HYUNDAI MERCHANT MARINE CO. LTD. & ANOTHER v. WESCO POLYMERS LTD.

DCCJ 2615/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2615 OF 2001

____________________

___________________

_____________________________

REASONS  FOR  JUDGMENT

_____________________________

1. The 1st Plaintiff was at all material times an international ocean carrier and the owners of the containers nos. HDMU4209393 and ITLU5412248 ('the Containers'). The 2nd Plaintiff was the 1st Plaintiff's agent in Hong Kong.

2. By a non-negotiable seaway bill no. HDMUWBHK 985062 ('the Seaway Bill'), the 1st Plaintiff agreed to carry a cargo of plastic scrap ('the Cargo') stuffed in the Containers from Seattle to Hong Kong on board the vessel 'HYUNDAI FORTUNE' ('the Vessel'). The Defendant was named as the consignee in the Seaway Bill.

3. As the said carriage of goods contract was conducted by way of the Seaway Bill, no original of such document was provided to the Defendant or the shipper, USA Wesco Polymers Inc. ('the Shipper'), which was a sister company of the Defendant.

4. On or about 21 May 1997, the Defendant, being the consignee, was notified by the 2nd Plaintiff's staff of the pending arrival of the Vessel. Upon the receipt of such information, the Defendant applied to take delivery of the Cargo. Having confirmed that: (i) the Cargo related to the Seaway Bill; (ii) no original of the Seaway Bill had been provided to the Shipper or the Defendant; and (iii) there was no outstanding freight charges, and upon the Defendant's provision of a letter of indemnity ('the Letter of Indemnity'), the 2nd Plaintiff handed over the delivery orders of the Cargo ('the Delivery Orders') to the Defendant. Further, as a standard practice, each of the Delivery Orders was issued together with a Return Order, requiring the recipient of the Delivery Order to return the Containers to the terminal within 2 days of the date of the collection of the Cargo.

5. On or about 5 June 1997, by the production of the Delivery Orders, the Containers and the Cargo were collected by one Transfore Container Transportation Co. Ltd. ('TCT'). After that, the Containers were never returned to the Plaintiffs or the container terminal concerned. The Plaintiffs therefore brought the present action against the Defendant to claim for damages arising out of the loss of the Containers in the sum of US$6,800, or alternatively, US$6,225.70.

6. The Defendant does not dispute the quantum of the claim.

7. In the hearing on 25 January 2002, I granted judgment in favour of the Plaintiffs in the lesser sum of US$6,225.70. I now give my reasons.

8. The Plaintiffs are relying on the following 3 causes of action to establish their claim. Firstly, pursuant to clause 10(A) of the Seaway Bill, the Defendant was liable to indemnify the 1st Plaintiff in respect of the loss of the Containers. Secondly, the Defendant is likewise required by clause 2 of the Letter of Indemnity to indemnify the Plaintiffs for such loss. Thirdly, the Defendant is liable for breach of duty as bailee or quasi-bailee for the loss of the Containers. I will deal with these causes of action in turn.

Clause 10(A) of the Seaway Bill

9. Clause 10(A) of the Seaway Bill reads as follows:

'The Merchant assumes full responsibility for and shall indemnify the Ocean Carrier against any loss or damage to the Ocean Carrier's containers and other equipment if the loss or damage is caused or occurs while in the possession or control of the Merchant, his agents, or other carriers engaged by or on behalf of the Merchant.'

Further, the words 'Ocean Carrier' and 'Merchant' have been defined in clause 1 as follows:

'"Ocean Carrier" means the ship, her owner ......'

'"Merchant" includes the shipper, consignor, consignee, owner, and receiver of the Goods, and the holder of this Bill of Lading, all of whom shall be jointly and severally liable to the Ocean Carrier for the payment of all freight, demurrage, damages for detention, and for the performance of the obligations of any of them under this Bill of Lading and the charter party described in the face of this Bill of Lading.'

10. In the Seaway Bill, it has been clearly stated that the 1st Plaintiff was the 'Carrier', and so I have no doubt in my mind that the 'Ocean Carrier' in clause 10(A) refers to the 1st Plaintiff. On the other hand, the definition of 'Merchant' includes the Defendant, and so the only remaining issue, for the purpose of determining the liability under clause 10(A), is whether the loss of the Containers was caused or occurred while in the possession or control of the Defendant or its agent, which in turn depends on the facts of the present case.

11. As I see it, there is no dispute between the parties as to what actually happened. In the course of her testimony, Ms. Mak Mei Lan Jenney, an assistant logistic manager of the Defendant, in fact made the following admissions:

(i) it was the parties' understanding that the Plaintiffs could not release the Cargo to any other persons apart from the Defendant;

(ii) TCT was collecting the Cargo as the Defendant's agent; and

(iii) the Defendant had already sold the Cargo to its customer, but the price for the Cargo had yet been paid.

Further, according to Ms. Mak, it was the practice with the Plaintiffs that, in order to obtain the goods under a seaway bill, the Defendant was required to sign a letter of indemnity. In clause 1 of the such document signed by the Defendant in the present case, the Defendant actually acknowledged that it was the only person entitled to take delivery of the Cargo.

12. As the storage charges have not been paid, the Containers together with the Cargo are now detained in a warehouse operated by one Dragon Container Services Limited ('Dragon'). In an undated letter included in page 33 of the Trial Bundle 2 ('the Letter to Dragon'), the Defendant wrote to Dragon in the following terms:

'We are advised by our solicitors that, as the owner of the [Containers], we retain the title to the goods contained therein. Since the [Containers] are stored at the carpark of your company, your company has duty to take care of the [Containers] and the goods contained therein in good condition and return them to us under our instructions.'

13. Despite the submission to the contrary made by Mr. Ma for the Defendant, the evidence above clearly shows that, even the Cargo might have been sold to its customer, TCT was acting as an agent of the Defendant in the collection of the Containers and the Cargo from the Plaintiffs. Further, the Defendant admitted that it was still the owner of the Cargo. Indeed, as a matter of commercial practice, one would expect the Defendant to retain the ownership of the Cargo pending payment from its customer. As the price of the Cargo had yet been paid, the Defendant's admission that it was still the owner of the Cargo is probably right. Being the owner, the Defendant actually claimed, in the Letter to Dragon, that it was entitled to possession of the Containers and the Cargo. In such circumstances, the Containers were clearly lost while the same were in the possession or control of the Defendant or its agent, and I therefore accept that the Defendant is liable under clause 10(A) of the Seaway Bill for the 1st Plaintiff's loss.

Letter of Indemnity

14. In my judgment, the Defendant is likewise liable under clause 2 of the Letter of Indemnity, which reads as follows:

'[The Defendant] undertake and agree:

2. To indemnify [the 2nd Plaintiff] against all consequences and/or liabilities of any kind whatsoever directly or indirectly arising from or relating to the delivery of the cargo and/or to the issue of a further set in duplicate of the Bill of Lading.'

15. To oppose the Plaintiffs' claim in this regard, Mr. Ma argues that the Letter of Indemnity could not have been intended by the parties to cover the loss of the Containers. In his submission, in the case of a negotiable bill of lading, anyone who is the holder of the bill is entitled to take delivery of the goods. The carrier may, however, agree to deliver the goods to a person claiming to be entitled to them, without the production of the bill, against a letter of indemnity. Hence, his argument follows, the purpose of such letter is only to protect the carrier if it should turn out that the bill is in fact held by someone with a better right to it, or to the goods, than that of the person to whom delivery has been made. This is the sole purpose of a letter of indemnity, and such document could not have been intended by the parties to cover the loss of containers.

16. In support of his submission, Mr. Ma has also referred me to some legal authorities such as Kuwait Petroleum Corp. v. I & D Oil Carriers Ltd. ("the Houda") [1994] Lloyd's Rep 541 and Benjamin's Sales of Goods, 5 ed., para. 18-043. But in my judgment, the term 'letter of indemnity' is not a term of art, and so whether such document was intended by the parties to cover the loss of containers depends on the wordings of such document to be construed objectively. In other words, the purpose of a letter of indemnity has to be construed according to the facts of each individual case and the wordings of the document concerned. I agree with Mr. Ma that the main purpose of a letter of indemnity is one as submitted by him above, but there is nothing to prevent such document to cover the loss of containers if the wordings appeared therein say so. Indeed, in the modern commercial world where carriages of goods are done mainly through containers, it would be quite possible for parties to rely on properly drafted letter of indemnity to cover the loss of containers.

17. In my judgment, a literal interpretation of clause 2 of the Letter of Indemnity certainly supports that the Defendant is liable for the loss of the Containers. Such loss is, at the very least, 'indirectly arising from or relating to the delivery of the Cargo', and so the wordings of the Letter of Indemnity should be wide enough to cover the Plaintiffs' loss in the present case. The use of the words 'and/or' before the phrase 'to the issue of a further set in duplicate of the bill of lading' also suggests that the indemnity is not just restricted to the loss resulting from such cause. Hence, the Plaintiffs can also succeed on the second cause of action.

18. As a last attempt, Mr. Ma also tries to argue that there was no consideration to support the Letter of Indemnity. He refers me to the considerations stated in such document and submits that those considerations are in fact illusory. Further, as the Plaintiffs were contractually bound to deliver the Cargo to the Defendant, whether the latter produced the original Seaway Bill or not, there was indeed no necessity for the Defendant to sign the Letter of Indemnity. In other words, in issuing the Delivery Orders to the Defendant at its request, the Plaintiffs were only performing their existing contractual obligation under the contract of carriage contained in or evidenced by the Seaway Bill, and hence there was no consideration to support the Letter of Indemnity.

19. However, even assuming that it was not absolutely necessary in law for the Defendant to sign the Letter of Indemnity, that does not mean that there was no consideration to support such document. According to the undisputed facts of the present case, both parties, rightly or wrongly, accepted that it was a requirement for the Defendant to sign the Letter of Indemnity before the latter was entitled to take delivery of the Cargo. That was indeed a term of the agreement between them. In such case, the consideration for the Letter of Indemnity was that the Plaintiffs would issue the necessary Delivery Orders to enable the Defendant to obtain delivery of the Cargo. In my judgment, this already constituted sufficient consideration to support the Letter of Indemnity.

20. Further, assuming Mr. Ma's submission is correct and that the Plaintiffs were contractually bound to deliver the Cargo to the Defendant, the Plaintiffs, nevertheless, had no obligation to deliver the Containers to the Defendant. Hence, one of the considerations for the Letter of Indemnity was, therefore, the benefit to the Defendant to take delivery of the Cargo with the use of the Containers. In the premises, Mr. Ma's submission relating to the lack of consideration is also unsustainable.

Breach of duty as bailee or quasi-bailee

21. To oppose the Plaintiffs' claim on bailment, Mr. Ma argues that one of the essential elements giving rise to bailment, that is possession of the chattel, is missing in the present case. The evidence shows that TCT was the person who actually obtained physical possession of the Containers. As the Defendant did not at any time have actual or physical possession or control over the Containers, it should not be liable as bailee or quasi-bailee for the loss of the same.

22. To me, Mr. Ma's submission may lead to very absurd result. In the present case, it is common ground that, according to the agreed arrangement between the Plaintiffs and the Defendant, no person apart other the Defendant was entitled to obtain delivery of the Cargo and the Containers. This arrangement was also supported by clause 1 of the Letter of Indemnity and that the Seaway Bill was a non-negotiable one. Hence, if Mr. Ma's argument is correct, then despite such agreement between the parties, the Defendant can just find a stranger in the street to obtain delivery of the Containers. In the case that the Containers are lost, the Defendant can escape liability and the Plaintiffs can only sue that stranger, the identity of which may not even be known to the Plaintiffs. In my judgment, this cannot be right.

23. As I see it, the issue should be approached in the following manner. Firstly, as admitted by the Defendant, TCT was collecting the Containers as agent for the Defendant. Indeed, it is not open to the Defendant to argue otherwise. According to clause 1 of the Letter of Indemnity, the Defendant acknowledged that it was the only person entitled to take delivery of the Cargo and the Containers. It was in reliance of such document that the Delivery Orders were issued and given to the Defendant. Thus, for all purpose vis-à-vis the Defendant and the Plaintiffs, it was the Defendant who had collected the Cargo and the Containers through TCT with the use of the Delivery Orders. Further, according to the Defendant's Letter to Dragon, the Defendant admitted that it was the owner of the Containers and it retained title to the Cargo contained therein. In such circumstances, the Defendant was clearly in possession or entitled to possession of the Containers, and it is not open to the Defendant to escape liability by reason of the lack of physical possession.

24. Even if am wrong on the aforesaid, the Plaintiffs can also rely on the doctrine of 'quasi-bailment' to attach liability on the part of the Defendant. In Edwards v. Newland & Co. [1950] 2 KB 534 (CA), the defendant was held to become an insurer of the plaintiff's goods when he arranged for them to be warehoused by a third party, having never taken possession of the goods in person but having represented throughout to the plaintiff that the goods were in his hands. The English Court of Appeal found that the defendant was liable as a deviating bailee, and no significance appears to have been attached to the fact that the defendant had never been in possession. In reaching the said conclusion, Somervell LJ said the following at pp. 538 to 539 of the judgment:

'A contract to store is a contract of bailment under which the bailor transfers possession to the bailee, and the bailee is undertaking, as it seems to me, to take possession of the goods and exercise reasonable care in looking after them on the principles which have been laid down in the cases. Therefore, a man who has undertaken to be a bailee for storage and who never in fact acts as such a bailee, but gets somebody else to take possession of the goods, seems to me to be in breach of his contract ab initio.'

Tuck LJ also expressed his view on such issue at pp. 540 to 541:

'With regard to the first question, namely, the issue between the plaintiff and the defendants whether the latter, consistently with their contract with the plaintiff, could make a contract with a third party for the custody of these goods, I think it contrary to the very nature of a contract of bailment of the type known as "hire of custody" that the defendant, the so-called bailee, should be entitled to part with possession of the goods. He received the goods prime facie as a bailee, and he can only deal with them in accordance with the authority, express or implied, conferred upon him by the bailor. ............ Therefore, I think that in this case, there being evidence - though I think it was partly inferred - that there was a contract of bailment pure and simple, the moment it appeared that the defendants never had possession of the goods but merely arranged with someone else to fetch and store them, they had no answer to a claim after a lapse of time for the return of some of the goods which were not forthcoming. I think that is the view which the defendants themselves took of their duty and obligation, since it is clear from the correspondence that they were always at pains to give the impression to the plaintiff that they had charge of the goods themselves.'

25. Hence, the learned author of Bailment by Palmer, 2 ed,. tried to summarize the law at page 1353 of his book:

'The result produced by these two decisions [Edwards v. Newland & Co. and Thomas National Transport (Melbourne) Pty Ltd. v. May and Baker (Australia) Pty Ltd. (1966) 115 CLR 353 (decision of the High Court of Australia)] are reasonable, and the decisions themselves are of high authority. It is submitted that they justify an extension of the conventional rules of bailment, so as to impose a bailee's liability upon any party who has agreed to take possession of another's goods but has failed, through his own default, to do so. In such case, an agreement for a bailment should be as good as a bailment; and a party who misleads the owner of goods into thinking that he will take, or has taken, possession of these goods should not be allowed to rely upon his own wrongdoing (i.e. his failure to assume possession) to evade the traditional duties of a bailee. One of these duties is to refrain from parting with the goods unless authorized to do so. A breach of this duty should be followed by strict liability for succeeding losses, irrespective of whether the defendant has assumed a prior possession.'

26. In the present case, it is beyond doubt that: (i) the Defendant, by clause 1 of the Letter of Indemnity and by its own admission, always represented to the Plaintiffs that it would obtain possession of the Containers; (ii) the Plaintiffs had never authorized the Defendant to sub-bail the Containers (since the Defendant was the only person entitled to obtain the Containers); and (iii) the Defendant's failure to obtain possession of the Containers was the result of entirely its own acts. In such circumstances, and according to the authorities above, the Defendant owed the same duty as bailee to the Plaintiffs. As the Defendant has not provided any evidence to show that it had not been negligent for the loss of the Containers, the Plaintiffs' claim on bailment must therefore succeed.

27. In his final submission, Mr. Ma has also tried to argue that the 2nd Plaintiff, as it is not the owner of the Containers and has all along been acting only as an agent for the 1st Plaintiff, has no right to maintain a cause of action against the Defendant. But in my judgment, the law recognizes that the 2nd Plaintiff does, at least, have a sufficient interest to maintain an action on bailment. In identifying the bailor for the purpose of bailment, the learned author in Bailment by Palmer, 2 ed., said the following at p. 112:

'The position is relatively straightforward when the non-owner makes a direct delivery to the alleged bailee. The fact that the possessor has both accepted the goods from him and undertaken to return the goods to him will normally constitute the deliveror a bailor, irrespective of the existence of some ulterior party enjoying a full proprietary interest in the goods. At common law, as we have seen, the bailee is estopped from denying the bailor's title; there seems no reason to deny the estoppel in a case of this kind, especially since there is authority treating it as an implied term of the possessory relationship, and the relationship under consideration will be consensual if not contractual in origin.'

So far as the Defendant is concerned, the Containers were delivered to it by the 2nd Plaintiff, to whom it also undertook to return the same. In such circumstances, the law recognizes that the 2nd Plaintiff was a bailor for the purpose of the claim, and I therefore accept that it can maintain an action on bailment against the Defendant.

28. Based on the aforesaid, I find that the Plaintiffs can succeed on all 3 causes of the action, and I therefore granted judgment in their favour. By reason of the Defendant's concession that it would not dispute the quantum of the claim, Mr. Au for the Plaintiffs has not asked his clients to clarify the exact amount of the Plaintiffs' loss, though the supporting documents can be found in the Trial Bundle. In the stage of final submission, ambiguity relating to quantum arose as there were 2 alternative figures claimed by the Plaintiffs. However, as the Plaintiffs have not clarified the exact amount of their actual loss, probably because of the Defendant's concession, they are, in the case of ambiguity, only entitled to succeed on the lesser sum claimed in the Amended Statement of Claim. Indeed, Mr. Au accepted this and did not pursue for a higher quantum in his final submission.

29. Costs should follow the event, and I therefore ordered the Defendant to pay for the costs of this action. However, in the earlier Order 14 application, one Mr. Lam Chi Fai of the Defendant affirmed in his Affirmation that the Defendant had in fact surrendered the full set of the original bill of lading to the 2nd Plaintiff in exchange for the Delivery Orders. By reason of such factual allegation, the learned Master, according to her note of proceedings, accepted that there was a triable issue of fact. After the Order 14 hearing, the Defendant dropped such factual allegation, and from the evidence presented in the trial, it seems that there has been no dispute between the parties as to the facts of the present case. Although there is no conclusive evidence to show that the learned Master made her decision based on such incorrect factual allegation, it is beyond doubt that the learned Master has been misled. In my judgment, this is a very serious matter and the Defendant should therefore pay the costs after the Order 14 hearing on an indemnity basis. I therefore so ordered.