Supreme Court is to be treated only as an irregularity "and shall not nullify the proceedings ... or any ... judgment or order therein." Order 2 rule 1(1). No application is made to set aside the order of 7 March founded on Rule 1(2).

7. It is because the steel bars have long since and irretrievably passed into the hands of third parties that the plaintiffs' claim to interlocutory relief is not pursued. We accept that the appeal is in order nonetheless on the authority of Ainsbury v Millington 1987 1WLR 379 at p 381 per Lord Bridge.

8. Giving judgment on 7 March Mayo J found that there was "insufficient cogent evidence to support the claim that there was a contract between the parties". He also found that the plaintiffs had been guilty of material non-disclosure at the ex parte stage and, though he made no concluded findings, suggested that they had been guilty of certain procedural irregularities. The plaintiffs contend that the judge was in error and that their evidence established that a serious question fell to be determined namely whether a contract between the first defendants and themselves had been concluded. They also contend that such a question arises also in relation to the vesting in them of the property in the goods; a matter with which, having regard to his findings in relation to a contract, it was no more necessary for the judge to deal than those raised by the Respondents' Notice served by the first defendants. By that notice they submit that the order of 7 March should be upheld on the additional grounds that the plaintiffs have effectively sought an order for specific performance, that the balance of convenience tilts in the first defendants' favour and that damages afford the plaintiffs an adequate remedy for any cause of action they may establish. It is also submitted that the contents not only of the writ but also of the statement of claim were inconsistent with the relief then sought.

9. On 15 March leave was granted for the second and third defendants to intervene and be joined. A separate order was made covering their costs as to which questions may arise hereafter.

10. Behind this procedural dispute lies the issue as to which party to this action was entitled to delivery of the goods which were unloaded in Hong Kong during February from my "Dragonland". The plaintiffs claim that, through the agency of one Ecker, they had bought the goods, then afloat, from the first defendants during the preceding month. However, as a clean bill of lading had not been provided by charterers, difficulties arose in relation to the letter of credit established by the plaintiffs pursuant to the agreement alleged and already amended to cover the cost of freight, which the first defendants had paid, over and above that of the goods. Before the plaintiffs had moved to obviate such difficulties on 19 February the first defendants entered into negotiations to sell the goods to Burwill (Far East) Ltd, now the second defendants, but it is apparent from the first defendants's letter to the second defendants dated 5 March 1990 that even at that date no contract had been concluded between them. In the event the first defendants never presented the shipping documents, including the bill of lading, or a draft to the plaintiffs' advising bank in Brazil in order to obtain payment and, accordingly, neither the plaintiffs, parties to be notified, nor their bankers in Hong Kong, the consignees, ever came into possession of an original bill of lading. From the provisions said to have been agreed as to payment and on the hypothesis, upon which the argument before us has been based, that Hong Kong Law applies, it must necessarily be inferred that the intention of the parties for the purposes of section 19 of the Sale of Goods Ordinance (Cap 26), to which the terms of sections 20 and 21 are subject, was that the first defendants should retain the original bills of lading in their possession, which paragraph 4 of Miss Pringle's affidavit sworn on 5 March shows they did, and therewith title to and property in the goods represented by the bills until payment. "This" to quote Lord Sumner in Hansson v Hamel [1922] 2AC 36 at p 43 : -

"is another instance ... of transactions in which, in spite of the insertion of the consignee's name in the bill of lading, the intention to reserve the jus disponendi to the seller till the documents are taken up is manifested by the way in which the transaction is carried through with regard to the presentation of the documents."

As Lord Wright said in Smyth & Co v Bailey & Co (1940) 3All ER 60 at p 68, in the context of a CIF contract, : -

"On or after shipment, he (the seller) has to obtain proper bills of lading ... He fulfils his contract by transferring the bills of lading ... to the buyer. As a general rule, he does so only against the payment of the price ... which the buyer has to pay. ... These rules, which are simple enough to state in general terms, are of the utmost importance in commercial transactions. ... The property which the seller retains while he or his agent, or the banker to whom he has pledged the documents, retains the bills of lading is the general property, and not a special property by way of security. In general, however, the importance of the retention of the property is not only to secure payment from the buyer but for purposes of finance. The general course of international commerce involves the practice of raising money on the documents so as to bridge the period between shipment and the time of obtaining payment against documents. These credit facilities, which are of the first importance, would be completely unsettled if the incidence of the property were made a matter of doubt. By mercantile law, the bills of lading are the symbols of the goods."

11. Insofar as it is submitted that the property passed on shipment pursuant to antecedent agreements for the sale of the goods to Hofflinghouse Trading (UK) Ltd and by Hoffinghouse to the plaintiffs the point fails not merely on the same question of intent but on the evidence of the plaintiffs' managing director who, on 26 February, affirmed that the matter never got beyond the stage of negotiation as between any of the relevant parties.

12. Turning back to the issue upon which Mayo J determined the outcome of the hearing on 7 March we cannot support his conclusion; being satisfied that the evidence before him sufficed to establish, as held appropriate in American Cyanamid v Ethicon Ltd  [1975] AC 396, that a serious question falls to be tried as to whether or not an agreement was reached between the plaintiffs and the first defendants on or about 5 January. It may be that in finding a lack of "cogent evidence" the judge set himself too stringent a test. In so concluding we do not purport to determine whether or not any such contract was breached by the plaintiffs when, on 15 February, they intimated that they could not arrange for the terms of the letter of credit, by then expired, so to be amended as to conform with the bills of lading which specified defects in the goods.

13. What to us seems determinative of this part of the appeal at least is that the plaintiffs will adequately be compensated by damages for any loss they may have suffered if breach of contract be established as against the first defendants at trial whether or not property in the goods passed to them so as to render damages recoverable in conversion. Albeit enforcement of a judgment in Brazil may be costly and time-consuming it is not suggested that steel reinforcement bars were not available on the world market at the material times at readily ascertainable prices while the evidence does not give rise to concern about the credit-worthiness of the first defendants. It may be observed, in passing, that the plaintiffs' subcontract for the sale of 3,000 metric tonnes of the consignment at cost price, into which they entered on 8 February, will hardly assist their claim.

14. We find that, for reasons other than those upon which he relied, Mayo J was right on 7 March to discharge the injunction which he had granted on 26 February. In the premises it is unnecessary to determine a number of other questions canvassed such as the propriety of the findings of culpable non-disclosure and, possibly, of procedural irregularity.  We dismiss this appeal insofar as it relates to the order of 7 March.

After further argument

15. Appeal in relation to order of 12 March allowed. Order set aside.

16. First defendants do have their costs of the appeal as against the plaintiffs. Second and third defendants do have their costs of the appeal half as against the plaintiffs and half as against the first defendants.

17. As regards the summons of 5 March the first defendants do have their costs below as against the plaintiffs.

18. As regards the summons of 12 March the plaintiffs and the second and third defendants do have their costs below as against the first defendants.